Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
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Speaker 1: in New York joining us. I'm place to say is
Speaker 1: Kate more Plank, Rock Investment Institute Chief Equity Strategist. Good
Speaker 1: morning to Kate, Good morning. What should we be looking for?
Speaker 1: A little bit length from Cham and Pound and coug So,
Speaker 1: I think the equity market and kind of risk assets
Speaker 1: in general have become pretty comfortable and complacent with the
Speaker 1: idea that monetary policy is going to stay accommodative forever
Speaker 1: and ever and ever. So I think the biggest thing
Speaker 1: to watch is going to be for equity markets, the
Speaker 1: dot plot. I think for kind of broad our markets
Speaker 1: and fixed income, we're gonna be focused a lot on
Speaker 1: the bound sheet and reinvestment and the composition um the
Speaker 1: treasury composition, which is a little bit more technical, but
Speaker 1: in general, equity investors and I would say risk asset
Speaker 1: investors broadly want to see that monetary policy is not
Speaker 1: going to move much or slash at all in the
Speaker 1: near term. But here's my question. One is bad news
Speaker 1: bad news again? I mean, one is the idea that
Speaker 1: the FED is being cautious because the economy really does
Speaker 1: not have the strength that many people thought that it did. Uh,
Speaker 1: when is that bad news for risk assets? Yeah, that's
Speaker 1: a that's a really important question. You know, for a
Speaker 1: large portion of the last ten years, we've been in
Speaker 1: this cycle where you know, markets stop panicking when policymakers
Speaker 1: start panicking. You know, as long as policymakers have our back,
Speaker 1: it doesn't matter that the data is bad, or the
Speaker 1: data has softened, or that activity is slowed, or that
Speaker 1: we're talking about a new growth regime. And you know,
Speaker 1: I'm a little worried that we're back there again because
Speaker 1: a few years ago we were really hopeful the markets
Speaker 1: would be focused on fundamental let's talk about activity, let's
Speaker 1: talk about earnings, let's talk about the real idiosyncratic opportunities,
Speaker 1: and we're back to obsessing about monetary policy language, body language. Uh,
Speaker 1: you know, who's had coffee with who and what that
Speaker 1: could potentially mean for stimulus around the world. So this
Speaker 1: is a fair question. I just don't think that we're
Speaker 1: going to get there in the second quarter. So let's
Speaker 1: talk about fundamentals if we can, we have the opportunity
Speaker 1: to do so this morning. How are they? How are learnings?
Speaker 1: Expectations for the rest of the year not great? John,
Speaker 1: I mean, this is this is the this is the problem.
Speaker 1: Most of the returns from the equity market in two
Speaker 1: thousand nineteen have come from multiple expansion. You have higher
Speaker 1: prices and lower earnings expectations um, and we really need
Speaker 1: to turn around in fundamentals. I think in order to
Speaker 1: carry the market meaningfully higher in the second quarter. It's
Speaker 1: like hard to get to a twelve percent return in
Speaker 1: the second quarter if it's not driven by earnings and
Speaker 1: it's just driven by a rerating. So a lot of
Speaker 1: people would actually disagree, and they would say that stocks
Speaker 1: have actually been held back by the trade tensions and
Speaker 1: the ongoing concerns about Brexit, etcetera. You disagree. I think
Speaker 1: that trade concerns, concerns over Chinese growth, concerns over US growth,
Speaker 1: concerns over policy mistakes. I mean, we can make a
Speaker 1: long list. We're all really putting pressure downward, pressure on
Speaker 1: risk assets in the fourth quarter. But some of that
Speaker 1: has eased, and we've gotten to we worry actually a
Speaker 1: little We've gotten a little bit a complacent point where
Speaker 1: we don't really worry so much about trade. We think
Speaker 1: some of the risk there is not being properly priced,
Speaker 1: that people are not as worried about growth, and as
Speaker 1: I mentioned, are expecting a lot of monetary and fiscal
Speaker 1: stimulus from all different regions of the world concurrently in
Speaker 1: two thousand nineteen, and so you know, we need to
Speaker 1: see a little bit more volatility, We need to see
Speaker 1: a little bit more of like fundamental driven markets. So
Speaker 1: this is actually where I was going to go. I
Speaker 1: was looking at the move index. This is the Bank
Speaker 1: of America Mary Lynch Option Volatility Index, and it's fallen
Speaker 1: to its lowest level on record. This is the implied
Speaker 1: volatility and treasury yields over the next three months. I'm
Speaker 1: just wondering, is this dangerous? This setting a warning signal
Speaker 1: about complacency and sort of signaling that there could be
Speaker 1: some kind of more violent move in the very near future.
Speaker 1: You know that the volatility markets in general have been
Speaker 1: really difficult, right, I mean, you think about the last
Speaker 1: couple of years. We keep on making new lows sometimes
Speaker 1: it's really difficult to explain why. What I can say
Speaker 1: in general is that there seems to be on the
Speaker 1: equity side very light participation in the rally. More recently,
Speaker 1: people have been fading that risk have been taken down
Speaker 1: their winners. You know, if they were in the market
Speaker 1: and well positioned at the start of this year because
Speaker 1: of the d rating last year and because they felt
Speaker 1: like the baby was getting thrown out with the bath water, uh,
Speaker 1: they have been systematically taking their their equity exposure down.
Speaker 1: We see this in fund flows from a number of
Speaker 1: different providers. We see this in terms of overall et
Speaker 1: F flows for the best performing parts of the market.
Speaker 1: And so you know, it has all of us scratching
Speaker 1: our heads. I wish I had a better answer on
Speaker 1: volved whether it's the equity or the treasury option involved,
Speaker 1: but it does feel like it should rise a little bit.
Speaker 1: Long fed patients. Short volatility has been the trade of
Speaker 1: the last three months, and in the words of Bank
Speaker 1: of America, the pain trade for stocks is still up. Um.
Speaker 1: Do you agree with that there is simply no greed
Speaker 1: to sell in equities. That's the line from Bank of America.
Speaker 1: It sounds like to some degree it resonates with UK.
Speaker 1: There is some sympathy, you know, full disclosure, I used
Speaker 1: to work on that team, uh some years ago now,
Speaker 1: so I'm very familiar with the pain. Trate is higher
Speaker 1: view UM from a fun flows perspective, I think that's right.
Speaker 1: From a flows and positioning and technical perspective. You can
Speaker 1: make some of that argument. From evaluations perspective. I think
Speaker 1: we're neutral. You know, we've rerated back to a level
Speaker 1: that that feels fair with a UM, you know, an
Speaker 1: economic and macro backdrop, or still having growth. I'll be
Speaker 1: at a slower pace where monetary and fiscal policy looks
Speaker 1: more supportive than it did six months ago. Uh. But
Speaker 1: the fundamentals is what I keep on getting hung up on.
Speaker 1: It's the earning story, the fact that their earnings vision
Speaker 1: ratios are the weakest in three years and are not abating.
Speaker 1: So Kate, where is the biggest opportunity in equities right now? Well,
Speaker 1: so qualities performed very well in two thousand nineteen, but
Speaker 1: I think this is still an opportunity for quality. We're
Speaker 1: really focused on kind of secular growers, and so that
Speaker 1: takes us to technology and healthcare, which I know had
Speaker 1: been very consensive sectors, but frankly deliver. They deliver on earnings,
Speaker 1: They're delivering on consistency of earnings, their balance sheets are great,
Speaker 1: and I really want to own companies that you have
Speaker 1: the ability to continue to expand even in a slowing
Speaker 1: growth environment. So that's kind of our favorite bit. And
Speaker 1: we're also pretty excited about emerging market. Still great to
Speaker 1: catch up with you as always, Thanks for dropping by.
Speaker 1: Kate more blank Rock Investment Institute Chief equity strategist on
Speaker 1: the pain trade, and a whole lot more forecasting patients.
Speaker 1: That is what investors expect from the Federal Reserve later today, unchanged.
Speaker 1: That is what investors expect to happen with interest rates.
Speaker 1: The news conference is where the focus will be with
Speaker 1: Chairman Pale and the summary of economic projections, all of
Speaker 1: the forecasts for the economy, including where each and every
Speaker 1: individual policymaker on the fo MC expects rates to be
Speaker 1: in nineteen twenty and perhaps beyond two. Let's bringing the team,
Speaker 1: shall we to get their forecast, their outlook and the
Speaker 1: day's guide for Federal Reserve decision Day. Carl Rickadonna, Bloomberg
Speaker 1: Economics Chief US economist and on the phone from Washington,
Speaker 1: d C. He will be in the room with Chairman
Speaker 1: Pau a little bit later. Michael McKee, International Economics and
Speaker 1: Policy Correspondent, Mike, you get the honors, sir. Give me
Speaker 1: the outlook the day's guide for the Federal Reserve. Well, really,
Speaker 1: what Wall Street is looking for is for no mistakes,
Speaker 1: no deviation from the Wall Street line, which is the
Speaker 1: Feds on hauld and there's no deem year of them
Speaker 1: raising rates this year. Not likely to get an absolute
Speaker 1: view from J. Paul, but I think he'll be as
Speaker 1: cautious as possible, not try to say anything that will
Speaker 1: lead them to think one way or the other. The
Speaker 1: Fed may change policy this year. Um, we're gonna see
Speaker 1: in new forecast for growth and inflation. They'll have to
Speaker 1: be marked down a little bit, but enough to justify
Speaker 1: a major move in the dots. Not clear, all right?
Speaker 1: So coming in here, Calra Kadonna, because right now I'm
Speaker 1: looking at the work function on the Bloomberg terminal showing
Speaker 1: that there is a thirty seven percent chance of a
Speaker 1: rate cut come January, zero chance of a rate hike
Speaker 1: again this cycle. Probably is this something the Fed like seeing.
Speaker 1: I don't think they like seeing that high of a
Speaker 1: probability of a rape cut at the start of next year.
Speaker 1: That's not really their intention at the moment, and I
Speaker 1: suspect the dot plot will lean against that. Now. The
Speaker 1: Fed is in a bit of a difficult a bind
Speaker 1: here because if they're too optimistic on the economic outlook,
Speaker 1: then they risk a repeat of December, where the markets
Speaker 1: viewed the Fed is having a tin ear two signs
Speaker 1: of economic strain. That being said, if they really focus
Speaker 1: on acknowledging weakness in recent data like retail sales, like
Speaker 1: the last payroll report, then they're going to push those
Speaker 1: rate cut probabilities even higher. And if that's not their
Speaker 1: intention to start cutting rates next year, which I don't
Speaker 1: believe it is, then this creates a significant communications challenge
Speaker 1: that they're going to have to address later this year.
Speaker 1: So that being said, I think they maybe air on
Speaker 1: the side of caution with respect to sounding too dovish
Speaker 1: because they don't want to reinforce that that rate cut.
Speaker 1: But an important question yesterday, when you and I caught up, Mike,
Speaker 1: you said, what does the Federal Reserve do in inflation
Speaker 1: expectations remain low or in fact go lower. Do we
Speaker 1: have any idea, Mike, No, we don't at this point.
Speaker 1: They haven't been able to generate inflation. They're talking longer
Speaker 1: term about changing some of their policy regimes, but that's
Speaker 1: not gonna come up today. So the question is what
Speaker 1: is their inflation out look and what drives it, because
Speaker 1: nobody seems to have a way to get inflation up
Speaker 1: to or above two percent except hope that the Phillips
Speaker 1: curve actually holds. We're waiting on that right now, and
Speaker 1: we haven't seen any evidence that it's happening. We're getting
Speaker 1: stronger wage growth, we've got cycle high wage growth, but
Speaker 1: it's not feeding into the inflation indexes. Although Carl chair
Speaker 1: Powell did say that he thinks that some inflation, some
Speaker 1: wage pressures in particular, are greater than are being reflected
Speaker 1: by the data. Is there any sign that we actually
Speaker 1: are starting to see a return of the Phillips curve.
Speaker 1: I think we're seeing the early stages. Mike's right that
Speaker 1: it's not showing up in the inflation data just yet,
Speaker 1: but we've only recently seen the pickup in wage pressures.
Speaker 1: It really started around November of last year. Amazon had
Speaker 1: the minimum wage increase a lot of retailers. UH followed suit,
Speaker 1: and from November through February you saw a pretty significant
Speaker 1: acceleration and average hourly earnings and the jobs report that
Speaker 1: number may actually underrepresent what's happening in the broader economy
Speaker 1: because it reflects a lot of UH. I hate to
Speaker 1: use the term lower quality, but the lower skilled, lower
Speaker 1: quality jobs which tend to be lower paying, and that
Speaker 1: tends to deflate UH the number overall. So we're seeing
Speaker 1: wage pressures show up, and it's a matter of time
Speaker 1: for that to percolate through the system. So Mike says
Speaker 1: we're not seeing signs of the Phillips curve working. I
Speaker 1: would add a footnote to that, we're not seeing it
Speaker 1: just yet, but I think we will see it later
Speaker 1: this year. It's too soon for the flip FED to
Speaker 1: start focusing on that because they want the data to
Speaker 1: really lead the way. But I do suspect with the
Speaker 1: economy growing above trend and wage pressures at a post
Speaker 1: recession high, we will see more consumer inflation later this
Speaker 1: year and that will put the FED back into play.
Speaker 1: And and and to that point, the fact that we
Speaker 1: are getting some kind of a melting in trade tensions
Speaker 1: also feeds into this. Michael mckebl and brig International Economics
Speaker 1: and Quality correspondent in Washington, d C. Come on in
Speaker 1: here and talk a little bit about how that thawing backdropped.
Speaker 1: The increase in stimulus from the PBOC in China may
Speaker 1: complicate the issue for the Federal Reserve right now. Well,
Speaker 1: one of the Feds lines over the last year or
Speaker 1: the last couple of months, But it that way in
Speaker 1: terms of the idea of being on hold, is that
Speaker 1: economic conditions around the world have slowed, and therefore that
Speaker 1: puts a break on US economic growth possibilities. We're seeing
Speaker 1: some signs that maybe we're getting a little bit of
Speaker 1: a pickup in Europe, and then China has been flooding
Speaker 1: its economy with stimulus. If that works, and if you're
Speaker 1: picks up, then we're going to see additional growth in
Speaker 1: the United States. And uh, that's another factor they have
Speaker 1: to take into account. What it really comes down to
Speaker 1: is a question of timing. The FED believes that the
Speaker 1: economy is going to pick up and that will generate
Speaker 1: more inflation, but when does it do that and how
Speaker 1: does it signal it. Ordinarily, the FED, or up to
Speaker 1: this point, the Fed has wanted to be ahead of
Speaker 1: the economic developments, ahead of the idea of inflation, but
Speaker 1: now they're sort of having to wait because Wall Street
Speaker 1: doesn't trust them to do that. Although and Carl may
Speaker 1: want to weigh in on this, we are seeing break
Speaker 1: even start to rise, so there is a little bit
Speaker 1: of inflation being priced into the markets that kind of
Speaker 1: hasn't been reflected in sentiment yet. Mike makes a very
Speaker 1: good point there. Rather, the FED doesn't want to be
Speaker 1: leading the way. That's always good love with Mike McKee. Uh,
Speaker 1: but the FED tried to lead a little too hard
Speaker 1: back in December, and we saw what the market outcome was.
Speaker 1: So now the FED has been chastened by that experience. Uh.
Speaker 1: And now I was going to let the market kind
Speaker 1: of beg for rate increases and the Fed will not
Speaker 1: be overly concerned about being perceived as being behind the
Speaker 1: curve and then happily delivering what the market is asking for,
Speaker 1: and that will be far less disruptive. I do think
Speaker 1: we could see that start to materialize in the back
Speaker 1: half of the year. Mark you'll be in the news conference.
Speaker 1: Lights A first question for Chairman Pal from you, what
Speaker 1: is it? Well? It depends on what they say, But
Speaker 1: basically you'll be looking for what is that what would
Speaker 1: make them change their patient strategy? A lot of different
Speaker 1: ways you can ask that question, but is there something
Speaker 1: that they're looking at that the market can look at
Speaker 1: to get an idea of what the FED reaction function
Speaker 1: is going to be? Basically, you don't want to give
Speaker 1: away your your secret sauce, right, You're not going to
Speaker 1: give away your question. Um, you kind of gotta know
Speaker 1: what they're gonna do before you ask what they do.
Speaker 1: It's all freaking save Carl. What would be the question
Speaker 1: you'd want to ask I Pepperham on the issue of
Speaker 1: what would get the FED back into play, because it's
Speaker 1: a pretty subtle change and forecast that has shifted them
Speaker 1: from a world where they were looking for two rate
Speaker 1: hikes this year and one rate hike next year to
Speaker 1: a world where they're on perma pause. And really that's
Speaker 1: the difference of GDP growth shifting from two and a
Speaker 1: half to two, inflation shifting from something just above two
Speaker 1: down to two, unemployment rate shifting from three and a
Speaker 1: half up to four for their outlook. So it's not
Speaker 1: going to take a lot in the change mild upward
Speaker 1: surprise in the economy, but to really get them back
Speaker 1: to the type of forecasts they were looking at in
Speaker 1: September and December of last year, when they in fact,
Speaker 1: we're expecting additional rate hikes. The one thing I would
Speaker 1: highlight here right the real Fed funds rate, the inflation
Speaker 1: adjusted interest rate is about point three right now. Uh.
Speaker 1: The economy has never rolled over with real interest rates
Speaker 1: so low. So we're still a long way from the
Speaker 1: Fed actually stepping on the brake pedal. Grant to catch
Speaker 1: out with you always now that you'll be a busy
Speaker 1: man a little bit lights bloom Bug Economics Chief US
Speaker 1: Economists now from Washington, d c Um. He's not really.
Speaker 1: He enjoys this. This is leisure time. So if you
Speaker 1: enjoy you're not busy. He goes. He goes to work
Speaker 1: about ten minutes ago. Are you going to thank Michael
Speaker 1: interrupting make from Washington. He's busy already. He's working. Michael McKay,
Speaker 1: International Economics and Policy correspondent because he hates this calin
Speaker 1: Mike Grant to catch up. Well, one place where you
Speaker 1: are seeing real stimulus is China, where the PBOC has
Speaker 1: doubled back and is adding to what what they had
Speaker 1: been cutting back on. It was interesting to me. Yesterday
Speaker 1: Bloomberg reported the Canada's biggest pension is actually considering opening
Speaker 1: an office in Beijing over the next year as they
Speaker 1: try to expand their holdings in the region, joining US now.
Speaker 1: Teresa Kong, Matthew's Asia head of fixed Income and portfolio
Speaker 1: man aagement here in our Bloomberg Interactive up Brokers Studios. Teresa,
Speaker 1: do you think that this is a good time to
Speaker 1: be plowing into in particular China. Absolutely. I think it's
Speaker 1: a very strategic decision on the part of the largest
Speaker 1: pension fund in Canada. I think there are several catalysts. First,
Speaker 1: there will be inclusion of China into the global agg
Speaker 1: which I think it's going to be transformative for bond investing.
Speaker 1: As we all know, ms C I will be adding
Speaker 1: China as well in in actually greater steps than had
Speaker 1: previously announced. So I think CPP and I'm guessing is
Speaker 1: CPPC is ding ding ding ding. Um will in fact,
Speaker 1: you know, be looking back at this ten years from
Speaker 1: now and congratulating themselves in terms of being very fort looking.
Speaker 1: Let's talk about how you're managing your exposure to Asian
Speaker 1: markets at the moment, what do you do when you
Speaker 1: have this really strong rally and global markets but there's
Speaker 1: very little sign and stability and the fundamentals, how do
Speaker 1: you reconcile the two things at the moment. Well, I
Speaker 1: think what the market is doing right now is pricing
Speaker 1: out a lot of potential tail risks. So for example,
Speaker 1: first let's start with the FED. As you had already mentioned,
Speaker 1: most people are expecting that the FED is more likely
Speaker 1: to actually cut as opposed to raise rates. I think
Speaker 1: the European Central Bank has also been quite clear that
Speaker 1: growth is not there, and therefore they're also going to be,
Speaker 1: you know, continued to provide stimulus. So those are two
Speaker 1: big teril risks out. And then, last but not least, certainly,
Speaker 1: everyone's looking at the trade talks and hoping for some
Speaker 1: type of resolution, even if it's a short term trade
Speaker 1: resolution without a long term resolution on all the other
Speaker 1: areas like intellectual property. I do think that the market
Speaker 1: will really be breathing a sign of relief even with that.
Speaker 1: You know, it's interesting because when people say that they're
Speaker 1: they're going into China and buying assets right now, I
Speaker 1: have to wonder how the recent uptake and defaults corporate
Speaker 1: defaults plays into this. The fact that the PBOC they
Speaker 1: that China is allowing companies and even some local governments
Speaker 1: to actually start to fail to pay their bills, and
Speaker 1: I'm wondering how does that factor into how you invest
Speaker 1: in the region. That's a great point, you know, to
Speaker 1: be sure defaults in China will continue to slowly increase.
