Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our day
Speaker 1: Break anchors all around the world. Straight Ahead on the program,
Speaker 1: it's earning season with big banks reporting. We'll break down
Speaker 1: the numbers from JP Morgan City Group and Wells Fargo
Speaker 1: and look ahead to next week. I'm Tom Busby in
Speaker 1: New York.
Speaker 2: I'm Stephen Carol and London for We're asking his upcoming
Speaker 2: inflation figures in Europe, we'll show signs of stagflation setting.
Speaker 3: In I'm Doug Prisoner taking the pulse of the Chinese
Speaker 3: economy and the challenges that lie ahead.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend, The business
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Speaker 1: Good day to you. I'm Tom Busby and we begin
Speaker 1: today's program on Wall Street. We got earnings from three
Speaker 1: of the nation's biggest banks on Friday, and to help
Speaker 1: put the numbers into context, we're joined by Bloomberg Intelligence
Speaker 1: Bank analyst Alison Williams. Big last week three of the Biggies.
Speaker 1: We have a lot more to come, but let's look
Speaker 1: back at JP morgan chase record net income interest thanks
Speaker 1: to higher interest rates. It boosted it's full year forecast,
Speaker 1: and also First Republic Bank the remnants of that bank
Speaker 1: helping JP Morgan chase. What can you tell us about
Speaker 1: the bank?
Speaker 5: So JP Morgan really delivering very strong returns, leading returns.
Speaker 5: The net interest income continues to beat, and they also
Speaker 5: raised their guidance. They're also being helped by better than
Speaker 5: expected costs outlook, and really on the credit side was
Speaker 5: where we got another big surprise. Consensus forecasts were expecting
Speaker 5: sizeable reserve building and we actually got a modest reserve release.
Speaker 5: So across the banks, what we're seeing is net interest
Speaker 5: income better than expected and a more positive view for
Speaker 5: the worth quarter. Of course, we caution that interest rate
Speaker 5: risks are rising, So while the run rate is good
Speaker 5: going into twenty twenty four, better than we had expected
Speaker 5: going into the earnings, there are still risks two twenty
Speaker 5: twenty four and the outlook. But on the cost side
Speaker 5: of things, certainly the banks are managing to those risks,
Speaker 5: and as I said, JP Morgan also had a better
Speaker 5: than expected cost view at well as far ago they
Speaker 5: actually raised their expectations for costs. But I would note
Speaker 5: that in the third quarter they did have some severance charges.
Speaker 5: Now they have said that attrition is less than it's
Speaker 5: been in the past, and so that's some of the
Speaker 5: reason why you're seeing those severance charges. But again they
Speaker 5: continue to make progress on the core costs. Obviously there's
Speaker 5: legal risks there and that could remain volatile for that bank.
Speaker 5: City Group joined these two banks and having better than
Speaker 5: interest income, but they kept their revenue guidance flat because
Speaker 5: fees are on the weaker side. And again so that's
Speaker 5: a continuation from that bank. But in general, net interest
Speaker 5: income better than expected, run rate better than expected. We
Speaker 5: still do see those risks into twenty twenty four. On
Speaker 5: the credit side of things, again better than expected, we
Speaker 5: are seeing weakening and commercial real estate and office profit properties.
Speaker 5: At the margin, banks are taking reserves for card that's
Speaker 5: because they're building those card loans, and then on the
Speaker 5: operating expenses, you know, stable guidance at City A higher
Speaker 5: guide at Wells Fargo, lower guide to JP Morgan Netnet.
Speaker 5: I would say they are focusing on those core costs
Speaker 5: and do continue to get some benefits.
Speaker 1: Speaking of benefits. Let's talk about interest rates and how
Speaker 1: they benefited the bank, but their mortgage divisions, how have
Speaker 1: they reacted to these higher rates.
Speaker 5: So the mortgage obviously has been under pressure, but given
Speaker 5: where we are, it's obviously a smaller part of revenue
Speaker 5: at this juncture, right, because we have seen a lot
Speaker 5: of weakness in the product, and obviously higher rates are
Speaker 5: not good for mortgage volumes. The other thing that we
Speaker 5: should probably speak about is the trading and fee revenue
Speaker 5: at these banks. Trading fixed income proving to be very resilient,
Speaker 5: equities trading a little bit weaker. That's similar to what
Speaker 5: we've seen in the past few quarters. But on the
Speaker 5: feast side of things, things studying that and that's positive. So,
Speaker 5: as we said, mortgage is a smaller part of revenue,
Speaker 5: investment banking fee is also a smaller part of revenue
Speaker 5: because of the significant declines we've seen in both of those.
