WEBVTT - Jennifer Lee Talks Markets; Fed

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's talk about some economics. We're actually government back open.

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<v Speaker 2>Economic data is flowing here, so let's get at it.

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<v Speaker 2>Jennifer Lee, BMO Capital Market Senior Economist, joints us here, Jennifer,

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<v Speaker 2>thanks so much for joining us here. What's kind of

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<v Speaker 2>your setup for the economic call here for the US

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<v Speaker 2>in twenty twenty six. How are you thinking about that?

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<v Speaker 3>Well, good morning, happy holidays to you both, and thank

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<v Speaker 3>you very much for having me on. You know, so,

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<v Speaker 3>I will say I'm a little bit more optimistic now

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<v Speaker 3>that I was, you know, back in April during Liberation Day,

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<v Speaker 3>given just that we have at least more certainty, a

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<v Speaker 3>little bit more clarity on the Tarra front in terms

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<v Speaker 3>of what the levels are. We're not talking about fifty

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<v Speaker 3>percent anymore and anything like that. Whether or not the

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<v Speaker 3>legal they're legal is another story. But that sets up

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<v Speaker 3>for a like at least a firmer I think, a

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<v Speaker 3>start to the year.

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<v Speaker 4>We know what to expect.

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<v Speaker 3>But that's not to say that there are lots of

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<v Speaker 3>landmines in store for US in twenty twenty six, and

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<v Speaker 3>just a lot of them coming in January in particular.

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<v Speaker 5>It's interesting and I'd love your take, Jennifer on what

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<v Speaker 5>data to look at look in between Christmas and New Year.

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<v Speaker 5>It's pretty thin, but we have had a little dose

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<v Speaker 5>of it us to some December Dallas fin Manufacturing Index

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<v Speaker 5>fell to negative ten point nine today. The expectation had

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<v Speaker 5>been for negative six and that's more about the manufacturing

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<v Speaker 5>focus over there in Texas. But we're also seeing some

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<v Speaker 5>of the pending home sales coming in much stronger than

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<v Speaker 5>hand to been anticipated in a month or month basis,

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<v Speaker 5>we're up three point three percent. If you looked at

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<v Speaker 5>that number that broke at ten am, what is the

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<v Speaker 5>tell for you going into twenty twenty six? What are

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<v Speaker 5>the key data points that you want to look at?

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<v Speaker 3>So I'll be looking at I think everybody else will

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<v Speaker 3>be looking at anything that's related to jobs, anything that's

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<v Speaker 3>related to inflation. Funny you mentioning the data because we

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<v Speaker 3>finally finally got the Q three GDP numbers out of

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<v Speaker 3>the Ust just was last week, right, yeah, four point

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<v Speaker 3>three percent, which was like whoa blue mail away? And

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<v Speaker 3>it wasn't just you know, exports, it wasn't just inventories,

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<v Speaker 3>and I think that it.

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<v Speaker 4>Was pretty broad based very interesting.

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<v Speaker 3>Take example from the from the consumer side, a lot

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<v Speaker 3>more spending on that side, not just on it was

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<v Speaker 3>just pretty broad based as well, but a lot of

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<v Speaker 3>non durables and also on services. So you know, we

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<v Speaker 3>can't discount the consumer just yet. But same time, all

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<v Speaker 3>that's a big look in the rear viewer mirror. That

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<v Speaker 3>was all Q three and now we're looking at Q

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<v Speaker 3>four and of course now as they're starting Q one

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<v Speaker 3>in in like in just a few days, but we

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<v Speaker 3>have to get through this period of still not clean data.

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<v Speaker 3>It still has to be scrubbed. I think we're going

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<v Speaker 3>to be looking for a lot more revisions. You'll be

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<v Speaker 3>interesting the first take, of course, and all the regional

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<v Speaker 3>data and all that will make for a very interesting story.

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<v Speaker 3>But I'm going to be more interested in the government

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<v Speaker 3>data and what is going to happen after they revise

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<v Speaker 3>them in the months ahead, to see what the real

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<v Speaker 3>story is going to be. But so far, you know,

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<v Speaker 3>as of the first three quarters of the year, a

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<v Speaker 3>very strong and very resilient US economy still and it's

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<v Speaker 3>going to get messy because of the shutdown that we had.

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<v Speaker 4>In Q four. We're going to have that balance back

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<v Speaker 4>in Q one.

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<v Speaker 3>But at the same time, we can't break out the

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<v Speaker 3>you know, the bubbly jest s yep, because we could

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<v Speaker 3>be talking about shutdown again in the next couple of weeks.

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<v Speaker 4>Sorry to say that.

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<v Speaker 3>Sorry, starting to put a damper inner all this, but yeah,

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<v Speaker 3>that's the reality that's out there.

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<v Speaker 2>So talk to us about the consumer out there, Jennifer,

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<v Speaker 2>how do you see the consumer? I know we've got

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<v Speaker 2>that case shaped economy out there, so maybe we've got

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<v Speaker 2>to you know, hem and hauled a little bit. But

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<v Speaker 2>it seems like the consumer's doing okay. Is that what

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<v Speaker 2>you're seeing so far?

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<v Speaker 3>Again, you know, we got the liliest data that we

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<v Speaker 3>got was from the retail sales report. The core measure

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<v Speaker 3>was very strong, sets up for a again a strong

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<v Speaker 3>still a strong border for this consumer. But still, you know,

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<v Speaker 3>we have to be careful because of the shutdown and

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<v Speaker 3>all that. At the same time, I'm very wary of

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<v Speaker 3>the confidence surveys that we've been seeing.

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<v Speaker 4>I mean, and they can.

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<v Speaker 3>Swing back and forth, but just particularly what we saw

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<v Speaker 3>from the Conference Board survey that had dropped, you.

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<v Speaker 4>Know, considerably.

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<v Speaker 3>But you know, it wasn't about inflation because the inflation

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<v Speaker 3>expectations component, I believe was quite steady, but it was

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<v Speaker 3>all about jobs, and fewer people were saying that they

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<v Speaker 3>found jobs plentiful. More people were saying that they are

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<v Speaker 3>finding jobs hard to get. So that's something that we

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<v Speaker 3>have to be very weary about because obviously, at the

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<v Speaker 3>end of the day, it's having a job, having a

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<v Speaker 3>steady income. That's going to be what It's the main

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<v Speaker 3>driver for the consumer.

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<v Speaker 5>And the main driver for the FED. We're going to

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<v Speaker 5>talk a lot more about the consumer after the next break,

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<v Speaker 5>but talk to Jennifer a little bit about one of

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<v Speaker 5>the key issues you think we should be tiptoeing around

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<v Speaker 5>is who is going to lead the FED next and

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<v Speaker 5>how they react.

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<v Speaker 4>To the data that they're give in to.

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<v Speaker 5>So it's going to be early January that we're going

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<v Speaker 5>to be anticipating which Kevin it'll be.

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<v Speaker 3>Right which exactly we do know for sure that is

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<v Speaker 3>going to be. His first name will be Kevin. The

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<v Speaker 3>last name is to be decided, but you know it's

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<v Speaker 3>going to be he will be having He will have

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<v Speaker 3>a very difficult job finding his way through the data.

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<v Speaker 3>You know, obviously then it will be very important, but

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<v Speaker 3>also getting some sort of a majority within all the

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<v Speaker 3>FED voters, because as we saw from the last FED vote,

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<v Speaker 3>there are quite a few that are not so confident

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<v Speaker 3>that they are ready to cut rates again or just yet.

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<v Speaker 3>You know, we are not looking for a January rate

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<v Speaker 3>cut by any measure.

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<v Speaker 4>I don't think anyone is right now.

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<v Speaker 3>But you know, I think a couple more at the

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<v Speaker 3>minimum rate cuts to come at a slower pace. You know,

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<v Speaker 3>we're looking at March, September, March, June and September for

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<v Speaker 3>the next rate cuts.

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<v Speaker 4>Three more to come.

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<v Speaker 3>Everything obviously will be taken on a meeting by meeting

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<v Speaker 3>basis and will be very data dependent, but having that

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<v Speaker 3>majority will be very critical.

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<v Speaker 2>Jennifer, just when it seems like the market may have

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<v Speaker 2>put tariffs in the rear view mirror. Us MCA talks

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<v Speaker 2>officially launched mid January. I mean, what's going to happen there?

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<v Speaker 2>I mean, you've got a unique perspective up there in Canada.

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<v Speaker 2>What's the expectation.

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<v Speaker 3>I think expectations, I'm going to say, I'm from my perspective,

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<v Speaker 3>I think they're kind of low right now. Not sure

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<v Speaker 3>exactly what's going to happen, whether or not we're going

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<v Speaker 3>to actually have an actual us MCA per se or

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<v Speaker 3>is it going to be a usc CM, a USM

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<v Speaker 3>you know what I mean, some term a combination of that.

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<v Speaker 3>But obviously there's going to be a lot of give

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<v Speaker 3>and take from all parties. It's just going to be

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<v Speaker 3>how much you know, how much each party will be

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<v Speaker 3>giving or taking will be will be critical, but it

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<v Speaker 3>will definitely be a lot different, I.

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<v Speaker 4>Think, than than what we have right now.

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<v Speaker 5>Let's talk more global perspective now, because you've got some

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<v Speaker 5>great takes on global central banks, not just what's happening

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<v Speaker 5>in the FED. Back in Canada, well, twenty twenty four

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<v Speaker 5>was a big year for rate cuts. In fact, one

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<v Speaker 5>hundred mites so done in twenty twenty five. We now

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<v Speaker 5>done until those trade talks are a washout.

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<v Speaker 3>So it sounds like the Bay Firm Governor Maclam basically

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<v Speaker 3>sells like that they are done and that they're quite comfortable.

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<v Speaker 3>The words were like that that they think that rates

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<v Speaker 3>are about right where they are right now to get

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<v Speaker 3>inflation back down to target. So you know, at at

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<v Speaker 3>the bare minimum, sells like nothing is going to happen.

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<v Speaker 3>But I think if there is a risk, the risk

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<v Speaker 3>will be more cuts again, given how the U s

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<v Speaker 3>MCA fares. I mean, the US is our biggest by

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<v Speaker 3>far trading partner out there, with about three quarters of

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<v Speaker 3>our experts going to the US, over fifty percent of

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<v Speaker 3>our airports coming from the US, so many businesses.

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<v Speaker 4>Are very dependent on sorry.

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<v Speaker 1>So at that point, because of that way, do you

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<v Speaker 1>believe that how the how how the talks farewell depend

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<v Speaker 1>will determine what happens with the Baker Canada, and of

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<v Speaker 1>course with inflation and the economy.

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<v Speaker 2>How about what's your dollar call here? For twenty twenty six,

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<v Speaker 2>the dollar has not bounced back like stocks have bounced

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<v Speaker 2>back and other parts of the market to bounce back.

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<v Speaker 3>That has been one of the toughest calls I'll tell you,

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<v Speaker 3>to make the calls of the US dollar. It's been,

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<v Speaker 3>like the US economy, quite resilient. But you would imagine

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<v Speaker 3>in theory in the world where almost all the central

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<v Speaker 3>banks are basically finished easing policy, maybe one more to go,

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<v Speaker 3>maybe a couple more ago, but in some of them

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<v Speaker 3>are getting ready to start to tighten or continue tightening

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<v Speaker 3>in the case of the Bank of Japan. In that

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<v Speaker 3>kind of environment, and then of course with a fed

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<v Speaker 3>still on an easy bias, you would imagine that the

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<v Speaker 3>US dollar would start to weaken, but it's sort of

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<v Speaker 3>like how it's going to be all relative to everybody

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<v Speaker 3>else in terms.

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<v Speaker 4>Of the economy.

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<v Speaker 3>If the US economy continues to remain resilient, which we

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<v Speaker 3>still expect and we've got about two percent growth penciled

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<v Speaker 3>in for twenty twenty six, that will actually help support

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<v Speaker 3>the US dollars.

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<v Speaker 4>So even though we do look for the US dollar

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<v Speaker 4>to weekend, it's going.

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<v Speaker 3>To be a slow, slow, softish weakening trend, not a

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<v Speaker 3>big drop.

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<v Speaker 5>Jennifer Lee, and he needs to say the capital markets