WEBVTT - Bloomberg Daybreak Weekend: Eco Data, Budgets, Elections 0:00:02.000 --> 0:00:04.560 This is Bloomberg Daybreak Weekend, our global look at the 0:00:04.559 --> 0:00:07.200 top stories in the coming week from our Daybreak anchors 0:00:07.240 --> 0:00:09.400 all around the world, and straight ahead on the program 0:00:09.640 --> 0:00:13.640 CPI PPI Retail Sales. We've got a busy week of 0:00:13.680 --> 0:00:16.760 economic data ahead. I'm Tom Busby in New York. I'm 0:00:16.800 --> 0:00:19.240 Stephen Caren in London, where the UK's Chancellor is facing 0:00:19.280 --> 0:00:21.880 a chorus of calls for tax cuts and more spending 0:00:21.920 --> 0:00:24.639 in his budget. I'm Brian Curtis in Hong Kong the 0:00:24.760 --> 0:00:28.680 implications of Apple supplier Home High setting up a plant 0:00:28.760 --> 0:00:31.960 in India. I'm Joe Matthew in Washington. We'll look ahead 0:00:31.960 --> 0:00:35.880 of the first Republican primary on the calendar. That's all 0:00:35.960 --> 0:00:40.080 straight ahead on Bloomberg Daybreak Weekend on Bloomberg eleven three, 0:00:40.120 --> 0:00:44.040 on New York, Bloomberg ninety nine one, Washington, DC, Bloomberg 0:00:44.120 --> 0:00:47.640 one oh six one, Boston, Bloomberg nine sixty, San Francisco, 0:00:47.880 --> 0:00:52.080 DAB Digital Radio, London, Sirius XM one nineteen and around 0:00:52.120 --> 0:00:54.760 the world on Bloomberg Radio dot Com and via the 0:00:54.800 --> 0:01:01.000 Bloomberg Business App. Good day to you. I'm Tom Busby, 0:01:01.040 --> 0:01:04.319 and we've got February jobs report on Friday, and this 0:01:04.360 --> 0:01:07.840 week the economic data does not slow down. We'll get CPI, 0:01:08.040 --> 0:01:12.200 PPI and retail sales for February. For more, I'm joined 0:01:12.240 --> 0:01:16.600 by Ira Jersey, Bloomberg Intelligence senior rate strategists, and Jess Menton, 0:01:16.680 --> 0:01:20.640 she's deputy team leader for US Equities for Bloomberg News. Ira, 0:01:20.760 --> 0:01:23.160 We're going to start with that February jobs report that 0:01:23.160 --> 0:01:25.840 we got on Friday. Another strong headline number, three hundred 0:01:25.880 --> 0:01:28.840 eleven thousand jobs added, more than forecast. The news, though, 0:01:28.920 --> 0:01:31.840 was mixed, the unemployment rate moving two notches higher, and 0:01:31.920 --> 0:01:35.720 although wage growth did slow, it still moved up, ramping 0:01:35.800 --> 0:01:38.679 up inflationary pressures. Let's hear what President Biden had to 0:01:38.680 --> 0:01:41.240 say about the report. This may be the part of 0:01:41.800 --> 0:01:44.840 pleased me the most about the report of jobs reports. 0:01:44.920 --> 0:01:47.560 People who've been staying out of the job market are 0:01:47.600 --> 0:01:52.240 moving back in, beginning to move back in. Jobs are available, Okay, Ira. 0:01:52.640 --> 0:01:55.160 The Federal Reserve says it all the time. The decision 0:01:55.240 --> 0:01:58.400 policymakers will come to on interest rates will be data driven. 0:01:58.840 --> 0:02:02.080 What does this data mean for the Federal Reserve. Yeah, 0:02:02.120 --> 0:02:04.080 it means a little bit more of the same. I 0:02:04.120 --> 0:02:06.840 think that the fear that they Fed was going to 0:02:06.920 --> 0:02:09.720 hike fifty basis points is still on the table, but 0:02:09.800 --> 0:02:12.440 not not because of just this number, but because of 0:02:12.480 --> 0:02:15.799 how strong the January data was. I think that the 0:02:16.000 --> 0:02:17.560 Fed is going to be a little bit happier with 0:02:17.600 --> 0:02:20.840 some of the some of the numbers within the payrolls 0:02:20.840 --> 0:02:22.960 report that we received on Friday. But but I think 0:02:23.000 --> 0:02:25.959 importantly this week's data, as you mentioned at the top 0:02:26.000 --> 0:02:28.399 of the at the top of the show, it's going 0:02:28.440 --> 0:02:30.680 to it's going to matter way more so the CPI 0:02:30.800 --> 0:02:33.440 data on Tuesday, as well as the PPI data later 0:02:33.440 --> 0:02:36.600 in the week, and then retail sales of course is 0:02:36.600 --> 0:02:38.679 going to be huge as well. And keep in mind, 0:02:38.720 --> 0:02:41.520 we get this data right when the Federal Reserve goes 0:02:41.520 --> 0:02:44.160 into their quiet period, so we're not going to hear 0:02:44.200 --> 0:02:47.240 a lot of reaction from members of the Federal Reserve 0:02:48.520 --> 0:02:51.240 by the time we get the numbers until that we 0:02:51.280 --> 0:02:55.160 actually get the release of the meeting minutes, meeting statement 0:02:55.280 --> 0:02:57.840 on March twenty second. All right, the FED meets. It's 0:02:57.880 --> 0:03:00.919 less than two weeks away, the twenty first, the twenty second. 0:03:01.360 --> 0:03:05.360 Already after that February jobs report, swaps are talking about 0:03:05.880 --> 0:03:09.240 the chance of a fifty basis point hike now only 0:03:09.280 --> 0:03:11.840 at fifty percent, so a lot of people counting on 0:03:11.919 --> 0:03:15.120 a smaller one. Is anybody counting on a supersized one 0:03:15.200 --> 0:03:18.480 even bigger than fifty basis points? Yeah? I think that 0:03:18.760 --> 0:03:20.720 given the volatility and some of the issues that we're 0:03:20.720 --> 0:03:23.400 having in the financial sector right now that really affected 0:03:23.520 --> 0:03:26.640 rates late in the week last week, you know, moving 0:03:26.680 --> 0:03:28.960 two year yield to twenty five basis points because of 0:03:28.960 --> 0:03:31.200 what went on with SVB and some of the other 0:03:31.240 --> 0:03:35.680 financial institutions in the equity market. That seventy five is 0:03:36.880 --> 0:03:39.800 at you know, almost a zero percent probability at this point, 0:03:39.840 --> 0:03:42.720 I think. But so the question still remains fifty or 0:03:42.720 --> 0:03:46.280 twenty five. You know, you get somewhat slower PPI data, 0:03:46.360 --> 0:03:49.120 somewhat slower retail sales data, and then you know, fifty 0:03:49.120 --> 0:03:52.880 five probably becomes more likely, you know, the probability that 0:03:52.960 --> 0:03:55.000 that chance that you mentioned of a fifty or twenty 0:03:55.040 --> 0:03:58.080 five that keeps bouncing around massively, so that the market 0:03:58.160 --> 0:04:01.600 is still very skittish as and and really uncertain about 0:04:01.640 --> 0:04:04.080 what the Fed's move is going to be, just because 0:04:04.120 --> 0:04:07.720 this coming week's data is so incredibly important to that decision. 0:04:08.000 --> 0:04:11.800 And Jay Powell made that exceptionally clear over during his 0:04:11.880 --> 0:04:15.200 testimony last week before the House Financial Services Committee and 0:04:15.240 --> 0:04:18.040 the Senate Banking Committee. And about that data good news. 0:04:18.080 --> 0:04:20.320 We have Jess right here, and Jess, why don't we 0:04:20.320 --> 0:04:23.800 talk about Well, first we're going to get CPI right Tuesday, 0:04:23.880 --> 0:04:27.240 then PPI, and then we'll get to retail sales. But 0:04:27.320 --> 0:04:30.520 let's talk about those two and the difference and what 0:04:30.560 --> 0:04:33.159 you're looking forward to seeing. Well, the big thing, and 0:04:33.600 --> 0:04:36.760 as you know, the big focus is always on consumer prices, 0:04:37.080 --> 0:04:41.240 but producer prices might arguably just be as important. And 0:04:41.240 --> 0:04:43.360 the reason is when I'm talking with my sources, they 0:04:43.400 --> 0:04:45.160 like to look toward that as far as what do 0:04:45.200 --> 0:04:48.640 you input costs look like? And they look to that 0:04:48.720 --> 0:04:50.880 as far as maybe we'll see the signs of relief 0:04:50.920 --> 0:04:55.000 there before they start filtering into consumer prices. So I've 0:04:55.040 --> 0:04:58.280 been tracking the CPI PPI spread, and this is something 0:04:58.320 --> 0:05:01.440 Gina Martin Adams of Bloomberg Intelligen her team crunch the 0:05:01.520 --> 0:05:05.680 numbers very frequently on in the spread actually turned positive 0:05:05.720 --> 0:05:08.560 for the first time in December in two years. And 0:05:08.600 --> 0:05:12.080 the reason that matters is that bodes well for corporate 0:05:12.120 --> 0:05:15.440 margins and then in turn eventually also for stock prices, 0:05:15.480 --> 0:05:18.279 so you are seeing those glimmers of hope there on 0:05:18.320 --> 0:05:20.800 the producer prices side, even though in January is data 0:05:20.800 --> 0:05:22.599 we saw a tick up a bit, but if we 0:05:22.640 --> 0:05:25.880 can see that trend continue. When I'm speaking with my sources, 0:05:25.960 --> 0:05:28.200 they feel like that will eventually filter even more so 0:05:28.960 --> 0:05:31.839 toward consumer prices. So that's going to be a big 0:05:31.880 --> 0:05:34.440 focus next week as well, in addition to just the 0:05:34.440 --> 0:05:38.560 headline number on CPI. And the headline number is we're 0:05:38.600 --> 0:05:41.760 looking at a four tenth of one percent increase, correct, 0:05:41.880 --> 0:05:45.159 and that is lower than January it is exactly, and 0:05:45.200 --> 0:05:47.520 then year over year that would be at six percent. 0:05:47.560 --> 0:05:49.440 I know we focus more on month over month to 0:05:49.520 --> 0:05:51.880 see that trend. But something that also is important if 0:05:51.920 --> 0:05:54.240 you look at the past eight hiking cycles of the 0:05:54.240 --> 0:05:57.719 Federal Reserve, they didn't stop until the terminal rate was 0:05:57.760 --> 0:06:00.719 above CPI, So we still have a bit of a 0:06:00.920 --> 0:06:03.960 gap there, but it's beginning to narrow more. So the 0:06:04.040 --> 0:06:07.040 question is how much further, obviously would the Federals or 0:06:07.160 --> 0:06:08.680 have to go. If you even just look at the 0:06:08.720 --> 0:06:11.080 bank side of things, Citigroup and Goldman sacks they had 0:06:11.120 --> 0:06:14.520 actually lifted their forecast recently that they're expecting fifty basis 0:06:14.520 --> 0:06:16.839 points at this next meeting, But JP Morgan and Bank 0:06:16.880 --> 0:06:19.960 of America are still holding that view of twenty five 0:06:20.000 --> 0:06:22.279 basis points. But a lot of that does hinge on 0:06:22.320 --> 0:06:25.279 what that CPI data is going to look like next week. 0:06:25.360 --> 0:06:27.320 So that's going to be really key to see how 0:06:27.360 --> 0:06:30.640 do these banks views change potentially on what that number 0:06:30.680 --> 0:06:33.039 does look like and IRA, how does that factor in 0:06:33.240 --> 0:06:36.520 with your thinking on what the FED is thinking? Yeah, 0:06:36.560 --> 0:06:39.920 so I think it's important to note that you know 0:06:40.040 --> 0:06:43.880 that the FED has tended to hike until quote unquote 0:06:43.440 --> 0:06:46.320 the federal funds rate has been positive. But keep in 0:06:46.320 --> 0:06:49.719 mind that the indicator that they look at form for 0:06:49.760 --> 0:06:52.840 the inflation gates, their preferred measure is the PC to Flater. So, 0:06:53.600 --> 0:06:56.720 and the gap between CPI and PC has widened quite 0:06:56.720 --> 0:06:58.719 a lot. You used to be around forty five fifty 0:06:58.760 --> 0:07:01.840 basis points. Now it's over one hundred basis points. So so, 0:07:01.839 --> 0:07:03.880 so the fact that you have this this big divide 0:07:03.920 --> 0:07:06.599 between those two inflation measures UM you know, you know, 0:07:06.640 --> 0:07:09.800 I think is important because if if UM, if PC, 0:07:10.440 --> 0:07:13.680 the PC deflator remains around five point four percent, then 0:07:13.760 --> 0:07:16.160 if the Federal Reserve hikes another seventy five basis points. 0:07:16.200 --> 0:07:19.320 They're there, whereas if if the Federal Reserve were to 0:07:19.440 --> 0:07:21.960 only UM were to look at CPI, they might have 0:07:22.000 --> 0:07:24.600 to actually hike much higher, because you're talking about, you know, 0:07:24.680 --> 0:07:29.080 six percent, a six percent CPI number this week, assuming 0:07:29.080 --> 0:07:31.720 that we get it now. Importantly, a lot of the 0:07:31.760 --> 0:07:33.680 inflation data that we look at, and if you look 0:07:33.720 --> 0:07:38.280 at CPI on that three month rolling basis, cpis come 0:07:38.320 --> 0:07:40.760 off quite a lot. And when you look at and 0:07:40.760 --> 0:07:43.480 when you look at core goods in particular, they're actually 0:07:43.480 --> 0:07:46.640 growing at a negative rate. So so the good sector 0:07:46.680 --> 0:07:49.360 inflation is over, it's really going to be you know, 0:07:49.440 --> 0:07:53.800 where is how does the services sector inflation really ramp up? 0:07:53.800 --> 0:07:58.080 Particularly the what j Powell has said is kind of 0:07:58.080 --> 0:08:00.840 the Fed's new UM measure that they really look at, 0:08:00.880 --> 0:08:05.480 which is core services excuting housing. So around forty percent 0:08:05.520 --> 0:08:10.600 of CPI is this core services, that services excluding energy services. 0:08:10.920 --> 0:08:16.080 So if those data come out very strong, then the 0:08:16.120 --> 0:08:18.720 Fed reserved while they might only go twenty five basis points. 0:08:18.720 --> 0:08:22.200 Remember we also get the Summary of Economic Projections, which 0:08:22.240 --> 0:08:25.640 includes that dot plot. So it's possible that if inflation 0:08:25.720 --> 0:08:29.000 seems to be stickier than the FED is hoping, then 0:08:29.240 --> 0:08:31.040 those dots could go higher and we could see a 0:08:31.080 --> 0:08:33.679 higher terminal rate being priced in. So again, like instead 0:08:33.679 --> 0:08:35.480 of five and a half percent, maybe it's five and 0:08:35.520 --> 0:08:38.200 three quarters or six percent winds up getting placed in 0:08:38.240 --> 0:08:40.240 those dot plots, and I think that the market will 0:08:40.320 --> 0:08:43.840 react to any significant uptick in the dots this month. 0:08:44.000 --> 0:08:46.520 I'm glad you brought up the dot plots because on 0:08:46.559 --> 0:08:48.960 the equity side of things, when I've been speaking with 0:08:49.000 --> 0:08:52.160 my sources, they feel like, especially portfolio managers, they feel 0:08:52.160 --> 0:08:55.440 like the equity market can withstand a potential peak terminal 0:08:55.520 --> 0:08:57.600 rate of around five and a half percent, maybe even 0:08:57.640 --> 0:08:59.800 a little bit higher. But something that spooks them is 0:08:59.840 --> 0:09:02.559 more or when it gets potentially closer if it were 0:09:02.600 --> 0:09:05.240 to happen at six percent or higher. But they feel 0:09:05.280 --> 0:09:07.600 like when you're looking at where the market is trying 0:09:07.640 --> 0:09:09.280 to figure that out. At the end of January it 0:09:09.400 --> 0:09:12.360 was just below five percent. Now it's those projections trying 0:09:12.400 --> 0:09:14.600 to figure out maybe that's around five and a half percent. 0:09:15.400 --> 0:09:18.040 Barclays was actually thinking that the median dot plot could 0:09:18.040 --> 0:09:20.920 potentially rise from five point one percent, which it was 0:09:20.960 --> 0:09:23.920 in December, to potentially five point four percent so even 0:09:23.960 --> 0:09:26.800 if we do see that happen with the Federal Reserve, 0:09:26.920 --> 0:09:29.640 when it comes to the equity markets, they're arguing that 0:09:29.679 --> 0:09:32.079 if that is where the Fed does go, you might 0:09:32.120 --> 0:09:34.520 not necessarily see some sort of sell off in the 0:09:34.559 --> 0:09:36.679 broader equity markets because that's kind of what they've been 0:09:36.679 --> 0:09:38.960 pricing in. But if you see sort of a dramatic 0:09:39.080 --> 0:09:42.120 change there where maybe it's above five and a half percent, 0:09:42.200 --> 0:09:45.000 that's where potentially we could see some bigger movements and 0:09:45.040 --> 0:09:48.559 bigger swings to the downside in stock prices. One other 0:09:48.600 --> 0:09:52.680 big data point coming out this week retail sales. Retail sales, 0:09:52.679 --> 0:09:57.240 the survey says point one percent month over month increase. 0:09:57.720 --> 0:09:59.679 At least it's an increase nothing like what we saw 0:09:59.720 --> 0:10:02.600 in ja January. Well, especially because that number in January 0:10:02.600 --> 0:10:05.480 came in a lot stronger than expected than even in December. 0:10:05.559 --> 0:10:07.840 Typically you would you would see that in December because 0:10:07.880 --> 0:10:11.079 that ties into holiday sales, but that also carried over 0:10:11.120 --> 0:10:15.120 into January, so some of that potentially has arguably been 0:10:15.160 --> 0:10:17.680 maybe it's due to seasonality factors, But if we do 0:10:17.800 --> 0:10:21.760 begin to see that pull back, that could actually potentially 0:10:21.840 --> 0:10:24.319 bode well for equity prices because they kind of want 0:10:24.320 --> 0:10:26.520 to see this sweet spot where obviously you want the 0:10:26.559 --> 0:10:29.160 consumer spending because that's more than two thirds of what's 0:10:29.160 --> 0:10:31.880 pushing the economy and growing the economy, but not spending 0:10:31.920 --> 0:10:35.040 so much to where this is keeping the inflation equation 0:10:35.080 --> 0:10:37.520 a problem for the Federal Reserve. So it's pulling it 0:10:37.559 --> 0:10:40.439 back enough to where you feel like what the Federal 0:10:40.480 --> 0:10:43.280 Reserve has been doing is beginning to filter into the economy, 0:10:43.320 --> 0:10:45.720 but not so much to where you are starting to 0:10:45.720 --> 0:10:49.040 worry about the economy going into a recession. I re jest. 0:10:49.120 --> 0:10:51.160 Thanks so much for joining us. Coming up on Bloomberg 0:10:51.200 --> 0:10:53.880 Daybreak weekend, we had to London to preview the UK 0:10:54.080 --> 0:11:09.400 Chancellor's upcoming budget proposal. I'm Tom Busby and this this 0:11:09.559 --> 0:11:12.320 is Bloomberg Daybreak Weekend, our global look at the top 0:11:12.360 --> 0:11:15.240 stories for investors in the coming week. I'm Tom Busby 0:11:15.280 --> 0:11:18.200 in New York. Up later in our program, Apple's partner 0:11:18.280 --> 0:11:21.720 Fox con plans to invest about seven hundred million dollars 0:11:21.760 --> 0:11:25.000 on a new plant in India, but first in the UK. 0:11:25.200 --> 0:11:27.920 The Chancellor, Jeremy Hunt will unveil his tax and spending 0:11:27.960 --> 0:11:31.080 plans in the coming days, with the business community calling 0:11:31.120 --> 0:11:35.800 on him to incentivize investment and tackle skills shortages. This 0:11:36.000 --> 0:11:39.960 is the UK economy narrowly avoided recession last year. For more, 0:11:40.080 --> 0:11:42.520 let's head to London and bring in Bloomberg Daybreak Europe 0:11:42.520 --> 0:11:46.640 anchor Stephen Carroll to Jeremy Hunt's downplayed hopes of any 0:11:46.720 --> 0:11:49.720 major large ast from the UK government in this budget, 0:11:49.960 --> 0:11:52.960 but an improvement in the economic situation is giving him 0:11:53.000 --> 0:11:56.480 a bit more room to maneuver. He faces calls for giveaways, 0:11:56.520 --> 0:12:01.280 including freezing fuel jusy improving public sector pay, something he's considering, 0:12:01.320 --> 0:12:05.679 according to Bloomberg, reporting tax breaks to boost business investment 0:12:05.800 --> 0:12:08.560 on Bloomberg Radio, We've been discussing this with Tina Lee, 0:12:08.640 --> 0:12:11.960 Deutsche Banks UK and Ireland chief executive. For me, it's 0:12:12.040 --> 0:12:15.080 really around how do you create an environment that attracts 0:12:15.120 --> 0:12:18.760 investment whilst at the same time dealing with some very 0:12:18.840 --> 0:12:22.440 real issues that are not yet resolved. And we've seen 0:12:22.440 --> 0:12:25.240 the news around the FED and making sure that inflation 0:12:25.800 --> 0:12:29.439 is something which needs to be overcome and that's true 0:12:29.480 --> 0:12:32.480 here in the UK as well. So more broadly, I 0:12:32.520 --> 0:12:36.120 think what I'll be looking for is what happens around 0:12:36.600 --> 0:12:40.000 public sector pay, because again that will feed through into 0:12:40.040 --> 0:12:43.680 the inflationary numbers and ultimately set the tone I think 0:12:43.679 --> 0:12:46.560 for the latter half of the year because remember I 0:12:46.559 --> 0:12:50.680 mean we do have a backdrop of the Northern Ireland Protocol, yes, 0:12:51.040 --> 0:12:53.959 and whilst that not has yet been signed, I think 0:12:54.000 --> 0:12:57.240 we're all optimistic that will happen. So that's Tina Lee 0:12:57.320 --> 0:12:59.959 from Deutsche Bank Bloomberg's New UK kind of as Danhanson 0:13:00.080 --> 0:13:02.720 with being now from more on this down looking ahead 0:13:02.720 --> 0:13:07.360 then to the budgers, what source of fiscal headroom? How 0:13:07.440 --> 0:13:09.760 much money does Jeremy Hunt have to play with? Yeah, 0:13:09.760 --> 0:13:11.960 so I think it's the way to think about it 0:13:12.000 --> 0:13:13.920 is sort of through two lenses. One is in the 0:13:13.960 --> 0:13:15.839 short term, So in the short term he's got a lot. 0:13:16.240 --> 0:13:19.200 So borrowing has come in significantly under what the OBR 0:13:19.320 --> 0:13:22.679 was expecting, somewhere in the region of thirty to forty 0:13:22.679 --> 0:13:25.839 billion pounds. So this fiscal year and next fiscal year 0:13:26.000 --> 0:13:29.160 we think borrowing will be around that much lower. So 0:13:29.640 --> 0:13:33.480 that's a lot. But what's important for his fiscal rule, 0:13:33.880 --> 0:13:35.880 So the Chancellor wants debt to be falling as a 0:13:35.920 --> 0:13:38.800 share of GDP in the final year of the forecast period, 0:13:38.840 --> 0:13:44.280 which is twenty twenty seven twenty eight against that target. 0:13:44.480 --> 0:13:46.959 In November he had nine billion pounds. We think he 0:13:47.040 --> 0:13:50.560 might have about double that this time, so an extra 0:13:50.840 --> 0:13:54.640 eight nine billion pounds. And I think what's really important. 0:13:54.840 --> 0:13:58.480 So the point is that the good news this year 0:13:58.520 --> 0:14:01.400 will dissipate over the course of the forecast period and 0:14:01.440 --> 0:14:02.920 there will be there'll be a little pot of money 0:14:02.960 --> 0:14:05.720 at the end. What I would say is that in 0:14:05.760 --> 0:14:09.200 the contexts of a three trillion pound economy, which is 0:14:09.200 --> 0:14:13.400 how big the UK will be, nine million pounds is peanuts, 0:14:13.440 --> 0:14:15.520 So there isn't there is some months there might be 0:14:15.559 --> 0:14:17.920 a bit of money there, but to really go ahead, 0:14:17.960 --> 0:14:21.400 and we've been hearing about potential for tax cuts, but 0:14:21.440 --> 0:14:23.720 to really go ahead and do something meaningful, he hasn't 0:14:23.720 --> 0:14:25.920 really got the headroom to do that just yet. So 0:14:25.960 --> 0:14:29.000 I think, I mean, we'll talk about the policy he 0:14:29.080 --> 0:14:31.480 might focus on, but I think, you know, I think 0:14:31.480 --> 0:14:32.720 it's going to be a lot of it's going to 0:14:32.760 --> 0:14:35.440 be around near term temporary measures that he's going to use. 0:14:35.480 --> 0:14:37.920 He's going to use that near term headroom and probably 0:14:37.960 --> 0:14:40.960 bank that money just and use it closer to the election. 0:14:41.280 --> 0:14:44.800 What's the broader economic backdrop here? We had been told 0:14:44.800 --> 0:14:46.880 them in the Bank of England gave us dire forecast 0:14:46.960 --> 0:14:49.360 for a session in the UK. Things are looking a 0:14:49.400 --> 0:14:51.880 little bit better now, how are they looking for this year? 0:14:52.280 --> 0:14:54.400 So I think they're looking they're looking a lot better. 0:14:54.400 --> 0:14:57.800 I mean, I think we've spoken this year and the 0:14:57.880 --> 0:14:59.680 key thing that's happened, well, there are two key things 0:14:59.720 --> 0:15:01.320 that have and first is the data is just show 0:15:01.400 --> 0:15:04.320 more momentum, more resilience. And the second thing, as we 0:15:04.320 --> 0:15:06.200 all know, we've had this big fall in gas prices 0:15:06.400 --> 0:15:08.880 and those two things combined I think will mean that 0:15:08.920 --> 0:15:12.560 the OBR will predict it probably will still predict a recession, 0:15:12.640 --> 0:15:15.240 but a very very shallow one and probably only lasting 0:15:15.240 --> 0:15:19.120 in the first half of this year, with growth or 0:15:19.160 --> 0:15:22.000 some very very minimal growth returning in the second half 0:15:22.040 --> 0:15:24.000 of the year. And that's obviously a very different pictures 0:15:24.040 --> 0:15:26.520 what they were talking about in November, which was a 0:15:26.600 --> 0:15:29.160 peach trough fall in GDP of a little over two percent. 0:15:30.440 --> 0:15:32.360 You know, if it wouldn't surprise me if the peach 0:15:32.360 --> 0:15:34.480 troth fall in GDP was less than one percent now, 0:15:34.520 --> 0:15:36.480 so cutting the side of the recession in half. So 0:15:36.840 --> 0:15:40.080 the news has been good on the economy, particularly in 0:15:40.120 --> 0:15:42.520 the near term I think the question for the public 0:15:42.560 --> 0:15:45.520 finances though, isn't just about the near term picture. It's 0:15:45.560 --> 0:15:47.720 about the medium term picture as well, and that feeds 0:15:47.720 --> 0:15:52.680 into the questions around productivity growth, around labor force participation, 0:15:53.320 --> 0:15:56.200 and actually there which goes back to why we don't 0:15:56.240 --> 0:15:59.160 think good news on the public finances will last. We 0:15:59.200 --> 0:16:01.200 think the OBI will probably take a slightly dimer view 0:16:01.240 --> 0:16:04.280 of the UK's medium term prospects. And what that does, 0:16:04.320 --> 0:16:06.240 how that interacts with the fiscal picture is that it 0:16:06.280 --> 0:16:09.040 means that tax receipts don't grow as fast, and it 0:16:09.080 --> 0:16:12.000 means the fiscal picture isn't quite as rosy looking when 0:16:12.000 --> 0:16:13.560 you look at the medium term, which is where his 0:16:13.600 --> 0:16:15.840 fiscal target sits. So that's something to watch out when 0:16:15.840 --> 0:16:20.480 we get the Office for Budget Responsibilities report as well, 0:16:20.480 --> 0:16:24.080 which is of course the government's fiscal watch dog. Is 0:16:24.080 --> 0:16:27.040 there anything then, given that context, is there I think 0:16:27.040 --> 0:16:29.920 the Chancellor can do to try and booth growth at 0:16:29.960 --> 0:16:32.120 this stage or is it really just only the short 0:16:32.200 --> 0:16:34.840 term prospects that he can look at. He goes to again, 0:16:34.880 --> 0:16:38.280 I was split into two buckets. One is the near 0:16:38.400 --> 0:16:40.760 term picture. We know he wants to haver inflation. We 0:16:40.800 --> 0:16:44.720 know that's one of the government's goals, So that means 0:16:45.840 --> 0:16:48.080 you want to you don't want to do anything that's 0:16:48.080 --> 0:16:51.200 going to put that at risk. I think as things stand, 0:16:51.200 --> 0:16:54.040 the inflation picture has probably improved a little bit as well. 0:16:54.080 --> 0:16:56.880 In the UK, we've had data out that suggests it's 0:16:57.280 --> 0:16:59.120 it's a little bit. The underlying picture is a little 0:16:59.120 --> 0:17:02.760 bit weaker than most to commonistferre expecting. Obviously, the falling 0:17:02.760 --> 0:17:05.240 gas prices has a big effect as well going through 0:17:05.280 --> 0:17:07.479 the course of this year, and one thing I think 0:17:07.560 --> 0:17:10.920 he'll do is keep the cap on the unit cost 0:17:10.960 --> 0:17:13.320 of energy prices at two and a half thousand pounds 0:17:13.440 --> 0:17:16.600 rather than really important for household exactly. So that's that's 0:17:16.640 --> 0:17:19.600 one thing. That's that's But he's he's he's definitely going 0:17:19.640 --> 0:17:21.640 to be focused, I think, at least at least at 0:17:21.680 --> 0:17:24.440 this point. And taking into account the fact he doesn't 0:17:24.440 --> 0:17:27.119 have a huge amount of headroom to play with for 0:17:27.280 --> 0:17:30.040 sort of medium term tax cuts that affect the medium 0:17:30.119 --> 0:17:32.680 term picture, I think he's just going to very much 0:17:32.720 --> 0:17:36.400 be focused on shorter term if there are giveaways, ones 0:17:36.440 --> 0:17:38.679 that affect the public finances in the near term but 0:17:38.760 --> 0:17:41.560 don't affect the medium term picture. So as I say 0:17:41.680 --> 0:17:47.080 that the price cap on household energy bills, we might 0:17:47.160 --> 0:17:51.119 see something around capital allowances, but again I think that 0:17:51.119 --> 0:17:53.640 will likely be a temporary thing rather than a permanent thing. 0:17:54.840 --> 0:17:56.800 And the whole point here is, and the whole sort 0:17:56.800 --> 0:17:59.959 of bigger political backdrop, is that you have an election 0:18:00.080 --> 0:18:03.760 probably next year, and it's the point at which essentially 0:18:03.800 --> 0:18:07.080 he uses up all his firepower to say to the electorate, look, 0:18:07.119 --> 0:18:09.280 this is our offering. And I think probably now is 0:18:09.320 --> 0:18:11.520 a little bit early, and the fiscal picture doesn't quite 0:18:11.560 --> 0:18:13.760 allow for it as well, But I think now it's 0:18:13.800 --> 0:18:15.199 just a bit early for him to go ahead and 0:18:15.240 --> 0:18:16.960 do that. Yeah, I mean it's interesting that you talk 0:18:17.000 --> 0:18:20.000 about some of those allowances because we have been reporting 0:18:20.000 --> 0:18:23.399 that he's considering doing something around incentivizing investment. This is 0:18:23.560 --> 0:18:26.440 sort of a long running problem within the UK economy, 0:18:26.440 --> 0:18:29.800 particularly since Bragnics are trying to get businesses to invest more. 0:18:30.240 --> 0:18:32.479 How how can you put that in context for us? 0:18:32.520 --> 0:18:34.480 How big a problem is that? And so yeah, I 0:18:34.560 --> 0:18:36.320 mean it's a huge it's a huge problem. I mean, 0:18:36.359 --> 0:18:39.440 I think I think the level of business investment now 0:18:39.640 --> 0:18:43.000 was only just about got back to its pretty pandemic level. 0:18:43.160 --> 0:18:46.639 So it's it's it's really struggled to recover from the pandemic. 0:18:47.000 --> 0:18:48.560 And if you look at it in the context of 0:18:48.560 --> 0:18:52.360 what's happened, as you say, since the Brexit referendum, we're 0:18:52.400 --> 0:18:55.159 well beneath the performance of other G seven economies the 0:18:55.240 --> 0:18:59.280 UK economy, so I think there's something there is definitely 0:18:59.320 --> 0:19:01.960 something to be done. The context again here though, is 0:19:02.000 --> 0:19:04.400 that the government has put in place a massive rising 0:19:04.440 --> 0:19:09.760 corporation tax that's going to take effects from April. Yeah, exactly. 0:19:09.840 --> 0:19:11.919 So you've got a six percentage point rise in the 0:19:11.960 --> 0:19:15.320 CT rate. That's obviously a massive disincentive for investment at 0:19:15.320 --> 0:19:17.160 a time when interest rates are going through the roof. 0:19:18.000 --> 0:19:20.000 So what the government is going to try and do 0:19:20.760 --> 0:19:27.240 is sweeten that that hit, essentially by introducing tax allowances. 0:19:27.280 --> 0:19:29.239 And this is something that Richie soon Act toyed with 0:19:29.320 --> 0:19:32.280 when he was chancellor. He introduced this temporary superdeduction and 0:19:32.280 --> 0:19:36.199 this is something that's actually expiring at the end of 0:19:36.440 --> 0:19:38.040 at the end of March, and I think that the 0:19:38.080 --> 0:19:39.720 government will want to or Hunt will want to put 0:19:39.760 --> 0:19:43.680 something in place to at least temporarily replace that. Bloomberg 0:19:43.840 --> 0:19:46.240 Senior UK economist Dan Hansen thank you very much for 0:19:46.280 --> 0:19:48.920 your insights. I'm Stephen Carroll in London. You can catch 0:19:49.000 --> 0:19:51.879 us every weekday morning here for Bloomberg Daybreak Europe, beginning 0:19:51.880 --> 0:19:55.760 at six am in London and one am on Wall Street. Tom. 0:19:55.800 --> 0:19:58.720 Thanks Stephen. Coming up on Bloomberg Daybreak weekend, we had 0:19:58.760 --> 0:20:00.639 to DC and get a look at the week ahead 0:20:00.720 --> 0:20:04.040 in the nation's capital. I'm Tom Busby, and this is 0:20:04.080 --> 0:20:19.040 Bloomberg broadcasting live from the Bloomberg Interactive Broker Studio in 0:20:19.119 --> 0:20:23.160 New York. Bloomberg Elomon Freo to Washington, DC, Bloomberg ninety 0:20:23.240 --> 0:20:26.200 nine one to Boston, Bloomberg one oh sixty one to 0:20:26.320 --> 0:20:29.960 San Francisco, Bloomberg nine sixty to the country, Sirius XM 0:20:30.040 --> 0:20:34.080 Channel one nineteen to London, DAB Digital Radio, and around 0:20:34.080 --> 0:20:37.920 the globe the Bloomberg Business app and Bloomberg Radio dot Com. 0:20:37.960 --> 0:20:47.560 This is Bloomberg Daybreak Weekend. I'm Tom Busby in New 0:20:47.640 --> 0:20:49.720 York with your global look ahead at the top stories 0:20:49.760 --> 0:20:52.160 for investors in the coming week. We had to Washington, 0:20:52.240 --> 0:20:54.879