WEBVTT - Daybreak Weekend: U.S Retail, ECB Meeting, TSMC Earnings 0:00:00.280 --> 0:00:07.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.360 --> 0:00:12.640 This is Bloomberg day Break Weekend, our global look at 0:00:12.640 --> 0:00:14.720 the top stories in the coming week from our day 0:00:14.760 --> 0:00:17.520 Break anchors all around the world. Straight ahead on the program, 0:00:17.520 --> 0:00:20.040 and look at some key economic data in the US 0:00:20.120 --> 0:00:23.480 amid and escalating tariff war between the US and China. 0:00:23.760 --> 0:00:25.400 I'm Tom Busby in New York. 0:00:25.800 --> 0:00:28.160 I'm Stephen Caroll in London, where we're taking stock of 0:00:28.240 --> 0:00:31.800 the ECB's options in the face of trade tarafuncertainty. 0:00:32.360 --> 0:00:35.239 I'm deg Prisner with a preview of next week's earnings 0:00:35.240 --> 0:00:36.800 from Taiwan Semiconductors. 0:00:38.400 --> 0:00:42.440 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.440 --> 0:00:46.160 eleven to three, Yeero, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:46.640 --> 0:00:50.920 Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, 0:00:51.320 --> 0:00:54.520 Sirius XM one twenty one, and around the world on 0:00:54.600 --> 0:00:57.760 Bloomberg Radio, dot Com and the Bloomberg Business App. 0:01:01.840 --> 0:01:03.600 To day to you, I'm Tom Busby, and we begin 0:01:03.640 --> 0:01:06.760 today's program with a look at March retail sales data 0:01:06.800 --> 0:01:10.000 in the US out this week, but it comes against 0:01:10.000 --> 0:01:13.760 the backdrop of a chaotic and escalating global tariff war. 0:01:14.319 --> 0:01:15.760 What will it tell us about the health of the 0:01:15.840 --> 0:01:19.119 US consumer and the economy as we navigate a very 0:01:19.280 --> 0:01:22.320 uncertain future. And for more we're joined by Stuart paul 0:01:22.440 --> 0:01:26.520 Us Economists with Bloomberg Economics. Now, Stuart, looking backwards the 0:01:26.560 --> 0:01:29.959 month of March, things were looking good. Inflation, wholesale and 0:01:30.160 --> 0:01:34.080 consumer inflation was better than expected. We have this consensus 0:01:34.080 --> 0:01:38.160 outlook for retail sales may surprise to the upside. Is 0:01:38.200 --> 0:01:39.160 this all good news? 0:01:39.520 --> 0:01:41.919 It is mostly good news. For the month of March. 0:01:42.400 --> 0:01:47.120 As you mentioned, inflation was relatively muted. More importantly, inflation, 0:01:47.280 --> 0:01:50.320 particularly in the items that would be affected by tariffs, 0:01:50.320 --> 0:01:54.400 were muted. And from a consumer perspective, the behavior that 0:01:54.440 --> 0:01:58.320 we saw was a front loading of purchases that consumers 0:01:58.360 --> 0:02:01.840 expect to be tariffed. So not only were consumers pulling 0:02:01.840 --> 0:02:05.360 forward their purchases of autos. Auto sales surge during the 0:02:05.400 --> 0:02:08.920 month and that should boost retail sales. They were also 0:02:09.080 --> 0:02:13.680 pulling forward their purchases of big durable goods as purchase 0:02:13.760 --> 0:02:18.640 from major retailers that sell things like washing machines, coffee makers, 0:02:18.680 --> 0:02:21.400 and so on. So we're going to get major tail 0:02:21.440 --> 0:02:27.040 whens supporting retail sales at least temporarily in advance of 0:02:27.160 --> 0:02:29.760 these tariffs. So we expect the March data to show 0:02:30.080 --> 0:02:35.399 about one point three percent monthly growth in nominal retail sales. Now, 0:02:35.400 --> 0:02:39.480 the thing is, retail sales started the year really poorly. 0:02:39.680 --> 0:02:42.919 January was terrible. So when we think about what Q 0:02:43.120 --> 0:02:46.960 one GDP growth is going to look like, real consumer 0:02:47.000 --> 0:02:49.359 spending growth for the first quarter is just going to 0:02:49.440 --> 0:02:53.240 run at an annualized pace of about zero point six 0:02:53.320 --> 0:02:57.040 to zero point eight percent. That's compared to four percent 0:02:57.400 --> 0:02:59.920 in Q four of last year. So as good as 0:03:00.120 --> 0:03:04.840 March looked, as the tariff threat became real, uncertainty is 0:03:04.919 --> 0:03:07.080 really the name of the game here, and it's going 0:03:07.120 --> 0:03:09.760 to show up in the Q one data, but probably 0:03:09.800 --> 0:03:11.680 not the March data specifically. 