WEBVTT - Daybreak Weekend: US PCE, Iceland Eco Conference, Australia CPI 0:00:00.240 --> 0:00:07.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.600 --> 0:00:13.520 This is Bloomberg Daybreak Weekend, our global look at the 0:00:13.560 --> 0:00:16.200 top stories in the coming week from our Daybreak anchors 0:00:16.239 --> 0:00:18.920 all around the world. Straight Ahead on the program, we'll 0:00:18.920 --> 0:00:21.680 look to some key economic data in the US, along 0:00:21.720 --> 0:00:25.480 with more earnings in tech. I'm Nathan Hager in Washington. 0:00:25.760 --> 0:00:28.400 I'm Caline Hepga here in London, where we're asking how 0:00:28.480 --> 0:00:32.360 central banks should respond to growing global economic anxiety. 0:00:32.760 --> 0:00:35.280 I'm Doug Krisner looking ahead to the latest reading on 0:00:35.479 --> 0:00:37.760 consumer inflation for Australia. 0:00:38.159 --> 0:00:42.200 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.240 --> 0:00:45.920 eleven three yeh New York, Bloomberg ninety nine to one, Washington, DC, 0:00:46.440 --> 0:00:51.559 Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Sirius 0:00:51.720 --> 0:00:55.240 XM one twenty one, and around the world on Bloomberg Radio, 0:00:55.280 --> 0:00:57.520 dot Com and the Bloomberg Business App. 0:01:02.480 --> 0:01:05.280 Good day to you. I'm Nathan Hager. We begin today's 0:01:05.319 --> 0:01:08.240 program with some key economic data in the US. The 0:01:08.280 --> 0:01:12.000 Fed's preferred gauge for inflation, the PCE Price Index, comes 0:01:12.000 --> 0:01:15.319 out this Thursday, along with April readings on personal income 0:01:15.400 --> 0:01:17.840 and spending, for more on the numbers and what they 0:01:17.880 --> 0:01:21.520 could mean for FED policy. We're joined by Stuart paul Us, 0:01:21.560 --> 0:01:25.160 economist with Bloomberg Economics. Of course we saw those hot 0:01:25.200 --> 0:01:29.319 April readings on consumer and producer prices. Are the PCE 0:01:29.800 --> 0:01:31.920 numbers do you think going to be any different, Stuart? 0:01:32.440 --> 0:01:35.320 Where they're also going to be hot. We're expecting about 0:01:35.480 --> 0:01:39.720 zero point four percent month on month headline PCE inflation. 0:01:39.760 --> 0:01:42.840 That'll push the year on year PCE inflation rate up 0:01:42.880 --> 0:01:45.800 to about three point eight percent from three point five 0:01:45.920 --> 0:01:49.480 percent in March. So still far too hot for comfort 0:01:49.520 --> 0:01:50.800 for the FED, that's for sure. 0:01:51.080 --> 0:01:55.120 Yeah. Is it just these elevated energy prices that are 0:01:55.320 --> 0:01:57.520 driving things for this index? 0:01:57.800 --> 0:01:59.760 You know, even in the core it's going to be hot. 0:01:59.760 --> 0:02:03.120 Were expecting core inflation to inch up to about three 0:02:03.160 --> 0:02:07.520 point three percent from three point two percent prior. Look, 0:02:07.600 --> 0:02:11.320 there's some energy prices that bleed into the core, for 0:02:11.360 --> 0:02:14.840 example in airfares. There's also a little bit of a 0:02:14.960 --> 0:02:19.519 quirk this month where shelter price is basically jump. It's 0:02:19.560 --> 0:02:23.600 all downstream of data collection issues during the government shutdown 0:02:23.680 --> 0:02:26.600 last October. So it's going to be an elevated core reading. 0:02:27.680 --> 0:02:31.400 The annual pace of core inflation also just still too 0:02:31.440 --> 0:02:34.520 hot for comfort for the FED. And the bottom line 0:02:34.600 --> 0:02:39.520 really is that spending is continuing a pace, despite the 0:02:39.560 --> 0:02:43.200 fact that elevated energy prices are weighing on household and 0:02:44.280 --> 0:02:49.320 are effectively bleeding bleeding household a little bit drier than 0:02:49.400 --> 0:02:51.959 usual because they have to spend more at the pump. 0:02:52.440 --> 0:02:56.480 Even though energy prices are really causing a little bit 0:02:56.480 --> 0:03:00.320 of an issue for household, household spending is con inuing 0:03:00.360 --> 0:03:03.560 a pace, so the FED can afford to weight, It 0:03:03.560 --> 0:03:06.280 can afford to sort of keep its foot on the 0:03:06.280 --> 0:03:09.240 brakes a little bit. It doesn't need to hike to 0:03:09.360 --> 0:03:13.600 address energy induced inflation. Instead, it can afford to wait 0:03:14.000 --> 0:03:17.959 to watch whether inflation pressures start to broaden. I don't 0:03:18.000 --> 0:03:21.440 expect to see that in this personal income and outlayers 0:03:21.440 --> 0:03:25.000 report and PC inflation report. But still just inflation too 0:03:25.080 --> 0:03:28.720 high for comfort, spending continuing a pace, and that's all 0:03:28.800 --> 0:03:30.280 reason for the Fed's remain on hold. 0:03:30.480 --> 0:03:32.520 So is that going to be reflected in what we 0:03:32.520 --> 0:03:36.160 get from the actual personal spending and income numbers as well? 0:03:36.240 --> 0:03:38.880 And what's the trend right now? Are we seeing the 0:03:38.920 --> 0:03:43.000 trend shift toward I don't want to say it persistent inflation. 0:03:43.800 --> 0:03:47.040 Well, so the personal income element that we're going to 0:03:47.080 --> 0:03:49.040 get in this report on Thursday is going to show 0:03:49.120 --> 0:03:52.520 about zero point five percent month on month growth in 0:03:52.600 --> 0:03:55.640 personal income. Remember, we had a very hot jobs report, 0:03:55.720 --> 0:03:58.520 a lot of hiring, a lot of wage growth. That 0:03:58.600 --> 0:04:04.360 personal income in tandem with elevated tax refunds, also paired 0:04:04.400 --> 0:04:08.920 with positive wealth effects, those are all supporting spending right now. 0:04:09.120 --> 0:04:11.960 So we're going to probably see spending on you know, 0:04:12.280 --> 0:04:15.120 about a zero point five percent month over month pace 0:04:15.280 --> 0:04:17.600 in the month of April. It's not as strong as 0:04:17.640 --> 0:04:21.400 in March, which was mostly driven by gasoline prices and 0:04:21.400 --> 0:04:26.480 gasoline spending, but it's still hot income, hot spending. Households 0:04:26.520 --> 0:04:30.720 are weathering the storm created by higher energy prices, and 0:04:30.760 --> 0:04:33.200 so the FED is going to be on pause for 0:04:33.240 --> 0:04:34.280 the foreseeable future. 0:04:34.600 --> 0:04:38.240 For the foreseeable future. You're not expecting that we could 0:04:38.279 --> 0:04:40.479 see hikes anytime soon, then. 0:04:40.720 --> 0:04:44.000 No, I don't think so. The FED has this balancing 0:04:44.040 --> 0:04:46.479 act that it needs to deal with right now. It's 0:04:46.520 --> 0:04:51.120 two different risks. The first is that low and even 0:04:51.240 --> 0:04:56.520 negative real aggregate labor income growth means that there will 0:04:56.560 --> 0:04:59.360 come a point in time where households do have to 0:04:59.440 --> 0:05:02.479 tighten their belt. We will get to that point in 0:05:02.560 --> 0:05:05.560 time at some point. The other risk that the FED 0:05:05.640 --> 0:05:09.599 has to contend with is that low real interest rates 0:05:10.279 --> 0:05:15.520 fuel a credit induced in expansion, So that would be inflationary. 0:05:15.560 --> 0:05:17.800 That's exactly what the FED does not want to see. 0:05:17.920 --> 0:05:19.800 I think that right now the FED is betting on 0:05:19.880 --> 0:05:24.679 the former risk that a relatively cool labor market through 0:05:24.760 --> 0:05:30.479 time will prevent inflation pressures from broadening. And that's really 0:05:30.520 --> 0:05:32.960 what's going to matter. So the FED is going to 0:05:33.279 --> 0:05:36.479 lean towards that risk and is going to I think, 0:05:36.520 --> 0:05:41.360 stay on hold rather than try to tighten financial conditions. Remember, 0:05:41.560 --> 0:05:45.480 financial conditions are already tightening a little bit, and for 0:05:45.560 --> 0:05:49.279 every move that we see upward in interest rates in 0:05:49.320 --> 0:05:52.360 the market, the FED can afford to wait a little 0:05:52.400 --> 0:05:55.440 bit more because markets are doing the heavy lifting for 0:05:55.520 --> 0:05:58.680 the FED by tightening financial conditions. The Fed doesn't have 0:05:58.760 --> 0:06:01.760 to rush to tighten financial conditions itself. If the market 0:06:01.760 --> 0:06:03.920 is already doing it, well, then what is. 0:06:03.839 --> 0:06:07.320 The risk of a potential policy mistake if the Fed 0:06:07.440 --> 0:06:09.359 does stay on hold for a long time. 0:06:10.160 --> 0:06:12.960 Well, So it's exactly that that issue is that markets 0:06:12.960 --> 0:06:16.400 don't do enough of the heavy lifting, and the FED 0:06:16.480 --> 0:06:19.560 is too slow to move, and that we start to 0:06:19.600 --> 0:06:23.919 see a relatively low real interest rate lead to a 0:06:23.960 --> 0:06:27.919 credit induced expansion. That would really be the market. That 0:06:27.960 --> 0:06:31.559 would really be the policy failure that the FED runs 0:06:31.600 --> 0:06:35.920 the risk of dealing with. But I don't think that 0:06:35.920 --> 0:06:39.799 that's something that we would expect to see the FED 0:06:40.720 --> 0:06:43.640 trying to address or trying to get ahead of, perhaps 0:06:43.640 --> 0:06:44.280 even this year. 0:06:44.760 --> 0:06:46.720 Thanks for the Stuart, good having you on with us. 0:06:46.800 --> 0:06:50.880 It's Stuart Paul, us economists for Bloomberg Economics. Let's take 0:06:50.920 --> 0:06:52.800 a look now, add some stocks making news in the 0:06:52.839 --> 0:06:56.160 week ahead. I'm Nathan Hager with Bloomberg Equities reporter, Avalon 0:06:56.240 --> 0:07:00.840 Pernell even more tech earnings as the season winds down. 0:07:00.880 --> 0:07:05.159 We're going to hear from Salesforce Wednesday. Avalon, Investor sentiment 0:07:05.320 --> 0:07:08.920 doesn't look all that great for this stock. What's weighing 0:07:08.960 --> 0:07:09.360 it down? 0:07:09.840 --> 0:07:13.200 You're absolutely right, Ai, and future growth will definitely be 0:07:13.240 --> 0:07:16.200 top of mind for investors as Salesforce heads into that 0:07:16.240 --> 0:07:19.640 third quarter earnings report. Investors will be looking for greater 0:07:19.720 --> 0:07:23.679 clarity on Salesforce's second half growth acceleration outlook. Many analysts 0:07:23.680 --> 0:07:26.320 across the street we're saying that at this point, it 0:07:26.360 --> 0:07:28.160 doesn't look like they're going to be able to reach 0:07:28.200 --> 0:07:30.720 the very high bar that they've set for themselves, and 0:07:30.840 --> 0:07:33.240 part of that is based on the question marks that 0:07:33.400 --> 0:07:37.000 remain on how exactly their business is going to continue 0:07:37.400 --> 0:07:40.480 as AI continues to get more sophisticated. They were definitely 0:07:40.520 --> 0:07:43.280 an early victim of the sas apocalypse, as some of 0:07:43.280 --> 0:07:46.160 our reporters were calling it, so definitely something that we'll 0:07:46.360 --> 0:07:47.240 be keeping an eye on. 0:07:47.440 --> 0:07:49.560 We'll talk a little bit more about how high the 0:07:49.640 --> 0:07:52.120 bar is right now and why it might be so 0:07:52.280 --> 0:07:53.760 tough for Salesforce to hit it. 0:07:54.360 --> 0:07:57.280 Yes, absolutely so. Those gross margins for the second half 0:07:57.320 --> 0:07:59.840 of the year are very much a key concern as 0:07:59.840 --> 0:08:03.520 in increasing AI investments are expected to eat into operating margin. 0:08:03.920 --> 0:08:06.120 Also important to note that Bank of America had a 0:08:06.120 --> 0:08:08.480 great note out they reinstated coverage of the firm with 0:08:08.520 --> 0:08:11.360 an underperform rating, noting that the company is facing an 0:08:11.400 --> 0:08:15.400 AI driven reset as companies that typically would have gotten 0:08:15.480 --> 0:08:18.880 contracts with them are either easing off or choosing to wait, 0:08:19.200 --> 0:08:22.240 and that's also causing a lot of issues for Salesforce. 0:08:22.320 --> 0:08:25.360 A lot of question marks about how exactly a slowdown 0:08:25.360 --> 0:08:28.960 in new contracts as heightened geopolitical concerns driven by the 0:08:28.960 --> 0:08:31.960 Iran war and also longer sales cycles are going to 0:08:32.000 --> 0:08:33.640 impact companies like Salesforce. 0:08:33.760 --> 0:08:36.400 So a little bit more of the software story to 0:08:36.480 --> 0:08:38.600 be told this week, and a little bit more of 0:08:38.640 --> 0:08:40.880 the broader tech story as well, because we're going to 0:08:40.920 --> 0:08:45.199 hear from Dell on Thursday. After all, we've heard from 0:08:45.240 --> 0:08:48.440 the computing names this quarter, what are we expecting from Dell? 0:08:48.840 --> 0:08:52.040 Absolutely, Dell is also facing a very high bar heading 0:08:52.040 --> 0:08:54.840 into earnings next Thursday. Investors will be looking for the 0:08:54.840 --> 0:08:58.319 tech companies AI and server results to meet a fairly 0:08:58.480 --> 0:09:01.839 high hurdle, noting ahead of the results, analysts at Morgan 0:09:01.880 --> 0:09:05.640 Stanley and Bernstein have already boosted price targets, so clearly 0:09:05.679 --> 0:09:07.360 some people on the street think that they're going to 0:09:07.400 --> 0:09:10.480 be able to reach that high bar. Meanwhile, though, UBS 0:09:10.559 --> 0:09:12.560 does have a great note stepping to the sidelines and 0:09:12.600 --> 0:09:14.240 saying that they are going to go ahead and downgrade 0:09:14.240 --> 0:09:17.400 the stock to neutral, saying that investors are largely already 0:09:17.440 --> 0:09:20.839 pricing in Dell's AI server demand and they don't necessarily 0:09:20.880 --> 0:09:23.640 see a ton more left to do. Bloomberg and Tellent 0:09:23.720 --> 0:09:25.440 just had a really great note out as well, saying 0:09:25.440 --> 0:09:28.360 that they expect a print to illustrate strong demand momentum 0:09:28.400 --> 0:09:30.400 across all of Dell's business segments. 0:09:30.520 --> 0:09:33.840 Well, even with that sort of divided investor sentiment going 0:09:33.880 --> 0:09:37.839 into this print, this stock has had an amazing run 0:09:38.120 --> 0:09:40.800 so far this year. Does that raise the bar even 0:09:40.840 --> 0:09:44.199 more for Dell to sort of outperform for analysts and investors. 0:09:44.520 --> 0:09:47.360 Absolutely, And I think that's really reflected in the options data, 0:09:47.400 --> 0:09:49.880 which currently at the moment is implying an eleven percent 0:09:50.000 --> 0:09:52.400 move after those results. Obviously that could be to the 0:09:52.480 --> 0:09:55.480 upside or to the downside. But considering they've had a 0:09:55.480 --> 0:09:58.120 lot of really good news even this past month, they 0:09:58.160 --> 0:10:01.480 announced that they had added another one thousand customers for 0:10:01.559 --> 0:10:04.560 their KEYAI product line in the past quarter, and now 0:10:04.559 --> 0:10:07.800 that they're at around five thousand clients for its AI factory, 0:10:08.040 --> 0:10:10.640 and they're counting companies like Eli, Lilly, which I cover 0:10:10.960 --> 0:10:14.840 very extensively, Honeywell, and also Samsung among its customer base. 0:10:14.960 --> 0:10:17.960 So that's definitely going to influence some investor sentiment and 0:10:18.320 --> 0:10:20.080 continue to make the bar higher and higher. 0:10:20.200 --> 0:10:22.720 Yeah, you got to think about so many of these 0:10:22.760 --> 0:10:26.240 companies feeding into the AI story, whether it's pharma or 0:10:26.280 --> 0:10:28.600 anything else. I don't know if we can say that 0:10:29.040 --> 0:10:34.240 for Abercrombie and Fitch when they report on Wednesday, what 0:10:34.280 --> 0:10:36.400 are we expecting going into their results. 0:10:37.000 --> 0:10:40.120 It's a really good question because analysts remain fairly mixed 0:10:40.160 --> 0:10:43.360 heading into that print. Raymond James has already trimmed its 0:10:43.360 --> 0:10:47.640 price target on expectations based on their expectations that it's 0:10:47.679 --> 0:10:50.720 going to have softening trends at Hollister, which, for those unfamiliar, 0:10:50.760 --> 0:10:54.120 Abercrombie and Fitch does have a brand geared towards younger consumers, 0:10:54.120 --> 0:10:57.480 those teens and tweens at Hollister. Jeffrey's also writing that 0:10:57.600 --> 0:11:00.600 decelerating data has been a key concern fors and is 0:11:00.720 --> 0:11:03.200 likely weighing on shares. Abercrombie and Fitch has been a 0:11:03.200 --> 0:11:04.960 company that we've had in focus for the past couple 0:11:05.000 --> 0:11:06.680 of years as they've been in the middle of a 0:11:06.720 --> 0:11:09.839 wider turnaround. They very much got a lot of upside 0:11:10.160 --> 0:11:13.400 as teens and tweens got really interested in the nineties 0:11:13.440 --> 0:11:17.000 and early two thousands clothing styles. But now there's a 0:11:17.000 --> 0:11:20.120 lot of question marks as fuel cost increase, whether those 0:11:20.160 --> 0:11:22.760 customers are still going to be going to Abercrombie and 0:11:22.760 --> 0:11:26.040 Fitch or if they're going elsewhere. It's definitely something investors 0:11:26.080 --> 0:11:27.000 will be keeping in mind. 0:11:27.080 --> 0:11:30.880 Making me feel old about the nineties trend coming back. 0:11:30.920 --> 0:11:34.720 I remember when Abercrombie and Fitch was a for teens 0:11:34.760 --> 0:11:37.720 and tweens. But at any rate, we're going to hear 0:11:37.760 --> 0:11:41.440 from a lot of other retail names as well, not 0:11:41.600 --> 0:11:45.200 just Abercrombie, but Gap is reporting in Dollar Tree. Could 0:11:45.200 --> 0:11:48.400 they give us a different sense of what we can 0:11:48.880 --> 0:11:49.840 expect from the consumer. 0:11:50.320 --> 0:11:53.160 Absolutely, it's really going to be a question of how 0:11:53.240 --> 0:11:55.920 is a consumer across a very wide spectrum of price 0:11:56.000 --> 0:11:58.599 points like a Dollar Tree, like Gap and even Abercrombie 0:11:58.600 --> 0:12:01.720 and Fitch, how exactly a US consumer faring. We already 0:12:01.760 --> 0:12:04.120 know from Abercrombie and Fitch. Day were very early to 0:12:04.160 --> 0:12:07.319 say that they are expecting those headwinds from the Iran 0:12:07.360 --> 0:12:10.640 conflict on its business, from those extra fuel costs, and 0:12:10.760 --> 0:12:14.160 also customers being pinching their dollars to say the least, 0:12:14.360 --> 0:12:16.920 as gas prices increase. But it'll be really interesting to 0:12:16.920 --> 0:12:20.000 see if companies that are geared more towards the lower 0:12:20.160 --> 0:12:22.400 end of that price spectrum, like a Dollar Tree, we'll 0:12:22.440 --> 0:12:23.839 see a little bit of upside. 0:12:24.160 --> 0:12:27.120 Thank you for this, Avalon, great having you on with us. 0:12:27.160 --> 0:12:31.240 That is a Bloomberg Equities reporter Avalon Parnell And coming 0:12:31.280 --> 0:12:34.120 up on Bloomberg Daybreak weekend, we'll look at how central 0:12:34.160 --> 0:12:39.080 banks should respond to growing global economic anxiety. I'm Nathan Hager, 0:12:39.280 --> 0:12:53.839 and this is Bloomberg. This is Bloomberg Daybreak weekend, our 0:12:53.880 --> 0:12:56.360 global look ahead at the top stories for investors in 0:12:56.400 --> 0:12:59.360 the coming week. I'm Nathan Hager in Washington. Up later 0:12:59.400 --> 0:13:01.280 in our program and will look to a key inflation 0:13:01.400 --> 0:13:04.520 reading in Australia. But first in the coming days, Senior 0:13:04.559 --> 0:13:08.320 policymakers and academic figures from the world of macroeconomics gather 0:13:08.480 --> 0:13:11.440 in Iceland to discuss the evolving role of central banks 0:13:11.440 --> 0:13:14.760 in today's landscape. This year, the Reykiavik Economic Conference is 0:13:14.800 --> 0:13:19.160 set against the backdrop of geopolitical tensions and persistent inflation worries. 0:13:19.360 --> 0:13:22.440 So how will central banks respond? For more, Let's go 0:13:22.480 --> 0:13:24.800 to London and bring in Bloomberg Daybreak. You're a banker, 0:13:24.840 --> 0:13:26.640 Caroline Hepker Nathan. 0:13:26.880 --> 0:13:30.760 As a net importer of energy, Europe's economic growth for 0:13:30.960 --> 0:13:34.600 carts have begun to be cut inflation is expected to 0:13:34.800 --> 0:13:38.920 rise and governments have little ammunition to shield their citizens 0:13:38.960 --> 0:13:43.040 and businesses from the Middle East shock. The Secretary General 0:13:43.160 --> 0:13:47.880 of the OECD is just one voice raising concern. Mattirs Corman, 0:13:47.960 --> 0:13:51.160 speaking on the sidelines of the recent Group of Seven meeting, 0:13:51.640 --> 0:13:54.640 said the challenge for central banks will be to deal 0:13:54.760 --> 0:14:00.160 with the combination of elevated inflation risks and weaker economic activity. 0:14:00.440 --> 0:14:04.720 Is they weigh possible interest rate increases. The Paris based 0:14:04.760 --> 0:14:09.200 OECD became the first major international institution to warn in 0:14:09.320 --> 0:14:13.000 March that the Iran war would fuel price increases and 0:14:13.120 --> 0:14:17.559 dampen economic activity. Since then, a bond market route has 0:14:17.600 --> 0:14:22.440 injected urgency into the situation, forcing ministers and central bankers 0:14:22.480 --> 0:14:26.400 to reckon with growing policy challenges from the shock of 0:14:26.560 --> 0:14:30.600 rising oil prices. The increasing uncertainty is something at the 0:14:30.640 --> 0:14:35.640 forefront of Iceland's central bank governor Alskier Johnson, who is 0:14:35.840 --> 0:14:36.960 hosting the event. 0:14:38.800 --> 0:14:42.880 We've seen inflation expectations rise, although the situation in Europe 0:14:43.000 --> 0:14:47.120 is different. Market is cooler, slower growth, but the main 0:14:47.200 --> 0:14:50.520 problem is that the old price development is very difficult 0:14:50.640 --> 0:14:51.440 to focust. 0:14:51.840 --> 0:14:54.600 You have a lot of central packers sampling here next week, 0:14:54.680 --> 0:14:57.880 Can you just briefly tell me what's ahead, what you're 0:14:57.920 --> 0:15:00.640 expecting from that meeting or from that conference. 0:15:01.240 --> 0:15:04.840 My camp is just between you, you know, Europe and America. 0:15:05.360 --> 0:15:09.080 And in this conference we have both academics, most in 0:15:09.240 --> 0:15:14.400 the US and policymakers and now also tip economist from 0:15:14.400 --> 0:15:16.360 the main bank's main Kumoto Banks. 0:15:16.640 --> 0:15:20.720 That was Iceland Central Bank governor Asker Johnsen speaking to 0:15:20.760 --> 0:15:25.600 Bloomberg's Wagna Hilda Sigur dar dott this ahead of the 0:15:25.760 --> 0:15:29.880 Rekavic Economic Conference that is taking place in the next 0:15:29.920 --> 0:15:32.840 few days and joining us now for more on the 0:15:32.920 --> 0:15:37.880 event and the macroeconomic backdrop is Bloomberg's director of Global Economics, 0:15:37.960 --> 0:15:42.320 Jamie Rush and our Iceland based reporter Wagna Hilder Cigar 0:15:42.480 --> 0:15:46.480 Dar dotted Wragnahilder. What can we expect? 0:15:46.800 --> 0:15:49.840 So the Reykavik Economic Conference is happening now for the 0:15:49.880 --> 0:15:52.520 third time, and we will have central bank governors and 0:15:52.640 --> 0:15:55.600 academics along with economic leaders from all over the world, 0:15:55.640 --> 0:15:58.160 and they will gather and discuss the current economic situation 0:15:58.280 --> 0:16:01.240 and its main challenges. Say, it does come against the 0:16:01.280 --> 0:16:04.760 backdrop of major and sudden geopolitical shocks that have been 0:16:04.840 --> 0:16:08.160 changing the inflation calculus for central banks globally, so that 0:16:08.200 --> 0:16:11.200 will obviously be discussed, and there's a really high profile 0:16:11.200 --> 0:16:15.880 lineup of central bank speakers, sploding multiple FED precedents. There's 0:16:15.920 --> 0:16:19.359 the Governor of the Reserve Bank of India, Sanjai Malhotra, 0:16:19.520 --> 0:16:22.240 and the Bank of England's Andrew Bailey, and and many 0:16:22.280 --> 0:16:25.840 others including from Europe, Scandinavian countries and so. 0:16:25.800 --> 0:16:29.840 On, Jamie. So the conference does come at a particularly 0:16:29.920 --> 0:16:33.040 challenging time for the global economy, and as Wagner Hilde 0:16:33.160 --> 0:16:35.800 is describing, there will be a lot of important central 0:16:35.840 --> 0:16:39.480 bank leaders and economists there. So what do you think 0:16:40.080 --> 0:16:43.440 are the kind of major hurdles that central bank governors 0:16:43.440 --> 0:16:44.840 are thinking about right now? 0:16:46.040 --> 0:16:48.760 Well, I think for all central bank governors that is 0:16:49.080 --> 0:16:51.880 a difficult time because they're faced with the worst kind 0:16:51.880 --> 0:16:54.440 of shock that they can have, one that makes the 0:16:54.480 --> 0:16:57.920 economy weak and inflation highs. They ought to be trying 0:16:57.960 --> 0:17:00.160 to support the economy through the shock, but they can't 0:17:00.160 --> 0:17:04.120 because they're worried about inflation. And so for them, balancing 0:17:04.320 --> 0:17:07.680 what to do in this sort of environment is extremely 0:17:07.760 --> 0:17:12.760 uncomfortable that it'll be occupying all of their thoughts and 0:17:13.320 --> 0:17:15.280 they'll be hoping to get the decision right because their 0:17:15.320 --> 0:17:17.280 careers will be won or lost on this. 0:17:17.560 --> 0:17:20.159 Yeah, Ragna Hilda, What do you think is going to emerge? 0:17:20.480 --> 0:17:23.480 Do you think that there will be common themes? That's 0:17:23.520 --> 0:17:27.199 a big question, isn't it. Europe, for example, is a 0:17:27.240 --> 0:17:30.880 major energy importer. Other parts of the world it might 0:17:30.920 --> 0:17:34.800 be a slightly different story. How much consensus. What are 0:17:34.800 --> 0:17:36.200 people are going to be discussing. 0:17:36.520 --> 0:17:39.320 The major topics are likely to revolve around the oil 0:17:39.359 --> 0:17:44.320 price and geopolitical uncertainty. Tariffs will be discussed and as 0:17:44.400 --> 0:17:47.119 well as currency and how monetary policy will need to 0:17:47.160 --> 0:17:50.320 react to these varying factors. They will be I'm told 0:17:50.320 --> 0:17:52.960 they will be talking about currencies, for instance, and how 0:17:52.960 --> 0:17:55.800 they can both work as buffers and amplifiers of shocks, 0:17:56.520 --> 0:18:00.399 and the process and cons of bigger currency areas, effects 0:18:00.440 --> 0:18:03.240 of inter spread between different currency areas. One of the 0:18:03.280 --> 0:18:06.400 things that will also be discussed is how tighter regulation 0:18:06.560 --> 0:18:10.880 for financial institutions are leading to financial services being provided 0:18:10.920 --> 0:18:14.000 outside of the banking sector, and there is currently a 0:18:14.040 --> 0:18:17.200 concern over the growth of private credit and lending that's 0:18:17.200 --> 0:18:19.960 happening away from the underwriting standards of the banks. Or 0:18:19.960 --> 0:18:22.399 public bond markets. So this is a trend that can 0:18:22.520 --> 0:18:25.560 essentially increase economic fluctuation rather than diminish it. 0:18:25.800 --> 0:18:31.040 Yeah, okay, so lots then for people to think about, Jamie. 0:18:31.160 --> 0:18:34.119 We seem to be at a pivotal moment also because 0:18:34.160 --> 0:18:38.879 of the uncertainty around the inflation re shock around you 0:18:39.119 --> 0:18:41.840 how that's going to be dealt with. We started to 0:18:41.880 --> 0:18:46.800 see downgrades to European economic growth, deterioration in terms of 0:18:47.040 --> 0:18:51.480 PMI type data, and the worry that inflation is going 0:18:51.520 --> 0:18:55.560 to start rising. How much is that going to weigh 0:18:55.680 --> 0:18:58.080 on central bank governors and how are they going to 0:18:58.080 --> 0:18:59.960 try to respond to some of these threats. 0:19:00.880 --> 0:19:03.440 Well, I think the initial feeling was, or the hope 0:19:03.480 --> 0:19:06.359 was that the conflicts would be over quickly, the straight 0:19:06.400 --> 0:19:08.879 would open and things would get back to normal, And 0:19:08.880 --> 0:19:12.720 of course that just hasn't happened. So central bankers basically 0:19:12.760 --> 0:19:15.000 started off by saying, we need time to assess the 0:19:15.080 --> 0:19:16.679 data and see what the layer of the land is. 0:19:17.359 --> 0:19:20.600 That's reasonable. Well, the layer of the land is becoming 0:19:20.640 --> 0:19:23.680 clearer and it's not looking very good, and so they're 0:19:23.680 --> 0:19:27.679 now moving towards acting, and so acting means trying to 0:19:27.720 --> 0:19:32.439 signal that they are credible actors and probably hiking or 0:19:32.480 --> 0:19:35.520 at least canceling any rate cuts that they'd had planned. 0:19:35.800 --> 0:19:37.680 So I think that's how things were evolving. 0:19:38.200 --> 0:19:42.560 Do you think that central bankers and economists are preparing 0:19:42.680 --> 0:19:45.119 for a longer closure of the Strait of Homers, or 0:19:45.160 --> 0:19:48.879 at least trying to signal anticipate that they might be 0:19:49.000 --> 0:19:50.280 ready were that to happen. 0:19:50.840 --> 0:19:53.680 Well, I really think they ought to be. If you 0:19:53.720 --> 0:19:57.920 look at the negotiating position of Iran and the US, 0:19:57.960 --> 0:20:00.520 they are very, very far apart. If you take into 0:20:00.640 --> 0:20:03.080 account the views of Israel as well, who are not 0:20:03.119 --> 0:20:07.239 at the negotiating table, but the Israeli view matters, then 0:20:07.240 --> 0:20:13.040 they're even further apart. And of course Irani leverage just 0:20:13.119 --> 0:20:16.119 increases as the midterm elections in the US get nearer, 0:20:16.520 --> 0:20:18.520 so I don't think there's any particular incentive for them 0:20:18.520 --> 0:20:21.960 to reach the deal. So yeah, central bankers should be 0:20:21.960 --> 0:20:25.200 thinking this could be a prolonged conflict. Oil could be 0:20:25.280 --> 0:20:27.879 missing from global markets, twenty percent of the world be missing. 0:20:29.160 --> 0:20:30.560 How we're going to respond, and they should be thinking 0:20:30.560 --> 0:20:32.879 about that in advance of time, not waiting for its 0:20:32.880 --> 0:20:33.639 sharp and the data. 0:20:34.240 --> 0:20:38.360 Ragna Hilda You've been speaking to the Icelandic Central Bank governor. 0:20:38.680 --> 0:20:42.240 What are the particular issues for Iceland and his assessment 0:20:42.359 --> 0:20:46.880 of the uncertainty around the backdrop Economically, well. 0:20:46.720 --> 0:20:49.960 Iceland has been battling high inflation for quite a while 0:20:50.000 --> 0:20:53.919 now that the central Bank has been struggling to bring down. So, 0:20:54.560 --> 0:20:57.040 you know, Iceland being a small, open economy, we are 0:20:57.119 --> 0:20:59.439 very dependent on what happens in the rest of the world. 0:21:00.160 --> 0:21:02.399 We are dependent on decisions that are being made on 0:21:02.440 --> 0:21:04.919 both sides of the Atlantic with the FAT and the ECB. 0:21:05.040 --> 0:21:10.680 But obviously just all microeconomic developments also will factor in Iceland. 0:21:11.119 --> 0:21:14.560 So I think they are just watching very closely. They 0:21:14.600 --> 0:21:18.159 stand ready to hike if needed. I think this is 0:21:18.200 --> 0:21:22.439 a very critical moment this summer for Iceland to bring 0:21:22.800 --> 0:21:26.320 inflation down, So I would say they're stand ready to 0:21:26.359 --> 0:21:27.639 react as needed. 0:21:28.240 --> 0:21:32.320 Yeah, Jamie. In terms of that question, then about European policy, 0:21:32.600 --> 0:21:35.640 how much will it be determined by the US Federal Reserve. 0:21:35.720 --> 0:21:38.520 That's also been a major issue in bond markets, hasn't 0:21:38.560 --> 0:21:40.359 it in terms of the recent run up in rates. 0:21:41.119 --> 0:21:42.920 Yeah, I mean the answer is not much. I think. 0:21:44.440 --> 0:21:46.720 I mean, first of all, the US is just in 0:21:46.760 --> 0:21:49.160 a different position from Europe right as it's not an 0:21:49.359 --> 0:21:52.680 exporter really, but it's neither an important or an exporter 0:21:52.800 --> 0:21:56.840 of crude, so it doesn't have the same economic consequences. 0:21:58.040 --> 0:22:00.680 There's politics happening in the US which isn't happening here 0:22:01.119 --> 0:22:04.720 in Europe, so you wouldn't want to follow the FED 0:22:04.760 --> 0:22:07.680 playbook if you think that that there's a political element 0:22:07.760 --> 0:22:11.320 to the decision making. So I know, I don't think 0:22:11.320 --> 0:22:13.800 there's a big reader cross from what's happening in the 0:22:13.880 --> 0:22:16.439 US to ECB or Bank of England policy. But of 0:22:16.480 --> 0:22:22.240 course global bond yields, they're determined globally, so we will 0:22:22.240 --> 0:22:25.879 be seeing some of that co movement in bond pricing 0:22:26.040 --> 0:22:28.040 and indeed tightening financial conditions. 0:22:28.880 --> 0:22:31.520 That's interesting because we're going into a new era with 0:22:31.560 --> 0:22:36.080