1 00:00:02,480 --> 00:00:10,480 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 2 00:00:10,520 --> 00:00:13,720 Speaker 1: Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian 3 00:00:13,800 --> 00:00:16,640 Speaker 1: Curtis and myself for the stories, making news and moving 4 00:00:16,680 --> 00:00:19,560 Speaker 1: markets in the APAC region. You can subscribe to the 5 00:00:19,600 --> 00:00:23,080 Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio, 6 00:00:23,320 --> 00:00:26,120 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. 7 00:00:26,960 --> 00:00:29,280 Speaker 2: Well, we had the pmis come out in China over 8 00:00:29,280 --> 00:00:32,920 Speaker 2: the weekend, not particularly strong. We had the manufacturing PMI 9 00:00:33,000 --> 00:00:35,760 Speaker 2: with a reading of forty nine point five that matched 10 00:00:35,760 --> 00:00:39,160 Speaker 2: the survey estimate and also match the previous month. Joining 11 00:00:39,240 --> 00:00:42,680 Speaker 2: us now for some discussion is Shazan Kazi, COO and 12 00:00:42,840 --> 00:00:46,480 Speaker 2: Managing director at China Beige Book. Chazan, thanks very much 13 00:00:46,720 --> 00:00:50,479 Speaker 2: for coming on the program with us. Bloomberg Economics says 14 00:00:50,560 --> 00:00:53,120 Speaker 2: that the GDP target is in doubt of five percent. 15 00:00:53,200 --> 00:00:57,800 Speaker 2: They say that without stronger stimulus delivery, there's a real 16 00:00:57,880 --> 00:01:01,920 Speaker 2: risk here that GDP will undersh you your thoughts on 17 00:01:01,960 --> 00:01:03,200 Speaker 2: where China is heading. 18 00:01:03,440 --> 00:01:05,040 Speaker 3: Yeah, look, I think if you want to talk about 19 00:01:05,040 --> 00:01:08,200 Speaker 3: the GDP, uh, you know, I agree that we may 20 00:01:08,200 --> 00:01:11,280 Speaker 3: not get to five percent this year despite what the 21 00:01:11,800 --> 00:01:14,760 Speaker 3: you know what the party claimed up front, but I 22 00:01:14,800 --> 00:01:17,160 Speaker 3: think pulling back, let's talk about where the economy is. 23 00:01:17,200 --> 00:01:20,280 Speaker 3: It kicked off on a pretty solid state in the 24 00:01:20,280 --> 00:01:23,640 Speaker 3: first quarter, and where you're getting to now is that 25 00:01:23,720 --> 00:01:27,959 Speaker 3: the pace of improvement has faded, There's no question about it. 26 00:01:28,200 --> 00:01:31,039 Speaker 3: But we are nowhere near I think a level where 27 00:01:31,080 --> 00:01:35,360 Speaker 3: Beijing starts to feel the pressure to unleash stimulus and 28 00:01:35,480 --> 00:01:38,600 Speaker 3: large enough quantities, which is exactly which is what the 29 00:01:38,640 --> 00:01:40,440 Speaker 3: markets are hoping for right now. 30 00:01:40,640 --> 00:01:44,480 Speaker 1: So considering hope we've are looking forward to the third 31 00:01:44,520 --> 00:01:47,440 Speaker 1: Plan in the month of July, is anything going to 32 00:01:47,520 --> 00:01:49,320 Speaker 1: come from this meeting that's meaningful? 33 00:01:51,000 --> 00:01:53,320 Speaker 3: Markets, I think are going to walk away feeling disappointed 34 00:01:54,240 --> 00:01:56,480 Speaker 3: because if I'm the party, you know what am I 35 00:01:56,520 --> 00:01:59,000 Speaker 3: looking at? I'm looking at a property sector where housing 36 00:01:59,080 --> 00:02:02,680 Speaker 3: is beginning to act show possible green shoots. I'm looking 37 00:02:02,720 --> 00:02:05,760 Speaker 3: at a manufacturing sector that's decelerating but still looking pretty 38 00:02:05,760 --> 00:02:08,320 Speaker 3: good year over year. Sure, the consumer side of the 39 00:02:08,360 --> 00:02:11,359 Speaker 3: economy is a bit spotty and not ideal, But does 40 00:02:11,400 --> 00:02:13,359 Speaker 3: this mean that I need to really ramp up a 41 00:02:13,440 --> 00:02:16,520 Speaker 3: fiscal spending and and you know, announce a bigger deficit 42 00:02:16,560 --> 00:02:19,800 Speaker 3: for the year. I don't think so so announcement might 43 00:02:19,840 --> 00:02:23,080 Speaker 3: be meaningful. Markets I don't think will treat anything as 44 00:02:23,120 --> 00:02:25,839 Speaker 3: meaningful short of something that's very splashy. I just don't 45 00:02:25,840 --> 00:02:26,480 Speaker 3: think they get it. 46 00:02:26,880 --> 00:02:29,720 Speaker 2: Well, if you're a policymaker, you had been hoping that 47 00:02:29,880 --> 00:02:34,320 Speaker 2: exports and manufacturing would would help bring the economy along, 48 00:02:34,639 --> 00:02:37,080 Speaker 2: knowing that the consumer side was a little bit weak, 49 00:02:37,680 --> 00:02:40,200 Speaker 2: and so that's not really happening. So I think what 50 00:02:40,639 --> 00:02:44,160 Speaker 2: is being suggested by some is that they need to 51 00:02:44,160 --> 00:02:46,399 Speaker 2: do something. Maybe it comes out of the third Plan, 52 00:02:46,680 --> 00:02:51,320 Speaker 2: or maybe the PBOC just sort of increases the oomph 53 00:02:51,360 --> 00:02:55,079 Speaker 2: of the home buying scheme, which you know, could could 54 00:02:55,160 --> 00:02:55,760 Speaker 2: do the trick. 