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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot com, the Radio, plus mobile, and on your radio.

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Speaker 1: This is a Bloomberg Business flash and I'm caring Moscow.

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Speaker 1: This updates brought to you by Interactive Brokers and CME Group.

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Speaker 1: more at Interactive Brokers dot com, slash, CME Group. US

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Speaker 1: Treasury Secretary Jack lou downplaying expectations for an emergency response

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Speaker 1: to global market turbulence when group of twenty finance chiefs

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Speaker 1: and central bankers meet this week in China. I don't

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Speaker 1: think this is a moment in time when you're going

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Speaker 1: to see individual countries make the kinds of specific commitments

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Speaker 1: that have been made in some other contexts that have

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Speaker 1: been marked by real crisis. This is not a moment

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Speaker 1: of crisis. This is the moment where there you know

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Speaker 1: you've got real economies doing better than markets think. You

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Speaker 1: know in some case Blue spoke earlier on Bloomberg Radio

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Speaker 1: and television, US not index futures. Meanwhile, dropping is falling.

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Speaker 1: Oil prices continue to pray on investors, global growth concerns.

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Speaker 1: Snp E Many futures down seventeen points and now eveny

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Speaker 1: futures down a hundred forty six nas doc E Many

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Speaker 1: futures down fifty decks. In Germany's down two point four percent.

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Speaker 1: Ten year treasury up ten thirty seconds, the yield one

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Speaker 1: point six eight percent. Nimex screwed oil down three point

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Speaker 1: a percent or a dollar twenty to thirty sixty six

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Speaker 1: of Baryl Comex gold up one point a percent or

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Speaker 1: twenty two dollars to twelve forty four sixty announced the

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Speaker 1: Euro a dollar oh nine eight five, the En one

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Speaker 1: eleven point seven seven. That's a Bloomberg business flash. Tom

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Speaker 1: and Mike Karen, thanks so much. Kurf flattening today. Where

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Speaker 1: a hundred beeves was a big story one full percentage

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Speaker 1: point between the ten year and two year yield, we

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Speaker 1: flattened out further day ninety six point six basis points

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Speaker 1: a difference in yield. That that's of note too many people.

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Speaker 1: Michael McKee um. This is a good economist who writes

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Speaker 1: with Peter Hooper over at Deutsche Bank, and he leads

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Speaker 1: with the mother of all optimism charts. It's it's the

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Speaker 1: foundation chart for why Torsten Slack or David Kelly or

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Speaker 1: Mark Dandy take an optimistic tack. Torsten is with us,

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Speaker 1: and he makes the very good point. And everybody is

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Speaker 1: concerned about the impact of the financial market volatility we

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Speaker 1: have seen because it may be causing problems in credit markets,

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Speaker 1: which will then slow the economy. Torsen was smart enough

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Speaker 1: to actually go look at credit markets, and you find

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Speaker 1: the prescription has not happened. Absolutely So if a look

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Speaker 1: at overall credit growth, the fascinating thing is that the

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Speaker 1: Fed actually has weekly data, and the weekly data comes

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Speaker 1: out every Friday at am, and I go and look

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Speaker 1: at my bloomber expreen and see what does the data

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Speaker 1: show this week? And when you did that last Friday,

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Speaker 1: you would see that there's just no evidence of credit tightening.

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Speaker 1: When it comes to bank lending. Bank lending is growing

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Speaker 1: across all types of loans or the owns, consumer loans,

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Speaker 1: more broadly, commercial industrial loans, mortgages, even commercial really state loans.

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Speaker 1: You're seeing just not much sign of a slowdown in

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Speaker 1: the actual lending data. There's a lot of other indicators

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Speaker 1: we worry about, but the actual data on a weekly

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Speaker 1: basis which we worked very carefully, is just not showing

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Speaker 1: a credit crunch up to this point. People are looking

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Speaker 1: at say, high yield spreads, when you become high yield

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Speaker 1: to the junks high yeld spreads and saying, you know

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Speaker 1: the world's gonna come to an end. Well, and that's true,

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Speaker 1: and certainly we are fully aware of that. But what

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Speaker 1: I think it's really important is to look at page

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Speaker 1: one in your finance textbook and ask the question, how

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Speaker 1: can companies raise money if they need money? And one

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Speaker 1: answer is they can go to high yield markets. They

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Speaker 1: can also go to I G markets. They can also

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Speaker 1: go to the local bank. They could also go to

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Speaker 1: venture capitals, they can go to private equity. They can

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Speaker 1: even go to other sources of financing that now are

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Speaker 1: becoming more popular crowdfunding and other areas. So this basically

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Speaker 1: asked the question and well, which of these different sources

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Speaker 1: of credit are actually not flowing? And it's pretty clear

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Speaker 1: that the high yield is not doing particularly well at

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Speaker 1: the moment. But remember that high yield death outstanding only

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Speaker 1: makes up around two percent of total death in the

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Speaker 1: U S economy, whereas the banking sake makes up at

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Speaker 1: very substantial share of all credit that's flowing. So that's

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Speaker 1: why I think we in financial markets we're looking at

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Speaker 1: high yields and so that not also at I G.

