Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our day
Speaker 1: Break anchors all around the world, and straight ahead on
Speaker 1: the program, a look at Tuesday's US presidential election and
Speaker 1: what could be at stake for the US economy. Also
Speaker 1: a preview of this week's Federal Preserve Policy meeting. I'm
Speaker 1: Tom Busby in New York. I'm Stephen Kyle in London.
Speaker 2: Work calculating the size of the Bank of England's but
Speaker 2: just headache.
Speaker 3: I'm Charlie Pellett, looking ahead to earnings from some of
Speaker 3: Japan's biggest automakers and the state of the gold trade.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend, The business
Speaker 4: news you need to wrap up your week. Available on Apple, Spotify,
Speaker 4: the Bloomberg Business Appen everywhere you get your podcasts.
Speaker 1: Good day to you. I'm Tom Busby. We begin today's
Speaker 1: program with this Tuesday's US presidential election and what each candidate,
Speaker 1: if he or she wins, is hoping to do for
Speaker 1: the economy. For more, we turned to Mark Niquette, Bloomberg
Speaker 1: Real Economy Team reporter. Mark. Thank you for joining us. Well,
Speaker 1: we're getting down to the wire. Right now, this election
Speaker 1: looks like a toss up, just a few key swing
Speaker 1: states likely to decide the outcome. I'm going to ask
Speaker 1: you where the economy is right now. One candidate calls
Speaker 1: it a disaster. I don't think that's true, but why
Speaker 1: don't you tell me where we are now?
Speaker 5: We kind of have a disconnect between an economy that
Speaker 5: economic indicators show is doing well and is strong, and
Speaker 5: public perception is measured by poles that the economy is
Speaker 5: headed in the wrong direction.
Speaker 6: We had a spate of economic reports this week that
Speaker 6: would be otherwise you'd think encouraging for Kamala Harris, showing
Speaker 6: that the economy is doing quite well. We had a
Speaker 6: GDP report yesterday that showed an annualized rate of two
Speaker 6: point eight percent in the third quarter, consumer spending was up.
Speaker 6: On Tuesday, we had a Consumer Confidence report showing that
Speaker 6: consumer confidence increased in October by the most since March
Speaker 6: twenty twenty one. And we had a PCE report, you know,
Speaker 6: so called core personal consumption Expenditures, that showed that overall
Speaker 6: inflation was down to two point one percent, the lowest
Speaker 6: since early twenty twenty one. But despite these good economic numbers,
Speaker 6: polling continues to show that voters think the economy is
Speaker 6: headed in the wrong direction. They're still stuck on you know,
Speaker 6: high prices and you know a sense that inflation rate
Speaker 6: that we've seen come down hasn't translated into their everyday
Speaker 6: purchases of gas and groceries. So that's sort of the
Speaker 6: backdrop for the presidential election where you know, we have
Speaker 6: a race where voters say the economy is their biggest issue,
Speaker 6: and polls, including our poll Morning Console, show that voters
Speaker 6: trust Trump Donald Trump more than Kamala Harris.
Speaker 4: On the economy.
Speaker 1: Well, because of that, let's talk then about what each
Speaker 1: candidate is promising to do. You're right, former President Trump,
Speaker 1: many believe he handled the economy better right now, though
Speaker 1: it seems to be banking on punishing import tariffs as
Speaker 1: his chief economic plan. Tariff certainly have their benefits, but
Speaker 1: is this really going to move the needle on inflation
Speaker 1: and household budgets.
Speaker 6: Well, if you talk to most mainstream economists, they'll tell
Speaker 6: you yes, that there's even forecasts out there that will
Speaker 6: calculate what impact the proposed tariffs that President Trump, former
Speaker 6: President Trump has promised on the campaign trail, What impact
Speaker 6: they would have on the increase in inflation and decrease
Speaker 6: in gross domestic product. The expectation from most economists is
Speaker 6: that when you put a tariff on at the size
Speaker 6: that President Trump is talking about, ten to twenty percent
Speaker 6: on all imports, on imports from China, that's just going
Speaker 6: to drive up prices because you know foreign countries, foreign
Speaker 6: countries don't pay the tariffs. Importers pay the tariffs, and
Speaker 6: they're passed along to consumers. So the rising prices will,
Speaker 6: some economists predict, will lead to even stay inflation. Now
Speaker 6: that the president's former president and his supporters would argue
Speaker 6: that the inflation didn't spike during his first term when
Speaker 6: he put in tariffs on China and aluminum and steel imports,
Speaker 6: and that you know, their projections are that the tariffs
Speaker 6: will actually help with reshoring of manufacturing and creating of
Speaker 6: manufacturing jobs in the US and actually increase economic growth.
Speaker 6: So we'll kind of have to wait and see if
Speaker 6: former President Trump wins and he does put these tariffs on,
Speaker 6: you know what impact they would have, because while his
Speaker 6: supporters say that, you know, there wasn't a spike in
Speaker 6: inflation during his first term because of the tar see
Speaker 6: put on. What he's talking about enacting if he elected
Speaker 6: to another term is substantially higher and broader. Essentially, his
Speaker 6: proposed tariffs would hit all three trillion of US imports annually.
Speaker 6: That would have a staggering, staggering, presumably a big impact
Speaker 6: on economy.
