Daybreak Weekend: Central Bank Decisions, China's Economy, Congress in the New Year

This is Bloomberg day Break Weekend, our global look at 0:00:04.880 --> 0:00:06.800 the top stories in the coming week from our day 0:00:06.800 --> 0:00:09.840 Break anchors all around the world. Straight ahead on the program, 0:00:09.920 --> 0:00:13.079 some key economic points for investors. I'm Tom Busby in 0:00:13.119 --> 0:00:14.640 New York. I'll have that story. 0:00:14.800 --> 0:00:17.119 I'm Stephen Carolyn London, where we're looking ahead to a 0:00:17.200 --> 0:00:21.320 quadrupled bill of Central Bank decisions across Europe as policymakers 0:00:21.320 --> 0:00:24.000 trying to push back on the idea that right bugs 0:00:24.000 --> 0:00:24.440 are coming. 0:00:24.600 --> 0:00:28.040 I'm deg Prisner looking at China downshifting to a slower 0:00:28.080 --> 0:00:28.640 growth path. 0:00:28.840 --> 0:00:31.800 I'm Keilly Lines in Washington, where Congress is getting ready 0:00:31.800 --> 0:00:35.440 to wrap up their work twenty twenty three. 0:00:37.159 --> 0:00:41.239 That's all straight ahead on Bloomberg Daybreak Weekend. The business 0:00:41.280 --> 0:00:45.240 news you need to wrap up your week, Available on Apple, Spotify, 0:00:45.400 --> 0:00:50.800 the Bloomberg Business Appen everywhere you get your podcasts. 0:00:53.479 --> 0:00:55.640 Good day to you. I'm Tom Busby. We begin today's 0:00:55.680 --> 0:00:58.320 program with a big week for the economy. Not only 0:00:58.400 --> 0:01:00.800 will we get the Federal reserves fine I know, decision 0:01:00.800 --> 0:01:03.600 of the year on interest rates, We'll also get two 0:01:03.880 --> 0:01:06.880 key reports on inflation to help us break it all down. 0:01:06.920 --> 0:01:10.440 We're pleased to welcome Bloomberg International Economics and Policy correspondent 0:01:10.520 --> 0:01:16.280 Michael McKee and Bloomberg Intelligence Cheap US Rates strategist Ira Jersey. Now, 0:01:16.360 --> 0:01:19.679 let's start with those key data points coming on inflation, 0:01:19.880 --> 0:01:24.119 with November's Consumer price Index on Tuesday, the producer price 0:01:24.160 --> 0:01:27.640 Index on Wednesday, Ira, what are you expecting to see? 0:01:27.680 --> 0:01:31.399 We are expecting a reasonably high core print actually, and 0:01:31.440 --> 0:01:36.160 remember core inflation in CPI has been coming down pretty dramatically, 0:01:36.240 --> 0:01:38.240 but it looks like it might be in the process 0:01:38.240 --> 0:01:41.440 of stabilizing just a little bit under four percent, which 0:01:41.480 --> 0:01:44.240 is obviously not a good sign for the Fed Reserve 0:01:44.319 --> 0:01:47.160 and the idea that the feder Reserve is going to 0:01:47.200 --> 0:01:50.720 start cutting interest rates. And so I think that the 0:01:50.760 --> 0:01:53.680 CPI report is probably going to be the most meaningful 0:01:53.720 --> 0:01:57.440 report next week, at least for how the FED reacts 0:01:57.480 --> 0:02:00.280 to the current inflationary environm. 0:02:00.200 --> 0:02:01.680 And this comes before the Fed. 0:02:01.720 --> 0:02:04.000 Michael, this is the first day of the FED meeting, 0:02:04.000 --> 0:02:06.760 it's Tuesday. FED decision is on Wednesday, so it is 0:02:06.840 --> 0:02:10.000 new information for them that they will incorporate into their 0:02:10.040 --> 0:02:14.680 decision making. If the core doesn't move, it probably doesn't 0:02:14.720 --> 0:02:18.800 mean anything for this decision because the Fed is basically 0:02:18.840 --> 0:02:22.000 signaled they're going to stay on hold. The issue is 0:02:22.240 --> 0:02:26.280 do we see something in the composition of the CPI 0:02:26.480 --> 0:02:28.800 that would suggest one way or another that it will 0:02:29.120 --> 0:02:32.239 again start falling, or that it's going to stay where 0:02:32.240 --> 0:02:35.360 it is or even go up. One of the things 0:02:35.400 --> 0:02:39.760 that we have been watching is of course housing and 0:02:39.880 --> 0:02:44.840 housing costs, and they FED has expected housing as a 0:02:44.880 --> 0:02:48.760 component of CPI to fall more than it has and 0:02:49.200 --> 0:02:51.720 to slow more than it has. So if it doesn't 0:02:51.760 --> 0:02:55.920 move in this month, then we might get FED official 0:02:56.000 --> 0:03:00.800 starting to worry that if housing is not falling, inflation 0:03:00.960 --> 0:03:03.440 is going to stall out. So that's something to watch 0:03:03.440 --> 0:03:04.120 in the CPI. 0:03:04.480 --> 0:03:08.840 And there is no sign of home prices declining anywhere pretty. 0:03:08.639 --> 0:03:11.520 Much well we had home I mean, of course, rental 0:03:11.560 --> 0:03:16.520 prices are what make up the CPI housing numbers, and 0:03:16.600 --> 0:03:19.359 they were going down. They have started to go back 0:03:19.440 --> 0:03:22.920 up again. They get into the CPI with a big lag, 0:03:23.800 --> 0:03:27.480 sometimes as much as a year, and so we don't 0:03:27.520 --> 0:03:29.680 know where we are in that lag process. We could 0:03:29.680 --> 0:03:32.519 see housing continue to fall for another couple of months 0:03:32.560 --> 0:03:36.960 before higher rates, higher rental rates start pushing it up again. 0:03:37.360 --> 0:03:39.880 So that's the open question for the FED is they're 0:03:39.960 --> 0:03:44.320 they're expecting this drop in housing and it hasn't happened yet. 0:03:44.320 --> 0:03:47.400 And housing is about thirty percent of the CPI, so 0:03:47.720 --> 0:03:49.440 it makes a big difference. 0:03:49.240 --> 0:03:51.880 IIRA, where do you see at housing falling in and 0:03:51.920 --> 0:03:54.880 what other aspects of the CPI are going to be 0:03:54.920 --> 0:03:56.480 important to the Fed on Tuesday? 0:03:56.920 --> 0:03:59.280 Yes, So what's interesting is we were just looking at 0:03:59.360 --> 0:04:02.680 this past week with Eric Adelberg, who's our mortgage strategist, 0:04:03.200 --> 0:04:08.080 and it is that twelve month lag between house prices 0:04:08.120 --> 0:04:11.320 and rental prices and UH and the owner's equivalent rent 0:04:11.320 --> 0:04:15.080 component of CPI is about that right number. And you know, 0:04:15.120 --> 0:04:17.560 you've certainly seen, you know, a little bit of a 0:04:17.600 --> 0:04:22.120 moderation in things like rents and and obviously that that 0:04:22.279 --> 0:04:24.560 is one of the key components. But what I've been 0:04:24.560 --> 0:04:28.320 focused on in most of these reports and CPI in particular, 0:04:28.960 --> 0:04:31.960 but also the not as much retail sales but in 0:04:32.000 --> 0:04:34.839 the overall consumer spending report is what's going on in 0:04:34.839 --> 0:04:37.400 the services market, right, So, so there's been a big 0:04:37.440 --> 0:04:41.000 disconnect in CPI