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Joining us now on the program is Ryan Wong, us economist at HSBC. So, Ryan, thank you for taking out some time to be with us. So we had core goods prices increasing zero point two percent month on month in the latest CPI report, and it had investors a little bit nervous. In fact, though core goods prices, as you point out, I've risen in only two of the past sixteen months, and we got the PPI that was flat. So can we set aside inflation for the moment or still have to be right on top of it?
Well, thanks for havingeing me. That's right.
The CPI data coming out of the United States, Actually the most recent figures are a little bit the opposite of what we had seen in previous months. So I think a lot of the progress on disinflation this year has been related to goods prices. Actually, goods prices have actually been falling for most of the past year, and it's the services side that has been stickier, has been more elevated, both in terms of housing inflation and also
non housing services. But as I said, the latest set of numbers were a little bit the opposite, goods prices rising a little bit. I wouldn't read too much into that single reading. We'll have to watch it in the months ahead. But it was actually services inflation as well, that is still overall I think, holding up inflation at
a higher level. So I mean to answer your question, the bottom line is that core inflation, especially if you look at the measure of the FED focuses on the most so called core PCE inflation, it slowed from over five percent two years ago to less than three percent today.
I expect it all actually.
Just bounce around where it is for the rest of this year, maybe this two point six to two point eight percent range, just below that three percent level.
So also last Friday, we learned from the University of Michigan the consumer centiment unexpectedly fell for the first time in three months. Maybe you don't believe a lot in the University of Michigan data. But I think perhaps what's going to be more important for markets in the week ahead is the New York Fed survey on consumer expectations for the month of September. How are you understanding the American consumer right now?
Yeah, it's very interesting how you point that out.
I mean, look, I think all of the consumer surveys do tell us something, right. I think it's a little bit too to just looking at the surface to say we just throw out this number because it doesn't make sense.
I think the one commonality.
Across all the consumer surveys is that, indeed the high inflation of recent years has weighed heavily on sentiment. And of course many have said it, but it's certainly the case that even though inflation rates have declined, the high prices continue to strain household budgets, and understandably, you know, it may take more years to come before consumers truly feel comfortable with just how high price levels have risen over recent years. So I think that's really, on the
one hand, something you can't really get passed. On the other hand, for a federal reserve that's trying to control future inflation, not necessarily trying to get prices to fall back to where they were prior to the pandemic. Well, as you say, those inflation expectations measures do matter a lot, and on that basis, actually the Michigan survey still shows relatively stable inflation expectations, whether on kind of a one year horizon or even on a longer five to ten year horizon.
Growth is pretty firm. The now casts from Atlanta, the Atlanta FED three point two to one percent. The last couple of quarters have been around three percent. And so that stimulus that's still coming into the economy, and that means that you know, employment could get better from here, not not worse from here. So you've got a pretty strong economy. Do you see the economy as actually improving here or weakening? And then I guess you know, part of that question is what's the impact on inflation?
Yeah, well that's absolutely right.
So, I mean for the last few years and really continuing through this year, the GDP part of the economic data has continued to surprise. The upside in the United States over on a year of a year basis real GDP growth.
Of over three percent.
As you point out, the Atlanta Fed now cast doesn't look like there's going to be too much of a slowdown in the third quarter, and so that raised some questions about, well, how does the strong GDP relate to some of the new concerns about the job market with slower jobs growth, the drift hire and the unemployment rate over the past year. But then you look at the most recent monthly jobs report and it contradicted some of
those fears. The unemployment rate has actually fallen for the last two months, and so you know, I think markets are concerned that if you look into the future, you could have this self reinforcing downturn, let's say, slower jobs growth, slower age growth, leading to less.
Spending down the road.
But then every few months we seem to get some data that actually contradicts that type of fear and instead suggests, well, actually incomes are still growing, maybe not quite as quickly as they were two years ago, but still presumably strong enough to keep spending going for a while longer. So I don't think it's actually going to get any easier
to analyze the situation. Obviously, when we look forward to the next job's report, we're going to have to be dealing with how to interpret weather effects.
But you know, I think you continue.
To get a pretty interesting economic picture, and not necessarily one that signals extreme weakness ahead.
So where does that leave the FED between Now, let's say, in the end of the year, is it right to assume that we're going to get another fifty basis points in total rate cuts.
I think that is the most likely.
Our own forecast is that the FED will cut its policy rate by twenty five basis points at each of the next six policy meetings. So that's the two remaining this year to your point in November December, the first four meetings of twenty twenty five. And in a way, as I alluded to, I do think the economic data in the US will be confusing over the month ahead.
Obviously, we have a little over three weeks to go to the US.
Election, and I think it does tend to mean that most likely the FED will follow through with its kind of baseline expectation. At least that's what VET chair Palell told us a couple of weeks ago in terms of twenty five base point moves at upcoming meetings. You know, if the economic data broadly come in as anticipated.
We had the inflation deflation numbers in China kind of disappointing, particularly PPI minus two point eight percent, worse than the estimate of two six And so you wonder whether China, at least at the moment, is still exporting deflation to a place like the United States. So interested to get your thoughts on that. And then you know, usually stimulus does work at some point. So are we going to be seeing that change with China's impact on the US citnytime soon?
Well, I think at a broad level, like to your point, it does matter greatly. Some economies are looking for inflation to come down and other economies looking for inflation to pick up. So it does highlight divergences across global trends. I mean, I think in the broad sense, and to the point that we were talking about earlier, goods price
inflation in the United States has declined significantly. I wouldn't attribute that, you know, fully to the effects specifically of let's say, output from China, but I think in the global context that's definitely part of the story. Also, we have to consider foreign exchange effects in the United States.
Of course, you know, a wide variety of exchange rates matter for import costs and the bottom line, as all of those have been relatively contained over the past year, and so you know, you basically you saw goods prices surge to extraordinarily high levels a couple of years ago, with auto prices surging, household goods prices surging, and all of that really has retreated over the past year, notwithstanding the most recent monthly data.
So Ryan, in the week ahead, we've got some Fed speak. Chris Waller is speaking along with Neil Keshkari and Mary Daily, I think is on that list very quickly thirty seconds. How does the FED go about managing market expectations right now?
Look, I think markets are in a pretty good place.
They are mostly pricing in that twenty five base point rate cut that we're anticipating for November. I do think a lot of the rhetoric is going to be shifting to how to interpret the jobs data to come over the weeks ahead, not to overreact to information that will certainly be impacted by weather effects. And so I think it's going to be an attempt to be reassuring the markets, to basically try to send the signal of not overreacting to one number over the week's ahead.
Thank you so much, Ryan, very clear, very good picture of understanding coming from you. Bryan Loong, us economist HSBC. Joining us now in our studios in Hong Kong is mid min Low Bloomberg TV.
China correspondent who.
Takes a close look at the weekend developments at the Ministry of Finance. So bottom line, mid men, is we didn't get the two trillion you on, the two hundred and eighty three billion dollars that had been expected somewhere actually even thinking we might get more. So it's pretty clear policymakers are showing continued reticence here over any kind of shock at all, and they're just kind of tinkering at it. But you know, it may be too much to say that there would be vast disappointment.
Your thoughts, well, I would say that two trillion un and fiscal stimulus is still on the table because remember the last time we chatted, I told you that any revision to the bus school budget deficit, as well as any new additional new bonds above this year's quarter will have to be approved by the legislature. So the legislature is going to meet likely in late October. The NPC standing Committee meeting, that's when we may be able to
hear at actual number. So this time we just heard kind of hints of measures to come without a number on it. But it's still, I guess, in some ways in line with market expectations. I think in terms of the details, we have to wait a little bit longer.
So you don't think there's a gap between what the market is expecting and what the government is saying right now, I.
Think there is. There are some mixed reactions. I think the biggest gap is the fact that the m ORF briefing really disappointed in terms of lack of any stimulus on the demand side, because the only cash handout that they mentioned was doubling the quarta of scholarships for college students and increasing financial aid to them, and this is nothing to the extent of the scale that markets had
been expecting. A lot of the measures were targeted at the property sector and at tackling local government debt, so that demand side stimulus is what's missing here.
Yeah, I know there appears to be consensus on this that there hasn't been enough to boost consumption, but actually, mean, men, if you think about it and you look back over the past twenty odd years, Domestic consumption has not been a big driver in China's economic growth.
It's been a driver, but not the biggest. Investment and trade has been, So I.
Wonder whether we should kind of rethink a little bit about where they're targeting fresh money.
Yeah, it is not a big driver, but I guess if you compare to pre pandemic times in terms of the act activity data when it comes to retail sales, the numbers that we are seeing now is still very weak. And if you look at the GDP deflator, that's down in negative territory for five straight months now. We had the CPAI data that came out over the weekend, all missed expectations, whether you're talking about consumer prices or producers prices, and call inflation is now just zero point one. It's
the weakest since February twenty twenty one. So I think there is still an argument for the weakness and domestic consumption.
That stential loss is really rather than like superstimulus.
Right.
Yeah, but if you have a protracted cycle of deflation in China, which is clearly at work right now, I mean, spending could only be driven further to lower levels and investment.
Also, Yeah, that's right, and right now, I just want to draw your attention back to some of the other measures they're talking about in terms of the spending by local governments, because one of the big dregs on the economy as well aside from consumption, is also the fact that fiscal spending was very low this year. It has shrunk by three percent in the first eight months of
this year. And even though we're not hearing additional sizes of additional new bonds, but some analysts like Stanchart Thing Shunk from Stanchart is saying that it's still quite significant that they're widening the usage of local government bonds to allow those funds to be used for buying up houses because one of the reasons for the lag in fiscal spending is also because there's been a lack of suitable projects.
Infrastructure has been so saturated that there are a lot of idle funds sitting around that are not being spent. So Stanchat is saying that this could unleash about one trillion yen of idle funds if they widen the usage of these local.
Government and that would be good for the developers because we're talking about these local special bonds would enable the local governments to buy unsold homes, homes around the market that are empty, and so this would eventually get turned into subsidized housing, right, and that's in need as well.
Yeah, so this is a little bit complicated. So some editorsts are saying that yes, it's a good thing because it could speed up that housing buyback programmed. But although it provides fresh funding, it doesn't solve the lack of profit incentives because in some cases, the yield that you get from these subsidized rental housing sometimes is lower than the funding cost for you know, for the loans that
you are taking out to buy these STU drag. Yeah, so that's the reason why the take up rate has been very low so far.
Well, I was just looking for any help that the PBOC might be able to apply at this point or is that pretty much off the table right now? It's all on the part of the government and fiscal spending.
Yeah.
I think right now it is going to come down to implementation of whatever PBOC has announced and fiscal spending. I think we'll have to wait until late October when the National People's Congress Standing Committee meets. They might give us the size of that fiscal stimulus at that point. And also remember we have the forward guidance for next year the Ministry of Finance it there is still relatively large room to raise fiscal deficit. I think that's also very key.
Yeah, all right, mim men, thank you. Mimn Low Bloomberg TV China correspondent Carlos Casanova joins US senior Asia economist for UBP for discussion about global economics and markets.
Carlos, thanks very much for coming.
In no doubt you've had some time to go through the Ministry of Finance briefing on Saturday, and the number is on inflation and deflation that we got yesterday from China.
What's your take on where we're at at the moment.
Well, we are setting certainly witnessing a deceleration in economic activity and we are likely going to see that reflect in the Q three numbers later this week. Not surprisingly, as a result of that, we have seen a much more proactive government in terms of that policy stimulus, with the focus still being on those monetary policy measures that
were announced at the end of September. There was a lot of I guess, hype and buzz around the monetary policy measures, and investors were sort of hoping that that would mean that fiscal would would follow suit, making this somewhat of you know, whatever it takes moment for China. Unfortunately, we don't think that we are headed in that direction. It was never we never expected the Ministry of Finance
to deliver the specific details during the weekend. The reason for that is, of course Congress needs to approve any additional spending. We do think that additional you know, new money will will come. But given that the Ministry of Finance highlighted the main policy tools and the main themes
that they're going to focus on. So they're going to do bond issuance and special bondishanes to cover things like a dead swapped for local governments, you know, finance some of that, you know, the stocking of housing inventory, and also recapitalize the bank so that they can lend more.
That really suggests to me that we are looking at an ongoing effort at an ongoing reflation targeting some of the bigger structural elements, hoping to sort of slow down that pace of deceleration that we are going to see this week. More than sort of whatever it takes moment and China sort of making a U turn in terms of where its priorities lie. So I think market still needs to digest that a little bit and we're going to see very volatile performance this week as a result.
So we had the inflation data over the weekend, PPI down for a twenty fourth straight month. I mean, the writing has been on the wall for some time. The question is whether or not authorities in Beijing have delayed, and whether that's going to make this situation so much worse.
My sort of reading on the inflation numbers, of course, CPI was extremely flat, and that's in spite of a pickup in vegetable prices due to adverse weather. But more worrying than that open one percent CPI number is the fact that PPI deflation worsened to minus two point eight percent. Not only is it twenty four straight months of contraction, but also the pace of contraction accelerated, whereas it should have been gradually recovering, So deflationary pressures continue to persist.
I think the government, you know, has been very slow to react. Our expectation is that they will deliver some figures around the end of the month when the National People's Congress Standing Committee meets.
Because they have to approve it. But we will have to end.
We will have to wait until March next year, you know, for the Congress to ratify the targets for twenty twenty five, and so it's going to take longer than expected.
Most of the data that we saw in terms of deflation and inflation was for the month of September, and we didn't get the announcement from the Central Bank and other broad package of measures until September rout around September twenty second, twenty third, and since since that time, the CSI three hundred has gained twenty one percent from the close on September twenty third, So it's even though we lost three point three percent last week, it's still higher.
So it seems like you're a little disappointed in the slow approach, but maybe from the policymakers standpoint, they feel like this is this is a measured move and the wise one correct.
So the first of all, I don't think policy makers really pay that much attention to the stock market. I think that the stock market rally will also have a relatively muted impact on consumers in China because Chinese households are not exposed to equities in the same way that US households are. About sixty or seventy percent of household wealth in China's linked to real estate investments, so they're
stabilizing the real estate market. I think it is a priority over stabilizing the stock market, but they don't completely ignore it, and they are not looking to engineer a.
Massive, you know, bubble.
They would prefer something similar to what we saw last year, which was a gradual pickup inequities over the span of three or four months, sort of helping to boost sentiment overall, rather than a situation like what we saw where you know, equity is rally forty percent in two weeks, still best performers in Asia year to date, but then the pullback is much more severe as a result of the policies being incremental.
Are we understating the risks here? If Paijing doesn't get this right now, the dire situation that the overall Chinese economy could fall into.
I think it's a delicate equilibrium. So Paijing wants to have enough growth to facilitate structural reforms, but they are not looking to go back to you know, the roar in two thousands with nominal GDP growth around ten percent, And I think that's something that the market doesn't really understand. So what would it take for China to go back to those numbers?
What?
You know, what does it take for that moment? In China?
The local government financing vehicle debt alone is worth moti like many trillion un more than the stimulus packages that have been floated around one to three trillion UN or around one point five to maximum two percent of GDP. In order for them to sort of deliver, they would have to do upwards of five percent, maybe ten percent of DP worth of fiscal stimulus. That is not going
to happen. And so I think one thing the market needs to sort of wrap it get its head around is the fact that we are not returning to high nominal GDP growth rates. This is only facilitating enough growth for that structural reform process to pan out. We still need to see restructuring in the banking sector, and we still need to see restructuring in the real estate sector.
Yeah, a lot of work to do. Let's switch to Singapore for a moment. We heard from the Monetary Authority of Singapore they would maintain the slope with and center of the currency band, so as keeping monetary policy steady. We also had economic growth accelerating in the third quarter. It was a pretty healthy number, up four point one percent year on year and advancing two point one percent in the three months through September. So Southeast Asia has
been pretty solid here of late. How does it stack up in terms of growth in the region.
I think we are still observing high growth rates around as in in general. You know, low inflation environment and expectations of policy rate cuts definitely help with a macro outlook.
For the region.
Specifically with Singapore, I think we will witness deceleration and activity. Singapore is a small export oriented economy and so that narrative around soft landing in the US should translate into weaker export performance over the coming months. The GDP data is backward looking, so we definitely did not see weak exports over the third quarter period, maybe towards the end, but certainly not at the beginning, so that narrative hasn't fully materialized. But we do expect that the external side
will be more of a drag on Singapore. But it's possibly a good sign for domestic consumption in twenty twenty five. If it entails a policy shift by the Monetary Authority of Singapore current environment, they probably have to wait a little bit, but we do expect that it's going to come in twenty twenty five.
I was talking to a friend over the weekend with a condominium outside of Soul. Dramatic come cliin in the value of the property. So I guess the real estate market in South Korea is starting to soften to the degree to which the Bank of Korea was confident in lowering interest rates right.
Correct, correct. South Korea was.
The latest central bank in Asia to join the easing cycle, albeit very cautiously, with a twenty five basis point way cut. Main reason for that is, you know, inflation below target at one point nine percent.
I think it was.
But of course in South Korea the debate continues to be around that speculation in the real estate market, and we have seen a marked correction in that area. So Bank of Korea should feel comfortable to continue easing.
We've got the policy address coming up here in Hong Kong. The Chief executive wants to make this a hub going forward.
What are your thoughts on Hong Kong In short, term.
I think Hong Kong is exposed to know the business cycle in China, so things will be a little bit more sluggish. In Hong Kong. We do see a lot of exposure to so the recent rally probably might help with some sentiment in the fourth quota, but going forward, we need to really see what happens with the economy in mainland China, as that's going to drive flows into the region.
Carlos, thank you for joining us in studio in Hong Kong. Carlos Casanova, Senior Asia Economists at UVP. Joining us now is Shena Sissel, CEO of Bandary and Capital Management, Shana. When I look at my big board here in markets, I see obviously a lot of green on the screens, and you've got the vics up over twenty. So it is safe to say that most investors arelong but hedged.
Yeah, I guess it's pretty safe to say that it hasn't been advantageous to not belong, So I think people have kind of come to that conclusion over the last few months and more money has flown into equity markets.
So when we look at the inflation story, I think we can agree that things are a lot less severe than they were even twelve months ago. We had a flat reading on producer prices. Last month's reading on consumer level inflation was a little hotter than the market had been prepared for. Do you think this is going to change the Fed's view on how to manage monetary policy in the short term.
I don't know, honestly. I think the job report here in the US, the most recent one, was surprisingly good and even better than anybody expected, which I think the FED is paying attention to those numbers. Inflation appears to be under control, but it's still not at the Fed's target.
So I think any kind of economic upside, especially as it relates to the job market, or even you know, an inflation reading that seems tame on the surface but that underneath has some pockets that are a little hot, will make the FED, you know, consider their policy decisions, potentially make it so that they are going to be cutting at a slower rate than I think the market has been anticipating.
So we always ask our guests about targets in this environment here where you've got US equity valuations pretty high. It's been another great year, given that central banks are cutting and that at least growth in the United States is looking pretty solid. Would it paid to go outside the US for equity markets like maybe some of the less attended to develop markets and even emerging markets.
I think the economic condition especially in Europe in particular, aren't quite as strong as here in the US, and that is potentially an opportunity. But it's not someplace that I would run into completely open arms. I would be selective, but there's certainly potential for opportunities to start to think about way in which you can look at your portfolio and kind of diversify some of the risks. The US
can't lead forever. The problem is it's really hard to figure out the timing of these things, and I don't see any indications, particularly in Europe, that would suggest me that now is the time to jump in. But it's certainly something that I would keep an eye on as you think about how they're a European monetary policy, UK monetary policy and things of that nature start to reflect in the economic conditions in those those countries.
I appreciate you sharing your thoughts in advance. The notes that you provided indicate that you're a little defensive here in some of your positioning. To what extent is that tied to the impending election.
It's not necessarily tied to the pending election. It's more tied to the fact that I think it's really hard to have a perfect soft landing. I think it's really hard for the FED to be right and to not have unintended consequences of their policy. More importantly, I think that the FED potentially cutting too quickly is a negative. I think the economy is doing just fine in the GDP numbers keep being revised upward, so I am a little concerned that they will loosen too quickly and that
has unintended consequences. That's why I'm defensive. But I'm also concerned of how the fixed income markets are kind of positioned, so I have alt exposure instead of bond exposure kind of as a reflection of that.
So if we see China kick in because of the stimulus, and it's true, it's a little disappointing over the weekend, but not really that disappointing.
It just means the numbers are coming a little bit later.
But anyway, if China does well, X number of companies in Asia will do well, maybe not all the equity benchmarks because some money may get sucked into China, but companies that are leveraged to China should do well. Are you looking at that? Do you have any any gems you can share with us?
Absolutely definitely looking at that. Do I have any gems? I can't say that I do a lot of investing outside of the US, so I can't say that I've paid particular attention to anything specifically, but I can't say broadly speaking, you know a lot of Chinese companies, particularly tech companies and things of that nature, really beaten up at interesting valuations. Some of the secondary, second derivative kind of opportunities, especially in energy and things of that nature,
I think are interesting outside of the US. And any sort of multinational, multi international companies that have a lot of potential opportunity to increase growth and exposure in China is a good thing. China not done well recently, so having that expressure has been a negative. But if you look at anybody who might be leveraged to the Chinese market, even in the multinationals here in the US, that that could be a positive.
So I'm curious in the US equity space, is there a theme or a few themes that you like right now that you think will deliver in the next six to nine months.
I think that if you go down cap that there's some opportunities. I'm not necessarily saying small caps per se, but if you think about kind of a FED loosening and cutting of rates, that tends to be better down cap. So looking at mid caps and small caps I think are interesting here. I also think moving outside of the mag seven and looking at I think industrials are really interesting,
and healthcare is really interesting to me. Those are areas that I would be paying attention to as we have greater breath in the market.
I hear from policy are from commentators that small caps as a group are not very good, so you have to be a good stock picker. But then you would think that the best companies in there, if if they did well, that perhaps they'd have the same sort of impact that the best companies the S and P five hundred dominate and lift the whole the whole complex. How do you actually approach looking for mid caps and small caps?
Well, that's actually the problem. Companies that do well in the lower cap indices graduate leave, they leave. Super micro Computer is a perfect example of that it was one stock that drove a lot of their turns in the Russell two thousand for a long time, and then it
graduated and it didn't matter anymore. So, uh, that's why you have to be very particular and you really have to be a stock picker when you look at these industries because there's you know, rising stars and falling angels, right, you got to you gotta know which is which, right, because things fall.
That's why we have you rise.
Into out of it. So yeah, you just really have to look at the momentum, some of the earnings and the businesses there and figure out what really are That's why small cap active managers have traditionally been able to outperform in a way that is not seen in the mega and large cap names.
Well, I guess that's it for today. Unfortunately out of time. It's always fun to talk with you, and I know you always come on on a Sunday, which is very kind of you. SHANEA thank you for joining us. Shane Sissel, there, CEO of Boundery and Capital Management.
This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube. To get more episodes of this and other shows from Bloomberg, subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.
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