Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our day
Speaker 1: Break anchors all around the world. It's straight ahead on
Speaker 1: the program, a look at the US labor market with
Speaker 1: the February jobs report.
Speaker 2: I'm Tom Busby in New York.
Speaker 3: I'm Stephen Carol in London, where we're looking ahead to
Speaker 3: the UK government's budget announcement and a key political moment
Speaker 3: ahead of the elections.
Speaker 2: To you later this year.
Speaker 4: I'm Brian Curtis in Hong Kong. We look ahead to
Speaker 4: the National People's Congress meetings in Beijing next week. What
Speaker 4: sort of prescriptions will they have to fix the Chinese ECONORESS.
Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend.
Speaker 2: The business news you need to wrap up.
Speaker 1: Your week, Available on Apple, Spotify, the Bloomberg Business Happen
Speaker 1: everywhere you get your podcasts.
Speaker 2: Good day to you. I'm Tom Busby.
Speaker 1: We begin today's program with a look ahead to the
Speaker 1: February jobs report here in the US and the state
Speaker 1: of the US labor market.
Speaker 2: For a preview, We're joined by.
Speaker 1: Michael McKee, Bloomberg International Economics and Policy Correspondence. All Right,
Speaker 1: well after a big upside surprise in January, three hundred
Speaker 1: and fifty three thousand jobs added. What are you expecting
Speaker 1: to see for February.
Speaker 6: Sort of a return to what was considered somewhat normal.
Speaker 6: The forecast at this point is for one hundred and
Speaker 6: eighty thousand jobs. That may change ten twenty thousand either
Speaker 6: way as we get more data in between now and
Speaker 6: next Friday, but basically that's roughly where we have been
Speaker 6: for the past year two years. The revisions hired to
Speaker 6: December and January were quite a surprise, and nobody thinks
Speaker 6: that that can be sustained. But if it can, you
Speaker 6: watch the bond markets move.
Speaker 1: But the unemployment rate expected to hold steady three point
Speaker 1: seven percent. That would be about two years under four percent.
Speaker 6: It would be one month over two years. Yes, two
Speaker 6: hours a month, and that is probably well, it's close
Speaker 6: to a record nineteen sixty eight. I think when half
Speaker 6: of American men were serving in Vietnam, so there weren't
Speaker 6: as many people to work. That was the last time
Speaker 6: we saw anything like this. The question is is if
Speaker 6: the unemployment rate stays that low, do we see any
Speaker 6: inflationary impact from that? So we'll be looking at average
Speaker 6: hourly earnings very closely. They were up six tenths of
Speaker 6: a percent in January. Now that there may have been
Speaker 6: some distortions in the data that led to that, but
Speaker 6: they're only expected to be up two tenths of a percent.
Speaker 6: So if that's the case for February, then we can
Speaker 6: have big job gains and the FED isn't going to
Speaker 6: worry about it.
Speaker 1: And I mean, let's face it, there are challenges right
Speaker 1: now to the labor market, not just AI jobs and
Speaker 1: automation jobs, but we've seen a lot of corporate layoffs
Speaker 1: being announced. Big ones Cisco Systems that's four thousand jobs,
Speaker 1: as to Lord three, one hundred, Nike, Expedia. I mean,
Speaker 1: none of these or most of them are not tech companies.
Speaker 1: So there is a change going on.
Speaker 6: Well, there's a change going on, but it is not
Speaker 6: going to be as bad as it appears. If we
Speaker 6: see a huge wave of layoffs, that would be one thing.
Speaker 6: But what we're seeing is a lot of companies sort
Speaker 6: of right sizing what they think they need for the
Speaker 6: months going forward. And what happens is that companies always
Speaker 6: announce layoffs either in a press release or they do
Speaker 6: it as part of their earnings, but they don't announce hirings.
Speaker 6: And so when you look at what happens, there are
Speaker 6: millions of jobs lost every month and there are millions
Speaker 6: of jobs gained every month, and the number that we
Speaker 6: report is the net difference between the two. So, yes,
Speaker 6: there will be a lot of layoffs going in to
Speaker 6: the data. But is it significantly more than usually happens.
Speaker 6: That's going to be the question going forward.
Speaker 2: Well, it's sort of like Apple.
Speaker 1: They're going to eliminate their EV unit, no electric cars,
Speaker 1: but two thousand workers will just work on AI.
Speaker 2: We're going to shift right over.
Speaker 6: And a lot of the jobs that companies cut are
Speaker 6: cut through attrition anyway, so they're not affecting the unemployment
Speaker 6: rate because people are not all of a sudden unemployed.
Speaker 2: Gotcha.
Speaker 1: Another big event this week you want to talk about,
Speaker 1: and that is FED Chairman Jerome Powell is going to
Speaker 1: be on Capitol Hill.
Speaker 6: That's always a big deal for Wall Street. The chairman
Speaker 6: is the one who sets the agenda. Powell basically says
Speaker 6: he's not driving the agenda the way that Alan Greenspan
Speaker 6: did say or Ben bernanke. He's much more collaborative, but
Speaker 6: it is still the Chairman to whom everybody defers, And
Speaker 6: so what Powell says about the economy is going to
Speaker 6: be worth a lot more than what any of these
Speaker 6: other Fed officials, as important and as smart as they are,
Speaker 6: have to say. So you're going to have everybody tuning in,
Speaker 6: particularly to his opening statement, to see if he makes
Speaker 6: any kind of reference to when or by how much
Speaker 6: they might cut And then they'll be listening for Q
Speaker 6: and A for his reaction to things like layoffs and
Speaker 6: how strong the labor market is, and whether they think
Speaker 6: the January inflation numbers, whether CPIPPI or the PCE really
Speaker 6: reflect what's going on with the strength that they showed.
