1 00:00:00,240 --> 00:00:08,440 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:09,960 --> 00:00:12,240 Speaker 2: This is Bloomberg day Break Weekend, our global look at 3 00:00:12,280 --> 00:00:14,360 Speaker 2: the top stories in the coming week from our Daybreak 4 00:00:14,360 --> 00:00:16,880 Speaker 2: anchors all around the world. Straight ahead on the program, 5 00:00:16,920 --> 00:00:19,079 Speaker 2: but look at some key inflation data in the US 6 00:00:19,120 --> 00:00:22,079 Speaker 2: how it may impact the Fed's next move. I'm Tom 7 00:00:22,120 --> 00:00:23,200 Speaker 2: Busby in New York. 8 00:00:23,600 --> 00:00:25,960 Speaker 3: I'm Caroline Hedge here in London, where we are focused 9 00:00:26,000 --> 00:00:29,160 Speaker 3: on a UK asset slump and what may come next. 10 00:00:29,360 --> 00:00:32,400 Speaker 4: I'm dead Chrisner looking at the outlook for China's byd 11 00:00:32,920 --> 00:00:35,280 Speaker 4: as well as the fallout from the blocking of the 12 00:00:35,400 --> 00:00:37,400 Speaker 4: US Steel Nipon Steel merger. 13 00:00:38,360 --> 00:00:42,400 Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 14 00:00:42,440 --> 00:00:46,160 Speaker 1: eleven three year in New York, Bloomberg ninety nine to one, Washington, DC, 15 00:00:46,640 --> 00:00:50,920 Speaker 1: Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, 16 00:00:51,320 --> 00:00:54,520 Speaker 1: Sirius XM one twenty one, and around the world on 17 00:00:54,600 --> 00:00:57,720 Speaker 1: Bloomberg Radio, dot Com and the Bloomberg Business App. 18 00:01:02,800 --> 00:01:03,360 Speaker 5: Good day to you. 19 00:01:03,400 --> 00:01:05,600 Speaker 2: I'm Tom Busby, and we begin today's program with a 20 00:01:05,640 --> 00:01:08,880 Speaker 2: slew of economic data in the US consumer Price Index, 21 00:01:08,959 --> 00:01:11,920 Speaker 2: the producer price Index, retail sales all for the month 22 00:01:11,959 --> 00:01:16,680 Speaker 2: of December. How will all this data impact FED policy? 23 00:01:17,000 --> 00:01:20,280 Speaker 2: For more on how all this data may impact FED policy, 24 00:01:20,319 --> 00:01:23,160 Speaker 2: were joined by Edward Harrison. He's the author of Bloomberg's 25 00:01:23,280 --> 00:01:24,959 Speaker 2: Everything Risk newsletter. 26 00:01:25,280 --> 00:01:25,800 Speaker 5: Well Edward. 27 00:01:25,880 --> 00:01:28,240 Speaker 2: For the first FOMC policy meeting of the year. The 28 00:01:28,319 --> 00:01:31,360 Speaker 2: FED has a lot to consider, but let's start with 29 00:01:31,400 --> 00:01:34,280 Speaker 2: what we know already. The data we got this past Friday, 30 00:01:34,400 --> 00:01:39,320 Speaker 2: a very unexpectedly strong December jobs report, how many jobs added, 31 00:01:39,520 --> 00:01:42,760 Speaker 2: the unemployment rate moving down. What does all that mean? 32 00:01:43,040 --> 00:01:46,120 Speaker 6: Yeah, Tom, good to talk to you. I think what 33 00:01:46,120 --> 00:01:48,640 Speaker 6: it means is is that there's a lot of uncertainty 34 00:01:48,680 --> 00:01:51,640 Speaker 6: about where inflation is headed. You know, the narrative in 35 00:01:51,680 --> 00:01:55,960 Speaker 6: twenty twenty four, for the large part of the year 36 00:01:56,000 --> 00:02:00,480 Speaker 6: had been that inflation was headed down inexorably towards two percent, 37 00:02:00,560 --> 00:02:03,520 Speaker 6: that's the Fed's target. But now we've stalled at this 38 00:02:03,680 --> 00:02:07,640 Speaker 6: level that is too high. For instance, the data that 39 00:02:07,760 --> 00:02:11,320 Speaker 6: come out this week in terms of the CPI, we're 40 00:02:11,360 --> 00:02:14,200 Speaker 6: expecting to see a number like three point three percent, 41 00:02:14,639 --> 00:02:18,400 Speaker 6: taking out voluable food and energy two point nine percent overall, 42 00:02:18,480 --> 00:02:21,560 Speaker 6: that's well north of where the FED wants it to be. 43 00:02:22,120 --> 00:02:26,000 Speaker 6: And so as a result, we're in an indefinite holding pattern. 44 00:02:26,000 --> 00:02:28,280 Speaker 6: The FED is not going to cut ridgs any further 45 00:02:28,639 --> 00:02:29,200 Speaker 6: from here. 46 00:02:29,880 --> 00:02:33,160 Speaker 2: Well, so the FED is seeing all this inflation data 47 00:02:33,160 --> 00:02:35,320 Speaker 2: coming out. That is their big focus now the job 48 00:02:35,400 --> 00:02:38,280 Speaker 2: market less of a worry. We've seen it decrease a 49 00:02:38,320 --> 00:02:42,600 Speaker 2: little bit, but still very strong. What about retail sale 50 00:02:42,720 --> 00:02:46,120 Speaker 2: some other data we're going to get, Yeah, you know, I. 51 00:02:46,080 --> 00:02:49,240 Speaker 6: Think it's it's an interesting question in terms of you know, 52 00:02:49,280 --> 00:02:54,600 Speaker 6: we get three days of data with PPI, CPI, retail sales. 53 00:02:54,639 --> 00:02:57,639 Speaker 6: I would say that of the three, it's the CPI 54 00:02:57,720 --> 00:02:59,560 Speaker 6: that the Fed's going to focus on, and that markets 55 00:02:59,560 --> 00:03:02,560 Speaker 6: are going to take a que off. Of retail sales 56 00:03:03,160 --> 00:03:05,560 Speaker 6: is you know, the number is actually going to be 57 00:03:05,919 --> 00:03:09,200 Speaker 6: is expected to be lower than it was in the 58 00:03:09,240 --> 00:03:13,679 Speaker 6: prior month, but when you take out autos and gas, 59 00:03:13,960 --> 00:03:16,200 Speaker 6: people are expecting it to go up. So it's kind 60 00:03:16,240 --> 00:03:19,560 Speaker 6: of hard to parse out, you know, what the market 61 00:03:19,560 --> 00:03:23,040 Speaker 6: reaction is going to be irrespective given the jobs report 62 00:03:23,120 --> 00:03:27,639 Speaker 6: that we saw last week. I think that the market's 63 00:03:27,720 --> 00:03:32,600 Speaker 6: probably going to expect those numbers to be relatively robust. 64 00:03:32,800 --> 00:03:36,440 Speaker 2: Yeah, people are working, they're spending money, and we've seen 65 00:03:36,480 --> 00:03:40,320 Speaker 2: that with a national retail Federation looking at online you 66 00:03:40,360 --> 00:03:43,640 Speaker 2: know these are at or near record spending levels, so 67 00:03:44,160 --> 00:03:45,440 Speaker 2: people are feeling pretty. 68 00:03:45,160 --> 00:03:47,760 Speaker 6: Good, definitely, And you know the jobs report, let me 69 00:03:47,800 --> 00:03:50,680 Speaker 6: just go back to that for a second. We tick 70 00:03:50,760 --> 00:03:53,320 Speaker 6: down last week to four point one percent from four 71 00:03:53,320 --> 00:03:56,960 Speaker 6: point two percent. That tells you not just that the 72 00:03:57,040 --> 00:04:00,040 Speaker 6: labor market is doing well, but that the anxiety that 73 00:04:00,080 --> 00:04:02,360 Speaker 6: a lot of people might have that bad things are 74 00:04:02,400 --> 00:04:03,840 Speaker 6: about to happen and they're not going to open up 75 00:04:03,880 --> 00:04:08,280 Speaker 6: their checkbooks is lessened. And so we should therefore expect 76 00:04:08,280 --> 00:04:11,160 Speaker 6: that retail sales, especially in this holiday season, to be 77 00:04:11,320 --> 00:04:14,400 Speaker 6: relatively robust. So that side of the coin, I don't 78 00:04:14,400 --> 00:04:16,440 Speaker 6: think it's going to be as much of a mover 79 00:04:17,200 --> 00:04:20,840 Speaker 6: for markets because they know that the US economy is 80 00:04:20,839 --> 00:04:26,120 Speaker 6: doing well. The real question is is inflation stalled to 81 00:04:26,160 --> 00:04:30,800 Speaker 6: this level or is it potentially even re accelerating beyond 82 00:04:31,520 --> 00:04:36,240 Speaker 6: this level to a higher into the three percent range. 83 00:04:36,560 --> 00:04:39,120 Speaker 2: And that's the big focus now for the FED and 84 00:04:39,279 --> 00:04:42,400 Speaker 2: what would drive inflation. I mean, obviously we always have 85 00:04:42,440 --> 00:04:46,520 Speaker 2: the housing problem. It's not even an uneven market, it 86 00:04:46,600 --> 00:04:50,440 Speaker 2: is just a problem where people cannot afford some of 87 00:04:50,480 --> 00:04:54,039 Speaker 2: these homes. We have elevated rates now back up to 88 00:04:54,440 --> 00:04:57,440 Speaker 2: six point ninety nine percent according to the Mortgage Bankers' Association. 89 00:04:57,880 --> 00:05:00,840 Speaker 2: What other factors are driving inflation, So, you know. 90 00:05:00,960 --> 00:05:03,559 Speaker 6: It's a very good question as to where the FED 91 00:05:03,680 --> 00:05:06,719 Speaker 6: is on all of this going forward. Because it was 92 00:05:06,760 --> 00:05:12,159 Speaker 6: interesting that our colleague, Matthew Bosler, he spoke to people 93 00:05:12,160 --> 00:05:15,880 Speaker 6: at the FED and they talked about this I would 94 00:05:16,000 --> 00:05:21,400 Speaker 6: call rather obscure inflation measure that takes out imputed numbers. 95 00:05:21,680 --> 00:05:24,839 Speaker 6: And he has a quote, I think from Christopher Waller, 96 00:05:24,880 --> 00:05:28,040 Speaker 6: who's very well regarded in the FED. He said that 97 00:05:28,080 --> 00:05:31,080 Speaker 6: inflation in twenty twenty four has been largely driven by 98 00:05:31,080 --> 00:05:34,640 Speaker 6: increases in imputed prices such as housing services and non 99 00:05:34,720 --> 00:05:39,120 Speaker 6: market services, which are estimated, they're not observed directly, and 100 00:05:39,160 --> 00:05:42,000 Speaker 6: so he takes comfort from that the fact that when 101 00:05:42,040 --> 00:05:46,360 Speaker 6: you take those imputed prices out, actually inflation looks better. 102 00:05:46,720 --> 00:05:49,800 Speaker 6: So what it says to me is that the FED 103 00:05:50,480 --> 00:05:53,039 Speaker 6: is going to be fine with inflation at the level 104 00:05:53,080 --> 00:05:58,080 Speaker 6: that it is now. They could cut still if inflations 105 00:05:58,200 --> 00:06:02,000 Speaker 6: at these levels and you know, slightly below, it's if 106 00:06:02,040 --> 00:06:06,560 Speaker 6: inflation starts to trend higher, that's where we're gettingto problems 107 00:06:06,560 --> 00:06:07,239 Speaker 6: going forward. 108 00:06:07,440 --> 00:06:09,600 Speaker 2: So right now, it sounds like you're saying we may 109 00:06:09,640 --> 00:06:13,160 Speaker 2: not need to see a reduction in interest rates right now. 110 00:06:13,400 --> 00:06:17,160 Speaker 6: Yeah, I don't think that. I think we won't see 111 00:06:17,160 --> 00:06:20,719 Speaker 6: it for the near future. I think we're in hold 112 00:06:20,720 --> 00:06:23,080 Speaker 6: for a long time and we don't need to see it. 113 00:06:23,120 --> 00:06:27,360 Speaker 6: I mean, the unemployment rate tick down. We're getting almost 114 00:06:27,360 --> 00:06:34,040 Speaker 6: four percent increase in hourly wages, jobless claims are almost 115 00:06:34,440 --> 00:06:37,840 Speaker 6: as low as two hundred thousand initial claims a week. 116 00:06:38,120 --> 00:06:40,480 Speaker 6: Those are all very good numbers. It says that the 117 00:06:40,520 --> 00:06:44,400 Speaker 6: economy is doing well. And actually Jerome Powell, the FED chair, 118 00:06:44,520 --> 00:06:46,359 Speaker 6: told us as much in the last time that he 119 00:06:46,440 --> 00:06:47,120 Speaker 6: spoke to us. 120 00:06:47,440 --> 00:06:50,520 Speaker 2: All right, so we may see July. I know after 121 00:06:50,600 --> 00:06:54,320 Speaker 2: Friday's blow out jobs report, people are talking now next 122 00:06:54,360 --> 00:06:55,320 Speaker 2: rate decrease will be. 123 00:06:55,279 --> 00:07:01,159 Speaker 6: October, exactly. October is the new number. And don't be 124 00:07:01,240 --> 00:07:06,599 Speaker 6: surprised if, eventually, especially if we get any negative data 125 00:07:06,640 --> 00:07:11,240 Speaker 6: on inflation, that the market starts thinking maybe they pause 126 00:07:11,880 --> 00:07:14,520 Speaker 6: for the entirety of this year, and that's going to 127 00:07:14,560 --> 00:07:18,120 Speaker 6: be very negative for interest rates at the long end 128 00:07:18,160 --> 00:07:20,760 Speaker 6: of the curve, also for mortgage rates as well. 129 00:07:20,880 --> 00:07:21,080 Speaker 7: Well. 130 00:07:21,080 --> 00:07:23,760 Speaker 2: Our thanks to Edward Harrison is the author of Bloomberg's 131 00:07:23,840 --> 00:07:28,040 Speaker 2: Everything Risk newsletter. We move next to the new earning season, 132 00:07:28,160 --> 00:07:30,520 Speaker 2: kicking off later this week. Some of the nation's biggest 133 00:07:30,520 --> 00:07:34,880 Speaker 2: banks reporting their fourth quarter results, JP Mortgage, Chase, Goldman, Sachs, 134 00:07:35,160 --> 00:07:37,960 Speaker 2: City Group, Wells Fargo kicking things off on Wednesday, and 135 00:07:38,040 --> 00:07:40,800 Speaker 2: for more on what to expect from America's biggest lenders, 136 00:07:41,040 --> 00:07:45,160 Speaker 2: we're joined by Alison Williams, Bloomberg Intelligence, Senior Analyst, Global 137 00:07:45,160 --> 00:07:48,120 Speaker 2: Banks and Asset Managers. Allison, thanks for joining us. So 138 00:07:48,680 --> 00:07:51,800 Speaker 2: what are you expecting to see starting this Wednesday? 139 00:07:51,920 --> 00:07:57,119 Speaker 8: So there's three areas of focus with the earnings this week. 140 00:07:57,920 --> 00:08:00,600 Speaker 8: You know, first just the regulatory outlooks. Second is the 141 00:08:00,600 --> 00:08:05,320 Speaker 8: airing impact of the macroeconomic outlook, and finally, what is 142 00:08:05,360 --> 00:08:08,840 Speaker 8: the outlook for the capital markets momentum? And while the 143 00:08:08,880 --> 00:08:12,400 Speaker 8: regulatory outlook is the most important structurally, we expect that 144 00:08:12,400 --> 00:08:14,560 Speaker 8: we're going to get the least amount of new or 145 00:08:14,600 --> 00:08:18,800 Speaker 8: helpful information on that front, while we expect the banks 146 00:08:18,840 --> 00:08:23,520 Speaker 8: to probably provide the most bullish information on the latter point, 147 00:08:23,560 --> 00:08:27,600 Speaker 8: the capital markets momentum. And so let's take each of 148 00:08:27,640 --> 00:08:31,119 Speaker 8: these in turn. To begin with, the big six banks 149 00:08:31,120 --> 00:08:34,240 Speaker 8: are up fifteen to twenty five percent in the past 150 00:08:34,240 --> 00:08:39,120 Speaker 8: few months, and that's largely fueled by sentiment. Estimates are up. 151 00:08:39,160 --> 00:08:41,400 Speaker 8: They're up about two to two and a half percent 152 00:08:42,240 --> 00:08:45,680 Speaker 8: for twenty twenty five. So some of it is the 153 00:08:45,880 --> 00:08:50,360 Speaker 8: better capital markets outlook as well as the economic and 154 00:08:50,480 --> 00:08:53,280 Speaker 8: monetary policy outlook, but it really is I think the 155 00:08:53,320 --> 00:09:00,720 Speaker 8: structural regulatory optimism that's boosting boosting these banks. From our standpoint, 156 00:09:00,760 --> 00:09:03,560 Speaker 8: we do expect relief in the form of lesser new 157 00:09:03,600 --> 00:09:07,320 Speaker 8: regulation in the coming years. We also expect relief from 158 00:09:07,360 --> 00:09:11,240 Speaker 8: a water down and perhaps pushed out BUZZL three rules, 159 00:09:11,280 --> 00:09:16,000 Speaker 8: as well as antitrust scrutiny lessening under Trump. But we 160 00:09:16,120 --> 00:09:19,600 Speaker 8: think that specific issues like Wells Fargo's as a cap 161 00:09:20,120 --> 00:09:23,920 Speaker 8: you know, this is something that we don't expect to 162 00:09:23,960 --> 00:09:27,240 Speaker 8: see a political benefit too. The bank is working through 163 00:09:27,280 --> 00:09:32,640 Speaker 8: its issues and it has to show specific progress against 164 00:09:32,920 --> 00:09:36,079 Speaker 8: sort of a set plan for the bank, and they 165 00:09:36,120 --> 00:09:37,240 Speaker 8: still have some work to do. 166 00:09:37,640 --> 00:09:41,120 Speaker 2: So are you expecting these regulatory changes to start on 167 00:09:41,280 --> 00:09:42,800 Speaker 2: day one of the new administration? 