WEBVTT - Bloomberg Daybreak Weekend: Bank Earnings, Euro Inflation, China 0:00:02.800 --> 0:00:05.360 This is Bloomberg day Break Weekend, our global look at 0:00:05.360 --> 0:00:07.320 the top stories in the coming week from our day 0:00:07.360 --> 0:00:10.160 Break anchors all around the world. Straight Ahead on the program, 0:00:10.200 --> 0:00:13.720 it's earning season with big banks reporting. We'll break down 0:00:13.760 --> 0:00:17.200 the numbers from JP Morgan City Group and Wells Fargo 0:00:17.560 --> 0:00:20.119 and look ahead to next week. I'm Tom Busby in 0:00:20.200 --> 0:00:20.680 New York. 0:00:20.920 --> 0:00:23.320 I'm Stephen Carol and London for We're asking his upcoming 0:00:23.320 --> 0:00:27.520 inflation figures in Europe, we'll show signs of stagflation setting. 0:00:27.200 --> 0:00:30.040 In I'm Doug Prisoner taking the pulse of the Chinese 0:00:30.040 --> 0:00:32.360 economy and the challenges that lie ahead. 0:00:33.479 --> 0:00:37.519 That's all straight ahead on Bloomberg Daybreak Weekend, The business 0:00:37.560 --> 0:00:39.920 news you need to wrap up your week in just 0:00:40.040 --> 0:00:44.600 one fifteen minute podcast available on Apple, Spotify, The Bloomberg 0:00:44.640 --> 0:00:47.320 Business Appen everywhere you get your podcasts. 0:00:50.760 --> 0:00:52.680 Good day to you. I'm Tom Busby and we begin 0:00:52.720 --> 0:00:56.160 today's program on Wall Street. We got earnings from three 0:00:56.280 --> 0:00:58.520 of the nation's biggest banks on Friday, and to help 0:00:58.520 --> 0:01:01.760 put the numbers into context, we're joined by Bloomberg Intelligence 0:01:01.800 --> 0:01:05.920 Bank analyst Alison Williams. Big last week three of the Biggies. 0:01:05.959 --> 0:01:07.600 We have a lot more to come, but let's look 0:01:07.640 --> 0:01:12.319 back at JP morgan chase record net income interest thanks 0:01:12.360 --> 0:01:15.520 to higher interest rates. It boosted it's full year forecast, 0:01:16.080 --> 0:01:18.880 and also First Republic Bank the remnants of that bank 0:01:18.959 --> 0:01:22.039 helping JP Morgan chase. What can you tell us about 0:01:22.040 --> 0:01:22.360 the bank? 0:01:22.959 --> 0:01:29.440 So JP Morgan really delivering very strong returns, leading returns. 0:01:29.480 --> 0:01:33.839 The net interest income continues to beat, and they also 0:01:34.080 --> 0:01:38.400 raised their guidance. They're also being helped by better than 0:01:38.440 --> 0:01:41.920 expected costs outlook, and really on the credit side was 0:01:41.959 --> 0:01:47.319 where we got another big surprise. Consensus forecasts were expecting 0:01:47.800 --> 0:01:51.560 sizeable reserve building and we actually got a modest reserve release. 0:01:52.080 --> 0:01:55.800 So across the banks, what we're seeing is net interest 0:01:55.840 --> 0:01:59.680 income better than expected and a more positive view for 0:01:59.720 --> 0:02:03.760 the worth quarter. Of course, we caution that interest rate 0:02:03.880 --> 0:02:07.520 risks are rising, So while the run rate is good 0:02:07.800 --> 0:02:11.280 going into twenty twenty four, better than we had expected 0:02:11.520 --> 0:02:15.880 going into the earnings, there are still risks two twenty 0:02:16.000 --> 0:02:20.520 twenty four and the outlook. But on the cost side 0:02:20.560 --> 0:02:25.360 of things, certainly the banks are managing to those risks, 0:02:25.960 --> 0:02:28.880 and as I said, JP Morgan also had a better 0:02:28.880 --> 0:02:31.600 than expected cost view at well as far ago they 0:02:31.600 --> 0:02:34.680 actually raised their expectations for costs. But I would note 0:02:34.680 --> 0:02:39.560 that in the third quarter they did have some severance charges. 0:02:39.680 --> 0:02:43.480 Now they have said that attrition is less than it's 0:02:43.480 --> 0:02:44.920 been in the past, and so that's some of the 0:02:44.919 --> 0:02:48.520 reason why you're seeing those severance charges. But again they 0:02:48.560 --> 0:02:52.640 continue to make progress on the core costs. Obviously there's 0:02:52.760 --> 0:02:56.960 legal risks there and that could remain volatile for that bank. 0:02:57.280 --> 0:02:59.960 City Group joined these two banks and having better than 0:03:00.200 --> 0:03:03.720 interest income, but they kept their revenue guidance flat because 0:03:03.760 --> 0:03:07.960 fees are on the weaker side. And again so that's 0:03:08.280 --> 0:03:13.360 a continuation from that bank. But in general, net interest 0:03:13.400 --> 0:03:16.840 income better than expected, run rate better than expected. We 0:03:16.880 --> 0:03:20.520 still do see those risks into twenty twenty four. On 0:03:21.200 --> 0:03:25.120 the credit side of things, again better than expected, we 0:03:25.240 --> 0:03:29.440 are seeing weakening and commercial real estate and office profit properties. 0:03:30.280 --> 0:03:33.160 At the margin, banks are taking reserves for card that's 0:03:33.200 --> 0:03:36.040 because they're building those card loans, and then on the 0:03:36.040 --> 0:03:42.080 operating expenses, you know, stable guidance at City A higher 0:03:42.120 --> 0:03:45.640 guide at Wells Fargo, lower guide to JP Morgan Netnet. 0:03:45.680 --> 0:03:49.120 I would say they are focusing on those core costs 0:03:49.200 --> 0:03:51.640 and do continue to get some benefits. 0:03:51.840 --> 0:03:55.600 Speaking of benefits. Let's talk about interest rates and how 0:03:55.600 --> 0:03:59.280 they benefited the bank, but their mortgage divisions, how have 0:03:59.400 --> 0:04:01.440 they reacted to these higher rates. 0:04:01.960 --> 0:04:06.240 So the mortgage obviously has been under pressure, but given 0:04:06.320 --> 0:04:11.080 where we are, it's obviously a smaller part of revenue 0:04:11.120 --> 0:04:14.800 at this juncture, right, because we have seen a lot 0:04:14.840 --> 0:04:19.440 of weakness in the product, and obviously higher rates are 0:04:19.440 --> 0:04:23.159 not good for mortgage volumes. The other thing that we 0:04:23.200 --> 0:04:26.680 should probably speak about is the trading and fee revenue 0:04:26.960 --> 0:04:32.440 at these banks. Trading fixed income proving to be very resilient, 0:04:33.120 --> 0:04:36.440 equities trading a little bit weaker. That's similar to what 0:04:36.480 --> 0:04:38.200 we've seen in the past few quarters. But on the 0:04:38.240 --> 0:04:42.240 feast side of things, things studying that and that's positive. So, 0:04:42.920 --> 0:04:46.520 as we said, mortgage is a smaller part of revenue, 0:04:46.600 --> 0:04:49.200 investment banking fee is also a smaller part of revenue 0:04:49.240 --> 0:04:53.799 because of the significant declines we've seen in both of those. 0:04:53.839 --> 0:04:56.160 But on the banking fee side, I think there is 0:04:56.720 --> 0:05:00.320 there are some reasons for optimism. M and A I 0:05:00.360 --> 0:05:03.560 think was really the positive surprise equity markets. We did 0:05:03.600 --> 0:05:06.479 see some good IPOs, but those equity fees still coming 0:05:06.520 --> 0:05:07.560 in weaker than expected. 0:05:07.720 --> 0:05:10.080 And we also a surprised mean that charge offs were 0:05:10.120 --> 0:05:11.919 down at least the JP Morgan chase. What does that 0:05:11.960 --> 0:05:13.200 tell us about consumers? 0:05:13.320 --> 0:05:17.039 What it tells us is that credit continues to be 0:05:17.200 --> 0:05:21.680 very strong, and so yes, banks are taking reserves because 0:05:21.680 --> 0:05:24.400 they're looking ahead at some of the risks. But for 0:05:24.480 --> 0:05:30.360 the most part, consumers are healthy. Commercial loans are a 0:05:30.400 --> 0:05:35.240 little bit weaker, but in general credit there also remains 0:05:35.320 --> 0:05:38.839 very healthy. So we're seeing normalization. We're seeing a rise 0:05:38.839 --> 0:05:41.360 in charge offs from the lows, but as I said, 0:05:41.400 --> 0:05:45.560 better than expected. Office commercial real estate is something we're watching. 0:05:45.640 --> 0:05:50.320 We did see reserving on those types of properties. Wells 0:05:50.320 --> 0:05:55.440 Fargo said about a month ago that things are the 0:05:55.440 --> 0:05:59.440 weakness is broadening out versus a year or eighteen months ago. 0:05:59.720 --> 0:06:03.040 We are seeing so weakening there, but on the consumer side, 0:06:03.279 --> 0:06:07.080 it's really the lower bucket where you're starting to sea 0:06:07.120 --> 0:06:11.320 some weakness. And that's not a tremendous exposure for these banks. 0:06:11.640 --> 0:06:13.719 For these banks, and there are a lot more banks 0:06:13.720 --> 0:06:15.680 reporting next week, why don't we look ahead to what 0:06:15.680 --> 0:06:16.800 we're going to see. 0:06:16.560 --> 0:06:22.400 So the expectations certainly are a bit better after the 0:06:22.440 --> 0:06:26.760 banks that we saw last week. Net interest income bodes 0:06:26.800 --> 0:06:29.440 well for bank of America. We'll see if they beaten reise. 0:06:30.160 --> 0:06:34.600 Similar to the other banks, will also be watching costs 0:06:34.600 --> 0:06:39.240 for them. Operating leverage is something that investors like to see. 0:06:39.800 --> 0:06:42.600 It looks a little bit tougher for Bank of America 0:06:43.000 --> 0:06:46.640 or did about a week ago, but perhaps they can 0:06:46.680 --> 0:06:50.200 add to some of the positive net interest income story 0:06:51.120 --> 0:06:54.720 or the big banks in general, Goldmen, Sachs and Morgan Stanley. 0:06:54.760 --> 0:06:58.240 I would say net net again, the bar is higher 0:06:58.279 --> 0:07:02.640 because overall trading and investment banking fees better than expected, 0:07:03.040 --> 0:07:06.159 and that's really due to the fixed income trading line. 0:07:06.680 --> 0:07:11.000 It's also due to better M and A fees, while 0:07:11.040 --> 0:07:14.880 equity fees are weaker, and debt fees there's definitely are 0:07:15.400 --> 0:07:20.400 there's some pockets of strength, especially with regard to the 0:07:20.520 --> 0:07:24.160 high yield business. So Goldman is a little bit more 0:07:24.200 --> 0:07:27.760 balanced in their business. Bank of America leans more towards 0:07:27.760 --> 0:07:32.520 fixed income, but they've been investing broadly, and Morgan Stanley 0:07:32.640 --> 0:07:37.160 leans more towards the equity side of things. But I 0:07:37.160 --> 0:07:40.320 would say that the other thing we're watching at Goldman 0:07:41.160 --> 0:07:44.760 is some of the commercial real estate impairments. So we 0:07:44.880 --> 0:07:47.200 talked about sort of the provisions, but that's what we're 0:07:47.240 --> 0:07:51.960 watching for Goldman. Also specific to Goldman, a little bit 0:07:52.000 --> 0:07:55.200 of noise in the quarter because they are making progress 0:07:55.240 --> 0:07:59.040 on their strategic goals of sort of moving back away 0:07:59.080 --> 0:08:02.920 from consumer focusing on the core franchise. They announced the 0:08:02.920 --> 0:08:08.360 sale of Green Sky just last week. They have announced 0:08:09.560 --> 0:08:13.080 the sale of wealth assets related to United Capital, and 0:08:13.120 --> 0:08:15.520 they're done with the selloff and the Marcus loans. So 0:08:16.200 --> 0:08:18.680 a little bit of noise still in this quarter, but 0:08:18.720 --> 0:08:21.200 we think that they are sharpening focus botes well. 0:08:21.440 --> 0:08:23.560 Now after some of these biggest banks are done, we're 0:08:23.600 --> 0:08:26.600 going to see regional banks by the end of the week. 0:08:26.680 --> 0:08:30.320 And what a crisis we saw in the springtime. How 0:08:30.360 --> 0:08:32.760 have things changed or have they changed for some of 0:08:32.760 --> 0:08:34.440 those smaller regional banks. 0:08:34.280 --> 0:08:38.000 Going into the quarter. I would say that there was 0:08:38.320 --> 0:08:43.199 probably a shared optimism around the potential for deposit costs 0:08:43.200 --> 0:08:46.800 to be stabilizing for the regional banks as well as 0:08:46.840 --> 0:08:51.520 the big banks. But again that rising rate risk is 0:08:51.559 --> 0:08:54.920 a negative. And for the regional banks, they don't have 0:08:55.000 --> 0:08:58.640 the card exposures most of them that I discussed for 0:08:59.280 --> 0:09:02.720 the big universe banks, and so the softer commercial demand 0:09:03.240 --> 0:09:05.760 is going to weigh a little bit more for those banks. 