Daybreak Weekend: Fed Preview, BOE Decision, China Data

Bloomberg Audio Studios, Podcasts, radio news. 0:00:10.720 --> 0:00:13.080 This is Bloomberg day Break Weekend, our global look at 0:00:13.119 --> 0:00:15.400 the top stories in the coming week from our Daybreak 0:00:15.400 --> 0:00:17.959 anchors all around the world, and straight ahead on the program, 0:00:18.040 --> 0:00:21.400 a big decision about interest rates from the Federal Reserve, 0:00:21.600 --> 0:00:23.680 plus a look at corporate earnings from the world's biggest 0:00:23.680 --> 0:00:27.200 sportswear company, Nike. I'm Tom Busby in New York. 0:00:27.440 --> 0:00:29.760 I'm Caroline Hepge here in London, where we're looking at 0:00:29.760 --> 0:00:32.480 the next Bank of England decision and how fast rates 0:00:32.520 --> 0:00:33.200 may come down. 0:00:33.479 --> 0:00:37.200 I'm Doug Prisner looking at whether China's autumn stimulus will 0:00:37.240 --> 0:00:37.880 bear fruit. 0:00:38.479 --> 0:00:42.680 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.720 --> 0:00:46.600 eleven three on New York, Bloomberg ninety nine to one, Washington, DC, 0:00:47.040 --> 0:00:51.920 Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Sirius 0:00:52.080 --> 0:00:55.440 XM one twenty one, and around the world on Bloomberg Radio, 0:00:55.520 --> 0:00:57.640 dot Com and the Bloomberg Business Act. 0:01:02.600 --> 0:01:04.440 Good day to you. I'm Tom Busby, and we begin 0:01:04.520 --> 0:01:07.960 today's program with the Federal Reserve. The Federal Open Market 0:01:08.000 --> 0:01:10.479 Committee will wrap up a two day meeting this Wednesday, 0:01:10.760 --> 0:01:15.120 expected to issue its next monetary policy decision on interest rates, 0:01:15.160 --> 0:01:16.959 and for more and what to expect. We're joined by 0:01:16.959 --> 0:01:22.120 Michael McKee, Bloomberg International Economics and Policy correspondent. Michael, thank 0:01:22.160 --> 0:01:25.120 you for being here. It looks like all the stars 0:01:25.120 --> 0:01:28.640 have aligned for the Fed to once again cut interest rates. 0:01:28.800 --> 0:01:30.240 Is that what you're expecting to see? 0:01:30.480 --> 0:01:33.080 That is what we are expecting to see. A couple 0:01:33.120 --> 0:01:37.279 of data points late in the week last week raised 0:01:37.280 --> 0:01:41.520 some questions. One was the rise in the PPI stronger 0:01:41.560 --> 0:01:44.720 than expected, but a lot of that was due to 0:01:44.840 --> 0:01:48.760 just food prices. And then jobless claims came in high, 0:01:48.800 --> 0:01:51.320 but that was the week after Thanksgiving, and of course 0:01:51.520 --> 0:01:55.120 everybody took two days off during Thanksgiving week, so people 0:01:55.160 --> 0:01:58.000 didn't file. So once you look through those things and 0:01:58.040 --> 0:02:02.840 you look at where CPI came in and the stuff 0:02:02.880 --> 0:02:07.160 that goes into the PCE report, which is the Fed's 0:02:07.200 --> 0:02:11.040 inflation measure, it looks like we're still making progress on 0:02:11.120 --> 0:02:15.440 inflation some and the labor market doesn't seem to be 0:02:15.440 --> 0:02:17.959 in terrible trouble. So the Fed has made it clear 0:02:18.040 --> 0:02:20.560 under those circumstances they want to cut rates. 0:02:20.760 --> 0:02:25.000 Well, let's talk about inflation, because we've made tremendous progress 0:02:25.040 --> 0:02:27.919 since a high of over nine percent June of twenty one, 0:02:28.040 --> 0:02:31.520 but it seems to have stalled at four months in 0:02:31.520 --> 0:02:34.919 a row of three point three percent increase in inflection. 0:02:34.960 --> 0:02:36.480 I mean, what's behind that stall? 0:02:36.880 --> 0:02:39.800 You're talking about the CPI numbers. And in the CPI 0:02:39.960 --> 0:02:42.360 things that had been going up went down, things that 0:02:42.440 --> 0:02:44.760 had been going down went up. It's sort of the 0:02:45.200 --> 0:02:49.560 usual volatility. There was some good news in the CPI 0:02:49.680 --> 0:02:52.400 report and that owner's equivalent rent, which is the strange 0:02:52.400 --> 0:02:56.560 way the government measures housing costs, went down to just 0:02:56.600 --> 0:03:00.560 a two tense game. That's the smallest since January of 0:03:00.560 --> 0:03:04.639 twenty twenty one. Fed's been waiting for housing to slow down, 0:03:04.639 --> 0:03:09.840 housing prices to slow down, and that may be finally happening, 0:03:09.840 --> 0:03:11.799 and if that's the case, we should pick up steam 0:03:12.240 --> 0:03:16.280 in inflation coming down. But the FED also predicted some 0:03:16.400 --> 0:03:19.320 months ago that we would run into this, that not 0:03:19.360 --> 0:03:21.720 only would it be a bumpy path, but that we 0:03:21.760 --> 0:03:24.240 would see the year or a year rate go up 0:03:24.720 --> 0:03:28.000 because we saw it go down earlier in the year, 0:03:28.040 --> 0:03:33.240 and the base effects change just mechanically pushes it higher. 0:03:33.480 --> 0:03:36.000 So they're not too worried about that at this point. 0:03:36.560 --> 0:03:40.119 But you mentioned earlier about food prices, and anyone who 0:03:40.200 --> 0:03:43.840 was setting a table for Thanksgiving will tell you it's unbelievable. 0:03:44.000 --> 0:03:49.160 That's the case. The interesting thing was this year's Thanksgiving basket. 0:03:49.960 --> 0:03:53.800 According to several economists who do this sort of thing, 0:03:53.840 --> 0:03:56.440 they go out and they price all the ingredients that 0:03:56.520 --> 0:03:59.080 you put into your Thanksgiving table, it was the cheapest 0:03:59.120 --> 0:04:02.200 in years. Actually went down in price this year. But 0:04:03.200 --> 0:04:08.640 PBI showed a big rise in egg prices this past month, 0:04:08.680 --> 0:04:11.760 and that was much of the reason that the PPI 0:04:11.840 --> 0:04:17.440 headline came in strong. We've had bird flu exploding around 0:04:17.480 --> 0:04:23.000 the West especially, and we're seeing a lot of price 0:04:23.200 --> 0:04:27.560 increases for eggs in recent months. August July was also 0:04:27.640 --> 0:04:30.560 a fifty five percent rise like it was last month. 0:04:30.880 --> 0:04:32.760 Because of that, they're just are you know, the chickens 0:04:32.760 --> 0:04:36.560 are dying, So egg prices went up, and that's one 0:04:36.560 --> 0:04:39.240 of the reasons that the Fed and others used the 0:04:39.279 --> 0:04:42.640 core rate because there's not a lot monetary policy is 0:04:42.680 --> 0:04:44.559 going to do about the bird flu. 0:04:44.880 --> 0:04:50.000 Yeah, yeah, that's frightening. Another consideration the labor market you mentioned, 0:04:50.160 --> 0:04:53.880 and we saw a big turnaround from October to November 0:04:54.000 --> 0:04:57.919 in ads to two hundred and twenty seven thousand. So 0:04:58.240 --> 0:05:02.240 is this something that FED expected to see. Is it's okay, 0:05:02.279 --> 0:05:04.480 now we're back to normal, or is it you know? 0:05:05.480 --> 0:05:08.120 And it looked like that was just an operation in October. 