1 00:00:02,800 --> 00:00:05,360 Speaker 1: This is Bloomberg day Break Weekend, our global look at 2 00:00:05,360 --> 00:00:07,320 Speaker 1: the top stories in the coming week from our day 3 00:00:07,360 --> 00:00:10,160 Speaker 1: Break anchors all around the world. Straight Ahead on the program, 4 00:00:10,200 --> 00:00:13,720 Speaker 1: it's earning season with big banks reporting. We'll break down 5 00:00:13,760 --> 00:00:17,200 Speaker 1: the numbers from JP Morgan City Group and Wells Fargo 6 00:00:17,560 --> 00:00:20,119 Speaker 1: and look ahead to next week. I'm Tom Busby in 7 00:00:20,200 --> 00:00:20,680 Speaker 1: New York. 8 00:00:20,920 --> 00:00:23,320 Speaker 2: I'm Stephen Carol and London for We're asking his upcoming 9 00:00:23,320 --> 00:00:27,520 Speaker 2: inflation figures in Europe, we'll show signs of stagflation setting. 10 00:00:27,200 --> 00:00:30,040 Speaker 3: In I'm Doug Prisoner taking the pulse of the Chinese 11 00:00:30,040 --> 00:00:32,360 Speaker 3: economy and the challenges that lie ahead. 12 00:00:33,479 --> 00:00:37,519 Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend, The business 13 00:00:37,560 --> 00:00:39,920 Speaker 4: news you need to wrap up your week in just 14 00:00:40,040 --> 00:00:44,600 Speaker 4: one fifteen minute podcast available on Apple, Spotify, The Bloomberg 15 00:00:44,640 --> 00:00:47,320 Speaker 4: Business Appen everywhere you get your podcasts. 16 00:00:50,760 --> 00:00:52,680 Speaker 1: Good day to you. I'm Tom Busby and we begin 17 00:00:52,720 --> 00:00:56,160 Speaker 1: today's program on Wall Street. We got earnings from three 18 00:00:56,280 --> 00:00:58,520 Speaker 1: of the nation's biggest banks on Friday, and to help 19 00:00:58,520 --> 00:01:01,760 Speaker 1: put the numbers into context, we're joined by Bloomberg Intelligence 20 00:01:01,800 --> 00:01:05,920 Speaker 1: Bank analyst Alison Williams. Big last week three of the Biggies. 21 00:01:05,959 --> 00:01:07,600 Speaker 1: We have a lot more to come, but let's look 22 00:01:07,640 --> 00:01:12,319 Speaker 1: back at JP morgan chase record net income interest thanks 23 00:01:12,360 --> 00:01:15,520 Speaker 1: to higher interest rates. It boosted it's full year forecast, 24 00:01:16,080 --> 00:01:18,880 Speaker 1: and also First Republic Bank the remnants of that bank 25 00:01:18,959 --> 00:01:22,039 Speaker 1: helping JP Morgan chase. What can you tell us about 26 00:01:22,040 --> 00:01:22,360 Speaker 1: the bank? 27 00:01:22,959 --> 00:01:29,440 Speaker 5: So JP Morgan really delivering very strong returns, leading returns. 28 00:01:29,480 --> 00:01:33,839 Speaker 5: The net interest income continues to beat, and they also 29 00:01:34,080 --> 00:01:38,400 Speaker 5: raised their guidance. They're also being helped by better than 30 00:01:38,440 --> 00:01:41,920 Speaker 5: expected costs outlook, and really on the credit side was 31 00:01:41,959 --> 00:01:47,319 Speaker 5: where we got another big surprise. Consensus forecasts were expecting 32 00:01:47,800 --> 00:01:51,560 Speaker 5: sizeable reserve building and we actually got a modest reserve release. 33 00:01:52,080 --> 00:01:55,800 Speaker 5: So across the banks, what we're seeing is net interest 34 00:01:55,840 --> 00:01:59,680 Speaker 5: income better than expected and a more positive view for 35 00:01:59,720 --> 00:02:03,760 Speaker 5: the worth quarter. Of course, we caution that interest rate 36 00:02:03,880 --> 00:02:07,520 Speaker 5: risks are rising, So while the run rate is good 37 00:02:07,800 --> 00:02:11,280 Speaker 5: going into twenty twenty four, better than we had expected 38 00:02:11,520 --> 00:02:15,880 Speaker 5: going into the earnings, there are still risks two twenty 39 00:02:16,000 --> 00:02:20,520 Speaker 5: twenty four and the outlook. But on the cost side 40 00:02:20,560 --> 00:02:25,360 Speaker 5: of things, certainly the banks are managing to those risks, 41 00:02:25,960 --> 00:02:28,880 Speaker 5: and as I said, JP Morgan also had a better 42 00:02:28,880 --> 00:02:31,600 Speaker 5: than expected cost view at well as far ago they 43 00:02:31,600 --> 00:02:34,680 Speaker 5: actually raised their expectations for costs. But I would note 44 00:02:34,680 --> 00:02:39,560 Speaker 5: that in the third quarter they did have some severance charges. 45 00:02:39,680 --> 00:02:43,480 Speaker 5: Now they have said that attrition is less than it's 46 00:02:43,480 --> 00:02:44,920 Speaker 5: been in the past, and so that's some of the 47 00:02:44,919 --> 00:02:48,520 Speaker 5: reason why you're seeing those severance charges. But again they 48 00:02:48,560 --> 00:02:52,640 Speaker 5: continue to make progress on the core costs. Obviously there's 49 00:02:52,760 --> 00:02:56,960 Speaker 5: legal risks there and that could remain volatile for that bank. 50 00:02:57,280 --> 00:02:59,960 Speaker 5: City Group joined these two banks and having better than 51 00:03:00,200 --> 00:03:03,720 Speaker 5: interest income, but they kept their revenue guidance flat because 52 00:03:03,760 --> 00:03:07,960 Speaker 5: fees are on the weaker side. And again so that's 53 00:03:08,280 --> 00:03:13,360 Speaker 5: a continuation from that bank. But in general, net interest 54 00:03:13,400 --> 00:03:16,840 Speaker 5: income better than expected, run rate better than expected. We 55 00:03:16,880 --> 00:03:20,520 Speaker 5: still do see those risks into twenty twenty four. On 56 00:03:21,200 --> 00:03:25,120 Speaker 5: the credit side of things, again better than expected, we 57 00:03:25,240 --> 00:03:29,440 Speaker 5: are seeing weakening and commercial real estate and office profit properties. 58 00:03:30,280 --> 00:03:33,160 Speaker 5: At the margin, banks are taking reserves for card that's 59 00:03:33,200 --> 00:03:36,040 Speaker 5: because they're building those card loans, and then on the 60 00:03:36,040 --> 00:03:42,080 Speaker 5: operating expenses, you know, stable guidance at City A higher 61 00:03:42,120 --> 00:03:45,640 Speaker 5: guide at Wells Fargo, lower guide to JP Morgan Netnet. 62 00:03:45,680 --> 00:03:49,120 Speaker 5: I would say they are focusing on those core costs 63 00:03:49,200 --> 00:03:51,640 Speaker 5: and do continue to get some benefits. 64 00:03:51,840 --> 00:03:55,600 Speaker 1: Speaking of benefits. Let's talk about interest rates and how 65 00:03:55,600 --> 00:03:59,280 Speaker 1: they benefited the bank, but their mortgage divisions, how have 66 00:03:59,400 --> 00:04:01,440 Speaker 1: they reacted to these higher rates. 67 00:04:01,960 --> 00:04:06,240 Speaker 5: So the mortgage obviously has been under pressure, but given 68 00:04:06,320 --> 00:04:11,080 Speaker 5: where we are, it's obviously a smaller part of revenue 69 00:04:11,120 --> 00:04:14,800 Speaker 5: at this juncture, right, because we have seen a lot 70 00:04:14,840 --> 00:04:19,440 Speaker 5: of weakness in the product, and obviously higher rates are 71 00:04:19,440 --> 00:04:23,159 Speaker 5: not good for mortgage volumes. The other thing that we 72 00:04:23,200 --> 00:04:26,680 Speaker 5: should probably speak about is the trading and fee revenue 73 00:04:26,960 --> 00:04:32,440 Speaker 5: at these banks. Trading fixed income proving to be very resilient, 74 00:04:33,120 --> 00:04:36,440 Speaker 5: equities trading a little bit weaker. That's similar to what 75 00:04:36,480 --> 00:04:38,200 Speaker 5: we've seen in the past few quarters. But on the 76 00:04:38,240 --> 00:04:42,240 Speaker 5: feast side of things, things studying that and that's positive. So, 77 00:04:42,920 --> 00:04:46,520 Speaker 5: as we said, mortgage is a smaller part of revenue, 78 00:04:46,600 --> 00:04:49,200 Speaker 5: investment banking fee is also a smaller part of revenue 79 00:04:49,240 --> 00:04:53,799 Speaker 5: because of the significant declines we've seen in both of those. 80 00:04:53,839 --> 00:04:56,160 Speaker 5: But on the banking fee side, I think there is 81 00:04:56,720 --> 00:05:00,320 Speaker 5: there are some reasons for optimism. M and A I 82 00:05:00,360 --> 00:05:03,560 Speaker 5: think was really the positive surprise equity markets. We did 83 00:05:03,600 --> 00:05:06,479 Speaker 5: see some good IPOs, but those equity fees still coming 84 00:05:06,520 --> 00:05:07,560 Speaker 5: in weaker than expected. 85 00:05:07,720 --> 00:05:10,080 Speaker 1: And we also a surprised mean that charge offs were 86 00:05:10,120 --> 00:05:11,919 Speaker 1: down at least the JP Morgan chase. What does that 87 00:05:11,960 --> 00:05:13,200 Speaker 1: tell us about consumers? 88 00:05:13,320 --> 00:05:17,039 Speaker 5: What it tells us is that credit continues to be 89 00:05:17,200 --> 00:05:21,680 Speaker 5: very strong, and so yes, banks are taking reserves because 90 00:05:21,680 --> 00:05:24,400 Speaker 5: they're looking ahead at some of the risks. But for 91 00:05:24,480 --> 00:05:30,360 Speaker 5: the most part, consumers are healthy. Commercial loans are a 92 00:05:30,400 --> 00:05:35,240 Speaker 5: little bit weaker, but in general credit there also remains 93 00:05:35,320 --> 00:05:38,839 Speaker 5: very healthy. So we're seeing normalization. We're seeing a rise 94 00:05:38,839 --> 00:05:41,360 Speaker 5: in charge offs from the lows, but as I said, 95 00:05:41,400 --> 00:05:45,560 Speaker 5: better than expected. Office commercial real estate is something we're watching. 96 00:05:45,640 --> 00:05:50,320 Speaker 5: We did see reserving on those types of properties. Wells 97 00:05:50,320 --> 00:05:55,440 Speaker 5: Fargo said about a month ago that things are the 98 00:05:55,440 --> 00:05:59,440 Speaker 5: weakness is broadening out versus a year or eighteen months ago. 99 00:05:59,720 --> 00:06:03,040 Speaker 5: We are seeing so weakening there, but on the consumer side, 100 00:06:03,279 --> 00:06:07,080 Speaker 5: it's really the lower bucket where you're starting to sea 101 00:06:07,120 --> 00:06:11,320 Speaker 5: some weakness. And that's not a tremendous exposure for these banks. 102 00:06:11,640 --> 00:06:13,719 Speaker 1: For these banks, and there are a lot more banks 103 00:06:13,720 --> 00:06:15,680 Speaker 1: reporting next week, why don't we look ahead to what 104 00:06:15,680 --> 00:06:16,800 Speaker 1: we're going to see. 105 00:06:16,560 --> 00:06:22,400 Speaker 5: So the expectations certainly are a bit better after the 106 00:06:22,440 --> 00:06:26,760 Speaker 5: banks that we saw last week. Net interest income bodes 107 00:06:26,800 --> 00:06:29,440 Speaker 5: well for bank of America. We'll see if they beaten reise. 108 00:06:30,160 --> 00:06:34,600 Speaker 5: Similar to the other banks, will also be watching costs 109 00:06:34,600 --> 00:06:39,240 Speaker 5: for them. Operating leverage is something that investors like to see. 110 00:06:39,800 --> 00:06:42,600 Speaker 5: It looks a little bit tougher for Bank of America 111 00:06:43,000 --> 00:06:46,640 Speaker 5: or did about a week ago, but perhaps they can 112 00:06:46,680 --> 00:06:50,200 Speaker 5: add to some of the positive net interest income story 113 00:06:51,120 --> 00:06:54,720 Speaker 5: or the big banks in general, Goldmen, Sachs and Morgan Stanley. 114 00:06:54,760 --> 00:06:58,240 Speaker 5: I would say net net again, the bar is higher 115 00:06:58,279 --> 00:07:02,640 Speaker 5: because overall trading and investment banking fees better than expected, 116 00:07:03,040 --> 00:07:06,159 Speaker 5: and that's really due to the fixed income trading line. 117 00:07:06,680 --> 00:07:11,000 Speaker 5: It's also due to better M and A fees, while 118 00:07:11,040 --> 00:07:14,880 Speaker 5: equity fees are weaker, and debt fees there's definitely are 119 00:07:15,400 --> 00:07:20,400 Speaker 5: there's some pockets of strength, especially with regard to the 120 00:07:20,520 --> 00:07:24,160 Speaker 5: high yield business. So Goldman is a little bit more 121 00:07:24,200 --> 00:07:27,760 Speaker 5: balanced in their business. Bank of America leans more towards 122 00:07:27,760 --> 00:07:32,520 Speaker 5: fixed income, but they've been investing broadly, and Morgan Stanley 123 00:07:32,640 --> 00:07:37,160 Speaker 5: leans more towards the equity side of things. But I 124 00:07:37,160 --> 00:07:40,320 Speaker 5: would say that the other thing we're watching at Goldman 125 00:07:41,160 --> 00:07:44,760 Speaker 5: is some of the commercial real estate impairments. So we 126 00:07:44,880 --> 00:07:47,200 Speaker 5: talked about sort of the provisions, but that's what we're 127 00:07:47,240 --> 00:07:51,960 Speaker 5: watching for Goldman. Also specific to Goldman, a little bit 128 00:07:52,000 --> 00:07:55,200 Speaker 5: of noise in the quarter because they are making progress 129 00:07:55,240 --> 00:07:59,040 Speaker 5: on their strategic goals of sort of moving back away 130 00:07:59,080 --> 00:08:02,920 Speaker 5: from consumer focusing on the core franchise. They announced the 131 00:08:02,920 --> 00:08:08,360 Speaker 5: sale of Green Sky just last week. They have announced 132 00:08:09,560 --> 00:08:13,080 Speaker 5: the sale of wealth assets related to United Capital, and 133 00:08:13,120 --> 00:08:15,520 Speaker 5: they're done with the selloff and the Marcus loans. So 134 00:08:16,200 --> 00:08:18,680 Speaker 5: a little bit of noise still in this quarter, but 135 00:08:18,720 --> 00:08:21,200 Speaker 5: we think that they are sharpening focus botes well. 136 00:08:21,440 --> 00:08:23,560 Speaker 1: Now after some of these biggest banks are done, we're 137 00:08:23,600 --> 00:08:26,600 Speaker 1: going to see regional banks by the end of the week. 138 00:08:26,680 --> 00:08:30,320 Speaker 1: And what a crisis we saw in the springtime. How 139 00:08:30,360 --> 00:08:32,760 Speaker 1: have things changed or have they changed for some of 140 00:08:32,760 --> 00:08:34,440 Speaker 1: those smaller regional banks. 141 00:08:34,280 --> 00:08:38,000 Speaker 5: Going into the quarter. I would say that there was 142 00:08:38,320 --> 00:08:43,199 Speaker 5: probably a shared optimism around the potential for deposit costs 143 00:08:43,200 --> 00:08:46,800 Speaker 5: to be stabilizing for the regional banks as well as 144 00:08:46,840 --> 00:08:51,520 Speaker 5: the big banks. But again that rising rate risk is 145 00:08:51,559 --> 00:08:54,920 Speaker 5: a negative. And for the regional banks, they don't have 146 00:08:55,000 --> 00:08:58,640 Speaker 5: the card exposures most of them that I discussed for 147 00:08:59,280 --> 00:09:02,720 Speaker 5: the big universe banks, and so the softer commercial demand 148 00:09:03,240 --> 00:09:05,760 Speaker 5: is going to weigh a little bit more for those banks. 