1
00:00:02,480 --> 00:00:10,479
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg

2
00:00:10,520 --> 00:00:13,760
Speaker 1: Daybreak Asia podcast. I'm Doug Prisner. You can join Brian

3
00:00:13,800 --> 00:00:16,680
Speaker 1: Curtis and myself for the stories, making news and moving

4
00:00:16,720 --> 00:00:19,560
Speaker 1: markets in the Apec region. You can subscribe to the

5
00:00:19,600 --> 00:00:23,120
Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

6
00:00:23,320 --> 00:00:26,120
Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App.

7
00:00:27,240 --> 00:00:30,160
Speaker 2: Let's bring in Jing Lu, chief economist for Greater China

8
00:00:30,200 --> 00:00:33,640
Speaker 2: at HSBC, to take a closer look at China and

9
00:00:33,680 --> 00:00:36,639
Speaker 2: what we might see from the big shopping festival coming up,

10
00:00:37,000 --> 00:00:41,080
Speaker 2: the six eighteen festival, and also the general outlook. So

11
00:00:41,400 --> 00:00:44,080
Speaker 2: we talk about that give and take. Here's China kind

12
00:00:44,120 --> 00:00:45,880
Speaker 2: of giving Tesla something.

13
00:00:46,080 --> 00:00:52,599
Speaker 3: Why so, actually, I think after the pandemics, the shopping

14
00:00:52,800 --> 00:00:56,280
Speaker 3: patterns thing to change a little bit at East. From

15
00:00:56,320 --> 00:01:00,960
Speaker 3: what I understand, people may not necessarily fix it on

16
00:01:01,520 --> 00:01:05,760
Speaker 3: certain kind of shopping festival to shop, but the discount

17
00:01:06,080 --> 00:01:08,880
Speaker 3: e's sexual thing to spread out of the year. But

18
00:01:09,000 --> 00:01:11,920
Speaker 3: talking about the six eighteen, we already see on the

19
00:01:11,959 --> 00:01:17,360
Speaker 3: internet platforms different kind of e commerce start the offering

20
00:01:17,480 --> 00:01:18,680
Speaker 3: discount on the price.

21
00:01:18,480 --> 00:01:22,000
Speaker 1: War et ceter So ching Leu, I'm curious when you

22
00:01:22,040 --> 00:01:25,080
Speaker 1: look at a festival like six eighteen, is there a

23
00:01:25,080 --> 00:01:30,200
Speaker 1: big generational gap? There is this primarily geared toward younger

24
00:01:30,280 --> 00:01:35,240
Speaker 1: shoppers and older aged consumers maybe are not as interested

25
00:01:35,280 --> 00:01:39,560
Speaker 1: in participating. They're focused maybe in other areas of the economy,

26
00:01:39,560 --> 00:01:41,640
Speaker 1: and if they're thinking about what's going on in the

27
00:01:41,640 --> 00:01:46,000
Speaker 1: real estate market, the housing market, maybe they're feeling a

28
00:01:46,040 --> 00:01:49,400
Speaker 1: little less optimistic that there is a divide, a generational

29
00:01:49,440 --> 00:01:52,520
Speaker 1: divide when you look at the Chinese consumer in the

30
00:01:52,520 --> 00:01:53,920
Speaker 1: retail environment.

31
00:01:54,080 --> 00:01:59,919
Speaker 3: Not necessarily right now, China is actually offering some treaty,

32
00:02:01,160 --> 00:02:05,480
Speaker 3: you know, for the durable goods, and some of the

33
00:02:05,520 --> 00:02:09,200
Speaker 3: older generations also take advantage of this and try to

34
00:02:09,600 --> 00:02:14,480
Speaker 3: exchange their existing home appliances or even autos into a

35
00:02:14,600 --> 00:02:19,720
Speaker 3: newer and more energy efficient ones. And talking about the

36
00:02:19,840 --> 00:02:23,639
Speaker 3: consumption in general, I think here the story is the

37
00:02:23,680 --> 00:02:26,440
Speaker 3: same in a sense that after pandemic, people seem to

38
00:02:26,600 --> 00:02:32,960
Speaker 3: rotate to service related consumption. So we have seen, for example,

39
00:02:33,120 --> 00:02:37,680
Speaker 3: the service retail cells seem to grow at double the

40
00:02:37,760 --> 00:02:41,480
Speaker 3: speed of the goods retail cells this year and laster

41
00:02:42,000 --> 00:02:42,800
Speaker 3: more or less the same.

42
00:02:43,880 --> 00:02:48,800
Speaker 2: Do you think then that perhaps we are underestimating potential

43
00:02:48,840 --> 00:02:52,080
Speaker 2: growth in China, simply because as you say there, that

44
00:02:52,160 --> 00:02:54,840
Speaker 2: some of the spending is switched from goods to services

45
00:02:54,840 --> 00:02:56,760
Speaker 2: and maybe the data doesn't quite reflect it.

46
00:02:58,240 --> 00:03:00,720
Speaker 3: Yes, and no, I think you know to some extent,

47
00:03:00,919 --> 00:03:05,919
Speaker 3: the traditional retail sales data only includes one type of

48
00:03:06,240 --> 00:03:10,320
Speaker 3: services that is a cattering services. And there's this new

49
00:03:10,400 --> 00:03:15,200
Speaker 3: data series but only dates back to last year, which

50
00:03:15,240 --> 00:03:17,760
Speaker 3: is a service retail sales. So if we look at,

51
00:03:18,720 --> 00:03:22,240
Speaker 3: you know, both data theories, certainly the service retail sales

52
00:03:22,360 --> 00:03:25,360
Speaker 3: is stronger. And I said, no, I think you know.

53
00:03:25,520 --> 00:03:30,040
Speaker 3: Earlier on you mentioned that does the property sector correction

54
00:03:30,200 --> 00:03:33,880
Speaker 3: still drag on people's sentiment? I think that's certainly the case.

55
00:03:34,200 --> 00:03:39,160
Speaker 3: If we look at the consumer confidence index, that still

56
00:03:39,200 --> 00:03:44,440
Speaker 3: shows that it's not bunds back to the expansionary territory yet.

57
00:03:44,560 --> 00:03:47,440
Speaker 1: So when you consider ways in which the government may

58
00:03:47,600 --> 00:03:50,680
Speaker 1: try to stimulate the economy, we talk a lot about

59
00:03:50,680 --> 00:03:54,000
Speaker 1: the interest rate environment, but I'm thinking of other steps

60
00:03:54,040 --> 00:03:56,680
Speaker 1: Beijing may may look to take to try to get

61
00:03:56,680 --> 00:03:59,080
Speaker 1: more engagement on the part of the consumer. And I

62
00:03:59,160 --> 00:04:01,520
Speaker 1: understand the property market is a big part of that

63
00:04:01,600 --> 00:04:04,240
Speaker 1: story and they're trying to address that. But I'm wondering

64
00:04:04,280 --> 00:04:06,960
Speaker 1: if there are other things that you see that would

65
00:04:07,040 --> 00:04:11,200
Speaker 1: have the potential for invigorating consumer appetites.

66
00:04:12,400 --> 00:04:18,039
Speaker 3: I think the current the treating program where actually if

67
00:04:18,440 --> 00:04:22,640
Speaker 3: a consumer tried to treating their combustion engine car, they

68
00:04:22,640 --> 00:04:27,479
Speaker 3: can get up to ten thousand n of the credit

69
00:04:28,200 --> 00:04:32,280
Speaker 3: to purchase a new car. That certainly helped. We see

70
00:04:32,320 --> 00:04:38,000
Speaker 3: that the recent auto cells seem to reflect on that

71
00:04:38,080 --> 00:04:40,440
Speaker 3: kind of trend. And other than that, I think the

72
00:04:40,480 --> 00:04:43,359
Speaker 3: big problem is still if we look at the saving

73
00:04:43,440 --> 00:04:48,239
Speaker 3: straight of the household, the trend is upward sloping, which

74
00:04:48,279 --> 00:04:51,040
Speaker 3: means a lot of consumers are still trying to I mean,

75
00:04:51,080 --> 00:04:54,039
Speaker 3: household are still trying to say for their own winning days.

76
00:04:54,080 --> 00:04:56,719
Speaker 3: So the government has a lot to do trying to

77
00:04:56,760 --> 00:04:59,800
Speaker 3: pick up the social city there. They're doing it, probably

78
00:04:59,839 --> 00:05:03,400
Speaker 3: not quickly as a market would wish, but they have

79
00:05:03,520 --> 00:05:04,520
Speaker 3: taken steps on that.

80
00:05:06,000 --> 00:05:09,159
Speaker 2: Jinglu. When I was looking at the data yesterday, you know,

81
00:05:09,200 --> 00:05:11,680
Speaker 2: I felt that it was quite mixed. You know, it's

82
00:05:11,760 --> 00:05:14,080
Speaker 2: nice that retail sales had a little bit of a

83
00:05:14,120 --> 00:05:18,080
Speaker 2: pot but when looking at the property prices and property investment,

84
00:05:18,440 --> 00:05:21,839
Speaker 2: investment was weaker than expected, and fixed asset investment was

85
00:05:22,200 --> 00:05:26,200
Speaker 2: weaker than expected, and also home prices were weak. They

86
00:05:26,200 --> 00:05:29,680
Speaker 2: were actually negative, But that doesn't necessarily tell the whole

87
00:05:29,720 --> 00:05:32,640
Speaker 2: story because you can understand how prices. I mean, it's

88
00:05:32,680 --> 00:05:36,039
Speaker 2: not prices. We want to see sales. Okay, So what

89
00:05:36,040 --> 00:05:38,000
Speaker 2: do we know about actual property sales?

90
00:05:38,080 --> 00:05:41,960
Speaker 3: Actually, yeah, I agree with you. I think in China,

91
00:05:42,160 --> 00:05:46,680
Speaker 3: in particular during the rating in days, we have seen

92
00:05:46,839 --> 00:05:50,520
Speaker 3: lots of local government in post different kind of price controls,

93
00:05:50,839 --> 00:05:54,479
Speaker 3: usually setting the price setting of new homes below the

94
00:05:54,560 --> 00:06:00,320
Speaker 3: market price. From that perspective, it probably is more informative

95
00:06:00,480 --> 00:06:03,600
Speaker 3: to look at sales. And when it comes to sales,

96
00:06:03,640 --> 00:06:06,520
Speaker 3: I think it's kind of interesting. We read the headline

97
00:06:06,520 --> 00:06:10,839
Speaker 3: new Thing that the new home sales still down double digit,

98
00:06:11,120 --> 00:06:14,800
Speaker 3: But if we look deeper, there's different type of new homes.

99
00:06:14,839 --> 00:06:18,200
Speaker 3: One is the completed new homes, the other is pre sale,

100
00:06:18,440 --> 00:06:22,080
Speaker 3: and in China, pre sale is the dominant mode of

101
00:06:22,360 --> 00:06:26,080
Speaker 3: new home sales. And we see the clear contrast. For

102
00:06:26,200 --> 00:06:30,440
Speaker 3: the completed new home sales it's already double digit growth,

103
00:06:30,520 --> 00:06:33,400
Speaker 3: but for the pre sale new home sales it's still

104
00:06:33,520 --> 00:06:34,880
Speaker 3: double digit contraction.

105
00:06:35,160 --> 00:06:37,320
Speaker 1: All right, Does that mean we're going to get more support?

106
00:06:37,680 --> 00:06:39,920
Speaker 1: Will we get more support from the PBOC?

107
00:06:41,240 --> 00:06:44,680
Speaker 3: Yes? I think you know here what's backing is still

108
00:06:44,760 --> 00:06:48,920
Speaker 3: some potential household hesitate because they don't know whether they

109
00:06:48,960 --> 00:06:52,239
Speaker 3: get what they're paying for. We need definitely more help,

110
00:06:52,760 --> 00:06:55,440
Speaker 3: not just from the PVOC. I think in general we

111
00:06:55,480 --> 00:06:58,599
Speaker 3: need the kind of the backup from the central government

112
00:06:58,880 --> 00:07:02,120
Speaker 3: to ensure the home buyers either they get what they

113
00:07:02,720 --> 00:07:05,400
Speaker 3: they are paying for or they get a refund if

114
00:07:05,640 --> 00:07:08,040
Speaker 3: there's a default from the developer side.

115
00:07:08,839 --> 00:07:10,840
Speaker 2: All right, let me throw you a curveball. You didn't

116
00:07:10,880 --> 00:07:13,160
Speaker 2: like the curveball at the beginning, but throw another one here.

117
00:07:13,960 --> 00:07:17,680
Speaker 2: Does involve Tesla? It seems like Tesla and Apple are

118
00:07:17,720 --> 00:07:21,440
Speaker 2: sort of fair haired boys in China. And you know,

119
00:07:21,560 --> 00:07:26,040
Speaker 2: what is it about about foreign investment and foreign companies

120
00:07:26,520 --> 00:07:30,400
Speaker 2: with China? Does it have favorites like Apple and Tesla?

121
00:07:32,200 --> 00:07:34,320
Speaker 3: You mean from the government perspective or.

122
00:07:35,000 --> 00:07:40,480
Speaker 4: Yeah, policymakers, Yeah, yeah, I think right now the Chinese

123
00:07:40,520 --> 00:07:45,240
Speaker 4: government is very eager to engage the foreign you know,

124
00:07:45,400 --> 00:07:47,120
Speaker 4: investors and corporate alike.

125
00:07:47,440 --> 00:07:51,880
Speaker 3: Actually, I was, you know, in a business trip both

126
00:07:52,000 --> 00:07:56,080
Speaker 3: last week and yesterday to Shanghai. I saw a lot

127
00:07:56,160 --> 00:07:58,600
Speaker 3: of corporates actually visiting China.

128
00:07:58,840 --> 00:08:01,320
Speaker 2: Yeah, okay, we'll have to leave there, Jing, thanks so much,

129
00:08:01,400 --> 00:08:13,000
Speaker 2: Jing Liu chief economist at HSBC on China. Joining us

130
00:08:13,040 --> 00:08:15,480
Speaker 2: now on the program for a closer look at markets

131
00:08:15,960 --> 00:08:19,720
Speaker 2: is Andrew Slimmon, head of Applied Equity Advisors, that team

132
00:08:19,840 --> 00:08:23,600
Speaker 2: at Morgan Stanley Investment Management. Andrew, thanks very much for

133
00:08:23,640 --> 00:08:26,720
Speaker 2: taking out the time to be with us. How convinced

134
00:08:26,800 --> 00:08:31,440
Speaker 2: are you at the moment that inflation will continue edging

135
00:08:31,600 --> 00:08:33,880
Speaker 2: lower and is not about to switch direction?

136
00:08:35,600 --> 00:08:40,000
Speaker 5: Great question, Thanks for having me on. One of the

137
00:08:40,040 --> 00:08:44,000
Speaker 5: concerns I have is the way inflation is measured, which

138
00:08:44,080 --> 00:08:47,680
Speaker 5: is month over month, but it's also year over year comparisons.

139
00:08:48,360 --> 00:08:53,120
Speaker 5: And last year in the spring we had very high inflation,

140
00:08:53,679 --> 00:08:56,400
Speaker 5: so inflation was coming down, but as you got to

141
00:08:56,480 --> 00:09:01,360
Speaker 5: the summer, the inflation numbers last year got much lower

142
00:09:01,400 --> 00:09:05,800
Speaker 5: and below four percent. So I think the comparisons for

143
00:09:06,000 --> 00:09:11,000
Speaker 5: June and July will get tougher year or of a year,

144
00:09:11,080 --> 00:09:12,679
Speaker 5: which is why I think jer and pala is trying

145
00:09:12,720 --> 00:09:15,960
Speaker 5: to focus on month over month. But that concerns me

146
00:09:16,000 --> 00:09:19,839
Speaker 5: that the market has just taken gospel that inflation's coming down,

147
00:09:20,360 --> 00:09:22,600
Speaker 5: and really what I think about it as an equi manager,

148
00:09:22,679 --> 00:09:25,920
Speaker 5: the market's gone up forty percent off the October low.

149
00:09:26,320 --> 00:09:30,040
Speaker 5: It's rally seven out of eight months, we're due for

150
00:09:30,160 --> 00:09:32,679
Speaker 5: some type of pullback here and what could cause it?

151
00:09:32,720 --> 00:09:36,520
Speaker 5: And I think stickier than expected inflation certainly could be,

152
00:09:36,920 --> 00:09:38,800
Speaker 5: you know, one of the one of the causes.

153
00:09:38,920 --> 00:09:42,320
Speaker 1: I'm curious about another. I mean, if you're joining us

154
00:09:42,400 --> 00:09:43,959
Speaker 1: on a day when both the ES and P and

155
00:09:44,000 --> 00:09:47,040
Speaker 1: the Nasdaq hit record highs today, a number of analysts

156
00:09:47,080 --> 00:09:50,120
Speaker 1: have expressed a bit of concern about how narrow breadth

157
00:09:50,200 --> 00:09:55,199
Speaker 1: has been and how concentrated the market's leadership has really been,

158
00:09:55,240 --> 00:09:57,760
Speaker 1: and you know, some of the big megacap tech names.

159
00:09:57,800 --> 00:10:01,559
Speaker 1: We've talked about it at nauseum. Is that a concern

160
00:10:01,640 --> 00:10:04,360
Speaker 1: that you share, well.

161
00:10:04,360 --> 00:10:07,080
Speaker 5: I think you have to be a little careful because

162
00:10:07,080 --> 00:10:09,760
Speaker 5: if all you do is look at price action, and

163
00:10:09,760 --> 00:10:12,560
Speaker 5: I'm not saying anyone does, but that a lot of

164
00:10:12,559 --> 00:10:21,440
Speaker 5: those comments, I question that because fundamental uh performance validates it.

165
00:10:21,520 --> 00:10:26,559
Speaker 5: In other words, yes, the megacap tech socks are you know,

166
00:10:26,640 --> 00:10:28,520
Speaker 5: kind of sucking the oxygen out of the room, but

167
00:10:28,559 --> 00:10:32,080
Speaker 5: they also have the best fundamentals. They have produced the

168
00:10:32,200 --> 00:10:37,920
Speaker 5: strongest earnings, They are the most aggressive buy back buyers

169
00:10:37,920 --> 00:10:41,720
Speaker 5: of their own stocks. So I'm just a little bit

170
00:10:41,920 --> 00:10:45,160
Speaker 5: cautious on those to say, wow, these socks is ridiculous.

171
00:10:45,160 --> 00:10:48,280
Speaker 5: What's going on. It's not ridiculous what's going on. They're

172
00:10:48,320 --> 00:10:51,559
Speaker 5: fundamentals validated, Andrew.

173
00:10:51,679 --> 00:10:53,880
Speaker 2: You know, we've had a number of drivers here and

174
00:10:53,920 --> 00:10:57,199
Speaker 2: some have gotten better here of late. So one might

175
00:10:57,280 --> 00:11:00,640
Speaker 2: think that at some point money will just naturally because

176
00:11:00,679 --> 00:11:04,160
Speaker 2: evaluations flow out of that narrow band at the top

177
00:11:04,480 --> 00:11:07,160
Speaker 2: and into some of the others. Because you have a

178
00:11:07,200 --> 00:11:11,839
Speaker 2: secular growth driver like AI, you've got general optimism over

179
00:11:11,880 --> 00:11:14,959
Speaker 2: the economy. We talked about, corporate earnings have been better,

180
00:11:15,280 --> 00:11:19,120
Speaker 2: and these slightly better than expected readings on inflation, and

181
00:11:19,160 --> 00:11:21,200
Speaker 2: then the potential for rate cuts later in the years.

182
00:11:21,240 --> 00:11:23,360
Speaker 2: So that's a lot of positives, isn't it.

183
00:11:24,720 --> 00:11:27,640
Speaker 5: Yeah. I mean, I look, we're in a couple a

184
00:11:27,679 --> 00:11:30,360
Speaker 5: couple of weeks, actually more about four weeks. We're gonna

185
00:11:30,360 --> 00:11:33,440
Speaker 5: start getting earning season here in the States, and I

186
00:11:33,440 --> 00:11:36,400
Speaker 5: think it's going to be strong for a lot of

187
00:11:36,440 --> 00:11:40,040
Speaker 5: areas like the you know, the big money center, banks,

188
00:11:40,440 --> 00:11:43,400
Speaker 5: insurance companies, a lot of financials are going to report

189
00:11:43,480 --> 00:11:46,920
Speaker 5: very good numbers, and so I think this narrow breadth

190
00:11:47,400 --> 00:11:50,800
Speaker 5: will broaden out when the recognition that there are a

191
00:11:50,880 --> 00:11:54,360
Speaker 5: lot of industries doing well not just you know, AI

192
00:11:54,720 --> 00:11:58,079
Speaker 5: tech related, So yeah, I think that is a that

193
00:11:58,559 --> 00:12:04,360
Speaker 5: will be good. So fundamental earning strength has come year

194
00:12:04,400 --> 00:12:09,800
Speaker 5: to day in areas well beyond just the megacap texbocs,

195
00:12:09,920 --> 00:12:13,199
Speaker 5: well beyond just the AI plays. It just seems like

196
00:12:13,320 --> 00:12:16,199
Speaker 5: right now that's the focus, but that could shift as

197
00:12:16,200 --> 00:12:18,720
Speaker 5: we get into earning season. People as oh, these you know,

198
00:12:18,800 --> 00:12:20,760
Speaker 5: financials are pretty cheap and they're doing well.

199
00:12:21,960 --> 00:12:24,640
Speaker 1: I remember back in the day that morganstantly had the

200
00:12:24,840 --> 00:12:27,719
Speaker 1: Cyclical Index and the Consumer Index. I don't even know

201
00:12:27,760 --> 00:12:31,040
Speaker 1: if they still exist, but the Consumer Index was oftentimes

202
00:12:31,160 --> 00:12:33,880
Speaker 1: very useful for getting a read on the health of

203
00:12:33,920 --> 00:12:36,760
Speaker 1: the American consumer. And we've got this retail sales data

204
00:12:36,760 --> 00:12:39,680
Speaker 1: that is due this week. How are you feeling about

205
00:12:39,720 --> 00:12:42,640
Speaker 1: the buying power of America consumers? Is it beginning to

206
00:12:42,640 --> 00:12:43,400
Speaker 1: fade a little bit?

207
00:12:44,840 --> 00:12:48,640
Speaker 5: It's the US consumer clearly. I've listened to so many

208
00:12:48,679 --> 00:12:53,440
Speaker 5: conference calls and retailers, and what's clear is companies that

209
00:12:53,760 --> 00:12:59,439
Speaker 5: were aggressive price takers, that raise prices the last couple

210
00:12:59,440 --> 00:13:05,120
Speaker 5: of years, you know, whether that's Coffy or Hamburgers or whatever,

211
00:13:05,679 --> 00:13:09,280
Speaker 5: they're the ones that are suffering. But the companies that

212
00:13:09,320 --> 00:13:14,520
Speaker 5: have kept prices low the big box retailers, they're not suffering.

213
00:13:15,120 --> 00:13:20,679
Speaker 5: So I think it is the consumer not weakening, just

214
00:13:20,920 --> 00:13:26,280
Speaker 5: pushing back on the higher prices. And that's actually really healthy,

215
00:13:26,440 --> 00:13:29,640
Speaker 5: and it tells me that the consumer isn't just willing

216
00:13:29,679 --> 00:13:33,120
Speaker 5: to take any price possible. So yeah, I'm not sure

217
00:13:33,160 --> 00:13:34,920
Speaker 5: it's weakening. It's just becoming pickier.

218
00:13:35,360 --> 00:13:38,600
Speaker 2: That's how you get inflation down, is you know, higher price.

219
00:13:38,760 --> 00:13:41,959
Speaker 2: That's the way it's supposed to work. You know, so exacting,

220
00:13:42,440 --> 00:13:46,000
Speaker 2: But listen, Andrew, I mean, one of the possible negatives,

221
00:13:46,040 --> 00:13:50,040
Speaker 2: for sure, is just the sheer weight of debt and deficits.

222
00:13:50,440 --> 00:13:53,960
Speaker 2: That's a major concern and could come home to roost.

223
00:13:54,360 --> 00:13:57,840
Speaker 2: The only problem is it's a little bit like not

224
00:13:57,960 --> 00:14:02,080
Speaker 2: moving to southern California because of the big earthquake that

225
00:14:02,320 --> 00:14:03,360
Speaker 2: might be coming.

226
00:14:03,840 --> 00:14:04,000
Speaker 5: Now.

227
00:14:04,000 --> 00:14:06,400
Speaker 2: I know that might sound cute to you, but I

228
00:14:06,400 --> 00:14:08,680
Speaker 2: think you get the gist of the question. I mean, is.

229
00:14:11,920 --> 00:14:14,960
Speaker 5: That another way. I've been running these strategies for a

230
00:14:14,960 --> 00:14:17,480
Speaker 5: long time, and it's the number one question I've gotten

231
00:14:17,559 --> 00:14:20,520
Speaker 5: the last fifteen years. And if you were underweight equities

232
00:14:20,560 --> 00:14:23,360
Speaker 5: because you're worried about the deficit fifteen years ago, I

233
00:14:23,360 --> 00:14:27,400
Speaker 5: wouldn't be around. So I know the deficit is an issue,

234
00:14:27,800 --> 00:14:29,840
Speaker 5: but I look at the dollar and say, well, if

235
00:14:29,880 --> 00:14:32,400
Speaker 5: it was a big issue, the dollar would be weakening.

236
00:14:32,760 --> 00:14:36,520
Speaker 5: If it was a major issue, treasury yields wouldn't you know,

237
00:14:36,600 --> 00:14:39,040
Speaker 5: wouldn't be where they are, they'd be higher. And so

238
00:14:39,160 --> 00:14:41,480
Speaker 5: I don't think I'm smart enough to know what the

239
00:14:41,520 --> 00:14:46,960
Speaker 5: tipping point is on on deficits. And maybe maybe it's

240
00:14:46,960 --> 00:14:49,200
Speaker 5: because it's more commentary on the rest of the world

241
00:14:49,280 --> 00:14:54,200
Speaker 5: than just the dollar. But you know, it's tough to

242
00:14:54,240 --> 00:14:55,280
Speaker 5: know when that will come.

243
00:14:55,640 --> 00:14:58,360
Speaker 1: Maybe it shows up to a greater degree the closer

244
00:14:58,400 --> 00:14:59,880
Speaker 1: we get to the election. Do you have a cent

245
00:15:00,120 --> 00:15:02,880
Speaker 1: of how the election is going to impact market psychology

246
00:15:02,960 --> 00:15:05,720
Speaker 1: right now or is it a non event basically.

247
00:15:06,320 --> 00:15:10,480
Speaker 5: Well, you know, that's a great question, because my belief

248
00:15:10,560 --> 00:15:13,800
Speaker 5: the last few months have been well, I mean, if

249
00:15:13,840 --> 00:15:17,160
Speaker 5: you look at the history of presidential elections, we have

250
00:15:17,280 --> 00:15:22,200
Speaker 5: the conventions in the summer, and if the incumbent is

251
00:15:22,400 --> 00:15:27,320
Speaker 5: leading coming out of the conventions, the markets do pretty

252
00:15:27,360 --> 00:15:30,040
Speaker 5: well because the markets know what they got, you know,

253
00:15:30,080 --> 00:15:32,480
Speaker 5: it looks like the president is going to get re elected.

254
00:15:32,480 --> 00:15:35,120
Speaker 5: We know what we have with them, and they like certainty,

255
00:15:35,360 --> 00:15:39,120
Speaker 5: and if the challengers is leading, well, then the markets

256
00:15:39,360 --> 00:15:41,680
Speaker 5: weekend because we really don't know what we've got with

257
00:15:41,760 --> 00:15:44,080
Speaker 5: the Challenger. I think the reason why this is a

258
00:15:44,120 --> 00:15:47,640
Speaker 5: little different is the challenger has already been president, So

259
00:15:48,200 --> 00:15:50,240
Speaker 5: rightly or wrongly, you know what you got with both

260
00:15:50,320 --> 00:15:55,080
Speaker 5: these two gentlemen. So I, on the one hand, I say, okay,

261
00:15:55,120 --> 00:15:57,440
Speaker 5: So I don't think this presence is going to affect

262
00:15:58,000 --> 00:16:02,640
Speaker 5: the market nearly as much as it normally does. But

263
00:16:03,120 --> 00:16:07,400
Speaker 5: I will say this, if the Democrats are elected, you

264
00:16:07,440 --> 00:16:10,920
Speaker 5: could get a capital gains tax increase and that could

265
00:16:11,000 --> 00:16:12,880
Speaker 5: cause lots selling after the election.

266
00:16:13,360 --> 00:16:15,400
Speaker 2: All Right, Andrew, thanks so much for joining us. Andrew

267
00:16:15,480 --> 00:16:18,400
Speaker 2: Slim and head of Applied Equity Advisors at Morgan Stanley

268
00:16:18,440 --> 00:16:29,880
Speaker 2: Investment Management. The Reserve Bank of Australia is expected to

269
00:16:29,920 --> 00:16:32,760
Speaker 2: hold the cash rate target at four point three five

270
00:16:32,800 --> 00:16:36,080
Speaker 2: percent at its meeting today. Joining us now to discuss

271
00:16:36,120 --> 00:16:42,200
Speaker 2: the meeting is James McIntyre, Bloomberg Australia and New Zealand economist. So, James,

272
00:16:42,320 --> 00:16:44,640
Speaker 2: is it likely that we're going to hear a lot

273
00:16:44,720 --> 00:16:48,040
Speaker 2: more about higher for longer from the RBA today?

274
00:16:48,840 --> 00:16:49,000
Speaker 3: Look?

275
00:16:49,040 --> 00:16:50,640
Speaker 6: I think that's the case. I think we'll see the

276
00:16:50,680 --> 00:16:55,240
Speaker 6: IRBA continuing to articulate that they don't see rates going

277
00:16:55,280 --> 00:17:00,280
Speaker 6: anywhere anytime soon in either direction. We had a little

278
00:17:00,280 --> 00:17:04,680
Speaker 6: bit of a stronger CPI data for April coming through

279
00:17:04,720 --> 00:17:08,480
Speaker 6: and that's likely to keep the RBA a little bit

280
00:17:08,520 --> 00:17:12,440
Speaker 6: concerned and wanting to make sure that they have inflation

281
00:17:12,680 --> 00:17:15,000
Speaker 6: returning to targets. So it's going to be not much

282
00:17:15,000 --> 00:17:17,800
Speaker 6: from them at today's meeting, just articulating that they think

283
00:17:17,800 --> 00:17:22,040
Speaker 6: that they can remain patient and we'll have to see

284
00:17:22,080 --> 00:17:24,800
Speaker 6: what they come and do in August, which is going

285
00:17:24,840 --> 00:17:27,359
Speaker 6: to be the next key catalyst or key meeting, when

286
00:17:27,400 --> 00:17:29,920
Speaker 6: they'll update their forecast and we'll get a stronger view

287
00:17:29,920 --> 00:17:30,400
Speaker 6: from them there.

288
00:17:30,440 --> 00:17:33,480
Speaker 1: I think Australia seems to be extremely sensitive to rates

289
00:17:33,520 --> 00:17:36,719
Speaker 1: when you look at the real estate component, housing, the

290
00:17:36,720 --> 00:17:39,400
Speaker 1: rental market as well. When you look at that part

291
00:17:39,440 --> 00:17:43,720
Speaker 1: of the landscape, how does it look, particularly the rental story.

292
00:17:44,840 --> 00:17:49,040
Speaker 6: Yeah, the rental story remains quite acute, quite strong in

293
00:17:49,119 --> 00:17:54,119
Speaker 6: terms of the very big population surge that's come through migrants,

294
00:17:54,680 --> 00:17:58,639
Speaker 6: international students and working holidaymakers coming back after the borders

295
00:17:58,640 --> 00:18:02,280
Speaker 6: were reopening following the pen and that's created intense pressure

296
00:18:02,720 --> 00:18:05,399
Speaker 6: within the rental markets of Sydney and Melbourne, the two

297
00:18:05,440 --> 00:18:09,560
Speaker 6: largest capitals and the two biggest components of the rental

298
00:18:09,560 --> 00:18:12,159
Speaker 6: index when it comes to the CPI as well, So

299
00:18:12,200 --> 00:18:15,399
Speaker 6: there's still a lot of pressure there, some signs hopefully

300
00:18:15,440 --> 00:18:16,880
Speaker 6: towards the end of the year that it will begin

301
00:18:17,119 --> 00:18:20,159
Speaker 6: to loosen up as the migration inflow peaks, which it

302
00:18:20,200 --> 00:18:22,399
Speaker 6: has done and rolls over, but there's enough there to

303
00:18:22,480 --> 00:18:26,560
Speaker 6: keep the RBA at bay and keep that inflation pressure high.

304
00:18:26,720 --> 00:18:29,920
Speaker 6: There's a real two speed dynamic within the housing market overall,

305
00:18:29,920 --> 00:18:33,040
Speaker 6: though the price growth in Sydney and Melbourne has eased

306
00:18:33,080 --> 00:18:36,840
Speaker 6: off with the affordability with those high interest rates being

307
00:18:36,960 --> 00:18:41,600
Speaker 6: very very effective at moderating repayments and putting a big

308
00:18:41,680 --> 00:18:45,520
Speaker 6: dent on borrowing capacity, whereas in other capital cities where

309
00:18:46,160 --> 00:18:49,359
Speaker 6: prices are somewhat below what people can afford, you've still

310
00:18:49,400 --> 00:18:51,320
Speaker 6: got that strong price going on there. So there's a

311
00:18:51,400 --> 00:18:53,199
Speaker 6: lot of heat still in the housing market that if

312
00:18:53,240 --> 00:18:55,639
Speaker 6: they were to indicate that maybe they were done, or

313
00:18:55,640 --> 00:18:59,520
Speaker 6: that rates might move lower sometime soon, you could possibly

314
00:18:59,560 --> 00:19:02,000
Speaker 6: Stoke might not be ready for that sort of dynamic

315
00:19:02,040 --> 00:19:03,080
Speaker 6: in the economy just yet.

316
00:19:03,680 --> 00:19:06,200
Speaker 2: James higher for longer in the United States has been

317
00:19:06,320 --> 00:19:07,960
Speaker 2: very much at play. I think it's been ten or

318
00:19:08,000 --> 00:19:11,159
Speaker 2: eleven months or something like that that they've had rates

319
00:19:11,160 --> 00:19:13,679
Speaker 2: at this level, and everybody talks about the lagged effect.

320
00:19:13,760 --> 00:19:16,959
Speaker 2: US economy though, has hung in there pretty well. We

321
00:19:17,000 --> 00:19:20,560
Speaker 2: did see weaker first quarter or GDP for Australia. Tell

322
00:19:20,640 --> 00:19:23,119
Speaker 2: us a little bit about some of the effects of

323
00:19:23,200 --> 00:19:28,280
Speaker 2: the lagged of the lag effect on the economy in Australia.

324
00:19:28,720 --> 00:19:30,600
Speaker 6: Yeah, so what we had in the first quarter for

325
00:19:30,600 --> 00:19:33,600
Speaker 6: Australia was a point one percent growth in the quarter.

326
00:19:34,320 --> 00:19:37,320
Speaker 6: That's what's really interesting there is that Australia's population grew

327
00:19:37,359 --> 00:19:39,800
Speaker 6: by about point four or point five in that quarter,

328
00:19:40,119 --> 00:19:44,240
Speaker 6: so really you've had GDP per capita sliding backwards, and

329
00:19:44,280 --> 00:19:47,840
Speaker 6: so Australia is really hidden a deep downturn in the economy,

330
00:19:47,880 --> 00:19:52,320
Speaker 6: the biggest per capita decline in GDP since the recession

331
00:19:52,359 --> 00:19:54,480
Speaker 6: that we had back in nineteen nineteen ninety ninety one,

332
00:19:54,800 --> 00:19:57,800
Speaker 6: and we've hidden that weakness, that impact from the RBA's

333
00:19:57,800 --> 00:20:01,679
Speaker 6: tightening by swamping economy with two and a half two

334
00:20:01,720 --> 00:20:04,920
Speaker 6: point six percent population growth. So that's sort of been

335
00:20:05,200 --> 00:20:08,479
Speaker 6: what's going on, and it's kept demand and almost actually

336
00:20:08,720 --> 00:20:12,399
Speaker 6: it's sort of helped firms not have to cut prices

337
00:20:12,800 --> 00:20:15,480
Speaker 6: so much or allowed them to continue to raise prices.

338
00:20:15,800 --> 00:20:19,560
Speaker 6: This migration and ongoing demand impulse within the economy, so

339
00:20:20,080 --> 00:20:22,080
Speaker 6: that's what's going on. But it really is a case

340
00:20:22,119 --> 00:20:24,119
Speaker 6: of the RBA can be comfortable and needs to be

341
00:20:24,280 --> 00:20:26,760
Speaker 6: wary on the inflation front so long as we've got

342
00:20:26,760 --> 00:20:29,080
Speaker 6: that migration support. But as I said, that peak is

343
00:20:29,119 --> 00:20:32,720
Speaker 6: in and if that demand side begins to falter, that

344
00:20:32,960 --> 00:20:36,159
Speaker 6: ability for the RBA to stay higher for longer could

345
00:20:36,200 --> 00:20:37,879
Speaker 6: be pivoted from quite quickly.

346
00:20:38,000 --> 00:20:41,480
Speaker 1: It's very interesting recently we've heard from the Treasure of

347
00:20:41,520 --> 00:20:44,760
Speaker 1: Australia Jim Chalmers, who was saying that he's cautiously confident

348
00:20:44,840 --> 00:20:49,080
Speaker 1: that maybe the government can bring in a soft landing.

349
00:20:49,080 --> 00:20:52,800
Speaker 1: Now I know that that's separate from the RBA, but

350
00:20:52,920 --> 00:20:55,840
Speaker 1: generally speaking, does it appear as though Australia could be

351
00:20:55,880 --> 00:20:57,840
Speaker 1: headed for some sort of soft landing.

352
00:20:58,240 --> 00:21:01,520
Speaker 6: Well, it really depends on how you how you characterize

353
00:21:01,520 --> 00:21:04,480
Speaker 6: a soft landing. Right, so we will see the economy

354
00:21:04,520 --> 00:21:08,160
Speaker 6: avoid a technical recession. But that's because as I said,

355
00:21:08,240 --> 00:21:10,560
Speaker 6: that very very strong surgeon growth. So on a per

356
00:21:10,600 --> 00:21:14,080
Speaker 6: capita basis, it's GDP is not on a soft landing

357
00:21:14,119 --> 00:21:17,440
Speaker 6: at all. We're already in a hard landing. You know, economy,

358
00:21:17,440 --> 00:21:19,000
Speaker 6: as I said, it's got the biggest grays on its

359
00:21:19,080 --> 00:21:22,320
Speaker 6: knee since the nineteen ninety ninety one recession on that

360
00:21:22,359 --> 00:21:25,639
Speaker 6: per capita basis. So that soft landing, that migration story

361
00:21:25,720 --> 00:21:29,520
Speaker 6: has really kind of helped deliver that soft landing, not

362
00:21:29,560 --> 00:21:34,760
Speaker 6: really necessarily anything that the government themselves has done. As

363
00:21:34,800 --> 00:21:37,280
Speaker 6: we move through though it, you know, if the RBA

364
00:21:37,359 --> 00:21:39,000
Speaker 6: does begin to ease up at the end of this

365
00:21:39,080 --> 00:21:42,040
Speaker 6: year or early next year, we should see that economy

366
00:21:42,040 --> 00:21:45,080
Speaker 6: continue to grow and so by that big perspective, that's

367
00:21:45,080 --> 00:21:45,760
Speaker 6: a soft landing.

368
00:21:46,400 --> 00:21:48,280
Speaker 2: All right, James, thanks very much, and we know you've

369
00:21:48,320 --> 00:21:51,240
Speaker 2: said that you do expect the next rate move will

370
00:21:51,280 --> 00:21:54,720
Speaker 2: be a cut. It's just a matter of when. And

371
00:21:54,760 --> 00:21:57,919
Speaker 2: now we've been chatting with James McIntyre, Bloomberg Australia and

372
00:21:58,000 --> 00:21:59,159
Speaker 2: New Zealand economists.

373
00:22:01,280 --> 00:22:04,240
Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you

374
00:22:04,280 --> 00:22:07,400
Speaker 1: the stories making news and moving markets in the Asia Pacific.

375
00:22:07,920 --> 00:22:11,040
Speaker 1: Visit the Bloomberg Podcast channel on YouTube to get more

376
00:22:11,080 --> 00:22:14,679
Speaker 1: episodes of this and other shows from Bloomberg. Subscribe to

377
00:22:14,680 --> 00:22:18,480
Speaker 1: the podcast on Apple, Spotify or anywhere else you listen,

378
00:22:18,600 --> 00:22:21,680
Speaker 1: and always on Bloomberg Radio, the Bloomberg Terminal, and the

379
00:22:21,680 --> 00:22:22,760
Speaker 1: Bloomberg Business app.