WEBVTT - Daybreak Weekend: U.S CPI Data, ECB Meeting, China Inflation 0:00:02.920 --> 0:00:08.280 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.400 --> 0:00:13.880 This is Bloomberg day Break Weekend, our global look at 0:00:13.920 --> 0:00:15.880 the top stories in the coming week from our day 0:00:15.920 --> 0:00:18.800 Break anchors all around the world. Straight ahead on the program, 0:00:18.920 --> 0:00:22.119 Inflation and what it could mean for the Fed plus 0:00:22.120 --> 0:00:25.160 earning season is right around the corner. We'll get a preview. 0:00:25.360 --> 0:00:28.600 I'm Tom Busby in New York. I'm Stephen Carolyn London. 0:00:28.640 --> 0:00:32.200 For We're looking ahead and beyond the upcoming European Central 0:00:32.240 --> 0:00:36.640 Bank meeting, when and how fast interest rates may come down. 0:00:37.040 --> 0:00:40.159 I'm Doug Krisner looking at whether China's economy is bottomed 0:00:40.240 --> 0:00:41.879 and if it's beginning to inflate. 0:00:43.880 --> 0:00:47.840 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:47.840 --> 0:00:50.360 Ey look them free own New York, Bloomberg ninety nine 0:00:50.400 --> 0:00:53.760 to one, Washington, DC, Bloomberg one O six one, Boston, 0:00:53.840 --> 0:00:58.680 Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius 0:00:58.840 --> 0:01:02.040 XM one nineteen and around the world on Bloomberg Radio 0:01:02.160 --> 0:01:04.400 dot Com and via the Bloomberg Business App. 0:01:08.520 --> 0:01:10.560 Good day to you. I'm Tom Busby, and we begin 0:01:10.640 --> 0:01:14.640 today's program with inflation and the March consumer Price Index 0:01:14.760 --> 0:01:17.720 coming out this Wednesday. With the fed's next policy meeting 0:01:17.800 --> 0:01:20.600 kicking off later this month, what could that mean for 0:01:20.680 --> 0:01:23.399 the central banks direction moving forward? And for more we're 0:01:23.440 --> 0:01:29.720 joined by Edward Harrison, Bloomberg, team leader America's FX and Rates. Edward, 0:01:30.120 --> 0:01:33.000 Thanks for being here. What are you expecting to see 0:01:33.040 --> 0:01:34.199 in that CPI report? 0:01:34.480 --> 0:01:37.959 Hey, great to talk to you, Tom. The question really 0:01:38.319 --> 0:01:40.640 is wide open in terms of what we can see. 0:01:41.120 --> 0:01:42.400 There are a lot of things, and I think that 0:01:42.560 --> 0:01:45.880 the way to think about this is that we had 0:01:45.920 --> 0:01:49.120 a very high level of inflation as we came out 0:01:49.320 --> 0:01:54.840 of the pandemic, and that's come down considerably, but we've 0:01:54.920 --> 0:01:58.680 stalled at a level that is above the Fed's target. 0:01:58.960 --> 0:02:02.480 And recently what we've seen is prices moving up in 0:02:02.720 --> 0:02:07.560 places that people are sensitive to, you know, things like cocoa, 0:02:07.840 --> 0:02:12.079 you know, for chocolate, things like oil, which affects your 0:02:12.280 --> 0:02:15.440 gasoline prices in the US. And so, as a result, 0:02:15.880 --> 0:02:19.800 after two readings in a row that were relatively high 0:02:20.360 --> 0:02:24.040 above expectations, there's a lot of anticipation about this number, 0:02:24.520 --> 0:02:29.359 and really it could be higher than expected given some 0:02:29.520 --> 0:02:30.840 of those recent trends. 0:02:31.280 --> 0:02:33.560 Still a long way to go, though, to the fed's 0:02:33.560 --> 0:02:35.919 two percent target, but like you said, not the nine 0:02:35.960 --> 0:02:38.840 point one percent we saw just two summers ago. But 0:02:39.320 --> 0:02:41.679 we had been heading in the right direction. Is this 0:02:42.000 --> 0:02:45.400 recent pickup just an aberration you think, or are we 0:02:45.520 --> 0:02:46.960 onto something more troubling. 