Transcripts For BLOOMBERG Bloomberg 20240703

Seven words, im Jonathan Ferro. U. S. Retail sales before we get there, an ecb retail story. It deadline for taking on the detroit three. Tom ill start with the cut up clock for inflation, people digging into inflation, could be shows many significant disinflation and that is what Christine Lagarde is to confront. If there is rates, are they doing the wrong time . Jonathan we are split down the middle. Tom citigroup, bnp paribas, there is a long list and i think that list is growing after we heard the last couple of days. Lisa the market has been pressing since the midyear that the ecb is would you raise rates for the current 3. 75 . The question is how are they going to do it . Are they going to into get a hold and then indicate theyre going to raise rates further . Is there any variation from that particular iteration of decisions . Tom American Airlines and what we are seeing there, i think Helane Becker joins us today, but there is disinflation in the air and yet in europe we are talking about inflation. This thursday is a huge pivot point and a real point of tension. Jonathan does this sound like disinflation . Uaw taking on the detroit big three with 36 pay raises. This is what is on the table. Ford has proposed 20 over four years. Gm has offered 16 . There is still a big gap between the two and we might not close by midnight. Tom lets get to the calendar here, 10 00 p. M. Tonight is where they might get in front. There may be an announcement before midnight tonight, cignarella will come out with a pumpkin cinderella will come out with a pumpkin. Jonathan it could be at several locations. It could be a limited strike. They wont tell you because they dont want the manufacturers to plan for the potential strike. Lisa they wanted to be maximally disruptive without the maximum economic hit. That is why 10 5 00 p. M. You will hear from shawn van as he comes out. Tom for all of us on radio and television, it is like there is no countdown clock today, it is just a neverending. It is going to go to the entire day. You listen i said to somebody yesterday this may be the most Important Press conference Christine Lagarde has ever held. Jonathan an indecisive ecb. I have got to make a decision. Tom is germany driving the bus or his portugal driving the bus . Her answer will be interesting. Jonathan germany is driving the bus, i am not sure what they would ask for. They have got a tough economy. Tom this is a fascinating day. The vix, 13. 3, these are terrible markets. Jonathan equity futures given all the drama were talking about are positive on the s p 500. Yields are higher bicycle basis point. The euro going absolutely nowhere, 1. 0729. Tom the major issue i have is do you think the white titaniumsesame . White titanium iphone says me . Or should i do a couple reach . Jonathan are you doing the family plan . Is everybody upgrading . Have you managed to construct this in a way in which you are hardly paying any money . Tom i think i have. I did it on the apple website. At t clearly is the most desperate and the other two are falling out. Jonathan we can talk about this later, maybe. I have a feeling this is really what you want to talk about, not the ecb or the unions or the data coming at. Tom i think i can find a white iphone in a bar faster than a black one. Lisa Christine Lagarde is going to talk about her iphone purchases, no she will not. We get the ecb Rate Decision followed by a press conference. Christine lagarde has a difficult needle to thread. She is looking at inflation of 5 , still too high. They are only going to downgrade to 3 next year. Stuck between a rock and a hard place. She might say stagflation, the nightmare. We get u. S. Upi and retail sales. I am more interested in retail sales and the potential of a negative headline print, even with what we are seeing from gas prices. Auto presses and auto sales volume has been coming down. Can consumers keep observing the price increases Companies Need to charge to breakeven . 11 59 is the deadline for uaw negotiations. I am watching the 10 00 p. M. Press conference. It will be interesting to understand their strategy of how the plan to wage a war against the art, factors without losing client in terms of reading economic havoc at a time of is the moment. Jonathan for kinnard to close the gap. Drag now is Ben Gutteridge. Wonderful to start with you. What is there to like about the u. S. Equity market currently . Ben i think quite a bit. The backdrop is of resilient growth and a policy cohort that will probably decide to go on hold for beer. Less hawkish policy could fuel more gains in the u. S. Equity market. With all of the other longstanding tailwinds for the u. S. Equity market, including innovation and where shore models where shareholders. Tom one of my heroes, erica pentecost is a giant in my mind. Are the systems within the Eric Pentecost textbook still at play . At invesco, are you making of the theories as you go or is this finance and economics from our models of the past that we can use now . Ben fascinating reference, it does not come up much. We are not making it up as we go, i can assure you. But my job is not so much making economics forecast as investment forecast. If our view is to pinpoint economic forecast, the economy can be relatively resilient coupled with policy that would take a pause on hiking and so is relatively more, to relatively more accommodative. For the time being, it is not as the not such a bad period. Tom given what you said about a resilient economy, does 60 40 work . Ben the 60 works. The 40 should do better. Clearly it has been a dreadful part of the portfolio for 18 months. The bond component looks more asymmetric, there should be less downside. If we have the disinflationary narrative, the cbo report yesterday supports the idea that the trends are still disinflationary. That should come through. Disinflationary backdrop would be okay for the 40. We always encourage more diversification and real assets and a bit of cash. Not to be troubled by a 60 40 portfolio. Lisa it feels like trading the end of a cycle is like dancing on the head of it. Figuring out when you get cap last on the momentum, the disinflation, the policy holds before reflation before session sets in. How do you know when the end of cycle season has reached the end . Ben that is the point, it is very difficult to know. Swinging too divisively, there are some risks in that. End of cycle behavior does lend itself toward investors moving towards areas of secure growth, that would be Like Technology and u. S. Equities. All of the sessions are off all recessions are awful, but this is mild versus more recent recessions. That encourages you to be more overweight equities. You have to brace for volatility but perhaps it would be his punishing. That encourages the modest to overweight equities. Lisa the areas you focused where the u. S. And you are more overweight u. S. Than elsewhere. In europe, where does that come from . The banks are passing along these higher rates without the prospect of months. Youre facing headwinds, how do you get a disaster about european equities . Ben it is quite hard to do. The evaluation is a starting point. There is not too much thereafter. The headwinds are challenging. Certainly that financial crisis at the start of the year, they want to show their rituals. Policy not yet getting favorable and clearly china, the impact china has on the european economy is also a challenge. I would look to the ecb to get more accommodative and for chinese policy to get more stimulative before moving more towards european equities. Not too far away. Jonathan hike window hike or no hike . Ben i would say hike. Jonathan Ben Gutteridge joining the team of people looking for a hike a little later. It is so split right now for the ecb. A lot people starting to rethink what we could get from the ecb. We had a report from workers suggesting may be in the 2024 forecast for inflation that is revised higher to above 3 . I have good news for our friend from dubai moving to new york. Manhattan ritz topic right on cue manhattan rates topping right on cue. Tom he has a view of the east river, august up all good stuff. If you have breakfast with Jonathan Ferro and minutes together, you only understand one every four words. The british accent and the irish accent. Lisa i am offended and im not even there. Jonathan media rent for new leases last month, 4400. Under this part of good news, you would expect august to be really hot and based on this data, it was not that hard at all. Lisa prices are topping out, they are still up 35 where they were in august 2021. It is too expensive and i dont expect price declines. And if they dont expect price declines. Tom as is that with paul sweeney, where you analyze inflation, you have to wait a couple of hours. You cannot do two minutes in. You have to break it down like David Rosenberg would do. The rest of it is going the other way, threemonth annualized. Lisa not car insurance. Tom it is very threeish. Jonathan is that what we are calling it . Lisa mentioned 35 higher than august 2021, 7 from a year ago. Terry haines joining us next on the looming uaw strike from new york city, good morning. We are making progress at the negotiating tables. As you heard, we are very far apart on our key priorities. To win, we are likely to take action. We are preparing to strike these companies in a way they have never seen before. Jonathan the deadline is midnight tonight. That was sean fain outlining the plans to strike against the three automakers. An offer from uaw of a 36 pay raise. Ford proposed 20 raises. Gm offering 18 . The land is offering 17. 5 . That is to a widespread, can we close it . Tom how teamsters was that . The teamsters thing changed the debate, the tone, the body language. This guy knows he has his union behind him. Jonathan has he got the president behind him . Tom i dont know. That tone of voice i did not hear two or three years ago. Lisa this is a damned if he does, damned if he doesnt think. There has not been involvement by the white house. They get involved and stave off a strike, they are bad. If they get some resolution that hurts anyone, they are bad. Either way, they will not be looked at well. Jonathan there is a bit of loselose to this one. Tom yeah. Are you talking ecb or joe . Jonathan the strike that would happen later on this evening. I did not switch. [laughter] i could talk about the ecb. Tom i am fascinated who they pick as the strike company. Jonathan maybe all three in different locations. I think theyre being cagey about the strategy because they dont want the automakers to plan for it. Tom terry haines will be up there. We have a two hour conversation with terry haines. He is with pangaea policy. He is the only one who will remember this and lisa and john have some zeus questions, including uaw. There we were on the couch in 1968 and lbj and vietnam said i give up. David ignatius dropped a bombshell two days ago. Ann marie horton and i went back and forth on it. When when is biden going to do an lbj . Terry right now i think never. They put a situation in place where he is the oil through to find any party they put a situation in place where he is the only alternative in the party. You have the washington chattering classes going on about the need for change but there is no alternative. Folks are not thrilled about the prospect of biden standing side and having a freeforall. Tom back to Grover Cleveland alexander, that is the way the democrats do it. Where have the democrats been a smooth operation out of a campaign . They are supposed to have a complete mess to get to the convention, right . Terry two things i can say about democrats is insert the will rogers comment about belonging to no organized political party. The second thing is when it is time to wax somebody whack somebody, democrats are better at that than republicans. I dont see the situation with President Biden changing. Lisa do you expect a strike or go strike and how will the white house deal with it . Terry my instinct is no strike. Simply, they are not negotiating in public. That is always a good sign whether you were talking about politics or union organizations. The union was clear about what they wanted which was to get back in front of the wage train and protect their workers. Bible occasion, they are being clear about what sort of overreach there is. Number two, the automakers are motivated to have some sort of a resolution. Thirdly, as you pointed out, looking in the background is the white house which was a resolution and will try to apply some pressure. Lisa it seems there has not been that much involvement from the white house. There is a report talking about individuals involved. It has been the active secretary and they have not named a full labor secretary at this point. Genes burling, white house advisor, has also been a voice. Do you think that was a mistake . Terry having sperling and sue involved is an indication of sues engagement by the white house. Jean is a very serious guy, the paper secretary would expected dish would have expected to be involved. Those seem to me like the right people. The question to me is rhetorically and in a bully pulpit since what biden is willing to do. This is someone who claims he is the most prounion president ever so roosevelt is spinning in his grave heard the uaw created the american middle class and deserves an inappropriate contract. Biden sees the negotiation as essential to pushing bev transition forward. The ev transition forward. The white house is going to have to stay involved. You pointed out the two bad choices. The downside is potentially worse than the upside. They have got to get involved for the upside. Lisa what is the ideal outcome for this white house . Terry the ideal is a contract that is accepted by all sides that shows Real Movement forward , that the president can push to say this position say this pushes my ideals about Union Membership and union participation and he gets the endorsement of the uaw. Tom i went back two years looking at union discussions between trump and biden. Do you have any knowledge or perspective of if uaw line workers are supporting the former president or the present president . Terry i dont have anything granular on that. I will say that there has been for some time a major disconnect between what Union Leadership wants their rankandfile to vote and how they actually vote. The same hotbeds in detroit and pittsburgh and the like are all places that were heavily for trump that made the elections closer than they did otherwise. I would not expect that to change. Jonathan thank you for being with us, terry haines of pangaea policy of the latest potential strikes. Breaking news, the reserve requirement ratio for china gets a trim of 0. 25 percentage points. The cut will be effective from september 15. Easing on the supply of credit, not necessarily the price of it. Easing the reserve requirement ratio for banks in china. Tom there is the whole financial thing and the property thing and disinflation. A lot of the zeitgeist is if the economy is doing okay. Is this a 3 china gdp, 5 . Could it be even more even with this financial upset . Jonathan 4 is the number here a lot of. A lot of revisions. Lisa put out the list of actions we have seen from chinese officials the last month. Lisa which is the reason that the moves have been easing light, not necessarily that aggressive. Tom we need to do a surveillance road trip to shanghai. I could just see it. I like that. Jonathan an easing posture overrunning china. Sarah hewin, next. [indiscernible] every business deserves a great deal. Thats why comcast business is launching the mobile made free event. With our business internet, new and existing customers can get one year of unlimited mobile for free. Its our best internet. Powered by the next generation 10g network and with 99. 9 reliability. Plus one line of free mobile for an entire year. Its the mobile made free eventhappening now. Get started for just 39 a month. Plus, ask how to get one free line of unlimited mobile. Comcast business, powering possibilities. Hi, im jason and ive lost 202 pounds on golo. So the first time i ever seen a golo advertisement, i said, yeah, whatever. Theres no way this works like this. And threw it to the side. A couple weeks later, i seen it again after getting not so pleasant news from my physician. I was 424 pounds, and my doctor was recommending weight loss surgery. To avoid the surgery, i had to make a change. So i decided to go with golo and its changed my life. When i first started golo and taking release, my cravings, they went away. And i was so surprised. You feel that your body is working and functioning the way it should be and you feel energized. Golo has improved my life in so many ways. Im able to stand and actually make dinner. Im able to clean my house. Im able to do just simple tasks that a lot of people call simple, but when youre extremely heavy theyre not so simple. Golo is real and when you take release and follow the plan, it works. Tom reserve jonathan they reserve requirement ratio cut, small one. That top of everything we have seen from japan from china, an easing posture. S p 500, positive. Lots to look forward to. U. S. Retail sales for the detroit big three and an ecb decision around the corner. Into the bond market, the two year closed above 5 tuesday, broke back below it yesterday. By a single basis point, 4. 97. The 10 year, 4. 2565. Into retail sales later this morning. Tom do we have a countdown clock on retail sales . We need a countdown clock and a cutup clock to wendy ecb to when the ecb talks. We were uninhibited yesterday with your people at this and i were advocating for a cutup clock for efficient. Jonathan you want to count up so you can say 21 minutes . Tom so mickey can give us further data. Jonathan we will figure that out. Tom peter with a really smart note on real rates. He said real rates matter. I usually look at the 10 year. He said the fiveyear is more important, the fiveyear real rate. Inflation adjusted rate. Lisa everybody says that what the belly of the curve. That perhaps is what he is talking about. He is talking about the general. This is something we keep seeing as people try to capitalize on bonds that might not be trash. Jonathan everything is about you, dont worry about it. You will upset him. Tom ray dalio is one of them. They interviewed him, and he does not like bonds pressed on guilds. Jonathan cash is no longer trash. Tom joe and tracy interviewed bill gross and they are qualified. Bill gross is running a billion dollars fund. The last time we heard from ray, cash is trash, right . Jonathan that was years ago and rates were zero. Ray is full committee time. Is that ray is welcomed anytime, is that what you are saying . Tom yes, we can clear it up on cash. Jonathan we are at 1. 0 731 on the euro. If you want a toxic brew, you have got one. You do not what a weaker euro and a higher crude price in europe. That stuff is brutal. That is where the ecb is. Lisa if Christine Lagarde does not take a dire tone today, i think she will be tone deaf. She has to signal how difficult their decision is at a time when they want to support the euro and they have to hike rates one more time to support the euro. They also are with every difficult economic picture downgrading growth. Tom i totally agree with what you are saying in terms of oil. She is going to take a different tact for one reason, oil. Jonathan the energy story, the united autoworkers and under contract at the midnight deadline approaches. Uaw president saying we are prepared to strike these companies in a way they have never seen. Before the ceo saying the union has not made a see a serious counter offer to any of their proposals. It is hard to negotiate a contract when there is no one to negotiate with. Tom it is for it and i dont know what theyre going to do. Why do you go after the one company that did not go bankrupt . To go after forward would be odd. Jonathan you think they pick one somewhere else . Tom the tradition is they pick one so they can strike longer. They find that they have will last longer. Jonathan if you want to maintain public support for what you are doing, pick the one which no one has ever heard of, still at this still lantus. Tom i agree with that. Jonathan pick estate wherever. Lisa i hate to be too much to do a small press move but their prices are down. Jonathan i have giving them i am giving them my strategy for negotiations, i am probably not of the best to do that. Markets split on whether president lagarde will pause for delivered a rate hike. One of her friends on this program way in saying we have to acknowledge the hardest expectations the last two weeks. The risk reward heading into this decision is not good for the euro. Softbank pricing its ipo at the top of the rank, shares for 51 when they begin. The ipo is the biggest of the year with bloomberg reporting it was over prescribed 10 times. Lisa valuing the company, substantially below the 64 billion of just a few years ago at 4. 5 billion. Substantially higher but it is a smaller portion. You were right to point out this is basically a marketing shtick. Tom this is killing this. Bring it up again. Down at the bottom, there are the numbers, the math. Softbank maintains 90 stake. I still did not get this modern ipo stuff. What are they doing other than to cash out a bunch of bankers . Jonathan you think you can learn anything from this ipo given the nature of the company . Tom i am not qualified to answer that. Lets go to europe and i want to jonathan to bid this conversation because the first time i saw Jonathan Ferro was on the lawn of the ecb building long ago. Sarah hewin, qualified to talk about this. Jonathan i love your story of meeting the. He forgets we met years before that. Sarah, welcome to the program. Hike or no hike from the ecb in a few hours . Sarah we think no hike. If you look at the data, the economy is close to stalling if not already turning down. A very weak outlook for growth. Inflation is still higher than it needs to be, but core inflation has come down and we think this sort of Growth Outlook will bring inflation pressures down further down further. The issue is the small nudge we have seen in Inflation Expectations and the fact that the inflation forecast for this time of round has to be revised substantially. It is tough for lagarde to say we are on hold but we are expecting inflation to be higher this year and next year. Tom if germany jonathan if germany and the german recession cannot bring down inflation, what will . Sarah we will get there in the end. Recession will ultimately damage the labor market, dampen wage growth. It will restrict businesses ability to pass on price increases which has been a big part of the inflation story. You get to your 2 inflation target. What we are questioning is how far they are going to be focusing on their forecast for next years inflation. The forecasting horizon has always been two years, where are we going to be in two years . If they up their forecasts for 2025 inflation, that shows that they will be able to meet the target under the current policy. Tom you are an expert on this and Standard Chartered has a wonderful Eastern European look. How homogenous is the ecb today . Americans will go germany, portugal, or maybe a book at court and this is something about italy or greece. Is it cohesive in a meeting today or is it cats and dogs are giving that lagarde never talks about or is it cats and dogs that lagarde never talks about. Amy sarah across the board, weakness in the euro area, and the hawks on the ecb counsel are not necessarily those i economies that are doing well. There is sort of a big split. You can see clearly that some policymakers are concerned about the growth picture and feel very strongly that is going to be bringing inflation down. They are concerned another rate hike wheel to the economy into a deeper than necessary recession. Others feel you cannot stop while you have headline inflation up 5. 3 , two to three times the target. Lisa we are talking about how Christine Lagarde is between airpark and a hard place, so is the euro. There is this question of how much the ecb is watching the euro. What is the level at which the ecb starts to sweat about inflation at the worst time . Sarah i think we are still some way away from that. We see in the past where the europe when the euro gets to parity, that is the point in which we get verbal intervention. There are some bigger problems for the economy at the moment that the value of the euro. The euro is helping the export, reporting inflation anyway is not what the policymakers are concerned about. They are concerned about domestic inflation. Even though we are seeing Higher Energy costs and that is a worry , the concern over Higher Energy is equally balanced between the Inflation Expectations which will drive them higher, but also the drag on growth, the headwind to growth in any environment which is already recessionary. Lisa do you expect Christine Lagarde to talk about the long and variable lags in europe . Can you speak to how much they are going to speak about a hold being restrictive as time goes on . Sarah i think that is a good point to make. As a person comes down, if rates stay unchanged, we can see the impact on conditions, on credit availability, on the growth and money supply. I think they will emphasize the point that policy is restrictive and will stay restrictive for a long time. The mantra may be that rate hikes are not on the horizon. They will want to send a message that higher for longer rather than give any oppression today that they are done any impression today that they are done. They will want to send a message that policy will stray will stay restrictive if there confident the efficient target is in reach. Jonathan that conversation about 90 minutes away. About 30 minutes of you hear from president lagarde. Somewhere in between you will get some forecast from the European Central bank which could show inflation next year forecasted to be above 3 which is why there are many economists out there predicting we get to rate hike from the ecb. Up next on this program, Helane Becker on the airlines. We have to talk about the downgrades we have seen from spirit and American Airlines. The airlines on the s p 500 down more than 8 . From july highs, down more than 22 . Labor costs, higher, fuel costs and maybe even softer demand and lower lower ticket prices for the rest of this year. Tom partition of business to economy is ridiculous. The ratio of business to economy was five to one. How do you run an airline with a 521 ratio a five to one ratio between the fancy people up front and everyone in the back . Jonathan new york to paris . Tom i am looking to new york to paris as a base. Everybody wants to go. Lax as well. It is way down. The kids are traveling like theyre going to dinner in l. A. And they come back and midnight. Jonathan from new york city this morning, good morning. U. S. Retail sales and ecb Rate Decision at a strike deadline later on. All of that is coming up. Quite the paradox. It really is both. Hmmm. The firstever lexus rx plugin hybrid. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. Its easy to get lost in investment research. Introducing j. P. Morgan personal advisors. Hey david. Connect with an advisor to create your personalized plan. Lets find the right investments for your goals okay, great. J. P. Morgan Wealth Management. Tom we have we have already seen were struggles with the pricing Going Forward as people start to pull back on their travel. We think that is why we will go to recession. Higher Energy Prices is going to cool spending by the consumer. When you approach for dollars per gallon, that is going to conserve what people have to spend and lead to further weakness in spending. Jonathan earlier this summer it felt so good to be an airline. That story has changed quickly. We start september on a month down by more than 8 for the airlines on the s p 500. That was larry adams, the chief Investment Officer at at henry james. It makes you wonder who is next. Tom it is got to be united, delta, maybe alaska. I looked at the return on the s p index where prepandemic there 13 , at the bottom of the pandemic when they got to government support, they made like a percent per year. In the last 10 years, this index is up 4. 4 per year. Is that any way to run a business . Jonathan the chart is amazing. The runup to the summer, anyone everyone is going to greece, to italy, please take me there. Fuel prices higher, unions what a slice of it, and now we are talking about demand. Lisa where do they cut costs . They are still hiring people and offering up big to get people in the door. They have already cut your peanuts, this has of your seats, your overhead. At what point do they have the room to even to begin shrink expenses that is not impact demand . Jonathan i love it went okay gets personal, the seats are ridiculous. Take a flying Business Class and there is still. [laughter] tom i get on and the pilots look back through the door and laugh at me. I am on the flight, we are going to give the airline name out of this. The food was so bad, i said why dont you just serve swanson tv dinners . Jonathan i preorder with american. Tom do you . Jonathan i like to preorder. Get ahead a bit, get the mill you want. Tom we blew up yesterday with American Airlines, who knows today. Joining us with experience, she has seen this before, Helane Becker. Thank you for taking time. I want to go to the shot 12 months, what is your single best buy of these beleaguered airlines at this moment . Helane we like cobras Copa Airlines based in panama, a 4 dividend yield. Their commitment is to pay out 50 of adjusted net income. We have moved away from the domestic u. S. Airlines. Last time i was here, united was our best idea and we have moved away because of the things you three have been talking about. The idea that people are not traveling as much, the hybrid Work Environment is coming to an end. You cannot keep taking your kids out of school to go traveling. Tom keep it up, mrs. Keene is watching at home. Helane demand goes down and that is what the airlines are saying. We had our conference in boston last wednesday and we had alaska and united. Yesterday on another conference, we had american spirit american, spirit. Tom it is all friends, american comes out with a bombshell yesterday, what are bashing and kirby going to do . They say we are going to take the third flight from l. A. To reno . These people after they went through with the pandemic. Helane it is awful. I was in washington earlier this week at a conference and the message for the industry to government is you need to fix their Traffic Control fix air Traffic Control. We are short Traffic Controllers. We net about 500 to 600 which is a five or six year backlog. We are down so much relative to where we should be. It impact the entire Network Impacts the entire network because it causes airlines to burn extra fuel. They cannot manage their daytoday operations well. What can the airlines do . They are not getting productivity improvements. The only thing they can do is keep raising prices but that destroys demand. The focus will be on more seats for departure. That means more cutbacks at a higher Interest Rate. The industry is getting its margins squeezed, there is not a lot they can do from a productivity perspective because they are doing more less flying with more people. You have fuel costs going up, that is not changing in the short term, from what i have heard. The outlook is getting concerning because we are expecting 2024 to see flat to down earnings instead of flat to down flat to up. Jonathan do you think the pandemic is a scapegoat for the reason for those problems . Helane i think theyre using it as a scapegoat but i think these problems existed before. I have been talking about the living Pilot Shortage for 10 years now, since december 2013. When you think about that, we have been talking about Traffic Control shortage for five years. No one has paid attention and now they say it is because of the pandemic. No it is not, these problems were going to exist, the pandemic just intensified it and made it worse by encouraging many people to retire one to three years ahead of time. Lisa how much are airlines going to become critical companies . That is basically where theyre going. Everyone has to get American Express labeled with their logo and then they get perks. Helane that is a whole other thing. Isnt Congress Going to this process right now where they want to change the hallway Loyalty Programs work the whole way will to programs work and take away these benefits airlines receive . That is where Airlines Make money. They can get from credit card companies. They have ancillary fees because once you happy to get to charge you for bags, seat assignments, some for water. That is where the revenue benefits are due, in because those are highermargin sectors. As far as ticket prices go, that is what they have to do. They have to raise ticket prices to cover higher costs. Tom but they are not raising prices. Helane that is the point. Prices are coming down so margins are getting squeezed and that does not bode well for stock prices. Tom this is a crazy business. Jonathan do you want to answer that one . Helane i have been doing it long time and i have seen this movie before. It is not end well it does not end well. Jonathan are you saying we are going to lose some airlines . Helane i think at some point in the second half of the decade, the answer is yes. Not everyone is going to survive this. Jonathan do we need to mergers and acquisitions to avoid that . Helane absolutely. Having fewer airlines has not helped either because everyone complains about his service. I preordered my meal on a flight home and she gave it away, she gave it to another passenger who might have had more status on my flight then i did. Jonathan i want to understand how you responded. Helane i said you gave away my meal, what were you thinking . Tom if you are lax to New York Landing in kansas city, is it Helane Becker . They also beleaguered they are so beleaguered. Lisa were you very relaxed about it . Jonathan i was relaxed. Tom what i find on every flight, there is always one idiot. Jonathan who is that it . That idiot . Are you talking about passengers . Tom they are always focused on one idiot. Jonathan kicking up a fuss. Tom yes. Copa, panama. Jonathan latin america is where it is at. Tom summer in buenos aires. We can do that. You got this. Lets go. Gobble gobble. Ive seen bigger legs on a turkey rude. Who are you . Im an investor in a fund that helps advance innovative sports tech like this Smart Fitness mirror. Im also mr. Leg day. 1989 anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq100 innovations. I go through a lot of pants. Before investing carefully read and consider Fund Investment objectives, risks, charges, expenses and more in prospectus at invesco. Com. The consumer is stretched here. We have to Pay Attention to that. Inflation is too high. The fed has to rethink. Rates can move higher. It is important to remember. I think were going to a mild, short recession into next year. Announcer this is bloomberg surveillance with tom keene, Jonathan Ferro, and lisa abramowicz. Jonathan live from new york city, good morning. This is bloomberg surveillance alongside tom keene and lisa abramowicz. Equity market positive. Session highs up by 0. 4 per year u. S. Retail sales and jobless claims later this morning. Before we get there, and ecb Rate Decision. We are expecting a News Conference of uaw, two hours after that, 10 00 p. M. , midnight is the deadline to strike a deal with the choice of victory. Detroits big three. Tom i want three countdown clocks today. 8 30 a. M. , ecb. 10 00 p. M. When the union speak and then 12 00 tonight we see if we get a strike. Jonathan the bigger story . Tom is a big question. But i have to go with ecb. From historical standpoint, for those of you in america, this is not the fed. It is going to be different. Jonathan so much harder for Christine Lagarde today. Inflation forecast for next year which might be above 3 based on recent reporting, Growth Outlook might have to be downgraded based on what is going to happen with germany, potentially contraction for this year, then the rally in crude, weakness in euro. It is not sound great. Lisa it is the nightmare for Central Banks which is stagflation. Which raises the question especially if the market is expecting for the ecb to get to 4 and then hold for the end of the year, why not raise to 4 and this state we are done. We understand inflation is a major problem. We understand we have weakening growth. This is where we going to sit and see what happens. Jonathan lets talk negotiation stateside. This is what is on the table. Uaw started at 40 for pay raise, came down to 36 . This is the offer according to the union, 20 raises over four years. Gm offered 18 . Stellantis 17. 5 . There is a feeling we cannot close the gap between now and tonight. Tom to me it is like the teamsters. If youre the head of the union, how do not behave like the teamsters and say this is the way it is going to be. We are going on strike. What are the consequences if they go on strike . They do not build cars, i get it. Im not seen enough work of the three automakers who gets hurt the hardest and how soon to get hurt. Jonathan what weve heard about ev inventories, maybe it would not be a bad thing. Lisa they have hefty inventories. They might be able to clear them out if workers stop manufacturing. What is at risk for them to do this is a good question but there are real things at risk including moving factories out of union only stays which we have seen to the south. Possibly not getting the support of the white house if there push against the wall, creates too much economic damage. They could push too hard and that is in the balance. Jonathan as elon musk loving every second of this. Lisa he was in d. C. Talking about Artificial Intelligence and he can afford to because he is not dealing with this. Tom jonathan if you want a nice read, enjoying the show. Having read of secretary s p 500s positive by 0. 4 . In the bond market, yields unchanged. The fx market come euro unchanged. Lisa ecb decision 8 15 am, 8 45 a. M. Is the press conference. To see how much she sees inflation coming down by 2000 25 considering the reuters report has it at the percent by next year. 8 30 a. M. , retail sales in america. Were going to get ppi and jobless claims but retail sales will show how much Consumer Spending power has been eroded by higher gasoline prices and inflation more broadly and we have seen gas prices rise to the highest levels going back more than one year. 11 59 is the deadline for negotiations but we are washington 00 p. M. Press conference with uaw press resident shawn fain. They want to make this unprecedented. They want to be able to state we are going to gets all of you intimating are right. How far can they push considering a weakening labor market . Technology is moving out. Jonathan you should go and ask people on the street. There be a strike on stellantis and they will be like who is stellantis . Lisa a beer company . Tom what is the French Country . Jonathan how many people in the country do you reckon who stellantis are . Tom i reckon they do not. Jonathan Michael Shaoul. Just a european comment. Can we talk about labor negotiations . A question we have been asking is whether these are the dying embers of a hot labor market or something that stays with us for awhile into next year. Is it rearview or forwardlooking . Michael is a small number of companies and highly Skilled Labor with a organize union. It is difficult to extrapolate from that and say this is the entire labor market, but i think as far as labor market is concerned, it is still a tight labor market. Youre not creating jobs at the pace you were. There is no sign of that swiss being flipped for workers to start switch being flipped for workers to start being laid off. Tom you synthesize equity bonds, currencies, commodities. It is 90 oil an opportunity for you or the new market filled headache . Michael i think it is an opportunity. I think the Energy Sector remains cheap versus oil. I think oil is moving higher. You had mistaken analysis early this year people committing themselves youre going to have extreme surplus in crude oil and i think if you look at u. S. Inventory numbers, it is only skimpy side. Demand seems to be ok. I think the labor market priced, if crude continue to move higher, 93 level, stalled out last fall, i think Energy Sector should follow. Lisa does that mean disinflationary or inflationary at a time when people are looking at retail sales to possibly come in with negative read as a result of higher cost . Michael i think gasoline for the mentally current levels. The think about guys look at gas look at three dollar gas and over 15 years it is not the same number. A number not affordable in 2008 and cause problems on top of the mortgage crisis, look at what personal incomes have done the last 15 years. Whatever metric you use. I think gas remains portable. Lisa it seems youre more concerned about inflation Going Forward, more concerned about valuation and bonds, the long and some people talking about Duration Risk more of a significant concern. Can you speak about how contrarian that has become as people start to expect things to have a soft landing and revert back to a lower inflation norm . Michael i think i saw you had a story about how long yield curve has been inverted. It is a subsidy of longterm borrowers. The fed wants rates at 5. 25 and 10 year yield at 4. 30 makes it cheaper to issue longterm debt based off that benchmark. The danger we have is the long end of the curve starts to misbehave. Investors look for higher yields. Fundamentally theres no reason why 10 year could not be at 5 instead of 4. 3 . That has been monetary tightening starts to be transmitted when monetary tightening south beach is minute. Im not worried gornick slowdown in and gornick slowdown in u. S. Economy. If you look at uneasy equilibrium, nothing has really happened the last 19 days. What would trouble me is if we start to see the long end of the curve out of its resistance levels. Tom one guy at Milken Institute agrees with you. Seborrheic reality of priced down, yield of. Does it solve itself quickly or one off or removed back to some storm of stability or real risk to sit there for a while . Michael i think these things tend to break out and continued where they are until there is a problem, if we saw 10 year yield around 5 , i think it was stay economic damage and then jordan in a downturn and then it yields bottom. I do not think we go back and see tom what is a 5 yield due to the Mortgage Rate . Jonathan depends when your mortgage is up. Tom in the present market of 2024. Jonathan based on where we are, we know austerity mortgages, Something Like outstanding mortgage or Something Like 9 . Thats going to take a long time so lets take mortgage out of it. Can we live with 5 . Michael i think certain portions of the economy cant answer is portions cannot. It makes it harder to use leverage to generate income. Commercial real estate much more portable than Residential Real Estate because of the way borrowing takes place in the industry. Jonathan Michael Shaoul this was great. Looking ahead to uaw and the negotiation deadline with detroit. On the looming autoworker strike, joining us very shortly. Catching up with us about five minutes time. Plenty of Economic Data in america, jobless claims, retail sales, ppi in the next 8 30 a. M. Eastern time, before we get there is here for the ecb, rate hike or no rate hike. 30 minutes after that you hear from Christine Lagarde in a News Conference in frankfurt, germany. If you are just joining the program, welcome to the program. S p positive. Coming up, madison fuller of jp morgan investment. Tom everybody has to rewrite. It is labor day, start of a new season, theres so much news flow. The first 15 days of september. Every single Asset Management house right now is going we believe. Michael knows this garbage. We suggest. Jonathan we are guessing. Tom we believe. Jonathan do you want to throw in National Politics in america . New poll, 46 of potential primary Republican Voters in South Carolina support trump. Nikki haley comes in second 18 . Tim scott at 10 per year ron desantis all the way back with 9 . I know South Carolina is unique. Is that indication of how big the gap is between the rest . Tom absolutely. Each state is different but the answer is yes, it is an indication of where we are heading. Itll be interesting to see how trump adapts to the language, who he supports. Jonathan does he have to adapt to anything . Tom hes a cagey guy. Whos going to be might be be candidate . It would not be mike pence. Jonathan you think . Tom the answer is to be strategic about it. Jonathan next year. It is going to be an interesting one. Little bit of a lift in the equity market. Yields a timing bit higher. On the 10 year 4. 25. Euro going nowhere. 1. 0733. From new york, good morning. Ome. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. The uaw northern part of industrial belt of the country is going to shrink no matter what. In that situation, the incentives for the union is to get as absolute much as they can. This is going to be a difficult dynamic Going Forward for the economy. Jonathan Larry Summers on wall street week with david westin on negotiations between uaw and detroits big three. Perhaps this the last big opportunity to extract as much as you can out of detroits victory. Big three. Tom it is history making and of course, of this is the heritage, joe biden looking backward on this. I do not think he is looking forward yet. His heritage is so steeped out of scranton. It was early politics. It is a huge backward look for the president. I did not say it in a mean way. It is nostalgic. Jonathan the election just around the corner. Looking at markets right now, equity futures positive by 0. 4 . Yields unchanged on the 10 year. Crude new highs for 2023, short of 90 on wti. We are up here by a little more than 1 . Tom if you have a grandfather who grew up pretty darn poor and did pretty darn good, he would only drive a cadillac. That cadillac we stepped in it as a kid had a plaque on the bottom of the door were you stepped in and it said body by fisher. We go to lansing michigan. He happens to be in london but Craig Trudell lived uaw, he lived michigan and he lives what joe biden remembers until for sure went out of business the 80s, 90s, maybe 2005. Is this uaw behind the president of the United States or in loss them . Craig i think uaw absolutely appreciates that biden much more of an ally and an ally to be trusted than the alternative in donald trump, the front runner on the republican side. That said, it is not a cut and dry story. I think there are concerns about the fact that biden has this long history of not being able to necessarily deliver on what uaw has wanted in the past under the biden administration. There was not much biden could do. This is a union weakening for some time and it is trying to mount a comeback from decades of having to give up a lot of concessions for the fact that these companies were upside down. Tom i assumed your family involved with uaw in lansing michigan, it is a changed union. If youre up to go into that union hall like your grandfather went in years ago, what will be the different body language today . I hear anger like they are saying we are going on strike. Craig i mentioned the idea this union was dealing with the fact the companies were upside down. They were paying so much for retiree, Health Care Benefits that disciplining them at huge disadvantage to the likes of toyota and honda in u. S. We got to this point over the last couple decades of undoing so much of that problem that was keeping these companies back. That has led to this deep sense of resentment that even as these Companies Got into a place where they are in a much healthier position, there is a feeling in places like lansing michigan, these companies are healthy on our backs and we have seen these Companies Pay good wages, but for new workers much less for workers who have been around longer. They do not want this to your system tier system. They want the pay is benefits their predecessors were able to enjoy. There is a question of whether or not that is feasible in this modern paradigm we are in. Jonathan lets say we cannot close the gap. How do you organize, plan for potential for a strike, if your ford, gm, stellantis we have no idea where the strikes will take place, what scale, which locations . Craig i think it is a tricky thing to prepare for and by design on the part of uaw. So much about what we have seen with the negotiations have been unprecedented. It is a small thing but in the past used to have the union and carmaker executives shake hands over the table. Uaw said were not doing that. This time around theyre not picking one company at a time to target and to negotiate contracts with and trying to replicate that contract with the other two. They are negotiating with all three and threatening to strike all three and be strategic about which plants they strike at two put the management on the divisive and not know what is going to happen. I think the short answer is they do not they cannot plan for this and it complicates things and makes it messier than what we are used to. Lisa when this uaw kill the goat includes . Have people put a number on what levels break the backs in the companies of profitability and competitiveness . Craig whether we get to a point where uaw is able to negotiate contracts that are attractive enough to interest these nextgeneration battery workers that are going to make the workers used to make tensions and commissions transmissions , cant uaw get enough from these companies to leverage into organizing . In the palace, because of the position the union has been in decades of concessions, theres not been an ability for the uaw to go to the rest of the industry and say join the fold, represented by uaw. After years of get backs and i think that is one of the things that gets to the complication of whether or not there is a competitiveness issue. Uaw would make the case yes, it would put the companies at disadvantage, but we are going to go out and claim the next victim. Theyre going to try and leverage this into more organizing of ev and the supply chain in u. S. Jonathan i want to understand how your thinking about it. What does the industry look like in 10 years, giving the spats we are seeing with china and europe . Big effort from the u. S. With the inflation reduction act. Craig i think it is such a difficult time to answer that question. I think that is one of the challenges coming in play here from both sides for the union, you do not know whether youre negotiating with companies that within the years of this contract may have to close some plants building engines and transmissions because of this transition from the combustion era to electric. You do not know to what extent consumers will still want to drive gas cars and be reluctant to ask electric vehicles to go to electric vehicles. Looking forward to the companies. Ford making noise about the transition to evs and last few months change is to use and more emphasis on hybrids. We saw that with the ford f1 50 hybrids. Theres so much to be said for the uncertainty facing the industry. Jonathan theres nothing easy about this. Thank you sir. Nothing easy about it. Tom he lived it. He and his family lived what joe biden is talking about. I was told my Small Business wouldnt qualify for an erc tax refund. You should get a Second Opinion from Innovation Refunds at no upfront cost. Sometimes you need a Second Opinion. All these walls gotta go ah ah ah id love a Second Opinion. Take the first step to see if your Small Business qualifies. Oh, oh, oh. Ill be the judge of that. Oh, thats nice. Oh searchable, verified reviews. Thats better than the ham, and ive never said that. Booking. Com booking. Yeah jonathan equities on the s p positive by 0. 4 percent. One hour away from data in america. Equities up on the nasdaq by 0. 4 . Its a bit later a strike that lane for uaw, stellantis, gm, and ford. Going into the ecb, bond market looking like this. 10 year 4. 26. Twoyear, shy of 5 . This. Up one single basis point on the day. Tom Craig Trudell will join us tomorrow for what we see tonight. Jonathan and we do not know what were going to see tonight at midnight. This big spread on what is on the table and what uaw would like to see which is 36 . Tom i do not know if you get the numbers tonight. Will get the path forward on the strikes and who is involved including stellantis. Jonathan 45 minutes away from an ecb Rate Decision. The euro against the dollar, 1. 0732 and going nowhere. Coming to this week, eight consecutive weeks of Dollar Strength against the weaker euro and there are many reasons why the euro has been weaker. Lisa were talking about uaw strikes and it pares into the story because europe is the crux of so many difficult stories of the manufacturing questions transformations withtransformatd they are stuck between a rock and a hard place. How does the ecb handle and inject Monetary Policy into this toxic brew Different Things . I can use that for this reason region because this is a difficult scene. Tom making it more difficult for Christine Lagarde. She going to enjoy brent crude breaking through 93 a barrel. 92. 9 nine is not 93. 00. Jonathan crude at 93. Euro at 1. 07. That is a terrible blend, mix for the ecb and Christine Lagarde. Tom i saw yesterday someone modeling out rationalization to get to 100 a barrel. In some form of futures markets or looking at saudi language i do follow, you can interpolate and right now we are at 100 a barrel under some measurements. Jonathan it is the rally that surprised big time. I moving on. Building a bridge for the next segment. Retail sales, jobless claims, and ppi on deck. Retail sales expected to ease on the pleated savings and student loan payments coming. Jobless claims, last week 16,000, lowest since february. I want to turn to europe different story. Chinas lashing back at European Union . Commission president announced the new probe into subsidies for china cv makers. The countrys ministry of commerce saying the sector gained an advantage hard work and own strength. Madonna across the board we are down across the board and they manufacturers in europe compete with the companys in china . How do manufacturers in america compete with the companies in china as they make the transition, which is increasingly expensive on top of the waste demand have any domestically . Lisa china accounts for two thirds of global capacity for processing lithium is the main ingredient for the electric vehicle batteries. Theyre coming at this with strategic advantage from the outset and they have plowed into the European Market. European market trying very late to fight back with some sort of limitations to what the chinese automakers are bringing in. U. S. Is already done that. It is bit rich for china to argue this but i would say this to me the debate and a war that is very much worth watching. Tom look at yesterday and burst out laughing. We are lecturing the chinese, totalitarian regime. Thursday night at davos. Third cartel party. Cocktail party. Theyre talking about was possible capitalism. Are you kidding me . Jonathan europe wants to set the rules, everyone else wants to set the business. America said enough. Inflation reduction act. Europe is like a slow down, we do not have a plant yet. To your point, does the demand even exists . To make this transition. Desperate to convey their pro climate conditions, for good reason, but is increasingly costly. Can the average family afford four neb . Tom afford an ev . Tom no, they cannot afford their car. Are people able to charge of phoebes . Evs . Lisa you can see electric vehicle chargers. At the same time there are electric vehicles, even some indented ones which mean they have had them for some time. Jonathan have you read the hunt story . Tom should i interview her again . Jonathan rents in manhattan, showing signs of leveling off. The median price unchanged from july to august at 4400 a month. Releases for august down 14 from last year new leases for august down 14 from last year. Northwest queens record high, 3900. The bad news they are still around 4000 a month. The good news theyre not going up that much. Tom 4400 a month is 52,800 a year. You have your taxes. Lets say, im going to go 30 . 176,000 to pay roughly one third of your income. Jonathan that is pretax . Tom yes. Jonathan let us nuts. Tom Mark Mccormick has lived this. He joins us. It is a breath of fresh air to have you on because you can talk about the markets and not this insane news flow. Bracket the euro, what is your conviction on where the euro will be six months from now . Mark if you go six months we think euro will be higher which is out of consensus. It is not fitting the things people are talking about, but these are the things that have been influx the entire year. We started the year with strong u. S. Data and we had be shift to china relation inflation team. The focus on china realistic but what is happening with the euro is a function of what will happen with china and u. S. Evolving on the the next six months which we expect q1 next year, u. S. In recession, the fed moving towards cutting rates. We see the Housing Market and some of the financial indicators we are tracking in china started to stabilize and while ecb done around now or at 4 , the move for the euro will come through the combination of all these different Global Factors which would help insulate it between this 1. 07 rate we have been trading. Reinforces topside euros six months from now. Tom what is the most opportune trade right now . Mark it is playing the lines around the dollar. The feature in fx if you look at the dollar to the entire year, it has done nothing. This is between a strong left hand and week scandinavian currency where the dollar sandwich and between the two of them. You think of the themes that are working, terms of trade, you talk about commodities, the relative divergence in commodities, energy is up 30 . Base metals is down. You think of what is working in fx, the trades we like to capture these different themes. We like swiss franc bloomberg is the mexican peso. We like china remedy bloomberg is india lower against india. Those three Currency Pairs are ways of not looking at your dollar but playing all major global things very impactful and the things that are driving performance in fx. Jonathan lets sit on the euro side. We will hear from the ecb. 30 minutes after that a News Conference with Christine Lagarde. How toxic is it to see crude at the highs of the year and the euro the week end of the range . Mark it is not a great backdrop. Do we want to put too much evidence on one manufacturing . The context around European Growth has changed. Theyre not looking for a recession early next year. Were looking more for a bigger so done in u. S. Something about the context of the growth, germany is week, but other parts around your our strong. I think it ecb the challenge is they want they are lagging behind u. S. In controlling inflation. They are dealing with elevated Inflation Numbers they want to continue to keep inflation excitations in check. The economy is slowing. Our bias is this is a coin toss. We are leaning towards them not hiking. Maintaining credibility around the fact they can hike again. They are highly data dependent. The other things interesting for this release u. S. Retail sales comes in basically right around the time when ecb meetings. Want to deal with another critical u. S. Data dump because the dollar and euro are following hard Economic Data surprises which means retail sales, inflation, industrial production, real data, not of the survey is what is driving the dollar and the euro. If we had the ecb, as the are base case on hold, essentially falling Market Expectations they hike and we get the week retail sales number we are looking for, were looking for a downside miss in the control group, that stabilizes the euro. Jonathan just throughout a bone. Did you say it u. S. Will underperform europe next year . Mark yes, were looking for a significant slowdown. From the base effects of where we are at now, you look at this trained in the data, the strength in the narrative, the focus on king dollar, u. S. Exceptionalism, know what is considering u. S. Economy is going to sell into a recession. Our call is u. S. Slows into recession. If you go with the baseline for the fed will go on pricing and where inflation goes, there is escape restrictive territory theyre in restrictive territory. Essentially in our call, u. S. Allies into recession, we continue to lose momentum to the labor market, to the credit side, the banking channel, and as a result, the u. S. Lies into a recession which were not looking for in europe and you get more fed cuts price in 2024 and we are not looking for the ecb to move as aggressively. They are lagging behind. China is the other side. More support of China Environment would help to stabilize europe as settlement u. S. Environment. Jonathan quite a call. Thank you. If youre just tuning in, welcome to the program. Were positive on the s p by 0. 4 per year euro going nowhere. 1. 0732. That is quite a call. Recession in america next year. I performance from europe given your position outperformance from europe given europes position. Lisa that is contrary and giving where it yields has been although i was say the point about retail sales is notable. The barbell porch approach of retail sales to come in disappointing could offset whatever happens over in ecb to get a bit of a reprieve to the euro. Tom we hardly talk about it but retail sales are going to be an eyeopener. Jonathan ecb up first, retail sales little bit later. Retail sales in america about 45 minutes away. We got jobless and ppi as well. Patrick anderson of Economic Group on the looming uaw strike. J. P. Morgan Wealth Management knows its easy to get lost in investment research. Get help with j. P morgan personal advisors. Hey, david ready to get started . Work with advisors who create a plan with you, and help you find the right investments. So great getting to know you, lets take a look at your new investment plan. Ok, great this should have you moving in the right direction. Thanks jen. Get ongoing advice; and manage your investments in the chase mobile app. We are making progress at each of the three negotiating tables, but as you just heard, we are very far apart on our key priorities. To win, where likely going to have to take action. We are preparing to strike these companies in a way they have not seen before. Jonathan uaw president outlining the organizations plans to strike against the big three automakers. The deadline hours a way. The Teslas Research has come out Tech Lighting this, 10 days of strikes would reduce u. S. Gdp by 5. 6 billion and likely push the michigan economy into recession. The data coming from the Anderson Economic Group. Tom we are so honored. Your team is than a killer job giving you original and form devices on this part of america. It was great to talk to craig growing up in lansing, michigan and now we speak to someone also in lansing. True expert on americas auto business. Patrick anderson owns the high ground Anderson Economic Group. First call to everybody to know at toyota, honda, and a member of the bowtie of america. Lisa is it a big club . Patrick is a small club. Tom i want to take with you, not the usual uaw right now, but i want to go interstate 75, down to kentucky, nonunion auto america, do they win with this uaw strike . Patrick you are driving the correct rope. My welldressed friend. This is the big issue come bigger issue than how much of a wage increase you get this year is, do you have a sustainable set of companies that cant win in competitive marketplace five years from now . In fact, you do not just go down i 75, you have nonunion automakers in kentucky, ohio, georgia, alabama. Also, in california. Competitors. The most Important Competitive issue is not how much do you pay in wages, it is can you sustain your company, making products americans want to buy, 2 to 5 years from now. Jonathan tom for the new york times, she wrote an article in the times about the end of the trade. I guess they start to salvage it and things are ok, but do you as a proworry about michigan 10 years from now . Patrick i worry about being i also worry about michigan 10 years from now. It is why you see our coverage, our analysis point to the things that are structural. While be pointed out why be pointed out to the request to go back to the jobs bank and defined benefit pension plan. Our existential and bankruptcy risk for the automakers. I understand this. When i look at detroit and i look at chrysler and General Motors, i say there is no rescue coming if these companies go bankrupt again. The goal here is to avoid a strike. The goal is to have a sustainable Automobile Industry. When you see this rhetoric, you see the demands uaw shawn fain is making, you see is a real risk. At this point, 5. 6 billion probably an underestimate of the losses that will be incurred if uaw goes out on strike. Lisa the research you have done has been the research cited in every publication the past couple of weeks as people try to understand what the ramifications of a potential unprecedented strike against all three of the automakers would be. Have you heard from uaw it self . Patrick no we have not. It is all independent work for Anderson Economic Group and detroit is a small town. I understand theyre reading it and talking about it. I think some the statements that come back are comments on this. President shawn fain made a comment yesterday about the analyst be wrong. I hope you was not talking about me. I never said they do not have the right to strike or do not have reasonable requests. For higher wages, but it is also the case that when you go on strike, you are causing damage. That is the goal. The first people to get damage. Are your own workers they lose wages but all the suppliers and in this case, auto dealers, what he thinks there are different between this time and 2019 when uaw struck General Motors for 42 days as there is little inventory now. If the uaw goes on strike like they are threatening to do, within days also dealers automobile dealers across the country would not be able to sell cars. There are other carmakers and other dealers out there that are represented honda, volkswagen, toyota, hyundai, tesla and customers will not be interrupted in buying those. I hope uaw and ford, gm, and stellantis the goal is to have a sustainable profitable Automobile Industry that pays good wages and not just get a win at the bargaining table. If you cannot stay in business, you do not win a strike. Lisa isnt that part of the strategy from shawn fain, do not go after all of them at once, they would target things and maybe try to be selective about the damage to belong to the negotiations, buying more time . Patrick that is absolutely with the what the tactic has been announced. You dont have a contract from the other side does not have a contract either. This is not a deescalation. It is an escalation. You go out on strike and you decide to strike individual plants, what do you think the companies are going to do . I did not have an answer for that. Part of the answers are you increase the damage and harden the positions of the other people out there. Maybe they do not keep the plants open. That is not my decision to make but it is a real possibility. Tom in lansing we had a good conversation with craig who grew up, his grandfather was fisher body, legacy there. Cadillac boom. We had a great response. A guy on twitter had a smart note in his observation where he said what is the union floor, red or blue, and he suggested just possibly union floor was not for President Biden. The union behind the president or is he looking at another time and place . Patrick a wild card as he this is something i pointed out. We have huge taxpayer subsidies to build battery plants, to build cars that right now represent substantially less than 10 of the u. S. Market. Here the autoworkers and taxpayers are actually kind of on the same side. Theres a great deal of skepticism about whether this makes sense, about whether it is a good expenditure of taxpayer dollars, uaw and automakers, it is an extremely Risky Business decision to invest so much and it shut down plants and are making products that americans are buying, and making money for the automakers. That is the wildcard. It is not part of the wage demands. But it is underneath it and it is worrying the white house and a wedge between the uaw and traditional supporter of democratic president s and this democratic president. Jonathan this is excellent. Patrick anderson at the Anderson Economic Group. Will be sending him a slim tie just to switch it up. Vermont does not approve bramo does not approve. Lisa what are you talking about . Jonathan im sure it will show you do not approve. Lisa people should wear whatever they want to wear it within reason. Do you think he would wear the skinny tie . Jonathan slim. Madison fuller coming up later. We have an ecb Rate Decision 20 minutes away. After dad interesting Economic Data for you. Jobless claims, ppi, retail sales. 15 minutes after that day that you will have a News Conference with Christine Lagarde, these to be president. Tom this News Conference is going to be really, really interesting. The Opening Statement and the q a. You have been in the room, john. Jonathan multiple questions. Lots of followups. Tom i find it more enjoyable. I think mike mckee should get the last question. Jonathan that would be very cool. From new york city, this is bloomberg. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. announcer enough with the calorie counting, its possible. Carb cutting, diet fatigue, and stress. Just taking one golo release capsule with three balanced meals a day has been clinically proven to repair metabolism, optimize insulin levels, and balance the hormones that make weight loss easy. Release works with your body, not against it, so you can put dieting behind you and go live your life. Head to golo. Com now to join the over 2 Million People who have found the right way to lose weight and get healthier with golo. I dont think we are close. The services piece is much hotter than people expect and want. Higher Energy Prices will continue to cool spending. The market is more worried about inflation than maybe needs to be. This is bloomberg surveillance. Tom good morning. Its the quiet hour on radio and television. Nothing going on except countdown clocks. 14 minutes and change, an ecb ruling. Uaw strike pasta strike possibly to come. Jonathan tons of data. Retail sales, ppi, jobless claims. 15 minutes after, a conference with Christine Lagarde. There are some banks who think this governing council is about to hike Interest Rates. Citibank, hsbc. We are split down the middle. The reason things have changed is off the back of a report from reuters suggesting people around this decision will be looking at forecasts showing cpi next year about 3 . Does that change the calculation the ecb needs to make . Jonathan the answer is its a global movable feast. Action in china today on rates. Ukraine had an adjustment lower as well. I would suggest what happens in frankfurt in 13 minutes does affect chairman powell and america. Jonathan frankfurt is exposed to walter on stories in the way the u. S. Is not tell all the wrong stories in a way the u. S. Is not. The u. S. Has output near alltime highs in america proved america for crude. Brent is in the 90s. The euro is weakening. Germany is potentially an recession for the whole of this year based on forecasts and inflation is sticky. Tom give me brent intraday. Looking at the terminal in frankfurt. She has the big screens and all that. Shes looking at brent crude, 93. 18. Lisa they have a difficult situation. The key question to me is how much of this is a global story and how much is europe specific . What is the differentiation of inflation in europe versus the u. S. . Are we seeing inflation at a time where wages are going up, service are still sort of leading but still falling off as well in europe . Right now it seems the market is expecting the ecb to get to 4 by the end of the year. We are going to see how much damage is being inflicted. Tom brent crude in euros from the end of june up 31 annualized, up 261 . What else do you need . Jonathan the euro at 107. And it gets worse. This is a blending you dont want to see blend you dont want to see. Tom im going to go back to brent crude. You are going to get a 90 print on nymex. Jonathan totally changed. Yields a little bit higher on the 10year in america, up. Equities were up by one third of 1 . Tom this is an important conversation. Every once in a while, you get a kid that goes to school and does a double major. Theres schools around america. Then theres south bend, indiana. They piece together an economics double major. When output of that is madison faller. She joined us now she joins us now. South bend steep to you and steal your for the cacophony we are in now steeped you and steepled you for the cacophony we are in now. What is Keith Ellison for his are we going on to more controlled or is more of a dovish i can i think it is important but at the same time going into this meeting we did pencil in about one more hike from the ecb for the balance of the rest of the year. I think when we think about is there a debate over whether its this meeting or whether its a future meeting the ecb is clear that they want to be closing this chapter on rate hikes. I think lagarde will be trying to preserve that optionality. Thats why think she will be using uncertainty as a tool to do that. Are they confronting stagflation . I think the risks for stagflation are higher in the euro area than in the u. S. The ecb is in a tough spot because we have seen growth start to unwind more quickly than expected. You can see that in the pmi data, especially services figures, which have decelerated. At the same time, inflation remains high. You have both headline and core prices above 5 yearoveryear. Thats difficult from a policymaker standpoint. We still think inflation will continue to cool over the balance of the year as the labor market should hopefully. The stagflation risks are higher. They are set to forecast inflation over 3 for 2024. Do you see a blow that by yearend next year . I think its difficult. I certainly think that if you dont see inflation fall more quickly the conversation is certainly going to switch into how long does the ecb need to hold Interest Rates at this elevated level for, and from that perspective, it is difficult to see the ecb starting to cut rates, you know, at all in 2024 until you start to see that inflation number move lower. Lisa there was something that Mark Mccormick said, which was contrarian, where all of this higherthanexpected inflation comes on the heels of stronger growth in europe than in the u. S. Can you get on board with that . Its harder to see higher inflation if growth is weakening n the euro area. At some point, these two things start to reinforce each other. If you see growth momentum continue to weaken considerably in the euro area like today, at some point, you have to think that inflation will follow. Its going to take a little bit longer than people were otherwise into submitting. Do you think we are going to hear from the ecb patients, the sense that you can wait and see how things progress and maybe pull a Jerome Powell and hint that its ok if it takes until 2026 to get inflation down to 2 . That is fair. I think thats part of the reason why they are using uncertainty as a tool to preserve that optionality, but as long as they are seeing continued progress toward moving towards those goals, i think thats a positive indicator, and we also have to keep in mind that the ecb is a single mandate central bank with price stability important to them. Im fascinated by the jp morgan position on europe and the u. K. Do you find u. S. Equities relatively attractive now from your desk in london . In the short term, yes. At the start of the year, we did come with a view for european equities to outperform the u. S. From a broad market basis and i think that did track, but as the euro area economies starting to slow and we saw momentum shift, we transitioned that call away from the European Market and into European National champions, which are companies that are based in europe but Multinational Companies that are leaders of their Industries Still demonstrating a degree of pricing power, so its about where in europe you are focusing. She has the chat down. That means he sort of got it right. That track. Novo nordisk. Thank you. Madison of jp morgan investment bank. With us around the table going into this Rate Decision, eric nelson. Good morning. Rate hike or no from the ecb . We think its a pause. We had the reuters decision report this week. This is not something i am fully buying into. Look at the speech from a couple weeks ago. If you wanted to push from a height, she would have. She is one of the most prominent hawks. Forgive me for asking this but why do you think they leaked it . What was the purpose . Who is day . Was it a rogue hawk or two or the Overall Committee . That is what we dont know. Theres this question of whether they will emphasize patients or their primary mandate, which is inflation. What would be the justification for a pause given that inflation has not come in and as much as expected, especially if they increase their forecast for next year . You have to look at not just the growth situation but also the pace of hikes. They have done a lot of tightening. Even skipping here is justifiable with inflation where it is given the Growth Outlook. We got wti through 90 a barrel. That rally continues. What is the so what for americans . You have great perspective on this. Why do Americans Care about europe and monetary and not having a combined fiscal policy message . Certainly its a massively important economy in the broad global scheme. If you look at the policy outlook, you have the ecb having done almost 450 basis points. You are seeing a spill over the real economy now. The credit conditions. Is this something we should be thinking about for the u. S. As well . You look at lending standards. Youre starting to see some transmission of policy. Anecdote as we await the decision. Hotel in paris. 480. The demand is now 800. I looked. It is just under 1300 for the same room i stayed in in 480 not long ago. Thats the american madness about europe. Can domestic demand in europe hold up . Look at where the euro is, where crude is trading. Crude is through 90, wti. 93 on brent. Thats brutal for the europeans. Its nasty. It goes back to the question of Mark Mccormicks comment about relative growth. The question is not so much about you want to know whats happening in domestic demand in europe on an isolated basis, but on a relative basis, can a u. S. Recession be deeper than the european recession year . Thats possible. From a real policy rate standpoint, can the fed cut more than the ecb . Absolutely. So that story can turn as we get toward the end of the year, but where im sitting, it looks negative for the euro. 105 is where we go. What about next year . Back toward 110. Thats a tight range. That is what these guys do. I wanted some big numbers. Here is your guide. In two minutes, an ecb Rate Decision. 15 minutes after, some data in america, u. S. Retail sales, jobless claims, ppi. They have come down. Model a survey back to 225. This is a rough estimate, which is why nobody really trades on it that much, unless they do. Retail sales might be the most important of the day. May be more than cpi, retail sales was the data point. The countdown clock. We saw retail sales after. Its related. You wanted to talk about claims and all that. Ecb in 30 seconds, data after that. After we get that, 15 minutes after, a News Conference with president lagarde going into this decision from the ecb. We are split down the middle. No hike or hike. Take a guess. The euro looks like this. Eurodollar, 107. 31. Looking at the german curb with yields coming in. Right across the curve. The 10 year in germany at 3. 15. There is your rate hike. 25 basis point move. We go from 3. 75 to 4 on the depot right. On the marginal facility, up. Its a 25 basis point rate hike from the ecb. We were split down the middle on no hike or hike. We get the hike. The euro looks like this. Dropping and weaker against the dollar. 107. 1. Negative by 0. 2 . Seeing inflation in this year at 5. 6 versus the forecast of 5. 4 . The key will be communication. Is this the last one . Will this be lagarde saying this is it and we are now going to wait . That might be a cleaner message. They see inflation slowing to 2. 1 in 2025. What you have it is a 25 basis point a time of estimates. The growth estimate for gdp is 0. 7 . Lawrence summers walked by yesterday. We enjoyed greetings. This is a Larry Summers report. The basic idea is inflation, no. The growth of this will be on the data screen. We have rita alongside us in the headquarters. I want to share the leaked paragraph from the statement. Inflation is expected to remain too high for too long. Let me share with our audience. The macroeconomic projections for the area c average inflation of 5. 6 in 2023, 3. 2 and 2024, 2. 1 in 2025. An upward revision for 2023 and 2024 and downward for 2025. The upward revision mainly reflects Energy Prices. How much reflects domestic price pressure and how much of it is being exposed to this Higher Energy story . This is a complicated picture for the eu. We know its not just the Energy Prices now, which have dropped dramatically and significantly, but the second round effects, the repercussions for the european industry. You are at the mercy of a complicated energy space for the European Union. They are clear as long as the war in ukraine continues they are facing a volatile scenario. The other issue features into the energy story, the implications for growth. They are cutting growth projections, which not should be a surprise. You have someone on the show cut the forecast for growth. The question is whether we are heading into stagflation or not. Thats something Everyone Wants to avoid. You are levering this viscerally. You are steeped in this. Dovetail the growth forecast markdown, essentially 1 to be charitable, for 36 months, with oil at 93 a barrel. It does not compute. The inflation story has almost been pushed aside. Because the growth picture is bleaker. That was the whole argument. You make a good point as to why this market was split, and not just the market by the governing Council Going into this meeting again suggesting this is an economy this weaker. Theres a downturn manifesting. And this is a central bank but does not operate in oblivion. It goes back to this idea. Some of the criticism that they missed an early window to hike. Now they find themselves in a situation where the prospects for growth are challenging. It is not just about inflation. It is fair to say the economy also featured in this conversation. The ecb has now gone for this hike. The question is whether she signals this is the last one, precisely of the precisely because of the issues you mentioned. This is what you have got. 25 basis point hike. Upward revision this year and next year. Downward for core cpi. A cuts of the growth forecast for every single year. We expect the euro economy to extend by 0. 7 and 2023, 1 in 2024, 1. 5 in 2025. We are about to get a hint of what you may hear in the News Conference from the governing council of the ecb. This line here. Based on its current assessment, the governing Council Considers that the key ecb Interest Rates have reached levels that have maintained for a sufficiently Long Duration or make a substantial contribution to the timely return of inflation to target. Is the ecb telling us they now believe based on their forecast they are sufficiently restrictive . You are dead on and you have a single mandate. I get its a different set of rules. Everything has been overwhelmed in our analysis by oil over the last two weeks. Frankly over the last three months. The growth forecast i know its not what they do. We are not supposed to talk about it. You know what . They are in recession. Energy is at the heart of this. The Growth Outlook is terrible. The market picks up the sender they are done the scent that they are done. They are down. Two year, 311. That the kneejerk reaction. Its easy to read the statement that way. Also saying past rate increases continue to be transmitted forcefully. They are still acting with some sort of lag. Eric nelson, your thoughts . The market is telling a story. The end is strengthening meaningfully against the euro the yen is strengthening meaningfully against the euro. It sounds like they are done. I would like to hear what lagarde has to say. I think the markets will still be in flux. If they communicate this as a one and done, i dont see how the euro rallies. How much will he try to signal the inflation pushes him push is entirely in energy . Thats certainly a sensible thing to do. The challenge is if thats the communication you opt for, why did you hike today . If the upward inflation revision for 2024 is mostly energy driven and you hike on the back of that, you have to balance that communication. Its single its a single mandate central bank but they are increasingly focused on credit and growth. I think they are becoming more concerned. Before we got this, you expected it to be 1. 06. We are breaking above that level. Can you revise your forecast preliminarily . Does this make you more bearish on the euro than before this announcement . I want to hear what lagarde has to say. This is a one and done and the gdp forecasts are coming down and this is the way they want to play this, maybe you get a bit of a short squeeze into the next couple days. If its hawkish and theres reason for rates in the short term to move higher. I think the curbs will keep flattening and we will get back at 106, 105 in a couple days. You know keynes was right. What does this oil into growth matrix do in the Foreign Exchange space . We are in a place where we were not two weeks ago. Certainly we are in a place where we were not at the end of the summer, august. I think part of it is the oil story but also think about natural gas prices. Lets talk about both of those. The oil front has only gotten worse it will probably get worse before it gets better. The euro being one of the largest Oil Importers out there will be another downside risk. What happens to gas prices . Storage is still full. Theres a lot of people worried about the winter and natural gas. To the extent we see gas prices going the other direction, could be an offset. Lets put a bow on this and reflect on where we have been over the last 18 months. We have a strong suggestion the ecb might be done. They say they are datadependent and that can change. We may hear that on repeat from president lagarde. Did you ever think they would get to 4 on the depot rate . I number i never dreamt of that and here we are. Absolutely. I remember back in 20212022, people thought 1 or 2 wouldve been the 2011 or 2008 moment, another farcical hike. It may still be. Its possible. Theres been a lot of tightening and i think you are seeing it filtered through. That speaks to the sensitivity and level of neutral rights in europe. It raises the hard question. We had a decade of negative Interest Rates and q. Week. Are we ever going back. Are we done . Not for a long time. Never say never but i think the genie is out of the bottle. Even if we are looking at the bank of japan, they are talking about rate hikes. What a change. Eric nelson of wells fargo. If you are just joining us, this is what we have heard. A 25 basis point hike. We take deposit take the deposit rate up. Driving the headline story is crude prices and energy. The Growth Outlook is dreadful. The next move sounds like a pause. I will read the quote. Are they done . Lagarde has changed. Shes not the same lagarde as at jackson hole. Flat out. The way oil has moved, the way the saudis have manipulated the price, she goes on the stage today different. She has a free pass to pause because this is what the market is expecting. She has a single mandate and you are right. Its overwhelmed. She can come out and say we want to be sufficiently restrictive. We got there. Now we wait and get a sense. I am with tk. You get a feeling that this energy price move has encouraged the hawks to go into the governing Council Meeting and make a change. Will be interesting to see what is the thinking behind this. We did not get a strong guide from lagarde in jackson hole. There is no indication they would deliver 25 basis points today. They were great in explaining this to me. She wants a longerterm analysis. I get it. Crystals and pyramids. That was the name of the speech. You know what . Oil moved. All of a sudden its like mike tyson hit you in the face. This is a different press conference. Im guessing shes sitting there, going, how are you doing . Thats happening now. To erics brilliant insight, connect, over to the u. S. . Crude made a move. We are through 90. The euro 1. 07 flat. The next stop for this story, data in america, retail, ppi, jobless claims. Mike mckee, what do you see . Lets forget about Christine Lagarde and think about what the market and jay powell think with retail sales up august, significantly higher than the. 1 forecast. X autos up. 6 . The Retail Sales Control Group leading on that. Lets being calculated as we speak. Couple other numbers. Initial jobless claims, 220,000. We dont know what the revision is yet. There was 216,000 last week but it tells you we are still in a low claims environment. Continuing claims are at 1,688,000. Ppi has come in as well, up. 7 , a significant increase over the. 3 the prior month and. 4 expected. If you look at the core, energy, food and trade services, thats up. 3 compared to. 2 last time. We are seeing some inflation pressures at the basic level of the wholesaler. We are seeing some problems with inflation but retail sales so far not being affected. Up. 1 . Thats less than 1 decline forecasted. Jobless claims are weak. Ppi shows some inflation records. Mike mckee, thank you. It gets better for america as it gets worse. And the u. S. An upside surprise on retail sales in america off the back of that, yields up by five basis points, back through 5 . The euro, 106. 63. What a mix. Going into president lagarde in 13 minutes. I believe its 54 . The traditional dollar index is nicely through 105. Watching oil. It really has not changed up the shock of what we saw in the last hour. The bottom line with the news flow, we continue. We have retail sales. We have to go back to alain beckers conversation. Meanwhile, they wanted to get into the new flow. Getting you up to speed on delta. Third quarter adjusted eps from 185 to 205. They had seen 222 250. They still see fullyear adjusted eps mat where they said. We got a downgrade from spirit. We have heard it from american as well. Delta in front of us at the moment. Its all about energy, higher fuel prices hitting the airlines. In europe, its hitting the outlook for inflation. In america, just as the ecb comes out and downgrades the outlook for growth for every single year, we print a big upside surprise on retail sales in the u. S. This is almost the worst Case Scenario for the euro. What would have been worse is if the ecb had come out and not hike rates. Otherwise, this is not what people wanted to see, the u. S. Outperforming in europe showing itself Something Like flat on its back. The clarity is the u. S. Economy has enough momentum with surprising data to the upside to withstand Higher Oil Prices. Does europe . That is one of the key questions. Yeah. My look at it and its just a great day for this. This is a key day in the year. Its amazing. Your head is spinning. If you are just joining us, i will do my best to wrap up the last 20 minutes. 25 basis point hike from the ecb split down the middle. The outlook for inflation for next year about 3 . That was expected according to reports we had going into this. We take that in a little bit. The bulk of this move for headline inflation is all about this move in energy. That contributes to this downgrade in the Third Quarter for delta. U. S. Data surprising to the upside. Retail sales strong. The control group, plug that into gdp, positive 0. 1 for august. So things better in america, worse in europe. They marred they might have to start raising Interest Rates. Yields are up in the states by five basis on the twoyear. In germany, lower by three basis points. Yields up stateside, down in germany. Stronger dollar, weaker euro, breaking 1. 07. All the wrong numbers over in europe now. That currency down 0. 6 . It is up to president lagarde to make the message. We will see that. We welcome all of you on television and radio. This is a great honor. I was with john when we learned of the made off scandal. Far before that, he wrote essays on economics that synthesized his bank of england, his fed, long ago at bear stearns. We have john writing with this with us. One of your great essays was the putting green of the fed. Is Christine Lagarde on the golf course and does she have any clue where the pin is on the green . Thank you for referring back to a note that i think goes back to 2004, maybe earlier, so no one knows what we are talking about. The idea was, at the time, the fed was making small moves in raising rates and bernanke he was talking about lagging the parts the putts but i said are the even on the fairway because they are so far from neutral. We are clearly on the putting green. We are surely on the putting green in the u. S. And maybe its a gimme come next week. Some of these numbers you lived this in bank of america, invented the ecb. They came in. There were a couple difficult moments. Historic moment for lagarde this morning. You say shes on the putting green . I said the fed was clearly and maybe its a gimme. The ecb is still a chip shot away from the putting green, but they are not driving off. Inflation in the euro zone is 5. 3 , projected to go higher. Its still significantly above the policy rate, so they have negative real rates. I know the rate hikes cannot do anything about oil prices. They cannot make the winter milder in europe and ease any potential situation, but a mistake made in 2021 by Central Banks around the world was in allowing supply chain and energy price issues and war in ukraine issues to filter into the broader price setting behavior, and that is what Central Banks have to push back against. I think the fed so far has done a good job. I think the ecb is not quite there yet. And i think they have to be very careful not to tell the markets that they are there and this is the last rate hike, because what this markets do . You look for the first rate cut and that is too premature. Retail sales not quite as strong as you think because i believe there was a downward revision to the july increase in the control group. I dont know what the june issue was version might have been but the u. S. Consumer is strong. Third quarter gdp was 4 . I think its going to not change very much on that. It is not that the u. S. Is roaring. It is not. But it is not yet falling into recession, perhaps unlike the euro zone, given the size of the Interest Rate adjustments. Is the take away that the Central Banks are almost or pretty much done and we now need to look at the economy and how strong the economies are in europe cannot withstand the price stock that might be coming down the pike and thus is in a worse position . I think the euro zone is in a worse position and you have fiscal issues in a number of countries. There was some brief mention of japan. I would say japan is in an even worse position because they have not even begun to consider hiking rates yet they have underlying inflation that continues to go higher. So the u. S. Is much better placed than the euro zone, which is, as i said, maybe a chip shot away from the green of monetary neutrality. They are in the bunker. It is so much worse than you describing surely in europe. They have had to downgrade the Growth Outlook, the inflation outlook. They are trying to signal pause without signaling. Do you sense any decisiveness out of this governing council whatsoever . We will have to listen to the press conference and the questions and see where that goes, but let me say back in 2021, maybe even 2022, when all these extraordinary efforts during the pandemic work being done. I warned multiple times that if you do too much and dont pull back soon enough you will end with an inflation problem. So the consequence of what we are seeing now is the consequence of the ecb hiking from negative rates. They have less though they have left those rates for too long, as the fed did, but the fed did a better job of catching up. I think the ecb still has catching up to do. And theres probably a recession. They may well be in recession. I have to squeeze this in. Jon will go to lagarde in three minutes so we have about 1. 5 minutes left. You nailed that we would have higher inflation. It took a while to get here and maybe the path was stranger than we thought, but you nailed it. We would get to this point. Should our listeners and viewers be afraid of the new rate environment or can america adapt and prosper in this rate environment . I think, after the adjustment i dont think we are going back to the low Interest Rates we had prepandemic. Look at the Housing Market. You have a 7. 5 Mortgage Rate. If you asked most people a couple years ago, what with the Housing Market be doing, i dont think anyone would have imagined it would be a strong. That is not to imply everything is rosy and i still think the u. S. Faces a recession in 2024, but the glide path to that is so much stretched out because of all the cumulative excesses, the large number of jobs, 1. 4 for every job seeker. Still excess savings from the pandemic. Its a very long path. I think people might let their guard down a little too soon on the recession chances. You think. Jon, i dont remember the last time we had a 20 minutes like the one we have had. This is huge. Its a huge deal. Tons of Economic Data stateside. Back over to mike mckee for a second look at the data we had. Big upside surprise on retail sales. And an upside on ppi, both attributable to oil. You nailed it this morning before we got the data. Oil prices driving this. Gasoline station sales of 5. 2 in august. We did see in retail sales a number of things that pointed to normality, including a. 9 percent rise for the second month in clothing and a. 5 rise in personal care. It was a typical backtoschool season. In ppi, its a 2 rise in the price of goods, which the Labor Department attributes to oil prices. 60 of that to oil prices. Ppi being pushed up by oil and so are jobs so our retail sales. 220 for jobless claims last week, revised to 217,000, so still historically low. At this point its hard to see a lot of bad news other than energy in these reports. Mike mckee, thank you. As lisa mentioned, a 12 punch for the euro. Data great in america. In europe, no idea what the outlook is. In america, headline higher, core lower. A press conference with Christine Lagarde. First reaction from deutsche bank. A lingering pauses being signaled but is low conviction. The ecb has retained the option to hike further if necessary. No declaration of victory on inflation. I dont think you will hear that in a minutes time. Tom he was brilliant for five month ago. Skepticism on the new growth of europe. Jonathan just taking some moments some photos at the moment in frankfurt, germany. Questions for lagarde in this conference. Lisa how high is the threshold to hike again . What would she have to see to hike further . Why did she raise rates further given that she spoke to tom keene at jackson hole and said Something Else . Is the european economy that much more vulnerable to Higher Oil Prices than the u. S. Economy and will see that reflected in the currency pairing . Jonathan what a tough spot. Tom the history is there, the idea. They are making it up as they go. And with all the politics here, the nuances of the different nations, she will bring that in. Jonathan 4 . Did you ever think we would see it at the ecb . Tom no. Absolutely not. And you are the one that has a handle on this. I am not up to speed on european monetary dynamics but a 4 number . Never. Jonathan they are at 4 now and based on their outlook they certainly dont have the nominal gdp to sustain it. A cut to the Growth Outlook. Heres the ecb chief, Christine Lagarde. For online participants, if you ask a question, please turn on your cameras and microphones. With that, i handed over to present lagarde hand it over to president lagarde. Pres. Lagarde thank you. Welcome after the summer break that i hope you enjoyed. The Vice President and i welcome you to our press conference. Inflation continues to decline but is still expected to remain too high for too long. We are determined to ensure that inflation returns to our 2 mediumterm target in a timely manner. In order to reinforce progress towards our targets, the governing council today decided to raise the three key ecb Interest Rates by 25 basis points. The rate increase today reflects our assessment of the inflation outlook in light of the incoming economic and financial data. The dynamics of underlying inflation and the strength of Monetary Policy transmission. The september ecb staff macroeconomic projections for the euro area c average inflation at five 5. 6 percent in 2023, 3. 2 in 2024, and 2. 1 in 2025. This is an upward revision for 2023 and 2024 and a downward revision for 2025. The upward revision for 2023 and 2024 mainly reflects a higher path for Energy Prices. Underlying price pressures remain high even though most indicators have started to ease. Ecb staff have slightly revised down the projected path for inflation excluding energy and food to an average of 5. 1 in 2023, 2. 9 in 2024, and 2. 2 in 2025. How are past Interest Rate increases continues to be transmitted forcefully our past Interest Rate increases continue to be transmitted forcefully. An important factor in bringing inflation back to target. With the increasing impact of our tightening on thomistic command and weakening on domestic demand, growth projections have lowered significantly. They expect the euro area economy to expand by 0. 7 in 2023, 1 in 2024, and 1. 15 1. 5 in 2025. Based on our current assessment, we consider that the key ecb Interest Rates have reached levels that maintain for a sufficiently Long Duration that, maintained for a sufficiently Long Duration, will make a substantial contribution to the timely return of inflation to target. Our future decisions will ensure the key ecb Interest Rates will be set at sufficiently restrictive levels for as long as necessary. We will continue to follow a datadependent approach to determining the appropriate level and duration of restrictions. In particular, are interestRate Decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of Monetary Policy transmission. The decisions taken to today are laid out in the press release available on our website. I will outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions. Turning to the economic activity. The economy is likely to remain subdued in the coming months. It broadly stagnated over the first half of the year and recent indicators suggest it has also been week in the Third Quarter. Lower demand for the euro areas exports and impact of tight financing conditions are dampening growth, including through lower residential and business investment. The services sector, which had so far been resilient, is now also weakening. Over time, economic momentum should pick up as real incomes are expected to rise, supported by falling inflation, rising wages, and a strong labor market, and this will underpin Consumer Spending. The labor market has so far remained resilient despite the slowing economy. The Unemployment Rate stayed at its historical low of 6. 4 in july. While employment grew by 0. 2 in the Second Quarter, momentum is flowing. The services sector, which has been a major driver of employment growth since 2022, is now also creating future creating fewer jobs. As the Energy Crisis fades, governments should continue to roll back related support measures. This is essential to avoid driving up mediumterm inflationary pressures which would otherwise call for an Even Stronger Monetary Policy response. Fiscal policy should be designed to make our economy more productive and to gradually bring down high public debt. Policies to enhance the euro area supply capacity, which should be supported by the full implementation of the nextgeneration e. U. Program, can help reduce price pressures in the mediumterm while supporting the green transition. The reform of the eu economic Governance Framework should be concluded by the end of this year and progress toward Capital Market unions should be accelerated. Looking at inflation, inflation declined to 5. 3 in july but remained at that level in august according to euro stats. Its decline was interrupted because Energy Prices rose compared with july. Food Price Inflation has come down from its peak in march but was still almost 10 in august. In the coming months, the sharp price increases recorded in the autumn of 2022 will drop out of the yearly rates, pulling inflation down. Inflation, excluding energy and food, fell to 5. 3 in august from 5. 5 in july. Goods inflation declined to 4. 8 in august from five percent in july and 5. 5 in june owing to better supply conditions, previous drops in Energy Prices, easing price pressures in the earlier stages of the production chain, and weaker demand. Services inflation edged down to 5. 5 but was still kept up by strong spending on holidays and travel and by the highgrowth of wages. The annual growth rate of compensation per employee remained constant at 5. 5 in the Second Quarter of the year. The contribution of labor costs to annual domestic inflation increased in the Second Quarter, in part owing to weaker productivity, while the contributions of profits fell for the First Time Since early 2022. Most measures of underlying inflation are starting to fall as demand and supply become more aligned and the contribution of past energy price increases is fading out. At the same time, domestic price pressures remain strong. Most measures of longerterm Inflation Expectations currently stand at around 2 , but some indicators have increased and need to be monitored closely. What is our Risk Assessment . The risks to Economic Growth are tilted to the downside. Growth could be slower if the effect of Monetary Policy are more forceful than expected or if the World Economy weakens, for instance, owing to a further slowdown in china. Conversely, growth could be higher than projected if the labor market, rising real incomes and receding uncertainty mean people and businesses become more confident and spend more. Upside risks to inflation include potential renewed upward pressure is on the cost of energy and food, adverse weather conditions and the unfolding Climate Crisis more broadly could push food prices up by more than expected. A lasting rise in Inflation Expectations above target or higher than anticipated increases in wages or Profit Margins could also drive inflation higher, including over the mediumterm. By contrast, weaker demand, for example, due to a stronger transmission of Monetary Policy or a worsening of the environment outside the euro area, would lead to lower price pressures, especially over the mediumterm. Turning out to the financial and monetary conditions turning now to the financial and monetary conditions. Our policy tightening continues to be transmitted strongly to broader financing conditions. Funding has again become more expensive for banks as savers are replacing overnight deposits with time deposits that pay more interest and the ecbs targeted longerterm refinancing operations are being phased out. Average rending lending rates for Business Loans and mortgages continue to increase to 4. 9 and 3. 8 respectively. Credit dynamics have weekend further. Loans to firms grew at an annual rate of 2. 2 in july, down from 3 in june. Loans to households also grew less strongly by 1. 3 after 1. 7 in june. In annualized terms, based on the last three months of data, household loans declined by 0. 8 , which is the strongest contraction since the start of the euro. Amid weak lending and the reduction in the euro system balance sheet, the annual growth rate of m3 fell from 0. 6 in june to an alltime low of 0. 4 in july. In annualized terms, over the past three months, m3 contracted by 1. 5 . So in conclusion, inflation continues to decline but is still expected to remain too high for too long. We are committed to ensure inflation returns to our target in a timely manner in order to reinforce progress towards our target. The governing council today decided to raise three key ecb Interest Rates by 25 basis points. Based on our current assessment, we consider the key ecb Interest Rates have reached levels that maintain for a sufficiently Long Duration will make a substantial contribution to the timely return of inflation to our target