Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg day Break Weekend, our global look ahead
Speaker 2: at the top stories in the coming week from our
Speaker 2: Daybreak anchors all around the world. Straight ahead on the program,
Speaker 2: and look at some key inflation data in the US
Speaker 2: what it could mean for FED policy moving forward, Plus
Speaker 2: a look at earnings from the computer software Giant Oracle.
Speaker 2: I'm Tom Busby in New York.
Speaker 1: I'm Caroline Hebcker in London, where we're following europe Central
Speaker 1: Bank as it navigates an unprecedented time in the region.
Speaker 3: I'm Paul Allen in Sydney, looking at next week's IBA
Speaker 3: decision and Australia's social media band for teams.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: At Good day to you. I'm Tom Busby, and we
Speaker 2: begin today's program with a look at some key inflation
Speaker 2: data on the heels of a big bounce back in
Speaker 2: US job creation last month. November's Consumer Price Index out
Speaker 2: on Wednesday eight thirty am Wall Street Time. The Producer
Speaker 2: Price Index for last month comes one day later. For
Speaker 2: more on what to expect, we're joined by Edward Harrison,
Speaker 2: author of Bloomberg's Everything Risk newsletter. Edward, thank you so
Speaker 2: much for being here.
Speaker 4: Good to talk to you.
Speaker 5: Tom Well.
Speaker 2: Now, inflation has come a long way down over the
Speaker 2: past two years, still has a long way to go
Speaker 2: before hitting the Fed's long established target of two percent.
Speaker 2: So what are you expecting to see in October's CPI
Speaker 2: number this week?
Speaker 5: We're expecting to see the year over year number for
Speaker 5: CPI tick up ever so slightly to two point seven
Speaker 5: percent from two point six percent. And when you look
Speaker 5: at the core number, taking out food and energy, the
Speaker 5: expectation is it's going to be roughly the same as
Speaker 5: it was last month, which is three point three percent.
Speaker 5: Both of those are based on zero point three percent
Speaker 5: rises on a monthly basis. Now, obviously two point six
Speaker 5: percent going up to two seven and three three are
Speaker 5: not that great numbers, but it's still coming down enough
Speaker 5: that I expect that the FED will still cut interest
Speaker 5: rates in December if the data come out as expected.
Speaker 2: Wow, only about half a Wall Street thinks is with
Speaker 2: you on that one, But there is a lot of hope. Well,
Speaker 2: let's talk more about those numbers and what's behind this
Speaker 2: stubbornly high inflation, because, as you said, two point seven
Speaker 2: percent year over year overall, it's good, it's not great.
Speaker 2: So what are the big factors that are keeping inflation
Speaker 2: so high?
Speaker 5: Well, it's definitely not food and energy, right, because if
Speaker 5: you you know, without food and energy, three point three
Speaker 5: percent versus two point seven percent a year on year
Speaker 5: with food and energy, Really it's about you know, core
Speaker 5: services and housing in particular. Those are the things that
Speaker 5: are still you know sticky, and you know sticky at
Speaker 5: a level of over three percent. And so what that
Speaker 5: means is is that as twenty twenty five develops, you know,
Speaker 5: the cuts that we've been seeing at every single meeting
Speaker 5: by the FED are going to come to an end
Speaker 5: in about a week's time. You know, the week after this,
Speaker 5: we're gonna see the FEDS dot plot and they're in
Speaker 5: that it's going to tell us what they expect, how
Speaker 5: many rate cuts that they expect. The market is now
Speaker 5: pricing in actually about three rate cuts for twenty twenty five.
Speaker 5: So let's just see what the what the Fed says
Speaker 5: when they come out with their data a week from now.
Speaker 2: Yeah, that's a biggie. This is a meeting December seventeenth, eighteenth,
Speaker 2: the big decision, you know, to either hold steady or
Speaker 2: as you expect another quarter percent, you know, twenty five
Speaker 2: basis point cut.
Speaker 5: Is that what you're thinking, Yeah, you know, and that's
Speaker 5: that's pretty much in line with the market. We can
Speaker 5: talk a little bit about the jobs numbers that we
Speaker 5: saw last week, but on the basis of the jobs numbers,
Speaker 5: immediately after the jobs numbers came out, the swaps market,
Speaker 5: which shows what the market is expecting the Fed to do,
Speaker 5: went from like, you know, sixty percent odds of a
Speaker 5: cut to over eighty percent odds of a cut. So
Speaker 5: this number, the CPI number, this is going to be
Speaker 5: the one that either solidifies it or makes it a
Speaker 5: little bit murky. But word eighty percent, So that says
Speaker 5: that likely we're going to move towards eighty five ninety
Speaker 5: percent if the number is in line with expectations.
Speaker 2: Wow, so that jobs report really did a number you
Speaker 2: think for the FED, Well, let's talk about it. Two
Speaker 2: hundred and twenty seven thousand jobs added. It looks like
Speaker 2: maybe we've exercised the ghost of those devastating strikes, a
Speaker 2: couple of really bad hurricanes. I mean, is this, Hey,
Speaker 2: we're back in business now after that dismal October number.
Speaker 5: Well, you know, it does seem that way to me.
Speaker 5: The number, the two twenty seven number comes with fifty
Speaker 5: six thousand of net revision upward from the last two
Speaker 5: months before that, and now we're at about one hundred
Speaker 5: and seventy some thousand a month over the last three months.
Speaker 5: That's up by fifty thousand. So you might think that
Speaker 5: those numbers would make the market spooked, but actually it
Speaker 5: wasn't because if you look at the household survey, the
Speaker 5: unemployment rate went up, So the unemployment rate went up
Speaker 5: from four point one to four point two percent. And
Speaker 5: if you've listened to what these FED speakers are saying,
Speaker 5: Chris Waller is one that I was thinking about. Another
Speaker 5: one is the Atlanta Fed Raphael Bostic. They're basically saying,
Speaker 5: you know, unless the data are really terrible, we want
Speaker 5: to have a preventive cut going forward. Same thing from
Speaker 5: Austin Gouldsby of the Chicago Fed, they're all saying that,
Speaker 5: you know, this meeting, yes we're going to give the cut,
Speaker 5: the market's priced it in, but then going forward we're
Speaker 5: going to be a little more circumspect.
Speaker 2: So three rate cuts in a row to end twenty
Speaker 2: twenty four year thinking, but twenty twenty five definitely dialing
Speaker 2: back on that more aggressive rate cut strategy exactly.
Speaker 5: And you know, a lot of this, remember, is about
Speaker 5: the real interest rate. That is is that as inflation
Speaker 5: comes down, the FED is saying, unless we bring rates down,
Speaker 5: then it's going to be restrictive, not necessarily for those
Speaker 5: companies that can go out and borrow money in the
Speaker 5: capital markets, but for small businesses that are getting their
Speaker 5: loans based upon these rates. We really need to bring
Speaker 5: them down in order to be less restrictive for those companies.
Speaker 2: Well in November, CPI data out there coming Wednesday, PPI
Speaker 2: on Thursday, and our thanks to Edward Harrison, he's the
Speaker 2: author of Bloomberg's Everything Risk newsletter. We turned out to
Speaker 2: earnings from one of the biggest names in technology, software
Speaker 2: giant Oracle putting out its Q two results on Monday.
Speaker 2: Will the artificial intelligence boom continue to fuel oracles year
Speaker 2: long rally and for more we're joined by Ana rog
Speaker 2: Rana Bloomberg Intelligence Technology Analysts. Ana Rok, thank you so
Speaker 2: much for joining us. Shares of Oracle have skyrocketed this year,
Speaker 2: mostly on a cloud infrastructure services. So what do you
Speaker 2: expect to see in this earnings report on Monday.
Speaker 6: Yeah, I think we'll listen to more of the same
Speaker 6: in a sense that cloud infrastructure revenue should continue to
Speaker 6: go up. The question is going to be by how
Speaker 6: much and whether the revenue recognition is being held.
Speaker 7: Back by the shortage of supply, which is, you know,
Speaker 7: the GPUs that are sold by Nvidia, whether they're able
Speaker 7: to get their hands and do enough of them.
Speaker 6: So when you look at somebody like an Oracle, it
Speaker 6: has a massive backlog right now, and we'll get to
Speaker 6: that in a second how it has them backlog. But
Speaker 6: the problem a lot of these cloud infrastructure providers are
Speaker 6: facing is their data center capacity as well as their
Speaker 6: hardware capacity is still a bottleneck, which is people are
Speaker 6: sending work for them, but they're not able to fulfill
Speaker 6: that demand. And that's where Oracle also is at this point.
Speaker 2: So a shortage of GPUs stressed data centers. But now
Speaker 2: Oracle has built more data centers, hasn't it, including plans
Speaker 2: for a nuclear powered one. It is just go go
Speaker 2: go for them. Are they keeping up? Are they going
Speaker 2: to meet demands?
Speaker 6: See? The thing is, it's unlike just you know, buying GPUs,
Speaker 6: which is also in a shortage. Data centers take time.
Speaker 6: You just can't spin up a data center overnight. It
Speaker 6: takes a few years to build one. What companies are
Speaker 6: doing right now is taking their role data centers and
Speaker 6: retrofitting them with new equipment, new cooling technology, new GPUs,
Speaker 6: new hardware in order to run some of these workloads,
Speaker 6: but in order to create the new one, that takes time.
Speaker 6: And actually that's what's benefiting Oracle in one way because
Speaker 6: Microsoft has this relationship with open Ai, and open Ai
Speaker 6: is sending more and more workloads to Microsoft's cloud product,
Speaker 6: which is called Asher, and Microsoft is seeing that shortage.
Speaker 6: So guess what it's doing. It's tapping into Oracle and saying, hey,
Speaker 6: can you be my subcontractor and I can lease into
Speaker 6: your data center and run some of the workloads over there.
Speaker 6: And that's really how you know the Oracles laughing about
Speaker 6: it because it's having to service it's one of its
Speaker 6: bigger competitors and partners, so it's getting a lot of
Speaker 6: work from Microsoft also at this point. So that is
Speaker 6: that is the big story for Oracle, then we think
Speaker 6: it is going to be the big thing for at
Speaker 6: least the next couple of years.
Speaker 2: Well, Oracle not only Microsoft, It also had deals with Google,
Speaker 2: and just a few months ago a big deal with
Speaker 2: Amazon Web Services was exactly correct, Yeah, exactly, yeah, tell
Speaker 2: me about all those deals.
Speaker 6: It is the same deal. Basically. What it is saying
Speaker 6: is if you get a command or a workload and
Speaker 6: you don't have capacity to do it, send it my way.
Speaker 6: I will be your subcontractor and you can run it
Speaker 6: in my data center and you will pay me for it.
Speaker 6: So it's a good thing for Oracle that it has
Speaker 6: this capacity, it has this data center. And as I
Speaker 6: said in principle, the only thing that's holding back all
Speaker 6: of them is that there's a shortage of GPUs and
Speaker 6: the processing capacity. There is another thing that's helping Oracle. Frankly,
Speaker 6: I talked about one thing as an outsourced for the
Speaker 6: three companies that we mentioned, but there is another element
Speaker 6: that a lot of startups are also going to Oracle
Speaker 6: and saying, you know what, I just want to go
Speaker 6: out and experiment on this cloud infrastructure, and Oracle is
Speaker 6: giving them a good deal giving them, you know, because
Speaker 6: remember from a market size point of view, Oracle's cloud
Speaker 6: infrastructure is fourth in size. The biggest one is Amazon,
Speaker 6: then Microsoft, then Google, and Oracle, given its large wallet,
Speaker 6: if we can fund set billion dollars of capital expenditures,
Speaker 6: is now, you know, in our view, the fourth biggest
Speaker 6: cloud data center company.
Speaker 2: But is the cloud data center becoming more not just
Speaker 2: the management what it used to be, becoming more of
Speaker 2: the cash cow for Oracle?
Speaker 6: Yeah, it is. Oh no, no, it's growing very well.
Speaker 6: It's growing somewhere north of forty percent. I think Consensus
Speaker 6: has that product to grow by fifty percent this particular
Speaker 6: quarter that's going to be on Monday. So from a
Speaker 6: revenue point of view, they are gaining.
Speaker 3: As much market share as possible.
Speaker 6: Whether they are making enough money, that's okay for them,
Speaker 6: because it's okay to take to buy it at a
Speaker 6: cheaper price or taking even of a big loss on
Speaker 6: that end, only because they have some other products that
Speaker 6: are highly profitable. Their old business of core database is
Speaker 6: very profitable. They have other applications, cloud applications, on HR
Speaker 6: customer service management. They are very profitable. So it has
Speaker 6: is it is really one of the most profitable software
Speaker 6: companies out there. It's okay for them to lose a
Speaker 6: little bit money on the infrastructure and service. I don't
Speaker 6: think they lose money there because since those financials are
Speaker 6: not publicly available, even if they make less money on
Speaker 6: that compared to the database, that doesn't matter because in
Speaker 6: totality it's adding to the overall revenue base of the company.
Speaker 2: Well, a lot to watch for Q two results from
Speaker 2: Oracle out on Monday. Our thanks to Anna rod Rana
Speaker 2: Bloomberg Intelligence and Technology Analysts, and coming up on Bloomberg
Speaker 2: day Break weekend, we'll look ahead to Europe's Central Bank
Speaker 2: decision as it navigates an unprecedented time in the region.
Speaker 2: I'm Tom Busby, 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 Tom Busby
Speaker 2: in New York. Up later in our program, we look
Speaker 2: ahead to an important policy decision from the Preserve Bank
Speaker 2: of Australia. But first JUCHS policymakers convening this week to
Speaker 2: make their last interest rate decision of twenty twenty five.
Speaker 2: That's against a backdrop dominated by political uncertainty amid governmental
Speaker 2: challenges in France and looming US tariffs. Could the rate
Speaker 2: path ahead be more slippery than first anticipated? Well, for more,
Speaker 2: let's go to London and bring in Bloomberg daybreak, europe
Speaker 2: Banker Caroline hepger.
Speaker 1: Tom the European Central Bank is likely to cut interest
Speaker 1: rates again at its December meeting. Policymakers made debates a
Speaker 1: bigger than usual move, but comments from individuals suggests that
Speaker 1: they will proceed with caution for now. Speaking during a
Speaker 1: recent television interview, the Bank of Latvia, Governor Martin's Kazakhs
Speaker 1: said that uncertainty is still very high, with a number
Speaker 1: of complex geopolitical risks facing Europe. Governing Council member Joachim
Speaker 1: Nagel has suggested interest rates should converge only slowly towards
Speaker 1: neutral territory, so support for a fifty basis point move
Speaker 1: does seem limited. Layer onto that, the political crisis in France,
Speaker 1: one of the bloc's biggest members after Michelle Barnier, became
Speaker 1: the shortest serving prime minister in French history, his government
Speaker 1: collapse following a vote of no confidence, crucially before a
Speaker 1: budget could be agreed in parliament. The fiscal unpredictability of
Speaker 1: Europe is something ECB policymakers will have to consider their
Speaker 1: upcoming meeting Bloomberg. Stephen Cowl and I discussed this with
Speaker 1: Maria Demerzis, who is program leader at the Conference Board
Speaker 1: and professor of Economic policy at the European University Institute.
Speaker 8: Well, I mean, the first thing is that we need
Speaker 8: to understand who will govern France, and the issue is
Speaker 8: that President mccran will not be able is not allowed
Speaker 8: constitution to call elections again, given that he's called elections
Speaker 8: back in June. So that means that for one year
Speaker 8: from since last June, that means that till next June,
Speaker 8: we will have to have a technocratic government, another prime
Speaker 8: minister or a technocratic government that actually does the government
Speaker 8: business right, and that means that we will have to
Speaker 8: operate with the current budget and political decisions will not
Speaker 8: be a Difficultulican decisions will not be made. So I
Speaker 8: think that is what I foresee till next Shuar, when Persson.
Speaker 8: Macron will have the chance again to call elections.
Speaker 1: Italy may be used to having a technocratic government, France
Speaker 1: certainly is not. And the budget deficit is the main challenge.
Speaker 1: It is expected to run at six point one percent
Speaker 1: this year. How significant an issue is this going to
Speaker 1: be for Europe to have this continued uncertainty and instability
Speaker 1: in France.
Speaker 8: Indeed, it's not good, and in fact, the reason why
Speaker 8: we are in this position here is indeed because Prime
Speaker 8: Minister Mariner was trying to put a budget forward that
Speaker 8: it was going to take us back in the right
Speaker 8: direction and in compliance with the European rules that have
Speaker 8: come into operations since September. All of this is postponed.
Speaker 8: Now will have to wait for the next government of
Speaker 8: French government to actually do the job, but it will
Speaker 8: have to be done, and the European Commission will be
Speaker 8: what very closely. I remind you that France is under
Speaker 8: the excessive deficit procedure, which is the corrective arm of
Speaker 8: the monitoring process of the European Union, and that means
Speaker 8: that the European Commission will be watching very carefully.
Speaker 9: What happens with the EU Commission's reaction to this if
Speaker 9: we do end up in this situation where they're rerunning
Speaker 9: the current budget, which means the effort is going to
Speaker 9: be far above what had been submitted and approved by
Speaker 9: the Commission in the pre budget rules. I mean, what
Speaker 9: are the next steps of the Commission can take If
Speaker 9: they're on this temporary holding pattern for the next potentially
Speaker 9: six months.
Speaker 8: Progressively, it can put off enormous pressure on whatever French
Speaker 8: government is in place to actually do the job. In principal,
Speaker 8: he could also impose fines on the country. In practice,
Speaker 8: this has never happened, and I don't think it will happen,
Speaker 8: given also what we call the French exceptionalism. But I
Speaker 8: think the pressure for France to deliver is going to
Speaker 8: recommend any is going to come also from other countries
Speaker 8: because there is in fact there's good reasons. What we
Speaker 8: have is rules in the European Union, and if a
Speaker 8: country like France, which is big, actually violates the rules,
Speaker 8: this isn't good either for the history of the rules
Speaker 8: or indeed for the European economy.
Speaker 1: The Conference Board keeps close tabs on the views of
Speaker 1: CEOs within Europe, looking at the stock market as a
Speaker 1: measure there obviously European stocks, particularly French equities, have been suffering,
Speaker 1: but we've seen a bit of a bounce in recent
Speaker 1: days and Germany's let to DAX has done actually recently
Speaker 1: well year to date this year, which seems quite strange
Speaker 1: given the pessimism that CEOs do have on European economic growth.
Speaker 8: Indeed, the CEOs actually tell us that they're in a
Speaker 8: recent service that we've done, they tell us that they
Speaker 8: actually prefer to operate outside Europe because I think conditions
Speaker 8: European economic conditions in Europe are not are very favorable.
Speaker 8: It's consistent also with the Charun account numbers that we
Speaker 8: see business conditions in Europe, you know they could be improved,
Speaker 8: and this is exactly what drag you. Of course, the
Speaker 8: mission of Draguar was very much to find the policies
Speaker 8: that we need to put in place for this to change.
Speaker 9: Is there actually any political currency though, to implement any
Speaker 9: of those recommendations. I mean, we saw the commission point
Speaker 9: to the Dragy Report and the other reports that have
Speaker 9: been done on competitiveness in the European Union as well.
Speaker 9: But realistically, if the national capitals aren't kind of up
Speaker 9: there and pushing it, and particularly France and Germany, nothing's
Speaker 9: really going to get done.
Speaker 8: It is true that we need France and Germany to
Speaker 8: act as as Germany as in a coalition of change.
Speaker 8: We need them, and you know, with both actually countries
Speaker 8: now in political instability, things won't move very fast. However,
Speaker 8: what I will say is that that the CEOs are
Speaker 8: telling us that if there's one change that they won't
Speaker 8: happen is simplification of the regulation. This is actually the
Speaker 8: top number one priority that they tell us is this,
Speaker 8: And what we saw actually the European Commission has actually
Speaker 8: put the point of the agenda very high in the priorities.
Speaker 8: So I would be very curious to see how they
Speaker 8: aim to implement this.
Speaker 9: Yeah, I mean I suppose speed is also the other
Speaker 9: question involved in this, as well as how fast they
Speaker 9: be able to do something.
Speaker 2: I wonder does something.
Speaker 9: Like the twin three e g. In this idea of
Speaker 9: creating a separate corporate structure that could operate across member states.
Speaker 9: I mean that's the sort of idea that does that
Speaker 9: get CEO as excited. Is that a policy they could
Speaker 9: get on board with?
Speaker 8: Yes, But like I say, I mean the CEO's understand
Speaker 8: how slowly europe movies. The twenty eighth regime is an
Speaker 8: idea that has been around for a very long time,
Speaker 8: particularly with regards to the creation of the Capital Markets Union.
Speaker 8: We've made very little progress in this respect. I think
Speaker 8: CEOs want tangible change, and this type of change, the
Speaker 8: certification of regulation, is something that can, in principle happen.
Speaker 8: It doesn't require money, it doesn't require much agreement. Of course,
Speaker 8: it does require parliamentary approval, but everybody agrees on this,
Speaker 8: So I think this is one of the low hanging fruits.
Speaker 8: So if we get ourselves to implement it, we can
Speaker 8: actually make change.
Speaker 6: Yeah.
Speaker 1: My thanks to Maria Demerzis, who is program leader at
Speaker 1: the Conference Board and professor of Economic policy at the
Speaker 1: European University Institute, someone who spends time in both Brussels
Speaker 1: and Florence. So, after the failure of Barnier's administration, which
Speaker 1: injects uncertainty and perhaps more austerity into France, how will
Speaker 1: the ECB choose to rebuild is something I asked Bloomberg's
Speaker 1: senior reporter covering the Central bank yall around out.
Speaker 10: I think France in itself is another source of uncertainty,
Speaker 10: of course, and there are already plenty other sources out there,
Speaker 10: and I'm sure we will get a chance to talk
Speaker 10: about that when it comes to the decision itself in
Speaker 10: the coming days. That of course will will not be
Speaker 10: affected by what we're seeing in France, but of course
Speaker 10: the the economic outlook very much will both the French economy,
Speaker 10: which of course is the is the Eurozone's second largest,
Speaker 10: and the Eurozone economy itself. They're not doing very well
Speaker 10: at the moment. Pmis are deep in contractionary territory, and
Speaker 10: uncertainty of this caliber weighs on consumption, it weighs on investment,
Speaker 10: It stands in the way of of reforms. The absence
Speaker 10: of a government in France, of course, means fiscal policy
Speaker 10: is very much a wildcard, and also an important voice
Speaker 10: is missing at the European level, So a lot more
Speaker 10: uncertainty to you know, in the future. To be aware
Speaker 10: of that will change the way the EACP looks at
Speaker 10: the economy and the economic outlook and the risks associated
Speaker 10: to that outlook, But not much of an impact on
Speaker 10: the decision itself.
Speaker 1: I would say, yeah, okay, but the possibility of an
Speaker 1: economic drag perhaps further down the road. So, in terms
Speaker 1: of this upcoming meeting, do we expect twenty five basis
Speaker 1: points or could we see a fifty basis point rate reduction?
Speaker 10: Yeah? I think twenty five is what I would bet
Speaker 10: my money on. Fifty. It's been talked about, if you
Speaker 10: asked me, it was never a real option. It was
Speaker 10: part of the speculation that the ECB might go down
Speaker 10: this route after pmis were significantly weaker than expected, after
Speaker 10: inflation didn't pick up as strongly as people might have expected.
Speaker 10: But even the market has come around too prising No,
Speaker 10: but not significantly more than a quarter point cut for
Speaker 10: Thursday's meeting. So I would say twenty five is the way,
Speaker 10: you know, the way to position.
Speaker 7: Yeah.
Speaker 1: In terms of the risks though in Europe there are
Speaker 1: a number, aren't there? Not just the geopolitical uncertainty in Ukraine,
Speaker 1: there's also Georgia and looming possibly tariffs from an incoming
Speaker 1: Trump administration. How will these factor into the interest rate
Speaker 1: decision process? So many risks, so.
Speaker 10: Many risks indeed, and all of that makes it very
Speaker 10: difficult to know what's ahead. We'll get new forecasts, which
Speaker 10: is going to be very exciting. We'll get a chance
Speaker 10: to look all the way into twenty twenty seven. But
Speaker 10: of course, you know that's that's a set of forecasts, builds,
Speaker 10: build on assumptions. We don't know yet what's going to
Speaker 10: come on the terraff front. We don't know how the
Speaker 10: warn Ukraine is going to pan out, which will have
Speaker 10: an impact on, you know, how how Europe deals with
Speaker 10: its own defense, It might impact energy overall uncertainty, of course,
Speaker 10: so the risks and and the uncertainty around those forecasts
Speaker 10: are just enormous, which makes it very very difficult for
Speaker 10: policy makers to you know, say, with with with certainty,
Speaker 10: what's needed, where to go. And and that's you know,
Speaker 10: a big part behind why policy makers say we are
Speaker 10: data dependent. We take a very gradual approach. Here, we're
Speaker 10: going step by step, and then we look around and
Speaker 10: see how our actions, our policy affect what's actually happening
Speaker 10: in the economy.
Speaker 1: In terms of the data. As you say, the pressures
Speaker 1: on the economy, the possibility of stagnation really across Europe
Speaker 1: is quite significant. The pressures on inflation, though, have also
Speaker 1: been coming down. Just took us through the inflation picture
Speaker 1: now for Europe, we.
Speaker 10: Have seen a small pickup in headline inflation that was
Speaker 10: very much in line with expectations, so that was not
Speaker 10: a big surprise there. The surprise really was underneath the
Speaker 10: headline number, so we had core inflation holding steady at
Speaker 10: two point seven percent. It's obviously still still above that
Speaker 10: two percent target, but it was weaker than expected. We
Speaker 10: are seeing a slowdown in services prices finally from a
Speaker 10: very high level. Of course, we're still closer to four
Speaker 10: percent than two percent on that indicator, but we're seeing
Speaker 10: movement as well. And what is going to be very
Speaker 10: interesting on the inflation side is a look at the
Speaker 10: quarterly profile of the new projections I mentioned, and that
Speaker 10: will tell us you know something about how confident they
Speaker 10: will be in cutting interest rates further.
Speaker 1: My thanks to Bloomberg's Janna Randau, and we will have
Speaker 1: full coverage of that final ECB meeting of the year
Speaker 1: with a Bloomberg survey showing that ECB watches now expect
Speaker 1: the Central Bank to cut a quarter point at every
Speaker 1: policy meeting through to June, taking the deposit rate at
Speaker 1: the ECB to two percent. I'm Caroline Hepge here in
Speaker 1: London and you can catch us every weekday morning for
Speaker 1: Bloomberg Daybreak you're at beginning at six am in London.
Speaker 1: That's one am on Wall Street.
Speaker 2: Tom, Thank you, Caroline. And coming up on Bloomberg day
Speaker 2: Break Weekend, we'll discuss Australia's social media band for teenagers.
Speaker 2: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global look ahead at the top store,
Speaker 2: worries for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. Australia's household spending rose eight tens of
Speaker 2: percent in October, exceeding estimates. This as the Reserve Bank
Speaker 2: of Australia is set to issue a policy decision this week.
Speaker 2: Bloomberg's Paul Allen is in for Doug Chrisner on the
Speaker 2: Daybreak Asia podcast, and he has more from Sydney.
Speaker 3: Tom. That pickup in Australia's October retail sales reflects a
Speaker 3: boost to household spending capacity. The data probably gives the
Speaker 3: RBA more room to hold rates for the time being
Speaker 3: while it waits for inflation to call. That's according to
Speaker 3: James McIntyre, who covers Australia and New Zealand for Bloomberg Economics,
Speaker 3: and he joins me now in our Sydney radio studio. So,
Speaker 3: James has been more than a year now. The next
Speaker 3: move from the RBA is likely to be down.
Speaker 11: But when so twelve months, that's one of the longer
Speaker 11: holds that they've had. We have been thinking that they
Speaker 11: should be cutting already, but we've been wrong on that.
Speaker 11: And why we've been wrong as we've been surprised by
Speaker 11: how strong population growth is adding that extra demand of
Speaker 11: the economy. It looks like that's phasing off. So the
Speaker 11: question is is there going to be enough evidence in
Speaker 11: the first quarter of the year for the RBA to
Speaker 11: begin cutting in in February or March. My view is
Speaker 11: that will at least be seeing that first move by May.
Speaker 11: So it's a question this year of whether there is
Speaker 11: kind of seventy five or maybe at a stretch one
Speaker 11: hundred bases points of cuts from the RBA next year.
Speaker 11: At the moment, the data is pretty strong, it's looking
Speaker 11: like we might be on that May start.
Speaker 3: You're not the only one who thinks that the RBA
Speaker 3: probably should have gone by now. We had some commentary
Speaker 3: from Goldman Sachs saying that the RBA has no longer
Speaker 3: got an argument to keep rates high and continuing to
Speaker 3: keep them high is going to inflict unnecessary economic damage. Now,
Speaker 3: the RBA was slow to titan and it got criticized
Speaker 3: for that. Now it's slow to ease. Are we seeing
Speaker 3: the formation the genesis of another policy mistake here?
Speaker 11: Well, I guess we need to kind of look at
Speaker 11: what are they trying to achieve and why would they
Speaker 11: cut And I think it's really the labor market that's
Speaker 11: that's been the surprise. If we hadn't had that population surge,
Speaker 11: we would have had a lot less demand in the economy,
Speaker 11: taking a lot more wind out of the pricing pressure,
Speaker 11: especially with demand and the retail sector and the.
Speaker 10: Like with that.
Speaker 11: But what's that demand? Being there in the economy has
Speaker 11: meant that labor market's been there and it's been quite
Speaker 11: strong as well. And we'd been expecting the unemployment rate
Speaker 11: to be marching well towards five percent by now by
Speaker 11: this time, giving the RBA a clear cut reason to
Speaker 11: lower rates. But at four point one percent, that's what
Speaker 11: the RBA is clinging to. But the very narrow path
Speaker 11: and this has been the retric from the RBA wanting
Speaker 11: to maintain those labor market gains, staying on the narrow path,
Speaker 11: keeping that unemployment rate down. It's very very dicey about
Speaker 11: how long you hold because you can overcorrect, and you know,
Speaker 11: we're seeing that in New Zealand and the repercussions of
Speaker 11: that in Australia. Interestingly is that with that New Zealand
Speaker 11: labor market being so terrible, key wes have started flood
Speaker 11: across the border here to Australia and adding to the
Speaker 11: RBA's delay and problems.
Speaker 3: And of course there's no restrictions on the number of
Speaker 3: New Zealanders that can come over either thanks to their
Speaker 3: closer Economic Relations agreement. But immigrations a really important part
Speaker 3: of the story here and it impacts the property story
Speaker 3: as well, and I want to get to that in
Speaker 3: a minute. But the other part of the dual mandate is,
Speaker 3: of course inflation. Now it's coming down. Is there a
Speaker 3: risk of undershooting here?
Speaker 11: Well, look, in my view, yes, that's where the balance
Speaker 11: of risks lies. So the RBA is still the underlying
Speaker 11: inflation has been coming down. It's a little bit slower
Speaker 11: than the headline inflation. Some of the reasons that there
Speaker 11: is this embedded stickiness. Every country's got little different quirks
Speaker 11: with their inflation, and some of the Australian story at
Speaker 11: the moment is a bunch of these administered prices and
Speaker 11: some of them are basically goods that go up by
Speaker 11: inflation the year before. So we've got a bit of
Speaker 11: an echo in some of the inflation right now, and
Speaker 11: that low inflation that we're getting as a result of
Speaker 11: the government's steps to provide cost of living subsidies and
Speaker 11: really putting downward pressure on the headline inflation. Those are
Speaker 11: things that will be anchored pretty low next year, but
Speaker 11: we could see that undershoot all of that would be
Speaker 11: a recipe for things going a little bit more south,
Speaker 11: a little bit quicker than the RBA is expecting, and
Speaker 11: pulling inflation down with it. That's where that balance of
Speaker 11: risk lies.
Speaker 10: In my view.
Speaker 3: Growth's really been struggling, hasn't it. I think Jim Chalmers,
Speaker 3: the Treasurer, said of it in the second quarter it
Speaker 3: was only government spending that kept the country out of recession.
Speaker 3: How great is recession risk?
Speaker 5: Yeah?
Speaker 11: Well, I mean if you look in per capita terms,
Speaker 11: we've been in recession for more than eighteen months and
Speaker 11: that's likely to continue. In the GDP figures that we'll
Speaker 11: see for the third quarter, and it's unlikely I think
Speaker 11: that we do see that per capita GDP growth actually
Speaker 11: beginning to pull up until that's unlikely until we get
Speaker 11: rate cuts helping to kind of relieve some of the
Speaker 11: tension on consumers there. So yeah, it's a very icy outcome,
Speaker 11: very low growth, very weak growth, which means that the
Speaker 11: labor market outcomes that we're getting some of those are
Speaker 11: reflecting previous growth, and the labor market ahead the outlook
Speaker 11: isn't as strong. And I think that's that very very
Speaker 11: delicate balance, that narrow path that the RBA is trying
Speaker 11: to three.
Speaker 3: To hear, James will just finish up on the property
Speaker 3: story because it has the great Australian barbecue stopper, if
Speaker 3: you like, and so rate sensitive as well. And we've
Speaker 3: seen property prices cooling in Australia and that's a relative term.
Speaker 3: I mean, we're still a nosebleed territory here. But once
Speaker 3: the easing cycle does begin from the RBA, are we
Speaker 3: going to just see prices reigniting.
Speaker 5: Well.
Speaker 11: There has been really a tale of two stories within
Speaker 11: the property market. The Melbourne property market's been very weak
Speaker 11: for quite some time now. Sydney's starting to show those
Speaker 11: signs of weakness, especially at the top end, and that's
Speaker 11: where the borrowing capacity hit from high rates is really
Speaker 11: leaving its mark. Those markets are likely to be ones
Speaker 11: could see quite a bit of upside if we do
Speaker 11: get a strong rates download rate cycle, But fifty seventy
Speaker 11: five or one hundred basis points over the year it's
Speaker 11: not going to give you that bigger punch on boring
Speaker 11: capacity and property price boost as other rate cut cycles
Speaker 11: might have. So I think we might be relying on
Speaker 11: sentiment and those two bigger cities, which are the most
Speaker 11: important ones for the Australian economy, a bit of a
Speaker 11: sentiment improvement as rate cuts maybe helping propel things a
Speaker 11: bit next year.
Speaker 3: All right, thanks James, as the RBA keeps us waiting.
Speaker 3: That is James McIntyre, who covers Australia for Bloomberg Economics.
Speaker 3: We move next to Australia's sweeping social media ban. Last week,
Speaker 3: Canberra past a law banning teams under sixteen from platforms
Speaker 3: like Facebook and tech Talk. It marks one of the
Speaker 3: toughest crackdowns on these social media companies, and the move
Speaker 3: is sending shock waves through the industry worldwide. Bloomberg's Angus
Speaker 3: Swickley joins me now for a deeper dive. So, Angus
Speaker 3: key among this new law, as parents are going to
Speaker 3: be responsible for enforcing this band it's going to be
Speaker 3: up to social media companies to do it at risk
Speaker 3: of a thirty two million dollar US fine for non compliance.
Speaker 3: How is this even going to work? I mean, you
Speaker 3: can't could just find a way to get around this.
Speaker 12: I think this is one of the big unanswered questions
Speaker 12: sort of hanging over this legislation. You're right in the
Speaker 12: law really does put the responsibility on the social platform
Speaker 12: operators rather than the kids and even their parents. So
Speaker 12: it's the operators like Facebook and Snapchat that must find
Speaker 12: a way somehow to check the identity or the age
Speaker 12: rather of the users without some kind of formal government
Speaker 12: identification because that has also been ruled out. So one
Speaker 12: of the weaknesses, if you like, when this law was
Speaker 12: passed is that this technology doesn't really seem to exist
Speaker 12: in any practical form yet at least. Yes, it's true
Speaker 12: that the law does not come in to sort of
Speaker 12: effect for another twelve months or so, but even then,
Speaker 12: it's not quite clear whether the technology will be in
Speaker 12: place even then, So, yeah, how are the kids going
Speaker 12: to be checked? There are privacy concerns there, facial recognition
Speaker 12: perhaps that doesn't seem to be up to speed yet,
Speaker 12: So yes, that is one of the questions.
Speaker 3: Yeah, I've seen other commentary around this, suggesting that you know,
Speaker 3: even things like browsing history, online shopping behavior, whether or
Speaker 3: not people have a MYGV account. These are all ways
Speaker 3: that social media companies can detect whether or not a
Speaker 3: user is likely to be of age. But it doesn't
Speaker 3: really draw that definitive line in the sand, does it?
Speaker 3: What a social media company saying about this.
Speaker 12: As you'd expect, there has been a strong wave of
Speaker 12: opposition to this legislation. I mean, this is a key demographic,
Speaker 12: isn't it for social media platforms, teenagers, youths. They may
Speaker 12: not be spenders at that age, but that they mature
Speaker 12: into valuable customers, don't they, so that they want to
Speaker 12: get their teeth into these users as it were. Having
Speaker 12: said that, they do make some criticisms which which do
Speaker 12: appear to hold some water, that they argue that the
Speaker 12: law is sort of ignore as the practical side of
Speaker 12: age verification technology, which you could argue is true. It's
Speaker 12: it's been rushed, they say, which is also true. I
Speaker 12: mean it was plowed through the parliament in a matter
Speaker 12: of days, very little time for consultation, the platform operators argue,
Speaker 12: and very little time for some inquiry as well. India
Speaker 12: didn't even have time, it seems, to publish all the
Speaker 12: submissions it had on this legislation. A lot of that
Speaker 12: is driven by the terrible told social media inarguably takes.
Speaker 3: Yeah, this has come about because of some of the
Speaker 3: very sad stories out there.
Speaker 12: That's right, and these are profoundly sad stories users teenagers
Speaker 12: taking their own lives after spaces of bullying online, and
Speaker 12: that is a key driver of this change. The question
Speaker 12: is how do you address these problems without destroying the
Speaker 12: benefits and that that's the problem.
Speaker 3: Here, and some other confusing things about this. I mean
Speaker 3: some platforms the suppliers do Facebook x TikTok, but others not,
Speaker 3: such as What's Happened messaging platforms. And you know, it's
Speaker 3: obvious that these sorts of problems like cyberbodying still take
Speaker 3: place on places like What's Happened messaging platforms, But this
Speaker 3: is being really closely watched by other countries as well.
Speaker 3: Could we see similar laws coming into force around the
Speaker 3: world in the coming months.
Speaker 12: Yeah, this is interesting. I mean, if you look at
Speaker 12: Australia's history, it's got form, hasn't it with big tech.
Speaker 12: It's it's picked fights with big tech before, whether it's
Speaker 12: X for you know, posting distressing material, whether it's Google
Speaker 12: or Facebook for for not paying local publishers for news.
Speaker 12: So it's shown a kind of punch, if you like,
Speaker 12: for for taking on these these big companies from the
Speaker 12: other side of the world that fights that the the
Speaker 12: rest of the world has looked at before. And the
Speaker 12: question is to what extent will this, you know, precedent
Speaker 12: setting legislation be followed in other countries. Other countries have
Speaker 12: tried to do similar things with mixed results. To my knowledge,
Speaker 12: I don't think anyone's ever tried a blanket ban with
Speaker 12: without parental permission for on the sixteens. You know, there
Speaker 12: is legislation in other US states, for instance, that allow
Speaker 12: used to use it if they're permission from parents, So
Speaker 12: that this is a blunt tool. It's it's wide ranging
Speaker 12: and all catching, and the question is will other government
Speaker 12: look at the results and say, yeah, this is something
Speaker 12: we want to do because it's proven to work, or
Speaker 12: will they say this has proven to be ineffective. They're
Speaker 12: just too many youths getting around this legislation, which inevitably
Speaker 12: there will be some.
Speaker 3: All right, Agus, thanks very much. That is Bloomberg's Angus Whitley,
Speaker 3: who has been covering that sweeping social media ban for
Speaker 3: teenagers under the age of sixteen in Australia. I'm Paul
Speaker 3: Allen in for Doug Crisner this week. You can catch
Speaker 3: him weekdays on the Daybreak Asia podcast, looking at the
Speaker 3: top stories moving markets in the Asia Pacific. It's available
Speaker 3: on Apple, Spotify or wherever you get your podcasts. Tom.
Speaker 2: Thanks Paul, and that does it for this edition of
Speaker 2: Bloomberg day Break Weekend. Join us again Monday morning at
Speaker 2: five am Wall Street Time for the latest on markets
Speaker 2: overseas and the news you need to start your day.
Speaker 2: I'm Tom Busby. Stay with us. Top stories and global
Speaker 2: business headlines are coming up right now.