55 00:02:56,200 --> 00:02:57,600 Speaker 4: It's just not big enough at the moment. 56 00:02:59,080 --> 00:03:01,480 Speaker 3: And look, you know when when they get into the plan, 57 00:03:01,560 --> 00:03:03,000 Speaker 3: and one of the things I think they may also 58 00:03:03,080 --> 00:03:06,560 Speaker 3: talk about is claim some victory finally housing, you know, 59 00:03:06,760 --> 00:03:11,240 Speaker 3: turning in some somewhat better news by comparison. By the way, 60 00:03:11,240 --> 00:03:14,680 Speaker 3: I should point out, commercial property is starting to suffer 61 00:03:14,720 --> 00:03:17,440 Speaker 3: a little bit, and so increasingly when we think about 62 00:03:17,480 --> 00:03:19,600 Speaker 3: the Chinese property market and what needs to be done 63 00:03:19,639 --> 00:03:23,040 Speaker 3: in terms of a rescue plan, investors might go from 64 00:03:23,080 --> 00:03:25,560 Speaker 3: worrying solely about housing to worrying still about housing a 65 00:03:25,600 --> 00:03:28,600 Speaker 3: little bit, but increasingly getting caught up with what's happening 66 00:03:28,639 --> 00:03:30,480 Speaker 3: to commercial real estate in China. 67 00:03:30,600 --> 00:03:33,280 Speaker 1: So we know the story on deflation, to what extent 68 00:03:33,360 --> 00:03:35,960 Speaker 1: will the PBOC, to Brian's point, kind of lean in 69 00:03:36,520 --> 00:03:40,640 Speaker 1: and do something that is maybe a little controversial, something 70 00:03:40,720 --> 00:03:43,080 Speaker 1: very similar to quantitative easy. 71 00:03:44,000 --> 00:03:46,320 Speaker 3: We're increasingly thinking, you know, hearing about the fact that 72 00:03:46,600 --> 00:03:50,160 Speaker 3: you know, the PBOC wants to get involved in bond 73 00:03:50,160 --> 00:03:53,040 Speaker 3: buying and that sort of thing. So there's there's there's 74 00:03:53,040 --> 00:03:56,000 Speaker 3: a likelihood that we get some more information and announcements 75 00:03:56,440 --> 00:04:00,240 Speaker 3: to that end, and that can help. But but let 76 00:04:00,240 --> 00:04:03,640 Speaker 3: me point something out. Liquidity in the system has not 77 00:04:03,760 --> 00:04:07,200 Speaker 3: been a challenge in China, and that is not a 78 00:04:07,280 --> 00:04:10,800 Speaker 3: challenge today. If anything, I would argue, looking at the data, 79 00:04:11,080 --> 00:04:14,560 Speaker 3: there's plenty of liquidity out there, and banks are willing 80 00:04:14,600 --> 00:04:17,480 Speaker 3: to lend, and banks are cutting back on rates, banks 81 00:04:17,520 --> 00:04:19,800 Speaker 3: are cutting back on rejections the way they used to 82 00:04:19,800 --> 00:04:23,039 Speaker 3: reject loans a couple of years ago. Companies are just 83 00:04:23,080 --> 00:04:26,280 Speaker 3: not going out there and borrowing. So what exactly is 84 00:04:26,320 --> 00:04:28,240 Speaker 3: the problem and what exactly is the solution? We have 85 00:04:28,279 --> 00:04:29,360 Speaker 3: to always think about that thing. 86 00:04:29,400 --> 00:04:33,920 Speaker 2: Will carefully how important is corporate borrowing, which has ticked 87 00:04:34,000 --> 00:04:35,520 Speaker 2: down a little bit in China. 88 00:04:37,520 --> 00:04:41,640 Speaker 3: The main takeaway I think is Beijing is having a 89 00:04:41,720 --> 00:04:46,440 Speaker 3: really really hard time stimulating the economy through monetary policy easing. 90 00:04:46,720 --> 00:04:49,800 Speaker 3: It simply isn't working on in any kind of sustained fashion. 91 00:04:50,200 --> 00:04:51,840 Speaker 3: You do get a month here or there with the 92 00:04:51,920 --> 00:04:56,840 Speaker 3: five boring ramps up, because companies are still not expanding investment, 93 00:04:57,080 --> 00:04:59,040 Speaker 3: and even though they're hiring a little bit more, they're 94 00:04:59,040 --> 00:05:01,440 Speaker 3: not hiring and large enough quantities investing in large enough 95 00:05:01,480 --> 00:05:05,200 Speaker 3: quantities to go out there and borrow continuously, And so 96 00:05:05,520 --> 00:05:09,320 Speaker 3: stimulus through policiesing on the monetary side is just now 97 00:05:09,360 --> 00:05:10,000 Speaker 3: working out. 98 00:05:10,120 --> 00:05:13,279 Speaker 1: What about geopolitics, I mean the thread of maybe more 99 00:05:13,320 --> 00:05:16,680 Speaker 1: severe tariffs on Chinese goods coming to the United States. 100 00:05:17,400 --> 00:05:19,920 Speaker 1: That's one angle we were talking about. What's going on 101 00:05:19,960 --> 00:05:22,440 Speaker 1: with the EV market, not just in the US but 102 00:05:22,680 --> 00:05:26,240 Speaker 1: in Europe as well. What about the trade relations and 103 00:05:26,640 --> 00:05:29,919 Speaker 1: geopolitics and how might that affect the economy going forward. 