Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jearlie.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: waiting on the data on please to say joining us
Speaker 1: here in New York, we can say good morning to
Speaker 1: David Paige, Acts for investment Managers, senior economists, good money
Speaker 1: to day morning. Let's talk about their data a little
Speaker 1: bit later this morning in America. What are you looking for? So?
Speaker 1: I think what we're seeing, and we've seen it in
Speaker 1: the European numbers, is that we're in a global manufacturing
Speaker 1: slowdown here UM. And that's something that we've seen very
Speaker 1: clearly in the U S data as well. What's not
Speaker 1: obvious is how much that's spilling forward. So in terms
Speaker 1: of the I M today we see another soft picture,
Speaker 1: you know, mixed numbers that coming out of the regional numbers.
Speaker 1: Even yesterday Chicago was pretty soft, Dallas not so much so. UM.
Speaker 1: And from a European spective, I think, you know, very
Speaker 1: very early suggestions that maybe we've seen something of a
Speaker 1: bottom come through here. But I think you know we're
Speaker 1: in the broad scheme of things. The IM is gonna
Speaker 1: remain soft, and it's how much it spills into the
Speaker 1: non manufacturing on on Thursday that's going to be key.
Speaker 1: What do you see beneath the surface of some really
Speaker 1: awful headline numbers that give you some encouragement that the
Speaker 1: story might be bottoming out. What do you see A
Speaker 1: couple of things. I mean that the China numbers this weekend,
Speaker 1: this the last couple of days was not too bad.
Speaker 1: We started to see some pickup come through there. Also
Speaker 1: the European p M eyes, although they've fallen back there
Speaker 1: at odds with some of the some of the more
Speaker 1: country based measures, particularly in France for example. So we
Speaker 1: think that given the China moves there maybe some traction
Speaker 1: coming through from the stimulus that we've seen. The problem,
Speaker 1: of course, is going to be the additional headwinds that
Speaker 1: we see come through in the fourth quarter. We are
Speaker 1: expecting trade to be an issue again, probably as soon
Speaker 1: as the next couple of weeks. David, what's the statistic
Speaker 1: actually has in the US economy is a two percent?
Speaker 1: Is that we're optimistic two point three, or do you
Speaker 1: bring it on down with all these chair lenges to
Speaker 1: something so that this twelve months forward. So for this
Speaker 1: year we've got two point three percent. Next year we've
Speaker 1: got one point six, so we think it slows. And
Speaker 1: we've got Q three g d P come in in
Speaker 1: a two percent annualized so we are seeing its slow down.
Speaker 1: I mean, I look at ACTS I look at your
Speaker 1: colleagues at PIMCO, with much the same responsibilities that ACTSA
Speaker 1: has with longer old money. How do the politicians do
Speaker 1: a sub two percent economy or not comfortably? Um? And
Speaker 1: of course I think that's one of the debates that's
Speaker 1: going on in the White House at the moment. We've
Speaker 1: heard a lot of White House staff suggesting that they've
Speaker 1: been urging the President to take this interim deal from
Speaker 1: China to try and soft pedal a little bit through
Speaker 1: here and concentrate on a solid economy, particularly going into
Speaker 1: next year's election. Now, whether or not the president takes that,
Speaker 1: whether or not he can take that against a backdrop
Speaker 1: of all the domestic pressure here is a big question. John.
Speaker 1: The chart of equities flat even a little rising in
Speaker 1: the quarter for actually versus the Q three story which
Speaker 1: was stunningly low yields. David really really disappointing that after
Speaker 1: this massive effort to get China to level the playing field,
Speaker 1: they accepted an interim deal for short term political and
Speaker 1: economic reasons. Well, it's not clear that they're going to
Speaker 1: have much of a choice. There is no long term
Speaker 1: strategic deal on the table over the next over the
Speaker 1: next three months, potentially probably not over the next twelve
Speaker 1: months either. So what you see is a pragmatic choice
Speaker 1: that the White House has to make. Do they persist
Speaker 1: with tariff hikes on the fifteenth of October and the
Speaker 1: fifteenth of December and potentially going into next year, risking
Speaker 1: the problems of an election or not? Would it be disappointing,
Speaker 1: certainly not from markets? If well, this would be the
Speaker 1: big question I think that has existed over the last
Speaker 1: two years. To what degree with the economy, to what
Speaker 1: extent with the markets constrained this administration's ability to do
Speaker 1: what I think a lot of people agree with, which
Speaker 1: is getting China to open the economy up more and
Speaker 1: getting them to level the playing field. I haven't seen
Speaker 1: it in the markets. Financial conditions are still pretty loose,
Speaker 1: supported of course by the Federal Reserve. We've certainly had
Speaker 1: a lot of other hility in between now and say
Speaker 1: eighteen months ago. In the economy, we've started to see
Speaker 1: some weakness, but not in the labor market in a
Speaker 1: pronounced way that I think is really unsettling this administration
Speaker 1: just yet now that I emphasize the word yet, because
Speaker 1: I wonder when it will start to bleed into the
Speaker 1: labor market. Do you see any sign of that at
Speaker 1: the moment, David, that it's bleeding through? Yes, I mean,
Speaker 1: we're seeing a clear slowdown in the in the labor market.