0:05:08.279 --> 0:05:11.279 Well, we don't know, because we did have a very 0:05:11.279 --> 0:05:14.280 small job creation in October in part because of the 0:05:14.400 --> 0:05:19.039 hurricanes and the Boeing strike, and so payback was expected. 0:05:19.320 --> 0:05:22.720 And if you take out the number of jobs from 0:05:22.760 --> 0:05:25.760 both of those things, estimate the hurricane effect, you get 0:05:25.760 --> 0:05:28.240 about one hundred and fifty five hundred and sixty thousand jobs, 0:05:28.240 --> 0:05:30.320 which is kind of right in line with what we 0:05:30.440 --> 0:05:33.360 had been seeing. So yeah, you could argue it's kind 0:05:33.400 --> 0:05:35.440 of back to where it was. We also saw a 0:05:35.480 --> 0:05:39.520 slight tick up in the unemployment rate because in the 0:05:39.560 --> 0:05:43.440 household survey a lot of jobs were lost. That's always 0:05:43.480 --> 0:05:46.400 volatile and hard to figure out, but it is the 0:05:46.560 --> 0:05:49.200 indicator that FED watches for a sign that the economy 0:05:49.400 --> 0:05:52.400 is slowing. But a rise to four point two percent 0:05:52.600 --> 0:05:55.560 in November is still below the four point four they 0:05:55.600 --> 0:05:57.839 predicted for the end of the year. So thus we 0:05:57.880 --> 0:06:00.880 get a big rise in December will come in lower 0:06:00.920 --> 0:06:03.479 than they thought, so they look at it the labor market, 0:06:03.520 --> 0:06:06.000 and they're saying it's still strong enough. 0:06:06.360 --> 0:06:06.560 Well. 0:06:06.600 --> 0:06:09.400 Federal Reserve policymakers wrapping up their final meeting of the 0:06:09.480 --> 0:06:12.440 year this Wednesday, a decision expected around two pm Wall 0:06:12.480 --> 0:06:16.400 Street time. Our thanks to Michael McKee, Bloomberg International Economics 0:06:16.400 --> 0:06:19.920 and Policy correspondent. We move now to the athletic footwear 0:06:19.920 --> 0:06:23.200 and sports apparel giant Nike, the Dow component, reports second 0:06:23.240 --> 0:06:26.800 quarter earnings on Thursday, the first report under new CEO 0:06:27.040 --> 0:06:30.159 Elliott Hill. For more on how those results may have 0:06:30.240 --> 0:06:34.760 been impacted by macroeconomic headwinds, plus an early read on 0:06:34.800 --> 0:06:38.880 holiday sales hopefully. We're joined by Kim Bassin, Bloomberg senior 0:06:38.920 --> 0:06:42.080 reporter covering sportswear. Kim, thank you so much for joining us. 0:06:42.680 --> 0:06:45.040 Let's start with what you're expecting to see in Nike's 0:06:45.080 --> 0:06:47.120 earnings this week and why. 0:06:47.680 --> 0:06:50.680 Nike's earnings this week are going to be pretty interesting. 0:06:50.880 --> 0:06:54.240 So they're going through a transitional period right now with 0:06:54.360 --> 0:06:59.240 a new CEO who just started in October, and so 0:06:59.520 --> 0:07:02.960 far we haven't heard what the plan is, right, It's 0:07:03.040 --> 0:07:04.719 unclear where this is going to go. So it seems 0:07:04.720 --> 0:07:08.880 that investors are just waiting patiently or inpatiently, I suppose 0:07:08.920 --> 0:07:12.280 depends on the investor. But it looks like they're just 0:07:12.280 --> 0:07:16.440 waiting to see what's gonna happen here. Right now, Nike 0:07:16.520 --> 0:07:19.080 sales have been down the last two quarters, and they 0:07:19.080 --> 0:07:23.280 are trying to figure out how to get demand back well. 0:07:23.520 --> 0:07:27.080 Executive Chairman Mark Parker told employees back in September around 0:07:27.160 --> 0:07:29.200 the time that Elliot Hill, just before he was named 0:07:29.920 --> 0:07:32.360 the brand will quote get back to doing what we 0:07:32.480 --> 0:07:36.200 do best, that's help athletes reach their potentials. So where 0:07:36.200 --> 0:07:39.120 did they go wrong or what happened? What miscues did 0:07:39.120 --> 0:07:42.120 they do that led to you know, several quarters in 0:07:42.120 --> 0:07:43.320 a row of lower sales. 0:07:43.400 --> 0:07:45.520 One of the biggest things that happened at Nike is 0:07:45.560 --> 0:07:48.760 that they over extended on three of the big product 0:07:48.840 --> 0:07:52.320 lines that Nike has. These are Air Force Ones, Air 0:07:52.480 --> 0:07:56.440 Jordan Ones, and Dunks. Now, these are lifestyle shoes, right, 0:07:56.480 --> 0:07:58.760 These are shoes not meant to be worn on like 0:07:58.800 --> 0:08:01.440 a basketball court or a football field or anything like that. 0:08:01.480 --> 0:08:02.920 It's it's for the sidewalk. 0:08:03.000 --> 0:08:07.080 And these these lifestyle shoes were real hot, like enduring 0:08:07.280 --> 0:08:10.520 and then out of the pandemic and they sold like 0:08:10.560 --> 0:08:12.760 crazy and they became I mean, these were these billion 0:08:12.760 --> 0:08:17.560 dollar product lines, right, but as trends changed over the 0:08:17.600 --> 0:08:20.880 last year, those shoes weren't selling like they used to, 0:08:21.280 --> 0:08:26.040 and Nike, back in its headquarters in Oregon, wasn't developing 0:08:26.280 --> 0:08:30.720 new products quickly enough to replace those shoes. So now 0:08:30.760 --> 0:08:34.760 they're figuring that out the the innovation pipeline at Nike, 0:08:34.880 --> 0:08:38.199 trying to rush new products out in order to replace 0:08:38.240 --> 0:08:38.680 those shoes. 0:08:38.720 --> 0:08:41.520 Well speaking, which Nike Direct has had some problems, right, 0:08:41.559 --> 0:08:45.280 this is their direct to consumer conduit not living up 0:08:45.320 --> 0:08:46.080 the expectations. 0:08:46.120 --> 0:08:50.600 Right, Nike spent the last several years basically shunning a 0:08:50.640 --> 0:08:53.640 lot of its retail partners. So back in twenty twenty 0:08:53.679 --> 0:08:56.960 one twenty two, it started to release them from we'll 0:08:57.000 --> 0:08:59.319 do this ourselves now, yeah, well we got this, We'll 0:08:59.320 --> 0:09:02.400 go through our own d DC channels. That's the Nike app, 0:09:02.440 --> 0:09:04.760 the Sneakers app where you get the drops all the time, 0:09:04.960 --> 0:09:08.679 and the Nike website. So they eliminated more than half 0:09:08.800 --> 0:09:12.880 of their retail partners, including so and they reduced shoes 0:09:12.960 --> 0:09:14.720 to some of the really really big ones, right, so 0:09:14.760 --> 0:09:17.600 like foot Lockers, one of the most important partners for Nike, 0:09:17.679 --> 0:09:19.720 and they reduced the number of shoes that were going 0:09:19.760 --> 0:09:23.480 over to foot locker, and that paid off for a while, 0:09:24.040 --> 0:09:27.720 but now they're reversing some of that and re engaging 0:09:27.760 --> 0:09:28.760 with those retail partners. 0:09:28.840 --> 0:09:29.080 Wow. 0:09:29.080 --> 0:09:33.120 Another misque the digital sneaker division Artifact. Right, they bought 0:09:33.120 --> 0:09:37.439 this company which doesn't sell sneakers, just sneakers in the metaverse, 0:09:37.480 --> 0:09:40.960 the digital world, and said, what are we doing here? 0:09:41.400 --> 0:09:46.160 Even though Elliott Hill, the new CEO, has not presented 0:09:46.160 --> 0:09:49.560 a plan yet, he has given hints, right, and this 0:09:49.640 --> 0:09:52.839 is one of those hints. When it comes to priorities 0:09:53.200 --> 0:09:55.440 and what this new CEO's priority is going to be, 0:09:56.080 --> 0:09:58.520 digital sneakers are not one of those priorities. So this 0:09:58.559 --> 0:10:00.760 is a company that they bought a few years ago 0:10:01.360 --> 0:10:05.560 under the old regime that makes virtual shoes for the metaverse. 0:10:05.600 --> 0:10:07.920 That was during the height of the non fungible token 0:10:08.000 --> 0:10:11.440 kind of thing that we had got the craze that 0:10:11.520 --> 0:10:13.880 was going on back in twenty twenty one, and so 0:10:14.000 --> 0:10:16.640 they're winding that down now. Another thing that they're doing 0:10:16.920 --> 0:10:20.760 is investing more in its outdoor business. So really quickly 0:10:20.840 --> 0:10:23.720 upon he'll being named CEO, a Nike sent a memo 0:10:23.760 --> 0:10:26.440 internally and said, we really want to invest in ACG 0:10:26.600 --> 0:10:30.000 it's called all Conditions gear. It's their outdoor business. So 0:10:30.000 --> 0:10:31.440 that's something they want to push going forward. 0:10:31.600 --> 0:10:34.079 Is that like more than just sneakers in apparel or. 0:10:33.880 --> 0:10:38.800 It's sneakers, it's apparel, it's outerwear, it's hiking things, camping, 0:10:39.040 --> 0:10:40.320 those kinds of outdoor products. 0:10:41.040 --> 0:10:43.760 Now, a lot of Americans are still spending, but lower 0:10:43.800 --> 0:10:46.680 way journers have had to pull back on their especially 0:10:46.720 --> 0:10:49.719 discretionary spending. We saw lower sales growth. That's some big 0:10:49.800 --> 0:10:53.240 chains like you mentioned, foot Locker, Target, Coals, Dick Sporting 0:10:53.240 --> 0:10:56.319 Goods did okay back to school, But do you think 0:10:56.360 --> 0:10:59.040 we'll see that slow down reflected in Nike's sales for 0:10:59.080 --> 0:10:59.840 the second quarter. 0:11:00.400 --> 0:11:02.680 Yeah, I think we will see that slow down in 0:11:02.760 --> 0:11:04.840 Nike sales. And we're we're I mean, we're seeing it 0:11:04.840 --> 0:11:08.000 across the board right now. The gap between back to 0:11:08.040 --> 0:11:12.840 school and holidays seemed problematic for a lot of retailers, 0:11:12.960 --> 0:11:16.160 even Dix Sporting Goods, which had done quite well last quarter. 0:11:16.480 --> 0:11:21.679 Early takes on Thanksgiving week have been fairly strong. So 0:11:22.360 --> 0:11:26.880 it's that it's that shortened selling time between Thanksgiving through 0:11:28.240 --> 0:11:32.760 Christmas that we're all focused on days shorter than normal. 0:11:32.600 --> 0:11:36.600 Shorter, but indications already that this Christmas season might be 0:11:37.040 --> 0:11:37.840 looking good. 0:11:37.840 --> 0:11:42.080 Might good, good enough? Maybe good under the circumstances. 0:11:42.080 --> 0:11:45.560 Well, we bashed Nike a little bit, but let's talk 0:11:45.600 --> 0:11:47.560 about some of the good things that they have going 0:11:47.600 --> 0:11:50.520 for him. Very recently, they just extent a long term 0:11:50.640 --> 0:11:55.440 partnership with the NFL exclusive supplier of uniforms, practice, jersey, sidelines, 0:11:55.440 --> 0:11:59.760 apparel all thirty two teams. Similarly the NBA, the WNBA, 0:11:59.840 --> 0:12:04.280 the So these must be tremendous showcases for Nike gear 0:12:04.320 --> 0:12:05.280 and apparel. 0:12:05.040 --> 0:12:09.400 Huge deals, and it provides this long term stability at 0:12:09.400 --> 0:12:11.120 a time where there's not a lot of long term 0:12:11.120 --> 0:12:14.199 stability at Nike. There's so many moving parts, there's so 0:12:14.280 --> 0:12:18.240 much going on. The strategy is changing as we speak. 0:12:18.559 --> 0:12:22.000 But these are huge deals for Nike. Right The NFL 0:12:22.120 --> 0:12:24.280 is so important, and I don't think they were ever 0:12:24.280 --> 0:12:26.360 going to lose that contract. Like they had to extend it, 0:12:26.440 --> 0:12:28.800 had to keep it. It's through twenty thirty eight, so. 0:12:28.800 --> 0:12:31.040 Especially with Taylor Swift now attending. 0:12:30.679 --> 0:12:35.920 Games, especially with Taylor Swift the Kansas City Chief games, absolutely. 0:12:35.400 --> 0:12:38.360 Well, it's big. Nike's Q two earnings out this Thursday 0:12:38.400 --> 0:12:42.199 are thanks to Kim Bassine, Bloomberg senior reporter covering sportswear. 0:12:42.360 --> 0:12:44.400 Coming up on Bloomberg day Break weekend, we look at 0:12:44.440 --> 0:12:47.680 this week's Bank of England decision and just how quickly 0:12:47.800 --> 0:12:49.200 rates may come down. 0:12:49.200 --> 0:12:49.440 There. 0:12:49.760 --> 0:13:03.520 I'm Tom Busby and this is Bloomberg. This is Bloomberg 0:13:03.559 --> 0:13:05.760 day Break Weekend, our global log ahead at the top 0:13:05.800 --> 0:13:08.800 stories for investors in the coming week. I'm Tom Busby 0:13:08.840 --> 0:13:11.280 in New York. Up later in the program we get 0:13:11.280 --> 0:13:14.240 the latest readings on the Chinese economy. But first, the 0:13:14.280 --> 0:13:17.880 Bank of England can cut borrowing costs five more times 0:13:17.920 --> 0:13:20.079 to a rate of three point five percent before running 0:13:20.080 --> 0:13:23.600 the risk of overheating the economy and reigniting inflation. That's 0:13:23.640 --> 0:13:26.280 the assessment of Bloomberg Economics, just ahead of the Central 0:13:26.280 --> 0:13:29.600 Bank's final meeting of twenty twenty four. So where does 0:13:29.600 --> 0:13:33.120 the Central Bank's neutral rate line after policymakers reverse the 0:13:33.160 --> 0:13:37.080 most aggressive rate hiking cycle in decades. Well, for more, 0:13:37.120 --> 0:13:39.000 we'll go to London and bring in Bloomberg day Break. 0:13:39.000 --> 0:13:41.319 Europe banker Caroline Hepgar. 0:13:41.520 --> 0:13:45.640 Tom Andrew Bailey has signaled that policymakers still believe four 0:13:45.760 --> 0:13:49.480 quarter point rate cuts next year is the most likely 0:13:49.559 --> 0:13:54.160 scenario for the Bank of England. Policymaker Swarti Dingra recently 0:13:54.200 --> 0:13:57.199 told Bloomberg that high interest rates in the UK are 0:13:57.200 --> 0:14:01.240 bearing down too heavily on the economy. The most duvish 0:14:01.440 --> 0:14:05.120 NBC member, she says that that's why the bank should 0:14:05.200 --> 0:14:10.000 be easing policy more. But Bloomberg Economics analysis suggests that 0:14:10.040 --> 0:14:14.520 policymakers may have less room than previously thought to cut 0:14:14.600 --> 0:14:18.800 interest rates before reigniting the flames of inflation once again. 0:14:19.200 --> 0:14:22.600 As central banks around the world continue cutting rates next year, 0:14:23.040 --> 0:14:26.680 debate about the end point for monetary policy and the 0:14:26.760 --> 0:14:30.640 easing cycle is likely to intensify. That's the verdict of 0:14:30.640 --> 0:14:35.960 Bloomberg's chief UK economist Dan Hanson. Central to the dilemma, though, 0:14:36.160 --> 0:14:41.280 is gauging where monetary policy neither restrains nor stimulates growth. 0:14:41.480 --> 0:14:45.160 That's known as the neutral rate. It's increasingly key for 0:14:45.240 --> 0:14:48.800 policymakers as they try to deliver a soft landing from 0:14:48.840 --> 0:14:52.280 the inflation shock of twenty twenty two and twenty twenty three. 0:14:52.840 --> 0:14:55.520 It's something Andrew Bailey has refused to be drawn on, 0:14:55.720 --> 0:14:58.360 other than to say that it will be higher than 0:14:58.440 --> 0:15:00.880 the near zero level of rap that we saw from 0:15:00.960 --> 0:15:05.360 two thousand and nine to twenty twenty one. Despite the 0:15:05.360 --> 0:15:08.520 governor's silence on the issue, It's a figure that the 0:15:08.600 --> 0:15:12.880 market is watching closely too. Nicola my portfolio manager and 0:15:12.920 --> 0:15:17.000 sovereign credit analyst at PIMCO, has told Bloomberg that the 0:15:17.080 --> 0:15:20.720 implications of the neutral rate are key for the guilt market. 0:15:21.560 --> 0:15:24.280 Look, we like guilts, you know, we've liked them for 0:15:24.320 --> 0:15:27.200 a while. If you look at what's priced in the market, 0:15:27.240 --> 0:15:29.600 you have a terminal rate of three point fifty or so, 0:15:29.680 --> 0:15:32.680 which is broadly aligned with the FED. That doesn't really 0:15:32.720 --> 0:15:34.640 make sense to me for an economy that has been 0:15:34.640 --> 0:15:37.640 a lot weaker than the US economy, where equilibri of 0:15:37.680 --> 0:15:40.360 interest rates are most likely lowered, given the fact that 0:15:40.440 --> 0:15:43.200 trend growth in the UKs is quite a bit lower 0:15:43.280 --> 0:15:44.080 than in the US. 0:15:45.200 --> 0:15:48.280 So I think guilts are going to perform now. 0:15:48.800 --> 0:15:50.600 I think that it's been a bit of a frustrating 0:15:50.680 --> 0:15:53.760 environment because we've been we and a lot of people 0:15:53.760 --> 0:15:55.840 in the market have been betting on the guilt out 0:15:55.840 --> 0:15:57.320 performance recently. 0:15:57.360 --> 0:15:58.400 It hasn't worked yet. 0:15:59.160 --> 0:16:02.120 I think the market still, you know, watching the inflation 0:16:02.280 --> 0:16:05.760 data carefully to see if this this inflation is actually happening, 0:16:06.560 --> 0:16:08.400 but I do expect it to happen, and I think 0:16:08.440 --> 0:16:08.880 this is a. 0:16:08.840 --> 0:16:10.480 Trade that will do well. 0:16:10.520 --> 0:16:12.600 Maybe we need a bit of patience in the near term, 0:16:12.600 --> 0:16:14.560 but I think guilds are attractive here. 0:16:14.720 --> 0:16:18.320 Yeah, absolutely, pretty big economics things. Growth next year is 0:16:18.320 --> 0:16:20.320 only going to come in about one and a half 0:16:20.320 --> 0:16:23.520 percent for the UK. Have all the easy gains been 0:16:23.680 --> 0:16:26.280 made on French oats. 0:16:26.560 --> 0:16:26.800 Yeah. 0:16:26.800 --> 0:16:29.520 Look, I think if you look at oats, you know 0:16:29.560 --> 0:16:32.080 they're trading about eighty basis points over boons, a bit 0:16:32.120 --> 0:16:34.960 wider than Spain. I think it's a reasonable level that 0:16:35.040 --> 0:16:38.520 will probably hold here in that you know you're going 0:16:38.600 --> 0:16:42.160 to have some fiscal slippage from from a starting point 0:16:42.200 --> 0:16:44.280 which is a pretty wide deficit. You know, it was 0:16:44.320 --> 0:16:47.680 six percent. You know there's probably going to be about 0:16:47.680 --> 0:16:50.120 six percent this year. It should fall a bit next year, 0:16:50.160 --> 0:16:53.920 but not much. And I think political uncertainty and volatility 0:16:54.000 --> 0:16:56.520 will remain elevated. Even if you have a government, it's 0:16:56.560 --> 0:16:59.280 going to be a hung parliament still, so I don't 0:16:59.320 --> 0:17:02.040 see much of a titaning going forward. 0:17:02.760 --> 0:17:04.760 So we're pretty neutral here on French spreads. 0:17:04.800 --> 0:17:07.120 I don't think this is a source of a sovereign 0:17:07.160 --> 0:17:10.479 crisis in the year zone, but I think France is 0:17:10.520 --> 0:17:12.960 probably going to settle it at a higher level versus 0:17:12.960 --> 0:17:15.240 compared to the past when it comes to spreads. 0:17:15.960 --> 0:17:18.320 Looking towards next years. Got the election in Germany as well. 0:17:18.359 --> 0:17:20.840 I mean, do you see a significant risk to the 0:17:21.359 --> 0:17:25.200 German outlook from that election? Not particularly, I mean I 0:17:25.680 --> 0:17:28.880 think that Germany it looks not great again with I mean, 0:17:28.880 --> 0:17:33.000 the German economy is struggling, there is no doubt, and 0:17:33.240 --> 0:17:35.560 I do think, if anything, there are some hopes that 0:17:35.600 --> 0:17:40.399 this government will engineer as somewhat easier fiscal stance. You know. 0:17:40.480 --> 0:17:43.880 The hope is that they're going to revise the fiscal 0:17:43.920 --> 0:17:48.080 straight jacket that that prevents any physical spending in Germany, 0:17:48.119 --> 0:17:50.200 the so called constitutional death break rule. 0:17:51.560 --> 0:17:53.080 You know, we see some potential for that. 0:17:53.119 --> 0:17:56.520 I think that would be positive for the German economy 0:17:56.520 --> 0:17:57.639 and for the region as a whole. 0:17:58.200 --> 0:17:59.000 But I would also. 0:17:58.920 --> 0:18:04.119 Temper expectations because I think that the physcal philosophy in 0:18:04.160 --> 0:18:07.040 Germany remains a pretty harkish one, a pretty conservative one. 0:18:07.440 --> 0:18:10.240 So while whilst some amusing as possible, i't I wouldn't 0:18:10.920 --> 0:18:12.639 bet on a huge change here. 0:18:13.359 --> 0:18:17.000 That was Nicola my portfolio manager and solteign Credit Alice 0:18:17.040 --> 0:18:21.720 at PIMCO speaking to Stephen Coroll and I on Bloomberg Radio. So, 0:18:22.080 --> 0:18:24.600 just how much easing can the Bank of England fit 0:18:24.760 --> 0:18:28.800 in before reaching that all important terminal rate. It's something 0:18:28.840 --> 0:18:32.320 I've been discussing with Bloomberg's chief UK economist Dan Hanson. 0:18:33.240 --> 0:18:36.760 At the moment, UK is heading for fingers crossed, a 0:18:36.880 --> 0:18:41.480 softish landing, and that's sort of given what we've been through, 0:18:41.760 --> 0:18:45.920 that's obviously a really positive story and to sort of 0:18:45.960 --> 0:18:49.560 deliver it, it's in sort of absent any other shocks. 0:18:49.560 --> 0:18:51.080 It's in the hands of the Bank of England in 0:18:51.119 --> 0:18:52.920 the sense that it needs to bring interest rates down 0:18:52.960 --> 0:18:56.879 by enough such that it doesn't strangle the recovery and 0:18:56.960 --> 0:18:59.639 strangle the economy, but not by too much such that 0:18:59.760 --> 0:19:04.040 it reignites inflation. As you said, So that's what economists 0:19:04.080 --> 0:19:06.240 call this concept of the neutral raid. It's it's the 0:19:06.320 --> 0:19:09.879 rate of interest, level of interest rates that neither speeds 0:19:09.960 --> 0:19:12.359 up nor slows down the economy and is consistent with 0:19:13.240 --> 0:19:16.400 inflation at two percent and the sort of economy humming 0:19:16.440 --> 0:19:17.800 along at full employment. 