Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our day Break anchors all around the world, and straight ahead on the program, we'll look towards next week's BED meeting and its monetary policy going forward. I'm Tom Busby in New York.
I'm callin Hepget in London, where we're looking ahead to the UK's great decision.
I'm Brian Curtis in Hong Kong. I'll take a look at the upcoming results from China's ten cent holdings and whether a little less regulation is producing dividends.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg Eyleod, The Free Own, New York, Bloomberg ninety nine to one, Washington, DC, Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius XM one nineteen and around the world on Bloomberg Radio dot Com and via the Bloomberg Business App.
Good day to you. I'm Tom Busby, and we begin today's program with the Federal Reserve. This coming week, the FED hosts a two day meeting on interest rates and monetary policy, with a decision out on Wednesday. Will the Fed leave its benchmark lending rate unchanged for the fifth meeting in a row, and if so, why for more we're joined by Michael McKee. He's Bloomberg's international economics and
policy correspondent. So Michael, what do you expect to see happen this week and what do you see in the Fed's dot plot forecast?
Well, that's the right way to look at it, because the Fed's not going to do anything in terms of its policy rate. It'll leave it where it is a range of five and a quarter five and a half percent because they basically told us that for the last three weeks and they're not going to go back on
that and surprise the markets. They also are looking for more data, but the dot plot is going to be the interesting one, along with the summary of economic projections, because are they going to raise their projection for inflation and how would that affect their view of rake cuts This year, since the last FED meeting on January thirty first, we have seen CPI inflation and PPI inflation come in stronger than expected, and so the question is do we
think that this is the new trend, that we're going to be stuck with inflation that is stickier and harder to bring down than the Fed anticipated, or do they think this is kind of one off seasonal adjustment around the first of the year. That's going to be the real question now.
But in fairness, June of twenty twenty two, inflation nine point one percent. Just last week we saw it down to three point two percent, So it has accelerated a little bit from the months prior, but and we still got a long way to go to its two percent target, but it is still sort of trending the right way.
Well, it depends on what you're trying to accomplish. If j Powell were running for president, he could tout going from nine to three. But since he's got to get it down to the two percent target, the fact that it's going the wrong way now is not necessarily good news for them, and that will influence their views. If they think that we are going to see a stickier kind of inflation, then that might lead them to change
the dot plot. The dot plot that came out in December the last time they did one, suggested three rate cuts this year between the meetings, we've had several FED officials suggest that if inflation proves to be a problem, that maybe there will be fewer It would only take two to move their dots up to change the consensus forecast.
So we're going to be watching that very closely now.
A few weeks ago, in testimony to Congress, FED Chair Jerome pal did say he thinks rates are at their peak right now, twenty three year high, and it would quote likely be appropriate to begin dialing back policy at some point this year.
Yeah, and asked about what it would take to do that. He basically said, we need continued good news on inflation. He said, we didn't need to have it be better each month, go down significantly each month, as it did during most of twenty twenty three, but it had to be going in the right direction, and right now it's
not going in the right direction. So I imagine we will get a caution from him that even if they don't change the dot pot, that they are aware and watching inflation right now, and that if they needed to do something, they would. I don't think that rate increases are on the table right now, but cutting back on the number of rate cuts are pushing them back later in the year is certainly a possibility now.
Inflation obviously the headline measure, but there's also job creation, which has been unexpectedly robust. Housing and retail sales a little uneven here and there, sometimes up, sometimes down. So is it job creation that really has the Fed optimistic about the economy?
It is, and also the idea that companies are spending money in a little more than they had been as they get perhaps some of the federal government's fiscal assistance in the Infrastructure Act and the Chips Act. There is a concern that maybe the economy gets too hot, but it's not proving out. We're seeing strong job creation, we're seeing weak jobless claims. They went down again this last week,
but we are not seeing strong retail sales at this point. Now, retail sales are pretty much only goods, and so we'll have to wait till the end of the month after the FED meeting to see whether people are spending on services and how strong consumer spending overall is.
But it doesn't suggest that the consumer.
Spending, which is two thirds of the economy, is benefiting from any of this yet.
Now.
In housing, we've seen rates this past week go down below seven percent. If there was ever a time of the year right now March April May when we're going to see housing accelerate a little bit, This is it, So I imagine that is being very closely watched as well.
It's being closely watched.
But the general feeling is that people really won't come out to buy houses until you get mortgage rates down close to four percent. It's going to be a while until we get there. They aren't going to come down to where they were. You're not going to get a three percent mortgage anymore, but you might get one between four and five if inflation continues to fall, and.
That's what we have to watch.
There isn't expectation that we're going to see at Gangbuster's housing market this spring, even though it is the time of year when you normally do.
Well our thanks to Michael McKee, Bloomberg inter National Economics and Policy Correspondent. Now we move next to the athletic footwear and apparel giant Nike, the Dow component, reporting third quarter results this coming Thursday. Many analysts are wondering whether economic headwinds in China will impact the company's sales and for more. We're joined by Poonam Goyle, senior US e commerce and retail analysts at Bloomberg Intelligence.
Poonum, thanks for being here, Thanks for having me.
Well, what are you expecting to see from the sneaker in sportswear giant and how big a role will sales in China play into that?
Sure, the fiscal third quarter, which is largely in line with the fourth quarter for most other retailers, for Nike, we expect sales to fall slightly. That's largely a function of just lackluster consumer demand, largely on the apparel side. I would say, not as much on the footwaar side. And where we're seeing weakness is across the board. Really, we're expecting Emia to be weak. It's expected to be downlow single digits. North America as well, and these two
markets collectively are the largest markets for Nike. That said, China is important, and you know you asked how important is China's about fifteen percent of their sales and we're only expecting to see a low single digit gain about two percent in China, So that's not as robust as you would have expected earlier last year, when you know China had ended at zero COVID policy. So things are a little markye, but I would say that that's all
near term. I do think the Nike still remains a solid brand, fifty billion dollars plus in sales, the largest sportswear brand in the world, and we don't think its position is at risk at all.
Well, let's talk about Nike's initiative on direct to consumer sales. Has it made a material impact and has the affected some of the retailers that it supplies.
So Nike had a few years ago made a big push towards DTC, you know, pulling out a lot of key wholesale accounts, including moderating its exposure to some of the department stores as well as Footlocker. We saw that flip on its heels last year, right when they said that they're going back into Footlocker in a more strategic way. They're also entering thes W and they're pushing more so
in wholesale. Now what does this mean? Right? You know, DTC has higher margins and therefore when they had announced this move a few years back, it was good for margin. And now as they're pulling away, I wouldn't say they're pulling away from DTC, but I would say they're leaning more into wholesale. The margins do have a headwind from that mixshift, kind of flip flopping, but I would say
wholesale is important. Their partnership with foot Locker is important because if you live in the suburbs of New Jersey like I do, it's hard to get to a Nike store. Right The flagship store in New York City is great, but it's two hours to get there. So where do you buy good Nike product? The outlets have usually, you know, product that came out maybe a year ago or six months ago, or stuff that's left over. And the only place really that you can find compelling Nike product in
a suburb is at Dick's Sporting Goods. So coming back to some of these wholesale accounts, I think is a good move for Nike as it will make it be available to all of America. Again.
Now to that point you've written about Nike finally getting control of its pandemic era inventory and supply chain problems. Are things back where they should be and is it supplying all this new product for consumers?
I think supply is back and where it should be, so we don't for see any supply chain disruptions at Nike this year. In terms of supply within the marketplace, I think that's a little next. There are still excess inventories in the wholesale channels, so in North America specifically, we do think that that headman will persist at least through the first half of this calendar year or for
Nike's fiscal fourth quarter. But around the world, as inventories are stabilized and the supply chains are operating at i would say near normal levels, we do think that there are tailwinds from this to be had in the second half of the calendar year twenty twenty four.
And Nike is already the biggest women's athletic apparel and shoe brands, So are they banking a lot of growth on women customers.
Yeah, So women's is actually a very very important category, not just for Nike but really for all the at leisure brands. It's a growing category and Nike does have a lead there. But I would say when you look at women's versus total sports, where the lead that Nike has, the gap between that is very different. So Nike is by far the largest sportswear brand and it has a large lead to its competitors, but when you look at women's the lead isn't as wide, right, So to me,
the woman's playing field is anyone's game. So Nike is a leader today, but that doesn't mean that it will stay a leader forever if others also step up their efforts because they don't have a wide margin lead versus the rest of the competition.
And how is it compared to like Lulu Lemon, which you know here in New York you see on all over women wearing everything right, Lulu Lemon also some athleta that's the gap brand is Nike moving into those types of products, the yoga pants, the stuff you wear to the supermarket or wherever they are.
So the push for lifestyle athleticware has been something that most at leisure brands, including Nike, have been going after. It's a little different of a customer still, you know, we think where Lululemon shines is that it understands the women custom and are probably better than any of the other brands because that is where they shine. They have the right fit, they have the right material, they have the right function, they know how it works and they
understand it. Nike has performance built into its women's war, but I don't know if it has the fashion right. Not to say that it's wrong, but I think it leans more towards performance versus where you have a little lemon yoga pant. It's performance and fashion. So I think that intersection is where Nike is trying to go to as well with women's but I think that will take time. It's not something that they can do overnight.
Well, we're going to find out a lot more on Thursday. Well, our thanks to Blunham Goyle. She's senior US e Commerce and retail analysts at Bloomberg Intelligence and coming up on Bloomberg day Break weekend, a big decision this week on interest rates from the Bank of England. 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, earnings from one of China's biggest names in technology, and a look ahead to the next move from Australia's Central Bank. But first, with UK interest rates at historic highs, pressure is mounting on the Bank of England. While recent economic data suggests the economy may be moving in the right direction, one wrong move
could undo all the progress made to date. The situation makes for a difficult choice for central bank policymakers who will vote where to move rates in the coming days. And for more, let's go to London and bring in Bloomberg daybreak, europe Banker Caroline hepger Tom.
The last time we heard from the Bank of England Governor Andrew Bailey, he told us that when it comes to cutting interest rates in the UK, it's a question of when, not if.
I think we've now changed the question really from how restrictive do we need to be for how long do we need to be restricted? That's important. We've also tokened the upside bias off. We haven't cleared a risk, by the way, a new risk actually, which is we're really reflecting obviously tragic events of them at least and the impact that can have through the Red Sea effects. So I think now the question is for us as really is for how long do we need to maintain the
stance going forwards? You know I've said a number of times going We're not making predictions at this point we're setting up the framework. The things that we think are important to look at really haven't changed. Actually, so services, inflation, aspects of the labor market, the domestic drivers of inflation.
That was Andrew Bailey speaking to Bloomberg Television after the last rates decision. Now, in the meantime, recent economic data signals really a step in the right direction, the Rank of England having emphasized its data driven approach. The UK economy rebounded in January after falling into a technical recession
in the second half of last year. In addition to that, Britain's jobs market, which fueled inflationary pay rises immediately after the pandemic, does seem to be cooling, and cooling pretty sharply, with the first increase in unemployment since July. Despite those signs, though, the recent communication has suggested that the Bank of England is really in no hurry to ease policy, and signs of a rebound give it cover to wait a little bit longer for confirmation that inflation is on course for
the durabile return to the two percent target. Now, Northern Trust chief economist Carl Tannenbaum has told us that the Bank of England does now have a difficult choice to make.
I think it's the most complicated of the Big three. Even the Bank of Japan, which you'll meet later this month, is right pleased with what they're seeing on their inflation numbers. Most of us think that rates will be in positive territory before long. But the Bank of England, certainly a last monetary policy committee was the first that I can
ever remember. They had votes for a hike, voste to remain stable and votes to cut, signifying that within the group there is a lot of disagreement over the diagnosis of inflation. I can understand why, given the conflicting signals that we're getting from labor markets.
How would you characterize the state of the UK economy now?
Stand still at best, I would say the quarterlyase have barely been a positive effectslight negative, I believe, and certainly the momentum that we're seeing in the United States is not present here in Europe. Part of that is attributable to the massive amount of fiscal spending that has been done still in the United States, even past the pandemic. That is an option that has not been available to
Europe where budget constraints. Certainly that's around Jeremy Hunt's budget proposal illustrate how hard it will be to achieve any kind of fiscal expansion in Europe.
That was the chief economist at Northern Trust, Carl Tannembaum, speaking to me on Bloomberg Radio. It's also worth considering how the decisions of international central banks will affect the policy makers here in the UK. So recently, the US treasure Sexuary Janet Yellen said that it is unlikely that market interest rates will return to levels that prevailed before
the COVID nineteen pandemic. Bloomberg's chief UK economist, Dan Hansen tells me that the UK could see a sustained raft of rate cuts to come, but probably not at the next meeting.
Yeah.
I mean, I think this one's going to be a relatively they're say, boring meeting in the sense that no one's expecting any action. There was quite a big shift I think between November December and then to February. You know, the bank dropped its tightening bias, we got to vote for a cut, So we've had quite a big had quite a big shift, and now they've made it very clear.
I mean you mentioned they're the communication they've made it very clear that they're pretty patient about the timing of the first rate cut and they're looking to the data. And I think that that will continue to be the story at this meeting, that they're just waiting for more information.
Yeah, we saw that three way split quite unusual, didn't we about of England hawks, doves and some in the middle. Is that likely to return in future meetings? How much do you think that these individuals are going to coalesce around the decision making.
Yeah, I mean, I actually think that's the thing to watch at this meeting. So remember back in February we had two for a hike, so Catherine Mann and Jonathan Haskell, one for a cut, Swatidinger and the rest went for a hold. We thought in February Jonathan Haskell would go for a hold. I think with what's happened to the pay data, there's a chance that he'll move to a hold.
He's been very focused on the labor market. We get a CPI print the day before the decision that will be very important, particularly what happens to service his inflation. So our base case for the meeting is that he does go for a hold, So we get a slight
shift in the makeup of the vote split. But to sort of answer your question directly, there will still be this three way split where you've got Catherine Mann going for a hike, seven of them going for a hold, and Swortidinger continuing to call for a cup.
But I mean that the labor market and the wage data is so important. The ECB has said similar also, the labor market in the UK does seem to be cooling. We notice, for example, redundancies have started to tick up, okay from a low base, but they have, but the wage pressure is still there. There's still you know, some sizeable wage gains being offered.
Yeah, there are.
And that's the combination of that and services inflation, of the two things that they're just looking for information on and some more to gain the confidence to cut. I actually think looking at the wage data that we had the most recent wage data, it came in pretty weak actually on an underlying basis. I know, on a headline basis we're still up at six percent, which is way
too high for the Bank of England to tolerate. But actually if you look at sort of underlying measures of pay and more timely measures of pay within that data set, things are calling off pretty quickly, and I think we're heading for an undershoot. On the Bank's February forecast on private sector regular pay, quite a big undershoot. The big risk on the horizon is the h in the national minimum wage.
April.
Yeah, yeah, exactly, so that that will be something that they're going to have they're going to be focused on. I think they're going to want to see data on that before they go ahead and cut. So, but I think the news on pay has been actually since the start of the year, and on inflation generally has been been pretty good. Things are tracking their forecast, if anything, coming in slightly below it, so that's that's good news.
In terms of cuts them for the rest of the year. You know, we're pricing in less for the Bank of England than for other major central backs. Do you think that that holds this year?
That view, so we have a slightly different view on all of this. I think one interesting thing with market pricing is that you have to remember it's a mean or an average, so that that could potentially be reflecting two scenarios, one where they don't cut a tool and one where they actually cut quite a lot. And actually
we're in that second camp. So we're in the view that once they start, at least for a time, they'll cut once a meeting, they'll probably get the base rate down to about four percent, and then they'll take stock. Because the question really with this easing cycle is where it's neutral, like where is the sort of long term rate, where long term level where rates will settle, And there's
obviously an enormous amount of uncertainty about that. But I think the reason why they will be able to go one A meeting, one of the big reasons they'll be able to go one A meeting is that in the second half of or from the spring and into the second half of the year, inflation is likely to be below two percent because of what we're going to see with energy prices. Yes, there's going to be core inflation still going to be around three percent, but I think
the sort of risk to inflation expectations has gone. Bailey sort of hinted at that in his recent comments that they're less worried about second round effects. So I think there is a case of taking away some of that restrictiveness, and in argue, even if you're at four percent, the monetary party would still be weighing on the economy, it would still be restrictive. So I think there is a case for bringing rates down relatively quickly and then taking stock.
Yeah.
Interesting, I mean that sort of reflected in what Janet Yellen and the US Treasury sectory has been talking about in recent days. You know that we would be unlikely to return to pre pandemic levels in terms of yields. US treasure yields in the twenty ten on average two point three nine percent, but we're not likely to get back to that. But interesting that you say, you know, for five and a quarter to come down to four is the expectation. Do you think that the Bank of
England will be influenced decisively by the Federal Reserve? I mean, history surely would say yes.
I don't know about that. So I think the market perception is that the Fed leads the way in this inflation cycle. You can see why that would be the case because inflation is about six months ahead in the US. The sort of pro the disinflationary process is about six
months ahead. The challenge to it, I guess, would be what happened in at the end of twenty twenty one, where the Bank started its hiking cycle, and the FED didn't start until early twenty twenty two, so it's not completely bound either FED.
I mean it can't.
Obviously, it can't completely disconnect purely because of the sort of what might happen to the exchange rate as a result. But I think it the economic picture, the sort of growth picture is very different in the UK, and as I say, there's going to be this story around below two percent inflation here. Granted it's as a result of energy prices, but nonetheless that that changes the picture dramatically.
And I think the other thing to play in. You've got the FED on one side, you've got the political picture of the domestic political picture on the other, and the noises coming from MPs. If inflation is below two percent and the Bank of England isn't seen to be sort of doing something about that and responding to it, the pressure is going to mount.
I think, yeah, election general election expected in the coming months. Of course, do you think that it could be good news for UK equities if we get right cuts of the magnitude that you've talked about.
I mean I would, I would differentiate between cyclical and structural here. So when you when you cut rates. It's a cyclical boost to the economy, and I guess it goes to the problem why UKs have underperformed even if it's one hundred basis points of rate cuts two hundred basis points of raightcuts. Are we going to get a cyclical boost to the economy. Does that change the underlying
structural picture of wheat productivity growth? No, so, I don't think it's going to be a long term boost to the exity picture.
Now.
That was Bloomberg's chief for UK economist Dan Hanson discussing the path ahead for UK rates as we await the twenty first of March Bank of England decision. I'm Caroline Hepgar here in London. You can catch us every weekday morning for Bloomberg Daybreak. You're at beginning at five am in London and one am on Wall Street.
Tom.
Thank you, Caroline, and coming up on Bloomberg day Break weekend. What could be a big move from Australia's Central Bank this week and earnings from one of China's biggest tech companies. 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. The Reserve Bank of Australia set to announce its next decision on
interest rates. We'll have more shortly with Doug Chrisner, but first let's head to Hong Kong and Brian Curtis.
Tom we look ahead to earnings from ten cent holdings. It might be a little early, but we want to see if a little less scrutiny on the regulatory front might grease the wheels a bit four ten cent In China, the NPC approved a ten percent increase in the budget for science and technology, and policymakers are desperate to unleash what's referred to as quality productive forces. Bloomberg Intelligence says that ten Cents should be able to increase revenues by
double digits in twenty twenty four. To talk a little bit about the earnings, were joined by Robert Lee, Bloomberg.
Intelligence Senior analyst.
Thanks very much Robert for being with us. So ten Cents third quarter revenue was twenty one point five billion dollars and that was up ten percent year over a year. Let's start off with this, what are you expecting on revenue and profit in this latest reporting period.
So I don't expect any major surprises from the results when we hear them next week. The company should have experienced a solid rebound driven by the reopening of China's economy, with earnings increasing in the thirty percent plus range, so
that you know they're set to report strong figures. But clearly the stock market's always looking ahead into this year, and as you already said in your introduction, whilst the growth is likely to normalize this year, this is a company that's still capable of delivering solid double digit free cash flow growth for the next three years at least.
So you're more constructive obviously on the company now than you have been over the past year. What's at the center of that.
When we launched coverage on ten Cent approximately a year ago, I think there were very high expectations, driven by the optimism that came with the reopening of China's economy, and there was a view out there in the market that the company we'd be back to business as usual. We didn't believe that view, and core thesis focused on some medium term structural headwinds that the company's likely to experience. So we maintain that view. But since we launched coverage on them close.
To a year ago.
The stock prices as substantially underperformed. I mean it's down over thirty percent in absolute terms. And also there's been a rebalancing of expectations in the market, and I think the market is taking a more realistic view as to what level of growth this company can realistically deliver over as I said, the next few years. So to expect this company to deliver double digit cash growth in the
low to mid teen rage is totally appropriate. And I think there's now you know, things are more imbalanced, which is why we recently added it to our focus list as an idea.
I mentioned a possible lighter touch from regulators that might be coming.
What are you hearing on that level?
Okay, I think on that again. Winding the clock back to two three years ago, China's tech sectors dominated by these two internet LIFs so Tencent and Ali Baba, which have been arguably become too powerful. I mean they had fingers in a lot of pies. They dominated a lot of industries, with allegations that they potentially abuse their power in some way, you know, trying to shut out competition or whatever. So I think of a lot of regulation that we've seen come through in the last couple of
years as being trying to level the playing field. That's
one thing. I think the second focus that the regulator has been to protect the more vulnerable in society, particularly children, etc. So all of that has now worked through and I think we're you know, we're entering a period of more stability on the regulatory front, and particularly given the economic challenges that China faces, I think the Chinese government has now come to realize that actually we need the support of these two companies and you know, their core to
the future direction of the tech sector and you know, major drivers of economic growth. So I think we've seen a more constructive tone from central government and expect that to continue over the next few years.
What have we seen with game approvals by the authorities and also how tough are the curbs that are in place on trying to monetize from withinside these games.
We've seen a normalization of the game approvals, having previously experienced, you know, a couple of hiatus where the approvals completely stopped. So we're now back to a run rate of around one hundred or so approvals a month, which is still well down on where we were two or three years ago. But as I said, I think we've hit a steady
state on that front. Ten Cent and its closest competitive net Ease are picking up a reasonable number of approvals, which helps give you some confidence that this business can again achieve double digit earnings growth over the next few years. Now, again that does not match the strong twenty thirty percent growth they delivered two three years ago, and again tying in with the structural headwinds that I hinted at a few minutes ago, I think the business is entering a
period of slower growth. But still I don't I think there's any major concern with a business that can grow double digit So I think, you know, we're seeing more stability on that front.
Most companies are somewhat reliant on the general levels of growth in the country in which they operate. With ten Cent, it has so many irons in the fire, from cloud computing to gaming to fintech. I'm kind of curious when we look at the total pie. Does Tencent move and groove more on how the economy is doing, or do they have enough separate drivers that they can if they're relatively left alone by the regulators that they can make money even during difficult times. How do you see that balance.
That's a great question. I mean, first observation is whilst again people often mentioned Ali Baba and Tenset and the same breadth breath, they're very different businesses. Ali Baba's far more focused on the e commerce side, which is a smaller element with intencent So I think relative to Ali Baba and some of the e commerce peers who are suffering from heightened competition from low cost new entrance, that's
not an issue for ten Cents. It's a far more diversified business with the benefits from stronger technical barriers to entry in its core markets. So it's a much better, more diversified story. It is still tied to economic growth. But again if you look at their fintech business and you look at their waihin or we Chat super app, I mean, this is a ubiquitous part of life in China.
If you look at the process that everyday payments, so buying coffees, buying taxis, you know, eating out restaurants, So it's sort of every day spend which is still sensitive to the overall economic outlook to some degree. But I would argue is less sensitive than the pure e commerce plays who are more dependent on larger purchases, which are things that people could cut back on if they're looking to tighten their belts.
Robert, Thank you, Robert Lee, Bloomberg Intelligence Senior Analyst. Now let's get too Doug.
Grisner, Thanks Brian. Australia's Central Bank will be meeting in the weak ahead, and policy makers down Under will consider whether now is the time to begin lowering interest rates. Let's preview the meeting with Bloomberg's James McIntyre, our economist covering Australia and New Zealand. I'm wondering, James, whether now is the time to talk about a rate cut or maybe it's too soon.
Well, in our of you, we think it's too soon. So the RBA has received some data that they that they've liked. Over since their February meeting. We're on the new eight meetings a year, no longer monthly meeting schedule for the RBA, so our next meeting won't come before May,
and they've had GDP data CPI data. They've said in comments that they've been broadly in line with what they are expecting and what their February forecast suggested, So there's likely to be nothing that's really going to give them any kind of burning platform or push them to do anything other than stay on hold of this meeting.
Here in the US, one of the debates that we're having is whether or not there is a risk that the Fed may need to remain higher for longer because inflation is just too sticky, too stubborn. Is there the same risk in Australia.
There has been that concern, and in fact, some of the narrative that we've seen around the RBA is that because they were late to the party on hiking rates and haven't lifted as much as the fair that they might be slow slow to begin easing as well, or might be one of the laggards when the using cycle
eventually arises. Our viyw on that is that this pain that is actually much much more effective when it comes to monetary policy within the Australian economy is something that means that well, even though the RBA might be seeing inflation that they're not quite comfortable with, they know that the damage that's being done to households is extreme enough that will be guaranteeing inflation will be going where it
wants to. There's nothing like a pretty weak demand environment to mean that some of that stickiness inflation actually becomes a lot less sticky, and some of those price rises or increases eroad a little bit fast than some are expecting. We think that's where the economy is likely to go down under the coming months.
So we've talked about the mortgage market, touched on households. How are businesses feeling right now and what's showing up when you look at the labor market.
Well, business confidence, it's okay, some of the conditions are soft. We did get a reading from businesses about their investment plans and they are actually indicating that things are very very strong, quite good, especially in the non mining sector, which is something that the RBA has been wanting to see for close to a decade now, since the mining of the previous mining boom peaked back in twenty twelve twenty thirteen, looking for those non mining firms to step up.
A population boom has seen them step up, But we are still at this point where I think that you know, even though things are looking good, you can still have a good old fashioned demand downturn that could see those businesses decide that a prospective investment plan might not make sense, and if they all pull back on mass with the economy looking potentially a bit weaker than many might have suggested, that's that's the RBA could create by staying too high
for too long, and it's one that we think that they'll want to avoid. And that's why we think that some of that softening on rates will come through, maybe not this month, but definitely when we see them meet again later in May.
Well, that was my next question. If you could kind of lay out the pivoting. Let's accept your notion right now and the notion that Bloomberg Economics is operating under, which is that the cash rate will be held steady at four point three five percent in the coming week when it's time to pivot, can we talk about magnitude and trajectory. What might that look like?
Look it really depends how the economy is shaping up.
Right.
We could have a scenario where if there is some sort of shock that comes out of left field, obviously not our base case, then we could see the RBA move quite sharply. That's what they've done before, even with inflation outcomes in the rear view mirror remaining quite high. They still cut and cut aggressively. But let's talk about not the kind of hypothetical risk case, but what is
more our base case scenario. Well, we see the RBA beginning to deliver our more gradual twenty five basis points maybe once a quarter hikes as sorry cuts, I should say, as the easing cycle goes through. So we think that could begin in May. However, the next sort of set of opportunities we think would then be if they decide to stay on hold in May and see what's going on through the middle of the year in Australia, That
around about August could be the next opportunity. That February, May, August and November they're those key meetings where the RBA does their big quarterly forecast reviews, and we think that once they do do the review this time around, it could be enough to justify a cut. If not, we'll see that cut coming in August and a steady stream
of ongoing twenty five basis point cuts. If there's no emergency situation which suggesting that demand is really really weak and they need to do a lot more and a lot more in a hurry.
Great insights. James, thanks for stopping by to help us set up the ring. In the coming week, Bloomberg's James McIntyre, our economist covering Australia and New Zealand. I'm Doug Prisner. You can join Brian Curtis and myself weekdays here from Bloomberg day Break Asia, beginning at eight am in Hong Kong eight pm on Wall Street.
Tom, Thank you, Doug, 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 Buzzby. Stay with us. Top stories and global business headlines are coming up right now.