Speaker 1: Some of that's driven by manufacturing, so you know, we'll
Speaker 1: get payrolls on Friday to confirm the trend. But the
Speaker 1: three months trend in payrolls growth has slow to sub
Speaker 1: one fifty, whereas last year, albeit boosted by this le stimulus,
Speaker 1: it was over two hundreds. We are seeing a softening,
Speaker 1: but that's brilliant. How do you model sub two GDP
Speaker 1: and that a hundred thousand nine farm imperials? Are we
Speaker 1: going to enjoy d run rate? Now? And I think
Speaker 1: the risk is and I think we're close to a
Speaker 1: tipping point here, and that's one of the key concerns
Speaker 1: if we see the economy dip much below one and
Speaker 1: a half percent, then you would expect to see on
Speaker 1: the employment rate slow so that unemployment starts to pick up,
Speaker 1: and that's not sustainable. The FED would have to work
Speaker 1: rate just to jump in. David, what's the equilibrium rate?
Speaker 1: That the amount of payrolls we need to be generating
Speaker 1: every month just to keep things in balance. On a
Speaker 1: trend basis, we would say a hundred and forty. Obviously,
Speaker 1: months to months, the labor supply jumps about a little bit,
Speaker 1: so you can see the unemployment rate not move, But
Speaker 1: on a trend basis overy six months, we would say
Speaker 1: a hundred and forty thousand. We're about there. We think
Speaker 1: you're going to be a fixed income strategist. Now, don't
Speaker 1: let you'll know work know that Ferall doesn't know what
Speaker 1: to do with the real yield on Friday, so you've
Speaker 1: got to get them started. Here. It's a backup in yields.
Speaker 1: What is the significance of the recent backup and yields
Speaker 1: higher yields, lower bill not bond prices thirty year band
Speaker 1: two point one seven? What's its signified? So at the moment,
Speaker 1: we're not thinking that this signals a slow down. We
Speaker 1: think that there has been a pickup comes through the
Speaker 1: shift in the inversion. We think perhaps suggests that markets
Speaker 1: are getting a different read on how the Fed's going
Speaker 1: to operate the plumbing of the system. But I think
Speaker 1: longer term, this continued inversion is a risk to the economy.
Speaker 1: To me, it's fascin thing. And how we're you know,
Speaker 1: Fort David for this at all. We're micro analyzing three
Speaker 1: basis points of four basis points of moves in the
Speaker 1: two tents spread. I actually think the move this morning, though,
Speaker 1: is is actually quite significant. The Bank of Japan came
Speaker 1: out on Monday and essentially slashed its purchase ranges for
Speaker 1: four major maturities. Its signaled that it may even be
Speaker 1: inclined to stop buying anything longer than twenty five years.
Speaker 1: The Bank of Japan wants a steepy yield curve. What
Speaker 1: that's meant this morning is that when the Japanese government
Speaker 1: came out with a ten year issue at the weakest
Speaker 1: demanded around about three years, and what did we get
Speaker 1: Exactly what the b o j wanted steepy yield curves.
Speaker 1: And we didn't just get that in Japan we're getting
Speaker 1: that in the United States as well this morning, and
Speaker 1: another point of encouragement, and it's really really early to
Speaker 1: draw any firm conclusions, but it is a point of encouragement. Nevertheless,
Speaker 1: the idea that we have got high yields, steeper yield curves,
Speaker 1: and an echoy market that finished positive in Japan, I
Speaker 1: just wonder if that's a clue, a little nudge for
Speaker 1: the guards e c B to take a look at
Speaker 1: what the Bank of Japan is doing, because if this continues,
Speaker 1: I think it's really encouraging. What's really important to your David,
Speaker 1: And this goes to economics one on one. I'm gonna
Speaker 1: call it green span one on one is the idea
Speaker 1: that if you get a risk on feel in a
Speaker 1: better stock market, that pulls right into a confidence builder
Speaker 1: for a troubled economy. Absolutely, and the corollary of that
Speaker 1: is that one of the biggest risks going further forward.
Speaker 1: So far, we've had a strong household sector, but household
Speaker 1: sector doesn't remain strong if you see a tiny in
Speaker 1: financial conditions, So then we loop all the way back
Speaker 1: to trade. If we get negative news developments coming through
Speaker 1: in trade, that plays the risk through the household sector,
Speaker 1: and that's the bigger risk, not just looking through being
Speaker 1: potentially considering downtown. In one David pitch, come back when
Speaker 1: you saw brexit, he is with an accident this morning
Speaker 1: Sun for one time, keen getting you started on a Tuesday,
Speaker 1: the first date of the fourth quarter. To frame this,
Speaker 1: and particularly for a US audience, we need to look
Speaker 1: at Europe. Timothy graph with US with State Tree Global Market.
Speaker 1: Tim I want to start with why an American audience
Speaker 1: needs to focus on europe dynamics. That's not intuitive, and
Speaker 1: yet there we are weak euro strong dollar le guard
Speaker 1: coming in. Why do you care about Europe if you're
Speaker 1: someone planted in the United States of America? Sure, Tom, absolutely,
Speaker 1: good morning. UM. I think a lot of what happens
Speaker 1: in Europe matters quite a bit for US investors in particular,
Speaker 1: not least given the anchoring of yields caused by central
Speaker 1: bank policies in Europe, which of course have drive and
Speaker 1: driven yields significantly. Lower treasuries tend to respond to that
Speaker 1: and and get a demand, as does the dollar in
Speaker 1: response to that based off of yield differentials. Europe is
Speaker 1: also I think important as kind of where a lot
Speaker 1: of the negative feedback loops as far as trade tensions
Speaker 1: are concerned, are happening in that it is a very
Speaker 1: open economy. You have other smaller European enemies like Sweden
Speaker 1: that are even more open and that respond to these
Speaker 1: trade tensions and particularly the reduction in trade volumes and
Speaker 1: the hits to industrial production growth in emerging markets. They're
Speaker 1: very sensitive and that has global implications that the most
Speaker 1: investors need to pay ten. John Ferroll, this is incredibly
Speaker 1: important what Mr Graff said about feedback loops. To me,
Speaker 1: that's a huge theme in the Yuran. Wou'd t him.
Speaker 1: Let's explore it further. You've been bullished the dollar now
Speaker 1: for what four years, a lot of people trying to
Speaker 1: work out the pieces that pull together to generate the
Speaker 1: circumstances whereby the dollar actually does roll over, and it
Speaker 1: hasn't been the differential story, Tim, So what will it be?
Speaker 1: I'm at this point what I think that the most
Speaker 1: likely approximate cause is a FED that is even more
Speaker 1: dubblish than what markets anticipate. In the markets already anticipates
Speaker 1: some more rate cuts over the coming twelve months, So
Speaker 1: I think it's going to really require that because, as
Speaker 1: you noted, the fall in relative real direct differentials between
Speaker 1: the US and other currencies so far has not impacted it.
Speaker 1: You have clear dollar funding gaps that are showing up
Speaker 1: on foreign balance sheets. You have funding dislocations in the US,
Speaker 1: or a night market as we've seen the last couple
Speaker 1: of weeks, all of which speak to to me at
Speaker 1: least a structural demand for dollars that even the easier
Speaker 1: FED policy we've seen over recent months is not enough
Speaker 1: to quench. And so I think the response of the
Speaker 1: FED is probably the key variable here. And that's kind
Speaker 1: of why, even though I'm looking for reasons to be
Speaker 1: negative on the dollar, I can't really find them, because
Speaker 1: at least as far as the way the FED is
Speaker 1: currently speaking, I don't see that shift happening at least
Speaker 1: for the next several months. Too many people have struggled
Speaker 1: to get the dollar call right, especially over the last
Speaker 1: couple of years. The consensus view right now is to
Speaker 1: be shut the global cycle to some degree, and certainly
Speaker 1: not to be long the inflation story, tim is the
Speaker 1: some optionality there that you want to take? Yeah, I
Speaker 1: think as much as I don't see, you know, the
Speaker 1: FED needing to respond to a lot of the the
Speaker 1: disinflationary conditions and and continuing to to ease policy a
Speaker 1: lot further. I think break evens, it's just our tips
Speaker 1: in general, look attractive from a risk reward perspective. Basically,
Speaker 1: as you say, no one is contemplating the possibility of inflation,
Speaker 1: and I suspect that's kind of probably going to be
Speaker 1: the reality while we're in this environment of trade tensions.
Speaker 1: But the fall and forward break evens too, not just
Speaker 1: in the US but elsewhere, has been so aggressive towards
Speaker 1: multi year lows that I think risk reward favors having
Speaker 1: at least some inflation protection as part of a portfolio.
