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Speaker 1: This is Bloomberg surveillance. I think commodity producers and the

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Speaker 1: dropping commodity prices is the core story to watch when

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Speaker 1: you think about US exports. Empirical evidence shows that the

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Speaker 1: gold market tends to weaken going into a FED rate rise,

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Speaker 1: but then rally for the next hundred and twenty trading days.

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Speaker 1: And if you're a tech investor, your risk adjusted returns

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Speaker 1: are as good as they get with the exception of

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Speaker 1: nine and nineteen ninety nine. Bloomberg Surveillance your link to

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Speaker 1: the world of economics, finance and investment on Bloomberg Radio.

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Speaker 1: Good morning everyone with Market son of Michael mckeeon Tom

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Speaker 1: Keane Bloomberg Surveillance worldwide. Good evening in Australia and New Zealand.

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Speaker 1: When we say welcome to all on our Bloomberg digital

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Speaker 1: network across Southeast Asia. Australia shocks with a rate reduction

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Speaker 1: and a rather cautious view forward. We'll talk to Paul

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Speaker 1: Block some of HSBC here in a moment. Futures in

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Speaker 1: negative fourteen, down futures negative one eleven. Bloomberg Surveillance this

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Speaker 1: morning brought you by Cone Resnick Accounting Tax Advisory in

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Speaker 1: the affordable housing industry. Your business needs transformative advice from

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Speaker 1: the industry leading experts at Cone Resnick. Find out why

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Speaker 1: at Cone Resnick dot com. Michael, what stands out to

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Speaker 1: you most this morning about the shifts? I mean stronger, Yeah,

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Speaker 1: and stronger here I get all that. What sticks out

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Speaker 1: to you a dollar index in general falling, which, as

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Speaker 1: we were talking about earlier on the show, has major

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Speaker 1: implications in both directions for different people around the world.

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Speaker 1: What I think made the point very well, but what

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Speaker 1: is become very obvious is that the dollar is so

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Speaker 1: widely used, entrenched, and so important for the rest of

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Speaker 1: the world that any kind of movement has major impacts

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Speaker 1: on all kinds of asset class. And I would look

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Speaker 1: at also the grudging drive lower in Germany yields. They

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Speaker 1: broke lower about an hour ago after being really stoic

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Speaker 1: off of the Australian news that Bear's careful watching as well.

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Speaker 1: Right now, we're thrilled to bring all of you on

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Speaker 1: Global Wall Street to the focal point of courage in

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Speaker 1: making a call. This would be the HSBC shop call

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Speaker 1: for lower rates, weaker growth, etcetera. I saw like the

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Speaker 1: King and I etcetera. Etcetera, etcetera. And I'm gonna call

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Speaker 1: it to Steve Major, call Paul Bloxon with US with

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Speaker 1: HSBC Australia and New Zealand, the great day to have

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Speaker 1: you here. What was it like framing the HSBC call

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Speaker 1: when Steve Major in your economics team said, wait a minute,

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Speaker 1: consensus is wrong. Take us back eighteen months ago or so.

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Speaker 1: What was that like? Well, this was this happened in

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Speaker 1: the Latta pot of last year and and really the

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Speaker 1: cool was I think around November of last year where

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Speaker 1: the markets were expecting US rights to rise and Steve

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Speaker 1: was saying no, no, no, they're in a full uh

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Speaker 1: and uh and and framing that idea and you know,

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Speaker 1: capturing it in this idea that we think that. Do

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Speaker 1: you call someome like executives who say, wait a minute,

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Speaker 1: you guys, it's an American what what? What? What happened

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Speaker 1: in the process of making such an other process? The

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Speaker 1: process is objective, That's how it's supposed to be. Research

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Speaker 1: makes a call on what they think is going to

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Speaker 1: happen in the economy, and we tell this story and

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Speaker 1: so it's turned out to be the right direction. Really,

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Speaker 1: the U s HEELDS going lower rather than going Mike,

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Speaker 1: a little Australian modesty, their right direction. You nailed it. Okay,

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Speaker 1: let's go with that, Mike. The question is always though,

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Speaker 1: where did it go? Where does it go from here?

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Speaker 1: Because the US economy seems to be performing well will

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Speaker 1: I mean everything relative? Uh, And we should get a

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Speaker 1: reasonably good jobs report at the end of the week,

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Speaker 1: and then everybody's gonna say, you know, yields are gonna

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Speaker 1: rise you and we have been seeing yields rights here.

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Speaker 1: So what's the bet next? Well, this is it. This

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Speaker 1: is the key challenge. But for what? For what it's worth?

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Speaker 1: Steve Major sticking by his one and a half of

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Speaker 1: the end of the year on the U S tenures,

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Speaker 1: so he's still because we're at one point one is

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Speaker 1: absolutely it's a bowl call. But I mean the view

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Speaker 1: here is lower for longer. That's the way we think

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Speaker 1: about it. We're saying inflation and race will be lower

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Speaker 1: for longer, and of course that has bearings, as you say,

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Speaker 1: across the whole range of markets, has an important influence

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Speaker 1: for countries like mine, like Australia, where we're hoping that

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Speaker 1: we get a bit of Ausy dollar weakness to help

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Speaker 1: us rebalance our growth, and we haven't had enough of that.

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Speaker 1: So the r BA has then been forced down the

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Speaker 1: path of having to cut further, as they did this morning. Well,

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Speaker 1: particularly for you, but even for the United States. If

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Speaker 1: if we're not going to see inflation, then the Bloomberg

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Speaker 1: commodity indext has got to change direction because it's been

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Speaker 1: getting stronger. Oil prices have got to fall again because

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Speaker 1: they've been going up, and just mathematically, that pushes inflation higher. Now,

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Speaker 1: this is all pretty interconnected though, that the weaker US

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Speaker 1: dollar is part of the reason why you've seen commodity

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Speaker 1: prices rise, right, The two are related. So to keep

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Speaker 1: filling again today and that pushes commodity prices up, supports

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Speaker 1: the emerging economies. I mean, one thing you've got to

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Speaker 1: keep in mind, and one of the things I think

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Speaker 1: that's very very obvious to someone who sits in Sydney

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Speaker 1: and watches the world is, you know, most of global

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Speaker 1: growth is dominated by the emerging economies. China is the

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Speaker 1: single largest contributor to overall global growth, now, you know,

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Speaker 1: but where the rest of the world gets some support

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Speaker 1: from this, from this, from this U s dollar. For

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Speaker 1: a period of a weekly U S dollar for a

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Speaker 1: period of time in terms of lifting commodities, lifting those

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Speaker 1: emerging markets, and that drives global growth, but of course

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Speaker 1: it also presents challenges. William Stanley Jevons I would respectfully say,

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Speaker 1: brought us in the kicking and screaming into modern economics.

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Speaker 1: And there's a great story before his graduate degrees of

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Speaker 1: being planted in Sydney, Australia in like eighteen sixty eight

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Speaker 1: sixty five where he basically figured out at the margin,

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Speaker 1: the next if we get the HSBC call, what's the

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Speaker 1: marginal action that we should expect to see? What's the

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Speaker 1: next if we get to a one fifty tenure. Well,

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Speaker 1: I mean I think I think the story here is,

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Speaker 1: don't expect inflation to pick up anytime soon. Central banks

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Speaker 1: are going to continue to struggle helicopter money. Well, this

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Speaker 1: is this is the risk, right, I mean, the question

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Speaker 1: is whether helicopter money does come into play, it does

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Speaker 1: leave central banks. It is it is what you think

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Speaker 1: is the next option for central banks. But it's to

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Speaker 1: some degree. I mean, you've got to think a little

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Speaker 1: bit deep more deeply about what we're talking about with

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Speaker 1: this helicopter money. What we're saying is instead of the

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Speaker 1: government choosing to spend, which you know there a range

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Speaker 1: of governments across the world that could do more spending

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Speaker 1: given low interest rates, what we're saying is the central

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Speaker 1: bank instead prints money and and and and it goes

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Speaker 1: direct to to our audience that is concerned and worried, etcetera.

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Speaker 1: The other idea is you clear markets and that you

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Speaker 1: just eliminate leverage. Charles White, Platts and Jadeve and Paul

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Speaker 1: degure at else talking this up. Where is the clearing

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Speaker 1: of debt markets that comes with your call that? Well, absolutely,

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Speaker 1: the debt markets are one of the major constraints. I mean.

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Speaker 1: The other way to think about negative rates, and this

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Speaker 1: is something we've been sort of talking about a bit

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Speaker 1: more actively, is negative interest rates, albeit only very slowly,

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Speaker 1: do eat away at the debt that exists, right, I mean,

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Speaker 1: you've got options here, You've got high debt levels. How

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Speaker 1: do you how do you get rid of high debt levels?

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Speaker 1: One way is to inflate your way out of it,

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Speaker 1: so affective inflation picks up reduces the debts every year.

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Speaker 1: But we don't seem to be able to achieve that.

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Speaker 1: So instead, what's happening is rates are falling, In fact,

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Speaker 1: they're falling to zero, and then central banks are going negative. Actually,

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Speaker 1: what that means is when the bonds come up for

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Speaker 1: for they get paid out effectively that the government is

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Speaker 1: actually having to pay out a little bit less than

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Speaker 1: the actual face value of the bond. Right it does. Actually,

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Speaker 1: negative rates are a consequence of the fact that we've

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Speaker 1: got high debt levels, and it's the market trying to

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Speaker 1: eat away at those debt levels as well. But in

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Speaker 1: the long run, we're dead. As as Kane said, by

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Speaker 1: the time you get around doing uh, some of those

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Speaker 1: bonds maturing, you may have done so much damage to

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Speaker 1: savers and to consumption that it doesn't really matter absolutely.

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Speaker 1: I agree. So what we are what we need is

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Speaker 1: is better policy options. But it's just it's not entirely

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Speaker 1: clear to me that helicopter money is that answer, right.

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Speaker 1: The answer is helicopter money is effectively in central banks

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Speaker 1: printing money. We've got governments around the world that actually

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Speaker 1: could use that money to build useful infrastructure. They could

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Speaker 1: they could determined that it's better to borrow money and

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Speaker 1: build useful infrastructure than it is to have central banks

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Speaker 1: pouring liquidity into this directly into households and and and

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Speaker 1: business balance sheets. Well, you've got election coming up in Australia,

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Speaker 1: and not coincidentally, the Australian government released a new budget

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Speaker 1: today that does increase fiscal spending, probably one of the

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Speaker 1: few in the world. I mean, you're shaking your head

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Speaker 1: the health care it's not much, but I mean you

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Speaker 1: want to try the United States Congress and and what

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Speaker 1: it's been doing to to the to the fiscal side

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Speaker 1: of the ledger um is that is this that the

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Speaker 1: first canary in the coal mine. Here are the first

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Speaker 1: ones that are going to lead the way. Look, I

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Speaker 1: think I mean the budget I don't think really delivered

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Speaker 1: very much stimulus. That it's it's a lot of rhetoric

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Speaker 1: around the budget being pro growth and someone as it

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Speaker 1: ought to be. But I really think the key thing

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Speaker 1: that the Australian government is focusing a bit more and

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Speaker 1: hopefully we'll see a bit more in the lead up

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Speaker 1: to the election, is an infrastructure program. We do need

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Speaker 1: to build more infrastructure and you know rates are low

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Speaker 1: and now is the time for governments, particularly the Australian government,

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Speaker 1: to be thinking about about building a bit more infrastructure

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Speaker 1: replacing that demand that was coming from mining investment previously.

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Speaker 1: I want to come back and talk about the trilemma.

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Speaker 1: The impossible trinity is out there right now. Marie sobs

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Speaker 1: Felt is now at the I m F. And then

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Speaker 1: on as I mentioned earlier, Charles White Plots of Michael

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Speaker 1: Bird of the idea is Krugman has said, you can't

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Speaker 1: have it all. To me, it seems like central bankers

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Speaker 1: really trying to have it all. Now, may I assume

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Speaker 1: what gives way? Is currency? I mean, within within the trinity.

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Speaker 1: The only way I see out of this is not

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Speaker 1: a currency war, but almost an implosion strong dollar weaker currencies.

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Speaker 1: Is that where we're going it is? It is certainly

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Speaker 1: a challenge, I think, because you know, the adjustments that

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Speaker 1: currencies can make can only go so far. To to

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Speaker 1: a degree, it's a there is some game, right you.

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Speaker 1: It's in the sense that you you know, currency adjustments

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Speaker 1: on one hand, obviously beggar the neighbor policy. They help

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Speaker 1: one country in terms of supporting competitiveness, but they don't

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Speaker 1: necessarily but you you end up costing the other economy

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Speaker 1: in terms of their growth. Now saying that it is

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Speaker 1: worth keeping in mind that there are you know, five

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Speaker 1: value levels for currencies as well, so you know, if

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Speaker 1: currencies get back to where I ought to be, that's

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Speaker 1: probably the best path in terms of supporting growth. The yend, Mike,

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Speaker 1: on a weekly chart isn't two standard deviations strong as

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Speaker 1: we speak. That's an exceptionally rare moment on a weekly chart,

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Speaker 1: not a daily chart. It is amazing the movement, I

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Speaker 1: might point out, folks, that is a beyond elegant chart.

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Speaker 1: What's your call? Quickly? We gotta come back, Paul Blocks, somebody.

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Speaker 1: We could go on and on here. There's so much

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Speaker 1: going on. Futures negative fourteen down, futures negative year O

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Speaker 1: one fifteen fifty nine, much stronger. Oh two hours ago.

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Speaker 1: This news update brought to you by Bentley University. What

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Speaker 1: do rebooting America's oldest ski shop and crunching numbers at

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Speaker 1: Vista Print have in common? An NBA from Bentley University

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Speaker 1: that prepares graduates to in a maiden lead because businesses

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Speaker 1: everywhere prepare. Here here's black a bar with headline Mike, Tom,

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Speaker 1: thank you very much. Defense Secretary Ash Carter is confirming

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Speaker 1: the combat death of a U S service member in Iraq.

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Speaker 1: The Defense Secretary, who was in Germany, says the killing

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Speaker 1: was in the neighborhood of her Bill. The US Central

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Speaker 1: Command says the death was the result of enemy fire.

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Speaker 1: Today is primary day in Indiana. A win by Donald

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Speaker 1: Trump could bring him very close to the Republican presidential nomination.

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Speaker 1: The same as true for Democrat Hillary Clinton and who

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Speaker 1: bid for her nomination. Global News twenty four hours a day,

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Speaker 1: powered by our twenty four hundred journalists and more than

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Speaker 1: a hundred fifty news bureaus from around the world. I'm

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Speaker 1: Michael Barr, Mike, Tom, Michael, thanks so much. Yields lower

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Speaker 1: this morning, US tenure in six basis points one two percent.

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Speaker 1: Watching German yields as well, decidedly lower, but not through

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Speaker 1: the record lows yet. With Paul Blocks of HSBC, this

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Speaker 1: is Bloomberg Surveillance Morning, all right, Coming up on Bloomberg Radio,

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Speaker 1: we'll continue our conversation with Paul Blocks on the Australian

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Speaker 1: dollars right now and falling. Global Business News twenty four

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Speaker 1: hours a day, if Bloomberg dot Com, the Radio plus

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Speaker 1: mobile app and on your radio. This is a Bloomberg

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Speaker 1: Business Flash, and I'm Karen Moscow, US Dock Index futures

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Speaker 1: are lower. Let's go to the First Word Breaking news

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Speaker 1: desk for today's morning call, and here's Bill Maloney. Good

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Speaker 1: morning Bill, Good morning Karen. US futures remain under pressure today.

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Speaker 1: Doubtfugure is currently lower by a hundred and ten points

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Speaker 1: says me S dropped thirteen and as that futures declined

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Speaker 1: by twenty six the US tenniel falls to one point

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Speaker 1: eight two per cent. Overseas, Australia cut rates, Chinese p

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Speaker 1: M I was forty nine point four and Man You're

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Speaker 1: markets are lower, led by two percent declines in Spain

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Speaker 1: and Italy. After the LS night, a i G operating

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Speaker 1: EPs miss estimates, and Tenant Healthcare beat Some of the

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Speaker 1: urns highlights today Wellcare boosted its forecast, Mount Kronk boosts views,

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Speaker 1: Clorox fives or Volcan Materials and CBS all beat, a

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Speaker 1: d M missed, and Cummins beat by nine cents, although

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Speaker 1: missed on revenues in dealing. News Quintiles and i MS

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Speaker 1: to combined in a twenty three billion dollar deal, and

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Speaker 1: another news iron Horns green light report. A new steak

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Speaker 1: in the YELP found me some of your early Walsheet

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Speaker 1: upgrades and downgrades. Community Health cut to underperform at Bank

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Speaker 1: of America, Viston cut, Equated, Barkley's International Paper cut, the

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Speaker 1: WHO Day, Jefferies and United Technologies cut to sector perform

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Speaker 1: at RBC Live from the first Breaking News deskm Bill Maloney,

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Speaker 1: Karen very thanks Bill and your live breaking news. Over

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Speaker 1: your Bloomberg tipe, squawk and go on your terminal. That's

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Speaker 1: squ a w k go. That's a Bloomberg business flash.

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Speaker 1: Tom and Mike gonna thanks so much. Futures negative fourteen

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Speaker 1: about where they were lows for the day, but I'm

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Speaker 1: gonna call it stable at this time. Bloomberg Surveillance this

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Speaker 1: Paul Blocks and joining us with HSBC UH this morning.

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Speaker 1: He does Australian New Zealand and I'm looking at Australia

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Speaker 1: nominal GDP, which is a sound of animal spirits being

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Speaker 1: sucked out of an economy. What a run rate the

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Speaker 1: late nineties of presidential four year moving average four percent,

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Speaker 1: and now we're down to two point seven nominal top

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Speaker 1: line g d P in the Australia that you cover,

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Speaker 1: or bring it right over to China or the US.

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Speaker 1: How do policymakers jump start the animal spirit? Well, the

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Speaker 1: thing about nominal GDP is it's largely being driven by

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Speaker 1: the commodity process. Store right, Commodity prices rose substantially up

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Speaker 1: until their peak of eleven, with a small interruption of

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Speaker 1: the global financial crisis, but that was boosting our incomes

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Speaker 1: every year. It was boosting the government coffers, it was

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Speaker 1: boosting wages, it was boosting corporate profits. And then of

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Speaker 1: course since then we've seen commodity prices full by six

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Speaker 1: you know, in the Australian basket of commodities at least

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Speaker 1: since twenty eleven, and of course that's been weighing on

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Speaker 1: nominal GDP growth. And as you say, nominal GDP growth

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Speaker 1: has been cruising much more slowly. The government therefore has

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Speaker 1: been running deficits to support that. To support the economy

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Speaker 1: to some degree, households have been reducing their savings so

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Speaker 1: they've got less income growth. But they're actually choosing to

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Speaker 1: spend a bit more of it. And then the other

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Speaker 1: thing that's really been helping us out a lot in

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Speaker 1: Australia has been foreign capital inflow. The Ossie dollar coming

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Speaker 1: down has made it more attractive for foreigners to invest

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Speaker 1: in Australia. So we're not just getting support from local

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Speaker 1: income growth, which is what you're talking about, but we're

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Speaker 1: getting support from foreign wealth pouring into Australia to invest

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Speaker 1: in housing, invest in in in capital and so on.

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Speaker 1: So Australia is continuing to grow through this period because

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Speaker 1: of those various factors that are supporting supporting this transition

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Speaker 1: in the face of falling commodity prices, you're doing the transition.

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Speaker 1: The common theme out of central bankers around the world

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Speaker 1: has been the government's need to reform, need to do

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Speaker 1: things that adjust their economies to the realities of today,

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Speaker 1: and nobody does it, but Australia is doing it. How

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Speaker 1: are they doing it? So, so what a lot of

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Speaker 1: this is to do with the fact that we did

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Speaker 1: a lot of reforms back in the eighties and the nineties.

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Speaker 1: We floated the currency and we have a currency that

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Speaker 1: moves a lot. As you guys spend a lot of

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Speaker 1: time talking about I imagine, But we have a lot

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Speaker 1: of institutions so that we can deal with a very

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Speaker 1: volatile currency. We also have a very flexible labor market

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Speaker 1: and we have a fairly flexible product market. So what happened, well,

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Speaker 1: when commodity prices went up a lot and the mining

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Speaker 1: sector boomed, interest rates went up, the Ossie dollar went

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Speaker 1: up and slowed down everything outside of mining to make

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Speaker 1: way for that mining expansion to happen without excessive inflation.

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Speaker 1: So that at the end, when commodity prices peaked in

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Speaker 1: twenty eleven, the RBA could start cutting aggressively, the Ossie

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Speaker 1: dollar would come down a long way and growth would

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Speaker 1: shift back towards those non mining sectors of the economy,

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Speaker 1: wages growth, as we had things in place to we

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Speaker 1: we had we put in place reforms in the eighties

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Speaker 1: and nineties that are still providing payoffs for the economy. Now.

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Speaker 1: The challenge for Australia is we haven't really done very

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Speaker 1: much reform over the past ten to fifteen years, So

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Speaker 1: at some point in time that benefit you got from

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Speaker 1: the earlier reforms is going to start to wear off,

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Speaker 1: and that's slowing our productivity as well. But we're still

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Speaker 1: in better shape when you you know, than than a

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Speaker 1: lot of other developed economies across the world because of

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Speaker 1: those reforms that were put in place. The distances in

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Speaker 1: Southeast Asia are mens. I don't know how long it

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Speaker 1: takes to flow from Sydney to Hong Kong, but it's

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Speaker 1: way longer. It's way longer than Americans think. It's like,

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Speaker 1: way more than going to l a et cetera. What's

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Speaker 1: your definition of the new globalization. We're going to see

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Speaker 1: new technology, new transport, new logistics, a new digital world.

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Speaker 1: What does it mean for in Australia? That to most

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Speaker 1: Americans is a stereotype of you know, nevill shooting a

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Speaker 1: town like Alice. What's the new what's the new globalization? Well,

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Speaker 1: you know, there's a great story here. There's a famous

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Speaker 1: book in economic history in Australia called The Tyranny of Distance,

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Speaker 1: and it was written about fifty years ago, and the

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Speaker 1: story here was essentially Australia is has struggled under the

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Speaker 1: tyranny of distance. We're a long way from our markets

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Speaker 1: and that's constrained our ability to grow as quickly. Well,

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Speaker 1: the way I like to talk about this is actually

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Speaker 1: technology has has meant that the end of the death

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Speaker 1: of that distance, right, So actually what we're getting now

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Speaker 1: is the power of proximity. We are closer to markets

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Speaker 1: because of technology, but we're also close to the fastest

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Speaker 1: growing part of the global economy. Australia is highly tied

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Speaker 1: into Asia and the Asian economies there are the fastest

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Speaker 1: growing ones in the world. China's growth may be slowing down,

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Speaker 1: but we're still talking about China growing at six and

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Speaker 1: a half seven percent, and even if it slows down

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Speaker 1: a bit from there, it's it's still running at a

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Speaker 1: much faster rate than the developed world, and Australia is

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Speaker 1: highly hied into that China story. We've benefited from the

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Speaker 1: ramp up in demand for resources and now we are

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Speaker 1: trying to shift our economy away from a resources based

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Speaker 1: story to a more services export oriented story. And as

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Speaker 1: I said earlier, one of the key things that you've

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Speaker 1: got to keep in mind that I keep reiterating to

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Speaker 1: people across the world is mining is only ten percent

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Speaker 1: of Australia's GDP. Over seventy of our GDP as the

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Speaker 1: services sectors, so you don't need as much of a

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Speaker 1: lift in the services sectors to really keep growth going.

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Speaker 1: I just want to mention before we let Paul go

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Speaker 1: here that the Denver Broncos number two draft choice last week,

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Speaker 1: Adam Guts, is an Australian who's played more years of

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Speaker 1: Australian rules football than he has of American football. So

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Speaker 1: we're looking forward to learning more about Australian wa Football

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Speaker 1: is a dangerous game. I tell you it's it's it's

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Speaker 1: It's called aerial ping pong is what we refer to it. Effectively.

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Speaker 1: It's it's a bit like American football, except you don't

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Speaker 1: wear any of the pads, right, you just run into

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Speaker 1: each other. Well, this has been fabulous. Paul block somewhere

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Speaker 1: they just BC I will put out on Twitter shortly.

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Speaker 1: Jeff Blaney's classic The Tyranny of Distance stay with its

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Speaker 1: Bloomberg surveillance coming up with all due respect. Highlight brought

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