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. Straight ahead on the
Speaker 1: program of busy week for investors on Wall Street, Apple,
Speaker 1: Microsoft leading the earnings cavalcade, and we'll also get a
Speaker 1: FED decision and the January jobs report. I'm Tom Busby
Speaker 1: in New York.
Speaker 2: I'm callin Hedge in London, where we're looking ahead to
Speaker 2: the Bank of Eglins first rate decision of twenty twenty four.
Speaker 3: I'm Ryan Curtisy in Hong Kong. We look ahead to
Speaker 3: China's BMI so weather recent support measures. He can turn
Speaker 3: the tide in the Chinese too.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend. The business
Speaker 4: news you need to wrap up your week, available on Apple, Spotify,
Speaker 4: the Bloomberg Business Appen everywhere you get your podcasts.
Speaker 5: Good day to you.
Speaker 1: I'm Tom Busby. We begin today's program with a very
Speaker 1: busy week ahead for earnings on Wall Street. We'll hear
Speaker 1: from more than one hundred companies in the S and
Speaker 1: P five hundred with big tech leading the way. Results
Speaker 1: from Apple, Microsoft, Amazon, Alphabet and Meta Platforms, among others.
Speaker 5: For a closer look at.
Speaker 1: What to expect from the two three trillion dollar giants
Speaker 1: Apple and Microsoft. We're pleased to bring in anurag Rana,
Speaker 1: senior tech analyst with Bloomberg Intelligence, now anorog. Let's start
Speaker 1: with Apple, which has been a lot of headlines lately
Speaker 1: for its new Vision Pro mixed reality headset, trouble with
Speaker 1: the smart watch, app store commissions, challenges for the iPhone
Speaker 1: sales in China. So what are you expecting to see
Speaker 1: from Apple's Q one on Wednesday?
Speaker 6: Listen. I hope they give some good news about China because,
Speaker 6: as you said, you know, for I mean, it's an
Speaker 6: amazing company. But all I can say is in lust
Speaker 6: two months, all I've heard is just negative news come
Speaker 6: out for Apple. So it's a you know, for their sake,
Speaker 6: I hope they come out and give some good comments
Speaker 6: about China and they can you know, grow the smartphones
Speaker 6: in that particular market, because that is the single biggest
Speaker 6: factor that can dictate how they're going to grow this year.
Speaker 6: So that's that's that's forefront on our mind right now.
Speaker 1: Well, we did get a surprise to the upside though
Speaker 1: for twenty twenty three in iPhone sales in China though,
Speaker 1: didn't We yes, But.
Speaker 6: At the same time, I think expectations were so low.
Speaker 6: But you know, I still have to see how things
Speaker 6: shape up in twenty twenty four because you know, we
Speaker 6: have seen that Quahwei's phone was doing pretty well around
Speaker 6: the holidays, so we you know, we still need to
Speaker 6: figure out how December shapes up.
Speaker 1: And how about iPhone sales everywhere? Everywhere else but China.
Speaker 6: See the problem with everywhere else is and I'm going
Speaker 6: to talk about developed markets. You know, markets like the
Speaker 6: US and Western Europe, it is relatively mature or I
Speaker 6: would say stagnant. So when you see those markets, the
Speaker 6: install base of the number of people to have phone,
Speaker 6: that's only going to grow gradually, let's say in the
Speaker 6: rate of about two to three percent. That's not much
Speaker 6: to really, you know, boost the top line of the company.
Speaker 6: It was really China as the growth growth engine right
Speaker 6: now because when you look at the number of units there,
Speaker 6: China has about one billion smartphones out there. Apple has
Speaker 6: an you know, about an eighteen percent market share or
Speaker 6: somewhere and that range. So we still have a long
Speaker 6: way to go for Rabert to grow in that market.
Speaker 6: And I think that really was was, you know, my
Speaker 6: hope that if they can continue to grow well in China,
Speaker 6: then the next big market over the next three to
Speaker 6: five years is going to be India and so forth.
Speaker 6: So that kind of gives you like a ten year
Speaker 6: growth driver. But if China's going to slow down, you're
Speaker 6: not going to see massive, massive growth there. Then it
Speaker 6: brings down the growth rate of the entire company.
Speaker 5: Yeah.
Speaker 1: Wow, Well another possible generator of revenue the Vision Pro
Speaker 1: mixed reality headset. What not yet, but there was a
Speaker 1: burst of enthusiasm when when pre orders came out just
Speaker 1: this past week.
Speaker 5: But what do you see there?
Speaker 6: Yeah, it's three thousand and five hundred dollars. I mean,
Speaker 6: it's not a needle mover to me because you know,
Speaker 6: to be very honest, how many how many units can
Speaker 6: you sell any year? Let's say you sell half a
Speaker 6: million units, that's about one billion dollars or one and
Speaker 6: a half billion dollars in sales. So it's really not
Speaker 6: it's not something that I think it's going to add
Speaker 6: to the big top line of the company. Because remember
Speaker 6: Apple's revenue bases four hundred billion dollars. So even if
Speaker 6: you can go out and sell let's say one million units,
Speaker 6: it's not one million is way above anybody is expecting.
Speaker 6: That's like, you know, one percent of the revenue of
Speaker 6: the less than one percent of the revenue of the
Speaker 6: total company. So it's it's a lot of good discussion.
Speaker 6: We'll have a lot of fun when it's out there
Speaker 6: and people are going to play around with it, but
Speaker 6: it's really not a needle mover when you look at
Speaker 6: some financial analysis.
Speaker 1: And another hit that Apple's taking is the regulatory challenges
Speaker 1: to its commission on it to app developers on the
Speaker 1: app store. What's the latest there, because that could yeah billions, right.
