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This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.
The Reserve Bank of Australia is set to keep its policy rate on hold, but there are some interesting complications. Joining us now is James McIntyre, Bloomberg Asia economist covering Australia and New Zealand. So we've had a dovish tilt here. But then, well, let me put it to you, what do you find most interesting about the background to this decision?
Oh?
Look, I think that's a good question. We have seen the IBA be a little bit division February, a little bit more division March, but rot now it's looking like we haven't heard much from the RBA since their last meeting in March. But it's likely that we're going to get almost a bit of a one eighty, but not the full one eighty to a hike. But we're going to see. I think the RBA become a bit more hawkish today. So it's not just something that's following the Fed.
There's a wholly bit of domestic economic news and data that sort of driving this shift down under.
So from what I'm reading, and correct me if I'm wrong, James, the market is still pricing in a hike at some point this year. Can you give us an understanding of what's happening in Australia's economy that would allow the RBA to kind of make this hawkish pivot and for the market to continue to price in a hike at some point.
Yeah, Well, look, it's really interesting that market pricing, how significantly that's shifted compared to when the RBA lasted a set of quarterly forecasts. They're going to have a new set of quarterly forecasts today. Compared to back in February when they last forecast, the market was pricing in over twenty twenty four seventy five basis points of cuts and then another forty or fifty basis points of cuts in
twenty twenty five. You know, today, however, the RBA has got a very you know, the markets are pricing a very, very different situation with with that that potential or a hike partially priced in for later on this year. You know, when we look across the economy, though, what's behind this shift in in markets. Well, we've had an unemployment rate
that has really surprised. There was some incredibly strong jobs growth that we had in February, and we all expected in March that would that would reverse course, a bit of statistical payback. But what happened was that the unemployment rate didn't move the way we would have thought, and so instead the RBA is looking at a much much tighter labor market. And then we got inflation data for the first quarter. For the March quarter of the year,
we had particularly the underlying inflation. The RBA focuses on a trimmed mean measure, which removes some of the outliers of within the CPI basket. That trim mean measure grew by one percent in the quarter, very much, showing that where we're you know, that or a bit of an interruption on that dissiplation path.
You know.
It's so these are the sort of the two key pieces of economic data that have set that market pricing moving the way it is, and that whiplash from February. But when we look at the other data on the economy, consumers and spending, it's still a very very weak story.
Retail sales data coming out and disappointing. We're still, you know, we're looking that we will see even if the economy grows overall in per capita terms, because we have that strong population growth per capita GDP will be extending its recession.
So there's a very very weak household sector. But nonetheless, some of these concerning things still out there, from inflation not dissipating as quickly, still falling but not fast enough, and the labor market being a little bit tighter, and I think those are the things that markets are focused on.
Bloomberry Economics believes that a cut is actually the next move.
Yeah, that's my call. So my base case is that we're still we've got this little bit of an interruption right now, but in the what was looking like an immaculate disinflation and a continued march toward easing. This is
a little bit of a speed bump. But we think that as that weakness in the economy persists, the migration boom begins to ease back, taking some wind out of the demand side of the economy, that we'll see that unemployment rate rise, that inflation fall away, and we will still be on track for the RBA's next move being a cut. Today they're going to sound hawkish, but it's going to be a threat, not a delivery.
Okay, So the market will do a lot of the work for the RBA. Then, is that what you're saying very much?
And this is where that very big shift in market pricing is actually going to do a lot of heavy lifting for the RBA. They factored in that those rate cuts into their last set of forecasts and had inflation going back towards the middle of the target ban in February, So we've got about inflation being about twenty basis points
higher than we thought for the starting point. But we're going to have sixty to seventy extra basis points of monetary policy tightening being baked into their fullcasts, and that's going to be what cruels growth, keeps inflation heading to target, and is really going to be about that difference between the RBA making the threat and delivering the threat is what they're going to be safe with for today.
You mentioned that consumers who are tilting a little weaker, and in some cases we see that in the United States as well, and we do have sort of deglobalization and industrialization reshuring that's kind of helping out in the United States in terms of mitigating factors for the Australian economy. I'm just curious to bring this around to China. Does China trade factor in very much? Does China tourism matter
very much? And basically is, you know, our exports are going to play an important role in the revival of the Australian economy.
Well, one of the things that's been a big part of the strength and the revival in the post COVID recovery has been a type of tourism from China and that is international students. So when we as economists, when the stats agencies measure these things, they call education exports part of the tourism services exports sector. And those students have come back to Australia in a big way. And that's what's driven up that population story, that migration boom.
It's what's holding up house prices and creating a real tension within rental markets, a little bit of an inflation headache there within that pocket of the economy for the RBA from that return of not just Chinese but also Indian students. Looking forward the China story for Australia, Look, it's not just those services exports. It is about that
commodity story and especially with steel and iron ore. So we've had a real kind of you know, flashing red light from China's cratering property sector for the last year or two. But critically for Australia, iron ore prices and unein and or demand have remained quite high, so you know, we've still been managing to bumble along with strength in other parts of the global economy, Australia's exports being commodity based.
Mentioned property as it relates to China. What's the property story right now in Australia, particularly in an environment where credit is pretty tight.
So credit has been tight, but the property market we've seen residential house prices continuing to grow record highs now there is a bit of there's a bit of a two speed story going on within the economy. Melbourne and Sydney house prices are a little bit softer. That's the two main cities and most of where the international migration comes into they're very, very stretched on affordability. Rate hikes are herding there, whereas in other cities affordability is so
much better and we're getting a very big boom. So there's a big lot of help there from the population story and still a bit of strength despite rates.
James, thank you so much. James McIntyre, Bloomberg Asia Economist, covering Australia and New Zealand. And again the RBA is set to keep its policy rate on hold, but meat tilt a little hawkers. Here are the headlines from President She's trip to Europe. Obviously, the trip has begun. The EU says we're ready to use all trade tools to defend against China. President She has urged Emmanuel Macron to help China avoid a new Cold War, and Hungry plans
at least sixteen agreements with China during this visit. So joining us now on the program to discuss a little bit of this carrot and stick approaches. Rebecca Chung Wilkins, Bloomberg Asia Government and Politics Correspondent. We're seeing a little of both here at the moment, and it seems like Ursula Vanderlin was carrying the stick.
Yes, I mean this is sort of really interesting because part of this whole trip is the balance between what the EU wants and they, of course the bloc that have rolled out this litany of probes versus the interest the interest of specific member nations, and where you know, those two sort of conflict is precisely where Si Jinping hopes to kind of make his point that actually to individual countries such as France, but also for example, such
as Hungary, it's more advantageous to actually pursue more open economic trade barriers and so rather than kind of supporting the EU's more hawkish stance, which of course is closer to the US position.
So the French Finance Minister Bruno Lamarre has used the term happy globalization and advocating for the end to it. I mean, when you look at the bloc, the European Union, this is an amazing This is an incredibly large market
for China to export into. Are they is the administration or when I say the administration, Shi Jinping, the leaders in Beijing, are they at risk of damaging this opportunity for them to be able to kind of allow the Chinese economy to recovery, Yes, but not necessarily going hog wild when it comes to exporting all of the over capacity.
I think it's incredibly important, and I think that's in part why, of course, we are seeing Seasonpin going to the Eupean Union at this moment, the first trip in five years. The block is incredibly important in also supporting that growth. Of course, we have seen China shift to the New three, the so called new three drivers of growth, which includes all of these products evs, batteries, solar panels,
which are the very focus of the EU probe. So it is essential from Beijing's point of view to keep this channel open. Now they have been firm that, you know, Sheasonping has said there is no issue of Chinese over capacity, and there has been debate, you know, even within the EU two about precisely how sharp or how pointed that
effort is. And I think from Beijing's point of view, there is this worry that the EU is falling lockstep in with the US without actually sort of considering the specifics of that over capacity issue and the real pain points. The sort of worst case scenario, of course for Beijing is that the EU launches into a full trade war, or even before that sort of introduces these prohibitively high tariffs on things like evs.
The Chinese papers, of course, are saying that the French president thanked She for a commitment not to sell arms to Russia, and also that they agreed or they support an Olympic truce during the Games in Paris. Can you fill in some of the details on those two.
Yes, I mean this has been a huge sticking point, I think not just for France and China, actually, it should be said, but for several European nations. There has been increasing frustration with China and what is perceived to be its lack of movement in trying to halt the war or bring about a cease fire that is more
amenable to the Ukrainian side. Of course, and China does have its own sort of blueprint for priests, we may call it, but that has not been sort of palatable for many European nations, and so it still is a problem. I would say that although there is this discomfort between these sort of cozy ties between She and Putin, we have actually seen trade between Russia and China fall in March.
That's the first time since twenty twenty two. So it does look like some of these sort of threats of reprisals, particularly from the US side, but also echoed in some parts of the European Union, may be actually having an impact on that trade between China and Russia, which of course has helped support Russia through the course of the war and sort of counter at the balance and the effect of sanctions for example.
So, Rebecca, what are we expecting from she when he visits Serbia and Hungary? How might his relations in those countries differ than to what we have been seeing in France.
Yeah, this is going to be a really interesting portion of the trip, I think, and in two sort of big ways. The first is that this is stent Ping's real opportunity to showcase the advantages of engaging with China. These are two countries that are very friendly to China, that have accepted various investment projects. For Serbia that's more sort of industrially inclined more about steel. For Hungary we've seen for example, byd agreeing to open a factory there,
among other plans. There's also railway potential investment opportunity too. And so this is sort.
Of the carrot.
The carrot part of the trip to use to use your frameworks showcasing that China, if you let in some of its and you remain open to its investments, can bring in its own companies, but can also create jobs in that market. The other part is to send a signal reaffirming ties to Russia, because of both of these nations own close ties to Russia.
All right, Rebecca, thank you, Rebecca Chong Wilkins, Bloomberg Asia Government and Politics Correspondent.
Let's take a closer look at the situation in Gaza. Ed just reported that Israel has stepped up some attacks in the southern city of Rafa. This came just hours after Hama said there was a ceasefire proposal that had been drafted and put forth by mediators from Egypt and Cutter, but Israel's Prime minister was unwilling to accept those terms. Our guest now is Ariel Cohen. He is a senior fellow at the Atlantic Council. Ariel, thank you so much for being with us. It's always a pleasure.
Give me your.
Sense with all the newsflow and how volatile the situation has been. Give me your sense of where we stand at the moment.
First of all is the Holocaust Memorial Day. Today, we remember six million Jews including one point five million children who were slaughtered by the Nazis in World War two. So just to put things in perspective. Second of all, I'm distraught that after the attack on Israel on October seventh, the radical students and professors in Ivy League and other schools in this country decided to destabilize America, destabilize a campus that destabilize the learning process in favor of their
support of Hamas. This is untenable, unimaginable. And here we are, finally, in terms of the reporting that Israel rejected the proposal. My understanding is that Hamas rejected the proposal just until today and when Israel started preliminary bombardments of Rafach, the last city where Rama's leadership is holding up, presumably with the hostages. Only then Hamas started saying that they're accepted
something which Israel says they didn't see. Israel did not see the proposal that Kamas is allegedly accepting.
Yeah, there's a lot in what you said there. I think that we need to push back on a little bit. I mean, people who know you, and people know you on this program know that you're a strong proponent of Israel and that's understandable. One thing that you said was that Israel is not very familiar with exactly what's in the proposal, although in most of the reporting it says that Hamas agreed to a cease fire proposal and that the Israeli cabinet rejected it. Secondly, you said that the
students are showing their support of Hamas. That is not completely correct. They are supporting Palestinians and they are unhappy with the treatment that average Palestinians have in Goza and the fact that so many are homeless and so many have died. So my question, I guess, goes to how concerned are you that US public opinion it certainly feels as though it is swinging a little bit away from Israel, And how much danger do you see in that?
I see that this is probably a watershed for this country. First of all, when students are calling for a ceasefire in a war in which a democracy and an ally of the United States, after a horrible attack, the equivalent of fifty five thousand Americans murdered in one day, is trying to defend itself and do what we try to do with ISIS and al Qaida, to destroy the leadership
of the organization. And if we today don't see, don't recognize who are the allies, who are the enemies, what the purpose of the enemy is, which is the global qualified? After all, KAMAS is an offshoot of the Muslim Brotherhood, a jihadi organization, as they say in the Middle East, the grandmother or the grandfather of Old Jai, the organizations including Al Kaeda analysis, then this country is really confused. We're confused who our allies are. We gave up and
abandoned our allies in Afghanistan. It took us six months to deliberate about support of the Ukrainians who are fighting for their lives. And now we're signaling and the administration. I talked to senior officials in this administration who say, we're threatening Israel with cutting off military supply. We're threatening our our most committed ally in the Middle East. Bar
None was cut off of the military supply. Yes, it is a war, and in war people die, and hundreds of thousands of people died in the Middle East after nine eleven.
So Ariel, let's imagine a world where the upshot of the demonstrations that you have described served to undermine support for the Bided administration and maybe former President Trump is re elected to another term. What does this do to the situation that we're looking at in Israel and more broadly in the Mid East.
First of all, I think it is ludicrous if true what Politica was reporting yesterday that some of the major donors of President Biden and of the Democratic Party, including George Soros, the Rockefeller Fund, the Tides Foundation, allegedly the Pritzter family are donating directly or indirectly to these demonstrations that may just may shift the vote of the students to the likes of Jill Stein of the Green Party and Cornell West and these two three percent will be
sufficient in the battleground states for mister Biden to lose. Is that what these donors and these students want. Do they really want dal Trump to win? And if dal Trump wins, nobody know. It's totally unknown what his position is going to be on anything. On Russia, on Ukraine, on the Middle East, on China. We do not know. And we saw there was a strategic show by Trump and by this Speaker of the House, Mike Johnson on Ukraine, and I was very happy about that because I support
independence of Ukraine and it's territorial integrity. But as I said this, these demonstrations are empowering than Trump, the Trump momentum in these elections, that.
Is certainly something that is being considered at the moment. It's always a pleasure. Thank you for joining us and filling us in on your thinking, your perspective. Ariel Khan, a Senior Fellow at the Atlantic Council.
This is the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and The Bloomberg Business Apple