WEBVTT - Surveillance: The Dollar Can Climb Higher, Foley Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.120 Bloomberg dot Com, and of course on the Bloomberg So 0:00:32.159 --> 0:00:34.240 a big federal reserve decision a great height, but I've 0:00:34.280 --> 0:00:36.720 never seen so much debate over a federal reserve decision 0:00:36.720 --> 0:00:40.320 which involves such few changes to the monetary policy stance 0:00:40.600 --> 0:00:42.600 and even the projection. So let's bring in Jane Foley 0:00:42.640 --> 0:00:45.720 from London Rabba bankhead of fect Strategy. Jane, what was 0:00:45.800 --> 0:00:49.360 your takeaway on a hugely debated federal Reserve decision which 0:00:49.400 --> 0:00:53.680 really generated very little change at all. Well, that's exactly right. 0:00:53.680 --> 0:00:56.080 But I think what the market really is debating about 0:00:56.160 --> 0:00:58.320 right now is is what's going to happen? Saying the 0:00:58.320 --> 0:01:01.440 tailor under twenty nineteen, what's going to happy? I think 0:01:01.440 --> 0:01:04.160 that's what the largest amount of uncertainty is concerned. I mean, 0:01:04.200 --> 0:01:06.959 already surveys are suggesting that the UK or the US 0:01:07.160 --> 0:01:10.959 they could go into ston in twenty Therefore, there's still 0:01:10.959 --> 0:01:13.480 I think a lot of uncertainty about what would happen 0:01:13.520 --> 0:01:16.880 back from the second half of so you sort of 0:01:16.880 --> 0:01:20.840 know what that has projected to do in in the say, 0:01:20.880 --> 0:01:24.120 the next twelve months. But beyond that, I think there's 0:01:24.160 --> 0:01:27.319 a lot of uncertainty uncertainty, and I think that's really 0:01:27.319 --> 0:01:29.480 where the crux of the debate is. And Jane, what 0:01:29.640 --> 0:01:32.360 often comes with the Fellow Reserved decision as the summary 0:01:32.440 --> 0:01:34.600 of economic projections, And as you points out, that's where 0:01:34.600 --> 0:01:37.440 we get the forecasts from each and every individual Fellow 0:01:37.480 --> 0:01:39.720 Reserve official who plot where they think rates should be 0:01:39.800 --> 0:01:42.280 or will be over the coming years. We have a 0:01:42.280 --> 0:01:44.280 pretty good idea of where the President of the United 0:01:44.319 --> 0:01:47.400 States would put his dot plot on this specific dot 0:01:47.520 --> 0:01:50.360 chard m Jane for you, though, it's quite interesting looking out, 0:01:51.360 --> 0:01:55.960 looking out, we see a pretty spread out view of 0:01:56.120 --> 0:01:58.280 rates and a pretty big range as well. What do 0:01:58.280 --> 0:02:00.360 you make of that. I don't see the bunching that 0:02:00.440 --> 0:02:04.760 maybe we've seen in decisions and forecasts gone by. Well, 0:02:04.800 --> 0:02:06.880 I think a year we've had this debate about bond 0:02:06.960 --> 0:02:08.639 deals and what are they telling us of that The 0:02:09.080 --> 0:02:11.239 curve earlier in the year was planning in the market 0:02:11.240 --> 0:02:15.040 got quite upset about the possibility of that that was 0:02:15.800 --> 0:02:18.360 showing a slowdown. We know, of course right now that 0:02:18.400 --> 0:02:22.079 the US is benefiting, of course from the the expansionary 0:02:22.080 --> 0:02:26.040 impact of fiscal listening at the tax cuts, but we 0:02:26.120 --> 0:02:29.360 also know that as we move forward in this cycle, 0:02:29.639 --> 0:02:32.840 particularly when you take account of the progressive interest rate 0:02:32.880 --> 0:02:34.880 hikes that we've had from from the FED, that that 0:02:34.919 --> 0:02:36.799 will run out of steam. Hence you get the talk 0:02:36.800 --> 0:02:40.320 about recession in twenty now. Talking about recession in twenty 0:02:40.440 --> 0:02:43.040 when the US and saying in the second quarters just 0:02:43.160 --> 0:02:46.600 posted growth of four point two percent, seems quite difficult 0:02:46.600 --> 0:02:49.920 to reconcile. And yet that's the path that we may 0:02:49.960 --> 0:02:53.960 be on. And therefore, um, you know, it is very difficult, 0:02:54.000 --> 0:02:57.360 I think, for economists to find a real consensus in 0:02:57.360 --> 0:02:59.799 that time frame. And that is where I think all 0:02:59.840 --> 0:03:03.160 the uncertainty at regarding me, the treasuries and also the 0:03:03.240 --> 0:03:05.560 U s. Dollar. Did the turn to the Ustorians at 0:03:05.560 --> 0:03:08.600 the tail end of next year, That really lie Jen 0:03:08.680 --> 0:03:10.160 stayed with me. I'm very pleased to say that my 0:03:10.240 --> 0:03:12.960 conker is making an appearance in New York City. Good 0:03:12.960 --> 0:03:14.960 morning to Tom King, Good morning John. Got through the 0:03:14.960 --> 0:03:18.560 trafficking time and stopped on how bad is it in Manhattan. 