00:00Yep, joining us now, let's talk a little more about this, is Johanna Chua, Head of Emerging Market Economics at Citigroup Global Markets.
00:05So it seems like it's down to a coin toss of what the Fed's going to do.
00:08Yeah, absolutely. I think people were spooked by the ADP, the private ADP data that came out overnight.
00:13I mean, it really all comes down to the labor market.
00:15And right now, because we don't have any information, we, you know, the Fed could be, you know,
00:18we could be reopening after the government shutdown and the Fed will be faced with three NFP reports to digest.
00:24And I think that's where the big concern and debate going on now is the market.
00:26How weak is the labor market? Because the reality is that what was motivating the Fed to ease was the labor market.
00:32And we, Citi, as a view, our house view is that there is still softness in the labor market,
00:37notwithstanding some of the data that's looking quite resilient.
00:39And they're going to respond to that based on a dual mandate.
00:42Because after all, the median FOMC members do see policy rate right now as modestly restrictive,
00:48which means they still have room to go to neutral.
00:51Well, what does it mean for the dollar at this repricing we've seen this week?
00:54Well, you know, I mean, obviously, we've seen the dollar already kind of rebound.
00:57I mean, as you know, market have to kind of reassess that U.S. economy is very resilient.
01:01I mean, we've got the Atlanta GDP now kind of forecasting like 4 percent growth,
01:05which is amazing in third quarter in the U.S., which is above potential.
01:08I mean, we're not as as bullish.
01:10So, yeah, look, I think, you know, but, you know, our view is that, you know,
01:14eventually we still see some mixed signs.
01:16We do think economic momentum is slowing down in 4Q.
01:19Yes, we still have, you know, inflation core PCE kind of still above target.
01:23But we are still thinking that the kind of services component of inflation is still relatively manageable.
01:29So we think the Fed will still cut.
01:31But I agree this is very debated now because of this lack of data on the labor market.
01:36And I think people were also taken aback.
01:38There was a there was a Dallas Fed study that was released last in early October saying that the 30,000 payroll is kind of the break even NFP.
01:46Like you don't really need very strong payroll given what's happened to labor supply.
01:50So people are still trying to figure out what type of NFP will move the needle for the Fed to act.
01:55And that's why I think people are getting a bit nervous.
01:57But, you know, I mean, again, I would say, you know, we are a little bit more on the bear, you know, more more dovish and consensus.
02:04We are calling for a December, January and March cut.
02:09But but, you know, again, the key thing really is the labor market.
02:12But the fact that we're in a truce for a year between U.S. and China, I mean, does that at least keep the export side of things still strong for the global economy here?
02:20Because trade has been really resilient all year round.
02:22Well, actually, the fact that we had this U.S.-China truce and you had the tariff reduction.
02:26Yes.
02:26From, you know, the fentanyl tariff by 10 percent.
02:29The calculation is that that actually drives down import effective tariff rate in the U.S. by about 1.4 percentage points.
02:35So if you're worried about the Fed being deterred to ease because of the inflationary impact at the margin, that kind of dissipates a little bit.
02:44Yes.
02:44I mean, exports, you know, I think from the China's perspective there, you know, I just came back from Beijing.
02:48I think there's a certain level of, you know, greater confidence that, you know, this year we had kind of a net export significant contribution from net exports.
02:56And if you kick the can down the road another year, they could try to squeeze a little bit more of that.
03:01But again, there's kind of a limit to that because, you know, our expectation is, you know, you know, growth, especially in the U.S., will slow down in the fourth quarter next year.
03:10And, you know, I think despite this kind of a little bit of tariff competitiveness at the margin, you know, it's not clear how much China, being the second largest economy, can rely on net exports in perpetuity.
03:21So we do think they're going to have to deliver more on consumption support.
03:24But I agree.
03:25I think they feel a little bit more confident that maybe we can chug this along a little bit longer.
03:31And that obviously helps a little bit global risk appetite.
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