Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories in the coming week from our Daybreak anchors
Speaker 2: all around the world. Straight Ahead on the program, we'll
Speaker 2: look to some key economic data in the US, along
Speaker 2: with more earnings in tech. I'm Nathan Hager in Washington.
Speaker 3: I'm Caline Hepga here in London, where we're asking how
Speaker 3: central banks should respond to growing global economic anxiety.
Speaker 4: I'm Doug Krisner looking ahead to the latest reading on
Speaker 4: consumer inflation for Australia.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Nathan Hager. We begin today's
Speaker 2: program with some key economic data in the US. The
Speaker 2: Fed's preferred gauge for inflation, the PCE Price Index, comes
Speaker 2: out this Thursday, along with April readings on personal income
Speaker 2: and spending, for more on the numbers and what they
Speaker 2: could mean for FED policy. We're joined by Stuart paul Us,
Speaker 2: economist with Bloomberg Economics. Of course we saw those hot
Speaker 2: April readings on consumer and producer prices. Are the PCE
Speaker 2: numbers do you think going to be any different, Stuart?
Speaker 5: Where they're also going to be hot. We're expecting about
Speaker 5: zero point four percent month on month headline PCE inflation.
Speaker 5: That'll push the year on year PCE inflation rate up
Speaker 5: to about three point eight percent from three point five
Speaker 5: percent in March. So still far too hot for comfort
Speaker 5: for the FED, that's for sure.
Speaker 2: Yeah. Is it just these elevated energy prices that are
Speaker 2: driving things for this index?
Speaker 5: You know, even in the core it's going to be hot.
Speaker 5: Were expecting core inflation to inch up to about three
Speaker 5: point three percent from three point two percent prior. Look,
Speaker 5: there's some energy prices that bleed into the core, for
Speaker 5: example in airfares. There's also a little bit of a
Speaker 5: quirk this month where shelter price is basically jump. It's
Speaker 5: all downstream of data collection issues during the government shutdown
Speaker 5: last October. So it's going to be an elevated core reading.
Speaker 5: The annual pace of core inflation also just still too
Speaker 5: hot for comfort for the FED. And the bottom line
Speaker 5: really is that spending is continuing a pace, despite the
Speaker 5: fact that elevated energy prices are weighing on household and
Speaker 5: are effectively bleeding bleeding household a little bit drier than
Speaker 5: usual because they have to spend more at the pump.
Speaker 5: Even though energy prices are really causing a little bit
Speaker 5: of an issue for household, household spending is con inuing
Speaker 5: a pace, so the FED can afford to weight, It
Speaker 5: can afford to sort of keep its foot on the
Speaker 5: brakes a little bit. It doesn't need to hike to
Speaker 5: address energy induced inflation. Instead, it can afford to wait
Speaker 5: to watch whether inflation pressures start to broaden. I don't
Speaker 5: expect to see that in this personal income and outlayers
Speaker 5: report and PC inflation report. But still just inflation too
Speaker 5: high for comfort, spending continuing a pace, and that's all
Speaker 5: reason for the Fed's remain on hold.
Speaker 2: So is that going to be reflected in what we
Speaker 2: get from the actual personal spending and income numbers as well?
Speaker 2: And what's the trend right now? Are we seeing the
Speaker 2: trend shift toward I don't want to say it persistent inflation.
Speaker 5: Well, so the personal income element that we're going to
Speaker 5: get in this report on Thursday is going to show
Speaker 5: about zero point five percent month on month growth in
Speaker 5: personal income. Remember, we had a very hot jobs report,
Speaker 5: a lot of hiring, a lot of wage growth. That
Speaker 5: personal income in tandem with elevated tax refunds, also paired
Speaker 5: with positive wealth effects, those are all supporting spending right now.
Speaker 5: So we're going to probably see spending on you know,
Speaker 5: about a zero point five percent month over month pace
Speaker 5: in the month of April. It's not as strong as
Speaker 5: in March, which was mostly driven by gasoline prices and
Speaker 5: gasoline spending, but it's still hot income, hot spending. Households
Speaker 5: are weathering the storm created by higher energy prices, and
Speaker 5: so the FED is going to be on pause for
Speaker 5: the foreseeable future.
Speaker 2: For the foreseeable future. You're not expecting that we could
Speaker 2: see hikes anytime soon, then.
Speaker 5: No, I don't think so. The FED has this balancing
Speaker 5: act that it needs to deal with right now. It's
Speaker 5: two different risks. The first is that low and even
Speaker 5: negative real aggregate labor income growth means that there will
Speaker 5: come a point in time where households do have to
Speaker 5: tighten their belt. We will get to that point in
Speaker 5: time at some point. The other risk that the FED
Speaker 5: has to contend with is that low real interest rates
Speaker 5: fuel a credit induced in expansion, So that would be inflationary.
Speaker 5: That's exactly what the FED does not want to see.