Speaker 1: Well, I know you'll be listening and you can hear
Speaker 1: Chairman Palace testimony Wednesday and Thursday live right here on
Speaker 1: Bloomberg Radio. Well, our thanks to Michael McKee, Bloomberg International
Speaker 1: Economics and Policy Correspondent. And now we moved to the
Speaker 1: US retail sector and a closely watched fourth quarter earnings
Speaker 1: report out on Tuesday from Target, whether it may give
Speaker 1: us a more clear picture on the health of the
Speaker 1: US consumer and how stubbornly high inflation may be affecting spending.
Speaker 1: Now for a preview. We're joined by John Edwards. He's
Speaker 1: Bloomberg News US Consumer team leader.
Speaker 2: John. Thank you for joining us.
Speaker 7: Great to be here.
Speaker 1: Well, let's start with what you expect the headline numbers
Speaker 1: to be from Target in this what's the holiday quarter
Speaker 1: an all important one?
Speaker 7: Yeah, Well, what we're looking for is continued decline in
Speaker 7: same story sales from Target, and they have, you know,
Speaker 7: had that figure going down for some time now. The
Speaker 7: previous quarters report did excite the market, largely because of
Speaker 7: improvements in inventory management. So we'll be watching to see
Speaker 7: if that continues. But you know, the stock is up
Speaker 7: pretty significantly since that report, so expectations are fairly high,
Speaker 7: even though the business continues in some areas to struggle,
Speaker 7: you know, So we do expect those same store sales
Speaker 7: to be down once again, but you know, we'll be
Speaker 7: looking for the trend what they say about, you know,
Speaker 7: what they're seeing in terms of continued consumer strength. That
Speaker 7: was you know, certainly something that Walmart pointed to in
Speaker 7: their results recently.
Speaker 1: Yeah, the same source sales drop, not just Target, not
Speaker 1: just discounters, it's across the board.
Speaker 7: Is yeah, yeah, I mean, yeah, we're you know, we're
Speaker 7: we're seeing some some retailers managed to uh to bring
Speaker 7: those sales up a little bit. But but yeah, it's uh,
Speaker 7: you know, the consumer is resilient. But but picky is
Speaker 7: is what we're seeing. You know, people are being very
Speaker 7: uh the way Walmart put it was you know, choiceful
Speaker 7: in Uh.
Speaker 2: That's that's a new one. Choiceful wow.
Speaker 7: Yeah, in in how they approach their their spending. So
Speaker 7: you know they uh, you know, employment remains robust, so
Speaker 7: that's that's a support. But uh, you know, inflation, even
Speaker 7: though it's moderated, remains you know, elevated from you know,
Speaker 7: pre pandemic and people remember what things you know, used
Speaker 7: to cost only you know, three or four years ago.
Speaker 7: So so that's sort of of you know, reins in
Speaker 7: spending a little bit and has people you know, continuing
Speaker 7: to spend but being picky about it. So given that
Speaker 7: target is pretty exposed to you know, those discretionary items,
Speaker 7: you know, the sort of general merchandise, that's part of
Speaker 7: where their struggle comes from in terms of bringing those
Speaker 7: same store sales up.
Speaker 1: Yeah, and they know their customers though. They are a
Speaker 1: nimble retailer, and just last week they announced a new
Speaker 1: springtime clothing collection yep, with most prices under fifty bucks.
Speaker 7: Who is it, Diane von Furstenberg.
Speaker 2: There you go.
Speaker 7: So, yes, they've had that tradition for some time of
Speaker 7: you know, enlisting major designers for capsule collections, and that
Speaker 7: has done pretty well for them.
Speaker 2: Yeah.
Speaker 1: They also have a new in house brand called deal Worthy. Yeah,
Speaker 1: and that is hundreds of items, some as low as
Speaker 1: a dollar each.
Speaker 4: Yeah.
Speaker 7: Yeah, so you know, they do have that value proposition
Speaker 7: as well. You know, so they certainly try to be
Speaker 7: you know, sort of current and somewhat fashionable, but always
Speaker 7: mindful of, you know, keeping those prices relatively low. Yeah.
Speaker 1: Now, let me ask you about Macy's announcing that over
Speaker 1: the next few years it's going to close one hundred
Speaker 1: and fifty stores, and they're obviously pivoting toward a more
Speaker 1: upscale consumer, right with Bloomy Dale's Blue Mercury. Are discounters
Speaker 1: like Target Walmart going to be the beneficiary of those closing.
Speaker 7: You know, to some extent, But you know, a lot
Speaker 7: of it depends on, you know, really the mix of
Speaker 7: retail in a given area. It's often there isn't a
Speaker 7: sort of one to one exchange between a you know,
Speaker 7: a big traditional department store like a Macy's and you know,
Speaker 7: more of a discount model like a Target or a Walmart.
Speaker 7: But yeah, certainly, you know, they can expect to see
Speaker 7: some pick up from from some of those lost shoppers,
Speaker 7: but a lot of it and a lot of why
Speaker 7: those stores are closing in the first place is you know,
Speaker 7: a lot of it will just shift on line. And
Speaker 7: you know, and and certainly you know, Target, Walmart and
Speaker 7: others will hope that some of those online sales they
Speaker 7: pick up as well, but a lot of them will
Speaker 7: continue to go to Amazon. And you know, as as
Speaker 7: we've as we've seen before.
Speaker 1: As we see in our own homes, now that that
Speaker 1: Target has made a big push online, it's also a
Speaker 1: subscription based plan like Amazon Prime, like Walmart Plus.
Speaker 2: What what's the status on that?
Speaker 7: Yeah, well, listen to here if we get any update
Speaker 7: on that. You know, our reporter Jaywon Kang broke the
Speaker 7: news that Target is considering a membership program along those lines,
Speaker 7: which could launch as soon as this year. We're not
Speaker 7: sure exactly when, but you know, and they're somewhat you know,
Speaker 7: late getting into that market, given that you know, Prime
Speaker 7: is well established and Walmart Plus seems to be doing
Speaker 7: pretty well. But you know it's another way to you know,
Speaker 7: get shoppers to be stickier, keep coming back to your
Speaker 7: locations looking for those membership points.
Speaker 2: Well, that's great, a lot to look forward to.
Speaker 4: Well.
Speaker 1: Our thanks to John Edwards, Bloomberg News US Consumer team Leader,
Speaker 1: and coming up on Bloomberg day Break weekend to look
Speaker 1: ahead to the UK's tax and spending plans for the
Speaker 1: coming year. I'm Tom Busby and this is Bloomberg. This
Speaker 1: is Bloomberg day Break weekend, our global look ahead at
Speaker 1: the top stories for investors in the coming week.
Speaker 2: I'm Tom Busby in New York.
Speaker 1: Up later on our program we look ahead to a
Speaker 1: gathering of China's top political advisory body and legislature. But
Speaker 1: first in the UK, the government preparing to present its
Speaker 1: tax and.
Speaker 2: Spending plans for the coming year.
Speaker 1: It could be the Chancellor, Jeremy Hunt's last chance to
Speaker 1: announce big policy changes before a general election do this year,
Speaker 1: but will economic headwinds prevent him from making his mark?
Speaker 1: The key question everyone wants answered, but will he prioritize
Speaker 1: cutting taxes over bolstering public services and for more, Let's
Speaker 1: go to London and bring in Bloomberg Daybreak anchor Stephen Carroll.
Speaker 3: Tom The ceremonial red box used to carry the Chancellor's
Speaker 3: budget speech is being dusted off and speculation is rife
Speaker 3: about its contents. Jeremy Hunt and Prime Minister Rici Soonak
Speaker 3: have been at pains to paint themselves as responsible stewards
Speaker 3: of the UK's public finances, especially after the previous Conservative
Speaker 3: government sparked a crisis in the guilt markets with their
Speaker 3: tax and spending plans. During the Chancellor's last big announcement
Speaker 3: in November, he promised measures to back British business and
Speaker 3: soothe the cost of living crisis. This time around, things
Speaker 3: might be working out in his favor. The UK's fiscal watchdog,
Speaker 3: responsible for checking the plans, has disclosed its preparing forecast,
Speaker 3: using data that will potentially improve the public finances and
Speaker 3: create more room for things like tax cuts. But Jeremy
Speaker 3: Hunt will still have to balance steps that might please
Speaker 3: voters ahead of an election expected later this year and
Speaker 3: being fiscally responsible ahead of the lobby groups have been
Speaker 3: lining up with their shopping list for the Chancellor. On
Speaker 3: the Bloomberg UK Politics podcast, we spoke to the manufacturing
Speaker 3: group Make UK. They've laid out a plan for radical
Speaker 3: changes to how the British economy is managed, including splitting
Speaker 3: up the Treasury into separate Economy and Finance ministers. Here's
Speaker 3: some of what make UK's chief operating officer, Ben Fletcher
Speaker 3: told us about what they want to hear from the Chancellor.
Speaker 8: We are still one of the ten biggest manufacturing nations
Speaker 8: on Earth, and in the last twelve months we've actually
Speaker 8: overtaken France to move from ninth to eighth in the
Speaker 8: Global League table. So British manufacturing is strong, it's healthy,
Speaker 8: and it's a sector that is in a position where
Speaker 8: it can start to grow. What we're looking for, I
Speaker 8: think is a recognition from government that we're a huge
Speaker 8: part of the economy, that there is real potential there,
Speaker 8: and we are making some fairly radical requests of government
Speaker 8: and indeed, in what's likely to be an election year
Speaker 8: the opposition parties as well, because what we're saying is
Speaker 8: there's a kind of hidden gem here within the economy.
Speaker 8: It could deliver you some really substantial growth. It would
Speaker 8: support a huge number of new businesses and growing businesses.
Speaker 8: It would lead to growth in other considery and related sectors.
Speaker 8: Like logistics and so on. But what we do need,
Speaker 8: I think, is a bold vision for manufacturing and a
Speaker 8: policy agenda that reflects, that responds to that and really
Speaker 8: seizes the opportunity that we're presented with today.
Speaker 3: Is this essentially about just wanting more money from the government.
Speaker 3: I mean, if you're looking for more defense spending, that's
Speaker 3: one way of funneling money into the sector that you represent.
Speaker 3: But the UK is never really going to be able
Speaker 3: to compete with it spending from the likes of the US.
Speaker 8: It isn't just about money. I think what our central
Speaker 8: ask is for quite some time now and today really
Speaker 8: distills this and brings it together on the back of
Speaker 8: our big national conference. What we're saying is that we
Speaker 8: need a plan, and unlike most of our big competitor
Speaker 8: nations around the world, Britain doesn't have an industrial strategy
Speaker 8: and it doesn't really have a clear plan. Government expenditure
Speaker 8: is always important, and when we think about defense, very
Speaker 8: importantly for our sector, big infrastructure projects as well. Government
Speaker 8: expenditure is vitally important for triggering private sector investment. But
Speaker 8: the really big message of today is that if we're
Speaker 8: going to grow, if we're going to deal with the
Speaker 8: very threatening landscape that we face if we're going to
Speaker 8: continue to be a major manufacturing power. The thing that
Speaker 8: we're going to need from the government, and the message
Speaker 8: that we're sending to the opposition parties is very consistent.
Speaker 8: We really need a plan because the nations that we're
Speaker 8: competing with do have much clearer plans. That's very important
Speaker 8: for triggering in with investment. It's really important at the
Speaker 8: moment for triggering confidence. And when we think about both
Speaker 8: defense and infrastructure, we think about the challenge of net
Speaker 8: zero and moving our car industry in a massively different direction,
Speaker 8: We're going to need to have really clear skills policies.
Speaker 8: We're going to need a massive investment in people leaving
Speaker 8: school and college the right kind of skills and the
Speaker 8: right kind of qualifications. So whatever set of issues we
Speaker 8: look at, whether it be defense, whether it be challenging
Speaker 8: that zero, whether we think about some of the big
Speaker 8: challenges of automation and digitization, which are going to be
Speaker 8: absolute game changes in British manufacturing, what we need are
Speaker 8: a series of decisions by government that can enable us
Speaker 8: to have the workforce of the future, to allow the
Speaker 8: current workforce to transform but really importantly set a very
Speaker 8: clear message to the big private sector businesses that they
Speaker 8: can have the confidence to invest because if we get
Speaker 8: government spending right, the thing that will absolutely dwarf that
Speaker 8: is private sector investment and we need the right landscape
Speaker 8: for that.
Speaker 3: So that would make UK's Chief Operating Officer Ben Fletcher,
Speaker 3: speaking of Lizzie Birden and I in the Bloomberg UK
Speaker 3: Politics podcast. To help us look ahead to what to
Speaker 3: expect from the budget is our UK Government reporter Joel
Speaker 3: May's Joe, great to have you with us. First of all,
Speaker 3: how much do we know about how much money Jeremy
Speaker 3: Hunt has to play with in the budgets?
Speaker 9: So we have latest forecasts that the OBI has been
Speaker 9: giving Jeremy Hudh and our latest understanding is that he
Speaker 9: has about thirteen billion pounds to play with. Now that
Speaker 9: is much less than he had at the autumn statement
Speaker 9: in November, and it's near an historic low. So he
Speaker 9: really is starting from a weak position compared to chancellors
Speaker 9: in the past, and that's the framework that he's having
Speaker 9: to wrestle with when coming up with his tax and
Speaker 9: spend decisions.
Speaker 2: Yeah, so the.
Speaker 3: Fiscal rules here are very important. Because there's sort of
Speaker 3: a guideline for how governments have to make these decisions.
Speaker 3: How important is it that he comes in under that
Speaker 3: thirteen billion.
Speaker 9: Yeah, So the fiscal rule is that you need to
Speaker 9: have national debts falling as a share of the size
Speaker 9: of the economy within five years. It's self imposed rule,
Speaker 9: but markets like it, and it seemed to be the
Speaker 9: test that you need to pass to maintain in credibility
Speaker 9: with markets to respect that rule. And he's at thirteen
Speaker 9: billion now. He would like to do things like cut
Speaker 9: income tax and cut NASH insurance, but each of those
Speaker 9: measures takes him closer and closer to breaking the rule,
Speaker 9: so he has to be careful about that, and we
Speaker 9: think that he's likely to want to maintain a buffer
Speaker 9: of say six billion. You always want to you always
Speaker 9: want to keep something above that that that that zero figure,
Speaker 9: just in case there are sharks, just in case things
Speaker 9: go turn for the worse. So that's why we think
Speaker 9: he'd like to end up. Obviously, the other thing to
Speaker 9: add is that he can boost the headroom, and that's
Speaker 9: what you can do through spending decisions. For example, you
Speaker 9: could say, let's not spend as much in the future
Speaker 9: gives us more money to play with. Now there'll be
Speaker 9: a polity controversial thing to do, but it could boost
Speaker 9: the headroom so he can manipulate that headroom figure. But
Speaker 9: there are difficult choices, and.
Speaker 3: Instantly you've actually put these difficult choices into a game
Speaker 3: that people can go on the Bloomberg website and play
Speaker 3: and decide how exactly if they were a chancellor for
Speaker 3: the day they do it. Just talk us through how
Speaker 3: the game works.
Speaker 9: So yeah, it took me what thirty seconds a minute
Speaker 9: to explain that nature of.
Speaker 2: The physical a so now you can try.
Speaker 9: Yeah, So I thought, what better way could we do this? Well,
Speaker 9: let's make a game where you just are thrown into
Speaker 9: the scenario yourself and you have that headroom given to you,
Speaker 9: and you have to make choices. So you're right, We
Speaker 9: have this budget game on bloombog dot com where you
Speaker 9: can decide will you cut income tax, will you cutlash insurance,
Speaker 9: will you cut inheritance tax. You have all these tax
Speaker 9: and spend choices, and at the end of it, you're
Speaker 9: given a result. How would markets react, how would voters
Speaker 9: react to your choices? We use our best kind of
Speaker 9: estimates of what's like to happen and you get a result.
Speaker 9: So yeah, I encourage all our listeners to play the game.
Speaker 3: I mean, it's a really interesting exercise because you essentially
Speaker 3: it's because it's yes or no choices, do you want
Speaker 3: to do this? And then you know when you get
Speaker 3: to the end, it decides whether or not you've crashed
Speaker 3: the economy. I think on our team we have about
Speaker 3: a fifty to fifty rate of who's crashed the economy
Speaker 3: and who hasn't, which I think is probably almost I'm
Speaker 3: not going to make a parallel to previous chancellors and
Speaker 3: how they've performed on this as well, but it says
Speaker 3: it lays out the difficult balance that has to be
Speaker 3: struck at a moment like this. We're also in an
Speaker 3: election year in the UK, so that means that also
Speaker 3: the Chancellor has one eye on what's going to win votes.
Speaker 3: Talk us through some of the measures that we do
Speaker 3: think he's going to take when he gets up to
Speaker 3: make that budget speach.
Speaker 9: So we think it's very likely you get to prioritize
Speaker 9: personal tax cuts because those are the tax cuts that
Speaker 9: are likely to have most impacts on the popularity of
Speaker 9: the Conservative Party and help them to win the next election,
Speaker 9: and so that will take the form of we expect
Speaker 9: an income tax cut of at least one percentage point
Speaker 9: on the basic rate. That would save people about two
Speaker 9: hundred pounds a year for an average earner. He'd like
Speaker 9: to go further. He would like to do say two
Speaker 9: p off income tax, but it all comes down to
Speaker 9: that headline question we've just been talking about. He also
Speaker 9: might cut national insurance, which is a payroll tax, and
Speaker 9: he already reduced NASH insurance by two pence in the
Speaker 9: pounds in the Ausome statement. He might do that again
Speaker 9: because he sees it as a measure which also incentivizes
Speaker 9: people to return to the labor markets. It makes work
Speaker 9: more attractive and that can boost growth as well. He's
Speaker 9: always trying to look at measures that will boost boost
Speaker 9: growth in the economy. That helps his numbers from the
Speaker 9: AVR as well. But then there's also a list of
Speaker 9: things that are kind of on the table but might
Speaker 9: not happen, but might happen. So for example, reporting that
Speaker 9: the non tax status that might be abolished, because that
Speaker 9: would be a move that would raise revenue, it would
Speaker 9: also jam labor to a certain extent because labor are
Speaker 9: assuming that they could use the revenues from scrapping London
Speaker 9: tax status to fund some of their own policies.
Speaker 3: So this was the policy that Labor had been talking
Speaker 3: about for quite a long time.
Speaker 9: Exactly.
Speaker 3: Special status applied to typically very wealthy individuals who have
Speaker 3: earnings coming from outside the UK and they're able to
Speaker 3: benefit from a tax advantage, and closing this loophole as Actually,
Speaker 3: when you ask Labor politicians as you and I do frequently,
Speaker 3: what they're going to do if they win the next election,
Speaker 3: it comes up quite frequently is one of the things
Speaker 3: they're going to do to boost tax revenues. So the
Speaker 3: potential that the Conservators could decide to do it before
Speaker 3: them an interesting consideration.
Speaker 9: Yes, exactly, because Labor have repeatedly been saying, oh, we
Speaker 9: would fund you know, more doctors and lots of nice
Speaker 9: things with the revenue raised from scrapping the Nordmon tax status.
Speaker 9: But if the Toys have already done that and have
Speaker 9: spent that money themselves on a tax cir elsewhere, then
Speaker 9: Labor have lost that. So that's why you can see
Speaker 9: there's that there will be a piscal advantage for the
Speaker 9: Tories if they discrap the no on tax status and yeah.
Speaker 3: And the other dilemma here is also the question of
Speaker 3: public services. There's an awful lot of discussion about how
Speaker 3: public services are under pressure, particularly the health service here
Speaker 3: in the UK, and the question of how much money
Speaker 3: these services need also comes into the budget play. And
Speaker 3: boys you mentioned you know the Chancellor can choose to
Speaker 3: pull back on some spending decisions, that that's something that
Speaker 3: could prove very controversial.
Speaker 9: Yes, And the situation Hunt already has is an autumn
Speaker 9: statement where he baked in spending plans that were already
Speaker 9: seen as rather unlikely and criticized by economists, and the
Speaker 9: argument being, look, you're perhaps unlikely to ever have to
Speaker 9: implement those plans if you don't win the next election,
Speaker 9: So there's a very little cost to you to having
Speaker 9: an implausibly low assumption for future public spending. But then
Speaker 9: you use that what's been described by the ABI and
Speaker 9: others as a fiction, use that fiction to create revenue
Speaker 9: now that you can spend on tax cuds.
Speaker 2: Let's talk a.
Speaker 3: Little bit about the politics that comes behind this, because
Speaker 3: even within the Conservative Party, see there's a lot of
Speaker 3: debate over where the Chancellor should apportion his limited choices,
Speaker 3: as we've been discussing, even within his own supporters.
Speaker 9: Yes, there is. I mean there are those on the
Speaker 9: right of the Conservative Party, those backs of Liz Trusts,
Speaker 9: who would say that you should do things like cut
Speaker 9: inheritance tax for example. That's they say that would be
Speaker 9: a widely popular measure. They also want to go and
Speaker 9: be more aggressive on things like corporation tax and cutting
Speaker 9: that and do more for business and so on. But
Speaker 9: it feels like those in more the center of the party,
Speaker 9: those closes to Hunt are more conscious of the electro
Speaker 9: dynamics and thinking that personal tax cuts, that which you
Speaker 9: can sell to your average voter, are perhaps more preferable
Speaker 9: at this time, and therefore we should do that. So
Speaker 9: there are splits within the Tory camp and Hunters decide
Speaker 9: who he's going to go with.
Speaker 3: Okay, we should make for a very interesting budget today.
Speaker 3: Joe May is our UK government reporter. Thank you very
Speaker 3: much for joining us with the details of that, and
Speaker 3: of course we will have full coverage of the budgets
Speaker 3: here on Bloomberg. I'm Stephen Carroll in London. You can
Speaker 3: catch us every weekday winning here for Bloomberg Daybreak. Here
Speaker 3: at beginning at six am in London and one am
Speaker 3: on Wall Streets.
Speaker 1: Tom, thank you, Steven, And coming up on Bloomberg day
Speaker 1: Break weekend, we look ahead to a gathering of China's
Speaker 1: top political advisory body and legislature. I'm Tom Busby and
Speaker 1: this is Bloomberg. I'm Tom Busby in New York with
Speaker 1: your global look ahead at the top stories for investors
Speaker 1: in the coming week. China's top political advisory body and
Speaker 1: legislature gathering for their annual two sessions. What should we
Speaker 1: be watching for during the eight day meeting For more,
Speaker 1: Let's go to Hong Kong and Bloomberg Daybreak Asia hosts
Speaker 1: Brian Curtis and Doug Krisner.
Speaker 4: Tom, we look forward to the annual meetings of China's parliament,
Speaker 4: the National People's Congress, next week. The NPC will set
Speaker 4: policies that will guide the economy over the next year.
Speaker 4: It's an opportunity for policymakers to do a kind of
Speaker 4: research to shore up confidence in consumers, in businesses and investors.
Speaker 5: Now, in terms of what to expect, Bloomberg Intelligence thinks
Speaker 5: the NPC will announce a larger budget deficit for the government.
Speaker 5: That means more fiscal spending. In addition, our economists are
Speaker 5: expecting more supportive monetary policy along with additional efforts to
Speaker 5: smooth out the correction of the property market.
Speaker 4: And then, as we heard from Catherine Jung at Fidelity,
Speaker 4: there's also messaging.
Speaker 10: There's definitely a messaging that seems to be coming from
Speaker 10: the regulators about what they're going to say at the NPC,
Speaker 10: But in reality it's probably going to be this continuation
Speaker 10: of tweaking of accommodative measures. So areas of the economy
Speaker 10: that needs support, such as property, are likely to be
Speaker 10: key in terms of their focus, but really is about
Speaker 10: restoring confidence, especially with the consumer. And then the knock
Speaker 10: on effect would obviously be an impact on corporates in
Speaker 10: the overall market.
Speaker 5: That is Katherine Jung at Fidelity, And as we mentioned earlier,
Speaker 5: restoring confidence may require more deficit spending by the government.
Speaker 5: Bloomberg's Jill Diese says that will be key in showing
Speaker 5: how far policymakers are willing to go to revive the economy.
Speaker 11: I think what we'd be looking for out of this
Speaker 11: meeting is, you know what they're going to be setting
Speaker 11: that budget at? How much in sovereign debt they plan
Speaker 11: on issuing this year. What exactly that level of calculation
Speaker 11: looks like, because as we know, China is still dealing
Speaker 11: with a lot of serious economic pressures that don't really
Speaker 11: seem to be going away, and they've got to kind
Speaker 11: of manage what that recovery and growth structory looks like.
Speaker 4: In the run up to the NPC meeting, the economy
Speaker 4: did actually see a modest reprieve of late consumption picking
Speaker 4: up slightly during the Lunar New Year holidays. The CSI
Speaker 4: three hundred has bounced about ten to twelve percent, and
Speaker 4: while property is still soft, it weakened in January at
Speaker 4: a slower pace than in December. Well, joining us now
Speaker 4: for a deeper look at the NPC meetings is Jenny
Speaker 4: Marsh Bloomberg, team leader for Greater China ECO GOV. So, Jenny,
Speaker 4: let's delve right into a couple of specific items first
Speaker 4: before we get to some of the sort of broader
Speaker 4: takeaways from the meetings, the setting of a growth target,
Speaker 4: what that might be, and then also what sort of
Speaker 4: level of deficit spending might we see as a percentage
Speaker 4: of GDP What can we expect.
Speaker 12: So the consensus among most economists right now is that
Speaker 12: they're going to maintain the target of around five percent,
Speaker 12: so it's not going to be below five I think
Speaker 12: is what most people are expecting. The caveat there is that,
Speaker 12: you know, it's going to be much harder to achieve
Speaker 12: this year because twenty twenty three had the benefit of
Speaker 12: the low base of you know, previous year when the
Speaker 12: COVID restrictions really impacted activity. So I think it's important
Speaker 12: that the government does keep this around five percent, not
Speaker 12: below five percent, because it's going to be all about confidence.
Speaker 13: You know.
Speaker 12: One of the biggest things that plague the Chinese economy
Speaker 12: last year was a crisis in confidence among investors, you know,
Speaker 12: foreign business people and consumers. So they've got to come
Speaker 12: out with a positive message. But at the same time,
Speaker 12: it does have to be realistic because it's going to
Speaker 12: be a lot of work and sort of careful policymaking
Speaker 12: this year to make sure they don't under shoot their
Speaker 12: own target.
Speaker 5: So maybe we can agree that up until this point,
Speaker 5: Beijing has been fairly restrained in trying to provide additional
Speaker 5: stimulus to get the economy going. The question is whether
Speaker 5: or not we begin to see a pivot point at
Speaker 5: the NPC where things are modulated maybe to a higher
Speaker 5: rate than what we have seen in the past. Do
Speaker 5: you think that's likely.
Speaker 12: I think they're going to continue on the same course.
Speaker 4: You know.
Speaker 12: I think Premier Le Chang was very clear when he
Speaker 12: was speaking at Davos in January saying, you know, they'd
Speaker 12: reached five point two percent. He front run that number
Speaker 12: for last year, saying they've done it without stimulus. You know,
Speaker 12: he seemed very proud of this. So I think, you know,
Speaker 12: that's a very clear signal that they're not going to
Speaker 12: go back to sort of the old playbook of using
Speaker 12: sort of really big broad stimulus. But I think what
Speaker 12: we might see is more targeted help for sectors that
Speaker 12: really need it, so such as property, you know, support
Speaker 12: for local governments by sort of shifting debt from local
Speaker 12: provinces onto the central government's balance sheet. Whether that comes
Speaker 12: in the actual official fiscal deficit target or if they
Speaker 12: do what they did last year where they sort of
Speaker 12: tweak it during the year to sort of put more
Speaker 12: spending on the on the central government's budget remains to
Speaker 12: be seen.
Speaker 4: Yeah, there has been a kind of an incremental move
Speaker 4: up in the level of deficit spending used to be
Speaker 4: three percent with the target then three point two, and
Speaker 4: you hear about three and a half percent or maybe
Speaker 4: even more. I'm curious whether or not our team at
Speaker 4: Bloomberry Economics thinks that it would Would it send a
Speaker 4: bad message if it was, say raised to four percent
Speaker 4: or something like that.
Speaker 12: I think four percent would be quite dramatic. Yeah, So
Speaker 12: I don't know if that would send a bad message.
Speaker 12: You know, it would send a signal for sure that
Speaker 12: the government's willing to take on more debt. I mean,
Speaker 12: three percent is extremely low deficit ratio target anyway, for
Speaker 12: an economy the size of China's.
Speaker 5: When it comes to growth, one of the themes that
Speaker 5: we have heard in the past is high quality development,
Speaker 5: and I suspect that we're going to hear that theme reiterated.
Speaker 5: And as we know, there have been instances where regulators
Speaker 5: have really been able to kind of clamp down on
Speaker 5: a lot of the entrepreneurial spirit as it relates to
Speaker 5: high tech, particularly, and I'm wondering whether we're going to
Speaker 5: see some acknowledgment of overreach maybe and also an admission
Speaker 5: that regulators and authorities need to embrace the entrepreneurial class,
Speaker 5: and this is a really powerful way of driving growth
Speaker 5: going forward.
Speaker 12: A high quality development, I think is one of the
Speaker 12: key things sort of to be watching out for. Shi
Speaker 12: Jimping like increased his mentions of the slogan last year,
Speaker 12: I think to one hundred and thirty eight times, which
Speaker 12: was sort of double the previous year, so they're really
Speaker 12: ramping up. But yeah, it's still this kind of fuzzy
Speaker 12: sort of phrase that people don't fully understand what it means.
Speaker 12: It sort of broadly seems to mean that they're okay
Speaker 12: with not prioritizing chasing sort of growth, and they want
Speaker 12: to prioritize slower growth if it's more sustainable and you
Speaker 12: know it isn't going to sort of saddle the country
Speaker 12: with more debt through things like stimulus. I think that
Speaker 12: sort of will leaders to sort of look at for
Speaker 12: signals on you know, green innovation, perhaps evs, more support
Speaker 12: for that supply chain resilience. There's also another phrase I
Speaker 12: think people are going to be watching out for within
Speaker 12: that umbrella, which is new productive forces. And that's a
Speaker 12: saying that she introduced during a trip to Halo Jean
Speaker 12: at the end of last year and then sort of
Speaker 12: since was mentioned in a polyp beer study session, another broad,
Speaker 12: fuzzy phrase, it's sort of hard to pin down. So
Speaker 12: I think any meat that they put on the bone
Speaker 12: within the work report and various other documents that are
Speaker 12: published will be something investors are very very key to
Speaker 12: sort of get information on.
Speaker 4: So we talked a couple of times here in this
Speaker 4: discussion about the possibility of more debt. So we're curious
Speaker 4: whether or not that would be at the national or
Speaker 4: the provincial level. We put that question earlier to Bloomberg's
Speaker 4: Jill desis about getting the balance right.
Speaker 11: The line that China has to walk this year is
Speaker 11: that they're really concerned about local governments in particular taking
Speaker 11: on more debt than you know, they're able to afford.
Speaker 11: There's been a lot of chatter about whether or not
Speaker 11: the central government needs to take a larger role in
Speaker 11: terms of, you know, taking on some of that debt
Speaker 11: and alleviating some of those burdens among local governments.
Speaker 4: Again, Jill deesis from the Bloomberg Eco Government team, So, Jenny,
Speaker 4: what's our thinking. Will we see more at the national
Speaker 4: level or will it fall back down to the provincial level.
Speaker 12: You know, I think the trend that we were seeing
Speaker 12: towards the end of last year was the government was
Speaker 12: shifting to putting at on the national level for the
Speaker 12: reason that, you know, they do not want this problem
Speaker 12: of local governments being in debt and sort of having
Speaker 12: sort of teaching on default to continue. So I think
Speaker 12: that's what most people are expecting. There are sort of
Speaker 12: other risks from that though. I think, you know, we
Speaker 12: wrote last year about the fact that well, that's well
Speaker 12: and good for the government to take on more debt
Speaker 12: to prevent local government sort of going to these hidden
Speaker 12: financing vehicles to finance infrastructure to sort of boost their economies.
Speaker 12: You know, it comes with greater control for the central government.
Speaker 12: So when the government is raising these funds themselves and
Speaker 12: then distributing them out to the provinces, they get to
Speaker 12: decide more who gets what pile of the pot. And
Speaker 12: so there's a risk that when you do that, you
Speaker 12: can disincentivize local officials who no longer you know, have
Speaker 12: this system where if they are working hard and being innovative,
Speaker 12: they're sort of generating their own revenue that perhaps relying
Speaker 12: on handouts from the government. So I think it's a
Speaker 12: good idea in practice, and it's going to sort of
Speaker 12: sort of go some way to sort of address some
Speaker 12: of the risks involved in local government spending. But they
Speaker 12: also have to sort of manage how those funds are
Speaker 12: just out and make sure they keep the local officials
Speaker 12: also motivated.
Speaker 5: So we've talked about the crisis of confidence both among
Speaker 5: consumers and businesses. We know that we know about the
Speaker 5: problem and the property market that's apparent. Chinese stocks have
Speaker 5: been floundering near five year lows, a lot of concern
Speaker 5: about economic growth going forward. We haven't mentioned the deflation
Speaker 5: story that is obviously deep into levels that we haven't
Speaker 5: seen since the global financial crisis. Brian and I were
Speaker 5: talking last week with our own John Liu from our
Speaker 5: bureau in Beijing about whether it's fair to compare what
Speaker 5: China is going through these days with a turmoil that
Speaker 5: was seen back in twenty fifteen. Here's John lu.
Speaker 13: The relationship with the United States is much worse than
Speaker 13: it was in twenty fifteen. That was the Obama administration.
Speaker 13: China hosted the G twenty. Barack Obama and Shiji King
Speaker 13: stood up at the G twenty in Hanjo and announced
Speaker 13: that the US and China we're going to cooperate on
Speaker 13: carbon goals. That period of time has ended. At the
Speaker 13: same time, there are other issues. The population China is
Speaker 13: now shrinking. There's a demographic sort of conundrum that is
Speaker 13: much more pronounced now than it was in twenty fifteen.
Speaker 4: Yeah, that's Sean Liu in Beijing. And it does raise
Speaker 4: a point here at Jenny about if the United States
Speaker 4: relationship with China is really winging on the Chinese economy.
Speaker 12: Yeah, I mean, I think when we've conducted surveys among
Speaker 12: investors and economists, it comes up as sort of one
Speaker 12: of the top concerns the geopolitical swings. I would say
Speaker 12: since since the she Biden meeting, things seem to have
Speaker 12: really leveled off and the relationship has improved. But you know,
Speaker 12: there's a US election looming this year, and one of
Speaker 12: the candidates or presumed candidates, is threatening sixty percent tariffs
Speaker 12: on China. So there's a lot of headwinds in the pipeline.
Speaker 12: And so for US companies in China, they don't know
Speaker 12: at the moment, and you know what sort of trade
Speaker 12: curves are down the road. So I would say it's
Speaker 12: a year full of unknowns. Right now in terms of
Speaker 12: the US China relationship.
Speaker 5: Are we likely to get any guidance on how much
Speaker 5: more the government is willing to spend for its military budget.
Speaker 4: Yeah.
Speaker 12: Absolutely, That's one of the things that we'll be working
Speaker 12: looking out for in the work report, and it tends
Speaker 12: to increase every single year. I think China has the
Speaker 12: second highest military budget in the world after the US,
Speaker 12: so we'll certainly be looking out for that, and also
Speaker 12: sort of any language in any of the reports around Taiwan.
Speaker 12: I think last year it was kind of fairly a
Speaker 12: commodative language that we saw, sort of saying that they
Speaker 12: were looking for like peaceful relationships and to sort of
Speaker 12: improve ties in the toy's economies rather than any warmongering talk.
Speaker 12: So we'll also be on the lookout for that as well.
Speaker 5: Jenny will have to have you back in the week
Speaker 5: ahead when we start to get details of the NPC meeting.
Speaker 5: That is Bloomberg's Jenny Marsh, the team leader for Greater
Speaker 5: China ECO and GOV. I'm Doug Krisner. You can join
Speaker 5: Brian Curtison myself weekdays here for Bloomberg Daybreak Asia at
Speaker 5: nine am in Hong Kong eight pm on Wall Street Tom.
Speaker 1: Our thanks to Brian and Doug. And that does it
Speaker 1: for this edition of Bloomberg day Break Weekend. Join us
Speaker 1: again Monday morning at five am Wall Street time for
Speaker 1: the latest on markets overseas and the news you need
Speaker 1: to start your day. I'm Tom Buzzby. Stay with us.
Speaker 1: Top stories and global business headlines are coming up right now.