Europe, John, Bloomberg discussed on Bloomberg Surveillance
It's a snooze or but I just don't buy that even even stasis at the is new. So the announcement is this news. I think the news conference is going to be absolutely fascinating. Quite clearly the president the faces of. Economy, quite clearly, he has very limited policy options to address it. It's ready ready difficult also to gauge what's happening with the euro-zone economy manufacturing recession, sevices resilient Leiper market. Okay. What do you do if you lead in the very good shop Jones for this with Credit Suisse? And I guess you want to go is Mr. Draghi's going to do everything not to move the euro. And yet you've got to decide if there's alpha or pop or gain either way in the euro is the euro movable over the next six months. Well, the markets has sold implied volatility in Europe in massive size. So the market Sunday thinks that there are many reasons for launch remove I think in terms of today the biggest surprise would be is a positive in. A you see druggy decides to address head on this issue or the stories in the markets around the possibility of tiered rates in the future. I think if there's a substantial discussion around that topic, then take the euro could move, and it would probably be downside. Let's talk about the move to have difficult. That would be your tolerance really stuck with to break. One twelve to hop them. We froze a lot of it. What is it gonna take to get the euro to break that level? It's going to have to be something. Like like what I just described some something along the lines of a conversation that raises the possibility of new innovations in monetary policy designed to dress more specifically what we can see which is very low inflation of very falling inflation expectations. A high likelihood of the missing it's targets inflation in the future to now druggy has maintained that ultimately the economy would cover inflation expectations himself. We'll move up again. So anything that suggests that there's a greater risk of dot on happen. We would need to see that before the European conclusively breakdown through those levels. This is critical shops in the trenches on this of this massive as you call it binary, call John just coming up on what central banks do what does the next move. I mean, president Draghi tastes the prospects that we could have. A pulse. It right at the bay. Or they would do something to offset the pain of negative interest rates to financial and the financial sector Shehab. It doesn't seem to me that that's on the horizon in terms of happening anytime soon. No, that's right. And I think that's the reason why as we discussed volatility in the euro implied the so low, and why markets basically that thing on the current ranges holding. It would be a surprise. If to frankly today, he decides to make it big issue of these of these famous, but the thing is it's still difficult to completely give zero this because at alternately it's still the case that the economy is shaky and inflation data a very weak. So that you don't really hard from that. And that's why we should live to this risk dumb question of the day, which we just take for granted. But I think for a lot of our audience is not a dumb question Shaab can the EC be cut rates it still technically possible, the central banks, for example, the Swiss National Bank that have even lower rates than they used to be current rates. Does the debates about how you so that would be particularly for Bank. Stability and therefore credit creation, which comes from banks ultimately in your area. So, but it's, but it's technically possible. And again, the issue is what does she do? If we go into another major slow down with another big fool in inflation expectations. When tool sets is as limited as as it is as long as the market doesn't perceive there to be a wide range of other options. It will still keep open keeping in mind around the possibility of more negative rates, which again, I think tells us that maybe the problem lies elsewhere in all of you that if they're going to do solution. It probably will need a fiscal components. The countries that have room for fiscal expansion like the play a role in that. But that doesn't seem to be on the menu. John wasn't a ten days ago that chair Yellen in Asia said exactly what you're Mr. Jaylen who say I think many people at this point. And for whatever reason Europe just doesn't want to explore the policy of Shihab when that changes when does the penny. Funny drop that you need a countercyclical fiscal policy in Europe. I think the difficulties is lies not so much in the fact that it's not been discussed efficiently to the house. It's just it's philosophically of the German seem disinclined to go that way. But also, maybe they want to see more signs of reforms that they approve of in the other countries of becomes like FRANZ, for example. So there's a quid pro quo. So it's a playing out to the question is whether the European economy consistent self long enough for this to really work itself out again, this plays into the view of some who believe you need crises the first issue, and in the absence of those nothing much happens, which is why so many investors tend to have a structural Berisha review. Well, let's talk about structural Barish year of you and talk about the cycle as well. At the moment. You'll view is different degree of bad. It's wake will agree that its way to Europe. But to what degree issue how because manufacturing? Very much wake in a recession. Pretty much services is how the hard data is still coming out. Okay. The self data looks terrible. How do you think druggy actually analyzes the euro-zone economy today with all of those different things going on? It's not that clear. It's really not clear because there are problems to for example. We don't know whether the US and President Trump will push on and force this year round other terrorists, which obviously if the US which impose time in Europe would be a new economic shock and something that isn't currently it's been talked about, but I wouldn't say necessarily in the price at this point in time for the euro or maybe even drugs assessments of the future. So I think it's very difficult because of the changing nature of global trade relationships, and especially for the euro area being expertise region laws in Germany. This is a key factor. I think in the current data as you suggest you do have the split between the services sector and reasonable employment outlook, by European standards on the one hand, and yet, obviously there's terrible manufacturing story and the other. But I think ultimately what I'm looking at that to to solve that dilemma is inflation expectations. And and if you look at some of these these owns David measures for the five year five year inflation swap for it, it they'd be fully these accession expectations are going lower than haven't bounced too much yet either even with positive news, like China's upside PM, I surprise some odd. So I think that as long as that's the case we should be on the side of these TV having to be remaining on the pressure to come up with ideas, Jonas with Credit Suisse. Thank you so much, and John I had forgotten about five year five year forwards in EU, and they have dropped like Iraq. I'm gonna put that chart on Twitter. You'll see. I I'm Bloomberg radio on John. I got to be blunt. I gotta use his chart tomorrow. I wish I use it today Bloomberg television policy in potentials excessive I chose. Well. That's the problem. I thought you're brilliant. They're on a fiscal. There's there's no worse fiscal solution out. Even if you the will to do this all his veto guests for this. I am tomorrow. The next day whenever it is. Where you got the will. But what's the transmission? Mechanism to affect tell them. That's the problem. Three issues. You always look at an analyze policymakers with these following three issues. What's their ability to act what is that willingness to act and what does the effectiveness if they do act and in Europe, the answer to all those three questions is not great. And that's the problem. Yeah. Stunning. 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