Speaker 1: Welcome to the Bloomberg Surveillance Podcast and I'm Tom Keene
Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Say
Speaker 1: what you will. But there was a moment where Prince
Speaker 1: Charles in the United Kingdom showed the flag. It was
Speaker 1: twenty three years ago as the Britannia slipped out of
Speaker 1: the harbor of Hong Kong and into the Pacific Ocean.
Speaker 1: This after Christopher Patton said very simply that key phrase
Speaker 1: that we knew at the time, again twenty three years ago, Uh,
Speaker 1: the idea of moving on. I'll get the phrase for
Speaker 1: you in a moment. We are honored that on this
Speaker 1: important day for Hong Kong, Lord Patton can join us.
Speaker 1: Lord Patton, Who do you blame for this moment? It
Speaker 1: was to wait at least fifty years we didn't get there.
Speaker 1: Who do you blame? Chi Jin Ping? Chi Jinping is
Speaker 1: a new sort of Chinese dictator. Well, when I say new,
Speaker 1: different from his immediate predecessors. Um certainly is in the
Speaker 1: nineteen nineties and since nineteen while they have been far
Speaker 1: from open in Wong or in China, on the whole,
Speaker 1: Chinese leaders kept to their agreement on one country two
Speaker 1: systems that Hong Kong could continue with a high degree
Speaker 1: of autonomy with its own freedoms. What we've seen with
Speaker 1: Jijijijiinping is a determination to strengthen the party's hold over everything.
Speaker 1: He's been throwing China's weight around in a way which
Speaker 1: is in a danger to all democracies around the world,
Speaker 1: and I think he needs to be called out. And
Speaker 1: he's taken advantage of this coronavirus, which of course has
Speaker 1: been more difficult to deal with the way it was
Speaker 1: covered up in the initially by secretive communist officials. He's
Speaker 1: trying to take advantage of that. Not only in Hong Kong,
Speaker 1: but there are incursions by Chinese troops into India. They've
Speaker 1: been throwing their weight around in around Taiwan. They've been
Speaker 1: throwing their weight around in the South China Sea, despite
Speaker 1: the promises they made to President Obama. So this is
Speaker 1: down to shijin Ping, who is terrified of having to
Speaker 1: deliver in Hong Kong. The promises that people were made
Speaker 1: that they could live under the rule of law. In
Speaker 1: relatively we see this, Lord Patton on a week where
Speaker 1: Stanley hodis, there are the merchants of Hong Kong going
Speaker 1: back centuries. How would you suggest the business leaders of
Speaker 1: Hong Kong will react to this? What would be the
Speaker 1: best patent path? Well, I want to say this very clear.
Speaker 1: When I was Governor of Hong Kong, and there was
Speaker 1: great support from the American Chamber of Commerce, from the
Speaker 1: United States in general for what we were trying to
Speaker 1: secure in Hong Kong. And even though I had worries
Speaker 1: about China, as we've all did, worries about a communist system,
Speaker 1: not about Chinese people, but about about communism. And I
Speaker 1: used to lobby every year Congress to give their China
Speaker 1: Most Favored Nation status verdictively open trade, although then outside
Speaker 1: the w t O rules. And I used to also
Speaker 1: argue that whatever happened, we shouldn't danger the well being
Speaker 1: in Hong Kong. And that's still my my feeling. I
Speaker 1: think that what should happen, I hope I am following
Speaker 1: President the Secretary of States Pompeo's understandable reaction is that
Speaker 1: we should form together countries which will make a Hong
Speaker 1: Kong will make China pay for what it's doing in home.
Speaker 1: And I hope that we will stand up for Hong
Speaker 1: Kong as over five hundred political leaders and church leaders
Speaker 1: and others around the world have already done. I hope
Speaker 1: will together and I hope that business will welcome that,
Speaker 1: because there's no question at all that if you undermine
Speaker 1: the rule of law in Hong Kong, then you start
Speaker 1: to make Hong Kong a less important financial hub in Asia.
Speaker 1: It's already responsible for maybe two thirds or more of
Speaker 1: the direct investment which goes into an out of China.
Speaker 1: And I just think that a lot of people will
Speaker 1: but running their businesses from Hong Kong or about recruiting
Speaker 1: people to work in Hong Kong. So I hope business
Speaker 1: will put without without too nervousness, and fairly to China
Speaker 1: what they actually think. Um, Chris Patton, good morning from
Speaker 1: London as well as Francene, So are you saying that
Speaker 1: actually the steps taken by the US so far could
Speaker 1: could actually backfire and just hurt businesses and people that
Speaker 1: have already been through a lot in the law. Let
Speaker 1: me be absolutely clear about this and what President, what
Speaker 1: Secretary of State said, and what I imagine the President
Speaker 1: will saying course is pretty accurate. I mean he's he's
Speaker 1: defined described what everybody is saying. That this is coach
Speaker 1: and horse bol of law in Hong Kong and through
Speaker 1: the promises made to Hong Kong of one country, two systems,
Speaker 1: and that throws out overboard. And I'm very pleased that
Speaker 1: the Secretary of State made that. And so you can't
Speaker 1: argue that what's happened leaves Hong Kong with a high
Speaker 1: degree of autonomy. It doesn't. But what I hope is
Speaker 1: that the American legislature, that Senator and Congress won't move
Speaker 1: on from that and impose some sort of sanctions on
Speaker 1: Hong Kong if you want to impose sanctions on China time,
Speaker 1: but please don't heard Hong Kong at the moment, because
Speaker 1: it's been heard badly enough by what China has done.
Speaker 1: So we would you not say that that the UK
Speaker 1: and the U should actually treat Hong Kong right now
Speaker 1: as a rest of China. I hope that we will
Speaker 1: still try to work to restore some degree of autonomy,
Speaker 1: a greater degree of autonomy in Hong Kong, and that
Speaker 1: we will make China understand that there is a price
Speaker 1: to be paid for what it's been doing, not just
Speaker 1: in Hong Kong, but elsewhere too. There is next month
Speaker 1: or upcoming meeting of the G seven, and I've argued
Speaker 1: that and should make sure that Hong Kong is on
Speaker 1: the agenda there, and that President Trump, who I think
Speaker 1: will be in the chair at that meeting, and others
Speaker 1: together a common position on Hong Kong and on China.
