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'll
Speaker 2: look ahead to jobs data in the US and what
Speaker 2: they may mean for FED policy. I'm Nathan Hager in Washington.
Speaker 3: I'm Carolin Hedgod London, where we discussed what the Maid
Speaker 3: in Europe plan means for countries and companies.
Speaker 4: I'm deg Prisner looking ahead to the reading on sentiment
Speaker 4: among Chinese purchasing managers.
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 economic data in the US. We
Speaker 2: get non farm payrolls for the month of February at
Speaker 2: eight thirty am Wall Street Time on Friday. For more
Speaker 2: on how this latest jobs report could affect FED policy
Speaker 2: and interest rates. Let's bring in Bloomberg International Economics and
Speaker 2: Policy correspondent Michael McKee. Mike, thanks for being here. Of course,
Speaker 2: this comes after that surprisingly strong January jobs report. Is
Speaker 2: that going to be a one off or could it
Speaker 2: be the start of a trend.
Speaker 5: Well, that's the question that this whole data release will
Speaker 5: turn on. And for once we can say that this
Speaker 5: is an important number because we've had several FED officials say,
Speaker 5: particularly Chris Waller, say that if we get the same
Speaker 5: kind of number this month, then he would think that
Speaker 5: he probably would vote to hold instead of dissenting in
Speaker 5: favor of a rate cut on March eighteenth. So it
Speaker 5: does have somess. Of course, the other side of that
Speaker 5: is does unemployment go up? The forecast at the moment
Speaker 5: is for it to tick up to four point four
Speaker 5: percent from four point three. That might not move the
Speaker 5: needle for the FED, but if it were anything more
Speaker 5: than that, then they might get nervous and cut rates.
Speaker 5: So there's gonna be a lot of scrutiny of this
Speaker 5: number this time.
Speaker 2: So it sounds like it could really go one way
Speaker 2: or the other at a time when a lot of
Speaker 2: market participants have been thinking maybe the FED might stay
Speaker 2: on hold just until we get a new chair.
Speaker 5: Well that's probably the case. It would I think take
Speaker 5: a lot for the FED itself to change its views.
Speaker 5: In general, the majority are in favor of being on
Speaker 5: hold for right now, because they think they're tight enough
Speaker 5: that they can bring down inflation if they leave rates
Speaker 5: where they are without hurting the labor market. Now, the
Speaker 5: question is what hurts the labor market these days, because
Speaker 5: with the lack of people entering the labor force, in
Speaker 5: large part because of all the deportations. What you're seeing
Speaker 5: is maybe fifty sixty thousand being a neutral rate, the
Speaker 5: level that keeps the unemployment rate unchanged. And so if
Speaker 5: you get something much higher like we got last month,
Speaker 5: then it looks really good for the labor market and
Speaker 5: you don't need to cut rates. If you get something
Speaker 5: significantly below that, then they'll get a little concerned going
Speaker 5: into it. We're looking at about sixty thousand as an estimate,
Speaker 5: but that could change over the week.
Speaker 2: Of course, as you know, a lot of the discussion
Speaker 2: that's been cropping up in the FED is about how
Speaker 2: artificial intelligence might be affecting the labor market. As well,
Speaker 2: not just the immigration story. Do you expect that to
Speaker 2: feed into the February numbers or is that kind of
Speaker 2: a broader discussion.
Speaker 5: It's a broader discussion at this point. Most economists, I
Speaker 5: think the vast majority, don't think AI is showing up
Speaker 5: in the data yet other than the money that's being
Speaker 5: spent on being a building AI. Yeah, but the technology
Speaker 5: is too new and hasn't been adopted by enough companies
Speaker 5: in enough scale to really change the way companies are organized,
Speaker 5: and so it's not going to be in the labor
Speaker 5: market data, and it's not been adopted widely enough to
Speaker 5: change the inflation data yet. This is something that's on
Speaker 5: the horizon and it's certainly got everybody talking about it,
Speaker 5: but it's not there yet.
Speaker 2: Well, one phrase I keep hearing from you and your
Speaker 2: coverage of this labor market is low higher, low fire.
Speaker 2: Is that still where we are? And if we do
Speaker 2: get some job growth in this report, where do you
Speaker 2: think it's going to show up?
Speaker 5: Well, the best bet for job growth is going to
Speaker 5: be in healthcare services, because that's where almost all the
Speaker 5: job growth has been for some months. The people who
Speaker 5: take care of all the baby boomers who are retiring
Speaker 5: that sort of thing. We haven't seen much job growth
Speaker 5: anywhere else. There has been some construction because of the
Speaker 5: AI build out, but I think what we're still seeing
Speaker 5: at this point is a lot of companies sitting on
Speaker 5: the sidelines, not sure what the business climate is going
Speaker 5: to be like. And now even more so it wouldn't
Speaker 5: show up in these February numbers, but even more so
Speaker 5: because of the tariff decision by the Supreme Court. We
Speaker 5: don't know what tariffs are going to be, We don't
Speaker 5: know what they'll put them on again, and so you
Speaker 5: don't know what companies are going to do. So at
Speaker 5: this point, don't look for a huge amount of hiring,
Speaker 5: and you're right, it's low firing. Jobless claims remain extremely low.
Speaker 5: Don't give any indication that companies are making big layoffs.
Speaker 2: So does that mean we're in kind of wait in
Speaker 2: C mode as far as a company thinking is going
Speaker 2: in terms of where wages go as well, because we
Speaker 2: have heard at least some talk from the administration that
Speaker 2: they think that wages are keeping up with or even
Speaker 2: outpacing inflation.
Speaker 5: At this point, wages have been growing a little faster
Speaker 5: than inflation, which is what you want to see. You
Speaker 5: don't want to see wages shooting up because then that
Speaker 5: could create inflation issue. But that's not the historical pattern.
Speaker 5: We did see wages rise significantly coming out of the
Speaker 5: pandemic because companies were desperate to try to get workers
Speaker 5: to come work for them. But now since they're not hiring,
Speaker 5: wages have been coming down and they're just about at
Speaker 5: a kind of a neutral level where they're not an
Speaker 5: inflation problem, but they're still enough to get you ahead
Speaker 5: of inflation. So the wage issue isn't going to change
Speaker 5: much probably either.
Speaker 2: Appreciate this, Mike, ahead of another Jobs Friday later on
Speaker 2: this week. That's Michael McKee, international economics and policy correspondent
Speaker 2: for Bloomberg Radio and Television. Let's take a look now
Speaker 2: at some stocks making news in the week ahead. I'm
Speaker 2: Nathan Hager, joined by Bloomberg Equities reporter Carmen Reinikey. On
Speaker 2: another pretty busy week for earnings, despite the fact almost
Speaker 2: everybody's reported already, but we hear from a big name
Speaker 2: in retail this week, Target on Tuesday. It seems like
Speaker 2: it's been tough for Target for several quarters now.
Speaker 6: Carmen, Yeah, it's true, So a key figure for them
Speaker 6: is comparable sales growth. It's been negative in the last
Speaker 6: three quarters, and it's something that analysts are expecting will
Speaker 6: fall again. So that's something I'm definitely going to be watching.
Speaker 6: Shares have actually gotten a little bit of a resurgence
Speaker 6: so far this year. They're up about seventeen percent after
Speaker 6: four consecutive years of falling, so that's going to be
Speaker 6: really important. You know, earnings generally speaking, move stocks. I'm
Speaker 6: also watching this after Walmart's report earlier in the month.
Speaker 6: It forecasts less earnings growth for the year than Wall
Speaker 6: Street anticipated and had a pretty conservative view of the
Speaker 6: US economy and sort of unpredictable times for consumers, which
Speaker 6: I think raised a little bit of a red flag.
Speaker 6: So Walmart usually does offer a kind of conservative guidance
Speaker 6: at the start of the year and then raises it
Speaker 6: in the following quarters. But this is still one that
Speaker 6: people are really watching, as you know, a bell weather
Speaker 6: for the US economy, and Target is right in line
Speaker 6: sort of after that.
Speaker 2: Yeah, absolutely. You mentioned that the stock has been on
Speaker 2: the rise since the start of the year despite all
Speaker 2: the troubles. Does that really kind of raise the bar
Speaker 2: for Target? When it comes to meeting those earning expectations,
Speaker 2: it certainly could.
Speaker 6: It's the next catalyst for sure that investors will be
Speaker 6: watching for, you know, deciding if they want to continue
Speaker 6: to buy the stock or sell. I think the target's
Speaker 6: gotten so beat up in the last few years that
Speaker 6: it's maybe not the biggest indicator that the bar is raised.
Speaker 6: And especially because we know they're in the turnaround, I
Speaker 6: think expectations aren't super high for them, so we'll see.
Speaker 6: I mean, certainly bulls want to see this rally continue.
Speaker 2: And we also hear from another software name, CrowdStrike on
Speaker 2: Tuesday as well. You know, every time I think about CrowdStrike,
Speaker 2: I think about the outage from a year or so ago.
Speaker 2: Is that something investors still think about?
Speaker 6: You know, that's such a good question.
Speaker 7: I think.
Speaker 6: I think the CrowdStrike was able to really move past
Speaker 6: that quite quickly. It's not something that I've necessarily seen
Speaker 6: is the biggest problem for CrowdStrike in the last few months.
Speaker 6: I mean, certainly, the bigger thing that I'm kind of
Speaker 6: looking at is that we've seen really broad based weakness
Speaker 6: in software and this was actually one of the stocks
Speaker 6: that got hit recently when Anthropic announced a new security
Speaker 6: feature and it's clawed AI models, so it's a cyber
Speaker 6: security company. And other companies sort of in that space,
Speaker 6: Cloud flare Z scaler sale point slumped, so Crowdstrikes regained
Speaker 6: some of those losses. It's down still though, nineteen percent
Speaker 6: almost twenty percent on the year. So that's actually something
Speaker 6: that I'm looking for sort of most in these earnings
Speaker 6: is what are they going to say about AI going
Speaker 6: forward and how they're incorporating it. If they're you know,
Speaker 6: they are worried about disruption, or if they sort of
Speaker 6: have plans to maybe integrate it and you know, build
Speaker 6: their business going forward.
Speaker 2: You know what that kind of decline and with you know,
Speaker 2: the way that software stocks have been hammered so far
Speaker 2: in this discussion around AI disruption, you have to wonder
Speaker 2: whether after these earnings maybe some investors might see CrowdStrike
Speaker 2: as a buy opportunity. Is that something that you're thinking about, Oh, totally.
Speaker 6: I mean, we've seen so many valuations kind of come
Speaker 6: in because of these big sell offs. So if you
Speaker 6: are a value investor, if you're even just looking for
Speaker 6: you know, stocks at a discount, there are a lot
Speaker 6: of names in software that maybe makes sense. So definitely
Speaker 6: going to be watching there and seeing if investors you know,
Speaker 6: hear good things in the report and say, Okay, this
Speaker 6: is definitely the time to buy.
Speaker 2: And then on Wednesday, Broadcom reports its results. With all
Speaker 2: this nervousness around the AI spending story, where is the
Speaker 2: bar for the AI infrastructure company Broadcom.
Speaker 6: You know, especially after Nvidia. I think it's going to
Speaker 6: be really interesting to see how investors react to this report.
Speaker 6: So it's another chip maker, it's also kind of gotten
Speaker 6: some shine as maybe you know, moving in and the
Speaker 6: kind of grabbing more market share in the chip making space.
Speaker 6: But that being said, it's also kind of moved sideways.
Speaker 8: This year.
Speaker 6: We've seen you know, investors really rotating out of these
Speaker 6: sort of big tech companies, these you know, early sort
Speaker 6: of picks and shovels AI companies and into you know,
Speaker 6: just maybe safer parts of the market. So broad comes
Speaker 6: down ten percent so far this year, and I'm I'm
Speaker 6: just really interested to see how investors react to this report.
Speaker 6: Analysts still expect really solid figures out of Broadcom, so
Speaker 6: they're estimating you know, adjusted earnings per share growth and
Speaker 6: revenue growth of more than twenty seven twenty eight percent
Speaker 6: for this company, So we could see another kind of
Speaker 6: similar reaction where you know, the results are really good
Speaker 6: and investors just still aren't convinced and you know, buying
Speaker 6: shares here.
Speaker 2: Yeah, I mean it used to be you know, it's
Speaker 2: twenty something percent earnings growth was huge, but after Nvidia
Speaker 2: reporting something like sex and d plus percent, the bar
Speaker 2: is kind of in a different place for these companies,
Speaker 2: isn't it totally?
Speaker 6: And it's also just under this umbrella of the like
Speaker 6: wide based anxiety around AI and kind of coming from
Speaker 6: two sides. I mean, we talked about software people worried
Speaker 6: about disruption there, but then on the flip side, you
Speaker 6: know all of the CAPEX spending that's you know, boosted
Speaker 6: Nvidia and you know Broadcome would also be a beneficiary
Speaker 6: of is worrying to investors. They're worried about cyclicality. They're
Speaker 6: worried that it's going to stop at some point. So
Speaker 6: that's really you know, overshadowed one just stocks in the
Speaker 6: e eye trade, but the broader market.
Speaker 2: You have some big names to keep an eye on
Speaker 2: this week. Thank you of Carmen really appreciate this. That's
Speaker 2: Carmen Rhynie equities reporter for Bloomberg News, and coming up
Speaker 2: on Bloomberg day Break weekend, we'll look at the Maid
Speaker 2: in Europe plan and what it'll mean in the EU
Speaker 2: and me on I'm Nathan Hager and this is Bloomberg.
Speaker 2: This is Bloomberg day Break Weekend, our global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: I'm Nathan Hager in Washington. Up later in the program,
Speaker 2: we'll look ahead to manufacturing data in China, but first
Speaker 2: made in Europe. That's the tagline of a new scheme
Speaker 2: to rejuvenate Europe's defense, energy and manufacturing sectors. The raft
Speaker 2: of policy ideas proposed by the EU Commission is drastic.
Speaker 2: They include forcing government procurement processes to look locally, tying
Speaker 2: foreign investors into joint ventures, and hiring European workers. The
Speaker 2: Act is set to be adopted by the EU Parliament
Speaker 2: next week. Let's get more now from Bloomberg Daybreak Europe
Speaker 2: banker Caroline Hepger in London.
Speaker 3: For decades, Europe has advocated for and been built on
Speaker 3: free trade. But in the next few days, the European
Speaker 3: Union is hoping to introduce a strategy to reverse the
Speaker 3: continent's d industrialization. The so called Made in Europe plan
Speaker 3: will enforce strict rules to keep investment factories and know
Speaker 3: how inside the EU, but it's causing fights not just
Speaker 3: internally between countries within the EU's borders, but externally from
Speaker 3: those who are warning against protectionism. Recently, Stephen cowl and
Speaker 3: I spoke to the US Ambassador to the EU, Andrew Pozda.
Speaker 3: He called the idea a serious mistake.
Speaker 7: Well, they made in europeuels would be a direct contravention
Speaker 7: of not only the terms but the spirit of the
Speaker 7: framework trade agreement that was agreed to in Scotland, because
Speaker 7: we've agreed not to have those kinds of preferences between
Speaker 7: our two countries, and I think adopting them would be
Speaker 7: a serious mistake. I would say, particularly in the area
Speaker 7: of defense, because we have a very intermixed defense industrial
Speaker 7: base between the United States and Europe. Many of the weapons,
Speaker 7: the armaments that were using not only in NATO but
Speaker 7: also shipping to Ukraine, have production capacities in Europe as
Speaker 7: well as the United States, and the machines that make them.
Speaker 7: Some are made in the Czech Republic in Finland, some
Speaker 7: are made in the US, there's a very intermixed supply chain,
Speaker 7: a defense industrial base, and a focus on having our
Speaker 7: defense products be interoperable. In other words, that if we are,
Speaker 7: if we're a NATO member and we're producing military hardware
Speaker 7: we wanted to be, we want to you know, we
Speaker 7: can't have it. You know, you're working for different sized
Speaker 7: train rails or weights that are that don't work on
Speaker 7: European highways. We have to have these things interoperable, and
Speaker 7: these by europe preference, particularly in these defense procurement initiatives,
Speaker 7: is a real threat to our defense industrial base, and
Speaker 7: that worries me a lot.
Speaker 3: That was the US is Ambassador to the European Union,
Speaker 3: Andrew Posda, speaking to Stephen Cowl and I on Bloomberg Radio.
Speaker 3: Joining me now to discuss is our Brussels Bureau chief
Speaker 3: Suzanne Lynch and our chief europe correspondent Oliver Krook Susan firstly,
Speaker 3: what is the plan from the European Commission when it
Speaker 3: comes to this legislation.
Speaker 9: Look, I think this is the culmination of a long
Speaker 9: running discussion here in Brussels about the EU's competitiveness problem.
Speaker 9: We've been hearing for a long time about problems within
Speaker 9: this single market, that businesses field, that there are.
Speaker 8: Too many regulations.
Speaker 9: And I think those reports, that those twin reports from
Speaker 9: two former Italian leaders, Mario Dragy and Rico Letta really
Speaker 9: focused mind in Brussels. So I think this Made in europeplan,
Speaker 9: this Industrial Accelerator Act is going to be the full
Speaker 9: crumb of this plan to boost European competitiveness. And I
Speaker 9: think it can be seen as a kind of follow
Speaker 9: up document or repost if you like, to these calls
Speaker 9: for better European competitiveness, a stronger European economy that Mario
Speaker 9: Dragy in particular articulated in his report.
Speaker 3: This seems to be coming in some part from France,
Speaker 3: but it also has seen a lot of delays. Why
Speaker 3: does it keep getting delayed?
Speaker 8: I think it's a sign you're absolutely right.
Speaker 9: Look, France has been vocal for years about, you know,
Speaker 9: it belief that Europe needs to be, as they put it,
Speaker 9: more strategically autonomous, that it needs to stand on its
Speaker 9: own when it comes not just to defense, but also
Speaker 9: to the economy. And you know, I think some of
Speaker 9: the stereotypes Caroline and Europe are sometimes close to the bone.
Speaker 8: I think France has taken a more we would say.
Speaker 9: Protectionist approach to how the single market works. For years
Speaker 9: in the EU it's been always a strong voice for that.
Speaker 9: So yes, France has been pushing this, and the French
Speaker 9: Commissioner says, your na is in the lead on this. However,
Speaker 9: I think what we've seen is pushback or at least
Speaker 9: deep questioning by a lot of other stakeholders in Brussels.
Speaker 9: So firstly within the European Commission itself, that's where this
Speaker 9: plan is going to be published, for this is the
Speaker 9: starting point for EU legislation. There have been several other
Speaker 9: commissioners or their you know, their dgs, their their sections
Speaker 9: of the European Commission, who've had questions about this, about
Speaker 9: how it's going to work in practice, about how is
Speaker 9: it still in tune with the European Union's free trade
Speaker 9: policies for example. So you've got initial blowback within the
Speaker 9: Commission itself before they even publish their document, and then
Speaker 9: outside the European Commission you've got EU member states also
Speaker 9: questioning this. So you've got this coming down the on
Speaker 9: the usual path those more free trade economies, maybe the Nordics, Ireland,
Speaker 9: Germany as well. I mean, we've already had Friedrich mart
Speaker 9: saying yes, we agree there should be a bit of
Speaker 9: a made in Europe policy, but let's make sure that
Speaker 9: this is just in certain sectors and we don't go
Speaker 9: too far down that route. And then there's kind of
Speaker 9: a third pillar, and that's the the other partners of.
Speaker 8: The EU, so be it the UK and the United States.
Speaker 9: They've also raised questions about at a time when these
Speaker 9: third countries are trying to move.
Speaker 8: Closer to Europe and are working closer with Europe, for.
Speaker 9: Example on defense, why is the EU potentially putting off
Speaker 9: barriers as they see it, to collaboration. So I think
Speaker 9: that's why there has been a delay at the European
Speaker 9: Commission is trying to get it right, and even though
Speaker 9: they know what always happens in the EUS, this is
Speaker 9: just the first step. They will put out this Industrial
Speaker 9: Accelerator Act and then everyone will pile in and try
Speaker 9: and get concessions and try and make changes.
Speaker 8: But they're trying as.
Speaker 9: Much as possible to get this to as close of
Speaker 9: a consensus document as they can before it's published here
Speaker 9: in Brussels.
Speaker 3: Indeed, I mean embedding European preference into public procurement. Of course,
Speaker 3: it has unleashed a lot of questions within Europe and
Speaker 3: without Oliver in terms of your assessment of what's driven
Speaker 3: Europe into this new phase maybe of industrial strategy. You know,
Speaker 3: I suppose to remind us of why we're here and
Speaker 3: just what's at stake.
Speaker 10: Well, what's really funny is that actually the Drag Report
Speaker 10: came out before Trump was elected president of the United States, right,
Speaker 10: and so there was this idea that this might just
Speaker 10: sort of end up in a drawer somewhere. It might
Speaker 10: just be, you know, make for yet another report and
Speaker 10: a door stop, you know, for somewhere in Brussels. And
Speaker 10: then there was the election and inauguration of President Donald Trump,
Speaker 10: and then all of these questions about European competitiveness, the
Speaker 10: lack of it, the fact that they're not these big companies.
Speaker 10: I mean, you can really go through some many of
Speaker 10: the sort of superlatives used by Mario Draghi.
Speaker 9: One of my.
Speaker 10: Favorite was that basically, no, I think it was no
Speaker 10: company that was founded in the last fifty years in
Speaker 10: Europe's market cap exceeds something like two hundred billion dollars.
Speaker 10: And of course every single one that exceeds a trillion
Speaker 10: dollars in the United States was founded within the last
Speaker 10: fifty years, and so that is sort of the issue
Speaker 10: that is trying to be addressed here. And it was
Speaker 10: really brought home obviously with the maga sort of foreign
Speaker 10: policy of the America first, and then this American foreign
Speaker 10: policy that was obviously not just obsessed with tariffs, which
Speaker 10: it obviously was, but also taking a much more sort
Speaker 10: of active role in economic stake craft and you know,
Speaker 10: buying equity stakes in companies across the United States to
Speaker 10: try to stave off again some of the major issues
Speaker 10: that the United States saw within their own supply chains
Speaker 10: and within their own sovereignty, namely critical raw materials and
Speaker 10: things like that. And the problem is that under this
Speaker 10: Trump administration that has a much more sort of solidified
Speaker 10: and consolidated ability to exert power in the United States,
Speaker 10: the Europeans have sort of come up against the issue
Speaker 10: and the sort of obstacle that they now face in
Speaker 10: this sort of new magaled world, which is that politically
Speaker 10: they're still so sort of fragmented and they cannot move
Speaker 10: with the same speed and effectiveness as the United States.
Speaker 10: So really this is about trying to get the European
Speaker 10: economy further on sort of more economic footing, and it's
Speaker 10: really made brought to urgency and brought out of the
Speaker 10: abstract I think by the Trump administration.
Speaker 3: Yeah, absolutely, Suzanne. Do you think that there will be
Speaker 3: a target for the share of European products that are
Speaker 3: domestically produced for example? Will it go that far? Do
Speaker 3: these rules have the potential also to make your more
Speaker 3: self sufficient in certain really really key areas, like in
Speaker 3: a defense for example.
Speaker 8: Yeah, I think there will be.
Speaker 9: I think this is where the you know, the point
Speaker 9: of contention will be, you know, who is a trusted
Speaker 9: partner and how far or how much or what percentage
Speaker 9: of any rules you know, it made in Europe only
Speaker 9: for example. Now, I mean I think there's a couple
Speaker 9: of things at play here. For example, there is a division,
Speaker 9: if you like, between you know, the EU is made
Speaker 9: of twenty seven countries with very different economies. So there's
Speaker 9: always been a suspicion by the smaller countries frankly that
Speaker 9: big countries like France and Germany they have the resources
Speaker 9: to plow money into their own economies. But if you're
Speaker 9: from Finland or Ireland or you know, a smaller country Estonia.
Speaker 9: You don't necessarily want to build a factory in your country,
Speaker 9: do you know? You don't you want? Actually, you have
Speaker 9: thrived through free trade. You like this foreign investment by
Speaker 9: other countries, and that's what made you successful as an economy.
Speaker 9: So I think there are very different visions of economic success,
Speaker 9: and you're back to this age old problem with the EU.
Speaker 9: One of the reasons Ali just explain perfectly there why
Speaker 9: the European Union is like this is because the europe
Speaker 9: Union is not a country, you know, it's a collection
Speaker 9: of different countries. So it's always been.
Speaker 8: Held back by this obvious fact that.
Speaker 9: Even though the single market does work in lots of
Speaker 9: ways free movement of people, of capital.
Speaker 8: Of labor, etc. There are barriers.
Speaker 9: And I mean I think with Earthena vander Lyon who
Speaker 9: used the example of a truck in Belgium and there
Speaker 9: are certain restrictions on how much tonnage it can carry,
Speaker 9: and then and then when it goes over the border
Speaker 9: to France that changes. Now as an aside, that sometimes
Speaker 9: happens in the US between different states, but look, that
Speaker 9: does illustrate these issues and that is replicated all over
Speaker 9: the place. If you're an accountant, you want to work
Speaker 9: in one country, but it's too hard to move your
Speaker 9: profession to that country.
Speaker 8: It's got different rules.
Speaker 9: But at the end of the day, these measures to
Speaker 9: fix that would require a seeding of national sovereignty a
Speaker 9: lot of key areas by countries, and I don't think
Speaker 9: they're prepared to do that. So I think what we
Speaker 9: may see in this proposal is that sometimes the European
Speaker 9: Commission aims high because they know that it will be
Speaker 9: watered down eventually when it goes through the other EU institutions,
Speaker 9: for example, But they know there's always this in built
Speaker 9: break if you like, on developing the European Union Single market.
Speaker 9: But look, I do think, even though I mentioned about
Speaker 9: these divides about certain countries, even the most free trade
Speaker 9: minded countries, except that over the last few years, particularly
Speaker 9: on defense, but also since COVID, that the European Union
Speaker 9: does need to look after itself more, that there needs
Speaker 9: to be a turning inwards of such that you can't
Speaker 9: just depend on China for example, for resources, or on
Speaker 9: the United States for trade. So I think everyone the
Speaker 9: page has turned on that.
Speaker 8: Also.
Speaker 9: I think another important dynamic is and you're asking about
Speaker 9: the specifics of this when it comes out of the
Speaker 9: Commission is that the European Commission and the EU leadership has.
Speaker 8: Shifted a bit to the right on this.
Speaker 9: When the European Union talks about reassessing some EU regulation
Speaker 9: and they're doing this through the so called Omnibus builds,
Speaker 9: you will always have figures around the EU table who say,
Speaker 9: hang on, we can't sacrifice Europe's strict rules and regulations.
Speaker 9: That is part of what the public wants, but also
Speaker 9: certainty for businesses. I think there are fewer of those
Speaker 9: voices now, so I think that's one of the reasons
Speaker 9: the EU is kind of moving now, because it's kind
Speaker 9: of shifted more for want of a better phrase, to
Speaker 9: the right on this issue since the last European elections.
Speaker 3: Suzanne, thank you, My thanks to Suzanne Lynch, Bloomberg's Brussels
Speaker 3: Bury chief, and to Oliver Cook, our chief Europe correspondent.
Speaker 3: I'm Caline Hepge here in London. You can catch us
Speaker 3: every weekday morning for BlueBag Daybreak you at beginning at
Speaker 3: six am in London. That's one am on Wall Street.
Speaker 2: Nathan, Thanks Caroline, and coming up on Bloomberg Daybreak weekend
Speaker 2: we look ahead to PMI data in the world's second
Speaker 2: largest economy. I'm Nathan Hager, 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. This week we get official PMI data
Speaker 2: for China. For a preview, let's get to Doug Prisner,
Speaker 2: host of the Bloomberg Daybreak Asia podcast.
Speaker 4: Thanks Nathan. It's not a secret China's economy has faced
Speaker 4: many challenges in recent years. The most glaring is weak
Speaker 4: domestic demand. This is largely a reflection of a prolonged
Speaker 4: downturn in the property market, and with that soft demand
Speaker 4: there has been entrenched deflationary pressure. Beyond that, there is
Speaker 4: US tariff policy and an ensuing trade war, which really
Speaker 4: forced China to expand markets outside the United States. So
Speaker 4: will we learn anything new this week with the release
Speaker 4: of the official PMI data. Let's bring in Bloomberg's Alan Wong.
Speaker 4: Alan is China ecogov editor and he joins us from
Speaker 4: our studios in Hong Kong. Thank you so much for
Speaker 4: being here. Help me understand what's going on right now.
Speaker 4: I know we're just coming off of the Lunar New
Speaker 4: Year holiday. Can you give me a sense of what's
Speaker 4: happening in the big picture in regard to the Chinese economy.
Speaker 11: I think the underlying weaknesses that you described at the
Speaker 11: start still remain, and then coming off of the holiday season,
Speaker 11: we now have more data points, but they do not
Speaker 11: paint a very clear picture of whether the Chinese economy
Speaker 11: is improving in a meaningful way. I'll just give you
Speaker 11: a couple of examples. We're seeing hotels, days, spending, and
Speaker 11: travel trips being up on all measures. But that is
Speaker 11: not as bullish as many people might think, because the
Speaker 11: per capita spending actually was flat and the total spending
Speaker 11: went up partly because the national holiday this year was
Speaker 11: nine days long, which is one day longer than the
Speaker 11: previous year. And as you can imagine, if you get
Speaker 11: people more holidays, they probably spend more time spending and consuming.
Speaker 11: So that is some sort of a statatistical noise that
Speaker 11: distors the picture. And in terms of the PMI, the
Speaker 11: Chinese New Year is also injecting some uncertainty into just
Speaker 11: exactly how we can read it. We know that back
Speaker 11: in January, China's manufacturing sectors contractor based on the official
Speaker 11: PMI and economists forecasted the same degree of contraction almost
Speaker 11: in February, and you can imagine that because of the
Speaker 11: long Chinese Lunar New Year holiday period, factories just operates
Speaker 11: at a lower capacities and orders my slow. So if
Speaker 11: those two months are contracted consecutively, that would be a
Speaker 11: pretty rare event. We've only seen that happen twice over
Speaker 11: the last ten years, that with the manufacturing contractions seen
Speaker 11: at the first two months of the year.
