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Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world, and straight ahead on the program,
Speaker 2: a look at US retail sales and what that data
Speaker 2: point may mean for Federal reserve policy moving forward. I'm
Speaker 2: Tom Busby in New York.
Speaker 1: I'm Stephen Carolyn London. But we're looking ahead to the
Speaker 1: UK's new Prime minister hosting his neighbors for a meeting
Speaker 1: of the European political community.
Speaker 3: And I'm Brian Curtis in Hong Kong. We look ahead
Speaker 3: to China's Third Plan of and whether it's steady as
Speaker 3: she goes on policy or surprising new developments.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby, and we begin
Speaker 2: today's program with US retail sales for June. That data
Speaker 2: out on Tuesday morning, eight thirty am Wall Street Time.
Speaker 2: And after more signs that inflation is cooling, how might
Speaker 2: that move the needle for FED policy going forward? Well,
Speaker 2: for more, we're joined by Estello, us economist with Bloomberg Economics. Well, Estelle,
Speaker 2: after two months in a row of pretty lackluster retail spending,
Speaker 2: what is your outlook for retail sales in June.
Speaker 5: We're actually expecting another month of very weak retail sales
Speaker 5: for June. We're expecting the headline retails print to print
Speaker 5: at negative zero point three percent. We're expecting the more
Speaker 5: important control group retail sales figure, that's the retail sales
Speaker 5: figure that strips out more of the volatile components of
Speaker 5: the retail sales data, to print at zero percent. So
Speaker 5: that's flat reading of retail sales. Now, the negative zero
Speaker 5: point three percent headline retail sales reading we're expecting partially
Speaker 5: reflects a really sharp decline in auto sales in the
Speaker 5: month of June. Now, part of this is reflective of
Speaker 5: the fact that a lot of auto dealers in the
Speaker 5: month of June saw a cyber attack on the software
Speaker 5: that they use to process sales, so that affected the
Speaker 5: top line sales figures we saw in June for automobiles
Speaker 5: and may not actually be reflective of a sharp pullback
Speaker 5: in consumer spending, but that's in the data. So that's
Speaker 5: why we're forecasting a negative numbering you mentioned that we've
Speaker 5: already had two consecutive months of week retail sales prints.
Speaker 5: If our forecast for the June retail sales is correct,
Speaker 5: it's going to show that consumer spending is very much
Speaker 5: a slowing trend. And what that mainly is reflecting is
Speaker 5: that consumers are very much feeling the pressure from the
Speaker 5: Federal Reserve's high interest rates. The Fed is very much
Speaker 5: waiting to have more confidence that inflation is going towards
Speaker 5: this two percent target. And how consumer spending plays into
Speaker 5: that is that as we see consumers being stressed about
Speaker 5: by high interest rates, they're pulling back spending and a
Speaker 5: lot of retailers are reacting to that by lowering prices.
Speaker 2: Why don't we talk about the prices, because we have
Speaker 2: seen airfares go down, we have seen used car prices
Speaker 2: go down. Auto insurance of course still you know significantly higher,
Speaker 2: but we did see there is some hope for consumers.
Speaker 2: We saw a significant slow down in inflation in June.
Speaker 2: Now most of that on housing costs and rents, but
Speaker 2: that's a big part of household budgets. How will that
Speaker 2: impact people spending?
Speaker 5: As health process come down, that's going to free up
Speaker 5: a little more disposable income for consumers. It's going to
Speaker 5: ease off the pressure on consumers, but overall, it's not
Speaker 5: going to change the fact that consumers are feeling a
Speaker 5: little less flushed compared to prior to the pandemic. So
Speaker 5: over the past you know, six months, consumers have been
Speaker 5: spending more than their incomes have been growing. And as
Speaker 5: the label market cools further, we're expected to consumers to
Speaker 5: feel a little more cautious about their spending, even if
Speaker 5: their other household costs are coming down.
Speaker 1: But at least there is hope.
Speaker 2: There is hope and a lot of talk now, especially
Speaker 2: after last week's inflation data, that in September, when we
Speaker 2: have a lot of back to schools spending, we have
Speaker 2: a lot of new cars coming on dealership lots that
Speaker 2: if there is a rate cut from the FED, and
Speaker 2: it was a pretty dubbish tone last week in annual
Speaker 2: testimony by Chairman Powell to Congress that we really could
Speaker 2: you know, signal a real boost for the US consumer
Speaker 2: through the end of this year.
Speaker 5: Though, well, that's not how we're looking at things right now.
Speaker 6: So basically we still have expectations for our VET cut
Speaker 6: in September. But usually if you look at his historical data,
Speaker 6: it takes time for consumers to feel confident again. If
Speaker 6: you look at the underlying drivers of consumer spending, consumers
Speaker 6: usually spend when they feel like their income can support it,
Speaker 6: and income growth is supported by a strong labor market.
Speaker 6: Right now, even if the FED cuts in September, we're
Speaker 6: still expecting labor market to slow and consumers to not
Speaker 6: feel at support from a FED cut until late twenty.
Speaker 2: Okay, Well, June retail sales data out Tuesday morning. That's
Speaker 2: ahead of Wall Street's opening bell and our thanks to Estello,
Speaker 2: us economist with Bloomberg Economics. All right, we move next
Speaker 2: to corporate earnings and streaming giant Netflix posting its latest
Speaker 2: quarterly results this Thursday. Key for investors how the companies
Speaker 2: multiple growth levers like live comedy shows, live sporting events.
