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tv   Bloomberg Surveillance  Bloomberg  December 15, 2022 6:00am-9:00am EST

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>> i would not see is considering rate cuts until the committee is confident inflation is moving to 2%. >> we have to have enough slack to generate this in the labor market and wages come down and 2% inflation. >> it doesn't want the economy to pick up momentum again and have the momentum problem. >> we are all going to see the
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fed and see they are resolute. >> we will see the tug-of-war between the data and the fed for much of the next year. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: the year is over, go home, it'sbramo -- bramo has already packed her bags. it's like a hallmark christmas movie, so distracted. from new york city, good morning to you all. equity futures down about a percentage point. a push back on outside yesterday after the news conference from chairman powell. tom: an acute note for less than an acute labor market. for everybody else it was about where the dots -- i was bored.
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morgan stanley, difficult vote the logic. that is maybe the smartest sentence. jonathan: kelly says some of the projections are head scratchers. lisa: it goes to what bill dudley was saying, even though they are bringing down, the expectation for growth is still improbable. they do not highlight how deep the recession would have to be with respect to a 5.1% fed funds rate. tom: going from stanley fisher's ultra accommodative in the financial crisis, to clearly accommodative, we are not there now. how the left achieve -- leffigy in the meeting, and dare i say, it is sufficiently restrictive? jonathan: we are almost
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sufficiently restrictive, but not there yet, that is what powell said to mike mckee. lisa: which was not the message he wanted to send. earlier in the press conference he said it was quite a ways to go. the market basically came out, they were trying to sound hawkish. the market read this as you are going to raise this once or twice come up more 20 basis points next year, and you aren't going to start cutting by next year. he was like no. tom: you think about it more critically than me. steve says are they losing control of the narrative? tom: we want to signal 2023. if you want to sound hawkish, don't even flirt with the idea of reassessing your inflation target. you can't say on the one hand we are not looking at that right now but may be a longer-term project and our future, why say it? lisa: and you could say this is
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theoretical mumbo-jumbo, bill ackman talking about this at how the likely re-examination is significant in there could be a 3% target for inflation rates that would allow businesses to operate. tom: my driver today, the bentley was down so i took lived -- lyft or uber, and he said it has never been like this. the christmas market is nuts. he has been doing this for years. delta air and united, there is a fervor that pushes against .5% gdp. jonathan: is that your gauge of the economy? uber? tom: it is cold out there. jonathan: he just acknowledged it was cold. lisa: now he is going to mention
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the dow every five minutes. jonathan: no doubt. equity futures down on the s&p 500. a bigger move this morning than yesterday, down by a full percentage point, yields at 3.9. the euro-dollar, a weaker euro going into this ecb decision. lisa: that is basically what we are hearing from everyone, there is a different tone of 50 basis points from the u.s. versus england versus the ecb. 8:15 a.m., this is -- 50 basis points followed by 8:45 a.m.. tom: a good afternoon. lisa: we are going to try. i'm wondering if a hawkish tilt causes the euro to gain or lose versus the dollar because of concerns about the housing
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market, the economic trajectory. at 8:30 a.m. we get a slew of data including retail sales and jobless claims. we see more labor market weakness? tom: can i parse something? you are going over to england, the gulfstream is waiting. can you parse for us the hardship that governor bailey faces in the u.k.? jonathan: it is the hardship the british people face. tom: it is a lot worse. jonathan: there is a cost-of-living crisis. inflation has eased from a 40 year high. that is the good news. the bad news, they forecast a recession through much of next year. tom: i don't think any of this is comparable. jonathan: i don't think any of these decisions are et. 50 basis points from the ecb. i never thought we would be
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looking at the ecb hiking rates 2.5%. it is not where i thought we would be in this cycle. here we are staring it down. tom: do they do the dock? jonathan: likely, we will get the projection a little later though. it's trying to push back against rate cuts, and the projections of those. >> i would not see us considering rate cuts until the committee is confident inflation is moving down to 2% in a sustained way. that is the test and you are correct, there are not rate cuts in the sep for 2023. jonathan: do you believe him? joining us, at the head of fx strategy from bank of america. he is saying no cuts in 23, do you think we get rate cuts in 23? >> i do believe him but the market does not.
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he is telling us it is likely that inflation next year will remain well above the 2% target, the projection was 4.4% next year. this does not justify the fed cutting rates next year even if there is a recession. the market consensus seems to be that as long as inflation is moving in the right direction, any signs of this in the labor market would be enough for the fed to blink. the market does not believe him. the truth is when we look -- and the labor market is sticky and surprisingly resilient.
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all -- there's no reason for the fed to change its stance and remain hawkish. tom: synthesize the negative america call, the research of your team in the last 12 hours and bring it over to the dollar. we've got to get to february 1 and march 22 year. what is the action plan of bank of america? athanasios: we believe that the market is ahead of itself. we are more than halfway there. we were at one time, 1.06, where they are already. we believe next year, the market will realize that inflation is sticky. it is a falling much slower than the markets expect. the fed remains hawkish. we would also believe we are
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going to see an equity market correction because equities are not pricing in the session. we expect that early next year, the dollar will stay again and we will not see a new beat for the dollar but we may go against the dollar even back to this. and to have a more sustained move for the dollar bond, we need to seek all inflation low enough and unemployment high enough for the fed to have the odor control. -- under control. and we can argue we go back to the moving dollar. we are not there yet and it seems the market has already priced much of what is expected in 2023. lisa: because we are coming up against the bank of england decision, what sort decision about how they're going to factor in the housing market but
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not destroyed the economic bastion? athanasios: this has been a challenge for the bank of england. that is why they are hiking and apologizing. we are expecting a slow pace, but they will continue pushing against aggressive market pricing looking forward. they are dealing with a stagflation scenario. they cannot afford this given that inflation remains very high recently. they have to deal with stability and the house expect housing sector. -- housing sector. jonathan: thank you. i want to check on sterling, 1.23, we vowed -- have had almost 20% move since the back end of september from the intraday lows. more broadly we have had dollar weakness and some policy stability.
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i don't think it is a good time for the british economy by any stretch. tom: i go to what has been underappreciated in dovetail with jim and powell from yesterday, after 48 hours, germany which is always challenged saying they are not challenge right now. and the underplayed story this week, the united boeing order is a stunning statement on american technology and aviation. this is a different morning. you've got to stay with us to see this tension with bailey and john, onto the lagarde presser. jonathan: tech is having a very different experience. the text recession, airline boom. tom: profitability, too. jonathan: two different economies. tom: when do you lave? jonathan: maybe in 20 minutes. lisa: [laughter]
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jonathan: the ecb and the bank of england decision coming up. lisa: keeping you up-to-date with news from around the world with first word, i'm lisa mateo. fed chairman jerome powell wants to dispel the notion the central bank will back away from the flight to -- fight to bring down inflation. have more work to do in hiking interest rates. they raised by 50 basis points to the highest level since 2007 and made it clear the fed is not thinking about cutting them next year. the bank of england and european central bank are delivering rate decisions today. they are expected to follow with their own half percentage point hikes. our concerns and overly aggressive action to tame inflation might make recession worse. in china, economic activity weakened last month before the government dropped the covid zero policy. retail sales and home sales declined while industrial average is declined.
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the most valuable workers, disruptions are likely to grow as covid infections surge. executive at failed crypto exchange ftx used a mysterious account to hide debt from the trading firm alameda research, according to internal documents reviewed by bloomberg news. it bore the name of the engineering direction of ftx. and for the fourth time this year, elon musk has unloaded tesla stock. he sold almost $3.6 billion worth of shares this week. it has plunged 55% this year. investors are concerned that his purchase of twitter could have an impact on tesla. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg. ♪
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>> the full effect of colorado tightening so far are yet to be felt. today, the fomc raised our policy interest rate by half a percentage point. anticipate ongoing increases will be appropriate. the labor market is out of balance. jonathan: fed chair jay powell in a news conference yesterday after hiking interest rates by 50 basis points. live from new york city, the price action worse than yesterday, the s&p down by .9% on s&p 500 futures. yesterday we were down by .06% so the bond market, 3.4881.
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about 40 minutes away from a bank of england decision, going in the euro-dollar, 1.0 613. w t i, $77.60. business and consumers in china slumping further worst since lockdown in spring. one study predicting nearly one million people could die from covid-19. we had some events in this country that did not materialize, big estimates in many places did not materialize but there is concern about how the covid story plays out in china as they reopen and the virus rips. tom: the silence -- science or pseudoscience is very different. america said get the old people first and china did the opposite.
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there is a lot of exposure of people that could have a difficult time. jonathan: we have all struggled with that over the last 12 months or so. how we've got an autocratic country who has not been able to mend that the vaccine in the way you would think they would. it's lisa: now they have to do a public relations campaign to get people to think it is safe and effective for older people. how much do they care about how many people dying get sick at how much do they care about the economic activity that is creating an unfavorable situation heading into 2023? tom: we are going to one of our great china watchers, tom mackenzie in beijing, and to john's point, beijing, xi jinping and this shift in covid policy. you have lived come out the red doors inf the drama there. who is dictating this change in science in china?
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tom: ultimately it will be xi jinping, you are right to point out this is a radical shift. this is the president, the party secretary who tied his own reputation to the covid zero policy over the last three years that he described as being morally superior to the system, the response of the united states. but you don't get a u-turn like this in china without ultimately the signoff of xi jinping. the business community, it is also a reminder that the argument is you have a body politic in china led by xi jinping that is focused on ideology rather than pragmatic policymaking. the kind of policymaking we were accustomed to in the past. if you had not believed that shift, they sorted putting party cells into businesses five years ago, cracking down on technology five years ago, and now around covid zero, built on nationalism that blocked mrna vaccines, you
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need to push for that. tom: when you were in beijing, there is the medical college hospital, an example of first written -- first right care. as for fancy people like you. you get to the rest of china, do they have the infrastructure to do this science now that they are going toward a more western policy? tom: on any given day pre-pandemic come a a chinese hospital is a stressful place to be away from peking united, the seller hospital in the center of the capital. people have to pay for their own medicines, they have a level of insurance. but you turn up to a hospital, you have to get a ticket, it is a crowded, creative -- a crowded place. an open goal for the chinese authorities, three years to prepare for this, they did effectively keep the death rate
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well below what you saw in the u.s. and the u.k.. but they did not prepare the medical facilities for this eventual opening up. you have talked about the failures to vaccinate the elderly population because they were concerned about a backlash among the elderly. you have stayed media and policymakers pushing tcm to -- traditional chinese medicine sources and you have the decade of scandals around medicines, drugs and more in china. the elderly population were resistant and have to be persuaded. lisa: it makes us wonder, why this move to open up without the effort to vaccinate individuals? is this a health situation or is this being driven by the business outlook in china and it harkens to a commitment to get growth back up to a four or 5% level? tom: it is difficult to know what led up to the decision to pull such a significant u-turn.