0:03:19.120 --> 0:03:21.680 It's you know, I actually think last year was worse, 0:03:21.800 --> 0:03:24.320 but it is, it is worse than normal. I would say, 0:03:24.480 --> 0:03:26.680 it's like John John Tucker with us as well, John 0:03:26.680 --> 0:03:29.800 coming from New Jersey. I mean, people literally plan what 0:03:29.960 --> 0:03:34.320 an hour ahead account that the you know, they're doing 0:03:34.360 --> 0:03:38.080 construction on the helix. The helix as well, John. The 0:03:38.160 --> 0:03:40.880 helix is a it's like the Eiffel Tower. It's sort 0:03:40.920 --> 0:03:46.280 of an active metal constructing. Something tells me you're not 0:03:46.320 --> 0:03:49.200 being serious as oh no, we were not. Just Jane 0:03:49.200 --> 0:03:51.280 Folly with us with Robbo Bank, Jane, I want to 0:03:51.320 --> 0:03:56.360 know what Robbo Bank economists see in terms of economic growth, 0:03:56.400 --> 0:03:59.480 whether the United States or Europe. There seems to me 0:03:59.520 --> 0:04:03.520 to be an inordinate mystery about what economic growth is 0:04:03.560 --> 0:04:07.800 going to be. Well. I think certainly there has been 0:04:08.400 --> 0:04:11.600 well last year, some good news, better than expected news. 0:04:11.640 --> 0:04:14.520 But I think with respect to looking in the future, 0:04:14.640 --> 0:04:18.520 the uncertainty stems from the trade data and the trade wars. 0:04:18.960 --> 0:04:21.880 And I think if we look at what surveys are saying, 0:04:21.880 --> 0:04:23.880 So for instance, this morning we had confidence survey from 0:04:23.880 --> 0:04:26.719 the Eurozone disappointing. There can be a bit of a 0:04:26.760 --> 0:04:28.960 mismatch between what some of the data is doing, which 0:04:29.000 --> 0:04:32.760 is okay, which in many cases is pretty firm with 0:04:32.839 --> 0:04:35.320 the confidence numbers. And the confidence numbers, there are calls 0:04:35.360 --> 0:04:37.919 looking forward, they are trying to to work through the 0:04:37.960 --> 0:04:40.560 impact of trade wars, and yet there hasn't come to 0:04:40.600 --> 0:04:43.840 fruition too much in the economic data. However, we also 0:04:43.960 --> 0:04:46.960 know that in the economic data there's probably been some 0:04:47.080 --> 0:04:49.720 front loading. Certainly that's going to be the case in 0:04:50.040 --> 0:04:52.720 trade data. If we look at China, for instance, we've 0:04:52.720 --> 0:04:57.600 had better August IP better August retail sales, possibly for 0:04:57.760 --> 0:05:00.880 front loading. But our concern is as we go forward, 0:05:01.200 --> 0:05:03.760 we will begin to see that these costs of the 0:05:03.760 --> 0:05:07.000 trade wards. Well, let's go through the pairs. What's your 0:05:07.080 --> 0:05:10.080 yen call right now? Out one year, we've seen some 0:05:10.160 --> 0:05:14.720 big figure calls for weaker yen. Do you agree? Yes? Now, 0:05:14.760 --> 0:05:17.479 this is we We do agree, and this is largely 0:05:17.520 --> 0:05:19.360 because we are still of the view that the dollar 0:05:19.440 --> 0:05:22.840 can climb further. The dollar with the interst rate story, 0:05:22.880 --> 0:05:24.360 with a growth story have been good in the US 0:05:24.400 --> 0:05:28.600 still seems to be sucking in capital outflows from emerging markets. Now, 0:05:28.600 --> 0:05:31.080 although emerging markets have been firm in recent weeks, we 0:05:31.160 --> 0:05:33.680 don't think that that story is over, and that is 0:05:33.720 --> 0:05:36.680 because of again the China story. We think the China 0:05:36.720 --> 0:05:39.000 story is only really beginning and we will see at 0:05:39.000 --> 0:05:41.080 worst data. There's already quite a lot of bad data 0:05:41.120 --> 0:05:43.680 from China if you look, if you just scratch below 0:05:43.680 --> 0:05:46.480 the surface. So we do think that the dollar will 0:05:46.520 --> 0:05:49.400 remain firm. So Jane, help we understand something, because there's 0:05:49.400 --> 0:05:51.320 a lot of listeners out there that are looking to pivot, 0:05:51.520 --> 0:05:55.799 and what is involved with that pivot is increasing international exposure, 0:05:55.800 --> 0:05:58.080 moving away from the United States, taking down your risk 0:05:58.080 --> 0:06:00.560 there just a little bit an increasing exposure or elsewhere. 0:06:00.800 --> 0:06:03.320 Do you suggest people do that through EM or through 0:06:03.360 --> 0:06:07.440 Europe right now? No, we're still very cautious on EM 0:06:07.560 --> 0:06:10.240 And again this is because we don't think that we've 0:06:10.279 --> 0:06:12.680 seen or we think perhaps if US has been lolled 0:06:12.680 --> 0:06:14.640 into a false sense of security with respect to some 0:06:14.680 --> 0:06:17.960 other data that I've just mentioned for the Chinese August data, 0:06:18.360 --> 0:06:20.159 we do think that this is going to come through. 0:06:20.200 --> 0:06:22.440 In fact, you know, it's really quite interesting. You know, 0:06:22.440 --> 0:06:25.239 there are stories right now that there have been China 0:06:25.320 --> 0:06:30.440 has been unofficially restricting imports, commodities, imports from places like Australia, 0:06:30.480 --> 0:06:33.920 and this is there's slowing down the custos approvals because 0:06:33.960 --> 0:06:37.080 demand for raw materials and industrial products has taken a 0:06:37.160 --> 0:06:39.120 hit in China, so all of this is likely to 0:06:39.160 --> 0:06:42.160 come through. This will be bad news for e MUM 0:06:42.240 --> 0:06:44.599 and probably good news for the dollar given the intrastruct 0:06:44.640 --> 0:06:47.679 differential it continues to support the dollar. Jane Foley always 0:06:47.680 --> 0:06:49.880 great to get your insight following a federal reserved decision. 0:06:49.920 --> 0:07:05.320 Jane Foley, the rubber backhead of Effects Strategy. John, I 0:07:05.360 --> 0:07:08.240 know you were. You were reading your Horse Walpole seventeen 0:07:08.320 --> 0:07:11.000 sixty one, where he spoke about Lame Duck at the 0:07:11.080 --> 0:07:14.680 London Stock Exchange. And then John migrates over to January 0:07:15.360 --> 0:07:18.720 eighteen sixty three in the heart of the Civil War, 0:07:19.080 --> 0:07:22.000 where in the Congressional Globe they talk about lame Duck's 0:07:22.040 --> 0:07:24.880 Libby cantrol of Pimcoe study this very very cleful. Maybe 0:07:24.880 --> 0:07:28.360 did the same thing. I'm sure Lame Duck. I mean, 0:07:28.400 --> 0:07:31.120 there it is, and it could be upon us in November. 0:07:31.600 --> 0:07:34.320 What is the import of that to our listeners this 0:07:34.480 --> 0:07:38.360 time around? I think the most relevant issue that may 0:07:38.400 --> 0:07:41.080 be addressed in the Lame Duck is um is potentially 0:07:41.600 --> 0:07:45.320 a consideration of NAFTA or HAFTA. Uh, given that it 0:07:45.320 --> 0:07:47.320 doesn't look like the Canada's gonna be able to come 0:07:47.360 --> 0:07:50.240 to the deal. UM. So just from a from a 0:07:50.280 --> 0:07:54.120 procedural perspective, UM, A deal needs to be finalized by 0:07:54.200 --> 0:07:56.000 in the next few days in order for it to 0:07:56.000 --> 0:07:59.320 be considered by before the end of this of this Congress. Um. 0:07:59.400 --> 0:08:02.480 And so there is a Mexican bilateral deal without Canada. 0:08:02.520 --> 0:08:03.800 I think that's gonna be the big issue in front 0:08:03.800 --> 0:08:06.000 of in front of Congress. Let's rip up the script 0:08:06.080 --> 0:08:08.680 and we we We saw this literally in the last 0:08:08.760 --> 0:08:12.880 forty eight hours. I mean, the President wouldn't even speak 0:08:12.880 --> 0:08:16.400 with Mr Trudeau of Canada at the at the festivities 0:08:16.440 --> 0:08:20.160 in New York. We've reached a new level of seriousness 0:08:20.200 --> 0:08:24.480 in this neft to debate. Absolutely. I mean I I've 0:08:25.200 --> 0:08:27.200 I thought that the market has been a little bit 0:08:27.200 --> 0:08:30.320 sanguine about, um, the sort of idea that they could 0:08:30.360 --> 0:08:32.280 come to a resolution so quickly. I mean, these are 0:08:32.280 --> 0:08:36.120 these big media issues between Canada and the US, things 0:08:36.120 --> 0:08:39.240 that have been relevant when we were negotiating TPP with them, 0:08:39.600 --> 0:08:43.560 Dairy subsidies, dispute resolution, auto tariffs. Um. These are not 0:08:43.720 --> 0:08:46.120 things that can be I don't think reconciled in a 0:08:46.160 --> 0:08:47.880 matter of days. And I think that's what you're seeing 0:08:47.960 --> 0:08:50.400 right now. Um. So, I think the big big question 0:08:50.480 --> 0:08:53.000 is here is will members of Congress actually ratified by 0:08:53.200 --> 0:08:56.080 bilateral with Mexico? You know, I'm skeptical, are they? When 0:08:56.120 --> 0:08:59.360 we had the Ford President and chief executive Officer Mr 0:08:59.400 --> 0:09:03.000 Hackett at our Bloomberg Forum yesterday and I'm not sure 0:09:03.040 --> 0:09:06.600 if it came up, but X percent of any given automobile, 0:09:07.080 --> 0:09:10.280 like an F one pickup truck has a Mexican or 0:09:10.320 --> 0:09:14.240 windsor Ontario component to it. Do they understand that? In 0:09:14.280 --> 0:09:18.240 your world living? Um? Yeah, So, I mean, obviously the 0:09:18.280 --> 0:09:21.280 supply chain is incredibly integrated with especially with Mexico, but 0:09:21.320 --> 0:09:25.319 also with Canada. And I think that's why, um, folks 0:09:25.480 --> 0:09:29.600 in Congress have been so concerned about both NAFTA potential 0:09:29.679 --> 0:09:32.640 naft to withdraw and the auto tariffs. UM. Just given 0:09:32.960 --> 0:09:35.679 how sort of integrated we are with with especially our 0:09:35.679 --> 0:09:38.559 our neighbors to the north and the south, I think 0:09:38.559 --> 0:09:41.240 they do understand it. Um. But obviously this is politics 0:09:41.360 --> 0:09:44.000 ruling economics right now. Well, let's go back to the 0:09:44.080 --> 0:09:46.480 lame duck theme then as well. You know, let's assume 0:09:46.520 --> 0:09:49.439 we get a Democrat House. And you know, David Wasserman 0:09:49.559 --> 0:09:51.760 was writing up yesterday in the Cook Political Report and 0:09:51.760 --> 0:09:54.560 there's a huge doubt of us. I get the uncertainty, folks, 0:09:54.600 --> 0:09:59.120 and we heard that from you earlier. But nevertheless, it 0:09:59.400 --> 0:10:03.000 does it just stall through the lame duck or there's 0:10:03.040 --> 0:10:06.880 just a few chosen pieces of legislation that maybe get 0:10:07.080 --> 0:10:10.720 addressed within the uproar. Yeah, And I think it's like 0:10:10.720 --> 0:10:13.240 I think it's all going to be predicated on on 0:10:13.320 --> 0:10:15.120 the outcome of the election. I think if you see 0:10:16.040 --> 0:10:18.400 a big Democratic sweep, I mean, of course, Democrats aren't 0:10:18.400 --> 0:10:20.880 going to be very um willing to go along with 0:10:20.920 --> 0:10:22.880 anything in a lame duck session if they are looking 0:10:22.880 --> 0:10:26.680 at much bigger majorities in the normal congressional session. With 0:10:26.800 --> 0:10:29.040 that said, I think Republicans will have a new urgency 0:10:29.080 --> 0:10:32.520 to get things done, including potentially this bilateral with Mexico 0:10:32.760 --> 0:10:36.280 and potentially a confirmation of of Kabanov depending on on 0:10:36.280 --> 0:10:38.920 how that goes. Libby. If we can learn anything from 0:10:38.960 --> 0:10:40.840 politics over the last couple of years, it's to make 0:10:40.880 --> 0:10:44.320 sure we question the consensus before the vote actually takes place. 0:10:44.600 --> 0:10:47.240 There seems to be an overwhelming consensus that the House 0:10:47.360 --> 0:10:51.040 swings towards the Democrats. Now, I still listen to to 0:10:51.200 --> 0:10:53.559 the to the message coming from the Democrats and struggle 0:10:53.600 --> 0:10:56.040 to really understand what it is. Um, what is the 0:10:56.080 --> 0:10:59.000 message the electorate that comes from the Democrats. Well, I 0:10:59.040 --> 0:11:01.680 think that the prevailing message here is and even though 0:11:01.720 --> 0:11:03.640 they may not want it to be, but I think 0:11:03.640 --> 0:11:06.320 it's an anti Trump message, right, this is uh. I 0:11:06.320 --> 0:11:09.960 think that they are running on interestingly on sort of 0:11:10.559 --> 0:11:13.760 providing a check in balance to to the executive branch. 0:11:13.840 --> 0:11:17.120 And that's been a um, something that they've all emphasized. Um. 0:11:17.160 --> 0:11:19.000 So I think that has been a major theme. Now. 0:11:19.400 --> 0:11:22.480 They would say that they're running on infrastructure, they're running 0:11:22.480 --> 0:11:26.640 on healthcare, um. But but certainly providing a check to 0:11:26.640 --> 0:11:29.840 the executive branch is either implicitly or explicitly part of 0:11:29.840 --> 0:11:31.880 their part of their message. Let me thank you so much. 0:11:31.960 --> 0:11:33.920 Let me control where this here really is the day's 0:11:33.960 --> 0:11:38.640 wearing on towards the election. Really, I thought, really in 0:11:38.679 --> 0:11:41.319 the last hours a whole new tone of the polar 0:11:41.320 --> 0:11:55.959 analysis and the study as well. Very pleased to say 0:11:56.080 --> 0:11:58.560 that dropping bot a studio is paid a chatwaw Miszoo 0:11:58.679 --> 0:12:01.720 International head of rate strategy here in London, paid a 0:12:01.720 --> 0:12:03.240 greater catch up with you. Let's pick up with that 0:12:03.320 --> 0:12:06.679 economic data here in Europe and upside surprise on inflation. 0:12:07.200 --> 0:12:09.360 These sentiment numbers don't look great though, and I'm trying 0:12:09.360 --> 0:12:11.439 to reconcile what's going on in Europe because I'm getting 0:12:11.440 --> 0:12:13.559 a lot of conflicting signals. What do you see? We've 0:12:13.559 --> 0:12:17.280 got the classic issue for the euro areas that we're 0:12:17.320 --> 0:12:20.439 getting to trouble if inflation surprises to the upside, particularly 0:12:20.440 --> 0:12:23.920 if it gets above the e CBS target, which it 0:12:23.960 --> 0:12:25.840 currently is, has been for a couple of months and 0:12:25.920 --> 0:12:28.920 is likely to continue to be the case because then 0:12:29.360 --> 0:12:33.040 it's their single mandate. Um they're likely to be looking 0:12:33.320 --> 0:12:37.120 airing towards title monetary policy then they've previously been signaling. 0:12:37.679 --> 0:12:40.520 And that's whilst the growth backdrops not looking so great. 0:12:40.520 --> 0:12:43.760 You know, it's decelerating somewhat. It's it's certainly not looking 0:12:44.040 --> 0:12:47.960 looking dangerous to the downside, but it's not that strong. 0:12:48.280 --> 0:12:52.240 Can you reconcile data dependence with forward guidance? The reason 0:12:52.280 --> 0:12:55.320 I asked this is because we do have an upside 0:12:55.320 --> 0:12:58.480 surprise on inflation in Germany, regardless of what happens with 0:12:58.480 --> 0:13:01.439 growth and inflation. President Dars tied the hands to the 0:13:01.440 --> 0:13:03.600 whole Government Council until the back end of next year 0:13:03.960 --> 0:13:06.800 on rates. So can they truly be dated dependent when 0:13:06.800 --> 0:13:09.560 the whole Governing Council essentially has their hands tied on 0:13:09.760 --> 0:13:14.000 rates for potentially eighteen months. Yeah, so I would think 0:13:14.040 --> 0:13:16.040 that there is some risk that we start to see 0:13:16.080 --> 0:13:19.560 some evidence that the Governing Council may be frayed somewhat 0:13:19.760 --> 0:13:22.719 about that level of commitment, particularly when they're saying that 0:13:22.840 --> 0:13:25.200 rates can't go up until the end of summer. Perhaps 0:13:25.240 --> 0:13:28.200 the debate about the real timing of that comes back 0:13:28.240 --> 0:13:31.360 onto the table. If that just means a rate hikers 0:13:31.400 --> 0:13:34.600 earlier September nineteen, then possibly they need to be hiking 0:13:34.679 --> 0:13:39.440 rates in larger steps. To to Sutain, I don't mean 0:13:39.440 --> 0:13:42.760 to interrupt what you just said. Peter's absolutely critical. John, 0:13:43.080 --> 0:13:47.000 this is a huge deal. This measured discipline we're on 0:13:47.559 --> 0:13:50.360 versus what we used to do in FED, in FED movement. 0:13:51.760 --> 0:13:54.560 It's a big change. Peter. Yeah, Look, this is uh, 0:13:55.000 --> 0:13:58.280 this is a new regime. But I think what what 0:13:58.480 --> 0:14:00.920 we're currently going through is a re pricing of European 0:14:01.000 --> 0:14:03.880 rate expectations quite rightly, and I think that's going to 0:14:03.960 --> 0:14:06.880 be exacerbated as the market comes to consider who the 0:14:06.920 --> 0:14:09.800 next DCP president. Maybe if they are just a more 0:14:09.840 --> 0:14:13.800 neutral outlook than than Jog and also the chief economist 0:14:13.800 --> 0:14:16.800 Peter Pratt have had, then they could well be looking 0:14:16.840 --> 0:14:20.040 at a significantly tighter path of monetary policy for late 0:14:20.120 --> 0:14:22.480 next year. It depending on how long the European cycle 0:14:22.600 --> 0:14:24.600 runs for I mean, we've got a problem. Let's just 0:14:24.640 --> 0:14:26.760 assume that the U S economists are right and we 0:14:26.840 --> 0:14:29.840 might get a downturn in the United States. Where does 0:14:29.880 --> 0:14:32.200 that leave Europe? How long is the cycle? How much 0:14:32.280 --> 0:14:35.040 runway does the ECB actually have to try and get 0:14:35.160 --> 0:14:38.000 rates back above zero again. ECB we think has gotten 0:14:38.040 --> 0:14:40.760 until two thousand and twenty one to get rates up. 0:14:40.960 --> 0:14:43.480 Is that enough time. It's enough time to probably get 0:14:43.480 --> 0:14:46.560 them up to into positive About half a percent would 0:14:46.560 --> 0:14:48.440 be the highest we're going to. We're going to have 0:14:48.680 --> 0:14:52.040 to fifty basis points in Europe to play with in 0:14:52.080 --> 0:14:55.120 the next economic downturn. That's your base case. Oh no, 0:14:55.200 --> 0:14:57.360 we think I could go negative again. It's been extremely 0:14:57.400 --> 0:15:00.200 successful now that the banks have understood have learned how 0:15:00.240 --> 0:15:02.320 to deal with it. So I'm thinking that there's there's 0:15:02.560 --> 0:15:05.920 ninety basis points of tightening at most ninety basis points 0:15:05.920 --> 0:15:08.480 of easy. Again, but let's think about what happens to 0:15:08.680 --> 0:15:11.000 liquidity in the Euro Area. It has to be more 0:15:11.000 --> 0:15:16.120 money printing. I think that's that's the less palatable outcome here. 0:15:16.160 --> 0:15:19.080 That then that possibly the ECB needs to be putting 0:15:19.160 --> 0:15:22.040 rates up quick more quickly so that they don't have 0:15:22.080 --> 0:15:24.360 to do as much QUEI and balance sheet expansion of 0:15:24.520 --> 0:15:27.800 they have done in this cycle. They've got a big problem, Peter. Well, 0:15:27.880 --> 0:15:30.000 we call it a liquidity trap. We think that's that's 0:15:30.200 --> 0:15:34.480 a fair description of the of the problem that the 0:15:34.480 --> 0:15:37.880 Euro Area has. Um. It's likely to be exacerbated once 0:15:37.880 --> 0:15:40.080 we get some positive views on the risk free assets, 0:15:40.320 --> 0:15:43.920 then the curcy appreciation story really accelerates. Peter. One of 0:15:43.960 --> 0:15:48.880 the themes that we've had is this idea of dullarization. 0:15:49.280 --> 0:15:52.520 It's a new word for something timeless, which is just 0:15:52.760 --> 0:15:57.040 US dollars floating around the world. How does that plate 0:15:57.320 --> 0:16:02.480 ender where we go with rates next year? Well, yes, 0:16:02.720 --> 0:16:07.000 I buy the concept. Um the FEDS tightening is effectively 0:16:07.520 --> 0:16:10.560 meaning that if you look at a monitory ever like 0:16:10.600 --> 0:16:14.440 the euro um they're they're getting easier financial conditions as 0:16:14.440 --> 0:16:17.480 a result of the Fed's tightening UM. So it means 0:16:17.480 --> 0:16:20.560 that where the FED leads, other central banks are likely 0:16:20.640 --> 0:16:23.800 to have to follow UM. So with the FED creating 0:16:23.920 --> 0:16:28.080 if they continue to generate expectations that the dollar can 0:16:28.120 --> 0:16:30.280 go higher, that FED funds can go higher, then it 0:16:30.320 --> 0:16:35.120 will also impact the pricing of European rate expectations. But 0:16:35.200 --> 0:16:37.760 John Ferrell, with your trip to London, with your entourage 0:16:37.800 --> 0:16:40.800 and with your acclaim, with your many media properties, what 0:16:40.880 --> 0:16:44.520 have you learned about dollarization in the foreign exchange capital 0:16:44.600 --> 0:16:47.840 of the world. It's a big, big question, an increasingly 0:16:47.960 --> 0:16:52.280 I think that debate is intensifying. Do not your media properties, 0:16:52.320 --> 0:16:54.600 not my media properties. We can talk about that offline 0:16:54.640 --> 0:16:57.120 if you like. But it's a debate that's intensifying, Peter, 0:16:57.360 --> 0:16:59.960 And it's a debate sort of around what happens, what's 0:17:00.040 --> 0:17:03.520 the reaction function the bias of investors towards specific assets 0:17:04.240 --> 0:17:08.800 during adverse scenarios. Now, typically that would be by the dollar. 0:17:09.119 --> 0:17:11.439 Typically it would be go to where the liquidity is 0:17:11.480 --> 0:17:15.240 by treasuries. Um does that change in the next economic downturn, 0:17:15.280 --> 0:17:18.119 Because there's a real conversation emerging about that well, I 0:17:18.160 --> 0:17:20.560 think firstly, with the level of dollar strength with gost 0:17:20.600 --> 0:17:24.000 already we're on the cusp. We've seen some termoilly in 0:17:24.160 --> 0:17:27.040 e M. So if we get another bout of dollar strength, 0:17:27.119 --> 0:17:30.199 I think that it could it could automatically cap the 0:17:30.280 --> 0:17:33.240 dollar to a degree because it will mean that broader 0:17:33.240 --> 0:17:37.200 financial conditions actually get tighter, and it could slow down 0:17:37.240 --> 0:17:39.480 the FEDS ease and put possibly put them on pause. 0:17:39.920 --> 0:17:44.160 But I think also because President Trump is doing some 0:17:44.680 --> 0:17:49.080 interesting measures, some controversial measures, we could have more efforts 0:17:49.119 --> 0:17:55.480 from European policymakers to gain some monetary independence. Um. You know, 0:17:55.520 --> 0:17:58.240 think about it. You travel around various countries in Europe, 0:17:58.240 --> 0:18:03.080 you're actually typically paying for your expenses through American financial systems. 0:18:03.200 --> 0:18:06.320 Very true, swift all of these systems in fact swift 0:18:06.359 --> 0:18:08.880 going through Europe as well. These are big, big issues, Peter, 0:18:09.040 --> 0:18:12.480 and they're big big issues connected to economic sanctions as well. 0:18:12.640 --> 0:18:15.480 Be a chat well, Missue, International head of European Rights Strotagists. 0:18:15.560 --> 0:18:27.080 Great to catch up with you. Thank you. If you're 0:18:27.160 --> 0:18:32.119 interested in rent or buy, or housing or real estate. 0:18:32.880 --> 0:18:36.640 This is the interview of the day. Every economist worth 0:18:36.720 --> 0:18:41.600 their salt on wall Street claims fame with a certain focused, 0:18:41.720 --> 0:18:45.000 narrow niche when they start out. Nobody did it on 0:18:45.040 --> 0:18:48.040 a housing like Michelle Meyer of Bank of America. Mary 0:18:48.119 --> 0:18:51.560 Lynch now running all of their US economics so long ago, 0:18:51.680 --> 0:18:54.359 far away. You just one day said I'm going to 0:18:54.440 --> 0:18:57.119 own a housing, and you nailed it. You nailed the 0:18:57.320 --> 0:19:00.520 ups and downs of our housing in your new research 0:19:00.600 --> 0:19:03.960 note is really abrupt. This is as good as it gets. 0:19:04.600 --> 0:19:07.879 Why is this the peak? I think it's the peak 0:19:07.920 --> 0:19:10.959 for existing home sales, which was important. Distinction is not 0:19:11.000 --> 0:19:14.320 necessarily the pink for housing starts, single family housing starts. 0:19:14.680 --> 0:19:17.040 The reason I think existing home sales have peaked is 0:19:17.040 --> 0:19:19.680 that affordability has been coming down, and there is a 0:19:19.720 --> 0:19:22.240 pretty tight correlation in the growth rate of affordability with 0:19:22.240 --> 0:19:24.879 that and the existing factors their house price and also 0:19:24.920 --> 0:19:27.600 the mortgage rate, which is more important. Precisely, and even 0:19:27.600 --> 0:19:31.200 though affordability is still high relative to historical standards, it's 0:19:31.320 --> 0:19:33.760 that it's been shifting down and it should continue to 0:19:33.760 --> 0:19:36.080 shift down if we think rates are heading up, which 0:19:36.119 --> 0:19:40.120 seems the most likely scenario. The distinction is existing homes 0:19:40.240 --> 0:19:43.040 exist in new homes are only for the rich because 0:19:43.480 --> 0:19:48.600 contractors construction building land dynamics mean only big fancy houses 0:19:48.600 --> 0:19:52.080 with granite marble and you know, you know, a grill 0:19:52.160 --> 0:19:54.720 out back the price of a normal kitchen. They're the 0:19:54.760 --> 0:19:58.240 only ones getting built. Is that stereotype true? Well, that 0:19:58.520 --> 0:20:01.040 was true in the early stage. Is the recovery, that's 0:20:01.040 --> 0:20:05.360 where developers focus to the expensive properties, the ones where 0:20:05.359 --> 0:20:08.240 people can get financing, et cetera. But now what you're 0:20:08.280 --> 0:20:11.560 seeing is a move down towards entry level properties to 0:20:11.640 --> 0:20:14.719 more affordable type units. And frankly, that's where they should 0:20:14.720 --> 0:20:17.520 be building. That's where we need more supply, and that's 0:20:17.520 --> 0:20:19.920 where there's opportunities. So I think what builders are doing, 0:20:19.960 --> 0:20:22.240 and the reason I think new home sales have further 0:20:22.320 --> 0:20:25.800 upside is builders are being selective. They're adding homes to 0:20:25.960 --> 0:20:29.080 areas where there's tight inventory and there is incremental demand. 0:20:29.160 --> 0:20:30.800 Can you give us some names of cities that are 0:20:30.840 --> 0:20:33.520 like that, where there's tight inventory, where there's a healthy 0:20:33.520 --> 0:20:36.240 housing economy. I assume New York sit out in that last. Yeah, 0:20:36.280 --> 0:20:39.160 so cities is going to be a problem. Urban areas 0:20:39.200 --> 0:20:42.639 are more saturated. That's where a lot of development came 0:20:42.680 --> 0:20:45.400 in multi family. The rent story was very strong there. 0:20:45.680 --> 0:20:48.360 It's more in the surrounding areas of some of these 0:20:48.359 --> 0:20:51.200 big cities. I think still the West Coast is where 0:20:51.200 --> 0:20:53.679 you have a pretty healthy economy. The tech industry is 0:20:53.680 --> 0:20:56.399 helping to support so you are seeing a lot of 0:20:56.440 --> 0:20:59.160 focus in in in in some of those markets. Part 0:20:59.280 --> 0:21:02.280 of the matter we've you think of Doug Duncan at 0:21:02.320 --> 0:21:06.160 Fannie May and others that are specialists in housing economics 0:21:06.320 --> 0:21:10.240 is about income growth. That German Paul yesterday noted this 0:21:10.320 --> 0:21:13.640 mystery over wage growth and a lot of articles recently 0:21:13.680 --> 0:21:18.040 on the benefit contribution to wages other than the elite, 0:21:18.080 --> 0:21:21.160 the upper x percent that are looking at six thousand 0:21:21.160 --> 0:21:25.159 square feet, three wood burning fireplaces and all that, where's 0:21:25.200 --> 0:21:29.080 the wage growth to drive this forward? So wage growth 0:21:29.119 --> 0:21:31.840 has been slow, which is a challenge of course, and 0:21:32.240 --> 0:21:35.360 UM that can further create some challenges are affordability, because 0:21:35.359 --> 0:21:38.520 if home prices are rising at six seven percent nationally 0:21:38.560 --> 0:21:40.880 like we saw last year, mortgage rates are up, but 0:21:41.240 --> 0:21:43.679 wages are only increasing two and a half to three percent, 0:21:43.920 --> 0:21:46.000 you start to create some challenges in terms of the 0:21:46.040 --> 0:21:52.359 ability to access housing. UM. But nonetheless you have to consider, uh, 0:21:52.400 --> 0:21:55.399