104 00:05:31,080 --> 00:05:33,839 Speaker 3: Yeah, there's been a massive amount of redirection of trade 105 00:05:33,880 --> 00:05:37,440 Speaker 3: away from directly with the US, even the EU a 106 00:05:37,440 --> 00:05:39,839 Speaker 3: little bit in our latest data, and then through Southeast 107 00:05:39,839 --> 00:05:42,599 Speaker 3: Asia and so forth. This is I think threat number 108 00:05:42,600 --> 00:05:44,720 Speaker 3: one for the Chinese economy as they look at twenty 109 00:05:44,760 --> 00:05:47,520 Speaker 3: twenty five, there's a trade war part two coming. There's 110 00:05:47,520 --> 00:05:49,080 Speaker 3: just no question about it. I think at this point, 111 00:05:49,080 --> 00:05:51,280 Speaker 3: if there's a Trump presidency, it's going to be pretty extreme. 112 00:05:52,200 --> 00:05:54,359 Speaker 3: And so they are going to have to continuously figure 113 00:05:54,400 --> 00:05:58,200 Speaker 3: out how to sort of almost jump on the decoupling 114 00:05:58,279 --> 00:06:03,440 Speaker 3: bandwagon used to that bilateral trade deficit and be able 115 00:06:03,440 --> 00:06:06,920 Speaker 3: to continuously meet customer demand out here by doing it 116 00:06:06,960 --> 00:06:09,200 Speaker 3: through third party countries. And that of course is going 117 00:06:09,240 --> 00:06:11,480 Speaker 3: to ultimately weigh on Chinese factories. I think it's going 118 00:06:11,480 --> 00:06:13,119 Speaker 3: to take a tickets hit to their bottom lines. 119 00:06:13,520 --> 00:06:16,080 Speaker 2: Shazzad, just in ten seconds, what's the bright spot at 120 00:06:16,080 --> 00:06:16,400 Speaker 2: the moment? 121 00:06:16,440 --> 00:06:17,080 Speaker 4: Ten seconds? 122 00:06:18,240 --> 00:06:20,080 Speaker 3: Look, I think the bright spot is that parts of 123 00:06:20,080 --> 00:06:22,200 Speaker 3: the services economy are holding on. I've said this before. 124 00:06:22,240 --> 00:06:24,960 Speaker 3: Property is actually looking like the rescue plan my family 125 00:06:25,000 --> 00:06:28,320 Speaker 3: finally be having an effect overall solid growth year over year. 126 00:06:28,720 --> 00:06:31,080 Speaker 2: Okay, all right, well thanks for leaving us on at 127 00:06:31,120 --> 00:06:35,400 Speaker 2: least a positive note. Shazad Kanzi there COO, managing director at. 128 00:06:35,279 --> 00:06:36,280 Speaker 4: The China Page Book. 129 00:06:41,080 --> 00:06:43,800 Speaker 2: Joining us now on my program, we will Addams, chief 130 00:06:43,839 --> 00:06:47,320 Speaker 2: economists at Comerica Bank to take a closer look at 131 00:06:47,320 --> 00:06:49,560 Speaker 2: the US economy and some of the data that we'll 132 00:06:49,600 --> 00:06:53,240 Speaker 2: be having coming out this week. And before we get 133 00:06:53,240 --> 00:06:55,440 Speaker 2: to that, Bill, I just wanted to get your comments 134 00:06:55,800 --> 00:06:59,120 Speaker 2: on the stress test and the banks. We had kind 135 00:06:59,120 --> 00:07:01,719 Speaker 2: of a lackluster day in the broader mark is, but 136 00:07:01,800 --> 00:07:04,919 Speaker 2: the banks did very well. JP Morgan was up one 137 00:07:04,960 --> 00:07:08,279 Speaker 2: point six percent, City Group rallied three percent. 138 00:07:08,160 --> 00:07:09,320 Speaker 4: Bank of America higher. 139 00:07:09,320 --> 00:07:12,320 Speaker 2: I know the market is not really your specialty, but 140 00:07:12,360 --> 00:07:15,360 Speaker 2: it's it's good if the banks are doing well, is. 141 00:07:15,280 --> 00:07:19,000 Speaker 5: It not, Brian, thank you for having me back. I 142 00:07:19,000 --> 00:07:22,240 Speaker 5: think it's a sign of the broader health of the 143 00:07:22,320 --> 00:07:27,760 Speaker 5: US economy. The financial system is well capitalized, and it's 144 00:07:27,920 --> 00:07:33,080 Speaker 5: the economy is growing solidly, and when the economy does well, 145 00:07:33,240 --> 00:07:35,040 Speaker 5: the banking system does well. 146 00:07:35,160 --> 00:07:38,560 Speaker 4: So that's I have to say. 147 00:07:38,600 --> 00:07:41,120 Speaker 5: I'm pleasantly surprised that you're even having me on when 148 00:07:41,200 --> 00:07:45,040 Speaker 5: the economy is sort of, you know, bubbling along slow 149 00:07:45,080 --> 00:07:48,520 Speaker 5: and steady, and it's kind of shifted a bit to 150 00:07:48,560 --> 00:07:51,720 Speaker 5: the backdrop relative to twenty twenty three. 151 00:07:51,880 --> 00:07:55,040 Speaker 1: But Bill, are all things kind of functioning at equal 152 00:07:55,160 --> 00:07:58,040 Speaker 1: levels here? Is there not a little bit of weakness? 153 00:07:58,080 --> 00:08:01,160 Speaker 1: I'm going to bring out. Commercial real estate is one area, 154 00:08:01,200 --> 00:08:04,840 Speaker 1: and maybe there are pockets of the residential housing market 155 00:08:04,920 --> 00:08:05,840 Speaker 1: that are starting to falter. 156 00:08:07,280 --> 00:08:10,679 Speaker 5: Sure, interest rate sensitive sectors of the economy are definitely 157 00:08:10,760 --> 00:08:13,760 Speaker 5: under pressure right now. I think commercial real estate is 158 00:08:14,160 --> 00:08:16,680 Speaker 5: a prime example of that, as well as some parts 159 00:08:16,720 --> 00:08:22,080 Speaker 5: of residential Also manufacturing. Of the manufacturing survey out this 160 00:08:22,120 --> 00:08:25,200 Speaker 5: week is probably going to show some continued softness in 161 00:08:25,240 --> 00:08:29,680 Speaker 5: that industry because that's a capital intensive, credit intensive industry, 162 00:08:29,760 --> 00:08:32,760 Speaker 5: and the fed's high rate policy is having its intended 163 00:08:32,800 --> 00:08:33,400 Speaker 5: effect there. 