1 00:00:00,280 --> 00:00:07,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:10,360 --> 00:00:12,640 Speaker 2: This is Bloomberg day Break Weekend, our global look at 3 00:00:12,640 --> 00:00:14,720 Speaker 2: the top stories in the coming week from our day 4 00:00:14,760 --> 00:00:17,520 Speaker 2: Break anchors all around the world. Straight ahead on the program, 5 00:00:17,520 --> 00:00:20,040 Speaker 2: and look at some key economic data in the US 6 00:00:20,120 --> 00:00:23,480 Speaker 2: amid and escalating tariff war between the US and China. 7 00:00:23,760 --> 00:00:25,400 Speaker 2: I'm Tom Busby in New York. 8 00:00:25,800 --> 00:00:28,160 Speaker 3: I'm Stephen Caroll in London, where we're taking stock of 9 00:00:28,240 --> 00:00:31,800 Speaker 3: the ECB's options in the face of trade tarafuncertainty. 10 00:00:32,360 --> 00:00:35,239 Speaker 4: I'm deg Prisner with a preview of next week's earnings 11 00:00:35,240 --> 00:00:36,800 Speaker 4: from Taiwan Semiconductors. 12 00:00:38,400 --> 00:00:42,440 Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 13 00:00:42,440 --> 00:00:46,160 Speaker 1: eleven to three, Yeero, New York, Bloomberg ninety nine to one, Washington, DC, 14 00:00:46,640 --> 00:00:50,920 Speaker 1: Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, 15 00:00:51,320 --> 00:00:54,520 Speaker 1: Sirius XM one twenty one, and around the world on 16 00:00:54,600 --> 00:00:57,760 Speaker 1: Bloomberg Radio, dot Com and the Bloomberg Business App. 17 00:01:01,840 --> 00:01:03,600 Speaker 2: To day to you, I'm Tom Busby, and we begin 18 00:01:03,640 --> 00:01:06,760 Speaker 2: today's program with a look at March retail sales data 19 00:01:06,800 --> 00:01:10,000 Speaker 2: in the US out this week, but it comes against 20 00:01:10,000 --> 00:01:13,760 Speaker 2: the backdrop of a chaotic and escalating global tariff war. 21 00:01:14,319 --> 00:01:15,760 Speaker 2: What will it tell us about the health of the 22 00:01:15,840 --> 00:01:19,119 Speaker 2: US consumer and the economy as we navigate a very 23 00:01:19,280 --> 00:01:22,320 Speaker 2: uncertain future. And for more we're joined by Stuart paul 24 00:01:22,440 --> 00:01:26,520 Speaker 2: Us Economists with Bloomberg Economics. Now, Stuart, looking backwards the 25 00:01:26,560 --> 00:01:29,959 Speaker 2: month of March, things were looking good. Inflation, wholesale and 26 00:01:30,160 --> 00:01:34,080 Speaker 2: consumer inflation was better than expected. We have this consensus 27 00:01:34,080 --> 00:01:38,160 Speaker 2: outlook for retail sales may surprise to the upside. Is 28 00:01:38,200 --> 00:01:39,160 Speaker 2: this all good news? 29 00:01:39,520 --> 00:01:41,919 Speaker 5: It is mostly good news. For the month of March. 30 00:01:42,400 --> 00:01:47,120 Speaker 5: As you mentioned, inflation was relatively muted. More importantly, inflation, 31 00:01:47,280 --> 00:01:50,320 Speaker 5: particularly in the items that would be affected by tariffs, 32 00:01:50,320 --> 00:01:54,400 Speaker 5: were muted. And from a consumer perspective, the behavior that 33 00:01:54,440 --> 00:01:58,320 Speaker 5: we saw was a front loading of purchases that consumers 34 00:01:58,360 --> 00:02:01,840 Speaker 5: expect to be tariffed. So not only were consumers pulling 35 00:02:01,840 --> 00:02:05,360 Speaker 5: forward their purchases of autos. Auto sales surge during the 36 00:02:05,400 --> 00:02:08,920 Speaker 5: month and that should boost retail sales. They were also 37 00:02:09,080 --> 00:02:13,680 Speaker 5: pulling forward their purchases of big durable goods as purchase 38 00:02:13,760 --> 00:02:18,640 Speaker 5: from major retailers that sell things like washing machines, coffee makers, 39 00:02:18,680 --> 00:02:21,400 Speaker 5: and so on. So we're going to get major tail 40 00:02:21,440 --> 00:02:27,040 Speaker 5: whens supporting retail sales at least temporarily in advance of 41 00:02:27,160 --> 00:02:29,760 Speaker 5: these tariffs. So we expect the March data to show 42 00:02:30,080 --> 00:02:35,399 Speaker 5: about one point three percent monthly growth in nominal retail sales. Now, 43 00:02:35,400 --> 00:02:39,480 Speaker 5: the thing is, retail sales started the year really poorly. 44 00:02:39,680 --> 00:02:42,919 Speaker 5: January was terrible. So when we think about what Q 45 00:02:43,120 --> 00:02:46,960 Speaker 5: one GDP growth is going to look like, real consumer 46 00:02:47,000 --> 00:02:49,359 Speaker 5: spending growth for the first quarter is just going to 47 00:02:49,440 --> 00:02:53,240 Speaker 5: run at an annualized pace of about zero point six 48 00:02:53,320 --> 00:02:57,040 Speaker 5: to zero point eight percent. That's compared to four percent 49 00:02:57,400 --> 00:02:59,920 Speaker 5: in Q four of last year. So as good as 50 00:03:00,120 --> 00:03:04,840 Speaker 5: March looked, as the tariff threat became real, uncertainty is 51 00:03:04,919 --> 00:03:07,080 Speaker 5: really the name of the game here, and it's going 52 00:03:07,120 --> 00:03:09,760 Speaker 5: to show up in the Q one data, but probably 53 00:03:09,800 --> 00:03:11,680 Speaker 5: not the March data specifically. 54 00:03:11,800 --> 00:03:14,560 Speaker 2: Okay, and again that was then, because now we have 55 00:03:14,960 --> 00:03:18,400 Speaker 2: a very different reality before those tariffs went into effect 56 00:03:18,440 --> 00:03:21,200 Speaker 2: and now and we know things could change, and they do. 57 00:03:21,480 --> 00:03:23,720 Speaker 2: Boy do they change day to day, hour to hour. 58 00:03:23,800 --> 00:03:27,840 Speaker 2: It seems this tariff war really threatening consumer spending, isn't it, 59 00:03:27,880 --> 00:03:30,560 Speaker 2: and frankly threatening the economy. 60 00:03:31,080 --> 00:03:34,680 Speaker 5: That's right. It's again the uncertainty element is creating a 61 00:03:34,760 --> 00:03:38,840 Speaker 5: huge overca overhang, not just for consumers, but also for 62 00:03:38,920 --> 00:03:42,080 Speaker 5: businesses that are trying to invest and want some certainty 63 00:03:42,120 --> 00:03:44,560 Speaker 5: around what policy is going to look like, who they're 64 00:03:44,640 --> 00:03:47,480 Speaker 5: trading partners are going to be, and what their financing 65 00:03:47,520 --> 00:03:49,320 Speaker 5: costs are going to look like. As we saw the 66 00:03:49,360 --> 00:03:52,760 Speaker 5: bond market getting roiled in the last week, So you're 67 00:03:52,920 --> 00:03:56,400 Speaker 5: totally right. Quick moving policy landscape is really having a 68 00:03:56,440 --> 00:03:59,640 Speaker 5: major effect. A few rules of thumb that I typically 69 00:03:59,720 --> 00:04:03,040 Speaker 5: like to apply when we think about let's say recession risk. 70 00:04:03,760 --> 00:04:08,520 Speaker 5: An increase in the average effective tarif rate of one 71 00:04:08,560 --> 00:04:13,680 Speaker 5: percentage point creates about fifteen basis points of drag on 72 00:04:13,840 --> 00:04:17,640 Speaker 5: cumulative real GDP growth. So the entire move that we 73 00:04:17,760 --> 00:04:22,039 Speaker 5: saw in the average effective tarif rate should shave off 74 00:04:22,200 --> 00:04:26,920 Speaker 5: about three percentage points from real GDP growth. And from 75 00:04:26,920 --> 00:04:31,960 Speaker 5: the inflation perspective, an increase that in the average effective 76 00:04:31,960 --> 00:04:35,000 Speaker 5: tarifrate like we saw moving up to about twenty five 77 00:04:35,040 --> 00:04:38,560 Speaker 5: percent should add about two and a half percentage points 78 00:04:38,560 --> 00:04:43,599 Speaker 5: to cumulative core inflation. So not good, especially for the 79 00:04:43,640 --> 00:04:48,160 Speaker 5: FED that's trying to balance its dual mandate of having 80 00:04:48,520 --> 00:04:54,159 Speaker 5: maximum employment and price stability. These tariff threats de anchor 81 00:04:54,320 --> 00:04:59,200 Speaker 5: or they unanchor inflation and inflation expectations, and they also 82 00:04:59,320 --> 00:05:02,080 Speaker 5: should be creating additional slack in the economy is a 83 00:05:02,080 --> 00:05:04,240 Speaker 5: problem for the FED. Where do we think that that's 84 00:05:04,279 --> 00:05:05,600 Speaker 5: going to shake out for the Fed? 85 00:05:05,640 --> 00:05:05,839 Speaker 6: Though? 86 00:05:06,200 --> 00:05:09,800 Speaker 5: The Fed, at least outwardly is saying that they are 87 00:05:10,000 --> 00:05:13,400 Speaker 5: very much so focused on raining and inflation. While the 88 00:05:13,480 --> 00:05:16,360 Speaker 5: numbers were good in March, that's backward looking. They are 89 00:05:16,680 --> 00:05:20,680 Speaker 5: worried about inflation pressures mounting, especially in the year year 90 00:05:20,720 --> 00:05:21,680 Speaker 5: and a half ahead. 91 00:05:23,160 --> 00:05:25,960 Speaker 2: And those inflation pressures are really going to hit the 92 00:05:26,000 --> 00:05:28,960 Speaker 2: auto industry. Let's talk about that, because it is a big, 93 00:05:29,080 --> 00:05:29,840 Speaker 2: big industry. 94 00:05:29,880 --> 00:05:30,080 Speaker 7: Here. 95 00:05:30,160 --> 00:05:32,240 Speaker 2: People say US doesn't make anything. We make a lot 96 00:05:32,279 --> 00:05:34,159 Speaker 2: of cars. Of course, we import a lot of cars, 97 00:05:34,760 --> 00:05:38,360 Speaker 2: but that twenty five percent tariff on imports is still 98 00:05:38,400 --> 00:05:41,200 Speaker 2: in effect. What do you see in the auto market 99 00:05:41,200 --> 00:05:42,880 Speaker 2: coming up? I mean, like you said, there was front 100 00:05:42,880 --> 00:05:45,720 Speaker 2: loading of buying of autos. What happens now. 101 00:05:45,880 --> 00:05:50,000 Speaker 5: There should be a cooling in auto sales and auto 102 00:05:50,080 --> 00:05:53,320 Speaker 5: purchases from consumers. It's a little bit peculiar that we've 103 00:05:53,360 --> 00:05:58,560 Speaker 5: seen auto prices fading just a touch so far. You 104 00:05:58,600 --> 00:06:01,880 Speaker 5: would think that autodeal would be very slow to cut 105 00:06:01,920 --> 00:06:05,320 Speaker 5: prices given, as you say, the expectation that there should 106 00:06:05,400 --> 00:06:10,600 Speaker 5: be given the expectation that there should be higher input costs, 107 00:06:10,839 --> 00:06:14,680 Speaker 5: higher prices as it meets to consumer. So we do 108 00:06:14,760 --> 00:06:17,280 Speaker 5: expect to see auto sales fading to a pace of 109 00:06:17,360 --> 00:06:20,480 Speaker 5: about fifty an annualized pace of about fifteen and a 110 00:06:20,520 --> 00:06:23,400 Speaker 5: half to sixteen million units a year. That's even probably 111 00:06:23,440 --> 00:06:26,640 Speaker 5: a touch high. By comparison, in March, we saw over 112 00:06:26,720 --> 00:06:30,960 Speaker 5: seventeen point over seventeen point seven million annualized units sold 113 00:06:31,000 --> 00:06:34,080 Speaker 5: during the month, So it's pretty significant fading and risk 114 00:06:34,080 --> 00:06:37,719 Speaker 5: aeskewed to the downside as prices are likely going to jump. 115 00:06:37,839 --> 00:06:39,760 Speaker 2: I mean, it's hard to say what consumers are thinking. 116 00:06:39,839 --> 00:06:43,200 Speaker 2: Do you think the US manufacturers will see a benefit 117 00:06:43,240 --> 00:06:46,320 Speaker 2: from this or is that just really wishful thinking. 118 00:06:47,279 --> 00:06:49,520 Speaker 5: It's the sort of thing that if these tariffs are 119 00:06:49,520 --> 00:06:52,640 Speaker 5: maintained for a long enough amount of time, it's possible 120 00:06:52,640 --> 00:06:56,520 Speaker 5: that they can see some improvement if capacity is built out, 121 00:06:56,800 --> 00:06:59,919 Speaker 5: if we don't see major retaliation from our trading partners. 122 00:07:00,680 --> 00:07:02,640 Speaker 5: But in the interim, there are definitely going to be 123 00:07:02,680 --> 00:07:06,440 Speaker 5: some growing pains, and auto producers are really struggling with 124 00:07:07,160 --> 00:07:08,960 Speaker 5: how to source the inputs that they need. 125 00:07:09,640 --> 00:07:12,080 Speaker 2: Wow, Well, there's a lot of uncertainty ahead. We know 126 00:07:12,200 --> 00:07:14,640 Speaker 2: that US retail sales for March are out this Wednesday, 127 00:07:14,680 --> 00:07:17,880 Speaker 2: ahead of Wall Street's opening bell our thanks to Stuart Paul, 128 00:07:18,000 --> 00:07:21,680 Speaker 2: us economists with Bloomberg Economics. We turn now to the 129 00:07:21,760 --> 00:07:24,280 Speaker 2: new earning season, which kicked off on Friday with some 130 00:07:24,360 --> 00:07:27,240 Speaker 2: of Wall Street's biggest banks. What we will focus on 131 00:07:27,280 --> 00:07:31,320 Speaker 2: earnings at Netflix. This earnings report will be far different 132 00:07:31,360 --> 00:07:33,840 Speaker 2: from past postings and for more we're joined by Geitha 133 00:07:33,960 --> 00:07:39,080 Speaker 2: rangonoffin Bloomberg Intelligence Analysts on US media. Well getha, thanks 134 00:07:39,080 --> 00:07:41,920 Speaker 2: for joining us. So what will make this report from 135 00:07:41,960 --> 00:07:44,160 Speaker 2: Netflix different from past reports? 136 00:07:44,520 --> 00:07:47,360 Speaker 6: This time around is going to be really really different 137 00:07:47,440 --> 00:07:51,720 Speaker 6: because Netflix is going to stop reporting subscriber metrics. Now, 138 00:07:51,720 --> 00:07:54,960 Speaker 6: we all know that Netflix really is a subscriber story. 139 00:07:55,040 --> 00:07:57,320 Speaker 6: I mean quarter in and quarter out, we all obsess 140 00:07:58,000 --> 00:08:00,800 Speaker 6: over the number of new subscribers that they are going 141 00:08:00,800 --> 00:08:04,200 Speaker 6: to post. But they did guide last year to the 142 00:08:04,240 --> 00:08:07,040 Speaker 6: fact that they are going to stop reporting these subscriber 143 00:08:07,080 --> 00:08:11,080 Speaker 6: metrics anything connected with subscriber metrics, So both the number 144 00:08:11,120 --> 00:08:14,040 Speaker 6: of actual subscriber gains as well as what they call 145 00:08:14,320 --> 00:08:18,360 Speaker 6: average revenue per member. They're going to stop reporting both 146 00:08:18,400 --> 00:08:21,920 Speaker 6: of those starting this quarter, so it's going to be very, 147 00:08:22,160 --> 00:08:25,640 Speaker 6: i think, a very different tone around time. 148 00:08:25,960 --> 00:08:28,000 Speaker 2: And this comes after they hit a record number of 149 00:08:28,040 --> 00:08:30,960 Speaker 2: subscribers last quarter, right, I mean, wouldn't you want to 150 00:08:31,280 --> 00:08:32,640 Speaker 2: talk about if you have growth? 151 00:08:33,040 --> 00:08:35,840 Speaker 6: Exactly? This is so ironic, Tom, I mean, they've just 152 00:08:36,120 --> 00:08:39,720 Speaker 6: are coming off the best year ever in the history 153 00:08:39,760 --> 00:08:44,040 Speaker 6: of the company forty one million new subscribers added in 154 00:08:44,080 --> 00:08:47,600 Speaker 6: twenty twenty four. That is even better than it was 155 00:08:47,679 --> 00:08:52,160 Speaker 6: during COVID, and so subscriber momentum is absolutely going to continue. 156 00:08:52,160 --> 00:08:55,360 Speaker 6: I mean, this is by far the biggest streaming service 157 00:08:55,440 --> 00:08:58,679 Speaker 6: in the world that has over three hundred million subscribers, 158 00:08:59,120 --> 00:09:01,480 Speaker 6: and we actually that they are well on their way 159 00:09:01,480 --> 00:09:05,440 Speaker 6: to gain about twenty five million again this year, especially 160 00:09:05,440 --> 00:09:07,520 Speaker 6: with all of their new initiatives and I'm talking here 161 00:09:07,640 --> 00:09:10,440 Speaker 6: about the crack down on password sharing, which they call 162 00:09:10,520 --> 00:09:14,000 Speaker 6: paid sharing, as well as this new ad supported tier 163 00:09:14,040 --> 00:09:17,520 Speaker 6: which is priced very very competitively at about you know, 164 00:09:17,559 --> 00:09:18,920 Speaker 6: seven ninety nine in the US. 165 00:09:19,440 --> 00:09:22,000 Speaker 2: Now, since they won't be reporting on that growth though 166 00:09:22,600 --> 00:09:25,320 Speaker 2: let's face it, it's all about operating revenue and especially 167 00:09:25,640 --> 00:09:27,120 Speaker 2: advertising revenue. 168 00:09:26,720 --> 00:09:30,200 Speaker 6: Then absolutely so the biggest metric now, and this is 169 00:09:30,200 --> 00:09:33,000 Speaker 6: a metric that they have been kind of trying to 170 00:09:33,040 --> 00:09:36,320 Speaker 6: promote over many many quarters now kind of shifting away 171 00:09:36,360 --> 00:09:39,600 Speaker 6: from this focus on subscribers to top line growth. So 172 00:09:39,679 --> 00:09:44,400 Speaker 6: revenue growth is the big metric. They are projecting about 173 00:09:44,559 --> 00:09:49,560 Speaker 6: eleven percent revenue increase in the first quarter, and you're right, 174 00:09:49,640 --> 00:09:53,000 Speaker 6: they are, you know, expecting advertising to become a bigger 175 00:09:53,040 --> 00:09:56,760 Speaker 6: and bigger portion of the business. To remember, advertising is 176 00:09:56,760 --> 00:09:58,719 Speaker 6: something that they are very very new at. This is 177 00:09:58,800 --> 00:10:04,240 Speaker 6: primarily a subscription driven business. So advertising last year, for instance, 178 00:10:04,400 --> 00:10:07,640 Speaker 6: was less than three percent of revenue. Now, granted, that 179 00:10:07,840 --> 00:10:10,760 Speaker 6: is going to increase pretty substantially as they kind of 180 00:10:10,880 --> 00:10:13,199 Speaker 6: open up more and more ad inventory, as they kind 181 00:10:13,240 --> 00:10:16,599 Speaker 6: of add more programming that is tailor made for advertising, 182 00:10:16,920 --> 00:10:19,560 Speaker 6: but it still will be a very very small portion 183 00:10:19,720 --> 00:10:23,800 Speaker 6: off the total revenue by until maybe twenty twenty six, 184 00:10:23,840 --> 00:10:24,680 Speaker 6: twenty twenty seven. 185 00:10:25,080 --> 00:10:27,240 Speaker 2: Well, we've seen some of those. It was the boxing 186 00:10:27,280 --> 00:10:29,360 Speaker 2: match with Jake Paul and Mike Tyson that was back 187 00:10:29,360 --> 00:10:33,960 Speaker 2: in November Christmas Day, to NFL teams, to NFL games playing, 188 00:10:34,000 --> 00:10:38,600 Speaker 2: so big advertising opportunities there. Let's talk about though this 189 00:10:38,679 --> 00:10:42,559 Speaker 2: past quarter. I believe they started WWE wrestling. We had 190 00:10:42,559 --> 00:10:46,560 Speaker 2: the Screen Actors Guild, what were maybe the big revenue 191 00:10:46,559 --> 00:10:50,400 Speaker 2: owners there for advertising and what's in the pipeline. 192 00:10:50,200 --> 00:10:53,800 Speaker 6: So they really had a huge content Sladure absolutely right 193 00:10:53,840 --> 00:10:57,280 Speaker 6: in pointing out that WWE started this January and it 194 00:10:57,360 --> 00:11:00,160 Speaker 6: continues to be one of their most watched pieces of 195 00:11:00,320 --> 00:11:02,960 Speaker 6: content week in and week out, So we know that 196 00:11:03,040 --> 00:11:06,440 Speaker 6: it is doing really really well for them and obviously 197 00:11:06,520 --> 00:11:09,880 Speaker 6: kind of contributing to the subscriber growth. And I think 198 00:11:09,960 --> 00:11:12,360 Speaker 6: over time what we're going to see, Tom is we're 199 00:11:12,360 --> 00:11:15,880 Speaker 6: going to see them go more aggressively after different sports rights. 200 00:11:15,920 --> 00:11:18,880 Speaker 6: I mean, we have many different properties coming on the 201 00:11:18,920 --> 00:11:22,480 Speaker 6: market over the next few months. Formula one is a 202 00:11:22,520 --> 00:11:25,199 Speaker 6: great example, and this is something that you know, Netflix 203 00:11:25,240 --> 00:11:27,960 Speaker 6: has already had a lot of series with Drive to Survive, 204 00:11:28,040 --> 00:11:30,160 Speaker 6: So we think that the Formula one rights actually makes 205 00:11:30,200 --> 00:11:33,480 Speaker 6: a ton of sense for Netflix. You have UFC again 206 00:11:33,520 --> 00:11:36,200 Speaker 6: that kind of complements the whole you know, WWE. So 207 00:11:36,240 --> 00:11:38,800 Speaker 6: we think eventually they are going to go into sports 208 00:11:38,880 --> 00:11:42,400 Speaker 6: rights much more aggressively, which again builds their live programming 209 00:11:42,440 --> 00:11:47,200 Speaker 6: slate and again works really well for that advertising, you 210 00:11:47,240 --> 00:11:50,360 Speaker 6: know revenue base. Now in terms of content, I mean 211 00:11:50,400 --> 00:11:53,000 Speaker 6: of course, they had a really strong content lineup in 212 00:11:53,040 --> 00:11:55,920 Speaker 6: the first quarter of twenty twenty five, but you know it, 213 00:11:56,120 --> 00:11:59,040 Speaker 6: the whole year actually is just going to be one 214 00:11:59,120 --> 00:12:02,520 Speaker 6: blockbuster after the other. So, you know, just to give 215 00:12:02,559 --> 00:12:05,440 Speaker 6: you an example, you know, you have a Squid Game 216 00:12:05,720 --> 00:12:08,960 Speaker 6: the season finale, that the final season coming up. You 217 00:12:09,040 --> 00:12:12,000 Speaker 6: have Stranger Things the final season coming up this year. 218 00:12:12,360 --> 00:12:15,160 Speaker 6: You have Wednesday the next season coming up there. So 219 00:12:15,360 --> 00:12:18,280 Speaker 6: you know they have constantly referred to twenty twenty five. 220 00:12:18,360 --> 00:12:21,040 Speaker 6: Really the content state is being an embarrassment of riches. 221 00:12:21,440 --> 00:12:23,600 Speaker 6: So it is going to be a lot of good 222 00:12:23,679 --> 00:12:26,480 Speaker 6: content and a lot of titles to choose from. 223 00:12:26,559 --> 00:12:30,240 Speaker 2: Netflix's first quarter earnings out this Thursday, our thanks to 224 00:12:30,280 --> 00:12:34,440 Speaker 2: Githa raganathin Bloomberg Intelligence analyst on US media, and coming 225 00:12:34,520 --> 00:12:36,440 Speaker 2: up on Bloomberg day Break weekend, we'll look at the 226 00:12:36,440 --> 00:12:41,000 Speaker 2: ECB's options in the face of Trump tariff uncertainty. I'm 227 00:12:41,040 --> 00:12:59,600 Speaker 2: Tom Busby, and this is Bloomberger. This is Bloomberg day 228 00:12:59,600 --> 00:13:01,680 Speaker 2: Break week again, our global look ahead at the top 229 00:13:01,720 --> 00:13:04,880 Speaker 2: stories for investors in the coming week. I'm Tom Busby 230 00:13:04,880 --> 00:13:07,400 Speaker 2: and New York. Up later in our program will look 231 00:13:07,440 --> 00:13:10,640 Speaker 2: ahead to first quarter earnings from the chip maker TSMC. 232 00:13:11,000 --> 00:13:15,360 Speaker 2: But first, European Central bank officials under pressure to respond 233 00:13:15,480 --> 00:13:19,760 Speaker 2: as US President Donald Trump's tariffs wreak havoc with global markets. 234 00:13:20,040 --> 00:13:23,240 Speaker 2: But just how should policymakers react in the face of 235 00:13:23,280 --> 00:13:26,160 Speaker 2: such uncertainty. For more, let's go to London and bring 236 00:13:26,160 --> 00:13:29,040 Speaker 2: in Bloomberg Daybreak europe Banker Stephen Carroll. 237 00:13:29,120 --> 00:13:32,640 Speaker 3: Tom European Central Bank policymakers have lowered the deposit rate 238 00:13:32,880 --> 00:13:36,120 Speaker 3: six times since last June. At its current level of 239 00:13:36,120 --> 00:13:38,920 Speaker 3: two and a half percent. It's approaching territory that some 240 00:13:39,000 --> 00:13:43,680 Speaker 3: think no longer constrains demand, but economic realities have shifted. 241 00:13:43,960 --> 00:13:46,920 Speaker 3: With Trump's tariffs and the threat of an escalating trade 242 00:13:46,920 --> 00:13:50,160 Speaker 3: war between the US and China, hammering financial markets and 243 00:13:50,600 --> 00:13:53,920 Speaker 3: raising the specter of a global recession. Analysts and traders 244 00:13:53,920 --> 00:13:57,079 Speaker 3: have become increasingly convinced that the only direction for Euro 245 00:13:57,200 --> 00:14:01,199 Speaker 3: Area interest rates is down, and some key rate setters 246 00:14:01,200 --> 00:14:04,480 Speaker 3: are backing another cut this time around. Francis Fons Pavio 247 00:14:04,600 --> 00:14:07,360 Speaker 3: de Gallo says the ECB should lower interest rates soon 248 00:14:07,800 --> 00:14:10,880 Speaker 3: as the post tariff market fallout favors such a move. 249 00:14:11,480 --> 00:14:13,319 Speaker 3: He went on to argue that the trade war will 250 00:14:13,320 --> 00:14:16,440 Speaker 3: have a non negligible direct impact on the economy that 251 00:14:16,480 --> 00:14:19,800 Speaker 3: will take about a quarter percentage point of growth this year. 252 00:14:20,160 --> 00:14:23,560 Speaker 3: Nevin lad Gallo joins others, including Finland's Uli Ren who 253 00:14:23,600 --> 00:14:26,400 Speaker 3: are convinced that the current backdrop makes the case for 254 00:14:26,520 --> 00:14:31,040 Speaker 3: cutting rates stronger. Based on an assessment of inflation and growth. 255 00:14:31,480 --> 00:14:35,640 Speaker 3: Nichols for an April cut. Aside, other policymakers have restrained 256 00:14:35,640 --> 00:14:39,000 Speaker 3: from saying where rates may settle given the elevated uncertainty. 257 00:14:39,200 --> 00:14:42,800 Speaker 3: Austrian Center Bank tief Robert Holtzman maintains there's no reason 258 00:14:42,920 --> 00:14:45,640 Speaker 3: for an immediate cut. He believes the Center Bank should 259 00:14:45,680 --> 00:14:49,760 Speaker 3: allow the current trade related uncertainty to dissipate before considering 260 00:14:49,840 --> 00:14:53,800 Speaker 3: lowering rates, further arguing that tariffs and threats of countermeasures 261 00:14:53,800 --> 00:14:57,040 Speaker 3: make it next to impossible to predict if inflation in 262 00:14:57,040 --> 00:15:00,000 Speaker 3: the twenty nation Eurozone will continue to approach the ECB's 263 00:15:00,160 --> 00:15:04,200 Speaker 3: two target as planned. The Housman's hawkish point of view 264 00:15:04,280 --> 00:15:06,680 Speaker 3: are likely clash with many of those colleagues when the 265 00:15:06,680 --> 00:15:10,440 Speaker 3: Governing Council gathers in the coming days. So how much 266 00:15:10,480 --> 00:15:13,880 Speaker 3: breathing room do European policymakers really have? It's something we've 267 00:15:13,880 --> 00:15:17,320 Speaker 3: been discussing with Catherine Nice, chief European Economists at PAGIM 268 00:15:17,360 --> 00:15:18,000 Speaker 3: Fixed Income. 269 00:15:18,320 --> 00:15:21,320 Speaker 8: If we look at the euro Area, you know, I'm 270 00:15:21,320 --> 00:15:24,000 Speaker 8: not saying it's easy for them to make these changes. 271 00:15:24,040 --> 00:15:26,520 Speaker 8: I'm just saying relative to the US, they have way 272 00:15:26,560 --> 00:15:31,440 Speaker 8: more scope to ease policy to support I mean, if 273 00:15:31,520 --> 00:15:34,600 Speaker 8: we look at, for example, the tariff impact, the kinds 274 00:15:34,720 --> 00:15:37,920 Speaker 8: of goods that the Euro Area tends to import from 275 00:15:37,920 --> 00:15:41,080 Speaker 8: the US are not really final goods. They don't go 276 00:15:41,200 --> 00:15:45,320 Speaker 8: straight into the consumption basket, so the inflationary shock will 277 00:15:45,360 --> 00:15:49,720 Speaker 8: be less. You also have to factor in the you 278 00:15:49,760 --> 00:15:52,840 Speaker 8: know that global growth will be slower. The Euro Area 279 00:15:52,880 --> 00:15:55,560 Speaker 8: is a much more open economic region. There's a risk 280 00:15:55,600 --> 00:15:57,320 Speaker 8: that China is going to dump a lot of that 281 00:15:57,400 --> 00:16:01,320 Speaker 8: excess capacity. So there's all these deflationary pressures and there 282 00:16:01,360 --> 00:16:05,440 Speaker 8: isn't that big inflationary push. And the starting point for 283 00:16:05,480 --> 00:16:08,800 Speaker 8: the ECB is much cleaner than it is for the 284 00:16:08,920 --> 00:16:12,920 Speaker 8: US because inflation already is basically at target. So I 285 00:16:12,960 --> 00:16:15,440 Speaker 8: think that does other things equal make it easier. We 286 00:16:15,440 --> 00:16:16,720 Speaker 8: can then talk about the fiscal. 287 00:16:17,320 --> 00:16:19,920 Speaker 9: Well, let's talk about then maybe pause on the fiscal 288 00:16:19,960 --> 00:16:22,160 Speaker 9: on top of the bond moves here, because the yield 289 00:16:22,400 --> 00:16:24,280 Speaker 9: kind of moves that you saw in the German yield 290 00:16:24,280 --> 00:16:27,240 Speaker 9: prior to all these terror announcements was pricing in fiscal 291 00:16:27,240 --> 00:16:30,480 Speaker 9: spend over the next ten years. How believable is that 292 00:16:30,480 --> 00:16:33,640 Speaker 9: fiscal spend? How believable are yield at. 293 00:16:33,480 --> 00:16:34,320 Speaker 5: Where they are right now? 294 00:16:34,880 --> 00:16:39,320 Speaker 8: Well, who knows what they're going to announce and how 295 00:16:39,400 --> 00:16:43,880 Speaker 8: quickly you know, I, you know, I do hold out 296 00:16:44,440 --> 00:16:47,600 Speaker 8: some degree of optimism that you know with Germany haven't 297 00:16:47,640 --> 00:16:51,280 Speaker 8: taken this bold step forward, you know, breaking you know, 298 00:16:51,400 --> 00:16:54,320 Speaker 8: smashing through a couple of political red lines to get 299 00:16:54,360 --> 00:16:59,160 Speaker 8: through significantly higher defense and infrastructure spending that they're sort 300 00:16:59,200 --> 00:17:02,000 Speaker 8: of leading from the front, and we see more initiatives 301 00:17:02,120 --> 00:17:05,280 Speaker 8: like this. I think we could see perhaps you know, 302 00:17:05,320 --> 00:17:09,480 Speaker 8: we're seeing some leaks in the press around EU bond issuance, 303 00:17:09,640 --> 00:17:12,000 Speaker 8: you know, something that looks a bit more grant likes, 304 00:17:12,119 --> 00:17:14,440 Speaker 8: but perhaps just a fraction of the size of the 305 00:17:14,560 --> 00:17:18,240 Speaker 8: kind of package we saw during the pandemic. We could see, 306 00:17:18,320 --> 00:17:21,840 Speaker 8: you know, a coalition of the willing also forging together, 307 00:17:21,960 --> 00:17:27,320 Speaker 8: so you know, a European not an EU vehicle financing 308 00:17:27,400 --> 00:17:32,359 Speaker 8: vehicle to support defense. You know, we've already seen the 309 00:17:32,400 --> 00:17:35,920 Speaker 8: EU water down and ease and change some of its 310 00:17:36,000 --> 00:17:40,080 Speaker 8: fiscal spending rules to give member states more discretion. So 311 00:17:40,240 --> 00:17:42,800 Speaker 8: all of this, I think is still to play for. 312 00:17:43,280 --> 00:17:46,800 Speaker 3: That was Catherine Nice, chief European economist at PGIM Fixed Income, 313 00:17:46,800 --> 00:17:50,040 Speaker 3: speaking to Bloomberg's critic Good to Guy Johnson and Anna Edwards. 314 00:17:50,560 --> 00:17:54,840 Speaker 3: So Trump has laid his gauntlet. How should the ECB respond? 315 00:17:54,920 --> 00:17:58,000 Speaker 3: It's a question I put to ECB reporter Janna Randou. 316 00:17:57,960 --> 00:18:02,159 Speaker 7: Words is the first line off the I mean EASYB 317 00:18:02,280 --> 00:18:06,080 Speaker 7: President Christine le Gard is not known for being titled 318 00:18:06,119 --> 00:18:10,359 Speaker 7: when it comes to criticizing tariffs or Trump. But also, 319 00:18:10,400 --> 00:18:13,840 Speaker 7: of course, in order for that to be effective, that 320 00:18:13,960 --> 00:18:18,040 Speaker 7: needs somebody to listen, and I'm not so sure you 321 00:18:18,040 --> 00:18:21,280 Speaker 7: know she has. She has the right counterpart there. But 322 00:18:22,000 --> 00:18:25,800 Speaker 7: of course we need to say that uncertainty itself is 323 00:18:25,840 --> 00:18:29,800 Speaker 7: bad for the economy, for for for confidence. Uh, it's 324 00:18:29,840 --> 00:18:33,400 Speaker 7: not something the ECB will will react to. So inflation 325 00:18:34,000 --> 00:18:37,200 Speaker 7: is still the guiding staff for everything the ECB does. 326 00:18:37,359 --> 00:18:40,840 Speaker 7: And of course it's much too soon to tell what 327 00:18:40,960 --> 00:18:45,720 Speaker 7: kind of implications uh, the the events of the past days, weeks, 328 00:18:45,920 --> 00:18:50,480 Speaker 7: months have on inflation in the Aurozone. Growth for sure 329 00:18:50,680 --> 00:18:53,400 Speaker 7: is probably going to be weaker as a result of 330 00:18:53,560 --> 00:18:59,000 Speaker 7: what we've seen on inflation. The verdict is very much unclear, 331 00:18:59,160 --> 00:19:02,679 Speaker 7: and and that I think will very much complicate the 332 00:19:02,760 --> 00:19:06,800 Speaker 7: debate at the upcoming meeting and also the decision. 333 00:19:07,119 --> 00:19:11,520 Speaker 3: Yeah, indeed, because this challenge of balancing the inflationary risks, 334 00:19:11,600 --> 00:19:15,080 Speaker 3: because you know, higher tariffs could in theory boost inflation 335 00:19:15,240 --> 00:19:18,400 Speaker 3: but also hurt growth, which which makes it a difficult 336 00:19:18,480 --> 00:19:20,760 Speaker 3: balance for policymakers to try to work out. 337 00:19:21,400 --> 00:19:25,679 Speaker 7: Absolutely absolutely, I mean, it really seems that growth is 338 00:19:25,720 --> 00:19:30,720 Speaker 7: going to be lower because of uncertainty because tariffs essentially 339 00:19:30,800 --> 00:19:36,400 Speaker 7: close off export markets. You will find optimists who say, well, 340 00:19:36,440 --> 00:19:39,040 Speaker 7: but there are you know, you can explore new export markets, 341 00:19:39,280 --> 00:19:42,880 Speaker 7: you can form close trade alliances elsewhere. But that's more 342 00:19:42,920 --> 00:19:45,480 Speaker 7: of a medium to long term thing. In the short term, 343 00:19:45,520 --> 00:19:48,400 Speaker 7: it will hit growth on inflation. It very much depends 344 00:19:48,480 --> 00:19:51,760 Speaker 7: on the kind of tariffs, which kind of goods, It 345 00:19:51,880 --> 00:19:56,280 Speaker 7: very much depends on the countermeasures, It depends on the duration. 346 00:19:57,560 --> 00:19:59,960 Speaker 7: So yeah, your guess is as good. 347 00:19:59,760 --> 00:20:03,440 Speaker 3: As well a little bit less guess work coming from 348 00:20:03,480 --> 00:20:07,080 Speaker 3: markets when it comes to this upcoming decision from the CB. 349 00:20:07,280 --> 00:20:10,760 Speaker 3: They're pricing in a rate cut, but how much divergence 350 00:20:10,880 --> 00:20:13,720 Speaker 3: is there amongst policymakers. What have we heard in terms 351 00:20:13,720 --> 00:20:16,840 Speaker 3: of the views about how the ECB should act now 352 00:20:16,880 --> 00:20:19,240 Speaker 3: given all of the uncertainty that you just mentioned. 353 00:20:19,600 --> 00:20:22,560 Speaker 7: Yeah, I mean everyone will probably tell you and has 354 00:20:22,640 --> 00:20:29,040 Speaker 7: told us, that agility is needed, vigilance is needed, caution, 355 00:20:30,560 --> 00:20:34,080 Speaker 7: no pre commitment, which makes of course, you know, figuring 356 00:20:34,080 --> 00:20:38,640 Speaker 7: out what will happen very difficult. I would say that 357 00:20:39,200 --> 00:20:42,479 Speaker 7: while it was you know, you could say fifty to 358 00:20:42,480 --> 00:20:45,200 Speaker 7: fifty on whether there was going to be a cut 359 00:20:45,640 --> 00:20:49,720 Speaker 7: or not at the upcoming meeting right after the last one. 360 00:20:50,080 --> 00:20:55,520 Speaker 7: Now I would say the consensus has shifted more toward 361 00:20:55,560 --> 00:20:59,160 Speaker 7: of you know, favoring and more favoring a cut, even 362 00:20:59,160 --> 00:21:01,560 Speaker 7: though there are are still skeptics, and I spoke to 363 00:21:01,600 --> 00:21:04,280 Speaker 7: one of them just before the quiet period kicked in. 364 00:21:04,320 --> 00:21:08,080 Speaker 7: That's Austria, as Robert Holtzmann, who says there's absolutely no 365 00:21:08,200 --> 00:21:10,840 Speaker 7: reason of why the ECB should cut at this point 366 00:21:10,880 --> 00:21:13,600 Speaker 7: in time. Inflation is nearly at the target in interest 367 00:21:13,680 --> 00:21:17,480 Speaker 7: rates so low, uncertainty is incredibly high, and we should 368 00:21:17,480 --> 00:21:20,760 Speaker 7: really wait until the fog has cleared. And and that 369 00:21:20,840 --> 00:21:24,439 Speaker 7: makes sense in my ear, of course. But at the 370 00:21:24,440 --> 00:21:27,000 Speaker 7: same time, I believe people who say, well, you know, 371 00:21:27,040 --> 00:21:31,440 Speaker 7: if uncertainty is this high, that dams investment that you know, 372 00:21:31,520 --> 00:21:36,000 Speaker 7: puts in place processes that aren't easily fixed. And also 373 00:21:36,440 --> 00:21:42,560 Speaker 7: with inflation moving toward the target, we have room to yeah, 374 00:21:42,600 --> 00:21:45,720 Speaker 7: to move into a more neutral policy setting. So there's 375 00:21:45,840 --> 00:21:51,159 Speaker 7: arguments for both sides, and overall it won't be an 376 00:21:51,160 --> 00:21:54,920 Speaker 7: easy meeting. There will be disagreements and differences of opinion, 377 00:21:54,960 --> 00:21:59,600 Speaker 7: but I think a cut is what needs to be expected. 378 00:22:00,840 --> 00:22:04,880 Speaker 3: Well, just you mentioned the trajectory that inflation had been 379 00:22:04,880 --> 00:22:07,440 Speaker 3: going in as well, just remind us of where we 380 00:22:07,480 --> 00:22:10,840 Speaker 3: are in that process, because we are down dramatically from 381 00:22:10,880 --> 00:22:13,840 Speaker 3: the spike that we saw during the energy crisis a 382 00:22:13,840 --> 00:22:14,600 Speaker 3: couple of years ago. 383 00:22:15,160 --> 00:22:19,359 Speaker 7: Yeah, so we moved from a peak of just over 384 00:22:19,640 --> 00:22:23,639 Speaker 7: ten percent, so double digit inflation, to just over two 385 00:22:23,880 --> 00:22:27,480 Speaker 7: and so we are at this at this point where 386 00:22:27,520 --> 00:22:32,280 Speaker 7: inflation just over to to target. With insight, we've seen 387 00:22:33,119 --> 00:22:37,080 Speaker 7: quite some progress also on the core rate, and even 388 00:22:37,200 --> 00:22:40,040 Speaker 7: services have come down, which which has long been and 389 00:22:40,640 --> 00:22:44,359 Speaker 7: in fannas is still you know, a point where people 390 00:22:44,400 --> 00:22:49,800 Speaker 7: worry because it is still still running at very elevated levels, 391 00:22:49,840 --> 00:22:52,439 Speaker 7: but there has been movement in recent months so that 392 00:22:53,560 --> 00:22:56,960 Speaker 7: services inflation is coming down, of course, and what the 393 00:22:57,040 --> 00:23:01,560 Speaker 7: ECB is really happy about is that pages are finally 394 00:23:01,600 --> 00:23:06,320 Speaker 7: on track. Wage growth has slowed, it's it's behaving exactly 395 00:23:06,359 --> 00:23:09,840 Speaker 7: as policymakers expected. So they're taking a lot of confidence 396 00:23:09,840 --> 00:23:14,280 Speaker 7: from the fact that essentially the domestic part of inflation, 397 00:23:14,440 --> 00:23:17,640 Speaker 7: which which can which can be very dangerous because that's 398 00:23:17,680 --> 00:23:21,719 Speaker 7: where you know, yeah, that's the forceful kind of uh 399 00:23:22,200 --> 00:23:25,520 Speaker 7: infiction that's very difficult to control, and and that hinges on. 400 00:23:25,600 --> 00:23:28,280 Speaker 7: People are being convinced that the ECP can can do 401 00:23:28,359 --> 00:23:31,600 Speaker 7: its job of guaranteeing pres stability, that this is now 402 00:23:31,640 --> 00:23:36,160 Speaker 7: finally all moving in the right direction. So that's partly 403 00:23:36,200 --> 00:23:39,880 Speaker 7: what or mostly what has has driven the interest rate 404 00:23:39,920 --> 00:23:41,719 Speaker 7: cuts of of the past months. 405 00:23:42,160 --> 00:23:44,600 Speaker 3: Yeah, indeed, of course, so much could change in the 406 00:23:44,600 --> 00:23:46,720 Speaker 3: path ahead, but it's a good to remind ourselves of 407 00:23:47,040 --> 00:23:50,720 Speaker 3: where we are now going into this meeting. In terms 408 00:23:50,760 --> 00:23:52,840 Speaker 3: of the debate over the terminal rate, there's been this 409 00:23:52,920 --> 00:23:55,200 Speaker 3: has been a long running conversation, but has that now 410 00:23:55,280 --> 00:23:57,879 Speaker 3: also been thrown up in the air with the uncertainty 411 00:23:57,920 --> 00:23:58,840 Speaker 3: over tariffs. 412 00:23:59,440 --> 00:24:02,680 Speaker 7: I mean, there was no consensus before where the terminal 413 00:24:02,760 --> 00:24:06,920 Speaker 7: rate was going to be, so there's probably even less consensus. Now, 414 00:24:07,720 --> 00:24:10,280 Speaker 7: I would still say that two percent is a pretty 415 00:24:10,280 --> 00:24:14,840 Speaker 7: good guess, which would mean two more quarter point cuts, 416 00:24:15,200 --> 00:24:18,000 Speaker 7: which which also happens to be what a lot of 417 00:24:18,040 --> 00:24:22,919 Speaker 7: economists are expecting. But you know, we have to be honest. 418 00:24:24,560 --> 00:24:26,400 Speaker 7: It could be that it could be more, it could 419 00:24:26,400 --> 00:24:30,440 Speaker 7: be less. What I would be willing to bet money 420 00:24:30,440 --> 00:24:32,840 Speaker 7: on is the ECB is not yet done. But how 421 00:24:32,920 --> 00:24:36,760 Speaker 7: much further it has to go, whether it's another two cuts, 422 00:24:37,000 --> 00:24:38,520 Speaker 7: three cuts, who knows. 423 00:24:38,840 --> 00:24:42,320 Speaker 3: Yeah, You've seen the CB handle a fair number of 424 00:24:42,359 --> 00:24:44,919 Speaker 3: crises in your time covering the European Central Bank, and 425 00:24:45,040 --> 00:24:47,879 Speaker 3: I wonder what we should have learned from those past 426 00:24:47,920 --> 00:24:50,560 Speaker 3: experiences that perhaps might inform what is going to be 427 00:24:50,600 --> 00:24:53,399 Speaker 3: a very challenging time for the European economy given the 428 00:24:53,440 --> 00:24:54,360 Speaker 3: trade uncertainty. 429 00:24:55,160 --> 00:24:59,760 Speaker 7: Yeah. Absolutely, and I think we've seen Yeah, as you 430 00:24:59,800 --> 00:25:02,200 Speaker 7: said that, we've seen many crisis and we don't even 431 00:25:02,240 --> 00:25:05,800 Speaker 7: need to look back very much. And I think the 432 00:25:06,600 --> 00:25:10,560 Speaker 7: confidence I have is that the ECB has proven that 433 00:25:10,960 --> 00:25:14,679 Speaker 7: if push comes to shove, it is very very quick 434 00:25:14,800 --> 00:25:18,679 Speaker 7: in coming up with solutions and devising tools that you 435 00:25:18,760 --> 00:25:24,440 Speaker 7: wouldn't necessarily have expected and figuring out and helping where 436 00:25:24,520 --> 00:25:25,320 Speaker 7: help is needed. 437 00:25:25,520 --> 00:25:28,360 Speaker 3: My thanks to Bloomberg's Jana Randau. We'll have full coverage 438 00:25:28,400 --> 00:25:31,120 Speaker 3: of the upcoming EASV rate decision and its applications here 439 00:25:31,160 --> 00:25:34,280 Speaker 3: on Bloomberg. I'm Stephen Caroll in London. You can catch 440 00:25:34,359 --> 00:25:37,200 Speaker 3: us every weekday morning here for Bloomberg Daybreak Europe, beginning 441 00:25:37,240 --> 00:25:41,399 Speaker 3: at six am in London at one am on Wall Street, Tom, Thank. 442 00:25:41,320 --> 00:25:43,879 Speaker 2: You, Steven, And coming up on Bloomberg day Break weekend, 443 00:25:43,880 --> 00:25:46,040 Speaker 2: I'll look ahead to first quarter earnings from the world's 444 00:25:46,080 --> 00:25:50,359 Speaker 2: biggest computer chip maker. I'm Tom Busby, and this is Bloomberg. 445 00:26:01,560 --> 00:26:04,040 Speaker 2: This is Bloomberg day Break Weekend, our global look ahead 446 00:26:04,040 --> 00:26:06,320 Speaker 2: at the top stories for investors in the coming week. 447 00:26:06,640 --> 00:26:09,760 Speaker 2: I'm Tom Busby in New York. It's the biggest chip 448 00:26:09,800 --> 00:26:13,000 Speaker 2: manufacturer in the world. In this week, it'll report first 449 00:26:13,080 --> 00:26:15,600 Speaker 2: quarter earnings. For more, let's get to the host of 450 00:26:15,640 --> 00:26:17,920 Speaker 2: the Daybreak Asia podcast, Doug Krisner. 451 00:26:18,480 --> 00:26:23,000 Speaker 4: Tom. Taiwan Semiconductor is trying to navigate a shifting landscape 452 00:26:23,000 --> 00:26:26,040 Speaker 4: when it comes to US trade policy. Back in March, 453 00:26:26,200 --> 00:26:30,159 Speaker 4: TSMC announced plans to invest an additional one hundred billion 454 00:26:30,240 --> 00:26:34,399 Speaker 4: dollars in US chip factories. Now by producing chips in 455 00:26:34,440 --> 00:26:38,320 Speaker 4: the States. TSMC would avoid US tariffs, and President Trump 456 00:26:38,600 --> 00:26:40,680 Speaker 4: has repeatedly made that point. 457 00:26:40,920 --> 00:26:43,399 Speaker 10: They have to come back because the tariffs are forcing 458 00:26:43,440 --> 00:26:46,920 Speaker 10: them to come back. And remember there are no tariffs 459 00:26:46,920 --> 00:26:49,880 Speaker 10: if you build here, and that's a big factor. 460 00:26:50,240 --> 00:26:53,679 Speaker 4: Recently, there were also reports of a potential joint venture 461 00:26:53,760 --> 00:26:58,560 Speaker 4: between TSMC and Intel. This jv would operate Intel chip 462 00:26:58,600 --> 00:27:01,280 Speaker 4: foundries in the United States. So there is a lot 463 00:27:01,320 --> 00:27:03,639 Speaker 4: to consider as we look ahead to the earnings in 464 00:27:03,680 --> 00:27:06,800 Speaker 4: the week ahead from TSMC. So let's bring in Jane 465 00:27:06,840 --> 00:27:10,760 Speaker 4: Lanhi Lee North Asia, tech reporter for Bloomberg News. Jane 466 00:27:10,840 --> 00:27:13,520 Speaker 4: joins us from our bureau in Taipei. Thank you for 467 00:27:13,600 --> 00:27:16,680 Speaker 4: making time to chat with me. Until very recently, I 468 00:27:16,680 --> 00:27:19,960 Speaker 4: think it's fair to say the conversation until this market 469 00:27:20,000 --> 00:27:23,800 Speaker 4: instability had been focused very much on AI. Of course, 470 00:27:23,840 --> 00:27:26,080 Speaker 4: there was the deep Seek moment in China. We know 471 00:27:26,200 --> 00:27:29,200 Speaker 4: that was an accelerant. And when you think of AI 472 00:27:29,280 --> 00:27:32,760 Speaker 4: and AI chips, you think of Nvidia, you think of Nvidia, 473 00:27:32,960 --> 00:27:37,160 Speaker 4: you obviously think of TSMC. Are we expecting blowout earnings 474 00:27:37,200 --> 00:27:39,600 Speaker 4: this week from Taiwan semi well. 475 00:27:39,359 --> 00:27:44,640 Speaker 10: Earnings wise, yeah, Analysts are estimating fifty five percent net 476 00:27:44,680 --> 00:27:48,600 Speaker 10: income growth for the first quarter. Well, but I think 477 00:27:48,680 --> 00:27:51,320 Speaker 10: people are not going to be focused just on these numbers. 478 00:27:51,480 --> 00:27:56,199 Speaker 10: What everyone will be looking to hear is what is 479 00:27:56,280 --> 00:28:00,040 Speaker 10: going on with the tariffs, what is going on with 480 00:28:00,040 --> 00:28:05,560 Speaker 10: with pressure potentially from the Trump administration on TSMC to 481 00:28:06,040 --> 00:28:10,920 Speaker 10: help Intel, which has been struggling. So these are going 482 00:28:10,960 --> 00:28:14,040 Speaker 10: to be the things that people are looking out for. Also, 483 00:28:15,000 --> 00:28:18,800 Speaker 10: they'll want to see with the latest, you know, troubles 484 00:28:18,840 --> 00:28:22,399 Speaker 10: in AI with deep seek. You know, we saw a 485 00:28:22,440 --> 00:28:29,000 Speaker 10: big route in Nvidia prices and other AI chip related 486 00:28:29,040 --> 00:28:34,800 Speaker 10: companies because concern that maybe we don't need to invest 487 00:28:34,880 --> 00:28:38,000 Speaker 10: tens of billions of dollars, even hundreds of billions of 488 00:28:38,040 --> 00:28:40,480 Speaker 10: dollars to build out these data centers. Maybe the AI 489 00:28:40,560 --> 00:28:43,360 Speaker 10: models can be a lot smaller. In that case, would 490 00:28:43,360 --> 00:28:48,680 Speaker 10: we be buying a lot less chips, and so there 491 00:28:48,680 --> 00:28:51,640 Speaker 10: has been that concern. Now on top of that, tariffs 492 00:28:51,640 --> 00:28:55,760 Speaker 10: are bringing concerns that you know, we've all read about 493 00:28:55,800 --> 00:28:58,960 Speaker 10: how our iPhone prices in the US could be going up, 494 00:28:59,000 --> 00:29:03,040 Speaker 10: you know, something like twenty percent with the tariffs. And 495 00:29:03,080 --> 00:29:06,200 Speaker 10: in that case, would consumers be buying fewer iPhones, will 496 00:29:06,200 --> 00:29:08,400 Speaker 10: they be buying fewer laptops? Are they going to be 497 00:29:08,440 --> 00:29:11,880 Speaker 10: waiting to buy those smart TVs for a while, in 498 00:29:11,920 --> 00:29:16,400 Speaker 10: which case that will again hit companies like TSMC or 499 00:29:16,440 --> 00:29:19,720 Speaker 10: others that are making chips that go into all these devices. 500 00:29:20,360 --> 00:29:23,479 Speaker 10: And so one of the things that have come up, 501 00:29:24,160 --> 00:29:27,920 Speaker 10: in fact just this past week is whether or not 502 00:29:28,080 --> 00:29:34,160 Speaker 10: TSMC will be revising down its revenue growth outlook for 503 00:29:34,160 --> 00:29:37,760 Speaker 10: twenty twenty five. In January, it had said that it 504 00:29:37,880 --> 00:29:42,720 Speaker 10: expected sort of mid twenty percent growth in sales for 505 00:29:42,800 --> 00:29:46,480 Speaker 10: this year. So that's going to be some of the 506 00:29:46,520 --> 00:29:50,360 Speaker 10: points that investors are are going to be looking out for. 507 00:29:50,680 --> 00:29:53,360 Speaker 4: I would imagine another key data point is going to 508 00:29:53,360 --> 00:29:55,120 Speaker 4: be capex spending. 509 00:29:55,120 --> 00:29:55,320 Speaker 6: Now. 510 00:29:55,360 --> 00:29:58,400 Speaker 4: President Trump, in the last week was speaking at a 511 00:29:58,480 --> 00:30:02,800 Speaker 4: dinner event organized by the Republican National Congressional Committee. A 512 00:30:02,880 --> 00:30:06,280 Speaker 4: couple of things emerged here. One a lot of criticism 513 00:30:06,320 --> 00:30:09,640 Speaker 4: of the Chips Act. He made the point that semiconductor 514 00:30:09,680 --> 00:30:13,600 Speaker 4: companies are basically loaded. They don't need billions of dollars 515 00:30:13,640 --> 00:30:16,840 Speaker 4: in what amounts to some sort of subsidy to ramp 516 00:30:16,920 --> 00:30:20,680 Speaker 4: up production. So how is TSMC position to build out 517 00:30:20,720 --> 00:30:21,560 Speaker 4: more capacity? 518 00:30:22,080 --> 00:30:26,320 Speaker 10: They absolutely do, but it's about you know, who's going 519 00:30:26,400 --> 00:30:29,880 Speaker 10: to say no to free money and depending on how 520 00:30:30,440 --> 00:30:32,880 Speaker 10: much subsidies you get, whether it's a straight out grant 521 00:30:32,880 --> 00:30:36,000 Speaker 10: from the Chips Act, or whether it's something that's even 522 00:30:36,040 --> 00:30:40,320 Speaker 10: more important that it is, the tax credit for these investments. 523 00:30:41,040 --> 00:30:44,720 Speaker 10: It's going to really make a difference to your profitability, 524 00:30:44,760 --> 00:30:50,480 Speaker 10: which it sounds so obvious. So will they be building more? 525 00:30:50,800 --> 00:30:54,360 Speaker 10: Will you know the investors be as interested when gross 526 00:30:54,360 --> 00:30:58,440 Speaker 10: margins aren't as high? Those are sort of questions that 527 00:30:58,480 --> 00:31:03,520 Speaker 10: will come and who pace for more expensive chips when 528 00:31:03,560 --> 00:31:06,840 Speaker 10: those subsidies or tax credits go missing. So it's an 529 00:31:06,840 --> 00:31:09,480 Speaker 10: important component. Can they do it without it? Of course 530 00:31:09,480 --> 00:31:11,160 Speaker 10: they can't. They've got gobs of money. 531 00:31:11,560 --> 00:31:16,120 Speaker 4: So what about the factory that TSMC was constructing in Phoenix. 532 00:31:16,200 --> 00:31:18,560 Speaker 4: I think there were some initial delays. Do we know 533 00:31:18,640 --> 00:31:20,800 Speaker 4: the status? Are they producing chips there? 534 00:31:21,200 --> 00:31:21,360 Speaker 7: Oh? 535 00:31:21,400 --> 00:31:25,280 Speaker 10: Yeah, they've been mass product producing those chips since late 536 00:31:25,400 --> 00:31:31,040 Speaker 10: last year and the initial outcome of that. What we 537 00:31:31,120 --> 00:31:35,680 Speaker 10: talk about in chip manufacturing our yields. If I'm making, 538 00:31:35,800 --> 00:31:38,000 Speaker 10: you know, one hundred chips, how many of those are 539 00:31:38,080 --> 00:31:40,280 Speaker 10: good chips that I can use versus things that if 540 00:31:40,320 --> 00:31:43,920 Speaker 10: I used my gadget wouldn't work. And that yield rate 541 00:31:45,080 --> 00:31:50,000 Speaker 10: has been on par with their manufacturing in Taiwan. So 542 00:31:50,080 --> 00:31:53,360 Speaker 10: that's been some good news after you know, a lot 543 00:31:53,400 --> 00:31:56,320 Speaker 10: of news about delays and labor tensions and things like that. 544 00:31:56,800 --> 00:32:00,400 Speaker 10: So for what we have now in Arizona, things seem 545 00:32:00,480 --> 00:32:04,840 Speaker 10: to be doing well. And some people who I've spoken 546 00:32:04,840 --> 00:32:08,480 Speaker 10: to in Arizona are optimistic that this is just the start. 547 00:32:08,560 --> 00:32:11,480 Speaker 10: And you know, they made a lot of mistakes with 548 00:32:11,600 --> 00:32:15,280 Speaker 10: the first fab but they've learned and so that learning 549 00:32:15,320 --> 00:32:19,280 Speaker 10: curve will help them, will benefit them. And when it 550 00:32:19,280 --> 00:32:22,680 Speaker 10: comes to talent recruitment, one person who was out there 551 00:32:22,720 --> 00:32:28,600 Speaker 10: doing some recruitment in the colleges in Arizona said, you know, 552 00:32:28,640 --> 00:32:31,480 Speaker 10: when I first started doing this, nobody heard of TSMC. 553 00:32:31,560 --> 00:32:34,880 Speaker 10: That makes it harder to recruit by the time he's 554 00:32:35,000 --> 00:32:37,520 Speaker 10: now left the company. But by the time he left, 555 00:32:38,720 --> 00:32:41,480 Speaker 10: you know, which has been a couple months, now, everybody 556 00:32:41,520 --> 00:32:44,239 Speaker 10: knows TSMC. And of course, you know these announcements at 557 00:32:44,240 --> 00:32:46,920 Speaker 10: the White House of one hundred billion dollar additional investment 558 00:32:47,800 --> 00:32:52,280 Speaker 10: nay between Trump and the CEO cc way, that really 559 00:32:52,320 --> 00:32:55,240 Speaker 10: helps bring the profile of the company up. That'll help 560 00:32:56,080 --> 00:32:58,880 Speaker 10: have college students realize that, you know, this is an 561 00:32:58,920 --> 00:32:59,760 Speaker 10: important company. 562 00:33:00,120 --> 00:33:02,200 Speaker 4: Let's talk a little bit about the market in China, 563 00:33:02,280 --> 00:33:07,200 Speaker 4: where obviously those export controls from the Biden administration really 564 00:33:07,320 --> 00:33:11,080 Speaker 4: curtailed access to some of those more sophisticated AI chips. 565 00:33:11,320 --> 00:33:14,520 Speaker 4: We mentioned a moment ago that Deep Seek moment. Clearly 566 00:33:14,640 --> 00:33:18,200 Speaker 4: tech in China was not constrained by those controls. Deep 567 00:33:18,240 --> 00:33:21,040 Speaker 4: Seek was obviously, or so it would appear able to 568 00:33:21,200 --> 00:33:25,400 Speaker 4: develop a pretty sophisticated chatbot in spite of those controls. 569 00:33:25,760 --> 00:33:29,040 Speaker 4: So is TSMC going to ask anything of the Trump 570 00:33:29,080 --> 00:33:30,800 Speaker 4: administration when it comes to China. 571 00:33:31,520 --> 00:33:33,360 Speaker 10: Yeah, I don't know if there's going to be a 572 00:33:33,400 --> 00:33:36,680 Speaker 10: specific ask for that. I think Right now, the big 573 00:33:36,720 --> 00:33:39,640 Speaker 10: news with TSMC is that there was a report by 574 00:33:40,400 --> 00:33:45,400 Speaker 10: Reuters that possibly the Trump administration could find it for 575 00:33:45,480 --> 00:33:53,640 Speaker 10: a billion dollars because TSMC allegedly sold chips to one 576 00:33:53,680 --> 00:33:57,440 Speaker 10: company that then passed it on to Huawei, which makes 577 00:33:57,440 --> 00:33:59,800 Speaker 10: AI service and somehow that ship ended up in one 578 00:33:59,840 --> 00:34:03,280 Speaker 10: of them those AI servers. And so it's been in 579 00:34:03,320 --> 00:34:09,160 Speaker 10: a bit of hot water with China and with making 580 00:34:09,200 --> 00:34:12,719 Speaker 10: sure chips it makes for one customer don't end up 581 00:34:12,880 --> 00:34:17,400 Speaker 10: with another. And so a lot of focus right now 582 00:34:17,480 --> 00:34:21,160 Speaker 10: is watching whether or not the Trump administration could use 583 00:34:21,239 --> 00:34:25,239 Speaker 10: these finds, and this would be unprecedented in a sense that, 584 00:34:25,880 --> 00:34:30,000 Speaker 10: you know, a former BIS official explain that you don't 585 00:34:30,000 --> 00:34:34,879 Speaker 10: really have finds this big when companies, you know, come 586 00:34:35,000 --> 00:34:40,680 Speaker 10: clean and work together with the US government. But Trump 587 00:34:40,719 --> 00:34:43,160 Speaker 10: could use it as a bargaining chip to push for 588 00:34:43,239 --> 00:34:48,319 Speaker 10: more concessions from TSMC. So that is what people here 589 00:34:48,360 --> 00:34:51,040 Speaker 10: are watching about when it comes to China. 590 00:34:51,320 --> 00:34:54,000 Speaker 4: Yeah, that's very interesting that you made that point. It's 591 00:34:54,000 --> 00:34:56,880 Speaker 4: not unlike what we have seen play out in these 592 00:34:56,920 --> 00:35:02,160 Speaker 4: tariff negotiations. And apparently Trump told the same Republican congressional 593 00:35:02,200 --> 00:35:05,120 Speaker 4: event that I referred to earlier that he was prepared 594 00:35:05,160 --> 00:35:08,000 Speaker 4: to slap a one hundred percent tax on TSMC if 595 00:35:08,040 --> 00:35:10,840 Speaker 4: the company doesn't make its chips in the US. So 596 00:35:11,000 --> 00:35:15,360 Speaker 4: the objective here seems to be a reshoring of chip manufacturing, 597 00:35:15,520 --> 00:35:18,279 Speaker 4: and TSMC would be a partner in that process. 598 00:35:18,600 --> 00:35:23,360 Speaker 10: Yeah, and initially when that one hundred billion dollar announcement came, 599 00:35:24,080 --> 00:35:27,200 Speaker 10: I think the first few days, there was some skepticism. Yeah, 600 00:35:27,239 --> 00:35:30,120 Speaker 10: they're just paying lip service, They're not going to do it. 601 00:35:30,160 --> 00:35:32,960 Speaker 10: By the time those investments come around, Trump will be gone. 602 00:35:33,560 --> 00:35:36,960 Speaker 10: But what I'm hearing from the ground here from suppliers 603 00:35:37,000 --> 00:35:42,280 Speaker 10: of TSMC are no They're serious. This is their biggest market. 604 00:35:42,280 --> 00:35:47,279 Speaker 10: About three and four chips that are sold by TSMC 605 00:35:47,360 --> 00:35:50,120 Speaker 10: are sold to the US. Seventy five percent of their 606 00:35:50,160 --> 00:35:52,640 Speaker 10: sales is in the US. This is their biggest market, 607 00:35:53,239 --> 00:35:59,280 Speaker 10: and so it seems it is a genuine move towards 608 00:35:59,360 --> 00:36:02,239 Speaker 10: the US, and the suppliers are now saying that they 609 00:36:02,440 --> 00:36:04,480 Speaker 10: are getting ready to follow as well. 610 00:36:04,960 --> 00:36:06,960 Speaker 4: Jane, thank you so much for taking the time to 611 00:36:07,040 --> 00:36:10,080 Speaker 4: chat with us. That is Jane Lanhi Lee, Bloomberg Tech 612 00:36:10,120 --> 00:36:14,440 Speaker 4: reporter in Taipei. For another perspective on tech in Asia, 613 00:36:14,520 --> 00:36:18,200 Speaker 4: I spoke with Stephanie Leung, chief investment officer at Stashaway. 614 00:36:18,640 --> 00:36:20,560 Speaker 4: I was reading a piece in the Wall Street Journal 615 00:36:20,640 --> 00:36:23,920 Speaker 4: on Apple planning to send more iPhones to the US 616 00:36:23,960 --> 00:36:27,120 Speaker 4: from India rather than from China as a way of 617 00:36:27,120 --> 00:36:30,760 Speaker 4: offsetting the high cost of the tariffs. And I'm wondering 618 00:36:30,760 --> 00:36:33,520 Speaker 4: whether or not you expect other companies to follow suit 619 00:36:33,560 --> 00:36:35,560 Speaker 4: that Apple clearly will not be alone in this. 620 00:36:36,239 --> 00:36:39,719 Speaker 11: Yeah, I think, of course, in the short term it 621 00:36:39,840 --> 00:36:43,719 Speaker 11: is hot for companies to just kind of move the 622 00:36:43,800 --> 00:36:47,799 Speaker 11: whole supply chain overnight. But of course I think, I mean, 623 00:36:47,840 --> 00:36:50,279 Speaker 11: it makes sense for Apple to come out and sort 624 00:36:50,280 --> 00:36:52,200 Speaker 11: of you make these statements and for other companies to 625 00:36:52,239 --> 00:36:55,799 Speaker 11: make these statements as well, because I think, what's the 626 00:36:56,000 --> 00:37:02,319 Speaker 11: I guess, the kind of implication from the whole kind 627 00:37:02,320 --> 00:37:06,040 Speaker 11: of trade ward it's I mean, even if it ends, 628 00:37:06,200 --> 00:37:09,520 Speaker 11: let's say in the next few weeks, is that companies 629 00:37:09,600 --> 00:37:13,200 Speaker 11: need to rethink again about the whole supply chain right 630 00:37:13,400 --> 00:37:17,080 Speaker 11: how dependent they are on China. And also, I think 631 00:37:17,120 --> 00:37:20,400 Speaker 11: the I guess the Trump administration is often trying to 632 00:37:20,400 --> 00:37:22,680 Speaker 11: get companies to invest back in the US again by 633 00:37:22,680 --> 00:37:26,839 Speaker 11: giving tax breaks and trying the regulation. So I think 634 00:37:26,960 --> 00:37:31,320 Speaker 11: that also prompts companies to rethink whether or not they 635 00:37:31,440 --> 00:37:34,840 Speaker 11: need kind of a more diversified supply chain rather than 636 00:37:35,000 --> 00:37:38,440 Speaker 11: just rely on China itself. Now, I also spoke to 637 00:37:38,760 --> 00:37:42,080 Speaker 11: I guess some of the businesses in Hong Kong. Hong 638 00:37:42,160 --> 00:37:46,200 Speaker 11: Kong businesses have a lot of investment in China, for example, 639 00:37:46,239 --> 00:37:51,680 Speaker 11: in terms of governments exports into US, supplying to names 640 00:37:51,719 --> 00:37:55,359 Speaker 11: like Nike or Little lemon et cetera. And I mean 641 00:37:55,400 --> 00:37:58,279 Speaker 11: they said, I mean, yes, indeed, there has been some 642 00:37:58,400 --> 00:38:01,399 Speaker 11: kind of movements out of into Vietnam in the past 643 00:38:01,440 --> 00:38:04,560 Speaker 11: few years, but I mean that has been very, very slow. 644 00:38:04,640 --> 00:38:09,080 Speaker 11: And you can't just change that supply chain overnight, so 645 00:38:09,520 --> 00:38:13,319 Speaker 11: there still will be impact. But I think over time, yes, 646 00:38:13,400 --> 00:38:16,040 Speaker 11: I think the supply change will be more kind of 647 00:38:16,680 --> 00:38:18,480 Speaker 11: diversified than previously. 648 00:38:18,719 --> 00:38:22,600 Speaker 4: That was Stephanie Leung, chief investment officer at Stashaway. I'm 649 00:38:22,600 --> 00:38:25,400 Speaker 4: Doug Chrisner. You can catch us weekdays for the Daybreak 650 00:38:25,480 --> 00:38:29,640 Speaker 4: Asia podcast. It's available wherever you get your podcast. Tom. 651 00:38:30,120 --> 00:38:32,359 Speaker 2: Thank you Doug. And that does it for this edition 652 00:38:32,400 --> 00:38:35,120 Speaker 2: of Bloomberg day Break Weekend. Join us again Monday morning 653 00:38:35,120 --> 00:38:37,040 Speaker 2: at five am Wall Street Time for the latest on 654 00:38:37,200 --> 00:38:39,839 Speaker 2: markets overseas and the news you need to start your day. 655 00:38:40,200 --> 00:38:43,320 Speaker 2: I'm Tom Buzzby. Stay with us. Top stories and global 656 00:38:43,360 --> 00:38:45,560 Speaker 2: business headlines are coming up right now