Speaker 5: I think that right now the FED is betting on
Speaker 5: the former risk that a relatively cool labor market through
Speaker 5: time will prevent inflation pressures from broadening. And that's really
Speaker 5: what's going to matter. So the FED is going to
Speaker 5: lean towards that risk and is going to I think,
Speaker 5: stay on hold rather than try to tighten financial conditions. Remember,
Speaker 5: financial conditions are already tightening a little bit, and for
Speaker 5: every move that we see upward in interest rates in
Speaker 5: the market, the FED can afford to wait a little
Speaker 5: bit more because markets are doing the heavy lifting for
Speaker 5: the FED by tightening financial conditions. The Fed doesn't have
Speaker 5: to rush to tighten financial conditions itself. If the market
Speaker 5: is already doing it, well, then what is.
Speaker 2: The risk of a potential policy mistake if the Fed
Speaker 2: does stay on hold for a long time.
Speaker 5: Well, So it's exactly that that issue is that markets
Speaker 5: don't do enough of the heavy lifting, and the FED
Speaker 5: is too slow to move, and that we start to
Speaker 5: see a relatively low real interest rate lead to a
Speaker 5: credit induced expansion. That would really be the market. That
Speaker 5: would really be the policy failure that the FED runs
Speaker 5: the risk of dealing with. But I don't think that
Speaker 5: that's something that we would expect to see the FED
Speaker 5: trying to address or trying to get ahead of, perhaps
Speaker 5: even this year.
Speaker 2: Thanks for the Stuart, good having you on with us.
Speaker 2: It's Stuart Paul, us economists for Bloomberg Economics. Let's take
Speaker 2: a look now, add some stocks making news in the
Speaker 2: week ahead. I'm Nathan Hager with Bloomberg Equities reporter, Avalon
Speaker 2: Pernell even more tech earnings as the season winds down.
Speaker 2: We're going to hear from Salesforce Wednesday. Avalon, Investor sentiment
Speaker 2: doesn't look all that great for this stock. What's weighing
Speaker 2: it down?
Speaker 6: You're absolutely right, Ai, and future growth will definitely be
Speaker 6: top of mind for investors as Salesforce heads into that
Speaker 6: third quarter earnings report. Investors will be looking for greater
Speaker 6: clarity on Salesforce's second half growth acceleration outlook. Many analysts
Speaker 6: across the street we're saying that at this point, it
Speaker 6: doesn't look like they're going to be able to reach
Speaker 6: the very high bar that they've set for themselves, and
Speaker 6: part of that is based on the question marks that
Speaker 6: remain on how exactly their business is going to continue
Speaker 6: as AI continues to get more sophisticated. They were definitely
Speaker 6: an early victim of the sas apocalypse, as some of
Speaker 6: our reporters were calling it, so definitely something that we'll
Speaker 6: be keeping an eye on.
Speaker 2: We'll talk a little bit more about how high the
Speaker 2: bar is right now and why it might be so
Speaker 2: tough for Salesforce to hit it.
Speaker 6: Yes, absolutely so. Those gross margins for the second half
Speaker 6: of the year are very much a key concern as
Speaker 6: in increasing AI investments are expected to eat into operating margin.
Speaker 6: Also important to note that Bank of America had a
Speaker 6: great note out they reinstated coverage of the firm with
Speaker 6: an underperform rating, noting that the company is facing an
Speaker 6: AI driven reset as companies that typically would have gotten
Speaker 6: contracts with them are either easing off or choosing to wait,
Speaker 6: and that's also causing a lot of issues for Salesforce.
Speaker 6: A lot of question marks about how exactly a slowdown
Speaker 6: in new contracts as heightened geopolitical concerns driven by the
Speaker 6: Iran war and also longer sales cycles are going to
Speaker 6: impact companies like Salesforce.
Speaker 2: So a little bit more of the software story to
Speaker 2: be told this week, and a little bit more of
Speaker 2: the broader tech story as well, because we're going to
Speaker 2: hear from Dell on Thursday. After all, we've heard from
Speaker 2: the computing names this quarter, what are we expecting from Dell?
Speaker 6: Absolutely, Dell is also facing a very high bar heading
Speaker 6: into earnings next Thursday. Investors will be looking for the
Speaker 6: tech companies AI and server results to meet a fairly
Speaker 6: high hurdle, noting ahead of the results, analysts at Morgan
Speaker 6: Stanley and Bernstein have already boosted price targets, so clearly
Speaker 6: some people on the street think that they're going to
Speaker 6: be able to reach that high bar. Meanwhile, though, UBS
Speaker 6: does have a great note stepping to the sidelines and
Speaker 6: saying that they are going to go ahead and downgrade
Speaker 6: the stock to neutral, saying that investors are largely already
Speaker 6: pricing in Dell's AI server demand and they don't necessarily
Speaker 6: see a ton more left to do. Bloomberg and Tellent
Speaker 6: just had a really great note out as well, saying
Speaker 6: that they expect a print to illustrate strong demand momentum
Speaker 6: across all of Dell's business segments.
Speaker 2: Well, even with that sort of divided investor sentiment going
Speaker 2: into this print, this stock has had an amazing run
Speaker 2: so far this year. Does that raise the bar even
Speaker 2: more for Dell to sort of outperform for analysts and investors.
Speaker 6: Absolutely, And I think that's really reflected in the options data,
Speaker 6: which currently at the moment is implying an eleven percent
Speaker 6: move after those results. Obviously that could be to the
Speaker 6: upside or to the downside. But considering they've had a
Speaker 6: lot of really good news even this past month, they
Speaker 6: announced that they had added another one thousand customers for
Speaker 6: their KEYAI product line in the past quarter, and now
Speaker 6: that they're at around five thousand clients for its AI factory,
Speaker 6: and they're counting companies like Eli, Lilly, which I cover
Speaker 6: very extensively, Honeywell, and also Samsung among its customer base.
Speaker 6: So that's definitely going to influence some investor sentiment and
Speaker 6: continue to make the bar higher and higher.
Speaker 2: Yeah, you got to think about so many of these
Speaker 2: companies feeding into the AI story, whether it's pharma or
Speaker 2: anything else. I don't know if we can say that
Speaker 2: for Abercrombie and Fitch when they report on Wednesday, what
Speaker 2: are we expecting going into their results.
Speaker 6: It's a really good question because analysts remain fairly mixed
Speaker 6: heading into that print. Raymond James has already trimmed its
Speaker 6: price target on expectations based on their expectations that it's
Speaker 6: going to have softening trends at Hollister, which, for those unfamiliar,
Speaker 6: Abercrombie and Fitch does have a brand geared towards younger consumers,
Speaker 6: those teens and tweens at Hollister. Jeffrey's also writing that
Speaker 6: decelerating data has been a key concern fors and is
Speaker 6: likely weighing on shares. Abercrombie and Fitch has been a
Speaker 6: company that we've had in focus for the past couple
Speaker 6: of years as they've been in the middle of a
Speaker 6: wider turnaround. They very much got a lot of upside
Speaker 6: as teens and tweens got really interested in the nineties
Speaker 6: and early two thousands clothing styles. But now there's a
Speaker 6: lot of question marks as fuel cost increase, whether those
Speaker 6: customers are still going to be going to Abercrombie and
Speaker 6: Fitch or if they're going elsewhere. It's definitely something investors
Speaker 6: will be keeping in mind.
Speaker 2: Making me feel old about the nineties trend coming back.
Speaker 2: I remember when Abercrombie and Fitch was a for teens
Speaker 2: and tweens. But at any rate, we're going to hear
Speaker 2: from a lot of other retail names as well, not
Speaker 2: just Abercrombie, but Gap is reporting in Dollar Tree. Could
Speaker 2: they give us a different sense of what we can
Speaker 2: expect from the consumer.
Speaker 6: Absolutely, it's really going to be a question of how
Speaker 6: is a consumer across a very wide spectrum of price
Speaker 6: points like a Dollar Tree, like Gap and even Abercrombie
Speaker 6: and Fitch, how exactly a US consumer faring. We already
Speaker 6: know from Abercrombie and Fitch. Day were very early to
Speaker 6: say that they are expecting those headwinds from the Iran
Speaker 6: conflict on its business, from those extra fuel costs, and
Speaker 6: also customers being pinching their dollars to say the least,
Speaker 6: as gas prices increase. But it'll be really interesting to
Speaker 6: see if companies that are geared more towards the lower
Speaker 6: end of that price spectrum, like a Dollar Tree, we'll
Speaker 6: see a little bit of upside.
Speaker 2: Thank you for this, Avalon, great having you on with us.
Speaker 2: That is a Bloomberg Equities reporter Avalon Parnell And coming
Speaker 2: up on Bloomberg Daybreak weekend, we'll look at how central
Speaker 2: banks should respond to growing global economic anxiety. I'm Nathan Hager,
Speaker 2: and this is Bloomberg. This is Bloomberg Daybreak weekend, our
Speaker 2: global look ahead at the top stories for investors in
Speaker 2: the coming week. I'm Nathan Hager in Washington. Up later
Speaker 2: in our program and will look to a key inflation
Speaker 2: reading in Australia. But first in the coming days, Senior
Speaker 2: policymakers and academic figures from the world of macroeconomics gather
Speaker 2: in Iceland to discuss the evolving role of central banks
Speaker 2: in today's landscape. This year, the Reykiavik Economic Conference is
Speaker 2: set against the backdrop of geopolitical tensions and persistent inflation worries.
Speaker 2: So how will central banks respond? For more, Let's go
Speaker 2: to London and bring in Bloomberg Daybreak. You're a banker,
Speaker 2: Caroline Hepker Nathan.
Speaker 3: As a net importer of energy, Europe's economic growth for
Speaker 3: carts have begun to be cut inflation is expected to
Speaker 3: rise and governments have little ammunition to shield their citizens
Speaker 3: and businesses from the Middle East shock. The Secretary General
Speaker 3: of the OECD is just one voice raising concern. Mattirs Corman,
Speaker 3: speaking on the sidelines of the recent Group of Seven meeting,
Speaker 3: said the challenge for central banks will be to deal
Speaker 3: with the combination of elevated inflation risks and weaker economic activity.
Speaker 3: Is they weigh possible interest rate increases. The Paris based
Speaker 3: OECD became the first major international institution to warn in
Speaker 3: March that the Iran war would fuel price increases and
Speaker 3: dampen economic activity. Since then, a bond market route has
Speaker 3: injected urgency into the situation, forcing ministers and central bankers
Speaker 3: to reckon with growing policy challenges from the shock of
Speaker 3: rising oil prices. The increasing uncertainty is something at the
Speaker 3: forefront of Iceland's central bank governor Alskier Johnson, who is
Speaker 3: hosting the event.
Speaker 7: We've seen inflation expectations rise, although the situation in Europe
Speaker 7: is different. Market is cooler, slower growth, but the main
Speaker 7: problem is that the old price development is very difficult
Speaker 7: to focust.
Speaker 8: You have a lot of central packers sampling here next week,
Speaker 8: Can you just briefly tell me what's ahead, what you're
Speaker 8: expecting from that meeting or from that conference.
Speaker 7: My camp is just between you, you know, Europe and America.
Speaker 7: And in this conference we have both academics, most in
Speaker 7: the US and policymakers and now also tip economist from
Speaker 7: the main bank's main Kumoto Banks.
Speaker 3: That was Iceland Central Bank governor Asker Johnsen speaking to
Speaker 3: Bloomberg's Wagna Hilda Sigur dar dott this ahead of the
Speaker 3: Rekavic Economic Conference that is taking place in the next
Speaker 3: few days and joining us now for more on the
Speaker 3: event and the macroeconomic backdrop is Bloomberg's director of Global Economics,
Speaker 3: Jamie Rush and our Iceland based reporter Wagna Hilder Cigar
Speaker 3: Dar dotted Wragnahilder. What can we expect?
Speaker 8: So the Reykavik Economic Conference is happening now for the
Speaker 8: third time, and we will have central bank governors and
Speaker 8: academics along with economic leaders from all over the world,
Speaker 8: and they will gather and discuss the current economic situation
Speaker 8: and its main challenges. Say, it does come against the
Speaker 8: backdrop of major and sudden geopolitical shocks that have been
Speaker 8: changing the inflation calculus for central banks globally, so that
Speaker 8: will obviously be discussed, and there's a really high profile
Speaker 8: lineup of central bank speakers, sploding multiple FED precedents. There's
Speaker 8: the Governor of the Reserve Bank of India, Sanjai Malhotra,
Speaker 8: and the Bank of England's Andrew Bailey, and and many
Speaker 8: others including from Europe, Scandinavian countries and so.
Speaker 3: On, Jamie. So the conference does come at a particularly
Speaker 3: challenging time for the global economy, and as Wagner Hilde
Speaker 3: is describing, there will be a lot of important central
Speaker 3: bank leaders and economists there. So what do you think
Speaker 3: are the kind of major hurdles that central bank governors
Speaker 3: are thinking about right now?
Speaker 9: Well, I think for all central bank governors that is
Speaker 9: a difficult time because they're faced with the worst kind
Speaker 9: of shock that they can have, one that makes the
Speaker 9: economy weak and inflation highs. They ought to be trying
Speaker 9: to support the economy through the shock, but they can't
Speaker 9: because they're worried about inflation. And so for them, balancing
Speaker 9: what to do in this sort of environment is extremely
Speaker 9: uncomfortable that it'll be occupying all of their thoughts and
Speaker 9: they'll be hoping to get the decision right because their
Speaker 9: careers will be won or lost on this.
Speaker 3: Yeah, Ragna Hilda, What do you think is going to emerge?
Speaker 3: Do you think that there will be common themes? That's
Speaker 3: a big question, isn't it. Europe, for example, is a
Speaker 3: major energy importer. Other parts of the world it might
Speaker 3: be a slightly different story. How much consensus. What are
Speaker 3: people are going to be discussing.
Speaker 8: The major topics are likely to revolve around the oil
Speaker 8: price and geopolitical uncertainty. Tariffs will be discussed and as
Speaker 8: well as currency and how monetary policy will need to
Speaker 8: react to these varying factors. They will be I'm told
Speaker 8: they will be talking about currencies, for instance, and how
Speaker 8: they can both work as buffers and amplifiers of shocks,
Speaker 8: and the process and cons of bigger currency areas, effects
Speaker 8: of inter spread between different currency areas. One of the
Speaker 8: things that will also be discussed is how tighter regulation
Speaker 8: for financial institutions are leading to financial services being provided
Speaker 8: outside of the banking sector, and there is currently a
Speaker 8: concern over the growth of private credit and lending that's
Speaker 8: happening away from the underwriting standards of the banks. Or
Speaker 8: public bond markets. So this is a trend that can
Speaker 8: essentially increase economic fluctuation rather than diminish it.
Speaker 3: Yeah, okay, so lots then for people to think about, Jamie.
Speaker 3: We seem to be at a pivotal moment also because
Speaker 3: of the uncertainty around the inflation re shock around you
Speaker 3: how that's going to be dealt with. We started to
Speaker 3: see downgrades to European economic growth, deterioration in terms of
Speaker 3: PMI type data, and the worry that inflation is going
Speaker 3: to start rising. How much is that going to weigh
Speaker 3: on central bank governors and how are they going to
Speaker 3: try to respond to some of these threats.
Speaker 9: Well, I think the initial feeling was, or the hope
Speaker 9: was that the conflicts would be over quickly, the straight
Speaker 9: would open and things would get back to normal, And
Speaker 9: of course that just hasn't happened. So central bankers basically
Speaker 9: started off by saying, we need time to assess the
Speaker 9: data and see what the layer of the land is.
Speaker 9: That's reasonable. Well, the layer of the land is becoming
Speaker 9: clearer and it's not looking very good, and so they're
Speaker 9: now moving towards acting, and so acting means trying to
Speaker 9: signal that they are credible actors and probably hiking or
Speaker 9: at least canceling any rate cuts that they'd had planned.
Speaker 9: So I think that's how things were evolving.
Speaker 3: Do you think that central bankers and economists are preparing
Speaker 3: for a longer closure of the Strait of Homers, or
Speaker 3: at least trying to signal anticipate that they might be
Speaker 3: ready were that to happen.
Speaker 9: Well, I really think they ought to be. If you
Speaker 9: look at the negotiating position of Iran and the US,
Speaker 9: they are very, very far apart. If you take into
Speaker 9: account the views of Israel as well, who are not
Speaker 9: at the negotiating table, but the Israeli view matters, then
Speaker 9: they're even further apart. And of course Irani leverage just
Speaker 9: increases as the midterm elections in the US get nearer,
Speaker 9: so I don't think there's any particular incentive for them
Speaker 9: to reach the deal. So yeah, central bankers should be
Speaker 9: thinking this could be a prolonged conflict. Oil could be
Speaker 9: missing from global markets, twenty percent of the world be missing.
Speaker 9: How we're going to respond, and they should be thinking
Speaker 9: about that in advance of time, not waiting for its
Speaker 9: sharp and the data.
Speaker 3: Ragna Hilda You've been speaking to the Icelandic Central Bank governor.
Speaker 3: What are the particular issues for Iceland and his assessment
Speaker 3: of the uncertainty around the backdrop Economically, well.
Speaker 8: Iceland has been battling high inflation for quite a while
Speaker 8: now that the central Bank has been struggling to bring down. So,
Speaker 8: you know, Iceland being a small, open economy, we are
Speaker 8: very dependent on what happens in the rest of the world.
Speaker 8: We are dependent on decisions that are being made on
Speaker 8: both sides of the Atlantic with the FAT and the ECB.
Speaker 8: But obviously just all microeconomic developments also will factor in Iceland.
Speaker 8: So I think they are just watching very closely. They
Speaker 8: stand ready to hike if needed. I think this is
Speaker 8: a very critical moment this summer for Iceland to bring
Speaker 8: inflation down, So I would say they're stand ready to
Speaker 8: react as needed.
Speaker 3: Yeah, Jamie. In terms of that question, then about European policy,
Speaker 3: how much will it be determined by the US Federal Reserve.
Speaker 3: That's also been a major issue in bond markets, hasn't
Speaker 3: it in terms of the recent run up in rates.
Speaker 9: Yeah, I mean the answer is not much. I think.
Speaker 9: I mean, first of all, the US is just in
Speaker 9: a different position from Europe right as it's not an
Speaker 9: exporter really, but it's neither an important or an exporter
Speaker 9: of crude, so it doesn't have the same economic consequences.
Speaker 9: There's politics happening in the US which isn't happening here
Speaker 9: in Europe, so you wouldn't want to follow the FED
Speaker 9: playbook if you think that that there's a political element
Speaker 9: to the decision making. So I know, I don't think
Speaker 9: there's a big reader cross from what's happening in the
Speaker 9: US to ECB or Bank of England policy. But of
Speaker 9: course global bond yields, they're determined globally, so we will
Speaker 9: be seeing some of that co movement in bond pricing
Speaker 9: and indeed tightening financial conditions.
Speaker 3: That's interesting because we're going into a new era with
Speaker 3: the Federal Reserve onto a new leadership. It's also noteworthy
Speaker 3: when you mentioned politics that the US Treasury Sectory Scott Bessett,
Speaker 3: you know, is very active. I wonder what you're thinking
Speaker 3: is around you know, maybe those US Central Bank governors,
Speaker 3: what might they be thinking about and discussing in what
Speaker 3: will be their perspective as they visit Iceland.
Speaker 9: It's a tricky one isn't it. So we don't know
Speaker 9: very much about the new FED chair and exactly how
Speaker 9: he's going to interact with the rest of the governors,
Speaker 9: and that'll be the key relationship to follow. Will he
Speaker 9: be able to persuade them that they shouldn't hike That
Speaker 9: seems to be the question in markets at the moment. Meanwhile,
Speaker 9: our US team think that actually, despite all the hor
Speaker 9: moves related oil related inflation, that actually there's some reasons
Speaker 9: to think that inflation may be coming down more on
Speaker 9: a more sustained basis and that would actually argue for cuts.
Speaker 9: So there's lots we'll see how it will unfold, but
Speaker 9: we will certainly be monitoring that very closely.
Speaker 3: How concerned are you about the kind of current picture
Speaker 3: in terms of the deterioration of the economy in Europe?
Speaker 3: If I can ask you that broad question about where
Speaker 3: we are for consumers and businesses in Europe.
Speaker 9: Well, the economy is not exactly going gangbusters. So coming
Speaker 9: into this, the labor market wasn't all that strong. But
Speaker 9: I think there are there are some reasons to be
Speaker 9: optimistic because if you think back to twenty twenty one,
Speaker 9: when oil prices, gas prices went up well even since then.
Speaker 9: Actually a lot of resilience has been achieved in the
Speaker 9: European energy sector and so our reliance on oil, our
Speaker 9: reliance on gas has been falling over even over the
Speaker 9: past few years, and so we're actually in a slightly
Speaker 9: better position, I think to deal with the shop. Also,
Speaker 9: because the labor market is weak, the ECB, the Bank
Speaker 9: of England, they don't have to respond as forcefully as
Speaker 9: they did in twenty twenty one because they already know
Speaker 9: that they're not going to get loads of wage growth.
Speaker 9: It's very unlikely to happen. So I think for a
Speaker 9: couple of reasons, it's going to be a bit different
Speaker 9: to what happened last time.
Speaker 3: So my thanks there to Ragna Hilda Sigurder dotted and
Speaker 3: to Bloomberg's Director of Global Economics Jamie Rush So we
Speaker 3: learned something about economics and also about Iceland. Will have
Speaker 3: more coverage of all the talking points from the Rekivic
Speaker 3: Economic Conference on Bloomberg platforms. I'm Caroline Hepget. You can
Speaker 3: catch us every weekday morning here Bloomberg Daybreak youre at
Speaker 3: beginning at six am in London. That's one am on
Speaker 3: Wall Street. Nathan.
Speaker 2: Thanks Caroline and coming up on Bloomberg day Break weekend,
Speaker 2: we'll look ahead to some key economic data down under.
Speaker 2: I'm Nathan Hagar and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Nathan Hagar
Speaker 2: in Washington. We go to Australia next, where markets expect
Speaker 2: an elevated reading on consumer inflation in the coming week.
Speaker 2: For more, let's go to Doug Krisner, host of the
Speaker 2: Bloomberg Daybreak Asia podcast.
Speaker 4: Nathan, there has been no escaping the global worry over
Speaker 4: higher inflation as the result of war in Iran. In Australia,
Speaker 4: the Central Bank was quick to tighten policy after the
Speaker 4: conflict began. Now in the week ahead, we'll get the
Speaker 4: consumer inflation data for Australia. To help us preview these
Speaker 4: numbers and what they mean for the RBA, Let's bring
Speaker 4: in Bloomberg. Swati Pondi Swati is a member of the
Speaker 4: ECOGUV team for Southeast Asia and Asion. Swati, thank you
Speaker 4: so much for being here. Can you give me a
Speaker 4: sense of what the market is expecting in terms of
Speaker 4: the cost of living in Australia.
Speaker 10: So Doug in Australia, we have had elevated inflation for
Speaker 10: quite some time. Even before the war in Iran began,
Speaker 10: the Reserve Bank of Australia was sounding quite worried about
Speaker 10: a hi or strong domestic demand and strong inflationary impulse
Speaker 10: across the economy, and the war in Iran, which has
Speaker 10: caused an energy price shock, further exacerbated those concerns. So
Speaker 10: the Reserve Bank targets inflation at the midpoint of its
Speaker 10: two to three percent target, so that's two point five percent,
Speaker 10: and we have had inflation overshooting not just two point
Speaker 10: five but also the three percent the top of the band,
Speaker 10: for quarter after quarter. And the RBA released latest forecasts
Speaker 10: earlier this month and it's not looking like we will
Speaker 10: be back hitting the midpoint until twenty twenty eight, So
Speaker 10: that is the backdrop against which we get this monthly
Speaker 10: report next week, which will be the first month of
Speaker 10: the new quarter. And the RBA looks at the quarterly
Speaker 10: data because the monthly report is still new for Australia
Speaker 10: and it's not that reliable, so a lot of the
Speaker 10: economists would look at the April data and try and
Speaker 10: see whether inflationary impulse. Are strong getting stronger feeding into
Speaker 10: services or other parts of the economy or is it
Speaker 10: just restricted fuel prices?
Speaker 4: So beyond fuel, are there certain components that you think
Speaker 4: might represent sticky inflation. You and I were talking a
Speaker 4: moment ago just about housing, and I'm wondering whether shelter
Speaker 4: cost could be a contributor to this upward push and inflation.
Speaker 10: Yes, housing is the biggest contributor for inflation in Australia
Speaker 10: and it has been the case for many quarters now.
Speaker 10: That includes electricity, so utility prices which are also elevated.
Speaker 10: The cost of building a property is also quite high
Speaker 10: because material costs have gone up and expected to go
Speaker 10: up further right because of their supply chain issues as
Speaker 10: a result of the war. And the other thing that
Speaker 10: goes into the housing basket is rents, and even though
Speaker 10: we are seeing some slow down in house price growth,
Speaker 10: rents remain elevated. Rentals can see rates are near record
Speaker 10: lows and there are still a lot of anecdotes around
Speaker 10: the big cities like Sydney or Melbourne where people are
Speaker 10: queuing up for rental inspections to find a place to live.
Speaker 4: In the last week we had the Bloomberg Forum for
Speaker 4: Investment Managers, and we had a chance to visit with
Speaker 4: the Assistant Governor for the RBA, Sarah Hunter, and she
Speaker 4: highlighted the danger of rising inflation expectations. And I'm wondering
Speaker 4: away from the reading on CPI whether the RBA is
Speaker 4: perhaps more concerned about what the expectations for inflation may
Speaker 4: be in the future.
Speaker 10: Absolutely, inflation expectations currently have been anchored, especially the long
Speaker 10: term inflation expectations, and that has been the biggest reason
Speaker 10: why the RBA was very cautious when it was using
Speaker 10: interest rates just after the pandemic and the infrast cutting
Speaker 10: interest rates and throughout it kept saying that we want
Speaker 10: to make sure that inflation expectations are anchored, not just inflation,
Speaker 10: and they also wanted to preserve the gains that we've
Speaker 10: had in job market, so unemployment is quite low here.
Speaker 10: But there are now worries that with inflation remaining elevated
Speaker 10: for so many quarters, like it's probably been one and
Speaker 10: a half years or so of elevated inflation, that they
Speaker 10: are kind of getting worried that it may get entrenched.
Speaker 10: And once that happens, then it starts to feed into
Speaker 10: other things like people demanding higher wages or businesses feeling
Speaker 10: more confident about passing on their costs and so on.
Speaker 10: So when that happens and it becomes a vicious cycle,
Speaker 10: that is a nightmare for any central banker.
Speaker 4: Right now, I believe that money markets are pricing in
Speaker 4: at least one more rate hike from the RBA this year.
Speaker 4: Is there the possibility that we get a second Yes.
Speaker 10: It definitely looks like that, especially because the RBA is
Speaker 10: forecast which I mentioned a little while ago, which point
Speaker 10: to inflation returning to target not before twenty twenty eight.
Speaker 10: That is based on expectation that the cash rate would
Speaker 10: go up to four point six percent, which is one
Speaker 10: more interest rate hike, and their forecasts actually show four
Speaker 10: point seven percent, which means there is a chance of
Speaker 10: another one after this. So if they are not doing that,
Speaker 10: then probably they may not reach there or meet their
Speaker 10: inflation forecasts. And right now, one thing, the biggest thing
Speaker 10: that they are really worried about is inflation, and against
Speaker 10: the backdrop of the Iran war, they don't want a
Speaker 10: situation where inflation gets out of hand.
Speaker 4: What is this doing to the growth story? That the
Speaker 4: risk that interest rates in Australia will be rising. Are
Speaker 4: there concerns now that growth will be compromised as a result, Doug.
Speaker 10: When we finished twenty twenty five, Australia's economy was on
Speaker 10: a strong footing. The start of twenty twenty six also
Speaker 10: looked pretty good and that was one of the reasons
Speaker 10: that we had strong economy economic demand which was flaring
Speaker 10: inflation as well, So the starting point for the economy
Speaker 10: was good. However, there are increasing reports now of subdued
Speaker 10: consumer sentiment, which basically means consumers will be a little
Speaker 10: bit more reticent to spend, so we may probably see
Speaker 10: a slow down there. We are seeing signs of slowdown
Speaker 10: in the housing market, which is one of the biggest
Speaker 10: countrybuty to economic growth in Australia. One thing that is
Speaker 10: going well is resources exports. So Australia is one of
Speaker 10: the biggest exporters in the world of LNG liquefied natural gas.
Speaker 10: It's also the top exporter of cole and arnore and
Speaker 10: we've seen commodity prices skyrocket in the aftermath of the
Speaker 10: war in Iran and that is benefiting Australia. So the
Speaker 10: trade side of things, the external demand side of things
Speaker 10: remain good. The domestic side of things are starting to
Speaker 10: look a little bit shaky.
Speaker 4: Swati will leave it there. Thank you so very much
Speaker 4: for helping us understand what's happening with the economy in
Speaker 4: Australia as we look ahead to that CPI data in
Speaker 4: the coming week. Bloomberg Swati Pondi from our bureau in Sydney.
Speaker 4: We go to Shanghai next where the twenty second annual
Speaker 4: JP Morgan Global China Summit happened in the last week,
Speaker 4: and it was there that we had the opportunity to
Speaker 4: catch up with JP Morgan chairman and CEO Jamie Diamond.
Speaker 4: Diamond spoke with Bloomberg's hustling to Aman.
Speaker 11: It's not just about markets, it's about AI, It's about tech.
Speaker 11: I mean, you know, JP Morgan has come out to
Speaker 11: say it is actually a tech company that just happens
Speaker 11: to be a bank. You have a huge tech budget.
Speaker 11: I think nine billion dollars three billion for twenty billion,
Speaker 11: and then I think three billion for cybersecurity. Talk to
Speaker 11: us about how you're mobilizing the capital. Where are your
Speaker 11: areas of Priorah.
Speaker 12: So we don't actually deploy capital by saying we'll put
Speaker 12: capital there we and everywhere we do in every business
Speaker 12: we grow in China like here, if you look at
Speaker 12: just China, we've gone from banking ten companies to banking
Speaker 12: I think it's two or three hundred. We've gone from
Speaker 12: banking thirty multinationals coming here to banking six hundred multinationals
Speaker 12: coming here. As we serve them. It deploys capital. So
Speaker 12: deployment of capital, deployment loans are outcome of building the business.
Speaker 12: That's true for every country. It's true we open branches
Speaker 12: in the United States, it starts to demand capital as
Speaker 12: people will give us deposits, we start to make loans,
Speaker 12: and so we are pretty company. We can deploy capital
Speaker 12: intelligently serving clim We don't deploy capitale and investor saying
Speaker 12: oh this is the best place to put it. It's
Speaker 12: kind of an outcome of how we kind of grow
Speaker 12: with the business and always.
Speaker 11: Give us AI though I mean how we invested absolutely AI.
Speaker 12: If you any business meaning we have and we've been
Speaker 12: doing it for thirteen years, and every business meaning you have,
Speaker 12: we talk about how you can use technology do a
Speaker 12: better job for your clients. What are the projects you have?
Speaker 12: So we're using AI for risk, fraud, marketing, design, document management,
Speaker 12: who you should call in the morning, salesforce type things,
Speaker 12: branch location, hedging, And it's the type of iceberg. You know,
Speaker 12: it's moving very very quick. Coding, it's moving very quickly.
Speaker 12: So we want to just stay up there and use
Speaker 12: AI to serve our clients. And we're going to do that.
Speaker 12: How can I do a better job for our clients
Speaker 12: using a technology called AI, just like we did it
Speaker 12: with a technology called digital, a technology called cloud, and
Speaker 12: way back at technology called mainframe, Like, it's no different.
Speaker 12: We got to do a better job for a client
Speaker 12: because that's how we compete.
Speaker 11: So how will Jimmy mulgan look like in three to
Speaker 11: five years on the lack of developments in aill what
Speaker 11: how will Jimmie Walgin look like? I mean, how will
Speaker 11: are you business?
Speaker 12: I hope with thriving. But what's not going to change?
Speaker 12: People have to hold money, movement and invest money, raise money.
Speaker 12: I think how it happens will probably change. You know,
Speaker 12: we use blockchain, there may be more blockshain being used
Speaker 12: to do that. There may be more people in AI
Speaker 12: jobs and less people in certain jobs, you know, so
Speaker 12: it'll all morph. But that's our job to serve the client.
Speaker 12: And of course, you know, I always point out that
Speaker 12: we in the old days, we had you know, the
Speaker 12: big banks who are big competitors, and the investment banks,
Speaker 12: and that was global, different banks in every country. Now
Speaker 12: it's fintech in every country, and they're good. You know
Speaker 12: a lot of these people in Revolute, Stripe and Citadel,
Speaker 12: they're quite good. So we have to compete with all
Speaker 12: and a lot of that competition will be technology and AI.
Speaker 12: So we are investing that money to be competitive, to
Speaker 12: do a better job for our clients. And if we're
Speaker 12: not fast and nimble, we'll lose.
Speaker 11: And you're false and nimble, right.
Speaker 12: Sometimes we're faster and nimbal Sometimes I feel like we're
Speaker 12: I feel like we're a dinosaur and elephant riding a bronco.
Speaker 11: It is about menpower in the end, with the Licena
Speaker 11: women power, it's about the workforce. We had from Santa
Speaker 11: Chata chatting about eight thousand jobs of a spread of
Speaker 11: three years. We also had metas saying it's shutting the
Speaker 11: same number of people. I mean, how are you looking
Speaker 11: at menpower? Women power? How are you looking at the
Speaker 11: workforce on the back of you know advances being made
Speaker 11: in the I think the most.
Speaker 12: Important thing is we do a good job for our
Speaker 12: clients and use AI. Will it change the structured jobs?
Speaker 1: Yes?
Speaker 2: Will.
Speaker 12: I think there's been very few announcements are AI related.
Speaker 12: I think a lot of coming to too much bureaucracy,
Speaker 12: and they may use AI to cover up the fact
Speaker 12: that they should never hire those in the first place.
Speaker 12: But AI is going to change jobs, I don't know.
Speaker 12: I think we'll overdo some of our jobs down the road.
Speaker 12: I don't think you'll be all different types of jobs
Speaker 12: and you have to deploy it at a level like
Speaker 12: I think we'll be hiring more AI people and probably
Speaker 12: less bankers in certain categories, and it'll make them more productive.
Speaker 4: That was Jamie Diamond, JP Morgan, chairman and CEO, speaking
Speaker 4: with Bloomberg's Hustling to Ahman. I'm Doug Prisner. You can
Speaker 4: catch us weekdays for the Daybreak Asia podcast. It's available
Speaker 4: wherever you get your podcast. Nathan.
Speaker 2: Thanks Doug, and that does it for this edition of
Speaker 2: Bloomberg Daybreak Weekend. Join us again Tuesday morning at five
Speaker 2: am Wall Street Time for the latest on markets overseas
Speaker 2: and the news you need to start your day. I'm
Speaker 2: Nathan Hager. Stay with US. Top stories and global business
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