Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our day
Speaker 2: Break anchors all around the world. Straight ahead on the program,
Speaker 2: Federal Reserve Chair Jerome Powell opening the door to a
Speaker 2: possible interest rate cut as early as next month. Plus
Speaker 2: earnings from the AI chipmaker and Vidia amid worries about
Speaker 2: its business in China. I'm Tom Busby in New York.
Speaker 3: I'm Stephen Carolyn London, who we are looking at the
Speaker 3: difficult calculations looming for European governments as they prepare their
Speaker 3: spending plans for next year.
Speaker 4: I'm Dek Krisner, looking ahead to this week's rate decision
Speaker 4: from the Bank of Korea, as well as the state
Speaker 4: of the IPO market in Hong Kong.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 5: Good day to you.
Speaker 2: I'm Tom Busby, and we begin today's program with some
Speaker 2: revealing statements from Federal Reserve Chair Jerome Powell about possibly
Speaker 2: changing the FED stance on rates. That's ahead of inflation
Speaker 2: and personal incomes and spending data in the US. We're
Speaker 2: joined by Stuart Paul, us economist with Bloomberg Economics. Well, Stuart,
Speaker 2: I just want to hear your takeaways from Friday's rather
Speaker 2: dubvish speech from Fedchair Jerome Powell, because it looks like
Speaker 2: Wall Street's already pricing in a rate cut at the
Speaker 2: September meeting.
Speaker 6: Well, the hot headline that we got from the speech
Speaker 6: at Jackson Hole is that the balance of risks for
Speaker 6: the Federal Reserve and for monetary policymakers are shifting, and
Speaker 6: in particular the downside risks to employment are shifting materially
Speaker 6: they're rising. So, if anything, the Federal Reserve chairman was
Speaker 6: opening the door or at least acknowledging the cooling labor
Speaker 6: market and opening the door to a rate cut in September.
Speaker 6: But if anything, I think the tone of the speech
Speaker 6: was actually a little bit hawkish, so he could be
Speaker 6: getting something like a hawkish cut in September. He was
Speaker 6: really trying to keep people from reading too much into
Speaker 6: the idea that the resumption of rate cuts would mean
Speaker 6: a cycle of cutting follows. For example, he noted that
Speaker 6: the labor market is cooling, The pace of hiring is
Speaker 6: materially slowing, but there is not a lot of slack
Speaker 6: in the labor market. The pace of GDP growth is slowing,
Speaker 6: but there's not a lot of slack in economic activity. Yes,
Speaker 6: risks to inflation are still skewed to the upside. So
Speaker 6: he was very cautious in his tone. He acknowledged that
Speaker 6: it might be time to adjust the stance of monetary policy,
Speaker 6: but he was not willing to go so far as
Speaker 6: to say there would be multiple sequential cuts.
Speaker 2: Well, what he said about it is we're in a
Speaker 2: curious kind of balance right now in the labor department.
Speaker 2: So he is hedging his bets. And when you say
Speaker 2: a hawkish cut, you just mean a quarter percentage point, right.
Speaker 6: A quarter point cut, and a clear signal at the
Speaker 6: time they decide to move right, that additional sequential rate
Speaker 6: cuts are not predetermined. When we get something like a
Speaker 6: hawkish cut, it's really an incremental loosening of monetary policy
Speaker 6: plus hawkish messaging, and that's what Powell was starting to
Speaker 6: signal in his final Jackson Whole speech.
Speaker 2: We have had some dissension previously in the FED, some
Speaker 2: members saying, hey, we're ready to cut any time. Has
Speaker 2: that balance shifted now are there? Do you think it's
Speaker 2: not just him, not just the one or two. Christopher
Speaker 2: Waller and a few others are more saying this may
Speaker 2: be the time.
Speaker 6: Heading into Chairman Powell's speech, other members of the FOMC,
Speaker 6: the branch presidents, including Susan Collins from Boston, All Goals
Speaker 6: from Chicago, Beth Hammock from Cleveland, they were very clear
Speaker 6: that they had not yet made up their mind that
Speaker 6: this is the time to cut rates. There was a
Speaker 6: coalition in July, and it seems like there's still a
Speaker 6: coalition now that is very cautious about moving to looser
Speaker 6: monetary policy right now. But I do think that what
Speaker 6: we saw from Chairman from Chairman Powell, who does speak
Speaker 6: mostly to the central tendency of the committee, that central
Speaker 6: tendency that media FOMC participant is probably getting a little
Speaker 6: bit more comfortable with the idea of moving relatively soon.
Speaker 6: But I think that This is what's most important, This
Speaker 6: relatively hawkish tone that was included in the speech, even
Speaker 6: with signaling that they're becoming more comfortable with one rate cut,
Speaker 6: it would just be probably one rate cut, and I
Speaker 6: think that there could be a negotiation come September that
Speaker 6: it's time to lower by a lower the federal funds
Speaker 6: rate target range by a quarter point. But they would
Speaker 6: move slowly, they'll move deliberately, they'll move cautiously, and probably
Speaker 6: not another time this year. From an economic perspective, Does
Speaker 6: it really matter if they move in September or November
Speaker 6: or December. No, it doesn't really matter from an economic perspective.