Speaker 1: The important point to take away here is that defaults
Speaker 1: are necessary evil in all developed markets. Spreads price in
Speaker 1: the default risk, and arguably China is actually not completely
Speaker 1: pricing in the expect of future default risk. So this
Speaker 1: is what we call the credit spread. So I think
Speaker 1: it's really important to realize that, you know, these defaults
Speaker 1: will continue to slowly take up um. The other thing
Speaker 1: I just want to mention is that, you know, China
Speaker 1: is really the only country where I constantly hear headlines
Speaker 1: about the total notional amount of defaults. Nowhere else in
Speaker 1: the world we talk about notional defaults. So if you're
Speaker 1: actually put in a denominator, and if you actually take
Speaker 1: out all of the government debt and all the policy
Speaker 1: bank con debt, so which you know are arguably truly
Speaker 1: sovereign risk. But if you could include everything else, the
Speaker 1: actual default range China when we measure it with that denominator,
Speaker 1: is about zero point six, which is still substantially below
Speaker 1: where the rest of the world is, which is, you know,
Speaker 1: about hovering between when I have two. That's a good point.
Speaker 1: I think that the fear is that this is the
Speaker 1: tip of the iceberg. Number one, because the defaults are
Speaker 1: just starting to pick up and and then the government
Speaker 1: is just allowing them to actually happen. That's number one.
Speaker 1: But number two, the amount of corporate debt, especially given
Speaker 1: the shadow banking system in China, is materially larger than
Speaker 1: some of the official numbers are stating, and there is concern,
Speaker 1: especially given the fact that the PBOTC itself was ratcheting
Speaker 1: back at stimulus because they were concerned about the growth
Speaker 1: and leverage. The fact that they are backtracking and re
Speaker 1: levering is also a concern. Is that a problem for you?
Speaker 1: I think it's really important to continue to monitor the
Speaker 1: state of monetary policy as well as fiscal policy to
Speaker 1: sure you know, China has taken one step forward and
Speaker 1: one step back with respect to de leveraging, and it's
Speaker 1: certainly true that that defaults ticking up has an impact
Speaker 1: on what we do, but arguably what we've actually been
Speaker 1: looking forward to our actual corporate spreads to actually widen
Speaker 1: to take into account this future default risk. I would
Speaker 1: also like to make the distinction between the different types
Speaker 1: of debt. You know, a lot of times people talk
Speaker 1: about China in one big breath, but it's really important
Speaker 1: to point out that there are corporates completely private health
Speaker 1: enterprises where we do think the faults will certainly pick
Speaker 1: up because of access to capital. As yet pointed out,
Speaker 1: there's the what I call gray area. A lot of
Speaker 1: this state owned enterprises are really part of the mixed
Speaker 1: economy privately health somewhat, um state owned somewhat, but also
Speaker 1: you know, some of these are actually have have public
Speaker 1: trade of stock. And then, last, but not least, there
Speaker 1: are the what I call muni slash l g F
Speaker 1: s look government bonds with respect to the s o s.
Speaker 1: This is where real credit analysis really needs to take place,
Speaker 1: because a company that is strategically very important at the
Speaker 1: national level should not be priced the same as a
Speaker 1: municipal as a excuse me, as a as a company
Speaker 1: that is doing let's say some type of natural resource
Speaker 1: extraction that could be detrimental to the future of the
Speaker 1: environmental policies of China. And then, last, but not least,
Speaker 1: I do think that local government debt might trigger technical defaults.
Speaker 1: But until a legal framework is in place whereby there's
Speaker 1: a bankruptcy remoteness to the municipalities, I don't really see
Speaker 1: that area actually picking up in terms of defaults. To reason,
Speaker 1: great to catch up with you, really insightful stuff to
Speaker 1: Raisakung their Matthew's Asia head of Fixed income and Portfolio Manages.
Speaker 1: Let's get the view from London, shall we? Bloomberg opinion
Speaker 1: columnists Theresa Raphael joining us now on the phone from
Speaker 1: London to get us up to speed. The Prime Minister
Speaker 1: wants to take this to the thirtie June. Will the
Speaker 1: EU say okay? So the EU has a decision to make,
Speaker 1: and that is which risk they think is worth, a
Speaker 1: risk of no deal Brexit happening, or the risk of
Speaker 1: Britain being part of massy European parliamentary elections that uh
Speaker 1: would be even staying in the European Union for a
Speaker 1: longer period of time and um, you know, impossibly complicating
Speaker 1: the way EU policy works. I think the European Dan
Speaker 1: is likely to grant the short extension. I think that's
Speaker 1: that we can pretty much assume it's going to happen.
Speaker 1: The question is what conditions they'll put on it and
Speaker 1: whether they will do out a longer extension if made
Speaker 1: deal doesn't get through Parliament, which he intends to resubmit,
Speaker 1: if not next week again later this month. So I'm
Speaker 1: looking at the pound right now. It did fall to
Speaker 1: session lows after this came out that Theresa May was
Speaker 1: just looking for a three month extension. Why do you think, why?
Speaker 1: Why is this a bearish sign for for the Sterling
Speaker 1: right because it creates a new edge. So just last week, um,
Speaker 1: we're all believed to hear that the Parliament voted against
Speaker 1: having a no Deal exit. They voted in no uncertain terms,
Speaker 1: but that didn't really take no Deal off the table
Speaker 1: because it's on the statute book. And what what Mason
Speaker 1: forced to do is against to Will, is to ask
Speaker 1: for only a short extension and not a longer extension.
Speaker 1: So that creates another cliss edge at the end of
Speaker 1: June if if the European Union he doesn't agree to
Speaker 1: extend the extension or if Parliament doesn't pass for you know,
Speaker 1: we still are faced with the possibility that Britain needs
Speaker 1: uh with no deal at all, and and you know
Speaker 1: that's a very bearis sign Now the caveat here is
Speaker 1: Parliament could step in and try to take some call.
Speaker 1: They could try to pass an amendment to her motion
Speaker 1: the next time she submits her deal that says, you know, um,
Speaker 1: we have voted not to leave without a deal, and
Speaker 1: therefore uh, you know, they could pass a vote of
Speaker 1: their confidence. They could try to vote in favor of
Speaker 1: second referendum. So it doesn't mean automatically no deal what
Speaker 1: happened at the end of view, but it clearly leaves
Speaker 1: that as a possibility. Another layer of complexity to all
Speaker 1: of this the leader of the opposition party, Labor's Jeremy
Speaker 1: Corbyn demanding a confirmation referendum on a Brexit deal. Terres
Speaker 1: What is that. Well, Corbyn has been um, you know,
Speaker 1: officially in favor of a second referendum as his party's
Speaker 1: position if they couldn't get a general election. Personally, he
Speaker 1: hates the idea. He would like to keep brefit happen.
Speaker 1: He would like to see this governments fall to a
Speaker 1: conservation referendum sort of splits the difference. It says, well,
Speaker 1: you know, whatever, if the deal gets through, will support
Speaker 1: for deals. But then we wanted to put it to
Speaker 1: the people and that's going to be hugely controversial because
Speaker 1: hardline conservatives who uh pro Brexit, who even want to
Speaker 1: see a no deal Brexit, are going to be opposed
Speaker 1: to a reference and that allows remain to be an option,
Speaker 1: which is what Corbin is basically suggesting. So terres, how
Speaker 1: does John Berkow fit fit into this? The idea that
Speaker 1: he was holding up another vote on a procedural issue,
Speaker 1: does that matter anymore? Well, I mean, Burka has but
Speaker 1: a hugely important figure throughout this whole um, you know,
Speaker 1: the whole Brexit saw that, because he's the one who decides,
Speaker 1: you know, what amendments get selected. Um. He recused, uh,
Speaker 1: while cited a a seventeenth century consum to tell me
Speaker 1: that she couldn't submit her her deal to Parliament unless
Speaker 1: it's substantially change. It's still important because it's Burka that
Speaker 1: decides what what constitutes substantially. She might say, okay, well
Speaker 1: we've change the end date, so that's a that's it's
Speaker 1: now into agreement it will we leave on do party
Speaker 1: and not March twenty nine. And he could come back
Speaker 1: and say well that's not substantial enough. So he's still
Speaker 1: a key figure, a controversial figure. Um and uh, you
Speaker 1: know it will be hint decide really when her her
Speaker 1: deal comes back before Parliament. To Rights always great to
Speaker 1: catch you up with you to get your insight. To
Speaker 1: Rights Rafael, that Bloomberg opinion columnist bringing us some much
Speaker 1: needed clarity on the Brexit situation. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keane before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio