Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our day
Speaker 1: Break anchors all around the world, and straight ahead on
Speaker 1: the program, a big week ahead on Wall Street, a
Speaker 1: FED decision and a jobs report. Also out earnings from Apple.
Speaker 1: I'm Tom Busby in New York.
Speaker 2: I'm Kaylee Lynes in Washington, where the House finally has
Speaker 2: a new speaker, Mike Johnson of Louisiana.
Speaker 3: I'm Stephen Carol in London, where the economic data is gloomy,
Speaker 3: but that could be welcome news for the Bank of
Speaker 3: England's upcoming meeting.
Speaker 4: I'm deg Prisner China. Evergrand faces a critical day in court.
Speaker 5: That's all straight ahead on Bloomberg day Break Weekend, the
Speaker 5: business news you need to wrap up your week in
Speaker 5: just one fifteen minute podcast available on Apple, Spotify, The
Speaker 5: Bloomberg Business Appen everywhere you get your podcasts.
Speaker 1: Good day to you. I'm Tom Busby. We begin today's
Speaker 1: program with a focus on the economy, and this week,
Speaker 1: not only do we get an interest rate decision by
Speaker 1: the Fed will reserve policymakers, but we'll cap the week
Speaker 1: with the jobs report for the month of October and
Speaker 1: to help us break it all down. We welcome Bloomberg
Speaker 1: International Economics and Policy correspondent Michael McKee. Welcome, Michael.
Speaker 6: Thanks great to be here.
Speaker 1: Now let's start with that two day meeting by the
Speaker 1: Federal Open Market Committee. After another pause in interest rate
Speaker 1: hikes at the fed's last meeting in September, what are
Speaker 1: we expecting to see this week?
Speaker 6: Another pause? The Fed has pretty much made it clear,
Speaker 6: and Jaypowell last week talking with Bloomberg's David Weston, kind
Speaker 6: of emphasized the idea that the FED can at this
Speaker 6: point wait and see what's going to happen. Because market
Speaker 6: rates have gone up so much in recent weeks that
Speaker 6: they're doing part of the job for the FED. And
Speaker 6: so if the Fed is worried about inflation going back
Speaker 6: up again, which they aren't particularly but you never know
Speaker 6: these days, then the market rates will help put pressure
Speaker 6: on the economy and inflation and slow things down more.
Speaker 6: And also, because you have the market rates this high
Speaker 6: and it slows down the economy, they don't want to
Speaker 6: pile on and make things worse and send us into recessions.
Speaker 6: So they're going to watch and wait. There is no
Speaker 6: new economic forecasts and no new dot plot, so it's
Speaker 6: really only the decision and then what the chairman says
Speaker 6: in his news conference afterwards. And nobody's really expecting either
Speaker 6: thing to make a lot of news because Pile's going
Speaker 6: to want to say, we're going to watch the data
Speaker 6: as they have. So then the focus will turn to
Speaker 6: the December meeting. But for right now, the Fed is
Speaker 6: probably going to be one of the lesser influences on
Speaker 6: the market's week, which is unusual.
Speaker 1: But there is a big influence on the markets coming
Speaker 1: up that very same day. That morning, Why don't you
Speaker 1: tell us what's going on with the treasury refunding.
Speaker 6: Yeah, the Fed figures into that a little bit. Every quarter,
Speaker 6: the Treasury announces how much it anticipates borrowing for the
Speaker 6: next three months, and of course, with the deficit where
Speaker 6: it is now, the Treasury is forecast to announce it
Speaker 6: will need to borrow a trillion dollars in three months.
Speaker 6: That's a lot.
Speaker 1: And so the.
Speaker 6: Estimate is that we're going to see a lot of
Speaker 6: volatility in the treasury market depending on how they lay
Speaker 6: this out. Which tenor what maturities three year, five years,
Speaker 6: seven year, ten year are they going to spread this
Speaker 6: out over how much of it will be in treasury bills,
Speaker 6: how much of it will be in bonds, And so
Speaker 6: the question for the market is who's going to buy
Speaker 6: all this and therefore then at what price? And the
Speaker 6: FED figures into it because of course they've been raising
Speaker 6: interest rates and that adds to the amount of interest
Speaker 6: the government has to pay, which adds to the deficit.
Speaker 6: And it also raises the question of how much are
Speaker 6: market participants going to have to pay to to buy
Speaker 6: these bonds because the Fed has raised rates and you're
Speaker 6: not going to buy treasuries at a lower price than
Speaker 6: what the Fed is already put out there. So it's
Speaker 6: going to be a very interesting dynamic on Wednesday morning.
Speaker 6: And basically the outlook seems to be look for volatility.
Speaker 1: And volatility not only in the treasury market, but in stocks.
Speaker 1: It's going to impact a lot.
Speaker 6: It could impact stocks as well, given where things settle out.
Speaker 6: And obviously we get close to the day, we'll see
Speaker 6: when issued prices are going to be. But it's beginning
Speaker 6: to look like this is going to be one of
Speaker 6: the bigger refunding announcements that we've had in decades.
Speaker 1: Will we get more good news this coming Friday from
Speaker 1: the October jobs report. That's a biggie.
Speaker 7: Yeah.
Speaker 6: It seems that the markets have given up on the
Speaker 6: idea that we're going to see a major change in payroll.
Speaker 6: The forecast is for one hundred and eighty five thousand
Speaker 6: at this point, which would be fairly strong, and it's
Speaker 6: higher than the forecast in previous months that turned out
Speaker 6: to be wrong because job growth was so strong, So
Speaker 6: the market seemed to thrown in the talent and said
Speaker 6: we'll probably get a pretty good number. The Fed has
Speaker 6: been looking for something around one hundred thousand, and one
Speaker 6: hundred and eighty five would not be anywhere close. No
Speaker 6: change in the unemployment rate is expected three point eight percent,
Speaker 6: which is also not what the Fed expected. They thought
Speaker 6: we would get easily into the middle of the foes
Speaker 6: the five range. They've since dialed that back down to
Speaker 6: four point one percent, but three point eight is not
Speaker 6: four point one. And at the same time, the forecasts
Speaker 6: are that we see average hourly earnings on an annual
Speaker 6: basis continue to drop a little bit. So it's like
Speaker 6: all good there now, Tom, you have just jinxed the
Speaker 6: US economy because no, we said things are all good
Speaker 6: there has to be something that is out there.
Speaker 1: Well, there is a lot to look forward to. Michael.
Speaker 1: Thank you, Our thanks to Bloomberg International Economics and Policy
Speaker 1: correspondent Michael McKee. We now go from the economy to
Speaker 1: the ongoing corporate earning season, which continues in earnest. More
Speaker 1: than one hundred sixty companies in the S and P
Speaker 1: five hundred reporting in the week ahead, and at the
Speaker 1: top of that list is Apple, the most valuable company
Speaker 1: on the planet, worth a staggering two point sixty three
Speaker 1: trillion dollars. And for more, we're going to bring in
Speaker 1: anarag Rana, he's senior tech analyst with Bloomberg Intelligence. Well,
Speaker 1: the Apple shares they've really took off this year, up
Speaker 1: thirty percent, to just put out the new iPhone fifteen
Speaker 1: line a month ago. It's got another new product launch
Speaker 1: on Tuesday. Earnings Thursday. About those earnings, what do you expect.
Speaker 7: You know, from a mathematical point of view, which is
Speaker 7: not the most exciting quartered in the for Apple, just
Speaker 7: because it's right before the holiday season, which is the
Speaker 7: biggest quarter for the U. But you know, we do
Speaker 7: have some early indications of or we hope to hear
Speaker 7: about the early indications of the brand new iPhone fifteen
Speaker 7: launch and how it's doing. So I think it's going
Speaker 7: to the conference call is going to be far more
Speaker 7: exciting in our view than the numbers itself.
Speaker 1: And as far as those numbers, what are you expecting
Speaker 1: to see?
Speaker 7: Relatively modest growth? Frankly, because this is an area in
Speaker 7: constant currency. There could be some headwinds because of fex
Speaker 7: but other than that, you know, you're going to look
Speaker 7: at nothing so exciting. Services revenue, which is you know,
Speaker 7: the one that is the higher growth area, could be
Speaker 7: around the eight to ten percent mark. iPhones pretty flat,
Speaker 7: nothing so exciting about that. So, I mean, overall, I'm
Speaker 7: not really baking in a big surprise, but the comments
Speaker 7: about the iPhone, and more importantly, how is it doing
Speaker 7: in China? Everything related to the China iPhone is going
Speaker 7: to dictate how Apple essentially grow and trades over the
Speaker 7: next twelve months.
Speaker 1: And now how is the iPhone, especially the lineup of
Speaker 1: the new fifteens, how is it doing in China and
Speaker 1: the rest of the world.
Speaker 7: I think this is the you know, we got some
Speaker 7: early indications that it's not doing so well in China,
Speaker 7: but that was just like the first fifteen days or
Speaker 7: seventeen days. There's some industry reports, you know, in our view,
Speaker 7: it should do better in China only because there is
Speaker 7: an easier comparison to last year. So the Apple story
Speaker 7: is a little bit more simpler in when it comes
Speaker 7: to the iPhone than most people think about it, because
Speaker 7: the way I look at it is there is a
Speaker 7: massive pace of iPhones around the World's let's call it
Speaker 7: eight hundred and you know, somewhere around eight hundred and
Speaker 7: forty million iPhones around the world. The average refresh cycle
Speaker 7: or average refreat rate for a human being is about
Speaker 7: four years. So at any given year, they're going to
Speaker 7: sell let's say, about two hundred and twenty million units.
