Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance, investment,
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Speaker 1: would say, equally as important as the three rate cuts
Speaker 1: we've had through, just as big a change in the
Speaker 1: last twelve months, the shift in the FEDS reaction function,
Speaker 1: and I think Pow went some way yesterday to completing
Speaker 1: that pivot in the last year. Did Steve Major do okay?
Speaker 1: I'm like getting out front of what I think Steve
Speaker 1: Major is always doing better than okay the last couple
Speaker 1: of years. Pleased to say, it's with us in the
Speaker 1: studios here in London, Steve Major, HSBC club willhead of
Speaker 1: Fixed Income Research. Good morning, Good day to you, Steve.
Speaker 1: Good morning. Your thoughts as you reflect on Shairman Powell
Speaker 1: in the last twenty four hours, What does it take
Speaker 1: through next year and beyond? How do you know when
Speaker 1: a central banker is lying? How do you know his
Speaker 1: lips move so so the the the point of that
Speaker 1: is that we're not going to take too much from
Speaker 1: what we're told. So for me, building an investment strategy
Speaker 1: around a central bank head who tells me that they're
Speaker 1: on hold isn't going to take me very far. And
Speaker 1: if I had built my strategy around what he told
Speaker 1: me this time last year, I would have been short
Speaker 1: the market when it was rallying. Right. So I'm not
Speaker 1: saying that that's the only way that we do things,
Speaker 1: because it's easy to be contrarian. It's very easy to
Speaker 1: just do the opposite. It's just that I don't get
Speaker 1: a lot of guidance. I mean, he doesn't know what's
Speaker 1: going to happen. Your point about the reaction function is
Speaker 1: well made because rather than waiting for this grand announcement
Speaker 1: in Q two two thousand and twenty on the on
Speaker 1: the Fed's framework review, which they've already delayed once, it
Speaker 1: is instead seeping into the reaction function in real time.
Speaker 1: So we now know that when you get an upside
Speaker 1: surprise as we've just seen, let's do nothing. They might
Speaker 1: even cut challenge for me is how do you communicate
Speaker 1: that to spot traders and bond traders and others, because
Speaker 1: it's frankly quite patronizing to explain to them that those
Speaker 1: kind of things, because they're all educated to respond in
Speaker 1: different ways. So so so my best interpretation of all
Speaker 1: of this is yields probably go up before they fall dramatically.
Speaker 1: I'm going to take any increase in yield from here
Speaker 1: as a buying opportunity because I think will end the
Speaker 1: end of the year with lower yields. I need some
Speaker 1: tips in the portfolio. Inflation protection makes a lot of
Speaker 1: sense here, a very good diversification. Let's talk about that,
Speaker 1: a cool option on the inflation store. Why, Steve, is
Speaker 1: that market positioning or is that just you think things
Speaker 1: are going to materialize a certain way of coming year.
Speaker 1: I'll tell you why it's a cool option because if
Speaker 1: things continue like they are, which is a good possibility,
Speaker 1: then each yield, each basis point yield shift in the
Speaker 1: treasury is mimicked by the tips. So the tips and
Speaker 1: the treasuries are trading tick for tick um. If the
Speaker 1: yields keep sinking, the tips are going to keep up
Speaker 1: with the treasuries. But if something happens, like inflation was
Speaker 1: to surge, you're gonna get paid on the infliction side.
Speaker 1: There's a risk of this view. It could be hugely
Speaker 1: wrong if the SMP goes down because then you weren't
Speaker 1: better sell your tips. Steve Major longer going far away.
Speaker 1: Um at Credit Suite's had that beautiful algorithm where they
Speaker 1: would show a time series of interest rates and they
Speaker 1: show along the way how everybody got wrong. The move
Speaker 1: was going to be the higher rates. That were whispers
Speaker 1: up of highers, wrong, wrong, wrong, wrong, wrong. Do you
Speaker 1: feel like it's the same way and this call for
Speaker 1: higher inflation, is it just another redux of a tenure
Speaker 1: twelve year path. Yeah, that that that that is right,
Speaker 1: and everyone's thinking inflation has to go up because it's low.
Speaker 1: Central banks are trying to talk it up, but they're
Speaker 1: not doing anything. There's no there's no action. Is there really?
Speaker 1: In the honor of Paul Valker, this is really important.
Speaker 1: Is there evidence a central bank can reflate? Mr? Volker
Speaker 1: proved we could disinflate, but is there any evidence they
Speaker 1: can lead to some level of inflation? It's appropriate. Central
Speaker 1: bankers know they can create inflation. They know it. They
Speaker 1: have to print money. Now that printing of money hasn't
Speaker 1: actually happened so far, because again mainstream thinking will confuse
Speaker 1: quee with money print When you know it's never been
Speaker 1: anything like it, so we're not there yet. But central
Speaker 1: banks know that they can create inflation um and some
Speaker 1: some kind of step towards a radical government that that
Speaker 1: puts more of a constraint on the reaction function that
Speaker 1: could that could drive inflation. Steve, You're gonna stick with
Speaker 1: us and we're going to talk about the e c
Speaker 1: p A at a moment. I don't want to reflect
Speaker 1: on the year we've had in the year ahead. It's
Speaker 1: that time of the year when Steve Major goes out
Speaker 1: visiting clients and Steve Major says rates are going to
Speaker 1: go lower, and typically you get a ton of push
Speaker 1: back and then rates go lower as the year grows older.
