WEBVTT - Asian Markets React to US CPI Data 0:00:02.480 --> 0:00:10.480 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Asia podcast. I'm Doug Prisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the APEC region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.080 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.720 --> 0:00:29.680 Joining us now for some insights is Dan Wong, chief 0:00:29.680 --> 0:00:33.560 economist at Hangsang Bank. To take a closer look here, 0:00:33.840 --> 0:00:37.000 I think we can talk about the ultralong bond sales 0:00:37.000 --> 0:00:40.760 that China's announced and also this move potential move to 0:00:40.800 --> 0:00:44.560 have the province's buy up unsold homes. In just a moment, 0:00:44.600 --> 0:00:47.120 I just wanted to get your first reaction to the 0:00:47.240 --> 0:00:50.800 slightly weaker than expected inflation data in the United States 0:00:50.800 --> 0:00:54.560 and what it might mean for the dollar and for Asia. 0:00:54.680 --> 0:00:59.880 So this week performance in the inflation in the US 0:01:00.080 --> 0:01:03.600 actually will be relatively good news for China because it 0:01:03.720 --> 0:01:07.959 means maybe the Federal Reserve would decide to cut interested 0:01:08.120 --> 0:01:10.960 earlier than people had hoped. But right now China is 0:01:11.000 --> 0:01:14.400 quite constrained in its monitor policy, and largely due to 0:01:14.440 --> 0:01:18.200 a concern and a weaker currency. If we cannot have 0:01:18.360 --> 0:01:22.600 more of the monitory injection into the domestic economy, then 0:01:22.680 --> 0:01:26.200 the economy will have much much bigger trouble when it 0:01:26.200 --> 0:01:27.640 comes to true recovery. 0:01:28.120 --> 0:01:30.760 Is that the secret to seeing a little bit of 0:01:31.040 --> 0:01:33.320 or let me put it in another way, less deflation 0:01:33.560 --> 0:01:37.480 in China looser policy. 0:01:38.080 --> 0:01:41.440 Well exactly because so far what we have seen in 0:01:41.520 --> 0:01:45.679 China is the three contractions in housing, in fiscal policy, 0:01:45.760 --> 0:01:49.559 and in monitor policy. And it doesn't matter how many 0:01:49.880 --> 0:01:53.960 ultra long term government bond that central government issues, as 0:01:54.000 --> 0:01:58.320 long as that the commercial banks in China cannot really 0:01:58.400 --> 0:02:01.760 land out much at a lower cost, then I won't 0:02:01.760 --> 0:02:05.600 have a true recovery. Especially for the private seccess the 0:02:05.680 --> 0:02:08.680 true borrowing cost for them is still high given the 0:02:08.720 --> 0:02:09.800 deflationary pressure. 0:02:11.200 --> 0:02:14.440 Yeah, one of the big developments yesterday was Bloomberg source 0:02:14.480 --> 0:02:17.760 story talking about how advice would be given to the 0:02:17.800 --> 0:02:22.040 provinces to buy up some of these unsold homes. I'm 0:02:22.040 --> 0:02:25.840 not sure about the technical requirements there and where this 0:02:25.880 --> 0:02:28.520 money comes from, but this is one thing that might 0:02:28.639 --> 0:02:32.760 lead to some sort of relief to the property sector. 0:02:33.080 --> 0:02:34.880 Your thoughts on what you see there. 0:02:37.000 --> 0:02:40.400 I was not surprised by that news. We've been hearing 0:02:40.480 --> 0:02:42.480 this kind of rumor from time to time in the 0:02:42.520 --> 0:02:48.080 past three years, actually, But the critical problem is still 0:02:48.320 --> 0:02:51.040 where can the local governments get the money to buy 0:02:51.160 --> 0:02:55.680 up those properties, especially most of those properties are built 0:02:55.800 --> 0:03:00.000 in the wrong location. If they are somehow built around 0:03:00.200 --> 0:03:03.079 the first two cities or in some good districts in 0:03:03.120 --> 0:03:05.760 Beijing or Shanghai, then it's not a problem because the 0:03:05.880 --> 0:03:09.520 resale value or the rental value will be relatively high. 0:03:09.760 --> 0:03:12.240 So for the local government they might have the intention, 0:03:12.720 --> 0:03:15.360 but actually we have to see a lot more issuance 0:03:15.560 --> 0:03:19.200 of those long term central government bonds for that to happen. 0:03:19.320 --> 0:03:19.519 Dan. 0:03:19.560 --> 0:03:21.920 Tomorrow, we're going to get the monthly activity data, and 0:03:21.960 --> 0:03:24.880 I'm curious to get your read on what we may learn. 0:03:24.919 --> 0:03:28.080 I mean, everything that we've been discussing is kind of known. 0:03:28.639 --> 0:03:31.639 The persistent weakness and property maybe a big question mark 0:03:31.680 --> 0:03:35.240 over the health of the Chinese consumer lending that has 0:03:35.280 --> 0:03:37.960 really not been very very loose at all. As a 0:03:37.960 --> 0:03:39.960 matter of fact, just over the weekend we had the 0:03:40.040 --> 0:03:42.720 latest credit data. What are we going to learn about 0:03:42.760 --> 0:03:45.840 industrial production? What are we going to learn about retail sales? 0:03:45.840 --> 0:03:49.440 That may give the market a little bit more confidence 0:03:49.520 --> 0:03:52.840 right now that there is some kind of something lasting 0:03:52.880 --> 0:03:54.960 that may be on the way here for the Chinese 0:03:55.000 --> 0:03:58.520 economy rather than just the rotation that we've been describing 0:03:58.680 --> 0:03:59.920 in the equity market. 0:04:02.360 --> 0:04:05.920 The industrial sector remained to be the only bright spot 0:04:06.240 --> 0:04:11.200 in Chinese economy given strong policy support, and for investors 0:04:11.360 --> 0:04:14.840 it's a good news because people will know exactly where 0:04:14.840 --> 0:04:17.839 the money is flowing. It is flowing out of the 0:04:17.880 --> 0:04:21.520 traditional sectors of the commercial housing sexis and into the 0:04:21.560 --> 0:04:26.480 manufacturing sector towards the higher end. And for the retail data, 0:04:26.520 --> 0:04:31.080 I don't have much confidence. Although the latest the data 0:04:31.480 --> 0:04:34.520 might appear to be okay because we do have more 0:04:34.560 --> 0:04:38.960 holidays than last year and that has encouraged more spending 0:04:39.000 --> 0:04:43.440 and tourism or transportation, but overall, the average spending per 0:04:43.480 --> 0:04:47.599 person is still lower than twenty nineteen, and without a 0:04:48.200 --> 0:04:52.080 strong program to support the low income families in China, 0:04:52.240 --> 0:04:55.159 I just said, don't see how the retail market could 0:04:55.240 --> 0:04:56.200 have a true revival. 0:04:57.520 --> 0:05:01.719 Yeah, consumer activity has and weak, and you know, China 0:05:01.760 --> 0:05:05.080 has been relying on strong industrial outlook or output, but 0:05:05.760 --> 0:05:08.840 that is the part that's getting in hotter water with 0:05:09.320 --> 0:05:12.440 the United States and Europe, so it seems like at 0:05:12.480 --> 0:05:14.800 the moment the country is still heading down a road 0:05:14.880 --> 0:05:19.880 that may prove difficult in the short to medium term. 0:05:20.200 --> 0:05:25.760 Oh absolutely, and the more closely we look at Chinese economy, 0:05:26.200 --> 0:05:30.480 the more concerns we might have for its long term performance. 0:05:31.839 --> 0:05:37.360 It is true that the fundamentals in the manufacturing seccess 0:05:37.440 --> 0:05:40.719 supply chains are quite strong, and China is trying everything 0:05:40.760 --> 0:05:45.680 it could to guarantee strengthening the high tech sacset, but 0:05:46.120 --> 0:05:50.279 the success for that strategy would depend on the rest 0:05:50.320 --> 0:05:53.120 of the world, especially the good will, in my opinion, 0:05:53.279 --> 0:05:56.760 from Europe. As long as that market is still open 0:05:56.800 --> 0:05:59.120 to China, then we will have a market that can 0:05:59.200 --> 0:06:02.960 be a sustainable driver for domestic investment and export sector 0:06:02.960 --> 0:06:07.839 in particular. But if somehow there are way more tariffs 0:06:07.920 --> 0:06:10.359 or sanctions from Europe or the US in the future, 0:06:10.760 --> 0:06:14.720 then we'll see a stronger momentum for capital to flow 0:06:14.800 --> 0:06:19.279 out of China, and that down the road will cause 0:06:19.360 --> 0:06:22.680 more problems. Because we know that Japan has a larger 0:06:22.680 --> 0:06:26.640 economy overseas than it's domestic economy, but China is so 0:06:26.760 --> 0:06:31.120 much bigger and there's such a large population that needs jobs, 0:06:31.480 --> 0:06:33.520 so we do need more money to stay in China 0:06:33.560 --> 0:06:34.440 to create jobs. 0:06:34.760 --> 0:06:38.320 That's pretty consistent with the latest note from Bloomberg Economics 0:06:38.320 --> 0:06:41.640 on the longer term risk of additional tariffs if this 0:06:41.720 --> 0:06:45.680 trade war heats up. Imagine a new administration in the 0:06:45.760 --> 0:06:48.440 United States coming to power in the early part of 0:06:48.760 --> 0:06:53.440 twenty twenty five and the severity of even tougher sanctions. 0:06:53.800 --> 0:06:58.000 So is there a policy prescription. Is there something that 0:06:58.279 --> 0:07:00.880 Beijing can do to address that can concerns, whether it's 0:07:00.920 --> 0:07:04.919 over capacity or just the lack of not playing on 0:07:04.960 --> 0:07:09.000 a level playing field, that can turn this situation around 0:07:09.080 --> 0:07:12.360 and maybe take some of the sting out of what 0:07:12.440 --> 0:07:15.400 you described as being a distinct possibility. 0:07:18.000 --> 0:07:23.320 I think China has the tools to get rid of 0:07:23.360 --> 0:07:27.240 some of the overcapacity, but it doesn't have the political 0:07:27.280 --> 0:07:33.440 willingness to do so. It's largely consistent with the deterioration 0:07:33.640 --> 0:07:37.320 of China US relations, and somehow China is in the 0:07:37.400 --> 0:07:42.200 strong belief that they have to have more indigenous innovation capacity, 0:07:42.600 --> 0:07:45.360 and by doing that, we cannot rely on foreign countries, 0:07:45.520 --> 0:07:49.120 especially we cannot rely on the technology from the US. 0:07:49.440 --> 0:07:53.440 But then that means this economy has to allocate even 0:07:53.480 --> 0:07:56.680 more resources to the high tech sector, and a lot 0:07:56.720 --> 0:07:59.480 of the money has been wasted in the past twenty years, 0:07:59.520 --> 0:08:02.040 and see a lot more can be wasted in this 0:08:02.160 --> 0:08:07.160 process because you know, the latest technology in AI, machine 0:08:07.240 --> 0:08:11.560 learning or quantum computing, it can't be done single handedly 0:08:11.960 --> 0:08:12.760 by one country. 0:08:13.360 --> 0:08:17.280 So Dan, is this a policy mistake by Beijing the 0:08:17.360 --> 0:08:19.280 direction that it is carved out at the moment. 0:08:21.120 --> 0:08:24.600 I don't think it's a mistake, but it is an 0:08:25.400 --> 0:08:28.920 over emphasis on how much the supply side can bring 0:08:28.960 --> 0:08:32.000 to a country like China has this long ambition to 0:08:32.080 --> 0:08:35.680 be rich and powerful, and in the past decades it 0:08:35.760 --> 0:08:39.679 has been successful, and it was quite successful to cultivate 0:08:39.720 --> 0:08:43.000 its own green economy as well, so it wants to 0:08:43.040 --> 0:08:44.400 rely on that model. 0:08:45.120 --> 0:08:46.880 All right, Dan, thanks very much for being with us. 0:08:46.920 --> 0:08:50.599 Dan Wong, chief economist at Hangsang Bank looking at the 0:08:50.679 --> 0:09:01.320 Chinese economy and in fact global conditions. We are joined 0:09:01.360 --> 0:09:04.400 by our old friend Stefan Hofirm, Managing director and chief 0:09:04.400 --> 0:09:09.079 investment strategist at LGT Private Banking Asia, someone who used 0:09:09.120 --> 0:09:11.520 to be on the program a lot then was transferred 0:09:11.559 --> 0:09:14.920 back to Switzerland and the time didn't really suit, so 0:09:14.960 --> 0:09:17.680 it's been a while. Stefan, thanks very much for coming 0:09:17.760 --> 0:09:20.199 very much you. So, you know, I haven't talked to 0:09:20.200 --> 0:09:22.000 you in a while. I don't know whether you're tilting 0:09:22.200 --> 0:09:25.640 bearish or tilting bullish. But let me throw a scenario 0:09:25.720 --> 0:09:27.280 at you and you can tell me I'm all wet, 0:09:27.440 --> 0:09:29.960 or you can say yeah, I like it. So we 0:09:30.040 --> 0:09:31.640 had a little bit of a fake scare in the 0:09:31.640 --> 0:09:34.880 first quarter on inflation, and now we're sort of moving 0:09:35.360 --> 0:09:38.680 away from that with this latest print. I'm speculating that, 0:09:38.760 --> 0:09:41.720 but that's that's a position, and now we're about ready 0:09:41.800 --> 0:09:46.480 to have a fake scare in in in a growth 0:09:46.559 --> 0:09:48.440 that growth is going to fall off and that we're 0:09:48.440 --> 0:09:51.880 heading into an uncomfortable position. In the first three months 0:09:51.880 --> 0:09:53.520 of the year, it was time to buy even with 0:09:53.600 --> 0:09:56.840 hot inflation. Is it now still a time to buy, 0:09:56.960 --> 0:09:58.680 even with fears of slow and growth. 0:09:59.280 --> 0:10:02.240 Well, it's quite fascinating because we're still in an environment 0:10:02.280 --> 0:10:07.840 where we've come off the fastest rate interest rate increase 0:10:07.880 --> 0:10:10.720 in US history, and yet here we are in May, 0:10:11.360 --> 0:10:14.679 and frankly, you know, consumption, you know, irrespective of the 0:10:14.920 --> 0:10:18.720 of the retail print yesterday, is basically very very solid 0:10:18.800 --> 0:10:23.400 in terms of the levels. So this this much anticipated 0:10:24.320 --> 0:10:29.520 textbook or you know, you know, type of slowdown in 0:10:29.559 --> 0:10:32.319 you simply has not happened. Unemployment is still below the 0:10:32.400 --> 0:10:36.719 natural rate, and we have this, you know, great disinflation, 0:10:36.800 --> 0:10:39.600 but overall the economy is still, i think objectively speaking, 0:10:39.679 --> 0:10:40.240 quite hot. 0:10:40.720 --> 0:10:44.360 Have you seen in the history books a case like 0:10:44.440 --> 0:10:48.239 this where you can have elevated interest rates and stills 0:10:48.480 --> 0:10:51.839 so much robustness and growth that does this seem odd 0:10:51.880 --> 0:10:52.080 to you? 0:10:52.720 --> 0:10:55.640 It's very odd. Dog, it doesn't happen. It frankly does 0:10:55.679 --> 0:10:58.880 not happen. And this is sort of something that you know, 0:10:58.920 --> 0:11:01.800 maybe five ten from our academia will sort of really, 0:11:01.920 --> 0:11:06.560 you know, figure out why it's happened. Maybe we have 0:11:06.679 --> 0:11:12.160 still some leftover you know, COVID handout money that is 0:11:12.160 --> 0:11:16.520 still sort of circulating there, keeping things elevated. We also know, however, 0:11:16.600 --> 0:11:20.320 that credit card to the United States has skyrocketed, so 0:11:20.360 --> 0:11:25.760 some of this growth is fueled on a private borrowing 0:11:26.040 --> 0:11:28.360 and that of course also will reach a limit at 0:11:28.360 --> 0:11:31.719 some point. But all that said, yes, you apter, you're right, 0:11:31.720 --> 0:11:34.439 this is brand new, never happened before, and by now 0:11:34.440 --> 0:11:36.400 we really should be in a recession that it hasn't happened. 0:11:36.600 --> 0:11:40.040 But is it really? I mean, interest rates traditionally over 0:11:40.120 --> 0:11:42.080 a long period of time, we're quite off and up 0:11:42.120 --> 0:11:45.160 around four to five percent. It's really only in the 0:11:45.240 --> 0:11:48.080 last twenty years, is it not that we've gotten used 0:11:48.120 --> 0:11:52.960 to such strong disinflation almost deflationary conditions that you know, 0:11:52.960 --> 0:11:55.560 we see this as unusual when perhaps it's not. 0:11:56.240 --> 0:11:58.880 That's true, But it's all about the rate of change, 0:11:59.040 --> 0:12:01.800 so and not just the level. And really, if you 0:12:01.840 --> 0:12:04.200 look at the path of what the Fed has done 0:12:04.440 --> 0:12:07.800 in a very compressed period of time, they rapidly increased 0:12:07.840 --> 0:12:11.880 interest rates and really textbook argues that something needs to break, 0:12:12.080 --> 0:12:15.000 and certainly inflation has to break, and it kind of did. 0:12:15.200 --> 0:12:17.360 But also the labor market and the fact that you've 0:12:17.360 --> 0:12:21.480 got below the natural rate of unemployment in the United 0:12:21.520 --> 0:12:23.439 States highly unusual, never happened before. 0:12:23.600 --> 0:12:26.480 The other thing that's confounding is that the yield curve 0:12:26.600 --> 0:12:30.400 remains inverted. I can't remember a time that you've had 0:12:30.440 --> 0:12:32.840 growth like that with an inverted yield curve. 0:12:33.320 --> 0:12:35.360 Yeah, and no one is really sort of focusing on 0:12:35.360 --> 0:12:39.359 that anymore. And really what it's all about, you know, thankfully, 0:12:40.280 --> 0:12:42.080 is at least on the equity side, it's earning. So 0:12:42.160 --> 0:12:47.800 earnings growth the United States is exceptionally high, and on 0:12:47.800 --> 0:12:51.400 that topic, it's Japan. Japan is the runaway winner in 0:12:51.480 --> 0:12:54.840 terms of corporate profitability, So we have an investment backdrop 0:12:54.880 --> 0:12:58.760 that is certainly supported by companies pretty much across the board. 0:12:59.200 --> 0:13:02.000 Europe being the weak is what overall doing really quite well. 0:13:02.520 --> 0:13:06.560 So the two year is tied to FED funds rate policy. 0:13:07.040 --> 0:13:09.720 If we get say fifty to seventy five basis points 0:13:09.760 --> 0:13:12.920 in cuts, there goes the inversion, right And won't that 0:13:13.000 --> 0:13:15.480 tell you then that you know, we enter a period 0:13:15.520 --> 0:13:17.880 when it's something you really don't have to worry about this, 0:13:18.320 --> 0:13:21.280 you know, this forever lasting inverted deal. 0:13:21.120 --> 0:13:24.160 Care Yes, but I mean, I think seventy five business 0:13:24.200 --> 0:13:29.199 points right now is you know unlikely. We're also, of course, 0:13:29.240 --> 0:13:31.880 in the election cycle, and historically the view has been 0:13:32.360 --> 0:13:36.000 that the closer you get to the elections, the least 0:13:36.280 --> 0:13:38.640 you know you should be doing less in terms of 0:13:38.679 --> 0:13:41.760 the federal reserve. So maybe September some people are saying 0:13:41.840 --> 0:13:44.600 July we're at LGT. We're saying this is be one 0:13:44.640 --> 0:13:45.600 cut in September. 0:13:45.640 --> 0:13:49.320 So how are you viewing US China relations, particularly in 0:13:49.440 --> 0:13:52.280 light of the new tariffs that were unveiled yesterday by 0:13:52.320 --> 0:13:53.360 the Biden administration. 0:13:54.640 --> 0:13:57.000 Well, you know, if you're a believer in globalization and 0:13:57.080 --> 0:14:00.199 free trade and efficient markets and all that kind of thing, 0:14:00.520 --> 0:14:01.760 then then it's troubling. 0:14:02.679 --> 0:14:02.840 You know. 0:14:02.920 --> 0:14:05.360 I'm based here with with you know Brian in Hong Kong, 0:14:05.360 --> 0:14:09.840 and Hong Kong and Singapore as well have zero import tariffs. 0:14:10.320 --> 0:14:13.480 So that's the kind of environment that you know economy. 0:14:13.720 --> 0:14:17.080 You know, businesses generally can prosper. The more that you 0:14:17.160 --> 0:14:19.880 increase tariffs, the more distortions there are, is not a 0:14:19.880 --> 0:14:22.600 good thing longer term for global growth. But at the 0:14:22.640 --> 0:14:25.080 same time, we do know that both Republican and Democrat 0:14:25.200 --> 0:14:28.120 voters tend to like to see being you know, tough 0:14:28.160 --> 0:14:29.040 on China. 0:14:29.200 --> 0:14:32.200 Is Europe in the process of kind of finding a 0:14:32.280 --> 0:14:35.280 rock pro chemong with China, or is it ready to 0:14:35.320 --> 0:14:36.200 stiffen policy. 0:14:36.880 --> 0:14:40.200 So if you take the case of say Germany, Germany 0:14:40.400 --> 0:14:44.160 is very very exposed to Chinese demand given the kind 0:14:44.200 --> 0:14:47.320 of exports that they have, so capital, goods, chemicals and 0:14:47.360 --> 0:14:49.440 so on and so forth. So it's a really a 0:14:49.480 --> 0:14:53.000 dollar and cents type issue. The United States has a 0:14:53.400 --> 0:14:57.280 much much larger domestic demand driven economy, less sensitive to that, 0:14:57.520 --> 0:15:01.280 but the Europeans will really feel it if you know, 0:15:01.320 --> 0:15:04.120 if China doesn't reaccelerate further from here, and that's been 0:15:04.160 --> 0:15:06.360 a major drag for them over the past say two 0:15:06.400 --> 0:15:09.120 years already, so it's all about Europe being sensitive to 0:15:09.120 --> 0:15:10.320 try them all. 0:15:10.280 --> 0:15:12.560 Right, Stefan, thanks very much for joining us here on 0:15:12.600 --> 0:15:15.800 the program Live Stuff On Hofer Managing Director, Chief Investment 0:15:15.840 --> 0:15:26.400 Strategists at LGT Private Banking Asia. We are joined on 0:15:26.400 --> 0:15:31.840 the program by Jose Todes, a senior economist at Interactive Brookers. Jose, 0:15:32.040 --> 0:15:35.400 I wonder whether the attention now is sort of focus 0:15:35.400 --> 0:15:39.400 in markets and for people like you as an economist, 0:15:39.720 --> 0:15:42.000 focus a little bit more on growth now and perhaps 0:15:42.120 --> 0:15:44.680 a little away from inflation. That's not to say that 0:15:44.680 --> 0:15:48.120 the fight against inflation is over, but growth now is 0:15:48.160 --> 0:15:52.480 also sort of in the in the crosshairs at least 0:15:53.240 --> 0:15:54.040 in the short term. 0:15:54.080 --> 0:15:59.040 Your thoughts, good evening. I'm not ready to call it 0:15:59.120 --> 0:16:01.360 quits on the consumer just yet. In the last two 0:16:01.400 --> 0:16:05.120 and a half years, we've seen in certain months the 0:16:05.240 --> 0:16:08.960 consumers going somewhat of a stop and go kind of 0:16:09.080 --> 0:16:14.040 path where they're spending will decline sharply one month, only 0:16:14.120 --> 0:16:18.800 to recover even more strongly the next month. So against 0:16:18.800 --> 0:16:23.240 that backdrop. However, there are some significant headwinds, some of 0:16:23.280 --> 0:16:25.080 the same ones that we've been hearing for the last 0:16:25.080 --> 0:16:27.960 two years, and a lot of economists, including myself, we've 0:16:28.000 --> 0:16:31.880 been confounded because we thought that all this monetary policy 0:16:31.920 --> 0:16:34.640 tightening rates is high. We thought that would be in recession. 0:16:34.680 --> 0:16:38.120 And it's the consumer that's rebounded whenever we thought we 0:16:38.120 --> 0:16:40.960 were so close to that slowdown to what do. 0:16:40.960 --> 0:16:43.680 You attribute that? I mean, why it has The American 0:16:43.720 --> 0:16:49.360 consumer still remained very resilient in the face of higher rates. 0:16:50.640 --> 0:16:57.400 Well, corporate balance sheets are quite robust, job jobs are plentiful, 0:16:57.520 --> 0:17:00.040 you know, Labor vacancies are still at around eight and 0:17:00.040 --> 0:17:03.400 a half million, well above pre pandemic levels. For the 0:17:03.440 --> 0:17:08.480 high end consumer, they've benefited significantly from buoyant capital markets 0:17:08.520 --> 0:17:12.400 and elevated real estate prices that reach all time highs 0:17:12.800 --> 0:17:16.040 essentially every month, similar to what we're seeing inequities with 0:17:16.080 --> 0:17:19.240 the S and P five hundred closing above fifty three 0:17:19.320 --> 0:17:23.960 hundred today. That's really supported the high end consumer. The 0:17:23.960 --> 0:17:26.879 middle and low end consumer had a lot of savings 0:17:26.960 --> 0:17:33.040 back when fiscal stimulus was quite plentiful, but now they're 0:17:33.080 --> 0:17:38.040 sort of starting to see some more significant weakness, particularly 0:17:38.080 --> 0:17:41.640 with personal savings, as well as on the earnings calls, 0:17:41.680 --> 0:17:45.440 we're hearing about discretionary items starting to be paired back 0:17:45.480 --> 0:17:46.840 in favor of necessities. 0:17:47.640 --> 0:17:50.879 Yeah, it's tempting to say that this is retail sales 0:17:50.920 --> 0:17:54.639 of goods today the latest data, and that services is 0:17:54.680 --> 0:17:57.879 a much bigger part of it. But we're reminded that 0:17:57.920 --> 0:18:01.560 City Group's Economic Surprises index is at the lowest since 0:18:01.640 --> 0:18:05.120 January of last year. So this is really looking at 0:18:05.160 --> 0:18:08.399 a series of weaker than estimated data points, not just 0:18:08.720 --> 0:18:14.000 retail sales, but jobs, services, manufacturing. It is, it is 0:18:14.040 --> 0:18:17.800 out there, you know. Is it a welcome slowing of 0:18:17.800 --> 0:18:19.480 the economy or is it unwelcome? 0:18:21.000 --> 0:18:25.160 I think right now it's quite welcome because it's helping 0:18:25.280 --> 0:18:31.680 on inflation, albeit very modestly, and we're in that point 0:18:31.720 --> 0:18:37.800 of the cycle here where the private sector isn't hiring strongly. 0:18:37.960 --> 0:18:41.240 When we look at the jobs reports, whether it's ADP 0:18:41.400 --> 0:18:44.000 or BLS, we see that they have a non cyclical 0:18:44.040 --> 0:18:46.119 tilt a lot of the jobs being created or in 0:18:46.200 --> 0:18:49.760 healthcare and education and government, and that's been the case 0:18:49.800 --> 0:18:53.080 for a long time. But when we look at numbers 0:18:53.200 --> 0:18:56.679 like initial unemployment claims, and continuing unemployment claims. And let 0:18:56.720 --> 0:18:58.640 me hold my breath, because those numbers are coming out 0:18:58.680 --> 0:19:02.000 tomorrow at a thirty am Easter time. And we did 0:19:02.040 --> 0:19:05.840 see a sharp increase, albeit to two hundred and thirty thousand, 0:19:06.000 --> 0:19:09.640 not that concerning of a level in itself, but if 0:19:09.640 --> 0:19:11.800 we start seeing it picking up towards two fifty two 0:19:11.840 --> 0:19:15.280 seventy three hundred, now we're talking about an unemployment rate 0:19:15.359 --> 0:19:17.959 ticking up to four point three or four point four percent. 0:19:18.400 --> 0:19:23.119 That's the bearish path. The neutral to bullish path is 0:19:23.160 --> 0:19:26.760 that we never actually get there. Companies have good balance sheets. 0:19:26.800 --> 0:19:31.480 They spent post pandemic period right sizing and preparing for 0:19:31.560 --> 0:19:36.200 a recession that many pundits thought was including myself, thought 0:19:36.280 --> 0:19:38.720 was right around the corner. So they're in a good spot. 0:19:38.760 --> 0:19:43.399 And there's the potential that this expansion goes longer because 0:19:43.400 --> 0:19:47.760 of that factor. And finally, on this point, monetary policy 0:19:47.880 --> 0:19:52.879 tightening hasn't been enough to counter the excessive loosening that 0:19:52.920 --> 0:19:56.080 occurred in twenty twenty and twenty twenty one. Both from 0:19:56.320 --> 0:19:58.800 Congress as well as the said, you know, right now 0:19:58.800 --> 0:20:01.760 we're one point six trillion off of the FED balance 0:20:01.800 --> 0:20:06.439 sheet peak. But we added almost five trillion due to 0:20:06.480 --> 0:20:08.280 the pandemic. You know, we still have a lot of 0:20:08.320 --> 0:20:12.800 liquidity universe repo bank reserves a quice point, and financial 0:20:12.800 --> 0:20:17.119 conditions are the loosest sty've been in since late twenty 0:20:17.160 --> 0:20:20.680 twenty one. Whether you look at Chicago, Fed, Bloomberg, or Goldman. 0:20:20.440 --> 0:20:24.320 Sachs Hose, the swaps market is now pricing in nearly 0:20:25.000 --> 0:20:28.320 two separate twenty five basis point FED rate cuts before 0:20:28.320 --> 0:20:30.600 the end of this year. Do you think that's reasonable? 0:20:32.280 --> 0:20:34.639 I think so. I think we're going to see some 0:20:34.800 --> 0:20:40.160 slowing into September that's going to allow the FED to 0:20:40.240 --> 0:20:43.120 cut there, and then I think that we'll probably get 0:20:43.119 --> 0:20:46.360 one in December. But right now I'm in between one 0:20:46.400 --> 0:20:49.520 and two. I'm really at one and a half inflation. 0:20:49.840 --> 0:20:52.640 You know, central banks flat around the world are implicitly 0:20:52.800 --> 0:20:56.280 accepting inflation higher than target because they're not willing to 0:20:57.280 --> 0:21:00.840 endure the sacrifices necessary to really get down to two percent. 0:21:01.840 --> 0:21:04.560 You know, we're at three point four percent uh and 0:21:05.400 --> 0:21:09.000 you know, judging by the two percent standard, that would 0:21:09.080 --> 0:21:12.119 require a month over month increase in the very short 0:21:12.200 --> 0:21:18.080 term of sixteen zero point six dips month over month 0:21:18.080 --> 0:21:19.800 to get to two percent at the end of the year. 0:21:20.040 --> 0:21:24.280 And a fun exercise, yeah yeah, yeah, And a fun 0:21:24.320 --> 0:21:27.640 exercise last point here, A fun exercise is count every 0:21:27.680 --> 0:21:31.120 single month, every and every kind of inflation. 0:21:31.200 --> 0:21:35.720 You want CPI headline, core, CPI headline, PC core PC. 0:21:36.240 --> 0:21:37.679 You know you're not there, You're not even. 0:21:37.920 --> 0:21:40.240 We want we get the point, We get the point, Jose. 0:21:40.359 --> 0:21:43.119 But but you know the Fed is actually employing time 0:21:43.200 --> 0:21:46.680 here rather than you know, sharper activity in the short term. 0:21:46.680 --> 0:21:50.400 It sounds like you are all for sharper activity in 0:21:50.640 --> 0:21:53.160 the short term. You'd like to see them high rates here. 0:21:53.440 --> 0:21:57.280 It seems like I would like them to keep the 0:21:57.359 --> 0:22:00.280 hike on the table because messaging has become so an 0:22:00.280 --> 0:22:04.639 important aspect of monetary policy these days. So if you 0:22:04.760 --> 0:22:07.359 keep leading the market on we're cutting, we're cutting. You know, 0:22:07.440 --> 0:22:11.600 back in December that was a pivotal pivot in monetary 0:22:11.640 --> 0:22:15.800 policy this cycle, Chair palpoint to rate cuts right around 0:22:15.840 --> 0:22:19.399 the corner, right, and the uncertainty of monetary policy itself 0:22:20.040 --> 0:22:22.879 titans financial conditions. And right now we don't really have 0:22:23.000 --> 0:22:25.840 that kind of uncertainty because look at today the market 0:22:25.920 --> 0:22:28.639 rallied and to my earlier point, which you know, I 0:22:28.680 --> 0:22:31.679 explained a little too much. Sorry about that, but you 0:22:31.720 --> 0:22:34.600 know we inflation today came in around thirty one thirty 0:22:34.600 --> 0:22:35.440 two BIPs. 0:22:36.240 --> 0:22:38.159 Yeah, you know, it's kind of interesting because there was 0:22:38.520 --> 0:22:41.560 there has been a little criticism of the fact that 0:22:41.600 --> 0:22:45.320 maybe there's been a little too much messaging from the Fed, 0:22:45.359 --> 0:22:48.080 and you know, we get a lot more volatility as 0:22:48.119 --> 0:22:50.040 the result of that. Jose, thank you so much for 0:22:50.080 --> 0:22:53.239 being with us. Jose Torres is a senior economist at 0:22:53.320 --> 0:22:54.440 Interactive Brokers. 0:22:57.280 --> 0:23:00.679 This is the Bloomberg Daybreak Asia podcast, bringing to the 0:23:00.760 --> 0:23:04.240 stories making news and moving markets in the Asia Pacific. 0:23:04.480 --> 0:23:07.600 Visit the Bloomberg Podcast channel on YouTube to get more 0:23:07.640 --> 0:23:11.440 episodes of this and other shows from Bloomberg. Subscribe to 0:23:11.480 --> 0:23:15.280 the podcast on Apple, Spotify, or anywhere else you listen, 0:23:15.560 --> 0:23:18.760 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:23:18.800 --> 0:23:20.040 Bloomberg Business App.