0:03:11.800 --> 0:03:14.560 Okay, and again that was then, because now we have 0:03:14.960 --> 0:03:18.400 a very different reality before those tariffs went into effect 0:03:18.440 --> 0:03:21.200 and now and we know things could change, and they do. 0:03:21.480 --> 0:03:23.720 Boy do they change day to day, hour to hour. 0:03:23.800 --> 0:03:27.840 It seems this tariff war really threatening consumer spending, isn't it, 0:03:27.880 --> 0:03:30.560 and frankly threatening the economy. 0:03:31.080 --> 0:03:34.680 That's right. It's again the uncertainty element is creating a 0:03:34.760 --> 0:03:38.840 huge overca overhang, not just for consumers, but also for 0:03:38.920 --> 0:03:42.080 businesses that are trying to invest and want some certainty 0:03:42.120 --> 0:03:44.560 around what policy is going to look like, who they're 0:03:44.640 --> 0:03:47.480 trading partners are going to be, and what their financing 0:03:47.520 --> 0:03:49.320 costs are going to look like. As we saw the 0:03:49.360 --> 0:03:52.760 bond market getting roiled in the last week, So you're 0:03:52.920 --> 0:03:56.400 totally right. Quick moving policy landscape is really having a 0:03:56.440 --> 0:03:59.640 major effect. A few rules of thumb that I typically 0:03:59.720 --> 0:04:03.040 like to apply when we think about let's say recession risk. 0:04:03.760 --> 0:04:08.520 An increase in the average effective tarif rate of one 0:04:08.560 --> 0:04:13.680 percentage point creates about fifteen basis points of drag on 0:04:13.840 --> 0:04:17.640 cumulative real GDP growth. So the entire move that we 0:04:17.760 --> 0:04:22.039 saw in the average effective tarif rate should shave off 0:04:22.200 --> 0:04:26.920 about three percentage points from real GDP growth. And from 0:04:26.920 --> 0:04:31.960 the inflation perspective, an increase that in the average effective 0:04:31.960 --> 0:04:35.000 tarifrate like we saw moving up to about twenty five 0:04:35.040 --> 0:04:38.560 percent should add about two and a half percentage points 0:04:38.560 --> 0:04:43.599 to cumulative core inflation. So not good, especially for the 0:04:43.640 --> 0:04:48.160 FED that's trying to balance its dual mandate of having 0:04:48.520 --> 0:04:54.159 maximum employment and price stability. These tariff threats de anchor 0:04:54.320 --> 0:04:59.200 or they unanchor inflation and inflation expectations, and they also 0:04:59.320 --> 0:05:02.080 should be creating additional slack in the economy is a 0:05:02.080 --> 0:05:04.240 problem for the FED. Where do we think that that's 0:05:04.279 --> 0:05:05.600 going to shake out for the Fed? 0:05:05.640 --> 0:05:05.839 Though? 0:05:06.200 --> 0:05:09.800 The Fed, at least outwardly is saying that they are 0:05:10.000 --> 0:05:13.400 very much so focused on raining and inflation. While the 0:05:13.480 --> 0:05:16.360 numbers were good in March, that's backward looking. They are 0:05:16.680 --> 0:05:20.680 worried about inflation pressures mounting, especially in the year year 0:05:20.720 --> 0:05:21.680 and a half ahead. 0:05:23.160 --> 0:05:25.960 And those inflation pressures are really going to hit the 0:05:26.000 --> 0:05:28.960 auto industry. Let's talk about that, because it is a big, 0:05:29.080 --> 0:05:29.840 big industry. 0:05:29.880 --> 0:05:30.080 Here. 0:05:30.160 --> 0:05:32.240 People say US doesn't make anything. We make a lot 0:05:32.279 --> 0:05:34.159 of cars. Of course, we import a lot of cars, 0:05:34.760 --> 0:05:38.360 but that twenty five percent tariff on imports is still 0:05:38.400 --> 0:05:41.200 in effect. What do you see in the auto market 0:05:41.200 --> 0:05:42.880 coming up? I mean, like you said, there was front 0:05:42.880 --> 0:05:45.720 loading of buying of autos. What happens now. 0:05:45.880 --> 0:05:50.000 There should be a cooling in auto sales and auto 0:05:50.080 --> 0:05:53.320 purchases from consumers. It's