Speaker 5: But on the banking fee side, I think there is
Speaker 5: there are some reasons for optimism. M and A I
Speaker 5: think was really the positive surprise equity markets. We did
Speaker 5: see some good IPOs, but those equity fees still coming
Speaker 5: in weaker than expected.
Speaker 1: And we also a surprised mean that charge offs were
Speaker 1: down at least the JP Morgan chase. What does that
Speaker 1: tell us about consumers?
Speaker 5: What it tells us is that credit continues to be
Speaker 5: very strong, and so yes, banks are taking reserves because
Speaker 5: they're looking ahead at some of the risks. But for
Speaker 5: the most part, consumers are healthy. Commercial loans are a
Speaker 5: little bit weaker, but in general credit there also remains
Speaker 5: very healthy. So we're seeing normalization. We're seeing a rise
Speaker 5: in charge offs from the lows, but as I said,
Speaker 5: better than expected. Office commercial real estate is something we're watching.
Speaker 5: We did see reserving on those types of properties. Wells
Speaker 5: Fargo said about a month ago that things are the
Speaker 5: weakness is broadening out versus a year or eighteen months ago.
Speaker 5: We are seeing so weakening there, but on the consumer side,
Speaker 5: it's really the lower bucket where you're starting to sea
Speaker 5: some weakness. And that's not a tremendous exposure for these banks.
Speaker 1: For these banks, and there are a lot more banks
Speaker 1: reporting next week, why don't we look ahead to what
Speaker 1: we're going to see.
Speaker 5: So the expectations certainly are a bit better after the
Speaker 5: banks that we saw last week. Net interest income bodes
Speaker 5: well for bank of America. We'll see if they beaten reise.
Speaker 5: Similar to the other banks, will also be watching costs
Speaker 5: for them. Operating leverage is something that investors like to see.
Speaker 5: It looks a little bit tougher for Bank of America
Speaker 5: or did about a week ago, but perhaps they can
Speaker 5: add to some of the positive net interest income story
Speaker 5: or the big banks in general, Goldmen, Sachs and Morgan Stanley.
Speaker 5: I would say net net again, the bar is higher
Speaker 5: because overall trading and investment banking fees better than expected,
Speaker 5: and that's really due to the fixed income trading line.
Speaker 5: It's also due to better M and A fees, while
Speaker 5: equity fees are weaker, and debt fees there's definitely are
Speaker 5: there's some pockets of strength, especially with regard to the
Speaker 5: high yield business. So Goldman is a little bit more
Speaker 5: balanced in their business. Bank of America leans more towards
Speaker 5: fixed income, but they've been investing broadly, and Morgan Stanley
Speaker 5: leans more towards the equity side of things. But I
Speaker 5: would say that the other thing we're watching at Goldman
Speaker 5: is some of the commercial real estate impairments. So we
Speaker 5: talked about sort of the provisions, but that's what we're
Speaker 5: watching for Goldman. Also specific to Goldman, a little bit
Speaker 5: of noise in the quarter because they are making progress
Speaker 5: on their strategic goals of sort of moving back away
Speaker 5: from consumer focusing on the core franchise. They announced the
Speaker 5: sale of Green Sky just last week. They have announced
Speaker 5: the sale of wealth assets related to United Capital, and
Speaker 5: they're done with the selloff and the Marcus loans. So
Speaker 5: a little bit of noise still in this quarter, but
Speaker 5: we think that they are sharpening focus botes well.
Speaker 1: Now after some of these biggest banks are done, we're
Speaker 1: going to see regional banks by the end of the week.
Speaker 1: And what a crisis we saw in the springtime. How
Speaker 1: have things changed or have they changed for some of
Speaker 1: those smaller regional banks.
Speaker 5: Going into the quarter. I would say that there was
Speaker 5: probably a shared optimism around the potential for deposit costs
Speaker 5: to be stabilizing for the regional banks as well as
Speaker 5: the big banks. But again that rising rate risk is
Speaker 5: a negative. And for the regional banks, they don't have
Speaker 5: the card exposures most of them that I discussed for
Speaker 5: the big universe banks, and so the softer commercial demand
Speaker 5: is going to weigh a little bit more for those banks.
Speaker 1: Let's talk about jobs in the banking sector, because we
Speaker 1: know that City Group Bank Frasiers is restructuring her bank,
Speaker 1: cutting management levels, which we know is going to lead
Speaker 1: to jobs. Is this just a normalization, is it just
Speaker 1: her bank, or is this something we're going to see
Speaker 1: throughout the industry?
Speaker 5: Do you think for City Group in particular, Jane is
Speaker 5: making changes at that bank and honing its focus. And
Speaker 5: I think that the strategy or the restructuring of management
Speaker 5: is very much in line with a broader strategy, So
Speaker 5: I think that is specific to City Group. For the
Speaker 5: broad investment banking and trading business, we have definitely seen
Speaker 5: cuts there. We did see seven charges at several of
Speaker 5: the banks in the second quarter. We also saw some
Speaker 5: of those charges again being called out with the third quarter.
Speaker 5: I think that banks are sizing their operations, in particular
Speaker 5: with regard to the investment banking. Fixed income trading has
Speaker 5: proven relatively resilient, equity trading has been a bit weaker,
Speaker 5: But both of those businesses are within a historically high range,
Speaker 5: So even though they're down a little bit, I would
Speaker 5: characterize them as healthy, strong, and relatively resilient. Investment banking
Speaker 5: on the other hand finally seeing some studying, so I
Speaker 5: think that is a key positive. But the levels that
Speaker 5: investment banking is studying at are really closer to the
Speaker 5: pre pandemic norm.
Speaker 1: Oh boy, a lot to look forward to, Alison, Thank
Speaker 1: you so much. That's Bloomberg Intelligence Bank analyst Alison Williams.
Speaker 1: And coming up on Bloomberg day Break weekend, we head
Speaker 1: to Europe to get a preview of this week's inflation figures.
Speaker 1: I'm Tom Busby, and this is Bloomberg. This is Bloomberg
Speaker 1: Daybreak weekend, our global look ahead at the top stories
Speaker 1: for investors in the coming week. I'm Tom Busby in
Speaker 1: New York. Up later in our program, how China is
Speaker 1: juggling stimulating economic growth while being a leader on the
Speaker 1: geopolitical stage. But first, a host of inflation data from
Speaker 1: Europe will likely confirm the trend that price increases are
Speaker 1: slowing down, but with growth weakening, are signs of stagflation
Speaker 1: setting in? For more, Let's go to London and bring
Speaker 1: in Bloomberg Daybreak Europe anchor Stephen Carroll.
Speaker 2: Tom here in the UK, inflation peaked in last October's
Speaker 2: reading at eleven point one percent and has been easing
Speaker 2: since falling to six point seven percent in August, but
Speaker 2: the downward trajectory has been uneven, so September's numbers will
Speaker 2: make for interesting reading across the euro Area. We're watching
Speaker 2: for the final reading of September CPI, which has also
Speaker 2: fallen sharply in recent months as energy prices have come down.
Speaker 2: Of course, any sharp increase snoiler gas prices from tensions
Speaker 2: in the Middle East could upend that trend and raise
Speaker 2: the risk of stagflation. Weak growth coupled with high inflation.
Speaker 2: That's a big challenge for central banks, making every detail
Speaker 2: of every CPI print all the more important for the
Speaker 2: ECB and for the Bank of England. In the last
Speaker 2: few days, the International Monetary Fund raised its forecast for
Speaker 2: where it sees inflation globally next year. In the UK,
Speaker 2: it expects the Bank of England to hike interest rates
Speaker 2: again by a quarter point and hold them at five
Speaker 2: and a half percent for most of next year. That's
Speaker 2: a more hawkish view than markets are currently pricing. I've
Speaker 2: been speaking to Daniel Lee, head of the World Economic
Speaker 2: Studies Division at the IMF about this, as well as
Speaker 2: his outlook for the rest of Europe.
Speaker 6: Well.
Speaker 7: For the UK, we have a forecast of subdued growth
Speaker 7: as higher interest rates bite, but infation is declining and
Speaker 7: so we think that by twenty twenty five inflation will
Speaker 7: be back to target. Cost for the UK has positive
Speaker 7: growth zero point five percent this year, point six percent
Speaker 7: next year.
Speaker 2: And that situation then you see impact in the Bank
Speaker 2: of England holding rates higher for longer.
Speaker 7: The rates are higher, not just in the UK but
Speaker 7: other economies, higher than we thought six months ago, three
Speaker 7: months ago because inflation has been stickier. So this is
Speaker 7: necessary around for managery policy to be steady to make
Speaker 7: sure that inflation expectations remain anchored that and inflation comes
Speaker 7: down to target.
Speaker 2: Do your latest forecasts include the upgrades to UK GDP
Speaker 2: that we've had the Office for National Statistics do in
Speaker 2: the past a couple of months that has seen a
Speaker 2: significant revision to the trajectory for UK growth since the
Speaker 2: end of the pandemic.
Speaker 7: Those National Office of National Statistics revisions were issued after
Speaker 7: we closed the forecast, but we did look and they
Speaker 7: do raise the level of GDP by twenty twenty two
Speaker 7: by about two percent, so less scarring than was originally thought.
Speaker 7: From the pandemic, but at the same time, we don't
Speaker 7: see a significant impact of this on growth going forward,
Speaker 7: so our forecast of zero point six percent growth in
Speaker 7: twenty twenty four is not very changed, and it's slightly
Speaker 7: above the forecast of other institutions, including the Bank of England.
Speaker 2: Okay, how does your outlook for the UK compare to
Speaker 2: the situation facing other major European economies.
Speaker 7: Well, the challenge of bringing down stubborn inflation is shared.
Speaker 7: We did do some analysis of the drivers of inflation
Speaker 7: in across economies. In the UK, a lot of this
Speaker 7: inflation is coming from passed through into other industries from
Speaker 7: energy prices having gone up so much, and the UK
Speaker 7: was exposed to the energy price shock due to external factors,
Speaker 7: so that's still working its way through in the Euro
Speaker 7: Area as well, though, this has played a very important role,
Speaker 7: more so in the UK and the Euro Area than
Speaker 7: in the US, where labor market tightness has been a
Speaker 7: more dominant driver of inflation.
Speaker 2: Donald When we think about Europe geographically, including the UK
Speaker 2: and continental Europe as well, are we heading for a
Speaker 2: return to nineteen seventy style inflation.
Speaker 7: No, we see that inflation has already significantly come down
Speaker 7: since its peak last year, and it's coming down further
Speaker 7: down to five point six percent on average this year,
Speaker 7: three point three percent next year on average, and back
Speaker 7: to target in twenty twenty five. And at the same time,
Speaker 7: we see growth bottoming out this year, coming up from
Speaker 7: zero point seven percent this year to one point two
Speaker 7: percent next year. Unemployed has not gone up much. So
Speaker 7: this is a challenging situation, but we can see that
Speaker 7: with these steady policies it's going to resolve itself in
Speaker 7: the coming two years.
Speaker 2: What are the key risk factors that we need to
Speaker 2: watch now when it comes to that trajectory for inflation,
Speaker 2: As you say your forecast do see it coming down
Speaker 2: over the next two years. What could upset that forecast?
Speaker 7: Well, the main messages that risks are unfortunately still to
Speaker 7: the downside for growth and to the upside for inflation.
Speaker 7: Inflation could just be again surprising us as it has before,
Speaker 7: being stickier wages now are starting to rise to catch
Speaker 7: up with the fall and the cost of the in
Speaker 7: the purchasing power right of workers, sticky services inflation is there.
Speaker 7: If that happens, interest rates might have to be held
Speaker 7: higher for longer again, and that could potentially lead to
Speaker 7: financial sector tensions. For insolvencies are going up, commercial real estate,
Speaker 7: non financial institutions, so this could create a larger than
Speaker 7: expected downturn in growth. These are downside risks. There's also
Speaker 7: the question of how to face with those risks. Fiscal
Speaker 7: policy can also play its role by having a medium
Speaker 7: term plan for reducing debt exposures.
Speaker 2: What I mean, what is the key advice to fiscal
Speaker 2: policy makers to governments? Then on that basis, if we're
Speaker 2: going to be dealing with inflation for longer, many governments
Speaker 2: are still looking at, for example, public sector salaries and
Speaker 2: that they do have control over. Is the message restraint
Speaker 2: to those governments broadly?
Speaker 7: Yes, we are as I said, there's a upside movement
Speaker 7: in growth for next year, but debt levels are still
Speaker 7: very high coming out of the pandemic and with higher
Speaker 7: interest rates, this is leading to using debt service costs,
Speaker 7: so safeguarding it sustainability, rebuilding the budget ry room, and
Speaker 7: really strengthening the disinflation process by moving in the same
Speaker 7: direction as manatory policy, that would be helpful.
Speaker 2: Yes, you've outlined some of the risks that could be
Speaker 2: to the downside for growth to the upside for inflation.
Speaker 2: Let's take a more positive view. Are there surprises that
Speaker 2: could come that could be good? What are you factoring
Speaker 2: in or what are you watching for?
Speaker 6: Yes?
Speaker 7: And luckily, the overall perspective now is that risks are
Speaker 7: more balanced than they were six months ago when we
Speaker 7: were so worried about banking turmoil. Now we could have
Speaker 7: an upside risk from the labor market. There could be
Speaker 7: easing in labor market tightness by vacancies coming down instead
Speaker 7: of unemployment going up. That's been happening, especially in the US,
Speaker 7: by more than we expected, so more labor supply coming
Speaker 7: in that would ease inflation but also boost growth.
Speaker 2: That was Daniel Lee, head of the World Economic Studies
Speaker 2: Division at the International Monetary Fund. I've been taking a
Speaker 2: look at Bloomberg Economics views on the inflation outlook too.
Speaker 2: They expect inflation in the Euro Area to average five
Speaker 2: point six percent this year and two point two percent
Speaker 2: next year. That's slightly higher than their last update in June.
Speaker 2: They expect the ECB to shift their emphasis now from
Speaker 2: inflation risks to economic risks, and are warning that fiscal
Speaker 2: policy could become a more prominent issue next year, especially
Speaker 2: with the EU set to reimpose their deficit rules in
Speaker 2: twenty twenty four. Now, Jamie Russian colleagues at Bloomberg Economics
Speaker 2: don't see the ECB hiking again and holding rates in
Speaker 2: fact until the middle of twenty twenty four. Right now
Speaker 2: they're penciling in a first rate cut at next June's meeting,
Speaker 2: although there are plenty more data prints for us to
Speaker 2: analyze between now and then. I'm Stephen Carroll in London.
Speaker 2: You can catch us every weekday morning here for Bloomberg
Speaker 2: Daybreak Europe, beginning at six am in London and one
Speaker 2: and am on Wallstrace Tom.
Speaker 1: Thanks Steven, and coming up on Bloomberg day Break weekend,
Speaker 1: we head to Asia and look at how China is
Speaker 1: struggling to revive it's slowing economy. I'm Tom Busby and
Speaker 1: this is Bloomberg. I'm Tom Busby in New York with
Speaker 1: your global look ahead at the top stories for investors
Speaker 1: in the coming week. With China still struggling to revive
Speaker 1: its slowing economy, how will it juggle stimulating growth and
Speaker 1: maintaining its role as a geopolitical leader on the global stage?
Speaker 1: And for help, we turned to Bloomberg Daybreak Asia's co
Speaker 1: host Doug Krisner for more.
Speaker 3: Tom in the week ahead, we'll get the monthly economic
Speaker 3: activity data for China. This will include numbers on retail sales,
Speaker 3: industrial production, and the jobless rate. Now, as we know,
Speaker 3: there are many questions when it comes to the underlying
Speaker 3: strength of the Chinese economy, we want to take a
Speaker 3: closer look now with Bloomberg's John Lu, executive editor for China,
Speaker 3: and John is here in New York. It's great to
Speaker 3: see you. Thanks for being with us, Thanks for having me.
Speaker 3: So much of the story I think on the overall
Speaker 3: economy in China centers on the strength of the consumer. Now,
Speaker 3: we've just moved through the Golden Week holidays. Some of
Speaker 3: the high frequency data that we have seen indicated a
Speaker 3: fair amount of resilience. Now, I know that the numbers
Speaker 3: that we're going to get on activity data for September
Speaker 3: will not reflect any of that Golden Week activity. But
Speaker 3: I'm wondering, is it safe to assume that the consumer
Speaker 3: in the month of September was in pretty fair shape.
Speaker 8: I think the data that we got for the holiday
Speaker 8: period actually showed that there is a recovery after the
Speaker 8: end of COVID zero, but it's not been as good
Speaker 8: as people I hoped it would be. Even for that
Speaker 8: week long holiday period, we saw a recovery and travel
Speaker 8: and spending to pre pandemic levels, but still it came
Speaker 8: in shy of what the government had said it hoped
Speaker 8: it would get to. And so I think what that
Speaker 8: tells us about the economy is it's getting better, but
Speaker 8: it's still weak. It's not doing as well as people
Speaker 8: had hoped, and there's still a lot of concern in
Speaker 8: beaging about how it's going to unfold.
Speaker 3: So domestic demand is obviously a big issue. We'll talk
Speaker 3: in a moment about the notion of stimulus here. But
Speaker 3: on the export side, when I look at the numbers
Speaker 3: coming up on industrial production, what do we know about
Speaker 3: how well exports have been behaving.
Speaker 8: So exports have been coming down, and so that has
Speaker 8: been the result of demand in the US and other
Speaker 8: parts of the world coming going more to places like
Speaker 8: Southeast Asia producers and other parts of the world. That's
Speaker 8: been the result of not only sort of the decoupling
Speaker 8: that's been happening between the West and China, but also
Speaker 8: just the fact that costs are so much more expensive
Speaker 8: if you're making shoes or toys or electronics. It's so
Speaker 8: much more expensive to do that in China than it
Speaker 8: is in Southeast Asia now, and it's starting to be
Speaker 8: reflected in the idea.
Speaker 3: Is deflation still a concern? Is it still a problem?
Speaker 8: We should be getting inflation data and factory gain inflation
Speaker 8: pretty soon and that should show that factory prices are
Speaker 8: still falling. There is a lot of concern about consumer deflation.
Speaker 8: There was a stabilization last month, but I think that
Speaker 8: is still a big concern. There's a lot of overcapacity
Speaker 8: in the economy, be it in property, be it in
Speaker 8: just manufactured goods all across the economy, and that's going
Speaker 8: to take a while to work its way through.
Speaker 3: One of the big stories that we had last week
Speaker 3: was on Beijing considering the possibility of raising the budget
Speaker 3: deficit and doing a little bit more. In terms of stimulus,
Speaker 3: everything that we've seen so far, whether it's been on
Speaker 3: the physical side or the monetary side, we know has
Speaker 3: been very targeted. What might a new stimulus package.
Speaker 8: Look like, So it's actually going to look a lot
Speaker 8: like what the older stimulus packages look like, which is
Speaker 8: mostly infrastructure spending. I think what's interesting about this new
Speaker 8: package that's being discussed is who's going to raise the money.
Speaker 8: In the past, Beijing has asked local governments to sell
Speaker 8: that raise money and spend that money to build infrastructure.
Speaker 8: Now the central government, it looks like, is going to
Speaker 8: do that itself. And that's important because local governments are
Speaker 8: really indebted. They are finding their finances in a lot
Speaker 8: of trouble and under a lot of strain. And so
Speaker 8: this is actually Beijing coming forward and saying the central
Speaker 8: government will do this instead of the local governments. It
Speaker 8: highlights how much concerned there is in Beijing that the
Speaker 8: situation might be worse than it has been in the past,
Speaker 8: and showing your willingness to try a new way to
Speaker 8: try to combat that.
Speaker 3: There's been a fair amount of criticism already, just based
Speaker 3: on the early reporting, that the stimulus that is being
Speaker 3: discussed really doesn't do much for the consumer, it doesn't
Speaker 3: do much for the property market. Is it up for
Speaker 3: discussion maybe that those areas need to be addressed in
Speaker 3: a more forceful way.
Speaker 8: What has been done so far has been a bit
Speaker 8: of a piecemeal effort, a little bit here, a little
Speaker 8: bit there. Like you said, cut in interest rates, cut
Speaker 8: in the reserve requirements, some policies to help the real
Speaker 8: estate sector. Everybody's been looking for a big bazooka sort
Speaker 8: of stimulus package. I don't think that's what we're about
Speaker 8: to get what's being discussed. It could be very effective
Speaker 8: in the sense that it shows a change in attitude,
Speaker 8: shows that Beijing is starting to evolve in terms of
Speaker 8: how it's reacting to the slowdown. That could be more
Speaker 8: important in terms of the attitude or the confidence that
Speaker 8: it instills into the marketplace, more so than the actual
Speaker 8: amount of money, which as we understand is about a
Speaker 8: trillion unit. It's about one hundred and fifty billion US dollargy.
Speaker 3: Also in the week ahead, as I'm sure you know, John,
Speaker 3: it's the third Belton Road Forum that Beijing will host.
Speaker 3: Where is the Belton Road? Where is this process right now?
Speaker 3: And can Beijing continue to make it a priority in
Speaker 3: the face of so much domestic weakness.
Speaker 8: So the domestic weakness I think is important. It really
Speaker 8: reduces the amount of resources that Jijinping and his government
Speaker 8: have to spend on the Belton Road project, how much
Speaker 8: they can finance countries around the world when it comes
Speaker 8: to infrastructure. The other problem is we've had places like Pakistan,
Speaker 8: Sri Lanka that have run into trouble, have not been
Speaker 8: able to pay their debt. That's been a real drag
Speaker 8: on this initiative. The other thing is Russia, Ukraine and
Speaker 8: Chinese support for Russia has resulted in European countries. I
Speaker 8: think Italy is probably the prime example of that. Pulling
Speaker 8: out of the Belton Road. Europe's really pulling away from
Speaker 8: this initiative, and so the whole thing is starting to evolve.
Speaker 8: It's become much more of a Global South sort of initiative.
Speaker 8: The Europeans are shying away. We're not expecting any big
Speaker 8: heads of state from Europe to attend the forum. Mister
Speaker 8: Putin will be there, of course, and that underlines that situation.
Speaker 3: So that's a great point, and I'm wondering what his
Speaker 3: aim may be, looking to kind of fortify the relationship
Speaker 3: with China in both ways being able to export a
Speaker 3: little bit more in the way of commodities. I'm thinking
Speaker 3: crude oil in particular, and then looking maybe for some
Speaker 3: investment dollars coming from China into Russia.
Speaker 8: From the Russian perspective, China is its most important supporter
Speaker 8: at the moment on the global stage, diplomatically, economically. As
Speaker 8: we understand it, there has been no evidence that China's
Speaker 8: providing weapons to Russia, but I'm sure if the Russians
Speaker 8: could get help in terms of supplies, equipment, technology, they
Speaker 8: would be they would look for that from China. It's
Speaker 8: very important for mister Putin to maintain that relationship. He
Speaker 8: and President Chigping seemed to have a good personal bond,
Speaker 8: and I think this is this trip is an effort
Speaker 8: to fortify that against anything that might happen. Obviously, President
Speaker 8: Joe Biden would like to see China move away from Russia,
Speaker 8: and this would be an attempt from mister Putin to
Speaker 8: try and avoid that from happening.
Speaker 3: We just had a group bipartisan group of US senators
Speaker 3: in Beijing, and one of the things that President Chi
Speaker 3: insisted in the meeting, from what I've read, he kind
Speaker 3: of downplayed this concern coming from Washington about China's intention
Speaker 3: essentially to challenge the US as a superpower. Is this
Speaker 3: something that is a major shift or is this basically
Speaker 3: just being reduced temporarily that she does intend to do
Speaker 3: that at some point, but now is not the time.
Speaker 8: The Chinese position has always been that China does not
Speaker 8: want to replace the US as the pre eminent power
Speaker 8: in the world. I think this meeting with Senator Schumer
Speaker 8: and the Congressional delegation shows is there is a greater
Speaker 8: interest on the Chinese side to engage. This was the
Speaker 8: first time that President Jiji Pen has met a congressional
Speaker 8: delegation in eight years. I think that's especially important given
Speaker 8: that we have APEC coming in San Francisco in November.
Speaker 8: We don't know if President Chigpin is going to attend,
Speaker 8: but given this meeting, given all of the talks that
Speaker 8: have been happening, given the cabinet level visits by American
Speaker 8: officials to Beijing, it does seem like that he will
Speaker 8: be attending APEK, and it does seem like that that
Speaker 8: is setting up a situation where President Biden and President
Speaker 8: She could have a face to face and you could
Speaker 8: see some agreements reached there. Possibly probably not anything that's
Speaker 8: going to dramatically improve the relationship, but it could greatly
Speaker 8: stabilize things.
Speaker 3: John lou Is Bloomberg, Executive editor for China. I'm Doug Prisner.
Speaker 3: You can join Brian Curtis and myself weekdays for Bloomberg
Speaker 3: day Break Asia, beginning at six am in Hong Kong,
Speaker 3: six pm on Wall Street.
Speaker 1: Tom, Thanks Doug, and coming up here on Bloomberg day
Speaker 1: Break weekend in the States, another round of important economic
Speaker 1: data in the week ahead, and will preview US retail
Speaker 1: spending for the month of September. I'm Tom Busby in
Speaker 1: New York, and this is Bloomberg. This is Bloomberg day
Speaker 1: Break Weekend, our global look ahead at the top stories
Speaker 1: for investors in the coming week. I'm Tom Busby in
Speaker 1: New York and this coming Tuesday, Walls read gets US
Speaker 1: retail sales data for September. It could show that stubbornly
Speaker 1: high prices and jitters about the economy are forcing many
Speaker 1: Americans to pull back a little bit on their spending.
