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, and straight ahead on the program,
Speaker 2: we look ahead to this week's monetary policy decision from
Speaker 2: the Fed, plus a first batch of big tech earnings.
Speaker 2: I'm Tom Busby.
Speaker 3: In New York.
Speaker 4: I'm Caline Hecker here in London, where we're asking how
Speaker 4: the European Central Bank will negotiate the new World Order.
Speaker 5: I'm Doug Prisoner looking at what we can expect from
Speaker 5: next week's print on CPI in 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, and we begin
Speaker 2: today's program with the Federal Reserve. The FED, concluding its
Speaker 2: two day meeting on Wednesday, expected to issue its first
Speaker 2: monetary policy decision of the new year. For more on
Speaker 2: what we might expect to see and why, we're joined
Speaker 2: by Michael McKee, Bloomberg International Economics and Policy correspondent. Well, Michael,
Speaker 2: after cutting rates for three meetings in a row, what
Speaker 2: do you expect to see this week from the Fed?
Speaker 6: Not much. The Fed is going to be on hold.
Speaker 6: They've pretty much made that clear. The markets have right
Speaker 6: now priced in a one basis point chance of any
Speaker 6: kind of FED move, So nobody's expecting a whole lot.
Speaker 6: It's more going to be the focus on j Powell
Speaker 6: and his press conference afterwards and what he might say
Speaker 6: about future FED moves. All of this in the context
Speaker 6: of the new president and what his economic plans are
Speaker 6: going to be, since they don't know yet, and you know,
Speaker 6: we're kind of a week into this and we haven't
Speaker 6: heard yet what he's going to do with tariffs and things.
Speaker 6: At this point, the Fed's on hold until there's some
Speaker 6: more news.
Speaker 2: Well, let's talk about what the FED is dealing with.
Speaker 2: As far as data, the US labor market remains strong December,
Speaker 2: job creation better than forecast on a plan, with right
Speaker 2: low wages outpacing inflation. Long term unemployment though that was
Speaker 2: a surprise at a three year high.
Speaker 6: This week, though, right, yeah, it's not a total surprise
Speaker 6: in that what we have seen lately is companies are
Speaker 6: not hiring. They're not really firing. The total number of
Speaker 6: people who are filing initial jobless claims is still very low.
Speaker 6: It's sort of bounced around because of the holidays and
Speaker 6: seasonal adjustment factors. And now we have a little bit
Speaker 6: of input of people who've lost their jobs in the
Speaker 6: Los Angeles fires, But in general, people are not hiring,
Speaker 6: so if you do lose your job, it takes a
Speaker 6: little bit longer now to find a job. The number
Speaker 6: of continuing claims rising up too, close to two million,
Speaker 6: but that's not telling us that the economy is in
Speaker 6: trouble at all. The labor market still feels strong. Of course,
Speaker 6: the Fed's going to be watching every jobs report very closely.
Speaker 6: And inflation has been well behaved, if not coming down.
Speaker 2: Yeah, let's talk about inflation. So CPI in December two
Speaker 2: point nine percent year over year PCE two point eight percent,
Speaker 2: so not bad, not great, still a little far from
Speaker 2: the target. But as you say, you know, steady.
Speaker 6: Treading water basically is kind of where we are, and
Speaker 6: the issue for the FAT is they look at PCE,
Speaker 6: which runs maybe three or four basis points below where
Speaker 6: CPI does, and so we're looking at two point four
Speaker 6: percent for PCE. End of this week, we're going to
Speaker 6: get the PCE report for the month of December, and
Speaker 6: betting is it's going to be restrained. But CPI is
Speaker 6: what Americans look at and makes it into the newspapers
Speaker 6: and things like that, and that has an effect on
Speaker 6: inflation expectations. And we did see in the most recent
Speaker 6: University of Michigan reports that people were expecting, at least
Speaker 6: over a longer time horizon, inflation to rise. And if
Speaker 6: that's the case, then the FED is going to be
Speaker 6: keeping a close eye on that because they worry that
Speaker 6: if inflation expectations keep going up, then people are going
Speaker 6: to go back and ask their buses for raises and
Speaker 6: you get into the circular situation that they've been trying
Speaker 6: hard to avoid for years. Doesn't look like we're really
Speaker 6: going to have that happen, but it's something to keep.
Speaker 2: An eye on, so we kind of know what we're
Speaker 2: dealing with on inflation. We see the results of the
Speaker 2: labor market housing very uneven but still struggling. The wild
Speaker 2: cut here, as you alluded to before, is President Trump
Speaker 2: his new policies, how it affects the economy. It will
Speaker 2: affect the Fed's decisions. So let's talk about that. Last
Speaker 2: time he was in the White House, you appointed Jerome
Speaker 2: Powell to chair the FED, but when the Central Bank
Speaker 2: made some pretty difficult decisions, he did not agree with
Speaker 2: I'm being kind here. He was unrelenting in his criticism,
Speaker 2: demanding to be consultant on rates and on policy. Is
Speaker 2: anything going to change other than you know, as you said, immigration,
Speaker 2: his raids that took place last week.