Speaker 1: Vice President Harris has promised to tackle the high cost
Speaker 1: of living by boosting new home construction, going after corporations
Speaker 1: accused of price gouging, and expanding a tax credit for
Speaker 1: those with young families. And to pay for all that,
Speaker 1: of course, taxes on the wealthy. What would that mean
Speaker 1: for inflation and for the economy.
Speaker 6: Well, that's going to be the big fight next year
Speaker 6: over taxes. We have the tax cuts that former President
Speaker 6: Trump enacted when he was in office in twenty seventeen
Speaker 6: that are expiring at the end of twenty twenty five.
Speaker 6: So the next president, whether it's Kamala Harris or Donald Trump,
Speaker 6: and the newly elected Congress will have to deal with
Speaker 6: taking action on those expiring tax cuts, either extending them
Speaker 6: as President Trump has talked about doing, or changing them
Speaker 6: as you mentioned, Kamala Harris has talked about. Vice President
Speaker 6: Harris has talked about She's suggesting that the tax cuts
Speaker 6: should be limited to those making four hundred thousand dollars
Speaker 6: in the less a year, So preserve the tax cuts
Speaker 6: for middle class, but allow increases for wealthier individuals, and
Speaker 6: increase the corporate rate to twenty eight percent as a
Speaker 6: way to, as she would say, you know, have the
Speaker 6: wealthy and corporations pay their fair share, but also to
Speaker 6: rai's revenue to pay for, as you mentioned, expanded childcare
Speaker 6: tax credit, tax credit for first time home buyers, and
Speaker 6: some other subsidies that she's proposed for small businesses. But
Speaker 6: that's all going to be up to Congress, and one
Speaker 6: of the things we'll be watching to see, you know,
Speaker 6: what kind of party control of Congress we see after
Speaker 6: the elections on Tuesday. You know, we have a potential
Speaker 6: for a president elected with full control party control of
Speaker 6: Congress or divided government, and that will go a long
Speaker 6: way determining what happens with the tax bill.
Speaker 1: Yeah, you bet well, a lot to look forward to
Speaker 1: election day Tuesday, November fifth. Our thanks to Mark Niquette,
Speaker 1: Bloomberg Real Economy Team reporter. But we turned now to
Speaker 1: the Federal Reserve as policymakers meet again this week on
Speaker 1: interest rates. For more and what to expect. We turned
Speaker 1: to Stuart paul Us, economists with Bloomberg Economics now Stewart.
Speaker 1: FED Chair Jerome Pala has always maintained that FOMC decisions
Speaker 1: are data driven. And wow, did we get some kind
Speaker 1: of data point this past Friday, just twelve thousand jobs
Speaker 1: added in October. Was this just shock to you? And
Speaker 1: what does it mean for the Fed?
Speaker 7: We had anticipated actually a slightly worse jobs report. We'd
Speaker 7: expected total employment to actually decline by about ten thousand jobs.
Speaker 7: Private employment did decline during the month. A big part
Speaker 7: of that is the effect of both hurricanes Milton and Hollene,
Speaker 7: and also the strike at Boeing. We did see about
Speaker 7: forty five thousand jobs lost in manufacturing, and we think
Speaker 7: that that's mostly a consequence of the strike at Boeing
Speaker 7: and knock on effects at parts suppliers. The household survey
Speaker 7: where we see the unemployment rate actually worse in just
Speaker 7: a little bit. Now, the headline on employment rate held
Speaker 7: steady at four point one percent, but that's mostly just
Speaker 7: a matter of rounding. It's literally just a matter of
Speaker 7: a few hundreds of a percentage point that is getting
Speaker 7: rounded away. And that's keeping the unemployment rate at four
Speaker 7: point one percent, But the actual numbers do look a
Speaker 7: little bit worse when you look under the surface. Undoubtedly,
Speaker 7: the labor market is cooling. We also saw earlier last
Speaker 7: week the total number of job openings declining during the
Speaker 7: month and the quits rate falling as workers realize and
Speaker 7: as they come to grips to the fact that it
Speaker 7: is more difficult to find new employment at higher wages.
Speaker 7: The Fed is absolutely going to be taking this cooling
Speaker 7: labor market into consideration what it meets next week to
Speaker 7: make its next rate cut decision.
Speaker 1: Now, on the other hand, we have seen some very
Speaker 1: encouraging economic data as well about GDP, consumer spending, consumer sentiment,
Speaker 1: and inflation.
Speaker 7: Right, that's right, So core PCE inflation, the Fed's preferred gauge,
Speaker 7: came in a bit hot in September, and yes, you're right.
Speaker 7: Through the third quarter we did see pretty strong growth
Speaker 7: two point eight percent annualized growth on the back of
Speaker 7: about three point seven percent annualized consumer spending growth. Now,
Speaker 7: when we drill down into the data, looks to us
Speaker 7: like it's mostly employment and employee compensation income, so wage
Speaker 7: income that's supporting that spending and just an exceptionally low
Speaker 7: saving rate that it just consumers undersaving to support their
Speaker 7: spending habit. As the labor market cools, we think that
Speaker 7: that undersaving is going to go away, consumers are going
Speaker 7: to get a little bit more cautious, and so a
Speaker 7: lot of those tailwinds that have been supporting spending we
Speaker 7: think are going to fase as the labor market cool.
