Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world, and straight ahead on the program,
Speaker 2: a big decision about interest rates from the Federal Reserve,
Speaker 2: plus a look at corporate earnings from the world's biggest
Speaker 2: sportswear company, Nike. I'm Tom Busby in New York.
Speaker 1: I'm Caroline Hepge here in London, where we're looking at
Speaker 1: the next Bank of England decision and how fast rates
Speaker 1: may come down.
Speaker 3: I'm Doug Prisner looking at whether China's autumn stimulus will
Speaker 3: bear fruit.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby, and we begin
Speaker 2: today's program with the Federal Reserve. The Federal Open Market
Speaker 2: Committee will wrap up a two day meeting this Wednesday,
Speaker 2: expected to issue its next monetary policy decision on interest rates,
Speaker 2: and for more and what to expect. We're joined by
Speaker 2: Michael McKee, Bloomberg International Economics and Policy correspondent. Michael, thank
Speaker 2: you for being here. It looks like all the stars
Speaker 2: have aligned for the Fed to once again cut interest rates.
Speaker 2: Is that what you're expecting to see?
Speaker 5: That is what we are expecting to see. A couple
Speaker 5: of data points late in the week last week raised
Speaker 5: some questions. One was the rise in the PPI stronger
Speaker 5: than expected, but a lot of that was due to
Speaker 5: just food prices. And then jobless claims came in high,
Speaker 5: but that was the week after Thanksgiving, and of course
Speaker 5: everybody took two days off during Thanksgiving week, so people
Speaker 5: didn't file. So once you look through those things and
Speaker 5: you look at where CPI came in and the stuff
Speaker 5: that goes into the PCE report, which is the Fed's
Speaker 5: inflation measure, it looks like we're still making progress on
Speaker 5: inflation some and the labor market doesn't seem to be
Speaker 5: in terrible trouble. So the Fed has made it clear
Speaker 5: under those circumstances they want to cut rates.
Speaker 2: Well, let's talk about inflation, because we've made tremendous progress
Speaker 2: since a high of over nine percent June of twenty one,
Speaker 2: but it seems to have stalled at four months in
Speaker 2: a row of three point three percent increase in inflection.
Speaker 2: I mean, what's behind that stall?
Speaker 5: You're talking about the CPI numbers. And in the CPI
Speaker 5: things that had been going up went down, things that
Speaker 5: had been going down went up. It's sort of the
Speaker 5: usual volatility. There was some good news in the CPI
Speaker 5: report and that owner's equivalent rent, which is the strange
Speaker 5: way the government measures housing costs, went down to just
Speaker 5: a two tense game. That's the smallest since January of
Speaker 5: twenty twenty one. Fed's been waiting for housing to slow down,
Speaker 5: housing prices to slow down, and that may be finally happening,
Speaker 5: and if that's the case, we should pick up steam
Speaker 5: in inflation coming down. But the FED also predicted some
Speaker 5: months ago that we would run into this, that not
Speaker 5: only would it be a bumpy path, but that we
Speaker 5: would see the year or a year rate go up
Speaker 5: because we saw it go down earlier in the year,
Speaker 5: and the base effects change just mechanically pushes it higher.
Speaker 5: So they're not too worried about that at this point.
Speaker 2: But you mentioned earlier about food prices, and anyone who
Speaker 2: was setting a table for Thanksgiving will tell you it's unbelievable.
Speaker 5: That's the case. The interesting thing was this year's Thanksgiving basket.
Speaker 5: According to several economists who do this sort of thing,
Speaker 5: they go out and they price all the ingredients that
Speaker 5: you put into your Thanksgiving table, it was the cheapest
Speaker 5: in years. Actually went down in price this year. But
Speaker 5: PBI showed a big rise in egg prices this past month,
Speaker 5: and that was much of the reason that the PPI
Speaker 5: headline came in strong. We've had bird flu exploding around
Speaker 5: the West especially, and we're seeing a lot of price
Speaker 5: increases for eggs in recent months. August July was also
Speaker 5: a fifty five percent rise like it was last month.
Speaker 5: Because of that, they're just are you know, the chickens
Speaker 5: are dying, So egg prices went up, and that's one
Speaker 5: of the reasons that the Fed and others used the
Speaker 5: core rate because there's not a lot monetary policy is
Speaker 5: going to do about the bird flu.
Speaker 2: Yeah, yeah, that's frightening. Another consideration the labor market you mentioned,
Speaker 2: and we saw a big turnaround from October to November
Speaker 2: in ads to two hundred and twenty seven thousand. So
Speaker 2: is this something that FED expected to see. Is it's okay,
Speaker 2: now we're back to normal, or is it you know?
Speaker 2: And it looked like that was just an operation in October.
Speaker 5: Well, we don't know, because we did have a very
Speaker 5: small job creation in October in part because of the
Speaker 5: hurricanes and the Boeing strike, and so payback was expected.
