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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg him

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Speaker 1: in New York joining us. I'm place to say is

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Speaker 1: Kate more Plank, Rock Investment Institute Chief Equity Strategist. Good

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Speaker 1: morning to Kate, Good morning. What should we be looking for?

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Speaker 1: A little bit length from Cham and Pound and coug So,

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Speaker 1: I think the equity market and kind of risk assets

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Speaker 1: in general have become pretty comfortable and complacent with the

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Speaker 1: idea that monetary policy is going to stay accommodative forever

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Speaker 1: and ever and ever. So I think the biggest thing

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Speaker 1: to watch is going to be for equity markets, the

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Speaker 1: dot plot. I think for kind of broad our markets

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Speaker 1: and fixed income, we're gonna be focused a lot on

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Speaker 1: the bound sheet and reinvestment and the composition um the

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Speaker 1: treasury composition, which is a little bit more technical, but

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Speaker 1: in general, equity investors and I would say risk asset

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Speaker 1: investors broadly want to see that monetary policy is not

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Speaker 1: going to move much or slash at all in the

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Speaker 1: near term. But here's my question. One is bad news

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Speaker 1: bad news again? I mean, one is the idea that

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Speaker 1: the FED is being cautious because the economy really does

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Speaker 1: not have the strength that many people thought that it did. Uh,

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Speaker 1: when is that bad news for risk assets? Yeah, that's

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Speaker 1: a that's a really important question. You know, for a

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Speaker 1: large portion of the last ten years, we've been in

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Speaker 1: this cycle where you know, markets stop panicking when policymakers

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Speaker 1: start panicking. You know, as long as policymakers have our back,

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Speaker 1: it doesn't matter that the data is bad, or the

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Speaker 1: data has softened, or that activity is slowed, or that

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Speaker 1: we're talking about a new growth regime. And you know,

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Speaker 1: I'm a little worried that we're back there again because

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Speaker 1: a few years ago we were really hopeful the markets

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Speaker 1: would be focused on fundamental let's talk about activity, let's

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Speaker 1: talk about earnings, let's talk about the real idiosyncratic opportunities,

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Speaker 1: and we're back to obsessing about monetary policy language, body language. Uh,

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Speaker 1: you know, who's had coffee with who and what that

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Speaker 1: could potentially mean for stimulus around the world. So this

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Speaker 1: is a fair question. I just don't think that we're

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Speaker 1: going to get there in the second quarter. So let's

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Speaker 1: talk about fundamentals if we can, we have the opportunity

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Speaker 1: to do so this morning. How are they? How are learnings?

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Speaker 1: Expectations for the rest of the year not great? John,

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Speaker 1: I mean, this is this is the this is the problem.

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Speaker 1: Most of the returns from the equity market in two

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Speaker 1: thousand nineteen have come from multiple expansion. You have higher

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Speaker 1: prices and lower earnings expectations um, and we really need

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Speaker 1: to turn around in fundamentals. I think in order to

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Speaker 1: carry the market meaningfully higher in the second quarter. It's

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Speaker 1: like hard to get to a twelve percent return in

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Speaker 1: the second quarter if it's not driven by earnings and

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Speaker 1: it's just driven by a rerating. So a lot of

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Speaker 1: people would actually disagree, and they would say that stocks

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Speaker 1: have actually been held back by the trade tensions and

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Speaker 1: the ongoing concerns about Brexit, etcetera. You disagree. I think

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Speaker 1: that trade concerns, concerns over Chinese growth, concerns over US growth,

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Speaker 1: concerns over policy mistakes. I mean, we can make a

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Speaker 1: long list. We're all really putting pressure downward, pressure on

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Speaker 1: risk assets in the fourth quarter. But some of that

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Speaker 1: has eased, and we've gotten to we worry actually a

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Speaker 1: little We've gotten a little bit a complacent point where

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Speaker 1: we don't really worry so much about trade. We think

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Speaker 1: some of the risk there is not being properly priced,

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Speaker 1: that people are not as worried about growth, and as

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Speaker 1: I mentioned, are expecting a lot of monetary and fiscal

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Speaker 1: stimulus from all different regions of the world concurrently in

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Speaker 1: two thousand nineteen, and so you know, we need to

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Speaker 1: see a little bit more volatility, We need to see

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Speaker 1: a little bit more of like fundamental driven markets. So

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Speaker 1: this is actually where I was going to go. I

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Speaker 1: was looking at the move index. This is the Bank

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Speaker 1: of America Mary Lynch Option Volatility Index, and it's fallen

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Speaker 1: to its lowest level on record. This is the implied

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Speaker 1: volatility and treasury yields over the next three months. I'm

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Speaker 1: just wondering, is this dangerous? This setting a warning signal

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Speaker 1: about complacency and sort of signaling that there could be

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Speaker 1: some kind of more violent move in the very near future.

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Speaker 1: You know that the volatility markets in general have been

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Speaker 1: really difficult, right, I mean, you think about the last

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Speaker 1: couple of years. We keep on making new lows sometimes

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Speaker 1: it's really difficult to explain why. What I can say

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Speaker 1: in general is that there seems to be on the

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Speaker 1: equity side very light participation in the rally. More recently,

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Speaker 1: people have been fading that risk have been taken down

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Speaker 1: their winners. You know, if they were in the market

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Speaker 1: and well positioned at the start of this year because

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Speaker 1: of the d rating last year and because they felt

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Speaker 1: like the baby was getting thrown out with the bath water, uh,

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Speaker 1: they have been systematically taking their their equity exposure down.

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Speaker 1: We see this in fund flows from a number of

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Speaker 1: different providers. We see this in terms of overall et

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Speaker 1: F flows for the best performing parts of the market.

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Speaker 1: And so you know, it has all of us scratching

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Speaker 1: our heads. I wish I had a better answer on

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Speaker 1: volved whether it's the equity or the treasury option involved,

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Speaker 1: but it does feel like it should rise a little bit.

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Speaker 1: Long fed patients. Short volatility has been the trade of

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Speaker 1: the last three months, and in the words of Bank

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Speaker 1: of America, the pain trade for stocks is still up. Um.

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Speaker 1: Do you agree with that there is simply no greed

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Speaker 1: to sell in equities. That's the line from Bank of America.

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Speaker 1: It sounds like to some degree it resonates with UK.

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Speaker 1: There is some sympathy, you know, full disclosure, I used

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Speaker 1: to work on that team, uh some years ago now,

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Speaker 1: so I'm very familiar with the pain. Trate is higher

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Speaker 1: view UM from a fun flows perspective, I think that's right.

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Speaker 1: From a flows and positioning and technical perspective. You can

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Speaker 1: make some of that argument. From evaluations perspective. I think

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Speaker 1: we're neutral. You know, we've rerated back to a level

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Speaker 1: that that feels fair with a UM, you know, an

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Speaker 1: economic and macro backdrop, or still having growth. I'll be

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Speaker 1: at a slower pace where monetary and fiscal policy looks

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Speaker 1: more supportive than it did six months ago. Uh. But

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Speaker 1: the fundamentals is what I keep on getting hung up on.

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Speaker 1: It's the earning story, the fact that their earnings vision

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Speaker 1: ratios are the weakest in three years and are not abating.

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Speaker 1: So Kate, where is the biggest opportunity in equities right now? Well,

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Speaker 1: so qualities performed very well in two thousand nineteen, but

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Speaker 1: I think this is still an opportunity for quality. We're

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Speaker 1: really focused on kind of secular growers, and so that

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Speaker 1: takes us to technology and healthcare, which I know had

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Speaker 1: been very consensive sectors, but frankly deliver. They deliver on earnings,

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Speaker 1: They're delivering on consistency of earnings, their balance sheets are great,

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Speaker 1: and I really want to own companies that you have

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Speaker 1: the ability to continue to expand even in a slowing

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Speaker 1: growth environment. So that's kind of our favorite bit. And

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Speaker 1: we're also pretty excited about emerging market. Still great to

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Speaker 1: catch up with you as always, Thanks for dropping by.

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Speaker 1: Kate more blank Rock Investment Institute Chief equity strategist on

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Speaker 1: the pain trade, and a whole lot more forecasting patients.

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Speaker 1: That is what investors expect from the Federal Reserve later today, unchanged.

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Speaker 1: That is what investors expect to happen with interest rates.

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Speaker 1: The news conference is where the focus will be with

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Speaker 1: Chairman Pale and the summary of economic projections, all of

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Speaker 1: the forecasts for the economy, including where each and every

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Speaker 1: individual policymaker on the fo MC expects rates to be

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Speaker 1: in nineteen twenty and perhaps beyond two. Let's bringing the team,

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Speaker 1: shall we to get their forecast, their outlook and the

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Speaker 1: day's guide for Federal Reserve decision Day. Carl Rickadonna, Bloomberg

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Speaker 1: Economics Chief US economist and on the phone from Washington,

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Speaker 1: d C. He will be in the room with Chairman

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Speaker 1: Pau a little bit later. Michael McKee, International Economics and

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Speaker 1: Policy Correspondent, Mike, you get the honors, sir. Give me

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Speaker 1: the outlook the day's guide for the Federal Reserve. Well, really,

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Speaker 1: what Wall Street is looking for is for no mistakes,

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Speaker 1: no deviation from the Wall Street line, which is the

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Speaker 1: Feds on hauld and there's no deem year of them

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Speaker 1: raising rates this year. Not likely to get an absolute

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Speaker 1: view from J. Paul, but I think he'll be as

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Speaker 1: cautious as possible, not try to say anything that will

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Speaker 1: lead them to think one way or the other. The

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Speaker 1: Fed may change policy this year. Um, we're gonna see

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Speaker 1: in new forecast for growth and inflation. They'll have to

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Speaker 1: be marked down a little bit, but enough to justify

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Speaker 1: a major move in the dots. Not clear, all right?

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Speaker 1: So coming in here, Calra Kadonna, because right now I'm

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Speaker 1: looking at the work function on the Bloomberg terminal showing

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Speaker 1: that there is a thirty seven percent chance of a

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Speaker 1: rate cut come January, zero chance of a rate hike

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Speaker 1: again this cycle. Probably is this something the Fed like seeing.

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Speaker 1: I don't think they like seeing that high of a

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Speaker 1: probability of a rape cut at the start of next year.

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Speaker 1: That's not really their intention at the moment, and I

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Speaker 1: suspect the dot plot will lean against that. Now. The

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Speaker 1: Fed is in a bit of a difficult a bind

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Speaker 1: here because if they're too optimistic on the economic outlook,

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Speaker 1: then they risk a repeat of December, where the markets

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Speaker 1: viewed the Fed is having a tin ear two signs

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Speaker 1: of economic strain. That being said, if they really focus

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Speaker 1: on acknowledging weakness in recent data like retail sales, like

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Speaker 1: the last payroll report, then they're going to push those

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Speaker 1: rate cut probabilities even higher. And if that's not their

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Speaker 1: intention to start cutting rates next year, which I don't

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Speaker 1: believe it is, then this creates a significant communications challenge

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Speaker 1: that they're going to have to address later this year.

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Speaker 1: So that being said, I think they maybe air on

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Speaker 1: the side of caution with respect to sounding too dovish

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Speaker 1: because they don't want to reinforce that that rate cut.

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Speaker 1: But an important question yesterday, when you and I caught up, Mike,

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Speaker 1: you said, what does the Federal Reserve do in inflation

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Speaker 1: expectations remain low or in fact go lower. Do we

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Speaker 1: have any idea, Mike, No, we don't at this point.

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Speaker 1: They haven't been able to generate inflation. They're talking longer

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Speaker 1: term about changing some of their policy regimes, but that's

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Speaker 1: not gonna come up today. So the question is what

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Speaker 1: is their inflation out look and what drives it, because

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Speaker 1: nobody seems to have a way to get inflation up

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Speaker 1: to or above two percent except hope that the Phillips

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Speaker 1: curve actually holds. We're waiting on that right now, and

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Speaker 1: we haven't seen any evidence that it's happening. We're getting

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Speaker 1: stronger wage growth, we've got cycle high wage growth, but

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Speaker 1: it's not feeding into the inflation indexes. Although Carl chair

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Speaker 1: Powell did say that he thinks that some inflation, some

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Speaker 1: wage pressures in particular, are greater than are being reflected

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Speaker 1: by the data. Is there any sign that we actually

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Speaker 1: are starting to see a return of the Phillips curve.

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Speaker 1: I think we're seeing the early stages. Mike's right that

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Speaker 1: it's not showing up in the inflation data just yet,

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Speaker 1: but we've only recently seen the pickup in wage pressures.

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Speaker 1: It really started around November of last year. Amazon had

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Speaker 1: the minimum wage increase a lot of retailers. UH followed suit,

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Speaker 1: and from November through February you saw a pretty significant

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Speaker 1: acceleration and average hourly earnings and the jobs report that

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Speaker 1: number may actually underrepresent what's happening in the broader economy

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Speaker 1: because it reflects a lot of UH. I hate to

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Speaker 1: use the term lower quality, but the lower skilled, lower

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Speaker 1: quality jobs which tend to be lower paying, and that

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Speaker 1: tends to deflate UH the number overall. So we're seeing

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Speaker 1: wage pressures show up, and it's a matter of time

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Speaker 1: for that to percolate through the system. So Mike says

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Speaker 1: we're not seeing signs of the Phillips curve working. I

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Speaker 1: would add a footnote to that, we're not seeing it

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Speaker 1: just yet, but I think we will see it later

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Speaker 1: this year. It's too soon for the flip FED to

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Speaker 1: start focusing on that because they want the data to

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Speaker 1: really lead the way. But I do suspect with the

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Speaker 1: economy growing above trend and wage pressures at a post

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Speaker 1: recession high, we will see more consumer inflation later this

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Speaker 1: year and that will put the FED back into play.

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Speaker 1: And and and to that point, the fact that we

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Speaker 1: are getting some kind of a melting in trade tensions

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Speaker 1: also feeds into this. Michael mckebl and brig International Economics

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Speaker 1: and Quality correspondent in Washington, d C. Come on in

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Speaker 1: here and talk a little bit about how that thawing backdropped.

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Speaker 1: The increase in stimulus from the PBOC in China may

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Speaker 1: complicate the issue for the Federal Reserve right now. Well,

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Speaker 1: one of the Feds lines over the last year or

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Speaker 1: the last couple of months, But it that way in

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Speaker 1: terms of the idea of being on hold, is that

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Speaker 1: economic conditions around the world have slowed, and therefore that

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Speaker 1: puts a break on US economic growth possibilities. We're seeing

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Speaker 1: some signs that maybe we're getting a little bit of

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Speaker 1: a pickup in Europe, and then China has been flooding

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Speaker 1: its economy with stimulus. If that works, and if you're

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Speaker 1: picks up, then we're going to see additional growth in

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Speaker 1: the United States. And uh, that's another factor they have

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Speaker 1: to take into account. What it really comes down to

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Speaker 1: is a question of timing. The FED believes that the

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Speaker 1: economy is going to pick up and that will generate

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Speaker 1: more inflation, but when does it do that and how

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Speaker 1: does it signal it. Ordinarily, the FED, or up to

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Speaker 1: this point, the Fed has wanted to be ahead of

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Speaker 1: the economic developments, ahead of the idea of inflation, but

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Speaker 1: now they're sort of having to wait because Wall Street

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Speaker 1: doesn't trust them to do that. Although and Carl may

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Speaker 1: want to weigh in on this, we are seeing break

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Speaker 1: even start to rise, so there is a little bit

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Speaker 1: of inflation being priced into the markets that kind of

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Speaker 1: hasn't been reflected in sentiment yet. Mike makes a very

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Speaker 1: good point there. Rather, the FED doesn't want to be

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Speaker 1: leading the way. That's always good love with Mike McKee. Uh,

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Speaker 1: but the FED tried to lead a little too hard

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Speaker 1: back in December, and we saw what the market outcome was.

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Speaker 1: So now the FED has been chastened by that experience. Uh.

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Speaker 1: And now I was going to let the market kind

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Speaker 1: of beg for rate increases and the Fed will not

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Speaker 1: be overly concerned about being perceived as being behind the

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Speaker 1: curve and then happily delivering what the market is asking for,

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Speaker 1: and that will be far less disruptive. I do think

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Speaker 1: we could see that start to materialize in the back

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Speaker 1: half of the year. Mark you'll be in the news conference.

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Speaker 1: Lights A first question for Chairman Pal from you, what

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Speaker 1: is it? Well? It depends on what they say, But

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Speaker 1: basically you'll be looking for what is that what would

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Speaker 1: make them change their patient strategy? A lot of different

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Speaker 1: ways you can ask that question, but is there something

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Speaker 1: that they're looking at that the market can look at

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Speaker 1: to get an idea of what the FED reaction function

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Speaker 1: is going to be? Basically, you don't want to give

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Speaker 1: away your your secret sauce, right, You're not going to

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Speaker 1: give away your question. Um, you kind of gotta know

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Speaker 1: what they're gonna do before you ask what they do.

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Speaker 1: It's all freaking save Carl. What would be the question

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Speaker 1: you'd want to ask I Pepperham on the issue of

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Speaker 1: what would get the FED back into play, because it's

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Speaker 1: a pretty subtle change and forecast that has shifted them

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Speaker 1: from a world where they were looking for two rate

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Speaker 1: hikes this year and one rate hike next year to

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Speaker 1: a world where they're on perma pause. And really that's

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Speaker 1: the difference of GDP growth shifting from two and a

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Speaker 1: half to two, inflation shifting from something just above two

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Speaker 1: down to two, unemployment rate shifting from three and a

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Speaker 1: half up to four for their outlook. So it's not

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Speaker 1: going to take a lot in the change mild upward

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Speaker 1: surprise in the economy, but to really get them back

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Speaker 1: to the type of forecasts they were looking at in

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Speaker 1: September and December of last year, when they in fact,

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Speaker 1: we're expecting additional rate hikes. The one thing I would

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Speaker 1: highlight here right the real Fed funds rate, the inflation

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Speaker 1: adjusted interest rate is about point three right now. Uh.

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Speaker 1: The economy has never rolled over with real interest rates

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Speaker 1: so low. So we're still a long way from the

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Speaker 1: Fed actually stepping on the brake pedal. Grant to catch

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Speaker 1: out with you always now that you'll be a busy

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Speaker 1: man a little bit lights bloom Bug Economics Chief US

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Speaker 1: Economists now from Washington, d c Um. He's not really.

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Speaker 1: He enjoys this. This is leisure time. So if you

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Speaker 1: enjoy you're not busy. He goes. He goes to work

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Speaker 1: about ten minutes ago. Are you going to thank Michael

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Speaker 1: interrupting make from Washington. He's busy already. He's working. Michael McKay,

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Speaker 1: International Economics and Policy correspondent because he hates this calin

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Speaker 1: Mike Grant to catch up. Well, one place where you

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Speaker 1: are seeing real stimulus is China, where the PBOC has

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Speaker 1: doubled back and is adding to what what they had

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Speaker 1: been cutting back on. It was interesting to me. Yesterday

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Speaker 1: Bloomberg reported the Canada's biggest pension is actually considering opening

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Speaker 1: an office in Beijing over the next year as they

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Speaker 1: try to expand their holdings in the region, joining US now.

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Speaker 1: Teresa Kong, Matthew's Asia head of fixed Income and portfolio

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Speaker 1: man aagement here in our Bloomberg Interactive up Brokers Studios. Teresa,

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Speaker 1: do you think that this is a good time to

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Speaker 1: be plowing into in particular China. Absolutely. I think it's

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Speaker 1: a very strategic decision on the part of the largest

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Speaker 1: pension fund in Canada. I think there are several catalysts. First,

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Speaker 1: there will be inclusion of China into the global agg

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Speaker 1: which I think it's going to be transformative for bond investing.

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Speaker 1: As we all know, ms C I will be adding

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Speaker 1: China as well in in actually greater steps than had

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Speaker 1: previously announced. So I think CPP and I'm guessing is

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Speaker 1: CPPC is ding ding ding ding. Um will in fact,

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Speaker 1: you know, be looking back at this ten years from

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Speaker 1: now and congratulating themselves in terms of being very fort looking.

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Speaker 1: Let's talk about how you're managing your exposure to Asian

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Speaker 1: markets at the moment, what do you do when you

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Speaker 1: have this really strong rally and global markets but there's

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Speaker 1: very little sign and stability and the fundamentals, how do

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Speaker 1: you reconcile the two things at the moment. Well, I

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Speaker 1: think what the market is doing right now is pricing

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Speaker 1: out a lot of potential tail risks. So for example,

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Speaker 1: first let's start with the FED. As you had already mentioned,

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Speaker 1: most people are expecting that the FED is more likely

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Speaker 1: to actually cut as opposed to raise rates. I think

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Speaker 1: the European Central Bank has also been quite clear that

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Speaker 1: growth is not there, and therefore they're also going to be,

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Speaker 1: you know, continued to provide stimulus. So those are two

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Speaker 1: big teril risks out. And then, last but not least, certainly,

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Speaker 1: everyone's looking at the trade talks and hoping for some

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Speaker 1: type of resolution, even if it's a short term trade

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Speaker 1: resolution without a long term resolution on all the other

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Speaker 1: areas like intellectual property. I do think that the market

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Speaker 1: will really be breathing a sign of relief even with that.

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Speaker 1: You know, it's interesting because when people say that they're

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Speaker 1: they're going into China and buying assets right now, I

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Speaker 1: have to wonder how the recent uptake and defaults corporate

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Speaker 1: defaults plays into this. The fact that the PBOC they

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Speaker 1: that China is allowing companies and even some local governments

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Speaker 1: to actually start to fail to pay their bills, and

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Speaker 1: I'm wondering how does that factor into how you invest

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Speaker 1: in the region. That's a great point, you know, to

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Speaker 1: be sure defaults in China will continue to slowly increase.

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Speaker 1: The important point to take away here is that defaults

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Speaker 1: are necessary evil in all developed markets. Spreads price in

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Speaker 1: the default risk, and arguably China is actually not completely

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Speaker 1: pricing in the expect of future default risk. So this

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Speaker 1: is what we call the credit spread. So I think

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Speaker 1: it's really important to realize that, you know, these defaults

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Speaker 1: will continue to slowly take up um. The other thing

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Speaker 1: I just want to mention is that, you know, China

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Speaker 1: is really the only country where I constantly hear headlines

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Speaker 1: about the total notional amount of defaults. Nowhere else in

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Speaker 1: the world we talk about notional defaults. So if you're

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Speaker 1: actually put in a denominator, and if you actually take

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Speaker 1: out all of the government debt and all the policy

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Speaker 1: bank con debt, so which you know are arguably truly

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Speaker 1: sovereign risk. But if you could include everything else, the

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Speaker 1: actual default range China when we measure it with that denominator,

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Speaker 1: is about zero point six, which is still substantially below

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Speaker 1: where the rest of the world is, which is, you know,

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Speaker 1: about hovering between when I have two. That's a good point.

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Speaker 1: I think that the fear is that this is the

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Speaker 1: tip of the iceberg. Number one, because the defaults are

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Speaker 1: just starting to pick up and and then the government

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Speaker 1: is just allowing them to actually happen. That's number one.

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Speaker 1: But number two, the amount of corporate debt, especially given

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Speaker 1: the shadow banking system in China, is materially larger than

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Speaker 1: some of the official numbers are stating, and there is concern,

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Speaker 1: especially given the fact that the PBOTC itself was ratcheting

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Speaker 1: back at stimulus because they were concerned about the growth

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Speaker 1: and leverage. The fact that they are backtracking and re

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Speaker 1: levering is also a concern. Is that a problem for you?

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Speaker 1: I think it's really important to continue to monitor the

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Speaker 1: state of monetary policy as well as fiscal policy to

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Speaker 1: sure you know, China has taken one step forward and

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Speaker 1: one step back with respect to de leveraging, and it's

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Speaker 1: certainly true that that defaults ticking up has an impact

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Speaker 1: on what we do, but arguably what we've actually been

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Speaker 1: looking forward to our actual corporate spreads to actually widen

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Speaker 1: to take into account this future default risk. I would

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Speaker 1: also like to make the distinction between the different types

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Speaker 1: of debt. You know, a lot of times people talk

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Speaker 1: about China in one big breath, but it's really important

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Speaker 1: to point out that there are corporates completely private health

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Speaker 1: enterprises where we do think the faults will certainly pick

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Speaker 1: up because of access to capital. As yet pointed out,

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Speaker 1: there's the what I call gray area. A lot of

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Speaker 1: this state owned enterprises are really part of the mixed

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Speaker 1: economy privately health somewhat, um state owned somewhat, but also

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Speaker 1: you know, some of these are actually have have public

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Speaker 1: trade of stock. And then, last, but not least, there

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Speaker 1: are the what I call muni slash l g F

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Speaker 1: s look government bonds with respect to the s o s.

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Speaker 1: This is where real credit analysis really needs to take place,

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Speaker 1: because a company that is strategically very important at the

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Speaker 1: national level should not be priced the same as a

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Speaker 1: municipal as a excuse me, as a as a company

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Speaker 1: that is doing let's say some type of natural resource

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Speaker 1: extraction that could be detrimental to the future of the

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Speaker 1: environmental policies of China. And then, last, but not least,

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Speaker 1: I do think that local government debt might trigger technical defaults.

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Speaker 1: But until a legal framework is in place whereby there's

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Speaker 1: a bankruptcy remoteness to the municipalities, I don't really see

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Speaker 1: that area actually picking up in terms of defaults. To reason,

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Speaker 1: great to catch up with you, really insightful stuff to

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Speaker 1: Raisakung their Matthew's Asia head of Fixed income and Portfolio Manages.

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Speaker 1: Let's get the view from London, shall we? Bloomberg opinion

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Speaker 1: columnists Theresa Raphael joining us now on the phone from

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Speaker 1: London to get us up to speed. The Prime Minister

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Speaker 1: wants to take this to the thirtie June. Will the

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Speaker 1: EU say okay? So the EU has a decision to make,

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Speaker 1: and that is which risk they think is worth, a

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Speaker 1: risk of no deal Brexit happening, or the risk of

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Speaker 1: Britain being part of massy European parliamentary elections that uh

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Speaker 1: would be even staying in the European Union for a

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Speaker 1: longer period of time and um, you know, impossibly complicating

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Speaker 1: the way EU policy works. I think the European Dan

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Speaker 1: is likely to grant the short extension. I think that's

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Speaker 1: that we can pretty much assume it's going to happen.

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Speaker 1: The question is what conditions they'll put on it and

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Speaker 1: whether they will do out a longer extension if made

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Speaker 1: deal doesn't get through Parliament, which he intends to resubmit,

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Speaker 1: if not next week again later this month. So I'm

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00:24:02,400 --> 00:24:04,720
Speaker 1: looking at the pound right now. It did fall to

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Speaker 1: session lows after this came out that Theresa May was

435
00:24:08,880 --> 00:24:12,480
Speaker 1: just looking for a three month extension. Why do you think, why?

436
00:24:12,600 --> 00:24:15,600
Speaker 1: Why is this a bearish sign for for the Sterling

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00:24:16,800 --> 00:24:20,840
Speaker 1: right because it creates a new edge. So just last week, um,

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00:24:20,880 --> 00:24:24,400
Speaker 1: we're all believed to hear that the Parliament voted against

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00:24:24,560 --> 00:24:27,920
Speaker 1: having a no Deal exit. They voted in no uncertain terms,

440
00:24:28,240 --> 00:24:30,359
Speaker 1: but that didn't really take no Deal off the table

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00:24:30,400 --> 00:24:34,520
Speaker 1: because it's on the statute book. And what what Mason

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00:24:34,640 --> 00:24:37,720
Speaker 1: forced to do is against to Will, is to ask

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00:24:37,760 --> 00:24:40,520
Speaker 1: for only a short extension and not a longer extension.

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00:24:40,720 --> 00:24:43,240
Speaker 1: So that creates another cliss edge at the end of

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00:24:43,760 --> 00:24:47,399
Speaker 1: June if if the European Union he doesn't agree to

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00:24:47,480 --> 00:24:50,680
Speaker 1: extend the extension or if Parliament doesn't pass for you know,

447
00:24:51,040 --> 00:24:53,520
Speaker 1: we still are faced with the possibility that Britain needs

448
00:24:54,040 --> 00:24:56,240
Speaker 1: uh with no deal at all, and and you know

449
00:24:56,320 --> 00:24:59,280
Speaker 1: that's a very bearis sign Now the caveat here is

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00:24:59,320 --> 00:25:01,840
Speaker 1: Parliament could step in and try to take some call.

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00:25:01,880 --> 00:25:04,240
Speaker 1: They could try to pass an amendment to her motion

452
00:25:04,320 --> 00:25:07,760
Speaker 1: the next time she submits her deal that says, you know, um,

453
00:25:08,040 --> 00:25:11,240
Speaker 1: we have voted not to leave without a deal, and

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00:25:11,359 --> 00:25:14,359
Speaker 1: therefore uh, you know, they could pass a vote of

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00:25:14,440 --> 00:25:17,359
Speaker 1: their confidence. They could try to vote in favor of

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00:25:17,440 --> 00:25:20,119
Speaker 1: second referendum. So it doesn't mean automatically no deal what

