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Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market movin news.
I'm the Bloomberg Markets Podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot Com Slash podcast. Thank everybody on their yearhead twenty twenty three, we're saying the reopening of China was going to be a major, major play. It doesn't feel like it's really played out. So you know the question is kind of what happened and where do we go from here? Julie, let's say she joined as she covers all the emerging markets for
Bloomberg News. She's based in South Paolo, Brazil. Julia, Again, the China call seemed like a reasonable call, seemed like an easy call to make a year ago.
What happened, and it was a total consensus call.
Right.
We've had Goldman, Morgan, Stanley, Bank of America, everybody saying, you know, China's going to reopen and kind of be a wave that lifts all boats and it's super positive for emerging markets. And what you ended up seeing was the exact opposite, Right, China has been a drag on emerging markets as a whole. If you look at it, the EM index, which is very very heavy China, it's
about thirty percent China waiting. It's down fifteen percent, underperforming US stocks by the most and I think thirty five years or something. If you strip China, it's up by the most in four years, by about the same amount. So it ended up being a problem for those calling for the decade of emerging markets or you know, the beginning of a massive rally in EM particularly because of China, and it just all the hopes that with the COVID restrictions easing, it would lift everything, and it.
Just didn't happen.
And that's why, for example, we're just getting a call out of Goldman can allow over there had a global currency rates Emerging markets in general saying look now think about EM and em X China going forward.
It feels like that's right.
It's a theme we keep seeing. We saw a couple of weeks ago the em X China ETF.
Just surging in inflows.
It's now bigger than the inflows are bigger than for the China ETF, which a few years ago was fifty times bigger than the X China ETF. So you're seeing a lot of money flow out of China and all acid classes and go. And then it depends on the call, but you're seeing Latin America benefit. You're seeing a lot of India flows, a lot of money managers calling for you know, the growth prospects of India and the reforms, and just money just keeps flowing out of China.
So, you know, Julie, I wonder what EM investors are saying today because to me, as you mentioned, it's a big part of the MSCI see kind of have to be there, but to me it feels almost uninvestable. This quote unquote China risk where the government can come in and just really recavoc on my business. I think about Ali Baba, which is kind of the IBM of China. It just took Ali Baba out to the woodshed. What are investors saying about the ability to invest in China these days?
And what you see a lot too is the is the surprises, right. I think the property crisis was a big kind of nobody saw coming in. It wiped out seventy billion of value, so it is harder to invest in. What you're seeing from what hearing from investors a lot
is the gauges that we usually look at. So the MSCIM for stocks, it's kind of losing its place as a benchmark just because you have to look at China and ex China, and because this index is so heavy, it's kind of not representative of what's happening in emerging markets where you're seeing a broad rarely once you discount the thirty percent that's China.
I mean, just look at what happened on Friday of last week. With the gaming sector tencent down twelve percent. You saw NETS is down sixteen percent in the ADR training, I mean extraordinary bait and switch. It felt like once again in terms of the overall view of gaming and whether or not you're going to be having to be charged for an adult using the gaming section, in particular when you're making in app purchases and the like.
And then of course later.
China approves one hundred and five new video games on Monday to try and sort of calm the concerns that it immediately rifled. So it does feel as though ultimately people are feeling very misguided by what happens with China.
Ultimately, therefore, where do they invest?
Is there any new country that we single out overall? Is there a viewpoint that you need to be elsewhere?
Julia at the moment, I think the most consensus call at the moment is India.
It's what we keep hearing from everyone.
You have to invest in India. Saudi Arabia comes up a lot, as does Latin America. Brazil has been cutting rates, Chile has been cutting rates and kind of giving a boost to markets. Mexico is another destination. It's close to the US, we have a lot of companies moving factories into Mexico, which is a boom to the economy. So those are the geographies that we're hearing most about while money managers leave China, kind of leave it alone for a little bit, Julia, let.
Change so great to have some time with you.
You really appreciate you dialing in from Latin America or of course based over there, thinking all things of managing editor for the EM at Markets Americas.
You're listening to the team can't live program Bloomberg Markets weekdays at ten am eastering on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcast.
Thy Art Shamali, CEO and founder of Greenwich Media Strategies, Gard thanks so much for joining us here. I don't know where to start in that part of the world. There are so many uncertainties here. So much is such a fluid situation. Let's start with the Red Sea. What's the status of shipping in the Red Sea? Is everybody diverting or people taking their chances? Where are we?
Well?
You had as as you heard you had over the last few weeks.
You had the houthy militants in Yemen, which are backed by Iran and funded and armed by Iran, attacking vessels in the Middle in the Red Sea, vessels Israeli flagged ships, but also commercial ships of all times, in order to create trouble, in order to destabilize things, and frankly, it is kind of an effort on the part of Iran really to destabilize things without declaring it all out or and instigating a response from the United States at least
major response. And so we had shipping companies say that they were going to divert traffic around around Africa, which is we all know would increase costs majorly and then also and also create delay times, could contribute to global inflation and so on.
And so the US responded was saying, you know.
What, we're creating an international navy coalition. And so the United States has it has a number of countries that have participated in that in order to patrol, if you will, the Red Sea and the Suez Canal to continue to allow shipping.
And so they've created it.
We don't have all the details on how many vessels or ships are there from the United States and which countries but we do know that it has already diminished the risk. It hasn't decreased it entirely or eliminated it entirely, but.
It has decreased the risk.
And already you have as of yesterday, some shipping companies like Marisk for example, have announced that they're going to resume shipping through the Red Sea and the sews Canal. Not all of them yet, but I expect as people see that things are tad commer that are going to resume shipping entirely.
So maybe that takes off some of the anxiety that we've seen from a price perspective, shown in oil prices. However, the conflict, as we see it, all of this stemming from, of course, conflict between Hamas Israel, and I'm interested, of course in ultimately how you see that particularly ramping up because it has been increased concerns particularly around Iran visa VI Israel. How we seeing that particularly ratcheting up its concerns for you as well?
Yeah, I don't see any let up in that conflict or in the aggression pursued by Israel, and by the way, also the aggression pursued by Hamas in this conflict. There have been since last week a number of efforts to try and reopen a truce. The Israeli president offered a one week truce in exchange for another round of hostage
and prisoner exchanges. Then Egypt has come up with a very ambitious plan that I don't think will stick, for a more permanency spire that would include even and not only releasing hostages, but also changing the power structure in Gaza to include one that's a technocratic Palestinian government and not one led by Hamas, which Hamas outright and rejected.
Amasa has outright rejected both both offers of these ceasefires. Now, I do think that you're going to see small humanitarian lauses and truces that are short in nature again, because we know that Hamas and the Israeli government have agreed in principle already two humanitarian causes that yield a Palestinian prisoner slash hostage Israeli hostage exchange.
So I bet we'll see that again.
But in the meantime, until that happens, the Israeli government and Natanya, who has been very public about this, have said that there's really no let up. Nata Yah, who just yesterday or two days ago said that there is no stop to what we're seeing on the ground in Gaza.
And I will tell you in my own experience when I worked at the White House working on conflicts, including past conflicts between Israel and Tamas, these wars are short in the grand scheme of wars, and so I don't expect it to last at this intensely past the new year.
I mean into the new year, maybe a month or so, but after that I expect somewhere around February it'll die down, but it will not stop until the Israeli government really gets at the heart of Hamas's leadership in han Yunis in the South, Goazagara.
What's the support for President Netanyahu at this point, and I guess by extension just the overall war effort here. Where are we in that right now?
That's a great question.