between food and energy prices and then 0:04:41.080 --> 0:04:43.440 core goods what we call core core goods, so that's 0:04:43.480 --> 0:04:47.040 goods excluding energy, and then in core services so again 0:04:47.120 --> 0:04:50.240 it services excluding energy services. And when when you look 0:04:50.279 --> 0:04:53.120 at that service inflation continues to run at a pretty 0:04:53.120 --> 0:04:57.080 decent clip. It's really goods prices that have moderated quite 0:04:57.080 --> 0:04:59.839 a lot, with things like shipping costs coming back into 0:05:00.600 --> 0:05:04.880 you know, historical pre pandemic kind of ranges and also 0:05:05.080 --> 0:05:08.800 just I think just a somewhat slowing of demand for goods, 0:05:09.000 --> 0:05:12.760 but service prices still remain reasonably high. So so I'm 0:05:12.760 --> 0:05:15.320 going to be focused on that stickier part of the 0:05:15.360 --> 0:05:20.040 CPI report and on on inflation on core services, even 0:05:20.120 --> 0:05:22.720 core services x housing which some people call the supercore, 0:05:23.839 --> 0:05:27.000 So because that has been sticky, right, and if that 0:05:27.040 --> 0:05:30.280 continues to run over three percent, then it's it's going 0:05:30.360 --> 0:05:32.320 to be more and more difficult for inflation to start 0:05:32.320 --> 0:05:34.600 coming down. In fact, you know, we've had anamog on 0:05:34.640 --> 0:05:37.320 the Bloomberg Economics team has called this like you know, 0:05:37.360 --> 0:05:39.640 the last the last mile, right, So getting this last 0:05:39.760 --> 0:05:41.719 like one hundred basis points one hundred and fifty basis 0:05:41.720 --> 0:05:44.040 points lower in inflation is going to be much more 0:05:44.040 --> 0:05:46.440 difficult than the first, say five percent was. 0:05:47.520 --> 0:05:49.240 And what do you see the next day in the 0:05:49.279 --> 0:05:53.359 PPI coming out? And I know, energy very volatile this 0:05:53.480 --> 0:05:57.960 last week that it wouldn't factor into the November numbers. 0:05:58.000 --> 0:05:59.320 But how does that play in? 0:05:59.680 --> 0:06:02.280 Yeah, PPI is likely to be a bit lower than 0:06:02.600 --> 0:06:06.640 CPI because remember PPI doesn't take into as much, you know, 0:06:06.720 --> 0:06:10.920 the domestic services costs, right, So so and CPI PPI 0:06:11.000 --> 0:06:13.480 final demand you know, certainly has been slowing, but you 0:06:13.520 --> 0:06:17.279 haven't seen that necessarily correlate with consumer prices quite as much, 0:06:17.520 --> 0:06:18.880 you know, you know, importantly, And I just want to 0:06:18.920 --> 0:06:20.760 go back to CPI just for half a second, because 0:06:20.800 --> 0:06:24.719 I think the market pricing of CPI right now is 0:06:24.760 --> 0:06:28.039 really interesting because we've actually come off where you know, 0:06:28.120 --> 0:06:30.480 for for the next ten years, the market's only expecting 0:06:30.560 --> 0:06:35.400 two point two percent inflation CPI inflation over the next decade. 0:06:35.440 --> 0:06:39.200 So the so for the FED, the market pricing certainly 0:06:39.320 --> 0:06:41.839 is not a concern. Of course, the market did a 0:06:41.839 --> 0:06:44.760 bad job in predicting the big run up in twenty 0:06:44.800 --> 0:06:48.520 twenty two inflation. It was the market was very late 0:06:48.560 --> 0:06:51.880 to that party. But nonetheless, people aren't going in and 0:06:51.920 --> 0:06:54.560 buying a ton of inflation hedges right now that you know, 0:06:54.640 --> 0:06:58.240 most of the most market participants seem to be pretty 0:06:58.240 --> 0:07:01.000 sanguine on the inflation environment, and in both CPI and 0:07:01.040 --> 0:07:03.560 PPI this week, if they come in kind of at 0:07:03.680 --> 0:07:06.359 or slightly below expectations, it is certainly going to be 0:07:06.520 --> 0:07:08.960 very good for the treasury market and you're going to 0:07:09.000 --> 0:07:11.720 see probably a pretty good rally in treasuries. 0:07:12.640 --> 0:07:15.720 Wow, now we have a CPI PPI and we moved 0:07:15.720 --> 0:07:19.240 to the FOMC also coming ahead this week. We did 0:07:19.280 --> 0:07:22.560 a lot of acronyms. Thank you for setting that up. 0:07:22.840 --> 0:07:25.960 Two meetings in a row, keeping the benchmark lending rate unchanged. 0:07:26.560 --> 0:07:29.200 What are you expecting the central bank policy makers to do? 0:07:29.360 --> 0:07:30.680 Why don't we start with Michael Well? 0:07:30.680 --> 0:07:32.000 I think the key thing that they're going to do 0:07:32.080 --> 0:07:34.480 is they put out their new economic forecasts, which lead 0:07:34.560 --> 0:07:37.720 to their new rate forecasts. And what the market's really 0:07:37.720 --> 0:07:39.360 going to want on the first thing the market's going 0:07:39.400 --> 0:07:41.320 to want to know after whether they moved or not, 0:07:41.360 --> 0:07:44.120 and they're not expected to move, is what does the 0:07:44.160 --> 0:07:46.880 dot plot say about twenty twenty four? Right now, we 0:07:47.000 --> 0:07:50.520 got five rate moves priced in by the futures market 0:07:50.680 --> 0:07:54.360 and about that in the swaps market. And the Fed 0:07:54.520 --> 0:07:57.640 had said in September that we'd see a rate cut 0:07:57.760 --> 0:08:00.720 or two next year, So there's a big differference between 0:08:00.840 --> 0:08:03.240 what the FED had been seeing and what the market 0:08:03.280 --> 0:08:07.320 now sees. So does the FED adopt the market view 0:08:07.320 --> 0:08:09.560 that they'll be cutting rates a lot next year, or 0:08:09.600 --> 0:08:12.640 do they stick with the idea that they're not going 0:08:12.680 --> 0:08:16.160 to cut rates a whole lot. That plot shows where 0:08:16.200 --> 0:08:17.680 the Fed thanks rates will be at the end of 0:08:17.680 --> 0:08:19.600 the year, so it won't give a clue about the 0:08:19.640 --> 0:08:24.200 timing unless there were multiple rate cuts in there, then 0:08:25.000 --> 0:08:27.600 people would start to try to figure out when they 0:08:27.600 --> 0:08:31.080 would do those to get the most banged out of 0:08:31.080 --> 0:08:34.640 the buck. We'll also see to pick up what Iira 0:08:34.840 --> 0:08:37.760 was saying, we'll see their new forecasts for inflation, and 0:08:37.800 --> 0:08:40.839 we'll see whether they think inflation is going to be 0:08:41.120 --> 0:08:42.959 coming down or remain sticky. 