Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg day
Speaker 1: Break Weekend, our global look at the top stories in
Speaker 1: the coming week from our Daybreak anchors all around the world.
Speaker 1: Straight ahead on the program, data on inflation and economic
Speaker 1: growth this week, and we take a look at the
Speaker 1: US cruise industry earnings from the world's biggest cruise operator.
Speaker 1: I'm Tom Busby in New York.
Speaker 2: I'm kunin Hepger here in London, where we're looking at
Speaker 2: the chocolate industry faced with sour in coco prices.
Speaker 3: I'm Brian Curnis in Hong Kong. I'll take a look
Speaker 3: at the upcoming results from YD the business, the expansion plans,
Speaker 3: and of course the geopolitics.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 1: Good day to you. I'm Tom Busby, and we begin
Speaker 1: today's program with the third and final reads out this
Speaker 1: week on US economic growth and inflation, the core personal
Speaker 1: consumption expenditures for the final quarter of twenty twenty three,
Speaker 1: and we'll talk about what that means for the FED.
Speaker 1: For more, we welcome Annawong, chief US economist for Bloomberg Economics. Anna,
Speaker 1: thank you for being here.
Speaker 5: Hi, good to be here.
Speaker 1: Well, before we talk about what you expect to see
Speaker 1: from Q four GDP and Q four PCE, let's begin
Speaker 1: with your reaction to what the Central Bank did this
Speaker 1: past week, holding rates unchanged, that's the fifth meeting in
Speaker 1: a row, while maintaining the outlook for three rate cuts
Speaker 1: this year. What do you make of that?
Speaker 5: Well, that met our expectation because we thought that Powell
Speaker 5: himself is the medium voter, and as long as Powell
Speaker 5: is of the view that three rate cuts is still
Speaker 5: appropriate for this year, I think he will carry most
Speaker 5: of the FED board members with him. I thought more significantly, though,
Speaker 5: is that they revised up their view of what FED
Speaker 5: funds rate should be beyond twenty twenty four. And basically
Speaker 5: the message there is that they believe that the underlying
Speaker 5: neutral rates in the economy, for you know, for the layman.
Speaker 5: What that means is it's the interest rate that should
Speaker 5: prevail in the long term consistent with two percent inflation.
Speaker 5: The SEP shows that the Committee believes the neutral rate
Speaker 5: has risen and a lot of the dots in the
Speaker 5: dot flot have moved up to about three percent for
Speaker 5: the neutral rate. So I think that's significant because it
Speaker 5: means that in the next year or two we would
Speaker 5: see less rate cuts on the whole.
Speaker 1: So, despite some disappointment about a recent rise in inflation, overall,
Speaker 1: this looks like a pretty upbeat outlook for economic growth,
Speaker 1: labor market, and inflation.
Speaker 5: Yeah, I mean, I think that the Fed still believes
Speaker 5: mostly that inflation could return to two percent without generating
Speaker 5: a lot of losses. On the employment side, they revised
Speaker 5: down the unemployment forecast for this year from four point
Speaker 5: one percent last December to four point zero percent, and
Speaker 5: unemployment rate is already at three point nine percent. I
Speaker 5: think they basically see just a very minor deterioration in
Speaker 5: the stabilizing on that level.
Speaker 1: Meanwhile, we heard from FED Chair J Powell last week
Speaker 1: after Federal Reserve policymakers stuck to their path of interest
Speaker 1: rate cuts at least for now, after hitting a bump
Speaker 1: on the road to low and steady inflation.
Speaker 6: We believe that our policy rate is likely at its
Speaker 6: peak for this tightening cycle, and that if the economy
Speaker 6: evolves broadly as expected, it will likely be appropriate to
Speaker 6: begin dialing back policy restraint at some point this year.
Speaker 6: The economic outlook is uncertain, however, and we remain highly
Speaker 6: ten of two inflation risks.
Speaker 1: However, Bloomberg opinion columnst Mohammad l Arian said the Fed
Speaker 1: should push out their rate cut timeline.
Speaker 7: We're living in a world where the supply side isn't
Speaker 7: flexible enough, and you get almost every week you get
Speaker 7: indication of changing supply chains, you get indication of the
Speaker 7: label of the tightness of the labor market, you get
Speaker 7: indication of an energy transition that's not going as well
Speaker 7: as people want it. All these things mean the supply
Speaker 7: side is less flexible, and the underlying inflation rate that
Speaker 7: is consistent with the economic well being for now is
Speaker 7: somewhat higher than two percent.
Speaker 1: And former New York Fed President Bill Dudley says the
Speaker 1: Fed is sticking to its two percent target.
Speaker 8: We still think minetary policy is tight. We still think
Speaker 8: we're going to get more confident about getting inflation down
Speaker 8: to two percent, and so we still think we're going
Speaker 8: to cut rates this year time. He's uncertain, and he
Speaker 8: said over and over again, it depends on the data.
Speaker 1: Well, the Fed always says it is all data dependent.
Speaker 1: And right now, let's get back to the data we're
Speaker 1: going to see this week on fourth quarter GDP final
Speaker 1: read and also PCE. What are you expecting to see?
Speaker 1: Is this going to be good news?
Speaker 5: Well, first of all, Tom, the GDP revisions does not
Speaker 5: just end on the third revision. They go on for
Speaker 5: years and years and years until it could be revised
Speaker 5: even five years. But for the third revision, which we
Speaker 5: are going to get next week, we're expecting the fourth
Speaker 5: quarter GDP to be little a little change at about
Speaker 5: three percent. But more interestingly is that they are going
Speaker 5: to be releasing the information the quarterly change for gd I.
Speaker 5: And in the past two years, gd I has been
Speaker 5: running lower than GDP growth, even though theoretically they are
Speaker 5: measuring the same things. So on a year over year basis,
Speaker 5: gross domestic income actually was running negative as of the
Speaker 5: fourth quarter of last year in contrast to the pretty
Speaker 5: robust increase in GDP growth. So I think we would
Speaker 5: be paying a lot of attention to that because from
Speaker 5: the perspective of the economists too, would be deciding on
Speaker 5: the NBER Business Cycle Dating Committee on whether there is
Speaker 5: a recession. It actually is the average of GDP and
Speaker 5: GDI that matters.
Speaker 4: Now.
Speaker 1: The FED has six more policy meetings this year, the
Speaker 1: next one and April thirtieth may first. Based on what
Speaker 1: we know now, and we won't know this latest figures
Speaker 1: for a few more days. Is it still too soon
Speaker 1: to expect one of those three rate cuts? I mean,
Speaker 1: is June meeting a lot more likely for that?
Speaker 5: Yeah, June is our baseline, and I think June is
Speaker 5: the baseline for the market as well. So I think
Speaker 5: the crucial assumption of that is, as you said, if
Speaker 5: things evolve as we see now, So if unemployment rate
Speaker 5: barely rises, you know, stay in the three point nine
Speaker 5: to four point zero zero range. If core PCE inflation
Speaker 5: comes in, you know, at zero point two to zero
Speaker 5: point three percent per month in the next couple of months,
Speaker 5: I think we will get a June rate cut.
Speaker 4: Wow.
Speaker 1: Well, a lot to look forward to. Well, our thanks
Speaker 1: to Anawong, Chief US economist for Bloomberg Economics, We now
Speaker 1: turn to the state of the cruising industry and the
Speaker 1: latest earnings out this week from the biggest of them all,
Speaker 1: Carnival Cruise Lines. And for more we welcome Brian Egger,
Speaker 1: Bloomberg Intelligence Senior Gaming and Lodging Analyst. Now, Brian, let's start.
Speaker 1: There has been a stunning turnaround in the cruise market
Speaker 1: from the depths of the pandemic just a few years ago.
Speaker 1: How remarkable has this turnaround been.
Speaker 9: It's pretty remarkable. So the industry was basically in a
Speaker 9: state of suspension from an operating perspective from during twenty
Speaker 9: twenty and twenty twenty one. Now we are back to
Speaker 9: essentially pre pandemic levels of both deployment and acmancy. So
Speaker 9: we've kind of seen a full turnaround. And the revenue yields,
Speaker 9: which are the key metric for Carnival, last year, they
Speaker 9: were slightly above what they were in twenty nineteen, so
Speaker 9: we're kind of gone full circle.
Speaker 1: And what are the driving forces for this demand? I mean,
Speaker 1: is the cruise industry? Is it pricing, is it just marketing?
Speaker 1: Is it the people just have got to get out
Speaker 1: on those ships.
Speaker 9: Certainly, we left the pandemic with a lot of pent
Speaker 9: up demand. There were some of that revenge travel phenomenon
Speaker 9: going on, but beyond that, you ei, there's still we've
Speaker 9: seen this across the industry's recover which include lodging, a
Speaker 9: strong sustain appetite among North American consumers and global consumers
Speaker 9: for a leisure travel combined with a relatively moderate benign
Speaker 9: pace of supply growth in the industry. And that is
Speaker 9: a recipe for what has been a very nice pace
Speaker 9: of yield growth recovery.
Speaker 1: And how has the industry changed, How have the ships changed,
Speaker 1: the procedures, the safety protocols.
Speaker 9: Safety protocols were big focus during the pandemic. A lot
Speaker 9: of the voice civic restrictions, vaccines, masking, et cetera. Those
Speaker 9: are now kind of in the past. But we're left
Speaker 9: with an industry that's reattuned to some of these protocols.
Speaker 9: And at the same time, you know what's happened to
Speaker 9: companies like Carnival, they also during the pandemic sold less
Speaker 9: efficient ships have also since then introduced new capacity. So
Speaker 9: the industry from a fleet perspective has fairly current stated
Speaker 9: the art capacity and certainly you know, good operating efficiencies,
Speaker 9: cost efficiencies that really originated during.
Speaker 1: The pandemic, and these ships are bigger than they've ever been.
Speaker 1: They keep getting better, yes, more amenities, roller coasters and
Speaker 1: surfing simulations I mean, and yet they're able to pack
Speaker 1: these cruises in right.
Speaker 9: Yeah, so these ships are more efficient from a fuel
Speaker 9: consumption and operating perspective when they run full. But we've
Speaker 9: definitely seen the combination of strong bookings and moderate supply
Speaker 9: growth low single digits for Carnival the next few years
Speaker 9: translate into good book and you do have on the
Speaker 9: cost side, of course, some pressures from cost inflation and
Speaker 9: advertising dry dout costs, So there are some pressures. There's
Speaker 9: always the geopolitical risk, for example, the conflict in the
Speaker 9: Middle East, you know, removing some capacity from the Red
Speaker 9: Sea area, small part of their capacity, but generally speaking
Speaker 9: they are now on a very attractive trajectory.
Speaker 4: Yeah.
Speaker 1: Also Haiti just very recently, Yeah, and they had redirect
Speaker 1: ships away from a popular port there. Well, then let's
Speaker 1: talk about Carnival and what you expect to see this Tuesday.
Speaker 9: Sure, so our overall forecast for this is actually going
Speaker 9: to be for their first fiscal quarter which ended February
Speaker 9: twenty ninth. That they're on a November fiscal year the
Speaker 9: February quarter. You know, we kind of go by the
Speaker 9: consensus thinking as a benchmark, which is for revenue up
Speaker 9: twenty two percent. The components or that are the revenue
Speaker 9: yield metric is up about sixteen seventeen percent based on
Speaker 9: their guidance, and capacities at four percent. So you kind
Speaker 9: of add that together. You've got you've got pricing, you've
Speaker 9: got low twenties kind of revenue growth based on consensus guidance.
Speaker 1: And how does Carnival compare to some of the other
Speaker 1: big players. There's Norwegian, Royal Caribbean, Disney of course.
Speaker 9: Yeah, so I mean the way I kind of think
Speaker 9: about how they compared to the rivals is when you
Speaker 9: look at twenty twenty four overall, how does their revenue
Speaker 9: yield growth expectation compared to those And you know, and
Speaker 9: what we've seen right now is preliminarily Carnival expecting eight
Speaker 9: and a half percent yuel growth. You know, that's pretty
Speaker 9: similar to like Royal Caribbean actually just raise their guidance
Speaker 9: for reals after they report of the quarter. So now
Speaker 9: it's seven and a quarter percent roughly a midpoint. So
Speaker 9: they're all kind of they're similarly looking for that mid
Speaker 9: to high single digit rate of revenue yield improvement on
Speaker 9: top of twenty three, which is a year where we
Speaker 9: basically reverted back to pre pandemic levels of revenue yield.
Speaker 9: So it's growth on top of that, which is which
Speaker 9: is very healthy.
Speaker 1: And for Carnival now we have we're in Q two right,
Speaker 1: spring has sprung. Everyone's planning their trips for either spring
Speaker 1: break or of course is this the time that they're
Speaker 1: going to see their big bookings.
Speaker 9: So the key part of the booking season, it's called
Speaker 9: the wave season and the cruise industry both as a
Speaker 9: pun on oceanic pun, but also because that's like the
Speaker 9: crest wave in bookings we see that typically happens between
Speaker 9: years and kind of like January February, all indications from
Speaker 9: other companies as well as that booking season has been robust.
Speaker 1: Wow well Carnival Cruise Lines reporting this Tuesday and our
Speaker 1: thanks to Brian Egger, Senior Gaming and Lodging analysts at
Speaker 1: Bloomberg Intelligence and coming up on Bloomberg day Break weekend,
Speaker 1: the challenges for Europe's chocolate industry just ahead of the
Speaker 1: Easter holiday. I'm Tom Busby, and this is Bloomberg. This
Speaker 1: is Bloomberg day Break weekend, our global look ahead at
Speaker 1: the top stories for investors in the coming week. I'm
Speaker 1: Tom Busby in New York. Up later in our program,
Speaker 1: earning this week from some of China's biggest banks and
Speaker 1: that nation's biggest ev maker. But first, it's one of
Speaker 1: the biggest events of the year in the chocolate industry.
Speaker 1: Easter means big business in the UK alone, Consumers will
Speaker 1: spend as much as four hundred and fifteen million pounds
Speaker 1: on festive chocolate this season, but this year, soaring cocoa
Speaker 1: prices are threatening to push prices even higher. So what
Speaker 1: will this mean for Europe's confectionery sector. Well, for more,
Speaker 1: let's go to London and bring in Bloomberg Daybreak europe
Speaker 1: banker Caroline hepgar Tom.
Speaker 2: A difficult harvest season for crucial West African farmers has
Speaker 2: seen cocoa prices shoot up by more than one hundred
Speaker 2: percent this year, raising costs for the world's chocolate makers
Speaker 2: that risk being passed on to consumers. The record breaking
Speaker 2: rally has sent Coco's a fourteen day relative strength index
Speaker 2: above seventy percent. This is a signal to some that
Speaker 2: prices may have jumped too fast, but that has been
Speaker 2: the case several times since January, and cocoa prices are
Speaker 2: still climbing higher now ahead of one of the biggest
Speaker 2: days on the calendar for chocolate consumption. Global supplies are stretched,
Speaker 2: with farmers skeptical that incoming rain can make up for
Speaker 2: a season decimated by hot and dry weather in the
Speaker 2: most important cocoa producing regions. Bloomberg's opinion columnist Javier blast
Speaker 2: says that he's been stocking up on sweet treats in
Speaker 2: anticipation of a shortage.
Speaker 10: I'm a stockpilings on chocolate because we eat quite a
Speaker 10: lot at home, must confess that. And the price of
Speaker 10: coco is app one hundred and fifty percent. You make
Speaker 10: chocolate out of coco, a bit of sugar, a bit
Speaker 10: of milk. Prices of chocolate on the on the supermarket,
Speaker 10: it's gonna go up and go up quite significantly over
Speaker 10: the next six months. The market for coco is facing
Speaker 10: a structural deficit. Supply is well behind the demand. Probably
Speaker 10: the gap between demand and production is going to be
Speaker 10: in twenty twenty four. The largacy has been at least
Speaker 10: in sixty five years. So we have a problem and
Speaker 10: the only cure for the market right now is higher prices,
Speaker 10: or we have going to see a bit of higher
Speaker 10: prices in the supermarket. So I'm just anticipating from that.
Speaker 2: That was Bloomberg opinion columnist Javier Blast sharing his perspective
Speaker 2: there now. He might just be right to suggest that
Speaker 2: things will get even worse before they get better. In
Speaker 2: the Ivory Coast, the world's biggest cocoa producer in the world,
Speaker 2: cocoa farmers are busy cleaning their plantations, applying chemicals and
Speaker 2: pruning trees in preparations for the mid crop harvest, clinging
Speaker 2: onto the hope that better weather can make up for
Speaker 2: the losses that they've seen. We've been covering this story
Speaker 2: closely at Bloomberg, and our analysis has shown that the
Speaker 2: coco crisis is being felt the most here in Europe,
Speaker 2: which is also the world's biggest chocolate consuming region, because
Speaker 2: of new sustainability rules which are threatening to make the
Speaker 2: shortage of beans even worse. EU regulations aimed at stopping
Speaker 2: products which could harm forests iedforestation from being sold in
Speaker 2: shops here could make it even harder for chocolate makers
Speaker 2: to secure the supplies that they need, and it looks
Speaker 2: like the jump in prices is here to stay. The
Speaker 2: International Cocoa Organization projected that global cocoa supply deficits would
Speaker 2: increase by four hundred and five percent in the years ahead.
Speaker 2: This as climate change only heightens the threat to cocoa production. Now,
Speaker 2: all of these challenges in production are likely to have
Speaker 2: a knock on effect on consumers hoping to snag a
Speaker 2: sweet treat this Easter. Manufacturers could be forced to increase
Speaker 2: prices and shrink production, as well as diversify away from
Speaker 2: chocolate products. In retail terms, there's set to be little
Speaker 2: price difference actually between some of the luxury chocolate products
Speaker 2: and their traditionally more budget friendly counterparts. Is something I've
Speaker 2: been talking to our Bloomberg Commodities reporter Mumbig Guitar About
Speaker 2: and retail reporter Helen Chandler wild Now. I began by
Speaker 2: asking Mumbie how bad the situation is for coco producers
Speaker 2: right now?
Speaker 11: I think, let's first a later base here. In just
Speaker 11: less than three months, cocoa futures have doubled. So we
Speaker 11: started the year at four thousand dollars a ton, and
Speaker 11: right now we are above eight thousand dollars a ton,
Speaker 11: and all this is because of the cocoa production issues
Speaker 11: that we have in every Cost and Ghana. These are
Speaker 11: the two biggest coco producers.
Speaker 3: In the world.
Speaker 11: They produced two thousand of global production, so any declines
Speaker 11: in those two countries will be felt globally. Ghana alone
Speaker 11: will have a drop of about twenty percent, and so
Speaker 11: we livery cost and we are seeing that in the
Speaker 11: export and arrivals data that we are getting. So production
Speaker 11: has been pretty disappointing. I don't think the industry expected
Speaker 11: it to be this disappointing, and that's why we are
Speaker 11: seeing the market rally this much. Because of that, we
Speaker 11: are going to have a third year of coco deficit.
Speaker 11: And we love our chocolate too much.
Speaker 2: Yes, absolutely, Why have we seen such a radical move
Speaker 2: and prices? Is it all around weather?
Speaker 11: Yes, it's all around weather and also diseases. But also
Speaker 11: we know that farmers have not been well paid for
Speaker 11: a really long time. If you're not well paid, then
Speaker 11: you don't have the incentive to invest back into your farm,
Speaker 11: and so they've not pretty much taken care of their
Speaker 11: farms or invested in fertilizers, Okay, because I needed to
Speaker 11: keep the diseases at bay. But also the weather change
Speaker 11: has made it incredibly difficult for those trees to remain resilient.
Speaker 2: So that's the baseline that producer prices are going up,
Speaker 2: farmers prices are going up. How much more expensive do
Speaker 2: you think a chocolate is going to get for the consumer?
Speaker 11: So the chocolate that you're currently seeing on the shelf
Speaker 11: was probably manufactured sometime towards the end of last year
Speaker 11: when prices were still very low. So we may see
Speaker 11: some increments in chocolate prices given just the rally that
Speaker 11: we saw last year. But I think more pain will
Speaker 11: come towards the end of this year when you're buying
Speaker 11: your hallow in chocolate, when you're buying your Christmas chocolate,
Speaker 11: and next year's Easter, because we have to take their
Speaker 11: account the doubling of prices just between January and match.
Speaker 11: So as much as it will be expensive this time,
Speaker 11: I think the pain will be felt much more towards
Speaker 11: the end of the year.
Speaker 2: And then also you've written about how perhaps the effects
Speaker 2: of the shortage are going to be more pronounced in
Speaker 2: Europe than elsewhere why.
Speaker 11: And Europe tends to be very responsible when it comes
Speaker 11: to be to its imports. So they have this European
Speaker 11: deforestation law that's going to make it difficult for Importance
Speaker 11: to bring in coco. They have to make sure that
Speaker 11: the cocoa that they bring in was not grown on
Speaker 11: deforested land. Now, to make sure and to prove to
Speaker 11: the ear that it wasn't grown on first that land,
Speaker 11: they need to map every single farmer. So every shipment
Speaker 11: that arrives at the EU ports has to be traceable
Speaker 11: back to the farm. If you can't trace it back
Speaker 11: to the farm, you can't bring it to the EU.
Speaker 2: Okay, So there's a price to that to consumers then,
Speaker 2: isn't there? Yes, in terms of quality standards I suppose
Speaker 2: and traceability. Do you think the cocoa futures are likely
Speaker 2: to stay high?
Speaker 5: Then?
Speaker 2: And if you say the feed through to consume prices
Speaker 2: hasn't actually yet hit, what about the future's market.
Speaker 11: Because the future market actually looks at deliveries in the future.
Speaker 11: I think we I wouldn't say whether we've picked or not.
Speaker 11: I don't have the crystal ball. It's had to see.
Speaker 11: But in such a volatile market will probably continue to
Speaker 11: see the wild swings that we've been seeing, so we'll
Speaker 11: see another shoot and then we might see a correction
Speaker 11: at some point. But if these shortages persist, it's going
Speaker 11: to take some time before these coco prices come down.
Speaker 2: Okay, and then what does it mean. I suppose for
Speaker 2: others in the manufacturing chain along.
Speaker 11: The line right now, they are trying to increase the
Speaker 11: prices for your chocolate just so that they can absorb
Speaker 11: that part of the cost, and consumers can absorb part
Speaker 11: of that cost. But they're also paying so much for
Speaker 11: coco lasts. Yesterday we ran a story about grinder in
Speaker 11: Asia who's paying a premium just to get the cocoa beans.
Speaker 11: So there's a scramble among manufacturers for who can pay
Speaker 11: more for cocoa, particularly in markets that are more liberalized.
Speaker 11: But you may start to see some manufacturers push to
Speaker 11: you some white chocolates or chocolate, it's more nuts and
Speaker 11: fruit so that they can try and bring down their
Speaker 11: coco consumption.
Speaker 2: Interesting. Let me bring in Helen Chandler World now to
Speaker 2: the conversation. So we've heard a little bit about the
Speaker 2: cocoa issues and prices having sowed in recent months. How
Speaker 2: expensive do you think chocolate is going to get for
Speaker 2: the end consumer, Helen See.
Speaker 12: I think, as we're just here, there will probably be
Speaker 12: a slight delay on prices increasing just because of the
Speaker 12: amount of time that takes actually make the chocolate, which
Speaker 12: does take a little bit of time. But we have
Speaker 12: seen that already. There was a bit of research in
Speaker 12: the growser that showed that a lot of Easter eggs
Speaker 12: at the lower end of the market were already fifty
Speaker 12: percent more expensive than the work last year, which just
Speaker 12: sort of rise almost about the same amount as Coto prices.
Speaker 2: What do you think is going to happen then to
Speaker 2: the marketing of I mean, we started talking about chocolate
Speaker 2: for Easter, so in terms of you know, affordable versus luxury,
Speaker 2: what does the market look like then.
Speaker 12: This Easter well, and the price increases I think will
Speaker 12: actually be predominantly in the lower end of the market
Speaker 12: where there's like almost no profit margin in the first place.
Speaker 12: Whereas I spoke to some more luxury producers, no telling me.
Speaker 12: We've always paid our farmers a lot of money, so
Speaker 12: there's always been that extra bit of margin there, so
Speaker 12: the price increase won't be quite as much, but we're seeing,
Speaker 12: like you know, some Easter eggs and sort of lower
Speaker 12: end of the market like Cadbury. I love it, it's delicious,
Speaker 12: but some of those eggsert now ten pounds, which is
Speaker 12: quite a lot of money compared to what they used
Speaker 12: to be, So then it might feel a bit worse
Speaker 12: it to spash out twenty pounds and get something that's
Speaker 12: about a thousand times nicer.
Speaker 2: So do you think a more expensive chocolate then is
Speaker 2: now the new norm? As the industry accepted.
Speaker 12: That well, I was speaking to some people who are
Speaker 12: making Easter eggs really at the top lux end of
Speaker 12: market where they are charging eighty or ninety pounds for
Speaker 12: an Easter egg, which might sound crazy, but if things
Speaker 12: are generally more expensive anyway, then ninety pounds on the
Speaker 12: Easter egg is much cheaper than going on holiday, which
Speaker 12: might be totally out of your budget. But having that
Speaker 12: little spurgeon an East egg might be just a nice
Speaker 12: little treat.
Speaker 2: Absolutely. How important then is that kind of marketing factor
Speaker 2: in terms of the coco producers and b the big
Speaker 2: push I mean, is it all around certain dates in
Speaker 2: the calendar? Is obviously a hugely popular item in Europe.
Speaker 11: That's usually mainly on the manufacturer side of things, having
Speaker 11: a calendar of events. So we started with Christmas, then
Speaker 11: we had Valentine's, then we had Mother's Day, then we
Speaker 11: had Easter. So the idea is to have chocolate for
Speaker 11: every single event that we have across the ears. As
Speaker 11: long as we have an event coming up, you're more
Speaker 11: likely to buy chocolate as a gift.
Speaker 2: Helen, what are you detecting then in the trends this
Speaker 2: year for the chocolate distributors, Yeah.
Speaker 12: There definitely is a move towards kind of differentiating a
Speaker 12: product a lot more. I see even in my own
Speaker 12: local supermarket, there's fear of the traditional miniac or moltias
Speaker 12: as Easter eggs. Now even Cabria has started doing slightly
Speaker 12: fancier ones with different ones, and then higher up the
Speaker 12: bracket they get extremely decorative and beautiful and it's always
Speaker 12: a thing you know, you can take a picture of
Speaker 12: and shout out social media which sort of does its
Speaker 12: own marketing as well.
Speaker 2: So that was Bloomberg reporters Helen Chandler Wild and Mumbi
Speaker 2: Guitu speaking to me about the situation for cocoa farmers,
Speaker 2: producers and the retailers here in your my thanks to them.
Speaker 2: I'm Caroline Hebge here in London. You can catch us
Speaker 2: every weekday morning for Bloomberg Daybreak. Youre at beginning at
Speaker 2: six am in London. That's one am on Wall Street. Tom.
Speaker 1: Thank you Caroline, and coming up on Bloomberg day Break weekend.
Speaker 1: Earnings this week from the biggest EV maker in the
Speaker 1: world's biggest EV market. Also earnings from China's megabanks. I'm
Speaker 1: Tom Busby and this is Bloomberg. Good day to you.
Speaker 1: This is Bloomberg day Break weekend. I'm Tom Busby and
Speaker 1: New York with your global look ahead at the top
Speaker 1: stories for investors in the coming week. Chinese megabanks set
Speaker 1: to release earnings this week amid sluggish borrowing demand, a
Speaker 1: stalled property market, and a stagnant overall economy. We also
Speaker 1: get the latest earnings from Chinese ev giant BYD this week,
Speaker 1: and for more on what to expect, we turned to
Speaker 1: Bloomberg Daybreak co host Brian Curtis.
Speaker 3: Tom. The results come at a critical juncture in the
Speaker 3: EV industry, both in China and around the rest of
Speaker 3: the world. BYD recently overtook Tesla as the number one
Speaker 3: seller of EV's, but it's having to cut prices and
Speaker 3: it's facing geopolitical challenges for its business outside of China.
Speaker 3: We thought it was a good time to crunch through
Speaker 3: some of these issues as we look forward to Byde's
Speaker 3: numbers and its commentary. Joining us now in our studios
Speaker 3: in Hong Kong is Bloomberg reporter Linda lu who covers
Speaker 3: China cars. So Linda B. White's stock is up more
Speaker 3: than fifteen percent or so over the past month, but
Speaker 3: it had declined for the previous six months. A lot
Speaker 3: of factors are at play in this, but let's talk
Speaker 3: first about what we might see in sales and profit numbers.
Speaker 8: In the next week.
Speaker 13: Yeah. Byde is actually doing really well in sales. They've
Speaker 13: broken records, and that shows a trend of China's growing
Speaker 13: EV markets. But the unfortunate thing is part of that
Speaker 13: sales was probably propelled by discounts that bid has had
Speaker 13: to do due to such an intense competition in this market.
Speaker 13: So despite a record sales in the fourth quarter of
Speaker 13: last year, their net income actually fell compared to the
Speaker 13: quarter before that.
Speaker 3: Yeah, the price war seems to be hurting margins for
Speaker 3: all of the EV makers in China. I'm curious in
Speaker 3: a sense is that good or bad for BYD, particularly
Speaker 3: from a standpoint of market share.
Speaker 13: So BYD is still very dominant in the market. They
Speaker 13: probably account for around thirty percent of all of the
Speaker 13: evs and plug and hybrids sold in this market. But
Speaker 13: overall the growth is slowing. You've got a weakening economy
Speaker 13: in China, and there's more than one hundred brands that's
Speaker 13: all competing in this market, and some of them are
Speaker 13: trying to differentiate themselves with better technology advanced assists. The
Speaker 13: driving feature is that BIDS isn't so strong, and so
Speaker 13: they're also investing a lot to catch up in technology features.
Speaker 3: So this move to a mass market lineup, I'm curious
Speaker 3: the impact of that. That's lower retail prices. It might
Speaker 3: suggest to some that the company is kind of shooting
Speaker 3: for increasing its market share and just going for a
Speaker 3: lot of volume.
Speaker 13: That's exactly right. Some of these new lineups have pricing
Speaker 13: that's probably half of what these models we're selling a
Speaker 13: few or a couple of years before. Obviously, that's a
Speaker 13: really good thing for consumers.
Speaker 9: Now.
Speaker 13: If you're in the market today looking to buy a car.
Speaker 13: You're getting a great deal. But we've heard previous owners
Speaker 13: that bought a BYD car a couple of years ago
Speaker 13: complaining that, you know, they bought a car at a
Speaker 13: higher pricing with features that are not as new and
Speaker 13: flashy as the cars that's on the market now. So
Speaker 13: I think BYD is having to consider the sustainability of
Speaker 13: such a strategy over the long.
Speaker 3: Bid has some presence in Europe, and the cost structure
Speaker 3: there is kind of interesting, and it's been more or
Speaker 3: less locked out of the US market. And we've been
Speaker 3: reporting at Bloomberg that BYD is now looking into the
Speaker 3: possibility of building a plant in Mexico and then perhaps
Speaker 3: making cars there. It'll take some time for that to happen,
Speaker 3: and then be able to use the MCA to get
Speaker 3: cars into the United States and avoid the high punishing
Speaker 3: tariff levels. What do we know, if anything, about any
Speaker 3: progress on finding a site and thinking about building a
Speaker 3: factory in Mexico.
Speaker 13: That's a strategy that's taken by quite a few Chinese
Speaker 13: manufacturers now, not just BYD. We've heard that Tesla is
Speaker 13: also encouraging its Chinese suppliers to follow along to Mexico.
Speaker 13: When the plants is built there. I think BYD will
Speaker 13: really have to consider quite a few factors over where
Speaker 13: to set up a Mexico That will obviously have to
Speaker 13: consider what kind of incentives the local government will give,
Speaker 13: whether it is a good supply chain that can be
Speaker 13: also set up in the local area to make it
Speaker 13: really cost efficient, and ultimately I think a lot will
Speaker 13: depend on the US policy in the future. Trump has
Speaker 13: talked about, you know, closing loopholes. A lot of things
Speaker 13: to consider before they ultimately make that huge investment into
Speaker 13: building a plant.
Speaker 3: On another front, the company is looking to introduce some
Speaker 3: new models in Japan and will expand its dealership there,
Speaker 3: but that's very tough competition there. The market is saturated
Speaker 3: by hybrids and domestic brands. What's the overall strategy for
Speaker 3: BYD in Japan?
Speaker 13: Japan is a very interesting market, especially challenging for BYD.
Speaker 13: Like you said, it's got a lot of strong incumbents.
Speaker 13: You know, some of the world's biggest automakers are there,
Speaker 13: like Toyota, and the market preference in Japan is for hybrids,
Speaker 13: which BYD doesn't have that strong an offering. They're really
Speaker 13: hoping to educate the customers in Japan, maybe hoping to
Speaker 13: really tempt them to try out EV's and maybe plug
Speaker 13: in hybrids to show that, you know, there are these
Speaker 13: even more environmentally friendly cars that could be cheaper to
Speaker 13: run if you just power them on electricity rather than
Speaker 13: hybrids which is still running on gasoline.
Speaker 3: Yeah, so maybe some tough sledding there. I mentioned Europe earlier.
Speaker 3: We're still waiting on that probe looking at electric vehicles
Speaker 3: coming from China. What do we know about when do you
Speaker 3: expect that.
Speaker 13: There's a lot of questions about when the investigation may
Speaker 13: wrap up and the result from that. I think the
Speaker 13: consensus is that there will probably be higher tariffs against
Speaker 13: auto imports from China, especially on evs. There's a whole
Speaker 13: range of numbers, anything from another eight to fifteen percent
Speaker 13: on top of the about ten percent now that Chinese
Speaker 13: EV's face when going into the European market, which will
Speaker 13: make it probably prohibitive for the Chinese manufacturers to enter
Speaker 13: in the market. So we see in lbid as trying
Speaker 13: to localize production and the EU, you know, setting up
Speaker 13: factory and hungry to try to head off Linda.
Speaker 3: Thanks so much for joining us. Linda lu who covers
Speaker 3: China cars for Bloomberg. I'm Brian Curtis, along with Doug Krisner.
Speaker 3: You can catch us every weekday here for Bloomberg Daybreak Asia,
Speaker 3: beginning at eight am in Hong Kong and eight pm
Speaker 3: on Wall Street.
Speaker 14: Doug, Thanks Brian. The big banks in China will be
Speaker 14: reporting earnings in the coming week.
Speaker 4: Now.
Speaker 14: We know that government has been struggling to revive borrowing demand.
Speaker 14: The property market keeps slumping, consumer confidence remains near a
Speaker 14: record low. Needless to say, it's not a great environment
Speaker 14: if you're a bank. For a closer look, now, let's
Speaker 14: bring in Bloomberg's Greater China correspondent. He is John Liu,
Speaker 14: and he joins us from our studios in Beijing. One
Speaker 14: of the things that I think is important to begin
Speaker 14: on John, is the conversation around loan demand. Even though
Speaker 14: are at historically low levels in China, there just doesn't
Speaker 14: seem to be a lot of demand for credit. What's
Speaker 14: driving this? Do you think property?
Speaker 15: There used to be a lot of demand for money
Speaker 15: for mortgages. People are not buying homes, so that has
Speaker 15: fallen way off. There used to be a lot of
Speaker 15: demand from property developers for loans that they would use
Speaker 15: not only to build their properties and their real estate,
Speaker 15: but also to buy land that no longer exists because
Speaker 15: many of those property developers are now struggling to pay
Speaker 15: off their debt, and so they are not in an
Speaker 15: expansionary mode. They are retrenching, and that has really hit
Speaker 15: demand for loans.
Speaker 14: Last week, we know that the big major banks in
Speaker 14: China maintained their lending rates. These are the loan prime rates.
Speaker 14: I think that represent kind of the real loan for
Speaker 14: the real economy. Not a surprise that these loans were
Speaker 14: held steady since the PBOC the central Bank decided to
Speaker 14: hold steady some of the key policy rates that feed
Speaker 14: into the loan prime rates. But I'm wondering, do you
Speaker 14: think regulators feel as though they're pushing on a string
Speaker 14: no matter how low they cut interest rates. There's really
Speaker 14: not a way of addressing the problem with sentiment that
Speaker 14: would then go to what we were just talking about
Speaker 14: with demand.
Speaker 15: I think that is part of the problem. You put
Speaker 15: it very well in the sense that what can the
Speaker 15: central bank do. The central bank can cut rates and
Speaker 15: raise rates, and cut reserve requirements and raise reserve requirements.
Speaker 15: They can't really do much in terms of getting people
Speaker 15: out and spending or borrowing or companies investing, and so
Speaker 15: they are trying to do what they can. The other issue,
Speaker 15: of course, is if you keep cutting interest rates, it
Speaker 15: is going to affect the banks adversely in the sense
Speaker 15: of their margins. The amount of money they make on
Speaker 15: loans is going to shrink and compress, and there is
Speaker 15: an element of having to consider the health of the
Speaker 15: financial system as China is trying to do what it
Speaker 15: can to get people spending companies investing in.
Speaker 14: Well, I'm glad you bring up the subject of net
Speaker 14: interest margin because when I look at analysis and from
Speaker 14: Bloomberg Intelligence on the big banks in China, it's clear
Speaker 14: the chief concern is margin, and I'm wondering whether or
Speaker 14: not the government is equally concerned about how this may
Speaker 14: be impacting the bank's balance sheets.
Speaker 15: There was a report in the Financial News, which is
Speaker 15: a newspaper that is published by the Central Bank. It
Speaker 15: talked about how banks are really suffering and facing lots
Speaker 15: of challenges because as the central government lowers interest rates,
Speaker 15: they're making less on every loan that they make, and
Speaker 15: that is making it a more difficult operating system or
Speaker 15: environment for the banks, And you have to remember these
Speaker 15: banks are state owned. The biggest banks in China are
Speaker 15: all owned by the central government. Even the Central Bank
Speaker 15: governor that we have today, Pungu Chang, he was the
Speaker 15: chairman of Agricultural Bank back in the day, and so
Speaker 15: there is a strong connection between the commercial side of
Speaker 15: the banking system and the regulatory side.
Speaker 14: We also know that they have loan books, right and
Speaker 14: when you think about the quality of loans, do we
Speaker 14: have a sense of how well loans are performing right now? Okay,
Speaker 14: we know property is a problem, but more broadly, are
Speaker 14: loans beginning to become an issue? Is there a question
Speaker 14: around people's ability to service debt?
Speaker 15: There is, and this is a reason why the non
Speaker 15: performing loans number is going to be really closely scrutinized
Speaker 15: when we get that from these earnings. In the third quarter,
Speaker 15: we actually saw that number of the mpls come down
Speaker 15: slightly for all the big commercial banks and more broadly
Speaker 15: for the banking system. That was for the third quarter.
Speaker 15: Whether or not that continued in the fourth quarter, we
Speaker 15: have to wait and see, but there is a lot
Speaker 15: of concern. Anecdotally, there have been an increase in the
Speaker 15: number of people not paying their mortgages. The number of
Speaker 15: foreclosures we've had in China, it's starting from a low base,
Speaker 15: but it's growing fairly rapidly.
Speaker 14: What do we know about the level of deposits. I'm
Speaker 14: wondering whether or not people are so fearful. Maybe that's
Speaker 14: too strong a word, but they lack confidence in such
Speaker 14: a way that they feel that there's no alternative except
Speaker 14: just to keep the money in the bank, I mean,
Speaker 14: and for that reason, our deposit levels fairly high.
Speaker 15: Deposit levels have been rising after the pandemic, After China
Speaker 15: lifted its zero COVID policies, we actually saw a big
Speaker 15: increase in the amount of money individuals and companies were
Speaker 15: keeping in the bank in terms of deposits. More recently
Speaker 15: that seems to have slowed. It does, as you say,
Speaker 15: show a lack of confidence or a lack of animal spirits,
Speaker 15: as it were.
Speaker 14: John, thank you so much for taking the time to
Speaker 14: chat with us and helping us kind of set the
Speaker 14: table for the earnings reports that we are expecting in
Speaker 14: the coming week for the big banks in China. John
Speaker 14: Louis is Bloomberg's Greater China correspondent, joining us from our
Speaker 14: Studios in Beijing. I'm Doug Krisner. You can join Brian
Speaker 14: Curtis and myself weekdays here from Bloomberg Daybreak Asia beginning
Speaker 14: at eight am in Hong Kong eight pm on Wall Street. Tom.
Speaker 1: Thank you Doug, and also thank you Brian. And that
Speaker 1: does it for this edition of Bloomberg day Break Weekend.
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