Speaker 1: Even if you know you do get continued falls and
Speaker 1: nominal yields and inflation protection, inflation protection will still do
Speaker 1: relatively well, just not as well as nominals it end
Speaker 1: growth inflation protection. That's a good question. Yeah, it probably
Speaker 1: in this day and age, it probably is, and that
Speaker 1: you know, that was the narrative we had a couple
Speaker 1: of years ago when stocks were the new bonds, when
Speaker 1: the SMP DI it end yield rose above nominal yields
Speaker 1: as it has done recently, and so I suspect It
Speaker 1: probably is as good of an inflation brea to protection
Speaker 1: as anything else. Right now, Tim grit to catch up,
Speaker 1: the Timothy graph sty straight ahead of a mere Macris strategists,
Speaker 1: wang In on global markets tongue a lock fun here.
Speaker 1: It's October one, Q four. All the stresses out there,
Speaker 1: the pageantry we're seeing in China just extraordinary, the very
Speaker 1: serious protests in Hong Kong as well, And we need
Speaker 1: to describe. And we have a guest here that can
Speaker 1: absolutely nail this, which is what we always hope for
Speaker 1: at Bloomberg Surveillance. Tottenham's playing the Germans. Man City is
Speaker 1: playing Denomos Zagreb. But did I get that? Was like close? Yeah? Real?
Speaker 1: What's club Bruge, Club Bruge? What is going on? What's
Speaker 1: the Champions League's when with the big clubs in Europe
Speaker 1: playing each other? Is this bigger than pre your football? Yeah?
Speaker 1: To win the Champions League is massive. It is like
Speaker 1: a bigger deal than like Man City last year. Yeah,
Speaker 1: Liverpool win in the Champions League. I think Man City
Speaker 1: would have liked to have done what Liverpool did last
Speaker 1: year and win the Champions League. Is it a locomotive Moscow?
Speaker 1: Or is it so this is this is the group stage.
Speaker 1: So this is the group stage. You have to come
Speaker 1: top two, which group advance in the knockout stages? Lets
Speaker 1: have the longest Investco Investco dim When you and the
Speaker 1: rest of you are watching ten games at one time, Uh,
Speaker 1: they do look at me like I'm an alien um
Speaker 1: when what the the whole father is about? But you know,
Speaker 1: it's the greatest sport in the world. And the Champions
Speaker 1: League is really the the Acropolis, the Olympus soccer. I agree,
Speaker 1: it's just a beautiful thing. First in the tears here,
Speaker 1: you're gonna watch some of it, like Juventus bear Is
Speaker 1: that like a big deal? That's a nice game to watch.
Speaker 1: You should watch. That is so like one game here
Speaker 1: I need to focus on. Oh, come on, Liverpool's playing
Speaker 1: Red Bull tomorrow. I would say that the pick of
Speaker 1: the peak of today and tomorrow is Barcelona Inter tomorrow
Speaker 1: at three pm. Okay, focus, which is an inter Milan
Speaker 1: is a less team. We welcome all of you coast
Speaker 1: to coast across. They're still with us. Let's go to
Speaker 1: let's turn it within your research note to America, which
Speaker 1: is Investco, which was you know, the combination with Oppenheimer's
Speaker 1: all about international investment, but you're saying America first, that's
Speaker 1: still not time to overweight international. Yes, the cyclical forces
Speaker 1: are still suggesting that um U S equities are still
Speaker 1: the better place to be, both from a from a
Speaker 1: policy standpoint, as well as the dynamism within the private sector,
Speaker 1: the resilience in the private sector. Certainly, valuations and long
Speaker 1: term prospects are now beginning. Long term expected returns are
Speaker 1: looking more attractive in foreign markets, including emerging mode. What's
Speaker 1: the catalyst for me to have the code? Exactly? You
Speaker 1: always need the catalyst. Valuations don't make a trade. What
Speaker 1: will the catalysts be? We need to see that the
Speaker 1: turnaround in in emerging market Emerging markets growth, I think,
Speaker 1: is what's going to lead us into this rotation trade.
Speaker 1: But it may well take first that general global recession
Speaker 1: to reset the clock. Remember the G twenty in Argentina
Speaker 1: around about twelve months ago. Remember remember what the market
Speaker 1: was looking for also is looking for a truce with
Speaker 1: China and the United States, and that's actually what we
Speaker 1: got the G twenty in Argentina. It wasn't enough to
Speaker 1: stop an ugly Q four and the consensus for you
Speaker 1: that I keep hearing looking out through the rest of
Speaker 1: this quarter and looking into is that it will be
Speaker 1: defined by the trade story. The trade story holds the
Speaker 1: keys to what will happen the fate of assets cross
Speaker 1: asset and worldwide. And so do you think we're missing
Speaker 1: the broader story because a lot of people thought that
Speaker 1: would define Q four and that's really not what defined
Speaker 1: Q for What defined Q forwards a series of monegy
Speaker 1: policy mistakes. Looking back on things, what do you think
Speaker 1: really determines the outcome of assets governed out twelve months?
Speaker 1: And can we really say it's just one thing, it's
Speaker 1: the outcome of the tride story. I think we're going
Speaker 1: out twelve months, that's still the story really because monetary policy,
Speaker 1: as as we've discussed in the past, cannot really offset that.
Speaker 1: There's we're now pushing on a string. And today's and
Speaker 1: with the bond sell off is a bit of an
Speaker 1: example of that. UM and equity evaluations are otherwise very stretched.
Speaker 1: So to be honest, uh, bond yields are the asset
Speaker 1: class that has reflected most cleanly that trade bearishness and
Speaker 1: bond lower bond yells is what is maintaining high equity
Speaker 1: evaluations globally. Where you see the impact of that trade
Speaker 1: war is really in this outperformance of US equities compared
Speaker 1: to international and emerging market equities. That spread, given the
Speaker 1: global expansion that we've seen otherwise, doesn't make sense. Right.
Speaker 1: Trade is affecting foreign markets much more than US domestic
Speaker 1: markets because of the much larger propensity. But this is
Speaker 1: fascinating because if we get a successful trade agreement, even John,
Speaker 1: as you're complaining earlier, if it's just some quick thing
Speaker 1: to get through to the politics of that's bad for
Speaker 1: US equities because the side relief will shift US to
Speaker 1: abid an international On a relative basis, that should be
Speaker 1: far more positive for international markets than US markets. Does
Speaker 1: it mean that US equities should suffer outright? No, that,
Speaker 1: but on a basis on really important folks. I mean,
Speaker 1: this is one of the great bets of Q four. John,
Speaker 1: you okay over there, Yeah, I'm just following the conversation.
Speaker 1: Do you think Milan really can do it again? How
Speaker 1: would speaking? That wasn't what I was thinking about. If
Speaker 1: you've got some real stats, to the real stats, you're
Speaker 1: making them up. I'm reading, folks, on reading this, I'm
Speaker 1: read on this and like like Pharaoh's over there reading
Speaker 1: it on next the Washington always told thalking about the
Speaker 1: potential about performance abroad and global equities. It started to
Speaker 1: get me thinking about the underperformance of forleign exchange and
Speaker 1: for the U S Dollar against G ten. And I
Speaker 1: think if you really want to construct the story to
Speaker 1: tell that develops into a weaker dollar story, you need
Speaker 1: to be telling me good things about global growth. You
Speaker 1: need to be telling me a better story of global trade.
Speaker 1: Can you tell me a better story in that unlocks
Speaker 1: that dollar weakness? It would have to be in relative terms.
Speaker 1: I think it's bearing a successful trade negotiation that creates
Speaker 1: that catalyst that thom was talking about, that catalyst to
Speaker 1: um accelerate foreign growth. The the only other element, the
Speaker 1: only other narrative that you can build, is a surprising
Speaker 1: deceleration in US growth their own relative terms, UH raises
Speaker 1: the attractiveness of foreign markets given we're how we're currently priced.
Speaker 1: The positioning in fair ever of US asset classes is
Speaker 1: now really a multi year high. Right. Any asset class
Speaker 1: you pick, bonds, credit, equities, U S, s A classes
Speaker 1: have outperformed for there are foreign counter parties now for
Speaker 1: many many years. The potential for that rotation and the
Speaker 1: turnaround in expeditions is very powerful. I want to wrap
Speaker 1: things up on the bond market for our listeners that
Speaker 1: might have just tuned in. We had a tenure bond
Speaker 1: auction in Japan overnight, the weakest demanded around about three years.
Speaker 1: We had some tweaks from the BLJ yesterday which essentially
Speaker 1: meant they really want to wink at the front end
Speaker 1: of the yield curve in Japan. I want to buy
Speaker 1: less of the long end to generate a steeper yeld
Speaker 1: curve that spooks some investors. It's bleeding into global bond markets.
Speaker 1: Steeper curbs, higher yields. Do you think that the e
Speaker 1: c B, and this is really aimed at the e
Speaker 1: c B. We'll be looking at Governor Coroda right now
Speaker 1: in the Bank of Japan and thinking if this works,
Speaker 1: if risk assets, equities credit can do well in a
Speaker 1: rising yield environment because the curve is steeper and at
Speaker 1: the Bank a Japan is being able to adjust the
Speaker 1: modalities of its bond buying program to generate that to
Speaker 1: determine that outcome. Do you think the ECB could follow suit?
Speaker 1: The c B could um I am still skeptical of
Speaker 1: how much steepening of the yield curve we can generate here. Um,
Speaker 1: given the challenges that we have, and given the limited
Speaker 1: prospects on long term nominal growth without a healthy and
Speaker 1: credible rise of inflation let's say just one one and
Speaker 1: a half percent UM, it's very difficult to maintain a
Speaker 1: steeper yield curve from here. Then within that does investors
Speaker 1: suggest scale that people come in, there'll be more M
Speaker 1: and A, etcetera. Q four. I mean, John, it's got
Speaker 1: to happen if you've got nominal GDP that low. I
Speaker 1: mean you get either you do or you begin a
Speaker 1: merging acquisitions discussion before one. Right, Well, yeah, not really
Speaker 1: my turf to to opine on that. I think you
Speaker 1: in trouble. I think the I think the challenges um.
Speaker 1: You know, M and as globally have been really mostly
Speaker 1: a function of it's where, it's where why the borrowing
Speaker 1: has taken place. Like when you look back, we always
Speaker 1: ask ourselves what could be the excesses that bring the
Speaker 1: current cycle to its end. There is none to point
Speaker 1: out unless you look at the non financial corporate death
Speaker 1: sector and all of that leverage has really been deployed
Speaker 1: into share buybacks and m and A activity. If that
Speaker 1: willingness to borrow or to land decreases, that's a part
Speaker 1: of them. Quickly, before you watch Milwaukee Washington and the playoffs?
Speaker 1: Where are you gonna watch Champions League? What's what are
Speaker 1: you watching? The three? It will have to be u Enters.
Speaker 1: I guess that's my my pig for Italian team up six.
Speaker 1: Unless you're in Vasco. Good morning, This is Bloomberg, m John,
Speaker 1: True and Tim Keene. We're focused on the markets. We'll
Speaker 1: get to that in a minute. Right now, we are
Speaker 1: thrilled on the seventieth anniversary of what mao rot have
Speaker 1: Meredith sumter with us if you raise your group, Meredith John,
Speaker 1: I believe Genrett and I can't remember. In the blur
Speaker 1: of the morning, the President tweeting out congratulations President g
Speaker 1: on the seventie anniversary. Translate that how is that treated
Speaker 1: by the Chinese? And how is the president's congratulations given
Speaker 1: the span of seventy years in US Sino relations? The
Speaker 1: President's offering the greetings uh and congratulations on the seventieth anniversary.
Speaker 1: I'm sure it will be warmly received in Beijing, but
Speaker 1: it does not fundamentally change the underlying constraints of these
Speaker 1: the world's too largest economies, finding some kind of reconciliation
Speaker 1: between their two economic models. So look, we're we're we're
Speaker 1: looking at the prospects for some kind of not a
Speaker 1: full fledged deal, but even some kind of of modest
Speaker 1: agreement or arrangement when Leo Hook comes to Washington next
Speaker 1: week that would at least sort of ease an onward
Speaker 1: escalation of tariffs. That's what she Jumping is really focused
Speaker 1: on too. He has is not interested in any comprehensive
Speaker 1: deal with um President Trump. He views President Trump as
Speaker 1: weak beholden to the ballot box. But even further weekend
Speaker 1: after the threat of impeachment and impreachment proceedings which euris
Speaker 1: your group believes will result in the House voting to
Speaker 1: impeach the president and we place a seventy fent probability
Speaker 1: on that. So what we see the Chinese doing essentially
Speaker 1: with and I know Tom, you and Gen are also
Speaker 1: watching this as well. There have been reports that China
Speaker 1: is going to move forward with some soybean purchases. Uh,
Speaker 1: they are moving forward with you know, some further slight
Speaker 1: opening its financial sector. They're doing things to allow for
Speaker 1: an easy enough current tensions, but they're not interested in
Speaker 1: fundamentally coming to the table with the kinds of structural
Speaker 1: reforms that Trump's Washington says it's necessary for a long
Speaker 1: term agreement to take hold. I think in sum to speak, John,
Speaker 1: that was called a complete cave by the United States Meredith.
Speaker 1: Wouldn't that be somewhat disappointing if that's what we do
Speaker 1: get after spending eighteen months to aggressively take on the
Speaker 1: Chinese to do what many people agree is the right
Speaker 1: thing to do, to get them to open up, to
Speaker 1: get them to level the playing field, wouldn't it be
Speaker 1: somewhat disappointing that they caved and absolutely achieved very little.
Speaker 1: That's exactly right, John, And and this is why we
Speaker 1: have this sort of paradox in Washington right now, where
Speaker 1: you have a president because of the political risk from impeachment,
Speaker 1: he is primed to find some kind of arrangement. And
Speaker 1: keep in mind, he's got to keep those repor bign
Speaker 1: senators on his side. Uh, And they're telling him you
Speaker 1: need to stave off on the onward escalation of tariffs.
Speaker 1: So he's got that on the other side, he's got
Speaker 1: nothing from Beijing on the fundamental asks that Bob let
Speaker 1: Heiser has been putting on the table consistently since September,
Speaker 1: and Beijing is just waiting to see who's gonna be
Speaker 1: elected in November. So I think the risk here for
Speaker 1: investors is not so much what's happening in the trade space,
Speaker 1: but the real game is going to come outside of
Speaker 1: the trade space, because the trade space is kind of
Speaker 1: static right now. So you've got to look at the
Speaker 1: at the national security or the non trade areas. And
Speaker 1: that's why the announcements on last Friday, and you know,
Speaker 1: continued over the weekend of uh potential increased US scrutiny
Speaker 1: of Chinese companies listing on US markets. It's that kind
Speaker 1: of onward escalation outside of tariffs that we're gonna be
Speaker 1: watching forth moving forward. I would suggest, Meredith that maybe
Speaker 1: what we could do is have the president throughout the
Speaker 1: first baseball at the Brewers and National Game tonight. That
Speaker 1: would be a good start something. Just to wrap things up.
Speaker 1: I'll go to question with you is often to get
Speaker 1: insight as to what is happening with the Chinese press.
Speaker 1: I'd be really intrigued to find out from you just
Speaker 1: how this impeachment inquiry of speaking Pelosi is playing in
Speaker 1: China right now? What's the story the Chinese people being
Speaker 1: told and how is it resonating with the government. In
Speaker 1: this week, the focus is less on the impeachment and
Speaker 1: more on the seven Daith anniversary, and so there hasn't
Speaker 1: been as much speculation in Chinese press about it. Uh too.
Speaker 1: It's a very foreign concept, I think for the Chinese
Speaker 1: people to look at what they would presume to be
Speaker 1: the most powerful political operator in the United States, the
Speaker 1: most powerful country of the world, being humbled in this way. Uh.
Speaker 1: But you know, if you talk to Chinese contacts in
Speaker 1: the negotiations around the negotiations, this just further confirms for
Speaker 1: Beijing that time is on their side and that as
Speaker 1: you know, President Trump deals with these imp proceedings and
Speaker 1: the political embarrassment to him of being impeached, even if
Speaker 1: he's not going to be removed from office. You know,
Speaker 1: from Beijing's perspective, they're using this time to double down
Speaker 1: on economic resiliency. So as you know, tariffs go up
Speaker 1: with US, they look for other ways to get tariffs
Speaker 1: to come down with other trading partners. They're looking for
Speaker 1: other ways to reform their economy in in China's own
Speaker 1: view of how its economy should be reformed to strengthen
Speaker 1: it for a long term confrontation because they know, regardless
Speaker 1: of whether the president is removed from office, regardless of
Speaker 1: who wins in November, they know they've got a long
Speaker 1: term economic struggle with the United States, and they're preparing
Speaker 1: for that. Meredith sumteror you're with us of uh Mao's
Speaker 1: Chinese Revolution, Meredith Sumter with Eraise your group, Dane Swark
Speaker 1: with us right now, let's get to this, Grant and Dine.
Speaker 1: You just heard John go through the busy week that
Speaker 1: we're going to see. What will we know next Monday.
Speaker 1: I think one of the things will know next Monday
Speaker 1: is just how weak is manufacturing and persisting or are
Speaker 1: we seeing a bit of a dead cat bounce or
Speaker 1: something coming back here. That's been one of the key
Speaker 1: issues we're watching very closely, and more importantly is their
Speaker 1: contagion into the rest of the economy. What we want
Speaker 1: to see is the weakness we've seen tied to growth abroad,
Speaker 1: and the weakness and growth abroad and the trade war
Speaker 1: to start to dissipate instead of compound, and so far
Speaker 1: we've yet to see that done. A ton of data
Speaker 1: through the week. What are the data points out of
Speaker 1: everything we get that you will be closely following the
Speaker 1: most more than anything, well, the I s M and
Speaker 1: the employment of course, the I s M s because
Speaker 1: they give us a sense more on a real time basis.
