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China Reopens Borders, Freight Innovations, Markets · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find a Bloomberg Markets podcast
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Speaker 1: on Apple podcast or wherever you listen to podcasts, and
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Speaker 1: at bloemberg dot com slash podcast. Kathy End whistles with
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Speaker 1: us moment Stanley, Managing Director, Cathy, it is always a
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Speaker 1: joy to speak to you. And in these holiday thin
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Speaker 1: trading sorts of days, why are we seeing stocks under
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Speaker 1: pressure on a moment that we start to talk about
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Speaker 1: China reopening. I think that there's a lot going on,
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Speaker 1: and I think there's a lot of hangover from the inflation.
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Speaker 1: Interest rates um, you know, continue to to creep up. Uh.
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Speaker 1: And also I would also say that we're not taking
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Speaker 1: into account which is the big point, company earnings. The
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Speaker 1: earnings are going to be a real issue going into
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Speaker 1: the first quarter and that hasn't been priced in the
0:55
Speaker 1: market yet. So we've priced in what the feed is done,
0:57
Speaker 1: but we have in price in with the corporations have
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Speaker 1: done yet and asked China's opening, and that's you know,
1:02
Speaker 1: somewhat of a big deal, but it's not big enough
1:04
Speaker 1: to move the market the way everyone's hoping it would. Kathy,
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Speaker 1: I'm just reading your note this morning, boy, your Parrish,
1:10
Speaker 1: I mean, I love your note here. Fire was the
1:11
Speaker 1: FED and raising rates ice is a resulting downward earnings revisions,
1:15
Speaker 1: um and that gets you too. Maybe you know the
1:17
Speaker 1: SMP can dip down to three thousand and just just
1:21
Speaker 1: so you know, folks, the SMPS at und right here,
1:24
Speaker 1: So that's a big move. So, Kathy, what do you
1:26
Speaker 1: think they're earnings risk really is in the smpis looking forward?
1:29
Speaker 1: What is the downside in your mind? Well, the downside
1:32
Speaker 1: is that that the companies have been kicking the can.
1:35
Speaker 1: We were expecting them to come out with more realistic
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Speaker 1: forward earnings last quarter and they didn't. So now that
1:41
Speaker 1: means it's going to come out this coming up quarter.
1:44
Speaker 1: And what what that means is we've got higher interest rates,
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Speaker 1: so companies have to pay more to borrow. We have
1:50
Speaker 1: consumers who might be a little bit more concerned about spending,
1:54
Speaker 1: so that's also going to hit the bottom line of corporations.
1:58
Speaker 1: And the final thing is it's the cost of good
2:00
Speaker 1: sold it's it's going up and somebody's going to have
2:03
Speaker 1: to take that into account. It doesn't look like the
2:06
Speaker 1: consumers are going to be buying into it, which means
2:08
Speaker 1: the corporations have to start to take part of the
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Speaker 1: hit along with maybe raising some of the prices. I mean,
2:13
Speaker 1: let's talk about inflation, because the end of last week
2:16
Speaker 1: was the readings that looked like inflation was going in
2:19
Speaker 1: the direction of travel that people wanted to see. Yes,
2:21
Speaker 1: we wanted to go faster, stronger, but we are starting
2:23
Speaker 1: to see a cooling in inflation. How optimistic argue that
2:26
Speaker 1: that remains the direction of travel from a consumer perspective.
2:31
Speaker 1: I actually am optimistic that the inflation is going to
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Speaker 1: cool um definitely by you know, second half of the year,
2:38
Speaker 1: and that will help somewhat. But the problem is it's
2:41
Speaker 1: going to be hitting the consumers now and they are
2:44
Speaker 1: running out of all of the extra money that they
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Speaker 1: had to spend. They're putting things on credit cards. It's
2:50
Speaker 1: going to become a real problem next quarter, quarter after
2:53
Speaker 1: and from that standpoint, even though inflation will be cooling,
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Speaker 1: it's still going to take the consumer a little bit
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Speaker 1: of a time to you know, step back in and
3:01
Speaker 1: start buying again, Kathy, tough year four. Stocks were all
3:05
Speaker 1: aware of that, but it was an unprecedented tough year
3:09
Speaker 1: for bonds here. I'm looking at the two year though
3:11
Speaker 1: four point three four point three six should be buying
3:15
Speaker 1: some bonds here. Absolutely, we we like bonds over stocks
3:20
Speaker 1: for for sure. And I will say when you look
3:23
Speaker 1: at the return of bonds this past year with corporate bonds,
3:27
Speaker 1: meaty bonds, I mean double digit losses in in bonds
3:31
Speaker 1: is you know, It's been unheard of for quite a
3:33
Speaker 1: long time, so it is a good buying opportunity. We
3:36
Speaker 1: started talking about buying bonds midyear and it's been paying off.
3:40
Speaker 1: And I think going into tree as well. Where else
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Speaker 1: can you get these nice, you know, returns and without
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Speaker 1: the volatility. I think we're past the volatility and the bonds,
3:49
Speaker 1: so you'll get the return without the volatility and just
3:52
Speaker 1: clip your coupons for the time being, Kathy, I want
3:55
Speaker 1: to ask you, let's go gloss off full, what are
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Speaker 1: the upside risks toward of this as a great piece
4:00
Speaker 1: out by Tom Onnic from an economic perspective, thinking about
4:03
Speaker 1: where some of the upside the things that we're not
4:04
Speaker 1: planning on on the might look more positive. I mean,
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Speaker 1: in some ways, maybe in the long term, this China
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Speaker 1: reopening will be that where are you ensuring that you
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Speaker 1: don't lose the upside as well as protecting yourself to
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Speaker 1: the downside? Um? Absolutely, I think we have to. You know,
4:18
Speaker 1: we have short term and long term views, right so
4:21
Speaker 1: short term it looks a little bit more negative. Long
4:24
Speaker 1: term is always a more positive view. We want our
4:26
Speaker 1: clients to be invested for the long term, but we
4:29
Speaker 1: also don't want to start jumping in before we think
4:31
Speaker 1: it's too soon. A stock market has always been a
4:34
Speaker 1: leading indicator of where the economy is going, and it
4:36
Speaker 1: will be one of the first things to come back
4:39
Speaker 1: quickly and fiercely before the economy turns. So what we
4:43
Speaker 1: don't want to happen is people to lose sight of
4:46
Speaker 1: that and wait until everything is picture perfect before they
4:49
Speaker 1: start investing in the market. Again. That's why we like
4:51
Speaker 1: dollar cost averaging in these types of markets. That's why
4:53
Speaker 1: we like also taking advantage of dips and buying the dips,
4:57
Speaker 1: because if you're a long term investor and you've got
4:59
Speaker 1: a long term view, then you do want to buy
5:01
Speaker 1: at these lower prices today. How about high yield. You know,
5:04
Speaker 1: I don't mind taking a little risk out there, Kathy,
5:06
Speaker 1: but in the face of recession, would be unwise to
5:08
Speaker 1: search for yield in the high yield market. Now you're
5:11
Speaker 1: talking to a girl who worked in the corporate bonds
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Speaker 1: so um. You know, I did see quite a bit
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Speaker 1: of high yield UM companies go into default in bankruptcies,
5:23
Speaker 1: so it is a possibility no corporates here. You always
5:25
Speaker 1: have that issue. So for right now, I'm I'm keeping
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Speaker 1: my clients away from the riskier, higher yielding UM bonds
5:33
Speaker 1: and sticking with the more investment grade. Alright, good stuff.
5:37
Speaker 1: We really appreciate that getting a good outlook for these markets.
5:41
Speaker 1: Kathy and twist On Morgan Stanley, managing director. Ready to
5:47
Speaker 1: say on the show today is Robert Felt is the
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Speaker 1: founder and c of n Ride. Now and Ride developed
5:51
Speaker 1: self driving and electric trucks and of course the software
5:55
Speaker 1: systems that help them to use to monitor deliveries. And Robert,
5:58
Speaker 1: it's fascinating to have some time with you today. We
6:00
Speaker 1: thank you, of course founded the business in Stockholm. Talk
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Speaker 1: to us about what you've seen and the customers that
6:06
Speaker 1: you start to talk to, the Coca colas, the Little,
6:08
Speaker 1: the A b inbevs. The Mulla musks. How are these
6:11
Speaker 1: companies looking at supply chain bottlenecks in the future. First
6:16
Speaker 1: of all, thank you for having me. I think it's
6:19
Speaker 1: a fascinating point in the overall economy right now because
6:22
Speaker 1: what from our perspective, what we are seeing is that
6:25
Speaker 1: we don't really see that slow down happening right now.
6:28
Speaker 1: A few of our customers, of course are seeing taking
6:31
Speaker 1: a longer time to make decision, But overall, for the
6:35
Speaker 1: transition here to electric and an autonomous I think there
6:38
Speaker 1: is a clear engagement there and I think that overall
6:42
Speaker 1: the consumer it will a little bit of downturn of
6:45
Speaker 1: the economy is not really starting to hit yet, and
6:48
Speaker 1: that's what we are at least saying. So people are
6:50
Speaker 1: still doing business, and I think that a little bit
6:53
Speaker 1: of some sectoris we are a little bit less, But
6:56
Speaker 1: overall I think it's uh, we're not in a recession yet.
7:00
Speaker 1: We might be in next year, but overall it's still
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Speaker 1: a lot of people doing business. Robert, I know your
7:06
Speaker 1: company recently raised five million dollars in equity in debt.
7:09
Speaker 1: What do you what are the use of proceeds there now?
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Speaker 1: But for us it's about scaling and more and more
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Speaker 1: installing more capacity for doing a transport together with our customers.
7:20
Speaker 1: So we are deploying a lot of electric and autonomous
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Speaker 1: transport vehicles as well as transport and the charging infrastructure
7:27
Speaker 1: to support it. You are currently of course prevalent across Europe, Sweden, Germany,
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Speaker 1: the Benelucks and indeed in the United States. What all, China,
7:36
Speaker 1: What all of that five million dollars that you now
7:38
Speaker 1: get to put to work? Is it about global expansion?
7:40
Speaker 1: Is it about alleviating some of those pressure points we've
7:42
Speaker 1: grown to know and to hate. I think it's something
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Speaker 1: of a very interesting overall is that the supply chain
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Speaker 1: for electric trucks as well as chargers and the whole
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Speaker 1: infrastructure for all the constant electric and autonomous transport is
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Speaker 1: still to be actually created. So I think that China
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Speaker 1: has a key point in being the supplier there. I mean,
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Speaker 1: they come to we are in a very weird position
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Speaker 1: from historically, but China, and my view, is actually leader
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Speaker 1: in a lot of the electric both batteries as well,
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Speaker 1: it's a lot of engines and also the maturity ecosystem
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Speaker 1: when it comes to electrification. So for us it's China
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Speaker 1: is an extremely important part of that supply. I think
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Speaker 1: that the Western hemisphere needs to focus for it clearly
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Speaker 1: to sort of say, catch up to the maturity of
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Speaker 1: the Chinese ecosystem when it comes to electrification and optimization. Robert,
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Speaker 1: give us a sense of, you know, how much road
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Speaker 1: freight on a global basis contributes to uh, you know,
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Speaker 1: Global CEO two and kind of it feels like it's
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Speaker 1: a big contributor and it really is right for some
8:46
Speaker 1: innovation one. I mean globally, it's that between seven to
8:52
Speaker 1: eight percent of global City two emissions come for heavy
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Speaker 1: road freight transport. And we are still in the same
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Speaker 1: ecosystem that was created more than a hundred years ago
9:01
Speaker 1: now and I think that we're digital, electric and autonomous technology.
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Speaker 1: We have the potential to actually rewrite that. And it's
9:10
Speaker 1: not about the size of the battery. It's not about
9:13
Speaker 1: creating a better truck. It's about creating a new infrastructure
9:16
Speaker 1: for transport. And if you do, we see that between
9:20
Speaker 1: four of electric should be electric driven by the business
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Speaker 1: case today, Robert, I'm gonna ask a sensitive question, but
9:28
Speaker 1: of course you're based well, you're helping found this business
9:31
Speaker 1: in Sweden and Germany in the Benelux countries that care
9:34
Speaker 1: an awful lot about climate change and the like. But
9:37
Speaker 1: the US has been known to be somewhat behind Europe
9:41
Speaker 1: in many ways, and of late many have felt particularly
9:44
Speaker 1: in the supply chain headaches, particularly in the energy crisis. Look,
9:48
Speaker 1: just put that to one side. At the moment, we
9:49
Speaker 1: need to drill, baby, drill. We need to ensure that
9:51
Speaker 1: we've got energy security rather than this transition. How much
9:54
Speaker 1: has that help or hindered your business as we felt
9:56
Speaker 1: that effect at all. I I'm actually a little bit
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Speaker 1: opposite to you than what you're stating in there. I
10:05
Speaker 1: think that this will happen first in the US due
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Speaker 1: to the fact that it is driven by the business case.
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Speaker 1: I mean, what we see from customers of the customers
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Speaker 1: in the US is that electrification is the best business case.
10:16
Speaker 1: If there is something that I I love with the
10:19
Speaker 1: US market, as if there is a business case, it
10:21
Speaker 1: will happen. I think that the European market are still
10:26
Speaker 1: struggling to change and make that change happen. But from
10:30
Speaker 1: our perspective, we're seeing a clear engagement and back to
10:35
Speaker 1: energy security. The electric grid is more reliable than the
10:39
Speaker 1: prices of oil, and even if we have some fluctuations,
10:43
Speaker 1: and especially in Europe right now, it's actually a way
10:46
Speaker 1: of mitigating the dependencies of oil. And I think that
10:50
Speaker 1: if you have both those, it's better solution and it's
10:54
Speaker 1: a cheaper solution. This transition will go very quickly. So Robert,
10:58
Speaker 1: I think I get the whole EV thing. I just
11:00
Speaker 1: drove my first e V for Dee fifty truck. Was
11:03
Speaker 1: very cool, but I'm not so sure about this whole
11:05
Speaker 1: automation thing. Explain your approach now. I actually I share
11:12
Speaker 1: your view there as well. I think that we have
11:14
Speaker 1: been chasing literally flying goats over the last ten years
11:19
Speaker 1: in the automotive industry, and I think that Google and
11:23
Speaker 1: Weymoux has been pioneering the whole industry, and I think
11:28
Speaker 1: that they've done and set the standard that's going to
11:30
Speaker 1: be the standard, but it's going to take a long
11:33
Speaker 1: time before it's actually bean we can actually deploy it
11:37
Speaker 1: on rail roads. And that approach, that's our pure silicon
11:40
Speaker 1: value approach, has been a challenge since the start because
11:44
Speaker 1: it requires literally us to chase our own tail for
11:48
Speaker 1: the whole industry. When we started the company, we took
11:50
Speaker 1: a different approach, and our ambition since the start has
11:53
Speaker 1: been to do bit by bit, find the right applications
11:57
Speaker 1: and find the right business cases to scale autonomous because
12:01
Speaker 1: if you look at a lot of other industries and
12:03
Speaker 1: a lot of other applications, for instance in factories and warehouses,
12:07
Speaker 1: we've been doing autonomous electric transport for more than thirty
12:11
Speaker 1: years now, and that's we'd take a different approach. So
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Speaker 1: I think that the technology why the industry has been
12:19
Speaker 1: pushing it, but I think when it comes to actually
12:22
Speaker 1: finding use cases and real applications to it, it actually
12:26
Speaker 1: has lacked a bit. And I think that's hopefully what
12:29
Speaker 1: we add to the equation. All right, Robert, great stuff.
12:32
Speaker 1: Really appreciate you taking a few minutes bring us up
12:34
Speaker 1: to speed on what you guys are doing over at
12:36
Speaker 1: and right Robert falk and Wright, a founder and CEO.
12:42
Speaker 1: It used to say that Coustin brushed gears with us
12:44
Speaker 1: Iron g chief economist. Long time since I've spoken to you,
12:48
Speaker 1: so it is such a joy. I think you're out
12:50
Speaker 1: there in Frankfurt in between this holiday time talk to
12:53
Speaker 1: us about what China means for you from a global
12:55
Speaker 1: economic perspective. This reopening story, well, it means lot. It
13:00
Speaker 1: means supply chain frictions in the very short run, because
13:04
Speaker 1: we have lifted restrictions right now, but it means we're
13:06
Speaker 1: going to see many, many sick cases, many sicknesses, and
13:09
Speaker 1: that will probably mean that people simply cannot show up
13:12
Speaker 1: in the factories. But in the medium term, and that
13:15
Speaker 1: we talked probably end of Q one two three, this
13:18
Speaker 1: clearly means that supply chain friction should go away much
13:22
Speaker 1: paster than we initially thought because China is really giving
13:25
Speaker 1: up on on zero covit and that is good news
13:28
Speaker 1: for the global economy. As we are, you know, we
13:30
Speaker 1: are looking into a recession in Europe in two thousand
13:34
Speaker 1: twenty three, we even look into a recession in the US.
13:37
Speaker 1: If China would now really start to recover starting second
13:42
Speaker 1: quarter two twenty three, this could help the global economy
13:45
Speaker 1: a lot. So Carston talked to us from the European
13:49
Speaker 1: perspective what this means, because that you know, such a
13:51
Speaker 1: big trading partner with the European Union and China, where
13:56
Speaker 1: where you know the first for some impacts on the
13:58
Speaker 1: European economy. From yeah, I think in the in the
14:04
Speaker 1: very part term, um, I think that even lifting all
14:07
Speaker 1: the restrictions means that there will be more supply chain frictions.
14:10
Speaker 1: So I'm really looking into European industry and probably having
14:16
Speaker 1: more supply chain frictions over the winter. And the winter
14:19
Speaker 1: is already going to be a tough economic one in Europe.
14:23
Speaker 1: But then when we get out of the winter, when
14:25
Speaker 1: when when China is then somehow settling into this new
14:29
Speaker 1: post euro covered reality. Um, this would clearly benefit the
14:34
Speaker 1: European industry, the European companies that are so dependent on
14:39
Speaker 1: input goods from from China. And showing some sort of statistics,
14:43
Speaker 1: I think in Germany more than fifty percent of the
14:46
Speaker 1: manufacturing sectors say that they are one way or the
14:49
Speaker 1: other depending on China. So clearly Germany but also Europe
14:54
Speaker 1: needs a growing Chinese economy. May he live in interesting
14:58
Speaker 1: times is the Chinese proverb actually that you quote at
15:01
Speaker 1: the top of your note. And boy have we lived
15:03
Speaker 1: in interesting times in the last few years, but also
15:06
Speaker 1: in two and it's been not just a story of China,
15:09
Speaker 1: not just a story of global disruption, but notably one
15:13
Speaker 1: of Russia, Ukraine, of the impact on energy markets and
15:16
Speaker 1: the impact of the devastation that's reaked upon Europe in particular,
15:19
Speaker 1: and I'm interested at this moment as to whether you
15:21
Speaker 1: see with the warmest snap the weather slightly more temperate
15:25
Speaker 1: in Europe than we were expecting. There has been an
15:27
Speaker 1: easing off of concerns around energy supply chains there, but
15:30
Speaker 1: talk to us longer term about how will your comfort
15:32
Speaker 1: levels look for Europe as an economy with respect to energy.
15:37
Speaker 1: I found out that actually it is not a proverb,
15:40
Speaker 1: but it is a curse to start with. But we're
15:43
Speaker 1: looking at at Europe and I think the picture changes
15:47
Speaker 1: by the week. Just one or two weeks ago we
15:49
Speaker 1: were saying this was actually a cold winter spell hitting
15:53
Speaker 1: the entire region, or we saw happening as well. I
15:57
Speaker 1: think a week ago consumption gap consumption in Europe was
16:01
Speaker 1: clearly above historical averages. Again, so now it's turning around
16:05
Speaker 1: and we we we saw a temperature ship by almost
16:08
Speaker 1: twenty degrees, going from minus ten sellers to plus ten sellingers.
16:12
Speaker 1: So this would clearly help the reduction in gas consumption.
16:16
Speaker 1: And I think in any case shows us that there
16:19
Speaker 1: will not be an energy supply issue through this winter.
16:23
Speaker 1: What we still have is an energy price crisis in Europe.
16:27
Speaker 1: Um and it will. It will determine how severe this
16:30
Speaker 1: winter recession will be. So it currently looks, I think
16:33
Speaker 1: a bit more positive, so that this recession is going
16:35
Speaker 1: to be a mild recession. But what is even more
16:37
Speaker 1: important in my view, especially for Europe, is what's going
16:41
Speaker 1: to happen in the second half of two thousand twenty three.
16:44
Speaker 1: Here we have many forecasters saying that Europe would return
16:47
Speaker 1: to pre growth or pre pre crisis growth levels. And
16:51
Speaker 1: I'm a bit more cautious because I think we are
16:53
Speaker 1: still living in a period of high energy prices, We're
16:57
Speaker 1: still living in a period of structural change to global trade.
17:01
Speaker 1: So I'm a bit more concerned that the year of
17:03
Speaker 1: will really experience a more subdued recovery in the second
17:08
Speaker 1: half of twenty three and also in two thousand twenty
17:10
Speaker 1: four the many currently expects. Carson, we recently had the
17:14
Speaker 1: Bank of Japan of all banks, kind of throwing the
17:17
Speaker 1: talent signal that it was opened higher rates and to
17:20
Speaker 1: fight inflation. So you know, along with the Bank of England,
17:23
Speaker 1: the e c B, and of course the US feder
17:24
Speaker 1: Reserve Bank. What do you think the next move is
17:27
Speaker 1: for this federal Reserve Bank? Given what we know now
17:30
Speaker 1: about economic conditions and now maybe another little data point
17:33
Speaker 1: with China reopening. You know, you wouldn't argue that if
17:38
Speaker 1: if the Bank of Japan, of all the central banks
17:41
Speaker 1: start to become really concerned about inflation, I think there
17:44
Speaker 1: has to be a serious issue. And that's standime was
17:46
Speaker 1: the big story of two thousand twenty two. UM. I
17:49
Speaker 1: think that the Bank of Japan is also likely to
17:53
Speaker 1: join this UM, this group of western central banks UM
17:57
Speaker 1: with hiking interest rates. UM. So the only quite with
18:00
Speaker 1: the Bank of Japan now starts what we see, what
18:03
Speaker 1: we see other central banks, particularly the FED, really making
18:07
Speaker 1: a pause or even stopping the hiking cycle already in
18:10
Speaker 1: the first quarter, we think they will. We think the
18:13
Speaker 1: Fed is gone a step in Q one. We I
18:17
Speaker 1: think it's become a bit more doubtful about the ECB
18:19
Speaker 1: because the e c B has been talking very harkishly
18:22
Speaker 1: UM since the last meeting. Is over the last couple
18:25
Speaker 1: of days, it looks very likely if the ECB is
18:28
Speaker 1: going further than the fact that we will see more
18:31
Speaker 1: rate hikes coming in Europe even when the FEDS stops.
18:35
Speaker 1: I think interested and the big story for the second
18:37
Speaker 1: half two thousand twenty three will be whether central banks
18:41
Speaker 1: will actually dare cutting rates again or whether we will
18:45
Speaker 1: really stay at a higher level for longer. I mean,
18:48
Speaker 1: it's worth saying that, of course the US has manages
18:51
Speaker 1: get its rates up a little slightly greater paced higher
18:53
Speaker 1: levels all told us as easy b already. But is
18:56
Speaker 1: that why do the Federal Reserve have the bandwidth to
18:58
Speaker 1: slow down in the first quarter that inflation is going
19:00
Speaker 1: in the direction it wants to. Is it more that's
19:02
Speaker 1: now seeing a bond market that doesn't have the bias
19:05
Speaker 1: that it was used to. Particularly we start to see
19:07
Speaker 1: borrowing costs in Japan actually maybe even look attractive to
19:11
Speaker 1: the Japanese by themselves, I think. Um. In terms of
19:16
Speaker 1: that said, what what's going to happen is that inflation
19:18
Speaker 1: is going to come down faster than the FAT itself
19:21
Speaker 1: probably expects um. And that has to do with the
19:24
Speaker 1: real estate market, has to do also with the entire
19:27
Speaker 1: inflation basket. So if the real estate market in the
19:30
Speaker 1: US that really starts to correct, and we see first
19:33
Speaker 1: the data points and you know suggesting that this is happening,
19:37
Speaker 1: headline inflation will come down very quickly. And this is
19:40
Speaker 1: then the big reason to pass. Turning back to to Japan,
19:45
Speaker 1: here we do have an economy that that could benefit
19:48
Speaker 1: from the opening up of China. Here we have an
19:51
Speaker 1: economy that is not suffering, as for example, the European
19:55
Speaker 1: economy from higher commodity and energy prices um. This is
20:00
Speaker 1: an economy in which fiscal policy has done the tough work,
20:04
Speaker 1: I think for for almost two decades UM. So therefore
20:07
Speaker 1: it is likely that we will see the first policy
20:10
Speaker 1: rate high in Japan coming up. So, Carson, I have
20:14
Speaker 1: the Paul Sweeney Personal Inflation Index, otherwise known as a
20:17
Speaker 1: daily national average gasoline price, and it's down the three
20:20
Speaker 1: dollars and ten cents per gallon here, down from the
20:23
Speaker 1: peak of five dollars UM. So here in the US
20:26
Speaker 1: at least inflation is in fact it has peaked, it
20:29
Speaker 1: is coming down. You can look across a several different
20:32
Speaker 1: metrics give us a sense of how it is in Europe.
20:34
Speaker 1: Do you expect it to be more more sticky in Europe? Yeah.
20:39
Speaker 1: If I look at Carson Justice personal inflation in next,
20:42
Speaker 1: which is sons partaty more than only gasoline prices UM,
20:46
Speaker 1: I think we are somewhere close to the peak. And
20:50
Speaker 1: in in the first quarter of twenty three, we will
20:52
Speaker 1: see that Eurozone headline inflation will start to come down
20:56
Speaker 1: as energy prices are somewhat lower. As it is also
21:00
Speaker 1: you know, getting harder for companies to really pass through
21:03
Speaker 1: the higher production costs to two consumers, so we'll see
21:06
Speaker 1: a gradual retreatment by by inflamation. But still this means
21:11
Speaker 1: that I think on average inflation in the Eurozone will
21:14
Speaker 1: will come in at between six or seven percent in
21:17
Speaker 1: two thousand twenty three. That is a lot and awesome.
21:20
Speaker 1: Means that there is an enormous, enormous pressure on purchasing
21:25
Speaker 1: power or the loss in purchasing power of European citizens. Alright,
21:29
Speaker 1: good stuff. We really appreciate getting your perspective there, Carston Razinski.
21:33
Speaker 1: He is the chief economist for I n G. Let's
21:39
Speaker 1: talk about it over the Charles, the Buses All Society
21:41
Speaker 1: General Equity Strategist, Charles, it is wonderful to have some
21:45
Speaker 1: time with you. Happy holidays. Talk to us about well,
21:48
Speaker 1: when you are looking at a potential China reopening, what
21:51
Speaker 1: makes you think that the market is going to trade sideways? Well, look,
21:55
Speaker 1: it's a it's a balance between the news flow with
21:57
Speaker 1: the China reopening, which is somewhat of a posity but
22:00
Speaker 1: also issues the valuation side, And as far as the
22:04
Speaker 1: US is concerned, valuations being back on center stage is
22:08
Speaker 1: not slee a good thing. Um, if you think of
22:11
Speaker 1: it this way, you know, Europe is actually be outperforming
22:14
Speaker 1: this year despite the US massively going down. So for me,
22:19
Speaker 1: this is kind of an US in theory. But what
22:21
Speaker 1: it shows that at last, and that's the good news
22:25
Speaker 1: for three, valuations start to matter. We've ended twenty five
22:31
Speaker 1: years of falling bond deals which went plods, people buying
22:34
Speaker 1: growth stops. Where's growth the US not Europe? And now
22:39
Speaker 1: that's the end of that long cyclement. Still at last,
22:43
Speaker 1: valuations and visit again today mean that so yes and
22:46
Speaker 1: Europe gonna have a good time. Charles. You know, some
22:50
Speaker 1: folks are concerned, still concerned about earnings risk in this
22:54
Speaker 1: market in how do you view earnings in SMP? How
22:58
Speaker 1: much downside might there still be? Okay, overall flat on
23:04
Speaker 1: the earth, But that's I think the Roses scenario most
23:07
Speaker 1: likely down sort of just single digits. Um, So earning
23:11
Speaker 1: is at gonna go down. There's gonna be downgrades, um,
23:14
Speaker 1: you know across the board in many regions of the world.
23:17
Speaker 1: I think that is expected. What we need is to
23:19
Speaker 1: see where there are pockets where investor sentiment is too
23:23
Speaker 1: thin devious sleep the volumes of anything today, so it's
23:26
Speaker 1: far too thredraw many conclusions, but certainly what we are
23:30
Speaker 1: you know, looking to um such just some places you
23:36
Speaker 1: can think of Japanese banks on the back of the
23:38
Speaker 1: last weeks new show, or some cycicals in Europe, we're
23:41
Speaker 1: actually values not fine, so I thinks we'll go down.
23:44
Speaker 1: We'll know this, yeah, price then not across the fro
23:49
Speaker 1: talk to us about the individual you just mentioned. I
23:52
Speaker 1: think I heard you say Japanese banks there, but financials
23:55
Speaker 1: more broadly have been surprisingly underperforming, I mean down even
23:59
Speaker 1: though you have pushed higher. I'm interested in can you
24:02
Speaker 1: speak as broad brush as industry groups. Can you still
24:05
Speaker 1: say energy is gonna outperform like it did in this year?
24:08
Speaker 1: I mean, I think it's up to some six percent
24:10
Speaker 1: here to day, whereas everything else is in the red?
24:12
Speaker 1: Or do you have to be stock specific rather than
24:14
Speaker 1: sector specific. Look, if you take the case of financials,
24:19
Speaker 1: as you've pointed out, to find rising fields, they've had
24:22
Speaker 1: appalling performance. What was the missing block. Missing block was
24:26
Speaker 1: economic growth, real growth. If you don't have real growth,
24:31
Speaker 1: rule banking sector, your insurance will not necessarily grow. And
24:34
Speaker 1: so our expectations that at some point can start to
24:38
Speaker 1: turn from an economic prospectivitience of real growth not none
24:42
Speaker 1: at all. And so financials in that you know circumstances
24:45
Speaker 1: could not perform. If you get the energy sector, what
24:48
Speaker 1: it had for it was really totals shareholder returns diffidence
24:53
Speaker 1: because buybacks more than tend to say yield in a
24:56
Speaker 1: number of socks. So there has been a combination of
24:59
Speaker 1: do you have the valuation angel, yes or no? Energy
25:03
Speaker 1: todly have it? Banks had it? Sure has had it,
25:06
Speaker 1: but are you missing something growth? And if it's missing,
25:09
Speaker 1: you don't have performance. Our hope is that you start
25:12
Speaker 1: to see turn running real growth. Some of these reflation traits,
25:17
Speaker 1: not staculation traits, do not perform. And Charles, you mentioned energy,
25:21
Speaker 1: I mean, I'm looking at some of these names like
25:23
Speaker 1: excellent and a lot of these things are fifty six.
25:27
Speaker 1: Have I missed that trade? Um the bulk of it, Yes,
25:33
Speaker 1: we'll still long that. I felt was still think that
25:36
Speaker 1: if you look at the cash generation that they offered
25:40
Speaker 1: the total she all returned that they offered on both
25:43
Speaker 1: sides of the Atlantic. Then I think, yes, that's still
25:45
Speaker 1: centered that we're happy to to hold. Where in globally
25:51
Speaker 1: speaking at the moment, Charles is underrated. Do you think
25:57
Speaker 1: number one, the European consumer. What we've seen is a
26:01
Speaker 1: massive prise in the risks, remember around anything which had
26:04
Speaker 1: to do with Europe on the back of the war
26:06
Speaker 1: Ukraine and so people went away from the europe differency,
26:10
Speaker 1: from booms from European equities, and what we are seeing
26:14
Speaker 1: currently is that we seem to be going through that
26:17
Speaker 1: winter in a choppy way, but morale than scathed. And
26:21
Speaker 1: certainly what we have in Europe is one trilling euros
26:24
Speaker 1: of access savings that stopped to be spent. And if
26:27
Speaker 1: look in terms of valuations, these guys tread at six,
26:31
Speaker 1: not one six, but six zero percent discounts to the
26:35
Speaker 1: stables sectors. So definitely it's a star general. People have
26:38
Speaker 1: rushed away thinking that the European consume was dead. It's
26:42
Speaker 1: not the case. And what we've seen is the rebound
26:46
Speaker 1: of the past few months. We think this has further
26:48
Speaker 1: to go. Charles. Really since a great financial crisis and
26:52
Speaker 1: the equity markets, you know, the leading group has been technology,
26:56
Speaker 1: whether it's the fang stocks are more broadly defined tech.
27:00
Speaker 1: In a rising interest rate environment? Can that still be
27:03
Speaker 1: the case? Is this market maybe it starts to move
27:06
Speaker 1: higher at some point next year. Can techt be a
27:08
Speaker 1: leader or not in a rising interest rate environment? The
27:13
Speaker 1: answer is no. The reason behind it is that the
27:17
Speaker 1: gap evaluation has to narrow because valuations, as it was
27:21
Speaker 1: starting earler own, start to matter. What you've seen today
27:26
Speaker 1: in the case of some of the ev names, we're
27:29
Speaker 1: mentioning the supplying change, disruptions here and there, what happens
27:33
Speaker 1: at the back of the COVID policy in China used
27:35
Speaker 1: to being be easy, some of these fears. That's one
27:38
Speaker 1: side of the equation. The issue I have a look
27:42
Speaker 1: at the US market is that just five stops have
27:45
Speaker 1: been accounting for the bulk of the performance of the
27:47
Speaker 1: index because situation performance is massive in the West, and
27:52
Speaker 1: we still have a lot of gap in evaluation there.
27:55
Speaker 1: When you're close of the equity zero, you don't care
27:58
Speaker 1: paying of the growth. When things start to be expensive
28:01
Speaker 1: terms of financing this, think of stack, think of some
28:04
Speaker 1: of the techniques. Then valuation of need that the rotation
28:08
Speaker 1: out of the expensive names, and you're putting on the
28:10
Speaker 1: screen here that now's that pass for them to go.
28:14
Speaker 1: What then, as we see interest rates rise, as we
28:17
Speaker 1: start to see the consumer maybe under pressures and waiting
28:21
Speaker 1: for some sort of growth, is it? I mean consumer
28:24
Speaker 1: discretionary down, consumer staples up? Are we are we in
28:28
Speaker 1: any way betting on a US consumer in the way
28:30
Speaker 1: that you're thinking maybe the European consumer is underrated now.
28:35
Speaker 1: The way I look at it in the US is
28:36
Speaker 1: that I've much law advised. Some of the industrial names
28:40
Speaker 1: in the US supposed to consumer names. I think some
28:43
Speaker 1: of the financing conditions in the US can be fried
28:46
Speaker 1: Gile thinking in a ploye market. It's still a kind
28:49
Speaker 1: of a question mark. And what really what they need
28:52
Speaker 1: eventually in the end is the pivot from the FED
28:55
Speaker 1: and cut in rates. What the US industrials names need
29:00
Speaker 1: is obviously a raid cut, but they need is growth
29:03
Speaker 1: trade to come back. And I think the news flow
29:05
Speaker 1: from China today goes to lost this. So if you
29:08
Speaker 1: think of it, industrials in the US is supposed to
29:11
Speaker 1: the consumer. In Europe, more of the consumer think of
29:14
Speaker 1: it also, not the inflation reduction acts some of the
29:17
Speaker 1: big moves on the policy front that we've seen in
29:20
Speaker 1: the US context really suggesting that many comp corporates will
29:25
Speaker 1: benefit from that spending from the state um in the
29:28
Speaker 1: West in terms of financing the green transition, and that's
29:31
Speaker 1: one of our key convictions. Maybe surprisingly the US will
29:35
Speaker 1: be in place of green transition in twenty twenty three.
29:38
Speaker 1: It's not just about the European Green Deal, all right,
29:41
Speaker 1: great stuff, Charles, Well, appreciate you taking a few minutes
29:43
Speaker 1: of time there to check in with us. Charles day
29:46
Speaker 1: Bus Swan Society is General equity strategist. Joining us via
29:50
Speaker 1: zoom from Parish There. Thanks for listening to the Bloomberg
29:53
Speaker 1: Markets podcast. You can subscribe and listen to interviews of
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Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
30:02
Speaker 1: I'm on Twitter at Matt Miller N seventy three and
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