WEBVTT - Daybreak Weekend: Fed Meeting, Eurozone Data, BOJ Decision 0:00:02.920 --> 0:00:08.280 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.880 --> 0:00:13.440 This is Bloomberg Daybreak Weekend, our global look at the 0:00:13.480 --> 0:00:16.040 top stories in the coming week from our Daybreak anchors 0:00:16.079 --> 0:00:18.320 all around the world, and straight ahead on the program, 0:00:18.320 --> 0:00:20.599 a look ahead to this week's FED meeting, what it 0:00:20.720 --> 0:00:24.360 means for monetary policy. I'm Tom Busby in New York. 0:00:24.640 --> 0:00:27.040 I'm Caroline Head in London, where we're looking ahead to 0:00:27.080 --> 0:00:29.319 the Eurozones Big economic data job. 0:00:29.560 --> 0:00:31.960 I'm Brian Curtis in Hong Kong. We look ahead to 0:00:32.000 --> 0:00:36.040 the machinations of one key central bank, and then what's 0:00:36.120 --> 0:00:38.440 next for a key industry that would hope to curb 0:00:38.520 --> 0:00:40.000 the power of central banks. 0:00:43.880 --> 0:00:47.840 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:47.880 --> 0:00:51.360 Eyleod on Free Own, New York, Bloombergen ninety nine to one, Washington, 0:00:51.479 --> 0:00:55.680 d C, Bloomberg ninety two to nine, Boston, Bloomberg nine sixty, 0:00:55.760 --> 0:01:00.680 San Francisco, DAB Digital Radio, London, Sirius XM one twenty one, 0:01:00.760 --> 0:01:03.520 and around the world on Bloomberg Radio dot Com and 0:01:03.600 --> 0:01:05.200 via the Bloomberg Business APPA. 0:01:08.560 --> 0:01:10.600 Good day to you. I'm Tom Busby. We begin the 0:01:10.600 --> 0:01:13.440 program with a look ahead to this week's Federal Preserve 0:01:13.520 --> 0:01:17.880 Policy Meeting, a decision on rates expected on Wednesday. Twenty 0:01:18.080 --> 0:01:20.640 meetings in a row with either a rate increase or 0:01:20.680 --> 0:01:23.560 no change at all, will the Fed finally vote to 0:01:23.600 --> 0:01:26.360 cut rates for more. We're joined by Michael McKee, Bloomberg 0:01:26.480 --> 0:01:30.760 International Economics and Policy correspondent. Michael, I think the handwriting 0:01:30.800 --> 0:01:33.280 is on the wall. What are you expecting to see 0:01:33.280 --> 0:01:34.920 though this week from the Fed? 0:01:35.000 --> 0:01:37.119 The handwritings on the wall? And for the first time, 0:01:37.160 --> 0:01:39.760 as you mentioned, in a very long time, we're actually 0:01:39.760 --> 0:01:44.119 going into this saying it matters what they do for 0:01:44.160 --> 0:01:47.080 so long. We've been saying they're stuck higher for longer, 0:01:47.160 --> 0:01:49.280 and it doesn't matter what they do at their meeting. 0:01:49.320 --> 0:01:50.440 It's going to be what they. 0:01:50.280 --> 0:01:52.400 Say about the future. Well, that one's going to be 0:01:52.400 --> 0:01:57.240 both because there is a slight chance of a fifty 0:01:57.280 --> 0:02:01.000 basis point move because they didn't fit rule it out 0:02:01.080 --> 0:02:04.560 before the quiet period began. Nobody really thinks that's going 0:02:04.600 --> 0:02:07.240 to happen, but it's out there, so it'll be the 0:02:07.280 --> 0:02:10.000 first thing people will look at is how much did 0:02:10.040 --> 0:02:13.840 they cut? And so that will be important. Then we 0:02:13.919 --> 0:02:17.480 get the summary of economic projections new forecasts for the 0:02:17.520 --> 0:02:21.240 economy and the dot plot, and that'll capture some attention 0:02:21.480 --> 0:02:22.160 as well. 0:02:22.680 --> 0:02:25.560 Now, the Fed has always said we are data dependent. 0:02:25.840 --> 0:02:28.160 Any move we make is all depends on the data. 0:02:28.639 --> 0:02:30.920 Let's talk about the data we saw this past week 0:02:31.160 --> 0:02:34.399 consumer and producer price inflation. How will that factor into 0:02:34.440 --> 0:02:35.079 this decision? 0:02:35.480 --> 0:02:37.320 Kind of a downside surprise. 