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Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane

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Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Mike

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Speaker 1: Dada joining us. Mcamp On is chief economist and chief

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Speaker 1: market Strategists. Can they Mike, Hi, John, thanks for having

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Speaker 1: me on. They can and they probably will as long

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Speaker 1: as those fed funds futures are still pricing in greater

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Speaker 1: than a probability of a rate hike on Wednesday, and

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Speaker 1: the last I saw on the Bloomberg terminal was about

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Speaker 1: a two thirds probability in favor of hiking. But I

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Speaker 1: think what's more important is the language in the directive

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Speaker 1: on a go forward basis, So I think what financial

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Speaker 1: markets are probably looking for is what some are calling

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Speaker 1: a dubbish hike, meaning if they do raise rates in

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Speaker 1: additional twenty five basis points. Really to move to a

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Speaker 1: totally neutral directive on the language, we sort of skipped

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Speaker 1: the decision and get straight to the summary of economic projections.

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Speaker 1: As a typical with these matings, Mike and we look

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Speaker 1: at the dispersion and the dots where the Federal Reserve

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Speaker 1: officials think rates will be in there's a huge spread.

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Speaker 1: They're all over the place. Do we expect them to

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Speaker 1: coalesce on a lower rate comparedsive weather median dot is

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Speaker 1: right now? I would certainly be shocked if the dot

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Speaker 1: plot did not move down at least some because if

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Speaker 1: we think about what the Fed was doing most of

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Speaker 1: the year, they were basically setting markets up for what

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Speaker 1: they were calling an overshoot of the neutral policy rate.

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Speaker 1: And you know, the argument for that was due to

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Speaker 1: quote unquote loose financial conditions. So clearly that's reversed with

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Speaker 1: credit markets under strain and stock markets becoming much more volatile.

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Speaker 1: And the Fed was also concerned about growth running above trend.

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Speaker 1: But we're starting to see some stoppening in the in

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Speaker 1: the data. So the justification for continuing to move rates

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Speaker 1: up and overshoot a neutral policy rate, I think is

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Speaker 1: totally evaporated. So just based on that, we really should

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Speaker 1: see some moderation in those dots. Michael Darda, is this

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Speaker 1: just a monetary politics and demographics and where nominal GDP

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Speaker 1: or the terminal rate should be butter stuff against politics

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Speaker 1: of more and more and more. I mean, are we

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Speaker 1: trying to get the goals that we're goals of ten

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Speaker 1: and twenty years ago that just shouldn't be goals now?

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Speaker 1: Like five nominal GDP? Well, Tom, believe it or believe

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Speaker 1: it or not, we actually do have um five and

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Speaker 1: a half percent nominal GDP year over year. That yeah,

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Speaker 1: the financial markets know that's not going to be sustainable,

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Speaker 1: and the FED doesn't believe it's sustainable and wants it

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Speaker 1: to slow. And so you know, now the dilemma is,

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Speaker 1: you know, do you look at the forward looking financial

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Speaker 1: market indicators which are telling you nominal growth is going

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Speaker 1: to slow? The FED has done its job. It's probably

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Speaker 1: already at neutral. Uh. If it keeps going at risks

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Speaker 1: going beyond neutral, and then you know, we have fears

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Speaker 1: of a downturn or you know, is the FED just

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Speaker 1: going to be wedded to backward looking information and that's

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Speaker 1: when you end up with a policy mistake. Add into that,

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Speaker 1: you know, political pressure on the FED to stop tightening,

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Speaker 1: and that makes their job more complicated. So that's that's

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Speaker 1: an unfortunate element here. You know, we just saw Peter Navarro.

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Speaker 1: You know, President Trump's trade advisor come out yesterday with

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Speaker 1: his advice for the Fed. You know, he could do

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Speaker 1: financial markets a big favor. Um perhaps looking perhaps looking

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Speaker 1: for a new career track. But barring that, zipping it

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Speaker 1: on the fighting words from Mike Dada that m Petter

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Speaker 1: Navarro is not allowed in colon for them to pause.