0:02:47.240 --> 0:02:49.760 Well, you know, the FED really wants to get their 0:02:50.080 --> 0:02:53.679 hands around that to figure out what's going on. And 0:02:53.919 --> 0:02:57.280 that's why when you heard Jerome Powell talking last week, 0:02:57.720 --> 0:03:01.079 he was talking about patients. And that's because of this 0:03:01.240 --> 0:03:05.720 number in particular, and also the number that's embedded in 0:03:05.880 --> 0:03:09.520 the Personal Consumption Expenditures Report, which is what the FED 0:03:09.680 --> 0:03:13.120 looks at even more closely. When you look at this number, 0:03:13.880 --> 0:03:16.960 you know, the last number without food and energy, which 0:03:17.000 --> 0:03:19.560 are very viable. When you strip that out, you still 0:03:20.120 --> 0:03:23.640 had three point eight percent. They're expecting three point seven percent, 0:03:23.960 --> 0:03:28.440 which is almost double the fed's level now. Luckily, because 0:03:28.520 --> 0:03:33.040 food and energy have been relatively benign of late. The 0:03:33.160 --> 0:03:36.080 number was three point two percent last time, and we're 0:03:36.120 --> 0:03:40.800 expecting three point five percent this time. So that gives 0:03:40.840 --> 0:03:43.560 you an indication that there's a lot of work to 0:03:43.600 --> 0:03:46.440 be done. And this is why j Powell last week 0:03:46.560 --> 0:03:47.600 was talking about patients. 0:03:47.840 --> 0:03:49.960 Well, let's talk about some of those big drivers here. 0:03:50.200 --> 0:03:53.680 You mentioned oil right now hovering around a five month high, 0:03:54.120 --> 0:03:58.240 always very volucile, but we are seeing expectations gas is 0:03:58.280 --> 0:04:00.720 going to hit four bucks a gallon here in the US, 0:04:00.840 --> 0:04:03.680 that's for regular by the summer. I mean, that is 0:04:03.880 --> 0:04:06.840 a real wildcard. Oil and gas prices. 0:04:07.080 --> 0:04:09.080 Without a doubt. And you know, as I was saying, 0:04:09.360 --> 0:04:11.920 they had been positive in terms of the numbers food 0:04:11.920 --> 0:04:17.160 and energy because the headline number is lower than the 0:04:17.320 --> 0:04:19.440 number when you strip out food and energy. But now 0:04:19.560 --> 0:04:22.160 that we have these prices going back up, then you 0:04:22.279 --> 0:04:26.920 can expect them to have a negative contribution. They're sending 0:04:27.000 --> 0:04:30.440 the CPI up higher. And there's nothing that people think 0:04:30.480 --> 0:04:35.560 about more than gasoline prices. It has that anchor effect 0:04:36.520 --> 0:04:38.840 in terms of how people think about inflation and where 0:04:38.880 --> 0:04:41.600 it's headed. And so this is not what people want. 0:04:42.040 --> 0:04:45.560 And I would add that, you know OPEK their meeting, 0:04:46.240 --> 0:04:49.479 it will be interesting to see what kind of level 0:04:49.560 --> 0:04:53.119 they're targeting for oil prices. If we're looking at ninety 0:04:53.160 --> 0:04:56.560 dollars a barrel, then that's not a level that is 0:04:56.680 --> 0:05:00.080 going to be pleasant for the inflation numbers. 0:05:00.000 --> 0:05:03.880 You know, food, oil, gasoline, housing. But there are some 0:05:04.360 --> 0:05:07.440 green shoots, some glimmers of hope. Used car prices have 0:05:07.560 --> 0:05:09.720 moved lower, new car prices have moved lower. 0:05:09.839 --> 0:05:15.400 Right, what we're looking for in particular is not just 0:05:15.560 --> 0:05:20.360 in goods and things that were inflated coming down, but 0:05:21.120 --> 0:05:27.239 that core beyond even goods in services, you know, takeout housing, 0:05:27.320 --> 0:05:31.600 even looking at you know, the services sector and the 0:05:31.880 --> 0:05:35.359 core within the services sector of minus housing to see 0:05:35.480 --> 0:05:38.160 what the overall trend is. I think that that is 0:05:38.360 --> 0:05:40.400 going to be the place that people are going to 0:05:40.480 --> 0:05:42.279 be looking as they look at the CPI. 0:05:42.600 --> 0:05:44.640 Now, one last question. We're going to talk about the 0:05:44.800 --> 0:05:47.880 fed's meeting, which is April thirtieth May. First, that's the 0:05:47.960 --> 0:05:50.360 next one. A non starter for a rate cut, but 0:05:50.600 --> 0:05:53.880 everybody's