WEBVTT - Daybreak Weekend: US Jobs, ECB Decision, Vietnam Eco 0:00:00.240 --> 0:00:07.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.320 --> 0:00:12.639 This is Bloomberg day Break Weekend, our global look at 0:00:12.640 --> 0:00:14.880 the top stories in the coming week from our Daybreak 0:00:14.920 --> 0:00:16.960 anchors all around the world, and straight ahead on the 0:00:17.000 --> 0:00:20.480 program the upcoming May Jobs report in the US how 0:00:20.520 --> 0:00:24.279 that could impact FED policy moving forward. I'm Tom Busby 0:00:24.400 --> 0:00:24.959 in New York. 0:00:25.079 --> 0:00:27.639 I'm Caroline Hedge in London, where we're asking if the 0:00:27.680 --> 0:00:31.320 ECB can help Europe sees its golden opportunity. 0:00:31.600 --> 0:00:34.520 I'm Dot Christner looking ahead to trade data this week 0:00:34.560 --> 0:00:38.240 from Vietnam. 0:00:38.400 --> 0:00:42.440 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.440 --> 0:00:46.160 eleven three Yeero, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:46.640 --> 0:00:50.920 Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, 0:00:51.320 --> 0:00:54.520 Sirius XM one twenty one, and around the world on 0:00:54.600 --> 0:00:57.720 Bloomberg Radio, dot Com and the Bloomberg Business App. 0:01:02.400 --> 0:01:03.000 Good day to you. 0:01:03.040 --> 0:01:05.240 I'm Tom Busby, and we begin today's program with a 0:01:05.319 --> 0:01:09.040 look ahead to the May Jobs Report. Non farm payroll 0:01:09.120 --> 0:01:12.320 numbers for May out on Friday eight thirty am. Wall 0:01:12.360 --> 0:01:15.640 Street Time Now for more on how those numbers may 0:01:15.680 --> 0:01:18.600 impact the FED policy moving forward. And the state of 0:01:18.640 --> 0:01:21.479 the US labor market and the economy. We're joined by 0:01:21.480 --> 0:01:24.959 Stuart paul, Us, economist with Bloomberg Economics. Stuart, thank you 0:01:25.000 --> 0:01:28.640 for being here again. Now, when you look at the 0:01:28.680 --> 0:01:32.680 impact of the Trump tariffs, the DOGE cuts, lower corporate profits, 0:01:32.720 --> 0:01:36.000 a shrinking US economy, are we starting to see cracks 0:01:36.440 --> 0:01:39.240 in the labor market? It was robust for years. 0:01:39.920 --> 0:01:43.560 I think we're just starting to see material cracks, and 0:01:43.600 --> 0:01:47.280 we're starting to see the cracks that have been just 0:01:47.680 --> 0:01:52.600 minuscule starting to widen. I think that the first labor 0:01:52.640 --> 0:01:54.600 market data print that we're going to get next week 0:01:54.720 --> 0:01:56.400 or in the coming week is going to be the 0:01:56.480 --> 0:02:00.000 number of job openings available in April, and I think 0:02:00.120 --> 0:02:02.760 the number of job openings declined all being modestly, just 0:02:02.800 --> 0:02:05.920 by about sixty thousand, but that's going to be enough 0:02:06.200 --> 0:02:10.559 for the number of workers available, the number of unemployed 0:02:10.600 --> 0:02:16.480 workers to exceed the number of job openings for the 0:02:16.480 --> 0:02:20.560 first time since the pandemic. So that's the first sign 0:02:20.840 --> 0:02:24.160 I think that will really matter for the FED that 0:02:24.840 --> 0:02:28.280 there is material slack in the labor market. And then 0:02:28.440 --> 0:02:31.160 as we get to the jobs report on Friday, I 0:02:31.160 --> 0:02:34.000 think we're going to see a materially slower pace of hiring. 0:02:34.240 --> 0:02:37.280 We're estimating just ninety thousand jobs we're added in May. 0:02:37.720 --> 0:02:41.160 That's a pretty dramatic slowdown from one hundred and seventy 0:02:41.200 --> 0:02:45.320 seven thousand jobs added in April. And it's such a 0:02:45.360 --> 0:02:47.880 slow pace that it does not keep up with labor 0:02:47.919 --> 0:02:50.760 force or population growth. So we're expecting to see an 0:02:50.840 --> 0:02:53.320 uptick in the unemployment rate. It's still going to be 0:02:53.400 --> 0:02:55.960 low at four point three percent, but moving in the 0:02:55.960 --> 0:02:57.320 wrong direction for the FED. 0:02:58.160 --> 0:03:01.320 That is a big change. Under one hundred thousand ads 0:03:01.480 --> 0:03:05.040 is a lot fewer than we saw even a week ago. 0:03:05.360 --> 0:03:08.440 Economist who were predicting what has changed in that time. 0:03:08.720 --> 0:03:10.920 The thing that we're seeing in the data when we 0:03:10.960 --> 0:03:14.840 look at high frequency data is that there were relatively 0:03:14.880 --> 0:03:18.720 few people added in the leisure and hospitality industry. And 0:03:18.800 --> 0:03:21.120 going back to your initial point, some of this is 0:03:21.160 --> 0:03:24.079 downstream from policy that's coming out of the West Wing. 0:03:24.400 --> 0:03:26.560 One of the reasons we think that there were fewer 0:03:26.560 --> 0:03:30.200 people added in leisure and hospitality, food service, and accommodation, 0:03:30.320 --> 0:03:36.839 for example, is because there's less travel from abroad, and 0:03:37.440 --> 0:03:40.280 part of that is retaliation from some of our trading 0:03:40.320 --> 0:03:44.800 partners and potential travelers who are canceling their trips in 0:03:44.880 --> 0:03:46.840 the spring and early summer travel season. 0:03:46.920 --> 0:03:50.000 Yeah, and not just Canadians, European South Americans. We're seeing 0:03:50.000 --> 0:03:53.160 it from all over, big, big decrease in travel. 0:03:54.000 --> 0:03:54.320 All right. 0:03:54.400 --> 0:03:57.000 So now the latest data that we saw also on 0:03:57.120 --> 0:04:00.839 jobless claims, are you seeing a pattern there? It held 0:04:00.880 --> 0:04:03.880 pretty steady for most of the president's second term, but 0:04:04.400 --> 0:04:06.280 I think now we're starting to see things creep up 0:04:06.360 --> 0:04:09.400 for it also, long term unemployed. That's a big that's 0:04:09.440 --> 0:04:10.080 exactly right. 0:04:10.120 --> 0:04:12.920 For a long time, it was one of the easiest 0:04:13.000 --> 0:04:15.880 data prints to forecast initial jobless claims. Two hundred and 0:04:15.920 --> 0:04:18.760 twenty thousand a month, no big deal. You wouldn't even 0:04:18.839 --> 0:04:20.440 have to look, we wouldn't have to think very hard 0:04:20.440 --> 0:04:22.679 about what to expect. But we did see a pretty 0:04:22.680 --> 0:04:26.320 swift jump to two hundred and forty thousand in the 0:04:26.400 --> 0:04:29.839 previous week. I think the thing that's more important, however, 0:04:30.320 --> 0:04:35.360 is the steady rise in continuing claims as workers who 0:04:35.400 --> 0:04:38.560 are looking for new employment find it more difficult to 0:04:38.600 --> 0:04:41.000 get job offers. And I think that a part of 0:04:41.000 --> 0:04:45.160 that is that businesses remain pretty tentative about increasing headcount 0:04:45.440 --> 0:04:47.640 in a period of economic policy uncertainty. 0:04:48.160 --> 0:04:51.039 And one of the data points we got last week 0:04:51.440 --> 0:04:54.520 was corporate profits in this first quarter, and if they're 0:04:54.560 --> 0:04:56.800 not making as much money, they're simply just not going 0:04:56.880 --> 0:04:58.280 to hire more people, are they. 0:04:58.400 --> 0:05:01.960 That's right, with less profits going to see slower expansion plans. 0:05:01.960 --> 0:05:05.359 Slower expansion plans mean less hiring, and to your point, 0:05:05.600 --> 0:05:08.239 that's going to result in widening cracks in the labor market. 0:05:08.520 --> 0:05:11.840 And we've seen a couple of big layoffs announced Microsoft 0:05:11.960 --> 0:05:15.479 sixty five hundred workers, three percent of its workforce, match 0:05:15.560 --> 0:05:17.800 dot com. I mean, these are very different kinds of 0:05:17.839 --> 0:05:20.719 companies thirteen percent of its staff Intel that's a big 0:05:20.920 --> 0:05:23.839 twenty percent. They're planning, not all at once. It's going 0:05:23.920 --> 0:05:25.839 to be gradual. A lot of this is attrition, but 0:05:26.360 --> 0:05:29.160 you added up that's a lot of people who won't 0:05:29.160 --> 0:05:30.080 be getting paychecks. 0:05:30.520 --> 0:05:32.599 That's right. I think that the name of the game, though, 0:05:32.839 --> 0:05:35.440 is whether this is going to be end mass layoffs 0:05:35.600 --> 0:05:39.159 or head count reduction through attrition. The latter is of 0:05:39.200 --> 0:05:41.640 course going to be less shocking, less significant. It's going 0:05:41.680 --> 0:05:46.719 to result in a less material disruption to growth. If 0:05:46.720 --> 0:05:50.039 we end up seeing swift layoffs, that could be enough 0:05:50.040 --> 0:05:52.680 for the FED to resume rate cuts right now. Given 0:05:52.720 --> 0:05:54.560 the outlook for inflation, we think that the FED is 0:05:54.600 --> 0:05:57.000 going to remain on hold until the fourth quarter, but 0:05:57.080 --> 0:05:59.720 we do expect the FED to resume cuts because of 0:05:59.760 --> 0:06:00.960 that labor market. 0:06:01.240 --> 0:06:03.440 The main jobs report out this Friday ahead of Wall 0:06:03.520 --> 0:06:07.000 Street's opening bell our. Thanks to Stuart paul Us, economist 0:06:07.200 --> 0:06:10.280 with Bloomberg Economics, we turned out to Apple, the three 0:06:10.440 --> 0:06:14.840 trillion dollar tech giant that's facing some unprecedented challenges, including 0:06:15.080 --> 0:06:18.120 being way behind rivals in AI, pressure from the White 0:06:18.160 --> 0:06:21.400 House about where it makes the iPhone, and seeing open 0:06:21.520 --> 0:06:25.440 Ai team up with its legendary former design guru on 0:06:25.480 --> 0:06:29.040 a family of devices with AI at their core. How 0:06:29.120 --> 0:06:32.480 is Apple responding? What does this mean for Tim cook Well? 0:06:32.480 --> 0:06:35.840 For more, we're joined by Mark German, Bloomberg News Managing 0:06:35.960 --> 0:06:38.000 editor for Global Consumer Tech. 0:06:38.800 --> 0:06:39.080 Mark. 0:06:39.120 --> 0:06:42.520 That was a blockbuster announcement that moved by chat gpt 0:06:43.279 --> 0:06:46.480 A maker open Ai acquiring the AI device maker co 0:06:46.600 --> 0:06:49.360 founded by Johnny Ive, the man who designed the iPhone, 0:06:49.360 --> 0:06:53.040 the iPad, the iPod and other devices. What does Johnny 0:06:53.040 --> 0:06:55.839 Ive mean him and his company and what does this 0:06:55.920 --> 0:06:56.599 mean for Apple. 0:06:57.040 --> 0:07:00.919 It's pretty remarkable, isn't it. This is open AI betting 0:07:01.120 --> 0:07:06.039 that chat, GPT and artificial intelligence and voice interaction are 0:07:06.279 --> 0:07:09.200 again the future of computing and that now is the 0:07:09.279 --> 0:07:12.440 time to productize it. An app is quite good, right, 0:07:12.560 --> 0:07:15.800 an online service, you know, that's meaningful, But having your 0:07:15.800 --> 0:07:19.080 own hardware, your own products that people could buy to 0:07:19.240 --> 0:07:22.400 leverage this technology is critical in order to take the 0:07:22.440 --> 0:07:24.880 next step. You know. I look at the current state 0:07:24.920 --> 0:07:28.880 of generative AI as pretty much similar to the touchscreen 0:07:28.960 --> 0:07:32.040 twenty years ago if you really think about it, The iPhone, 0:07:32.160 --> 0:07:36.600 the iPad, smartphones and tablets from other manufacturers, those are 0:07:36.640 --> 0:07:41.440 basically productizations of a touchscreen. Right now, what open ai 0:07:41.560 --> 0:07:44.000 is working on with Johnny Ive is the productization of 0:07:44.160 --> 0:07:47.080 generative AI. My belief is that they're eventually going to 0:07:47.160 --> 0:07:51.840 roll out a necklace, right, a necklace with microphones, speakers, 0:07:52.200 --> 0:07:54.840 cameras and other technology so you can go about your 0:07:54.920 --> 0:07:59.640 day and interact with chat, GPT and other AI features 0:08:00.080 --> 0:08:02.600 and so voice saying that's going to be the future 0:08:03.160 --> 0:08:07.800 voice activated always on AI companion that you wear around 0:08:07.840 --> 0:08:10.360 your neck or other parts of your body to interact 0:08:10.360 --> 0:08:13.360 with and use throughout your day. Now they see it 0:08:13.600 --> 0:08:16.520 as secondary to a phone, right, You're still going to 0:08:16.600 --> 0:08:19.080 use a phone to watch video, still going to use 0:08:19.120 --> 0:08:21.800 a phone to play games, maybe still use a phone 0:08:21.840 --> 0:08:25.240 to make well phone calls, but forgetting a lot of 0:08:25.280 --> 0:08:30.360 other stuff done, whether that's asking questions, whether that's sending messages, 0:08:30.560 --> 0:08:34.840 whether that's booking a movie or doing a restaurant reservation 0:08:35.040 --> 0:08:38.200 or looking up something. Throughout your day, You're gonna do 0:08:38.280 --> 0:08:40.839 that with that pendant around your neck. And I think 0:08:41.000 --> 0:08:44.520 they see that as the future and the phone eventually 0:08:44.559 --> 0:08:46.439 transitioning into that type of product. 0:08:46.840 --> 0:08:49.480 And now they have taught by day I mean Sam 0:08:49.520 --> 0:08:53.640 Altman of open Ai and Johnny Ive a reference to 0:08:53.640 --> 0:08:57.160 a family of devices, so not just a necklace. Could 0:08:57.240 --> 0:08:58.920 they put out their own phone as well. 0:08:59.280 --> 0:09:01.640 I think they're going to start with the necklace, and 0:09:01.679 --> 0:09:03.959 then at some point you're going to have a home 0:09:04.040 --> 0:09:07.240 companion device, so something that you would put on your 0:09:07.280 --> 0:09:11.640 desk to use alongside your iPad or your laptop or 0:09:11.720 --> 0:09:15.600 what have you, right, something more ambient than that's just 0:09:15.679 --> 0:09:18.240 around your neck, something that as you walk throughout your 0:09:18.280 --> 0:09:21.880 home you would have access to. And eventually maybe there 0:09:21.880 --> 0:09:24.040 will be a pocketable device, maybe there will be a 0:09:24.080 --> 0:09:27.160 product with a screen, but I think that's that's further off, 0:09:27.160 --> 0:09:29.679 and I doubt they've done any conceptualization on that to 0:09:29.679 --> 0:09:30.320 this point. 0:09:30.559 --> 0:09:33.440 So it's a game changer. It's not glasses, it's not 0:09:33.960 --> 0:09:36.480 a phone. This is a whole new category. 0:09:37.480 --> 0:09:40.120 It's a whole new category, a whole new type of product. 0:09:40.880 --> 0:09:43.319 And this is their bet. I mean, that's what Johnny 0:09:43.320 --> 0:09:47.320 I've is known for right new major product categories and 0:09:47.360 --> 0:09:50.520 having the right people, having the right design sensibilities for it. 0:09:50.800 --> 0:09:53.280 And so he's the perfect person. Well he's probably the 0:09:53.320 --> 0:09:56.400 only person who could successfully. You know, other people have 0:09:56.440 --> 0:09:58.640 tried it, but they haven't been successful. But if you're 0:09:58.679 --> 0:10:01.720 betting on someone who could do this successfully, it is I've. 0:10:02.240 --> 0:10:04.320 And are you what kind of timeline do you see 0:10:04.320 --> 0:10:05.040 for this device? 0:10:05.840 --> 0:10:08.040 What they're telling me is they're going to introduce the 0:10:08.080 --> 0:10:12.040 products some point next year. I wouldn't anticipate, given the 0:10:12.280 --> 0:10:17.040 economics of manufacturing, given the time it takes to produce 0:10:17.120 --> 0:10:20.079 these things, given the fit and finish that I've is 0:10:20.200 --> 0:10:23.920 known for, Given basically where we're at with chat Shept 0:10:24.040 --> 0:10:26.720 and the quality, probably one another year in the oven 0:10:26.840 --> 0:10:28.880 to make sure it's up to stuff for a hardware 0:10:28.920 --> 0:10:31.480 product that people are going to pay, you know, hard 0:10:31.559 --> 0:10:34.839 cash for I wouldn't anticipate a release before twenty seven. 0:10:35.720 --> 0:10:38.120 Okay, all right, so we have we have some time 0:10:38.360 --> 0:10:41.040 until then. Let's talk about some of the other challenges 0:10:41.080 --> 0:10:44.560 facing Apple, like the twenty five percent tariff threats from 0:10:44.600 --> 0:10:48.800 President Trump on iPhones sold in the US but made overseas. 0:10:49.000 --> 0:10:51.640 I mean, if Trump is able to follow through, what 0:10:51.640 --> 0:10:54.320 does that mean for iPhone buyers and for Apple? 0:10:55.600 --> 0:10:59.920 Well, it's a big if that if this ends up happening, Right, 0:11:00.120 --> 0:11:06.200 we've already seen the news of global organizations deeming the 0:11:06.280 --> 0:11:10.720 tariffs illegal. We know that Trump, Tim Cook and other 0:11:10.880 --> 0:11:15.079 CEOs of smartphone manufacturers are going to have conversations. We 0:11:15.160 --> 0:11:17.920 know that Trump in the past has shown a willingness 0:11:18.040 --> 0:11:21.640 or even a strong willingness to make concessions for certain 0:11:21.679 --> 0:11:26.320 executives and for certain companies. So let's assume, right that 0:11:26.400 --> 0:11:29.160 this does happen, right, because I'm not sure it will, 0:11:29.160 --> 0:11:31.959 but let's assume this does happen. Twenty five percent a 0:11:32.000 --> 0:11:34.040 small price to pay for Apple when they were looking 0:11:34.040 --> 0:11:37.280 at north one hundred percent tariffs on the original setup 0:11:37.320 --> 0:11:40.160 related to the Chinese tariffs. But I don't think that 0:11:40.360 --> 0:11:43.079 threatening a twenty five percent tariff is going to accomplish 0:11:43.200 --> 0:11:47.600 much for Trump. His goal is to force them via 0:11:47.640 --> 0:11:49.960 the threat of a tariff, to move production to the US. 0:11:50.559 --> 0:11:52.559 First of all, the time it would take to move 0:11:52.600 --> 0:11:55.280 production to the US is a decade long, so it's 0:11:55.280 --> 0:11:58.800 not going to happen even in the course of the 0:11:58.840 --> 0:12:03.400 rest of Trump's three years in office, right, right, So 0:12:03.400 --> 0:12:10.120 that's one two tariff, that cost increase that's less than 0:12:10.160 --> 0:12:15.040 the cost increase or the operational resources necessary that would 0:12:15.080 --> 0:12:17.800 be incurred for a move to the US. So the 0:12:17.800 --> 0:12:21.880 twenty five percent doesn't accomplish what Trump wants. It's basically 0:12:21.880 --> 0:12:23.920 just a penalty on Apple for not being able to 0:12:23.960 --> 0:12:25.800 move to the US. And if he wants to do 0:12:25.840 --> 0:12:27.760 a penalty on Apple for not being able to move 0:12:27.800 --> 0:12:30.360 to the US, that's up to him. That's his probative. 0:12:30.480 --> 0:12:30.600 Right. 0:12:30.640 --> 0:12:32.640 Apple probably won't love it. The consumers are gonna have 0:12:32.679 --> 0:12:34.840 to pay more, aren't going to love it. But he's 0:12:34.880 --> 0:12:36.960 going to do whatever he wants it. But it's simply 0:12:37.000 --> 0:12:40.240 not going to accomplish the goal he has in place. 0:12:40.720 --> 0:12:43.960 Our thanks to Mark German, Bloomberg News Managing editor for 0:12:44.040 --> 0:12:47.440 Global Consumer Tech. Coming up on Bloomberg day Break, weekend, 0:12:47.440 --> 0:12:50.000 we'll look at whether the ECB can help europe seas 0:12:50.559 --> 0:12:54.359 It's golden opportunity. I'm Tom Busby and this is Bloomberg. 0:13:05.520 --> 0:13:08.000 This is Bloomberg day Break weekend, our global look ahead 0:13:08.040 --> 0:13:10.240 at the top stories for investors in the coming week. 0:13:10.400 --> 0:13:13.680 I'm Tom Busby in New York. Up later in our program, 0:13:13.720 --> 0:13:16.199 we look ahead to trade data this week from Vietnam. 0:13:16.360 --> 0:13:20.720 But first, policymakers in Frankfurt choosing whether to cut, hike 0:13:20.960 --> 0:13:24.360 or maintain interest rates. As the European Central Bank undergoes 0:13:24.400 --> 0:13:27.840 its quarterly economic review this week, how will the Governing 0:13:27.880 --> 0:13:33.120 Council respond to the moving targets of inflation and macroeconomic circumstances. Well, 0:13:33.160 --> 0:13:35.280 for more, let's get to London and bring in Bloomberg 0:13:35.320 --> 0:13:38.640 Daybreak europe Banker Caroline Hepgar, Tom, it's. 0:13:38.520 --> 0:13:42.080 Not really shaping up to be a relaxing European summer 0:13:42.160 --> 0:13:45.720 for Christine Lagarde and her colleagues at the European Central Bank. 0:13:46.000 --> 0:13:50.679 If a widely expected eighth successive twenty five basis point 0:13:50.760 --> 0:13:53.600 rate cut is passed in the coming days, it will 0:13:53.600 --> 0:13:56.240 mean that the deposit rate will have been cut in 0:13:56.360 --> 0:14:00.720 half over the past year to two percent. That's as 0:14:00.760 --> 0:14:04.520 factions of the ECB's governing Council disagree on how low 0:14:04.679 --> 0:14:07.720 is too low when it comes to borrowing costs, and 0:14:07.800 --> 0:14:12.439 with growing pressure on EU US trade negotiations to consider 0:14:12.720 --> 0:14:17.240 and uncertainty about US tariffs, ECB officials have a lot 0:14:17.280 --> 0:14:20.960 to consider. If they play their cards rise, Europe could 0:14:20.960 --> 0:14:25.000 be well placed to take advantage of an opportunity presented 0:14:25.040 --> 0:14:29.280 by the current geopolitical context. That's according to Karen Ward, 0:14:29.520 --> 0:14:34.040 who is EMEA Chief market Strategist at JP Morgan Asset Management. 0:14:34.560 --> 0:14:38.040 The US has had the world's capital flowing to it 0:14:38.080 --> 0:14:41.160 for the last fifteen years in abundance. It's been a 0:14:41.240 --> 0:14:43.680 huge part of why they've been able to grow, while 0:14:43.720 --> 0:14:46.600 their companies have been able to grow, why governments have 0:14:46.680 --> 0:14:48.960 been spending a lot more in the US than we 0:14:49.040 --> 0:14:52.040 have here in Europe. So are there are big upsides 0:14:52.120 --> 0:14:54.800 to having that abundance of capital? 0:14:54.960 --> 0:14:58.600 I mean a lot will depend on the USU urref negotiations, 0:14:58.600 --> 0:15:01.960 which we'll talk about, say, but it is now the 0:15:02.000 --> 0:15:04.560 moment to be invested in European markets Or are there 0:15:04.560 --> 0:15:05.680 too many question marks? 0:15:06.320 --> 0:15:09.280 I've been saying since we came into the year, we 0:15:09.400 --> 0:15:13.040 had a situation where the US was believed to be 0:15:13.280 --> 0:15:17.560 exceptional and Donald Trump was going to further exacerbate that exceptionalism. 0:15:17.640 --> 0:15:21.280 Expectations on the US were too high, expectations on Europe 0:15:21.360 --> 0:15:22.160 were too low. 0:15:22.560 --> 0:15:25.840 That was JP Morgan Asset Management's Karen Ward speaking to 0:15:25.880 --> 0:15:29.440 Bloomberg's Farcy in Laqwab. So, how can Europe's central bankers 0:15:29.520 --> 0:15:32.800 prime the region to grasp hold of what could be 0:15:32.840 --> 0:15:35.800 a fleeting chance to access more of the world's capital 0:15:36.240 --> 0:15:39.800 And how important a role will interest rates play in 0:15:39.840 --> 0:15:43.920 the equation? It's something I've been discussing with Bloomberg Economics 0:15:44.000 --> 0:15:47.640 is senior Euro Area economist David Powell. 0:15:47.920 --> 0:15:50.240 Well, if we look at what most of the members 0:15:50.240 --> 0:15:54.040 of the Government Council have said recently, they all think 0:15:54.080 --> 0:15:56.760 that the impact of the US tariffs and the year 0:15:56.800 --> 0:15:59.840 area is going to be disinflation areas. It's going to 0:16:00.120 --> 0:16:04.200 lower inflation pressures as cheaper goods come in from China 0:16:04.360 --> 0:16:07.880 and weaker demand ways on the economy. So as a whole, 0:16:08.480 --> 0:16:11.240 they're pretty much all in favor of a cut. We 0:16:11.320 --> 0:16:15.000 don't have complete agreement on that. We never knew. We've 0:16:15.000 --> 0:16:18.640 already heard from the ECB's most hawkish member, the governor 0:16:18.640 --> 0:16:20.600 of the Central Bank of Austria that he's not in 0:16:20.640 --> 0:16:22.880 favor of a cut this month, but he's really an outlier. 0:16:22.920 --> 0:16:25.840 The majority of the people will go ahead and vote 0:16:25.840 --> 0:16:26.480 for that cut. 0:16:26.560 --> 0:16:29.720 And so we're also do to receive some Eurozone economic 0:16:29.800 --> 0:16:32.160 data in the next few days. How do you think 0:16:32.240 --> 0:16:34.360 that is going to affect decision making? 0:16:34.760 --> 0:16:37.320 Well, really, what the ECB is doing right now, it's 0:16:37.400 --> 0:16:41.040 kind of looking forward to what the impact of these 0:16:41.080 --> 0:16:44.239 tariffs will be. When we look at the latest economic 0:16:44.360 --> 0:16:47.680 data coming out of the year Area, in particular to 0:16:47.760 --> 0:16:53.360 the survey components that relate to exports, they're all holding 0:16:53.440 --> 0:16:56.120 up pretty well. And basically what I think most people 0:16:56.400 --> 0:17:00.760 think is happening is that American businesses and consumers are 0:17:00.840 --> 0:17:04.119 front running this ninety day pause, so they're wanting to 0:17:04.160 --> 0:17:07.280 bring all these exports into America before that ninety day 0:17:07.320 --> 0:17:10.040 pause ends in July and they potentially face higher tariffs. 0:17:10.200 --> 0:17:13.719 So things look good now the data is generally holding up, 0:17:13.720 --> 0:17:15.639 but the ECB is going to be more forward looking 0:17:15.880 --> 0:17:20.000 and be thinking about, well, what happens when this resilience 0:17:20.080 --> 0:17:22.280 comes to an end. That's going to be the focus 0:17:22.280 --> 0:17:23.000 of their discussion. 0:17:23.280 --> 0:17:26.520 I mean, there's even more uncertainty about the US tariffs 0:17:26.520 --> 0:17:30.320 than ever before now given the recent US court decision. 0:17:31.040 --> 0:17:34.359 But there remains that question for the Central Bank about 0:17:34.400 --> 0:17:36.680 whether it will end up having to step in at 0:17:36.680 --> 0:17:39.240 some point, let's say, if talks fall through, or if 0:17:39.240 --> 0:17:42.280 at some point the tariffs from the US actually do 0:17:42.440 --> 0:17:46.480 hit Europe even more severely, about whether the Central Bank 0:17:46.520 --> 0:17:48.840 will then have a bigger role. I'll have to step 0:17:48.840 --> 0:17:50.080 in even. 0:17:49.840 --> 0:17:53.040 If you put US teriff societe. The Central Bank is 0:17:53.040 --> 0:17:55.600 in an environment where it can reduce borrowing costs. When 0:17:55.600 --> 0:17:58.600 you look at the latest data on cost pressure, it's 0:17:58.640 --> 0:18:01.679 all coming down in the un area. In particular, the 0:18:01.760 --> 0:18:06.920 ECB's official time series and negotiated wages slowed very sharply 0:18:07.000 --> 0:18:09.840 in the first quarter. They also have an experimental wage 0:18:09.880 --> 0:18:14.840 tracker which shows wages remaining more subdued later in the year. 0:18:15.600 --> 0:18:18.000 So the inflation problem that the area was facing over 0:18:18.000 --> 0:18:20.280 the past couple of years is really no longer a problems. 0:18:20.320 --> 0:18:23.480 Even the terriff issue aside, that's not a huge problem 0:18:23.560 --> 0:18:26.840 right now. They can cut and then looking beyond that 0:18:28.400 --> 0:18:31.760 is the impact of the tariffs, and that could determine 0:18:32.000 --> 0:18:34.760 more easing later in the year, but in all likelihood 0:18:34.960 --> 0:18:37.560 they're going to want to see, given all the uncertainty, 0:18:37.640 --> 0:18:40.080 what actually happens, so they're probably not going to rush 0:18:40.119 --> 0:18:42.840 cut meeting after meeting. They probably do something more like 0:18:42.880 --> 0:18:45.359 moving at a quarterly pace to wait and see what 0:18:45.480 --> 0:18:47.919 actually comes out of the US given all that uncertainty 0:18:47.960 --> 0:18:49.040 that you mentioned. 0:18:48.880 --> 0:18:51.320 In terms of other things that may affect the euzone 0:18:51.440 --> 0:18:54.800 again as a kind of consequence of the tariffs China, 0:18:54.840 --> 0:18:58.359 and you know there's been a worry about perhaps more 0:18:58.400 --> 0:19:02.560 different disinflation being sported from China into the EU. Is 0:19:02.600 --> 0:19:05.320 that amongst the considerations at the. 0:19:05.240 --> 0:19:08.400 Moment definitely will be There are basically three big ways 0:19:08.440 --> 0:19:13.080 in which this terriff issue is going to impact your 0:19:13.200 --> 0:19:18.439 area inflation to the downside. That is, one, cheaper goods 0:19:18.440 --> 0:19:21.560 which are no longer going to America likely to come 0:19:21.880 --> 0:19:27.080 to the Euro Area wider EU from China. We have 0:19:27.240 --> 0:19:30.680 estimated that could take about zero point four percentage point 0:19:30.800 --> 0:19:35.040 off inflation each year. On top of that, oil prices 0:19:35.080 --> 0:19:39.280 are down and that's also another disinflationary force, and also 0:19:39.440 --> 0:19:42.600 just demand will be weaker so as exports in all 0:19:42.760 --> 0:19:45.320 likelihoods slow in the second half of the year, there 0:19:45.359 --> 0:19:47.919 won't be as much there won't be as much demand 0:19:47.960 --> 0:19:53.480 for labor or for products from the Euro Area from abroad. 0:19:53.640 --> 0:19:55.280 How close do you think we are then, and how 0:19:55.280 --> 0:19:58.280 close to economists think we are to the neutral rate 0:19:58.440 --> 0:19:59.160 in Europe? 0:19:59.280 --> 0:20:01.600 Well, we're pretty close to that. Most people say it's 0:20:01.600 --> 0:20:03.840 about two percent, and that's where we're going to be 0:20:03.920 --> 0:20:07.760 after this cut in June. However, we already know that 0:20:07.840 --> 0:20:11.040 the ECB is focusing much less on this concept of 0:20:11.040 --> 0:20:13.200 the neutral rate than they previously were. At the last 0:20:13.240 --> 0:20:17.840 press conference in April, the ECB removed from its statement 0:20:18.359 --> 0:20:23.080 this longstanding state incentence that have been focused on about 0:20:23.080 --> 0:20:26.439 how restrictive monetary policy is, and the Guard elaborated on 0:20:26.480 --> 0:20:29.760 that in the press conference, saying the neutral policy rate 0:20:29.880 --> 0:20:32.560 is a concept for a world without shocks, and it's 0:20:32.600 --> 0:20:34.239 certainly not the world we are living in. 0:20:34.640 --> 0:20:38.199 The thing is the ECB President Christina Guard sees an 0:20:38.200 --> 0:20:41.720 opportunity in those shocks, in the sense that an opportunity 0:20:41.800 --> 0:20:45.159 for the Euro maybe to become a stronger reserve currency 0:20:45.240 --> 0:20:49.240 versus the dollar. Is the scope maybe for policy makers 0:20:49.280 --> 0:20:51.720 also to be thinking about the Euro. Obviously it's not 0:20:51.800 --> 0:20:54.159 in their mandate, but do you think that they'll be 0:20:54.200 --> 0:20:56.199 thinking about this? What do you make of the ECB 0:20:56.400 --> 0:20:58.040 President Christina Guard's comments. 0:20:58.320 --> 0:21:01.080 The Euro has been around for new thirty years now, 0:21:01.119 --> 0:21:05.600 and almost that entire time, policymakers in Europe, whether they 0:21:05.680 --> 0:21:09.240 be heads of stage or people at the European Union 0:21:09.280 --> 0:21:12.240 or people at the European Central Bank, have been playing 0:21:12.320 --> 0:21:16.200 up that the Euro could be a secondary reserve currency, 0:21:16.680 --> 0:21:20.600 displacing some demand for the US dollar as a reserve currency. However, 0:21:20.880 --> 0:21:23.200 it's never really taken on that role because it has 0:21:23.240 --> 0:21:26.160 been plagued by number of problems throughout the years. Obviously, 0:21:26.200 --> 0:21:28.919 there was the Euro crisis, which scared a lot of 0:21:28.960 --> 0:21:32.840 international investors away, and some of those problems that arose 0:21:32.880 --> 0:21:35.159 at that time, the lack of a banking union, the 0:21:35.240 --> 0:21:38.320 lack of a fiscal union, they persist. And if there 0:21:38.320 --> 0:21:41.399 were some big problem again, as there inevitably will be, 0:21:41.400 --> 0:21:44.199 because we know from history that financial crisis pop up 0:21:44.200 --> 0:21:47.399 from time to time, I think questions still remain about 0:21:47.480 --> 0:21:51.440 how exactly the Euro would perform in that environment. Although 0:21:51.480 --> 0:21:55.560