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
Speaker 2: look ahead to April jobs numbers in the US. I'm
Speaker 2: Nathan Hager in Washington.
Speaker 3: I'm Calaine Hebga in London, where we're looking ahead to
Speaker 3: an un usually important set of UK local elections.
Speaker 4: I'm Doug Prisner looking at how higher oil prices will
Speaker 4: affect the thinking at the Reserve Bank of 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. On Friday,
Speaker 2: we get non farm payrolls for the month of April
Speaker 2: at eight thirty am. Wall Street Time Here with us
Speaker 2: for more what to expect on jobs Friday and how
Speaker 2: that data could affect FED policy is Stuart paul Us,
Speaker 2: economist with Bloomberg Economics. Stuart, great to speak with you.
Speaker 2: I mean, it seems like we've been in this low
Speaker 2: higher low fire environment for a while now. Are the
Speaker 2: April numbers going to change that?
Speaker 5: You know, I don't think that the April numbers are
Speaker 5: going to change the thematic view that this is a
Speaker 5: low higher low fire situation, a low higher low fire environment.
Speaker 5: Right now, the consensus expects about sixty thousand jobs were
Speaker 5: added during the month of April, and that's a notable
Speaker 5: slowdown from the hiring pace registered in March, when about
Speaker 5: one hundred and seventy eight thousand workers were added to payrolls. Now,
Speaker 5: sixty thousand would still be a relatively strong reading the
Speaker 5: break even hiring pace, That hiring pace that's needed to
Speaker 5: hold the unemployment rate steady is likely closer to about
Speaker 5: thirty five thousand jobs added, So sixty k is a
Speaker 5: healthy print. It's even probably enough to push the unemployment
Speaker 5: rate down to four point two percent from four point
Speaker 5: three percent in March. That said, Nathan, when we look
Speaker 5: at alternative data sources, we're actually a little bit more cautious.
Speaker 5: High frequency and private sector data suggests that the hiring
Speaker 5: pace was a bit slower than the consensus expects for April,
Speaker 5: but the timing of Easter, which was celebrated during the
Speaker 5: payroll reports survey window, will definitely add a lot of
Speaker 5: noise to the data. So when we zoom out, when
Speaker 5: we think about the labor market and its totality, when
Speaker 5: we filter out the noise and account for the month
Speaker 5: to month volatility that we've seen throughout the start of
Speaker 5: this year, what we're basically seeing is a hiring pace
Speaker 5: that's just a little bit faster than we saw throughout
Speaker 5: last year. That's despite policy uncertainty, despite the war in Iran,
Speaker 5: and it's a healthy enough hiring pace to weigh on
Speaker 5: the unemployment rate. Like you say, it's relatively low hiring,
Speaker 5: but we also have a low enough degree of firing
Speaker 5: that the unemployment rate could be entering down.
Speaker 2: How do you account for the relative resiliency that we
Speaker 2: are seeing in this labor market despite all the uncertainties
Speaker 2: and all the pressures that you were just talking about.
Speaker 5: There's a lot of investment going on. We saw in
Speaker 5: the first quarter that investment plans and an actual investment
Speaker 5: that was laid out during the quarter was really strong.
Speaker 5: And when you have a lot of investment, you're also
Speaker 5: going to have some demand for workers to work those machines,
Speaker 5: and I think that that's part of what's sustaining the
Speaker 5: labor market right now. Beyond that, we're also getting a
Speaker 5: little bit of fiscal thrust. We had the distribution of
Speaker 5: relatively high, relatively large tax refunds throughout the first quarter
Speaker 5: and also obviously through April. And when that's the case,
Speaker 5: you have strong enough demand, you have enough going on
Speaker 5: in terms of total economic activity that workers are going
Speaker 5: to find places to land, they're going to find jobs
Speaker 5: to serve that demand. And so right now we have
Speaker 5: a little bit of fiscal thrust, we have a lot
Speaker 5: of cap X coming online, and we have enough labor
Speaker 5: demand to serve both of those needs to sustain the
Speaker 5: labor market where it is and to prevent any sort
Speaker 5: of fallout and ramp up in hiring.
Speaker 6: So to speak.
Speaker 2: Do you expect that to be able to continue to
Speaker 2: be sustained if we continue to see a conflict in
Speaker 2: the Middle East continuing. I expect so.
Speaker 5: At least for some time. It doesn't look to me,
Speaker 5: like the stimulus and the stimulative effect from the One
Speaker 5: Big Beautiful Bill Act and the tax refunds that people
Speaker 5: are seeing, it doesn't look like that's going to be
Speaker 5: depleted by high energy prices at least through the summer.
Speaker 5: It looks like consumers at least have that long of
Speaker 5: a runway. Consumption can last that long that I don't
Speaker 5: think that firms are going to be retrenching in their
Speaker 5: demand for labor, at least not immediately. And again, it
Speaker 5: looks like we're just in that low, higher, low fire,
Speaker 5: relatively undynamic labor market right now where enough workers are
Speaker 5: landing on their feet and finding jobs to keep the
Speaker 5: unemployment rate relatively low. It's not screaming labor market dynamism,
Speaker 5: but again it's enough to create smooth enough sailing in
Speaker 5: the near term despite the kinetic conflict in the Middle
Speaker 5: East that for example, the FED can stay on hold.
