Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our day
Speaker 1: Break anchors all around the world. And straight ahead on
Speaker 1: the program, the Fed decides J Powell and Company make
Speaker 1: a key interest rate decision. I'm Tom Busby in New York.
Speaker 2: I'm Kathie Lyons in Washington, where President Biden is preparing
Speaker 2: to head to New York for the UN General as Sunday.
Speaker 3: I'm Caroline Hepga here in London, where we're looking ahead
Speaker 3: to the next Bank of England rate decision.
Speaker 4: I'm Doug Prisner. Inflation in Japan is above target. Now
Speaker 4: it's up to the Bank of Japan.
Speaker 5: That's all straight ahead on Bloomberg day Break Weekend. On
Speaker 5: Bloomberg Eleve them three own New York, Bloomberg ninety nine
Speaker 5: to one, Washington, DC, Bloomberg one O six one, Boston,
Speaker 5: Bloomberg nine sixty, San Francisco, DAB Digital Radio London, Sirius
Speaker 5: XM one nineteen and around the world on Bloomberg Radio
Speaker 5: dot Com and via the Bloomberg Business App.
Speaker 1: Good day to you. I'm Tom Busby, and we begin
Speaker 1: today's program with the Federal Reserve meeting again this week,
Speaker 1: after nearly two months since the last MED decision, in
Speaker 1: which J. Powell and Central bank policymakers raised their benchmark
Speaker 1: lending rate to a twenty two year high. So will
Speaker 1: the Fed hit pause again or is there another rate
Speaker 1: hike in the cards. We'll find out Wednesday and for
Speaker 1: more we're joined by Bloomberg International Economics and Policy correspondent
Speaker 1: Michael McKee. Now, before we take a deeper dive into
Speaker 1: the data, the FED is looking at what are you
Speaker 1: expecting to see from the FOMC this week?
Speaker 6: I think I go with the consensus on Wall Street
Speaker 6: that the Fed will pause. They gave every indication in
Speaker 6: their speeches, those who did speak since the last meeting
Speaker 6: that they are not in a hurry to raise rates again.
Speaker 6: They leave it on the table, but not in a hurry.
Speaker 6: And so they've created a consensus on Wall Street that
Speaker 6: they're not going to do anything and they would be
Speaker 6: loath to surprise investors.
Speaker 1: Let's talk about rates and where they are right now.
Speaker 1: We're at a range of five and a quarter to
Speaker 1: five and a half percent. That's a twenty two year high, right,
Speaker 1: and how high can they go?
Speaker 6: Well, they've only said that they would go one more time,
Speaker 6: and that may change at this meeting, but if they did,
Speaker 6: they'd go up to a range of five and a
Speaker 6: half to five and three quarters percent. But of course,
Speaker 6: if inflation continues to rise and they don't feel like
Speaker 6: they have tight enough to bring it down, they could
Speaker 6: go higher than that. Some people were predicting earlier this
Speaker 6: year that they'd get to six or six and a
Speaker 6: quarter percent. Jim Bullard, who just left the FED after
Speaker 6: that last meeting, had predicted in his June dot plot
Speaker 6: that they'd go to six and a quarter percent. So
Speaker 6: it's very possible that we haven't seen the end of it.
Speaker 6: It will just depend on the progress against inflation.
Speaker 1: We saw some inflation data this past week, some good,
Speaker 1: some of it not so good. Let's talk about what
Speaker 1: happened in August month over month and what was behind
Speaker 1: that big increase.
Speaker 6: Well, the big increase came in the CPI headline numbers,
Speaker 6: so we saw it in the PPI as well, the
Speaker 6: Producer Price Index. The oil prices pushed up, gasoline prices
Speaker 6: that pushed up the headline numbers. Overall, the core went
Speaker 6: down though, particularly for the CPI, and that is what
Speaker 6: the Fed's focused on. Because they know they can't affect
Speaker 6: the oil price.
Speaker 1: They can't.
Speaker 6: They can raise raise all I want, but they're not
Speaker 6: going to bring down the price of gasoline by doing that.
Speaker 6: So they're focused on the core, and the core gave
Speaker 6: them some evidence that they're still making progress. Slow, but
Speaker 6: there is still progress.
Speaker 1: And that core year of a year was the biggest
Speaker 1: decline in two years, so there is progress.
Speaker 6: It's definitely progress, and now they need to keep that going.
Speaker 6: The question is do they need to raise rates further
Speaker 6: to keep the momentum going or are they at a
Speaker 6: tight enough spot now that it already keeps the pressure on.
Speaker 1: Let's go to the labor market. Still strong, initial jobless
Speaker 1: claims edging a little lower, surprising some economists. There's a
Speaker 1: lot of labor strife though.
