Talk of Talks

0:00Well, Mark, it seemed fairly optimistic today, because maybe no boats have been sunk in the hallways straight. Maybe that's it. And there is talk of more talks between the US and Iran. Meanwhile, the IMF has revised its forecasts and world bankers have been giving their interpretation of the economic consequences of the war, plus the latest business and consumer confidence numbers for Australia. It's Wednesday. It's the 15th of April, 2026. It's the morning call from NAB. Good morning. Well, big falls in oil prices. WTI is down over 7% today. Brent down 4.6% down below 95 a barrel now. And an 0.3% drop in the US dollar that half percent lift in the Aussie dollar, which is now up to 71.3 US cents. Bonyards are falling down four basis points for 10 year treasuries down seven where basis points for 10 year buns in Germany down nine basis points in France and the UK down 11 in Italy. And big rises in US equities this session. The NASDAQ is at one and a half percent up for the 10th session in a row, 1.1% higher

1:04for the S&P in Europe or 1.3% rise in the DAC, similar rises in France and Spain. Just a quarter percent rise in the FTSE 100 in the UK. And he has NABs tailing the agent. So look at that optimism in equity markets. Actually, the S&P, for example, is not far off its all time high and government bond yields falling. Again, obviously, I hope that we're going to see through the worst of this. And it seems like a bit of an adjustment for inflation expectations in amongst all of that as well, perhaps. And so, you know, I'm not if it's going to be that bad. Yeah, good morning, Phil. Certainly, markets seem to be looking through the new term disruption towards the prospect of some kind of resolution that raises those physical constraints on oil and then, you know, market optimism that you've mentioned there continued risk on. And so, the tone seems to be reflecting that in terms of kind of, you know, the detail of what they might be responding to. So there's certainly reports that the US and Iran are looking to arrange a second round of peace talks in the coming days. And so the idea there would be to, you know, have another round of talks before the

2:07end of that, that current ceasefire and, you know, feeding into that positive sentiment as well was, you know, suggestions that Iran may be holding off sending ships through the strait in the short term. So effectively, trying to avoid any kind of test of the US blockade to maybe, you know, try and keep tensions at a lower end, you know, while they, while they work towards those talks. Yeah. Well, supposedly six merchant vessels were told to turn around and they did. And otherwise, as you say, nothing has passed through. So the naval blockade is working for the moment, which is just as well, really, because can you imagine what would happen if they, for example, shot at a Chinese vessel? That would, that would be World War Three, wouldn't it? So thank goodness, nothing's happening there. So meanwhile, I mean, so that's good. We wait and see what happens, perhaps at the weekend, if that's when the talks are, and Antonio Gaterus has been saying in the last hour, so that he thinks talks were resumed through Pakistan, because it would be unrealistic to expect such a complex problem to be settled

3:07in one round is basically what he's saying. So let's have a look at the local stuff thing, a sharp falling confidence in the net business survey for March, but business conditions held up. Yeah, that's, that's right. So, you know, the, that business survey for March, you know, the first one to have kind of a, you know, a clear post conflict rate, if you like. And so we did say, you know, a pretty immediate reaction there, confidence fell 29 index points to minus 29, you know, that's historically large fall, you know, outpaced by March 2020 in, in COVID, but, but other than that, it's about as bad as it's, it's ever been in the history of, of the survey in terms of a single month move. And, you know, but as you point out, we did say that conditions, you know, really held in down, down one index point to six index points in March. So I think what that says is, you know, while that confidence hit is very material, perhaps not unsurprisingly, given the, the magnitude of the shock, it does suggest that the economy was, you know, carrying a pretty healthy level of momentum into the shock.

4:11And so now I think, you know, there's some interesting detail, certainly on the, on the prices side that, that speak to the, you know, the propagation of the, the cost shock through, through the economy, but, you know, now the question is really about, does that, does that massive fall in confidence sustain and does that flow through into kind of deterioration in current conditions? And of course, the answer to that question is very much tied up into the answer to the, the question of, you know, what happens with those, you know, prospective talks in the next little while as well, because he's, because the capacity utilization grows, I mean, then that has been the RBA's concern, of course, not all ties in, because we also saw in the Westpac survey, consumer confidence fell to its lowest level since early 2024. So capacity utilization is a big issue if demand keeps rising, but maybe it won't, if confidence is falling. Yeah, so capacity utilization, as you say, up to 10s and an unwawn, some of it's, it's recent easing and it certainly remains elevated, which I think again speaks to that point that, you know, momentum in the economy was, you know, okay, and those supplier constraints were still a concern ahead of this shock. On that, on that prices component as well,

5:14just, just to round that out, you know, the purchase costs for businesses surge, that more than doubled up to 3% in quarterly equivalent terms. It's the largest one month increase in, in the pace of, of purchase cost growth in the history of the survey, so a very large shock there. And when you kind of break that down by industry as well, they're kind of, you know, suggest what you would expect, I suppose, about how this is flowing through. So, you know, it's transport that is shown, the largest shock, some of those upstream industries that are exposed to this, whether it's manufacturing construction, they saw very large increases as well, but so far that the impact in the prices measures is smaller on those output price measures, really outside of transport, where it's flowed through very quickly, and not necessarily as evident, you know, all the way down in retail prices just yet. So, suggesting that it probably take a little bit longer for that to show up, but we do expect that that will be coming. As you say, that's all on the business side, on the consumer side, you know, we got an update there as well, the Westback Melbourne Institute numbers, and they saw a pretty large fall as well, down almost 13% in April. If you're at call

6:21in March, we talked about the respondents that were late in that early March survey period, had a much lower level of confidence than those that were surveyed early, and that was, you know, that declining confidence extended a little bit in this one, in this survey. And, you know, again, it's those measures of family finances that I think are interesting, and they fell sharply, in a really back-around, that kind of, back-around near the very depressed levels they were during the peak of the cost of living squares, if we think back to kind of that 2022-23 period. So, you know, a pretty meaningful real income shock flowing through and evident in consumer sentiment there. Yeah, well, high-fuel prices, higher interest rates, uncertainty from the war. Of course, optimism is down. So, the World Bank Spring meetings are going on this week in Washington, Andrew House, so is there, do they have much to say yesterday? So, it was a panel discussion, he's speaking again today, so we will hear him or from him, but yeah, he didn't give

7:22much away at all about the path forward. It was a bit of a general discussion and somewhat backward-looking, but I think, you know, what came through to me from that was that, you know, when there was anything to discuss about, you know, the path forward from here is really clearly focused on that growth-first inflation trade-off on the path forward. And, you know, he did point out at one point that, you know, it's useful for kind of central bankers to kind of, you know, potentially provide some guidance on how a shock like this would propagate through the economy, but he said that, you know, to be honest, they have to work it out first. And so, I think that just speaks to them going through their May forecast round at the moment, really trying to refine that assessment and, you know, reckoning with the same uncertainty that a lot of forecasts are reckoning with and not really being in a position to provide too much guidance. Right. So, Andrew House, from the RBA, of course. So, did Andrew House say anything, answer that question? There's no, really. But the IMF did say governments, you know, warning from the IMF

8:22generally, the governments shouldn't spend their way out of an economic slowdown, particularly at a time like this, because you're just going to add to inflation worries, sort of textbook stuff from them, isn't it? And then the projections in the latest world economic outlook. So, world output, so real GDP, 3.1% growth this year, 1.8% for advanced economies. But the US doing better than most other major economies, 2.3% growth, one of the few countries that really, I mean, their growth has downgraded a little since last time, but not as much as, you know, places like the UK, for example. So, the US is actually failing better than most, it's according to these results anyway, or these predictions. Yeah, that's right. So, in general, when you look across countries, the kind of pattern of growth revisions, you pretty closely to the net energy and port of status, if you like, and say countries like the US, faring a little bit better than somewhere like the UK, I think when you look at the, you know, at the way, oh, and more broadly, I think it's interesting

9:23the IMF took the unusual step of putting out three growth scenarios this time, which I think, again, just speaks to, it's very highly dependent on the outcomes of what's happening and how prolonged this disruption is. That kind of headline forecast, you mentioned there, 3.1% for global growth. That's three-tenths below what it would have been in the absence of this shock. They're really framing that as the reference forecast, and the reference forecast is one in which the conflict is pretty short-lived, and prices normalise in the second half of the year. So, those forecasts are conditioned on oil prices averaging around $82 a barrel for the year. That's obviously below where they are now, and we heard from the IMF's chief economist afterwards that, you know, we're probably already in a situation that's closer to their adverse scenario, which are a more material hit-to-growth down to, you know, something closer to 2.5% for global growth. And they also did a severe scenario, which had global growth, you know, somewhere around 2%, so much closer to recessionary levels, although that, you know,

10:24that scenario had oil remaining, particularly elevated, and, you know, going out very elevated through 2027 as well. So, you know, a wide range of growth forecasts there, and reflecting, you know, again, just the difficulty in drawing the path forward when you don't know what's happening with oil supplies. So, Andrew Bailey, for the Bank of England, spoke as well about questioning central bank independence when objectives are harder to measure decisions interact more with private interests, like private debt and public policy. I'm not sure he came to any conclusion on that, so we probably don't need to talk about it. But who else is it? I mean, Christine Lagarde is about to talk as well, isn't she today, I think? Yeah, that's right. So, you know, on going central bank speakers on the sidelines of the spring meetings in Washington, Christine Lagarde coming up. Very shortly, we've got a couple of other speakers to look out for today. Andrew Houser speaks again from that Australian perspective, but we've also got the ECB Schnabel and Bailey from the BoE speaking again as well. You know,

11:27other chatter from central bankers there, we've had the BoE's grain and just kind of repeating what she's said before that she's a little bit more concerned about upside inflation risks and downside growth risks at the moment, but we know that she's on the more hawkish side of the committee. So, the fall that we saw in Treasure yields, how much of that was the result of the US producer prices for March, which came in quite a bit less than expected, despite rising fuel costs. I mean, the survey period finished on the 10th of March, so missed the worst of the oil price shock, but even so, less than expected. So, I guess, you know, perhaps the inflation worry is a well, not dispense with, but certainly, you know, they're weakened a little bit. Yeah, so I think when you look at US yields, they were actually heading higher through the morning ahead of that data, the turnaround did seem to be, you know, alongside what we saw in oil prices and recentment around around headlines, rather than being driven by that PPI data, but yeah,

12:28for the record, the PPI was better than expected. Certainly, the surprise was kind of across all of the measures lower than expected, but you know, really driven by the core measures. That was 0.1%, the X-Food and Energy measure. It was expected to be 0.4%, and so, you know, it wasn't just an energy story that was driving the surprise. And I think, you know, when you look at trying to tease out some of the implications of that, you know, probably does suggest that, you know, at least in this month that it's pretty constructive for the idea that, you know, the lion's share, almost all of the tariff pass through is there, core goods prices and the PPI were reasonably benign, and then, you know, when you think about, you know, how the PPI maps through to those PCA numbers, the feds preferred inflation gauge, it probably suggests a core PCA number that's a little bit better than what we've seen for the last few months, still allurated somewhere around 0.3%, so above what some target consistent, but maybe not quite as bad as what we've

13:33seen over the past few months. And look, we're running short time, so I won't get into comment, and I'll just make the note that the NFIB small business optimism index fell to 95.8, that's down three points from February, well below the 52 year average of 98, mainly because the share of firms reporting positive profit trends fell 11 points to a minus 25% net, and they've got an uncertainty index for which the long term average is 68, it's currently a 92, but that is just a reflection of the way the world is, obviously. Let's talk about China very briefly, a sharp slowdown in export growth, arising imports, and so a much smaller trade surplus than expected so does that mean they should be revising their growth forecast or is this just a bit of a one off? Yeah, so very big surprises on both exports and imports there, very sharp slowing in export growth, just 2.5% over the year, and a big jump in imports as well. I don't think we should be taking any

14:34big conclusions from this, when you look at what's going on in exports, a lot of it is likely just to do with that difficulty around the seasonality and the timing of holidays potentially impacting the data, and if you look at the imports side, it was high-tech equipment and chips that we're driving a lot of, and we know those can be pretty lumpy in trade numbers, so I think don't take too huge conclusions from that, but certainly something to watch of it sustain. And the year-on-year figures hit by the big base effect, because this time last year, everyone was trying to get stuff out the head of tariffs being imposed, of course. Look, it's a quiet day for data today, we're getting industrial production for Europe, the Empire State manufacturing index from the New York Fed, the NAHB housing market index, but really it's talk of talks. What's happening next, isn't it? Yeah, that's right, and one other one to look out for there will be the Fed's page book released up bright and early out, our morning about 4am, Sydney time, tomorrow morning, which will be interesting on how businesses are reckoning with the shop.

15:37Well, we will speedread it before the podcast tomorrow morning. Good to talk to Taylor, catch you next time. Thanks Phil. And I'm Phil Dobby from there, but I'm back again tomorrow morning, I'll see you then.