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Speaker 1: Stan Drucker Miller legendary investor double lines Jeff Gunnlack calling

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Speaker 1: for the same thing. Mike, here's an interesting question. We

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Speaker 1: started the program by asking, you can the Fed hike

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Speaker 1: rates when the market is in a mess? Let's sort

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Speaker 1: of engineer re engineer this a little bit take away

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Speaker 1: the market. This economic data has come, i would say,

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Speaker 1: exactly in line with what the Federal Reserve predicted at

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Speaker 1: the last meeting and the meeting before the forecast for

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Speaker 1: next year at two fifty for real GDP in two

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Speaker 1: there and thereabouts for twenty I'm trying to understand how

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Speaker 1: the Federal Reserve brings down their economic forecast when the

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Speaker 1: data so far hasn't disappointed. It's come pretty much in

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Speaker 1: line with what they expected. Right Well, there in lies

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Speaker 1: the rubs. You know, if you remember back to two

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Speaker 1: thousand fourteen to two thousand sixteen, we had a situation

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Speaker 1: where there was a lot of volatility and financial markets,

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Speaker 1: and initially, initially the macro data was quite strong, and

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Speaker 1: you know, the Fed ultimately did move to the sidelines

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Speaker 1: after just one rate rise in December of two thousand

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Speaker 1: and fifteen. Came under a lot of criticism for that,

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Speaker 1: But if we look back at the data now, the

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Speaker 1: financial markets were out in front of a very significant

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Speaker 1: economic slowdown. So if the FED wants to be forward looking,

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Speaker 1: at has no choice but to look at the market.

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Speaker 1: People don't like that, but that's too bad, Michael. You've

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Speaker 1: written about this before in and every monetary person's mind

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Speaker 1: is a failure of Japan. I don't know fifteen eighteen

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Speaker 1: years ago, were they attempted to raise rates and they

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Speaker 1: had to turn around and bring it back down. Does

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Speaker 1: that actually play in the mind of fancy PhDs at

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Speaker 1: the FED. Tom It should, because it's not just Japan.

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Speaker 1: It happened in Sweden. You know, they got rates up

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Speaker 1: to around two percent and then they went negative because

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Speaker 1: they triggered a downturn. The ECB totally blew it in twleven.

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Speaker 1: So I think the FED is the Fed's timing has

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Speaker 1: certainly been better. You know, they've been able to to

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Speaker 1: move rates up in a state sustained way now for

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Speaker 1: about two years, and in macroeconomic conditions have have remained

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Speaker 1: pretty buoyant. So so far, so good. But you get

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Speaker 1: to a point where it's time to back off and

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Speaker 1: you need to be forward looking, and that's where we are. Well. Arguably,

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Speaker 1: Chairman Pound backed off a little bit. That was the

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Speaker 1: perception of a lot of people at that speech here

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Speaker 1: in New York, Mike. And what's interesting to me is

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Speaker 1: that the rates market has already moved. So is the

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Speaker 1: equity market waiting for confirmation from the Federal Reserve for

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Speaker 1: what the rights market is already priceful. Is that what

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Speaker 1: we're saying got again to tomorrow? I think so. I mean,

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Speaker 1: it's interesting that you know, the rates market is does

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Speaker 1: seem to be way ahead. Here. We were well along

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Speaker 1: the way to pricing out all the rate hikes for

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Speaker 1: for next year. So it looks like the only thing

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Speaker 1: left in financial markets in terms of rate hiking probabilities

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Speaker 1: is you know, for another twenty five basis point rise

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Speaker 1: this Wednesday, and then the Fed goes on pause unless

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Speaker 1: there's a big reversal. You know, we're focused on equity markets,

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Speaker 1: but consider the fact that inflation expectations of dry pretty precipitously,

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Speaker 1: credit spreads of widened on a year over year basis

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Speaker 1: for three consecutive months. The FED has to take that

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Speaker 1: into consideration. Mike Daughter was great to catch Helvity and

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Speaker 1: John Fero to bring in our next steam guests. I

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Speaker 1: brought up a two thousand eleven story from Bleacher Report,

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Speaker 1: which is basically, are the New York Yankees like Manchester United?

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Speaker 1: Are the Manchester United's like New York Yankees? And of

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Speaker 1: course you come down in two thousand and eleven to

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Speaker 1: megastar players Jeter A Rod, Jason Gimbe. Jose can say

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Speaker 1: you even know who the Yankees, Eric Cantona, Roy Keane,

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Speaker 1: k E, A n E, a guy named Beckham, and

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Speaker 1: a guy named Rooney, the world's chain two. The world

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Speaker 1: has definitely changed. We have got to bring in on

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Speaker 1: a daylight today, on a morning like this morning. Jim

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Speaker 1: O'Neil himself, the former chief of Goverman Sex Asset Management

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Speaker 1: and the man who once engineered a takeover of Manchester

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Speaker 1: United Football Club. Jim, good morning to you. Jose Marino

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Speaker 1: is out, the manager has gone your thoughts good morning.

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Speaker 1: Can I just say that it was rumored that I

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Speaker 1: was doing that rather than definitive, but so well to say,

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Speaker 1: you know, as problematic as he has been as United manager,

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Speaker 1: I don't think just changing the manager to whoever it

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Speaker 1: might be is going to solve our basic dilemmas, which

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Speaker 1: are substantial. Um, I'd recommend. I know I can get

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Speaker 1: it over that side of the pond. But for all

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Speaker 1: your viewers, The Beat Sport had a fantastic program on

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Speaker 1: last week about Too Good to Go Down, which was

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Speaker 1: all about in nineteen seventy three seventy four Manchester Unity

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Speaker 1: were relegated. It's five years after winning the European Cup

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Speaker 1: and came straight back by the way, but it was

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Speaker 1: one of my favorite periods of following United. So we

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Speaker 1: have no divine right to permanent success. But it is

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Speaker 1: this fantastic, wonderful sporting entity that is the hearts and

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Speaker 1: minds of everybody that loves the sports of football. George Best,

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Speaker 1: Dennis Lawd too names You didn't mention cantonar con Chelsis

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Speaker 1: and mentioned George Jim. I would have loved it if

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Speaker 1: Tom had named some of those players that you just snacked.

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Speaker 1: I mentioned George Best on TV, Jim Neil, Is this

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Speaker 1: because of the Americans? Is this story these guys? These

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Speaker 1: guys are not interested in Manchester United as the football team.

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Speaker 1: These guys are interested in Manches United as the grounds

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Speaker 1: and what they now need to really take stock on that.

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Speaker 1: If they are not very thorough in shifting the structure

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Speaker 1: of the club and how they own it, they're going

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Speaker 1: to damage not only the most important sporting thing I've

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Speaker 1: ever been proud to be associated with permanently, but they

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Speaker 1: will damage their own pockets. But hopefully this isn't the

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Speaker 1: only decision that's being made. That they're going to have

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Speaker 1: a big rethink about how to actually preside over the

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Speaker 1: world's greater sporting institution. So what needs to be done, Jim,

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Speaker 1: what would you do? They need to they need to

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Speaker 1: know to be honest sort of, you know, I think

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Speaker 1: you guys might not recently became chair of Chassam House

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Speaker 1: and put in the context all of that. They need

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Speaker 1: to discover. As many businesses do business business with purpose,

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Speaker 1: Manchester United exists to thrill millions of human beings all

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Speaker 1: over the world, not not just something that can generate

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Speaker 1: advance in revenues. Jim, I'm a heck you you need

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Speaker 1: to go away from this, Jim O'Neill. I look at

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Speaker 1: it as an amateur and I see Manchester City going

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Speaker 1: at double speed. They just seem to play blindingly. Best

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Speaker 1: if the NHO and hockey the same transition occurred to

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Speaker 1: all the teams, including Menu, do they need to catch

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Speaker 1: up with the speed of the game That seems to

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Speaker 1: be the new game? So any any United fan would

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Speaker 1: say right now. What makes it particularly annoying is that

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Speaker 1: the two most exciting teams within the country are Liverpool

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Speaker 1: and Manchester United, who are of course archodles, particularly Liverpool.

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Speaker 1: Uh And so you know we need to of course

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Speaker 1: there needs to be a new culture the club from

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Speaker 1: top to Boston needs to redefine and think about what

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Speaker 1: is the purpose of Manchester United as a football institution

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Speaker 1: and to get back to the romance, excitement of George

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Speaker 1: Best and Eric Canton and all the rest of it.

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Speaker 1: How do you do that with the new play years?

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Speaker 1: Which young player out there before we go, Jim Monial,

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Speaker 1: I know you have meetings this morning. Which young player

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Speaker 1: worldwide does Manchester United need to be? We have we

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Speaker 1: have one of the French World Cup winners who, uh

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Speaker 1: if if sort of guided and brought into the philosophy

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Speaker 1: and focus, you would imagine would feature in most teams midfields. Uh.

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Speaker 1: You know, we have plenty of exciting talent. And you

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Speaker 1: know United's history is all about actually every now and

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Speaker 1: making sure homegrown youth comes through, you know, and amongst

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Speaker 1: the many things that have been going wrong, United youth

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Speaker 1: team is no longer that successful or important to the

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Speaker 1: owners either. Well change, Jim, We've got to leave there.

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Speaker 1: So Jim Monial, thank you so much to appreciate it.

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Speaker 1: To catch up with him, of course for years with

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Speaker 1: Goldman Sex and that is an impassioned Jim O'Neil. I

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Speaker 1: believe I've never heard of that impassioned over dollar Again,

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Speaker 1: I imagine he hasn't been. It may be a three

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Speaker 1: dog night, but it is a four tweet morning for

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Speaker 1: the President of the United States. He's looking and I'm

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Speaker 1: I'm just gonna paraphrases tweets because they're too long. I

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Speaker 1: don't a waste of time to get to our valued guest,

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Speaker 1: the Mueller witch hunt. And then he goes on to

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Speaker 1: speak of General Michael Flynn and then, as John Farrell

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Speaker 1: mentioned the Wall Street Journal editorial, I hope the people

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Speaker 1: over at the Federal read today's editorial. We still don't

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Speaker 1: know what fifty pes means. I think it means billions.

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Speaker 1: I'll go with John and that. And then just most recently, Facebook,

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Speaker 1: Twitter and Google are so biased towards the Dems. It

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Speaker 1: is ridiculous, et cetera. Terry hanges with us with evercres

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Speaker 1: I s I who was forced to read each and

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Speaker 1: every tweet? Terry? Is there a permanence to this? After Trump?

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Speaker 1: Are we going to see presidents with a more original

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Speaker 1: communication strategy as we see with this president? Yes? I

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Speaker 1: think so. Once you know, to louse analog reaching the

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Speaker 1: fourth wall, once you've drouched the fourth wall, you pretty

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Speaker 1: much can't go back. I imagine that will be the case.

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Speaker 1: You know. Peggy noon And made a very good point

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Speaker 1: in the last Friday's the column in the Journal that, uh,

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Speaker 1: the last two presidents have appealed to emotion rather than

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Speaker 1: the strict policy parameters. And yeah, she's right about that.

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Speaker 1: And then Twitter is one way to Is this a

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Speaker 1: legislative system that will appeal to emotion? I mean there

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Speaker 1: have been film figments of it, a little moments of it,

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Speaker 1: I should say, I think a Sam Irvin during Watergate

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Speaker 1: and others Howard Baker and you know, through through a

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Speaker 1: all of our history. But is this a legislative branch

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Speaker 1: able to use emotion constructively in our our clear and

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Speaker 1: present grid. Luck? Well, sometimes it does, you know, And

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Speaker 1: I've I've been part of a number of those, uh

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Speaker 1: the post nine eleven with the Patriot Act, uh post

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Speaker 1: end Roun World, Tom with Sarbanes Oxley. I mean, emotion

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Speaker 1: and urgency plays a role in UH, in in in

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Speaker 1: congressional success, congressional action all the time. I would expect

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Speaker 1: that to continue regardless. I want to turn to something

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Speaker 1: Terry you've led on, which is a constructive infrastructure debate.

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Speaker 1: And folks, I mean this with no disrespect, but as

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Speaker 1: I said, I think when I came back, it's always

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Speaker 1: good to come back to the third world infrastructure of

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Speaker 1: the United States of America. In this case, I was

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Speaker 1: in London Heathrow Terminal five, you know, the fancy fancy

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Speaker 1: and then Russels I got an oyster card, got it

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Speaker 1: right here bringing that to the New York Subway with

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Speaker 1: you know, we were getting from the terry. Seriously was

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Speaker 1: getting from the Green over and you know, to be honest,

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Speaker 1: I'm so dumb. They had to escort me through the

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Speaker 1: Westminster Subway. What line was I on? The the district?

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Speaker 1: And I finally got an Oyster card because we were

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Speaker 1: going back and forth. Now you can usual credit card,

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Speaker 1: the contactless chip on the tap. In a point, why

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Speaker 1: can't we do this? I mean, forget about why can't

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Speaker 1: you bring Eurostar to America? Why can't we just have

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Speaker 1: a fifty ninth Street it's relatively smooth. Uh. There's a

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Speaker 1: lot of reasons for that, and one of them is

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Speaker 1: the state local uh emphasis generally speaking, you know, it

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Speaker 1: was it took a long time, and it took a

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Speaker 1: long time to build the interstate highways because there was

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Speaker 1: an intrinsic bias towards uh, the state local projects, state

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Speaker 1: and local money. That's the way things always worked. And

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Speaker 1: of course members of Congress represents states and localities. So uh,

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Speaker 1: it's uh yeah, there's there's an old thing down here

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Speaker 1: that if you want to start achieving something, don't don't

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Speaker 1: begin by rearranging the deck chairs and the Titanic and

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Speaker 1: the So what you're proposing essentially is let's completely overhaul

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Speaker 1: the way the money is doled out. I mean that

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Speaker 1: is a that is a recipe for quick. Yeah, I

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Speaker 1: am in folks, to be honest as Terry Haynes. Nos.

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Speaker 1: You go back to the cn O Canal, the Chesapeake

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Speaker 1: and Ohio Canal, I believe George Washington's time, and essentially, Terry,

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Speaker 1: nothing's changed in our history. Right. Well, that's pretty much it. Yeah,

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Speaker 1: I mean what you get is injections of federal money,

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Speaker 1: but still state in local the state local money, you know,

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Speaker 1: a match significantly contributed all the way from the CNO

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Speaker 1: and the National Road of the early undred. Yeah, the

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Speaker 1: U s US forty today, does the new Congress have

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Speaker 1: a constraint from CBO is the fiscal deficit and the

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Speaker 1: dynamics of our growing debt in deficit? Are they actually

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Speaker 1: going to be part of the dialogue in the two

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Speaker 1: thousand nineteen oh? I think so. And I think that's

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Speaker 1: one reason why I've suggested that a lot of policy debates,

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Speaker 1: and I've always used infrastructure as one of the main examples,

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Speaker 1: end up in market sugar highs that really don't lead anywhere. Uh.

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Speaker 1: What you have is the situation where Democrats want to

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Speaker 1: want to spend a lot on infrastructure, but they want

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Speaker 1: to roll back the tax the tax law in order

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Speaker 1: to do it. Republicans won't stand for that either, will

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Speaker 1: the President h Republicans might toy if they were given

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Speaker 1: their heads. I think they wouldn't, but they would certainly

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Speaker 1: toy with the idea of increasing the deficit marginally in

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Speaker 1: order to pay for infrastructure. And the Democrats have have

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Speaker 1: been four square about not wanting that to happen. So

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Speaker 1: what you've got is is gridlock on the hell not

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Speaker 1: gridlock on the priority terry. The market can sort of

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Speaker 1: stomach the idea of a shutdown. We're going to have

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Speaker 1: the debt scene and debate in a big way anytime soon. Yes,

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Speaker 1: but I think let me get to that in one second.

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Speaker 1: The shutdown I want to emphasize is at at most

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Speaker 1: I don't think it's very likely I have likely to

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Speaker 1: have today. But uh but even a shutdown would be

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Speaker 1: a partial shutdown of only about federal funding. Now that

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Speaker 1: is because the other sevent has already been decided upon,

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Speaker 1: so uh so that this is gonna be not unimportant

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Speaker 1: but but small. And number one number two on the

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Speaker 1: debt dealing. Yes, but I think that the what you've

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Speaker 1: seen over the last decade, certainly since near death experience,

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Speaker 1: is a desire to want to make sure that their

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Speaker 1: fiscal continuity, and part and parcel of that's going to

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Speaker 1: be raising the debt ceiling. Now asked you know, the

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Speaker 1: the the old adages will still apply. The progressive left

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Speaker 1: and the conservative right won't like it, but the vast

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Speaker 1: majority of Congress will still be Republican and Democratic centrists,

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Speaker 1: and they will still continue to want to be able

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Speaker 1: to raise, suspend, deal with the debt ceiling in a

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Speaker 1: way that doesn't cause any kind of serious problem. Terry Haynes,

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Speaker 1: thank you so much, greatly appreciate as signed. Just always

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Speaker 1: in formative and joining us now Freya b. Mesh of

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Speaker 1: Pantheon Macroeconomics, he's chief Asia economist, coming to us from

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Speaker 1: the United Kingdom. Freyia, thank you so much for being here.

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Speaker 1: I guess I'm trying to understand what people were exactly

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Speaker 1: we're hoping he would announce, and how significant it is

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Speaker 1: that he really did not outline any new policies. I

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Speaker 1: guess people might have been hoping that he would announce

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Speaker 1: some stimulus in the context of the much weaker numbers

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Speaker 1: that we've had coming out of China recently, and the

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Speaker 1: kind of growing the move of consensus towards the recognition

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Speaker 1: that grows is is not picking up or perhaps some

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Speaker 1: some kind of reforms that could get people UM more

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Speaker 1: more excited on that side of things. But this speech

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Speaker 1: was really always going to be about UM, the forty

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Speaker 1: years of UM, of the opening up and and reform process,

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Speaker 1: and really kind of extolling the virtues of that whole UM,

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Speaker 1: that whole procedure and and and growth model. So it

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Speaker 1: would have been a kind of an awkward time to

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Speaker 1: be releasing a whole of stimulus measures. I think in reality,

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Speaker 1: the likelihood of those stimulus measures has increased quite substantially,

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Speaker 1: and that's because UM liquidity conditions over the course of

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Speaker 1: Q four UM have have sort of sputtered out again

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Speaker 1: in the tetle have not not loosened as the PBOC

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Speaker 1: would have have UM liked UM. They have been trying

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Speaker 1: to loosen policy I think since Q two and taking

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Speaker 1: quite a marginal approach UM, but it hasn't really UM.

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Speaker 1: It hasn't really worked so far. And the main reason

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Speaker 1: for that is because households and firms are getting less

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Speaker 1: confident about the the outlook for the economy UM and

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Speaker 1: seemed to be transferring their money holdings into longer dated deposits,

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Speaker 1: and that in China is very kind of UM banking

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Speaker 1: centric economy is a very good indicator that growth really

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Speaker 1: is going to be slow all the ways through the

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Speaker 1: first half of next year and intercue three of of

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Speaker 1: of of next year as well. So the likelihood that

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Speaker 1: the p BOC is going to be able to continue

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Speaker 1: with this marginal approach all through that long period of

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Speaker 1: time UM is quite slim, I think. So we're really

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Speaker 1: kind of tipping towards the People's Bank of China enacting

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Speaker 1: a rate cut here. Could you speak to the connection

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Speaker 1: if they're indeed is one between the restructuring of the

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Speaker 1: shadow banking system in China and the companies that are

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Speaker 1: most affected by that restructuring, and I'm thinking of small

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Speaker 1: and mid sized companies specifically. Yeah, this is this is

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Speaker 1: a major problem that they have, that that they have

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Speaker 1: actually admitted now that they hadn't really anticipated just the

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Speaker 1: extent to which their de risking program and the crackdown

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Speaker 1: on shadow banking was going to impinge upon the funding

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Speaker 1: of the types of funds that you've just been referring to,

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Speaker 1: the small medium sized private arms UM in In Q three,

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Speaker 1: there was the added kind of UM, the added to

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Speaker 1: drag for those companies that UM the local government local

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Speaker 1: government was just was just crowding out all of the

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Speaker 1: bond issuance UM and and making it very difficult for

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Speaker 1: corporations even to get funding through through the bond market. UM.

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Speaker 1: In Q four that's loosened up a bit, so we're

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Speaker 1: starting to see a bit more kind of loutioning for

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Speaker 1: UM for credit conditions, UM for the for in the

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Speaker 1: bond market, and also actually in terms of conventional bank borrowing,

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Speaker 1: but not on the on the shadow banking side of

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Speaker 1: things on which so many of these companies are are dependent.

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Speaker 1: And the main problem that they're facing in terms of

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Speaker 1: UM of GDP growth turning around is that that there

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Speaker 1: has yet been a kind of modest UM improvement in

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Speaker 1: credit conditions, but that hasn't translated into liquidity conditions. Because

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Speaker 1: of what I was mentioning about UM, firms being very

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Speaker 1: kind of UM trepidationous about the the the outlook UM

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Speaker 1: and not really wanting to spend, so they've been moving

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Speaker 1: their liquidity holdings into into the longer dated deposits, and

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Speaker 1: that really tells us that they just aren't aren't willing

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Speaker 1: to suspend at the moment for for obvious reasons, that

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Speaker 1: the growth is slowing, that there's an uncertain trade outlook, um,

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Speaker 1: and just that the the environment for for for capital

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Speaker 1: expenditure is not great at this stage. And at the

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Speaker 1: same at the same time, the labor market is deteriorating,

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Speaker 1: and therefore, um, the household sector is is feeling that

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Speaker 1: kind of pinch, and it looks like they're looking to

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Speaker 1: raising their savings rates as well in anticipation of of

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Speaker 1: that further deterioration. Well, let me just offer one other

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Speaker 1: data point and then I'd like your thoughts on the

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Speaker 1: implications for global commodity markets, specifically for oil markets, because

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Speaker 1: automobile sales in China have basically declined, I mean, inventories jumped,

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Speaker 1: but if you look at the actual sales numbers, it's

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Speaker 1: like the first year down in something like a quarter century. Yeah,

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Speaker 1: it's possible some of that data is is somewhat distorted

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Speaker 1: because of sampling issues on on the retail sales side

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Speaker 1: of things, that they only include firms that are above

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Speaker 1: a certain threshold in terms of their annual revenues. So

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Speaker 1: some of that might be somewhat distorted. But if there

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Speaker 1: are firms that are dropping out of the sample, then

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Speaker 1: that tells you that at least some portion of firms,

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Speaker 1: and particularly the smaller firms, going back to our earlier

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Speaker 1: conversation UM, are struggling and they are seeing revenues falling UM,

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Speaker 1: and that tells us that there are there is a

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Speaker 1: big problem in retail sales in general, and and in

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Speaker 1: autos as you've highlighted as a particular UM area of difficulty,

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Speaker 1: which which you know, these are big ticket items, and

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Speaker 1: the labor market is deteriorating. It makes sense for for households,

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Speaker 1: particularly in the context of the kind of the negative

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Speaker 1: wealth effects that they've had this year through the decline

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00:25:49,640 --> 00:25:52,920
Speaker 1: and equities in in the equities market UM, it makes

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00:25:52,960 --> 00:25:55,600
Speaker 1: sense for households to be thinking twice about these UM,

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Speaker 1: these these purchases about the other thing that we can

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Speaker 1: note on this side, on the on the supply side,

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00:26:01,320 --> 00:26:04,680
Speaker 1: is that there is this very strong shift towards the

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Speaker 1: UM the kind of the new energy vehicles You've mentioned oil,

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00:26:08,119 --> 00:26:10,200
Speaker 1: but there is a shift towards the new energy vehicles

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00:26:10,200 --> 00:26:13,560
Speaker 1: and the potential for um eventually for this to become

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00:26:13,600 --> 00:26:16,640
Speaker 1: an excessive supply. In the same way that we've seen

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00:26:17,160 --> 00:26:20,680
Speaker 1: Chinese excess savings being channeled into into solar power previously

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00:26:20,720 --> 00:26:23,200
Speaker 1: and that helped to kind of bring about a decline

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00:26:23,240 --> 00:26:26,520
Speaker 1: in in um in in the price of affordable take cells,

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00:26:26,640 --> 00:26:30,280
Speaker 1: we could see something similar happening in on for a

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00:26:30,280 --> 00:26:34,159
Speaker 1: new energy vehicles. So if you happen to run a

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00:26:34,200 --> 00:26:39,199
Speaker 1: business that depends on exports of commodities to China, and

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00:26:39,240 --> 00:26:43,240
Speaker 1: I'm thinking of people specifically, let's say in Australia, what

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00:26:43,359 --> 00:26:49,200
Speaker 1: should you take away from the recent economic news about China. Well,

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00:26:49,320 --> 00:26:52,199
Speaker 1: it's there's there's two sides of this. I'm not going

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00:26:52,240 --> 00:26:53,880
Speaker 1: to give you on the one hand, on the other hand,

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00:26:53,880 --> 00:26:59,640
Speaker 1: thing that's two economisty. But the thing is that when

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00:27:00,600 --> 00:27:04,720
Speaker 1: commodity prices are are tanking, that's not great for Chinese

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00:27:04,720 --> 00:27:06,760
Speaker 1: firms either. And a lot of the firms that are

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00:27:06,880 --> 00:27:10,760
Speaker 1: very over indebted UM, they they are you know, feeling

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00:27:10,760 --> 00:27:13,240
Speaker 1: the pinch and of those of the of the commodity

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00:27:13,280 --> 00:27:16,320
Speaker 1: price declines that we've seen so far UM and the

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00:27:16,320 --> 00:27:18,960
Speaker 1: the incentive now for the Chinese government is to get

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00:27:19,000 --> 00:27:23,120
Speaker 1: in there and curtail production and try to support UM,

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00:27:23,359 --> 00:27:26,520
Speaker 1: try to support prices in that sense in order to

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00:27:26,680 --> 00:27:30,560
Speaker 1: help these companies continue. There there many multi year UM

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00:27:30,680 --> 00:27:33,520
Speaker 1: de leveraging process, so there is at least that UM

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00:27:33,760 --> 00:27:38,040
Speaker 1: flow from from the Chinese side on the supply side UM.

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00:27:38,280 --> 00:27:42,879
Speaker 1: But more broadly, Chinese demand growth is is definitely slowing,

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00:27:42,920 --> 00:27:45,000
Speaker 1: and as they said that, the leading indicators point to

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00:27:45,880 --> 00:27:48,440
Speaker 1: slow down well into into next year, into the later

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00:27:48,520 --> 00:27:51,200
Speaker 1: part of of next year, and particularly if we're talking

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00:27:51,240 --> 00:27:55,320
Speaker 1: about hard commodities, we've got UM, the property markets showing

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00:27:55,400 --> 00:27:59,600
Speaker 1: signs of of of fatigue with sales slowing, and and

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00:27:59,680 --> 00:28:03,120
Speaker 1: the how sort of sector more broadly facing facing difficulties

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00:28:03,160 --> 00:28:06,520
Speaker 1: there UM. So it's not a great outlook on the

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00:28:06,520 --> 00:28:09,560
Speaker 1: demand side for for for commodities. And I haven't even

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00:28:09,640 --> 00:28:13,120
Speaker 1: asked you about US China trade relations, so now I'm

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00:28:13,160 --> 00:28:18,040
Speaker 1: asking what is your outlook? Well in the okay, in

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00:28:18,080 --> 00:28:21,280
Speaker 1: the longer term sense, then then I still see these

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00:28:21,359 --> 00:28:24,600
Speaker 1: two economies on a collision party here, and that's because

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00:28:24,640 --> 00:28:27,040
Speaker 1: I think China is going to have difficulty in transitioning

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00:28:27,119 --> 00:28:29,760
Speaker 1: to private consumption lead growth and the flip side of

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00:28:29,800 --> 00:28:31,800
Speaker 1: that means that they're going to continue to have excess

479
00:28:31,840 --> 00:28:34,520
Speaker 1: savings and those are going to have to be channeled somewhere.

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00:28:34,680 --> 00:28:37,760
Speaker 1: They have and they have until now been channeled into

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00:28:37,800 --> 00:28:41,080
Speaker 1: the commodities, the old guard UM sectors and the kind

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00:28:41,080 --> 00:28:44,360
Speaker 1: of the polluting sectors where it's no longer possible for

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00:28:44,360 --> 00:28:48,080
Speaker 1: for China to continue pumping pumping up the debt and

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00:28:48,360 --> 00:28:52,720
Speaker 1: also to continue UM degrading the environment from a political standpoint.

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00:28:52,920 --> 00:28:55,640
Speaker 1: So the only outlet for those savings now is in

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00:28:55,680 --> 00:28:57,400
Speaker 1: the move up the value added chain and the so

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00:28:57,480 --> 00:29:02,880
Speaker 1: called made in China UM trying five. So that puts

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00:29:02,960 --> 00:29:05,560
Speaker 1: China on this collision path with with the US because

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00:29:05,560 --> 00:29:08,320
Speaker 1: it moves them into that kind of higher value added

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00:29:08,520 --> 00:29:12,800
Speaker 1: UM output. The Mr Trump is so worried about UM

491
00:29:12,840 --> 00:29:15,840
Speaker 1: in the short term, we do think that Mr Trump

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00:29:15,880 --> 00:29:19,120
Speaker 1: actually has been weakened by the by the result of

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00:29:19,120 --> 00:29:22,200
Speaker 1: the mid term elections that if you're a Republican looking

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00:29:22,240 --> 00:29:26,040
Speaker 1: towards then we've got to take no longer. We've got

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00:29:26,040 --> 00:29:28,480
Speaker 1: to take your short term answer because we've got to run.

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Speaker 1: I want to thank you very much, Afraid of Beamish

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Speaker 1: Pantheon Macro Economics, a chief Asia economist, Thanks for listening

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00:29:43,080 --> 00:29:47,640
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

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00:29:47,640 --> 00:29:52,880
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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00:29:53,440 --> 00:29:56,800
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

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00:29:56,800 --> 00:30:00,240
Speaker 1: can always catch us worldwide. I'm Bloomberg Ray yea