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This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our day Break anchors all around the world. Straight ahead on the program, Inflation and what it could mean for the Fed plus earning season is right around the corner. We'll get a preview. I'm Tom Busby in New York. I'm Stephen Carolyn London. For We're looking ahead and beyond the upcoming European Central Bank meeting, when and how fast interest rates may come down.
I'm Doug Krisner looking at whether China's economy is bottomed and if it's beginning to inflate.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg Ey look them free own New York, Bloomberg ninety nine to one, Washington, DC, Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius XM one nineteen and around the world on Bloomberg Radio dot Com and via the Bloomberg Business App.
Good day to you. I'm Tom Busby, and we begin today's program with inflation and the March consumer Price Index coming out this Wednesday. With the fed's next policy meeting kicking off later this month, what could that mean for the central banks direction moving forward? And for more we're joined by Edward Harrison, Bloomberg, team leader America's FX and Rates. Edward, Thanks for being here. What are you expecting to see in that CPI report?
Hey, great to talk to you, Tom. The question really is wide open in terms of what we can see. There are a lot of things, and I think that the way to think about this is that we had a very high level of inflation as we came out of the pandemic, and that's come down considerably, but we've stalled at a level that is above the Fed's target.
And recently what we've seen is prices moving up in places that people are sensitive to, you know, things like cocoa, you know, for chocolate, things like oil, which affects your gasoline prices in the US. And so, as a result, after two readings in a row that were relatively high above expectations, there's a lot of anticipation about this number, and really it could be higher than expected given some of those recent trends.
Still a long way to go, though, to the fed's two percent target, but like you said, not the nine point one percent we saw just two summers ago. But we had been heading in the right direction. Is this recent pickup just an aberration you think, or are we onto something more troubling.
Well, you know, the FED really wants to get their hands around that to figure out what's going on. And that's why when you heard Jerome Powell talking last week, he was talking about patients. And that's because of this number in particular, and also the number that's embedded in the Personal Consumption Expenditures Report, which is what the FED looks at even more closely. When you look at this number, you know, the last number without food and energy, which
are very viable. When you strip that out, you still had three point eight percent. They're expecting three point seven percent, which is almost double the fed's level now. Luckily, because food and energy have been relatively benign of late. The number was three point two percent last time, and we're expecting three point five percent this time. So that gives you an indication that there's a lot of work to be done. And this is why j Powell last week was talking about patients.
Well, let's talk about some of those big drivers here. You mentioned oil right now hovering around a five month high, always very volucile, but we are seeing expectations gas is going to hit four bucks a gallon here in the US, that's for regular by the summer. I mean, that is a real wildcard. Oil and gas prices.
Without a doubt. And you know, as I was saying, they had been positive in terms of the numbers food and energy because the headline number is lower than the number when you strip out food and energy. But now that we have these prices going back up, then you can expect them to have a negative contribution. They're sending the CPI up higher. And there's nothing that people think about more than gasoline prices. It has that anchor effect in terms of how people think about inflation and where
it's headed. And so this is not what people want. And I would add that, you know OPEK their meeting, it will be interesting to see what kind of level they're targeting for oil prices. If we're looking at ninety dollars a barrel, then that's not a level that is going to be pleasant for the inflation numbers.
You know, food, oil, gasoline, housing. But there are some green shoots, some glimmers of hope. Used car prices have moved lower, new car prices have moved lower.
Right, what we're looking for in particular is not just in goods and things that were inflated coming down, but that core beyond even goods in services, you know, takeout housing, even looking at you know, the services sector and the core within the services sector of minus housing to see what the overall trend is. I think that that is going to be the place that people are going to be looking as they look at the CPI.
Now, one last question. We're going to talk about the fed's meeting, which is April thirtieth May. First, that's the next one. A non starter for a rate cut, but everybody's still thinking about that mid June meeting, and between now and then, the FED is going to have three CPI reports, two PCE reports, and that for a data dependent FED is a lot to consider. Is there any feeling that by then, by the June eleventh and twelfth meeting we are going to see maybe some hope of a rate cut.
I think that these next ones are going to be very important, because you know, the FED is looking for a trend, and that trend needs to be lower. To the degree that the next one or two of these CPIPCE reports are not lower, it makes it more difficult for the FED to cut in June. When we look at some of the people at the FED, Atlanta FED President raphae Albostik, he's been an individual who's at the leading edge of where the Fed's going. He's actually talking
about waiting all the way into the fourth quarter. So that's an indication of sort of the angst of the Fed about how sticky inflation has been.
Wow.
Well, the next reading the March CPI data out there Wednesday, and our thanks to Edward Harrison, Bloomberg team leader for Americas FX and Rates. Well, we turn now to the start of the new earning season on Wall Street. It kicks off this Friday. We get the latest quarterly reports from JP Morgan, Chase, Wells, Fargo, and City Group, some of the biggest banks in the US. What will they
reveal about the health of the banking sector. Well for more, We're joined by Alison Williams, Bloomberg Intelligence Senior Analyst, Global Banks and Asset Managers. Now, Allison, I want to start with where the US banking sector is right now compared to the turmoil a year ago. We saw the failure of Silicon Valley Bank in March of twenty three, Signature Bank in April of that year, First Republic. Where are we now?
So, I think for the banks, that really kicked off a lot of concerns about the higher interest rate environment, and we saw a lot of deposit outflows and that really has been a big focus for investors in terms
of the impact on net interest income. But for this quarter, investors are really going to be focusing on the change in interest rate expectations versus the last time we heard from the banks, which was in January, and so at that point in time, most of the banks gave their guidance for net interest income looking for six rate cuts.
City Group more in the three to six cut region, but the market implied rates at this point in time are closer to three, and so we do expect that there could be some change in the net interest income outlook that really affects more of the back half and the twenty twenty five expectations. But circling back to deposits again, that was the sort of one of the big concerns
a year ago, deposit pricing. We have seen those deposit prices increase, but we do think that this quarter they could come in a little bit more muted than perhaps had fears. We got some color around that from Bank of America who said that they think that they're an interestingcome guidance could come in a bit at the higher end of their guidance because those costs have not been as bad as.
They had expected.
What were they expecting, Well, deposit prices are increasing, right, so as rates have come up, banks sort of got an early benefit in terms of the repricing of their loan books, but they held off a little bit in terms of passing on those price increases to customers because we were coming off of those zero percent levels. So I think as things sort of adjusted to a normalized environment, they were a bit slower to pass on some of that benefit. But now that is happening, and so consumers
are demanding a little bit more yield. They're switching their deposits into products that offer a higher yield, and that's been happening over the past year. But perhaps that pace is starting to slow down a bit.
Yeah.
Well, one thing that hasn't slowed down for banks trading. We've seen IPO a little growth there, we've seen record levels for all the major averages. What does that mean for these banks?
So healthier markets are definitely a boon to the asset and wealth management businesses for all these big banks. They are diversified banks, and so they are benefiting just from the fees, just from the asset levels, but also they'll be looking for better flows. That is a key measure
of health of the businesses. But on the trading and fee outlook, trading continues to be relatively resilient, and so that fixed income trading does face tougher comparisons, So it could be a little bit down, especially for the rates and currencies business for someone like City Group, but still very healthy historically high levels. Equity trading getting some benefit.
As you pointed out that we have seen a little bit more activity on the IPO front, perhaps not as strong as some of the banks would expect, but definitely in the US, the US underwriting business is going to be helping those fees, the debt underwriting business helping those fees. M and A announcements looking a little bit better, but it'll take a little while for those fees to kick in.
But I think the highlight for this quarter for trading and fees will be that investment banking feed growth both versus a year ago and the fourth quarter.
But let's talk about now the challenges, and probably the biggest one we spoke about this is commercial real estate. We just had a vacancy rate of offices last quarter twenty percent, just under twenty percent across the US. That's got to be devastated.