Speaker 4: So is the problem in manufacturing and in turn the
Speaker 4: export economy in China solely the result of what's been
Speaker 4: going on with those US tariffs and US trade policy
Speaker 4: or are there other factors at play here?
Speaker 11: There are certainly many factors at play, and the tariff
Speaker 11: policy actually worked in a way that was quite counterintuitive.
Speaker 11: We know China said that it achieved its five percent
Speaker 11: growth target last year. It actually surprised lots of people
Speaker 11: because at the start of the year, with Trump returning
Speaker 11: to the White House, people expected the tariff policy to
Speaker 11: really slow China's exports to the United States, but export
Speaker 11: turned out to be a major driver of growth of
Speaker 11: China last year, but that was partly because of the tariffs,
Speaker 11: because how tariffs accelerated buyers in the US and globally
Speaker 11: to front load their orders, so people bought more than
Speaker 11: they would have otherwise, and that actually ended up helping
Speaker 11: China's economy grow as much as it did. So the
Speaker 11: question now is whether that effects has been exhausted and
Speaker 11: whether we're now seeing some sort of a payback period.
Speaker 4: So my understanding is that China in the meantime has
Speaker 4: been looking for other markets for its goods. I know
Speaker 4: that the ev story as it relates to Europe is
Speaker 4: a big concern, but hasn't the business community in China
Speaker 4: been doing a very effective job at finding newer export markets.
Speaker 11: They have. In fact, growth in exports to markets such
Speaker 11: as Southeast Asia, Europe and Africa had been overperforming since
Speaker 11: the start of last year, and they more or less
Speaker 11: they actually they more than make up for the loss
Speaker 11: to the US market. But note that some of those
Speaker 11: shipments are meant for the US at the end because
Speaker 11: of some of the goods of being rerouted to avoid tariffs,
Speaker 11: so there's actually not a very clear picture of how
Speaker 11: much those increase in exports to non US markets actually
Speaker 11: ended up in the US and was tied to the
Speaker 11: US demand.
Speaker 4: So Alan, I'm curious when it comes to the story
Speaker 4: on weak domestic demand, what do we know about efforts
Speaker 4: on the part of the government to change the narrative.
Speaker 11: I think a government's efforts has mostly been to put
Speaker 11: a floor on the consumption trend more than really drastically
Speaker 11: boosting how much people spend, because one long time weakness
Speaker 11: in the Chinese demand side of the equation is just
Speaker 11: how wage growth has been slow and people are not
Speaker 11: feeling economically secure enough to spend more of their savings,
Speaker 11: and that has continued, and the government has used policies
Speaker 11: such as subsidies for certain purchases to encourage people to buy.
Speaker 11: But economists see those as short term effects, because people
Speaker 11: might as well buy a refrigerator earlier than they expect it,
Speaker 11: not necessarily buy more appliances than they plan to. So
Speaker 11: this is one way that the economist plane is how
Speaker 11: those subsidies are just front loading the purchases to use
Speaker 11: that word again, and not necessarily improving a demand for products.
Speaker 4: So the Communist Party will hold the annual parliamentary meeting
Speaker 4: in a couple of weeks. The NPC. What do you
Speaker 4: think we're going to learn from that event?
Speaker 11: The NPC will set the next five year plan for
Speaker 11: China's social and economic development. A lot of people we
Speaker 11: will be watching very closely as to just how seriously
Speaker 11: China's looking to boost consumption. As we know, more developed
Speaker 11: economies rely a lot more on consumption, especially in the
Speaker 11: services sector, to keep their economy growing, and China has
Speaker 11: been a laggard in that regard, and the policy makers
Speaker 11: have for years try to improve people's consumption, but that
Speaker 11: hasn't had a meaningful effects so far, and from the
Speaker 11: policy we've seen in the last two years, we can
Speaker 11: engauge how the underlying weakness is still a main drag
Speaker 11: on people's mood to consume. The other thing to watch
Speaker 11: out for from the NPC and in the five year
Speaker 11: plan in particular, is just how important China see's technology
Speaker 11: as a future growth pillar. And there's so many different
Speaker 11: ways to look at this. AI is a big sector
Speaker 11: that China wants to grow, but there's also worries that
Speaker 11: automation and AI adoption could actually replace some workers, which,
Speaker 11: as you can imagine, will not help with consumption right
Speaker 11: if people aren't earning more money or earning enough, then
Speaker 11: they wouldn't feel confident enough to go and job is.
Speaker 4: The government involved in supporting research and development? Are there
Speaker 4: funds available for companies to tap into if they're trying
Speaker 4: to develop new forms of technology, whether it's related to
Speaker 4: robotics or artificial intelligence?
Speaker 11: The government has some sort of national strategy to accelerate
Speaker 11: the use of AI and to make sure that it's
Speaker 11: spread to industrial use in a responsible way in their words,
Speaker 11: But it's mainly the private companies, the private sector that've
Speaker 11: been pouring money into R and D in AI, building
Speaker 11: data centers. Our Bloomberg Intelligence Research estimates that China's AI
Speaker 11: companies will have spent ninety billion dollars between twenty five
Speaker 11: and twenty seven on AI. That number is mostly a
Speaker 11: private company spending on these services and hardware just to
Speaker 11: stay ahead in the AI race.
Speaker 4: So Alan, in the last week in the States, we
Speaker 4: heard from in Nvidia and on the call with analysts,
Speaker 4: the company said that competitors in China are making progress.
Speaker 4: So where is China right now in the race to
Speaker 4: produce advanced computer chips?
Speaker 11: China buy, most estimates are still a couple of years behind.
Speaker 11: It really cutting edge chip making technologies, but it is
Speaker 11: catching up in many ways, and as Nvidia flagged, there's
Speaker 11: real worry that if left to freely compete, China could
Speaker 11: really catch up with the US. But it's a constantly
Speaker 11: moving target, so it's up to anyone's guess as to
Speaker 11: just when China will catch up and in what sectors
Speaker 11: In particular. There are areas where China is lacking behind
Speaker 11: more than others, but there are also areas that China
Speaker 11: is seen as closer with the cutting edge applications, such
Speaker 11: as when it comes to large language models. China is
Speaker 11: constantly coming out with models as surprise the US competitors
Speaker 11: and leaders, and the US leaders in this field like
Speaker 11: open Ai and Anthropic have complained that China has been
Speaker 11: using their models to train their models to accelerate their
Speaker 11: development efforts.
Speaker 4: In the next few weeks. We know that President Trump
Speaker 4: is expected to visit Beijing in the last week. During
Speaker 4: his State of the Union address, he vowed to keep
Speaker 4: fighting for his tariffs, and that seems very much related
Speaker 4: to the China story, although it is a little unclear
Speaker 4: at the moment. Trump did not mention China in his speech,
Speaker 4: and I think it's fair to say, there's still a
Speaker 4: little bit of intrigue into how these new tariffs from
Speaker 4: the administration may impact China and obviously trade flows as well.
Speaker 4: Have you seen any clues on this.
Speaker 11: I think the overall picture is that the bilateral ties
Speaker 11: will continue to be stable. There have been some recent
Speaker 11: developments tariffs, but those are more marginal than compared to
Speaker 11: them broad a trajectory of stabilized ties. For example, after
Speaker 11: the Supreme Court struck down some of Trump's terroriffs on
Speaker 11: China among our countries, the trade representative James and Korea
Speaker 11: said the administration would use probe into China's compliance with
Speaker 11: an earlier trade deal as a way to keep tariff
Speaker 11: levels up. So after that, China responded with a statement
Speaker 11: saying that if they use these so called excuses to
Speaker 11: put new tariffs on China, China will have no choice
Speaker 11: but to use necessary measures to respond to the US.
Speaker 11: But after that very quickly, Grea also said in a
Speaker 11: Fox Business interview that the US doesn't seek escalation. So
Speaker 11: based on this exchange alone, you can tell that both
Speaker 11: countries still want to make sure that their relations are
Speaker 11: on stable footing until at least the summit between She
Speaker 11: and Trump.
Speaker 4: So what about the trade relations that China has with
Speaker 4: both Japan and South Korea. Obviously those countries are US allies.
Speaker 4: How would you describe the current flow of trade.
Speaker 11: Well, China and Japan, they've engaged, and China and Japan
Speaker 11: are still locked in a pretty bitter diplomatic dispute over
Speaker 11: what Japan's leader previously said about possibly defending Taiwan in
Speaker 11: the event of an invasion by the by China's military.
Speaker 11: So trade has been affected to some extent. It's mostly
Speaker 11: the tourism sector and a few small pockets of the
Speaker 11: trade relationships where things are obviously being affected, but in
Speaker 11: the broad scheme of in the grand scheme of things,
Speaker 11: they're not that important to China's overall trade. But there
Speaker 11: are some areas that even small steps might hurt either
Speaker 11: countries more. For example, if China uses this to further
Speaker 11: withhold the shipments of rare earths to Japan, it might
Speaker 11: impact some of Japan's sectors more than others. China to
Speaker 11: recently impose new export control measures on twenty Japanese companies
Speaker 11: and then to put another twenty Japanese companies on a
Speaker 11: so called watch lists, so that just shows that China
Speaker 11: isn't giving up on his pressure campaign on Tokyo and
Speaker 11: on Japanese Prime Minist Takaichi to drop her previous comment
Speaker 11: on Taiwan.
Speaker 4: Alan will leave it there. Thank you so very much,
Speaker 4: Bloomberg's Alan Wong. There. He is China Eco guv editor,
Speaker 4: joining from our studios in Hong Kong. I'm Doug Krisner.
Speaker 4: You can catch us weekdays for the Daybreak Asia podcast.
Speaker 4: It's available 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 on markets
Speaker 2: overseas and the news you need to start your day.
Speaker 2: I'm Nathan Hager. Stay with us. Top stories and global
Speaker 2: business headlines are coming up right now.