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Sonia Martin joins us. She's head of FX and Monetary policy at DZ Bank, and she joins us here. Sonya, thank you so much for joining us here.
Is there a.
Bearish call for this US dollar anywhere in sight?
Oh?
Really, to be honest, I think it's a bit of a one way straight for the time being. I'm hoping we're going to get a bit of a breather over the holidays season. So we're lucky markets are now and I sort of wait and see stands. You know, there's been a lot of news to digest from the Trump election, but now it's kind of time to see what's going to have once he actually moves into the Oval office again.
So maybe we're going to get able to breather. I don't really think that euro dollar it has a chance to really rise here. It's too much positive news for the US dollar in the pipeline and really frankly speaking, also too many bad news for the euro in the pipeline, So I still think we're heading down in euro dollar.
So when you're looking specifically at the Bloomberg Dollar Spot Index, I mean, it's fall on the levels roughly around two weeks ago, but we still seen dollar strength in the last couple of weeks too. So when you're talking about especially the Trump administration coming in, particularly if they end up going harder faster on tariffs, what are the scenarios for the US dollar.
Well, I think looking at the first three, maybe six months of the new presidency, we're probably going to look at a stronger dollar because what's going to happen is Trump is going to start talking about terrors, and what that means is more inflation. I mean, I know that a lot of the Trump voters don't understand that they're the ones who are going to end up paying for those terrorists, but they will end up paying for them.
And if Trump comes true and is promised to levy twenty five percent of importan goods from Mexico, the Americans will be paying a lot of money for their cars. So this is inflationary and that means that the window for the FED to cut rates will be closing soon, and this is all done a positive and of course then we also have a strong growth boost from tax cuts.
All that combines to make a strong doll I think further down the line there are risks, but they're not going to matter so much in the first half of next year.
Sonia, What are the currency markets telling you about Federal reserve policy decisions?
Here?
Does the currency markets that they're pricing in more FED rate cuts?
It's less. I mean it has sort of been become less since the Trump of election victory, because you know there is that window of opportunity that's going to be closing. Right now. We're having a debate in the market about whether they should be cutting in December at all, which I think they should because their window is still open. This is the time to do it, because that window will closed, so they will be cutting, and I think the market is sort of adjusting to having them cut
less for less long. So we're looking at the spring of twenty twenty five and that'll probably be it. And so this is interesting because a lot of other central banks will still be in the middle of their raid cut cycle. So it's going to open up a bit of a divergence when you look at MONTO policy next year.
It's interesting too, because, like you were saying, you have
other central banks in the middle of cutting cycles. But then when you think about the Bank of Japan completely on a different course just given their economy and just looking at the end, I mean, that was breaching the one fifty level earlier, especially when you're thinking about what that means with the latest inflation data in Japan as well, and especially boosting some of the likelihood that the Bank of Japan will continue to raise reads, especially when it
comes to that meeting in December. So give us kind of the dynamics between when you're looking at the dollar versus say, what's happening with the end, because we've seen that really track closely with S and P five hundred futures.
Well, I think the n is probably one of the few currencies that has an opportunity here to beat the dollar next year, and that is simply because the boj has really changed its course. I mean, the raid hikes will cut, for the rate taps will come. But in the grand scheme of things, what really matters is that the Bank of Japan is you know, proceeding with its quantitative tightening, they're reducing their balance sheet. It's a big
balance sheet. It's a lot of reducing to be done, and that is really going to make the difference, I think for the currency market. So we're looking at doll a en to fall, maybe less aggressively than it might have had Harris on the election, but it will fall. So yen will rise against you just look at the doll yen against the two year yield spread on the tenny years. But you can see there as well, there's a closed correlation and that's definitely pointing for dollien to fall.
The European Central Bank has been cutting rates. The expectations they will continue to cut rates. To what degree do you think the ECB will be dubbishyer going forward and what does that mean for currencies?
Well, I think the c to be has every reason to be quite dubbish. I mean there's currently speculation whether they might cut rates by fifty basis points at the next meeting. Again, I'm not a big fan of that speculation. The use to be has reasons to cut they can send it up message and basically tell the market we will be continuing will continue to cut twenty five basis
points at every meeting. I don't really see the need to do fifty simply because there are still inflationary concerns lingering in the background, and you know, doing twenty five and sending a dover signal seems to me a safer
course of action. I think the interesting thing with the ECB will be that once the Fed stops cutting in late spring, the ECB will continue and I think that'll probably end up cutting rates at least throughout the summer into the autumn of twenty twenty five, and that's negative for your dollar as well.