168 00:09:44,280 --> 00:09:47,080 Speaker 8: We are not, And in fact our view is really 169 00:09:47,480 --> 00:09:50,240 Speaker 8: just that we're going to get less new regulation. So 170 00:09:50,679 --> 00:09:53,680 Speaker 8: it's not going to be anything that we see day 171 00:09:53,720 --> 00:09:56,280 Speaker 8: one or in the near term, and In fact, our 172 00:09:56,360 --> 00:10:00,000 Speaker 8: view is just that things like Basil three could get 173 00:10:00,280 --> 00:10:06,880 Speaker 8: out further, and that's really the benefit. Similarly, with antitrust scrutiny, 174 00:10:06,960 --> 00:10:10,960 Speaker 8: it's really just that we'll see less action, not necessarily 175 00:10:11,160 --> 00:10:15,280 Speaker 8: new or immediate action. And so turning to the economy 176 00:10:15,280 --> 00:10:18,880 Speaker 8: and monetary policy, we expect that charge offs tick up, 177 00:10:19,280 --> 00:10:22,360 Speaker 8: but in general, client trends are healthy, and we think 178 00:10:22,360 --> 00:10:25,040 Speaker 8: the outlook for both net interest income and charge offs 179 00:10:25,080 --> 00:10:29,680 Speaker 8: are supportive for profitability for twenty twenty five. Of course, 180 00:10:29,840 --> 00:10:33,360 Speaker 8: card will continue to lead on loan growth, and because 181 00:10:33,559 --> 00:10:36,400 Speaker 8: fourth quarter trends tend to be the seasonally strongest corner 182 00:10:36,480 --> 00:10:40,440 Speaker 8: for that business, we'll have lots of positive commentary there. 183 00:10:40,960 --> 00:10:43,760 Speaker 8: And so it's really those equity fees where we may 184 00:10:43,800 --> 00:10:47,439 Speaker 8: see a sequential increase. We also think that we may 185 00:10:47,440 --> 00:10:49,760 Speaker 8: see an increase in the M and A fees. That's 186 00:10:49,920 --> 00:10:53,520 Speaker 8: an area that we are bullish on for twenty twenty five, 187 00:10:53,640 --> 00:10:57,400 Speaker 8: not only because of the anti trust scrutiny, but we 188 00:10:57,520 --> 00:11:02,280 Speaker 8: do think that getting pass the election and in this 189 00:11:02,960 --> 00:11:06,480 Speaker 8: current interest rate cycle, that there is a little bit 190 00:11:06,520 --> 00:11:10,760 Speaker 8: more there is a little bit better sentiment among CEOs, 191 00:11:10,760 --> 00:11:12,559 Speaker 8: and that will help to fuel some activity. 192 00:11:12,880 --> 00:11:15,880 Speaker 2: Let me then ask you about the Federal Reserve signaling 193 00:11:16,040 --> 00:11:19,319 Speaker 2: fewer rate cuts this year, and after this Friday's jobs report, 194 00:11:19,320 --> 00:11:21,400 Speaker 2: it looks like a lot of Wall Street is betting 195 00:11:21,480 --> 00:11:24,640 Speaker 2: on the next rate cut not until October. Now what 196 00:11:24,679 --> 00:11:27,560 Speaker 2: will that mean to growth and revenue at these lenders? 197 00:11:27,880 --> 00:11:31,120 Speaker 8: So for the net interest income, we do expect to 198 00:11:31,120 --> 00:11:36,840 Speaker 8: see stabilization this quarter, and then given where the curve 199 00:11:37,080 --> 00:11:40,040 Speaker 8: has moved and expectations for the for the forward curve 200 00:11:40,120 --> 00:11:44,040 Speaker 8: has moved, we could get more positive views on that front. 201 00:11:44,320 --> 00:11:48,120 Speaker 8: In particular, we're looking to JP Morgan, who has sort 202 00:11:48,160 --> 00:11:51,439 Speaker 8: of returned to this positive cycle of be and raise. 203 00:11:51,840 --> 00:11:54,720 Speaker 8: Estimates have been rising into the earnings for that bank 204 00:11:54,760 --> 00:12:00,120 Speaker 8: following bullish guidance in December, but still there could be 205 00:12:00,160 --> 00:12:02,760 Speaker 8: some room, we think, for them to be and raise 206 00:12:02,840 --> 00:12:07,520 Speaker 8: again and interesting comm guidance is a focus for that bank, 207 00:12:07,559 --> 00:12:12,000 Speaker 8: But really for JP Morgan, what we're looking for is 208 00:12:12,040 --> 00:12:17,160 Speaker 8: to see continued leadership in their overall profitability. Just help 209 00:12:17,200 --> 00:12:20,280 Speaker 8: buy the execution at that bank as well as some 210 00:12:20,320 --> 00:12:21,640 Speaker 8: of their leadership positions. 211 00:12:21,760 --> 00:12:26,120 Speaker 2: Our thanks to Alison Williams, Bloomberg Intelligence Senior Analyst, Global 212 00:12:26,160 --> 00:12:29,640 Speaker 2: Banks and Asset Managers. Coming up on Bloomberg day Break weekend, 213 00:12:29,679 --> 00:12:32,760 Speaker 2: we'll focus on a UK asset slump and what may 214 00:12:32,800 --> 00:12:46,160 Speaker 2: come next. I'm Tom Busby and this is Bloombergen. This 215 00:12:46,200 --> 00:12:48,600 Speaker 2: is Bloomberg day Break weekend, our global look ahead at 216 00:12:48,640 --> 00:12:51,200 Speaker 2: the top stories for investors in the coming week. I'm 217 00:12:51,240 --> 00:12:54,240 Speaker 2: Tom Busby in New York. Up later in our program 218 00:12:54,280 --> 00:12:57,240 Speaker 2: will break down what lies ahead after President Biden's decision 219 00:12:57,280 --> 00:13:01,240 Speaker 2: to block Nippon Steele's acquisition of US Deal. But first 220 00:13:01,559 --> 00:13:04,080 Speaker 2: back in twenty twenty two, the UK's guilt market was 221 00:13:04,120 --> 00:13:07,720 Speaker 2: plunged into crisis, sparked by the now infamous mini budget 222 00:13:07,920 --> 00:13:11,600 Speaker 2: of then UK Prime Minister Liz Trusts. Now two years on, 223 00:13:12,000 --> 00:13:14,960 Speaker 2: investors are concerned the country could be on course for 224 00:13:15,040 --> 00:13:18,600 Speaker 2: another collision with the markets. Can the government assuage their 225 00:13:18,640 --> 00:13:21,240 Speaker 2: concerns for more? Let's go to London and bring in 226 00:13:21,280 --> 00:13:24,040 Speaker 2: Bloomberg day Break. Europ banker Caroline. 227 00:13:23,600 --> 00:13:27,120 Speaker 3: Hepgar Tom, we have seen a tumultuous week in UK 228 00:13:27,320 --> 00:13:30,800 Speaker 3: bond markets over the past few days. Long term UK 229 00:13:30,880 --> 00:13:34,320 Speaker 3: boring costs have soared and the pound has fallen, a 230 00:13:34,400 --> 00:13:38,440 Speaker 3: rare combination that can signal investors have lost faith in 231 00:13:38,480 --> 00:13:41,400 Speaker 3: the government's ability to keep a lid on the national 232 00:13:41,440 --> 00:13:45,840 Speaker 3: debt and control inflation. The current surge in debt costs 233 00:13:45,880 --> 00:13:50,280 Speaker 3: also threatens to wipe out Chancellor Rachel reeves slim at 234 00:13:50,400 --> 00:13:54,680 Speaker 3: nine point nine billion pound buffer against her budget rules 235 00:13:55,080 --> 00:13:59,320 Speaker 3: and to create instability ahead of an official fiscal update 236 00:13:59,600 --> 00:14:02,880 Speaker 3: on the tw twenty sixth of March. For investors, it 237 00:14:02,920 --> 00:14:07,480 Speaker 3: all makes for a precarious state of affairs. Averson why 238 00:14:07,679 --> 00:14:12,400 Speaker 3: a fund manager Energy Investment says that investors are concerned. 239 00:14:12,679 --> 00:14:15,880 Speaker 9: I think what's looking different in the UK is that 240 00:14:15,960 --> 00:14:20,680 Speaker 9: they have very little policy room to move. We know 241 00:14:20,760 --> 00:14:23,440 Speaker 9: that borrowing is near record highs and we know that 242 00:14:23,840 --> 00:14:27,800 Speaker 9: taxation is near record highs, and so it's very much 243 00:14:27,840 --> 00:14:31,240 Speaker 9: a situation of the Labor Party needing to be a 244 00:14:31,240 --> 00:14:33,840 Speaker 9: bit creative in terms of where they get this extra 245 00:14:33,920 --> 00:14:38,760 Speaker 9: revenue from. And looking at valuations over the last day 246 00:14:38,880 --> 00:14:42,560 Speaker 9: or so, we are pricing in very similar levels to 247 00:14:42,600 --> 00:14:46,359 Speaker 9: what we saw in twenty twenty two and a trust backdrop, 248 00:14:46,480 --> 00:14:49,720 Speaker 9: and of course that was driven by unfunded tax cuts 249 00:14:49,720 --> 00:14:53,360 Speaker 9: and more fiscal recklessness. But now we're looking at potential austerity, 250 00:14:53,440 --> 00:14:56,000 Speaker 9: so we are looking at very different backdrops, but very 251 00:14:56,000 --> 00:14:57,600 Speaker 9: similar guilt pricing. 252 00:14:57,960 --> 00:15:01,480 Speaker 3: That was averson why from and G Investments speaking to 253 00:15:01,520 --> 00:15:05,320 Speaker 3: me and Stephen Caroll on Bloomberg Radio. The government has 254 00:15:05,360 --> 00:15:09,400 Speaker 3: offered reassurances, the Chief Secretary to the Treasury, Darren Jones, 255 00:15:09,440 --> 00:15:13,480 Speaker 3: pointing out that UK guilt markets continued to function in 256 00:15:13,520 --> 00:15:18,040 Speaker 3: an orderly way, and Bloomberg reporting that Rachel Reeves will 257 00:15:18,080 --> 00:15:23,280 Speaker 3: prioritize public spending cuts over any tax increases if it 258 00:15:23,360 --> 00:15:26,880 Speaker 3: indeed comes to that. But the fate of the UK's 259 00:15:26,880 --> 00:15:30,280 Speaker 3: debt market is something I've been discussing in more detail 260 00:15:30,320 --> 00:15:34,760 Speaker 3: with Bloomberg's chief UK economist Dan Hanson ahead of fresh 261 00:15:34,800 --> 00:15:38,080 Speaker 3: inflation data coming in the next few days. 262 00:15:38,320 --> 00:15:40,520 Speaker 7: There's been an awful lot going on, hasn't there. And 263 00:15:40,520 --> 00:15:43,680 Speaker 7: I think really the driver of all well, there are two. 264 00:15:43,720 --> 00:15:48,040 Speaker 7: There are two drivers really. One is global inflation concerns, 265 00:15:48,480 --> 00:15:52,920 Speaker 7: and you know, in deep integrated global markets, the UK 266 00:15:53,720 --> 00:15:56,560 Speaker 7: is a small player, so what happens in the US 267 00:15:56,560 --> 00:15:59,800 Speaker 7: matters for the UK, So you know we import a 268 00:15:59,840 --> 00:16:03,400 Speaker 7: lot of what goes on in US markets, particularly in 269 00:16:03,440 --> 00:16:06,120 Speaker 7: the guilt market. So that's the first thing. The second 270 00:16:06,120 --> 00:16:10,240 Speaker 7: thing I think is that there is this ongoing concerns 271 00:16:10,400 --> 00:16:14,440 Speaker 7: I think is the right word about the UK's fiscal 272 00:16:14,480 --> 00:16:17,640 Speaker 7: position coming out of the budget on October the thirtieth 273 00:16:17,720 --> 00:16:22,520 Speaker 7: last year, and the uncertainty about what chance with these 274 00:16:22,600 --> 00:16:25,760 Speaker 7: jacker Rachel Reeves will will do about it with a 275 00:16:26,720 --> 00:16:29,200 Speaker 7: in the what is being called the spring forecast, which 276 00:16:29,240 --> 00:16:34,240 Speaker 7: is on March twenty sixth Reeves has been quite adamant, 277 00:16:34,240 --> 00:16:35,920 Speaker 7: at least up till now, that there will only be 278 00:16:35,960 --> 00:16:39,360 Speaker 7: one fiscal event per year, and that or one event 279 00:16:39,400 --> 00:16:43,880 Speaker 7: where spending in taxes are changed, I should say. And 280 00:16:43,920 --> 00:16:47,400 Speaker 7: the hope was, at least Labour's hope or the government's hope, 281 00:16:47,600 --> 00:16:50,160 Speaker 7: was that they wouldn't have to make any changes to 282 00:16:50,160 --> 00:16:54,480 Speaker 7: fiscal policy at the upcoming statement. As things stands, it 283 00:16:54,520 --> 00:16:57,040 Speaker 7: looks like they will have to make some changes. So 284 00:16:57,640 --> 00:17:00,400 Speaker 7: there's been at an awful lot going on, but it 285 00:17:00,800 --> 00:17:05,960 Speaker 7: keeps us busy. So I think the key thing and 286 00:17:05,960 --> 00:17:08,360 Speaker 7: the most interesting thing, at least for us, has been 287 00:17:08,480 --> 00:17:11,679 Speaker 7: the shift in borrowing the expectations around borrowing costs in 288 00:17:11,720 --> 00:17:12,120 Speaker 7: the UK. 289 00:17:13,000 --> 00:17:15,919 Speaker 3: Yeah, and so this is the guilt market is also 290 00:17:15,960 --> 00:17:19,160 Speaker 3: though to pick you up on that point around inflation, 291 00:17:19,280 --> 00:17:21,840 Speaker 3: we do get inflation data out in the days ahead, 292 00:17:22,600 --> 00:17:25,680 Speaker 3: how are we thinking about that? The stickiness of inflation 293 00:17:25,800 --> 00:17:28,080 Speaker 3: here in the UK and therefore what the Bank of 294 00:17:28,119 --> 00:17:28,840 Speaker 3: England has to do. 295 00:17:29,400 --> 00:17:31,080 Speaker 7: Yeah, So I mean I think I don't think it's 296 00:17:31,080 --> 00:17:33,720 Speaker 7: going to tell us anything we didn't already know. I 297 00:17:33,720 --> 00:17:36,760 Speaker 7: think it's you know, if you if you sort of 298 00:17:36,760 --> 00:17:40,119 Speaker 7: put the numbers together, we're looking for a modest rise 299 00:17:40,400 --> 00:17:42,920 Speaker 7: from two point six to two point seven. I could 300 00:17:42,960 --> 00:17:44,840 Speaker 7: see it coming in at two point six as well. 301 00:17:44,960 --> 00:17:46,360 Speaker 7: I mean, if you're going into the if you really 302 00:17:46,400 --> 00:17:49,600 Speaker 7: want to get into the minuture of the numbers, it's 303 00:17:50,560 --> 00:17:52,639 Speaker 7: there's a There are a lot of volatile categories that 304 00:17:52,680 --> 00:17:55,040 Speaker 7: can affect the CPI in December, one of which is 305 00:17:55,680 --> 00:17:58,240 Speaker 7: the price of air travel. A lot depends on when 306 00:17:58,280 --> 00:18:00,439 Speaker 7: the ONS collects the data, so there there's a bit 307 00:18:00,440 --> 00:18:02,679 Speaker 7: of uncertainty around the number. But the big picture, as 308 00:18:02,760 --> 00:18:05,880 Speaker 7: you've you've rightly said there, is that it will continue 309 00:18:05,920 --> 00:18:11,440 Speaker 7: to signal sticky inflation. Two point six prints or a 310 00:18:11,440 --> 00:18:12,960 Speaker 7: two point seven print would be above the Bank of 311 00:18:12,960 --> 00:18:17,840 Speaker 7: England's expectation that it had in its November forecast. So 312 00:18:17,960 --> 00:18:21,280 Speaker 7: bringing it all together, it's going to continue, I think, 313 00:18:21,320 --> 00:18:23,480 Speaker 7: to just sort of support the view that the UK 314 00:18:23,640 --> 00:18:27,639 Speaker 7: has this special inflation problem but has got a persistent 315 00:18:27,760 --> 00:18:31,080 Speaker 7: or sticky inflation problem, and if you look at the 316 00:18:31,119 --> 00:18:34,000 Speaker 7: outlook for this year, it's unlikely that inflation is going 317 00:18:34,000 --> 00:18:36,000 Speaker 7: to drop much below where we are now. It's probably 318 00:18:36,040 --> 00:18:39,040 Speaker 7: going to oscillate somewhere between where we are now and 319 00:18:39,840 --> 00:18:41,760 Speaker 7: three or perhaps a touch above it. So we're going 320 00:18:41,760 --> 00:18:45,040 Speaker 7: to be in that range which clearly isn't two percent. 321 00:18:45,480 --> 00:18:49,360 Speaker 3: And therefore interest rates in the UK may remain higher 322 00:18:49,400 --> 00:18:51,919 Speaker 3: for longer, and therefore the pressure on the government and 323 00:18:51,960 --> 00:18:57,399 Speaker 3: government finances would remain in terms of what the Chancellor 324 00:18:57,560 --> 00:19:02,840 Speaker 3: needs to do, needs to set what would convince investors? 325 00:19:02,880 --> 00:19:06,480 Speaker 3: What do you think markets want to hear right now? 326 00:19:07,080 --> 00:19:11,399 Speaker 7: Well, I think the answer I mean this problem is 327 00:19:11,480 --> 00:19:14,080 Speaker 7: going back to the answer to my first question. There 328 00:19:14,600 --> 00:19:16,600 Speaker 7: there's a global element to it which is very hard 329 00:19:16,600 --> 00:19:19,320 Speaker 7: to fight. It's very hard to do something about that. 330 00:19:19,480 --> 00:19:21,720 Speaker 7: But there is a UK specific bit of it as well, 331 00:19:21,960 --> 00:19:27,840 Speaker 7: and that is that stems predominantly from concerns about fiscal policy. 332 00:19:27,960 --> 00:19:31,920 Speaker 7: So the remedy has to be around fiscal policy. And 333 00:19:31,960 --> 00:19:34,560 Speaker 7: the question is how do you reign in borrowing And 334 00:19:34,600 --> 00:19:36,880 Speaker 7: there are two obviously two ways of doing that. One 335 00:19:36,920 --> 00:19:39,120 Speaker 7: is you raise taxes, the other is you cut spending. 336 00:19:39,800 --> 00:19:42,040 Speaker 7: And it sounds like the noise is coming from the government. 337 00:19:42,119 --> 00:19:44,639 Speaker 7: At least, it sounds like that cutting spending is going 338 00:19:44,680 --> 00:19:48,359 Speaker 7: to be the way the government goes to bring things 339 00:19:48,400 --> 00:19:51,199 Speaker 7: back sort of steady the ship, if you like to 340 00:19:51,480 --> 00:19:54,520 Speaker 7: put it, because at least when you think about the 341 00:19:54,520 --> 00:19:56,679 Speaker 7: budget and the backlash to the rise in taxes that 342 00:19:56,720 --> 00:19:59,639 Speaker 7: we had, it seems very unlikely to me that they 343 00:19:59,680 --> 00:20:02,119 Speaker 7: will raise is tax further because of the backlash to 344 00:20:02,160 --> 00:20:05,720 Speaker 7: the rise in payroll tax that we had, and also 345 00:20:05,760 --> 00:20:08,960 Speaker 7: because of the manifesto or commitments that were made during 346 00:20:08,960 --> 00:20:14,440 Speaker 7: the election that income tax, employee, national insurance not employer 347 00:20:14,560 --> 00:20:18,040 Speaker 7: national insurance, employee national insurance, corporation tax, value added tax, 348 00:20:18,080 --> 00:20:20,000 Speaker 7: none of those things will rise, and they account for 349 00:20:20,560 --> 00:20:23,719 Speaker 7: upwards of seventy percent of the tax take, so it's 350 00:20:23,800 --> 00:20:26,399 Speaker 7: very difficult to see how they would go near the 351 00:20:26,440 --> 00:20:29,359 Speaker 7: tax space. Again, it feels like they'll go for spending cuts. 352 00:20:29,960 --> 00:20:32,640 Speaker 3: What are the risks of stagflation for the UK? 353 00:20:34,119 --> 00:20:36,760 Speaker 7: I think they are in the near term. We're sort 354 00:20:36,760 --> 00:20:39,240 Speaker 7: of back where we were sort of in this sort 355 00:20:39,240 --> 00:20:41,359 Speaker 7: of twenty twenty two to twenty twenty three period. Obviously, 356 00:20:41,400 --> 00:20:44,680 Speaker 7: the inflation picture is completely different. We had sort of 357 00:20:44,720 --> 00:20:47,320 Speaker 7: eleven percent inflation in the UK we're at I know 358 00:20:47,320 --> 00:20:50,200 Speaker 7: we're above target, but it's very different at two point 359 00:20:50,240 --> 00:20:52,240 Speaker 7: six compared to eleven point one, which was the peak. 360 00:20:52,359 --> 00:20:55,440 Speaker 7: That's the first point. But on the other side of 361 00:20:55,480 --> 00:20:59,360 Speaker 7: the sort of stagflation story, the jobs market does look 362 00:20:59,400 --> 00:21:02,919 Speaker 7: like it's loose now and by well, it's looser certainly 363 00:21:02,920 --> 00:21:04,880 Speaker 7: than it was in twenty twenty two, twenty twenty three, 364 00:21:04,920 --> 00:21:07,119 Speaker 7: and it is loosening, you know. The Bank of England 365 00:21:07,160 --> 00:21:09,520 Speaker 7: said that it's December meeting that the labor market is 366 00:21:09,560 --> 00:21:13,080 Speaker 7: in balance sort of. Any further loosening from here means 367 00:21:13,119 --> 00:21:16,719 Speaker 7: there's spare capacity in the labor market, unemployment is rising. 368 00:21:17,359 --> 00:21:19,520 Speaker 7: That presents a really difficult trade off for the bank 369 00:21:19,840 --> 00:21:23,000 Speaker 7: because you've got this inflation picture, you've got this potentially 370 00:21:23,040 --> 00:21:27,560 Speaker 7: weakening labor market, and the bank is charged with targeting inflation. 371 00:21:27,600 --> 00:21:29,280 Speaker 7: It doesn't have a dual mandate like the FED, so 372 00:21:29,320 --> 00:21:32,320 Speaker 7: it can't lean on one side of another site or 373 00:21:32,359 --> 00:21:35,000 Speaker 7: the second part of the mandate if you like. So 374 00:21:35,080 --> 00:21:37,320 Speaker 7: I think it's going to be a difficult period for 375 00:21:37,359 --> 00:21:37,720 Speaker 7: the bank. 376 00:21:38,240 --> 00:21:42,880 Speaker 3: My thanks to Bloomberg's Dan Hanson, our chief UK economist. Well, 377 00:21:43,000 --> 00:21:46,359 Speaker 3: while Rachel Reeves and the government grapple with their response. 378 00:21:46,400 --> 00:21:50,600 Speaker 3: The Chancellor may not have much time as business leaders 379 00:21:50,640 --> 00:21:55,719 Speaker 3: grow increasingly frustrated. Neil Carburry, the CEO of the Recruitment 380 00:21:55,800 --> 00:22:01,000 Speaker 3: and Employment Confederation, says that patience is running thin in 381 00:22:01,040 --> 00:22:03,400 Speaker 3: the wake of October's budget changes. 382 00:22:04,040 --> 00:22:06,280 Speaker 5: Well, look, the fiscal position is really difficult and it 383 00:22:06,320 --> 00:22:08,800 Speaker 5: looks really difficult going out year after year from here. 384 00:22:09,680 --> 00:22:12,280 Speaker 5: The ability of the UKI to do long term economic 385 00:22:12,320 --> 00:22:16,560 Speaker 5: policy making is what's an issue here. I think this 386 00:22:16,640 --> 00:22:19,760 Speaker 5: government coming to power has tried to move more in 387 00:22:19,840 --> 00:22:23,800 Speaker 5: that direction. As you say, there's a long run to 388 00:22:23,880 --> 00:22:26,240 Speaker 5: judge it, but I think we need to see more 389 00:22:26,280 --> 00:22:29,200 Speaker 5: of the tough choices fronted up in the open rather 390 00:22:29,320 --> 00:22:32,320 Speaker 5: than rather than pushed into the background. 391 00:22:32,920 --> 00:22:35,920 Speaker 10: We mentioned that your survey is scrutinized by the Bank 392 00:22:35,960 --> 00:22:38,840 Speaker 10: of England. How much of a head window interest rates 393 00:22:39,200 --> 00:22:41,240 Speaker 10: at this point? What are you hearing from your members 394 00:22:41,320 --> 00:22:43,919 Speaker 10: about traders expectations that the BOE is not going to 395 00:22:43,960 --> 00:22:46,119 Speaker 10: go nearly as far as some had expected at least 396 00:22:46,320 --> 00:22:47,440 Speaker 10: three six months ago. 397 00:22:47,720 --> 00:22:51,399 Speaker 5: Well, we watched this really closely because a bit of 398 00:22:51,400 --> 00:22:53,720 Speaker 5: a foible of the way the temporary labor market works 399 00:22:54,440 --> 00:22:56,960 Speaker 5: is you know, if I place someone as an agency 400 00:22:56,960 --> 00:22:58,560 Speaker 5: as a temporary worker, I paid them this week, but 401 00:22:58,600 --> 00:23:00,760 Speaker 5: I get paid in a month or three months time. 402 00:23:01,080 --> 00:23:05,520 Speaker 5: So effectively I'm acting as a short term bank for clients. 403 00:23:06,720 --> 00:23:09,240 Speaker 5: And clearly therefore temporary labor supply is a lot more 404 00:23:09,240 --> 00:23:15,359 Speaker 5: expensive now than it was five years ago. We definitely 405 00:23:15,400 --> 00:23:19,760 Speaker 5: think that the capacity of the temporary labor market to 406 00:23:19,880 --> 00:23:22,160 Speaker 5: supply and to meet the needs where companies maybe sitting 407 00:23:22,200 --> 00:23:26,680 Speaker 5: back a bit and going permanent, not confident about creating 408 00:23:26,680 --> 00:23:32,320 Speaker 5: permanent jobs, is being affected by cost of capital, and 409 00:23:32,320 --> 00:23:35,800 Speaker 5: we think that's happening on investment decisions inside client businesses 410 00:23:35,840 --> 00:23:36,440 Speaker 5: as well. 411 00:23:36,680 --> 00:23:38,960 Speaker 3: What do you really think that the government has to 412 00:23:39,000 --> 00:23:42,399 Speaker 3: say this week to people like you, to your the 413 00:23:42,440 --> 00:23:43,600 Speaker 3: businesses that you speak to. 414 00:23:44,240 --> 00:23:46,520 Speaker 5: I think then has to be a real opening up 415 00:23:46,560 --> 00:23:50,399 Speaker 5: on the next year to eighteen months. What are you 416 00:23:50,440 --> 00:23:53,040 Speaker 5: asking your business and how are we moderating that Because 417 00:23:53,040 --> 00:23:55,160 Speaker 5: if you look at things like the employment Rights Bill 418 00:23:55,880 --> 00:23:58,440 Speaker 5: that's coming up time and again as a potential threat 419 00:23:58,480 --> 00:24:00,680 Speaker 5: in our world in the labor market, and yet it's 420 00:24:00,760 --> 00:24:03,200 Speaker 5: unformed at the moment. We need government to give commitments 421 00:24:03,240 --> 00:24:08,960 Speaker 5: to things like protecting the gig economy in flex flexible 422 00:24:09,000 --> 00:24:12,040 Speaker 5: labor in the zero hour's contract rules, because right now 423 00:24:12,080 --> 00:24:13,840 Speaker 5: a lot of firms just say, well, I'm not hiring 424 00:24:13,880 --> 00:24:15,880 Speaker 5: permanently because they don't have the confidence, and I'm now 425 00:24:15,920 --> 00:24:18,280 Speaker 5: not hiring temporary because I don't know what happens in 426 00:24:18,280 --> 00:24:20,160 Speaker 5: that world after the bill NOL. 427 00:24:20,200 --> 00:24:23,240 Speaker 10: How does it break down in terms of SECTI by sector, 428 00:24:23,320 --> 00:24:26,960 Speaker 10: industry by industry. You're pointing to the challenges and the 429 00:24:26,960 --> 00:24:29,720 Speaker 10: softness now, the weakness in the labor market. Where is 430 00:24:29,720 --> 00:24:30,800 Speaker 10: that most acutely felt. 431 00:24:31,240 --> 00:24:34,600 Speaker 5: So we've seen a really tough long period for construction. 