WEBVTT - Surveillance: Grim Outlook for Sterling with Rochester 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:29.280 Bloomberg dot Com, and of course, on the Bloomberg I'm 0:00:29.320 --> 0:00:31.200 britty pleased to say that. Joining us around the table 0:00:31.240 --> 0:00:34.839 here in New York, Lindsay Pianka, stay Folk, chief economist, 0:00:34.920 --> 0:00:37.200 the head of a FED decision tomorrow. Lindsay, good morning. 0:00:37.320 --> 0:00:39.960 What are you talan clients at the moment? Well, right now, 0:00:40.000 --> 0:00:42.800 the rate cut is pretty much baked into the market. 0:00:42.920 --> 0:00:45.120 But the big question is what are we going to 0:00:45.159 --> 0:00:48.040 see in the aftermath of the July rate cut. Will 0:00:48.080 --> 0:00:51.160 the FED position for a near term second round cut 0:00:51.320 --> 0:00:53.720 or will they take more of a neutral stand saying 0:00:54.080 --> 0:00:57.080 we'll continue to watch the data as it evolves without 0:00:57.120 --> 0:01:01.200 any sort of specific tea up for a September rate reduction. So, lindsay, 0:01:01.240 --> 0:01:03.640 are you in the camp that says you know this 0:01:03.720 --> 0:01:06.360 is this FED is prepared to cut maybe four times 0:01:06.400 --> 0:01:08.559 by mid next year. Get us a full und basis 0:01:08.560 --> 0:01:11.880 points Well, right now, our forecast is for a basis 0:01:11.880 --> 0:01:15.280 point cut later this week, an additional in September, and 0:01:15.280 --> 0:01:17.560 then we could actually see the FED take a pause 0:01:17.600 --> 0:01:20.360 depending on whether or not that initial policy reduction of 0:01:20.400 --> 0:01:24.800 fifty basis points cumulative does stabilize the economy. Of course, 0:01:24.840 --> 0:01:28.759 there's other variables going into that, international variables as such 0:01:28.800 --> 0:01:32.039 as slower global growth if we see their stabilization there, 0:01:32.360 --> 0:01:35.080 if we see progress in terms of trade talks. So 0:01:35.120 --> 0:01:38.039 there are a number of uncertainties still weighing on the outlook. 0:01:38.080 --> 0:01:41.360 But if in fact we do see domestic growth stabilized 0:01:41.680 --> 0:01:46.679 by fifty basis points and international certainties, excuse me, uncertainties abate, 0:01:47.120 --> 0:01:48.880 and then the FED could sit on the sideline for 0:01:48.920 --> 0:01:51.400 some time. Lindsay, what is the dividing line between an 0:01:51.400 --> 0:01:55.760 insurance right cup and a right counting cycle. It's a 0:01:55.880 --> 0:01:58.680 very thin line. I think it really comes down to 0:01:58.760 --> 0:02:01.760 a pause and a surance style rate cut would be 0:02:02.160 --> 0:02:04.720 somewhere in the ballpark of one to two rate cuts, 0:02:04.760 --> 0:02:08.920 and then sitting on the sideline for a number of meetings. 0:02:08.919 --> 0:02:14.520 So essentially pleased with the initial policy adjustment to stabilize 0:02:14.560 --> 0:02:18.160 the economy, entering into an outright easing cyclele at least 0:02:18.200 --> 0:02:21.360 from historical standpoint, would be a number of rate cuts 0:02:21.600 --> 0:02:23.960 in a rapid time frame. Do you think the Chapman 0:02:24.000 --> 0:02:26.040 poun will be happy that he won't have to have 0:02:26.240 --> 0:02:29.359 a summary of economic projections with him tomorrow and he 0:02:29.400 --> 0:02:31.480 won't have the Dolt plot to be thrown at him 0:02:31.520 --> 0:02:34.079 in the news conference. Well, there won't be an official forecast, 0:02:34.160 --> 0:02:36.359 but I do suspect that he will be asked about 0:02:36.400 --> 0:02:39.080 any sort of change in the forecast, Which is interesting 0:02:39.080 --> 0:02:41.399 because if you look at the June Summary of Economic 0:02:41.440 --> 0:02:44.919 Projections or the step the FETE is still very optimistic 0:02:45.040 --> 0:02:48.360 in terms of growth and inflation. And so again this 0:02:48.400 --> 0:02:50.919 supports the notion that the FETE is not concerned about 0:02:50.919 --> 0:02:54.119 the economy falling off a cliff, but they're simply offering 0:02:54.200 --> 0:02:58.280 that preventative policy measure to help