WEBVTT - Bloomberg Surveillance TV: September 25, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.440 Terminal and the Bloomberg Business App. Let's talk about this market. 0:00:37.520 --> 0:00:40.200 US companies looking to protect the top and bottom line 0:00:40.240 --> 0:00:42.520 as the fedkicks off its easing cycle, or Lisa Command 0:00:42.520 --> 0:00:45.480 of JP Morgan Asset Management writing companies have been working 0:00:45.520 --> 0:00:49.800 hard to maintain margins by maximizing efficiencies wherever possible, Except 0:00:49.800 --> 0:00:53.040 for tech layoffs have not been and are not anticipated 0:00:53.440 --> 0:00:55.840 near term. Lisa joins us for more. Lisa, goamrnig. It's 0:00:55.840 --> 0:00:57.440 going to see you as always. Nice to see you too. 0:00:57.560 --> 0:00:59.840 Before we talk about margins, let's talk about top line 0:01:00.160 --> 0:01:01.400 new growth. Why do you think that's going to be 0:01:01.440 --> 0:01:03.120 so challenged in the it's accounty. 0:01:03.200 --> 0:01:06.280 Yeah, you know, it's been declining steadily when we look 0:01:06.319 --> 0:01:11.000 back over the trough in Ibadah. So you know, going back, 0:01:11.120 --> 0:01:14.000 let's say about a year that started to recover and 0:01:14.040 --> 0:01:17.200 it's really moving very nicely up, but revenue at the 0:01:17.200 --> 0:01:19.840 top line has just been slowing and slowing. I think 0:01:19.880 --> 0:01:23.240 that's consistent with a slower economy. But I think what's 0:01:23.280 --> 0:01:27.280 really fascinating about this is companies. I give this analogy. 0:01:27.360 --> 0:01:30.040 Companies are like a duck on the lake, right. They 0:01:30.080 --> 0:01:32.960 see this top line that's kind of waning a bit, 0:01:33.400 --> 0:01:36.280 and they're really trying to maintain margins and they're paddling 0:01:36.319 --> 0:01:39.120 faster and faster and faster, and they're doing a really 0:01:39.160 --> 0:01:42.360 good job of maintaining margins. When you look at the 0:01:42.400 --> 0:01:45.920 median company within our investment grade universe, they've been able 0:01:45.959 --> 0:01:48.800 to maintain margins at around fourteen percent on an operating 0:01:48.800 --> 0:01:52.600 margin basis. That's pretty good. So you know, really what 0:01:52.600 --> 0:01:55.240 we're waiting for now is can we start to see 0:01:55.280 --> 0:01:57.880 a kickstart to the top line. And I think this 0:01:57.920 --> 0:01:59.680 probably goes back to what the Fed's going to do 0:01:59.720 --> 0:02:00.440 with the economy. 0:02:00.600 --> 0:02:02.560 So what I'd be worried about, and this is me, 0:02:02.600 --> 0:02:05.360 I'm a worry. I've got Lisa for company. What I'd 0:02:05.360 --> 0:02:07.120 be worried about is that the next step is that 0:02:07.120 --> 0:02:10.320 they run out of their ability to maximize efficiencies and 0:02:10.360 --> 0:02:13.280 protect margins, and the next step is layoffs. Do you 0:02:13.280 --> 0:02:16.000 think we're easing early enough to say, really, the next 0:02:16.000 --> 0:02:17.920 STEP's top line revenue growth, the margins is going to 0:02:17.919 --> 0:02:18.919 be okay, right. 0:02:18.840 --> 0:02:21.000 Well, that's it's interesting you make this point because when 0:02:21.040 --> 0:02:24.440 we went through we looked sector bi sector, and as 0:02:24.480 --> 0:02:26.640 you mentioned in your lead in, you know, it's really 0:02:26.720 --> 0:02:29.200 just tech that has been the one area that's been 0:02:29.280 --> 0:02:32.840 laying off. Now, Tech has been using layoffs as a 0:02:32.880 --> 0:02:35.799 way to maintain margins for probably the better part of 0:02:35.840 --> 0:02:38.200 two years, so this is not a new phenomenon with tech, 0:02:38.560 --> 0:02:42.120 but you're right, other sectors really have not. And you know, 0:02:42.200 --> 0:02:44.520 we can look at you know, how they've maintained margins. 