The Pulse With Francine Lacqua 04/08/2024
Summary
TLDRThe transcript discusses various economic and geopolitical updates. It highlights the impact of the US jobs report on European stocks, the anticipation of US inflation data, and oil prices' response to geopolitical tensions. The conversation includes insights on the US Treasury Secretary Janet Yellen's visit to China, where she warns of potential sanctions for Chinese entities supporting Russia. Additionally, the transcript covers the撤l of Israeli troops from Gaza and the potential implications for Middle Eastern geopolitics. Business strategies of HSBC and India's potential to become a global growth engine are also discussed.
Takeaways
- 📈 European stocks experienced a slight increase following the positive US jobs report from the previous week, indicating a potential upward trend in the market.
- 📊 The US inflation data due on Wednesday is a significant market focus, as it could influence the Federal Reserve's decisions on interest rates and monetary policy.
- 🏛️ US Treasury Secretary Janet Yellen concluded her four-day talks in China with a warning for Chinese banks and exporters about the risks of sanctions if they support the Russian military.
- 🤼♂️ Israel's announcement of troop withdrawal from southern Gaza has sparked discussions on potential strategic shifts and responses to geopolitical tensions in the region.
- 📉 Oil prices have retreated from a five-month high, with market anticipation of an Iranian attack over the weekend not materializing, thus reducing some pressure on oil markets.
- 💹 The US equity markets are showing signs of a potential slowdown, with bond yields continuing to rise and casting a shadow over the recent rally in equities.
- 🌐 The ECB meeting is upcoming, with market participants speculating about the possibility of rate cuts and their implications for the Eurozone economy.
- 🔄 Trade deals are a key focus for India as it aims to boost its global economic standing, with recent agreements and ongoing negotiations potentially enhancing its integration into the world economy.
- 🏢 HSBC's CEO, Noel Quinn, highlighted the bank's growth in wealth management and personal banking in Hong Kong and its commitment to expanding in key markets like China and India.
- 💬 The conversation on central bank policies continues, with the upcoming US CPI data and ECB decision being closely watched for clues on the direction of monetary policy.
- 🔮 Looking ahead, the market is preparing for a potentially eventful week with key macroeconomic data and central bank decisions that could shape the investment landscape.
Q & A
What event caused European stocks to rise after the US jobs report?
-The strong US jobs report led to a rise in European stocks as it positively influenced global market sentiment.
What is the significance of the US inflation data due on Wednesday?
-The US inflation data is significant as it provides insights into the health of the economy and can influence the Federal Reserve's decisions on interest rates and monetary policy.
How did the situation in Gaza potentially affect oil prices?
-The announcement by Israel to remove some troops from Gaza did not lead to an Iranian attack, reducing geopolitical tension and consequently causing oil prices to retreat from their five-month high.
What did US Treasury Secretary Janet Yellen warn about during her talks in China?
-Janet Yellen warned that China's banks and exporters could face US sanctions if they provide support to the Russian military.
What is the current state of Brent oil prices?
-Brent oil prices are softer, down by 1.2% in the morning, influenced by reduced geopolitical tensions and the situation in Gaza.
How did the gold market respond to the current economic climate?
-Gold prices are up slightly, indicating that investors are seeking safe-haven assets amidst uncertainty in the market.
What is the expectation for the US equity markets?
-US equity markets are expected to be fairly flat, with the S&P and NASDAQ not showing significant changes, while the Stoxx 600 is up by 2/10 of 1%.
What does the ECB meeting signify for the European economy?
-The ECB meeting is significant as it could signal potential rate cuts for the year, impacting consumer and business confidence, as well as the overall macroeconomic backdrop.
What is the current situation regarding the labor market and inflation?
-The labor market is strong with healthy job growth and lower unemployment rates, while inflation has been moderated by the influx of labor supply, helping to balance the market without stoking inflationary pressures.
What is the potential impact of higher borrowing costs on equity markets?
-Higher borrowing costs could potentially limit the rally in equity markets as they increase the cost of debt, which might affect future earnings and valuations.
What does the 'catch up trade' in Europe suggest for investors?
-The 'catch up trade' suggests that investors may look to European markets for opportunities, as US markets might be perceived as getting toppy, and Europe could offer cyclically oriented exposure with potential for growth.
Outlines
📈 Market Updates and Analysis
The paragraph discusses the state of European stocks, their response to the US jobs report, and the anticipation of US inflation data. It also touches on oil prices, geopolitical tensions involving Israel, Iran, and the potential for Chinese banks and exporters to face sanctions. The focus is on market trends and the impact of global economic and political events on the financial sector.
💡 Investor Sentiment and Economic Indicators
This segment delves into investor perspectives on the possibility of rate cuts, the implications for consumer and business confidence, and the potential impact on the macroeconomic environment. It also explores the risks associated with inflation and economic slowdown, highlighting the importance of the labor market and corporate earnings in shaping market behavior.
🌐 Geopolitical Developments and Market Implications
The discussion centers on the strategic military decisions by Israel and the potential responses from Iran and Hezbollah, as well as the geopolitical risks and their effects on oil prices and global markets. The conversation also includes an analysis of the potential for a catch-up trade in European equities and the influence of central bank policies on investor decisions.
📊 Economic Forecasts and Central Bank Policies
This part of the script focuses on the anticipation of US CPI data, the potential impact on Federal Reserve decisions, and the expectations from the European Central Bank. It also discusses the importance of corporate buybacks and dividend yields in the current economic climate, as well as the strategic focus on European multinational companies for quality earnings growth.
🔍 Analysis on Middle East Conflict and Global Economy
The paragraph provides an in-depth analysis of the Middle East conflict, specifically the Israeli troop movements in Gaza and the potential implications for regional stability. It also discusses the potential for an Iranian response and the impact of geopolitical tensions on global oil prices and market sentiment.
🏦 Banking Strategies and Global Expansion
This segment features an exclusive interview with the CEO of HSBC, discussing the bank's strategy to enhance its wealth management capabilities in China and India. It covers the bank's recent acquisitions, performance in various regions, and plans for future investments, emphasizing the importance of international wholesale banking and the bank's commitment to growth and stability.
🌍 India's Potential as a Global Growth Driver
The discussion highlights India's potential to become a major global growth engine, surpassing China. It examines the factors contributing to India's rapid growth, including urbanization, infrastructure development, and trade deals. The conversation also touches on the importance of manufacturing and service sectors in sustaining economic growth and the role of foreign investment in India's economic future.
📈 Central Bank Policies and Market Expectations
The focus of this segment is on the upcoming US CPI data and the ECB's decision, as well as the potential for rate cuts in response to economic indicators. It includes expert opinions on investor expectations, the current state of credit markets, and the anticipated actions of central banks in the context of inflation and economic growth.
Mindmap
Keywords
💡European stocks
💡US inflation data
💡Oil retreating
💡Geopolitical tension
💡Sanctions
💡Equity markets
💡Brent
💡Gold
💡Silver
💡Copper
💡Macro week
Highlights
European stocks slightly higher following the strong US jobs report from Friday.
US inflation data on Wednesday is a key focus for market participants.
Oil prices retreat from five-month high as there was no Iranian attack over the weekend.
Israel announced it will remove some troops from Gaza, with speculation on the strategic implications.
US Treasury Secretary Janet Yellen warns Chinese banks of sanctions risk if they support the Russian military.
Discussion on the potential impact of higher bond yields on equity markets.
Analysis of the labor market's role in balancing the economy and controlling inflation.
Investment strategist discusses the outlook for equities in the current economic climate.
Debate on the path of future rate cuts and their implications for economic growth.
Potential for a catch-up trade in European equities, with a focus on multinational companies based in Europe.
Expectations for the ECB meeting and the outlook for rate cuts in 2023.
Analysis of the geopolitical situation in the Middle East, including Israel's troop movements and potential responses from Iran.
Impact of global events on oil prices and market expectations for the coming weeks.
HSBC CEO discusses the bank's wealth management growth in Hong Kong, China, and India.
India's potential to become a major global growth driver, surpassing China's current role.
Upcoming US CPI data and ECB rate decision, and their potential influence on central bank policies.
Transcripts
Newsmakers and market movers. This is the pulse with friends in.
Monday, the 8th of April. Good morning.
Welcome to The Pulse. I've got Johnson in London.
Francine is out today. Let's talk about what you need to know,
though. European stocks a little higher after
that red hot US jobs report kicked U.S. stocks higher Friday.
We're going to take a look at what we need to be watching for the rest of the
week. U.S.
inflation data Wednesday, that's a big one.
Oil retreating coming off a five month high after Israel said it would remove
some troops from Gaza. But we didn't get the Iranian attack,
which some people were anticipating over the weekend.
Traders waiting for a series of reports this week that will provide a snapshot
of the supply demand balance that we're looking at at the moment.
And the U.S. Treasury Secretary, Janet Yellen,
wrapping four days of talks in China, warning that China's banks and exporters
should be aware of the risk of sanctions if they support the Russian military.
We'll talk about that as well. Let's take a look at what is happening
with European equity markets. A little take.
Hi this morning, a response maybe to what we saw Friday.
The U.S. equity markets getting a certainly a
kick higher on the back of the payroll report Friday.
The bond yields story, though, is one I would watch out for that continues to
move higher as well. So a fairly
uninspiring story this morning, I would argue, out of European equities.
I think we're looking for the next catalyst, the Footsie 100, for instance,
very flat at the moment. U.S.
futures, they've turned around in the last half hour or so.
I would argue we're a little bit more positive.
European equities maybe getting a little bit of a boost, but the S&P is fairly
flat. The NASDAQ fairly flat.
The Stoxx 600 up by 2/10 of 1%. What else we should be watching?
Keep an eye on what is happening with Brent's Brent is really inching story.
So we're softer this morning down by 1.2%.
We didn't get some of the geopolitical tension that we were anticipating over
the weekend in the form of an Iranian attack.
So that hasn't happened. So you take some of the oil story kind
of away this morning. But the Netanyahu story I think, is also
interesting. He's taking some troops out of Gaza.
Is he taking those troops out in order to prepare for that potential Iranian
attack? Keep an eye potentially on the border up
north into Lebanon. So watch out for that one.
I don't think that story has gone away. Essentially, the oil stocks are not
lower this morning. Gold's up a little bit this morning.
Still some confusion around that. The silver catch up trade carries on,
copper up by 3/10 of 1%. So London miners getting a little bit of
a bit in terms of the trade that we're watching out for this morning this week.
In theory, though, and I know it doesn't feel like it this morning is going to be
a macro week. It's a number of key events.
Obviously, coming up. US CPI data is going to be one of those
key events. Then we get the next day, of course, the
ECB meeting. What happens if we get a strong CPI
report and then the ECB signals that it could be cutting a number of times this
year? That's certainly one interesting
scenario. But let's start kind of Friday and
figure out exactly the market reaction to what we got Friday.
Madison global investment strategist J.P.
Morgan, private Bank joining me now to discuss.
Good morning. Good morning.
So equity markets liked it. We saw bonds selling off.
At some point, those two things are going to start to have an impact on each
other at the moment. Equities like the idea that we are in a
in an economy that is good and that should support earnings.
But does the higher cost of borrowing at some point start to limit this equity
rally for four and a half on a ten year, five on a ten year maybe?
Of course, I think it matters. I mean, we we certainly see the impact
in the follow through effects in some pockets of the economy from higher
interest rates. And we've certainly seen some companies
during prior earnings season also telegraphed some of those impacts.
But I think when we think about it in totality, yes, the you know, the
corporate earnings backdrop remains very important.
But I think what we've learned is that overall the economy has been able to
withstand those higher interest rates from a broad perspective.
And what's quite interesting is that it hasn't necessarily that strength in the
economy come at the expense of stoking inflation.
And so much of that, I think, has to do with this backdrop that we're seeing in
the labor market today. And certainly it was echoed in the jobs
report on Friday where you saw a healthy jobs growth number, you saw the
unemployment rate tick lower, but you saw labor force participation also tick
higher. So really, I think in our mind that
really I think meaningful influx of labor supply has gone a long way to
rebalancing the labor market. I think really enabling wage growth to
cool ensuring that, you know, growth doesn't come at the expense again of
inflationary pressures. Okay, I get all that equity markets have
been on quite a decent run recently and and that has been based on the idea that
maybe we do have a decent US economy and you can kind of understand the logic
between sort of the works behind that. The difference is going to be
potentially higher borrowing costs are going to be perceived as being a higher
and be kind of for longer. And and is that something that that not
necessarily changes the overall direction, which is higher, but the rate
at which equity markets continue to climb?
Yeah, I think I think there's an important dynamic there.
I think what investors are really trying to.
He's out is not so much whether rate cuts really start.
I think that there is a resounding sense that that is true.
I think what the debate is really is, you know, what is the path of those rate
cuts really look like? I think what central bankers really want
to do is be able to cut rates in a more measured way and I think enables
consumer and and business confidence in terms of having a more stable macro
backdrop. I think what central bankers really want
to avoid is, to your point, keeping rates too high for too long to where
that ultimately cracks something. And then central banks need to cut rates
more dramatically. That ultimately wouldn't have a really
big boost to demand because it's it's creating a sense of uncertainty for
businesses and for households. If you're cutting because things are bad
relative to when things are good. Is the biggest uncertainty, though, for
U.S. households right now that things get bad
or that inflation continues to remain high?
You know, I think I think the you know, those are those are two big risks.
I think in my mind, there's there's two tail risks.
There's, of course, the risk that things slow down more dramatically.
You see some cracks within some of some some segments of the consumer which were
called out in retail earnings over the last quarter.
Yeah, I think we're looking forward to the for the next quarter to see whether
that continues. But overall, again, strong labor market.
Real wages are rising. Real consumer spending is also higher.
But at the same time, of course, you are also having households call out
sticky prices. But I think what's important to keep in
mind is that deflation is really rare. Inflation is more of the, you know,
normal economic environment. And I think, you know,
starting to I think think through those price changes that we've experienced
over the past few years and the fact that those price gains are now
moderating ultimately just take some time to behaviorally start to impact and
set in the minds of households a strong U.S.
economy. Does that continue the trends that we're
seeing, the broadening that we're seeing in equity markets?
I think so. So typically speaking, when you have a
more cyclically sound economic backdrop that
tends to be more supportive for a broadening equity market rally.
So while, you know, for instance, the S&P 500 might be starting to look a
little bit toppy at the levels that we're looking at today, we expect to see
stronger gains from more cyclical pockets of the market.
So think US midcaps, for instance, where earnings this year could in our minds
eke out around 10% earnings growth relative to a 9% contraction last year.
And then you could also look abroad in terms of markets in both Europe and
Japan for more more of that cyclically oriented exposure.
The ECB is likely to signal at least one coming up.
The debate now is whether we get three or four cuts this year out of Europe.
The catch up trade is something that I've read a lot about over the last few
weeks, that Europe still has this potential to play catch up.
The US investors are thinking maybe we're starting to get a little toppy in
the States. Therefore I look elsewhere and maybe we
see some opportunities that exist in Europe.
How how sort of predicated is that on the idea that the ECB is actually going
to deliver rate cuts and is that maybe the most significant event here?
Rate cuts are certainly important. I think that, you know, of course,
signals that policymakers are even further towards winning their fight
against inflation. And I think it also signals that that's
not coming at the expense of the recovery that we're starting to see in
economic growth. So I think it's ultimately about what
those rate cuts really signify to the market.
But from there, again, the earnings backdrop is really important.
We've now seen an end to the negative revision cycle for earnings.
We're starting to see that inflect higher.
You're looking at a three and a half percent dividend yields.
Corporate buybacks are gaining more traction.
So I do think all of those fundamental drivers are in play.
But even more important, I think, is where you focus in Europe.
In our minds, you really want to be focused on those European national
champions, which are multinational companies that are based in Europe, that
are very much leaders of their industry. I think continuing to produce really
quality earnings growth, exhibiting pricing power.
And I think tolerance is that is that the narrative here?
If the ECB is cutting it, maybe the Fed is a little bit more cautious.
We continue with the stronger dollar. Do you want to own dollar earnings in
this kind of environment? Yeah, I mean, I think that's certainly a
big component of it. And there is a currency kicker, I think,
element to that Europe story in terms of you referenced it just a moment ago in
terms of the kind of the why in terms of central bank cuts, though, this speaks
maybe in the opposite direction. Europe feels like it's it's cutting
rates because the economy needs it, not the kind of the mid-cycle slowdown story
that maybe the Fed's delivering. We can kind of fine tune.
Inflation is coming down a little bit, but we're not seeing economic growth
rolling over. So we can we can take rates a little bit
lower and make brakes a little bit more restrictive.
Europe feels like it needs rate cuts right now.
How does that how does that overlay sit on top of the kind of the equity catch
up story? Europe, the economy is struggling right
now. Is that a reason to buy European
equities? I hear what you're saying about the kind
of the big multinationals, but more broadly than that.
So I think you certainly have seen, you know, trailing activity and.
Haters remain quite weak. But importantly, those forward looking
indicators do suggest that the worst is over for the European growth backdrop
and that a recovery is underway. So, for instance, when we looked at the
euro area composite PMI revision last week, it turned above 50 for the first
time in well over a year. And so I think from that standpoint,
yes, ECB policymakers are are cutting because you did see the impact of rate
hikes, you know, impact their economy more acutely.
But I think what I what I would stress is they're not necessarily cutting into
a dramatically weakening growth environment.
We are seeing some meaningful stabilization and recovery there.
In terms of what you're watching out for this week, in terms of the surprises,
kind of what is the Madison fellow kind of view, a view of this week?
Is it US CPI that provides the shock? Is it the is it the ECB or is it
something else? I think I think CPI is really important.
I think we need to see that how that confirms some of the labour market
dynamics that we're continuing to watch. I think from there, what's also
important to call out is we do have a base case for a June rate cut starting
for the Federal Reserve. If you do see another hot CPI print,
it's possible that gets a little bit further delayed.
And so I do think that's quite important for the ECB.
Not expecting anything too monumental, but we would be looking for Legarde to
confirm some of the rhetoric that we've already seen about starting in June as
well. What a what a 4.5 on a US tenure be a
shock with 100 bucks a barrel on a Brent price.
Be a shock at the moment. So those are those are absolutely risks
in my mind seeing ten year Treasury yields sustainably go above 5% would
necessitate that markets are starting to price in more probability of a hike
rather than a cut. Yep.
I think that so long as we continue to see a cut as the next move, investors
should be able to, I think, digest this period of transition.
Good to see you. Thanks for stopping on a monday.
As a fellow global investment strategist joining us, J.P.
Morgan, Private Bank. What else have we got coming out for
you? We'll go back to that oil story.
Israel unexpectedly pulling out troops out of southern Gaza.
We're going to take a look at what this means for the war with Hamas.
That next. This is Bloomberg.
So the Israelis over the weekend announcing they're going to pull some
troops out of southern Gaza. This is the war against Hamas passes the
six months mark. The U.S.
senator Chris Coons, saying the move is likely a tactical decision in case
Hezbollah or Iran attack. They need to have these troops rested
and ready. There's also, obviously this ongoing
conflict in Gaza that is going to be continuing and maybe they're simply just
getting ready for the next offensive. Let's get some analysis on what is
happening here with Bloomberg's EMEA news director, Ross Matheson.
This doesn't feel like this is a shift. This feels like it's a tactical
reappraisal of a situation they see in front of them.
They've got a potential Hezbollah conflict brewing to the north.
They need these troops potentially for that.
So this could be a redeployment to rest of redeploy.
It's also we're still watching what's happening in Rafah.
We don't understand exactly kind of when that next phase is going to start.
So maybe they need those troops for that element as well.
Talk me through the kind of the tactical signaling that this decision is
delivering. Well, that's right.
There's probably a bunch of things driving this decision.
It doesn't signal the end of this conflict.
It doesn't signal either that, you know, for Israel that they're winning
necessarily. What it means, as you say, is the need
to rest. These troops are going to rotate.
Some of them. They're pulling out a bigger brigade or
so they need to buffer the north of Israel because they're worried about
potential for further Hezbollah attacks. Of course, that's another group backed
by Iran in the region in the aftermath of that strike on the Iranian diplomatic
compound in Syria. They're worried also about a direct hit
from Iran, although that's much less likely.
We're more likely to see that kind of proxy asymmetric reprisal from Iran.
So they need to get their troops in the north.
They also want to get them out of Khan Yunis because they want to potentially
encourage Palestinian civilians, shall we say, to move north back out of that
bottleneck near Rafah, ahead of a Rafah offensive, and also removing their
troops from Khan Yunis might pave the way, just might pave the way for that
hostage deal with Hamas. That's being discussed still in Cairo
ongoing, trying to get some sort of temporary ceasefire at least, and the
hostage exchange that might just open the door that you talk about, the
asymmetry of the Iranian response. What do we know about the response that
we're likely to get from the Iranians?
They have signaled that it's going to be proportional.
They've signaled that it's going to be punishing.
But what do we actually know? What are the Israelis doing to prepare
for that? Because maybe that gives us the best
signal as to to kind of maybe what that would look like.
We can see from the Iranian rhetoric they are preparing themselves for
something that kind of got to the point where they're going to have to do
something. They keep saying they're going to do
something. And they did this attack on their
compound. They said it's akin to an attack on
Iranian soil because it was a diplomatic site that was hit.
And so they feel obliged to do something.
Do they really want to strike Israel directly with a missile hit perhaps on a
major capital? Unlikely.
I mean, that's going to set off not just a broader confrontation, perhaps draw in
the US and Iran directly. And no one really wants that, including
Iran. So what you might see again is that
asymmetric response to their often known force that they use one of their proxy
groups in the region and they come through there.
So most likely to be Hezbollah, which has already been engaging with the
Israeli military from the north in Lebanon since this conflict broke out
and even before that, obviously. But we might see a step up there, which
again, is why we're seeing Israel feel the need to bolster their military
resources in the region. Ross, thank you very much indeed.
EMEA news director at Ross Matheson. That's the geopolitics.
Let's talk about the market response. Oil a little lower.
We didn't get the attack from the Iranians over the weekend.
Maybe you could argue that the removal of some of these troops from southern
Gaza is seen as de-escalation. I think a lot of people are pouring cold
water on that idea this week as well. We're going to get supply and demand
stories develop from both opaque and the IAEA.
Maybe it's just simply the reason why oil prices are lower this morning is
that the market got a little over its skis Friday.
Let's kind of put it all together. Will Kennedy, senior executive editor of
energy Commodities, standing next to me. Lower.
Why? I think I'm going to say I had such a
good run last week to go past $90 that it was probably inevitable that we were
going to take a breather. People often, as you said, worry about
geopolitical risk going into the weekend.
Tensions with Iran was obviously one of those risks.
As you say, that hasn't happened yet. So it seems like a good day that the
market takes stocks of where where it is.
After all, it's been a very strong run. So I shouldn't see the numbers on the
screen right now as a trend change. I don't think that anyone's feeling like
that. I think that the broader picture remains
fairly bullish and that we've got this combination of constrained supply in and
out of a number of respect, say that OPEC is sticking to its cuts.
We have less supply from other places like
Mexico, for example, and that's meeting a a demand side of the equation, which
remains very pretty strong in most places around the
world because. Economy in the US especially is doing
quite well and we're about to hit peak demand season when Americans take to the
road and gasoline demand peaks. Okay, so let's the silhouette that
elements of this oil gets 200 say. What does that mean for products?
What does that mean for us consumers in terms of what they're going to see at
the gas station? Is this going to become a.
When does this start to become a political problem, that gas prices are
so high in the states that Biden, etc., have to respond?
I mean, I think that may be quite close. One sign of tightness in the global oil
market is the refining margins, the profit that people make from turning
crude oil that we can't use into products like gasoline.
Diesel that we can remains fairly strong.
So that feeds through to relatively high prices at the pump in the US.
People tend to see the full dollar mark as as the point at which people go, I
don't like what I'm paying for gasoline. We're not quite there yet, but that may
happen in the weeks ahead and clearly that will be a political headache
for the Biden administration as the president seeks re-election.
And although gasoline prices don't feed into the measures that central bankers
used to take rates, clearly that also has the risk of feeding through the
wider economy and complicating the inflation picture as well.
Will OPEC, if we were getting towards $100, OPEC, respond when when this is
going to be the key question for the market here in the second half of the
year. Clearly, they said that they're going to
keep their current cuts in place until the midway point of the year.
I think that we don't know. But it's reasonable to assume that Saudi
in particular would perhaps like to put more oil into the market, though only
producing 9 million barrels a day. That's historically very low and
probably not where they want to be. And given the strength of the market, I
think that it may be that they'll want to gently put some of that oil back into
the market, but we don't know yet. We'll have to see in the weeks ahead.
Thanks, Bill Kennedy, senior executive editor for energy and commodities here
at Bloomberg. Plenty more still to come.
It's going to be an interesting week, macro week.
We're kind of starting off quietly, but believe you me, there's a lot still to
come. This is.
So this week starts quietly but got a nice relaxed easy Monday.
But believe you me, things are going to be heating up.
It kind of really starts Wednesday, if I'm being brutally honest.
You've got the the US data, the CPI prints.
That's what we're going to be watching out for.
That's really going to set the trend. Or is it actually Thursday, the ECB rate
decision? We kind of know that Christine Lagarde
is going to be pointing us at the idea. We're going to be seeing a June rate
cut. But is the debate around July going to
start to manifest itself in the press conference?
But I think Friday, pay attention to that.
You're going to want to watch out for what he has to say on the Bank of
England, forecasting skills and how they should change in terms of European
markets crisis again today. Now, bond yields say this is the picture
that we're watching right now. Not much movement, but as I say, this
week is about to kick into gear. Up next, we'll talk about Janet Yellen's
trip to China. This is Bloomberg.
On Monday. The European stocks ticking a little
higher, basically playing catch up after we saw that big response to the red hot
U.S. jobs report Friday.
Now going to look ahead to Wednesday's U.S.
CPI data. That's going to be a big story.
Oil off five month highs. Israel says it's going to take some
troops out of Gaza. That could be the reason we didn't see
any Iranian action over the weekend. Plus the market probably a little long
into the weekend as well. We've got OPEC and the IEA producing
supply demand reports this week. And the US Treasury secretary, Janet
Yellen wrapping up four days of talks in China.
She's been warning that the country's banks and exporters could face sanctions
if they support the Russian military. She's basically also just the big
picture warning that China's too big to export its way out of trouble.
Morning. Welcome to the pulse.
I'm Guy Johnson in london. Francine is off today.
Let's talk about that last story in a little bit more detail.
So the US treasury secretary Janet Yellen, with a nice smile on her face,
has basically wrapped up her trip to China with some big warnings.
There's a number of them that are in here.
One of which is the country's banks and exporters should not help Russian
military capacity. So that's one that we're focusing on.
Take a listen to what she had to say. I stress that companies, including those
in the PRC, must not provide material support for Russia's war and that they
will face significant consequences if they do.
And I reinforce that any banks that facilitate significant transactions, the
channel military or dual use goods to Russia's defense industrial base expose
themselves to the risk of U.S. sanctions.
Til the joins us now for some analysis on this Bloomberg Surveillance.
Jill, how seriously do you think Chinese banks are going to take the threat that
Yellen has delivered on Russia? Well, I think that at this point this is
actually pretty in line with what the US has warned on these types of issues
before. China, of course, in the past said that
it's not in contravention or violation of specific sanctions or anything like
that. I think that it's really kind of, you
know, part of this all encompassing mission that Janet Yellen is on in
China, where she's kind of hammering home a lot of key US criticisms of
China, particularly on economic policy or in this case, geopolitical policy.
The other one that she was really, really hitting hard over the past couple
of days, too, was this issue of industrial overcapacity from China.
So China exporting to many low cost goods elsewhere in the world and sort of
creating a lot of economic imbalances. So we did see her really sort of stress
some of these issues. I think that, you know, from the China
side, it does seem like they've actually been pretty diplomatic, you know, pretty
receptive. She's had a lot of closed door meetings
with really, really key officials in China over the past few days.
So we'll see what ultimately comes out of that.
But, you know, despite some of this rhetoric that we're hearing from Janet
Yellen, that feels pretty stern, she's generally seen as Washington's good cop
when it comes to China. But let's kind of extrapolate and think
about what happens next. Is this a signal that effectively the
tariff review that the US administration is undergoing at the moment is going to
deliver a tougher message and extrapolate even further forward into
the November election? Is it a message that basically we have
to fight fire with fire here, with the Republicans are talking about
significant tariffs. We're going to have to do that as well?
Well, look, I think that on the China side, if anything, you probably want to
sort of tone down some of the fiery rhetoric heading into that, you know, US
election in November. You know, Trump has proposed tariffs of
up to 60% on Chinese goods. So I think that's what you're kind of
getting out of the Republican ticket here.
It's not extremely surprising that, you know, China has actually been on the
whole, you know, fairly welcoming to Janet Yellen over the course of the
trip. Very diplomatic.
It sounds like they weren't actually, you know, hitting her extremely hard
back behind closed doors. So I think that at this point, it
actually makes sense for it to be more of a diplomatic mission on the China
side, if you're trying to, you know, win over favor with not just Yellen, but the
rest of the Washington administration here.
Joe, thank you very much indeed for the analysis still to see.
Joining us on this trip. Let's continue the conversation.
Janet Yellen has maybe been listened to. Is that the take away that we should
assume now? Lizzie Galbraith, political economist at
Aberdeen, joins us now to discuss. Lizzie, what do you think?
What do you think of the effects of this trip is going to be and whether China is
listening to the warnings that Janet Yellen was delivering?
Well, we've definitely seen Chinese willingness to continue the
conversation. So what we've got out of this trip is a
promise for more talks. And that's never viewed as a bad thing
in US-China relations. The fact that we now have both sides
talking on multiple issues more frequently than we were saying last year
is undoubtedly a positive for the relationship.
And it's something that Yellen herself pointed out that relations have
stabilized over the last year. That's something that the Biden
administration is probably going to want to point to as we get closer to the
election as well, that they are able to, while still maintaining a willingness to
have these difficult conversations, have a more stable relationship with China
than maybe the Republican policy platform offers.
Nevertheless, China's got a big problem. Its economy is not firing on all
cylinders. It needs to figure out a way of of maybe
improving its economic outlook. Its hands are tied in so many ways.
And one of the most obvious ways of achieving that economic revival is to
use its huge industrial footprint to export to the rest of the world.
What happens if it if it has to do that? What kind of response should we be
expecting? I mean, we haven't seen China make any
promises to cut back its production or to reduce its exports.
So I think from a Chinese perspective, this is going to be viewed as broadly as
business as usual. However, we are seeing a number of
countries alongside the EU. So these investigations into some
products supplied by China, particularly electric vehicles, that seems to be the
main focus at the moment. And if we do see more action taken to
tail Chinese imports in these areas, then that may be so substantial in US
policy, elicit some sort of Chinese response.
But I don't think it's actually going to be
in China's interests to really elicit a very strong response to any of these
measures. It's really a matter of neither side's
really wanting to rock the boat too much, but everyone's got interests
domestically as well where they want to be seen to be taking action against
these issues. How seriously should we take the threat
that Chinese banks and businesses could be sanctioned if they continue to
support China, to support Russia?
I think the US has obviously got to make sure that that threat is something that
is credible, but it's not something that we're seeing as an immediate and
immediate problem. So for China, we're not seeing it as
being likely that the US is about to announce a significant sanctions package
against Chinese banks. But it is something that the US is going
to want to keep as a credible option on the table.
As the war in Ukraine moves forward, and particularly as the US gets closer to
the election as well, is going to want to maintain credibility that it can
escalate if it feels the need to that we're at at the moment seeing this
broadly as a rhetorical threat rather than something that the US is preparing
at the moment. Lisa, can I just turn our attention to
what is happening in the Middle East? We're watching the Israelis potentially
pulling troops out of Gaza in response to what we don't know yet.
Maybe it's a need just to rest those troops so that they can take part in the
Rafah offensive. Maybe it's because they're worried
about. Potentially the Iranians using Hezbollah
to attack to the north. We're on tenterhooks this week waiting
for some kind of response from the Iranians.
How are you thinking about what is going on?
And how significant do you think the Iranian response will be?
It's been something that we've been monitoring very closely, and we do have
we do have an expectation that the conflict is going to continue for a
number of months. Yes, we are seeing it evolves and it is
it is completely possible that Israel is changing a tactical focus.
We've also seen increased activity across Israel's northern border as well.
And that does obviously bring with it risks of conflict, spillover that that
would, in our view, amplify the risks to to regional stability.
So it's something we're very closely monitoring as well as things currently
stands. And we we see the conflict continuing
without any significant spillover for the next few months.
But that risk of spillover does remain really quite significant.
And with that, we're keeping a very, very close watch on it.
Should we should we expect to higher oil prices that the most logical response to
the kind of scenario that you're seeing in front of you?
Our base case isn't for a significant increase in oil prices as things stand,
and that that base case still still stands even with the current Israeli
troop activity. Our escalation scenarios do do include
some increase in oil prices, but we have to take
into account the other global factors that may be weighing down the oil price
as well. So, yes, this potentially puts upward
pressure on oil prices in the event of escalation, but we're also seeing
downward pressure elsewhere as well. So we're not expecting a very
significant spike. Okay.
There's a lot going on. Lizzie, thank you for giving us some
analysis on what is happening here. Lizzie Galbraith, political economist,
joining us from Aberdeen. Coming up, we're going to take you
through the big take. Can India take China's global growth
engine crown? We're going to take a look at the
foreign money pouring into the Nifty 50. That's next.
This is Bloomberg.
And.
This is the Post. Good morning.
I'm going to Gelson in London. Francine is off today.
Let's talk about what's happening over at HSBC.
The bank's CEO, Quinn says he's pushing to improve the bank's wealth management
capabilities in China and in India. So they're just as strong as in its home
market. He spoke exclusively to Bloomberg's
David English earlier as the bank hosts its first global investment summit,
which is taking place in Hong Kong. In 2023, the performance of our wealth
and personal banking business here in Hong Kong, we saw significant customer
acquisition growth, right? We also saw around about a 50% growth in
our insurance and wealth business. In terms of the new business, they were
rising last year. So the fact facts saw wealth management
is continuing to develop and grow here in Hong Kong.
The liquidity base here in Hong Kong today is higher than pre-COVID levels.
So I still see Hong Kong as a vibrant financial centre of capital.
Markets are subdued at the moment, but that's a function of still coming out of
COVID economies waiting to recover when inflation and interest rates do right.
But we've seen some early signs of the debt capital market starting to pick up
as well. So the facts, I think, support the fact
that Hong Kong still is a vibrant financial market right now.
The I know you're set to report your first quarter earnings in a couple of
weeks, so you can get the details as well.
But we just wrapped up, of course, the calendar quarter.
If you could also indulge as how do you think the quarter went for you guys this
fall, 2023, when extremely well over $30 billion in profit record recorded a
record profit? And that's a culmination of the hard
work of our colleagues over the past four and a half years and also the
loyalty of our customers. And they've been very supportive of HSBC
as we went through COVID and transition. Our return, our returns were the best
for over ten years, and our dividend of $0.61 was the best dividend for 15
years. So I was really pleased with the
performance. We never complacent.
We're making sure that we're well positioned for the future and we're
continuing to invest in the business. We're investing in wealth management
here in Asia. We've done a number of acquisitions to
do that. All right.
The most recent one that we announced was the acquisition of the Citibank
Wealth Management business in mainland China.
We bought an insurance business of AXA in Singapore and we bought an asset
management business in India. And again, just to put it into context,
every region performed well last year and every business loan in India, we
made over one and a half billion dollars profit.
If you put Bocom and our own shareholding of our own bank in China,
we made over three and a half billion dollar profit, so well distributed
profit across the world and all parts of the bank doing extremely well.
We've done some reporting on your plans around your assets in Germany.
I was wondering if you could comment on what your plans are for this year.
We remain absolutely committed to being an international wholesale bank across
all of Europe, including in Germany. So there's no change to that.
Okay. So those are not for sale.
Those are not for sale. We have some business lines in Germany
that are non-essential to intra international wholesale banking, and
we're considering options for those. And that's what the rumor and the
speculation was. Right.
But but that is not about our international wholesale banking
proposition or corporate banking proposition in Germany.
Thank you for clarifying assets in Russia.
I know the bank has also been looking at that.
If you could give us an update on whether those are actually up for sale
and when you want those. Well, we have a price tag for it.
We have regulatory approval to sell that business.
We go through the final stages of trying to close our transaction, but it is our
intention to sell the business. We have regulatory approval on it.
We're in the close. We're in the process of trying to close
that transaction. That was, of course, the HSBC CEO, David
Quinn, speaking to Bloomberg exclusively at the bank's Global Investment Summit,
which is currently taking place in Hong Kong.
Let's focus more on the kind of the India China story.
So India is very much the subject of today's big take.
The nation vying to take China's crown as the engine for global growth.
This is foreign investment floods into the nation and this government lines up
a number of new trade deals. Let's dig into this story a little bit
more. Bloomberg economy and government
reporter arnab roy joins us now. Let's talk about how far we are away
from that kind of that that story where where India is the most important part
of the global economy, that it supersedes China.
In what way does that happen? How does that happen?
What are the kind of the levers that are being pulled to make that happen?
So India contributes to about 16% of all GDP growth now, and China contributes to
about 34%. But China is decelerating and India is
growing rapidly. It is the fastest growing major economy
in the world. So from 7 to 8% now, if India can grow
at 9 to 10%, which is not impossible for a country like India, because it is it
is growing at close to 9% in the past. The estimate by Bloomberg Economics is
that by 2028, India can be as important as China in its contribution to global
growth. So and in worst case scenario, even
India maintains this kind of growth rate.
Then probably India will catch up with China as the most import as one of the
most important global growth drivers equating with China by 2037.
What is it that you need to do to make that happen?
What does it need to do with its population?
What does it need to do with its infrastructure?
Yep. So India needs to do a couple of things
right To do that, to sustain that kind of growth and then needs to scale up its
population and that areas to focus on urbanization because a lot of people
will have to be shifted from agriculture to manufacturing and service sector.
For that you need to house them in urban areas, you need to give them housing,
and that is essentially building up infrastructure for for this kind of
workforce that you will be needing and then to skill them urbanization and you
need to ramp up the infrastructure. And then finally, you need to bring a
lot of manufacturing companies really to, you know, provide the jobs for this
kind of population. And the continuing jobs right now in
many jobs or gig economy kind of work. But you need more sustainable long term
kind of group. There's a lot of trade deals being
negotiated at the moment. How important will they be?
You talk about access to the rest of the global economy.
How important will the will of Modi trade deals be?
The trade deals are very important. If if one country has to be one of the
global growth drivers or a major player in the you know, in the in the world,
then it has to, you know, agree with with several of its trading partners on
trade deals, trade terms that, you know, are equal to both interest.
You know, India is doing doing good on that part.
It has signed a trade deal with the European
small market, the European market recently, and it is in talks with the UK
for a trade deal that may happen soon. And then it is also in talks with Dubai
and other markets, too, you know, with Australia.
So those trade deals are coming, you know, and falling into place.
And then these are these are very important.
If if India has to be one of the global growth drivers and it is happening
and we're going to watch this space very carefully and abroad.
Thank you very much indeed, joining us from Mumbai on today's big take.
Coming up, it's not a big take. It's a big week for central banks.
We could look ahead to the US CPI data, which is going to inform us a great deal
about what the Fed does next, of course, is the ECB decision on Thursday.
And we get this big report from Ben Bernanke on the Bank of England and it's
forecasting. We'll talk about all of this next.
This is Bloomberg.
So Wednesday US CPI Thursday ECB got a strong jobs number Friday.
Which of these two are going to bring us bring us the biggest surprise let's find
out public opinion. Marcus Ashworth joins us now.
Marcus, which one are you watching? Feels like the ECB is just going to tell
us that June is going to probably deliver a rate cut, but there's a signal
potentially beyond that and a hold CPI print.
What does that do to the market? Yeah, well, I think they actually the
CPI print in the states to be quite mild to give a core number, it could be as
low as 0.2, which may take some of the heat out of the recent chat that there
is not enough progress we've had both in Europe and in the US.
January February was a little higher than people had had hoped for because
there was such great improvement. Most of 23.
The downward target actually from inflation.
But we've seen in Europe and I think we'll see in the UK that that that trend
carrying on. But in the US we cannot say that yet.
So obviously we're waiting for Wednesday if it's a better than expected, which
I'm hoping for that particular core number there, maybe you might get a
little bit of heat out of out of US yields.
You're right to mention the ECB on Thursday I had written that it should be
on the our agenda to cut rates. However, I am a realist.
Yeah and I, I don't think it's very likely at all that they will actually
pre-emptively cut here in April. I hope they do for their own sake.
Okay, I suspect it. This decision by Treasury sort of second
in more detail. There's a lot of supply coming through.
There's a lot of sort of credit supply coming through as well.
People are talking about four and a half or ten people are talking about five on
a ten. Do you think investors are being paid
enough right now in terms of yield? Yes, I do.
I do. I think that's why credit spreads are
doing so well and investors are enjoying this, that they are sitting back for
once and now at some point in 2024. But they are going to have a very nice
time because yields will start to come down because central banks will will
have to cut rates. And Powell has made that very clear.
You know, it doesn't necessarily mean that a strong payroll number means they
won't cut. They will still cap.
You know, monetary conditions are tight and getting tighter.
The longer rates stay where they are. I think that's what people don't fully
appreciate. But if the Fed cuts by two or three
times this year, let me bring them out or keep monetary conditions at the same
level. And I think that particularly in Europe
and U.K., they need to get ahead of it. The luxury that the Fed has is time.
And so I still think they'll they'll cut in June.
But obviously the numbers continue to be less pleasing than there is a chance.
Marcus, great stuff. Thank you very much indeed.
That wraps up this show. The brief is next.
This is Bloomberg.
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