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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the APAC region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 2: Joining us now on the program is Katia Dimitrieva, Bloomberg

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Speaker 2: Asia Economics correspondent, to take a closer look at the

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Speaker 2: PBOC briefing this morning. So I just ran through the

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Speaker 2: cutting of interest rates, the freeing up of banks to

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Speaker 2: loan more with the drop in the triple R. There

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Speaker 2: also lowering the down payment on second homes. One of

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Speaker 2: our correspondents is James Mager. I know him to be

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Speaker 2: a pretty sober individual. Katya, he says, my hands were

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Speaker 2: shaking as I sent the headlines out. What a bazooka

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Speaker 2: from the Central Bank. I don't think I've ever seen

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Speaker 2: such an announcement before in China. Katya Dmitrieva, do you agree?

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Speaker 3: Well, it's not only a big announcement, it also came

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Speaker 3: in about seven minutes, so you have one of the

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Speaker 3: top officials in China sitting down with the media. He said,

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Speaker 3: good morning, so good to see all of you. And then,

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Speaker 3: you know, seven minutes straight of just announcements of various

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Speaker 3: cuts to loan rates, to r rate that's how much

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Speaker 3: banks need to hold in reserve, to mortgage rates.

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Speaker 4: So there was.

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Speaker 3: Quite a lot. The question though, and I appreciate the

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Speaker 3: commentary on James, I know it was a definitely big

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Speaker 3: announcement from what compared to what we've seen from China recently.

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Speaker 3: The question is, you know how much it'll really impact

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Speaker 3: an economy that is so deep in a hole right

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Speaker 3: now in terms of consumer spending but also the effect

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Speaker 3: of deflation. You know, if you were announcing these policies

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Speaker 3: a year ago, a year and a half go, particularly

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Speaker 3: the housing market component, this would be a very positive development.

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Speaker 3: You know, you're seeing markets already reacting to the thoughts

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Speaker 3: of you know, the interest rate moving down, yield to

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Speaker 3: move down as well. So it would have been a

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Speaker 3: very big kind of Bazooka style which is the term

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Speaker 3: we use for this for China's fiscal stimulus at this

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Speaker 3: size would have had a bigger impact if you had

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Speaker 3: announced it a year, year and a half go now

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Speaker 3: not so sure. Not sure essentially if this is enough.

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Speaker 3: And we're already seeing some economists saying that.

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Speaker 1: You know, it's very interesting. I was looking at the

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Speaker 1: headlines one from the government that we will soon have

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Speaker 1: a release of six new measures to support MNA, which

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Speaker 1: I thought was very interesting, and that in my mind

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Speaker 1: goes right to the overcapacity story. Now, I know that's

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Speaker 1: a loaded term, so let's not use it. I'll put

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Speaker 1: it aside. But in one industry, let's say, and as example,

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Speaker 1: electric vehicles, where there's so much over capacity, is something

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Speaker 1: like this design to begin to intentionally make the economy

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Speaker 1: maybe a little bit more efficient, to shrink it just

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Speaker 1: a bit. Now, that could have second and third order

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Speaker 1: effects that might be unwelcomed.

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Speaker 3: Yeah, it could make it more efficient, It could make

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Speaker 3: m and A could make the markets just a bit

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Speaker 3: more active. And this is something that the government has

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Speaker 3: been messaging for over a year now. You know, alongside

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Speaker 3: this view of high quality development, it's always oh, we

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Speaker 3: also want to support the equity market. We want to

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Speaker 3: support the markets. This could definitely do that. At the

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Speaker 3: same time, it's tough when you have a government, especially

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Speaker 3: this year, and at this point in the year, that's

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Speaker 3: messaging a five percent or about five percent growth target,

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Speaker 3: and you have companies and provinces and cities that are

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Speaker 3: incentivized to reach that target. So M and A and

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Speaker 3: purchasing other companies and perhaps growing their business that way,

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Speaker 3: Maybe that's not necessarily the priority. The priority is trying

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Speaker 3: to get to that five percent growth target by any

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Speaker 3: means necessary, and we've seen that impact across the board.

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Speaker 2: Some of this is targeted at companies and some is

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Speaker 2: targeted at consumers. Obviously, the refinancing tool for listed companies

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Speaker 2: and shareholders to buy back shares is something that's getting

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Speaker 2: some commentary in our Top Live blog. I'm curious whether

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Speaker 2: or not you think that this does actually move the

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Speaker 2: needle for the average consumer.

