WEBVTT - Watching The Fed's Rate Path, A Look at Global Aviation

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<v Speaker 1>Welcome to the Bloomberg Daybreak Asia podcast. I'm Charlie Paladin

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<v Speaker 1>for Dunk Christmer. This week, on today's episode, we'll take

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<v Speaker 1>a deep dive into the state of air travel in Asia.

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<v Speaker 1>We'll be joined by Danny Lee, Bloomberg aviation reporter out

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<v Speaker 1>of Hong Kong. But first, Asian markets aren't digesting Monday's

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<v Speaker 1>FED speak from Governor Chris Waller.

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<v Speaker 2>At present, I lean towards supporting a cut to the

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<v Speaker 2>policy rate at our December meeting. That decision will depend

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<v Speaker 2>on whether data that we received before then surprises to

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<v Speaker 2>the upside and alters my forecast for the path of inflation.

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<v Speaker 1>And for more, we heard from Audrey go, a head

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<v Speaker 1>of asset allocation at Standard Chartered Wealth Management Group, and

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<v Speaker 1>she spoke with Bloomberg's sharing on and Heidi Stroud Watts.

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<v Speaker 3>Audrey, great to have you with us. What does this

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<v Speaker 3>mean for the equity markets in the US, Because we

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<v Speaker 3>have all of these expectations of rate cuts to come,

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<v Speaker 3>but given the inflationary outlook as well, could we see

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<v Speaker 3>some pullback if those easing bets are not necessarily realized

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<v Speaker 3>in twenty twenty five.

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<v Speaker 2>Well, our expectation is we still remain quite pro risk

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<v Speaker 2>going into twenty twenty five. If you look at the

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<v Speaker 2>easing cycle by central bank, by the end of this year,

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<v Speaker 2>we probably get close to eighty percent of global central

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<v Speaker 2>bank on some major easing mode, and that's going to

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<v Speaker 2>provide fresh sort of impetus supporting economic growth and liquidity

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<v Speaker 2>and of course extending the business like and corporate earnings.

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<v Speaker 2>So we continue to be quite pro risk on the

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<v Speaker 2>back of that. With it always on US equities going

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<v Speaker 2>into twenty twenty five, and you.

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<v Speaker 3>Expect our performance by stocks instead of bonds and cash.

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<v Speaker 2>Yes, certainly we do expect US stocks to continue to

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<v Speaker 2>deliver our performance versus bonds and cash, and then bonds

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<v Speaker 2>of course to outperform cash as well. I think corporate

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<v Speaker 2>earnings is really buy key. So if you look at

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<v Speaker 2>the overall US earnings expectation, we're expecting around me teams

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<v Speaker 2>about fifteen percent there about going to next year, and

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<v Speaker 2>together with fat easing, that's going to provide some support

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<v Speaker 2>to to multiple expand multiple ex well. Obviously, the carbiate

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<v Speaker 2>period is that you know if we will to see

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<v Speaker 2>a researchers and inflation which is not on base case

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<v Speaker 2>for the time being, but certainly a risk for us

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<v Speaker 2>to monitor given that overall, you know, even with the

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<v Speaker 2>last couple of months of cuts, for example, inflation has

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<v Speaker 2>been on measure downward path, but remain quite resilient. And

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<v Speaker 2>if you look at it, you know where qulbum faces

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<v Speaker 2>to above two percent, the areabouts, which is which is

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<v Speaker 2>clearly still some way away from Fat's targets rate.

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<v Speaker 4>How does the fiscal policy picture, the trade policy picture

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<v Speaker 4>potentially change that or endanger that outlook.

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<v Speaker 2>I think the sequencing of how the Trump administration will

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<v Speaker 2>pursue their policy will be quite key to watch, given

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<v Speaker 2>that he has made clear intention in terms of trade

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<v Speaker 2>hardists on the rest of the world and China as well.

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<v Speaker 2>At the same time, on the positive side, he's also

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<v Speaker 2>pursuing the lives of deregulations and text cards, So sequencing matters,

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<v Speaker 2>and our expectation is we are likely to see maybe

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<v Speaker 2>text cluds to be a bit more backroad loaded because

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<v Speaker 2>you need more congressional approver So in the meantime, you know,

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<v Speaker 2>the starting point of sixty percent howiff on China and

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<v Speaker 2>ten or twenty percent on the rest of the world,

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<v Speaker 2>it's probably a starting point for a negotiation with lightly

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<v Speaker 2>our base cases. We're likely to see more faced approach

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<v Speaker 2>now now that Scott Besont has been nominated to be

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<v Speaker 2>the Treasury Secretary as well, So on the back of that,

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<v Speaker 2>I think, which is why we continue to be quite

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<v Speaker 2>a bit of a pro risk in terms of a

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<v Speaker 2>risk upetite going to twenty twenty five. But obviously the

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<v Speaker 2>key wait still remains the US.

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<v Speaker 4>When it comes to age. Where do you see the

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<v Speaker 4>opportunity is there? Particularly it seems like the Chinese recovery

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<v Speaker 4>could really kind of be a longhold story, particularly if

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<v Speaker 4>there's more pressure coming from external sources like the US

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<v Speaker 4>on the trade front.

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<v Speaker 2>So we are a bit more selective where the Chinese

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<v Speaker 2>stock markets are concerned. I think here we prefer to

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<v Speaker 2>take a barber approach, focusing on high quality stocks, non

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<v Speaker 2>financial so is that pays dividends, but it really pays

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<v Speaker 2>you to weigh out for eventric growth recovery, which we

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<v Speaker 2>expect to come true, but potentially a bit more gradually

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<v Speaker 2>since we've been seeing sort of bite size stimulus being

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<v Speaker 2>released in trips by the Chinese authorities as well, and

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<v Speaker 2>the same time we will pair that with maybe a

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<v Speaker 2>sector which is a bit more high beta, for example,

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<v Speaker 2>in the technology sector, which we continue to expect China

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<v Speaker 2>to focus their attention on given their need and wish

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<v Speaker 2>for self sufficiency, especially with regards to advanced manufacturing.

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<v Speaker 3>Given the challenges for China and sort of US exceptionalism

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<v Speaker 3>when it comes to market performance economic performance, are we

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<v Speaker 3>expecting more pressure on the Chinese yuan and what would

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<v Speaker 3>it mean also for other Asian currencies like the Japanese yen.

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<v Speaker 2>So that's clearly a key risk factor to be watching

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<v Speaker 2>out for, because if you look at the previous episode

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<v Speaker 2>in back in twenty eighteen and twenty nineteen when terrorist

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<v Speaker 2>was first imposed on China, we did see a almost

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<v Speaker 2>ten percent depreciation when it comes to the remedy, and

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<v Speaker 2>clearly with one use no recturing to record lows in

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<v Speaker 2>the Chinese Chinese government bond space. That is also less

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<v Speaker 2>of a supportive factor where it comes to bean strength.

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<v Speaker 2>So going to next year, I think we do see

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<v Speaker 2>downside risk where it comes to our Chinese run and

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<v Speaker 2>as and when the tariff rhetorics get reached up, I

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<v Speaker 2>think we probably see you know, the un maybe weakening

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<v Speaker 2>at the margin as well. I think if you think

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<v Speaker 2>about yen for that matter, I think Yen is probably

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<v Speaker 2>the other spectrum where you know, the BILJ is one

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<v Speaker 2>of the only major central bank expected to high interest

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<v Speaker 2>rate for the maybe potentially in the upcoming A century meeting,

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<v Speaker 2>as well as over the coast of twenty twenty five

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<v Speaker 2>as well. So our expectation is if you look at

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<v Speaker 2>the inflation witch growth picture in Japan, for example, the

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<v Speaker 2>appropriate at a stage where it is proven to continue

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<v Speaker 2>normalizing policy because among the major economies, the Japan still

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<v Speaker 2>has one of the lowest real interest rate across the board.

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<v Speaker 2>And that's and that's against the context of only which

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<v Speaker 2>has been having inflation running up of two percent for

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<v Speaker 2>the last one and a half years.

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<v Speaker 4>Pudrick ahead of asset allocation. As Dana chatted Wealth Management Group.

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<v Speaker 4>Really great to have you with us.

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<v Speaker 1>Welcome back to the Bloomberg Daybreak Asia podcast. I'm Charlie

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<v Speaker 1>Palette filling in for Doug Crismer. This week, we wanted

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<v Speaker 1>to explore the state of air travel in the Asia

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<v Speaker 1>Pacific region and joining us for a closer look now

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<v Speaker 1>Danny Lee, who is Bloomberg Aviation reporter in Hong Kong.

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<v Speaker 1>First of all, what is the outlook for airfares in

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<v Speaker 1>the Asia Pacific region as we head into the new year.

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<v Speaker 5>So Asia, we'll see some of the biggest fare increases

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<v Speaker 5>across the world, very much above inflationary. We're seeing up

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<v Speaker 5>to twelve percent being estimated by an EXGBT between Asia

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<v Speaker 5>and the rest of the world, particularly an economy class,

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<v Speaker 5>and that's a big jump around six percent increase in

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<v Speaker 5>business class either way, no matter how you look, it's

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<v Speaker 5>going to be substantial. And if you look at travel

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<v Speaker 5>within Asia, says will fall slightly, so it's a small

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<v Speaker 5>piece of comfort, but those fares are going to be

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<v Speaker 5>a lot higher than anywhere else in the world. And

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<v Speaker 5>the reason why that is it's because airfares the travel

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<v Speaker 5>recovery has been a lot slower than anywhere else post COVID.

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<v Speaker 1>What about delays in getting new planes from either Boeing

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<v Speaker 1>or Airbus, How is that playing into Asian carriers' ability

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<v Speaker 1>to keep flying people and ultimately hold fares down.

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<v Speaker 5>Yeah, I think the plane delays is a new plane

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<v Speaker 5>delays is a big frustration for any airline CEO you

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<v Speaker 5>speak to, and it's whether you are a Cafe Pacific

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<v Speaker 5>or of your Southwest Airlines or United even to a rhine.

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<v Speaker 5>There's been little discrimination in where these delays have impacted

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<v Speaker 5>any airline in all corners of the globe, and so

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<v Speaker 5>it's significant because airlines are really keen to keep growing

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<v Speaker 5>and respond to the demand and the appetite out there

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<v Speaker 5>to travel, which has really not slowed down post COVID.

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<v Speaker 5>So there is a frustration there that airlines who have

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<v Speaker 5>been betting on on fulfilling that demand and obviously to

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<v Speaker 5>increase their profitability, are not able to do so, and

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<v Speaker 5>so therefore it is hampering growth wherever you look around

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<v Speaker 5>the world, and that has a knock on effect, particularly

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<v Speaker 5>as airlines try to retire older planes. They can't do that,

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<v Speaker 5>They sticking to keeping those older, more fuel hungry planes

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<v Speaker 5>for a lot longer now because of the uncertainty in

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<v Speaker 5>planes being delivered by both Boeing and Airbus.

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<v Speaker 1>Danny, is there any estimate from either analysts that you

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<v Speaker 1>talk to, or airline executives or other people in the

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<v Speaker 1>industry when we might see a full return to the

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<v Speaker 1>Asian airline market that we saw pre COVID.

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<v Speaker 5>We are just about seeing a recovery, a full recovery

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<v Speaker 5>in Asia of the travel market. It has taken a

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<v Speaker 5>while because of the slow reopening of Asia being much

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<v Speaker 5>more cautious post COVID. So it is a good sign

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<v Speaker 5>that we are seeing that full recovery come into play,

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<v Speaker 5>But are people feeling the necessarily the fall in airfares.

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<v Speaker 5>Airfares are still quite high, and given what we have

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<v Speaker 5>seen around the world, airlines have started to adjust for

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<v Speaker 5>that slower and lower levels of profitability. But then there

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<v Speaker 5>is still to complaint from consumers that fares are still

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<v Speaker 5>quite high. So, no matter how you look about full recovery,

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<v Speaker 5>if people are still feeling like they're paying more, it's

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<v Speaker 5>still a frustration. But it's not necessarily to bring anyone

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<v Speaker 5>from traveling right now.

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<v Speaker 1>Globally, then what is the outlook for pricing, either business

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<v Speaker 1>or leisure?

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<v Speaker 5>I think for the rest of the world for pricing

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<v Speaker 5>it's actually rather better outlook. If you're in North America

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<v Speaker 5>in Europe, for example, are some of the biggest mature

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<v Speaker 5>travel markets where you can fly short distances. In particular,

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<v Speaker 5>they are going to see we're going to see increases

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<v Speaker 5>of around two percent in some cases on average in

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<v Speaker 5>both North America and Europe. Where you're traveling domestically, or

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<v Speaker 5>if you're traveling just across the border. That's broadly in

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<v Speaker 5>line with the inflation trend. However, when you still look

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<v Speaker 5>at individual prices and what people are having to pay

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<v Speaker 5>when they book their flights, it still feels quite expensive.

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<v Speaker 5>And we have seen that trend of where people are

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<v Speaker 5>booking their flights. We've seen this in the Bureau of

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<v Speaker 5>Labor Statistics. Prices still feel very high, substantially higher than

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<v Speaker 5>pre COVID levels. And so even if these increases we

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<v Speaker 5>are going to see of seeing small single digits, it

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<v Speaker 5>will be a small crumb of comfort where increases have

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<v Speaker 5>really taken effect in a substantial way over the past

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<v Speaker 5>several months.

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<v Speaker 1>Now, where does this leave companies then, who are trying

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<v Speaker 1>to negotiate travel deals with the airlines, Because ultimately, isn't

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<v Speaker 1>this a game of chicken, Because there's a four letter

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<v Speaker 1>word and that is zoom. At what point do corporations

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<v Speaker 1>start to balk.

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<v Speaker 5>We have seen corporations become much more disciplined around how

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<v Speaker 5>much they are willing to spend on what they see

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<v Speaker 5>is discretionary items such as travel such as business travel.

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<v Speaker 5>I still think for airlines who have been waiting to

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<v Speaker 5>see if there will be a full recovery post COVID

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<v Speaker 5>of the corporate travel sector, something that's very important to profitability.

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<v Speaker 5>It's probably still not likely to come back anytime soon.

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<v Speaker 5>And we have seen over the increasing months many multinational

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<v Speaker 5>companies talk about traveling less, increasing their number of meetings

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<v Speaker 5>over zoom do not spend anything unnecessarily that you wouldn't

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<v Speaker 5>have to, So there is that belt tightening in effect.

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<v Speaker 5>And given the uncertainty in twenty twenty five, whether it

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<v Speaker 5>be geopolitics, tariffs, you know, all these different uncertainties in

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<v Speaker 5>the world, and airlines of companies generally are being more

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<v Speaker 5>prudent about how much they're willing to allocate and spending

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<v Speaker 5>and we are seeing that likely to come into effect

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<v Speaker 5>when they negotiate deals of airlines for twenty twenty five.

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<v Speaker 1>And what does the MXGBT survey tell us about pricing

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<v Speaker 1>in the United States.

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<v Speaker 5>The survey by x GBT does show that in North

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<v Speaker 5>America we will see increases largely in line with inflation

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<v Speaker 5>of around two point eight percent and economy class two

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<v Speaker 5>point seven percent. In business class, it's still you know,

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<v Speaker 5>running towards a higher end of what we see as

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<v Speaker 5>an inflation target, closer to more two percent, which is

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<v Speaker 5>more ideal, even though for North America and South America

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<v Speaker 5>that's going to see a bigger fall in pricing, is

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<v Speaker 5>what MXGBT ISS four. I think, particularly in the economy

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<v Speaker 5>class eight percent lower in twenty twenty five. Again, will

0:13:06.040 --> 0:13:08.760
<v Speaker 5>consumers feel that and see that in their ticket pricing.

0:13:09.160 --> 0:13:12.240
<v Speaker 5>That remains to be seen, but clearly there is going

0:13:12.280 --> 0:13:16.600
<v Speaker 5>to be a subdued increase in pricing overall, and particularly

0:13:16.600 --> 0:13:19.520
<v Speaker 5>between North America and Europe that's going to be seeing

0:13:19.559 --> 0:13:23.680
<v Speaker 5>a very small increase overall in pricing. So it's a

0:13:23.760 --> 0:13:27.200
<v Speaker 5>broadly a good news story. If you're living in North America,

0:13:27.640 --> 0:13:30.400
<v Speaker 5>you know in some of the biggest markets where consumers

0:13:30.600 --> 0:13:34.600
<v Speaker 5>US consumers particularly are traveling, it will be small increases

0:13:34.640 --> 0:13:38.520
<v Speaker 5>across the board rather than no increases or a decrease.

0:13:39.120 --> 0:13:42.520
<v Speaker 1>And then finally, are there any other surprises that come

0:13:42.559 --> 0:13:43.720
<v Speaker 1>from the AMC survey.

0:13:44.640 --> 0:13:47.840
<v Speaker 5>I think when you look at the survey in isolation,

0:13:48.080 --> 0:13:52.680
<v Speaker 5>these small increase in some of the major markets is

0:13:52.920 --> 0:13:55.360
<v Speaker 5>broadly good news. But when you look in the totality

0:13:55.400 --> 0:13:57.839
<v Speaker 5>over the recent years, I think there will still be

0:13:57.880 --> 0:14:01.920
<v Speaker 5>a bit of a shock for consumers for flyers out

0:14:01.960 --> 0:14:06.760
<v Speaker 5>there that when you add up all the increases going

0:14:06.840 --> 0:14:10.640
<v Speaker 5>back to twenty twenty two twenty twenty three, we are

0:14:10.679 --> 0:14:13.960
<v Speaker 5>probably back at post COVID highs when it comes to

0:14:14.640 --> 0:14:18.880
<v Speaker 5>the benchmarking of airfare pricing. So even if we did

0:14:18.920 --> 0:14:24.680
<v Speaker 5>see decreases across the board last year, or even rather

0:14:24.800 --> 0:14:28.080
<v Speaker 5>this year, those prices have crept back up again and

0:14:28.240 --> 0:14:34.040
<v Speaker 5>erased those those decreases we've seen previously. So even if

0:14:34.080 --> 0:14:37.120
<v Speaker 5>this is a people are thinking about booking for twenty

0:14:37.120 --> 0:14:40.920
<v Speaker 5>twenty five and thinking great smaller increases across the board,

0:14:41.400 --> 0:14:46.560
<v Speaker 5>we are creeping back up to certainly high levels of

0:14:46.600 --> 0:14:48.080
<v Speaker 5>airfares once again.

0:14:48.280 --> 0:14:50.240
<v Speaker 1>Danny, we thank you so much for your time, and

0:14:50.280 --> 0:14:54.320
<v Speaker 1>that is Danny Lee, Bloomberg Aviation Reporter, joining us from

0:14:54.480 --> 0:14:59.320
<v Speaker 1>Hong Kong. Thanks for listening to today's episode of the

0:14:59.320 --> 0:15:03.320
<v Speaker 1>Bloomberg day Break Asia Edition podcast. Each weekday we look

0:15:03.320 --> 0:15:07.080
<v Speaker 1>at the story shaping markets, finance, and geopolitics in the

0:15:07.080 --> 0:15:10.320
<v Speaker 1>Asia Pacific. You can find us on Apple, Spotify, the

0:15:10.320 --> 0:15:14.280
<v Speaker 1>Bloomberg Podcast YouTube channel, or anywhere else you listen. Join

0:15:14.360 --> 0:15:17.320
<v Speaker 1>us again tomorrow for insight on the market moves from

0:15:17.320 --> 0:15:21.720
<v Speaker 1>Hong Kong to Singapore and Australia. I'm Doug Chrisner, and

0:15:21.880 --> 0:15:23.000
<v Speaker 1>this is Bloomberg.