And the office business is definitely something that investors are focused on. It's something that we're focusing on. But Wells Fargo, you know, for example, who has one of the biggest exposures among our banks. At least they've already put up a pretty healthy reserve against that business, so they've been watching it as those trends have been deteriorating. And commercial real estate, while it's a big thing I think to focus on for the industry, it does tend to be
a relatively lower exposure across the banks. So even though Wells Fargo and now JP Morgan two of the biggest lenders out there to commercial real estate, Bank of America as well, it is not as big of a share of their loan book as it is perhaps for the smaller banks. And so what we're really focusing on is the credit card business, where we think that is going to be the driver of provisions for the largest banks because there is loan growth in that business, and that
loan growth does tend to have higher loss rates. So we will see provisions increase because of the growth, because credit is normalizing, and because this does tend to be a seasonally higher quarter for those types of losses.
Well, a lot to look forward to this week and our thanks to Alison Williams, Bloomberg Intelligence Senior Analyst, Global Banks and Asset Managers. And coming up on Bloomberg Daybreak weekend, when will European policy makers start to ease monetary policy? We look ahead to the next European Central Bank meeting. I'm Tom Buzby and this is Bloomberg. This is Bloomberg Day Break weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby
in New York. Up later in our program. Has China's economy bottomed out? We look ahead to China inflation data. But first in the global interest rate race, investors have been working on the assumption that the Federal Reserve will be the first to make a raid cut, but after some encouraging economic data from the Eurozone, could the European Central Bank beat the Fed to the punch with a
surprise cut as early as later this month. For more, Let's go to London and bring in Bloomberg Daybreak anchor Stephen Carroll.
Tom Inflation in the euro Area may not be slowing down as quickly as it was last year, but it's still moving in the right direction for the ECB. The latest reading shows consumer prices rising in March by two point four percent year on year. That's down from a pace of two point six percent in February. Spanish Governing Council member Pablo Hernandez de cass is among the most recent to earmark the June meeting as likely being for
the first cut in interest rates. Even the most hawkish member of the Governing Council, Austria's Robert Holtzman, is warning of the perils of holding rates at their current level for too long, but could waiting until June risk harming the economy. Boomberg opinion columnist Marcus Ashworth has joined those calling instead for an April move at this upcoming meeting. He points to Bank of France President Fransouovievoia the gallow
who's often the bell weather for ECB policy changes. De Gallo says that a further slow down in growth means that the time has come to take out an insurance against this second risk by beginning rate cuts. But going before the FED doesn't come without its risks, both in Europe and globally. It's something we've been discussing with Aaron Captain, who's chief economists at UBS Investment Bank.
So if the FED doesn't cut in June, right, so we basically then have less cuts for the FED, so a bit more appreciation of the dollar, a bit more euro depreciation. So at the margin it's going to add a little bit to Eurozone inflation, but really not very much.
If all that we're doing is sort of a time shift of the FED cuts, right, if they just go a bit later and they catch up next year, then you know, the overall rate differentials don't really move that much, and it doesn't fundamentally I think alter sort of the inflation outlook in the euro Zone.
Is there any chance you think of fifty basis points cuts from the ECB this year?
Not now?
It's difficult to see why. So I think the debates more, you know, do you go once a quarter at the forecast meetings or do you go every meeting. It looks like they want to go once a quarter, although they have been a little vague about sort of what the speed of the sequences that they have in mind. In my mind, you know, the easy bit is the first one hundred and fifty basis points, and there's no real reason why you want to sort of race through that
if there's uncertainty about the landing zone. Right, So the way I think they think about it is that you know, you're at four, you can probably safely cut to about two and a half, and then once you get there, you got to look around to see whether you're still on track, and if, you know, if things are accelerating too fast and profits are going up too fast, then you stop cutting at that stage. So given sort of that type of uncertainty, you don't need to go in fifties.
I think the debates really do you go in twenty fives? And then you know, do you skip meetings or not?
Yeah?
I wonder you know, Kasina Guard and others have points as the importance of wage data when it comes to their decision making process at the ECB. Two is the wage days is something that's a big concern for you when you're thinking about the broader outlook for the year Zone economy.
No, so based on what we've there's not a lot of year to date wage data out yet. But if Italy doesn't repeat the big one off that they had in December, then our current tracking of negotiated wages is that it'll slip below four percent for the first time in January. And so it really looks like, you know, the negotiated wage track, which is going to be most inertial, had been sort of going sideways, is now starting to
trend lower. The indeed wage tracker, which is sort of temp marginal wages of temp agencies, that's already been heading lower. And then they have a phone survey which they don't publish, and so all indications really are that wages are moving in line with their forecast and at this stage are not concerning.
That was Aaron Captain, chief economist at UBS Investment Bank, speaking to us on Bloomberg Daybreak Europe. Now, the ECB expects CPI to fall to two point two percent by August, but it could happen as soon as this month, according to estimates by Bloomberg Economics. Kicking off rate trimming is one thing, but questions still remain about what comes next for the ECB after the first cut, whether it comes
in April or in June. At the moment, money markets are pricing in three quarter point reductions starting in June. I've been discussing the path ahead with senior Euro Area economist for Bloomberg Economics David Powell. Just how surprising would an April cut be or how likely is it?
An April cut is very unlikely at this stage. For example, there's almost no probability of that being priced into the markets right now. Some time ago, there was a debate whether this was going to happen in April or in June. That was back at the beginning of the year, and
that was fully priced in that April cuts. There has been a big shift in market pricing we've seen, and that's really been thanks to the communication we've seen from the ECB who have started to rule out some time ago the possibility of an April cut, Although there have been some doves in the Governing Council who've continued to speak about it from time to time. It's not of you held by the consensus at all.
Just mischievously hinting that perhaps there's something could happen, even though there's no likelihood of it as you see it as well. So what's the risk of waiting longer for Christine Legard and colleagues or is there a risk in them waiting to June.
Well, the difference between April and June is not that huge. Although the ECB cannot wait until is actually down to two percent to start cutting because monetary policy works with a lag somewhere between a year and a year and a half. So if they don't, if they don't actually cut until inflation is back to target, the full impact of that cut won't be felt for some time later, and the economy could already have suffered some significant damage by them at a time when the economy has hardly grown.
In fact, the UR economy is not expanded at all for nearly a year and a half, and if we compare that flatlining that we saw last year in the UR area, that's very different from the US where it expanded by three percent. So they can't wait forever to cut, but probably the difference between April and June is not huge, and it looks like it's coming in June.
The process of deflation has been reasonably steady in the Euro Area. Are there worrying aspects within that? Are there risk zones within the members of the Euro Area that could actually bump inflation up in the wrong direction before we get to right cuts?
Yeah, well, inflation has come down, as you said, considerably from where it was at its peak. In fact, it's not very far from the target now, and we expect headline inflation to actually drop below target this summer. But there are still some bits of worry when you look at the details of the report. In fact, we just had the inflation report for March and both the headline and core continue to come down. But services inflation, which the ECB is watching very closely, has been sticky at
four percent for months now. That will probably come down in the months ahead as wage growth decelerates, but that's keeping the ECB worried and as part of the reason they're moving cautiously delaying the first cut to June. They'll probably pause after that and not cut again until September, and they would like to see that come down before they move more aggressively.
And of course the flip side of they say is and those who do want to see right cuts come faster is the weakness in the euro Area economy. Late interesting to see the latest round of pm I numbers showing a little bit of strength returning the Eurozone composite pi I number the final reading for March, seeing it nudge back into expansion territory. How weak is the euros and economy at this point, Well, the your area is pretty weak.
Like I said, it hasn't expanded for nearly a year and a half. That stands in very stark contrast the United States, which, as I already said, spend the three percent last year. It just gives you a sense of how weak it is in Europe. However, the economy will probably gain some momentum this year is inflation comes down. Real incomes are being boosted and that allows real consumption to rise, so people have a bit more money to spend with inflation coming in. We're seeing that in the numbers.
The services sector is once again recovering in Europe, but that'll probably continue throughout the course of the year and the economy will gain some momentum, but nothing like we're seeing across the Atlantic.
What about the question of wage data. This is something that Christine Lagart has signaled and repeated occasions as being absolutely key for the European Center Bank decision making. Do we have any early indications of what the wage picture is?
Well, wage growth has probably peaked the most comprehensive set of data WEEGN, and that comes with the national accounts. I mean know a couple of quarters ago that peaked
wage growth and is coming down. Specifically, it's the compensation per employee they look at, and we'll get another round of that in the early part of June and that will cover the first quarter, and that's what the ECB is waiting for to cut to confirm that wage growth continues to come down, although before that we'll get some
data un negotiated wages towards the end of May. Christine Legarda already has highlighted that in his speech in Frankfurt a couple of weeks ago, that they'll be looking very closely at that for some initial signs of wage growth continuing to decelerate.
So let's talk us through your expectations then for the rest of the year. So no cut at the upcoming meeting. We're looking towards the start of summer for things like that to start moving. What does the rest of the year look like for the EACYB from this point of view?
Well, as I mentioned, the ECB is really focused on this wage data and that comes in the national accounts, so it only comes once a quarter. So we get kind of batch of that for the first quarter in the beginning of June, and then we have to wait another three months of beinning of September until we get data on that again. That'll be for the second quarter. Conveniently for the ECB, that also aligns with their forecast months, so they'll have fresh inflation forecasts and they own staff
economists in June as well as September. And if both of those are going in the right direction, meaning of that the staff forecast are inflation continuing to decelerate as they have been forecasting for a while, that will allow them to cut in June, probably pause in July as they wait for that quarterly data again in September, and then cut again in September. By then, headline inflation is
likely to be below target. In core inflation is not going to be far behind it's going to be a lot more difficult to justify restrictive policy stands when inflation is actually below target. So from September we think that they will cut it at each of the remaining meetings of the year, and that equates to about one hundred basis points and easing throughout the course of this year. How much of a.
Dilemma is it for the ECB to go before the FED. I know the ECB of course will tell you that they make their own decisions and they're not that conscious of it, but surely one is reliant on the other.
If we look back at this tightening cycle it's taken place, the FED has kind of taken the lead on it, the ECB followed, and the ECB probably wouldn't mind if the FED took the lead again on cutting. And they may not have that luxury though, of just kind of following the FED, because, like I said, the UR economy
is much weaker than the US economy. So if things remain strong, and most of the data coming out of the US suggest they will, the FED may be able to put off monetary easing, and that's not a luxury that the ECB has at this stage. So it may not have choice. It may have to go on its own and then allow the FED to go later.
How much of a risk would a weaker euro though be to the inflation outlook if they we do If as expected, the ECB does go before the Fed.
Obviously the ECB is so he is looking at the exchange rate, what it does to inflation, in growth and other things. However, it's not really on the ECB's radar at this stage. They're not talking about exchange rate volatility or a weekier or strong or anything like that. So I suspect that that's not too important for them at this stage when they contemplate the path of interest rates.
That was David Powell from Bloomberg Economics. I'm Stephen Carroll in London. You can catch us every weekday morning here for Bloomberg Daybreak. You're at beginning at six am in London and one am on Wall Street. Tom, Thank you, Steven. And coming up on Bloomberg Daybreak weekend. Has China's economy bottomed out? We look ahead to China inflation data. I'm Tom Busby and this is Bloomberg.
This is Bloomberg day Break weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. The early indicators on China's economy show there may have been a small improvement during the first quarter. Even so, the majority of Chinese financial institutions surveyed by Bloomberg Economics doubt the economy has bottomed out, and a big question is whether it's stuck in deflation. We'll get some insight in the week ahead.
Let's get to Doug Christner, co host of Daybreak Asia for a closer look.
Tom, I think we can say the big issue is confidence.
Now.
The latest PMI data show improvement, but so much about the overall Chinese economy does remain fragile, especially where consumer demand is concerned. We know that retail demand is weak. Pricing power seems absent.
Now.
The readings on producer and consumer prices are due midweek. We're going to preview the day and now and talk about the current challenges for the Chinese economy with Bloomberg reporters Jill Desis and Alan Wong. Jill is one of our news desk editors, and Alan is an editor on the China ECOGV team. Thanks to both of you, for joining us, Jill, I want to begin with you when I start with the story about prices, particularly at the wholesale level, producer prices. I guess in China it's known
as factory gate prices. We saw numbers in February at a decline that was pretty rapid, and that extended a slide in kind of a deflationary trend to seventeen months. What's the conversation like around what we might expect in the week ahead.
Yeah, Doug, I think that at this point, really those factory gate prices continue to remain under pressure. We're still expecting, or at least a economists are still expecting a continued slide once we get those numbers for March survey estimate is below two percent declines even I mean we're approaching three percent declines. Think, so, there doesn't really seem to be any kind of a meaningful turnaround in terms of getting rid of these these issues around producer price deflation.
It's interesting because I think that at this point the deflationary pressure story in China is just so much more centered around consumer deflation, just because you know, from a from a demand perspective, there's not a ton of concerns around you know, China's ability to you know, making goods and exporting them. I think it's much more about what the domestics demand story says about China right now.
So, Alan, assuming that the numbers do show further deflation both at the wholesale and retail level, does that create any kind of urgency for the government to step up support.
Yeah, the urgency has always been there, and numbers, even if they're not positive, will just only add to the common consensus that there is a need for China to ramp up its fiscal measures to stimulate demand.
Jill, you were going to weigh in, Yeah.
I think what's really interesting about the stimulus support story when it comes to domestic demand is, look, we were back at the NPC at the beginning of March really sort of waiting on what kinds of stimulus support measures would actually be announced, and I think, you know, economists
were generally disappointed. But I did think one thing that was kind of interesting is that, at least when it comes to trying to stimulate consumer demand, there's a lot of talk about trading and old products for new ones and stuff like that. I think what economists, you're really waiting on is whether there's going to be a big dollar amount put behind that in the future.
So Alan, if we're really talking about depressed sentiment, I mean, the property market seems to be the root cause. I think we can agree on that much. I mean, or maybe it's just such a big part of the story. What is your sense based on Bloomberg reporting? Where are things right now visa VI the housing market?
Yeah, we're seeing a two track recovery in the Chinese economy. On the industrial side, things has been we were seeing green shoots on that front, but then in terms of the property slum it's still very much in a sorry state. We seeing that housing start a week, but housing completion is stabilizing, so that means that new homes on being built and that has some down with pressure on commodity prices for example, and that also reflects on the weak sentiment in China in general.
The other thing too, I think it's a really interesting stimular story when it comes to the housing market as well, because the government has taken several steps to try to prop up support there. I think most recently, Chinese lenders slashed a key rate for mortgages in February and attempt to stimulate demand into March didn't really seem to move the needle there much. So that's just, you know, to
kind of put this in perspective. Another thing that analysts are looking out for is whether these continued rate cuts are actually going to help prop up the property market as well, because they really haven't done much so far.
And as both of you know, US Treasury Secretary Yellen is in China. One of the things that she is addressing is this issue of industrial overcapacity and how it's having a negative impact not just on the Chinese economy, but many economies around the world. I spoke earlier about that with George Barboris, managing director at K two Asset Management. Here's what he had to say.
Some people would say there's some cognitive dissonance with some of the policy coming out of Beijing, but in reality, they're taking a step back from the grand to play the long term. They will unload cheaper products to the rest of the world that will allow it, and North
America will maintain them. They've obviously died up those tariffs and the current administration from the previous one, they can allow these cheap goods to come through which they won't, and that would be very CPI will fall very quickly. But China's just got a different playbook at the moment to where we're were three years ago, and the middle class of China going to pay that price.
That is George Bevoris, they're from K two asset Management. Now, Alan if we can agree that there is an overcapacity problem in China, It's kind of curious, isn't it that Beijing is still intent on using industrial policy as a way of driving growth. What do you think?
Yeah, there is a need for it to find ways to grow its economy because of the persistent property slum. China is pouring money into manufacturing and has designated three new industries as its new Big Three industries, namely evs, electric vehicles, solar cells, and batteries. So it's trying to ramp up production on these things and then obviously that
creates more competition in China and drive down prices. But the US is right in thinking that what if China exports lots of cheap cars to the US, what's going to happen to domestic makers of cars? And this is going to be high on the agenda of Yellen's trip to China.
We know that the government will released the Work Report back in March and with it this plan to unleash new productive forces. High tech is a big part of that story. Innovation another way of driving growth. Jill, do you have a sense of what this may look like if we take EV's, if we take solar panels out of the equation, what does high tech and innovation look like?
I don't really know that you can totally take EV's and solar panels of the equation there, Doug, because I think that is pretty central to this idea of what China is trying to accomplish here, right. I mean, we know that no matter what happens with the property sector, even if Beijing is able to put a floor under this crisis, we are not going to see real estate contribute to GDP in the way that we have in
the years past. That's just absolutely done. So what China really needs to do in terms of this long term strategy for new productive forces is find ways to replace bits of how the property sector contributed to GDP with some of these other sectors. And so that does mean investing a lot more into evs and solar panels, which is of course obviously leading to some of these overcapacity challenges that you're seeing out of the US when it comes to China, the fact that they're subsidizing so much.
But I think that at this point, I mean, it's still a fairly vague slogan, right, I mean, how else do you really prescribe, you know, describe new productive forces?
Yeah, And I think one thing i' added is that the idea for this new new productive forces is China wants to climb up the value chain in areas like Ai. China also want to make I mean, wanted to play a much bigger role in the Chinese economy because it will make people more productive and then the workforce will be a lot more skilled and this will make China a lot more competitive in the longer term.
Well, you mentioned workforce there, Alan Jill. I mean, where are we right now when you look at the labor market, particularly youth unemployment. Do we have a sense of where the unemployment rate is these days?
Oh? Gosh, Doug, Well, I think that with the youth unemployment rate, there's just been so much chatter about that one over the last year, right, I mean, we saw that one just removed from the official database for several months in twenty twenty three, as policymakers said that they were retooling it. Ultimately, now they're still putting it out, although they've stopped highlighting it in their big regular press conferences.
It does seem like it's ticked down a bit to around fifteen percent or so rather than the north of twenty percent that we were seeing in twenty twenty three,
though obviously still a major issue. I mean, look, young people in China, these recent graduates have really been hit tremendously over the past several years, not just because of the economic slowdown and all the pandemic controls and all of that, but also this whole realignment within China around how the tech sector has handled this crackdown, this austerity campaign.
All of that has led to jobs drying up, and I think, you know, some levels of dissatisfaction still, particularly among China's use well.
And if we can agree that consumers really have been keeping a pretty tight leash on spending, is there a way that the government might address this through means other than just lowering interest rates. Are their ideas floating around, maybe to issue some type of coupons directly that could be used to purchase goods. Are people beginning to get a little creative.
I think they are on the China's top economic planet and the RC actually recently met to just talk about how they could implement this program. And some of those people and the companies they met are a consumer goods company and importantly recycling companies, because they're going to encourage consumers to replace old goods, durable goods and cars and
factories to replace the equipment. So that's going to create a lot more demand if implemented the way it wants to for new equipment and appliances and what's that way it's going to go. China's going to have to deal with that in some way. Yeah.
I think Alan did a really good job of summing up the plans that are actually in consideration here. But I think the really important thing to underscore is that in terms of direct cash handouts, China's just absolutely not going there. I think that it would take a tremendous
amount for China to actually consider something like that. They've been incredibly critical of what Western governments in particular were doing in terms of cash hand ats to households during the pandemic and it seems like that's still a bridge too far for China's government, right, But it was very interesting.
There was a report just in the last week I published where President she was considering a US style quantitative easing as a way of providing a little bit more liquidity into the market and may be a little bit more risk taking. Can you imagine a world alan where quantitative easing shows up in part of the pboc's playbook.
I think so far talks of Chinese style q E is still premature. The line that Cgpen said was taken out of a new book published featuring his quotes from months ago, and there's still no sign, no follow up on whether the Chinese Central Bank will do something similar. And you know, just generally speaking, China is trying to prove that there is a way to grow its economy without resorting to Western style stimulus measures that created problems
that we saw in the global financial crisis. So I think it's still too early to say whether that's going to happen.
Joe Lisis Alan Wong, thank you so much for joining us here to help us understand what's going on in the Chinese economy and what we may see in the week ahead with that inflation data. I'm Doug Krisner. You can join Brian Curtis and myself weekdays here from Bloomberg Daybreak Asia beginning at eight am in Hong Kong eight pm on Wall Street.
Tom, Thank you, Doug, and that does it for this edition of Bloomberg day Break Weekend. Join us again Monday morning at five am Wall Street time for the latest on markets overseas and the news you need to start your day. I'm Tom Busby. Stay with us. Top stories and global business headlines are coming up right now.