0:08:43.480 --> 0:08:43.720 Iira. 0:08:44.679 --> 0:08:44.880 Yeah. 0:08:44.880 --> 0:08:46.840 The SEP I agree, is probably going to be the 0:08:46.840 --> 0:08:50.199 most interesting thing in fact, the treasury market. Again to 0:08:50.240 --> 0:08:51.960 point you to a piece that we did just this 0:08:52.040 --> 0:08:56.400 past week about when the market moves during FED days, 0:08:56.440 --> 0:08:59.120 and it really moves the most when you get the 0:08:59.160 --> 0:09:02.520 summary of economic projections and the dreaded dot blot. So 0:09:02.520 --> 0:09:06.120 so if the dots move significantly both for the twenty 0:09:06.160 --> 0:09:09.480 twenty four dot and also potentially the longer run dot 0:09:09.520 --> 0:09:12.960 if either of those medians move meaningfully from where they 0:09:13.040 --> 0:09:16.800 were during the September Summary of Economic Projection. You know, 0:09:16.840 --> 0:09:18.959 I think we can reprice a lot of a lot 0:09:18.960 --> 0:09:23.920 of the rates markets repriced for cuts and or hikes. 0:09:24.440 --> 0:09:26.960 You know, I continue to be of the belief that 0:09:27.000 --> 0:09:29.800 the Fed Reserve is going to probably start cutting later 0:09:29.920 --> 0:09:32.880 than what the market's priced. So the market will likely 0:09:32.960 --> 0:09:36.640 continue to price for cuts sometime within the next say 0:09:36.679 --> 0:09:39.600 at the third meeting out from wherever we are, until 0:09:39.600 --> 0:09:44.200 they actually start cutting, even if those cuts are not materialized. 0:09:44.200 --> 0:09:47.480 So that creates an opportunity for investors to kind of 0:09:47.520 --> 0:09:51.120 fade that type of activity. Now that doesn't mean necessarily 0:09:51.160 --> 0:09:53.800 that you know, long term yields necessarily need to sell 0:09:53.840 --> 0:09:55.760 off and you wind up seeing ten year yields at 0:09:55.760 --> 0:09:58.160 five percent again or anything like that. But it does 0:09:58.280 --> 0:10:00.679 mean that the shape of a cur could shift a 0:10:00.720 --> 0:10:03.680 little bit where some of the recent of what we 0:10:03.720 --> 0:10:06.320 call bull steepening, so two year yields going down faster 0:10:06.400 --> 0:10:08.719 than ten year yields, some of that might reverse a 0:10:08.720 --> 0:10:11.640 little bit, especially if we're right and the Federal Reserve 0:10:12.080 --> 0:10:14.800 kind of takes some of the some of these cuts 0:10:14.840 --> 0:10:16.800 that are being priced off the table, and J Powell 0:10:16.840 --> 0:10:17.559 could do that well. 0:10:17.559 --> 0:10:20.920 Our thanks to Bloomberg International Economics and Policy correspondent Michael 0:10:21.000 --> 0:10:26.160 McKee and Bloomberg Intelligence Chief US rate strategist Ira Jersey. 0:10:26.360 --> 0:10:28.640 Coming up on Bloomberg day Break weekend, the Fed not 0:10:28.800 --> 0:10:31.600 the only one making an interest rate decision. Up next, 0:10:31.640 --> 0:10:34.600 we'll take you to Europe to preview two key central 0:10:34.600 --> 0:10:47.520 bank decisions. I'm Tom Busby, and this is Bloomberg. This 0:10:47.600 --> 0:10:49.880 is Bloomberg day Break weekend, our global look ahead at 0:10:49.920 --> 0:10:52.480 the top stories for investors in the coming week. I'm 0:10:52.520 --> 0:10:55.120 Tom Busby in New York. Up later in our program 0:10:55.120 --> 0:10:57.360 a look at the health of the Chinese economy. But 0:10:57.440 --> 0:11:01.559 first we just previewed the upcoming Federal Reserve decision. It's 0:11:01.600 --> 0:11:03.920 also a big week ahead for central banks in Europe, 0:11:03.920 --> 0:11:06.200 with both the Bank of England and the European Central 0:11:06.240 --> 0:11:09.920 Bank meeting on Thursday. Market bets on raid cuts by 0:11:09.920 --> 0:11:12.960 policymakers in London and Frankfurt have been ramping up, but 0:11:13.080 --> 0:11:16.719 there's more data coming in that could temper that enthusiasm 0:11:16.760 --> 0:11:19.600 for more. Let's go to London and bring in Bloomberg Daybreak. 0:11:19.600 --> 0:11:21.600 Europe Banker Stephen Carroll. 0:11:21.440 --> 0:11:24.720 Tom We're set for a quadruple bill of central bank 0:11:24.760 --> 0:11:28.560 meetings on Thursday in Europe. Monetary policy decisions expected in 0:11:28.600 --> 0:11:33.120 the UK, the euro Area, Switzerland and Norway now, although 0:11:33.120 --> 0:11:36.280 no interest rate changes are expected, given the ramping up 0:11:36.360 --> 0:11:39.280 of market bets over when the first cuts will come 0:11:39.559 --> 0:11:42.040 and how much central banks will cut by in twenty 0:11:42.120 --> 0:11:45.719 twenty four, every word will be parsed for signs of 0:11:45.800 --> 0:11:49.520 whether policymakers will be taking some festive cheer from the 0:11:49.600 --> 0:11:52.880 recent data. In the euro Area, the headline inflation rate 0:11:52.920 --> 0:11:56.679 has slowed faster than expected, to two point four percent 0:11:56.760 --> 0:12:00.240 in November. I've been looking ahead to the ECB Bank 0:12:00.280 --> 0:12:03.480 of England decisions with our chief europe economist, Jamie Rush. 0:12:03.600 --> 0:12:06.439 I started by asking him if, given that's lowing inflation 0:12:06.480 --> 0:12:09.520 in the euro Area, the ECB can consider it's race 0:12:09.600 --> 0:12:11.360 hiking mission a success. 0:12:11.440 --> 0:12:13.240 Well, I think the answer is kind of yes and no. 0:12:13.520 --> 0:12:16.280 So if you look at kind of broad strokes, then yeah, 0:12:16.320 --> 0:12:20.120 the ECB's basically done its job. So underlying inflation has 0:12:20.120 --> 0:12:22.880 been falling back for pretty much the last six months. 0:12:24.080 --> 0:12:27.560 The economy is pretty week. There's wage growth pretty weak 0:12:27.600 --> 0:12:29.960 as well, so I mean, what more is there to do. 0:12:30.000 --> 0:12:33.640 They've raised rates substantially, is having an effect. But I 0:12:33.640 --> 0:12:35.960 think when you look at the dig into the detail 0:12:36.720 --> 0:12:38.760 we are going to see over the next few months 0:12:38.800 --> 0:12:41.720 that it's quite a bumpy trajectory for inflation. As energy 0:12:41.760 --> 0:12:44.559 support measures are withdrawn and as base effects kind of 0:12:44.600 --> 0:12:47.320 have an impact on the December readings, we're going to 0:12:47.320 --> 0:12:49.760 see actually inflation is probably going to go back up 0:12:49.800 --> 0:12:51.680 to about three point two percent next month. 0:12:51.920 --> 0:12:54.719 And within of course the twenty countries in the Euro 0:12:54.840 --> 0:12:57.160 Area as well, are there ones that we could worry 0:12:57.200 --> 0:13:00.280 about that will drive part of that potential optic And 0:13:00.320 --> 0:13:03.480 if it's going to come back to a slightly higher level, well, I. 0:13:03.400 --> 0:13:05.960 Think we're immediately going to see that inflation is going 0:13:06.000 --> 0:13:09.199 to jump to four percent in Germany and in Spain 0:13:09.480 --> 0:13:12.679 we will see a similar size increase as well, so 0:13:12.720 --> 0:13:14.840 heading towards four and a half percent over the coming months. 0:13:14.840 --> 0:13:17.760 And again it's to do that energy withdrawal stuff. And 0:13:18.720 --> 0:13:21.160 Germany hasn't even said its budget for next year. That 0:13:21.200 --> 0:13:23.520 creates another risk that they have to kind of pull 0:13:23.559 --> 0:13:25.920 the rug under energy support measures even more, and that's 0:13:25.920 --> 0:13:28.480 going to push up inflation as energy bills go up 0:13:28.559 --> 0:13:31.640 so there is this kind of very near term risk 0:13:31.880 --> 0:13:34.959 around the path for inflation, and that could actually mean 0:13:34.960 --> 0:13:36.640 that the ECB is a little bit more cautious than 0:13:36.720 --> 0:13:37.600 people are expecting. 0:13:37.760 --> 0:13:40.840 What about the impact of the rate ikes on the 0:13:40.920 --> 0:13:43.160 economic performance of these countries. I've had data in the 0:13:43.160 --> 0:13:46.360 past few days, particularly looking at Germany's manufacturing sector in Dostri, 0:13:46.440 --> 0:13:49.840 of production weaker than expected, factory orders weaker than expected 0:13:49.880 --> 0:13:52.320 as well. How much of the pain has already been 0:13:52.320 --> 0:13:54.559 inflicted on these economies or is there more to come? 0:13:55.280 --> 0:13:58.000 Well, I mean, industrial production in Germany is exceptionally weak 0:13:58.040 --> 0:13:59.840 and it is going to drag on the economy, maybe 0:13:59.840 --> 0:14:02.160 take about zero point four percent off the level of 0:14:02.160 --> 0:14:04.600 GDP in the fourth quarter, So that's quite a lot. 0:14:05.320 --> 0:14:07.800 But I think when you look at what the models 0:14:07.840 --> 0:14:10.480 tell us the impact of montmed policy should be, it 0:14:10.480 --> 0:14:12.720 tells us that the hiking cycle should take about four 0:14:12.760 --> 0:14:15.760 percent off the level of GDP, and we haven't seen 0:14:15.800 --> 0:14:19.480 that yet, so I think we're probably somewhere around about 0:14:19.480 --> 0:14:23.200 halfway through the transmission of that. And actually the real 0:14:23.240 --> 0:14:25.560 mystery is why the economy is held up so well, 0:14:25.320 --> 0:14:28.160 not why it's so weak. So you know, that's actually 0:14:28.200 --> 0:14:30.120 one of the things that we're puzzling over as economists 0:14:30.120 --> 0:14:32.360 is why interest rates haven't tanked the economy in the 0:14:32.360 --> 0:14:33.040 way you'd expect. 0:14:33.160 --> 0:14:35.120 Yeah, and of course that's part of the dilemma facing 0:14:35.120 --> 0:14:37.400 central bankers as well. The markets are getting very excited 0:14:37.440 --> 0:14:41.720 already about interest rate cuts, particularly from the CB. How 0:14:41.760 --> 0:14:43.480 far away do you see them as being. 0:14:43.920 --> 0:14:46.440 Well, I think I think market pricing is probably a 0:14:46.480 --> 0:14:50.960 little bit overdone. The idea that you would raise interest 0:14:51.040 --> 0:14:53.840 rates as much as central banks have done and then 0:14:53.880 --> 0:14:56.800 immediately start cutting and we have to it just seems 0:14:56.960 --> 0:14:58.640 it seems a bit implausible to me, And I think 0:14:58.680 --> 0:15:02.200 it was described as fiction by one of the the ECB. 0:15:03.960 --> 0:15:08.120 Science fiction in fact, dismal science fiction perhaps, So yeah, 0:15:08.160 --> 0:15:11.520 it's kind of think I think, given that what the 0:15:11.720 --> 0:15:14.400 motives for the hikes, the hikes were to guard against 0:15:14.520 --> 0:15:18.360 persistent inflation, we haven't yet seen that that is completely 0:15:18.440 --> 0:15:20.840 under control. I'd be really surprised if the ECB jumps 0:15:20.880 --> 0:15:21.200 the gun. 0:15:21.560 --> 0:15:25.200 So how in your timing wise, when do you see 0:15:25.200 --> 0:15:26.320 the first rate card happening? 0:15:26.720 --> 0:15:28.840 So, I think I think March. I mean, we're going 0:15:28.880 --> 0:15:31.480 to finish our Christmas dinners and it's going to be March. 0:15:31.640 --> 0:15:35.840 So I think that's probably too soon. Our forecast is 0:15:35.840 --> 0:15:38.360 for the first cut in June. There's plenty of like 0:15:38.440 --> 0:15:41.760 ground ground lane before then. You know, there's a risk 0:15:41.840 --> 0:15:43.880 that if the economy turns out weaker than expected or 0:15:43.920 --> 0:15:46.120 inflation takes another dive down, then that could come a 0:15:46.160 --> 0:15:47.080 little bit sooner than June. 0:15:47.080 --> 0:15:49.600 Should expect that data dependency mantra to stay. Let's think 0:15:49.600 --> 0:15:52.560 about the Bank of England then, how different is the 0:15:52.600 --> 0:15:56.040 situation facing Andrew Bailey and colleagues in London versus that 0:15:56.160 --> 0:15:56.880 was in Frankfurst. 0:15:57.240 --> 0:15:59.320 I think it's completely different as has been As was 0:15:59.400 --> 0:16:03.479 kind of pretty clear from the outset here, the Eurozone 0:16:04.520 --> 0:16:07.080 didn't have the wages problem that the UK has. I mean, 0:16:07.120 --> 0:16:09.080 wages were growing at seven eight percent in the UK. 0:16:09.160 --> 0:16:10.880 That just has not been a feature of the Eurozone 0:16:10.960 --> 0:16:15.000 labor market that's created this huge influence on the kind 0:16:15.000 --> 0:16:18.080 of second round effects on inflation in the UK. So 0:16:18.280 --> 0:16:20.680 bank has a bigger problem. They've had to hype rates 0:16:20.680 --> 0:16:23.640 by a bit more they felt compelled to, and therefore 0:16:23.760 --> 0:16:25.160 they're going to have to cut a little bit later 0:16:25.240 --> 0:16:28.600 as well. And that's I think that's an inevitability. 0:16:28.920 --> 0:16:31.640 So what about the inflation trajectory for the UK is 0:16:31.640 --> 0:16:35.440 so the risk of the same bumpy trajectory from here 0:16:35.640 --> 0:16:38.240 when we think about where things are looking into next. 0:16:38.200 --> 0:16:41.000 Year, Yeah, I mean I think it's we're going to 0:16:41.000 --> 0:16:43.840 see bumps along the way. But again the general picture 0:16:43.880 --> 0:16:46.280 I think is downward. We have some things which we 0:16:46.360 --> 0:16:48.920 know are pushing down, like and the kind of withdraw 0:16:49.080 --> 0:16:52.160 the energy price shock is obviously passing through the economy. 0:16:52.520 --> 0:16:55.320 Goods inflation that's coming down as well, so you know, 0:16:55.360 --> 0:16:57.200 things are kind of moving the right direction. I mean, 0:16:57.240 --> 0:16:59.040 the big question is what happens to the services because 0:16:59.040 --> 0:17:01.000 of this wages problem, And we know that in the 0:17:01.040 --> 0:17:03.320 services sector wages is a huge part of the costs 0:17:03.880 --> 0:17:05.800 and so that is probably what the banking is going 0:17:05.840 --> 0:17:08.679 to be focusing on to be as a measure of 0:17:08.680 --> 0:17:10.880 whether it's done its job and whether rates can come down. 0:17:11.119 --> 0:17:13.440 Looking at the trajectory for wages though as well, does 0:17:13.440 --> 0:17:16.200 that mean that we will see more real terms wage 0:17:16.240 --> 0:17:20.200 increases as inflation slows, but perhaps the momentum remains behind 0:17:20.359 --> 0:17:21.720 and wage growth. 