Speaker 6: There is labor strife now with the United Auto Workers
Speaker 6: out on strike, but you won't really notice that too
Speaker 6: much in the data for a while. The strike began
Speaker 6: during the reference week for the September payrolls report, so
Speaker 6: since the workers were at work for most of that week,
Speaker 6: they won't fall off of the payrolls numbers for September
Speaker 6: if they still on strike in October. Is a good chance,
Speaker 6: then we would see a decline in the number of
Speaker 6: people who are at work in manufacturing. The other aspect
Speaker 6: of it is that if you are on strike, you're
Speaker 6: not eligible for unemployment benefits. Twelve seven hundred workers are
Speaker 6: actually on strike, but there's one hundred and forty six
Speaker 6: thousand United Auto Workers. If other plants are shut down
Speaker 6: because those few workers are out, then all those people
Speaker 6: could file for unemployment benefits and we'll know it's a strike.
Speaker 6: So the FED won't be too upset about it, but
Speaker 6: it'll certainly make it hard to get a read on
Speaker 6: the numbers from the jobless claims.
Speaker 1: On the other hand, the Writers Guild strike it started
Speaker 1: May TEWOD has really ballooned to other industries that are
Speaker 1: sitting idle in Hollywood. You have the sag after strike
Speaker 1: compounding that you see that show up in the unemployment data.
Speaker 6: Yeah, the people who are collateral victims of the strike
Speaker 6: don't get counted as jobs lost. But the strikers are
Speaker 6: only just in the last month or so beginning to
Speaker 6: get counted in terms of number of jobs lost in
Speaker 6: the motion picture industry and things like that because they
Speaker 6: had irregular paychecks. Most of them are freelancers, and so
Speaker 6: they don't get paid in the same way that other
Speaker 6: workers do, so it's harder for the Bureau of Labor Statistics.
Speaker 1: To count them now. Despite inflation still a problem, retail
Speaker 1: spending held up pretty well in August. You talked about
Speaker 1: fuel prices being a big part of that increase, but
Speaker 1: still Americans are spending.
Speaker 6: Americans are spending. Gasoline went up five point two percent,
Speaker 6: a big jump, and that of course means people had
Speaker 6: less to spend on other things, but they spent anyway.
Speaker 6: It really was a sort of traditional back to school
Speaker 6: month of August, as clothing store sales went up by
Speaker 6: nine tenths. We also saw a rise in personal care
Speaker 6: as people went out and got their back to school
Speaker 6: haircuts and things like that. And we saw electronics rise
Speaker 6: people buying computers for their kids to go back to school,
Speaker 6: and calculators and things like that. So it was kind
Speaker 6: of the spending that you would expect for an August,
Speaker 6: which is good news for the fat Now.
Speaker 1: Housing long term mortgage rates still above seven percent at
Speaker 1: a two decade high. Adjustable rates just hit a twelve
Speaker 1: year high. Still a problem in housing.
Speaker 6: It is a problem in housing, particularly for existing home
Speaker 6: sales because so many people, something like forty percent of
Speaker 6: mortgage holders now have mortgages under four percent, and they
Speaker 6: don't want to get a new mortgage that's at seven
Speaker 6: or eight percent, so they're not putting their homes on
Speaker 6: the market, and it's sort of frozen the housing market,
Speaker 6: which then leads to fewer sales of new carpets and
Speaker 6: appliances and things like that. So that's a problem. The
Speaker 6: new home sales market has been booming because it's the
Speaker 6: only place you can get a house these days, and
Speaker 6: a lot of the builders have come up with their
Speaker 6: own financing and they're buying down your mortgage rate so
Speaker 6: you don't have to pay eight percent, you might pay five.
Speaker 6: We don't know if that's going to be enough to
Speaker 6: keep it going, but for right now that's the only
Speaker 6: bright spot in housing.
Speaker 1: According to b Redfin, the average mortgage costs two six
Speaker 1: hundred and thirty two bucks a month. That's the highest ever.
Speaker 1: Not even prices on those houses, but mortgage rates and
Speaker 1: insurance making that change. Car insurance, we know, went up
Speaker 1: nineteen percent in August year over year.
Speaker 6: Well, particularly with cars insurance. Cars have gotten much more
Speaker 6: complex and more expensive to fix. We also saw a
Speaker 6: big rise obviously in used car prices and more used
Speaker 6: cars break down. People were buying used cars because there
Speaker 6: weren't new cars to buy. So for the insurance companies,
Speaker 6: their costs have gone up a lot and they've been
Speaker 6: raising rates to make up for that.
Speaker 1: Now, staying on autos, how do you think a protracted
Speaker 1: job action might impact the economy.
Speaker 6: Well, in the past, we have not seen huge macroeconomic effects.
Speaker 6: You see them for a very short period of time.