Speaker 6: Yeah, yeah, that is I think the single biggest shoe
Speaker 6: right now. It's just everything that's legal, legal challenges and
Speaker 6: regulatory challenges around their app store and around the services
Speaker 6: business in general. I mean not just the app store.
Speaker 6: You know, the money that they receive from Google. There's
Speaker 6: a lot of discussion around it, and I think that
Speaker 6: is something that we spend most of our time looking into.
Speaker 6: We recently had a webinar topic talking about this topic.
Speaker 6: We have a podcast on it, so we you know,
Speaker 6: we this is a this is a serious, serious stuff
Speaker 6: because not is remember one thing. A dollar that you
Speaker 6: generate on the app store probably has operating margins of
Speaker 6: seventy five percent. This is very high margin business. So
Speaker 6: if there are issues around you know, how much fees
Speaker 6: can they charge, how much it's going to go down,
Speaker 6: all sorts of stuff that really does have you know,
Speaker 6: hamper not just the top line revenue, but also the
Speaker 6: profitability of the company.
Speaker 1: Oh boy, well, now let's move to Microsoft then, which
Speaker 1: has made big bets on artificial intelligence and cloud computing,
Speaker 1: and they see need to be paying off pretty well.
Speaker 5: What do you think?
Speaker 6: I think? You know, they are probably one of the
Speaker 6: better positioned companies in technology right now in you know,
Speaker 6: I would say in a holistic way because it's they
Speaker 6: have so many businesses, but the really big driver, at
Speaker 6: least for the near term, is going to be their
Speaker 6: cloud infrastructure business. Now, if you look at you know,
Speaker 6: open ai as a company, open AI's back end is
Speaker 6: Microsoft's cloud infrastructure, so you use a lot more check GPT.
Speaker 6: Microsoft makes more money off of it. So that's that's
Speaker 6: the way you want to think about it. Last time,
Speaker 6: when their cloud infrastructure numbers came out, they had about
Speaker 6: three hundred three percentage points contribution from AI in general,
Speaker 6: we think that number climbs throughout the year. That's an
Speaker 6: area where we are most optimistic that it is going
Speaker 6: to lead to a good recovery for Microsoft's organic growth
Speaker 6: rate in the second half. We have already seen from
Speaker 6: you know, results from IBM that things are actually looking
Speaker 6: rosy for the tech industry and videos done well. TSMC
Speaker 6: talked about a good year this in twenty twenty four.
Speaker 6: So we feel confident that, you know, Microsoft growth rates
Speaker 6: will improve as the year progressive because when you look
Speaker 6: at overall technology spending, you know, companies have been under
Speaker 6: investing for the last two years. You know, they really
Speaker 6: did well the five years before that, but you know,
Speaker 6: we have seen a pause in the last two years.
Speaker 6: So we think twenty twenty four could be the year
Speaker 6: where we see a revival in tech spending.
Speaker 1: Well, let's talk just for a minute about Microsoft's gaming
Speaker 1: division and reports last week that it's laying off nearly
Speaker 1: two thousand workers at its recently acquired Activision, Blizzard unit,
Speaker 1: and Xbox unit. Is this just a redundancy of jobs
Speaker 1: or is it indicative of more trimming down at Microsoft?
Speaker 6: Now it's just I mean, normally when you make a
Speaker 6: very large acquisition. They bought Activision for sixty nine billion
Speaker 6: dollars and Activision at the end of twenty twenty two
Speaker 6: had thirteen thousand people. So when you look at the article,
Speaker 6: I saw that that said they had about combined about
Speaker 6: twenty two thousand people. So you would expect some redundancies
Speaker 6: from an acquisition. That's the cost energies. Whenever you have duplication,
Speaker 6: you will see a little bit of that. I don't
Speaker 6: see that as an indication that the business conditions are bad.
Speaker 6: This is more so right sizing and changing demondgin structure
Speaker 6: of the company.
Speaker 5: There is a lot to look forward to.
Speaker 3: Well.
Speaker 1: Our thanks to anaag Rana, Bloomberg Intelligence Senior Technology analyst.
Speaker 1: Thank you for joining us. We now turn our attention
Speaker 1: to the US economy. Two big events this week, a
Speaker 1: two day FED meeting and a decision on interest rates.
Speaker 1: Also the January jobs report, and for a preview, let's
Speaker 1: bring in Michael McKee, Bloomberg International Economics and Policy correspondent. Michael,
Speaker 1: thank you, and well let's start with that FOMC meeting.
Speaker 1: And after three meetings in a row of leaving the
Speaker 1: federal funds rate unchanged, what are you expecting to see
Speaker 1: on Wednesday.
Speaker 7: I'm expecting to see the Federal Open Market Committee leave
Speaker 7: infrastrates unchanged four meetings in a row. We went into
Speaker 7: the blackout period saying that they basically were looking at
Speaker 7: not moving interest rates because they're waiting for more data
Speaker 7: and so they're not going to surprise the markets that
Speaker 7: we've gotten a lot more data that are interesting, but
Speaker 7: they're not anything that would move the Fed to any
Speaker 7: kind of emergency change in plans. But the question that
Speaker 7: everybody's going to be asking is what about the March
Speaker 7: meeting or what about the May meeting?
Speaker 5: Jay Poll not going to.
Speaker 7: Really answer those, but will he push back against the
Speaker 7: market expectations of at least cut in May.
Speaker 1: Well, let's talk about the data. Then that will lead
Speaker 1: to what you expect to see unchanged. About the economy,
Speaker 1: we got some pretty good encouraging news last week about inflation,
Speaker 1: about jobs.
Speaker 7: Yeah, the economic data that came in during the last week,
Speaker 7: during the blackout period when we can't ask them about
Speaker 7: it was extraordinarily strong. Fourth quarter GDP at three point
Speaker 7: three percent, much higher than the anticipated number and not
Speaker 7: down all that much from what we saw in the
Speaker 7: third quarter. Consumer spending with strong business investment picked up,
Speaker 7: and those would make the argument that the Fed wants
Speaker 7: to keep interest rates unchanged for longer, except that the
Speaker 7: inflation numbers have continued to go down, which suggests that
Speaker 7: maybe they can cut So now it gives them even
Speaker 7: more reason to say, we want more data to confirm
Speaker 7: what we're seeing, because if they had to make a
Speaker 7: great decision this time, it would be a close call.
Speaker 1: And that more data that they're going to get we're
Speaker 1: going to see on Friday.
Speaker 7: Yeah, and that's kind of interesting because we're going to
Speaker 7: see a slower job creation number, at least according to
Speaker 7: what the Bloomberg consensus of the survey is one hundred
Speaker 7: and sixty eight thousand. Now we'll see next week when
Speaker 7: we get some additional data from ADP and the ism
Speaker 7: numbers whether that changes people's But the unemployment rate is
Speaker 7: expected to rise a little to three point eight percent
Speaker 7: now the Fed is predicting that. But the wild card
Speaker 7: here is remember all those storms we had earlier in January,
Speaker 7: did they keep anyone from going to work? That's going
Speaker 7: to be an interesting question because you basically only have
Speaker 7: to show up or zoom in. I guess once during
Speaker 7: the week and you're counted as employed. So some people
Speaker 7: think that we may see this lower number because we
Speaker 7: had weather interruptions. But it's pretty hard for weather to
Speaker 7: make a huge difference in the overall number. So it's
Speaker 7: going to be interesting to see what we get and
Speaker 7: then what the Fed thinks of that. They want to
Speaker 7: see a slow down. If we don't get it, then
Speaker 7: that adds weight to the idea of higher for.
Speaker 5: Longer, higher for longer.
Speaker 1: Well, some jobs, certainly, I mean January is always volatile,
Speaker 1: as you've said before, but some jobs like housing, you
Speaker 1: have a big ice storm, I mean that just shuts
Speaker 1: down for two weeks.
Speaker 7: Yeah, well, it's going to be I hate to say
Speaker 7: interesting again because I've been saying that a lot, but
Speaker 7: it's going to be interesting again because we also got
Speaker 7: new home sales last week and they were stronger than
Speaker 7: anticipated in the month of December. But people don't go
Speaker 7: out looking for houses when there's a lot of snow
Speaker 7: on the ground or weather is bad or something like that.
Speaker 5: So they just had the holiday.
Speaker 7: So we may see a weather effect on that, and
Speaker 7: also on construction building starts, because it's hard during a
Speaker 7: blizzard to start digging a hole and putting up two
Speaker 7: by fours. So there may be some weather affected data,
Speaker 7: but it won't it won't be decisive for the fit.
Speaker 5: Oh a lot to look forward to.
Speaker 1: Well, our thanks to Michael McKee, Bloomberg International Economics and
Speaker 1: Policy Correspondent, and coming up on Bloomberg day Break weekend,
Speaker 1: we head to Europe for a preview of a policy
Speaker 1: decision coming from the Bank of England.
Speaker 5: I'm Tom Busby, and this is Blue.
Speaker 1: This is Bloomberg Daybreak Weekend, our global look ahead at
Speaker 1: the top stories for investors in the coming week. I'm
Speaker 1: Tom Busby in New York. Up later in our program
Speaker 1: we get an update on the health of the Chinese economy.
Speaker 1: But first, after the ECB and the Bank of Japan,
Speaker 1: investors will be looking for their first clues about the
Speaker 1: path for interest rates from the Bank of England in
Speaker 1: the coming days. Markets are expecting the first move in
Speaker 1: the summer, but Governor Andrew Bailey is not convinced the
Speaker 1: fight against inflation is over just yet. For more, let's
Speaker 1: go to London and bring in Bloomberg Daybreak eurobanker Caroline Hepger.
Speaker 2: Tom the latest inflation figures for the UK showed an
Speaker 2: optic in December, complicating the path ahead for the Bank
Speaker 2: of England. Whilst the BOE was the first major global
Speaker 2: central bank to start hiking interest rates, some analysts think
Speaker 2: that it'll be the loss to start cutting. The question
Speaker 2: of when is still the main preoccupation for markets, though
Speaker 2: we've been discussing this with many of our guests on
Speaker 2: Bloomberg Radio. Now here's what Charlotte Ryland, the head of
Speaker 2: investment at CCLA Investment Management, told us about her expectations
Speaker 2: for the Bank of England decision.
Speaker 8: Clearly they were a little late to the party in
Speaker 8: terms of sort of pushing the rates up. The UK
Speaker 8: economy seems to be somewhat more inflationary than others, and
Speaker 8: I imagine part of that is, you know, some of
Speaker 8: the dislocations we've had from the back of Brexit, the
Speaker 8: sort titled labor market that we have, which to do
Speaker 8: with migration as well, so you know, it's been a
Speaker 8: more difficult position for them, and it's clearly a much
Speaker 8: more vulnerable economy in terms of you know, the consumer
Speaker 8: as well. So it's a delicate to typrope theicult a
Speaker 8: balance between the inflationary pressure and not completely derailing the economy.
Speaker 2: So that's Charlotte Ryland's view. Now let's hit from Sam
Speaker 2: Linton Brown from BNP Parryber. He's talked to us about
Speaker 2: how the Bank of England is in a different position
Speaker 2: to other major global central banks.
Speaker 9: The Bank of England potentially could prove to be a
Speaker 9: little bit more of an idiosyncratic narrative this year because
Speaker 9: one could argue that the stickiness of inflation will prove
Speaker 9: to be more persistent than elsewhere. Our central case is
Speaker 9: that the Bank of England will begin cutting rates around
Speaker 9: the middle of this year, cut by one hundred and
Speaker 9: twenty five basis points. That's not too different to what
Speaker 9: market's currently pricing. But I'd say if there's a risk
Speaker 9: on the three ECB fed Bank of England where they
Speaker 9: actually end up doing less tightening because of inflation or
Speaker 9: less easy I should say because of inflation, I'd say
Speaker 9: it's the Bank of England.
Speaker 2: So that was Sam Linton Brown from BMP Parryber and
Speaker 2: those are some of the views from the markets in
Speaker 2: terms of the outlook for the Bank of England. On
Speaker 2: the data front, headline inflation was four percent in December
Speaker 2: for the UK. The PMI surveys for January brought better
Speaker 2: than expected readings, but the manufacturing sector still in contraction.
Speaker 2: So economists do widely expect the Bank of England to
Speaker 2: hold interest rates at their next meeting at five and
Speaker 2: a quarter of percent. So it is going to be
Speaker 2: the post meeting press conference which is going to have
Speaker 2: the potential to produce more answers. Perhaps. I've been discussing
Speaker 2: that with our senior economics reporter, Philip Aldrich. I started
Speaker 2: by asking him what he'll be watching out for in
Speaker 2: the decision from Governor Andrew Bailey and colleagues.
Speaker 10: Yeah, and I mean not just from Bailey, but so
Speaker 10: the whole nine member rate setting committee will they make
Speaker 10: their judgment. And the last meeting, which was about the
Speaker 10: second week of December, three of them voted for rate risers,
Speaker 10: the other six decided to cold rates. Now, since then,
Speaker 10: the inflation numbers have come down more quickly than expected.
Speaker 10: There's been a bit of a question of a few
Speaker 10: questions about whether we're going to have a brief technical recession.
Speaker 10: And these kind of messages or economic signals would suggest
Speaker 10: that the bankingland needs to start thinking about rate cards,
Speaker 10: and obviously that's what is happening in Europe at the
Speaker 10: European Central Bank and at the FED. So there is
Speaker 10: this So although we're not expecting anyone to well maybe
Speaker 10: one member may vote for a rate cut, we're not
Speaker 10: expecting the Committee as a whole to vote for a
Speaker 10: rate cut. This is going to It's something which which
Speaker 10: people are going to be looking out for for to
Speaker 10: see whether the Bank is now sort of following the
Speaker 10: other major central banks in sort of signaling that there
Speaker 10: may be a change of direction.
Speaker 6: Yeah.
Speaker 2: Absolutely, And the Bank of England decision comes fairly swiftly
Speaker 2: after the ECB interest rate decision. And yet is there
Speaker 2: a difference, a kind of gap opening up between the
Speaker 2: position of the UK and the Bank of England and
Speaker 2: as you say, the FED and.
Speaker 10: The ec well, the gap so the gap is it's
Speaker 10: not on the rate where the rate policy is I mean,
Speaker 10: obviously bank the Bank of England's up there with the
Speaker 10: FED and higher than the ECB. The gap is in
Speaker 10: in the future trajectory of policy. And the Fed has
Speaker 10: signaled that they are considering rate cuts. The ECB has,
Speaker 10: I mean the president of the ECB, Christine la Guard,
Speaker 10: said that the June May you know, there may be
Speaker 10: rate cuts starting in the summer, and obviously the market
Speaker 10: is now pricing these rate cuts in for all three
Speaker 10: central banks. What we are not, what we've not heard
Speaker 10: from the Bank of England is any kind of hint
Speaker 10: that they're going to move in this direction. So the
Speaker 10: last communication they had was all about, you know, we
Speaker 10: need to worry about potential for further inflation. We've got
Speaker 10: to be vigilant these kind of you know, further tightening
Speaker 10: maybe on the cards. Three people did vote for a
Speaker 10: rate rise, so it's so there. So their language is
Speaker 10: kind of out of step with the sort of consensus
Speaker 10: thinking at the moment that you know, there have been
Speaker 10: you know, wages are still being proving a little bit
Speaker 10: stronger than we're expected. You know we've had we've had
Speaker 10: in the very later stad we've had the pmis the
Speaker 10: business activity numbers that they have been relatively strong, and
Speaker 10: so that so, you know, markets are beginning to think
Speaker 10: that there's not going to be just masses of rate
Speaker 10: cuts over this year. But the bank has got to
Speaker 10: start signaling that this this is something that is on
Speaker 10: the agenda now.
Speaker 2: In terms of the UK and you know, whether it's
Speaker 2: in a special position or in a different position to others.
Speaker 2: The Red Sea. How do we think about the inflationary
Speaker 2: pressures coming from the Red Sea? Obviously the UK and
Speaker 2: with the US and taking action against you know who,
Speaker 2: the militants, you know, which is the thing that is
Speaker 2: threatening shipping. Does that particularly affect the UK more than
Speaker 2: other places?
Speaker 10: No, the sort of the immediate effect on us is
Speaker 10: the direct effect on us is not is not enormous.
Speaker 10: We don't we There was I can't remember the specific numbers,
Speaker 10: but there was some economic study which showed that we
Speaker 10: don't actually get that much of our imports directly directly
Speaker 10: goods imports that are directly coming through the Red Sea
Speaker 10: and the Sewers Canal, but there is this sort of second,
Speaker 10: second round hit. So the stuff we are importing is
Speaker 10: coming from countries which are going to be feeling the
Speaker 10: effect of this or to a much larger degree. It
Speaker 10: clearly is a risk. I mean, what we learned through
Speaker 10: the COVID pandemic was that when supply chains get disrupted,
Speaker 10: that can be an enormous cost to business, and that
Speaker 10: that cost does get passed on and we have seen
Speaker 10: indications of that and as so in the stronger PMI
Speaker 10: data that came out this week. There was also evidence
Speaker 10: that costs have started to rise again and the and
Speaker 10: the acceleration in cost was notable. Now you could you
Speaker 10: can draw the draw the correlation the causation from the
Speaker 10: sort of red sea disruption in the HUTI. So it's
Speaker 10: it is, it's definitely on something which people are being
Speaker 10: their alert to the to the risk. And you probably
Speaker 10: we're already potentially going to have a little increase in
Speaker 10: the inflation numbers for January which are not out yet.
Speaker 10: So if you have that and plus these worries about
Speaker 10: the supply chain disruption, that you could start to get
Speaker 10: people getting a bit nervous about the inflation beginning to
Speaker 10: pick up again.
Speaker 2: There's quite a big mismatch between market expectations for right
Speaker 2: cuts from the Fed and the FED signaling bit sort
Speaker 2: of less for the ECB. What's the picture for the
Speaker 2: mask could expectations around the Bank of England versus what
Speaker 2: we think they you know what they are planning and saying.
Speaker 10: Yeah, so it's about a percentage point cut so for
Speaker 10: this year and those cuts to start in May or June,
Speaker 10: depending on I think it's around June now. But the
Speaker 10: that is that is probably stronger than the Bank of
Speaker 10: England would like. Now we are inflation is likely to
Speaker 10: hit around two percent April May June time because we're
Speaker 10: going to have a big drop in the energy price
Speaker 10: cap and that that that fall in April, which it's
Speaker 10: a staggered three monthly reset, that fall in April is
Speaker 10: anticipated and it's expected to deliver this. You know, we
Speaker 10: finally back to inflation target. You know, there are concerns
Speaker 10: that it could then start accelerating later on, but the
Speaker 10: Bank of England is not going to want to just say, oh,
Speaker 10: we've hit two percent, right, job done, We're going to
Speaker 10: get back down to you know, three percent super quick.
Speaker 5: There.
Speaker 10: You know, there are underlying pressures. You've got so and
Speaker 10: core inflation which is still proving quite sticky.
Speaker 2: We also have to think that this Bank of England
Speaker 2: rate decision comes just a little bit ahead of the
Speaker 2: budget the beginning of March. Let's think about what the
Speaker 2: Chancellor is preparing to do. A lot of emphasis, a
Speaker 2: huge amount of pressure on the government to cut taxes
Speaker 2: from within their own party, from the sort of thinking
Speaker 2: that Suna can hunt have. I mean, how are you
Speaker 2: thinking about that? Could that be inflationary. How does that
Speaker 2: play into the economic picture for Britain.
Speaker 10: So for the Bank of England, they're not allowed to
Speaker 10: sort of take government policy until it is government policy,
Speaker 10: so people can assume what it would be. But so
Speaker 10: we've got the March the sixth budget. You would expect
Speaker 10: it's it's sort of it's a tried and tested political
Speaker 10: playbook that you would cut taxes, give consumers and households
Speaker 10: a boost and make everybody have there's a bit of
Speaker 10: feel good factor going into the election and they've obviously
Speaker 10: lagging in the polls terribly, so they need something. So
Speaker 10: I mean, i'd assume if at the moment it looks
Speaker 10: like the change in the sort of the rate forecast
Speaker 10: has probably given the Chancellor something between five and ten billion,
Speaker 10: I think Bloomberg economists Dan Hanson's got those sort of
Speaker 10: numbers of headroom, and so I mean, I would assume
Speaker 10: he's going to spend every penny of his headroom and more. Now,
Speaker 10: partly the motivation for this is not just to give
Speaker 10: people tax risers and make everyone feel better, but it's
Speaker 10: also to draw this dividing line, this battleground with labor
Speaker 10: and the more and the more money they spend. The
Speaker 10: more money that the Conservatives spent within their fiscal rules
Speaker 10: they they can, then they make it much more difficult
Speaker 10: for Labor to press ahead with their sort of twenty
Speaker 10: eight billion green investment plan without either having to ramp
Speaker 10: borrowing up much more, or cut taxes or do something else.
Speaker 10: And so it because of that commitment that the labor
Speaker 10: has made, it becomes more it becomes much more tricky
Speaker 10: for them. The smaller the headroom is that the government
Speaker 10: leaves them, and so then their then their manifesto commitment
Speaker 10: start to look a bit sketchy. So I mean, for
Speaker 10: two reasons, for the feel good factor, for the political battle.
Speaker 10: I'm expecting some big tax cuts, and obviously you know,
Speaker 10: beyond that there will be some inflationary effect there. But
Speaker 10: it's not I don't think that anyone would suggest that
Speaker 10: it's going to be, you know the same as the Ukraine,
Speaker 10: the post Ukraine kind of those kind of fears. It might,
Speaker 10: it might slow the rate of rate cuts down, but
Speaker 10: it wouldn't, you know, halt it.
Speaker 2: There is the nagging voice, I'll put it that way,
Speaker 2: of the ifs the Institute for Fiscal Studies say the
Speaker 2: government must be honest whichever stripe it is, that the
Speaker 2: next government has to be honest with the state of
Speaker 2: the public finances. I mean really a very kind of
Speaker 2: strongly worded criticism that the tax and spending plans look
Speaker 2: immensely difficult for Britain and that you know, the plans
Speaker 2: have to be laid out clearly to the public.
Speaker 10: Yeah, you know they've made this. I mean it's not
Speaker 10: the first time that there are just a government to
Speaker 10: be honest about the future trajectory for public finances. But
Speaker 10: the absolutely beyond the election there as I think it
Speaker 10: was obil's chair Richard Hughes said that there is no
Speaker 10: detail on the planned spending cuts and this behind spending
Speaker 10: cuts for the departments other than health and maybe one
Speaker 10: or two other protected departments, we're effectively a return to austerity.
Speaker 10: There's going to be real terms cuts and that in
Speaker 10: an environment where everything is already sort of all the
Speaker 10: public services are already crumbling to a degree, is it
Speaker 10: Is it really conceivable?
Speaker 2: So that was our senior economics reporter Philip Aldrick speaking
Speaker 2: to me, and we will have of course full coverage
Speaker 2: of the Bank of England's great decision on Thursday here
Speaker 2: on Bloomberg. I'm Caroline Hepget here in London. You can
Speaker 2: catch us every weekday morning for Bloomberg Daybreak. You at
Speaker 2: beginning at six am in London. That's one am on
Speaker 2: Wall Street.
Speaker 1: Tom, all right, thanks to Bloomberg day Break. You're a banker,
Speaker 1: Caroline Hepgar And coming up on Bloomberg Daybreak weekend, we
Speaker 1: take you to Asia for a very busy week on
Speaker 1: the economic front. There, I'm Tom Busby and this is Bloomberg.
Speaker 1: I'm Tom Busby in New York with your global look ahead.
Speaker 1: At the top stories for investors in the coming week.
Speaker 1: China struggling to shore up its economy and halt a
Speaker 1: six trillion dollar stock market route despite the best government efforts.
Speaker 1: Now with more eco data coming out in the coming days,
Speaker 1: Bloomberg Daybreak Asia co host Brian Curtis takes a look
Speaker 1: at the overall picture of the Chinese economy.
Speaker 3: Tom, we look forward to China's official PMIS in the
Speaker 3: coming week. It might be a little early to see
Speaker 3: a bounce in economic activity in China, but recent measures
Speaker 3: rolled out by the Chinese government have sparked a little
Speaker 3: more excitement about Chinese assets. The PBOC will for instance,
Speaker 3: cut the bank's reserve requirements by fifty basis points on
Speaker 3: February fifth. Bloomberg Economics called that a forceful response to
Speaker 3: a slowing economy, and that the Central Bank was likely
Speaker 3: to cut interest rates this quarter as well, all of
Speaker 3: which Bloomberg Economics said would give a positive jolt to confidence.
Speaker 3: Joining us for some insights about the challenges that China
Speaker 3: is facing and getting the economy and the markets rolling
Speaker 3: again is Jill deesis China Economy and Government editor at Bloomberg. Jill.
Speaker 3: Earlier I spoke with Bloomberg economist Eric Chu, who covers
Speaker 3: China and Hong Kong, and just to give us a
Speaker 3: little bit more spice in our discussion, I wanted to
Speaker 3: play some comments from him. I asked him if this
Speaker 3: might do the trick to turn the economy around.
Speaker 11: We think the positive move probably it's already too late,
Speaker 11: you know, even in January. I think many of the markets,
Speaker 11: including US, were expecting Central PBOC to cut the MPHO
Speaker 11: raid last week, right, but they didn't deliver. I think
Speaker 11: that's a big disappointment for the market and leading further
Speaker 11: leading to you know, the store market tumbo over the
Speaker 11: past week. So I think that might be one of
Speaker 11: the reasons, you know, triggering the PBOC, you know, to
Speaker 11: hasten the moves and trying to also give more confidence
Speaker 11: to markets.
Speaker 3: Eric j again from Bloomberg Economics, and I'm sitting with
Speaker 3: Jill Diesis, who's China Economy and Government editor at Bloomberg.
Speaker 3: So what do you make of that comment that perhaps
Speaker 3: it's a little bit too little, too late.
Speaker 12: Well, I think that at this point the whole thing
Speaker 12: with this economic slowdown really comes down to confidence, right,
Speaker 12: confidence in the economy, confidence among investors that the government
Speaker 12: can really turn things around. And I think that's a
Speaker 12: very fair point. I mean, look, we've seen over the
Speaker 12: past year several measures that the government has taken to
Speaker 12: try to get activity going again, to try to restore confidence.
Speaker 12: We saw a very unusual sovereign bond issuance from the
Speaker 12: middle of October of last year, trying to you know,
Speaker 12: get that out to fund more infrastructure projects, more construction,
Speaker 12: get things going again. We saw various measures to try
Speaker 12: to help restore confidence in the property sector, whether that
Speaker 12: included you know, lowering some mortgage rates, trying to encourage
Speaker 12: people to start buying homes again, incentify them in that way,
Speaker 12: and we really haven't seen anything that's led to a
Speaker 12: more meaningful turnaround in what's happening in the economy. I
Speaker 12: think that's really just been underscored over the past few
Speaker 12: weeks with how much more of a sell off we've
Speaker 12: seen in the stock market, right, I Mean that's sort
Speaker 12: of really really underscores that issue with sentiment here. So
Speaker 12: it's difficult to see what exactly the government can do
Speaker 12: to restore that level of confidence, but it does seem
Speaker 12: clear at least, or the at least the message that
Speaker 12: investors are sending is that what has been done so
Speaker 12: far isn't enough. And I guess we're all just not
Speaker 12: really sure where to go from here, given.
Speaker 3: The property crisis has cut pretty deep. I mean, it's
Speaker 3: the main source of wealth for a lot of Chinese households.
Speaker 3: Is it the type of thing that we think could
Speaker 3: be turned around quickly? And is it just that investors
Speaker 3: should be more patient?
Speaker 12: Well, I think at this point the Chinese economy is
Speaker 12: really kind of undergoing a pretty structural change, right, And
Speaker 12: I think that a lot of top polity makers have
Speaker 12: acknowledged that that the sector real estate, which used to
Speaker 12: be you know, used to comprise a quarter, if not
Speaker 12: a third, of all GDP in the world's second largest
Speaker 12: economy just isn't really ever going to get back there,
Speaker 12: and so there's a lot of focus among top officials
Speaker 12: about what exactly needs to become these new drivers of growth,
Speaker 12: whether that's putting more into new energy. Electric vehicles is
Speaker 12: a really promising area, of renewables is a really promising area,
Speaker 12: But obviously that kind of thing takes a lot of time.
Speaker 12: I think that if you're an investor, you want to
Speaker 12: see more progress on getting activity going again. You want
Speaker 12: to see some indication that you're at least going to
Speaker 12: get households to start spending again. But ultimately, yes, I
Speaker 12: think it's difficult when you're seeing some of these more
Speaker 12: immediate issues with a deep fallout from the property crisis,
Speaker 12: you know, not necessarily translating into an immediate fix, and
Speaker 12: knowing that those longer term transitional phases are still obviously
Speaker 12: quite a bit of a ways off.
Speaker 3: And there is also a little bit of contrast between
Speaker 3: some of these measures that have been put in place
Speaker 3: or called for by the government and then you know
Speaker 3: tightness from the regulators. For instance, when the PBOC made
Speaker 3: the announcement about cutting the triple R. We also had
Speaker 3: another story on the Bloomberg Terminal about how Chinese officials
Speaker 3: are being told in the provinces that this belt tightening
Speaker 3: posture by President Shijen Ping is here to stay and
Speaker 3: that leaders are just going to have to get used
Speaker 3: to it. The norm is going to be frugality. Now
Speaker 3: that's not necessarily something negative, but it contrasts a little
Speaker 3: bit with wanting to get the animal spirits going right.
Speaker 12: I think that those do contrast with each other, but
Speaker 12: they're ultimately still two different strains. So from the regulatory perspective, yes,
Speaker 12: we've seen obviously over the past few years, an incredible
Speaker 12: crackdown on various sectors, reigning in big tech, reigning in,
Speaker 12: you know, the education sector, all of these different areas.
Speaker 12: I think that that's you know, sort of one one
Speaker 12: piece of this. Obviously, property is another part of that,
Speaker 12: going back to, you know, here of the three red lines,
Speaker 12: and we've seen sort of this fallout in terms of
Speaker 12: how much confidence investors, businesses, Foreign investment in particular has
Speaker 12: really sort of eroded over the over the past few years.
Speaker 12: I think that you know, the government has also has
Speaker 12: tried to send multiple messages saying that, you know, they
Speaker 12: want to be a little bit more you know, discerning
Speaker 12: about regulatory policy. They don't want to catch as many
Speaker 12: people by surprise. But they're obviously still kind of struggling
Speaker 12: with that, right. I mean, you just have to go
Speaker 12: back to December, so not too long ago, when there
Speaker 12: was a surprise gaming regulation that was announced and then
Speaker 12: caused a pretty severe stock drop for ten cents and
Speaker 12: some other major tech giants really sort of sent some
Speaker 12: jitters through the markets there. So I think that on
Speaker 12: that side of things, the government still hasn't quite figured
Speaker 12: out how to guide people through this idea that the
Speaker 12: regular Tory crackdown is easing up, or at least that
Speaker 12: they're going to better telegraph how exactly some regulations are
Speaker 12: coming in place. I think that on the monetary policy side,
Speaker 12: at least, which this is what you saw recently from
Speaker 12: the PBOC, is there actually in a really difficult position
Speaker 12: as well. I mean, Eric was just saying a couple
Speaker 12: of minutes ago that they disappointed earlier in January saying
Speaker 12: that they weren't going to cut policy rates even though
Speaker 12: that was very widely expected. And now they're trying to.
Speaker 12: They sort of front ran this triple R cut, this
Speaker 12: reserve requirement ratio cut. We really haven't seen that ever before.
Speaker 3: For well, and this was more dramatic fifty basis points say,
Speaker 3: even when they were thinking about cutting the interest rate,
Speaker 3: it was only like ten basis points, right, and then
Speaker 3: we got nothing. So it's a little surprising. It's at
Speaker 3: a little bit underwhelming, I think two investors. However, in
Speaker 3: this past week we saw a little bit of a
Speaker 3: pickup in appetite four Chinese assets. Is it sustainable?
Speaker 12: Well, I think we have to see where else the
Speaker 12: PBOC really goes at these measures, right. I actually thought
Speaker 12: what was really interesting from this PBOC press conference with
Speaker 12: the governor was not just that you see this reserve
Speaker 12: requirement ratio cut being front ran bigger than expected, but
Speaker 12: also it really seemed like they were focusing a lot
Speaker 12: more on structural policies to kind of guide credit into
Speaker 12: more of their favored sectors. So, in addition to the
Speaker 12: triple R cut, Pengong Sheng, the PBOC governor, also announced
Speaker 12: that they were cutting some re lending rates so that
Speaker 12: they could, you know, better benefit make it easier to
Speaker 12: loan to I think the agricultural sector was one. They
Speaker 12: were setting up a new credit market to promote credit
Speaker 12: for green divisions, elderly care, that kind of thing. So
Speaker 12: you're actually seeing in some ways the Central Bank go
Speaker 12: all the way back. You know, you'd have to go
Speaker 12: back several years, I think to this idea that they're
Speaker 12: more interested in using monetary policy tools to direct credit
Speaker 12: themselves to certain sectors. I don't think that's something that
Speaker 12: we've really seen from the Central Bank in quite a while.
Speaker 3: They brought in the use of commercial property loans for developers.
Speaker 3: Now this would be new money, I guess, being able
Speaker 3: to go to developers to help them pay off some
Speaker 3: of their debts. Is that consistent with the previous theme.
Speaker 12: Yes, well, I think it's consistent with the direction that
Speaker 12: it seems that the Central Bank has kind of been going,
Speaker 12: at least over the past few months. So again, you know,
Speaker 12: we saw much longer term change or shift from the
Speaker 12: PBOC to build more of an interest rate cord or
Speaker 12: you know, addressed policy rates rather than some of these
Speaker 12: other structural policies. I think that's begun to change over
Speaker 12: the past few months. We didn't one thing that we
Speaker 12: didn't see out of this recent press conference with the PBOC,
Speaker 12: was you know, turning to other types of tools. There's
Speaker 12: there's this one called pledged supplemental lending, which is essentially
Speaker 12: funneling money into policy banks so that they can you know,
Speaker 12: help fund you know, property related sectors in particular. We
Speaker 12: didn't see that too much, although they have been making
Speaker 12: use of that tool recently. So I do think that,
Speaker 12: you know, even if you're seeing a shift, something that's
Speaker 12: been happening at least over the past couple of months.
Speaker 3: Let's go back to Bloomberg economist Derek you for a moment.
Speaker 3: I asked him about the mix that we've seen between
Speaker 3: fiscal and monetary stimulus.
Speaker 11: The monetary easing itself, you know, even interestury, CRD triple
Speaker 11: ar cuds. Yeah, that's give you something, but not that huge.
Speaker 11: I think our view is the fiscal side needs to
Speaker 11: do more compared to last year, because I think even
Speaker 11: PBOC steps up easing, it's still to be you know, incremental.
Speaker 11: Somebody is calling for PBOC to cutting trity to zero, right, so,
Speaker 11: but I don't think people are going to move that aggressively.
Speaker 11: So still on the monetary side, we don't expect a
Speaker 11: huge boost to the growth. More it's from the fiscal side,
Speaker 11: and fundamentally, I think even with those more physical stimulus
Speaker 11: that's probably still not enough. I think fundamentally it's the
Speaker 11: policy direction. It's a policy you know, orientation that's most
Speaker 11: important for the market right now.
Speaker 3: So we're talking about some monetary stimulus measures, some fiscal
Speaker 3: stimulus measures, and then communication measures are building confidence. Of
Speaker 3: the those three, what do you see as most important, Jill.
Speaker 12: I will say on the fiscal stimulus side, that's obviously
Speaker 12: I think going to become more important this year. There's
Speaker 12: a growing consensus among a lot of economists, including obviously
Speaker 12: Bloomberg Economics, that there does need to be more fiscal stimulus.
Speaker 12: Maybe we aren't going to see the type of massive
Speaker 12: stimulus that we saw in the aftermath of the financial crisis,
Speaker 12: where you just see tons and tons of money being
Speaker 12: pumped into the economy, but we do know that, you know,
Speaker 12: officials are discussing various measures. Bloomberg News reported very recently
Speaker 12: that there's some debate over the issuance of some additional
Speaker 12: special sovereign debt to sort of fund some infrastructural projects.
Speaker 12: So there are funding avenues there, But ultimately a lot
Speaker 12: of those reports haven't really moved the needle much, right,
Speaker 12: So I think that brings it back to this idea
Speaker 12: of that communication issue. I mean, whatever policymakers are saying
Speaker 12: right now, clearly markets aren't really taking that as you know,
Speaker 12: any kind of you know, reason to be more confident
Speaker 12: in the long term. You might see some little jolts
Speaker 12: here and there in terms of markets, maybe the Pongong
Speaker 12: Shing comments, you know, just just recently did boost you know,
Speaker 12: equity markets for you know, a couple of hours or
Speaker 12: a day or what have you. But yes, I think
Speaker 12: that it's more about that idea of how do you
Speaker 12: project that level of confidence in that policy direction, how
Speaker 12: do you present a clear vision to the public, to
Speaker 12: your investors about where this economy is going. That's really
Speaker 12: what we need to see here.
Speaker 3: Jill, thank you so much for joining us. Jill desis
Speaker 3: China Economy and Government editor at Bloomberg. I'm Brian Curtis
Speaker 3: along with Doug Chrisner. You can catch us every weekday
Speaker 3: here for Bloomberg Day Break Asia, beginning at nine am
Speaker 3: in Hong Kong and eight pm on Wall Street.
Speaker 1: Tom Well, our thanks to Bloomberg's Daybreak Asia co host
Speaker 1: Brian Curtis, and that does it for this edition of
Speaker 1: Bloomberg day Break Weekend. Join us again Monday morning at
Speaker 1: five am Wall Street Time for the latest on markets
Speaker 1: overseas and the news you need to start your day.
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