0:02:44.520 --> 0:02:48.080 So you look at energy companies, there's technological change. You know, 0:02:48.200 --> 0:02:51.120 companies have been very good about making acquisitions where they 0:02:51.240 --> 0:02:54.120 had more contiguous acreage, so there's no need to make 0:02:54.200 --> 0:02:58.080 layoffs there. Even the spot of consumer goods, for example, 0:02:58.320 --> 0:03:01.679 you know, companies built in a lot of resiltiancy in 0:03:01.840 --> 0:03:04.280 light of the supply chain problems that we had earlier, 0:03:04.560 --> 0:03:06.960 but maybe they don't need that anymore. So, you know, 0:03:07.000 --> 0:03:10.320 we've had the efficiencies come through. But I think you're right. 0:03:10.440 --> 0:03:13.000 If we don't start to see an improvement in the 0:03:13.040 --> 0:03:16.680 top line, can employment start to be the lever that 0:03:16.720 --> 0:03:19.559 they pull. So far, I think there's been a reluctance 0:03:19.600 --> 0:03:23.360 and maybe it's a little PTSD after what happened during 0:03:23.440 --> 0:03:27.840 COVID with finding people, training people and the like, but 0:03:28.720 --> 0:03:30.320 I think it's something that we're a little bit on 0:03:30.360 --> 0:03:31.200 a precipice here. 0:03:31.720 --> 0:03:34.280 I love the granularity that you have when you look 0:03:34.360 --> 0:03:36.560 under the hood, and I want to go a little 0:03:36.560 --> 0:03:39.880 further talk about the nature of how these companies look 0:03:39.920 --> 0:03:42.160 at employment because it speaks to the uncertainty that we 0:03:42.200 --> 0:03:45.480 see in the data. How much are companies not mace 0:03:45.600 --> 0:03:49.920 making broad based layoffs but not hiring either and kind 0:03:49.920 --> 0:03:53.640 of relying on attrition and expecting to end up with 0:03:53.720 --> 0:03:56.320 a smaller footprint relative to the size of their businesses. 0:03:56.360 --> 0:03:59.240 And I'm thinking of US banks where CEOs have even 0:03:59.240 --> 0:04:01.240 come out that's going to be the future? I mean, 0:04:01.320 --> 0:04:03.520 is that kind of what you're seeing in terms of 0:04:03.520 --> 0:04:07.240 this paddling duck type of corporate sphere that we're looking at. 0:04:07.640 --> 0:04:10.440 So far, not yet. I think if I were to 0:04:10.640 --> 0:04:12.640 get down to that level of granulary, I think we'd 0:04:12.640 --> 0:04:15.680 see that there is not necessarily new hiring. And so 0:04:15.760 --> 0:04:17.760 you know, how the drill goes, you take away the 0:04:17.839 --> 0:04:20.560 job openings that might be posted. Maybe you pull the 0:04:20.800 --> 0:04:26.680 back there so you're not actually removing workers from your company. 0:04:27.120 --> 0:04:29.640 But I don't know. I think as we maybe go 0:04:29.760 --> 0:04:33.000 further down the road, if we don't see the economy 0:04:33.040 --> 0:04:35.719 start to pick up, as John was saying earlier, I 0:04:35.720 --> 0:04:38.599 think we are going to see maybe some deeper layoffs. 0:04:38.800 --> 0:04:42.320 But again, nothing to indicate that at this point everything 0:04:42.320 --> 0:04:44.360 it's like the calm waters on the top the duck 0:04:44.440 --> 0:04:45.360 just paddling along. 0:04:45.760 --> 0:04:48.480 So moving from one thousand feet to five thousand feet, 0:04:48.520 --> 0:04:50.960 there's a question about the US. We're talking about companies 0:04:50.960 --> 0:04:54.520 here and their ability to withstand and maintain that fourteen 0:04:54.560 --> 0:04:57.640 percent margin. How different are things right now in Europe, 0:04:57.640 --> 0:04:59.840 in particular in Germany in the sphere that you're. 0:04:59.760 --> 0:05:03.559 Looking, Yeah, very very different. So we did a little 0:05:03.560 --> 0:05:07.120 comparison across Europe. We looked across sectors and said who's 0:05:07.120 --> 0:05:09.640 doing well in Europe? And who's not doing well. And 0:05:09.720 --> 0:05:13.240 what we found is companies with exposure to China, we're 0:05:13.279 --> 0:05:16.880 doing much worse than those companies that didn't have that