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. Straight ahead on the program,
Speaker 1: some key economic points for investors. I'm Tom Busby in
Speaker 1: New York. I'll have that story.
Speaker 2: I'm Stephen Carolyn London, where we're looking ahead to a
Speaker 2: quadrupled bill of Central Bank decisions across Europe as policymakers
Speaker 2: trying to push back on the idea that right bugs
Speaker 2: are coming.
Speaker 3: I'm deg Prisner looking at China downshifting to a slower
Speaker 3: growth path.
Speaker 4: I'm Keilly Lines in Washington, where Congress is getting ready
Speaker 4: to wrap up their work twenty twenty three.
Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend. The business
Speaker 5: news you need to wrap up your week, Available on Apple, Spotify,
Speaker 5: the 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 big week for the economy. Not only
Speaker 1: will we get the Federal reserves fine I know, decision
Speaker 1: of the year on interest rates, We'll also get two
Speaker 1: key reports on inflation to help us break it all down.
Speaker 1: We're pleased to welcome Bloomberg International Economics and Policy correspondent
Speaker 1: Michael McKee and Bloomberg Intelligence Cheap US Rates strategist Ira Jersey. Now,
Speaker 1: let's start with those key data points coming on inflation,
Speaker 1: with November's Consumer price Index on Tuesday, the producer price
Speaker 1: Index on Wednesday, Ira, what are you expecting to see?
Speaker 6: We are expecting a reasonably high core print actually, and
Speaker 6: remember core inflation in CPI has been coming down pretty dramatically,
Speaker 6: but it looks like it might be in the process
Speaker 6: of stabilizing just a little bit under four percent, which
Speaker 6: is obviously not a good sign for the Fed Reserve
Speaker 6: and the idea that the feder Reserve is going to
Speaker 6: start cutting interest rates. And so I think that the
Speaker 6: CPI report is probably going to be the most meaningful
Speaker 6: report next week, at least for how the FED reacts
Speaker 6: to the current inflationary environm.
Speaker 1: And this comes before the Fed.
Speaker 7: Michael, this is the first day of the FED meeting,
Speaker 7: it's Tuesday. FED decision is on Wednesday, so it is
Speaker 7: new information for them that they will incorporate into their
Speaker 7: decision making. If the core doesn't move, it probably doesn't
Speaker 7: mean anything for this decision because the Fed is basically
Speaker 7: signaled they're going to stay on hold. The issue is
Speaker 7: do we see something in the composition of the CPI
Speaker 7: that would suggest one way or another that it will
Speaker 7: again start falling, or that it's going to stay where
Speaker 7: it is or even go up. One of the things
Speaker 7: that we have been watching is of course housing and
Speaker 7: housing costs, and they FED has expected housing as a
Speaker 7: component of CPI to fall more than it has and
Speaker 7: to slow more than it has. So if it doesn't
Speaker 7: move in this month, then we might get FED official
Speaker 7: starting to worry that if housing is not falling, inflation
Speaker 7: is going to stall out. So that's something to watch
Speaker 7: in the CPI.
Speaker 1: And there is no sign of home prices declining anywhere pretty.
Speaker 7: Much well we had home I mean, of course, rental
Speaker 7: prices are what make up the CPI housing numbers, and
Speaker 7: they were going down. They have started to go back
Speaker 7: up again. They get into the CPI with a big lag,
Speaker 7: sometimes as much as a year, and so we don't
Speaker 7: know where we are in that lag process. We could
Speaker 7: see housing continue to fall for another couple of months
Speaker 7: before higher rates, higher rental rates start pushing it up again.
Speaker 7: So that's the open question for the FED is they're
Speaker 7: they're expecting this drop in housing and it hasn't happened yet.
Speaker 7: And housing is about thirty percent of the CPI, so
Speaker 7: it makes a big difference.
Speaker 1: IIRA, where do you see at housing falling in and
Speaker 1: what other aspects of the CPI are going to be
Speaker 1: important to the Fed on Tuesday?
Speaker 6: Yes, So what's interesting is we were just looking at
Speaker 6: this past week with Eric Adelberg, who's our mortgage strategist,
Speaker 6: and it is that twelve month lag between house prices
Speaker 6: and rental prices and UH and the owner's equivalent rent
Speaker 6: component of CPI is about that right number. And you know,
Speaker 6: you've certainly seen, you know, a little bit of a
Speaker 6: moderation in things like rents and and obviously that that
Speaker 6: is one of the key components. But what I've been
Speaker 6: focused on in most of these reports and CPI in particular,
Speaker 6: but also the not as much retail sales but in
Speaker 6: the overall consumer spending report is what's going on in
Speaker 6: the services market, right, So, so there's been a big
Speaker 6: disconnect in CPI between food and energy prices and then
Speaker 6: core goods what we call core core goods, so that's
Speaker 6: goods excluding energy, and then in core services so again
Speaker 6: it services excluding energy services. And when when you look
Speaker 6: at that service inflation continues to run at a pretty
Speaker 6: decent clip. It's really goods prices that have moderated quite
Speaker 6: a lot, with things like shipping costs coming back into
Speaker 6: you know, historical pre pandemic kind of ranges and also
Speaker 6: just I think just a somewhat slowing of demand for goods,
Speaker 6: but service prices still remain reasonably high. So so I'm
Speaker 6: going to be focused on that stickier part of the
Speaker 6: CPI report and on on inflation on core services, even
Speaker 6: core services x housing which some people call the supercore,
Speaker 6: So because that has been sticky, right, and if that
Speaker 6: continues to run over three percent, then it's it's going
Speaker 6: to be more and more difficult for inflation to start
Speaker 6: coming down. In fact, you know, we've had anamog on
Speaker 6: the Bloomberg Economics team has called this like you know,
Speaker 6: the last the last mile, right, So getting this last
Speaker 6: like one hundred basis points one hundred and fifty basis
Speaker 6: points lower in inflation is going to be much more
Speaker 6: difficult than the first, say five percent was.
Speaker 1: And what do you see the next day in the
Speaker 1: PPI coming out? And I know, energy very volatile this
Speaker 1: last week that it wouldn't factor into the November numbers.
Speaker 1: But how does that play in?
Speaker 6: Yeah, PPI is likely to be a bit lower than
Speaker 6: CPI because remember PPI doesn't take into as much, you know,
Speaker 6: the domestic services costs, right, So so and CPI PPI
Speaker 6: final demand you know, certainly has been slowing, but you
Speaker 6: haven't seen that necessarily correlate with consumer prices quite as much,
Speaker 6: you know, you know, importantly, And I just want to
Speaker 6: go back to CPI just for half a second, because
Speaker 6: I think the market pricing of CPI right now is
Speaker 6: really interesting because we've actually come off where you know,
Speaker 6: for for the next ten years, the market's only expecting
Speaker 6: two point two percent inflation CPI inflation over the next decade.
Speaker 6: So the so for the FED, the market pricing certainly
Speaker 6: is not a concern. Of course, the market did a
Speaker 6: bad job in predicting the big run up in twenty
Speaker 6: twenty two inflation. It was the market was very late
Speaker 6: to that party. But nonetheless, people aren't going in and
Speaker 6: buying a ton of inflation hedges right now that you know,
Speaker 6: most of the most market participants seem to be pretty
Speaker 6: sanguine on the inflation environment, and in both CPI and
Speaker 6: PPI this week, if they come in kind of at
Speaker 6: or slightly below expectations, it is certainly going to be
Speaker 6: very good for the treasury market and you're going to
Speaker 6: see probably a pretty good rally in treasuries.
Speaker 1: Wow, now we have a CPI PPI and we moved
Speaker 1: to the FOMC also coming ahead this week. We did
Speaker 1: a lot of acronyms. Thank you for setting that up.
Speaker 1: Two meetings in a row, keeping the benchmark lending rate unchanged.
Speaker 1: What are you expecting the central bank policy makers to do?
Speaker 1: Why don't we start with Michael Well?
Speaker 7: I think the key thing that they're going to do
Speaker 7: is they put out their new economic forecasts, which lead
Speaker 7: to their new rate forecasts. And what the market's really
Speaker 7: going to want on the first thing the market's going
Speaker 7: to want to know after whether they moved or not,
Speaker 7: and they're not expected to move, is what does the
Speaker 7: dot plot say about twenty twenty four? Right now, we
Speaker 7: got five rate moves priced in by the futures market
Speaker 7: and about that in the swaps market. And the Fed
Speaker 7: had said in September that we'd see a rate cut
Speaker 7: or two next year, So there's a big differference between
Speaker 7: what the FED had been seeing and what the market
Speaker 7: now sees. So does the FED adopt the market view
Speaker 7: that they'll be cutting rates a lot next year, or
Speaker 7: do they stick with the idea that they're not going
Speaker 7: to cut rates a whole lot. That plot shows where
Speaker 7: the Fed thanks rates will be at the end of
Speaker 7: the year, so it won't give a clue about the
Speaker 7: timing unless there were multiple rate cuts in there, then
Speaker 7: people would start to try to figure out when they
Speaker 7: would do those to get the most banged out of
Speaker 7: the buck. We'll also see to pick up what Iira
Speaker 7: was saying, we'll see their new forecasts for inflation, and
Speaker 7: we'll see whether they think inflation is going to be
Speaker 7: coming down or remain sticky.
Speaker 5: Iira.
Speaker 8: Yeah.
Speaker 6: The SEP I agree, is probably going to be the
Speaker 6: most interesting thing in fact, the treasury market. Again to
Speaker 6: point you to a piece that we did just this
Speaker 6: past week about when the market moves during FED days,
Speaker 6: and it really moves the most when you get the
Speaker 6: summary of economic projections and the dreaded dot blot. So
Speaker 6: so if the dots move significantly both for the twenty
Speaker 6: twenty four dot and also potentially the longer run dot
Speaker 6: if either of those medians move meaningfully from where they
Speaker 6: were during the September Summary of Economic Projection. You know,
Speaker 6: I think we can reprice a lot of a lot
Speaker 6: of the rates markets repriced for cuts and or hikes.
