Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories in the coming week from our Daybreak anchors
Speaker 2: all over the world. Straight Ahead on the program, a
Speaker 2: look at some key inflation and retail sales data in
Speaker 2: the US. I'm Maybe Morris in Washington.
Speaker 3: I'm callin hetkit Hay in London, where we're looking at
Speaker 3: Europe's wind energy sector with the Trump administration's roll back
Speaker 3: on maneuables.
Speaker 4: I'm Charlie Pellock with a look at what we can
Speaker 4: expect from the Reserve Bank of Australia when they issue
Speaker 4: their August Great decision next week.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Opp Good day to you. I'm Amy Morris. We begin
Speaker 2: today's program with some key economic data in the US.
Speaker 2: We get USCPI data on Tuesday, the Producer Price Index
Speaker 2: is released on Thursday and retail sales data on Friday.
Speaker 2: How is this data going to impact FED policy as
Speaker 2: we move forward? For more, we are joined by Michael McKee,
Speaker 2: Bloomberg International Economics and Policy correspondent Mike always a pleasure
Speaker 2: want to start with PPI and take a peek back
Speaker 2: at this past week which saw some weaknesses revealed in
Speaker 2: the PMI data for July, plus reciprocal tariffs kicked in.
Speaker 2: With all of that in mind, what should we be
Speaker 2: looking for from the PPI coming up?
Speaker 5: Well, we're going to be looking, certainly in terms of
Speaker 5: PPI at whether we have nascent inflation coming from tariffs,
Speaker 5: and we'll be looking at the things within the producer
Speaker 5: price indix that are considered intermediate goods, things that companies
Speaker 5: buy to make other things. And if we see prices
Speaker 5: going up there, which we should, then it'll be a
Speaker 5: question of how much do they go up? Does it
Speaker 5: suggest that we're going to have an outbreak of inflation?
Speaker 5: And when you look at the CPI you're going to
Speaker 5: have the same sort of questions. But therefore finished goods
Speaker 5: for things that consumers are buying, what is it telling
Speaker 5: us about the tariff impact on the economy, and that's
Speaker 5: why I'll have a big effect for the Fed. It
Speaker 5: will matter a lot to the Fed, more than we've
Speaker 5: had most CPI and PPI indicators this year because they
Speaker 5: put everything on hold waiting to see what the inflation
Speaker 5: outcome is from tariffs.
Speaker 2: So these numbers are going to have more of an impact.
Speaker 2: Do you think maybe than normally historically they would.
Speaker 5: Yes, they will have an impact one of two ways.
Speaker 5: Either they will show inflation is picking up, which will
Speaker 5: lead the Fed to be more cautious going into their
Speaker 5: next meeting, or they'll show that things are pretty quiet,
Speaker 5: as the President insists, and the idea that the jobs
Speaker 5: report we had last week shows weakness in the economy
Speaker 5: would give them more license to cut rates.
Speaker 2: Should we bring up the issue of stagflation? Is there
Speaker 2: any risk of a stagflation in our future?
Speaker 5: Well, that's kind of what we're looking at at the
Speaker 5: moment now. The problem is is people tend to think
Speaker 5: of stagflation in the way we had it in the
Speaker 5: nineteen seventies, where inflation was very high and growth was
Speaker 5: very low. But it can just basically mean that the
Speaker 5: economy is not growing particularly fast and inflation is picking
Speaker 5: up a bit, so you could have maybe four percent
Speaker 5: inflation or three and a half percent inflation and growth
Speaker 5: of a half percentage point or something like that, and
Speaker 5: it would still qualify as stagflation. And that's kind of
Speaker 5: what the data are pointing at right now. And we
Speaker 5: say that because of the jobs the fact that they
Speaker 5: were so weak, as a suggestion that maybe consumers won't
Speaker 5: be spending as much money and the economy will slow down.
Speaker 5: And obviously we're watching the CPIPPI to see if there
Speaker 5: is the flation part of stagflation exactly.
Speaker 2: Let's turn to the retail sales figures, then are we shopping?
Speaker 2: What are you watching for from that? Because everything you
Speaker 2: just explained tells me it's sort of all dovetails.
Speaker 5: Well, it's going to be a kind of a weird one,
Speaker 5: as July usually is, because July we have the Amazon
Speaker 5: Prime Days and the other retailers like Walmart who match
Speaker 5: their discounts, and so you could get more people buying
Speaker 5: stuff than we normally would expect under the economic conditions
Speaker 5: that we have. It may not reflect yet that people
Speaker 5: are concerned about the economy and pulling back on their spending,
Speaker 5: because everybody likes a deal.
Speaker 2: Forgive me, but Amazon Prime Days really have that much
Speaker 2: of an impact they can.
Speaker 5: The way they calculate all of this is through dollar volume,
Speaker 5: and the Prime days and the other discounters would be
Speaker 5: charging less. But what ends up happening is a lot
Speaker 5: of people buy stuff they weren't intending to buy that
Speaker 5: isn't necessarily on sale, and so you do get an increase,
Speaker 5: particularly in the category of online shopping, and so that's
Speaker 5: something to keep an eye on. We also are looking
Speaker 5: always looking at gasoline prices, which came down and then
Speaker 5: started going back up again, so those will have an
Speaker 5: impact as well. And we had better than expected auto
Speaker 5: sales in July, so that may also suggest that we're
Speaker 5: going to have a little more strength in retail sales
Speaker 5: than we might otherwise have expected.
Speaker 2: Well, Mike, the President did fire the head of the
Speaker 2: Bureau of Labor Statistics, and the concern there is that
Speaker 2: any suggestion of political bias can and destroy trust, especially
Speaker 2: in these numbers. How important is it for the American people, economists,
Speaker 2: those who watch this data to have trust in these
Speaker 2: numbers that we're going to see.
Speaker 5: Oh, it's vital because we rely on them for so much.
Speaker 5: It's not just me sitting here reading the eco go
Speaker 5: page on the Bloomberg. They're used in adjusting contracts, the
Speaker 5: cost of living. Social security companies make plans on investment
Speaker 5: based on what they think the inflation rate is going
Speaker 5: to be. So they're very important numbers, and obviously they
Speaker 5: matter a lot to the FED, and so being able
Speaker 5: to believe in them is very important. Now we know
Speaker 5: that the numbers have become a little more less accurate,
Speaker 5: but sort of the margin of error has widened because
Speaker 5: they're having much fewer responses to their surveys, and they've
Speaker 5: also cut back the government's Congress and the presidents of
Speaker 5: back on spending on these numbers. So it's been difficult
Speaker 5: for the agencies, but they do their best to produce
Speaker 5: the gold standard of data, and I don't think anybody
Speaker 5: is looking for that to change the way they've set
Speaker 5: it up. The commissioner of the BLS doesn't get into
Speaker 5: the report, so the fact that the President fired somebody
Speaker 5: who's not ultimately actually responsible for the report won't make
Speaker 5: much of a change. So I don't think Wall Street's
Speaker 5: too worried yet. It would be if somebody came in
Speaker 5: and started making major changes in the way they compile
Speaker 5: the data that you'd have to worry.
Speaker 2: Okay, and we're going to leave it there. Michael McKee,
Speaker 2: Bloomberg International Economics and Policy Correspondent, Always a pleasure. Thank
Speaker 2: you so much for your insight. All right, we move
Speaker 2: next to corporate earnings from the networking bellwether Cisco. They
Speaker 2: report earnings after the market close on Wednesday. For more,
Speaker 2: we're joined by Woujin Hoo, Bloomberg Intelligence Senior Technology analyst.
Speaker 2: Woujin what are you looking for from Cisco's earnings report?
Speaker 6: Yeah, thanks for having me on. Look. I am actually
Speaker 6: looking for a fantastic quarter coming out of coming from Cisco.
Speaker 6: There's a couple of high level things that we need
Speaker 6: to take into consideration. The enterprise it spending has been
Speaker 6: a little bit more resilient than I had anticipated, so
Speaker 6: they should easily or I believe they should come at
Speaker 6: least come in the high end of the fourteen point
Speaker 6: five to fourteen point seven billion dollar guidance for the quarter.
Speaker 6: But more importantly, they've actually navigated their tariff situation pretty well,
Speaker 6: so there should be you know, minimal downside risk to
Speaker 6: earning expectations heading into the print. But more importantly, I
Speaker 6: think the focus going into the quarter is going to
Speaker 6: be more along the lines of their guidance for fiscal
Speaker 6: twenty twenty six. You know, their long term guidance there
Speaker 6: is four to six percent, and they have a lot
Speaker 6: of tailwinds to help them go to the top end
Speaker 6: of that guidance range.
Speaker 2: Yeah, I want to ask about that, how they're able
Speaker 2: to maintain stable demand and steady growth in this current
Speaker 2: AI environment because this is the pool everybody's jumping into.
Speaker 2: So how can Cisco maintain all of that set itself apart?
Speaker 2: Is it navigating their own tariff deal or is there
Speaker 2: more to it?
Speaker 6: Well, you know, one one of the things that Cisco
Speaker 6: has done over the past several years since since the
Speaker 6: COVID period is essentially distribute their supply chain to be
Speaker 6: less concentrated outside of China. But a couple of things
Speaker 6: that do help them. They do have some Mexico manufacturing,
Speaker 6: so they can get some cover under the U. S.
Speaker 6: M c A, so some of their products are going
Speaker 6: to be exempt from tariffs. And I think some of
Speaker 6: the new tariff rules that came into you know, the
Speaker 6: the August first deadline, that's going to help them actually
Speaker 6: make their products a little bit more favorable from a
Speaker 6: from a tariff perspective, So net net, they'll they'll be
Speaker 6: fine from a tire perspective. The one thing that I
Speaker 6: will tell you, they're more highly exposed from a revenue
Speaker 6: perspective on enterprise spending. Roughly half their revenue come from
Speaker 6: commercial businesses. Think about your typical small medium businesses with
Speaker 6: over a thousand employees and also your campus networks and
Speaker 6: stuff that you know that connects the the PCs in
Speaker 6: our desk. That really hasn't pulled back at all. If
Speaker 6: I look at other companies, they've actually at least met
Speaker 6: expectations and also beaten expectations. And as a tech bell
Speaker 6: whether I do think that they're going to benefit as well.
Speaker 2: They also have an ongoing relationship with Nvidia. How has
Speaker 2: that helped?
Speaker 6: Yeah, you know, it's it's a it's a new relationship
Speaker 6: that they announced that their users conference. If anything, that
Speaker 6: actually thrust them deeper into the to the AI story.
Speaker 6: A couple of things here. You know, you're not going
Speaker 6: to see the multi billion dollar AI deals coming like
Speaker 6: a Dell or super Micro, but as corporate enterprises get
Speaker 6: into the AI, Cisco and their broad enterprise channel, the
Speaker 6: small medium business as well as enterprises that I just
Speaker 6: spoke about that will actually help Nvidia get into those
Speaker 6: accounts that Nvidia typically cannot get access to. So there
Speaker 6: is a channel relationship that helps. That's one and number two,
Speaker 6: it is symbiotic because there is a networking component in AI.
Speaker 6: Cisco is a networking leader and they can actually get
Speaker 6: Nvidia networking gear with Cisco equipment into a lot of
Speaker 6: these data center as well as enterprise accounts. That will help.
Speaker 2: This is going to be fun to watch those numbers
Speaker 2: coming out on Wednesday. Wou Jinjo, Bloomberg Intelligence Senior technology analyst,
Speaker 2: thank you so much for talking with us about this. Take.
Speaker 2: Coming up on Bloomberg Daybreak weekend, we'll look at Europe's
Speaker 2: wind energy sector and now it's being impacted by the
Speaker 2: Trump administration's roll back on renewables. I'm Amy Morris. This
Speaker 2: is Bloomberg. This is Bloomberg Daybreak Weekend, our global look
Speaker 2: ahead at the top stories for investors in the coming week.
Speaker 2: I'm Amy Morris in Washington. Up later in our program,
Speaker 2: we'll look ahead to a monetary policy decision from the
Speaker 2: Reserve Bank of Australia but first in the coming days,
Speaker 2: the Danish wind turbine maker Vestus will report earnings. It
Speaker 2: is expected to solidify its position as Europe's largest wind
Speaker 2: turbine manufacturer and the world's second largest by shipments. But
Speaker 2: the renewable energy sector faces big political challenges in the
Speaker 2: US and in Europe. For more, let's go to London
Speaker 2: and bring in Bloomberg Daybreak Europe anchor Caroline hepger Amy.
Speaker 3: It's thought that tariff uncertainty will have hit Vestas's orders
Speaker 3: in the second quarter, but that may be an issue
Speaker 3: largely for Europe because paradoxically, Vestus has seen a surge
Speaker 3: in US orders. Has developers rushed to get ahead of
Speaker 3: President Trump's deadline to end certain tax credits for new
Speaker 3: clean energy projects. When Bloomberg spoke to Vestas's CEO Henrik
Speaker 3: Anderson back in May, he had a blunt warning for
Speaker 3: Europe either adopt bolder industrial policy or risk watching business
Speaker 3: drift elsewhere. Anderson noted that the European Union's fragmented approach
Speaker 3: to the sector was jeopardizing the region's chances of achieving
Speaker 3: energy independence and competing against other global manufacturers. He emphasized
Speaker 3: the need to protect and support the wind energy sector
Speaker 3: that Europe has built through its universities and testing sites.
Speaker 7: It's quite interesting and maybe it comes with age. I
Speaker 7: don't know, but I'm saying stay calm because there are
Speaker 7: some of these things that will be probably spontaneous, probably
Speaker 7: fast measures that then will try to find solutions on
Speaker 7: over time. And if I look back and also forward,
Speaker 7: is we have been and we have created factories and
Speaker 7: localization in the US for more than two decades. So
Speaker 7: for somebody to sit here and god a really nerve
Speaker 7: wrecking Monday morning and now on Friday, we're going to
Speaker 7: relocate some of it, that's just not the right thing,
Speaker 7: because whatever we do, we still see the demand cycle
Speaker 7: for entity. We still see the building and the ramp
Speaker 7: up we are doing in the US, and therefore for
Speaker 7: that to suddenly be hit by and I often call
Speaker 7: it a bit the emotional spirit of this And if
Speaker 7: I could encourage still anything out of this, remain a
Speaker 7: bit calm, take some responsibility, because direction of setting for
Speaker 7: your organization needed right now, because they get off in
Speaker 7: the morning, they see news like this and they all
Speaker 7: see the world is coming a bit apart. It's being
Speaker 7: more fragmented, So I think, actually, as CEOs, one of
Speaker 7: the most important thing right now is stick to the direction.
Speaker 3: That was Vestas CEO Henrik Anderson there speaking to Bloomberg's
Speaker 3: Ana Edwards critic group to and Guy Johnson back in May.
Speaker 3: His comments came as the EU is struggling to cut
Speaker 3: carbon emissions whilst more broadly addressing struggling growth and a
Speaker 3: crisis of competitiveness. So what are the challenges that Europe's
Speaker 3: renewable sector face and what do expect from Vestas in particular.
Speaker 3: It's something that I've been discussing with Bloomberg's Climate Change
Speaker 3: and Renewable Energy reporter Will Mathis and Bloomberg Intelligence Equity
Speaker 3: Research Senior Associate Ales master Andrea Well, can I start
Speaker 3: with you?
Speaker 2: What are we.
Speaker 3: Expecting from Vestas's earnings?
Speaker 8: Well, I think we're expecting crucially and the first updates
Speaker 8: since the changes to the American tax law that was
Speaker 8: extremely detrimental to the wind energy sector. It had been
Speaker 8: primed for huge growth because of President Biden's Inflation Reduction Act,
Speaker 8: and then a lot of the support that the wind
Speaker 8: industry was going to get has been paired back. So
Speaker 8: now we're going to get an update from Vestas about
Speaker 8: what does that mean for wind in the US for
Speaker 8: their turbine business there, and also what impact is this
Speaker 8: going to have on costs for electricity for the American market.
Speaker 3: So this is the winding back that President Trump has
Speaker 3: announced around those tax credits for clean energy projects? What
Speaker 3: about them, what we're expecting in terms of orders, especially
Speaker 3: for Germany now that it is focused on investment spending.
Speaker 8: Yeah, I think Germany, especially with onshore wind, has been
Speaker 8: one of the strongest markets. They've really done a lot
Speaker 8: since the energy crisis to restart the onshore wind market
Speaker 8: which had been sort of stagnant for a while. And
Speaker 8: I think that it's going to be an extremely important
Speaker 8: market for Vestas and other wind turbine makers, you know,
Speaker 8: in the next for the rest of this decade.
Speaker 3: And let's say that's a little taste of what we're
Speaker 3: expecting them from Vestas. How important a business is vest
Speaker 3: Us though, actually in Denmark.
Speaker 9: I think it's it's huge. So we're actually in Copenhagen
Speaker 9: a couple of weeks ago, and you know, as soon
Speaker 9: as you land, as you're landing, you see a bunch
Speaker 9: offshore wind farms there's signs everywhere for vestas it's one
Speaker 9: of the key businesses in the region and more importantly
Speaker 9: just in Europe overall.
Speaker 3: Okay, and the environment then for clean energy firms in
Speaker 3: Europe that are doing business with the US given this
Speaker 3: kind of anti renewable Trump administration.
Speaker 9: Yeah, So in the US, like we were saying, we
Speaker 9: were kind of waiting to see what was going to
Speaker 9: happen with the one big, beautiful bill, and now that
Speaker 9: we have clarity, we have orders. It announced for Q
Speaker 9: two or only about one point one gigawatts, but we
Speaker 9: saw that coming in the week since then, we've already
Speaker 9: seen a gigawat worth of orders just in the first
Speaker 9: month of three q and five hundred megawatts so that
Speaker 9: are in the US. So we are seeing that now
Speaker 9: we have at least a bit of certainty even though
Speaker 9: it's not exactly what we wanted that there's still going
Speaker 9: to be a build out in the US.
Speaker 3: So the order flow is coming in and you're starting
Speaker 3: to get a bit more visibility on that in terms
Speaker 3: of how Europe then is thinking about clean energy policy
Speaker 3: given I mean, it's an increasingly sharp elbowed global economy,
Speaker 3: isn't it. It's less cooperative, it's more self sufficient. And
Speaker 3: this big change in the US. How much influence is
Speaker 3: that having. How's Europe thinking about clean energy now?
Speaker 9: So in Europe you can't exactly have something like the
Speaker 9: Inflation Production Act where you can give tax and centerves
Speaker 9: because it is individual states. Yes, however, there are two
Speaker 9: major policy initiatives that have kind of helped spur along
Speaker 9: wind and clear and energy growth overall. So you have
Speaker 9: Repower EU and the europe Win Action Plan, and those
Speaker 9: were really made to kind of cut the red tape
Speaker 9: because a lot of what's stopping wind build out is
Speaker 9: the bureaucracy to get the permits to get these projects going.
Speaker 9: Because overall it only takes one to two years to
Speaker 9: build an onshore wind farm. The biggest part is the
Speaker 9: bureaucracy piece.
Speaker 3: Where's that worst?
Speaker 9: Do you think right now? It's kind of overall, I
Speaker 9: can say where it's getting better. So you know, Denmark
Speaker 9: is trying to cut a lot of that red tape,
Speaker 9: but it's a bit of a double edged sword because
Speaker 9: a lot of countries are also scaling back their offshore segment.
Speaker 9: We see this in the US. The Biden administration had
Speaker 9: a target of thirty gigawatts offshore win by twenty thirty.
Speaker 9: The Trump administration basically came in and shut the door
Speaker 9: on that and we might only get about five gigawatts.
Speaker 3: Okay. Well, in terms of how well Europe's renewable energy
Speaker 3: sector is doing in terms of earnings overall this quarter,
Speaker 3: have there been big takeaways to you?
Speaker 8: I think that a lot of the noise has been
Speaker 8: about what's been happening in the US. It has been
Speaker 8: a huge growth market for renewable energy, especially offshore wind
Speaker 8: in recent years with the Biden administration, and now that's
Speaker 8: been really pulled back. So you know, on the same
Speaker 8: day the Vestas reports or Stead, another Danish renewable energy giant,
Speaker 8: is going to post their results. They've had huge problems
Speaker 8: in the US with cost overruns and now with some
Speaker 8: of their projects essentially just being put on ice, and
Speaker 8: definitely that they have like seabed leases which are just
Speaker 8: areas kind of like a couple of years ago, would
Speaker 8: been considered assets and now they're essentially worthless because there's
Speaker 8: really no pathway to growth. While there's a Republican administration
Speaker 8: in the White House, and that's going to be another
Speaker 8: key view into what does this all mean for European
Speaker 8: companies that have gone big in the US based on
Speaker 8: policy and now are trying to recalibrate and figure out
Speaker 8: what their next steps are in this Trump administration.
Speaker 3: Has there been a rush though to get the to
Speaker 3: get wind power projects actually done and completed because the
Speaker 3: tax credits are going to run out? But it's actually
Speaker 3: in some months, it's basically in a year to two
Speaker 3: years time, right, twenty twenty seven. When so is there
Speaker 3: a rush happening now or has that sort of been abandoned?
Speaker 8: Yeah, I mean that's one of the questions that I'm
Speaker 8: going to be asking Henrik Anderson, the CEO of Vestas,
Speaker 8: is you know, what are you doing to get these
Speaker 8: turbines to your customers as quickly as possible? Because there's
Speaker 8: a lot of people who've had developments that maybe they
Speaker 8: were thinking, oh, I could build this in the next
Speaker 8: five years, and now they're like, oh, I've got like
Speaker 8: two years to get this substantially started, and that's going
Speaker 8: to really depend on the supply of turbines whether they
Speaker 8: can do it or not.
Speaker 3: Yeah, speaking of turbines, I mean I was quite interested
Speaker 3: to read that actually there's also an issue around the
Speaker 3: energy mix for making this massive bit of equipment, right,
Speaker 3: the kind of the energy that it takes to make
Speaker 3: the steel that goes into the wind turbine. So sort
Speaker 3: of wondering also about the energy efficiency and the sustainable
Speaker 3: aspect of vestas his own business or just the business
Speaker 3: of these wind turbine makers. What do you think of that, will?
Speaker 8: I mean, wind turbines are big pieces of steel. Steel
Speaker 8: is emissions intensive industry, but the emissions that are offset
Speaker 8: by using the wind turbine very very quickly compensate for
Speaker 8: the emissions inherent in the machines and the transport of
Speaker 8: getting them to the market because they're also put on
Speaker 8: ships that are powered by oil. But it's something that
Speaker 8: those companies want to address. They are looking into like
Speaker 8: green steel and other things that could bring down their
Speaker 8: carbon footprint, and especially you know, Danish company, sustainability is
Speaker 8: very important there. But for now there are emissions, but
Speaker 8: it is you know, compared to the benefit of replacing
Speaker 8: a qualified power station or a gas power station with
Speaker 8: a wind turbine, you know.
Speaker 6: It's.
Speaker 8: Worth it, easily worth it to spend some emissions on
Speaker 8: making these things to be able to use them in
Speaker 8: the power mix, so the.
Speaker 3: Industry kind of factors it in as it were, So
Speaker 3: that goes to the energy security issue for Europe. Europe's
Speaker 3: recently only had this scare around Iran threatening to close
Speaker 3: the Straight of hor Moves and that would affect energy
Speaker 3: supplies in Europe. There's also pressure on anyone buying Russian energy.
Speaker 3: How big a concern is it around the energy infrastructure
Speaker 3: that Europe has energy supplies currently?
Speaker 9: Yeah, I think it's a massive focal point for why
Speaker 9: the clean Andrey transition is so important. Yes, it's good
Speaker 9: for the environment, but energy security is fundamental. We saw
Speaker 9: Europe stepping up with repower EU after Russian vidd Ukraine.
Speaker 9: The threat of the closing the sh trade of horror
Speaker 9: Moves is maybe not an immediate threat for Europe because
Speaker 9: only four percent of gas it comes from Qatar, but
Speaker 9: twenty percent of flows go through that strait of Hormuves,
Speaker 9: so it would make any imports from other countries more expensive.
Speaker 9: And then I think the third piece of that fundamental
Speaker 9: part of why the transition is so important is the
Speaker 9: build out of AI data centers.
Speaker 3: Yeah, absolutely, because how power intensive they are, aren't they? Well,
Speaker 3: my thanks to Bloomberg's Climate Change and Renewable Energy reporter
Speaker 3: Will Maths and Bloomberg Intelligence Equity Research Senior associate Alessio
Speaker 3: Master Andrea for speaking to me, and we will have
Speaker 3: full coverage and analysis of Vessus's second quarter earnings for
Speaker 3: you here on Bloomberg. I'm Caroline Hepkee here in London.
Speaker 3: You can catch us every weekday morning for Bloomberg Daybreak
Speaker 3: here at beginning at six am in London. That's one
Speaker 3: am on Wall Street.
Speaker 2: Amy, Thank you, Caroline. Now coming up on Bloomberg Daybreak weekend,
Speaker 2: we'll look ahead to an interest rate decision from the
Speaker 2: Reserve Bank of Australia. I'm Amy Morris. This is Bloomberg.
Speaker 2: This is Bloomberg Daybreak weekend, our global look ahead at
Speaker 2: the top stories for investors in the coming week. I'm
Speaker 2: Amy Morris in Washington. One month ago, the Reserve Bank
Speaker 2: of Australia made one of its most surprising decisions in
Speaker 2: recent memory by doing absolutely nothing. The Central Bank opted
Speaker 2: to hold steady, much to the chagrin of OSSI economists.
Speaker 2: For more on what they may do this time around,
Speaker 2: let's go to Bloomberg's Charlie Pellett Amy.
Speaker 4: Governor Michelle Bullock faced tough questions following the RBA's July decision,
Speaker 4: including whether the central bank could betrayed households expecting a
Speaker 4: rate cut. Bullock said the decision was about timing of
Speaker 4: a move rather than the direction. So what's in store
Speaker 4: when RBA policymakers meet next week? Let's take a closer look.
Speaker 4: We are joined by Rebecca Jones, Bloomberg News Managing editor
Speaker 4: for Australia and New Zealand, also the host of the
Speaker 4: Bloomberg Australia podcast. Rebecca joins us from our bureau in Melbourne.
Speaker 4: So looking ahead to next week, we raise the question,
Speaker 4: are we in for another curve ball from the RBA?
Speaker 10: Well, Charlie Gooday, and you're absolutely right. The RBA stunned everybody,
Speaker 10: well almost everybody last month by holding interest rates here
Speaker 10: in Australia. It was largely an unexpected move. So when
Speaker 10: we start thinking about next week's call, there's really two
Speaker 10: massive pieces of the puzzle to consider. Well for any
Speaker 10: central bank, of course, but for the RBA it is
Speaker 10: the labor market here and also how inflation's doing now.
Speaker 10: Back in July, we only had a partial read on
Speaker 10: inflation in Australia, and I was actually suggesting that it
Speaker 10: was pretty weak, weaker than thought, and that got markets
Speaker 10: and a lot of people here jumping on the idea
Speaker 10: that hey, well that's going to be enough to pull
Speaker 10: the Reserve Bank over the line. On the other hand,
Speaker 10: the labor market data one month ago suggested that the
Speaker 10: unemployment rate was below projections from the RBA. Ultimately, the
Speaker 10: RBA's held the rate. But looking ahead now to next week,
Speaker 10: we've got more information, right, like, we've got a full
Speaker 10: read on inflation and that's backed up what happened last month.
Speaker 10: And we also have the jobs data and that is
Speaker 10: telling quite a different story too. Just thirty days ago,
Speaker 10: we've had a couple of revisions there, Charlie, and that's
Speaker 10: indicating that the unemployment rate is now at four point
Speaker 10: three percent, which is the highest in a couple of
Speaker 10: years for Australia. I know that that number to people
Speaker 10: listening around the world might not seem that bad, but
Speaker 10: here we've got an unemployment rate that's not only trending high,
Speaker 10: but it's also above what our Central Bank has been projecting.
Speaker 10: So it does look like it's not going to be
Speaker 10: the curveball of last month, and I just checked the
Speaker 10: Bloomberg and all twenty seven economists that we survey are
Speaker 10: predicted that we're going to get that twenty five basis
Speaker 10: point cut.
Speaker 4: All right, So that is the August decision. What's the
Speaker 4: trajectory from here specifically then onto the November meeting.
Speaker 10: So the market at the moment has been predicting at
Speaker 10: least one more rate cut for twenty twenty five. That's
Speaker 10: where it stands today. That may well change after we
Speaker 10: hear what Governor Michelle Bullock has to say next Tuesday,
Speaker 10: but for the time being, markets are pricing in at
Speaker 10: least one more cut for twenty twenty five. It is
Speaker 10: really just about the timing and the nuance. And one
Speaker 10: other thing that is brand new last month is that
Speaker 10: we now know how each of the members of the
Speaker 10: Reserve Bank Board are voting. Last month it was a
Speaker 10: vote of six people saying hold out of the nine
Speaker 10: people on the board, and that may well sway the
Speaker 10: projections from economists going forward for the rest of twenty
Speaker 10: twenty five, depending on how the many members vote come Tuesday.
Speaker 4: Now, what about major Australian banks CBA, Westpac, NAB and
Speaker 4: a NZ. Are they pretty much in agreement on what
Speaker 4: to expect for next week's meeting.
Speaker 10: Well, the thing about the Big four banks, and indeed
Speaker 10: we call them the Big four banks here and will
Speaker 10: add Macquarie in as well they're a huge Australian company,
Speaker 10: is that most mortgage holders, most of the mortgage business
Speaker 10: here in Australia is on a variable interest right, and
Speaker 10: that's quite unique to Australia, certainly the opposite in the US.
Speaker 10: So whenever there is a hike or indeed a cut,
Speaker 10: the banks are very quick to pass that on whether
Speaker 10: it's good news or bad news for the person holding
Speaker 10: the mortgage at the end of that So for the
Speaker 10: most part, banks had a cracking year in twenty twenty four.
Speaker 10: They really have already priced in these kind of fluctuations
Speaker 10: from Australia Central Bank into their forecast for the coming year.
Speaker 10: So no surprises really, I would say from the CU
Speaker 10: of the Big four bank, I would I has it
Speaker 10: a guess they do have their own economists as well,
Speaker 10: that they're one of the twenty seven that are predicting
Speaker 10: the cut on Tuesday.
Speaker 4: Rebecca, how closely does the RBA mirror what's happening with
Speaker 4: sentiments surrounding the Federal Reserve in the United States.
Speaker 10: That's a really interesting question. And I think that we've
Speaker 10: seen since the since Michelle Bullock has taken the reins
Speaker 10: here in Australia, which you know, she's been in the
Speaker 10: job for quite a while, that we are really doing
Speaker 10: our own thing, marching by the beat of our own drum.
Speaker 10: A lot of other countries are doing that. We have
Speaker 10: seen globally less group think from our central bankers. They
Speaker 10: are really splitting on their philosophy around good policy. We've
Speaker 10: seen the Federal Reserve has stood part throughout the first
Speaker 10: half of twenty twenty five, while others like the European
Speaker 10: Central Bank, the Bank of Canada, the Bank of England, etc.
Speaker 10: All easing in recent months, and Australia in that two
Speaker 10: we've had the two cuts already in twenty twenty five.
Speaker 10: So is there direct relationship there less so than perhaps historically.
Speaker 4: Big picture, how are every day ausies feeling about all
Speaker 4: of this? How's the Australian economy holding up, specifically in
Speaker 4: terms of the labor market.
Speaker 10: Well, what we can see is that consumers who participants
Speaker 10: in the labor market, you know, they're not a very
Speaker 10: happy bunch at the moment. And what's showing up in
Speaker 10: things like retail and household spending data is what consumers
Speaker 10: are doing, and that is that they're not spending. They're
Speaker 10: going out and earning their wage, but they're not spending
Speaker 10: it in ways that perhaps they used to be consumers.
Speaker 10: When you ask them how things are going, one of
Speaker 10: the things that they cite is the cost of everyday things.
Speaker 10: Aside from things like fuel and core food items, households
Speaker 10: are still really really struggle. So to sort of set
Speaker 10: the scene for you a little bit, the median price
Speaker 10: of a house in Sydney is one point seven million
Speaker 10: Aussie dollars. It's up four point two percent this year,
Speaker 10: so that's roughly one point one million in US dollars.
Speaker 10: And we're not talking more to front homes here, Charlie.
Speaker 10: These are modest, modest dwellings. So it's really showing up
Speaker 10: in terms of discretionary spending, where people are choosing to
Speaker 10: use the extra pennies that they they have. It's most
Speaker 10: likely going into the essentials like paying the mortgage, covering education,
Speaker 10: the cost of childcare and so on.
Speaker 4: Now Australia is an export driven economy, and there's one
Speaker 4: economy that's closely monitored in Australia that is China. What
Speaker 4: are the underlying assumptions being made about the Chinese economy.
Speaker 10: So there has been a trend over the last couple
Speaker 10: of years around different ways of accessing growth the Chinese
Speaker 10: economy away from the traditional manufacturing route, and that has
Speaker 10: real world implications for our economy here in Australia being
Speaker 10: such a resource rich exporter, and our primary destination for
Speaker 10: those exports, along with many other countries around the world,
Speaker 10: is of course China. So we saw some you know,
Speaker 10: interesting patterns occur with the price of iron ore throughout
Speaker 10: the pandemic, and you know, certainly in the last five
Speaker 10: or so years that's come off a lot with the
Speaker 10: trade tensions between Australia and China forcing Australia to seek
Speaker 10: alternative paths for some of these exports. I think what
Speaker 10: was proven was that there is other places for these
Speaker 10: exports to be sent to. But it's certainly our key
Speaker 10: trading partner, China, and one that you know, as evidenced
Speaker 10: by Albany'ese's recent six day trip to China, is going
Speaker 10: to be very very important for us. Going forward.
Speaker 4: Rebecca, thank you very much for taking time to break
Speaker 4: this all down for US. Rebecca Jones, Bloomberg's managing editor
Speaker 4: for Australia and New Zealand, also hosts of the Bloomberg
Speaker 4: Australia podcast We Move Next. To Trade and Chips, President
Speaker 4: Trump says he will impose a one hundred percent tariff
Speaker 4: on semiconductor imports, though he would exempt companies moving production
Speaker 4: back to the United States. Such a move would place
Speaker 4: a heavy strain on the likes of Taiwan Semiconductor, Tokyo
Speaker 4: Electron and sk Heinex. And For more on the potential impact,
Speaker 4: we heard from Emily Benson, head of strategy at Minerva
Speaker 4: Technology Futures. She spoke with Bloomberg's Haslinda Ahmen in Singapore.
Speaker 11: Emily's all aboud bringing chip production back home. The thing
Speaker 11: is the US is offshore that production to Asia since
Speaker 11: the nineteen sixties.
Speaker 2: It doesn't have the ability, the.
Speaker 11: Capacity to do it, and it takes years to build
Speaker 11: new chip fat.
Speaker 12: That's absolutely right. With one exception, which is sort of
Speaker 12: uncomfortable for people who don't really like the direction of
Speaker 12: travel right now with US policy, is that TSMC's production
Speaker 12: facilities in Arizona are actually beating expectations, and so I
Speaker 12: do think the administration has been relatively clear eyed about
Speaker 12: the timeline. That being said, they're willing to apply maximum
Speaker 12: pressure to the likes of TSMC in order to expedite
Speaker 12: what's already a very fast time frame. Again, I do
Speaker 12: think there will be carve outs to extend the timeline
Speaker 12: of implementation. If you talk to a lot of industry analysts,
Speaker 12: I think the four to five to six year timeframe
Speaker 12: is more menable for the industry. We also have to
Speaker 12: remember that this will directly confront one of the administration's
Speaker 12: other hallmark policies, and this was announced two weeks ago
Speaker 12: in the AI Action Plan, And here the White House
Speaker 12: is saying very publicly that it wants to prioritize AI
Speaker 12: build out, it wants to double down on US infrastructure,
Speaker 12: and very interestingly, it also wants to package a lot
Speaker 12: of that AI tech stact into separate bundles that it
Speaker 12: can then export abroad. It of course will need affordable
Speaker 12: inputs at the baseline in order to be able to
Speaker 12: export these packages, and very interested to see what the
Speaker 12: ultimate price impact is on that particular corner of the
Speaker 12: administration's policy.
Speaker 11: And emily some say it is about quantity, it's also
Speaker 11: about quality, and when it comes to both of them
Speaker 11: Taiwan and South Korea asapause, what do you make off
Speaker 11: perhaps equality and quantity that can be expected from the US.
Speaker 12: A couple of weeks ago and the lead up to
Speaker 12: the expiration of the reciprocal tariff pause, the Administration has
Speaker 12: entered into these arrangements where foreign partners seem to be
Speaker 12: under the assumption that they would only be subject to
Speaker 12: a fifteen percent teriff freight, and that includes a lot
Speaker 12: of these sectoral products like semiconductors. So one question will
Speaker 12: actually be whether or not this announcement induces further development
Speaker 12: on shore by those countries, or whether or not we'll
Speaker 12: have to explore further negotiations. I also will note that
Speaker 12: the United States actually does not import a lot of
Speaker 12: semi conductors directly. Most semi conductors actually enter the United
Speaker 12: States in finished goods. So these are items like iPhones
Speaker 12: or laptops, and so it'll be interesting to see how
Speaker 12: the Administration starts to calculate the actual value and whether
Speaker 12: or not each finished item will be subject to that
Speaker 12: one hundred percent care free.
Speaker 4: Emily Benson, head of strategy at Minerva Technology Futures, in
Speaker 4: conversation with Bloomberg's has Linda Ahmen. I'm Charlie Pelacascius weekdays
Speaker 4: for the Daybreak Asia podcast. It's available wherever you get
Speaker 4: your podcasts.
Speaker 2: Amy, Thank you, Charlie. And that does it for this
Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday morning,
Speaker 2: five am Wall Street Time for the latest on markets
Speaker 2: over sea and the news you need to start your day.
Speaker 2: I Mammie Morris, stay with us. Top stories and global
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