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00:25:20,280 --> 00:25:22,520
Speaker 1: happened at the end of view, but it clearly leaves

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Speaker 1: that as a possibility. Another layer of complexity to all

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Speaker 1: of this the leader of the opposition party, Labor's Jeremy

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00:25:28,520 --> 00:25:33,280
Speaker 1: Corbyn demanding a confirmation referendum on a Brexit deal. Terres

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00:25:33,480 --> 00:25:37,639
Speaker 1: What is that. Well, Corbyn has been um, you know,

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00:25:37,720 --> 00:25:41,680
Speaker 1: officially in favor of a second referendum as his party's

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00:25:41,720 --> 00:25:44,159
Speaker 1: position if they couldn't get a general election. Personally, he

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00:25:44,240 --> 00:25:48,119
Speaker 1: hates the idea. He would like to keep brefit happen.

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00:25:48,640 --> 00:25:51,359
Speaker 1: He would like to see this governments fall to a

466
00:25:51,480 --> 00:25:54,360
Speaker 1: conservation referendum sort of splits the difference. It says, well,

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00:25:54,720 --> 00:25:57,479
Speaker 1: you know, whatever, if the deal gets through, will support

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00:25:57,520 --> 00:25:59,399
Speaker 1: for deals. But then we wanted to put it to

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00:25:59,480 --> 00:26:02,960
Speaker 1: the people and that's going to be hugely controversial because

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00:26:03,040 --> 00:26:07,680
Speaker 1: hardline conservatives who uh pro Brexit, who even want to

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00:26:07,720 --> 00:26:10,280
Speaker 1: see a no deal Brexit, are going to be opposed

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00:26:10,359 --> 00:26:13,359
Speaker 1: to a reference and that allows remain to be an option,

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00:26:13,440 --> 00:26:16,919
Speaker 1: which is what Corbin is basically suggesting. So terres, how

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00:26:17,000 --> 00:26:19,480
Speaker 1: does John Berkow fit fit into this? The idea that

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00:26:19,760 --> 00:26:23,600
Speaker 1: he was holding up another vote on a procedural issue,

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00:26:24,040 --> 00:26:28,200
Speaker 1: does that matter anymore? Well, I mean, Burka has but

477
00:26:28,280 --> 00:26:32,240
Speaker 1: a hugely important figure throughout this whole um, you know,

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00:26:32,359 --> 00:26:34,960
Speaker 1: the whole Brexit saw that, because he's the one who decides,

479
00:26:35,000 --> 00:26:39,640
Speaker 1: you know, what amendments get selected. Um. He recused, uh,

480
00:26:39,800 --> 00:26:44,080
Speaker 1: while cited a a seventeenth century consum to tell me

481
00:26:44,240 --> 00:26:47,359
Speaker 1: that she couldn't submit her her deal to Parliament unless

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00:26:47,359 --> 00:26:50,760
Speaker 1: it's substantially change. It's still important because it's Burka that

483
00:26:50,880 --> 00:26:54,960
Speaker 1: decides what what constitutes substantially. She might say, okay, well

484
00:26:54,960 --> 00:26:58,360
Speaker 1: we've change the end date, so that's a that's it's

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00:26:58,400 --> 00:27:01,280
Speaker 1: now into agreement it will we leave on do party

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00:27:01,480 --> 00:27:03,520
Speaker 1: and not March twenty nine. And he could come back

487
00:27:03,600 --> 00:27:06,320
Speaker 1: and say well that's not substantial enough. So he's still

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00:27:06,359 --> 00:27:10,680
Speaker 1: a key figure, a controversial figure. Um and uh, you

489
00:27:10,760 --> 00:27:14,760
Speaker 1: know it will be hint decide really when her her

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00:27:14,800 --> 00:27:17,320
Speaker 1: deal comes back before Parliament. To Rights always great to

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Speaker 1: catch you up with you to get your insight. To

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Speaker 1: Rights Rafael, that Bloomberg opinion columnist bringing us some much

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Speaker 1: needed clarity on the Brexit situation. Thanks for listening to

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Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

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00:27:32,160 --> 00:27:38,040
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

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00:27:38,080 --> 00:27:41,359
Speaker 1: on Twitter at Tom Keane before the podcast. You can

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Speaker 1: always catch us worldwide. I'm Bloomberg Radio