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there were estimates, or there was an expectation that post-party hungers you would get some shift. very few people who i know watch china closely expected this. was a result of protests or economic deterioration? we have not heard senior officials within the committee, including xi jinping and others, who have given voice to this shift. it leads to uncertainty. we want to invest in the business in this environment if senior leadership had not come out and articulated this conviction that this policy u-turn is what is needed? until that happens, arguably the investment flows are not going to pick up and the data is remarkable when you see a 6% drop for example in retail sales. there are consequences for european-based companies who have exposure to china. unemployment as well. ha you have 20% unemployment
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with china's youth. that is huge. lisa: how long before business opportunities increase? given that as it spreads, people will prevent their own getting sick. tom: to that point, goldman sachs downgraded the growth forecast 2% for china gdp. but when i speak to people on the ground, 80% of my contacts on the ground say they have the virus. the last three years, you would be hard pushed to find anyone in china who knew anyone who caught the virus. that has radically changed. businesses are struggling, the city center of visioning is essentially empty. i spoke to a business leader an hour ago and he described it as chaotic, 80% of the staff is infected. your hearing of trading deaths in shanghai that can't be manned, the virus rapidly ripping through population.
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they will get through this, the economy will pick up at some point. but it is going to be a bumpy and painful ride. jonathan: tom mackenzie of bloomberg out of london on china. i hurt even trading volumes were rolling over. i spoke to david about that, of newburgh intelligence. so many people are getting covid, they're not staffing it. -- bloomberg intelligence, so many people are getting covid they are not staffing it. tom: it is crazy, i'm speaking as an amateur, this long covid thing and some of the ramifications, frankly that you have recently felt yourself. jonathan: we are still learning about it and we will continue going to another year of this in 2023. i promised the call from goldman, so allow me to share. the team at goldman sachs looking for triple digit crude the end of 2023. in his all about -- it is it all
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about capex. capex across the entire commodity complex disappointed and that is the key issue for jeff curry and his team. lisa: that is what jp morgan is saying. it is not under ratification put a doubling down, showing how much people are not investing it is based many people think will be obsolete in 10 or 20 years. that is going to fuel the price rise. how does that filter into inflation, how much gasoline prices in oil prices have fallen this year? jonathan: question of the day of bob michele's of the asset management, do you get around there? tom: bob michele, new territory. lisa: disinflation. jonathan: from new york city, this is bloomberg. ♪ ♪ to three that will focus on a future that does too. this is ge healthcare,
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jonathan: equities around the s&p down about 0.6%. the moves are bigger this morning believe it or not. equity futures on the s&p 500 down by almost one percentage point. the nasdaq down by 1.28%. the two-year totally unchanged on the session after everything we heard from chairman powell. when asked to lewdly nowhere. -- absolutely nowhere.
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tom: it goes back to the headlines we are seeing from this outside on the market view. i think it is ok to have a -- don't you think they are happy the eccles building this morning got through it? lisa: i don't think they're happy because the market is not buying what they're selling. they put out there average projection, the median forecast for fed funds next year. the peak fed funds rate being price into the market is 4.89%. that is in may and that is in may and then it comes down. then you see rate cuts. jonathan: to be clear, what we are pricing is below the bottom dot. tom: we are pricing below the bottom dotc. -- dot. lisa: the market is not buying what they are selling, there is a lack of credibility and exhaustion from everybody who wants to go home. jonathan: there was a conversation yesterday. tom: i can't remember.
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the accommodation is -.527 which is not where powell wants it. jonathan: top of the hour, 30 minutes away we will get a bank of england decision. in the next hour you will hear from the ecb, looking at euro-dollar and sterling. the euro has come back from about 95 .36 to 106, a big change from euro-dollar. sterling, the lows on the year on cable. one of 3.50 at the end of september 2 123.41. -- to 123.41. tom: my amateur take across newspapers including -- u.k. we came off the trussian era.
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like scaramucci but a little longer. tom: -- jonathan: they will be writing books about it. tom: but there is a good feeling amid the agony. jonathan: more red to be speaking, policy stability but a difficult time. the bank of england decision is about 30 minutes away, expected to slow their pace and tightening with inflation using from a 41 year high. any decision is likely to be anonymous -- unanimous. tom: do you see this gorgeosity? >> we have high inflation, demand is slowing and interest rates have been rising. household and corporate finances are under greater strain. overall, both households and businesses are more financially resilient than they were in previous periods of stress. jonathan: governor bailey in the last few days, he has a tough
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job ahead. tom: does he have a sense? jonathan: we are much more familiar, comfortable with the split vote at the bank of england. they seem more open to a sentiment on the fed -- then the fed, particularly the board of governors. tom: does the governor evers dissent? jonathan: i remember a time when governor king was on the wrong side repeatedly. he was outvoted by his committee. that is happened, sure. tom: but that is unheard of in our world. lisa: i wonder how often jay powell does not agree with other committee members which is perhaps why there is a bit of confusion and nuance as what the messages. tom: jennifer mcewan joins us now, what will be the character of dissent today? and bank of england with immense
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domestic challenges. jennifer: could see a really split vote from the bank of england today, potential for a three-way with a couple of fades, the no change potentially, even as 75. i think you will see a lot more dissent among the nbc members, more transparency with what they're thinking about is a good way to indicate that while there still hiking for now, everyone is expecting a 50 and there might be some change coming down the road. tom: do they synthesize what i read in the headlines, the first national nurses strike ever? we have strikes here in the zeitgeist but they are not. but in the zeitgeist in england is the strikes and the first strike of nurses ever, does not get visibility with the bank of england? it is best
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-- jennifer: it is certainly relevant. for the whole of december we are looking at just under 1% of employees that will be on strike. it is a real winter of discontent in the u.k. and that will have some bearing on activity. it is likely to push down a bit. but from the bank of england perspective the key is how much it is going to push up on wages, how many of these strikes are going to yield sharper pay increases, pushing core inflation up and meaning it will need to raise rates further or keep them higher for longer. lisa: a lot of people have look back on some of the bank of england calls over the past few months and said they have underwhelmed, there were eight -- they were surprised with a less hawkish move that many people were expecting. how could they do that today and how consequential could that be given some of the pressures you are talking about? jennifer: we are set against the
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hawkish tone from the fed. it will be interesting to see how dovish the best in the bank of england is. the biggest surprise might come, if some don't vote for the increase at all. the key difference is the economy is much weaker. a big concern from the u.k.. it's interesting to see how the nbc is strikes that balance between high inflation, very weak economy. l -- lisa: we were talking this morning about this variable rate, a sudden downturn in the u.k. housing market. push back against going as hawkish lee as they would like. how do they try to guard against some sort of crash -- i don't want to say crash, but significant downturn? jennifer: it is difficult.
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they need to be focus on inflation and it will only be when the is he a deeper downturn in the housing market ended took a look about that is starting to impact on consumer confidence and spending that the bank will be able to shift toward considering the implications of its rate hikes for the broader economy. we do think it will shift, but probably not for a wild because services inflation is still very high and has got to be the key concern for the time being. tom: is sterling moving too far, too fast? is it too strong for the people of the u.k.? jennifer: i don't think the exchange rate of these levels is a major concern. i think what we are likely to see going into next year as the world economy flips into recession -- slips into recession is some softening of sterling.
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it is seen pretty much as a relatively risky currency. it is likely it will come under pressure as the global recession takes hold. it does not seem to be fully priced into the market. tom: what were you listening for in today's press conference? i'm guilty, completely u.s. centric and focus on powell, and i look at these press conferences in frankfurt and london as being really informative but i don't look at them. what matters today that he will say? jennifer: i think what matters is the balance between focus on services inflation, high services inflation and the weakness of the economy. and how much airtime he gives to those things.
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it's about what level we want to peek at, what level is very restrictive to the u.k.. i think a shift in that balance would be an interesting way to indicate that perhaps the peak is coming. jonathan: jennifer mckeown, thank you. how long do we stay there? tom: she just said there and you could bottle and bring to yesterday's analysis of the united states. the domestic stories are totally different. what you just said was what you would have heard from the southside in america. jonathan: one central bank has a leader right now that is refusing to acknowledge the risk of a recession. we see it a little earlier this morning, tom said this about chairman powell. you should not try to water down the recession risks. tom went on to say if you look
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at the range of the gbp and the s&p, you see some real pain that has a negative sign before next year. tom: i agree. help me with this. i know there are newspaper wars in england. but the stress and pain i see in england is tangible compared to what i see in america. it is, isn't it? jonathan: i think we see it in america as well. tom: i'm not talking about the cold weather. jonathan: no, the economic pain. a lot of people felt that pain even when we will -- when people were talking but the economic boom. lisa: how much does the energy storage change the whole picture? suddenly people are talking about a step down and the possibility of a less harsh recession.
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if energy prices in the u.s. start to rise again, i wonder how much that changes. gasoline prices going back to october 2021, yesterday they had the biggest single one-day drop going back to march of 2020. jonathan: the chief economic advisor at breen capital, he has told me he has a special guest coming as well so forward to that special guest around 7:30. i heard it might be memorizing -- someone in the building from the u.k.. the s&p is down 1%. this is bloomberg. ♪ lisa: keeping you up-to-date
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with news from around the world with the first word, i'm lisa mateo. after four consecutive 75 basis point hikes, to tackle inflation, fed officials opted for a 50 basis point increase but say they are not done yet. monetary policy will remain type until the job -- tight until the job is done. they are trying to stick inflation to 2% entered is currently three times that. nurses have begun a round of historic strikes in the u.k.. as many as 1000 expected to take part in the strike across england, wales and northern ireland. another strike takes place next week. in ukraine, president zelenskyy says the country has made important progress on getting more powerful air defense systems. u.s. officials have set aside decisions to provide missiles, awaiting a final decision by president biden.
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they say they would be targeted by russian forces. in peru, the government declared a state of emergency and suspended basic rights for 30 days. the new president is trying to establish her authority and restore order. at least seven people have died involving clashes, demonstrators demanding the release of the former president after he was arrested trying to dissolve congress. company that assembles most iphones for apple, easing the majority of its anti-covid restrictions at the factory in china. that is a step forward for the plan that had become a flashpoint in an effort to contain inflated -- contain infections. later, violent protests broke out. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg. ♪
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>> all the inflation data that we are getting is showing that inflation is decelerating rapidly, and some parts of the economy are falling into deflation. they are complete we discounting based upon wage growth. jonathan: scott from guggenheim. he used to wear a baseball cap. people start wearing this again. lisa: back to the office. tom: i thought he was brilliant yesterday. ace of bank of america years ago, -- the trend here is tangible. lisa: people have been gloomy talking about the nuances. just let's party, let's buy
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stocks, that is what's happening. tom: you are 100% correct that we are drowning in a perceived optimism from a select group of people. jonathan: chief gloomster. tom: we have evidence from the bramo camp. jonathan: a lot of evidence. tom: are we ready to move forward? to the bank of england meeting here in 12 minutes, 13 minutes, no bloomberg opinion, we beat this to death so i'm going to shift to frankfurt right now. how are bank of england and ecb linked today? >> both of them have this from the fed to go back down to 50. the question is how quickly on 25, what they expect from this.
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the long-term outlook, the short-term economic outlook. all we really care about be on the timing is when they start qt which will be at the start of the second quarter. tom: i'm going to go to the actual gdp plus inflation. they fed, the u.s. is very different from the u.k. and way different from europe as well. can they prosecute their monetary policy based on the animal spirit, they good feeling of a nominal gdp? i don't buy it. >> at the end of the day, what goes on in europe in the u.k., in general, the fed goes to 25. we are dominated by the dollar and whatever the fed decides to do with interest rates. it is the labor market.
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tom: is jay powell central banker to the world? jonathan: that is usually your phrase. things are better for this ecb and we have had a break of parity in the other direction. better than where we were for the bank of england that we were down at one of 3.50, 120. there's a difference between this fed and the bank of england. this fed does not want to go there. how far can they take the terminal rate at the bank of england? >> i'm thinking 3.75. it micro four in a push. the most cautious of all of the central banks, for good reason. i don't think the u.k.'s in much of a recession. but europe is on the edge as well. the economic data for the last few months in europe and the u.k. has been pretty good. but still slowing down and inflation is not yet beat. it is still hovering around the
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top. four, 5, 6 months worth coming off the top of inflation. everything is muddling along and people want to buy bonds, they want to buy stocks, they want to get over this 2023 and a little more optimism to 23. we'll find out how that lasts next year. lisa: how much is this tied to the energy policy in europe and natural gas prices? marcus: less than it was but the whole thing can change so quickly. we see a sharp move, particularly upwards. it will derail the route which is a very slow path to slow things down which is -- how much time they have done affects them before the tightening. that is the real quantity for
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2023, how much does monetary tightening push us into a recession? lisa: that is the big question a lot of us are looking for, what is the guidance around the balance sheet unwind? will it be watching paint dry? marcus: i guess that's what they're going to try and do. normally they don't want to get drawn into things a method have to -- unless they have to. i think you will start at the beginning of the second quarter. 20 billion rising steadily up to maybe 60 million which is where the rate will be, exactly as they were. tom: as you go back to london as we go to this meeting in eight minutes, does governor bailey have the support of the prime minister and the tory party? i understand the politics of america.
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but i don't understand the dialogue here. does the head of the bank of england come out recently a public institution, in the last decade or so, two decades, does he have support of the government? marcus: in the sense that rishi sunak has learned as has jeremy hunt, that the bank of england, the office for budget responsibility, it is all what the government is behind and they can't daresay anything different. tom: he is legitimate independence today. was it a pension scandal? jonathan: i think a crisis. tom: we had a crisis where this guy stepped in hugely bold. are they behind this guy? marcus: no. but he has made 6 billion
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pounds. it will be 130 3 billion -6 billion, a nice turn on the gilt market. it was very professional, very much-needed and a fantastic job done by the bank of england. they are cashing out now and a competent, practical person when it comes to the support staff, the views on things. jonathan: of bloomberg opinion, brutal at the end. let's sit on this for a moment. i think you can respect the office, respect individual, but we overuse this word rave when it comes to policymakers. there is nothing brave about hiking interest rates when recession is at double digits. we need to stop. tom: given the 30 guilt that he
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acted with, -- jonathan: we need to quit the kind of stuff. tom: the whole thing between london and frankfurt is truly foreign to americans. we are so focused on the fed. lisa: i'm going to put myself out here but i think there is an hour of bravery of making a bold move at a time when nobody understands inflation, how deep the recession will be, that people are going to lose their jobs and the consequences could be worse if we don't get prices back under control. it is a herring moment -- harrowing moment that history is going to judge automatically. tom: you said it. bravery means you accept the consequences of the decision you're about to make. that is brave. jonathan: the need to make a
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call -- what is brave about that? lisa: they don't want that. they are going to be claims, -- claimed, -- tom: we were talking to the press conference yesterday, we were watching the game, full disclosure. when he went through what i thought was a set of fairly unimaginative questions. what about the risk-management questions of asymmetry? jonathan: a group of individuals worried about their place in history, a group worried about paying the bills. these things are not the same. lisa: i would agree, but when you are aware that that is what is at stake and you theoretically believe that the consequence would be worse on the other side, that is a
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difficult decision to make. jonathan: i just don't think it is brave if someone else's is bearing the consequent says. tom: is there tension at the desk because i am at that one or 2% percentile? jonathan: live from new york, this is bloomberg.
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>> i would not see is considering rate cuts until the committee is confident that inflation is moving down to 2%. >> they have to slow the economy, they have to generate enough slack in the labor market so wage trends coming down will be consistent with 2% inflation. >> it doesn't want the economy
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to pick up momentum again and prolong the inflation problem. >> we will see the weaker economy for sure and then the fed will say they are resolute. >> we will see this war between the data and the fed throughout much of next year. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: live from new york city this morning, good morning, good morning. our audience worldwide on tv and radio, the first in a series of rate hikes this morning, the first for the bank of england and the ecb expected to go in an hour and 15 minutes. alongside tom keene and lisa abramowicz, i'm jonathan ferro. we go to 3.5 at the boe. lisa: the qe will be an indication of what this means for the economy. a question also about the division, there is division and dissent and that is notable. jonathan: voting to go even harder, a little bit further
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because she believes there is greater evidence that price pressures might stay stronger for longer. tom: this is profound for american viewers and listeners this morning. not only is there dissent but it is a caller dissent. -- collared dissent. you have men looking to be done and others on the panel seeing increasing signs of labor market. what we are seeing in the united states is truly unimaginable. jonathan: crazy to see it play out the way it does. tom: is this normal? jonathan: i think differently about what is playing out before us. division. cable a little softer, weaker. weird back down to about 23.10. lisa: we are feeling division between the fed as well, arguments that leave a muddled kind of reaction. how much forecasting can they give given the uncertainties and is the pound responding to the
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dissent on the other side saying that will sway the entire committee anymore rubbish path? jonathan: lizzie of the bank of england paving the way, give us your takeaway. lizzie: this is what -- lizzy: this is what we expect, a three-way spit, -- they wanted softer. there had once been a four-way split so a bit less than that. you might call it chaos, others will say it is a good thing there is not groupthink on fred needle straight. in terms of the market curve, i the last meeting they were loved against pushing back against market expectations on future path for rates. have dropped that guidance, very interesting. i wonder if that will be interpreted as an endorsement of the curve. in terms of the fiscal statement, this is the first
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vanke of england decision since jeremy hunt's autumn statement. they have said that fiscal measures cut gdp by half a percent in three years time. i will be interesting -- it will be interesting to see what is in the exchange of letters between the governor and the new chancellor. they were focused on growth. tom: i look at where we are and it is shockingly eclectic versus the central bank. how unusual is this dissent this morning where some say a higher interest rate and others say no, a lower interest rate? lizzy: look at the economic data coming out of the u.k.. it is as divided as the committee. just this week we have had gdp, jobs, inflation. you got wage growth rising, too.
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of course you are going to have hawks on the committee who say that you need to get in control of inflation expectations with a big hike now. you will have doves on the committee now who say we are hiking into a recession. jonathan: -- tom: to paint the picture, he studied at the university of madison and out of the argentine stock here, just know who she is rooting for in the world cup. barrow, alice enough, and at harvard, catherine man owns analysis of international trade. she literally owns the high ground. it qualified group. jonathan: fantastically qualified. if inflation is a problem and growth starts to become a problem you are going to pick your poison. katherine bantis suggesting ultimately that she thinks inflation forces, yes from a one-year high, but they're going to be standing around for longer
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and you got a -- other individuals on the committee worried about the growth and forecasting. tom: i have known her for years and let me just say she owns the trade and dysfunction of the united states with china. out of m.i.t. she is someone not as talked, but someone that has a rigor toward classical taylor analysis which is where you get the higher rate. jonathan: it is easy to identify the differences, can we talk about the differences? the doves at the fed and the boe are talking about cumulative parks gush hikes. if you go from 75 to 50, this finds it tough to go 50 again, if that is the split on the committee right now. two individuals don't want any rate hike whatsoever. lisa: the decision between the hawks in the doves in the u.s.
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and the u.k. have the -- how much does it drive inflation that offsets it based on goods? people think transitory was pushed out and they believe this was different and stickier. jonathan: one hour. 50 minutes ago. a bit of a promo for a little bit later. we are on the bank of england for now, right now, the deputy cio for fixed income at berman. just your perspective on what we have learned the last one hours. >> the message is the time of interest rates without having to impact on the economy and the real growth, a lot of 2022, that is over. we are transitioning to the environment where central banks
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are divided over how do you wrestle with inflation rates, which are high and unlikely to come down and the future trade-offs to growth? this dissension and collared dissent -- some want to conduct policy on a forward-looking basis and we have still got to be dependent upon inflation. this is going to be in all of the central banks for next year. lisa: how do you invest around that, take that messaging and use it to create some sort of thesis based on the fact that a lot of other people are discounting it wholesale and saying the data it will be what it will be and we don't buy what they're selling? ashok: the biggest is that fixed income is going to go down. about a 300 basis point, just under 300 basis point range.
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we are probably heading back to something next year where we are going into this environment of slower hikes, fewer hikes, consensus is broadly correct on that. but what that means is expect tenure interest rates of the u.s. to move may be at hundred, 150 basis points. it is going to be a dramatic reduction the next year. that means the income, high-quality income, it is going to be more volatile on a day-to-day basis but ultimately you invest on the idea that was less volatility you can earn income, high-quality income on a lot of fixed income markets. and you have some positions on some of the more dovish central bank views that inflation could fall in the growth impact. that that could play out and lead to some higher fixed income next year. tom: as we approach neutrality or restriction, is it easier to have confidence in a portfolio
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of fixed income? is it easier to prosecute a portfolio and hold a portfolio? ashok: yeah, and i think the biggest driver of this, and powell has been quite articulate. three big drivers of inflation. goods inflation, housing inflation and services x housing. you go back three months, all three of those were rising and who knew where they were going to stop? now we are looking at goods prices in mid to high single-digit deflation. we are seeing higher conviction that over the next six months, housing prices are going to come off. but it still leaves the issue of the third, the services x housing and inflation. but we have transitioned out of this environment where two out of the three cpi categories, we know what the trajectory will be there. that is the thing that gives you more confidence that some of the left tale of significantly higher rate possibilities are
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being reduced very quickly. jonathan: we always appreciate it. ashok bhatia of neuberger berman . we are waiting for the ecb to do the rate -- do the same come up go 50. looking for some key principles about how they unwind the balance sheet from president lagarde in the news conference. tom: we got this for years ago. is it a snooze fest? jonathan: it should not be. we get some knowledge of the increase recession risk. number how we called on the iron bank governor? he acknowledges. tom: we are an hour and 11 minutes into this and we have not mentioned crypto. jonathan: kind of refreshing. tom: bloomberg has the definitive story of the morning out on binance.
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jonathan: you have been talking about that all week. tom: they have a blistering article on inside baseball derivatives and binance which says it could be an eventful weekend. bitcoin trades all weekend. jonathan: don't you need two days off? four clock p.m.. shut it down. tom: bloomberg has the definitive story. jonathan: can we sit on one thing? we got when he seconds. -- we have got 20 seconds. congratulations. tom: bluer than blue. jonathan: i'm not going to give too much insight into this. there is one particular resilient who pulled rank and did not allow me to put argentina as the winner of this world cup even though i wanted to put argentina. tom: ♪ bluer than blue ♪
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lisa: we will follow that and bring it out. jonathan: the ecb decision about one hour away. lisa: keeping you up-to-date with news from around the world with the first word, i'm lisa mateo. jerome powell wants to dispel the notion the central bank will back away from the flight -- fight to bring down inflation. he says the fed has more work to do on raising interest rates. they hiked rates by 50 basis points to the highest level since 2007. he made it clear the fed is not thinking about cutting them next year. in china, economic activity weakened last month before the government abruptly dropped its covid zero policy. retail sales at home sales declined while in industrial outlook and investments slow sharply. unemployment rose notably for the most valuable workers. disruptions are likely to grow as covid infections surge. executives at ftx used a mysterious account to help hide
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ballooning debts of sister trading firm, alameda research. that is according to internal documents viewed by uber canoes. it bore the name of the ftx engineering director. goldman sachs says next year will once again be the best-performing asset class. there could be concerns of more than 40%. goldman-s he is the first quarter being bumpy puts it is a shortage of raw materials from oil to natural gas and metals will boost prices after that. for the fourth time this year, elon musk has unloaded tesla stock. the carmakers ceo sold almost $3.6 billion of shares this week. the stock has plunged 55 percent this year. investors are concerned the purchase of twitter could have an impact on tesla. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. andglobal news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countr i'm lisa mateo, this is bloomberg..
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>> the appropriate thing to do now is move to a slower pace. it will depend on a variety of actions including income. the state of the economy. i would not see is considering rate cuts until the committee is confident that inflation is moving down from 2% and a sustained way. jonathan: lisa will tell you, absolutely not. chairman powell in the news conference. into the ecb, we look like this on the s&p. we are down by about 40 points on the s&p. yields changed on the 10 year, the euro-dollar, negative point
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six. a stronger dollar against the euro. off the bus -- back of a 50 basis point hike, negative .9%. -- negative .09%. tom: william dudley advances conversation with us yesterday brilliantly. 2%, but as he pounds the table on, we spend a lot of time under 2%. so is not to come down from where we were in the great disinflation, the great moderation is an important point. jonathan: we are getting some complaints in congress. senator warren speaking with the huff post saying the following. he is pushing hard to get more people fired because he thinks that is one way to help bring down inflation. she goes on to say it sure painful for families who lose their jobs. tom: this is always there, and is never going well and--away and it is part of the dialogue.
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if he was to be renominated, would you vote for him? jonathan: which you have a problem this time around? tom: it has always been there. jonathan: they believe and they are trying to communicate that if they don't do this, it is worse. that it is more complex and more painful if you allow inflation to carry on ripping the way you have in the past 12 months. that was the argument that chairman powell delivered in jackson hole. do not resonate with the country. lisa: and the economic research is more salient when people still have their jobs. we keep talking about the political pressure, the internal pressure of how difficult it is to make policies that cause people to lose their jobs. where you see it happen becomes more difficult which is why so many people are pushing back and not buying what the fed is sailing -- selling. jonathan: it comes with risk
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management. we talked about that recently. is the risk still too little, too much? document to balance relative to the last meeting. tom: to me that is the major thrust here. the linear vector, the trend we have had from altar accommodative out to where we are now is this meeting changed where we are, we are here. and the nuance after february 1 is this level of restrictive. ben hammond ultra restrictive come out michael mckee brought it up and there was the dreaded are -- r word. jonathan: restrictive. are we getting closer to the where chairman powell thinks we are? tom: there's no question. right now, annmarie hordern, bloomberg washington correspondent is steeled for a football game on sunday morning. she joins us now on the ballet and the sunday talk shows as
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well. we are headed for the holiday season. i guess we are doing budgets, fed meeting, ecb. but what is the theme? what is the theme in washington into the weekend? i think we lost track of disparate stories versus what really matters to get to the sunday talk shows. emirate: -- annmarie: washington will sign off and have a spending agreement. while there does appear to be a figure and a framework that democrats and republicans agree on, there's going to be a -- behind-the-scenes fight. it will save they have until just before christmas to hammer out the agreement. in what you have on the republican side is they want to go along with this. they are getting more defense spending than they would normally within democratic-controlled government. at the same time they're going to hammer out some of these
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details that they say does not get the domestic spending side, what the democrats want. the more interesting story is in the house. you have the potential new speaker, kevin mccarthy next year. if republicans want to vote against this, they think all you have for the midterm elections is a mandate that the republicans control the house and they should use this as a bargaining chip. but you have to remember at the same time, mccarthy is trying to acquiesce calls from the hard right lighters and his party because he needs to vote for the speakership. you see them doing this a double dance. one hand fighting the spending on the democrat side and using that for leverage to make sure he gets the gavel. tom: is he the next john boehner? i don't think you are around for that -- but the bottom line. jonathan: i'm sure she was around. tom: i don't know that i was around.
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is he going to do a full john boehner? annmarie: it is getting difficult. you have this divided party in terms of the republicans. some of those which are very moderate and all of those that are what the democrats would call mega maga. very much so trump supporters. individuals like representative marjorie taylor greene. he represents all of these individuals. i don't think he would be shedding a tear for speaker pelosi, which we did see this week from former speaker john boehner. she came back, getting an award and this resulted moment in congress. lisa: i want to shift gears, there was a meeting. they met with a number crude industry leaders talking with the national security council which includes executives from exxon and--. how much are they shifting their tone, we recognize fossil fuels
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are going to be around for a long time and we are supporting you wholesale. is this about-face for the administration? annmarie: it has been since the invasion of ukraine. and inflation. they have been begging to make sure they are investing and they can get us through the crisis in the next five to 10 years. it is interesting this happened on the same week. department of energy had a huge rake through when it comes to fusion and they are excited about that. a big scientific breakthrough but this goes to the point that is going to take 20, 30, 50 years. they are reliant on the fossil fuel world. we've been watching energy prices drop and a big question mark is the department of energy come when the administration will find a price that they find viable to refill the spr. obviously the producers in america will be a big part of that. jonathan: we've got to squeeze
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the same, tiktok, is it going to be bad in this country? it's also people in the senate, congressmen, congresswomen, officials in d.c.. how far does this go? annmarie: it will be potentially banned. it has to go to the house. if you have a u.s. government issued phoned -- phone you cannot access tiktok. this is going to the white house. the president tsai for an interview that got five or 6000 views on tiktok -- he was trying to make sure the interview landed on tiktok because one in 10 young americans get their news from tiktok. according to a recent survey. tom: should we do tiktok? annmarie: i don't think tom gets his news from tiktok. the fbi has warned about this, saying if the chinese government wanted to, they could really
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start to track and influence also what videos individuals are being seen and that is concerning for an administration, for a government especially when you have that amount of young adults getting their news from it. this is just a moment for elon musk of twitter, or zuckerberg on instagram. because they could potentially be the one to profit. tom: you are living this, bramo. lisa: does it bother you, i say to the kids, that china could influence what you see? there's a belief, we have discretion, we can weed out that correct versus not correct. jonathan: going to better schools and teach about the dangers -- that is what is going to happen. rip up the curriculum and start again, the dangers of communism. lisa: [laughter]
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jonathan: two hours away from the opening in new york city. -.9%. on the nasdaq down 1.2%. we have had a rate hike of 50 basis points. i want to talk about the bond market briefly. yesterday your two year totally unchanged. today almost totally unchanged.
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lisa, right now 4.2153. lisa: are people understanding what this federal reserve is saying or are they saying you have it wrong? jonathan: there is a real debate about that. the federal reserve is saying no rate cuts in this market is saying we think rate cuts. in the fx market, dollars strength. euro-dollar -.6%. cable-sterling 1.2325. down .8%. a weaker pound in the face of another rate hike. lisa: let's see what happens with the ecb in 29 minutes. i am looking at tesla. elon musk selling another $3.5 billion of tesla shares, bringing $40 billion of share sales by elon musk since late last year. what i found interesting is the
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shift in tone from some of the biggest bulls. dan ives who was one of the biggest bulls wrote that while we remain bullish on the long-term thesis and believe the stock is oversold, elon musk continues to throw gasoline and the burning fire around the tesla story by selling more stock in creating tesla brand deterioration through his actions on twitter. the board needs to act. grading questions around what was the leader in the electric vehicle world and now is losing favor. jonathan: two points he is making. the brand destruction is the interesting point. dan thinks what is taking place on twitter hurts the brand at tesla. lisa: and there are surveys indicating that is the case. there are long-term tesla bulls who suddenly do not like elon musk to the same degree anymore. the share sales are the lesser of the points, the reputational
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risks more at the front. jonathan: that is down 50% since september? lisa: 55% year to date. tom: i just did a lot of regression with tesla back to the beginning when no one believed in this except matt winkler in the bottom line is we just rolled over through the central tendency. in elon musk's defense it has been so far extended we have just rolled over through that trend. jonathan: futures down about 1%. behind us is a friend of england decision come in front of us is an ecb call. back-to-back 75 basis point hikes about to become a move from the ecb. bill dudley weighing in. >> this looks like the bank of england has the biggest inflation problem but the ecb has the hardest job because we know there is a huge energy risk for the european economy
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depending on how cold winter is and what vladimir putin does about energy supply. jonathan: risks for europeans going into 2023. is this crisis a multi-winter crisis? tom: six months ago people were going to next winter, the winter of 2023 to 2024. jonathan: we talked about it a few times, will he managed to get stories to level they wanted to be -- we managed to get storage to the level they wanted to be. winter started to kick in. we got storage up with nord stream. try repeating that next year. tom: this is about being at war. we have the advantage after the bank of england decision to have someone -- i generally think of adam posen -- john ryding with service to the bank of england
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and also to the federal reserve system and he joins us with decades of experience. what we listen for from governor bailey as he has colored to send , something totally unfamiliar it -- just sent -- desent, something unfamiliar to americans. >> two members of the committee did not want any change in rates which speaks to the dovishness. one person wanted larger than 50 basis points. then you have six go along. what were the two who were not expecting -- not wanting a rate hike when the inflation rate is running almost 10%? what is interesting, compare that to the fed. i hope governor bailey sounds like jay powell did yesterday. for once he put in a terrific performance and he kept pounding away at the markets with the
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terminal rate, 5.1%. it will stay there for a while. do not look for cuts unless there is clear evidence inflation is heading back to 2%. we will still not president terminal funds rate above 5%. it comes down to inflation. i think markets are looking for central banks to react as they react when economies have gone into recession over the last two decades. when inflation was not a problem , inflation is a much bigger problem in europe. he made message to the u.k. is a small, open economy. the exchange rate has a big impact on inflation. much more show -- much more so than in the u.s. and the bank also have to navigate the troubles in the gilt market back
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in september forced the bank of england to begin easing again. the day after they confirmed they were going to start quantitative tightening the following week and they had to abandon those plans. jonathan: let's start with the nature of the dissent on the boe. they believe in longer variable lags and they think people allegedly we have done enough already that will hit the -- what would you say back to that? john: let's use the language the fed has adopted. policy needs to be not just restrictive but sufficiently restrictive to get inflation down and ask is a 3.5% interest rate when inflation is at around 9.5% restrictive at all? real interest rates, interest rates adjusted for inflation aren't -6% on the policy rate -- are at -6% on the policy rate
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and i do not know any negative theory that would say in -6% interest rate is a restrictive policy setting. the message the fed has shifted to -- they were late, but they continued easing through the inflation problem last year. now they were getting that message out. it is not a question of how fast we raise rates. that is a less important question. it is how high and how long are we going to keep it there? i think europe and the bank of england are struggling with the how high. i think the fed largely has the message right. the next part of the message is how long. that is where the markets do not believe. they believe recession will lead to lower inflation and that will do the fed and the bank of england and the ecb's job. with the supply shocks on energy prices and horrible developments
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in ukraine, these policy rates, to imagine a 3% policy rate would be have to bring inflation down, i just do not get it. tom: -- lisa: there is also disbelief that we can go from $18 trillion of negative feeling get in the world to $1 trillion in a couple of months and nothing will break, and suddenly we would have this complete regime change everyone would say would be catastrophic and it would all be ok it would not be enough and suddenly rates had to go much higher. people do not believe things could change this quickly without consequences we have not seen. how do you push back against that? john: something did break back in september, which was the gilt market. and then you are an uncontrolled rise in gilt yields because of the leveraged decisions u.k. pension funds had taken in terms of buying u.k. government bonds on borrowed money so they could also invest in equities to try
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and catch up with their underfunding. what happened was -- why did they do that? central banks and kept interest rates too low for too long and had been buying the assets, so banks -- pension funds got overleveraged and something can break and other things may break. the break in the crypto market is largely unrelated to these policy issues. things will break. if you abandon targeting inflation, which of course in a sense the new york fed has touched on that -- might break the financial system. tom: i have heard this story before. the only reason you got into cambridge is your mother beat math into you. she said at the kitchen table
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and said do your math. can the time continuum you mentioned be a substitute for level? can the fed substitute a certain level of interest rates for getting up to a bullard like access terminal rate? john: i think they can, but the difference between the fed is they have policy rates close to if not in restrictive territory and it is an ongoing process to get rates higher than let those rates sit. that is where the conversation shifts. the problem is easy policy rates are not restrictive. time cannot substitute for that. look at the articles that the fed wrote on opportunistic disinflation in 1994 and 1995. if the fed revisits that, that will be the genesis of a framework for the idea that we
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can sit at a restrictive rate for a longer period of time to push down on inflation. that will work, provided the fed has credibility and providing policy is on the restrictive setting. jonathan: this was also. i also want to say how great it is to see mrs. ryding in the studio as well. tom: france or argentina? john: after the hand of god incident, i have to go with france. jonathan: we go back to the 1980's. tom: i have no idea what you're talking about. is that like the voice of god? jonathan: did not know what diego did? get on youtube and find out. ridiculous. my working with. someone messaged me yes -- who am i working with. someone messaged me that he
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called diego o'mara donna madonna. tom: i got home and got yelled at. jonathan: this is bloomberg. lisa m.: the white house is offering free covid tests to all u.s. households as part of the biden administration's contingency plans if there is a surge of coronavirus cases this winter. the administration is also urging state and local government to tell people to get updated vaccine. emmanuel macron wants the european union to match president biden's green subsidy package. eu leaders are in brussels. macron and his eu counterparts say the climate and tax law gives an unfair advantage to north american industries, including electric car producers. in the u.k. nurses have begun
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around of historic strikes. as many as 100,000 nurses are expected to take part in today's strike across england, wales, and northern england protesting a below inflation pay offer. another strike takes place next week. u.s. senate has voted unanimously to ban tiktok from all government issued phones and devices. the bill now goes to the house. the fbi has said china's government could use tiptop to control millions of users data or software. citigroup will wind down its consumer banking business in china. that move expected to affect about 1200 employees. the exit will include products like mortgages and investments. more than a year and a half ago citigroup announced plans to exit consumer franchises in 14 markets around the world. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪
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for more on this, we're joined by sid khosla. sid, what can we expect? look, you're right, it's been a volatile m&a market and also uncertain economic times. so and you know, you got to remember, we're coming off a very, very strong m&a market over the last few years. so we're seeing our clients be, you know, cautiously optimistic about the future. but at the same time, you know, being very thoughtful about the investment decisions they're taking. we are also seeing they're being very focused on core decisions around where a competitive advantage lies for them and then making structural decisions about their business at this time. you know, i believe in early 2023 is when some of these decisions would start unlocking. and we'd probably see a very dynamic m&a market back for them. ♪
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>> i see substantial inflation pressures in the pipeline. 5.25% is not going to be enough to diminish. with inflation running between 5% and 6% they would have to raise rates to above 6%, somewhere between 6% and 8%. jonathan: the former of the richmond fed thinks there is upside risk to the terminal rate of the federal reserve going into 2023 and we are still pricing rate cuts in this market. down .9% on the s&p, adding to the losses of yesterday when we were down about .6%. the bond market did not do much at all in the face of a real shift in the dot plot. your 10-year still at 3.4754. the two year unchanged, up only one basis points. tom: a lot of people who follow
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us on radio and television, their heads are spinning from all the different theories from people like john ryding or bill dudley or the richmond fed. i will go back to ed hyman yesterday, i seated about theories of the 1970's where we had this huge flood of money into the system and the money is coming out of the system and ed hyman says bank deposits are down and this goes back to m2 and m3 and the rest of us and all of these well-intentioned people have very different theoretical foundations of what to prosecute into 2023. jonathan: lisa and i were having this conversation before the show started a couple of hours ago. tom: you ignore me. jonathan: usually because you're talking nonsense. lisa and i were both saying they are done gradually -- trying to rationalize the data, they just need two weeks off into 2020
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three to try to work it out. lisa: people are just saying we will make money, we will go home, we will come back next year and see what happens. i feel like that is what is going on. that is what we hear from everyone. thank goodness this year is over. jonathan: everyone is on the same page with that. tom: we get the distraction sunday morning and we dive into it when we come back. right now we get the distraction of 10 page, 50 page outlooks. louise dudley joins us. thrilled you could be with us. not so much what is your outlook for 2023 or central bank speak for 2023, but what do you actually do with an international portfolio? louise: at the moment there is a lot of conflicting arguments coming through and everyone is short-term focused at the moment. there are lots of growth
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concerns looking into 2023. in general we see the 2020 three growth expectations are a bit high. there is room for them to come down. perhaps there is still a bit of movement across some of the growth areas, selling off the cyclical areas. they have re-rated a bit more. tom: you follow the idea, with your international perspective, that you are advantaged by a weak dollar? is that a tool in the international arsenal next year? louise: lots of diverging views on that with what will happen at the point the u.s. is seen as a safe haven, that points to resilience at the same time we also have the u.s. being the standout growth market for 2023 yet again. those conflicting areas are going to be hard to play.
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people do see emerging markets as looking relatively cheap to where they have been. we do expect some of those markets to grow a bit more than we have seen in 2022 but a lot does depend on china and what happens, and we have seen a recent surge in infections, whether they go back into a more strict environment will be a telltale sign of whether we see the volatility during 2023. lisa: i would love you to weigh in on the conversation we were just having as we were trying to understand some of the price reaction to the comments from central bankers and thinking a lot of people are just exhausted, they will do what they will do, they will not trade too much, they will go on vacation with their families and come back next year and reassess. is that the vibe you're getting from everyone? louise: i think there was a bit of that. also when there is some volatility, it is more of an active market to play in and
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take advantage of some of those overreactions or under reactions as we see day today, some of the macro data points which at the end of the day are lagged predominantly and therefore the forward-looking view is quite important. we can capitalize on that to build conviction going into next year. lisa: are you excited for the next couple of weeks as things calm down? what are you looking to execute in everybody else's exhaustion? louise: we are looking at health care as a sector to do relatively well next year, and those names where we have a longer-term conviction, particularly in the area of sustainability, those the maddox have sought off on some of the inflation headwinds in the supply chain constraints. as those start to dissipate we might see trends come back and we are building the longer-term
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themes into the portfolio, project lead when they have that kind of quality growth as well. tom: asking for a friend. does big international oil play into the mix? you overweight the totals of the world and maybe the chinese oil companies? i am asking for a friend. louise: chinese oil does not feature so much. we look for high-quality oil. we look for names that have good transition plans. we can see the cash flow generation coming through the responsible players within the space, than then there are some portfolios we avoid energy entirely, that comes down to investor preferences. tom: can you give me some stock symbols? i am kidding. lisa: to build on this question that goldman came out with a call of a 40% plus rally and energy next year, is that something you believe and more broadly as a base case that
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fuels a lot of investment theses? louise: i think that does sound quite bullish. i think may be goldman is known for being a bit bullish on energy. there are demand constraints coming through. it does depend a lot on what opec do, it depends on the u.s. and how they rebuild the reserves they have had. going into next year, we expect a similar price environment to what we have seen this year compensate companies will be making cash given they had taken cost out of their businesses during the low oil price environment so there companies that have that longer-term strategy delivering cheaper or more profitable oil are going to continue to do well. jonathan: louise dudley, thank you for joining us. the final comment responding to lisa on the oil market, i want to go back to that call from
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jeff currie and the team at goldman sachs, looking for triple digit crude here, something north of $100 a barrel. as we've discussed this morning, it comes down to. the team is saying that capex across the entire commodity complex disappointed. lisa: underinvested. that is the story many people put forward. they say it still stands going into next year. i wonder how much jennifer granholm was understanding that by meeting with some of the energy majors, some of the oil company executives yesterday to say we need you guys and fossil fuels are important? jonathan: the keyword in that quote is nay. -- is may. a doubling by may 2022 and then the story faded. i'm not sure those kids that -- i'm not sure those objectives have the confidence -- probably
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not much faith in the regulatory market in the west and the moment, either. tom: could other -- could any of our wonderful educated guests have predicted the antiscience of china? i would say not one could have. i jot wait for you to talk to jay pelosky, he will not talk to me and get up that early. the bottom line is pacific rim optimists like jay pelosky and others are waiting for it to happen. jonathan: they have ripped the band-aid off. we have gone from covid zero to 60 in seconds. tom: we have a bid on oil a little bit. you can line up the others. amrita sen is here. how fast we get from 80 brent 100? jonathan: right now crude 77.27. coming up, ecb decision. geoffrey yu of bny mellon is up
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next. ♪
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>> we have a 2% inflation goal and will use our tools to get inflation back to 2%. >> they will march forward to 5.25% range and may be higher. >> i see substantial inflation pressures in the pipeline and 5.25% is not going to be enough. >> the economy is going to show more persistence that will force the fed's hand. >> you're correct they're not rate cuts in the sep for 2023. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, on radio, on television. it is not just a central bank thursday. a busy day. creeping up, a on the american economy. retail sales 8:30. jonathan: completely missed that. have not even talked about it. tom: is a state of the economy
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ended filters into this raging debate of service sector inflation. jonathan: jobless claims coming up as well. the fed went 50 basis points, the ecb expected to go 50 basis points. tom: they are not the same. there are three different stories and i thought john ryding was brilliant about the duration you are up at these levels and that is the new conversation into february. jonathan: it is also about the inflation story. we will get a final rate of november inflation in the euro zone tomorrow morning. double digit. it is a problem for the ecb. tom: i do not even know the numbers. lisa, double digit in europe is 10 or may be 11% and are equivalent number is seven? lisa: 7.3%?
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7.1%. the retail sales may show how much resilience there is when you pull out gas prices and you understand that lower gasoline prices leaps people with more discretionary spending. jonathan: the decision in 13 minutes. a lot of other news today. we have been hugely crypto removed, which is sort of a relief. take a break today. there is a definitive story on bloomberg out this morning. i would get that out again on twitter. let's go back to ecb. do you think christine lagarde will mention crypto? jonathan: i don't think so. i think that plate is more than full and it is not tasty. it is difficult for the ecb. tom: the weather is different. i am seeing all sorts of twitter feed about snowy england. i sent you the guy in germany going into the water to go
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swimming. the winter that maybe was not there in november seems to be there with a vengeance. jonathan: the good news about energy as they have storage up to where they wanted it to be. the problem with winter is they may struggle to repeat the act. the europeans, do we get a real acknowledgment of the risk of inflation? yes, but also the risk of recession alongside it. that is something we did not get the last time we got projections from the ecb. lisa: underpinning that is uncertainty whether rate hikes will remedy inflation that is driven by other considerations. is the only way to deal with it to dampen demand to such a degree and put people in a hold to such a degree they cannot spend anything? jonathan: the pandemic supply shock issues to demand-side analysis. we have a great guest. my strangle statistic is the bloomberg financial conditions index which is not where jerome powell wants.
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jonathan: some stability in the bond market. stability in the bond market and treasuries. 10 year 3.4790. you often ask about the difference between chairman powell's challenges, president lagarde's challenges, i often reply that saying jay powell does not have italian bonds on his balance sheet the same way president lagarde does and that is a different challenge. jonathan: to take it forward before -- tom: to take it forward, it is not only a bed italian bonds, is about chairman powell not worried about montana bonds or mississippi bonds. jonathan: and the redenomination risk that has haunted the central bank. tom: jonathan will lead our coverage into those headlines at about 8:15. right now we get a brief from geoffrey yu, senior strategist at bny mellon. is it efficacious to have rates higher for longer versus all of
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the focus on getting up to a terminal rate? that seemed to be the shift yesterday. geoffrey: and it needs to be the shift everywhere as well. persistence is the word. if you want to avoid persistence you need persistently high real rates. we have been talking about real rates for two years and that is still where they are. for the ecb and the fed isn't about real rates and keeping them higher for longer than it is necessary or the market feels is necessary. you have to look at the circumstances. jonathan: higher for longer. we will deal with the longer piece of this in a moment. can we deal with the higher? can they go to three, can they go beyond that? geoffrey: i think they can go beyond that because the language has shifted. you can go back to be inflation targets or demand targets this year which would be a soft
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mandate which back in the days of cash they would strongly stress they did not have. mario draghi made it nuanced. the baseline projection for growth needs to come down further from .9%, it should be able to stay above zero, but the alternative to that scenario is that is being revised from -1.7% to -.9%. they may revise further to -.5%. the inflation numbers will converge. the vignette 6.5% inflation next year. -- looking at maybe 6.5% inflation next year. you have to deal with that. lisa: what is more important, the rates or the balance sheet? geoffrey: i think the balance sheet needs to move up in the agenda. the ecb has its own intricacies. tltro repayments.
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they are not exactly selling bonds. that can be done in a non-tightening way. next year we need to talk about proper qt. can italian debt take that. they'll be the challenge. lisa: is that going to be more disruptive to markets than people are accounting for? geoffrey: i think it is one of those things where we will find out when we find out and by then it may be too late. in terms of getting the budgets approved and everything, you usually have more trouble in central and eastern europe on that note. also unintended consequences and energy is an issue, especially with what i call inflation stinging the tail with china reopening. the job is not done yet and for now we are in a better place compared to where they thought they would be. jonathan: is zero stocks 50 a
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buy or a sell? geoffrey: i think markets are so under positioned, especially non-us equities, i look at our positioning data, not a single global sector has been net bought for the last three months and only developed asia has been net bought on a regional basis. on mean reversion alone, europe should be a buy. what if we start to hear earnings reports from german engineering firms that say orders are coming through from china? where you get the data from, where you get the engineers that make the turbines? that is a not so bad problem to have. jonathan: so what do you buy? geoffrey: energy we need to be careful, china is more on the base metal side. you look at iron ore, you look at australia, the exposure
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there. some of the copper exposed names. in terms of industrial sides, japan, europe, these areas -- developed asia. japan, singapore. that is coming through. the data will continue to be weak. the weaker the chinese data the stronger the stimulus on the fiscal side we could have in march and april. lisa: how much does that thesis get upended if natural gas prices surge? geoffrey: that would be contingent on the war and whether things are manage there. you have a situation where topline sales does not improve because of the orders coming through by your margins do not improve. that talk of the margin bubble is not going to go away where we get the rating we want from china growing 5% or 5.5%. that is where the challenge will be. tom: not your remit but i will
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go there, the elasticity call for 2023 is china returns, oil to the moon. it seems too simple. can you by triple digit brent crude simply based on the china recovery? geoffrey: no. i do not think china recovery and oil, i do not think that transmission is direct. it is metals where you will see the dial move up. china is still contingent on coal as a primary energy supply and oil will be buffeted by the developed world and how they will manage so it is a secondary impact. there other commodities for us to look at. jonathan: thinking hp, those kind of companies. tom: that is informative. jonathan: geoffrey yu bny mellon. tom: you think he does chicago copper or london copper? jonathan: i was looking at jeff
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currie's call for copper this morning. i think it had a 10 handle. it was something punchy from jeff currie. lisa: the reason why is if you get some sort of stimulus when it comes to china, what does that mean in terms of a restart of building and the demand from all these materials that has not been there for quite a bit? jonathan: this from neil dutta. after yesterday's fed date the bny global stress fell. the global financial stress index felt. the dollar weakened, corporate credit barely bunched for a fed that plans to keep financial conditions tight this is not welcome. tom: 100% agree. i am looking at the screen and they do not by the jay powell story. jonathan: you want the copper call? tom: chicago or lme? jonathan: 10,000 plus.
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jeff currie and goldman. tom: we should do a remote from dorchester. jonathan: jeremy stretch of cibc joining us shortly. in a few minutes time, the ecb decides. lisa m.: keeping up-to-date with news from around the world with the first word, i am lisa mateo. the bank of england has raised interest rates to a 14 year high in an attempt to call him skyhigh inflation. -- to tame skyhigh inflation. we will hear from the european central bank in a few minutes. in china economic activity weakened last month before the government abruptly dropped its covid zero policy. retail sales and home sales declined while industrial output investment slowed sharply. unemployment rose for the country's most valuable workers. disruptions are likely to grow as covid infections surge. in the cave nurses have begun
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around of historic strikes. as many as 100,000 nurses are expected to take part in today's strike across england, wales, and northern ireland. another strike takes place next week. executives at failed crypto exchange ftx used a mysterious account to help hide -- according to internal accounts reviewed by bloomberg news. the account bore the name of ftx engineering director. elon musk has sold another $3.5 billion of tesla stock. he persisted in selling after repeated assurances he was done getting rid of stock shows the pressure is rising on the finances of twitter. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg.
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>> he called it conceivably a structural problem in the labor market. that suggests further wage pressure or continuing wage pressure. it may be that 5.25% is not enough. jonathan: that was dennis lockhart, two former fed officials have said the same thing last 24 hours. i'm not sure what that is about. when you leave the fed you start to become more hawkish. tom: i am shocked. lisa: they tried to be hawkish at the market is not by that. jonathan: about 15 seconds away from the ecb rate decision. bear with us. we are looking for a move of about 50 basis points. euro-dollar -.5%. just to give you a flavor of the bond market as well. the bund market higher at the
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front end. there is the move. 50 basis points. the main refinancing goes from 2% to 2.50%. martial lending facility goes from 2.25 to 275. we are down about .5%. we will go through the headlines. to give you the top line, a 50 basis point move from the ecb and ultimately expecting to raise rates even further. lisa: expressing to reinvest pepp proceeds until the end of 2024 with continued flexibility as needed. trying to support the italian bond market and some of the other areas as they tried to move away from their policy. they're also going to take a meeting by meeting approach. they see inflation at 8.4% in 2022.
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there is an upgrade of a forecast from 8.1%, even with the drop in natural gas prices. jonathan: i want to bring you some news on the asset purchase program. we were looking at how they will unwind that. it will decline in a measured pace from march. they will going to say they will stop reinvestments of some bonds maturing under the asset purchase program and get more detail on this from the president of the president of the ecb in about 30 minutes. jonathan: is 8 -- tom: is a cutie kind of angle. the inflation drops are stunning. -- the inflation jumps are stunning. these are the headlines of a war economy. when i look at these inflation numbers, these are substantial jumps, not to double-digit inflation, but the high single digit recalibration. jonathan: look at that for guidance. the ecb rates need to rise
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significantly but at a steady pace. lisette mentioned the forecast for next year goes beyond 3.4%. the previous forecast was 2.3%. what use is 2025? it gives you some idea of how much work the ecb thinks they need to do to get inflation anywhere near 2% over a long time horizon. lisa: this is much more dire than what we heard from the fed yesterday. they see inflation coming down more quickly what the ecb is looking at. the idea of inflation and to get -- ending next year is 6.3%. this is not sufficient of what they want to see if they keep the 2% goal. it suggest they have a lot more work they believe rate hikes in the balance sheet roloff will be the way to do it. jonathan: more headlines coming through on the asset purchase. i want to cross over to the ecb to catch up with maria tadeo for her take on this.
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maria: to me, this is a classic example of how the european central bank works. when you look at the rate hike they went for 50 basis points. it was clear the animal spirits, it was the inclination for the 50 basis points, at one point debated to 75, they stuck with 50. the real take away his early qt. the signal more rate hikes will be needed. to me it does signal the hawks at the steering wheel. jonathan: will catch up with you a little bit later. open and the statement from the ecb and going through, there is a key paragraph on the asset purchase program. from the beginning of march 2023 onwards the asset purchase portfolio will do klein at a measured and predictable pace as the euro system will not reinvest all of the principal payments for maturing securities. they go on to say the decline will amount to 15 billion euros per month on average and a
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subsequent pace will be determined over time. we have a hint of qt, some detail on it, and you have a 50 basis hike from the european central bank and a signal they have more work to do going into a decelerating economy and sticky inflation. tom: there are no textbooks that describe this. this is original monetary policy. it is completely different structure. i think of qe1. is this qe negative one we are dealing with? the signal headline, this will be good to get into jeremy stretch is what they do which we do not do is they go out three years to 2025, and there is a miraculous conception of inflation plunging. there is no other way to put it. from an eight level down to a stunning 2.4%.
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that is optimism of a certain level. jeremy stretch, and all of your years of central bank watching, can they get out near three years and look for disinflationary trend or is that wishful thinking? jeremy: jeremy: it is interesting the ecb are still anticipating inflation will still be above their target threshold by the end of 25. i would not be surprised if the ecb thought it appropriate to attempt to try and find a narrative that allow the inflation profile to get back to target. because of the upward revisions we have seen in the profile this year and next year it will be very difficult to see, or a very tough ask for the ecb eight to be able to drive inflation down without a greater degree of economic dislocation than they are currently pricing in. perhaps they are too optimistic in terms of the growth
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trajectory and if we are going to see inflation falling back it will be a challenge that will have to be met by a more aggressive policy reaction than the market has been where we have been considering. jonathan: fields are climbing in response to that. the german two year is up. the 10 year is up eight or nine basis points to around 2%. forgive me for throwing some numbers at the wall but i want to go through the inflation projections from the ecb. we now see average inflation reaching 8.4% in 2022 before decreasing to 6.3% with inflation expected to decline over the course of the year. these are still really high prints. projected average 3.4% in 2024. you strip out food and energy, that is 3.9% in 2022 and then rise to 4.2% in 2023.
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can we talk about that clip higher they are looking for in core inflation through next year? your thoughts on that and how far they can push the terminal rate given what you expect to happen with gdp what they're looking for as well? jeremy: you've been talking a lot about fed projections over the course of the last 12 hours. there is a dichotomy in terms of the inflation profiles we are seeing from those central banks in the pace of the moderation in terms of the eurozone is very glacial. there are core inflationary pressures pronounced over the medium run and that will be a difficulty for the european central bank's. in the context you are having after the discussion last night as who has the greatest potential policy dilemma, i think the ecb falls into that remit because as you know there are fragmentation risks as well. it will be difficult to see how the ecb will square the circle
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by trying to tighten policy without creating significant uncertainty against what is still a backdrop a very elevated and amplified core inflation. lisa: they do concede the euro area economy may contract and there is a hint of that recession, although not necessarily coming out with the same kinds of pronounced occasions as the bank of england. also talking about food and underlying inflation. was the ecb, which is a lot more interesting in terms of the statement in the federal reserve , is the ecb getting ahead with what the fed will have to deal with and recognizing stickier inflation for a longer period that goes beyond what the markets are allowing for? jeremy: i think that is true. we are going to see core inflation proven to be remarkably sticky. we will see headline inflation pressures gradually easing if we are correct in assuming those curbs are correct, but core inflation will be much more
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challenging to drive out to the system and it may well be the case we see many central banks facing difficulty to squeeze more inflation back towards target threshold over a two year horizon. in a sense that is why it is interesting the ecb is still struggling to get back to their target threshold even in year three that underlines inflationary pressures will be more pronounced and stickier, particulate if we are going to see wage growth permitting elevated because of relatively tight labor markets, even if we see a moderation in macro activity. jonathan: jeremy stretch, thank you. yesterday the federal reserve projection for 2023 gdp, .5. the ecb projection, .5%. in acknowledgment of a so-called technical recession, whatever that means. they say those to the energy crisis, high uncertainty, and tighter financial conditions.
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you will love this at home. according to the latest euro system staff projections come a recession would be "relatively short-lived and shallow." that is the projection from the ecb. tom: the headlines are so many. i hope christine lagarde addresses this. the comedy of their presumed inflation decline. i'm not going to say i've never seen it before but it is up there. it is stunning what they are looking for to get back to 2%. to they mention ukraine in the headlines? i don't think so. jonathan: looking ahead to next year, the ecb cutting its growth forecast, hiking its inflation forecast, introducing qt, forecasting a technical recession, and signaling there is more work to do. the ecb news conference 20 minutes away. ♪
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jonathan: this market waking up a little bit. equity futures down 1.25%. yields higher on treasuries. much higher in italy. yields on the italian bond up 20 basis points. in germany up 11 as the ecb forecast stagflation. euro-dollar 1.064. a stronger euro of the move of the ecb. euro-dollar still negative.
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waiting for retail sales data. jobless claims coming up imminently. michael mckee will break that down. michael: empire manufacturing is a big disappointment for those who are hoping for a rebound. down to 11.2% from 4.5%. retail sales coming in from november, down .6%. october revised up to 1.3% gain. a little bit better there. retail sales ex autos down -.2% and ex autos and gas down -.2%. retail sales control down -.2% and that was revised lower for october two .7%.
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retail sales coming in weak. initial jobless claims in at 211,000, a major drop from the 230,000 a week before. continuing claims at 1,671,000, the same as the fire week. those are delayed a week -- the same as the prior week. those are delayed a week from the initial. we are waiting for the philly numbers to comewe will look at s john gives you the marks lws. down on the s&p. bizarre we are having this conversation on recession. i would say look at jobless claims. two hundred 11000 and we are having a conversation of recession with jobless claims at 211,000. tom: continuing claims free much flat with where we were last time. what i would suggest as we go
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back to the heart of this. mike can pick up on this if we want to stay on this or go to the ecb. the bottom line is the new study of choice is service sector ex this and ex that. i will let you decide what we are xing out. if michael mckee is involved you have to have a. jonathan: yields a little bit higher on the two year. the 10 year basically unchanged. a little bit more curve inversion. lisa: this is incredibly confusing data. i am looking at this, and you can paint one story if you look at retail sales, you can point to another if you look at jobless claims. the big question is how sticky this is. before we get back to the ecb and that market moving statement, i am curious, is there a trained and retail sales that suggests consumers are flat on their backs and pushing back and not buying as much because
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of their negative real wages? michael: in general it looks like goods suffered. the retail sales numbers only included one service industry, that is food services and tricking places and that was up almost 1%. people were spending on services. the interesting thing about retail sales is it is heavily revised because it only covers the first part of the month. either we move some holiday sales into october or people are delaying getting on with it and getting their stuff. we see department stores and clothing stores down .2%. department stores down 3%. i do not know where people will get their christmas presents from. even non-store retailers, which would include amazon and walmart. jonathan: we don't stop -- tom: we don't start our christmas shopping until december 23.
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michael: because jonathan has not given his list yet? jonathan: can we just say -- tom: can we just say it michael mckee moved markets yesterday. jonathan: the emphasis before it was we are not at sufficiently restrictive and then mike, that came out on accident. michael: it probably did in the sense he is trying to say the fed is going to be raising rates , but not as fast as they were because they are getting close they want to make sure they do not over tighten. the big thing is the markets seem to miss the idea that the fed is not revising up its inflation forecast, it is revising the drop in inflation down. in other words inflation will not fall as quickly as they said , which is exactly what the ecb is saying and it is what the bank of england said today. there seems to be a general agreement among central bankers that inflation will be stickier in 2023 which is a problem for
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all of them which means rates need to go up higher. jonathan: before you go, 211,000, the significant of that on jobless numbers? michael: what we'd seem to be -- what we seem to be seeing this it was so hard to hire people that nobody wants to let people know. we have to put a big cap yacht, it is the holidays, the numbers bounce all around. last week was the week after thanksgiving, thanksgiving week nobody files because it is thanksgiving, see get all of the backup. i would not pay a lot of attention to it, other than in the general sense. the labor market is still strong. which is jay powell's -- i don't know if i would call it a complaint, but it what he has said is keeping things going. jonathan: he has been very careful about his words around the labor market. mixed data. lisa said it was confusing data.
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to see jobless claims finishing the year close to 200,000. tom: we are already leading towards january 12. jonathan: cpi data? tom: someone doing that is jonathan pingel, chief u.s. economist -- i got a study in your academics from years ago and that is is there any history of any central bank modeling and getting right a major three years disinflationary trend. the fed is trying to do it in the ecb has elevated inflation for this year than they go to nirvana in 2025. is there any predictability to that exercise? jonathan p.: thanks for having me. forecasting inflation is hard. i think that has been proven in spades in 2022.
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when we look back at history, getting this exactly right on the way down will be as hard as getting it right on the way up. when i think about the central bank experience, you have had some immaculate disinflation following world war ii is one example. it was certainly the case that chairman greenspan seem to be ahead of the curve in the productivity gains in the mid-1990's and the disinflation that led to. let's face it. a three year, even one year ahead inflation forecast at the moment is pretty difficult. in some respects i think the fed has been dealt a better hand than the ecb because they are getting data in hand that starts to look like their israel disinflation coming. -- there is real disinflation coming. lisa: 20 make from how much of this disinflation seems to include natural gas and crude
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products? jonathan p.: in the u.s. the energy price is moving up and down has played a role. you also have a number of components of inflation like used car prices that exploded higher in 2021. new car prices up 20%. we are seeing used car prices fall 2% a month. it is a lot of volatile components. what goes up could come down quickly in the u.s.. in the euro zone, there are reasons to think inflation might be stickier than the u.s., particularly if the fed does engineer and increase in unemployment. in the u.s. that does typically prove disinflationary, even if you think there is a flat phillips curve. in the euro zone they do not have quite the same flexibility in their labor markets, which could also lead to more persistence in the euro zone relative to the u.s. for
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inflation. lisa: although the ecb did come out with a more hawkish statement than the federal reserve in terms of how much higher the revised upward their inflation expectations for this year, for next year, for the year after. are the balance of risks, have they changed when it comes to the fed and the ecb in terms of going too far or not enough? before it was not going enough. you think now it more evenly balanced? jonathan p.: i definitely think it is more evenly balanced. that is a great point. we are expecting a pretty weak u.s. economy in the later part of 2023 because households are exhausting their excess savings, which we think is going to start to buy and for more household and restrained consumption. on top of that we will pile the mounting effects on what has been a rapid tightening cycle. the ecb is further behind the fed.
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they are playing catch-up. they are facing a tough economic outlook as well. i think these risks are becoming more balanced. tom: are we had neutrality? jonathan p.: for rates? jonathan: yes -- tom: yes. in the u.s., are we had neutrality in terms of the central bank ballet? jonathan p.: jay powell said he thought policy rates were -- there is a big margin of error for whether you are at neutral. tom: just because of time, this is really important. what is the single variable of our ministry about that collar around neutrality? is it inflation, is a jobs come is a gdp? or we just don't know? jonathan p.: we just don't know. it is a longer run concept. there is a lot that goes into
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our neutral rate, it is our products, our demographics. pinning it down -- tom: can he come on again as an honest guest. jonathan: are you suggesting the other guests aren't honest? tom: what he nailed there, he nailed the demographics, the technology we are living in, we do not understand. jonathan: jonathan pingel of ubs. there is a line that echoes what we have heard from the fed. you've caught on to this. the governing council judges interest rates will have to rise significantly at a steady pace to reach levels that are significantly restrictive to ensure timely return of inflation to the 2% target. you heard that in the market response to that is can you tell us what sufficiently restrictive is and what you think it is? tom: sufficient is a phrase you
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flunk in econ 101 and you can have a theory or a belief in you say is the data -- biz the visible economy there to say you can sufficiently guess forward and they are searching for the set of data to confirm their belief. jonathan: inflation is going to be sticky, growth is going to be difficult, and they're committed to hiking rates even more. they have been late to start qt compared to the federal reserve. tom: i will go one step further and say inflation is not sticky, they have ramped up their wartime inflation numbers, which they do not mention because of the politics, they have ramped it up. with a vengeance it comes down in 2025. jonathan: there are big programs of the ecb. there is the asset purchase program, then the emergency purchase program that goes back to the pandemic. app will roll off. the decline will amount to about
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15 billion euros per month until the second quarter of 2023 and then it gets open-ended, the subsequent pace will be determined over time. we can have a conversation with president lagarde about the influence of that pace of rolloff. that concerns the pepp. the governing council plans to reinvest securities purchased under the programs until at least the end of 24. this is the problem the ecb has compared to the federal reserve. what is the difference? the difference is chariman powell does not have a balance sheet with italian bonds on it. look at this move in the italian bond market. yields up 19 basis points on a two year in italy. that is the issue for this ecb. it is the financial stability layer or instability layer on top of the policy effort in europe that is of concern. lisa: they are trying to mitigate that by giving a relief valve for this. it is surprising yields are not
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higher in the italian region after the idea of rolling off of the balance sheet of the asset purchase program. this will continue to be a challenge. i keep going back to how can we go from $18 trillion of negative feeling debt to $1 trillion in negative feeling debt in the span of a couple months without something breaking? jonathan: what is going to break? what are we talking about? private markets, public markets? you have individuals today who are sitting on a committee where one individual said let's go 75. the bulk said 50 come and two said zero. they believe everything we have done will hit the economy into next year. we finally have the ecb acknowledging we are likely to have recession q4 into q1. lisa: there is a variable lag when it comes to refinancing.
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a lot of companies and countries have not refinanced at these new rates. how they take effective markets are not buying these rates will stick around, a financial conditions are not playing along with where the central bankers are. jonathan: the question for the super bulls, of which there are many. the bank of england, whatever the u.k. economy is worth, compared to the euro zone in the u.s. economy, but the u.k. saying recession 2023. europe saying we will enter 2023 recession. the fed is saying .5% in 2023 and they're all suggesting they will stick with it and not cut interest rates. the ecb said there is more work to do. the ecb says will get close to five. how does this play into the consensus view the first half is weaker growth in the second half is a rally in risk by central banks backing away from the policy they have been backing of the last 12 months? lisa: the consensus view is
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central bankers are wrong and they are trying to manipulate them into a direction that is not how things will play out. that is the consensus in terms of where traders are placing fed funds rate. jonathan: that is -- the fed is saying one thing and the bulk of the sell side is saying something else. tom: i will go back to what was said yesterday. it is moving from a supply-side pandemic supply shock analysis over to typical demand analysis and the three stories are different in the story we will hear from christine lagarde is stunning headlines, italy is not ohio. it is different. lisa: you say we have had this before. and then the mantra don't fight the fed became don't fight the ecb. what they say is what they are going to do. people are not saying that at this time. tom: they are not saying that
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because the uncertainty is off the freaking chart. nobody has a clue what the uncertainties are out six months, let alone two years. jonathan: look at the commodity call for the second half. tom: you get that with a 5% chinese gdp. jonathan: then it changes. tom: this is not a normal press conference. she has to mention the war in ukraine. to me it is fundamental. jonathan: you want more qt detail from this? tom: i am yes qt centric than you are. i'm focused on the inflation call, which is preposterous. the disinflation call is massive uncertainty to me. jonathan: you think it will be much stickier? tom: i do not think you can predict inflation with the certitude the media and many of the economists are talking about. jonathan: the individuals at the ecb news conference just being
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introduced. going into this, the euro trying to recover. now only down .25% on the session at 1.0 655. look at the bond market. yields up by 10 basis points in germany and much more in italy. here is the ecb president, christine lagarde. pres. legarde: we welcome you to our press conference. the governing council decided to raise the three key interest rates by 50 basis points. based on the substantial upward revision to the inflation outlook, we expect to raise them further. in particular, we judge interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to our 2% medium-term target.
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keeping interest rates at restrictive levels will, over time, reduce inflation by dampening demand, and will also guard against the risk of a persistent upward shift in inflation expectations. our future policy rate decisions will continue to be data-dependent and follow a meeting by meeting approach. the key ecb interest rates are our primary tool for setting the monetary policy stance. the governing council also discussed principles for normalizing the euro systems policy securities holdings. from the beginning of march, 2023, onwards, the asset purchase program portfolio will decline at a measured and predictable pace as the euro system will not reinvest all of
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the principal payments from maturing securities. the decline will amount to 15 billion euros a month on average until the end of the second quarter of 2023. it's subsequent pace will be determined over time. at its february meeting, the governing council will announce detailed grandmothers for reducing the app holdings. the governing council regularly reassess the pace of the app portfolio reduction to ensure it remains consistent with the overall monetary policy strategy and stands to preserve market functioning, and to maintain firm control over short-term money market conditions. by the end of 2023, we will also review our operational framework
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for steering short-term interest rates, which will provide information regarding the end point of the balance sheet normalization process. we decided to raise interest rates today and expect to raise them significantly further. inflation remains far too high and is projected to stay above our target for too long. according to eurostat's estimate , inflation was 10% in november, slightly lower than the 10.6% recorded in october. the decline resulted may leap from lower energy price inflation. food price inflation, and underlying price pressures across the economy have strengthened and will persist.
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amid exceptional uncertainty, euro system staff have significantly revised up their inflation projections. they now see average inflation reaching 8.4% in 2022 before decreasing to 6.3% in 2023, with inflation expected to decline markedly over the course of the year. inflation is then projected to reach 3.4% in 2024 and 2.3% in 2025. inflation, excluding energy and food, is projected to be 3.9% on average in 2022, to rise to 4.2% in 2023, before falling to 2.8% in 2024 and 2.4% in 2025. the euro area economy may
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contract in the current quarter and the next quarter, owing to the energy crisis, high uncertainty, weakening global economic activity, and tighter financing conditions. according to the latest euro system staff projections, a recession would be relatively short-lived and shallow. growth is nonetheless expected to be subdued next year and has been revised down significantly compared with the previous projections. beyond the near term, growth is projected to recover as the current headwinds fade. overall, the euro system staff projections now see the economy growing by 3.4% in 2022, .5% in 2023, 1.9% in 2024, and 1.8% in
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2025. the decisions taken today are set out in a press release available on our website. i will now outlined 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 , economic growth in the euro area slowed to .3% in the third quarter of the year. high inflation and tighter financing conditions are dampening spending and production by reducing real household incomes and pushing up costs for firms. the world economy is also slowing in a context of continued geopolitical uncertainty, especially owing to
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russia's unjustified war against ukraine and its people, and tighter financing conditions worldwide. the past deterioration in the terms of trade reflecting the faster rise in import prices than in export prices, continues to weigh on purchasing power in the euro area. on the positive side, employment increased 5.3% in the third quarter and unemployment hit a new historical low of 6.5% in october. rising wages are said to restore some loss purchasing power, supporting consumption. as the economy weakens, job creation is likely to slow and unemployment could rise over the coming quarters. fiscal support measures to
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shield the economy from the impact of high energy prices should be temporary, targeted, and tailored to preserving incentives to consume less energy. fiscal measures falling short of these principles are likely to exacerbate inflationary pressures, which would necessitate a stronger monetary policy response. moreover, in line with the eu's economic governance framework, fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. policies to enhance the euro area supply capacity, especially in the energy sector, can help reduce price pressures in the medium-term. to that end, governments should swiftly implement the investment
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and structural reform plans under the next generation eu program. the reform of the eu's economic governance framework should be concluded rapidly. on inflation. inflation declined to 10% in november, mainly on the back of lower energy price inflation, while services inflation also hedged down. food price inflation rose further, to 13.6%, as high input costs in food production were passed through to consumer prices. price pressures remain strong across sectors, partly as a result of the impact of high energy costs throughout the economy. inflation, excluding energy and
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food, was unchanged in november at 5%, and other measures of underlying inflation are also high. fiscal measures to compensate households for high energy prices and inflation are said to dampen inflation over next year, but will raise it once they are withdrawn. supply bottlenecks are gradually easing, although the effects are still computing to inflation, pushing up to its prices in particular. the same holds true for the lifting of pandemic related restrictions. while weakening, the effect of pent-up demand is still driving up prices, especially in the service sector. the depreciation of the euro this year is also continuing to feed through to consumer prices. wage growth is strengthening,
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supported by robust labor markets and some catch up in wages to compensate workers for high inflation. as these factors are said to remain in place, the euro system staff projections see wages growing at rates well above historical averages, and pushing up inflation throughout the projection period. most measures of longer-term inflation expectations currently stand at around 2%, although further above target revisions to some indicators warrant continued monitoring. what about risk assessment? risks to economic growth outlook are on the downside, especially in the near-term. the war against ukraine


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