Speaker 6: Nineteen ninety eight was a very similar year to what
Speaker 6: we're seeing right now. There was a strike against General Motors,
Speaker 6: but it was called against only two plants and only
Speaker 6: nine two hundred workers went out, but that shut down
Speaker 6: GM around the country, so there were about two hundred
Speaker 6: thousand people who were off work, and you can see
Speaker 6: in the auto manufacturing statistics there's a big drop in
Speaker 6: the third quarter of nineteen ninety eight, and in the
Speaker 6: number of workers there was a big drop in the
Speaker 6: third quarter of nineteen ninety eight. But plot GDP over
Speaker 6: that and you don't see it because as soon as
Speaker 6: the strike's over, the company gets back to producing cars
Speaker 6: as fast as as it can, and Americans are still
Speaker 6: going to be buying cars, and the people who were
Speaker 6: striking get raises and go out and maybe spend a
Speaker 6: little bit more, So you end up with it not
Speaker 6: having a major macro effect. Where you do see it
Speaker 6: is in equities, because it not only affects the automakers
Speaker 6: but the parts makers and their stocks drop, and it
Speaker 6: spreads beyond that raw materials makers steel and rubber. And
Speaker 6: then in nineteen ninety eight, the New York Times saw
Speaker 6: a decline in revenue because automobile advertising was pulled during
Speaker 6: the strike. So if you're looking for an effect, that's
Speaker 6: probably where you're going to see it more than in
Speaker 6: the macroeconomy.
Speaker 1: Well, Michael, thank you. Bloomberg International Economics and Policy correspondent
Speaker 1: Michael McKee. Coming up here on Bloomberg day Break weekend.
Speaker 1: Leaders from around the world gather in New York for
Speaker 1: the United Nations General Assembly meeting. Will tell you what
Speaker 1: to expect next week. I'm Tom Busby and is Bloomberg.
Speaker 1: This is Bloomberg Day Break Weekend, our global look ahead
Speaker 1: at the top stories for investors in the coming week.
Speaker 1: I'm Tom Busby in New York. The United Nations General
Speaker 1: Assembly holds its seventy eighth Annual Session the week of
Speaker 1: September eighteenth, leaders from around the world descending upon New
Speaker 1: York for what's expected to be the most interesting UNNGA
Speaker 1: since before the pandemic, with a focus on Russia's invasion
Speaker 1: of Ukraine, shadowed diplomacy with Iran, and the increasingly tense
Speaker 1: geostrategic divide between the US and China. General Debate begins
Speaker 1: on Tuesday. For more, Let's head to our Bloomberg ninety
Speaker 1: nine one newsroom in Washington and Bloomberg Sound On. Co
Speaker 1: host Kaylee.
Speaker 2: Lines, Yeah, Tom, Well, everyone in New York is bracing
Speaker 2: for heavier traffic associated with the annual UN General Assembly meeting,
Speaker 2: fondly known as UNGA. Washington is watching to see what
Speaker 2: real policy developments could come out of this gathering, and
Speaker 2: Bloomberg TV's very own chief Washington correspondent, Anrie horder And
Speaker 2: will be making the trip up there herself this coming week.
Speaker 2: She joins me now with more of a preview. So Anri,
Speaker 2: let's just talk about what the objective here really is.
Speaker 2: For President Biden, for example, he's gonna make the trip,
Speaker 2: what exactly does he want to achieve?
Speaker 7: I think what you'll see this year, Kaylee, is similar
Speaker 7: to what we saw from President Biden last year. Some
Speaker 7: of these major themes he wants to address in front
Speaker 7: of the international community. One of course, is going to
Speaker 7: be Russia's invasion of Ukraine. He talked about this last year.
Speaker 7: He said it's a war where Russia wants to extinguish
Speaker 7: Ukraine's right to exist. You're going to see him want
Speaker 7: to really continue to ramp up the support in favor
Speaker 7: of Ukraine against Russia at the international community, especially when
Speaker 7: Russia will be in the room, not by President Putin,
Speaker 7: but far Missus Sergei Lavrov will be there. Of course,
Speaker 7: China will be the other elephant in the room. Shijiping
Speaker 7: is also not going to be in attendance. Both those
Speaker 7: leader Putin and she didn't also go to the G twenty.
Speaker 7: But this is a chance for Biden to show that
Speaker 7: the US is in that presence, even those other leaders
Speaker 7: are not going to be there. Once again, I think
Speaker 7: you'll hear from the American President and from any American
Speaker 7: official that's asked about China, they continuously say, it's not
Speaker 7: that we want to have a conflict with China. We
Speaker 7: want to be able to have competition and put guard
Speaker 7: rails around that competition. It's becoming a little bit of
Speaker 7: a joke. But everyone in DC says what they constantly say.
Speaker 7: They're not decoupling, they're risking. If you're able to figure
Speaker 7: out the difference between those two, let me know. And
Speaker 7: then I think the final big point that the President
Speaker 7: may talk about is going to be Iran, because I
Speaker 7: have some reporting that the Iran hostage swap will happen
Speaker 7: as soon as Monday, and that's just before these leaders
Speaker 7: come together. And you have Ibraham Rayisi speaking to NBC
Speaker 7: News before the UN General Assembly saying that this unforen
Speaker 7: fund of six billion dollars that's going to be released
Speaker 7: in exchange for the prisoners, it is Iranian money, but
Speaker 7: it was frozen in South Korea. He's saying that they
Speaker 7: can use it on whatever they need in Iran. The
Speaker 7: administration continues to say that is not true. It's for
Speaker 7: humanitarian purposes only. And imagine, given the fact that's happening
Speaker 7: likely on Monday, the President's going to have to address this.
