WEBVTT - The Fed’s Impact on EM and America’s Drinking Problem 0:00:03.880 --> 0:00:08.119 Welcome to Bloomberg Opinion. I'm Vonnie Quinn. This week has 0:00:08.160 --> 0:00:11.600 brought perhaps not won, but a couple Garfield Reynolds on 0:00:11.640 --> 0:00:15.160 the Bank of Japan's surprise to the markets later. Had 0:00:15.360 --> 0:00:18.479 January six not happened, January eight would probably not have 0:00:18.560 --> 0:00:22.400 happened either. Eduard op Porter on the similarities and differences 0:00:22.440 --> 0:00:25.239 between January eighth and Brazil and January six in the 0:00:25.320 --> 0:00:28.040 United States. Will also hear from Justin Fox on the 0:00:28.200 --> 0:00:32.159 ongoing propensity to drink alcohol post pandemic. First though, to 0:00:32.280 --> 0:00:37.640 John Authors and the resurgence of emerging markets to start three. So, John, 0:00:37.640 --> 0:00:40.600 a few things happened in Q four of two. China 0:00:40.640 --> 0:00:44.720 obviously abroptly started to reopen. US markets were extraordinarily volatile, 0:00:44.880 --> 0:00:47.000 the FED was ramping on Parkish language. It was all 0:00:47.040 --> 0:00:49.200 to be a little bit expected. But it has given 0:00:49.320 --> 0:00:53.680 rise to a spectacular performance by emerging markets. Does it continue? 0:00:54.920 --> 0:00:59.440 It certainly can, and I think on balance it probably does. 0:01:00.280 --> 0:01:02.560 There's no such thing as a freelancer or certainty in 0:01:03.000 --> 0:01:05.760 these things, but I think the case for staying overweight 0:01:06.000 --> 0:01:10.679 in emerging markets is pretty strong. These days. Emerging markets 0:01:10.680 --> 0:01:13.240 have been cheap relative to develop for a very long 0:01:13.280 --> 0:01:17.840 time now, for over a decade, they've just persistently underperformed 0:01:17.880 --> 0:01:22.520 further and they've looked ever cheaper. So there have always 0:01:22.520 --> 0:01:25.120 been those reasons which give room for a lot of 0:01:25.160 --> 0:01:28.680 out performance once they finally begin to recover. The two 0:01:28.720 --> 0:01:33.480 critical catalysts are you've mentioned China, obviously, and a week dollar, 0:01:33.720 --> 0:01:39.720 which would happen with the US slowdown or a relatively 0:01:39.760 --> 0:01:43.640 early easing in rates. If the dollar does weaken on 0:01:43.840 --> 0:01:49.160 cue and China does seriously stimulate, it's pretty hard to 0:01:49.160 --> 0:01:51.720 see how emerging markets don't be developed for the next 0:01:51.760 --> 0:01:53.639 year or two, right, And there's a lot of questions 0:01:53.680 --> 0:01:56.000 in there, because we don't know how much China can stimulate, 0:01:56.040 --> 0:01:58.240 or how much China is willing to stimulate or blow 0:01:58.240 --> 0:02:00.880 out its deficit, for example. But you have to wonder 0:02:01.240 --> 0:02:03.840 why it's all happening now, given that many of the 0:02:03.920 --> 0:02:05.800 same conditions that we were dealing with last year is 0:02:05.800 --> 0:02:09.400 still in place, including chip wars, the actual war on Ukraine, 0:02:09.480 --> 0:02:13.600 shortages of certain materials, and even China's poor performance. Yes, 0:02:13.800 --> 0:02:17.520 but if you try to discount future performance, which is 0:02:17.560 --> 0:02:20.359 what you're trying to do, you don't buy a stock 0:02:20.480 --> 0:02:22.560 or a bond's passed. You buy its future, and you 0:02:22.720 --> 0:02:27.919 buy it. The arguments that emerging markets can move ahead 0:02:28.960 --> 0:02:30.840 do look stronger than they did. I mean, one of 0:02:30.880 --> 0:02:36.080 the other critical points here is that synchronization is less 0:02:36.080 --> 0:02:39.040 than it was. We had a moment of extreme synchronization 0:02:39.120 --> 0:02:44.160 obviously with the pandemic, but what we have had since then, 0:02:44.360 --> 0:02:48.000 Countries like Brazil had to start hiking rates pretty aggressively 0:02:48.240 --> 0:02:52.080 in one as we know, the FED didn't for another 0:02:52.160 --> 0:02:56.560 year after that, the ECB waited longer. That means that 0:02:56.919 --> 0:03:00.720 you've got differentials in emerging markets favors if you're looking 0:03:00.720 --> 0:03:02.799 for carry trades, if you're looking to make money from 0:03:02.880 --> 0:03:05.240 yields or whatever, there's that much greater of an appeal. 