Speaker 6: So I think that the Chairman can build a coalition
Speaker 6: given the fact that there had previously been dissension. He
Speaker 6: can build a coalition now that would be more amenable
Speaker 6: to lowering the federal funds r a target range, as
Speaker 6: long as they feel like they're not getting too far
Speaker 6: out ahead of their skis and that they're not devoted
Speaker 6: to sequential rate cuts.
Speaker 2: Well, one thing the Chairman has been consistent on is
Speaker 2: that his decision, the decision of the Central Bank, will
Speaker 2: be data dependent, and we're getting some important data this week.
Speaker 2: July PCE the fence preferred measure of inflation and also
Speaker 2: personal incomes and outlays. You know, just on Friday, the
Speaker 2: Chairman said that the result of the Trump tariffs has
Speaker 2: been now clearly visible, but the effects made relatively short lived.
Speaker 2: So I mean, is he seeing inflation as maybe it
Speaker 2: isn't so bad.
Speaker 6: For the month of July, We're estimating that core PCE
Speaker 6: prices rose zero point three percent on the month. There
Speaker 6: was actually relatively less pass through of tariff price pressures
Speaker 6: in the month of July. We had seen some in April, May, June,
Speaker 6: a little bit less in July. Where a lot of
Speaker 6: the core inflation pressures are going to be coming from
Speaker 6: is actually from financial services prices. This is a lot
Speaker 6: of things like portfolio management fees, for example. And when
Speaker 6: you see financial services prices rising, it's mostly just the
Speaker 6: reflection of a rally in the equity market. It's a
Speaker 6: rally in financial asset prices that are feeding through into
Speaker 6: financial services prices. And so there's an extent to which
Speaker 6: the Committee is going to be looking at this July
Speaker 6: PCE inflation report and thinking, hmm, there are elevated, frothy
Speaker 6: asset markets and so even if we decide to cut
Speaker 6: rates in September, even if we decide to cut rates
Speaker 6: this year, we should be very slow and deliberate in
Speaker 6: doing so. We still have a reasonably close federal funds
Speaker 6: rate target to what we consider to be neutral right now.
Speaker 6: Monetary policy is only modestly restrictive, if it's restrictive at all,
Speaker 6: So we should move very slowly.
Speaker 2: July PCE and personal spending both out just ahead of
Speaker 2: Wall Street's opening bell this Friday. The next FED meeting
Speaker 2: September sixteenth and seventeenth, a lot to look forward to
Speaker 2: our thanks to Stuart paul Us, economist with Bloomberg Economics.
Speaker 2: We move next to earnings from the last of text
Speaker 2: Magnificent seven to report this period AI chip maker and Nvidia.
Speaker 2: Those results from the world's only four trillion dollar company
Speaker 2: are looming large over Wall Street because of all the
Speaker 2: spending out artificial intelligence and questions about the company's business
Speaker 2: in China. For more on what to expect and what
Speaker 2: maybe next, we're joined by Kun John Sobani, Bloomberg Intelligence,
Speaker 2: Senior Semiconductor analyst. Well, Kunjohn, thank you for here. In
Speaker 2: video shares. They've taken a few hits in the past
Speaker 2: week or so, and there are questions about tariffs and
Speaker 2: what looks like a setback and its ability to sell
Speaker 2: chips in China. So with all that, looking backwards, what
Speaker 2: are you expecting to see in its second quarter results?
Speaker 5: From a results and guide perspective, we expect Nvidia, in
Speaker 5: its typical fashion, to deliver again a strong beat and raise.
Speaker 5: Our checks suggest strong Blackwell ramp ongoing and also strong
Speaker 5: networking attached along with it, so that should boost both
Speaker 5: compute and networking. The GB three hundred, which is their
Speaker 5: next version of Blackwell GPUs, also is likely to be
Speaker 5: running ahead of schedules, so that can also help with
Speaker 5: a guidance beat. But from a stock reaction perspective, the
Speaker 5: key focus again will be on narrative rather than purely numbers,
Speaker 5: as we have seen over the last few quarters. First,
Speaker 5: a key topic front and center is the magnitude and
Speaker 5: the timing of resuming the China Hills. They have now
Speaker 5: received license approval from the Trump Admin, but there are
Speaker 5: still a lot of unclarity and moving parts regarding how
Speaker 5: soon can they restart production and start shipping if those
Speaker 5: customers are still there wanting the same h twenty parts
Speaker 5: news has come out which hasn't made confunded yet, but
Speaker 5: there seems to be that the Chinese government forcing the
Speaker 5: customers not to buy in Nvidia chips. So there's a
Speaker 5: lot of moving parts around that China angle, which will
Speaker 5: be very important.
Speaker 2: Well, those chips that the Trump administration has given Nvidia
Speaker 2: the access into China to sell, they're less powerful, certainly
Speaker 2: not the Blackwell trips. These are older chips. So the
Speaker 2: huaweis and the other companies there do they make a
Speaker 2: similar product? I mean, is that the reason why if
Speaker 2: this is confirmed about Beijing saying we don't want your chips.
Speaker 5: At this point, there is if you take the best
Speaker 5: available GPU over in China, yes, you know, it is
Speaker 5: comparable to the older Age twenties that NVIDIAs said selling.
Speaker 5: But regardless of that, those GPUs don't have enough supply
Speaker 5: capacity because they don't have access to the leading edge
Speaker 5: fabs as Nvidia does. So you know, if there was
Speaker 5: no pressure from the Chinese government, the customers would happily
Speaker 5: and readily buy a lot more of the Age twenties.
Speaker 5: So right now, it's a lot more geopolitics driving this
Speaker 5: scenario or rather than just pure demand, supply and performance comparison.
Speaker 2: Well, Reuters reported last week that in Video may be
Speaker 2: working on a new chip a little more powerful than
Speaker 2: the Age twenty that is just for China. Has this
Speaker 2: been confirmed.
Speaker 5: This has not been confirmed. And again this is a
Speaker 5: lot of news has come out over the last few
Speaker 5: weeks which everyone including US is waiting to speak to
Speaker 5: the company as they report earnings to confirm a lot
Speaker 5: of these things. And you know, I wouldn't be surprised
Speaker 5: regarding the new chip. Every big generation Leap architecture generation Leap,
Speaker 5: Nvidia has designed a new chip for China. So now
Speaker 5: we are as it is shipping blackwell, it makes sense
Speaker 5: that it is designing a lower powered black Belt version,
Speaker 5: which is what the Reuter News was talking about, and
Speaker 5: so that would not be very surprising to us. But
Speaker 5: again you would have to go through this whole cycle
Speaker 5: of getting licensing and sanctions because it will be definitely
Speaker 5: more powerful than the Age twenty.
Speaker 2: Well, with all of this is a four trillion dollar company.
Speaker 2: How important is China to Invidia's future revenue? I mean,
Speaker 2: it looks like they're doing well without it, but we
Speaker 2: all know it's the second largest economy on Earth. You know,
Speaker 2: the spending is astronomical. How big is China to Invidia.
Speaker 5: Yeah, so there are two parts of it. One is
Speaker 5: from a tamp perspective. It's definitely the sort of biggest
Speaker 5: stamp outside of the US when it comes to what
Speaker 5: Nvidia can sell to, and it is home to the
Speaker 5: next largest hyperscalers and cloud providers. So it's definitely a
Speaker 5: big market that you don't want to lose out, especially
Speaker 5: if you're Nvidia for the long term. But however, in
Speaker 5: the near term, right now, you know it can do
Speaker 5: very well without it. It is doing very well without it.
Speaker 5: We don't suspect that this China headwind will stop from
Speaker 5: it growing into the numbers and as estimates. But right now,
Speaker 5: given the size and the growth it has delivered, the
Speaker 5: focus is how better can you do? So even if
Speaker 5: it's just let's call it ten to twenty billion dollars
Speaker 5: a year right now, which is a drop in the
Speaker 5: bucket given how much revenue they are setting everywhere else,
Speaker 5: because all the investors and Byside is trying to just
Speaker 5: get to the highest number, and if they can beat
Speaker 5: that to that, the narrative will be a lot more
Speaker 5: important right now than the numbers well.
Speaker 2: In Vidious Q two earnings out after the market closes
Speaker 2: this coming Wednesday. Are thanks to Kunjohn Sopani, Bloomberg Intelligence
Speaker 2: Senior Semiconductor Analyst, and coming up on Bloomberg day Break weekend,
Speaker 2: we'll look at the difficult calculations looming for European governments
Speaker 2: as they prepare their spending plans for next year. I'm
Speaker 2: Tom Busby, and this is Bloomber. This is Blueberg Day
Speaker 2: Break Weekend, our global look ahead at the top stories
Speaker 2: for investors in the coming week. I'm Tom Busby in
Speaker 2: New York. Up later in our program, we'll look ahead
Speaker 2: to a monetary policy decision from South Korea's Central Bank.
Speaker 2: But first in Europe, the end of the traditional summer
Speaker 2: holiday period will see politicians return to work in the
Speaker 2: coming days. In many countries, their biggest challenge will be
Speaker 2: drawing up budget plans that increase defense spending while also
Speaker 2: tackling enormous debt piles amid week economic growth. In France,
Speaker 2: the conversation will kick off at the annual summer conference
Speaker 2: of the country's biggest business group MEDEF. For more, let's
Speaker 2: go to London and bring in Bloomberg Daybreak. Europe banker
Speaker 2: Stephen Carroll.
Speaker 3: Tom It's a cliche, but politicians do take summer holidays
Speaker 3: in Europe, and that usually means that at this time
Speaker 3: of year, the looming political challenges return with the bang.
Speaker 3: In France, the season known as Laurentree for schools but
Speaker 3: also for politics. This year's MEDEF conference is a chance
Speaker 3: for employers to set out their positions ahead of a
Speaker 3: fractious budget to base. The Prime Minister U faces the
Speaker 3: daunting task of building support in Parliament for his budget plan,
Speaker 3: which contains forty four billion euros of tax rises and
Speaker 3: spending cuts. Without a majority, his government's future hangs in
Speaker 3: the balance. Bairu will be trying to avoid the fate
Speaker 3: of his predecessor, Michel Bagnier, whose government was toppled over
Speaker 3: its budget last December. The situation is causing growing concern
Speaker 3: amongst investors, not just in France, but also in several
Speaker 3: other European countries. Many governments are grappling with similar budget
Speaker 3: try issues, and they need to submit their spending plans
Speaker 3: to the European Union by mid October. They're balancing the
Speaker 3: need to increase defense spending, pay bigger social welfare and
Speaker 3: pension bills for their aging populations and cover debts encouraged
Speaker 3: during the COVID pandemic, all the while trying to avoid
Speaker 3: painful tax rises or spending cuts. Here's what Jeffrey's economist
Speaker 3: Madupe out of Bembo had to say about the situation
Speaker 3: when she spoke to us on Bloomberg Radio.
Speaker 7: In previous kind of budget cycles last year, the opposition
Speaker 7: knows that they can extract the game from the government,
Speaker 7: and so they will do that. But I think the
Speaker 7: question is how far it goes. Will it just be
Speaker 7: a case of trying to maybe remove certain budget reductions
Speaker 7: that have been penciled in, or will it be a
Speaker 7: case of bringing down the government. And I think if
Speaker 7: we get into that situation where it's a case of
Speaker 7: bringing down the government, that's where I see. I mean,
Speaker 7: it's a really big risk for France there because another
Speaker 7: election then we're thinking about presidential elections, a lot of
Speaker 7: uncertainty about who would come in presidential elections. I think
Speaker 7: it really opens up a really big can of worms.
Speaker 7: And that's why we are negative on France because I
Speaker 7: think all of these sorts of scenarios that we're talking
Speaker 7: about are very possible. They of course tell risks, but
Speaker 7: they have a greater probability.
Speaker 3: As Jeffrey's economist and we dupey out of Bembo speaking
Speaker 3: to me recently about the situation in France. Let's get
Speaker 3: into the broader political and economic challenges ahead, then with
Speaker 3: our senior geoeconomics analyst for Europe, Antonio burrough So and
Speaker 3: are European economist Anna Andrade. Welcome to you both. Antonio,
Speaker 3: I want to start with you and just to lay
Speaker 3: the land of the political situation in France the heading
Speaker 3: into these difficult negotiations. What is the situation looking like
Speaker 3: for the government.
Speaker 8: Well, the picture is looking quite challenging, I would say,
Speaker 8: because the problem, the main problem is that the government
Speaker 8: lacks a majority in the National Assembly, that's the crucial
Speaker 8: lower chamber in France. The government is essentially short of
Speaker 8: seventy nine deputies, right, and I think that means two things.
Speaker 8: The first is that it's very hard to get legislation
Speaker 8: past in parliament, not just a budget. I mean, this
Speaker 8: is a government that struggles to get things done in parliament.
Speaker 8: And the second problem is that it basically leaves the
Speaker 8: government exposed to potential no confidence motions in parliament, and
Speaker 8: that you know, if a non confidence motion is supported
Speaker 8: by the parliament, that leads to the collapse of the government,
Speaker 8: which is what happened last year. Right, So, I think
Speaker 8: that creates a very challenging situation for the government. Adding
Speaker 8: to this is the fact that there is a lot
Speaker 8: of political polarization in the country. Political parties are extremely polarized,
Speaker 8: which makes reach compromise is also very difficult in parliament.
Speaker 8: So as a whole, I would say it's fair to
Speaker 8: characterize the political situation as quite difficult.
Speaker 3: And let's turn to the fiscal situation that France is facing.
Speaker 3: How did it get to this position and how does
Speaker 3: it compare to what we're seeing elsewhere in Europe?
Speaker 9: Sure so, I think the markets really woke up to
Speaker 9: francis fiscal problems in twenty twenty four when Macron called
Speaker 9: the snap election, but really the problems had been building
Speaker 9: way before that. And if you look at the primary balance,
Speaker 9: which provides a better reading on fiscal efforts because essentially
Speaker 9: the excluding interest payments. While Greece, Italy and Portugal, all
Speaker 9: the countries that have been most affected by the sovereign
Speaker 9: depth crisis, were undertaking big consolidation efforts and targeting primary
Speaker 9: balanced surpluses away from deficits. France was still running significant deficits.
Speaker 9: Now it wasn't the only one. Spain was not necessarily
Speaker 9: very committed to physical discipline as well. But the key
Speaker 9: difference then as now was that growth was much faster there,
Speaker 9: which helped reduced the dept to GDP ratio prior to
Speaker 9: the pandemic, while in France it actually increased. And now
Speaker 9: then we had the pandemic, which made everything worse. And
Speaker 9: France in particularly has had a problem in braining and
Speaker 9: spending over the past few years. Now that's due to
Speaker 9: a mix of factors including slippadge by local authorities, growing
Speaker 9: spending in pensions and disappointing tax revenues. And the government's
Speaker 9: plan is quite ambitious. It's committed to that. I mean,
Speaker 9: obviously the politics of it are quite difficult, as Antonio said,
Speaker 9: but I would just flag that we also just don't
Speaker 9: know where these savings beyond twenty twenty six are going
Speaker 9: to come from, because in the medium term structural plans
Speaker 9: that France sent to the Commission, and by the way,
Speaker 9: this is not a friend's only problem. It's a problem
Speaker 9: across all the governments. They send sort of the debt
Speaker 9: deficity targets that they want to reach in five to
Speaker 9: seven years, but they just haven't detailed the tax and
Speaker 9: spending decisions that will underpin those targets. So the plans
Speaker 9: are really not credible.
Speaker 3: Well, let's discuss that further, Antonio. I mean, it was
Speaker 3: unusual to see the French Prime Minister lay out the
Speaker 3: first draft of his spending plans quite early in the summer.
Speaker 3: There was lots of unpopular proposals, and it's like cutting
Speaker 3: two public holidays for example. What chances are there really
Speaker 3: being able to get a compromise on a budget for France.
Speaker 8: Well, just like last year were essentially the government collapsed
Speaker 8: over the budget and then last minute emergency budget had
Speaker 8: to be approved. I think it's going to be very
Speaker 8: hard for the government to get the budget passed. In
Speaker 8: a survey that was done in July by French poster Elab,
Speaker 8: you could see that seventy two percent of respondents said that,
Speaker 8: you know, they acknowledged that dead must be reduced, but
Speaker 8: that the efforts been demanded by the budget by the
Speaker 8: government are too great. Right, So it's not a popular budget.
Speaker 8: Also same survey, sixty six percent of respondents say that
Speaker 8: they want the position parties to file and no confidence
Speaker 8: motion is the government right, So you can see it's
Speaker 8: not a particularly popular budget and you know, the challenge
Speaker 8: of the fact that you need to really engage in
Speaker 8: physical consolidation to reduce the budget deficit is compounded by
Speaker 8: the lack of parliamentary majority. But that doesn't mean that
Speaker 8: the government cannot make some concessions. In fact, I don't
Speaker 8: think the current the budget in this current form might
Speaker 8: be able to be passed, but I think the government
Speaker 8: can provides certain concessions to at least have a chance
Speaker 8: to get it approved by opposition parties.
Speaker 3: And Antonio because we're thinking about this in the context
Speaker 3: of this upcoming business conference, where of course employers and
Speaker 3: business leaders are going to be very worried about what
Speaker 3: it could mean for them fiscally. They've previously been asked
Speaker 3: to give larger contributions in terms of payroll taxes towards
Speaker 3: the French budget. I mean, how worried do employers and
Speaker 3: perhaps citizens have to be about tax ris as being
Speaker 3: part of an eventual budget package in France.
Speaker 8: Well, I think that depends on the final compromise that
Speaker 8: the government, if they can get a compromise, that the
Speaker 8: form of that that will take. So, as I said,
Speaker 8: I think there is room for concessions and I think that's,
Speaker 8: by the way, probably why the initial draft of the
Speaker 8: budget looks so tough, because I think the strategy of
Speaker 8: Prime Minister consul who is essentially to present a very
Speaker 8: tough budget and then leave room to negotiate with opposition parties.
Speaker 8: But obviously consolidation physical consolidation is never popular, so the
Speaker 8: problem is that opposition parties do not want to be
Speaker 8: associated with the consolidation efforts. That being said, if you
Speaker 8: look in terms of potential compromises. So last year, the
Speaker 8: previous government of Prime Minister Darnie tried to make concessions
Speaker 8: to the far right National Rally Party of my Elepen
Speaker 8: and then that backfire in the end, actually a no
Speaker 8: confidence motion, as I said, was voted and the government
Speaker 8: ended up collapsing. So I think the government is not
Speaker 8: going to look at its right, rather, in my look
Speaker 8: towards its left when you have the Socialist Party which
Speaker 8: has rejected the budget in its current form. But I
Speaker 8: think the strut might be to try to offer some
Speaker 8: concessions on what the Socialists called physical gassis, which is
Speaker 8: essentially increase taxes on the highest earners in the country.
Speaker 8: So I think ultimately you might see some concessions that
Speaker 8: might look like tax increases, even though the government would
Speaker 8: try to keep those at a minimum because Macone and
Speaker 8: by who are really fixated or not increasing taxes. But
Speaker 8: that might be an area. But you might find some
Speaker 8: concessions that might lead ultimately to the plole of the budget.
Speaker 3: And in terms of the broader economic outlook for France
Speaker 3: and for the euro Area, I mean, what should we
Speaker 3: be watching out for. I suppose the potential petfalls as
Speaker 3: policymakers are considering what effect their decisions might have on
Speaker 3: the economic trajectory for the country.
Speaker 9: Yeah, I mean growth in France in your area hasn't
Speaker 9: been spectacular over the past few years, but I would
Speaker 9: say that given all the shocks that the currency block
Speaker 9: has been hit by, I think it has been holding
Speaker 9: up fairly recently. Of course, you know there's a big
Speaker 9: utrogenerity bit across your area. We have spaying grecent Portugal
Speaker 9: really experiencing dicent growth runs, while Germany barely growing. France
Speaker 9: is somewhere in the middle. And now when I think
Speaker 9: about the outlook over the next few years, I think
Speaker 9: it's going to be essentially shaped by three things. One
Speaker 9: is fiscal and in that i'm including, you know, the
Speaker 9: defense spending. The other is obviously US tariffs, and the
Speaker 9: third one is the euro appreciation. Now, the ear area
Speaker 9: had a strong start at the beginning of the year.
Speaker 9: Essentially that was due to front floating ahead of the
Speaker 9: US tariffs, and that should ensure that growth is above
Speaker 9: one percent this year. But the base of growth, at
Speaker 9: least in our forecast, we expect it to moderate over
Speaker 9: the coming quarters to around point two point three percent,
Speaker 9: which is really below trend, and for twenty twenty six
Speaker 9: we expect zero point eight percent. Now, it could be worse,
Speaker 9: and it could be worse generally for your area if
Speaker 9: we hadn't had this sort of fiscal listening coming from Germany.
Speaker 9: Germany is has engaged on spending splurge in infrastructure and defense,
Speaker 9: which we expect to start fitting through next year. But
Speaker 9: I would say that's sort of that fiscal loosening is
Speaker 9: really a story that's contained to Germany because in other countries,
Speaker 9: as Antoni just now said, The trend in France and
Speaker 9: in Italy for instance, is one of fiscal tightening, so
Speaker 9: the support from that will be modest. And then the
Speaker 9: big question is how tariff's and uncertainty will play out.
Speaker 9: Tariffs will affect all countries, obviously to different extents, and
Speaker 9: we expect I mean, we've had a trade deal being
Speaker 9: reached which sort of maybe provide some stability, but taken
Speaker 9: together with uncertainty, we still expect that to drag on growth.
Speaker 9: And we're actually expecting a point four percent heat to
Speaker 9: the level of GDP at peak, so you know, there
Speaker 9: will be some growth, but it will be modest and
Speaker 9: sort of you know, brought down by taris and uncertainty overall.
Speaker 3: Okay, Antonio Burrows, our senior geo economics analyst for Europe,
Speaker 3: and our European economist Anna Andrada, thank you to you
Speaker 3: both for helping set us up for what is expected
Speaker 3: to be a long debate over the French budget and
Speaker 3: the European budget cycle to come. I'm Stephen Caroll in London.
Speaker 3: You can catch us every weekday morning here for Bloomberg
Speaker 3: Daybreak here at beginning at six am in London and
Speaker 3: one am on Wall Street, Tom, Thank you, Steven, and
Speaker 3: coming up on Bloomberg day Break Weekend, we'll look ahead
Speaker 3: to a monetary policy decision from the Bank of Korea.
Speaker 3: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 3: day Break Weekend, our global look ahead at the top
Speaker 3: stories for investors in the coming week.
Speaker 2: I'm Tom Busby in New York. South Korea's Central Bank
Speaker 2: faces a tough call on rates next week. Economists are
Speaker 2: divided over whether the BOK will extend its easing cycle
Speaker 2: or keep the current two point five percent rate unchanged.
Speaker 2: For more, let's get to the host of the Daybreak
Speaker 2: Asia podcast, Doug Krisner.
Speaker 8: Tom.
Speaker 4: South Korea's economy rebounded in the second quarter, although recently
Speaker 4: the Governor of the Bank of Korea Ri Chang Yong
Speaker 4: said it still faces high levels of uncertainty as a
Speaker 4: result of US trade policy. Now, trade is just one
Speaker 4: of many factors the BOK will have to consider in
Speaker 4: the week ahead. For a closer look, I'm joined by
Speaker 4: Bloomberg's Brian Fowler. He is senior Asia ecogov editor for
Speaker 4: Bloomberg News, joining us in the Japanese capital of Tokyo.
Speaker 4: Thank you so much. For making time to chat with me.
Speaker 4: As I recall the BOK meeting in July when the
Speaker 4: policy rate was held steady at two and a half percent.
Speaker 4: At the time, Governory seemed to keep the door open
Speaker 4: to a rate cut this month. Has anything changed between
Speaker 4: then and now.
Speaker 10: Well, Doug, so he definitely kept the door open to
Speaker 10: a cut. He said at the time that four of
Speaker 10: the board members, that's four out of seven, were open
Speaker 10: to a rate cut sometime in the next three months.
Speaker 10: And that's a pretty clear signal that the BIAS is
Speaker 10: towards further easing, and probably further easing pretty much in
Speaker 10: the short term. He also cited concerns about household debt
Speaker 10: and the housing market and soul and that tends to
Speaker 10: raise the risk of financial imbalances and that's something he
Speaker 10: wants to keep an eye on. And I think another
Speaker 10: reason why the BOK began its pause in June and
Speaker 10: July is that there were fading thoughts of the FED
Speaker 10: easing policy and the BOK tends to want to move
Speaker 10: in lockstep with the Fed in order to avoid putting
Speaker 10: downward pressure on the wand the one was the weakest
Speaker 10: major currency against the dollar of last year. And that
Speaker 10: repped up inflationary pressure. So that's one thing they want
Speaker 10: to keep an eye on.
Speaker 4: So when you look at the household debt story, I'm curious,
Speaker 4: is that more likely to be concentrated in mortgage lending
Speaker 4: or are there other forms of borrowing that may trouble
Speaker 4: the Bank of Korea.
Speaker 10: Mortgage lending is absolutely the key fact there because that's
Speaker 10: driven by the housing market in Sol when it's hot,
Speaker 10: and that people tend to borrow money to speculate on
Speaker 10: that market. And we've seen housing prices rise now in
Speaker 10: Sel for twenty eight consecutive weeks. But on the other hand,
Speaker 10: the pace of increase has slowed after the government took
Speaker 10: some steps to cool demand, including putting some restrictions on
Speaker 10: mortgage lending.
Speaker 4: So where do we find the inflation story right now
Speaker 4: in South Korea? I know that the recent numbers on
Speaker 4: consumer prices earlier in the month seemed to suggest a
Speaker 4: bit of deceleration. And I just saw the recent print
Speaker 4: on producer prices. They advanced at an annual rate in
Speaker 4: July by a half of one percent. Is that considered hot?
Speaker 10: That consumer inflation is a little bit hot? Consumer prices
Speaker 10: rose two point one percent in July. The BOK has
Speaker 10: a target of two percent, and core inflation rose two
Speaker 10: so it's right about at the Bok's target. I think
Speaker 10: going forward, the BOKA wants to see if the tariffs
Speaker 10: have an inflationary impact impact on prices and if that
Speaker 10: feeds into the economy were broadly.
Speaker 4: So, the tariff story is obviously a key part of
Speaker 4: the trade story, and when I think of South Korea,
Speaker 4: I think of not only automobiles, semiconductors as well. How
Speaker 4: have trade flows been, especially to the US in light
Speaker 4: of these tariffs.
Speaker 10: We had some early trade data for August showing that
Speaker 10: exports to the US have started to fall until now
Speaker 10: we had actually we had a lot of front loading,
Speaker 10: so exports held up relatively well. Also, companies like Samsung
Speaker 10: electronics tech sector did pretty well because the Trump administration
Speaker 10: puts some exclusions on consumer electronic goods and that's helped
Speaker 10: put a floor under those exports. Also, of course, the
Speaker 10: supply chain relationships with Apple of help, as Apple has
Speaker 10: managed to win some exemptions going forward, though, as you mentioned,
Speaker 10: I mean, the outlook is pretty cloudy. Trump has threatened
Speaker 10: to put new tariffs on chips by the end of
Speaker 10: this month, and that would be a huge threat to
Speaker 10: South Korea's economy because it relies very heavily on trade,
Speaker 10: and in particular on trade of semiconductors.
Speaker 4: So when you think of sentiment on both the business
Speaker 4: side and the consumer side, what's it been like. How
Speaker 4: are people feeling.
Speaker 10: I think they're feeling a little bit worried about how
Speaker 10: things are going. The Bank of Korea's GDP forecast for
Speaker 10: this year calls for zero point nine percent growth. That
Speaker 10: would be the weakest performance since the pandemic, when the
Speaker 10: economy contracted in twenty twenty. And I think people are
Speaker 10: thinking this the shoe is is about to drop. It
Speaker 10: hasn't really dropped thus far, and there's concern about how
Speaker 10: things happen, how things in full from August on now.
Speaker 4: I know recently within the last several months, there's been
Speaker 4: a little bit of turbulence on the political side in
Speaker 4: South Korea. Have things calmed down right now to help
Speaker 4: maybe support the idea that the Bok has a little
Speaker 4: bit more flexibility to do its job and not to
Speaker 4: be distracted by political developments.
Speaker 10: Definitely. The new administration got started obviously in early June,
Speaker 10: and that's taken away a huge source of uncertainty. Lee
Speaker 10: so far has done his best to first of all
Speaker 10: put aside any sort of concerns about diplomatic spats with Japan,
Speaker 10: and I think that's he's looking confident, and that's meaning
Speaker 10: that the government can come through with fiscal stimulus if
Speaker 10: it feels that it needs to.
Speaker 4: That is Brian Fowler. He is senior Asia ecogov editor
Speaker 4: for Bloomberg News. Joining from our studios in Tokyo, let's
Speaker 4: pivot to one of the most important equity markets in Asia.
Speaker 4: Hong Kong Exchanges and Clearing posted record quarterly again of
Speaker 4: forty one percent. Trading surged with average daily turnover nearly doubling,
Speaker 4: and new listings rebounded, with IPO applications topping two hundred.
Speaker 4: The exchange of CEO is Bonnie Chan, and she recently
Speaker 4: told Bloomberg how she is optimistic about international investors returning
Speaker 4: to Chinese assets and how that will keep momentum strong.
Speaker 4: Here is part of chance conversation with Bloomberg zivonn Man.
Speaker 11: Another quarter of record profit. You have trading that's been
Speaker 11: booming and now more than two hundred active applications on
Speaker 11: the pipeline. What stood out to you for this quarter.
Speaker 12: You know what really stands out for me for this
Speaker 12: quarter is the fact that it's writing on a pretty
Speaker 12: sustained momentum. If you look at our results, this is
Speaker 12: actually another set of record half yearly results. We deliver
Speaker 12: a pretty strong a pretty strong set already for the
Speaker 12: second half of twenty twenty four. And so for me,
Speaker 12: my biggest takeaway is that actually, since I think September
Speaker 12: twenty twenty four, gradually we're seeing a return of interest
Speaker 12: from international investors and they want to again look for
Speaker 12: opportunities to deploy more capital to this part of the world.
Speaker 12: You see it, I think manifested in many ways in
Speaker 12: our daily turnover, but also I think you know in
Speaker 12: the way that all these investors around the world are
Speaker 12: participating in our IPOs.
Speaker 11: The key question is it's sustainable. You mentioned about average
Speaker 11: daily turnover, which you nearly double from a year ago.
Speaker 11: Obviously with liquidity it has been quite ample. With these
Speaker 11: sell bound flows. What could extend the streak?
Speaker 9: Right?
Speaker 12: International investors are really again focusing on China assets, and
Speaker 12: I think as they try to come back to treasure hunt,
Speaker 12: it is a very good thing that we have equally
Speaker 12: a robust pipeline to match their appetite. I think that
Speaker 12: is very very important. So you mentioned our pipeline. We're
Speaker 12: currently over two hundred companies already having filed their applications,
Speaker 12: and in fact, you know, on a daily basis, I'm
Speaker 12: speaking to a lot more so I think, you know,
Speaker 12: with the backdrop of you know, really the interest returning
Speaker 12: in earnest as well as you know, all these very
Speaker 12: exciting investment opportunities coming online, I do hope that the
Speaker 12: momentum can carry on.
Speaker 11: How confident are you the Hong Kong can reclaim the
Speaker 11: number one IPO venue this year?
Speaker 12: Yeah? People always ask me that question. I think it's
Speaker 12: certainly good to be sort of all the way at
Speaker 12: the top of the league table. I mean, at the moment,
Speaker 12: we're in a very good position, and we do have
Speaker 12: the pipeline to help us deliver and help us stay
Speaker 12: stay up there. But you know, to me, the more
Speaker 12: important thing really is to make sure that we able
Speaker 12: to support the fundraising needs of these companies. And this year,
Speaker 12: I keep talking about the IPO pipeline, I think we
Speaker 12: also need to look at the follow on fundraising, which
Speaker 12: in fact has raised more money than the IPO proceeds.
Speaker 12: So yeah, today we have raised about sixteen billion US
Speaker 12: dollars close to seventeen for you by way of IPOs,
Speaker 12: but we have actually more than forty billion NEUS dollars
Speaker 12: raised by companies already listed on our exchange. So to me,
Speaker 12: so long as we continue to support the fundraising needs
Speaker 12: of these companies, we continue to improve our listing framework.
Speaker 11: Are you still doing a lot of marketing or do
Speaker 11: you think companies are starting to come to you now?
Speaker 10: I think both.
Speaker 12: I mean companies certainly, I think saw how well we've
Speaker 12: done in the IPO space, and so I think on
Speaker 12: the average I probably need two to three companies per
Speaker 12: day or to you know, wanting to understand more what
Speaker 12: we have to offer, and I want to expand the
Speaker 12: universe a little bit. I think it's very encouraging that
Speaker 12: in the past few months we have seen an increased
Speaker 12: appetite of companies beyond just the mainland China wanting to
Speaker 12: use Hong Kong as their or pick Hong Kong as
Speaker 12: their listening venue.
Speaker 11: We've seen a bit of a quiet resurgence in the
Speaker 11: Asian market and the IPO market. There seems to be
Speaker 11: coming back to life right again as well, What does
Speaker 11: the rebound in Shanghai and Shanxen mean for the pipeline here.
Speaker 12: I think that will be very, very encouraging because the
Speaker 12: way I see it, we always say the capital markets
Speaker 12: is there to serve the real economy. So the fact
Speaker 12: that capital markets are doing well, you know, should suggest
Speaker 12: that actually, you know, there's a lot of positive momentum
Speaker 12: in the real economy as well. China is a big country.
Speaker 12: It is producing a lot of very exciting investment opportunities.
Speaker 12: I mean, you see our pipeline, right, it's really felled
Speaker 12: with a lot of excitement and then certainly enough for
Speaker 12: more than just Hong Kong to support. And I think
Speaker 12: increasingly I'm seeing the you know, the few exchanges in China, right,
Speaker 12: So Shanghai, Shinjin, Beijing and the Hong Kong market really
Speaker 12: playing a very complimentary role. Now for Hong Kong, I
Speaker 12: think one advantage we have is certainly the connection to
Speaker 12: the rest of the world. And therefore, for a lot
Speaker 12: of companies when they decide to pick which venue to list,
Speaker 12: one thing which will gravitate them towards Hong Kong is
Speaker 12: if they have overseas expansion plans, and we actually saw
Speaker 12: that in a lot of companies which have been listed
Speaker 12: in the past few months. They want to raise proceeds.
Speaker 12: They want to therefore use the proceeds to expand overseas,
Speaker 12: and I think that is one thing which Hong Kong
Speaker 12: can actually serve the best.
Speaker 4: That was Bonni Chan, she is the CEO of Hong
Speaker 4: Kong Exchanges and Clearing, speaking with Bloomberg TV host Yvonne
Speaker 4: Mann and I'm Doug Chrisner. You can catch us weekdays
Speaker 4: for the Daybreak Asia podcast. It's available wherever you get
Speaker 4: your podcast.
Speaker 2: Tom, Thank you, Doug. And that does it for this
Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday
Speaker 2: morning at five am Wall Street Time for the latest
Speaker 2: on markets, overseas and the news you need to start
Speaker 2: your day. I'm Tom Busby. Stay with us. Top stories
Speaker 2: and global business headlines are coming up right now.