Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 1: top stories in the coming week from our day Break
Speaker 1: anchors all around the world.
Speaker 2: Straight ahead on the program.
Speaker 1: Twenty twenty four closes out with a rather hawkish Federal Reserve. Plus,
Speaker 1: can the tech sector keep up its momentum heading into
Speaker 1: the new year. I'm Tom Busby in New York.
Speaker 3: I'm Doug Prisner looking at five possible events for Asian
Speaker 3: markets in the year ahead.
Speaker 4: I'm Stephen Carol E London, who are looking back at
Speaker 4: a historic year in British politics.
Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
Speaker 5: eleven three oh New York, Bloomberg ninety nine to one, Washington, DC,
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Speaker 2: Good day to you. I'm Tom Busby.
Speaker 1: We begin today's program with the Federal Reserve, which shocked
Speaker 1: investors by signaling fewer rate cuts in the year ahead.
Speaker 1: What does this mean for the markets, the economy for
Speaker 1: the Feds Dot plot for twenty twenty five well for more.
Speaker 1: We're joined by Michael McKee, Bloomberg's international economic and policy correspondent.
Speaker 1: So Michael, let's start by looking at what the FED
Speaker 1: accomplished this past year. Five meetings that are row leaving
Speaker 1: rates unchanged and then boom.
Speaker 6: Well, you could look at it this way. The last
Speaker 6: time we were at four and a quarter to four
Speaker 6: and a half percent was when the Fed was going
Speaker 6: up in rates, and at that point unemployment was high
Speaker 6: and inflation was in the sixth range. Now we're in
Speaker 6: the two range, and we're headed down with the numbers,
Speaker 6: So the Fed will take a victory lap on that.
Speaker 6: We do see inflation stalling out a little bit, which
Speaker 6: raised a lot of questions about whether they should continue
Speaker 6: cutting at the same pace, and they sort of answered
Speaker 6: us by raising their inflation forecast and saying that in
Speaker 6: twenty twenty five they're only going to cut twice.
Speaker 1: Now, at that December meeting, the boat to cut the
Speaker 1: federal funds rate eleven to one, the Cleveland Fed's new president,
Speaker 1: Beth Hammick, preferring to hold rate study. What did she see?
Speaker 6: She suggested before the FED meeting that we're about at
Speaker 6: a time when the Fed wants to pause because we're
Speaker 6: at the upper end of the neutral rate, and that's
Speaker 6: going to be the big discussion going forward is what
Speaker 6: is the neutral rate? The rate of interest that neither
Speaker 6: stimulates or holds back the economy, doesn't create an inflationary
Speaker 6: situation or a deflationary situation, And nobody knows. It's only
Speaker 6: something you can observe in hindsight, but there are a
Speaker 6: lot of guesses. And Beth Hammick works at the Cleveland
Speaker 6: Fed where they have an inflation center, and so they
Speaker 6: were probably telling her that at this point it looks
Speaker 6: like it could be neutral, could be around four percent,
Speaker 6: so she wanted to have a pause.
Speaker 7: Now.
Speaker 6: The other thing that was interesting is that three other
Speaker 6: members of the committee, presumably non voters because we didn't
Speaker 6: get any other dissents, also agreed that they should not
Speaker 6: move rates at this meeting. So there's definitely some gathering
Speaker 6: strength in the hold for a while.
Speaker 1: Camp, and that is inflation. Is that the main driver
Speaker 1: you think that.
Speaker 6: That inflation's moved back to the primary position. It doesn't
Speaker 6: look like there's anything particularly wrong with the labor market.
Speaker 6: Now we'll see first week of January, the first Friday
Speaker 6: we'll get the next jobs report. And while hiring has slowed,
Speaker 6: it hasn't fallen off a cliff. The unemployment rate is
Speaker 6: below where the Fed thought it would be at the
Speaker 6: end of twenty twenty four. So right now they're focused
Speaker 6: on inflation, and they are moving up their inflation expectations,
Speaker 6: in part because it's been sticky and in part because
Speaker 6: they don't know what the president elect is going to
Speaker 6: do in twenty twenty five.
Speaker 1: A lot of uncertainties there. Well, right now it's at
Speaker 1: about two point seven percent.
Speaker 6: Two point seven percent of the headline may go up.
Speaker 6: We're talking PCEE here for the Fed because that's what
Speaker 6: they do, and the PCE headline is going into the
Speaker 6: end of the year is just below or right around
Speaker 6: two and a half percent.
Speaker 1: Now, Fed officials stunned the markets with expectations or signals
Speaker 1: of only two rate cuts. There had been projections of four,
Speaker 1: then three, mostly four. I mean, what's the reason for
Speaker 1: signaling that right now?
Speaker 6: They wanted to, I think, justify the fact that they're
Speaker 6: going to be able to go on hold and they
Speaker 6: probably aren't going to raise rates at the January meeting.
Speaker 6: And if inflation is a problem, then they don't want
Speaker 6: to cut rates anymore, so they raised their forecasts, and
Speaker 6: as we mentioned, part of it has to do with
Speaker 6: what they think may happen under the Trump administration.
Speaker 2: But with the.
Speaker 6: Forecast higher that scared Wall Street more than anything else.
Speaker 6: Is the magnitude of the increase about thirty basis points
Speaker 6: in their inflation forecast, and the number of Fed officials
Speaker 6: who said that we should go on hold scared Wall Street.
Speaker 6: They maybe overreacted to the idea that we would have
Speaker 6: only two rate cuts because the market's immediately priced in
Speaker 6: only one rate cut, and so that led to a
Speaker 6: sell off. I think the end of the day huge
Speaker 6: drop that we saw was probably more related to the
Speaker 6: fact that it's been a good year. People have made
Speaker 6: a lot of money, and most senior traders are going,
Speaker 6: you know, they take the last two weeks of the
Speaker 6: year off, so they figured, well, we'll sell take some profits,
Speaker 6: put them in the bank account since the markets are
Speaker 6: going down. And then the markets came back, so you know,
Speaker 6: we'll see what it portends for next year.
Speaker 1: Now, despite the three rate cuts in a row by
Speaker 1: the Fed, mortgage rates have barely budged. They are back
Speaker 1: above seven percent, while slower, not gone away. What's what's
Speaker 1: the outlook?
Speaker 6: Do you think, Well, if only somebody had asked JP
Speaker 6: howe that somebody you know had asked jpow that And
Speaker 6: basically he pointed out that those are market rates. The
Speaker 6: FED set rates at the short end the two years
Speaker 6: responsive to the FED up maybe through the belly, but
Speaker 6: when you get to mortgage rates, car rates, things that
Speaker 6: are influenced by where your loan is longer, they're looking
Speaker 6: at market rates for that. And market rates haven't come
Speaker 6: down because the market's been concerned about inflation and about
Speaker 6: what Donald Trump might do.
Speaker 1: Yeah, a lot of uncertainties. That next policy meeting from
Speaker 1: the Fed just a month away January twenty eighth and
Speaker 1: twenty ninth, our thanks to Michael McKee, Bloomberg's International Economic
Speaker 1: and policy correspondent. We move next to the US tech sector,
Speaker 1: which exploded in value this past year, mostly on the
Speaker 1: promises of artificial intelligence technology and the burgeoning use of chatbots.
Speaker 1: But we also saw a US tech back with China,
Speaker 1: a large number of tech layoffs, regulator crackdowns over data
Speaker 1: privacy concerns, and more so, what does twenty twenty five
Speaker 1: have in store with a new administration entering the White House.
Speaker 1: Well for more, we're joined by Mark German, Bloomberg's chief
Speaker 1: technology correspondent. Well, Mark, let's start with the biggest developments,
Speaker 1: maybe even setbacks, that you saw in the industry this
Speaker 1: past year, twenty twenty four.
Speaker 8: So this year was obviously very heavy on generative AI.
Speaker 8: You saw lots of companies get into the space. You've
Speaker 8: seen OpenAI roll out new tools. You've seen Apple announce
Speaker 8: Apple Intelligence. You've seen Google really step up their game
Speaker 8: in terms of Gemini. You've seen deeper integration at Microsoft
Speaker 8: through it's copilot initiatives in partnership with OpenAI. So it's
Speaker 8: really all been AI. We're still waiting on Amazon to
Speaker 8: roll out their long promised AI upgrade for Alexa on
Speaker 8: their Eco devices and other hardware products. And we're still
Speaker 8: waiting for Apple to roll out a more comprehensive and
Speaker 8: better or SI. That will happen next year. But I
Speaker 8: would say twenty twenty four, if it would be to
Speaker 8: be remembered as anything in the tech sector, would make
Speaker 8: it the year of artificial intelligence.
Speaker 1: Yeah, I mean it's everywhere now, Amazon, you see it,
Speaker 1: like you said, it's rolling out. Apple is now just
Speaker 1: introduced in the last couple of months. Where does AI
Speaker 1: go from here?
Speaker 2: Though?
Speaker 8: AI is going to become more conversational, and I think
Speaker 8: it's going to become more deeply embedded in different use cases.
Speaker 8: What we've seen is open AI and some of these
Speaker 8: other companies go all the way to one side on
Speaker 8: our official intelligence, allowing it to do many things on
Speaker 8: the user's behalf. There are many, very much concerns about
Speaker 8: AI replacing jobs. So I think what you're going to
Speaker 8: see is now the technologies out there, and maybe we
Speaker 8: can call it sort of a raw form. We'll see
Speaker 8: it get optimized and more deeply integrated into devices and
Speaker 8: for different use cases, for more specific actions and more
Speaker 8: specific sectors within the larger technology industry. So I think
Speaker 8: you're going to see better technology. I think you're going
Speaker 8: to see a bit of a pullback as well in
Speaker 8: terms of how much this tech is going to be
Speaker 8: unleashed and how it's going to be implemented precisely well.
Speaker 1: One thing we learned very recently was Klarna, that is
Speaker 1: a very popular buy now, pay later. They say they
Speaker 1: haven't made a hire in months and they're using AI.
Speaker 1: They've been able to reduce their staff by twenty two percent.
Speaker 1: So just a hint of what it does mean for
Speaker 1: the job sector right in the tech industry.
Speaker 8: Well, there's a lot of jobs that are going to
Speaker 8: be impacted by AI. There's a lot of jobs that
Speaker 8: are not going to be impacted at all BAAI. And
Speaker 8: there are a lot of jobs, probably the rest of them,
Speaker 8: I would split it a third to third and third
Speaker 8: that are going to be augmented and helped by AI. Right.
Speaker 8: You can imagine consumers using AI as well to get
Speaker 8: projects done. I want to know the impact on students
Speaker 8: in school.
Speaker 5: Right.
Speaker 8: There's some people who's liked to compare AI to the calculator, right,
Speaker 8: but the calculator is very different than something that can
Speaker 8: do all your homework for you.
Speaker 2: Yeah, no doubt.
Speaker 1: I want to go back to which I know you
Speaker 1: cover in a big way. This past year, a lot
Speaker 1: of changes at Apple. Probably the biggest is after ten
Speaker 1: billion dollars of investment, they shut down their Apple Car
Speaker 1: division and have they taken a lot of that money,
Speaker 1: a lot of the resources, and put it into AI.