Speaker 1: Well for what to expect, We're joined now by Anna
Speaker 1: Wong of Bloomberg Economics. Anna, thank you for.
Speaker 6: Being here, Happy to be here.
Speaker 1: So tell us what are you and other economists expecting
Speaker 1: to see.
Speaker 6: Yeah, So, the general consensus is that consumers did slow
Speaker 6: down the pace of spending in September to about zero
Speaker 6: point one percent. Want to exclude autos and gasoline. So
Speaker 6: zero point one percent on a monthly basis once you
Speaker 6: adjusted for inflation, is actually slightly negative. But you know,
Speaker 6: this is on the heels of several months of retail's
Speaker 6: reports showing that effect consumers, we're spending and splurging over
Speaker 6: the summer. So that's what the general consensus is expecting,
Speaker 6: but our team overall agrees. However, we do think there's
Speaker 6: substantial downside risks to this number. Our team's view is
Speaker 6: that consumers will likely retrench in the fall because of
Speaker 6: that overspending during the summer. We have already seen that
Speaker 6: generally that the sentiment of consumer has been dipping. So
Speaker 6: we just saw from the University of Michigan survey that
Speaker 6: was released on Friday that consumer's confidence about their present
Speaker 6: economic situation has deteriorated significantly. And most of that is
Speaker 6: driven by the sense of you know, un well being
Speaker 6: due to higher prices, especially in grocery stores and gasoline.
Speaker 6: And I think that that is starting to really show
Speaker 6: up in terms of squeezing consumers household budgets, and we're
Speaker 6: seeing that in also, you know, their attitude toward buying
Speaker 6: durable goods such as cars, furnitures, and just large household items.
Speaker 6: So on that, I do think that, you know, given
Speaker 6: that the consumer finances are deteriorating, that we should be
Speaker 6: seeing not just in next in the in the retail
Speaker 6: sales data for September, but also in October and November,
Speaker 6: the trend would be zero to negative spending growth.
Speaker 1: Well, I want to ask you this. Also on Friday,
Speaker 1: City Group reported its earnings very solid, and one comment
Speaker 1: was that the US consumer remains quite resilient. That's a quote.
Speaker 1: But my question to you is is it all consumers?
Speaker 1: Is it just the middle and higher earners or is
Speaker 1: it everybody? And you know, I tend to think not
Speaker 1: everyone is the same when it comes to spending.
Speaker 6: Yeah, you know, the the American consumer is always resilient
Speaker 6: as long as they can borrow. And you know, the
Speaker 6: typical American household is not known for their foresight. In fact,
Speaker 6: before the pandemic, the bottom forty percent of American household
Speaker 6: was pretty much living paycheck to paycheck, with the bottom
Speaker 6: twentieth percentile basically go like spending more than they earn
Speaker 6: or save. So, you know, the resilience is not necessarily
Speaker 6: a good thing from that perspective, especially in an environment
Speaker 6: when credit card interest rate is like on the high twenties,
Speaker 6: you know, it just means that delinquency will be rising.
Speaker 6: And this so called resilience is spending will only last
Speaker 6: as long as people in the who are not earning
Speaker 6: as not as they spend that they could borrow for it.
Speaker 6: And it's just not a sustainable thing. And so I
Speaker 6: just generally don't see it as resilience as necessarily telling
Speaker 6: you giving you any Ford signal of whether we will
Speaker 6: be in a downturn or not. So in the past
Speaker 6: recessions over the last forty or fifty years, generally consumption
Speaker 6: is resilient even in a recession because people just spend
Speaker 6: as long as they can borrow, well, as long as.
Speaker 1: They can borrow, I guess they will. And Anna, I
Speaker 1: want to thank you. That's Anna Wong of Bloomberg Economics.
Speaker 1: And that does it for this edition of Bloomberg day
Speaker 1: Break Weekend. Join us again Monday morning, five am Wall
Speaker 1: Street Time for the latest on markets overseas and the
Speaker 1: news you need to start your day. I'm Tom Buzzby.
Speaker 1: Stay with us. Top stories and global business headlines are
Speaker 1: coming up right now.