0:03:06.040 --> 0:03:09.040 It also means that some of them are already at 0:03:09.120 --> 0:03:11.359 the other end of the cycle and beginning to pick 0:03:11.440 --> 0:03:15.800 up growth again. Obviously China, with the extreme change in 0:03:15.800 --> 0:03:18.320 its COVID policy, is a very big part of that, 0:03:18.400 --> 0:03:22.200 but it's not just China. Yes, the conditions are generally 0:03:22.520 --> 0:03:25.960 not so different from twelve months ago, but we have 0:03:26.200 --> 0:03:30.120 moved on twelve months. The US has hiked a lot, 0:03:30.440 --> 0:03:33.920 and the emerging markets have already earned some of the 0:03:33.919 --> 0:03:37.760 advantages of having hiked earlier. Now, Goldman Sachs, as you 0:03:37.800 --> 0:03:41.360 point out, is suggesting a three percentage point differential and 0:03:41.360 --> 0:03:44.520 growth between e M and d M. How does Goldman 0:03:44.600 --> 0:03:49.320 explain that, Again, it's primarily about China is just very 0:03:49.440 --> 0:03:52.880 very important, very big, and the likelihood is that they 0:03:52.880 --> 0:03:56.360 will be able to drive growth, not just in China 0:03:56.400 --> 0:04:00.440 and everywhere else if if China starts demanding more and 0:04:00.480 --> 0:04:02.520 this is one of the more interesting questions, whether that 0:04:02.560 --> 0:04:05.360 will help commodity producers as much as it's used to, 0:04:05.400 --> 0:04:08.080 or whether it will help people might be wanted to 0:04:08.160 --> 0:04:12.120 export consumer goods to China, but it does help everybody 0:04:12.240 --> 0:04:15.640 if China is beginning to grow again. Most importantly, though, 0:04:15.720 --> 0:04:19.159 you are at a different point in the cycle. The 0:04:19.279 --> 0:04:23.520 central banks in the developed world are waiting for growth 0:04:23.600 --> 0:04:27.039 to slow down and wanting that to happen, and in 0:04:27.120 --> 0:04:30.920 emerging markets they are at the point of emerging from 0:04:30.960 --> 0:04:34.839 those precise conditions. We don't have the synchronization we did. 0:04:36.120 --> 0:04:40.359 Another point is back in the big emerging market boom 0:04:40.360 --> 0:04:44.320 that came before the global financial crisis, one of the 0:04:44.400 --> 0:04:48.800 great buzzwords was decoupling. That the emerging markets now got 0:04:48.839 --> 0:04:51.000 to the point where their middle classes were growing. They 0:04:51.000 --> 0:04:54.360 were trying to mature their economies, become consumer led all 0:04:54.360 --> 0:04:57.360 the rest of it, and as they did that, they 0:04:57.360 --> 0:05:00.520 would decouple from the different world. That turned out be wrong, 0:05:01.040 --> 0:05:05.040 as we discovered in two thousand and eight. However, it's 0:05:05.120 --> 0:05:09.240 conceivable now in for less healthy reasons, there might be 0:05:09.279 --> 0:05:14.080 more truth to it. Deglobalization has happened to a fairly 0:05:14.120 --> 0:05:20.599 significant extent, and there is somewhat more need for emerging 0:05:20.640 --> 0:05:23.080 markets to create their own growth. I don't want to 0:05:23.080 --> 0:05:26.440 take this too far. Obviously, the dollar is still extremely 0:05:26.480 --> 0:05:31.000 important emerging markets, but the world has moved on in 0:05:31.040 --> 0:05:35.479 a way that does make some form of decoupling much 0:05:35.560 --> 0:05:38.560 more plausible than it was fifteen years ago. It's going 0:05:38.600 --> 0:05:41.360 to be difficult for emerging markets to carry that off, right, 0:05:41.400 --> 0:05:46.680 I mean, you can't materialize materials literally or demand or 0:05:47.400 --> 0:05:53.080 GDP growth. Risks of politics and governance would be high 0:05:53.160 --> 0:05:56.400 on the list. People are concerned about whether Lula is 0:05:56.440 --> 0:05:59.279 going to be a much more left wing prime minister 0:06:00.120 --> 0:06:03.360 president this time around compared to his first dint in office. 