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Speaker 2: This is Bloomberg day Break Weekend, our global look at
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Speaker 2: anchors all around the world. And straight ahead on the program,
Speaker 2: a look ahead to the latest US retail sales and
Speaker 2: housing starts data what they tell us about the health
Speaker 2: of the consumer and the US economy. I'm Tom Busby.
Speaker 3: In New York.
Speaker 1: I'm Caline Hepkit in London, where we're asking how the
Speaker 1: UK's politics could crossover with monetary policy.
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Speaker 4: a slew of data in China to see if some
Speaker 4: nascent signs of growth can be extended.
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Speaker 2: Good day to you. I'm Tom Busby. We begin today's
Speaker 2: program with some key economic data here in the US.
Speaker 2: On Tuesday, we get US retail sales for the month
Speaker 2: of May at eight thirty am Wall Street Time, and
Speaker 2: for more on what this will tell us about the
Speaker 2: health of the consumer, we're joined by estell O US
Speaker 2: economists with Bloomberg Economics. So, Estelle, what do you expect
Speaker 2: to see in the May retail sales number? The question is,
Speaker 2: are consumers still spending?
Speaker 5: Yeah? So, Tom, we're expecting a tippet rebound in consumers
Speaker 5: spending next week, where we're expecting a point two percent
Speaker 5: increasing the headline retail sales figure and also one point
Speaker 5: two percent in the more important control group figure. And
Speaker 5: this is a very modest rebound from last month's almost
Speaker 5: flat headline figures and also a negative zero point three
Speaker 5: percent decline in the control group. Basically, this is just
Speaker 5: last month we saw a good amount of pullback and
Speaker 5: discretionary spending from consumers as they feel more squeezed from
Speaker 5: higher interest rates. This month, we're expecting a little bit
Speaker 5: more of a rebound, but we're still expecting quite weak
Speaker 5: consumption basically because we're no longer seeing consumers dipping into
Speaker 5: their savings for their purchases, and we're also no longer
Speaker 5: seeing them barring as much in order to finance their
Speaker 5: purchases either. So overall we're expecting modest rebound but still
Speaker 5: weak spending.
Speaker 2: But people are still buying, and so my question is
Speaker 2: what are they buying? I mean, they have to eat,
Speaker 2: so the obviously they have to buy groceries, they dine out,
Speaker 2: but maybe are people going to lower price point restaurants.
Speaker 2: Are they going to discount stores instead of you know,
Speaker 2: the big supermarket. How have the high prices changed things
Speaker 2: for people?
Speaker 5: Right? That's definitely something we're seeing. We've been seeing consumers
Speaker 5: pull back from you know, more expensive, big ticket items
Speaker 5: for a while now, but they have been spending on
Speaker 5: food service and drinking places more so than any other category.
Speaker 5: But we do expect that to pull back as well
Speaker 5: because recently we've been seeing some increases in food services
Speaker 5: prices as well. So overall, consumers will continue to spend
Speaker 5: on services and essential goods. They have been moving towards
Speaker 5: or value goods, but overall we expect a general slow
Speaker 5: down in almost all categories.
Speaker 2: So my next question is what are people not buying?
Speaker 2: I mean, is I know, gasoline is down there's been
Speaker 2: lower demand. How about automobiles a big expense for a
Speaker 2: lot of people, both new and used cars.
Speaker 5: Right, So, actually, consumers had been holding off on automobile
Speaker 5: purchases for quite a while because you know, everyone's waiting
Speaker 5: for interest rates to fall a little bit so that
Speaker 5: automobiles can be a little more affordable. But recently we've
Speaker 5: seen trends where auto deals are actually offering more discounts
Speaker 5: as they noticed that consumers aren't really able to afford
Speaker 5: the sky high prices we saw over the past two years.
Speaker 5: So actually, this month, we're expecting sales in the auto
Speaker 5: sector to pick up quite a bit, but that's mostly
Speaker 5: going to be offset by pull back in other categories.
Speaker 5: So you know, if I'm thinking about my own purchasing trends,
Speaker 5: if I have to buy a car this month, I
Speaker 5: tend to just pull back on my other purchases just
Speaker 5: for this month.
Speaker 2: Yeah, non necessities like clothing you mean, or experiential things. Yeah, exactly,
Speaker 2: not Taylor Swift fans, but concerts, ballgames, movies. I guess
Speaker 2: those things are going to people maybe going to dial
Speaker 2: back a bit.
Speaker 4: Now.
Speaker 2: You mentioned in April we got kind of a nasty surprise,
Speaker 2: retail sales flat that month, but core consumer prices in
Speaker 2: April and May did decelerate a little bit. May's year
Speaker 2: over year price index up just three point four percent.
Speaker 2: What kind of boost do you think that if there
Speaker 2: are signs inflation is moderating, what will it booths? Will
Speaker 2: it give consumers?
Speaker 5: Right? So, I think the slower CPI data we saw
Speaker 5: in May is directly a reflection of retailers slashing prices
Speaker 5: in order to entice consumers to spend more, because, like
Speaker 5: I said, they're noticing consumers being squeezed, so in order
Speaker 5: to bring that demand back up there, a lot of
Speaker 5: retailers are slashing prices and that should be supportive for
Speaker 5: consumers and help them get through this rough patch that
Speaker 5: we're anticipating.
Speaker 2: Also, sales are good now if employment remains solid, we
Speaker 2: continue to see inflation moderate like we saw in April
Speaker 2: and May. Do you think that sets the stage for
Speaker 2: the Fed to begin cutting interest rates as early September?
Speaker 2: And with that, how do you expect to see retail
Speaker 2: sales the rest of the summer. I mean, we're just
Speaker 2: getting into it now, it's the middle of June. What
Speaker 2: does it look like for the rest of the summer
Speaker 2: to you.
Speaker 5: Essentially big picture is that the tail winds we've been
Speaker 5: seeing from consumers dipping into their savings should fad as
Speaker 5: we go through the summer. In terms of rate cuts,
Speaker 5: as long as inflation continues to trend lower. We do
Speaker 5: think that the Fed will cut rates in September and
Speaker 5: that will obviously alleviate some of the financing pressures consumers
Speaker 5: have been feeling.
Speaker 2: Well, a lot to look forward to. Then, retail sales
Speaker 2: data for the month of May out on Tuesday in
Speaker 2: our thanks to Estello US economists with Bloomberg Economics. We
Speaker 2: turn now to housing, where home buying has been hampered
Speaker 2: by record high home prices, mortgage rates at are above
Speaker 2: seven percent, and a limited supply of homes on the market.
Speaker 2: With so few existing homes for sale, a lot of
Speaker 2: would be buyers have resorted to buying new homes with
Speaker 2: mixed results. And this Thursday we get existing home sales
Speaker 2: for May and housing starts for that same month. And
Speaker 2: for more on what to expect, we're joined by Drew Redding,
Speaker 2: Bloomberg Intelligence US home building analysts. Well, Drew, let's start
Speaker 2: with housing starts for May. How are the homebuilders firing.
Speaker 2: What's the market right now for the those newly constructed homes.
Speaker 6: Sure, so, as you would expect, housing starts data continues
Speaker 6: to be volatile month to month, which is partly reflective
Speaker 6: of the demand environment. You know, the strategy for many
Speaker 6: builders out there has been to match supply measured by
Speaker 6: starts with demand. So you've kind of seen that EBB
Speaker 6: and flow with interest rates, and I think some of
Speaker 6: the weakness that we've seen more recently is probably due
Speaker 6: to some of the smaller builders who are getting more cautious.
Speaker 6: That being said, the big builders continue to increase production.
Speaker 6: The other thing that you have to consider is, you know,
Speaker 6: when you look at that headline number, it continues to
Speaker 6: be impacted by weakness in the multifamily sector, where starts
Speaker 6: are falling as completions continue to build. So your to
Speaker 6: date starts are still twenty six percent higher. Of course,
Speaker 6: the comps get a little bit more difficult, but broadly speaking,
Speaker 6: we think that the trajectory for single family housing is
Speaker 6: still higher.
Speaker 2: And is the boom still going on in the Sun
Speaker 2: Belt States more than anywhere else or is this a
Speaker 2: nationwide building boom.
Speaker 6: That's a great question. I mean the performance within the
Speaker 6: new home market has been pretty solid across much of
Speaker 6: the US, But as you look around the country of
Speaker 6: the last year year and a half, you have seen
Speaker 6: markets kind of cycle in and out of favor. For example,
Speaker 6: when Race really started to rip higher back in the
Speaker 6: second half of twenty two. Some of the higher cost
Speaker 6: markets in the West, like California, Washington, Arizona, Colorado, we're
Speaker 6: very hard hit, and we're starting to see them rebound
Speaker 6: more solidly. On the other hand, you have some of
Speaker 6: the markets with leaders and you know, Florida comes to mind,
Speaker 6: and we're starting to see, you know, some signs of
Speaker 6: yellow lights flashing, if you will, with rising inventories and
Speaker 6: slowing sales. So we are seeing markets kind of go
Speaker 6: in and out of vogue here. And some of those
Speaker 6: hardest hit markets, as I mentioned, are the ones that
Speaker 6: are doing the best. And then there's there tends to
Speaker 6: be a little bit more stability in those in the
Speaker 6: Midwest and Northeast, which are comparatively smaller from a new
Speaker 6: home construction perspective.
Speaker 2: Now you mentioned some of these smaller builders, the big ones,
Speaker 2: the Lenaar's and the d R.
Speaker 3: Horton's.
Speaker 2: What's the challenge for them. Is it the high land prices,
Speaker 2: the high cost of labor, is it finding enough skilled workers?
Speaker 2: What are the big challenges?
Speaker 6: It's all you nail head, you know, the private home builders,
Speaker 6: and just take a step back. You have to remember
Speaker 6: that home building has historically been a very fragmented market.
Speaker 6: Now you have the large public builders for about fifty
Speaker 6: percent of the market, so there has been a share
Speaker 6: shift that's been going on over the last couple of years.
Speaker 6: One of the main issues, in addition to the things
Speaker 6: you cite it for the private builders is really their
Speaker 6: access to capital. You know, they typically work with local
Speaker 6: or regional banks in order to access growth capital, whether
Speaker 6: that's for purchasing land or developing developing that land or
Speaker 6: construction the home. And you know, when you have a
Speaker 6: more uncertain economy as you would expect, there's been somewhat
Speaker 6: of a pullback in lending which has inhibited their ability
Speaker 6: to grow. So it's kind of a scenario where you
Speaker 6: have the haves with the large, well capitalized, publicly traded
Speaker 6: homebuilders who have access to land, labor, and then you
Speaker 6: have the have nots, which is the smaller private piers
Speaker 6: who are struggling to get that growth capital. You know,
Speaker 6: we think that that this dynamic is going to continue
Speaker 6: to play out, and we think that you'll continue to
Speaker 6: see more M and A activity in the space. As
Speaker 6: a result of that, M and A has been pretty
Speaker 6: strong in twenty twenty four, So we would think that
Speaker 6: some of those smaller private companies will continue to you know,
Speaker 6: look to sell as a way to get out in
Speaker 6: a more challenging market, and we think that the large
Speaker 6: publics will scoop some of those guys up.
Speaker 3: Wow.
Speaker 2: Yeah, the rich get richer, the big get bigger. Let's
Speaker 2: switch now to existing home sales. Elevated prices. Interest rates
Speaker 2: have really hurt the market, but what are you looking
Speaker 2: for in those numbers for may.
Speaker 6: So in the near term, we think that the existing
Speaker 6: home market is going to continue to be challenged by
Speaker 6: higher rates. You know, one of the disadvantages the resale
Speaker 6: market has had not only you know a lack of
Speaker 6: inventory at the national level, but the higher rates have
Speaker 6: impacted them greater than it has the new home mark.
Speaker 6: And that's because the builders have been able to buy
Speaker 6: down rates. So you know, we're when we're looking at
Speaker 6: contract signings, we're going to continue to see you know,
Speaker 6: we had rates climb up over seven and a half percent,
Speaker 6: so we think that existing home sales will continue to
Speaker 6: be muted probably through much of the year. That being said,
Speaker 6: as rates start to pull back, you know, we're actually
Speaker 6: have a six handle once again, so you know, a
Speaker 6: lot of volatility. But if rates kind of stabilize in
Speaker 6: that mid six and a half, you know, mid six
Speaker 6: percent range as we get through the year, we think
Speaker 6: that you could build a little bit of momentum, albeit
Speaker 6: off a low base, heading into twenty twenty five.
Speaker 2: So for realtors it may be a tough summer, but
Speaker 2: there is hope on that the FED in September may
Speaker 2: dial back rates a little bit, and you think that'll
Speaker 2: have a big impact on housing.
Speaker 6: Yeah, I mean rates have really been the story and
Speaker 6: buyer's ability to afford home. So, you know, our kind
Speaker 6: of outlook suggests that we could get to that mid
Speaker 6: six percent range by the end of the year if
Speaker 6: we see some stability, which is what I think a
Speaker 6: lot of buyers need in this market, kind of certainty
Speaker 6: that you know, when they're going to look for a home,
Speaker 6: they know what kind of rate they're looking at. You know.
Speaker 6: The other thing to consider is the fact that we've
Speaker 6: been at this elevated rate level for a couple of
Speaker 6: years now, so I think at some point, you know,
Speaker 6: buyers have just become increasingly accustomed to a higher rate.
Speaker 6: So I think over time that starts to help. And
Speaker 6: what it also does is it starts to gradually loosen
Speaker 6: the grip of the mortgage rate lock and effect, which
Speaker 6: has been widely documented where since you're starting to have
Speaker 6: transactions at these higher rates, that starts to loosen a bit,
Speaker 6: which should free up the market gradually into next year.
Speaker 2: Oh boy, well, existing home sales housing starts for the
Speaker 2: month of May, both out on Thursday, are thanks to
Speaker 2: Drew Redding, Bloomberg Intelligence US home building analyst, coming up
Speaker 2: on Bloomberg day Break weekend to look at how politics
Speaker 2: in the UK could impact that country's monetary pol I'm
Speaker 2: Tom Busby and this is Bloomberg. This is Bloomberg day
Speaker 2: Break Weekend, our global look ahead at the top stories
Speaker 2: for investors in the coming week. I'm Tom Busby in
Speaker 2: New York. Up later in our program a look ahead
Speaker 2: to the slate of Chinese economic data out this week
Speaker 2: and what it means for that nation's economic recovery. But first,
Speaker 2: with Prime Minister Rishi Sunak calling for a snap general
Speaker 2: election on July fourth, could Bank of England policymakers really
Speaker 2: be willing to lower borrowing costs for the first time
Speaker 2: since the pandemic as many expected they would? And if not,
Speaker 2: what would a further delay and a rate cut mean
Speaker 2: for investors? For more, let's go to London and bring
Speaker 2: in Bloomberg Daybreak europe Banker Caroline hepgar.
Speaker 1: Tom government and the Bank of England in the UK
Speaker 1: have been separate since nineteen ninety seven, when the Prime
Speaker 1: Minister Tony Blair granted the central bank operational independence. But
Speaker 1: as the markets now adjust to this political general election campaign,
Speaker 1: there could be some crossover in the campaign, or at
Speaker 1: least just after. I've been discussing monetary policy and political
Speaker 1: risk with Jeremy Stretch, who is head of G ten
Speaker 1: FX Strategy at CIBC. He says that what happens in
Speaker 1: government has a big impact on the sort of action
Speaker 1: that central banks can take.
Speaker 7: There is an enormous degree of political uncertainty which is
Speaker 7: playing out in a sense. We've seen obviously something like
Speaker 7: Euri Sterling, where we've seen a substantial move lower in
Speaker 7: the context of the last few sessions, because of course
Speaker 7: the UK political system on a comparative basis, seems remarkably
Speaker 7: resilient compared to what we're seeing elsewhere. Now, that hasn't
Speaker 7: been always the case over the course of the last
Speaker 7: one to five eight years, so in a sense, that's
Speaker 7: quite interesting in that context. But I think what we
Speaker 7: have seen is that US exceptionalism has been the key
Speaker 7: theme over the course of the last year or two.
Speaker 7: The question whether that exceptionalism is going to persist into
Speaker 7: the back end of this unit into twenty twenty five
Speaker 7: up for debate, and I think actually we're going to
Speaker 7: see significant narrowing of growth differentials, and I think that
Speaker 7: plays more positively into the growth and or cyclically correlated currencies.
Speaker 7: But for now, at least, those political risks I think
Speaker 7: are still real and realistic. So that's the reason why
Speaker 7: if you're training Euro over the course of the next
Speaker 7: one two, three, four weeks, you have to look at
Speaker 7: what's happening in the political dynamics and looking at those
Speaker 7: bond spreads relative to buns, and if they push wider,
Speaker 7: then the euro will go lower.
Speaker 8: Is that then an opportunity is regards Sterling, and I'm
Speaker 8: also thinking about where your expectations are around the BOE Well.
Speaker 7: I think Sterling is interesting because, as I say, we've
Speaker 7: seen Sterling gains, but I think the market is perhaps
Speaker 7: to my mind, of for our perspective to c IBC
Speaker 7: underplaying the risks of policies and from the Bank of England.
Speaker 7: So I think we're still underplaying the not the pricing
Speaker 7: for next week's meeting, I think that is realistic or
Speaker 7: far more realistically priced. But I think come the August
Speaker 7: and PC, I think there can and should be a
Speaker 7: strong case for the bank to be starting to ease
Speaker 7: rates at that time. That's not necessarily priced by the
Speaker 7: market at this particular juncture. So I think that's one
Speaker 7: factor which could imply that the Sterling rally that we're
Speaker 7: seeing has and will provide opportunities to start to fade
Speaker 7: that because yes, the political backdrop looks more benign compared
Speaker 7: to what we've seen historically, but I think the data
Speaker 7: and all the Bank of England narrative I think will
Speaker 7: play into the presumption that Sterling long positions I think
Speaker 7: will start to look vulnerable as we go into the
Speaker 7: second half.
Speaker 1: Of the year, Okay, on sterling. Also, we should think
Speaker 1: about the Bank of Japan. It's expected to unwind its
Speaker 1: balance sheet, so basically effectively tightening policy. I mean, this
Speaker 1: is also a kind of major story in terms of
Speaker 1: the carry trade in the Japanese yen doomed to weaken
Speaker 1: under pressure to weaken. We've obviously seen so much policy
Speaker 1: intervention as well, which we've tracked.
Speaker 7: Ultimately, the en has obviously been a consequent all the
Speaker 7: weakness of the end has been a consequence of treasury
Speaker 7: JGB spreads in particular, So in a sense, if we
Speaker 7: are going to see some continued ratcheting down in the
Speaker 7: bond purchase strategy, now we're debating to how significant that
Speaker 7: is going to be at this juncture, but nevertheless, we
Speaker 7: are over time going to see that QT working through
Speaker 7: in Japan. How quickly and how aggressively will that course
Speaker 7: spreads to narrow because of course, ultimately the main driver
Speaker 7: of treasury JGB spreads has been the dollar leg in
Speaker 7: terms of treasuries. But ultimately, if the Japanese are going
Speaker 7: to get treasury l or go to witness treasury eels
Speaker 7: coming down, if we're seeing an easier fed strategy and
Speaker 7: always see some degree of typing then that eventually will
Speaker 7: help to cap the dollar yen story.
Speaker 4: But I think.
Speaker 7: It's still the case that the yen will remain relatively weak.
Speaker 7: I don't think we're necessarily in a situation or a
Speaker 7: juncture where we should be anticipating a substantial reversal in
Speaker 7: yen performance over the course of the next few days
Speaker 7: or weeks. I think it is still the case that
Speaker 7: those Treasury JGB spreads and all the cost of funding
Speaker 7: positions are still so extreme that it is still going
Speaker 7: to be evident that the carriy trade still has some
Speaker 7: more mileage in it in the context of the end
Speaker 7: just yet.
Speaker 8: Just going back to the dollar, then I wonder, how
Speaker 8: are you thinking of the November election and what's the
Speaker 8: sort of potential moves or risks involved there.
Speaker 7: Well, of course that is the elephant in the room
Speaker 7: in the context of when we've been talking about the
Speaker 7: electoral risks in twenty twenty four. Because as we know,
Speaker 7: or we assume that we have two presumptive nominees who
Speaker 7: have not yet been ratified, but we assume that we
Speaker 7: will be facing off as we did four years ago.
Speaker 7: We can assume that if there were to be ask
Speaker 7: resurgence or a re emergence of Republicans in the White House, I,
Speaker 7: mister Trump, then the tax cuts will be made permanent.
Speaker 7: That will be the substantial fiscal easing at the same
Speaker 7: time as significant tariff in position that obviously will be inflationary.
Speaker 7: Now that would be an obvious challenge for the FED
Speaker 7: in the context of twenty twenty five, so the presumption
Speaker 7: of significant monetary using could be tested. But of course,
Speaker 7: even amidst the political uncertainty being a function of the
Speaker 7: US political dynamic, there is still no significant liquid alternative
Speaker 7: to dollars. So in a sense, when we do have
Speaker 7: periods and episodes of political risks, than the dollar still
Speaker 7: tends to generally perform well, even if the US is
Speaker 7: the source of that risk, which seems completely counterintuitive, but
Speaker 7: I can see from the look on your face, Caroline,
Speaker 7: you will also understand that as well.
Speaker 1: Yeah, so I want you to pin your colors to
Speaker 1: the mask. Do you get a Trump dollar rally on
Speaker 1: the back of the election We're here to win.
Speaker 7: Very briefly, well, if you get the scenario where the
Speaker 7: equity market rallies strongly, then that will provide an underpinning
Speaker 7: for the dollar. We still think that the dollar will
Speaker 7: ultimately be cheaper in twenty twenty five.
Speaker 1: That was jermy stretch from CIBC speaking there to me
Speaker 1: and to Stephen Caroell on Bloomberg Radio. I've also been
Speaker 1: discussing how the UK's political situation might affect the upcoming
Speaker 1: Bank of England policy meeting and what that means for
Speaker 1: markets with Bloomberg's chief UK economist Dan Hanson. I started
Speaker 1: by asking him if a change to borrowing costs is
Speaker 1: completely off the agenda before the general election vote on
Speaker 1: the fourth of July.
Speaker 9: Yeah, because of the election, and also because of April
Speaker 9: CPI data, which came out on the same day that
Speaker 9: Soona called the election. I think we that morning when
Speaker 9: that came out, we looked at that and thought there's
Speaker 9: no way they're going to cut with that. With that data.
Speaker 9: If obviously CPI fell, it's at two point three percent,
Speaker 9: it came down from three point two percent, but it's
Speaker 9: what went on in the components and particularly services inflation,
Speaker 9: which is the thing that the Bank of England's very
Speaker 9: worried about at the moment. So I think the data
Speaker 9: gives them cover to stay on hold, they won't have
Speaker 9: to come up with some phony excuse around the election.
Speaker 9: Of course, there is the May CPI data the day
Speaker 9: before the Bank's decision as well, but we still think
Speaker 9: that will be above their four car So there's probably
Speaker 9: just about enough cover for them for them to stay
Speaker 9: on hold in June and basically stay out of the
Speaker 9: campaign and not being seen to do anything that is political.
Speaker 7: Yeah.
Speaker 1: So then if they do that and perhaps delay a
Speaker 1: rate card or push off a rate cut, what then
Speaker 1: is the timeline?
Speaker 3: Yeah?
Speaker 9: So I think the May CPI data, which I say
Speaker 9: it comes to the day before the decision, and it's
Speaker 9: important for what comes next, and there'll be one more
Speaker 9: CPI print and also laid market print before the August decision.
Speaker 9: Our view is that those prints will probably give them
Speaker 9: the confidence they need to cut in August. I think
Speaker 9: what's interesting about the inflation dynamic in the UK is
Speaker 9: going into the end of the year we're likely to
Speaker 9: see inflation rise back up mainly on It's basically to
Speaker 9: do with energy prices base effects, and that's going to
Speaker 9: make it tricky for the bank particularly well. There are
Speaker 9: two bits of it really. One is obviously carrying on
Speaker 9: the easing cycle, but that might be a little bit
Speaker 9: easier in the con if you've already started, it's probably
Speaker 9: easier to carry on, and because you know this is coming,
Speaker 9: it's much harder, I think, to start the using cycle
Speaker 9: in that context when inflation is on the rise. So
Speaker 9: I think sort of the August September window is a
Speaker 9: good window for the bank to think about its first
Speaker 9: rate cup. We've got August. That's what the majority of
Speaker 9: economists have as well. The market's sort of torn between
Speaker 9: the September and November, so so yeah, I think it's
Speaker 9: it's not gonna bean long after the Gene meeting that
Speaker 9: they start thinking about it.
Speaker 1: Okay, what impact does the Federal Reserve have on all
Speaker 1: of that, given that they held interest rates and the
Speaker 1: dot plot pulled down expectations for the number of rate
Speaker 1: cuts out of the US.
Speaker 9: Yeah, well, it's having a massive impact on market expectations
Speaker 9: UK or market rate expectations. So futures are essentially following
Speaker 9: US futures, and that's predicated on the idea that what's
Speaker 9: going on with US inflation is running a little bit
Speaker 9: ahead of what has been happening in the UK. So
Speaker 9: it's telling you something about what might be coming down
Speaker 9: the line in the UK of you, and it appears
Speaker 9: to be particularly Andrew Bailey's view is there is a
Speaker 9: bit of a difference, And I think there is a
Speaker 9: bit of a difference, to be honest, particularly around energy prices,
Speaker 9: particularly around the way the dynamic that drove inflation higher
Speaker 9: in the UK, where we had high inflation due to
Speaker 9: energy food that eventually pushed up wages because people tried
Speaker 9: to essentially guard against big real income hit. So I
Speaker 9: think it is different to the US. Nonetheless, if the
Speaker 9: FED isn't cutting, you're going to be worried that you're
Speaker 9: not going to make a mistake and you're going to
Speaker 9: be going it alone. I think the one central bank
Speaker 9: I sort of sort of looked at and thought in
Speaker 9: the context of the bankingland was the ECB. Yes, is
Speaker 9: that they cut, but there's no clear view on what
Speaker 9: comes next. And you know, I'm not saying it's one
Speaker 9: and done. We think our team thinks that will that
Speaker 9: the ECB will cut again in September, but the Bank
Speaker 9: of England does cut. I don't think there's going to
Speaker 9: be any guidance about what comes next and how quickly
Speaker 9: the borrowing rates might fall. I think we're just going
Speaker 9: to continue to be in this data dependent world, and
Speaker 9: we might be in one world where inflation behaves and
Speaker 9: things might move a lot quicker than markets expect. The
Speaker 9: other The flip side of it is that you get
Speaker 9: one a quarter or even slower pace than that because
Speaker 9: the data just doesn't give them.
Speaker 1: The room, yeah to do it. That's yeah, that's so interesting,
Speaker 1: isn't it? That guidance is sort of off off the
Speaker 1: table in a way in terms of I do sort
Speaker 1: of want to talk a bit about politics, because Blueberg
Speaker 1: did this survey of market participants and they were saying
Speaker 1: that a labor victory would be the best outcome for sterling,
Speaker 1: and obviously all the FED decision and all of this
Speaker 1: has so much impact on currency markets. Why are they
Speaker 1: saying that? And does that also last? Is that a
Speaker 1: kind of short bump? Is it just that it's the
Speaker 1: best possible news.
Speaker 9: That's a really good question. So I think, I mean
Speaker 9: the reasons, I think there are two of them. One
Speaker 9: is the perception at least that a labor government with
Speaker 9: a big majority, which is what the polls indicate, would
Speaker 9: be a much more certain policy environment in the UK.
Speaker 9: I think, you know, in fairness to the Tories, there
Speaker 9: have been a lot of shocks, pandemic, energy shock, but
Speaker 9: there's also been a lot of infighting and I think
Speaker 9: it's that bit of it that I think investors are
Speaker 9: sort of focusing on that with labor. The hope is
Speaker 9: that that won't happen.
Speaker 1: Yeah, stability, We'll have.
Speaker 9: A bit of stability. We won't have three prime ministers
Speaker 9: over the course of the parliament. It'll just be a
Speaker 9: little bit more stable. The environment will be more stable.
Speaker 9: They've also been making very sort of positive noises towards business,
Speaker 9: trying to shake off the sort of Jeremy Corbyn era
Speaker 9: of labor. You know, Rachel Rees and Kirstarmer have made
Speaker 9: a real effort and what you've just said there about
Speaker 9: the focus on wealth creation, economic growth, that is a
Speaker 9: very sort of centrist, marginally center left, but you know,
Speaker 9: it's it's very similar ground in many ways to the
Speaker 9: Tories in terms of the sort of view about what's
Speaker 9: most important. I think the other thing to think about
Speaker 9: is Brexit and potentially clositized with the EU. Whether that
Speaker 9: comes to fruition is harder to say, but I think
Speaker 9: they're the two things is a little bit more the
Speaker 9: reason why investors think it will be positive, more certainty,
Speaker 9: possibly closeritized with the EU.
Speaker 1: My thanks there to Bloomberg's Chief UK economist Dan Hanson.
Speaker 1: I'm Caroline Hepkea in London. You can catch us every
Speaker 1: weekday morning for Bloomberg Daybreak you at beginning at six
Speaker 1: am in London. That's one am on Wall Street.
Speaker 6: Tom.
Speaker 2: Thank you, Caroline, And coming up on Bloomberg Daybreak weekend
Speaker 2: to look ahead to a slough of Chinese economic data
Speaker 2: out this week. I'm Tom Busby, and this is Bloomberg.
Speaker 2: I'm Tom Busby in New York with your global look
Speaker 2: ahead at the top stories for investors in the coming week.
Speaker 2: This week, investors get a slew of economic data out
Speaker 2: of China about retail sales, home prices, employment levels, and more.
Speaker 2: Let's get to Bloomberg Daybreak Asia co host Brian Curtis
Speaker 2: and find out whether the data would indicate signs of
Speaker 2: economic recovery.
Speaker 4: Tom, we wanted to dig a little deeper here into
Speaker 4: China's recovery. The economy appears to have picked up a
Speaker 4: little in the latter part of May and feeding into
Speaker 4: this month Bloomberg Economic says its high frequency index has
Speaker 4: captured some signs that recent measures on housing have kindled
Speaker 4: new demand. Our economists say it's too early to say
Speaker 4: whether the uptick is sustainable, though, and what the knock
Speaker 4: on effects might be. In the coming week, we'll get
Speaker 4: home prices, retail sales, industrial production, and fire stas set investment.
Speaker 4: Joining us now for a preview is News Desk editor
Speaker 4: Jill Desis. Jill, thanks very much for being with us.
Speaker 4: So any sign of a domestic rebound would be encouraging,
Speaker 4: but we have had a lot of false dawns in
Speaker 4: the past. How sustainable might this pickup be?
Speaker 10: Yes, that's right, Brian. I think what you're most likely
Speaker 10: to see out of this latest economic data is still
Speaker 10: a bit of a mixed picture. The latest survey show
Speaker 10: us that retail sales are expected to pick up at
Speaker 10: least slightly. Industrial production, though might slow if you compare
Speaker 10: it to April, and then most economists are still saying
Speaker 10: that the property sector, despite these recent measures intended to
Speaker 10: help it, it's still going to take quite a while
Speaker 10: for that to feed into the economy. Investment, certainly in
Speaker 10: the sector is still expected to have plunged a year
Speaker 10: on year when you're looking at that cumulative five month
Speaker 10: total for twenty twenty four, So ultimately just a bit
Speaker 10: of a mixed bag. We'll see though, if there's any
Speaker 10: additional greenshets we have. I've seen recently some upticks and exports,
Speaker 10: for example, although I would caution you, Brian, that there's
Speaker 10: a lot of concerns about what that looks like going forward,
Speaker 10: particularly when you've got a lot of Western governments, the US,
Speaker 10: the EU that have looked at for the restrictions and
Speaker 10: tariffs on Chinese goods.
Speaker 4: I wanted to talk a little bit about housing though,
Speaker 4: because that seems to be right at the center of
Speaker 4: spending from consumers in China. Home sales look like they
Speaker 4: have benefited a little bit a couple of things there,
Speaker 4: the government's decision to cut requirements on down payments and
Speaker 4: also to buy unsold homes. Do you think that that
Speaker 4: might be sustainable?
Speaker 10: Yes, Brian, I think it's actually that latest plan that
Speaker 10: you mentioned, that unsold home buying plan that probably has
Speaker 10: the most chance of success in terms of maybe making
Speaker 10: a meaningful turnaround for the property sector here. So, just
Speaker 10: to recap it's a pretty powerful tool here, making about
Speaker 10: three hundred billion un or that's summer roughly about forty
Speaker 10: one billion US dollars worth of cheap credit available for
Speaker 10: banks to fund local government purchases of unsold homes. So essentially,
Speaker 10: the goal here is that they want to chip away
Speaker 10: at the excess housing stock that we've seen in China.
Speaker 10: They want to ease some of those cash flow strains
Speaker 10: for developers. And but I also point out here, Brian,
Speaker 10: is that this is a pilot program that has been
Speaker 10: run in I think eight cities, you know, give or
Speaker 10: take over the last year or so. So they've already
Speaker 10: sort of launched this pilot program. Now they're trying to
Speaker 10: build this out nationwide. And that's ultimately what could potentially
Speaker 10: help the housing sector here, the property sector sort of spur,
Speaker 10: you know, just again getting rid of this excess glut
Speaker 10: of these unsold homes. I think though the spending plan
Speaker 10: for that might be a bit tricky. We'll have to
Speaker 10: see how the people spank of China. The Central Bank
Speaker 10: ultimately you know, kind of helps try to you know,
Speaker 10: fund this program, kind of give it some more legs.
Speaker 10: And again, it just might take some time for that
Speaker 10: to fully transmit into the economy. I will just point
Speaker 10: out that while we have seen an uptick in some areas,
Speaker 10: we've also seen new home sales continue to fall in
Speaker 10: most of China's Tier one cities Guangzhou, for example, So
Speaker 10: I mean, really, it might just take some time for
Speaker 10: that to really really take I mean again, I just
Speaker 10: have to stress that this is a property sector problem
Speaker 10: that's been going on for years at this point.
Speaker 4: Brian, Yeah, it certainly takes time. But we did see
Speaker 4: some early indicators, like the sales of home appliances jump
Speaker 4: almost one hundred and fifty percent. Those are some of
Speaker 4: the knock on effects that you know might come along
Speaker 4: with a little bit of recovery in housing.
Speaker 10: Yes, and I am sort of more optimistic about you know,
Speaker 10: maybe this you know, recovery and demand at least from
Speaker 10: a consumption point of view. Again, when you're looking at
Speaker 10: these statistics for this upcoming data release, economists do actually
Speaker 10: think that, you know, retail sales on the whole are improving,
Speaker 10: so you know, maybe there's like some broader recovery there
Speaker 10: in consumption. I mean, you know, again, maybe a little
Speaker 10: bit of a mixed bag recent consumer price data that
Speaker 10: we've just gotten out of China was a bit weaker
Speaker 10: than we expected, although you know, it's still rising a bit,
Speaker 10: so you know, the government continues to try to spur demand,
Speaker 10: you know among people within the economy. Maybe it's picking
Speaker 10: up a little bit. Will have to I think, get
Speaker 10: more months of data to actually see more of a
Speaker 10: sustained trend there.
Speaker 4: You mentioned a little bit of a pickup in exports,
Speaker 4: but we do have the geopolitics. It's a big overhang
Speaker 4: and just recently the European Union's decision to impose additional
Speaker 4: tariffs China pushing back a little bit on that. Is
Speaker 4: that something that weighs pretty heavily at the moment.
Speaker 10: Oh God, yes, Brian. I'd say that this is one
Speaker 10: of the biggest concerns right for the outlook for the
Speaker 10: economy going into the rest of this year. I mean,
Speaker 10: when we were starting off the year, Brian, you know,
Speaker 10: we were pretty optimistic about manufacturing sector in China. How
Speaker 10: much you know that was actually going to contribute to growth. Actually,
Speaker 10: I think somewhat surprisingly, manufacturing and exports in particular are
Speaker 10: a bit stronger than expected to start off the year.
Speaker 10: And so given these continued issues within the property sector,
Speaker 10: given ongoing concerns about you know, the consumer recovery, what
Speaker 10: that's actually going to take to recover. Was seen that
Speaker 10: you know, manufacturing exports would actually be a really key
Speaker 10: of economic growth this year. But the geopolitics I think
Speaker 10: is just too big to ignore it at this point.
Speaker 10: So the latest news being that the European Union, after
Speaker 10: this months and months long probe into China's electric vehicle
Speaker 10: sector electric vehicles, euro buys up quite a lot of
Speaker 10: those or some concerns they're pricing there. I mean, they're
Speaker 10: now raising tariffs to as much as forty eight percent
Speaker 10: on certain car buyers. I think that's going to continue
Speaker 10: to escalate those trade tensions and then ultimately there could
Speaker 10: be some China retaliation there.
Speaker 4: Jill, thanks so much for your insights. That's Bloomberg's News
Speaker 4: Desk editor Jill Desis. Next up, we turned to Australia
Speaker 4: with Doug Krisner Doug Brian.
Speaker 11: It's all about the Central Bank meeting in the week ahead.
Speaker 11: Over the last four meetings, the RBA has held its
Speaker 11: target rates steady at four point three five percent, and
Speaker 11: at the last meeting in May, policymakers said keeping rates
Speaker 11: higher was the stronger option rather than raising rates further
Speaker 11: as a way of tackling high consumer prices. Let's preview
Speaker 11: the RBA meeting now with our own Paul Allen, Bloomberg
Speaker 11: TV Australia correspondent who joins us from Sydney. Paul, thanks
Speaker 11: for being with us. I think we need to begin
Speaker 11: with an assessment of the overall Australian economy. How well
Speaker 11: is it performing right now under the weight of these
Speaker 11: higher interest rates.
Speaker 12: Well, we have a sense that the economy here is
Speaker 12: kind of firing on three cylinders at the moment. I mean,
Speaker 12: everything's trucking along. We're all still here, we're not in recession.
Speaker 12: But then at the same time we're battling many of
Speaker 12: the same factors that other developed economies are key among
Speaker 12: them inflation. Maybe we can come back to that in
Speaker 12: a minute. But growth is a severe problem as well.
Speaker 12: The last quarter we had a growth rate I believe
Speaker 12: it was one tenth of one percent. I mean that
Speaker 12: that is tep it. That was the first quarter of
Speaker 12: year to March, so it gives us an annualized number
Speaker 12: of one point one percent. Now, we haven't seen growth
Speaker 12: that slow in Australia since the early nineteen nineties if
Speaker 12: you take the pandemic out of the equation, so growth
Speaker 12: is not terrific. And at the same time, as I mentioned,
Speaker 12: we've got inflation here just like you do tug, just
Speaker 12: like many developed economies around the world.
Speaker 11: Well, let's talk about that. My reading indicates that the
Speaker 11: inflation reading for the month of April and Australia showed
Speaker 11: an unexpected increase. Do we know what was driving that?
Speaker 12: Primarily, Yes, it did, and that has potentially thrown a
Speaker 12: spanner into the works for this at June meeting, but
Speaker 12: driven mainly by if you start digging into the data,
Speaker 12: some of the numbers are pretty ugly. Housing, for example,
Speaker 12: that came down, but it's still at four point nine percent.
Speaker 12: The big one here is in services are particularly insurance
Speaker 12: financial services inflation that's running at eight point one percent.
Speaker 12: So if you take out some of these big factors though,
Speaker 12: like housing, insurance, financial services, suddenly the inflation rate the
Speaker 12: CPI is getting back towards target. It's hovering within that
Speaker 12: RBA target band of two to three percent. So those
Speaker 12: are the big drivers. So it's a really mix muddy picture,
Speaker 12: which is making the debate more complex than just the binary.
Speaker 12: Well do we cut, do we hike?
Speaker 11: Right, Well, let's talk a little bit more about the
Speaker 11: real estate market, because from what I understand, Australia as
Speaker 11: a country is very very sensitive to changes in interest
Speaker 11: rates where housing is concerned. How well is real estate
Speaker 11: holding up? I mean, and maybe we can talk a
Speaker 11: little bit about the rental market as well.
Speaker 12: Yeah, definitely. Well, yes, we've talked about before housing, real
Speaker 12: estate and Australia. It's practically a national sport. This is
Speaker 12: what people talk about around the barbecue. You know, it
Speaker 12: dominates every conversation that you have. It's a country of
Speaker 12: real estate investors. But that has a downside as well.
Speaker 12: There's a real shortage of supply. That is one of
Speaker 12: a whole small gosport of factors that's keeping not just
Speaker 12: house prices here elevated. But as you say, rents now.
Speaker 12: I had an interesting experience last month. I managed to
Speaker 12: get out to Perth. I don't get to do that
Speaker 12: very often. It's West Coast right alright, it's basically La
Speaker 12: to your New York, you know, it's the other side
Speaker 12: of the country. It's a very very big resources area.
Speaker 12: This is where more of Australia's iron are comes from.
Speaker 12: A lot of the gas reserves are out there as well,
Speaker 12: So when commodities do well, Perth does well, and in
Speaker 12: some respects it's a victim of its own success. It's
Speaker 12: had seventy eight thousand new arrivals internationally and interstates since
Speaker 12: September twenty twenty three. This is new data that we
Speaker 12: just got from the ABS, the Bureau of Statistics a
Speaker 12: few days ago, and that's put tremendous pressure on the
Speaker 12: housing market, particularly for rentals. Now, the vacancy rate in
Speaker 12: Perth the worst in Australia and one of the worst
Speaker 12: cities in the developed world to find a house. For
Speaker 12: every one thousand homes, just four are vacant, So you
Speaker 12: can imagine what that has done to the price of rent.
Speaker 12: Median ransom Perth seven hundred and twelve Busie dollars a month,
Speaker 12: that's four hundred and seventy four US. But as I say,
Speaker 12: I went out there to film a story and there
Speaker 12: are cues of people that line up at open homes
Speaker 12: for empty properties, and it's not who you would normally
Speaker 12: see in a situation like this. Usually you would expect
Speaker 12: to see low income families, those who are struggling getting
Speaker 12: into trouble here. I spoke to a guy who was
Speaker 12: an electrical engineer for Rio Tinto. He's making over one
Speaker 12: hundred thousand US a year. He can't find a house. Wow,
Speaker 12: this is who it's affecting now.
Speaker 11: Obviously, as you point out, migration is a big factor here.
Speaker 11: But overall, how is the labor market in Australia holding
Speaker 11: up right now?
Speaker 12: Well, that's one of the good news stories here is
Speaker 12: that unemployment still pretty low. I believe it has a
Speaker 12: four in front of it, so it's creeping up, but
Speaker 12: the labor market's still tight. That's keeping wages relatively high,
Speaker 12: which means a lot of Australians are able to absorb
Speaker 12: the cost of living increases that we've seen. There is
Speaker 12: more help on the way in that regard as well.
Speaker 12: The first of July we have what's known as the
Speaker 12: Stage three tax cuts about to kick in. This is
Speaker 12: an electrim promise that the Albanese government has kept. This
Speaker 12: was an initiative introduced by the previous government and during
Speaker 12: the election they promised they would keep these Stage three
Speaker 12: tax cuts. So everyone's getting a little bit of a
Speaker 12: bump in their pay packet in a couple of weeks time.
Speaker 12: But of course is that going to impact inflation? And
Speaker 12: back we aret of square one.
Speaker 11: Okay, Paul, always a pleasure to chat with you. Thanks
Speaker 11: for helping us preview the RBA Meeting of the week Ahead.
Speaker 11: He is Paul Allen, Bloomberg TV Australia correspondent. I'm Doug Krisner.
Speaker 11: You can join Brian Curtis and myself weekdays here for
Speaker 11: Bloomberg day Break Asia beginning at eight am in Hong
Speaker 11: Kong eight pm on Wall Street.
Speaker 3: Tom.
Speaker 2: Thank you Doug, and thank you Brian. And that does
Speaker 2: it for this edition of Bloomberg day Break Weekend. Join
Speaker 2: us again Monday morning at five am Wall Street Time
Speaker 2: for the latest on markets overseas and the news you
Speaker 2: need to start your day. I'm Tom. Stay with us.
Speaker 2: Top stories and global business headlines are coming up right now.