Bloomberg Morning time: Europe 04/08/2024

Good morning.This is Bloomberg Daybreak Europe. I'm Lizzy Burden in London.And these are the stories that set your agenda.Asian stocks start the week with gains, while European futures trade broadlyflat as traders stand by for Wednesday's data on US inflation.Israel says it's pulling some troops from southern Gaza ahead of a plannedoffensive in Rafah. The oil rally takes a breather.Plus, US Treasury Secretary Janet Yellen meets the PBOC governor on her final dayin China as she aims to put relations with Beijing on a firmer footing.A very good morning.

Happy Monday.I hope you had a restful weekend. We have got a lot of geopolitics to getthrough and a busy week ahead for central banks.But let's just take you back to that blowout US jobs report on Friday.Markets essentially concluding that the US economy is going to power corporateAmerica, even if it means that rates stay higher for longer.Now, overall, last week might have been the worst since January, but that strongFriday session has powered Asian equities higher this morning, althoughyou are looking at four Wall Street futures pointing to a lower opening thismorning.

Even if Europe is going to eke out somegains, it appears at the moment. If we flip over to the cross assetpicture, you can see the difference when it comes to treasuries from that US jobsreport in terms of Fed cut backs pared back to about 65 basis points this year.Now Treasuries have off the back ticked lower and the two year yield iscurrently higher a touch the dollar also a stronger.As we look ahead to that US inflation report on Wednesday.Oil has been lower off the back of Israel, saying that it's going to pullsome troops out of Gaza and Bitcoin is back below that 70 k mark having brokenthrough it over the weekend.

But let's zoom in on Asian markets now.Tanya Chen is waiting for us in Hong Kong.Tanya, what's happening where you are? Good morning, Lizzie.Yes, as you were just saying, Asian stocks are starting the week a littlebit on a bright spot After that, better than expected US jobs report that wesaw. And as you aptly pointed out, it's notreally so much the same sentiment in the mainland.And the Hong Kong shares those. The sentiment there just a little bitmore poor, given that we've seen on the sample.One of the defaulted Chinese developers.

That we've been tracking facing a demandto liquidate. These winding up petitions are reallystarting to pile on. We've seen it also with Country Gardenas well. I also wanted to take you into thecommodities space a little bit. Iron ore rebounding a bit there afterthis long weekend that we had in China. Also in gold, the gold is also extendinggains there. One thing to note is that China andIndia and central banks being big buyers of gold, it's really been fueling thiskind of scorching hot all time record rally.And China has actually been buying gold.

For about 17 months straight.And then also kind of the big story out of China with the currency today hasalso been quite top of mind for traders. Earlier today, we saw the PBOC fix theyuan, basically sub 7.1 a level. They've been kind of leaving the fix forseveral weeks and months. And what that's what we've been trackingbasically is what the onshore rate is doing around this 2% trading band,around this reference rate. And we see right now that is about 20pips away from kind of that weak end of the trading band.And in previous episodes, we've seen that the policy makers have reallystepped in when you can feel the.

Depreciation pressure really building inthe onshore rate at this point right now.And analysts are saying that there is a possibility if the dollar continues topersist, PBOC may have to loosen that fixing to just let a little bit ofbreathing room into that onshore spot rate.So no forceful measures yet, but we're still tracking the yuan every day.Okay. Tanya Chan in Hong Kong, thank you forthat. Interesting that you point out that thegold moves could be partly to do with China, not all about the Fed story, butlet's talk about US-China relations now.

U.S.Treasury Secretary Janet Yellen, of course, still in China due to hold anews conference later this morning as she wraps up that trip.Now, it's after talks that the U.S. governor had with her.She says they helped relations between Washington and Beijing reach a morestable footing. As the world's two largest economies.We have a duty to our own countries and to the world to responsibly manage ourcomplex relationship and to cooperate and show leadership on addressingpressing global challenges. Well, for more on the trip, we've gotbloomberg's Jill De.

Morning Joe.It looks like Yellen has had a delightful weekend cruising down thePearl River with the vice premier directing that the conversations onboard was delightful. Yes.Well, Lizzie, it does seem like Janet Yellen is really Washington's good copin this entire situation in the US-China relationship.And while she did spend her trip criticizing China over some issues,particularly overcapacity, this idea of importing cheap goods to the rest of theworld, a lot of her worries about that. Generally, it seems like it's been apretty pleasant trip for her.

This is, of course, her second trip innine months and also likely her last as treasury secretary before the U.S.general elections later this year. It's but it's generally has seemed likeit's been pretty diplomatic. We'll obviously get more details fromJanet Yellen once we have that press conference in just a couple of hours.But, yes, ultimately, I think she's she's kind of served the purpose of, youknow, smoothing over ties. It seems like there's been something ofa a decent response to from Beijing on that front.Yeah. Can you expand on what China's reactionhas been because she's been trying it.

Chiding Chinese overcapacity.Surely they can't take that lightly. No.Well, certainly in state media they haven't.So it's I think where we've really seen the biggest points of criticism so far.Xinhua, the official news agency for China, was kind of blasting Yellen oversome of those overcapacity comments. I think also really criticizing the USand saying, well, what about US subsidies for things like semiconductorsand things like that. So I think that's really where you'reseeing the most pushback from a lot of officials she's been meeting with.You're getting more of this idea that.

The US and China really need tostrengthen cooperation across different things, but we haven't really seen yetthat really big fulsome response. I will cost me, though, Lizzie.Look, China is also just coming off of a four day holiday period.So I think, you know, we'll get some resumption of the Ministry of ForeignAffairs. We'll see if there's a stronger reactionout of Beijing in the wake of this extended weekend that they've just hadas well. Okay.Bring back Jill as we thank you for that update on Yellen's visit.And we look ahead to the press.

Conference in the next couple of hours.But let's get to the Middle East now where Israel is pulling some troops outof southern Gaza as the war with Hamas passes the six month mark.US Senator Chris Coons says the move is likely a tactical decision in caseHezbollah or Iran attack. We can now bring in Bloomberg's Indianews director, Rosalind Matthiessen, for analysis.Rose, what's behind this move and does it affect a potential offensive inRafah? Well, it's probably multiple things thatare behind this move. One is that they've been fighting now inGaza for the better part of six months.

And they need to rest and rotate some oftheir troops. So there's probably some truth in that.There's also the reality they do reinforce their troops in the north ofIsrael, because, of course, that's where Hezbollah tends to attack from Lebanon.That's the other Iranian backed group that's operating in the region and theaftermath of that airstrike on the Iranian diplomatic compound in Syria.There's been repeated warnings from Iran of some kind of retaliation, and thatmight likely come from one of their proxies, particularly Hezbollah.Again, so there's a possibility of stepped up activity in that area.So you need troops back there.

There's also pulling them back out ofKhan Yunis because they want to be able to move Palestinians into that area foran offensive in Rafah. So none of this suggests that the desireto go in to have that offensive in Rafah has dissipated.This is not withdrawal because of some other reason.It's just purely tactical on the part of Israel.It's not a withdrawal. It's taking a break to come back formore. So what might an Iranian retaliationlook like for that strike on the diplomatic compound?Well, quite possibly through those.

Proxies with really unusual, obviously,a really big escalation for them to attack Israel directly, side of firedmissiles directly to a major center in Israel.That's really basically unprecedented. So what you might see really is thatkind of proxy activity, primarily through Hezbollah from from Lebanon,possibly, again urging the Houthis on in the Red Sea.Of course, they've been blocking shipping in the Red Sea for months now,maybe some of that. But really, you can see through the backchanneling that's going on between the U.S.and Iran.

They're actually talking about the factthey're actually talking to each other, which again, is unusual, shows thatreally Iran and the US, despite all of this, neither neither really want adirect conflict to happen. So we're probably see something a littlebit more asymmetric that Iran's known for a new threat to muzzle Hamas.And we thank you. Of course, we've also had more of theback channeling in the U.K. as well.The U.K. talking tough over the weekend when itcomes to the situation in Gaza as well. But let's get back to the economic datanow, because, of course, you've got the.

US CPI number coming out on Wednesday, abig focus for the Fed. It arrives hot on the heels of Friday'ssurprisingly strong US jobs numbers, and the data is projected to show a modestslowdown in underlying inflation from all we can bring it down.MOSS From Bloomberg Opinion Don we had. Chip room.Powell saying that strong hiring on its own isn't going to be enough to delaypolicy easing. But this was a blowout jobs report wegot on Friday. Do you think any Fed officials now willstill be calling for three cuts this year?The leadership.

I always say this.It's important to focus on what the leadership is saying, not what Some ofthe backbenchers who might talk more often are saying.That's what a decade in Washington taught me.Now, Jay Powell has firmly anchored his view that, look, there will be interestrate cuts this year. More than likely it's a projection, nota promise. It also means they don't have to rush.Now, there's been a lot of focus on this re acceleration, for want of a betterterm that we're seeing in US economic activity, the rapid hikes that havepreoccupied us for the past couple of.

Years don't seem to have slowed growthdown that much. However, look, let's not forget wherewe've been with inflation pesky the inflation measure that the Fed bases its2% target on has come down dramatically from where we were in 2022.At one point in 2022 was above 7%.It's now 2.5%. So, you know, you're also probably goingto hear a lot of talk about the last mile being the hardest and so forth.But we just need to see a continuation of numbers like this.They don't have to necessarily be better.And remember, it's an average of 2% over.

Time.Okay. So it seems clear at least that the USisn't in a rush to cut rates. And yet for the ECB, a June cut lookspretty much nailed on to many at this point.So with this divergence, what about the weaker euro feeding into the Europeaninflation story? Yet what's transpiring at the ECB ismuch more clear cut and the communication has been much less vague.You know, even the Austrians, who typically like hard money, recognizethat the economy is not in great shape and that inflation has come downmarkedly.

You know, my Bloomberg opinion colleagueMarcus Ashworth asked a pretty pertinent question last week, which is if you'reall talking about June and the press conference, the Christine Lagarde gamesis going to be all about June. Why not just do it now?It's a good question. Economically, you're not going to see alot of change between now and the June meeting.You know, there is a case for just getting ahead of the narrative and doingit, and you're doing it in mice. Excuse me.That would be impressive, indeed. Are they justare they just hiding behind those jobs.

Numbers?Why not just do it now? Bloomberg's done more daring ChristineLagarde to go ahead this week. We thank you for that analysis.Now, as I say, it's a busy week. We have already just talked about US CPIthat's coming on Wednesday. Of course, it is a crucial piece of thedata puzzle for the Fed, and economists are expecting a modest slowdown in coreinflation, even if headline inflation stays around 3% towards the end of theyear. Super core inflation, of course, hasbeen really sticky here. We were just talking with Don aboutThursday's ECB rate decision in.

Frankfurt, a June seeming pretty much adone deal now. So the focus very much on clues as tothe path beyond that and therefore how much divergence they'll be from theFed's own rate cutting trajectory. Then on Friday, we on from the Bank ofEngland get former Fed Chair Ben Bernanke's review of forecasting.And the expectation is that whatever the recommendations are likely to move fromfirm charts to Riksbank style scenarios, it's going to take a while to beimplemented. And even when they are, they're morelikely to affect the Bank of England's communications than how it makes policy.But we'll wait to hear the specifics.

From Bernanke and Co on Friday, but youcan get a roundup of the stories that you need to know to get your day goingby going to A, why B, go on the terminal.That'll take you to today's edition of the DAYBREAK newsletter.They're leading on China this morning and also a story on Elon Musk for you tocheck out. But coming up later in the program,Zimbabwe replaces its battered dollar with a new currency backed by foreigncurrencies and gold. We'll bring you that story next, as wellas an interview with HSBC is looking to bolster its wealth management businessin China and India.

We'll hear more from that exclusiveinterview with CEO Noel Quinn at 6:30 a.m.London time. So stay with us.This has been back. Welcome back to Bloomberg DaybreakEurope. It's 6:17 a.m.in London and we're going to head to Africa now where Zimbabwe is replacingits battered dollar with a new unit called Z IG, which will be backed by abasket of foreign currencies, gold and other precious metals.The sweeping move is Zimbabwe's sixth attempt to have a functional currencysince 2008.

Joining me now for more is being workedon Derek Ganga. Derek, just talk us about thistransition to the new currency. Lizzy, It has been a long time coming.Judging from the current state of the Zimbabwean economy, inflation is high,the currency is battered, prices of goods and services have skyrocketed.If we zoom in on their currency, the Zimbabwean dollar.It has lost nearly 75% of its value to the dollar this year alone.And that's why the central bank made this decision that was awaited withbated breath. Now we have a new currency, the SEC,that is backed by gold and other foreign.

Currencies.And the central bank says they have reserves of up to $285 million.So what's happening currently is banks and other financial institutions arerecalibrating their systems and replacing their current balances.And the central bank governor, who assumed his role a month earlier thanexpected, says that a couple of changes will be coming.And part of this changes is, one, to ensure that the Zimbabwean currency doesnot die, but also to stabilize it so that they can have some stability in theprices of goods and services. And just talk us through some of theother key decisions the central bank's.

Been making and their expected impact ontheir. Mm hmm.First of all, he has cut rates from a high of 130% to 20%.This was the highest rate in the world, but wasn't the highest in Zimbabwe.We've seen highs of 200%, which makes lending extremely hard and makes itharder for the private sector to borrow, invest and even grow.Other changes will also include all businesses required to pay taxes by atleast 50%, using the local currency to inject some form of transaction abilityinto their currency. Because if you look at the Zimbabweandollar, which is being phased out right.

Now, it's only used for 20%, which is topay utilities and smaller transactions. Majority of the transactions are doneusing the US dollar. And because of this changes, the centralbank is anticipating that inflation might ease to about 2 to 5% by the endof the year from a high of 55%. The goal here is to inspire confidencein the market and in the people. But that's an uphill task.And until they do that, this is just another currency translation fromZimbabwe like they did with the gold coins, the digital tokens, and slashinga couple of zeros from their previous currencies.Okay.

Bloomberg's Indira Ganga, we thank youin Kigali. With that outlook for Zimbabwe's newcurrency, the zinc. Now, I also want to just take a check oncommodities because it was a week for commodities last week.We have had the confluence of geopolitical risk, high demand andsupply side issues affecting oil. So Brent currently trading just shy of$90 a barrel. I mean, Amrita Sen really emphasizingthat it's the supply side that's the biggest driver here.But in terms of geopolitical risk, of course, you have had tensions betweenIsrael and Iran fluctuating.

Just think that we were at a level of$72 a barrel in December. 90 is a level that Opec+ is likely towant to maintain around which the price can fluctuate as it inevitably will,because if it heads back towards 00 a barrel, as Goldman says it could, thatwould perhaps fuel inflation and hurt demand.And so you might say ninety's the sweet spot that powers and economic recoveryand the question being can they maintain it.So Brent just shy of $90 a barrel you've got double duty WTI at 85.68 currentlyand gold at a new high despite the equity rebound off the jobs report onFriday.

As Tanya Chen says you've got sometailwinds coming in from China as well. Which brings me on finally to iron ore.It's rebounded back above 00 a tonne on speculation that demand from Chinacould pick up. China, of course, the world's biggeststeel maker. And you've got trade is back after thelong weekend giving a boost to the commodity.We've got plenty more still ahead for you, so stay with us.This is Bring back. Now the AI driven boom in demand forhigh bandwidth memory has helped drive a 400% share surge for a Japanese firmthat controls an essential part of the.

Chip making process.The CEO of Tower told us exclusively how the company plans to further strengthenits position. So this is in June taking too long.What's most important is that we have technology now over companies do nothave we are in charge of the chip sealing process.There are two major methods of sealing transfer and compression moldingmethods. Transfer molding is a common method, butthe compression method is required for high end chips.And we developed the first model of this technology in 2009.Even after six years, we see no.

Competitors in this technology.And I guess once you currently own this market, you create about 60% of theworld's chip sealing machines. Do you have any plans to further thatmarket share? We develop products based on the conceptof how much customers appreciate. Unlike Tower, by specializing in highend products, we can naturally link this to a large contribution to profits.I think this is the most important point.We had a strong desire to have 100% control of the molding process, but wesee the emergence of many local Chinese manufacturers that produce low pricedproducts.

This leads to price competition, andthis will greatly squeeze profits. If we want to make money.We need to focus on the high end market where there's no competition.We should specialize in this area and expand these markets.We occupy more than 90% and we want to maintain this top position globally.There's huge demand for chips globally right now.What's your plan to increase output going forward?Can you remember really what we have been working towards a ten year visionof achieving ¥100 billion of sales by 2032.Currently, our production capacity is at.

About 70 to ¥75 billion.We would like to start building a structure in the next fiscal year toachieve our goal of ¥100 billion of sales by 2032.Your shares are up for X over the past year.Do you see this as a good opportunity to capitalize on those stock gains,potentially maybe investing in boosting production in our country?We are very grateful and happy about this.A rise in the stock price equals a large increase in market capitalization.We need to make a considerable investment in order to achieve our nextdream of ¥100 billion in sales.

I believe the stock price has made iteasier for us to do so in many ways, and I am truly grateful for that.How about M&A? Which sectors and regions lookattractive to you and how much would you want to invest?If both parties do not achieve a win win situation?It cannot be an M&A in the true sense. In any opportunity in the future.We will always focus on this. When you inked a deal with a major SouthKorean chipmaker. Do you expect your Korea business toeventually be as big as your sales in China are currently broken, especiallyin AI devices?.

We expect SK, Hynix and Samsung to makea large investment in the future, and we believe that the market will continue togrow. But a Chinese market is still very largeand I think it adds a different dimension.China has its own way of doing things and Korea's Samsung and SK Hynix havetheir own original ways of doing things. So we're not thinking of them in thesame way. What is the one thing you think Japanneeds most when it comes to staying ahead in the world?I believe that the basis of a manufacturing company is to developproducts that are unrivaled by other.

Companies, products that will surpriseother companies and products that will please customers.We would like to expand our business based on this concept. Good morning.This is Bloomberg Daybreak here. I'm Lizzie Boden in London.And these are the stories that set your agenda.Asian stocks start the week with gains, while European futures trade broadlyflat as traders stand by for Wednesday's data on US inflation.Meanwhile, Israel says it's pulling some troops from southern Gaza ahead of aplanned offensive in Rafah.

The oil rally takes a breather.Plus, U.S. Treasury Secretary Janet Yellen meetsthe PBOC governor on her last day in China as she aims to put relations withBeijing on a firmer footing. Those are your headlines.A very good morning. Welcome to a new week.And to explain what's happening markets, I'm going to take you right back toFriday. That blockbuster US jobs report reallymarkets interpreting it as good news this time.Good news on the strong economy that could power corporate America even ifthe price is rates higher for longer.

You've got Treasury excuse me, stockfutures pointing to a slightly lower opening stateside this morning, buthigher for the European futures. And if we flip the board over to thecross asset picture, you can see the impact of that jobs report on Treasury.So you had a bit of a repricing. Now traders seeing about 65 basis pointsof rate cuts from the Fed towards the end of the year.And then you've seen treasuries off the back ticking lower.So currently the two year Treasury yield higher, three basis points at 4.77%.The dollar is a touch stronger. And if you look to oil that Brenttrading at 89.76 a barrel, this is on.

The GOP politics and Israel pulling outsome of its troops from Gaza or saying that it will just finally look toBitcoin that lower than the 70 k mark that it managed to pass over theweekend. But we can now dig into what washappening in Asian markets. We've got Tanya Chen in Hong Kong forus. Tanya, what's happening where you are?Hey, good morning, Lizzie. Yeah, so as you were just saying, themarket kind of exuberant over the possibility of this no landing scenario.So we're taking a look at kind of benchmark equities across Japan,Australia, South Korea, all ticking.

Higher, starting the week off quitestrong. You also want to kind of turn to onshoremainland Chinese stocks and Hong Kong there.They're not quite as exuberant as we're seeing in the other kind of Asianregional stocks. We were getting some news out of theproperty developer space today. One of the default a developer somehowis facing a demand to liquidate. These winding up petitions are reallystarting to pile on. We've seen it with Country Garden aswell. So that's sort of kind of taking a hiton the stock side here.

Also on the board, we're looking atcommodities, we're looking at gold. As you had mentioned, gold is also kindof on a tear recently, obviously, around these expectations, around thesepotential U.S. interest rate cuts.We're also seeing these central banks out of China and India buying quite alot recently and kind of pushing up, driving up that price.Chinese central bank has been buying for 17 months straight and also with theChinese central bank today on the currency front, you had mentioned thedollar a touch higher. Yes, regional Asian currencies aredefinitely under pressure up, almost all.

Of them near their year to date lows onthe on the UN in particular. Traders have been eyeing this fixinglevel where the central bank officials basically set where they onshore ratecan trade in a 2% trading band. And today they've kept it roughly justjust below 7.1, which means that if you look at the onshore right now, it'salready kind of near to that weak end of the trading band, implying that there'sa lot of depreciation pressure that's building.So we're basically wait and see for the next few days what this means from thepolicymakers if they'll take more forceful measures to defend thecurrency.

Okay.Tanya Chan in Hong Kong, we thank you. And we're going to stay in Asia nowbecause HSBC CEO Noel Quinn says he's pushing to improve his bank's wealthmanagement capabilities in China and India, so that just as strong as in itshome market. He was speaking exclusively toBloomberg's David English earlier as the bank hosts its first global investmentsummit in Hong Kong. In 2023, the performance of our wealthand personal banking business here in Hong Kong, we saw significant customeracquisition growth, right? We also saw around about a 50% growth inour insurance and wealth business.

In terms of the new business, they wererising last year. So the fact I saw wealth management iscontinuing to develop and grow here in Hong Kong.The liquidity base here in Hong Kong today is higher than pre-COVID levels.So I still see Hong Kong as a vibrant financial centre.Capital markets are subdued at the moment, but that's a function of stillcoming out of Covid economies waiting to recover what when inflation and interestrates do. Right.But we've seen some early signs of the debt capital market starting to pick upas well.

So the facts, I think, support the factthat Hong Kong still is a vibrant financial market right now.The I know you're set to report your first quarter earnings in a couple ofweeks. You can get the details as well.But we just wrapped up, of course, the calendar quarter.If you could also indulge us, how do you think the quarter went for you guys?Well, 2023 went extremely well. Over $30 billion in profit recordrecorded a record profit. And that's a culmination of the hardwork of our colleagues over the past four and a half years and also theloyalty of our customers.

They've been very supportive of HSBC aswe went through COVID and transition. Our return, our returns were the bestfor over ten years, and our dividend at $0.61 was the best dividend for 15years. So I was really pleased with theperformance. We never complacent.We're making sure that we're well positioned for the future and we'recontinuing to invest in the business. We're investing in wealth managementhere in Asia. We've done a number of acquisitions todo that. All right.The most recent one that we announced.

Was the acquisition of the CitibankWealth Management business in mainland China.We bought an insurance business of AXA in Singapore and we bought an assetmanagement business in India. And again, just to put it into context,every region performed well last year and every business loan in India, wemade over one and a half billion dollars profit.If you put BOQ and our own shareholding of our own bank in China, we made overthree and a half billion dollar profit, so well distributed profit across theworld and all parts of the bank doing extremely well.We've done some reporting on your plans.

Around your assets in Germany.I was wondering if you could comment on what your plans are for this year.We remain absolutely committed to being an international wholesale bank acrossall of Europe, including in Germany. So there's no change to that.Okay. So those are not for sale.Those are not for sale. We have some business lines in Germanythat are non-essential to intra international wholesale basis, and we'reconsidering options for those. And that's what the rumor and thespeculation was. Right.But but that is not about our.

International wholesale bankingproposition or corporate banking proposition in Germany.Thank you for clarifying. Assets in Russia.I know the bank has also been looking at that.If you could give us an update on whether those are actually up for saleand when you want those. Well, we have a price tag for.We have regulatory approval to sell that business.We're going through the final stages of trying to close that transaction.But it is our intention to sell the business.We have regulatory approval on it and.

We're in the close.We're in the process of trying to close that transaction.HSBC CEO Noel Quinn, speaking to us exclusively at the bank's globalinvestment summit in Hong Kong. Now to central banks.The week shaping up to be another busy one for traders with the pivotal US CPIdata looming. And then less than 24 hours later, arate decision from the ECB in Frankfurt. Joining me now to take us through all ofthat is Bloomberg's Ruth Carson. Ruth, how are investors trading thedollar with risk events like this looming?Yeah, absolutely.

It's been rough for currency traders,especially if you come into 2024 as a dollar bear, which, by the way, was theprevailing position at the end of last year.Instead, investors who bought the dollar have done incredibly well, be it againstthe euro, the Swiss franc, the Aussie, the yen.And with us data continuing to surprise on the upside, it will take a very braveperson to go all in on shorting the dollar, even though it is expensive byhistorical standards. Now, US CPI, as you rightly mentioned,could be another clinch of strength on Wednesday.So if we get another blockbuster number,.

We could see the dollar getting a verystrong bid and the traditional risk proxies, the Aussie, the Yuan, the Kiwiall taking a hit. Now the yen, which is at a 34 year lownear a 34 year low, could also be so on the whole rate differential story, ifthe Fed is expected to keep rates higher for longer.I'm going to be brave now, Ruth, and say it seems inevitable now that the ECB isgoing to come before the Fed. How much could that knock the euro andthen feed back into inflation? Absolutely.So traders could be eyeing a double whammy there as well for four for theyear.

I see you CPI then in less than 24hours, you've got the ECB. And yes, there is, you know, a chorus ofdoves out there. And when you look at where currencymarkets are at the moment, the euro is down about 2% versus the dollar so farthis year. It is still the second best performer,though. So the question then is this If tradersare already worried about higher for longer rates in the U.S., what willhappen to the euro if indeed the ECB does cut more than expected or cutfirst? And so a decoupling of the ECB and theFed's rate path could mean a weaker.

Euro.And the Bank of America, for example, has already come out to say that itcould weaken to parity against the dollar should the Fed stand pat onrates. Okay.So that's the impact of the Fed lagging perhaps here in Europe.But then, as you say, we've got CPI coming this week, on Wednesday is 4.5%.The next big test for bond traders looking for opportunity.They certainly didn't get any rest of you there.This macro trade is 4.5%. And we have to remember that marketsabsolutely love the big, bold numbers.

Is it a next line in the sand?Certainly looks at where U.S. CPI could be the next catalysts to seewhether yields will stabilize, drop or shoot higher at around 4.4% currently.And, you know, it could test 4.5 if the numbers do come out stronger thanexpected. Now, if we look at B Y FC, which is thebond yield forecast function on the terminal and bond yields are expected atthe ten year mark to fall to under 3.9% by year end as the Fed cuts rate.So if that's the case, investors may be looking at these levels as a good timeto get in. But 4.5, certainly a big number to watchout for.

All right.Bloomberg's Ruth Carson, we thank you for that.Look ahead to a busy week on the macro front and just staying on the story ofcentral banks, of course, on Friday. It's a big day right here in the UK forthe Bank of England because we're going to get the conclusion to Ben Bernanke,the Fed chair. The report on Bowie forecasting.We've had to wait a while for it, but it's really likely to be an interestingone. The governor of the Bank of England,Andrew Bailey's, already hinted that it's going to involve retiring theBowie's fan charts that are currently.

Used to show the range of possibleeconomic outcomes on different variables.Of course, here in the UK we don't have a dot plot unlike the Fed, though Idon't know what you call all this talk of mountains recently seems like a plotto me. Nonetheless, it seems like the funcharts are going to be replaced with scenario models.So like the Riksbank uses, this is the sort of situation where you have if theeconomy does ex rate would do why but whatever they do, it's going to take awhile to implement them. We're waiting for the new deputygovernor at Claire Lombard Delhi to take.

Her seat on the Monetary PolicyCommittee. She's expected to take charge ofimplementing these changes and she doesn't change the MPC until later onthis year. But another big question for the reportis whether the Bank of England is going to continue to use the market path forinterest rates as the conditioning assumption for its forecast.You remember back in November 2022, it created really quite a lot of confusionfor saying that there'll be a recession. But that recession was conditioned onrates following the market path, which the bank didn't endorse.Very confusing, managed even to confuse.

The UK newspapers.So perhaps Ben Bernanke clearing up the Bank of England's forecasting andcommunications this week. So we await that report on Friday.But coming up in the program, we'll go to India.India vying to take China's global growth engine crown as foreigninvestment flowed into the country. I saw a big take and it's coming upnext. This has been back. Welcome back to Bloomberg Daybreak.Europe to India now where the Nifty50 is higher, half of a percent this morning.If we just take a look at why, look,.

This is already an overvalued market,but it's summertime in India and the heat has been powering shares of airmakers power generators. But that he also is bringing risk forthe market, that you've got water shortages and crop damage, potentiallykeeping food prices elevated and pushing back the Reserve Bank of India's ratecut. You could also see a spike in energydemand exacerbating power shortages. But as I say for the day, the Nifty 50higher half of a percent. But this is really the subject oftoday's big take on the terminal, a broader look at the future of the Indianeconomy.

India really vying to take China's crownas the engine of global growth. And it says foreign investment flows.The nation and its government lines up a number of new trade deals.Well, we could get more on that big take with Bloomberg's Donald Trump, who's inNew Delhi for us. Don, welcome to the program.What are the obstacles to India becoming the world's driver of economic growth?So there are a number of obstacles for India right now.Some of the biggest ones are. India needs to develop itsinfrastructure. It needs to urbanize its economy, and itneeds to attract foreign investment.

And it's it's working on all of thesethings. Narendra modi has made a priority of ofinvesting huge sums of money in infrastructure.Of course, foreign companies are flocking to India, and every globalcompany around the world right now has an India strategy of some kind as theypivot away from China and look to diversify their supply chains.But there are a lot of obstacles ahead for India.I mean, you know, growth is really not where it needs to be right now.You know, many economists say for India to sort of really capture the growthcrown from China, it needs to get.

Economic growth up to around 8%, even 9%or higher. And these are levels that, of course,China enjoyed for much of its recent history.And India is not quite there yet. The government right now is targetingaround 7% for growth. If you sort of peel back the curtainthere a little bit, you know, the current growth rate is really aroundaround 6% or so. So India, of course, has a lot ofpromise. A lot of investors are turning there.But, you know, still some obstacles that need to be overcome.And if India does manage to overtake.

China, what's the significance of that,apart from boosting Modi's ego? Yeah, well, it's a it's a greatquestion. Of course, that is one that is one majoroutcome that you'll get from it. Of course.And this is hugely important right now as as a voting gets underway in Indiaand just in just a couple of weeks. But more significantly, and this wasthis was really the issue we tried to explore in our story today is on whathappens if India overtakes the growth crowd.Now, you just have to look at China as an example for what it mean.Now, China has for the last several.

Decades largely been the driver ofglobal economic growth and the incremental contributor to the bulk ofthe world's growth. Now, what did that mean?It meant it meant that global investors all flocked to China.It meant that China was the driver of capital markets activity.It meant that China was the magnet for foreign investors and foreignmultinational companies looking for growth, looking to participate in thatmarket for a long time. You know, China, we all sort of operatedunder this assumption that China was going to continue to have that to carrythat mantle.

And we now see, you know, since the endof the pandemic that China has really struggled to produce that growth.And now another. So there's many eyes on India to see ifIndia can be that next driver for growth.Okay. Really exciting.The subject of our big take do give it a read Bloomberg downstream if we thankyou. We've got plenty more ahead.Stay with us. This is Bloomberg. This was a hot report.Jobs above 300,000 upwards.

Revision strong household survey hoursup, payrolls up at nearly a 10% annualized rate.This was a hot report that suggested that, if anything, the economy is reallyaccelerating. This is very different from what lots ofpeople most people, I think, were expecting and fits the thesis that theneutral rate is much higher than people supposed and tight money is much lesspotent than people supposed. So let's talk about the neutral rate.You've said before that the Fed should have at least some idea the interestrate to know whether to stick to or not. We heard from Chair Powell this weekspeaking at Stanford, where he said,.

Yes, we are restrictive in our policy,and yet he quite explicitly said he doesn't need to worry about where theneutral rate is for policy going forward.That is like saying saying we don't need to know what the neutral rate is, islike saying you should drive your car on field without looking at thespeedometer. It is just a mistake.You cannot know. And look, I don't know what the chairmansaid in full context, and I want to be fair, but there's no way to judge whatpolicy is without knowing what would be a neutral policy.My view is that the evidence is.

Overwhelming that the neutral rate isfar higher than the two and a half percent, 2.6% that the Fed talks about.That evidence comes from four places first.We have high interest rates and we have an economy that is, if anything, growingfaster than its long run potential, creating jobs as fast or faster thannatural growth in the labor force, even allowing for immigration.Second, we have an economy with financial conditions that are extremelyloose, that are actually looser than they were before the Fed started thewhole tightening process. If you look at credit spreads, you lookat the stock market suggesting that in.

The fullness of it all financialconditions actually haven't been tightened in an appreciable way.Third, if you look at the market's estimate of the long run neutral rate,as formed by looking at longer term forward interest rates, that neutralrate is comfortably above 4%. Fourth, if you look at the fundamentaldeterminants of the neutral rate, we have big surges in budget deficits that,if anything, look to get worse given the political process.We have big changes in resilience, investment in green, investment in newinvestment in data centers, along with globalization, which may limit capitalinflows into our country.

So whether you look at the fundamentals,you look at market estimates, you look at financial conditions, or you look atthe current strength of the economy, it seems to me the evidence is overwhelmingthat the neutral rate is far higher than the Fed supposes.So that was former U.S. Treasury Secretary Larry Summersspeaking with David Westin following that US jobs report, which we can divein a little more deeply into now. It brings us back to our conversation.Eagle eyed viewers will remember with Morgan Stanley, chief U.S.economist Ellen Zentner. On Friday, she was talking aboutimmigration specifically and the impact.

On the labor market.Now, the Fed chair, Jay Powell, has said that because of immigration, you've gota bigger economy, not a tighter one. And this was well illustrated in thejobs numbers. Look at the white line.The number of foreign born workers compared to the domestic born workers,the blue line here. And that crocodile mouth opening out.The point being that immigration boosts the break even rate, how fast payrollscan grow without tightening the labor market and therefore stoking wagepressure. So we very much saw this.If we flip the board, you can see the.

Impact on the stock market on Friday.The S&P taking this finally as good economic news, good for the market aswell. A strong economy expected to powercorporate America, even if it means rates higher for longer.I'm sure they'll be discussing this up next on markets today.You've got Anna Edwards and Guy Johnson up next.This is bloomberg.

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