still thinking about that mid June meeting, and between 0:05:54.000 --> 0:05:56.279 now and then, the FED is going to have three 0:05:56.440 --> 0:06:01.080 CPI reports, two PCE reports, and that for a data 0:06:01.120 --> 0:06:03.880 dependent FED is a lot to consider. Is there any 0:06:03.960 --> 0:06:06.799 feeling that by then, by the June eleventh and twelfth 0:06:06.880 --> 0:06:10.040 meeting we are going to see maybe some hope of 0:06:10.160 --> 0:06:10.720 a rate cut. 0:06:11.040 --> 0:06:13.800 I think that these next ones are going to be 0:06:14.000 --> 0:06:18.000 very important, because you know, the FED is looking for 0:06:18.080 --> 0:06:20.800 a trend, and that trend needs to be lower. To 0:06:20.920 --> 0:06:23.160 the degree that the next one or two of these 0:06:23.640 --> 0:06:28.760 CPIPCE reports are not lower, it makes it more difficult 0:06:28.800 --> 0:06:30.880 for the FED to cut in June. When we look 0:06:30.960 --> 0:06:34.160 at some of the people at the FED, Atlanta FED 0:06:34.240 --> 0:06:39.360 President raphae Albostik, he's been an individual who's at the 0:06:39.440 --> 0:06:43.159 leading edge of where the Fed's going. He's actually talking 0:06:43.240 --> 0:06:46.360 about waiting all the way into the fourth quarter. So 0:06:46.800 --> 0:06:50.320 that's an indication of sort of the angst of the 0:06:50.400 --> 0:06:53.080 Fed about how sticky inflation has been. 0:06:53.360 --> 0:06:53.600 Wow. 0:06:53.800 --> 0:06:57.000 Well, the next reading the March CPI data out there Wednesday, 0:06:57.200 --> 0:07:00.040 and our thanks to Edward Harrison, Bloomberg team leader for 0:07:00.080 --> 0:07:03.840 Americas FX and Rates. Well, we turn now to the 0:07:03.880 --> 0:07:05.920 start of the new earning season on Wall Street. It 0:07:06.000 --> 0:07:09.200 kicks off this Friday. We get the latest quarterly reports 0:07:09.400 --> 0:07:12.880 from JP Morgan, Chase, Wells, Fargo, and City Group, some 0:07:12.960 --> 0:07:15.600 of the biggest banks in the US. What will they 0:07:15.680 --> 0:07:18.200 reveal about the health of the banking sector. Well for more, 0:07:18.360 --> 0:07:22.400 We're joined by Alison Williams, Bloomberg Intelligence Senior Analyst, Global 0:07:22.480 --> 0:07:25.960 Banks and Asset Managers. Now, Allison, I want to start 0:07:26.080 --> 0:07:28.880 with where the US banking sector is right now compared 0:07:28.880 --> 0:07:31.040 to the turmoil a year ago. We saw the failure 0:07:31.120 --> 0:07:34.600 of Silicon Valley Bank in March of twenty three, Signature 0:07:34.640 --> 0:07:37.160 Bank in April of that year, First Republic. Where are 0:07:37.200 --> 0:07:37.520 we now? 0:07:37.880 --> 0:07:41.680 So, I think for the banks, that really kicked off 0:07:41.720 --> 0:07:45.760 a lot of concerns about the higher interest rate environment, 0:07:46.680 --> 0:07:50.200 and we saw a lot of deposit outflows and that 0:07:50.360 --> 0:07:53.720 really has been a big focus for investors in terms 0:07:53.760 --> 0:07:57.320 of the impact on net interest income. But for this quarter, 0:07:57.720 --> 0:08:01.080 investors are really going to be focusing on the change 0:08:01.360 --> 0:08:05.360 in interest rate expectations versus the last time we heard 0:08:05.400 --> 0:08:08.600 from the banks, which was in January, and so at 0:08:08.640 --> 0:08:11.600 that point in time, most of the banks gave their 0:08:11.640 --> 0:08:17.040 guidance for net interest income looking for six rate cuts. 0:08:17.080 --> 0:08:21.040 City Group more in the three to six cut region, 0:08:21.480 --> 0:08:24.960 but the market implied rates at this point in time 0:08:25.040 --> 0:08:27.880 are closer to three, and so we do expect that 0:08:28.000 --> 0:08:29.880 there could be some change in the net interest income 0:08:29.920 --> 0:08:32.559 outlook that really affects more of the back half and 0:08:32.640 --> 0:08:38.040 the twenty twenty five expectations. But circling back to deposits again, 0:08:38.120 --> 0:08:40.079 that was the sort