149 00:09:06,080 --> 00:09:08,200 Speaker 1: Let's talk about jobs in the banking sector, because we 150 00:09:08,240 --> 00:09:11,280 Speaker 1: know that City Group Bank Frasiers is restructuring her bank, 151 00:09:11,600 --> 00:09:15,120 Speaker 1: cutting management levels, which we know is going to lead 152 00:09:15,160 --> 00:09:18,240 Speaker 1: to jobs. Is this just a normalization, is it just 153 00:09:18,280 --> 00:09:19,880 Speaker 1: her bank, or is this something we're going to see 154 00:09:19,920 --> 00:09:20,760 Speaker 1: throughout the industry? 155 00:09:20,760 --> 00:09:24,800 Speaker 5: Do you think for City Group in particular, Jane is 156 00:09:25,200 --> 00:09:29,720 Speaker 5: making changes at that bank and honing its focus. And 157 00:09:29,800 --> 00:09:33,560 Speaker 5: I think that the strategy or the restructuring of management 158 00:09:33,640 --> 00:09:36,720 Speaker 5: is very much in line with a broader strategy, So 159 00:09:36,720 --> 00:09:42,720 Speaker 5: I think that is specific to City Group. For the 160 00:09:42,760 --> 00:09:46,959 Speaker 5: broad investment banking and trading business, we have definitely seen 161 00:09:47,360 --> 00:09:51,240 Speaker 5: cuts there. We did see seven charges at several of 162 00:09:51,240 --> 00:09:54,199 Speaker 5: the banks in the second quarter. We also saw some 163 00:09:54,240 --> 00:09:57,880 Speaker 5: of those charges again being called out with the third quarter. 164 00:09:58,360 --> 00:10:03,239 Speaker 5: I think that banks are sizing their operations, in particular 165 00:10:03,360 --> 00:10:07,560 Speaker 5: with regard to the investment banking. Fixed income trading has 166 00:10:07,600 --> 00:10:12,079 Speaker 5: proven relatively resilient, equity trading has been a bit weaker, 167 00:10:12,120 --> 00:10:16,240 Speaker 5: But both of those businesses are within a historically high range, 168 00:10:16,720 --> 00:10:18,840 Speaker 5: So even though they're down a little bit, I would 169 00:10:18,880 --> 00:10:23,360 Speaker 5: characterize them as healthy, strong, and relatively resilient. Investment banking 170 00:10:23,400 --> 00:10:27,280 Speaker 5: on the other hand finally seeing some studying, so I 171 00:10:27,320 --> 00:10:30,560 Speaker 5: think that is a key positive. But the levels that 172 00:10:30,600 --> 00:10:35,400 Speaker 5: investment banking is studying at are really closer to the 173 00:10:35,400 --> 00:10:36,600 Speaker 5: pre pandemic norm. 174 00:10:36,840 --> 00:10:39,000 Speaker 1: Oh boy, a lot to look forward to, Alison, Thank 175 00:10:39,040 --> 00:10:42,440 Speaker 1: you so much. That's Bloomberg Intelligence Bank analyst Alison Williams. 176 00:10:42,880 --> 00:10:45,040 Speaker 1: And coming up on Bloomberg day Break weekend, we head 177 00:10:45,080 --> 00:10:48,520 Speaker 1: to Europe to get a preview of this week's inflation figures. 178 00:10:48,960 --> 00:11:02,920 Speaker 1: I'm Tom Busby, and this is Bloomberg. This is Bloomberg 179 00:11:02,960 --> 00:11:05,440 Speaker 1: Daybreak weekend, our global look ahead at the top stories 180 00:11:05,440 --> 00:11:08,160 Speaker 1: for investors in the coming week. I'm Tom Busby in 181 00:11:08,200 --> 00:11:11,240 Speaker 1: New York. Up later in our program, how China is 182 00:11:11,320 --> 00:11:14,800 Speaker 1: juggling stimulating economic growth while being a leader on the 183 00:11:14,840 --> 00:11:18,760 Speaker 1: geopolitical stage. But first, a host of inflation data from 184 00:11:18,800 --> 00:11:22,400 Speaker 1: Europe will likely confirm the trend that price increases are 185 00:11:22,440 --> 00:11:26,479 Speaker 1: slowing down, but with growth weakening, are signs of stagflation 186 00:11:26,640 --> 00:11:29,120 Speaker 1: setting in? For more, Let's go to London and bring 187 00:11:29,120 --> 00:11:31,760 Speaker 1: in Bloomberg Daybreak Europe anchor Stephen Carroll. 188 00:11:32,120 --> 00:11:36,160 Speaker 2: Tom here in the UK, inflation peaked in last October's 189 00:11:36,200 --> 00:11:39,360 Speaker 2: reading at eleven point one percent and has been easing 190 00:11:39,480 --> 00:11:42,760 Speaker 2: since falling to six point seven percent in August, but 191 00:11:42,880 --> 00:11:47,160 Speaker 2: the downward trajectory has been uneven, so September's numbers will 192 00:11:47,200 --> 00:11:51,040 Speaker 2: make for interesting reading across the euro Area. We're watching 193 00:11:51,040 --> 00:11:54,200 Speaker 2: for the final reading of September CPI, which has also 194 00:11:54,400 --> 00:11:58,000 Speaker 2: fallen sharply in recent months as energy prices have come down. 195 00:11:58,559 --> 00:12:02,040 Speaker 2: Of course, any sharp increase snoiler gas prices from tensions 196 00:12:02,040 --> 00:12:04,960 Speaker 2: in the Middle East could upend that trend and raise 197 00:12:05,000 --> 00:12:09,520 Speaker 2: the risk of stagflation. Weak growth coupled with high inflation. 198 00:12:10,120 --> 00:12:13,000 Speaker 2: That's a big challenge for central banks, making every detail 199 00:12:13,080 --> 00:12:15,880 Speaker 2: of every CPI print all the more important for the 200 00:12:15,920 --> 00:12:19,000 Speaker 2: ECB and for the Bank of England. In the last 201 00:12:19,040 --> 00:12:22,200 Speaker 2: few days, the International Monetary Fund raised its forecast for 202 00:12:22,240 --> 00:12:25,600 Speaker 2: where it sees inflation globally next year. In the UK, 203 00:12:26,000 --> 00:12:28,600 Speaker 2: it expects the Bank of England to hike interest rates 204 00:12:28,640 --> 00:12:31,400 Speaker 2: again by a quarter point and hold them at five 205 00:12:31,440 --> 00:12:34,760 Speaker 2: and a half percent for most of next year. That's 206 00:12:34,760 --> 00:12:38,440 Speaker 2: a more hawkish view than markets are currently pricing. I've 207 00:12:38,440 --> 00:12:41,200 Speaker 2: been speaking to Daniel Lee, head of the World Economic 208 00:12:41,280 --> 00:12:44,160 Speaker 2: Studies Division at the IMF about this, as well as 209 00:12:44,160 --> 00:12:46,280 Speaker 2: his outlook for the rest of Europe. 210 00:12:46,640 --> 00:12:46,840 Speaker 6: Well. 211 00:12:46,880 --> 00:12:49,680 Speaker 7: For the UK, we have a forecast of subdued growth 212 00:12:50,160 --> 00:12:55,120 Speaker 7: as higher interest rates bite, but infation is declining and 213 00:12:55,160 --> 00:12:58,360 Speaker 7: so we think that by twenty twenty five inflation will 214 00:12:58,400 --> 00:13:03,120 Speaker 7: be back to target. Cost for the UK has positive 215 00:13:03,160 --> 00:13:05,880 Speaker 7: growth zero point five percent this year, point six percent 216 00:13:06,400 --> 00:13:07,160 Speaker 7: next year. 217 00:13:07,720 --> 00:13:10,960 Speaker 2: And that situation then you see impact in the Bank 218 00:13:11,000 --> 00:13:13,120 Speaker 2: of England holding rates higher for longer. 219 00:13:14,600 --> 00:13:18,720 Speaker 7: The rates are higher, not just in the UK but 220 00:13:18,800 --> 00:13:22,360 Speaker 7: other economies, higher than we thought six months ago, three 221 00:13:22,360 --> 00:13:26,520 Speaker 7: months ago because inflation has been stickier. So this is 222 00:13:26,679 --> 00:13:31,360 Speaker 7: necessary around for managery policy to be steady to make 223 00:13:31,400 --> 00:13:35,160 Speaker 7: sure that inflation expectations remain anchored that and inflation comes 224 00:13:35,200 --> 00:13:35,840 Speaker 7: down to target. 225 00:13:37,000 --> 00:13:41,760 Speaker 2: Do your latest forecasts include the upgrades to UK GDP 226 00:13:42,040 --> 00:13:44,760 Speaker 2: that we've had the Office for National Statistics do in 227 00:13:44,800 --> 00:13:47,880 Speaker 2: the past a couple of months that has seen a 228 00:13:47,920 --> 00:13:52,000 Speaker 2: significant revision to the trajectory for UK growth since the 229 00:13:52,080 --> 00:13:53,000 Speaker 2: end of the pandemic. 230 00:13:54,040 --> 00:13:59,960 Speaker 7: Those National Office of National Statistics revisions were issued after 231 00:14:00,840 --> 00:14:03,480 Speaker 7: we closed the forecast, but we did look and they 232 00:14:03,559 --> 00:14:06,960 Speaker 7: do raise the level of GDP by twenty twenty two 233 00:14:07,080 --> 00:14:11,040 Speaker 7: by about two percent, so less scarring than was originally thought. 234 00:14:11,120 --> 00:14:14,200 Speaker 7: From the pandemic, but at the same time, we don't 235 00:14:14,200 --> 00:14:18,160 Speaker 7: see a significant impact of this on growth going forward, 236 00:14:18,240 --> 00:14:22,920 Speaker 7: so our forecast of zero point six percent growth in 237 00:14:22,960 --> 00:14:25,720 Speaker 7: twenty twenty four is not very changed, and it's slightly 238 00:14:25,760 --> 00:14:30,240 Speaker 7: above the forecast of other institutions, including the Bank of England. 239 00:14:30,760 --> 00:14:33,360 Speaker 2: Okay, how does your outlook for the UK compare to 240 00:14:33,360 --> 00:14:36,280 Speaker 2: the situation facing other major European economies. 241 00:14:36,600 --> 00:14:42,000 Speaker 7: Well, the challenge of bringing down stubborn inflation is shared. 242 00:14:42,600 --> 00:14:45,480 Speaker 7: We did do some analysis of the drivers of inflation 243 00:14:46,200 --> 00:14:49,200 Speaker 7: in across economies. In the UK, a lot of this 244 00:14:49,440 --> 00:14:55,160 Speaker 7: inflation is coming from passed through into other industries from 245 00:14:55,240 --> 00:14:58,120 Speaker 7: energy prices having gone up so much, and the UK 246 00:14:58,320 --> 00:15:02,800 Speaker 7: was exposed to the energy price shock due to external factors, 247 00:15:02,960 --> 00:15:05,720 Speaker 7: so that's still working its way through in the Euro 248 00:15:05,800 --> 00:15:08,960 Speaker 7: Area as well, though, this has played a very important role, 249 00:15:10,200 --> 00:15:13,040 Speaker 7: more so in the UK and the Euro Area than 250 00:15:13,080 --> 00:15:17,280 Speaker 7: in the US, where labor market tightness has been a 251 00:15:17,320 --> 00:15:18,960 Speaker 7: more dominant driver of inflation. 252 00:15:19,480 --> 00:15:23,880 Speaker 2: Donald When we think about Europe geographically, including the UK 253 00:15:24,040 --> 00:15:26,840 Speaker 2: and continental Europe as well, are we heading for a 254 00:15:26,880 --> 00:15:29,440 Speaker 2: return to nineteen seventy style inflation. 255 00:15:30,320 --> 00:15:35,080 Speaker 7: No, we see that inflation has already significantly come down 256 00:15:35,200 --> 00:15:39,280 Speaker 7: since its peak last year, and it's coming down further 257 00:15:40,080 --> 00:15:43,920 Speaker 7: down to five point six percent on average this year, 258 00:15:44,120 --> 00:15:48,160 Speaker 7: three point three percent next year on average, and back 259 00:15:48,200 --> 00:15:51,760 Speaker 7: to target in twenty twenty five. And at the same time, 260 00:15:51,800 --> 00:15:55,400 Speaker 7: we see growth bottoming out this year, coming up from 261 00:15:55,720 --> 00:15:58,000 Speaker 7: zero point seven percent this year to one point two 262 00:15:58,000 --> 00:16:02,200 Speaker 7: percent next year. Unemployed has not gone up much. So 263 00:16:02,480 --> 00:16:08,160 Speaker 7: this is a challenging situation, but we can see that 264 00:16:08,240 --> 00:16:13,480 Speaker 7: with these steady policies it's going to resolve itself in 265 00:16:13,560 --> 00:16:14,920 Speaker 7: the coming two years. 266 00:16:15,200 --> 00:16:17,160 Speaker 2: What are the key risk factors that we need to 267 00:16:17,200 --> 00:16:20,080 Speaker 2: watch now when it comes to that trajectory for inflation, 268 00:16:20,120 --> 00:16:22,200 Speaker 2: As you say your forecast do see it coming down 269 00:16:22,200 --> 00:16:25,920 Speaker 2: over the next two years. What could upset that forecast? 270 00:16:26,400 --> 00:16:30,720 Speaker 7: Well, the main messages that risks are unfortunately still to 271 00:16:30,800 --> 00:16:33,640 Speaker 7: the downside for growth and to the upside for inflation. 272 00:16:34,160 --> 00:16:37,600 Speaker 7: Inflation could just be again surprising us as it has before, 273 00:16:38,040 --> 00:16:41,800 Speaker 7: being stickier wages now are starting to rise to catch 274 00:16:41,880 --> 00:16:45,000 Speaker 7: up with the fall and the cost of the in 275 00:16:45,040 --> 00:16:49,320 Speaker 7: the purchasing power right of workers, sticky services inflation is there. 276 00:16:49,640 --> 00:16:52,640 Speaker 7: If that happens, interest rates might have to be held 277 00:16:52,720 --> 00:16:57,760 Speaker 7: higher for longer again, and that could potentially lead to 278 00:16:57,960 --> 00:17:02,960 Speaker 7: financial sector tensions. For insolvencies are going up, commercial real estate, 279 00:17:03,320 --> 00:17:08,560 Speaker 7: non financial institutions, so this could create a larger than 280 00:17:08,680 --> 00:17:14,320 Speaker 7: expected downturn in growth. These are downside risks. There's also 281 00:17:16,280 --> 00:17:20,560 Speaker 7: the question of how to face with those risks. Fiscal 282 00:17:20,600 --> 00:17:24,320 Speaker 7: policy can also play its role by having a medium 283 00:17:24,400 --> 00:17:27,440 Speaker 7: term plan for reducing debt exposures. 284 00:17:28,440 --> 00:17:31,560 Speaker 2: What I mean, what is the key advice to fiscal 285 00:17:31,560 --> 00:17:34,680 Speaker 2: policy makers to governments? Then on that basis, if we're 286 00:17:34,720 --> 00:17:37,560 Speaker 2: going to be dealing with inflation for longer, many governments 287 00:17:37,600 --> 00:17:40,159 Speaker 2: are still looking at, for example, public sector salaries and 288 00:17:40,160 --> 00:17:43,520 Speaker 2: that they do have control over. Is the message restraint 289 00:17:43,600 --> 00:17:45,760 Speaker 2: to those governments broadly? 290 00:17:46,000 --> 00:17:50,920 Speaker 7: Yes, we are as I said, there's a upside movement 291 00:17:50,960 --> 00:17:53,640 Speaker 7: in growth for next year, but debt levels are still 292 00:17:53,760 --> 00:17:57,359 Speaker 7: very high coming out of the pandemic and with higher 293 00:17:57,400 --> 00:18:01,400 Speaker 7: interest rates, this is leading to using debt service costs, 294 00:18:01,800 --> 00:18:05,920 Speaker 7: so safeguarding it sustainability, rebuilding the budget ry room, and 295 00:18:06,520 --> 00:18:10,120 Speaker 7: really strengthening the disinflation process by moving in the same 296 00:18:10,160 --> 00:18:13,560 Speaker 7: direction as manatory policy, that would be helpful. 297 00:18:13,640 --> 00:18:17,120 Speaker 2: Yes, you've outlined some of the risks that could be 298 00:18:17,400 --> 00:18:20,119 Speaker 2: to the downside for growth to the upside for inflation. 299 00:18:20,920 --> 00:18:23,560 Speaker 2: Let's take a more positive view. Are there surprises that 300 00:18:23,600 --> 00:18:26,760 Speaker 2: could come that could be good? What are you factoring 301 00:18:26,760 --> 00:18:27,960 Speaker 2: in or what are you watching for? 302 00:18:29,080 --> 00:18:29,359 Speaker 6: Yes? 303 00:18:29,400 --> 00:18:33,600 Speaker 7: And luckily, the overall perspective now is that risks are 304 00:18:33,680 --> 00:18:36,119 Speaker 7: more balanced than they were six months ago when we 305 00:18:36,119 --> 00:18:40,600 Speaker 7: were so worried about banking turmoil. Now we could have 306 00:18:41,760 --> 00:18:44,879 Speaker 7: an upside risk from the labor market. There could be 307 00:18:46,040 --> 00:18:51,040 Speaker 7: easing in labor market tightness by vacancies coming down instead 308 00:18:51,040 --> 00:18:54,120 Speaker 7: of unemployment going up. That's been happening, especially in the US, 309 00:18:54,320 --> 00:18:57,960 Speaker 7: by more than we expected, so more labor supply coming 310 00:18:58,040 --> 00:19:01,359 Speaker 7: in that would ease inflation but also boost growth. 311 00:19:01,440 --> 00:19:04,440 Speaker 2: That was Daniel Lee, head of the World Economic Studies 312 00:19:04,440 --> 00:19:07,720 Speaker 2: Division at the International Monetary Fund. I've been taking a 313 00:19:07,760 --> 00:19:10,880 Speaker 2: look at Bloomberg Economics views on the inflation outlook too. 314 00:19:11,160 --> 00:19:14,119 Speaker 2: They expect inflation in the Euro Area to average five 315 00:19:14,160 --> 00:19:17,159 Speaker 2: point six percent this year and two point two percent 316 00:19:17,280 --> 00:19:20,719 Speaker 2: next year. That's slightly higher than their last update in June. 317 00:19:21,080 --> 00:19:23,640 Speaker 2: They expect the ECB to shift their emphasis now from 318 00:19:23,640 --> 00:19:27,160 Speaker 2: inflation risks to economic risks, and are warning that fiscal 319 00:19:27,200 --> 00:19:30,920 Speaker 2: policy could become a more prominent issue next year, especially 320 00:19:30,920 --> 00:19:33,960 Speaker 2: with the EU set to reimpose their deficit rules in 321 00:19:34,000 --> 00:19:37,760 Speaker 2: twenty twenty four. Now, Jamie Russian colleagues at Bloomberg Economics 322 00:19:37,760 --> 00:19:40,919 Speaker 2: don't see the ECB hiking again and holding rates in 323 00:19:40,960 --> 00:19:44,520 Speaker 2: fact until the middle of twenty twenty four. Right now 324 00:19:44,520 --> 00:19:48,479 Speaker 2: they're penciling in a first rate cut at next June's meeting, 325 00:19:48,760 --> 00:19:50,879 Speaker 2: although there are plenty more data prints for us to 326 00:19:50,920 --> 00:19:54,560 Speaker 2: analyze between now and then. I'm Stephen Carroll in London. 327 00:19:54,560 --> 00:19:57,080 Speaker 2: You can catch us every weekday morning here for Bloomberg 328 00:19:57,160 --> 00:19:59,920 Speaker 2: Daybreak Europe, beginning at six am in London and one 329 00:20:00,080 --> 00:20:02,520 Speaker 2: and am on Wallstrace Tom. 330 00:20:02,000 --> 00:20:04,600 Speaker 1: Thanks Steven, and coming up on Bloomberg day Break weekend, 331 00:20:04,640 --> 00:20:06,960 Speaker 1: we head to Asia and look at how China is 332 00:20:07,000 --> 00:20:11,040 Speaker 1: struggling to revive it's slowing economy. I'm Tom Busby and 333 00:20:11,160 --> 00:20:23,879 Speaker 1: this is Bloomberg. I'm Tom Busby in New York with 334 00:20:23,960 --> 00:20:26,160 Speaker 1: your global look ahead at the top stories for investors 335 00:20:26,160 --> 00:20:29,280 Speaker 1: in the coming week. With China still struggling to revive 336 00:20:29,280 --> 00:20:33,240 Speaker 1: its slowing economy, how will it juggle stimulating growth and 337 00:20:33,480 --> 00:20:37,280 Speaker 1: maintaining its role as a geopolitical leader on the global stage? 338 00:20:37,359 --> 00:20:40,040 Speaker 1: And for help, we turned to Bloomberg Daybreak Asia's co 339 00:20:40,119 --> 00:20:41,880 Speaker 1: host Doug Krisner for more. 340 00:20:42,000 --> 00:20:44,440 Speaker 3: Tom in the week ahead, we'll get the monthly economic 341 00:20:44,480 --> 00:20:48,360 Speaker 3: activity data for China. This will include numbers on retail sales, 342 00:20:48,640 --> 00:20:51,680 Speaker 3: industrial production, and the jobless rate. Now, as we know, 343 00:20:51,760 --> 00:20:54,399 Speaker 3: there are many questions when it comes to the underlying 344 00:20:54,440 --> 00:20:56,919 Speaker 3: strength of the Chinese economy, we want to take a 345 00:20:56,960 --> 00:21:01,760 Speaker 3: closer look now with Bloomberg's John Lu, executive editor for China, 346 00:21:01,800 --> 00:21:04,320 Speaker 3: and John is here in New York. It's great to 347 00:21:04,320 --> 00:21:06,520 Speaker 3: see you. Thanks for being with us, Thanks for having me. 348 00:21:06,640 --> 00:21:09,000 Speaker 3: So much of the story I think on the overall 349 00:21:09,080 --> 00:21:12,800 Speaker 3: economy in China centers on the strength of the consumer. Now, 350 00:21:12,880 --> 00:21:15,200 Speaker 3: we've just moved through the Golden Week holidays. Some of 351 00:21:15,240 --> 00:21:19,000 Speaker 3: the high frequency data that we have seen indicated a 352 00:21:19,040 --> 00:21:22,479 Speaker 3: fair amount of resilience. Now, I know that the numbers 353 00:21:22,480 --> 00:21:24,840 Speaker 3: that we're going to get on activity data for September 354 00:21:24,880 --> 00:21:28,240 Speaker 3: will not reflect any of that Golden Week activity. But 355 00:21:28,320 --> 00:21:32,679 Speaker 3: I'm wondering, is it safe to assume that the consumer 356 00:21:33,040 --> 00:21:35,320 Speaker 3: in the month of September was in pretty fair shape. 357 00:21:35,880 --> 00:21:39,360 Speaker 8: I think the data that we got for the holiday 358 00:21:39,359 --> 00:21:42,600 Speaker 8: period actually showed that there is a recovery after the 359 00:21:42,680 --> 00:21:44,720 Speaker 8: end of COVID zero, but it's not been as good 360 00:21:44,720 --> 00:21:46,760 Speaker 8: as people I hoped it would be. Even for that 361 00:21:46,840 --> 00:21:51,040 Speaker 8: week long holiday period, we saw a recovery and travel 362 00:21:51,200 --> 00:21:54,840 Speaker 8: and spending to pre pandemic levels, but still it came 363 00:21:54,920 --> 00:21:57,879 Speaker 8: in shy of what the government had said it hoped 364 00:21:57,880 --> 00:21:59,840 Speaker 8: it would get to. And so I think what that 365 00:22:00,080 --> 00:22:03,280 Speaker 8: tells us about the economy is it's getting better, but 366 00:22:03,320 --> 00:22:06,280 Speaker 8: it's still weak. It's not doing as well as people 367 00:22:06,359 --> 00:22:08,679 Speaker 8: had hoped, and there's still a lot of concern in 368 00:22:08,720 --> 00:22:10,480 Speaker 8: beaging about how it's going to unfold. 369 00:22:10,560 --> 00:22:13,400 Speaker 3: So domestic demand is obviously a big issue. We'll talk 370 00:22:13,640 --> 00:22:16,119 Speaker 3: in a moment about the notion of stimulus here. But 371 00:22:16,200 --> 00:22:19,639 Speaker 3: on the export side, when I look at the numbers 372 00:22:19,640 --> 00:22:22,359 Speaker 3: coming up on industrial production, what do we know about 373 00:22:22,400 --> 00:22:24,280 Speaker 3: how well exports have been behaving. 374 00:22:24,680 --> 00:22:27,280 Speaker 8: So exports have been coming down, and so that has 375 00:22:27,359 --> 00:22:33,040 Speaker 8: been the result of demand in the US and other 376 00:22:33,080 --> 00:22:37,040 Speaker 8: parts of the world coming going more to places like 377 00:22:37,080 --> 00:22:41,560 Speaker 8: Southeast Asia producers and other parts of the world. That's 378 00:22:41,600 --> 00:22:45,960 Speaker 8: been the result of not only sort of the decoupling 379 00:22:46,000 --> 00:22:48,800 Speaker 8: that's been happening between the West and China, but also 380 00:22:48,880 --> 00:22:52,400 Speaker 8: just the fact that costs are so much more expensive 381 00:22:52,440 --> 00:22:55,600 Speaker 8: if you're making shoes or toys or electronics. It's so 382 00:22:55,680 --> 00:22:57,719 Speaker 8: much more expensive to do that in China than it 383 00:22:57,760 --> 00:22:59,919 Speaker 8: is in Southeast Asia now, and it's starting to be 384 00:23:00,040 --> 00:23:00,920 Speaker 8: reflected in the idea. 385 00:23:00,960 --> 00:23:03,600 Speaker 3: Is deflation still a concern? Is it still a problem? 386 00:23:04,400 --> 00:23:09,400 Speaker 8: We should be getting inflation data and factory gain inflation 387 00:23:09,480 --> 00:23:12,439 Speaker 8: pretty soon and that should show that factory prices are 388 00:23:12,480 --> 00:23:16,000 Speaker 8: still falling. There is a lot of concern about consumer deflation. 389 00:23:16,800 --> 00:23:19,080 Speaker 8: There was a stabilization last month, but I think that 390 00:23:19,200 --> 00:23:22,440 Speaker 8: is still a big concern. There's a lot of overcapacity 391 00:23:22,960 --> 00:23:25,600 Speaker 8: in the economy, be it in property, be it in 392 00:23:25,840 --> 00:23:29,080 Speaker 8: just manufactured goods all across the economy, and that's going 393 00:23:29,119 --> 00:23:30,400 Speaker 8: to take a while to work its way through. 394 00:23:30,400 --> 00:23:32,400 Speaker 3: One of the big stories that we had last week 395 00:23:32,800 --> 00:23:36,560 Speaker 3: was on Beijing considering the possibility of raising the budget 396 00:23:36,600 --> 00:23:39,760 Speaker 3: deficit and doing a little bit more. In terms of stimulus, 397 00:23:39,960 --> 00:23:42,720 Speaker 3: everything that we've seen so far, whether it's been on 398 00:23:42,760 --> 00:23:44,960 Speaker 3: the physical side or the monetary side, we know has 399 00:23:44,960 --> 00:23:48,120 Speaker 3: been very targeted. What might a new stimulus package. 400 00:23:47,840 --> 00:23:50,399 Speaker 8: Look like, So it's actually going to look a lot 401 00:23:50,680 --> 00:23:54,080 Speaker 8: like what the older stimulus packages look like, which is 402 00:23:54,160 --> 00:23:57,480 Speaker 8: mostly infrastructure spending. I think what's interesting about this new 403 00:23:57,600 --> 00:24:00,879 Speaker 8: package that's being discussed is who's going to raise the money. 404 00:24:00,920 --> 00:24:04,480 Speaker 8: In the past, Beijing has asked local governments to sell 405 00:24:04,520 --> 00:24:07,280 Speaker 8: that raise money and spend that money to build infrastructure. 406 00:24:07,400 --> 00:24:10,080 Speaker 8: Now the central government, it looks like, is going to 407 00:24:10,160 --> 00:24:13,520 Speaker 8: do that itself. And that's important because local governments are 408 00:24:13,560 --> 00:24:17,440 Speaker 8: really indebted. They are finding their finances in a lot 409 00:24:17,480 --> 00:24:19,639 Speaker 8: of trouble and under a lot of strain. And so 410 00:24:19,720 --> 00:24:24,399 Speaker 8: this is actually Beijing coming forward and saying the central 411 00:24:24,400 --> 00:24:26,800 Speaker 8: government will do this instead of the local governments. It 412 00:24:26,920 --> 00:24:30,240 Speaker 8: highlights how much concerned there is in Beijing that the 413 00:24:30,280 --> 00:24:33,560 Speaker 8: situation might be worse than it has been in the past, 414 00:24:34,000 --> 00:24:36,159 Speaker 8: and showing your willingness to try a new way to 415 00:24:36,200 --> 00:24:37,159 Speaker 8: try to combat that. 416 00:24:37,480 --> 00:24:40,040 Speaker 3: There's been a fair amount of criticism already, just based 417 00:24:40,080 --> 00:24:43,000 Speaker 3: on the early reporting, that the stimulus that is being 418 00:24:43,040 --> 00:24:45,760 Speaker 3: discussed really doesn't do much for the consumer, it doesn't 419 00:24:45,760 --> 00:24:48,879 Speaker 3: do much for the property market. Is it up for 420 00:24:48,960 --> 00:24:52,119 Speaker 3: discussion maybe that those areas need to be addressed in 421 00:24:52,160 --> 00:24:53,280 Speaker 3: a more forceful way. 422 00:24:53,480 --> 00:24:55,840 Speaker 8: What has been done so far has been a bit 423 00:24:55,880 --> 00:24:58,359 Speaker 8: of a piecemeal effort, a little bit here, a little 424 00:24:58,359 --> 00:25:01,680 Speaker 8: bit there. Like you said, cut in interest rates, cut 425 00:25:01,720 --> 00:25:04,880 Speaker 8: in the reserve requirements, some policies to help the real 426 00:25:05,000 --> 00:25:09,160 Speaker 8: estate sector. Everybody's been looking for a big bazooka sort 427 00:25:09,200 --> 00:25:12,400 Speaker 8: of stimulus package. I don't think that's what we're about 428 00:25:12,440 --> 00:25:17,000 Speaker 8: to get what's being discussed. It could be very effective 429 00:25:17,040 --> 00:25:19,240 Speaker 8: in the sense that it shows a change in attitude, 430 00:25:19,320 --> 00:25:21,600 Speaker 8: shows that Beijing is starting to evolve in terms of 431 00:25:21,640 --> 00:25:24,560 Speaker 8: how it's reacting to the slowdown. That could be more 432 00:25:24,600 --> 00:25:30,040 Speaker 8: important in terms of the attitude or the confidence that 433 00:25:30,080 --> 00:25:33,280 Speaker 8: it instills into the marketplace, more so than the actual 434 00:25:33,359 --> 00:25:35,600 Speaker 8: amount of money, which as we understand is about a 435 00:25:35,600 --> 00:25:38,080 Speaker 8: trillion unit. It's about one hundred and fifty billion US dollargy. 436 00:25:38,240 --> 00:25:40,280 Speaker 3: Also in the week ahead, as I'm sure you know, John, 437 00:25:40,359 --> 00:25:43,600 Speaker 3: it's the third Belton Road Forum that Beijing will host. 438 00:25:44,359 --> 00:25:47,440 Speaker 3: Where is the Belton Road? Where is this process right now? 439 00:25:47,520 --> 00:25:51,399 Speaker 3: And can Beijing continue to make it a priority in 440 00:25:51,440 --> 00:25:53,800 Speaker 3: the face of so much domestic weakness. 441 00:25:54,400 --> 00:25:57,000 Speaker 8: So the domestic weakness I think is important. It really 442 00:25:57,040 --> 00:26:00,840 Speaker 8: reduces the amount of resources that Jijinping and his government 443 00:26:00,960 --> 00:26:03,480 Speaker 8: have to spend on the Belton Road project, how much 444 00:26:03,520 --> 00:26:06,160 Speaker 8: they can finance countries around the world when it comes 445 00:26:06,200 --> 00:26:09,800 Speaker 8: to infrastructure. The other problem is we've had places like Pakistan, 446 00:26:10,040 --> 00:26:13,440 Speaker 8: Sri Lanka that have run into trouble, have not been 447 00:26:13,480 --> 00:26:16,440 Speaker 8: able to pay their debt. That's been a real drag 448 00:26:16,560 --> 00:26:20,560 Speaker 8: on this initiative. The other thing is Russia, Ukraine and 449 00:26:20,840 --> 00:26:24,760 Speaker 8: Chinese support for Russia has resulted in European countries. I 450 00:26:24,760 --> 00:26:28,000 Speaker 8: think Italy is probably the prime example of that. Pulling 451 00:26:28,040 --> 00:26:31,439 Speaker 8: out of the Belton Road. Europe's really pulling away from 452 00:26:31,480 --> 00:26:34,240 Speaker 8: this initiative, and so the whole thing is starting to evolve. 453 00:26:34,280 --> 00:26:37,119 Speaker 8: It's become much more of a Global South sort of initiative. 454 00:26:37,520 --> 00:26:40,520 Speaker 8: The Europeans are shying away. We're not expecting any big 455 00:26:40,640 --> 00:26:43,639 Speaker 8: heads of state from Europe to attend the forum. Mister 456 00:26:43,640 --> 00:26:46,280 Speaker 8: Putin will be there, of course, and that underlines that situation. 457 00:26:46,440 --> 00:26:48,719 Speaker 3: So that's a great point, and I'm wondering what his 458 00:26:48,840 --> 00:26:52,160 Speaker 3: aim may be, looking to kind of fortify the relationship 459 00:26:52,200 --> 00:26:54,879 Speaker 3: with China in both ways being able to export a 460 00:26:54,880 --> 00:26:57,840 Speaker 3: little bit more in the way of commodities. I'm thinking 461 00:26:57,880 --> 00:27:01,000 Speaker 3: crude oil in particular, and then looking maybe for some 462 00:27:01,119 --> 00:27:03,639 Speaker 3: investment dollars coming from China into Russia. 463 00:27:03,720 --> 00:27:07,520 Speaker 8: From the Russian perspective, China is its most important supporter 464 00:27:07,760 --> 00:27:12,600 Speaker 8: at the moment on the global stage, diplomatically, economically. As 465 00:27:12,600 --> 00:27:15,480 Speaker 8: we understand it, there has been no evidence that China's 466 00:27:15,640 --> 00:27:18,600 Speaker 8: providing weapons to Russia, but I'm sure if the Russians 467 00:27:18,640 --> 00:27:21,840 Speaker 8: could get help in terms of supplies, equipment, technology, they 468 00:27:21,840 --> 00:27:24,680 Speaker 8: would be they would look for that from China. It's 469 00:27:24,800 --> 00:27:27,359 Speaker 8: very important for mister Putin to maintain that relationship. He 470 00:27:27,640 --> 00:27:30,840 Speaker 8: and President Chigping seemed to have a good personal bond, 471 00:27:31,680 --> 00:27:34,159 Speaker 8: and I think this is this trip is an effort 472 00:27:34,200 --> 00:27:38,520 Speaker 8: to fortify that against anything that might happen. Obviously, President 473 00:27:38,600 --> 00:27:41,200 Speaker 8: Joe Biden would like to see China move away from Russia, 474 00:27:42,080 --> 00:27:43,879 Speaker 8: and this would be an attempt from mister Putin to 475 00:27:43,920 --> 00:27:45,760 Speaker 8: try and avoid that from happening. 476 00:27:45,800 --> 00:27:49,040 Speaker 3: We just had a group bipartisan group of US senators 477 00:27:49,040 --> 00:27:52,600 Speaker 3: in Beijing, and one of the things that President Chi 478 00:27:52,680 --> 00:27:55,520 Speaker 3: insisted in the meeting, from what I've read, he kind 479 00:27:55,520 --> 00:28:00,080 Speaker 3: of downplayed this concern coming from Washington about China's intention 480 00:28:00,440 --> 00:28:05,120 Speaker 3: essentially to challenge the US as a superpower. Is this 481 00:28:05,200 --> 00:28:08,360 Speaker 3: something that is a major shift or is this basically 482 00:28:08,520 --> 00:28:13,000 Speaker 3: just being reduced temporarily that she does intend to do 483 00:28:13,040 --> 00:28:15,320 Speaker 3: that at some point, but now is not the time. 484 00:28:15,480 --> 00:28:19,439 Speaker 8: The Chinese position has always been that China does not 485 00:28:19,480 --> 00:28:21,960 Speaker 8: want to replace the US as the pre eminent power 486 00:28:21,960 --> 00:28:25,280 Speaker 8: in the world. I think this meeting with Senator Schumer 487 00:28:25,400 --> 00:28:29,159 Speaker 8: and the Congressional delegation shows is there is a greater 488 00:28:29,359 --> 00:28:32,760 Speaker 8: interest on the Chinese side to engage. This was the 489 00:28:32,800 --> 00:28:35,400 Speaker 8: first time that President Jiji Pen has met a congressional 490 00:28:35,440 --> 00:28:38,960 Speaker 8: delegation in eight years. I think that's especially important given 491 00:28:39,000 --> 00:28:41,960 Speaker 8: that we have APEC coming in San Francisco in November. 492 00:28:42,600 --> 00:28:46,120 Speaker 8: We don't know if President Chigpin is going to attend, 493 00:28:46,160 --> 00:28:49,920 Speaker 8: but given this meeting, given all of the talks that 494 00:28:49,960 --> 00:28:52,760 Speaker 8: have been happening, given the cabinet level visits by American 495 00:28:52,760 --> 00:28:56,400 Speaker 8: officials to Beijing, it does seem like that he will 496 00:28:56,400 --> 00:28:58,520 Speaker 8: be attending APEK, and it does seem like that that 497 00:28:58,760 --> 00:29:02,240 Speaker 8: is setting up a situation where President Biden and President 498 00:29:02,400 --> 00:29:05,000 Speaker 8: She could have a face to face and you could 499 00:29:05,040 --> 00:29:10,960 Speaker 8: see some agreements reached there. Possibly probably not anything that's 500 00:29:11,000 --> 00:29:14,280 Speaker 8: going to dramatically improve the relationship, but it could greatly 501 00:29:14,360 --> 00:29:15,120 Speaker 8: stabilize things. 502 00:29:15,240 --> 00:29:19,040 Speaker 3: John lou Is Bloomberg, Executive editor for China. I'm Doug Prisner. 503 00:29:19,080 --> 00:29:22,560 Speaker 3: You can join Brian Curtis and myself weekdays for Bloomberg 504 00:29:22,600 --> 00:29:25,160 Speaker 3: day Break Asia, beginning at six am in Hong Kong, 505 00:29:25,520 --> 00:29:27,160 Speaker 3: six pm on Wall Street. 506 00:29:27,480 --> 00:29:30,280 Speaker 1: Tom, Thanks Doug, and coming up here on Bloomberg day 507 00:29:30,280 --> 00:29:33,400 Speaker 1: Break weekend in the States, another round of important economic 508 00:29:33,440 --> 00:29:36,840 Speaker 1: data in the week ahead, and will preview US retail 509 00:29:36,920 --> 00:29:39,800 Speaker 1: spending for the month of September. I'm Tom Busby in 510 00:29:39,840 --> 00:29:53,000 Speaker 1: New York, and this is Bloomberg. This is Bloomberg day 511 00:29:53,000 --> 00:29:55,479 Speaker 1: Break Weekend, our global look ahead at the top stories 512 00:29:55,520 --> 00:29:58,240 Speaker 1: for investors in the coming week. I'm Tom Busby in 513 00:29:58,320 --> 00:30:00,800 Speaker 1: New York and this coming Tuesday, Walls read gets US 514 00:30:00,840 --> 00:30:04,880 Speaker 1: retail sales data for September. It could show that stubbornly 515 00:30:04,960 --> 00:30:08,120 Speaker 1: high prices and jitters about the economy are forcing many 516 00:30:08,160 --> 00:30:10,480 Speaker 1: Americans to pull back a little bit on their spending. 517 00:30:11,040 --> 00:30:13,480 Speaker 1: Well for what to expect, We're joined now by Anna 518 00:30:13,560 --> 00:30:16,560 Speaker 1: Wong of Bloomberg Economics. Anna, thank you for. 519 00:30:16,520 --> 00:30:17,880 Speaker 6: Being here, Happy to be here. 520 00:30:17,960 --> 00:30:21,560 Speaker 1: So tell us what are you and other economists expecting 521 00:30:21,600 --> 00:30:22,160 Speaker 1: to see. 522 00:30:22,320 --> 00:30:27,120 Speaker 6: Yeah, So, the general consensus is that consumers did slow 523 00:30:27,320 --> 00:30:31,560 Speaker 6: down the pace of spending in September to about zero 524 00:30:31,560 --> 00:30:37,120 Speaker 6: point one percent. Want to exclude autos and gasoline. So 525 00:30:37,200 --> 00:30:40,480 Speaker 6: zero point one percent on a monthly basis once you 526 00:30:40,520 --> 00:30:44,880 Speaker 6: adjusted for inflation, is actually slightly negative. But you know, 527 00:30:45,520 --> 00:30:48,720 Speaker 6: this is on the heels of several months of retail's 528 00:30:48,760 --> 00:30:53,600 Speaker 6: reports showing that effect consumers, we're spending and splurging over 529 00:30:53,680 --> 00:30:59,200 Speaker 6: the summer. So that's what the general consensus is expecting, 530 00:30:59,480 --> 00:31:03,560 Speaker 6: but our team overall agrees. However, we do think there's 531 00:31:03,600 --> 00:31:08,040 Speaker 6: substantial downside risks to this number. Our team's view is 532 00:31:08,080 --> 00:31:12,200 Speaker 6: that consumers will likely retrench in the fall because of 533 00:31:12,240 --> 00:31:16,280 Speaker 6: that overspending during the summer. We have already seen that 534 00:31:16,560 --> 00:31:21,000 Speaker 6: generally that the sentiment of consumer has been dipping. So 535 00:31:21,080 --> 00:31:24,560 Speaker 6: we just saw from the University of Michigan survey that 536 00:31:24,840 --> 00:31:29,440 Speaker 6: was released on Friday that consumer's confidence about their present 537 00:31:29,520 --> 00:31:34,920 Speaker 6: economic situation has deteriorated significantly. And most of that is 538 00:31:35,000 --> 00:31:39,240 Speaker 6: driven by the sense of you know, un well being 539 00:31:39,480 --> 00:31:43,960 Speaker 6: due to higher prices, especially in grocery stores and gasoline. 540 00:31:44,760 --> 00:31:49,200 Speaker 6: And I think that that is starting to really show 541 00:31:49,280 --> 00:31:54,120 Speaker 6: up in terms of squeezing consumers household budgets, and we're 542 00:31:54,160 --> 00:31:58,200 Speaker 6: seeing that in also, you know, their attitude toward buying 543 00:31:58,680 --> 00:32:04,520 Speaker 6: durable goods such as cars, furnitures, and just large household items. 544 00:32:05,800 --> 00:32:08,920 Speaker 6: So on that, I do think that, you know, given 545 00:32:09,000 --> 00:32:13,600 Speaker 6: that the consumer finances are deteriorating, that we should be 546 00:32:13,680 --> 00:32:17,400 Speaker 6: seeing not just in next in the in the retail 547 00:32:17,480 --> 00:32:21,880 Speaker 6: sales data for September, but also in October and November, 548 00:32:21,920 --> 00:32:27,280 Speaker 6: the trend would be zero to negative spending growth. 549 00:32:27,400 --> 00:32:29,520 Speaker 1: Well, I want to ask you this. Also on Friday, 550 00:32:29,600 --> 00:32:34,200 Speaker 1: City Group reported its earnings very solid, and one comment 551 00:32:34,360 --> 00:32:38,200 Speaker 1: was that the US consumer remains quite resilient. That's a quote. 552 00:32:38,280 --> 00:32:40,959 Speaker 1: But my question to you is is it all consumers? 553 00:32:41,120 --> 00:32:43,640 Speaker 1: Is it just the middle and higher earners or is 554 00:32:43,680 --> 00:32:47,040 Speaker 1: it everybody? And you know, I tend to think not 555 00:32:47,160 --> 00:32:49,000 Speaker 1: everyone is the same when it comes to spending. 556 00:32:49,160 --> 00:32:53,600 Speaker 6: Yeah, you know, the the American consumer is always resilient 557 00:32:53,760 --> 00:32:56,920 Speaker 6: as long as they can borrow. And you know, the 558 00:32:57,000 --> 00:33:01,320 Speaker 6: typical American household is not known for their foresight. In fact, 559 00:33:01,400 --> 00:33:05,880 Speaker 6: before the pandemic, the bottom forty percent of American household 560 00:33:06,040 --> 00:33:10,320 Speaker 6: was pretty much living paycheck to paycheck, with the bottom 561 00:33:10,520 --> 00:33:15,480 Speaker 6: twentieth percentile basically go like spending more than they earn 562 00:33:15,640 --> 00:33:19,640 Speaker 6: or save. So, you know, the resilience is not necessarily 563 00:33:19,720 --> 00:33:23,160 Speaker 6: a good thing from that perspective, especially in an environment 564 00:33:23,280 --> 00:33:27,760 Speaker 6: when credit card interest rate is like on the high twenties, 565 00:33:28,200 --> 00:33:32,480 Speaker 6: you know, it just means that delinquency will be rising. 566 00:33:33,000 --> 00:33:37,360 Speaker 6: And this so called resilience is spending will only last 567 00:33:37,440 --> 00:33:42,080 Speaker 6: as long as people in the who are not earning 568 00:33:42,080 --> 00:33:45,760 Speaker 6: as not as they spend that they could borrow for it. 569 00:33:45,800 --> 00:33:50,920 Speaker 6: And it's just not a sustainable thing. And so I 570 00:33:51,000 --> 00:33:54,760 Speaker 6: just generally don't see it as resilience as necessarily telling 571 00:33:54,800 --> 00:33:58,680 Speaker 6: you giving you any Ford signal of whether we will 572 00:33:58,720 --> 00:34:01,479 Speaker 6: be in a downturn or not. So in the past 573 00:34:01,640 --> 00:34:06,000 Speaker 6: recessions over the last forty or fifty years, generally consumption 574 00:34:06,320 --> 00:34:10,600 Speaker 6: is resilient even in a recession because people just spend 575 00:34:11,040 --> 00:34:13,120 Speaker 6: as long as they can borrow, well, as long as. 576 00:34:13,000 --> 00:34:14,840 Speaker 1: They can borrow, I guess they will. And Anna, I 577 00:34:14,880 --> 00:34:18,000 Speaker 1: want to thank you. That's Anna Wong of Bloomberg Economics. 578 00:34:18,440 --> 00:34:20,399 Speaker 1: And that does it for this edition of Bloomberg day 579 00:34:20,400 --> 00:34:23,279 Speaker 1: Break Weekend. Join us again Monday morning, five am Wall 580 00:34:23,280 --> 00:34:26,239 Speaker 1: Street Time for the latest on markets overseas and the 581 00:34:26,239 --> 00:34:28,760 Speaker 1: news you need to start your day. I'm Tom Buzzby. 582 00:34:29,000 --> 00:34:31,640 Speaker 1: Stay with us. Top stories and global business headlines are 583 00:34:31,680 --> 00:34:34,480 Speaker 1: coming up right now.