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Speaker 1: But remember I G Marius are definitely open still and

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Speaker 1: there's no reason to expect why they wouldn't continue to

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Speaker 1: be so. So that's why it's important to say, well,

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Speaker 1: what are actually the sources of financing that companies need

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Speaker 1: and are those sources of financing available in The answer is,

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Speaker 1: in my view every sounding yes, markets are still functioning,

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Speaker 1: in particular bank credit, which is by far the most important.

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Speaker 1: I look towards at the raging battle and nobody. Yeah,

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Speaker 1: I think there's very few people talking about true recession.

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Speaker 1: Eery is talking about good growth. What does service sector

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Speaker 1: inflation do? Is the vector up and more inflation or

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Speaker 1: is it flatter rolling over? It is indeed pointing up.

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Speaker 1: And what's really important about that is that often we

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Speaker 1: debate inflation from the global perspective of saying or China

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Speaker 1: maybe slowing, so this is going to create a disinflationary

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Speaker 1: impulse for the whole world, including the US. But remember

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Speaker 1: that when you look at the US CPI basket. In

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Speaker 1: other words, your and my consumption and all the listeners consumption,

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Speaker 1: two thirds of that is services, and what services means

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Speaker 1: is that that's housing, transportation, healthcare, recreation, education, etcetera. And

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Speaker 1: those services parts of the CPI basket are generally doing

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Speaker 1: what is very different from what the goods part of

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Speaker 1: your CPI basket and doing. I mean, we're seeing an

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Speaker 1: up taking inflation and most important, we seeing wagers go

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Speaker 1: up in the service sector. So that's why this notion

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Speaker 1: that China is having a negative impact on inflation is true.

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Speaker 1: That China and emerging markets have an impact on US

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Speaker 1: inflation through the one third of the CPI basket that's goods,

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Speaker 1: But for the two thirds, most importantly housing, which is

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Speaker 1: the thirties you are, it's difficult to imagine any strong

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Speaker 1: impact of China on that part of the inflation basket.

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Speaker 1: So the bottom line is, I still think the service

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Speaker 1: sector continues to do well in the US, and that's

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Speaker 1: why the set is obviously very alert to these up trends.

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Speaker 1: We have seen inflation more generally that are driven very

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Speaker 1: importantly by services. Services tend to pay less. So just

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Speaker 1: what does it take to offset the decline on the

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Speaker 1: manufacturing um production side? Yeah, so this is a really

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Speaker 1: important issue. Might is the way I think about that

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Speaker 1: is that for the last one one and a half

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Speaker 1: years that the US economy has been hit by two sharks,

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Speaker 1: namely all the prices down and the dollar up, and

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Speaker 1: those two sharks hit goods and energy much harder than

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Speaker 1: it hits services, if anything, and actually lower oil prices

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Speaker 1: health services. So that's why the big question that we

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Speaker 1: should be asking ourselves is how long time will it

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Speaker 1: take more before we have gone through the problems and

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Speaker 1: the energy six and in manufacturing In other words, how

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Speaker 1: long is the breaking distance that is left for the

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Speaker 1: energy sector, How long is the breaking distance that's left

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Speaker 1: for the manufacturing sector before we get out on the

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Speaker 1: other side. And therefore the direct on inflation and on

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Speaker 1: the broader economy from energy and manufacturing is going through subside.

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Speaker 1: And I would argue that we are getting closer to that,

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Speaker 1: and leader we've been through that now for the last nths.

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Speaker 1: Terson Slack with us with Deutsche Bank with an important

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Speaker 1: research note, where is the credit crunch? Will continue with

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Speaker 1: Dr Slack here uh in a moment on the American economy. Also,

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Speaker 1: we need to get the markets open. It's a rumor.

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Speaker 1: Futures negative, seventeen futures negative right now in the futures next,

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Speaker 1: the American economy, we are kind of down to the

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