exposure. So, 0:05:17.040 --> 0:05:19.039 just to throw a few numbers on it, if you 0:05:19.080 --> 0:05:21.279 look at EBADUG growth through the end of the year 0:05:21.320 --> 0:05:25.680 that we're projecting for Europe in general, we're thinking around 0:05:25.680 --> 0:05:30.159 three percent. If you're looking at companies with exposure to China, 0:05:30.680 --> 0:05:34.279 we're seeing those companies down five percent. So it is 0:05:34.320 --> 0:05:37.839 a vast difference. Now, granted, some of that is influenced 0:05:37.839 --> 0:05:42.080 by auto manufacturers, and auto is not just about China. 0:05:42.120 --> 0:05:45.160 There are other issues. But yet you see it in 0:05:45.200 --> 0:05:49.719 companies with retail exposure with consumer products. They're all starting 0:05:49.720 --> 0:05:52.359 to see or feeling that downturn and that lack of 0:05:52.360 --> 0:05:54.800 growth that's coming through in China. And I think that 0:05:54.960 --> 0:05:58.160 is the big difference between US companies and many companies 0:05:58.200 --> 0:06:01.080 in Europe, is that China representation. 0:06:01.320 --> 0:06:03.680 Lisa, do you think that's an opportunity given the easy 0:06:03.720 --> 0:06:06.080 we've started to say from Chinese authorities in the past 0:06:06.120 --> 0:06:06.839 twenty four hours. 0:06:07.240 --> 0:06:09.520 I think it's too early to know, I really do. 0:06:09.600 --> 0:06:13.680 We're just at the very early early stages. I mean 0:06:14.080 --> 0:06:16.280 autos are a different one, you know, different cattle of 0:06:16.320 --> 0:06:20.240 fish here because the China story is much more complex 0:06:20.640 --> 0:06:23.760 for autos. You know, what a lot of people may 0:06:23.760 --> 0:06:25.719 not realize is when you start to look through the 0:06:25.760 --> 0:06:30.159 surface at auto manufacturers, particularly European ones, where they're making 0:06:30.160 --> 0:06:32.599 their most money in China is not on evs but 0:06:32.800 --> 0:06:36.039 on ice vehicles. And ice vehicles are considered to be 0:06:36.120 --> 0:06:39.520 premium vehicles in China. Now, if you start to get 0:06:39.560 --> 0:06:44.240 tariffs put on Chinese EV's by the European authorities, do 0:06:44.360 --> 0:06:49.880 you get retaliation on ice vehicles in China? So there 0:06:49.960 --> 0:06:52.600 you have, you know, a little bit of a nuanced situation. 0:06:54.200 --> 0:06:57.000 And of course, as you alluded to earlier, for some 0:06:57.040 --> 0:07:01.640 of the auto manufacturers, there are very aggressive targets for 0:07:01.720 --> 0:07:04.880 emissions coming through and that's really forced a lot of 0:07:04.920 --> 0:07:09.320 these companies into making very large capital investments particulate a time. 0:07:09.400 --> 0:07:12.360 Now we're seeing with EV demand starting to wane. 0:07:12.040 --> 0:07:15.040 How investible a real tide credits right now? In Europe? 0:07:15.160 --> 0:07:15.920 I think so. 0:07:16.000 --> 0:07:19.760 Look, I think when we talk to the ratings agencies, 0:07:20.840 --> 0:07:22.920 what we're told is they will have some time. There 0:07:22.960 --> 0:07:27.600 is not an imminent downgrade expected for these companies and 0:07:27.640 --> 0:07:30.480 when you look back, think about during the COVID period, 0:07:31.160 --> 0:07:34.480 these companies made a lot of money, and so they 0:07:34.520 --> 0:07:37.200 have really a little bit of a like a little 0:07:37.240 --> 0:07:38.800 bit of money in the bank, let's put it that way. 0:07:38.840 --> 0:07:41.160 When we look at leverage, it's very low. Margins are 0:07:41.160 --> 0:07:46.080 still pretty good, but they're coming down. So again, the 0:07:46.160 --> 0:07:50.000 health is not bad. The ratings agencies don't appear to 0:07:50.040 --> 0:07:53.320 be primed at least at this point for downgrades. But 0:07:53.400 --> 0:07:56.360 I think you're subject to headline risk and that is 0:07:56.440 --> 0:08:01.280 likely to continue for the next month too. But I 0:08:01.320 --> 0:08:04.360 think at that point you may have an opportunity, once 0:08:04.400 --> 0:08:07.640 we see spreads really compensate you for some of that 0:08:07.720 --> 0:08:10.040 headline volatility, to get back into the space. 