Israelis have really spoken very loudly against against Netanyahu, and by the way, they were speaking loudly against him before before October seventh, because of his own corruption scandals, because of how he was trying to overhaul the judiciary inside Israel in order to protect himself from these corruption investigations, and so there was already a lot of animosity toward him, a lot of protests against him, and this is only increased that sentiment further because a lot of his policies
created the vulnerabilities that Hamas took advantage of when they went and pursued their horrific terrorist attack on October seventh.
But that said, they are in the middle of this intense war.
And so while you have what seems to be a majority of Israelis, and there's been a lot of Israeli polling on that against Natanya Who add more in favor of Benny Gantz, who is in the wartime cabinet. I don't expect Natanya Who to leave or resign or be
forced out at this moment. But like I said, when those intense operations slow down a bit, which I expect sometime after the new year, that's when the Israelis will turn and say, all right, now it's time to kick Natanya Who out, and I expect Benny Gantz to be put in place.
Hega, what then of the administration, we of course are heading towards an election in twenty twenty four. With your twelve years of experience of working within government, what will the response level end up being from the White House at the moment.
I don't expect the position of the White House when it comes to calling for a ceasefire or to place conditions on USA to Israel to change at all. And some of it could be because they're banking on the fact that it will be short lived, and it will be, like I said, the grand scheme of how wars go around the world and in history, these wars between Israel and Hamas tend to be relatively short and so they
may be banking on that. But a lot of it really does stem from a genuine desire to defeat Hamas completely,
a belief that the Israeli government can do so. And by the way, I agree with that, given that we saw it happen with the international Coalition against Isis, that might not mean that they could eradicate Hamas completely the way in Etanyahu says, But defeating Hamas and its military and governing capabilities is a real achievable goal in my opinion, and you can see that the Biden administration wants that, and they also don't want to show any kind of
lack of support for Israel at this time, and that's why they're not going to place additional conditions that already exist on the weaponry equipment vehicles going going to Israel. That said, you do see them heightening this rhetoric on the US side, calling on Israel to really limit or avoid civilian casualties at all costs, to be as targeted as possible, to transfer to low intensity operations.
And that's because not only is.
That morally the right thing to do, but in terms of the strategic goal of a broader, secure Israeli state that harming civilians this way, killing them this way, doesn't help them achieve that goal. As Lloyd Austin says, Secretary of Austin, it would replace a tactical victory with a strategic defeat. And that's why you see the US continuing to advise them this way.
So are the Middle East is not the only hot spot out there. We still have the war in Ukraine. And I spoke to Admiral James Tervitas a couple of weeks ago, the former NATO chairman, and he said, basically, he just returned from Korea and he said what he believes is going to have to happen in Ukraine is what happened in Korea in nineteen fifty two or fifty three, which is basically swapping land for peace. Is there any feeling in that part of the world that that's even
on the table or as possible? What's update?
Well, it's not the feeling certainly coming from Ukraine, and it's not entirely yet the feeling in Europe, though you see things starting to become a little bit awkward or uncomfortable, if you will, so on that. So, first of all, I'm so glad you're asking about Ukraine, because nobody is really and just because the attention has diverted to Israelkauz, it does not mean that the war there has led up at all.
Things there seem to be in somewhat of a stalemate.
Though I have to really stress that while we see a lot of press articles saying that Ukraine is losing its counter offensive, that is not true. In July, Ukraine had regained fifty percent of the territory that Russia had seized since February twenty twenty two.
And that is significant.
That said, they are running out of ammunition and we know that, and Presidence Zelenski came to the United States and pleaded to Congress for more aid. A lot of experts say that they'll run out by March. Now that said, I do believe at the beginning of this year, at the beginning of twenty twenty four, that Congress will pass a new round of aid for Ukraine, for Israel, and also for the southern border, which has been which is what Republicans have said is holding up a They want
to compromise on that. President Biden has said he's going to compromise on that, and I think they will. I think they'll come to an agreement. But that said, it shows that things are becoming more difficult in the garnering support for Ukraine. And that is in part because if it's an election year, Americans are growing a bit more weary. Not the majority, but but a lot are growing more weary of support for Ukraine. Obviously, you have inflation, and
in Europe you're seeing the same. The Hungarian Prime Minister Victor Orbon he got in the way of the EU sending another aid package to Ukraine. The EU requires consensus of all of its twenty seven member states in order to pass something.
Like that, and so you're seeing difficulties arise.
Like I said, they will get there across the finish line in the new year. But given how difficult it's becoming, I'm not surprised that you're starting to see leaders say, hey, we don't want to leave Ukraine in the lurk like this, and so maybe we need to start considering how to lay the ground up for negotiations and position Ukraine in as strong a position as possible.
Grey, thanks so much for joining us. Really really appreciate getting your perspective for Ur Shamali, CEO and founder of Greenwich Media Strategies. She's also an adjunct professor at Columbia University School of International Public Affairs and a non resident Senior Fellow at the Atlantic Council's at Geoeconomic Center.
You're listening to the tape Can's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
We want to be bringing in Jennifer Lee, senior economist at Remote Capital Markets, and Jennifer It has been an extraordinary year. If you think about the way in which basically every economists got it wrong in the direction of travel, well, how far we'd go in terms of boring costs going high. They never anticipated quite the ramp up.
But now every.
Economist thinking that we're going to be cutting an extraordinary debate degree. Well, the market see at least one point five paces, well one hundred and fifty basis points one point five percent for the next year. We feel as though the market's getting ahead of itself when it comes to overall federal reserve policy or what do you make of it?
Good morning, and thank you for having me on. Yes, I think the.
Market is a little bit ahead of itself, to put it gently. Uh, there's still some talk about, you know, earlier, earlier rate cuts for the federal reserve. But I don't see how that's going to happen. You know, it's sort of something dramatic happening. You know, we don't look, but we do look. We do look for rate cuts to come around the middle part of the year, at about one hundred basis points in total. It's just we've gotten
so much momentum still building up. I mean, even though we saw three quarter growth and it seems like forever ago, you know, revised down last week for two four point nine percent. That's still a heck of a strong number. You know, there's nobody denying that. And that was, by the way, the very first estimate that that the BA came out was was four point nine percent. So four point nine percent Q four so far, you know, we've seen signs of slowing, but there is still a lot of momentum.
And you know, we again it seems like for hour ago.
But just last week we saw the personal spending and income data bully cow still very strong. You zero point three percent real spending and it was basically across the board.
And I always look.
At the key things you know, that people could be spending on or would not be spending on if they're really really worried, and there's still more spending on dining out. There's a lot more spending on recreational goods and vehicles things like that that you know, if things were really really tough, you wouldn't be doing all that, And there's still some spending on that front. So we are still seeing some decent momentum moving into the fourth court, into
the turn of the year. So again, earlier rate cuts I think are just overblown.
Those those those that sort of talk interesting.
So if we do see still a lot resilience, if we do see ultimately also maybe wage inflation being sustained, do you do you ultimately think that the FED will have to become more joined up in its approach messaging as well, because that's where the whiplash seems to be
coming in. We have FED chair Pale speaking of perhaps this necessity to start cutting in twenty twenty four, and then a couple of FED speak come out and try and weel us back in terms of how far how fast are we getting a consistent message?
Up until last up until recently, I would say yes, But now it's like I.
Don't know what to happen at FED meeting.
But you know, obviously Fed Tairpal I feel took you know, through the markets for a loop when he you know, started talking about the fact that ray cuts had entered the discussion, you know, and he didn't really push back on too much of the questioning that he got during the uh uh, during the Q and A. So that's why we saw that parade of every single I believe it was every single FED official coming out shortly after saying hold up, way too soon. Discussion of earlier raitcuts
is too premature. You know, we still have to see a lot more data. Everything is going you know, again, we're looking at the totality the data, as we keep talking about all the time, and I think there's going to be a lot more of that before we can see the official rate cuts. But you know, it's going to you know, we do believe it's going to happen again mid part of twenty twenty four, which is around the corner at this point. But the fact that you know, things.
Are slowly, slowly, slowly slowing.
And the fact that inflation is coming down, you know, it's a good place to be in right now. And this is something that I don't think any of us would have anticipated a year ago.
So, Jennifer, can we officially take the recession talk off the table?
We were I'm going to say this again, we've always been in that soft landing category and we had I think a negative print on one point last year, but we took that all out. You know, again, this is like the whole soft landing, no landing, any landing kind of scenario. You know, we still see things slowing obviously around the turn of this year, and of you know, this is going to prompt those FED rate cuts to come along around June.
Or around June.
So but I don't think a hard landing or actual recession is right now. Looks like it's in the cards, but you know, things can change very very quickly. A lot of still a lot of uncertainty that's playing out out there as the as twenty twenty four begins, So we'll see how all that plays out. But as of right now, you know, we are not looking for an actual full fledged recession.
Jennifer, I don't know, just in my opinion, I think the Fed's done a decent job here, I mean, coming out of a pandemic. But you don't they didn't teach in business school. Maybe a little bit late, okay, I'll give you that, but by and large they seems to have managed this thing pretty well. If in fact, we do get a soft landing. What's your feeling here is now we have a little bit of hindsight.
I'm going to one hundred percent agree with you of that.
I mean the fact that again we are at this stage at the last you know, the last few days of December of twenty twenty three, and that whole soft landing narrative is still complaint can continue to play out, and more and more people have hopped on it over the last few months. And this is something I guess, you know, again, no one would imagine, you know, in unemployment it's still very very tight. Wage growth is still on the rise, you know, but not as hot as
it was was. So this is you know, dare I say, it's almost goldilocks ish, you know, this is something that the FED is totally welcoming. And for sure it seems like they've done a great job. And the fact that the US economy remains resilience after over five hundred and twenty five basis points of great hikes is pretty darn good. I mean, this is I think they should be giving themselves a pad on the back. But again, it ain't over until it's over, and we're gonna have to see
how you know, twenty twenty four plays out. Still if we start seeing more signs of potential, you know, more heavier breaking I guess on the economic momentum front.
And let's just talk about some of those risk factors not to be a Debbie Downer at the end of the conversation, But just tell us a little bit about what is it that you think could pull back a consumer at this moment which does seem to be so resilient. Is it geopolitics, is it tensions in the Middle East? What is it that suddenly up ends some of these rosier viewpoints when it comes to self landing.
I want to say all of the above.
I mean, if consumer starts seeing more signs of you know, potential, even like supply chain issues coming back into the mix. You know, China's opening again and all that, so that's fine, But then now we've got everything that's happening in the Red Sea. There's a story this morning about about Europe, you know, trying to create its own battery chain you know scenario, and it's having problems sourcing sourcing supplies or components because of you know, a competition from the US.
So that could also throw a wrench into that. And of course, as you mentioned geopolitics, you know, the war in Ukraine, of course, the conflict in the Middle East. If that ramps up. We also have a number of
elections coming up in the in twenty twenty four. We have you know, you know, not the political expert, of course, but we've got Taiwan coming up in January, and of course the you know whole series of European elections during the year, and then of course we've got the US coming up in November, and all of these could throw a big wrench and all this.
I always like to look at climate as well.
I mean, this is something that seemed like a you know, a very far away to story many you know, a couple of years ago, but it's still very much now.
It's very much here.
We can see it from you know, here in Toronto we have like a green Christmas, which is something I haven't seen in a long time. This is all could potentially add to the whole inflationary pressures in the terms of how it affects food prices for example.
All right, jeniferly, thanks so much for joining us. Jennifer Leeve from a Bank of Montreal Beimo as we know it in the trade. You giving us her thoughts on this economy looks like a pretty solid soft landing. At this point.
You're listening to the Tape Can't Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Judy Van Allen is joining us.
She's chief revenue officer at Recruiting Rewards now rocketing.
I'm thinking of cash back, I'm thinking of coupons.
I'm thinking though, of you being able to track consumer sentiment as it stands online in particular, and Julie, is the consumer as resilient as it was this time last year when it comes to e commerce purchasing.
It's a great question.
And first, it was a massive holiday season, especially for brands like US who cultivate great loyalty the incentives, rewards, discounts, coupons. But unlike the last couple of holiday shopping seasons, we had to wait until the very last minute to see those consumer dollars flow through, which is obviously a scary moment when you consider how much spend flows through Q four. Normally, last couple of years, shopping really started in October November
in earnest. This year, it really started on Cyber Week which we kind of anticipated would happen and luckily did happen, knowing that consumers would likely be waiting for the best possible deals. But what I will say is particularly interesting is that because consumers waited, there was a lot of pent up demand that rolled into December. But that made it quite hard for many retailers and brands to sustain
that sort of promotional activity through end of year. So some were smart with their budgets, some less smart, and it did really create some winners and losers.
Okay, let's talk about the winners who won.
From a category standpoint, I would say there are some interesting things. Travel really did quite well, ostensibly because consumers were waiting for the best deals on high price point purchases. We thought electronics would.
Be a big winner.
Not so much.
They did start to come back a little bit in December, but given those are discretionary purchases, we did think that those dollars would wait for the big deals to occur. Apparel was another one that wasn't so super sense again, because that's a bit discretionary. People aren't gifting apparel as much. It's more something for yourself that you might want and not need. On the other hand, we saw incredible growth
coming out of department stores, marketplaces, footwear, toys. So really apparel and electronics was the only two that were a tad lackluster.
I'll say, well, against my better judgement, Caroline, I bought an Xbox for one of my offspring and I did it begrudgingly, but he had a pretty good year.
All right.
So, Julie, I mean, how do we feel about the consumer here, because I'm not sure how the consumer's paying for all this stuff? Is what are the retailers telling me about credit and that type of thing.
Yeah, So, I mean we see consumers spending, right, you know, you just you just listed the stats for us there. But I think we have to remember that consumers are spending, but they're looking for the best value.
So, but that's really putting brand loyalty in questions.
So you see a lot of retailers and brands really scrambling to try to figure out what does this mean for how they retain.
Shoppers going forward.
And while there are certainly signs of inflation cooling, I think that there are many facets of our current economy
political landscape. A lot going to be happening in the next year that are that's going to mean that consumers are still very, very value driven, which is going to create a challenge, a juxtaposition, if you will, for retailers, who I think at the beginning of the year, you're going to hear a lot of retailers looking to return to health, which is going to mean they're looking for better profit margins coming out of a very competitive, high promotional QUE four.
But again that's.
Yeah, that's kind of where I want to go, Julie. I mean, I hear a lot about consumers seeking value and promotions and things, So what does that mean for the retailer's margins.
It's a challenge, right, they are going they usually are used to having to give quite a lot of way for and then come Q one there's an ability to recoup those healthy margins, and that's even more important now coming off of COVID, when loyalty really look in question and consumer and retailers have been spending spending to earn back shoppers for the last couple of years, so this return to health is important, and there are a couple of things that they can do to meet a shopper
where they are while still offering incentives things like cash back.
Cash back is a.
Great lever for allowing a retailer to charge regular price but create an incentive for a shopper. And even though I know you said you didn't go in store too much to shop this holiday season, that is a big
and growing arena, especially for younger shoppers. So another area that retailers can think to invest is in incentivizing things like buy online, pickup in store, where they can give an incentive there but drive consumers to shop where they know that they'll get additional purchases once those consumers are in the store.
All right, Julie, thank you so much for joining us, as I always appreciate getting a few minutes of your time. Julie ben Allen. She is the chief revenue officer at Racketon Rewards, giving us the latest lowdown on what has been a pretty solid holiday shopping season.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm Fall Sweeney. I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio