Transcripts For BLOOMBERG Bloomberg 20240703

A very good morning, welcome to bloomberg daybreak australia. The top story this hour, australias reserve bank is expected to hold its key rates until the final meeting. China is expecting to hold people in default. And chevron begins mediation with workers at its lng plant as unions threaten strike as soon as this week. A lot to get to underway. We are keeping off a u. S. Holiday, that being said. Early indicators suggest the newest speeches are coming online as we speak and the focus on whats happening in the oil market. We are at 86. That being said, the quality of Risk Appetite for that stock given the volumes were streaming extremely thin. We close lower in europe. Make no mistake the vix suggest weve cascaded down in terms of price erasing all gains across the board. Europe is trading the 108 handle. We are moving into a session now. The adjusted earning, those earnings at five yuan. 11. The revenue no for the Second Quarter is 2 billion you and its worth watching in terms of the bellwether of the reopening story out of china. Domestic and overseas travel we continue to watch. We see across the board strength, accommodation and reservations were higher in beating estimates. We are seeing some improvement when it comes to Corporate Travel as well seeing again there. Lets look at the asian markets. This is the last for the outgoing governor before they hand over the reins to the new governor. We are expecting a hold for the third decision. Rates have been sitting at an 11 year high. Quite a bit of political treasure pressure with costofliving. We have the inflation gauge rising to a fourmonthold given the rb x attention. The dollar Holding Strong at the moment. The kiwi not doing much. It is obvious where outside the target there is an argument for weight and seeing . That is the prevailing view, inflation is trending in the right direction. Cpi is lower than anticipated. We have the Third Quarter read at the end of october but there was this lagging and timing since the pandemic and it seems to be doing the job. Those increases are not set back in weight because australian households have a lot of dead. Mortgages are expensive and Customer Confidence as we. What will be next under the new incoming governor michelin public . A tightening bias. She said we may need to raise rates again. Money market side rates were done. May be one more towards the end of the year. It is the end of a seven year term, how will we remember the rba domino . Paul institute part story there was none during 2016 and during the pandemic there is less and then now seven years later the rba struggling to get it under control. We had a situation with the market strongarmed at the end of the day. The worst of all, when 721, we would not see Interest Rates rises until 2024. Then we were on the fastest tightening cycle that led to a pylon its a complaining about mortgage restraints and became untenable politically for the governor to give him a three year extension. Top geopolitical stories were tracking. China has criticized President Biden a strategy for beijing being doomed to fail. They say the current american is no difference to his approach of engagement and containment. The public criticism comes less that a week after the visit to a bid. President biden rejected turkeys deal, the turkish president said the west needed to remove obstacles to exports. Global we prices are volatile after russia left the deal. The u. S. Says, they are expecting leader level talks about providing weapons. Those National Security Council Calls deceived the arts negotiation which are actively advancing. New york times reported met to discuss those weapons. Heidi one of our top stories were following, Country Garden is facing its first default. They have a full day to make Interest Payments on a dollar note. We are tracking those payments out of sydney. They are going down to the wire going through the detail of the payments when you combine them you look at Interest Payments of 22. 5 million. Even that has been ok from the company because we know there has been confusion whether it was due on september 5 or sixth in the ambiguity coming from different interpretation of the standard wording. How likely will they make these payments . The analyst we have spoken and and a credit site say they will be incentivized to make the payments because they could be looking to avoid across default. If Country Garden does default on its debt it could be considered to be in default on other debt as well. Thus the situation it wants to avoid. There is the Briefing Room that theyve earned, they were making payments on a nominated bond and stretch out the debt deadline for rwanda debt as well. That is some of the indication that the companies is incentivized to make a payment but as of sunday they have yet to make the payment. The risk of default is greater then the one in 2021 and there has many more the country has many more projects in the pipeline. David it is one of the few Chinese Developers that has not officially defaulted on debt. When you look at this category, think of private builders in china and the top 50, two thirds of those have already defaulted. 16 out of 50. It is a group that is facing a lot of pain and pressures over the next two months. If you look at this graphic it shows there are 16 of them and they are facing 1. 5 billion of bond payments. That is the high when we had january of next year. The country of ghana saying that our team is highlighting, stocks are down in the double digits over the course of this year. Other ones we have been speaking of, they have substate backing so there consider more secure, we really have seen a lot of default in the country of ghana has been able to avoid that today. David there in sydney for us and want to watch as we go into the open today. Chinese equities, property stocks did not have the best day , the secondbest day. More on the rba pact with Commonwealth Bank. We expect the cash rate to stay on hold before easing begins the First Quarter of next year. They will tell us why we see a positive backdrop some more gates in the equity market. Chris weston will join us from pepper stone group head of research. This is bloomberg. U. S. Futures, a long weekend. We are seeing futures a little bit lower, jp morgan saying they have gotten confident there is complacency in sentiment with the vix near record lows. You see the reopening can only grow u. S. Equities. Sydney is looking muted, going into that rba decision. But Mortgage Rates should be unchanged until the final meaning. The Third Straight meeting where they leave the policy untouched, they leave it at 4. 1 percent. An 11 year high. We are looking for communication of bullet will be more biased towards inflation. It is trending of the right direction. Kiwi stocks, optimism there. They are up 0. 05 . In chicago futures,. 43 . While they see exhaustion and buyers, chris weston is head of research, its great to have you and happy rba d. Where do you see the focus of opportunity. Valuations are just so stretched across so many markets. Chris valuations are distraught initial points but positioning is more important. Momentum favors the bold and there is more buying and tech and highs coming through the nasdaq. I like the cues are trading, nvidia look strong. It still needs to close the gap into next weeks release of the iphone 15. That looks like it is trading firm. Tech still has some good bearing, there is still risk but positioning is rich and substantial and we will move up again a real rates that would put trade into question. That is where we still see movement. Momentum strategy is where you want to be in the equity market. Haidi you expect to it to extend into the ai narrative. I was surprised by the lack of reaction all, positive reaction despite fundamentals. Chris if you go broadly across the s p taking away from the ar space, names that have been expectation are flat on the day of earnings. That is not what weve seen over prior earnings season. There is outperformance on not the day but playing through. That may be aside of fatigue that earnings should be outperforming but is not happening to this extent. I think in this world, where we are looking at labor markets, thats the key trigger for deleveraging risk off move and stay through. The labor markets will get joel supports from payroll numbers. We will keep bond yields contained at these levels i decide based trading level and you go into the end of the quarter you will see people welding to chase returns. That will happen in the mega cap data where you look at the end of quarter to chase as we go for september. Haidi we got some breaking news to qantas, a company that has been not far from the headlines recently. He brought his retirement last month, we knew he was leaving and Vanessa Hudson will become managing director on september 6. That beats his retirement by two months and perhaps this is a surprise due to the timing but when you look at the backdrop all of the pressure, including allegation of selling flights that are canceled. They received a record penalty for those allegation for bogus seat sales not to mention further criticism of the crisis of flights. Qantas is now announcing the ceo Vanessa Hudson will assume the role in september. Qantas, the board is hoping it would be a fresh start but clearly the same regulatory, legal problems all of her responsibility to resolve. David we will see what the market makes of that when it opens up. It has been terrible of late in the stock price itself has reflected that. We broke through the 580 level. Going back to the best of the reopening rally with the reopening of china and capacity. One of the proxies for that. Lets bring back chris, to pivot away from that. What do you think the rate is at the moment . Chris i think it is down given the positioning. A lot of heads and flows of come out of the market. If you look at skew in s p, once q has come back less and they provided hedges playing that number. People have been questioning which would bring down volatility which would look at hedges, gold is a hedge, and looking for a cap does not immediately apparent. We need to see a trend in the labor market to round this hedges. If you look at the skew there is a risk we go into at all time high. The way the positioning is at the moment, if we saw a 5 , 10 drawdown, people are scrambling for it in that is where the pain point is. David i love the emphasis on positioning. Do you favor the u. S. Dollar that can function against what and why . Chris whether you look at leverage funds or Asset Managers , real money accounts are retail where we focus more on. Is looking precariously short on dollars. The market is long in u. S. Dollars if you looking real money and thus the right position right now. It would need if you get the dollar pumping again, you would need it see it coming through it would be a permanent heads because of the negative correlation against the s p. You would see a general increase in distribution and we will all get a 5 move down getting people to wait back into the u. S. Dollar. The position is rich. Against the euro where things have been trading in the march uptrends. If you want to see the dollar push into that trend again you will need to believe we will believe the u. S. Comes into his own. David think he as always, chris weston ahead of research. Futures are turning lower as we speak. More of that and plenty more ahead, this is bloomberg. Haidi welcome back, lets get to your top stories. David after dominating the ev market in china, they told bloomberg they are finding a factory in the region this year. The ev giant also presents the first prototype at the munich motor show. We have a Market Performance in china. We want to try, we want to commit a committed customer here. We would love to be there and help every customer in europe with the car if they need it. David renault will resume talks with investors. They had received very positive feedback during 35 meetings before the summer. He asked his company to reduce cost by 40 in this next generation of evs. Haidi lets get to other corporate stories, they have learned that hauwei have built a seven millimeter elevated smartphone. The prest secretary is the first to utilize it in advance of seven weeks of the technology. Alibabas Cloud Division is raising funds from chinese enterprises. They are working with advisors on a crowd Intelligent Unit that could raise up to 2. 8 billion. Coming up next, we will get more banks outlets for policy. We will have Belinda Allen from Commonwealth Bank of australia senior economist. This is bloomberg. Welcome back, youre watching daybreak australia. Lots to focus on, life after low and life after joyce. Big stories out of australia. The final policy meeting of the year is today. The rba is set to keep its rates unchanged amid its most aggressive tightening cycle slowing inflation without serious repercussions. Numbers are due out in tomorrow we look at secondquarter gdp. Likely to show modest growth driven five exports. Trade numbers are out on thursday and also they will give the last speech governor or stepping down. That last meeting happening in just a tumultuous term drawing to a close. As we look ahead we are expecting Michelle Bullock to take the helmet. Bloombergs paul allen looks at leadership through extraordinary moments. Phil lows seven years can be characterized by one word, inflation. When he got the job in 2016 inflation was barely above 1 . In his first appearance in front of a committee he had to defend the decision with how to disturb it. We have not been inflation in others, weve had a balanced perspective. Balanced inflation is inevitable and appropriate. Cpi did not vary in the years that followed, touching the two to 3 target band until the covid outbreak when it dipped below zero. The pandemic was a black swan event no predecessor had to deal with. After slashing the cash rate 2. 1 , he uttered the words that would contribute to him losing his job. We are likely to be at the current level for a long time. In march 2021 he put a date on it saying the cash rate is unlikely to be met before 2024. Australians took out ultra cheap mortgages as the Property Market roared back to be long foot in wrongfooted. By may 2020 two, inflation was running red hot and to contain it the rba embarked in the fastest rate increases in australias history, 400 basis points in 40 months, leading to awkward questions. Do you accept that you did induce australians to take out mortgages on the basis that Interest Rates would not rise until 2024 . Do you owe them an apology . Im sorry if people listened and then acted on what we had said and regret what theyve done. So that is regrettable and im sorry that that happened. s hopes of getting a three year extension were dashed. Responsibility for defeating inflation passes to his deputy and incoming governor Michelle Bullock, the first woman to lead australias central bank. Paul allen, bloomberg, sydney. Our next guest expects the central bank to keep its cash rate on hold. Lets bring up Melinda Allen in, Senior Analyst of the Commonwealth Bank of australia. Let me set the scene. Were expecting the third meeting to be a hold for the rba. Sitting at an 11 year high. Inflation is trending in the right direction but well outside the target band. Is there a good rationale in terms of waiting and seeing how transmission plays out or is there a risk that we see it get out of control . all signs are pointing to inflation coming down, that is the experience offshore in australias. Economies as well. Her confident inflation will get closer to the target band over the course of the next year. Certainly we started to see a loosening, consumers are winding back spending. Thats working in favor of inflation coming down. The risk is reducing the Services Inflation that kept the rba on edge for the rest of this year. Haidi what elements could confuse the outlook . Weve seen extreme weather for example, protectionist policies might comes to commodities. Are those elements youre watching for that could complicate the inflation outlook . Definitely in the mediumterm, climate change, transition to a low carbon chair. In terms of the next 12 months it could be wages growth and Services Inflation that keeps the reserve bank on edge over inflation. The Third Quarter wages print will pick up higher than expected. That will tend down from the first of july. The risk is a resilient labor market could see outward pressure and wages growth that would push inflation higher. The other key risks we need to talk about our recovery in home prices that weve seen in australia. A mother that keeps the bank on edge and we see a more resilient consumer. That is not our best case but that is where the risks lie. David what then is your base case . Labor market and also the Housing Market . You expect the labor market to loosen from here. The latest we got for the unemployment was 3. 7 , we have it above 4 and then foreign a half percent by mid next year. That is the fastest deterioration than what the reserve bank is expecting. Huge lift in labor and australia through population growth. On the home price side we expect prices to lift by 7 this year and 5 next year. That will take prices 3 above the levels they reached in 2021. Supply and demand fundamentals and australia are very poor. Large population growth, limited supply of housing. That should push up home prices. If anything the risk is for stronger lift and we have the bank of australia cutting the cash rate next year. David the other big unknown is what happens with china and my question is what if china recovers, what is the transmission effect, how does that affect policy and australia . Is a good question. Weve seen the impact on the slowdown from china, Commodity Prices have dragged the Australian Dollar lower. If we see a large stimulus announcement that is going to boost Commodity Prices, that prices upside risk into the Australian Dollar and continues to boost revenue to the australian economy. The government budget looks better. Its in a good position at the moment. We continue to see big trade surpluses being printed and the current account surplus looks large. For seeing trade balances of around 10 billion so it just continues to bolster australias external position and also their government budget position as well. That is showing australia and a better position than other economies offshore. Haidi great to have you with us. Belinda allen senior economist at Commonwealth Bank of australia. Commentary and analysis from our expert editors as we get into phil lowes last meeting today. Alan joyce is bringing forward his retirement by two months. Set to take over on wednesday this week lets get the details from karen lee in sydney. We knew he was on the way out but is this a case of reputation , shareholders love them, the general public, not so much. Is this going to give him a new start . This has been a bumpy week for joyce. He was supposed to step off in november and hand off to cfo, but he has decided to leave early. He has been grilled by the senate recently over what people see as inflated prices, as Qantas Holding is selling thousands of tickets for flights that it had canceled. Hes faced customer blowback. People in australia were facing inflated cost of living, worried about money. And you have this storied man in brand thats been respected and people are upset by how much theyre having to pay for tickets. This has been a rocky road for him the last few months. David karen, this headline out of the sydney morning herald, joyce gets 10 million as qantas faces fines underscores the optics. What do we know about Vanessa Hudson here . The optics are not great and joyce said in a statement that was released this morning he is stepping back to allow the company to focus on his renewal, its renewal. Hudson is going to be a big part of that. Shes going to have to turn around public sentiment toward the company that people have revered for so long and it has really come down in the last few months. A lot of people watching qantas to see if it is going to reclaim its former status. David karen lee, Global Business editor. In alyssa are bullish on stock prices, they just flashed on your screen. Just ahead in markets we are talking emerging markets and debt. Why they think investors may be stuck on the wrong foot for the next few months and what they mean by that. Rob savage joins us in a couple of minutes. Keep it here. You are watching bloomberg. I need it cool at night. You trying to ice me out of the bed . Baby, only on game nights. You know you are retired right . Am i . Ya the queen sleep number c2 smart bed is now only 999. Plus free Home Delivery when you add a base shop now only at sleep number. David the currency markets to my right are coming off the dollar weakness for two days. A caveat by saying the u. S. Long weekend, exacerbating price moves given liquidity. Look at equity markets as example, extremely thin volumes. I think we talked a lot about the rba. We have numbers coming out of china, the pmi numbers. We get into those thick of factory orders out of the u. S. And also a slew of pmi numbers out of europe. From em back to em where you have Central Banks joining dm piers in terms of pushing back on expectations, a rapid switch from hiking to hold to cutting Interest Rates, souring the outlook for bonds. Lets bring in fx and rates reporter matt to talk us through the story. It has been painful if you are long on local currency bonds, isnt that the case . It was painful. And a lot of it was driven by the selloff in u. S. Treasuries, the higher for longer mantra. We had a lot of speakers come out, especially jackson hole not putting cuts on the table. He started to see emerging Central Banks follow suit. Hungarys central bank said do not expect rate cuts to be automatic. Indonesia is allowing shortterm yields to rise. Just because of the narrow spread we are seeing between indo jvs and treasuries so they need foreign inflows. Theyre issuing new securities. From that we saw a rate cuts that were expected in asia for 12 months. They have been priced out. Youre seeing cuts starting to be priced out and bets trimmed as similar in Central Europe as well. It was a painful august and we will see how september goes when everyone comes back from the summer holidays. Haidi i suppose the question is is it a little bit of pain or extended . What would you be watching . That is the milliondollar question for every fund manager and trader really. At the moment we really need to see a clear picture on the fed rhetoric and where fed rakes rates stabilize. We have a looming risk over the next six to 12 months, el nino, stoking food Price Inflation in asia. We are seeing that before the full brunt of el nino comes into effect, weve got rice prices in asia hitting a 15 year high. In peru inflation is not slowing down fast enough there. The aligned price has jumped up 70 so local people cannot make their national food. So a lot of the food price, food shock has to make its way through the system and that is going to keep Central Banks especially in asia that have high cpi baskets, that that that food area is going to keep them on their toes quite a lot, even after the fed gives us a clearer picture. David thank you so much with that thought in mind. Inflation. Matt burgess. Makes tequila more expensive if you are into the lime side of the conversation. Lets bring out our next guest to says investors may be wrongfooted over the next few months. Rob savage is with us, head of market strategy. We will skip particular question and ask what you mean by three to six months. What is the trick for em debt right now. I think theres three factors going on when it comes to emerging markets. First is the view that the fed being higher for longer puts some pressure on banks, Central Banks that might want to cut rates, theyll be looking at their currency and that might be a throttle that shuts off some of those cuts. I also think that the easy money of buying some of these bonds, particularly in latin america, where there is a tremendous carriage rate, when the rate starts getting volatile, that ends bond holding hunger. What were seeing in the next three to six months is unfortunately a continuation of u. S. Exceptionalism for lack of a better phrase. It is hard to see the u. S. Going into a recession. It the no lending story, a soft landing or mild recession in 2024 seems the most likely outcome. There is still going to be a risk in the next three to six months of the fed raising 25 basis points, should things just continue to surprise to the upside when it comes to growth. David right. Does your note of caution apply to hard currency debt dollar bonds . The other part of the puzzle which i have been waiting for since march, the u. S. Banking Regional Banking Crisis should have really had a larger effect on credit than what we saw. And that is interesting. I think hard dollar debt is going to suffer from the same problem, which is people are waiting for a shoe to drop when it comes to credit. I do think that the emergingmarket and the developed markets have one new shared commonality which is too much debt. Not all emerging markets are the same. But those that are on the edge where current accounts are just awash with surpluses, those that are troubled with debt to gdp ratios that, you know, are not overwhelmingly attractive, that is a stability factor im paying attention to. And i think that is one of the cautionary tales, which is that credit in the u. S. Is coming back is a concern. The three things we are watching in september, we have the united auto potentially striking. We have the return of student loan payments and we have a potential u. S. Government shutdown, all of which is not going to be great for growth in the u. S. Or friendly for credit. That is part of this story that leads into emerging markets over the next six months. Haidi china is the other big part of the story. Do you see these gains being pegged to the china exposure . Are asian markets still so strongly anchored to the fate of the chinese economy and what happens . Do you think there is decoupling . Maybe it is derisking. Decoupling stems from derisking. Certainly south korea, places that are probably the litmus test for whether it is derisking or decoupling, i also think that china, the actions over the last week might have gotten to the point where the market is priced maximum pessimism over the china recovery. I find it probably overdone and i am more optimistic because of that for certainly asian and china equities. The problem with the bond markets are they are likely to be nervous about the currency. I do not see the currency strengthening as much as some on the street. I think aipac is likely to remain higher for longer like the fed, which is not great for bond markets. Haidi really great to have you, bob savage, head of bny mellon. More to, on daybreak. This is bloomberg. No. Hes making sure his portfolio and retirement plans work in harmony. They want to adopt a child and build a new home. So theyre talking numbers with their merrill adviser. Shes not researching her next role. Shes learning how to handle market ups and downs without the drama. Personalized advice so impressive your money never stops working for you with merrill. A bank of america company. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. David tracking name gas market closely today as we move into the european session with news coming out of potential strikes. More warning coming out of workers and chevron in australia, talking about how partial strikes are possible on the seventh of september, two days from now. September 14 is when they are threatening. Edges from that day. Haidi quite interesting because you talk about watching european gas prices but the monday session price momentum was fascinating. We saw that slide because it seems lower demand is outweighing strikes, supplies norway. We saw benchmark futures 7 lower as we get into mediation talks. That is something we are watching. 24 hour rolling outages are at stake. Two plants could be affected. Its quite an escalation. We talk about the downside of this market is on edge after the russian invasion of ukraine. In terms of the market, these facilities that could be affected, 7 of global supply. David our colleagues have estimated 1. 1 million tons could be affected. Plenty more ahead, we will leave you to look at markets and unpack more in a moment. This is bloomberg. jennifer the reason why golo customers have such long term success is because we focus on real foods in the right balance so you get the results you want. When i tell people how easy it was for me to lose weight on golo, they dont believe me. They dont believe i can eat real food and lose this much weight. The release supplement makes losing weight easy. 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