Speaker 8: So they fired about half of the employees working on
Speaker 8: the car project. There were a lot of personnel that
Speaker 8: they didn't need anymore if you're not working on a car.
Speaker 8: There's a lot of very specific engineering work for a vehicle. Obviously,
Speaker 8: they took about the other half and split them up
Speaker 8: amongst a few teams. Some are working in robotics, some
Speaker 8: are working on home devices, some are working on software,
Speaker 8: some are working on cloud. But the vast majority of
Speaker 8: the people they kept are working on AI and generative
Speaker 8: AI more specifically in future iterations of Siri. Future iterations
Speaker 8: of AI tied robotics, type of software and hardware and
Speaker 8: cloud initiatives, and so they really are taking those resources
Speaker 8: and applying them elsewhere. Personally, I think in the short
Speaker 8: term getting out of the car space was a good idea,
Speaker 8: But I think in the long term they're maybe going
Speaker 8: to have to take another look at whether or not
Speaker 8: they don't want to be in the car industry because
Speaker 8: it's just going to continue to heat up. At some point,
Speaker 8: someone's going to have a much better mousetrap in the
Speaker 8: car space. Could and should have been Apple. It won't
Speaker 8: be them.
Speaker 2: It sounds like it's going to be Cha.
Speaker 8: Yeah, China and cars are becoming synonymous. Is the AI
Speaker 8: gets better and better. See, cars are a great example
Speaker 8: of applying AI for use cases that make sense, right,
Speaker 8: having a self driving car that you can rely upon.
Speaker 8: And so I think we're just going to see more
Speaker 8: of that out of China, and we'll see what Google
Speaker 8: and Amazon are able to do in that space as well.
Speaker 8: But at some point I think in the next five years,
Speaker 8: Apple may have to reevaluate it.
Speaker 1: Now, Apple's bread and butter the iPhone, But we got
Speaker 1: some disturbing news from Micron Technology, the US's biggest maker
Speaker 1: of memory chips, that said they're seeing weakness in demand
Speaker 1: for smartphones and PCs. Do you see that as a
Speaker 1: broad based weakness? Do you see any of that evidence
Speaker 1: in Apple or in Samsung.
Speaker 8: I'm seeing it in the sense that the yes, I'm
Speaker 8: seeing it, but it's hard to know exactly what the
Speaker 8: cause is given that the last couple iPhones that rolled out,
Speaker 8: quite honestly, weren't that impressive and didn't include major changes.
Speaker 8: So what we're going to have to do is wait
Speaker 8: and see for when Apple rolls out a major redesign,
Speaker 8: a major revamp to the iPhone, see what that does
Speaker 8: to the market, and see what the sales of those
Speaker 8: devices looks like. If those are strong, we know it's
Speaker 8: an anomaly because there weren't many compelling reasons stuff grade.
Speaker 8: If those results are not so strong, we know that
Speaker 8: something's going on.
Speaker 2: Well, a lot to look forward to.
Speaker 1: Our thanks to Mark German, Bloomberg's chief technology correspondent. Coming
Speaker 1: up on Bloomberg day Break weekend. What's on the horizon
Speaker 1: for Europe's stock market? I'm Tom Busby and this is Bloomberg.
Speaker 1: This is Bloomberg day Break weekend, our global look ahead
Speaker 1: at the top stories for investors in the coming week.
Speaker 1: I'm Tom Busby in New York. Up later in our program,
Speaker 1: bring you five themes investors are looking at in Asian markets.
Speaker 1: But first in twenty twenty four, Europe's political situation has
Speaker 1: been decidedly rocky. The Block's two largest economies, France and Germany,
Speaker 1: have both faced tumultuous governmental shifts, sending shockwaves reverberating around
Speaker 1: the continent, and its economies will twenty twenty five bring
Speaker 1: better fortunes for European investors. For more, let's go to
Speaker 1: London and bring in Bloomberg Daybreak Europe banker Stephen Carroll.
Speaker 4: Tom It's been a jam packed historic year in British politics.
Speaker 4: From the first Labor government in fourteen years, to a
Speaker 4: Conservative meltdown and a long await at elector breakthrough for
Speaker 4: Nigel Faraja's Reform UK, there's barely been a dull moment.
Speaker 4: Bloomberg's UK Political editor Alex Wickham has been speaking to
Speaker 4: James Wilcock and me about the extraordinary events of twenty
Speaker 4: twenty four and making some predictions for the year ahead.
Speaker 9: Regardless of everything that's happened since and all the grumblings
Speaker 9: that people might have with the new government and kiss
Speaker 9: Armor's performance, this is something that people in the Labor
Speaker 9: Party have literally been waiting much of their professional lives for,
Speaker 9: and finally they get the chance to show whether they're
Speaker 9: any better in office and their ideas and policies and
Speaker 9: personalities are any better suited to power than the Conservatives were.
Speaker 9: You know, it is too early to make that judgment.
Speaker 9: We can see some early indications certainly that it isn't
Speaker 9: as easy as they might have thought it was going
Speaker 9: to be. That actually the problems structurally that the British
Speaker 9: state has are hard to resolve, and you can't just
Speaker 9: come in and go well with the nice, cuddly Labor
Speaker 9: Party and we're much better than those those awful Tories.
Speaker 9: Everything's going to be okay. Now it turns out things
Speaker 9: are more complicated than that. And I think how labor
Speaker 9: grapples with those huge trade offs that they're going to
Speaker 9: have to make and political decisions things that are just
Speaker 9: really difficult is basically the story of the last six
Speaker 9: months at least, and probably the next four years.
Speaker 10: There's a linitting contradiction here, isn't there? Because I was
Speaker 10: thinking about what your political theme of the year might be,
Speaker 10: and on one hand there's this big change, as you
Speaker 10: just said, But on the other hand, so much is
Speaker 10: the same, the same economic problems, the same inheritance, the
Speaker 10: same difficulty in getting government to do what it wants.
Speaker 10: You know, what would you say we can learn from
Speaker 10: how labor have kind of taken to power in the
Speaker 10: past of five months. What kind of lessons do we
Speaker 10: take from that?
Speaker 9: You know, Strategically, if you talk to people around Kissed Armor,
Speaker 9: they sort of say, look, don't panic, We've deliberately done
Speaker 9: the hard stuff first. We want to get some of
Speaker 9: this horrible stuff out of the way that we were
Speaker 9: left with by the Tories, that we had to resolve
Speaker 9: the prisons over crowding crisis, the you know, the fiscal situation,
Speaker 9: many other things, and things will get better. That's so,
Speaker 9: you know, they seem to be relatively relaxed about, you know,
Speaker 9: where the fact that things will turn around and this
Speaker 9: is all part of a plan that you know, the
Speaker 9: first year or so might be might be unpopular, but
Speaker 9: then they'll get around to it.
Speaker 11: Now, if you speak.
Speaker 9: To some other people in at the top of the
Speaker 9: Labor Party, they would be perhaps a bit more candid
Speaker 9: and admit that actually, perhaps Labor should have done a
Speaker 9: bit more policy working opposition. Perhaps Labor should have you know, yes,
Speaker 9: criticized the Tories for the things they did wrong, but
Speaker 9: perhaps had a bit more detailed thinking about what they
Speaker 9: would do instead. Because we haven't seen a huge amount
Speaker 9: of big ideas from Labor about in government, about how
Speaker 9: to fix the NHS, about how to fix crime, justice, migration, etcetera, etcetera.
Speaker 9: And that is going to be a huge challenge for them.
Speaker 9: And the danger for kist Arma is this narrative that's
Speaker 9: perhaps starting to emerge over the first six months that
Speaker 9: Labour's disappin pointed or underwhelmed or hasn't provided change. Like
Speaker 9: you say, if that sets in over the next twelve months,
Speaker 9: that will be really hard for him to turn around.
Speaker 9: So he does need a bit of a better story
Speaker 9: to tell next year.
Speaker 4: Yeah, and it's hard not to think about how much
Speaker 4: of a narrative shift there has been since the election.
Speaker 4: It went from this is the moment, here comes change
Speaker 4: to this, let's take a listen.
Speaker 12: Things are worse than we ever imagine. These riots didn't
Speaker 12: happen in a vacuum. They exposed the state of our country,
Speaker 12: revealed a deeply unhealthy society. The tracks in our foundations
Speaker 12: laid bare.
Speaker 4: So that was Kiris Starmer there speaking not long after
Speaker 4: taking up office as Prime Minister. But setting up that
Speaker 4: narrative that you're talking about alex of things being quite
Speaker 4: negative will come back to the rights in a moment
Speaker 4: was another, of course, very important moment this year politically
Speaker 4: as well. But I mean, can can there be a
Speaker 4: tone reset now? Is this a cleverer political strategy to
Speaker 4: say that everything's terrible so that by comparison things can
Speaker 4: look better in a couple of months.
Speaker 9: They'd like us to think that that was the plan
Speaker 9: all along. I think certainly lots of people in labor
Speaker 9: would admit that some of the messaging hasn't been quite right.
Speaker 9: Certainly in the run up to the budget. A lot
Speaker 9: of the really negative messaging from the chance that Rachel
Speaker 9: Reeves was seen is basically hitting economic confidence. The tricky
Speaker 9: thing is that it's really hard to turn that around.
Speaker 9: And when you've had a budget that raised taxes on
Speaker 9: businesses and a lot of rhetoric from the Chancellor that
Speaker 9: didn't quite meet the sort of lofty ambitions on growth
Speaker 9: at the labor we're talking about before the election, she's
Speaker 9: got to go into the new year and convince businesses
Speaker 9: and just the public that Britain's got an economy that
Speaker 9: has strength and is growing and booming and all the
Speaker 9: rest of it. And if she can't do that, then
Speaker 9: it is going to be really difficult for her to
Speaker 9: deliver on her core pledge to have you know, higher
Speaker 9: economic growth in this country. And you know, turning that
Speaker 9: around is she could see that she's starting to try
Speaker 9: to do that. She goes and meets the CBI and
Speaker 9: she says, oh, I don't want to do any more
Speaker 9: tax rises and things like that, but it's going to
Speaker 9: need a lot more.
Speaker 10: Can I ask a very nerdy question about what it's
Speaker 10: like as a journalist to be sort of doing this
Speaker 10: job this year in that we have the regularcount of moments.
Speaker 10: We've had the budget, like you said, you've had the election.
Speaker 10: We have the kind of normal warp and weft of Westminster.
Speaker 10: But this has also been kind of notable because everything
Speaker 10: is on social media nowadays. There's been questions about how
Speaker 10: x works. There's also been new political party sort of
Speaker 10: the rise of Reform, the return of the Live Dems,
Speaker 10: questions over if Westminster's two party system is still actually
Speaker 10: a two party system.
Speaker 11: How have you gone about covering that? Yeah, it's really interesting.
Speaker 9: I mean there is this sort of incumbency problem that
Speaker 9: positions around the world have had, whether it's Joe Biden
Speaker 9: or Emmanuel Macron or Enough Schultz or whoever. In Britain
Speaker 9: we've kind of gone the other way. So around the
Speaker 9: world you sort of see these kind of centrist liberal
Speaker 9: governments losing support and then a sort of populist right
Speaker 9: coming along as an insurgent, Whereas in Britain we had
Speaker 9: a center right government which which was unpopular and gave
Speaker 9: way to a center left government.
Speaker 11: So we've kind of gone the opposite direction.
Speaker 9: That doesn't mean that we can't, you know, just be
Speaker 9: a few years after everybody else. And like you say,
Speaker 9: with the rise of reform Nigel Farwars, this sort of
Speaker 9: fragmenting of British politics. There is a real threat to
Speaker 9: Kierstarma or in any incumbent. And it's not necessarily the
Speaker 9: fact that it's Keir Starmer. It's it's just the fact
Speaker 9: that people are unhappy with how things are going.
Speaker 11: And I agree with you.
Speaker 9: I think social media is just an absolutely massive acce
Speaker 9: accelerator of people's displeasure. You know, you used to get
Speaker 9: people give politicians the benefit of the doubt for a
Speaker 9: few years, and you know, even Boris Johnson was sort
Speaker 9: of still popular long into the pandemic, despite you know,
Speaker 9: varying sort of views on the performance of his government
Speaker 9: over that. And you know, similarly, you could say, looking back,
Speaker 9: Tony Blair won elections after the Iraq War and so
Speaker 9: on and so on. People gave politicians the time of day,
Speaker 9: I think a little bit more than they do these days.
Speaker 9: People are perhaps a bit more cynical, a bit quicker
Speaker 9: to lose their patients. And it's a problem for Kirs
Speaker 9: Starmer because you know, social media it tends to be negative,
Speaker 9: you know, that tends to be the things that do
Speaker 9: well on social media. And journalists play our part in
Speaker 9: that because we love a story criticizing a politician, and
Speaker 9: that's the thing that people read and sol and so,
Speaker 9: and it all sort of perpetuates itself. There is a
Speaker 9: danger for kist Armer that the benefit of.
Speaker 11: The doubt runs out.
Speaker 9: And while he might have expected five years to benefit
Speaker 9: of the doubt, you know, maybe getting himself a second
Speaker 9: term almost by default with his big majority, there's no
Speaker 9: guarantee of that anymore.
Speaker 4: Well, thinking about some of the figures who who are
Speaker 4: going to be you know, perhaps a thorn in Kris
Speaker 4: Dharmer's side. We talked a lot about Niger Ferrars round
Speaker 4: the time of the election. How largely would you expect
Speaker 4: him to be featuring in the political scene next year,
Speaker 4: given of course his ties to Donald Trump.
Speaker 11: Well, this is the thing with Niger Franch.
Speaker 9: He is a sort of genius at getting himself in
Speaker 9: the news. I mean, we've seen with the sort of
Speaker 9: Elon Musk meeting at Mara Lago, this sort of suggestion
Speaker 9: that Elon Musk could donate to reform somehow, whether it's
Speaker 9: true or.
Speaker 11: Not that that could happen.
Speaker 9: Journalists have to talk about it, and Farage for fifteen
Speaker 9: twenty years has been a genius at making sure he
Speaker 9: can't be ignored. And it's a really real challenge for
Speaker 9: journalists because we sort of have to write with skepticism.
Speaker 9: Niga frag is claiming X y Z that may or
Speaker 9: may not happen, and it could all just be a
Speaker 9: bit of smoke and mirrors. That is all about really
Speaker 9: about him getting in the news and creating rowse and
Speaker 9: creating things for him to be in the middle of.
Speaker 11: But it's you can't ignore it.
Speaker 9: Other politicians have struggled for years with how to deal
Speaker 9: with him, and Labor paced this new dynamic now with
Speaker 9: Farage in Parliament for the first time, with Trump in
Speaker 9: the White House, with the president's right hand man Elon
Speaker 9: Musk tweeting every day that Kirstarmer is useless and Britain's
Speaker 9: basket case. This is a new world that is basically unprecedented,
Speaker 9: and I, you know, I don't think kirs Starmer has
Speaker 9: a plan to deal with it. Nobody in the Labor
Speaker 9: has has managed to convince me that they've got a
Speaker 9: plan to deal with it to be fair to them.
Speaker 9: I don't know what the answer is. It's such a
Speaker 9: it's such a it's such a difficult problem. So yeah,
Speaker 9: you know, Forage is is definitely a threat to Starmer,
Speaker 9: and you could see a world where in the absence
Speaker 9: of the Tories' is a credible opposition, Farage takes over.
Speaker 10: So obviously Farage is good at making noise and getting
Speaker 10: press attention. But as you said, the election is not
Speaker 10: for quite a way away. In the next year, do
Speaker 10: you think we're more likely to see the Starmer humbled
Speaker 10: by new Conservaive leader Cammy Baidennock or by the labor
Speaker 10: left what is likely to be the first kind of
Speaker 10: crunch point for this administration.
Speaker 9: Yeah, there is another spending review coming in the spring,
Speaker 9: and Reeves kind of got away with the first one.
Speaker 9: It was pretty unpopular. Cabinet ministers were very unhappy. They
Speaker 9: all rebelled and moaned to Keir Starmer and said, oh,
Speaker 9: we don't like what Rachel Reads is up to, and
Speaker 9: basically because she was a new Chancellor, they all had
Speaker 9: to lump it and go along with the budget and
Speaker 9: the first spending review. Cabinet ministers are promising to be
Speaker 9: tough at this time and say if the Chancellor tries
Speaker 9: it again and you know cuts my budget, I'm not
Speaker 9: going to put up with it this time. It's a
Speaker 9: huge problem because if the fiscal situation isn't any better,
Speaker 9: you know, we'll see what the ABR says in the spring.
Speaker 9: You know, it is ultimately going to be spending cuts
Speaker 9: that are what pay for the government's program, because she
Speaker 9: has said she doesn't want to put taxes up in
Speaker 9: the spring, So that is is going to create a
Speaker 9: massive route in the government that could be existential for
Speaker 9: particularly Reeves's chancellor. She's not popular in the cabinet. Chancellor's
Speaker 9: are never popular in the cabinet because chancellor's job is
Speaker 9: to say no to minister's spending proposals. So you know
Speaker 9: it's not particularly radical that thing that the Chancellor isn't popular,
Speaker 9: but nonetheless she's got a really difficult challenge to keep
Speaker 9: cabinet on side, keep the Labor Party unified. So I
Speaker 9: would say that is the main immediate threat to Labor
Speaker 9: in the new year.
Speaker 4: That's our UK Political editor, Alex Wickham. I'm Stephen Caroen
Speaker 4: in London. You can catch us every weekday morning here
Speaker 4: for Bloomberg Daybreak Europe, beginning at six am in London
Speaker 4: and one am on Wall Streets.
Speaker 1: Tom, thank you Steven, and coming up on Bloomberg Daybreak weekend,
Speaker 1: we look at some of the potential themes for Asian
Speaker 1: markets in the year ahead. I'm Tom Busby, and this
Speaker 1: is Bloomberg. I'm Tom Busby in New York with your
Speaker 1: global look ahead at the top stories for investors in
Speaker 1: the coming week. We move next to the ere's apecific region.
Speaker 1: With twenty twenty four largely in the rear view. We
Speaker 1: want to look at some of the potential themes for
Speaker 1: Asian markets in the year ahead. Let's get to the
Speaker 1: host of the Daybreak Asia podcast, Doug Krisner.
Speaker 5: Tom.
Speaker 3: Twenty twenty four proved to be an eventful year for
Speaker 3: markets right across Asia. There was China's stock market route
Speaker 3: and subsequent rally. There was the unwind of Japanese n
Speaker 3: carry trades, and let's not forget that political crisis recently
Speaker 3: in South Korea. To get a sense of what twenty
Speaker 3: twenty five may look like, I'm joined now by Bloomberg
Speaker 3: opinion columnist Shuley Wren. Shirley joins us from our studios
Speaker 3: in Hong Kong. It's always a pleasure. I wish you
Speaker 3: the best for this holiday season, and I was really
Speaker 3: curious to get your take on some of the things
Speaker 3: that you've been writing about.
Speaker 2: In your latest.
Speaker 3: Column, you highlight five unlikely but not improbable events we
Speaker 3: might want to consider for the new year. Let's talk
Speaker 3: about the Hong Kong property market. This is kind of
Speaker 3: interesting because when I think of property in Asia, the
Speaker 3: first thing that comes to mind is mainline China, not
Speaker 3: Hong Kong. What's happening here.
Speaker 7: Well, Hong Kong's property developers. I mean, we always know
Speaker 7: that they are very wealthy, right, but that hypothesis is
Speaker 7: being questioned in recent months. What's happening now is that
Speaker 7: the some Hong Kong is experiencing a pretty severe commercial
Speaker 7: real estate downturn, just like a lot of other places
Speaker 7: like San Francisco for instance, and some of the developers
Speaker 7: they are quite leveraged and indebted. And then investors are
Speaker 7: questioning whether the tycoon families will come out and the
Speaker 7: rescue their subsidiaries.
Speaker 3: Who is most exposed here? Is it bondholders? Is it banks?
Speaker 7: All of them? I mean, let's just take a new
Speaker 7: World Development as an example. It's run by the Chin
Speaker 7: family and they have made a lot of money selling
Speaker 7: properties and the jewelry to mainland Chinese. Right. And then
Speaker 7: like they have a a lot of bank longs Uh.
Speaker 7: In fact, HSBC is their biggest banker, and they have
Speaker 7: a billion about eight billion worth of the US dollar
Speaker 7: bounds outstanding. And of course they are also publicly listed
Speaker 7: on Hong Kong Stock Exchanged, so they're also shareholders.
Speaker 2: Let's talk a.
Speaker 3: Little bit about luck and Coffee next. This is a
Speaker 3: name that I've forgotten entirely about because of it's delisting
Speaker 3: here in the US.
Speaker 7: Right, Yes, so they came to get listed in the
Speaker 7: US within two years after their funding, and then they
Speaker 7: were founded to have committed accounting fraud in twenty twenty
Speaker 7: and they were forced to delist from Nestack back then.
Speaker 7: But the luckin Coffee has had quite a comeback. They
Speaker 7: sell pretty chea coffee and then their services are more streamlined,
Speaker 7: and in the last few years they suddenly became China's
Speaker 7: biggest coffee chain and they were outnumbering Starbucks in terms
Speaker 7: of a number of stores and in terms sales. And
Speaker 7: to make matters worse for Starbucks. They're actually planning to
Speaker 7: enter the US market because they think that you know,
Speaker 7: Americans are just tired of a seven dollars partake from Starbucks.
Speaker 3: So what about Luckin's financials? Will the financials really allow
Speaker 3: the company to relist in New York?