Speaker 2: It's ad supported tier and subscription price hikes has impacted
Speaker 2: revenue and for all that and more. We're joined by
Speaker 2: Githa ragenathin Bloomberg Intelligence analyst on US media. Well, getha,
Speaker 2: what are you expecting to see from Netflix?
Speaker 7: Tom?
Speaker 8: We are really expecting a blockbuster quarter. So if you
Speaker 8: just look at Netflix's performance over the past few months,
Speaker 8: I would say Netflix is firing on all cylinders. The
Speaker 8: company is in the strongest position that it's ever been,
Speaker 8: I think fundamentally, I think competitively as well as financially.
Speaker 8: We continue to see very good subscriber momentum. Remember they
Speaker 8: added something like nine point three million subscribers in the
Speaker 8: first quarter. Obviously, we don't expect the same level of
Speaker 8: subscriber gains in the second quarter, but we think it's
Speaker 8: going to be fairly strong. We think it's going to
Speaker 8: be close to almost six million. And that's on the
Speaker 8: back of a lot of initiatives that the company has introduced.
Speaker 8: So they have this widespread password crackdown, and of course
Speaker 8: they have this new ad supported tier, which we think
Speaker 8: has been working really well for them.
Speaker 2: And are the subscriber adds global? How are they doing
Speaker 2: in the US and how are they doing elsewhere?
Speaker 8: They're actually surprisingly strong tom in the US. And remember
Speaker 8: the US is a fairly saturated market, and we're still
Speaker 8: seeing pretty pretty good growth. Remember Netflix now actually at
Speaker 8: about eighty million subscribers, actually has more subscribers than the
Speaker 8: traditional TV bundles. So Netflix has very much become the
Speaker 8: go to option, and if you're thinking about TV viewing,
Speaker 8: Netflix really is the first choice and is the anchor
Speaker 8: I would say for most consumers when it comes to
Speaker 8: the living room. So we're seeing very good growth in
Speaker 8: the US, given that it's a saturated market, but obviously
Speaker 8: majority of the growth still comes from the international markets.
Speaker 2: And let's talk about some of these newer initiatives from Netflix.
Speaker 2: Christmas Day may never be the same again, right with
Speaker 2: this deal to stream live NFL games, And we saw
Speaker 2: this John Mulaney, Everyone's in LA five or six live shows,
Speaker 2: comedy shows. It's all about something Netflix has never done before, right,
Speaker 2: Advertising revenue.
Speaker 8: Oh absolutely, I mean this is where I think investors
Speaker 8: are getting really really excited about the future potential for
Speaker 8: this company, because we know subscription growth, we know they've
Speaker 8: really kind of delivered on subscription growth, but advertising is
Speaker 8: a whole new area for them, and they are really
Speaker 8: doing things to kind of really boost that revenue. So
Speaker 8: they've moved into live event sports programming.
Speaker 7: In a huge way, obviously with this NFL deal.
Speaker 8: Obviously that's going to be something very very attractive to advertisers,
Speaker 8: especially since the advertising subscription tier is priced very economically,
Speaker 8: very competitively at seven dollars a month, So we think
Speaker 8: a lot of people will sign on. And they're doing
Speaker 8: lots of different things, as you just pointed out, obviously
Speaker 8: the comedy shows.
Speaker 7: You had the Tom Brady roast.
Speaker 8: You know, we have a Mike Tyson Versus Jake Paul
Speaker 8: event that is coming up sometime in November. So they're
Speaker 8: doing a lot of things in terms of content, really
Speaker 8: kind of broadening their content appeal quite aggressively.
Speaker 2: And when I turn on Netflix, which I have at home,
Speaker 2: I see a lot more international shows and some of
Speaker 2: them have been tremendous hits here in the US, whatever
Speaker 2: language they're in. It's incredible how this growth is everywhere.
Speaker 8: Oh absolutely, And you know that is translating into revenue growth,
Speaker 8: that is translating into subscriber growth, but most importantly, Tom,
Speaker 8: that is translating into engagement. And really this is something
Speaker 8: that Netflix has been driving home now for so many quarters,
Speaker 8: so many years. They want to see people come to
Speaker 8: their platform and then never leave the platform, because that
Speaker 8: is how they can get to upsell so many more
Speaker 8: you know, new products, whether it's gaming, whether it's advertising,
Speaker 8: as they kind of expand into new categories. And we're
Speaker 8: seeing that engagement is very very strong for Netflix, and
Speaker 8: of course a lot of local language content is definitely helping.
Speaker 8: So just in the second quarter, we saw you know,
Speaker 8: of course, Bridgerton was the most watched show, but we
Speaker 8: also saw some of you know, the Korean language dramas
Speaker 8: Queen of Tears for instance, performing very very well, and
Speaker 8: we're probably going to see more of that as Quid Game.
Speaker 8: The second season of Squid Game comes out a little
Speaker 8: bit later this year.
Speaker 2: Now, also, Netflix, the success of all these shows, the
Speaker 2: success you know, the revenue streams they have, it has
Speaker 2: forced other streamers to look for partnerships just to compete
Speaker 2: even close to the level of Netflix.
Speaker 8: Yeah, and that actually works so well for for Netflix,
Speaker 8: tom because you know, obviously, originally they were investing very
Speaker 8: very heavily in you know, their own content, with what
Speaker 8: we call original content. But now we're seeing a much
Speaker 8: more kind of balanced mix, and when they go for
Speaker 8: more licensed content, we see the effects in terms of
Speaker 8: the bottom line because it's it's much cheaper, you know,
Speaker 8: it's it's content that kind of travels well. It is
Speaker 8: time tested content, and obviously we're seeing free cash flow
Speaker 8: and operating profit get a huge boost from them being
Speaker 8: far more rational when it comes to content costs. So
Speaker 8: it's really kind of not only helping them kind of
Speaker 8: build their competitive mode getting all these content titles from
Speaker 8: other producers of content, but it is also kind of
Speaker 8: helping them actually strengthen their bottom line.
Speaker 2: It's big in a bottom line. Those shares of Netflix
Speaker 2: up about forty percent so far this year. Where do
Speaker 2: you think it heads for the remainder of twenty twenty four.
Speaker 8: So I think, you know, we're going to see continued
Speaker 8: momentum and we're seeing.
Speaker 7: That with on the subscriber side.
Speaker 8: But I think the real big catalyst that could potentially
Speaker 8: happen in the second half of the year is a
Speaker 8: price increase. So we have not seen Netflix increase their
Speaker 8: prices on the standard tier, which is the fifteen dollars
Speaker 8: fifty cent standard product that they offer in the United States.
Speaker 8: We haven't seen them increased prices on that tier now
Speaker 8: for almost about two years, so they're definitely due for
Speaker 8: a price increase. And we've seen price increases across the board.
Speaker 8: We've seen it at Spotify, We've seen it, you know,
Speaker 8: at Max, a lot of the rival services are increasing
Speaker 8: you know, prices. So just kind of given Netflix's low
Speaker 8: rates of churn, we definitely think that they are going
Speaker 8: to raise their prices very soon. And as we see
Speaker 8: you know, those price increases returned to kind of the
Speaker 8: normal cadence. Netflix obviously then has ample room to sustain
Speaker 8: double digit annual revenue growth and obviously huge levels of
Speaker 8: operating margin expansion.
Speaker 4: Well.
Speaker 2: Earnings for second quarter out this Thursday for Netflix. Our
Speaker 2: thanks to Getha raghanoffin Bloomberg Intelligence analysts on US media.
Speaker 2: Coming up on Bloomberg day Break weekend, we look ahead
Speaker 2: to the UK's new Prime Minister hosting his neighbors for
Speaker 2: a meeting of the European political community. I'm Tom Busby,
Speaker 2: and this is Bloomberg. This is Bloomberg day Break Weekend,
Speaker 2: our global look ahead at the top stories for investors
Speaker 2: in the coming week. I'm Tom Busby in New York.
Speaker 2: Up later on our program, we look ahead to a
Speaker 2: major policy meeting for top officials in China, but first,
Speaker 2: the European Political Community Meeting takes place in the UK
Speaker 2: this week, as Keir Starmer, the country's newly elected Prime Minister,
Speaker 2: brings dozens of high level lawmakers from across Europe together
Speaker 2: discussing shared challenges like Russia's war against Ukraine illegal immigration,
Speaker 2: even as many of those leaders face political challenges in
Speaker 2: their own countries. For more, let's go to London and
Speaker 2: bring in Bloomberg Daybreak Europe anchor Stephen Carroll.
Speaker 1: Tom In only his second week as Prime Minister, Keir
Speaker 1: Starmer will host European leaders at Blenham Palace for the
Speaker 1: fourth European Political Community Meeting. The EPCs a forum for
Speaker 1: European Union countries and their neighbors to meet. It's twice
Speaker 1: yearly gatherings are hosted alternately by a country that's in
Speaker 1: the EU and one that isn't. Choosing the Oxfordshire stately
Speaker 1: home as the backdrop for these discussions may itself be
Speaker 1: an indication of Starmer's in tensions. Known as the birthplace
Speaker 1: of Winston Churchill, the Prime Minister may be hoping to
Speaker 1: draw inspiration from Britain's revered wartime leader. The plight of
Speaker 1: Ukraine is likely to be high on the agenda in discussions,
Speaker 1: especially following the Russian bombing of a children's hospital in Kiev,
Speaker 1: but domestic tensions in other countries may overshadow these talks.
Speaker 1: In France, President Macron remains in a vulnerable position after
Speaker 1: his Centrist alliance lost its relative majority in the country's
Speaker 1: recent parliamentary elections. In Germany, Chancellor Olaf Schultz's position has
Speaker 1: been weakened by a bruising defeat in last months European
Speaker 1: Parliament vote. In fact, Kirs Starmer cuts a rare figure
Speaker 1: in Europe as a leader with a clear mandate and
Speaker 1: majority ready to implement his agenda. The UK Prime Minister's
Speaker 1: approach to foreign and defense policy is something that we've
Speaker 1: been discussing with Jamie She, associate fellow at Chatham House
Speaker 1: and a former NATO official. He started by offering his
Speaker 1: thoughts on Kiir Starmer's assertion that Ukraine can use British
Speaker 1: missiles to strike targets inside Russia.
Speaker 9: Well, I think it's obviously good news for President's Vilenski
Speaker 9: because clearly at the time when Theussians have been massing
Speaker 9: their forces just on their side of the border for
Speaker 9: their offensives which have been taking place as you can
Speaker 9: see in the Dombas region up near Kharkiv. If Ukraine
Speaker 9: is going to really be able to defend itself, it
Speaker 9: has to be able to strike the Russian fuel dumps,
Speaker 9: the Russian storage facilities, their command and control, their communications,
Speaker 9: their headquarters on Russian territory to disrupt their offensive preparations.