Speaker 2: Okay, so Iran will be on the agenda for him,
Speaker 2: perhaps an unavoidable subject. But to go back to the
Speaker 2: idea of this also really being about China and Russia.
Speaker 2: How complicated is that considering they are also permanent members
Speaker 2: of the UN Security Council. Does that hinder what can
Speaker 2: actually be achieved it to something like this, well, I think.
Speaker 7: It hinders what the UN has been able to achieve
Speaker 7: at all regarding Russia's invasion of Ukraine. They're members of
Speaker 7: Security Council. The UN hasn't been able to act on
Speaker 7: this war. So while the UN General Assembly offers a
Speaker 7: place for dialogue, there hasn't been a lot of action
Speaker 7: when it comes to that, which is why many people
Speaker 7: say the UN. Many call it obsolete and useless. But
Speaker 7: it will be a place for dialogue, but at the
Speaker 7: moment nothing can really happen because you do have Shijipang
Speaker 7: and Russia's hold on the Security Council.
Speaker 2: So you say it's a place for dialogue, and obviously
Speaker 2: that is you know, wider dialogue among the entire General Assembly.
Speaker 2: But also we often see at meetings like this sideline
Speaker 2: meetings between different leaders, and our understanding is President Biden
Speaker 2: maybe having a few of those as well, including with
Speaker 2: reportedly Prime Minister of Israel Benjamin Netanyahu, who has had
Speaker 2: a pretty tense relationship with the President of the US.
Speaker 2: At this point, I would argue, Anne Marie, what do
Speaker 2: we expect out of that meeting? Why have that one.
Speaker 7: So right now? You have not had net Yahoo yes
Speaker 7: yet have this invite to the White House. He and
Speaker 7: Joe Biden go years back. They know each other, They've
Speaker 7: been in this circle for a while. But the issue is,
Speaker 7: of course, the White House has taken aim on a
Speaker 7: number of policies the net Yahoo government has wanted to
Speaker 7: push forward, especially coming from the right wing of his government,
Speaker 7: most notably the judicial overhaul plan. So this is gonna
Speaker 7: be the first time they're seeing each other in person
Speaker 7: since he took office again in December. All eyes are
Speaker 7: going to be on this meeting, not only because these
Speaker 7: two individuals will be meeting and there's been some some
Speaker 7: of that tension you just mentioned, but also the fact
Speaker 7: that this administration is working at the same time to
Speaker 7: try to bring normalization between Saudi Arabia and Israel. They
Speaker 7: were just at the G twenty they did this infrastructure deal,
Speaker 7: which Saudi Arabia is a part of, Israel is also
Speaker 7: tangently a part of, and everyone is trying to see
Speaker 7: if this can actually happen, So this will be an
Speaker 7: interesting pull aside meeting. But it's also interesting that it's
Speaker 7: not a White House meeting. It's happening at Anga. Also,
Speaker 7: apparently net and Yahoo will also be meeting Elon Musk
Speaker 7: next week. He's doing a little bit of a US
Speaker 7: tour that might be just as interesting as the POTUS meeting.
Speaker 2: To go back to what you were talking about earlier,
Speaker 2: with the idea of some kind of normalization happening, you
Speaker 2: of course spoke this past week with Amos Hawkstein of
Speaker 2: the White House and you touched on this a little bit.
Speaker 2: How close realistically are we.
Speaker 7: I think there's some cold water on that, meaning the
Speaker 7: US has been very honest that they would want to
Speaker 7: see that extension really of the Abraham Accords that were
Speaker 7: done to the Trump administration, where you saw a number
Speaker 7: of Gulf countries, notably the UAE, have these normalized ties
Speaker 7: with Israel. Travel started, embassies opened, lots of commercial ties
Speaker 7: came to fruition after that. But they're just not there yet.
Speaker 7: There's a number of steps that have to happen, but
Speaker 7: it's still on the table, and it's something that could happen.
Speaker 7: I just think you know, potentially we're a little over
Speaker 7: our skis if we think that might happen at this
Speaker 7: U and General Assembly or before the year is up.
Speaker 7: I think that a lot of work needs to still
Speaker 7: be deciphered through, and then they really need to make
Speaker 7: sure they're selling it to their constituents.
Speaker 2: So when we're talking about selling thing, and this goes
Speaker 2: back to the Ukraine issue, which you said is going
Speaker 2: to be high on the agenda for Biden, I just
Speaker 2: wonder how much harder that job is in a body
Speaker 2: like this one full of those who come from different
Speaker 2: countries and are looking in on the US and the
Speaker 2: conversation happening here in Washington on Capitol Hill around continued
Speaker 2: funding for Ukraine, and what that does to the President's
Speaker 2: position is he's trying to make the case that other
Speaker 2: countries should be still engaging, still funding, still trying to
Speaker 2: support the war, when it's clear that not everyone here
Speaker 2: in Washington is with him on that.
Speaker 7: It's going to be challenging for the President because he's
Speaker 7: going to want to come to the podium and he's
Speaker 7: going to want to be so forthright about America's stance
Speaker 7: in supporting Ukraine. At the same time, he will be
Speaker 7: in New York City at the UN giving this speech.
Speaker 7: There's going to be debates behind Congress closed doors whether
Speaker 7: or not they're going to sign off on his request
Speaker 7: and that supplemental funding request for aid for Ukraine. It
Speaker 7: does look like the Senate wants to go forward with that,
Speaker 7: but in the House it's really anyone's guest on how
Speaker 7: it gets done. Does McCarthy have to remove it from
Speaker 7: the supplemental put it with maybe border concerns to make
Speaker 7: sure the hard right flank of his party joins in
Speaker 7: and votes for it because they see something enticing and
Speaker 7: border money and potentially some controversial what the Democrats would
Speaker 7: call controversial asylum provisions. So Ukraine is this issue where
Speaker 7: not just in Congress, but on the debate stage Republican candidates,
Speaker 7: you see people taking different points of views. And President
Speaker 7: Lenski is going to be really honest when he's also
Speaker 7: in New York next week and he wants to make
Speaker 7: this case for a peace formula plan. And then Reuter's
Speaker 7: also reported that he's going to come to Washington to
Speaker 7: have another meeting with the President, and the timing, of course,
Speaker 7: is interesting. Zelenski obviously sees and is privy to the
Speaker 7: debate that's ongoing in America and on how long and
Speaker 7: how much Americans are willing to fund and support Ukraine.
Speaker 2: Looking forward to all of your coverage of UNGA, Bloomberg's
Speaker 2: and Marie Hordern, our very own chief Washington correspondent for
Speaker 2: Bloomberg Television, and Tom we'll send it back to you.
Speaker 1: Thank you, Kaylee. That was Bloomberg Sound On co host
Speaker 1: Kaylee Liones reporting from our Bloomberg ninety nine one newsroom
Speaker 1: in Washington, and you can hear sound on weekdays one
Speaker 1: to three pm on Bloomberg Radio. Coming up on Bloomberg
Speaker 1: day Break. Weekend interest rates also in focus overseas, we
Speaker 1: take you to London to preview the Bank of England's
Speaker 1: policy decision this week. I'm Tom Busby and this is
Speaker 1: Bloomberg broadcasting.
Speaker 5: Live from the Bloomberg it a Active Brokers studio in
Speaker 5: New York. Bloomberg elemon three oh to Washington d C,
Speaker 5: Bloomberg ninety nine one to Boston, Bloomberg one O six
Speaker 5: one to San Francisco, Bloomberg nine sixteen to the country,
Speaker 5: Sirius XM Channel one to nineteen to London DAB digital
Speaker 5: radio and around the globe the Bloomberg Business app in
Speaker 5: Bloomberg Radio dot com. This is Bloomberg Daybreak weekend.
Speaker 1: This is Bloomberg day Break weekend, our global look ahead
Speaker 1: at the top stories for investors in the coming week.
Speaker 1: I'm Tom Busby in New York. Bloomberg Economics expects the
Speaker 1: Bank of England to continue raising interest rates to five
Speaker 1: point five percent next week, despite signs of the impact
Speaker 1: on the economy. Now for more, let's say to London
Speaker 1: and bring in Bloomberg Daybreak Europe banker Caroline hepgar Tom.
Speaker 3: As the UK's economic outlook gets cloudier, the debate about
Speaker 3: whether the Bank of England will continue raising interest rates
Speaker 3: and for how long is intensifying. UK inflation remains the
Speaker 3: worst in the group of seven nations, but July saw
Speaker 3: a bigger than expected drop in UK economic growth. Remember,
Speaker 3: although the UK was the first amongst major central banks
Speaker 3: to start raising interest rates, inflation in Britain is stuck
Speaker 3: at six point eight percent according to the August figure.
Speaker 3: That is almost double the level that you're seeing over
Speaker 3: in the US, and it's still well above the eure
Speaker 3: Area rate of five point three percent. Now for more,
Speaker 3: on all of this. Tom McKenzie and I have been
Speaker 3: speaking to Blueberg Senior at UK Economists Dan Hansen about
Speaker 3: the Bank of England's upcoming decision. I started by asking
Speaker 3: Dan how badly the UK is losing steam after monthly
Speaker 3: GDP fell by half of one percent in July.
Speaker 8: We're certainly worried that the economy is losing steam a
Speaker 8: little bit faster than we'd anticipated it would. Obviously, you
Speaker 8: would expect this to happen to some extent given the
Speaker 8: scale of the interest rate rises that we've had, but
Speaker 8: I think it might be happening a little bit faster.
Speaker 9: And yeah, so we're looking.
Speaker 8: We're not looking for We're still looking for the economy
Speaker 8: to expand very modestly in the third quarter, but I
Speaker 8: think moving into the fourth quarter we're still expecting a contraction.
Speaker 8: I think the other thing to remember is that the
Speaker 8: forward looking data isn't looking that great either. So we've
Speaker 8: had that August PM I remember that dropped into recessionary territories.
Speaker 9: So we are we think we're.
Speaker 8: Sort of on the edge, if you like, we're sort
Speaker 8: of we're we're sort of balancing between sort of stagnation,
Speaker 8: which is what we've had over the past year and
Speaker 8: potentially moving into contraction. And as you said at the
Speaker 8: start there, that's making it very difficult for the Bank
Speaker 8: of England as it navigates what to do next.
Speaker 10: So potentially getting and looking at a contraction of recession
Speaker 10: here in the UK. The debate, of course in the
Speaker 10: US is all about a soft landing. That's never really
Speaker 10: been part of the narrative here in the UK. What
Speaker 10: kind of what would that recession look like, dad? How prolonged,
Speaker 10: how deep, how painful?
Speaker 8: Yes, I mean, I think when we look at all
Speaker 8: of this through just through the eye of an economic model,
Speaker 8: the amount of tightening that's come from the Bank of England,
Speaker 8: so we've had over five hundred basis points of tightening.
Speaker 8: If you put that through an economic model, you get
Speaker 8: a very very big hit to GDP, something in the
Speaker 8: region of five percent of GDP hits.
Speaker 9: It's enormous.
Speaker 8: Now, we obviously just haven't had anything like that. We've
Speaker 8: had the economy has been stagnating, so it's been doing
Speaker 8: a lot better than models would tell you.
Speaker 9: The less there are these.
Speaker 8: Lags in the system, and we know that there is
Speaker 8: more to come, and the Bank of England's obviously been
Speaker 8: quite open about this, and it partly reflects the way
Speaker 8: the mortgage market works in the UK, and I think
Speaker 8: we think there's going to be, as I say, a recession,
Speaker 8: a peach trough falling GDP of about one percent. Now,
Speaker 8: as I say, I've sort of spoken about sort of
Speaker 8: model side of it there. In terms of historical context,
Speaker 8: that's also extremely small. So if you think about the
Speaker 8: financial crisis, it was over six percent the falling GDP,
Speaker 8: in the nineties it was about three percent, and in
Speaker 8: the eighties it was about four and a half percent,
Speaker 8: so it's.
Speaker 9: Still very very modest.
Speaker 8: Nonetheless, we still think, and you know, the data of
Speaker 8: the recent data's given us a little bit more confidence
Speaker 8: in this view that the economy is heading for a
Speaker 8: period of falls in output.
Speaker 3: How significant was the revision to the official data, the
Speaker 3: OERNS data post pandemic. I was speaking to the Exchequer sector,
Speaker 3: to the Treasury, Gareth Davies's significant voice obviously for the government,
Speaker 3: and he was sounding pretty pleased about it. Does that
Speaker 3: lead though, to any sort of rethink on future or
Speaker 3: longer term UK economic growth?
Speaker 9: So the way we read it, and I'm not surprised.
Speaker 9: The government has sort of been very happy about.
Speaker 8: It, because, of course, the first thing to say about
Speaker 8: the revisions, I should say is that this is all
Speaker 8: the way up to the end of twenty twenty one,
Speaker 8: so we've had nothing about twenty twenty two and twenty
Speaker 8: twenty three, so we've had nothing really about the impact
Speaker 8: of high inflation and high interest rates and whether the
Speaker 8: economy may have been more resilient in the face of that.
Speaker 9: So we just don't know.
Speaker 8: The story still looks pretty poor on the data that
Speaker 8: we've got.
Speaker 9: What I took away from it looking at it was that.
Speaker 8: Actually the economy was less scarred from the pandemic, So
Speaker 8: the hit to the economy from the pandemic, the sort
Speaker 8: of permanent hit to output, was less severe, and that's obviously.
Speaker 9: A really really good news story.
Speaker 8: And actually going back to the government, it was a
Speaker 8: reflection of the policy that were put in place, in
Speaker 8: particular the furlough scheme, So I think it tells us
Speaker 8: something about the past. We'll be watching it's at the
Speaker 8: end of September we'll get more information about the more
Speaker 8: recent data points, so we'll definitely be watching that to
Speaker 8: see if the economy actually has been carrying more momentum
Speaker 8: and we have been too downbeat about the UK.
Speaker 10: What is your sense, Dan, of the inflation trajectory for
Speaker 10: the UK. Are we seeing a meaningful move lower in
Speaker 10: terms of prices. Are we on a sustained trajectory to
Speaker 10: lower prices that have been flagged by the Bank of England.
Speaker 8: Yeah, I mean I think you know, Tom, I think
Speaker 8: it's been all about energy here, and we know that
Speaker 8: it takes a little bit longer for the energy effect
Speaker 8: to come through because of the way household energy bills
Speaker 8: work and they enter the CPI basket. I mean, I
Speaker 8: still think we're going to get to about five percent
Speaker 8: by the end of the year.
Speaker 3: Do you think that we should be concerned around the
Speaker 3: housing market? I mean, that's another sort of element of
Speaker 3: this economic picture. It does look as if the housing data,
Speaker 3: as a result of our interest rates is worse than
Speaker 3: quite quite rapidly rapidly.
Speaker 8: Now, Yeah, I mean I think we should. I mean,
Speaker 8: I think that's and it's the bit you know, it's
Speaker 8: one of the most interest rates sensitive bits of the
Speaker 8: economy and it's exactly where you would expect these rate
Speaker 8: hikes to show up first.
Speaker 9: And we've been seeing that we've had, you.
Speaker 8: Know, we think there'll be a fall accumulative fall of
Speaker 8: about ten percent in house prices. We've had about a
Speaker 8: little bit underhalf of that if you look at the
Speaker 8: nationwide figures, so we think there's further to go.
Speaker 9: But yeah, it's it absolutely is a concern.
Speaker 8: And of course here in the UK at least, there
Speaker 8: is a there is a real link between housing confidence
Speaker 8: and spending and that's where it will start to bite,
Speaker 8: is that if consumers start to feel worried about the
Speaker 8: fact that the value of their house is falling, even
Speaker 8: though it doesn't really affect their wealth, they just feel
Speaker 8: less well off. Then yes, you know, there's potentially be
Speaker 8: a bigger hit through sentiment to spending. So yeah, it's
Speaker 8: something we're definitely watching. And you're right, I mean, we
Speaker 8: had the Rick survey. It looks like things are beginning
Speaker 8: to sort of snowball a little bit in the housing market.
Speaker 8: So it's something to definitely keep.
Speaker 9: An eye on and done.
Speaker 10: I wonder how closely the Bank of England are going
Speaker 10: to be focused on the housing sector as well. We
Speaker 10: know that traders have started to kind of pair their
Speaker 10: bets around the terminal rate from the Bank of England,
Speaker 10: but arguably we've had a few mixed messages from officials there,
Speaker 10: whether it's Andrew Bailey talking about table mounted along with you, Peel,
Speaker 10: or Catherine Mann who's on the hawkish spectrum of the NPC.
Speaker 10: Do you have clarity, do you have a clearer steer
Speaker 10: on how the Bank of England is thinking about everything
Speaker 10: that you've talked about and weaving that all together to
Speaker 10: have a clearer projection.
Speaker 8: Yeah, so I think, I mean you're I think you're
Speaker 8: right that the particularly Baileyan pill that feels like a
Speaker 8: bit of a shift.
Speaker 9: And I think the thing to remember with them is as.
Speaker 8: Well is that they're in they're part of the internal
Speaker 8: group with Ben Broadbent that tends that.
Speaker 9: Will have voted together during this hiking cycle.
Speaker 8: And I think the fact that they're shifting away from
Speaker 8: potentially the pace of rate hikes and the fact that
Speaker 8: we need rate hikes to focusing more on the level
Speaker 8: of rates and the level of the extent to which
Speaker 8: rates are restrictive is something that certainly traders and certainly
Speaker 8: we have taken notice of. I mean, going into the
Speaker 8: September meeting, I think the story around wage growth is
Speaker 8: going to dominate, and I think there's definitely something there's
Speaker 8: definitely good reason to think they will lift rates in September,
Speaker 8: and I think the market sort of is pretty much
Speaker 8: there with that. I think it's pricing about an eighty
Speaker 8: percent chance of a hike.
Speaker 3: That was Bloomberg's Chief UK economist Dan Hanson speaking to
Speaker 3: Tom McKenzie and I ahead of the Bank of England's
Speaker 3: interest rate decision, and we'll be covering that rate decision
Speaker 3: at twelve noon London time on Thursday the twenty first,
Speaker 3: and the day before will break the latest UK inflation data.
Speaker 3: That's live on Bloomberg Radio on Wednesday the twentieth, expected
Speaker 3: at seven am London time. I'm Caroline Hepke here in
Speaker 3: London and you can catch us every weekday morning for
Speaker 3: Bloomberg Daybreak Europe, beginning at six am in London. That's
Speaker 3: one am on Wall Street.
Speaker 1: Tom, Thank you, Caroline, and coming up on Bloomberg day
Speaker 1: Break weekend, we stay on Interest Rate Watch as we
Speaker 1: go to Asia to preview the Bank of Japan's policy decision.
Speaker 1: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 1: day Break Weekend, our global look ahead at the top
Speaker 1: stories for investors in the coming week. I'm Tom Busby
Speaker 1: in New York. Bank of Japan watchers moving forward their
Speaker 1: forecast for an end to negative interest rates. That's after
Speaker 1: Governor Kazuo Uwaita touched on that possibility in a recent interview.
Speaker 1: So what's next for the BOJ ahead of their next
Speaker 1: policy meeting. For more, Let's head to Bloomberg day Break
Speaker 1: Asia host Doug Krisner. Tom.
Speaker 4: The Bank of has a rate decision in the week ahead,
Speaker 4: and markets have been speculating on the BOJ possibly taking
Speaker 4: steps to adjust policy. The question is whether that bet
Speaker 4: is a bit premature. Let's bring in Paul Jackson, Bloomberg
Speaker 4: Economy editor, who joins us from our studios in Tokyo.
Speaker 4: BOJ policy we know has been ultra easy for decades now,
Speaker 4: largely because of the story on deflation. But for the
Speaker 4: last seventeen months it's a different story. Inflation in Japan
Speaker 4: has been above the boj's target. So is there a
Speaker 4: bit of urgency now to begin normalizing.
Speaker 11: Well, I think we're certainly stepping closer to that day.
Speaker 11: We have a meeting coming up, but there's going to
Speaker 11: be no major change at this coming meeting, but after
Speaker 11: recent remarks from Governor Uda to local media, definitely the
Speaker 11: scrapping of negative interest rates is now on the radar,
Speaker 11: with economists expecting that to happen in the first half
Speaker 11: next year.
Speaker 4: So that would be the policy rate. Now we talk
Speaker 4: about yield curve control quite a bit, So if why
Speaker 4: CC were to be adjusted, what might the preparation for
Speaker 4: normalcy look like on that front.
Speaker 11: Well, it's a complicated framework, isn't it. We've got two
Speaker 11: targets here, one for the short term rate, which is
Speaker 11: currently minus zero point one percent, and then we've got
Speaker 11: this target for a ten year yields, which is normally zero,
Speaker 11: but yields are going to be allowed to rise up
Speaker 11: to one percent. So I think before we can have
Speaker 11: a scrapping of the negative interest rate, that target on
Speaker 11: the ten year yield needs to be abandoned or raised.
Speaker 11: Now the question is would he do it all in
Speaker 11: one go. I think that is a possibility, though some
Speaker 11: economists argue that they'd have to address this ten year
Speaker 11: yield target first and then move to the negative rate
Speaker 11: next year.
Speaker 4: So the BOJ tweaked yield curve control back in July,
Speaker 4: and it was there that Governor Uwaita said the move
Speaker 4: was aimed in part by limiting a lot of the
Speaker 4: volatility that we had seen in the Japanese en. How
Speaker 4: does the currency enter the thinking here when it comes
Speaker 4: to tweaking policy.
Speaker 11: Well, I think, you know, if you look at the
Speaker 11: weakness in the end recently, it's getting to a point
Speaker 11: where you know, businesses are, you know, having difficulty planning
Speaker 11: for the future. Consumers are being hit by higher import prices,
Speaker 11: which is driving inflation. So we're kind of at the
Speaker 11: limit of what is acceptable on the yen level as
Speaker 11: we know. September last year, after the FED met and
Speaker 11: the BOJ met, Japan intervened to prop up the currency
Speaker 11: for the first time since nineteen ninety eight, I think
Speaker 11: that's less likely this time because we haven't had quite
Speaker 11: the sudden moves. People are more used to these yen
Speaker 11: levels this time around, and also I think a Bank
Speaker 11: of Japan Governor Huaida is a little bit more willing
Speaker 11: to talk about FX and give the impression that the
Speaker 11: boj may give the government a helping hand on helping
Speaker 11: support the currency.
Speaker 4: So when intervention is conducted, it's done under the auspices
Speaker 4: of the Ministry of finance that's different than the Bank
Speaker 4: of Japan. I understand that, but I'm wondering whether or
Speaker 4: not Governor Auwada has a level let's say in the
Speaker 4: end visa viv the dollar, that is, he's keeping a
Speaker 4: close eye on ha ha.
Speaker 11: Well, all these motheretary authorities are very reluctant to talk
Speaker 11: about levels. They say it sudden moves. But I would
Speaker 11: say that the last intervention on October last year came
Speaker 11: around the one to five to two mark, so I
Speaker 11: think it'd be very difficult for Japan to move before
Speaker 11: we've got there.
Speaker 4: Paul, thank you so much for helping us set up
Speaker 4: the BOJ meeting. In the week Ahead, Paul Jackson, Bloomberg
Speaker 4: Economy Editor, joining from Tokyo. I'm Doug Prisner. You can
Speaker 4: join Brian Curtis and myself weekdays here for Bloomberg day
Speaker 4: Break Gasia, beginning at six am in Hong Kong six
Speaker 4: pm on Wall Street.
Speaker 1: Tom, thank you, Doug, and that does it for them
Speaker 1: this edition of Bloomberg day Break Weekend. Join us again
Speaker 1: Monday morning at five am Wall Street time for the
Speaker 1: latest on markets overseas and the news you need to
Speaker 1: start your day. I'm Tom Buzzby. Stay with US. Top
Speaker 1: stories and global business headlines are coming up right now