Speaker 1: And what's interesting is this employment report that we've got
Speaker 1: for the month of September will not include that comes
Speaker 1: out on Friday, will not include the GM strike That
Speaker 1: will if it continues into next week in the October data,
Speaker 1: but it will show up in production as we go forward,
Speaker 1: and things like that and so knockoff effects, those things
Speaker 1: are going to be important. But the employment data on
Speaker 1: Friday really watching participation. Diane Swunk mentioned it there, and
Speaker 1: I would suggest that she is more qualified than anyone
Speaker 1: we speak to day after day after day to speak
Speaker 1: on the atomization of the American labor movement and an
Speaker 1: underreported GM strike. Have you been struck, Diane of how
Speaker 1: it has been underreported this effort at General Motors. I
Speaker 1: think more striking is how few people it includes. I
Speaker 1: remember Peck when I was a kid, when Gianne had
Speaker 1: over six hundred thousand workers. We're talking about fifty eight
Speaker 1: thousand workers UM about fifty thousand workers workers on strike,
Speaker 1: and then the knockoff effects to suppliers and production in
Speaker 1: Canada as well has been idled. So it does have
Speaker 1: an impact, and it many of the workers show up
Speaker 1: in different places and they once did as well. It's
Speaker 1: not just the complete loss of manufacturing at GM, it's
Speaker 1: also the workers that were one classified as workers at
Speaker 1: GM are now classified as you know, service workers outside
Speaker 1: of GM, accountants and things like that. What is the
Speaker 1: urgency to settle this strike for the management of General
Speaker 1: Motors but also for the Greater Midwest region. Well, it's
Speaker 1: really clear at a time it's adding insult to injury
Speaker 1: at a time when we're already feeling the effects of
Speaker 1: terrace in the manufacturing sector. And this is critical as
Speaker 1: it goes through the supplier chain. The supply chain is
Speaker 1: being affected. And I think that's the way we need
Speaker 1: to think about it is the knockoff effects are not insignificant.
Speaker 1: It's hard to make up these days the losses to
Speaker 1: these kinds of things, this manufacturing recession. If you run
Speaker 1: a regression equation, you throw on epsilon and the far right.
Speaker 1: But along the way they are those things, those coefficients.
Speaker 1: How large is the Trump Mercantile coefficient? How large in
Speaker 1: this manufacturing slowdown is the trade war? The trade war
Speaker 1: is certainly a key factor for the US, because what
Speaker 1: we have is a global economic saw down. That's certainly
Speaker 1: is exacerbating it. And it's often, you know when I
Speaker 1: think the trade wars exacerbated weakness, most notably in China.
Speaker 1: So as China was stumbling, we stook our foot out
Speaker 1: and they stub They're stumbling even more and tripping up
Speaker 1: even more. But there's no question that for the US
Speaker 1: this has really been some unintended consequences in terms of
Speaker 1: the fallout effects. We all know that China cheats. There's
Speaker 1: all kinds of issues with regard to our tense relationship
Speaker 1: with China. The question is is this the right way
Speaker 1: to solve them? Given the knockoff effects in the manufacturing sector,
Speaker 1: particularly here in the Midwest where we're feeling at most.
Speaker 1: Let's try and tie all of this together as we
Speaker 1: can with one common theme. It just seems to me
Speaker 1: that the epicenter of a lot of this is a really,
Speaker 1: really weak global autosector right now, Diane, just how much
Speaker 1: is that one sector driving things? Well, it's not the
Speaker 1: only sector driving things, but it is a major you know, ironically,
Speaker 1: the auto sector driving things. This is muhicle sales peaked
Speaker 1: in China some time ago, and that's where it was
Speaker 1: one of the fastest growing markets for the global vehicle autosector.
Speaker 1: It's one of the reasons that Germany is feeling the
Speaker 1: sluggishness it is and um flirting with recession itself at
Speaker 1: this stage of the game. So you really do see
Speaker 1: the effects globally here. But it's more than that alone.
Speaker 1: I think the disruptions to the supply chain throughout our
Speaker 1: economy are really quite large in the global economy, and
Speaker 1: the slowdown the inability to stimulate like we once did.
Speaker 1: Let's face it, we just don't have the tools. Then,
Speaker 1: you know, I don't want to be a Debbie Downing here,
Speaker 1: but that's okay. Is attacks, It really is attacks in
Speaker 1: the economy. Not only the tear of the direct tax,
Speaker 1: but the indirect tax of uncertainty is even greater. That's
Speaker 1: the first in the quarter. You're allowed to be Diane Downer,
Speaker 1: but I'm out of time day and I got like, seriously,
Speaker 1: I got like fifteen more questions and we'll get to
Speaker 1: get her back on. That was brilliant when Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter her at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio