Welcome to the Bloomberg Daybreak Asia podcast. I'm Charlie Paladin for Dunk Christmer. This week, on today's episode, we'll take a deep dive into the state of air travel in Asia. We'll be joined by Danny Lee, Bloomberg aviation reporter out of Hong Kong. But first, Asian markets aren't digesting Monday's FED speak from Governor Chris Waller.
At present, I lean towards supporting a cut to the policy rate at our December meeting. That decision will depend on whether data that we received before then surprises to the upside and alters my forecast for the path of inflation.
And for more, we heard from Audrey go, a head of asset allocation at Standard Chartered Wealth Management Group, and she spoke with Bloomberg's sharing on and Heidi Stroud Watts.
Audrey, great to have you with us. What does this mean for the equity markets in the US, Because we have all of these expectations of rate cuts to come, but given the inflationary outlook as well, could we see some pullback if those easing bets are not necessarily realized in twenty twenty five.
Well, our expectation is we still remain quite pro risk going into twenty twenty five. If you look at the easing cycle by central bank, by the end of this year, we probably get close to eighty percent of global central bank on some major easing mode, and that's going to provide fresh sort of impetus supporting economic growth and liquidity and of course extending the business like and corporate earnings. So we continue to be quite pro risk on the
back of that. With it always on US equities going into twenty twenty five, and you.
Expect our performance by stocks instead of bonds and cash.
Yes, certainly we do expect US stocks to continue to deliver our performance versus bonds and cash, and then bonds of course to outperform cash as well. I think corporate earnings is really buy key. So if you look at the overall US earnings expectation, we're expecting around me teams about fifteen percent there about going to next year, and together with fat easing, that's going to provide some support
to to multiple expand multiple ex well. Obviously, the carbiate period is that you know if we will to see a researchers and inflation which is not on base case for the time being, but certainly a risk for us to monitor given that overall, you know, even with the last couple of months of cuts, for example, inflation has
been on measure downward path, but remain quite resilient. And if you look at it, you know where qulbum faces to above two percent, the areabouts, which is which is clearly still some way away from Fat's targets rate.
How does the fiscal policy picture, the trade policy picture potentially change that or endanger that outlook.
I think the sequencing of how the Trump administration will pursue their policy will be quite key to watch, given that he has made clear intention in terms of trade hardists on the rest of the world and China as well.
At the same time, on the positive side, he's also pursuing the lives of deregulations and text cards, So sequencing matters, and our expectation is we are likely to see maybe text cluds to be a bit more backroad loaded because you need more congressional approver So in the meantime, you know, the starting point of sixty percent howiff on China and ten or twenty percent on the rest of the world, it's probably a starting point for a negotiation with lightly
our base cases. We're likely to see more faced approach now now that Scott Besont has been nominated to be the Treasury Secretary as well, So on the back of that, I think, which is why we continue to be quite a bit of a pro risk in terms of a risk upetite going to twenty twenty five. But obviously the key wait still remains the US.
When it comes to age. Where do you see the opportunity is there? Particularly it seems like the Chinese recovery could really kind of be a longhold story, particularly if there's more pressure coming from external sources like the US on the trade front.
So we are a bit more selective where the Chinese
stock markets are concerned. I think here we prefer to take a barber approach, focusing on high quality stocks, non financial so is that pays dividends, but it really pays you to weigh out for eventric growth recovery, which we expect to come true, but potentially a bit more gradually since we've been seeing sort of bite size stimulus being released in trips by the Chinese authorities as well, and the same time we will pair that with maybe a sector which is a bit more high beta, for example,
in the technology sector, which we continue to expect China to focus their attention on given their need and wish for self sufficiency, especially with regards to advanced manufacturing.
Given the challenges for China and sort of US exceptionalism when it comes to market performance economic performance, are we expecting more pressure on the Chinese yuan and what would it mean also for other Asian currencies like the Japanese yen.
So that's clearly a key risk factor to be watching out for, because if you look at the previous episode in back in twenty eighteen and twenty nineteen when terrorist was first imposed on China, we did see a almost ten percent depreciation when it comes to the remedy, and clearly with one use no recturing to record lows in the Chinese Chinese government bond space. That is also less of a supportive factor where it comes to bean strength.
So going to next year, I think we do see downside risk where it comes to our Chinese run and as and when the tariff rhetorics get reached up, I think we probably see you know, the un maybe weakening
at the margin as well. I think if you think about yen for that matter, I think Yen is probably the other spectrum where you know, the BILJ is one of the only major central bank expected to high interest rate for the maybe potentially in the upcoming A century meeting, as well as over the coast of twenty twenty five
as well. So our expectation is if you look at the inflation witch growth picture in Japan, for example, the appropriate at a stage where it is proven to continue normalizing policy because among the major economies, the Japan still has one of the lowest real interest rate across the board. And that's and that's against the context of only which has been having inflation running up of two percent for the last one and a half years.
Pudrick ahead of asset allocation. As Dana chatted Wealth Management Group. Really great to have you with us.
Welcome back to the Bloomberg Daybreak Asia podcast. I'm Charlie Palette filling in for Doug Crismer. This week, we wanted to explore the state of air travel in the Asia Pacific region and joining us for a closer look now Danny Lee, who is Bloomberg Aviation reporter in Hong Kong. First of all, what is the outlook for airfares in the Asia Pacific region as we head into the new year.
So Asia, we'll see some of the biggest fare increases across the world, very much above inflationary. We're seeing up to twelve percent being estimated by an EXGBT between Asia and the rest of the world, particularly an economy class, and that's a big jump around six percent increase in business class either way, no matter how you look, it's going to be substantial. And if you look at travel within Asia, says will fall slightly, so it's a small piece of comfort, but those fares are going to be
a lot higher than anywhere else in the world. And the reason why that is it's because airfares the travel recovery has been a lot slower than anywhere else post COVID.
What about delays in getting new planes from either Boeing or Airbus, How is that playing into Asian carriers' ability to keep flying people and ultimately hold fares down.
Yeah, I think the plane delays is a new plane delays is a big frustration for any airline CEO you speak to, and it's whether you are a Cafe Pacific or of your Southwest Airlines or United even to a rhine. There's been little discrimination in where these delays have impacted any airline in all corners of the globe, and so it's significant because airlines are really keen to keep growing and respond to the demand and the appetite out there to travel, which has really not slowed down post COVID.
So there is a frustration there that airlines who have been betting on on fulfilling that demand and obviously to increase their profitability, are not able to do so, and so therefore it is hampering growth wherever you look around the world, and that has a knock on effect, particularly
as airlines try to retire older planes. They can't do that, They sticking to keeping those older, more fuel hungry planes for a lot longer now because of the uncertainty in planes being delivered by both Boeing and Airbus.
Danny, is there any estimate from either analysts that you talk to, or airline executives or other people in the industry when we might see a full return to the Asian airline market that we saw pre COVID.
We are just about seeing a recovery, a full recovery in Asia of the travel market. It has taken a while because of the slow reopening of Asia being much more cautious post COVID. So it is a good sign that we are seeing that full recovery come into play, But are people feeling the necessarily the fall in airfares. Airfares are still quite high, and given what we have seen around the world, airlines have started to adjust for
that slower and lower levels of profitability. But then there is still to complaint from consumers that fares are still quite high. So, no matter how you look about full recovery, if people are still feeling like they're paying more, it's still a frustration. But it's not necessarily to bring anyone from traveling right now.
Globally, then what is the outlook for pricing, either business or leisure?
I think for the rest of the world for pricing it's actually rather better outlook. If you're in North America in Europe, for example, are some of the biggest mature travel markets where you can fly short distances. In particular, they are going to see we're going to see increases of around two percent in some cases on average in both North America and Europe. Where you're traveling domestically, or if you're traveling just across the border. That's broadly in
line with the inflation trend. However, when you still look at individual prices and what people are having to pay when they book their flights, it still feels quite expensive. And we have seen that trend of where people are booking their flights. We've seen this in the Bureau of Labor Statistics. Prices still feel very high, substantially higher than
pre COVID levels. And so even if these increases we are going to see of seeing small single digits, it will be a small crumb of comfort where increases have really taken effect in a substantial way over the past several months.
Now, where does this leave companies then, who are trying to negotiate travel deals with the airlines, Because ultimately, isn't this a game of chicken, Because there's a four letter word and that is zoom. At what point do corporations start to balk.
We have seen corporations become much more disciplined around how much they are willing to spend on what they see is discretionary items such as travel such as business travel. I still think for airlines who have been waiting to see if there will be a full recovery post COVID of the corporate travel sector, something that's very important to profitability. It's probably still not likely to come back anytime soon.
And we have seen over the increasing months many multinational companies talk about traveling less, increasing their number of meetings over zoom do not spend anything unnecessarily that you wouldn't have to, So there is that belt tightening in effect.
And given the uncertainty in twenty twenty five, whether it be geopolitics, tariffs, you know, all these different uncertainties in the world, and airlines of companies generally are being more prudent about how much they're willing to allocate and spending and we are seeing that likely to come into effect when they negotiate deals of airlines for twenty twenty five.
And what does the MXGBT survey tell us about pricing in the United States.
The survey by x GBT does show that in North America we will see increases largely in line with inflation of around two point eight percent and economy class two point seven percent. In business class, it's still you know, running towards a higher end of what we see as an inflation target, closer to more two percent, which is more ideal, even though for North America and South America that's going to see a bigger fall in pricing, is what MXGBT ISS four. I think, particularly in the economy
class eight percent lower in twenty twenty five. Again, will consumers feel that and see that in their ticket pricing. That remains to be seen, but clearly there is going to be a subdued increase in pricing overall, and particularly between North America and Europe that's going to be seeing a very small increase overall in pricing. So it's a
broadly a good news story. If you're living in North America, you know in some of the biggest markets where consumers US consumers particularly are traveling, it will be small increases across the board rather than no increases or a decrease.
And then finally, are there any other surprises that come from the AMC survey.
I think when you look at the survey in isolation, these small increase in some of the major markets is broadly good news. But when you look in the totality over the recent years, I think there will still be a bit of a shock for consumers for flyers out there that when you add up all the increases going back to twenty twenty two twenty twenty three, we are probably back at post COVID highs when it comes to
the benchmarking of airfare pricing. So even if we did see decreases across the board last year, or even rather this year, those prices have crept back up again and erased those those decreases we've seen previously. So even if this is a people are thinking about booking for twenty twenty five and thinking great smaller increases across the board, we are creeping back up to certainly high levels of airfares once again.
Danny, we thank you so much for your time, and that is Danny Lee, Bloomberg Aviation Reporter, joining us from Hong Kong. Thanks for listening to today's episode of the Bloomberg day Break Asia Edition podcast. Each weekday we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from
Hong Kong to Singapore and Australia. I'm Doug Chrisner, and this is Bloomberg.