stabilize the economy against 0:02:58.280 --> 0:03:01.480 potential headwinds. So lends some folks that come in here 0:03:01.480 --> 0:03:04.280 talking about the likelihood of a recession in the U. 0:03:04.360 --> 0:03:07.680 S economy, UH sometime mid to late in that camp, 0:03:07.880 --> 0:03:10.840 I do think the risk of recession is around fifty, 0:03:12.280 --> 0:03:15.600 so rapidly rising in my opinion. Now you can certainly 0:03:15.600 --> 0:03:18.920 point a second quarter GDP that was above expectations, but 0:03:19.639 --> 0:03:22.040 noticeably reduced from the pace we saw at the start 0:03:22.040 --> 0:03:24.720 of the year, and if you look at the composition 0:03:24.760 --> 0:03:29.040 of growth, it was very isolated. Predominantly the consumer helped 0:03:29.080 --> 0:03:31.880 stabilize the economy in the second quarter going into the 0:03:31.919 --> 0:03:34.720 second half. However, if we don't see a pickup in housing, 0:03:34.960 --> 0:03:38.760 business investment, manufacturing, it's going to be very difficult to 0:03:38.800 --> 0:03:42.400 even maintain this reduced two percent growth level. And if 0:03:42.440 --> 0:03:45.440 we continue to see this slow slide or the slow 0:03:45.480 --> 0:03:50.119 deterioration of growth, we could easily easily be in recessionary territory. 0:03:50.160 --> 0:03:53.040 By lindsay, do you think the birth for the slowdown 0:03:53.160 --> 0:03:56.120 next year comes from abroad or within the United States? 0:03:56.160 --> 0:03:58.160 What do you think this is coming from. I think both. 0:03:58.360 --> 0:04:01.560 I think it's very difficult to pinpoint point the slowdown 0:04:01.560 --> 0:04:04.400 as a result of international headwinds which are acting as 0:04:04.440 --> 0:04:08.200 contagion to the domestic economy and domestic weakness. I think 0:04:08.200 --> 0:04:11.080 we are seeing both variables come into play here. Many 0:04:11.080 --> 0:04:13.880 people think the easing cycle that has commenced worldwide will 0:04:14.120 --> 0:04:16.920 offset some of these difficulties. I think a question that 0:04:17.000 --> 0:04:19.799 Chairman Pan will face again tomorrow, perhaps from our colleague 0:04:19.800 --> 0:04:22.599 Michael McKee, who has asked this question before, why will 0:04:22.640 --> 0:04:25.880 an interest rate cut help? Do we have an answer, 0:04:25.960 --> 0:04:28.480 a really good answer to that as to why a 0:04:28.680 --> 0:04:31.359 rate cut from the Federal Reserve actually helps given the 0:04:31.360 --> 0:04:33.240 conditions we have at the moment. Well, that's one of 0:04:33.279 --> 0:04:36.120 the biggest questions, because right now you're talking about traditionally 0:04:36.160 --> 0:04:40.479 providing easier money policy or additional accommodation to the credit markets. 0:04:40.839 --> 0:04:45.120 Rates are already historically very low. So on the one hand, 0:04:45.200 --> 0:04:47.600 the FETE is saying the economy is in a good place. Well, 0:04:47.600 --> 0:04:49.880 if the economy is in such a good place, why 0:04:49.960 --> 0:04:53.320 do we need even more accommodative policy than we already have? 0:04:53.839 --> 0:04:56.080 And to your point, will the Fed be able to 0:04:56.080 --> 0:04:59.760 stabilize the economy. They have very little wiggle room to 0:05:00.080 --> 0:05:02.359 vide additional stimulus if you think back to oh seven, 0:05:02.360 --> 0:05:04.560 If you think back to oh one, the Fed cut 0:05:04.640 --> 0:05:07.960 rates around four hundred, five hundred basis points. This time around, 0:05:08.000 --> 0:05:10.720 we only have to fifty And in fact, looking at 0:05:10.720 --> 0:05:13.400 the partial inversion of the yield curve, if we give 0:05:13.440 --> 0:05:16.440 back fifty basis points just to write the curve, that 0:05:16.560 --> 0:05:19.080 leaves the Fed with only two hundred basis points to 0:05:19.160 --> 0:05:22.479 provide organic stimulus. So if in fact, the economy does 0:05:22.560 --> 0:05:27.240 begin to significantly lose momentum towards those recessionary conditions or 0:05:27.360 --> 0:05:30.919 non accelerating period of expansion, the Fed is going to 0:05:30.960 --> 0:05:34.400 have a very difficult time relying on rate reductions alone 0:05:34.720 --> 0:05:37.839 to bully the economy back into positive territory. So, Lindsay, 0:05:37.839 --> 0:05:39.960 you mentioned that the obviously the consumer has been very 0:05:40.000 --> 0:05:43.520 strong supporting this, uh the late stages of this economic cycle. 0:05:43.560 --> 0:05:45.160 What do you expect to see in the jobs report 0:05:45.360 --> 0:05:48.159 on Friday, Well, first off, I think the consumer is 0:05:48.200 --> 0:05:50.440 stronger than they were in the first quarter, but I 0:05:50.440 --> 0:05:53.359 wouldn't say they're outright strong. There's still a lot of 0:05:53.480 --> 0:05:56.200 uneven activity that we've been seeing in the consumer sector. 0:05:56.560 --> 0:05:59.839 But as it translates into the the upcoming employment report, 0:06:00.360 --> 0:06:03.640 we saw very strong June, we saw a very week May. 0:06:03.680 --> 0:06:06.040 I think July it comes right down and splits the 0:06:06.040 --> 0:06:08.800 difference around a hundred and fifty thousand. So certainly we're 0:06:08.839 --> 0:06:11.440 still seeing Americans put back to work on a month 0:06:11.440 --> 0:06:14.960 and month basis, but at a noticeably reduced level, certainly 0:06:14.960 --> 0:06:17.799 compared to the more robust levels we saw in years pass. Lindsay, 0:06:17.839 --> 0:06:20.640 no real signs of stress. Looking at initial jobless claims. 0:06:20.640 --> 0:06:22.559 Though some people have come on this program and pointed 0:06:22.560 --> 0:06:25.200 out what is happening with the ADP report, the smallest 0:06:25.200 --> 0:06:29.400 sized companies actually shedding jobs. How are you framing that 0:06:29.440 --> 0:06:31.400 for clients at the moment? What are you telling them? Well, 0:06:31.440 --> 0:06:34.240 when we talk to businesses big and small, many are 0:06:34.240 --> 0:06:37.560 complaining about the already heightened level of labor costs and 0:06:37.720 --> 0:06:40.640 the expectation that labor costs are going to continue to rise. 0:06:40.960 --> 0:06:43.320 So in fact, when we look at the breakdown of 0:06:43.360 --> 0:06:47.880 business investment, businesses remain very hesitant to invest in further 0:06:48.000 --> 0:06:50.840 new employees as we've seen very tepid hiring. As we 0:06:50.960 --> 0:06:54.080 just discussed, the one area that where businesses are willing 0:06:54.120 --> 0:06:56.800 to invest is technology, So in fact, they're willing to 0:06:56.800 --> 0:07:00.919 eat that upfront cost, but also potent to replace that 0:07:01.080 --> 0:07:03.920 rapidly rising labor cost. So on the one hand, yes, 0:07:03.960 --> 0:07:07.159 we could be driving higher productivity and keeping costs of 0:07:07.240 --> 0:07:10.880 production lower, but that will in fact replace many of 0:07:10.920 --> 0:07:13.560 these payroll numbers that we're expecting to see. So lindsay, 0:07:13.600 --> 0:07:15.720 are you surprised that given that we are at or 0:07:15.840 --> 0:07:17.840 near full employment? And I'm not sure how we want 0:07:17.880 --> 0:07:20.920 to define that, but we haven't seen more wage inflation. 0:07:21.480 --> 0:07:23.640 I'm not surprised because when we're looking at the civilian 0:07:23.640 --> 0:07:27.320 calculation of three point seven percent, that sounds pretty impressive. Certainly, 0:07:27.360 --> 0:07:30.160 that's a vast improvement from ten percent in the aftermath 0:07:30.160 --> 0:07:32.960 of the Great Recession. But three point seven percent doesn't 0:07:32.960 --> 0:07:35.600 tell the whole story. It doesn't include the millions of 0:07:35.640 --> 0:07:38.000 Americans that are sitting on the sideline and have been 0:07:38.000 --> 0:07:41.480 sitting on the sideline for years, not actively participating in 0:07:41.480 --> 0:07:43.880 the labor force. When we add them back in, that 0:07:43.960 --> 0:07:47.840 unemployment rate doubles, which more closely coincides with the lack 0:07:47.880 --> 0:07:50.120 of wage pressure that we have seen on the aggregate. 0:07:51.040 --> 0:07:52.880 To catch up with you ahead of a really important 0:07:52.920 --> 0:07:54.920 fedmates and coming up tomorrow, Lindsay p X of that 0:07:55.040 --> 0:08:15.320 STATEFLE chief economist Jordan Rochester, otherwise known as Mr Brooke, 0:08:15.400 --> 0:08:19.239 said he joins us now the moreg ten f A strategist. Jordan, 0:08:19.280 --> 0:08:23.520 Good morning to here, Good morning, John Hayden. I'm very well, 0:08:23.640 --> 0:08:25.720 Just tell me what you're telling clients at the moment 0:08:25.920 --> 0:08:30.240 about this relentless move lower in sterling. It really has 0:08:30.280 --> 0:08:32.800 been relentless, and I guess for someone who follows the 0:08:32.800 --> 0:08:36.199 ins and outs of the Boris Johnson leadership campaign. I mean, 0:08:36.360 --> 0:08:39.640 none of the actual politics so far has been surprising. 0:08:39.800 --> 0:08:43.640 We've seen a Brexit here champion who led the Brexit campaign, 0:08:44.000 --> 0:08:47.079 who has pushed for a more tougher stance on the 0:08:47.080 --> 0:08:50.000 EU when it comes to the withdrawal agreement. He has 0:08:50.040 --> 0:08:53.200 consistently said, get rid of the Irish max stop and 0:08:53.240 --> 0:08:57.240 we won't negotiate until the EU admits to that. And 0:08:57.280 --> 0:08:59.400 now he's Prime Minister and guess what he's saying the 0:08:59.400 --> 0:09:02.719 exact thing. But I guess the market was just a 0:09:02.760 --> 0:09:05.839 bit asleep at the wheel. Um. I guess folks were 0:09:05.880 --> 0:09:08.480 looking for him to be less of a campaigner and 0:09:08.520 --> 0:09:10.560 more of a Prime minister when he came in, and 0:09:10.559 --> 0:09:13.839 to maybe soften his tone whatever it is that draw things. 0:09:14.000 --> 0:09:18.640 It was perhaps the headline from US now Michael Gove, 0:09:18.800 --> 0:09:21.840 who is essentially the guy who was in charge of 0:09:21.880 --> 0:09:25.040 the no deal preparations, and he has said he said 0:09:25.040 --> 0:09:27.840 on the weekend the working assumption of the government is 0:09:27.840 --> 0:09:30.560 a no deal Brexit. Now he would say that he 0:09:30.720 --> 0:09:32.640 his his role is to plan for a no deal 0:09:33.200 --> 0:09:35.480 in the event of that, and that's what kind of 0:09:35.600 --> 0:09:39.600 change things for the market. Where we suddenly stopped treating 0:09:39.640 --> 0:09:42.120 it like a tail risk and more of a base case. 0:09:42.559 --> 0:09:45.560 And the pound it's fallen the lot we're talking two 0:09:45.559 --> 0:09:48.319 to three over the past month. But if you told 0:09:48.360 --> 0:09:51.960 me with a hundred certainty, Jordan's there's gonna be a 0:09:51.960 --> 0:09:55.320 hard brexit at the end of October, whereas the pound 0:09:55.360 --> 0:09:59.480 trade you're talking one fifteen to one eighteen against the dollar, 0:10:00.400 --> 0:10:06.040 talking cents to against the euro. So Jordan, what could 0:10:06.040 --> 0:10:09.240 turn around this doomsday scenario that we're seeing just here 0:10:09.280 --> 0:10:12.760 in the Sterling. It's the question I asked myself with 0:10:12.880 --> 0:10:15.839 on those calls of clients today and yesterday. There's a 0:10:15.880 --> 0:10:18.640 few things that could turn things around. The problem is 0:10:18.679 --> 0:10:22.040 it's very unpredictable because politics is a slippery animal to 0:10:22.120 --> 0:10:25.320 deal with um and also I struggle to find a 0:10:25.440 --> 0:10:28.920 date in the diary until we get to September before 0:10:28.960 --> 0:10:31.560 those positives could happen. So what are they? So the 0:10:31.559 --> 0:10:35.880 main thing that keeps everybody, allows everyone to sleep at night, 0:10:35.920 --> 0:10:40.160 I guess is Parliament does have a majority against a 0:10:40.240 --> 0:10:43.720 no deal brexit. The problem I have is Parliament can't 0:10:43.760 --> 0:10:46.880 do much right now because they're on their summer holidays 0:10:47.360 --> 0:10:49.840 in recess and they do not come back until the 0:10:49.920 --> 0:10:52.920 third of September, and when they do come back, it's 0:10:52.960 --> 0:10:55.920 more likely we're going to be dealing with negatives rather 0:10:55.960 --> 0:11:00.160 than positives. So Parliament that could perhaps stop no all, 0:11:00.200 --> 0:11:02.720 but it's hard in the short term to provide a 0:11:02.760 --> 0:11:06.760 positive positive go on just quickly the EU offer us something. 0:11:07.080 --> 0:11:09.960 So if the EU gives US and Olive Branch to 0:11:10.000 --> 0:11:14.120 work with, maybe talking about reopening the mandate for Michelle 0:11:14.160 --> 0:11:17.280 Barnier and discussing the Irish border, that could be a 0:11:17.320 --> 0:11:20.040 headline that moves Sterling higher. Jordan great to catch up 0:11:20.040 --> 0:11:23.760 with you, Jordan Rochester and Mora GTNIC strategists, otherwise known 0:11:23.800 --> 0:11:40.160 in the City of London as Mr Brexit trade talks 0:11:40.480 --> 0:11:42.800 they begin or resume, however you want to frame it 0:11:42.880 --> 0:11:45.400 over In Shankai today, between the United States and China, 0:11:45.679 --> 0:11:48.280 the President out on Twitter today saying that the Chinese 0:11:48.280 --> 0:11:52.440 have not restarted buying agricultural commodities in the quantities that 0:11:52.480 --> 0:11:56.360 they were promising the United States. The Huawei chairman out 0:11:56.400 --> 0:11:58.719 today saying that the supply of critical components from the 0:11:58.760 --> 0:12:03.040 United States has not resumed either, despite the President's proclamation 0:12:03.080 --> 0:12:04.880 in June that the company would be able to buy 0:12:04.880 --> 0:12:08.199 some American technology once again. So what does it mean 0:12:08.240 --> 0:12:10.160 for trade talks and what are the chances of a 0:12:10.240 --> 0:12:13.760 breakthrough this week? Jennifer Hillman joining US now CFR Senior 0:12:13.800 --> 0:12:18.040 Fellow for Trade and International Political Economy. So, Jennifer, help 0:12:18.080 --> 0:12:20.400 us understand just how hard it will be to have 0:12:20.440 --> 0:12:22.839 a breakthrough this week. I think it's going to be 0:12:22.920 --> 0:12:25.360 extremely hard to see how you get a deal this week. 0:12:25.920 --> 0:12:28.400 Partly that's because there have been a lot of things 0:12:28.480 --> 0:12:31.880 added into these discussions that weren't there before. As you mentioned, 0:12:31.920 --> 0:12:34.760 the Huawei kind of tech war um is making it 0:12:34.880 --> 0:12:37.160 much harder to get a deal. And added to all 0:12:37.200 --> 0:12:40.560 of that is China blaming the United States for inflaming 0:12:40.600 --> 0:12:43.439 the tensions and riling up the protesters in Hong Kong. 0:12:43.800 --> 0:12:46.160 So the atmosphere for getting a deal right now is 0:12:46.200 --> 0:12:49.679 really tough. So, Jennifer, you're a former commissioner at the 0:12:49.760 --> 0:12:52.760 United States International Trade Commission. You've got some experience with 0:12:52.880 --> 0:12:55.000 this type of thing. Is it your sense that the 0:12:55.000 --> 0:12:59.800 Trump administration's policy of pursuing a unilateral tariff based appro 0:13:00.120 --> 0:13:02.640 two negotiations is the way to go with the Chinese 0:13:02.679 --> 0:13:05.280 at this point? No, I don't think it is um 0:13:05.320 --> 0:13:07.680 and that's because what we really need, I mean, to 0:13:07.720 --> 0:13:09.720 make it a good deal with China, you need to 0:13:09.760 --> 0:13:12.800 deal with a lot of structural issues. The major problem 0:13:12.840 --> 0:13:16.280 that we really have is China's use of subsidies and 0:13:16.360 --> 0:13:20.280 the huge number of state owned enterprises where the and 0:13:20.360 --> 0:13:23.480 the party and the state are controlling it are directing 0:13:23.520 --> 0:13:27.520 the resources. Those are very hard structural issues to get at. 0:13:27.840 --> 0:13:31.000 China won't change those just because of pressure from the 0:13:31.080 --> 0:13:34.320 United States. If we're going to get a serious structural deal, 0:13:34.360 --> 0:13:37.079 we're going to need our allies to be there with us. 0:13:37.760 --> 0:13:40.240 And the trouble for us is that our allies share 0:13:40.320 --> 0:13:42.520 a lot of our concerns and a lot of our 0:13:43.120 --> 0:13:46.680 worries about China, but do not share the idea that 0:13:46.720 --> 0:13:49.400 we should go at all of this unilaterally or use 0:13:49.480 --> 0:13:53.160 illegal tariffs to do it. So given that backdrop, what 0:13:53.480 --> 0:13:58.480 is a realistic outcome for trade negotiations between the US 0:13:58.600 --> 0:14:01.000 and China? Is it this can be some type of 0:14:01.040 --> 0:14:04.600 headline deal or perhaps even nothing at all. Well, I 0:14:04.600 --> 0:14:07.800 think there there is a realistic prospect. China has already 0:14:07.800 --> 0:14:10.120 agreed to quite a lot of things in the course 0:14:10.160 --> 0:14:13.400 of these negotiations, and there is already a lot of 0:14:13.440 --> 0:14:16.880 text agreements worked out. So I do think you could 0:14:16.880 --> 0:14:20.120 see something happening where China would agree to get rid 0:14:20.120 --> 0:14:23.520 of their current limits on how much foreign investment can 0:14:23.560 --> 0:14:26.760 go into certain sectors. Right now, many sectors you can 0:14:26.800 --> 0:14:30.600 only have forty nine percent foreign ownership, which means, again 0:14:30.680 --> 0:14:34.240 China remains in control. Those limits can be clearly agreed to. 0:14:34.560 --> 0:14:37.040 China will agree, I think, to increase the level of 0:14:37.040 --> 0:14:40.680 its intellectual property protection. China, I think, will agree to 0:14:40.880 --> 0:14:44.760 restraints on the forced technology transfers. So there is a 0:14:44.800 --> 0:14:48.320 lot that is already on the table and is achievable. 0:14:48.840 --> 0:14:50.640 The problem is going to be the rest of it, 0:14:50.720 --> 0:14:53.720 the hard things, the structural things about how much Communist 0:14:53.720 --> 0:14:56.600 party control there is, the subsidies, et cetera. I do 0:14:56.680 --> 0:14:59.640 not see how you're going to get an agreement on that. Uh. 0:14:59.680 --> 0:15:02.200 The other of thing where you may see is again 0:15:02.280 --> 0:15:06.720 commitments by China to buy more American stuff, whether that's 0:15:06.920 --> 0:15:10.720 agricultural products or whether that's other manufactured goods. I can 0:15:10.760 --> 0:15:13.920 see that agreement, and the question will always come down 0:15:13.920 --> 0:15:18.000 to is this an enforceable agreement? Jennifer's we get closer 0:15:18.040 --> 0:15:23.320 to does that change things? Just in the President is 0:15:23.360 --> 0:15:28.040 currently already saying, um, maybe China would be better off 0:15:28.160 --> 0:15:31.640 waiting until after the election to get an agreement. Uh. 0:15:31.760 --> 0:15:35.560 He's he's obviously arguing that UM, if a Democrat were 0:15:35.600 --> 0:15:38.360 to be elected, that China could get an easy um 0:15:38.400 --> 0:15:41.040 and quick deal that would be less tough. I don't 0:15:41.080 --> 0:15:43.960 agree with that, but it's clear that the President is 0:15:44.000 --> 0:15:48.320 already seeing this playing into the presidential politics. But it 0:15:48.440 --> 0:15:51.920 cuts both ways. Already we are seeing that the US 0:15:52.000 --> 0:15:55.560 tariffs are first of all, not bringing jobs back to 0:15:55.640 --> 0:15:57.960 the United States, and that was one of the clear 0:15:58.000 --> 0:16:00.880 promises that the President made that this whole trade war 0:16:00.920 --> 0:16:03.400 with China was going to be bringing jobs back to 0:16:03.440 --> 0:16:05.680 the U S. That's not where the jobs are going. 0:16:05.880 --> 0:16:08.320 They're going to Vietnam, they're going to Mexico, they're going 0:16:08.320 --> 0:16:11.120 to Cambodia, they're going to Thailand. But they're not coming 0:16:11.120 --> 0:16:13.760 back to the United States. And the second thing that 0:16:13.800 --> 0:16:18.400 you're clearly seeing is that the trade uncertainty that all 0:16:18.440 --> 0:16:21.400 of this trade war with China is doing is dragging 0:16:21.400 --> 0:16:24.400 down the US economy, and you're seeing that very clearly 0:16:24.440 --> 0:16:27.000 in the lower growth um in the second quarter of 0:16:27.520 --> 0:16:31.240 nineteen and in the lack of private investment in the 0:16:31.320 --> 0:16:33.880 United States is very much key to the fact that 0:16:33.920 --> 0:16:37.360 everybody doesn't know where this whole trade war is headed. 0:16:37.640 --> 0:16:40.960 The longer it goes, the more it continues, I think, 0:16:41.000 --> 0:16:43.040 the more of a drag this trade war is going 0:16:43.080 --> 0:16:45.760 to be on the US economy. So Jennifer, just give 0:16:45.840 --> 0:16:48.600 us a sense from your experience what you think China 0:16:48.800 --> 0:16:50.840 really wants here. What do you think would be an 0:16:50.880 --> 0:16:55.080 acceptable deal for China, knowing that some hard concessions are 0:16:55.080 --> 0:16:57.560 gonna have to be made on both sides. What China 0:16:57.640 --> 0:16:59.600 needs to see a deal that is a win win 0:16:59.680 --> 0:17:02.280 for sides. In other words, I don't think you can 0:17:02.280 --> 0:17:06.000 see China making major concessions that are just perceived as 0:17:06.000 --> 0:17:09.119 a unilateral concession to the United States because of this. 0:17:09.880 --> 0:17:12.879 Certainly there are many of the reformers in China that 0:17:13.040 --> 0:17:17.919 understand the China needs to reform, that the increase in 0:17:17.920 --> 0:17:20.480 the amount of state owned enterprises that are not doing 0:17:20.480 --> 0:17:25.080 well financially, that the increased demand in China has so 0:17:25.680 --> 0:17:28.120 China needs to see a deal that works in China's 0:17:28.160 --> 0:17:30.440 interest as well as well, and they need to see 0:17:30.440 --> 0:17:33.119 that this agreement is one that is pushing China to 0:17:33.160 --> 0:17:36.120 do some things that would be better for the Chinese economy. 0:17:36.240 --> 0:17:39.480 It's not clear yet where that deal lies, where China 0:17:39.520 --> 0:17:42.399 can say that it's also done some things that either 0:17:42.520 --> 0:17:44.800 it was going to do anyway or that are clearly 0:17:44.840 --> 0:17:47.560 in China's interest, and that's I think where a lot 0:17:47.600 --> 0:17:49.000 of the focus of the talks is going to have 0:17:49.080 --> 0:17:51.560 to be going forward. And Jennifer, how much clarity at 0:17:51.600 --> 0:17:53.520 the moment do you have on how much pain the 0:17:53.600 --> 0:17:56.679 Chinese economy and the Chinese government is going through at 0:17:56.760 --> 0:17:59.680 the moment. It's difficult sometimes from the outside looking in, 0:17:59.720 --> 0:18:02.240 some some of the data points look weaker. But what's 0:18:02.240 --> 0:18:05.040 your take on that? Well, again, part of it is, yes, 0:18:05.119 --> 0:18:07.359 China's growth rate has come down, but you have to 0:18:07.359 --> 0:18:09.800 remember it's come down from very high levels. I mean, 0:18:09.840 --> 0:18:13.840 the Chinese economy has been growing eight nine So the 0:18:13.840 --> 0:18:15.639 fact that it's come down to a growth rate in 0:18:15.680 --> 0:18:19.399 the order of six percent, yes, is a significant slowing 0:18:19.920 --> 0:18:22.639 of the growth rate in the Chinese economy, but it 0:18:22.760 --> 0:18:25.840 is still growing at a very substantial rate. And again 0:18:25.880 --> 0:18:28.359 we have to remember that the Chinese economy, when you 0:18:28.400 --> 0:18:30.439 think of it from a g d P on a 0:18:30.520 --> 0:18:34.800 purchasing power parity basis, is larger than our economy twenty 0:18:34.840 --> 0:18:38.840 three trillion dollar economy UM on a purchasing power basis, 0:18:39.480 --> 0:18:43.040 again growing at even a six percent rate a year, 0:18:43.200 --> 0:18:47.159 is still you know, again an extraordinarily large and dynamic 0:18:47.240 --> 0:18:50.160 economy in China. The reason our standard fruits because many 0:18:50.160 --> 0:18:53.639 people listening to this program mark participants investors are like 0:18:53.760 --> 0:18:56.800 economists trying to work out whether China is gradually going 0:18:56.880 --> 0:18:59.600 to move into full stimulus mode. We've seen them reluctant 0:18:59.640 --> 0:19:01.280 so far or over the last year has been very 0:19:01.280 --> 0:19:03.960 gradual and very incremental. How do you see that panic 0:19:04.000 --> 0:19:06.239 gout in the next year or so. It's harder to 0:19:06.280 --> 0:19:09.600 read it now. When you add in, if you will, 0:19:09.680 --> 0:19:12.560 the tech war on top of the trade war UM 0:19:12.600 --> 0:19:15.280 when it was just focused on goods and services, I 0:19:15.320 --> 0:19:17.679 think there was a there was a clear strategy, I 0:19:17.720 --> 0:19:21.159 think for China. But when you add in the sanctions 0:19:21.160 --> 0:19:24.200 on Huawei and you know the previous ones on Zte 0:19:24.920 --> 0:19:27.080 and and the tech war issues, I think it makes 0:19:27.080 --> 0:19:30.040 it much harder to see exactly where this is going 0:19:30.119 --> 0:19:33.159 to play out. Uh, If you listen to what is 0:19:33.200 --> 0:19:35.679 being said in China, I think China is prepared to 0:19:35.800 --> 0:19:37.800 lose if you will, or to give up a fair 0:19:37.840 --> 0:19:42.119 amount in the light manufacturing sector, in other words, in 0:19:42.160 --> 0:19:44.920 a number of the products where the tariffs are. Right now, 0:19:45.320 --> 0:19:47.959 you are starting to see companies move out of China 0:19:48.359 --> 0:19:51.800 and into Vietnam and other places in Asia and into Mexico, 0:19:52.160 --> 0:19:55.160 and I think China concedes that that may have to go. 0:19:55.600 --> 0:19:57.920 Where China now wants to win is on the tech 0:19:58.000 --> 0:20:00.359 war UM, and they want to create an in hire, 0:20:00.720 --> 0:20:03.919 you know, information and communication system that is geared around 0:20:03.960 --> 0:20:08.119 their technology, their wahwei sort of strategy UM, and to 0:20:08.200 --> 0:20:13.160 pull as many countries into their network and their communications technology, 0:20:13.800 --> 0:20:16.720 their artificial intelligence, et cetera. So I think China is 0:20:16.760 --> 0:20:20.119 putting a lot of it's it's you know, ammunition if 0:20:20.160 --> 0:20:24.600 you will into winning the tech war uh, if you will, UM. 0:20:24.600 --> 0:20:26.919 And that is a different set of players and a 0:20:26.920 --> 0:20:29.200 different set of investments that China would need to make. 0:20:29.800 --> 0:20:31.400 Jennifer great a cat show with you to get your 0:20:31.400 --> 0:20:34.200 insight and a little bit more clarity on trade talks 0:20:34.240 --> 0:20:37.240 as they begin once more over in Shanghai today between 0:20:37.240 --> 0:20:39.840 the Chinese and the United States. Jennifer Hillman that CF 0:20:40.000 --> 0:20:44.720 A Senior Fellow and Trade and International Political economy over 0:20:44.760 --> 0:20:47.840 at CFR, the former commissioner at the United States International 0:20:47.880 --> 0:21:05.359 Trade Commission, I'm looking at beyond Meat. In the pre market, 0:21:05.400 --> 0:21:10.119 trading stocks down about fifteen, about eight dollars a share, 0:21:10.800 --> 0:21:13.040 but remember the I p O was at twenty dollars 0:21:13.040 --> 0:21:15.960 a share, so still well in the money. The company 0:21:15.960 --> 0:21:18.879 reported earnings last night. They also announced that they are 0:21:18.920 --> 0:21:21.359 going to be selling some stock, mostly secondary shares. So 0:21:21.440 --> 0:21:24.720 let's get the latest. We welcome our good friend, Jennifer Bartashes. 0:21:25.240 --> 0:21:28.280 She's a senior analyst for Bloomberg Intelligence covering all things 0:21:28.359 --> 0:21:30.480 food retails. She joins us on the phone from Princeton, 0:21:30.520 --> 0:21:32.840 New Jersey. Jen, thanks so much for joining us. Let's 0:21:32.840 --> 0:21:35.440 start first with the earnings. Looks like they had some 0:21:35.480 --> 0:21:39.000 pretty good numbers and guidance. Yeah, good morning, Paul. Um. Yes, Actually, 0:21:39.040 --> 0:21:41.880 the earnings report itself there was all good news UM. 0:21:41.920 --> 0:21:44.960 The revenue was higher than consensus expected. They actually raised 0:21:44.960 --> 0:21:47.040 their guidance and forecast for the rest of the year 0:21:47.520 --> 0:21:50.720 UM pretty substantially UM. And in addition, with regards to 0:21:50.760 --> 0:21:53.480 adjusted EVADA, they also raised their guidance UM and that 0:21:53.520 --> 0:21:55.919 they expected to turn positive this year as opposed to 0:21:56.000 --> 0:21:59.040 just breaking even. So all things considered, it was really 0:21:59.160 --> 0:22:02.040