Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world. Straight Ahead on the program,
Speaker 2: we'll look ahead to the March Jobs Report and Q
Speaker 2: one auto sales and what President Trump's tariffs on auto
Speaker 2: imports could mean to future sales. I'm Tom Busby in
Speaker 2: New York.
Speaker 3: I'm Caroline Hetcke here in London, where we're assessing the
Speaker 3: position of NATO amidst growing global tensions.
Speaker 4: I'm Doug Krisner previewing next week's rate decision from the
Speaker 4: Reserve Bank of Australia.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby. We begin today's
Speaker 2: program with a look at the March Jobs Report out
Speaker 2: this coming Friday. The same day We're gonna hear from
Speaker 2: Federal Reserve Chair Jerome Powell. What could all this mean
Speaker 2: for the US labor market and for FED policy moving forward? Well,
Speaker 2: good news for more. We're joined by Michael McKee of
Speaker 2: Bloomberg International Economics and Policy correspondent. Michael, thank you for
Speaker 2: being here. Well, let's start with that job's report. What
Speaker 2: do you expect to see?
Speaker 5: We expect to see a slowdown in job creation. We're
Speaker 5: still a week out, so there will be a lot
Speaker 5: of data that comes in on employment from other indicators
Speaker 5: that will go into the general forecast. Right now, we
Speaker 5: have one hundred and thirty five thousand as the forecast,
Speaker 5: and it was one hundred and fifty one thousand in February,
Speaker 5: but that could bounce around a little bit. The key
Speaker 5: for the Fed is unemployment and unemployments not expected to
Speaker 5: change state four point one percent. The question is is
Speaker 5: anybody going to care about the jobs report by next Friday?
Speaker 2: Well, well, I guess they'll care because, I mean, with
Speaker 2: the Trump policies, the tens of thousands of federal workers
Speaker 2: being laid off, the you know, and things are changing
Speaker 2: every day. There were tiiffs. I mean, all this adds
Speaker 2: up to the you know what we're going to see.
Speaker 5: In terms of the jobs report. Yes, the real question
Speaker 5: is whether we see a lot in this month because
Speaker 5: of the timing of it. All, the jobs report taken
Speaker 5: in the first weeks of the month, and we don't
Speaker 5: really have a good handle on how many people have
Speaker 5: been fired. Last week the government reported we had only
Speaker 5: eight hundred and twenty one federal workers filing new claims
Speaker 5: for unemployment. Part of it is that people get laid off,
Speaker 5: they get unlaid off, they get laid off again. I imagine
Speaker 5: many federal workers don't know what their jobs situation is,
Speaker 5: so expect to see a lot of cuts in federal employment,
Speaker 5: but maybe not this month.
Speaker 6: Wow.
Speaker 2: And there's other data that we saw come out PCE
Speaker 2: for March indicative of where jobs are maybe coming or going.
Speaker 2: I mean with consumers pulling back.
Speaker 5: Consumers have pulled back just a little bit. It isn't
Speaker 5: a huge drop because we had seen a huge shop
Speaker 5: in spending in January and this was a four tenths rise,
Speaker 5: not too bad. But it did come mostly in durable goods,
Speaker 5: so it suggests maybe people were afraid of tariffs and
Speaker 5: running out and buying stuff. I don't know, refrigerators, stoves
Speaker 5: or something cars before prices went up. And then the
Speaker 5: University of Michigan Sentiment Indicator came out and normally doesn't
Speaker 5: move much between the preliminary and the final, but in
Speaker 5: this case it did. We saw a big drop in
Speaker 5: overall sentiment and in expectations, and then we saw inflation
Speaker 5: expectations rise significantly to five percent over the next year.
Speaker 5: So Americans are anticipating bad news from Liberation Day next week.
Speaker 2: Yeah, that's a lot of inflation fears right there. Well,
Speaker 2: let's talk about Liberation Day and President Trump's tariffs. We
Speaker 2: know they change week to week, day to day, sometimes
Speaker 2: hour to hour, but what is the impact right now
Speaker 2: on the economy on jobs. I mean, clearly people are worried,
Speaker 2: consumers are concerned.
Speaker 5: Right now. It has people concerned, it has businesses concerned.
Speaker 5: We've seen that in business leaders surveys and obviously the
Speaker 5: Michigan and Conference Board numbers show US consumers are feeling
Speaker 5: the same way. They haven't in the hard data acted yet,
Speaker 5: but that's what we're expected to see over the next
Speaker 5: couple of weeks. Especially if people go to the store
Speaker 5: and see prices higher, that really drives consumer behavior, particularly
Speaker 5: for things like gasoline food, which may take a little
Speaker 5: longer to work their way into this. And of course
Speaker 5: you don't buy a car every day, but if you notice,
Speaker 5: prices are going up, so it's something that the FED
Speaker 5: has to worry about. There are all kinds of estimates
Speaker 5: on what this could do to inflation, could push it
Speaker 5: up by one and a half two percent for the year.
Speaker 5: One forecast that came out this last week from a
Speaker 5: Wall Street firm was we would see inflation over four
Speaker 5: percent for the next three four five months. That would
Speaker 5: not go over well with the American public.
Speaker 2: No well, And Susan Collins from the FED Boston Bank said,
Speaker 2: it's coming.
Speaker 5: It's coming. And the thing is the FED doesn't know
Speaker 5: what to do yet because they don't have handle on
Speaker 5: exactly what the president's tariffs are going to do. And
Speaker 5: the best line came from the Richmond Fed president who said,
Speaker 5: this is not a fog of under certainty like you
Speaker 5: normally see. This is a pull over to the side
Speaker 5: of the road and put on your high beams kind
Speaker 5: of fog of uncertainty because we have no idea. Tom
Speaker 5: Barkin saying that we have no idea, what's going to happen.
Speaker 2: Well, let's hope Jerome Powell gives us a little clarity.
Speaker 2: He is speaking this Friday. We're gonna hear from HM.
Speaker 2: Why don't you tell us what you expect.
Speaker 5: That's why the church lady line comes in. How convenient
Speaker 5: that the FED chair is speaking the same week as
Speaker 5: Independence Day. He is speaking on Friday, and we will
Speaker 5: get probably. I don't see how he can avoid giving
Speaker 5: us some view on what impact the tariffs are going
Speaker 5: to have on the economy, both on inflation and growth.
Speaker 5: And if that's the case, then there's going to be
Speaker 5: a lot for investors to try to parse in terms
Speaker 5: of what it means for FED action. So it's going
Speaker 5: to be a very very busy week. Powell and jobs
Speaker 5: on the same day. So all of you who thought
Speaker 5: you were going to get away to the Hamptons or
Speaker 5: upstate early not on Friday this week.
Speaker 2: Well, the March non farm payrolls numbers out this Friday,
Speaker 2: eight thirty am Wall Street Time our thanks to Michael McKee,
Speaker 2: Bloomberg International Economics and Policy correspondent. We turned now to
Speaker 2: the US auto sector ahead of first quarter vehicle sales
Speaker 2: out this Tuesday, just before President Trump's punishing twenty five
Speaker 2: percent tariffs are slated to go into effect on all
Speaker 2: imported autos. For more on how those tariffs, if they
Speaker 2: go into effect, could impact consumers, investors, US and foreign automakers,
Speaker 2: and more, were joined by Steve Mann Bloomberg Intelligence, Global
Speaker 2: Autos and Industrial Research analysts. Steve, thank you for being here,
Speaker 2: and boy, is there a lot to unpack here. Well,
Speaker 2: let's start with look back. It looks like the industry
Speaker 2: was off to a pretty solid start, not spectacular to
Speaker 2: the new year, despite high sticker prices and elevated borrowing rates.
Speaker 2: But boy, if these tariffs, if implemented, things could really change.
Speaker 2: How would that change everything?
Speaker 6: Well, we actually just published a report and we lowered
Speaker 6: our sales forecast for the US passenger vehicle sales. We
Speaker 6: were at down half a percent. Now we're looking at
Speaker 6: down at least three percent for the year. Well, prices
Speaker 6: are going to go up. We're hearing dealerships out there
Speaker 6: telling their customers that prices are going to go up.
Speaker 6: There's different numbers out there, depending on the price of
Speaker 6: the vehicle, could be thirty five hundred or as much
Speaker 6: as ten thousand dollars. So it's gonna really put a
Speaker 6: dent on sales. On the flip side, it's going to
Speaker 6: help use car sales. So if you look at you know,
Speaker 6: Avis and Hurts, they're actually responding positively to the news
Speaker 6: because you know, if they sell their used fleet, they're
Speaker 6: going to get more money for it. And the balance
Speaker 6: sheet Imprus and the other thing that's reacting positively are
Speaker 6: you know, the retail sales part sales companies like O'Reilly
Speaker 6: Advanced autoparts. You know, they're actually bucking the trend. So
Speaker 6: if consumers are not going to buy new cars, they're
Speaker 6: going to have to probably have to fix up the
Speaker 6: old one and keep you a little bit longer.
Speaker 2: So it sounds like a lot of cars are going
Speaker 2: to stay on the road a lot longer. And the
Speaker 2: average now is like eleven and a half twelve years,
Speaker 2: isn't it.
Speaker 6: Yeah, that's right. So you know you kind of mentioned
Speaker 6: it earlier. The consumer is already hesitating by a new
Speaker 6: car because prices have gone up quite a bit, especially
Speaker 6: on those big pickup trucks and SUVs, you know, leasing
Speaker 6: upwards of one thousand to two thousand dollars, So it's
Speaker 6: becoming out of reach for a lot of consumers.
Speaker 2: Now, yeah, the consumer consumer definitely appears to be the
Speaker 2: loser here. Let's talk about the automakers, especially Detroit's Big three,
Speaker 2: and how they'll be impacted, and will they each be
Speaker 2: impacted in the same way. I know, for IT makes
Speaker 2: a lot more of its cars in the US than
Speaker 2: the other two.
Speaker 6: Yeah, look, I think all three, No, silentis, FOURD and
Speaker 6: GM will be impacted by a lot, you know, not
Speaker 6: just just on the initial cost of the tariff. You know,
Speaker 6: also if they have to reshore some of their plants.
Speaker 6: We have an analysis out there that that tells us
Speaker 6: it could cost as much as four billion dollars if
Speaker 6: they have to build a new plant in the US,
Speaker 6: you know, shift that plant back into Mexico and build
Speaker 6: a new one. And in the US, that's a lot
Speaker 6: of spending. That's only for one plan. You know, they
Speaker 6: have multiple plants in Mexico and Canada that they can reshore.
Speaker 6: So it's it's it's it's huge. The other thing for
Speaker 6: Ford specifically too, is one of the things we're looking
Speaker 6: at is their EV sales have been generating huge losses
Speaker 6: for the company in the last two three years, and
Speaker 6: especially for example, the Machi one of the most popular ones.
Speaker 6: They're actually built in Mexico. So if they have to
Speaker 6: lose another ten thousand dollars on that vehicle, it begs
Speaker 6: the question is should they even continue you're building that vehicle,
Speaker 6: and what that means is it's you know, the Big
Speaker 6: three four as well as GM could actually lose EV
Speaker 6: market share to the pure place, not just Tesla, but
Speaker 6: to also Rivian Lucid.
Speaker 2: Well, let's talk about Tesla and the EV's. Tesla makes
Speaker 2: every car it sells in the US in the US
Speaker 2: at plants in Texas and California, and how does it
Speaker 2: stand to win? And as you said, Rivian Lucid, Faraday Future,
Speaker 2: all these other ones, smaller ones, niche ones, are they
Speaker 2: going to be the winners here too?
Speaker 7: Yeah?
Speaker 6: I think so, because you know, they have a very
Speaker 6: different manufacturing footprint or different business model than the legacy automakers.
Speaker 6: They're more vertically integrated. So a lot of the most
Speaker 6: expensive components in an EV, the batteries, right, the charging systems,
Speaker 6: the battery management system, they're actually built in house. The
Speaker 6: motors are actually built in house, so they have much
Speaker 6: better control of the cost. And obviously because they are
Speaker 6: bill in the House. In in the US, they're not
Speaker 6: subject to the tariff as high as the legacy automakers.
Speaker 2: Interesting to watch if it all goes into effect. First
Speaker 2: corder auto sales out this Tuesday. Those twenty five percent
Speaker 2: tariffs on all imported autos kicking in Thursday morning, twelve
Speaker 2: oh one am Wall Street Time. Our thanks to Steve Mann,
Speaker 2: Bloomberg Intelligence, Global autos and industrials research analysts. Coming up
Speaker 2: on Bloomberg day Break weekend. Calls for unity at a
Speaker 2: NATO summit this week. I'm Tom Busby and this is Bloomberg.
Speaker 2: This is Bloomberg day Break Weekend, our global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: I'm Tom Busby in New York. Up later in our program,
Speaker 2: A big decision this week from Australia Bank. But first
Speaker 2: at a fraud time for Geopolitical security. Defense is front
Speaker 2: of mind for world leaders and bolstering protection will be
Speaker 2: certainly high on the agenda at the NATO headquarters in
Speaker 2: Brussels this week, where Allied Foreign Affairs ministers meet for
Speaker 2: talks chaired by Secretary General Mark Ruda. Now for more,
Speaker 2: let's go to London and bring in Bloomberg day Break.
Speaker 2: Europbanker Caroline hepgar Tom speaking.
Speaker 3: To Bloomberg earlier this month, the NATO chief Mark Russia
Speaker 3: expressed his desire for relations with Russia to return to
Speaker 3: normal once fighting subsides in Ukraine, but the body's Secretary
Speaker 3: General was quick to acknowledge that there's a long way
Speaker 3: to go before proceedings reached that stage. He is preparing
Speaker 3: to share discussions between allied foreign ministers in Brussels, the
Speaker 3: latest event on a recent packed schedule for Rutsa, who
Speaker 3: has flown around the world to discuss the ongoing war
Speaker 3: in Ukraine with numerous world leaders. Included in his travels
Speaker 3: was a stop in Washington, d C. Where he met
Speaker 3: with the US President Donald Trump. Russia has been engaging
Speaker 3: in intense diplomacy in recent weeks to keep the Transatlantic
Speaker 3: alliance together, as Trump has pared back support for Ukraine
Speaker 3: and has indicated that the US will step back from
Speaker 3: its traditional security role in Europe. The surprise move has
Speaker 3: sent European countries scrambling to boost defense spending and to
Speaker 3: rethink their military positioning. The NATO chief has said that
Speaker 3: he is confident Trump is committed to NATO and that
Speaker 3: there is no room for doubt there. In his words,
Speaker 3: whilst also praising Trump for breaking the deadlock between Russia
Speaker 3: and Ukraine, the delicate situation between President Trump and his
Speaker 3: counterparts in Europe and its impact on markets is something
Speaker 3: that we've been discussing with Carl Tannenbaum, who is chief
Speaker 3: economist at Northern Trust.
Speaker 7: For many reasons, a truce between Ukraine and Russia would
Speaker 7: be very much welcome, but there are some hard yards
Speaker 7: to be walked before we achieve that outcome. And absolutely
Speaker 7: the forecasts for Europe are actually going up when they
Speaker 7: for major centers elsewhere in the world they're going down.
Speaker 7: I'm sure that the Europeans would have preferred to stimulate
Speaker 7: other than at the end of a figurative bayonet. But
Speaker 7: the fact is that the prompting that this did to
Speaker 7: have the Germans and the Europeans open their budgets will
Speaker 7: be favorable for their growth picture and their markets.
Speaker 6: Reflect that.
Speaker 3: You've said that it's difficult and that you underestimated, along
Speaker 3: with many others, the reality of the tariff I'll call
Speaker 3: it a tariff war from President Trump. In terms of
Speaker 3: the tensions, How do you think about the tensions between
Speaker 3: the US and the EU. The EU says that there
Speaker 3: really wasn't any negotiation, particularly that they had no success
Speaker 3: with negotiating with the Trump White House. What does that
Speaker 3: mean economically that those ties are now so much more difficult?
Speaker 7: The risk of the current strategy is that the alienation
Speaker 7: that comes from the first steps will make it very
Speaker 7: difficult to come back together in any meaningful way. There's
Speaker 7: an injury felt by counterparts the United States and the
Speaker 7: way that this is being done, and voices that might
Speaker 7: have normally been heard have yet to be accounted for.
Speaker 7: I certainly hope that the damage done is not lasting,
Speaker 7: and that there is a phase to come yet this
Speaker 7: year where there will be more consultation and less provocation.
Speaker 7: But I hope that comes right soon. It's taken longer
Speaker 7: than I would have thought.
Speaker 3: That was called tannem Bound, chief economist at Northern Trust,
Speaker 3: speaking to me and to Bloomberg's Stephen Carroll. So how
Speaker 3: will these dynamics play out during the upcoming meeting of
Speaker 3: foreign ministers? I've been speaking to BLOOMBERG'SMEA News director Roslyn Matheson. Well,
Speaker 3: it's good to speak to you. What normally happens at
Speaker 3: these NATO meetings, well.
Speaker 8: It depends whose meeting, because some of them are minister
Speaker 8: or level and some are obviously leader level, which are
Speaker 8: the big shebang, And it depends which ministers are meeting.
Speaker 8: In this case, as you say, it's foreign ministers meeting,
Speaker 8: and their task tends to be well a little bit thankless,
Speaker 8: to be honest, they are often the ones who are
Speaker 8: meeting to pave the way into the leader's summit, which
Speaker 8: we know is coming up some months later, and so
Speaker 8: their job is to iron out any of the kinks
Speaker 8: ahead of that, to work out what's going to be
Speaker 8: on the agenda, to do some behind the scenes agreements
Speaker 8: and understandings, and then take all of that back in
Speaker 8: a way to their headquarters at home. And that's all
Speaker 8: about laying the table for that meeting. I mean, obviously
Speaker 8: they discuss a broad array of topics, and for foreign
Speaker 8: ministers it can be a very broad church indeed, and
Speaker 8: for this meeting it will be about a bunch of
Speaker 8: stuff that's very topical at the moment, but will also
Speaker 8: be about all those kind of sideline conversations, hallway conversations
Speaker 8: to get a bit of an understanding about what they're
Speaker 8: going to be looking like going into a leader's summer.
Speaker 3: So will all member states be in attendance.
Speaker 8: At this stage It appears so, including the US Secretary
Speaker 8: of State Mark Rubio. I mean, it's an interesting question
Speaker 8: because we've seen at some gatherings, including G twenty meetings
Speaker 8: and so on, that the US has opted not to
Speaker 8: attend or to send a lower level official questioning it
Speaker 8: seems that you know whether these forums do anything that
Speaker 8: matters or whether they need to be there. But it
Speaker 8: looks like Mark Rubio will turn up. And obviously he's
Speaker 8: been quite engaged with NATO and with Europe as a whole.
Speaker 8: He recently met with a bunch of ministers from the Baltics,
Speaker 8: for example. He recently met with the Turkish foreign minister
Speaker 8: who was visiting him in the US. So he's certainly
Speaker 8: engaging with his counterparts across Europe. So we are expecting
Speaker 8: a full bench for this meeting.
Speaker 3: Is it possible was that there might be something of
Speaker 3: a tense atmosphere between the US and EU members given
Speaker 3: that the meeting comes hot on the heels of these
Speaker 3: leaked messages on the Signal app which featured senior members
Speaker 3: of the Trump administration describing EU States as quote freeloaders.
Speaker 8: What's going to be an interesting meeting in the backdrop
Speaker 8: of those revelations around the signal chat, and for European
Speaker 8: ministers who are there, no doubt questioning Marco Rubio quite
Speaker 8: a bit about how secure intelligence is that they're sharing.
Speaker 8: I mean, there's a lot of communications that have to
Speaker 8: go on in a circle of trust and understanding that
Speaker 8: whatever you talk about or whatever is shared is within
Speaker 8: a certain cone of silence because you can talk more
Speaker 8: candidly as a result. And so if you have European
Speaker 8: ministers even more worry than they probably already were about
Speaker 8: how to communicate with the US, how to talk openly
Speaker 8: and honestly with officials, including Marco Ribio, what about how
Speaker 8: secure intelligences that get shared? And so all of that
Speaker 8: will be aired in that meeting. No doubt you're unlikely
Speaker 8: to see Europeans stop sharing intelligence with the US. They
Speaker 8: just need each other too much to do so. But
Speaker 8: you will get certainly expressions of concern about that at
Speaker 8: the meeting.
Speaker 3: Now, we did see the NATO chief Mark Rutter in
Speaker 3: the White House in the Oval Office with President Trump
Speaker 3: when they had that discussion. He was talking about being
Speaker 3: confident of the President's continued support talk US through the
Speaker 3: complications though of the relationship. Are things still on the
Speaker 3: right path.
Speaker 8: What was interesting to see that meeting actually because it
Speaker 8: seems as though Rita and Trump kind of hit it off,
Speaker 8: like they at least had a bit of a rapport
Speaker 8: and Ritter was treading carefully in his comments and seemingly
Speaker 8: knowing how not to press Donald Trump's buttons, and so
Speaker 8: that is obviously a plus to have that relationship seemingly
Speaker 8: on a positive footing. But the overall relationship between the
Speaker 8: US and NATO is pretty poor right now. I mean,
Speaker 8: Donald Trump has been repeatedly critical of NATO, be it
Speaker 8: over how much other nations spend on their defense, you know,
Speaker 8: the collective nature of NATO, whether it's worth what he
Speaker 8: sings as the US investment in NATO, What does the
Speaker 8: US get out of it? I mean, it's worth pointing
Speaker 8: out the only time that Article five, the collective responsibility
Speaker 8: area of NATO, has been invoked was by the US
Speaker 8: in its many decades. But you know, Donald Trump is
Speaker 8: repeatedly called into question NATO, what it's for, what it serves,
Speaker 8: where it's going, and so you know, personal relationship with Route,
Speaker 8: which is quite positive, is not going to really negate
Speaker 8: all of that. So there are fundamental questions here for
Speaker 8: the US about their future role in NATO.
Speaker 3: Either way, What do you think might emerge from these talks?
Speaker 3: Will it be focused on Ukraine? Will it be again
Speaker 3: back to the amount of defense spending. I mean we've
Speaker 3: had Germany, for example, bring out a really big defense
Speaker 3: Berzuka in terms of how much spending they're going to
Speaker 3: try to enact. What do you think might emerge from
Speaker 3: these discussions? Will there be any resolutions?
Speaker 8: Well, I'd likely to be anything you'd call a breakthrough
Speaker 8: because Marco Ribio has not been so centrally involved in
Speaker 8: the conversations that the US is having with Russia and
Speaker 8: the US is having with Ukraine. Other officials in the
Speaker 8: US seem to be taking the lead on that, So
Speaker 8: he's not been directly involved in many of the conversations
Speaker 8: around that necessarily or even potentially seen as a decision
Speaker 8: maker on it. And so you can expect a lot
Speaker 8: of conversation, as you say, around security issues, particularly the
Speaker 8: future of the war in Ukraine. Is there a cease far?
Speaker 8: Is it going to be tangible? How to get it
Speaker 8: to be broader than just the Black Sea or energy infrastructure,
Speaker 8: and either of those don't seem to be particularly secure
Speaker 8: at the moment anyway. And those issues, as you say,
Speaker 8: around European defense, defense spending, NATO, but because it's foreign ministers,
Speaker 8: it's also a pretty broad church. So you can imagine
Speaker 8: topics around trade coming up, tariffs so obviously, and the
Speaker 8: impact economically of the tariffs that Donald Trump is enacting
Speaker 8: around the world, including on Europe. So the economic relationship,
Speaker 8: because the economic relationship is a key part of the
Speaker 8: geostrategic relationship alongside the pure defense one. So you can
Speaker 8: imagine that at this meeting there'll be a broad conversation
Speaker 8: about a bunch of topics involving Europe, NATO, and the US,
Speaker 8: so not just defense. Trade will probably come into it somehow,
Speaker 8: but again you're unlikely to see major tangible announcements coming.
Speaker 3: That was Bloomberg's EMEA news director Roslyn matheson my thanks
Speaker 3: to her, we will have full coverage of that NATO
Speaker 3: meeting at the headquarters in Brussels from the third to
Speaker 3: fourth of April right here on Bloomberg. I'm Caroline hepget
Speaker 3: In London. You can catch us every weekday morning for
Speaker 3: Bloomberg Daybreak you at beginning at six am in London.
Speaker 3: That's one am on Wall Street.
Speaker 2: Tom, thank you, Caroline. And coming up on Bloomberg day
Speaker 2: Break weekend, the Reserve Bank of Australia meets this week
Speaker 2: to make a decision on interest rates. Bloomberg's James McIntyre
Speaker 2: breaks it all down from Australia.
Speaker 9: It was a week of an expected CPI reading. We
Speaker 9: had the headline come in at at two point four.
Speaker 9: Consensus was two point five. We were at the two
Speaker 9: point four, but we'd said all along that that probably
Speaker 9: wasn't enough. It would need to be something exceptional to
Speaker 9: pull the RBA over the line. They're going to be
Speaker 9: delivering gradual rate cuts, and following up from their February
Speaker 9: with an April cut was just too much, we think,
Speaker 9: given what the rest of the economic picture is telling them,
Speaker 9: it needed to be exceptional. It's welcome, but in our view,
Speaker 9: it's not enough to push them over the line on
Speaker 9: April first.
Speaker 2: That's next year. On Bloomberg day Break Weekend, I'm Tom
Speaker 2: Busby and this is Bloomberg. This is Bloomberg day Break Weekend.
Speaker 2: Our global look ahead at the top stories for investors
Speaker 2: in the coming week. I'm Tom Busby in New York.
Speaker 2: The Reserve Bank of Australia cut its benchmark lending rate
Speaker 2: in February for the first time in four years. Will
Speaker 2: the RBA cut rates again when it meets this week?
Speaker 2: For more, we turned to Doug Christner, host of the
Speaker 2: Daybreak Asia podcast Tom.
Speaker 4: Last week, Australia's center left government unveiled a pre election budget.
Speaker 4: Now it included tax cuts and some other sweeteners aimed
Speaker 4: at soothing concerns about the high cost of living. Australia
Speaker 4: Finance Minister Katie Gallagher discussed the potential impact of inflation
Speaker 4: and interest rates in an interview with Bloomberg.
Speaker 10: Well, the budget's always a series of balancing decisions and
Speaker 10: balancing requests for investment and other ways of dealing with
Speaker 10: all the pressures on it. But we see these as
Speaker 10: a good way to provide a bit of relief to
Speaker 10: households their top up to the tax cuts that were
Speaker 10: passed and.
Speaker 11: Started flowing in July last year.
Speaker 10: And really when they're put together in together with those
Speaker 10: tax cuts and once fully implemented, it'd be about for
Speaker 10: the average worker about fifty dollars a week. So we're
Speaker 10: not pretending that they aren't modest, that's for sure, but
Speaker 10: they're topping up the work that we'd already started a
Speaker 10: year ago.
Speaker 6: Well that's true.
Speaker 12: I mean the treasurer of Jim Chalmers also these the
Speaker 12: word modest when he was describing them. And when you
Speaker 12: consider the size and the timing of them, was there
Speaker 12: some consideration given to the inflation risk as well?
Speaker 10: Well, that goes to the timing decision to have them
Speaker 10: start next year, really to make sure that inflation is
Speaker 10: back into ban and that you know, we are mindful
Speaker 10: obviously we've done a lot of Australia as a country
Speaker 10: has done a lot of heavy lifting to get inflation
Speaker 10: back down to more normal range and we don't want
Speaker 10: to jeopardize that. And so the timing of when they
Speaker 10: come in was factored into our thinking and into the
Speaker 10: Treasury forecasts.
Speaker 12: And when it comes to forecasts around inflation that's forecasted
Speaker 12: to be back inside the RBA's target range, making a
Speaker 12: pretty hard hit amount an argument against further easing.
Speaker 10: Right, Well, we obviously lead the bank to make their decisions.
Speaker 10: You know, our responsibilities are contained in the budget, But
Speaker 10: we are really pleased the Treasury forecasts have inflation turning
Speaker 10: sustainably or coming back sustainably into the band six months
Speaker 10: earlier than had been expected at.
Speaker 11: My EFO, and so that's really welcome news.
Speaker 10: Obviously, we'll leave the Bank to make decisions based on
Speaker 10: the information they have.
Speaker 12: Turning to some questions around spending as well, we were
Speaker 12: expecting to see perhaps a substantial boost of defense spending,
Speaker 12: considering well the geopolitical environment at the moment, potential pressure
Speaker 12: from the US as well. Was there a temptation to
Speaker 12: go a little bit bigger therea what we're rising to
Speaker 12: two point three percent of GDP by the early twenty thirties.
Speaker 10: Look, we put a lot of work into working out
Speaker 10: the priorities in defense, and the Defense Minister has led
Speaker 10: that in conjunction with his department. We've found an extra
Speaker 10: fifty billion dollars over the medium term for defense. That's
Speaker 10: not an insignificant amount of money when you think about it.
Speaker 10: We've bought forward some money in this budget based on
Speaker 10: a defense advice about their capability needs, so that is met.
Speaker 11: But I also think you should look at.
Speaker 10: Defense and national security, bringing in all of the intelligence agency,
Speaker 10: the work that defat's doing to stabilize our relationships in
Speaker 10: the region. It is very uncertain global times, as everybody
Speaker 10: is witnessing, and so investments in defense are essential, but
Speaker 10: so are investments in a whole range of other areas
Speaker 10: to make sure we keep Australian safe.
Speaker 12: We also have a forecast for deficits for a decade.
Speaker 12: Is there any sense of urgency to do something about
Speaker 12: that sooner?
Speaker 10: Well, when you look at the you'll see under this
Speaker 10: government we've had the biggest nominal turnaround, the most significant
Speaker 10: no turnaround in the budget forecasts of any first term government.
Speaker 10: So we've improved the budget bottom line by over two.
Speaker 11: Hundred billion dollars.
Speaker 10: Again massive numbers, I know, but we've improved the deficits.
Speaker 10: We've delivered two surpluses, we've paid down debt and we're
Speaker 10: paying you know, because we have lower debt, we're paying
Speaker 10: lower interest bills on that debt. That all matters. So
Speaker 10: we have absolutely since day one. It's probably the key
Speaker 10: part of my job is to work out how we
Speaker 10: make sensible savings and bring those deficits and head the
Speaker 10: budget back into balance in a reasonable timeframe. But we
Speaker 10: also have to be realistic that we have to pay
Speaker 10: for services for Medicare, for defense spending. There's no shortage
Speaker 10: of pressures on the budget and the budget balances all
Speaker 10: of those up.
Speaker 4: That is Australia Finance Minister Katie Gallagher speaking earlier with
Speaker 4: Bloomberg's Paul Allen. Joining me now to explore what we
Speaker 4: may hear from the RBA next week is James McIntyre.
Speaker 4: James covers Australia and New Zealand for Bloomberg Economics, joining
Speaker 4: us from our studios in Sydney. Can we begin by
Speaker 4: kind of unpacking this weaker than expected inflation data. I'd
Speaker 4: like to know whether or not these readings are enough
Speaker 4: to prompt a rate cut from the RBA. What do
Speaker 4: you think?
Speaker 9: Well, our view is that no, it's not. It was
Speaker 9: a week of an expected CPI reading. We had the
Speaker 9: headline come in at at two point four. Consensus was
Speaker 9: two point five. We were at the two point four.
Speaker 9: But we'd said all along that that probably wasn't enough.
Speaker 9: It would need to be something exceptional to pull the
Speaker 9: RBA over the line. They're going to be delivering gradual
Speaker 9: rate cuts and following up from there February with an
Speaker 9: April cut was just too much, we think, given what
Speaker 9: the rest of the economic picture is telling them, it
Speaker 9: needed to be exceptional. It's welcome, but in our view,
Speaker 9: it's not enough to push them over the line on
Speaker 9: April first.
Speaker 4: So where is this inflationary pressure coming from. Is it
Speaker 4: goods inflation and if so, what are the commodities or
Speaker 4: items involved? Or maybe it's a little bit more service related.
Speaker 9: The mix within the Australian inflation story is very much
Speaker 9: a services story, and goods inflation has really fallen away,
Speaker 9: especially goods inflation around energy goods automotive fuel that's down
Speaker 9: quite a bit. But on the services side we've seen
Speaker 9: housing rents, insurance, new construction costs, but also medical and
Speaker 9: education services costs. There've been some of the key ones.
Speaker 9: There's some welcome developments on the services side, which is
Speaker 9: allowing the RBA to move rents of ease, the continuing
Speaker 9: to ease. New construction costs are coming down and insurance
Speaker 9: costs are starting to kind of ease back as well.
Speaker 9: So it's good, it's welcome, it's enough we think to
Speaker 9: get them over the line. When the full quarterly CPI
Speaker 9: is released ahead of the main meeting but just not
Speaker 9: enough yet to push them over the line next for April.
Speaker 4: So are you thinking that the next rate cut would
Speaker 4: be in May? Is that your thinking?
Speaker 9: That's our base case. So our base case for some
Speaker 9: time has been that the RBA would be delivering twenty
Speaker 9: five basis point rate cuts per quarter May August November.
Speaker 9: They're key meetings where they do the quarterly forecast update
Speaker 9: following the quarterly CPI readings. We still think that there's
Speaker 9: nothing to kind of change our view on that, including
Speaker 9: nothing really in the government's budget, which was released on
Speaker 9: Tuesday evening by the Treasurer outlining some election policy goodies.
Speaker 9: We don't think there's anything there that really threatens that
Speaker 9: gradual but sustained RBA cutting cycle through the course of
Speaker 9: this year.
Speaker 4: So you mentioned the federal budget. What is the aim
Speaker 4: here on the part of the government. What are they
Speaker 4: trying to achieve?
Speaker 9: Well, I guess the key aim is reelection, So we
Speaker 9: think the government will swiftly follow this budget by announcing
Speaker 9: an election, possibly with an election campaign over the coming
Speaker 9: weeks and appolling date sometime in May. But what have
Speaker 9: they done in this budget, Well, they have kept the
Speaker 9: fiscal position relatively unchanged. That is that they've banked some
Speaker 9: revenue upgrades from commodity prices and a stronger labor market,
Speaker 9: and they've plowed those extra tax receipts into some more
Speaker 9: spending and some tax cuts, small tax cuts for individuals,
Speaker 9: some further support on power price relief for households, and
Speaker 9: then additional spending on making doctors visits cheaper, some more childcare.
Speaker 9: All very popular election goody type spending. Not a lot
Speaker 9: of it though, and not enough spending to move the
Speaker 9: dial from a macro perspective and worry the RBA. But
Speaker 9: I guess the government's hoping that that spending is enough
Speaker 9: to sound good and entice voters at the ballot box.
Speaker 4: So you teased out some of the winners as a
Speaker 4: result of this federal budget. Who would the losers be?
Speaker 9: Yeah, losers in the budget, I guess Within the housing
Speaker 9: construction sector. There had been some hopes that there would
Speaker 9: be some further measures to help boost construction. We didn't
Speaker 9: really see anything there. Over all, though, what the budget
Speaker 9: didn't deliver is any concrete, sustained microeconomic reforms. There was
Speaker 9: some good work done on competition policy, but none on
Speaker 9: sort of the real deep seated issues around reigning in
Speaker 9: the structural deficit for the policy. With an election looming,
Speaker 9: the government has tried to minimize the obvious losers and
Speaker 9: that's sort of what stands out to us from the
Speaker 9: latest budget offering.
Speaker 4: James, I'm curious to get your take on what you're
Speaker 4: hearing as it relates to US tariffs that that seems
Speaker 4: to be the looming threat right now. Australia's Treasurer Jim
Speaker 4: Chalmers was making some comments in the last week. Is
Speaker 4: there a position that the government has or are there
Speaker 4: areas open to some type of negotiation should it come
Speaker 4: to that.
Speaker 9: The government is looking to stay friends with the administration
Speaker 9: and do all the right things. Australia does do the
Speaker 9: right things when it to what the US administer, the
Speaker 9: Trump administration might want. We run a trade deficit with
Speaker 9: the US. We have been lifting out defense spending, but
Speaker 9: we also provide major contributions to defense bases and expenditure
Speaker 9: for US troops that are stationed here. As the US
Speaker 9: military has been undertaking a Pacific pivot for some time
Speaker 9: now to count to muscle up to China, Australia is
Speaker 9: part of that effort. When it comes to tariffs. We're
Speaker 9: not retaliating, and what the government is doing is trying
Speaker 9: to offer support to affected industries. There aren't many in
Speaker 9: Australia but steel, aluminium, and possibly, depending on how the
Speaker 9: April to Liberation Day tariffs play out, possibly the beef
Speaker 9: sector as well. Whilst in the background doing the legwork
Speaker 9: with the US administration to try to win some exemptions
Speaker 9: and some favor in Australia's way. We don't know how
Speaker 9: it's going to go yet, but that's the path that
Speaker 9: the government is trying to very gently tread.
Speaker 4: Before I let you go, we know that the Chinese
Speaker 4: economy seems to be exhibiting some sign of renewal. I
Speaker 4: don't know if it's durable or not. Yes, there is
Speaker 4: still the problem with the property market, but certainly high
Speaker 4: tech stocks are telling kind of an enlightening story perhaps,
Speaker 4: and I'm curious as to whether or not this is
Speaker 4: having any ripple effect on Australia's economy right now. The
Speaker 4: fact that China seems to be doing a little bit better.
Speaker 9: Nothing major in terms of signs within the economic the
Speaker 9: hard economic data yet, but within the soft economic data
Speaker 9: we can see that the confidence remaining relatively positive in Australia.
Speaker 9: Domestic rate cuts are helping on the consumer side of things,
Speaker 9: but there would be a great deal of concern within
Speaker 9: business and consumer sentiment, a great hit to business and
Speaker 9: consumer sentiment were was China to be showing signs of
Speaker 9: not looking very very strong or the economy perhaps faltering
Speaker 9: a bit. Policy moves from the Chinese authorities to deliver
Speaker 9: more stimulus of very very welcome news to Australia. So
Speaker 9: we're seeing that sort of in the confident side of things.
Speaker 9: Whether that translates into the hard economic data, it still
Speaker 9: remains a bit of a wait and see, I think.
Speaker 4: James, thank you so much for taking the time to
Speaker 4: chat with us as we look ahead to the RBA decision.
Speaker 4: Bloomberg's James McIntyre. There he covers Australia and New Zealand
Speaker 4: for Bloomberg Economics. I'm Doug Prisner. You can catch us
Speaker 4: weekdays for the Daybreak Asia podcast. It's available wherever you
Speaker 4: get your podcast. Tom.
Speaker 2: Thank you Doug, and that does it for this edition
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