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Speaker 3: It's again, it's hard to say. I mean, it is

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Speaker 3: true that in China about ninety percent of people own

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Speaker 3: their homes. That's a big difference from other countries. So

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Speaker 3: if you cut the market rate on existing loans, then

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Speaker 3: you free up quite a bit of capital. But the

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Speaker 3: issue China is not necessarily that people lack money. I mean,

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Speaker 3: there's almost a record in savings right now. It's more

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Speaker 3: the ability or likelihood or interest in spending that money.

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Speaker 3: It's not clear that these policies so far are going

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Speaker 3: to make people feel more comfortable or stable about the market,

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Speaker 3: especially when doesn't really do much for the labor market.

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Speaker 3: I mean, that's been a key area of concern. You have,

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Speaker 3: you fun employment that's the highest all year. You've got

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Speaker 3: other indicators that are showing people are not getting raises,

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Speaker 3: people are getting cuts to their pay, people are losing

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Speaker 3: their jobs, even in the white collar space. None of

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Speaker 3: this really addresses that.

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Speaker 1: So, Kantia, if you're looking at the policy response today

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Speaker 1: kind of from outside of China, would you be a

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Speaker 1: little concerned that this is maybe going to add a

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Speaker 1: little bit of well more leverage. And I think maybe

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Speaker 1: if that is true, that there is going to be

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Speaker 1: a little bit of concern about that fact.

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Speaker 3: It's totally fair concerned to have in a country that's

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Speaker 3: already has such a high debt, when you know, compared

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Speaker 3: to other countries. I think it's not you know, China

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Speaker 3: doesn't really have a choice right now. This is sort

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Speaker 3: of a similar issue, and this is frankly why a

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Speaker 3: lot of officials have been hesitant to unveil these kinds

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Speaker 3: of moves up until now, up until sort of this

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Speaker 3: pain point where more and more Wall Street economists are

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Speaker 3: saying they're not going to reach five percent this year

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Speaker 3: and also revising lower their estimates for future growth, so

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Speaker 3: they kind of have no choice.

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Speaker 2: Gatia, thanks so much for joining us. So we'll be

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Speaker 2: watching the markets this morning and see how big the

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Speaker 2: impact is. Katia Dimitriev, Bloomberg Asia Economics Correspondent Again, just

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Speaker 2: very briefly, PBOC Governor Pangong Shong has announced these policies.

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Speaker 2: The announcement to lower the banks reserve ratio requirement by

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Speaker 2: fifty basis points, cutting the seven day reverse repo rate

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Speaker 2: by twenty basis points, and cutting the outstanding mortgage rate.

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Speaker 2: Ben emmon Cio and founder at fed Watch Advisors. Ben,

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Speaker 2: thank you very much for coming on the show with us. Well,

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Speaker 2: I suppose if you believe in mark to market, the

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Speaker 2: FED would seem to have a lot of work to

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Speaker 2: do here and the way Neil Kashkari outlined it, as

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Speaker 2: you pointed out, the FED can cut one hundred and

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Speaker 2: fifty basis points in fairly short order. Are you in

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Speaker 2: that camp?

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Speaker 4: Yes? I am Brian and great to be back on

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Speaker 4: with you and dark though, first of all, it's not

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Speaker 4: the eighth anniversary of Day Make Asia Radio, right, and

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Speaker 4: we've been together on this show.

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Speaker 2: We hit nine years exactly last week, and I remember

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Speaker 2: you with us pretty much the.

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Speaker 4: Whole run exactly exactly. Oh not ys tare Y. So

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Speaker 4: but thank you very much to forget for having me back. Yes,

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Speaker 4: I am in that camp, and you know, the way

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Speaker 4: I come down to it is that I think that

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Speaker 4: by the way Neil Cascari outlines is a bit wonkish,

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Speaker 4: but the outlines are well, you got to really think

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Speaker 4: in real terms, right, accounting for inflation, and that was

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Speaker 4: I think the worry from war that came through on

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Speaker 4: Friday was like he saw this infflication that was cooling

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Speaker 4: off quicker. And where the fatales rate is currently even

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Speaker 4: after that first cut, there's a there's a pretty big

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Speaker 4: difference now in real terms, and they feel, and probably

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Speaker 4: rightfully so, that that's real rate. The respective rate is

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Speaker 4: still pressing a lot on the economy, even though we're

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Speaker 4: seeing some subtraction coming through, right, you know, the last

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Speaker 4: number of weeks, and there's a forward looking data and

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Speaker 4: so I think they build us this building and think

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Speaker 4: insurance against their own forecasters in they put the four

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Speaker 4: point four percent on the poor rate out there because

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Speaker 4: that's what they think that the rate will be. But

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Speaker 4: yet they're willing to cut faster in order to not

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Speaker 4: have that forecast material lines and they based upon that announceers.

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Speaker 4: But because carried us comparing the funds rate to the

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Speaker 4: expected inflation and trying adjust according to and on that basis, yes,

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Speaker 4: you could cut a little faster. It maybe means that

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Speaker 4: that is a nure and fifty base points in court

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Speaker 4: Coate short order.

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Speaker 1: We had a number of FED speakers today, including Austin Goulsby,

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Speaker 1: and he was saying that current policy rate and FED

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Speaker 1: funds is hundreds of basis points above neutral. Brian and

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Speaker 1: I were talking yesterday with a guest, I mean, I

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Speaker 1: know the neutral rate is largely theoretical. It can't be measured,

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Speaker 1: it's only estimated. We get that. Does it benefit the

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Speaker 1: conversation around monetary policy to talk about a neutral rate

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Speaker 1: and do you have a sense of where that may be?

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Speaker 4: Yeah, it does benefit up because you know, ultimately the

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Speaker 4: neutral rate is really were the Fed points to get

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Speaker 4: at where you know they essentially have achieved the mandate completely,

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Speaker 4: meaning Maggie, we have a soft lending now to get

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Speaker 4: to that man. But ultimately it's about price stability and

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Speaker 4: maximum employment. Right, So it may be at three three

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Speaker 4: and a half percent. I think the pandemic and the

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Speaker 4: rate is shock played out and all the stimulus and

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Speaker 4: then subsequent investment is taking place in near the stage,

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Speaker 4: you know, with the productivity that has come along with

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Speaker 4: that that I think the economy is at a higher

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Speaker 4: trend growth currently than it was pre pandemic, and that

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Speaker 4: is the reflection of the cowed neutral rate. So the

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Speaker 4: FAEDA spencials then close to three percent, the market is

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Speaker 4: pricing something like three in the quarter three and a

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Speaker 4: half percent. We'll probably get some sort of facility in there.

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Speaker 4: If the fat cust rates further from here, as in

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Speaker 4: we're trying to get to some sort of neutral rate,

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Speaker 4: then we have to assess it that is truly neutral, right,

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Speaker 4: But that's what the market things currently and the Fed's

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Speaker 4: are too far away. Yeah, probably a good guide boasts

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Speaker 4: full for overheading with multi policy in the near two.

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Speaker 2: So there's the economy and what it's doing, and then

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Speaker 2: there's the market. We've got the S and P five hundred,

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Speaker 2: up just under twenty percent year to date. It gained

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Speaker 2: more than twenty percent last year, so two twenty percent years.

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Speaker 2: It's not unheard of, but it would naturally make some

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Speaker 2: people nervous, unless, of course, you consider that the year

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Speaker 2: before that, twenty twenty two, we were down more than

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Speaker 2: twenty five percent. So if you put these three years together,

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Speaker 2: you're up about eighteen percent over three years, and that's

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Speaker 2: below the average return on the S and P. So

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Speaker 2: I'm confused. Are we fully valued here or is there

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Speaker 2: more room to run?

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Speaker 4: Yeah, and it's amazing. It's a pretty complicated question because Brian,

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Speaker 4: because you know, on one hand, you can basis upon

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Speaker 4: the interest rate forecast, right, if we're going to go

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Speaker 4: low with interest rates, the mechanics are that, you know,

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Speaker 4: stock prices are going to go higher, right most most

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Speaker 4: of the time, you know, especially if you're in an

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Speaker 4: environment where the economy is actually doing fairly okay, and

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Speaker 4: all that lower interestrates do is just giving the economy

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Speaker 4: more of a push, right, So that should be reflected

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Speaker 4: into the mark it and that's sort of what happening.

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Speaker 4: On that basis we're not fully valued. We could actually

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Speaker 4: expand in the multiple by just simply higher price stock prices.

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Speaker 4: But if you think of like if we're still an

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Speaker 4: economy where there's risk of inflation, or risk of ejudging

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Speaker 4: the sharks, or risk of what we saw this summer,

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Speaker 4: right of a sudden unmind of leverage in the system.

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Speaker 4: You know, you are at a loftier level, so to speak,

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Speaker 4: and so it is vulnerable to the subsequent volatility that

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Speaker 4: could emerge, whether as will be the election. Not so sure.

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Speaker 4: It doesn't seem to be that the market supported by

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Speaker 4: the election. More again, something about unexpected coming through the

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Speaker 4: data or others sign judging the sharks, or about what

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Speaker 4: may take note that we do have some disruptions going

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Speaker 4: on in the supply chain. Again, you know, that may

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Speaker 4: be something that Marcus is paying attention to as one

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Speaker 4: one factor. So I think to somewhere up with the

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Speaker 4: market may look overvalued, but there's more room in the price,

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Speaker 4: especially if you think about interests, you know, declining in

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Speaker 4: the future.

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Speaker 1: You know, our colleagues has spoke with the noted strategist

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Speaker 1: ed Yardenny earlier in the day. Maybe you had a

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Speaker 1: chance to see this on the Bloomberg terminal, and he

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Speaker 1: said that the basically, the decision that we had last

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Speaker 1: week to go fifty basis points has lifted the odds

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Speaker 1: of an outright melt up inequities, and he likened it

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Speaker 1: to what we saw on the dot com bubble. I

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Speaker 1: mean that that sounds a little concerning to me. Is

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Speaker 1: does he have a point?

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Speaker 4: Yeah, he does, because the melt up obviously is the issue, right,

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Speaker 4: is that that's the sort of getting really a sprint

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Speaker 4: to the finish here. That we've been on a pretty

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Speaker 4: good run here for the last couple of years and

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Speaker 4: a lot of charts out that the bullmarkt young and

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Speaker 4: it could have a lot more to go. But what

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Speaker 4: he's talking about is more like you get to sprint

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Speaker 4: at the end. And look, let's face it, we do

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Speaker 4: have an AI boom, so to speak, and there's a

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Speaker 4: lot of data out on it at much to spend

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Speaker 4: on it and maybe now being invested again. But there's

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Speaker 4: some form of fraud there that we can't deny that

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Speaker 4: and so that's where we have to work. That's what

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Speaker 4: Jors talking about. Did you get amount of ben the

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Speaker 4: frost of the AI, you know, spending may may be ons.

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Speaker 2: He also warned that central bankers should be careful here

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Speaker 2: with aggressive rate GUIDs because he thought inflation could resurface,

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Speaker 2: and he highlighted that both candidates and the presidential election

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Speaker 2: are proposing policies that could trigger inflation. So an interesting

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Speaker 2: look there from Ed Yardnny and an interesting look from

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Speaker 2: Ben Emmons joining us from FED Watch Advisories.

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Speaker 5: Bloomberg Opinion Informed Perspectives, an expert data driven commentary on breaking.

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Speaker 1: News time for Bloomberg Opinion. And we are joined now

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Speaker 1: by opinion columnist Minchin Pei, who is writing about China's

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Speaker 1: economic recovery. He's saying the game isn't over for China,

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Speaker 1: but it's garbage time. Mention joins us from southern California.

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Speaker 1: Always a pleasure and the timing is absolutely perfect. As

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Speaker 1: we speak here, minshe in PBOC Governor Penggonsen as a

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Speaker 1: conducting a news conference with two other officials, and they

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Speaker 1: are outlining what is clearly just a massive program from

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Speaker 1: the Central Bank to stimulate the Chinese economy. I want

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Speaker 1: you to weigh in, what do you feel about this?

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Speaker 6: Well, certainly they try to end the so called garbage time.

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Speaker 6: The sentiments in China are really bad. I'm no economist,

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Speaker 6: but based on what I have read, the real problem

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Speaker 6: for China is not monetary policy, is actually low demand,

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Speaker 6: consumer demand in particular. So this policy lower interest rate

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Speaker 6: and doing other things probably is good, but not going

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Speaker 6: to make a big difference. That is not a bazunka.

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Speaker 6: One of your colleagues said it was a bazuka. I

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Speaker 6: think that's a pistol rather than in the bluka. Because

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Speaker 6: China right now is in a liquidity trap.

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Speaker 4: The money there's.

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Speaker 6: Just massive build above debt, so the money you pump

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Speaker 6: into the system is just used to pay off debt

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Speaker 6: rather than to buy stuff.

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Speaker 4: Or do stuff.

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Speaker 2: Yeah, for people who haven't read the piece, I can

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Speaker 2: just summarize it quickly in saying that the collapse of

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Speaker 2: the real estate sector has really been a big part

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Speaker 2: of this problem for the average person in China. It's

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Speaker 2: shrunk their wealth considerably and it's hurt their consumption. But

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Speaker 2: what's interesting is you say that the malaise goes a

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Speaker 2: lot deeper and has political roots to it, that they

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Speaker 2: just don't have as much confidence now in President Shijen

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Speaker 2: Ping as they did maybe when we saw other ructions,

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Speaker 2: like in the late nineties, because at that time they

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Speaker 2: had a lot of confidence in the then premier at

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Speaker 2: Jerome g tell us a little bit more about these

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Speaker 2: political issues.

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Speaker 4: That you see.

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Speaker 6: Oh yes, I think there are really two issues for

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Speaker 6: the average people. They think they've given the government enough

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Speaker 6: time to show that it has a better game plan.

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Speaker 6: They have not seen one because the economy is just

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Speaker 6: stuck in neutral for now for the better part of

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Speaker 6: eighteen months. So that is.

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Speaker 4: So the government.

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Speaker 6: Actually has to do something that changes the perception and sentiments.

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Speaker 6: The other is that they doubt whether sheating pain will

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Speaker 6: change costs. He might do some technical adjustment, but there

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Speaker 6: is no end in sight of the end of his tenure.

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Speaker 6: He effectively has made himself a lifetime ruler. So people say, well,

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Speaker 6: in the past, at least a leader will be there

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Speaker 6: for ten years and then we have a chance for

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Speaker 6: real change. But no such possibility exists at a moment.

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Speaker 1: So there's no way for the party to put pressure

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Speaker 1: on him to change course.

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Speaker 6: Here, no way, no way, Because now China essentially has

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Speaker 6: centralized personalized leadership at the top. Most of the top

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Speaker 6: people are chooging things friends or allies, So how are

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Speaker 6: they going to put pressure on that patriot?

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Speaker 2: You know, it's interesting though with people in China, I think,

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Speaker 2: like Americans, they tend to be opportunistic and confident about

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Speaker 2: the future, and they put a lot of faith in

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Speaker 2: education and Chinese culture, and that's something that sort of

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Speaker 2: supersedes to a certain degree political leadership in China. Is

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Speaker 2: there a way that you can see kind of an

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Speaker 2: organic reflowering of optimism and if so, what might lead

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Speaker 2: to that?

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Speaker 6: I think it would take a while, because China is

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Speaker 6: now caught in this cycle, the their cycle, the lealistic cycle.

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Speaker 6: Probably five six years from now, we don't know how

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Speaker 6: long it will take, but I think if the economy

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Speaker 6: recovers on its own organically, then the sentiments will change.

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Speaker 6: The other is that, as I said, the government really

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Speaker 6: needs to a lot, But the problem is that the

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Speaker 6: government does not have a lot of dry powder that

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Speaker 6: can be used.

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Speaker 1: So if you had to speculate a little bit on

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Speaker 1: what the reaction of the population in China might be,

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Speaker 1: if we have considerably more weakness, no recovery in the

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Speaker 1: property market, persistent deflation in the economy, and just overall

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Speaker 1: weak sentiment, I mean, isn't that a way for the

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Speaker 1: government to begin to kind of maybe second guess itself

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Speaker 1: and change course, or do you think they would be

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Speaker 1: unmoved The leadership would be unmoved under those circumstances.

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Speaker 6: I think the leadership will have to react if, for example,

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Speaker 6: we're have much higher levels of unemployment right now, the

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Speaker 6: latest number on use unemployment is about nineteen percent. That

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Speaker 6: is very high. And if because low consumer sentiment can

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Speaker 6: create a self in reinforcing feedback loop, less income, more insecurity,

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Speaker 6: less spending, so the economy will simply get worse and worse.

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Speaker 6: So I think if the government does not do anything,

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Speaker 6: this is what we can predict, we can count on happening.

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Speaker 6: I think a critical thing is what happens on November sixth,

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Speaker 6: of six years, the US election, because the government is

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Speaker 6: saving what little fiscal power that it has in the

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Speaker 6: case Trump gets re elected and flaps huge terrors on China,

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Speaker 6: and then China will use its fiscal resources to stimulate

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Speaker 6: the economy.

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Speaker 2: For that, the.

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Speaker 6: Government wants to just wait. They don't have much longer

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Speaker 6: to wit. So I guess we can see some action

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Speaker 6: at the end of the year.

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Speaker 1: Well, we had some action today and we can talk

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Speaker 1: more about that momentarily. Mentioned it's always a pleasure Mention

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Speaker 1: pay Bloomberg opinion columnists joining us here on Daybreak as.

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Speaker 2: This is the Bloomberg Daybreak Asia podcast, bringing you the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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