Speaker 5: And if you take out the number of jobs from
Speaker 5: both of those things, estimate the hurricane effect, you get
Speaker 5: about one hundred and fifty five hundred and sixty thousand jobs,
Speaker 5: which is kind of right in line with what we
Speaker 5: had been seeing. So yeah, you could argue it's kind
Speaker 5: of back to where it was. We also saw a
Speaker 5: slight tick up in the unemployment rate because in the
Speaker 5: household survey a lot of jobs were lost. That's always
Speaker 5: volatile and hard to figure out, but it is the
Speaker 5: indicator that FED watches for a sign that the economy
Speaker 5: is slowing. But a rise to four point two percent
Speaker 5: in November is still below the four point four they
Speaker 5: predicted for the end of the year. So thus we
Speaker 5: get a big rise in December will come in lower
Speaker 5: than they thought, so they look at it the labor market,
Speaker 5: and they're saying it's still strong enough.
Speaker 4: Well.
Speaker 2: Federal Reserve policymakers wrapping up their final meeting of the
Speaker 2: year this Wednesday, a decision expected around two pm Wall
Speaker 2: Street time. Our thanks to Michael McKee, Bloomberg International Economics
Speaker 2: and Policy correspondent. We move now to the athletic footwear
Speaker 2: and sports apparel giant Nike, the Dow component, reports second
Speaker 2: quarter earnings on Thursday, the first report under new CEO
Speaker 2: Elliott Hill. For more on how those results may have
Speaker 2: been impacted by macroeconomic headwinds, plus an early read on
Speaker 2: holiday sales hopefully. We're joined by Kim Bassin, Bloomberg senior
Speaker 2: reporter covering sportswear. Kim, thank you so much for joining us.
Speaker 2: Let's start with what you're expecting to see in Nike's
Speaker 2: earnings this week and why.
Speaker 6: Nike's earnings this week are going to be pretty interesting.
Speaker 6: So they're going through a transitional period right now with
Speaker 6: a new CEO who just started in October, and so
Speaker 6: far we haven't heard what the plan is, right, It's
Speaker 6: unclear where this is going to go. So it seems
Speaker 6: that investors are just waiting patiently or inpatiently, I suppose
Speaker 6: depends on the investor. But it looks like they're just
Speaker 6: waiting to see what's gonna happen here. Right now, Nike
Speaker 6: sales have been down the last two quarters, and they
Speaker 6: are trying to figure out how to get demand back well.
Speaker 2: Executive Chairman Mark Parker told employees back in September around
Speaker 2: the time that Elliot Hill, just before he was named
Speaker 2: the brand will quote get back to doing what we
Speaker 2: do best, that's help athletes reach their potentials. So where
Speaker 2: did they go wrong or what happened? What miscues did
Speaker 2: they do that led to you know, several quarters in
Speaker 2: a row of lower sales.
Speaker 6: One of the biggest things that happened at Nike is
Speaker 6: that they over extended on three of the big product
Speaker 6: lines that Nike has. These are Air Force Ones, Air
Speaker 6: Jordan Ones, and Dunks. Now, these are lifestyle shoes, right,
Speaker 6: These are shoes not meant to be worn on like
Speaker 6: a basketball court or a football field or anything like that.
Speaker 7: It's it's for the sidewalk.
Speaker 6: And these these lifestyle shoes were real hot, like enduring
Speaker 6: and then out of the pandemic and they sold like
Speaker 6: crazy and they became I mean, these were these billion
Speaker 6: dollar product lines, right, but as trends changed over the
Speaker 6: last year, those shoes weren't selling like they used to,
Speaker 6: and Nike, back in its headquarters in Oregon, wasn't developing
Speaker 6: new products quickly enough to replace those shoes. So now
Speaker 6: they're figuring that out the the innovation pipeline at Nike,
Speaker 6: trying to rush new products out in order to replace
Speaker 6: those shoes.
Speaker 2: Well speaking, which Nike Direct has had some problems, right,
Speaker 2: this is their direct to consumer conduit not living up
Speaker 2: the expectations.
Speaker 6: Right, Nike spent the last several years basically shunning a
Speaker 6: lot of its retail partners. So back in twenty twenty
Speaker 6: one twenty two, it started to release them from we'll
Speaker 6: do this ourselves now, yeah, well we got this, We'll
Speaker 6: go through our own d DC channels. That's the Nike app,
Speaker 6: the Sneakers app where you get the drops all the time,
Speaker 6: and the Nike website. So they eliminated more than half
Speaker 6: of their retail partners, including so and they reduced shoes
Speaker 6: to some of the really really big ones, right, so
Speaker 6: like foot Lockers, one of the most important partners for Nike,
Speaker 6: and they reduced the number of shoes that were going
Speaker 6: over to foot locker, and that paid off for a while,
Speaker 6: but now they're reversing some of that and re engaging
Speaker 6: with those retail partners.
Speaker 5: Wow.
Speaker 2: Another misque the digital sneaker division Artifact. Right, they bought
Speaker 2: this company which doesn't sell sneakers, just sneakers in the metaverse,
Speaker 2: the digital world, and said, what are we doing here?
Speaker 6: Even though Elliott Hill, the new CEO, has not presented
Speaker 6: a plan yet, he has given hints, right, and this
Speaker 6: is one of those hints. When it comes to priorities
Speaker 6: and what this new CEO's priority is going to be,
Speaker 6: digital sneakers are not one of those priorities. So this
Speaker 6: is a company that they bought a few years ago
Speaker 6: under the old regime that makes virtual shoes for the metaverse.
Speaker 6: That was during the height of the non fungible token
Speaker 6: kind of thing that we had got the craze that
Speaker 6: was going on back in twenty twenty one, and so
Speaker 6: they're winding that down now. Another thing that they're doing
Speaker 6: is investing more in its outdoor business. So really quickly
Speaker 6: upon he'll being named CEO, a Nike sent a memo
Speaker 6: internally and said, we really want to invest in ACG
Speaker 6: it's called all Conditions gear. It's their outdoor business. So
Speaker 6: that's something they want to push going forward.
Speaker 2: Is that like more than just sneakers in apparel or.
Speaker 6: It's sneakers, it's apparel, it's outerwear, it's hiking things, camping,
Speaker 6: those kinds of outdoor products.
Speaker 2: Now, a lot of Americans are still spending, but lower
Speaker 2: way journers have had to pull back on their especially
Speaker 2: discretionary spending. We saw lower sales growth. That's some big
Speaker 2: chains like you mentioned, foot Locker, Target, Coals, Dick Sporting
Speaker 2: Goods did okay back to school, But do you think
Speaker 2: we'll see that slow down reflected in Nike's sales for
Speaker 2: the second quarter.
Speaker 6: Yeah, I think we will see that slow down in
Speaker 6: Nike sales. And we're we're I mean, we're seeing it
Speaker 6: across the board right now. The gap between back to
Speaker 6: school and holidays seemed problematic for a lot of retailers,
Speaker 6: even Dix Sporting Goods, which had done quite well last quarter.
Speaker 6: Early takes on Thanksgiving week have been fairly strong. So
Speaker 6: it's that it's that shortened selling time between Thanksgiving through
Speaker 6: Christmas that we're all focused on days shorter than normal.
Speaker 2: Shorter, but indications already that this Christmas season might be
Speaker 2: looking good.
Speaker 6: Might good, good enough? Maybe good under the circumstances.
Speaker 2: Well, we bashed Nike a little bit, but let's talk
Speaker 2: about some of the good things that they have going
Speaker 2: for him. Very recently, they just extent a long term
Speaker 2: partnership with the NFL exclusive supplier of uniforms, practice, jersey, sidelines,
Speaker 2: apparel all thirty two teams. Similarly the NBA, the WNBA,
Speaker 2: the So these must be tremendous showcases for Nike gear
Speaker 2: and apparel.
Speaker 6: Huge deals, and it provides this long term stability at
Speaker 6: a time where there's not a lot of long term
Speaker 6: stability at Nike. There's so many moving parts, there's so
Speaker 6: much going on. The strategy is changing as we speak.
Speaker 6: But these are huge deals for Nike. Right The NFL
Speaker 6: is so important, and I don't think they were ever
Speaker 6: going to lose that contract. Like they had to extend it,
Speaker 6: had to keep it. It's through twenty thirty eight, so.
Speaker 2: Especially with Taylor Swift now attending.
Speaker 6: Games, especially with Taylor Swift the Kansas City Chief games, absolutely.
Speaker 2: Well, it's big. Nike's Q two earnings out this Thursday
Speaker 2: are thanks to Kim Bassine, Bloomberg senior reporter covering sportswear.
Speaker 2: Coming up on Bloomberg day Break weekend, we look at
Speaker 2: this week's Bank of England decision and just how quickly
Speaker 2: rates may come down.
Speaker 1: There.
Speaker 2: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global log ahead at the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. Up later in the program we get
Speaker 2: the latest readings on the Chinese economy. But first, the
Speaker 2: Bank of England can cut borrowing costs five more times
Speaker 2: to a rate of three point five percent before running
Speaker 2: the risk of overheating the economy and reigniting inflation. That's
Speaker 2: the assessment of Bloomberg Economics, just ahead of the Central
Speaker 2: Bank's final meeting of twenty twenty four. So where does
Speaker 2: the Central Bank's neutral rate line after policymakers reverse the
Speaker 2: most aggressive rate hiking cycle in decades. Well, for more,
Speaker 2: we'll go to London and bring in Bloomberg day Break.
Speaker 2: Europe banker Caroline Hepgar.
Speaker 1: Tom Andrew Bailey has signaled that policymakers still believe four
Speaker 1: quarter point rate cuts next year is the most likely
Speaker 1: scenario for the Bank of England. Policymaker Swarti Dingra recently
Speaker 1: told Bloomberg that high interest rates in the UK are
Speaker 1: bearing down too heavily on the economy. The most duvish
Speaker 1: NBC member, she says that that's why the bank should
Speaker 1: be easing policy more. But Bloomberg Economics analysis suggests that
Speaker 1: policymakers may have less room than previously thought to cut
Speaker 1: interest rates before reigniting the flames of inflation once again.
Speaker 1: As central banks around the world continue cutting rates next year,
Speaker 1: debate about the end point for monetary policy and the
Speaker 1: easing cycle is likely to intensify. That's the verdict of
Speaker 1: Bloomberg's chief UK economist Dan Hanson. Central to the dilemma, though,
Speaker 1: is gauging where monetary policy neither restrains nor stimulates growth.