Speaker 7: In good years, they will sell a little bit more.
Speaker 7: In bad years, they will sell a little less. Last
Speaker 7: year we saw a little bit less because of some
Speaker 7: supply chain problems we faced in China because of COVID
Speaker 7: you know breakout over there. So from that point of time,
Speaker 7: I mean that comparison becomes a little bit easier in
Speaker 7: fourth quarter, but then there is some you know, additional
Speaker 7: drama going on China with you know, launch of a
Speaker 7: new phone, potential nationalism, potential government restrictions.
Speaker 8: I mean, there is a there's there's.
Speaker 7: A lot of noise around that topic. So when Apple
Speaker 7: comes out and gives us a clear indication of what's
Speaker 7: happening in China, I think it's going to be either
Speaker 7: good for the stock or bad for the stock.
Speaker 1: Okay, and and a rag very quickly Tuesday, we're expecting
Speaker 1: a new product launch. What do you expect to see
Speaker 1: from Apple?
Speaker 7: That's a very I mean I would say in a
Speaker 7: very normal way, that is the next upgrade for the
Speaker 7: for the Max. And I think the real, you know,
Speaker 7: fun part over there is they have their own ship
Speaker 7: and because of the design chip by them, the MAX
Speaker 7: have done really well. I think they've been taking market
Speaker 7: Chioto be from the genetic PCs or the high end
Speaker 7: PCs for some time and the performance of these machines
Speaker 7: are truly remarkable. And I think I would attribute a
Speaker 7: lot to act with not just the design of these products,
Speaker 7: but the chip that they have built in house.
Speaker 5: Wow.
Speaker 1: Well, there's a lot going on, a lot to look
Speaker 1: forward to. Anna rag Rana, Senior tech analyst with Bloomberg Intelligence,
Speaker 1: Thank you so much for joining us today. Happy to
Speaker 1: be here, coming up on Bloomberg day Break weekend, Lawmakers
Speaker 1: finally elect a new Speaker of the House. We'll look
Speaker 1: at who Mike Johnson is and what challenges he faces
Speaker 1: going forward. I'm Tom Busby. This is Bloomberg. This is
Speaker 1: Bloomberg day Break weekend, our global look ahead at the
Speaker 1: top stories for investors in the coming week. I'm Tom
Speaker 1: Busby in New York. Up later on our program, we
Speaker 1: preview another key rate decision, this one from the Bank
Speaker 1: of England. But first, after weeks of infighting and jockeying
Speaker 1: for votes, lawmakers finally elected Republican Congressman Mike Johnson of
Speaker 1: Louisiana as the fifty sixth Speaker of the House. For more,
Speaker 1: let's bring in Bloomberg sound on. Co host Kaylee lines.
Speaker 2: That's right, Tom. After three full weeks of paralysis without
Speaker 2: a House Speaker, someone finally has the gavel in hand.
Speaker 2: Congressman Mike Johnson of Louisiana. Let's take it back to
Speaker 2: the House floor this past week when he secured that gavel.
Speaker 7: The total number of votes cast is four hundred and
Speaker 7: twenty nine love, which the Honorable Mike Johnson of the
Speaker 7: State of Louisiana has received two hundred and twenty votes.
Speaker 2: So there you have it. He was elected to the
Speaker 2: post with two hundred and twenty votes, accomplishing what Tom Emmer,
Speaker 2: Jim Jordan, and Steve Scalice could not before him, galvanizing
Speaker 2: enough support within the Republican Conference. But you couldn't be
Speaker 2: blamed if you're sitting there asking yourself who is Mike Johnson?
Speaker 2: So I thought it would be a good idea to
Speaker 2: get Mike Dorning, who helps lead our congressional coverage here
Speaker 2: at Bloomberg, to help us answer those questions and others. Mike,
Speaker 2: good to see you, as.
Speaker 9: Always, great to see you.
Speaker 2: So let's talk about who this guy is. He has
Speaker 2: been vaulted from essentially being a backbencher to second in
Speaker 2: line to the presidency. What do we need to know
Speaker 2: about Speaker Johnson?
Speaker 9: Well, probably the most important thing to know about him
Speaker 9: is he's someone who has very strong evangelical Christian beliefs
Speaker 9: and he's, even before he was an elective office, very
Speaker 9: involved in the legal agenda of the Christian right. He
Speaker 9: worked with the legal advocacy group that pursued conservative cultural causes,
Speaker 9: and that's been sort of the core of who he
Speaker 9: was even before he entered politics, and he's going to
Speaker 9: be the most conservative speaker in modern times on both
Speaker 9: social and economic issues. And he's a guy, importantly, who
Speaker 9: doesn't have a lot of experience yet in these big negotiations.
Speaker 9: He's just been, as you said, you know, a very
Speaker 9: junior member of leadership, was not involved in any of
Speaker 9: the big negotiations. So he'll be taking on a completely
Speaker 9: new set of tasks.
Speaker 2: Yeah, and I want to get to that lack of
Speaker 2: leadership experience in just a moment. But also when we
Speaker 2: think about the idea that this is a very staunch conservative,
Speaker 2: it's also important to note this is someone who's pretty
Speaker 2: closely aligned with former President Trump and was really one
Speaker 2: of the leaders of the effort within the House to
Speaker 2: overturn or not certify the results of the twenty twenty election.
Speaker 2: And I wonder, especially for those endangered moderates in his
Speaker 2: conference who are in districts that Biden won in twenty twenty,
Speaker 2: how much pushback is he likely to get from those
Speaker 2: individuals because of his position on Trump and the election,
Speaker 2: And that obviously ties into how hard it will be
Speaker 2: for him to keep the Republican Conference together.
Speaker 9: Well, they all voted for him, embraced him. His positions
Speaker 9: themselves won't play well in those districts because he's above all,
Speaker 9: very conservative on cultural issues like abortion, same sex marriage,
Speaker 9: even you know, he supported criminalization of gay sex quite
Speaker 9: late in his career, and he was one of the
Speaker 9: leaders of the election denialism in the House, and he
Speaker 9: has that record. I mean that said, we don't know
Speaker 9: how much Democrats will succeed in making him a caricature
Speaker 9: that you know, people can rally around in the same
Speaker 9: way that they did Nut Gingrich or Republicans did Nancy Pelosi.
Speaker 9: He has a personality and a style that's not as
Speaker 9: confrontational as Jim Jordan or Nut Gingrich or Donald Trump
Speaker 9: for that matter. So even though he has these very
Speaker 9: sort of out of the mainstream political positions, his persona,
Speaker 9: what you see on TV, what you hear in his voice,
Speaker 9: is not that sort of combative, confrontational style.
Speaker 2: Yeah. One member of the Republican conference told me this
Speaker 2: past week that it's just really hard to dislike Mike Johnson,
Speaker 2: and ultimately maybe that's why he was able to secure
Speaker 2: the votes when so many others could not. But to
Speaker 2: the point you were making earlier Mike about this idea
Speaker 2: that this is not someone who is in a position
Speaker 2: where he has had a lot of experience being a leader,
Speaker 2: being in the room with people like Mitch McConnell or
Speaker 2: Chuck Schumer or ultimately possibly even President Biden. If we're
Speaker 2: really getting down to having to hammer out a deal
Speaker 2: on spending to keep the government funded by November, by
Speaker 2: November seventeenth, which of course is the deadline when that
Speaker 2: funding is going to run out, how challenging is it
Speaker 2: going to be for Mike Johnson to kind of step
Speaker 2: into that, to step into these rooms, and it is a.
Speaker 9: Big challenge for anyone. I mean, he will have advisors
Speaker 9: around him, and he will have people like Steve Scalise,
Speaker 9: the Majority Leader, who has some experience in that. But
Speaker 9: it's very different than just being a member of Congress
Speaker 9: taking positions on legislation. He's got to as a negotiator
Speaker 9: both be facing some of some very seasoned people in
Speaker 9: Chuck Schumer and Mitch McConnell and Joe Biden, and having
Speaker 9: to suss out where he can take the Republican Conference,
Speaker 9: which is very conservative at the moment, and calculate the
Speaker 9: odds of how much damage it would do to the
Speaker 9: Republican Party to have a shutdown, have a face off,
Speaker 9: be unwilling to compromise. And those are very different strategic
Speaker 9: calculations than a backbench member of Congress has to make.
Speaker 2: Yeah, so what do we know about his plans to
Speaker 2: fund the government to try to figure out something that
Speaker 2: will appease his conference, but also that the Senate in
Speaker 2: the White House can sign onto.
Speaker 9: Well, he's indicated in a letter that he sent around
Speaker 9: to his colleagues shortly before he was elected Speaker that
Speaker 9: he would be willing to do another short term funding
Speaker 9: deal to stave off mid November shutdown and hopefully at
Speaker 9: least get into next year. That way, there's a little
Speaker 9: bit more time to come up with a legislation and
Speaker 9: negotiating position think things out. What's unclear though, is whether
Speaker 9: he would attach some of these conditions that just won't
Speaker 9: fly with Democrats, like big changes to asylum laws or
Speaker 9: you know, previously he voted against the temporary funding. The
Speaker 9: only temporary funding he was willing to support as a
Speaker 9: member of Congress was with a thirty percent cut in funding,
Speaker 9: which would be a draconian cut and you know, unlikely
Speaker 9: for Democrats. To agree to, especially for just you know,
Speaker 9: to get six more weeks of federal funding.
Speaker 2: What about the issue of funding for Israel or maybe
Speaker 2: more difficult, Ukraine.
Speaker 9: Now that's a He has in the past opposed funding
Speaker 9: for Ukraine, as have a significant portion of House Republicans.
Speaker 9: But he has said that he wouldn't necessarily oppose Ukraine
Speaker 9: funding and that is something that most Democrats support and
Speaker 9: a lot of Republican support. So there's broad support for
Speaker 9: Ukraine funding in the House, but there is division within
Speaker 9: the Republican Party on that, and we don't yet know
Speaker 9: how he'll navigate that. We do know that, you know,
Speaker 9: when he was voting for himself, he was voting against it.
Speaker 2: Yeah, and of course, as we talk about all these
Speaker 2: legislative efforts that he's going to have to undertake. We
Speaker 2: know that in politics, because it isn't just about what
Speaker 2: you do on the hill, it's also about going out
Speaker 2: and raising money to spend on campaigns so you can
Speaker 2: stay on the hill. So when Johnson would want you
Speaker 2: can keep the majority, that probably is more important. What
Speaker 2: do we know about his record as a fundraiser.
Speaker 9: Well, he hasn't done a lot of fundraising. He doesn't
Speaker 9: have a large mailing list of or email list these
Speaker 9: days of small dollar donors, and he hasn't raised a
Speaker 9: ton of big dollar money, although we do know the
Speaker 9: oil and gas industry has been a big supporter of his.
Speaker 9: Not surprisingly, he comes from Louisiana, which is big oil
Speaker 9: and gas country, and he's sort of previously pushed against
Speaker 9: any climate change action, which kind of fits the oil
Speaker 9: and gas industry's agenda. He's also raised a bit of
Speaker 9: money from defense contractors. He's on the Armed Services Committee
Speaker 9: and authorizing weapons systems is very important to defense contractors,
Speaker 9: though he doesn't have that much experience. Kevin McCarthy's top
Speaker 9: fundraiser has already indicated that he's going to work with
Speaker 9: with the new speaker. So yeah, that's someone who really
Speaker 9: knows how to do this. So on a staff level,
Speaker 9: they've got the connections, and once you're the speaker, it's
Speaker 9: going to be very easy to get a lot of
Speaker 9: big business groups to support you.
Speaker 2: Yeah, certainly has a lot of work cut out for him.
Speaker 2: Getting the gavel may have been the easy part for him, yes,
Speaker 2: and so the hard stuff still to come. Mike Dorning,
Speaker 2: who helps lead our congressional coverage here, at Bloomberg in Washington.
Speaker 2: Thank you very much, and Tom, we'll send.
Speaker 9: It back to you.
Speaker 1: Our thanks to Bloomberg sound on co host Kylee Lines.
Speaker 1: And coming up on Bloomberg day Break weekend, we take
Speaker 1: you to Europe. We reve you another key rate decision,
Speaker 1: this one from the Bank of England. I'm Tom Busby
Speaker 1: and this is Bloomberg. I'm Tom Busby in New York
Speaker 1: with your global look ahead at the top stories for
Speaker 1: investors in the coming week. The Bank of England in
Speaker 1: focus in the coming days as its rate centers meet.
Speaker 1: Much of the recent data for the UK has shown
Speaker 1: the economy weakening a bit, and policymakers have pointed to
Speaker 1: the fact that the effect of the past fourteen hikes
Speaker 1: still feeding through for more. Now let's go to London
Speaker 1: and bring in Bloomberg Daybreak Europe banker Stephen Carroll. Tom.
Speaker 3: The backdrop to this Bank of England meeting is looking
Speaker 3: decidedly gloomy. The UK economy is starting to creak under
Speaker 3: the strain of higher interest rates. The Bank of England
Speaker 3: paused its hiking cycle at its last meeting in September.
Speaker 3: Since then, flash pmis have shown a continuing contraction in
Speaker 3: the services and manufacturing sectors. Business optimism is in short supply,
Speaker 3: and the labor market is showing signs of weakness too.
Speaker 3: I've been discussing the prospects for this upcoming meeting with
Speaker 3: our senior UK economist, Dan Hansen. I started by asking
Speaker 3: him to put the recent data in contact for us.
Speaker 3: Is this a gradual slowdown or something a bit more dramatic.
Speaker 10: I think it's still probably a gradual slowdown, But I
Speaker 10: think context is important because we've been in a world
Speaker 10: in the UK where we've had zero growth a little
Speaker 10: bit of growth, so we've been sort of on the
Speaker 10: verge of GDP falling for a number of quarters now
Speaker 10: and it sort of hasn't. It wouldn't have taken much
Speaker 10: at any point to get a drop in GDP, and
Speaker 10: I think now we're in the world where GDP probably
Speaker 10: is more likely falling than it is rising. But in
Speaker 10: the broader context it is It's very modest the falls
Speaker 10: we're talking about, you know, a point one or a
Speaker 10: point two percent fall, So we're not a in a
Speaker 10: sort of headed for a deep recession world, we don't think,
Speaker 10: but we do think that it's more likely than not
Speaker 10: the economy is probably contracting at the moment, and I
Speaker 10: think the PMI number you point two is an important one.
Speaker 8: I also think if you look at the GDP data
Speaker 8: as well, actually it looks unlikely that the economy grew
Speaker 8: in the third quarter, So we could get a contraction
Speaker 8: in the third course, which is a little bit earlier
Speaker 8: than we've been expecting and actually a lot lower than
Speaker 8: what the Bank of England was expecting back in its
Speaker 8: August forecast, which is the last forecast it put together.
Speaker 3: So if we have if it looks like we're heading
Speaker 3: for a contraction in a third quarter, does that mean
Speaker 3: the likelihood of a recession is that much higher by
Speaker 3: the end of the year.
Speaker 8: I think yeah, I mean I think it does. I
Speaker 8: mean again, i'd just be very cautious about you know,
Speaker 8: the word recession. It see a word that people associate
Speaker 8: with very, very bad outcomes. I mean, I'm not what
Speaker 8: I'm saying here is that I think we're headed for
Speaker 8: a mild recession, particularly relative to historical standards, and it's
Speaker 8: you know, it's not I don't think it's going to
Speaker 8: feel that much different to what the economy. The way
Speaker 8: the economy has been performing over the past twelve months
Speaker 8: or so, where we've had to say zero growth, maybe
Speaker 8: a point one or a point two here or there.
Speaker 8: So it's it's a very mild recession we think we're
Speaker 8: heading for, but on the very narrow definition of two
Speaker 8: consecutive quarters of negative growth, we think it's more likely
Speaker 8: than not we're going to get that by the end
Speaker 8: of this year.
Speaker 3: Is this essentially what the Bank of England was aiming for?
Speaker 3: Are they then achieving their goals by by having the
Speaker 3: sort of landing for the economy?
Speaker 8: I mean, I think on this one you have to
Speaker 8: you have to think of the broader view, the broader
Speaker 8: context around the UK economy. So the economy's trend rate
Speaker 8: of growth is probably one one one and a bit
Speaker 8: a year, one percent a year, so that means a
Speaker 8: quarter you get zero point three ish a quarter, so
Speaker 8: it doesn't take much for what and that then that
Speaker 8: then means that the Bank of England needs to slow
Speaker 8: the economy so that it grows slower than that, so
Speaker 8: that the heat gets taken out of the economy. So
Speaker 8: I think, yes, this is what the Bank of England
Speaker 8: is aiming for. But in terms of the landing spot
Speaker 8: between slowing the economy below that point three percent level
Speaker 8: and going into recession. There's quite a small landing spot
Speaker 8: for that. So I think, you know they are this
Speaker 8: is what they're looking to do. This is the only
Speaker 8: way they have through interest rates to bring the economy
Speaker 8: back into balance and eventually inflation back to two percent.
Speaker 3: It's a question too about the lag in the interest
Speaker 3: rates we've had up until this point the illustrate rises.
Speaker 3: One of the members of the Monetary Party Committee, Swati Dengra,
Speaker 3: recently giving an interview in which she said only up
Speaker 3: to about a quarter of the impact of rate hikes
Speaker 3: had fed through into the economy so far. What's your
Speaker 3: analysis of the impact of the rate rises on the
Speaker 3: economy up until now.
Speaker 8: Yeah, So I'm that slightly worried me, to be honest,
Speaker 8: that she thought that, because that feels like, obviously there's
Speaker 8: an awful lot still to come and we're sort of
Speaker 8: on the verge of recession now. So if that's true,
Speaker 8: then you know, there's quite it's quite possible we get
Speaker 8: something a little bit deeper over the next twelve months
Speaker 8: or so in terms of the fall in GDP. I mean,
Speaker 8: we're a little bit more I guess you would call
Speaker 8: it optimistic if you like that more of it has
Speaker 8: come through, and I think our view challenge a little
Speaker 8: bit more with huge pills. He said about half has
Speaker 8: come through. He thinks he pills the chief economists at
Speaker 8: the Bank of England and we're we're sort of broadly
Speaker 8: in along those lines as well in terms of underpinning
Speaker 8: our forecast. That's how much has come through to date.
Speaker 8: So there's still fifty percent of it to come through,
Speaker 8: but it's more than the twenty five percent than DiGRA thinks.
Speaker 3: All of those things to be pointing to the Bank
Speaker 3: of England being at the end or very close to
Speaker 3: the end of its hiking cycle.
Speaker 1: Do you think we're there?
Speaker 8: Yeah, I think I think we are. I mean, if
Speaker 8: you if you think of the data in the run
Speaker 8: up to the September decision where if you remember they
Speaker 8: decided to pause. The data we've had since then is
Speaker 8: no more worrying and the bank is clearly very data dependent.
Speaker 8: And I think you know that we've spoken about the
Speaker 8: economy inflation to it's surprised relative to the consensus for you,
Speaker 8: but you have to remember it's come in below the
Speaker 8: Bank of England's forecast, it's August forecasts. And also Bailey,
Speaker 8: Andrew Bailey, the governor, came out and said that core
Speaker 8: inflation was a little bit weaker than they had been
Speaker 8: expecting as well, So that was a sort of a
Speaker 8: nuance as well there. And the other thing, the big
Speaker 8: thing I think that's happened is that there are finally
Speaker 8: some signs that pay growth is turning over. So that
Speaker 8: was the one metric that was continuing to rise and
Speaker 8: going into the September decision as well, which is the
Speaker 8: big reason why we thought they would hike and they
Speaker 8: decided not to. But actually that's just turned over as well.
Speaker 8: So I think if you look at the data as
Speaker 8: a whole, the whole, the whole, across the spectrum, I
Speaker 8: don't think there's good reason for them to hike in
Speaker 8: November at all.
Speaker 3: Yeah, because we had that update on the labor markets
Speaker 3: in the past few days and that sort of painted
Speaker 3: a picture of things cooling down a little bit but
Speaker 3: not perhaps indicating major job blasts, and that sort of
Speaker 3: speaks to what you were talking about earlier. This you know,
Speaker 3: the recession may common technical terms but won't feel that
Speaker 3: much different. What's the outlook for the labor and mind,
Speaker 3: I guess.
Speaker 8: Yeah, so I think I mean, up to now, the
Speaker 8: labor market outcome in the UK has been certainly on
Speaker 8: the unemployment side. And I know there are a lot
Speaker 8: of questions about the unemployment data now given what's happened
Speaker 8: with these experimental statistics, but the broad pitch, if you
Speaker 8: look at the UK unemployment rate relative to what's been happening,
Speaker 8: say in the US, in the Euro Area, unemployment has
Speaker 8: risen by more and the labor market appears to have
Speaker 8: loosened by more than in other countries. Though it's not
Speaker 8: you know, unemployment rate of four point two percent, it's
Speaker 8: still extremely low by historical standards, and it's important to
Speaker 8: make that point. The other good bit of news is that,
Speaker 8: you know, the labor market has been loosening on a
Speaker 8: lot of other metrics that are sort of, if you like,
Speaker 8: less damaging for the outlook. So vacancies have been falling.
Speaker 8: That's a sign that the economies, sorry, the labor market
Speaker 8: is loosening. So I think the bank will look at
Speaker 8: it and going back to sort of what we were
Speaker 8: talking about earlier and what they're sort of desired for
Speaker 8: all of this is that so far at least it
Speaker 8: hasn't probably been as damaging as they might have thought
Speaker 8: had they If had you told them a year ago
Speaker 8: they'd have to take rates to five point two five percent,
Speaker 8: they'd have been extremely worried about the outcome. Where we
Speaker 8: stand now, yes, we might be sort of on the
Speaker 8: verge of this technical mild technical recession, but actually the
Speaker 8: economy's held up pretty well given the amount of tightening
Speaker 8: that's been put in place.
Speaker 3: Quite about the prospect of rate cuts, then, how far
Speaker 3: away do they look at this point?
Speaker 8: Yeah, there's a balance here between obviously if the economy
Speaker 8: isn't doing as well, and I think that the fact
Speaker 8: that they pause in September suggests to me that they
Speaker 8: are going to be quite sensitive to this going into
Speaker 8: going into the end of the year and into twenty
Speaker 8: twenty four. Of course, you still have to weigh that
Speaker 8: against the inflation picture.
Speaker 3: That's our senior UK economist Dan Hansen, and will have
Speaker 3: full coverage of the Bank of England's rate decision on
Speaker 3: Bloomberg Radio this week. I'm Stephen Carroll in London. You
Speaker 3: can catch us every weekday morning here for Blue Imberg
Speaker 3: Daybreak here at beginning at six am in London on
Speaker 3: one am on Wall Streets.
Speaker 1: Tom, thank you, Steven, and coming up here on Bloomberg
Speaker 1: day Break weekend, we take you to Asia in what
Speaker 1: is shaping up to be a critical week for a
Speaker 1: big property developer. There, I'm Tom Busby, and this is Bloomberg.
Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories for investors in the coming week. I'm
Speaker 1: Tom Busby in New York. China's embattled property giant, Evergrand,
Speaker 1: the world's most indebted real estate developer, faces a critical
Speaker 1: court date in the week ahead. Bloomberg Daybreak Asia co
Speaker 1: host Doug Krisner has more.
Speaker 4: Tom, Evergrand has become the poster child of China's real
Speaker 4: estate debt crisis. This company has liabilities totally about three
Speaker 4: hundred and twenty seven billion dollars and in the week ahead,
Speaker 4: a court hearing has been set and this will determine
Speaker 4: the future of Evergrand. Let's take a closer look now
Speaker 4: with Bloomberg's Alice Huang, Bloomberg's China credit reporter. She's also
Speaker 4: the deputy team leader. Alice, Thanks for joining us. I
Speaker 4: think we have to begin with the fact that Evergrand
Speaker 4: has been struggling to finalize a restructuring plan. Where are
Speaker 4: we in that process right now?
Speaker 11: Thank you for having me. We can say that we're
Speaker 11: back to square one. Where Evergrand, like you mentioned, does
Speaker 11: not have a concrete restructuring proposal. So we've had a
Speaker 11: long back and forth, a long journey since Evergrand defaulted
Speaker 11: in twenty twenty one, and fast forward to two years later,
Speaker 11: the company still does not have a restructuring proposal at hand. Now,
Speaker 11: it did have one earlier this year after a lengthy
Speaker 11: negotiation with the creditors. Some of the major creditors have
Speaker 11: already agreed to this plan. However, the company surprised them
Speaker 11: in September when it canceled a creditor meeting last minute
Speaker 11: when creditors were supposed to vote on the plan, and
Speaker 11: it also said it would have to revisit the restructuring
Speaker 11: plan that previously already won these key creditors support. And
Speaker 11: another development we've seen is that its founder is now
Speaker 11: under police control. So all of these developments are bringing
Speaker 11: back the restructuring progress. Like I said, back to square one.
Speaker 4: So I mentioned the court hearing and the key issue
Speaker 4: for the judge in this case is to decide whether
Speaker 4: Evergrant should be liquidated. That seems pretty extreme. Is there
Speaker 4: any way at any point that this process could be
Speaker 4: avoided liquidation?
Speaker 11: Yeah, So the company has already managed to get delays
Speaker 11: from the judge from the Hong Kong Judge several times
Speaker 11: on the basis that, you know, it would have meaningful
Speaker 11: debt negotiation progress. So last time Evergrant was in court
Speaker 11: a plan to get the restructuring plan approved by creditors
Speaker 11: by the next hearing. And now that's you know, it's
Speaker 11: really behind that schedule, and like I said, we're back
Speaker 11: to the beginning where it doesn't even have a decided
Speaker 11: restructuring proposal. And you know, winding up hearings have become
Speaker 11: really popular among frustrated creditors of Chinese developers who have
Speaker 11: seen little restructuring progress as a way to try to
Speaker 11: recover losses or at least negotiate with the company. And
Speaker 11: if the judge gives the company winding up order, you know,
Speaker 11: a liquidator can come in season sale its assets to
Speaker 11: repay his creditors. The fact that it's looking like a
Speaker 11: theme possibility that Evergrind can ever get its restructuring negotiation
Speaker 11: done is giving the judge now ample reasons to try
Speaker 11: to wind up this company.
Speaker 4: I'm trying to imagine what kind of reaction there would
Speaker 4: be in markets to liquidation, especially when you consider the
Speaker 4: case of another very very troubled property developer, Country Garden.
Speaker 4: What are analysts saying about the impact of liquidation.
Speaker 11: Yeah, first of all, like I mentioned, directors and management
Speaker 11: will lose control. But in reality the asset seizing process
Speaker 11: will not be easy. And in terms of market reaction,
Speaker 11: we don't know about Evergraham per se, but we have
Speaker 11: seen other developers who have been liquidated and you know,
Speaker 11: their bonds were just wiped out because the fire sale
Speaker 11: will mean that creditors will probably have very little in return.
Speaker 11: So a lot of the bonds from developers who have
Speaker 11: been liquidated, their bonds are trading at like one cent
Speaker 11: on the dollar, so less than one percent of face
Speaker 11: value really, and it would be a challenge to both
Speaker 11: jurisdictions in Hong Kong and China to handle what would
Speaker 11: be the largest insolvency case in recent years.
Speaker 4: Alice, thank you so much for being with us. That
Speaker 4: is Bloomberg's Alice Long. She is our China Credit reporter
Speaker 4: and deputy team leader. I'm Doug Prisner, and you can
Speaker 4: join Brian Curtison myself weekdays here for Daybreak Asia beginning
Speaker 4: at six am in Hong Kong six pm on Wall
Speaker 4: Street tom.
Speaker 1: Our thanks to Bloomberg Daybreak Asia co host Doug Krisner.
Speaker 1: And that does it for this edition of Bloomberg day
Speaker 1: Break Weekend. Join us again Monday morning at five am
Speaker 1: Wall Street Time for the latest on markets overseas and
Speaker 1: the news you need to start your day. I'm Tom Buzzby.
Speaker 1: Stay with us. Top stories and global business headlines are
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