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Terminal and the Bloomberg Business App. Muhammad al Aerona Queen's College, Cambridge, saying this on one of the picks, Kevin Wassh's professional career and writings would make him a strong presidential choice for Treasury and for the Federal Reserve. Muhammed joins us. Now for more, Muhammed, are you endorsing a candidate then?
In this race for Treasury?
What I'm seeing John?
Of the four, the one that I have followed most closely is Kevin Walsh. I've done that for almost two decades. And if you look at what he would bring to either or both jobs. First, a good understanding and knowledge of economics, you're talking about Stanford, Harvard MIT. He would bring policy making experience the NEEC and the FED. He would bring private sector experience. He understands the functioning of
the capital markets. It's not often that you find someone who can operate at this intersection of economics, finance, and policy, and it's not often that you find someone who not only can operate there, but can communicate well. And we do need much better economic communication.
Mohammed, I've said this a few times, and I'm sure you agree. It's good news that the caliber of all the candidates is so high given the challenges they'll have to confront in the next several years. As we look ahead to twenty twenty five. Could we go through a few of those challenges right now? What do you think the biggest for the incoming Treasury secretary.
I think it's maintained economic growth. John, I can't stress how important that is. It is important to deal with problems of inequality.
It's important to deal with the debt issue.
The best way to address a debt issue is through economic growth. And we are looking at a major transition which is ongoing from old engine of growth to new engines or what economists called the old model of growth to the new model of growth, and the Tragedy Secretary will be the lead person in figuring out how we navigate all this.
Well, if it is someone like Kevin Walsh and everyone knows his endgame is the FED, does that blur the line of FED independence?
I think it's somed that well that that line has been blurred before. But I suspect that if Walsh gets the job, he's going to be really careful as to what he says on monetary policy.
He will respect that line. It's also not.
Clear that the President elect will commit to a second step for Kevin Walsh. I suspect that he will say he will keep his options open, So I don't worry about that. And Marie, I just look at Kevin as someone who both as Treasury and FETCH Chair I think would do a really good job.
If this drags on, we're supposed to get a pick yesterday. If we don't get one today, if this continues to drag drag on, Gary Cohne reminded us all yesterday that his pick, his nod, and also Minutionin's nod came after Thanksgiving. Is that in itself a market negative given the fact that we have all these other nominees floating around for the incoming administration, but we don't have this one key name for the markets.
Yeah, I thought Gary's interview with you yesterday was really good because he said two things. One, as you just mentioned, he said, look, I didn't find out a lot of Thanksgiving. And then the second thing he said is look at what we inherited then, including some unanticipated development, compared to what the new team will have been here now. So I don't think it's a market negative. I particularly don't think it's a market negative because, as John said, the
are credible candidates being considered. Oh it's so we told so. No, I don't think it is a market negative. I think it's the right thing to take time to make this decision.
Mohammed. I thought of you a lot this morning when I saw the flows for the past week into bonds and stock funds in the US, and I saw the outflows, the dramatic outflows from European bond and stock flows, and I thought about your comment about that sucking sound of capital away from the rest of the world and in the United States, and I have to wonder, are there limits to this because basically the fact that everybody else is paying is leading to the US gain is also
leading to higher rates that the rest of the world is going to pay for. In other words, they're going to pay for that debt because of the attraction of interest rates.
When does that kind.
Of balance out?
Do people get sick of this story?
Not for a while?
And I thought of all three of you because I remember when we were together last week and we talked about the global economy, and I told you the good, the bad, and the ugly, and I put Europe in the ugly, saying there really is an issue there that as both secular and cyclical headwinds come together, and today's PMI numbers are a clear reminder that there is this problem and it's getting deeper. We know what the solutions are.
There is the Drug Report, but there is no political will to implement it, so the.
US will continue to diverge.
Like you, Lisa, I think divergence is a really important theme for the next twelve months. Is there a limit short as a limit at some point, but we're not there yet, And the worst thing is to sacrifice US growth in order to get lower rates. That would be the world I mean, the US is the only engine of global growth right now, So you do not want
to sacrifice the only engine of global growth. What you do want to happen is both with China and for Europe to get the act together and to transition to healthier and higher growth.
