WEBVTT - Daybreak Weekend: Fed Preview, BOE Decision, China Data 0:00:02.920 --> 0:00:08.240 Bloomberg Audio Studios, Podcasts, radio news. 0:00:10.720 --> 0:00:13.080 This is Bloomberg day Break Weekend, our global look at 0:00:13.119 --> 0:00:15.400 the top stories in the coming week from our Daybreak 0:00:15.400 --> 0:00:17.959 anchors all around the world, and straight ahead on the program, 0:00:18.040 --> 0:00:21.400 a big decision about interest rates from the Federal Reserve, 0:00:21.600 --> 0:00:23.680 plus a look at corporate earnings from the world's biggest 0:00:23.680 --> 0:00:27.200 sportswear company, Nike. I'm Tom Busby in New York. 0:00:27.440 --> 0:00:29.760 I'm Caroline Hepge here in London, where we're looking at 0:00:29.760 --> 0:00:32.480 the next Bank of England decision and how fast rates 0:00:32.520 --> 0:00:33.200 may come down. 0:00:33.479 --> 0:00:37.200 I'm Doug Prisner looking at whether China's autumn stimulus will 0:00:37.240 --> 0:00:37.880 bear fruit. 0:00:38.479 --> 0:00:42.680 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.720 --> 0:00:46.600 eleven three on New York, Bloomberg ninety nine to one, Washington, DC, 0:00:47.040 --> 0:00:51.920 Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Sirius 0:00:52.080 --> 0:00:55.440 XM one twenty one, and around the world on Bloomberg Radio, 0:00:55.520 --> 0:00:57.640 dot Com and the Bloomberg Business Act. 0:01:02.600 --> 0:01:04.440 Good day to you. I'm Tom Busby, and we begin 0:01:04.520 --> 0:01:07.960 today's program with the Federal Reserve. The Federal Open Market 0:01:08.000 --> 0:01:10.479 Committee will wrap up a two day meeting this Wednesday, 0:01:10.760 --> 0:01:15.120 expected to issue its next monetary policy decision on interest rates, 0:01:15.160 --> 0:01:16.959 and for more and what to expect. We're joined by 0:01:16.959 --> 0:01:22.120 Michael McKee, Bloomberg International Economics and Policy correspondent. Michael, thank 0:01:22.160 --> 0:01:25.120 you for being here. It looks like all the stars 0:01:25.120 --> 0:01:28.640 have aligned for the Fed to once again cut interest rates. 0:01:28.800 --> 0:01:30.240 Is that what you're expecting to see? 0:01:30.480 --> 0:01:33.080 That is what we are expecting to see. A couple 0:01:33.120 --> 0:01:37.279 of data points late in the week last week raised 0:01:37.280 --> 0:01:41.520 some questions. One was the rise in the PPI stronger 0:01:41.560 --> 0:01:44.720 than expected, but a lot of that was due to 0:01:44.840 --> 0:01:48.760 just food prices. And then jobless claims came in high, 0:01:48.800 --> 0:01:51.320 but that was the week after Thanksgiving, and of course 0:01:51.520 --> 0:01:55.120 everybody took two days off during Thanksgiving week, so people 0:01:55.160 --> 0:01:58.000 didn't file. So once you look through those things and 0:01:58.040 --> 0:02:02.840 you look at where CPI came in and the stuff 0:02:02.880 --> 0:02:07.160 that goes into the PCE report, which is the Fed's 0:02:07.200 --> 0:02:11.040 inflation measure, it looks like we're still making progress on 0:02:11.120 --> 0:02:15.440 inflation some and the labor market doesn't seem to be 0:02:15.440 --> 0:02:17.959 in terrible trouble. So the Fed has made it clear 0:02:18.040 --> 0:02:20.560 under those circumstances they want to cut rates. 0:02:20.760 --> 0:02:25.000 Well, let's talk about inflation, because we've made tremendous progress 0:02:25.040 --> 0:02:27.919 since a high of over nine percent June of twenty one, 0:02:28.040 --> 0:02:31.520 but it seems to have stalled at four months in 0:02:31.520 --> 0:02:34.919 a row of three point three percent increase in inflection. 0:02:34.960 --> 0:02:36.480 I mean, what's behind that stall? 0:02:36.880 --> 0:02:39.800 You're talking about the CPI numbers. And in the CPI 0:02:39.960 --> 0:02:42.360 things that had been going up went down, things that 0:02:42.440 --> 0:02:44.760 had been going down went up. It's sort of the 0:02:45.200 --> 0:02:49.560 usual volatility. There was some good news in the CPI 0:02:49.680 --> 0:02:52.400 report and that owner's equivalent rent, which is the strange 0:02:52.400 --> 0:02:56.560 way the government measures housing costs, went down to just 0:02:56.600 --> 0:03:00.560 a two tense game. That's the smallest since January of 0:03:00.560 --> 0:03:04.639 twenty twenty one. Fed's been waiting for housing to slow down, 0:03:04.639 --> 0:03:09.840 housing prices to slow down, and that may be finally happening, 0:03:09.840 --> 0:03:11.799 and if that's the case, we should pick up steam 0:03:12.240 --> 0:03:16.280 in inflation coming down. But the FED also predicted some 0:03:16.400 --> 0:03:19.320 months ago that we would run into this, that not 0:03:19.360 --> 0:03:21.720 only would it be a bumpy path, but that we 0:03:21.760 --> 0:03:24.240 would see the year or a year rate go up 0:03:24.720 --> 0:03:28.000 because we saw it go down earlier in the year, 0:03:28.040 --> 0:03:33.240 and the base effects change just mechanically pushes it higher. 0:03:33.480 --> 0:03:36.000 So they're not too worried about that at this point. 0:03:36.560 --> 0:03:40.119 But you mentioned earlier about food prices, and anyone who 0:03:40.200 --> 0:03:43.840 was setting a table for Thanksgiving will tell you it's unbelievable. 0:03:44.000 --> 0:03:49.160 That's the case. The interesting thing was this year's Thanksgiving basket. 0:03:49.960 --> 0:03:53.800 According to several economists who do this sort of thing, 0:03:53.840 --> 0:03:56.440 they go out and they price all the ingredients that 0:03:56.520 --> 0:03:59.080 you put into your Thanksgiving table, it was the cheapest 0:03:59.120 --> 0:04:02.200 in years. Actually went down in price this year. But 0:04:03.200 --> 0:04:08.640 PBI showed a big rise in egg prices this past month, 0:04:08.680 --> 0:04:11.760 and that was much of the reason that the PPI 0:04:11.840 --> 0:04:17.440 headline came in strong. We've had bird flu exploding around 0:04:17.480 --> 0:04:23.000 the West especially, and we're seeing a lot of price 0:04:23.200 --> 0:04:27.560 increases for eggs in recent months. August July was also 0:04:27.640 --> 0:04:30.560 a fifty five percent rise like it was last month. 0:04:30.880 --> 0:04:32.760 Because of that, they're just are you know, the chickens 0:04:32.760 --> 0:04:36.560 are dying, So egg prices went up, and that's one 0:04:36.560 --> 0:04:39.240 of the reasons that the Fed and others used the 0:04:39.279 --> 0:04:42.640 core rate because there's not a lot monetary policy is 0:04:42.680 --> 0:04:44.559 going to do about the bird flu. 0:04:44.880 --> 0:04:50.000 Yeah, yeah, that's frightening. Another consideration the labor market you mentioned, 0:04:50.160 --> 0:04:53.880 and we saw a big turnaround from October to November 0:04:54.000 --> 0:04:57.919 in ads to two hundred and twenty seven thousand. So 0:04:58.240 --> 0:05:02.240 is this something that FED expected to see. Is it's okay, 0:05:02.279 --> 0:05:04.480 now we're back to normal, or is it you know? 0:05:05.480 --> 0:05:08.120 And it looked like that was just an operation in October. 0:05:08.279 --> 0:05:11.279 Well, we don't know, because we did have a very 0:05:11.279 --> 0:05:14.280 small job creation in October in part because of the 0:05:14.400 --> 0:05:19.039 hurricanes and the Boeing strike, and so payback was expected. 0:05:19.320 --> 0:05:22.720 And if you take out the number of jobs from 0:05:22.760 --> 0:05:25.760 both of those things, estimate the hurricane effect, you get 0:05:25.760 --> 0:05:28.240 about one hundred and fifty five hundred and sixty thousand jobs, 0:05:28.240 --> 0:05:30.320 which is kind of right in line with what we 0:05:30.440 --> 0:05:33.360 had been seeing. So yeah, you could argue it's kind 0:05:33.400 --> 0:05:35.440 of back to where it was. We also saw a 0:05:35.480 --> 0:05:39.520 slight tick up in the unemployment rate because in the 0:05:39.560 --> 0:05:43.440 household survey a lot of jobs were lost. That's always 0:05:43.480 --> 0:05:46.400 volatile and hard to figure out, but it is the 0:05:46.560 --> 0:05:49.200 indicator that FED watches for a sign that the economy 0:05:49.400 --> 0:05:52.400 is slowing. But a rise to four point two percent 0:05:52.600 --> 0:05:55.560 in November is still below the four point four they 0:05:55.600 --> 0:05:57.839 predicted for the end of the year. So thus we 0:05:57.880 --> 0:06:00.880 get a big rise in December will come in lower 0:06:00.920 --> 0:06:03.479 than they thought, so they look at it the labor market, 0:06:03.520 --> 0:06:06.000 and they're saying it's still strong enough. 0:06:06.360 --> 0:06:06.560 Well. 0:06:06.600 --> 0:06:09.400 Federal Reserve policymakers wrapping up their final meeting of the 0:06:09.480 --> 0:06:12.440 year this Wednesday, a decision expected around two pm Wall 0:06:12.480 --> 0:06:16.400 Street time. Our thanks to Michael McKee, Bloomberg International Economics 0:06:16.400 --> 0:06:19.920 and Policy correspondent. We move now to the athletic footwear 0:06:19.920 --> 0:06:23.200 and sports apparel giant Nike, the Dow component, reports second 0:06:23.240 --> 0:06:26.800 quarter earnings on Thursday, the first report under new CEO 0:06:27.040 --> 0:06:30.159 Elliott Hill. For more on how those results may have 0:06:30.240 --> 0:06:34.760 been impacted by macroeconomic headwinds, plus an early read on 0:06:34.800 --> 0:06:38.880 holiday sales hopefully. We're joined by Kim Bassin, Bloomberg senior 0:06:38.920 --> 0:06:42.080 reporter covering sportswear. Kim, thank you so much for joining us. 0:06:42.680 --> 0:06:45.040 Let's start with what you're expecting to see in Nike's 0:06:45.080 --> 0:06:47.120 earnings this week and why. 0:06:47.680 --> 0:06:50.680 Nike's earnings this week are going to be pretty interesting. 0:06:50.880 --> 0:06:54.240 So they're going through a transitional period right now with 0:06:54.360 --> 0:06:59.240 a new CEO who just started in October, and so 0:06:59.520 --> 0:07:02.960 far we haven't heard what the plan is, right, It's 0:07:03.040 --> 0:07:04.719 unclear where this is going to go. So it seems 0:07:04.720 --> 0:07:08.880 that investors are just waiting patiently or inpatiently, I suppose 0:07:08.920 --> 0:07:12.280 depends on the investor. But it looks like they're just 0:07:12.280 --> 0:07:16.440 waiting to see what's gonna happen here. Right now, Nike 0:07:16.520 --> 0:07:19.080 sales have been down the last two quarters, and they 0:07:19.080 --> 0:07:23.280 are trying to figure out how to get demand back well. 0:07:23.520 --> 0:07:27.080 Executive Chairman Mark Parker told employees back in September around 0:07:27.160 --> 0:07:29.200 the time that Elliot Hill, just before he was named 0:07:29.920 --> 0:07:32.360 the brand will quote get back to doing what we 0:07:32.480 --> 0:07:36.200 do best, that's help athletes reach their potentials. So where 0:07:36.200 --> 0:07:39.120 did they go wrong or what happened? What miscues did 0:07:39.120 --> 0:07:42.120 they do that led to you know, several quarters in 0:07:42.120 --> 0:07:43.320 a row of lower sales. 0:07:43.400 --> 0:07:45.520 One of the biggest things that happened at Nike is 0:07:45.560 --> 0:07:48.760 that they over extended on three of the big product 0:07:48.840 --> 0:07:52.320 lines that Nike has. These are Air Force Ones, Air 0:07:52.480 --> 0:07:56.440 Jordan Ones, and Dunks. Now, these are lifestyle shoes, right, 0:07:56.480 --> 0:07:58.760 These are shoes not meant to be worn on like 0:07:58.800 --> 0:08:01.440 a basketball court or a football field or anything like that. 0:08:01.480 --> 0:08:02.920 It's it's for the sidewalk. 0:08:03.000 --> 0:08:07.080 And these these lifestyle shoes were real hot, like enduring 0:08:07.280 --> 0:08:10.520 and then out of the pandemic and they sold like 0:08:10.560 --> 0:08:12.760 crazy and they became I mean, these were these billion 0:08:12.760 --> 0:08:17.560 dollar product lines, right, but as trends changed over the 0:08:17.600 --> 0:08:20.880 last year, those shoes weren't selling like they used to, 0:08:21.280 --> 0:08:26.040 and Nike, back in its headquarters in Oregon, wasn't developing 0:08:26.280 --> 0:08:30.720 new products quickly enough to replace those shoes. So now 0:08:30.760 --> 0:08:34.760 they're figuring that out the the innovation pipeline at Nike, 0:08:34.880 --> 0:08:38.199 trying to rush new products out in order to replace 0:08:38.240 --> 0:08:38.680 those shoes. 0:08:38.720 --> 0:08:41.520 Well speaking, which Nike Direct has had some problems, right, 0:08:41.559 --> 0:08:45.280 this is their direct to consumer conduit not living up 0:08:45.320 --> 0:08:46.080 the expectations. 0:08:46.120 --> 0:08:50.600 Right, Nike spent the last several years basically shunning a 0:08:50.640 --> 0:08:53.640 lot of its retail partners. So back in twenty twenty 0:08:53.679 --> 0:08:56.960 one twenty two, it started to release them from we'll 0:08:57.000 --> 0:08:59.319 do this ourselves now, yeah, well we got this, We'll 0:08:59.320 --> 0:09:02.400 go through our own d DC channels. That's the Nike app, 0:09:02.440 --> 0:09:04.760 the Sneakers app where you get the drops all the time, 0:09:04.960 --> 0:09:08.679 and the Nike website. So they eliminated more than half 0:09:08.800 --> 0:09:12.880 of their retail partners, including so and they reduced shoes 0:09:12.960 --> 0:09:14.720 to some of the really really big ones, right, so 0:09:14.760 --> 0:09:17.600 like foot Lockers, one of the most important partners for Nike, 0:09:17.679 --> 0:09:19.720 and they reduced the number of shoes that were going 0:09:19.760 --> 0:09:23.480 over to foot locker, and that paid off for a while, 0:09:24.040 --> 0:09:27.720 but now they're reversing some of that and re engaging 0:09:27.760 --> 0:09:28.760 with those retail partners. 0:09:28.840 --> 0:09:29.080 Wow. 0:09:29.080 --> 0:09:33.120 Another misque the digital sneaker division Artifact. Right, they bought 0:09:33.120 --> 0:09:37.439 this company which doesn't sell sneakers, just sneakers in the metaverse, 0:09:37.480 --> 0:09:40.960 the digital world, and said, what are we doing here? 0:09:41.400 --> 0:09:46.160 Even though Elliott Hill, the new CEO, has not presented 0:09:46.160 --> 0:09:49.560 a plan yet, he has given hints, right, and this 0:09:49.640 --> 0:09:52.839 is one of those hints. When it comes to priorities 0:09:53.200 --> 0:09:55.440 and what this new CEO's priority is going to be, 0:09:56.080 --> 0:09:58.520 digital sneakers are not one of those priorities. So this 0:09:58.559 --> 0:10:00.760 is a company that they bought a few years ago 0:10:01.360 --> 0:10:05.560 under the old regime that makes virtual shoes for the metaverse. 0:10:05.600 --> 0:10:07.920 That was during the height of the non fungible token 0:10:08.000 --> 0:10:11.440 kind of thing that we had got the craze that 0:10:11.520 --> 0:10:13.880 was going on back in twenty twenty one, and so 0:10:14.000 --> 0:10:16.640 they're winding that down now. Another thing that they're doing 0:10:16.920 --> 0:10:20.760 is investing more in its outdoor business. So really quickly 0:10:20.840 --> 0:10:23.720 upon he'll being named CEO, a Nike sent a memo 0:10:23.760 --> 0:10:26.440 internally and said, we really want to invest in ACG 0:10:26.600 --> 0:10:30.000 it's called all Conditions gear. It's their outdoor business. So 0:10:30.000 --> 0:10:31.440 that's something they want to push going forward. 0:10:31.600 --> 0:10:34.079 Is that like more than just sneakers in apparel or. 0:10:33.880 --> 0:10:38.800 It's sneakers, it's apparel, it's outerwear, it's hiking things, camping, 0:10:39.040 --> 0:10:40.320 those kinds of outdoor products. 0:10:41.040 --> 0:10:43.760 Now, a lot of Americans are still spending, but lower 0:10:43.800 --> 0:10:46.680 way journers have had to pull back on their especially 0:10:46.720 --> 0:10:49.719 discretionary spending. We saw lower sales growth. That's some big 0:10:49.800 --> 0:10:53.240 chains like you mentioned, foot Locker, Target, Coals, Dick Sporting 0:10:53.240 --> 0:10:56.319 Goods did okay back to school, But do you think 0:10:56.360 --> 0:10:59.040 we'll see that slow down reflected in Nike's sales for 0:10:59.080 --> 0:10:59.840 the second quarter. 0:11:00.400 --> 0:11:02.680 Yeah, I think we will see that slow down in 0:11:02.760 --> 0:11:04.840 Nike sales. And we're we're I mean, we're seeing it 0:11:04.840 --> 0:11:08.000 across the board right now. The gap between back to 0:11:08.040 --> 0:11:12.840 school and holidays seemed problematic for a lot of retailers, 0:11:12.960 --> 0:11:16.160 even Dix Sporting Goods, which had done quite well last quarter. 0:11:16.480 --> 0:11:21.679 Early takes on Thanksgiving week have been fairly strong. So 0:11:22.360 --> 0:11:26.880 it's that it's that shortened selling time between Thanksgiving through 0:11:28.240 --> 0:11:32.760 Christmas that we're all focused on days shorter than normal. 0:11:32.600 --> 0:11:36.600 Shorter, but indications already that this Christmas season might be 0:11:37.040 --> 0:11:37.840 looking good. 0:11:37.840 --> 0:11:42.080 Might good, good enough? Maybe good under the circumstances. 0:11:42.080 --> 0:11:45.560 Well, we bashed Nike a little bit, but let's talk 0:11:45.600 --> 0:11:47.560 about some of the good things that they have going 0:11:47.600 --> 0:11:50.520 for him. Very recently, they just extent a long term 0:11:50.640 --> 0:11:55.440 partnership with the NFL exclusive supplier of uniforms, practice, jersey, sidelines, 0:11:55.440 --> 0:11:59.760 apparel all thirty two teams. Similarly the NBA, the WNBA, 0:11:59.840 --> 0:12:04.280 the So these must be tremendous showcases for Nike gear 0:12:04.320 --> 0:12:05.280 and apparel. 0:12:05.040 --> 0:12:09.400 Huge deals, and it provides this long term stability at 0:12:09.400 --> 0:12:11.120 a time where there's not a lot of long term 0:12:11.120 --> 0:12:14.199 stability at Nike. There's so many moving parts, there's so 0:12:14.280 --> 0:12:18.240 much going on. The strategy is changing as we speak. 0:12:18.559 --> 0:12:22.000 But these are huge deals for Nike. Right The NFL 0:12:22.120 --> 0:12:24.280 is so important, and I don't think they were ever 0:12:24.280 --> 0:12:26.360 going to lose that contract. Like they had to extend it, 0:12:26.440 --> 0:12:28.800 had to keep it. It's through twenty thirty eight, so. 0:12:28.800 --> 0:12:31.040 Especially with Taylor Swift now attending. 0:12:30.679 --> 0:12:35.920 Games, especially with Taylor Swift the Kansas City Chief games, absolutely. 0:12:35.400 --> 0:12:38.360 Well, it's big. Nike's Q two earnings out this Thursday 0:12:38.400 --> 0:12:42.199 are thanks to Kim Bassine, Bloomberg senior reporter covering sportswear. 0:12:42.360 --> 0:12:44.400 Coming up on Bloomberg day Break weekend, we look at 0:12:44.440 --> 0:12:47.680 this week's Bank of England decision and just how quickly 0:12:47.800 --> 0:12:49.200 rates may come down. 0:12:49.200 --> 0:12:49.440 There. 0:12:49.760 --> 0:13:03.520 I'm Tom Busby and this is Bloomberg. This is Bloomberg 0:13:03.559 --> 0:13:05.760 day Break Weekend, our global log ahead at the top 0:13:05.800 --> 0:13:08.800 stories for investors in the coming week. I'm Tom Busby 0:13:08.840 --> 0:13:11.280 in New York. Up later in the program we get 0:13:11.280 --> 0:13:14.240 the latest readings on the Chinese economy. But first, the 0:13:14.280 --> 0:13:17.880 Bank of England can cut borrowing costs five more times 0:13:17.920 --> 0:13:20.079 to a rate of three point five percent before running 0:13:20.080 --> 0:13:23.600 the risk of overheating the economy and reigniting inflation. That's 0:13:23.640 --> 0:13:26.280 the assessment of Bloomberg Economics, just ahead of the Central 0:13:26.280 --> 0:13:29.600 Bank's final meeting of twenty twenty four. So where does 0:13:29.600 --> 0:13:33.120 the Central Bank's neutral rate line after policymakers reverse the 0:13:33.160 --> 0:13:37.080 most aggressive rate hiking cycle in decades. Well, for more, 0:13:37.120 --> 0:13:39.000 we'll go to London and bring in Bloomberg day Break. 0:13:39.000 --> 0:13:41.319 Europe banker Caroline Hepgar. 0:13:41.520 --> 0:13:45.640 Tom Andrew Bailey has signaled that policymakers still believe four 0:13:45.760 --> 0:13:49.480 quarter point rate cuts next year is the most likely 0:13:49.559 --> 0:13:54.160 scenario for the Bank of England. Policymaker Swarti Dingra recently 0:13:54.200 --> 0:13:57.199 told Bloomberg that high interest rates in the UK are 0:13:57.200 --> 0:14:01.240 bearing down too heavily on the economy. The most duvish 0:14:01.440 --> 0:14:05.120 NBC member, she says that that's why the bank should 0:14:05.200 --> 0:14:10.000 be easing policy more. But Bloomberg Economics analysis suggests that 0:14:10.040 --> 0:14:14.520 policymakers may have less room than previously thought to cut 0:14:14.600 --> 0:14:18.800 interest rates before reigniting the flames of inflation once again. 0:14:19.200 --> 0:14:22.600 As central banks around the world continue cutting rates next year, 0:14:23.040 --> 0:14:26.680 debate about the end point for monetary policy and the 0:14:26.760 --> 0:14:30.640 easing cycle is likely to intensify. That's the verdict of 0:14:30.640 --> 0:14:35.960 Bloomberg's chief UK economist Dan Hanson. Central to the dilemma, though, 0:14:36.160 --> 0:14:41.280 is gauging where monetary policy neither restrains nor stimulates growth. 0:14:41.480 --> 0:14:45.160 That's known as the neutral rate. It's increasingly key for 0:14:45.240 --> 0:14:48.800 policymakers as they try to deliver a soft landing from 0:14:48.840 --> 0:14:52.280 the inflation shock of twenty twenty two and twenty twenty three. 0:14:52.840 --> 0:14:55.520 It's something Andrew Bailey has refused to be drawn on, 0:14:55.720 --> 0:14:58.360 other than to say that it will be higher than 0:14:58.440 --> 0:15:00.880 the near zero level of rap that we saw from 0:15:00.960 --> 0:15:05.360 two thousand and nine to twenty twenty one. Despite the 0:15:05.360 --> 0:15:08.520 governor's silence on the issue, It's a figure that the 0:15:08.600 --> 0:15:12.880 market is watching closely too. Nicola my portfolio manager and 0:15:12.920 --> 0:15:17.000 sovereign credit analyst at PIMCO, has told Bloomberg that the 0:15:17.080 --> 0:15:20.720 implications of the neutral rate are key for the guilt market. 0:15:21.560 --> 0:15:24.280 Look, we like guilts, you know, we've liked them for 0:15:24.320 --> 0:15:27.200 a while. If you look at what's priced in the market, 0:15:27.240 --> 0:15:29.600 you have a terminal rate of three point fifty or so, 0:15:29.680 --> 0:15:32.680 which is broadly aligned with the FED. That doesn't really 0:15:32.720 --> 0:15:34.640 make sense to me for an economy that has been 0:15:34.640 --> 0:15:37.640 a lot weaker than the US economy, where equilibri of 0:15:37.680 --> 0:15:40.360 interest rates are most likely lowered, given the fact that 0:15:40.440 --> 0:15:43.200 trend growth in the UKs is quite a bit lower 0:15:43.280 --> 0:15:44.080 than in the US. 0:15:45.200 --> 0:15:48.280 So I think guilts are going to perform now. 0:15:48.800 --> 0:15:50.600 I think that it's been a bit of a frustrating 0:15:50.680 --> 0:15:53.760 environment because we've been we and a lot of people 0:15:53.760 --> 0:15:55.840 in the market have been betting on the guilt out 0:15:55.840 --> 0:15:57.320 performance recently. 0:15:57.360 --> 0:15:58.400 It hasn't worked yet. 0:15:59.160 --> 0:16:02.120 I think the market still, you know, watching the inflation 0:16:02.280 --> 0:16:05.760 data carefully to see if this this inflation is actually happening, 0:16:06.560 --> 0:16:08.400 but I do expect it to happen, and I think 0:16:08.440 --> 0:16:08.880 this is a. 0:16:08.840 --> 0:16:10.480 Trade that will do well. 0:16:10.520 --> 0:16:12.600 Maybe we need a bit of patience in the near term, 0:16:12.600 --> 0:16:14.560 but I think guilds are attractive here. 0:16:14.720 --> 0:16:18.320 Yeah, absolutely, pretty big economics things. Growth next year is 0:16:18.320 --> 0:16:20.320 only going to come in about one and a half 0:16:20.320 --> 0:16:23.520 percent for the UK. Have all the easy gains been 0:16:23.680 --> 0:16:26.280 made on French oats. 0:16:26.560 --> 0:16:26.800 Yeah. 0:16:26.800 --> 0:16:29.520 Look, I think if you look at oats, you know 0:16:29.560 --> 0:16:32.080 they're trading about eighty basis points over boons, a bit 0:16:32.120 --> 0:16:34.960 wider than Spain. I think it's a reasonable level that 0:16:35.040 --> 0:16:38.520 will probably hold here in that you know you're going 0:16:38.600 --> 0:16:42.160 to have some fiscal slippage from from a starting point 0:16:42.200 --> 0:16:44.280 which is a pretty wide deficit. You know, it was 0:16:44.320 --> 0:16:47.680 six percent. You know there's probably going to be about 0:16:47.680 --> 0:16:50.120 six percent this year. It should fall a bit next year, 0:16:50.160 --> 0:16:53.920 but not much. And I think political uncertainty and volatility 0:16:54.000 --> 0:16:56.520 will remain elevated. Even if you have a government, it's 0:16:56.560 --> 0:16:59.280 going to be a hung parliament still, so I don't 0:16:59.320 --> 0:17:02.040 see much of a titaning going forward. 0:17:02.760 --> 0:17:04.760 So we're pretty neutral here on French spreads. 0:17:04.800 --> 0:17:07.120 I don't think this is a source of a sovereign 0:17:07.160 --> 0:17:10.479 crisis in the year zone, but I think France is 0:17:10.520 --> 0:17:12.960 probably going to settle it at a higher level versus 0:17:12.960 --> 0:17:15.240 compared to the past when it comes to spreads. 0:17:15.960 --> 0:17:18.320 Looking towards next years. Got the election in Germany as well. 0:17:18.359 --> 0:17:20.840 I mean, do you see a significant risk to the 0:17:21.359 --> 0:17:25.200 German outlook from that election? Not particularly, I mean I 0:17:25.680 --> 0:17:28.880 think that Germany it looks not great again with I mean, 0:17:28.880 --> 0:17:33.000 the German economy is struggling, there is no doubt, and 0:17:33.240 --> 0:17:35.560 I do think, if anything, there are some hopes that 0:17:35.600 --> 0:17:40.399 this government will engineer as somewhat easier fiscal stance. You know. 0:17:40.480 --> 0:17:43.880 The hope is that they're going to revise the fiscal 0:17:43.920 --> 0:17:48.080 straight jacket that that prevents any physical spending in Germany, 0:17:48.119 --> 0:17:50.200 the so called constitutional death break rule. 0:17:51.560 --> 0:17:53.080 You know, we see some potential for that. 0:17:53.119 --> 0:17:56.520 I think that would be positive for the German economy 0:17:56.520 --> 0:17:57.639 and for the region as a whole. 0:17:58.200 --> 0:17:59.000 But I would also. 0:17:58.920 --> 0:18:04.119 Temper expectations because I think that the physcal philosophy in 0:18:04.160 --> 0:18:07.040 Germany remains a pretty harkish one, a pretty conservative one. 0:18:07.440 --> 0:18:10.240 So while whilst some amusing as possible, i't I wouldn't 0:18:10.920 --> 0:18:12.639 bet on a huge change here. 0:18:13.359 --> 0:18:17.000 That was Nicola my portfolio manager and solteign Credit Alice 0:18:17.040 --> 0:18:21.720 at PIMCO speaking to Stephen Coroll and I on Bloomberg Radio. So, 0:18:22.080 --> 0:18:24.600 just how much easing can the Bank of England fit 0:18:24.760 --> 0:18:28.800 in before reaching that all important terminal rate. It's something 0:18:28.840 --> 0:18:32.320 I've been discussing with Bloomberg's chief UK economist Dan Hanson. 0:18:33.240 --> 0:18:36.760 At the moment, UK is heading for fingers crossed, a 0:18:36.880 --> 0:18:41.480 softish landing, and that's sort of given what we've been through, 0:18:41.760 --> 0:18:45.920 that's obviously a really positive story and to sort of 0:18:45.960 --> 0:18:49.560 deliver it, it's in sort of absent any other shocks. 0:18:49.560 --> 0:18:51.080 It's in the hands of the Bank of England in 0:18:51.119 --> 0:18:52.920 the sense that it needs to bring interest rates down 0:18:52.960 --> 0:18:56.879 by enough such that it doesn't strangle the recovery and 0:18:56.960 --> 0:18:59.639 strangle the economy, but not by too much such that 0:18:59.760 --> 0:19:04.040 it reignites inflation. As you said, So that's what economists 0:19:04.080 --> 0:19:06.240 call this concept of the neutral raid. It's it's the 0:19:06.320 --> 0:19:09.879 rate of interest, level of interest rates that neither speeds 0:19:09.960 --> 0:19:12.359 up nor slows down the economy and is consistent with 0:19:13.240 --> 0:19:16.400 inflation at two percent and the sort of economy humming 0:19:16.440 --> 0:19:17.800 along at full employment. 0:19:18.640 --> 0:19:19.600 So we've taken a stab. 0:19:19.760 --> 0:19:21.920 No one knows what it is and it moves through 0:19:21.960 --> 0:19:24.240 the passage of time, and it's very uncertain, but we've 0:19:24.240 --> 0:19:27.399 taken a stab at estimating it, and we think all 0:19:27.480 --> 0:19:29.440 of these things, as I say, they are uncertain. We've 0:19:29.560 --> 0:19:31.919 put out a range of between three and four percent, 0:19:32.320 --> 0:19:35.080 and I think coming into the tightening cycle, people would 0:19:35.080 --> 0:19:37.920 have said that's very high. The neutral rates probably quite 0:19:37.920 --> 0:19:40.120 a lot lower than that. I think over the past 0:19:40.200 --> 0:19:43.720 two years we've found out it's probably higher than people thought, 0:19:43.760 --> 0:19:46.160 and that's sort of the basis of why we sort 0:19:46.160 --> 0:19:46.920 of took a stab. 0:19:46.720 --> 0:19:47.240 At this question. 0:19:47.400 --> 0:19:49.760 And we we think over the course of the coming 0:19:49.840 --> 0:19:52.359 year that the banking and world cup rates further down 0:19:52.440 --> 0:19:54.440 to three point seventy five percent by the end of 0:19:54.480 --> 0:19:57.000 the year. But the question, I think is how much 0:19:57.040 --> 0:19:59.440 further they can go from there, and our estimates suggests 0:19:59.680 --> 0:20:01.720 not very far. And I think actually in the second 0:20:01.760 --> 0:20:03.959 half of the year, if the economy continues to hold up, 0:20:04.600 --> 0:20:06.840 there'll be a question amongst policymakers because there'll be a 0:20:06.920 --> 0:20:09.320 divergence of views there as well, there'll be a question 0:20:09.359 --> 0:20:11.760 about how much further interest rates fall as we move 0:20:11.800 --> 0:20:13.760 into the second half of the year. Conditioned on the 0:20:13.840 --> 0:20:16.120 idea that the economy continues to sort of hum along 0:20:16.160 --> 0:20:16.719 as it has been. 0:20:18.960 --> 0:20:22.040 That's interesting, I suppose why not. That is all to 0:20:22.119 --> 0:20:24.840 do with inflation, surely, and we've also put out them 0:20:25.160 --> 0:20:28.399 You've put up full cast for economic growth in the 0:20:28.520 --> 0:20:33.520 UK actually reasonably robust for next year by British standards. 0:20:35.200 --> 0:20:37.800 I'll add that caveat. But it's also all to do 0:20:38.000 --> 0:20:40.640 with inflation and the stickiness of inflation in the UK. 0:20:41.640 --> 0:20:43.520 Yeah, it is, And so the space to sort of 0:20:43.560 --> 0:20:48.280 bring interest rates down really quickly is limited because of 0:20:48.320 --> 0:20:50.840 the inflation picture over the course of the next year, 0:20:50.960 --> 0:20:53.040 which is that we think at least that inflation will 0:20:53.040 --> 0:20:56.080 remain above two percent, So that limits the scope to 0:20:56.200 --> 0:20:59.000 bring interest rates down really quickly. At the same time, 0:20:59.320 --> 0:21:01.960 we think the economy will grow a little bit faster 0:21:02.040 --> 0:21:03.960 than it did this year, so we think the economy 0:21:03.960 --> 0:21:06.920 will grow in annual terms point nine percent this year, 0:21:07.040 --> 0:21:09.080 next year one and a half percent. A lot of 0:21:09.160 --> 0:21:11.719 that is to do with the fiscal loosening in the budget, 0:21:12.600 --> 0:21:14.640 but actually the reason why inflation is going to remain 0:21:14.680 --> 0:21:16.840 above target is also because of that fiscal loosening in 0:21:16.880 --> 0:21:18.800 the budget and some of the policies that were in it. 0:21:19.040 --> 0:21:23.800 So there is this, there is this path down. I 0:21:23.880 --> 0:21:26.600