432 00:24:34,640 --> 00:24:37,080 Speaker 5: Actually the trend in construction, while still negative, is slightly 433 00:24:37,080 --> 00:24:39,960 Speaker 5: better now than last year. It's usually quite a good 434 00:24:40,000 --> 00:24:42,159 Speaker 5: sign in terms of leading indicator. 435 00:24:41,840 --> 00:24:43,520 Speaker 10: On shortage of construction work. 436 00:24:43,880 --> 00:24:47,880 Speaker 5: Indeed, and then the only areas where we're seeing vacancies 437 00:24:48,000 --> 00:24:53,239 Speaker 5: growing at the moment are in marginally in hospitality and 438 00:24:53,280 --> 00:24:57,360 Speaker 5: then particularly in what we'd call blue collar light industrial logistics. 439 00:24:57,680 --> 00:24:59,960 Speaker 5: And if you think about that that sector, that's how 440 00:25:00,119 --> 00:25:01,480 Speaker 5: real area of shortage. 441 00:25:01,680 --> 00:25:05,160 Speaker 3: That was Neil Carbury from the Recruitment and Employment Confederation 442 00:25:05,320 --> 00:25:08,239 Speaker 3: speaking to me on Bloomberg Radio. The UK has been 443 00:25:08,240 --> 00:25:11,160 Speaker 3: among the hardest hit by the route in global bond 444 00:25:11,240 --> 00:25:15,480 Speaker 3: markets will continue to follow investor concerns and the speeches 445 00:25:15,520 --> 00:25:19,320 Speaker 3: planned by the Chancellor in the coming weeks. I'm Caroline 446 00:25:19,359 --> 00:25:21,680 Speaker 3: Hepkee here in London. You can catch us every weekday 447 00:25:21,680 --> 00:25:23,920 Speaker 3: morning for Bloomberg day Break. You up beginning at six 448 00:25:23,960 --> 00:25:26,320 Speaker 3: am in London. That's one am on Wall Street. 449 00:25:26,359 --> 00:25:29,879 Speaker 2: Tom, Thanks Caroline, and coming up on Bloomberg day Break weekend, 450 00:25:29,920 --> 00:25:32,520 Speaker 2: we'll look at one lies ahead after President Biden's decision 451 00:25:32,560 --> 00:25:36,400 Speaker 2: to block Napon Steele's acquisition of US deal. I'm Tom 452 00:25:36,480 --> 00:25:50,520 Speaker 2: Busby and this is Bloombergie. This is Bloomberg day Break Weekend, 453 00:25:50,560 --> 00:25:52,879 Speaker 2: our global look ahead at the top stories for investors 454 00:25:52,920 --> 00:25:55,399 Speaker 2: in the coming week. I'm Tom Busby in New York. 455 00:25:55,680 --> 00:25:58,280 Speaker 2: With President elect Trump set to take office in a 456 00:25:58,320 --> 00:26:01,000 Speaker 2: little more than a week and tariff the top of mind, 457 00:26:01,640 --> 00:26:04,960 Speaker 2: what's the outlook for China's biggest automaker. Let's get to 458 00:26:05,000 --> 00:26:08,440 Speaker 2: Doug Krisner, host of the Daybreak Asia podcast, for more. 459 00:26:09,600 --> 00:26:12,800 Speaker 4: Tom twenty twenty five maybe the year the Chinese carmaker 460 00:26:12,840 --> 00:26:16,280 Speaker 4: BYD becomes the dominant player in the global market for 461 00:26:16,440 --> 00:26:21,720 Speaker 4: electric vehicles. Already, BYD has nearly overtaken Tesla to become 462 00:26:21,760 --> 00:26:25,040 Speaker 4: the world's largest seller of evs. For a closer look, now, 463 00:26:25,080 --> 00:26:27,960 Speaker 4: I'm joined by Danny Lee, who covers the Asia EV 464 00:26:28,080 --> 00:26:31,160 Speaker 4: space for Bloomberg News. Danny joins us from our studios 465 00:26:31,200 --> 00:26:33,560 Speaker 4: in Hong Kong. It's always great to have the chance 466 00:26:33,600 --> 00:26:37,200 Speaker 4: to visit with you. You're so plugged in, so to speak, 467 00:26:37,320 --> 00:26:40,359 Speaker 4: in the EV environment in Asia. We can talk about 468 00:26:40,359 --> 00:26:42,800 Speaker 4: the BYD story in a moment, but can we begin 469 00:26:42,920 --> 00:26:45,320 Speaker 4: with kind of getting the big picture on the EV 470 00:26:45,480 --> 00:26:48,200 Speaker 4: market in China? How competitive are things right now? 471 00:26:48,520 --> 00:26:52,879 Speaker 11: The landscape is really quite cutthroats, and we've seen that 472 00:26:52,960 --> 00:26:55,520 Speaker 11: play out over the last couple of years with price 473 00:26:55,600 --> 00:27:01,280 Speaker 11: cuts being dished out across the marketplace. Every car maker 474 00:27:01,359 --> 00:27:05,600 Speaker 11: has been forced into a position because of the best 475 00:27:05,640 --> 00:27:09,240 Speaker 11: selling car maker, BYD. But there is a real sense 476 00:27:09,280 --> 00:27:11,960 Speaker 11: that if you're not cutting prices, you are going to 477 00:27:12,000 --> 00:27:16,719 Speaker 11: sink very very quickly. And given the fight for what 478 00:27:16,800 --> 00:27:20,120 Speaker 11: little market share there is because of the dominance of BYD, 479 00:27:20,800 --> 00:27:24,960 Speaker 11: everyone's fighting for a smaller amount of vehicles that buyers 480 00:27:24,960 --> 00:27:28,680 Speaker 11: are going to drive, and ultimately those who lose out 481 00:27:28,840 --> 00:27:31,160 Speaker 11: are going out of business. And we've seen a few 482 00:27:31,200 --> 00:27:33,479 Speaker 11: failures in twenty twenty four as a result of this 483 00:27:33,600 --> 00:27:37,920 Speaker 11: squeeze on the market because we see more drivers gravitating 484 00:27:37,960 --> 00:27:41,800 Speaker 11: towards the more popular EV brands out there, whether it 485 00:27:41,880 --> 00:27:46,040 Speaker 11: be a BYD to a Zeker to a Gili, these 486 00:27:46,080 --> 00:27:50,160 Speaker 11: are all moves being done to try and consolidate positions 487 00:27:50,240 --> 00:27:54,480 Speaker 11: in the marketplace. And we see the more successful EV 488 00:27:54,600 --> 00:27:57,680 Speaker 11: brands coming to the fore now and ones that are 489 00:27:57,880 --> 00:28:00,640 Speaker 11: coming to the fore in China are actually to have 490 00:28:01,040 --> 00:28:04,000 Speaker 11: an impact outside of China, and that's where the worry 491 00:28:04,160 --> 00:28:07,000 Speaker 11: extends to because of the success of the Chinese V 492 00:28:07,119 --> 00:28:07,880 Speaker 11: space overall. 493 00:28:08,040 --> 00:28:10,879 Speaker 4: So when you talk about consolidation, is that really a 494 00:28:10,960 --> 00:28:14,840 Speaker 4: euphemism for saying there are fewer participants in the market 495 00:28:14,920 --> 00:28:18,879 Speaker 4: right now, fewer companies manufacturing, or are we actually seeing 496 00:28:18,920 --> 00:28:21,640 Speaker 4: kind of merger merger and acquisition activity. 497 00:28:22,240 --> 00:28:27,000 Speaker 11: We are largely seeing more of A consolidations through the failures. 498 00:28:27,440 --> 00:28:30,640 Speaker 11: Where we do see though, the effective M and A 499 00:28:30,640 --> 00:28:34,320 Speaker 11: activity is where the biggest losers have ultimately been the 500 00:28:34,400 --> 00:28:38,960 Speaker 11: foreign auto brands, where we've seen Volkswagen lose more and 501 00:28:39,040 --> 00:28:43,320 Speaker 11: more share. We've seen General Motors also sync quite significantly 502 00:28:43,320 --> 00:28:48,400 Speaker 11: over recent quarters, and even Stellantis, who has pulled back 503 00:28:48,400 --> 00:28:51,040 Speaker 11: on the China market of late but then decided to 504 00:28:51,040 --> 00:28:53,920 Speaker 11: do a deal. Just like Volkswagen, They're all looking for 505 00:28:54,000 --> 00:28:58,040 Speaker 11: deals with Chinese EV partners, particularly ones who have a 506 00:28:58,160 --> 00:29:01,080 Speaker 11: limited track record in terms of of a history, but 507 00:29:01,240 --> 00:29:04,600 Speaker 11: because of what cars they can produce, with the technology 508 00:29:04,600 --> 00:29:07,440 Speaker 11: and the offering that is so attractive to Chinese consumers, 509 00:29:07,840 --> 00:29:10,760 Speaker 11: we've seen a lot of m and A worth billions, 510 00:29:10,800 --> 00:29:14,760 Speaker 11: and so this is where we've seen this consolidation or 511 00:29:14,800 --> 00:29:19,360 Speaker 11: gravitation towards foreign automakers trying to partner up because if 512 00:29:19,360 --> 00:29:22,040 Speaker 11: you can't beat them, you join them, and so this 513 00:29:22,080 --> 00:29:24,560 Speaker 11: is where they feel their money is best put to work. 514 00:29:24,720 --> 00:29:26,640 Speaker 4: So, Danny, what is the role of the government here. 515 00:29:26,680 --> 00:29:28,760 Speaker 4: I know that there are a few trade in programs 516 00:29:28,800 --> 00:29:32,160 Speaker 4: which have been vital to building out the market. Is 517 00:29:32,200 --> 00:29:34,480 Speaker 4: that just the way that business is done? You accept 518 00:29:34,520 --> 00:29:36,960 Speaker 4: the fact that the government's going to continue to support 519 00:29:37,040 --> 00:29:38,160 Speaker 4: these manufacturers. 