Speaker 1: That's known as the neutral rate. It's increasingly key for
Speaker 1: policymakers as they try to deliver a soft landing from
Speaker 1: the inflation shock of twenty twenty two and twenty twenty three.
Speaker 1: It's something Andrew Bailey has refused to be drawn on,
Speaker 1: other than to say that it will be higher than
Speaker 1: the near zero level of rap that we saw from
Speaker 1: two thousand and nine to twenty twenty one. Despite the
Speaker 1: governor's silence on the issue, It's a figure that the
Speaker 1: market is watching closely too. Nicola my portfolio manager and
Speaker 1: sovereign credit analyst at PIMCO, has told Bloomberg that the
Speaker 1: implications of the neutral rate are key for the guilt market.
Speaker 8: Look, we like guilts, you know, we've liked them for
Speaker 8: a while. If you look at what's priced in the market,
Speaker 8: you have a terminal rate of three point fifty or so,
Speaker 8: which is broadly aligned with the FED. That doesn't really
Speaker 8: make sense to me for an economy that has been
Speaker 8: a lot weaker than the US economy, where equilibri of
Speaker 8: interest rates are most likely lowered, given the fact that
Speaker 8: trend growth in the UKs is quite a bit lower
Speaker 8: than in the US.
Speaker 7: So I think guilts are going to perform now.
Speaker 8: I think that it's been a bit of a frustrating
Speaker 8: environment because we've been we and a lot of people
Speaker 8: in the market have been betting on the guilt out
Speaker 8: performance recently.
Speaker 7: It hasn't worked yet.
Speaker 8: I think the market still, you know, watching the inflation
Speaker 8: data carefully to see if this this inflation is actually happening,
Speaker 8: but I do expect it to happen, and I think
Speaker 8: this is a.
Speaker 7: Trade that will do well.
Speaker 8: Maybe we need a bit of patience in the near term,
Speaker 8: but I think guilds are attractive here.
Speaker 1: Yeah, absolutely, pretty big economics things. Growth next year is
Speaker 1: only going to come in about one and a half
Speaker 1: percent for the UK. Have all the easy gains been
Speaker 1: made on French oats.
Speaker 7: Yeah.
Speaker 8: Look, I think if you look at oats, you know
Speaker 8: they're trading about eighty basis points over boons, a bit
Speaker 8: wider than Spain. I think it's a reasonable level that
Speaker 8: will probably hold here in that you know you're going
Speaker 8: to have some fiscal slippage from from a starting point
Speaker 8: which is a pretty wide deficit. You know, it was
Speaker 8: six percent. You know there's probably going to be about
Speaker 8: six percent this year. It should fall a bit next year,
Speaker 8: but not much. And I think political uncertainty and volatility
Speaker 8: will remain elevated. Even if you have a government, it's
Speaker 8: going to be a hung parliament still, so I don't
Speaker 8: see much of a titaning going forward.
Speaker 7: So we're pretty neutral here on French spreads.
Speaker 8: I don't think this is a source of a sovereign
Speaker 8: crisis in the year zone, but I think France is
Speaker 8: probably going to settle it at a higher level versus
Speaker 8: compared to the past when it comes to spreads.
Speaker 7: Looking towards next years. Got the election in Germany as well.
Speaker 8: I mean, do you see a significant risk to the
Speaker 8: German outlook from that election? Not particularly, I mean I
Speaker 8: think that Germany it looks not great again with I mean,
Speaker 8: the German economy is struggling, there is no doubt, and
Speaker 8: I do think, if anything, there are some hopes that
Speaker 8: this government will engineer as somewhat easier fiscal stance. You know.
Speaker 8: The hope is that they're going to revise the fiscal
Speaker 8: straight jacket that that prevents any physical spending in Germany,
Speaker 8: the so called constitutional death break rule.
Speaker 7: You know, we see some potential for that.
Speaker 8: I think that would be positive for the German economy
Speaker 8: and for the region as a whole.
Speaker 7: But I would also.
Speaker 8: Temper expectations because I think that the physcal philosophy in
Speaker 8: Germany remains a pretty harkish one, a pretty conservative one.
Speaker 8: So while whilst some amusing as possible, i't I wouldn't
Speaker 8: bet on a huge change here.
Speaker 1: That was Nicola my portfolio manager and solteign Credit Alice
Speaker 1: at PIMCO speaking to Stephen Coroll and I on Bloomberg Radio. So,
Speaker 1: just how much easing can the Bank of England fit
Speaker 1: in before reaching that all important terminal rate. It's something
Speaker 1: I've been discussing with Bloomberg's chief UK economist Dan Hanson.
Speaker 9: At the moment, UK is heading for fingers crossed, a
Speaker 9: softish landing, and that's sort of given what we've been through,
Speaker 9: that's obviously a really positive story and to sort of
Speaker 9: deliver it, it's in sort of absent any other shocks.
Speaker 9: It's in the hands of the Bank of England in
Speaker 9: the sense that it needs to bring interest rates down
Speaker 9: by enough such that it doesn't strangle the recovery and
Speaker 9: strangle the economy, but not by too much such that
Speaker 9: it reignites inflation. As you said, So that's what economists
Speaker 9: call this concept of the neutral raid. It's it's the
Speaker 9: rate of interest, level of interest rates that neither speeds
Speaker 9: up nor slows down the economy and is consistent with
Speaker 9: inflation at two percent and the sort of economy humming
Speaker 9: along at full employment.
Speaker 7: So we've taken a stab.
Speaker 9: No one knows what it is and it moves through
Speaker 9: the passage of time, and it's very uncertain, but we've
Speaker 9: taken a stab at estimating it, and we think all
Speaker 9: of these things, as I say, they are uncertain. We've
Speaker 9: put out a range of between three and four percent,
Speaker 9: and I think coming into the tightening cycle, people would
Speaker 9: have said that's very high. The neutral rates probably quite
Speaker 9: a lot lower than that. I think over the past
Speaker 9: two years we've found out it's probably higher than people thought,
Speaker 9: and that's sort of the basis of why we sort
Speaker 9: of took a stab.
Speaker 7: At this question.
Speaker 9: And we we think over the course of the coming
Speaker 9: year that the banking and world cup rates further down
Speaker 9: to three point seventy five percent by the end of
Speaker 9: the year. But the question, I think is how much
Speaker 9: further they can go from there, and our estimates suggests
Speaker 9: not very far. And I think actually in the second
Speaker 9: half of the year, if the economy continues to hold up,
Speaker 9: there'll be a question amongst policymakers because there'll be a
Speaker 9: divergence of views there as well, there'll be a question
Speaker 9: about how much further interest rates fall as we move
Speaker 9: into the second half of the year. Conditioned on the
Speaker 9: idea that the economy continues to sort of hum along
Speaker 9: as it has been.
Speaker 1: That's interesting, I suppose why not. That is all to
Speaker 1: do with inflation, surely, and we've also put out them
Speaker 1: You've put up full cast for economic growth in the
Speaker 1: UK actually reasonably robust for next year by British standards.
Speaker 1: I'll add that caveat. But it's also all to do
Speaker 1: with inflation and the stickiness of inflation in the UK.
Speaker 9: Yeah, it is, And so the space to sort of
Speaker 9: bring interest rates down really quickly is limited because of
Speaker 9: the inflation picture over the course of the next year,
Speaker 9: which is that we think at least that inflation will
Speaker 9: remain above two percent, So that limits the scope to
Speaker 9: bring interest rates down really quickly. At the same time,
Speaker 9: we think the economy will grow a little bit faster
Speaker 9: than it did this year, so we think the economy
Speaker 9: will grow in annual terms point nine percent this year,
Speaker 9: next year one and a half percent. A lot of
Speaker 9: that is to do with the fiscal loosening in the budget,
Speaker 9: but actually the reason why inflation is going to remain
Speaker 9: above target is also because of that fiscal loosening in
Speaker 9: the budget and some of the policies that were in it.
Speaker 9: So there is this, there is this path down. I
Speaker 9: think it is going to be gradual, and as I
Speaker 9: say in the second half of I think the coming year,
Speaker 9: the question is going to be where do we stop
Speaker 9: absent a shock hitting the economy where the bank has
Speaker 9: to rethink everything. But I think if we continue on
Speaker 9: the current path, you know, there is this question to
Speaker 9: say in the second half about where the stopping point is.
Speaker 1: How much does the cycle that is seeing rate cuts
Speaker 1: of course in the US and Europe effect what is
Speaker 1: happening here in the UK.
Speaker 9: It's definitely important and the traditional thing that the traditional
Speaker 9: channel that people talk about is the exchange rate channel,
Speaker 9: but also particularly in the US, the UK is a
Speaker 9: price taker in financial market, so what happens in the
Speaker 9: US affects financial conditions here enormously. So it does matter
Speaker 9: historically though you look at the cycles of the FED
Speaker 9: and the Bank of England and they do diverge, and
Speaker 9: they can diverge quite dramatically. But I think for both
Speaker 9: at least, if you're thinking about the US and the
Speaker 9: UK economy, sort of broadly, the base case, the consensus
Speaker 9: at least is for a softish landing on both sides,
Speaker 9: Inflation on both sides of the Atlantic is sticky. There's
Speaker 9: obviously a bit of a difference with Europe and the
Speaker 9: New Area and the ECB interest rates. Our team think
Speaker 9: that we're going to go to neutral there. I think
Speaker 9: the market thinks that, which is on our estimates two percent,
Speaker 9: the market has rates going a little bit lower there.
Speaker 9: I think there are concerns about the economy in the
Speaker 9: EU Area a little bit more than there are in
Speaker 9: the US and the UK at the moment. But I
Speaker 9: don't think Obviously central banks look at each other and
Speaker 9: see what they're doing, but I don't think it's going
Speaker 9: to stop the Bank of England doing what it thinks
Speaker 9: is necessary for the for the UK economy and for
Speaker 9: the UK economy, the story has been relatively as you mentioned,
Speaker 9: they're relatively sluggish growth but also sticky inflation, so that
Speaker 9: calls for interest being relatively cautious about how far you
Speaker 9: lower interest rates.
