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This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. And straight ahead on the program, a look ahead to the latest US retail sales and housing starts data what they tell us about the health of the consumer and the US economy. I'm Tom Busby.
In New York.
I'm Caline Hepkit in London, where we're asking how the UK's politics could crossover with monetary policy.
I'm Brian Curtis in Hong Kong. We look ahead to a slew of data in China to see if some nascent signs of growth can be extended.
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Good day to you. I'm Tom Busby. We begin today's program with some key economic data here in the US. On Tuesday, we get US retail sales for the month of May at eight thirty am Wall Street Time, and for more on what this will tell us about the health of the consumer, we're joined by estell O US economists with Bloomberg Economics. So, Estelle, what do you expect to see in the May retail sales number? The question is, are consumers still spending?
Yeah? So, Tom, we're expecting a tippet rebound in consumers spending next week, where we're expecting a point two percent increasing the headline retail sales figure and also one point two percent in the more important control group figure. And this is a very modest rebound from last month's almost flat headline figures and also a negative zero point three
percent decline in the control group. Basically, this is just last month we saw a good amount of pullback and discretionary spending from consumers as they feel more squeezed from higher interest rates. This month, we're expecting a little bit more of a rebound, but we're still expecting quite weak consumption basically because we're no longer seeing consumers dipping into their savings for their purchases, and we're also no longer seeing them barring as much in order to finance their
purchases either. So overall we're expecting modest rebound but still weak spending.
But people are still buying, and so my question is what are they buying? I mean, they have to eat, so the obviously they have to buy groceries, they dine out, but maybe are people going to lower price point restaurants. Are they going to discount stores instead of you know, the big supermarket. How have the high prices changed things for people?
Right? That's definitely something we're seeing. We've been seeing consumers pull back from you know, more expensive, big ticket items for a while now, but they have been spending on food service and drinking places more so than any other category. But we do expect that to pull back as well because recently we've been seeing some increases in food services prices as well. So overall, consumers will continue to spend
on services and essential goods. They have been moving towards or value goods, but overall we expect a general slow down in almost all categories.
So my next question is what are people not buying? I mean, is I know, gasoline is down there's been lower demand. How about automobiles a big expense for a lot of people, both new and used cars.
Right, So, actually, consumers had been holding off on automobile purchases for quite a while because you know, everyone's waiting for interest rates to fall a little bit so that automobiles can be a little more affordable. But recently we've seen trends where auto deals are actually offering more discounts as they noticed that consumers aren't really able to afford the sky high prices we saw over the past two years.
So actually, this month, we're expecting sales in the auto sector to pick up quite a bit, but that's mostly going to be offset by pull back in other categories. So you know, if I'm thinking about my own purchasing trends, if I have to buy a car this month, I tend to just pull back on my other purchases just for this month.
Yeah, non necessities like clothing you mean, or experiential things. Yeah, exactly, not Taylor Swift fans, but concerts, ballgames, movies. I guess those things are going to people maybe going to dial back a bit.
Now.
You mentioned in April we got kind of a nasty surprise, retail sales flat that month, but core consumer prices in April and May did decelerate a little bit. May's year over year price index up just three point four percent. What kind of boost do you think that if there are signs inflation is moderating, what will it booths? Will it give consumers?
Right? So, I think the slower CPI data we saw in May is directly a reflection of retailers slashing prices in order to entice consumers to spend more, because, like I said, they're noticing consumers being squeezed, so in order to bring that demand back up there, a lot of retailers are slashing prices and that should be supportive for consumers and help them get through this rough patch that we're anticipating.
Also, sales are good now if employment remains solid, we continue to see inflation moderate like we saw in April and May. Do you think that sets the stage for the Fed to begin cutting interest rates as early September? And with that, how do you expect to see retail sales the rest of the summer. I mean, we're just getting into it now, it's the middle of June. What does it look like for the rest of the summer to you.
Essentially big picture is that the tail winds we've been seeing from consumers dipping into their savings should fad as we go through the summer. In terms of rate cuts, as long as inflation continues to trend lower. We do think that the Fed will cut rates in September and that will obviously alleviate some of the financing pressures consumers have been feeling.
Well, a lot to look forward to. Then, retail sales data for the month of May out on Tuesday in our thanks to Estello US economists with Bloomberg Economics. We turn now to housing, where home buying has been hampered by record high home prices, mortgage rates at are above seven percent, and a limited supply of homes on the market. With so few existing homes for sale, a lot of would be buyers have resorted to buying new homes with mixed results. And this Thursday we get existing home sales
for May and housing starts for that same month. And for more on what to expect, we're joined by Drew Redding, Bloomberg Intelligence US home building analysts. Well, Drew, let's start with housing starts for May. How are the homebuilders firing. What's the market right now for the those newly constructed homes.
Sure, so, as you would expect, housing starts data continues to be volatile month to month, which is partly reflective of the demand environment. You know, the strategy for many builders out there has been to match supply measured by starts with demand. So you've kind of seen that EBB and flow with interest rates, and I think some of the weakness that we've seen more recently is probably due to some of the smaller builders who are getting more cautious.
That being said, the big builders continue to increase production. The other thing that you have to consider is, you know, when you look at that headline number, it continues to be impacted by weakness in the multifamily sector, where starts are falling as completions continue to build. So your to date starts are still twenty six percent higher. Of course, the comps get a little bit more difficult, but broadly speaking, we think that the trajectory for single family housing is still higher.
And is the boom still going on in the Sun Belt States more than anywhere else or is this a nationwide building boom.
That's a great question. I mean the performance within the new home market has been pretty solid across much of the US, But as you look around the country of the last year year and a half, you have seen markets kind of cycle in and out of favor. For example, when Race really started to rip higher back in the second half of twenty two. Some of the higher cost markets in the West, like California, Washington, Arizona, Colorado, we're very hard hit, and we're starting to see them rebound
more solidly. On the other hand, you have some of the markets with leaders and you know, Florida comes to mind, and we're starting to see, you know, some signs of yellow lights flashing, if you will, with rising inventories and slowing sales. So we are seeing markets kind of go in and out of vogue here. And some of those hardest hit markets, as I mentioned, are the ones that
are doing the best. And then there's there tends to be a little bit more stability in those in the Midwest and Northeast, which are comparatively smaller from a new home construction perspective.
Now you mentioned some of these smaller builders, the big ones, the Lenaar's and the d R.
Horton's.
What's the challenge for them. Is it the high land prices, the high cost of labor, is it finding enough skilled workers? What are the big challenges?
It's all you nail head, you know, the private home builders, and just take a step back. You have to remember that home building has historically been a very fragmented market. Now you have the large public builders for about fifty percent of the market, so there has been a share shift that's been going on over the last couple of years. One of the main issues, in addition to the things you cite it for the private builders is really their
access to capital. You know, they typically work with local or regional banks in order to access growth capital, whether that's for purchasing land or developing developing that land or construction the home. And you know, when you have a more uncertain economy as you would expect, there's been somewhat of a pullback in lending which has inhibited their ability
to grow. So it's kind of a scenario where you have the haves with the large, well capitalized, publicly traded homebuilders who have access to land, labor, and then you have the have nots, which is the smaller private piers who are struggling to get that growth capital. You know, we think that that this dynamic is going to continue to play out, and we think that you'll continue to
see more M and A activity in the space. As a result of that, M and A has been pretty strong in twenty twenty four, So we would think that some of those smaller private companies will continue to you know, look to sell as a way to get out in a more challenging market, and we think that the large publics will scoop some of those guys up.
Wow.
Yeah, the rich get richer, the big get bigger. Let's switch now to existing home sales. Elevated prices. Interest rates have really hurt the market, but what are you looking for in those numbers for may.
So in the near term, we think that the existing home market is going to continue to be challenged by higher rates. You know, one of the disadvantages the resale market has had not only you know a lack of inventory at the national level, but the higher rates have impacted them greater than it has the new home mark. And that's because the builders have been able to buy
down rates. So you know, we're when we're looking at contract signings, we're going to continue to see you know, we had rates climb up over seven and a half percent, so we think that existing home sales will continue to be muted probably through much of the year. That being said, as rates start to pull back, you know, we're actually have a six handle once again, so you know, a
lot of volatility. But if rates kind of stabilize in that mid six and a half, you know, mid six percent range as we get through the year, we think that you could build a little bit of momentum, albeit off a low base, heading into twenty twenty five.
So for realtors it may be a tough summer, but there is hope on that the FED in September may dial back rates a little bit, and you think that'll have a big impact on housing.
Yeah, I mean rates have really been the story and buyer's ability to afford home. So, you know, our kind of outlook suggests that we could get to that mid six percent range by the end of the year if we see some stability, which is what I think a lot of buyers need in this market, kind of certainty that you know, when they're going to look for a home, they know what kind of rate they're looking at. You know.
The other thing to consider is the fact that we've been at this elevated rate level for a couple of years now, so I think at some point, you know, buyers have just become increasingly accustomed to a higher rate.
So I think over time that starts to help. And what it also does is it starts to gradually loosen the grip of the mortgage rate lock and effect, which has been widely documented where since you're starting to have transactions at these higher rates, that starts to loosen a bit, which should free up the market gradually into next year.
Oh boy, well, existing home sales housing starts for the month of May, both out on Thursday, are thanks to Drew Redding, Bloomberg Intelligence US home building analyst, coming up on Bloomberg day Break weekend to look at how politics in the UK could impact that country's monetary pol I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in
New York. Up later in our program a look ahead to the slate of Chinese economic data out this week and what it means for that nation's economic recovery. But first, with Prime Minister Rishi Sunak calling for a snap general election on July fourth, could Bank of England policymakers really be willing to lower borrowing costs for the first time since the pandemic as many expected they would? And if not, what would a further delay and a rate cut mean
for investors? For more, let's go to London and bring in Bloomberg Daybreak europe Banker Caroline hepgar.
Tom government and the Bank of England in the UK have been separate since nineteen ninety seven, when the Prime Minister Tony Blair granted the central bank operational independence. But as the markets now adjust to this political general election campaign, there could be some crossover in the campaign, or at least just after. I've been discussing monetary policy and political risk with Jeremy Stretch, who is head of G ten
FX Strategy at CIBC. He says that what happens in government has a big impact on the sort of action that central banks can take.
There is an enormous degree of political uncertainty which is playing out in a sense. We've seen obviously something like Euri Sterling, where we've seen a substantial move lower in the context of the last few sessions, because of course the UK political system on a comparative basis, seems remarkably resilient compared to what we're seeing elsewhere. Now, that hasn't been always the case over the course of the last one to five eight years, so in a sense, that's
quite interesting in that context. But I think what we have seen is that US exceptionalism has been the key theme over the course of the last year or two. The question whether that exceptionalism is going to persist into the back end of this unit into twenty twenty five up for debate, and I think actually we're going to see significant narrowing of growth differentials, and I think that plays more positively into the growth and or cyclically correlated currencies.
But for now, at least, those political risks I think are still real and realistic. So that's the reason why if you're training Euro over the course of the next one two, three, four weeks, you have to look at what's happening in the political dynamics and looking at those bond spreads relative to buns, and if they push wider, then the euro will go lower.
Is that then an opportunity is regards Sterling, and I'm also thinking about where your expectations are around the BOE Well.
I think Sterling is interesting because, as I say, we've seen Sterling gains, but I think the market is perhaps to my mind, of for our perspective to c IBC underplaying the risks of policies and from the Bank of England. So I think we're still underplaying the not the pricing for next week's meeting, I think that is realistic or far more realistically priced. But I think come the August and PC, I think there can and should be a strong case for the bank to be starting to ease
rates at that time. That's not necessarily priced by the
market at this particular juncture. So I think that's one factor which could imply that the Sterling rally that we're seeing has and will provide opportunities to start to fade that because yes, the political backdrop looks more benign compared to what we've seen historically, but I think the data and all the Bank of England narrative I think will play into the presumption that Sterling long positions I think will start to look vulnerable as we go into the second half.
Of the year, Okay, on sterling. Also, we should think about the Bank of Japan. It's expected to unwind its balance sheet, so basically effectively tightening policy. I mean, this is also a kind of major story in terms of the carry trade in the Japanese yen doomed to weaken under pressure to weaken. We've obviously seen so much policy intervention as well, which we've tracked.
Ultimately, the en has obviously been a consequent all the weakness of the end has been a consequence of treasury JGB spreads in particular, So in a sense, if we are going to see some continued ratcheting down in the bond purchase strategy, now we're debating to how significant that is going to be at this juncture, but nevertheless, we are over time going to see that QT working through
in Japan. How quickly and how aggressively will that course spreads to narrow because of course, ultimately the main driver of treasury JGB spreads has been the dollar leg in terms of treasuries. But ultimately, if the Japanese are going to get treasury l or go to witness treasury eels coming down, if we're seeing an easier fed strategy and always see some degree of typing then that eventually will help to cap the dollar yen story.
But I think.
It's still the case that the yen will remain relatively weak. I don't think we're necessarily in a situation or a juncture where we should be anticipating a substantial reversal in yen performance over the course of the next few days or weeks. I think it is still the case that those Treasury JGB spreads and all the cost of funding positions are still so extreme that it is still going to be evident that the carriy trade still has some more mileage in it in the context of the end just yet.
Just going back to the dollar, then I wonder, how are you thinking of the November election and what's the sort of potential moves or risks involved there.
Well, of course that is the elephant in the room in the context of when we've been talking about the electoral risks in twenty twenty four. Because as we know, or we assume that we have two presumptive nominees who have not yet been ratified, but we assume that we will be facing off as we did four years ago. We can assume that if there were to be ask resurgence or a re emergence of Republicans in the White House, I, mister Trump, then the tax cuts will be made permanent.
That will be the substantial fiscal easing at the same time as significant tariff in position that obviously will be inflationary. Now that would be an obvious challenge for the FED in the context of twenty twenty five, so the presumption of significant monetary using could be tested. But of course, even amidst the political uncertainty being a function of the US political dynamic, there is still no significant liquid alternative
to dollars. So in a sense, when we do have periods and episodes of political risks, than the dollar still tends to generally perform well, even if the US is the source of that risk, which seems completely counterintuitive, but I can see from the look on your face, Caroline, you will also understand that as well.
Yeah, so I want you to pin your colors to the mask. Do you get a Trump dollar rally on the back of the election We're here to win.
Very briefly, well, if you get the scenario where the equity market rallies strongly, then that will provide an underpinning for the dollar. We still think that the dollar will ultimately be cheaper in twenty twenty five.
That was jermy stretch from CIBC speaking there to me and to Stephen Caroell on Bloomberg Radio. I've also been discussing how the UK's political situation might affect the upcoming Bank of England policy meeting and what that means for markets with Bloomberg's chief UK economist Dan Hanson. I started by asking him if a change to borrowing costs is completely off the agenda before the general election vote on the fourth of July.
Yeah, because of the election, and also because of April CPI data, which came out on the same day that Soona called the election. I think we that morning when that came out, we looked at that and thought there's no way they're going to cut with that. With that data. If obviously CPI fell, it's at two point three percent, it came down from three point two percent, but it's what went on in the components and particularly services inflation, which is the thing that the Bank of England's very
worried about at the moment. So I think the data gives them cover to stay on hold, they won't have to come up with some phony excuse around the election. Of course, there is the May CPI data the day before the Bank's decision as well, but we still think that will be above their four car So there's probably just about enough cover for them for them to stay on hold in June and basically stay out of the campaign and not being seen to do anything that is political.
Yeah.
So then if they do that and perhaps delay a rate card or push off a rate cut, what then is the timeline?
Yeah?
So I think the May CPI data, which I say it comes to the day before the decision, and it's important for what comes next, and there'll be one more CPI print and also laid market print before the August decision. Our view is that those prints will probably give them
the confidence they need to cut in August. I think what's interesting about the inflation dynamic in the UK is going into the end of the year we're likely to see inflation rise back up mainly on It's basically to do with energy prices base effects, and that's going to make it tricky for the bank particularly well. There are
two bits of it really. One is obviously carrying on the easing cycle, but that might be a little bit easier in the con if you've already started, it's probably easier to carry on, and because you know this is coming, it's much harder, I think, to start the using cycle in that context when inflation is on the rise. So I think sort of the August September window is a good window for the bank to think about its first rate cup. We've got August. That's what the majority of
economists have as well. The market's sort of torn between the September and November, so so yeah, I think it's it's not gonna bean long after the Gene meeting that they start thinking about it.
Okay, what impact does the Federal Reserve have on all of that, given that they held interest rates and the dot plot pulled down expectations for the number of rate cuts out of the US.
Yeah, well, it's having a massive impact on market expectations UK or market rate expectations. So futures are essentially following US futures, and that's predicated on the idea that what's going on with US inflation is running a little bit
ahead of what has been happening in the UK. So it's telling you something about what might be coming down the line in the UK of you, and it appears to be particularly Andrew Bailey's view is there is a bit of a difference, And I think there is a bit of a difference, to be honest, particularly around energy prices, particularly around the way the dynamic that drove inflation higher in the UK, where we had high inflation due to energy food that eventually pushed up wages because people tried
to essentially guard against big real income hit. So I think it is different to the US. Nonetheless, if the FED isn't cutting, you're going to be worried that you're not going to make a mistake and you're going to be going it alone. I think the one central bank I sort of sort of looked at and thought in the context of the bankingland was the ECB. Yes, is that they cut, but there's no clear view on what comes next. And you know, I'm not saying it's one
and done. We think our team thinks that will that the ECB will cut again in September, but the Bank of England does cut. I don't think there's going to be any guidance about what comes next and how quickly the borrowing rates might fall. I think we're just going to continue to be in this data dependent world, and we might be in one world where inflation behaves and
things might move a lot quicker than markets expect. The other The flip side of it is that you get one a quarter or even slower pace than that because the data just doesn't give them.
The room, yeah to do it. That's yeah, that's so interesting, isn't it? That guidance is sort of off off the table in a way in terms of I do sort of want to talk a bit about politics, because Blueberg did this survey of market participants and they were saying that a labor victory would be the best outcome for sterling, and obviously all the FED decision and all of this has so much impact on currency markets. Why are they saying that? And does that also last? Is that a
kind of short bump? Is it just that it's the best possible news.
That's a really good question. So I think, I mean the reasons, I think there are two of them. One is the perception at least that a labor government with a big majority, which is what the polls indicate, would be a much more certain policy environment in the UK. I think, you know, in fairness to the Tories, there have been a lot of shocks, pandemic, energy shock, but there's also been a lot of infighting and I think it's that bit of it that I think investors are
sort of focusing on that with labor. The hope is that that won't happen.
Yeah, stability, We'll have.
A bit of stability. We won't have three prime ministers over the course of the parliament. It'll just be a little bit more stable. The environment will be more stable. They've also been making very sort of positive noises towards business, trying to shake off the sort of Jeremy Corbyn era
of labor. You know, Rachel Rees and Kirstarmer have made a real effort and what you've just said there about the focus on wealth creation, economic growth, that is a very sort of centrist, marginally center left, but you know, it's it's very similar ground in many ways to the Tories in terms of the sort of view about what's most important. I think the other thing to think about
is Brexit and potentially clositized with the EU. Whether that comes to fruition is harder to say, but I think they're the two things is a little bit more the reason why investors think it will be positive, more certainty, possibly closeritized with the EU.
My thanks there to Bloomberg's Chief UK economist Dan Hanson. I'm Caroline Hepkea in London. You can catch us every weekday morning for Bloomberg Daybreak you at beginning at six am in London. That's one am on Wall Street.
Tom.
Thank you, Caroline, And coming up on Bloomberg Daybreak weekend to look ahead to a slough of Chinese economic data out this week. I'm Tom Busby, and this is Bloomberg. I'm Tom Busby in New York with your global look ahead at the top stories for investors in the coming week. This week, investors get a slew of economic data out of China about retail sales, home prices, employment levels, and more.
Let's get to Bloomberg Daybreak Asia co host Brian Curtis and find out whether the data would indicate signs of economic recovery.
Tom, we wanted to dig a little deeper here into China's recovery. The economy appears to have picked up a little in the latter part of May and feeding into this month Bloomberg Economic says its high frequency index has captured some signs that recent measures on housing have kindled new demand. Our economists say it's too early to say whether the uptick is sustainable, though, and what the knock
on effects might be. In the coming week, we'll get home prices, retail sales, industrial production, and fire stas set investment. Joining us now for a preview is News Desk editor Jill Desis. Jill, thanks very much for being with us. So any sign of a domestic rebound would be encouraging, but we have had a lot of false dawns in the past. How sustainable might this pickup be?
Yes, that's right, Brian. I think what you're most likely to see out of this latest economic data is still a bit of a mixed picture. The latest survey show us that retail sales are expected to pick up at least slightly. Industrial production, though might slow if you compare it to April, and then most economists are still saying that the property sector, despite these recent measures intended to help it, it's still going to take quite a while
for that to feed into the economy. Investment, certainly in the sector is still expected to have plunged a year on year when you're looking at that cumulative five month total for twenty twenty four, So ultimately just a bit of a mixed bag. We'll see though, if there's any
additional greenshets we have. I've seen recently some upticks and exports, for example, although I would caution you, Brian, that there's a lot of concerns about what that looks like going forward, particularly when you've got a lot of Western governments, the US, the EU that have looked at for the restrictions and tariffs on Chinese goods.
I wanted to talk a little bit about housing though, because that seems to be right at the center of spending from consumers in China. Home sales look like they have benefited a little bit a couple of things there, the government's decision to cut requirements on down payments and also to buy unsold homes. Do you think that that might be sustainable?
Yes, Brian, I think it's actually that latest plan that you mentioned, that unsold home buying plan that probably has the most chance of success in terms of maybe making a meaningful turnaround for the property sector here. So, just to recap it's a pretty powerful tool here, making about three hundred billion un or that's summer roughly about forty one billion US dollars worth of cheap credit available for
banks to fund local government purchases of unsold homes. So essentially, the goal here is that they want to chip away at the excess housing stock that we've seen in China. They want to ease some of those cash flow strains for developers. And but I also point out here, Brian, is that this is a pilot program that has been run in I think eight cities, you know, give or take over the last year or so. So they've already sort of launched this pilot program. Now they're trying to
build this out nationwide. And that's ultimately what could potentially help the housing sector here, the property sector sort of spur, you know, just again getting rid of this excess glut of these unsold homes. I think though the spending plan for that might be a bit tricky. We'll have to see how the people spank of China. The Central Bank ultimately you know, kind of helps try to you know, fund this program, kind of give it some more legs. And again, it just might take some time for that
to fully transmit into the economy. I will just point out that while we have seen an uptick in some areas, we've also seen new home sales continue to fall in most of China's Tier one cities Guangzhou, for example, So I mean, really, it might just take some time for that to really really take I mean again, I just have to stress that this is a property sector problem that's been going on for years at this point.
Brian, Yeah, it certainly takes time. But we did see some early indicators, like the sales of home appliances jump almost one hundred and fifty percent. Those are some of the knock on effects that you know might come along with a little bit of recovery in housing.
Yes, and I am sort of more optimistic about you know, maybe this you know, recovery and demand at least from a consumption point of view. Again, when you're looking at these statistics for this upcoming data release, economists do actually think that, you know, retail sales on the whole are improving, so you know, maybe there's like some broader recovery there
in consumption. I mean, you know, again, maybe a little bit of a mixed bag recent consumer price data that we've just gotten out of China was a bit weaker than we expected, although you know, it's still rising a bit, so you know, the government continues to try to spur demand, you know among people within the economy. Maybe it's picking up a little bit. Will have to I think, get more months of data to actually see more of a sustained trend there.
You mentioned a little bit of a pickup in exports, but we do have the geopolitics. It's a big overhang and just recently the European Union's decision to impose additional tariffs China pushing back a little bit on that. Is that something that weighs pretty heavily at the moment.
Oh God, yes, Brian. I'd say that this is one of the biggest concerns right for the outlook for the economy going into the rest of this year. I mean, when we were starting off the year, Brian, you know, we were pretty optimistic about manufacturing sector in China. How much you know that was actually going to contribute to growth. Actually, I think somewhat surprisingly, manufacturing and exports in particular are a bit stronger than expected to start off the year.
And so given these continued issues within the property sector, given ongoing concerns about you know, the consumer recovery, what that's actually going to take to recover. Was seen that you know, manufacturing exports would actually be a really key of economic growth this year. But the geopolitics I think is just too big to ignore it at this point.
So the latest news being that the European Union, after this months and months long probe into China's electric vehicle sector electric vehicles, euro buys up quite a lot of those or some concerns they're pricing there. I mean, they're now raising tariffs to as much as forty eight percent on certain car buyers. I think that's going to continue to escalate those trade tensions and then ultimately there could be some China retaliation there.
Jill, thanks so much for your insights. That's Bloomberg's News Desk editor Jill Desis. Next up, we turned to Australia with Doug Krisner Doug Brian.
It's all about the Central Bank meeting in the week ahead. Over the last four meetings, the RBA has held its target rates steady at four point three five percent, and at the last meeting in May, policymakers said keeping rates higher was the stronger option rather than raising rates further as a way of tackling high consumer prices. Let's preview the RBA meeting now with our own Paul Allen, Bloomberg TV Australia correspondent who joins us from Sydney. Paul, thanks
for being with us. I think we need to begin with an assessment of the overall Australian economy. How well is it performing right now under the weight of these higher interest rates.
Well, we have a sense that the economy here is kind of firing on three cylinders at the moment. I mean, everything's trucking along. We're all still here, we're not in recession. But then at the same time we're battling many of the same factors that other developed economies are key among them inflation. Maybe we can come back to that in a minute. But growth is a severe problem as well. The last quarter we had a growth rate I believe it was one tenth of one percent. I mean that
that is tep it. That was the first quarter of year to March, so it gives us an annualized number of one point one percent. Now, we haven't seen growth that slow in Australia since the early nineteen nineties if you take the pandemic out of the equation, so growth is not terrific. And at the same time, as I mentioned, we've got inflation here just like you do tug, just like many developed economies around the world.
Well, let's talk about that. My reading indicates that the inflation reading for the month of April and Australia showed an unexpected increase. Do we know what was driving that?
Primarily, Yes, it did, and that has potentially thrown a spanner into the works for this at June meeting, but driven mainly by if you start digging into the data, some of the numbers are pretty ugly. Housing, for example, that came down, but it's still at four point nine percent. The big one here is in services are particularly insurance financial services inflation that's running at eight point one percent.
So if you take out some of these big factors though, like housing, insurance, financial services, suddenly the inflation rate the CPI is getting back towards target. It's hovering within that RBA target band of two to three percent. So those are the big drivers. So it's a really mix muddy picture, which is making the debate more complex than just the binary. Well do we cut, do we hike?
Right, Well, let's talk a little bit more about the real estate market, because from what I understand, Australia as a country is very very sensitive to changes in interest rates where housing is concerned. How well is real estate holding up? I mean, and maybe we can talk a little bit about the rental market as well.
Yeah, definitely. Well, yes, we've talked about before housing, real estate and Australia. It's practically a national sport. This is what people talk about around the barbecue. You know, it dominates every conversation that you have. It's a country of real estate investors. But that has a downside as well. There's a real shortage of supply. That is one of a whole small gosport of factors that's keeping not just house prices here elevated. But as you say, rents now.
I had an interesting experience last month. I managed to get out to Perth. I don't get to do that very often. It's West Coast right alright, it's basically La to your New York, you know, it's the other side of the country. It's a very very big resources area. This is where more of Australia's iron are comes from. A lot of the gas reserves are out there as well, So when commodities do well, Perth does well, and in
some respects it's a victim of its own success. It's had seventy eight thousand new arrivals internationally and interstates since September twenty twenty three. This is new data that we just got from the ABS, the Bureau of Statistics a few days ago, and that's put tremendous pressure on the housing market, particularly for rentals. Now, the vacancy rate in Perth the worst in Australia and one of the worst
cities in the developed world to find a house. For every one thousand homes, just four are vacant, So you can imagine what that has done to the price of rent. Median ransom Perth seven hundred and twelve Busie dollars a month, that's four hundred and seventy four US. But as I say, I went out there to film a story and there are cues of people that line up at open homes for empty properties, and it's not who you would normally
see in a situation like this. Usually you would expect to see low income families, those who are struggling getting into trouble here. I spoke to a guy who was an electrical engineer for Rio Tinto. He's making over one hundred thousand US a year. He can't find a house. Wow, this is who it's affecting now.
Obviously, as you point out, migration is a big factor here. But overall, how is the labor market in Australia holding up right now?
Well, that's one of the good news stories here is that unemployment still pretty low. I believe it has a four in front of it, so it's creeping up, but the labor market's still tight. That's keeping wages relatively high, which means a lot of Australians are able to absorb the cost of living increases that we've seen. There is more help on the way in that regard as well. The first of July we have what's known as the Stage three tax cuts about to kick in. This is
an electrim promise that the Albanese government has kept. This was an initiative introduced by the previous government and during the election they promised they would keep these Stage three tax cuts. So everyone's getting a little bit of a bump in their pay packet in a couple of weeks time. But of course is that going to impact inflation? And back we aret of square one.
Okay, Paul, always a pleasure to chat with you. Thanks for helping us preview the RBA Meeting of the week Ahead. He is Paul Allen, Bloomberg TV Australia correspondent. I'm Doug Krisner. You can join Brian Curtis and myself weekdays here for Bloomberg day Break Asia beginning at eight am in Hong Kong eight pm on Wall Street.
Tom.
Thank you Doug, and thank you Brian. And that does it for this edition of Bloomberg day Break Weekend. Join us again Monday morning at five am Wall Street Time for the latest on markets overseas and the news you need to start your day. I'm Tom. Stay with us. Top stories and global business headlines are coming up right now.