0:02:37.960 --> 0:02:40.679 Yeah, well that's what cemented. I think the view that 0:02:40.760 --> 0:02:43.960 we do twenty five instead of fifty and really took 0:02:44.000 --> 0:02:48.040 away the hope of the fifties folks, because while we 0:02:48.120 --> 0:02:52.000 got a very small increase in core CPI over what 0:02:52.200 --> 0:02:56.680 was anticipated and the same in PPI, it doesn't suggest 0:02:56.680 --> 0:02:59.160 that the inflation is going to be going the other 0:02:59.200 --> 0:03:02.400 way or there's a huge danger of inflation accelerating. It 0:03:02.520 --> 0:03:05.120 just shows that the battle is not won yet and 0:03:05.160 --> 0:03:07.919 the FED can't rest on its laurels. And so that's 0:03:07.960 --> 0:03:12.720 why people are saying they shouldn't go fifty because that 0:03:12.840 --> 0:03:14.800 might send the wrong message. They want to send the 0:03:14.840 --> 0:03:18.680 message that we are still vigilant against inflation. 0:03:18.320 --> 0:03:19.840 And we're going to keep an eye on it. 0:03:20.480 --> 0:03:25.560 And as last week, Christopher Waller from the Federal Reserve said, 0:03:25.680 --> 0:03:29.880 if data from this point on show that fifty is 0:03:30.160 --> 0:03:32.760 worth doing They can easily do that, but right now 0:03:32.800 --> 0:03:33.560 they're not ready to. 0:03:34.040 --> 0:03:36.160 Now some of the people who are calling for a 0:03:36.200 --> 0:03:39.040 fifty basis point cut, I think the Fed waited too 0:03:39.080 --> 0:03:41.320 long to initiate this cut, that they kind of missed 0:03:41.360 --> 0:03:43.560 the boat at the end of July and we saw 0:03:43.600 --> 0:03:46.400 some very troubling data about jobs. We saw a little 0:03:46.480 --> 0:03:51.600 uptick in inflation growth. Do you think they missed the boat, 0:03:51.640 --> 0:03:54.839 do you think? Or is it steady as she goes 0:03:54.880 --> 0:03:55.800 and they're on the right path. 0:03:55.920 --> 0:04:00.600 Well, it's impossible to say, except in hindsight that they 0:04:00.640 --> 0:04:04.160 were behind the curve. The argument is that, as you noted, 0:04:04.200 --> 0:04:07.800 the labor market has slowed a lot. We haven't seen 0:04:07.920 --> 0:04:13.760 consumers spending really slow yet, except that the people's savings 0:04:13.760 --> 0:04:16.839 are kind of dwindling, and so there's a feeling that's 0:04:16.839 --> 0:04:19.760 going to happen at some point. The thing about in 0:04:20.279 --> 0:04:24.760 recessions is they're based on confidence, and all of a sudden, 0:04:24.800 --> 0:04:28.919 people lose confidence, both consumers and businesses lose confidence in 0:04:28.960 --> 0:04:33.680 their ability to pay for new what economics would call investments, 0:04:34.480 --> 0:04:37.640 all the stuff you buy, and so they pull back 0:04:37.680 --> 0:04:40.080 on their spending. And right now it doesn't seem to 0:04:40.120 --> 0:04:44.120 be the case, businesses have slowed down. We don't really 0:04:44.160 --> 0:04:47.200 know whether that's because they are waiting, and it does 0:04:47.200 --> 0:04:49.400 seem logical they are waiting to see the results of 0:04:49.400 --> 0:04:53.360 the presidential election and what the tax and regulatory regime 0:04:53.600 --> 0:04:57.960 will be like going into the new year. Consumers through 0:04:58.360 --> 0:05:02.400 the back to school have been spending. We'll see if 0:05:02.400 --> 0:05:06.680 that continues, but the latest indications from the high frequency 0:05:06.680 --> 0:05:09.840 indications from retailers are that people are still spending. So 0:05:10.040 --> 0:05:13.159 it doesn't look like there has been a seizure of 0:05:13.600 --> 0:05:18.240 lack of confidence seizure among people yet. So it's hard 0:05:18.279 --> 0:05:20.840 to say with any certainty that they may or may 0:05:20.839 --> 0:05:23.279 not have missed the boat. The only thing that you 0:05:23.440 --> 0:05:25.919 do know is that it takes a long time for 0:05:26.000 --> 0:05:29.040 monetary policy to hit the economy. You're going to hear 0:05:30.120 --> 0:05:33.600 after Wednesday, especially Donald Trump, who's already said this, the 0:05:33.680 --> 0:05:36.240 Fed shouldn't be cutting rates and it's going to be unfair, 0:05:36.279 --> 0:05:38.799 and it's going to be a boost to Biden and Harris. 0:05:40.000 --> 0:05:43.640 But it's not because you won't really see any impact 0:05:44.120 --> 0:05:47.719 on the economy until next year from even a twenty 0:05:47.720 --> 0:05:51.440 five basis point cut. So if things deteriorate between now 0:05:51.480 --> 0:05:53.000 and the end of next year, you could say they 0:05:53.000 --> 0:05:54.720 got behind the curve, but we don't know yet. 0:05:54.760 --> 0:05:58.200 Well, we have a big decision this Wednesday from the 0:05:58.240 --> 0:06:02.360 Federal Reserve. Our thanks to Michael McKee, Bloomberg International Economics 0:06:02.400 --> 0:06:05.680 and Policy correspondent for full FED coverage, be sure to 0:06:05.720 --> 0:06:08.400 tune in Wednesday one thirty pm Wall Street Time for 0:06:08.400 --> 0:06:12.479 a Bloomberg surveillance special, The Fed Decides, joined Tom Kaine, 0:06:12.720 --> 0:06:15.520 John Ferrell, and Lisa Abramowitz as they break down the 0:06:15.560 --> 0:06:18.400 decision with the biggest names in finance, economics, and business. 0:06:18.760 --> 0:06:23.320 That's one thirty Wednesday on Bloomberg Radio and Television. We 0:06:23.360 --> 0:06:27.280 move now to the logistics and services delivery giant FedEx, 0:06:27.360 --> 0:06:29.920 and with its busiest time of year nearly here, FedEx 0:06:29.920 --> 0:06:33.400 reports first quarter earnings this Thursday. So how will an 0:06:33.520 --> 0:06:37.200 organizational restructuring impact its earnings ahead of the holiday season. Well, 0:06:37.200 --> 0:06:40.920 for more, we're joined by Lee Clascow. He's Bloomberg Intelligence 0:06:40.960 --> 0:06:43.640 Senior Transport, Logistics and Shipping analyst. 0:06:44.000 --> 0:06:44.560 Will Lee. 0:06:44.920 --> 0:06:47.040 Let's start with what you expect to see in FedEx's 0:06:47.080 --> 0:06:50.520 earnings report this week, coming off a very strong Q 0:06:50.600 --> 0:06:51.400 four in June. 0:06:51.680 --> 0:06:54.240 Yeah, Well, thanks for having me. You know, I think 0:06:54.279 --> 0:06:58.520 that FedEx's should report another solid earnings report. You know, 0:06:58.560 --> 0:07:01.360 they were show me story for so many quarters, and 0:07:01.920 --> 0:07:04.360 they've really shown the market, if you will, that they 0:07:04.400 --> 0:07:07.400 can't execute on their strategy. They have a bunch of 0:07:07.440 --> 0:07:11.360 restructuring plans that are underway that are expected to save 0:07:11.840 --> 0:07:15.640 a significant money, over two billion dollars in physical twenty 0:07:15.680 --> 0:07:18.520 twenty five on top of the one point eight billion 0:07:18.560 --> 0:07:21.520 that they saved in twenty twenty four. So you know, 0:07:21.760 --> 0:07:25.840 they're really doing all the right things. They're restructuring their 0:07:25.920 --> 0:07:30.080 businesses into one main reporting business. They are changing the 0:07:30.160 --> 0:07:33.520 way they operate their air fleet, and they're really taking 0:07:33.640 --> 0:07:36.640 costs out, something that that company didn't do for a 0:07:36.680 --> 0:07:41.600 long time. It really became an old fat company, and 0:07:41.640 --> 0:07:45.080 they're really taking a good look inside and making it 0:07:45.120 --> 0:07:47.000 a much more productive organization. 0:07:47.320 --> 0:07:50.240 Well, they also laid off tens of thousands of workers 0:07:50.280 --> 0:07:51.120 in the last year or so. 0:07:51.480 --> 0:07:54.560 Yeah, I mean they you know, that's always an unfortunate event, 0:07:54.720 --> 0:07:57.400 but you know, they, like I said, there was a 0:07:57.440 --> 0:08:00.280 lot of fat, if you will, that needed to be them. 0:08:00.880 --> 0:08:05.160 And with the you know, advent of technology advancements and 0:08:05.160 --> 0:08:08.080 productivity tools that they're able to use you just simply 0:08:08.120 --> 0:08:11.440 don't need as many people as you once did, whether 0:08:11.680 --> 0:08:15.120 you know that's on the dock or you know in accounting. 0:08:15.680 --> 0:08:17.200 Does robotics play a lot into that? 0:08:17.840 --> 0:08:19.960 Not so much robotics for FedEx. I mean, you know, 0:08:20.040 --> 0:08:23.320 they have really state of the art sorting facilities across 0:08:23.560 --> 0:08:26.280 the country and the world. You know that does a 0:08:26.280 --> 0:08:29.600 lot of that automation, and that's able to save not 0:08:29.640 --> 0:08:33.800 only time but money for the company. So that is 0:08:33.800 --> 0:08:37.520 definitely in net positive, but that's not really what's driving 0:08:38.360 --> 0:08:39.920 I would say the head cuts a lot of that. 0:08:40.000 --> 0:08:43.160 The head count reduction is really on the corporate side. 0:08:43.720 --> 0:08:48.359 Now, in addition to those job cuts, there's also capital expenditure. 0:08:48.400 --> 0:08:51.760 They've really pulled back or are they just you know, really. 0:08:52.200 --> 0:08:55.200 FedEx was famous for buying a lot of planes, maybe 0:08:55.240 --> 0:08:57.920 even if they didn't need them. What they have done 0:08:58.000 --> 0:09:00.800 is they've refreshed their fleet into a much more fuel 0:09:00.800 --> 0:09:05.000 efficient fleet, getting rid of some of the older, less 0:09:05.040 --> 0:09:09.760 efficient planes, and they're also parking a lot more equipment. 0:09:09.840 --> 0:09:12.040 So you know the reality is they don't need as 0:09:12.040 --> 0:09:14.880 many planes as they once did. And not only does 0:09:14.960 --> 0:09:17.199 it need as many, but you know, not just because 0:09:17.440 --> 0:09:20.800 from a restructuring of their air freight network. They also 0:09:20.880 --> 0:09:22.920 don't need as many because a lot of the planes 0:09:22.960 --> 0:09:25.400 either can can do more with less, if you will. 0:09:25.840 --> 0:09:28.560 Now, speaking of freight, you have reported that there's a 0:09:28.640 --> 0:09:31.160 possibility of them spinning off that freight unit. 0:09:31.280 --> 0:09:32.240 Is that still in play? 0:09:32.440 --> 0:09:35.280 Yeah, so they're freight unit is or less than truckload business. 0:09:36.040 --> 0:09:40.280 That's it's a very good business, but it's currently under 0:09:40.280 --> 0:09:44.400 a strategic review. You know, we expect that could generate 0:09:44.400 --> 0:09:47.080 an enterprise value of between thirty and thirty three billion 0:09:47.160 --> 0:09:50.120 dollars for the company. You know, right now, the less 0:09:50.120 --> 0:09:53.280 than truckload market is having a little issues with demand. 0:09:53.960 --> 0:09:55.880 Demand is down for a. 0:09:55.840 --> 0:09:58.679 Lot of the carriers that are in the market, and 0:09:58.800 --> 0:10:01.560 the reason for that is we're really coming up against 0:10:01.600 --> 0:10:05.400 tough comparisons. One of their large competitors went out of 0:10:05.440 --> 0:10:09.520 business last year and we're kind of past that anniversary. Also, 0:10:10.040 --> 0:10:13.040 you know, the ism has been in contraction territory for 0:10:13.120 --> 0:10:16.160 something like twenty one over the last twenty two months. 0:10:16.160 --> 0:10:20.160 So that's not great for LTL demand because it tends 0:10:20.200 --> 0:10:21.240 to be a leading indicator. 0:10:21.840 --> 0:10:25.200 Now a lot of businesses and consumers pulling back on 0:10:25.240 --> 0:10:28.679 spending times are tight, especially as we're coming into the holidays. 0:10:28.960 --> 0:10:30.960 Do you think there's going to be a lot fewer 0:10:31.040 --> 0:10:34.760 packages people choosing ground instead of air. I mean is 0:10:34.840 --> 0:10:37.720 how will this affect FedEx in the coming months. 0:10:37.800 --> 0:10:40.880 Yeah, So the consumer is obviously an important constituent for 0:10:41.080 --> 0:10:44.480 not only FedEx ups, Deutsche Posts, but really all modes 0:10:44.480 --> 0:10:48.400 of transportation that I cover. We're relatively bullish on the consumer. 0:10:49.000 --> 0:10:51.960 You know, we think that a couple of things are 0:10:52.000 --> 0:10:54.720 going to happen a you know, we are transitioning back 0:10:55.080 --> 0:10:58.760 from buying services to now going back to buying stuff. 0:10:59.600 --> 0:11:01.520 We all so believe that we are going to have 0:11:01.520 --> 0:11:04.240 a real peak season this year pecause of that, and 0:11:04.400 --> 0:11:08.520 seasonality is continuing is coming back into the market because 0:11:08.520 --> 0:11:11.559 we've gone so many years from the pandemic of these 0:11:11.640 --> 0:11:16.040 crazy dislocations that made comparisons next to them possible. So 0:11:16.320 --> 0:11:18.720 you know, we're getting back to seasonality. We think there's 0:11:18.760 --> 0:11:22.000 going to be a peak, which I think could surprise 0:11:22.120 --> 0:11:24.720 demand on the upside. And we're really gonna be paying 0:11:24.760 --> 0:11:27.920 close attention during the earnings call on Thursday on when 0:11:28.000 --> 0:11:31.080 management talks about you know, what they are expecting from 0:11:31.160 --> 0:11:33.840 peak from their conversations with their shippers. 0:11:33.640 --> 0:11:37.320 Well FedEx fiscal first quarter earnings out after Wall Street's 0:11:37.320 --> 0:11:40.119 closing bell this Thursday, and our thanks to Lee Classical 0:11:40.320 --> 0:11:44.520 Bloomberg Intelligence senior transport, logistics and shipping analysts. Coming up 0:11:44.559 --> 0:11:46.520 on Bloomberg day Break weekend to look ahead to the 0:11:46.520 --> 0:11:50.840 eurozones big economic data drop. I'm Tom Busby and this 0:11:51.160 --> 0:12:04.040 is Bloomberg. This is Bloomberg day Break weekend, our global 0:12:04.080 --> 0:12:06.360 look ahead at the top stories for investors in the 0:12:06.400 --> 0:12:09.400 coming week. I'm Tom Busby in New York. Up later 0:12:09.440 --> 0:12:11.840 in our program, we look ahead to a meeting from 0:12:11.880 --> 0:12:14.040 one of the key central banks in Asia, the Bank 0:12:14.080 --> 0:12:17.520 of Japan. But first, as expected, the European Central Bank 0:12:17.520 --> 0:12:20.920 cut rates again at its most recent policy meeting, three 0:12:21.000 --> 0:12:24.360 months after its first cut in five years. Will lower 0:12:24.400 --> 0:12:27.760 borrowing costs lead to economic prosperity for the block for more, 0:12:28.120 --> 0:12:30.080 Let's go to London and bring in Bloomberg day Break 0:12:30.120 --> 0:12:31.960 europbanker Caroline hepgar. 0:12:32.200 --> 0:12:35.480 Tom in Europe, it seems that rake huts are like buses. 0:12:35.520 --> 0:12:38.280 You wait five years for one, and then two arrive 0:12:38.400 --> 0:12:41.800 in quick succession. When the EU became one of the 0:12:41.800 --> 0:12:45.440 first major central banks to cut its lending rate, this summer, 0:12:45.520 --> 0:12:50.040 it hearted progress made on tackling inflation. This time around, 0:12:50.040 --> 0:12:53.400 the bank delivered another twenty five basis point cut, citing 0:12:53.440 --> 0:12:57.840 further progress against their economic goals. But European Central Bank 0:12:57.880 --> 0:13:01.720 President Christine Lagarde says that you per area growth risks 0:13:01.800 --> 0:13:05.559 are now tilted to the downside. Speaking at a news 0:13:05.559 --> 0:13:09.040 conference in Frankfurt following the committee's decision to once again 0:13:09.200 --> 0:13:13.960 lower boring costs, she emphasized the importance of economic data 0:13:14.320 --> 0:13:15.239 going forwards. 0:13:16.120 --> 0:13:18.760 So the President, the Vice President and I welcome you 0:13:18.840 --> 0:13:24.040 today to our press conference. The Governing Council today decided 0:13:24.160 --> 0:13:29.000 to lower the deposit facility rate, the rate through which 0:13:29.040 --> 0:13:33.760 we steer the monetary policy stance, by twenty five basis points. 0:13:35.120 --> 0:13:39.720 Based on our updated assessment of the inflation outlook, the 0:13:39.800 --> 0:13:44.800 dynamics of underlying inflation, and the strength of monetary policy transmission, 0:13:45.360 --> 0:13:49.599 it is now appropriate to take another step in moderating 0:13:49.679 --> 0:13:56.720 the degree of monetary policy restriction. Recent inflation data have 0:13:56.880 --> 0:14:00.960 come in broadly as expected, and the latest ECB staff 0:14:01.000 --> 0:14:07.199 projections confirm the previous inflation outlook. Fiscal and structural policies 0:14:07.559 --> 0:14:11.240 should be aimed at making the economy more productive and 0:14:11.320 --> 0:14:15.560 competitive which would help to raise the potential growth and 0:14:15.720 --> 0:14:21.120 reduce price pressures in the medium term. Mario Draggy's report 0:14:21.560 --> 0:14:25.240 on the Future of European Competitiveness and then recall it 0:14:25.360 --> 0:14:29.840 as report on empowering the Single Market stress the urgent 0:14:30.200 --> 0:14:35.640 need for reform and provide concrete proposals to make this happen. 0:14:36.680 --> 0:14:41.600 The risks to economic growth remain tilted to the downside. 0:14:42.240 --> 0:14:46.240 Lower demand for your area exports, owing for instance, to 0:14:46.280 --> 0:14:50.840 a weaker world economy or an escalation in trade tensions 0:14:50.880 --> 0:14:55.480 between major economies, would weigh on your area growth. We 0:14:55.760 --> 0:14:59.400 have consistently said, and we repeat again that we shall 0:14:59.440 --> 0:15:03.640 remain data dependent, and that is particularly justified in view 0:15:03.720 --> 0:15:06.040 of the uncertainty that abounds. 0:15:06.880 --> 0:15:09.920 That was the European Central Bank President Christine Lagarde speaking there. 0:15:10.080 --> 0:15:14.360 Despite the upbeat sentiment of Eurozone policy makers, growth is 0:15:14.520 --> 0:15:18.800 faltering across the region's largest economies and consumer confidence remains 0:15:18.920 --> 0:15:24.760 below pre pandemic levels. The ECB's latest projections downgraded output 0:15:24.840 --> 0:15:27.800 over the next three years, whilst the outlook for underlying 0:15:27.800 --> 0:15:31.520 inflation nudged higher for this year and twenty twenty five. 0:15:32.440 --> 0:15:35.800 In the coming days, markets will receive more European inflation 0:15:36.000 --> 0:15:41.160 data alongside the Bloomberg September Eurozone Economic Survey, which may 0:15:41.200 --> 0:15:45.280 help to guide the two remaining ECB policy meetings that 0:15:45.320 --> 0:15:48.120 are left this year. All of this is something I've 0:15:48.160 --> 0:15:52.680 been discussing with Bloomberg's senior Euro Area economist David Powell. 0:15:55.520 --> 0:15:58.040 The most important data point will beginning this upcoming week 0:15:58.040 --> 0:15:58.320 to you. 0:15:58.880 --> 0:16:04.040 Is that the finallying on CPI for the month of August, 0:16:04.680 --> 0:16:08.800 and that will allow us and others to look at 0:16:09.480 --> 0:16:12.760 as a more grammar look at underlying measures of inflation. 0:16:13.640 --> 0:16:17.160 But basically, broadly speaking, those measures are coming down. The 0:16:17.240 --> 0:16:21.400 headline number isn't very far from the ECB's target right 0:16:21.440 --> 0:16:25.240 now and all moving in the right direction. A real 0:16:25.320 --> 0:16:29.200 number that's is concerned to the ECB's services inflation that 0:16:29.240 --> 0:16:35.040 has remained uncomfortably high at over four percent, and that's 0:16:35.040 --> 0:16:38.440 what the ECB is focused on. This is the second reading, 0:16:38.520 --> 0:16:40.840 so it's unlike it moved that much from the from 0:16:40.880 --> 0:16:43.320 the first reading, so it'll be more important for the 0:16:43.360 --> 0:16:45.640 ECV on terms of inflation. We get the reading for 0:16:45.800 --> 0:16:48.800 September and that's out on the first in October. 0:16:50.120 --> 0:16:54.280 Is there a danger that the ECB has been overconfident 0:16:54.440 --> 0:16:57.320 on tackling inflation. They haven't ruled out a further cut 0:16:57.360 --> 0:16:58.120 in October. 0:17:00.040 --> 0:17:08.879 Well, these policy rates, deposit rate is in very restrictive territory. 0:17:09.000 --> 0:17:11.399 We think that kind of a neutral level would be 0:17:11.440 --> 0:17:14.800 about two percent. So monetary policy has been very tight. 0:17:15.359 --> 0:17:19.080 We have seen that in the economy, with the economy 0:17:19.160 --> 0:17:23.280 having flatlines for a long time in your area, and 0:17:24.720 --> 0:17:27.920 they have made significant progress on inflation. Like I said, 0:17:27.960 --> 0:17:32.479 the headline number now is now very close to the target. 0:17:32.840 --> 0:17:36.199 And when we look at measures of cost pressure, so 0:17:36.760 --> 0:17:40.520 wage growth and negotiated wages, things like that, they're all 0:17:40.560 --> 0:17:44.680 moving in the right direction. And an ECV can't wait 0:17:44.720 --> 0:17:49.200 until they're actually there to cut because voluntary policy operates 0:17:49.200 --> 0:17:51.359 with the long leag They've got to be more forward 0:17:51.400 --> 0:17:53.679 looking and they see everything going in the direction they 0:17:53.760 --> 0:17:56.000 want it to be going, and I think monetary policy 0:17:56.040 --> 0:17:57.240 can be less restrictive. 0:17:57.320 --> 0:17:57.520 Now. 0:17:59.560 --> 0:18:03.320 Expect, though, is for the economy in Europe to remain 0:18:03.400 --> 0:18:07.440 under significant pressure. You saw it in the ECB's forecasts 0:18:08.640 --> 0:18:13.000 from this week's bank meeting. How will markets react if 0:18:13.119 --> 0:18:17.200 the incoming economic data isn't positive? Will there be concerns 0:18:17.280 --> 0:18:20.040 that the ECB has left it too late. 0:18:21.359 --> 0:18:24.560 Yeah, I think generally speaking in the your area as 0:18:24.600 --> 0:18:26.879 well as in the US, so around the world, there 0:18:26.920 --> 0:18:31.040 are concerned that that tight monetary policy is really taking 0:18:31.080 --> 0:18:37.080 it all on the economy, and of course the markets 0:18:37.119 --> 0:18:39.639 are react negatively when. 0:18:39.520 --> 0:18:40.680 We get the bad data. 0:18:41.040 --> 0:18:43.280 We're seeing that not only in Europe, in the US 0:18:43.320 --> 0:18:46.200 as well, and. 0:18:46.160 --> 0:18:50.159 So in terms of what that means for others who 0:18:50.160 --> 0:18:55.240 are affected by interest rates, particularly for the European banking space, 0:18:55.320 --> 0:18:57.159 what do you expect from that. 0:18:58.359 --> 0:19:00.440 Well, A lot of banks, of course are benefit from 0:19:00.440 --> 0:19:04.359 the rise in interest rate because their interest rate income 0:19:04.400 --> 0:19:08.720 has gone up, and then they will have a negative 0:19:08.760 --> 0:19:13.120 impact as that comes down, although it won't be immediate 0:19:13.240 --> 0:19:17.320 because for many of these institutions they have longer term 0:19:17.760 --> 0:19:20.800 they have longer term assets and liabilities. They will be 0:19:20.800 --> 0:19:24.119 benefitting for a while from higher interest rates, and we 0:19:24.240 --> 0:19:27.880 have we've we've seen that in the government bond space 0:19:28.240 --> 0:19:29.640 where Italy has. 0:19:29.480 --> 0:19:33.399 Had a very high demand for its bond in recent 0:19:34.000 --> 0:19:38.200 in recent options in order for investors to take advantage 0:19:38.200 --> 0:19:40.440 of these higher interest rates before they come down. 0:19:41.640 --> 0:19:44.040 Will be the effect on the European Central Bank If 0:19:44.040 --> 0:19:46.919 the FED cuts by fifty basis points in the days ahead. 0:19:48.800 --> 0:19:52.800 Well, the the the e c D has been moving 0:19:54.000 --> 0:19:56.359 on its own at its own pace. The e c 0:19:56.560 --> 0:20:00.119 B cut before the FED, and so it really at 0:20:00.040 --> 0:20:02.840 a monetary policy based on what's happening in Europe. Having 0:20:02.920 --> 0:20:05.679 said that, of course, not ignoring what the SAID does. 0:20:06.320 --> 0:20:09.080 What the FED does is an impact on the exchange rate, 0:20:09.600 --> 0:20:12.560 and they'll be watching it closely if the if the 0:20:12.600 --> 0:20:16.080 FED were to have an aggressive move, it would probably 0:20:16.119 --> 0:20:20.840 increase the probability of the ECB moving more aggressively as well, 0:20:21.240 --> 0:20:24.880 meaning it would increase the probability of a move in October, 0:20:25.000 --> 0:20:28.359 although at this stage we don't think that Planckly, what 0:20:28.440 --> 0:20:29.040 do you make. 0:20:28.920 --> 0:20:31.560 Of the idea of higher for longer? Is that really 0:20:31.600 --> 0:20:32.760 true for Europe? 0:20:34.480 --> 0:20:38.439 Well, we have we moved away from that now. The 0:20:38.600 --> 0:20:41.760 CD had its first cut in June and then we 0:20:41.840 --> 0:20:44.240 had to cut yet announced and we think the CB 0:20:44.359 --> 0:20:47.520 will cut again in December, so they have the higher 0:20:47.600 --> 0:20:50.080 the longer idea of this idea of kind of reaching 0:20:51.040 --> 0:20:54.040 a plateau is the chief Aponos the Maank of England 0:20:54.200 --> 0:20:56.679 referred to as a table mountain approach. You kind of 0:20:56.680 --> 0:20:59.240 get up and it's very flat for a long time. 0:20:59.400 --> 0:21:03.640 But this isn't looking like table mountain. It's certainly more 0:21:03.800 --> 0:21:06.800 like a like a a peak that we've come down 0:21:07.480 --> 0:21:10.240 and we think will continue to come down after December. 0:21:10.280 --> 0:21:12.639 In the next year, you'll probably be having cut at 0:21:12.640 --> 0:21:13.560 a quarterly pace. 0:21:14.920 --> 0:21:20.199 How much concern is that within the ECB around the 0:21:20.200 --> 0:21:24.159 growth prospects of Europe? I mean, the US also is 0:21:24.240 --> 0:21:27.719 perhaps cooling, but only a little, and the underlying strength 0:21:27.720 --> 0:21:30.280 of the economy has been evident for months. China has 0:21:30.320 --> 0:21:34.000 seen kind of a lot of big disinflationary pressures. How 0:21:34.080 --> 0:21:36.320 much concern and Europe is exposed to that, How much 0:21:36.320 --> 0:21:38.720 concern is there within the ECB about the slowing pace 0:21:38.760 --> 0:21:40.800 of the economy. 0:21:41.320 --> 0:21:46.280 Well, the ECB has a single mandate just inflation reserved, 0:21:46.400 --> 0:21:51.879 a dual mandate focusing on inflation and employment, so the 0:21:51.920 --> 0:21:54.680 ACB doesn't have to pay as much attention to employment 0:21:54.680 --> 0:21:56.639 as epent. But of course in order to meet this 0:21:56.760 --> 0:21:59.840 sensation objective, it has to look at what's going on 0:22:00.080 --> 0:22:02.639 the economy, because an economy it's too week will produce 0:22:03.520 --> 0:22:05.760 inflation that's below target, and we saw that. 0:22:05.880 --> 0:22:07.800 For many years preceding the pandemic. 0:22:08.880 --> 0:22:13.040 But at this stage they really focused on the inflation 0:22:13.240 --> 0:22:17.159 numbers as a whole, although there are voices that are 0:22:17.200 --> 0:22:21.359 becoming increasingly concerned about the slowdown the economy and the 0:22:21.480 --> 0:22:24.600 potential for that to lead to an undershooting inflation eventually, 0:22:24.880 --> 0:22:28.040 and that's probably why we've seen some more of support 0:22:28.119 --> 0:22:32.480 for a back to back cut at the ECB, needing 0:22:32.520 --> 0:22:36.520 another move in October. As it's reported by Bloomberg. 0:22:36.160 --> 0:22:42.800 News David, there's always a concern amongst the different members 0:22:43.480 --> 0:22:47.400 of the European Union and the Eurozone indeed about the 0:22:47.600 --> 0:22:51.840 differing performance of certain countries and whether or not interest 0:22:51.920 --> 0:22:54.800 rates happen to suit them at the particular business cycle 0:22:54.840 --> 0:22:57.639 that they are in. Who is most worried now? 0:22:59.160 --> 0:23:02.720 Well, when we look around Europe, there are the various 0:23:02.760 --> 0:23:08.399 economies that performed differently. The President of ECV, Christiane Regard, 0:23:08.480 --> 0:23:11.919 highlighted it for press conference with this month that Spain 0:23:12.040 --> 0:23:13.280 and Netherlands. 0:23:12.880 --> 0:23:14.399 Are doing very well, others are not. 0:23:14.760 --> 0:23:17.960 If there's one country that had stopped doing well right now, 0:23:17.960 --> 0:23:22.600 it's Germany. Germany's industrial sector who has had a number 0:23:22.640 --> 0:23:25.520