Surveillance: The EU Needs A Weaker Euro, Rosenberg Says

what policy options the Governing Council reaches for. Here in New York to discuss is David Rosenberg, Gluskin Chef, chief economist and strategist. Good morning to David. The first job of President dr KEI today is to do one well. The question is going to be, um, whether he's going to be incremental and wait till the April ECB meeting UH truly sound more forceful, or whether he will do

it today. Um. There's no question that there will be some sort of shift in the rates guidance, uh, in terms of you know, well known leave rates on hold, you know right now it's through the summer. I expect that he's going to say that rates will be on hold through the end of UH the year UH. And the question is really going to be, um, what he says about the t l TROP program to help both

the belieguered banks, especially in Italy. And so the question is really going to be not whether he's going to be dovish every central banks to any more dovish right now, but the question is going to be is he gonna wait till April to be more forceful or is he going to choose to be more incremental. So we're gonna hear a lot about tel trips. I imagined in the next couple of hour they targeted long term refinancing operations.

This to me doesn't sound too stimulative. This seems to be about preventing a credit crunch from materializing more than stimulating the Eurozone economy. Absolutely. I mean, this would be just a pure and simple insurance policy against back stopping

the banking system. I think the other issue is going to be what and this is really what's going to be critical, because certainly what the Eurozone could also use from a stimulus standpoint, considering how weak the manufacturing sector has been everywhere and especially even in Germany, UM is that they need a weaker euro, they need to shift their rates guidance. You see, this is what's happened, is that the Fed has already taken out whatever rate hikes

were priced in several months ago. I think that the ECB has to change its rates guidance that um that there are really no increases coming for the resueable future, and not even put a time stamp on it like they've already done. The present rate guidance is to redundant, isn't it, David Well, I think that what you want to start doing is is reinforced the notion that you know that the next move could actually even be an ease uh. Interesting, And so I think that I think

that that's something that we have to consider. You've got to say, draw bank here. There's no doubt they're going to cut their growth forecast, and not just a growth forecast. Remember it's a central bank of the inflation mandate, uh. And they're going to cut the inflation forecast before they've

even reached their target. That actually says to me, as you know, as bizarre as it might sound, looking at how stimulative ECB policy is that when the benchmarket against where we are in the cycle, the level of the up book gap and disinflationary pressures that that perhaps the easing cycle there shouldn't be ending as quickly as it did. I mean, remember they ended quantitative easing at the end of last year. Look, it may have been just a

little bit too premature, David. Some people have said the ECB and the Government Council over the last few quarters has been incredibly complacent. We heard through the back half of last year that the slowdown would be temporary, that it would fade, that things would bottom out. The slowdown bled into quite clearly. There are some signs in services

and the labor market that things are stabilizing. Is there a chance that the ECB focuses on that today and actually sees a reason to be patient and not do anything just yet. I think that would be a big mistake. UH, And even people who are focusing on the service sector p MHIG data in the United States, UH, services are inherently sticky. They're not nearly a cyclical as the goods producing sector is manufacturing globally and including Europe, is in

various stages of disarray. UH. Services ultimately, and you talk about the labor market, everything ultimately, services the goods producing sector. Uh, and it's extremely weak. And I think that's what we be focused on right now. And I said before, let's leave the economy aside. Uh. The truth is always in

the price. If you're cutting your inflation targets, your inflation forecast, and if inflation is below your objectives, uh, the price numbers are telling you about the state of domestic demand. And so right there, I think that deserves a shift, a big shift in the tone by the central banks. David Rosenberg, No one but you owns the slicing and

dicing of inflation. You've absolutely killed it, maybe along with Gary Shilling on a low interest rate regime, a low inflation regime is well, what do you say to the inflation optimus, not the inflation eastas, but people that say we'll get a bid to price? Can we do that in an age of oversupply? Well, look, we we just got the most up to date anecdotal information on one

inflation looks like in the US, what's it looking yesterday's basebook? Well, look, we are seeing some cost pressures, uh, partly from the tariffs, partly from labor in the terms of tight labor markets. Of course, that's a lagging indicator. What are the base book tellers yesterday that companies increasingly are having trouble passing on their cost increases in the final prices. That tells me that there's a concern about inflation. It's more on costs and it is on final prices. That tells me

that we're going to have margin pressure. Maybe that's more of a problem for the stock market than it is for anything else. But look big picture. Um, you know, we we did have a modest inflation cycle this time. Core inflation bottomed at point six percent. It peaked at two point four percent. I don't think most people realize that this was the lowest peak and core inflation in the United States in the post World War two experience. And that includes the UH, the the the Clever Family

of the nineteen fifties. We've never seen cor inflation peak at such a low level despite everything we threw at it. Like, I'm still surprised people are talking about inflation. Uh. We threw two rounds of huge fiscal stimulus at the situation zero percent interest rates for the better part of seven or eight years, relentless quantitative easings, and and that the peak and cor inflation was two point four. You know

there's no inflation for New York Islanders tickets. I mean you and I could go see Canadians Islanders March fourteen for half the price. We'd see it at the Forum or the Madison Square Guard. Well that's half the price to you. But I'm playing it in Canadian dollars. So you've got attack from me. Okay, Well, what's gonna happen there? Unless you're treating? Can you know why I'm treating? Can we do that? John? I don't know if we can. Maybe if we take you it's called a mercy mission,

that would be a great place for you. That would be a great place for you to see a first hockey game. Seriously, Yeah, it's a it's a dump of an arena. They've redone it like the old expense it Reddo will pick it up, red O, Keeper of the m X David give us an update at the time we've got left with you on the chaos politically in your Canada. Well, look, I would say that it's a

little overblown. Um and uh uh. You know the situation with Lavlin from something that happened a decade ago, and you know the extent to which the Prime Minister in his office, you know, pressure the Attorney general. I mean this is actually in many respects um part for the course, as far as UH Government Canada is concerned, it was basically, um, you know, the Attorney General claiming that there was a

lot of undue pressure on so on and so forth. UM. I just think that the problem is more of that the Prime minister, that Prime Minister Trudeau you know, came in um with a really squeaky clean image and um and portrayed that on it and and you know, and so look you go back to Stephen Harper. His big scandal was was, if you remember, it was the Mike Duffy affair, which was a bit of a joke. You know when you take a look at the US and the stuff happening, um, you know in Washington, what's happening

in Ottawa now is actually pales in comparison. But you know, when you benchmarket once again against you know, UM, a squeaky clean image and all of a sudden, there's a chink in the armor and next thing you know, it's making front page news. But it's it's it's it's I would say, overblown. You're montro Canadians fans, somehow you get

the Ottawa Senators worst in the world into it. David Rosenberg, thank you so much, greatly appreciated this morning with Guskin chef important comments there is we go to what I thought it would be a joke, John, and all of a sudden the ECB meeting is like the real deal right now. William Lee with his Billy of Milk and Institute, with his tour duty at the International Monitor Very Fund

and was City Group. Of course, we can only speak about a record trade deficit back of solid ten even eleven years, Billy, I want to talk about the terroriffs in the short time we've got with you this morning. Can we just eliminate the terroiffs? Can China pull back tariffs? Can we pull back tariffs and basically start all over.

We have to because China desperately needs to boost its economy and the only way they're going to be able to do that is to restore trade to where it was before, because their experiment of trying to do fiscal policy right now may or may not work because they've never done fiscal policy without a lot of critic growth. So tariffs have to go down as far as we're concerned, Uh, the farmers are suffering, and I think Trump's political base is one where the farmers and manufacturers have to reassured

that job growth is there. I asked this of our covins, A really let me ask it of you. Do you see any indication in Washington that Mr Trump and his political team will listen to Mr Lightheiser, Mr Cudlow and the rest. Well, He's gonna listen in a very careful sort of way, because look at the sequence of negotiations he's done. He's allowed the farmers to get their deals. He's allowed the manufacturers to have their deals with some

of the terrorists protecting them. But as far as intellectual property protection and and and and other more nasty parts of the trade discussion, he's letting that go. He's letting that slide. Why is that because that benefits Silicon Valley and let's face it, he's not going to get the

California electoral votes. So as far as helping his basis concern Trump, President Trump has done exactly the right thing in terms of sequencing what's important for them and allowing the rest of the deal to to gather momentum later on. But this really concerns me. I think the administration has done a terrific job of getting the Chinese to come to the table. We're so close to getting some real concessions. Wouldn't be be a massive wasted opportunity to focus on

the trade balance and not address these bigger issues. Boy, Johnny, I can't agree with you more. And and you know, all this discussion about whahwih that's just the opening rounds in the war of intellectual property protection, because let's face it, no one has faith in corporate governance in China. CTE is a great example of of of having a company pay fines, put in uh changes, in structural changes in the board, and we don't believe them. What's gonna happen

with Yahwei? Especially in the world of five G where everything is equipment related and and and the the probability of their sticking and spying material into those equipment in the Europe and every place else, even here in rural US is very, very high. And those are the issues that need to be discussed. And Lightheiser is saying that maybe enforcement mechanism comes along with more frequent discussions, Well,

good luck on that. But I think many people find this absolutely infuriating, the idea that Huawei is suing the US government for barring its equipment from certain networks. If the US had the same ability to do the same in China, can you imagine how many US companies would be lining up suing the Chinese government to get access into China. Try getting it, Try getting a judicial reward in China for US company. But but you're absolutely right there.

But this whole, as I said, this is just the opening rounds of that screw miss that we're gonna see for years and years on how it is that we can protect intellectual property and security at the same time lower the cost and and and let's not forget Yahwei and Ztes. Supply chain is intimately linked to the US because when we shut off our suppliers to to those companies, they almost went bankrupt. It's a John's insight that we're close to some kind of deal. From where you sit, Bill,

is that true? Are we close to some kind of deal or are we gonna do another Hannoy? That's the key, Tom, I'm ask I think he can very well walk away right now because he's gonna show he's gotta solid he's gotta have a solid political base, and he's got to show that he's tough and he's willing to walk away from a bad deal. What happens when he walks away?

The markets are gonna collapse. I think everyone has priced in some kind of a deal that that if he were to actually walk away, I think he's better have some plan be in mind to be able to restot markets, because otherwise I think we could have a massive crash in the all the global equity markets and and other markets. I just think that way I thinks are lined up to go full circle. To Bill's earlier comments, you hear

more and more about the American farmer. It looks like a deal that's going to be centered around the trade balance, perhaps the purchase of more agricultural goods. And to your great point, Bill, it's going to be very very difficult if you want a quick deal, it's going to be very very difficult to get the stuff that really matters, the structural issues technology transfer, I p theft. What happens with Trade Representative Lighthiser if he doesn't get the deal

that he wants. I assume that there's going to be some people that walks away. Well, unless Trump starts to wave the flag of we have put in place of mechanism for enforcement, and that is yet to be done. I think if he starts waving that around, Lighthouser will stay to try to make that work. Billy, thank you so much. Thanks Institute today on our international economics joining us on the phone. Jeffrey's international chief financial economist is joining us right now. Great to have you with us,

Sir David. David walked me through your first tape. Please. Well, I mean, the surprise to us is that they unveiled the series of measures today. We were expecting something either in April or June. Obviously we knew that the ECB was going to be dubbish, but we expected the announcement of the package the announced today to actually have been delayed to a future meets at meeting, but the good thing is it's it's all wrapped in together, and as you were saying a moment ago, it does rather tie

the hand of marrow drags. It's quite clear they're trying to engineer um a much stronger Eurozone economy going forward. In particular, obviously the Ford guidance on rates has been moved back that they're going to keep rates at these levels until at least through the end of this year, from the end of the Studdler previously. Secondly, they're obviously introducing these under tel throws for two years, which is targeted to lending to numberlancal corporations as the households, but

in particular as well. These are at variable rates, so they're giving a clear here that they do expect over the next two years or so rates to start rising. But David, this is important. You were Jefferies, a wonderful and international firm. You were Dressner Kleinwood before, so you understand continental banking and continental central banking. Can they be optimistically preemptive? Is there any history that they can get out front of a slowdown in Europe? I observe no

history where they've been able to do that. You're quite right, some in the sense they had over the years tending to lack developments. But I think in terms of the slowdown that we saw in the latter stages of last year, in particular whose reign met much led by the slowdown that we saw more generally in trade, also trade within the Aurozona itself, UM and also particular issues like autos in Germany and the weakness more generally consumer durable spending.

If you look as other evidence of domestic demand, though they've actually been picking up reasonably uh strongly, and employment to games up in the fourth quarter of last year. Wage inflation continues picking up. Wage inflation around the arizonas picked up early decisively, and even bank lending has picked up pretty decisively in most countries. Of the exceptional course of Italy and Spain, and the Teltro's were very much targets. I think that those two are sort of countries particularly

trying to foster greater loone growth going forward. So now the interesting thing I've also add is the incoming ECB Chief economists as of as of mays ear Fini Lane currently the Central Bank Governor of Ireland, and he's very

much focused on imbalances, macrovidential policies, um and income. In this environment, he there will be much more focused on actually heading off in balances in a world where the ECB is still anchoring rates very much at the floor and trying to get bank lending growth going in all these other countries, You've got a situation at the moment where bank lending growth in Belgium to another tactrical rations is growing at almost ten percent year on year UM.

It's also very strong in Germany, it's pretty strong in France UM. And you know ECB will be aware of these imbalances they start developing. David, you mentioned the successor to Peter Pratt as the chief economist of the ECB. Let's talk about the successor of the president. The president dragon just tie the hands of his successor a little bit, at least for the first few quarters. Yeah, you're absolutely right. I mean, he's he's he's I mean, but what they

would argue is that their their guidance can change. So if we go through into the middle of this year, stay June, and you know, indicators are now pointing better and core inflation sees the picking up some traction, the guidance from the ECB can change. Obviously, these telt rows are going to be in play now until March of two thousand twenty three UM. Because you know, but in that period obviously between now and the end of two thousand and twelve, as two thousand trade two, they can

opport raise interest rates UM. And you know rates could It's funny stifferently over the next two years anyway, But at the moment they're still in this environment where they just want the anchor expectations, get bank lending, going help out Italian banks, in Spanish banks to some degree, um, and achieve a state lusty in the way for the europe generally. Ask you this because you're the Jeffrey, so I think you're not going to be jeopardized by your

General Council. Isn't all of this hinged unclearing commercial banking in Europe? And do you see any indication David on that ECB and other regulators actually wanted once and for all clear out troubled EU banking. Well, they certainly do, and obviously and the regulate the national level and the supernational level. They're trying to achieve that, um. But it's very to work in progress and they're they're working through

all the issues in you know, every country has different issues. UM. The banking sector in general in the Eurozone, as you know, is is very large, it's very fragmented. Um. There's very different banking models that exists across country. So you've got very different um sort of profit margins um for the

same bank operating in different regions of the Aurozone. Obviously they're trying to move it to you know, a one, one stop banking sector as you have in the US in a sense and we have here in the UK. But they're starting out from where they are and it's it's only work in progress, and obviously none performing loans remain an issue in some countries. Very large bounce sheets um still remain in others. Some of these banks all very large. Let's sleeve it there, David, and thank you

so much. With Jeffreys, appreciate that. Actually, last wing and I are going to digress right now. We've been watching Europe blow up, and maybe we'll fold that into our discussion. But right now, the woman who gives us more mail and technical analys than anyone breathing, and that would be Louise. She is definitive and the courage to look at long

term charts. Louise, I want to look back after this historic moment known as December January, in February, in November, what did your long term charts say about all that volatility coming Well, we had been cautious for several months before the December dropped. So the longer term monthly momentum went negative in October, so that was a warning among other indicators that suggested things weren't quite ready to continue to move up. Okay, and then you enjoyed Did you

load the boat December? I mean you didn't know. We didn't. I'm sorry to say, but um, we we prefer to wait and see what the longer term indicators tell us. And to be honest with you, they're still on a sell, believe it or not. And now the daily momentum has moved into a cell. So that allowed us to at least suggest here that we're going to have some kind of a pullback. We did a schematic of a big w sort of similar to what happened in the fall

of last year. Um, if we were to come down, maybe seven up and down, you'd have a consolidation that would give you a configuration that then might support new highs if in fact the market is going to choose to do that. But if we don't hold with a seven percent pullback, then we may be looking at something

a little more severe. I think it's a very selective market out there, and a lot of the advancing statistics UM would be the same stocks going higher and higher I mean, look at his eye links that just keeps going up and up and up, and yet you have practically all the energy stocks that are nothing more than

kickbacks into resistance. So, Luise, what are you know, given that you're still cautious, what are the main contributors to you look at the main charts, the main data points that you look at that keep you a little bit on the sidelines. It's mainly the monthly monthly momentum cell. If we go back to we got our cell signal prior to the actual declines, and it remain negative through the test of the low, and then until we were just about to lift through resistance, we got the buy signals.

So basically, having sold and then bought at the same price, you you eliminated all that adda in the middle. Well, Luise, you take one to three and you get and you take level your mata. Right. So, Luis, if if I still want to buy stocks and you're you're telling me to be cautious here in the US, are there some

international markets that maybe look better from from your perspective? Uh, Well, Switzerland certainly has been doing better than any of the other European area um markets, and of course you've gotten the lift in Shanghai in the China market. Um, most of the foreign markets that we follow have run into resistance here, and I think it's going to be a question of how they navigate it. Um. Most of them remain on monthly cell signals, so we watch carefully and

it's very selective. What we've essentially said to clients is, if you're going to play a stock that breaks out, just crazing your trailing stop loss. Anytime Louise Yamada shows up, I get the email. Okay, all this chit chat's fine, just ask her about gold. Now we now have Louise fundamental types talking up gold. I'll cite Jeff Curry at goldban Sex. You are a gold bull, right, we have been more constructive on gold. I necessarily say a gold bull, but we did go more positive on gold over the

past couple. Okay, what's the wire and go back to Yamada's speak. Is it because you're seeing distribution that's constructive? Uh? No, it's because we were seeing, um, what might have been defined as perhaps a five year base going back to let's see below, was probably fifteen and you've got a few years of consolidation on the downside to the left and a few years of consolidation on the upside to

the right. Um. We would have liked to have seen this move closer to fourteen hundred, but it was through fourteen hundred that we would need to have seen. We haven't seen it yet, but you still was in the short term up trend. That's a classic Louisia Matta there with a five year base the day traders over TD ameritraty going weight right. I can't work with that. I can't are that today, So Louise, how about on the currency side, Tom and I? We continue to be amazed

at the strength of the dollar. Ware. Where where do you think investor should be looking in the currency markets? Well, they've been pretty flat until today with droggy speech. Where the euro now looks like it's about to break down one new weakness if it closes here at the breakdown, UM, and the dollar has been you know, forwarding both the bulls and the bears UM and in a rather flat,

slightly uptrending pattern. And that looks better and better. If you get out through you could probably see a hundred again. But we've been there before. We were there. We were there close to it, so it's all within the pattern of the last four years. Louise, one more question, I want to wrap this up for all of our audience. Are you suggesting, then, with the new weakness in a seven percent correction, that we are within a bull market or do you state that we've had a bull run

within a longer term bear market? Which is it? We're on the fence. We want to see. We are definitely on the fence those long terms Rich whom Luisa on the fence right, it's we're on the fence. We are We want to see the monthly momentum turned to a bye signal and then will be a little bit more comfortable with what we're seeing. It's been too long, Luisia amount of thank you so much for being with us.

And I think that all of you know with my technical analysis, Louise and I are decidedly on the same page Paul Sweeney, and that people do not look enough at weekly, monthly and quarterly choice. 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