0:06:04.040 --> 0:06:08.240 Lopezador in Mexico, who's coming towards the end of his term, 0:06:08.520 --> 0:06:11.800 has has been moving in a generally rather disquiet ing 0:06:12.080 --> 0:06:16.279 authoritarian and anti market direction, those being two of the 0:06:16.279 --> 0:06:21.160 most obvious countries to do well. Otherwise, Yes, there are 0:06:21.160 --> 0:06:26.360 there are plainly political risks, but there always are. Um 0:06:26.839 --> 0:06:29.440 Lula has been president for ten years. In the past, 0:06:29.760 --> 0:06:33.440 Lopez Obrador was mayor of Mexico City, which is effectively 0:06:33.480 --> 0:06:37.000 the second biggest job in Mexican politics. Before. These aren't 0:06:37.320 --> 0:06:42.239 complete political novices shouting to burn everything down in charge. 0:06:42.279 --> 0:06:44.520 They are people whose politics are to the left of 0:06:44.600 --> 0:06:47.960 where many investors feel comfortable. But I don't myself see 0:06:48.000 --> 0:06:53.360 those dangerous as particularly serious. We've seen that you rally 0:06:53.560 --> 0:06:57.080 in the equities, obviously, but there are fascinating opportunities in 0:06:57.160 --> 0:07:01.480 the m debt and obviously Mama Area and Rob Kunnigsberger 0:07:01.640 --> 0:07:03.280 Grammercy Fonds have been pointing this out as well. They're 0:07:03.360 --> 0:07:05.000 very excited about it, not just in the very immediate 0:07:05.040 --> 0:07:07.480 term but over the next almost twenty four months. Perhaps, Yes, 0:07:08.200 --> 0:07:10.840 I think the point that they made, which I was 0:07:10.920 --> 0:07:13.880 fascinated to see because I hadn't noticed it before. In 0:07:13.960 --> 0:07:18.080 terms of draw downs, emerging market debt last year on 0:07:18.120 --> 0:07:22.520 a total return basis had its worst draw down since 0:07:23.040 --> 0:07:28.320 the Russian default in, which is crazy, right, yes, because 0:07:28.320 --> 0:07:32.480 there wasn't actually an emerging market crisis last year, but 0:07:32.720 --> 0:07:35.000 there's not a large part of these. There was no 0:07:35.240 --> 0:07:39.480 vintage emerging markets in trouble. There was no worry about sudden, 0:07:39.960 --> 0:07:44.680 massive devaluation anywhere in the emerging world or default. The 0:07:44.760 --> 0:07:49.160 only bigger draw down since the MB benchmark has been 0:07:49.160 --> 0:07:51.640 in place since the beginning of ninety four were around 0:07:51.680 --> 0:07:55.120 the Tequila crisis in Mexico ninety four, which was an 0:07:55.160 --> 0:07:57.880 epic crisis at a point, you know, when the emerging 0:07:57.920 --> 0:08:00.560 world was in a very different place, and then only 0:08:00.600 --> 0:08:03.240 a few years later when Russia folded down to yeltin. 0:08:03.920 --> 0:08:06.480 I mean, obviously not the first to point out that 0:08:06.880 --> 0:08:10.080 last year was a very unusually synchronized year and absolutely 0:08:10.120 --> 0:08:13.920 everything fell. It's a bit hard to see that there's 0:08:13.960 --> 0:08:16.960 a good reason for emerging markets to have done as 0:08:17.000 --> 0:08:21.000 badly as they did. If you believe in a continuing 0:08:21.040 --> 0:08:24.320 week dollar, then you benefit just from the weakening of 0:08:24.360 --> 0:08:28.080 the dollar. If you're holding onto emerging market assets, the yields, 0:08:28.160 --> 0:08:31.720 both because of the sell off and because with higher 0:08:31.800 --> 0:08:35.400 rates anyway they're offering more, the yields are very much 0:08:35.440 --> 0:08:38.200 more appealing than they've been for a very long time. 0:08:38.440 --> 0:08:40.240 A lot of these arguments do seem to be contingent 0:08:40.360 --> 0:08:43.920 on a continuing weakening dollar, though I guess it looks 0:08:43.960 --> 0:08:47.240 like we may have a continuing weakening dollar anyway. Um, 0:08:47.320 --> 0:08:49.160 what about some of the other currencies though, I mean, 0:08:49.200 --> 0:08:51.880 are they stable enough that they can hold their own? 0:08:52.440 --> 0:08:55.600 The other huge wild cards in the financial world at 0:08:55.640 --> 0:08:59.040 the moment is the end, which obviously matters quite a 0:08:59.080 --> 0:09:02.720 lot to some the key emerging markets on the Age Pacific. 0:09:03.840 --> 0:09:06.559 I think it's close to certain that the Bank of 0:09:06.640 --> 0:09:10.360 Japan will have to be considerably tighter in its monetary 0:09:10.360 --> 0:09:12.600 policy by the end of this year than it is 0:09:12.679 --> 0:09:15.920 now because the kind of intervention it's having to do 0:09:16.320 --> 0:09:20.400 at presence is truly unsustainable. There will be new leadership 0:09:20.400 --> 0:09:24.800 in the first week of April, and something will happen there, 0:09:25.480 --> 0:09:26.960 and I could throw a real spanner in the works. 0:09:27.000 --> 0:09:28.599 Right We're gonna be speaking with Garfield Reynolds in a 0:09:28.600 --> 0:09:29.959 few minutes about the Bank of Japan and how it 0:09:30.000 --> 0:09:32.559 did nothing this time around on yield curve control, which 0:09:32.640 --> 0:09:35.680 was a surprise to markets, and the end reacted. But 0:09:35.760 --> 0:09:38.400 the end has been really a sort of a wild card, 0:09:38.440 --> 0:09:40.960 as you say. What was interesting to me about that 0:09:41.040 --> 0:09:43.880 reaction Garfield knows more about this than I do, but 0:09:44.040 --> 0:09:49.240 the the speed with which the yen weakened again in 0:09:49.280 --> 0:09:51.720 the immediate aftermath decision to show that a lot of 0:09:51.720 --> 0:09:55.600 people really did think that Corona, who's been in charge 0:09:55.640 --> 0:09:59.880 for more than a decade, hugely important figure, was going 0:10:00.000 --> 0:10:03.360 to basically give up on his signature policy right before leaving, 0:10:04.000 --> 0:10:07.000 which was always unlikely, but it was obvious from the 0:10:07.080 --> 0:10:09.960 market reaction that people really had thought this was going 0:10:10.000 --> 0:10:13.839 to happen. But the end came all the way back 0:10:14.200 --> 0:10:17.160 within ten hours. I think it was I think because 0:10:17.360 --> 0:10:19.880 you still reverted to the fact that this is only 0:10:19.880 --> 0:10:22.320 a matter of time. You still don't really want to 0:10:22.400 --> 0:10:25.720 be too far short the end for much longer this year, 0:10:25.800 --> 0:10:29.720 because it's very likely to appreciate and yes, depending on 0:10:29.760 --> 0:10:32.679 how it's handled, and obviously making sure that there isn't 0:10:32.760 --> 0:10:36.920 some big disruption caused by a major surprise to the market, 0:10:37.080 --> 0:10:38.959 and the end would be one of the other wild 0:10:38.960 --> 0:10:41.360 cards that could mess up the pitch we're looking at. 0:10:41.480 --> 0:10:43.880 And we're not even going to talk about oil, not 0:10:44.040 --> 0:10:48.320 this time. Bloomberg Opinions, John authors stay tuned. Chief Asia 0:10:48.480 --> 0:10:51.720 Rates correspondent Garfield Reynolds next on the Bank of Japan's 0:10:51.800 --> 0:10:55.400 surprise to the markets. This is Bloomberg Opinion. You're listening 0:10:55.400 --> 0:10:58.200 to Bloomberg Opinion. I'm Vonnie Quinn. This week, the Bank 0:10:58.240 --> 0:11:02.200 of Japan surprised markets. Not economists necessarily, just markets which 0:11:02.200 --> 0:11:04.720 were expecting another tweak to the Bank of Japan's yield 0:11:04.800 --> 0:11:08.680 curve control mechanism. Well, markets didn't get that. I spoke 0:11:08.679 --> 0:11:14.360 with Chief Asia Rates correspondent Garfield Reynalds, there's no economic 0:11:14.400 --> 0:11:17.200 reason to expect the tenure j g B yields to 0:11:17.320 --> 0:11:21.440 continue trading above the point five percent band. I don't 0:11:21.480 --> 0:11:23.760 think the Bank of Japan needs to widen a tenure 0:11:23.840 --> 0:11:26.880 j g B trading range, as the bank is continuing 0:11:26.920 --> 0:11:30.000 to manage market adjustments through the nimble use of y 0:11:30.080 --> 0:11:33.000 C C and fund supplying operations. So the b O 0:11:33.120 --> 0:11:35.680 J kept the band does is at about zero percent. 0:11:35.840 --> 0:11:39.840 The market was looking for another tweak. Did the December 0:11:39.880 --> 0:11:45.040 tweak then failed? Garfield well, similar tweak certainly failed to 0:11:45.080 --> 0:11:47.760 improve market function, which was supposed to be the aim 0:11:47.840 --> 0:11:50.440 of it, and said it set off an enormous credit 0:11:50.520 --> 0:11:53.839 Really pumped for the j and spread turn all around 0:11:53.840 --> 0:11:56.560 by the bond markets. They now seem to be trying 0:11:56.559 --> 0:11:59.120 to put the gene back into the bottle, as it were, 0:11:59.679 --> 0:12:02.240 by insisting they're going to stick with their current policy, 0:12:02.320 --> 0:12:05.480 they're going to be flexible about the way they pursue 0:12:05.559 --> 0:12:09.200 bond buying. The several warning shots being fired across the 0:12:09.240 --> 0:12:12.439 bond bears vowels right now. The message from the yen, 0:12:12.720 --> 0:12:16.600 which is down more than is very much that this 0:12:16.960 --> 0:12:21.160 is a doublished surprise. Did the currency move play into 0:12:21.200 --> 0:12:24.880 this decision? Well, it's interesting the b o J has 0:12:24.960 --> 0:12:29.000 actually said in its announcement that it is taking currency 0:12:29.440 --> 0:12:33.679 into account, so that as an extra layer of uncertainty. 0:12:33.679 --> 0:12:37.960 If the end continues to drop, then will that make 0:12:38.000 --> 0:12:41.240 it harder for the b o J to move ahead 0:12:41.280 --> 0:12:44.160 with trying to control the bond market or is it 0:12:44.240 --> 0:12:48.760 willing to go on spending trulley astonishing amounts of yen 0:12:49.240 --> 0:12:55.120 every day to contain j g P yields. Yen swamps 0:12:55.160 --> 0:12:57.679 were trading your one percent versus the y c C 0:12:57.800 --> 0:13:00.120 bond target of about half a percent, so hedging if 0:13:00.200 --> 0:13:03.720 he was rife and swaps. Does that now come down 0:13:03.840 --> 0:13:05.880 or does the market still try to tell the central 0:13:05.920 --> 0:13:08.920 bank what to do. Well, that's going to be one 0:13:08.920 --> 0:13:11.839 of the key battlegrounds, especially because the b o J 0:13:12.440 --> 0:13:17.079 is has announced that it will adjust the rate at 0:13:17.120 --> 0:13:20.880 which it lends money to banks in order for banks 0:13:20.920 --> 0:13:24.760 to buy g g vs. And certainly we've seen the 0:13:24.960 --> 0:13:27.880 ten year swap rate that you were talking about, which 0:13:27.880 --> 0:13:31.000 at one stage was almost one percent. It came into 0:13:31.040 --> 0:13:34.760 the meeting at about zero point nine two. It's now 0:13:34.800 --> 0:13:39.200 down ten basis points from that. So for the moment, 0:13:39.520 --> 0:13:43.840 that's a sign that the market is pondering how strongly 0:13:43.840 --> 0:13:47.120 it can act to take on the b because the 0:13:47.160 --> 0:13:51.240 b o J has signaled a very strong willingness to 0:13:51.280 --> 0:13:54.040 take the market and that it is looking to potentially 0:13:54.280 --> 0:13:59.400 expand its arsenal in doing so. When Governor Cruder took office, 0:13:59.760 --> 0:14:02.120 the o J owned eleven percent of the j g 0:14:02.200 --> 0:14:05.640 B markets. What is it now, Garfield? And how high 0:14:05.640 --> 0:14:11.720 can it go? Well, that's that's that's the one quadrillion questions. 0:14:12.640 --> 0:14:15.920 Think that's how large the Japanese bond markets. It's stood 0:14:15.920 --> 0:14:20.000 at about of the market at the end of last year. 0:14:20.120 --> 0:14:25.760 That's based on face BOJ holdings versus the bonds outstanding, 0:14:26.000 --> 0:14:29.080 not taking tables of account. So far this month they've 0:14:29.080 --> 0:14:33.240 probably expanded that to about fifty three and doing what's 0:14:33.240 --> 0:14:36.680 going on. So they can't keep going at this pace 0:14:36.840 --> 0:14:40.080 because certain they literally will run out of bonds to buy. 0:14:40.400 --> 0:14:44.800 That's part of why they're perhaps trying to be expanded. 0:14:44.920 --> 0:14:47.560 Arsenal as I said. It also does raise the potential 0:14:47.600 --> 0:14:51.680 that they will expand as rapidly for a while until 0:14:51.840 --> 0:14:54.840 they do convince the market that they're willing to do 0:14:54.960 --> 0:14:59.160 whatever it takes to contain bondings. It's almost a little 0:14:59.200 --> 0:15:01.520 bit like the u US market at the moment, with 0:15:01.600 --> 0:15:04.240 the central Bank here in the US continually trying to 0:15:04.280 --> 0:15:07.160 convince the market that it's going to stick to its guns. 0:15:07.320 --> 0:15:10.560 Is that something similar that's playing out in Japan. Yeah, 0:15:10.600 --> 0:15:12.840 there's definitely something something similar. I mean, there are different 0:15:12.920 --> 0:15:16.040 dynamics play in something is going. If you think back 0:15:16.240 --> 0:15:21.960 early last year, we had President pal saying that he 0:15:22.360 --> 0:15:25.480 was fairly certain inflation would be transitory and so it 0:15:25.560 --> 0:15:28.920 wouldn't have to raise rights too fast, too fast. But 0:15:28.960 --> 0:15:30.680 then the market was saying no, no no, no, you're going 0:15:30.720 --> 0:15:33.480 to have to hike a lot, and ultimately the Fed 0:15:33.680 --> 0:15:36.520 came around to that thinking it's just now the market 0:15:36.600 --> 0:15:39.280 thinks it's done enough. We're right at the beginning of 0:15:39.280 --> 0:15:41.160 that process with the b o J, where the b 0:15:41.320 --> 0:15:45.040 o J is still effectively saying it thinks inflation is transitory. 0:15:45.280 --> 0:15:47.600 One of the surprises for traders and investors was that 0:15:47.680 --> 0:15:54.000 the b o J maintained CPI forecast under two percent, 0:15:54.560 --> 0:15:57.840 and that two percent level is what the bj has 0:15:57.880 --> 0:16:02.080 targeted as the aim of the policies. So if they're 0:16:02.080 --> 0:16:05.000 thinking that CPI is going to come back count they 0:16:05.040 --> 0:16:07.720 had then that back to the idea that they will 0:16:07.800 --> 0:16:11.720 not be tightening policy from here. Well. Interestingly, all of 0:16:11.760 --> 0:16:14.200 the economists and the Bloomberg survey had forecast that the 0:16:14.240 --> 0:16:17.480 Bank of Japan would stand pat So clearly economists are 0:16:17.480 --> 0:16:20.360 looking at the inflation data where markets are really looking 0:16:20.360 --> 0:16:24.400 at maybe momentum or some kind of credibility issue, as 0:16:24.440 --> 0:16:27.040 you said, but we are getting some wage inflation in 0:16:27.120 --> 0:16:29.360 Japan at the moment. Is the Bank of Japan correct? 0:16:29.960 --> 0:16:32.320 One part of what's going on is somewhat thinking that 0:16:32.400 --> 0:16:34.800 the Lasting of Berg wants to do as soon as 0:16:34.840 --> 0:16:37.240 it gets a little bit of wage growth is act 0:16:37.280 --> 0:16:41.680 in a way that could deter that wage growth from 0:16:41.680 --> 0:16:44.200 really taking off, because after all, if it did do 0:16:44.400 --> 0:16:47.000 much more along the lines of what some of the 0:16:47.040 --> 0:16:50.640 market bets were, then that would raise borrowing costs in 0:16:50.640 --> 0:16:53.720 the economy, that would make it harder to get sustained 0:16:54.040 --> 0:16:57.120 wage increases. So you sort of nip it in the bud. 0:16:58.720 --> 0:17:00.880 The other thing, of course, that and going honest that 0:17:00.920 --> 0:17:04.160 well markets are following the money. If you bet going 0:17:04.200 --> 0:17:06.760 into the last BAJAM meeting that they were going to 0:17:06.800 --> 0:17:10.080 do something which could allow yields to rise, you did 0:17:10.280 --> 0:17:12.919 very well. Indeed, despite the fact that there was a 0:17:13.000 --> 0:17:16.199 very strong consensus it was unlikely the b o J 0:17:16.400 --> 0:17:20.200 would do anything like what they actually did. So when 0:17:20.240 --> 0:17:23.439 you see people make money betting against the Bank of Japan, 0:17:24.080 --> 0:17:26.560 it makes sense for people to follow in and to 0:17:27.160 --> 0:17:29.359 keep betting. There are plenty of people who weren't paying 0:17:29.359 --> 0:17:31.560 against the last time they've been telling us they're still 0:17:31.600 --> 0:17:34.560 been against the Bank of Japan. They think the current 0:17:34.600 --> 0:17:38.560 setup is unsustainable, and so many of them are realistic 0:17:38.680 --> 0:17:41.600 enough to acknowledge that they might up get what they 0:17:41.640 --> 0:17:45.359 want this time, but they still see bonds that's being 0:17:45.440 --> 0:17:50.400 vulnerable to further the clients going forward, because that global 0:17:50.480 --> 0:17:55.439 inflation backdrop isn't going away. Haruhiko Kuroda is going away 0:17:55.800 --> 0:17:59.560 to April one, So change is in the air. There's 0:17:59.680 --> 0:18:03.920 your or confirmation that this is being taken as very debblish. 0:18:04.200 --> 0:18:07.600 The BOJ has brought perhaps not one berz but a couple. 0:18:07.880 --> 0:18:10.200 So while this round may go to the b o J, 0:18:10.720 --> 0:18:13.919 it's also going to be fascinating looking forward to what 0:18:14.080 --> 0:18:16.960 exactly the b o J means when it says it 0:18:17.040 --> 0:18:21.320 will be nimble in its bond purchases going forward. Does 0:18:21.320 --> 0:18:25.359 this narrow the field as to his successor now not necessarily. 0:18:25.600 --> 0:18:29.320 You could actually argue that if he manages to stave 0:18:29.359 --> 0:18:32.000 off the damage that had been done to the BOJS 0:18:32.040 --> 0:18:36.200 credibility the last meeting and provides flexibility that in fact 0:18:36.280 --> 0:18:39.120 opens the field back up. It gives the government more 0:18:39.160 --> 0:18:43.280 opportunities to uh, you sit back and decide, okay, what 0:18:43.400 --> 0:18:47.320 kind of policy do they want, rather than being a 0:18:47.359 --> 0:18:49.760 situation where they feel they might need to plump for 0:18:49.800 --> 0:18:52.720 one candidate or the other as being the one who 0:18:52.720 --> 0:18:58.000 could best resolve this pawnee situation. Finally, Garfield Equities seem 0:18:58.080 --> 0:19:01.119 to take this news in their st ride. Most of 0:19:01.160 --> 0:19:04.560 the indices in Japan were higher. Yeah. Well, I mean 0:19:04.600 --> 0:19:07.080 that's a couple of things they have. One is, you know, 0:19:07.400 --> 0:19:10.040 there are some companies that actually benefit from a week 0:19:10.040 --> 0:19:13.720 again and not two weeks of again. So that's welcome. 0:19:14.440 --> 0:19:16.800 And I think just the idea that the bj is 0:19:16.800 --> 0:19:19.679 going to seek to store literally and isn't going to 0:19:19.800 --> 0:19:23.480 drive up interest rates earlier than most had expected, that's 0:19:23.520 --> 0:19:27.719 being welcomed by equity trailers Nuomeberg's chief Asia Rates correspondent, 0:19:27.720 --> 0:19:31.360 Garfield Reynolds. There, stay tuned. We move continent to Brazil 0:19:31.520 --> 0:19:35.320 next and speak with Bloomberg Opinions Eduardo Porter. Because the 0:19:35.440 --> 0:19:39.040 January six insurrection in the United States was so clearly 0:19:39.119 --> 0:19:44.040 identified with a political party, I can see that creating, 0:19:44.160 --> 0:19:47.120 you know, frictions and and and and forces and and 0:19:47.240 --> 0:19:51.160 disruptive forces within that party. The case in Brazil, the 0:19:51.200 --> 0:19:55.880 forces that have drawn the in the rebels together are 0:19:56.160 --> 0:20:01.000 not quite as coherent. This is Bloomberg opinion. You're listening 0:20:01.040 --> 0:20:05.800 to Bloomberg Opinion. I'm Vonnie Quinn now to Brazil, where 0:20:05.800 --> 0:20:09.880 election denile continues to fester following the January eighth storming 0:20:09.960 --> 0:20:13.720 of empty Brazilian institutions. I spoke to Bloomberg opinions. Eduardo 0:20:13.840 --> 0:20:16.600 Porter Edward a lots of commarisons between January eighth and 0:20:16.600 --> 0:20:19.679 Brazilia and January six, obviously in the United States, but 0:20:19.800 --> 0:20:22.679 moving beyond that, January six did seem to be the 0:20:22.680 --> 0:20:26.600 event that splintered the Republican Party. It was already pretty fractious. 0:20:26.720 --> 0:20:29.159 Now I think it's even more so. Is that what 0:20:29.240 --> 0:20:32.919 happens with these populist uprisings. Do we see Brazil's election 0:20:32.960 --> 0:20:35.720 denier startist splinter or is it more likely that they 0:20:35.760 --> 0:20:40.040 could be galvanized by these events. That's a very good question, 0:20:40.040 --> 0:20:44.400 and I don't have an easy answer. Because the the 0:20:44.520 --> 0:20:47.840 January six insurrection in the United States was so clearly 0:20:47.880 --> 0:20:53.320 identified with a political party, the Republican Party, I can 0:20:53.359 --> 0:20:57.399 see that creating you know, frictions and forces and disruptive 0:20:57.440 --> 0:21:01.760 forces within that party. The case in Brazil, the forces 0:21:01.800 --> 0:21:07.200 that have drawn the rebels together are not quite as coherent, 0:21:07.640 --> 0:21:10.600 not quite as cohesive. It's not like a political party 0:21:10.680 --> 0:21:14.679 where all this belongs. I would say that there are groups, so, 0:21:14.800 --> 0:21:18.720 for instance, the agribusiness sector of the Brazilian economy, the 0:21:18.880 --> 0:21:22.760 ranchers that are in you know, and in the amazon 0:21:23.280 --> 0:21:26.640 A lot of the hostility towards the Lula regime come 0:21:26.760 --> 0:21:30.240 from those sectors, but I don't see them as coherently 0:21:30.400 --> 0:21:33.000 grouped up. So I don't see a party that would 0:21:33.080 --> 0:21:37.800 fragment Brazil's politics are already extremely fragmented. There's a huge 0:21:37.880 --> 0:21:41.400 number of parties represented in the Congress, and so it's 0:21:41.440 --> 0:21:44.800 not clear that this would actually have an effect in 0:21:44.840 --> 0:21:47.440 the legislature. On the other hand, you of people like 0:21:47.480 --> 0:21:50.119 Steve Bannon, who probably would like to take some credit 0:21:50.160 --> 0:21:52.840 for this. How much influence did somebody like that have 0:21:53.080 --> 0:21:56.680 down there? I would say that had January six not happened, 0:21:56.840 --> 0:21:59.600 January eight would probably not have happened either. I do 0:21:59.680 --> 0:22:02.639 think that there was a clear force of example, the 0:22:02.680 --> 0:22:05.520 biggest democracy in the in the Hemisphere can do this, 0:22:05.960 --> 0:22:08.640 why can't we? It looks like a good idea might 0:22:08.680 --> 0:22:11.760 be fun. I mean, if you put video side to side, 0:22:12.040 --> 0:22:15.640 they'd look pretty much identical, except for in Brazil everybody 0:22:15.640 --> 0:22:18.360 was wearing a yellow T shirt. But to the more 0:22:18.400 --> 0:22:22.520 specific point that people close to Trump, particular Mr bann 0:22:22.520 --> 0:22:25.800 and had their hand in this, they certainly did. Also. 0:22:25.880 --> 0:22:30.679 Naosnlado was here even before the Brazilian election talking about 0:22:30.720 --> 0:22:34.440 how all the electoral technology in Brazil was susceptible to 0:22:34.520 --> 0:22:38.080 being manipulated and how the election could be stole. They 0:22:38.080 --> 0:22:41.160 were preparing the ground to make an argument very similar 0:22:41.240 --> 0:22:43.200 to the one that was made in the United States, 0:22:43.520 --> 0:22:46.280 and then they made it once also not lost the election. 0:22:46.760 --> 0:22:50.080 We heard all about how this was fraudulent. In fact, 0:22:50.520 --> 0:22:54.199 Wilson NADOs group tried to make their case before the 0:22:54.240 --> 0:22:57.679 electoral tribunal and it was shot down. And so the 0:22:57.800 --> 0:23:02.399 parallels with what happened here go beyond the day. You know, 0:23:02.600 --> 0:23:06.200 there was these efforts through Brazilian institutions to to to 0:23:06.560 --> 0:23:09.800 make them call the election fraudulent, and when they lost, 0:23:09.800 --> 0:23:12.480 they just unleashed the people onto the Congress. So then 0:23:12.600 --> 0:23:15.800 Lula should also learn from the response to January six. 0:23:15.960 --> 0:23:18.720 What should he do is a crackdown on his part. 0:23:18.800 --> 0:23:22.640 Advisable should get to the criminal justice system. Absolutely, I mean, 0:23:22.680 --> 0:23:27.520 I think it's critically important that he established that this 0:23:27.600 --> 0:23:30.840 is not okay, and I think that it might be 0:23:30.920 --> 0:23:33.920 easier for him than it was for the Democrats, because 0:23:34.040 --> 0:23:37.320 you know, the Democrats meant acting against Republicans and many 0:23:37.359 --> 0:23:41.680 of which were sitting legislators in Brazil. You'll have less 0:23:41.680 --> 0:23:44.320 of that. So, I mean, I think you'll have less 0:23:44.320 --> 0:23:47.159 of that because we don't we don't really know where 0:23:47.520 --> 0:23:51.320 the chain of culpability leads. But I do think that 0:23:51.359 --> 0:23:55.119