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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance,

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Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts,

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Speaker 1: sound Cloud, Bloomberg dot Com and of course on the

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Speaker 1: Bloomberg Very pleased to welcome right here on Bloomberg Surveillance.

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Speaker 1: On Westminster Green Nicki Morgan, the Chair of the Treasury

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Speaker 1: Select Committee and a Conservative member of Parliament and also

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Speaker 1: with us to top Markets and many other things. Rupert Harrison,

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Speaker 1: black Rock multi Asset Strategies portfolio manager and also former

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Speaker 1: chief of staff to a Chancellor Georgia Osborne. So thank

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Speaker 1: you both for joining us. Think you more. Let me

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Speaker 1: start off with you. How does the Prime Minister get

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Speaker 1: this through Parliament? Well, I think that she's got also

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Speaker 1: very busy two and a half weeks. But to do that,

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Speaker 1: we expect the vote to be on the twelfth of December,

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Speaker 1: and I think what she's doing strategy is to appeal

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Speaker 1: to our constituents, actually to appeal to members of the public.

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Speaker 1: My inbox is absolutely full of constituents rightly having their

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Speaker 1: say about this very important deal, and people from around

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Speaker 1: the rest of the country, but I'm going to concentrate

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Speaker 1: on my constituents um at the moment that the views

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Speaker 1: are obviously sort of dived into three. There are those

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Speaker 1: who want a second vote, there are those who are

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Speaker 1: happy to leave with no deal. But there's actually a

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Speaker 1: vast amount in the middle who are saying, you know what,

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Speaker 1: We've had two years of this. We need Brexit to

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Speaker 1: be settled. No deal is ever going to be perfect. Please,

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Speaker 1: will you just say say yes and get on? And

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Speaker 1: people are really interested. I mean I thought over the

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Speaker 1: weekend back in my constituency. It came up absolutely everywhere,

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Speaker 1: any kind of ent. I was at people who are

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Speaker 1: not considered to be political. They were really really keen

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Speaker 1: to discuss it and to get my views, and I

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Speaker 1: was it's really important I hear from them. But looking

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Speaker 1: at the numbers, how difficult is it if you look

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Speaker 1: at parliamentary arithmetic for her to get it through parliament,

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Speaker 1: and what happens that she doesn't. Is there a second

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Speaker 1: referendum attached to it? Well, I think, look, of course

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Speaker 1: it's going to be challenging. There are a number of

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Speaker 1: my colleagues in the Conservative parties, whereas opposition MPs who

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Speaker 1: said they will not vote for the deal. Two and

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Speaker 1: a half weeks is a very long time in politics,

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Speaker 1: as I think, as we see the Brexit, things changed

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Speaker 1: by by the hour. So I don't think we should

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Speaker 1: say this is not going to get through at the moment.

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Speaker 1: But I'm doubtingly it's going to be challenging. That difficulty

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Speaker 1: speculating is you know what happens if it doesn't get

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Speaker 1: through Parliament. There is no majority in Parliament for a

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Speaker 1: no deal Brexit, so parliament MP's will have to work

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Speaker 1: out what are we going to do in order to

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Speaker 1: make sure that doesn't unfold. I also don't think there's

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Speaker 1: a majority for a second vote. It would take a

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Speaker 1: long time to put that in place. What question would

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Speaker 1: be asked? What do we do if the result is

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Speaker 1: no different or any marginally different from twenty sixteen? It

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Speaker 1: just creates longer term uncertainty. So I think it's right

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Speaker 1: in a way. The PM is doing the right thing,

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Speaker 1: which is concentrating day by day on making the case

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Speaker 1: for her deal. What happens the day after Parliament votes

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Speaker 1: this down? That is a very good question. I mean,

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Speaker 1: I think we can't absolutely rule out the possibility that

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Speaker 1: Theresa May will manage to get the votes for this deal.

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Speaker 1: You've got to remember the last two years the amount

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Speaker 1: of comment true I've heard saying a deal would be impossible.

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Speaker 1: You know, neither side would be able to make the

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Speaker 1: compromises necessary. So we have this crucial fact now that

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Speaker 1: there is a deal on the table. Your question is

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Speaker 1: the right question, though, because I do think the probability

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Speaker 1: balance of probabilities favored the deal failing. I think what

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Speaker 1: happens next depends crucially now on the margin of that failure.

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Speaker 1: I think if if the deal is lost by just

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Speaker 1: ten to twenty votes, then I think the game is

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Speaker 1: still on. I think there's a possibility, despite the fact

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Speaker 1: that EU leaders say there isn't of small tweaks, particularly

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Speaker 1: to the Future Relationship Document, maybe two parts of the

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Speaker 1: withdrawal Agreement, and maybe that combined with some marketing business pressure,

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Speaker 1: might get it over the line. I think if the

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Speaker 1: margin is much bigger, then we are into Plan b's

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Speaker 1: and I think the interesting questions then are is Theresa

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Speaker 1: May able to stay around to to lead that Plan B?

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Speaker 1: And what does that plan be look like? I think

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Speaker 1: it is something much more like an E a ffter

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Speaker 1: type arrangement trying to win over some labor votes. NICKI Morrigan,

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Speaker 1: what I find here from a distant and I'm speaking

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Speaker 1: as a distinct amateur and all things Brexit is the

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Speaker 1: idea that we're going to somehow amen or renegotiate or

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Speaker 1: there I don't hear that from Brussels. Is there any

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Speaker 1: wiggle room here from members of Parliament? Well, I think

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Speaker 1: you're certainly right. That's not the message we heard loud

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Speaker 1: and clear from Brussels over the weekend, and I think

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Speaker 1: that there is certainly in Parliament there is potential appetite

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Speaker 1: for some. Of course, there are some people who want

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Speaker 1: the fundamentals of the withdrawal agreement, which basically relates to

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Speaker 1: the backstop relating to the border between Northern Ireland the

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Speaker 1: Republic of Ireland, to be renegotiated. I don't think that's

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Speaker 1: up for negotiation renegotiation, but I do think the potential

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Speaker 1: has Rupert has said some kind of further move towards

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Speaker 1: an access to the E a greater access via after

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Speaker 1: the so called Norway model UM and of course we

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Speaker 1: have already agreed a UK wide customs arrangement for a

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Speaker 1: period of time is a possibility. The EU at the

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Speaker 1: moment of you're giving nothing away about whether they would

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Speaker 1: entertain that. But you know, I think Rupert when he

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Speaker 1: was advising in the Treasury and I was EU Budget Minister,

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Speaker 1: we all know that no EU negotiation has ever quite

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Speaker 1: done until the eleventh Hower, and we don't reach that

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Speaker 1: leventh Hower until the twenty ninth of March next year.

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Speaker 1: Although I think we all hope for our sanity and

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Speaker 1: for certainty for businesses and others, that we achieve a

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Speaker 1: resolution to this a long time for fore March next year.

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Speaker 1: And nickum Oregon, if this tourism may deal fails in Parliament,

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Speaker 1: for you back a second referendum, No, I'm not keen

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Speaker 1: on a second referend. I really feel very strongly about

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Speaker 1: this that actually I think our first referendum, which you

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Speaker 1: know I supported and I understood that it was something

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Speaker 1: people wanted to have her say on, but I think

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Speaker 1: references cut across our our representative democracy that we have

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Speaker 1: with six fifty MPs elect sort this out, and actually,

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Speaker 1: if we can't do that, then I think there is

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Speaker 1: something much greater that is in trouble in our parliamentary

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Speaker 1: representative democracy. So for a number of practical reasons, but

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Speaker 1: also a big constitutional reason, I think a second vote

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Speaker 1: would be a very bad I do. Even if you

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Speaker 1: could argue, then actually we're better off, you know, we

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Speaker 1: were better off in the EU than with the current deal. Well,

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Speaker 1: look I argue that case. Obviously we didn't know about

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Speaker 1: this this deal on the table now, but I argued

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Speaker 1: the case remaining EU very strongly, as did many many

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Speaker 1: other people in six seventeen million people in this country

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Speaker 1: took a different view. I think there will be a

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Speaker 1: crisis our democracy if we said sorry, you know no

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Speaker 1: kind of the Treasury Select Committee, which I chair, is

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Speaker 1: going to be looking at the government's analysis of the

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Speaker 1: deal and the Bank of England's analysis this week and

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Speaker 1: holding evidence sessions which I'm sure Bluebird viewers will find

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Speaker 1: a great interest. No deal is ever going to be

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Speaker 1: as good as the one we've got. But people voted

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Speaker 1: for change, and I think the deal the plan is

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Speaker 1: put on the table respects that but also doesn't crash

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Speaker 1: our economy. Well, I'm going to rip up the script,

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Speaker 1: Nicky Moore, are going to mean people voted for change.

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Speaker 1: What's the change right now other than the presumption that

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Speaker 1: Parliament isn't going to go for this. Well, you're right.

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Speaker 1: I mean, the point is that we've had two years

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Speaker 1: basically of sort of UK politics stalling whilst this Brexit

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Speaker 1: deal has been negotiated, and we will carry on having

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Speaker 1: two years more of stalling if we don't get this

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Speaker 1: withdrawal agreement agreed and embark on the transition period. Now,

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Speaker 1: not much is going to change in this transition period,

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Speaker 1: but I think people will begin to see that their opposibility.

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Speaker 1: So obviously I do a lot of work and looking

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Speaker 1: at financial services, and I think it'd be fair to

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Speaker 1: say that in the City of London and elsewhere there's

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Speaker 1: appetite for thinking about, well, you know, we've we've obviously

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Speaker 1: stuck very close to being very influential in financial service regulations.

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Speaker 1: If we're not going to be part of that, then

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Speaker 1: what would we do differently? Where might we face, What

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Speaker 1: international standards would we look at following for example. It's

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Speaker 1: going to take quite a long time for that to unfold.

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Speaker 1: Is not going to happen anytime soon, but those are

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Speaker 1: the kinds of discussions that I can see people beginning

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Speaker 1: just to think about. In my discussions with financial institutions,

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Speaker 1: you know, Nicki morg and I know you were transfixed

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Speaker 1: by Chelsea and Saturday, but by Sunday you were begged

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Speaker 1: of figuring out who's going to replace Prime Minister May?

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Speaker 1: Is there a discus, I mean, in this one week

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Speaker 1: interregnum before we actually get to the parliament vote, is

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Speaker 1: there a form blown discussion about who will replace the

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Speaker 1: Prime Minister? Or am I being rude and asking their question?

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Speaker 1: You're not really me asked the question because unfortunately a

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Speaker 1: number of my colleagues put that question on the table

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Speaker 1: earlier on this month when they said they were going

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Speaker 1: to gather letters to unseat the Prime minister. As we

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Speaker 1: know that attempt failed, I think it would be the

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Speaker 1: height of madness to change prime minister. Now, although I

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Speaker 1: take group it's point obviously about if a prime minister

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Speaker 1: loses a major vote, what do they do? And look,

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Speaker 1: of course there is there is discussion, nothing formal, And

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Speaker 1: the honest truth is there is no obvious replacement because

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Speaker 1: who ever takes over the job inherits exactly the same

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Speaker 1: parliamentary arithmetic. So actually they're not going to have any

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Speaker 1: better of a landscape in which to negotiate this. And

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Speaker 1: so actually I think for all the reasons that we've heard,

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Speaker 1: the Prime Minister has shown remarkable resilience and stoicism. I've

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Speaker 1: had my run ins with her, but on this I

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Speaker 1: have to say I think she absolutely is acting in

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Speaker 1: the country's best interest and that's why she wants to

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Speaker 1: go and talk to the country about the deal. Now,

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Speaker 1: how should investors and markets actually look at this? So

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Speaker 1: does it all play in pound and what exactly is

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Speaker 1: priced in right now? Is it no deal first time?

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Speaker 1: But actually there's a second vote and it gets through. Yes.

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Speaker 1: So there's been a lot of commentary around the idea

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Speaker 1: that market reaction to a deal failing might change opinions.

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Speaker 1: The problem is that's now I think pretty much priced in.

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Speaker 1: I think most people in markets are expecting the deal.

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Speaker 1: I've actually been sort of identified as the originating this

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Speaker 1: top idea, but it was actually a prediction rather than

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Speaker 1: a recommendation. One of the key things about this is

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Speaker 1: the more he gets talked about, the more it gets

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Speaker 1: priced in advance. So I suspect that, particularly if the

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Speaker 1: vote is quite cloaked, I don't think markets would respond

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Speaker 1: very negatively to a vote failing at this point, and

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Speaker 1: I think that a lot of that is because all

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Speaker 1: of these plan B s are actually more market friendly

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Speaker 1: than the vote, the vote passing, particularly the option, so

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Speaker 1: you're going to end up with markets having a problem

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Speaker 1: of pricing. Still this I think personally very small tail

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Speaker 1: risk of an actual disruptive no deal exit and the

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Speaker 1: possibility of something that actually more market friendly along the

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Speaker 1: e A lines. I think that the reason we haven't

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Speaker 1: seen more volatility is becau as people are looking through

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Speaker 1: the first vote to those other options already. Nicki Morrigan

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Speaker 1: as head of the Treasure Select Committee sor of course

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Speaker 1: a bomber reviewers know you because you interrogate some of

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Speaker 1: the movers and shakers. Are you confidence that they're prepared

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Speaker 1: for it, for anything happening with Brexit? Well, that's some

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Speaker 1: of the questions we've been asking. The honest truth is,

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Speaker 1: I think if there were to be a no deal Brexit,

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Speaker 1: preparations are not all in place. And we had the

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Speaker 1: head of HMRC Revenue and Customs before us last week

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Speaker 1: and we asked him about the systems that would be

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Speaker 1: necessary in the event of a no deal or even

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Speaker 1: if we were to allow on that the Northern Ireland backstop,

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Speaker 1: and the honest truth is those plans are. They can't

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Speaker 1: put them in place because they don't yet know what

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Speaker 1: the parameters are to design the necessary software and systems.

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Speaker 1: And that's a major part. So what he was basic

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Speaker 1: saying was they have to balance eventually in this scenario,

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Speaker 1: raising money, security and obviously the sort of the border

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Speaker 1: checks and everything else. And you know it's going to

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Speaker 1: be a question of nothing. It would be I think

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Speaker 1: you described a suboptimal what would happen if we were

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Speaker 1: to leave with no deal without the necessary systems in place?

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Speaker 1: Missab can sub optimal brings up Heathrow. Let me cut

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Speaker 1: to the chase. How are our customs going to change it? Heathrow?

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Speaker 1: I mean you come in now and there's EU and

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Speaker 1: they get through in two seconds, and everybody else like

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Speaker 1: ugly Americans it takes three hours to get through customs

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Speaker 1: and get that. But but how do you perceive Heathrow

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Speaker 1: will be after this agreement? Well, look, it's a really

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Speaker 1: it's a really good question. I think there are plans

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Speaker 1: being made in the Home Office too. And of course

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Speaker 1: you're talking now about people and borders, um, and you

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Speaker 1: know I was passing through the border just last week

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Speaker 1: myself and looked up and thought, well, I wonder what

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Speaker 1: the science are gonna look like from either March next

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Speaker 1: year or from one at the moment. Of course, if

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Speaker 1: you are part of Switzerland or part of the e A,

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Speaker 1: you still get to go through the quicker cute, shall

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Speaker 1: we say? Now you know, is that something that can

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Speaker 1: be negotiated and all those sorts of questions. And Heathrow

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Speaker 1: is also a huge freight port, or we don't often

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Speaker 1: think about it that way, but of course they bring

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Speaker 1: in freight from around the world. But one of the

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Speaker 1: things that's going to have to change, I think, almost

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Speaker 1: regardless of what happens eventually, is we've got a hundred

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Speaker 1: and forty thousand small companies in this country who before

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Speaker 1: now have only exported to the EU, so they're not

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Speaker 1: filling informed and having to all the paperwork. If you

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Speaker 1: you do, if you export the rest of the world,

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Speaker 1: that's going to change and training and getting people used

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Speaker 1: to those sorts of forms that all takes time. Of course,

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Speaker 1: it can be done, but it takes time. And while

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Speaker 1: people are going to use the new system, what they

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Speaker 1: won't be doing is they won't be exporting. And that's

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Speaker 1: when you start seeing the damage unfoard into our economy.

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Speaker 1: That's why no deal Brexit is so potentially damaging. Nicki Morrigan,

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Speaker 1: We're in November twenty six. Where are the chances of

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Speaker 1: the UK actually inadvertently or advertently leaving the EU, the

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Speaker 1: eun in a messy way crashing. I think that's that's

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Speaker 1: quite high, actually, am I. It was an event on Friday,

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Speaker 1: and I put it at fifty, you know, a no

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Speaker 1: deal Brexit because actually, if this agreement doesn't get approved

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Speaker 1: by Parliament and Parliament is able to come up with

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Speaker 1: an alternative, and it is possible that the government's might say, okay,

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Speaker 1: well that's it's you know, we are going to go

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Speaker 1: for a no deal and we're just going to spend

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Speaker 1: the next three months frantically preparing for that. We find

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Speaker 1: ourselves sliding out, and my worry is that my colleagues,

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Speaker 1: who for very religious reasons are pushing a second boat

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Speaker 1: or wanting something else to to happen, may find we

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Speaker 1: run out of road on all those options and we

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Speaker 1: end up sliding out. All right. Thank you both, Nicki Morrigan,

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Speaker 1: THEO the Chair of the Treasury Select Committee joining us today,

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Speaker 1: and Rupert Harrison and Black Rocket What a week we've

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Speaker 1: got coming up for you, speeches from FED Vice Chairman

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Speaker 1: Clarinda on Tuesday, Chairman Pal on Wednesday, and a much

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Speaker 1: anticipated G twenty meeting to round out the week. Once

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Speaker 1: central question going into do we face a soft landing

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Speaker 1: or are we well on the road to a recession

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Speaker 1: we slowed down? Joining me to answer that question, the

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Speaker 1: man who posed their question, James Sweeney Credit Sweet, chief

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Speaker 1: economist and head of Global fixed income at Economic Research,

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Speaker 1: joins us. Now, good wanna, James, good morning. So walk

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Speaker 1: me through this because I think this is a massive

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Speaker 1: debate right now whether we're returning to trend growth in

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Speaker 1: the United States and in Europe as well of that matter,

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Speaker 1: or whether something more sinister is taking place in the

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Speaker 1: global economy. Yeah. The way I would define a soft landing,

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Speaker 1: which often doesn't feel so soft from an equity market perspective,

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Speaker 1: is when you see weak manufacturing growth, small falling p

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Speaker 1: m s, stress and markets, but the labor market and

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Speaker 1: inflation are basically fine and and on trend, and so

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Speaker 1: in GDP terms, that might mean you're a little bit

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Speaker 1: below you know, two for a while, um, but really

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Speaker 1: it's a manufacturing story and that's really what we're expecting.

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Speaker 1: So we're expecting manufacturing weakness. I really don't see a

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Speaker 1: very likely scenario where the US unemployment rate shoots up sharply,

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Speaker 1: and that's what a recession is. At this line in

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Speaker 1: your research just jumped down at me. Market perceptions of

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Speaker 1: global growth have been heavily influenced by the performance of

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Speaker 1: the automobile sector. What is happening in autos? That is temporary? Yeah, so,

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Speaker 1: I mean, you know, market perceptions of growth are are

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Speaker 1: really driven by p M I S p M EZ

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Speaker 1: or driven by manufacturing growth and industrial production. And in

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Speaker 1: the last six or nine months, manufacturing growth has been

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Speaker 1: driven pardon the pun, by the by the auto sector.

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Speaker 1: In fact, we estimate that global industrial production x autos

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Speaker 1: has actually been flat at trend like pretty good growth

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Speaker 1: since since the beginning of the year. So what's happening

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Speaker 1: in autos is You've had tax increases in China leading

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Speaker 1: to very slow auto sales. You've had storms and a

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Speaker 1: typhoon in in Japan which led to a significant disruption

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Speaker 1: um in in production and and exports um In the US,

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Speaker 1: you haven't had such a disruption except that uh TESTLA

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Speaker 1: sales Model three sales with the number one car recently,

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Speaker 1: which may be impacting uh some exports. And in Europe

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Speaker 1: you've had this regulatory change where a Volkswagen apparently you know,

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Speaker 1: missed a deadline to re retool some of their production

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Speaker 1: for diesel and it caused production to to really plumme

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Speaker 1: it for for a little while. Um and that was

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Speaker 1: September October, and we think now it's coming back. And

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Speaker 1: when you really look at all this in the soup,

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Speaker 1: what does it mean for car sales? What does it

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Speaker 1: mean for industrial production of cars? Globally it's been a

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Speaker 1: significant shock And when you do the numbers carefully worldwide

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Speaker 1: again X autos, there has been no slowdown in manufacturing.

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Speaker 1: So listening to what you're saying, James, essentially is that

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Speaker 1: the slowdown worldwide is being technically driven. There are no

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Speaker 1: real fundamental underpinnings to this. And if we are transitioning

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Speaker 1: back towards trend growth in between, imagine we're gonna have

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Speaker 1: a lot of volatility in the market where prices you

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Speaker 1: point out, really sets narrative, and the narrative at the

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Speaker 1: moment is very, very worried about a real deceleration through

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Speaker 1: underpinned by real slowdown in the United States and the

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Speaker 1: federal Reserve that seemingly hasn't woken up to that yet.

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Speaker 1: So walk me through how you think this is going

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Speaker 1: to play out. Yeah, So again I separate manufacturing from

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Speaker 1: the broad economy and the labor market, and in manufacturing

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Speaker 1: in the short run, the German factories are turning back on,

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Speaker 1: so you're gonna have a rebound there in China. This

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Speaker 1: is complicated, but you get farther away from when the

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Speaker 1: taxes went up in January, but there's expectations of the

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Speaker 1: taxes could go down again. Very strange for a company

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Speaker 1: to be lowering and then raising or you know, reversing

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Speaker 1: taxes on one product within a year. But basically, we

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Speaker 1: we think as as Japanese production comes back, German production

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Speaker 1: comes back in the next three months or so, we're

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Speaker 1: gonna see better auto production again. When we get through that.

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Speaker 1: We're gonna have the impact of the trade war. We're

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Speaker 1: gonna have the impact of tightening financial conditions. We're gonna

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Speaker 1: have the impact of lower oil prices on mining and

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Speaker 1: energy capex. All of those things together are likely to

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Speaker 1: put downward pressure on manufacturing growth next year. None of

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Speaker 1: them are likely to be sufficient to drive the US

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Speaker 1: unemployment rate up. That's a soft landing. That's what we're

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Speaker 1: expecting for next year. So it is a rocky time.

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Speaker 1: It's just not a disaster. Give us a statistic on

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Speaker 1: your your two percent call on GDP two point one,

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Speaker 1: two point four, two point four percent. How does Chairman

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Speaker 1: Powell's tone change moving from make America great again to

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Speaker 1: two point four percent? Well, two point four percent is

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Speaker 1: not bad. And I agree with a couple of hikes

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Speaker 1: next year. And I think what you're seeing in initial

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Speaker 1: claims and payrolls and wage growth and all those sorts

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Speaker 1: of things, consumption and retail sales is consistent with the

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Speaker 1: need to continue hiking. But the market, as always, is

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Speaker 1: going to look at a p M I is going

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Speaker 1: to look at a manufacturing companies, you know, earnings being

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Speaker 1: revised down. I mean, I mean, you and I are

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Speaker 1: gonna be Economic Club of New York and Wednesday we're

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Speaker 1: gonna be sitting there and moving the vegetables around the

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Speaker 1: on the plate. Why didn't he just say, you know,

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Speaker 1: we're looking at what's out there. We think we're gonna

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Speaker 1: raise once or twice and then we're really going to

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Speaker 1: study things come July or whatever that that date point is.

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Speaker 1: I think, why can't he say that. He is going

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Speaker 1: to say that, maybe not as clear as you just did,

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Speaker 1: but I think he's gonna he's gonna hint at that.

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Speaker 1: I mean, the the the central of the central kind

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Speaker 1: of estimate of that neutral rate that they talk about

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Speaker 1: is around three percent, which basically is a hike in

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Speaker 1: in December, and it's maybe two more next year. And

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Speaker 1: that's our forecast. And I think reassessing when you get

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Speaker 1: there makes sense, but you know along the way it

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Speaker 1: will likely slow manufacturing growth and continued to weigh in

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Speaker 1: financial marks. I think what would really help them right

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Speaker 1: now is if they did not have the summary of

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Speaker 1: economic projections and we did not know what the median

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Speaker 1: dot was, if we didn't know where the median dot was, Tom,

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Speaker 1: I think we'd all conclude that that's essentially is where

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Speaker 1: they're going. We've heard that from Chairman Pal, We've heard

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Speaker 1: that from Vice chair Clarada. Things are dark, you gotta

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Speaker 1: walk a little bit more clerfully so you don't stop

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Speaker 1: your toe. That's affectingly what they've told us. Yeah, that's right,

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Speaker 1: and I think also in terms of markets. You know,

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Speaker 1: we're getting right now the opposite of what we had

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Speaker 1: in two thousand sixteen. We're getting a slowdown in global growth.

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Speaker 1: It's modest, but we're getting a slowdown with tightening policy.

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Speaker 1: That's bad for everything. So stock spawns, financial assets are

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Speaker 1: not giving good returns. In two thousand sixteen and seventeen,

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Speaker 1: you had an acceleration in global growth, you had an

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Speaker 1: easing of policy, which was an overreaction to the deflation

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Speaker 1: fears we talked about many times, and that was good

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Speaker 1: for all financial assets. So you know, we're struggling because

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Speaker 1: returns are not great and because growth is incremental slowing.

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Speaker 1: But again, watch the labor market. The unemployment rate is

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Speaker 1: going nowhere. The unemployment rate is going nowhere. It's an

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Speaker 1: Eisenhower unemployment right right. Are we a fully employed America?

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Speaker 1: We are? We are, And and you know, hopefully that's

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Speaker 1: gonna shift wage growth around a little bit, you know,

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Speaker 1: and we are seeing lately that wage growth at the

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Speaker 1: bottom end of the distribution is actually a little bit

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Speaker 1: higher than than the rest, which is a big change.

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Speaker 1: So you know, we'd like to see that continue for

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Speaker 1: a long time. James Sweeney, thank you so much with

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Speaker 1: Cardi Sweet Right now, Oliver chen to help us with

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Speaker 1: Cyber Monday as well. Is Oliver over the last ninety days.

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Speaker 1: My basic take is Tiffany's model is worked. Is it

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Speaker 1: the new model for luxury retail? It is, Tom, I

432
00:20:44,880 --> 00:20:48,160
Speaker 1: mean something blew, something new. What's happening here is innovation

433
00:20:48,240 --> 00:20:51,639
Speaker 1: and product innovation and stores and as you know, the

434
00:20:51,680 --> 00:20:56,080
Speaker 1: Blue Box cafe and reinventing retail being experiential, so they

435
00:20:56,200 --> 00:20:58,879
Speaker 1: really need to get reasons for people to come in

436
00:20:59,000 --> 00:21:02,760
Speaker 1: the store. Um, and they also need to engage digitally. Uh.

437
00:21:02,960 --> 00:21:05,280
Speaker 1: We've seen this at Tiffany and we're excited about what's

438
00:21:05,320 --> 00:21:08,760
Speaker 1: happening there as they really work to improve stores, marketing

439
00:21:08,880 --> 00:21:13,600
Speaker 1: product and really become irreverent and fun yet true to

440
00:21:13,640 --> 00:21:16,520
Speaker 1: the heritage of the brand as well. It's a brand

441
00:21:16,600 --> 00:21:19,760
Speaker 1: that's famous for gifting, it's a brand that's famous for bridal,

442
00:21:20,240 --> 00:21:22,479
Speaker 1: and we like the innovation that we're seeing at Tiffany

443
00:21:22,520 --> 00:21:25,000
Speaker 1: and Company. I'll try not to allow my own experience

444
00:21:25,080 --> 00:21:27,119
Speaker 1: to set a broad narrative for the whole of the country,

445
00:21:27,200 --> 00:21:28,840
Speaker 1: but I will talk to you about my own experience.

446
00:21:28,880 --> 00:21:31,359
Speaker 1: Over the weekend, Oliver, I went to a mall in

447
00:21:31,480 --> 00:21:35,120
Speaker 1: Massachusetts in a Boston suburb. There was no one there

448
00:21:35,720 --> 00:21:38,520
Speaker 1: name and Marcus was empty. Tiffany's was around the corner

449
00:21:38,640 --> 00:21:40,840
Speaker 1: and there was no one there either. Where are these

450
00:21:40,880 --> 00:21:44,199
Speaker 1: stores that are doing well? Yeah? I mean for Black Friday,

451
00:21:44,320 --> 00:21:47,160
Speaker 1: it's it's really a family event, and the broad line

452
00:21:47,200 --> 00:21:50,520
Speaker 1: retailers such as Target and Walmart have the most traffic.

453
00:21:50,600 --> 00:21:53,400
Speaker 1: We also like Coals and Altar, and then we liked

454
00:21:53,520 --> 00:21:56,200
Speaker 1: um what we saw with traffic, although they're having some

455
00:21:56,760 --> 00:22:00,160
Speaker 1: issues at Victorious, Secret and Pink. So as you think

456
00:22:00,160 --> 00:22:02,480
Speaker 1: about Black Friday and the family tradition, it's it's a

457
00:22:02,600 --> 00:22:05,400
Speaker 1: teen sport, it's a family sport um. And then we'll

458
00:22:05,440 --> 00:22:08,600
Speaker 1: see really this rush of men trying to get great

459
00:22:08,680 --> 00:22:15,600
Speaker 1: gifts as it gets closer to it will be a

460
00:22:15,680 --> 00:22:19,000
Speaker 1: stressful experience in terms of just you know, trying to

461
00:22:19,040 --> 00:22:21,600
Speaker 1: get your job done with choosing a great gift. But

462
00:22:22,040 --> 00:22:25,520
Speaker 1: the Tiffany Blue Box is just a invitation to a

463
00:22:25,640 --> 00:22:28,800
Speaker 1: great gift um, as you know, in terms of that

464
00:22:28,880 --> 00:22:31,840
Speaker 1: brand equity. But I was at Native and I know

465
00:22:32,600 --> 00:22:35,720
Speaker 1: that that bifurcation does happen, um, and there are not

466
00:22:36,359 --> 00:22:39,239
Speaker 1: luxury shoppers at four am, you know, looking at I mean,

467
00:22:39,280 --> 00:22:41,200
Speaker 1: I know vet Bill is not listening, but the dog

468
00:22:41,280 --> 00:22:48,080
Speaker 1: bowl and bone China for a hundred and seventy's like, yeah,

469
00:22:48,840 --> 00:22:51,800
Speaker 1: Tiffany Blue, of course lovely getting it done. But what

470
00:22:52,000 --> 00:22:54,720
Speaker 1: you describe Oliver Cha And again one of the great

471
00:22:54,760 --> 00:22:58,800
Speaker 1: research reports of the year from Cowen on experiential retail,

472
00:22:58,880 --> 00:23:02,720
Speaker 1: like two pages or so almost Makinsie like Oliver to

473
00:23:02,800 --> 00:23:05,080
Speaker 1: say the least. What did you learn from that? And

474
00:23:05,160 --> 00:23:08,440
Speaker 1: what do you observe in this holiday season about how

475
00:23:09,200 --> 00:23:15,000
Speaker 1: basic retail, luxury retail and the great in between is doing. Yeah,

476
00:23:15,080 --> 00:23:18,400
Speaker 1: what's happening is this transformation and revolution where we need

477
00:23:18,560 --> 00:23:22,600
Speaker 1: instat grammable moments. When we think about Generation Z, it's

478
00:23:22,640 --> 00:23:27,000
Speaker 1: about culture, it's about curation, and it's about convenience. How

479
00:23:27,040 --> 00:23:30,680
Speaker 1: do you really minimize the task of shopping and maximize

480
00:23:30,720 --> 00:23:33,520
Speaker 1: the pleasure um and that has to do with really

481
00:23:33,560 --> 00:23:36,399
Speaker 1: adding food and beverage, health and wellness unto the stores

482
00:23:36,480 --> 00:23:41,080
Speaker 1: and rethinking the whole store experiences. That's four year olds,

483
00:23:41,160 --> 00:23:44,399
Speaker 1: right or eighteen year olds John Farrell and I are

484
00:23:44,520 --> 00:23:48,840
Speaker 1: shopping that way. I need an Instagram. You want your

485
00:23:48,960 --> 00:23:51,000
Speaker 1: your good ready to be picked up, you want to

486
00:23:51,080 --> 00:23:53,200
Speaker 1: do the curbside pickup and you don't want to wait

487
00:23:53,240 --> 00:23:56,720
Speaker 1: in line and you want um to you'll search online

488
00:23:56,840 --> 00:23:59,880
Speaker 1: and on your mobile phone and you'll choose some neck

489
00:24:00,040 --> 00:24:01,879
Speaker 1: us as are the dog bowl or the leash or

490
00:24:02,200 --> 00:24:04,760
Speaker 1: you know, I like the Tiffany coffee cups and then

491
00:24:04,800 --> 00:24:07,600
Speaker 1: do you want it ready to go? Um, it's it's

492
00:24:07,600 --> 00:24:09,720
Speaker 1: a great pleasure just to look at that blue in

493
00:24:09,760 --> 00:24:12,720
Speaker 1: the morning. And life is about, you know, innovation and

494
00:24:16,440 --> 00:24:18,119
Speaker 1: you know what to have someone over. I want the

495
00:24:18,240 --> 00:24:21,680
Speaker 1: ease of returns. Who is doing this well? Some companies

496
00:24:21,760 --> 00:24:24,399
Speaker 1: make it really difficult for me to return an item

497
00:24:24,880 --> 00:24:26,280
Speaker 1: and do you know what I do next time around?

498
00:24:26,280 --> 00:24:28,639
Speaker 1: I want to buy something, I don't shop there. Who's

499
00:24:28,640 --> 00:24:32,920
Speaker 1: doing this right? Yeah? I mean the reality of what

500
00:24:33,040 --> 00:24:36,919
Speaker 1: you're bringing up is very very important. And Amazon has

501
00:24:37,040 --> 00:24:40,760
Speaker 1: really reset expectations around ease of returns and they're doing

502
00:24:40,960 --> 00:24:44,240
Speaker 1: a partnership with Coals where you can bring package less

503
00:24:44,320 --> 00:24:47,560
Speaker 1: returns just the item. But as we look across the sector,

504
00:24:48,000 --> 00:24:51,399
Speaker 1: we've seen a much better execution with wood free shipping,

505
00:24:51,440 --> 00:24:54,639
Speaker 1: free returns, and this is an important factor for you

506
00:24:54,760 --> 00:24:59,200
Speaker 1: to con um for for retailers to have done really well.

507
00:24:59,760 --> 00:25:02,719
Speaker 1: UM and I UM, I use returns a lot as

508
00:25:02,760 --> 00:25:05,760
Speaker 1: well in terms of thinking about fashion products over over

509
00:25:05,840 --> 00:25:08,280
Speaker 1: those three years or four years in this huge revolution

510
00:25:08,359 --> 00:25:10,800
Speaker 1: and the growth numbers folks are stunning, whether you see

511
00:25:10,840 --> 00:25:13,840
Speaker 1: him from Cowen or from his good competitors. But Oliver Chen,

512
00:25:14,920 --> 00:25:19,200
Speaker 1: are we learning better to diminish returns? Are like returns less?

513
00:25:19,359 --> 00:25:23,480
Speaker 1: To excuse me to internet our returns less? Now we've

514
00:25:23,520 --> 00:25:27,440
Speaker 1: seen stable rates of return So fashion and apparel retail

515
00:25:27,720 --> 00:25:30,879
Speaker 1: um has fairly high levels of returns, like thirty to fifty.

516
00:25:31,359 --> 00:25:34,760
Speaker 1: But what happens is these business models you know, really

517
00:25:34,800 --> 00:25:39,239
Speaker 1: incorporate returns into their algorithms. So it's been predictable um

518
00:25:39,359 --> 00:25:42,320
Speaker 1: and predictable and a lot of the return rates are

519
00:25:42,400 --> 00:25:45,560
Speaker 1: similar on a year over year basis. The future of

520
00:25:45,640 --> 00:25:49,639
Speaker 1: retail is using augmented reality and other fit techniques and

521
00:25:50,119 --> 00:25:55,960
Speaker 1: understanding your wardrobe to minimize returns. So to minimize returns

522
00:25:58,520 --> 00:26:01,119
Speaker 1: I understanding the wardrobe. It was a square footage of

523
00:26:01,200 --> 00:26:04,159
Speaker 1: the closet filled. Do you know who's got this now? Though?

524
00:26:04,200 --> 00:26:08,160
Speaker 1: Oliver Mr Porter in New York City you can get

525
00:26:08,200 --> 00:26:09,920
Speaker 1: it within a couple of hours and if you don't

526
00:26:10,000 --> 00:26:11,680
Speaker 1: like it, they'll pick it up for you. You never

527
00:26:11,760 --> 00:26:14,639
Speaker 1: have to go out. Yeah, I mean I think that

528
00:26:14,840 --> 00:26:17,320
Speaker 1: happens and then bricks and clicks. You know, tom As

529
00:26:17,359 --> 00:26:20,520
Speaker 1: you know, I'm a big fan of stores and people

530
00:26:20,840 --> 00:26:23,639
Speaker 1: and labor and people talk about to you. But to

531
00:26:24,400 --> 00:26:28,680
Speaker 1: Mr Pharaoh's comment, do people still want to go out?

532
00:26:30,119 --> 00:26:32,800
Speaker 1: They do, but it needs to be better. It needs

533
00:26:32,840 --> 00:26:35,200
Speaker 1: to be fun, It needs to be exciting, need to

534
00:26:35,200 --> 00:26:38,760
Speaker 1: see interesting people and also labor and talent um that

535
00:26:38,920 --> 00:26:42,200
Speaker 1: can be immersive. So if you rethink Gucci and Gucci

536
00:26:42,400 --> 00:26:46,000
Speaker 1: vacation of of retail, um, it's really like a theater.

537
00:26:46,200 --> 00:26:49,159
Speaker 1: It's on the experience. The Gucci vacation of Recha. He

538
00:26:49,320 --> 00:26:54,440
Speaker 1: was early early, It's like an early adopter before we

539
00:26:54,560 --> 00:26:58,400
Speaker 1: lose you just quickly. Thanksgiving came really early this year.

540
00:26:58,800 --> 00:27:03,520
Speaker 1: What is the extra we give to retail that much? Yeah,

541
00:27:03,560 --> 00:27:05,399
Speaker 1: we we do have an extra week. We also have

542
00:27:05,480 --> 00:27:09,280
Speaker 1: an extra day of shopping, so retail will be spread out.

543
00:27:09,359 --> 00:27:12,480
Speaker 1: But I estimate a low single digit boost in terms

544
00:27:12,480 --> 00:27:16,000
Speaker 1: of the week. It's it's um somewhat in the numbers

545
00:27:16,040 --> 00:27:19,240
Speaker 1: and expectations. Retails had a tougher time. Stocks could be

546
00:27:19,359 --> 00:27:22,919
Speaker 1: range bound until January. But we love Walmart, we love coals,

547
00:27:23,000 --> 00:27:25,240
Speaker 1: we like those value plays at the high end, we

548
00:27:25,359 --> 00:27:28,200
Speaker 1: like tiffany Um and other and can you buy the

549
00:27:28,320 --> 00:27:32,440
Speaker 1: European conglomerates. I'm looking at Gucci here earnings with shell pendance.

550
00:27:32,600 --> 00:27:35,920
Speaker 1: It looks like something off a Kiosk in Provincetown eight

551
00:27:36,040 --> 00:27:39,320
Speaker 1: underd ninety dollars earnings with shell pendance at Gucci. And

552
00:27:39,400 --> 00:27:42,359
Speaker 1: how about come on, Oliver the flash Trek sneaker with

553
00:27:42,520 --> 00:27:48,800
Speaker 1: removable crystals. This screams one thousand five hull customizable and

554
00:27:48,880 --> 00:27:52,280
Speaker 1: do it yourself, especially with jewels that fits well. And

555
00:27:52,359 --> 00:27:55,240
Speaker 1: again I think they would complement your brow tie and

556
00:27:55,359 --> 00:28:00,560
Speaker 1: your intellectual because they're okay. Can you buy the foreign glimbers,

557
00:28:00,720 --> 00:28:03,440
Speaker 1: you know the ones I just want to see. I

558
00:28:03,520 --> 00:28:06,440
Speaker 1: just want to see some guccy sneakers to compliment you

559
00:28:06,520 --> 00:28:10,960
Speaker 1: about time. I need to see that. We can we

560
00:28:11,119 --> 00:28:17,000
Speaker 1: can We crowd fund this on Bloomberg Radio and crusted

561
00:28:17,200 --> 00:28:20,880
Speaker 1: and I'll take something simply and elegant, the first Life

562
00:28:21,359 --> 00:28:24,280
Speaker 1: Oliver Chen. Thank god you're going up once a year

563
00:28:24,359 --> 00:28:27,960
Speaker 1: ago away with Cowen and Company, Oliver Chen, and for

564
00:28:28,200 --> 00:28:31,280
Speaker 1: certain and folks, it is hugely entertaining and money making

565
00:28:31,400 --> 00:28:34,639
Speaker 1: research how not to get your shirt taken and treaty

566
00:28:34,680 --> 00:28:40,360
Speaker 1: brilliant research the last five minutes. But yeah, it's treuty impressive. Reset.

567
00:28:40,920 --> 00:28:43,080
Speaker 1: I read it skinned that I should say, to be honest,

568
00:28:43,120 --> 00:28:45,480
Speaker 1: two pages and I walked in Tiffany's and it was

569
00:28:45,520 --> 00:28:47,840
Speaker 1: like Oliver Chen one on one. Yeah, I mean it's

570
00:28:47,880 --> 00:28:53,240
Speaker 1: hilarious how the company has changed. Our next guest, John Farrow,

571
00:28:53,400 --> 00:28:58,120
Speaker 1: is exceptionally qualified in the dynamics of a tangible asset

572
00:28:58,320 --> 00:29:00,640
Speaker 1: and that would be oil. We for yeah, we quote

573
00:29:00,720 --> 00:29:05,000
Speaker 1: West Texas, we quote brand, the financial financial, financial, financial.

574
00:29:05,400 --> 00:29:07,600
Speaker 1: There's also the chemistry of it as well, with a

575
00:29:07,720 --> 00:29:10,560
Speaker 1: doctor from Cambridge in chemical. If I could use a

576
00:29:10,600 --> 00:29:14,400
Speaker 1: technical word, ugly. It has been ugly over the last

577
00:29:14,440 --> 00:29:16,880
Speaker 1: couple of months for the oil bills. Are there any

578
00:29:16,960 --> 00:29:19,239
Speaker 1: left out there? Abisheck disbanded, joining us now a head

579
00:29:19,240 --> 00:29:22,840
Speaker 1: of JP Morgan's global all market research and strategy team.

580
00:29:22,920 --> 00:29:25,000
Speaker 1: Just go through the technical backdrop where we are at

581
00:29:25,000 --> 00:29:28,000
Speaker 1: the moment, Abishek, How long shore is this market right now?

582
00:29:29,680 --> 00:29:32,600
Speaker 1: So if you look at the markets from the net

583
00:29:32,720 --> 00:29:37,800
Speaker 1: length perspective, we have definitely seen a significant reduction of

584
00:29:37,960 --> 00:29:40,920
Speaker 1: the total net length from earlier April long by almost

585
00:29:41,000 --> 00:29:44,560
Speaker 1: seven dred thousand contracts when we had some of the

586
00:29:44,680 --> 00:29:46,920
Speaker 1: recent highs of the year for both Brent and t

587
00:29:47,080 --> 00:29:49,560
Speaker 1: I combined, and in just the second half we've seen

588
00:29:49,600 --> 00:29:53,320
Speaker 1: over five and fifty thousand battles of fifty contracts being

589
00:29:53,480 --> 00:29:56,880
Speaker 1: being reduced. So we had a net long short range

590
00:29:56,920 --> 00:30:00,800
Speaker 1: of almost closed to seventeen uh do in its recent

591
00:30:00,920 --> 00:30:04,480
Speaker 1: highest literally earlier in the second half of the year,

592
00:30:05,080 --> 00:30:07,560
Speaker 1: and now be a down closer to just three and

593
00:30:07,720 --> 00:30:12,000
Speaker 1: and closer to basically realizing that the lengths in the

594
00:30:12,080 --> 00:30:15,600
Speaker 1: market are being removed as investors are turning out to

595
00:30:15,640 --> 00:30:19,640
Speaker 1: be less confident on remaining supportive or prices going forward,

596
00:30:19,840 --> 00:30:22,560
Speaker 1: and at the same time are also increasing their short positions.

597
00:30:22,640 --> 00:30:24,560
Speaker 1: And it really fits the narrative. We've gone from a

598
00:30:24,600 --> 00:30:27,320
Speaker 1: market word about a supply shortage to a market word

599
00:30:27,360 --> 00:30:30,280
Speaker 1: about a supply cloud. I look at the record output

600
00:30:30,360 --> 00:30:32,480
Speaker 1: coming from Saudi Arabia at the moment, I just wonder

601
00:30:32,520 --> 00:30:34,600
Speaker 1: how difficult it will be to pull it back in,

602
00:30:34,760 --> 00:30:37,840
Speaker 1: to introduce price cuts, to introduce output cuts rather, when

603
00:30:37,880 --> 00:30:39,560
Speaker 1: the President of the United States is putting so much

604
00:30:39,600 --> 00:30:43,080
Speaker 1: pressure on the Mabishek. Absolutely, I think it's kind of

605
00:30:43,160 --> 00:30:46,160
Speaker 1: a daja who two thousand fourteen and two thousands sixteen

606
00:30:46,480 --> 00:30:49,240
Speaker 1: same same time around at that time as well, just

607
00:30:49,480 --> 00:30:52,560
Speaker 1: in the run up to the OPEQUE meeting. Part of

608
00:30:52,720 --> 00:30:56,040
Speaker 1: this issue, to be very frank is a self created

609
00:30:56,800 --> 00:30:59,600
Speaker 1: policy lead, I agree, and policy lead this time by

610
00:30:59,720 --> 00:31:04,160
Speaker 1: United States actually uh in terms of US policies bearing

611
00:31:04,200 --> 00:31:08,320
Speaker 1: heavy on opaquelet policies going forward. But at the end

612
00:31:08,360 --> 00:31:11,240
Speaker 1: of the day, the surplus or rather the supply or

613
00:31:11,360 --> 00:31:15,600
Speaker 1: taking demand in the third quarter was pretty much strongly

614
00:31:15,680 --> 00:31:21,600
Speaker 1: driven by the OPEC countries, namely Southirabia. Even Libya is

615
00:31:22,160 --> 00:31:26,280
Speaker 1: less reduced with the destructions helped, and on top of that,

616
00:31:26,440 --> 00:31:29,200
Speaker 1: the other open plus countries, which is Russia, added to

617
00:31:29,280 --> 00:31:33,760
Speaker 1: the AUDI the market. If you take your very careful

618
00:31:33,800 --> 00:31:37,240
Speaker 1: analysis at JP Morgan and then bring it over to

619
00:31:37,480 --> 00:31:40,720
Speaker 1: what to do with equity investment or what not to

620
00:31:40,920 --> 00:31:44,520
Speaker 1: do with equity investment in oil? What is it right now?

621
00:31:44,680 --> 00:31:47,880
Speaker 1: Do I want to buy shares and where or do

622
00:31:48,040 --> 00:31:52,160
Speaker 1: I want to run? So so I'm not an equity analyst,

623
00:31:52,480 --> 00:31:54,800
Speaker 1: I know. Yeah, but if you were to look at

624
00:31:54,920 --> 00:31:58,800
Speaker 1: oil per se, I guess for the time being, from

625
00:31:58,840 --> 00:32:02,040
Speaker 1: the price perspective, we remain supportive because we believe that

626
00:32:02,120 --> 00:32:06,040
Speaker 1: OPEG in two thousands sixteen took a decision that it

627
00:32:06,240 --> 00:32:09,760
Speaker 1: is in their responsibility to help balance the market because

628
00:32:10,040 --> 00:32:13,960
Speaker 1: there was very difficult for them to basically UH compete

629
00:32:14,040 --> 00:32:16,880
Speaker 1: with the US low supply as low cost supply, and

630
00:32:16,960 --> 00:32:21,040
Speaker 1: I believe something similar is what there is likely to

631
00:32:21,160 --> 00:32:24,719
Speaker 1: look into. So the current falling prices is very much

632
00:32:24,720 --> 00:32:26,920
Speaker 1: as a set OPEC let and OPEC need to intervene

633
00:32:26,960 --> 00:32:30,840
Speaker 1: at this point. However, given the fact that we are

634
00:32:30,920 --> 00:32:34,920
Speaker 1: seeing a lot of interference or or or or navigating

635
00:32:34,960 --> 00:32:37,400
Speaker 1: these all markets and current political scenario has become much

636
00:32:37,440 --> 00:32:40,880
Speaker 1: more difficult because of US policies, UH, there is a

637
00:32:40,960 --> 00:32:44,719
Speaker 1: good chance if OPEC does nothing, we will go towards

638
00:32:44,800 --> 00:32:48,560
Speaker 1: our own GP morven lower price scenario, gravitate towards that

639
00:32:49,040 --> 00:32:52,200
Speaker 1: as as Oil will have limited reason to remain supportive

640
00:32:52,440 --> 00:32:59,680
Speaker 1: if OPEC does nothing. I Diden's Global or Market Research

641
00:32:59,760 --> 00:33:04,800
Speaker 1: and Strategy Tank. Thanks for listening to the Bloomberg Surveillance podcast.

642
00:33:05,200 --> 00:33:10,080
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

643
00:33:10,280 --> 00:33:14,560
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

644
00:33:14,680 --> 00:33:18,520
Speaker 1: Keene Before the podcast, you can always catch us worldwide.

645
00:33:19,000 --> 00:33:20,080
Speaker 1: I'm Bloomberg Radio