Speaker 1: We all have the same interests, whether commercial or otherwise,
Speaker 1: in relation to China. Where you look at the annual
Speaker 1: reports of the international Chambers of commerce in Beijing, Japanese, American, European,
Speaker 1: they all do the same thing. They all make the
Speaker 1: same complaints about the way that China does business. And
Speaker 1: what we need to do is not work separately in
Speaker 1: relations to China. We need to have a common position
Speaker 1: that will terrify China's picking us off one of the
Speaker 1: Lord Patton, your comment from twenty three years ago, your
Speaker 1: historic single sentence, I have relinquished the administration of this government.
Speaker 1: God saved the Queen. Pattent, What is your advice this
Speaker 1: morning to the Secretary of State of the United States,
Speaker 1: As you call for an allied response, a developed, developed
Speaker 1: economy response. What would be your counsel to Mr Pompeio.
Speaker 1: My counsel to Mr Pompey would be first of all,
Speaker 1: to thank him for the interest he has taken in
Speaker 1: Hong Kong, which I think is widely, widely and enthusiastically
Speaker 1: accepted in Hong Kong. He's not interfering in Hong Kong.
Speaker 1: He's expressing the sentiments of the democratic politician about the
Speaker 1: possible fate of a what was UH community under the
Speaker 1: rule of law. So I thank him for that. And
Speaker 1: the Chinese don't understand that the problems in Hong Kong
Speaker 1: because of them, not because from people from outside. But
Speaker 1: I would also ask him to remember that liberal democracies
Speaker 1: around the world, and I mean the word liberal not
Speaker 1: in a particularly American sense, but in the classical sense.
Speaker 1: Open societies around the world are always strongest when they
Speaker 1: worked together. The world did so well for fifty or
Speaker 1: sixty years because under American leadership, Europe, Japan, Canada, Australia,
Speaker 1: United States, all of us worked together under American leadership.
Speaker 1: And I hope that that's what this administration or a
Speaker 1: future administration will do. Because oh, that China is an
Speaker 1: enemy to us. Now, I'm sorry to say that, but
Speaker 1: that's how it behaves not Chinese people that the Chinese
Speaker 1: Communist Party loo patnant. You started off by saying that,
Speaker 1: you know, President she is going to beyond what any
Speaker 1: other leader has done so far, and you called him
Speaker 1: a dictator. Why do you think he feels emboldened enough
Speaker 1: to do that now when when predecessors hadn't. But he
Speaker 1: feels emboldened to do it. But first of all because
Speaker 1: he reckons that the rest of the world, and it's true,
Speaker 1: are very preoccupied with with fighting the pandemic, which got
Speaker 1: as bad as it has been, partly because of the
Speaker 1: secrecy and mendacity of the Communist Party in the early
Speaker 1: stages when they're very brave Chinese doctors would find that
Speaker 1: blow the whistle on what was happening in Wuhan. But
Speaker 1: I also think that he's probably under a great deal
Speaker 1: more pressure and reacting with some nervousness because, first of all,
Speaker 1: is the party of the way the pandemic was handled.
Speaker 1: And I think it's also true that the impact on
Speaker 1: the economy in China is going to see unemployment rising
Speaker 1: and all sorts of economic and social tensions are related
Speaker 1: to that, and what I think he is trying to
Speaker 1: do is to whip up as much nationalist sentiment as possible,
Speaker 1: claiming that everything that's going wrong is because of black hands,
Speaker 1: because of the United States, because of the outside world.
Speaker 1: I wanted to deflect attention from the fact that the
Speaker 1: real problem is how the Chinese Communist Party behaved, and
Speaker 1: China and communist parties are always ultimately the same. They're
Speaker 1: brutal and their liars should should how should you deal
Speaker 1: with them? So we were from Anglomroke. I mean, it's
Speaker 1: pretty big accusations that you're saying. If if you get
Speaker 1: Europe and how what Angela Merkel was saying. She she
Speaker 1: seems to intimate that actually the EU should should get
Speaker 1: closer to to China because of economic ties. Would that
Speaker 1: be a mistake? I think I can't believe she actually
Speaker 1: said that. I think it would be a terrible mistake.
Speaker 1: What we should try to do is to make sure
Speaker 1: that China behaves by the rules, that China keeps the
Speaker 1: agreements it makes, which he doesn't do at the moment.
Speaker 1: I don't believe in cutting off all ties with but
Speaker 1: I do believe in standing up to China when it
Speaker 1: breaks its word to it to us and it does over.
Speaker 1: But we will need to have some sort of relationship
Speaker 1: with China if we're going to deal with future pandemics,
Speaker 1: and in the years ahead, for example, there are going
Speaker 1: to be big problems about anti microbial resistance, given not
Speaker 1: least that of the antibiotics in the world are made
Speaker 1: in China, So we will need to have some sort
Speaker 1: of agreement. Will need to find agreements, which they on
Speaker 1: the environment, we need to do that on trade. But
Speaker 1: when they break them, when they kind of bully, as
Speaker 1: they've been doing recently in Australia, and as they've done
Speaker 1: in Sweden, as they've done in Norway and elsewhere, we
Speaker 1: need to step up to them. These new wolf borrior
Speaker 1: diplomats who give a bad name need to be told
Speaker 1: to get out of place. Chris Patton, how do we
Speaker 1: find a new show and lay? I mean after Mao,
Speaker 1: a gentleman came along who allowed for a handshake with
Speaker 1: Richard Nixon. If China is in search of a way
Speaker 1: to calm things down, can you identify that person or
Speaker 1: can you identify the process within their totalitarian regime or
Speaker 1: you get to the next show and lay now. I
Speaker 1: can't and nobody from the outside can. What you can
Speaker 1: depend on is it even it looks completely united against
Speaker 1: the world. You can depend on the fact that there's
Speaker 1: politics going on in there like nobody's business. But you know,
Speaker 1: how did how do you manage to express a country
Speaker 1: view in China? If when you do so, your or
Speaker 1: does disappear straight away? I noticed that in the vote
Speaker 1: in the in the rubber stamp parliament today there was
Speaker 1: one dissenting vote on the Hong Kong resolution and six
Speaker 1: I think who who abstained? I imagine that they're already
Speaker 1: in re education camps and learning the right things to do.
Speaker 1: So it's very difficult to be a dissident in China,
Speaker 1: and this president Ji jinpingalist dictator has don't forget and
Speaker 1: closed down any dissident activity that he's seen. Um he's
Speaker 1: locked up human rights lawyers, one or two people who
Speaker 1: were critical of him, UM the way he handled the
Speaker 1: coronavirus have simply disappeared. And those who tried to on
Speaker 1: the social media try to set out what was happening,
Speaker 1: they've been closed down. This is this is not some
Speaker 1: it's done a good Guy, and he is intent on
Speaker 1: sending his Ministry of State Security into Hong Kong, which
Speaker 1: is the sort of equivalent of the Chinese KGB. And
Speaker 1: they're not being sent to Hong Kong in order to
Speaker 1: sell dim Sum. Actually try to shut up anybody who
Speaker 1: objects to what China lord pattern. Across from Alexandra House
Speaker 1: and down from the Mandarin Hotel and Central Square are
Speaker 1: the offices of the JP Morgan Company. I want you
Speaker 1: to advise American banking right now on what their approach
Speaker 1: should be after this historic day. How should James Diamond
Speaker 1: and others sustain and project in Hong Kong. Well, I
Speaker 1: think they should be a very cautious, which I imagine
Speaker 1: they will be. I hope they went pull out of
Speaker 1: Hong Kong. What's actually been happening as China has been
Speaker 1: trying to tighten its grip on Hong Kong. What's been
Speaker 1: happening is unfortunately quite a lot of I think, particularly
Speaker 1: younger executives, who have been wanting to move elsewhere. But
Speaker 1: I'm good, delight, I'm pleased that the main banks and
Speaker 1: others are still there in Hong Kong, and I hope
Speaker 1: that they will continue to support the American Chamber of
Speaker 1: Commerce and the American Chamber of Commerce will continue to
Speaker 1: stand up for the rule book, will continue to stand
Speaker 1: up of law, will continue to stand up for all
Speaker 1: those things which have helped Hong Kong and American business
Speaker 1: in Hong Kong, an American business around the world to
Speaker 1: prosper because American business is so successful, because it's helped
Speaker 1: to create an environment markets can operate in a fair
Speaker 1: on a fair basis, and I think that's the way
Speaker 1: that the best banks have behaved, not occasionally without without
Speaker 1: getting things wrong. But we won't go back over all
Speaker 1: that there's still better than an alternative. I can in
Speaker 1: gole Chris Patton, thanks so much for joining us. We'll
Speaker 1: have to get you back on also to address some
Speaker 1: of the issues out there on the South China Sea
Speaker 1: and whether that's where the first confersation between the US
Speaker 1: and China will actually happen. Christopher Patton, their former governor
Speaker 1: of Hong Kong. Let's start the program this morning show
Speaker 1: where we can do that with Evan Brown of UVSS Management.
Speaker 1: Evan Fancaster to catch up with you, sir. Let's just
Speaker 1: start with a question that I think is on a
Speaker 1: lot of people's minds at the moment, it is clear
Speaker 1: that the relationship between China and the United States is
Speaker 1: breaking down again. What's less clear is why this market
Speaker 1: is not picking up on it outside of the hank saying,
Speaker 1: outside of the Chinese currency, what's your read on things
Speaker 1: right now? Evan, Yeah, I think I think the market
Speaker 1: is taking a lot of these broader issues on Hong Kong,
Speaker 1: on technology, on capital flows and separating them from trade.
Speaker 1: They see the Hong Kong issues as more as more
Speaker 1: regional and drawn out and view from the over rightly
Speaker 1: or wrongly, the view from the overall market is that
Speaker 1: as long as this Phase one trade deal stays in place,
Speaker 1: then it's not so much a global market issue. And
Speaker 1: I think, uh it was actually on that on that point.
Speaker 1: Very interesting that on Friday the U S Trade Representative
Speaker 1: and U S Department of Agriculture coming out with a
Speaker 1: joint statement and saying that the trade the trade agreement
Speaker 1: is still going well, and if even in the context
Speaker 1: of obviously China purchasing a lot fewer agricultural goods than
Speaker 1: than was agreed, and so the administrations are really trying
Speaker 1: to separate trade from technology in Hong Kong and the lake.
Speaker 1: And as long as that happens, I think the market
Speaker 1: will be able to to hold that. Yeahvin, let me
Speaker 1: ask a sixty question your multi asset. Where is the
Speaker 1: gain right now in the multi of multi asset? Which
Speaker 1: part is where I can be comfortable being if a
Speaker 1: man actually trying to make a gain over the next
Speaker 1: twelve months. Yeah, so I think, um, Well, if you're
Speaker 1: really trying to make a gain, I think it's uh,
Speaker 1: it's buying some of the laggards here, buying some of
Speaker 1: the things where we're seeing a genuine policy change and
Speaker 1: where they're deep valuations. So I was starting in Europe
Speaker 1: right We everyone's hated European banks forever, but I do
Speaker 1: think we are seeing some meaningful, meaningful policy changes happening
Speaker 1: out of Europe with with the recovery plan announced yesterday.
Speaker 1: Obviously we know this is going to take time to
Speaker 1: get agreed upon, but the direction of travel is is clear,
Speaker 1: and the signals for Merkel from Germany, the leader of
Speaker 1: the facto leader of Europe going forward towards a fiscal
Speaker 1: union is really important. So I could see some rerating there.
