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Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world, and straight ahead on the program,
Speaker 2: look ahead to the April jobs report here in the
Speaker 2: US how that may impact FED policy moving forward. I'm
Speaker 2: Tom Busby in New York.
Speaker 3: I'm Carolin Hetger here in London, where we're keeping you
Speaker 3: up to date as the UK heads to the polls.
Speaker 4: I'm deg Krissner looking ahead to China's PMI data, the
Speaker 4: first reading since those higher US tariffs took effect.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby, and we begin
Speaker 2: today's program with a look ahead to the April jobs report,
Speaker 2: with non farm payroll numbers out this Friday eight thirty am.
Speaker 2: Wall Street Time Now for more on the strength of
Speaker 2: the US labor market how Friday's numbers may impact FED policy,
Speaker 2: were joined by Michael McKee, Bloomberg International Economics and Policy correspondent. Well, Michael,
Speaker 2: what do you expect to see this Friday in the
Speaker 2: April jobs report?
Speaker 5: Well, we expect to see a slowing in hiring, but
Speaker 5: we don't really have a good idea good handle on
Speaker 5: what the overall number is going to be, because we're
Speaker 5: not really sure at this point how companies are reacting
Speaker 5: to all of the news that we have seen about
Speaker 5: tariffs and the economy. The Base Book, which was out
Speaker 5: last Wednesday, used the word uncertainty eighty times and mentioned
Speaker 5: that companies didn't seem to be laying off people, but
Speaker 5: seem to be making plans to do so if the
Speaker 5: tariffs go into effect and start to hurt their business prospects.
Speaker 5: So we may see a ratcheting down, but the expectation
Speaker 5: is we won't fall off the cliff, and we're not
Speaker 5: expecting at this point. According to economists, a big change
Speaker 5: in the unemployment rate is still supposed to stay at
Speaker 5: four point two percent, So.
Speaker 2: By all appearances, until now, the labor market has remained
Speaker 2: pretty resilient, but that uncertainty caused by the Trump tariffs.
Speaker 2: I guess the question really is how long can that last?
Speaker 2: I mean, the Independence day from President Trump was this
Speaker 2: month in April, So we probably won't see any damage
Speaker 2: or much damage reflected in this report.
Speaker 5: Correct, that's correct. We may see some increased unemployment or
Speaker 5: increased job losses in some of the defense contractor consultants
Speaker 5: that will lose jobs because of the DOSEE firings. It
Speaker 5: isn't clear how many actual government workers we'll see fall
Speaker 5: off the pay rolls because it isn't clear how many
Speaker 5: have been let go. So it's all kind of up
Speaker 5: in the air, and we won't know necessarily what the
Speaker 5: full impact of the tariffs are until del first, because
Speaker 5: Trump put a ninety day hold on that. And I
Speaker 5: think you go back to the basebook, and it suggests
Speaker 5: that companies are waiting to see the impacts because of
Speaker 5: course it was hard for them to hire workers coming
Speaker 5: out of the pandemic, so they're reluctant to let them go.
Speaker 5: They will if they need to to retain their margins,
Speaker 5: but they just don't know yet. So I don't think
Speaker 5: we see much change.
Speaker 2: Yeah, even though all the ingredients are there. We've seen
Speaker 2: consumer sentiment decline, consumers and businesses pulling back spending. But
Speaker 2: it's almost like a hurry up and wait, We've got
Speaker 2: to see what happens with these tariffs and the impact
Speaker 2: on companies.
Speaker 5: It's a little bit like you know, when you'd be
Speaker 5: out playing on the sidewalk and mom would say, don't
Speaker 5: step into the street. I mean, you're right on the
Speaker 5: curb there and we could could fallen into the street.
Speaker 5: And that's what worries everybody. That's what worries the folks
Speaker 5: at the FED. I spoke with Chris Waller, FED governor
Speaker 5: on Thursday, and he said they can only model scenarios
Speaker 5: a possibility of a lot of tariffs, the possibility of
Speaker 5: lower tariff, but if unemployment starts to rise, they will
Speaker 5: have to react.
Speaker 2: You know, I heard that interview put another way, he said,
Speaker 2: tariffs are a tax, and you know the fear is
Speaker 2: higher taxes will lead to a slow.
Speaker 5: Down in hiring, lead to a slowdown in hiring, and
Speaker 5: lead to higher prices. And as prices go up, people
Speaker 5: tend to spend less. So you have an impact on
Speaker 5: demand as well as the supply talk that people are
Speaker 5: talking about. So the general consensus is any level of
Speaker 5: tariff are going to be disruptive. It's only a question
Speaker 5: of how disruptive they are. And then there's a kind
Speaker 5: of psychological aspect to it. If people have heard all this,
Speaker 5: we've seen consumer confidence collapse, do they react more quickly
Speaker 5: to the tariff that we do get, whether they're large
Speaker 5: or small, or do they think, well, we can manage
Speaker 5: our way through it, we can muddle through it. Governor
Speaker 5: Waller thinks that small tariffs, maybe we just get the
Speaker 5: ten percent tariffs would enable people, enable companies to find
Speaker 5: ways to survive it and keep going. But anything larger
Speaker 5: than that would probably cause people to pull back fairly
Speaker 5: quickly because they were scarred by the inflation coming out
Speaker 5: of the pandemic.
Speaker 2: Well, the April jobs report out this Friday, eight thirty
Speaker 2: am Wall Street Time our thanks to Michael McKee, Bloomberg
Speaker 2: International Economics and Policy correspondent. With the first quarter earning
Speaker 2: season in full swing, we move now to some key
Speaker 2: earnings this week from some of big tech's magnificent seven
Speaker 2: meta platforms and Microsoft on Wednesday, Apple and Amazon coming
Speaker 2: on Thursday. For more and what to expect, we're joined
Speaker 2: by Mandeep Singh Bloomberg Intelligence senior tech industry analyst Mandy Well,
Speaker 2: it was just a quarter ago. I think the big
Speaker 2: concern for those megacap tech firms was how much they're
Speaker 2: spending on AI when they expect all that investment to
Speaker 2: start paying off. But that was then. Now it looks
Speaker 2: like the Trump tariffs and all the uncertainty they bring
Speaker 2: putting AI kind of on a back burner along with
Speaker 2: regulatory pressures. I mean, is that what it looks like
Speaker 2: right now?
Speaker 6: Yes, Because all the MAC seven companies are global companies.
Speaker 6: More than fifty to fifty five percent of their revenue
Speaker 6: comes from outside the US. So when you think about
Speaker 6: the international revenue exposure they have, I mean, tariffs will
Speaker 6: clearly play into that. There could be some retaliation in
Speaker 6: terms of, you know, other countries kind of imposing some
Speaker 6: sort of attacks or fine on these companies, or or
Speaker 6: just a pushback in terms of using their products. So look,
Speaker 6: is there any catastrophe lurking for these companies? I would
Speaker 6: say no, But on the margin, I feel like the
Speaker 6: estimates for these companies in terms of growth and profitability
Speaker 6: are likely to go down or sideways simply because of
Speaker 6: the tariff uncertainty, and even though AI is a big
Speaker 6: secular tailwind that will remain, I think in the near term,
Speaker 6: AI won't be enough to make up for any lost
Speaker 6: revenue due to tariffs or just you know macro slowdown
Speaker 6: where companies may pull back on ads or just kind
Speaker 6: of shelf their IT spending projects for now.
Speaker 2: Well, back to tariffs, We've seen that Apple has shifted
Speaker 2: some of its production, almost ten percent of it to India,
Speaker 2: and that is really to kind of not rely so
Speaker 2: much on China a benefit now that we're in this
Speaker 2: tariff war. Have any other companies done a similar move.
Speaker 6: Well, everyone is trying to figure out how to best
Speaker 6: kind of relocate their supply chains to deal with the uncertainty.
Speaker 6: The good things for you know, Meta or Alphabet is
Speaker 6: they have very low exposure to the hardware side, you know,
Speaker 6: which gets impacted the most in the case of tariffs.
Speaker 6: I mean, if you're selling digital services or you know,
Speaker 6: if you have an online business, it's not going to
Speaker 6: get affected by tariffs. At the same time, as I said,
Speaker 6: you know, they will see the impact in terms of
Speaker 6: certain advertisers pulling back their ads spending because of uncertainty
Speaker 6: That is out there. So there are large Chinese advertisers
Speaker 6: like Timu and Shane who were spending almost you know,
Speaker 6: ten billion dollars plus on digital ads across Google and Meta.
Speaker 6: So from that perspective, any pullback from them is going
Speaker 6: to impact the growth rates for these companies, and there
Speaker 6: is a lot of indirect impact, but in terms of
Speaker 6: the direct supply chain impact, I think Apple is the
Speaker 6: most exposed. So you're right, they have to do something
Speaker 6: about it. They don't have a choice and they are
Speaker 6: doing whatever they could do.
Speaker 2: You see the tariffs benefiting anybody or is it all negative?
Speaker 6: Well, I think again, I go back to my comment
Speaker 6: about these companies, the large ones being international businesses. So
Speaker 6: even if you know, you may say, if dollar is weakening,
Speaker 6: that's somewhat helpful, but on the margin, you know, they
Speaker 6: benefit a lot more from selling their products outside the US.
Speaker 6: You have to remember, you know, Asia has the biggest population.
Speaker 6: So because these companies have got large online platforms, more
Speaker 6: than one third of their users who use metal properties
Speaker 6: or you know, Google apps, they're outside the US. That's
Speaker 6: where all of your user growth is. So if there
Speaker 6: is any pushback in terms of using US based products,
Speaker 6: that's gonna hurt.
Speaker 2: Hurt, Yeah, if a third of your market.
Speaker 7: Yeah.
Speaker 2: Now we've seen reports. I want to talk about AI,
Speaker 2: which which the last couple of times you've been here,
Speaker 2: that's all we talked about with these tech earnings. We've
Speaker 2: seen reports of some of these tech giants pulling back
Speaker 2: on leases for AI centers. You know, I mean, is
Speaker 2: are we at an inflection point right now or is
Speaker 2: it just kind of like, let's hold off on this
Speaker 2: capex on AI now and see how this plays out well.
Speaker 6: So two of the four big hyperscalers have reaffirmed their
Speaker 6: capex plans for the full year, and you know, Google
Speaker 6: and Amazon, they said, even with all the uncertainty, and
Speaker 6: this goes like two weeks back, so we had all
Speaker 6: this tariff turmoil going on, but they reaffirmed their capex,
Speaker 6: which goes to show that everyone is still very bullish
Speaker 6: on AI. You're still in the very early innings. They
Speaker 6: see a lot of potential with you know, AI driving
Speaker 6: a lot of their revenue growth down the line, and
Speaker 6: they want to be ahead in terms of investments. So
Speaker 6: I think what will be reassuring this quarter is just
Speaker 6: companies coming out and saying we still will continue to
Speaker 6: invest in AI. Could there be a digestion period in
Speaker 6: terms of, you know, building these large scale data centers. Possibly,
Speaker 6: That's what all these pauses and leases are suggesting, that
Speaker 6: there could be a small pause here and there. But
Speaker 6: the trend is still intact and I think you will
Speaker 6: see a very quick rebound the moment this uncertainty clears out.
Speaker 4: Just a pause, just a pause.
Speaker 2: One last thing, I want to talk about a lot
Speaker 2: of ramped up regulatory pressure on these tech giants, not
Speaker 2: just the US, but the EU especially, and how will
Speaker 2: that impact things.
Speaker 6: Well, right now, it feels like regulatory site may take
Speaker 6: a backseat because of all the tariff's situation and just
Speaker 6: you know, this week, Meta and Google were slapped to
Speaker 6: find by the EU. But that was a drop in
Speaker 6: the bucket. We're talking about seven hundred million euro whereas
Speaker 6: these companies have paid billions in dollars of fines. So
Speaker 6: from that perspective, it feels like you may see regulatory
Speaker 6: stuff take a backseat. But there is that pending case
Speaker 6: for Google in the US, you know, the monopolization case
Speaker 6: where they're asking for Chrome divestiture. I mean, to me,
Speaker 6: that is the big one, and the meta FTC. So
Speaker 6: the regulatory overhang is more within the US than outside
Speaker 6: the US, whereas previously, you know, these companies were kind
Speaker 6: of paying more fines outside the US.
Speaker 2: Wow, well, there's a lot going on and a lot
Speaker 2: to look forward to. Our thanks demand Deep, saying Bloomberg
Speaker 2: Intelligence senior tech industry analysts. Coming up on Bloomberg day
Speaker 2: Break weekend, we'll look ahead to local elections in the UK.
Speaker 2: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 2: day Break weekend, our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. Up later in our program, look ahead
Speaker 2: to a key economic reading from Beijing amid the uncertainty
Speaker 2: around US tariffs. But first, just over eight months since
Speaker 2: the Labor Party's emphatic victory in the UK general election,
Speaker 2: voters will have their first real chance to pass judgment
Speaker 2: on the party's progress. Polls around the country will open
Speaker 2: in the coming days as local elections get underway. But
Speaker 2: as Prime Minister Keir Starmer done enough so far to
Speaker 2: convince the British public for more, let's go to London
Speaker 2: and bring in Bloomberg Daybreak Europe anchor Caroline hepgar Tom.
Speaker 3: When kir Starmer was elected the first Labor prime minister
Speaker 3: in fourteen years, last summer, he said that a burden
Speaker 3: had finally been removed from the shoulders of this great nation.
Speaker 3: But in twenty twenty five, almost a year into his tenure,
Speaker 3: his government might be feeling more burdened than ever. Part
Speaker 3: of that weight comes in the form of concerns about
Speaker 3: limited economic growth. Just recently, the International Monetary Fund released
Speaker 3: a quote significant downward revision to its UK growth forecasts
Speaker 3: for the next two years, cutting them more than for
Speaker 3: any other leading European country. And that's amid increasing uncertainty
Speaker 3: about what President Donald Trump's tariffs will mean for the country.
