WEBVTT - Surveillance: Unemployment Rate Is Going Nowhere, Sweeney Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane jay Ley. 0:00:13.960 --> 0:00:16.960 We bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:22.480 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, 0:00:22.880 --> 0:00:26.319 sound Cloud, Bloomberg dot Com and of course on the 0:00:26.320 --> 0:00:29.880 Bloomberg Very pleased to welcome right here on Bloomberg Surveillance. 0:00:29.960 --> 0:00:32.559 On Westminster Green Nicki Morgan, the Chair of the Treasury 0:00:32.560 --> 0:00:35.760 Select Committee and a Conservative member of Parliament and also 0:00:35.800 --> 0:00:39.000 with us to top Markets and many other things. Rupert Harrison, 0:00:39.000 --> 0:00:42.680 black Rock multi Asset Strategies portfolio manager and also former 0:00:42.760 --> 0:00:45.639 chief of staff to a Chancellor Georgia Osborne. So thank 0:00:45.680 --> 0:00:47.720 you both for joining us. Think you more. Let me 0:00:47.760 --> 0:00:51.240 start off with you. How does the Prime Minister get 0:00:51.280 --> 0:00:54.160 this through Parliament? Well, I think that she's got also 0:00:54.320 --> 0:00:56.120 very busy two and a half weeks. But to do that, 0:00:56.160 --> 0:00:58.760 we expect the vote to be on the twelfth of December, 0:00:59.000 --> 0:01:01.760 and I think what she's doing strategy is to appeal 0:01:01.760 --> 0:01:05.240 to our constituents, actually to appeal to members of the public. 0:01:05.720 --> 0:01:09.920 My inbox is absolutely full of constituents rightly having their 0:01:09.959 --> 0:01:12.720 say about this very important deal, and people from around 0:01:12.720 --> 0:01:14.080 the rest of the country, but I'm going to concentrate 0:01:14.120 --> 0:01:17.240 on my constituents um at the moment that the views 0:01:17.280 --> 0:01:19.520 are obviously sort of dived into three. There are those 0:01:19.560 --> 0:01:22.600 who want a second vote, there are those who are 0:01:22.640 --> 0:01:24.600 happy to leave with no deal. But there's actually a 0:01:24.680 --> 0:01:27.000 vast amount in the middle who are saying, you know what, 0:01:27.040 --> 0:01:29.000 We've had two years of this. We need Brexit to 0:01:29.040 --> 0:01:31.680 be settled. No deal is ever going to be perfect. Please, 0:01:31.680 --> 0:01:33.520 will you just say say yes and get on? And 0:01:33.520 --> 0:01:35.280 people are really interested. I mean I thought over the 0:01:35.280 --> 0:01:39.280 weekend back in my constituency. It came up absolutely everywhere, 0:01:39.760 --> 0:01:41.560 any kind of ent. I was at people who are 0:01:41.640 --> 0:01:44.399 not considered to be political. They were really really keen 0:01:44.440 --> 0:01:46.000 to discuss it and to get my views, and I 0:01:46.080 --> 0:01:48.440 was it's really important I hear from them. But looking 0:01:48.480 --> 0:01:50.800 at the numbers, how difficult is it if you look 0:01:50.800 --> 0:01:53.360 at parliamentary arithmetic for her to get it through parliament, 0:01:53.360 --> 0:01:55.240 and what happens that she doesn't. Is there a second 0:01:55.240 --> 0:01:57.760 referendum attached to it? Well, I think, look, of course 0:01:57.760 --> 0:01:59.760 it's going to be challenging. There are a number of 0:01:59.760 --> 0:02:02.640 my colleagues in the Conservative parties, whereas opposition MPs who 0:02:02.720 --> 0:02:05.320 said they will not vote for the deal. Two and 0:02:05.320 --> 0:02:07.120 a half weeks is a very long time in politics, 0:02:07.160 --> 0:02:09.040 as I think, as we see the Brexit, things changed 0:02:09.080 --> 0:02:11.600 by by the hour. So I don't think we should 0:02:11.600 --> 0:02:13.480 say this is not going to get through at the moment. 0:02:13.520 --> 0:02:15.840 But I'm doubtingly it's going to be challenging. That difficulty 0:02:15.880 --> 0:02:17.799 speculating is you know what happens if it doesn't get 0:02:17.800 --> 0:02:20.720 through Parliament. There is no majority in Parliament for a 0:02:20.880 --> 0:02:23.560 no deal Brexit, so parliament MP's will have to work 0:02:23.600 --> 0:02:25.440 out what are we going to do in order to 0:02:25.480 --> 0:02:28.280 make sure that doesn't unfold. I also don't think there's 0:02:28.280 --> 0:02:30.720 a majority for a second vote. It would take a 0:02:30.720 --> 0:02:32.840 long time to put that in place. What question would 0:02:32.840 --> 0:02:34.560 be asked? What do we do if the result is 0:02:34.600 --> 0:02:37.720 no different or any marginally different from twenty sixteen? It 0:02:37.760 --> 0:02:40.600 just creates longer term uncertainty. So I think it's right 0:02:40.600 --> 0:02:41.840 in a way. The PM is doing the right thing, 0:02:41.919 --> 0:02:44.920 which is concentrating day by day on making the case 0:02:45.000 --> 0:02:50.919 for her deal. What happens the day after Parliament votes 0:02:51.000 --> 0:02:57.560 this down? That is a very good question. I mean, 0:02:57.560 --> 0:03:00.120 I think we can't absolutely rule out the possibility that 0:03:00.240 --> 0:03:02.160 Theresa May will manage to get the votes for this deal. 0:03:02.200 --> 0:03:04.519 You've got to remember the last two years the amount 0:03:04.600 --> 0:03:06.840 of comment true I've heard saying a deal would be impossible. 0:03:07.600 --> 0:03:09.120 You know, neither side would be able to make the 0:03:09.160 --> 0:03:11.360 compromises necessary. So we have this crucial fact now that 0:03:11.360 --> 0:03:14.160 there is a deal on the table. Your question is 0:03:14.200 --> 0:03:16.440 the right question, though, because I do think the probability 0:03:16.800 --> 0:03:19.360 balance of probabilities favored the deal failing. I think what 0:03:19.440 --> 0:03:22.320 happens next depends crucially now on the margin of that failure. 0:03:22.320 --> 0:03:24.240 I think if if the deal is lost by just 0:03:24.320 --> 0:03:26.680 ten to twenty votes, then I think the game is 0:03:26.680 --> 0:03:29.679 still on. I think there's a possibility, despite the fact 0:03:29.760 --> 0:03:32.680 that EU leaders say there isn't of small tweaks, particularly 0:03:32.720 --> 0:03:35.520 to the Future Relationship Document, maybe two parts of the 0:03:35.560 --> 0:03:40.040 withdrawal Agreement, and maybe that combined with some marketing business pressure, 0:03:40.120 --> 0:03:41.400 might get it over the line. I think if the 0:03:41.440 --> 0:03:44.480 margin is much bigger, then we are into Plan b's 0:03:44.520 --> 0:03:47.480 and I think the interesting questions then are is Theresa 0:03:47.560 --> 0:03:50.080 May able to stay around to to lead that Plan B? 0:03:50.440 --> 0:03:51.960 And what does that plan be look like? I think 0:03:52.000 --> 0:03:54.560 it is something much more like an E a ffter 0:03:54.680 --> 0:03:58.240 type arrangement trying to win over some labor votes. NICKI Morrigan, 0:03:58.320 --> 0:04:00.720 what I find here from a distant and I'm speaking 0:04:00.760 --> 0:04:04.440 as a distinct amateur and all things Brexit is the 0:04:04.520 --> 0:04:08.160 idea that we're going to somehow amen or renegotiate or 0:04:08.240 --> 0:04:11.440 there I don't hear that from Brussels. Is there any 0:04:11.440 --> 0:04:16.960 wiggle room here from members of Parliament? Well, I think 0:04:16.960 --> 0:04:18.920 you're certainly right. That's not the message we heard loud 0:04:18.920 --> 0:04:22.560 and clear from Brussels over the weekend, and I think 0:04:22.560 --> 0:04:26.360 that there is certainly in Parliament there is potential appetite 0:04:26.440 --> 0:04:28.880 for some. Of course, there are some people who want 0:04:29.040 --> 0:04:32.560 the fundamentals of the withdrawal agreement, which basically relates to 0:04:32.800 --> 0:04:36.159 the backstop relating to the border between Northern Ireland the 0:04:36.160 --> 0:04:39.000 Republic of Ireland, to be renegotiated. I don't think that's 0:04:39.120 --> 0:04:42.920 up for negotiation renegotiation, but I do think the potential 0:04:42.960 --> 0:04:45.960 has Rupert has said some kind of further move towards 0:04:45.960 --> 0:04:49.239 an access to the E a greater access via after 0:04:49.480 --> 0:04:52.039 the so called Norway model UM and of course we 0:04:52.120 --> 0:04:55.760 have already agreed a UK wide customs arrangement for a 0:04:55.800 --> 0:04:59.359 period of time is a possibility. The EU at the 0:04:59.360 --> 0:05:01.760 moment of you're giving nothing away about whether they would 0:05:01.880 --> 0:05:05.680 entertain that. But you know, I think Rupert when he 0:05:05.720 --> 0:05:08.480 was advising in the Treasury and I was EU Budget Minister, 0:05:08.520 --> 0:05:10.960 we all know that no EU negotiation has ever quite 0:05:11.000 --> 0:05:13.400 done until the eleventh Hower, and we don't reach that 0:05:13.560 --> 0:05:15.960 leventh Hower until the twenty ninth of March next year. 0:05:16.200 --> 0:05:18.480 Although I think we all hope for our sanity and 0:05:18.560 --> 0:05:21.400 for certainty for businesses and others, that we achieve a 0:05:21.400 --> 0:05:24.159 resolution to this a long time for fore March next year. 0:05:24.240 --> 0:05:28.200 And nickum Oregon, if this tourism may deal fails in Parliament, 0:05:28.240 --> 0:05:30.840 for you back a second referendum, No, I'm not keen 0:05:30.880 --> 0:05:33.119 on a second referend. I really feel very strongly about 0:05:33.120 --> 0:05:35.720 this that actually I think our first referendum, which you 0:05:35.760 --> 0:05:37.839 know I supported and I understood that it was something 0:05:37.839 --> 0:05:40.160 people wanted to have her say on, but I think 0:05:40.200 --> 0:05:43.359 references cut across our our representative democracy that we have 0:05:43.760 --> 0:05:47.799 with six fifty MPs elect sort this out, and actually, 0:05:47.880 --> 0:05:50.320 if we can't do that, then I think there is 0:05:50.320 --> 0:05:53.000 something much greater that is in trouble in our parliamentary 0:05:53.080 --> 0:05:56.719 representative democracy. So for a number of practical reasons, but 0:05:56.800 --> 0:05:59.080 also a big constitutional reason, I think a second vote 0:05:59.080 --> 0:06:01.160 would be a very bad I do. Even if you 0:06:01.200 --> 0:06:03.840 could argue, then actually we're better off, you know, we 0:06:03.839 --> 0:06:06.520 were better off in the EU than with the current deal. Well, 0:06:06.560 --> 0:06:09.480 look I argue that case. Obviously we didn't know about 0:06:09.480 --> 0:06:11.080 this this deal on the table now, but I argued 0:06:11.120 --> 0:06:14.640 the case remaining EU very strongly, as did many many 0:06:14.640 --> 0:06:17.480 other people in six seventeen million people in this country 0:06:17.560 --> 0:06:19.599 took a different view. I think there will be a 0:06:19.640 --> 0:06:22.840 crisis our democracy if we said sorry, you know no 0:06:22.960 --> 0:06:24.960 kind of the Treasury Select Committee, which I chair, is 0:06:25.000 --> 0:06:27.000 going to be looking at the government's analysis of the 0:06:27.040 --> 0:06:29.200 deal and the Bank of England's analysis this week and 0:06:29.320 --> 0:06:32.640 holding evidence sessions which I'm sure Bluebird viewers will find 0:06:32.880 --> 0:06:35.280 a great interest. No deal is ever going to be 0:06:35.279 --> 0:06:37.120 as good as the one we've got. But people voted 0:06:37.120 --> 0:06:39.280 for change, and I think the deal the plan is 0:06:39.279 --> 0:06:41.880 put on the table respects that but also doesn't crash 0:06:41.880 --> 0:06:43.960 our economy. Well, I'm going to rip up the script, 0:06:44.000 --> 0:06:46.560 Nicky Moore, are going to mean people voted for change. 0:06:46.880 --> 0:06:50.479 What's the change right now other than the presumption that 0:06:50.640 --> 0:06:56.440 Parliament isn't going to go for this. Well, you're right. 0:06:56.480 --> 0:06:59.120 I mean, the point is that we've had two years 0:06:59.160 --> 0:07:02.880 basically of sort of UK politics stalling whilst this Brexit 0:07:02.960 --> 0:07:06.640 deal has been negotiated, and we will carry on having 0:07:06.720 --> 0:07:09.359 two years more of stalling if we don't get this 0:07:09.400 --> 0:07:12.320 withdrawal agreement agreed and embark on the transition period. Now, 0:07:12.320 --> 0:07:14.520 not much is going to change in this transition period, 0:07:15.080 --> 0:07:18.320 but I think people will begin to see that their opposibility. 0:07:18.320 --> 0:07:19.680 So obviously I do a lot of work and looking 0:07:19.680 --> 0:07:21.640 at financial services, and I think it'd be fair to 0:07:21.680 --> 0:07:24.240 say that in the City of London and elsewhere there's 0:07:24.240 --> 0:07:27.360 appetite for thinking about, well, you know, we've we've obviously 0:07:27.360 --> 0:07:30.000 stuck very close to being very influential in financial service regulations. 0:07:30.160 --> 0:07:31.880 If we're not going to be part of that, then 0:07:31.920 --> 0:07:34.080 what would we do differently? Where might we face, What 0:07:34.160 --> 0:07:36.880 international standards would we look at following for example. It's 0:07:36.920 --> 0:07:39.320 going to take quite a long time for that to unfold. 0:07:39.600 --> 0:07:41.480 Is not going to happen anytime soon, but those are 0:07:41.520 --> 0:07:44.160 the kinds of discussions that I can see people beginning 0:07:44.200 --> 0:07:47.240 just to think about. In my discussions with financial institutions, 0:07:47.280 --> 0:07:49.320 you know, Nicki morg and I know you were transfixed 0:07:49.320 --> 0:07:52.400 by Chelsea and Saturday, but by Sunday you were begged 0:07:52.440 --> 0:07:55.360 of figuring out who's going to replace Prime Minister May? 0:07:55.440 --> 0:07:57.320 Is there a discus, I mean, in this one week 0:07:57.400 --> 0:08:00.880 interregnum before we actually get to the parliament vote, is 0:08:00.880 --> 0:08:03.600 there a form blown discussion about who will replace the 0:08:03.720 --> 0:08:06.800 Prime Minister? Or am I being rude and asking their question? 0:08:09.600 --> 0:08:12.400 You're not really me asked the question because unfortunately a 0:08:12.440 --> 0:08:15.280 number of my colleagues put that question on the table 0:08:15.440 --> 0:08:17.240 earlier on this month when they said they were going 0:08:17.240 --> 0:08:19.800 to gather letters to unseat the Prime minister. As we 0:08:19.840 --> 0:08:22.080 know that attempt failed, I think it would be the 0:08:22.120 --> 0:08:25.320 height of madness to change prime minister. Now, although I 0:08:25.320 --> 0:08:27.360 take group it's point obviously about if a prime minister 0:08:27.400 --> 0:08:30.440 loses a major vote, what do they do? And look, 0:08:30.440 --> 0:08:33.000 of course there is there is discussion, nothing formal, And 0:08:33.040 --> 0:08:36.280 the honest truth is there is no obvious replacement because 0:08:36.280 --> 0:08:39.240 who ever takes over the job inherits exactly the same 0:08:39.480 --> 0:08:42.760 parliamentary arithmetic. So actually they're not going to have any 0:08:42.840 --> 0:08:46.320 better of a landscape in which to negotiate this. And 0:08:46.360 --> 0:08:48.480 so actually I think for all the reasons that we've heard, 0:08:48.679 --> 0:08:51.760 the Prime Minister has shown remarkable resilience and stoicism. I've 0:08:51.760 --> 0:08:53.520 had my run ins with her, but on this I 0:08:53.559 --> 0:08:56.760 have to say I think she absolutely is acting in 0:08:56.960 --> 0:08:58.719 the country's best interest and that's why she wants to 0:08:58.720 --> 0:09:00.280 go and talk to the country about the deal. Now, 0:09:00.920 --> 0:09:03.000 how should investors and markets actually look at this? So 0:09:03.040 --> 0:09:04.920 does it all play in pound and what exactly is 0:09:04.960 --> 0:09:07.520 priced in right now? Is it no deal first time? 0:09:07.760 --> 0:09:10.040 But actually there's a second vote and it gets through. Yes. 0:09:10.080 --> 0:09:11.800 So there's been a lot of commentary around the idea 0:09:11.880 --> 0:09:15.000 that market reaction to a deal failing might change opinions. 0:09:15.000 --> 0:09:17.240 The problem is that's now I think pretty much priced in. 0:09:17.280 --> 0:09:19.200 I think most people in markets are expecting the deal. 0:09:20.920 --> 0:09:23.120 I've actually been sort of identified as the originating this 0:09:23.200 --> 0:09:25.600 top idea, but it was actually a prediction rather than 0:09:25.640 --> 0:09:27.319 a recommendation. One of the key things about this is 0:09:27.360 --> 0:09:28.760 the more he gets talked about, the more it gets 0:09:28.760 --> 0:09:31.360 priced in advance. So I suspect that, particularly if the 0:09:31.400 --> 0:09:33.920 vote is quite cloaked, I don't think markets would respond 0:09:34.240 --> 0:09:36.600 very negatively to a vote failing at this point, and 0:09:36.640 --> 0:09:38.520 I think that a lot of that is because all 0:09:38.559 --> 0:09:41.160 of these plan B s are actually more market friendly 0:09:41.559 --> 0:09:44.720 than the vote, the vote passing, particularly the option, so 0:09:44.720 --> 0:09:46.920 you're going to end up with markets having a problem 0:09:46.920 --> 0:09:49.800 of pricing. Still this I think personally very small tail 0:09:49.880 --> 0:09:52.760 risk of an actual disruptive no deal exit and the 0:09:52.840 --> 0:09:56.040 possibility of something that actually more market friendly along the 0:09:56.040 --> 0:09:58.600 e A lines. I think that the reason we haven't 0:09:58.600 --> 0:10:00.920 seen more volatility is becau as people are looking through 0:10:00.960 --> 0:10:03.800 the first vote to those other options already. Nicki Morrigan 0:10:03.840 --> 0:10:05.520 as head of the Treasure Select Committee sor of course 0:10:05.520 --> 0:10:08.040 a bomber reviewers know you because you interrogate some of 0:10:08.240 --> 0:10:11.240 the movers and shakers. Are you confidence that they're prepared 0:10:11.480 --> 0:10:15.320 for it, for anything happening with Brexit? Well, that's some 0:10:15.320 --> 0:10:17.000 of the questions we've been asking. The honest truth is, 0:10:17.040 --> 0:10:18.800 I think if there were to be a no deal Brexit, 0:10:18.880 --> 0:10:22.680 preparations are not all in place. And we had the 0:10:22.720 --> 0:10:26.240 head of HMRC Revenue and Customs before us last week 0:10:26.520 --> 0:10:28.200 and we asked him about the systems that would be 0:10:28.240 --> 0:10:30.640 necessary in the event of a no deal or even 0:10:30.679 --> 0:10:33.280 if we were to allow on that the Northern Ireland backstop, 0:10:33.480 --> 0:10:35.640 and the honest truth is those plans are. They can't 0:10:35.640 --> 0:10:37.240 put them in place because they don't yet know what 0:10:37.240 --> 0:10:40.480 the parameters are to design the necessary software and systems. 0:10:40.679 --> 0:10:42.480 And that's a major part. So what he was basic 0:10:42.559 --> 0:10:45.439 saying was they have to balance eventually in this scenario, 0:10:45.760 --> 0:10:50.480 raising money, security and obviously the sort of the border 0:10:50.559 --> 0:10:52.559 checks and everything else. And you know it's going to 0:10:52.640 --> 0:10:54.640 be a question of nothing. It would be I think 0:10:54.640 --> 0:10:57.439 you described a suboptimal what would happen if we were 0:10:57.480 --> 0:10:59.960 to leave with no deal without the necessary systems in place? 0:11:00.280 --> 0:11:03.560 Missab can sub optimal brings up Heathrow. Let me cut 0:11:03.559 --> 0:11:07.440 to the chase. How are our customs going to change it? Heathrow? 0:11:07.880 --> 0:11:09.760 I mean you come in now and there's EU and 0:11:09.840 --> 0:11:12.440 they get through in two seconds, and everybody else like 0:11:12.559 --> 0:11:15.320 ugly Americans it takes three hours to get through customs 0:11:15.320 --> 0:11:18.760 and get that. But but how do you perceive Heathrow 0:11:18.840 --> 0:11:24.400 will be after this agreement? Well, look, it's a really 0:11:24.400 --> 0:11:26.480 it's a really good question. I think there are plans 0:11:26.520 --> 0:11:28.760 being made in the Home Office too. And of course 0:11:28.800 --> 0:11:32.520 you're talking now about people and borders, um, and you 0:11:32.520 --> 0:11:34.720 know I was passing through the border just last week 0:11:34.760 --> 0:11:37.120 myself and looked up and thought, well, I wonder what 0:11:37.120 --> 0:11:39.720 the science are gonna look like from either March next 0:11:39.800 --> 0:11:43.040 year or from one at the moment. Of course, if 0:11:43.080 --> 0:11:46.320 you are part of Switzerland or part of the e A, 0:11:46.800 --> 0:11:49.800 you still get to go through the quicker cute, shall 0:11:49.840 --> 0:11:52.600 we say? Now you know, is that something that can 0:11:52.600 --> 0:11:55.880 be negotiated and all those sorts of questions. And Heathrow 0:11:56.000 --> 0:11:58.960 is also a huge freight port, or we don't often 0:11:59.000 --> 0:12:00.400 think about it that way, but of course they bring 0:12:00.400 --> 0:12:02.720 in freight from around the world. But one of the 0:12:02.760 --> 0:12:05.000 things that's going to have to change, I think, almost 0:12:05.080 --> 0:12:07.640 regardless of what happens eventually, is we've got a hundred 0:12:07.679 --> 0:12:11.040 and forty thousand small companies in this country who before 0:12:11.080 --> 0:12:13.440 now have only exported to the EU, so they're not 0:12:13.480 --> 0:12:15.760 filling informed and having to all the paperwork. If you 0:12:15.760 --> 0:12:17.280 you do, if you export the rest of the world, 0:12:17.640 --> 0:12:20.520 that's going to change and training and getting people used 0:12:20.520 --> 0:12:23.079 to those sorts of forms that all takes time. Of course, 0:12:23.120 --> 0:12:25.680 it can be done, but it takes time. And while 0:12:25.679 --> 0:12:27.040 people are going to use the new system, what they 0:12:27.080 --> 0:12:29.160 won't be doing is they won't be exporting. And that's 0:12:29.160 --> 0:12:31.400 when you start seeing the damage unfoard into our economy. 0:12:31.600 --> 0:12:34.959 That's why no deal Brexit is so potentially damaging. Nicki Morrigan, 0:12:35.000 --> 0:12:37.600 We're in November twenty six. Where are the chances of 0:12:37.720 --> 0:12:41.600 the UK actually inadvertently or advertently leaving the EU, the 0:12:41.720 --> 0:12:44.920 eun in a messy way crashing. I think that's that's 0:12:45.080 --> 0:12:47.079 quite high, actually, am I. It was an event on Friday, 0:12:47.120 --> 0:12:49.040 and I put it at fifty, you know, a no 0:12:49.160 --> 0:12:52.239 deal Brexit because actually, if this agreement doesn't get approved 0:12:52.240 --> 0:12:55.600 by Parliament and Parliament is able to come up with 0:12:56.000 --> 0:12:59.559 an alternative, and it is possible that the government's might say, okay, 0:12:59.559 --> 0:13:01.240 well that's it's you know, we are going to go 0:13:01.320 --> 0:13:03.080 for a no deal and we're just going to spend 0:13:03.080 --> 0:13:06.400 the next three months frantically preparing for that. We find 0:13:06.400 --> 0:13:09.160 ourselves sliding out, and my worry is that my colleagues, 0:13:09.160 --> 0:13:11.440 who for very religious reasons are pushing a second boat 0:13:11.520 --> 0:13:14.439 or wanting something else to to happen, may find we 0:13:14.520 --> 0:13:16.320 run out of road on all those options and we 0:13:16.400 --> 0:13:19.000 end up sliding out. All right. Thank you both, Nicki Morrigan, 0:13:19.040 --> 0:13:21.679 THEO the Chair of the Treasury Select Committee joining us today, 0:13:21.720 --> 0:13:26.200 and Rupert Harrison and Black Rocket What a week we've 0:13:26.240 --> 0:13:28.840 got coming up for you, speeches from FED Vice Chairman 0:13:28.920 --> 0:13:32.160 Clarinda on Tuesday, Chairman Pal on Wednesday, and a much 0:13:32.200 --> 0:13:35.240 anticipated G twenty meeting to round out the week. Once 0:13:35.320 --> 0:13:38.960 central question going into do we face a soft landing 0:13:39.320 --> 0:13:41.360 or are we well on the road to a recession 0:13:41.440 --> 0:13:43.640 we slowed down? Joining me to answer that question, the 0:13:43.640 --> 0:13:46.839 man who posed their question, James Sweeney Credit Sweet, chief 0:13:46.880 --> 0:13:49.960 economist and head of Global fixed income at Economic Research, 0:13:50.320 --> 0:13:52.840 joins us. Now, good wanna, James, good morning. So walk 0:13:52.920 --> 0:13:54.840 me through this because I think this is a massive 0:13:54.880 --> 0:13:58.319 debate right now whether we're returning to trend growth in 0:13:58.360 --> 0:14:00.560 the United States and in Europe as well of that matter, 0:14:00.880 --> 0:14:03.400 or whether something more sinister is taking place in the 0:14:03.400 --> 0:14:07.840 global economy. Yeah. The way I would define a soft landing, 0:14:07.880 --> 0:14:11.040 which often doesn't feel so soft from an equity market perspective, 0:14:11.679 --> 0:14:16.240 is when you see weak manufacturing growth, small falling p 0:14:16.400 --> 0:14:19.960 m s, stress and markets, but the labor market and 0:14:20.000 --> 0:14:22.880 inflation are basically fine and and on trend, and so 0:14:22.920 --> 0:14:25.960 in GDP terms, that might mean you're a little bit 0:14:26.000 --> 0:14:29.760 below you know, two for a while, um, but really 0:14:29.800 --> 0:14:32.720 it's a manufacturing story and that's really what we're expecting. 0:14:32.720 --> 0:14:36.240 So we're expecting manufacturing weakness. I really don't see a 0:14:36.360 --> 0:14:39.760 very likely scenario where the US unemployment rate shoots up sharply, 0:14:40.000 --> 0:14:41.880 and that's what a recession is. At this line in 0:14:41.920 --> 0:14:44.720 your research just jumped down at me. Market perceptions of 0:14:44.720 --> 0:14:48.840 global growth have been heavily influenced by the performance of 0:14:48.880 --> 0:14:53.920 the automobile sector. What is happening in autos? That is temporary? Yeah, so, 0:14:54.040 --> 0:14:57.240 I mean, you know, market perceptions of growth are are 0:14:57.280 --> 0:14:59.840 really driven by p M I S p M EZ 0:14:59.920 --> 0:15:03.280 or driven by manufacturing growth and industrial production. And in 0:15:03.280 --> 0:15:06.160 the last six or nine months, manufacturing growth has been 0:15:06.240 --> 0:15:09.040 driven pardon the pun, by the by the auto sector. 0:15:09.080 --> 0:15:13.800 In fact, we estimate that global industrial production x autos 0:15:14.160 --> 0:15:17.120 has actually been flat at trend like pretty good growth 0:15:17.480 --> 0:15:19.920 since since the beginning of the year. So what's happening 0:15:19.920 --> 0:15:23.600 in autos is You've had tax increases in China leading 0:15:23.640 --> 0:15:26.720 to very slow auto sales. You've had storms and a 0:15:26.760 --> 0:15:30.560 typhoon in in Japan which led to a significant disruption 0:15:31.160 --> 0:15:35.600 um in in production and and exports um In the US, 0:15:36.080 --> 0:15:39.560 you haven't had such a disruption except that uh TESTLA 0:15:39.640 --> 0:15:42.240 sales Model three sales with the number one car recently, 0:15:42.280 --> 0:15:46.160 which may be impacting uh some exports. And in Europe 0:15:46.240 --> 0:15:50.560 you've had this regulatory change where a Volkswagen apparently you know, 0:15:50.640 --> 0:15:54.040 missed a deadline to re retool some of their production 0:15:54.160 --> 0:15:57.080 for diesel and it caused production to to really plumme 0:15:57.080 --> 0:15:58.800 it for for a little while. Um and that was 0:15:58.840 --> 0:16:01.640 September October, and we think now it's coming back. And 0:16:01.680 --> 0:16:03.520 when you really look at all this in the soup, 0:16:03.920 --> 0:16:06.080 what does it mean for car sales? What does it 0:16:06.120 --> 0:16:09.400 mean for industrial production of cars? Globally it's been a 0:16:09.400 --> 0:16:12.400 significant shock And when you do the numbers carefully worldwide 0:16:12.760 --> 0:16:16.600 again X autos, there has been no slowdown in manufacturing. 0:16:16.680 --> 0:16:18.800 So listening to what you're saying, James, essentially is that 0:16:18.840 --> 0:16:22.040 the slowdown worldwide is being technically driven. There are no 0:16:22.160 --> 0:16:24.960 real fundamental underpinnings to this. And if we are transitioning 0:16:24.960 --> 0:16:28.080 back towards trend growth in between, imagine we're gonna have 0:16:28.120 --> 0:16:30.080 a lot of volatility in the market where prices you 0:16:30.160 --> 0:16:32.800 point out, really sets narrative, and the narrative at the 0:16:32.840 --> 0:16:36.120 moment is very, very worried about a real deceleration through 0:16:37.280 --> 0:16:39.720 underpinned by real slowdown in the United States and the 0:16:39.760 --> 0:16:42.320 federal Reserve that seemingly hasn't woken up to that yet. 0:16:42.520 --> 0:16:44.360 So walk me through how you think this is going 0:16:44.400 --> 0:16:48.240 to play out. Yeah, So again I separate manufacturing from 0:16:48.280 --> 0:16:51.640 the broad economy and the labor market, and in manufacturing 0:16:51.640 --> 0:16:54.920 in the short run, the German factories are turning back on, 0:16:55.040 --> 0:16:57.880 so you're gonna have a rebound there in China. This 0:16:57.960 --> 0:17:01.040 is complicated, but you get farther away from when the 0:17:01.040 --> 0:17:03.880 taxes went up in January, but there's expectations of the 0:17:03.920 --> 0:17:06.680 taxes could go down again. Very strange for a company 0:17:06.720 --> 0:17:09.800 to be lowering and then raising or you know, reversing 0:17:09.960 --> 0:17:13.600 taxes on one product within a year. But basically, we 0:17:13.600 --> 0:17:16.720 we think as as Japanese production comes back, German production 0:17:16.760 --> 0:17:18.639 comes back in the next three months or so, we're 0:17:18.680 --> 0:17:21.560 gonna see better auto production again. When we get through that. 0:17:21.640 --> 0:17:23.800 We're gonna have the impact of the trade war. We're 0:17:23.800 --> 0:17:26.880 gonna have the impact of tightening financial conditions. We're gonna 0:17:26.880 --> 0:17:28.960 have the impact of lower oil prices on mining and 0:17:29.080 --> 0:17:32.240 energy capex. All of those things together are likely to 0:17:32.240 --> 0:17:35.159 put downward pressure on manufacturing growth next year. None of 0:17:35.160 --> 0:17:37.360 them are likely to be sufficient to drive the US 0:17:37.440 --> 0:17:40.240 unemployment rate up. That's a soft landing. That's what we're 0:17:40.240 --> 0:17:42.280 expecting for next year. So it is a rocky time. 0:17:42.480 --> 0:17:44.720 It's just not a disaster. Give us a statistic on 0:17:45.000 --> 0:17:47.960 your your two percent call on GDP two point one, 0:17:48.359 --> 0:17:51.200 two point four, two point four percent. How does Chairman 0:17:51.240 --> 0:17:55.639 Powell's tone change moving from make America great again to 0:17:55.760 --> 0:17:58.480 two point four percent? Well, two point four percent is 0:17:58.480 --> 0:18:01.520 not bad. And I agree with a couple of hikes 0:18:01.560 --> 0:18:04.280 next year. And I think what you're seeing in initial 0:18:04.320 --> 0:18:07.080 claims and payrolls and wage growth and all those sorts 0:18:07.080 --> 0:18:10.720 of things, consumption and retail sales is consistent with the 0:18:10.760 --> 0:18:13.520 need to continue hiking. But the market, as always, is 0:18:13.520 --> 0:18:15.199 going to look at a p M I is going 0:18:15.240 --> 0:18:18.000 to look at a manufacturing companies, you know, earnings being 0:18:18.040 --> 0:18:21.439 revised down. I mean, I mean, you and I are 0:18:21.440 --> 0:18:24.560 gonna be Economic Club of New York and Wednesday we're 0:18:24.560 --> 0:18:26.639 gonna be sitting there and moving the vegetables around the 0:18:26.840 --> 0:18:29.879 on the plate. Why didn't he just say, you know, 0:18:29.920 --> 0:18:32.320 we're looking at what's out there. We think we're gonna 0:18:32.400 --> 0:18:34.840 raise once or twice and then we're really going to 0:18:35.040 --> 0:18:38.760 study things come July or whatever that that date point is. 0:18:38.760 --> 0:18:40.639 I think, why can't he say that. He is going 0:18:40.720 --> 0:18:42.600 to say that, maybe not as clear as you just did, 0:18:42.600 --> 0:18:44.560 but I think he's gonna he's gonna hint at that. 0:18:44.640 --> 0:18:47.920 I mean, the the the central of the central kind 0:18:47.920 --> 0:18:50.840 of estimate of that neutral rate that they talk about 0:18:50.960 --> 0:18:54.159 is around three percent, which basically is a hike in 0:18:54.160 --> 0:18:56.399 in December, and it's maybe two more next year. And 0:18:56.440 --> 0:18:59.760 that's our forecast. And I think reassessing when you get 0:18:59.760 --> 0:19:02.560 there makes sense, but you know along the way it 0:19:02.600 --> 0:19:06.119 will likely slow manufacturing growth and continued to weigh in 0:19:06.160 --> 0:19:07.960 financial marks. I think what would really help them right 0:19:08.040 --> 0:19:09.560 now is if they did not have the summary of 0:19:09.600 --> 0:19:11.800 economic projections and we did not know what the median 0:19:11.880 --> 0:19:14.840