a little bit peculiar that we've 0:05:53.360 --> 0:05:58.560 seen auto prices fading just a touch so far. You 0:05:58.600 --> 0:06:01.880 would think that autodeal would be very slow to cut 0:06:01.920 --> 0:06:05.320 prices given, as you say, the expectation that there should 0:06:05.400 --> 0:06:10.600 be given the expectation that there should be higher input costs, 0:06:10.839 --> 0:06:14.680 higher prices as it meets to consumer. So we do 0:06:14.760 --> 0:06:17.280 expect to see auto sales fading to a pace of 0:06:17.360 --> 0:06:20.480 about fifty an annualized pace of about fifteen and a 0:06:20.520 --> 0:06:23.400 half to sixteen million units a year. That's even probably 0:06:23.440 --> 0:06:26.640 a touch high. By comparison, in March, we saw over 0:06:26.720 --> 0:06:30.960 seventeen point over seventeen point seven million annualized units sold 0:06:31.000 --> 0:06:34.080 during the month, So it's pretty significant fading and risk 0:06:34.080 --> 0:06:37.719 aeskewed to the downside as prices are likely going to jump. 0:06:37.839 --> 0:06:39.760 I mean, it's hard to say what consumers are thinking. 0:06:39.839 --> 0:06:43.200 Do you think the US manufacturers will see a benefit 0:06:43.240 --> 0:06:46.320 from this or is that just really wishful thinking. 0:06:47.279 --> 0:06:49.520 It's the sort of thing that if these tariffs are 0:06:49.520 --> 0:06:52.640 maintained for a long enough amount of time, it's possible 0:06:52.640 --> 0:06:56.520 that they can see some improvement if capacity is built out, 0:06:56.800 --> 0:06:59.919 if we don't see major retaliation from our trading partners. 0:07:00.680 --> 0:07:02.640 But in the interim, there are definitely going to be 0:07:02.680 --> 0:07:06.440 some growing pains, and auto producers are really struggling with 0:07:07.160 --> 0:07:08.960 how to source the inputs that they need. 0:07:09.640 --> 0:07:12.080 Wow, Well, there's a lot of uncertainty ahead. We know 0:07:12.200 --> 0:07:14.640 that US retail sales for March are out this Wednesday, 0:07:14.680 --> 0:07:17.880 ahead of Wall Street's opening bell our thanks to Stuart Paul, 0:07:18.000 --> 0:07:21.680 us economists with Bloomberg Economics. We turn now to the 0:07:21.760 --> 0:07:24.280 new earning season, which kicked off on Friday with some 0:07:24.360 --> 0:07:27.240 of Wall Street's biggest banks. What we will focus on 0:07:27.280 --> 0:07:31.320 earnings at Netflix. This earnings report will be far different 0:07:31.360 --> 0:07:33.840 from past postings and for more we're joined by Geitha 0:07:33.960 --> 0:07:39.080 rangonoffin Bloomberg Intelligence Analysts on US media. Well getha, thanks 0:07:39.080 --> 0:07:41.920 for joining us. So what will make this report from 0:07:41.960 --> 0:07:44.160 Netflix different from past reports? 0:07:44.520 --> 0:07:47.360 This time around is going to be really really different 0:07:47.440 --> 0:07:51.720 because Netflix is going to stop reporting subscriber metrics. Now, 0:07:51.720 --> 0:07:54.960 we all know that Netflix really is a subscriber story. 0:07:55.040 --> 0:07:57.320 I mean quarter in and quarter out, we all obsess 0:07:58.000 --> 0:08:00.800 over the number of new subscribers that they are going 0:08:00.800 --> 0:08:04.200 to post. But they did guide last year to the 0:08:04.240 --> 0:08:07.040 fact that they are going to stop reporting these subscriber 0:08:07.080 --> 0:08:11.080 metrics anything connected with subscriber metrics, So both the number 0:08:11.120 --> 0:08:14.040 of actual subscriber gains as well as what they call 0:08:14.320 --> 0:08:18.360 average revenue per member. They're going to stop reporting both 0:08:18.400 --> 0:08:21.920 of those starting this quarter, so it's going to be very, 0:08:22.160 --> 0:08:25.640 i think, a very different tone around time. 0:08:25.960 --> 0:08:28.000 And this comes after they hit a record number of 0:08:28.040 --> 0:08:30.960 subscribers last quarter, right, I mean, wouldn't you want to 0:08:31.280 --> 0:08:32.640 talk about if you have growth? 