164 00:08:34,880 --> 00:08:35,160 Speaker 4: Bill. 165 00:08:35,600 --> 00:08:38,679 Speaker 2: You know, people don't like to get too comfortable with 166 00:08:38,800 --> 00:08:41,200 Speaker 2: the sort of steady economy notion because they know that 167 00:08:41,240 --> 00:08:45,079 Speaker 2: things can turn quickly, or at least they fear that 168 00:08:45,120 --> 00:08:49,320 Speaker 2: things can turn quickly. Your take on the economy, I 169 00:08:49,360 --> 00:08:52,360 Speaker 2: guess is that it's taking along okay. 170 00:08:53,000 --> 00:08:54,560 Speaker 4: There are always challenges. 171 00:08:55,520 --> 00:08:58,000 Speaker 2: If you had to single out some of the biggest 172 00:08:58,040 --> 00:08:59,400 Speaker 2: challenges right now, what would they be. 173 00:09:00,960 --> 00:09:05,120 Speaker 5: So we've already talked about cr which is an obvious one. Also, 174 00:09:05,320 --> 00:09:09,320 Speaker 5: the risk of a FED policy error holding rates too 175 00:09:09,400 --> 00:09:12,640 Speaker 5: high for too long. It's a possibility. On top of that, 176 00:09:13,360 --> 00:09:16,680 Speaker 5: I'm looking at the startup hurricane season in the United 177 00:09:16,720 --> 00:09:19,760 Speaker 5: States and in you know, the Western hemisphere. It does 178 00:09:20,200 --> 00:09:23,320 Speaker 5: seem like we're having an earlier than normal start to 179 00:09:23,360 --> 00:09:28,679 Speaker 5: that higher ocean temperatures. So I think the risk of uh, 180 00:09:29,679 --> 00:09:33,160 Speaker 5: you know, severe hurricane hitting some part of the United 181 00:09:33,200 --> 00:09:36,600 Speaker 5: States and causing property damage, especially like in a metro 182 00:09:36,679 --> 00:09:41,480 Speaker 5: area that where we've seen home insurance premiums rise a 183 00:09:41,480 --> 00:09:45,040 Speaker 5: lot and an increase in under insurance or uninsurance, I 184 00:09:45,040 --> 00:09:49,600 Speaker 5: think we could have macroeconomic effects of that that that 185 00:09:49,679 --> 00:09:51,840 Speaker 5: could be pretty painful for the US economy. 186 00:09:51,840 --> 00:09:55,920 Speaker 1: Heyil, so tick, let's pivot to the PCE. But what 187 00:09:55,960 --> 00:09:58,880 Speaker 1: did you make of that reading? Underlying inflation is starting 188 00:09:58,880 --> 00:10:01,520 Speaker 1: to cool now, I mean, is enough to allow the 189 00:10:01,600 --> 00:10:04,600 Speaker 1: rate the Fed rather to move more quickly than let's 190 00:10:04,600 --> 00:10:05,240 Speaker 1: say November. 191 00:10:06,640 --> 00:10:08,960 Speaker 5: It's a step in the right direction. I think a 192 00:10:09,000 --> 00:10:11,400 Speaker 5: September rate cut is still on the table, and that 193 00:10:11,480 --> 00:10:14,120 Speaker 5: is in fact our base case for the FED for 194 00:10:14,200 --> 00:10:17,080 Speaker 5: this year, one cut in September, a second one in December. 195 00:10:17,240 --> 00:10:21,400 Speaker 5: The Fed wants to see more normalization of inflation, which 196 00:10:21,640 --> 00:10:24,720 Speaker 5: I think with the economy operating now with a decent 197 00:10:24,800 --> 00:10:30,760 Speaker 5: margin of slack and a more balanced relationship between supply 198 00:10:30,800 --> 00:10:33,360 Speaker 5: and demand and the labor market, it looks like inflation 199 00:10:33,440 --> 00:10:37,680 Speaker 5: should moderate further and that those rate heights are possible. 200 00:10:37,720 --> 00:10:41,120 Speaker 5: So the PCE report basically validating that we are in 201 00:10:41,120 --> 00:10:44,760 Speaker 5: this two steps forward, one step back process back towards 202 00:10:45,080 --> 00:10:46,080 Speaker 5: more normal inflation. 203 00:10:47,520 --> 00:10:49,520 Speaker 2: So in the data that we got late last week, 204 00:10:49,600 --> 00:10:55,680 Speaker 2: including personal incomes and spending, personal incomes up and higher 205 00:10:55,760 --> 00:10:59,680 Speaker 2: than expected, and spending was pretty steady. But I wonder 206 00:10:59,720 --> 00:11:01,840 Speaker 2: whether or not, you know, if, because you had such 207 00:11:01,840 --> 00:11:04,720 Speaker 2: a robust stock market in the first half of the year, 208 00:11:05,000 --> 00:11:07,160 Speaker 2: if that cools down in the second half, whether you 209 00:11:07,240 --> 00:11:10,520 Speaker 2: might see well off people spending a little bit less. 210 00:11:11,440 --> 00:11:14,400 Speaker 2: I don't really track the breakdown there as closely as 211 00:11:14,480 --> 00:11:17,079 Speaker 2: you do, but tell us what you expect in terms of, 212 00:11:18,440 --> 00:11:20,200 Speaker 2: you know, spending in the second half. 213 00:11:19,960 --> 00:11:20,360 Speaker 4: Of the year. 214 00:11:22,200 --> 00:11:26,240 Speaker 5: The affluent consumer in the United States and wealthy consumers 215 00:11:26,280 --> 00:11:31,720 Speaker 5: are doing quite well. Household net worth was up about 216 00:11:31,800 --> 00:11:34,160 Speaker 5: nine percent year over year in the first quarter, which 217 00:11:34,200 --> 00:11:37,080 Speaker 5: is the last the most timely data we have right 218 00:11:37,160 --> 00:11:40,640 Speaker 5: now on all assets all liabilities of the household sector, 219 00:11:41,000 --> 00:11:44,439 Speaker 5: and that is enough to continue to power spending. Consider 220 00:11:44,520 --> 00:11:47,680 Speaker 5: that the US is an aging society, A lot of 221 00:11:47,800 --> 00:11:52,240 Speaker 5: consumers are retirees, and so they're much more sensitive to 222 00:11:53,160 --> 00:11:56,920 Speaker 5: asset markets and financial markets than they are to earned incomes, 223 00:11:57,240 --> 00:11:59,199 Speaker 5: and I think that's going to keep the US economy 224 00:11:59,240 --> 00:12:00,600 Speaker 5: growing in the second half of the year. 225 00:12:00,840 --> 00:12:03,880 Speaker 1: Let's talk about the employment reports. Do at the end 226 00:12:03,880 --> 00:12:06,520 Speaker 1: of the week. Obviously it's a market holiday on Thursday 227 00:12:06,520 --> 00:12:09,760 Speaker 1: here in the States when we come back from July fourth, 228 00:12:09,840 --> 00:12:11,800 Speaker 1: and we're going to jump right into it with non 229 00:12:11,840 --> 00:12:14,600 Speaker 1: farm payrolls for June. Are you expecting a little bit 230 00:12:14,600 --> 00:12:15,480 Speaker 1: of moderation. 231 00:12:16,920 --> 00:12:20,720 Speaker 5: I'm expecting a hair more softness on the household survey, 232 00:12:20,920 --> 00:12:23,280 Speaker 5: So I do think the unemployment rate more likely than not, 233 00:12:23,360 --> 00:12:25,800 Speaker 5: would rise to four point one percent from four percent 234 00:12:26,559 --> 00:12:30,200 Speaker 5: in May. I think the payrolls will probably still see 235 00:12:30,200 --> 00:12:33,240 Speaker 5: a solid report. So we've really had a lot of 236 00:12:33,280 --> 00:12:36,679 Speaker 5: split personality type jobs reports in the last couple of months, 237 00:12:36,679 --> 00:12:39,880 Speaker 5: with the unemployment rate rising, a mid solid payrolls growth, 238 00:12:39,920 --> 00:12:42,679 Speaker 5: and I think we'll still see that mixed message in 239 00:12:42,720 --> 00:12:45,760 Speaker 5: this latest report, but most likely we'll also see wage 240 00:12:45,760 --> 00:12:46,600 Speaker 5: growth moderating. 241 00:12:47,679 --> 00:12:51,440 Speaker 2: Speaking of mixed messages, it seems it's very very difficult 242 00:12:51,520 --> 00:12:54,800 Speaker 2: to get one take on things. For instance, we just 243 00:12:54,840 --> 00:12:57,760 Speaker 2: got some date out of Japan. You had some slight 244 00:12:57,800 --> 00:13:01,280 Speaker 2: positivity there with the large manufacturer Tongkon thirteen. 245 00:13:01,400 --> 00:13:02,319 Speaker 4: The estimate eleven. 246 00:13:02,880 --> 00:13:07,640 Speaker 2: But first quarter and this is ancient information admittedly, but 247 00:13:08,280 --> 00:13:11,880 Speaker 2: first quarter GDP was revised down pretty sharply to minus 248 00:13:11,920 --> 00:13:14,640 Speaker 2: two point nine percent. How do you read Japan at 249 00:13:14,640 --> 00:13:15,000 Speaker 2: the moment? 250 00:13:16,920 --> 00:13:21,320 Speaker 5: I think of Japan as a slow growing economy, advanced 251 00:13:21,360 --> 00:13:25,760 Speaker 5: economy that's being affected by the lagged effects of high 252 00:13:25,840 --> 00:13:29,679 Speaker 5: interest rates around the world and the headwinds to manufacturing 253 00:13:29,720 --> 00:13:32,880 Speaker 5: from that. Nice to see the latest survey in more 254 00:13:32,880 --> 00:13:39,120 Speaker 5: positive territory. I think there's the upside case for Japanese 255 00:13:39,120 --> 00:13:42,360 Speaker 5: manufacturing for global manufacturing this year is that we've been 256 00:13:42,400 --> 00:13:46,559 Speaker 5: in a period of inventories de stocking in the goods 257 00:13:46,559 --> 00:13:49,760 Speaker 5: sector around the world, and maybe we're going to come 258 00:13:49,760 --> 00:13:51,880 Speaker 5: to the end of that soon and we'll see a 259 00:13:51,920 --> 00:13:54,800 Speaker 5: little bit stronger demand for inventories and business to business 260 00:13:54,800 --> 00:13:55,560 Speaker 5: sales because of that. 261 00:13:56,240 --> 00:13:59,480 Speaker 1: So the swaps market bill right now is projecting maybe 262 00:13:59,520 --> 00:14:01,320 Speaker 1: we get too rate cuts between now and the end 263 00:14:01,360 --> 00:14:03,920 Speaker 1: of the year. Certainly twenty five basis points at least 264 00:14:04,160 --> 00:14:07,920 Speaker 1: has been fully priced in by November, maybe December as 265 00:14:07,920 --> 00:14:09,959 Speaker 1: a toss up. I don't know, how are you seeing 266 00:14:09,960 --> 00:14:12,080 Speaker 1: the path for rate cuts between now and the end 267 00:14:12,160 --> 00:14:13,400 Speaker 1: of twenty four. 268 00:14:14,800 --> 00:14:19,560 Speaker 5: Market pricing is reasonable. I think that there's a stronger 269 00:14:19,680 --> 00:14:21,800 Speaker 5: likelihood of a second rate cut by the end of 270 00:14:21,840 --> 00:14:25,880 Speaker 5: this year, and that's because I think we have seen 271 00:14:25,920 --> 00:14:29,600 Speaker 5: a more substantial slowdown in the economy than, for example, 272 00:14:29,640 --> 00:14:33,360 Speaker 5: you'll get by looking at GDP now still has real 273 00:14:33,400 --> 00:14:35,840 Speaker 5: GDP in the second quarter above two percent. I think 274 00:14:36,000 --> 00:14:40,080 Speaker 5: probably we'll see a second quarter GDP print of a 275 00:14:40,080 --> 00:14:43,360 Speaker 5: bit shy of two percent. So with that, you know, 276 00:14:43,440 --> 00:14:46,080 Speaker 5: businesses don't have the same pricing power that they did 277 00:14:46,080 --> 00:14:50,000 Speaker 5: when the economy was going gangbusters in the second half 278 00:14:50,040 --> 00:14:53,040 Speaker 5: of last year, and I think that's going to lead 279 00:14:53,080 --> 00:14:57,200 Speaker 5: to more discounting announcements and help to slow inflation. 280 00:14:58,320 --> 00:15:00,640 Speaker 2: All right, Bill, thanks very much for joining us. Spill Adams, 281 00:15:00,720 --> 00:15:11,000 Speaker 2: chief economist ATQ America Bank to talk about markets, who 282 00:15:11,000 --> 00:15:14,600 Speaker 2: are joined by Meredith Whitney, founder and CEO at Meredith 283 00:15:14,600 --> 00:15:18,240 Speaker 2: Whitney Advisory Group. Meredith, thank you for joining us here. 284 00:15:18,480 --> 00:15:21,840 Speaker 2: So we had some favorable economic data out on Friday 285 00:15:21,880 --> 00:15:25,640 Speaker 2: with spending and income and the PCEE, yet it was 286 00:15:25,680 --> 00:15:29,480 Speaker 2: not a risk on session, particularly for markets. 287 00:15:29,920 --> 00:15:32,080 Speaker 4: How are you reading the room at the moment? 288 00:15:33,520 --> 00:15:34,880 Speaker 6: I think it's well. 289 00:15:34,920 --> 00:15:37,600 Speaker 7: First of all, you know, a lot of the outperformance 290 00:15:37,800 --> 00:15:41,560 Speaker 7: in the market, as you have well covered, is very concentrated. 291 00:15:41,640 --> 00:15:44,880 Speaker 7: So you know, today I was looking at doing a 292 00:15:44,920 --> 00:15:47,880 Speaker 7: second quarter audit of the baskets that I look at, 293 00:15:48,000 --> 00:15:54,640 Speaker 7: and you've got great names that have underperformed and. 294 00:15:53,320 --> 00:15:54,560 Speaker 6: For no fundamental reason. 295 00:15:54,920 --> 00:15:58,200 Speaker 7: So I think that, you know, you can have good 296 00:15:58,280 --> 00:16:00,440 Speaker 7: numbers come out or bad numbers come out. I wouldn't 297 00:16:00,480 --> 00:16:04,600 Speaker 7: say that the consumer spend numbers are you know, barn 298 00:16:04,960 --> 00:16:08,160 Speaker 7: you know barn Burner. They're they're relatively softer than they 299 00:16:08,160 --> 00:16:14,600 Speaker 7: were a year ago, and that's largely because you know, 300 00:16:14,680 --> 00:16:19,359 Speaker 7: we're seeing that the effects of cumulative inflation, specifically for homeowners, 301 00:16:19,400 --> 00:16:23,080 Speaker 7: and that's sixty five percent of US households. So I 302 00:16:23,120 --> 00:16:27,600 Speaker 7: think you're you're seeing you know some you know, most 303 00:16:27,600 --> 00:16:33,600 Speaker 7: consumers pull back and the smaller portion of consumers caring 304 00:16:34,080 --> 00:16:34,840 Speaker 7: the economy. 305 00:16:35,400 --> 00:16:38,720 Speaker 1: Does the market have it right? If we're predicting two 306 00:16:38,840 --> 00:16:41,120 Speaker 1: ratecouts between now and the end of the year. Is 307 00:16:41,120 --> 00:16:42,440 Speaker 1: that the way you see things? 308 00:16:43,040 --> 00:16:43,520 Speaker 6: I don't. 309 00:16:43,600 --> 00:16:47,960 Speaker 7: So I came into the year being very skeptical. I 310 00:16:47,960 --> 00:16:49,680 Speaker 7: thought the biggest risk of the market was the fact 311 00:16:49,720 --> 00:16:54,240 Speaker 7: that the FED would not cut rates by h six times, 312 00:16:54,280 --> 00:16:59,520 Speaker 7: and I still think that you have so much fiscal 313 00:16:59,560 --> 00:17:03,720 Speaker 7: spending that's powering the economy that I think you're going 314 00:17:03,800 --> 00:17:06,080 Speaker 7: to it's going to be tough. I think you're probably 315 00:17:06,440 --> 00:17:09,760 Speaker 7: we may get one, but I don't think we're going 316 00:17:09,800 --> 00:17:10,320 Speaker 7: to get two. 317 00:17:11,920 --> 00:17:14,439 Speaker 2: So one interesting aspect of the data was that you 318 00:17:14,560 --> 00:17:18,359 Speaker 2: had personal income a little higher than was expected and 319 00:17:18,440 --> 00:17:24,080 Speaker 2: personal spending a little lower. Now, you know, the consumer 320 00:17:24,119 --> 00:17:26,360 Speaker 2: is seventy percent of the economy, so we don't really 321 00:17:26,440 --> 00:17:28,720 Speaker 2: want that number low. But in a time when you're 322 00:17:28,720 --> 00:17:31,480 Speaker 2: trying to fight inflation, is sort of matched up as 323 00:17:31,520 --> 00:17:34,639 Speaker 2: a pretty decent result. But you think that it's a 324 00:17:34,680 --> 00:17:37,680 Speaker 2: little too heavily weighted with well off people, Is that right? 325 00:17:38,640 --> 00:17:39,439 Speaker 6: Well, I think you have. 326 00:17:40,320 --> 00:17:42,280 Speaker 7: So you have well off people, but then you also 327 00:17:42,400 --> 00:17:47,320 Speaker 7: have what I call the avocado toast generation, and it's 328 00:17:47,720 --> 00:17:52,199 Speaker 7: the younger millennials and Gen Z and they're not burdened 329 00:17:52,320 --> 00:17:55,160 Speaker 7: by owning a home. Now you could say it's tough 330 00:17:55,160 --> 00:17:57,440 Speaker 7: for them to get to the housing market, but owning 331 00:17:57,480 --> 00:18:01,240 Speaker 7: a home has become increasingly expensive, and I think it's 332 00:18:01,280 --> 00:18:04,679 Speaker 7: actually going to drive a lot of homeowners to be 333 00:18:04,760 --> 00:18:05,639 Speaker 7: forced to sell. 334 00:18:05,720 --> 00:18:07,800 Speaker 6: Because you had homeowners. 335 00:18:07,359 --> 00:18:14,480 Speaker 7: Insurance on average up in the teams each year, and 336 00:18:15,400 --> 00:18:20,320 Speaker 7: certainly for the past three years it's up over ten percent, 337 00:18:20,359 --> 00:18:24,480 Speaker 7: over eleven percent. This is nationally, it's been much higher 338 00:18:24,560 --> 00:18:28,359 Speaker 7: in many of the states. Property taxes over the past 339 00:18:28,359 --> 00:18:31,680 Speaker 7: three years are up over twenty six percent. Obviously varies 340 00:18:31,720 --> 00:18:36,239 Speaker 7: state to state, but these are things that you just 341 00:18:36,280 --> 00:18:39,399 Speaker 7: can't get around. So the average cost of housing for 342 00:18:39,520 --> 00:18:45,200 Speaker 7: most people have gone up much faster than inflation, and 343 00:18:45,240 --> 00:18:48,680 Speaker 7: that's what you see that is really the sticking point 344 00:18:48,760 --> 00:18:53,600 Speaker 7: with consumer spend. So older. The vast majority of homeowners 345 00:18:53,840 --> 00:18:59,200 Speaker 7: are over fifty, and in fact very they're well under 346 00:19:00,800 --> 00:19:03,680 Speaker 7: ten percent of homes are owned by people under forty, 347 00:19:04,040 --> 00:19:09,160 Speaker 7: So you see younger people really driving the leisure spend 348 00:19:09,480 --> 00:19:14,639 Speaker 7: and the experiential spend. And the fastest category of growth 349 00:19:14,680 --> 00:19:20,440 Speaker 7: within leisure spend is actually online gaming and sports bedding. 350 00:19:20,760 --> 00:19:24,320 Speaker 7: So the underlying trends or what's moving the economy are 351 00:19:24,400 --> 00:19:29,840 Speaker 7: probably not good long term, but it's keeping spending flowing. 352 00:19:29,920 --> 00:19:33,960 Speaker 7: And the very high end that has been the biggest 353 00:19:34,480 --> 00:19:38,760 Speaker 7: beneficiary of low interest rates for the longest time are 354 00:19:38,800 --> 00:19:40,800 Speaker 7: also still spending and not. 355 00:19:40,840 --> 00:19:41,639 Speaker 6: Having a problem. 356 00:19:41,680 --> 00:19:42,560 Speaker 1: I'm wondering of. 357 00:19:42,560 --> 00:19:44,720 Speaker 6: Americans that are really coming up against it. 358 00:19:44,800 --> 00:19:48,200 Speaker 1: I'm wondering how those avocado toasters will influence the election 359 00:19:48,280 --> 00:19:51,119 Speaker 1: in November. What is your sense in where things stand 360 00:19:51,160 --> 00:19:54,320 Speaker 1: politically right now in the States, and how might that 361 00:19:54,359 --> 00:19:55,840 Speaker 1: affect the market going forward. 362 00:19:56,720 --> 00:19:57,760 Speaker 6: Well, it's very interesting. 363 00:19:57,800 --> 00:20:01,840 Speaker 7: When I was in Asia with you in March, you 364 00:20:01,920 --> 00:20:05,400 Speaker 7: asked me such like the best question, which was what's 365 00:20:05,400 --> 00:20:08,879 Speaker 7: your biggest takeaway from your meetings with investors? And I 366 00:20:08,920 --> 00:20:12,560 Speaker 7: said that the every investor that I spoke to was 367 00:20:12,640 --> 00:20:16,720 Speaker 7: preparing for Trump to win, and you know, obviously having 368 00:20:16,800 --> 00:20:23,800 Speaker 7: no idea about how really shocking and sad the debates 369 00:20:23,840 --> 00:20:27,679 Speaker 7: were Thursday night. I think that I don't think that 370 00:20:27,760 --> 00:20:30,040 Speaker 7: the youth is engaged with Biden. 371 00:20:30,200 --> 00:20:31,480 Speaker 6: I don't think that the youth. 372 00:20:31,760 --> 00:20:37,280 Speaker 7: May be engaged with voting and may set this election out. 373 00:20:37,680 --> 00:20:41,000 Speaker 7: You've got to get and that's the scariest thing for 374 00:20:41,040 --> 00:20:45,040 Speaker 7: me about this election, that a smaller percentage of Americans 375 00:20:45,160 --> 00:20:50,919 Speaker 7: can determine can determine who becomes our stay as president 376 00:20:50,960 --> 00:20:51,880 Speaker 7: or becomes president. 377 00:20:52,119 --> 00:20:54,159 Speaker 4: So I think we got you. 378 00:20:54,480 --> 00:20:56,240 Speaker 2: I was just gonna say, we got some time to 379 00:20:56,280 --> 00:20:58,120 Speaker 2: get to that. I wanted to squeeze in a question 380 00:20:58,200 --> 00:21:00,840 Speaker 2: about the banking sector because you're you're a wizard of that. 381 00:21:01,440 --> 00:21:06,199 Speaker 2: So away from the avocado toast express to the stress 382 00:21:06,280 --> 00:21:09,880 Speaker 2: test express. The stress test was tough. I mean, these 383 00:21:09,960 --> 00:21:13,440 Speaker 2: banks did very well in passing. It is the banking 384 00:21:13,880 --> 00:21:15,880 Speaker 2: community now in really good shape. 385 00:21:17,800 --> 00:21:21,040 Speaker 7: It depends on which banks you're looking at. So the 386 00:21:21,080 --> 00:21:24,159 Speaker 7: banks that you know, the over the banks that are 387 00:21:24,200 --> 00:21:26,720 Speaker 7: over two hundred and fifty billion in assets, the original 388 00:21:28,160 --> 00:21:33,120 Speaker 7: systemically important financial institutions, they're great, right, So they've de risked, 389 00:21:33,320 --> 00:21:37,280 Speaker 7: they're sitting on a lot of capital. They've been in 390 00:21:37,440 --> 00:21:40,560 Speaker 7: for you know, most banks, well at least JP Morgan 391 00:21:40,560 --> 00:21:42,719 Speaker 7: and Bank of America, when those banks have been cus 392 00:21:43,000 --> 00:21:46,680 Speaker 7: you know, really right sizing their businesses for the past 393 00:21:46,680 --> 00:21:51,400 Speaker 7: fifteen years. And I think Wells Fargo is has been 394 00:21:51,440 --> 00:21:54,280 Speaker 7: in the penalty the regulatory penalty box and is doing 395 00:21:54,320 --> 00:21:57,440 Speaker 7: a lot of the right things to get itself back 396 00:21:57,480 --> 00:22:01,440 Speaker 7: on track. And City has a you know, restructuring plan, 397 00:22:01,560 --> 00:22:05,840 Speaker 7: and you know, godspeed to them. But the smaller banks, 398 00:22:05,920 --> 00:22:10,239 Speaker 7: I think are are still in a precarious position and 399 00:22:10,359 --> 00:22:11,760 Speaker 7: really need to consolidate. 400 00:22:11,960 --> 00:22:15,000 Speaker 6: So these are the banks under one hundred billion. 401 00:22:15,480 --> 00:22:18,760 Speaker 7: And you know what's been frustrating for me is that 402 00:22:18,760 --> 00:22:20,919 Speaker 7: that would be the best thing for the system. And 403 00:22:20,960 --> 00:22:26,399 Speaker 7: those are the banks that are have have you know, 404 00:22:26,720 --> 00:22:31,640 Speaker 7: commercial lending exposure, and are in precarious positions and don't 405 00:22:31,640 --> 00:22:33,800 Speaker 7: have economies of scale and need to spend a ton 406 00:22:33,880 --> 00:22:40,560 Speaker 7: on cybersecurity and technology, and they really need UH to consolidate. 407 00:22:40,840 --> 00:22:42,360 Speaker 6: I think the d o JS. 408 00:22:42,480 --> 00:22:47,000 Speaker 7: And UH and the fd I SEE have been against consolidation. 409 00:22:47,160 --> 00:22:50,800 Speaker 6: Maybe the fd I see UH it gets better. 410 00:22:50,800 --> 00:22:54,200 Speaker 7: Elizabeth Warren has been against consolidation. We really need this 411 00:22:54,280 --> 00:22:55,560 Speaker 7: for the better. 412 00:22:55,119 --> 00:22:58,040 Speaker 1: Men of the Meredith very quickly. It's an interesting point. 413 00:22:58,080 --> 00:23:00,239 Speaker 1: Is that going to be more peer to peer kind 414 00:23:00,280 --> 00:23:04,640 Speaker 1: of lateral consolidation or cannibalization where some of the bigger 415 00:23:04,680 --> 00:23:07,760 Speaker 1: players come in and kind of digest the smaller ones 416 00:23:07,840 --> 00:23:08,399 Speaker 1: very quickly. 417 00:23:08,600 --> 00:23:12,639 Speaker 7: Well, well, look, the big banks have been effectively acquiring 418 00:23:12,680 --> 00:23:17,280 Speaker 7: the smaller banks businesses just by stealing market share. When 419 00:23:17,560 --> 00:23:19,879 Speaker 7: depositors get scared, they go to the big bank. So 420 00:23:20,240 --> 00:23:23,960 Speaker 7: it's been happening, but you need to have it happen 421 00:23:24,040 --> 00:23:31,000 Speaker 7: on a more institutionally sponsored basis through smart consolidation of 422 00:23:31,040 --> 00:23:31,960 Speaker 7: the smaller players. 423 00:23:32,680 --> 00:23:34,760 Speaker 2: Meredith, thanks so much for joining us here on a 424 00:23:34,840 --> 00:23:38,840 Speaker 2: Sunday early Monday morning in Asia. We appreciated Meredith Whitney, 425 00:23:38,840 --> 00:23:41,520 Speaker 2: founder and CEO at Meredith Whitney Advisory Group. 426 00:23:43,440 --> 00:23:46,399 Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you 427 00:23:46,440 --> 00:23:49,560 Speaker 1: the stories making news and moving markets in the Asia Pacific. 428 00:23:50,080 --> 00:23:53,200 Speaker 1: Visit the Bloomberg Podcast channel on YouTube to get more 429 00:23:53,240 --> 00:23:56,840 Speaker 1: episodes of this and other shows from Bloomberg. Subscribe to 430 00:23:56,880 --> 00:24:00,320 Speaker 1: the podcast on Apple, Spotify, or anywhere else else you 431 00:24:00,359 --> 00:24:03,639 Speaker 1: listen and always on Bloomberg Radio, the Bloomberg Terminal, and 432 00:24:03,800 --> 00:24:04,920 Speaker 1: the Bloomberg Business app.