Which currency is do you think will be most affected and most vulnerable to trade tensions with the US depending on what happens with tariffs.
Well, I mean the euro is obviously one big candidate. But the problem is there are currencies that are affected, you know, on various levels. So you look at for the Eastern European currencies, right, I mean, for them, the growth showdown in Germany is going to be a big problem. We have central banks that are cutting rates quite aggressively as well. A Mexican Paesel obviously is a candidate for
losses and despite its current surprising. I think resilience, but you know Trump isn't an office yet, so there's more to come on that front. Then you have countries where you can get the double wharemy impact of you know, slower growth in the in Europe, maybe also slow growth in China, so you know, so it's it's I think for many currency is going to be a very challenging year. There will be a number of currencies that will you know, actually underperform and already weak euro.
So Sonya. It's just kind of given that economic backdrop, where do you see the best value out there in the currency markets?
Well, I think again, very few that are really interesting. I think again Japan. A bit of a bit of a timing issue with Japan. Obviously, we've seen last year that it can go horribly wrong. When the boj did it's turn around, the market kind of didn't react very much, and then we had this speculative attack on the end. But I like the end. I like Australia and New Zealand. The Aussies are not in any rush to cut rates. They will be cutting rates next year, but in a
much you know, much later than anyone else. I quite like New Zealand. The economy's going to look quite strong the second half the year, but to be honest, after that the ground gets pretty fit.
Excellent, Sonia, thank you so much. We appreciate that, Sonya Martin. She is the head of FX and Monetary Policy at DZ Bank over there in Germany.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am. Easter Listen on Apple car Play and Androyt Auto with a Bloomberg Business app, or watch us live on YouTube.
Nannika gup That joins us. She's a director of macro economic Research, Equities and Commodities at Wisdom Try. She is based in London. Anita, thanks so much for joining us here. Can we step back and can you give us a sense of just how the European economy is playing out these days?
Yes, Paul, you know, i'd light you mentioned the story here in Europe is very different to what we've been witnessing in the US. Just this week we've had you know, much weaker release of PMI data. What surprised me was man normally manufacturing was weak, which has been you know, a theme over this past year, but we've also seen weakness and the services PMI data now for Europe, which is again very different to the US. The European consumer
has actually been a big saver. So while you know, US consumers have been eroding their savings, European consumers have been hoarding their savings and that remains a key question mark of you know, could we reach a point where the European consumers starts to spend and that could be
the new catalyst. However, what we're also seeing is, you know, consumer confidence numbers across European consumers remain very weak, and so that catalyst is unlikely to be triggered or you know, yield any tailwinds for the European economy because the confidence
just isn't there. So unlike the US, where you continue see very strong spending by the consumer and that's supporting the economy, it's a very different picture here and it's unlikely to change until we see you know, some stability in the economic as well as the political front.
And when you're talking about the economic front too, just the latest data on the Eurozone seeing inflation accelerating beyond when you're thinking about the ECB's two percent targets similar to obviously the federal reserves goal as well. What does that mean for ECB cuts, because looking at the swaps market, they're still anticipating that there's going to be more cuts at their next meeting next month.
That's right, you know, the the inflation numbers, uh, you know, give out this impression that inflation is actually much higher. But beneath the surface, you are seeing weakness continue to creep in and that that will tell out, that will show that, you know, in the following quarters we will see inflation coming down further and that continues to feed into the narrative the ECB is likely to remain extremely dubbish.
We've had very strongly opposing views. Just this week. We've had it's about Schnabel tilt very hawkish, while we've had you know, a Gallao, you know, tilt on the extreme dubbish narrative saying that you know, we could go as aggressive as fifty, whereas Schnabel's saying, you know, we must
take a much more cootious path. The market still believes that with such a backdrop of anemic growth alongside inflation that is cooling, you know, it just paves the way for the ECB to go ahead with further interest rate cards. So we're likely to achieve one point seventy five for the ECB policy rate by the summer of twenty twenty five.
Anika. Earlier this month, we Americans we elected ourselves a new president. We've got a new Republican Congress about to take office in January. How did that change maybe your outlook for just your economic forecasts across Europe?
If at all, it has a very big impath, and I think that has been the key driver of sentiment across the Eurozone economy. You know, first and foremost, we are likely to see an escalation of tariffs you know, being placed on the Eurozone economy, and that just raises further uncertainty, you know, for how trade is likely to
be impacted going to the impact of tariffs. One saving factor has been the Europe, which continues to remain weak and obviously, with the easy be doing much of the heavy lifting, the euro is likely to remain even weaker, which will provide a bit of a catalyst for the exporters, but not enough to outweigh you know, weaker demand alongside the impact of higher tariffs.
And when we talk about an escalation potentially when it comes to those tariff threats. What products in particularly, or if you're thinking about more across industries could be most impacted in Europe and then end up being more expensive for consumers.
Absolutely, it's you know a lot of the consumer discrustion names the well known uh you know, companies that are exporting in the luxury sector. They're likely to be impacted. The auto industry, which remains key for Germany, uh, you know, as well as France. These companies are also likely to be to come under a severe threat and that remains
the overarching concern for the Euro's in economy. It's so dependent on exports, even more in comparison to Japan, and you know, a weaker Euro is not enough to offset uh, you know, the weakening demand backdrop alongside this this impact of higher tariffs.
Gold. What do you think about gold here? Anika?
We still like gold, you know, I know that we've had an immense cooling and crisis, but you have to keep in mind we've had a very sharp, strong rally in gold. Geopolitical risks, if anything, have not gone away. I know that President Electroump has claimed that he will end the war. But if you you know, the observations that I'm noticing are, if anything, we've had a ramp up of the war between Russia and Ukraine, and we're
also seeing tensions in the Middle East escalate. There is you know, a cease five being called, but they are contingent on a number of conditions which if you know, any of the two parties violate, it will result in extreme escalation of of those tensions. So that remains a key support factor for gold. The second big one will be physical buying by the central banks that remains you know,
front and center. ETF buying in gold or oriented EDCs has resumed, remains very strong in China as well as Europe, and I think those will be the structural drivers for gold going forward.
What about when it comes to the ten year treasury yield? The low in September was around three six right now it's around four to two, and of course the high this year is around four to seven. And what do you think is most important for traders in those levels as far as those thresholds mean for resistance as well support.
Yeah, I mean, it really all boils down to the US elections and the results of the US elections. I mean, you know, since we've seen Trump coming in taking power, you know, most of his mandate is extremely inflationary, and that just tells us that yields are likely to remain
higher for longer. You know, the expansion of fiscal policy again points in the direction of yields remaining higher for longer, and that just tells us that, you know, the expectation of federiate cuts have now declined, and at the same time, we're likely to have treasure yields remaining high, and that could pressure equities going into twenty twenty five.
Nika, thank you so much. We appreciate that. Anika Gupta, she's the director of macro Economic Research, Equities and Commodities Group over there at Wisdom treat She is based in London. We appreciate getting a few minutes of her time.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa, playing Bloomberg eleven thirty.
You know the economic data Jesse the macroeconomic data that we see on Eco go that we use all the time. I mean, GDPs pretty darn solid, inflation coming down, maybe not where the Fed exactly wants to be coming down. The retail sales numbers can seem so strong, pretty darn strong, but you still get that sense that that K shaped economy still out there, not everyone is participating in it kind of begs a question, how are the small businesses doing out there in the US economy. Gene Marx can
help us out on that. Gene Marxy is the founder of the Marx Group. Hey, Gene, talk to us about kind of your clients, your small business owners. How are they doing out there?
First of well, good morning, And I can tell you that small businesses themselves, when you try to talk about their you know, how they're generally doing, it's a little tough to generalize, only because there's thirty three million small businesses, you know, guys.
I mean there's you know, all across the country.
The businesses themselves make up half of our GDP, half of our employees. When I you know, serving my clients and my readers and my community kind of depends on the industry that they're in or It depends on the region that they're in.
I mean, some some are stronger than others.
But if you want to do like just a general take, I would say that twenty twenty four has been a challenging year for most small businesses.
You know. I just did a piece for the Philadelphia.
Inquiry and I interviewed about a dozen small businesses in the Philadelphia area, retailers, distributors, whatnot, how they were preparing for the holiday season and how twenty twenty four has been very non you know, very anecdotal, and every single one of them across the board had said that they were hoping that the holidays were going to be saving them this year, because they've been, you know, they have been struggling. So again, tough to generalize because again some
businesses have done better than others. But if you were to do that for the thirty plus million small businesses, you know, I would sum up twenty twenty four as as a challenging year. Also, one final thing, you know, I wrote a piece for The Hill where I summed up a bunch of surveys that were taken by Bank of America and Verizon and you know other places for the National Federation of Independent Businesses, those surveys also found
the same, you know, the same thing. You know, Revenues themselves were flat or even a little bit down, and profits themselves were also flat among those surveys.
And this is through September thirtieth of twenty twenty four. So I hope that.
Gives you some indication as to you know, where their heads are at right now.
To your point, Jim, when it comes to those small businesses, they're typically highly indebtitive and also really sensitive to higher interest rates. So especially over the past few years, as the FED was really aggressive with raising borrowing costs, they were obviously more reliant on kind of cheap labor as well.
In addition to what's happening, when you think about rate cuts potentially relieving them, but also we might not see as aggressive rate cuts next year, but also the other caveat too, when you have smaller companies that are more dependent on cheaper labor. How will mass deportations from the Trump administration end up affecting small businesses to.
That end, that's a great question, Jess and I get asked that question a lot about mass deportation. So you know, my understanding is and you guys correct me if you think this is wrong. But the idea between the Trump administration's mass deportation is to deport illegal or undocumented immigrants.
So when you look at.
It face value, that should have no impact on small businesses because why would small businesses be hiring illegal or undocumented people? Right, So, you know, on the one hand, you have, you know, some small.
Businesses that are you know, you're making sure they're doing what they need.
To do among the law, and they are not hiring undocumented immigrants, and most of my clients are that way. But then you do have some small businesses that are practicing that I'm.
Not quite sure, you know, what the impact will be on them.
And I'm not quite sure that most of us who are complying with the law care what the impact would be on those businesses, because if they are hiring undocumented or illegal people that tend to be deported, again, they were breaking the law from the very beginning, and they're going to have to start getting legal if they want
to compete fairly. So you know, that's the impact that I see for those clients of mine that are complying with the law and making sure that their employees have the right documentation, they're not going to see any impact from.
This type of thing.
But for those companies that have not been complying with the law, yeah they'll be impacted by it. But then again, maybe they should be impacted by it if they're hiring people that don't have the right documentation.
Another aspect of the incoming Trump administration, at least at this point in terms of speculation, is potentially lower taxes. Give us a sense of what I I think that's going to be good for the small business owner. How big of an issue is it?
Massive?
So I've been reading if you haven't figured it out in front of you guys watching me on YouTube, I'm actually a certified public accountant, so that should come as no surprise to anybody when you look at this face. So taxes has been a big issue for us this year, and next year is going to be a tax arm again. I mean there's going to be such a huge change in taxes that impacts small businesses and all of us individually.
For the small business owner.
There is one giant well there are a few, but there's one giant tax deduction that is hopefully going to be preserved it's the qualified Business income tax deduction. That's where if you want to pass through business. Most businesses are passed through, which means they're anes corporation or a partnership. So whatever money you make at the business level passes
through to your individual tax return. Well, right now, because of the twenty seventeen Tax Cuts and Jobs Act, we get to deduct twenty percent of that income.
Before it hits our personal return.
So if I make a thousand bucks this year, only eight hundred bucks gets taxed at the personal the individual level. That provision is expected to expire at the end of twenty twenty five.
You're going to have a huge impact on the small.
Businesses that have enjoyed that deduction since twenty seventeen. Now, with the President Electron coming into office and hopefully with the Congressional Bank Akee backing, he'll have the ability to even either extend or make that deduction permanent. That will have a huge impact on many small businesses. Other deductions for research and development and also for the purchase of capital equipment using bonus appreciation. Those deductions have either expired
already or they've been going away. They're expected to be restored one hundred percent under the Trump administration and a GOP Congress, and that also will be a huge tax benefit to businesses. So you know, I have to say, you know, during the election, when I was looking at my personal tax bills as a business owner, it would have gone up significantly, if you know, if Vice President Harris had elected. But now you know the way the election turned out, I think myself and a lot of
small business owners will continue to see lower taxes. And obviously it's a huge expense for us, so the lower we can keep it.
The better.
All Right, We'll see you pays for it. Gene Marx, thank you so much. We appreciate it. Gene Mark's, founder of the Marx Group. There.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Let's check in with Angie Solanki. She is a national director of Retail Services for the US for Colliers. Angie, thanks so much for joining us here on this Black Friday.
Just stepping back.
Do you think the consumers in a position to spend here this holiday season.
Well, I'm here actually in southern California, at a shopping center in a suburban market. So I was actually quite surprised. This is not something I do on a routine basis. I think the last time I actually came to a Black Friday at five in the morning was about twenty years ago. I think that was Kymart, I don't remember. But nonetheless, here I am. I'm actually quite surprised. This is a line in front of Target. I think you
had just mentioned it's not that long. But when I got here, Cole's was actually opened an hour before, so Target hasn't opened yet. It opens at six. I went into Cole's and I was pleasantly greeted or surprised because I got a five dollars cash Cole's cash card and walked in and they said, you know, I was pretty impressed with the sales. Fifty percent off on toys, fenty beauty,
and Sephora was thirty percent off. So there are some really great deals right now, and consumers are leaning into this all right.
And Angie is reporting from East Vale, California, that is east of Los Angeles, really east of Anaheim, California, so right there and showing some lines there. That's pretty cool.
Yeah, No, it definitely is, and especially because since you're on the other side of the coast from US, obviously it's still pretty early there, right before six am. So it's interesting too when you're talking about some of the different sales that you're seeing. How aggressive do you think some of the promotions are going to be?
Oh, I think they're going to be pretty spot on in terms of, you know, the deep discounts. So what we're seeing is leading up to Black Friday it was twenty to thirty percent. As of today this morning, I'm seeing forty and up to seventy percent. So we have a really short period of time this year, as we
all know, and it's really condensed. But you know, the consumer today is really targeted in what they're doing, So they're going out there and they are finding some of these deep discounts to really benefit because they are, you know, budget conscious right now.
So that's kind of where I wanted to go to, Angie. What's your view of the consumer here? The retail sales numbers we see are are pretty solid inflations coming down. Employment is you know, four point one percent. Very low wage gains seem pretty solid, but we know that there's this k shape economy out there where a lot of folks struggling. Quite frankly, what are you seeing in the numbers?
Yeah, no, I would agree with you. But you know what I'm really interested in monitoring right now is these deep discounts. So what consumers are doing is they're cautious, but they're very strategic in how they're buying, where they're buying, what they're buying. So they may not be buying as much as they have in prior years, but what they are doing is they're buying fewer items, but that are very thoughtful that they're providing to either their families or
their loved ones. So I think it's much more strategic in terms of how they're going about this shopping season. The other thing I'd say is there's a lot of fomo out there. I am really surprised the shopping bags are still all around. I was earlier this week. I went to Disney Downtown Disney and it was just packed with shoppers buying, you know, all the pre block Friday sale items. So if people are still out there buying.
What specific products. Do you think when you're thinking more about electronics versus apparel, where do you see people spitting the most?
Yeah, definitely. I think you know, you're not going to see on the high end, high price point electronics, but like the AirPods, things of that nature. Look, I just bought these. These are my first and only metaglasses that I wanted to test out, and they were on sale. You know, it was like, hey, if I'm going to
get thirty percent off, might as well try it. But my point is that I think you're going to start seeing you know, more of the kind of the lower price point items on the electronics side, more on beauty. I would say, I think people are a bit you know, flushed out on apparel, so not as much. I think shoes are definitely going to be on the higher end, so you're going to see a lot of people buying more on the shoe side, Jess.
We had Dana Tellsley from Tellsy Advisor in earlier this week and she said, the go to item is the Birkenstock closed hoe shoe, which I meet they thought of John Tucker, right.
I mean.
The top of his list along with that hammer exactly.
Yes. Yeah, So Angie. So, you know, we saw when Walmart reported that they said they had they saw a lot of strength coming from some of their customers with incomes north of one hundred thousand dollars. That surprised a lot of people. So it seems like people are looking for just a lot of folks are just looking for value out there.
It's all about the value game right now. It's you know, I would say, you know, mid middle income and below, they're all out there looking for that that I think is the name of the game because you have to stop and think about it. You know, for those that are you know, in one hundred thousand dollars range in one hundred thousand annual income and above, really their spend is allocated very differently. So they're going to be traveling, it's services, they're going to be looking at, you know,
actual product purchase. So you know, their spend is just allocated differently from from others.
What about when it comes to shipping in potential product delays this year, because you're just mentioning how there's a few shorter days ahead of the Christmas holiday.
Yeah, you know what's really interesting to me is just talking about shipping in delays. We've become so accustomed to getting everything immediately the minute we hit the buy button. So I think we're going to see a surge and in store. So that's our prediction, is that we're going to definitely see much more of a surge in terms of people going into stores and shopping, and hopefully for our retailers that's a great gain because maybe they can see an upside in a second purchase.
All right, Anjie, thanks so much for joining us.
A J.
Slank joining us there. She is at Colliers covering the retail space. She's right now reporting outside a retail store to talk about the retail of business. She's in Eastville, California, in front of a Target and Dick's Sporting store Target that has palm trees.
This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts US and live each weekday seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch US live every weekday on YouTube and always on the Bloomberg terminal