I have to wonder also how much this pushes central banks around the world to keep investing in gold and try to diversify away from the dollar, because at some point there has to be some anger or at least a feeling of frustration that everybody else is at the whims of the United States in terms of whatever kind of fiscal situation they want to implement, and that the
fiscal dominance allows them to do that. How much do you see that kind of trend in gold in other acid classes really continuing as people look toward a day that maybe could be a different regime with respect to the dollar.
So this trend which we have seen now for a solid twelve months of trying to diverse away from both the dollar as a reserve currency and importantly looking to diverse away from the dollar system as a payment system, and I worry much more about the second than the first. The trend is there reasons you've cited on the currency side at the margin, and I want to stress it is at the margin people are looking to diverse away away from the.
Dollar into gold.
The payment system is a reaction to the worry about weaponization of investment, sanctions and trade.
So that is ongoing and we have to keep an eye on it.
Now. We're not anywhere near a critical mass. There is nothing to replace the dollar at the center of the system. There is nothing to replace the dollar payment system. However, you don't want alternatives as clunky and as inefficient as they are to gain momentum.
Which is why we're saying the dollar to pre shed against gold, the pre shed against something like bitcoin. But I think we have to take a step back and recognize what it's not doing against other currencies. We're facing the prospect of an eight consecutive week of strength for the US dollar for dollar index for DXY mohammed the wise because the data in America has been pretty decent, and we're rethinking the fence path malas Eliot. Deutsche Bank
had this to say in its outlook. Growth is too fast, inflation is too furious for FED cuts. Our baseline c's a twenty five basis point cut in December, calls it a close call, goes on to say after that, we expect an extended pause which keeps the FED funds right above four percent into twenty twenty six.
Is that your base case?
Two, So my base case is they cut by twenty five. When they come to their next meeting, they'll have clarity on three things that will impact how they see.
The economy going.
They'll have clarity on tariffs, that have clarity on immigration, and that have clarity on where the budget is going. And they'll build up that clarity as they go into the year, and that is what's going to determine whether they.
Do more or not. They're to going to see how they see things. John.
These fundamentally impact. First, tariffs will impact price behavior. You see this in the UK. Companies now have gotten much more use to passing on any incre costs. So in the case of the UK, the supermarkets have come out and said, you know what, the higher national insurance contributions, we're going to pass on that to crisis and demand here is not as strong in the US as it is in the US, So tariffs will have an impact
on pricing behavior by companies. Immigration will have impact on the labor market, and of course what they decide on taxes in particular, which will come ahead of what they do on spending where they look into cut spending will have an impact on issuance. So they're going to have the FED is going to have to step back and look at these three things and then decide how.
They fit into this big puzzle.
Let's finish on that word clarity. They'll have clarity on tariffs. They might have clarity on what the approach might be, how big the tariffs will be, they may not have clarity on the effects. So this is something you touched on earlier this week when you talked about things like trade flows, corporate pricing, demand, supply elasticities. How long does it take to get clarity on the effect of those tariffs.
Yeah, and that list goes on on game theoretics, stage craft. I mean, it is a very complex issue and the media has tended to simplify it over simplified.
No, they'll need time, but.
They'll have a clarity on how serious is a direction of travel, and that's going to be important in how do they think about what interest what policy we should do Muhammed.
We appreciate your time. We're looking to catch up with you, sir. Thank you, Muhammed Al, Aaron of Queen's College, Cambridge. On the latest in the United States and beyond, Tryler is ramping up bets on a jumpbo raakecout in December by the ECB as Eurozone PMI is contracted in November, feeling concerns about the state of Europe's economy as it faces down the prospect of hire terrists from the incoming Trump administration.
Joining us now is a man who has.
A say it next month's meeting, the Portuguese Central Bank Governor Mario Sentino. Governor Sentino, thank you for being with us. We appreciate your time. It's important points out that every official on the covernany council, has a different view, and at the time this morning, where people are questioning whether the ECP is behind the curve, I think it's important to highlight your more recent comments suggests you are very much ahead of this weekly data, anticipating it and worried
about it. We'd love your reaction to this morning's economic data and what do you believe a fifty basis point breakcount should be on the table at next month's meeting.
Well, thank you for having me, and good morning from London. Well, we have to take this data in the context of all the information that we now have to take a decision. Next month we will have also new forecasts. My first reaction is that these data certainly confirms the propertateness of the decision we took in October and the profile that we now have for the trajectory of interest rates also going forward. This is the appropriate message that I'd like
to send. We know, I mean the challenges had We know that the Euro Area economy is struggling to recovery. The most important though, is that inflation is on target and we need to move. According to all these data, today's information goes along the way. Indeed, I've been looking at the European economy. It just confirms that we need to move with monetary policy.
Governor.
How quickly you move is part of the conversation, and whether you should be constrained by twenty five basis point increments or not. Do you believe larger reductions should be considered in a month from now.
Well, we have been discussing that for a while. I rather prefer us to move gradual, and gradual means steady and with predictable steps. But of course, if the data confirms that.
The risks to.
The downside in growth materialize, that the numbers for inflation that we still are expecting these months go in the same direction, we can certainly discuss and be open to discuss different steps. But what is more important is to send a message of we are doing our job. We are moving interest rates in the right direction, and we will continue to do so as long as data requires.
As you know and from listening to you and your colleagues, the focus so far has been on normalizing interest rates, which speaks to that gradual approach.
Governor.
When I look at the day around Europe, when we all do, when we see Germany bally growing and the pmising contraction, I think quite rightly the conversation is changing in financial markets to whether you need to be accommodative, whether we should be constrained by this idea of normalizing and moving in gradual steps, or which whether we should be open to becoming accommodative and moving much more quickly.
What's the difference between the two. For you, we do.
Know that we are still in restrictive territory. The interest rate is above the neutral levels, and so this means that the past going forward will be to continue to reduce the level of interest rates. We also know that the biggest problem in Europe is investment, and investment is certainly quite sensitive to the interest rates. So it will be also of importance for us to have the support of the economy so that inflation can remain at two percent. We don't want to go below two percent, and for
that we need a stronger economy. So it's the combination of those two that need to be on the table so that we take a decision that so far brought us in a stable past, which is always important to two percent, and now we need to make sure that we continue there.
Governor, if I could put you on the spot appointed question, do you believe the biggest risk right now is above target inflation or below target inflation? And I'm not talking about next month's data. I'm thinking about a medium term view, looking out several years. What is the biggest risk above target inflation or below target inflation?
Well, the history of Europe in the ten years prior to this inflationary experience was below target inflation. And the fundamentals for the European economy didn't change much. So in my view, we need to be concerned with below target inflation. The risks that we face today, both from the economy and from shocks outside Europe take us in that direction.
So we need to focus on not going below target in terms of the medium term, because then we open up again the issue of as you are saying, normalizing monetary policy. We were successful thus far to bring inflation to two percent. Now the job is a little bit different. It's like, you know, this last mile not being a pass from above the target, but from below the target,
and it's not easy. It proved not easy for the Eurozone to bring inflation close to two percent before twenty nineteen, and we need to be very serious about it.
Do you think that on a broader sense, the easy if he needs to consider I don't want to say a dual mandate like the federal reserve, where you're looking at employment as well as inflation, but the growth backdrop as well as maybe there's going to be that bumpiness that you talk about in the near term path of inflation, but the longer term path, you see that risk significantly to the downside when it comes to that is inflation.
I don't think we need to discuss the dual mandate or the single mandate that we have. We just need to remind ourselves that inflation is an endogenous variable. It
is strictly connected with the way the economy goes. By targeting inflation, we are somehow looking at a broader set of data and see how it interacts with prices, the labor market, certainly, unemployment, employment, the dynamism that the European economy had recently on the labor market is very important, and it's also our job to protect it, to preserve it. That's not because of the layman market on its own, which is already important, but it's on the impact that
this may have on inflation. We do know that an economy that doesn't grow, that doesn't invest, will not be compatible with prices at two percent, so I always look at this in a more broad sense. So for me, honestly, the thing of the double mandate is not an issue.
Governor, you brought up shocks from outside of Europe. I'd like to talk about those shocks with you. The prospect of a change of policy in the United States following the US election, and whether that introduces a new risk that you have to confront. If the walls go up, if the tariffs go up in America, and we were all concerned about over capacity in China, there's one place that's going to have to eat that over capacity and it could be another disinflationary threat.
That's Europe. Can you walk me through your.
Understanding the policy changes we might see in the next year and it kind of introduces to your Roundlook.
I totally agree with you on the way you put the risks that the tariffs and the spare capacity that we see around the globe will imply to inflation. So I see these shocks from an economic policy perspective as a wake up call for Europe. Europe needs to move from the passenger seat that very often we see Europe sitting comfortable to a more leading role in the world that will call for an increased role for the euro internationally. We were discussing that back in twenty nineteen, just prior
to COVID. We may be facing the same challenges right now, so we better focus on the response that Europe needs to do an to produce to those challenges instead of discussing what is going on elsewhere. We do know that we need to move very fast if we are presented with these challenges. If I may, I can quote here Elvis Presley and say to you that we can't go on together if those challenges from the outside present to Europe, challenges that Europe cannot cannot go along with.
So for the past couple of months, the ECB terminal rate is expected to be something like two and a half percent by the end of next year. Putting Elvis Presley aside, given all of the potential external shocks and the courage jectory, do you think it ought to be much lower than that?
Well, I don't see reasons for the neutral rating group to be much different from before this crisis. The fundamentals in Europe are pretty similar. We have a more dynamic labor market that will certainly help bringing the natural rate up, but probably it will not be enough, given that many other factors like demography and productivity that will still wait
into into into that number. So if we go close to two percent, probably below, it will be my best guest right now for for the neutral to be so. We still have some way, some paths to cover, and we need we need to be very much focused on that.
Interesting, So we appreciate your time with a suspicious mind. ECP Comveny Council member Mario Sentein.
I think is.
Let's stick with retail one week ount for Black Friday and a shortened holiday shopping season. Gap and Walmart seeing higher end consumers coming to them for value as Target sees weakening sales and inventory piling gup. Joining us now is dw To Towsie of TAUSI Advisory Group. Dana, welcome to the program.
Thank you so much for having.
Me compare Target, so everybody else? What went wrong there?
Forty eight percent of Target sales are discretionary. They had elevated promotions, higher costs didn't work. You look at Walmart, which has sixty percent of their sales coming from essentials, and when you think about discretionary, Look what you just mentioned. The GAP is gaining some momentum right now. Look at TJX, same thing. They're gaining some momentum too. So that value shopper where there is style and product is working.
Is there an execution story there as well? What is the GAP doing right?
I think a couple things.
I mean Richard's Richard's phrase is performed while you transform. The things they're doing right is the consistency of looking at the product and really elevating it today's times. Look at the wide leg denim jeans. They are remodeling some of their stores at Old Navy. The kid's business is important, and the kid's business weekend in this quarter given the weather that was out there, coming out of the quarter, kids strengthened. And so I think off price value and
where there's newness and innovation, consumers are going. So you have that what's happening with the Gap brand and an Old Navy.
I want to get into policy and all of that, but what is newness and innovation right now?
And we talk about this.
Is it launches, is it limited edition? Is it wide leg pants that are going to be in style for you know, another six months?
Maybe no.
Typically denim cycles can be three years. Sorry, no worries. But when you think about innovation, what's new and different?
What about the closed toad shoes at Birkenstock selling it full price? People are buying the sandals and they're buying the closed toad shoes. When you think about the wide leg jeans, there's a lot in footwear Look what's doing with the new colorways at Hoka. It's interesting. Same thing at On. But you know what, you marry the product with the physical space. Look at the new remodels that are opening. If you walk lower Fifth Avenue, the new Gap remodel, it's colors, it's got punched. You take a
look at the Abercrombie remodel. They expanded the men's area. Look at the new On store. So we've got newness and product, newness and channel, and you need to have value.
Maybe Target just needs a new dog and then they'll be just fine.
But there is to be done.
Okay, that's just the dog. That's probably more than.
Just the dog, given some of the performance. But there is this question about how exposed some of these retailers are to the potential of tariffs, especially if their whole reburse depends on the ability for fast goods that they can get manufacturing brought in.
When we had Terris, the first time everyone went to diversify their sourcing out of China. It's happening again now. Probably the one who's talked about it the most is Steve Madden. Taking their percentage of good from China down from fifty percent to twenty five percent, hopefully in almost a year. Gap set it on their call last night, around less than ten percent of their goods come from China.
Where else are people going.
They're going to Mexico, They're going to Africa, They're going to Vietnam.
In terms of where goods are going to be.
The end result, though, and National Retail Federation talked about it, if we have these teriffs, you're going to have an impact to consumer spending that can approach nearly eighty billion dollars and what it requires in the apparel area, if you're going to have increased costs passed on to the consumer, can be price increases of low double digits.
That's a concern across the board.
Or any of these retailers talking about coming back to the United States because what President like Trump is talking about was basically a carrot and stick approach. I'm putting up the walls, but you're going to get a fifteen percent potentially corporate tax rate if you produce in USA.
Now some of them have mentioned some items coming back to the USA, but basically it's Mexico, it's Vietnam, it's even Africa where people are going the labor cost so lower. They have the labor to be able to make the goods and the expertise of it. That's why the reason why everyone's in China. There is no China like China in terms of the expertise of how they make the goods. It will be a problem and a big topic of discussion throughout twenty five if those tariffs get enacted.
Tariffs has one potential risks down the pipe. We also have the ports that strikers that deadline is January fifteenth. We see Target overshoot when they were building their inventory. Do you see retailers now having to build up inventory because they're concerned.
There won't be a deal in January?
I think overall they're watching carefully. Only Target has been the one who's called out the increased inventory that they're building.
I don't really have others.
As the earnings are being reported, you're still seeing inventory growth less than sales growth. Tuesday is a major day. You have all the mall retailers reporting on Tuesday. In addition to Burlington, you got ten reports coming out on Tuesday. We'll hear more about what we've heard so far. I'm not seeing inventory pile ups except for Target calling that.
Why did they get it so wrong?
Then the target, Yeah, how do if.
They step on such a massive inventory landmine.
Different way of looking at things and there and how they're planning than everyone else. It is surprising in terms of how they stood out so much because when you look at Walmart, who reported just the day before, it was the other areas of business that also accelerated the growth.
When the numbers dropped, and then we all reflected on the same thing. It reminded us of Spring twenty twenty two. This isn't the first time we've seen this movie, which I think is why some investors were pretty spooked by it. It's as if they haven't corrected for the mistakes they made a couple of years back.
Is that a fact? Criticism of WMAR is that unfair.
I think overall they may have corrected then for the mistakes they made, but then looking at the macro landscape, they acted faster and took made change quicker than others, while others basically saying it takes time to enact some of these initiatives, and so no, I'm not seeing others do that.
So you think they overcrect it, corrected based on the lesson that they learned in twenty two.
Yeah, it seems like it's way too advanced for what compared to everybody else. And you have to look at this holiday season with a compressed season of five fewer days, promotions are happening. I don't know about your email inbox, but mine is filled with they're trying to do off.
How much does that five days change things? Huge?
I think the five days is very important.
It makes the Black Friday weekend that much more important because there are fewer days. People always still shop the last ten days before Christmas, but it's going to make the retailers hit the dial on let's anti up the promotions.
I wonder if Target is sort of a warning shot in terms of competing on more the innovation and less unjust price value has to also come with something new, and I wonder how much Walmart is exerting that pressure because they can compete in a way that nobody else can because of their product mix. Is that the takeaway from some of the recent earnings, well.
Part of it, but also look what Walmart's doing. When Doug McMillan said that their highest growth came from some of their upper income consumer of one hundred thousand dollar household income. They're taking that share from the targets of the world. And you also have to say, look at the growth of TJX, the traffic increases that tj is getting and frankly even some of the luxury items that they have their smattered about and just select stores, but it's a driver.
Well is GAP basically copying that because they said yesterday that they're also making inroads with upper middle class, wealthy patrons.
But part of what GAP is doing look at the collaborations to your mention before, whether it's influencers, whether it's cult gaya, they're getting in the conversation by stepping up and saying, we're part of the brand halo that's out there of other brands who want to be in reach a wider audience of consumers that have a wider income level.
Top pick this holiday shop in season? What is it?
I think? Well, I think on value, I think it's going to be TJX. That's the top pick there.
When I think about newness, I think Birkenstock is going to continue to drive sales.
I kind stand them. I don't know. I'm looking at the clogs now on them. I just I just cannot get on board.
I like, I like, do you it attracts very much so and like yeah, doing your taxes and broken sticks.
Absolutely that's me.
Yep, I will out myself on that. I actually do think I think they're very convenient.
I actually only only one.
With socks because people wear them with socks.
I think it's so specific and it's such an eraror. I think it lasted less than three years.
So the people who's done, I think that's has a three year cycle.
That has about a two months cycle.
That is no cycle. Daniel, appreciate your time.
It's going to thank you very much. Busy a few weeks of shoping ahead of a Stana Tawsi. There a Tausi Advisory Group. This is the Bloomberg Survellants podcast, bringing you the best in markets, economics, angiot politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business out