0:08:33.040 --> 0:08:35.840 Exactly? This is so ironic, Tom, I mean, they've just 0:08:36.120 --> 0:08:39.720 are coming off the best year ever in the history 0:08:39.760 --> 0:08:44.040 of the company forty one million new subscribers added in 0:08:44.080 --> 0:08:47.600 twenty twenty four. That is even better than it was 0:08:47.679 --> 0:08:52.160 during COVID, and so subscriber momentum is absolutely going to continue. 0:08:52.160 --> 0:08:55.360 I mean, this is by far the biggest streaming service 0:08:55.440 --> 0:08:58.679 in the world that has over three hundred million subscribers, 0:08:59.120 --> 0:09:01.480 and we actually that they are well on their way 0:09:01.480 --> 0:09:05.440 to gain about twenty five million again this year, especially 0:09:05.440 --> 0:09:07.520 with all of their new initiatives and I'm talking here 0:09:07.640 --> 0:09:10.440 about the crack down on password sharing, which they call 0:09:10.520 --> 0:09:14.000 paid sharing, as well as this new ad supported tier 0:09:14.040 --> 0:09:17.520 which is priced very very competitively at about you know, 0:09:17.559 --> 0:09:18.920 seven ninety nine in the US. 0:09:19.440 --> 0:09:22.000 Now, since they won't be reporting on that growth though 0:09:22.600 --> 0:09:25.320 let's face it, it's all about operating revenue and especially 0:09:25.640 --> 0:09:27.120 advertising revenue. 0:09:26.720 --> 0:09:30.200 Then absolutely so the biggest metric now, and this is 0:09:30.200 --> 0:09:33.000 a metric that they have been kind of trying to 0:09:33.040 --> 0:09:36.320 promote over many many quarters now kind of shifting away 0:09:36.360 --> 0:09:39.600 from this focus on subscribers to top line growth. So 0:09:39.679 --> 0:09:44.400 revenue growth is the big metric. They are projecting about 0:09:44.559 --> 0:09:49.560 eleven percent revenue increase in the first quarter, and you're right, 0:09:49.640 --> 0:09:53.000 they are, you know, expecting advertising to become a bigger 0:09:53.040 --> 0:09:56.760 and bigger portion of the business. To remember, advertising is 0:09:56.760 --> 0:09:58.719 something that they are very very new at. This is 0:09:58.800 --> 0:10:04.240 primarily a subscription driven business. So advertising last year, for instance, 0:10:04.400 --> 0:10:07.640 was less than three percent of revenue. Now, granted, that 0:10:07.840 --> 0:10:10.760 is going to increase pretty substantially as they kind of 0:10:10.880 --> 0:10:13.199 open up more and more ad inventory, as they kind 0:10:13.240 --> 0:10:16.599 of add more programming that is tailor made for advertising, 0:10:16.920 --> 0:10:19.560 but it still will be a very very small portion 0:10:19.720 --> 0:10:23.800 off the total revenue by until maybe twenty twenty six, 0:10:23.840 --> 0:10:24.680 twenty twenty seven. 0:10:25.080 --> 0:10:27.240 Well, we've seen some of those. It was the boxing 0:10:27.280 --> 0:10:29.360 match with Jake Paul and Mike Tyson that was back 0:10:29.360 --> 0:10:33.960 in November Christmas Day, to NFL teams, to NFL games playing, 0:10:34.000 --> 0:10:38.600 so big advertising opportunities there. Let's talk about though this 0:10:38.679 --> 0:10:42.559 past quarter. I believe they started WWE wrestling. We had 0:10:42.559 --> 0:10:46.560 the Screen Actors Guild, what were maybe the big revenue 0:10:46.559 --> 0:10:50.400 owners there for advertising and what's in the pipeline. 0:10:50.200 --> 0:10:53.800 So they really had a huge content Sladure absolutely right 0:10:53.840 --> 0:10:57.280 in pointing out that WWE started this January and it 0:10:57.360 --> 0:11:00.160 continues to be one of their most watched pieces of 0:11:00.320 --> 0:11:02.960 content week in and week out, So we know that 0:11:03.040 --> 0:11:06.440 it is doing really really well for them and obviously 0:11:06.520 --> 0:11:09.880 kind of contributing to the subscriber growth. And I think 0:11:09.960 --> 0:11:12.360 over time what we're going to see, Tom is we're 0:11:12.360 --> 0:11:15.880 going to see them go more aggressively after different sports rights. 0:11:15.920 --> 0:11:18.880 I mean, we have many different properties coming on the 0:11:18.920 --> 0:11:22.480 market over the next few months. Formula one is a 0:11:22.520 --> 0:11:25.199 great example, and this is something that you know, Netflix 0:11:25.240 --> 0:11:27.960 has already had a lot of series with Drive to Survive, 0:11:28.040 --> 0:11:30.160 So we think that the Formula one rights actually makes 0:11:30.200 --> 0:11:33.480 a ton of sense for Netflix. You have UFC again 0:11:33.520 --> 0:11:36.200 that kind of complements the whole you know, WWE. So 0:11:36.240 --> 0:11:38.800 we think eventually they are going to go into sports 0:11:38.880 --> 0:11:42.400 rights much more aggressively, which again builds their live programming 0:11:42.440 --> 0:11:47.200 slate and again works really well for that advertising, you 0:11:47.240 --> 0:11:50.360 know revenue base. Now in terms of content, I mean 0:11:50.400 --> 0:11:53.000 of course, they had a really strong content lineup in 0:11:53.040 --> 0:11:55.920 the first quarter of twenty twenty five, but you know it, 0:11:56.120 --> 0:11:59.040 the whole year actually is just going to be one 0:11:59.120 --> 0:12:02.520 blockbuster after the other. So, you know, just to give 0:12:02.559 --> 0:12:05.440 you an example, you know, you have a Squid Game 0:12:05.720 --> 0:12:08.960 the season finale, that the final season coming up. You 0:12:09.040 --> 0:12:12.000 have Stranger Things the final season coming up this year. 0:12:12.360 --> 0:12:15.160 You have Wednesday the next season coming up there. So 0:12:15.360 --> 0:12:18.280 you know they have constantly referred to twenty twenty five. 0:12:18.360 --> 0:12:21.040 Really the content state is being an embarrassment of riches. 0:12:21.440 --> 0:12:23.600 So it is going to be a lot of good 0:12:23.679 --> 0:12:26.480 content and a lot of titles to choose from. 0:12:26.559 --> 0:12:30.240 Netflix's first quarter earnings out this Thursday, our thanks to 0:12:30.280 --> 0:12:34.440 Githa raganathin Bloomberg Intelligence analyst on US media, and coming 0:12:34.520 --> 0:12:36.440 up on Bloomberg day Break weekend, we'll look at the 0:12:36.440 --> 0:12:41.000 ECB's options in the face of Trump tariff uncertainty. I'm 0:12:41.040 --> 0:12:59.600 Tom Busby, and this is Bloomberger. This is Bloomberg day 0:12:59.600 --> 0:13:01.680 Break week again, our global look ahead at the top 0:13:01.720 --> 0:13:04.880 stories for investors in the coming week. I'm Tom Busby 0:13:04.880 --> 0:13:07.400 and New York. Up later in our program will look 0:13:07.440 --> 0:13:10.640 ahead to first quarter earnings from the chip maker TSMC. 0:13:11.000 --> 0:13:15.360 But first, European Central bank officials under pressure to respond 0:13:15.480 --> 0:13:19.760 as US President Donald Trump's tariffs wreak havoc with global markets. 0:13:20.040 --> 0:13:23.240 But just how should policymakers react in the face of 0:13:23.280 --> 0:13:26.160 such uncertainty. For more, let's go to London and bring 0:13:26.160 --> 0:13:29.040 in Bloomberg Daybreak europe Banker Stephen Carroll. 0:13:29.120 --> 0:13:32.640 Tom European Central Bank policymakers have lowered the deposit rate 0:13:32.880 --> 0:13:36.120 six times since last June. At its current level of 0:13:36.120 --> 0:13:38.920 two and a half percent. It's approaching territory that some 0:13:39.000 --> 0:13:43.680 think no longer constrains demand, but economic realities have shifted. 0:13:43.960 --> 0:13:46.920 With Trump's tariffs and the threat of an escalating trade 0:13:46.920 --> 0:13:50.160 war between the US and China, hammering financial markets and 0:13:50.600 --> 0:13:53.920 raising the specter of a global recession. Analysts and traders 0:13:53.920 --> 0:13:57.079 have become increasingly convinced that the only direction for Euro 0:13:57.200 --> 0:14:01.199 Area interest rates is down, and some key rate setters 0:14:01.200 --> 0:14:04.480 are backing another cut this time around. Francis Fons Pavio 0:14:04.600 --> 0:14:07.360 de Gallo says the ECB should lower interest rates soon 0:14:07.800 --> 0:14:10.880 as the post tariff market fallout favors such a move. 0:14:11.480 --> 0:14:13.319 He went on to argue that the trade war will 0:14:13.320 --> 0:14:16.440 have a non negligible direct impact on the economy that 0:14:16.480 --> 0:14:19.800 will take about a quarter percentage point of growth this year. 0:14:20.160 --> 0:14:23.560 Nevin lad Gallo joins others, including Finland's Uli Ren who 0:14:23.600 --> 0:14:26.400 are convinced that the current backdrop makes the case for 0:14:26.520 --> 0:14:31.040 cutting rates stronger. Based on an assessment of inflation and growth. 