0:09:06.080 --> 0:09:08.200 Let's talk about jobs in the banking sector, because we 0:09:08.240 --> 0:09:11.280 know that City Group Bank Frasiers is restructuring her bank, 0:09:11.600 --> 0:09:15.120 cutting management levels, which we know is going to lead 0:09:15.160 --> 0:09:18.240 to jobs. Is this just a normalization, is it just 0:09:18.280 --> 0:09:19.880 her bank, or is this something we're going to see 0:09:19.920 --> 0:09:20.760 throughout the industry? 0:09:20.760 --> 0:09:24.800 Do you think for City Group in particular, Jane is 0:09:25.200 --> 0:09:29.720 making changes at that bank and honing its focus. And 0:09:29.800 --> 0:09:33.560 I think that the strategy or the restructuring of management 0:09:33.640 --> 0:09:36.720 is very much in line with a broader strategy, So 0:09:36.720 --> 0:09:42.720 I think that is specific to City Group. For the 0:09:42.760 --> 0:09:46.959 broad investment banking and trading business, we have definitely seen 0:09:47.360 --> 0:09:51.240 cuts there. We did see seven charges at several of 0:09:51.240 --> 0:09:54.199 the banks in the second quarter. We also saw some 0:09:54.240 --> 0:09:57.880 of those charges again being called out with the third quarter. 0:09:58.360 --> 0:10:03.239 I think that banks are sizing their operations, in particular 0:10:03.360 --> 0:10:07.560 with regard to the investment banking. Fixed income trading has 0:10:07.600 --> 0:10:12.079 proven relatively resilient, equity trading has been a bit weaker, 0:10:12.120 --> 0:10:16.240 But both of those businesses are within a historically high range, 0:10:16.720 --> 0:10:18.840 So even though they're down a little bit, I would 0:10:18.880 --> 0:10:23.360 characterize them as healthy, strong, and relatively resilient. Investment banking 0:10:23.400 --> 0:10:27.280 on the other hand finally seeing some studying, so I 0:10:27.320 --> 0:10:30.560 think that is a key positive. But the levels that 0:10:30.600 --> 0:10:35.400 investment banking is studying at are really closer to the 0:10:35.400 --> 0:10:36.600 pre pandemic norm. 0:10:36.840 --> 0:10:39.000 Oh boy, a lot to look forward to, Alison, Thank 0:10:39.040 --> 0:10:42.440 you so much. That's Bloomberg Intelligence Bank analyst Alison Williams. 0:10:42.880 --> 0:10:45.040 And coming up on Bloomberg day Break weekend, we head 0:10:45.080 --> 0:10:48.520 to Europe to get a preview of this week's inflation figures. 0:10:48.960 --> 0:11:02.920 I'm Tom Busby, and this is Bloomberg. This is Bloomberg 0:11:02.960 --> 0:11:05.440 Daybreak weekend, our global look ahead at the top stories 0:11:05.440 --> 0:11:08.160 for investors in the coming week. I'm Tom Busby in 0:11:08.200 --> 0:11:11.240 New York. Up later in our program, how China is 0:11:11.320 --> 0:11:14.800 juggling stimulating economic growth while being a leader on the 0:11:14.840 --> 0:11:18.760 geopolitical stage. But first, a host of inflation data from 0:11:18.800 --> 0:11:22.400 Europe will likely confirm the trend that price increases are 0:11:22.440 --> 0:11:26.479 slowing down, but with growth weakening, are signs of stagflation 0:11:26.640 --> 0:11:29.120 setting in? For more, Let's go to London and bring 0:11:29.120 --> 0:11:31.760 in Bloomberg Daybreak Europe anchor Stephen Carroll. 0:11:32.120 --> 0:11:36.160 Tom here in the UK, inflation peaked in last October's 0:11:36.200 --> 0:11:39.360 reading at eleven point one percent and has been easing 0:11:39.480 --> 0:11:42.760 since falling to six point seven percent in August, but 0:11:42.880 --> 0:11:47.160 the downward trajectory has been uneven, so September's numbers will 0:11:47.200 --> 0:11:51.040 make for interesting reading across the euro Area. We're watching 0:11:51.040 --> 0:11:54.200 for the final reading of September CPI, which has also 0:11:54.400 --> 0:11:58.000 fallen sharply in recent months as energy prices have come down. 0:11:58.559 --> 0:12:02.040 Of course, any sharp increase snoiler gas prices from tensions 0:12:02.040 --> 0:12:04.960 in the Middle East could upend that trend and raise 0:12:05.000 --> 0:12:09.520 the risk of stagflation. Weak growth coupled with high inflation. 0:12:10.120 --> 0:12:13.000 That's a big challenge for central banks, making every detail 0:12:13.080 --> 0:12:15.880 of every CPI print all the more important for the 0:12:15.920 --> 0:12:19.000 ECB and for the Bank of England. In the last 0:12:19.040 --> 0:12:22.200 few days, the International Monetary Fund raised its forecast for 0:12:22.240 --> 0:12:25.600 where it sees inflation globally next year. In the UK, 0:12:26.000 --> 0:12:28.600 it expects the Bank of England to hike interest rates 0:12:28.640 --> 0:12:31.400 again by a quarter point and hold them at five 0:12:31.440 --> 0:12:34.760 and a half percent for most of next year. That's 0:12:34.760 --> 0:12:38.440 a more hawkish view than markets are currently pricing. I've 0:12:38.440 --> 0:12:41.200 been speaking to Daniel Lee, head of the World Economic 0:12:41.280 --> 0:12:44.160 Studies Division at the IMF about this, as well as 0:12:44.160 --> 0:12:46.280 his outlook for the rest of Europe. 0:12:46.640 --> 0:12:46.840 Well. 0:12:46.880 --> 0:12:49.680 For the UK, we have a forecast of subdued growth 0:12:50.160 --> 0:12:55.120 as higher interest rates bite, but infation is declining and 0:12:55.160 --> 0:12:58.360 so we think that by twenty twenty five inflation will 0:12:58.400 --> 0:13:03.120 be back to target. Cost for the UK has positive 0:13:03.160 --> 0:13:05.880 growth zero point five percent this year, point six percent 0:13:06.400 --> 0:13:07.160 next year. 0:13:07.720 --> 0:13:10.960 And that situation then you see impact in the Bank 0:13:11.000 --> 0:13:13.120 of England holding rates higher for longer. 0:13:14.600 --> 0:13:18.720 The rates are higher, not just in the UK but 0:13:18.800 --> 0:13:22.360 other economies, higher than we thought six months ago, three 0:13:22.360 --> 0:13:26.520 months ago because inflation has been stickier. So this is 0:13:26.679 --> 0:13:31.360 necessary around for managery policy to be steady to make 0:13:31.400 --> 0:13:35.160 sure that inflation expectations remain anchored that and inflation comes 0:13:35.200 --> 0:13:35.840 down to target. 0:13:37.000 --> 0:13:41.760 Do your latest forecasts include the upgrades to UK GDP 0:13:42.040 --> 0:13:44.760 that we've had the Office for National Statistics do in 0:13:44.800 --> 0:13:47.880 the past a couple of months that has seen a 0:13:47.920 --> 0:13:52.000 significant revision to the trajectory for UK growth since the 0:13:52.080 --> 0:13:53.000 end of the pandemic. 0:13:54.040 --> 0:13:59.960 Those National Office of National Statistics revisions were issued after 0:14:00.840 --> 0:14:03.480 we closed the forecast, but we did look and they 0:14:03.559 --> 0:14:06.960 do raise the level of GDP by twenty twenty two 0:14:07.080 --> 0:14:11.040 by about two percent, so less scarring than was originally thought. 0:14:11.120 --> 0:14:14.200 From the pandemic, but at the same time, we don't 0:14:14.200 --> 0:14:18.160 see a significant impact of this on growth going forward, 0:14:18.240 --> 0:14:22.920 so our forecast of zero point six percent growth in 0:14:22.960 --> 0:14:25.720 twenty twenty four is not very changed, and it's slightly 0:14:25.760 --> 0:14:30.240 above the forecast of other institutions, including the Bank of England. 0:14:30.760 --> 0:14:33.360 Okay, how does your outlook for the UK compare to 0:14:33.360 --> 0:14:36.280 the situation facing other major European economies. 0:14:36.600 --> 0:14:42.000 Well, the challenge of bringing down stubborn inflation is shared. 0:14:42.600 --> 0:14:45.480 We did do some analysis of the drivers of inflation 0:14:46.200 --> 0:14:49.200 in across economies. In the UK, a lot of this 0:14:49.440 --> 0:14:55.160 inflation is coming from passed through into other industries from 0:14:55.240 --> 0:14:58.120 energy prices having gone up so much, and the UK 0:14:58.320 --> 0:15:02.800 was exposed to the energy price shock due to external factors, 0:15:02.960 --> 0:15:05.720 so that's still working its way through in the Euro 0:15:05.800 --> 0:15:08.960 Area as well, though, this has played a very important role, 0:15:10.200 --> 0:15:13.040 more so in the UK and the Euro Area than 0:15:13.080 --> 0:15:17.280 in the US, where labor market tightness has been a 0:15:17.320 --> 0:15:18.960 more dominant driver of inflation. 0:15:19.480 --> 0:15:23.880 Donald When we think about Europe geographically, including the UK 0:15:24.040 --> 0:15:26.840 and continental Europe as well, are we heading for a 0:15:26.880 --> 0:15:29.440 return to nineteen seventy style inflation. 0:15:30.320 --> 0:15:35.080 No, we see that inflation has already significantly come down 0:15:35.200 --> 0:15:39.280 since its peak last year, and it's coming down further 0:15:40.080 --> 0:15:43.920 down to five point six percent on average this year, 0:15:44.120 --> 0:15:48.160 three point three percent next year on average, and back 0:15:48.200 --> 0:15:51.760 to target in twenty twenty five. And at the same time, 0:15:51.800 --> 0:15:55.400 we see growth bottoming out this year, coming up from 0:15:55.720 --> 0:15:58.000 zero point seven percent this year to one point two 0:15:58.000 --> 0:16:02.200 percent next year. Unemployed has not gone up much. So 0:16:02.480 --> 0:16:08.160 this is a challenging situation, but we can see that 0:16:08.240 --> 0:16:13.480 with these steady policies it's going to resolve itself in 0:16:13.560 --> 0:16:14.920 the coming two years. 0:16:15.200 --> 0:16:17.160 What are the key risk factors that we need to 0:16:17.200 --> 0:16:20.080 watch now when it comes to that trajectory for inflation, 0:16:20.120 --> 0:16:22.200 As you say your forecast do see it coming down 0:16:22.200 --> 0:16:25.920 over the next two years. What could upset that forecast? 0:16:26.400 --> 0:16:30.720 Well, the main messages that risks are unfortunately still to 0:16:30.800 --> 0:16:33.640 the downside for growth and to the upside for inflation. 0:16:34.160 --> 0:16:37.600 Inflation could just be again surprising us as it has before, 0:16:38.040 --> 0:16:41.800 being stickier wages now are starting to rise to catch 0:16:41.880 --> 0:16:45.000 up with the fall and the cost of the in 0:16:45.040 --> 0:16:49.320 the purchasing power right of workers, sticky services inflation is there. 0:16:49.640 --> 0:16:52.640 If that happens, interest rates might have to be held 0:16:52.720 --> 0:16:57.760 higher for longer again, and that could potentially lead to 0:16:57.960 --> 0:17:02.960 financial sector tensions. For insolvencies are going up, commercial real estate, 0:17:03.320 --> 0:17:08.560 non financial institutions, so this could create a larger than 0:17:08.680 --> 0:17:14.320 expected downturn in growth. These are downside risks. There's also 0:17:16.280 --> 0:17:20.560 the question of how to face with those risks. Fiscal 0:17:20.600 --> 0:17:24.320 policy can also play its role by having a medium 0:17:24.400 --> 0:17:27.440 term plan for reducing debt exposures. 0:17:28.440 --> 0:17:31.560 What I mean, what is the key advice to fiscal 0:17:31.560 --> 0:17:34.680 policy makers to governments? Then on that basis, if we're 0:17:34.720 --> 0:17:37.560 going to be dealing with inflation for longer, many governments 0:17:37.600 --> 0:17:40.159 are still looking at, for example, public sector salaries and 0:17:40.160 --> 0:17:43.520 that they do have control over. Is the message restraint 0:17:43.600 --> 0:17:45.760 to those governments broadly? 0:17:46.000 --> 0:17:50.920 Yes, we are as I said, there's a upside movement 0:17:50.960 --> 0:17:53.640 in growth for next year, but debt levels are still 0:17:53.760 --> 0:17:57.359 very high coming out of the pandemic and with higher 0:17:57.400 --> 0:18:01.400 interest rates, this is leading to using debt service costs, 0:18:01.800 --> 0:18:05.920 so safeguarding it sustainability, rebuilding the budget ry room, and 0:18:06.520 --> 0:18:10.120 really strengthening the disinflation process by moving in the same 0:18:10.160 --> 0:18:13.560 direction as manatory policy, that would be helpful. 0:18:13.640 --> 0:18:17.120 Yes, you've outlined some of the risks that could be 0:18:17.400 --> 0:18:20.119 to the downside for growth to the upside for inflation. 0:18:20.920 --> 0:18:23.560 Let's take a more positive view. Are there surprises that 0:18:23.600 --> 0:18:26.760 could come that could be good? What are you factoring 0:18:26.760 --> 0:18:27.960 in or what are you watching for? 0:18:29.080 --> 0:18:29.359 Yes? 0:18:29.400 --> 0:18:33.600 And luckily, the overall perspective now is that risks are 0:18:33.680 --> 0:18:36.119 more balanced than they were six months ago when we 0:18:36.119 --> 0:18:40.600 were so worried about banking turmoil. Now we could have 0:18:41.760 --> 0:18:44.879 an upside risk from the labor market. There could be 0:18:46.040 --> 0:18:51.040 easing in labor market tightness by vacancies coming down instead 0:18:51.040 --> 0:18:54.120 of unemployment going up. That's been happening, especially in the US, 0:18:54.320 --> 0:18:57.960 by more than we expected, so more labor supply coming 0:18:58.040 --> 0:19:01.359 in that would ease inflation but also boost growth. 0:19:01.440 --> 0:19:04.440 That was Daniel Lee, head of the World Economic Studies 0:19:04.440 --> 0:19:07.720 Division at the International Monetary Fund. I've been taking a 0:19:07.760 --> 0:19:10.880 look at Bloomberg Economics views on the inflation outlook too. 0:19:11.160 --> 0:19:14.119 They expect inflation in the Euro Area to average five 0:19:14.160 --> 0:19:17.159 point six percent this year and two point two percent 0:19:17.280 --> 0:19:20.719 next year. That's slightly higher than their last update in June. 0:19:21.080 --> 0:19:23.640 They expect the ECB to shift their emphasis now from 0:19:23.640 --> 0:19:27.160 inflation risks to economic risks, and are warning that fiscal 0:19:27.200 --> 0:19:30.920 policy could become a more prominent issue next year, especially 0:19:30.920 --> 0:19:33.960 with the EU set to reimpose their deficit rules in 0:19:34.000 --> 0:19:37.760 twenty twenty four. Now, Jamie Russian colleagues at Bloomberg Economics 0:19:37.760 --> 0:19:40.919 don't see the ECB hiking again and holding rates in 0:19:40.960 --> 0:19:44.520 fact until the middle of twenty twenty four. Right now 0:19:44.520 --> 0:19:48.479 they're penciling in a first rate cut at next June's meeting, 0:19:48.760 --> 0:19:50.879 although there are plenty more data prints for us to 0:19:50.920 --> 0:19:54.560 analyze between now and then. I'm Stephen Carroll in London. 0:19:54.560 --> 0:19:57.080 You can catch us every weekday morning here for Bloomberg 0:19:57.160 --> 0:19:59.920 Daybreak Europe, beginning at six am in London and one 0:20:00.080 --> 0:20:02.520 and am on Wallstrace Tom. 0:20:02.000 --> 0:20:04.600 Thanks Steven, and coming up on Bloomberg day Break weekend, 0:20:04.640 --> 0:20:06.960 we head to Asia and look at how China is 0:20:07.000 --> 0:20:11.040 struggling to revive it's slowing economy. I'm Tom Busby and 0:20:11.160 --> 0:20:23.879 this is Bloomberg. I'm Tom Busby in New York with 0:20:23.960 --> 0:20:26.160 your global look ahead at the top stories for investors 0:20:26.160 --> 0:20:29.280 in the coming week. With China still struggling to revive 0:20:29.280 --> 0:20:33.240 its slowing economy, how will it juggle stimulating growth and 0:20:33.480 --> 0:20:37.280 maintaining its role as a geopolitical leader on the global stage? 0:20:37.359 --> 0:20:40.040 And for help, we turned to Bloomberg Daybreak Asia's co 0:20:40.119 --> 0:20:41.880 host Doug Krisner for more. 0:20:42.000 --> 0:20:44.440 Tom in the week ahead, we'll get the monthly economic 0:20:44.480 --> 0:20:48.360 activity data for China. This will include numbers on retail sales, 0:20:48.640 --> 0:20:51.680 industrial production, and the jobless rate. Now, as we know, 0:20:51.760 --> 0:20:54.399 there are many questions when it comes to the underlying 0:20:54.440 --> 0:20:56.919 strength of the Chinese economy, we want to take a 0:20:56.960 --> 0:21:01.760 closer look now with Bloomberg's John Lu, executive editor for China, 0:21:01.800 --> 0:21:04.320 and John is here in New York. It's great to 0:21:04.320 --> 0:21:06.520 see you. Thanks for being with us, Thanks for having me. 0:21:06.640 --> 0:21:09.000 So much of the story I think on the overall 0:21:09.080 --> 0:21:12.800 economy in China centers on the strength of the consumer. Now, 0:21:12.880 --> 0:21:15.200 we've just moved through the Golden Week holidays. Some of 0:21:15.240 --> 0:21:19.000 the high frequency data that we have seen indicated a 0:21:19.040 --> 0:21:22.479 fair amount of resilience. Now, I know that the numbers 0:21:22.480 --> 0:21:24.840 that we're going to get on activity data for September 0:21:24.880 --> 0:21:28.240 will not reflect any of that Golden Week activity. But 0:21:28.320 --> 0:21:32.679 I'm wondering, is it safe to assume that the consumer 0:21:33.040 --> 0:21:35.320 in the month of September was in pretty fair shape. 0:21:35.880 --> 0:21:39.360 I think the data that we got for the holiday 0:21:39.359 --> 0:21:42.600 period actually showed that there is a recovery after the 0:21:42.680 --> 0:21:44.720 end of COVID zero, but it's not been as good 0:21:44.720 --> 0:21:46.760 as people I hoped it would be. Even for that 0:21:46.840 --> 0:21:51.040 week long holiday period, we saw a recovery and travel 0:21:51.200 --> 0:21:54.840 and spending to pre pandemic levels, but still it came 0:21:54.920 --> 0:21:57.879 in shy of what the government had said it hoped 0:21:57.880 --> 0:21:59.840 it would get to. And so I think what that 0:22:00.080 --> 0:22:03.280 tells us about the economy is it's getting better, but 0:22:03.320 --> 0:22:06.280 it's still weak. It's not doing as well as people 0:22:06.359 --> 0:22:08.679 had hoped, and there's still a lot of concern in 0:22:08.720 --> 0:22:10.480 beaging about how it's going to unfold. 0:22:10.560 --> 0:22:13.400 So domestic demand is obviously a big issue. We'll talk 0:22:13.640 --> 0:22:16.119 in a moment about the notion of stimulus here. But 0:22:16.200 --> 0:22:19.639 on the export side, when I look at the numbers 0:22:19.640 --> 0:22:22.359 coming up on industrial production, what do we know about 0:22:22.400 --> 0:22:24.280 how well exports have been behaving. 0:22:24.680 --> 0:22:27.280 So exports have been coming down, and so that has 0:22:27.359 --> 0:22:33.040 been the result of demand in the US and other 0:22:33.080 --> 0:22:37.040 parts of the world coming going more to places like 0:22:37.080 --> 0:22:41.560 Southeast Asia producers and other parts of the world. That's 0:22:41.600 --> 0:22:45.960 been the result of not only sort of the decoupling 0:22:46.000 --> 0:22:48.800 that's been happening between the West and China, but also 0:22:48.880 --> 0:22:52.400 just the fact that costs are so much more expensive 0:22:52.440 --> 0:22:55.600 if you're making shoes or toys or electronics. It's so 0:22:55.680 --> 0:22:57.719 much more expensive to do that in China than it 0:22:57.760 --> 0:22:59.919 is in Southeast Asia now, and it's starting to be 0:23:00.040 --> 0:23:00.920 reflected in the idea. 0:23:00.960 --> 0:23:03.600 Is deflation still a concern? Is it still a problem? 0:23:04.400 --> 0:23:09.400 We should be getting inflation data and factory gain inflation 0:23:09.480 --> 0:23:12.439 pretty soon and that should show that factory prices are 0:23:12.480 --> 0:23:16.000 still falling. There is a lot of concern about consumer deflation. 0:23:16.800 --> 0:23:19.080 There was a stabilization last month, but I think that 0:23:19.200 --> 0:23:22.440 is still a big concern. There's a lot of overcapacity 0:23:22.960 --> 0:23:25.600 in the economy, be it in property, be it in 0:23:25.840 --> 0:23:29.080 just manufactured goods all across the economy, and that's going 0:23:29.119 --> 0:23:30.400 to take a while to work its way through. 0:23:30.400 --> 0:23:32.400 One of the big stories that we had last week 0:23:32.800 --> 0:23:36.560 was on Beijing considering the possibility of raising the budget 0:23:36.600 --> 0:23:39.760 deficit and doing a little bit more. In terms of stimulus, 0:23:39.960 --> 0:23:42.720 everything that we've seen so far, whether it's been on 0:23:42.760 --> 0:23:44.960 the physical side or the monetary side, we know has 0:23:44.960 --> 0:23:48.120 been very targeted. What might a new stimulus package. 0:23:47.840 --> 0:23:50.399 Look like, So it's actually going to look a lot 0:23:50.680 --> 0:23:54.080