Speaker 1: In recent days we've heard from banking and policy makers,
Speaker 1: including Swatty. Dinger has spoken to Big Television. What do
Speaker 1: you expect to hear from the Bank of England at
Speaker 1: their upcoming meeting? What do you think they might talk about?
Speaker 9: So I think this one is I mean, the market
Speaker 9: is pricing zero in terms of moves, there's no probability
Speaker 9: of any move, so it's and we only get the minutes.
Speaker 9: So I think the thing that they'll focus on is
Speaker 9: the national the rise in employer national insurance and what
Speaker 9: that could potentially mean for the outlook. That's the thing
Speaker 9: that Atlist Andrew Bailey has said is the biggest uncertainty,
Speaker 9: at least in the near term about the economic outlook
Speaker 9: and one of the reasons why they're they're moving gradually.
Speaker 9: So I think we've had little bits of evidence, early
Speaker 9: evidence from their decision maker panel, from the report on
Speaker 9: Jobs about how firms might be adjusting, and obviously we're
Speaker 9: getting company earnings reports as well that are telling us
Speaker 9: about how they're going to be adjusting to these to
Speaker 9: the rise in labor costs. So I think that's going
Speaker 9: to be the focus. I don't think they'll go near
Speaker 9: sort of for example, the question about tariffs and Trump.
Speaker 9: There's no need for them to sort of step into
Speaker 9: that step into that arena yet, so I think it's
Speaker 9: just going to be very much steady as you go.
Speaker 9: This is you know, this is what we said out
Speaker 9: in November, is that We're going to be cutting gradually
Speaker 9: and I think that's going to be the story here
Speaker 9: as well for December.
Speaker 1: My thanks as ever to Bloomberg's Chief UK economist Dan Hanson. Well,
Speaker 1: we'll have full coverage of the final Bank of England
Speaker 1: monetary policy decision, the meeting and the press conference on Thursday,
Speaker 1: the nineteenth of December right here on Bloomberg. I'm Caroline
Speaker 1: Hepget in London and you can catch us every weekday
Speaker 1: morning for Bloomberg Daybreak. You at beginning at six am
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Speaker 2: Tom, Thanks Caroline, and coming up on Bloomberg day Break Weekend,
Speaker 2: the latest data on China's economy. I'm Tom Busby and
Speaker 2: this is Bloomberg. This is Bloomberg day Break Weekend, our
Speaker 2: global look ahead at the top stories for investors in
Speaker 2: the coming week. I'm Tom Busby in New York. This
Speaker 2: week we get the latest readings on the health of
Speaker 2: China's economy, three years after a collapse in its housing
Speaker 2: market led to a nationwide financial crisis. For more, let's
Speaker 2: go to Bloomberg's Doug Chrisner, host of the Daybreak Asia podcast.
Speaker 3: Tom the key numbers in China's monthly activity data will
Speaker 3: clearly be retail sales and industrial production. But remember these
Speaker 3: readings will be for November, and perhaps the more important
Speaker 3: story on the Chinese economy has been the stimulus recently
Speaker 3: teased after the Politbureau meeting. We'll take a closer look
Speaker 3: right now with Bloomberg's Tia Dmitrieva. Katya covers Asia Economics
Speaker 3: from our bureau in Hong Kong. Thanks for making time
Speaker 3: to chat with me. We'll get to the stimulus story
Speaker 3: in a moment. I promise you can. We begin with
Speaker 3: a big picture on Chinese economic activity though for the
Speaker 3: month of November. Can you help me understand what we're
Speaker 3: likely to see in these numbers?
Speaker 10: Yes, and it's going to be a very good snapshot
Speaker 10: of most of the economy.
Speaker 4: You know.
Speaker 10: This tends to happen every month or so. China will
Speaker 10: release this slew of data. So we're getting across the
Speaker 10: across the country. We're getting new home prices, industrial production,
Speaker 10: retail sales that you had mentioned, also investment numbers and
Speaker 10: jobless rate. And because that's not enough, we might also
Speaker 10: get the policy loan rate. Starting that day, there's usually
Speaker 10: about a couple day like a week window where we
Speaker 10: might get that. It's also all coming around the same time,
Speaker 10: around ten am Monday here, and it's all for November.
Speaker 10: And the interesting part about this data is it'll capture
Speaker 10: what have essentially been two months of stimulus. So we
Speaker 10: had in September. The stimulus was really focused on monetary
Speaker 10: easing support for the real estate sector across the board,
Speaker 10: and then for households too, because we saw that mortgage
Speaker 10: rate cut for outstanding mortgages to try to alleviate and
Speaker 10: maybe open up some spending for consumers. And then in
Speaker 10: October that was the PBOC, the People's Bank of China,
Speaker 10: and they had announced measures to boost capital markets, and
Speaker 10: so we saw markets very excited and happy about that.
Speaker 10: So this is the first full month where that will
Speaker 10: be shown. But economists aren't very optimistic if you look
Speaker 10: at the data. We do surveys with economists regularly, and
Speaker 10: the word I would use is stabilization. So not seeing
Speaker 10: anything going into the red. I mean new home sales,
Speaker 10: that's a different bucket, but everything is just kind of
Speaker 10: steady as she goes, with a little bit of a
Speaker 10: tick up expected.
Speaker 3: So these are these are what I would call hard
Speaker 3: economic data points. But if you look at kind of
Speaker 3: the softer economic data points, and I'm thinking in particular
Speaker 3: of the PMI data from the month of November, sentiment
Speaker 3: among the business community in China that was a little disappointing,
Speaker 3: as I recall.
Speaker 10: Right, yes it was, and so were exports, and so
Speaker 10: that's sort of already painting this picture of an economy
Speaker 10: that's still really struggling and why the stimulus was very
Speaker 10: much necessary. But it's also kind of being used to
Speaker 10: address the underlying structural issues and those are going to
Speaker 10: keep coming through in the data. So across the board,
Speaker 10: the economy is just kind of holding up, and we
Speaker 10: might see, you know, there there are some areas where
Speaker 10: we might see a tick up because of things like
Speaker 10: the trade war spurring more production or people getting a
Speaker 10: boost from you know, they're not paying as much on
Speaker 10: their more so they might be spending more. But on
Speaker 10: the labor market side of things, which is the other
Speaker 10: part of the economy, we're not expecting a change in
Speaker 10: the unemployment rate, which is expected to still be about
Speaker 10: five percent. So so far it's just looking like, yeah,
Speaker 10: it's just looking like a bit of a flat line.
Speaker 3: So I promised it earlier, and I'm going to deliver
Speaker 3: on the stimulus story next. We know the Chinese leaders
Speaker 3: have been sending very clear signals on providing new measures.
Speaker 3: We had the Pollit Bureau meeting recently and indications of
Speaker 3: what I will call an unusually strong commitment. Is that fair.
Speaker 3: I recently spoke with Stephanie Leung. She as the chief
Speaker 3: investment officer at Stashaway and Singapore, and I asked her
Speaker 3: about the messaging as it relates to revitalizing domestic demand.
Speaker 3: Here's what she had to say.
Speaker 11: I think the key takeaway is that Number one, the
Speaker 11: government seems to be quite resolute in terms of their
Speaker 11: will to continue to be supportive of the economy. Indeed,
Speaker 11: if you look at the language, the first time in
Speaker 11: the past few years, they actually replace some of the
Speaker 11: more restrictive language with words I prudentially manage monetary policy
Speaker 11: and stimulus policies, and I think that gives the marcut
Speaker 11: some excitement. I mean, for us, I think the most
Speaker 11: important word, if we have to choose from sort of
Speaker 11: the announcement, is the mention of consumption let stimulus, because
Speaker 11: I think in sort of the I think traditionally or
Speaker 11: kind of from a Shi policy toolbox perspective. He has
Speaker 11: been kind of more proactive in terms of supply side stimulus,
Speaker 11: and he's not a particular fan of the demand size similars.
Speaker 3: That is Stephanie Leung, the chief investment officer at Stashuway
Speaker 3: And we are back with Bloomberg's Katya Dmitrieva. Katya, when
Speaker 3: I think of the way in which the Chinese economy
Speaker 3: is managed, we're talking stimulus now. The GDP growth target
Speaker 3: is one of the first things that come to mind.
Speaker 3: We'll have to wait and see, obviously, is whether the
Speaker 3: target for twenty twenty four of around five percent was
Speaker 3: in fact achieved. But what are we thinking about twenty
Speaker 3: twenty five given everything that we're hearing coming out of
Speaker 3: the polit bureau, not the official readout. I know, it's
Speaker 3: just more subtle messaging. Can we expect that this more
Speaker 3: robust policy support will deliver a five percent GDP target
Speaker 3: next year?
Speaker 10: Well, that's certainly what economists see. They're expecting about four
Speaker 10: point eight percent, which is right in that ballpark of
Speaker 10: about five percent that Chinese policy makers have set. And
Speaker 10: what you were discussing there about the messaging from the
Speaker 10: Chinese government is so important. So far, the government has
Speaker 10: really released stimulus in sort of dribs and drabs right
Speaker 10: so concentrated in October November, but really just kind of
Speaker 10: slowly rolling it out. This was probably their most forceful
Speaker 10: statements on future stimulus yet. And we really monitor the
Speaker 10: Chinese officials like we monitor the Federal Reserve, so every
Speaker 10: single word, you know, change, removal, tweak, really matters. And
Speaker 10: they were the most forceful since basically the two thousand
Speaker 10: and eight financial crisis. So it is likely that going
Speaker 10: into next year, they're thinking about what the target might be.
Speaker 10: They're messaging around the target and achieving it. From what
Speaker 10: I've been discussing with analysts, it's likely to be again
Speaker 10: around five percent or four point five to five percent,
Speaker 10: and they really can't do that without stimulus, and they
Speaker 10: certainly can't do it without stimulus in the middle of
Speaker 10: a trade war.
Speaker 3: So the other thing I want to consider in all
Speaker 3: of this, maybe the elephant in the room is China's
Speaker 3: trade relation with the US and the potential for maybe
Speaker 3: another trade war, if we can even describe it that way.
