WEBVTT - Daybreak Weekend: Fed Preview, UK Rate Decision, Tencent Earnings 0:00:02.920 --> 0:00:12.639 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg day 0:00:12.640 --> 0:00:15.000 Break Weekend, our global look at the top stories in 0:00:15.080 --> 0:00:17.479 the coming week from our day Break anchors all around 0:00:17.520 --> 0:00:19.680 the world, and straight ahead on the program, we'll look 0:00:19.680 --> 0:00:23.840 towards next week's BED meeting and its monetary policy going forward. 0:00:24.120 --> 0:00:25.640 I'm Tom Busby in New York. 0:00:26.000 --> 0:00:28.600 I'm callin Hepget in London, where we're looking ahead to 0:00:28.680 --> 0:00:30.200 the UK's great decision. 0:00:30.440 --> 0:00:32.680 I'm Brian Curtis in Hong Kong. I'll take a look 0:00:32.720 --> 0:00:36.199 at the upcoming results from China's ten cent holdings and 0:00:36.280 --> 0:00:39.640 whether a little less regulation is producing dividends. 0:00:43.880 --> 0:00:48.160 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg Eyleod, 0:00:48.200 --> 0:00:51.720 The Free Own, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:52.000 --> 0:00:56.080 Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, 0:00:56.320 --> 0:01:00.560 DAB Digital Radio, London, Sirius XM one nineteen and around 0:01:00.600 --> 0:01:03.200 the world on Bloomberg Radio dot Com and via the 0:01:03.240 --> 0:01:04.400 Bloomberg Business App. 0:01:08.800 --> 0:01:10.640 Good day to you. I'm Tom Busby, and we begin 0:01:10.720 --> 0:01:13.880 today's program with the Federal Reserve. This coming week, the 0:01:13.920 --> 0:01:16.039 FED hosts a two day meeting on interest rates and 0:01:16.120 --> 0:01:20.480 monetary policy, with a decision out on Wednesday. Will the 0:01:20.520 --> 0:01:23.920 Fed leave its benchmark lending rate unchanged for the fifth 0:01:24.000 --> 0:01:27.520 meeting in a row, and if so, why for more 0:01:27.560 --> 0:01:31.360 we're joined by Michael McKee. He's Bloomberg's international economics and 0:01:31.440 --> 0:01:35.120 policy correspondent. So Michael, what do you expect to see 0:01:35.160 --> 0:01:37.319 happen this week and what do you see in the 0:01:37.319 --> 0:01:39.280 Fed's dot plot forecast? 0:01:39.640 --> 0:01:41.360 Well, that's the right way to look at it, because 0:01:41.400 --> 0:01:42.920 the Fed's not going to do anything in terms of 0:01:43.000 --> 0:01:46.319 its policy rate. It'll leave it where it is a 0:01:46.400 --> 0:01:47.880 range of five and a quarter five and a half 0:01:47.920 --> 0:01:50.720 percent because they basically told us that for the last 0:01:50.760 --> 0:01:52.880 three weeks and they're not going to go back on 0:01:52.920 --> 0:01:55.960 that and surprise the markets. They also are looking for 0:01:56.040 --> 0:01:57.960 more data, but the dot plot is going to be 0:01:57.960 --> 0:02:01.000 the interesting one, along with the summary of economic projections, 0:02:01.000 --> 0:02:03.640 because are they going to raise their projection for inflation 0:02:03.880 --> 0:02:07.320 and how would that affect their view of rake cuts 0:02:07.360 --> 0:02:10.880 This year, since the last FED meeting on January thirty first, 0:02:11.120 --> 0:02:15.360 we have seen CPI inflation and PPI inflation come in 0:02:15.760 --> 0:02:20.200 stronger than expected, and so the question is do we 0:02:20.520 --> 0:02:23.320 think that this is the new trend, that we're going 0:02:23.400 --> 0:02:27.440 to be stuck with inflation that is stickier and harder 0:02:27.480 --> 0:02:30.800 to bring down than the Fed anticipated, or do they 0:02:30.800 --> 0:02:34.040 think this is kind of one off seasonal adjustment around 0:02:34.080 --> 0:02:35.880 the first of the year. That's going to be the 0:02:35.919 --> 0:02:37.160 real question now. 0:02:37.200 --> 0:02:40.600 But in fairness, June of twenty twenty two, inflation nine 0:02:40.600 --> 0:02:43.799 point one percent. Just last week we saw it down 0:02:43.840 --> 0:02:46.160 to three point two percent, So it has accelerated a 0:02:46.200 --> 0:02:49.040 little bit from the months prior, but and we still 0:02:49.080 --> 0:02:51.320 got a long way to go to its two percent target, 0:02:51.360 --> 0:02:54.720 but it is still sort of trending the right way. 0:02:54.960 --> 0:02:56.840 Well, it depends on what you're trying to accomplish. If 0:02:56.880 --> 0:02:59.119 j Powell were running for president, he could tout going 0:02:59.120 --> 0:03:02.239 from nine to three. But since he's got to get 0:03:02.240 --> 0:03:04.720 it down to the two percent target, the fact that 0:03:04.760 --> 0:03:07.239 it's going the wrong way now is not necessarily good 0:03:07.240 --> 0:03:10.560 news for them, and that will influence their views. If 0:03:10.560 --> 0:03:13.280 they think that we are going to see a stickier 0:03:14.080 --> 0:03:18.760 kind of inflation, then that might lead them to change 0:03:18.800 --> 0:03:21.240 the dot plot. The dot plot that came out in 0:03:21.280 --> 0:03:24.679 December the last time they did one, suggested three rate 0:03:24.760 --> 0:03:29.160 cuts this year between the meetings, we've had several FED 0:03:29.200 --> 0:03:32.840 officials suggest that if inflation proves to be a problem, 0:03:32.880 --> 0:03:35.640 that maybe there will be fewer It would only take 0:03:35.680 --> 0:03:39.680 two to move their dots up to change the consensus forecast. 0:03:39.920 --> 0:03:43.200 So we're going to be watching that very closely now. 0:03:43.240 --> 0:03:45.680 A few weeks ago, in testimony to Congress, FED Chair 0:03:45.760 --> 0:03:48.440 Jerome pal did say he thinks rates are at their 0:03:48.480 --> 0:03:51.600 peak right now, twenty three year high, and it would 0:03:51.840 --> 0:03:55.880 quote likely be appropriate to begin dialing back policy at 0:03:55.920 --> 0:03:56.720 some point this year. 0:03:57.600 --> 0:04:00.360 Yeah, and asked about what it would take to do that. 0:04:00.480 --> 0:04:04.119 He basically said, we need continued good news on inflation. 0:04:04.520 --> 0:04:06.880 He said, we didn't need to have it be better 0:04:07.040 --> 0:04:10.560 each month, go down significantly each month, as it did 0:04:10.640 --> 0:04:13.120 during most of twenty twenty three, but it had to 0:04:13.120 --> 0:04:15.440 be going in the right direction, and right now it's 0:04:15.440 --> 0:04:18.000 not going in the right direction. So I imagine we will 0:04:18.000 --> 0:04:20.360 get a caution from him that even if they don't 0:04:20.440 --> 0:04:24.440 change the dot pot, that they are aware and watching 0:04:25.120 --> 0:04:29.560 inflation right now, and that if they needed to do something, 0:04:29.640 --> 0:04:32.520 they would. I don't think that rate increases are on 0:04:32.560 --> 0:04:35.560 the table right now, but cutting back on the number 0:04:35.600 --> 0:04:37.919 of rate cuts are pushing them back later in the 0:04:38.040 --> 0:04:40.719 year is certainly a possibility now. 0:04:40.720 --> 0:04:44.560 Inflation obviously the headline measure, but there's also job creation, 0:04:44.640 --> 0:04:49.200 which has been unexpectedly robust. Housing and retail sales a 0:04:49.279 --> 0:04:52.080 little uneven here and there, sometimes up, sometimes down. So 0:04:52.520 --> 0:04:55.400 is it job creation that really has the Fed optimistic 0:04:55.440 --> 0:04:56.320 about the economy? 0:04:56.480 --> 0:04:59.760 It is, and also the idea that companies are spending 0:04:59.800 --> 0:05:03.480 money in a little more than they had been as 0:05:04.120 --> 0:05:08.240 they get perhaps some of the federal government's fiscal assistance 0:05:08.360 --> 0:05:11.080 in the Infrastructure Act and the Chips Act. There is 0:05:11.120 --> 0:05:13.359 a concern that maybe the economy gets too hot, but 0:05:13.600 --> 0:05:17.000 it's not proving out. We're seeing strong job creation, we're 0:05:17.000 --> 0:05:21.200 seeing weak jobless claims. They went down again this last week, 0:05:21.839 --> 0:05:25.000 but we are not seeing strong retail sales at this point. Now, 0:05:25.040 --> 0:05:28.920 retail sales are pretty much only goods, and so we'll 0:05:28.920 --> 0:05:30.679 have to wait till the end of the month after 0:05:30.720 --> 0:05:32.920 the FED meeting to see whether people are spending on 0:05:33.040 --> 0:05:36.800 services and how strong consumer spending overall is. 0:05:37.320 --> 0:05:40.440 But it doesn't suggest that the consumer. 0:05:39.960 --> 0:05:43.600 Spending, which is two thirds of the economy, is benefiting 0:05:43.640 --> 0:05:44.600 from any of this yet. 0:05:44.839 --> 0:05:45.000 Now. 0:05:45.040 --> 0:05:48.120 In housing, we've seen rates this past week go down 0:05:48.120 --> 0:05:50.279 below seven percent. If there was ever a time of 0:05:50.320 --> 0:05:53.000 the year right now March April May when we're going 0:05:53.080 --> 0:05:55.760 to see housing accelerate a little bit, This is it, 0:05:55.880 --> 0:05:58.719 So I imagine that is being very closely watched as well. 0:05:58.960 --> 0:05:59.880 It's being closely watched. 0:05:59.880 --> 0:06:02.360 But the general feeling is that people really won't come 0:06:02.400 --> 0:06:04.800 out to buy houses until you get mortgage rates down 0:06:05.360 --> 0:06:07.760 close to four percent. It's going to be a while 0:06:08.440 --> 0:06:11.320 until we get there. They aren't going to come down 0:06:11.360 --> 0:06:12.839 to where they were. You're not going to get a 0:06:12.960 --> 0:06:16.039 three percent mortgage anymore, but you might get one between 0:06:16.080 --> 0:06:19.719 four and five if inflation continues to fall, and. 0:06:19.800 --> 0:06:21.440 That's what we have to watch. 0:06:21.760 --> 0:06:24.560 There isn't expectation that we're going to see at Gangbuster's 0:06:24.880 --> 0:06:27.599 housing market this spring, even though it is the time 0:06:27.640 --> 0:06:29.080 of year when you normally do. 0:06:29.120 --> 0:06:32.279 Well our thanks to Michael McKee, Bloomberg inter National Economics 0:06:32.320 --> 0:06:36.240 and Policy Correspondent. Now we move next to the athletic 0:06:36.240 --> 0:06:40.000 footwear and apparel giant Nike, the Dow component, reporting third 0:06:40.120 --> 0:06:44.000 quarter results this coming Thursday. Many analysts are wondering whether 0:06:44.080 --> 0:06:47.520 economic headwinds in China will impact the company's sales and 0:06:47.600 --> 0:06:50.799 for more. We're joined by Poonam Goyle, senior US e 0:06:50.839 --> 0:06:53.760 commerce and retail analysts at Bloomberg Intelligence. 0:06:53.760 --> 0:06:56.000 Poonum, thanks for being here, Thanks for having me. 0:06:56.320 --> 0:06:58.720 Well, what are you expecting to see from the sneaker 0:06:58.760 --> 0:07:02.040 in sportswear giant and how big a role will sales 0:07:02.080 --> 0:07:03.320 in China play into that? 0:07:03.760 --> 0:07:07.119 Sure, the fiscal third quarter, which is largely in line 0:07:07.160 --> 0:07:10.000 with the fourth quarter for most other retailers, for Nike, 0:07:10.520 --> 0:07:14.440 we expect sales to fall slightly. That's largely a function 0:07:14.600 --> 0:07:18.320 of just lackluster consumer demand, largely on the apparel side. 0:07:18.320 --> 0:07:20.760 I would say, not as much on the footwaar side. 0:07:21.080 --> 0:07:24.960 And where we're seeing weakness is across the board. Really, 0:07:25.600 --> 0:07:28.160 we're expecting Emia to be weak. It's expected to be 0:07:28.240 --> 0:07:31.480 downlow single digits. North America as well, and these two 0:07:31.520 --> 0:07:36.280 markets collectively are the largest markets for Nike. That said, 0:07:36.560 --> 0:07:39.160 China is important, and you know you asked how important 0:07:39.280 --> 0:07:42.480 is China's about fifteen percent of their sales and we're 0:07:42.520 --> 0:07:45.080 only expecting to see a low single digit gain about 0:07:45.080 --> 0:07:47.920 two percent in China, So that's not as robust as 0:07:47.920 --> 0:07:50.960 you would have expected earlier last year, when you know 0:07:51.120 --> 0:07:54.800 China had ended at zero COVID policy. So things are 0:07:55.160 --> 0:07:58.000 a little markye, but I would say that that's all 0:07:58.080 --> 0:08:01.040 near term. I do think the Nike still remains a 0:08:01.080 --> 0:08:04.520 solid brand, fifty billion dollars plus in sales, the largest 0:08:04.560 --> 0:08:07.600 sportswear brand in the world, and we don't think its 0:08:07.600 --> 0:08:09.520 position is at risk at all. 0:08:09.680 --> 0:08:13.120 Well, let's talk about Nike's initiative on direct to consumer sales. 0:08:13.200 --> 0:08:16.120 Has it made a material impact and has the affected 0:08:16.120 --> 0:08:17.840 some of the retailers that it supplies. 0:08:18.240 --> 0:08:21.120 So Nike had a few years ago made a big 0:08:21.160 --> 0:08:23.880 push towards DTC, you know, pulling out a lot of 0:08:23.960 --> 0:08:28.000 key wholesale accounts, including moderating its exposure to some of 0:08:28.000 --> 0:08:31.040 the department stores as well as Footlocker. We saw that 0:08:31.200 --> 0:08:33.480 flip on its heels last year, right when they said 0:08:33.520 --> 0:08:37.560 that they're going back into Footlocker in a more strategic way. 0:08:37.880 --> 0:08:42.040 They're also entering thes W and they're pushing more so 0:08:42.280 --> 0:08:45.120 in wholesale. Now what does this mean? Right? You know, 0:08:45.400 --> 0:08:49.160 DTC has higher margins and therefore when they had announced 0:08:49.200 --> 0:08:52.640 this move a few years back, it was good for margin. 0:08:52.720 --> 0:08:55.600 And now as they're pulling away, I wouldn't say they're 0:08:55.600 --> 0:08:57.559 pulling away from DTC, but I would say they're leaning 0:08:57.600 --> 0:09:01.160 more into wholesale. The margins do have a headwind from 0:09:01.240 --> 0:09:03.960 that mixshift, kind of flip flopping, but I would say 0:09:03.960 --> 0:09:07.640 wholesale is important. Their partnership with foot Locker is important 0:09:07.679 --> 0:09:10.360 because if you live in the suburbs of New Jersey 0:09:10.440 --> 0:09:13.600 like I do, it's hard to get to a Nike store. 0:09:13.920 --> 0:09:16.880 Right The flagship store in New York City is great, 0:09:16.960 --> 0:09:19.680 but it's two hours to get there. So where do 0:09:19.760 --> 0:09:23.920 you buy good Nike product? The outlets have usually, you know, 0:09:24.000 --> 0:09:26.360 product that came out maybe a year ago or six 0:09:26.400 --> 0:09:29.760 months ago, or stuff that's left over. And the only 0:09:29.800 --> 0:09:32.640 place really that you can find compelling Nike product in 0:09:32.720 --> 0:09:36.200 a suburb is at Dick's Sporting Goods. So coming back 0:09:36.240 --> 0:09:38.960 to some of these wholesale accounts, I think is a 0:09:38.960 --> 0:09:42.200 good move for Nike as it will make it be 0:09:42.320 --> 0:09:44.720 available to all of America. Again. 0:09:45.040 --> 0:09:48.080 Now to that point you've written about Nike finally getting 0:09:48.080 --> 0:09:51.960 control of its pandemic era inventory and supply chain problems. 0:09:52.240 --> 0:09:55.000 Are things back where they should be and is it 0:09:55.040 --> 0:09:57.239 supplying all this new product for consumers? 0:09:57.520 --> 0:09:59.520 I think supply is back and where it should be, 0:09:59.520 --> 0:10:02.120 so we don't for see any supply chain disruptions at 0:10:02.200 --> 0:10:06.199 Nike this year. In terms of supply within the marketplace, 0:10:06.280 --> 0:10:09.520 I think that's a little next. There are still excess 0:10:09.559 --> 0:10:13.160 inventories in the wholesale channels, so in North America specifically, 0:10:13.240 --> 0:10:16.559 we do think that that headman will persist at least 0:10:16.880 --> 0:10:19.400 through the first half of this calendar year or for 0:10:19.520 --> 0:10:23.400 Nike's fiscal fourth quarter. But around the world, as inventories 0:10:23.440 --> 0:10:26.400 are stabilized and the supply chains are operating at i 0:10:26.400 --> 0:10:29.480 would say near normal levels, we do think that there 0:10:29.520 --> 0:10:32.360 are tailwinds from this to be had in the second 0:10:32.440 --> 0:10:34.800 half of the calendar year twenty twenty four. 0:10:35.120 --> 0:10:38.920 And Nike is already the biggest women's athletic apparel and 0:10:38.960 --> 0:10:41.720 shoe brands, So are they banking a lot of growth 0:10:41.840 --> 0:10:43.400 on women customers. 0:10:43.800 --> 0:10:46.800 Yeah, So women's is actually a very very important category, 0:10:46.880 --> 0:10:48.800 not just for Nike but really for all the at 0:10:48.880 --> 0:10:52.480 leisure brands. It's a growing category and Nike does have 0:10:52.520 --> 0:10:54.360 a lead there. But I would say when you look 0:10:54.400 --> 0:10:57.880 at women's versus total sports, where the lead that Nike has, 0:10:58.240 --> 0:11:01.319 the gap between that is very different. So Nike is 0:11:01.960 --> 0:11:05.040 by far the largest sportswear brand and it has a 0:11:05.160 --> 0:11:08.520 large lead to its competitors, but when you look at 0:11:08.640 --> 0:11:12.199 women's the lead isn't as wide, right, So to me, 0:11:12.400 --> 0:11:15.679 the woman's playing field is anyone's game. So Nike is 0:11:15.720 --> 0:11:18.360 a leader today, but that doesn't mean that it will 0:11:18.400 --> 0:11:22.040 stay a leader forever if others also step up their 0:11:22.120 --> 0:11:25.920 efforts because they don't have a wide margin lead versus 0:11:25.960 --> 0:11:27.040 the rest of the competition. 0:11:27.360 --> 0:11:29.800 And how is it compared to like Lulu Lemon, which 0:11:29.960 --> 0:11:32.200 you know here in New York you see on all 0:11:32.200 --> 0:11:36.920 over women wearing everything right, Lulu Lemon also some athleta 0:11:36.960 --> 0:11:40.040 that's the gap brand is Nike moving into those types 0:11:40.080 --> 0:11:42.600 of products, the yoga pants, the stuff you wear to 0:11:42.640 --> 0:11:44.719 the supermarket or wherever they are. 0:11:44.840 --> 0:11:49.560 So the push for lifestyle athleticware has been something that 0:11:49.679 --> 0:11:52.800 most at leisure brands, including Nike, have been going after. 0:11:53.440 --> 0:11:55.960 It's a little different of a customer still, you know, 0:11:56.000 --> 0:11:59.439 we think where Lululemon shines is that it understands the 0:11:59.440 --> 0:12:01.400 women custom and are probably better than any of the 0:12:01.440 --> 0:12:04.480 other brands because that is where they shine. They have 0:12:04.600 --> 0:12:06.920 the right fit, they have the right material, they have 0:12:06.960 --> 0:12:09.880 the right function, they know how it works and they 0:12:09.960 --> 0:12:14.120 understand it. Nike has performance built into its women's war, 0:12:14.440 --> 0:12:17.000 but I don't know if it has the fashion right. 0:12:17.200 --> 0:12:18.720 Not to say that it's wrong, but I think it 0:12:18.800 --> 0:12:21.680 leans more towards performance versus where you have a little 0:12:21.800 --> 0:12:25.360 lemon yoga pant. It's performance and fashion. So I think 0:12:25.480 --> 0:12:28.320 that intersection is where Nike is trying to go to 0:12:28.400 --> 0:12:31.120 as well with women's but I think that will take time. 0:12:31.160 --> 0:12:32.800 It's not something that they can do overnight. 0:12:33.200 --> 0:12:35.640 Well, we're going to find out a lot more on Thursday. Well, 0:12:35.640 --> 0:12:38.840 our thanks to Blunham Goyle. She's senior US e Commerce 0:12:38.840 --> 0:12:42.480 and retail analysts at Bloomberg Intelligence and coming up on 0:12:42.480 --> 0:12:44.840 Bloomberg day Break weekend, a big decision this week on 0:12:44.920 --> 0:12:48.199 interest rates from the Bank of England. I'm Tom Busby 0:12:48.280 --> 0:13:02.240 and this is Bloomberg. This is Bloomberg day Break Weekend, 0:13:02.280 --> 0:13:04.640 our global look ahead at the top stories for investors 0:13:04.720 --> 0:13:07.200 in the coming week. I'm Tom Busby in New York. 0:13:07.440 --> 0:13:10.080 Up later in our program, earnings from one of China's 0:13:10.120 --> 0:13:13.440 biggest names in technology, and a look ahead to the 0:13:13.480 --> 0:13:16.880 next move from Australia's Central Bank. But first, with UK 0:13:17.000 --> 0:13:19.840 interest rates at historic highs, pressure is mounting on the 0:13:19.880 --> 0:13:23.439 Bank of England. While recent economic data suggests the economy 0:13:23.480 --> 0:13:26.120 may be moving in the right direction, one wrong move 0:13:26.240 --> 0:13:29.160 could undo all the progress made to date. The situation 0:13:29.240 --> 0:13:32.280 makes for a difficult choice for central bank policymakers who 0:13:32.320 --> 0:13:35.160 will vote where to move rates in the coming days. 0:13:35.160 --> 0:13:36.880 And for more, let's go to London and bring in 0:13:36.920 --> 0:13:40.360 Bloomberg daybreak, europe Banker Caroline hepger Tom. 0:13:40.400 --> 0:13:42.120 The last time we heard from the Bank of England 0:13:42.160 --> 0:13:44.280 Governor Andrew Bailey, he told us that when it comes 0:13:44.320 --> 0:13:47.280 to cutting interest rates in the UK, it's a question 0:13:47.480 --> 0:13:49.040 of when, not if. 0:13:49.360 --> 0:13:54.040 I think we've now changed the question really from how 0:13:54.080 --> 0:13:56.520 restrictive do we need to be for how long do 0:13:56.600 --> 0:13:59.160 we need to be restricted? That's important. We've also tokened 0:13:59.200 --> 0:14:03.880 the upside bias off. We haven't cleared a risk, by 0:14:03.920 --> 0:14:06.040 the way, a new risk actually, which is we're really 0:14:06.040 --> 0:14:08.520 reflecting obviously tragic events of them at least and the 0:14:08.559 --> 0:14:12.840 impact that can have through the Red Sea effects. So 0:14:12.880 --> 0:14:15.520 I think now the question is for us as really 0:14:15.679 --> 0:14:17.599 is for how long do we need to maintain the 0:14:17.720 --> 0:14:20.600 stance going forwards? You know I've said a number of 0:14:20.640 --> 0:14:24.840 times going We're not making predictions at this point we're 0:14:24.840 --> 0:14:27.920 setting up the framework. The things that we think are 0:14:27.960 --> 0:14:31.840 important to look at really haven't changed. Actually, so services, inflation, 0:14:32.280 --> 0:14:35.680 aspects of the labor market, the domestic drivers of inflation. 0:14:36.240 --> 0:14:39.160 That was Andrew Bailey speaking to Bloomberg Television after the 0:14:39.320 --> 0:14:43.520 last rates decision. Now, in the meantime, recent economic data 0:14:44.120 --> 0:14:47.480 signals really a step in the right direction, the Rank 0:14:47.520 --> 0:14:51.520 of England having emphasized its data driven approach. The UK 0:14:51.600 --> 0:14:55.640 economy rebounded in January after falling into a technical recession 0:14:55.640 --> 0:14:59.000 in the second half of last year. In addition to that, 0:14:59.120 --> 0:15:04.680 Britain's jobs market, which fueled inflationary pay rises immediately after 0:15:04.720 --> 0:15:08.880 the pandemic, does seem to be cooling, and cooling pretty sharply, 0:15:09.120 --> 0:15:14.320 with the first increase in unemployment since July. Despite those signs, though, 0:15:14.360 --> 0:15:17.280 the recent communication has suggested that the Bank of England 0:15:17.360 --> 0:15:20.520 is really in no hurry to ease policy, and signs 0:15:20.520 --> 0:15:23.520 of a rebound give it cover to wait a little 0:15:23.520 --> 0:15:27.320 bit longer for confirmation that inflation is on course for 0:15:27.400 --> 0:15:31.760 the durabile return to the two percent target. Now, Northern 0:15:31.800 --> 0:15:34.920 Trust chief economist Carl Tannenbaum has told us that the 0:15:34.920 --> 0:15:38.760 Bank of England does now have a difficult choice to make. 0:15:39.200 --> 0:15:41.440 I think it's the most complicated of the Big three. 0:15:41.840 --> 0:15:44.040 Even the Bank of Japan, which you'll meet later this month, 0:15:44.560 --> 0:15:47.840 is right pleased with what they're seeing on their inflation numbers. 0:15:47.960 --> 0:15:49.840 Most of us think that rates will be in positive 0:15:49.960 --> 0:15:52.920 territory before long. But the Bank of England, certainly a 0:15:53.000 --> 0:15:55.480 last monetary policy committee was the first that I can 0:15:55.520 --> 0:15:57.880 ever remember. They had votes for a hike, voste to 0:15:57.920 --> 0:16:02.480 remain stable and votes to cut, signifying that within the 0:16:02.480 --> 0:16:05.440 group there is a lot of disagreement over the diagnosis 0:16:05.440 --> 0:16:09.480 of inflation. I can understand why, given the conflicting signals 0:16:09.480 --> 0:16:11.080 that we're getting from labor markets. 0:16:11.600 --> 0:16:14.760 How would you characterize the state of the UK economy now? 0:16:15.720 --> 0:16:18.400 Stand still at best, I would say the quarterlyase have 0:16:18.960 --> 0:16:22.440 barely been a positive effectslight negative, I believe, and certainly 0:16:22.440 --> 0:16:25.000 the momentum that we're seeing in the United States is 0:16:25.040 --> 0:16:28.320 not present here in Europe. Part of that is attributable 0:16:28.360 --> 0:16:30.680 to the massive amount of fiscal spending that has been 0:16:30.720 --> 0:16:33.480 done still in the United States, even past the pandemic. 0:16:33.880 --> 0:16:36.000 That is an option that has not been available to 0:16:36.040 --> 0:16:40.000 Europe where budget constraints. Certainly that's around Jeremy Hunt's budget 0:16:40.040 --> 0:16:43.800 proposal illustrate how hard it will be to achieve any 0:16:43.880 --> 0:16:46.000 kind of fiscal expansion in Europe. 0:16:46.560 --> 0:16:49.479 That was the chief economist at Northern Trust, Carl Tannembaum, 0:16:49.560 --> 0:16:53.680 speaking to me on Bloomberg Radio. It's also worth considering 0:16:53.760 --> 0:16:56.680 how the decisions of international central banks will affect the 0:16:56.720 --> 0:16:59.680 policy makers here in the UK. So recently, the US 0:16:59.720 --> 0:17:02.880 treasure Sexuary Janet Yellen said that it is unlikely that 0:17:02.960 --> 0:17:07.600 market interest rates will return to levels that prevailed before 0:17:07.680 --> 0:17:12.520 the COVID nineteen pandemic. Bloomberg's chief UK economist, Dan Hansen 0:17:12.600 --> 0:17:16.560 tells me that the UK could see a sustained raft 0:17:16.680 --> 0:17:20.560 of rate cuts to come, but probably not at the 0:17:20.600 --> 0:17:21.440 next meeting. 0:17:22.040 --> 0:17:22.240 Yeah. 0:17:22.280 --> 0:17:23.800 I mean, I think this one's going to be a 0:17:23.840 --> 0:17:27.560 relatively they're say, boring meeting in the sense that no 0:17:27.600 --> 0:17:30.200 one's expecting any action. There was quite a big shift 0:17:30.240 --> 0:17:34.560 I think between November December and then to February. You know, 0:17:34.640 --> 0:17:37.240 the bank dropped its tightening bias, we got to vote 0:17:37.240 --> 0:17:39.679 for a cut, So we've had quite a big had 0:17:39.720 --> 0:17:42.680 quite a big shift, and now they've made it very clear. 0:17:42.720 --> 0:17:45.359 I mean you mentioned they're the communication they've made it 0:17:45.440 --> 0:17:49.359 very clear that they're pretty patient about the timing of 0:17:49.400 --> 0:17:51.760 the first rate cut and they're looking to the data. 0:17:52.080 --> 0:17:53.760 And I think that that will continue to be the 0:17:53.760 --> 0:17:56.040 story at this meeting, that they're just waiting for more information. 0:17:56.400 --> 0:17:59.520 Yeah, we saw that three way split quite unusual, didn't 0:17:59.520 --> 0:18:02.679 we about of England hawks, doves and some in the middle. 0:18:03.320 --> 0:18:07.840 Is that likely to return in future meetings? How much 0:18:08.119 --> 0:18:10.240 do you think that these individuals are going to coalesce 0:18:10.280 --> 0:18:11.320 around the decision making. 0:18:11.600 --> 0:18:13.639 Yeah, I mean, I actually think that's the thing to 0:18:13.720 --> 0:18:16.720 watch at this meeting. So remember back in February we 0:18:16.760 --> 0:18:19.080 had two for a hike, so Catherine Mann and Jonathan Haskell, 0:18:19.080 --> 0:18:21.840 one for a cut, Swatidinger and the rest went for 0:18:21.880 --> 0:18:25.280 a hold. We thought in February Jonathan Haskell would go 0:18:25.400 --> 0:18:28.080 for a hold. I think with what's happened to the 0:18:28.119 --> 0:18:32.720 pay data, there's a chance that he'll move to a hold. 0:18:33.280 --> 0:18:37.080 He's been very focused on the labor market. We get 0:18:37.119 --> 0:18:39.760 a CPI print the day before the decision that will 0:18:39.800 --> 0:18:42.400 be very important, particularly what happens to service his inflation. 0:18:42.640 --> 0:18:45.040 So our base case for the meeting is that he 0:18:45.080 --> 0:18:46.959 does go for a hold, So we get a slight 0:18:47.119 --> 0:18:50.080 shift in the makeup of the vote split. But to 0:18:50.119 --> 0:18:52.919 sort of answer your question directly, there will still be 0:18:52.960 --> 0:18:55.120 this three way split where you've got Catherine Mann going 0:18:55.160 --> 0:18:57.800 for a hike, seven of them going for a hold, 0:18:57.920 --> 0:19:00.000 and Swortidinger continuing to call for a cup. 0:19:00.000 --> 0:19:02.600 But I mean that the labor market and the wage 0:19:02.640 --> 0:19:05.639 data is so important. The ECB has said similar also, 0:19:06.440 --> 0:19:09.000 the labor market in the UK does seem to be cooling. 0:19:09.680 --> 0:19:12.719 We notice, for example, redundancies have started to tick up, 0:19:12.760 --> 0:19:15.479 okay from a low base, but they have, but the 0:19:15.520 --> 0:19:18.680 wage pressure is still there. There's still you know, some 0:19:18.800 --> 0:19:20.879 sizeable wage gains being offered. 0:19:21.119 --> 0:19:21.880 Yeah, there are. 0:19:21.920 --> 0:19:25.040 And that's the combination of that and services inflation, of 0:19:25.080 --> 0:19:27.359 the two things that they're just looking for information on 0:19:27.440 --> 0:19:30.639 and some more to gain the confidence to cut. I 0:19:30.640 --> 0:19:32.640 actually think looking at the wage data that we had 0:19:32.680 --> 0:19:35.760 the most recent wage data, it came in pretty weak 0:19:35.840 --> 0:19:38.000 actually on an underlying basis. I know, on a headline 0:19:38.040 --> 0:19:39.920 basis we're still up at six percent, which is way 0:19:39.960 --> 0:19:43.399 too high for the Bank of England to tolerate. But 0:19:43.480 --> 0:19:45.879 actually if you look at sort of underlying measures of 0:19:45.920 --> 0:19:49.479 pay and more timely measures of pay within that data set, 0:19:50.080 --> 0:19:52.440 things are calling off pretty quickly, and I think we're 0:19:52.440 --> 0:19:54.960 heading for an undershoot. On the Bank's February forecast on 0:19:55.000 --> 0:19:58.480 private sector regular pay, quite a big undershoot. The big 0:19:58.560 --> 0:20:00.679 risk on the horizon is the h in the national 0:20:00.680 --> 0:20:01.639 minimum wage. 0:20:02.920 --> 0:20:03.360 April. 0:20:03.560 --> 0:20:06.880 Yeah, yeah, exactly, so that that will be something that 0:20:06.920 --> 0:20:09.720 they're going to have they're going to be focused on. 0:20:09.800 --> 0:20:11.239 I think they're going to want to see data on 0:20:11.280 --> 0:20:15.159 that before they go ahead and cut. So, but I 0:20:15.160 --> 0:20:17.080 think the news on pay has been actually since the 0:20:17.080 --> 0:20:19.560 start of the year, and on inflation generally has been 0:20:19.880 --> 0:20:23.240 been pretty good. Things are tracking their forecast, if anything, 0:20:23.280 --> 0:20:25.840 coming in slightly below it, so that's that's good news. 0:20:27.119 --> 0:20:29.920 In terms of cuts them for the rest of the year. 0:20:30.280 --> 0:20:32.720 You know, we're pricing in less for the Bank of 0:20:32.760 --> 0:20:35.600 England than for other major central backs. Do you think 0:20:35.640 --> 0:20:36.840 that that holds this year? 0:20:36.880 --> 0:20:39.000 That view, so we have a slightly different view on 0:20:39.040 --> 0:20:42.040 all of this. I think one interesting thing with market 0:20:42.080 --> 0:20:44.120 pricing is that you have to remember it's a mean 0:20:44.240 --> 0:20:49.080