Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our day
Speaker 2: Break anchors all around the world. Straight ahead on the program,
Speaker 2: and look at some key economic data in the US
Speaker 2: amid and escalating tariff war between the US and China.
Speaker 2: I'm Tom Busby in New York.
Speaker 3: I'm Stephen Caroll in London, where we're taking stock of
Speaker 3: the ECB's options in the face of trade tarafuncertainty.
Speaker 4: I'm deg Prisner with a preview of next week's earnings
Speaker 4: from Taiwan Semiconductors.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
Speaker 1: eleven to three, Yeero, New York, Bloomberg ninety nine to one, Washington, DC,
Speaker 1: Bloomberg ninety two to nine, Boston, DAB Digital Radio, London,
Speaker 1: Sirius XM one twenty one, and around the world on
Speaker 1: Bloomberg Radio, dot Com and the Bloomberg Business App.
Speaker 2: To day to you, I'm Tom Busby, and we begin
Speaker 2: today's program with a look at March retail sales data
Speaker 2: in the US out this week, but it comes against
Speaker 2: the backdrop of a chaotic and escalating global tariff war.
Speaker 2: What will it tell us about the health of the
Speaker 2: US consumer and the economy as we navigate a very
Speaker 2: uncertain future. And for more we're joined by Stuart paul
Speaker 2: Us Economists with Bloomberg Economics. Now, Stuart, looking backwards the
Speaker 2: month of March, things were looking good. Inflation, wholesale and
Speaker 2: consumer inflation was better than expected. We have this consensus
Speaker 2: outlook for retail sales may surprise to the upside. Is
Speaker 2: this all good news?
Speaker 5: It is mostly good news. For the month of March.
Speaker 5: As you mentioned, inflation was relatively muted. More importantly, inflation,
Speaker 5: particularly in the items that would be affected by tariffs,
Speaker 5: were muted. And from a consumer perspective, the behavior that
Speaker 5: we saw was a front loading of purchases that consumers
Speaker 5: expect to be tariffed. So not only were consumers pulling
Speaker 5: forward their purchases of autos. Auto sales surge during the
Speaker 5: month and that should boost retail sales. They were also
Speaker 5: pulling forward their purchases of big durable goods as purchase
Speaker 5: from major retailers that sell things like washing machines, coffee makers,
Speaker 5: and so on. So we're going to get major tail
Speaker 5: whens supporting retail sales at least temporarily in advance of
Speaker 5: these tariffs. So we expect the March data to show
Speaker 5: about one point three percent monthly growth in nominal retail sales. Now,
Speaker 5: the thing is, retail sales started the year really poorly.
Speaker 5: January was terrible. So when we think about what Q
Speaker 5: one GDP growth is going to look like, real consumer
Speaker 5: spending growth for the first quarter is just going to
Speaker 5: run at an annualized pace of about zero point six
Speaker 5: to zero point eight percent. That's compared to four percent
Speaker 5: in Q four of last year. So as good as
Speaker 5: March looked, as the tariff threat became real, uncertainty is
Speaker 5: really the name of the game here, and it's going
Speaker 5: to show up in the Q one data, but probably
Speaker 5: not the March data specifically.
Speaker 2: Okay, and again that was then, because now we have
Speaker 2: a very different reality before those tariffs went into effect
Speaker 2: and now and we know things could change, and they do.
Speaker 2: Boy do they change day to day, hour to hour.
Speaker 2: It seems this tariff war really threatening consumer spending, isn't it,
Speaker 2: and frankly threatening the economy.
Speaker 5: That's right. It's again the uncertainty element is creating a
Speaker 5: huge overca overhang, not just for consumers, but also for
Speaker 5: businesses that are trying to invest and want some certainty
Speaker 5: around what policy is going to look like, who they're
Speaker 5: trading partners are going to be, and what their financing
Speaker 5: costs are going to look like. As we saw the
Speaker 5: bond market getting roiled in the last week, So you're
Speaker 5: totally right. Quick moving policy landscape is really having a
Speaker 5: major effect. A few rules of thumb that I typically
Speaker 5: like to apply when we think about let's say recession risk.
Speaker 5: An increase in the average effective tarif rate of one
Speaker 5: percentage point creates about fifteen basis points of drag on
Speaker 5: cumulative real GDP growth. So the entire move that we
Speaker 5: saw in the average effective tarif rate should shave off
Speaker 5: about three percentage points from real GDP growth. And from
Speaker 5: the inflation perspective, an increase that in the average effective
Speaker 5: tarifrate like we saw moving up to about twenty five
Speaker 5: percent should add about two and a half percentage points
Speaker 5: to cumulative core inflation. So not good, especially for the
Speaker 5: FED that's trying to balance its dual mandate of having
Speaker 5: maximum employment and price stability. These tariff threats de anchor
Speaker 5: or they unanchor inflation and inflation expectations, and they also
Speaker 5: should be creating additional slack in the economy is a
Speaker 5: problem for the FED. Where do we think that that's
Speaker 5: going to shake out for the Fed?
Speaker 6: Though?
Speaker 5: The Fed, at least outwardly is saying that they are
Speaker 5: very much so focused on raining and inflation. While the
Speaker 5: numbers were good in March, that's backward looking. They are
Speaker 5: worried about inflation pressures mounting, especially in the year year
Speaker 5: and a half ahead.
Speaker 2: And those inflation pressures are really going to hit the
Speaker 2: auto industry. Let's talk about that, because it is a big,
Speaker 2: big industry.
Speaker 7: Here.
Speaker 2: People say US doesn't make anything. We make a lot
Speaker 2: of cars. Of course, we import a lot of cars,
Speaker 2: but that twenty five percent tariff on imports is still
Speaker 2: in effect. What do you see in the auto market
Speaker 2: coming up? I mean, like you said, there was front
Speaker 2: loading of buying of autos. What happens now.
Speaker 5: There should be a cooling in auto sales and auto
Speaker 5: purchases from consumers. It's a little bit peculiar that we've
Speaker 5: seen auto prices fading just a touch so far. You
Speaker 5: would think that autodeal would be very slow to cut
Speaker 5: prices given, as you say, the expectation that there should
Speaker 5: be given the expectation that there should be higher input costs,
Speaker 5: higher prices as it meets to consumer. So we do
Speaker 5: expect to see auto sales fading to a pace of
Speaker 5: about fifty an annualized pace of about fifteen and a
Speaker 5: half to sixteen million units a year. That's even probably
Speaker 5: a touch high. By comparison, in March, we saw over
Speaker 5: seventeen point over seventeen point seven million annualized units sold
Speaker 5: during the month, So it's pretty significant fading and risk
Speaker 5: aeskewed to the downside as prices are likely going to jump.
Speaker 2: I mean, it's hard to say what consumers are thinking.
Speaker 2: Do you think the US manufacturers will see a benefit
Speaker 2: from this or is that just really wishful thinking.
Speaker 5: It's the sort of thing that if these tariffs are
Speaker 5: maintained for a long enough amount of time, it's possible
Speaker 5: that they can see some improvement if capacity is built out,
Speaker 5: if we don't see major retaliation from our trading partners.
Speaker 5: But in the interim, there are definitely going to be
Speaker 5: some growing pains, and auto producers are really struggling with
Speaker 5: how to source the inputs that they need.
Speaker 2: Wow, Well, there's a lot of uncertainty ahead. We know
Speaker 2: that US retail sales for March are out this Wednesday,
Speaker 2: ahead of Wall Street's opening bell our thanks to Stuart Paul,
Speaker 2: us economists with Bloomberg Economics. We turn now to the
Speaker 2: new earning season, which kicked off on Friday with some
Speaker 2: of Wall Street's biggest banks. What we will focus on
Speaker 2: earnings at Netflix. This earnings report will be far different
Speaker 2: from past postings and for more we're joined by Geitha
Speaker 2: rangonoffin Bloomberg Intelligence Analysts on US media. Well getha, thanks
Speaker 2: for joining us. So what will make this report from
Speaker 2: Netflix different from past reports?
Speaker 6: This time around is going to be really really different
Speaker 6: because Netflix is going to stop reporting subscriber metrics. Now,
Speaker 6: we all know that Netflix really is a subscriber story.
Speaker 6: I mean quarter in and quarter out, we all obsess
Speaker 6: over the number of new subscribers that they are going
Speaker 6: to post. But they did guide last year to the
Speaker 6: fact that they are going to stop reporting these subscriber
Speaker 6: metrics anything connected with subscriber metrics, So both the number
Speaker 6: of actual subscriber gains as well as what they call
Speaker 6: average revenue per member. They're going to stop reporting both
Speaker 6: of those starting this quarter, so it's going to be very,
Speaker 6: i think, a very different tone around time.
Speaker 2: And this comes after they hit a record number of
Speaker 2: subscribers last quarter, right, I mean, wouldn't you want to
Speaker 2: talk about if you have growth?
Speaker 6: Exactly? This is so ironic, Tom, I mean, they've just
Speaker 6: are coming off the best year ever in the history
Speaker 6: of the company forty one million new subscribers added in
Speaker 6: twenty twenty four. That is even better than it was
Speaker 6: during COVID, and so subscriber momentum is absolutely going to continue.
Speaker 6: I mean, this is by far the biggest streaming service
Speaker 6: in the world that has over three hundred million subscribers,
Speaker 6: and we actually that they are well on their way
Speaker 6: to gain about twenty five million again this year, especially
Speaker 6: with all of their new initiatives and I'm talking here
Speaker 6: about the crack down on password sharing, which they call
Speaker 6: paid sharing, as well as this new ad supported tier
Speaker 6: which is priced very very competitively at about you know,
Speaker 6: seven ninety nine in the US.
Speaker 2: Now, since they won't be reporting on that growth though
Speaker 2: let's face it, it's all about operating revenue and especially
Speaker 2: advertising revenue.
Speaker 6: Then absolutely so the biggest metric now, and this is
Speaker 6: a metric that they have been kind of trying to
Speaker 6: promote over many many quarters now kind of shifting away
Speaker 6: from this focus on subscribers to top line growth. So
Speaker 6: revenue growth is the big metric. They are projecting about
Speaker 6: eleven percent revenue increase in the first quarter, and you're right,
Speaker 6: they are, you know, expecting advertising to become a bigger
Speaker 6: and bigger portion of the business. To remember, advertising is
Speaker 6: something that they are very very new at. This is
Speaker 6: primarily a subscription driven business. So advertising last year, for instance,
Speaker 6: was less than three percent of revenue. Now, granted, that
Speaker 6: is going to increase pretty substantially as they kind of
Speaker 6: open up more and more ad inventory, as they kind
Speaker 6: of add more programming that is tailor made for advertising,
Speaker 6: but it still will be a very very small portion
Speaker 6: off the total revenue by until maybe twenty twenty six,
Speaker 6: twenty twenty seven.
Speaker 2: Well, we've seen some of those. It was the boxing
Speaker 2: match with Jake Paul and Mike Tyson that was back
Speaker 2: in November Christmas Day, to NFL teams, to NFL games playing,
Speaker 2: so big advertising opportunities there. Let's talk about though this
Speaker 2: past quarter. I believe they started WWE wrestling. We had
Speaker 2: the Screen Actors Guild, what were maybe the big revenue
Speaker 2: owners there for advertising and what's in the pipeline.
Speaker 6: So they really had a huge content Sladure absolutely right
Speaker 6: in pointing out that WWE started this January and it
Speaker 6: continues to be one of their most watched pieces of
Speaker 6: content week in and week out, So we know that
Speaker 6: it is doing really really well for them and obviously
Speaker 6: kind of contributing to the subscriber growth. And I think
Speaker 6: over time what we're going to see, Tom is we're
Speaker 6: going to see them go more aggressively after different sports rights.
Speaker 6: I mean, we have many different properties coming on the
Speaker 6: market over the next few months. Formula one is a
Speaker 6: great example, and this is something that you know, Netflix
Speaker 6: has already had a lot of series with Drive to Survive,
Speaker 6: So we think that the Formula one rights actually makes
Speaker 6: a ton of sense for Netflix. You have UFC again
Speaker 6: that kind of complements the whole you know, WWE. So
Speaker 6: we think eventually they are going to go into sports
Speaker 6: rights much more aggressively, which again builds their live programming
Speaker 6: slate and again works really well for that advertising, you
Speaker 6: know revenue base. Now in terms of content, I mean
Speaker 6: of course, they had a really strong content lineup in
Speaker 6: the first quarter of twenty twenty five, but you know it,
Speaker 6: the whole year actually is just going to be one
Speaker 6: blockbuster after the other. So, you know, just to give
Speaker 6: you an example, you know, you have a Squid Game
Speaker 6: the season finale, that the final season coming up. You
Speaker 6: have Stranger Things the final season coming up this year.
Speaker 6: You have Wednesday the next season coming up there. So
Speaker 6: you know they have constantly referred to twenty twenty five.
Speaker 6: Really the content state is being an embarrassment of riches.
Speaker 6: So it is going to be a lot of good
Speaker 6: content and a lot of titles to choose from.
Speaker 2: Netflix's first quarter earnings out this Thursday, our thanks to
Speaker 2: Githa raganathin Bloomberg Intelligence analyst on US media, and coming
Speaker 2: up on Bloomberg day Break weekend, we'll look at the
Speaker 2: ECB's options in the face of Trump tariff uncertainty. I'm
Speaker 2: Tom Busby, and this is Bloomberger. This is Bloomberg day
Speaker 2: Break week again, our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: and New York. Up later in our program will look
Speaker 2: ahead to first quarter earnings from the chip maker TSMC.
Speaker 2: But first, European Central bank officials under pressure to respond
Speaker 2: as US President Donald Trump's tariffs wreak havoc with global markets.
Speaker 2: But just how should policymakers react in the face of
Speaker 2: such uncertainty. For more, let's go to London and bring
Speaker 2: in Bloomberg Daybreak europe Banker Stephen Carroll.
Speaker 3: Tom European Central Bank policymakers have lowered the deposit rate
Speaker 3: six times since last June. At its current level of
Speaker 3: two and a half percent. It's approaching territory that some
Speaker 3: think no longer constrains demand, but economic realities have shifted.
Speaker 3: With Trump's tariffs and the threat of an escalating trade
Speaker 3: war between the US and China, hammering financial markets and
Speaker 3: raising the specter of a global recession. Analysts and traders
Speaker 3: have become increasingly convinced that the only direction for Euro
Speaker 3: Area interest rates is down, and some key rate setters
Speaker 3: are backing another cut this time around. Francis Fons Pavio
Speaker 3: de Gallo says the ECB should lower interest rates soon
Speaker 3: as the post tariff market fallout favors such a move.
Speaker 3: He went on to argue that the trade war will
Speaker 3: have a non negligible direct impact on the economy that
Speaker 3: will take about a quarter percentage point of growth this year.
Speaker 3: Nevin lad Gallo joins others, including Finland's Uli Ren who
Speaker 3: are convinced that the current backdrop makes the case for
Speaker 3: cutting rates stronger. Based on an assessment of inflation and growth.
Speaker 3: Nichols for an April cut. Aside, other policymakers have restrained
Speaker 3: from saying where rates may settle given the elevated uncertainty.
Speaker 3: Austrian Center Bank tief Robert Holtzman maintains there's no reason
Speaker 3: for an immediate cut. He believes the Center Bank should
Speaker 3: allow the current trade related uncertainty to dissipate before considering
Speaker 3: lowering rates, further arguing that tariffs and threats of countermeasures
Speaker 3: make it next to impossible to predict if inflation in
Speaker 3: the twenty nation Eurozone will continue to approach the ECB's
Speaker 3: two target as planned. The Housman's hawkish point of view
Speaker 3: are likely clash with many of those colleagues when the
Speaker 3: Governing Council gathers in the coming days. So how much
Speaker 3: breathing room do European policymakers really have? It's something we've
Speaker 3: been discussing with Catherine Nice, chief European Economists at PAGIM
Speaker 3: Fixed Income.
Speaker 8: If we look at the euro Area, you know, I'm
Speaker 8: not saying it's easy for them to make these changes.
Speaker 8: I'm just saying relative to the US, they have way
Speaker 8: more scope to ease policy to support I mean, if
Speaker 8: we look at, for example, the tariff impact, the kinds
Speaker 8: of goods that the Euro Area tends to import from
Speaker 8: the US are not really final goods. They don't go
Speaker 8: straight into the consumption basket, so the inflationary shock will
Speaker 8: be less. You also have to factor in the you
Speaker 8: know that global growth will be slower. The Euro Area
Speaker 8: is a much more open economic region. There's a risk
Speaker 8: that China is going to dump a lot of that
Speaker 8: excess capacity. So there's all these deflationary pressures and there
Speaker 8: isn't that big inflationary push. And the starting point for
Speaker 8: the ECB is much cleaner than it is for the
Speaker 8: US because inflation already is basically at target. So I
Speaker 8: think that does other things equal make it easier. We
Speaker 8: can then talk about the fiscal.
Speaker 9: Well, let's talk about then maybe pause on the fiscal
Speaker 9: on top of the bond moves here, because the yield
Speaker 9: kind of moves that you saw in the German yield
Speaker 9: prior to all these terror announcements was pricing in fiscal
Speaker 9: spend over the next ten years. How believable is that
Speaker 9: fiscal spend? How believable are yield at.
Speaker 5: Where they are right now?
Speaker 8: Well, who knows what they're going to announce and how
Speaker 8: quickly you know, I, you know, I do hold out
Speaker 8: some degree of optimism that you know with Germany haven't
Speaker 8: taken this bold step forward, you know, breaking you know,
Speaker 8: smashing through a couple of political red lines to get
Speaker 8: through significantly higher defense and infrastructure spending that they're sort
Speaker 8: of leading from the front, and we see more initiatives
Speaker 8: like this. I think we could see perhaps you know,
Speaker 8: we're seeing some leaks in the press around EU bond issuance,
Speaker 8: you know, something that looks a bit more grant likes,
Speaker 8: but perhaps just a fraction of the size of the
Speaker 8: kind of package we saw during the pandemic. We could see,
Speaker 8: you know, a coalition of the willing also forging together,
Speaker 8: so you know, a European not an EU vehicle financing
Speaker 8: vehicle to support defense. You know, we've already seen the
Speaker 8: EU water down and ease and change some of its
Speaker 8: fiscal spending rules to give member states more discretion. So
Speaker 8: all of this, I think is still to play for.
Speaker 3: That was Catherine Nice, chief European economist at PGIM Fixed Income,
Speaker 3: speaking to Bloomberg's critic Good to Guy Johnson and Anna Edwards.
Speaker 3: So Trump has laid his gauntlet. How should the ECB respond?
Speaker 3: It's a question I put to ECB reporter Janna Randou.
Speaker 7: Words is the first line off the I mean EASYB
Speaker 7: President Christine le Gard is not known for being titled
Speaker 7: when it comes to criticizing tariffs or Trump. But also,
Speaker 7: of course, in order for that to be effective, that
Speaker 7: needs somebody to listen, and I'm not so sure you
Speaker 7: know she has. She has the right counterpart there. But
Speaker 7: of course we need to say that uncertainty itself is
Speaker 7: bad for the economy, for for for confidence. Uh, it's
Speaker 7: not something the ECB will will react to. So inflation
Speaker 7: is still the guiding staff for everything the ECB does.
Speaker 7: And of course it's much too soon to tell what
Speaker 7: kind of implications uh, the the events of the past days, weeks,
Speaker 7: months have on inflation in the Aurozone. Growth for sure
Speaker 7: is probably going to be weaker as a result of
Speaker 7: what we've seen on inflation. The verdict is very much unclear,
Speaker 7: and and that I think will very much complicate the
Speaker 7: debate at the upcoming meeting and also the decision.
Speaker 3: Yeah, indeed, because this challenge of balancing the inflationary risks,
Speaker 3: because you know, higher tariffs could in theory boost inflation
Speaker 3: but also hurt growth, which which makes it a difficult
Speaker 3: balance for policymakers to try to work out.
Speaker 7: Absolutely absolutely, I mean, it really seems that growth is
Speaker 7: going to be lower because of uncertainty because tariffs essentially
Speaker 7: close off export markets. You will find optimists who say, well,
Speaker 7: but there are you know, you can explore new export markets,
Speaker 7: you can form close trade alliances elsewhere. But that's more
Speaker 7: of a medium to long term thing. In the short term,
Speaker 7: it will hit growth on inflation. It very much depends
Speaker 7: on the kind of tariffs, which kind of goods, It
Speaker 7: very much depends on the countermeasures, It depends on the duration.
Speaker 7: So yeah, your guess is as good.
Speaker 3: As well a little bit less guess work coming from
Speaker 3: markets when it comes to this upcoming decision from the CB.
Speaker 3: They're pricing in a rate cut, but how much divergence
Speaker 3: is there amongst policymakers. What have we heard in terms
Speaker 3: of the views about how the ECB should act now
Speaker 3: given all of the uncertainty that you just mentioned.
Speaker 7: Yeah, I mean everyone will probably tell you and has
Speaker 7: told us, that agility is needed, vigilance is needed, caution,
Speaker 7: no pre commitment, which makes of course, you know, figuring
Speaker 7: out what will happen very difficult. I would say that
Speaker 7: while it was you know, you could say fifty to
Speaker 7: fifty on whether there was going to be a cut
Speaker 7: or not at the upcoming meeting right after the last one.
Speaker 7: Now I would say the consensus has shifted more toward
Speaker 7: of you know, favoring and more favoring a cut, even
Speaker 7: though there are are still skeptics, and I spoke to
Speaker 7: one of them just before the quiet period kicked in.
Speaker 7: That's Austria, as Robert Holtzmann, who says there's absolutely no
Speaker 7: reason of why the ECB should cut at this point
Speaker 7: in time. Inflation is nearly at the target in interest
Speaker 7: rates so low, uncertainty is incredibly high, and we should
Speaker 7: really wait until the fog has cleared. And and that
Speaker 7: makes sense in my ear, of course. But at the
Speaker 7: same time, I believe people who say, well, you know,
Speaker 7: if uncertainty is this high, that dams investment that you know,
Speaker 7: puts in place processes that aren't easily fixed. And also
Speaker 7: with inflation moving toward the target, we have room to yeah,
Speaker 7: to move into a more neutral policy setting. So there's
Speaker 7: arguments for both sides, and overall it won't be an
Speaker 7: easy meeting. There will be disagreements and differences of opinion,
Speaker 7: but I think a cut is what needs to be expected.
Speaker 3: Well, just you mentioned the trajectory that inflation had been
Speaker 3: going in as well, just remind us of where we
Speaker 3: are in that process, because we are down dramatically from
Speaker 3: the spike that we saw during the energy crisis a
Speaker 3: couple of years ago.
Speaker 7: Yeah, so we moved from a peak of just over
Speaker 7: ten percent, so double digit inflation, to just over two
Speaker 7: and so we are at this at this point where
Speaker 7: inflation just over to to target. With insight, we've seen
Speaker 7: quite some progress also on the core rate, and even
Speaker 7: services have come down, which which has long been and
Speaker 7: in fannas is still you know, a point where people
Speaker 7: worry because it is still still running at very elevated levels,
Speaker 7: but there has been movement in recent months so that
Speaker 7: services inflation is coming down, of course, and what the
Speaker 7: ECB is really happy about is that pages are finally
Speaker 7: on track. Wage growth has slowed, it's it's behaving exactly
Speaker 7: as policymakers expected. So they're taking a lot of confidence
Speaker 7: from the fact that essentially the domestic part of inflation,
Speaker 7: which which can which can be very dangerous because that's
Speaker 7: where you know, yeah, that's the forceful kind of uh
Speaker 7: infiction that's very difficult to control, and and that hinges on.
Speaker 7: People are being convinced that the ECP can can do
Speaker 7: its job of guaranteeing pres stability, that this is now
Speaker 7: finally all moving in the right direction. So that's partly
Speaker 7: what or mostly what has has driven the interest rate
Speaker 7: cuts of of the past months.
Speaker 3: Yeah, indeed, of course, so much could change in the
Speaker 3: path ahead, but it's a good to remind ourselves of
Speaker 3: where we are now going into this meeting. In terms
Speaker 3: of the debate over the terminal rate, there's been this
Speaker 3: has been a long running conversation, but has that now
Speaker 3: also been thrown up in the air with the uncertainty
Speaker 3: over tariffs.
Speaker 7: I mean, there was no consensus before where the terminal
Speaker 7: rate was going to be, so there's probably even less consensus. Now,
Speaker 7: I would still say that two percent is a pretty
Speaker 7: good guess, which would mean two more quarter point cuts,
Speaker 7: which which also happens to be what a lot of
Speaker 7: economists are expecting. But you know, we have to be honest.
Speaker 7: It could be that it could be more, it could
Speaker 7: be less. What I would be willing to bet money
Speaker 7: on is the ECB is not yet done. But how
Speaker 7: much further it has to go, whether it's another two cuts,
Speaker 7: three cuts, who knows.
Speaker 3: Yeah, You've seen the CB handle a fair number of
Speaker 3: crises in your time covering the European Central Bank, and
Speaker 3: I wonder what we should have learned from those past
Speaker 3: experiences that perhaps might inform what is going to be
Speaker 3: a very challenging time for the European economy given the
Speaker 3: trade uncertainty.
Speaker 7: Yeah. Absolutely, and I think we've seen Yeah, as you
Speaker 7: said that, we've seen many crisis and we don't even
Speaker 7: need to look back very much. And I think the
Speaker 7: confidence I have is that the ECB has proven that
Speaker 7: if push comes to shove, it is very very quick
Speaker 7: in coming up with solutions and devising tools that you
Speaker 7: wouldn't necessarily have expected and figuring out and helping where
Speaker 7: help is needed.
Speaker 3: My thanks to Bloomberg's Jana Randau. We'll have full coverage
Speaker 3: of the upcoming EASV rate decision and its applications here
Speaker 3: on Bloomberg. I'm Stephen Caroll in London. You can catch
Speaker 3: us every weekday morning here for Bloomberg Daybreak Europe, beginning
Speaker 3: at six am in London at one am on Wall Street, Tom, Thank.
Speaker 2: You, Steven, And coming up on Bloomberg day Break weekend,
Speaker 2: I'll look ahead to first quarter earnings from the world's
Speaker 2: biggest computer chip maker. I'm Tom Busby, and this is Bloomberg.
Speaker 2: This is Bloomberg day Break Weekend, our global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: I'm Tom Busby in New York. It's the biggest chip
Speaker 2: manufacturer in the world. In this week, it'll report first
Speaker 2: quarter earnings. For more, let's get to the host of
Speaker 2: the Daybreak Asia podcast, Doug Krisner.
Speaker 4: Tom. Taiwan Semiconductor is trying to navigate a shifting landscape
Speaker 4: when it comes to US trade policy. Back in March,
Speaker 4: TSMC announced plans to invest an additional one hundred billion
Speaker 4: dollars in US chip factories. Now by producing chips in
Speaker 4: the States. TSMC would avoid US tariffs, and President Trump
Speaker 4: has repeatedly made that point.
Speaker 10: They have to come back because the tariffs are forcing
Speaker 10: them to come back. And remember there are no tariffs
Speaker 10: if you build here, and that's a big factor.
Speaker 4: Recently, there were also reports of a potential joint venture
Speaker 4: between TSMC and Intel. This jv would operate Intel chip
Speaker 4: foundries in the United States. So there is a lot
Speaker 4: to consider as we look ahead to the earnings in
Speaker 4: the week ahead from TSMC. So let's bring in Jane
Speaker 4: Lanhi Lee North Asia, tech reporter for Bloomberg News. Jane
Speaker 4: joins us from our bureau in Taipei. Thank you for
Speaker 4: making time to chat with me. Until very recently, I
Speaker 4: think it's fair to say the conversation until this market
Speaker 4: instability had been focused very much on AI. Of course,
Speaker 4: there was the deep Seek moment in China. We know
Speaker 4: that was an accelerant. And when you think of AI
Speaker 4: and AI chips, you think of Nvidia, you think of Nvidia,
Speaker 4: you obviously think of TSMC. Are we expecting blowout earnings
Speaker 4: this week from Taiwan semi well.
Speaker 10: Earnings wise, yeah, Analysts are estimating fifty five percent net
Speaker 10: income growth for the first quarter. Well, but I think
Speaker 10: people are not going to be focused just on these numbers.
Speaker 10: What everyone will be looking to hear is what is
Speaker 10: going on with the tariffs, what is going on with
Speaker 10: with pressure potentially from the Trump administration on TSMC to
Speaker 10: help Intel, which has been struggling. So these are going
Speaker 10: to be the things that people are looking out for. Also,
Speaker 10: they'll want to see with the latest, you know, troubles
Speaker 10: in AI with deep seek. You know, we saw a
Speaker 10: big route in Nvidia prices and other AI chip related
Speaker 10: companies because concern that maybe we don't need to invest
Speaker 10: tens of billions of dollars, even hundreds of billions of
Speaker 10: dollars to build out these data centers. Maybe the AI
Speaker 10: models can be a lot smaller. In that case, would
Speaker 10: we be buying a lot less chips, and so there
Speaker 10: has been that concern. Now on top of that, tariffs
Speaker 10: are bringing concerns that you know, we've all read about
Speaker 10: how our iPhone prices in the US could be going up,
Speaker 10: you know, something like twenty percent with the tariffs. And
Speaker 10: in that case, would consumers be buying fewer iPhones, will
Speaker 10: they be buying fewer laptops? Are they going to be
Speaker 10: waiting to buy those smart TVs for a while, in
Speaker 10: which case that will again hit companies like TSMC or
Speaker 10: others that are making chips that go into all these devices.
Speaker 10: And so one of the things that have come up,
Speaker 10: in fact just this past week is whether or not
Speaker 10: TSMC will be revising down its revenue growth outlook for
Speaker 10: twenty twenty five. In January, it had said that it
Speaker 10: expected sort of mid twenty percent growth in sales for
Speaker 10: this year. So that's going to be some of the
Speaker 10: points that investors are are going to be looking out for.
Speaker 4: I would imagine another key data point is going to
Speaker 4: be capex spending.
Speaker 6: Now.
Speaker 4: President Trump, in the last week was speaking at a
Speaker 4: dinner event organized by the Republican National Congressional Committee. A
Speaker 4: couple of things emerged here. One a lot of criticism
Speaker 4: of the Chips Act. He made the point that semiconductor
Speaker 4: companies are basically loaded. They don't need billions of dollars
Speaker 4: in what amounts to some sort of subsidy to ramp
Speaker 4: up production. So how is TSMC position to build out
Speaker 4: more capacity?
Speaker 10: They absolutely do, but it's about you know, who's going
Speaker 10: to say no to free money and depending on how
Speaker 10: much subsidies you get, whether it's a straight out grant
Speaker 10: from the Chips Act, or whether it's something that's even
Speaker 10: more important that it is, the tax credit for these investments.
Speaker 10: It's going to really make a difference to your profitability,
Speaker 10: which it sounds so obvious. So will they be building more?
Speaker 10: Will you know the investors be as interested when gross
Speaker 10: margins aren't as high? Those are sort of questions that
Speaker 10: will come and who pace for more expensive chips when
Speaker 10: those subsidies or tax credits go missing. So it's an
Speaker 10: important component. Can they do it without it? Of course
Speaker 10: they can't. They've got gobs of money.
Speaker 4: So what about the factory that TSMC was constructing in Phoenix.
Speaker 4: I think there were some initial delays. Do we know
Speaker 4: the status? Are they producing chips there?
Speaker 7: Oh?
Speaker 10: Yeah, they've been mass product producing those chips since late
Speaker 10: last year and the initial outcome of that. What we
Speaker 10: talk about in chip manufacturing our yields. If I'm making,
Speaker 10: you know, one hundred chips, how many of those are
Speaker 10: good chips that I can use versus things that if
Speaker 10: I used my gadget wouldn't work. And that yield rate
Speaker 10: has been on par with their manufacturing in Taiwan. So
Speaker 10: that's been some good news after you know, a lot
Speaker 10: of news about delays and labor tensions and things like that.
Speaker 10: So for what we have now in Arizona, things seem
Speaker 10: to be doing well. And some people who I've spoken
Speaker 10: to in Arizona are optimistic that this is just the start.
Speaker 10: And you know, they made a lot of mistakes with
Speaker 10: the first fab but they've learned and so that learning
Speaker 10: curve will help them, will benefit them. And when it
Speaker 10: comes to talent recruitment, one person who was out there
Speaker 10: doing some recruitment in the colleges in Arizona said, you know,
Speaker 10: when I first started doing this, nobody heard of TSMC.
Speaker 10: That makes it harder to recruit by the time he's
Speaker 10: now left the company. But by the time he left,
Speaker 10: you know, which has been a couple months, now, everybody
Speaker 10: knows TSMC. And of course, you know these announcements at
Speaker 10: the White House of one hundred billion dollar additional investment
Speaker 10: nay between Trump and the CEO cc way, that really
Speaker 10: helps bring the profile of the company up. That'll help
Speaker 10: have college students realize that, you know, this is an
Speaker 10: important company.
Speaker 4: Let's talk a little bit about the market in China,
Speaker 4: where obviously those export controls from the Biden administration really
Speaker 4: curtailed access to some of those more sophisticated AI chips.
Speaker 4: We mentioned a moment ago that Deep Seek moment. Clearly
Speaker 4: tech in China was not constrained by those controls. Deep
Speaker 4: Seek was obviously, or so it would appear able to
Speaker 4: develop a pretty sophisticated chatbot in spite of those controls.
Speaker 4: So is TSMC going to ask anything of the Trump
Speaker 4: administration when it comes to China.
Speaker 10: Yeah, I don't know if there's going to be a
Speaker 10: specific ask for that. I think Right now, the big
Speaker 10: news with TSMC is that there was a report by
Speaker 10: Reuters that possibly the Trump administration could find it for
Speaker 10: a billion dollars because TSMC allegedly sold chips to one
Speaker 10: company that then passed it on to Huawei, which makes
Speaker 10: AI service and somehow that ship ended up in one
Speaker 10: of them those AI servers. And so it's been in
Speaker 10: a bit of hot water with China and with making
Speaker 10: sure chips it makes for one customer don't end up
Speaker 10: with another. And so a lot of focus right now
Speaker 10: is watching whether or not the Trump administration could use
Speaker 10: these finds, and this would be unprecedented in a sense that,
Speaker 10: you know, a former BIS official explain that you don't
Speaker 10: really have finds this big when companies, you know, come
Speaker 10: clean and work together with the US government. But Trump
Speaker 10: could use it as a bargaining chip to push for
Speaker 10: more concessions from TSMC. So that is what people here
Speaker 10: are watching about when it comes to China.
Speaker 4: Yeah, that's very interesting that you made that point. It's
Speaker 4: not unlike what we have seen play out in these
Speaker 4: tariff negotiations. And apparently Trump told the same Republican congressional
Speaker 4: event that I referred to earlier that he was prepared
Speaker 4: to slap a one hundred percent tax on TSMC if
Speaker 4: the company doesn't make its chips in the US. So
Speaker 4: the objective here seems to be a reshoring of chip manufacturing,
Speaker 4: and TSMC would be a partner in that process.
Speaker 10: Yeah, and initially when that one hundred billion dollar announcement came,
Speaker 10: I think the first few days, there was some skepticism. Yeah,
Speaker 10: they're just paying lip service, They're not going to do it.
Speaker 10: By the time those investments come around, Trump will be gone.
Speaker 10: But what I'm hearing from the ground here from suppliers
Speaker 10: of TSMC are no They're serious. This is their biggest market.
Speaker 10: About three and four chips that are sold by TSMC
Speaker 10: are sold to the US. Seventy five percent of their
Speaker 10: sales is in the US. This is their biggest market,
Speaker 10: and so it seems it is a genuine move towards
Speaker 10: the US, and the suppliers are now saying that they
Speaker 10: are getting ready to follow as well.
Speaker 4: Jane, thank you so much for taking the time to
Speaker 4: chat with us. That is Jane Lanhi Lee, Bloomberg Tech
Speaker 4: reporter in Taipei. For another perspective on tech in Asia,
Speaker 4: I spoke with Stephanie Leung, chief investment officer at Stashaway.
Speaker 4: I was reading a piece in the Wall Street Journal
Speaker 4: on Apple planning to send more iPhones to the US
Speaker 4: from India rather than from China as a way of
Speaker 4: offsetting the high cost of the tariffs. And I'm wondering
Speaker 4: whether or not you expect other companies to follow suit
Speaker 4: that Apple clearly will not be alone in this.
Speaker 11: Yeah, I think, of course, in the short term it
Speaker 11: is hot for companies to just kind of move the
Speaker 11: whole supply chain overnight. But of course I think, I mean,
Speaker 11: it makes sense for Apple to come out and sort
Speaker 11: of you make these statements and for other companies to
Speaker 11: make these statements as well, because I think, what's the
Speaker 11: I guess, the kind of implication from the whole kind
Speaker 11: of trade ward it's I mean, even if it ends,
Speaker 11: let's say in the next few weeks, is that companies
Speaker 11: need to rethink again about the whole supply chain right
Speaker 11: how dependent they are on China. And also, I think
Speaker 11: the I guess the Trump administration is often trying to
Speaker 11: get companies to invest back in the US again by
Speaker 11: giving tax breaks and trying the regulation. So I think
Speaker 11: that also prompts companies to rethink whether or not they
Speaker 11: need kind of a more diversified supply chain rather than
Speaker 11: just rely on China itself. Now, I also spoke to
Speaker 11: I guess some of the businesses in Hong Kong. Hong
Speaker 11: Kong businesses have a lot of investment in China, for example,
Speaker 11: in terms of governments exports into US, supplying to names
Speaker 11: like Nike or Little lemon et cetera. And I mean
Speaker 11: they said, I mean, yes, indeed, there has been some
Speaker 11: kind of movements out of into Vietnam in the past
Speaker 11: few years, but I mean that has been very, very slow.
Speaker 11: And you can't just change that supply chain overnight, so
Speaker 11: there still will be impact. But I think over time, yes,
Speaker 11: I think the supply change will be more kind of
Speaker 11: diversified than previously.
Speaker 4: That was Stephanie Leung, chief investment officer at Stashaway. I'm
Speaker 4: Doug Chrisner. You can catch us weekdays for the Daybreak
Speaker 4: Asia podcast. It's available wherever you get your podcast. Tom.
Speaker 2: Thank you Doug. And that does it for this edition
Speaker 2: of Bloomberg day Break Weekend. Join us again Monday morning
Speaker 2: at five am Wall Street Time for the latest on
Speaker 2: markets overseas and the news you need to start your day.
Speaker 2: I'm Tom Buzzby. Stay with us. Top stories and global
Speaker 2: business headlines are coming up right now