Speaker 1: And also people should start paying attention to Japan massive
Speaker 1: fiscal stimulus coming out of Japan right now. Um, and uh,
Speaker 1: you know, if we're looking at monetary and fiscal combination
Speaker 1: and the power that that that can create for an economy,
Speaker 1: we're not finally getting it from Japan. We've had it
Speaker 1: on the monetary side, but not this strong on the
Speaker 1: fiscal side. So, um, the deep value opportunities there to
Speaker 1: pick up. Evan, I want to pick up on what
Speaker 1: you were talking about, the e use fiscal response that
Speaker 1: we saw proposed not yet past, still facing some resistance,
Speaker 1: probably from the frugal four. You wrote that the distribution
Speaker 1: of risks right now for Europe are poised to the
Speaker 1: upside from being to the downside earlier. Where do you
Speaker 1: see this not priced into risk assets in Europe? The
Speaker 1: idea that the EU proposal will get past in its
Speaker 1: current form and will bleed into the region. Yeah, so
Speaker 1: all right, And and and in terms of the distribution
Speaker 1: of risk, I mean, I'll tell you I was concerned
Speaker 1: myself about about Europe when that German court ruled against
Speaker 1: against the e c B. And and I think it's
Speaker 1: scared Mercle too. And I think that's why we're seeing
Speaker 1: this change on the fiscal side. But I think where
Speaker 1: it's it's not so much price. UH is European Bank
Speaker 1: that's definitely one of them. Italian equity is extremely cheap.
Speaker 1: But I really think this is going to go a
Speaker 1: long way in people looking at the at the fiscal
Speaker 1: trajectory of Italy. Obviously it's ugly, but just the signal
Speaker 1: that Europe is moving the direction saying we have your back.
Speaker 1: And to be honest, these frugal floor um, you know
Speaker 1: they're putting up a fight, but honestly they don't have
Speaker 1: that much leverage when you have the four main leading
Speaker 1: countries of Europe, uh, you know, Germany, France, Italy, Spain
Speaker 1: behind this and UH and and so I think that
Speaker 1: their their their power in in driving or slowing down.
Speaker 1: This debate is probably exaggerated. Evan. You'll have to forgive me.
Speaker 1: Maybe I'm a glass half empty kind of guy, in
Speaker 1: which case I'm sorry. But Tom, how long have we
Speaker 1: been talking about this? And maybe I've just been conditioned
Speaker 1: by much of the last ten years. There are still holdouts.
Speaker 1: Let's even say that they capitulate the Netherlands, Australia, Austria
Speaker 1: come along with this whole plan. You've still got to
Speaker 1: wait until early next year for that capital to be deployed.
Speaker 1: Just think about that. Every month matters. Right now, we're
Speaker 1: sitting here in the United States arguing about whether d
Speaker 1: C whites a month or two. Europe, even if it
Speaker 1: gets his act together, won't be able to deploy this
Speaker 1: until the start of next year. There's no question to
Speaker 1: the timeline here, folks, is really really, really quite something. Heaven.
Speaker 1: One of your thoughts on that, how fast can Europe move?
Speaker 1: Not fast? Unfortunately, nothing, Nothing is easy in Europe, and
Speaker 1: that's why you know, we crucially are going to rely
Speaker 1: on the e c B to form a bridge over
Speaker 1: the course of this time before we can really get
Speaker 1: things going. I think I think that's why we're not
Speaker 1: necessarily saying jump all in on on European equities in
Speaker 1: European assets right now, because it's you're not going to
Speaker 1: see the speed that you're seeing in Japan right now.
Speaker 1: I mean, we are nervous about the the US not
Speaker 1: acting quickly enough. At least in Europe, you have some
Speaker 1: better automatic stabilizers in the background than you do, say
Speaker 1: in the in the US or perhaps some other regions.
Speaker 1: But the burden will definitely at Lee, Uh depend on
Speaker 1: the ECB ramping up its QE program and finding ways
Speaker 1: around these ongoing core challenges from U coming out of Germany. Ivan,
Speaker 1: I love it. Nothing is easy in Europe. I will
Speaker 1: say nothing is particularly easy in the US right now
Speaker 1: when it comes to reopening the economy, and that's been
Speaker 1: one of the driving issues that it's been pushing stocks higher.
Speaker 1: How complicated is it when we talk about reopening at
Speaker 1: a time when people still don't know that much about
Speaker 1: the virus, the path, the spread. Where are you looking
Speaker 1: to find value amid this sort of risk on tilt
Speaker 1: with reopening still very much unproven. It's it's really tricky, Lisa.
Speaker 1: I mean we we have the same kind of uncertainty
Speaker 1: that that everyone does. I think, Um, you know, we're
Speaker 1: we're obviously looking at all the high frequency data that
Speaker 1: that Google and Apple and others are providing showing activity
Speaker 1: of gradually picking up. I think the market is liking that.
Speaker 1: They like to see things getting less add but clearly
Speaker 1: on a year over year basis, overall levels of activity
Speaker 1: are still quite quite depressed. So we're tracking it. We're
Speaker 1: not trying to make big predictions about it. So clearly
Speaker 1: we're seeing some improvement right here, it could stall out
Speaker 1: because reopening or not, it comes down to whether people
Speaker 1: feel comfortable, do they feel safegoing out um and I
Speaker 1: think that's that psychological barrier is going to take a
Speaker 1: while to get through, and that's why it's so crucial
Speaker 1: that we get a new fiscal plan coming through so
Speaker 1: that you know, as the private sector has this caution.
Speaker 1: The private sector always has caution after a recession, but
Speaker 1: especially dealing with an uncertain virus that you're going to
Speaker 1: need to see on the fiscal side, you know, consumers
Speaker 1: made whole businesses, uh, you know, continued lenning and support
Speaker 1: there and and most importantly, I think at state and
Speaker 1: local governments which have been on the front line of
Speaker 1: this crisis. Evan, great to catch up with you. So
Speaker 1: we've got to continue that European conversation at a light
Speaker 1: to day Evan Brown, that of UBS asset management. It's
Speaker 1: really going to be interesting to see how Mr Pompeo
Speaker 1: and the President adapt and adjust to the reality that
Speaker 1: two thousand forty seven is here. There have been many
Speaker 1: good thinkers on this over the years. One of the
Speaker 1: greats has been Jonathan Fenby of T S Lombard. He's
Speaker 1: put out not one but a series of books on China,
Speaker 1: and one of them, of course, was a wonderful monograph,
Speaker 1: fabulous book. Will China Dominate the Century? Jonathan Fenby? Will
Speaker 1: Beijing dominate Hong Kong? Well, politically, that is certainly the
Speaker 1: way we're going. Uh. The the decision to put national
Speaker 1: security legislation through the National People's Congress, which was approved
Speaker 1: today in Beijing, that shows that Beijing is going to
Speaker 1: take political control I think in Hong Kong, delegating some
Speaker 1: activity to the local government, but definitely the national interest
Speaker 1: now predominates. Jonathan, has to be an objective, and for
Speaker 1: much of the last several decades, the objective was to
Speaker 1: try and shape and influence the behavior of the Chinese
Speaker 1: Communist Party. What's the objective now in Washington? The objective
Speaker 1: in Washington now, I think is to accept you growing
Speaker 1: friction with China and to try to move business away
Speaker 1: from China, to undermine that economic political link which was
Speaker 1: built up after Dengshaw things opening up at the end
Speaker 1: of the nineteen seventies. Uh. And this is actually, to
Speaker 1: my mind, reflected in China, where you've got this growing
Speaker 1: emphasis on self reliance on absorbing pressure from the United States,
Speaker 1: And as you were saying just a few moments ago,
Speaker 1: the whole question now, I think, is how Trump moves
Speaker 1: on the ass of what might Pompeo gave us last
Speaker 1: night on saying Hong Kong no longer have the high
Speaker 1: degree of autonomy on which the relationship was based. Alright,
Speaker 1: So Jonathan, let's talk about next steps. There is talk
Speaker 1: about the US provoking Hong Kong's special trading status, and
Speaker 1: we're even hearing some leaders of the protest movement over
Speaker 1: in Hong Kong support this measure. But experts say that
Speaker 1: this will actually hurt Hong Kong and the US far
Speaker 1: more than China. What's the thinking there, Yes, it's likely
Speaker 1: to hit Hong Kong more because, of course, Hong Kong's
Speaker 1: special position between the mainland of China and the rest
Speaker 1: of the world and particularly the United States, depends on
Speaker 1: that special status. If that is removed, if Hong Kong
Speaker 1: is subject to the same conditions as the rest of China,
Speaker 1: then Hong Kong will suffer and question mark will be
Speaker 1: raised over the whole American relationship with Hong Kong. So
Speaker 1: this is this is playing for some quite big stakes,
Speaker 1: and Jonathan, quite clearly one of those big stakes of
Speaker 1: the commercial relationships that China and the Communist Party has
Speaker 1: with a continent in Europe. Europe has tried to sit
Speaker 1: on the fence through all of this for much of
Speaker 1: the last several years. Jonathan, in your mind, if we
Speaker 1: approached that moment, that inflection point where Europe can no
Speaker 1: longer sit on the fence and try and play both sides, yes,
Speaker 1: so we're moving towards that, and the coronavirus crisis has
Speaker 1: has pushed in that direction. You're getting European governments having
Speaker 1: second thoughts about world wag for instance, including here in
Speaker 1: the in the UK, and I think you know there
Speaker 1: is It will take a long time in Europe, as
Speaker 1: things always do, but there is a feeling that we
Speaker 1: need Europe needs to reevaluate the relationship with China. This
Speaker 1: hasn't been made easier by the reluctance in Europe to
Speaker 1: get on board ord with Donald Trump. Europe doesn't know
Speaker 1: where the Trump administration is going and doesn't want to
Speaker 1: be in thrall to the Trump policies. But I think
Speaker 1: there's a growing feeling in Europe that they need to
Speaker 1: reevaluate the relationship with Beijing. There's a growing fear as
Speaker 1: well that what we're seeing is a more assertive dictator,
Speaker 1: a more assertive Chinese leader in the last several weeks, Jonathan,
Speaker 1: what is happening on the border with India that you
Speaker 1: have some transparency, some clarity, some details on because sitting
Speaker 1: here in New York, it's hard to get the right
Speaker 1: perspective on what is happening with China, not just in
Speaker 1: Hong Kong, but elsewhere to well, that's part of China.
Speaker 1: There's a whole series of things happening at the moment um.
Speaker 1: The South China see for instance, Taiwan, Hong Kong, and
Speaker 1: the Indian border fits into that, and China, I think,
Speaker 1: is going to press its border frontier claims there as
Speaker 1: well as elsewhere. So we're getting China operating on quite
Speaker 1: a number of fronts at the moment, and nobody quite
Speaker 1: knows how to deal with that, it seems. And all
Speaker 1: this is linked in with I think the overall desire
Speaker 1: to to use the Tompion phrase, make China great again.
Speaker 1: Jonathan Fanby One final question. I began my discussion with
Speaker 1: Lord Patton this morning talking about the Governor and Prince
Speaker 1: Charles looking back at Hong Kong as they went out
Speaker 1: into the Pacific Ocean. In that assumes a British response
Speaker 1: to this moment, how would you suggest or how would
Speaker 1: you recommend that Prime Minister Johnson respond to what we
Speaker 1: see between Washington and Beijing. Well, Um, the UK relationship
Speaker 1: with China over Hong Kong has always been a pretty
Speaker 1: difficult one to define in British terms, because as Britain
Speaker 1: still wants to go on trading with China, but Britain
Speaker 1: now has to decide whether it stands by the Joint
Speaker 1: Declaration and the position which it thought it was in
Speaker 1: as a result of Hanover agreements, and it has to
Speaker 1: define it's a much more clearly its own position there.
Speaker 1: But I don't think that Britain should have any illusions
Speaker 1: about how much weight it bears in the present relationship.
Speaker 1: I don't think anyone thinks we make it seven. Jonathan
Speaker 1: Fenby of T. S. Lombard great to catch up with you.
Speaker 1: It is our simulcast on television in radio Lisa Brownowitz,
Speaker 1: Jonathan Farrell and myself in his time where you just
Speaker 1: stop and speak to Americans confronting this policy head on.
Speaker 1: One of them is Jeoffrey Arkamoto out of Pomona in
Speaker 1: computer science and at Georgetown as well, and he has
Speaker 1: taken the position for President Trump of first Deputy Managing
Speaker 1: Director at the International Monetary Fund. Mr Akamoto, wonderful to
Speaker 1: have you on. I must speak, is Eric Martin addressed
Speaker 1: in his article on you last week. The very different
Speaker 1: skill set you bring versus the heritage of the position
Speaker 1: for America, and that is people with Wall Street experience
Speaker 1: like John Lipsky, or maybe it's people with the right
Speaker 1: pedigree of economics like your predecessor David Lipton. You are
Speaker 1: going to be different. In what way? Will you be different?
Speaker 1: Is the first Deputy Managing Director representing the interests of America. Well, thanks, Tom,
Speaker 1: it's great to be here this morning, and I'm enjoying
Speaker 1: the new format. Uh. Look, I think it's no surprise
Speaker 1: that I or no shock that I do come with
Speaker 1: a different set of skills in a different background. Um,
Speaker 1: it's just it starts from the position that I have
Speaker 1: a lot of respect for my predecessors and knowing John
Speaker 1: and and having immense respect and kinship with with David Lipton,
Speaker 1: who I still talk with. UM. But look, I think
Speaker 1: you know what we need now is is somebody who's
Speaker 1: going to be trying to bring the world together on
Speaker 1: these critical issues. We didn't anticipate a pandemic before I
Speaker 1: started in this role. We're here now, and I think
Speaker 1: since I've arrived, we've been moving quickly to try and
Speaker 1: build relationships across institutions in the multilateral framework and also
Speaker 1: bilaterally with our key countries and partners. That's what's going
Speaker 1: to be effective in not only responding to the health
Speaker 1: side of this, but also on the economics, which for
Speaker 1: some countries is just as important or even more important. Right,
Speaker 1: So much of this you mentioned bilaterally is the new
Speaker 1: non multilateral relationship of President Trump to the world. You're
Speaker 1: representing essentially an administration that is decidedly not multilateral. MS
Speaker 1: Gore Gave has pushed against that aggressively. How does the
Speaker 1: United States address on multilateral institution if it doesn't believe
Speaker 1: in the underlying theory? You know, I think you know
Speaker 1: what the US wants as an effective multilateral framework, And
Speaker 1: certainly that's something that I worked on quite a bit
Speaker 1: when I was in the in the U. S administration.
Speaker 1: I'm very proud to be in the current slot that
Speaker 1: I'm in now, which is trying to nit this up
Speaker 1: better and to make our programming more effective. This is
Speaker 1: a this is a huge challenge. One thing that we've
Speaker 1: had to deal with as as I think we all
Speaker 1: have in this crisis is moved with incredible speed. Uh.
Speaker 1: So we were talking a bit about markets and and
Speaker 1: UH and market reactions, but but really some of the
Speaker 1: optimism in the market is reflected in the fact that
Speaker 1: you know, institutions like ours have moved with incredible speed
Speaker 1: uh and at an incredible scale that's unprecedent in our history.
Speaker 1: Well in our history, Jeffrey. The history of the International
Speaker 1: Monetary Fund is simple. They are there really as a
Speaker 1: crisis policymaker of last resort and usually offer what are
Speaker 1: considered not draconian but very strict terms to any country
Speaker 1: that is in in real need. Right now, a lot
Speaker 1: of countries don't want to deal with the former I
Speaker 1: m F regime. Can you recommend to the managing director
Speaker 1: that this needs to be a kindler, kinder and general
Speaker 1: I m F. I think the conversation Crystaline and I
Speaker 1: have been having with countries as this is not your
Speaker 1: father's or even your grandfather's I m F. We are
Speaker 1: approaching the world in the in the context of this
Speaker 1: pandemic in a new way. A lot of that you
Speaker 1: can see, and how we are provisioning our facilities for
Speaker 1: for emergency finance at this point in time, which is,
Speaker 1: you know, we're telling countries very We're very frank, spend
Speaker 1: what you have to at this point, but please keep
Speaker 1: the receipts. And we're gonna be holding countries accountable on
Speaker 1: the back end for this, but we're not second guessing
Speaker 1: some of the decisions they have to make in terms
Speaker 1: of spending on critical health priorities and social safety nets.
Speaker 1: I spoke to David mel Pass of the World Bank
Speaker 1: about this question, but that was before we dragged two
Speaker 1: thousand forty seven into two thousand twenty. How will you
Speaker 1: advise the managing director and maybe over the phone owner
Speaker 1: a walk down to the hay Adams, how will you
Speaker 1: advise the Trump administration to deal with this issue of
Speaker 1: Hong Kong. You know, I think my role in this,
Speaker 1: and I think our institution's role in this is not
Speaker 1: to involve too much in the geopolitics. What we're looking
Speaker 1: at this from is from an economic perspective. And one
Speaker 1: thing that is for certain is Hong Kong is an
Speaker 1: incredibly important financial and commercial trading hub, not just to
Speaker 1: the world, but also to China and to the United States.
Speaker 1: That's underpinned by a you know, a series of policies
Speaker 1: that have been built up over time, whether it's credible
Speaker 1: monetary authority, a well regulated banking sector, uh, you know,
Speaker 1: a strong reserve position. These are the kinds of things
Speaker 1: that we'll be looking at when we see about where
Speaker 1: where Hong Kong is headed from here. And clearly the
Speaker 1: outlook for Hong Kong, well it's a little a little
Speaker 1: unclear at this point or too early to judge given
Speaker 1: recent developments, is relevant in terms of the global economic outlook.
Speaker 1: One of the things we know, and this is for
Speaker 1: our radio listeners nationwide and also television as well, Mr Okamoto,
Speaker 1: we come to a point where we say, when's the
Speaker 1: next cash call on the United States? How do you
Speaker 1: observe the fiscal structure of the I M F right now?
Speaker 1: And well, you need to go to President Trump into
Speaker 1: the Capitol Hill looking for more resources. You know. It's
Speaker 1: a it's a it's an interesting perspective. I think one
Speaker 1: way we look at it is is a little bit different,
Speaker 1: which is we're entering into this crisis better resource than
Speaker 1: we have in any prior crisis, and so we're we
Speaker 1: have a trillion dollars in financial firepower that you know,
Speaker 1: we are ready and able to deploy. That's being deployed
Speaker 1: in real time today right now. Given the even the
Speaker 1: some of the more pessimistic projections that we have, we
Speaker 1: think we have the sufficient resources that we need to
Speaker 1: carry out our our role in this Obviously, we we are,
Speaker 1: we are. We are um encouraged by the good amount
Speaker 1: of international cooperation that's come behind some of our recent
Speaker 1: requests for resources, for example, fundraising campaigns to help some
Speaker 1: of our poorest countries which have gone met. So that's
Speaker 1: that's a good thing, and that bodes well for any
Speaker 1: future needs we may have. Jeffrey, one final question, if
Speaker 1: I may, and this goes back to the heritage of
Speaker 1: the United States, and with our economic counselors at the
Speaker 1: I M F now ge to GOP and F there,
Speaker 1: but I'll go back to the time of Kenneth Rogoff
Speaker 1: of Harvard and of course to the great Rudy dorn
Speaker 1: Bush of m I. T. Long ago and far away.
Speaker 1: The fundamental difference right now in these crises plural is
Speaker 1: we have much more of a floating rate regime versus
Speaker 1: the fixed nature that we had in the fifties and
Speaker 1: the sixties. Give us your opinion of dollars strength or
Speaker 1: dollar weakness, which is most efficacious for America, you know.
Speaker 1: I I'll let the President and UH and UH and
Speaker 1: the Treasure Sectory speak on where they think the dollars
Speaker 1: should be at any given point in time. I think
Speaker 1: what's important here is that the Fed is doing all
Speaker 1: that it can to support of financial markets, both through
Speaker 1: monetary policy and through some of its financing operations that
Speaker 1: are there are forthcoming jointly with the Treasury Department. And
Speaker 1: this is obviously we enter into this world, as you said,
Speaker 1: with flexible exchange rates. That allows flexible exchange rates to
Speaker 1: be part of the buffers that help, you know, countries
Speaker 1: weather this. For some countries, this is the first time
Speaker 1: they're having to use some of these tools. And so
Speaker 1: that's where our advice, paired with ours as you put
Speaker 1: in these icons of the I M F. Historic expertise
Speaker 1: and UH and a wealth of knowledge gets deployed on
Speaker 1: the ground to help countries in real time. Mr Acomona,
Speaker 1: thank you so much for joining us today. Both Jonathan
Speaker 1: Lees and I look forward to seeing you at the
Speaker 1: next actual I MF meetings, whether it's the Spring meetings
Speaker 1: or the annual meeting. We look forward to that as well.
Speaker 1: Jeffrey Akamoto Folks, the first Deputy Managing Director of the
Speaker 1: I m F on radio and television, A must listen
Speaker 1: for Global Wall Street right now. Cheery Viceman is just
Speaker 1: really a most remarkable strategist because he's not he's Vasser
Speaker 1: and Harvard Economics, acutely sharp on emerging markets and international
Speaker 1: economics and pulling that into a strategy for Australia's Macquarie Bank.
Speaker 1: And we're thrilled he could join us this morning. I've
Speaker 1: got to go right to the dollar and the dollar
Speaker 1: dynamics theory. The President, I think you wanted week dollar
Speaker 1: and now I think you want strong dollar. What dollar
Speaker 1: are you predicting? Yeah? So so this is interesting, and
Speaker 1: I should say before that, good morning to all of you.
Speaker 1: Um this fine morning. I I we know we have
Speaker 1: a view of the dollar that sees it actually weakening
Speaker 1: versus the euro and sterling. Uh subwhat at least going
Speaker 1: into the back half of this year. Whether it's what
Speaker 1: Trump wants or not, I think is not what's relevant here,
Speaker 1: although uh, you know, what what Trump is doing is
Speaker 1: going to have some say over what the dollar does,
Speaker 1: and and particularly the election in our view, because we
Speaker 1: think that one of the issuests that market is not
Speaker 1: fackered in recently are the risk around the US election.
Speaker 1: And I'm not speaking so much about the presidential election,
Speaker 1: but of course if the Senate goes democratic, I think
Speaker 1: that the situation with regard to taxes could change in
Speaker 1: the US. We could see a shift away from US equities.
Speaker 1: It's the prevailing winds shift towards higher statutory corporate tax
Speaker 1: rates or wealth taxes or capital gains taxes. And if
Speaker 1: that were to happen, we could see the dollar start
Speaker 1: to weaken against some of the majors as as all
Speaker 1: occases around the world, simply start to move away from
Speaker 1: the US equity. So that's clearly one thing that could
Speaker 1: take the dollar a bit lower relative to the to
Speaker 1: the Euros potentially, and that's certainly something that's tied us
Speaker 1: uh political risk. But that's out there that I think
Speaker 1: the market is not taking too much account up right now,
Speaker 1: I think the rest are mild. However, right, I mean,
Speaker 1: even if we were to get something like this, there's
Speaker 1: still some issues prevailing at the downside, and the euro
Speaker 1: dollar we can not that much against euro and sterlings
Speaker 1: the backup and Sarah, you touched on the Trinyon dollar question.
Speaker 1: In the FX market, what's the driver? What's the dominant driver?
Speaker 1: Is it right differentials? Is it policy? Is it fiscal policy?
Speaker 1: Which one is it at the moment for you, Terry, well,
Speaker 1: you know, I think it's more rate differentials. At this point.
Speaker 1: It's been very difficult for the market to to make
Speaker 1: um distinctions between fiscal policy across countries. Let's say, when
Speaker 1: we're talking about trillions of dollars of spending and loan
Speaker 1: guarantees in other ways in which fiscal authorities is going
Speaker 1: to try to influence the economy. It's very very difficult
Speaker 1: to I think, in my mind for traders unitfax traction
Speaker 1: say okay, well that country is stimulating more and that
Speaker 1: country stimulating less. It all turns into a mismash at
Speaker 1: some point, especially in so far as you're not getting
Speaker 1: very much guidance, uh with regard to when all of
Speaker 1: these policies will will be ending. I will say this, however,
Speaker 1: to the extent that fiscal policy is not just stimulatively
Speaker 1: but has other effects as well, it could be important.
Speaker 1: And I'll bring up here the case of the the
Speaker 1: Pandemic Emergency Relief Fund that the EU is thinking about
Speaker 1: um going full it with AU as you guys know,
Speaker 1: about seven fifty billion euros all told in grants and loans.
Speaker 1: That's obviously going to be to some extent stimulatory. But
Speaker 1: I think the extent is going to help the Euro
Speaker 1: in the back half of this year. It's not because stimulatory,
Speaker 1: but because it speaks one of the most important medium
Speaker 1: term risk and longer term grow which is the existential
Speaker 1: risk of an ultimate Euro break up. As we see
Speaker 1: more EU unity. Because of this fiscal stimulus, it could
Speaker 1: help the Euro. But that's a special case. I think
Speaker 1: in most instances, fiscal policy, at least the magnitude of
Speaker 1: it is not that important, and it will be things
Speaker 1: like rate differentials that drive these currencies. All right, Terry,
Speaker 1: let's talk about rate differentials in an era of yield
Speaker 1: curve control. John and Tom have been talking about this extensively.
Speaker 1: We've heard from FED officials This is clearly something they're considering.
Speaker 1: If the Federal Reserve does peg the yield curve at
Speaker 1: a certain place, if it commits to buying enough treasuries
Speaker 1: to keep it there, what does that mean in terms
Speaker 1: of currencies. Does it dampen all the volatility? Does it
Speaker 1: give a lift to the dollar? I think I think
Speaker 1: it's going to dampen volatility. I don't think it's necessarily
Speaker 1: going to give a list um. And of course this
Speaker 1: is all we all have to consider this in relative terms, Right,
Speaker 1: is yield curve control better or worse for the dollar?
Speaker 1: And say the alternative strategy that that might have pursued,
Speaker 1: Let's say in an alternative universe, which was to go
Speaker 1: to say, negative rates. Uh, let's put it this way.
Speaker 1: I think if the fit did go to negative rates,
Speaker 1: it would be much worse for the dollars than if
Speaker 1: it were to do yield curve control. The problem with
Speaker 1: yelker control is that it's a very very tricky thing,
Speaker 1: of course, because if you were to peg let's say,
Speaker 1: the three year yield of the five year yield to
Speaker 1: a specific level, you would have to issue policy got
Speaker 1: in respect of the short term the overnight rate, which
Speaker 1: is consistent to where you are pegging the three year
Speaker 1: yield or the five year yield. If you make a
Speaker 1: mistake in that regard, you may have the market choose
Speaker 1: to either buy um three year paper or five year
Speaker 1: paper aggressively or sell it, in which case the said
Speaker 1: would lose control of its balance sheet. If it were
Speaker 1: to do that, I need to lose call of its
Speaker 1: balance sheet, because it's the yield in a long place.
Speaker 1: Then I think you would have a problem for the dollars.
Speaker 1: But let's assume for now that the set is pretty
Speaker 1: wise and savvy about this, and that when it takes
Speaker 1: a three year yield or the five year yield, you
Speaker 1: will do it in a mary that's consistent with the level.
Speaker 1: It's consistent with the forward guiding position, in which case
Speaker 1: mclary w us on Tom Kane's favorite subject, Terry. This
Speaker 1: drives Tom Keane totally insane. But I wonder whether it
Speaker 1: sounds more dramatic than actually is, because if they do
Speaker 1: go forward with what Williams and Clara have talked about
Speaker 1: in the last couple of weeks, all they're basically saying
Speaker 1: is that yield curve control is the following. It is
Speaker 1: a compliment to forward guidance and date contingent forward guidance.
Speaker 1: And basically they're just going to turn around and say
Speaker 1: for the next two or three years, say we'll sit
Speaker 1: on yields out to five years, three years, whatever it
Speaker 1: might be, in line with the forward guidance. And guess
Speaker 1: what the market is already there, Terry, The market is
Speaker 1: in line at the front end into the belly with
Speaker 1: the FED funds rate already. So hasn't the market already
Speaker 1: done this work, Terry? Isn't the Fed just basically saying
Speaker 1: case the cap. So I agree with Richard Clara und
Speaker 1: percent that Yelker control is complimentary and it has to
Speaker 1: be done as a compliment to Ford guidance. But there's
Speaker 1: the rub, right, if they were to make a mistake,
Speaker 1: or maybe the market misinterprets them as as as issuing
Speaker 1: a a forward guidance which is not consistent with the
Speaker 1: yield at which they're pegging the three or five year
Speaker 1: bond or the ten year bond, then you have a problem.
Speaker 1: You have to thread the needle a little bit here, right.
Speaker 1: You have to make sure that the forward guidance that
Speaker 1: can issue is specific enough. The market always interpreted to
Speaker 1: be consistent with that you're that you're in gendering promote here.
Speaker 1: That's important, I think. But like I said earlier, I
Speaker 1: think the sad IS is savvy about this. The fact
Speaker 1: that the people like Richard Clara are speaking about you
Speaker 1: controlling terms a compliment with Ford guidance and consisting four
Speaker 1: GUIDs suggesting me that it won't be a problem. Certainly
Speaker 1: not the forward. Sorry, Weiman McQuary on the license with
Speaker 1: the Federals f Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio