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: looked to some key inflation data and the US. I'm
Speaker 2: Nathan Hager in Washington.
Speaker 3: I'm Caroline Hepkit in London, where we're looking ahead to
Speaker 3: talk in Paris about sharing France's nuclear capabilities with other
Speaker 3: European countries.
Speaker 4: I'm Doug Chrisner looking ahead to legislative elections in Vietnam.
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 Nathan Hager. We begin today's
Speaker 2: program with some key inflation data in the US. The
Speaker 2: Consumer Price Index for the month of February comes out
Speaker 2: on Wednesday at eight thirty am Wall Street Time. For
Speaker 2: a look ahead to the numbers and what they could
Speaker 2: mean for Fed policy. We're joined by Bloomberg News senior
Speaker 2: strategist Edward Harrison, the author of Bloomberg's The Everything Risk newsletter.
Speaker 2: Ed It's great to speak with you, And of course,
Speaker 2: after we just got that big surprise on February jobs,
Speaker 2: what's the risk of a market surprise on the inflation front?
Speaker 5: Hey, Nathan, I think the risk is there. Certainly, the
Speaker 5: risk is probably less there for CPI than it is
Speaker 5: for the PCE index, which is the one that the
Speaker 5: Fed really tracks more closely. Given the fact that we
Speaker 5: have this war in Iran, I think they might look
Speaker 5: through some of the gasoline prices and look towards the core,
Speaker 5: you know, not including food, not including energy. And so
Speaker 5: the numbers to look.
Speaker 6: For are the core for.
Speaker 5: CPI, which is the Bloomberg Economist estimate is at two
Speaker 5: point four percent on average, and the estimates that we
Speaker 5: have for the PCE core, however, are three point one percent.
Speaker 5: So that's the number that to key in on for
Speaker 5: this week, because that's the highest number of the numbers
Speaker 5: that we're looking at.
Speaker 2: Why are we seeing that dispersion ed between what the
Speaker 2: FED keeps its zion and what really matters to the
Speaker 2: American consumer. The CPI number that we're getting this week.
Speaker 5: Yeah, well, you know, I think a lot of it
Speaker 5: has to do with the different measures of that go
Speaker 5: in that play into those particular indices. And what the
Speaker 5: FED said in the past is that the PCE number
Speaker 5: is more reflective of the overall trend of the economy.
Speaker 5: And one of the reasons that they're using the core
Speaker 5: as the number that they're watching more closely is to
Speaker 5: rule out vital food and energy prices that irrespective of
Speaker 5: what's happening in Iran, are going to move around irrespective
Speaker 5: and so you know, they want to look at what's
Speaker 5: the trend level. And if the trend levels three point
Speaker 5: one percent it was three percent in the in December,
Speaker 5: which is the last reading that we got for PCE,
Speaker 5: then that's really not a level at which they would
Speaker 5: feel comfortable cutting interest rates. Suddenly we're starting to think about,
Speaker 5: you know, an extended hold and potentially the next move
Speaker 5: being a rate hike, not a cut.
Speaker 2: Even after that surprise drop in jobs numbers that we
Speaker 2: saw just this past week in the February number.
Speaker 5: Yeah, so that number that we saw this past week,
Speaker 5: it points to what I would called stagflation light. That
Speaker 5: means that not only do we have inflation, but we
Speaker 5: also have slowing growth. And this is something that's very
Speaker 5: difficult for the FED to deal with because you know,
Speaker 5: they're looking at inflation and their ability to stop inflation,
Speaker 5: but then when growth is slowing at the same time,
Speaker 5: their hands are tied because the inflation is already elevated.
Speaker 2: If we do continue to see a prolonged conflict in
Speaker 2: the Middle East, could that have knock on effects on
Speaker 2: overall inflation if we continue to see energy prices elevated
Speaker 2: like they are right now.
Speaker 5: Yes, I think it could, Nathan, I think that if
Speaker 5: you have a protracted conflict, it could add to inflation expectations,
Speaker 5: not just for the next year, but it could get
Speaker 5: you a sense that inflation is trending higher. Since we
Speaker 5: already have this core PCE number that I've been talking
Speaker 5: about at three percent, suddenly, you know, mindsets change and
Speaker 5: people start thinking this could be in for the long
Speaker 5: haul as sort of an inflationary number that we're going
Speaker 5: to have. Let me just say, by the way, that
Speaker 5: we've been above the fed's target for five years now,
Speaker 5: so we're getting to a point where that inflationary mindset
Speaker 5: starts to creep.
Speaker 2: In, which raises the question I think you're alluding to
Speaker 2: about whether inflation expectations may be coming unanchored now, Is
Speaker 2: that what you're getting at?
Speaker 5: Yeah, that's exactly what I'm getting at. What we've seen
Speaker 5: thus far is that inflation expectations haven't been unanchored. That
Speaker 5: even in the beginning stages of this particular conflict in
Speaker 5: the Middle East. You know, if you look at break evens,
Speaker 5: that's the number that gets you between inflation protected securities
Speaker 5: and treasuries. And if you look at swaps rates in
Speaker 5: the market that show you, you know, what expectations are
Speaker 5: in two years or five years. You know, the longer
Speaker 5: term ones, five years, ten years, those expectations have remained
Speaker 5: a solid It's when those go off that the FED
Speaker 5: is most concerned.
Speaker 2: Thank you, Ed, As always, that's Edward Harrison, senior strategist
Speaker 2: at Bloomberg News, author of Bloomberg's The Everything Risk newsletter.
Speaker 2: Let's take a look now at some stocks making news
Speaker 2: in the week ahead. I'm Nathan Hager, joined by Bloomberg
Speaker 2: Equities reporter Matthew Griffin. On another week where we're going
Speaker 2: to see some pretty big names reporting earnings starting on Tuesday,
Speaker 2: when we'll be in the cloud with Oracle. Could we
Speaker 2: see a benefit for Oracle from the AI spending boom, Matthew.
Speaker 7: Well, Nathan, I think that is the question that is
Speaker 7: going to be front and center of investors' minds because
Speaker 7: the huge outlays on AI from Oracle have been greeted
Speaker 7: enthusiastically on Wall Street in the past and have been
Speaker 7: punished on Wall Street. I mean, you just look at
Speaker 7: what the stock did in twenty twenty four, up sixty
Speaker 7: one percent, a twenty percent boost last year. All of
Speaker 7: this AI spending, their move to position themselves as an
Speaker 7: AI cloud provider, made Oracle a darling on Wall Street.
Speaker 7: But after that you have had questions arise about what
Speaker 7: the return is going to be on this spending. The
Speaker 7: stocks now down about fifty percent from its September record high,
Speaker 7: and you actually saw the shares plunge in December after
Speaker 7: the company raised its spending on data centers. So they're
Speaker 7: reporting in a moment where this is really a question.
Speaker 2: And the reporting in a moment where we've just heard
Speaker 2: in the last few days that Oracles has plans to
Speaker 2: cut thousands of jobs just ahead of this earnings report,
Speaker 2: what more do investors want to see from Larry Ellison's company?
Speaker 7: Matthew, Yes, I think they're going to be looking again
Speaker 7: at this cost benefit payoff. I mean, you have analysts
Speaker 7: looking for revenue growth here they see just under sixteen
Speaker 7: billion dollars of revenue versus fourteen billion in the year
Speaker 7: ago quarter. And I think that's also at the heart
Speaker 7: and center of whether these tens of billions of dollars
Speaker 7: of capital expenditure are going to pay off on the
Speaker 7: top and ultimately the bottom line. You see that in
Speaker 7: the reports of some of the Magnificent seven companies this quarter,
Speaker 7: where again it's it's the question not just of are
Speaker 7: you spending are you an AI player, but are you
Speaker 7: generating revenue to fund those expenditures. The job cuts are
Speaker 7: actually aimed at freeing up money to pay for capital
Speaker 7: expenditures for the AI boom. That's what people familiar with
Speaker 7: the matter have told us. So again, I think investors
Speaker 7: are going to be looking for both sides of the
Speaker 7: ledger there.
Speaker 2: And we're gonna hear another side of the AI story.
Speaker 2: I think probably on Thursday when Adobe reports. I gotta
Speaker 2: think this is one of those stocks that's been caught
Speaker 2: up in the question about whether software companies are going
Speaker 2: to be hit by the AI disruption.
Speaker 7: Yes, Nathan, Adobe shares have tumbled actually during what investors,
Speaker 7: the atalysts have started to call these SaaS apocalypse, this
Speaker 7: giant selloff in software stocks. Adobe's shares again, you think
Speaker 7: about this happening in the last couple of months, but
Speaker 7: these concerns have really been swirling for a while. Adobe
Speaker 7: down about twenty percent year to date, but actually got
Speaker 7: a really lukewarm reception on Wall Street back in December,
Speaker 7: even though they had a pretty upbeat forecast, because you
Speaker 7: already had people questioning do the numbers matter now if
Speaker 7: what you do can be replicated by cheap AI tools?
Speaker 7: So the commentary on that may be as important, you know,
Speaker 7: whether the company sees itself as shielded as any actual
Speaker 7: number they report.
Speaker 2: And has there been a question as well about whether
Speaker 2: the AI tools that Adobe says it has are going
Speaker 2: to have their own payoff. It's been kind of dealing
Speaker 2: with that struggle as well, hasn't it.
Speaker 7: Yes, absolutely so. I was looking at what analysts were saying,
Speaker 7: and what Piper Sandler says is investors are going to
Speaker 7: be honing in on metrics related to how much money
Speaker 7: the company is making from AI. Now, they do see
Speaker 7: that the stock may be de risked here. The company
Speaker 7: has given guidance, you know, taking a step back again.
Speaker 7: The shares have slid, and so they actually see that
Speaker 7: there could be some upside here if AI adoption is
Speaker 7: better than expected. But yes, I think you're absolutely right.
Speaker 7: That's a key question for investors.
Speaker 2: And along with those marquee names in the tech space,
Speaker 2: we're going to hear from a big name in retail
Speaker 2: when Cole's opens its books. I guess the question here
Speaker 2: is how's the consumer doing?
Speaker 7: Yes, absolutely, Cole's is the latest big consumer name. They
Speaker 7: are estimated to report next week. And you know, the
Speaker 7: question of the health of the American consumer is really
Speaker 7: another thing that's front and center for investors' minds. As
Speaker 7: if they didn't have enough to think about, you know,
Speaker 7: you think about us unexpectedly shedding jobs. You've had this
Speaker 7: idea that consumers are trading down, but actually Coals so
Speaker 7: far has held up against this backdrop. They raised their
Speaker 7: full year outlook in November because consumers had shown that
Speaker 7: they were willing to spend on brands that they really wanted.
Speaker 7: And so again, so far Cole's has been a relative
Speaker 7: winner here. But I don't think investors see that as
Speaker 7: a guarantee, and they're going to be looking closely at
Speaker 7: consumer and I think again at the commentary from executives
Speaker 7: about whether the consumer's under pressure, what that looks like.
Speaker 2: Yeah, another a very busy week once again on the
Speaker 2: earnings front. Thank you for this, Matthew, great having you
Speaker 2: on with us. That's Bloomberg Equities reporter Matthew Griffin, And
Speaker 2: coming up on Bloomberg day Break weekend, we'll look ahead
Speaker 2: to Tuks in Paris on spreading France's nuclear umbrella across Europe.
Speaker 2: I'm Nathan Hager, 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 Nathan Hager
Speaker 2: in Washington. Up later in our program, we look ahead
Speaker 2: to legislative elections in Vietnam. But first, Europe's defense debate
Speaker 2: is entering a new phase. For decades, the continent has
Speaker 2: relied on the US nuclear umbrella, but with war on
Speaker 2: Europe's borders, escalating tensions in the Middle East, and growing
Speaker 2: uncertainty about America's long term commitments that calculation is shifting.
Speaker 2: It's a conversation that exposes deep divisions across the block
Speaker 2: over defense spending, strategic autonomy, and how far Europe should
Speaker 2: go to secure itself. On one hand, countries like Poland
Speaker 2: want to ramp up efforts aggressively, whereas Spain sees no
Speaker 2: need to meet US set NATO targets. Next week, European
Speaker 2: diplomats gather in Paris to discuss whether France's nuclear deterrent
Speaker 2: could play a broader role, including the possibility of stationing
Speaker 2: nuclear capable jets in allied countries. Let's get more from
Speaker 2: Bloomberg Daybreak Europe anchor Caroline Hepger in London, Nathan.
Speaker 3: In Europe, only France and Britain have access to nuclear weapons,
Speaker 3: but that may be about to change. The wars in
Speaker 3: the Middle East and in Ukraine, and Europe's relationship with
Speaker 3: the United States has made other countries think again about
Speaker 3: their nuclear options. Next week, talk start in Paris about
Speaker 3: hosting nuclear capable jets in allied European countries. It's part
Speaker 3: of a wider conversation about how Europe defends itself. Those
Speaker 3: discussions have only been accelerated by events in Iran. We'll
Speaker 3: joining me now to discuss but INDs Pyotr Skolamowski, who
Speaker 3: runs our coverage of economies and governments in Central and
Speaker 3: Eastern Europe, from Warsaw and Rodrigo Arijuela, our bureau chief
Speaker 3: in Spain. Welcome to both of you. Thank you for
Speaker 3: being with me. I want to get a sense of
Speaker 3: how your two different countries represent really opposite sides of
Speaker 3: the debate inside the EU on defense spending. Pyota, Poland
Speaker 3: has expressed this wish for more autonomous capabilities. Does that
Speaker 3: mean nuclear weapons?
Speaker 8: Yes? Indeed, so that's probably what Polish leaders have been
Speaker 8: trying to say, and we've been hearing it for quite
Speaker 8: some time. So even the previous president Andre Duda expressed
Speaker 8: this interest in Poland acquiring or taking part in what's
Speaker 8: called nuclear sharing program with the US. The idea was
Speaker 8: rebuff but then now coming back and the new president
Speaker 8: said just last month that that he would be in
Speaker 8: favor of Poland looking and developing its nuclear weapons. We
Speaker 8: heard from Prime Minister Tusk as well earlier this month,
Speaker 8: pretty much saying we eventually Poland will look at developing
Speaker 8: these autonomous capabilities, meaning nuclear bomb Whether and when it's
Speaker 8: going to happen, it's obviously nothing imminent at this point.
Speaker 8: What Poland is looking at, that's what the government seems
Speaker 8: to be focused on, is is working with France. They
Speaker 8: already have a treaty with France that was signed last
Speaker 8: last year that sort of stipulates the possibility of working
Speaker 8: together in sharing capabilities. And Tusk was really enthusiastic right
Speaker 8: from the start when when Marc Kron floated this idea
Speaker 8: and again repeated it now during recently that that that
Speaker 8: France will be willing to share it's its nuclear capable
Speaker 8: jets and stationed in another count. So they're definitely willing
Speaker 8: to take part in that in that endeavor.
Speaker 3: And of course this is as Poland spends a great deal,
Speaker 3: is a significant defense spender in Europe.
Speaker 8: Yes, indeed, so obviously that comes on top of the
Speaker 8: fact that that Poland is spending almost five percent of
Speaker 8: GDP on defense. There is obviously a certain differensive opinion
Speaker 8: between the President and the Prime Minister how the money
Speaker 8: should be spent. Polish president is very much in favor
Speaker 8: and he's been endorsed by Donald Trump. He's very close
Speaker 8: to Tumaga movement in the US, and he's all in
Speaker 8: favor of Poland spending money in the US as it
Speaker 8: has been spending previously to buy weapons. On the other hand,
Speaker 8: Polish Prime Minister is definitely gravitating towards some form of
Speaker 8: European solution when it comes to defense spending, and he
Speaker 8: thinks in terms of if US is really diverging and
Speaker 8: trying to the couple from from Europe, then Poland should
Speaker 8: take part in trying to work on some form of
Speaker 8: joint solutions when it comes to defense in Europe. So
Speaker 8: that's where the differences are, but it does not impact
Speaker 8: the fact that, you know, where we have the consensus
Speaker 8: of the fact that we need to spend more and more.
Speaker 3: Yeah, indeed, it's quite a different picture, though with different ideas.
Speaker 3: In Spain, Rodrigo, Spain's leader Pedro Sanchez, is increasingly seen
Speaker 3: as one of the most aggressive voices pushing back against
Speaker 3: the war in Iran. I suppose I'd like to understand
Speaker 3: from you, firstly why that position that Spain has taken.
Speaker 9: So that position is not totally surprising given his position
Speaker 9: on other issues in recent years. He also took a contrarian,
Speaker 9: if you want, position compared to other Western countries when
Speaker 9: it came to Israel and Gaza, and he his government
Speaker 9: also took a very strong position against increasing the NATO
Speaker 9: spending targets. So this is kind of, you could say,
Speaker 9: the third within that trend, the third time he does
Speaker 9: something like this. In this specific case, what the government
Speaker 9: has argued is that the military basis that the US
Speaker 9: operates from in Spain, there are two of those, They've
Speaker 9: been used for over fifty years, and there are many
Speaker 9: used as a logistics supports, bases for refueling and things
Speaker 9: like that, and the government has the Spanish government has
Speaker 9: said those bases cannot be used for any attack operations.
Speaker 9: So they don't want the basis to be used for
Speaker 9: American military to use as a touching stone to attack Iran. Now,
Speaker 9: what is the argument to justify that. What they're saying
Speaker 9: is that the attack against Iran has been unilateral from
Speaker 9: the attackers Israel and the US, and that it has
Speaker 9: not been formed within the UN Charter or any international laws.
Speaker 9: And so they are saying that any operations of this scale,
Speaker 9: any wars of these of the scale, have to follow
Speaker 9: international law and that they cannot allow their bases to
Speaker 9: be used in operations that are outside the international order.
Speaker 9: And that is the government's official line on this issue,
Speaker 9: that they want to follow the rules and that the
Speaker 9: Americans are not following them and therefore they cannot partner
Speaker 9: with them.
Speaker 3: Okay, I mean there has been in some sense is
Speaker 3: a similar sort of difficulty for the UK kids some
Speaker 3: of the Prime minister here talking about allowing US military
Speaker 3: to use British basis for defensive strikes against ira a
Speaker 3: debate about what that actually means. Look in terms of Spain,
Speaker 3: I mean again, Pedro Sanchez's views sort of chimes also
Speaker 3: with the fact that Spain has not really galvanized defense spending.
Speaker 3: It's been quite resistant to that idea of spending a
Speaker 3: deal more, which has been what President Donald Trump has wanted.
Speaker 6: Why that thinking, do you think in Spain?
Speaker 8: Where do we go?
Speaker 9: Yes, I mean quite resistant. I think is in fact
Speaker 9: an understatement, because they are the only NATO member that
Speaker 9: has said we are not going to do this, and
Speaker 9: there is no way we're changing our position. And while
Speaker 9: everybody else has gone to the five percent target that
Speaker 9: the Americans came up with, they have said that they
Speaker 9: were sticking to two point one percent. There are two
Speaker 9: arguments for this are one that with two point one
Speaker 9: percent they can meet all the demands and all the needs,
Speaker 9: all the requirements for defensive spending. What they are saying
Speaker 9: is that the five percent number was kind of pulled
Speaker 9: out of the blue and that there is no actual
Speaker 9: justification for it. There is no explanation as to why
Speaker 9: that's the magic number, and that if you look at
Speaker 9: the military needs, at weapons and all other kind of
Speaker 9: military needs, you can cover. I was with two point
Speaker 9: one percent in Spain's case, and that's the main one.
Speaker 9: The other one is that if you go up to
Speaker 9: five percent, you have to start pulling money out of
Speaker 9: other expenses, other parts of your budget, and that going
Speaker 9: up to five percent without an explanation as to why
Speaker 9: you're going to that number, means that you'll have less
Speaker 9: money for things such as social welfare, healthcare, education.
Speaker 10: That is the.
Speaker 9: Government's official line on this, and that is their position.
Speaker 9: If we have to put money into this, we'll have
Speaker 9: to take it out of other places, and there is
Speaker 9: no reason that has been given to us as to why.
Speaker 6: We have to do that. Okay, so that's the Spanish view.
Speaker 3: Meanwhile, back to Poland Pyota and what about these nuclear
Speaker 3: power jets, because there's discussion about having nuclear capable fighter
Speaker 3: jets being stationed elsewhere in Europe, not for Spain, but Germany,
Speaker 3: the UK, Belgium, other countries and also Poland are looking
Speaker 3: at this. You know, Manue Macaw has been talking about
Speaker 3: and there's going to be a meeting to discuss this,
Speaker 3: and what do you think might emerge from that?
Speaker 8: Yes, indeed, so Tusk has been very keen on the
Speaker 8: idea right from the start when it was first floated
Speaker 8: i believe last year, and then obviously now officially sort
Speaker 8: of communicated by by Macron. So indeed there's a there's
Speaker 8: a meeting in Paris nuclear about nuclear energy. But what
Speaker 8: Tusk also said is that we assume on on the
Speaker 8: sidelines of that meeting there's going to be more consultations
Speaker 8: going on about about this idea. He also mentioned that
Speaker 8: when it comes to this this plan, he will be
Speaker 8: in touch or or will be communicating with other allies,
Speaker 8: especially from the Nordic region, where cooperation between Poland and
Speaker 8: Nordics and all the countries around the Baltics have been
Speaker 8: growing tighter there's definitely willingness on the on the Polish
Speaker 8: side to to engage in that that plan. Clearly, the
Speaker 8: experience that they had with the previous idea of nuclear
Speaker 8: sharing with the US, which was rebuffed, told them that
Speaker 8: at least that route is closed. And it sort of
Speaker 8: speaks or fits very nicely in how the government sees
Speaker 8: its cooperation and how it wants to build its its defense.
Speaker 8: It sees the US sort of disengaging, although it wants
Speaker 8: to keep US close. Still, Poland still hosts ten thousand
Speaker 8: around ten thousand troops on its soil, but it wants
Speaker 8: to have or be part of the of the cooperation
Speaker 8: with Europe and and sort of the fact that these clear,
Speaker 8: enabled or capable jets will be stationed in Poland is
Speaker 8: very much something that that Pland will be keen on it.
Speaker 8: But obviously the devil is in the details. It's it's
Speaker 8: hard to say how quickly it could be done. And
Speaker 8: the other question is purely political in that sense. Obviously,
Speaker 8: France is going into election next year, a Manual Macron
Speaker 8: is not running in this election, and the post show
Speaker 8: that the fire Right could take power, and that's a
Speaker 8: big question mark for everyone in Eastern Europe as a
Speaker 8: matter of fact. So if we commit to that idea,
Speaker 8: what happens next after the macron is gone, and would
Speaker 8: that plan change? And if we over commit, would that
Speaker 8: mean US will not be willing to work with us
Speaker 8: on that project in the future. So there's a lot
Speaker 8: of issues here to consider before it all happens.
Speaker 3: Yeah, I think it's going to be interesting to see
Speaker 3: where this issue leads. Thank you so much to both
Speaker 3: of you for joining me. Bin Begs, Rodrigo Olijuera are
Speaker 3: bureau chief in Spain, and Peot Scolimouski, who runs our
Speaker 3: coverage of economies and government in Central and Eastern Europe,
Speaker 3: are joining me from WARSAW. Really appreciate your time, as
Speaker 3: will bring you full coverage then of what happens next
Speaker 3: with the discussions around this advanced deterrence, the idea of
Speaker 3: these nuclear capable fighter jets maybe being stationed across Europe,
Speaker 3: not just in France. We'll see where those discussions lead.
Speaker 3: I'm Caroline Hepkee here in London. You can catch us
Speaker 3: every weekday morning for Blueberg Daybreak Europe, beginning at six
Speaker 3: am in London.
Speaker 6: That's one am on Wall Street.
Speaker 2: Nathan, Thanks Caroline, and coming up on Bloomberg day Break weekend,
Speaker 2: we turned to Vietnam, where legislative elections are set to
Speaker 2: take place. I'm Nathan Hagar, and this is Bloomberg. This
Speaker 2: is Bloomberg Daybreak Weekend, our global look ahead at the
Speaker 2: top stories for investors in the coming week. I'm Nathan
Speaker 2: Hager in Washington. We go to Vietnam next where legislative
Speaker 2: elections are set to take place. For more, Let's check
Speaker 2: in with Doug Krisner, host of the Bloomberg Daybreak Asia podcast.
Speaker 4: Thanks Nathan. Next weekend, voters across Vietnam will be going
Speaker 4: to the polls and they will elect deputies to the
Speaker 4: sixteenth National Assembly along with members of the People's Concils.
Speaker 4: And then on April sixth, Vietnam's National Assembly will convene.
Speaker 4: To help us understand what to look for. I'm joined
Speaker 4: by Bloomberg's Francesca Stevens. She is our Vietnam Bureau chief.
Speaker 4: And Francesca joins us from Hanoi. Thank you so much
Speaker 4: for being here. As we know, Vietnam is a communist
Speaker 4: country with one party rule, not unlike China. Help us
Speaker 4: understand what this election means for Vietnam.
Speaker 10: So the background to this is in January we had
Speaker 10: the Communist Party Congress and that was when to Lamb
Speaker 10: the Party Chief, got elected for a full five year
Speaker 10: term as Party chief, and we also understood the Party
Speaker 10: Congress that was when he was put forward to take
Speaker 10: the position of president as well. And so what we'll
Speaker 10: be watching for when the National Assembly meets is if
Speaker 10: that dual position is confirmed, and that will be a
Speaker 10: significant move for Vietnam, the first time in many years
Speaker 10: that the president and Party chief has been put forward
Speaker 10: at Congress and then backed by the National Assembly. So
Speaker 10: to Lem had previously held the presidency and the party
Speaker 10: chief position, but only on a temporary basis, and his
Speaker 10: predecessor in Winfu Chong had also held it on a
Speaker 10: temporary basis. So that's one of the big things that
Speaker 10: we're watching out for when the National Assembly meets, but
Speaker 10: it's also when we'll find out who the new Prime
Speaker 10: Minister will be again. At Party Congress in January, we
Speaker 10: had heard that Layminghun had been tipped to be the
Speaker 10: new Prime minister, and he's currently head of the Central
Speaker 10: Organization Committee, So we're watching to see if that position
Speaker 10: is confirmed as well. Before Christmas, there were many different
Speaker 10: rumors flying around in Hanoi as to who would be
Speaker 10: getting the different positions. But as we get closer to
Speaker 10: April the sixth, we're all watching to see what happens there,
Speaker 10: and then once the National Assembly confirms who's in the
Speaker 10: top positions, will start to see more of the policy
Speaker 10: steps unfold for Vietnam over the next next few months.
Speaker 4: I'm curious about the way in which the economy has
Speaker 4: been impacted by US tariff policy and whether that has
Speaker 4: necessarily been a negative. I know that over the years
Speaker 4: a lot of manufacturing moved out of China into places
Speaker 4: like Vietnam, and for a while it seemed as though
Speaker 4: Vietnam's economy was a beneficiary of that de risking from China.
Speaker 4: Can you talk about the overall impact and what it's
Speaker 4: been like for the Vietnamese economy.
Speaker 10: It was a rollercoaster for Vietnam trade talks last year.
Speaker 10: We were all shocked when we saw the forty six
Speaker 10: percent tariff that was first announced, but Tolan one applawed
Speaker 10: it here for his quick response and jumping on the
Speaker 10: phone with Donald Trump, and then we saw that reduced
Speaker 10: to a twenty percent deal announced Donald Trump on his
Speaker 10: Truth Social in July, but crucially with a forty percent
Speaker 10: tariff on any goods deemed to be transhipped through the country.
Speaker 10: All through the year, the uncertainty over what was happening
Speaker 10: with the trade talks and how that would impact exporters
Speaker 10: was the key economic theme here. There were at least
Speaker 10: six rounds of trade talks, with teams of negotiators flying
Speaker 10: out to DC on a fairly regular basis, and Vietnam
Speaker 10: making multiple pledges to buy more American goods in an
Speaker 10: effort to reduce the trade gap between the two. The
Speaker 10: two sides were said to have moved on from the
Speaker 10: initial sticking points, which were around transhipment and how you
Speaker 10: define that and rules of origin, and we understood that
Speaker 10: the focus had moved to areas such as intellectual property,
Speaker 10: sovereignty enforcement. We also saw the trade minister replaced in
Speaker 10: the process of the talks, in a sign of the
Speaker 10: frustration in Hanoi at how they were going. But despite
Speaker 10: all of that, Vietnam's exports to the US only continued
Speaker 10: to grow last year, and the massive trade gap that
Speaker 10: had initially caught Donald Trump's eye and continued to get bigger.
Speaker 10: So on the trade deal front, we now expect to
Speaker 10: see a long slow walk on that front. I mean
Speaker 10: it's actually hard to see whether one will now materialize
Speaker 10: after the US Supreme Court's decision. And so from the
Speaker 10: economic perspective, you know, we were expecting to see exports
Speaker 10: slow down and actually, in contrast, Vietnam defied that.
Speaker 4: So what's the picture on sentiment right now? Is there
Speaker 4: a sense of optimism?
Speaker 10: There is this huge growth story, and even if it
Speaker 10: doesn't reach ten percent, I think that the trajectory for
Speaker 10: Vietnam over the next few years still looks hugely positive.
Speaker 10: I mean last year it was eight point zero two percent,
Speaker 10: and we see so much manufacturing activity in the northern provinces.
Speaker 10: Got your fox conno luctuare yu Go Tech making Apple
Speaker 10: AirPods I've heard, and watches and you know, Samsung making
Speaker 10: and around sixty percent of its phones here. So there
Speaker 10: is this sort of huge boom in activities. There is
Speaker 10: a lot of bullishness around the direction that Vietnam is
Speaker 10: going in from an economic perspective and the growth potential here.
Speaker 10: But of course we are also at risk from what
Speaker 10: happens in the rest of the world, and you know,
Speaker 10: seeing what's happening in the Middle East at the moment,
Speaker 10: you know how that's going to trickle through and impact
Speaker 10: us here. What happens in the US has a has
Speaker 10: a huge impact on what happens here in Vietnam. It's
Speaker 10: the biggest export market for Vietnam, and exporters and the
Speaker 10: business community know that Vietnam needs to keep that keep
Speaker 10: that market open, but also manage relations with China. It's
Speaker 10: you know, it's just over the border in the north.
Speaker 10: Vietnam imports a huge, huge amount of its raw materials
Speaker 10: and production components from China. In fact, it's you know,
Speaker 10: it's Vietnam's largest trading partner. So it's heavily reliant on
Speaker 10: China for maintaining its manufacturing driven growth as well. So
Speaker 10: there's just this this fascinating story here around this domestic
Speaker 10: growth story, but also a nation that really sort of
Speaker 10: sits in this kind of key geo political position, which
Speaker 10: is a position that it wants to expand further as well.
Speaker 4: I think what about the equity market in Vietnam. Last October,
Speaker 4: as I recall, foot Sea Russell upgraded Vietnam's market from
Speaker 4: frontier to secondary emerging status. How is that expected to
Speaker 4: impact the market.
Speaker 10: Yes, so the decision was announced last year, but it
Speaker 10: doesn't actually come into effect until September this year, and
Speaker 10: in fact there is actually an interim review taking place
Speaker 10: in the next few weeks. We don't expect there to
Speaker 10: be any shoes with that interim review. The government has
Speaker 10: taken a lot of different steps to try and make
Speaker 10: sure that that process goes through. In just a few
Speaker 10: weeks ago, the government moved to allow foreign investors to
Speaker 10: trade through global brokerages directly instead of with local firms,
Speaker 10: and again that was one of the steps that Footsie
Speaker 10: Russell had been looking for from the government. Here. It's
Speaker 10: been quite the weight for Vietnam to get here. They
Speaker 10: were first added to the watch list for potential reclassification
Speaker 10: back in September twenty eighteen, but since then big steps
Speaker 10: had been taken to bring the market into line with
Speaker 10: global standards. That's included things like removing the requirement for
Speaker 10: overseas investors to fully prefund equity trades and establishing a
Speaker 10: formal process for handling failed trades. So there are various
Speaker 10: estimates of how much foreign capital that should attract when
Speaker 10: the decision goes through in September. Various estimates from around
Speaker 10: three to five or six billion in foreign capital inflows,
Speaker 10: but obviously we're waiting to see what happens when that
Speaker 10: upgrade happens in September.
Speaker 4: Francesca will leave it there, Thank you so very much.
Speaker 4: Francesca Stevens is Bloomberg's Vietnam bureau chief. Joining from Hanoi,
Speaker 4: we go to Australia next where in the last week
Speaker 4: Goldmunt Sachs held its Australia Week Alternatives and Macro Summit.
Speaker 4: It was there that we caught up with Goldman CEO
Speaker 4: David Solomon. He spoke with Bloomberg's Heidi Stroud Watts. Heidi
Speaker 4: began the conversation by asking Solomon for his views on
Speaker 4: the Chinese markets. Here's what he had to say.
Speaker 10: Chat is one of the.
Speaker 11: Largest economies in the world. That's going to continue to
Speaker 11: be one of the largest economies in the world.
Speaker 10: You know.
Speaker 11: At the moment, I'm very focused on the bilateral relationship
Speaker 11: between the US and China. I'm looking forward to President
Speaker 11: Trump's visit with President chief Its planned for later this month,
Speaker 11: the beginning of April. It'll be interesting to see what
Speaker 11: come out of that, and you know, whether or not
Speaker 11: China and the US can make more progress, you know,
Speaker 11: on their bilateral relationship. I think that's important for growth
Speaker 11: in the world, and I think it's important for both
Speaker 11: the US and China, and I think at the moment
Speaker 11: that's fragile, and so I'm very curious to see, you know,
Speaker 11: how that progresses. In the meantime, Chinese markets have done
Speaker 11: very well in the last twelve months. That's increased capital flows,
Speaker 11: you know, into the region. We obviously participate in that,
Speaker 11: but we're going to watch those bilateral meetings and progress
Speaker 11: in the biladderal relationship very closely.
Speaker 10: What would you like to come out in terms of
Speaker 10: deliverables from.
Speaker 11: I'd like to see, you know, more certainty and clarity
Speaker 11: around how the bilateral relationship will work going forward. I
Speaker 11: think there are things that the US wants and things
Speaker 11: that China wants. I'd like more clarity around what that's
Speaker 11: going to look like, you know, not just in twenty
Speaker 11: twenty six, but you know, over the coming years. And
Speaker 11: I think that's still relatively uncertain.
Speaker 3: What are we not talking about enough? I know we've
Speaker 3: talked a little bit about private credit.
Speaker 6: You don't think it's sort of a systemic.
Speaker 11: Risk at this point. I think credit formation around the
Speaker 11: world is really correlated to economic growth and economic activity.
Speaker 11: I do think that we've gone if I just look
Speaker 11: at the US market, which is obviously very when you
Speaker 11: talk about private credit, a very very large market the
Speaker 11: context of private credit, we've gone a long time without
Speaker 11: a credit cycle. We've gone a long time without a recession.
Speaker 11: I do think when you have these long dated cycles,
Speaker 11: they're a variety of things that happen. One, credit spreads narrow.
Speaker 11: Two lending standards. People have more capital deploy they get aggressive,
Speaker 11: lending standards deteriorate a little bit due diligent standards deteriorate,
Speaker 11: And so we're watching very closely to see if there's
Speaker 11: been a little bit too much aggression frothiness in those markets.
Speaker 11: But fundamentally, when you look at the underlying credit portfolios,
Speaker 11: particularly below investment grade credit, while there have been a
Speaker 11: bunch of idiosyncratic events where there have been problems, the
Speaker 11: broad portfolios are performing reasonably well. Why are they performing
Speaker 11: reasonably well because the economy is doing fine, and it's
Speaker 11: very hard to have broad underperformance and a broad diversified
Speaker 11: credit portfolio. If the economy is doing well. When we
Speaker 11: do have a slow down in the economy, you will
Speaker 11: see it. I think because of the length of the cycle,
Speaker 11: you probably will find places where the losses are higher
Speaker 11: than people expect. We're very, very focused on back leverage
Speaker 11: and things that could affect or amplify in a more
Speaker 11: difficult economic environment, you know, credit deployment. But at the moment,
Speaker 11: when you look broadly across portfolios, we're not seeing things
Speaker 11: that are super concerning. That's a completely different issue than
Speaker 11: retail participation and retail investors wanting liquidity from what are
Speaker 11: fundamentally illiquid products, and so that's getting a lot of attention,
Speaker 11: but that's different than the underlying credit portfolios. But I
Speaker 11: do think that when there is a slowdown in the
Speaker 11: economy or we do get to a place where we have,
Speaker 11: you know, a recession, you're going to see losses and
Speaker 11: credit portfolios, and you know those losses could be meaningful,
Speaker 11: but you know, we'll watch that closely while the economy
Speaker 11: is jugging along. You know, that's that's not the primary focus.
Speaker 4: That was David Solomon Goldman Sachs CEO, speaking with Bloomberg's
Speaker 4: Heidies Stroud Watts in Sydney. I'm Doug Prisner. You can
Speaker 4: catch us weekdays for the Daybreak Asia podcast. It's available
Speaker 4: wherever you get your podcast.
Speaker 2: Nathan, Thanks Doug, and that does it for this edition
Speaker 2: of Bloomberg Daybreak Weekend. Join us again Monday morning at
Speaker 2: five am Wall Street Time for the latest don markets,
Speaker 2: overseas and the news you need to start your day.
Speaker 2: I'm Nathan Hagar.
Speaker 4: Stay with us.
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