WEBVTT - US Inflation Data, RBA Decision in Focus

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

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<v Speaker 2>We're expecting a flurry of economic data points in the

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<v Speaker 2>week ahead. In the Asia Pacific. The big numbers are

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<v Speaker 2>due on Friday, when China will report on retail sales

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<v Speaker 2>and industrial production. Now in the States, Tuesday's report on

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<v Speaker 2>retail inflation will be a major focus. These numbers should

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<v Speaker 2>help firm expectations on the timing of the next FED

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<v Speaker 2>rate cut. Also Tuesday, we'll have a rate decision from

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<v Speaker 2>the Reserve Bank of Australia. And in a moment we'll

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<v Speaker 2>hear from Swati Pondi, Bloomberg ECOGUV reporter in Sydney. But

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<v Speaker 2>we begin here in the States. Joining me now is

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<v Speaker 2>Eric Stirner. He is the chief investment officer at a

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<v Speaker 2>Pollen Wealth Management. Eric, thank you so much for making

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<v Speaker 2>time to chat with me. Quite up rally that we

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<v Speaker 2>had in big cap tech Friday, Nasdaq comps a record

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<v Speaker 2>closing high twenty one four fifty. Are you continuing to

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<v Speaker 2>buy into this thesis that you've got to be in

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<v Speaker 2>big cap tech, particularly given the trade in artificial intelligence?

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<v Speaker 1>Yeah? Well, first, thanks for having me, And yeah, I

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<v Speaker 1>mean it's interesting because so many have predicted that other

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<v Speaker 1>sectors were going to take the leadership role from these

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<v Speaker 1>mega techs, But here we are, the mega techs still

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<v Speaker 1>leading away, and their earnings are just continued just to

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<v Speaker 1>knock the ball out of the park. And I still

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<v Speaker 1>think we're in the very early endings of this AI revolution.

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<v Speaker 1>And yes, you know some have not the make a

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<v Speaker 1>touch for their rich valuations, but they continue to warnt

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<v Speaker 1>them with the strong earnings and strong outlooks, so I

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<v Speaker 1>think they'll continue to be the leaders in this market.

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<v Speaker 2>So I mentioned a moment ago that we have CPI

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<v Speaker 2>data this week. Over the weekend, we heard from FED

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<v Speaker 2>Governor Michelle Bowman. She's favoring three cuts this year and

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<v Speaker 2>she's urging her fellow policymakers to begin making that type

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<v Speaker 2>of move at the September meeting. What are your expectations

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<v Speaker 2>right now for the Fed?

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<v Speaker 1>Well, what, you know, I believe that the Fed should

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<v Speaker 1>have cut rates this last meeting. And of course, you

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<v Speaker 1>know I'm saying that after the non farm non farm

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<v Speaker 1>payroll report came out on Friday with those major revisions.

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<v Speaker 1>But we've just even before those those revisions of the

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<v Speaker 1>Junior Report, we've seen plenty of evidence of the labor

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<v Speaker 1>market moderating between elevated continued claims. We still are in

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<v Speaker 1>this low higher, low fire environment where it's really hard

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<v Speaker 1>for those unemployed individuals out there trying to get a job.

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<v Speaker 1>And even the ADB Private Payrolls has really shown how

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<v Speaker 1>these restrictive rates are really choking smaller companies. In the

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<v Speaker 1>last two months, you know, companies with over five hundred

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<v Speaker 1>employees have added seventy eight thousand jobs, but smaller companies

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<v Speaker 1>with less than fifty employees they've actually shed twenty nine

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<v Speaker 1>thousand jobs. So I think, you guys, the FED needs

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<v Speaker 1>to be ahead of this because once that the labor

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<v Speaker 1>market typically is the last economic indicator to fall before

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<v Speaker 1>any economic downturn, and once that unemployment rate starts ticking higher,

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<v Speaker 1>it can quickly gain velocity. So I'm hoping that the

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<v Speaker 1>FED and people like Waller and Bowman and everyone else

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<v Speaker 1>gets on board looks at cut rates starting in September,

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<v Speaker 1>and who knows, maybe we'll see three cuts, but of

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<v Speaker 1>course that all depends on con how the rest of

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<v Speaker 1>the inflation reports and labor market reports come in for

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<v Speaker 1>the rest.

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<v Speaker 2>Of the year most definitely, And right now, I think

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<v Speaker 2>we can agree that inflation remains a little stubborn here

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<v Speaker 2>at around two seven. At the end of the week,

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<v Speaker 2>we'll hear from the University of Michigan and one year

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<v Speaker 2>inflation expectations that will be a keen number. Is there

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<v Speaker 2>the risk that growth begins to kind of remain luggish

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<v Speaker 2>in the face of high inflation? And I know that

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<v Speaker 2>the term stagflation has been thrown around a little bit lately,

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<v Speaker 2>But is that a concern that we should kind of

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<v Speaker 2>focus on a little bit.

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<v Speaker 1>It's something that certainly we we factor it into our

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<v Speaker 1>portfolios and as we determine allocations. It's not my base case,

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<v Speaker 1>but but certainly, you know, it's a risk that we

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<v Speaker 1>need to account for. I mean, I think I'm not

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<v Speaker 1>as concerned. I'm slightly concerned. Just just last month, or

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<v Speaker 1>in the month of Junior, we saw import prices We're

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<v Speaker 1>only up zero point one percent, and May import numbers

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<v Speaker 1>were actually down zero point four percent. So I think

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<v Speaker 1>what's that that's showing us is that foreign exporters are

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<v Speaker 1>eating some of these tariffs. So that's why I don't

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<v Speaker 1>think we're going to see. Yes, we probably may see

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<v Speaker 1>a few bumps in inflation between you the next few months,

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<v Speaker 1>but I don't think it's I think it's going to

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<v Speaker 1>be transitory in nature because we're in a much different

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<v Speaker 1>macro environment. We see consumer spending still healthy but moderating,

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<v Speaker 1>same with retail sales, So that's why I'm not as

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<v Speaker 1>concerned about stagflation, but certainly not something we can all

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<v Speaker 1>rule out.

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<v Speaker 2>Are you focused squarely on the equity market these days

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<v Speaker 2>as a place to put capital to work or do

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<v Speaker 2>you want to be maybe looking at portions of the

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<v Speaker 2>fixed income markets.

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<v Speaker 1>Yeah, we know. We like at all markets, both on

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<v Speaker 1>the public and private side, and I still think that

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<v Speaker 1>there's great opportunities in the fixed income markets. I think

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<v Speaker 1>the sweet spot still is in that short to intermediate

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<v Speaker 1>range because I think we're still going to We've seen

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<v Speaker 1>a lot of interest rate volatility between of course the

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<v Speaker 1>tariff and inflation concerns, but also just our budget deficit concerns,

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<v Speaker 1>so I think that volatility is still going to exist.

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<v Speaker 1>So that's why I remain on the short and medium

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<v Speaker 1>part of the fixed income curve. And then because I

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<v Speaker 1>think we are going to have us off landing I

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<v Speaker 1>really like high yields, the high yield that the credit

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<v Speaker 1>quality within the high yield market has improved tremendously. I

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<v Speaker 1>mean pre GFC only forty percent of high yields were

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<v Speaker 1>rated double B or higher. Today over fifty one percent

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<v Speaker 1>or rated double B or higher and eighty five percent

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<v Speaker 1>or B or higher. So I really like the fixed

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<v Speaker 1>the income market, and then for clients that it's suitable for.

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<v Speaker 1>We're also when we put together portfolios, looking at private markets,

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<v Speaker 1>between private credit, private equity, infrastructure. We know there's a

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<v Speaker 1>lot of infrastructure spending needed in this country, so we're

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<v Speaker 1>looking at all areas in the market because I do

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<v Speaker 1>think volatility will remain elevated. So we're just looking at

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<v Speaker 1>every asset class to build a more diversified portfolio for

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<v Speaker 1>our clients these days.

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<v Speaker 2>Are you looking at markets offshore as well?

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<v Speaker 1>Yes, oh, absolutely. We've always maintained allocations to international well.

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<v Speaker 1>Of course, that's really helped this year. I mean it's

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<v Speaker 1>been a great story on the international front. I do

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<v Speaker 1>think that the US may reassume leadership at least for

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<v Speaker 1>the second half of this year. You know, of course,

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<v Speaker 1>the dollar depreciating is going to help companies especially large

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<v Speaker 1>cat companies with a lot of revenues overseas. While it's

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<v Speaker 1>going to be a head wind for European and other countries,

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<v Speaker 1>and I think there was so much front running on

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<v Speaker 1>the tariffs that that's as that fades, that's going to

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<v Speaker 1>draw down on some of the profits from these European exporters.

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<v Speaker 1>So while I still will always be an advocate for

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<v Speaker 1>having international allocation, especially as the world back pedals from globalization,

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<v Speaker 1>I think that's going to lower the correlation between international

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<v Speaker 1>markets and domestic markets, which will help build more diverse

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<v Speaker 1>five portfolios. But because of those reasons, and I think

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<v Speaker 1>I think the international equities are going to take breather well.

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<v Speaker 1>On the US side, we've seen a lot of the

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<v Speaker 1>cloud of uncertainty start to dissipate. We have the one

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<v Speaker 1>Beautiful Bill law signed in the place, so everyone knows

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<v Speaker 1>that what's in that bill, and now we're starting to

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<v Speaker 1>see trade agreements coming to place between with the EU, Japan,

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<v Speaker 1>South Korea, and of course the White House administration still

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<v Speaker 1>has some work to do, but as we remove more

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<v Speaker 1>uncertainty and deregulation plans are probably on the horizon the

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<v Speaker 1>second half of this year. I expect the US markets

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<v Speaker 1>to continue to march higher.

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<v Speaker 2>So before I let you go speaking of the US,

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<v Speaker 2>I want to get your sense of how the American

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<v Speaker 2>consumer is holding up. At the end of the week,

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<v Speaker 2>we'll get the reading on July retail sales. How do

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<v Speaker 2>you think American consumers are doing right now?

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<v Speaker 1>At an aggregate level, I think the consumer remains healthy.

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<v Speaker 1>We've seen the consumer networth increase over fifty trillion since

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<v Speaker 1>the pandemic. But I do think it's becoming a very

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<v Speaker 1>bifurcated story, especially with these higher rates. I mean, I

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<v Speaker 1>think the higher end consumer benefit it more from the

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<v Speaker 1>stock market appreciation, you know, two straight years of twenty

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<v Speaker 1>plus percent returns, and the home equity are quickly rising.

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<v Speaker 1>You know, the low rank consumer might not have as

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<v Speaker 1>much exposure there. And just looking at the consumer spending,

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<v Speaker 1>I mean, fifty percent consumer spending comes from the top

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<v Speaker 1>ten percent of income high income earners, and thirty years

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<v Speaker 1>ago that ten percent of high income earners represented thirty

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<v Speaker 1>six percent. So there is some concern that's becoming a

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<v Speaker 1>little bit more bifurcated. But at an aggregate level, while

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<v Speaker 1>we see reports of credit rising and loans rising, the

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<v Speaker 1>household balance sheets are healthier right now than they were

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<v Speaker 1>pre pandemic. In fact, the household debt ratio is at

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<v Speaker 1>eleven point two percent right now, and the nine years

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<v Speaker 1>before the pandemic it was actually eleven point eight. So

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<v Speaker 1>that tells me that, yes, some of the low rane

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<v Speaker 1>consumers are feeling the strange from higher rates, but overall

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<v Speaker 1>the consumer does remain healthy and that also helped warrants

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<v Speaker 1>or feeds into my bullish outlook for the remainder of

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<v Speaker 1>this year.

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<v Speaker 2>Okay, we'll leave it on that bullish outlook with Eric Sterner. Eric,

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<v Speaker 2>thank you so much. Eric is chief investment officer at

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<v Speaker 2>a Pollen Wealth Management. Joining here on the Daybreak Asia podcast.

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<v Speaker 2>Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.

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<v Speaker 2>Traders in the Asia Pacific will be watching tomorrow's rate

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<v Speaker 2>decision from the Reserve Bank of Australia now. Back in July,

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<v Speaker 2>Governor Michelle Bullock faced some tough questions after the RBA

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<v Speaker 2>held its policy rates steady. This time around, she's expected

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<v Speaker 2>to stay with her cautious stance on the monetary policy outlook.

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<v Speaker 2>Rebecca Jones is Bloomberg's managing editor for Australia and New Zealand.

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<v Speaker 3>We've got an unemployment rate that's not only trending high,

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<v Speaker 3>but it's also above what our Central Bank has been projecting.

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<v Speaker 3>So it does look like it's not going to be

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<v Speaker 3>the curveball of last month. All twenty seven economists that

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<v Speaker 3>we survey are predicting that we're going to get that

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<v Speaker 3>twenty five basis pointcut.

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<v Speaker 2>That is Bloomberg's Rebecca Jones in Melbourne. For more, we

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<v Speaker 2>heard from Swati Pondi, Bloomberg's Eco GUV reporter in Sydney.

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<v Speaker 2>Swati spoke with Bloomberg TV host Avril Honk and Paul

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<v Speaker 2>Allen on the Asia Trade.

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<v Speaker 4>Swati last meeting, we thought this is it, We're easing,

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<v Speaker 4>but it didn't happen surely this time at a walk.

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<v Speaker 5>That's what a lot of people are saying as well.

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<v Speaker 5>Economists expecting a cut, and one of the reasons is

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<v Speaker 5>that they think the appetite to shock the market for

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<v Speaker 5>the RBI is pretty small. Now markets are expecting fully

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<v Speaker 5>pricing in a cut. Economists are ascribing a seventy five

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<v Speaker 5>percent chance, seventy five eighty percent chance of a cut.

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<v Speaker 5>We had inflation data which showed a cooling down in

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<v Speaker 5>prices from the previous quarter, and unemployment data showed that

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<v Speaker 5>the jobless rate is going up a bit. So put together,

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<v Speaker 5>it does look like the RBA could ease by twenty

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<v Speaker 5>five basis points in August, but it's likely to be

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<v Speaker 5>a hawkish cut.

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<v Speaker 2>Yeah, I was just gonna ask Swatty in terms of

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<v Speaker 2>forward guidance, how much is the RBA going to realistically

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<v Speaker 2>be letting on.

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<v Speaker 5>Governor Michelle Bullock has said in the past recent months

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<v Speaker 5>that the RBA strategy is going to be gradual easing,

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<v Speaker 5>going to be one of gradual easing, and that is

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<v Speaker 5>the message that she's likely to read rate tomorrow at

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<v Speaker 5>her press conference as well. So after tomorrow's cut, if

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<v Speaker 5>that happens, markets are expecting one more and there's a

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<v Speaker 5>fifty to fifty chance of a third, So there's not

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<v Speaker 5>a lot of easing that's being priced by markets. And

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<v Speaker 5>it's the case is similar for economists as well, and

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<v Speaker 5>I think Michelle Burdock is likely to either she will

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<v Speaker 5>say that we are fine with that pricing or signal

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<v Speaker 5>that they are fine with that pricing, it's just one

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<v Speaker 5>or two cuts, or she will further push back against

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<v Speaker 5>that against that pricing, saying signaling that the RBA is

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<v Speaker 5>probably at neutral stands at the moment and they would

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<v Speaker 5>likely to just be on a prolonged pause here.

0:13:50.600 --> 0:13:53.040
<v Speaker 4>Well, there was some strong expectation that we would get

0:13:53.080 --> 0:13:54.720
<v Speaker 4>eating at the last meeting, and as I said, it

0:13:54.760 --> 0:13:57.200
<v Speaker 4>didn't happen. But that did lead to some criticism of

0:13:57.240 --> 0:13:59.880
<v Speaker 4>the ABA's communication. Was that warranted.

0:14:00.920 --> 0:14:06.560
<v Speaker 5>Yes, the RBAS communication has been a bit whiplashy this year.

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<v Speaker 5>So when they met for the first time this year

0:14:10.360 --> 0:14:17.040
<v Speaker 5>in February, they cut interest rates and they sounded quite hawkish,

0:14:17.080 --> 0:14:21.640
<v Speaker 5>and then in April they sounded really dubbish. Remember this

0:14:21.800 --> 0:14:25.280
<v Speaker 5>was the meeting just one day before Liberation Day. Uh

0:14:25.440 --> 0:14:27.800
<v Speaker 5>So there was a lot of uncertainty in the market,

0:14:27.800 --> 0:14:30.600
<v Speaker 5>there was a lot of volatility, and so they were

0:14:30.880 --> 0:14:36.479
<v Speaker 5>rightly extremely dubbish. And then the main meeting happened and

0:14:36.520 --> 0:14:42.360
<v Speaker 5>they were again hawkish, and then July they did not cut.

0:14:42.560 --> 0:14:45.200
<v Speaker 5>So it's people are saying that it's really hard to

0:14:45.840 --> 0:14:49.840
<v Speaker 5>discern their signals. It's hard to understand what they would do.

0:14:50.280 --> 0:14:50.480
<v Speaker 1>Uh.

0:14:50.920 --> 0:14:54.680
<v Speaker 5>In RBA's defense, they have a new monetary policy board

0:14:54.760 --> 0:14:57.800
<v Speaker 5>now and they have a new structure where they are voting,

0:14:58.600 --> 0:15:02.520
<v Speaker 5>so it her defense, Michelle Bullock said that it's very

0:15:02.520 --> 0:15:04.960
<v Speaker 5>hard for her to pre enpt what the board would

0:15:05.000 --> 0:15:09.280
<v Speaker 5>do because she doesn't know how which way people would vote,

0:15:09.560 --> 0:15:13.160
<v Speaker 5>and that adds to the uncertainty. So I think through

0:15:13.200 --> 0:15:16.880
<v Speaker 5>the course of this year, maybe next year, as the

0:15:17.320 --> 0:15:21.800
<v Speaker 5>as votes are revealed, as we get more idea about

0:15:21.880 --> 0:15:25.080
<v Speaker 5>how they are responding to data, how they are responding

0:15:25.160 --> 0:15:30.400
<v Speaker 5>to the available information, then probably people will be able

0:15:30.440 --> 0:15:33.160
<v Speaker 5>to better assess how the RBA would react.

0:15:33.520 --> 0:15:36.320
<v Speaker 4>And of course RBA policy so closely linked to the

0:15:36.520 --> 0:15:40.360
<v Speaker 4>national sport of real estate, can we pretty much time

0:15:40.440 --> 0:15:43.760
<v Speaker 4>our watch to easing from the RBA to another rise

0:15:43.800 --> 0:15:46.080
<v Speaker 4>in house prices, which are already and have been in

0:15:46.120 --> 0:15:47.240
<v Speaker 4>those bleed territories for.

0:15:47.160 --> 0:15:47.760
<v Speaker 1>A long time.

0:15:48.080 --> 0:15:51.280
<v Speaker 5>It's already happening. It's already happening. House prices are on

0:15:51.360 --> 0:15:54.200
<v Speaker 5>a tear again and that is a big concern. There

0:15:54.280 --> 0:15:57.600
<v Speaker 5>was a report from Rey White Group to David said

0:15:57.640 --> 0:16:02.280
<v Speaker 5>that every single day, twenty four unaffordable houses are being

0:16:02.320 --> 0:16:05.960
<v Speaker 5>added to the market, which basically is another way of

0:16:06.000 --> 0:16:09.920
<v Speaker 5>saying that every single day the number of unaffordable housing

0:16:10.120 --> 0:16:14.440
<v Speaker 5>in the country is rising by twenty four and that

0:16:15.600 --> 0:16:17.920
<v Speaker 5>is a big number if you put it in perspective

0:16:17.960 --> 0:16:21.280
<v Speaker 5>of the whole year, right, So we definitely have that

0:16:21.400 --> 0:16:25.440
<v Speaker 5>problem of unaffordability. Some economists are saying that is one

0:16:25.480 --> 0:16:28.520
<v Speaker 5>of the reasons we will not see a huge spike

0:16:28.720 --> 0:16:34.920
<v Speaker 5>in prices, but definitely easing monetary policy and easier borrowing

0:16:35.000 --> 0:16:40.040
<v Speaker 5>costs to make housing more attractive for people who can

0:16:40.080 --> 0:16:40.520
<v Speaker 5>afford it.

0:16:40.880 --> 0:16:43.760
<v Speaker 4>All right, Economy reporter Swatty Pandi theres we count down

0:16:43.800 --> 0:16:45.520
<v Speaker 4>to the ABA decision on Tuesday.

0:16:48.160 --> 0:16:51.520
<v Speaker 2>Thanks for listening to today's episode of the Bloomberg Daybreak

0:16:51.680 --> 0:16:55.040
<v Speaker 2>Asia Edition podcast. Each weekday, we look at the story

0:16:55.120 --> 0:16:59.440
<v Speaker 2>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:16:59.480 --> 0:17:02.680
<v Speaker 2>can find it us on Apple, Spotify, the Bloomberg Podcast

0:17:02.760 --> 0:17:06.120
<v Speaker 2>YouTube channel, or anywhere else you listen. Join us again

0:17:06.160 --> 0:17:09.439
<v Speaker 2>tomorrow for insight on the market moves from Hong Kong

0:17:09.560 --> 0:17:13.960
<v Speaker 2>to Singapore and Australia. I'm Doug Prisoner and this is

0:17:14.000 --> 0:17:14.560
<v Speaker 2>Bloomberg