Reproduced with the kind authorization of Bloomberg TV

Part 1

Part 2

 

Interview Bloomberg TV du 14 avril 2020

 

Presenter: Joining us now is William De Vijlder. He is Chief Economist at BNP Paribas.William, of course… of course, Clarida is going to say the Fed – he has to say the Fed has the tools to do this, but do you think that his confidence and his optimism are deserved?

William De Vijlder, Chief Economist, BNP Paribas: Good morning. Well, I would say yes because I’ve been impressed by the speed of the reaction of the Fed and also by the average spending reach of its interventions, the most recent one being, as you mentioned, on the high yield and buying paper of companies that have been victim of a downgrade because of the virus. I think once activity picks up again, because we’re in, of course, lockdown mode and admittedly we expect it to be a very gradual process, I think the [deterioration] scare that may still around should go away. There’s a fundamental difference between saying that and saying that inflation is going to become problematic because core PCE would move well beyond 2%. I think for that to happen is still going to be a considerable time off.

P: How important is the energy market in the U.S., William? I mean, it makes up a lot more jobs than I had previously realised, and with prices this low, it’s bad news.

WDV: Indeed, and now it remains to be seen whether the agreement on the production cuts are going to have any significantly lasting impact at all. I think at the end of the day, [this range really] depends on how demand develops and that means it’s all related to the lockdown ending, and I think the element which is important to keep in mind, of course, is the huge degree of pro-cyclicality in all these dynamics, because lockdown ends means the prospect of higher demand for oil, but also risk appetite comes back, and as a consequence, the financing for energy producers in the U.S. will also become a bit less expensive because spreads will narrow on the high yield part. So, I think what’s also going to happen now is that it creates the possibility, of course, of hedging production given the still very steep curve, but I think what’s really… the key test is sufficient of a cut, considering the drop in demand that we are experiencing now and that we will still be seeing for quite some weeks to come.

P: What is – how would you compare the U.S. experience versus the European experience? OK, they came on a little bit later with regards to the coronavirus peak, and with regards to the shutdown; they had a much more diverse reaction to it throughout the States, but they also have less of a social safety net and they had this big energy problem.

WDV: Indeed. I think it’s a bit on the one hand, and on the other hand, if you look at Europe, you have the exposure to China which is also very considerable. I think the fact that so many countries have been… have ended up in lockdown, in some countries in a very severe lockdown, with of course this very high degree of intra-trade, which is creating spillovers within the European union, in the Eurozone, that has been a big issue and a big, well, hit to activity. On the other hand, the safety net is, I would say, of better quality, structurally speaking, and the heavy measures as well. In the U.S., the concern I have is that when you hear people from the Fed saying, well, Fed officials, that unemployment may spike to the low-teens and then move back towards the end of the year, it’s still 8%. That’s still a very high number and, as a consequence, there’s huge concern that is going to continue being a drag on the consumer spending, and as a consequence also I would say on CapEx, hence we always come back to the same point, what kind of [impasse] going to come from such a policy, which then circles back to the role of the Fed in buying the paper.

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P: Now, oil is holding gains today, as investors weigh whether a deal by the world’s biggest producers to reduce output will be enough to offset the demand destruction caused by the coronavirus. Saudi Arabia has said it’s ready to trim supply further, if needed, when the OPEC Plus alliance meets again in June, and President Donald Trump said the cuts are going to actually be twice as much as experts are reporting.

William De Vijlder, Chief Economist at BNP Paribas, is still with me.

We talked a little bit about this earlier, William, and there is some on the one hand, on the other hand here too, because cheaper oil prices are usually a stimulus for the consumer. Is that true here in Europe as well as it is in the U.S.?

WDV: Well, it will be a stimulus once people are allowed to drive around again, and for the time being it’s not a factor, but eventually it will be a stimulus very clearly. I think this is something that has, of course, made it more difficult to establish some degree of balance in the market, because demand is not reacting to the decline of the prices.

P: We’re going to talk a little bit later with Valdis Dombrovskis. I just want to get, quickly, your take on the Eurogroup result. What do you think about Europe’s effort to save this economy?

WDV: Well, it’s an important step that was made last week, but more will need to be done. OK, the European Investment Bank can guarantee investment projects loans. There’s going to be [a heavy sum], but I think it was incredibly revealing to see that in some European countries, say like the Netherlands, there was the issue of we will never have risk sharing, whereas in Italy […]