Speaker 9: Ukraine has also had some success in attacking Russian airfields,
Speaker 9: taking out some Russian strategic bombers very far away from
Speaker 9: the Russian Ukraine border, and also those Russian fuel and
Speaker 9: energy facilities that I was referring to earlier. So I
Speaker 9: think Kairstarma has given President of Lanski a shot of
Speaker 9: the arms to the extent and obviously, if Russia believes
Speaker 9: it has full license from Russia to attack anything it
Speaker 9: likes in Ukraine, the Ukrainian's cause of self defense have
Speaker 9: to be able to strike back against the significant Russian
Speaker 9: military targets, but obviously not Russian civilian targets. I think
Speaker 9: Kiyostarma and other NATO leaders will draw a redline on
Speaker 9: that the strikes have to be against the genuine military targets.
Speaker 1: Does this though, on the question of striking military targets
Speaker 1: open up divisions between the US and what France and
Speaker 1: the UK are now saying about the use of weapons
Speaker 1: to strike military targets inside Russia.
Speaker 9: Well, since the beginning of the war, the Europeans have
Speaker 9: often been out ahead of the United States in minery space.
Speaker 9: For example, they decided the UK to provide tanks first,
Speaker 9: a long time before the United States decided to do
Speaker 9: the same. Similarly, with these long range artillery, these cruise
Speaker 9: missilesy storm Shadows or the French scalps that we're talking
Speaker 9: about now, the Europeans, with the Dutch and Danes, were
Speaker 9: the first two across the Rubican when it came to
Speaker 9: S sixteen aircraft, and the United States followed. So there
Speaker 9: is often in NATO perception that it's always the Americans
Speaker 9: who are out in front and the Europeans sort of
Speaker 9: follow willy nilly sooner or later. But this time it
Speaker 9: is the other way. But the fact of the matter
Speaker 9: is that Biden has also recently shown a little bit
Speaker 9: of flexibility, allowing the Ukrainians to use the long range
Speaker 9: US attackers artillery shells against the targets on Russian territory,
Speaker 9: but Biden has said that he doesn't want these to
Speaker 9: go too deep into Russia. He wants them really to
Speaker 9: be restricted to places like Crimea and just those Russian
Speaker 9: facilities over the border preparing for the offensive which I
Speaker 9: was referring to earlier. So the United States is sort
Speaker 9: of halfway there, but it tends to sort of follow
Speaker 9: where the Europeans lead on this.
Speaker 10: One, right, So the big takeaway so far is that
Speaker 10: these NATA allies have promised those five long range air
Speaker 10: defense systems for Ukraine. But is NATO actually doing enough
Speaker 10: for Ukraine to win the war?
Speaker 9: Well, maybe not enough in the past, because the effort
Speaker 9: was largely left to individual allies acting bilaterally, signing bilateral
Speaker 9: agreements with Ukraine like the one that Rishie sunakas very
Speaker 9: early on with a Kiev and basically giving the Ukrainians
Speaker 9: what they have in their stocks, not always what the
Speaker 9: Ukrainians need on a priority basis. But NATO is now
Speaker 9: stepping up, and I think the big headline from this
Speaker 9: Washington summit is that maybe too late, but still NATO
Speaker 9: is now going to set up a command in Wisbaden
Speaker 9: in Germany with about eight hundred NATO military planners whose
Speaker 9: job it will be now to make this a much
Speaker 9: more coordinated, organized, planned effort. For example, Ukraine is currently
Speaker 9: operating about one hundred and forty different types of weapons
Speaker 9: systems supplied by the West. This doesn't make sense because
Speaker 9: it means one hundred and forty different supply chains, maintenance
Speaker 9: systems and so on doesn't help the Ukrainian war effort.
Speaker 9: So I think what NATO is going to do now
Speaker 9: is organized this better in terms of what Ukraine needs,
Speaker 9: ensure that the delivery is more timely and more consistent,
Speaker 9: reduced these one hundred and forty different systems to say
Speaker 9: twenty or thirty which Ukraine could actually maintain and operate.
Speaker 9: And what NATO says also is that this effort is
Speaker 9: going to be a bridge to a future Ukrainian membership
Speaker 9: of the Alliance, because it's not just going to be
Speaker 9: about the short term provision of weapons to Ukraine. It's
Speaker 9: going to also be about the long term restructuring of
Speaker 9: the Ukrainian army to look less like an old Soviet
Speaker 9: army and more like a modern Western army able to
Speaker 9: integrate into NATO in the fullness of time.
Speaker 1: That was Jamie shaef Fro Chatham House speaking to Jamani
Speaker 1: Brassacci and me on Bloomberg Radio. So what's in store
Speaker 1: at this upcoming European political community meeting and will ker
Speaker 1: Starmer be able to charm his EU counterparts into a
Speaker 1: closer relationship. I've been discussing this and more with Bloomberg's
Speaker 1: UK Politics editor Alex morales. I started by asking him
Speaker 1: what Kir Starmer may be hoping to achieve during this event.
Speaker 11: Well, mindful that he's just coming back from the NATO
Speaker 11: summit where he's met a lot of the same people.
Speaker 11: I mean, this really is about sort of meeting a
Speaker 11: lot of the European leaders who will be working with
Speaker 11: he hopes for the next five or ten years, but
Speaker 11: head to head, face to face, discussing some of the
Speaker 11: issues that they have in common, so you know, some
Speaker 11: of their points of divergence. And he really wants to
Speaker 11: change the tone in the way that the UK develops
Speaker 11: its relationship with the European Union and other more wider
Speaker 11: European countries.
Speaker 1: How much of a test there's going to be for
Speaker 1: him in his new job as Prime Minister it's his
Speaker 1: first time hosting such an international summer and it's quite
Speaker 1: a lot of you know, as you say, friends and neighbors, it's.
Speaker 11: Quite a lot of leaders. But it's also a sort
Speaker 11: of quite fairly informal summit. They don't have a set
Speaker 11: communicate that they want to agree, so he doesn't have
Speaker 11: a piece of paper that he needs to achieve by
Speaker 11: the end of it.
Speaker 1: It really is just.
Speaker 11: About, you know, getting that time to speak face to
Speaker 11: face with other leaders and to discuss all these different
Speaker 11: issues that they need to address.
Speaker 1: And this is one of the things that of course
Speaker 1: we know as a priority for the new Labor government.
Speaker 1: They want better ties with the European Union versus what
Speaker 1: there was under the Conservatives. Does this perhaps provide an
Speaker 1: opening for care Starmor to make progress on some key issues.
Speaker 11: Yeah, I mean definitely think. I don't think we'll be
Speaker 11: getting any sort of firm agreements out of it, but
Speaker 11: clearly so one of the big things he wants to
Speaker 11: talk about. We know that he's going there with this
Speaker 11: sort of proposal for fence and security packed with the
Speaker 11: European Union, so yes, he wants to tighten those ties.
Speaker 11: But obviously there are a lot of issues like immigration
Speaker 11: he wants to talk about. It's not free movement, but
Speaker 11: he wants to help, for instance, British performing artists to
Speaker 11: be able to tour more freely in Europe. There are
Speaker 11: all these sort of issues which have risen up since
Speaker 11: Brexit where the relationship could just be a lot easier
Speaker 11: and better flowing.
Speaker 1: And how much does there has there been sort of
Speaker 1: a tone shift or could there be a tone shift
Speaker 1: from the other side of the channel from the closer
Speaker 1: European partners towards a new government given that it is
Speaker 1: a different party and sort of a fairly significant step
Speaker 1: on from Braxit as well.
Speaker 11: I mean, it's a tough question because certainly Kissed Arm
Speaker 11: wants to set this different tone and I'm sure his
Speaker 11: European counterparts will welcome that change of tone. But at
Speaker 11: the same time Starmer is going to face the same
Speaker 11: issues that the outgoing Conservative government did, which is, for instance,
Speaker 11: one of the things he wants is a veterany agreement
Speaker 11: to ease the flow of fresh foods across the borders.
Speaker 11: You might still insist on the oversight of the European
Speaker 11: Court Justice over the regulations underpinning that, so you know,
Speaker 11: there are these things which have come to be seen
Speaker 11: as toxic in the UK which he will have to
Speaker 11: overcome and try and work out a compromise.
Speaker 1: And whether the EU.
Speaker 11: Is willing to give him more than they were willing
Speaker 11: to give the previous Conservative government. You know, it's an open.
Speaker 1: An open question. Indeed, the review of the Trade and
Speaker 1: Cooperation Agreement, the Post brags that trade deal not due
Speaker 1: until twenty twenty six, so this would be sort of
Speaker 1: a speeding up of that process if they were able
Speaker 1: to make these these side agreements. The European political community
Speaker 1: itself was an interesting idea, was something that was a
Speaker 1: brainchild of Emmanuel Macron in France. It's only been around
Speaker 1: since twenty twenty two, and it was sort of meant
Speaker 1: to bridge the gap in relations with countries like the UK,
Speaker 1: the nearest neighbors in the community as well. I mean,
Speaker 1: what are the other sorts of things that are expected
Speaker 1: to be under discussion at this event, apart from kars
Speaker 1: Armor trying to make new friends.
Speaker 11: Well, I mean, so we've mentioned security defense that seems
Speaker 11: to be the main thing that the government wants to
Speaker 11: talk about. I would imagine immigration would come up. I'd
Speaker 11: be very surprised if it didn't, because it's a shared problem.
Speaker 11: You know, you've got these sort of flows of immigrants
Speaker 11: moving across the continent, and you know, in the UK's
Speaker 11: case they come from France, but obviously they've got to
Speaker 11: France somehow through other countries. So immigration's a big topic
Speaker 11: of discussion. Ukraine is clearly a matter of huge importance
Speaker 11: to the continent and how they cooperate on those things,
Speaker 11: and then shared problems like energy, security, cybersecurity, climate change,
Speaker 11: you know, all of those issues I'm sure will.
Speaker 1: Come up and high level discussions on that as well.
Speaker 1: This is also going to be a test of care
Speaker 1: Starmery's government's foreign policy too. It's so first, you know,
Speaker 1: so the second doubting after the nature, so much for
Speaker 1: them to have a chance to talk about that and
Speaker 1: perhaps in a range of subjects broader than just defense
Speaker 1: and security as well. What else do we know as
Speaker 1: a priority for the new UK government when it comes
Speaker 1: to foreign policy, Well.
Speaker 11: I would say that the main one is climate change
Speaker 11: that they want to change tone on. So I think
Speaker 11: there's a there's a perception, and I don't know how
Speaker 11: international this perception is that the UK sort of stepped
Speaker 11: back a bit from its climate change policies under Rishi
Speaker 11: Sunax administration, and the incoming Labor government want to change that,
Speaker 11: and so they want to say the UK is back
Speaker 11: at the table. You know, we're going to be leading
Speaker 11: on this for the next years and decades to come.
Speaker 11: So cutting emissions is obviously going to be one of
Speaker 11: the big things that he brings to.
Speaker 1: Yeah, and look, it's this is also a chance to
Speaker 1: for as you say, there's more face to face conversations
Speaker 1: with some of those European counterparts perhaps and as you
Speaker 1: pointed out, a less structured way than we would have
Speaker 1: seen it the likes of the NATO some blen And
Speaker 1: Palace being chosen as the venue for this event as well.
Speaker 1: It's of course where the AI s it was too.
Speaker 1: Is this, you know, a chance for those those very
Speaker 1: chummy sort of conversations and corridors as well.
Speaker 11: Yeah, I mean it's it's obviously a nice sort of
Speaker 11: country house setting. I think it's also a very unsubtle
Speaker 11: message that that security is big. It's Winston Winston Church's
Speaker 11: birth place, so that's perhaps a message to putin of
Speaker 11: you know, here at these forty seven countries We're all
Speaker 11: discussing security and Ukraine and all these matters. This country
Speaker 11: has all this history attached to it.
Speaker 1: Thanks to Bloomberg's UK Politics editor Alex Morales, We'll have
Speaker 1: more coverage of the European political community meeting on Bloomberg
Speaker 1: Radio and television in the coming days. I'm Stephen Carroll
Speaker 1: in London. You can catch us every weekday morning here
Speaker 1: for Bloomberg Daybreak Europe, beginning at six am in London
Speaker 1: and one am on Wall Street. Tom.
Speaker 2: Thank you, Stephen, And coming up on Bloomberg day Break weekend,
Speaker 2: we look ahead to a major policy meeting for China's
Speaker 2: top officials. I'm Tom Busby, and this is Bloomberg. I'm
Speaker 2: Tom Busby in New York with your global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: Top officials in China gathering this week for a major
Speaker 2: policy meeting known as the Third Play For more, let's
Speaker 2: get to Bloomberg Daybreak Asia hosts Brian Curtis and Doug Krisner.
Speaker 3: Tom. The Third Plenum is a chance for China to
Speaker 3: enact far reaching and pivotal policy actions. I think Dungshaoping's
Speaker 3: reform and opening up back in nineteen seventy eight. That's
Speaker 3: when China essentially opened up to the outside world.
Speaker 12: This time, though, it's more likely the party re embraces
Speaker 12: the recent policy guidelines of Chiechen Ping, and specifically his
Speaker 12: call for new productive forces.
Speaker 3: At the core of that strategy are high tech industries
Speaker 3: and high end manufacturing. We're expecting to learn more about
Speaker 3: how China plans to cultivate new long term growth drivers.
Speaker 12: So how does the government implement more stimulus and how
Speaker 12: does it address the country's major challenges, challenges that include
Speaker 12: a property crisis, access to foreign markets, and demographics.
Speaker 3: We approached a number of leading economists and policy advisors
Speaker 3: for their thoughts on what comes next.
Speaker 13: For the wishless within is basically more or like market
Speaker 13: friendly or market biases policies, for example, like if they
Speaker 13: could further elevation the role of the market for allocate resources,
Speaker 13: or to emphasize the importance of more supported policies for
Speaker 13: the private sectors.
Speaker 14: It's kind of a consensus right now. I think the
Speaker 14: major problem in the economy is low sentiment, a loss
Speaker 14: of animal spirit. So I think the third planet first
Speaker 14: and foremost provided government a rare opportunity to tackle the
Speaker 14: lack of confidence by rekindling the gross friendly.
Speaker 15: Reforms, there's not much of expectation going into the third Planum.
Speaker 15: If you look at the title of the Third Planum,
Speaker 15: it has this continuation sort of in it furthering reforms,
Speaker 15: but it's a continuation of the things the party has
Speaker 15: already told us, whether it's on the technology front or
Speaker 15: some of the balancing the local government finances.
Speaker 16: The start of Planum. I think in enterprise business they
Speaker 16: hope the government could actually start to reprotize the economic
Speaker 16: growth because over the past several years, the government actually
Speaker 16: come into a new policy region where they try to
Speaker 16: balance multiple policy goals, right, so it's no longer just
Speaker 16: about economic growth, but also about financial stability, security, a
Speaker 16: bunch of other objectives. But on the other hand, I
Speaker 16: think the private sector they are really looking for the
Speaker 16: government to they could actually reprodize economic growths or at
Speaker 16: a list step away from some of the regulatory titaning.
Speaker 3: Gracetam there from BNP, parabol Wealth Management, Ding Schwang at
Speaker 3: Standard Chartered Bank, Hoi Shan from Goldman Sachs, and Xian
Speaker 3: Wang from the Vanguard Group for more. Now we're joined
Speaker 3: in our studios by Rebecca Choan Wilkins, Bloomberg Asia Government
Speaker 3: and Politics correspondent and Jenny Marsh, Bloomberg Team Leader on
Speaker 3: Economics and Government. Rebecca, let me go to you first.
Speaker 3: A common theme there is it cantinuation of She's productive
Speaker 3: forces and then also hopes for improving prospects for the
Speaker 3: private sector. I'd say the former is likely. The latter, well,
Speaker 3: what a bit of hope.
Speaker 17: Maybe, I think there will be something for the markets.
Speaker 17: I would caution any sense of, you know, reforms that
Speaker 17: go into reviving animal spirits. As one of those economists referenced,
Speaker 17: I think there is a desire to sort of use
Speaker 17: the private sector, use the entrepreneurial class to advance some
Speaker 17: of those key objectives in under the so called New Three,
Speaker 17: for example, high tech domains, advanced technology. They want to
Speaker 17: be able to use the private sector to achieve those goals.
Speaker 17: I don't really see any signals that they want to
Speaker 17: actually unleash animal spirits, either among the entrepreneurial class or
Speaker 17: among markets to sort of fire power that transition. And
Speaker 17: we also have seen over the years it sort of
Speaker 17: hes since from she warnings over quote unquote barbaric capital,
Speaker 17: disorderly capital There is quite still this emphasis on having
Speaker 17: capital markets be quite ordered and structured in China today.
Speaker 12: So, Jenny, it would appear then if we do not
Speaker 12: get kind of a big bang initiative, there's going to
Speaker 12: be a lot of disappointment.
Speaker 10: Yeah, And you know, I think disappointment is sort of
Speaker 10: priced in. You know, leading up to the planet we've
Speaker 10: been hearing from investors and economists that they actually don't
Speaker 10: have high expectations for this, And there's a tradition actually
Speaker 10: for Chinese sucks to sort of react to sort of
Speaker 10: quite mutedly after a third penant, like it isn't something
Speaker 10: which historically has sort of really had like a big
Speaker 10: sort of positive effect afterwards. I think it's important to
Speaker 10: bear in mind that, you know, she's going to be
Speaker 10: speaking from sort of a thirty thousand foot view at
Speaker 10: this event, and the communicator get afterwards isn't going to
Speaker 10: have policy specifics, but it's going to have sort of
Speaker 10: language which gives you an idea of the kind of
Speaker 10: policies that she wants to see the bodies and organizations
Speaker 10: underneath him and the Central Committee sort of roll out
Speaker 10: in the months to come.
Speaker 3: It's always the case in China, it seems that social
Speaker 3: and political objectives come first, their positioned ahead of business.
Speaker 3: That's actually probably true in most countries. However, the lines
Speaker 3: are drawn slightly differently in China. It seems much more
Speaker 3: palpable in China journey.
Speaker 10: Why, I think because of the way that the government
Speaker 10: is set up, and you know, I think what's interesting
Speaker 10: about the third Panem is this is the first one
Speaker 10: of these sort of major, you know, twice a decade
Speaker 10: events on reform since she consolidated power in twenty twenty two. Previously,
Speaker 10: when he went into these events, he was sort of
Speaker 10: having much more sort of balanced different factions, and you know,
Speaker 10: at the beginning, when he had his first plane in
Speaker 10: twenty thirteen, he was sort of, you know, the first
Speaker 10: among equals on the standing committee. He goes into this
Speaker 10: event having consolidated power, and now maybe what will be
Speaker 10: different about this event is that we will see what
Speaker 10: she's sort of raw vision for the economy is when
Speaker 10: he gets to do exactly what he wants to do.
Speaker 10: So I think, you know, that's something that we might
Speaker 10: see differently because of how the balance of power in
Speaker 10: China has shifted even more in recent years towards she
Speaker 10: sort of personalizing power around his rule.
Speaker 12: Rebecca, what about measures to reduce things like inequality and
Speaker 12: tackle even the demographic challenges that we've been talking about
Speaker 12: with respect to China.
Speaker 17: Yeah, I think that's a really important one that people
Speaker 17: are looking out for. You know, we hear a lot
Speaker 17: of stories about people on the ground worried about sort
Speaker 17: of financial security, worried about job cuts, pay cuts. We
Speaker 17: hear anecdotes about, you know, civil servants having to repay
Speaker 17: their bonuses that they were given from the past five years.
Speaker 17: So for some in China, you know, prospects are looking
Speaker 17: pretty grim. And while incomes are still growing, they're growing
Speaker 17: at their slowest pace under she Jimping since the late
Speaker 17: nineteen eighties, So the landscape has really changed quite fundamentally.
Speaker 17: I don't think there are enormous expectations though, that we
Speaker 17: are going to see sort of some kind of grand reform.
Speaker 17: I do think there is some expectation we might see
Speaker 17: something in, for example, reform for the welfare system, something
Speaker 17: in the Hookoh registration system, something in public services to
Speaker 17: help local governments improve their public services. But in terms
Speaker 17: of sort of big bang changes that address or of
Speaker 17: fundamental issues of social inequality. I think probably expectations are
Speaker 17: relatively muted. It's a really interesting survey released by CSIS
Speaker 17: as well as academics from Harvard and Stanford recently that
Speaker 17: show in twenty twenty three, essentially more people are attributing
Speaker 17: declines in the ability to get rich or in fact
Speaker 17: the reasons to get poor in sort of economic structural reasons.
Speaker 17: So they put it down to things like you can
Speaker 17: get rich if you come from a wealthy family or
Speaker 17: if you have connections. That's a big change from two
Speaker 17: decades ago, when the emphasis was more on your talent,
Speaker 17: your ability, and a higher education. So we've seen that
Speaker 17: actual sort of perception of inequality and who's to blame
Speaker 17: really change over the past thirty years.
Speaker 7: In China.
Speaker 3: It's interesting because when we look at the private sector,
Speaker 3: we understand that there's huge competition between or among different
Speaker 3: players there. The competition is ferce in artificial intelligence, for instance,
Speaker 3: we hear that some companies are just not going to
Speaker 3: be able to easily get ahead, even a company like Baidu,
Speaker 3: which is one of the early movers in that space.
Speaker 3: And yet we hear when we talk to economists about,
Speaker 3: you know, trying to stimulate the private sector that people
Speaker 3: are calling for a more level playing field. How do
Speaker 3: we reconcile those two notions.
Speaker 17: Well, I think there is a sort of contradiction here
Speaker 17: in terms of which part of the private sector are
Speaker 17: you really talking about vamping up, right? And I think
Speaker 17: the sort of era where entrepreneurs believe that, you know,
Speaker 17: a whole wider range of opportunities could create wealth and
Speaker 17: in fact that was something desirable has probably that sentiment
Speaker 17: is still really dented by the fallout of the crackdown
Speaker 17: on the tech sector, for example, on the education sector.
Speaker 17: People who crude enormous amounts of wealth, we're essentially targeted
Speaker 17: for that, right, And so that we are sort of
Speaker 17: seeing a shift away from that type of sort of
Speaker 17: entrepreneurialism into these very targeted areas that align with government objectives.
Speaker 17: And in some of those areas, you know things like
Speaker 17: AI as well as evs. More obviously, those green tech
Speaker 17: areas do receive support, extraditional support, policy support, in some
Speaker 17: cases funding support to.
Speaker 12: Grow Jenny, I'm curious when we use the term new
Speaker 12: productive forces, how much of that is reliant on a
Speaker 12: change in the way China has been thinking about research
Speaker 12: and development. Does a lot more energy need to be
Speaker 12: applied into.
Speaker 7: R and D.
Speaker 10: Yeah, I think this is an area where you know,
Speaker 10: she has clearly signaled that he wants China to sort
Speaker 10: of really focus its efforts on and it's allo sort
Speaker 10: of to do with this big sort of rivalry that
Speaker 10: China has now with the US. You know, New Productive
Speaker 10: forces is a big sort of catual term. Essentially, what
Speaker 10: she really wants is for trying to become a huge
Speaker 10: tech superpower which can be self sufficient if it needs to,
Speaker 10: but also lead the world in many of these technologies,
Speaker 10: and they've really been investing in that. You know, they
Speaker 10: have a long way to catch up when it does
Speaker 10: come to some areas like AI. But then you know,
Speaker 10: you have seen how trying to has sort of steamed
Speaker 10: ahead in the EV sector and in terms of you know,
Speaker 10: the way that they have sort of led the world
Speaker 10: really in green technologies. You know, I think the interesting
Speaker 10: thing is how that sort of then affects kind of
Speaker 10: geopolitical relationships and standing in the world, because it seems
Speaker 10: that the farther they do pull ahead in these kind
Speaker 10: of areas, the more they sort of run into frictions
Speaker 10: of their major trading partners, so they have to also
Speaker 10: find sort of new markets for these kinds of innovations
Speaker 10: that they are seeking to find. And also it sort
Speaker 10: of comes back to this idea of all the emphasis
Speaker 10: in the economy right now is on the supply side
Speaker 10: rather than trying to create domestic demand.
Speaker 3: If you want free, willing innovation, don't you sort of
Speaker 3: need more freedom. And also in the the particular predicament
Speaker 3: that they're in now, we wonder whether it's an inflection
Speaker 3: point between this sort of step by step stimulation and
Speaker 3: something that approaches shock and all.
Speaker 10: I think that is a really interesting question because the
Speaker 10: assumption is that if you want innovation yet, you need
Speaker 10: this sort of free kind of environment where people can
Speaker 10: sort of like you know, experiment and everything. But then
Speaker 10: you know, if you look at China and look at
Speaker 10: the green sectors or they have innovated, they've done all
Speaker 10: that within a communist party system, which has just been
Speaker 10: tightening over the past sort of twelve years. I think
Speaker 10: like China actually is sort of the way it is
Speaker 10: innovating is kind of challenging some of those assumptions about
Speaker 10: the kind of environment that you do need to innovate.
Speaker 10: I mean, the Chinese model has been to sort of
Speaker 10: identify the areas you really want to grow, put like
Speaker 10: a ton of government support behind it, let all of
Speaker 10: these companies sort of go out and pile them and
Speaker 10: the strongest will survive and the weakest will die off,
Speaker 10: and you'll be left with really, really strong companies that
Speaker 10: can lead sectors. So it's kind of interesting to see
Speaker 10: China do that and sort of confound some of those
Speaker 10: sort of stereotypes out what you do need to sort
Speaker 10: of innovate.
Speaker 12: Thanks to the two of you for helping us preview
Speaker 12: the third Planum, which gets underway next week. Rebecca Chung Wilkins,
Speaker 12: Bloomberg Asia Government and Politics correspondent and Bloomberg's Jenny Marsh,
Speaker 12: team leader for Greater China ECO GOV. I'm Doug Krisner
Speaker 12: along with Brian Curtis in Hong Kong. You can catch
Speaker 12: us weekdays here for Bloomberg Daybreak Asia beginning at eight
Speaker 12: am in Hong Kong eight pm on Wall Street.
Speaker 4: Tom.
Speaker 2: Thank you, Doug, and thank you Brian. And that does
Speaker 2: it for this edition of Bloomberg day Break Weekend. Join
Speaker 2: us again Monday morning at five am Wall Street time
Speaker 2: for the latest on markets. Overseas and the news you
Speaker 2: need to start your day. I'm Tom Buzby. Stay with US.
Speaker 2: Top stories and global business headlines are coming up right now.