520 00:29:38,880 --> 00:29:42,280 Speaker 11: The view is from the industry that they do want 521 00:29:42,280 --> 00:29:46,520 Speaker 11: to see some government support for the consumer to encourage 522 00:29:47,520 --> 00:29:51,080 Speaker 11: cars to be bought electric cars specifically, and given the 523 00:29:51,120 --> 00:29:56,080 Speaker 11: investment being made by these Chinese automakers billions has been 524 00:29:56,120 --> 00:29:59,280 Speaker 11: spent over a multi year period, there is just an 525 00:29:59,320 --> 00:30:04,280 Speaker 11: anxiety that if consumers start to wane on EV purchases, 526 00:30:04,320 --> 00:30:07,080 Speaker 11: which would be hard to think given the we are 527 00:30:07,120 --> 00:30:12,160 Speaker 11: seeing monthly sales of EV's compared to overall sales hitting 528 00:30:12,640 --> 00:30:17,040 Speaker 11: over fifty percent. Now that they're just you know, if 529 00:30:17,040 --> 00:30:20,200 Speaker 11: any slippage does come that there would be that would 530 00:30:20,200 --> 00:30:23,760 Speaker 11: have a negative effect on the overall sector. But you know, 531 00:30:23,960 --> 00:30:27,640 Speaker 11: China seeds the overall benefits of supporting sales to ensure 532 00:30:27,680 --> 00:30:31,280 Speaker 11: that there is healthy competition and a strong marketplace, because 533 00:30:31,760 --> 00:30:35,920 Speaker 11: ultimately that extends to the carmakers in China benefiting and 534 00:30:35,960 --> 00:30:38,200 Speaker 11: they can translate that success globally. 535 00:30:38,360 --> 00:30:41,040 Speaker 4: I was looking at your Year ahead for the EV 536 00:30:41,160 --> 00:30:44,120 Speaker 4: space in China, you can see it on the Bloomberg terminal, 537 00:30:44,120 --> 00:30:47,240 Speaker 4: and one line that struck me is that BYD essentially 538 00:30:47,280 --> 00:30:51,880 Speaker 4: remains the brand to beat. What makes BYD so special. 539 00:30:51,920 --> 00:30:56,920 Speaker 11: Well BYD has always been able to use its financial 540 00:30:57,000 --> 00:31:00,920 Speaker 11: my year after year now to continue Hinley be ahead 541 00:31:01,080 --> 00:31:04,600 Speaker 11: and to set the agenda, particularly when it comes to prices. 542 00:31:04,680 --> 00:31:08,160 Speaker 11: But because its car lineup is so affordable and they 543 00:31:08,200 --> 00:31:12,760 Speaker 11: have so many models and variants, we are talking in 544 00:31:12,840 --> 00:31:14,800 Speaker 11: excess of one hundred and seventy hundred and eighty even 545 00:31:14,840 --> 00:31:19,320 Speaker 11: more now intentially up to two hundred. So whatever the 546 00:31:19,320 --> 00:31:22,720 Speaker 11: price point, the choice, the kind of power you want 547 00:31:22,920 --> 00:31:27,680 Speaker 11: or capability or vehicle BYD is covered at every price 548 00:31:27,800 --> 00:31:31,640 Speaker 11: range possible, frankly, and for many vehicle types. Now that 549 00:31:31,720 --> 00:31:34,959 Speaker 11: it also includes a supercart and a pickup truck, so 550 00:31:35,040 --> 00:31:38,560 Speaker 11: it has anything for everyone. And it's that kind of 551 00:31:38,680 --> 00:31:42,360 Speaker 11: proliferation which means it can be all things to all consumers. 552 00:31:42,360 --> 00:31:46,200 Speaker 11: And that's where other car making brands are having to 553 00:31:46,400 --> 00:31:46,920 Speaker 11: catch up. 554 00:31:47,120 --> 00:31:50,040 Speaker 4: So we've been talking really about the domestic market in China, 555 00:31:50,080 --> 00:31:53,240 Speaker 4: and I'm curious for the entire EV industry in China 556 00:31:53,280 --> 00:31:57,200 Speaker 4: how critical it is that these companies begin to develop 557 00:31:57,280 --> 00:31:59,880 Speaker 4: markets offshore in foreign jurisdictions. 558 00:32:00,400 --> 00:32:04,120 Speaker 11: Well, for EV companies and for auto companies buy and large, 559 00:32:04,920 --> 00:32:09,000 Speaker 11: there has been a push to drive sales in any 560 00:32:09,080 --> 00:32:11,760 Speaker 11: way possible, you know, because of the way in which 561 00:32:11,840 --> 00:32:15,400 Speaker 11: the domestic Chinese sector has been so cutthroat. You know 562 00:32:15,560 --> 00:32:20,240 Speaker 11: that by selling abroad you can attract bigger margins, significantly 563 00:32:20,240 --> 00:32:24,040 Speaker 11: bigger margins in some cases. And so we have seen 564 00:32:24,800 --> 00:32:29,040 Speaker 11: many Chinese carmakers go abroad as far as Brazil to Mexico. 565 00:32:29,880 --> 00:32:33,760 Speaker 11: Southeast Asia has been a big, a big kind of 566 00:32:33,800 --> 00:32:38,160 Speaker 11: melting pot of activity. So it is important that you diversify, 567 00:32:38,560 --> 00:32:41,280 Speaker 11: and BID has understood that in a way in which 568 00:32:41,320 --> 00:32:44,960 Speaker 11: it has rapidly expanded to well over one hundred countries 569 00:32:45,000 --> 00:32:47,640 Speaker 11: by this point in the past three years or so. 570 00:32:47,720 --> 00:32:51,880 Speaker 11: And so it's important to have some balance, so you're 571 00:32:51,920 --> 00:32:56,920 Speaker 11: not reliant on the Chinese domestic market overall, because maybe 572 00:32:56,920 --> 00:32:59,080 Speaker 11: one day those subsites will have to be weaned off, 573 00:32:59,160 --> 00:33:02,480 Speaker 11: and you know, sales can't keep growing forever, although there 574 00:33:02,560 --> 00:33:06,280 Speaker 11: is a good kind of momentum for the next several 575 00:33:06,360 --> 00:33:07,000 Speaker 11: years to come. 576 00:33:07,600 --> 00:33:09,520 Speaker 4: Jenny, thank you so much for spending the time to 577 00:33:09,640 --> 00:33:12,240 Speaker 4: enlighten us on the Chinese EV space. And you can 578 00:33:12,280 --> 00:33:15,880 Speaker 4: read Danny's piece on the Bloomberg terminal Chinese EV Makers 579 00:33:15,960 --> 00:33:20,320 Speaker 4: twenty twenty five goals belye tough year ahead. He's Danny Lee. 580 00:33:20,360 --> 00:33:23,640 Speaker 4: He covers the Asia EV space for Bloomberg News. And 581 00:33:23,720 --> 00:33:27,120 Speaker 4: now we turn to a spat in US Japanese relations, 582 00:33:27,200 --> 00:33:31,640 Speaker 4: President Biden blocking Nipon Steele's deal to acquire its American 583 00:33:31,760 --> 00:33:34,680 Speaker 4: rival US deal. Now, Nepon says, at this point it's 584 00:33:34,680 --> 00:33:38,160 Speaker 4: not considering alternative plans to the takeover, and yes, both 585 00:33:38,200 --> 00:33:42,280 Speaker 4: companies have filed lawsuits to rescue their merger. So should 586 00:33:42,320 --> 00:33:44,600 Speaker 4: we assume this deal is dead? Well, let's take a 587 00:33:44,640 --> 00:33:46,760 Speaker 4: close to look at the state of affairs in the saga. 588 00:33:46,800 --> 00:33:50,840 Speaker 4: I'm joined now by GERRODRIDI. He is Bloomberg opinion columnists 589 00:33:50,880 --> 00:33:53,880 Speaker 4: joining us from our studios in Tokyo. Thanks for making 590 00:33:53,880 --> 00:33:56,600 Speaker 4: time to check with us. Let's begin with your understanding 591 00:33:56,600 --> 00:34:00,160 Speaker 4: of Biden's rationale for blocking the transaction. First of all, 592 00:34:00,160 --> 00:34:01,800 Speaker 4: do you understand it? Does it make sense? 593 00:34:02,120 --> 00:34:04,560 Speaker 12: The rationale absolutely does not make sense, and I think 594 00:34:04,560 --> 00:34:08,000 Speaker 12: that is the most difficult to understand part about this deal. 595 00:34:08,160 --> 00:34:10,920 Speaker 12: You know, we knew that Biden opposed the deal, We 596 00:34:11,000 --> 00:34:15,560 Speaker 12: knew that this decision was likely coming. But I think 597 00:34:15,600 --> 00:34:19,239 Speaker 12: what was shocking here was to see it put you know, 598 00:34:19,360 --> 00:34:23,399 Speaker 12: so starkly in writing that, you know, the wording of 599 00:34:23,520 --> 00:34:27,600 Speaker 12: Biden's executive order that he has credible evidence that Nippon 600 00:34:27,680 --> 00:34:30,440 Speaker 12: Steel might take action that threatens to impair the national 601 00:34:30,480 --> 00:34:33,400 Speaker 12: security of the US. You know, we're talking about a 602 00:34:33,480 --> 00:34:37,960 Speaker 12: Japanese company. Japan is you know, the US's I think 603 00:34:38,000 --> 00:34:41,319 Speaker 12: it's it's most important ally at this point in time, 604 00:34:41,600 --> 00:34:44,399 Speaker 12: and obviously you know it's a security the US's Japan 605 00:34:44,480 --> 00:34:48,320 Speaker 12: Security guardent tour. To say that a company based in 606 00:34:48,400 --> 00:34:52,000 Speaker 12: Japan presents a national security threat to the US just 607 00:34:52,040 --> 00:34:53,160 Speaker 12: doesn't make any sense at all. 608 00:34:53,239 --> 00:34:56,120 Speaker 4: I find it particularly interesting because from what I read, 609 00:34:56,239 --> 00:35:00,040 Speaker 4: many people who advise President Biden were actually in in 610 00:35:00,160 --> 00:35:02,799 Speaker 4: favor of this deal, and they wanted him to kind 611 00:35:02,800 --> 00:35:05,840 Speaker 4: of give his blessing, to give his approval. At the 612 00:35:05,960 --> 00:35:07,440 Speaker 4: end of the day, we know he blocked it, And 613 00:35:07,480 --> 00:35:09,759 Speaker 4: I'm wondering whether some of this had to do with 614 00:35:09,800 --> 00:35:12,200 Speaker 4: the fact that Biden would like to be seen in 615 00:35:12,239 --> 00:35:15,799 Speaker 4: his legacy as a pro labor president. Do you think 616 00:35:15,840 --> 00:35:16,719 Speaker 4: that's plausible. 617 00:35:17,160 --> 00:35:19,720 Speaker 12: That obviously seems to be, you know, the main factor, 618 00:35:19,880 --> 00:35:22,640 Speaker 12: and you know, to a certain extent, that's understandable from 619 00:35:22,680 --> 00:35:25,239 Speaker 12: Biden's point of view to say that there, you know, 620 00:35:25,320 --> 00:35:29,280 Speaker 12: there obviously are political considerations for him in this matter. 621 00:35:29,640 --> 00:35:32,319 Speaker 12: As you say, the reporting behind the scenes seems to 622 00:35:32,360 --> 00:35:35,480 Speaker 12: indicate that the people who are in charge of deciding 623 00:35:35,520 --> 00:35:38,680 Speaker 12: whether it represents a national security threat or not came 624 00:35:38,719 --> 00:35:41,920 Speaker 12: down on the side of that it wasn't. And indeed, 625 00:35:41,920 --> 00:35:44,759 Speaker 12: we're trying to persuade Biden to go back on this 626 00:35:44,840 --> 00:35:48,160 Speaker 12: deal because it obviously it is you know, as I 627 00:35:48,200 --> 00:35:51,440 Speaker 12: described it as a slap in the face of one 628 00:35:51,480 --> 00:35:53,480 Speaker 12: of the US's most important allies. 629 00:35:53,560 --> 00:35:56,479 Speaker 4: So how is it being read in Japan right now? 630 00:35:56,800 --> 00:35:58,799 Speaker 4: What is the Japanese press saying about this? 631 00:35:59,280 --> 00:36:01,560 Speaker 12: I think it is, as I say, the fact that 632 00:36:01,600 --> 00:36:04,680 Speaker 12: it was coming was expected. I don't think anyone really 633 00:36:04,719 --> 00:36:08,680 Speaker 12: expected this deal to go through. I think in Japan 634 00:36:09,000 --> 00:36:11,440 Speaker 12: as well, you know, as well as in you know, everywhere. 635 00:36:11,520 --> 00:36:14,239 Speaker 12: Really it is a little bit of a matter of well, 636 00:36:14,280 --> 00:36:16,759 Speaker 12: we'll wait and see. President Biden only has a couple 637 00:36:16,760 --> 00:36:18,600 Speaker 12: more weeks in office, and then we're going to have 638 00:36:18,960 --> 00:36:21,319 Speaker 12: somebody else in the White House. So I think there 639 00:36:21,360 --> 00:36:23,440 Speaker 12: is a little bit of an attitude of like, well, 640 00:36:24,200 --> 00:36:27,359 Speaker 12: let's let's see what happens for now. Obviously, President elect 641 00:36:27,360 --> 00:36:29,600 Speaker 12: Trump has also said that he has opposed the deal, 642 00:36:29,800 --> 00:36:32,200 Speaker 12: but it wouldn't be surprising, or it wouldn't be the 643 00:36:32,239 --> 00:36:34,600 Speaker 12: first time, shall we say, if he went back and 644 00:36:34,760 --> 00:36:37,560 Speaker 12: did the opposite of something that he had previously said. 645 00:36:37,840 --> 00:36:39,200 Speaker 12: So I think there is a little bit of a 646 00:36:39,760 --> 00:36:41,600 Speaker 12: let's wait and see what happens in a couple of weeks, 647 00:36:41,640 --> 00:36:42,799 Speaker 12: and then we'll decide what. 648 00:36:42,760 --> 00:36:45,120 Speaker 4: Do you think failure of this deal. Let's assume for 649 00:36:45,160 --> 00:36:47,200 Speaker 4: a moment that it does not get done, what does 650 00:36:47,239 --> 00:36:49,200 Speaker 4: it mean for US Japan relations. 651 00:36:49,640 --> 00:36:54,040 Speaker 12: I think it will have consequences, not just not just 652 00:36:54,080 --> 00:36:56,319 Speaker 12: necessarily the failure of this deal, but the way that 653 00:36:56,400 --> 00:37:01,560 Speaker 12: it is presented. There are already, you know, we are 654 00:37:01,560 --> 00:37:04,680 Speaker 12: in a bit of a different mode in you know, 655 00:37:04,760 --> 00:37:07,600 Speaker 12: not just in Japan, but in Asia in general at 656 00:37:07,600 --> 00:37:10,400 Speaker 12: the moment, especially with you know, Trump coming back to 657 00:37:10,480 --> 00:37:15,359 Speaker 12: the White House, potential you know, new leader in South 658 00:37:15,440 --> 00:37:18,719 Speaker 12: Korea in the next couple of months. And also we 659 00:37:18,840 --> 00:37:22,200 Speaker 12: have in Japan we have Prime Minister Ishibat, who is 660 00:37:23,239 --> 00:37:27,480 Speaker 12: he takes a different look at regional security in Japan's 661 00:37:27,560 --> 00:37:32,080 Speaker 12: place in Asia and Japan's place, you know, Visa VI 662 00:37:32,160 --> 00:37:35,719 Speaker 12: the US to many of his his predecessors, and I 663 00:37:35,719 --> 00:37:40,120 Speaker 12: think especially compared to his predecesor Kishita and obviously to 664 00:37:40,120 --> 00:37:45,160 Speaker 12: to shinzo Abe, I think this will be a black 665 00:37:45,320 --> 00:37:49,680 Speaker 12: mark on US Japan relations going forward, just the way 666 00:37:49,760 --> 00:37:53,319 Speaker 12: that it's described. I don't know if this deal in 667 00:37:53,400 --> 00:37:57,319 Speaker 12: and of itself will have you know, massive consequences. 668 00:37:57,480 --> 00:37:59,520 Speaker 4: Good, it's always a pleasure. Thanks for making time to 669 00:37:59,560 --> 00:38:03,360 Speaker 4: chat with he is GIROD. Reedy, Bloomberg opinion columnist, joining 670 00:38:03,440 --> 00:38:06,239 Speaker 4: US from Tokyo. I'm Doug Krisner. You can catch us 671 00:38:06,239 --> 00:38:10,279 Speaker 4: weekdays for the Daybreak Asia podcast. It's available wherever you 672 00:38:10,360 --> 00:38:11,320 Speaker 4: get your podcast. 673 00:38:11,640 --> 00:38:14,680 Speaker 2: Tom, Thanks Doug, and that does it for this edition 674 00:38:14,719 --> 00:38:17,560 Speaker 2: of Bloomberg day Break Weekend. Join us again Monday morning 675 00:38:17,560 --> 00:38:19,600 Speaker 2: at five am Wall Street Time for the latest on 676 00:38:19,719 --> 00:38:22,480 Speaker 2: markets overseas and the news you need to start your day. 677 00:38:23,000 --> 00:38:26,080 Speaker 2: I'm Tom Busby. Stay with us. Top stories and global 678 00:38:26,120 --> 00:38:29,120 Speaker 2: business headlines are coming up right now.