0:19:18.640 --> 0:19:19.600 So we've taken a stab. 0:19:19.760 --> 0:19:21.920 No one knows what it is and it moves through 0:19:21.960 --> 0:19:24.240 the passage of time, and it's very uncertain, but we've 0:19:24.240 --> 0:19:27.399 taken a stab at estimating it, and we think all 0:19:27.480 --> 0:19:29.440 of these things, as I say, they are uncertain. We've 0:19:29.560 --> 0:19:31.919 put out a range of between three and four percent, 0:19:32.320 --> 0:19:35.080 and I think coming into the tightening cycle, people would 0:19:35.080 --> 0:19:37.920 have said that's very high. The neutral rates probably quite 0:19:37.920 --> 0:19:40.120 a lot lower than that. I think over the past 0:19:40.200 --> 0:19:43.720 two years we've found out it's probably higher than people thought, 0:19:43.760 --> 0:19:46.160 and that's sort of the basis of why we sort 0:19:46.160 --> 0:19:46.920 of took a stab. 0:19:46.720 --> 0:19:47.240 At this question. 0:19:47.400 --> 0:19:49.760 And we we think over the course of the coming 0:19:49.840 --> 0:19:52.359 year that the banking and world cup rates further down 0:19:52.440 --> 0:19:54.440 to three point seventy five percent by the end of 0:19:54.480 --> 0:19:57.000 the year. But the question, I think is how much 0:19:57.040 --> 0:19:59.440 further they can go from there, and our estimates suggests 0:19:59.680 --> 0:20:01.720 not very far. And I think actually in the second 0:20:01.760 --> 0:20:03.959 half of the year, if the economy continues to hold up, 0:20:04.600 --> 0:20:06.840 there'll be a question amongst policymakers because there'll be a 0:20:06.920 --> 0:20:09.320 divergence of views there as well, there'll be a question 0:20:09.359 --> 0:20:11.760 about how much further interest rates fall as we move 0:20:11.800 --> 0:20:13.760 into the second half of the year. Conditioned on the 0:20:13.840 --> 0:20:16.120 idea that the economy continues to sort of hum along 0:20:16.160 --> 0:20:16.719 as it has been. 0:20:18.960 --> 0:20:22.040 That's interesting, I suppose why not. That is all to 0:20:22.119 --> 0:20:24.840 do with inflation, surely, and we've also put out them 0:20:25.160 --> 0:20:28.399 You've put up full cast for economic growth in the 0:20:28.520 --> 0:20:33.520 UK actually reasonably robust for next year by British standards. 0:20:35.200 --> 0:20:37.800 I'll add that caveat. But it's also all to do 0:20:38.000 --> 0:20:40.640 with inflation and the stickiness of inflation in the UK. 0:20:41.640 --> 0:20:43.520 Yeah, it is, And so the space to sort of 0:20:43.560 --> 0:20:48.280 bring interest rates down really quickly is limited because of 0:20:48.320 --> 0:20:50.840 the inflation picture over the course of the next year, 0:20:50.960 --> 0:20:53.040 which is that we think at least that inflation will 0:20:53.040 --> 0:20:56.080 remain above two percent, So that limits the scope to 0:20:56.200 --> 0:20:59.000 bring interest rates down really quickly. At the same time, 0:20:59.320 --> 0:21:01.960 we think the economy will grow a little bit faster 0:21:02.040 --> 0:21:03.960 than it did this year, so we think the economy 0:21:03.960 --> 0:21:06.920 will grow in annual terms point nine percent this year, 0:21:07.040 --> 0:21:09.080 next year one and a half percent. A lot of 0:21:09.160 --> 0:21:11.719 that is to do with the fiscal loosening in the budget, 0:21:12.600 --> 0:21:14.640 but actually the reason why inflation is going to remain 0:21:14.680 --> 0:21:16.840 above target is also because of that fiscal loosening in 0:21:16.880 --> 0:21:18.800 the budget and some of the policies that were in it. 0:21:19.040 --> 0:21:23.800 So there is this, there is this path down. I 0:21:23.880 --> 0:21:26.600 think it is going to be gradual, and as I 0:21:26.680 --> 0:21:29.880 say in the second half of I think the coming year, 0:21:30.160 --> 0:21:32.680 the question is going to be where do we stop 0:21:32.720 --> 0:21:35.119 absent a shock hitting the economy where the bank has 0:21:35.160 --> 0:21:37.760 to rethink everything. But I think if we continue on 0:21:37.840 --> 0:21:41.320 the current path, you know, there is this question to 0:21:41.400 --> 0:21:44.359 say in the second half about where the stopping point is. 0:21:45.240 --> 0:21:49.000 How much does the cycle that is seeing rate cuts 0:21:49.240 --> 0:21:52.879 of course in the US and Europe effect what is 0:21:52.920 --> 0:21:53.800 happening here in the UK. 0:21:54.560 --> 0:21:57.920 It's definitely important and the traditional thing that the traditional 0:21:58.000 --> 0:21:59.960 channel that people talk about is the exchange rate channel, 0:22:00.200 --> 0:22:03.080 but also particularly in the US, the UK is a 0:22:03.440 --> 0:22:05.960 price taker in financial market, so what happens in the 0:22:06.080 --> 0:22:10.840 US affects financial conditions here enormously. So it does matter 0:22:12.440 --> 0:22:15.560 historically though you look at the cycles of the FED 0:22:15.600 --> 0:22:17.600 and the Bank of England and they do diverge, and 0:22:17.720 --> 0:22:22.000 they can diverge quite dramatically. But I think for both 0:22:22.000 --> 0:22:24.240 at least, if you're thinking about the US and the 0:22:24.400 --> 0:22:28.720 UK economy, sort of broadly, the base case, the consensus 0:22:28.760 --> 0:22:31.439 at least is for a softish landing on both sides, 0:22:32.040 --> 0:22:35.240 Inflation on both sides of the Atlantic is sticky. There's 0:22:35.240 --> 0:22:37.800 obviously a bit of a difference with Europe and the 0:22:37.840 --> 0:22:42.919 New Area and the ECB interest rates. Our team think 0:22:42.960 --> 0:22:44.520 that we're going to go to neutral there. I think 0:22:44.560 --> 0:22:47.560 the market thinks that, which is on our estimates two percent, 0:22:47.680 --> 0:22:49.879 the market has rates going a little bit lower there. 0:22:50.320 --> 0:22:53.879 I think there are concerns about the economy in the 0:22:53.920 --> 0:22:55.480 EU Area a little bit more than there are in 0:22:55.560 --> 0:22:57.960 the US and the UK at the moment. But I 0:22:58.040 --> 0:23:01.320 don't think Obviously central banks look at each other and 0:23:01.400 --> 0:23:05.000 see what they're doing, but I don't think it's going 0:23:05.040 --> 0:23:07.200 to stop the Bank of England doing what it thinks 0:23:07.320 --> 0:23:09.960 is necessary for the for the UK economy and for 0:23:10.040 --> 0:23:13.560 the UK economy, the story has been relatively as you mentioned, 0:23:13.600 --> 0:23:16.480 they're relatively sluggish growth but also sticky inflation, so that 0:23:16.600 --> 0:23:19.399 calls for interest being relatively cautious about how far you 0:23:19.440 --> 0:23:20.320 lower interest rates. 0:23:21.520 --> 0:23:24.159 In recent days we've heard from banking and policy makers, 0:23:24.240 --> 0:23:27.320 including Swatty. Dinger has spoken to Big Television. What do 0:23:27.480 --> 0:23:29.919 you expect to hear from the Bank of England at 0:23:29.960 --> 0:23:33.040 their upcoming meeting? What do you think they might talk about? 0:23:33.560 --> 0:23:35.400 So I think this one is I mean, the market 0:23:35.480 --> 0:23:39.919 is pricing zero in terms of moves, there's no probability 0:23:39.960 --> 0:23:44.639 of any move, so it's and we only get the minutes. 0:23:44.920 --> 0:23:46.760 So I think the thing that they'll focus on is 0:23:46.840 --> 0:23:49.960 the national the rise in employer national insurance and what 0:23:50.119 --> 0:23:52.560 that could potentially mean for the outlook. That's the thing 0:23:52.640 --> 0:23:55.359 that Atlist Andrew Bailey has said is the biggest uncertainty, 0:23:56.119 --> 0:23:58.199 at least in the near term about the economic outlook 0:23:58.240 --> 0:24:01.160 and one of the reasons why they're they're moving gradually. 0:24:01.280 --> 0:24:04.080 So I think we've had little bits of evidence, early 0:24:04.160 --> 0:24:06.800 evidence from their decision maker panel, from the report on 0:24:07.000 --> 0:24:09.680 Jobs about how firms might be adjusting, and obviously we're 0:24:09.720 --> 0:24:13.840 getting company earnings reports as well that are telling us 0:24:13.880 --> 0:24:16.399 about how they're going to be adjusting to these to 0:24:16.840 --> 0:24:19.119 the rise in labor costs. So I think that's going 0:24:19.200 --> 0:24:21.120 to be the focus. I don't think they'll go near 0:24:21.280 --> 0:24:24.000 sort of for example, the question about tariffs and Trump. 0:24:24.119 --> 0:24:26.320 There's no need for them to sort of step into 0:24:26.400 --> 0:24:30.679 that step into that arena yet, so I think it's 0:24:30.760 --> 0:24:32.119 just going to be very much steady as you go. 0:24:32.400 --> 0:24:34.719 This is you know, this is what we said out 0:24:34.760 --> 0:24:36.479 in November, is that We're going to be cutting gradually 0:24:36.560 --> 0:24:38.160 and I think that's going to be the story here 0:24:38.200 --> 0:24:39.080 as well for December. 0:24:39.440 --> 0:24:42.760 My thanks as ever to Bloomberg's Chief UK economist Dan Hanson. Well, 0:24:42.800 --> 0:24:45.879 we'll have full coverage of the final Bank of England 0:24:46.240 --> 0:24:50.560 monetary policy decision, the meeting and the press conference on Thursday, 0:24:50.600 --> 0:24:53.560 the nineteenth of December right here on Bloomberg. I'm Caroline 0:24:53.600 --> 0:24:56.160 Hepget in London and you can catch us every weekday 0:24:56.240 --> 0:24:58.960 morning for Bloomberg Daybreak. You at beginning at six am 0:24:59.040 --> 0:25:01.119 in London. That's one am on Wall Street. 0:25:01.320 --> 0:25:04.720 Tom, Thanks Caroline, and coming up on Bloomberg day Break Weekend, 0:25:04.760 --> 0:25:08.480 the latest data on China's economy. I'm Tom Busby and 0:25:08.600 --> 0:25:22.280 this is Bloomberg. This is Bloomberg day Break Weekend, our 0:25:22.320 --> 0:25:24.560 global look ahead at the top stories for investors in 0:25:24.600 --> 0:25:27.520 the coming week. I'm Tom Busby in New York. This 0:25:27.640 --> 0:25:29.399 week we get the latest readings on the health of 0:25:29.520 --> 0:25:32.520 China's economy, three years after a collapse in its housing 0:25:32.600 --> 0:25:36.400 market led to a nationwide financial crisis. For more, let's 0:25:36.400 --> 0:25:39.879 go to Bloomberg's Doug Chrisner, host of the Daybreak Asia podcast. 0:25:40.280 --> 0:25:43.520 Tom the key numbers in China's monthly activity data will 0:25:43.680 --> 0:25:47.720 clearly be retail sales and industrial production. But remember these 0:25:47.800 --> 0:25:51.200 readings will be for November, and perhaps the more important 0:25:51.240 --> 0:25:54.920 story on the Chinese economy has been the stimulus recently 0:25:55.080 --> 0:25:58.720 teased after the Politbureau meeting. We'll take a closer look 0:25:58.800 --> 0:26:03.320 right now with Bloomberg's Tia Dmitrieva. Katya covers Asia Economics 0:26:03.400 --> 0:26:06.000 from our bureau in Hong Kong. Thanks for making time 0:26:06.080 --> 0:26:08.639 to chat with me. We'll get to the stimulus story 0:26:08.720 --> 0:26:10.840 in a moment. I promise you can. We begin with 0:26:10.920 --> 0:26:14.399 a big picture on Chinese economic activity though for the 0:26:14.480 --> 0:26:17.560 month of November. Can you help me understand what we're 0:26:17.760 --> 0:26:19.159 likely to see in these numbers? 0:26:20.280 --> 0:26:23.920 Yes, and it's going to be a very good snapshot 0:26:24.119 --> 0:26:25.600 of most of the economy. 0:26:25.720 --> 0:26:25.840 You know. 0:26:25.960 --> 0:26:28.960 This tends to happen every month or so. China will 0:26:29.040 --> 0:26:33.760 release this slew of data. So we're getting across the 0:26:34.240 --> 0:26:37.679 across the country. We're getting new home prices, industrial production, 0:26:37.800 --> 0:26:41.520 retail sales that you had mentioned, also investment numbers and 0:26:42.119 --> 0:26:46.200 jobless rate. And because that's not enough, we might also 0:26:46.280 --> 0:26:48.800 get the policy loan rate. Starting that day, there's usually 0:26:48.840 --> 0:26:51.480 about a couple day like a week window where we 0:26:51.600 --> 0:26:54.680 might get that. It's also all coming around the same time, 0:26:55.040 --> 0:26:59.159 around ten am Monday here, and it's all for November. 0:26:59.320 --> 0:27:02.400 And the interesting part about this data is it'll capture 0:27:02.960 --> 0:27:06.440 what have essentially been two months of stimulus. So we 0:27:06.600 --> 0:27:11.600 had in September. The stimulus was really focused on monetary 0:27:11.680 --> 0:27:16.160 easing support for the real estate sector across the board, 0:27:16.280 --> 0:27:18.639 and then for households too, because we saw that mortgage 0:27:18.680 --> 0:27:22.000 rate cut for outstanding mortgages to try to alleviate and 0:27:22.240 --> 0:27:25.639 maybe open up some spending for consumers. And then in 0:27:25.720 --> 0:27:29.080 October that was the PBOC, the People's Bank of China, 0:27:29.480 --> 0:27:32.240 and they had announced measures to boost capital markets, and 0:27:32.320 --> 0:27:34.920 so we saw markets very excited and happy about that. 0:27:35.480 --> 0:27:38.040 So this is the first full month where that will 0:27:38.400 --> 0:27:43.640 be shown. But economists aren't very optimistic if you look 0:27:43.800 --> 0:27:47.720 at the data. We do surveys with economists regularly, and 0:27:48.040 --> 0:27:52.359 the word I would use is stabilization. So not seeing 0:27:52.720 --> 0:27:56.159 anything going into the red. I mean new home sales, 0:27:56.200 --> 0:27:59.879 that's a different bucket, but everything is just kind of 0:28:00.320 --> 0:28:02.200 steady as she goes, with a little bit of a 0:28:02.280 --> 0:28:03.160 tick up expected. 0:28:03.440 --> 0:28:05.800 So these are these are what I would call hard 0:28:05.880 --> 0:28:08.399 economic data points. But if you look at kind of 0:28:08.440 --> 0:28:11.720 the softer economic data points, and I'm thinking in particular 0:28:11.920 --> 0:28:15.160 of the PMI data from the month of November, sentiment 0:28:15.440 --> 0:28:19.639 among the business community in China that was a little disappointing, 0:28:19.760 --> 0:28:20.720 as I recall. 0:28:20.520 --> 0:28:24.720 Right, yes it was, and so were exports, and so 0:28:25.040 --> 0:28:29.080 that's sort of already painting this picture of an economy 0:28:29.240 --> 0:28:33.760 that's still really struggling and why the stimulus was very 0:28:33.840 --> 0:28:37.000 much necessary. But it's also kind of being used to 0:28:37.119 --> 0:28:39.720 address the underlying structural issues and those are going to 0:28:39.800 --> 0:28:43.960 keep coming through in the data. So across the board, 0:28:44.000 --> 0:28:47.240 the economy is just kind of holding up, and we 0:28:47.520 --> 0:28:50.440 might see, you know, there there are some areas where 0:28:50.440 --> 0:28:52.680 we might see a tick up because of things like 0:28:52.800 --> 0:28:57.360 the trade war spurring more production or people getting a 0:28:57.480 --> 0:28:59.600 boost from you know, they're not paying as much on 0:28:59.640 --> 0:29:03.800 their more so they might be spending more. But on 0:29:03.880 --> 0:29:05.800 the labor market side of things, which is the other 0:29:05.880 --> 0:29:08.480 part of the economy, we're not expecting a change in 0:29:08.520 --> 0:29:11.160 the unemployment rate, which is expected to still be about 0:29:11.200 --> 0:29:15.680 five percent. So so far it's just looking like, yeah, 0:29:15.720 --> 0:29:17.240 it's just looking like a bit of a flat line. 0:29:17.360 --> 0:29:19.520 So I promised it earlier, and I'm going to deliver 0:29:19.680 --> 0:29:22.680 on the stimulus story next. We know the Chinese leaders 0:29:22.760 --> 0:29:25.960 have been sending very clear signals on providing new measures. 0:29:26.320 --> 0:29:30.360 We had the Pollit Bureau meeting recently and indications of 0:29:30.520 --> 0:29:34.160 what I will call an unusually strong commitment. Is that fair. 0:29:34.280 --> 0:29:37.520 I recently spoke with Stephanie Leung. She as the chief 0:29:37.560 --> 0:29:41.400 investment officer at Stashaway and Singapore, and I asked her 0:29:41.600 --> 0:29:46.040 about the messaging as it relates to revitalizing domestic demand. 0:29:46.120 --> 0:29:47.360 Here's what she had to say. 0:29:47.680 --> 0:29:50.440 I think the key takeaway is that Number one, the 0:29:50.520 --> 0:29:54.640 government seems to be quite resolute in terms of their 0:29:54.680 --> 0:29:58.160 will to continue to be supportive of the economy. Indeed, 0:29:58.200 --> 0:30:01.160 if you look at the language, the first time in 0:30:01.200 --> 0:30:03.720 the past few years, they actually replace some of the 0:30:03.800 --> 0:30:08.920 more restrictive language with words I prudentially manage monetary policy 0:30:09.080 --> 0:30:11.880 and stimulus policies, and I think that gives the marcut 0:30:11.920 --> 0:30:15.040 some excitement. I mean, for us, I think the most 0:30:15.080 --> 0:30:19.000 important word, if we have to choose from sort of 0:30:19.040 --> 0:30:23.640 the announcement, is the mention of consumption let stimulus, because 0:30:23.640 --> 0:30:27.600 I think in sort of the I think traditionally or 0:30:27.800 --> 0:30:32.880 kind of from a Shi policy toolbox perspective. He has 0:30:33.000 --> 0:30:36.960 been kind of more proactive in terms of supply side stimulus, 0:30:37.320 --> 0:30:41.000 and he's not a particular fan of the demand size similars. 0:30:41.120 --> 0:30:44.400 That is Stephanie Leung, the chief investment officer at Stashuway 0:30:44.560 --> 0:30:48.400 And we are back with Bloomberg's Katya Dmitrieva. Katya, when 0:30:48.440 --> 0:30:50.720 I think of the way in which the Chinese economy 0:30:50.840 --> 0:30:54.560 is managed, we're talking stimulus now. The GDP growth target 0:30:54.680 --> 0:30:56.360 is one of the first things that come to mind. 0:30:56.400 --> 0:30:58.720 We'll have to wait and see, obviously, is whether the 0:30:58.800 --> 0:31:01.960 target for twenty twenty four of around five percent was 0:31:02.360 --> 0:31:05.840 in fact achieved. But what are we thinking about twenty 0:31:05.920 --> 0:31:08.960 twenty five given everything that we're hearing coming out of 0:31:09.000 --> 0:31:12.200 the polit bureau, not the official readout. I know, it's 0:31:12.360 --> 0:31:16.200 just more subtle messaging. Can we expect that this more 0:31:16.360 --> 0:31:20.600 robust policy support will deliver a five percent GDP target 0:31:20.680 --> 0:31:21.080 next year? 0:31:22.040 --> 0:31:26.400 Well, that's certainly what economists see. They're expecting about four 0:31:26.480 --> 0:31:29.640 point eight percent, which is right in that ballpark of 0:31:30.320 --> 0:31:34.160 about five percent that Chinese policy makers have set. And 0:31:34.640 --> 0:31:38.520 what you were discussing there about the messaging from the 0:31:38.600 --> 0:31:42.680 Chinese government is so important. So far, the government has 0:31:42.760 --> 0:31:45.960 really released stimulus in sort of dribs and drabs right 0:31:46.120 --> 0:31:49.800 so concentrated in October November, but really just kind of 0:31:49.920 --> 0:31:55.360 slowly rolling it out. This was probably their most forceful 0:31:55.800 --> 0:32:01.440 statements on future stimulus yet. And we really monitor the 0:32:01.680 --> 0:32:05.160 Chinese officials like we monitor the Federal Reserve, so every 0:32:05.240 --> 0:32:09.800 single word, you know, change, removal, tweak, really matters. And 0:32:09.920 --> 0:32:12.440 they were the most forceful since basically the two thousand 0:32:12.440 --> 0:32:16.440 and eight financial crisis. So it is likely that going 0:32:16.600 --> 0:32:20.040 into next year, they're thinking about what the target might be. 0:32:20.200 --> 0:32:23.200 They're messaging around the target and achieving it. From what 0:32:23.360 --> 0:32:26.200 I've been discussing with analysts, it's likely to be again 0:32:26.520 --> 0:32:29.120 around five percent or four point five to five percent, 0:32:29.480 --> 0:32:32.040 and they really can't do that without stimulus, and they 0:32:32.160 --> 0:32:34.760 certainly can't do it without stimulus in the middle of 0:32:34.800 --> 0:32:35.320 a trade war. 0:32:35.800 --> 0:32:37.560 So the other thing I want to consider in all 0:32:37.600 --> 0:32:40.520 of this, maybe the elephant in the room is China's 0:32:40.560 --> 0:32:44.240 trade relation with the US and the potential for maybe 0:32:44.280 --> 0:32:46.680 another trade war, if we can even describe it that way. 0:32:47.240 --> 0:32:51.480 We know that President electromp is threatening sweeping tariffs on 0:32:51.760 --> 0:32:55.800 all Chinese goods with sixty percent duties, and just last month, 0:32:56.480 --> 0:32:58.960 I think he vowed to impose an additional ten percent 0:32:59.040 --> 0:33:02.280 duty that was if Beijing doesn't help stem the flow 0:33:02.320 --> 0:33:05.840 of fentanyl coming across the US southern border. What's the 0:33:06.080 --> 0:33:09.600 analysis on this from the folks that you are speaking with. 0:33:09.920 --> 0:33:12.160 Is this tariff threat being viewed as more of a 0:33:12.680 --> 0:33:16.120 negotiating ploy or are people really concerned that something may 0:33:16.800 --> 0:33:19.840 be put in place that will have a real bite. 0:33:21.640 --> 0:33:24.840 This is such a good question and the exact question 0:33:25.320 --> 0:33:28.040 that everyone is asking, and it's a bit of both. 0:33:28.480 --> 0:33:32.080 It's very clear that Trump is targeting China, wants to 0:33:32.160 --> 0:33:36.600 target China has been very vocal about tariffs and imposing 0:33:36.680 --> 0:33:39.880 higher tariffs on Chinese goods, so that part is clear. 0:33:39.960 --> 0:33:42.880 There is a general assumption that will see some sort 0:33:42.920 --> 0:33:47.520 of tariffs, however, probably not as high as sixty percent. 0:33:48.200 --> 0:33:50.720 So I'm hearing estimates of like anywhere between, you know, 0:33:50.920 --> 0:33:54.280 twenty and forty percent is the going assumption. And you 0:33:54.360 --> 0:33:57.160 can tell people are taking it seriously because we've already 0:33:57.240 --> 0:34:01.080 seen signs that people are reacting. Thatsinesses are reacting with 0:34:01.280 --> 0:34:05.760 front loading, so US inventories are up, port activity across 0:34:05.880 --> 0:34:09.319 China's largest ports has also picked up in the past month, 0:34:09.760 --> 0:34:14.280 basically since Donald Trump was elected. We're likely to continue 0:34:14.320 --> 0:34:16.440 to see that throughout early next year. 0:34:17.360 --> 0:34:19.080 One of the things that I have to ask there 0:34:19.120 --> 0:34:21.120 are a couple of threads here that we can tease out. 0:34:21.320 --> 0:34:26.480 One is the response that Beijing has already undertaken restricting 0:34:26.640 --> 0:34:32.520 some critical materials for technology. There's this perhaps investigation into Nvidia, 0:34:32.840 --> 0:34:36.239 But can you help me understand how China may respond 0:34:36.520 --> 0:34:38.920 in using its currency. There was a report that I 0:34:39.719 --> 0:34:42.600 that I came across that Beijing is considering allowing that 0:34:42.680 --> 0:34:46.239 you want to weaken in response to a potential trade war. 0:34:46.360 --> 0:34:48.320 Is that something that's really being discussed. 0:34:49.400 --> 0:34:55.520 Yeah, they almost officials almost don't have a choice. Earlier 0:34:55.600 --> 0:35:00.560 this year, Chinese officials were really adamant and really vocal 0:35:00.600 --> 0:35:05.040 about wanting to keep the yuon strong. However, in a 0:35:05.120 --> 0:35:08.279 situation when you're in a trade war and suddenly your 0:35:08.360 --> 0:35:12.000 main source of growth, so China has relied very heavily 0:35:12.080 --> 0:35:16.799 on exports and industrialization this year over the past year 0:35:16.960 --> 0:35:20.279 to really drive growth. If that's at risk, then they 0:35:20.360 --> 0:35:25.120 don't really have a choice other than to lower rates 0:35:25.400 --> 0:35:30.600 and kind of let the yuon get weaker and then 0:35:30.800 --> 0:35:34.800 offload those exports elsewhere. Now, that's going to create a 0:35:34.880 --> 0:35:39.279 lot more a lot more pushback in emerging markets and 0:35:39.360 --> 0:35:42.040 in Southeast Asia countries where there is already kind of 0:35:42.080 --> 0:35:46.759 a growing pushback to Chinese imports. But there's kind of 0:35:46.920 --> 0:35:49.560 no other way about it. You can't maintain a strong 0:35:49.640 --> 0:35:54.120 currency without, you know, structural reforms unless they unless we 0:35:54.200 --> 0:35:58.919 suddenly see an about face in the next year among 0:35:59.000 --> 0:36:02.520 officials where they start focusing on letting the consumer drive growth. 0:36:03.760 --> 0:36:07.440 They need they need to keep exports alive, they need 0:36:07.520 --> 0:36:09.520 to keep manufacturers alive. 0:36:09.800 --> 0:36:12.800 We were talking a moment ago about the overall Chinese economy, 0:36:12.800 --> 0:36:14.279 and I think you and I can agree that one 0:36:14.320 --> 0:36:17.719 of the bright spots has been the export economy, which 0:36:17.800 --> 0:36:22.399 these proposed tariffs would target immediately. And I'm wondering whether 0:36:22.640 --> 0:36:26.239 Beijing is perhaps sensing that it's in a bit of 0:36:26.360 --> 0:36:29.560 a maybe a more vulnerable situation right now and that 0:36:29.760 --> 0:36:33.680 perhaps the US has the upper hand. Is that an overstatement? 0:36:35.200 --> 0:36:40.080 No, I think that's right, and we have seen, you know, 0:36:40.280 --> 0:36:44.120 the examples you just mentioned with the ban on some 0:36:44.320 --> 0:36:48.320 minerals and the investigation into Nvidia. They're sort of and 0:36:48.680 --> 0:36:51.239 paired with the stimulus. I mean, these all came within 0:36:51.280 --> 0:36:54.759 twenty four hours of one another. And the picture that 0:36:54.920 --> 0:36:57.440 paints for us is the way that you know, it 0:36:57.560 --> 0:37:01.080 shows the structure shape of how China may react in 0:37:01.200 --> 0:37:03.480 trade war two point zero versus one point zero, and 0:37:03.600 --> 0:37:06.440 that is a bit more of a conciliatory approach, and 0:37:06.560 --> 0:37:09.800 that is one where they're going toe to toe with 0:37:10.000 --> 0:37:13.280 As one analyst told me, you know, if it's basically 0:37:13.400 --> 0:37:16.160 China saying, you know, if you're going to play tip 0:37:16.239 --> 0:37:18.920 for tat, like we're going to play as well, but 0:37:19.000 --> 0:37:23.040 it's not taking the most aggressive action, not going back 0:37:23.040 --> 0:37:25.799 to the sort of like wolf warrior diplomacy days. 0:37:26.040 --> 0:37:29.880 This is a very delicate situation and on the economic side, Katya, 0:37:29.920 --> 0:37:32.000 thank you so much for joining us and helping understand 0:37:32.040 --> 0:37:35.320 the nuances of not only the Chinese economy and what 0:37:35.440 --> 0:37:38.600 is happening at the moment, but the trade relations between 0:37:39.080 --> 0:37:42.400 Beijing and Washington. Thanks for having me on that is Bloomberg' 0:37:42.480 --> 0:37:46.239 Katya Dmitrieva. Katya covers Asia economics from our bureau in 0:37:46.360 --> 0:37:49.240 Hong Kong. I'm Doug Krisner. You can catch us weekdays 0:37:49.320 --> 0:37:53.719 right here for the Daybreak Asia podcast. It's available on Apple, Spotify, 0:37:54.080 --> 0:37:55.600 or wherever you get your podcast. 0:37:55.960 --> 0:37:58.360 Tom, Thank you Doug. And that does it for this 0:37:58.600 --> 0:38:01.280 edition of Bloomberg day Break Weekend. Join us again Monday 0:38:01.320 --> 0:38:03.400 morning at five am Wall Street Time for the latest 0:38:03.440 --> 0:38:06.000 on markets overseas and the news you need to start 0:38:06.040 --> 0:38:09.400 your day. I'm Tom Buzzby. Stay with us. Top stories 0:38:09.440 --> 0:38:11.799 and global business headlines are coming up right now.