0:14:31.480 --> 0:14:35.640 Nichols for an April cut. Aside, other policymakers have restrained 0:14:35.640 --> 0:14:39.000 from saying where rates may settle given the elevated uncertainty. 0:14:39.200 --> 0:14:42.800 Austrian Center Bank tief Robert Holtzman maintains there's no reason 0:14:42.920 --> 0:14:45.640 for an immediate cut. He believes the Center Bank should 0:14:45.680 --> 0:14:49.760 allow the current trade related uncertainty to dissipate before considering 0:14:49.840 --> 0:14:53.800 lowering rates, further arguing that tariffs and threats of countermeasures 0:14:53.800 --> 0:14:57.040 make it next to impossible to predict if inflation in 0:14:57.040 --> 0:15:00.000 the twenty nation Eurozone will continue to approach the ECB's 0:15:00.160 --> 0:15:04.200 two target as planned. The Housman's hawkish point of view 0:15:04.280 --> 0:15:06.680 are likely clash with many of those colleagues when the 0:15:06.680 --> 0:15:10.440 Governing Council gathers in the coming days. So how much 0:15:10.480 --> 0:15:13.880 breathing room do European policymakers really have? It's something we've 0:15:13.880 --> 0:15:17.320 been discussing with Catherine Nice, chief European Economists at PAGIM 0:15:17.360 --> 0:15:18.000 Fixed Income. 0:15:18.320 --> 0:15:21.320 If we look at the euro Area, you know, I'm 0:15:21.320 --> 0:15:24.000 not saying it's easy for them to make these changes. 0:15:24.040 --> 0:15:26.520 I'm just saying relative to the US, they have way 0:15:26.560 --> 0:15:31.440 more scope to ease policy to support I mean, if 0:15:31.520 --> 0:15:34.600 we look at, for example, the tariff impact, the kinds 0:15:34.720 --> 0:15:37.920 of goods that the Euro Area tends to import from 0:15:37.920 --> 0:15:41.080 the US are not really final goods. They don't go 0:15:41.200 --> 0:15:45.320 straight into the consumption basket, so the inflationary shock will 0:15:45.360 --> 0:15:49.720 be less. You also have to factor in the you 0:15:49.760 --> 0:15:52.840 know that global growth will be slower. The Euro Area 0:15:52.880 --> 0:15:55.560 is a much more open economic region. There's a risk 0:15:55.600 --> 0:15:57.320 that China is going to dump a lot of that 0:15:57.400 --> 0:16:01.320 excess capacity. So there's all these deflationary pressures and there 0:16:01.360 --> 0:16:05.440 isn't that big inflationary push. And the starting point for 0:16:05.480 --> 0:16:08.800 the ECB is much cleaner than it is for the 0:16:08.920 --> 0:16:12.920 US because inflation already is basically at target. So I 0:16:12.960 --> 0:16:15.440 think that does other things equal make it easier. We 0:16:15.440 --> 0:16:16.720 can then talk about the fiscal. 0:16:17.320 --> 0:16:19.920 Well, let's talk about then maybe pause on the fiscal 0:16:19.960 --> 0:16:22.160 on top of the bond moves here, because the yield 0:16:22.400 --> 0:16:24.280 kind of moves that you saw in the German yield 0:16:24.280 --> 0:16:27.240 prior to all these terror announcements was pricing in fiscal 0:16:27.240 --> 0:16:30.480 spend over the next ten years. How believable is that 0:16:30.480 --> 0:16:33.640 fiscal spend? How believable are yield at. 0:16:33.480 --> 0:16:34.320 Where they are right now? 0:16:34.880 --> 0:16:39.320 Well, who knows what they're going to announce and how 0:16:39.400 --> 0:16:43.880 quickly you know, I, you know, I do hold out 0:16:44.440 --> 0:16:47.600 some degree of optimism that you know with Germany haven't 0:16:47.640 --> 0:16:51.280 taken this bold step forward, you know, breaking you know, 0:16:51.400 --> 0:16:54.320 smashing through a couple of political red lines to get 0:16:54.360 --> 0:16:59.160 through significantly higher defense and infrastructure spending that they're sort 0:16:59.200 --> 0:17:02.000 of leading from the front, and we see more initiatives 0:17:02.120 --> 0:17:05.280 like this. I think we could see perhaps you know, 0:17:05.320 --> 0:17:09.480 we're seeing some leaks in the press around EU bond issuance, 0:17:09.640 --> 0:17:12.000 you know, something that looks a bit more grant likes, 0:17:12.119 --> 0:17:14.440 but perhaps just a fraction of the size of the 0:17:14.560 --> 0:17:18.240 kind of package we saw during the pandemic. We could see, 0:17:18.320 --> 0:17:21.840 you know, a coalition of the willing also forging together, 0:17:21.960 --> 0:17:27.320 so you know, a European not an EU vehicle financing 0:17:27.400 --> 0:17:32.359 vehicle to support defense. You know, we've already seen the 0:17:32.400 --> 0:17:35.920 EU water down and ease and change some of its 0:17:36.000 --> 0:17:40.080 fiscal spending rules to give member states more discretion. So 0:17:40.240 --> 0:17:42.800 all of this, I think is still to play for. 0:17:43.280 --> 0:17:46.800 That was Catherine Nice, chief European economist at PGIM Fixed Income, 0:17:46.800 --> 0:17:50.040 speaking to Bloomberg's critic Good to Guy Johnson and Anna Edwards. 0:17:50.560 --> 0:17:54.840 So Trump has laid his gauntlet. How should the ECB respond? 0:17:54.920 --> 0:17:58.000 It's a question I put to ECB reporter Janna Randou. 0:17:57.960 --> 0:18:02.159 Words is the first line off the I mean EASYB 0:18:02.280 --> 0:18:06.080 President Christine le Gard is not known for being titled 0:18:06.119 --> 0:18:10.359 when it comes to criticizing tariffs or Trump. But also, 0:18:10.400 --> 0:18:13.840 of course, in order for that to be effective, that 0:18:13.960 --> 0:18:18.040 needs somebody to listen, and I'm not so sure you 0:18:18.040 --> 0:18:21.280 know she has. She has the right counterpart there. But 0:18:22.000 --> 0:18:25.800 of course we need to say that uncertainty itself is 0:18:25.840 --> 0:18:29.800 bad for the economy, for for for confidence. Uh, it's 0:18:29.840 --> 0:18:33.400 not something the ECB will will react to. So inflation 0:18:34.000 --> 0:18:37.200 is still the guiding staff for everything the ECB does. 0:18:37.359 --> 0:18:40.840 And of course it's much too soon to tell what 0:18:40.960 --> 0:18:45.720 kind of implications uh, the the events of the past days, weeks, 0:18:45.920 --> 0:18:50.480 months have on inflation in the Aurozone. Growth for sure 0:18:50.680 --> 0:18:53.400 is probably going to be weaker as a result of 0:18:53.560 --> 0:18:59.000 what we've seen on inflation. The verdict is very much unclear, 0:18:59.160 --> 0:19:02.679 and and that I think will very much complicate the 0:19:02.760 --> 0:19:06.800 debate at the upcoming meeting and also the decision. 0:19:07.119 --> 0:19:11.520 Yeah, indeed, because this challenge of balancing the inflationary risks, 0:19:11.600 --> 0:19:15.080 because you know, higher tariffs could in theory boost inflation 0:19:15.240 --> 0:19:18.400 but also hurt growth, which which makes it a difficult 0:19:18.480 --> 0:19:20.760 balance for policymakers to try to work out. 0:19:21.400 --> 0:19:25.679 Absolutely absolutely, I mean, it really seems that growth is 0:19:25.720 --> 0:19:30.720 going to be lower because of uncertainty because tariffs essentially 0:19:30.800 --> 0:19:36.400 close off export markets. You will find optimists who say, well, 0:19:36.440 --> 0:19:39.040 but there are you know, you can explore new export markets, 0:19:39.280 --> 0:19:42.880 you can form close trade alliances elsewhere. But that's more 0:19:42.920 --> 0:19:45.480 of a medium to long term thing. In the short term, 0:19:45.520 --> 0:19:48.400 it will hit growth on inflation. It very much depends 0:19:48.480 --> 0:19:51.760 on the kind of tariffs, which kind of goods, It 0:19:51.880 --> 0:19:56.280 very much depends on the countermeasures, It depends on the duration. 0:19:57.560 --> 0:19:59.960 So yeah, your guess is as good. 0:19:59.760 --> 0:20:03.440 As well a little bit less guess work coming from 0:20:03.480 --> 0:20:07.080 markets when it comes to this upcoming decision from the CB. 0:20:07.280 --> 0:20:10.760 They're pricing in a rate cut, but how much divergence 0:20:10.880 --> 0:20:13.720 is there amongst policymakers. What have we heard in terms 0:20:13.720 --> 0:20:16.840 of the views about how the ECB should act now 0:20:16.880 --> 0:20:19.240 given all of the uncertainty that you just mentioned. 