Speaker 3: Despite the gloomy outlook, Bank of England rate setter Meghan
Speaker 3: Green has told Bloomberg that there could be some bright spots,
Speaker 3: whilst maintaining that uncertainty prevails.
Speaker 7: Look market pricing has moved around a whole lot over
Speaker 7: the past couple of weeks, and it's also worth pointing
Speaker 7: out that not all of that is focused on what's
Speaker 7: going on in the UK, so traditionally about a third
Speaker 7: of the moves in the gilt curve have been driven
Speaker 7: by things happening outside the UK. These days it's about
Speaker 7: half that's been driven by things happening outside the UK.
Speaker 7: So part of those moves I think reflect what's going
Speaker 7: on globally, and you know, we're just about to go
Speaker 7: into an interest right round, so we'll have to see.
Speaker 7: But I would highlight that those market moves don't all
Speaker 7: reflect to U fundamentals in the UK.
Speaker 8: Because what of the uncertainties If you look at you know,
Speaker 8: there seems to be a lot of disinflationary kind of
Speaker 8: impact from folly energy prices, we could dollar tightening, financial conditions,
Speaker 8: global demand. Does that point to a cont you know,
Speaker 8: in may.
Speaker 7: So that there are factors that are both inflationary and disinflationary.
Speaker 7: You know, I'm particularly concerned. We've had weakness and output
Speaker 7: for about nine months now and we're trying to figure
Speaker 7: out what the big driver of that is, whether it's
Speaker 7: demand or supply driven. I think there are reasons to
Speaker 7: think it's both actually, but I'm more concerned about the
Speaker 7: supply side and that actually on balance, would be inflationary.
Speaker 7: So that's part of it. When it comes to tariffs
Speaker 7: and the developments over the past couple of weeks. There
Speaker 7: again are both the inflationary and disinflationary impulses. So when
Speaker 7: it comes to tariffs, in particular for the UK, we're
Speaker 7: a small, open economy, right. The US is our biggest
Speaker 7: single country trade partner, but the EU of course is
Speaker 7: our biggest trade partner overall. So if you have export substitution,
Speaker 7: then that would tend to push down on growth and inflation.
Speaker 7: If you have trade diversion from other countries that are
Speaker 7: trying to find a new home for their markets, that
Speaker 7: also pushes down on inflation. But we saw during the
Speaker 7: pandemic that if you have a repatterning of supply chains,
Speaker 7: that can push up on inflation. And also if we
Speaker 7: have trade fragmentation writ large, then that tends to reduce
Speaker 7: knowledge spillovers, that reduces potential growth, That tends to be inflationary.
Speaker 7: So something you've mentioned was exchange rates, and those have
Speaker 7: not gone as the economic theory would suggest. Normally, if
Speaker 7: the US announces or imposes unilateral tarifs some other countries,
Speaker 7: the theory suggests the dollars should appreciate the opposite has
Speaker 7: actually happened, and so that in and of itself could
Speaker 7: be disinflationary for the UK, but courses I mentioned the
Speaker 7: EU is the UK's biggest trade partner in the Euro
Speaker 7: has appreciated, so net net, if you look at the
Speaker 7: kind of Sterling exchange rate index, the pounds up a
Speaker 7: little bit. There's a ton of uncertainty around this, but
Speaker 7: they are both inflationary and disinflationary forces.
Speaker 8: But are are you concerned about the the slight recent
Speaker 8: strength and pound does does that change? Actually, you know,
Speaker 8: tightening financial conditions, so it does.
Speaker 7: I mean the currencies have been moving a lot recently
Speaker 7: as well. We've also seen off the back of previous
Speaker 7: kind of structural shift af after the global financial crisis,
Speaker 7: after COVID, the d the dollar didn't always behave immediately
Speaker 7: as the theory would suggest. It weakened and then subsequently rebounded.
Speaker 7: So I think it's a bit too early to say
Speaker 7: kind of where the dust is gonna settle on currencies.
Speaker 7: But I will say if the dollar continues to depreciate uh,
Speaker 7: on balance, that would be uh disinflationary for the UK,
Speaker 7: and and if the opposite happens uh less.
Speaker 8: So So are y are you worried that? And you
Speaker 8: said in the past, actually that there's a danger that
Speaker 8: it could you know, muddy the water on inflation. The
Speaker 8: moves and pounds, so are you're worried that there could
Speaker 8: be a reverse and then it becomes an our broad
Speaker 8: pressure on inflation quite quickly, it could.
Speaker 7: Be that's right. You know, currency forecasters have the hardest jobs,
Speaker 7: second only to energy forecasters. And like I said, it's
Speaker 7: been really violatile. We're not quite sure where they dust
Speaker 7: will set off.
Speaker 3: So that was the Bank of England policy maker Meghan
Speaker 3: Green speaking to Bloomberg's Francine Laqua. Now, an economic resurgence
Speaker 3: was the central promise the Labor Party staked their whole
Speaker 3: election campaign on. But now as the prospect of growth
Speaker 3: moves further off into the horizon and the public face
Speaker 3: growing cost pressures, can the party count on keeping that support.
Speaker 3: It's something I put to Bloomberg opinion columnist Rosa Prints.
Speaker 3: We started by talking about Labour's track records so far.
Speaker 9: It's fair to say that they haven't had a great
Speaker 9: start to their time in office. Almost straight away their
Speaker 9: opinion poll ratings kind of fell off a cliff. You'll
Speaker 9: remember that Labor was elected on a bit of a
Speaker 9: landslide last summer, partly, I think because the Conservative government
Speaker 9: which had been in beforehand was extremely unpopular, so lots
Speaker 9: of people voted Labor to kind of get the Tories out,
Speaker 9: and I think maybe didn't fall massively in love with labor,
Speaker 9: and that was born out when just a month or
Speaker 9: two into their time in government their opinion polls started
Speaker 9: to go south as well. To be fair, they had
Speaker 9: a really tough hand. The economy was in all sorts
Speaker 9: of trouble. They had to deliver a budget that was
Speaker 9: very unpopular. People are feeling the pinch. So although they
Speaker 9: are doing pretty badly, the Conservatives haven't recovered either, so
Speaker 9: kind of everyone's doing badly at the moment.
Speaker 3: What's at stake during these elections then? Why do they matter?
Speaker 10: Well?
Speaker 9: I think they're fascinating elections. There aren't a huge number
Speaker 9: of seats up for grabs. It's one six hundred and
Speaker 9: forty one council seats. That's the local authorities who come
Speaker 9: of run things on the ground. There's also a by
Speaker 9: election to a Westminster seat and some mayoralties, so not
Speaker 9: a massive change of power. But I think it's just
Speaker 9: going to be so interesting to see what the new
Speaker 9: politics of the UK is because, as I said, no
Speaker 9: one party is really breaking through. You've got the Conservatives
Speaker 9: kind of bumping along on about twenty four percent, their
Speaker 9: usual Tory rivals doing a bit worse on about twenty
Speaker 9: one percent. And the real story I think of these
Speaker 9: elections is whether we can see a breakthrough for reform.
Speaker 9: That's the kind of upstart, quite right leaning populist party
Speaker 9: headed by you'll remember Nigel Farage who was the Brexiteer
Speaker 9: in chief during the Brexit wars. And not to forget
Speaker 9: the smaller parties. The Liberal Democrats did better than they
Speaker 9: had ever done before at the last election. They're on
Speaker 9: around fourteen percent, and you've got some Greens doing well
Speaker 9: and some kind of protest and independent candidates, particularly on issues.
Speaker 3: Like the How do you think that the kind of
Speaker 3: bigger picture is going to affect the local elections? How
Speaker 3: do you think that there's going to be that interplay
Speaker 3: between the local and the national.
Speaker 9: That's such a good question. How do we know how
Speaker 9: anyone votes? I think often what happens is that people
Speaker 9: maybe they don't pay attention to politics all that march.
Speaker 9: They've kind of got the party that they believe in,
Speaker 9: and that they always vote for, so they'll tend to
Speaker 9: vote along those traditional lines that they would do, say
Speaker 9: at a general election, unless something has happened in their
Speaker 9: area that they're particularly unhappy about, less commonly that they're
Speaker 9: particularly pleased about, And then it does come down to
Speaker 9: the performance of what they've been used to. So, for example,
Speaker 9: there's a terrible strike going on among refuse workers in
Speaker 9: the second biggest town of Birmingham, I think the people
Speaker 9: of Birmingham may feel differently about their labor council than
Speaker 9: if they hadn't had rubbish pile duff outside their homes
Speaker 9: for weeks. On the other hand, say a party like
Speaker 9: Reform almost quite new, so they don't really have hardly
Speaker 9: any counselors. So people won't be able to vote on
Speaker 9: their record, and it'll be whether they think that they
Speaker 9: can actually trust reform In to run things. You know,
Speaker 9: Reform hasn't got that record of managing things. Will people
Speaker 9: continue to see them as almost a protest vote, or
Speaker 9: will they actually trust them to run local services?
Speaker 3: I mean thinking about Birmingham reports of gigantic rats as
Speaker 3: a result of that strike and the rubbish in the
Speaker 3: streets that we've seen for weeks now in terms of
Speaker 3: the campaigns, what have they looked like for the major
Speaker 3: parties and how much effort do they put in.
Speaker 9: Just to give you a bit of context, So the
Speaker 9: last time these elections were held they held every four years,
Speaker 9: Boris Johnson was the Prime Minister and he was doing
Speaker 9: very very well. It was Boris Johnson was seen as
Speaker 9: being responsible for rushing through the COVID vaccine and the
Speaker 9: Conservatives did well. They sort of swept the ball to
Speaker 9: the extent that they are now defending most of the seats. Now,
Speaker 9: the problem with that is that they've got a long
Speaker 9: way to fall and given that, as I said, the
Speaker 9: last government was very unpopular. The party doesn't seem to
Speaker 9: have picked up any popularity since the election. If anything,
Speaker 9: it's gone the other way and is losing ground to
Speaker 9: the Tories. It looks like it will be a bad
Speaker 9: night for them now. That has meant a rather odd
Speaker 9: campaign because you've seen Kenmy Baidenock, the new leader of
Speaker 9: the Conservatives, kind of going around saying yes, it's going
Speaker 9: to be bad, We're going to lose lots of seats,
Speaker 9: which to the extent that you wonder if it will
Speaker 9: become a self fulfilling prophecy. Nigel Farage, on the other hand,
Speaker 9: he sees an opportunity here, so he's really going for
Speaker 9: those parts of the country where the Conservatives are unpopular.
Speaker 9: For example, he is around now campaigning in Kent in
Speaker 9: the town of Dover, where the Reform think that they
Speaker 9: can pick up votes. The Liberal Democrats are often strong
Speaker 9: in local government, often stronger than they are nationally. They've
Speaker 9: been having their leader, Davey, going out and doing his
Speaker 9: usual He likes to do lots of stunts for the
Speaker 9: television cameras and labor. They're kind of keeping a low profile,
Speaker 9: hoping that their current woes aren't translated and they don't
Speaker 9: lose too many seats. The expectation at the moment is
Speaker 9: that they did badly last time these seats were fought.
Speaker 9: They'll probably do about the same, but it's so hard
Speaker 9: to know because of that reform factor.
Speaker 3: And how much you think that the wider economy is
Speaker 3: going to affect the elections effectively. We know that, I mean,
Speaker 3: employment is still very strong in the UK, wages a
Speaker 3: bit more difficult for people, cost of living crisis for
Speaker 3: some people. Still continuing, how much do you think the
Speaker 3: economy and the economic backdrop will affect people's vote.
Speaker 9: I think the economy always affects people's votes. I think
Speaker 9: people are feeling the pinch and it's going to come
Speaker 9: down to who they blame for that. Now, the reason
Speaker 9: that the Conservatives became so suddenly unpopular and did so
Speaker 9: badly at the last election, I think can be traced
Speaker 9: back to the disaster that was Liz Trust and her
Speaker 9: brief premiership, and the Conservative never really recovered from that.
Speaker 9: Now Labor has spent their eight months in power kind
Speaker 9: of pointing to her and pointing to the last government
Speaker 9: and saying it's not our ful. We inherited a mess
Speaker 9: and we're doing our best. And I think what it
Speaker 9: comes down to is whether people on the ground believe
Speaker 9: that or whether they're fed up enough to shift over
Speaker 9: to reform. I don't see much time that people are
Speaker 9: ready to trust the Conservatives again.
Speaker 3: My thanks to Bloomberg Opinion columis Rosa Prince. Now we
Speaker 3: will have full coverage and analysis of the local election
Speaker 3: and its outcomes right here on Bloomberg and on our
Speaker 3: Bloomberg UK Politics podcast in the days ahead. I'm Caline
Speaker 3: Hepke in London. You can catch us every weekday morning
Speaker 3: for Bloomberg Daybreak. You at the beginning at six am
Speaker 3: in London. That's one am on Wall Street.
Speaker 2: Tom, Thanks Caroline, And coming up on Bloomberg day Break weekend,
Speaker 2: we'll look ahead to a key economic reading from Beijing.
Speaker 2: I'm Tom, and this is Bloomberg. This is Bloomberg day
Speaker 2: Break Weekend, our global look ahead at the top stories
Speaker 2: for investors in the coming week. I'm Tom Busby in
Speaker 2: New York. A key economic data point from Beijing this week,
Speaker 2: as uncertainty lingers over the US tariffs. Now for more,
Speaker 2: let's get to the host of the Daybreak Asia podcast,
Speaker 2: Doug Krisner.
Speaker 4: Tom. In the last week, the International Monetary Fund revised
Speaker 4: its annual growth forecast for China to just four percent
Speaker 4: this year, and it came with a warning the outlook
Speaker 4: could deteriorate further due to those US tariffs. Now in
Speaker 4: the week ahead, we'll get China's official PMI data. These
Speaker 4: readings will provide a measure of sentiment among businesses and
Speaker 4: how they view overall economic activity. The PMIS can provide
Speaker 4: an early indication of growth. Closer look. Now, I'm joined
Speaker 4: by Bloomberg's Chang Chu She is the chief Asia economist
Speaker 4: for Bloomberg Economics. Chang joins us from our studios in
Speaker 4: Hong Kong. Thank you for making time to chat with me.
Speaker 4: There's a lot to cover. I want to begin with
Speaker 4: the PMI data, Chang. What do you think we're going
Speaker 4: to learn from these numbers in the week ahead?
Speaker 10: Thank you Doug for having me on the program. Yes,
Speaker 10: it's the PMI reading for April is going to be
Speaker 10: very important. That's going to be the first reading since
Speaker 10: the elevated tariffs came into place. We suspect we're going
Speaker 10: to see dichotomy between the manufacturing and non manufacturing readings.
Speaker 10: On the manufacturing reading PMI, we could see damage, quite
Speaker 10: noticeable damage from the tariffs. At this point, we don't
Speaker 10: have very conclusive data from various sources. We could be
Speaker 10: uh looking at shipping data, for example, for prices and
Speaker 10: volumes in terms of shipping between the US and China.
Speaker 10: They are only showing something with a significant lag, and
Speaker 10: perhaps they are some indications, but not quite conclusive. We
Speaker 10: do hear a lot of stories of Chinese factories not
Speaker 10: taking any further orders from US customers, and some may
Speaker 10: even have stopped production. So uh, those data we don't
Speaker 10: have yet. So the PMI reading is quite important, and
Speaker 10: we do see potentially manufacturing PMI see a quite significant
Speaker 10: job in the activity. At this point, we're projecting the
Speaker 10: manufacturing PMI to drop into contractional territory from expansion of
Speaker 10: fifty point five in March to perhaps you know, around
Speaker 10: forty nine point eight sort of reading. So that's on
Speaker 10: the manufacturing side. But if we want to go into
Speaker 10: the non manufacturing side, we do see expansion to continue.
Speaker 4: Are we going to get any clues as to whether
Speaker 4: supply chains are being reconfigured in a way that China
Speaker 4: would be able to divert some shipments elsewhere into jurisdictions
Speaker 4: that don't have terrorf rates as high as China does
Speaker 4: coming into the US market.
Speaker 10: It's a good question, but a very tough one to answer.
Speaker 10: We here again on the ground, lots of stories firms
Speaker 10: on the ground that try neing to diversify the supply chains,
Speaker 10: maybe accelerating the move out of China, the move of
Speaker 10: the production facilities out of China. I think it's very hard,
Speaker 10: even over the longer term to look at the shift
Speaker 10: of supply chain. But it's going to be even tougher
Speaker 10: to pick up those trends from PMI data. So it's
Speaker 10: something that will keep looking out for. But unfortunately we
Speaker 10: don't have sufficient data to give any clarity on this issue.
Speaker 4: So when I think of the Chinese domestic economy, what
Speaker 4: I really think of is just a lack of demand.
Speaker 4: Is it too much to think that Beijing could try
Speaker 4: to stimulate demand in a way that would compensate for
Speaker 4: the reduction that the export economy is faced with right now?
Speaker 4: Or is that just in entirely out of the question.
Speaker 4: Is that an impossibility.
Speaker 10: It's very tough. It's very tough for the government to
Speaker 10: purely by stimulating the domestic econometer off sets the shock
Speaker 10: from the external demands. It certainly in the short term
Speaker 10: that's even tougher. Right, You have to think of different ways.
Speaker 10: The firms are trying different ways. Certainly they are diverting
Speaker 10: some of the were intended to be exports to divert
Speaker 10: some of that products domestically, and as you alluded to,
Speaker 10: they may think of rerouting the exports, but they offsets
Speaker 10: will not come that quickly. I think the government has
Speaker 10: certainly realized the importance of domestic demands and it has
Speaker 10: been doing something over the past a few months, and
Speaker 10: that's showing.
Speaker 6: Uh.
Speaker 10: Some improvement we do see in the first quarter in
Speaker 10: China's GDP growth was stronger than expected, and if we're
Speaker 10: looking to the March data, this improvement certainly on the
Speaker 10: production sites, but also on the demand side, as we
Speaker 10: saw quite noticeable improvement in consumption in retail cells. So
Speaker 10: we can see some positivity there. But I think it's
Speaker 10: too big a ask for domestic amount to immediately offset
Speaker 10: the external shock.
Speaker 4: So I mentioned that the IMF revised down its annual
Speaker 4: forecast for Chinese growth this year to around four percent annualized,
Speaker 4: And in the last week, your colleagues at Bloomberg Economics
Speaker 4: found that, based on a review of previous IMF forecast,
Speaker 4: the Fund tends to underestimate the depth of these economic downturns.
Speaker 4: So are you beginning to model a growth rate that
Speaker 4: is below four percent for twenty twenty five? I mean,
Speaker 4: clearly that's below what the government is shooting for. Is
Speaker 4: China really at risk of seeing something that is sub
Speaker 4: four percent growth?
Speaker 10: We have already downgraded our China forecast from four point
Speaker 10: five percent we projected at the beginning of the year
Speaker 10: from zero point two percent. The reason for the relatively
Speaker 10: modest downgrades of the forecast reflects a couple of considerations.
Speaker 10: First of all, as I already mentioned, in the first quarter,
Speaker 10: the growth was decent, was above a slighter above our projection,
Speaker 10: so that provides a bit of a cushion for the
Speaker 10: year as a whole. And secondly, we do see the
Speaker 10: government to strengthen its supports for the economy and that
Speaker 10: should help. But as we again discuss earlier, we don't
Speaker 10: think the supports come fully off set the dunting in
Speaker 10: excellental demands. So taking account in all those consituations, we
Speaker 10: have a modest downngrad of the projection. But we can
Speaker 10: come to the discussion clearly what the government is going
Speaker 10: to do, how they are going to support the economy,
Speaker 10: and how effective those policies stimulus will be will be
Speaker 10: very critical for China's growth trajectory going forward.
Speaker 4: It seems as though China is in a very vulnerable
Speaker 4: position right now, given the fact that these tariffs are
Speaker 4: so biting. Is there anything that could come out of
Speaker 4: this upcoming pollut Bureau meeting that would give the markets
Speaker 4: a sign that Beijing is willing to indu a long
Speaker 4: period of negotiation or is this something that is out
Speaker 4: of the question, and it's more likely that China over
Speaker 4: a short period of time will capitulate and kind of
Speaker 4: give in a little bit to what the US is
Speaker 4: demanding of it.
Speaker 10: Yeah, it's a very tough question. I think the Chinese
Speaker 10: side certainly is willing to talk, and it has and
Speaker 10: various signals, but it also laid down the conditions for
Speaker 10: discussions respect and I think the government it's something we
Speaker 10: have written in reports. There are various considerations why it's
Speaker 10: taking on these very tough stance, and it can be
Speaker 10: a simple sort of face issue you come back down
Speaker 10: and one thing you could be that China doesn't know
Speaker 10: at this point what's the US ones. So those are
Speaker 10: the domestic issues considerations. In the meantime, there's also the
Speaker 10: international dimension to it in this particular case, unlike in
Speaker 10: the First Street War, in China was the only one
Speaker 10: more or less the only one affected by tariff, but
Speaker 10: this time it's a wide range of countries, or indeed
Speaker 10: all the countries are facing tariffs, and all the countries
Speaker 10: except China are trying to talk to trying to talk
Speaker 10: to the US. So from again theory perspective, there's a
Speaker 10: risk when everybody tries, every country tries to talk to
Speaker 10: the US, China will end up having a worse deal,
Speaker 10: which is why China kind of takes this particular stance
Speaker 10: to push back strongly. So for various reasons, China is
Speaker 10: holding holding strong stands at this point, but I think
Speaker 10: it's still hoping to to at some point to be
Speaker 10: able to see them to talk to the US and
Speaker 10: get a trade deal to cut down the tariffs. But
Speaker 10: in the meantime, the Chinese economy certainly will suffer. There's costs,
Speaker 10: certainly from the U s side, but on the China side,
Speaker 10: the hit can be quite immediate on the export sector,
Speaker 10: which could spread to the rest of the economy. I
Speaker 10: think the government certainly is prepared for that, and in
Speaker 10: terms of the prelicted Bureau meeting, we think you will
Speaker 10: have to send quite strong signal that it's going to
Speaker 10: support the economy. And I think possibly, like you alluded
Speaker 10: to suggest, this is going to be a long enduring
Speaker 10: standoff with the US, and the government is prepared to
Speaker 10: support the economy.
Speaker 4: Chog thank you so much for joining us and helping
Speaker 4: us understand more of what's going on in the Chinese
Speaker 4: economy these days. Chang Chu is Chief Asia Economist at
Speaker 4: Bloomberg Economics. She was joining us from our studios in
Speaker 4: Hong Kong. I'm Deug Prisner. You can catch us weekdays
Speaker 4: for the Daybreak Asia podcast. It's available wherever you get
Speaker 4: your podcast. Tom, thank you, Doug.
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