Speaker 3: We know that President electromp is threatening sweeping tariffs on
Speaker 3: all Chinese goods with sixty percent duties, and just last month,
Speaker 3: I think he vowed to impose an additional ten percent
Speaker 3: duty that was if Beijing doesn't help stem the flow
Speaker 3: of fentanyl coming across the US southern border. What's the
Speaker 3: analysis on this from the folks that you are speaking with.
Speaker 3: Is this tariff threat being viewed as more of a
Speaker 3: negotiating ploy or are people really concerned that something may
Speaker 3: be put in place that will have a real bite.
Speaker 10: This is such a good question and the exact question
Speaker 10: that everyone is asking, and it's a bit of both.
Speaker 10: It's very clear that Trump is targeting China, wants to
Speaker 10: target China has been very vocal about tariffs and imposing
Speaker 10: higher tariffs on Chinese goods, so that part is clear.
Speaker 10: There is a general assumption that will see some sort
Speaker 10: of tariffs, however, probably not as high as sixty percent.
Speaker 10: So I'm hearing estimates of like anywhere between, you know,
Speaker 10: twenty and forty percent is the going assumption. And you
Speaker 10: can tell people are taking it seriously because we've already
Speaker 10: seen signs that people are reacting. Thatsinesses are reacting with
Speaker 10: front loading, so US inventories are up, port activity across
Speaker 10: China's largest ports has also picked up in the past month,
Speaker 10: basically since Donald Trump was elected. We're likely to continue
Speaker 10: to see that throughout early next year.
Speaker 3: One of the things that I have to ask there
Speaker 3: are a couple of threads here that we can tease out.
Speaker 3: One is the response that Beijing has already undertaken restricting
Speaker 3: some critical materials for technology. There's this perhaps investigation into Nvidia,
Speaker 3: But can you help me understand how China may respond
Speaker 3: in using its currency. There was a report that I
Speaker 3: that I came across that Beijing is considering allowing that
Speaker 3: you want to weaken in response to a potential trade war.
Speaker 3: Is that something that's really being discussed.
Speaker 10: Yeah, they almost officials almost don't have a choice. Earlier
Speaker 10: this year, Chinese officials were really adamant and really vocal
Speaker 10: about wanting to keep the yuon strong. However, in a
Speaker 10: situation when you're in a trade war and suddenly your
Speaker 10: main source of growth, so China has relied very heavily
Speaker 10: on exports and industrialization this year over the past year
Speaker 10: to really drive growth. If that's at risk, then they
Speaker 10: don't really have a choice other than to lower rates
Speaker 10: and kind of let the yuon get weaker and then
Speaker 10: offload those exports elsewhere. Now, that's going to create a
Speaker 10: lot more a lot more pushback in emerging markets and
Speaker 10: in Southeast Asia countries where there is already kind of
Speaker 10: a growing pushback to Chinese imports. But there's kind of
Speaker 10: no other way about it. You can't maintain a strong
Speaker 10: currency without, you know, structural reforms unless they unless we
Speaker 10: suddenly see an about face in the next year among
Speaker 10: officials where they start focusing on letting the consumer drive growth.
Speaker 10: They need they need to keep exports alive, they need
Speaker 10: to keep manufacturers alive.
Speaker 3: We were talking a moment ago about the overall Chinese economy,
Speaker 3: and I think you and I can agree that one
Speaker 3: of the bright spots has been the export economy, which
Speaker 3: these proposed tariffs would target immediately. And I'm wondering whether
Speaker 3: Beijing is perhaps sensing that it's in a bit of
Speaker 3: a maybe a more vulnerable situation right now and that
Speaker 3: perhaps the US has the upper hand. Is that an overstatement?
Speaker 10: No, I think that's right, and we have seen, you know,
Speaker 10: the examples you just mentioned with the ban on some
Speaker 10: minerals and the investigation into Nvidia. They're sort of and
Speaker 10: paired with the stimulus. I mean, these all came within
Speaker 10: twenty four hours of one another. And the picture that
Speaker 10: paints for us is the way that you know, it
Speaker 10: shows the structure shape of how China may react in
Speaker 10: trade war two point zero versus one point zero, and
Speaker 10: that is a bit more of a conciliatory approach, and
Speaker 10: that is one where they're going toe to toe with
Speaker 10: As one analyst told me, you know, if it's basically
Speaker 10: China saying, you know, if you're going to play tip
Speaker 10: for tat, like we're going to play as well, but
Speaker 10: it's not taking the most aggressive action, not going back
Speaker 10: to the sort of like wolf warrior diplomacy days.
Speaker 3: This is a very delicate situation and on the economic side, Katya,
Speaker 3: thank you so much for joining us and helping understand
Speaker 3: the nuances of not only the Chinese economy and what
Speaker 3: is happening at the moment, but the trade relations between
Speaker 3: Beijing and Washington. Thanks for having me on that is Bloomberg'
Speaker 3: Katya Dmitrieva. Katya covers Asia economics from our bureau in
Speaker 3: Hong Kong. I'm Doug Krisner. You can catch us weekdays
Speaker 3: right here for the Daybreak Asia podcast. It's available on Apple, Spotify,
Speaker 3: or wherever you get your podcast.
Speaker 2: Tom, Thank you Doug. And that does it for this
Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday
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