Speaker 5: It has enough time to wait it out and make
Speaker 5: a more deliberate decision in the second half of this year.
Speaker 2: Yeah, we just came out of a FED decision just
Speaker 2: last week where they did decide to stay on hold.
Speaker 2: But we did get those descents from three policy makers
Speaker 2: who say they oppose the language that hinted at interstraight
Speaker 2: cuts down the road. Do you expect this jobs report
Speaker 2: to shift that bias in any way?
Speaker 5: It's interesting when we look at the labor market, we
Speaker 5: look at which direction the risk cuts for the unemployment rate.
Speaker 5: Odds favor the unemployment rate coming down, and I expect
Speaker 5: that the central banker is in the room last week
Speaker 5: understood that same reality that the risk is skewed towards
Speaker 5: the unemployment rate coming down. And when that's the case,
Speaker 5: to the three relatively hawkish members who did not want
Speaker 5: to include a dubbish bias in the FMC statement, it's
Speaker 5: very understandable why they wanted to strike a more neutral tone.
Speaker 5: If you expect the labor market to be improving modestly,
Speaker 5: and you expect the unemployment rate to inch down, why
Speaker 5: suggest that the next move is going to be an
Speaker 5: interest rate cut. So I totally understand that, and I
Speaker 5: expect that this April Jobs report is going to affirm
Speaker 5: exactly what those relative hawks on the committee we're saying,
Speaker 5: where they should be striking a relatively more neutral tone
Speaker 5: at this moment.
Speaker 2: Appreciate this, Stuart, as always, that's Stuart paul Us economist
Speaker 2: with Bloomberg Economics. Let's take a look now, add some
Speaker 2: stocks making news in the week ahead. I'm Nathan Hager,
Speaker 2: joined by Bloomberg Equities reporter Matthew Griffin with more earnings
Speaker 2: to stay on top of this week. Matthew, maybe the
Speaker 2: biggest name that we're looking at is the biggest name
Speaker 2: in entertainment, Walt Disney reporting earnings on Wednesday, the first
Speaker 2: one under the new CEO, Josh Tomorrow, if I'm not mistaken,
Speaker 2: Is that right?
Speaker 7: Yes?
Speaker 6: And Nathan, I think that's going to put a lot
Speaker 6: of focus on what the company says here, on the
Speaker 6: questions that they take from analysts, and on what the
Speaker 6: new CEO has to say. You do have relative optimism
Speaker 6: among analysts who expect single digit growth in both adjusted
Speaker 6: earnings per share and revenue. So that's a dollar fifty
Speaker 6: one in EPs and nearly twenty five billion dollars in revenue.
Speaker 6: But if you think about the news for this company
Speaker 6: in recent months, a lot of it has again been
Speaker 6: about what the company has to say. So on the
Speaker 6: financial side, you had to share sell off after the
Speaker 6: last earnings, Disney said they expected only modest growth in
Speaker 6: the March quarter. As they, for example, had trouble getting
Speaker 6: international visitors to come to their parks. It's getting more
Speaker 6: expensive to air live sports. Now under Josh Tomorrow's tenure,
Speaker 6: you have this dust up with the Trump administration yet
Speaker 6: again over Jimmy Kimmel. I think analysts are really going
Speaker 6: to pepper this company with questions and are going to
Speaker 6: be listening closely as our investors to what they have
Speaker 6: to say.
Speaker 2: I mean, what is the pressure on Tomorrow to outperform
Speaker 2: given the stock performance so far this year?
Speaker 6: Yes, you know, it's interesting. I do think investors had
Speaker 6: some level of patience with Bob Iger, even though the
Speaker 6: company wasn't necessarily seen as innovating or as growing to
Speaker 6: the extent that people wanted. So he may have a
Speaker 6: bit of runway, and he's making some moves. The company
Speaker 6: does have plans to cut jobs in an attempt to
Speaker 6: cut costs. But I do think there's going to be
Speaker 6: an expectation eventually of better results in better stock performance
Speaker 6: than Eiger delivered in his second tenure at the company.
Speaker 6: The stock was up during his time as CEO, but
Speaker 6: badly trailed the broader market.
Speaker 2: All right, So that could be the marquee event. This week,
Speaker 2: we hear from Disney on Wednesday, but before that, after
Speaker 2: all the tech earnings we saw last week, we hear
Speaker 2: from one more name in the chip space on Tuesday.
Speaker 2: What are we looking for from Advanced micro Devices?
Speaker 6: Well, Nathan, I think investors are going to be expecting
Speaker 6: a lot from the chip maker. You have the shares
Speaker 6: trading at all time highs, and if you think about
Speaker 6: what we've seen in recent weeks, you had blockbuster outlooks
Speaker 6: from Intel, from Texas Instruments share reactions to match. Now
Speaker 6: you've had the sort of hyper scaler technology companies such
Speaker 6: as Meta raise their expectations for capital expenditures this year.
Speaker 6: If you look at the actual numbers that analysts are
Speaker 6: looking for, they're looking for just under nine point nine
Speaker 6: billion dollars in revenue. That's in the range that AMD
Speaker 6: gave when they last reported earnings. That being said, that
Speaker 6: was seen as disappointing at the time, you had the
Speaker 6: stock's steepest drop in years after that, and if you
Speaker 6: look at the stock rally now, investors may be looking
Speaker 6: for some upside there.
Speaker 2: Yeah, I mean there's a lot of upside already with
Speaker 2: this stock. It's been surging since the start of the year.
Speaker 2: Is this almost a price to perfection moment for AMD so?
Speaker 6: Yes, this stock up sixty two percent year to date,
Speaker 6: and it does feel like the entire semiconductor ecosystem is
Speaker 6: price to perfection. You had the Philadelphia Semiconductor Index just
Speaker 6: went on a record long winning streak. You just look, basically,
Speaker 6: there's green across the board. And yet at the same time,
Speaker 6: there are questions about the profitability of investments in artificial intelligence.
Speaker 6: Investors just constantly have their eyes on that, and I
Speaker 6: do think each and dual company is going to be
Speaker 6: expected to deliver something concrete for investors to chew on.
Speaker 2: Also on Wednesday, we hear from Marriott International, always curious
Speaker 2: to see how travel names are doing given all that's
Speaker 2: going on in geopolitics.
Speaker 6: Yes, and the really interesting thing here with Marriott International
Speaker 6: is that this also looks like a stock that may
Speaker 6: be priced for perfection. Even during the war in Iran,
Speaker 6: the stock is trading close to all time highs again,
Speaker 6: even though hotels in the Middle East, many of them
Speaker 6: are near empty. Even though consumers are facing pricier airfares,
Speaker 6: are facing higher fuel costs that are eating into their budgets.
Speaker 6: Right now, investors are positioned in hotel names as if
Speaker 6: that's not going to matter, as if there's going to
Speaker 6: be enough upside, especially from for example, higher income consumers,
Speaker 6: to wash all of that away. But we've started to
Speaker 6: see some weakness showing up, for example in outlooks from
Speaker 6: Hilton and elsewhere in travel from booking holdings. I think
Speaker 6: investors and analysts want to know whether Marriott's under some
Speaker 6: of that same pressure.
Speaker 2: All right, well, we'll be watching for it all with
Speaker 2: earnings coming up later this week. That is Matthew Griffin,
Speaker 2: equities reporter for Bloomberg News. Coming up on Bloomberg day
Speaker 2: Break weekend, We're going to look ahead to an unusually
Speaker 2: important set of local elections in the UK. I'm Nathan
Speaker 2: Hagar and this is Bloomberg. This is Bloomberg day Break weekend,
Speaker 2: our global look ahead at the top stories for investors
Speaker 2: in the coming week. I'm Nathan Hager in Washington. Up
Speaker 2: later in our program will look to a monetary policy
Speaker 2: decision from the Reserve Bank of Australia. But first, voters
Speaker 2: across the UK go to the polls May seventh, in
Speaker 2: the biggest test for political parties at the ballot box.
Speaker 2: Since keer Starmers left leaning Labor Party won the UK's
Speaker 2: general election in July of last year. We get more
Speaker 2: from Bloomberg Daybreak europe banker Caroline Hepger in London.
Speaker 3: Nathan Local councils are in charge of providing care for
Speaker 3: the elderly and disabled, fixing roads, collecting rubbish and dealing
Speaker 3: with planning applications. Usually local elections are well local, but
Speaker 3: this set of elections is going to be much more significant,
Speaker 3: with voters in Scotland and Wales also electing representatives to
Speaker 3: their national parliaments. Not only are local council taxes going up,
Speaker 3: but this could also be a hugely significant moment when
Speaker 3: UK politics shifts decisively from the dominance of a few
Speaker 3: parties to fracturing into possibly as many as seven. Barely
Speaker 3: two years since the Labor Party won a landslide election
Speaker 3: with five thousand council seats up for grabs in England,
Speaker 3: here are the five main parties in England talking about
Speaker 3: their hopes.
Speaker 8: More right, more security for renters, lifting half a million
Speaker 8: children out of poverty.
Speaker 9: That's our mandate, that's our mission, and nothing's going to.
Speaker 8: Hold us back.
Speaker 9: It's been one disaster after another, cronyism, jobs for friends
Speaker 9: of convicted pedophiles, peerages for other friends of convicted pedophiles,
Speaker 9: broken promises on taxes, you turn after U turn after
Speaker 9: you turn.
Speaker 10: Just a few years after we went through all this
Speaker 10: under Bryce Johnson and the Conservatives, in less than two
Speaker 10: years after British people voted them out of office for
Speaker 10: indulging in this sort of chaos and distraction, here we
Speaker 10: are again.
Speaker 11: I genuinely believe that reform are going to do so
Speaker 11: well in the Midlands, the North, South Wales that it
Speaker 11: will be the end of the prime minister. And frankly,
Speaker 11: you know, I'm of the view that this is the
Speaker 11: most unpatriotic, Unbritish, dissembling prime minister that the country's ever had.
Speaker 12: I think one of the reasons we're seeing the rise
Speaker 12: of the far right in our communities or some of
Speaker 12: our communities, is because people feel, in fact, they don't
Speaker 12: just feel they know that politics is being done to
Speaker 12: them rather than with them. People feel like they're not
Speaker 12: involved in decisions, money is being spent, and they feel
Speaker 12: like the communities are disintegrating, that they're being afraid of
Speaker 12: the edges.
Speaker 3: So that was Labor, the Conservatives, the Greens, Reform UK
Speaker 3: and Liberal Democrats talking about their hopes for the local elections. Well,
Speaker 3: joining me now is Irena Angel, our UK Economy reporter,
Speaker 3: and James Walcock, ore UK Politics reporter, just lay out
Speaker 3: how big these elections actually are. I mean, as I say,
Speaker 3: local elections are usually about potholes, but perhaps not this time.
Speaker 7: That's right. So this round of elections is big in scope,
Speaker 7: so they will determine they might determine the fate of
Speaker 7: Prime Minister Cure Starmer. But they are also very big
Speaker 7: in size. So on May seven, the same day that
Speaker 7: Scotland and Wales vote for new governments, we have over
Speaker 7: five thousand seats up for grabs in why one hundred
Speaker 7: and thirty six of England's almost two hundred local councils,
Speaker 7: and that's predominantly in London and the Southeast. So compared
Speaker 7: to the last years, these elections are taking place on
Speaker 7: much more labor territory and that's what makes them essentially
Speaker 7: a referendum on Starmer's leadership.
Speaker 3: Yes, that's interesting. You've been looking at the data. These
Speaker 3: elections are then showing also quite a fracturing. It's not
Speaker 3: actually about just the traditional opposition party, the Conservatives, It
Speaker 3: might be about many more parties this time around.
Speaker 7: That's right, Labor and the Conservatives. So the two parties
Speaker 7: that have dominated the British politics, they've been losing support
Speaker 7: in all directions really in recent years, you know, amid
Speaker 7: the cost of living crisis, political scandals on popular fiscal
Speaker 7: measures and lots of other things. But at the national
Speaker 7: level we now have five parties, so Labor, the Conservatives Reformed,
Speaker 7: the Greens and the Liberal Democrats pulling in the double figures.
Speaker 7: And you know, the local level, together Label and the
Speaker 7: Conservatives only hold just over half of all council seats
Speaker 7: and that's the lowest since at least the nineteen seventies,
Speaker 7: after the last year's locals, so that proportion used to
Speaker 7: be around seventy eighty percent over the last fifty years.
Speaker 7: And the thing is it could go even lower. So
Speaker 7: pulling ahead of the May seven locals shows that a
Speaker 7: good night for Labor and the Tories would mean losing
Speaker 7: hundreds of seats each, but on a good night performing
Speaker 7: the Greens could win over one thousand seats each. So
Speaker 7: the two party system has been fracturing for a while now,
Speaker 7: but this round of local elections might deliver the final blow.
Speaker 3: Yeah. Absolutely, And we're going to be watching lots of
Speaker 3: different regions, aren't we. The Nations regiency as Scotland and Wales,
Speaker 3: but also the West Midlands and London, London's mini traditional
Speaker 3: stronghold of the Labor Party. You know they control twenty
Speaker 3: one out of thirty two boroughs in London. James, let
Speaker 3: me return to you. We have seen kistom in troll,
Speaker 3: but a lot of trouble. Why though, you know, as
Speaker 3: we think about this set of local elections as being
Speaker 3: a major test for Keir Starmer and his government, why
Speaker 3: has it come to this?
Speaker 8: I think if there ever were a honeymoon for winning
Speaker 8: the Lands election twenty twenty four, it's it's not just ended,
Speaker 8: it's gone down in flames. Now with politics, it's all
Speaker 8: messy and interlinks with each other. But if you're trying
Speaker 8: to condense this into three reasons, Starmer is the most
Speaker 8: unpopular prime minister in modern politics, not just in the
Speaker 8: extent of popularity, but in the speed of which he
Speaker 8: has become unpopular. He is scandal prone and I say
Speaker 8: this because he has lost two of his chiefs of staff,
Speaker 8: the most recent one just this January. He has lost
Speaker 8: two heads of the civil servants and one step down naturally.
Speaker 8: Simon Casey Lorn was sacked, Chris Wormold he's on his third.
Speaker 8: Antonio Romeo. He's lost his deputy Prime Minister Anderna and
Speaker 8: had to replace her as well. There has been multiple
Speaker 8: chopping and changing this government and that has led to him,
Speaker 8: amongst other reasons, being seen as weak. In January, Labor's
Speaker 8: head in Scotland, Annas Starwak, disowned him and said he
Speaker 8: should leave Prime minister. All this sounds up to say
Speaker 8: there are clear rumblings now from sort of leadership rivals
Speaker 8: who can all, like me Karine's reader calendar, see sort
Speaker 8: of the writing on the wall for the next week
Speaker 8: and are starting to sort of wonder if this might
Speaker 8: be the moment they step into the limelight and say
Speaker 8: they could do a better job.
Speaker 3: So Irena. Lots of anticipation then on what the results
Speaker 3: might actually show, because that's going to be key. You know,
Speaker 3: just how badly Labor does will be important. One of
Speaker 3: Britain's most well known polsters, John Curtis, talking about the
Speaker 3: elections posing a potentially remarkable calamity for the government and
Speaker 3: also for the Conservatives. So what are we thinking about
Speaker 3: and expecting in terms of results, any clear winners and losers.
Speaker 7: Well, so, if you ask voters themselves, they expect a
Speaker 7: power shift towards the insurgents, towards reforming the Greens. And
Speaker 7: you know, they do blame labor for the decline in
Speaker 7: public services, both with the national edit.
Speaker 13: The local levels.
Speaker 5: However, there is not.
Speaker 7: One party that's seen as the replacement. You know, when
Speaker 7: asked who would be the best at running the local council,
Speaker 7: a quarter of voters say they just don't know, while
Speaker 7: the rest are split between the five parties. So, you know,
Speaker 7: Gideon Skinner from IPSU said that we're in this sort
Speaker 7: of multi party system where no one convinces the majority.
Speaker 7: So if there was, if there is a winner, a
Speaker 7: clear winner from these local elections, it might not be
Speaker 7: an actual party. It might just be the new multi
Speaker 7: party system.
Speaker 3: Okay, Yeah, which I suppose is quite European in some ways,
Speaker 3: isn't it. I mean, if you compare the number of
Speaker 3: parties in many European countries, James, how quickly do you
Speaker 3: think that this could unravel the local elections are on
Speaker 3: a Thursday, take some time to get the results. What
Speaker 3: could be the fallout.
Speaker 8: All the pens on if one of these leadership contenders
Speaker 8: in Labor chooses to say this has gone terribly we
Speaker 8: need a change of leadership. If that sort of boulder
Speaker 8: starts going down the hill, it can happen very quickly. Indeed,
Speaker 8: I mean I look back to Boris Johnson when he
Speaker 8: left office, the Conservative Prime Minister. All it took was
Speaker 8: the then Chancellor She's sunac saying sort of his confidence
Speaker 8: was up, and then like a sort of tide bursting
Speaker 8: a bank, so many more politicians joined in behind him.
Speaker 8: On the other hand, increasingly now it's looking like there
Speaker 8: are multiple different factions inside Labor, some sort of in
Speaker 8: the sort of center right unite behind say where's streeting
Speaker 8: the health sefety some prefer and as the rain of
Speaker 8: the former deputy Prime Minister, like Andy Burnham, the current
Speaker 8: mayor of Manchester. No one is yet seemed to sort
Speaker 8: of have a quorum, at least based on what we're
Speaker 8: seeing in public, and that might mean that with no
Speaker 8: everyone sort of struggling to get on top, no one
Speaker 8: says anything, and then we could be in the position
Speaker 8: for months that could still be in office by the
Speaker 8: end of this year. It could just gum up the system.
Speaker 8: But currently, what you've got to understand about local elections
Speaker 8: is it is no MPs are lawmakers in Parliament are
Speaker 8: on the line here, but all their counselors are, all
Speaker 8: the people who've backed them for their seats, are, all
Speaker 8: the people who campaign for them are there. And it
Speaker 8: is a real psychological loss for a lot of these
Speaker 8: MPs if they lose all of their people who go
Speaker 8: and campaign form and those people are ringing them up
Speaker 8: on the mobile saying it was your national government that
Speaker 8: lost me my job. And it is often a really
Speaker 8: psychological punch to the face that many governments in the
Speaker 8: UK at least can be unwound.
Speaker 3: By Okay, well that's pretty colorful, yes, Andy Burnham. I
Speaker 3: mean I'll add that that's a difficult issue, isn't it,
Speaker 3: because of course he may be the mayor in Manchester,
Speaker 3: but he isn't a sitting MPs. There's lots of difficulties
Speaker 3: with that point. I mean, are some last pointers then
Speaker 3: for us? So as we think about these local and
Speaker 3: they are national elections to in Scotland, in Wales, what
Speaker 3: should we be thinking about.
Speaker 7: So if you look at Scotland, Scottish politics has also
Speaker 7: become increasingly fragmented and voters are signaling a strong appetite
Speaker 7: for change there after fifteen years of SMP dominance. So
Speaker 7: traditional parties are losing ground and insurgents are gaining tractions.
Speaker 7: You know, in voters we see them transferring across the
Speaker 7: traditional sort of independence divide, and the election there is
Speaker 7: being cast as this contest between the incumbent SMP and Reform,
Speaker 7: which is making its first breakthrough in Scotland. You know,
Speaker 7: despite widespread the mind for change, the SMP, which is
Speaker 7: anchored by its commitment to independence, still looks likely to
Speaker 7: remain in government. Then, moving to Wales, their posters project
Speaker 7: Labor to record its lowest share of seats since the
Speaker 7: early nineteen hundreds, and it might lose control of the
Speaker 7: Wales Legislature for the first time since since it was
Speaker 7: format in ninety nine. And then the left wing pro
Speaker 7: independence plied are vying with Reform for first place.
Speaker 12: In the end.
Speaker 7: You know, Applied might be on track to to lead
Speaker 7: the minority government, potentially in coalition with Labor. But even there,
Speaker 7: you know, Reform really is on track to to form
Speaker 7: the official position, so very much the same fragmentation conversation
Speaker 7: going on across the UK.
Speaker 3: Yeah. Absolutely, it's going to be a very interesting time.
Speaker 3: My thanks to Arena and Gel our UK Economy reporter,
Speaker 3: and to James Walcock, are UK politics reporter, laying it
Speaker 3: all out for us the local elections in the UK,
Speaker 3: in England and of course the votes for the Senate
Speaker 3: and the Scottish Parliament on the seventh of May. I'm
Speaker 3: Caroline hepget here in London. You can catch us every
Speaker 3: weekday morning here for Bloomberg Daybreak Europe, beginning at six
Speaker 3: am in London. That's one am on Wall Street.
Speaker 2: Nathan, Thanks Caroline. Man Coming up on Bloomberg Daybreak weekend,
Speaker 2: we'll look to a cut decision on interest rates from
Speaker 2: the Reserve Bank of Australia. I'm Nathan Hager and this
Speaker 2: is Bloomberg. This is Bloomberg day Break Weekend, our global
Speaker 2: look ahead at the top stories for investors in the
Speaker 2: coming week. I'm Nathan Hager in Washington. The Reserve Bank
Speaker 2: of Australia has an interst rate decision in the coming week,
Speaker 2: and for a preview, let's get to Doug Prisner, host
Speaker 2: of the Bloomberg Daybreak Asia podcast.
Speaker 4: Thanks Nathan. Central banks around the world are being challenged
Speaker 4: right now by a surge in oil prices following the
Speaker 4: war in Iran. It's more of a dilemma actually, since
Speaker 4: higher oil prices cut both ways. Obviously they produce higher
Speaker 4: inflation while at the same time threatening economic growth. So
Speaker 4: how will the RBA respond to the current situation. Let's
Speaker 4: bring in Bloomberg economist James McIntyre. James covers the economies
Speaker 4: of the Pacific and he joins from our studio in Sydney.
Speaker 4: Thank you for being here. Before we get to the
Speaker 4: impact of the war and how it's affecting the Australian economy,
Speaker 4: take me back and help me understand what was happening
Speaker 4: before this conflict broke out in late February.
Speaker 13: So before the conflict broke out, we'd had the RBA
Speaker 13: being a little bit concerned about inflation and raising interest
Speaker 13: rates two months in a row in February and early
Speaker 13: in March. Before things really became concerning, the RBA had
Speaker 13: been thinking that it's outlook for the economy, that there
Speaker 13: was a little bit more demand than they were expecting.
Speaker 13: And there's some reasons for that.
Speaker 10: We do.
Speaker 13: Prior to all everything that's gone on with the war,
Speaker 13: the global economy, Australian economy in particular, but the global
Speaker 13: economy was bracing for a positive demand shock from the
Speaker 13: mega investments coming through from AI. Australia has got a
Speaker 13: very large pipeline of AI investment coming through and so
Speaker 13: the RBA was looking at that and everything else that
Speaker 13: was going on in the economy thinking that they needed
Speaker 13: to take a little bit of a heat out of demand,
Speaker 13: and they delivered two twenty five basis point hikes in
Speaker 13: a row to try and prevent inflation from getting away
Speaker 13: and try and make room in the economy for this
Speaker 13: positive demand shock coming through. So that's where we were.
Speaker 13: Unemployment was low, inflation a little bit high, and a
Speaker 13: little bit of signs of early cooling in the core
Speaker 13: of the property market in Sydney and Melbourne. And so
Speaker 13: that's the lay of the land before we had the
Speaker 13: big energy shock coming through.
Speaker 4: Okay, so that takes us to where we are.
Speaker 2: Now.
Speaker 4: What has the impact of the war been.
Speaker 13: Yeah, we're dealing with a lot of high frequency indicators
Speaker 13: and sentiment indicators. The hard data is only starting to hit.
Speaker 13: But in those sentiment indicators, we've seen consumers in particular
Speaker 13: really pull their heads back. In the weekly readings of
Speaker 13: consumer confidence, we've seen some of the weakest readings on record,
Speaker 13: worse than twenty twenty two in response to the Ukraine
Speaker 13: Russia conflict and the impact on energy markets there, and
Speaker 13: we're still from the lockdowns from the pandemic era and
Speaker 13: all of the previous recessions. Consumers have really been hit hard,
Speaker 13: and business confidence has taken a dive as well. In
Speaker 13: the property market, we've seen the combination of those rate
Speaker 13: hikes and the confidence hit really start to dial back
Speaker 13: and send Sydney and Melbourne property prices into reverse as well.
Speaker 13: So there's been a really big shock to consumers as
Speaker 13: they've been seeing the headlines and seeing those prices spike
Speaker 13: at the petrol at the gasoline bowser domestically.
Speaker 4: So you mentioned the pipeline of investment as it relates
Speaker 4: to artificial intelligence, and I know that Australia was looking
Speaker 4: to benefit from the buildout of these AI Danta centers.
Speaker 4: So with an energy shock and higher electricity prices, for sure,
Speaker 4: what is the trajectory now? How might those aspirations of
Speaker 4: really becoming more a larger player, let's say in the
Speaker 4: AI space. How has that changed.
Speaker 13: Well, surprisingly, it hasn't changed very much at all. So
Speaker 13: that is still part of the economic puzzle that's coming through.
Speaker 13: Just recently we've had Microsoft announce its plans for data
Speaker 13: center investment. That follows on the back of a few
Speaker 13: weeks ago Anthropic coming through and with the Prime Minister
Speaker 13: and various ministers announcing their investment plans. So Australia is
Speaker 13: one of the world's top three energy exporters and we
Speaker 13: have a very substantial renewable investment renewable energy capacity that
Speaker 13: remains untapped. So this is perfect ground from an energy
Speaker 13: perspective to make these data center in investments, accessing you know,
Speaker 13: if it's via solar with battery backups for example, accessing
Speaker 13: some of the cheapest and most plentiful We've got a
Speaker 13: lot of sunshine and a lot of land renewable energy
Speaker 13: investments to put these data centers in. And so that's
Speaker 13: still on the cards if we can get all of
Speaker 13: the components continue to come through, which from an Australian
Speaker 13: economists perspective, I mainly look at this from AFAR, but
Speaker 13: with some of these supply disruptions that are emerging as
Speaker 13: a result of the conflict. We're seeing some of those
Speaker 13: constraints potentially being a worry for data center roll out
Speaker 13: plans worldwide.
Speaker 4: So what about other natural resources that Australia is involved in,
Speaker 4: And I'm thinking of coal for example, and whether or
Speaker 4: not in the absence of access to a lot of
Speaker 4: hydrocarbons visa v crude oil, that for a country like China,
Speaker 4: for example, that coal would be something that you maybe
Speaker 4: want to latch onto as a way of producing electricity.
Speaker 13: That's right. This response from major energy Asian particularly major
Speaker 13: Asian energy users to the disruptions and the supply of
Speaker 13: energy coming from the Persian Gulf is driving them to
Speaker 13: seek alternative supplies or where that's not possible, alternative sources
Speaker 13: of energy. In Australia offers both. We are the third
Speaker 13: largest natural LNG exporter in the world, or probably the
Speaker 13: second largest now given the contailments from the damage to Qatar,
Speaker 13: behind the United States. So those cargoes have been we've
Speaker 13: been seeing increased price for those LNG cargoes as well
Speaker 13: as a very very substantial coal exporter. The coal sector
Speaker 13: is responding quite strongly to some of the signs that
Speaker 13: of increased demand is as that energy switching is going
Speaker 13: on within Northeast Asia in response to the disruptions to
Speaker 13: that gas supply, so that that is where Australia is
Speaker 13: getting a bit of an income windfall as the price
Speaker 13: of those commodities and the demand for them is rising
Speaker 13: in some of these well, I think we should still
Speaker 13: consider to be early response to the conflict and the
Speaker 13: disruption that's going on from the Middle East.
Speaker 4: So when you look at the domestic economy, I think
Speaker 4: that you and I can agree that for any central
Speaker 4: banker there is a risk here in the current environment
Speaker 4: of and unanchoring in inflation expectations. To get back to
Speaker 4: the RBA and the meeting in the week ahead, do
Speaker 4: you think that's going to be a major concern.
Speaker 13: I think that is the concern. So we have a
Speaker 13: situation where there is where central banks around the world
Speaker 13: are going to be looking at the same thing. They're
Speaker 13: going to be facing an inflationary shock. This energy price
Speaker 13: shock is going to be hitting the economy and there's
Speaker 13: nothing they can do about that. No amount of rate
Speaker 13: hikes from the RBA or the Federal Reserve is going
Speaker 13: to reopen the strait of holl moves. It's going to
Speaker 13: be you know, and we know that monetary policy works
Speaker 13: with a lag, so it's going to be about what
Speaker 13: do those central banks see in terms of how businesses
Speaker 13: and consumers are responding to the rate to the energy
Speaker 13: price shock. And so that's that the anchoring or how
Speaker 13: anchored our inflation expectations, So that confidence shock within the
Speaker 13: Australian circumstance from consumers is a key part of the puzzle.
Speaker 13: We've seen consumer inflation expectations rise, but if we are
Speaker 13: getting a major hit to confidence, that is going to
Speaker 13: see consumers close their wallets to the extent that those
Speaker 13: wallets have much left in them after having met the
Speaker 13: higher price at the bowser. That's going to be a
Speaker 13: very key factor in the reserve banks thinking about is
Speaker 13: there much capacity for businesses to pass on these energy costs.
Speaker 4: So I know that recently Australia's Treasurer Jim Chalmers was
Speaker 4: warning a very serious consequences for Australians. I mean, we're
Speaker 4: talking here about the impact of the war and I'm
Speaker 4: wondering about the role away from monetary policy that the
Speaker 4: government may have or may play in trying to maybe
Speaker 4: reduce some of the pain that's being inflicted on consumers.
Speaker 13: There's already been some steps that have been taken by
Speaker 13: the government to try and cushion some of the shock,
Speaker 13: but they are not going to be able to cushion
Speaker 13: the entirety of the shock. So if we have, for example,
Speaker 13: about a seventy cent per liter increase in the price
Speaker 13: of a leader of gasoline or petrol as we would
Speaker 13: call it at the pump, the government has, through a
Speaker 13: reduction in rebates and through the return of some taxes,
Speaker 13: taken around about thirty cents of that off. So there's
Speaker 13: still a large degree of the shocks that's come through.
Speaker 13: The government's also having to do something else here. Even
Speaker 13: though Australia is one of the largest energy exporters in
Speaker 13: the world, those energy exports come in the form of
Speaker 13: LNG in coal, in uranium, and we export some crude oil. However,
Speaker 13: Australia is a very significant net importer of petroleum products,
Speaker 13: so our refining complex here it's about twenty percent of
Speaker 13: domestic demand. Eighty percent of the fuels that we use
Speaker 13: on a day to day basis to run the economy
Speaker 13: are imported. They're imported from Asian refiners, and so what
Speaker 13: we're seeing the government having to do is try and
Speaker 13: negotiate with some of those foreign governments that have instituted
Speaker 13: export bands for US to supply them with gas and
Speaker 13: in return they open those export gates to send through
Speaker 13: the fuels that we need jet fuel, diesel and gasoline
Speaker 13: to keep the economy running and ticking over. So that's
Speaker 13: been a very significant piece of activity that the government's
Speaker 13: had to do, not just to try and cushion the
Speaker 13: price shock to consumers, but to prevent the economy from
Speaker 13: experience a significant supply restriction or constriction in supply. So
Speaker 13: we're doing okay for now, but it remains a week
Speaker 13: by week and a month by month situation for the economy.
Speaker 13: So we're not out of the woods yet in terms
Speaker 13: of a disruption to the quantity of petroleum fuel supplies
Speaker 13: coming through to run the economy resulting in US having
Speaker 13: to go to rationing and restrictions.
Speaker 4: It seems to me, when what the shock has exposed
Speaker 4: in terms of the vulnerability of the oil refining infrastructure,
Speaker 4: this might be a time for energy producers in Australia
Speaker 4: to kind of fortify that infrastructure in some way to
Speaker 4: add capacity for refining crude oil. Is anyone having that conversation.
Speaker 13: The conversation has started, but it will take a long time.
Speaker 13: If you want to start a refinery from scratch, or
Speaker 13: make or undertake a major expansion of a refinery that exists,
Speaker 13: you're looking at many, many years to bring these facilities
Speaker 13: online and set them up so that won't be happening overnight.
Speaker 13: Australia has relied on the open market, the free flowing
Speaker 13: global commodity markets, and when we've seen that, I guess
Speaker 13: bedrock or foundation of the global economy shift. With the
Speaker 13: closure of the Straight of Hall moves and the restrictions
Speaker 13: that are flowing from the conflict, those foundations, that reliance
Speaker 13: that the economy is based upon, those foundations are being
Speaker 13: shaken and it's resulting in conversations domestically shifting to look
Speaker 13: at what sovereign capacity do we need to bolster and
Speaker 13: reinforce given that those assumptions are not holding in a
Speaker 13: time of conflict.
Speaker 4: James will leave it there. Thank you so very much
Speaker 4: for helping us understand what's happening in the Australian economy
Speaker 4: as we look ahead to the meeting of the Reserve
Speaker 4: Bank of Australia. In the coming week, James McIntyre covers
Speaker 4: the economies of the Asia Pacific. Joining from Sydney, I'm
Speaker 4: Doug Krisner. You can join us weekdays for the Daybreak
Speaker 4: Asia podcast. It's available wherever you can at your podcast Nathan.
Speaker 2: Thanks Doug. And that does it for this edition of
Speaker 2: Bloomberg Daybreak Weekend. Join us again Monday morning at five
Speaker 2: am Wall Street Time for the latest don markets, overseas
Speaker 2: and the news you need is start your day. I'm
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