Surveillance Special from Westminster Green

Bloomberg dot Com and of course on the Bloomberg. Joining us here in Westminster alongside Tom Keene and might sap Jonathan Farin pleased to say its Adam Wager from the UK in a changing Europe alongside try to greet them Ellen, let's talk about it fast forward to We need to understand and try and get a little bit of clarity of what the Prime Minister wants, and I think Boris Johnson knows what he wants. I think we managed to

get to this stage. We had a Breaston election without really interrogating whether Boris Johnson would try and extend the transition period beyond whether he would try and go for a sort of bare bones free and a manifesto, isn't it.

He's not gonna extends though, but he's got a huge round of political capital now and I think he it's possible, and I think people in this party are saying that he could just sort of forget about that manifesto commitment when it gets to June, say you're going to say that the EU are being intransident and try and push that a transition period back a couple of years, and I think that would give him a lot of scope for maneuver. That's the option that's open to him, and

there's other or not. He will, he'll, he'll do that. Boris Johnson is a very flexible and adaptable politician. That's his key to his strength. Well, which Boris will show up that's so hard at the matter and me into changing Europe. It's all sort of changing Boris, isn't it. Yeah? Yeah, yeah, I think why? I think I think that Boris Johnson at heart is someone that probably would like to flip back towards sort of one nation sender ground. But it's

not one. I mean, he got Christians, Scotland, Northern Ireland is shockingly unique this morning. It is not one nation, isn't Yeah? I mean it Boris Shohnson had any strategy and spend the next couple of years really focusing on uniting the United Kingdom because the only thing that could they could really really derail Boris Johnson in the next five years is another independence referinum in Scotland and losing that,

I mean his position then would be untenable. That's the only thing that can actually, you know, stop a five years of strong Boris shots in government. Now, sta let's talk about the Frice action, Sterling bid, the pounds, stronger utilities really really ripping higher here in the United Kingdom. When he talked about the mid caps, the banks as

well in the UK too. The perception over the last three years, Trevor and I wonder if you share it, is that there is this wall of capital waited to come back into the UK once we resolve some of these issues. Have we resolved those issues to the extent that waller capital starts to come back into the UK. Well, I think you've you've seen the pound move up and moved up about two percent last night on the exit poll.

It's given up half of those games already. It's not a very big move, so you can take from that, but the markets were expecting a Johnson majority, if not this big. I think that there will be money coming back in, but I think the degree of that investment pickup is going to be limited. This is the heart of the matter. Trevor, You've been doing this for years, not only applying a wealth management and asset on occasion,

but thinking about where money clothes. How do you flow money to the labor areas of this nation that just voted for Boris Charlton. What's the mechanism to do that fiscal policy because obviously, if we do go out with a sort of bare bones trade deal at the end of next year, if Johnson wants to get that behind him so you can move on to other things, he's going to have to oil the system. Okay, what is the fiscal policy that helps life. You've got to have

increased government spending. You've got to have maybe targeted tax cuts. I think we've We've just learned that all of the parties were splurging the cash in their manifestoes and the guilt market didn't blink. So there's much more capacity for borrowing and spending the beach. First, the Conservative Party has has a news consistituously that they didn't have for much

of the last part years. I mean we're talking about parts, we're talking about instituencies, Tom but for much of the last century, the Conservative Party were never in and now they are. I'm going to the three of you because I'm the foreigner here. Trillion dollar deficits. There's no one who's a deficit park in Washington. Is that what we're gonna see here? And you may they're not going to get the trillion, But is it bull Well, the guilt

market is not there, twether should it be? Well? I mean, in the end, the guilt market will respond more to inflation expectations and interest rate expectations. And because China is going through the structural slowdown in the background, you can't get a good inflation going and at the moment governments can load up on debt. If China comes firing back, commodity prices arising, inflation goes up, then there's a reckoning.

I think the question is whether or not Bishton tries to square the circle he's got with his political coalition now by going down the economic route and trying to you know, give some some of tach release and so on, whether he just tries to double down on the on the social populism that he's that he's won this election. Yeah, maybe that's the way they've actually continued let's come back and I want to come back and advanced that point forward.

Ellen Wager with US researcher at the United Kingdom UK and Changing Europe. Trevor Grifton with US Royal London Asset Manager, Rosalind Matheson with us running all of our government coverage. Ben Ritchie of averaging standard stuffed by this morning as well, Rosin. The fiscal stimulus to me is key, is it immediate? Urgent? Is it? Does it wait six weeks and there's a State of the Union address or he speaks to everyone and says this is the budget. When does the budget

get clarity? Expecting that obviously in the early part of next year. The first thing is to get Brexit through Parliament and then he needs to start talking some numbers for his own budget. But a lot of that you can expect to be put forward, it will say, contingent on X y Z happening with Brexit with the EU. A lot of the money has to come in to fund some of that, including on the health service. It wasn't just labor saying when you used that money from

Brussels to pay for some of the stuff. It was the government as Well's the other thing but got to think about is something that never touched on what does the cabinet look like in the coming weeks, how does it change. On top of that, the Governor of the Bank of England leaves around the same time the UK leaves the EU at the January next year. Any idea how these kind of issues materialized in the coming days, coming weeks, We will be interesting to see how cabinet

may move our ship. But to be honest, he already had most of his die hard supporters in there. Remember when he removed thereason may form a bit of a word. He essentially fired a bunch of Tories who thought were against him and they sat in Parliament as independence until yesterday until the election, so he rewarded. He's in a circle those with very much hard brexiteers from the far right of the party. But there are also some of his closest confidence So you may not expect see cabinet

move all shift that much. To be honest, this early in the game. Ben overnight, when we caught up with people in the FX market talking about what comes next in the rate cup, call came up pretty quickly. The Bank of England has got seventy five basis points to play with. Do they follow through on a cut anytime soon. Well, I don't think so. I think after I think after yesterday,

we've put a lot of more stability. I think that the Bank of Being that made a fairly clear at their latest update that they were sort of on a waiting brief and if anything, I suspect we're probably going to be talking about rates going up rather than going down from here. The Bank of England, I guess plays a part, But it comes down to that analysis of fiscal space. Rosalind and a team are written endless articles about this nation, this nation frame, the fiscal space of

the United Kingdom right now. Well, I think it all comes down to market confidence at the end of the daytime and I think if the paper issuing, I think that's the key thing. And I think expectations have changed, and so the ability to run a deficit of one to percent something like that, which we which we've been shooting for in recent years, has probably widened. And I think the capacity of bond markets and debt markets to

take that has expanded. And I think there's an appetite to see fiscal stimulus from governments and from investors to see that as a responsible action. It's opposed to an irresponsible one, and I think that shifted, and I think that gives government more flexibility and the room from here. The United States is proof that you can do that in a big way. Is that the privilege of the United States or can the UK follow suit? Well? I

think the UK one of the remarkable of things. I think throughout the whole Brexits you've got saga has been the UK bonniels have remained so low and no stage has been the concern that inflation is going to rip, that confidence is going to be lost. And I think with you know, UK TENUA guilts at sevent basis points, I think the market saying, yes, we do have episode

for the UK paper. Sure we might not have the extortionate privilege of the United States, but we're still a well regarded issue and so I would expect that the government to look to take advantage of that, because this conservative government is not going to want to put up taxes any more than they can do, and so I think borrowing is going to be the way forward for them. Glass. Let me ask you a treasure Raphael question. I'm sure

i'll get you in trouble. Is it an existential crisis for the United Kingdom that they've come this far, now they've got to go forward and they have to forget austerity. Is society here lucked psychologically into austerity or can they actually wound the stimulus? Can they mentally get there? We did see the reason, for example, acknowledge that the austerity, even though she was a big champion of austerity, was perhaps something that voters had felt have been taken too far.

And you've seen that with just waiting times at hospitals. We saw in a very powerful way during the campaign itself. You've seen questions around jobs, around crime, around education as a whole, and there's a feeling that yes, perhaps there had to be a bit careful, particularly through this very long and protracted on certain period when Brexit was being

debated within the UK. But if we get to the point that Brexit is happening, perhaps that creates a certainty to have more of a discussion around spending on some of these key areas, and certainly the labor voters who swung behind Boris Johnson last that we'll be expecting it before we move this conversation on to other issues. Just getting some reporting around the Bank of England, according to officials that the new Bank of England governor will not

be named this coming Friday. This coming Friday, as in today, I've lost track of where we have been up all night to UK government officials discussing the timing of that appointment. We won't find out today. Will it be a different Bank of England official with the size of the Can you wonder if we're going to have an official that believes in Brexit in a way that perhaps Governor Krni, at least he's accused of does not. General adliance for

instances have been name. It has been a name circulating in the city used to be the chief economists that standard charted. So that's something to think about as well. I think, for instance, stance for us just taking a step back for a moment, equities rolling over the deal between China and the United States in doubt. We've heard from the U s side, just briefly the reporting suggesting that the President is signed off on a proposal with

the Chinese, but at the moment very little. Welcome all of you on Bloomberg Television and Bloomberg Radio, roseland Myths and with us with Bloomberg News and working in international and government leadership there in ben Ritchie where us as well with everything standard investment, Do you change anything? Are you going to write a twenty page note or read a twenty page note that's going to foreshoot a change of the selection. Well, I think it's the combination of

trade and the election. They're removed two of the bigger issues that have hung over European equities for most of the last couple of years. And so I think if we are an environment where we have a Phase one deal, whatever that actually means, but we reduce hostilities and the perception of stability see and we take away Brexit as a potential sort of cliff edge issue. And we also start to see more governments across Europe move into fiscal expansion.

That's creating an environment that's going to be positive at least for investor sentiment towards European equities, which has been pretty dreadful for most of the last two year. And assuming that we actually sort things out between the United States and China, we're just hearing from the Global Times reporting that China will hold a press briefing today entrade talks. We don't know where things are at all. In fact, for many people, the last twenty four hours was reerily

similar to October eleventh. We're told we've got an agreement, we don't have the details around it. It's a little bit too premature to say the coast is clear for risk assets going into next year when we've got nothing on paper whatsoever. But I think we want to see the deal agreed again. I think the contents of the deal are less relevant than that there is a deal

for market sentiment. I think that that there whereas and what's of how much agricultural purchases, what they extend to, what the protections are in around technology and patterns are not so important as the fact that the agreement has reached and that some degree of confidence can be restored to corporate It's in a degreement. Just once slice though, of a broader issue between China and the United States. Let's look at what's happening at the moment over the

last two weeks alone. But one thing, one of the few things that is agreed upon in DC right now between Democrats and Republicans is a hard stance on China. You can see right now for the Chinese in the past week alone, decoupling of supply chains is something not only happening, they're actively encouraging in China and the United States.

I don't think whatever's agreed on this Phase one deal, whatever you want to call it, that we can sit here over the last two half months and say we have a truce, Do we really have a truce just because we agree on buying a little bit more agricultural good. I think that, I think that, I think that's absolutely right, and it's it's just one part of it of a longer frame, and it's likely to be an ongoing rivalry

that stretches on for for decades from here. But I think in terms of the disruption to corporate confidence, to corporate investment that we've seen, I think this is an important step in trying to ameliorate that does some degree. I'm Richie of Aberdeen. We can catch up from Brussels. Maria Demetrius, Deputy director of Brugal. She's still could be with us and alongside us here in London, Ben Richie

of Abberdey Standard Investment. Maria, just to come to you initially, ignore the sound all around me, the sirens here in London. Your thoughts on how Brussels will respond in the coming months with a UK British Prime Minister with a much bigger majority here in the UK. Well, it was an expected result. Actually, this is going to probably mean that the Withdoral Agreement will pass. It will be voted in the Parliament, which means in itself that we can start

discussing the future trade deal. That is good news because it's going to provide the certainty that the markets need. So in that respect, this result is probably a solid result in terms of being able to start to think about the long term relationship. Maria took Canada WAP seven years to come up with an agreement between the Canadians and the EU. There's a leaf and I think it's well placed that the UK can do it quicker. The

question how much quicker and what can it deal? Your thoughts on a timeline, hire, Maria, How doable is all of this? Well, that's a good point. Actually, a typical trade deal of if you take any random couple of countries that is, trying to strike a trade deal takes more on that it takes a little bit more than two years. So in that respect, yes, wanting to do it everything in one year is rather ambitious. On the other hand, so we know exactly what we expect, the

incentives are aligned. We both want good outcomes. So I mean it could if you get your minds to it. I think we could do it in less than that. If it were to be blocked, there would be blocked for administrative issues, and you know, it might take a little bit more than that. But in principle, I don't think why shouldn't be why you need the seven or eight years to strike a de deal, be doing the two Yeah, Maria, one of the unspoken things is a

changing of the guard within European trade leadership. Really talked about him from Strasburg back to Brussels as well. Does it matter here that their new individuals doing these discussions. No, I don't think so. There's pure continuity here. I think it would be it would be important to just know what the next step is, so you know, first things first, let's pass the withdrawal agreement with the majority of that Premnister Johnson god yesterday. That probably will happen as soon

as this. As soon as this happened, then I think the continuity will be ensured. Certainly from the EU side, the negotiations will still happen by the same people. It doesn't really matter that you have a change. God, right, Maria, thank you so much for the time this afternoon. Maria Demetris is the deputy director of BROGL and we greatly thank her and Brussels today with Ben Ritchie in with the news for the heapphines really starting to change her what we find a goal and I think we knew

it already. Making trade deals is really difficult. We're talked about the United Kingdom and the EU on the timeline of what twelve months to try and come up with a comprehensive free trade of agreement. Maybe if that's what the Prime Minister wants, talk to us about the ficulty not with the UK and the EU. The one that's moving markets right now, the epicenter of things at the moment, China and the United States. A lot of people think risk is diminished going into next year. Do you feel

the same way? Well, I think yes, is the answer. But I think we need to see this deal agreed in some form. I think, as I said earlier, I think the details are less relevant than the deal itself. Um and can we see that perhaps by the end of the year perhaps earlier in the start of next year. Hopefully we can do. And I think that that puts us in a reasonable place going forward. We started this year worried about the effectiveness of monetary policy. We end

it feeling very differently about that. It's interesting because we haven't seen a real pickup in the economic data worldwide, in Europe or An Asia for that matter. I think we're defining the effectiveness of monetary policy by what markets do ensure. There is a channel into the real economy from financial markets, that's clear, But I just wonder when the global economy is going to start picking up and what kind of recovery we have. Ultimately, Is it You shaped,

is it Oul shaped? What are you looking for in the fundamentals the data in the coming mons. I think at the moment we've started to see Tom Lindes of improvement in you in European manufacturing data, so we've seen stabilization and p M eyes stabilization industrial production. We haven't yet seen an inflection upwards, but we but we've seen some stabilization in those rates. Um and I guess the U. S economy has continued to grow and develop in a sort of similar way. To that, which it has done

for much of the last five or six years. Has maybe got a little bit slow around the margins, but then we had that very strong jobs parently last week, so again it's in that band of be doing okay China. I think again the some of the domestic consumption stats that continue to be weak and we haven't really seen

a significant pickup. But I think a stabilization around the trade war I think gives the capacity for European manufacturing to pick up what Q four we've seen lower for longer, established and fixed income everybody's moving out, and also we're waiting on international to come in, including an e M market. It really didn't happen in the fourth quarter. What does the signs you look for every day to link together

lower for longer with finally em coming up? Well, what does what does the sign I want to see out to know that's quite dim. Well, I think it's really looking to China. I think that's the key, and I think if we just gross to I think I think I think it's looking at the p M I and

the manufacturing data there. I think that's probably going to be the key lead that starts to drive a lot of a lot of the other global economies that are the ones that have been struggling over the last sort of twelve eighteen months as a result primarily of trade, perhaps some other issues in there as well, But that that that, to my mind, is that is going to be the key sentimental driver for for European What do you make of the big debate currently going into next

year the rest of the world versus say, the United States. Overwhelmingly we've got used to a consensus forming looks on the other side of the Atlantic sitting in New York on Moll Street, that it's by the rest of the

world in twenty that's the story to get behind, is it. Well, I think it's been that story pretty much every year for about the last ten years, and that's generally been wrong, right, So I think I think as we look at it from here, I think there's reasonable reasons to be more enthused about European equities, particularly going into I think we've we've had a tough time in terms of certainly in

terms of the manufacturing side of things. I'm pretty sure that's going to on as we moved through into next year. We've seen an incredibly negative investor sentiment towards that market. I mean, can you buy the European banks? I don't mean the interrupret this is so important. Could you buy European banks at point to three and point three five failure? Well you, well, you can do something. I'm not sure that necessarily the ones you're gonna make loads of money

on over the next five to ten years. But I think there's enough attractive businesses within the European context. And it's not just about valuation multiples. I think it's about

the earnings performance of these businesses. If we're in an environment where actually we can see a better earnings environment that can deliver a much better returns perhaps than that we can see from the from the US, And that's what I think we're interested in next year in a place decide of Ben Ricchie of Aberdeen Standard Investments, where we stick in with us. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

or whichever podcast platform you prefer. I'm on Twitter at Tom Keane Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio