This podcast is first and originally published at https://peterlewismoneytalk.substack.com/p/peter-lewis-money-talk-tuesday-13?sd=pf
“Central Banks, Inflation, and Economic Challenges: Insights from Global Experts” brought together a distinguished panel of leading economists and policymakers, including Tony Nash, CEO and Founder of Complete Intelligence. The experts discussed the pivotal role of central banks, the rising concerns about inflation, and the economic challenges faced by nations worldwide.
Tony Nash, among other esteemed panelists, delved into the essential role played by central banks in maintaining economic stability. The discussion revolved around the measures implemented in response to escalating inflation rates observed in several countries, emphasizing the need to strike a balance between promoting economic growth and ensuring price stability.
The panelists highlighted the mounting worries surrounding inflation and its impact. They attributed the recent surge in inflation across various sectors to factors such as increased government spending, supply chain disruptions, and pent-up consumer demand. While acknowledging the expected inflation during economic recovery, the experts cautioned against prolonged and excessive inflation, which could erode consumer purchasing power and jeopardize long-term economic stability.
The challenges faced by central banks in navigating this delicate balance were a focal point of the discussion. The experts emphasized the importance of implementing appropriate measures to combat inflation without impeding economic growth. Failure to do so could undermine public trust in the central bank’s ability to maintain price stability.
Additionally, the panel underscored the significance of global cooperation in tackling these economic challenges. They stressed the importance of sharing insights, best practices, and collaborating among central banks and policymakers from different nations to mitigate the impact of inflation and foster sustainable economic growth.
The discussion also addressed the influence of technology on inflation dynamics. The experts acknowledged the transformative impact of technological advancements on various industries, affecting productivity and potentially altering price dynamics. This prompted a discussion on the adaptation of central bank policies to account for these changing dynamics and ensure effective control of inflation in an increasingly digital and interconnected world.
In conclusion, “Central Banks, Inflation, and Economic Challenges: Insights from Global Experts” featuring Tony Nash, CEO and Founder of Complete Intelligence, emphasized the crucial role played by central banks in managing economic stability and addressing the challenges posed by inflation. The discussion highlighted the importance of a balanced approach, considering both short-term economic recovery and long-term price stability. The experts underscored the significance of global cooperation and technological adaptation in effectively tackling these economic challenges and fostering sustainable growth in the years to come.
Transcript
Peter
Every Monday to Friday. This is Peter Lewis’s Money Talk. Money talk. Good morning. This is Peter Lewis and a warm welcome to Money Talk for Tuesday, the 13 June. Thank you for listening and for making this program one of the top ten most listened-to financial podcasts on Apple podcasts in Hong Kong. You can also find the show on Google Podcasts and Spotify. Just look for Peter Lewis’s MoneyTalk. And if you want more information on this program or would like to read my daily newsletter, then please go to my website peterlewismoneytalk.substac.com. This podcast is sponsored by Surfing Group, which is headquartered in Singapore and offers online financial services to 30 million customers across ten countries.
Peter
In today’s business and finance headlines, the US. Federal Reserve is expected to forego another interest rate hike in its monetary policy meeting, which starts later today. After more than a year of driving up interest rates, policymakers are expected to leave rates in a range of 5% to five and a quarter percent at their meeting, which concludes Thursday morning, Hong Kong time. Fed fund’s futures markets are pricing in a 77% probability of no change, but investors are laying 73% odds that the US Central Bank will increase rates again in July.
Peter
US consumer expectations for year ahead inflation fell to their lowest level in two years, according to the Federal Reserve Bank of New York’s latest survey. Median inflation expectations for the year ahead declined 0.3 percentage points to 4.1%. That’s the lowest reading since May 2021. India’s consumer price inflation has eased to the lowest level in 25 months. The annual inflation rate in India fell to four and a quarter percent in May from 4.7% in the previous month. That’s the lowest since April 2021 and firmly below market forecasts of 4.42%. Food inflation eased to 2.9% in May from 3.84% in the month of April. The food basket accounts for nearly half of the consumer price index in India.
Peter
On today’s Money Talk, I’m joined by Asian fund management industry consultant Stuart Oldcroft, Pete Sweeney, financial columnist at Reuters, and from the USA, Tony Nash, founder of Complete Intelligence. Peter Lewis’ Money Talk?
Peter
On Wall Street, US. Stocks rose Monday as investors anticipated the first pause in the central bank’s 14-month campaign to tame inflation. The benchmark S&P 500 climbed 0.9% to a 13-month high of 4339, consolidating its move last week into bull market territory.
Peter
The S&P 500 is up more than 21% now from its October 2022 low, but those gains have been driven almost entirely by just seven stocks. The tech heavy Nasdaq Composite added one and a half percent to end the session at 13,462. That’s the highest in almost 14 months and takes. The Nasdaq’s rebound from its 52 week low in December to 32%. The Dow climbed 190 points on 0.6% to close at 34,066. Chinese equities dropped on Monday morning as weak economic data from the country weighed on sentiment, but they staged a rebound in the afternoon session. Hong Kong’s Hang Seng Index recovered from losses of 0.7% earlier in the day to close 14 points, or 0.1%, higher at 19,404. And this morning, futures markets are pointing to a decline of about 110 points for the Hang Seng at the open, that’s 0.6%. On the mainland, the Shanghai Composite was down zero 1% at 3229, snapping a three day winning streak. Oil prices continue to come under pressure despite Saudi Arabia announcing an additional 1 million barrel a day production cut in July at the last meeting of OPEC. Plus, on Monday, Goldman Sachs revised its end of year price estimate for Brent crude to $86 from $95.
Peter
That’s the third downward revision in the past six months. Brent crude oil fell 3.9% to $71.84 a barrel, the lowest close since December 2021, as traders focused on lackluster demand growth. In China, oil prices are down about 25% now since OPEC began reducing supply last October. And you can get more details on the latest market movements in my daily newsletter, which you’ll find at Peter lewismontalk substac.com every Monday to Friday. This is Peter Lewis’s Money Talk. Peter Lewis Money Talk.
Peter
And we have a stellar panel of guests for you this morning. And as always on a Tuesday morning, we find Asian fund management industry consultant Stuart Orcroft. Morning to you, Stuart.
Stuart
Good morning to you, Peter.
Peter
And over in Japan this morning, we have Pete Sweeney, who’s financial columnist at Reuters. Morning, Pete.
Pete
Good morning, Peter. How are you?
Peter
I’m very well. And just to show how international our panel is today, over in the USA, we have Tony Nash, who is founder of Complete Intelligence. Morning, Tony.
Tony
Good morning, Peter.
Peter
It’s going to be a busy week for the central banks. Three of the big hitters are in action. The Fed meeting takes place today and tomorrow. The European Central Bank meets on Thursday. The bank of Japan’s meeting will conclude on Friday. Let’s start first. In Europe, economists expect the ECB to raise interest rates by another quarter percentage point. The ECB slowed the pace of its rate hikes to 25 basis points at its May meeting after a series of 75 and 50 basis point moves. ECB President Christine Lagarde said Monday it was too early to call a peak in core inflation, and she reaffirmed that rates will need to be increased again. Stuart, bit of a problem, isn’t this for the ECB because they’re raising rates as it’s now confirmed that the Eurozone is in a recession?
Stuart
Well, yes, they are in a recession, and that’s not a great surprise to most people. And the fact that they are raising rates is because they’re still a little bit behind the curve in the speed at which they are raising rates. So, yes, not an unexpected move. And I think we would expect them to stay probably a little bit behind the curve for a little bit longer, but they are catching up to whatever the US does and we’ll probably talk about that in a minute. But I think we all know that Europe is struggling a little bit, not only with the Russia Ukraine war, energy prices, rising inflation and things like that. So the ECB does need to start to take a bit more positive action and by raising rates that they think will help towards solving some of their problems. But we know that Europe is 29 different countries and each country has a different economic outlook, so it’s quite difficult to cover them all in just one interest rate.
Peter
Pete, what’s your assessment? Eurozone inflation is currently at 6.1%. That’s more than three times the ECB’s 2% target, but it is down from a peak of 10.6% in October last year. Do you think they’re getting on top of things?
Pete
I sure hope so. I know that everybody in Asia is watching this very carefully, but yeah, I don’t have deep insight into the US market at this point regarding, I mean, I think it’s wise for them to be as conservative as possible as they can, but 6.1% is still pretty blistering. So politically I don’t know how sustainable the current situation is.
Peter
Tony, what what are your thoughts on, on the Eurozone? First of all, I mean, as, as Pete said, these, this raising of interest rates, it is quite political as well, isn’t it? It’s not just economics.
Tony
Yeah, it’s very political and I do think, as Stuart and Pete said, they are behind the curve and 6.1% is still very high and there’s really nothing new here. It’s just a matter of who needs low interest rates really, and those will be the people lobbying against it. But I don’t think the Eurozone has a choice and I think they’ve really put themselves in a pretty awkward position.
Peter
Okay, well, the bank of Japan also meeting this week, they’re expected to remain on hold. Recently appointed Governor Kazaro Ueda indicated that the ultra easy monetary policy will remain in place until wage gains and inflation are stable and sustainable. So Stuart, this is the loosest monetary policy in the world, isn’t it, amongst all the major economies. Can it last?
Stuart
Well, they’ve kept a pretty good, very low rate of interest for a very long time in Japan. And the fact that they are beginning to move upwards, it isn’t very much, frankly. And indeed, I’m sure Pete, as he’s sitting in Japan right now, has probably got the opportunity of looking directly at what’s happening in the market and saying, well, it is going to change, but I’m not so sure it will.
Peter
Well beat you are there. Over there in Japan, at the moment, inflation is above the bank of Japan’s target as well, isn’t it? Yeah.
Pete
And originally this was what they called push inflation just solely imported food and energy prices from the shocks of the war in Ukraine and spillover from American inflation. Now the core core inflation that excludes food and energy is at 4.1%. The general services inflation, excluding government services is at 2%, which is the bank of Japan’s target core core inflation is now inflating higher than the rate that includes energy because the energy prices are coming off, but that’s still high. So the bank of Japan is in this very kind of precarious situation, right, because they would like to wait because they do not have the economic fundamentals they had back in the bubble years back in the 80s where everything was super overheated. But they’re definitely seeing some signs like the Japanese stock market is rocking right now. There’s definitely some signs of some warmth showing up. The risk is that, like in the United States and like in Europe, ueda conditioned by decades fighting deflation and with the experience of the bank of Japan tightening too prematurely repeatedly and having that blow up in their face is going to wait too long this time. And that what we’re actually going to I mean, everybody is worried about Ueda like pushing the button too soon and that’s going to pull startriation repatriating Japanese capital back into Yen Denominated assets bruises rally.
Pete
That’s already underway somewhat, but it’s slow and gradual. If he waits too long and it gets out of control. As we see right now in the US and Europe, once it starts cooking, it’s hard to take the heat off. And then you have to have a lot of hikes in a short period of time in one of the most popular funding currencies in the world. And that is just going to be bone rattling. So, yeah, he’s been very careful signaling that he’s not going to move and I take him at his word. But if you look at his language, he’s also kind of trying to have it both ways. He’s saying it’s possible there’s been this big change in the way that the Japanese think about inflation and it’s possible. Keep in mind the one thing that’s critical is the wage growth. And that’s what he wants to see before he hikes.
Peter
Is he seeing it?
Pete
Sort of, yeah. So they have the spring shinto wage negotiations that happened in April and the average number that came out of that looks like it was about 3%, which is below what inflation is now, but above target. But that’s like the union wages. So I can tell anecdotally that there’s a worker shortage in Japan and like in the informal sector, wage hikes are much higher just because you can’t get people. So it is possible that what we’re on the verge of is possible that there’s going to be a lot more inflation in Japan than they see and that they might wait too long and then we’re going to get another global shock.
Peter
Tony, if you look at it from over there, the bank of Japan’s sort of got a similar problem that other central banks around the world have got in that headline. Inflation is coming down, partly because commodity prices are coming down and energy prices are falling off, but core inflation is remaining pretty sticky. So that seems to be a problem that sort of links all the three central banks.
Tony
That’s right. And in the US, supercore inflation, it’s not core core. It’s supercore. It really is a reflection of service wages. Right. You come to a point where the measures that we’re looking at are really focusing in on what, at least this month or this quarter, the central bankers really want to focus on. And as Pete pointed out, wages are really the worry. In some sectors, they’re not moving. In other sectors, they’re moving a lot. And that’s really the concern here in the US as well. We all see energy prices declining after we all thought they would spike over the winter, and they didn’t, and they continue to fall. So the primary, secondary, tertiary impacts of energy inflation, those are really kind of hollowed out for a period of time. Right. So it’s really wages, goods inflation has passed. US services inflation were well into that. And it’s wages and particularly service wages that are the biggest worry.
Peter
When you look at what the Fed has done, Tony. They’ve raised their benchmark rate now over five percentage points. They’re at the highest level since 2007. The Fed sort of says it wants to pause to see the impact of those rate rises. Are you seeing the impact of those rate rises and what sort of impact are they having on the US economy?
Tony
Well, we see house prices, some house prices coming off, we see some layoffs, that sort of thing. But things are still very loose and we had a few banks collapse, as you may have heard, and things have been so loose that until we see a bit more tightening, we won’t see, say, residential real estate come into a reasonable realm. One of the big impacts that we are seeing, however, is commercial real estate. Okay? Now, commercial real estate is more of a function of work from home, really, than it is from interest rates, because companies are seeing that in the big urban centers in America, they’re not necessarily sending all of their workers back. So they’re renegotiating their leases. They’re not going to pay what they paid before. So the real estate investment trusts and the CRE guys are not able to the valuation on their buildings is not what it was. Right. And so the real problem we have there is if commercial real estate stays down by 30% valuations, in some cases, it’s a lot more. The folks that it really hits is the regional banks again. And so I think the Fed has to be really careful with CRE because it’s going to impact the regional banks in the same way we saw in March, and it’ll affect a lot more of them.
Tony
And so as they continue to raise, because they will continue to raise. They’re going to have to balance a lot of different concerns.
Peter
So could that be the next shoe to drop or be collapsing commercial real estate prices?
Tony
It’s already started dropping. I mean, look, we won’t really know. I know there’s a lot of talk about a Fed pause, but we won’t really know what the Fed is going to do until CPI comes out tomorrow. I mean, they already know, of course, right? But we won’t know until tomorrow. And so they’re kind of really on the edge of either a pause or a 25 hike. So we’ll know tomorrow, but we don’t know now. But yeah, commercial real estate in the US is absolutely where you need to be looking and it’s absolutely where we will see some real negative fallout.
Peter
Stuart, is the Fed right to pause? From what Tony is saying, it sounds like they haven’t got inflation down enough yet to really be thinking about sort of easing off on what they’re doing with inflation.
Stuart
Yeah, I don’t think it is right to pause. I would be in the 23% who say that the Fed might actually increase by 25 basis points later this week. I think that the Fed needs to continue to show that it is in control. It has, as you say, inflation and rising. Yes. Every time it increases its interest rates, that will be damaging to some of the regional banks because they will continue to struggle to finance themselves and have defaults and things like that. But the sooner the Fed gets all this out of the way, the sooner the economy in the US can start getting back to some state of normality. But I’ll also couch that by saying the chances of any of this really changing very much when we’ve got such a divisive political situation in the US at the moment, which will only get worse as next year’s presidential election occurs. I think the chances of all this improving are pretty slim.
Peter
Pete, which camp are you in? Are you in the pause camp or do you think they should keep going?
Pete
I think they should probably keep going. That’s just my instinct.
Peter
That’s based on what would be their bigger mistake, then they could keep raising rates and potentially tip the economy into recession. Or they could hold off and see inflation start to rise again. Which one of those two would be the bigger policy mistake? Or which one maybe would they be the most comfortable making?
Pete
Don’t we need a recession at this point? I thought that was supposed to be like everybody’s expecting a recession. Where’s the damn recession? I thought that was what was supposed to happen anyway.
Stuart
Hasn’t quite occurred yet. But it’s just waiting around the corner.
Pete
I mean, it’s not going to be a surprise to anybody, right? It’s not like people are like, oh my God, we went into recession. I feel like it’s been telegraphed and priced in and the problem is that they haven’t been able to deliver it.
Tony
Yeah, I don’t think it’ll be a surprise to anybody, but I do think the impact will be surprising because it always hurts, right? And it always feels worse than it is. So a recession always hurts when it hits you. And I think what the government is trying to do here in the US is to put it off as much as possible because Stewart brought up the election next year and they’re really trying to put it off as much as possible because if they were going to engineer a recession, it should have been 22.
Stuart
Yeah. But the stock market is completely oblivious to any of this. And what we’re seeing is back up to highs across the market. Yes, it’s only reflected in probably the returns from seven or eight major companies, but it’s still the fact that the market is at pretty high levels and seems to be ignoring the prospect of there being a recession. And I think this is the false signals that seem to be coming out from the market.
Peter
What’s the state of the consumer there, Tony? They had obviously a lot of handouts from the government during the pandemic. They bolstered their household balance sheets. Has that now worked off or are they still continuing to spend?
Tony
They’re definitely continuing to spend. And part of the problem here in the US and part of the reason it’s very difficult to hire staff is because unemployment benefits have continued to be largely not. They don’t end in a number of states. And so it’s really hard to get people at certain levels within companies because it’s just not economically feasible for people. So that’s forcing wages up and that’s forcing companies to take shortcuts that they don’t want to take. So I have some friends in the oil field. Somebody was telling me yesterday about somebody who was sent out to their site. They were not qualified to do what they were doing. The company had to send them out because they had to send someone. This is for a very dangerous job in the oil field and it caused a fire. And so companies are having to sub optimize because they can’t find people. And it’s largely because of a lot of these programs that are in place. And yes, the consumer is still spending and until that stops, we’re just going to keep going. I think the part that I’m really concerned about is, as Stewart says, it’s really seven stocks pushing the indices.
Tony
Right. That breadth is frightening. Should it not be? I assume it should be.
Peter
It’s about 25% of the market cap of the S and P 500, which is you would sort of think it’s unsustainable, wouldn’t you? And either other things, other sectors have to catch up or that outperformance is going to have to unwind or you rebase the index. There will be a little bit complex to do. Let me ask you about the Chinese consumer, then. I mean, the Chinese consumer clearly isn’t spending. We saw that from the inflation data. There’s zero inflation. Consumer price inflation. Virtually in China. And if you look at producer prices, it’s actually in deflation. Is that going to help the Fed? The ECB do their jobs. Is China going to export that disinflation? Or maybe even that producer price index deflation around the world?
Stuart
No, I don’t think it will. I think china and this is very much a domestic issue in china. I don’t think it’ll make any difference, because, as we’ve seen, china is increasingly self sufficient, is increasingly not importing from overseas, but still wants to be the manufacturing center of the world. So I think that whatever happens in China will stay in China for the most part.
Peter
What do you think, Pete? Do you think that there’s a chance that this could all be exported around the world? Because it’s a little bit odd, isn’t it? Here we have relatively high inflation in major economies around the world with the exception of China, which is sort of seeing certainly disinflation, if not outright deflation.
Pete
Yeah, I mean, obviously, China still has to import some stuff, and some of their desires to disconnect from the world are aspirational. Not realistic, but yeah. I mean, their domestic demand is weak. What we have is the absence of Chinese demand from key commodities markets. And most of that is related to the real estate slump. I think everything is related to the real estate slump. When we saw Japanese housing market correct. Back in 2014, 2015, absolutely nothing else in the economy went right until prowess prices went on a sustained rise. I think people and companies are most of their assets are in real estate. I think there is a sort of balance sheet recession in China, basically where people are trying to pay down debt and they just don’t know what’s happening with the most important asset in China. So I think that’s the break. What we see is recovery in retail spending, but it’s cautious. In Hong Kong. I mean, the mainlander is definitely back. They’re just not spending as much as they used to. And in China as well. So the new shape of the Chinese consumption economy is different from pre pandemic.
Pete
I Think. So some of this is probably a secular trend. But in the meantime, I don’t think the United States has to worry or anybody else has to worry about China suddenly having a boom in demand for its goods. Not just because it’s trying to wean itself from dependence, but because Chinese people are still hoarding enormous amounts of cash in bank deposits. We keep on seeing that number go up. And the thing is that China is not moving to massively stimulate real estate, which they’ve never been able to engineer recovery without doing that in the past. And they’re not directly stimulating consumption either. There’s no Equivalent Of A Western Style handout package, or even in Hong Kong, where they gave out some spending money, like China is not doing any of that, so they’re just going to kind of muddle along and that keeps any pressure they have on inflation coming off. Now, they might cut rates soon, but I don’t think that’s going to transmit into anything much at this point.
Peter
So it sounds like you sorry, Stuart.
Stuart
The idea of handing out a package, though, slightly different between Hong Kong, Macau, where you’ve got 7 million people in Hong Kong, half a million people in Macau, to 1.4 billion people, it makes massive difference. But I think we underestimate the benefit that Hong Kong might continue to receive, because we have seen what, 10 million people from China visit this year so far, and the numbers every week are increasing. They’re not spending in the traditional way of these sort of cheap jewelry shops, but they are getting out and spending in a broader part of the economy of Hong Kong. So I think Hong Kong is actually going to do quite well out of the change.
Pete
No, definitely. And they specifically benefited from this kind of frugality because Hong Kong is, on balance, approval destination. You can be Hong Kong by train, you don’t have to buy, I don’t know anybody looking at airplane tickets, but it’s a lot more expensive to fly to Japan and these other places. I agree. It’s nice for Hong Kong. It’s good for the hospitality industry, which has got beaten into the floor, but if they’re not buying the product handbags, it’s kind of selective. That said, luxury is still doing fine based on Chinese demand.
Peter
Tony how do you get the Chinese consumer to spend if you don’t want to do handouts, which the Chinese government doesn’t like doing, it doesn’t like giving money to people, you’ve got to find a way, haven’t you, of increasing sort of household disposable income, otherwise the consumer isn’t going to spend. So presumably the only way of doing that is cutting taxes or all these very high contributions that Chinese people have to make to social welfare funds. But the challenge for the government is it’s got to get household income up, disposable income up.
Tony
Peter they did have these stimulus packages, I think it was about twelve years ago, where it was for rural families to buy refrigerators and for people to buy cars and these sorts of things. I think those types of targeted stimulus packages could actually help. The problem, as Pete says, is real estate. If people are feeling that drag down their wealth, they will be careful to spend until they have some sort of targeted support. So if I were advising the Chinese government, I would say, what consumption sector do you need to goose? And let’s target some consumption there like you did 1012 years ago, and then get things going. It’s not a fix all, but at least it is a start to get things moving. I do think, though, the idea of deflationary China exporting to the world, it is helping some of these central bankers, right? We’re past goods inflation. China is on some level exporting deflation. That’s helping these central bankers fight their fight. But as we said earlier, the issue is services and wage inflation in Japan, US. Europe and so on.
Peter
There was a report from Goldman Sachs over the weekend on China’s property sector and they were saying this downturn could be a multi year growth drag on the economy. It sounds like from what the three of you are saying, you pretty well agree with that.
Pete
I mean, that’s the key thing, right? Well, it was overheated. So, I mean, I’m empathetic with the government here because you don’t have household formation. That justifies the amount of construction that was going on. It was a speculative industry. It was bad for the environment. It cannibalized funds for more productive endeavors. So I don’t mind property cooling off. I’m just saying if you’re going to have it be cool, you’re going to have to go out of your way to stimulate in kind of a different way now. I mean, like these subsidies for buying washing machines and cars. The problem with that is you kind of create a problem down that you can pull purchases forward, but that doesn’t actually create more consumer confidence. I mean, your average Chinese person doesn’t pay much income tax. That’s a problem with lowering taxes. A lot of these people don’t actually pay that stuff. Most of it comes out of the corporate sector where they’re already putting down taxes. And the problem is, at the receiving end of this are all the local governments who are supposed to be stimulating and handing out all this stuff, and their budgets are extremely strained.
Pete
They’re getting it from both ends, right? They’re getting it because their land sales are harder and to sell, and that’s a key point of revenue. And then their income is being reduced by all these tax cuts the government has been handing out to the corporate sector. So, I mean, you had a central bank advisor and I forget his name, I’m sorry, he said that we should just take hand out ¥4 trillion. We should just figure out a way to pass that around in some sort of designated consumption coupon. When you can spend on food. Whatever, in a way that makes people feel wealthier. That’s where the tribe of the ministry of finance is never going to go for it because of what is happening with these local governments and this huge local government debt crisis that’s underway, which we haven’t really talked about, but is actually the biggest risk facing china going forward. Nobody seems to know how they’re going to fix that one.
Peter
So, Stuart, it sounds like the state owned media is talking about a cut in the medium term lending facility on Thursday by maybe five to ten basis points. But. It sounds like that’s sort of tinkering around the edges, really. It doesn’t get to the root cause of the problem, not really.
Stuart
I think China is just going to have to take the medicine that’s being dished out at the moment by markets, and it may not be received too well, but at the same time, China is in a pretty good position to accept it. Yes, the property market is in a bad way. The stock market is in a bad way at the moment. Interest rates are pretty low, so there isn’t a lot of wiggle room available to PVoC either. So I think we’re going to have to wait and see what happens. Of course, one big issue might be geopolitical changes. China is wanting to start to see an improvement in its relationship with other places around the world. It’s trying very hard in the sort of Ukraine Russia war, but that doesn’t directly affect the economy, but it does directly affect sentiment.
Peter
Tony, let me give the last word to you then, on that point. US Secretary of State Anthony Blinken is apparently traveling to China this week for these long delayed talks. How good a sign is this that maybe things are improving between the US and China?
Tony
Yeah, I don’t necessarily think it’s improving or deteriorating. I think it’s probably a neutral position. Blinken has been fairly assertive on China policy and he has not really impressed since the Anchorage meeting, he has been seen as a fairly weak foreign minister or secretary of State. So I don’t really take a view either way that it’s an improvement or a deterioration per se. I think we have to wait and see what comes out the other side of this.
Peter
Actually, Pete, let me just get a final thought from you on that. Are you seeing signs of improvements, at least? They’re talking, aren’t they, even if they’re not actually resolving their core differences?
Pete
No, unfortunately, I think this is kind of the new normal, where it’s just going to be terrible, but short of abominable. So, I mean, this sort of thing, I mean, I just don’t think the two sides understand each other or how to fix the relationship. I think also in the Chinese government, well, I mean, both governments kind of want to play nice and play mean at the same time. China will try and reassure do, make some reassuring gesture, and then float a balloon, a spy balloon over or raid a bunch of due diligence firms. And the US is kind of saying, well, let’s cooperate on environmental stuff, but we’re going to keep on sanctioning you on these other things. I mean, there’s not really a solid foundation for improvement that I see. So it’s good that they’re talking, but are these talks likely to get anywhere positive? Yeah. And Pete, what do they have to agree about? They’ve kind of put themselves in the position where they’re opposed.
Tony
Diplomacy is having discussions for some result, it’s not just having discussions. Right? And so my grad work was in diplomacy. And so when I see people flying around to sit with each other, sitting with each other and talking is not diplomacy. Diplomacy is having a constructive conversation that has some result. Right. And I actually don’t know if they’re going to go anywhere with this.
Peter
Okay, well, great to hear your thoughts. That’s Tony Nash, founder of Complete Intelligence pete Sweeney, who is financial columnist at Reuters and our regular Tuesday morning correspondent, Stuart Alcroft, who’s an Asian fund management industry consultant. Thank you for listening to MoneyTalk this morning. You can find more business and finance information from around Asia in my daily newsletter, which is at peterlewismoneytalk. Substac.com. On tomorrow’s program, I’m joined by capital preservation specialist Nzo von File and Louis Coyce, chief Asia economist at SP Global Ratings. With a view from Japan is Nick Smith, japan strategist at CLSA. See you tomorrow, money talk.