WEBVTT - Parsing Through US, China Economic Data 0:00:02.480 --> 0:00:07.640 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.680 --> 0:00:12.879 This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. 0:00:12.920 --> 0:00:15.440 You can join Brian Curtis and myself for the stories, 0:00:15.480 --> 0:00:18.560 making news and moving markets in the APAC region. You 0:00:18.640 --> 0:00:21.480 can subscribe to the show anywhere you get your podcast 0:00:21.560 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.960 --> 0:00:26.160 Bloomberg Business app. 0:00:27.400 --> 0:00:30.040 Joining us now on the program is Ryan Wong, us 0:00:30.120 --> 0:00:34.040 economist at HSBC. So, Ryan, thank you for taking out 0:00:34.080 --> 0:00:36.080 some time to be with us. So we had core 0:00:36.159 --> 0:00:39.880 goods prices increasing zero point two percent month on month 0:00:39.920 --> 0:00:42.680 in the latest CPI report, and it had investors a 0:00:42.720 --> 0:00:46.599 little bit nervous. In fact, though core goods prices, as 0:00:46.640 --> 0:00:49.159 you point out, I've risen in only two of the 0:00:49.200 --> 0:00:52.680 past sixteen months, and we got the PPI that was flat. 0:00:52.840 --> 0:00:55.680 So can we set aside inflation for the moment or 0:00:55.880 --> 0:00:57.840 still have to be right on top of it? 0:00:59.360 --> 0:01:01.200 Well, thanks for havingeing me. That's right. 0:01:01.320 --> 0:01:04.320 The CPI data coming out of the United States, Actually 0:01:04.400 --> 0:01:07.600 the most recent figures are a little bit the opposite 0:01:07.720 --> 0:01:09.840 of what we had seen in previous months. So I 0:01:09.840 --> 0:01:12.520 think a lot of the progress on disinflation this year 0:01:12.720 --> 0:01:16.800 has been related to goods prices. Actually, goods prices have 0:01:16.840 --> 0:01:19.640 actually been falling for most of the past year, and 0:01:19.680 --> 0:01:21.960 it's the services side that has been stickier, has been 0:01:22.000 --> 0:01:25.440 more elevated, both in terms of housing inflation and also 0:01:25.520 --> 0:01:28.240 non housing services. But as I said, the latest set 0:01:28.280 --> 0:01:30.880 of numbers were a little bit the opposite, goods prices 0:01:30.959 --> 0:01:33.000 rising a little bit. I wouldn't read too much into 0:01:33.080 --> 0:01:34.880 that single reading. We'll have to watch it in the 0:01:34.880 --> 0:01:40.200 months ahead. But it was actually services inflation as well, 0:01:40.920 --> 0:01:44.440 that is still overall I think, holding up inflation at 0:01:44.440 --> 0:01:46.840 a higher level. So I mean to answer your question, 0:01:46.959 --> 0:01:49.720 the bottom line is that core inflation, especially if you 0:01:49.760 --> 0:01:51.800 look at the measure of the FED focuses on the 0:01:51.840 --> 0:01:56.040 most so called core PCE inflation, it slowed from over 0:01:56.080 --> 0:01:58.720 five percent two years ago to less than three percent today. 0:01:59.160 --> 0:02:00.280 I expect it all actually. 0:02:00.160 --> 0:02:01.800 Just bounce around where it is for the rest of 0:02:01.880 --> 0:02:05.080 this year, maybe this two point six to two point 0:02:05.160 --> 0:02:07.880 eight percent range, just below that three percent level. 0:02:08.440 --> 0:02:11.200 So also last Friday, we learned from the University of 0:02:11.240 --> 0:02:14.799 Michigan the consumer centiment unexpectedly fell for the first time 0:02:14.800 --> 0:02:17.520 in three months. Maybe you don't believe a lot in 0:02:18.200 --> 0:02:21.480 the University of Michigan data. But I think perhaps what's 0:02:21.520 --> 0:02:23.359 going to be more important for markets in the week 0:02:23.400 --> 0:02:27.760 ahead is the New York Fed survey on consumer expectations 0:02:28.400 --> 0:02:30.960 for the month of September. How are you understanding the 0:02:31.000 --> 0:02:32.440 American consumer right now? 0:02:33.840 --> 0:02:35.720 Yeah, it's very interesting how you point that out. 0:02:35.760 --> 0:02:38.000 I mean, look, I think all of the consumer surveys 0:02:38.040 --> 0:02:40.160 do tell us something, right. I think it's a little 0:02:40.160 --> 0:02:44.160 bit too to just looking at the surface to say 0:02:44.320 --> 0:02:46.320 we just throw out this number because it doesn't make sense. 0:02:46.360 --> 0:02:48.799 I think the one commonality. 0:02:48.200 --> 0:02:50.760 Across all the consumer surveys is that, indeed the high 0:02:50.800 --> 0:02:54.520 inflation of recent years has weighed heavily on sentiment. And 0:02:54.800 --> 0:02:56.800 of course many have said it, but it's certainly the 0:02:56.880 --> 0:03:00.440 case that even though inflation rates have declined, the high 0:03:00.480 --> 0:03:04.560 prices continue to strain household budgets, and understandably, you know, 0:03:04.720 --> 0:03:07.959 it may take more years to come before consumers truly 0:03:08.000 --> 0:03:11.360 feel comfortable with just how high price levels have risen 0:03:11.400 --> 0:03:13.840 over recent years. So I think that's really, on the 0:03:13.840 --> 0:03:17.080 one hand, something you can't really get passed. On the 0:03:17.080 --> 0:03:19.679 other hand, for a federal reserve that's trying to control 0:03:19.760 --> 0:03:23.240 future inflation, not necessarily trying to get prices to fall 0:03:23.280 --> 0:03:26.120 back to where they were prior to the pandemic. Well, 0:03:26.160 --> 0:03:30.360 as you say, those inflation expectations measures do matter a lot, 0:03:30.680 --> 0:03:33.480 and on that basis, actually the Michigan survey still shows 0:03:33.480 --> 0:03:37.240 relatively stable inflation expectations, whether on kind of a one 0:03:37.320 --> 0:03:39.960 year horizon or even on a longer five to ten 0:03:40.040 --> 0:03:41.160 year horizon. 0:03:41.320 --> 0:03:44.240 Growth is pretty firm. The now casts from Atlanta, the 0:03:44.280 --> 0:03:47.520 Atlanta FED three point two to one percent. The last 0:03:47.520 --> 0:03:50.560 couple of quarters have been around three percent. And so 0:03:50.640 --> 0:03:53.760 that stimulus that's still coming into the economy, and that 0:03:54.400 --> 0:03:56.920 means that you know, employment could get better from here, 0:03:57.040 --> 0:03:59.760 not not worse from here. So you've got a pretty 0:03:59.760 --> 0:04:03.160 strong economy. Do you see the economy as actually improving 0:04:03.200 --> 0:04:06.400 here or weakening? And then I guess you know, part 0:04:06.440 --> 0:04:09.320 of that question is what's the impact on inflation? 0:04:10.880 --> 0:04:12.440 Yeah, well that's absolutely right. 0:04:12.480 --> 0:04:14.360 So, I mean for the last few years and really 0:04:14.400 --> 0:04:17.680 continuing through this year, the GDP part of the economic 0:04:17.720 --> 0:04:20.160 data has continued to surprise. The upside in the United 0:04:20.200 --> 0:04:22.920 States over on a year of a year basis real 0:04:22.920 --> 0:04:23.920 GDP growth. 0:04:23.640 --> 0:04:24.520 Of over three percent. 0:04:25.000 --> 0:04:27.680 As you point out, the Atlanta Fed now cast doesn't 0:04:27.680 --> 0:04:29.800 look like there's going to be too much of a 0:04:29.800 --> 0:04:33.680 slowdown in the third quarter, and so that raised some 0:04:33.800 --> 0:04:36.159 questions about, well, how does the strong GDP relate to 0:04:36.200 --> 0:04:38.919 some of the new concerns about the job market with 0:04:39.040 --> 0:04:41.960 slower jobs growth, the drift hire and the unemployment rate 0:04:41.960 --> 0:04:44.000 over the past year. But then you look at the 0:04:44.000 --> 0:04:47.400 most recent monthly jobs report and it contradicted some of 0:04:47.400 --> 0:04:49.480 those fears. The unemployment rate has actually fallen for the 0:04:49.560 --> 0:04:52.360 last two months, and so you know, I think markets 0:04:52.400 --> 0:04:54.880 are concerned that if you look into the future, you 0:04:54.920 --> 0:04:59.599 could have this self reinforcing downturn, let's say, slower jobs growth, 0:04:59.600 --> 0:05:01.400 slower age growth, leading to less. 0:05:01.200 --> 0:05:02.080 Spending down the road. 0:05:02.680 --> 0:05:05.160 But then every few months we seem to get some 0:05:05.240 --> 0:05:09.400 data that actually contradicts that type of fear and instead suggests, well, 0:05:09.400 --> 0:05:12.680 actually incomes are still growing, maybe not quite as quickly 0:05:12.920 --> 0:05:15.760 as they were two years ago, but still presumably strong 0:05:15.839 --> 0:05:18.880 enough to keep spending going for a while longer. So 0:05:19.760 --> 0:05:21.760 I don't think it's actually going to get any easier 0:05:21.800 --> 0:05:24.760 to analyze the situation. Obviously, when we look forward to 0:05:24.760 --> 0:05:26.400 the next job's report, we're going to have to be 0:05:26.440 --> 0:05:28.560 dealing with how to interpret weather effects. 0:05:29.240 --> 0:05:31.200 But you know, I think you continue. 0:05:30.800 --> 0:05:35.000 To get a pretty interesting economic picture, and not necessarily 0:05:35.000 --> 0:05:37.159 one that signals extreme weakness ahead. 0:05:37.240 --> 0:05:39.760 So where does that leave the FED between Now, let's say, 0:05:39.760 --> 0:05:41.159 in the end of the year, is it right to 0:05:41.240 --> 0:05:43.839 assume that we're going to get another fifty basis points 0:05:43.839 --> 0:05:45.159 in total rate cuts. 0:05:46.560 --> 0:05:48.320 I think that is the most likely. 0:05:48.400 --> 0:05:50.800 Our own forecast is that the FED will cut its 0:05:50.839 --> 0:05:54.159 policy rate by twenty five basis points at each of 0:05:54.200 --> 0:05:57.680 the next six policy meetings. So that's the two remaining 0:05:57.720 --> 0:06:00.360 this year to your point in November December, the first 0:06:00.400 --> 0:06:03.640 four meetings of twenty twenty five. And in a way, 0:06:04.000 --> 0:06:07.320 as I alluded to, I do think the economic data 0:06:07.320 --> 0:06:09.880 in the US will be confusing over the month ahead. 0:06:10.400 --> 0:06:12.240 Obviously, we have a little over three weeks to go 0:06:12.320 --> 0:06:13.040 to the US. 0:06:12.800 --> 0:06:16.680 Election, and I think it does tend to mean that 0:06:16.800 --> 0:06:19.880 most likely the FED will follow through with its kind 0:06:19.880 --> 0:06:23.680 of baseline expectation. At least that's what VET chair Palell 0:06:23.760 --> 0:06:25.880 told us a couple of weeks ago in terms of 0:06:25.960 --> 0:06:29.320 twenty five base point moves at upcoming meetings. You know, 0:06:29.400 --> 0:06:33.960 if the economic data broadly come in as anticipated. 0:06:33.920 --> 0:06:37.719 We had the inflation deflation numbers in China kind of disappointing, 0:06:37.960 --> 0:06:41.120 particularly PPI minus two point eight percent, worse than the 0:06:41.240 --> 0:06:44.279 estimate of two six And so you wonder whether China, 0:06:44.400 --> 0:06:48.240 at least at the moment, is still exporting deflation to 0:06:48.320 --> 0:06:50.920 a place like the United States. So interested to get 0:06:50.960 --> 0:06:53.839 your thoughts on that. And then you know, usually stimulus 0:06:53.880 --> 0:06:56.400 does work at some point. So are we going to 0:06:56.440 --> 0:07:00.000 be seeing that change with China's impact on the US 0:07:00.080 --> 0:07:00.760 citnytime soon? 0:07:02.360 --> 0:07:05.479 Well, I think at a broad level, like to your point, 0:07:05.560 --> 0:07:09.560 it does matter greatly. Some economies are looking for inflation 0:07:09.760 --> 0:07:13.760 to come down and other economies looking for inflation to 0:07:13.840 --> 0:07:17.040 pick up. So it does highlight divergences across global trends. 0:07:17.440 --> 0:07:20.880 I mean, I think in the broad sense, and to 0:07:21.040 --> 0:07:23.880 the point that we were talking about earlier, goods price 0:07:24.040 --> 0:07:28.160 inflation in the United States has declined significantly. I wouldn't 0:07:28.160 --> 0:07:32.080 attribute that, you know, fully to the effects specifically of 0:07:32.800 --> 0:07:35.600 let's say, output from China, but I think in the 0:07:35.600 --> 0:07:38.720 global context that's definitely part of the story. Also, we 0:07:38.800 --> 0:07:41.440 have to consider foreign exchange effects in the United States. 0:07:41.440 --> 0:07:45.280 Of course, you know, a wide variety of exchange rates 0:07:45.320 --> 0:07:48.840 matter for import costs and the bottom line, as all 0:07:48.880 --> 0:07:52.040 of those have been relatively contained over the past year, 0:07:52.080 --> 0:07:55.280 and so you know, you basically you saw goods prices 0:07:55.360 --> 0:07:58.680 surge to extraordinarily high levels a couple of years ago, 0:07:58.760 --> 0:08:02.880 with auto prices surging, household goods prices surging, and all 0:08:02.960 --> 0:08:07.480 of that really has retreated over the past year, notwithstanding 0:08:07.600 --> 0:08:09.200 the most recent monthly data. 0:08:09.320 --> 0:08:11.840 So Ryan, in the week ahead, we've got some Fed speak. 0:08:11.880 --> 0:08:15.560 Chris Waller is speaking along with Neil Keshkari and Mary Daily, 0:08:15.600 --> 0:08:18.080 I think is on that list very quickly thirty seconds. 0:08:18.480 --> 0:08:22.280 How does the FED go about managing market expectations right now? 0:08:23.880 --> 0:08:26.280 Look, I think markets are in a pretty good place. 0:08:26.280 --> 0:08:28.880 They are mostly pricing in that twenty five base point 0:08:28.960 --> 0:08:32.520 rate cut that we're anticipating for November. I do think 0:08:32.600 --> 0:08:34.319 a lot of the rhetoric is going to be shifting 0:08:34.360 --> 0:08:37.360 to how to interpret the jobs data to come over 0:08:37.360 --> 0:08:41.079 the weeks ahead, not to overreact to information that will 0:08:41.360 --> 0:08:46.120 certainly be impacted by weather effects. And so I think 0:08:46.160 --> 0:08:48.960 it's going to be an attempt to be reassuring the markets, 0:08:49.000 --> 0:08:52.720 to basically try to send the signal of not overreacting 0:08:52.760 --> 0:08:55.280 to one number over the week's ahead. 0:08:55.960 --> 0:08:59.280 Thank you so much, Ryan, very clear, very good picture 0:08:59.559 --> 0:09:05.359 of understanding coming from you. Bryan Loong, us economist HSBC. 0:09:12.720 --> 0:09:15.040 Joining us now in our studios in Hong Kong is 0:09:15.120 --> 0:09:16.720 mid min Low Bloomberg TV. 0:09:16.640 --> 0:09:19.400 China correspondent who. 0:09:18.880 --> 0:09:21.800 Takes a close look at the weekend developments at the 0:09:21.800 --> 0:09:24.559 Ministry of Finance. So bottom line, mid men, is we 0:09:24.640 --> 0:09:27.160 didn't get the two trillion you on, the two hundred 0:09:27.160 --> 0:09:30.120 and eighty three billion dollars that had been expected somewhere 0:09:30.280 --> 0:09:34.080 actually even thinking we might get more. So it's pretty 0:09:34.120 --> 0:09:40.040 clear policymakers are showing continued reticence here over any kind 0:09:40.040 --> 0:09:43.640 of shock at all, and they're just kind of tinkering 0:09:43.679 --> 0:09:47.320 at it. But you know, it may be too much 0:09:47.360 --> 0:09:49.400 to say that there would be vast disappointment. 0:09:49.440 --> 0:09:52.720 Your thoughts, well, I would say that two trillion un 0:09:52.800 --> 0:09:55.880 and fiscal stimulus is still on the table because remember 0:09:55.920 --> 0:09:58.559 the last time we chatted, I told you that any 0:09:58.600 --> 0:10:01.439 revision to the bus school budget deficit, as well as 0:10:01.480 --> 0:10:05.280 any new additional new bonds above this year's quarter will 0:10:05.280 --> 0:10:08.079 have to be approved by the legislature. So the legislature 0:10:08.120 --> 0:10:11.000 is going to meet likely in late October. The NPC 0:10:11.160 --> 0:10:14.320 standing Committee meeting, that's when we may be able to 0:10:14.320 --> 0:10:17.160 hear at actual number. So this time we just heard 0:10:17.240 --> 0:10:21.440 kind of hints of measures to come without a number 0:10:21.480 --> 0:10:24.800 on it. But it's still, I guess, in some ways 0:10:24.840 --> 0:10:27.400 in line with market expectations. I think in terms of 0:10:27.440 --> 0:10:29.679 the details, we have to wait a little bit longer. 0:10:29.960 --> 0:10:32.040 So you don't think there's a gap between what the 0:10:32.080 --> 0:10:35.800 market is expecting and what the government is saying right now, I. 0:10:35.760 --> 0:10:39.360 Think there is. There are some mixed reactions. I think 0:10:39.360 --> 0:10:41.920 the biggest gap is the fact that the m ORF 0:10:41.920 --> 0:10:45.800 briefing really disappointed in terms of lack of any stimulus 0:10:45.800 --> 0:10:49.240 on the demand side, because the only cash handout that 0:10:49.280 --> 0:10:53.680 they mentioned was doubling the quarta of scholarships for college 0:10:53.679 --> 0:10:57.240 students and increasing financial aid to them, and this is 0:10:57.280 --> 0:11:00.760 nothing to the extent of the scale that markets had 0:11:00.800 --> 0:11:03.520 been expecting. A lot of the measures were targeted at 0:11:03.520 --> 0:11:06.520 the property sector and at tackling local government debt, so 0:11:06.559 --> 0:11:08.920 that demand side stimulus is what's missing here. 0:11:09.240 --> 0:11:12.200 Yeah, I know there appears to be consensus on this 0:11:12.320 --> 0:11:15.679 that there hasn't been enough to boost consumption, but actually, mean, men, 0:11:15.760 --> 0:11:17.280 if you think about it and you look back over 0:11:17.320 --> 0:11:20.200 the past twenty odd years, Domestic consumption has not been 0:11:20.600 --> 0:11:23.320 a big driver in China's economic growth. 0:11:23.360 --> 0:11:26.080 It's been a driver, but not the biggest. Investment and 0:11:26.200 --> 0:11:28.360 trade has been, So I. 0:11:28.360 --> 0:11:31.400 Wonder whether we should kind of rethink a little bit 0:11:31.760 --> 0:11:33.960 about where they're targeting fresh money. 0:11:34.760 --> 0:11:37.480 Yeah, it is not a big driver, but I guess 0:11:37.520 --> 0:11:40.400 if you compare to pre pandemic times in terms of 0:11:40.440 --> 0:11:43.440 the act activity data when it comes to retail sales, 0:11:43.960 --> 0:11:46.280 the numbers that we are seeing now is still very weak. 0:11:46.320 --> 0:11:48.600 And if you look at the GDP deflator, that's down 0:11:49.000 --> 0:11:51.880 in negative territory for five straight months now. We had 0:11:51.880 --> 0:11:55.560 the CPAI data that came out over the weekend, all 0:11:55.760 --> 0:12:00.119 missed expectations, whether you're talking about consumer prices or producers prices, 0:12:00.120 --> 0:12:02.960 and call inflation is now just zero point one. It's 0:12:02.960 --> 0:12:05.160 the weakest since February twenty twenty one. So I think 0:12:05.200 --> 0:12:09.400 there is still an argument for the weakness and domestic consumption. 0:12:09.120 --> 0:12:12.280 That stential loss is really rather than like superstimulus. 0:12:12.360 --> 0:12:12.600 Right. 0:12:12.760 --> 0:12:17.199 Yeah, but if you have a protracted cycle of deflation 0:12:17.280 --> 0:12:20.240 in China, which is clearly at work right now, I mean, 0:12:20.320 --> 0:12:25.160 spending could only be driven further to lower levels and investment. 0:12:24.679 --> 0:12:29.959 Also, Yeah, that's right, and right now, I just want 0:12:30.000 --> 0:12:31.640 to draw your attention back to some of the other 0:12:31.679 --> 0:12:34.760 measures they're talking about in terms of the spending by 0:12:34.800 --> 0:12:37.720 local governments, because one of the big dregs on the 0:12:37.760 --> 0:12:40.880 economy as well aside from consumption, is also the fact 0:12:40.920 --> 0:12:44.040 that fiscal spending was very low this year. It has 0:12:44.120 --> 0:12:46.120 shrunk by three percent in the first eight months of 0:12:46.120 --> 0:12:50.640 this year. And even though we're not hearing additional sizes 0:12:50.679 --> 0:12:55.040 of additional new bonds, but some analysts like Stanchart Thing 0:12:55.120 --> 0:12:57.960 Shunk from Stanchart is saying that it's still quite significant 0:12:57.960 --> 0:13:00.920 that they're widening the usage of local government bonds to 0:13:01.000 --> 0:13:04.559 allow those funds to be used for buying up houses 0:13:04.840 --> 0:13:07.400 because one of the reasons for the lag in fiscal 0:13:07.440 --> 0:13:10.400 spending is also because there's been a lack of suitable projects. 0:13:10.679 --> 0:13:12.880 Infrastructure has been so saturated that there are a lot 0:13:12.920 --> 0:13:15.040 of idle funds sitting around that are not being spent. 0:13:15.200 --> 0:13:17.720 So Stanchat is saying that this could unleash about one 0:13:17.760 --> 0:13:20.880 trillion yen of idle funds if they widen the usage 0:13:20.880 --> 0:13:21.559 of these local. 0:13:21.360 --> 0:13:23.520 Government and that would be good for the developers because 0:13:23.520 --> 0:13:28.200 we're talking about these local special bonds would enable the 0:13:28.240 --> 0:13:32.560 local governments to buy unsold homes, homes around the market 0:13:32.559 --> 0:13:36.280 that are empty, and so this would eventually get turned 0:13:36.320 --> 0:13:38.800 into subsidized housing, right, and that's in need as well. 0:13:39.120 --> 0:13:42.720 Yeah, so this is a little bit complicated. So some 0:13:42.920 --> 0:13:45.240 editorsts are saying that yes, it's a good thing because 0:13:45.320 --> 0:13:49.800 it could speed up that housing buyback programmed. But although 0:13:49.840 --> 0:13:52.880 it provides fresh funding, it doesn't solve the lack of 0:13:52.920 --> 0:13:55.840 profit incentives because in some cases, the yield that you 0:13:55.920 --> 0:14:00.720 get from these subsidized rental housing sometimes is lower than 0:14:00.720 --> 0:14:04.040 the funding cost for you know, for the loans that 0:14:04.080 --> 0:14:07.080 you are taking out to buy these STU drag. Yeah, 0:14:07.120 --> 0:14:08.840 so that's the reason why the take up rate has 0:14:08.840 --> 0:14:09.760 been very low so far. 0:14:09.920 --> 0:14:12.680 Well, I was just looking for any help that the 0:14:12.679 --> 0:14:15.120 PBOC might be able to apply at this point or 0:14:15.200 --> 0:14:17.079 is that pretty much off the table right now? It's 0:14:17.120 --> 0:14:20.200 all on the part of the government and fiscal spending. 0:14:20.760 --> 0:14:20.960 Yeah. 0:14:21.000 --> 0:14:24.320 I think right now it is going to come down 0:14:24.400 --> 0:14:28.160 to implementation of whatever PBOC has announced and fiscal spending. 0:14:28.160 --> 0:14:30.520 I think we'll have to wait until late October when 0:14:30.560 --> 0:14:34.040 the National People's Congress Standing Committee meets. They might give 0:14:34.120 --> 0:14:36.560 us the size of that fiscal stimulus at that point. 0:14:36.840 --> 0:14:39.680 And also remember we have the forward guidance for next 0:14:39.760 --> 0:14:42.600 year the Ministry of Finance it there is still relatively 0:14:42.720 --> 0:14:45.040 large room to raise fiscal deficit. I think that's also 0:14:45.120 --> 0:14:45.560 very key. 0:14:45.800 --> 0:14:48.320 Yeah, all right, mim men, thank you. Mimn Low Bloomberg 0:14:48.400 --> 0:15:00.520 TV China correspondent Carlos Casanova joins US senior Asia economist 0:15:00.640 --> 0:15:05.680 for UBP for discussion about global economics and markets. 0:15:05.720 --> 0:15:07.120 Carlos, thanks very much for coming. 0:15:07.120 --> 0:15:09.160 In no doubt you've had some time to go through 0:15:09.200 --> 0:15:12.160 the Ministry of Finance briefing on Saturday, and the number 0:15:12.240 --> 0:15:16.800 is on inflation and deflation that we got yesterday from China. 0:15:17.200 --> 0:15:19.280 What's your take on where we're at at the moment. 0:15:20.440 --> 0:15:24.800 Well, we are setting certainly witnessing a deceleration in economic 0:15:24.800 --> 0:15:27.840 activity and we are likely going to see that reflect 0:15:27.960 --> 0:15:32.080 in the Q three numbers later this week. Not surprisingly, 0:15:32.480 --> 0:15:34.400 as a result of that, we have seen a much 0:15:34.440 --> 0:15:39.720 more proactive government in terms of that policy stimulus, with 0:15:40.040 --> 0:15:44.480 the focus still being on those monetary policy measures that 0:15:44.480 --> 0:15:47.840 were announced at the end of September. There was a 0:15:47.840 --> 0:15:51.360 lot of I guess, hype and buzz around the monetary 0:15:51.400 --> 0:15:56.160 policy measures, and investors were sort of hoping that that 0:15:56.200 --> 0:16:00.400 would mean that fiscal would would follow suit, making this 0:16:01.280 --> 0:16:05.600 somewhat of you know, whatever it takes moment for China. Unfortunately, 0:16:06.320 --> 0:16:08.920 we don't think that we are headed in that direction. 0:16:10.640 --> 0:16:13.480 It was never we never expected the Ministry of Finance 0:16:13.520 --> 0:16:17.720 to deliver the specific details during the weekend. The reason 0:16:17.760 --> 0:16:20.080 for that is, of course Congress needs to approve any 0:16:20.080 --> 0:16:25.360 additional spending. We do think that additional you know, new 0:16:25.400 --> 0:16:29.120 money will will come. But given that the Ministry of 0:16:29.120 --> 0:16:32.760 Finance highlighted the main policy tools and the main themes 0:16:32.760 --> 0:16:34.480 that they're going to focus on. So they're going to 0:16:34.520 --> 0:16:39.080 do bond issuance and special bondishanes to cover things like 0:16:39.440 --> 0:16:42.880 a dead swapped for local governments, you know, finance some 0:16:43.000 --> 0:16:46.920 of that, you know, the stocking of housing inventory, and 0:16:46.960 --> 0:16:50.280 also recapitalize the bank so that they can lend more. 0:16:51.000 --> 0:16:53.040 That really suggests to me that we are looking at 0:16:53.040 --> 0:16:57.000 an ongoing effort at an ongoing reflation targeting some of 0:16:57.000 --> 0:17:00.360 the bigger structural elements, hoping to sort of slow down 0:17:00.400 --> 0:17:02.440 that pace of deceleration that we are going to see 0:17:02.480 --> 0:17:05.879 this week. More than sort of whatever it takes moment 0:17:05.920 --> 0:17:08.320 and China sort of making a U turn in terms 0:17:08.359 --> 0:17:11.200 of where its priorities lie. So I think market still 0:17:11.200 --> 0:17:12.800 needs to digest that a little bit and we're going 0:17:12.800 --> 0:17:15.679 to see very volatile performance this week as a result. 0:17:15.880 --> 0:17:19.160 So we had the inflation data over the weekend, PPI 0:17:19.720 --> 0:17:23.679 down for a twenty fourth straight month. I mean, the 0:17:23.720 --> 0:17:25.960 writing has been on the wall for some time. The 0:17:26.040 --> 0:17:29.520 question is whether or not authorities in Beijing have delayed, 0:17:29.920 --> 0:17:33.320 and whether that's going to make this situation so much worse. 0:17:34.880 --> 0:17:37.560 My sort of reading on the inflation numbers, of course, 0:17:37.760 --> 0:17:40.800 CPI was extremely flat, and that's in spite of a 0:17:40.840 --> 0:17:45.160 pickup in vegetable prices due to adverse weather. But more 0:17:45.200 --> 0:17:48.119 worrying than that open one percent CPI number is the 0:17:48.119 --> 0:17:52.040 fact that PPI deflation worsened to minus two point eight percent. 0:17:52.880 --> 0:17:54.880 Not only is it twenty four straight months of contraction, 0:17:54.960 --> 0:17:58.000 but also the pace of contraction accelerated, whereas it should 0:17:58.000 --> 0:18:03.160 have been gradually recovering, So deflationary pressures continue to persist. 0:18:04.040 --> 0:18:07.760 I think the government, you know, has been very slow 0:18:07.800 --> 0:18:11.400 to react. Our expectation is that they will deliver some 0:18:11.480 --> 0:18:13.800 figures around the end of the month when the National 0:18:13.800 --> 0:18:16.040 People's Congress Standing Committee meets. 0:18:15.880 --> 0:18:18.520 Because they have to approve it. But we will have 0:18:18.560 --> 0:18:19.000 to end. 0:18:19.119 --> 0:18:21.720 We will have to wait until March next year, you know, 0:18:21.920 --> 0:18:24.680 for the Congress to ratify the targets for twenty twenty five, 0:18:25.400 --> 0:18:27.720 and so it's going to take longer than expected. 0:18:28.160 --> 0:18:31.320 Most of the data that we saw in terms of 0:18:31.320 --> 0:18:34.320 deflation and inflation was for the month of September, and 0:18:34.560 --> 0:18:36.960 we didn't get the announcement from the Central Bank and 0:18:37.040 --> 0:18:41.360 other broad package of measures until September rout around September 0:18:41.359 --> 0:18:45.480 twenty second, twenty third, and since since that time, the 0:18:45.520 --> 0:18:49.080 CSI three hundred has gained twenty one percent from the 0:18:49.080 --> 0:18:51.280 close on September twenty third, So it's even though we 0:18:51.320 --> 0:18:53.880 lost three point three percent last week, it's still higher. 0:18:54.440 --> 0:18:56.800 So it seems like you're a little disappointed in the 0:18:56.880 --> 0:19:00.760 slow approach, but maybe from the policymakers standpoint, they feel 0:19:00.800 --> 0:19:03.439 like this is this is a measured move and the 0:19:03.480 --> 0:19:05.640 wise one correct. 0:19:05.680 --> 0:19:10.320 So the first of all, I don't think policy makers 0:19:10.400 --> 0:19:13.240 really pay that much attention to the stock market. I 0:19:13.240 --> 0:19:17.000 think that the stock market rally will also have a 0:19:17.080 --> 0:19:21.280 relatively muted impact on consumers in China because Chinese households 0:19:21.320 --> 0:19:24.399 are not exposed to equities in the same way that 0:19:24.560 --> 0:19:27.959 US households are. About sixty or seventy percent of household 0:19:28.000 --> 0:19:30.320 wealth in China's linked to real estate investments, so they're 0:19:30.720 --> 0:19:32.840 stabilizing the real estate market. I think it is a 0:19:32.840 --> 0:19:36.600 priority over stabilizing the stock market, but they don't completely 0:19:36.680 --> 0:19:38.760 ignore it, and they are not looking to engineer a. 0:19:38.640 --> 0:19:39.920 Massive, you know, bubble. 0:19:40.440 --> 0:19:43.399 They would prefer something similar to what we saw last year, 0:19:43.400 --> 0:19:46.600 which was a gradual pickup inequities over the span of 0:19:46.640 --> 0:19:50.160 three or four months, sort of helping to boost sentiment overall, 0:19:50.440 --> 0:19:52.800 rather than a situation like what we saw where you know, 0:19:52.840 --> 0:19:55.240 equity is rally forty percent in two weeks, still best 0:19:55.240 --> 0:19:59.120 performers in Asia year to date, but then the pullback 0:19:59.200 --> 0:20:01.440 is much more severe as a result of the policies 0:20:01.480 --> 0:20:02.240 being incremental. 0:20:03.040 --> 0:20:07.439 Are we understating the risks here? If Paijing doesn't get 0:20:07.560 --> 0:20:12.000 this right now, the dire situation that the overall Chinese 0:20:12.000 --> 0:20:13.520 economy could fall into. 0:20:14.640 --> 0:20:18.800 I think it's a delicate equilibrium. So Paijing wants to 0:20:18.800 --> 0:20:23.960 have enough growth to facilitate structural reforms, but they are 0:20:24.000 --> 0:20:26.640 not looking to go back to you know, the roar 0:20:26.720 --> 0:20:29.399 in two thousands with nominal GDP growth around ten percent, 0:20:29.480 --> 0:20:31.720 And I think that's something that the market doesn't really understand. 0:20:32.240 --> 0:20:34.560 So what would it take for China to go back 0:20:34.560 --> 0:20:35.320 to those numbers? 0:20:35.359 --> 0:20:35.439 What? 0:20:36.000 --> 0:20:38.720 You know, what does it take for that moment? In China? 0:20:39.680 --> 0:20:43.440 The local government financing vehicle debt alone is worth moti 0:20:43.640 --> 0:20:47.040 like many trillion un more than the stimulus packages that 0:20:47.080 --> 0:20:50.080 have been floated around one to three trillion UN or 0:20:50.119 --> 0:20:53.159 around one point five to maximum two percent of GDP. 0:20:54.600 --> 0:20:57.040 In order for them to sort of deliver, they would 0:20:57.080 --> 0:20:59.760 have to do upwards of five percent, maybe ten percent 0:20:59.800 --> 0:21:02.360 of DP worth of fiscal stimulus. That is not going 0:21:02.400 --> 0:21:04.480