0:20:19.600 --> 0:20:22.560 Yeah, I mean everyone will probably tell you and has 0:20:22.640 --> 0:20:29.040 told us, that agility is needed, vigilance is needed, caution, 0:20:30.560 --> 0:20:34.080 no pre commitment, which makes of course, you know, figuring 0:20:34.080 --> 0:20:38.640 out what will happen very difficult. I would say that 0:20:39.200 --> 0:20:42.479 while it was you know, you could say fifty to 0:20:42.480 --> 0:20:45.200 fifty on whether there was going to be a cut 0:20:45.640 --> 0:20:49.720 or not at the upcoming meeting right after the last one. 0:20:50.080 --> 0:20:55.520 Now I would say the consensus has shifted more toward 0:20:55.560 --> 0:20:59.160 of you know, favoring and more favoring a cut, even 0:20:59.160 --> 0:21:01.560 though there are are still skeptics, and I spoke to 0:21:01.600 --> 0:21:04.280 one of them just before the quiet period kicked in. 0:21:04.320 --> 0:21:08.080 That's Austria, as Robert Holtzmann, who says there's absolutely no 0:21:08.200 --> 0:21:10.840 reason of why the ECB should cut at this point 0:21:10.880 --> 0:21:13.600 in time. Inflation is nearly at the target in interest 0:21:13.680 --> 0:21:17.480 rates so low, uncertainty is incredibly high, and we should 0:21:17.480 --> 0:21:20.760 really wait until the fog has cleared. And and that 0:21:20.840 --> 0:21:24.439 makes sense in my ear, of course. But at the 0:21:24.440 --> 0:21:27.000 same time, I believe people who say, well, you know, 0:21:27.040 --> 0:21:31.440 if uncertainty is this high, that dams investment that you know, 0:21:31.520 --> 0:21:36.000 puts in place processes that aren't easily fixed. And also 0:21:36.440 --> 0:21:42.560 with inflation moving toward the target, we have room to yeah, 0:21:42.600 --> 0:21:45.720 to move into a more neutral policy setting. So there's 0:21:45.840 --> 0:21:51.159 arguments for both sides, and overall it won't be an 0:21:51.160 --> 0:21:54.920 easy meeting. There will be disagreements and differences of opinion, 0:21:54.960 --> 0:21:59.600 but I think a cut is what needs to be expected. 0:22:00.840 --> 0:22:04.880 Well, just you mentioned the trajectory that inflation had been 0:22:04.880 --> 0:22:07.440 going in as well, just remind us of where we 0:22:07.480 --> 0:22:10.840 are in that process, because we are down dramatically from 0:22:10.880 --> 0:22:13.840 the spike that we saw during the energy crisis a 0:22:13.840 --> 0:22:14.600 couple of years ago. 0:22:15.160 --> 0:22:19.359 Yeah, so we moved from a peak of just over 0:22:19.640 --> 0:22:23.639 ten percent, so double digit inflation, to just over two 0:22:23.880 --> 0:22:27.480 and so we are at this at this point where 0:22:27.520 --> 0:22:32.280 inflation just over to to target. With insight, we've seen 0:22:33.119 --> 0:22:37.080 quite some progress also on the core rate, and even 0:22:37.200 --> 0:22:40.040 services have come down, which which has long been and 0:22:40.640 --> 0:22:44.359 in fannas is still you know, a point where people 0:22:44.400 --> 0:22:49.800 worry because it is still still running at very elevated levels, 0:22:49.840 --> 0:22:52.439 but there has been movement in recent months so that 0:22:53.560 --> 0:22:56.960 services inflation is coming down, of course, and what the 0:22:57.040 --> 0:23:01.560 ECB is really happy about is that pages are finally 0:23:01.600 --> 0:23:06.320 on track. Wage growth has slowed, it's it's behaving exactly 0:23:06.359 --> 0:23:09.840 as policymakers expected. So they're taking a lot of confidence 0:23:09.840 --> 0:23:14.280 from the fact that essentially the domestic part of inflation, 0:23:14.440 --> 0:23:17.640 which which can which can be very dangerous because that's 0:23:17.680 --> 0:23:21.719 where you know, yeah, that's the forceful kind of uh 0:23:22.200 --> 0:23:25.520 infiction that's very difficult to control, and and that hinges on. 0:23:25.600 --> 0:23:28.280 People are being convinced that the ECP can can do 0:23:28.359 --> 0:23:31.600