Speaker 6: You know, I continue to be of the belief that
Speaker 6: the Fed Reserve is going to probably start cutting later
Speaker 6: than what the market's priced. So the market will likely
Speaker 6: continue to price for cuts sometime within the next say
Speaker 6: at the third meeting out from wherever we are, until
Speaker 6: they actually start cutting, even if those cuts are not materialized.
Speaker 6: So that creates an opportunity for investors to kind of
Speaker 6: fade that type of activity. Now that doesn't mean necessarily
Speaker 6: that you know, long term yields necessarily need to sell
Speaker 6: off and you wind up seeing ten year yields at
Speaker 6: five percent again or anything like that. But it does
Speaker 6: mean that the shape of a cur could shift a
Speaker 6: little bit where some of the recent of what we
Speaker 6: call bull steepening, so two year yields going down faster
Speaker 6: than ten year yields, some of that might reverse a
Speaker 6: little bit, especially if we're right and the Federal Reserve
Speaker 6: kind of takes some of the some of these cuts
Speaker 6: that are being priced off the table, and J Powell
Speaker 6: could do that well.
Speaker 1: Our thanks to Bloomberg International Economics and Policy correspondent Michael
Speaker 1: McKee and Bloomberg Intelligence Chief US rate strategist Ira Jersey.
Speaker 1: Coming up on Bloomberg day Break weekend, the Fed not
Speaker 1: the only one making an interest rate decision. Up next,
Speaker 1: we'll take you to Europe to preview two key central
Speaker 1: bank decisions. I'm Tom Busby, and this is Bloomberg. This
Speaker 1: is Bloomberg day Break weekend, our global look ahead at
Speaker 1: the top stories for investors in the coming week. I'm
Speaker 1: Tom Busby in New York. Up later in our program
Speaker 1: a look at the health of the Chinese economy. But
Speaker 1: first we just previewed the upcoming Federal Reserve decision. It's
Speaker 1: also a big week ahead for central banks in Europe,
Speaker 1: with both the Bank of England and the European Central
Speaker 1: Bank meeting on Thursday. Market bets on raid cuts by
Speaker 1: policymakers in London and Frankfurt have been ramping up, but
Speaker 1: there's more data coming in that could temper that enthusiasm
Speaker 1: for more. Let's go to London and bring in Bloomberg Daybreak.
Speaker 1: Europe Banker Stephen Carroll.
Speaker 2: Tom We're set for a quadruple bill of central bank
Speaker 2: meetings on Thursday in Europe. Monetary policy decisions expected in
Speaker 2: the UK, the euro Area, Switzerland and Norway now, although
Speaker 2: no interest rate changes are expected, given the ramping up
Speaker 2: of market bets over when the first cuts will come
Speaker 2: and how much central banks will cut by in twenty
Speaker 2: twenty four, every word will be parsed for signs of
Speaker 2: whether policymakers will be taking some festive cheer from the
Speaker 2: recent data. In the euro Area, the headline inflation rate
Speaker 2: has slowed faster than expected, to two point four percent
Speaker 2: in November. I've been looking ahead to the ECB Bank
Speaker 2: of England decisions with our chief europe economist, Jamie Rush.
Speaker 2: I started by asking him if, given that's lowing inflation
Speaker 2: in the euro Area, the ECB can consider it's race
Speaker 2: hiking mission a success.
Speaker 8: Well, I think the answer is kind of yes and no.
Speaker 8: So if you look at kind of broad strokes, then yeah,
Speaker 8: the ECB's basically done its job. So underlying inflation has
Speaker 8: been falling back for pretty much the last six months.
Speaker 8: The economy is pretty week. There's wage growth pretty weak
Speaker 8: as well, so I mean, what more is there to do.
Speaker 8: They've raised rates substantially, is having an effect. But I
Speaker 8: think when you look at the dig into the detail
Speaker 8: we are going to see over the next few months
Speaker 8: that it's quite a bumpy trajectory for inflation. As energy
Speaker 8: support measures are withdrawn and as base effects kind of
Speaker 8: have an impact on the December readings, we're going to
Speaker 8: see actually inflation is probably going to go back up
Speaker 8: to about three point two percent next month.
Speaker 2: And within of course the twenty countries in the Euro
Speaker 2: Area as well, are there ones that we could worry
Speaker 2: about that will drive part of that potential optic And
Speaker 2: if it's going to come back to a slightly higher level, well, I.
Speaker 8: Think we're immediately going to see that inflation is going
Speaker 8: to jump to four percent in Germany and in Spain
Speaker 8: we will see a similar size increase as well, so
Speaker 8: heading towards four and a half percent over the coming months.