0:08:10.240 --> 0:08:11.640 When you think of volatility, you have to think of 0:08:11.680 --> 0:08:14.080 the US election. How much do you see these companies 0:08:14.120 --> 0:08:16.120 basically waiting on the sidelines so they have a little 0:08:16.120 --> 0:08:16.840 bit more clarity. 0:08:17.040 --> 0:08:19.600 Yeah, I wouldn't blame them for rating on the headlines. 0:08:19.640 --> 0:08:22.800 I mean, yesterday there was a good headline on deer 0:08:23.880 --> 0:08:25.320 that we're all aware of. And I think what this 0:08:25.400 --> 0:08:29.920 speaks to is really I think companies want certainty, particularly 0:08:29.960 --> 0:08:33.200 if you're looking at making large capital investments. And so 0:08:33.760 --> 0:08:38.119 until the elections have been decided, and also the composition 0:08:38.200 --> 0:08:41.479 of Congress is decided, I would suspect that many companies 0:08:41.559 --> 0:08:44.319 would probably take a wait and see approach. 0:08:44.600 --> 0:08:46.559 The autope sector is in such a tight spot right now. 0:08:46.640 --> 0:08:49.400 The remedies that are required in Europe to cut capacity, 0:08:49.520 --> 0:08:52.000 to cut jobs, there's going to be massive opposition to 0:08:52.040 --> 0:08:55.400 them from unions and from government officials, particularly in Germany. 0:08:55.440 --> 0:08:57.839 And so Lisa's point the outlook for terrists. You've got 0:08:57.880 --> 0:08:59.760 no idea what the next twelve eighteen months is going 0:08:59.800 --> 0:09:01.200 to look like for some of these companies. 0:09:01.280 --> 0:09:03.280 Yeah. I love her point about the difference in the 0:09:03.320 --> 0:09:05.480 cars that get purchased in China. Are speaking to your 0:09:05.520 --> 0:09:08.000 car manufacturer from Germany and they said that they're designed 0:09:08.080 --> 0:09:11.840 differently in China because normally it's the driver's seat that's 0:09:11.880 --> 0:09:14.440 really nice and that has enough space, and that the 0:09:14.440 --> 0:09:17.079 cars that they sell to China, it's actually the passenger 0:09:17.160 --> 0:09:18.479 seat because there's always. 0:09:18.200 --> 0:09:20.920 A driver live to be driven, yes, not to drive? 0:09:21.480 --> 0:09:22.240 That is that your call? 0:09:22.400 --> 0:09:23.960 Basically that's what rolls roysters are for. 0:09:24.080 --> 0:09:24.240 Right. 0:09:24.520 --> 0:09:27.920 It gets so I wouldn't to be driven into taxis Lisa? 0:09:27.960 --> 0:09:29.360 Thank you? It's good to see. Thank you very shot 0:09:29.400 --> 0:09:41.520 that Lisa Carmen there, JP Morgan start a page of 0:09:41.520 --> 0:09:45.360 this story. The OECD releasing its latest economic outlook, expecting 0:09:45.360 --> 0:09:49.800 global GDP to stabilize with continued disinflation. Central banks still 0:09:49.800 --> 0:09:52.440 have room to cut rates, but debt sustainability is still 0:09:52.600 --> 0:09:56.240 a top issue. Joining us now, Alvaro Peretta, Chief Economists 0:09:56.240 --> 0:09:59.160 at the OECD. Avara, Welcome to the program, Sir. I 0:09:59.200 --> 0:10:01.320 want to begin with the United States and get to 0:10:01.360 --> 0:10:04.480 some of your forecast on the US GDP. Growth in 0:10:04.480 --> 0:10:07.560 the United States projected to slow but becustioned by monetary policy, 0:10:07.640 --> 0:10:09.680 with growth projected to be at two point six percent 0:10:09.720 --> 0:10:12.480 in twenty four this year and one point six percent 0:10:12.800 --> 0:10:15.880 in twenty five. Two part question why the slow down? 0:10:16.200 --> 0:10:18.600 One and two? Why do you think we can actually 0:10:19.000 --> 0:10:22.120 stabilize around one and a half percent GDP in America 0:10:22.240 --> 0:10:23.600 and not go to someplace worse. 0:10:27.720 --> 0:10:30.240 Well, good morning, great to be on the show. Well, 0:10:30.280 --> 0:10:32.559 first of all, I think it's important to realize that 0:10:33.200 --> 0:10:36.680 we're talking about a very robust US economy compared to 0:10:36.679 --> 0:10:38.800 the rest of the world. Because we see we came 0:10:38.880 --> 0:10:42.000 back to China. China is slowing down quite significantly. We 0:10:42.080 --> 0:10:44.480 also think that Europe is not doing as well as 0:10:44.480 --> 0:10:46.320 he could and other parts of the world are not 0:10:46.360 --> 0:10:49.440 doing so well. So under the circumstances, knowing that we 0:10:49.559 --> 0:10:52.880 had a huge pandemic and a big energy crisis, the 0:10:53.000 --> 0:10:56.880 United States is doing fairly okay. So what explains the slowdown? Well, 0:10:57.160 --> 0:11:00.840 first of all, there's a statistical carry out issue. Is 0:11:00.880 --> 0:11:05.079 basically the last quarter of twenty twenty three was stronger 0:11:05.080 --> 0:11:08.280 than we expected. It has a statistical carryover, and so 0:11:08.320 --> 0:11:11.360 that explains part of the slowdown. And so if you 0:11:11.400 --> 0:11:15.000 take into account quarter on quarter, we would forecast, you know, 0:11:15.080 --> 0:11:17.880 for one point nine for a slowdown will be from 0:11:17.880 --> 0:11:20.640 one point nine to one point six. But the second issue, 0:11:20.640 --> 0:11:23.960 why is this happening? Well, first of all has to 0:11:23.960 --> 0:11:26.920 do with consumption, and so a lot of people have 0:11:27.120 --> 0:11:29.679 savings during the pandemic and they are running out and 0:11:29.720 --> 0:11:33.000 so this is not so good for consumption. So there's 0:11:33.000 --> 0:11:35.600 slow down in consumption. There will be a slowdown in 0:11:35.640 --> 0:11:40.040 government consumption, which is welcome because we think that both 0:11:40.040 --> 0:11:42.920 the deficit and the debt in the United States, you know, 0:11:43.400 --> 0:11:45.959 we should go back to fiscally prudent policy. So I 0:11:45.960 --> 0:11:49.800 think it's very important to go there, And obviously there's 0:11:49.840 --> 0:11:55.199 also an issue regarding experts and investment, But we think 0:11:55.240 --> 0:11:57.920 that main reasons why the United States will continue to 0:11:57.960 --> 0:11:59.480 do well is because it continues to be a very 0:11:59.559 --> 0:12:02.640 dynamic economy compared to other parts of the world. Even 0:12:02.720 --> 0:12:06.320 though certainly the slowdown is explained by the consumption, both 0:12:06.360 --> 0:12:08.320 of the government and the individuals. 0:12:08.480 --> 0:12:11.640 Make a great case for why we could see something 0:12:11.720 --> 0:12:13.800 of a slowdown in the US, but still why the 0:12:13.880 --> 0:12:17.880 US is a better growth trajectory than say Europe. So 0:12:17.920 --> 0:12:21.480 then why don't you have the Europe region actually increasing 0:12:21.520 --> 0:12:23.280 to one point three percent. I know it's downgraded from 0:12:23.280 --> 0:12:26.160 your previous estimate in twenty twenty five, but where are 0:12:26.160 --> 0:12:28.920 the accelerators to get us away from what we're seeing now, 0:12:29.040 --> 0:12:32.320 especially given some of the trajectory in the industrial base 0:12:32.400 --> 0:12:32.960 in Germany. 0:12:37.320 --> 0:12:41.280 Well, with Germany is almost stagnated this year, almost close 0:12:41.320 --> 0:12:44.360 to zero this year. We see France doing a little 0:12:44.360 --> 0:12:46.480 bit better, partly because of the Olympics, but partly because 0:12:46.480 --> 0:12:48.440 of the consumption as well, one point two one point 0:12:48.440 --> 0:12:53.520 two percent, and we have Italy doing so so Spain 0:12:53.640 --> 0:12:57.679 much stronger. Next year, we think that there'll be higher 0:12:57.679 --> 0:13:00.640 growth in Europe and not fantastic when we're talking still 0:13:00.679 --> 0:13:03.840 one point thirty percent. But we see higher growth because 0:13:03.840 --> 0:13:06.360 we think that the recovery that we see in terms 0:13:06.400 --> 0:13:10.480 of purchasing power will continue, so because wages are recovering 0:13:10.480 --> 0:13:13.960 and so this will happen, will have an impact on consumption. 