Speaker 7: Well, to their credit, I mean, the majority shareholders are
Speaker 7: very keen to have a redemption and comeback story, so
Speaker 7: they paid all the fines. I think they paid one
Speaker 7: hundreds and millions of dollars fines to the SEC. They
Speaker 7: just want to have a clean slate, and at one
Speaker 7: point they were hoping to relist with the basically a
Speaker 7: redemption story.
Speaker 3: So you're also looking at what may take place in
Speaker 3: twenty twenty five, unlikely as it may be, and you're
Speaker 3: writing about Chinese century bonds.
Speaker 2: Explain this to me.
Speaker 7: Well, Century bonds were very popular in the Eurozone during
Speaker 7: the you know, like when the European countries they were
Speaker 7: having their deflation, right, Like Austria issued a central bound
Speaker 7: in twenty twenty and it was doing very well. I
Speaker 7: mean like at one point it was trading at one
Speaker 7: hundred and forty cents on the dollar. So that was
Speaker 7: quite popular because investors they just wanted to get any
Speaker 7: fixed income assets that give you any yield, and I
Speaker 7: think that's what China should do. They have been issuing
Speaker 7: ultra long bounds, but they have been quite shy, you know,
Speaker 7: twenty year, thirty year or even once more fifty year.
Speaker 7: But they shouldn't be. I mean, like the Communist Party
Speaker 7: thinks they will be around for another century, right, so
Speaker 7: why not? Yeah, they will be around forever.
Speaker 3: And it looks as though Chinese officials will need a
Speaker 3: lot of money to dig themselves out of what appears
Speaker 3: to be a.
Speaker 7: Very big hole, right, absolutely, So what's happening in China
Speaker 7: is that, you know, because the PBOC, the Central Bank
Speaker 7: keeps on cutting interest rates on the short end, investors
Speaker 7: keep on buying long and bounce like into ten year
Speaker 7: twenty year, right, and the ten year bound has has
Speaker 7: kept on testing record loads. And I think what they
Speaker 7: should do is just to is you even ultra along
Speaker 7: bounds and and so that the benchmark tag ye is
Speaker 7: not just solo.
Speaker 3: You're writing also about the great state of Vietnam. And
Speaker 3: when I read this, I thought immediately of the consequences
Speaker 3: of the trade war, right, that it's likely to unfold
Speaker 3: between the US and China. That's a big part of
Speaker 3: the story, is it not.
Speaker 7: Yes, absolutely, I mean, like, so what's happening since the
Speaker 7: Trump trade war is that Northern Vietnam and a lot
Speaker 7: a lot of Americans are very familiar with that, right,
Speaker 7: Like in the past, Northern Vietnam was not as economically
Speaker 7: prosperous at Southern Vietnam, like a sigone, et cetera. But
Speaker 7: in the past four or five years, a lot of
Speaker 7: Chinese companies they've been moving their supply chain to North
Speaker 7: Vietnam because it's in a way close to China. Like
Speaker 7: whatever the industrial catalog items that they are missing, they
Speaker 7: will just go back to you know, Guangxi to fetch it.
Speaker 11: Right, So.
Speaker 7: I'm worried that Trump is going to see that, and
Speaker 7: let's hope not surely.
Speaker 3: Before I let you go, tell me a little bit
Speaker 3: about what you expect in the new year when it
Speaker 3: comes to European luxury manufacturers and the business they may
Speaker 3: end up doing in Asia.
Speaker 7: So, the European luxury houses, they are having a very
Speaker 7: tough time in Asia this year because I mean they've
Speaker 7: been raising prices like crazy. One Chanel back, I'm sorry,
Speaker 7: I have been shopping shopper for twenty years. One Chanell
Speaker 7: Classic Chanel back hosts like over ten thousand US dollars
Speaker 7: and yeah, just like seven eight years ago, it was
Speaker 7: not even half as much, you know, And then people
Speaker 7: are asking, I think Americans are starting to realize that
Speaker 7: as well, like what am I paying for?
Speaker 10: Right?
Speaker 7: And then the Chinese consumers there the economy is not
Speaker 7: so great that there is a wealth effect, and they
Speaker 7: also have shopped for twenty years as well, and they're
Speaker 7: just saying, Okay, we want to see a bit of
Speaker 7: a value for money. So I think for next year,
Speaker 7: the European luxury houses they have to come up with
Speaker 7: something that's new and interesting or just stop raising prices
Speaker 7: and you know, like just provide better value for their
Speaker 7: luxury goods.
Speaker 2: Surely it's always a pleasure.
Speaker 3: Thank you so much for sharing your views on what
Speaker 3: may happen in twenty twenty five. Bloomberg opinion columnist Shuley
Speaker 3: Wren joining us from Hong Kong. We want to stay
Speaker 3: in China. The country appears to be at a crossroads,
Speaker 3: and Beijing is acting as though it's acutely aware of
Speaker 3: that fact. The challenges are many, although I think It's
Speaker 3: fair to say a lack of confidence appears to be
Speaker 3: the most significant hurdle. We've seen the effects of some
Speaker 3: recent economic stimulus fade, and officials have been signaling stronger
Speaker 3: stimulus to boost consumption. This is a major shift in
Speaker 3: the government's thinking. Let's take a closer look now with
Speaker 3: where things stand in China with Joe Nie. He is
Speaker 3: Greater China Chairman at McKinsey and Company. Mister Ni joins
Speaker 3: us from our studios in Hong Kong. Thank you for
Speaker 3: taking the time to chat with us. I'm curious about
Speaker 3: your analysis given the dynamics in the Chinese economy. If
Speaker 3: you had to pinpoint one thing that really needs to
Speaker 3: change in order for China to thrive.
Speaker 2: What would it be.
Speaker 13: Well, first of all, thank you for having me here.
Speaker 13: I think that confidence in China definitely is the number
Speaker 13: one topic, and I think that that has been praying
Speaker 13: for the last two years. I do think that we
Speaker 13: are moving from a you know, I would say, the
Speaker 13: last two decades of you know, kind of breakneck growth
Speaker 13: right into all of a sudden in the last two
Speaker 13: three years, there seems to be the recognition and maybe
Speaker 13: a you know, a acceptance that growth going forward, it's
Speaker 13: going to be very different from the context from before.
Speaker 13: But what you have is that in the past couple
Speaker 13: of years that actually has been quite a lot of supply, right,
Speaker 13: whether this is going to be industrial production, whether these
Speaker 13: are you know, flats being built. I think that the
Speaker 13: engine that have powered China in the past two decades
Speaker 13: didn't actually stop until quite recently. So all of a
Speaker 13: sudden you have this massive I would say, I demand
Speaker 13: that needs to be recalibrated and there needs to be
Speaker 13: an expectation management from corporates right into citizens in the
Speaker 13: government that we're going into a period of much more
Speaker 13: moderate growth like the rest of the world has been seeing.
Speaker 3: When you hear the term over capacity, is that app
Speaker 3: does it help describe a little bit of what's happening
Speaker 3: on the industrial side?
Speaker 13: Well, I think that, you know, we actually have been
Speaker 13: you know, in seeing in China in the past two
Speaker 13: decades where they feel like if I actually have the
Speaker 13: capacity to build and I have the you know, efficiency
Speaker 13: to do something that is you know more more more
Speaker 13: valuable money in the rest of the world, I can
Speaker 13: export my products. I think that that equation have changed
Speaker 13: a little bit now that there has been a lot
Speaker 13: more I would say industrial protectionism around the world. That
Speaker 13: will change that equation. Now, when you change it, I
Speaker 13: think that you know, you know, the factories in China
Speaker 13: need to you know, get used to that. But unfortunately,
Speaker 13: in the past two years, they actually have been building
Speaker 13: to cater for that demand. And I think that what
Speaker 13: you're seeing right now is there's not a lot of
Speaker 13: new capacity being put on right now, but you're seeing
Speaker 13: a little bit of digestion of the past two years
Speaker 13: of capacity has been built. So I do think that
Speaker 13: it is a oversupply in the sense of a slowing
Speaker 13: demand what you see around the world and in China.
Speaker 13: But at the same time, the saving grace is that
Speaker 13: I would say that the investment has been really really
Speaker 13: melted in the past twelve to eighteen months, so the
Speaker 13: new capacity is going to be much slower.
Speaker 3: So you alluded to this idea of protectionism, and I
Speaker 3: want to explore this a little bit if I can.
Speaker 3: The threats here being made by the incoming Trump administration
Speaker 3: in the US tariffs on imported Chinese goods, and I'm
Speaker 3: aware of how many of the companies doing business in
Speaker 3: China have already begun to reconfigure their supply chains. Do
Speaker 3: you think the tension between Washington and Beijing that we're
Speaker 3: likely to see after the first of the year is
Speaker 3: going to begin to shift trade flows in a major
Speaker 3: way or is this something that will probably get worked
Speaker 3: out through negotiation. How would you evaluate that?
Speaker 13: Well, this is not news, right, this has been going
Speaker 13: on for the last few years. If you are a
Speaker 13: Chinese manufacturer, right, or anyone who's the export business, you
Speaker 13: have been dealing with actually a shifting trade in the
Speaker 13: past few years. In fact, I would say that three
Speaker 13: or four years ago they were much less. I would say,
Speaker 13: ready for the tariffs and for all the you know,
Speaker 13: trade shifts that's going on.
Speaker 9: Right.
Speaker 13: China plus one is a well documented strategy by both
Speaker 13: multinationals as well as Chinese companies. So what you see
Speaker 13: when China, you know, exports the US have dropped from
Speaker 13: you know, until now only fifteen percent of US imports
Speaker 13: are from China, you see. You know, correspondingly, the Chinese
Speaker 13: trade is going to Southeast Asia. R GM right now
Speaker 13: is the largest trading partner right to China. You see,
Speaker 13: actually a lot more Chinese we called the global self
Speaker 13: trade that's going on. So I absolutely think that the
Speaker 13: trade patterns are being reconfigured and that has been going on.
Speaker 13: So I would say with a new and strigon coming in,
Speaker 13: you know, I think it's a continuation of what we're seeing.
Speaker 13: Would that be a celebration a concis, I don't know,
Speaker 13: but I think that it is certainly not news, and
Speaker 13: I think at this time, I think that everyone is
Speaker 13: in some ways much more prepared, you know, for the
Speaker 13: uncertainty of this will happened.
Speaker 3: Mister and I thank you so much for your time,
Speaker 3: Joe and I is Greater China Chairman at Mackenzie and Company.
Speaker 3: I'm deg Krisner and you can catch us weekdays right
Speaker 3: here for the Daybreak Asia podcast. It's available on Apple,
Speaker 3: Spotify or wherever you get your podcast.
Speaker 2: Tom, thank you, Doug.
Speaker 1: And that does it for this edition of Bloomberg day
Speaker 1: Break Weekend. Join us again Monday morning at five am
Speaker 1: Wall Street Time for the latest on markets overseas and
Speaker 1: the news you need to start your day.
Speaker 2: I'm Tom Busby. Stay with us.
Speaker 1: Top stories and global business headlines are coming up right now.