Speaker 6: I mean, well, we're not expecting any major change in
Speaker 6: the President's attitude towards the Federal Reserve. I don't want
Speaker 6: to speak for him, because he certainly speaks enough. But
Speaker 6: he did insult Powell and the FED last time because
Speaker 6: they weren't cutting interest rates and weren't cutting interest rates
Speaker 6: as fast as he wanted, and so one can imagine
Speaker 6: that he's not going to be happy that the FED
Speaker 6: is on hold now. I think there are enough areas
Speaker 6: in which he stuck his fingers immediately after taking the
Speaker 6: oath of office that he made not be too focused
Speaker 6: on this week's FED meeting. But if the Fed stays
Speaker 6: on hold for a while because they think some of
Speaker 6: his policies are going to be inflationary, then I would
Speaker 6: imagine we will hear from him on that.
Speaker 2: A decision from the Federal Reserve this Wednesday about two
Speaker 2: pm Wall Street Time. Our thanks to Michael McKee, Bloomberg
Speaker 2: International Economics and Policy correspondent. We now turn to the
Speaker 2: current Q four earning season as Wall Street prepares to
Speaker 2: get its first batch of big tech results this week
Speaker 2: from Apple, Microsoft, and Meta platforms. And for more on
Speaker 2: what to expect, we're joined by man Deep Singh, Bloomberg
Speaker 2: Intelligence senior tech industry analysts. The big question is artificial
Speaker 2: intelligence still the big driver for big tech and for
Speaker 2: each of those companies? What do you expect to see
Speaker 2: this week?
Speaker 3: Yeah?
Speaker 7: Look, I think four Q is typically a seasonally strong
Speaker 7: quarder for MAC seven companies, and I expect this time
Speaker 7: it will be no different. Although you know what we
Speaker 7: saw with President trump'son auguration and the project's target which
Speaker 7: really impacts the AI spend. I mean, look, you know,
Speaker 7: once the government is behind something like this in a
Speaker 7: big way, and it's bringing in new dollars, which is
Speaker 7: the case here, you know, the one hundred billion dollars
Speaker 7: an dollars, and just to put it in context, the
Speaker 7: you know, the total capex spending in twenty twenty four
Speaker 7: from the four big hyperscalers was around two hundred and
Speaker 7: forty billion, and that was like fifty six percent growth.
Speaker 7: So clearly, you know that momentum should be intact if
Speaker 7: we get these additional one hundred billion dollars in twenty
Speaker 7: twenty five, which I think was the aim of this discussion.
Speaker 7: So look, I mean when I look at the earnings,
Speaker 7: Meta is expected to grow earnings close to thirty percent,
Speaker 7: Alphabet also over twenty five percent, and these are you know,
Speaker 7: off a very strong comp So Microsoft's earnings growth will
Speaker 7: be somewhat slower because their depreciation expenses are going up now.
Speaker 7: And we know Apple has been struggling, you know, with
Speaker 7: the China exposure, and their top line remains muted. So
Speaker 7: Apple is has continued to kind of struggle when it
Speaker 7: comes to really driving that top line. But again everyone
Speaker 7: is waiting for that big smartphone refers cycle with this
Speaker 7: AI wave.
Speaker 2: Well that's coming, and well that brings us to Apple then,
Speaker 2: So Apple beaten to the punch. It looks like this
Speaker 2: year from Samsung with an ultra thin phone, they really
Speaker 2: think ultra thin is gonna boost sales right.
Speaker 7: Well, so more than the foam factor. To me, what's
Speaker 7: really important here is the impact of tariffs and what
Speaker 7: goes on, you know, with the China exposure, because Apple
Speaker 7: supply chain is still predominantly in China, and even though
Speaker 7: they have you know, moved some of their manufacturing and
Speaker 7: assembly to India and wait other locations. If there is
Speaker 7: you know, universal tariffs and that's the proposal right with
Speaker 7: China and Canada and Mexico, that will impact Apple and
Speaker 7: you know, anybody who gets parts or products of product
Speaker 7: components there. So clearly that is a big risk with
Speaker 7: Apple and given its muted top line route and the
Speaker 7: other factor I would throw in there is the whole
Speaker 7: Google Chrome decision because one of the remedies that Google
Speaker 7: has proposed is there shouldn't be any contracts, you know,
Speaker 7: in terms of them being the default operating system on
Speaker 7: iOS devices. And remember Google pays Apple over twenty billion
Speaker 7: dollars a year to be the default operating system, so
Speaker 7: all that revenue is in play here in terms of
Speaker 7: how it could impact Apple services revenue for that matter.
Speaker 2: Well, let's talk about Microsoft. You brought that up with
Speaker 2: the stargate OpenAI. Microsoft has invested about seven hundred and
Speaker 2: fifty million into Ai. They've pulled back since then. But
Speaker 2: who else are the winners? We know, we know japan
Speaker 2: Soft Bank. Open Ai is privately held company. But who
Speaker 2: else among these big tech companies will be the beneficiary
Speaker 2: of this?
Speaker 7: I mean to me, you know, the suppliers, the Nvidia
Speaker 7: and anybody who supplies to the data center kind of
Speaker 7: build out wins here. And that's where you know, for
Speaker 7: foundational model companies, it actually increases the pressure on a
Speaker 7: Google or a Meta or Anthropic to increase their capex
Speaker 7: because guess what, open ai has more compute available now
Speaker 7: for training their large agrid models for inferencing. So that
Speaker 7: kind of creates an advantage for open Ai Microsoft. Microsoft
Speaker 7: has already told us they generate about ten billion in
Speaker 7: cloud revenue from AI workloads, So if they have more
Speaker 7: compute capacity through Oracle, and remember part of that open
Speaker 7: ai revenue flows through Microsoft because of the you know,
Speaker 7: the agreement they have, and so Microsoft clearly is a beneficiary.
Speaker 7: Even though this is not being built on their cloud.
Speaker 7: It's on Oracle Cloud. So I think that's where all
Speaker 7: the other players on the LM and cloud side are
Speaker 7: somewhat excluded here. And and you know, at least the
Speaker 7: project target seems to have picked the companies that are involved,
Speaker 7: and you know they are the direct beneficiaries.
Speaker 2: Would you consider Meta being excluded here?
Speaker 7: Absolutely? I mean there was no mention.
Speaker 2: No mention at all. We've heard of you know, Nvidia
Speaker 2: obviously a beneficiary, but yeah, I have not heard for
Speaker 2: a company that big and Meta.
Speaker 7: Look, it's trying to develop its own hardware. They're doubling
Speaker 7: down when it comes to the ar glasses. The ray
Speaker 7: Bang glasses has been a success, but they really are
Speaker 7: going all in when it comes to developing their own
Speaker 7: hardware to compete with Apple. Now we know Reality Labs
Speaker 7: will end up losing about twenty billion dollars in twenty
Speaker 7: twenty five, So whether it's going to be a creative
Speaker 7: to EPs, time will tell, but not in the near
Speaker 7: and that's I think something they have to be mindful of,
Speaker 7: given they're investing more in Capex for the GPU compute
Speaker 7: and now they are really doubling down in terms of
Speaker 7: the you know the glasses hardware.
Speaker 2: They'd have to sell a lot of smart watches and earbuds.
Speaker 2: Coming up well our thanks to mandeep Seeing Bloomberg Intelligence
Speaker 2: senior tech industry analyst, and coming up on Bloomberg day
Speaker 2: Break weekend, we'll look at how the European Central Bank
Speaker 2: will negotiate the new world Order. I'm Tom Busby and
Speaker 2: this is Bloomberg. This is Bloomberg day Break weekend, our
Speaker 2: global look ahead at the top stories for investors in
Speaker 2: the coming week. I'm Tom Busby in New York. Up
Speaker 2: later in our program, we'll look ahead to a key
Speaker 2: inflation measure coming out of Australia. But first, Europe's policymakers
Speaker 2: meet for the first time this year. In the coming days.
Speaker 2: They're expected to cut interest rates again as inflation stabilizes
Speaker 2: right around the two percent target.
Speaker 8: For more.
Speaker 2: Let's go to London and bring in Bloomberg day Break
Speaker 2: europ Banker Caroline.
Speaker 4: Hepgar Tom EU inflation is on track to hit its
Speaker 4: two percent target in the coming months, clearing the way
Speaker 4: for cuts to borrowing costs and building on the four
Speaker 4: rate reductions we saw in twenty twenty four. But with
Speaker 4: a new occupant in the White House and threats of
Speaker 4: punitive tariffs swirling. Twenty twenty five's European Central Bank trajectory
Speaker 4: is far from decided. The Bank's president, Christina gard has
Speaker 4: made it clear that policymakers will continue along their gradual
Speaker 4: path irrespective of US economic policy. Officials from across the
Speaker 4: hawk doves spectrum have signaled openness to further moves after
Speaker 4: January in Europe, although of course without pre committing twenty cuts.
Speaker 4: Interest rates have been a hot topic at this year's
Speaker 4: meeting of the World Economic Forum in Davos, where Bloomberg's
Speaker 4: Jumana Bissecci has been speaking to a panel of experts
Speaker 4: about their predictions for central bank policy. In twenty twenty five.
Speaker 4: She discussed what is to come with the French Central
Speaker 4: Bank governor Fanceva veilro De Gallo, State Street CEO Ron o'hanley,
Speaker 4: the economics professor Isabella Webber from the University of Massachusetts Amherst,
Speaker 4: and Nikolai Tangan, who is the CEO of Nahas Bank
Speaker 4: Investment Management.
Speaker 3: Some words about inflation and I will keep the European perspective,
Speaker 3: but we have been collectively including the fair successful against
Speaker 3: inflation and if I take to European figures, we were
Speaker 3: to peak of more than ten percent October twenty two.
Speaker 3: We are now two point four and we expect for
Speaker 3: this year as an average two point one. So more
Speaker 3: or less on target for the effects of the Trumps
Speaker 3: administration is probably too early to tell. We could expect,
Speaker 3: but I said very conciously this program to be to
Speaker 3: have inflationary effects in the US future tariff's fiscal expansions,
Speaker 3: et cetera. But to be seen on the European side,
Speaker 3: I don't think that the inflationary effect will be that significant,
Speaker 3: so I would expect this dese inflation process to go
Speaker 3: on and our victory against inflation to be final if
Speaker 3: I may, because the tensions on the labor and good
Speaker 3: market in Europe are much spooler obviously, which means if
Speaker 3: I may somewhords about short term rates and long term rates,
Speaker 3: and using the very important difference you introduced on the
Speaker 3: short term rates, this is about monetary policy, so this
Speaker 3: is our responsibility for the ECB. We were the earliest
Speaker 3: one to cut last June. We are now the lowest one.
Speaker 3: We are three percent, while the FARED and the Bank
Speaker 3: of England are above four percent, and I would say
Speaker 3: that for the quarters to come, probably our task is
Speaker 3: the simplest, also due to the fact that we are
Speaker 3: vigilant but confident on this inflation, as I said, and
Speaker 3: we are still quite far of the neutral rate, which
Speaker 3: is probably estimated to be around two percent so seen
Speaker 3: from today, but it will be data to even to
Speaker 3: expect our policy rate to be around two percent by
Speaker 3: next time is a plausible scenario which could mean a decaupling.
Speaker 3: Let us be clear, between EASYB and FED, the decaupling
Speaker 3: is not an issue. Both of us are independent on
Speaker 3: both sides of the Atlantic. The question of long term
Speaker 3: interest rates, so we'll.
Speaker 4: See next summer the news person. That means in mean
Speaker 4: summer of twenty twenty five or summer of twenty twenty six.
Speaker 4: The market is.
Speaker 3: Story from my English ambiguity, because this summer twenty five,
Speaker 3: so one.
Speaker 7: Hundred basis points cut by the midsummer.
Speaker 3: We will see again. It's that a written I'm a
Speaker 3: pragmat testing, you are a journalist. I'm a central banker.
Speaker 3: But no on long term, on long term interest rates,
Speaker 3: this is a different story here. There are belovers. Obviously,
Speaker 3: there is also a very significant difference of levels. If
Speaker 3: you look at the ten year interest rates, it was
Speaker 3: yesterday about two point five in Germany and four point
Speaker 3: six in the US. But there is some kind of
Speaker 3: core movement or core rise in the last month. It's
Speaker 3: a partial core rise. But what explained this rise in
Speaker 3: the US perhaps a technical explanation which is important. As
Speaker 3: you know, when you look at long term interest rates,
Speaker 3: you can have two explanations. You can have monetary policy expectations,
Speaker 3: so the succession of short term interest rates forwarded, and
Speaker 3: then you have the term premier. What increased in the
Speaker 3: last four months is the term premier and this reflect
Speaker 3: increase uncertainty. It's about inflation fears, it's about two lax
Speaker 3: fiscal policy starting with the US, and it's about global uncertainty.
Speaker 3: To say it with other words, and I will conclude
Speaker 3: with that, but this is a very important point on
Speaker 3: the direction of interest rate. There is a risk that
Speaker 3: the benefits of this inflation and monetary easing is weighted
Speaker 3: or lost by increase uncertainty, economic fragmentation and a two
Speaker 3: lax fiscal policy, or to say it in other words,
Speaker 3: an economic policy in order to be efficient, including for growth,
Speaker 3: must be consistent and this is a very important for
Speaker 3: both sides of the Atlantic.
Speaker 4: That was Blomberg's uman and bestually hosting a panel entitled
Speaker 4: where interest Rates will Go at this year's meeting of
Speaker 4: the World Economic Forum in Davos. So how will the
Speaker 4: shift in international relations shake up the ECB's plans. I've
Speaker 4: been speaking to Bloomberg's ECB reporter Janna Randau, asking her
Speaker 4: how much of a factor Trumpomics will be in ECB
Speaker 4: policymaking going forwards.
Speaker 9: Well, frankly, it depends entirely on how it actually affects
Speaker 9: the era's an economy. We've learned already that election campaigning
Speaker 9: isn't governing and isn't running a government. So we'll we'll
Speaker 9: see how much of the threats that he's made over
Speaker 9: the past month's you know, running for office, how much
Speaker 9: of that will actually materialize. On tariffs, we know the
Speaker 9: sentiment seems to be bad for growth unclear you know
Speaker 9: what it will do to inflation. So there's there's a
Speaker 9: lot of uncertainty and that is surely going to stick around,
Speaker 9: which of course is never good for an economy that's
Speaker 9: already struggling, Which makes you know, the UCB stands for
Speaker 9: a data dependent meeting by meeting approach all you know,
Speaker 9: all the more reasonable.
Speaker 4: Yes, absolutely, President Chum saying only recently that the EU
Speaker 4: could be in for tariffs given how badly as he
Speaker 4: sees it, it treats the United States. So in terms
Speaker 4: of the punitive measures, what economists think that it risks
Speaker 4: in terms of the hit to growth versus a hit
Speaker 4: to inflation.
Speaker 9: Yeah, so so on growth, it seems pretty clear that
Speaker 9: the impact will be negative. What's more interesting is to
Speaker 9: look at inflation, just because there are different forces at play.
Speaker 9: Of course, you know, you're raised tears. They will push
Speaker 9: up prices and goods we import from the US. But
Speaker 9: the EU of course is not the only region, you know,
Speaker 9: facing facing those threats and facing tariffs. So if China,
Speaker 9: for example, becomes part of the part of the game,
Speaker 9: then we might see a redirection of Chinese exports that
Speaker 9: were once going to the US flooding into Europe. And
Speaker 9: we of course know that China is already facing deflationary
Speaker 9: risks that that producer prices there have have declined and
Speaker 9: have been weak, so that might actually bring some deflationary
Speaker 9: pressures into the Eurozone as well. So the balance is
Speaker 9: going to be interesting. And from where I am and
Speaker 9: from where policymakers are at the moment, it's next to
Speaker 9: impossible to tell.
Speaker 4: Yes, But traders are pricing in cuts for January and
Speaker 4: March solid of those and what is the picture beyond them?
Speaker 9: Those meetings, Yeah, January March, from from what we've heard
Speaker 9: over the past couple of days, seem to be almost
Speaker 9: a done deal. Even hawks like a Dutch governor a
Speaker 9: class not said he's fine with with you know, those
Speaker 9: those two meetings being being on the table for for
Speaker 9: rate cuts. After that it gets a lot more interesting,
Speaker 9: just because we're expecting for services to reprice. Don't forget
Speaker 9: services prices are still running at a four percent clip,
Speaker 9: so twice the ECB's target. We we should have more
Speaker 9: information by March about or by April about Trump's policies.
Speaker 9: We should be a bit smarter on how much of
Speaker 9: a spring revival the economy can can produce. Uh and
Speaker 9: so what we're seeing in markets, and also when you
Speaker 9: ask us some speak to some economists that April is
Speaker 9: is kind of a bit of a wild card. So
Speaker 9: the market is currently pricing three cards through June fourth.
Speaker 9: By the end of the year and and a lot
Speaker 9: will depend on the forecast that will come out, on
Speaker 9: the information that we receive until.
Speaker 4: Then, how well has the ECB done, how well has
Speaker 4: Europe done to get inflation, you know, back down towards
Speaker 4: the two percent target you mentioned services inflation, So on.
Speaker 9: The headline rate, we're not doing badly. We are at
Speaker 9: two point four percent right now. It was a bit
Speaker 9: of an optic at the end of last year, but
Speaker 9: that came as expected and policymakers said, don't be you know,
Speaker 9: don't be upset about that too much. The UCB forecasts
Speaker 9: show inflation reaching target this year and then kind of
Speaker 9: hovering around it. So they are reasonably confident that the
Speaker 9: that the target is inside. They haven't declared victory yet,
Speaker 9: and that's partly to do with those services prices, with
Speaker 9: domestic inflation, with core inflation, which is still a bit sticky.
Speaker 9: They expect that to change over the coming months, just because,
Speaker 9: for example, if you think of insurance prices, they get
Speaker 9: you know, contracts get repriced once a year, so a
Speaker 9: lot of movement is expected there in the next weeks
Speaker 9: and probably months, But that really needs to happen, and
Speaker 9: if that doesn't happen, and that's why we talk about April.
Speaker 9: That will be the moment when we know whether those
Speaker 9: expectations that the last bastion, if you want, of really
Speaker 9: sticky price pressures is falling, whether that is happening, and
Speaker 9: then they might have to If that doesn't, then they
Speaker 9: might have to think again.
Speaker 4: Blueberg zion a round looking ahead to the ECB rate decision,
Speaker 4: which we expect of course on the thirtieth of January.
Speaker 4: We will have full coverage of the first rate decision
Speaker 4: of this year. Here on Bloomberg. I'm caring Hepco in London.
Speaker 4: You can catch us every week day morning for Bloomberg
Speaker 4: day Break. You up beginning at six am in London.
Speaker 4: That's one am on Wall Street.
Speaker 2: Tom, thanks Caroline, and coming up on Bloomberg day Break Weekend,
Speaker 2: we'll look ahead to next week's read on Australian consumer prices.
Speaker 2: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. The Reserve Bank of Australia doesn't meet
Speaker 2: until next month, but a key metric on inflation is
Speaker 2: out this week and it may sway policymakers in Sydney
Speaker 2: on how they'll proceed. For more on what to watch
Speaker 2: from next week's read on Australian consumer prices, let's get
Speaker 2: to the host of the Daybreak Asia podcast, Doug Krisner.
Speaker 5: Tom. A number of the world central banks are in
Speaker 5: the midst of easing cycles, although recently many markets have
Speaker 5: been forced to adjust expectations on the pace of rate cuts.
Speaker 5: That's because of concern over inflation being stubborn. It's certainly
Speaker 5: true where the Fed is concerned. Interestingly, the Serve Bank
Speaker 5: of Australia has yet to pivot to cutting intrast rates.
Speaker 5: Let's explore why joining us now is James McIntyre. He
Speaker 5: is Bloomberg economist with a focus on Australia and New Zealand.
Speaker 5: James joining us from our studios in Sydney. We're expecting
Speaker 5: the report on Australian consumer prices in the week ahead.
Speaker 5: We can talk about the various inputs into retail inflation
Speaker 5: in a moment, but James, can you begin by giving
Speaker 5: me an overview on the health of the Australian economy.
Speaker 8: Yeah, well, thank you again for having me always great
Speaker 8: to be with you, dog. So Australia's economy, where as
Speaker 8: we look forward for twenty twenty five, we're looking for
Speaker 8: a bit of a shift from how things have gone
Speaker 8: in twenty twenty four. So the economy has been quite weak.
Speaker 8: Now you might not see that sometimes of Australia's GDP
Speaker 8: data and many Australian economic indicators, and that's because we
Speaker 8: have this super strong population growth. So the population grew
Speaker 8: by about two point four percent, but GDP was only
Speaker 8: zero point eight so per person, the economy is going backwards.
Speaker 8: It's it's a really bad outcome or in terms of
Speaker 8: weakness for the economy, and you can see it especially
Speaker 8: around the consumer side of the story and interest rates
Speaker 8: being high for a very very long time. It's one
Speaker 8: of the longest holds that the Reserve Bank of Australia
Speaker 8: has had in the inflation targeting era over the last
Speaker 8: thirty years or so. And what we've got there is
Speaker 8: we've got an economy that's been very weak and we're
Speaker 8: looking for it to pivot. We're pivoting from public demand,
Speaker 8: which has been a key driver of growth with the
Speaker 8: private sector being weak, to consumers stepping up this year
Speaker 8: but they're not really going to do that unless the
Speaker 8: RBA starts to play ball and begins to join the
Speaker 8: rate cup parade.
Speaker 5: So when I think of household spending, there is a
Speaker 5: connection obviously to what's happening in the labor market. How
Speaker 5: was the Australian jobs market right now?
Speaker 8: Well, despite the growth being so terrible, the labor market's
Speaker 8: really surprised on the upside. So we've had bumper jobs
Speaker 8: growth and the unemployment rate has gone pretty much nowhere
Speaker 8: over the course of the last twelve months. Been expecting
Speaker 8: we had the RBA had everyone has been caught on
Speaker 8: the hop by the strength of jobs growth that's been
Speaker 8: going on.
Speaker 10: Now.
Speaker 8: Some of the public demand part or flavor of growth
Speaker 8: in the economy or demand in the economy has been
Speaker 8: helping that. And we look at sort of market sector
Speaker 8: jobs and it's been weak. But nonetheless the labor market
Speaker 8: has just remained rock solid. And that's one of the
Speaker 8: things that if you're looking at it, you might kind
Speaker 8: of go, well, is the RBA really really going to
Speaker 8: cut with that backdrop there?
Speaker 5: As I recall, one of the concerns on the part
Speaker 5: of the RBA in the past had been the heat
Speaker 5: in the real estate market. How is the housing market
Speaker 5: right now?
Speaker 8: Well, it depends where you sit. If you're in the
Speaker 8: smaller capitals, people probably won't know the cities of Brisbane,
Speaker 8: Perth and Adelaide. They're probably more familiar with Sydney and
Speaker 8: Melbourne being the big Australian capital cities. Those smaller ones.
Speaker 8: Property prices still quite affordable and they've been running and
Speaker 8: running hard. But there's been a very different story. It's
Speaker 8: not even there's no middle of the Goldilocks. It's hot
Speaker 8: and cold. It's been quite cold and cooling in Sydney
Speaker 8: and Melbourne over the last as we went into the
Speaker 8: end of the year, with buyers sitting on their hands,
Speaker 8: rate cuts hurting capacity to pay, and the very very
Speaker 8: high mortgage interest rates. In Australia, we don't have fixed rates.
Speaker 8: They're all variable floating rates off the RBA cash rates,
Speaker 8: so it really packs a punch and it's really been
Speaker 8: punching on those property markets in the big capital cities
Speaker 8: and we've seen listings begin to rise, weak demand and
Speaker 8: that's been a recipe for softening prices in those two
Speaker 8: major capitals, which are really important for financial stability, for confidence,
Speaker 8: for spending and probably are going to be what the
Speaker 8: RBA cares about more.
Speaker 5: I'm also curious about the knock on effect. What is
Speaker 5: happening in China. Maybe there is a modest recovery that's
Speaker 5: beginning to take hold. We may need a little bit
Speaker 5: more in the way of data before we can make
Speaker 5: that statement, but I'm trying to understand what's happened in
Speaker 5: Australia as a function of what's going on in China
Speaker 5: right now, particularly in regard to things like the mining industry.
Speaker 8: Yeah, I think one of the key sort of takeaways
Speaker 8: or linkages or things that we need to think about
Speaker 8: when we're thinking about Australia and China is that key
Speaker 8: benjmark is the iron ore price and it hasn't really
Speaker 8: fallen away as much. And what we have seen is
Speaker 8: that US dollar strength. So not just China, but if
Speaker 8: we think about the international environment new Trump administration tariffs,
Speaker 8: what is the global economic shakeup going to be? Well,
Speaker 8: Australia already has the type of trade position with the
Speaker 8: US that the Trump administration might like for others to see.
Speaker 8: We run a big deficit with the US. We buy
Speaker 8: far much much more than from the US than we
Speaker 8: export to the US, so we're not likely to be
Speaker 8: a tariff target. But Japan, China, these are Australia's major
Speaker 8: export destinations. So any tariff impacts on those economies that
Speaker 8: might soften potentially already weak economic outcomes when it comes
Speaker 8: to China is going to be a key worry for US.
Speaker 8: So have we seen it in the iron ore price?
Speaker 8: Not yet. What policy makers in China and Japan do
Speaker 8: and how they respond to any global economic shakeout is
Speaker 8: really going to be one of the key important things
Speaker 8: to watch over twenty twenty five For Australia.
Speaker 5: I mentioned a moment ago that in the week ahead
Speaker 5: we're going to be getting Australian consumer prices. When you
Speaker 5: look at the inputs that go into calculating CPI, is
Speaker 5: there any concern that something may come in a little
Speaker 5: on the hard side.
Speaker 8: Not especially we've been seeing what we've been seeing in
Speaker 8: Australia over the CPI basket over the last little while
Speaker 8: is the impact of some cost of living support measures
Speaker 8: or subsidies from federal and state governments, and they've really
Speaker 8: especially in that third quarter data. Australia has a monthly
Speaker 8: inflation indicator, but the quarterly is the big deal. It's
Speaker 8: the main game, and that's what we've got next week.
Speaker 8: What the RBA will be really looking at that third
Speaker 8: quarter data was very, very heavily suppressed from those subsidy impacts.
Speaker 8: There'll be a little bit of that coming through. We
Speaker 8: should also see the last of energy price declines coming
Speaker 8: through in terms of fuel prices at the pump for motorists.
Speaker 8: So that's the fourth quarter CPI. When we look ahead, though,
Speaker 8: it's really going to be a question that the RBA's
Speaker 8: going to be having to ask itself is is a
Speaker 8: government and the federal government is facing an election of
Speaker 8: the first half of this year. Are they going to
Speaker 8: announce more subsidies in the next couple of months to
Speaker 8: keep voters happy before they go to the polls. And
Speaker 8: will the pickup that we've seen in domestic fuel prices
Speaker 8: with a little bit of a lower Aussie dollar and
Speaker 8: some improvement in that oil price starting to feed through
Speaker 8: to the pump. These are going to be the kind
Speaker 8: of questions that not necessarily from what the backward looking
Speaker 8: data is showing, but as we look forward, those are
Speaker 8: going to be the ones that the RBA is going
Speaker 8: to be grappling with as to whether they feel comfortab
Speaker 8: or not beginning to ease in February, or if they
Speaker 8: want to see a little bit more data and maybe
Speaker 8: see that labor market weakness finally beginning to show up
Speaker 8: and deliver those cuts in April or May.
Speaker 5: Hey, James, thank you so much for helping us understand
Speaker 5: what's happening in the Australian economy as we look ahead
Speaker 5: to this week's report on consumer prices. James McIntyre is
Speaker 5: Bloomberg economist with a focus on Australia and New Zealand.
Speaker 5: We moved to mainland China next. Donald Trump is wrapping
Speaker 5: up his first week back at the White House and
Speaker 5: we have seen numerous executive actions. He was expected to
Speaker 5: pursue long threatened tariffs on day one, well not so,
Speaker 5: although he has floated the idea of ten percent tariffs
Speaker 5: against China, possibly going into effect on February first. I
Speaker 5: spoke with Wa Chung, director of Asia Credit Research at
Speaker 5: Alliance Bernstein, and we explored how US China trade relations
Speaker 5: may shift and how that may play into markets. Unlike
Speaker 5: the years of the first Trump term, China is now
Speaker 5: struggling with a or weaker a economy. I think it's
Speaker 5: fair to say, and given very weak domestic demand, the
Speaker 5: economy we have seen has become a lot more reliant
Speaker 5: on exports than it was during the first Trump trade war.
Speaker 5: Are you concerned about the negative impact that tariffs might
Speaker 5: have on the overall economy in China?
Speaker 10: As you rarely pointed out US China religion has always
Speaker 10: been a very important watch point for US has always
Speaker 10: been a very important driver of how investors view this region. Right,
Speaker 10: view Asia, and what we're see is that you know,
Speaker 10: China's economic roles, it is indeed desalrating, but we do
Speaker 10: want to point out that, you know, we really had
Speaker 10: a policy pivot in September last year that shows that
Speaker 10: China is really aware of the slowdown and will take
Speaker 10: more forceful measures to address the slowdown. And also when
Speaker 10: it comes to external pressures, right, I think with the
Speaker 10: new administration in the US as what we are going
Speaker 10: to have is an exhalation of tension i e. A
Speaker 10: trade war in the form of higher terrorists for the region.
Speaker 10: So the impact of US tariff will be greater on
Speaker 10: China than to you know, other Asian economies. So that
Speaker 10: is something we're going to be watching very very closely.
Speaker 10: But you know, if you simply look at the number, right,
Speaker 10: I think China actually successfully reduced the reliance on US
Speaker 10: asport over the past over the past years, at least,
Speaker 10: you know, from one point zero.
Speaker 5: That is very true. But if you go back to
Speaker 5: what we learned last week, GDP for all of twenty
Speaker 5: twenty four was five percent. But what was really striking
Speaker 5: about economic growth in China at the end of last year,
Speaker 5: during the fourth quarter, I think the number was five
Speaker 5: point four percent growth. So clearly many companies were concerned
Speaker 5: about how tariffs might impact their business, and they were
Speaker 5: trying to get product out of as sooner rather than later.
Speaker 5: Do you expect economic growth to hold up now that
Speaker 5: basically that event has subsided, We think it's.
Speaker 10: Very important to engage with the companies to understand what
Speaker 10: they are doing in order to assess the impact. First
Speaker 10: of all, you know, you know, I think given the
Speaker 10: fundamental headwinds to the China economy, to Chinese corporates, we
Speaker 10: don't want to be too pessimistic, right. I think it's
Speaker 10: important for us to have a very balanced view. As
Speaker 10: you said, you know, the economic growth, it is slowing
Speaker 10: down and you know, higher US tariff, it is the
Speaker 10: fundamental headwinds. But a very important point we want to make,
Speaker 10: we want the audience to know is, you know, higher
Speaker 10: US tariff does not really necessarily translate into the worstening
Speaker 10: of corporate quite fundamentals, because if you look at most
Speaker 10: of the Asian corporates, most of the Chinese corporates, we
Speaker 10: look at. A very important point I want to make
Speaker 10: is that there are more even by domestic demand, right
Speaker 10: or they have very little reliance on US or supply.
Speaker 5: What are your expectations for additional stimulus from the government
Speaker 5: in the year ahead.
Speaker 10: That's a that's a very good question. I guess the
Speaker 10: good news we have so far is that we really
Speaker 10: had a policy pivot in September last year, right, you know,
Speaker 10: it gives a lot of comfort to investors. That shows
Speaker 10: that China is really you know, acknowledging that the economy
Speaker 10: is slowing down, so we have to do something about it.
Speaker 10: But what we hope to see more is you know,
Speaker 10: more monetary policy a support and more physical policy support
Speaker 10: more importantly, so these are really needed to support the economy,
Speaker 10: to stabilize the economy.
Speaker 5: Well, thank you very much for joining US that is
Speaker 5: Wat Chung, director of Asia Credit Research at Alliance Bernstein,
Speaker 5: joining us from Hong Kong. I'm Doug Christner. You can
Speaker 5: catch us weekdays for the Daybreak Asia podcast. It's available
Speaker 5: wherever you get your podcast. Tom.
Speaker 2: Thanks Doug. And that does it for this edition of
Speaker 2: Bloomberg day Break Weekend. Join us again Monday morning at
Speaker 2: five am Wall Street Time for the latest on markets
Speaker 2: overseas and the news you need to start your day.
Speaker 2: I'm Tom Buzzby. Stay with us. Top stories and global
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