Speaker 7: So yes, for now, things do look rather strong. They
Speaker 7: look strong through the GDP numbers. But I think that
Speaker 7: if you're thinking like the FED, and you're thinking about
Speaker 7: what it's going to look like down the line, it's
Speaker 7: time to get a little bit more cautious to think
Speaker 7: that some of those talwinds might be fading.
Speaker 1: And the FED still has another meeting in mid December, right,
Speaker 1: So what's your gut feeling right now after in the
Speaker 1: wake of this Job's report, dismal report of.
Speaker 7: What the Fed is going to do, we think that
Speaker 7: the Fed is going to cut by twenty five basis points,
Speaker 7: So still another rate cut, still the removal of restrictive policy,
Speaker 7: not quite getting back to neutral, certainly not accommodative, but
Speaker 7: a twenty five basis point reduction for November Looking ahead
Speaker 7: to December, we still think another twenty five basis points
Speaker 7: is in play. But for a data dependent FED, who's
Speaker 7: probably going to then slow down its cadence of rate
Speaker 7: cuts in twenty twenty five, December is going to be
Speaker 7: more of a knife edge decision. We'll need to see
Speaker 7: just how much the labor market deterior rates between now
Speaker 7: and then.
Speaker 1: Mortgage rates, though, have moved the other way. Why is that?
Speaker 1: And I mean it's really got to affect housing and
Speaker 1: people's affordability, But why have we seen six weeks in
Speaker 1: a row mortgage rates edge a little bit higher.
Speaker 7: Mortgage rates tend to be benchmarked based on longer term
Speaker 7: treasury rates, So the Fed is cutting very very short
Speaker 7: term interest rates, and in fact, by running off its
Speaker 7: bond portfolio, it's putting upward pressure on long term rates,
Speaker 7: all at a time when we have on election coming
Speaker 7: up where the two candidates are spending heavy versus spending heavier.
Speaker 7: There is no austerity candidate, So I think that the
Speaker 7: bond market is looking at our fiscal situation as a country,
Speaker 7: and they're also feeling the effects of the runoff of
Speaker 7: the Fed's balance sheet, and we're getting some upward pressure
Speaker 7: on long term yields, and that's pushing up mortgage rates. Again.
Speaker 7: We think that higher long term rates, it's higher mortgage
Speaker 7: rates tends to put people in a little bit more
Speaker 7: bind So even as the Fed is cutting short term
Speaker 7: interest rates, folks are probably going to need to rain
Speaker 7: and spending just a bit more, especially as the labor
Speaker 7: market cools.
Speaker 6: Yeah.
Speaker 1: Oh, and it's cool well that two day FOMC meeting
Speaker 1: kicks off Wednesday, delay to day because of the elections
Speaker 1: decision expected two pm Wall Street time on Thursday, and
Speaker 1: our thanks to Stuart paul Us economists with Bloomberg Economics
Speaker 1: coming up on Bloomberg day Break weekend to look inside
Speaker 1: the inaugural budget of the UK's newly installed government what
Speaker 1: that means for the Bank of England. I'm Tom Busby
Speaker 1: and this is Bloomberg. This is Bloomberg day Break Weekend,
Speaker 1: our global look ahead at the top stories for investors
Speaker 1: in the coming week. I'm Tom Busby in New York.
Speaker 1: Up later in our program will look ahead to earnings
Speaker 1: from some of the world's biggest automakers. But first, the
Speaker 1: UK's new labor government has delivered its first ever budget,
Speaker 1: boasting one of the biggest tax increases in a generation
Speaker 1: and changes to the nation's much touted fiscal rules. What
Speaker 1: will the country's new economic direction mean for the Bank
Speaker 1: of England. For more, let's go to London and bring
Speaker 1: in Bloomberg daybreak, Eurobanker Stephen Carroll.
Speaker 2: Tom The UK's Chancellor of the Exchequer, Rachel Reeves, unveiled
Speaker 2: a forty billion pound package of tax rises and ramped
Speaker 2: up borrowing in a dramatic move to meet the Labor
Speaker 2: Party's pledge to rebuild the UK.
Speaker 8: Well.
Speaker 2: One person who'll be keeping a close eye on the
Speaker 2: developments announced by the chancellors the Government of the Bank
Speaker 2: of England Andrew Bailey. He and his fellow policymakers are
Speaker 2: due to make their next interest rate decision in the
Speaker 2: coming days, just shortly after the budget announcement. Although officials
Speaker 2: have already opted to lower borrowing costs this year, economist,
Speaker 2: they're warning that the pain of high rates could be
Speaker 2: prolonged following Reeves's announcement. It's all the government plans to
Speaker 2: lift borrowing by one hundred and forty two billion pounds
Speaker 2: over five years to help fund a massive program of
Speaker 2: investment and boost public services. Couples with appliged to deliver
Speaker 2: another large jump in the minimum wage, our potential threats
Speaker 2: to the BOSIM to keep inflighting low. We discussed how
Speaker 2: reads as plan my effect personal spending habits with our
Speaker 2: money distilled columnist John Steppek. Here's what he had to say.
Speaker 9: I don't get it wrong. I mean I think that
Speaker 9: it's been the direction of travel has been very clear
Speaker 9: on property for a long time. And I think if
Speaker 9: you're someone who still views residential property as a viable
Speaker 9: investment for an amateur in person or even as an
Speaker 9: investment asset, you maybe need to have a look at
Speaker 9: what's happened over the last ten years because the tax
Speaker 9: benefits have been slashed. You know, this latest move jacking
Speaker 9: up the stamp duty again is just it's sort of
Speaker 9: signaling we don't want people you own second homes. And
Speaker 9: that's before you get to local council taxes in various
Speaker 9: desirable areas. I mean, the other rabbit obviously is not
Speaker 9: it's basically saying it didn't happen. We'll defrost the tax
Speaker 9: thresholds in twenty twenty, twenty twenty night. But of course
Speaker 9: she's got you know, five years did change on the
Speaker 9: mean to put that, Yes, it.
Speaker 2: Has Boombergs John step out there. So will government policy
Speaker 2: leave the Central Bank wary over the pace of further
Speaker 2: rate cuts? It's something I've been discussing with Boomberg's chief
Speaker 2: UK economist Dan Hansen. Give us some context. What has
Speaker 2: the budget for changed for Andrew Bailey and for BOI
Speaker 2: policymakers if.
Speaker 10: You go back to the middle of September, I think
Speaker 10: it was or not long after the September meeting, Andrew
Speaker 10: Bailey gave an interview saying that policymakers could be a
Speaker 10: little bit more aggressive in terms of their speed of
Speaker 10: rate cuts. I think the budget makes that quite unlikely
Speaker 10: now in terms of how quickly they ease I think
Speaker 10: there's sort of the baseline case, and a reasonable base
Speaker 10: case is that they they may they make a move
Speaker 10: down in November, but they stick to the mantra that
Speaker 10: things will be gradual, so they're not going to indicate
Speaker 10: I don't think that they will speed up the pace
Speaker 10: of rate cuts for that happen. The data is going
Speaker 10: to have to really surprise, and it surprised a bit
Speaker 10: to the downside, but it's not really surprising to the downside,
Speaker 10: and as you just mentioned there there's this enormous fiscal
Speaker 10: stimulus that needs to be factored into their thinking now
Speaker 10: and the national minimum wage hike as well, and that
Speaker 10: just is just one more reason to think that they're
Speaker 10: going to move slowly.
Speaker 2: Let's dig into the borrowing picture and what we learned
Speaker 2: after the budget from the independent government watchdog, the Office
Speaker 2: for a Budget Responsibility that kind of crunches the numbers
Speaker 2: around the announcements being made by the Chancellor and puts
Speaker 2: them in a look of a long term context. What
Speaker 2: did they say exactly about what that spending would mean
Speaker 2: for the inflation outlook and thus the out look?
Speaker 10: Yeah, yeah, so they said that there would be the
Speaker 10: way the policy package has been set up, there will
Speaker 10: be this relatively large near term boost to the economy.
Speaker 10: So growth next year could be point four point five
Speaker 10: percentage points higher as a result of the policy package,
Speaker 10: which is a significant news. Surely, Yes, it's very significant
Speaker 10: when you're you know, when you're forecasting growth of sort
Speaker 10: of one ish percent, if you you're going to add
Speaker 10: sort of point five percentage points to it, that's quite
Speaker 10: that's quite significant. So and the thing to remember about
Speaker 10: the Bank of England, which is slightly different to the
Speaker 10: Office of a bunch of Responsibility, is that the Bank
Speaker 10: of England thinks the economy's speed limit, so the speed
Speaker 10: at which it can grow without stoking inflation is low
Speaker 10: or lower than the Office of a bunch of Responsibility,
Speaker 10: I should say, So the Bank of England thinks the
Speaker 10: economy can grow one to one and a half percent
Speaker 10: somewhere in that range a year without inflation taking off.
Speaker 10: So if you add in, as I say, this stimulus
Speaker 10: next year that you know is good and with an
Speaker 10: economy operating pretty much sort of at full employment for capacity,
Speaker 10: there is going to be an inflationary impulse from it,
Speaker 10: maybe point two somewhere between point two point four on
Speaker 10: CPI inflation over the next eighteen months or so. So
Speaker 10: that's you know, it's a significant significant boost.
Speaker 3: So for the outlook for rate then what does that mean?
Speaker 10: So I think, as I say, I think they're going
Speaker 10: to cut interest rates at the at the upcoming meeting,
Speaker 10: I think that's that's sort of pretty much a given.
Speaker 10: But I think there was there was always a question
Speaker 10: about whether this meeting they would open the door to
Speaker 10: going a little bit faster. If things allowed them to,
Speaker 10: so essentially creating some conditionality in in what they how
Speaker 10: they'll sort of respond going forward. I think the chances
Speaker 10: of that now have dropped dramatically, and there was a
Speaker 10: lot of debate in the market, and a lot of
Speaker 10: clients I speak to are sort of there's there's a
Speaker 10: lot of debate about was a lot of debate about
Speaker 10: December whether they cut again in December, particularly with you
Speaker 10: know what's going on to the ECB, potentially the FED
Speaker 10: going twice before the end of the year. I think
Speaker 10: the budget has made that significantly less likely that they
Speaker 10: go again in December. I don't think you can preclude
Speaker 10: a speeding up next year if that, but it will
Speaker 10: really be about the data. I think if you're if
Speaker 10: you're sat in on Monetary Policy Committee over the next
Speaker 10: week or so and you're going to make your decision,
Speaker 10: which is announced on the seventh of November, you will
Speaker 10: feel that the implation pitch has become a little bit
Speaker 10: more cloudy as a result of the budget. So I
Speaker 10: think for this upcoming meeting, the cautious time will continue.
