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Speaker 1: We're joined this half hour by Katrina l Senior economist

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Speaker 1: a Moodies Analytics. And Katrina, we heard there earlier a

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Speaker 1: lot of central bank action this week, and I want

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Speaker 1: to start with the FED. Seventy five basis points seems

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Speaker 1: pretty baked in at this meeting, but you know, we

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Speaker 1: heard in the news there possibly you we've got peak

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Speaker 1: rates at five and a half percent in the U S.

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Speaker 1: Where do you see things topping out and when? So

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Speaker 1: we're expecting, as you say, the seventy five basis point

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Speaker 1: hike this week is pretty set in, and then after

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Speaker 1: that we'll get a fifty basis point high, likely in December,

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Speaker 1: and then we will slow it down to twenty five

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Speaker 1: basis points thereafter for a few months. I mean what

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Speaker 1: at this point, I mean, beyond this week's meeting. It

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Speaker 1: really is going to be data dependent, particularly what happens

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Speaker 1: with US labor market data and also of course that

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Speaker 1: inflation print. I mean, we're still seeing in the US

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Speaker 1: that while the labor market has lost a little bit

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Speaker 1: of momentum, it's still incredibly hot. And you know that's

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Speaker 1: causing a lot of discomfort for the FED because they're

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Speaker 1: really trying to take the wind out of those demand

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Speaker 1: side pressures. I mean, the supply side pressures are easing

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Speaker 1: a little bit, but it's the demand side that's really

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Speaker 1: being problematic. I mean, wage growth, for instance, is still

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Speaker 1: incredibly high, running at around five percent, and they really

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Speaker 1: would like to bring that down to more about a

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Speaker 1: three and a half percent range. And so there's quite

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Speaker 1: still a lot of work to do, and so it

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Speaker 1: will be interesting to see how the labor market really

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Speaker 1: responds as those earlier hikes really start to materialize and

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Speaker 1: eventually you know, take the take the heat out of

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Speaker 1: the labor market over the coming months. Yeah, those jobs

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Speaker 1: numbers do on Friday, and we still have companies complaining

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Speaker 1: about workers shortages. But you mentioned CPI as well, let's

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Speaker 1: talk about that side of things. So it's still running

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Speaker 1: very hot. Where do your sense we are we near

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Speaker 1: the end of the beginning in terms of the inflation

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Speaker 1: flights or the beginning of the end. I mean that

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Speaker 1: that's really the question that everyone's asking. I mean, I

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Speaker 1: would say that we have already you know, likely passed

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Speaker 1: the peak in US headline inflation um and we will

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Speaker 1: see that that gradual cooling, and that's the key point

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Speaker 1: to note it it's gradual cooling when not suddenly kind

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Speaker 1: of um past the point where inflation is is you know,

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Speaker 1: you know, really elevated and beyond comfort levels. It's going

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Speaker 1: to gradually cool and it's really highly uncertain how how

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Speaker 1: you know quickly it's going to cool down. But I

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Speaker 1: think that the consensus is that it's going to be

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Speaker 1: a gradual slowdown. And if, as a consequence then the

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Speaker 1: US has to enter recession, then I mean, so be it.

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Speaker 1: But um, it's certainly the risk that the Fed's indicated

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Speaker 1: that they're willing to take at this point. Let's talk

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Speaker 1: about that risk. Do you think it is receding or

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Speaker 1: is it as possible probable as it ever was. I mean,

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Speaker 1: I think risks that the US will actually enter a

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Speaker 1: recession next year are only creeping higher. I don't think

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Speaker 1: that they're they're receding by any means. I mean, the

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Speaker 1: fact that at in a November meeting, we're still getting

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Speaker 1: a seventy five basis point hike from the Federal Reserve

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Speaker 1: clear early signals that growth is the secondary concern for

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Speaker 1: them at this point. So the fact that they are

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Speaker 1: you know, clearly signaling that inflation is the fight that

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Speaker 1: they are really prioritizing. It means that a recession risk

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Speaker 1: in the US is certainly still elevated next year. Yeah,

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Speaker 1: there's plenty of central bank action this week. Or we've

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Speaker 1: got the Bank of England as well. We've We've not

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Speaker 1: got a lot of time left in this part of

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Speaker 1: the program. But I guess the Bank of England policymakers

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Speaker 1: must be casting an envious eye across the Atlantic compared

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Speaker 1: to the problems they have. Yeah. I mean, you definitely

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Speaker 1: wouldn't want to be a central banker or or a

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Speaker 1: policymaker in the UK at this point. But I think again,

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Speaker 1: a seventy five basis point hike looks looks the most

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Speaker 1: likely there, Katrina, you're here with me in Sydney, and

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Speaker 1: of course the big macro of inter in Australia this week.

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Speaker 1: The r b A making its decision tomorrow did surprise

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Speaker 1: us last month with that twenty five basis point increase,

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Speaker 1: smaller than a lot of people were expecting. Are we

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Speaker 1: going to get the same again? Is this the path

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Speaker 1: they head now? Yeah? Our expectation is that we will

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Speaker 1: see another twenty five basis point hike from the Reserve

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Speaker 1: Bank of Australia this week and they have really slowed

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Speaker 1: down the pace of of hiking. I mean, at the

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Speaker 1: end of the day, they've already delivered a cumulative two

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Speaker 1: fifty basis points worth of hikes, which is a huge amount.

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Speaker 1: And I think what they're doing now is is slowing

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Speaker 1: it down and seeing how consumers and businesses and the

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Speaker 1: broader economy um starts to digest those those earlier rate

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Speaker 1: hikes because it's a huge amount, and so it will

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Speaker 1: take time for the full effect to materialize. I mean

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Speaker 1: that the labor market is still incredibly tight, um. It's

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Speaker 1: not just a supply side inflation story in Australia. Domestic

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Speaker 1: demand is hot and they're waiting for that to cool,

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Speaker 1: and so they will continue to hike at that slower

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Speaker 1: pace until they see that that's slower domestic demand filter through.

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Speaker 1: We are expecting inflation in Australia to peak not until

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Speaker 1: the end of the year and just below eight per cent,

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Speaker 1: So we're not through it yet. So why these smaller

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Speaker 1: increases is that there's the abbiator risk here of making

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Speaker 1: another error. I mean earlier they said they wouldn't hiked

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Speaker 1: four yet here we are. I mean that's a good question,

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Speaker 1: and I think it really does come back to the

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Speaker 1: fact that monitory policy does take time to fully materialize

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Speaker 1: in the economy. I mean, we've already seen that the

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Speaker 1: housing market has has probably been the most responsive sector

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Speaker 1: to to the hiking, and now it will take time

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Speaker 1: for those other areas to to slow down. I mean,

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Speaker 1: as I said that, the labor markets still tight, consumers

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Speaker 1: are still out there spending, but we do know that

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Speaker 1: as the rate hikes filter through, consumers will increasingly retreat.

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Speaker 1: But we don't think that they're going to completely retreat

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Speaker 1: such the recession in Australia materializes, but they will slow down,

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Speaker 1: and so I think the Reserve Bank is really aware

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Speaker 1: of the fact that there's a delay with the impact

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Speaker 1: of their policy in terms of things slowing down. Let's

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Speaker 1: just take quick look at China as well. We've got

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Speaker 1: p m I s for the month of October due

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Speaker 1: out in a little more than an hour's time. Bloomberg

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Speaker 1: Survey has got manufacturing p m I slipping back into

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Speaker 1: negative territory. But you're expecting a modest expansion rightwise. That

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Speaker 1: that's exactly right. So we're expecting that the official manufacturing

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Speaker 1: p m I is going to just keep its head

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Speaker 1: above water. So we're looking at a fifty point three

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Speaker 1: UM reading for October, and the reason is that, I mean,

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Speaker 1: we're seeing that the zero COVID policy is having you know,

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Speaker 1: a bit less of an impact on uh, you know,

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Speaker 1: domestic demand, but particularly on the manufacturing sector. We're seeing

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Speaker 1: that it's a bit less disruptive. And so that's really

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Speaker 1: a response of the fact that policymakers are a really

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Speaker 1: you know, gung ho on their preference for more localized,

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Speaker 1: sharp lockdowns to avoid the the broader impact on the economy.

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Speaker 1: And I think as long as they kind of keep

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Speaker 1: to that that broad script, then while China's domestic headwinds

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Speaker 1: will still be significant, it's not really gonna going to

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Speaker 1: go under or materially deteriorate, given how policymakers are really

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Speaker 1: in that supportive mode both on the fiscal and monetary

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Speaker 1: policy front. It doesn't feel like it now, but you know,

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Speaker 1: one day COVID zero will eventually hand. It's just a

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Speaker 1: matter of when when do you think that might happen,

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Speaker 1: and when it does, what sort of a rebound do

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Speaker 1: you think we're going to see in economic growth in China.

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Speaker 1: I mean, I can't see that policymakers a one day

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Speaker 1: going to come out and say, all right, zero COVID

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Speaker 1: is over. I think that it's going to be a

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Speaker 1: more gradual transition. I mean, they've already moved away from

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Speaker 1: extended citywide lockdowns to two more localized stance, and I

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Speaker 1: think that it will gradually just scale back over time.

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Speaker 1: But in terms of when exactly where we're going to

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Speaker 1: stop talking about the zero COVID policy, I mean, that

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Speaker 1: would be anyone's guess, and I'm not going to try

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Speaker 1: and contribute to that. Yeah, it does feel like it's

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Speaker 1: a long way off at the moment. Just quickly, one

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Speaker 1: other piece of data we're watching today, Hong Kong GDP

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Speaker 1: that's seen improving. Is this the start of a welcome trend?

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Speaker 1: I mean, so we're looking at the advanced estimate for

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Speaker 1: Hong Kong's GDP goes to come in at a two

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Speaker 1: que on que expansion, and that's a pretty decent result

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Speaker 1: for Hong Kong. And that's coming on the back of

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Speaker 1: the fact that trade with China is less disruptive as

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Speaker 1: a result of the zero COVID policy, which really hit

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Speaker 1: them in second quarter. Alright, Katrina L's senior economist at

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Speaker 1: Moodies Analytics. Thanks so much for joining us on Bloomberg

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Speaker 1: Daybreak Asia