Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories in the coming week from our Daybreak anchors
Speaker 2: all around the world. Straight ahead, on the program, we
Speaker 2: discuss some key economic data in the US and how
Speaker 2: it might impact FED policy moving forward, Plus a look
Speaker 2: at corporate earnings from the nation's largest department store chain.
Speaker 2: I'm Tom Busby in New York.
Speaker 3: I'm callin Hedger in London, where we're looking ahead to
Speaker 3: a key gathering of the biggest names in British business.
Speaker 4: I'm dek Krisner, looking ahead to next week's policy decision
Speaker 4: from the Bank of Korea, as well as the state
Speaker 4: of global trade.
Speaker 2: That's all it's truly had on Bloomberg Daybreak Weekend on
Speaker 2: Bloomberg eleven, TRIEO, New York, Bloomberg ninety nine to one, Washington, DC,
Speaker 2: Bloomberg ninety two to nine, Boston, DAB Digital Radio, London,
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Speaker 2: Bloomberg Radio, dot Com and The Bloomberg Business. A good
Speaker 2: day to you. I'm Tom Busby, and we begin today's
Speaker 2: program with some key data coming out in the US.
Speaker 2: In this holiday shortened week ahead, we get a second
Speaker 2: read on US third quarter GDP and a read on
Speaker 2: what Americans are earning and spending with October's Personal consumption
Speaker 2: Expenditures Price Index.
Speaker 5: That's a mouthful.
Speaker 2: How might this impact FED policy moving forward? For more,
Speaker 2: we're joined by Stuart Paul, us economist with Bloomberg Economics. Stuart,
Speaker 2: thank you for joining us. Now let's start with what
Speaker 2: you expect to see this Wednesday, the second estimate as
Speaker 2: far as Q three economic growth.
Speaker 6: So, as we saw in the first estimate, GDP growth
Speaker 6: ran at an annualized pace of two point eight percent,
Speaker 6: pretty robust in the third quarter. We still think that
Speaker 6: two point eight percent is about right, but there is
Speaker 6: room for an upward revision. When we look at the
Speaker 6: spending data that we saw over the past few months,
Speaker 6: there have been some upward revisions, especially at August and September,
Speaker 6: and so we can see the already exceptional pace of
Speaker 6: personal spending growth get revised up further to almost an
Speaker 6: annualized pace of four percent, beyond the actual number itself.
Speaker 6: What I think matter is most to the FED is
Speaker 6: where that spending is and some of the categories that
Speaker 6: were revised up were things like spending out at bars
Speaker 6: and restaurants, some of the more discretionary categories that show
Speaker 6: that people aren't raining in their spending habits as much
Speaker 6: as maybe the FED had expected given where rates were.
Speaker 6: And so when the FED is starting to think about
Speaker 6: where policy should go, and it takes into consideration what
Speaker 6: it is likely to see with these revisions, a potential
Speaker 6: upward revision to growth, the back of an upward revision
Speaker 6: to household spending, it's indicative that the FED should be
Speaker 6: maybe moving a little bit slower in its rate cut
Speaker 6: trajectory than it had previously planned.
Speaker 2: Well, let's go back to spending. So you think bars, restaurants,
Speaker 2: I imagine, back to school spending. I imagine also travel.
Speaker 2: Were there laggards and as it always come back to
Speaker 2: housing when it comes to laggards.
Speaker 6: Well, so what we're really looking at in next week's
Speaker 6: data is the revision two Q three data, and fortunately
Speaker 6: we have some monthly data that give us a little
Speaker 6: bit of an insight into what we can expect for
Speaker 6: the revision to the quarterly print. And when we look
Speaker 6: at those monthly figures, households really just were not as
Speaker 6: frugal in some of those discretionary categories as we had
Speaker 6: previously believed. And so the FED, when it started on
Speaker 6: its rate cut trajectory, now has fresher data in hand
Speaker 6: that shows well, at the time that you started making
Speaker 6: those cuts, we previously believed that households were starting to
Speaker 6: get a little bit more frugal, they were starting to
Speaker 6: get a little bit worried, so we started cutting rates. Well,
Speaker 6: now it turns out, based on some of the revisions
Speaker 6: that we've seen to the monthly data, maybe they haven't
Speaker 6: been as frugal as we thought. When we look at
Speaker 6: the quarterly data, there's room for that upward revision, and
Speaker 6: so the FED can sort of slow its pace of
Speaker 6: cuts going forward.
Speaker 2: Okay, got it. So people were emboldened by that do
Speaker 2: a little more spending with that first half a percent
Speaker 2: rate cut, exactly. All right, let's move on. Then. Also Wednesday,
Speaker 2: we get something I know you look at very closely,
Speaker 2: October's Personal Income and Outlayser Report PCE spending and personal income.
Speaker 2: What do you see? What are you looking at there
Speaker 2: and how is that related to that third quarter growth?
Speaker 6: So that third quarter growth, we're probably going to get
Speaker 6: a modest revision upward. And then on the same day,
Speaker 6: at the same time, we're going to get the October
Speaker 6: as you said, Personal Income and Outlayser Report, which really
Speaker 6: has three main components to it October personal spending, October
Speaker 6: personal income, and PCE inflation, the Fed's preferred gauge of prices.
Speaker 6: So taking those in order, we have some income data
Speaker 6: that again might make the FED want to slow its
Speaker 6: role just a little bit. Personal income growth likely increased
Speaker 6: at a monthly pace in October of zero point four
Speaker 6: percent per month. That's up from a pace of zero
Speaker 6: point three per in September. Now you might be thinking
Speaker 6: to yourself, we had such a dismal jobs report in October,
Speaker 6: how could it be that personal income is growing, but
Speaker 6: wages increase during the month, headcount increase just very slightly
Speaker 6: enough to boost labor income, and we also saw transfer
Speaker 6: payments from unemployment insurance claims and interest income likely increasing
Speaker 6: about one percent during the month. And that's enough to
Speaker 6: keep personal income growing at a pace that's a bit
Speaker 6: too hot for comfort for the FED to cut in
Speaker 6: these big chunks or even to cut maybe even twenty
Speaker 6: five basis points in October. And then the next major
Speaker 6: line item within that personal income and outlaser report spending October.
Speaker 6: Personal spending really supported by spending on autos. And then
Speaker 6: when we think about inflation, it's really auto price. Is
Speaker 6: vehicle prices that put the brakes on the disinflation process.
Speaker 6: We're expecting core PCEE inflation, the annual pace of core
Speaker 6: PC inflation to register two point eight percent in October.
Speaker 6: That's up from two point seven percent, where that figure
Speaker 6: had been lingering for about three months. So all these
Speaker 6: numbers sort of point to the Fed maybe needing to
Speaker 6: slow down just a little bit. It caught up to
Speaker 6: the curve with that fifty bases point cut early. We
Speaker 6: got another twenty five basis points off just during the month,
Speaker 6: and now when we're thinking about December and twenty twenty five,
Speaker 6: the Fed can move just a little bit slower as
Speaker 6: it cuts rates.
Speaker 2: FED Chair Jerome Palce said the bank is in no rush,
Speaker 2: no rush to lower that benchmark rate, and of course,
Speaker 2: as always, it's all data dependent, so he's put the
Speaker 2: signals out there. Don't get too excited, that's right.
Speaker 6: The keyword from all the Fed speak that we've heard
Speaker 6: over the past week has been cautious, cautious, cautious.
Speaker 2: Well, we got a lot of data dump this short
Speaker 2: this holiday shortened week ahead our thanks to Stuart Pohl,
Speaker 2: us economist with Bloomberg Economics. We move next to third
Speaker 2: quarter earning season, which may be winding down, but this
Speaker 2: Tuesday we hear from retail giant Macy's. How will those
Speaker 2: results position the chain ahead of the all important holiday
Speaker 2: shopping season. For more, we're joined by Mary Ross Gilbert
Speaker 2: Bloomberg Intelligence, senior equity analyst covering retail. Mary, thank you
Speaker 2: so much for joining us. Well, we know Americans continue
Speaker 2: to spend a lot of money. Have they been spending
Speaker 2: their money at Macy's, That's the question.
Speaker 7: Tom. They have been spending their money at Macy's, but
Speaker 7: not as much as they're spending money elsewhere. So with
Speaker 7: their third quarter numbers due out on Tuesday, we're expecting
Speaker 7: them to miss the top line estimates, and we think
Speaker 7: they'll probably beat on the profit line. They've done a
Speaker 7: really good job managing costs, managing inventories, and they've beat
Speaker 7: their earnings for the past eight quarters, so we think
Speaker 7: they beat again on the bottom line, but we think
Speaker 7: they miss on the top line. So we're showing they
Speaker 7: could miss consensus estimates for sales to decline about one
Speaker 7: and a half percent. We think it could decline more
Speaker 7: like maybe three to five percent, So we'll see when
Speaker 7: they go to report, But the big focus really will
Speaker 7: be once they come out with the results, what comparable
Speaker 7: sales look like. And while we think generally they'll be down,
Speaker 7: we're really looking for the first fifty stores that they've
Speaker 7: completely transformed. That means they've added personnel to the shoot
Speaker 7: apartment so they have more service, and also in women's
Speaker 7: apparel and men's apparel. So we think that with all
Speaker 7: the improvements that they made to the first fifty stores
Speaker 7: in the first two quarters of the year, they were
Speaker 7: able to show positive comps. So we're looking to see
Speaker 7: if they can still continue that trend in the third quarter,
Speaker 7: and that could show some encouraging signs as they seek
Speaker 7: to transform the business.
Speaker 2: So refreshed stores, more salespeople on the floor, designer brands,
Speaker 2: all of that adding up in the last couple of
Speaker 2: quarters to a little bump in sales. But we think
Speaker 2: is it the consumer, Is it Macy's what may have
Speaker 2: held back sale in the third quarter.
Speaker 7: Clearly department stores has been seeing a weakness there's been
Speaker 7: a trend away from department stores going toward more off
Speaker 7: price and also in the mass channel. So if you
Speaker 7: look at Walmart's numbers out, they reported robust results, exceeded
Speaker 7: estimates on the top line, and they indicated that two
Speaker 7: thirds of their beat was related to consumers who have
Speaker 7: come from households that earn over one hundred thousand. Now
Speaker 7: Macy's their core customer earns under one hundred thousand, so
Speaker 7: the largest contingent that shops Macy's. But they're shutting down
Speaker 7: about one hundred and fifty stores, so they sort of
Speaker 7: have two classifications. One would be the go forward stores.
Speaker 7: We really think that's the most important metric to look at,
Speaker 7: but we will also look at the fifty refresh store
Speaker 7: performance too as a sign of what could come in
Speaker 7: terms of improving performance. But generally the department store space
Speaker 7: has seen a decline, and looking at our transaction data
Speaker 7: early we only have fifteen days in their fourth quarter,
Speaker 7: but we haven't seen an improvement. One of the things
Speaker 7: that we've noticed in looking at this data is that
Speaker 7: October was pretty weak across the board, and we think
Speaker 7: it was because of unusual warm weather around the country
Speaker 7: and now that the weather has turned colder, that should
Speaker 7: improve outerwear sales, which are higher margin. But a change
Speaker 7: in weather is the number one reason why consumers will
Speaker 7: buy something new, according to a survey that we just
Speaker 7: conducted this week and published.
Speaker 2: Wow. And speaking of weather, how do you think Macy's
Speaker 2: was impacted by a series of devastating storms? I mean
Speaker 2: one affecting about a quarter of the country.
Speaker 7: That's exactly right, Florida, in North Carolina, but mainly Florida.
Speaker 7: So yes, they will be impacted by that. We saw
Speaker 7: that with tj X, which reported their results and again
Speaker 7: they beat, and they their guidance was sort of light,
Speaker 7: but they typically beat, so we think generally the news
Speaker 7: coming out of TJX was very positive. But they did
Speaker 7: say that they were impacted by the hurricanes and then
Speaker 7: also impacted by unseasonably warm weather in October. So we
Speaker 7: think we'll hear something similar to that when we get
Speaker 7: results out of Macy's.
Speaker 2: And now you talked about the discount stores Walmart. How
Speaker 2: is Macy's faring in online sales? And of course you
Speaker 2: know the big bugaboo there is Amazon.
Speaker 7: Yes, absolutely, well it's not just Amazon. If you look
Speaker 7: at Walmart, and Target. They both reported double digit increases
Speaker 7: in online sales, so they're actually doing really well on
Speaker 7: the e comm part. Now for Macy's, Macy's online sales
Speaker 7: are about, you know, sort of a little. It's over
Speaker 7: thirty percent, somewhere around that thirty three thirty four percent
Speaker 7: of sales is online, and that business has been doing okay.
Speaker 7: But again they're really more of an omni channel, Taylor.
Speaker 7: So you might have a consumer originated transaction and then
Speaker 7: pick it up in store. So I think it's going
Speaker 7: to follow the trend that the overall business is seeing
Speaker 7: generally in terms of increases.
Speaker 2: Wow, A lot to look forward to. Macy's Q three
Speaker 2: earnings out this Tuesday. Our thanks to Mary Ross Gilbert,
Speaker 2: Bloomberg Intelligence senior echoity analyst covering retail. Coming up on
Speaker 2: Bloomberg day Break weekend, we look ahead to a key
Speaker 2: gathering in the biggest names in British business. I'm Tom
Speaker 2: Busby and this is Bloomberg. This is Bloomberg day Break Weekend,
Speaker 2: our global look ahead at the top stories for investors
Speaker 2: in the coming week. I'm Tom Busby in New York.
Speaker 2: Up later in the program, we look ahead to a
Speaker 2: meeting from the Bank of Korea. But first, it's been
Speaker 2: an eventful year for British business, the first change in
Speaker 2: government in fourteen years, a pivotal autumn budget announcement, an
Speaker 2: uncertain g' your political environment. This week, entrepreneurs, finance leaders,
Speaker 2: politicians all convene at the Confederation for British Industry's annual
Speaker 2: conference to discuss what's ahead in twenty twenty five and
Speaker 2: for more, let's go to London and bring in Bloomberg
Speaker 2: day break, euro banker Caroline hepgar Tom.
Speaker 3: The UK's business leaders and politicians may be at odds
Speaker 3: on some matters, but both groups agree on one thing,
Speaker 3: the need for sustainable economic growth in Britain. It is
Speaker 3: something that has proven elusive in twenty twenty four, but
Speaker 3: with a new Labour government to out the country's helm,
Speaker 3: many are still hoping that next year will bring more prosperity.
Speaker 3: The Confederation for British Industry says that the problem is evident.
Speaker 3: The economy is faltering and firms are struggling to solve
Speaker 3: challenges without support. The group has also bemoaned the cost
Speaker 3: of doing business in the UK against the backdrop of
Speaker 3: unreliable supply chains and a declining stock market in London.
Speaker 3: In response, the Chancellor Rachel Reeves is doing her best
Speaker 3: to rev up the engine of industry. The Chancellor used
Speaker 3: her landmark mansion House address to announce a swathe of measures,
Speaker 3: including bringing bonus payments forwards for financial professionals and a
Speaker 3: reassessment of Posts two thousand and eight crisis regulation. But
Speaker 3: will her efforts be enough to spur growth given the
Speaker 3: uncertain backdrop? The threat of headwinds is something I've been
Speaker 3: discussing with the director of research at the think tank
Speaker 3: the Resolution Foundation, James Smith. I started off by asking
Speaker 3: him where the recent hard than expected UK inflation numbers
Speaker 3: are an indicator of worse to come.
Speaker 8: It's a pretty disappointing inflation release all round. As you say,
Speaker 8: inflation is up. We expected that.
Speaker 5: Because energy bills were going.
Speaker 8: Up some falls in the past, we dropping out of
Speaker 8: the twelvemonth calculation. But what we've seen is inflation tacking
Speaker 8: up a little bit. We've seen services inflation up from
Speaker 8: four point nine percent in September to five percent in October,
Speaker 8: and those underlying measures of inflation what really the Bank
Speaker 8: of England is watching.
Speaker 5: So those rises there.
Speaker 8: They're not big, but and they have been a little
Speaker 8: bit erratic in recent months, but still there's a disappointing
Speaker 8: release and doesn't really encourage us to think there's very
Speaker 8: rapid cuts and interest rates coming.
Speaker 5: Inflation still looks quite sticky.
Speaker 3: Okay, Yeah, in terms of the work that you have
Speaker 3: done then on the pressures that there might be for
Speaker 3: higher inflation, and also on the data, it's quite fascinating.
Speaker 3: We've known for two years that the official Labor for
Speaker 3: survey that's produced by the RNs has had significant problems.
Speaker 3: What do you think that the official data has missed
Speaker 3: because you know it's close to a million people.
Speaker 6: Maybe.
Speaker 7: Yeah.
Speaker 8: We've known for as you say, for quite some time
Speaker 8: that the Labor four Survey, the key measure of employment
Speaker 8: lad market quantities in the UK, has had problems of
Speaker 8: declining response rates. So what we've been doing is trying
Speaker 8: to figure out what the lad market might look like
Speaker 8: if you just use ADMIN data, so the HMRC Real
Speaker 8: Time Indicators measure of employment and HRC data on self
Speaker 8: employment to try and give you an overall sense of employment.
Speaker 8: And if you do that calculation, it suggests that as
Speaker 8: you say, something like a million more people might be
Speaker 8: in employment.
Speaker 5: So the laborforce.
Speaker 8: Ser they could be really seriously underestimating the amount of
Speaker 8: the extent of which people are in employment in the UK,
Speaker 8: and we really think, you know, that could be quite
Speaker 8: a big difference. We're not at all certain about what
Speaker 8: that level looks like. This is giving you a sense
Speaker 8: of where employment might be. But the key thing here
Speaker 8: is in terms of future inflation is if you look
Speaker 8: at measures of un employment, particularly unemployment relative to the
Speaker 8: amount of vacancies in the economy, the so called tightness
Speaker 8: of the labor market, this doesn't radically change your view there.
Speaker 8: So the counterpart to higher employment is lower inactivity. So
Speaker 8: the thing we've been talking about is lots of people
Speaker 8: falling out the labor market. If more people are in
Speaker 8: employment that we expect, then the obvious counterpart that would
Speaker 8: be the less of a problem on the inactivity side.
Speaker 9: I'm interested to hear more from you on that front,
Speaker 9: because this is a narrative that we've had in the
Speaker 9: UK since the pandemic, that so many more people were
Speaker 9: inactive in the workforce. Would looking at the calculations that
Speaker 9: you've done, I mean, how differently should we be thinking
Speaker 9: about that problem.
Speaker 8: Well, it's still clear that we have got a problem
Speaker 8: of higher levels of poor health, so more people say
Speaker 8: that they have stability. We certainly are paying more for
Speaker 8: this little benefit, so that that's not quite the same
Speaker 8: thing as a sort of survey.
Speaker 5: Measures of ill health.
Speaker 8: So there's still the types of problems we've been talking about.
Speaker 8: Those are still there, but the overall effect on in
Speaker 8: activity through higher employment might be quite a lot smaller.
Speaker 8: So there could be other things going on pushing down
Speaker 8: in activity. So more people in work or older people
Speaker 8: you know, without health problems, and more women participating in
Speaker 8: the labor market for example, could be the ways in
Speaker 8: which you reconcile those two estimates.
Speaker 3: How much does it mean that government policy has to shift?
Speaker 3: I mean only last month Kirs Starmer told the Labor
Speaker 3: Party conference that the long term sick needed to get
Speaker 3: back to work where they could, saying quote that he
Speaker 3: was talking to his Labour party. Obviously we have to
Speaker 3: do everything we can to tackle worklessness. Liz Kendall, who's
Speaker 3: the Working Pension Secretary, is meant to be launching big
Speaker 3: reforms of job centers later this then you know, the
Speaker 3: way that people get back into work sort of extraordinary.
Speaker 3: But it does mean that government policy that has flowed
Speaker 3: from this data probably has to change.
Speaker 8: I think the key thing here is that the government
Speaker 8: have said that they want to get the employment rate
Speaker 8: up to eighty percent.
Speaker 5: So that's a very ambitious target.
Speaker 8: You know, we were in the early seventies in terms
Speaker 8: of employment rate at the moment, but if the ADMIN
Speaker 8: measure of employment is to be believed, we're a lot
Speaker 8: closer to that target than we work previously. So we still,
Speaker 8: as I say, we still have a challenge in terms
Speaker 8: of the overall welfare bill for those receiving benefits related
Speaker 8: to health. So the set of policy issues that are there,
Speaker 8: and we be hearing about that in the budget with
Speaker 8: the chance of saying that she would continue to try
Speaker 8: and make cuts to disability benefits put.
Speaker 5: In place by her predecessor, Jeremy Hunt.
Speaker 8: So there are definitely, you know, still problems there that
Speaker 8: the government need to be addressed.
Speaker 5: But it's good news potentially for their if.
Speaker 8: More people are in work, more people are paying tax,
Speaker 8: and you know that's the kind of key counterpart to
Speaker 8: all this.
Speaker 3: That was the director of research at the Resolution Foundation,
Speaker 3: James Smith, speaking to me and Stephen Caroll on Bloomberg Radio.
Speaker 3: So growth is the name of the game. How to
Speaker 3: get there though, no doubt that will be the question
Speaker 3: on the lips of different sector leaders and influential voices
Speaker 3: at the upcoming CBI Industry Conference. I've been discussing what's
Speaker 3: ahead with Bloomberg's UK Business editor Julian Harris.
Speaker 10: I mean, it never ends for British businesses really. I
Speaker 10: guess you could say that in a lot of countries
Speaker 10: as well. Just as they think the coast is clear,
Speaker 10: something comes up. The latest thing, of course, was the budget.
Speaker 10: It was expected to be quite severe, but it probably
Speaker 10: went further than many expected, and the hit from tax
Speaker 10: is huge. It does depend what kind of business you are, though,
Speaker 10: and sometimes the CBI has been accused in the past
Speaker 10: of of just representing the biggest businesses in the UK
Speaker 10: and not focusing as much on the smaller ones. And
Speaker 10: then a hit from NI really depends on how the
Speaker 10: form of your business, how many staff you employed, how
Speaker 10: many of them are part time. So businesses are real
Speaker 10: link to a certain extent, but that there's certainly a
Speaker 10: big hit from costs.
Speaker 3: What do you think is the biggest concern for British
Speaker 3: businesses currently? Is it the new incoming US president. Is
Speaker 3: it the regulatory changes for example that Rachel Reeves announced
Speaker 3: that Manchin hows or is it that budget that is
Speaker 3: the big issue, perhaps something else.
Speaker 10: I think there are the things that they know about
Speaker 10: and that they can plan for, and then the things
Speaker 10: that they can't. So from most businesses that we speak
Speaker 10: to at the moment, when you talk about Trump and
Speaker 10: the thread of trade war and tariffs, they just kind
Speaker 10: of shrugged their shoulders and well, we don't know what's
Speaker 10: going to happen there. There's so many different factors in play. Obviously,
Speaker 10: if Trump did introduce all his tariffs that the effect
Speaker 10: would be huge. In the UK is so exposed to
Speaker 10: what happens internationally that it can't be neglected. And that's
Speaker 10: why we're seeing people like Rachel Reeves and even Andrew
Speaker 10: Bailey kind of almost evangelizing about free trade because that
Speaker 10: is what the UK needs. But business executives themselves are
Speaker 10: just saying, well, there's not a huge amount they can
Speaker 10: do about that. What they do know is happening are
Speaker 10: these changes from labor that we talked about, sort of taxes,
Speaker 10: but also the increase in the minimum wage, the workers
Speaker 10: rights packages, these things are all written down now and
Speaker 10: are coming down the line. The worker's rights one is
Speaker 10: still in negotiation, but the others can be planned for.
Speaker 10: But from a lot of businesses sort of we're hearing
Speaker 10: you know that the effect is very, very big. So
Speaker 10: they're figuring out how to manage that. Do they put
Speaker 10: up prices or do they try to stay competitive?
Speaker 3: There are a lot of different sectors of British business
Speaker 3: who are concerned post a budget. Do you think that
Speaker 3: the government is getting the tone right? What do you
Speaker 3: think businesses will be saying at this event. Obviously the
Speaker 3: Labor leadership courted business assiduously, but then business confidence absolutely
Speaker 3: slumped ahead of the budget, and then after the budget
Speaker 3: has as I said, a lot of different sectors have
Speaker 3: criticized Rachel Reeves's choices and decisions in the budget. What
Speaker 3: do you think the tone will be like?
Speaker 10: Yeah, I don't think they've got the tone right at all.
Speaker 10: And there has been a real change in the months
Speaker 10: since Labor came to power. So they had this sort
Speaker 10: of schmoozy event in Downing Street Garden shortly after their
Speaker 10: landslide victory and the mood was said to be absolutely buoyant.
Speaker 10: I mean it helped that it was summer and it
Speaker 10: was all very very positive and people, you know, business
Speaker 10: leaders were coming out of that and they were talking
Speaker 10: to journalists and being very upbeat. That's now really changed
Speaker 10: in terms of sectors you ask about, I mean a
Speaker 10: retail obvious one, hospitalities another, and there are business figures
Speaker 10: in those areas saying, you know, this really is not
Speaker 10: what we expected. We knew that there was going to
Speaker 10: be some fiscal adjustment, but the scale of it is
Speaker 10: far beyond what we thought. And there just seems to
Speaker 10: be a sort of lack of understanding from laboring in
Speaker 10: terms of how kind of devastating that can be, and
Speaker 10: Labour's emphasize growth so much, and a lot of people
Speaker 10: in business are saying, well, well, how can the economy
Speaker 10: grow when you're imposing these costs on it?
Speaker 5: It doesn't really make sense.
Speaker 10: At the same time, like Reeves has been very positive
Speaker 10: towards the city, so there are some people in the
Speaker 10: city who are probably quite happy, but that's very different
Speaker 10: from say, supermarket CEOs.
Speaker 3: My thanks to Bloomberg's Julian Harris for looking ahead to
Speaker 3: the CBI's annual conference. In recent days, they've talked about
Speaker 3: how the UK economy stalled over the third quarter. Uncertainty
Speaker 3: ahead of the budget probably played a big part in
Speaker 3: their words and their expectations that bompier inflation will rule
Speaker 3: out the prospect of a faster pace of Bank of
Speaker 3: England rate cuts in the year ahead. So it'll be
Speaker 3: an interesting moment then to get the temperature of business
Speaker 3: leaders and their biggest trade group in the next few days.
Speaker 3: And we will have full coverage of the gathering in
Speaker 3: central London here on Bloomberg Radio. I'm Caroline Hepkeitt in London.
Speaker 3: You can catch us every weekday morning for Bloomberg Daybreak.
Speaker 3: Youre at beginning at six am in London. That's one
Speaker 3: am on Wall Street.
Speaker 2: Tom, Thank you, Caroline, and coming up on Bloomberg day
Speaker 2: Break weekend and look ahead to a Bank of Korea meeting.
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. This past week, the IMF lowered it's
Speaker 2: forecast for South Korea's economic growth, pointing to rising headwinds
Speaker 2: facing the export reliant nation. Those are the same headwinds
Speaker 2: that'll be weighed by the country seven central bankers this week,
Speaker 2: and for more, we turned to the host of the
Speaker 2: Daybreak Asia podcast, Doug Krisner.
Speaker 4: Tom in the coming week, we'll get a great decision
Speaker 4: from the Bank of Korea. Now, the bok has recently
Speaker 4: tilted toward cutting rates, so question will the duvishnists prevail
Speaker 4: in the coming days. For a closer look, I'm joined
Speaker 4: by Paul Jackson, Bloomberg Asia Eco GUV editor. Paul joins
Speaker 4: from our studios in Tokyo. Help me understand the dynamic.
Speaker 4: I really enjoy talking with you because you're so abreast
Speaker 4: of everything that's happening, not just in South Korea but
Speaker 4: Japan as well. Last month, the Bokay cut rates for
Speaker 4: the first time in more than four years, and it
Speaker 4: seemed at that time that it was really the concern
Speaker 4: over the weakness in the economy that outweighed concern about
Speaker 4: high household debt. Is that going to continue to be
Speaker 4: kind of the underlying fabri here, the basic assumption that
Speaker 4: we should be making.
Speaker 11: Yeah, I think going forward it's going to be on
Speaker 11: this rate cutting path. I think next week's meeting we're
Speaker 11: going to have a hold. I think it's one of
Speaker 11: those classic central bank Okay, let's wait and monitor and
Speaker 11: see how the impact of our previous decision filters through
Speaker 11: the economy. So I think it's hold for now, and
Speaker 11: then the rate cuts start again next year, probably in January,
Speaker 11: and economists are forecasting three rate cuts next year. But
Speaker 11: of course we do have the emergency of Donald Trump,
Speaker 11: which is getting some economists to change their views of
Speaker 11: how the Bank of Career will act.
Speaker 4: Before we get to the issue of US South Korean trade,
Speaker 4: talk to me a little bit about the inflation story
Speaker 4: as we understand it right now for South Korea. Are
Speaker 4: things under control at this point?
Speaker 11: I think think that if you look at the statement
Speaker 11: that came out in October, the policymakers on the board
Speaker 11: said that sees clear signs of stabilization in the inflation trend.
Speaker 11: We saw it slow below two percent in September and
Speaker 11: even further in October. So I think the checkbox of
Speaker 11: inflation is marked. But the matrix of calculations, the calculus
Speaker 11: for the Bank of Career is rather complicated because we've
Speaker 11: got this household debt that you alluded to, and obviously
Speaker 11: you want to keep the rates, you know, relatively high
Speaker 11: and restrictive to stop that trend continuing. Also, you know
Speaker 11: the currency remains weak, and of course you know you
Speaker 11: cut the rates, that's going to encourage further weakness in
Speaker 11: the currency going forward. On the side in favoring cutting rates,
Speaker 11: obviously you've got the economic growth.
Speaker 1: Now, you know, the.
Speaker 11: Economy is ticking over well over two percent growth does
Speaker 11: seemed too bad for many economies. I think Japan would
Speaker 11: jump at those kind of figures. But if you look
Speaker 11: at the trend of Korean growth for the economy over
Speaker 11: the last ten years, it's usually around two point six percent.
Speaker 11: That's been the average over the last ten years. If
Speaker 11: you go back to twenty ten, it's like averaging three
Speaker 11: point one percent. So it's looking a bit anemic. And
Speaker 11: one of the key things here is that the Korean
Speaker 11: economy is very, very reliant upon export performance. You know,
Speaker 11: we're talking exports. So the equivalent of forty percent of
Speaker 11: GDP in South Korea. Now look over the over in
Speaker 11: Japan and the figures closer to twenty percent, which speaks
Speaker 11: to a kind of broader economy that they have over
Speaker 11: in Tokyo. So for South Korea. You know what happens
Speaker 11: to the exports going down the line, and you know
Speaker 11: the policy that is implemented by Donald Trump. You know
Speaker 11: that has key implications for growth going forward.
Speaker 4: So protectionism obviously is a theme that mister Trump has
Speaker 4: been touting, and it would make I would imagine a
Speaker 4: very strong case in the future for deeper raid cuts
Speaker 4: from the b Okay right to make up for what
Speaker 4: you're expecting to see as a drag on exports. Do
Speaker 4: I have that right?
Speaker 11: That's right? So, I mean if the Trump administration were
Speaker 11: to go ahead with your sixty percent tariffs on Chinese
Speaker 11: goods and twenty percent blanket rate for the rest of
Speaker 11: the world, and of course we imagine this is kind
Speaker 11: of like your starting point for negotiation. Remember it's all
Speaker 11: the art of the deal, right. However, if he actually
Speaker 11: ended up coming out at that extreme, Bloomberg Economics estimates
Speaker 11: that South Korean exports to the US would fall by
Speaker 11: fifty five percent by twenty twenty eight. So that is
Speaker 11: a concerning figure, as you can imagine, and that's also
Speaker 11: leading into Bloomberg Economics predicting more rate cuts now that
Speaker 11: Donald Trump has been voted in they're seeing four cuts
Speaker 11: in twenty twenty five and another one to follow up
Speaker 11: in early twenty twenty six.
Speaker 4: So you mentioned the behavior of the currency, and I
Speaker 4: have to ask, because I know the BOKA monitors the
Speaker 4: financial system quite closely in South Korea, how is that
Speaker 4: holding up? I mean, has there been volatility right now,
Speaker 4: particularly since the US election or are things fairly stable?
Speaker 8: No?
Speaker 11: No, we have had quite a lot of high volatility.
Speaker 11: We're around close to this one thousand, four hundred mark
Speaker 11: the Korean one to the dollar. That scene as kind
Speaker 11: of it's not exactly a line in the sand, but
Speaker 11: it's certainly seen as a very weak level. I think
Speaker 11: back in twenty twenty two we got up to four
Speaker 11: hundred and fifty, so any moves in that direction will
Speaker 11: be a cause of concern. And of course Korea does
Speaker 11: tend to dip into the market to try and smooth
Speaker 11: over movements in the currency. Does spend billions of dollars
Speaker 11: doing this, and recently it was added to the US
Speaker 11: Treasury's monitoring list for special attention in terms of its
Speaker 11: currency policy.
Speaker 4: Paul, thanks so much for your time. That's Paul Jackson,
Speaker 4: Asia Eco, guv editor for Bloomberg News. Joining us from Tokyo.
Speaker 4: We move next to global trade. As President electromp builds
Speaker 4: out his cabinet, there are questions as to whether or
Speaker 4: not he will make good on his campaign promise for
Speaker 4: those sweeping tariffs, specifically those targeting China. We are joined
Speaker 4: now by Katherine Thorbeck, tech columnist for Bloomberg Opinion. She
Speaker 4: joins us from our studios in Tokyo. Catherine, you write
Speaker 4: that Trump's policies will only strengthen Beijing's push for self sufficiency.
Speaker 4: When I read that, I immediately thought, semiconductors. Is that
Speaker 4: what you're alluding to.
Speaker 1: So semiconductors is sort of a big part of this,
Speaker 1: and I think that's probably the strongest argument from the
Speaker 1: US side, that you know, China won't be able to
Speaker 1: get ahead. But at the same time, I think, you know,
Speaker 1: there was new research from my Bloomberg Economics and Bloomberg
Speaker 1: Intelligence colleagues that came out last month that said, you know,
Speaker 1: despite years of sanctions and export controls and all of
Speaker 1: these US efforts to sort of hold China back, it's
Speaker 1: still made pretty good headway in terms of sort of
Speaker 1: dominating industries of the future and sort of leading the
Speaker 1: US in the tech race. It's still behind in some areas,
Speaker 1: but it's it's made some significant gains and other sort
Speaker 1: of strategic areas. And I think chips, whether it can
Speaker 1: catch up in chips will sort of ultimately decide if
Speaker 1: it does come out ahead. But I think right now,
Speaker 1: the US I think historically has had a sort of
Speaker 1: tendency to underestimate China, and I worry that when it
Speaker 1: comes to the current you know, battle for tech supremacy,
Speaker 1: that's that's not a good thing to do at this juncture.
Speaker 4: So what do we know about the extent to which
Speaker 4: President Chi jinping has been allocating resources to a lot
Speaker 4: of these industries, whether it's semiconductors or anything that may
Speaker 4: be kind of connected to that ecosystem.
Speaker 1: So I think when Xi jinping has signaled that something
Speaker 1: is a strategic priority for the country, he really has
Speaker 1: the power to sort of move a lot of levers
Speaker 1: to you know, to boost these industries. And I think
Speaker 1: how the US plays into this and and sort of
Speaker 1: one example is, you know, Huawei. The US really went
Speaker 1: all out, and this started under Trump's first term to
Speaker 1: sort of you know, strangle Huawei and make sure that
Speaker 1: it doesn't get ahead, and there was a point when
Speaker 1: it really seemed like Huawei was done for. But then
Speaker 1: Xijinping and Beijing got involved and sort of use their
Speaker 1: muscles to sort of prop up its own you know,
Speaker 1: domestic tech giant, and now by a lot of measures,
Speaker 1: Huawei is sort of stronger than ever. And I think
Speaker 1: that the US should should be careful with how it
Speaker 1: sort of attacks these you know, Chinese tech industries because
Speaker 1: in some senses, it's coming back stronger.
Speaker 4: You're going to test my memory here because as I recalled,
Speaker 4: during the first administration, it wasn't Tuahwei, it was Zte,
Speaker 4: and the concern was that some of this telecom equipment,
Speaker 4: the devices that these companies manufactured, the concern was there
Speaker 4: may have been firmware embedded in those chips that could
Speaker 4: potentially be used by actors in China to spy on communications.
Speaker 4: And as I also recall, the Trump administration tried to
Speaker 4: gather other countries to think similarly about what the Chinese
Speaker 4: may have the capability to do, and they were trying
Speaker 4: to curtail usage of Huawei or Zte products in telcosystems globally, right.
Speaker 1: Right, So, I think the Zte example is actually a
Speaker 1: really interesting example specifically for Trump, because he sort of
Speaker 1: has a history of flip flopping when it comes to
Speaker 1: issues related to China's tech sector specifically and ZTE, for example,
Speaker 1: you know, it faced punishments from Washington for violating sanctions,
Speaker 1: and then Trump actually tried to lift those actions, and
Speaker 1: he announced this in a tweet at one point saying
Speaker 1: it was because too many Chinese jobs were lost, which
Speaker 1: he he sort of faced a lot of criticism for,
Speaker 1: and then later he said that he was actually negotiating
Speaker 1: a broader trade deal with She and that this this
Speaker 1: move to sort of save ZT essentially was especially reflective
Speaker 1: of his what he said at the time was his
Speaker 1: close personal relationship with She. So I think for Trump,
Speaker 1: it's like he focuses a lot on sort of transactions
Speaker 1: and deal making, and there's a lot of uncertainty when
Speaker 1: it comes to, you know, what he will actually do
Speaker 1: and sort of going off that. I think another sort
Speaker 1: of more recent high profile u turn that we've seen
Speaker 1: Trump do when it comes to Chinese tech is on TikTok,
Speaker 1: which you know, he initially in his first term sort
Speaker 1: of spearheaded a lot of the scrutiny on TikTok in Washington.
Speaker 1: You know, he signed an executive order that would ban
Speaker 1: it in the US because of these perceived national security
Speaker 1: concerns over its parent company being a Chinese parent company,
Speaker 1: Bye Dance, And he sort of tried to broker a
Speaker 1: sale of TikTok in the US and that ultimately didn't
Speaker 1: go through and his executive orders didn't hold up in court.
Speaker 1: But you know, if you flash forward to two earlier
Speaker 1: this year, President Biden actually signed legislation that would once
Speaker 1: again force TikTok to divest from its Chinese parent company
Speaker 1: or face a US ban. And then on the campaign trail,
Speaker 1: Trump posted a video to his True social platform where
Speaker 1: he said, you know, if you want to save TikTok
Speaker 1: in the US, you should vote for me. So he
Speaker 1: really campaigned on actually saving TikTok, which is a little
Speaker 1: bit confusing, but at the same time it's it sort
Speaker 1: of shows this tendency of him to sort of flip flop.
Speaker 1: And I think it's interesting because you know, he historically
Speaker 1: hasn't necessarily been a huge national security hawk when it
Speaker 1: comes to China. You know, he campaigned a lot on
Speaker 1: the economy and on sort of you know, the prices
Speaker 1: that Americans are feeling. But he's surrounded himself in his cabinet,
Speaker 1: or it seems like he's surrounding himself with some real
Speaker 1: sort of China security hawks, you know, from Marco Rubio
Speaker 1: to Mike Walls. So it's going to be interesting to
Speaker 1: see how this plays out if he can, you know,
Speaker 1: sort of bring his art of the deal making to this,
Speaker 1: you know, US technology at US China Tech race what
Speaker 1: sort of ends up on the negotiating table and what
Speaker 1: sort of becomes bargaining chips.
Speaker 4: Catherine, I appreciate you taking the time to chat with us.
Speaker 4: Katherine Thorbeck is Bloomberg Opinion columnists, joining us from our
Speaker 4: studios in Tokyo. You can read her work and other
Speaker 4: stories from Bloomberg Opinion at Bloomberg dot com, slash Opinion,
Speaker 4: or on the terminal by typing opin than the Green
Speaker 4: go Key. I'm Doug Krisner. You can catch us weekdays
Speaker 4: for the Daybreak Asia podcast. You can find us on Apple, Spotify,
Speaker 4: the Bloomberg Podcast YouTube channel, or 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 Buzby. Stay with US. Top stories and global
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