Speaker 2: I mean you wonder as well whether people in thread
Speaker 2: Needle Street we are holding their head in their hand
Speaker 2: think either have to rethink all of the work they've
Speaker 2: done before in terms of projections for the economy with
Speaker 2: everything that happened in the budget because it was a
Speaker 2: big package. We expected it to be because it had
Speaker 2: been the first under this current government in the UK.
Speaker 2: But I mean, is it kind of further down the
Speaker 2: line if we think past the upcoming meeting, is there
Speaker 2: a lot in there for the Bank of England to
Speaker 2: have to try and calculate the effects of down the line?
Speaker 2: You meant in the national minimum wage increase coming, that's
Speaker 2: of course a wage inflation issue. We've got the increased
Speaker 2: payroll taxes on employers for national insurance contributions as well.
Speaker 2: Down the line, are those things that are going to
Speaker 2: have that could shift the path for where the Bank
Speaker 2: of England go.
Speaker 8: Yeah?
Speaker 10: Absolutely, I mean I wouldn't you know, I said that
Speaker 10: I wouldn't like to be in thread Needle Street, as
Speaker 10: you just said, watching that budget and sort of making
Speaker 10: the decision about interest rates. I also wouldn't like to
Speaker 10: be in thread Needle Street putting the forecast together, which
Speaker 10: is what they're going to have to do at in quickly,
Speaker 10: pretty quick order to because it would be very It's
Speaker 10: very unlikely that the forecast that gets published won't have
Speaker 10: this this impact in it. So they're gonna the Bank's
Speaker 10: going to have to work pretty quickly to get get
Speaker 10: it all incorporated. I mean, I think I think they
Speaker 10: would have been surprised. Bottom line, to sort of go
Speaker 10: to your point, I think the would have been surprised
Speaker 10: by the site. They had known there was going to
Speaker 10: be some stimulus coming. I think the scale of it
Speaker 10: will have will have surprised them. So Yeah, and I say,
Speaker 10: going back to how that that will sort of be
Speaker 10: reflected in their communication, I think, you know, cautious, cautious guidance.
Speaker 10: But also it's quite possible that we don't get a
Speaker 10: all of the can voting for a cut again, you know,
Speaker 10: you get a un get another split vote. I think
Speaker 10: it just remind us of where we were a last
Speaker 10: time around. Yeah, in September, it was it was eight
Speaker 10: to one for a hold, and I think the way
Speaker 10: the data had been moving there was there was a
Speaker 10: real possibility that we got a nine nil in favor
Speaker 10: of a cut in in November. This is all prior
Speaker 10: to the budget and I think that that in itself
Speaker 10: may have sort of sent a signal that the idea
Speaker 10: of a December cut was on was on the cards
Speaker 10: or a possibility and something that was being seriously considered.
Speaker 10: Now I think you'll most likely get some at least one,
Speaker 10: possibly two of the more hawkish members of the committee saying,
Speaker 10: you know this is this has changed my thinking again,
Speaker 10: particularly with the I think with the national or national
Speaker 10: minimum wage increase, so you.
Speaker 1: Know, all of it, all of it.
Speaker 10: It's going to have a significant bearing on how the
Speaker 10: Bank communicates its latest decision.
Speaker 2: Yeah, it makes the job much more complex as well.
Speaker 2: Just size us where the BOE is in this, the
Speaker 2: global landscape of this as well, because obviously we had
Speaker 2: the big rate cut from the FED and the ECB's
Speaker 2: one preceeding kind of fairly steadily along the line as well.
Speaker 2: I mean, is it going to get into a sticky
Speaker 2: situation for the BOIE if they're not cutting next month,
Speaker 2: then everyone else is rolling forward and cuts, and of
Speaker 2: course if that's something that we can better on either.
Speaker 10: Yeah, I mean there's always that, isn't there the sort
Speaker 10: of the disconnect between global central banks. I mean, I
Speaker 10: think you know, you look at the US and we'll
Speaker 10: get jobs numbers and the like. But you know, the
Speaker 10: US economy has been holding up pretty well as well.
Speaker 10: I mean, the European economy does look weaker than it
Speaker 10: sort of, I think people thought sort of two or
Speaker 10: three months ago, and that's why the ECB is going sequentially. Yeah,
Speaker 10: I don't think it's a huge deal if the bank
Speaker 10: doesn't doesn't follow them one for one, you know, they
Speaker 10: did obviously on the way up, it was almost sort
Speaker 10: of matched all all of them did slightly different speeds,
Speaker 10: but pretty much the same. I think on the way down,
Speaker 10: I think the idea that the UK, the UK's inflation
Speaker 10: problem probably is a little bit stickier still holds. So
Speaker 10: I think the bank probably will be a bit more
Speaker 10: cautious about how quickly quickly they cut rates. You've got,
Speaker 10: as to say, in Europe you've got a definitely evidence
Speaker 10: of a weaker economy. In the US they have a
Speaker 10: slightly different mandate, which I always people place different weight
Speaker 10: on this place, quite a lot of weight on it.
Speaker 10: It just makes it easier if you see some signs
Speaker 10: of cracks in the labor market, you can just focus
Speaker 10: on that a little bit more. The bank is just
Speaker 10: in an inflation targeting central bank, that's its mandate. So
Speaker 10: I think it just is going to move more gradually,
Speaker 10: and for us that means at a quarterly pace over
Speaker 10: the course of over the course of twenty twenty five.
Speaker 2: And rates staying a little bit higher on the long
Speaker 2: term or the medium term. Is that a likelihood as
Speaker 2: well or possibility?
Speaker 6: Yeah?
Speaker 1: Yeah, I think so.
Speaker 10: I mean, there's this huge debate, isn't there globally about
Speaker 10: where rates will eventually set, you know, the neutral rate
Speaker 10: as people call it, the rate that doesn't speed up
Speaker 10: or slow down the economy, the sort of equilibrium interest
Speaker 10: rate in the economy. It's undoubtedly higher than it was
Speaker 10: sort of prior to the pandemic. Is it as high
Speaker 10: as it was prior to the financial crisis?
Speaker 1: Probably not.
Speaker 10: But I think the weight of evidence, given that economies
Speaker 10: have been in the face of the tightening, that we
Speaker 10: saw economies held up pretty well given what was thrown
Speaker 10: at them. You know, the evidence is it is, you know,
Speaker 10: in our view, somewhere probably between three and four percent,
Speaker 10: So somewhere in that range. Knowing exactly where it is
Speaker 10: is very difficult, But if you just sort of split
Speaker 10: the difference around three and a half, you know, maybe
Speaker 10: they're our forecast, they go all the way down to three.
Speaker 10: So but it's it's very uncertain. I think the bigger
Speaker 10: picture is that it is not We're definitely not going
Speaker 10: back to where we were sort of in during the pandemic,
Speaker 10: but even prior to the pandemic of you know, basically
Speaker 10: zero interest rates.
Speaker 2: Okay, Don Hanson, ARCHIFUK Economists, thank you so much for
Speaker 2: joining us, And of course we'll have full coverage of
Speaker 2: that bankving in decision when it comes on Thursday. Across
Speaker 2: our Bloomberg platforms. I'm Stephen Carolyn London. You can catch
Speaker 2: us every weekday morning here for Bloomberg Daybreak Europe, beginning
Speaker 2: at six am in London at one am on Wall Streets.
Speaker 1: Tom, thank you, Steven, And coming up on Bloomberg day
Speaker 1: Break Weekend, an earnings preview from some of Asia's biggest automakers.
Speaker 1: I'm Tom Busby, and this is Bloomberg. This is Bloomberg
Speaker 1: day Break Weekend, our global look ahead at the top
Speaker 1: stories for investors in the coming week. I'm Tom Busby
Speaker 1: in New York. Japan, known for its massive auto industry,
Speaker 1: which accounts for twenty two percent of that nation's sotal exports,
Speaker 1: and this week we'll get a number of key earnings
Speaker 1: reports from that sector. For more, we turned to Bloomberg's
Speaker 1: Charlie Pellett news anchoring the day Break Asia podcast this week.
Speaker 3: Tom will get earnings from some of Japan's largest automakers
Speaker 3: next week, including the likes of Nissan, Honda, and Toyota,
Speaker 3: and joining US now for a closer look. Tatsuo Yoshida,
Speaker 3: senior autos analysts for Bloomberg Intelligence in Tokyo, set the
Speaker 3: landscape for us. What is the backdrop heading into these
Speaker 3: earnings reports.
Speaker 8: Actually, macro environment is pretty much mixed, and then also
Speaker 8: regional autoboon wheel market is also mixed. The macrowise material
Speaker 8: prices is easier than before, and then yen is now
Speaker 8: coming back to the weak as side. This is obviously positive. However,
Speaker 8: inflation is persistent, such as wages and then logistics costs
Speaker 8: those are higher than before. Commenting on the digital automobile market,
Speaker 8: Japan is recovering from the impact of the output cuts
Speaker 8: due to the certification scandal, and then US market, the
Speaker 8: market is kind of stagnant, but stone Japanese makers are
Speaker 8: still have a room for growth. And then China OBOL
Speaker 8: market is gaining momentum due to the government support, but
Speaker 8: Japanese automakers are struggling, mainly because of the lack of
Speaker 8: haartpure new energy vehicles, which is basically battery electric vehicles
Speaker 8: and plugging hybrid vehicles.
Speaker 3: All right, So company by company, let us begin with Toyota,
Speaker 3: the world's top carmaker. What are we looking at there?
Speaker 8: The company Also situations are mixed Toyota and then together
Speaker 8: with Honda, those two companies are ahead of their guidance tour.
Speaker 8: For example, they are des in Japan is stagnant because
Speaker 8: of the certification scandal, but UH sales and uh us
Speaker 8: and then Cells in India or other part of the
Speaker 8: Southeast Asia countries, those their selves are very strong.
Speaker 3: And Nissan motor Water analysts expecting.
Speaker 8: There Uh Nissan, I think uh, they're behind the guidance
Speaker 8: and then market is a little bit costious about the company.
Speaker 8: And despite the weakening and laterly UH, there still remains
Speaker 8: a possibility of the guidance downgrade.
Speaker 3: How does the global shift to electrification play into these
Speaker 3: coming reports?
Speaker 8: Actually, the electrification is diverse, not just battery electric vehicle
Speaker 8: but also the hybrids. Clublan hybrids also a big part
Speaker 8: of the electrification. Japanese a little bit behind, but the
Speaker 8: electric vehicle advancement. However, they are lutra strong in hybrid
Speaker 8: earthtic vehicles, and then I think hybrid earthic vehicle sales
Speaker 8: at Honda and then Toyota are strong and then driving
Speaker 8: their earnings. Actually Tourda Honda, they're gaining a lot of
Speaker 8: profit from their hybrid vehicles.
Speaker 3: A quick question about tariffs, either declared or potential involving
Speaker 3: Chinese made evs. Do Japanese automakers expect to see any
Speaker 3: potential gains because of tariffs imposed on Chinese vehicles.
Speaker 8: Actually, Chinese and Japanese are not competing head on outside
Speaker 8: of China, so the paddish thing, of course, that may
Speaker 8: benefit the Japanese a little bit, but not significantly.
Speaker 3: And as we get these earnings reports, is there any
Speaker 3: one of the three Nissan, Honda, or Toyota that might
Speaker 3: stand out as an industry bell weather.
Speaker 8: I would expect them may upgrade there through a profit guidance.
Speaker 3: Tatsuo, We thank you, Tatsuo Yoshida, senior Auto's analyst for
Speaker 3: Bloomberg Intelligence, joining us from Tokyo. We move next to
Speaker 3: the hottest commodity on the street, Gold, the precious metal,
Speaker 3: is trading at records, extending a surge that has sent
Speaker 3: gold up over a third this year and joining us
Speaker 3: now George milling Stanley, chief gold strategist at State Street
Speaker 3: Global Advisors, he's in our Hong Kong studios. So, George,
Speaker 3: with gold at a record, what is it that.
Speaker 1: Got us here?
Speaker 11: I think there are really three things that got us
Speaker 11: up here. The first is that central banks have been
Speaker 11: very significant buyers of gold now primarily central banks in
Speaker 11: the emerging markets, buying gold because they didn't have enough
Speaker 11: in their official reserves. And that's been a process that's
Speaker 11: been going on for fourteen straight years, not going to
Speaker 11: go away anytime soon. The second thing, we've seen a
Speaker 11: big revival in investment demand in China. I think Chinese
Speaker 11: investors responding to problems in the stock market related to
Speaker 11: real estate and turning to the traditional alternative, which has
Speaker 11: been gold for a very long period of time. And then,
Speaker 11: for different reasons, we've seen a revival in Western world investment,
Speaker 11: Western Europe and North America, concerned about macroeconomic issues and
Speaker 11: also concerned about geopolitical issues. I think that combination is
Speaker 11: what's driven gold up to a whole succession of all
Speaker 11: time highs this year.
Speaker 3: Well, does the current price of gold then justify current valuations?
Speaker 11: I think it does. I mean, you know, if you
Speaker 11: think about it, the kind of macroeconomic scenario that we're in,
Speaker 11: with inflation still being sticky, especially on the Fed's preferred measure,
Speaker 11: and with the Fed having started to cut interest rates
Speaker 11: and clearly embarking on a sustained period of rate cutting
Speaker 11: that's going to run through next year if everybody is
Speaker 11: to believe it to be believed that I think is
Speaker 11: likely to lead to dollar weakness and then consequently gold strength.
Speaker 11: And the geopolitical background a conflict in Europe with the
Speaker 11: potential to turn nuclear at the push of a button,
Speaker 11: and the Middle Eastern conflict having now spread way beyond
Speaker 11: Israel's borders where it was confined at the beginning, and
Speaker 11: now including open warfare with Iran and Lebanon, and the
Speaker 11: potential for that to get even worse. I think all
Speaker 11: of those things together historically have been very helpful for gold,
Speaker 11: and right now they're continuing to be very very supportive,
Speaker 11: which is why we keep hitting this succession of all
Speaker 11: time highs.
Speaker 3: Well, let me throw in one more piece of uncertainty,
Speaker 3: and that is the American presidential election. Potentially what might
Speaker 3: that mean for the price of gold.
Speaker 11: I'm guessing that whoever becomes the president, we're going to
Speaker 11: see continued spending, whether it's spending on domestic programs from
Speaker 11: the Democrats, or whether it's spending to finance, whether it's
Speaker 11: it's tax cuts. We're going to see bigger deficits whoever
Speaker 11: becomes the president, and that I think is going to
Speaker 11: lead to further dollar depreciation and quite possibly a renewal
Speaker 11: of inflation, which could be really very very damaging. At
Speaker 11: this point, as long as we avoid the dreaded trifecta,
Speaker 11: as long as we avoid one party getting the presidency,
Speaker 11: the House, and the Senate, which I think has always
Speaker 11: led to extremism in the past, I think that as
Speaker 11: long as we get the checks and balances that the
Speaker 11: US system is designed to incorporate, then I don't think
Speaker 11: that there is anything likely to be bearish for gold
Speaker 11: in there at all. My sense is that you know,
Speaker 11: with likely increase spending, likely increased deficits, I've been hearing
Speaker 11: for twenty years that our deficit is unsustainable and we
Speaker 11: keep sustaining it somehow or other. I think that all
Speaker 11: of those things are going to lead to dollar depreciation,
Speaker 11: and that should lead in turn to a stronger goal price.
Speaker 3: What happens if we don't quickly know the election outcome,
Speaker 3: how might that play into the price of gold.
Speaker 11: I think all that would do, and I think is
Speaker 11: a very real possibility of that, given the way some
Speaker 11: of the candidates are talking, I think that all that
Speaker 11: would do is simply add to the general feeling of
Speaker 11: geopolitical uncertainty, the uncertainty about the conflict in Ukraine and
Speaker 11: the conflict in the Middle East. And if we have,
Speaker 11: let's hope it's not an armed conflict in the United States.
Speaker 11: But if we have a contentious election, which I think
Speaker 11: is a very likely outcome, I think that's simply going
Speaker 11: to be even further positive for gold. I don't see
Speaker 11: any negatives out there right now. It's hard to see
Speaker 11: where the headwinds might be coming from from the gold
Speaker 11: point of view.
Speaker 3: Well, certainly, we've got a lot ahead on the calendar.
Speaker 3: In addition to the presidential election, there's also a Federal
Speaker 3: Reserve meeting. What assumptions are you and your colleagues making
Speaker 3: about the Federal Reserve and the pace of further rate cuts.
Speaker 11: I think that you know, Jerome Powell has said explicitly
Speaker 11: and many many times that he plans to be driven
Speaker 11: by the data, and that he's also trying not to
Speaker 11: be to put too much emphasis on any one month's
Speaker 11: particular set of economic statistics, because these are always open
Speaker 11: to revision. But if everything stays pretty much the same
Speaker 11: as we are right now, and he doesn't get any
Speaker 11: major surprises in the data, then it looks like the
Speaker 11: market consensus is right. The market consensus has now settled
Speaker 11: on two more twenty five basis point rate cuts, one
Speaker 11: at the November meeting, one at the December meeting, and
Speaker 11: then a sustained succession of small twenty five basis point
Speaker 11: rate cuts through the whole of twenty twenty five to
Speaker 11: bring Fed funds rate down to somewhere around about the
Speaker 11: three percent level, probably a little bit higher than the
Speaker 11: sustainable normal rate, the neutral rate, if you like, as
Speaker 11: some of the economists want to call it. But jer
Speaker 11: own power is indicated if the data keep coming in
Speaker 11: the way that they are. Strong economy, some signs of
Speaker 11: a little wobble here and there in the labor market,
Speaker 11: but nothing really dramatic. Then that will be the lightly outcome.
Speaker 11: Two more rate cuts this year, and then a succession
Speaker 11: of rate cuts next year, and then somewhere toward the
Speaker 11: end of twenty twenty five, the Fed will will take
Speaker 11: a little pause and have another macro view, if you
Speaker 11: like the view from thirty five thousand, fear to see
Speaker 11: exactly where the general economy is and where all the
Speaker 11: other indicators that they're looking at, especially the labor market.
Speaker 11: But Jerome Powell has made it very clear that he
Speaker 11: still wants to see an extended period of below trend growth,
Speaker 11: and he has seen nothing like that, and certainly in
Speaker 11: the last twelve months, and there are no real signs
Speaker 11: of anything like an extended period of below trend growth.
Speaker 11: That's what he wants to see, So he's not going
Speaker 11: to rush cutting interest rates at all.
Speaker 3: Quick question about demand. You are talking to us from
Speaker 3: Hong Kong. China and India are the world's two top
Speaker 3: gold consumers. Is the demand story for the precious metal
Speaker 3: the same in both countries.
Speaker 8: No.
Speaker 11: I think there are very very different dynamics in each country.
Speaker 11: We have seen We've seen pretty good jewelry demand in
Speaker 11: China that nothing outstanding. We've seen stellar investment demand, I
Speaker 11: think because the Chinese investor is frightened of his stock
Speaker 11: market right now. India's a very very different story. What
Speaker 11: we have in India is that demographics population growth is
Speaker 11: definitely on gold side, with strong population growth there unlike China,
Speaker 11: and the economic factors are also on gold side. The
Speaker 11: Indian economy has been growing, the IMF seems to believe
Speaker 11: from the most recent report. I think that India was
Speaker 11: really the one country that got top marks there and
Speaker 11: they're expecting seven percent economic growth this year and probably
Speaker 11: better than that next year. They're expecting the Indian economy
Speaker 11: to overtake the Chinese economy in size because the Chinese
Speaker 11: economy has turned into some decline with the growing of
Speaker 11: the population. Very much different dynamic from what's happening in India.
Speaker 11: And of course, you know, we are now well into
Speaker 11: the Indian wedding season, which will run through until next
Speaker 11: May or June, depending on where in India one lives,
Speaker 11: and that has always been very good for an uptick
Speaker 11: in gold jewelry demand there. But investment demand is also
Speaker 11: running strong in both countries, and I think it's very
Speaker 11: important to look at both of those dynamics.
Speaker 3: George milling Stanley, Chief gold Strategist at State Street Global Advisors.
Speaker 3: I'm Charlie Pelloton, New York in for Doug Chrismer this week.
Speaker 3: You can join Doug weekdays on the Daybreak Asia podcast.
Speaker 3: It's available wherever you get your podcasts.
Speaker 1: Tom, and that does it for this edition of Bloomberg
Speaker 1: Daybreak Weekend. Join us again Monday morning at five am
Speaker 1: Wall Street Time for the latest on markets overseas and
Speaker 1: the news you need to start your day. I'm Tom Buzzby.
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