1 00:00:00,040 --> 00:00:02,640 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:02,680 --> 00:00:07,040 Speaker 1: their trust and independent registered investment advisors to the two 3 00:00:07,040 --> 00:00:10,680 Speaker 1: and four trillion dollars. Why learn more and find your 4 00:00:10,760 --> 00:00:26,360 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:26,760 --> 00:00:30,440 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:30,520 --> 00:00:35,520 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:35,960 --> 00:00:40,559 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:40,600 --> 00:00:46,720 Speaker 1: of course on the Bloomberg We are joined now by 9 00:00:46,760 --> 00:00:49,200 Speaker 1: Gina Martin Adam. She's an equity strategist of Wells Fargo. 10 00:00:49,640 --> 00:00:52,240 Speaker 1: Pleasure to have her here in study. Also by Francy 11 00:00:52,360 --> 00:00:54,240 Speaker 1: Laqua in London and Gina. Let me let me just 12 00:00:54,280 --> 00:00:57,520 Speaker 1: start here with with the broader context another day, another 13 00:00:57,760 --> 00:01:00,880 Speaker 1: central bank event that that market participants are watching. Yeah, 14 00:01:01,120 --> 00:01:05,880 Speaker 1: we're certainly completely and totally captivated by both politics and policy. Lately, 15 00:01:05,880 --> 00:01:09,320 Speaker 1: I called it spell bound by politics and policy. Um, 16 00:01:09,480 --> 00:01:12,200 Speaker 1: and you get the sense that even with all of 17 00:01:12,240 --> 00:01:14,520 Speaker 1: the earnings news that we're starting to get on the 18 00:01:14,520 --> 00:01:16,720 Speaker 1: financial sector, really the only thing that matters to stocks 19 00:01:16,800 --> 00:01:19,160 Speaker 1: is where the monetary policy makers go and who's going 20 00:01:19,200 --> 00:01:22,520 Speaker 1: to win the US election. UM, So as a result, 21 00:01:22,600 --> 00:01:24,960 Speaker 1: you kind of expect stocks to trade sideways at best 22 00:01:25,080 --> 00:01:27,600 Speaker 1: until we get some resolution on those two matters. What 23 00:01:27,640 --> 00:01:30,880 Speaker 1: are you telling your your clients about central bank policy? 24 00:01:30,880 --> 00:01:33,600 Speaker 1: How to regard central bank policy at this point, Well, 25 00:01:33,640 --> 00:01:37,199 Speaker 1: the most important UM central bank with respect to US 26 00:01:37,240 --> 00:01:40,520 Speaker 1: assets is obviously the US Central Bank. So our view 27 00:01:40,640 --> 00:01:42,840 Speaker 1: is as so as goes the FED goes, so goes 28 00:01:42,880 --> 00:01:45,880 Speaker 1: the market multiple. And over the last year and a 29 00:01:45,920 --> 00:01:48,480 Speaker 1: half two years, as the Fed has started to scale 30 00:01:48,520 --> 00:01:52,040 Speaker 1: back on queueie UM, stopped the expansion of the balance sheet, 31 00:01:52,120 --> 00:01:55,040 Speaker 1: and now has started incrementally tightened policy, the result has 32 00:01:55,080 --> 00:01:58,680 Speaker 1: been this sort of sideways movement in the market multiple. 33 00:01:59,120 --> 00:02:01,400 Speaker 1: And that's our view is that best you get sideways 34 00:02:01,400 --> 00:02:03,560 Speaker 1: movement movement the marketable multiple. We're no longer going to 35 00:02:03,600 --> 00:02:06,920 Speaker 1: see stocks move higher on valuation alone. The problem is 36 00:02:06,920 --> 00:02:09,680 Speaker 1: we've been waiting for an earnings recovery during that time period, 37 00:02:09,720 --> 00:02:11,720 Speaker 1: and the result has been sort of no movement for 38 00:02:11,760 --> 00:02:15,440 Speaker 1: stocks UM. We've seen this just tiny, little incremental gain 39 00:02:15,480 --> 00:02:19,800 Speaker 1: in stock prices. So until we can get some economic 40 00:02:19,800 --> 00:02:22,360 Speaker 1: growth to drive an earnings recovery, as long as the 41 00:02:22,400 --> 00:02:25,839 Speaker 1: FED is incrementally tightening it's just going to be tough 42 00:02:25,840 --> 00:02:27,440 Speaker 1: for stocks to move higher. I want to go to 43 00:02:27,440 --> 00:02:29,960 Speaker 1: Francin Lackwin just a sec here, say Bloomberg's sur valance. 44 00:02:30,000 --> 00:02:32,120 Speaker 1: Brought to you by invest Goo. Investing is not about 45 00:02:32,120 --> 00:02:35,240 Speaker 1: achieving average, It's about achieving goals. Learn how investcoes high 46 00:02:35,240 --> 00:02:39,280 Speaker 1: conviction approach can help investco dot com slash high conviction 47 00:02:39,320 --> 00:02:41,959 Speaker 1: morning for Am. Good morning, David, Good morning, Gina. The 48 00:02:42,000 --> 00:02:45,160 Speaker 1: problem when you speak to a lot of strategies that 49 00:02:45,200 --> 00:02:47,920 Speaker 1: don't look at equities at closely yet is that they say, 50 00:02:48,120 --> 00:02:50,480 Speaker 1: we still have record levels for a lot of these indicas, 51 00:02:50,520 --> 00:02:53,000 Speaker 1: and actually this is on earnings growth that is basically 52 00:02:53,040 --> 00:02:54,960 Speaker 1: cost cutting, and you look at the state of the 53 00:02:54,960 --> 00:02:58,760 Speaker 1: world and there's hardly any growth. Are you really expecting equities, Gina, 54 00:02:58,800 --> 00:03:01,000 Speaker 1: to go higher or are we do a correction? Well, 55 00:03:01,000 --> 00:03:03,640 Speaker 1: our fair value estimate for the SMP five hundred right 56 00:03:03,680 --> 00:03:08,720 Speaker 1: now it's twenty, so that that suggests that we get 57 00:03:08,760 --> 00:03:12,520 Speaker 1: this incremental gain um to get to fair value. But 58 00:03:12,560 --> 00:03:15,280 Speaker 1: that includes, you know, a twelve month forward earnings outlook. 59 00:03:15,360 --> 00:03:18,680 Speaker 1: So it's these tiny little gains and very consistent with 60 00:03:18,680 --> 00:03:20,799 Speaker 1: what we've experienced over the last year and a half. 61 00:03:20,840 --> 00:03:24,359 Speaker 1: Two years, tiny little gains consistent with earnings growth and 62 00:03:24,400 --> 00:03:27,800 Speaker 1: the absence of an incredibly supportive central bank or an 63 00:03:27,840 --> 00:03:31,560 Speaker 1: incrementally less supportive central bank. So it's very dependent upon 64 00:03:31,560 --> 00:03:34,760 Speaker 1: earnings growth. We see earnings growing about five percent over 65 00:03:34,800 --> 00:03:38,160 Speaker 1: the next twelve months, seven percent in seventeen. Most of 66 00:03:38,160 --> 00:03:42,680 Speaker 1: that comes from the energy sector and industries that support 67 00:03:42,680 --> 00:03:45,240 Speaker 1: the energy sector. So those are the areas where we 68 00:03:45,240 --> 00:03:48,120 Speaker 1: see earnings growth increasing. The other areas of the index 69 00:03:48,200 --> 00:03:51,320 Speaker 1: quite frankly, I think you're continuing to see a deceleration 70 00:03:51,560 --> 00:03:55,000 Speaker 1: of earnings growth over so I think the devil is 71 00:03:55,040 --> 00:03:57,880 Speaker 1: in the details. Um, when you look at the stock market, 72 00:03:57,960 --> 00:04:00,280 Speaker 1: you're absolutely right. We haven't had a lot of growth, 73 00:04:01,040 --> 00:04:04,640 Speaker 1: uh and and that is that's creating a pretty perilous environment. 74 00:04:04,680 --> 00:04:06,680 Speaker 1: But if you find the areas of growth, I think 75 00:04:06,680 --> 00:04:10,040 Speaker 1: you can do relatively well in stock still, Gina, how 76 00:04:10,120 --> 00:04:13,120 Speaker 1: much do currencies have an impact on earnings nowadays? And actually, 77 00:04:13,200 --> 00:04:15,880 Speaker 1: if you look at central bank action, we mean some 78 00:04:15,920 --> 00:04:19,200 Speaker 1: currencies more than others have really gone through a wild ride. 79 00:04:19,320 --> 00:04:22,800 Speaker 1: Will that continue putting pressure on earnings? Well, it's all 80 00:04:22,839 --> 00:04:28,240 Speaker 1: relative and compared to the unbelievable rally that we saw 81 00:04:28,320 --> 00:04:33,880 Speaker 1: in the dollar relative to basically every um global um 82 00:04:34,000 --> 00:04:39,320 Speaker 1: currency from the Middle Often into the early fifteen period. 83 00:04:39,960 --> 00:04:41,800 Speaker 1: The gains in the dollar we've seen over the last 84 00:04:41,839 --> 00:04:45,680 Speaker 1: few weeks are fairly minimal. Right that. That period between 85 00:04:45,680 --> 00:04:48,359 Speaker 1: the Middle Often and early is one of only a 86 00:04:48,440 --> 00:04:52,400 Speaker 1: handful of extraordinary dollar gains that had truly devastating impacts 87 00:04:52,400 --> 00:04:56,000 Speaker 1: on export related earnings and currency related earnings in the 88 00:04:56,080 --> 00:04:59,160 Speaker 1: SMP five. Compared to that, the moves we've had are 89 00:04:59,400 --> 00:05:02,440 Speaker 1: really demand us. I think you have to see another 90 00:05:02,560 --> 00:05:06,560 Speaker 1: extraordinary boom in the dollar to have very very strong 91 00:05:06,640 --> 00:05:10,760 Speaker 1: earnings impacts. What matters a lot more right now is 92 00:05:10,800 --> 00:05:14,720 Speaker 1: the fact that globally growth is still fairly slow. There 93 00:05:14,760 --> 00:05:17,799 Speaker 1: are some signs of life in emerging markets. Were hopeful 94 00:05:17,839 --> 00:05:21,600 Speaker 1: that that can continue into the U S economy may 95 00:05:21,600 --> 00:05:25,360 Speaker 1: see a little bit of a boost in, but globally 96 00:05:25,520 --> 00:05:29,120 Speaker 1: growth is still very very slow, and that is extremely 97 00:05:29,160 --> 00:05:31,760 Speaker 1: meaningful for earnings. The dollar really takes a backseat to 98 00:05:31,800 --> 00:05:34,520 Speaker 1: that right now. You and and Wells have been underweight 99 00:05:34,600 --> 00:05:37,159 Speaker 1: on financials. Here we are coming out of the latest 100 00:05:37,560 --> 00:05:40,520 Speaker 1: banks earning season. We had such an uptick in in 101 00:05:40,839 --> 00:05:44,200 Speaker 1: fick UH In every one of these reports, it seemed 102 00:05:44,240 --> 00:05:46,080 Speaker 1: has any of that done anything to sort of change 103 00:05:46,120 --> 00:05:49,120 Speaker 1: your your sense of US bank financials at this point, Uh, 104 00:05:49,200 --> 00:05:53,279 Speaker 1: not me quite frankly. You know, when I as a strategist, 105 00:05:53,240 --> 00:05:56,120 Speaker 1: do you look at the general relative performance of sectors, 106 00:05:56,120 --> 00:05:59,000 Speaker 1: there's some some pretty big indicators of relative performance. And 107 00:05:59,000 --> 00:06:02,080 Speaker 1: for financial as it's all the yield curve. And while 108 00:06:02,080 --> 00:06:04,480 Speaker 1: the yield curve has strength has widened a little bit, 109 00:06:04,480 --> 00:06:07,080 Speaker 1: the spread between short rates and long rates has widened 110 00:06:07,080 --> 00:06:10,840 Speaker 1: a little bit over the last couple of months. If 111 00:06:10,839 --> 00:06:13,039 Speaker 1: you look at the broader perspective, it peaked back in 112 00:06:13,920 --> 00:06:18,040 Speaker 1: and has been flattening ever since. And that in and 113 00:06:18,160 --> 00:06:21,080 Speaker 1: of it is the biggest portion of our our our 114 00:06:21,120 --> 00:06:25,480 Speaker 1: our view on financials. That deteriorating outlook signal sent by 115 00:06:25,480 --> 00:06:29,200 Speaker 1: the yield curve suggests that financial sector earnings growth is 116 00:06:29,240 --> 00:06:32,520 Speaker 1: likely to struggle to surpass five for at least the 117 00:06:32,560 --> 00:06:36,279 Speaker 1: next twelve to eighteen months. Um. What does that mean, Well, 118 00:06:36,360 --> 00:06:39,400 Speaker 1: compared to the consensus view that earnings will accelerate to 119 00:06:39,440 --> 00:06:43,480 Speaker 1: a twelve percent growth rate in sen it puts US 120 00:06:43,560 --> 00:06:46,839 Speaker 1: at a negative in a negative position, it's just so 121 00:06:47,000 --> 00:06:51,640 Speaker 1: unlikely to us that financials can satisfy these expectations considering 122 00:06:51,680 --> 00:06:54,800 Speaker 1: the longer the broader outlook signal being sent by the 123 00:06:54,880 --> 00:06:56,800 Speaker 1: yield curve. What what is it going to take to 124 00:06:57,520 --> 00:07:01,200 Speaker 1: suffuse stocks with optimism once again? What's going to bring 125 00:07:01,200 --> 00:07:04,640 Speaker 1: people back into into the equities markets. I think it's 126 00:07:04,720 --> 00:07:08,240 Speaker 1: a couple of things. One is just this, there's general 127 00:07:08,440 --> 00:07:12,760 Speaker 1: distaste or dislike for equities. UM. You know that everybody 128 00:07:12,800 --> 00:07:17,640 Speaker 1: hates Chris I say everybody hates stocks because it's it's 129 00:07:17,680 --> 00:07:22,680 Speaker 1: just amazing. From the last several years, outflows from equities 130 00:07:22,720 --> 00:07:28,320 Speaker 1: have been extraordinary in particularly active actively managed UM equity funds, 131 00:07:28,520 --> 00:07:32,240 Speaker 1: and so there's this general dislike of equities. Part of 132 00:07:32,280 --> 00:07:35,440 Speaker 1: it is the ongoing search for yield um, but I 133 00:07:35,440 --> 00:07:37,320 Speaker 1: think part of it is also just this lack of 134 00:07:37,440 --> 00:07:40,600 Speaker 1: risk tolerance, So, you know, determining what the trigger will 135 00:07:40,640 --> 00:07:43,320 Speaker 1: be for investors to suddenly get a little bit more 136 00:07:43,360 --> 00:07:46,120 Speaker 1: confident and feel a little bit more risk tolerant as 137 00:07:46,160 --> 00:07:48,840 Speaker 1: opposed to extremely risk averse. I'm not sure what that is. 138 00:07:49,320 --> 00:07:51,600 Speaker 1: I think you could get it from a number of areas. 139 00:07:51,920 --> 00:07:55,280 Speaker 1: You could certainly get it from a growth um improvement. 140 00:07:55,400 --> 00:07:59,160 Speaker 1: If we suddenly start to see in businesses investing a 141 00:07:59,200 --> 00:08:02,240 Speaker 1: bit more because we're starting to see some signals that 142 00:08:02,240 --> 00:08:05,640 Speaker 1: that growth is going to spiral higher. That could go 143 00:08:05,680 --> 00:08:09,760 Speaker 1: a long way. UM. It's quite surprising, frankly, that stocks 144 00:08:09,760 --> 00:08:14,600 Speaker 1: are you know, well over double triple their bottoms in 145 00:08:14,640 --> 00:08:17,160 Speaker 1: two thousand nine and investors are still not putting money 146 00:08:17,160 --> 00:08:20,000 Speaker 1: into the equity market. And that's a longer term drag 147 00:08:20,160 --> 00:08:24,000 Speaker 1: that you know, we'll probably have business school case studies 148 00:08:24,040 --> 00:08:27,480 Speaker 1: on it UM in the years to come. Gina, what 149 00:08:27,640 --> 00:08:31,640 Speaker 1: looks frothy right now? There must be industregroups where UM 150 00:08:31,680 --> 00:08:34,640 Speaker 1: either people are looking for dividends or yield, where the 151 00:08:34,920 --> 00:08:39,040 Speaker 1: valuations just make little sense to you. UH. Utilities for 152 00:08:39,160 --> 00:08:42,560 Speaker 1: US has been the area where UM valuations have just 153 00:08:42,720 --> 00:08:46,679 Speaker 1: looked extremely froththy for much of the year. I mean 154 00:08:46,679 --> 00:08:50,440 Speaker 1: that the sector lad returns into the early summer months 155 00:08:50,440 --> 00:08:53,240 Speaker 1: and has sold off since, but the valuations of that 156 00:08:53,320 --> 00:08:57,200 Speaker 1: sector are still pretty high relative to the market. It's 157 00:08:57,200 --> 00:08:59,920 Speaker 1: talked about a lot, though, so I worry that, you know, 158 00:09:00,000 --> 00:09:02,120 Speaker 1: we're kind of a consensus view on that. The sector 159 00:09:02,160 --> 00:09:05,959 Speaker 1: where I think valuations are most dangerous and investors are 160 00:09:05,960 --> 00:09:10,880 Speaker 1: still hiding in UM is the consumer staples sector. And 161 00:09:11,080 --> 00:09:13,079 Speaker 1: this is an area where you just had nest Lee's 162 00:09:13,280 --> 00:09:18,520 Speaker 1: UM uh CEO talking on television this morning. To me, 163 00:09:18,800 --> 00:09:23,360 Speaker 1: there's just very very little earning support for the extraordinary 164 00:09:23,440 --> 00:09:28,320 Speaker 1: level of valuations in the consumer staples sector. There's deflationary concerns, 165 00:09:28,400 --> 00:09:31,760 Speaker 1: you've got very slow global growth, You've got a moving 166 00:09:31,800 --> 00:09:35,240 Speaker 1: dollar in this sector sends to be UM sort of 167 00:09:35,760 --> 00:09:38,640 Speaker 1: sensitive to currency beyond what what I think is is 168 00:09:38,679 --> 00:09:42,280 Speaker 1: typically UM understood. So there's there are a lot of 169 00:09:42,320 --> 00:09:46,240 Speaker 1: reasons not to like consumer staples UM and valuation is 170 00:09:46,280 --> 00:09:48,319 Speaker 1: one of those. Gina, thank you very much, appreciate. That's 171 00:09:48,320 --> 00:09:50,360 Speaker 1: Gina Martin Adam. She's an could be strategist at Wells 172 00:09:50,360 --> 00:10:05,240 Speaker 1: farg with joining us here in New York. This has 173 00:10:05,280 --> 00:10:07,600 Speaker 1: taken grow with Francy Locke, who is in for Tom 174 00:10:07,679 --> 00:10:10,640 Speaker 1: Keene today. I'm watching our colleagues Francy on Bloomberg Television. 175 00:10:10,679 --> 00:10:14,400 Speaker 1: There is a countdown clock to the e CP rate decision, 176 00:10:14,400 --> 00:10:16,520 Speaker 1: twenty five minutes to go, and I know we're gonna 177 00:10:16,520 --> 00:10:18,640 Speaker 1: get some good insight in that from our next guest. Yeah, 178 00:10:18,760 --> 00:10:20,520 Speaker 1: we will get some great insight. But you know what, 179 00:10:20,559 --> 00:10:22,920 Speaker 1: the markets are a little bit I don't think they're nervous. 180 00:10:22,960 --> 00:10:25,080 Speaker 1: I think they're a little bit flat. Because Maria DROGGI 181 00:10:25,160 --> 00:10:28,200 Speaker 1: has been keeping so much suspense around it. Well, we 182 00:10:28,240 --> 00:10:30,520 Speaker 1: don't want to keep the suspense. Our next guest is 183 00:10:30,559 --> 00:10:34,000 Speaker 1: Carson Bretzki. He's i n G, Germany, chief economists of 184 00:10:34,080 --> 00:10:37,520 Speaker 1: one of the most respected actually ECB watchers right here 185 00:10:37,600 --> 00:10:40,720 Speaker 1: in Europe. Joining you New York, Carson. When you look 186 00:10:40,880 --> 00:10:43,600 Speaker 1: special treat when you look at the ECB, virtually no 187 00:10:43,640 --> 00:10:46,720 Speaker 1: one is predicting any major action from the ECB today, 188 00:10:46,760 --> 00:10:50,079 Speaker 1: but expectations are forming for an extension of QUI in December. 189 00:10:50,400 --> 00:10:54,680 Speaker 1: Are those expectations justified? The expectation are justified? Of course 190 00:10:54,760 --> 00:10:57,880 Speaker 1: that they are because the the e c ECB cannot 191 00:10:57,960 --> 00:11:01,040 Speaker 1: stop q right now, so that they're caught in in 192 00:11:01,280 --> 00:11:04,319 Speaker 1: their own trap. And whether they're gonna call it tapering 193 00:11:04,440 --> 00:11:06,240 Speaker 1: or whether they're going to call it an extension of 194 00:11:06,360 --> 00:11:08,920 Speaker 1: QUI at a at a lower pace, I think it 195 00:11:08,960 --> 00:11:13,560 Speaker 1: hardly matters. Um they will extend QUI until the end 196 00:11:13,600 --> 00:11:16,640 Speaker 1: of two that seventeen right, does the e c B. 197 00:11:16,760 --> 00:11:19,000 Speaker 1: They'll need to do more to reach this inflation target. 198 00:11:19,080 --> 00:11:21,160 Speaker 1: Can you say that so far it really hasn't worked. 199 00:11:21,400 --> 00:11:24,320 Speaker 1: So unless they double up or buy other things, they're stuck. 200 00:11:25,160 --> 00:11:27,480 Speaker 1: I think they're stuck. Of course, the CB itself always 201 00:11:27,520 --> 00:11:31,800 Speaker 1: says it worked. The model shugs it out. Um. Things 202 00:11:31,840 --> 00:11:33,680 Speaker 1: would have been worse if they hadn't done que and 203 00:11:33,720 --> 00:11:37,160 Speaker 1: it's very hard to verifyd that um. But can they 204 00:11:37,240 --> 00:11:39,400 Speaker 1: really do more? Of course they can do more. But 205 00:11:39,480 --> 00:11:41,719 Speaker 1: will this more have an added value on the economy 206 00:11:41,800 --> 00:11:45,120 Speaker 1: or inflation? I doubt it, honestly. So therefore the sp 207 00:11:45,160 --> 00:11:48,600 Speaker 1: will can only extend QUI. They will not start by 208 00:11:48,720 --> 00:11:52,240 Speaker 1: to buy equities. Um. They seemply don't want to get 209 00:11:52,280 --> 00:11:54,880 Speaker 1: into this territory. UM. So what they will do is 210 00:11:54,920 --> 00:11:57,760 Speaker 1: they opened the door for an extension of QUI. They 211 00:11:57,800 --> 00:12:02,280 Speaker 1: will again repeat this call upon governments to implement structure 212 00:12:02,320 --> 00:12:05,360 Speaker 1: reforms and also to use fiscal policies, and that will 213 00:12:05,400 --> 00:12:08,160 Speaker 1: be a big changer for the year Zone to use 214 00:12:08,200 --> 00:12:10,600 Speaker 1: fiscal policies to get a bit of economic growth. They 215 00:12:10,640 --> 00:12:12,559 Speaker 1: opened the door, they lay the groundwork here. What does 216 00:12:12,600 --> 00:12:14,240 Speaker 1: that look like? What do you expect to hear? What 217 00:12:14,280 --> 00:12:16,000 Speaker 1: do you want to hear from Mario drag when he 218 00:12:16,400 --> 00:12:19,720 Speaker 1: delivers his explanation of of the rate decision later this morning. 219 00:12:20,360 --> 00:12:21,720 Speaker 1: What I want to hear from him is to give 220 00:12:21,760 --> 00:12:25,080 Speaker 1: us some some insigns of what these famous committees told 221 00:12:25,120 --> 00:12:28,439 Speaker 1: them already because he had an ECB language, he tasked 222 00:12:28,480 --> 00:12:32,040 Speaker 1: the committees to look into into all technical possibilities. So 223 00:12:32,080 --> 00:12:34,120 Speaker 1: I would like to get some some inside of what 224 00:12:34,240 --> 00:12:37,640 Speaker 1: the committees actually have left looked at already. UM. And 225 00:12:37,679 --> 00:12:41,240 Speaker 1: then I would would like to sound him very very 226 00:12:41,320 --> 00:12:45,040 Speaker 1: dovish again pointing to the risk to the economy, pointing 227 00:12:45,040 --> 00:12:47,319 Speaker 1: to to risk to inflation. And maybe, and that might 228 00:12:47,360 --> 00:12:51,600 Speaker 1: also be an interesting thing, UM opening the door for 229 00:12:51,720 --> 00:12:55,920 Speaker 1: an um exceeding of inflation of the two percent target, 230 00:12:55,920 --> 00:12:58,040 Speaker 1: because that will be the next step that if the 231 00:12:58,040 --> 00:13:00,760 Speaker 1: ECB starts to say that, all right, we will allow 232 00:13:00,840 --> 00:13:04,080 Speaker 1: the inflation to overshoot our two percent target. UM, this 233 00:13:04,160 --> 00:13:07,719 Speaker 1: would also leave leave room for for for more accommodative 234 00:13:07,720 --> 00:13:11,720 Speaker 1: moderate policies. How problematic is the so called scarcity problem. 235 00:13:11,800 --> 00:13:14,280 Speaker 1: We've seen a bit of a sell off in bonds recently. 236 00:13:14,320 --> 00:13:16,520 Speaker 1: How worried is the ECB about that at this point 237 00:13:17,520 --> 00:13:19,560 Speaker 1: they've started to become worried much much later than the 238 00:13:19,600 --> 00:13:22,120 Speaker 1: market did, UM, so that they own only kind of 239 00:13:22,280 --> 00:13:25,840 Speaker 1: UM kind of tackled it in the September meeting. It 240 00:13:25,880 --> 00:13:28,720 Speaker 1: will become a problem early next year, of course, obviously, 241 00:13:28,840 --> 00:13:31,600 Speaker 1: depending on on where where bond deals are at that time. 242 00:13:31,840 --> 00:13:35,400 Speaker 1: The thing is um if they're really considered an extension 243 00:13:35,440 --> 00:13:38,599 Speaker 1: of QUI, they will need to address the issue of scarcity. 244 00:13:38,679 --> 00:13:41,160 Speaker 1: If the CP all of a sudden says listen March 245 00:13:41,200 --> 00:13:43,480 Speaker 1: two thou seventeen and that's the end of QUI, they 246 00:13:43,559 --> 00:13:45,920 Speaker 1: even don't have to address the problem of scarcity because 247 00:13:45,920 --> 00:13:47,920 Speaker 1: there's some one way or the other they would manage 248 00:13:47,960 --> 00:13:49,920 Speaker 1: to get until March two thousand seventeen. And in the 249 00:13:50,240 --> 00:13:53,839 Speaker 1: current form Carston, are there limits to how much that 250 00:13:54,040 --> 00:13:56,520 Speaker 1: DC we can buy before the risks outweigh the benefits. 251 00:13:57,440 --> 00:14:00,199 Speaker 1: I think in terms of buying that the UM no 252 00:14:00,400 --> 00:14:02,400 Speaker 1: there there are there only very little risks. I think 253 00:14:02,400 --> 00:14:04,280 Speaker 1: they're the bigger risk that we do have right now 254 00:14:04,520 --> 00:14:08,840 Speaker 1: A stem from the negative deposit rate, from extremely low 255 00:14:08,920 --> 00:14:11,720 Speaker 1: interest rates, because we do see that they are hitting 256 00:14:11,720 --> 00:14:15,280 Speaker 1: the European banking industry, in industry which has already been 257 00:14:15,320 --> 00:14:18,440 Speaker 1: bettered with an industry which is up for further consolidation, 258 00:14:18,520 --> 00:14:22,080 Speaker 1: industry which is under pressure from from new competition, the 259 00:14:22,200 --> 00:14:24,840 Speaker 1: need for new investments and and the in these low 260 00:14:24,880 --> 00:14:27,800 Speaker 1: interest rates are are hurting business models. So therefore these 261 00:14:27,800 --> 00:14:30,960 Speaker 1: are the adverse effects that low interest rate policy brings 262 00:14:30,960 --> 00:14:33,120 Speaker 1: to Europe. Of course, to me about thirty seconds left here, 263 00:14:33,160 --> 00:14:34,480 Speaker 1: But I want to ask you if you think we're 264 00:14:34,520 --> 00:14:38,440 Speaker 1: going to hear anything from Mario dragging about European banks today. 265 00:14:38,640 --> 00:14:40,560 Speaker 1: I think we will. I think normally, when we expect 266 00:14:40,560 --> 00:14:44,080 Speaker 1: a dull meeting from the CUB drug surprises us with 267 00:14:44,400 --> 00:14:47,560 Speaker 1: more exciting news than we expected. Very good, we will. 268 00:14:47,680 --> 00:14:49,600 Speaker 1: We will stay tuned. Then, So we are expecting here 269 00:14:49,640 --> 00:14:52,120 Speaker 1: a rate decision from the European Central Bank that is 270 00:14:52,160 --> 00:14:55,800 Speaker 1: doing at seven am Wall Street time, and then a 271 00:14:55,800 --> 00:14:58,880 Speaker 1: little later this morning, uh, eight thirty am, about forty 272 00:14:58,920 --> 00:15:01,560 Speaker 1: five minutes after that rate decision will be announced, we 273 00:15:01,640 --> 00:15:03,920 Speaker 1: will go live to Frankfort to carry the e CIT 274 00:15:04,040 --> 00:15:07,640 Speaker 1: President Mario drag remarks and his responses to questions from 275 00:15:07,720 --> 00:15:10,560 Speaker 1: reporters in the audience. We will see uh, indeed, the 276 00:15:10,600 --> 00:15:13,480 Speaker 1: degree to which he has asked by reporters about about 277 00:15:13,520 --> 00:15:24,280 Speaker 1: European banks, the state of European banking right now. Who 278 00:15:24,360 --> 00:15:27,680 Speaker 1: you put your trust in matters. Investors have put their 279 00:15:27,680 --> 00:15:31,600 Speaker 1: trust in independent registered investment advisors to the tune of 280 00:15:31,680 --> 00:15:35,080 Speaker 1: four trillion dollars. Why they see their roles to serve 281 00:15:35,360 --> 00:15:38,720 Speaker 1: not sell. That's why Charles Schwab is committed to the 282 00:15:38,800 --> 00:15:44,920 Speaker 1: success over seven thousand independent financial advisors who passionately dedicate 283 00:15:45,000 --> 00:15:49,760 Speaker 1: themselves to helping people achieve their financial goals. Learn more 284 00:15:50,280 --> 00:16:01,520 Speaker 1: and find your independent advisor dot com. Let's get some 285 00:16:01,560 --> 00:16:05,280 Speaker 1: insight from Ben Emmons his intellect as Partners chief Economists 286 00:16:05,560 --> 00:16:08,560 Speaker 1: to talk more about the e c B. Ben, as expected, 287 00:16:08,600 --> 00:16:11,480 Speaker 1: we didn't get much news from the European Central Bank. 288 00:16:11,880 --> 00:16:16,880 Speaker 1: They're holding rates unchanged. They will continue this asset purchase program. 289 00:16:17,000 --> 00:16:19,360 Speaker 1: What people now want to do is if he's extending 290 00:16:19,360 --> 00:16:23,480 Speaker 1: the program or whether he's already thinking of starting to taper. 291 00:16:24,320 --> 00:16:26,520 Speaker 1: Good morning, Francine and David, thank you very much for 292 00:16:26,560 --> 00:16:29,600 Speaker 1: having me um. Indeed that that's the big dynamic, right, 293 00:16:29,680 --> 00:16:32,160 Speaker 1: is he ready to taper or not? And such? The 294 00:16:32,240 --> 00:16:36,160 Speaker 1: poll indicates that the expectations are that this will not happen. 295 00:16:36,640 --> 00:16:39,360 Speaker 1: Drug is I think very sensitive to those to those 296 00:16:39,440 --> 00:16:42,880 Speaker 1: expectations because the history has shown how Drug has been 297 00:16:43,480 --> 00:16:47,040 Speaker 1: excellent with markets in terms of his communication, particularly being 298 00:16:47,120 --> 00:16:50,840 Speaker 1: very favorable to markets with communication. So I don't believe 299 00:16:50,880 --> 00:16:52,920 Speaker 1: that he will actually say that there's going to be 300 00:16:52,960 --> 00:16:56,480 Speaker 1: tapering effect. That you have these committees now currently at 301 00:16:56,520 --> 00:17:00,120 Speaker 1: work to analyze the QWI program. For me is an 302 00:17:00,120 --> 00:17:02,720 Speaker 1: easy b watcher from the past. They have done this 303 00:17:02,840 --> 00:17:06,200 Speaker 1: before and they wanted to change their their policy by 304 00:17:06,280 --> 00:17:09,760 Speaker 1: using these committees to analyze their their programs, and so 305 00:17:09,840 --> 00:17:14,119 Speaker 1: it suggests me they're gonna have have simulated the program 306 00:17:14,320 --> 00:17:17,639 Speaker 1: and make potentially tweaks to it, as in either relax 307 00:17:17,760 --> 00:17:22,040 Speaker 1: for example, the depositive rates UM limit in terms of 308 00:17:22,040 --> 00:17:25,320 Speaker 1: buying bonds below the positive rates would be I think 309 00:17:25,359 --> 00:17:28,200 Speaker 1: quite significant if that will be announced. I think that's 310 00:17:28,200 --> 00:17:31,560 Speaker 1: here in play rather than tapering, So I would expect 311 00:17:31,560 --> 00:17:35,000 Speaker 1: that drug comes out in that fashion in terms of 312 00:17:35,040 --> 00:17:38,080 Speaker 1: like we will continue and we'll make modifications to the 313 00:17:38,119 --> 00:17:42,640 Speaker 1: program hence to achieve our objective. Because is it fair 314 00:17:42,680 --> 00:17:45,000 Speaker 1: to say that actually there are a lot more doves 315 00:17:45,119 --> 00:17:47,960 Speaker 1: than hawks on the ECB, So any tapering would only 316 00:17:48,000 --> 00:17:51,280 Speaker 1: come after an extension of this QWIE time frame. I 317 00:17:51,280 --> 00:17:53,520 Speaker 1: think that's right. I think that that there's at this 318 00:17:53,600 --> 00:17:57,040 Speaker 1: stage if you have inflation uh point forward as its 319 00:17:57,080 --> 00:17:59,679 Speaker 1: headline and fashing came out that just just recently. And 320 00:18:00,080 --> 00:18:03,160 Speaker 1: if you look at where we came from, um when 321 00:18:03,240 --> 00:18:05,480 Speaker 1: when the ECB announced that they wanted to do que. 322 00:18:05,680 --> 00:18:07,520 Speaker 1: They said, our target is to bring the bouncy back 323 00:18:07,560 --> 00:18:11,040 Speaker 1: to where two thousand twelve levels was three trillion, right, 324 00:18:11,119 --> 00:18:13,760 Speaker 1: and we're well above that level, our three point six 325 00:18:13,880 --> 00:18:16,040 Speaker 1: or so, and if it's still a point four, So 326 00:18:16,160 --> 00:18:19,639 Speaker 1: clearly the Council has seen this too and say like, 327 00:18:19,640 --> 00:18:22,439 Speaker 1: we need a lot more extension of this bounty in 328 00:18:22,520 --> 00:18:25,399 Speaker 1: order to get out and fish starget up. That's clearly related. 329 00:18:25,400 --> 00:18:28,440 Speaker 1: So I would say, yes, that's much more dovish balance 330 00:18:28,560 --> 00:18:30,439 Speaker 1: in the in the in the e c B as 331 00:18:30,440 --> 00:18:32,120 Speaker 1: opposed to the past when you had a lot more 332 00:18:32,160 --> 00:18:34,600 Speaker 1: hawkish balance, because yes, in fleash was running much closer 333 00:18:34,640 --> 00:18:37,159 Speaker 1: to target. Give us a sense of of what the 334 00:18:37,160 --> 00:18:39,560 Speaker 1: committee was digesting here. Let's stick into that a little 335 00:18:39,600 --> 00:18:41,880 Speaker 1: bit more. You mentioned inflation, but what is the macroeconomic 336 00:18:41,960 --> 00:18:45,520 Speaker 1: data looked like here? Since the last time the ECB convened, 337 00:18:46,320 --> 00:18:49,640 Speaker 1: it has improved somewhat, and interestingly that how the Brexit 338 00:18:50,200 --> 00:18:53,399 Speaker 1: had not had any impact on European data per se. 339 00:18:53,840 --> 00:18:58,000 Speaker 1: In other words, the European economy is slowly recovering from 340 00:18:58,040 --> 00:19:00,919 Speaker 1: those crisis years of two thousand ten two thousand twelve, 341 00:19:01,640 --> 00:19:05,720 Speaker 1: and and therefore from that perspective they feel obviously that 342 00:19:05,800 --> 00:19:09,720 Speaker 1: this qv program is working but needs more then it's 343 00:19:09,760 --> 00:19:12,320 Speaker 1: probably more to be done there in order to get 344 00:19:12,359 --> 00:19:16,119 Speaker 1: really the economy in full recovery mode. So there's not 345 00:19:16,200 --> 00:19:19,520 Speaker 1: a need there to taper here based upon someone improvement 346 00:19:19,520 --> 00:19:22,760 Speaker 1: of data. In fact, probably needed more QUB extension to 347 00:19:22,880 --> 00:19:26,720 Speaker 1: have this data improve further from here. Um, so that 348 00:19:26,720 --> 00:19:29,320 Speaker 1: that perspect they are on on track, it's just a 349 00:19:29,440 --> 00:19:32,600 Speaker 1: slow track. The recovery in Europe is is really muted, 350 00:19:33,160 --> 00:19:36,200 Speaker 1: and inflation is still extremely low relative to other countries. 351 00:19:36,359 --> 00:19:39,280 Speaker 1: To what extent do you think currency factored into this decision? 352 00:19:39,359 --> 00:19:41,320 Speaker 1: How how how closely is they needs to be paying 353 00:19:41,359 --> 00:19:44,560 Speaker 1: attention to to currency flows. So that's a good question, David, 354 00:19:44,720 --> 00:19:47,080 Speaker 1: was that dynamic I think has so much changed in 355 00:19:47,119 --> 00:19:49,960 Speaker 1: the past, dragging me a lot of reference more especially 356 00:19:50,000 --> 00:19:53,120 Speaker 1: to the currency in it in its opening statements, whereas 357 00:19:53,119 --> 00:19:55,320 Speaker 1: that has changed over the last year that you know, 358 00:19:55,359 --> 00:19:57,480 Speaker 1: the Europe has been very stable around where we are 359 00:19:57,560 --> 00:20:02,640 Speaker 1: today and has fallen by roughly round about eight from 360 00:20:02,680 --> 00:20:04,640 Speaker 1: from where it was when the when the bound sheet 361 00:20:04,640 --> 00:20:08,280 Speaker 1: was much smaller we're talking here about since two thousand fourteen, 362 00:20:08,359 --> 00:20:10,920 Speaker 1: So they have had an impact on the currency, and 363 00:20:10,960 --> 00:20:13,200 Speaker 1: I think they're content with that because the drug is 364 00:20:13,240 --> 00:20:15,879 Speaker 1: indicated in the past every ten percent fall and the 365 00:20:15,920 --> 00:20:17,879 Speaker 1: currency is about you know, a few tens of percent 366 00:20:17,920 --> 00:20:20,720 Speaker 1: improvement inflation that actually has happened. So I think they 367 00:20:20,800 --> 00:20:23,879 Speaker 1: contend with the currency. Where then, perhaps not as content 368 00:20:24,000 --> 00:20:27,560 Speaker 1: by is that the further transmission monte policy through the 369 00:20:27,600 --> 00:20:32,200 Speaker 1: different channels as in credit, credit extension and as well 370 00:20:32,240 --> 00:20:36,840 Speaker 1: as further further fiscal expansion. That's where I think they're 371 00:20:36,840 --> 00:20:38,760 Speaker 1: looking at that much more closely. So the currency I 372 00:20:38,800 --> 00:20:41,000 Speaker 1: think plays a bit of a is a bit in 373 00:20:41,000 --> 00:20:43,560 Speaker 1: the background. I don't want to get too technical then, 374 00:20:43,640 --> 00:20:46,560 Speaker 1: but how concerned are you by what easy b members 375 00:20:46,560 --> 00:20:50,560 Speaker 1: have told us saying that they see future challenges regarding 376 00:20:50,600 --> 00:20:53,560 Speaker 1: the your system's ability to sort sufficient eligible bonds in 377 00:20:53,600 --> 00:20:55,320 Speaker 1: the market. I mean, this is almost technical, but if 378 00:20:55,320 --> 00:20:57,080 Speaker 1: they say I'm going to buy a certain amount of 379 00:20:57,080 --> 00:20:58,919 Speaker 1: these bonds and there are not enough out there, what 380 00:20:59,000 --> 00:21:02,080 Speaker 1: do they do? That is an issue indeed, that that 381 00:21:02,160 --> 00:21:06,720 Speaker 1: there is some scarcity party because you know, the capital 382 00:21:06,840 --> 00:21:10,359 Speaker 1: key rate show distribution has most of the buying coming 383 00:21:10,359 --> 00:21:12,960 Speaker 1: in from German, the German market, the German bood market, 384 00:21:13,040 --> 00:21:15,960 Speaker 1: and the deficit in Germany is really small and the 385 00:21:16,000 --> 00:21:18,159 Speaker 1: issues in Germany has been falling, so yes, if you 386 00:21:18,240 --> 00:21:20,520 Speaker 1: buy more on top of it, you get scarcy issues. 387 00:21:20,520 --> 00:21:23,200 Speaker 1: So there too, I think fan seeing they can't tweak that, 388 00:21:23,240 --> 00:21:25,840 Speaker 1: they could they could adjust the capital key rate show 389 00:21:25,920 --> 00:21:29,359 Speaker 1: that has been someone indicated included by drug So I 390 00:21:29,400 --> 00:21:32,400 Speaker 1: think that could relax some of the scary scarcy concerns. 391 00:21:32,440 --> 00:21:35,400 Speaker 1: But there is obviously a concern over time that if 392 00:21:35,840 --> 00:21:39,399 Speaker 1: you get recovery further in Europe and you keep buying 393 00:21:39,400 --> 00:21:43,280 Speaker 1: these securities and the deficits stay around three or less, 394 00:21:43,640 --> 00:21:46,520 Speaker 1: then you could get scarcely issues because the issues isn't 395 00:21:46,640 --> 00:21:50,480 Speaker 1: enough to absorb the buying. And therefore, yeah, that isn't 396 00:21:50,520 --> 00:21:53,200 Speaker 1: isn't concerned. Now having said that, there's obviously and that's 397 00:21:53,240 --> 00:21:55,600 Speaker 1: what the EP is already done. It can fear more 398 00:21:55,680 --> 00:21:58,240 Speaker 1: towards credit easing. So if you think about that, the 399 00:21:58,280 --> 00:22:02,200 Speaker 1: European system has almost eight allion euros of collateral sitting 400 00:22:02,240 --> 00:22:04,360 Speaker 1: there and they could relax some of the standards there 401 00:22:04,400 --> 00:22:06,560 Speaker 1: to have more of that collateral b v financier the 402 00:22:06,600 --> 00:22:09,320 Speaker 1: e c B or or bought by the CUB Even 403 00:22:09,359 --> 00:22:11,760 Speaker 1: do you think about bank loans for example, then then 404 00:22:11,800 --> 00:22:14,119 Speaker 1: that's that's another way of for them to expand the 405 00:22:14,119 --> 00:22:16,840 Speaker 1: bound sheet putout running into scarcity issues, and it seems 406 00:22:16,840 --> 00:22:18,919 Speaker 1: like that introspection is the order of the day when 407 00:22:18,960 --> 00:22:20,639 Speaker 1: it comes to central banking. We had the Bank of 408 00:22:20,720 --> 00:22:22,520 Speaker 1: Japan looking inward a little bit. We've seen that with 409 00:22:22,560 --> 00:22:24,800 Speaker 1: the e c B as well. We've had recent commentary 410 00:22:24,880 --> 00:22:29,840 Speaker 1: from FED governors and FED officials about their sense of 411 00:22:29,840 --> 00:22:32,200 Speaker 1: the efficacy of negative rates. Do you expect we're gonna 412 00:22:32,240 --> 00:22:35,960 Speaker 1: hear much on that today from from Mario dragg You know, 413 00:22:36,800 --> 00:22:38,560 Speaker 1: a sense of how well they're working or how well 414 00:22:38,560 --> 00:22:41,840 Speaker 1: they think they're working. Certainly, I think that that drug 415 00:22:42,200 --> 00:22:45,600 Speaker 1: will continue to make it clear that the program is 416 00:22:45,640 --> 00:22:49,120 Speaker 1: credible and that there is no real constraint to them 417 00:22:49,560 --> 00:22:51,960 Speaker 1: to have the ability to willingness and the capacity, as 418 00:22:51,960 --> 00:22:54,800 Speaker 1: you said it so nicely died the previous press conference 419 00:22:55,280 --> 00:22:58,520 Speaker 1: to implement monetary policy. So I think you very much 420 00:22:58,640 --> 00:23:01,560 Speaker 1: is on that that's stage in terms of we have 421 00:23:01,640 --> 00:23:05,240 Speaker 1: credibility and we don't run into limits. What people have 422 00:23:05,280 --> 00:23:07,600 Speaker 1: said about the bankage ban, for example, at the end 423 00:23:07,600 --> 00:23:10,240 Speaker 1: of strengthened a lot there and they had to change 424 00:23:10,280 --> 00:23:13,960 Speaker 1: their program in order to be continue to be credible, 425 00:23:14,000 --> 00:23:16,720 Speaker 1: so to speak. So I think dragging very much strong 426 00:23:16,760 --> 00:23:20,399 Speaker 1: about now we're credible. But moreover over Dragon will continue 427 00:23:20,440 --> 00:23:23,960 Speaker 1: to emphasize that our program will be credible because if 428 00:23:24,080 --> 00:23:28,880 Speaker 1: the governments also deliver upon their structural reforms, then then 429 00:23:29,080 --> 00:23:31,440 Speaker 1: it really works. Right. We need the help of governments 430 00:23:31,480 --> 00:23:34,719 Speaker 1: to implement multi policy that so to speak. So I 431 00:23:34,760 --> 00:23:36,920 Speaker 1: think that's still what he will play on in terms 432 00:23:36,960 --> 00:23:40,240 Speaker 1: of the central banks credibility. They are factive, they can 433 00:23:40,320 --> 00:23:44,280 Speaker 1: impact markets, they can impact monitor transmission, but any government's 434 00:23:44,320 --> 00:23:48,439 Speaker 1: help with particularly structural reforms, more structural reforms to have 435 00:23:48,920 --> 00:23:53,320 Speaker 1: the ultimate goal of having multipolicy function effectively. News conference 436 00:23:53,359 --> 00:23:55,879 Speaker 1: here in about forty five minutes, very quickly here what 437 00:23:56,000 --> 00:23:58,200 Speaker 1: happens between now and December the twelve. What should we 438 00:23:58,240 --> 00:24:01,240 Speaker 1: look for, Oh, in terms of the ECB or yes, yeah, 439 00:24:01,359 --> 00:24:03,800 Speaker 1: in terms of these well for sure that I think 440 00:24:03,840 --> 00:24:06,320 Speaker 1: today that there will be some signal from drug I 441 00:24:06,320 --> 00:24:09,320 Speaker 1: think in terms of what they're planning to announce in December. 442 00:24:10,320 --> 00:24:13,480 Speaker 1: This is quite traditional my view, from how he signals 443 00:24:13,480 --> 00:24:17,160 Speaker 1: ahead of that meeting what they're going to do, um 444 00:24:17,560 --> 00:24:20,840 Speaker 1: just to take out some level of uncertainty. He's also 445 00:24:20,920 --> 00:24:23,200 Speaker 1: very good about markets in that way. By in other 446 00:24:23,200 --> 00:24:26,280 Speaker 1: words again like he's market friendly, so he will he 447 00:24:26,320 --> 00:24:28,720 Speaker 1: will indicate that that there will be some change to 448 00:24:29,119 --> 00:24:31,800 Speaker 1: al Right, ben Emon's chief economists with Intellectis Partners showing 449 00:24:31,840 --> 00:24:33,840 Speaker 1: us here in New York today, appreciate is the ECB 450 00:24:34,000 --> 00:24:36,880 Speaker 1: leaves rates unchanged. We will bring you Mario dragg press 451 00:24:36,880 --> 00:24:52,560 Speaker 1: conference in the next hour. This is Bloomberg Radio. I 452 00:24:52,560 --> 00:24:55,879 Speaker 1: want to bring in Jereman zedel Meyer. He is a 453 00:24:55,920 --> 00:24:59,120 Speaker 1: senior fellow with the Peterson Institute for International Economics, joining 454 00:24:59,160 --> 00:25:01,800 Speaker 1: us now by phone and German. Let me ask you, 455 00:25:01,840 --> 00:25:03,359 Speaker 1: first of all, just for your general reaction, not to 456 00:25:03,359 --> 00:25:05,760 Speaker 1: the the announcement, which was pretty expected here, but what 457 00:25:05,800 --> 00:25:08,720 Speaker 1: we've heard from Mario Draggy thus far about the prospects 458 00:25:08,720 --> 00:25:12,480 Speaker 1: for the continuation of quantitative easing um not not a 459 00:25:12,560 --> 00:25:18,200 Speaker 1: surprise really. So we've had noises I think coming out 460 00:25:18,240 --> 00:25:21,159 Speaker 1: of the c B or even coming out of the 461 00:25:21,160 --> 00:25:23,720 Speaker 1: Bundesbank that this is going to be a longer, a 462 00:25:23,800 --> 00:25:29,320 Speaker 1: longer process. So the the tapering ideas, I think we're 463 00:25:29,320 --> 00:25:32,680 Speaker 1: a bit premature, So I think the the e c 464 00:25:32,800 --> 00:25:36,760 Speaker 1: B will hang hang in there. I am. I wanted 465 00:25:36,800 --> 00:25:39,280 Speaker 1: to ask you just generally about the the economic climate 466 00:25:39,320 --> 00:25:43,680 Speaker 1: in Europe what he had to say about inflation today. Um, 467 00:25:43,720 --> 00:25:45,520 Speaker 1: what was your takeaway from that? And sort of you 468 00:25:45,520 --> 00:25:47,600 Speaker 1: know what what what general did you take away from 469 00:25:47,600 --> 00:25:50,680 Speaker 1: his commentary on the macroeconomic the state of the macroeconomic 470 00:25:50,920 --> 00:25:55,000 Speaker 1: situation in Europe? Right? I mean, I think the the 471 00:25:55,040 --> 00:26:02,080 Speaker 1: ECB is, you know, reasonably hopeful that it will continue on, 472 00:26:02,400 --> 00:26:04,800 Speaker 1: you know, guiding Europe on a on a path of 473 00:26:05,520 --> 00:26:10,560 Speaker 1: steady recovery of inflation. And you know, in a sense 474 00:26:10,640 --> 00:26:16,119 Speaker 1: that the badge of the period where mondials you know, 475 00:26:16,560 --> 00:26:20,439 Speaker 1: German tenure bonds turned negative in the summer seems to 476 00:26:20,440 --> 00:26:25,320 Speaker 1: have been overcome. The technical constraints are less likely to 477 00:26:25,400 --> 00:26:30,439 Speaker 1: be binding. Um and in that sense, I think, you know, 478 00:26:30,520 --> 00:26:34,160 Speaker 1: there's a sense that the we can carry on without 479 00:26:34,840 --> 00:26:38,440 Speaker 1: at this point being in danger of of hitting technical constraints, 480 00:26:38,480 --> 00:26:42,439 Speaker 1: and possibly also with the political constraints easing off a 481 00:26:42,440 --> 00:26:46,520 Speaker 1: little bit. So the political constraints essentially coming from the 482 00:26:46,560 --> 00:26:52,440 Speaker 1: fact that you know, expanding the program would have created 483 00:26:52,840 --> 00:26:56,600 Speaker 1: the problem of either having to buy riskuer assets, or 484 00:26:57,440 --> 00:26:59,680 Speaker 1: having to go off the capital key, or having to 485 00:27:00,000 --> 00:27:03,000 Speaker 1: all the deposit of thirty rate further, both of which 486 00:27:03,400 --> 00:27:07,800 Speaker 1: all of which are quite unpemfortable options for the ECB German. 487 00:27:07,880 --> 00:27:10,680 Speaker 1: So for once, Actually the news conference suppress conference Mario 488 00:27:10,760 --> 00:27:13,120 Speaker 1: drug use a little bit shorter than usual, David. Usually 489 00:27:13,119 --> 00:27:16,160 Speaker 1: it's about what forty five minutes. Today was about thirty, 490 00:27:16,560 --> 00:27:19,959 Speaker 1: you know, thirty three minutes German. What does it tell us? 491 00:27:20,160 --> 00:27:23,000 Speaker 1: I mean, I was listening to the questions very carefully 492 00:27:23,080 --> 00:27:25,080 Speaker 1: and a lot of the questions were a little bit loaded. 493 00:27:25,440 --> 00:27:27,600 Speaker 1: But I think people want to try and understand the 494 00:27:27,600 --> 00:27:30,800 Speaker 1: ECB is thinking. Right, So there's news on the fact 495 00:27:30,800 --> 00:27:34,720 Speaker 1: that they're unlikely to stop QUEI without tapering. That seems 496 00:27:34,840 --> 00:27:38,040 Speaker 1: fairly intuitive. You can't just put an abrupt end. But 497 00:27:38,200 --> 00:27:40,639 Speaker 1: it's the bigger problem is that you're pushing too negative 498 00:27:40,720 --> 00:27:43,919 Speaker 1: territory and it's not really having an effect on inflation. 499 00:27:44,040 --> 00:27:48,000 Speaker 1: So the question is how far can they go? Yeah, 500 00:27:48,119 --> 00:27:51,760 Speaker 1: so so I think at this point the c B 501 00:27:51,880 --> 00:27:55,920 Speaker 1: will just wait, so, you know, they will they will 502 00:27:55,960 --> 00:27:58,720 Speaker 1: steer the course. And now, as far as you know, 503 00:27:58,760 --> 00:28:02,280 Speaker 1: additional action as kind of cerned. You know, they're basically 504 00:28:02,359 --> 00:28:05,200 Speaker 1: three things they can do. They can go into risk assts, 505 00:28:05,240 --> 00:28:09,200 Speaker 1: so they have some athlet classes that have not been tried. Uh, 506 00:28:09,320 --> 00:28:15,840 Speaker 1: they could lower the deposit facility rate or which would 507 00:28:15,840 --> 00:28:18,280 Speaker 1: then you know, possibly give them room to even expand 508 00:28:18,320 --> 00:28:23,760 Speaker 1: the existing programs. And then the third option is they 509 00:28:23,760 --> 00:28:27,280 Speaker 1: can go off the capital key. So the problem with 510 00:28:27,720 --> 00:28:30,840 Speaker 1: all these three options is that they raise a lot 511 00:28:30,880 --> 00:28:35,320 Speaker 1: of political opposition in Germany in another place. So if 512 00:28:35,359 --> 00:28:38,479 Speaker 1: you're going to risk the assets, you're stroking the asset 513 00:28:38,480 --> 00:28:42,240 Speaker 1: bubble fear. If you're going off the capital key, which 514 00:28:42,240 --> 00:28:44,960 Speaker 1: from an economic point of view would make the most sense, 515 00:28:45,040 --> 00:28:48,520 Speaker 1: I think, because you know, Frankly, Germany does not need 516 00:28:49,200 --> 00:28:54,480 Speaker 1: even more negative interest rates. Germany has full employment. Essentially, 517 00:28:55,320 --> 00:28:58,280 Speaker 1: it's the southern countries they need more stimulus. Germany does not, 518 00:28:58,480 --> 00:29:02,080 Speaker 1: So that I think would the right thing to do. 519 00:29:02,760 --> 00:29:06,040 Speaker 1: But there is you know, a viewer and Germany that 520 00:29:06,120 --> 00:29:10,320 Speaker 1: this is exactly how the ECB create moral hazard by 521 00:29:10,360 --> 00:29:14,120 Speaker 1: taking off the pressure from the southern government. Now, in 522 00:29:14,160 --> 00:29:19,600 Speaker 1: a sense, you know, the longer this stakes, the more 523 00:29:19,720 --> 00:29:22,880 Speaker 1: that argument has to be confronted with with the alternative, 524 00:29:22,960 --> 00:29:25,400 Speaker 1: which is well, then we'll have to make Monelti policy 525 00:29:25,440 --> 00:29:28,440 Speaker 1: easier for all of you, which Germans also hit. And 526 00:29:28,480 --> 00:29:31,480 Speaker 1: so in that sense, you know, time time is working 527 00:29:32,480 --> 00:29:34,720 Speaker 1: for Mr Draggy. So I think I think there's a 528 00:29:34,760 --> 00:29:36,880 Speaker 1: sense that one has to become more flexible about these 529 00:29:36,920 --> 00:29:41,680 Speaker 1: things very quickly. Will inflation the inflation target be hit 530 00:29:41,720 --> 00:29:43,200 Speaker 1: at some point At the moment, the e c B 531 00:29:43,320 --> 00:29:48,280 Speaker 1: is expecting it to reach two by early Um, well, 532 00:29:48,960 --> 00:29:52,240 Speaker 1: I'm you know, I'm not optimistic that it will be 533 00:29:52,320 --> 00:29:55,040 Speaker 1: faster than that, right, So I have no real reason 534 00:29:55,080 --> 00:29:57,600 Speaker 1: to have different expectations from from the e c B. 535 00:29:58,480 --> 00:30:01,840 Speaker 1: The interesting thing is whether the ECB will allow to overshoot, 536 00:30:02,760 --> 00:30:05,160 Speaker 1: which I think would be would be the right thing, 537 00:30:05,600 --> 00:30:11,440 Speaker 1: but that we're not there yet very quickly here, Um yeah, drugging. 538 00:30:11,640 --> 00:30:13,920 Speaker 1: A lot of things were not discussed at this meeting today. 539 00:30:13,960 --> 00:30:15,360 Speaker 1: You take you take that at face value. Is it 540 00:30:15,440 --> 00:30:18,160 Speaker 1: realistic to think that really, in fact, that tapering did 541 00:30:18,200 --> 00:30:21,880 Speaker 1: not come up among the meeting of the committee. I 542 00:30:21,920 --> 00:30:25,840 Speaker 1: don't know. I mean, you know, of course they're discussing 543 00:30:25,840 --> 00:30:28,720 Speaker 1: this all the time informally now, So in that sense, 544 00:30:29,200 --> 00:30:34,240 Speaker 1: it is possible that you know, this was a business 545 00:30:34,280 --> 00:30:39,160 Speaker 1: as usual meeting, maybe because you know, the the the 546 00:30:39,240 --> 00:30:45,080 Speaker 1: various board members had opportunities to to discuss this when 547 00:30:45,120 --> 00:30:49,800 Speaker 1: the actual tapering, whatever you call it, hysteria or reactions happened. 548 00:30:50,520 --> 00:30:52,760 Speaker 1: So I think I think this could be just one 549 00:30:52,760 --> 00:30:57,280 Speaker 1: of these meetings where, in some sense, you know, the 550 00:30:57,280 --> 00:30:59,920 Speaker 1: the bulk of the discussion of the critical issues happened 551 00:30:59,920 --> 00:31:02,360 Speaker 1: to run a few weeks ago around at the time 552 00:31:02,360 --> 00:31:05,640 Speaker 1: of the German ENTOMI there of the Peterson Institute for 553 00:31:05,640 --> 00:31:08,960 Speaker 1: International Economics. Joining us here on Bloomberg Surveillance, I'm David 554 00:31:09,000 --> 00:31:11,440 Speaker 1: Gurw with Francine Lockwood today, who's in for Tom Keene. 555 00:31:11,480 --> 00:31:21,320 Speaker 1: This is Bloomberg Radio. Thanks for listening to the Bloomberg 556 00:31:21,400 --> 00:31:26,880 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 557 00:31:27,320 --> 00:31:31,560 Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter 558 00:31:31,640 --> 00:31:35,440 Speaker 1: at Tom Keene. David Gura is at David Gura. Before 559 00:31:35,440 --> 00:31:39,840 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio. 560 00:31:52,280 --> 00:31:54,920 Speaker 1: Who you put your trust in matters Investors have put 561 00:31:54,920 --> 00:31:59,360 Speaker 1: their trust and independent registered investment advisors to the tune 562 00:31:59,520 --> 00:32:02,960 Speaker 1: for trill million dollars. 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