Speaker 8: And again it's to do that energy withdrawal stuff. And
Speaker 8: Germany hasn't even said its budget for next year. That
Speaker 8: creates another risk that they have to kind of pull
Speaker 8: the rug under energy support measures even more, and that's
Speaker 8: going to push up inflation as energy bills go up
Speaker 8: so there is this kind of very near term risk
Speaker 8: around the path for inflation, and that could actually mean
Speaker 8: that the ECB is a little bit more cautious than
Speaker 8: people are expecting.
Speaker 2: What about the impact of the rate ikes on the
Speaker 2: economic performance of these countries. I've had data in the
Speaker 2: past few days, particularly looking at Germany's manufacturing sector in Dostri,
Speaker 2: of production weaker than expected, factory orders weaker than expected
Speaker 2: as well. How much of the pain has already been
Speaker 2: inflicted on these economies or is there more to come?
Speaker 8: Well, I mean, industrial production in Germany is exceptionally weak
Speaker 8: and it is going to drag on the economy, maybe
Speaker 8: take about zero point four percent off the level of
Speaker 8: GDP in the fourth quarter, So that's quite a lot.
Speaker 8: But I think when you look at what the models
Speaker 8: tell us the impact of montmed policy should be, it
Speaker 8: tells us that the hiking cycle should take about four
Speaker 8: percent off the level of GDP, and we haven't seen
Speaker 8: that yet, so I think we're probably somewhere around about
Speaker 8: halfway through the transmission of that. And actually the real
Speaker 8: mystery is why the economy is held up so well,
Speaker 8: not why it's so weak. So you know, that's actually
Speaker 8: one of the things that we're puzzling over as economists
Speaker 8: is why interest rates haven't tanked the economy in the
Speaker 8: way you'd expect.
Speaker 2: Yeah, and of course that's part of the dilemma facing
Speaker 2: central bankers as well. The markets are getting very excited
Speaker 2: already about interest rate cuts, particularly from the CB. How
Speaker 2: far away do you see them as being.
Speaker 8: Well, I think I think market pricing is probably a
Speaker 8: little bit overdone. The idea that you would raise interest
Speaker 8: rates as much as central banks have done and then
Speaker 8: immediately start cutting and we have to it just seems
Speaker 8: it seems a bit implausible to me, And I think
Speaker 8: it was described as fiction by one of the the ECB.
Speaker 8: Science fiction in fact, dismal science fiction perhaps, So yeah,
Speaker 8: it's kind of think I think, given that what the
Speaker 8: motives for the hikes, the hikes were to guard against
Speaker 8: persistent inflation, we haven't yet seen that that is completely
Speaker 8: under control. I'd be really surprised if the ECB jumps
Speaker 8: the gun.
Speaker 2: So how in your timing wise, when do you see
Speaker 2: the first rate card happening?
Speaker 8: So, I think I think March. I mean, we're going
Speaker 8: to finish our Christmas dinners and it's going to be March.
Speaker 8: So I think that's probably too soon. Our forecast is
Speaker 8: for the first cut in June. There's plenty of like
Speaker 8: ground ground lane before then. You know, there's a risk
Speaker 8: that if the economy turns out weaker than expected or
Speaker 8: inflation takes another dive down, then that could come a
Speaker 8: little bit sooner than June.
Speaker 2: Should expect that data dependency mantra to stay. Let's think
Speaker 2: about the Bank of England then, how different is the
Speaker 2: situation facing Andrew Bailey and colleagues in London versus that
Speaker 2: was in Frankfurst.
Speaker 8: I think it's completely different as has been As was
Speaker 8: kind of pretty clear from the outset here, the Eurozone
Speaker 8: didn't have the wages problem that the UK has. I mean,
Speaker 8: wages were growing at seven eight percent in the UK.
Speaker 8: That just has not been a feature of the Eurozone
Speaker 8: labor market that's created this huge influence on the kind
Speaker 8: of second round effects on inflation in the UK. So
Speaker 8: bank has a bigger problem. They've had to hype rates
Speaker 8: by a bit more they felt compelled to, and therefore
Speaker 8: they're going to have to cut a little bit later
Speaker 8: as well. And that's I think that's an inevitability.
Speaker 2: So what about the inflation trajectory for the UK is
Speaker 2: so the risk of the same bumpy trajectory from here
Speaker 2: when we think about where things are looking into next.
Speaker 8: Year, Yeah, I mean I think it's we're going to
Speaker 8: see bumps along the way. But again the general picture
Speaker 8: I think is downward. We have some things which we
Speaker 8: know are pushing down, like and the kind of withdraw
Speaker 8: the energy price shock is obviously passing through the economy.
Speaker 8: Goods inflation that's coming down as well, so you know,
Speaker 8: things are kind of moving the right direction. I mean,
Speaker 8: the big question is what happens to the services because
Speaker 8: of this wages problem, And we know that in the
Speaker 8: services sector wages is a huge part of the costs
Speaker 8: and so that is probably what the banking is going
Speaker 8: to be focusing on to be as a measure of
Speaker 8: whether it's done its job and whether rates can come down.
Speaker 2: Looking at the trajectory for wages though as well, does
Speaker 2: that mean that we will see more real terms wage
Speaker 2: increases as inflation slows, but perhaps the momentum remains behind
Speaker 2: and wage growth.
Speaker 8: Yeah, I mean, as if prices starts to fall then
Speaker 8: then yeah, we will start to see that real incomes
Speaker 8: are recovering I mean, prices haven't really changed a huge
Speaker 8: amount for the past six months anything, but when the
Speaker 8: actual energy price shock hits, I mean, we've all started,
Speaker 8: we've all paid. The level of prices is up. That
Speaker 8: hasn't changed. The higher level of prices is going to
Speaker 8: be something that stays with us. The inflation rate will
Speaker 8: come down a bit, but that's not going to provide
Speaker 8: a huge amount of support to spending. So obviously I
Speaker 8: think it's it's unlikely that as inflation heads down, we're
Speaker 8: going to get a huge revival of consumption, especially with
Speaker 8: uncertainty how the outlook about as it is.
Speaker 2: That was our chief europe economist, Jamie Rush. I've as
Speaker 2: been getting a market's perspective on this from Daniel Cassali,
Speaker 2: who's an investment strategist at Evelyn Partners. We talked about
Speaker 2: how markets are processing the expectations of rate cuts. When
Speaker 2: I started by asking him when he expects to see
Speaker 2: the ECB move.
Speaker 9: It's likely to happen probably in the first half of
Speaker 9: next year, or maybe possibly later. Is really a question
Speaker 9: or catamouse here between who cuts first, is at the
Speaker 9: US or is it the ECB. I think the main
Speaker 9: message here is the fact that interest rates have certainly
Speaker 9: peked and likely to come down, and that probably means
Speaker 9: that the risk of an economic hard landing where central
Speaker 9: banks race rates too aggressively is probably significantly reduced, and
Speaker 9: that the likelihood is now that we may now have
Speaker 9: a soft economic landing, which means probably less likelihood of
Speaker 9: a recession.
Speaker 2: So how does that look then for your outlook for
Speaker 2: investment opportunities If the soft landing narrative is taking holds,
Speaker 2: how do you think you're going to see opportunities in
Speaker 2: the first half of next year.
Speaker 9: Well, I think if we do have this soft landing,
Speaker 9: which means growth holds up, and also the fact that
Speaker 9: you might have lower inflation along with the possibility of
Speaker 9: interest rate cuts, it probably means we might get some
Speaker 9: of that rotation coming out of the AI theme into
Speaker 9: other areas of the market, in other words, a broadening
Speaker 9: out of the market, and that could include things like
Speaker 9: small cat and unloved areas such as energy. It still
Speaker 9: means that the overall equity market would still likely increase
Speaker 9: because it'll start surpricing less risk of an economic hard landing.
Speaker 9: So it does tell us that if we do have
Speaker 9: a soft economic landing, it's probably going to be constructive stocks.
Speaker 2: So that was Daniel Cassali Investment Stratus that Evelyn Partner
Speaker 2: is speaking to me on Bloomberg Radio. And of course
Speaker 2: we will have full coverage of all of these Central
Speaker 2: Bank decisions this week. I'm Stephen Caroll in London. You
Speaker 2: can catch us every weekday morning here for Bloomberg Daybreak Europe,
Speaker 2: beginning at six am in London and one am on
Speaker 2: Wall Streets.
Speaker 1: Tom Hard thanks to Bloomberg Daybreak Europe Banker Stephen Carroll,
Speaker 1: and coming up on Bloomberg day Break weekend, we take
Speaker 1: you to Asia to see how the Chinese economy is
Speaker 1: doing in this post COVID world. I'm Tom Busby and
Speaker 1: this is Bloomberg. I'm Tom Busby in New York with
Speaker 1: your global look ahead at the top stories for investors
Speaker 1: in the coming week. The Chinese economy struggling this year
Speaker 1: in its post COVID recovery. For months, the optimists have
Speaker 1: been hoping for signs of a turning point. Could there
Speaker 1: be a glimmer of improvement in the week ahead. Bloomberg
Speaker 1: Daybreak Asia co host Doug Krisner has a preview.
Speaker 3: Tom. It's been tough to make the case that the
Speaker 3: worst is over for the Chinese economy. Just last week,
Speaker 3: Moody's cut its outlook for Chinese sovereign bonds to negative.
Speaker 5: Now.
Speaker 3: The firm pointed to risk like the use of debt
Speaker 3: to support local governments, as well as a spiraling downturn
Speaker 3: in the property market. In the coming week, Beijing will
Speaker 3: be reporting monthly economic activity for the month of November,
Speaker 3: so we'll have industrial production and retail sales among the
Speaker 3: data points. Both of those figures are expected to rise
Speaker 3: from October levels. What are these readings really telling us, Well,
Speaker 3: let's ask Eric Ju. He is Bloomberg's economist covering China
Speaker 3: and Hong Kong. Eric joins us from our studios in
Speaker 3: Hong Kong. Eric, thanks for being with us. Obviously, the
Speaker 3: economy is facing many problems right now, but I'm wondering
Speaker 3: if all of this fits under the broad heading of
Speaker 3: weak sentiment. Is that the biggest problem right now affecting China?
Speaker 10: I think yeah, I think you know. In terms of data,
Speaker 10: I can start with you next week's activity data. I
Speaker 10: think the headline number will look quite rosy. It's accelerating
Speaker 10: from October, but we probably we don't need to read
Speaker 10: too much into those year and year figures. But remember
Speaker 10: we have a very depressed level last year when China
Speaker 10: was struggling, you know, at initie of COVID reopening. So
Speaker 10: I think it's more What would be more interesting will
Speaker 10: be watched for is the months and months figures, probably
Speaker 10: for next week's reading.
Speaker 3: So you're talking about retail sales here or industrial production
Speaker 3: or both.
Speaker 10: I think both will be accelerating on year and year numbers,
Speaker 10: but that won't tell you much about the underlying so
Speaker 10: weak momentum. If you look at PMI data, if we
Speaker 10: look at those high frequency numbers we are tracking, actually
Speaker 10: we will see production and both consumption still looks quite
Speaker 10: weak in November, even considering we have some working day
Speaker 10: boost compared to the holiday in October. So yeah, so
Speaker 10: you might see quite strong headline year on year figures,
Speaker 10: but that don't tell you in the underlying truth.
Speaker 3: We'll also get data on fixed asset investment, and we
Speaker 3: know the story with direct or foreign direct investment. It's
Speaker 3: down sharply, and that's an area that President She attempted
Speaker 3: to address during the recent APEX summit. How difficult will
Speaker 3: it be to get foreign capital to flow back into China.
Speaker 10: I think it's a big ask and I think the
Speaker 10: government still needs I think the president she mentioned in
Speaker 10: his US trip that the government will think about will
Speaker 10: implement more heart warming, right, so called heart warming measures
Speaker 10: to attract investors back to China. But I think it's
Speaker 10: a it's a couple of reasons why it's it's quite
Speaker 10: difficult right now. So some obvious challenges, you know, the
Speaker 10: jeopity risk rising. So I think for some foreign business
Speaker 10: it's not investing in China. It's not only not purely
Speaker 10: you know, business or e comedy decision, it's sometimes also
Speaker 10: a political decision. Right. We hear some business that they
Speaker 10: are forced out of at least partially, you know, out
Speaker 10: of China. It's not only it's not entirely a business decision.
Speaker 10: But so I think on that front, China probably it's
Speaker 10: it's China cannot do much about that because it's not
Speaker 10: purely you know, something China can control. But at the
Speaker 10: same time, we think what China can can do, what
Speaker 10: China can boost those confidence, is they try to promote
Speaker 10: growth in China. Right have to you know, lift the
Speaker 10: overall sentiment the including both market and also also business
Speaker 10: sentiment overall, and if the China can bring those growth
Speaker 10: a healthy and more sustainable long term growth back, I
Speaker 10: think the business would still see opportunity in China.
Speaker 3: We'll also get the jobless figure. And this is interesting
Speaker 3: because for several months now Beijing has not been reporting
Speaker 3: youth unemployment and I believe the last time that we
Speaker 3: had a reading it was well above twenty percent. Obviously,
Speaker 3: that's a major issue and I think for many in
Speaker 3: the government deeply concerning is there any way that the
Speaker 3: government can address this problem? Are they doing something about it?
Speaker 10: Yeah? I think right now. I heard a story that
Speaker 10: you know, some some local governments they are they're tasked
Speaker 10: with creating some maybe temporary job tunited for for those
Speaker 10: young people fresh graduates. They can you know, get some
Speaker 10: some some jobs in local level, very local level, you know,
Speaker 10: those townships, those village of government, and it's not well paid,
Speaker 10: but still that give them some opportunity at least to
Speaker 10: delay those unemployment, right, So, trying to give some more experience.
Speaker 10: But I think that's such something the government trying to
Speaker 10: stabilize in the near term, but I think in the
Speaker 10: longer term it's that they have to think hard about
Speaker 10: what would be opportunities for those young people.
Speaker 3: So when you look at the trade story, I'm wondering
Speaker 3: the extent to which the slowdown that's happening globally and
Speaker 3: in many economies, whether you're talking about developed economies let's
Speaker 3: say Europe, the United States, to a lesser extent, Australia,
Speaker 3: whether the weakness there that's manifesting is is contributing to
Speaker 3: a significant drag in the export space for China, is it? Yeah?
Speaker 10: I think this year it's harder for the expert in China.
Speaker 10: I think that the external demand has been quite weak,
Speaker 10: and given our expectation that globe economy will further slow
Speaker 10: down next year, I don't think we're going to see
Speaker 10: a very quick pickup in trade in exports in the
Speaker 10: new term. Of course, the headline numbers might get better.
Speaker 10: That's again that's some basic facts due to a low
Speaker 10: levels last year. But I think if you look at
Speaker 10: amongts and amounts, look at sequential momentum, we haven't seen
Speaker 10: a very strong signal that those shipping orders foreign demand
Speaker 10: are picking up quickly.
Speaker 3: When you look at the property sector, it counts for
Speaker 3: about twenty percent of GDP. I don't know whether that
Speaker 3: figure will be consistent as we move into the new year.
Speaker 3: But do you see anything that can be done to
Speaker 3: turn around the property market that the government could still
Speaker 3: do that it hasn't done already.
Speaker 10: First of all, I don't think it's a government's talcke
Speaker 10: that to turn around the property I think that's that's
Speaker 10: initiated by the government. They're trying to reduce the reliance
Speaker 10: of the economy and property sector. I think at the
Speaker 10: height it's like one court of the e colony. It's
Speaker 10: already down to like twenty percent this year, and the
Speaker 10: probably will continue to be reduced. I think that's a
Speaker 10: long term or median term goal of the government that
Speaker 10: they try to make economy rely less on property and
Speaker 10: also reducing the financial risk related to property bubbles. But
Speaker 10: the thing is you rely less on property and what
Speaker 10: other sectors you can find out to feel the holes
Speaker 10: left by property.
Speaker 3: Well, I'm confused because if the PBOC is lowering interest
Speaker 3: rates largely to help lower mortgage rates, isn't there some
Speaker 3: acknowledgment that the property market are Recovery in the property
Speaker 3: market is necessary as a way of improving sentiment and
Speaker 3: then helping to support growth.
Speaker 10: No, I don't think the market rates is helping much.
Speaker 10: I think that the fundamental problem in the property market
Speaker 10: that people are losing confidence, that they don't think the
Speaker 10: market in a booming at all. So in the longer term,
Speaker 10: in mediate term, they're expecting more correction in the market,
Speaker 10: pricess will further jobs. So no one is willing to
Speaker 10: enter market right now, even if there's a real demand,
Speaker 10: you know, for for property. So I think, you know,
Speaker 10: lower mortgage rates, you know, relaxing the purchase it's not
Speaker 10: going to It's going to help on the margin, but
Speaker 10: probably won't help much. It's not because people people are
Speaker 10: not buying because the costs are too high. People are
Speaker 10: not buying just then they no longer you know, have
Speaker 10: confidence in the market.
Speaker 3: So before I let you go, I want to ask
Speaker 3: you about the new year twenty twenty four. Is it
Speaker 3: going to be a repeat of what we have seen
Speaker 3: in twenty three so far?
Speaker 10: I would say we haven't seen a big game changer
Speaker 10: for next year, So our baseline would be like trying
Speaker 10: to continue to model through so with some public increase,
Speaker 10: the public investment stimulus, trying to offset the drag from
Speaker 10: mitigate the drag from property slam. So we haven't seen
Speaker 10: a big confidence lifter so far. But the way you're
Speaker 10: thinking is the government can come up with, you know,
Speaker 10: more substantial, you know, measures to trying to revive those
Speaker 10: confidence and a sentiment that would be a helpful lot.
Speaker 3: Eric will leave it there. Thank you so much for
Speaker 3: being with us in helping us set up the week
Speaker 3: ahead for the Chinese economy. Eric Hu is a Bloomberg
Speaker 3: economist covering at China and Hong Kong. Joining us from
Speaker 3: our studios in Hong Kong. I'm Doug Prisner. You can
Speaker 3: join Brian Curtis and myself weekdays here for Bloomberg day
Speaker 3: Break Asia, beginning at seven am in Hong Kong, six
Speaker 3: pm on Wall Street.
Speaker 1: Tom all right, thanks to Bloomberg day Break Asia co
Speaker 1: host Doug Crisner, and coming up here on Bloomberg day
Speaker 1: Break Weekend. It's the last week of work for Congress
Speaker 1: before the holiday break. Can that body get anything accomplished
Speaker 1: by year's end? I'm Tom Busby, and this is Bloomberg.
Speaker 1: This is Bloomberg day Break Weekend, our global look ahead,
Speaker 1: the top stories for investors in the coming week. I'm
Speaker 1: Tom Busby in New York still a few weeks left
Speaker 1: in the year, but not for Congress. With just one
Speaker 1: final week of work before the holiday break, can lawmakers
Speaker 1: get anything done this week?
Speaker 5: Well?
Speaker 1: For more, let's head to our Bloomberg ninety nine one
Speaker 1: news room in Washington and Bloomberg Sound On co host
Speaker 1: Kaylee Lines Yeah.
Speaker 4: Tom. The end of the working year is coming quickly
Speaker 4: for Congress, as both the House and the Senate will
Speaker 4: go home for the holidays lead this coming week, and
Speaker 4: it's not really clear whether they'll be able to accomplish
Speaker 4: much with their last few days in Washington of twenty
Speaker 4: twenty three. Joining us now with more is Megan Scully,
Speaker 4: who helps lead Bloomberg's congressional coverage. So, Megan, they have
Speaker 4: a lot left on their to do list, supplemental funding,
Speaker 4: a border security deal that perhaps needs to go with
Speaker 4: that in order for Ukraine and Israeli to get through,
Speaker 4: you have to try to get maybe some appropriations matters
Speaker 4: buttoned up so you don't have a shutdown. Does any
Speaker 4: of that have a material chance of being accomplished before
Speaker 4: they go home for their holiday break.
Speaker 11: I think the appropriations matters are effectively shelved until January.
Speaker 11: The focus right now is on Ukraine and the border
Speaker 11: security package that they're trying to meld together, but even
Speaker 11: that seems unlikely of getting through both chambers before they
Speaker 11: leave for the congressional recess. One of one leading House
Speaker 11: Republican at the end of the week said he thought
Speaker 11: the chances were near zero that that would actually get
Speaker 11: done well.
Speaker 4: So it becomes a question of whether it can get
Speaker 4: done at all. If it doesn't happen in twenty twenty three,
Speaker 4: how much harder or easier will it be to get
Speaker 4: done in twenty twenty four.
Speaker 11: I think the key to all of this is Speaker
Speaker 11: Mike Johnson. There's been so much talk about Senate Democrats
Speaker 11: and Republicans negotiating a deal on border security, which is
Speaker 11: not related to Ukraine at all, but would unlock the
Speaker 11: Ukraine funding. Essentially, we get a deal on the border,
Speaker 11: then we can move on Ukraine and one big package
Speaker 11: in the House, though it is much trickier. You have
Speaker 11: ultra conservatives, the hardliners who throughout former Speaker Kevin McCarthy,
Speaker 11: who oppose Ukraine aid, and they've said they could maybe
Speaker 11: go along with it, or at least turn a blind
Speaker 11: eye to it if they passed the border first, and
Speaker 11: if the border, if they see a significant reduction in
Speaker 11: border crossings, that means that would take time, and that
Speaker 11: would mean Ukraine Aid would pass much later. There's plenty
Speaker 11: of support in the House for getting Ukraine Aid over
Speaker 11: the finish line. But does Speaker Johnson want to risk
Speaker 11: his job by infuriating his right flank in order to
Speaker 11: do so well?
Speaker 5: That?
Speaker 4: I feel like is always the question we've asked, especially
Speaker 4: when he passed a continuing resolution early on in his
Speaker 4: speakership with Democratic support, which is basically the exact same
Speaker 4: thing that Kevin McCarthy got outsted because of Also interesting
Speaker 4: that now it seems we're back to this idea when
Speaker 4: we think about appropriations of the debt sealing deal from
Speaker 4: what six months ago actually being the top line numbers
Speaker 4: we're going to go with. Speaker Johnson sent out a
Speaker 4: Dear Colleague leutter this past week that said, it's the
Speaker 4: off the land the Fiscal Responsibility Act. So even if
Speaker 4: this Ukraine and border stuff is getting harder, does that
Speaker 4: actually mean the actual budget might be easier Because we're
Speaker 4: going to stick with the top line numbers we already
Speaker 4: agreed to.
Speaker 11: We're still early yet so we have six weeks to go.
Speaker 11: You know, it's a two step shut down, right. We
Speaker 11: have the January nineteenth for many of the federal agencies,
Speaker 11: but the Defense Department, which is half of all federal
Speaker 11: discretionary spending, doesn't actually shut down until February. Second, I
Speaker 11: think that there's a lot of time for things to
Speaker 11: go right or looking at this Congress, go wrong in
Speaker 11: the next six weeks, and the devil's going to be
Speaker 11: in the details in terms of coming to an agreement,
Speaker 11: even if they can agree to adhere to those top
Speaker 11: line levels, and it seems as though even the hard
Speaker 11: right is willing to go along with that. Right now,
Speaker 11: it's a matter of where that money actually goes, programmed
Speaker 11: by program and that's where we could see the fight
Speaker 11: really start to percolate in January.
Speaker 4: All right, Megan Scully, who ups lead Bloomberg's congressional coverage.
Speaker 4: Not sure we are feeling much more optimistic after this
Speaker 4: conversation that stuff's going to get done before the year
Speaker 4: is over. But twenty twenty four it's always somewhat of
Speaker 4: a new start. Thank you so much, and Tom, Happy
Speaker 4: almost new year.
Speaker 1: I guess, thank you, Kaylee. That was Bloomberg's Sound On
Speaker 1: co host Kaylee Lines, reporting from our Bloomberg ninety nine
Speaker 1: to one newsroom in Washington. And you can hear sound
Speaker 1: on weekdays one to three pm Wall Street Time on
Speaker 1: Bloomberg Radio. And that does it for this edition of
Speaker 1: Bloomberg day Break Weekend. Join us again Monday morning at
Speaker 1: five am Wall Street Time for the latest on the
Speaker 1: market's overseas and the news you need to start your day.
Speaker 1: I'm Tom Buzzby. Stay with us. Top stories and global
Speaker 1: business headlines are coming up right now.