0:13:14.480 --> 0:13:18.360 But we also think that some investment will take place, 0:13:18.440 --> 0:13:22.600 partly linked to the Resilience Fund that were spent by 0:13:22.600 --> 0:13:25.480 the Europeans on infrastructure projects, so this will help a 0:13:25.520 --> 0:13:28.480 little bit. So that's what explains a little bit better 0:13:28.480 --> 0:13:33.040 performance of Europe, but certainly not spectaclical growth rates. 0:13:32.920 --> 0:13:36.280 All things being equal, Where is the growth really going 0:13:36.360 --> 0:13:38.319 to come from? Where is the growth engine the new 0:13:38.320 --> 0:13:41.440 growth engine in Europe at a time where some of 0:13:41.480 --> 0:13:44.800 the challenges for Germany are structural, especially the time where 0:13:45.040 --> 0:13:46.760 Chinese growth has been unreliable. 0:13:50.800 --> 0:13:53.600 I think you just mentioned something that is absolutely essential. 0:13:54.040 --> 0:13:58.079 Part of the problems with Germany right now are cyclical, 0:13:58.440 --> 0:14:00.920 so it's coming out of the energy cry, and we 0:14:01.000 --> 0:14:05.400 know that there's been downward trajectory for part of their 0:14:05.440 --> 0:14:09.760 manufacturing but also services, and also because consumers in Germany 0:14:09.760 --> 0:14:11.760 have been very prudent, so they've been saving more than 0:14:11.800 --> 0:14:15.560 other parts of Europe. But there's also structural issues. You 0:14:15.600 --> 0:14:18.400 mentioned something that is absolutely true, which is a competition 0:14:18.520 --> 0:14:22.240 with China and particularly in manufacturing, and there's less demand 0:14:22.240 --> 0:14:25.800 from China as well for German manufacturing, so that is 0:14:25.960 --> 0:14:28.480 having an impact. But also there's another issue that I 0:14:28.480 --> 0:14:32.560 think is important to highlight. We think that German should 0:14:32.600 --> 0:14:36.640 focus on first of all, improving their infrastructure, especially on 0:14:36.640 --> 0:14:39.400 digital infrastructure. They are lagging compared to other parts of Europe. 0:14:39.680 --> 0:14:42.480 But in particular it's time to go back to reforms 0:14:42.520 --> 0:14:46.240 in Germany. There's many competition friendly reforms that I needed. 0:14:46.400 --> 0:14:49.360 There's too many barriers to services in many parts of 0:14:49.400 --> 0:14:52.560 the German economy. It's still too difficult, too much red 0:14:52.600 --> 0:14:55.000 tape around, and we think this is having an impact. 0:14:55.040 --> 0:14:57.200 In fact, we calculated what's the impact of all this 0:14:57.640 --> 0:14:59.560 and we say that for the OECD economy is in 0:14:59.680 --> 0:15:03.960 order to be with the best practices, arnemies like Germany 0:15:03.960 --> 0:15:07.520 could profit. It could increase growth by three percent over 0:15:07.560 --> 0:15:09.960 ten years if they would do this type of reforms. 0:15:10.040 --> 0:15:14.200 So besides the structural and the issues linked to China 0:15:14.600 --> 0:15:16.640 and the structure of the economy, we think that is 0:15:16.680 --> 0:15:18.960 important also to go back to reforms for Germany. 0:15:19.000 --> 0:15:21.560 Well, let's talk about China. The PBOC out with another 0:15:21.640 --> 0:15:23.440 move today. Do you think any of this is going 0:15:23.480 --> 0:15:29.000 to help spur the Chinese economy? 0:15:29.960 --> 0:15:32.840 Well, we are forecasting four point nine percent for this 0:15:32.960 --> 0:15:35.240 year and four point five percent next year. This was 0:15:35.280 --> 0:15:39.280 before the stimulus. But I don't think that there'll be 0:15:39.320 --> 0:15:44.360 a huge change in the forecast right now for two reasons. 