Speaker 1: Are you finding that the world is coming around to
Speaker 1: your perspective, your point of view just a little bit
Speaker 1: more in the last twelve months, And how does that
Speaker 1: make you reflect on your own framework for looking at
Speaker 1: this bond market. When you've been the outlie, the contrarian
Speaker 1: voice for so long and then the world starts coming
Speaker 1: towards you, does it make you feel uncomfortable? Yes? And
Speaker 1: the current presentation is called straw Man, which for the
Speaker 1: American listeners, the straw Man is a fallacy that you
Speaker 1: construct so you can tear it down. And the straw
Speaker 1: man for me is higher yields and bear steepening. So
Speaker 1: I want to play with that scenario because that scenario
Speaker 1: has to be fully constructed, because it offsets the Japan scenario,
Speaker 1: which is we go to zero and we stay there
Speaker 1: for a long time. So these two polar opposites are
Speaker 1: informing the current year. The yield level today of one
Speaker 1: point eight that it's and and it's been a bit
Speaker 1: inconvenient for me because I'm a bit too close to
Speaker 1: my forecast level. So I'm having to be patient. I
Speaker 1: want youels to go up so I can buy again.
Speaker 1: It was an exciting week here in London. Of course
Speaker 1: I've done a lot. You know. We were going to
Speaker 1: go to the National Art Gallery and see the goga
Speaker 1: and then there was Arsenal west Ham. You're gonna wind up,
Speaker 1: Steve nature and can you do this at the end
Speaker 1: of the next It was like a balanced fair match.
Speaker 1: It was like you know when ECB press conference, Well
Speaker 1: it was I had Steve. What was that Arsenal was
Speaker 1: good or west Tom was challenged? Both teams are poor
Speaker 1: and west Ham we're in front for sixty old minutes
Speaker 1: and then they collapsed and there's no single point I
Speaker 1: can focus on. It's like markets. Stuff happens, you get
Speaker 1: inflection points and and stuff happens. How did they turn
Speaker 1: it around? In the sprawl of London football, I mean,
Speaker 1: what is the I mean the tina and build a stadium,
Speaker 1: but they can't put a decent team in it. We've
Speaker 1: proved and that yeah, well with west Ham we have
Speaker 1: to be patient. The difference between west Ham, Chelsea, Tottenham
Speaker 1: and Arsenal is that we don't have that high expectations.
Speaker 1: The problem that they have, just the problem for Arsenal
Speaker 1: is that they expect to win things that they feel entitled,
Speaker 1: whereas we have a bit of fund really and you
Speaker 1: also have an atmosphere in the stadium, which is something
Speaker 1: these other London clubs. They're like libraries if you ever
Speaker 1: make it. It's absolutely fantastic to go and watch west deadly.
Speaker 1: I watched them last season west Ham versus Chelsea a
Speaker 1: bit of a London Derby. Fantastic gang, great atmosphere, just
Speaker 1: phenomenal atmosphere. This has been wonderful, great, Thank you, thank
Speaker 1: you so much, greatly appreciate you. David Bloom and the
Speaker 1: rest of your team's work this year. It just we
Speaker 1: skip the CP. Did we skip the CP? Yeah? You know, Okay,
Speaker 1: did you want to know what I mean? We've got
Speaker 1: like thirty seconds left and Steve Major, thank you so much.
Speaker 1: HC looking forward to catching up with Frederick du Crozette.
Speaker 1: He joins us now. He joins us from pick Set
Speaker 1: Wealth Management. He joins us ahead of an ECB news
Speaker 1: conference that begins in a round about twenty seven minutes time. Fred,
Speaker 1: great to have you with us on the program. Walk
Speaker 1: me through what you expect to hear and what you
Speaker 1: expect not to hear from President of the Guard instead.
Speaker 1: Hmout's time. Well, I think it's always interesting for the
Speaker 1: first best conference. We know a lot about her, to
Speaker 1: be honest. We know a lot about her style, we
Speaker 1: know a lot about her tweets about how she tends
Speaker 1: to possibly change the CBS communication reaching out to the
Speaker 1: broader public. We we know all that. So what makes
Speaker 1: it even more interesting, I think is that most people
Speaker 1: just make me expect nothing new today, and yet we
Speaker 1: might still have a few surprises, or at least we'll
Speaker 1: be focusing on what Mrs la Goud announces in terms
Speaker 1: of the strategy review, which is a very I mean
Speaker 1: strategy objective of the e c B under a new management,
Speaker 1: and there might be a few surprises here or there, Fred,
Speaker 1: Before the monetary policy review has even finished. At the FED,
Speaker 1: it feels like they've already adapted to what they're about
Speaker 1: to produce at some point in the future. It sounds bizarre,
Speaker 1: but that seems to be what is happening. The way
Speaker 1: they view the data has changed. They believe there's more
Speaker 1: slack in the economy in the United States. The way
Speaker 1: they will respond to the data has also shifted. They're
Speaker 1: telling us now, the chairman is telling us that inflation,
Speaker 1: when it picks up, if it's not significant, even then,
Speaker 1: even a significant move up, we're not necessarily going to
Speaker 1: hike rate even then, it's a real dovish shift. So Fred,
Speaker 1: I'm wondering what that means for the e c B.
Speaker 1: We don't have to wait for these monastery policy reviews
Speaker 1: to start to finish. We can have a feel for
Speaker 1: what it's about to happen. That's already happening at the FED,
Speaker 1: what's about to happen at the e c B. I
Speaker 1: couldn't agree more and we knew that President drag you
Speaker 1: actually was being criticized for that being, you know, this
Speaker 1: kind of very strong leader sometimes making in fact or
Speaker 1: choices and emposing them on the rest of the Council,
Speaker 1: and the one you just mentioned are clearly the same
Speaker 1: for the ECB. By the way, sometimes I'm talking about this,
Speaker 1: but the set is just healing a little bit from
Speaker 1: the ECB playbooks talking about the system significant increasing in
Speaker 1: station even though you are very closer to employment full
Speaker 1: employment in the US obviously, but I fully agree, I
Speaker 1: think a lot is already de factored and changed in
Speaker 1: the your area as well. You know that the ECB
Speaker 1: is only a single mandate on the headline inflation closer
Speaker 1: to two This might be amended, but in practice we
Speaker 1: know already that the CB is looking at core inflation
Speaker 1: a bit like obviously in the US. That a few
Speaker 1: changes could be made, but essentially the same idea prevails
Speaker 1: that you need to see a sustained, robust convergence of
Speaker 1: inflation and underlying inflation closer to the two percent targets
Speaker 1: over the medium term. How do you think that would
Speaker 1: officially manifest itself? Reread Because at the moment, as you know,
Speaker 1: back in our three was the last monitor policy review
Speaker 1: at the u c B. They interpret a mandata prostability
Speaker 1: with inflation close to but below two percent. Is it
Speaker 1: gonna be as boring as saying the new inflation targets
Speaker 1: two percent or they're going to do something more than that?
Speaker 1: I think that's one is. It's interesting because I do
Speaker 1: expect a change to two percent full stuff, and anything
Speaker 1: more complicated than that is. Yeah, it's use less. Yet, well,
Speaker 1: we would say a symmetric or asymmetric. There's an asymmetric debate.
Speaker 1: I had Charles Evans at the Council on Foreign Relations
Speaker 1: four weeks ago. That was the thunderous topic from Mr
Speaker 1: Evans of Chicago. Wonderful. Is there a symmetric study at
Speaker 1: the ECB and within Europe? Or is it as you
Speaker 1: say as Vanilla is two. It's true that when I
Speaker 1: ask people in Thankfort or in Paris, the definition of
Speaker 1: price stability can difference. So sixteen years ago the definition
Speaker 1: and the clarification was close to but below two percent,
Speaker 1: and there is an asymmetric dimension in that. You're right
Speaker 1: is to be removed and interesting with That's really part
Speaker 1: of the story because how you get their obviously, man,
Speaker 1: explain to our audience, particularly in America, Explain the constraints
Speaker 1: Madame Legarde and all of the ECB have because of
Speaker 1: the odd fiscal structure of Europe. I mean, this is
Speaker 1: not about having lunch and going on and I retreat
Speaker 1: to the castle. John, were you invited to the castle?
Speaker 1: To the retreat? I get, I asked Madame mcguard this morning,
Speaker 1: lost in the mail. But but but freend this is
Speaker 1: really important. I mean, they have huge institutional constraints because
Speaker 1: of the odd structure, don't they. Yes, they do. We
Speaker 1: know all the flows. We know. It's not only about
Speaker 1: fiscal policy, by the way, that's something she made clear
Speaker 1: and when doing her hearings at the European Parliament, it's
Speaker 1: also about everything that is incomplete in the European Monetary Union.
Speaker 1: To him, thinking about the Capital Market Union, the banking Union.
Speaker 1: It's starting to move, lines of starting to shift, including
Speaker 1: in Germany, but it's going too slow. And if you
Speaker 1: add that to the fact that we had austerity everywhere
Speaker 1: at the same time in the your area after the
Speaker 1: double deprecession, it's a recipe for disaster. She's been clear,
Speaker 1: just like to argue that we need more support from
Speaker 1: ciscal slash institutional reform. The risk, as you said, is
Speaker 1: that we're getting there too slow. In that next year,
Speaker 1: the first thing the CD has to do is to
Speaker 1: ease before we get there. Fred, just a final question.
Speaker 1: As we approached this news conference, even the best of
Speaker 1: the best have come up against difficulties when they take
Speaker 1: on the role as the governor of a central bank.
Speaker 1: The president, the chairman saw it from BANANKI, we sent
Speaker 1: it from Yell and we saw it from Pal. Then
Speaker 1: things settle down. They find out that the best thing
Speaker 1: to do is to make it boring. It's that challenge,
Speaker 1: the same challenge for Christine the guard or can she
Speaker 1: change the rules of how to execute these news conferences? Yes,
Speaker 1: I think the same as applies, except that she's very
Speaker 1: experienced in that matter, even if it's not an essential banker,
Speaker 1: and I'm quite convinced that she would avoid the biggest mistakes. Also,
Speaker 1: I think the focus and she's been lucky, but that
Speaker 1: a lucky about the timing the growth projections, inflation projections
Speaker 1: today is likely to men broadly unchanged. She got time
Speaker 1: ahead of her and the time will be spent to
Speaker 1: really reflect on the strategy review to try and bring
Speaker 1: back some cohesion and and you know, unity, credibility, strength
Speaker 1: to the Governing Council for them to act if needed.
Speaker 1: I mean that's the question mark if they do need
Speaker 1: to do something, whether will they caturate again? Will they
Speaker 1: increase we yield, increase the issue limits? And those are
Speaker 1: very difficult questions in a very difficult political environment. And
Speaker 1: for that to be credible, if she needs to do more,
Speaker 1: she first needs to bring everyone back to the table.
Speaker 1: And while we hear those famous words, whatever it takes,
Speaker 1: she's been reluctant so far. Great to catch up with you,
Speaker 1: Frederic Ducros either picked that Wealth Managements just this is
Speaker 1: an exceptionally important, too short interview with Ted Alden the
Speaker 1: Council on Foreign Relations on China. Ted, what are the
Speaker 1: ramifications If the tariffs do not click in for China?
Speaker 1: Is that good news for them? How do you gauge
Speaker 1: what happens if we don't see new tariffs this this
Speaker 1: in three days? Well, I mean, the Chinese clearly want
Speaker 1: the tarra for it to de escalate. So if the
Speaker 1: US doesn't move ahead on December, if k that's good
Speaker 1: news for China. But but China is holding out for
Speaker 1: removal of some of the tariffs that have already been
Speaker 1: put in place. That's a big they want to go
Speaker 1: first point in the current negotiate, they want to go further. Yeah,
Speaker 1: the talk seem to be about some kind of rat
Speaker 1: deal where the Chinese will agree to to make certain
Speaker 1: quantities of agricultural purchases and if they meet those, then
Speaker 1: gradually some of the tariffs that are already in place
Speaker 1: will come off. So so obviously no new terroriffs good
Speaker 1: news for the Chinese. But they want to go farther
Speaker 1: than that. Why is this so difficult? I mean, if
Speaker 1: there's the blunt instrument of Team A wants three things
Speaker 1: and Team B wants three other things, you know, you
Speaker 1: sit down and you come to an agreement. What's the
Speaker 1: reason this time around that chemistry that that discourse is
Speaker 1: not working. I mean, I think part of it is
Speaker 1: that that what they're talking about is a pale shadow
Speaker 1: of what the United States wanted. I mean, the Trump
Speaker 1: administration hope the tariffs would force some real fundamental economic
Speaker 1: changes in China, and now we're talking largely about a
Speaker 1: purchasing deal and maybe a bit of investment. So there's
Speaker 1: frustration on the U S side. Um. The other thing
Speaker 1: is the president. You know, he's been pretty clear about
Speaker 1: he loves tariffs, and so he's really sucked in to
Speaker 1: remove tariff. He thinks it's the best weapon. He thinks
Speaker 1: the US is winning with the tariffs in place. So
Speaker 1: the Chinese, You're gonna have to provide something that he
Speaker 1: can at least brag about before he wants to see
Speaker 1: any of those tarrifts taken off. It said, when you
Speaker 1: look at what's happening outside of this trade negotiation between
Speaker 1: the United States and China, what you see is that
Speaker 1: a heart stance versus China is perhaps one of the
Speaker 1: only things, one of the few things that the Democrats
Speaker 1: and Republicans in Washington actually agree on. That supply chains
Speaker 1: are arguably already decoupling. We've seen that news again this
Speaker 1: week with China. We saw it with Huawe as well,
Speaker 1: when they have their recent phone release. There's an argument
Speaker 1: is likely to get worse before it gets better. And
Speaker 1: from what I'm saying is that there's a habit of
Speaker 1: defining the current state of US China relations by wherever
Speaker 1: we are in the current trade dispute. Is that a
Speaker 1: mistake ted well I I actually think the bigger issue
Speaker 1: is the one you mentioned, which is is the decoupling question,
Speaker 1: and a lot of that's happening in the technology space.
Speaker 1: I mean, you look at the Chinese announcement this week
Speaker 1: that they're going to get all foreign computers and software
Speaker 1: out of their systems over the next several years. Uh,
Speaker 1: the recon executive order from the Trump administration for scrutinizing
Speaker 1: all foreign technology coming into the United States, particularly focused
Speaker 1: on China, the restrictions on Huawei and export control. I think,
Speaker 1: to a lot of extent, that's the real game. I mean,
Speaker 1: the tariffs have almost become a side show at this point.
Speaker 1: What we're talking about the growing technology competition between the
Speaker 1: US and China, and I think increasing isolation between the
Speaker 1: two on that front. When do we see a new
Speaker 1: addition of failure to adjust, Well, I'll probably write write
Speaker 1: a different book. I'm kind of looking at where things
Speaker 1: go in the global trading system, so I probably won't
Speaker 1: be quite so domestically focused. But I know I need
Speaker 1: to get another book out there. Last one, folks. This
Speaker 1: is wonderful to say to Ted Alden because his books
Speaker 1: are constructively and wonderfully incredibly dense, incredibly informed. I'm busting
Speaker 1: his chops there on whipping off another book, Ted Alden's book,
Speaker 1: Failure to a just I can't say enough about it,
Speaker 1: with a broad reach of what happened to our multilateral
Speaker 1: trade of truly forgotten generation? Ted Alden with a Council
Speaker 1: on Foreign Relations. We are in London. We're looking forward
Speaker 1: to this news conference taking place in frank Firt, Germany
Speaker 1: with the new ECB President, Christine Legard. I can tell
Speaker 1: you she has entered the room with the vice President
Speaker 1: of the e c B, Lewis to Gindosi is currently
Speaker 1: standing in front of a whole host of photographers Tom
Speaker 1: having her photo taken. So she hasn't even managed to
Speaker 1: sit down yet and look at her notes and get
Speaker 1: in front of a microphone. Those photos are still snapping away.
Speaker 1: I think it's the smartest press conference, John, I mean
Speaker 1: it's very seriously. I think I think that the press
Speaker 1: is more informed. There. There are more Michael mckeys, there
Speaker 1: are more you know, Steve Policeman and the others that
Speaker 1: ask smart, smart questions, and I think more importantly, Tom,
Speaker 1: you get some follow ups sometimes as well. There's a
Speaker 1: dialogue there with the journalists, and I think that's that's
Speaker 1: evolved over time. With the former ECP President Mario Dragi.
Speaker 1: We can now cross over to catch up with ECB
Speaker 1: President Christine Lagarde. Ladies and gentlemen, welcome to our press conference.
Speaker 1: Today is the first time that I have had the
Speaker 1: privilege and pleasure of sharing the monetary policy meeting of
Speaker 1: the Governing Council of the ECB, and I'm delighted to
Speaker 1: proceed now with reporting on the outcome of our meeting
Speaker 1: together with my friend the Vice President. The Governing Council
Speaker 1: meeting was also attended by the Commission Executive Vice President,
Speaker 1: Mr Valdis Dombrowski. Based on our regular economic and monetary analysis,
Speaker 1: we decided to keep the key ECB interest rates unchanged.
Speaker 1: We expect them to remain at their present or lower
Speaker 1: levels until we have seen the inflation outlook robustly converge
Speaker 1: to a level sufficiently closed to or below two percent
Speaker 1: within our projection horizon, and such convergence has been consistently
Speaker 1: reflected in underlying inflation dynamics. On November one, we restarted
Speaker 1: net purchases under our asset purchase program at a monthly
Speaker 1: base of twenty billion euros. We expect them to run
Speaker 1: for as long as necessary to reinforce the accommodative impact
Speaker 1: of our policy rates, and to end shortly before we
Speaker 1: start raising the key ECB interest rates. We also intend
Speaker 1: to continue reinvesting in full the principal payments from maturing
Speaker 1: securities purchased under the APP for an extended period of time.
Speaker 1: I passed the date when we start raising the key
Speaker 1: ECB interest rates, and in any case for as long
Speaker 1: as necessary to maintain favorable liquidity conditions and an ample
Speaker 1: degree of monetary accommodation. The incoming data since the last
Speaker 1: Governing Council meeting in late October point to continued muted
Speaker 1: inflation pressures and weak Euro Area growth dynamics, Although there
Speaker 1: are some initial signs of stabilization in the growth slow
Speaker 1: down and of a mild increase in underlying inflation inline
Speaker 1: with our previous expectations, Ongoing employment, work growth and increasing
Speaker 1: wages continue to underpin the resilience of the Euro Area economy.
Speaker 1: The comprehensive package of policy measures that the Governing Council
Speaker 1: decided in September provides substantial monetary stimulus, which ensures favorable
Speaker 1: financing conditions. For all sector of the economy. In particular,
Speaker 1: easier borrowing conditions for firms and households are underpinning consumer
Speaker 1: spending and business investment. This will support the Euro Area expansion,
Speaker 1: the ongoing built up of domestic price pressures, and thus
Speaker 1: the robust convergence of inflation to our medium term aim.
Speaker 1: In the light of the subdued inflation outlook, the Governing
Speaker 1: Council reiterated the need for monetary policy to remain highly
Speaker 1: accommodative for a prolonged period of time to support underlying
Speaker 1: inflation pressures and headline inflation developments over the medium term.
Speaker 1: We will therefore closely monitor inflation developments and the impact
Speaker 1: of the unfolding monetary policy measures on the economy. Our
Speaker 1: forward guidance will ensure that financial conditions are just in
Speaker 1: accordance with changes to the inflation outlook. In any case,
Speaker 1: the Governing Council continues to stand ready to adjust all
Speaker 1: of its instruments as appropriate to ensure that inflation moves
Speaker 1: towards its aim in a sustained manner, in line with
Speaker 1: its commitment to symmetry. Now, let me now explain our
Speaker 1: assessment in greater details, starting with the economic analysis. Euro
Speaker 1: Area real GDP growth was confirmed at zero point two
Speaker 1: percent quarter on quarter in the third quarter of and
Speaker 1: changed from the previous quarter. The ongoing weakness of international
Speaker 1: trade in an environmental persistent global uncertainties continues to weigh
Speaker 1: on the Euro Area manufacturing sector and his dampening investment growth.
Speaker 1: At the same time, incoming economic data and survey information,
Speaker 1: while remaining week overall, point to some stabilization in the
Speaker 1: slowdown of economic growth in the Euro Area. The services
Speaker 1: and construction sectors remain resilient despite some moderation in the
Speaker 1: latter part of Looking ahead, the Euro Area expansion will
Speaker 1: continue to be supported by favorable financing condition, further employment
Speaker 1: gains in conjunction with rising wages, the mildly expansionary euro
Speaker 1: Area fiscal stance, and the ongoing, albeit somewhat slower growth
Speaker 1: in global economy. This assessment is broadly reflected in the
Speaker 1: December twenty nineteen Eurosystem Staff macroeconomic projections for the Euro Area.
Speaker 1: These projections foresee annual real g d P increasing by
Speaker 1: one point two percent in twenty nineteen, one point one
Speaker 1: percent in twenty twenty one point four percent both in
Speaker 1: twenty twenty one and twenty twenty two Compared with the
Speaker 1: September twenty nineteen e c B staff macroeconomic projections. The
Speaker 1: outlook for real GDP growth has been revised down slightly
Speaker 1: for twenty twenty. The risks surrounding the Euro Area growth
Speaker 1: outlook related to geopolitical factors rising protectionism and vulnerabilities in
Speaker 1: emerging markets remain tilted to the downside, but have become
Speaker 1: somewhat less pronounced. According to Eurostat's flash estimate, EU Area
Speaker 1: annual h high CP inflation increased from zero points seven
Speaker 1: percent in October twenty nine to in November, reflecting mainly
Speaker 1: higher services and food price inflation. On the basis of
Speaker 1: current futures prices for oil, headline inflation is likely to
Speaker 1: rise somewhat in the coming months. Indicators of inflation expectations
Speaker 1: stand at low levels. Measures of underlying inflation have remained
Speaker 1: generally muted, although there are some indications of a mild
Speaker 1: increase in line with previous expectations. While labor cost pressures
Speaker 1: have strengthened amid tighter labor market, the weaker growth momentum
Speaker 1: is delaying they pass through to inflation over the medium term.
Speaker 1: Inflation is expected to increase, supported by our monetary policy measures,
Speaker 1: the ongoing economic expansion and solid wage growth. This assessment
Speaker 1: is also broadly reflected in the December twenty nine Eurosystems
Speaker 1: Staff macroeconomic projections for the Euro Area, which foresees annual
Speaker 1: edge high CP inflation at one point two percent in
Speaker 1: one point one percent in twenty twenty, one point four
Speaker 1: percent in twenty twenty one, and one point six percent
Speaker 1: in twenty twenty two. Pastwenior, New York and Time keen
Speaker 1: at Queen Dcoril Street in London. And this is a
Speaker 1: painful now, whether it's our senior executive, it her for
Speaker 1: Economic Stephanie Flanders. And I say so because the Evening
Speaker 1: of Rex said she had real leadership for this nation
Speaker 1: in describing what was going on the night of that
Speaker 1: referendum at the time, I believe I saw her in
Speaker 1: I t V. And it's painful, Paul, because we can't
Speaker 1: talk about the election today. There's some very strict rules here,
Speaker 1: so tomorrow we'll talk to painful for me, I can
Speaker 1: show it, and I'd even like to talk about the
Speaker 1: thinking behind it, but I don't even think that's appropriate
Speaker 1: to do. So Instead, good news there's a many other
Speaker 1: things to talk about. Let's talk about the president's tweet
Speaker 1: in the idea of an exploding stock market SPX otter
Speaker 1: record highs DAL up a hundred fifty points, very butter
Speaker 1: stuff against record High's getting very close to a big
Speaker 1: deal with China. They want it, and so do we.
Speaker 1: I think the President is the only one who thinks
Speaker 1: it's a big deal. Am I wrong? Well, he has
Speaker 1: waxed and waned about whether or not it was a
Speaker 1: big deal or it was a phase one deal. I mean,
Speaker 1: remember back in September he said he was going to
Speaker 1: be a comprehensive deal. Then a few weeks later he
Speaker 1: kind of backtracked and said it was a phase one deal.
Speaker 1: But we know that whatever gets announced, it will be
Speaker 1: the biggest Phase one or the biggest intermediate deal that
Speaker 1: one has ever seen. Um. I think it's the big
Speaker 1: reminder from the impact of this tweet is that so
Speaker 1: many markets and so many asset prices around the world
Speaker 1: are now resting on this narrative, this twisting narrative around
Speaker 1: the trade war, and specifically, we have this kind of
Speaker 1: mini deadline coming up of whether or not the December fifteenth,
Speaker 1: of whether we will have um those new tariffs imposed
Speaker 1: on China after so many delays years ago. I had
Speaker 1: to read a lot on Bretton Woods, very I can
Speaker 1: kids me about it. And there was an ancient Maynard Keynes,
Speaker 1: knowing he was at the end of his time in
Speaker 1: Bretton Woods in New Hampshire, providing wisdom, resilience and theory.
Speaker 1: And then you move forward to our multilateral trade experiment
Speaker 1: out of World War Two and there are others like
Speaker 1: Maynard Keynes providing wisdom and theory. The w t O
Speaker 1: is going down in flames. Where is the wisdom and
Speaker 1: theory right now? Well, I think it's a it's a
Speaker 1: very good question. I mean, you have UM. There was
Speaker 1: Domino Kines analysis, you know, at that Breton Woods conference,
Speaker 1: as you know, the big battle. One of the big
Speaker 1: was about whether or not trade surplus countries like China
Speaker 1: has been for so many years, should be punished or
Speaker 1: pushed to to adjust in the same way that deficit
Speaker 1: countries often are. And I guess you could argue this
Speaker 1: is pretty I would say this is a bit of
Speaker 1: a reach. But you could say if Keynes had had
Speaker 1: his way, maybe Donald Trump would not have had quite
Speaker 1: so much mileage over the last few years of the
Speaker 1: imbalances in trade between China and the US. But we're
Speaker 1: not there. We are here. We have seen a big
Speaker 1: change in the position of the w t O this week,
Speaker 1: written about extensively on Bloomberg by particularly our w t
Speaker 1: O reporter Bryce Brashuk, who has shown in chapter and
Speaker 1: verse how of the w c O is going to
Speaker 1: be stymied now by this US decision not to approve
Speaker 1: any new judges for the appeals process. So the w
Speaker 1: t O as we know it is certainly is not
Speaker 1: even going to be able to play the kind of
Speaker 1: policeman role that it has played. And we are still
Speaker 1: in certain we do not have a kind of comprehensive approach.
Speaker 1: We have lots of tweets and we have lots of
Speaker 1: expectation around the negotiations underway with you go to the
Speaker 1: heart of the matter. You mentioned the police patrol of it,
Speaker 1: the policing, the enforcing. I see no discussion forget about
Speaker 1: phase one, phase two, three, four, five of affecting enforcement
Speaker 1: that leads to mutual trust. It's like Thomas Shelling one
Speaker 1: O one, It's not there, is it? And I think
Speaker 1: that was one of the shifts that we saw and
Speaker 1: have been able to report on from the beginning of
Speaker 1: this year. The way that Donald Trump presents approaches these negotiations,
Speaker 1: and of course the very different noises coming out of
Speaker 1: different members of his negotiating team at different times, has
Speaker 1: led to this situation where there is very little mutual trust.
Speaker 1: Where you look cut these two sides and say, whatever
Speaker 1: deal they come up with, if it is remotely hard
Speaker 1: to enforce or involves remotely any kind of mutual trust
Speaker 1: between the two sides, that is going to be lacking.
Speaker 1: So I think some of the biggest discussions less certainly
Speaker 1: earlier in the process, have been precisely around enforcement mechanisms.
Speaker 1: And there's a good reason why we haven't seen we
Speaker 1: haven't seen serious people sign off on a deal. The
Speaker 1: market UH seventeen minutes ago, make it eighteen minutes ago, flat, quiet,
Speaker 1: a bit listless. The guard may be moving European rates
Speaker 1: with a higher yield UH and now exploding higher SPX
Speaker 1: through the record highs. Nasdaq one hundred surges fifty points,
Speaker 1: a Dow UPO touching a new inter day highs and
Speaker 1: really buttressed up against record highs on the Dow twenty
Speaker 1: eight thousand ninety two on the dow or Stephanie Flanders,
Speaker 1: Senior Executive editor h here on the topics of trade
Speaker 1: after the president's tweet which forced this huge move higher,
Speaker 1: and now on really the interesting moment of Christine Leguard
Speaker 1: at the European Central Bank. Let me just start with
Speaker 1: a general media question, Stephanie Flanders, how did she do?
Speaker 1: I think she did pretty well. But would we have
Speaker 1: having seen her in these other roles as Finance Minister
Speaker 1: for France and then ahead of the I m F
Speaker 1: I'm not sure we would have expected anything different. She
Speaker 1: measured she also did she had. She started her questions
Speaker 1: session after having read the very traditional kind of statement,
Speaker 1: which we as we know didn't really go away from
Speaker 1: anything the markets had expected, to say something about how
Speaker 1: people should expect her to deal with them, how people
Speaker 1: shouldn't be hanging on every word here, so good luck
Speaker 1: with that, but also that she was going to be
Speaker 1: her own person, and she took it. She took the
Speaker 1: initiative to talk about the thing that we were most
Speaker 1: interested in, which is this strategic review of ECB policies,
Speaker 1: and I would say shifted a little bit, decided, you know,
Speaker 1: stamped her own mark on it by saying it was
Speaker 1: going to be extremely broad, not as perhaps Marrow Drug
Speaker 1: has positioned, had positioned it implicitly as just a way
Speaker 1: to kind of fix the approach to inflation, to handle
Speaker 1: the fact that inflation was just persistently too low. She said,
Speaker 1: we would be there'd be addressing inflation, the approach to inflation,
Speaker 1: but also the environment, also the need for social inclusion
Speaker 1: and inequality and all these things. So I think, um,
Speaker 1: that was helpful for her. Maybe some of those people
Speaker 1: who really wanted this to to force a change in
Speaker 1: the ECBs approach, a douvish change in the ECB's approach,
Speaker 1: Well she's she's not giving that to them. And what's
Speaker 1: fascinating about this in Fox I would suggest that Christine
Speaker 1: Leguard possibly would say, forget about the French ministry, forget
Speaker 1: about the I MR for the ECB herding cats at
Speaker 1: Baker and Mackenzie and Chicago years ago. It was probably
Speaker 1: the toughest thing just in the two minutes one minute
Speaker 1: and a half I've got left with you, Stephanie Flanders.
Speaker 1: Are we at a point yet where I happen to
Speaker 1: be with the I M F the degu Gopinath was
Speaker 1: was announced as the Director of Economic Research or reguard
Speaker 1: at the ECB, where we stopped worrying about women and
Speaker 1: men because these women are of such immense ginormous competence.
Speaker 1: Where we are we getting in economics at least to
Speaker 1: where we really don't care about the debate of more
Speaker 1: women involved, you know. I mean, maybe it's certainly becoming
Speaker 1: normalized and just having her there for several years is
Speaker 1: going to make a difference. But I remember, even in
Speaker 1: Britain not to talk about this election, but the past
Speaker 1: elections we had Margaret Thatcher and there was a feeling
Speaker 1: that that had ended the discussion around a minister, and
Speaker 1: then there was another generation went by before we had
Speaker 1: another one. So I think if you have to look
Speaker 1: at the next level, and I think the fact that
Speaker 1: Christine Lagarde was the only viable female choice arguably UM
Speaker 1: and we have had ahead of the I m F
Speaker 1: and we had of the head of the CB, but
Speaker 1: she's the same person, I think, tells you you still
Speaker 1: have to be concerned about it. Quickly. The director of
Speaker 1: the London School will of Economics most qualified to be
Speaker 1: the Bank of England has at another name to look
Speaker 1: forward to. I think Manu Chafik, who is also known
Speaker 1: to any people in Washington for her time at the
Speaker 1: i m F is certainly the best thing is on
Speaker 1: her if you have um the kind of result that
Speaker 1: many of the polls before the polling day were suggesting,
Speaker 1: but there were plenty of There were actually several women
Speaker 1: who would have been extremely The chair of the Santander
Speaker 1: Street Badera would also been very good. So that's a
Speaker 1: good song. We're gonna finish up here. Stephanie Flanders with
Speaker 1: Bloomberg Surveillance. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio