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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.
Speaker 2: You can join Brian Curtis and myself for the stories,
Speaker 2: making news and moving markets in the APAC region. You
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Speaker 3: The Reserve Bank of Australia is set to keep its
Speaker 3: policy rate on hold, but there are some interesting complications.
Speaker 3: Joining us now is James McIntyre, Bloomberg Asia economist covering
Speaker 3: Australia and New Zealand. So we've had a dovish tilt here.
Speaker 3: But then, well, let me put it to you, what
Speaker 3: do you find most interesting about the background to this decision?
Speaker 4: Oh?
Speaker 1: Look, I think that's a good question. We have seen
Speaker 1: the IBA be a little bit division February, a little
Speaker 1: bit more division March, but rot now it's looking like
Speaker 1: we haven't heard much from the RBA since their last
Speaker 1: meeting in March. But it's likely that we're going to
Speaker 1: get almost a bit of a one eighty, but not
Speaker 1: the full one eighty to a hike. But we're going
Speaker 1: to see. I think the RBA become a bit more
Speaker 1: hawkish today. So it's not just something that's following the Fed.
Speaker 1: There's a wholly bit of domestic economic news and data
Speaker 1: that sort of driving this shift down under.
Speaker 2: So from what I'm reading, and correct me if I'm wrong, James,
Speaker 2: the market is still pricing in a hike at some
Speaker 2: point this year. Can you give us an understanding of
Speaker 2: what's happening in Australia's economy that would allow the RBA
Speaker 2: to kind of make this hawkish pivot and for the
Speaker 2: market to continue to price in a hike at some point.
Speaker 1: Yeah, Well, look, it's really interesting that market pricing, how
Speaker 1: significantly that's shifted compared to when the RBA lasted a
Speaker 1: set of quarterly forecasts. They're going to have a new
Speaker 1: set of quarterly forecasts today. Compared to back in February
Speaker 1: when they last forecast, the market was pricing in over
Speaker 1: twenty twenty four seventy five basis points of cuts and
Speaker 1: then another forty or fifty basis points of cuts in
Speaker 1: twenty twenty five. You know, today, however, the RBA has
Speaker 1: got a very you know, the markets are pricing a very,
Speaker 1: very different situation with with that that potential or a
Speaker 1: hike partially priced in for later on this year. You know,
Speaker 1: when we look across the economy, though, what's behind this
Speaker 1: shift in in markets. Well, we've had an unemployment rate
Speaker 1: that has really surprised. There was some incredibly strong jobs
Speaker 1: growth that we had in February, and we all expected
Speaker 1: in March that would that would reverse course, a bit
Speaker 1: of statistical payback. But what happened was that the unemployment
Speaker 1: rate didn't move the way we would have thought, and
Speaker 1: so instead the RBA is looking at a much much
Speaker 1: tighter labor market. And then we got inflation data for
Speaker 1: the first quarter. For the March quarter of the year,
Speaker 1: we had particularly the underlying inflation. The RBA focuses on
Speaker 1: a trimmed mean measure, which removes some of the outliers
Speaker 1: of within the CPI basket. That trim mean measure grew
Speaker 1: by one percent in the quarter, very much, showing that
Speaker 1: where we're you know, that or a bit of an
Speaker 1: interruption on that dissiplation path.
Speaker 4: You know.
Speaker 1: It's so these are the sort of the two key
Speaker 1: pieces of economic data that have set that market pricing
Speaker 1: moving the way it is, and that whiplash from February.
Speaker 1: But when we look at the other data on the economy,
Speaker 1: consumers and spending, it's still a very very weak story.
Speaker 1: Retail sales data coming out and disappointing. We're still, you know,
Speaker 1: we're looking that we will see even if the economy
Speaker 1: grows overall in per capita terms, because we have that
Speaker 1: strong population growth per capita GDP will be extending its recession.
Speaker 1: So there's a very very weak household sector. But nonetheless,
Speaker 1: some of these concerning things still out there, from inflation
Speaker 1: not dissipating as quickly, still falling but not fast enough,
Speaker 1: and the labor market being a little bit tighter, and
Speaker 1: I think those are the things that markets are focused on.
Speaker 3: Bloomberry Economics believes that a cut is actually the next move.
Speaker 1: Yeah, that's my call. So my base case is that
Speaker 1: we're still we've got this little bit of an interruption
Speaker 1: right now, but in the what was looking like an
Speaker 1: immaculate disinflation and a continued march toward easing. This is
Speaker 1: a little bit of a speed bump. But we think
Speaker 1: that as that weakness in the economy persists, the migration
Speaker 1: boom begins to ease back, taking some wind out of
Speaker 1: the demand side of the economy, that we'll see that
Speaker 1: unemployment rate rise, that inflation fall away, and we will
Speaker 1: still be on track for the RBA's next move being
Speaker 1: a cut. Today they're going to sound hawkish, but it's
Speaker 1: going to be a threat, not a delivery.
Speaker 2: Okay, So the market will do a lot of the
Speaker 2: work for the RBA. Then, is that what you're saying
Speaker 2: very much?
Speaker 1: And this is where that very big shift in market
Speaker 1: pricing is actually going to do a lot of heavy
Speaker 1: lifting for the RBA. They factored in that those rate
Speaker 1: cuts into their last set of forecasts and had inflation
Speaker 1: going back towards the middle of the target ban in February,
Speaker 1: So we've got about inflation being about twenty basis points
Speaker 1: higher than we thought for the starting point. But we're
Speaker 1: going to have sixty to seventy extra basis points of
Speaker 1: monetary policy tightening being baked into their fullcasts, and that's
Speaker 1: going to be what cruels growth, keeps inflation heading to target,
Speaker 1: and is really going to be about that difference between
Speaker 1: the RBA making the threat and delivering the threat is
Speaker 1: what they're going to be safe with for today.
Speaker 3: You mentioned that consumers who are tilting a little weaker,
Speaker 3: and in some cases we see that in the United
Speaker 3: States as well, and we do have sort of deglobalization
Speaker 3: and industrialization reshuring that's kind of helping out in the
Speaker 3: United States in terms of mitigating factors for the Australian economy.
Speaker 3: I'm just curious to bring this around to China. Does
Speaker 3: China trade factor in very much? Does China tourism matter
Speaker 3: very much? And basically is, you know, our exports are
Speaker 3: going to play an important role in the revival of
Speaker 3: the Australian economy.
Speaker 1: Well, one of the things that's been a big part
Speaker 1: of the strength and the revival in the post COVID
Speaker 1: recovery has been a type of tourism from China and
Speaker 1: that is international students. So when we as economists, when
Speaker 1: the stats agencies measure these things, they call education exports
Speaker 1: part of the tourism services exports sector. And those students
Speaker 1: have come back to Australia in a big way. And
Speaker 1: that's what's driven up that population story, that migration boom.
Speaker 1: It's what's holding up house prices and creating a real
Speaker 1: tension within rental markets, a little bit of an inflation
Speaker 1: headache there within that pocket of the economy for the
Speaker 1: RBA from that return of not just Chinese but also
Speaker 1: Indian students. Looking forward the China story for Australia, Look,
Speaker 1: it's not just those services exports. It is about that
Speaker 1: commodity story and especially with steel and iron ore. So
Speaker 1: we've had a real kind of you know, flashing red
Speaker 1: light from China's cratering property sector for the last year
Speaker 1: or two. But critically for Australia, iron ore prices and
Speaker 1: unein and or demand have remained quite high, so you know,
Speaker 1: we've still been managing to bumble along with strength in
Speaker 1: other parts of the global economy, Australia's exports being commodity based.
Speaker 2: Mentioned property as it relates to China. What's the property
Speaker 2: story right now in Australia, particularly in an environment where
Speaker 2: credit is pretty tight.
Speaker 1: So credit has been tight, but the property market we've
Speaker 1: seen residential house prices continuing to grow record highs now
Speaker 1: there is a bit of there's a bit of a
Speaker 1: two speed story going on within the economy. Melbourne and
Speaker 1: Sydney house prices are a little bit softer. That's the
Speaker 1: two main cities and most of where the international migration
Speaker 1: comes into they're very, very stretched on affordability. Rate hikes
Speaker 1: are herding there, whereas in other cities affordability is so
Speaker 1: much better and we're getting a very big boom. So
Speaker 1: there's a big lot of help there from the population
Speaker 1: story and still a bit of strength despite rates.
Speaker 3: James, thank you so much. James McIntyre, Bloomberg Asia Economist,
Speaker 3: covering Australia and New Zealand. And again the RBA is
Speaker 3: set to keep its policy rate on hold, but meat
Speaker 3: tilt a little hawkers. Here are the headlines from President
Speaker 3: She's trip to Europe. Obviously, the trip has begun. The
Speaker 3: EU says we're ready to use all trade tools to
Speaker 3: defend against China. President She has urged Emmanuel Macron to
Speaker 3: help China avoid a new Cold War, and Hungry plans
Speaker 3: at least sixteen agreements with China during this visit. So
Speaker 3: joining us now on the program to discuss a little
Speaker 3: bit of this carrot and stick approaches. Rebecca Chung Wilkins,
Speaker 3: Bloomberg Asia Government and Politics Correspondent. We're seeing a little
Speaker 3: of both here at the moment, and it seems like
Speaker 3: Ursula Vanderlin was carrying the stick.
Speaker 5: Yes, I mean this is sort of really interesting because
Speaker 5: part of this whole trip is the balance between what
Speaker 5: the EU wants and they, of course the bloc that
Speaker 5: have rolled out this litany of probes versus the interest
Speaker 5: the interest of specific member nations, and where you know,
Speaker 5: those two sort of conflict is precisely where Si Jinping
Speaker 5: hopes to kind of make his point that actually to
Speaker 5: individual countries such as France, but also for example, such
Speaker 5: as Hungary, it's more advantageous to actually pursue more open
Speaker 5: economic trade barriers and so rather than kind of supporting
Speaker 5: the EU's more hawkish stance, which of course is closer
Speaker 5: to the US position.
Speaker 2: So the French Finance Minister Bruno Lamarre has used the
Speaker 2: term happy globalization and advocating for the end to it.
Speaker 2: I mean, when you look at the bloc, the European Union,
Speaker 2: this is an amazing This is an incredibly large market
Speaker 2: for China to export into. Are they is the administration
Speaker 2: or when I say the administration, Shi Jinping, the leaders
Speaker 2: in Beijing, are they at risk of damaging this opportunity
Speaker 2: for them to be able to kind of allow the
Speaker 2: Chinese economy to recovery, Yes, but not necessarily going hog
Speaker 2: wild when it comes to exporting all of the over capacity.
Speaker 5: I think it's incredibly important, and I think that's in
Speaker 5: part why, of course, we are seeing Seasonpin going to
Speaker 5: the Eupean Union at this moment, the first trip in
Speaker 5: five years. The block is incredibly important in also supporting
Speaker 5: that growth. Of course, we have seen China shift to
Speaker 5: the New three, the so called new three drivers of growth,
Speaker 5: which includes all of these products evs, batteries, solar panels,
Speaker 5: which are the very focus of the EU probe. So
Speaker 5: it is essential from Beijing's point of view to keep
Speaker 5: this channel open. Now they have been firm that, you know,
Speaker 5: Sheasonping has said there is no issue of Chinese over capacity,
Speaker 5: and there has been debate, you know, even within the
Speaker 5: EU two about precisely how sharp or how pointed that
Speaker 5: effort is. And I think from Beijing's point of view,
Speaker 5: there is this worry that the EU is falling lockstep
Speaker 5: in with the US without actually sort of considering the
Speaker 5: specifics of that over capacity issue and the real pain points.
Speaker 5: The sort of worst case scenario, of course for Beijing
Speaker 5: is that the EU launches into a full trade war,
Speaker 5: or even before that sort of introduces these prohibitively high
Speaker 5: tariffs on things like evs.
Speaker 3: The Chinese papers, of course, are saying that the French
Speaker 3: president thanked She for a commitment not to sell arms
Speaker 3: to Russia, and also that they agreed or they support
Speaker 3: an Olympic truce during the Games in Paris. Can you
Speaker 3: fill in some of the details on those two.
Speaker 5: Yes, I mean this has been a huge sticking point,
Speaker 5: I think not just for France and China, actually, it
Speaker 5: should be said, but for several European nations. There has
Speaker 5: been increasing frustration with China and what is perceived to
Speaker 5: be its lack of movement in trying to halt the
Speaker 5: war or bring about a cease fire that is more
Speaker 5: amenable to the Ukrainian side. Of course, and China does
Speaker 5: have its own sort of blueprint for priests, we may
Speaker 5: call it, but that has not been sort of palatable
Speaker 5: for many European nations, and so it still is a problem.
Speaker 5: I would say that although there is this discomfort between
Speaker 5: these sort of cozy ties between She and Putin, we
Speaker 5: have actually seen trade between Russia and China fall in March.
Speaker 5: That's the first time since twenty twenty two. So it
Speaker 5: does look like some of these sort of threats of reprisals,
Speaker 5: particularly from the US side, but also echoed in some
Speaker 5: parts of the European Union, may be actually having an
Speaker 5: impact on that trade between China and Russia, which of
Speaker 5: course has helped support Russia through the course of the
Speaker 5: war and sort of counter at the balance and the
Speaker 5: effect of sanctions for example.
Speaker 2: So, Rebecca, what are we expecting from she when he
Speaker 2: visits Serbia and Hungary? How might his relations in those
Speaker 2: countries differ than to what we have been seeing in France.
Speaker 5: Yeah, this is going to be a really interesting portion
Speaker 5: of the trip, I think, and in two sort of
Speaker 5: big ways. The first is that this is stent Ping's
Speaker 5: real opportunity to showcase the advantages of engaging with China.
Speaker 5: These are two countries that are very friendly to China,
Speaker 5: that have accepted various investment projects. For Serbia that's more
Speaker 5: sort of industrially inclined more about steel. For Hungary we've
Speaker 5: seen for example, byd agreeing to open a factory there,
Speaker 5: among other plans. There's also railway potential investment opportunity too.
Speaker 5: And so this is sort.
Speaker 1: Of the carrot.
Speaker 5: The carrot part of the trip to use to use
Speaker 5: your frameworks showcasing that China, if you let in some
Speaker 5: of its and you remain open to its investments, can
Speaker 5: bring in its own companies, but can also create jobs
Speaker 5: in that market. The other part is to send a
Speaker 5: signal reaffirming ties to Russia, because of both of these
Speaker 5: nations own close ties to Russia.
Speaker 3: All right, Rebecca, thank you, Rebecca Chong Wilkins, Bloomberg Asia
Speaker 3: Government and Politics Correspondent.
Speaker 2: Let's take a closer look at the situation in Gaza.
Speaker 2: Ed just reported that Israel has stepped up some attacks
Speaker 2: in the southern city of Rafa. This came just hours
Speaker 2: after Hama said there was a ceasefire proposal that had
Speaker 2: been drafted and put forth by mediators from Egypt and Cutter,
Speaker 2: but Israel's Prime minister was unwilling to accept those terms.
Speaker 2: Our guest now is Ariel Cohen. He is a senior
Speaker 2: fellow at the Atlantic Council. Ariel, thank you so much
Speaker 2: for being with us. It's always a pleasure.
Speaker 5: Give me your.
Speaker 2: Sense with all the newsflow and how volatile the situation
Speaker 2: has been. Give me your sense of where we stand
Speaker 2: at the moment.
Speaker 4: First of all is the Holocaust Memorial Day. Today, we
Speaker 4: remember six million Jews including one point five million children
Speaker 4: who were slaughtered by the Nazis in World War two.
Speaker 4: So just to put things in perspective. Second of all,
Speaker 4: I'm distraught that after the attack on Israel on October seventh,
Speaker 4: the radical students and professors in Ivy League and other
Speaker 4: schools in this country decided to destabilize America, destabilize a
Speaker 4: campus that destabilize the learning process in favor of their
Speaker 4: support of Hamas. This is untenable, unimaginable. And here we are, finally,
Speaker 4: in terms of the reporting that Israel rejected the proposal.
Speaker 4: My understanding is that Hamas rejected the proposal just until
Speaker 4: today and when Israel started preliminary bombardments of Rafach, the
Speaker 4: last city where Rama's leadership is holding up, presumably with
Speaker 4: the hostages. Only then Hamas started saying that they're accepted
Speaker 4: something which Israel says they didn't see. Israel did not
Speaker 4: see the proposal that Kamas is allegedly accepting.
Speaker 3: Yeah, there's a lot in what you said there. I
Speaker 3: think that we need to push back on a little bit.
Speaker 3: I mean, people who know you, and people know you
Speaker 3: on this program know that you're a strong proponent of
Speaker 3: Israel and that's understandable. One thing that you said was
Speaker 3: that Israel is not very familiar with exactly what's in
Speaker 3: the proposal, although in most of the reporting it says
Speaker 3: that Hamas agreed to a cease fire proposal and that
Speaker 3: the Israeli cabinet rejected it. Secondly, you said that the
Speaker 3: students are showing their support of Hamas. That is not
Speaker 3: completely correct. They are supporting Palestinians and they are unhappy
Speaker 3: with the treatment that average Palestinians have in Goza and
Speaker 3: the fact that so many are homeless and so many
Speaker 3: have died. So my question, I guess, goes to how
Speaker 3: concerned are you that US public opinion it certainly feels
Speaker 3: as though it is swinging a little bit away from Israel,
Speaker 3: And how much danger do you see in that?
Speaker 4: I see that this is probably a watershed for this country.
Speaker 4: First of all, when students are calling for a ceasefire
Speaker 4: in a war in which a democracy and an ally
Speaker 4: of the United States, after a horrible attack, the equivalent
Speaker 4: of fifty five thousand Americans murdered in one day, is
Speaker 4: trying to defend itself and do what we try to
Speaker 4: do with ISIS and al Qaida, to destroy the leadership
Speaker 4: of the organization. And if we today don't see, don't
Speaker 4: recognize who are the allies, who are the enemies, what
Speaker 4: the purpose of the enemy is, which is the global qualified?
Speaker 4: After all, KAMAS is an offshoot of the Muslim Brotherhood,
Speaker 4: a jihadi organization, as they say in the Middle East,
Speaker 4: the grandmother or the grandfather of Old Jai, the organizations
Speaker 4: including Al Kaeda analysis, then this country is really confused.
Speaker 4: We're confused who our allies are. We gave up and
Speaker 4: abandoned our allies in Afghanistan. It took us six months
Speaker 4: to deliberate about support of the Ukrainians who are fighting
Speaker 4: for their lives. And now we're signaling and the administration.
Speaker 4: I talked to senior officials in this administration who say,
Speaker 4: we're threatening Israel with cutting off military supply. We're threatening
Speaker 4: our our most committed ally in the Middle East. Bar
Speaker 4: None was cut off of the military supply. Yes, it
Speaker 4: is a war, and in war people die, and hundreds
Speaker 4: of thousands of people died in the Middle East after
Speaker 4: nine eleven.
Speaker 2: So Ariel, let's imagine a world where the upshot of
Speaker 2: the demonstrations that you have described served to undermine support
Speaker 2: for the Bided administration and maybe former President Trump is
Speaker 2: re elected to another term. What does this do to
Speaker 2: the situation that we're looking at in Israel and more
Speaker 2: broadly in the Mid East.
Speaker 4: First of all, I think it is ludicrous if true
Speaker 4: what Politica was reporting yesterday that some of the major
Speaker 4: donors of President Biden and of the Democratic Party, including
Speaker 4: George Soros, the Rockefeller Fund, the Tides Foundation, allegedly the
Speaker 4: Pritzter family are donating directly or indirectly to these demonstrations
Speaker 4: that may just may shift the vote of the students
Speaker 4: to the likes of Jill Stein of the Green Party
Speaker 4: and Cornell West and these two three percent will be
Speaker 4: sufficient in the battleground states for mister Biden to lose.
Speaker 4: Is that what these donors and these students want. Do
Speaker 4: they really want dal Trump to win? And if dal
Speaker 4: Trump wins, nobody know. It's totally unknown what his position
Speaker 4: is going to be on anything. On Russia, on Ukraine,
Speaker 4: on the Middle East, on China. We do not know.
Speaker 4: And we saw there was a strategic show by Trump
Speaker 4: and by this Speaker of the House, Mike Johnson on Ukraine,
Speaker 4: and I was very happy about that because I support
Speaker 4: independence of Ukraine and it's territorial integrity. But as I
Speaker 4: said this, these demonstrations are empowering than Trump, the Trump
Speaker 4: momentum in these elections, that.
Speaker 2: Is certainly something that is being considered at the moment.
Speaker 2: It's always a pleasure. Thank you for joining us and
Speaker 2: filling us in on your thinking, your perspective. Ariel Khan,
Speaker 2: a Senior Fellow at the Atlantic Council.
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