0:17:21.920 --> 0:17:25.840 Yeah, I mean, as if prices starts to fall then 0:17:25.920 --> 0:17:28.040 then yeah, we will start to see that real incomes 0:17:28.040 --> 0:17:32.040 are recovering I mean, prices haven't really changed a huge 0:17:32.040 --> 0:17:34.280 amount for the past six months anything, but when the 0:17:34.280 --> 0:17:36.680 actual energy price shock hits, I mean, we've all started, 0:17:36.720 --> 0:17:38.639 we've all paid. The level of prices is up. That 0:17:38.640 --> 0:17:41.760 hasn't changed. The higher level of prices is going to 0:17:41.760 --> 0:17:44.280 be something that stays with us. The inflation rate will 0:17:44.320 --> 0:17:45.840 come down a bit, but that's not going to provide 0:17:45.880 --> 0:17:49.119 a huge amount of support to spending. So obviously I 0:17:49.119 --> 0:17:52.080 think it's it's unlikely that as inflation heads down, we're 0:17:52.119 --> 0:17:54.479 going to get a huge revival of consumption, especially with 0:17:55.280 --> 0:17:57.159 uncertainty how the outlook about as it is. 0:17:57.280 --> 0:18:00.520 That was our chief europe economist, Jamie Rush. I've as 0:18:00.520 --> 0:18:03.840 been getting a market's perspective on this from Daniel Cassali, 0:18:03.920 --> 0:18:07.920 who's an investment strategist at Evelyn Partners. We talked about 0:18:08.040 --> 0:18:11.919 how markets are processing the expectations of rate cuts. When 0:18:11.960 --> 0:18:15.040 I started by asking him when he expects to see 0:18:15.119 --> 0:18:16.200 the ECB move. 0:18:16.520 --> 0:18:18.520 It's likely to happen probably in the first half of 0:18:18.840 --> 0:18:21.720 next year, or maybe possibly later. Is really a question 0:18:21.840 --> 0:18:24.240 or catamouse here between who cuts first, is at the 0:18:24.359 --> 0:18:27.360 US or is it the ECB. I think the main 0:18:27.359 --> 0:18:29.719 message here is the fact that interest rates have certainly 0:18:29.760 --> 0:18:32.399 peked and likely to come down, and that probably means 0:18:32.400 --> 0:18:35.119 that the risk of an economic hard landing where central 0:18:35.119 --> 0:18:38.959 banks race rates too aggressively is probably significantly reduced, and 0:18:39.000 --> 0:18:40.879 that the likelihood is now that we may now have 0:18:41.200 --> 0:18:45.080 a soft economic landing, which means probably less likelihood of 0:18:45.080 --> 0:18:45.680 a recession. 0:18:46.080 --> 0:18:48.320 So how does that look then for your outlook for 0:18:48.840 --> 0:18:52.960 investment opportunities If the soft landing narrative is taking holds, 0:18:53.320 --> 0:18:54.920 how do you think you're going to see opportunities in 0:18:54.960 --> 0:18:56.080 the first half of next year. 0:18:56.280 --> 0:18:58.560 Well, I think if we do have this soft landing, 0:18:58.600 --> 0:19:00.920 which means growth holds up, and also the fact that 0:19:00.960 --> 0:19:03.639 you might have lower inflation along with the possibility of 0:19:03.800 --> 0:19:06.359 interest rate cuts, it probably means we might get some 0:19:06.400 --> 0:19:09.720 of that rotation coming out of the AI theme into 0:19:09.760 --> 0:19:11.840 other areas of the market, in other words, a broadening 0:19:11.920 --> 0:19:13.919 out of the market, and that could include things like 0:19:13.960 --> 0:19:17.120 small cat and unloved areas such as energy. It still 0:19:17.160 --> 0:19:19.359 means that the overall equity market would still likely increase 0:19:19.440 --> 0:19:22.600 because it'll start surpricing less risk of an economic hard landing. 0:19:23.240 --> 0:19:25.439 So it does tell us that if we do have 0:19:25.480 --> 0:19:29.040 a soft economic landing, it's probably going to be constructive stocks. 0:19:29.400 --> 0:19:32.440 So that was Daniel Cassali Investment Stratus that Evelyn Partner 0:19:32.440 --> 0:19:34.680 is speaking to me on Bloomberg Radio. And of course 0:19:34.720 --> 0:19:36.800 we will have full coverage of all of these Central 0:19:36.880 --> 0:19:40.600 Bank decisions this week. I'm Stephen Caroll in London. You 0:19:40.600 --> 0:19:43.920 can catch us every weekday morning here for Bloomberg Daybreak Europe, 0:19:43.960 --> 0:19:46.800 beginning at six am in London and one am on 0:19:46.880 --> 0:19:47.600 Wall Streets. 0:19:47.640 --> 0:19:50.960 Tom Hard thanks to Bloomberg Daybreak Europe Banker Stephen Carroll, 0:19:51.000 --> 0:19:53.200 and coming up on Bloomberg day Break weekend, we take 0:19:53.240 --> 0:19:55.919 you to Asia to see how the Chinese economy is 0:19:55.920 --> 0:19:59.439 doing in this post COVID world. I'm Tom Busby and 0:19:59.520 --> 0:20:12.080 this is Bloomberg. I'm Tom Busby in New York with 0:20:12.119 --> 0:20:14.400 your global look ahead at the top stories for investors 0:20:14.400 --> 0:20:17.880 in the coming week. The Chinese economy struggling this year 0:20:17.880 --> 0:20:20.760 in its post COVID recovery. For months, the optimists have 0:20:20.800 --> 0:20:23.840 been hoping for signs of a turning point. Could there 0:20:23.960 --> 0:20:27.080 be a glimmer of improvement in the week ahead. Bloomberg 0:20:27.160 --> 0:20:29.920 Daybreak Asia co host Doug Krisner has a preview. 0:20:30.240 --> 0:20:32.520 Tom. It's been tough to make the case that the 0:20:32.520 --> 0:20:35.280 worst is over for the Chinese economy. Just last week, 0:20:35.560 --> 0:20:38.880 Moody's cut its outlook for Chinese sovereign bonds to negative. 0:20:39.160 --> 0:20:39.320 Now. 0:20:39.320 --> 0:20:41.880 The firm pointed to risk like the use of debt 0:20:41.920 --> 0:20:45.240 to support local governments, as well as a spiraling downturn 0:20:45.280 --> 0:20:48.480 in the property market. In the coming week, Beijing will 0:20:48.480 --> 0:20:52.080 be reporting monthly economic activity for the month of November, 0:20:52.119 --> 0:20:55.520 so we'll have industrial production and retail sales among the 0:20:55.560 --> 0:20:58.480 data points. Both of those figures are expected to rise 0:20:58.520 --> 0:21:02.640 from October levels. What are these readings really telling us, Well, 0:21:02.720 --> 0:21:07.159 let's ask Eric Ju. He is Bloomberg's economist covering China 0:21:07.280 --> 0:21:10.159 and Hong Kong. Eric joins us from our studios in 0:21:10.240 --> 0:21:13.359 Hong Kong. Eric, thanks for being with us. Obviously, the 0:21:13.440 --> 0:21:16.359 economy is facing many problems right now, but I'm wondering 0:21:16.400 --> 0:21:20.080 if all of this fits under the broad heading of 0:21:20.280 --> 0:21:23.720 weak sentiment. Is that the biggest problem right now affecting China? 0:21:24.520 --> 0:21:28.040 I think yeah, I think you know. In terms of data, 0:21:28.119 --> 0:21:31.159 I can start with you next week's activity data. I 0:21:31.160 --> 0:21:35.320 think the headline number will look quite rosy. It's accelerating 0:21:35.359 --> 0:21:39.120 from October, but we probably we don't need to read 0:21:39.160 --> 0:21:41.920 too much into those year and year figures. But remember 0:21:42.080 --> 0:21:45.960 we have a very depressed level last year when China 0:21:46.040 --> 0:21:50.520 was struggling, you know, at initie of COVID reopening. So 0:21:51.000 --> 0:21:54.240 I think it's more What would be more interesting will 0:21:54.359 --> 0:21:57.640 be watched for is the months and months figures, probably 0:21:57.640 --> 0:21:58.800 for next week's reading. 0:21:58.960 --> 0:22:02.359 So you're talking about retail sales here or industrial production 0:22:02.480 --> 0:22:02.840 or both. 0:22:03.320 --> 0:22:06.960 I think both will be accelerating on year and year numbers, 0:22:07.040 --> 0:22:10.520 but that won't tell you much about the underlying so 0:22:10.680 --> 0:22:13.919 weak momentum. If you look at PMI data, if we 0:22:13.960 --> 0:22:17.600 look at those high frequency numbers we are tracking, actually 0:22:17.600 --> 0:22:21.560 we will see production and both consumption still looks quite 0:22:21.880 --> 0:22:25.920 weak in November, even considering we have some working day 0:22:25.920 --> 0:22:29.639 boost compared to the holiday in October. So yeah, so 0:22:29.680 --> 0:22:33.080 you might see quite strong headline year on year figures, 0:22:33.160 --> 0:22:35.920 but that don't tell you in the underlying truth. 0:22:36.280 --> 0:22:38.840 We'll also get data on fixed asset investment, and we 0:22:38.960 --> 0:22:42.680 know the story with direct or foreign direct investment. It's 0:22:42.680 --> 0:22:45.680 down sharply, and that's an area that President She attempted 0:22:45.680 --> 0:22:49.000 to address during the recent APEX summit. How difficult will 0:22:49.040 --> 0:22:52.639 it be to get foreign capital to flow back into China. 0:22:53.160 --> 0:22:57.000 I think it's a big ask and I think the 0:22:57.040 --> 0:23:00.320 government still needs I think the president she mentioned in 0:23:00.440 --> 0:23:04.160 his US trip that the government will think about will 0:23:04.200 --> 0:23:08.520 implement more heart warming, right, so called heart warming measures 0:23:08.560 --> 0:23:13.200 to attract investors back to China. But I think it's 0:23:13.000 --> 0:23:15.200 a it's a couple of reasons why it's it's quite 0:23:15.240 --> 0:23:19.119 difficult right now. So some obvious challenges, you know, the 0:23:19.200 --> 0:23:22.360 jeopity risk rising. So I think for some foreign business 0:23:22.480 --> 0:23:27.160 it's not investing in China. It's not only not purely 0:23:27.240 --> 0:23:30.480 you know, business or e comedy decision, it's sometimes also 0:23:30.480 --> 0:23:33.600 a political decision. Right. We hear some business that they 0:23:33.640 --> 0:23:37.160 are forced out of at least partially, you know, out 0:23:37.160 --> 0:23:41.000 of China. It's not only it's not entirely a business decision. 0:23:41.080 --> 0:23:44.160 But so I think on that front, China probably it's 0:23:44.240 --> 0:23:46.959 it's China cannot do much about that because it's not 0:23:47.160 --> 0:23:51.080 purely you know, something China can control. But at the 0:23:51.080 --> 0:23:53.760 same time, we think what China can can do, what 0:23:53.880 --> 0:23:58.040 China can boost those confidence, is they try to promote 0:23:58.040 --> 0:24:01.800 growth in China. Right have to you know, lift the 0:24:01.920 --> 0:24:06.600 overall sentiment the including both market and also also business 0:24:06.640 --> 0:24:10.879 sentiment overall, and if the China can bring those growth 0:24:11.040 --> 0:24:14.800 a healthy and more sustainable long term growth back, I 0:24:14.840 --> 0:24:18.920 think the business would still see opportunity in China. 0:24:19.000 --> 0:24:21.480 We'll also get the jobless figure. And this is interesting 0:24:21.560 --> 0:24:25.480 because for several months now Beijing has not been reporting 0:24:25.480 --> 0:24:27.560 youth unemployment and I believe the last time that we 0:24:27.640 --> 0:24:30.679 had a reading it was well above twenty percent. Obviously, 0:24:30.720 --> 0:24:32.840 that's a major issue and I think for many in 0:24:32.880 --> 0:24:36.199 the government deeply concerning is there any way that the 0:24:36.240 --> 0:24:39.400 government can address this problem? Are they doing something about it? 0:24:39.520 --> 0:24:42.760 Yeah? I think right now. I heard a story that 0:24:43.240 --> 0:24:46.600 you know, some some local governments they are they're tasked 0:24:46.760 --> 0:24:50.480 with creating some maybe temporary job tunited for for those 0:24:50.560 --> 0:24:54.160 young people fresh graduates. They can you know, get some 0:24:54.160 --> 0:24:57.480 some some jobs in local level, very local level, you know, 0:24:57.560 --> 0:25:01.800 those townships, those village of government, and it's not well paid, 0:25:01.960 --> 0:25:05.080 but still that give them some opportunity at least to 0:25:05.240 --> 0:25:09.240 delay those unemployment, right, So, trying to give some more experience. 0:25:09.480 --> 0:25:11.480 But I think that's such something the government trying to 0:25:11.520 --> 0:25:13.800 stabilize in the near term, but I think in the 0:25:13.840 --> 0:25:17.720 longer term it's that they have to think hard about 0:25:18.119 --> 0:25:20.639 what would be opportunities for those young people. 0:25:20.880 --> 0:25:22.880 So when you look at the trade story, I'm wondering 0:25:23.240 --> 0:25:26.719 the extent to which the slowdown that's happening globally and 0:25:26.800 --> 0:25:30.600 in many economies, whether you're talking about developed economies let's 0:25:30.640 --> 0:25:34.000 say Europe, the United States, to a lesser extent, Australia, 0:25:34.520 --> 0:25:38.600 whether the weakness there that's manifesting is is contributing to 0:25:39.000 --> 0:25:44.080 a significant drag in the export space for China, is it? Yeah? 0:25:44.119 --> 0:25:48.240 I think this year it's harder for the expert in China. 0:25:48.280 --> 0:25:52.080 I think that the external demand has been quite weak, 0:25:52.160 --> 0:25:55.120 and given our expectation that globe economy will further slow 0:25:55.200 --> 0:25:57.560 down next year, I don't think we're going to see 0:25:57.560 --> 0:26:02.199 a very quick pickup in trade in exports in the 0:26:02.240 --> 0:26:05.959 new term. Of course, the headline numbers might get better. 0:26:06.200 --> 0:26:09.480 That's again that's some basic facts due to a low 0:26:09.600 --> 0:26:12.119 levels last year. But I think if you look at 0:26:12.160 --> 0:26:15.640 amongts and amounts, look at sequential momentum, we haven't seen 0:26:15.720 --> 0:26:21.800 a very strong signal that those shipping orders foreign demand 0:26:21.840 --> 0:26:23.280 are picking up quickly. 0:26:23.440 --> 0:26:26.199 When you look at the property sector, it counts for 0:26:26.200 --> 0:26:29.560 about twenty percent of GDP. I don't know whether that 0:26:29.560 --> 0:26:32.960 figure will be consistent as we move into the new year. 0:26:33.119 --> 0:26:36.080 But do you see anything that can be done to 0:26:36.080 --> 0:26:39.119 turn around the property market that the government could still 0:26:39.160 --> 0:26:40.680 do that it hasn't done already. 0:26:40.840 --> 0:26:43.440 First of all, I don't think it's a government's talcke 0:26:43.600 --> 0:26:46.320 that to turn around the property I think that's that's 0:26:46.400 --> 0:26:49.520 initiated by the government. They're trying to reduce the reliance 0:26:49.560 --> 0:26:52.080 of the economy and property sector. I think at the 0:26:52.160 --> 0:26:56.360 height it's like one court of the e colony. It's 0:26:56.440 --> 0:26:59.320 already down to like twenty percent this year, and the 0:26:59.400 --> 0:27:04.000 probably will continue to be reduced. I think that's a 0:27:04.640 --> 0:27:07.280 long term or median term goal of the government that 0:27:07.359 --> 0:27:10.959 they try to make economy rely less on property and 0:27:11.040 --> 0:27:16.240 also reducing the financial risk related to property bubbles. But 0:27:16.280 --> 0:27:19.800 the thing is you rely less on property and what 0:27:20.080 --> 0:27:23.120 other sectors you can find out to feel the holes 0:27:23.320 --> 0:27:24.200 left by property. 0:27:24.280 --> 0:27:27.560 Well, I'm confused because if the PBOC is lowering interest 0:27:27.640 --> 0:27:32.280 rates largely to help lower mortgage rates, isn't there some 0:27:32.359 --> 0:27:35.280 acknowledgment that the property market are Recovery in the property 0:27:35.280 --> 0:27:38.240 market is necessary as a way of improving sentiment and 0:27:38.320 --> 0:27:40.320 then helping to support growth. 0:27:40.680 --> 0:27:43.600 No, I don't think the market rates is helping much. 0:27:43.640 --> 0:27:46.399 I think that the fundamental problem in the property market 0:27:46.440 --> 0:27:49.760 that people are losing confidence, that they don't think the 0:27:50.000 --> 0:27:53.440 market in a booming at all. So in the longer term, 0:27:53.440 --> 0:27:56.399 in mediate term, they're expecting more correction in the market, 0:27:56.520 --> 0:27:59.600 pricess will further jobs. So no one is willing to 0:27:59.720 --> 0:28:02.720 enter market right now, even if there's a real demand, 0:28:02.960 --> 0:28:05.720 you know, for for property. So I think, you know, 0:28:06.480 --> 0:28:10.520 lower mortgage rates, you know, relaxing the purchase it's not 0:28:10.560 --> 0:28:12.399 going to It's going to help on the margin, but 0:28:12.520 --> 0:28:15.960 probably won't help much. It's not because people people are 0:28:15.960 --> 0:28:18.439 not buying because the costs are too high. People are 0:28:18.480 --> 0:28:21.560 not buying just then they no longer you know, have 0:28:21.640 --> 0:28:22.959 confidence in the market. 0:28:23.080 --> 0:28:24.600 So before I let you go, I want to ask 0:28:24.600 --> 0:28:26.960 you about the new year twenty twenty four. Is it 0:28:27.000 --> 0:28:28.720 going to be a repeat of what we have seen 0:28:28.920 --> 0:28:31.120 in twenty three so far? 0:28:31.359 --> 0:28:34.920 I would say we haven't seen a big game changer 0:28:35.040 --> 0:28:38.640 for next year, So our baseline would be like trying 0:28:38.640 --> 0:28:42.440 to continue to model through so with some public increase, 0:28:42.480 --> 0:28:46.320 the public investment stimulus, trying to offset the drag from 0:28:46.760 --> 0:28:51.080 mitigate the drag from property slam. So we haven't seen 0:28:51.200 --> 0:28:54.040 a big confidence lifter so far. But the way you're 0:28:54.080 --> 0:28:56.520 thinking is the government can come up with, you know, 0:28:57.040 --> 0:29:01.560 more substantial, you know, measures to trying to revive those 0:29:01.920 --> 0:29:04.840 confidence and a sentiment that would be a helpful lot. 0:29:04.960 --> 0:29:06.480 Eric will leave it there. Thank you so much for 0:29:06.520 --> 0:29:08.440 being with us in helping us set up the week 0:29:08.440 --> 0:29:11.840 ahead for the Chinese economy. Eric Hu is a Bloomberg 0:29:11.840 --> 0:29:15.280 economist covering at China and Hong Kong. Joining us from 0:29:15.320 --> 0:29:18.040 our studios in Hong Kong. I'm Doug Prisner. You can 0:29:18.120 --> 0:29:21.360 join Brian Curtis and myself weekdays here for Bloomberg day 0:29:21.360 --> 0:29:24.680 Break Asia, beginning at seven am in Hong Kong, six 0:29:24.760 --> 0:29:26.120 pm on Wall Street. 0:29:26.160 --> 0:29:28.320 Tom all right, thanks to Bloomberg day Break Asia co 0:29:28.400 --> 0:29:31.280 host Doug Crisner, and coming up here on Bloomberg day 0:29:31.280 --> 0:29:34.920 Break Weekend. It's the last week of work for Congress 0:29:35.080 --> 0:29:39.080 before the holiday break. Can that body get anything accomplished 0:29:39.080 --> 0:29:42.360 by year's end? I'm Tom Busby, and this is Bloomberg. 0:29:52.400 --> 0:29:54.840 This is Bloomberg day Break Weekend, our global look ahead, 0:29:54.880 --> 0:29:57.440 the top stories for investors in the coming week. I'm 0:29:57.480 --> 0:30:00.240 Tom Busby in New York still a few weeks left 0:30:00.280 --> 0:30:02.840 in the year, but not for Congress. With just one 0:30:03.080 --> 0:30:06.400 final week of work before the holiday break, can lawmakers 0:30:06.440 --> 0:30:08.120 get anything done this week? 0:30:08.400 --> 0:30:08.600 Well? 0:30:08.640 --> 0:30:10.640 For more, let's head to our Bloomberg ninety nine one 0:30:10.720 --> 0:30:13.680 news room in Washington and Bloomberg Sound On co host 0:30:13.880 --> 0:30:15.240 Kaylee Lines Yeah. 0:30:15.320 --> 0:30:17.640 Tom. The end of the working year is coming quickly 0:30:17.720 --> 0:30:20.640 for Congress, as both the House and the Senate will 0:30:20.680 --> 0:30:23.520 go home for the holidays lead this coming week, and 0:30:23.720 --> 0:30:26.640 it's not really clear whether they'll be able to accomplish 0:30:26.760 --> 0:30:29.320 much with their last few days in Washington of twenty 0:30:29.360 --> 0:30:32.040 twenty three. Joining us now with more is Megan Scully, 0:30:32.080 --> 0:30:35.920 who helps lead Bloomberg's congressional coverage. So, Megan, they have 0:30:35.960 --> 0:30:38.640 a lot left on their to do list, supplemental funding, 0:30:38.760 --> 0:30:41.280 a border security deal that perhaps needs to go with 0:30:41.320 --> 0:30:44.360 that in order for Ukraine and Israeli to get through, 0:30:44.880 --> 0:30:47.600 you have to try to get maybe some appropriations matters 0:30:47.680 --> 0:30:50.320 buttoned up so you don't have a shutdown. Does any 0:30:50.320 --> 0:30:53.200 of that have a material chance of being accomplished before 0:30:53.240 --> 0:30:54.760 they go home for their holiday break. 0:30:55.080 --> 0:30:59.760 I think the appropriations matters are effectively shelved until January. 0:31:00.200 --> 0:31:04.000 The focus right now is on Ukraine and the border 0:31:04.040 --> 0:31:08.200 security package that they're trying to meld together, but even 0:31:08.240 --> 0:31:13.400 that seems unlikely of getting through both chambers before they 0:31:13.480 --> 0:31:16.960 leave for the congressional recess. One of one leading House 0:31:17.000 --> 0:31:19.880 Republican at the end of the week said he thought 0:31:19.920 --> 0:31:22.600 the chances were near zero that that would actually get 0:31:22.600 --> 0:31:23.640 done well. 0:31:23.640 --> 0:31:25.360 So it becomes a question of whether it can get 0:31:25.440 --> 0:31:27.680 done at all. If it doesn't happen in twenty twenty three, 0:31:27.840 --> 0:31:30.000 how much harder or easier will it be to get 0:31:30.040 --> 0:31:31.440 done in twenty twenty four. 0:31:31.720 --> 0:31:33.960 I think the key to all of this is Speaker 0:31:34.000 --> 0:31:38.200 Mike Johnson. There's been so much talk about Senate Democrats 0:31:38.200 --> 0:31:41.560 and Republicans negotiating a deal on border security, which is 0:31:41.600 --> 0:31:44.520 not related to Ukraine at all, but would unlock the 0:31:44.680 --> 0:31:47.560 Ukraine funding. Essentially, we get a deal on the border, 0:31:47.560 --> 0:31:51.520 then we can move on Ukraine and one big package 0:31:51.840 --> 0:31:54.880 in the House, though it is much trickier. You have 0:31:55.120 --> 0:31:59.160 ultra conservatives, the hardliners who throughout former Speaker Kevin McCarthy, 0:31:59.400 --> 0:32:03.960 who oppose Ukraine aid, and they've said they could maybe 0:32:03.960 --> 0:32:05.680 go along with it, or at least turn a blind 0:32:05.720 --> 0:32:08.360 eye to it if they passed the border first, and 0:32:08.560 --> 0:32:11.480 if the border, if they see a significant reduction in 0:32:11.520 --> 0:32:14.880 border crossings, that means that would take time, and that 0:32:14.920 --> 0:32:18.200 would mean Ukraine Aid would pass much later. There's plenty 0:32:18.200 --> 0:32:21.400 of support in the House for getting Ukraine Aid over 0:32:21.440 --> 0:32:25.880 the finish line. But does Speaker Johnson want to risk 0:32:26.000 --> 0:32:30.040 his job by infuriating his right flank in order to 0:32:30.080 --> 0:32:31.320 do so well? 0:32:31.440 --> 0:32:31.520 That? 0:32:31.760 --> 0:32:34.920 I feel like is always the question we've asked, especially 0:32:35.000 --> 0:32:37.680 when he passed a continuing resolution early on in his 0:32:37.720 --> 0:32:41.320 speakership with Democratic support, which is basically the exact same 0:32:41.360 --> 0:32:45.080 thing that Kevin McCarthy got outsted because of Also interesting 0:32:45.320 --> 0:32:47.960 that now it seems we're back to this idea when 0:32:47.960 --> 0:32:51.600 we think about appropriations of the debt sealing deal from 0:32:52.000 --> 0:32:54.959 what six months ago actually being the top line numbers 0:32:55.240 --> 0:32:57.360 we're going to go with. Speaker Johnson sent out a 0:32:57.360 --> 0:32:59.880 Dear Colleague leutter this past week that said, it's the 0:33:00.200 --> 0:33:03.840 off the land the Fiscal Responsibility Act. So even if 0:33:03.840 --> 0:33:06.000 this Ukraine and border stuff is getting harder, does that 0:33:06.080 --> 0:33:09.400 actually mean the actual budget might be easier Because we're 0:33:09.400 --> 0:33:11.040 going to stick with the top line numbers we already 0:33:11.080 --> 0:33:11.480 agreed to. 0:33:11.760 --> 0:33:15.360 We're still early yet so we have six weeks to go. 0:33:15.600 --> 0:33:17.520 You know, it's a two step shut down, right. We 0:33:17.600 --> 0:33:21.360 have the January nineteenth for many of the federal agencies, 0:33:21.360 --> 0:33:23.760 but the Defense Department, which is half of all federal 0:33:23.800 --> 0:33:28.520 discretionary spending, doesn't actually shut down until February. Second, I 0:33:28.600 --> 0:33:31.560 think that there's a lot of time for things to 0:33:31.600 --> 0:33:35.040 go right or looking at this Congress, go wrong in 0:33:35.120 --> 0:33:37.800 the next six weeks, and the devil's going to be 0:33:37.840 --> 0:33:40.400 in the details in terms of coming to an agreement, 0:33:40.840 --> 0:33:43.880 even if they can agree to adhere to those top 0:33:43.960 --> 0:33:47.160 line levels, and it seems as though even the hard 0:33:47.240 --> 0:33:49.360 right is willing to go along with that. Right now, 0:33:49.720 --> 0:33:52.640 it's a matter of where that money actually goes, programmed 0:33:52.680 --> 0:33:55.760 by program and that's where we could see the fight 0:33:55.960 --> 0:33:58.320 really start to percolate in January. 0:33:58.640 --> 0:34:01.800 All right, Megan Scully, who ups lead Bloomberg's congressional coverage. 0:34:01.960 --> 0:34:04.040 Not sure we are feeling much more optimistic after this 0:34:04.120 --> 0:34:07.160 conversation that stuff's going to get done before the year 0:34:07.240 --> 0:34:09.800 is over. But twenty twenty four it's always somewhat of 0:34:09.840 --> 0:34:13.080 a new start. Thank you so much, and Tom, Happy 0:34:13.120 --> 0:34:13.879 almost new year. 0:34:13.960 --> 0:34:16.680 I guess, thank you, Kaylee. That was Bloomberg's Sound On 0:34:16.840 --> 0:34:19.719 co host Kaylee Lines, reporting from our Bloomberg ninety nine 0:34:19.719 --> 0:34:22.240 to one newsroom in Washington. And you can hear sound 0:34:22.280 --> 0:34:25.000 on weekdays one to three pm Wall Street Time on 0:34:25.040 --> 0:34:27.920 Bloomberg Radio. And that does it for this edition of 0:34:27.920 --> 0:34:30.759 Bloomberg day Break Weekend. Join us again Monday morning at 0:34:30.800 --> 0:34:32.920 five am Wall Street Time for the latest on the 0:34:32.920 --> 0:34:35.960 market's overseas and the news you need to start your day. 0:34:36.320 --> 0:34:39.280 I'm Tom Buzzby. Stay with us. Top stories and global 0:34:39.280 --> 0:34:42.239 business headlines are coming up right now.