0:15:45.240 --> 0:15:48.280 We know that their exports Chinese exports are doing fairly 0:15:48.280 --> 0:15:51.440 well in terms of manufacturing particular, they're doing fairly well. 0:15:51.720 --> 0:15:54.560 But consumption continues to be a bit subdued in China. 0:15:54.920 --> 0:15:55.920 So this could help. 0:15:56.120 --> 0:15:58.200 Some of these messages could help a little bit, but 0:15:58.240 --> 0:16:01.080 we think really the main ailment of China continues to 0:16:01.080 --> 0:16:05.520 be high debt, private debts. So remember private debt is 0:16:05.520 --> 0:16:07.840 there about one hundred and seventy percent of GDP. It's 0:16:07.840 --> 0:16:11.400 mostly quasi because it's see that, but it's quite private debt. 0:16:11.960 --> 0:16:14.280 And on top of this, we know that there is 0:16:14.400 --> 0:16:18.040 a very large real estate market, much larger than most economies, 0:16:18.440 --> 0:16:21.640 and so there's some adjustment that will have to continue. 0:16:22.040 --> 0:16:24.720 And so the question is whether these measures we'll be 0:16:24.800 --> 0:16:29.960 able to help demand or not. It's a question mark 0:16:30.000 --> 0:16:32.120 that we'll see in the next few months. But to 0:16:32.120 --> 0:16:34.600 be honest with you, if you look at our historical 0:16:34.640 --> 0:16:37.640 examples of other countries, when you have a big real 0:16:37.800 --> 0:16:41.560 estate adjustment, very often takes a bit longer than authorities 0:16:41.600 --> 0:16:42.000 would like. 0:16:42.320 --> 0:16:44.880 Avar I appreciate the update as always, says thanks for tuning. 0:16:45.040 --> 0:16:55.800 Joining planned out to host the likes this this morning, 0:16:55.840 --> 0:16:59.200 applications to refinance home loan searching for a second week. 0:16:59.400 --> 0:17:02.840 According to the Mortgage Bankers Association, homeowners are looking to 0:17:02.840 --> 0:17:05.600 take advantage of the lower rates a thirty year fixed 0:17:05.600 --> 0:17:08.800 mortgage sitting at just over six point one percent. Daniel 0:17:08.840 --> 0:17:12.479 Helfrelter dot Com saying this surveys show that consumers expect 0:17:12.480 --> 0:17:15.280 additional mortgage rate declines in the next year now that 0:17:15.280 --> 0:17:17.919 the Fed's a longer waited cut has arrived. However, the 0:17:17.960 --> 0:17:21.320 improvements may be more modest than we've seen to date. Danielle, 0:17:21.359 --> 0:17:23.600 John Deers Moore, Danielle, Welcome to the program. So we've 0:17:23.600 --> 0:17:26.960 seen refis explode search over the last few weeks. How 0:17:27.000 --> 0:17:29.000 low do you think that rate needs to go before 0:17:29.000 --> 0:17:32.080 we start to see home purchases actually start to accelerate 0:17:32.080 --> 0:17:33.080 in a more material way. 0:17:34.680 --> 0:17:35.560 Yeah, thanks for having me. 0:17:35.680 --> 0:17:37.400 So we've started to see a bit of a week 0:17:37.480 --> 0:17:41.280 to week uptick in the purchase applications, but it takes 0:17:41.280 --> 0:17:44.159 time for buyers to become aware. And remember the mortgage 0:17:44.160 --> 0:17:46.800 application is a later stage in the home buying process. 0:17:46.800 --> 0:17:48.879 You have to have an offer on a home that 0:17:48.960 --> 0:17:50.880 has been accepted before. 0:17:50.600 --> 0:17:52.639 You go to apply for a mortgage. So what we 0:17:52.680 --> 0:17:53.880 will actually likely. 0:17:53.720 --> 0:17:55.800 See is that pending home sales start to pick up, 0:17:55.840 --> 0:17:58.760 and then mortgage applications follow. The pending data is a 0:17:58.760 --> 0:18:02.600 monthly series, the mortgage applications are obviously weekly, so the 0:18:02.760 --> 0:18:05.399 timing wise, you might see the result in the mortgage 0:18:05.400 --> 0:18:07.880 applications first, but there's an order. 0:18:07.680 --> 0:18:11.040 Of operations here, so offer is accepted. 0:18:10.600 --> 0:18:13.320 And the buyer applies for a mortgage, and that's when 0:18:13.320 --> 0:18:15.280 we see it reflected in this MBA data. 0:18:15.400 --> 0:18:17.679 Danielle, what do you make of the fact that actual 0:18:17.720 --> 0:18:21.040 listings have increased. It seems like there is some motion 0:18:21.720 --> 0:18:25.480 in the pool of existing homes that are actually finally. 0:18:25.200 --> 0:18:26.560 Up for sale. 0:18:27.040 --> 0:18:29.040 Yeah, we've seen the number of homes on the market 0:18:29.040 --> 0:18:32.320 for sale growing very slowly over the year, but we're 0:18:32.320 --> 0:18:35.160 now up about thirty six percent compared to last year, 0:18:35.200 --> 0:18:39.160 so it is a substantial improvement. Big picture context, we're 0:18:39.200 --> 0:18:41.680 still down pretty substantially from the twenty seventeen to twenty 0:18:41.800 --> 0:18:44.800 nineteen period, which suggests to me that there's more room 0:18:45.040 --> 0:18:48.600 for recovery in the market. And you know, as we 0:18:48.640 --> 0:18:50.679 see more sellers come into the market, we'll see that 0:18:50.760 --> 0:18:52.760 room improved. And I think it's important to note that 0:18:52.880 --> 0:18:57.280 existing home sellers are often also buying another home, so 0:18:57.640 --> 0:19:01.399 when we see existing home listings increase, increasing both supply 0:19:01.640 --> 0:19:05.480 and demand in the housing market, which will help increase 0:19:05.520 --> 0:19:08.280 the turnover rate in home sales that has been rather 0:19:08.359 --> 0:19:09.480 sluggish in recent months. 0:19:09.560 --> 0:19:11.639 I see a number of reports Staniel that show that 0:19:11.960 --> 0:19:14.399 it really homes haven't moved as quickly as some people 0:19:14.440 --> 0:19:16.840 had expected, So even though there are more listings, it's 0:19:16.880 --> 0:19:19.080 not as they're flying off the shelves. And understanding that 0:19:19.400 --> 0:19:21.520 mortgage rates are still relatively high to orere they used 0:19:21.520 --> 0:19:23.320 to be, how much do you view this as a 0:19:23.359 --> 0:19:26.840 sign of what's to come that essentially, as you DeFreeze 0:19:26.920 --> 0:19:29.960 this market, you won't necessarily see the same kind of 0:19:30.080 --> 0:19:32.240 price increases as some people are calling for on the 0:19:32.280 --> 0:19:34.320 heels of lower mortgage rates. 0:19:35.520 --> 0:19:37.639 Yeah, I think with affordability as stretched as it is 0:19:37.680 --> 0:19:40.600 in the housing market, there's less room for prices to run. 0:19:41.000 --> 0:19:43.720 That said, everyone I think has been surprised at how 0:19:43.760 --> 0:19:46.720 resilient prices have been in the face of higher mortgage rates. 0:19:46.760 --> 0:19:50.120 So buyers have been willing to stretch affordability as opposed 0:19:50.160 --> 0:19:53.600 to necessarily waiting for home prices to fall, and the 0:19:53.600 --> 0:19:56.200 big picture inventory shortage that we see is a big 0:19:56.320 --> 0:19:57.199 explanation for that. 0:19:57.240 --> 0:19:59.280 So if we look over the last decade, we are. 0:19:59.160 --> 0:20:02.000 Several million home short of the number of households that 0:20:02.040 --> 0:20:03.879 have been added. And when you have that kind of 0:20:03.880 --> 0:20:07.159 scarcity in the market, it's hard to see prices really 0:20:07.200 --> 0:20:09.960 relax or decline in any meaningful sort of way. So 0:20:10.359 --> 0:20:13.280 I do think as mortgage rates improve, we are going 0:20:13.280 --> 0:20:15.560 to see buyers come back to the market. If we 0:20:15.600 --> 0:20:17.320 look at the time it takes to sell a home, 0:20:17.520 --> 0:20:20.520 we are seeing homes take longer to sell than. 0:20:20.400 --> 0:20:21.080 One year ago. 0:20:21.240 --> 0:20:23.600 But again, if you compare to that pre pandemic benchmark, 0:20:23.760 --> 0:20:26.199 we're still seeing home sell about a week faster, and 0:20:26.280 --> 0:20:29.119 so I think we have some more room for the 0:20:29.160 --> 0:20:32.119