Speaker 1: Welcome to Bloomberg Opinion. I'm Vonnie Quinn. This week, I
Speaker 1: think the emerging markets Pride Dan Moss on how emerging
Speaker 1: markets X Britain no joke are coping with f X turmoil.
Speaker 1: We'll also speak with Justin Fox on just who needs
Speaker 1: to start participating in the US labor force to help
Speaker 1: the fed out. First though, to the crisis starting in Britain.
Speaker 1: Sterling and guilt's plummeted after new Chancellor Quasi Quarter unveiled
Speaker 1: a mini budget, the markets rejected. The Bank of England
Speaker 1: boked too, but hasn't pledged any emergency activity. I asked
Speaker 1: Bnoomberg Economics chief economist Tom Orlick to join, so Tom,
Speaker 1: you can call it alarm shock, markets taking fight. These
Speaker 1: are all headlines I've seen this week to describe the
Speaker 1: reaction to the new Chancellor of the Exchequer in Britain
Speaker 1: announcing forty five billion pounds of tax cuts along with
Speaker 1: the wave of borrowing. What happens next? It seems like
Speaker 1: markets had no idea how to handle this, So I
Speaker 1: think the challenge here is that the new Chancellor of
Speaker 1: the Exchequer in the UK, quality quass Hole, announced an
Speaker 1: unsustainable basical package. He's announced very substantial tax cuts but
Speaker 1: no offset from a drop in public spending. Now the
Speaker 1: market see of the UK is now on an unsustainable trajectory,
Speaker 1: and that's why we're seeing this extremely unusual combination of
Speaker 1: a sharp rise in borrowing costs for the UK government
Speaker 1: even as the pound fells off. Um what happens next, Well,
Speaker 1: there's a kind of potential emergency solution. The Bank of
Speaker 1: England could step in with an outsize hike in interest rates.
Speaker 1: That would restore a bit of stability to the pound,
Speaker 1: but it would come at a serious cost. The UK
Speaker 1: economy very sensitive to interest rates. A big hike, for example,
Speaker 1: would hammer the housing market. To get a fundamental solution,
Speaker 1: we really need to look at the origin of the problem.
Speaker 1: Until the British Treasury comes out with a credible plan
Speaker 1: for ensuring debt sustainability, it's tough to see this problem
Speaker 1: going away now. Guardon did talk about coming out with
Speaker 1: something in November that you know, he promises will calm
Speaker 1: the market, some kind of a strategy to put debt
Speaker 1: on a downward path. But what Robert could he possibly
Speaker 1: pull out of the Treasury's hat? So I didn't think
Speaker 1: there is an easy solution from here, Vonnie. Yes, we
Speaker 1: could have hikes from the Bank of England, which would
Speaker 1: stabilize the currency, but add additional burdens for an already
Speaker 1: very fragile economy. On the fiscal side, the most straightforward
Speaker 1: solution to this is for Quatang to either reverse course
Speaker 1: on some of the tax cuts or make an unpopular
Speaker 1: commitment to cut public spending now. Either or some combination
Speaker 1: of both of those could reassure the markets that the
Speaker 1: fiscal trajectory for the UK is now more sustainable, but
Speaker 1: neither of them would be politically popular. Why would it
Speaker 1: not be sustainable? How our traders so convinced that Britain
Speaker 1: can't enact some kind of are gonna ask type piscal
Speaker 1: policy over the next couple of years. I think Karwen
Speaker 1: is a little bit picking and choosing with the indicators
Speaker 1: which he points to to support his argument there. I
Speaker 1: think if we take a look at the move in
Speaker 1: UK borrowing costs, if we look at the move in
Speaker 1: the pound, clearly the markets are now questioning if the
Speaker 1: UK is on a sustainable trajectory now, how can you
Speaker 1: sort of square the circle? How can you convince the
Speaker 1: markets that the finances are actually going to be sustainable. Well,
Speaker 1: there's really sort of three variables which Quartung has to
Speaker 1: play with, and he will probably have to play with
Speaker 1: all of them. There's tax they just committed to massive
Speaker 1: tax cuts. Maybe they're going to have to roll back
Speaker 1: some of that commitment. There's spending. The fundamental issue here
Speaker 1: is that the commitment to tax cuts wasn't matched by
Speaker 1: a commitment to spending cut spending cuts at this point
Speaker 1: when so much of the UK is suffering and struggling
Speaker 1: to make basically massive energy costs exactly not really politically palatable.
Speaker 1: And the last piece of it is the idea that
Speaker 1: growth is going to solve all these problems. That old idea,
Speaker 1: going back to Ronald Reagan and his economist Laugher, that
Speaker 1: if you cut taxes, you drive growth higher, and you
Speaker 1: end up with more money coming into the government's coffers,
Speaker 1: not because you're taxing more, just because the economy is
Speaker 1: growing more quickly. So I think Qua Tong and the
Speaker 1: Treasury will also be trying to make the case that yeah,
Speaker 1: if you look at the tax numbers and the spending numbers,
Speaker 1: doesn't quite add up, but don't worry we're going to
Speaker 1: deliver on growth. Well, and remind me, doesn't Britain and
Speaker 1: the new administration also have to negotiate some trade deals,
Speaker 1: so that's not done right, So it's not like the
Speaker 1: pike can grow until that's done. So the US and
Speaker 1: China declared trade or on each other under the Trump administration.
Speaker 1: The UK went one better and declared trait or on
Speaker 1: itself by exiting the European Union, um the biggest sort
Speaker 1: of single trading block in the world. Now, the brexity
Speaker 1: is that, don't worry rexting the European Union, but that's
Speaker 1: going to give us freedom to negotiate trade deals with
Speaker 1: all the different other countries around the world. And if
Speaker 1: we add all of that, art's going to more than
Speaker 1: offset the cost of exiting the European Union. Well, I'm
Speaker 1: a brit I wish them luck on delivering on that agenda.
Speaker 1: So far it seems a bit harder than they anticipated.
Speaker 1: So this all is turning very sour. And you have
Speaker 1: the Bank of England desperately trying to hold on to
Speaker 1: its credibility because it can't lose credibility, along with the
Speaker 1: Treasury and the whole country. A commendators from Larry Summers
Speaker 1: to strategists like Manstermun talking about literally the words emerging
Speaker 1: market now when they talk about Britain which would have
Speaker 1: seemed far effected a week or two ago, how far
Speaker 1: affetched is it now? Or what kind of performative activity
Speaker 1: are we going to need from somebody in authority in
Speaker 1: order to restore some kind of confidence in Britain. So
Speaker 1: I think the fundamental problem here is that the new
Speaker 1: Chancellor of the Exchequer stood up and almost in his
Speaker 1: first statement convinced the market that he didn't care about
Speaker 1: fiscal sustainability, and of course that has triggered enormous costs
Speaker 1: with the rise in borrowing costs for the UK government
Speaker 1: and the plunge in the pound. Fundamentally, what is required
Speaker 1: to write this ship is for the same Chancellor to
Speaker 1: stand up and convince the market that actually, yes, he
Speaker 1: does care deeply about growth, he does want to deliver
Speaker 1: on an ambitious growth agenda, but he also understands and
Speaker 1: will credibly commit to delivering on fiscal sustainability as well.
Speaker 1: It doesn't look very good for the Trust administration, does it, Tom.
Speaker 1: I don't think this is going to go down in
Speaker 1: history as the most auspicious staff for any new administration
Speaker 1: every body. Let's put it like that, Bloomberg Economics chief
Speaker 1: economist Tom or Like. As the FED prepares for the
Speaker 1: unemployment rate to go up as part of its campaign
Speaker 1: detained inflation, part of the Fed's hope is that perforce
Speaker 1: participation rises. In other words, that people previously not even
Speaker 1: looking will become part of the labor force again. That
Speaker 1: would push the unemployment rate higher, for sure, but it
Speaker 1: wouldn't push people currently in jobs out of jobs, so
Speaker 1: less painful pain perhaps, to put it in contact, labor
Speaker 1: force participation was at or above sixty three before the pandemic.
Speaker 1: It's slow to sixty as the pandemic hits. It's now
Speaker 1: back up to sixty two point four. Bloomberg opinion columnist
Speaker 1: Justin Fox has been looking at various cohorts and finding
Speaker 1: some data that might surprise. So Justin, there's a belief
Speaker 1: out there that through the pandemic, people fifty five and
Speaker 1: over left the workforce and droves, and that that was
Speaker 1: exacerbating a trend already fifteen years in the making. But
Speaker 1: it turns out that that premise is actually false. Tell
Speaker 1: us more it's partly just that I'm fifty eight years old,
Speaker 1: and when I look at these reports about oh, fifty
Speaker 1: five and older labor force participation fell a lot during
Speaker 1: the pandemic and is still actually kind of falling, while
Speaker 1: most other groups have gone back. And then I look
Speaker 1: at people my own age that I know, but also
Speaker 1: just look at the statistics for the fifty five to
Speaker 1: fifty nine age group. It's actually up over the course
Speaker 1: of the pandemic, and so that just caused me to
Speaker 1: start looking a little more into it. And basically, people
Speaker 1: in their late fifties are actually slightly higher labor force
Speaker 1: participation than before the pandemic. Those in their early sixties
Speaker 1: it's a little lower, But for the people above sixty five,
Speaker 1: there's been a real drop. That drop has been smaller
Speaker 1: in percentage terms than the one point seven percentage point
Speaker 1: drop in overall fifty five and older labor force participation,
Speaker 1: which just seems weird. So people in their early seventies
Speaker 1: have seen a smaller labor force participation drop than the
Speaker 1: overall fifty five and older. And what it is is
Speaker 1: this thing that the economists called composition effects. It's just
Speaker 1: that within the fifty five and older age group. The
Speaker 1: age distribution is changing. What it is is there's the
Speaker 1: baby Boomers, and well I'm one of them too, but
Speaker 1: just barely. And the baby Boomers are simply a bunch
Speaker 1: of years where birth rates were higher than before or after.
Speaker 1: And so the oldest of the Baby Boomers are turning
Speaker 1: fifty eight this year. So when you look at the
Speaker 1: overall fifty five and older age group, it's starting to
Speaker 1: be filled at the young end by members of Generation X,
Speaker 1: and there aren't as many of them now in general
Speaker 1: after about age forty. The older you get, the less
Speaker 1: likely you are to be in the labor force. So
Speaker 1: as that happens if you have a big group of
Speaker 1: people now aging into their sixties and seventies and the
Speaker 1: smaller group of people aging into their late fifties, that
Speaker 1: just sort of automatically is going to cause participation rates
Speaker 1: to decline, even if participation rates of every age group
Speaker 1: within there is not declining at all. So you have
Speaker 1: to be very careful when you look at the data
Speaker 1: before you pull assumptions out of it and say, oh,
Speaker 1: everyone over fifty five just decided that life should be
Speaker 1: different to upter COVID. It's not like that at all.
Speaker 1: Early on, early retirement was this phrase for it, and
Speaker 1: when you looked at it, retirement wasn't up for people
Speaker 1: under sixty five. It was up for people over sixty five.
Speaker 1: And maybe they were retiring earlier than they had planned to,
Speaker 1: because there definitely was a leap for people in their
Speaker 1: late sixties and early seventies. Aren't that many of them working,
Speaker 1: but the numbers have been going up for a long time.
Speaker 1: So yeah, it's just there's definitely been a drop, but
Speaker 1: it's concentrated among people over sixty five years old. You know,
Speaker 1: A it's kind of understandable. COVID is really dangerous if
Speaker 1: you're over sixty five and so not exactly wanting to
Speaker 1: go into the office, or I mean, right before the pandemic,
Speaker 1: McDonald's was starting to recruit senior citizens to come work there.
Speaker 1: And it's like, maybe not a great idea, Yeah, exactly.
Speaker 1: So it's not that there hasn't been any decline. And
Speaker 1: and I actually, after writing this piece, I've did an
Speaker 1: age adjusted version and basically, half of the decline in
Speaker 1: fifty five and older labor force participation is an actual decline,
Speaker 1: and half is this statistical composition effect you did find
Speaker 1: that there are two groups for whom participation has defined substantially,
Speaker 1: and they may not be the ones that we would assume. Right.
Speaker 1: There are two groups under age sixty who have seen
Speaker 1: labor force participation decline from before the pandemic, and it's
Speaker 1: people in their early twenties and in their late thirties.
Speaker 1: So the early twenties you could maybe see so the
Speaker 1: pandemic is not exactly a time to go looking. It's
Speaker 1: very difficult interview. You don't even know where you really wanted.
Speaker 1: You don't know what businesses are going to be around
Speaker 1: after the pandemic, right, And a lot of people also delayed,
Speaker 1: took a gap year, so they're still in college now
Speaker 1: when they wouldn't have been otherwise at age twenty three
Speaker 1: or whatever. One other factor that I didn't write about,
Speaker 1: but the economist Adam Ozomac pointed out to me on Twitter,
Speaker 1: is that there's a bunch of twenty two year olds
Speaker 1: who got a bunch of money from various pandemic relief programs,
Speaker 1: and if they were still living at home, they probably
Speaker 1: still have all that money. So there's just less of
Speaker 1: an absolute need to get out on the job market.
Speaker 1: But the late thirties is a little more surprising. Yeah,
Speaker 1: I mean, it does seem like it would have something
Speaker 1: to do with childcare, because people in their late thirties
Speaker 1: are pretty much the most likely group now in the
Speaker 1: US to have small children. But what's interesting is, and
Speaker 1: this is true overall, women are now above their pre
Speaker 1: pandemic levels, both in that late thirties age group and
Speaker 1: for the entire prime working age. So while participation for
Speaker 1: women is up, male labor force participation overall continues to decline. Now,
Speaker 1: we've known for some time the participation for prime age men,
Speaker 1: so fifty four has been seeing an accelerating decline recap
Speaker 1: for us Why, Yeah, for men, I mean, some of
Speaker 1: it is stuff like people just staying in school longer,
Speaker 1: more people going to college, and some percentage of it
Speaker 1: is men taking on more responsibilities at home. But clearly
Speaker 1: most of it is a larger group of men than
Speaker 1: women who are just completely disconnected from work. And we're
Speaker 1: seeing that playoffs in polls and in elections. And yeah,
Speaker 1: I mean, and that's been a phenomenon. You know, there's
Speaker 1: a lot of talk about it over the past decade,
Speaker 1: and I imagine we will start talking about it again
Speaker 1: because it will continue to be, you know, and one
Speaker 1: clear reason for it is because men are much more
Speaker 1: likely to have criminal records, be ex convicts, and it's
Speaker 1: just been really hard for people to come out of
Speaker 1: prison and get into the workforce. So that's clearly part
Speaker 1: of it. But there are also just other issues with
Speaker 1: the kind of jobs that have been created and what
Speaker 1: men feel comfortable doing and are willing to do, and
Speaker 1: in general, men are struggling in school in a way
Speaker 1: that women aren't. One encouraging thing is it's clear, at
Speaker 1: least right now, the job market has been very good
Speaker 1: for non college graduates, so maybe that will help justin
Speaker 1: I guess the bottom line is we should rethink our
Speaker 1: assumptions about older workers. They're there and they're working, yeah,
Speaker 1: and to write and I guess what it is is,
Speaker 1: I just don't think there's a huge number of older
Speaker 1: workers who can be brought back into the workforce. There
Speaker 1: definitely are some, and you're and you're seeing the numbers
Speaker 1: keep inching up, but definitely people sixty five and older,
Speaker 1: you know, they keep getting older every year and and
Speaker 1: and it's reasonable that more of them would want to
Speaker 1: be out of the workforce. The oldest baby boomers are
Speaker 1: turning seventy five now, so you know they should probably.
Speaker 1: You know, obviously some people can keep working forever, but
Speaker 1: a lot of people don't want to and have saved
Speaker 1: up enough money that they don't have to. So I
Speaker 1: guess what it is is, if we're looking for sort
Speaker 1: of quick things that can increase labor force participation, we
Speaker 1: should probably spend more time thinking about what's going on
Speaker 1: with people in their early twenties and late thirties and
Speaker 1: trying to fix whatever hurdles there are. Bloomberg Opinions justin
Speaker 1: Fox we continue now with our review of currency turmoil.
Speaker 1: This week, I spoke with Bloomberg Opinions Dan Moss. So, Dan,
Speaker 1: if you look at w crs on the Bloomberg year today,
Speaker 1: it's really quite a site to see. All the majors,
Speaker 1: with maybe the exception of the Brazilian real and the
Speaker 1: pay so are down versus the dollar, and most of
Speaker 1: those by double digits. Turmoil unleashed in currency markets seems
Speaker 1: to be getting worse by the week. Are we in
Speaker 1: full blown f X crisis mold globally? No, I wouldn't
Speaker 1: say it is an ex crisis globally. What we are
Speaker 1: seeing though significant reverberation of US dollar strength, magnified in
Speaker 1: specific instances by local idiosyncrasies. You know, there's been a
Speaker 1: lot of attention volume on the agonist of the British
Speaker 1: pound in the past few days, justifiably, so you can't
Speaker 1: really talk about that without mentioning Japan's adventures in the
Speaker 1: currency market. Thursday evening at global time, Japan intervened to
Speaker 1: buy ying. They've had plenty of interventions selling it. They
Speaker 1: bought at this time. That's the first time since Epochal
Speaker 1: year for currencies China. Almost every day in our China
Speaker 1: is rolling out some sort of tweet towards rules and
Speaker 1: regulations to cushion the decline in the U are and
Speaker 1: I'm not stopping the depreciation. Were at some point to
Speaker 1: within obviously and presentage point to per dollar right now,
Speaker 1: and it's just continuing down even with the intervention. There
Speaker 1: are sound reasons for that. China's economy is not in
Speaker 1: a great state. We're used to in past decades during
Speaker 1: times of global economic softness, China kind of riding to
Speaker 1: the rescue. That's not happening anymore. The PBOC is never
Speaker 1: far from what's going on in Chinese markets to have
Speaker 1: a daily fixing. They limit fluctuations. They're not trying to
Speaker 1: stand against market forces. They are trying to mitigate some
Speaker 1: of the more extreme manifestations of that. You look at
Speaker 1: overnight volatility. So many pairs are seeing such activity, reverberation
Speaker 1: from the strong goaler are increasingly making themselves held in
Speaker 1: developed economies. What's unnerving about the situation the UK right
Speaker 1: now is British authorities find themselves managing a reputational crisis.
Speaker 1: Now it's one thing that inflation manage. That you've got
Speaker 1: slow growth, you can stimulate a bit, but we're now
Speaker 1: busy for the UK government is now busy distancing itself
Speaker 1: from this e M tag no less a person than
Speaker 1: a former US Treasury secretary. It's really quite incredible monthmore
Speaker 1: un Larry Somers, as you mentioned, so many people talking
Speaker 1: about Britain as an emerging market. But let's move to
Speaker 1: the emerging markets because obviously it's one thing for developed markets,
Speaker 1: as you say, with developed capital markets, but how do
Speaker 1: em and frontier economy survive. We've seen places like Pankistan
Speaker 1: and Turmoil, We've seen default. What happens in Hungary, where
Speaker 1: the foreign is down, Lira in Turkey down, Argentina. I
Speaker 1: think the emerging markets prey. Look, we've had this narrative
Speaker 1: off and on for the better part of two decades,
Speaker 1: which is all about emerging markets decoupling from the dollar
Speaker 1: finding their own strength. But the episodes that we've seen
Speaker 1: of late sort of put a line to that. There's
Speaker 1: not a lot an emerging market but the exception of
Speaker 1: China can really do about this other than don't kick
Speaker 1: own goals. Dollar strength is such that any country that's
Speaker 1: perceived to be winging it or engaging in indulgences is
Speaker 1: going to get picked off, right or wrong. That is
Speaker 1: the way the UK fiscal package was perceived a day
Speaker 1: after the Japanese intervention. Look, it's king dollar, and the
Speaker 1: question is what does king dollar do with the Kingdom
Speaker 1: don How much can export oriented economies benefit from currency
Speaker 1: weakness in order to show a domestic activity, let's say,
Speaker 1: even as their external deadloads get heavier. I mean there
Speaker 1: is a point beyond which even export oriented economies can't
Speaker 1: take this anymore. Right, Well, in theory, it's great for
Speaker 1: an export dependent economy. However, it's got to be the
Speaker 1: demand for the stuff. Now we saw an update to
Speaker 1: O E c D Global growth for CUFF. That was
Speaker 1: a very significant cup. Where I'm sitting in Southeast Asia,
Speaker 1: China has been both a big source of export and
Speaker 1: import tom and we're just not seeing that because China's
Speaker 1: economy is in retreat. So what do you do? It's
Speaker 1: a really tough one. Are we going to see more
Speaker 1: defaults and more pressure on organizations such as the International
Speaker 1: Monetary Fund? So let's go back twenty five years in
Speaker 1: Southeast Asia where I'm now sitting. The IRONF was the
Speaker 1: first port of core. But don't underestimate the ill will
Speaker 1: fostered by the very, very harsh conditionality that the IMF imposed.
Speaker 1: And in many instances the IMF was, if not caused,
Speaker 1: then certainly midwife to significant political dislocations. Now you can say, hey,
Speaker 1: it brought true democracy to South Korea, the first opposition
Speaker 1: Canada was elected. It brought a complete reorganization of governance
Speaker 1: in Indonesia. Malaysia rolled the dice on capital controls and
Speaker 1: kind of got away with it in the short term,
Speaker 1: that at the price of significant reputational risk and a
Speaker 1: long term split within the ruling party. So the Ironmas
Speaker 1: has to be there, but the countries have to be
Speaker 1: willing to go to it, and certainly emerging markets in
Speaker 1: this region know that it ain't a free lunch. Bloomberg
Speaker 1: Opinions don Mass to return to the story of the
Speaker 1: week now, and that is turmoil and FX markets across
Speaker 1: the globe. Bloomberg Opinions Andrea pop Book joins so Andrea
Speaker 1: Bloomberg Opinions. Done Mass told us that emerging markets can
Speaker 1: do really very little in the eye of dollar strength.
Speaker 1: His advice actually was to pray, and he was only
Speaker 1: a little bit being tongue in cheek. Where are the
Speaker 1: dangers most obvious right now? Yeah, Look, I don't think
Speaker 1: it's only emerging markets that can do very little. If
Speaker 1: you look around, there is very little that anyone, including
Speaker 1: China and Japan, can do. In the last week, we
Speaker 1: saw Japan come in and intervene to prop up the yen,
Speaker 1: and while that did have an immediate reaction, I guess
Speaker 1: if you look at the level of the yen right now,
Speaker 1: it is not much below where the Ministry of Finance
Speaker 1: and the Bank of Japan came in last week. And
Speaker 1: also we have got a Chinese yuan falling to a
Speaker 1: record alone, and again it seems that China is perhaps
Speaker 1: less determined to go in there and stem that slide.
Speaker 1: And the reason is, if we step back, this is
Speaker 1: the green bag pretty much steam rolling every single currency
Speaker 1: around the world. And look, it is a very classic
Speaker 1: example of interest rate differentials playing out. We know that
Speaker 1: the FED is determined to keep going with interest rate
Speaker 1: increases to bring down this runaway inflation. And as long
Speaker 1: as that keeps going on, you will continue to see
Speaker 1: the dollar strengthen. And I think you know, in very
Speaker 1: simple terms, what we are seeing is higher US rates,
Speaker 1: capital outflows out of emerging markets, especially China. And yes,
Speaker 1: it's not just the emerging markets, it is everywhere exactly.
Speaker 1: And you mentioned China's you and the on shore has
Speaker 1: weakened two above seven twenty two versus the US dollar. Now,
Speaker 1: obviously it's different in the basket of currencies. But China,
Speaker 1: even if it's been offloading US government debt for some time,
Speaker 1: it still holds mountains of US How does China navigate
Speaker 1: these waters? Yeah, and look it looks at the moment
Speaker 1: it is easing its grip. It is, for want of
Speaker 1: a better word, becoming more comfortable. I don't think it's that,
Speaker 1: but I think it realizes that it cannot stand in
Speaker 1: the way of this higher US rate. And so keep
Speaker 1: in mind, China has its own issues with the fact
Speaker 1: that it's clinging to this COVID zero policy. It has
Speaker 1: the property market worlds, So you are not likely going
Speaker 1: to see the accommodative monetary conditions in China and any
Speaker 1: time soon. You are unlikely to see China lifting grades
Speaker 1: anytime soon. I think, like probably every other central bank,
Speaker 1: it just needs to stay tight. At the moment. It
Speaker 1: seems that everyone is just waiting to see what is
Speaker 1: going to happen, because there is very little they can
Speaker 1: do to stand in the way of the U s
Speaker 1: dollar strength. But also we're also staring down the barrel
Speaker 1: of a potential global recession, you know, So where do
Speaker 1: people want to park their money. They want to park
Speaker 1: their money, I guess in the safest asset and that
Speaker 1: remains the US dollar. Well, and then when you see
Speaker 1: the International Monetary Fund literally asking the British Treasury to
Speaker 1: reevaluate its unfunded tax cards just announced, I mean, that's
Speaker 1: quite the event on the currency stage as well. Are
Speaker 1: you seeing any little pockets of opportunism. I suppose, I'm asking,
Speaker 1: is there any chance that we're going to see a
Speaker 1: currency collapse or a peg collapse anytime soon? The Internactional
Speaker 1: Moretive fund that was really interesting. Look, I think it
Speaker 1: just adds to the uncertainty out there. And I think
Speaker 1: one other potential pocket of uncertainty that hasn't had much
Speaker 1: attention this week is the Euro and the Italian election,
Speaker 1: and that is potentially another geo political uncertainty that could
Speaker 1: rattle the Euro. There are some analysts expecting the Euro
Speaker 1: to fall to point nine five. So we haven't it's
Speaker 1: seen the effect of this. I don't want to call
Speaker 1: it a crisis, call it a currency mailed down. We
Speaker 1: haven't seen everything play out, so there are still potential
Speaker 1: headwinds out there for the likes of the Euro. But
Speaker 1: it's a testament to exactly how much has been going
Speaker 1: on and how crazy everything seems now when we talk
Speaker 1: about a currency crisis and theory, I guess it's a
Speaker 1: nominal depreciation of at least twenty Obviously, in practice it
Speaker 1: can be different percentages and so on, but Sterling did
Speaker 1: meet that definition for a moment. The end is down
Speaker 1: more than the Swedish crona and A Region crona too,
Speaker 1: and New Zealand and South Korea aren't far off. This
Speaker 1: is obviously just versus the US dollar. It feels like
Speaker 1: we're storing up all kinds of problems for the next
Speaker 1: six months to a year. Andrea, is that stoking too
Speaker 1: much panic to say that? Oh? Look, I think you're right.
Speaker 1: I mean, I'm looking now at the appreciation we have
Speaker 1: seen this year, and yes, the tame biggest currencies against
Speaker 1: the US dollar are inching their way, if you like,
Speaker 1: towards the twenty percent. It's a moving fist, isn't it.
Speaker 1: It's so hard to say when this is going to end.
Speaker 1: It definitely feels like a crisis. No one has kind
Speaker 1: of attached that label to it yet, but I think
Speaker 1: it's fair to say that that is potentially what we
Speaker 1: are looking at for the next six months. And I
Speaker 1: think one of the things that's worth keeping in mind
Speaker 1: is that it seems that every central bank, from the
Speaker 1: Bank of Japan to the People's Bank of China, they
Speaker 1: are on their own in trying to defend their currencies.
Speaker 1: There's no concerted effort for central banks to come together
Speaker 1: to do anything it's sort of every man for himself
Speaker 1: in central bank land. And what we have seen so
Speaker 1: far is that the effect of coming into proper your
Speaker 1: currency is very short term. Uh well, and beyond that,
Speaker 1: exchange reserves will be declining in certain countries, not just
Speaker 1: because they're being used for those purposes, but also because
Speaker 1: if you're not an exporting country, and if you don't
Speaker 1: have commodities, and if you're mainly an important country, if
Speaker 1: you need food supplies and so on, you're in deep trouble.
Speaker 1: We've seen socioeconomic unrest in various places, not just for
Speaker 1: this reason and for many reasons, but everything is interconnected.
Speaker 1: At this point, Should we be concerned about particular countries? Yeah, Look,
Speaker 1: you're right. I mean, how far do you want to
Speaker 1: deplete your reserves given that what you're trying to achieve
Speaker 1: seems to have almost no effect at a time when
Speaker 1: you have got countries dealing with elevated cost of living
Speaker 1: inflation is a problem. So yeah, and I think at
Speaker 1: this moment these are kind of theoretical things that could happen.
Speaker 1: But definitely, the longer this goes on, the longer that
Speaker 1: will become a problem. And you're right, will government step in.
Speaker 1: Will we need to see more fiscal support probably emerging
Speaker 1: countries And the moment you see that, are you going
Speaker 1: to see budget deficits blowout? And these are questions that
Speaker 1: will probably come a lot clearer the longer this goes on.
Speaker 1: But these are definitely risks, right, And you mentioned energy.
Speaker 1: I mean oil has retreated to an extent, But if
Speaker 1: there were to be another shark and oil or another markets,
Speaker 1: would central banks even have the ability to withstand those sharks?
Speaker 1: I mean certain central banks are very weakened at this point,
Speaker 1: that's right. And look, oil has come down, and I
Speaker 1: guess that is one positive thing, especially if you're a
Speaker 1: country that is a major oil important in the sense
Speaker 1: that it takes some of that pressure of inflation. And
Speaker 1: you know, having these weak currencies also helped with controlling
Speaker 1: inflation to a certain extent. So that is I guess
Speaker 1: one of the positive But I think all of that
Speaker 1: at the moment seems to be drowned out by the
Speaker 1: fear of capital outflows out of emerging markets, especially out
Speaker 1: of China. We know that China is incredibly concerned. As
Speaker 1: the one weakens, you are likely going to see this
Speaker 1: capital outflows. So it's a very fine line that these
Speaker 1: especially emerging market countries are trading right now, but this
Speaker 1: massive outflows of capital and how do they navigate that?
Speaker 1: You know, I think they are in a very precarious situation,
Speaker 1: especially as we're talking about a currency crisis. So there's
Speaker 1: some major hurdles ahead to some of these governments that
Speaker 1: will potentially have to come in and held fiscally. It's
Speaker 1: almost ironic that the one government that we have seen
Speaker 1: do that in recent weeks as the UK government, and
Speaker 1: look what that spurred. That's right, and I think for
Speaker 1: the UK government, the timing was very unfortunate, simply because
Speaker 1: inflation is just so high, so it's almost like adding
Speaker 1: fuel to the fire with these text cuts that they announced,
Speaker 1: and you know what you're saw in financial markets. It
Speaker 1: really was a loss of faith in the new UK government.
Speaker 1: You can understand why they were doing it, but it
Speaker 1: seemed reckless given the fact that you have got the
Speaker 1: Bank of England trying to bring down inflation like every
Speaker 1: other central bank around the world. So, Andrea, what countries
Speaker 1: are you watching most closely? Where could we see the
Speaker 1: next move? Well, look, it's interesting one one country that
Speaker 1: it's worth keeping an eye on is Australia. The economy here,
Speaker 1: it remains quite strong. We've got record employment. Unemployment rate
Speaker 1: is at a record low. You've got a central bank
Speaker 1: that has been listing interest rates and is determined to
Speaker 1: do so. And yet the dollar now looks like it
Speaker 1: could test the psychological level of fixed cents after it's
Speaker 1: broken through these technical levels. So that's one currency that
Speaker 1: you know was quite resilient, but again it is a
Speaker 1: victim of what's going on globally. And it seems that
Speaker 1: even the Osie dollar can't expect to remain elevated. It
Speaker 1: has fallen about twenty percent this year and with training
Speaker 1: around sixty four now. But yeah, I mean the fact
Speaker 1: that six pcents is inside, that's one currency that's worth
Speaker 1: keeping an eye on. It too, is falling into the
Speaker 1: dollars worldpool. Bloomberg Opinions. Andrea Papock there that does it
Speaker 1: for this week's opinion. I'm at Vanney Quinn on Twitter,
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