of one of the big concerns 0:08:40.720 --> 0:08:45.720 a year ago, deposit pricing. We have seen those deposit 0:08:45.920 --> 0:08:50.080 prices increase, but we do think that this quarter they 0:08:50.160 --> 0:08:54.079 could come in a little bit more muted than perhaps 0:08:54.160 --> 0:08:57.680 had fears. We got some color around that from Bank 0:08:57.760 --> 0:09:00.600 of America who said that they think that they're an 0:09:00.720 --> 0:09:04.160 interestingcome guidance could come in a bit at the higher 0:09:04.280 --> 0:09:07.240 end of their guidance because those costs have not been 0:09:07.520 --> 0:09:08.160 as bad as. 0:09:08.160 --> 0:09:08.920 They had expected. 0:09:09.160 --> 0:09:12.800 What were they expecting, Well, deposit prices are increasing, right, 0:09:13.080 --> 0:09:16.959 so as rates have come up, banks sort of got 0:09:17.040 --> 0:09:19.319 an early benefit in terms of the repricing of their 0:09:19.440 --> 0:09:21.959 loan books, but they held off a little bit in 0:09:22.120 --> 0:09:27.560 terms of passing on those price increases to customers because 0:09:27.600 --> 0:09:31.520 we were coming off of those zero percent levels. So 0:09:31.640 --> 0:09:34.760 I think as things sort of adjusted to a normalized environment, 0:09:35.320 --> 0:09:37.240 they were a bit slower to pass on some of 0:09:37.320 --> 0:09:42.280 that benefit. But now that is happening, and so consumers 0:09:42.440 --> 0:09:45.959 are demanding a little bit more yield. They're switching their 0:09:46.120 --> 0:09:49.720 deposits into products that offer a higher yield, and that's 0:09:49.720 --> 0:09:53.120 been happening over the past year. But perhaps that pace 0:09:53.240 --> 0:09:54.679 is starting to slow down a bit. 0:09:54.840 --> 0:09:55.040 Yeah. 0:09:55.640 --> 0:09:58.200 Well, one thing that hasn't slowed down for banks trading. 0:09:58.520 --> 0:10:02.680 We've seen IPO a little growth there, we've seen record 0:10:02.840 --> 0:10:05.320 levels for all the major averages. What does that mean 0:10:05.400 --> 0:10:06.000 for these banks? 0:10:06.280 --> 0:10:11.160 So healthier markets are definitely a boon to the asset 0:10:11.200 --> 0:10:15.600 and wealth management businesses for all these big banks. They 0:10:15.679 --> 0:10:18.840 are diversified banks, and so they are benefiting just from 0:10:18.960 --> 0:10:22.960 the fees, just from the asset levels, but also they'll 0:10:22.960 --> 0:10:25.920 be looking for better flows. That is a key measure 0:10:25.960 --> 0:10:27.959 of health of the businesses. But on the trading and 0:10:28.080 --> 0:10:33.520 fee outlook, trading continues to be relatively resilient, and so 0:10:34.200 --> 0:10:37.559 that fixed income trading does face tougher comparisons, So it 0:10:37.640 --> 0:10:40.320 could be a little bit down, especially for the rates 0:10:40.320 --> 0:10:44.480 and currencies business for someone like City Group, but still 0:10:44.760 --> 0:10:50.079 very healthy historically high levels. Equity trading getting some benefit. 0:10:50.280 --> 0:10:52.400 As you pointed out that we have seen a little 0:10:52.440 --> 0:10:56.480 bit more activity on the IPO front, perhaps not as 0:10:56.559 --> 0:10:59.640 strong as some of the banks would expect, but definitely 0:10:59.760 --> 0:11:03.400 in the US, the US underwriting business is going to 0:11:03.480 --> 0:11:07.360 be helping those fees, the debt underwriting business helping those fees. 0:11:07.679 --> 0:11:10.160 M and A announcements looking a little bit better, but 0:11:10.280 --> 0:11:12.280 it'll take a little while for those fees to kick in. 0:11:12.400 --> 0:11:14.400 But I think the highlight for this quarter for trading 0:11:14.440 --> 0:11:17.600 and fees will be that investment banking feed growth both 0:11:17.800 --> 0:11:20.000 versus a year ago and the fourth quarter. 0:11:20.360 --> 0:11:22.959 But let's talk about now the challenges, and probably the 0:11:23.000 --> 0:11:25.680 biggest one we spoke about this is commercial real estate. 0:11:26.080 --> 0:11:28.560 We just had a vacancy rate of offices last quarter 0:11:28.679 --> 0:11:31.600 twenty percent, just under twenty percent across the US. That's 0:11:31.640 --> 0:11:32.480 got to be devastated. 0:11:32.640 --> 0:11:36.960 And the office business is definitely something that investors are 0:11:36.960 --> 0:11:41.160 focused on. It's something that we're focusing on. But Wells Fargo, 0:11:41.640 --> 0:11:44.360 you know, for example, who has one of the biggest 0:11:44.440 --> 0:11:48.240 exposures among our banks. At least they've already put up 0:11:48.240 --> 0:11:51.160 a pretty healthy reserve against that business, so they've been 0:11:51.240 --> 0:11:55.600 watching it as those trends have been deteriorating. And commercial 0:11:55.640 --> 0:11:57.559 real estate, while it's a big thing I think to 0:11:57.640 --> 0:12:00.480 focus on for the industry, it does tend to be 0:12:00.960 --> 0:12:04.240 a relatively lower exposure across the banks. So even though 0:12:04.320 --> 0:12:07.560 Wells Fargo and now JP Morgan two of the biggest 0:12:07.640 --> 0:12:11.800 lenders out there to commercial real estate, Bank of America 0:12:11.840 --> 0:12:14.880 as well, it is not as big of a share 0:12:15.000 --> 0:12:16.839 of their loan book as it is perhaps for the 0:12:16.880 --> 0:12:20.040 smaller banks. And so what we're really focusing on is 0:12:20.160 --> 0:12:22.520 the credit card business, where we think that is going 0:12:22.559 --> 0:12:26.440 to be the driver of provisions for the largest banks 0:12:26.520 --> 0:12:29.599 because there is loan growth in that business, and that 0:12:29.679 --> 0:12:31.959 loan growth does tend to have higher loss rates. So 0:12:32.559 --> 0:12:35.360 we will see provisions increase because of the growth, because 0:12:35.480 --> 0:12:38.280 credit is normalizing, and because this does tend to be 0:12:38.360 --> 0:12:41.280 a seasonally higher quarter for those types of losses. 0:12:41.960 --> 0:12:43.719 Well, a lot to look forward to this week and 0:12:43.760 --> 0:12:47.880 our thanks to Alison Williams, Bloomberg Intelligence Senior Analyst, Global 0:12:47.920 --> 0:12:51.480 Banks and Asset Managers. And coming up on Bloomberg Daybreak weekend, 0:12:52.040 --> 0:12:56.160 when will European policy makers start to ease monetary policy? 0:12:56.520 --> 0:12:59.000 We look ahead to the next European Central Bank meeting. 0:12:59.440 --> 0:13:13.760 I'm Tom Buzby and this is Bloomberg. This is Bloomberg 0:13:13.840 --> 0:13:15.880 Day Break weekend, our global look ahead at the top 0:13:15.920 --> 0:13:18.840 stories for investors in the coming week. I'm Tom Busby 0:13:18.920 --> 0:13:22.240 in New York. Up later in our program. Has China's 0:13:22.240 --> 0:13:26.280 economy bottomed out? We look ahead to China inflation data. 0:13:26.559 --> 0:13:29.679 But first in the global interest rate race, investors have 0:13:29.800 --> 0:13:32.360 been working on the assumption that the Federal Reserve will 0:13:32.400 --> 0:13:35.200 be the first to make a raid cut, but after 0:13:35.280 --> 0:13:38.280 some encouraging economic data from the Eurozone, could the European 0:13:38.360 --> 0:13:41.319 Central Bank beat the Fed to the punch with a 0:13:41.400 --> 0:13:43.920 surprise cut as early as later this month. For more, 0:13:44.320 --> 0:13:46.720 Let's go to London and bring in Bloomberg Daybreak anchor 0:13:46.920 --> 0:13:48.160 Stephen Carroll. 0:13:48.360 --> 0:13:50.960 Tom Inflation in the euro Area may not be slowing 0:13:51.040 --> 0:13:53.559 down as quickly as it was last year, but it's 0:13:53.559 --> 0:13:56.040 still moving in the right direction for the ECB. The 0:13:56.120 --> 0:13:59.360 latest reading shows consumer prices rising in March by two 0:13:59.400 --> 0:14:02.120 point four percent year on year. That's down from a 0:14:02.160 --> 0:14:05.360 pace of two point six percent in February. Spanish Governing 0:14:05.400 --> 0:14:07.880 Council member Pablo Hernandez de cass is among the most 0:14:07.960 --> 0:14:11.280 recent to earmark the June meeting as likely being for 0:14:11.360 --> 0:14:14.520 the first cut in interest rates. Even the most hawkish 0:14:14.600 --> 0:14:17.880 member of the Governing Council, Austria's Robert Holtzman, is warning 0:14:17.920 --> 0:14:20.400 of the perils of holding rates at their current level 0:14:20.480 --> 0:14:24.080 for too long, but could waiting until June risk harming 0:14:24.120 --> 0:14:27.440 the economy. Boomberg opinion columnist Marcus Ashworth has joined those 0:14:27.520 --> 0:14:31.080 calling instead for an April move at this upcoming meeting. 0:14:31.360 --> 0:14:34.120 He points to Bank of France President Fransouovievoia the gallow 0:14:34.120 --> 0:14:37.520 who's often the bell weather for ECB policy changes. De 0:14:37.640 --> 0:14:41.040 Gallo says that a further slow down in growth means 0:14:41.080 --> 0:14:43.800 that the time has come to take out an insurance 0:14:44.120 --> 0:14:47.720 against this second risk by beginning rate cuts. But going 0:14:47.840 --> 0:14:50.600 before the FED doesn't come without its risks, both in 0:14:50.680 --> 0:14:54.160 Europe and globally. It's something we've been discussing with Aaron Captain, 0:14:54.160 --> 0:14:56.520 who's chief economists at UBS Investment Bank. 0:14:57.080 --> 0:14:59.480 So if the FED doesn't cut in June, right, so 0:14:59.600 --> 0:15:02.960 we basically then have less cuts for the FED, so 0:15:03.000 --> 0:15:05.600 a bit more appreciation of the dollar, a bit more 0:15:05.640 --> 0:15:08.680 euro depreciation. So at the margin it's going to add 0:15:08.680 --> 0:15:12.160 a little bit to Eurozone inflation, but really not very much. 0:15:12.360 --> 0:15:14.320 If all that we're doing is sort of a time 0:15:14.400 --> 0:15:16.520 shift of the FED cuts, right, if they just go 0:15:16.600 --> 0:15:20.320 a bit later and they catch up next year, then 0:15:20.560 --> 0:15:23.320 you know, the overall rate differentials don't really move that much, 0:15:23.760 --> 0:15:25.720 and it doesn't fundamentally I think alter sort of the 0:15:25.760 --> 0:15:27.160 inflation outlook in the euro Zone. 0:15:28.120 --> 0:15:30.360 Is there any chance you think of fifty basis points 0:15:30.400 --> 0:15:31.720 cuts from the ECB this year? 0:15:32.480 --> 0:15:32.840 Not now? 0:15:33.200 --> 0:15:36.560 It's difficult to see why. So I think the debates more, 0:15:36.640 --> 0:15:38.120 you know, do you go once a quarter at the 0:15:38.160 --> 0:15:40.800 forecast meetings or do you go every meeting. It looks 0:15:40.920 --> 0:15:43.120 like they want to go once a quarter, although they 0:15:43.160 --> 0:15:46.200 have been a little vague about sort of what the 0:15:46.320 --> 0:15:49.920 speed of the sequences that they have in mind. In 0:15:50.000 --> 0:15:52.200 my mind, you know, the easy bit is the first 0:15:52.240 --> 0:15:55.520 one hundred and fifty basis points, and there's no real 0:15:55.600 --> 0:15:57.680 reason why you want to sort of race through that 0:15:58.360 --> 0:16:01.000 if there's uncertainty about the landing zone. Right, So the 0:16:01.080 --> 0:16:03.360 way I think they think about it is that you know, 0:16:03.440 --> 0:16:06.160 you're at four, you can probably safely cut to about 0:16:06.200 --> 0:16:07.640 two and a half, and then once you get there, 0:16:07.680 --> 0:16:10.000 you got to look around to see whether you're still 0:16:10.080 --> 0:16:13.680 on track, and if, you know, if things are accelerating 0:16:13.800 --> 0:16:15.840 too fast and profits are going up too fast, then 0:16:15.880 --> 0:16:18.600 you stop cutting at that stage. So given sort of 0:16:18.720 --> 0:16:21.640 that type of uncertainty, you don't need to go in fifties. 0:16:21.680 --> 0:16:24.680 I think the debates really do you go in twenty fives? 0:16:24.760 --> 0:16:26.480 And then you know, do you skip meetings or not? 0:16:26.760 --> 0:16:26.960 Yeah? 0:16:27.600 --> 0:16:30.440 I wonder you know, Kasina Guard and others have points 0:16:30.440 --> 0:16:32.840 as the importance of wage data when it comes to 0:16:33.040 --> 0:16:37.160 their decision making process at the ECB. Two is the 0:16:37.240 --> 0:16:39.920 wage days is something that's a big concern for you 0:16:40.080 --> 0:16:41.960 when you're thinking about the broader outlook for the year 0:16:42.000 --> 0:16:42.560 Zone economy. 0:16:42.800 --> 0:16:44.840 No, so based on what we've there's not a lot 0:16:44.920 --> 0:16:47.040 of year to date wage data out yet. But if 0:16:47.200 --> 0:16:49.800 Italy doesn't repeat the big one off that they had 0:16:49.920 --> 0:16:53.040 in December, then our current tracking of negotiated wages is 0:16:53.120 --> 0:16:55.480 that it'll slip below four percent for the first time 0:16:55.560 --> 0:16:58.720 in January. And so it really looks like, you know, 0:16:58.800 --> 0:17:01.480 the negotiated wage track, which is going to be most inertial, 0:17:02.000 --> 0:17:04.040 had been sort of going sideways, is now starting to 0:17:04.080 --> 0:17:07.200 trend lower. The indeed wage tracker, which is sort of 0:17:07.280 --> 0:17:11.119 temp marginal wages of temp agencies, that's already been heading lower. 0:17:11.280 --> 0:17:13.439 And then they have a phone survey which they don't publish, 0:17:14.359 --> 0:17:17.080 and so all indications really are that wages are moving 0:17:17.560 --> 0:17:19.760 in line with their forecast and at this stage are 0:17:19.800 --> 0:17:20.400 not concerning. 0:17:21.000 --> 0:17:23.680 That was Aaron Captain, chief economist at UBS Investment Bank, 0:17:23.720 --> 0:17:26.800 speaking to us on Bloomberg Daybreak Europe. Now, the ECB 0:17:26.920 --> 0:17:29.919 expects CPI to fall to two point two percent by August, 0:17:30.119 --> 0:17:32.159 but it could happen as soon as this month, according 0:17:32.160 --> 0:17:35.639 to estimates by Bloomberg Economics. Kicking off rate trimming is 0:17:35.720 --> 0:17:38.480 one thing, but questions still remain about what comes next 0:17:38.560 --> 0:17:41.720 for the ECB after the first cut, whether it comes 0:17:41.800 --> 0:17:45.000 in April or in June. At the moment, money markets 0:17:45.000 --> 0:17:48.120 are pricing in three quarter point reductions starting in June. 0:17:48.440 --> 0:17:51.120 I've been discussing the path ahead with senior Euro Area 0:17:51.160 --> 0:17:55.200 economist for Bloomberg Economics David Powell. Just how surprising would 0:17:55.200 --> 0:17:57.359 an April cut be or how likely is it? 0:17:58.000 --> 0:18:01.640 An April cut is very unlikely at this stage. For example, 0:18:01.720 --> 0:18:04.560 there's almost no probability of that being priced into the 0:18:04.640 --> 0:18:08.760 markets right now. Some time ago, there was a debate 0:18:08.920 --> 0:18:12.160 whether this was going to happen in April or in June. 0:18:12.200 --> 0:18:13.399 That was back at the beginning of the year, and 0:18:13.440 --> 0:18:16.439 that was fully priced in that April cuts. There has 0:18:16.480 --> 0:18:19.080 been a big shift in market pricing we've seen, and 0:18:19.160 --> 0:18:22.000 that's really been thanks to the communication we've seen from 0:18:22.040 --> 0:18:25.080 the ECB who have started to rule out some time 0:18:25.160 --> 0:18:30.159 ago the possibility of an April cut, Although there have 0:18:30.359 --> 0:18:33.600 been some doves in the Governing Council who've continued to 0:18:33.720 --> 0:18:36.520 speak about it from time to time. It's not of 0:18:36.640 --> 0:18:38.439 you held by the consensus at all. 0:18:38.640 --> 0:18:42.600 Just mischievously hinting that perhaps there's something could happen, even 0:18:42.640 --> 0:18:45.159 though there's no likelihood of it as you see it 0:18:45.200 --> 0:18:48.359 as well. So what's the risk of waiting longer for 0:18:48.640 --> 0:18:51.600 Christine Legard and colleagues or is there a risk in 0:18:51.680 --> 0:18:53.160 them waiting to June. 0:18:53.720 --> 0:18:56.920 Well, the difference between April and June is not that huge. 0:18:57.240 --> 0:19:01.280 Although the ECB cannot wait until is actually down to 0:19:01.359 --> 0:19:04.399 two percent to start cutting because monetary policy works with 0:19:04.480 --> 0:19:06.600 a lag somewhere between a year and a year and 0:19:06.680 --> 0:19:09.240 a half. So if they don't, if they don't actually 0:19:09.400 --> 0:19:14.080 cut until inflation is back to target, the full impact 0:19:14.119 --> 0:19:15.960 of that cut won't be felt for some time later, 0:19:16.000 --> 0:19:19.879 and the economy could already have suffered some significant damage 0:19:19.920 --> 0:19:22.400 by them at a time when the economy has hardly grown. 0:19:22.440 --> 0:19:25.800 In fact, the UR economy is not expanded at all 0:19:25.920 --> 0:19:27.720 for nearly a year and a half, and if we 0:19:27.840 --> 0:19:31.320 compare that flatlining that we saw last year in the 0:19:31.440 --> 0:19:34.399 UR area, that's very different from the US where it 0:19:34.440 --> 0:19:38.360 expanded by three percent. So they can't wait forever to cut, 0:19:38.520 --> 0:19:42.080 but probably the difference between April and June is not huge, 0:19:42.280 --> 0:19:43.840 and it looks like it's coming in June. 0:19:44.480 --> 0:19:48.320 The process of deflation has been reasonably steady in the 0:19:48.440 --> 0:19:52.840 Euro Area. Are there worrying aspects within that? Are there 0:19:53.040 --> 0:19:56.800 risk zones within the members of the Euro Area that 0:19:56.960 --> 0:20:00.440 could actually bump inflation up in the wrong direction before 0:20:00.480 --> 0:20:01.440 we get to right cuts? 0:20:01.800 --> 0:20:05.160 Yeah, well, inflation has come down, as you said, considerably 0:20:05.400 --> 0:20:08.080 from where it was at its peak. In fact, it's 0:20:08.119 --> 0:20:11.359 not very far from the target now, and we expect 0:20:11.440 --> 0:20:14.680 headline inflation to actually drop below target this summer. But 0:20:14.760 --> 0:20:17.160 there are still some bits of worry when you look 0:20:17.200 --> 0:20:19.280 at the details of the report. In fact, we just 0:20:19.359 --> 0:20:22.400 had the inflation report for March and both the headline 0:20:22.400 --> 0:20:25.520 and core continue to come down. But services inflation, which 0:20:25.520 --> 0:20:28.480 the ECB is watching very closely, has been sticky at 0:20:28.560 --> 0:20:32.640 four percent for months now. That will probably come down 0:20:32.720 --> 0:20:35.920 in the months ahead as wage growth decelerates, but that's 0:20:36.000 --> 0:20:39.000 keeping the ECB worried and as part of the reason 0:20:39.040 --> 0:20:42.359 they're moving cautiously delaying the first cut to June. They'll 0:20:42.400 --> 0:20:45.320 probably pause after that and not cut again until September, 0:20:45.840 --> 0:20:47.680 and they would like to see that come down before 0:20:47.720 --> 0:20:48.879 they move more aggressively. 0:20:49.640 --> 0:20:51.560 And of course the flip side of they say is 0:20:51.720 --> 0:20:53.880 and those who do want to see right cuts come 0:20:53.960 --> 0:20:56.840 faster is the weakness in the euro Area economy. Late 0:20:56.880 --> 0:20:59.600 interesting to see the latest round of pm I numbers 0:20:59.640 --> 0:21:02.800 showing a little bit of strength returning the Eurozone composite 0:21:02.800 --> 0:21:05.520 pi I number the final reading for March, seeing it 0:21:05.680 --> 0:21:09.800 nudge back into expansion territory. How weak is the euros 0:21:09.880 --> 0:21:12.320 and economy at this point, Well, the your area is 0:21:12.440 --> 0:21:12.960 pretty weak. 0:21:13.040 --> 0:21:15.240 Like I said, it hasn't expanded for nearly a year 0:21:15.280 --> 0:21:18.119 and a half. That stands in very stark contrast the 0:21:18.240 --> 0:21:21.480 United States, which, as I already said, spend the three 0:21:21.520 --> 0:21:23.960 percent last year. It just gives you a sense of 0:21:24.040 --> 0:21:26.880 how weak it is in Europe. However, the economy will 0:21:26.960 --> 0:21:31.160