Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Daybreak Weekend,
Speaker 1: our global look at the top stories in the coming
Speaker 1: week from our Daybreak anchors all around the world, and
Speaker 1: straight ahead on the program, we look ahead to some
Speaker 1: key inflation and retail sales data here in the US.
Speaker 1: I'm Tom Busby in New York.
Speaker 2: I'm Stephen Carolyn London for We're digging into the challenges
Speaker 2: facing commercial and residential real estate out of a major
Speaker 2: conference in the French Riviera.
Speaker 3: And I'm Brian Curtis in Hong Kong. We look ahead
Speaker 3: to earnings from China's contemporarate Apparax technology, number one in
Speaker 3: its industry. How is it doing in navigating China?
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg.
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Speaker 1: Good day to you. I'm Tom Busby, and we begin
Speaker 1: today's program with inflation. We get key CPI data for
Speaker 1: the month of February this coming week, which could potentially
Speaker 1: influence what the FED does at its March meeting. Joining
Speaker 1: us now is Stuart Paul, Us, economist with Bloomberg Economics.
Speaker 1: Thank you for joining us.
Speaker 5: Thank you for having me. Tom. Yes, we are looking
Speaker 5: forward to getting our February CPI data, and we are
Speaker 5: also going to end up getting retail sales data for
Speaker 5: the month of February in this coming week. And our
Speaker 5: basic view is that bit of a resurgence in spending
Speaker 5: helped to create a bit of an inflationary impulse. We
Speaker 5: are expecting to see the headline CPI index increase zero
Speaker 5: point four percent month on month for the month of February.
Speaker 5: That's the same as what we saw in January, and
Speaker 5: that is a very hot print and definitely inconsistent with
Speaker 5: the Fed's two percent target. That's going to hold annual
Speaker 5: inflation at three point one percent. It's year over year
Speaker 5: core inflation. We're expecting to register zero point three percent
Speaker 5: month on month, allowing headline inflation to fall to three
Speaker 5: point seven percent year over year. We are expecting to
Speaker 5: see some disinflation and core goods, with use auto prices
Speaker 5: declining about two percent during the month, but consumers are
Speaker 5: still spending and that will support nominal retail sales growth
Speaker 5: during the month.
Speaker 1: All right, So one bright spot you mentioned was use
Speaker 1: cars a little lower. However, housing gasoline and food, I
Speaker 1: know they fluctuate, but they have been a little higher
Speaker 1: than usual. Is that kind of driving a lot of
Speaker 1: that inflationary pressure.
Speaker 5: That's right, So driving the headline really is gasoline prices.
Speaker 5: On a seasonally adjusted basis. We have gasoline prices rising
Speaker 5: about four percent during the month, so that's after accounting
Speaker 5: for the seasonal adjustment factor. Is that typically would account
Speaker 5: for the increase in gasoline prices In februaries people start
Speaker 5: driving once again as they clear snow off the streets,
Speaker 5: for example, so in some places, so not only is
Speaker 5: gasoline driving headline, inflation is also driving nominal retail sales.
Speaker 5: We are expecting to see retail sales growth about zero
Speaker 5: point eight percent month on month. A big part of
Speaker 5: that is gasoline, and we need to account for that.
Speaker 5: If we look at a narrower control group, however, which
Speaker 5: strips out autos, strips out gasoline, strips out building, materials
Speaker 5: and food services, which is very heavily influenced by foot traffic,
Speaker 5: which can be affected by weather, for example, as we
Speaker 5: saw in January, very affected by weather. If we focus
Speaker 5: on that control group, we have a much more modest
Speaker 5: growth of zero point two percent month on month in February.
Speaker 1: Well, are some of the retailers doing better? But then
Speaker 1: now January, we know that was a very rough month
Speaker 1: for retail sales. Could have been a hangover from the
Speaker 1: holiday season. But February you're expecting a little bump ahead,
Speaker 1: a little bump up, not a decline like we saw
Speaker 1: in January. Who are the winners in that besides gas stations.
Speaker 5: So if we look at credit card transaction data and
Speaker 5: we look at debit card transactions and just strictly count
Speaker 5: the number of swipes at credit card processing terminals at
Speaker 5: the point of sale, we do see big box retailers,
Speaker 5: We do see some just general merchandisers showing some of
Speaker 5: the most impressive growth month over month. But we need
Speaker 5: to be a bit cautious in how we read through
Speaker 5: from that one month of improved credit card transactions data
Speaker 5: and what that means for the broader economy. We are
Speaker 5: seeing some headcount reductions at retailers. That typically was something
Speaker 5: that was concentrated just in more high skilled services. But
Speaker 5: if it's making its way to retailers, that could be
Speaker 5: a signal of retailers feeling a little bit of the
Speaker 5: pain or anticipating a slow down and spending, which is
Speaker 5: actually what we expect throughout twenty twenty four.
Speaker 1: Well, let's go back to inflation. Just not even two
Speaker 1: years ago, the inflation rate was nine point one percent.
Speaker 1: Right now we're expecting a year of a year rate
Speaker 1: of about three point one percent.
Speaker 5: Or three c three point one percent for the headline
Speaker 5: three point seven for core.
Speaker 1: So we're moving in the right direction. Last week, FED
Speaker 1: Chair Jerome pal and his semi annual testimony to Congress.
Speaker 1: He said that central bank no rush to start lowering rates,
Speaker 1: but he hinted that when policymakers feel inflation is under control,
Speaker 1: could happen later this year with no firm timetable. Is
Speaker 1: he being optimistic? Is he looking at the data? It's
Speaker 1: all data driven according to the Fed. Are we heading
Speaker 1: toward that now?
Speaker 5: I think we are. We're anticipating seeing headline inflation reaching
Speaker 5: about two point five percent year over year at the
Speaker 5: end of twenty twenty four, As headline inflation comes down,
Speaker 5: the balance of risks that the Fed has to weigh
Speaker 5: between achieving its maximum employment mandate and its price stability
Speaker 5: mandate come into better alignment. And so as we see
Speaker 5: the pace of hiring cooling, as we see the pace
Speaker 5: of inflation cooling, the Fed has to take its employment
Speaker 5: mandate a bit more seriously, has to put a bit
Speaker 5: more weight on it. And so we do expect the
Speaker 5: Fed to begin cutting rates this summer. Again, economic activity cooling,
Speaker 5: inflation cooling, and the labor market at cooling would allow
Speaker 5: for that pivot in policy.
Speaker 1: And the next FED meeting the nineteenth and twentieth of
Speaker 1: this month, So we should not expect any rate cut.
Speaker 1: But you think we'll get a little more clarity from
Speaker 1: the Fed about what they're thinking.
Speaker 5: I think that we'll get a little bit more clarity
Speaker 5: on the pace of quantitative tightening, for example. But I
Speaker 5: expect the Fed to actually maintain a bit of a
Speaker 5: hawkish tone in its policy statement. It did remove its
Speaker 5: quote unquote hawkish bias in its January policy statement, but
Speaker 5: I expect the Fed to use language that would prevent
Speaker 5: people from reading too deeply into the idea that rate
Speaker 5: cuts are imminent, or from expecting rate cuts to be
Speaker 5: imminent less financial market conditions start easing too swiftly, and
Speaker 5: the Fed would have to then treat loosening financial conditions,
Speaker 5: perhaps with more restricted policy or higher for longer policy.
Speaker 1: Oh boy, well we'll get ready for that. Well, our
Speaker 1: thanks to Stuart paul Us economists with Bloomberg Economics, turning
Speaker 1: now to too closely watched earnings reports that are out
Speaker 1: this week, which will offer investors a glie limps into
Speaker 1: the mania surrounding artificial intelligence technology and for more on
Speaker 1: what to expect from Oracle and Adobe. We welcome Bloomberg
Speaker 1: Intelligence technology analyst anarag Rana. Thank you for being here at.
Speaker 6: RAG Oh I'm happy to be here.
Speaker 1: Oh good. Well let's start with Adobe, which may be
Speaker 1: best known for its Photoshop editing software Acrobat Reader and
Speaker 1: its PDF but boy as it transformed itself into a
Speaker 1: cloud computing giant with its generative AI product Firefly. So
Speaker 1: what are you expecting to see in the first quarter
Speaker 1: earnings out on Wednesday? And why Yeah?
Speaker 6: So you know, when you look at somebody like Adobe
Speaker 6: that dominate the creative space with the Photoshop and other
Speaker 6: products that go into it. They also dominate the document
Speaker 6: cloud business or digital documents with PDF. So those are
Speaker 6: the two areas where we see strength going into the QUOTO.
Speaker 6: So document cloud, I think that's done very well. We
Speaker 6: continue to expect strong results on that segment. The big
Speaker 6: discussion is going to be on the creative part of
Speaker 6: it because there is a lot of chatter around what's
Speaker 6: going to happen to companies like Adobe when you have
Speaker 6: products that are you know, launched by companies like open Ai.
Speaker 6: So I would recommend if anybody hasn't seen the Open
Speaker 6: Eye's latest demo of their product called Sora, I would
Speaker 6: would recommend go to YouTube and check that out. It's
Speaker 6: a phenomenal product where you just write down the tex stuff.
Speaker 6: Let's say, you know, two armies fighting in a in
Speaker 6: a battlefield, it will create a video for you and
Speaker 6: that's done. I mean, you can use that. Now. There
Speaker 6: are a lot of concerns about privacy and copyright and
Speaker 6: other things, but we can you know, that's that could
Speaker 6: be settled later. But since that video was released, Adobe
Speaker 6: has been a lot under pressure. So I think on
Speaker 6: the conference call, we do expect management to talk a
Speaker 6: lot about what they're doing with their AI capabilities, et cetera.
Speaker 6: You mentioned Firefly. Firefly is an interesting product, but it's
Speaker 6: mostly to pictures, which is text to you can write
Speaker 6: down a text to say, you know, create a picture
Speaker 6: of a dog playing piano in the in a forest,
Speaker 6: and it'll create that for you. They have done a
Speaker 6: good job of, you know, rink fencing that issue by
Speaker 6: launching their own product, Firefly, And on top of that,
Speaker 6: they actually have agreements with the creative professionals who own
Speaker 6: a lot of those underlying pictures on which these models
Speaker 6: are trained. So they're basically telling companies you can use
Speaker 6: the pictures generated from our system and nobody's going to
Speaker 6: sue you for it because we have rink fenced it
Speaker 6: with copyright issues. So I think is going to be
Speaker 6: a lot of discussion on that topic. But i Adobe,
Speaker 6: in our view is on the right path of jen
Speaker 6: ai and over the next few years we should see
Speaker 6: significant improvement in their products.
Speaker 1: And over those next few years is their main competition
Speaker 1: going to be the open ais and other AI startups
Speaker 1: of the world.
Speaker 6: It is a mix of open ai and other startups
Speaker 6: of the world. There is another startup in Australia that
Speaker 6: has been behind them called Canva. We just had their
Speaker 6: co founder on our podcast. That's a good product and
Speaker 6: also it's a slightly cheaper product. So it's going to
Speaker 6: be hard for Adobe over the next few years to
Speaker 6: put in new price increases through their ecosystem. They have
Speaker 6: been growing well with price increases over the last I
Speaker 6: would say, a couple of years, but I think it's
Speaker 6: going to be challenging going forward.
Speaker 4: Wow.
Speaker 1: Okay, Well, on Thursday we hear from the enterprise software
Speaker 1: giant Oracle what are you looking for in its Q
Speaker 1: three report.
Speaker 3: Yeah.
Speaker 6: Oracles actually a very interesting story because it has two
Speaker 6: big businesses. One is the application portfolio of software company
Speaker 6: or software products such as HR software, or customer relationship
Speaker 6: software or finance software. And the other part is the
Speaker 6: infrastructure business, which is their database business as well as
Speaker 6: they also do a bit of cloud computing. I think
Speaker 6: they given such strong demand for a cloud infrastructure to
Speaker 6: run these large language models, the biggest focus for everybody
Speaker 6: is going to be what happens in their Oracle cloud
Speaker 6: infrastructure numbers. I think last quarter investors were a little
Speaker 6: disappointed by the growth rata that and the company came
Speaker 6: out and said, well, listen, we don't have a problem
Speaker 6: with demand. The issue we are having is we don't
Speaker 6: have that much capacity to run that demand. Whether it's
Speaker 6: in the reason, could be the data center expansion is
Speaker 6: a bit slow, or they don't have enough chips from
Speaker 6: Nvidia to run those workloads. So I think then everything
Speaker 6: is going to rotate around what's the capacity right now
Speaker 6: for them to run that work But other than that,
Speaker 6: I think it should be a normal quarter for them.
Speaker 6: I'm not expecting any major surprises other than the topic
Speaker 6: we discussed.
Speaker 1: Well, you said that supply not demand may be an issue.
Speaker 1: Does that mean also businesses are still spending, still growing.
Speaker 6: Yeah, it's a very good question. I think by and large,
Speaker 6: businesses are stabilized in the downdraft of it spending that
Speaker 6: has been going on for two years, which means it's
Speaker 6: not getting worse, but it's also not getting faster at
Speaker 6: a quicker rate. The one area that's not you know,
Speaker 6: in that bucket is anything that's spent on AI. So
Speaker 6: they are spending a lot on AI, but they may
Speaker 6: not be spending on other areas such as you know,
Speaker 6: sales automation or marketing, advertising, et cetera. Those software products,
Speaker 6: but as far as AI products are concerned, there is
Speaker 6: a pickup and spending.
Speaker 1: Well, a lot to look forward to and our thanks
Speaker 1: to Bloomberg Intelligence technology analyst anurag Rana, and coming up
Speaker 1: on Bloomberg day Break weekend, we'll dig into the challenges
Speaker 1: facing commercial and residential real estate ahead of a major
Speaker 1: conference on the French Riviera. I'm Tom Busby and this
Speaker 1: is Bloomberg. This is Bloomberg day Break weekend, our global
Speaker 1: look ahead at the top stories for investors in the
Speaker 1: coming week. Tom Busby in New York. Up later in
Speaker 1: the program will look ahead to earnings from a couple
Speaker 1: of key tech manufacturers in Asia. But first, the real
Speaker 1: estate world, both commercial and residential, has been struggling under
Speaker 1: the weight of high interest rates, and the cracks are
Speaker 1: seeping into the financial world as well. Flexible working has
Speaker 1: changed demand for offices, while many European countries are struggling
Speaker 1: with a shortage of housing. All these issues and more
Speaker 1: will be in focus at a major real estate conference
Speaker 1: on the French Riviera in the coming days. For more,
Speaker 1: let's go to London and bring in Bloomberg Daybreak Europe
Speaker 1: anchor Stephen Carroll tom.
Speaker 2: It's a subject that has huge political and economic importance
Speaker 2: real estate. High interest rates have created cracks in the
Speaker 2: commercial property market that are now rippling into the financial world.
Speaker 2: Home Buyers are also dealing with higher borrowing costs, while
Speaker 2: at the same time facing a shortage of housing In
Speaker 2: many major cities in the UK. The latest data from
Speaker 2: morgus Lander Halifax shows a continuing small rebound in house
Speaker 2: prices despite higher rates. We spoke to Kim Kenny heard
Speaker 2: from Halifax about the risks that she sees in the
Speaker 2: market this year.
Speaker 7: I think mortgage rates clearly are focusing everybody's minds. We've
Speaker 7: seen real volatility in them, and we saw significant rate
Speaker 7: increases over the course of last year. We're starting to
Speaker 7: see that ease now and as we've said, there's bier
Speaker 7: confidence beginning to return. I think I would say, you know,
Speaker 7: more broadly, it's just we still remain in a fairly
Speaker 7: uncertain economic climate, so I think there are lots of
Speaker 7: things that we need to be thoughtful about. At the moment,
Speaker 7: we're seeing really good wage inflation, we're seeing low unemployment rates,
Speaker 7: and those are good indicators for us in terms of
Speaker 7: the long term performance of the market. But I think
Speaker 7: we've learnt over the last eighteen months or so that
Speaker 7: there is still uncertainty in the marketplace. So do you
Speaker 7: see the instability for the housing market in the next
Speaker 7: few months?
Speaker 8: Is that the prediction to the end of the year.
Speaker 7: As we're kind of facing into this year, I think,
Speaker 7: as we said, we think that house prices could by
Speaker 7: up to two percent. But clearly what we have seen
Speaker 7: in the last five months is consecutive growth, so that
Speaker 7: should be seen as a real positive and we hope
Speaker 7: that continues to grow and also that we can teach
Speaker 7: to see stability.
Speaker 2: So that's Kim Kennyhard from Halifax on the situation in
Speaker 2: the UK for home buyers from an investor's point of view.
Speaker 2: We've also been speaking to Michelle Scriminger, who is CEO
Speaker 2: of Legal and General Investment Management. She's been talking to
Speaker 2: us about the opportunities in the drive to build more
Speaker 2: homes in the UK, particularly affordable homes.
Speaker 8: We operate in different sectors of the market, so we
Speaker 8: are a house builder. We operate in the build to
Speaker 8: rent sector, we operate in the affordable homes sector. We
Speaker 8: also invest into commercial real estates on behalf of multiple investors.
Speaker 8: We also learned as part of what we do here
Speaker 8: in the UK. We're not just doing it in the UK.
Speaker 8: But I think what we definitely see is continuing to
Speaker 8: see opportunity and that for us is super important. And
Speaker 8: as the regulations are changing, so Solignty two is a
Speaker 8: very big thing for Legal in general, and the ability
Speaker 8: for us to be able to deploy more capital we
Speaker 8: want to unlock the capital to invest means that we're
Speaker 8: going to be continuing to do that around the UK.
Speaker 8: So we think there is opportunity. Of course, the rates
Speaker 8: environment is it part of that. So you know, as
Speaker 8: rates become more stable then I think that does start
Speaker 8: to make people more confident and let's point to that
Speaker 8: as a point of resilience here for the UK on
Speaker 8: which we can leverage. But individuals are still being impacted
Speaker 8: by those high rates in terms of mortgages and fixed
Speaker 8: rate mortgages are a challenge, so that there is a balance,
Speaker 8: but longer term we do see a lot of potential here.
Speaker 2: That was Michelle Scomjo, CEO of Legal and General Investment Management,
Speaker 2: speaking to Bloomberg's Caroline Hepger that all of these issues
Speaker 2: are in focus at the MIP and real Estate conference
Speaker 2: that's happening in can on the French Riviera in the
Speaker 2: coming days. Our real estate reporter Jack Sitters will be
Speaker 2: there and he's been telling us about the big subjects
Speaker 2: up for a discussion.
Speaker 9: I'm fascinated to get out there because I guess if
Speaker 9: we wind back twelve months, I was there in can
Speaker 9: and at the start of the week, Silicon Valley Bank
Speaker 9: had just gone, and I was anticipating, you know, talking
Speaker 9: to investors about that all week, And by the end
Speaker 9: of the week, Credits Fist has gone as well, and
Speaker 9: so it was just it was incredibly chaotic, but also
Speaker 9: incredibly interesting revealing to be there with all those investors
Speaker 9: and get to see the wides of people's eyes and
Speaker 9: sit down with them as this madness was unfolding. Here
Speaker 9: we are twelve months later, and although that US regional
Speaker 9: banking situation has maybe calmed down somewhat or bit we'll
Speaker 9: see what happens with New York Community Bank or but
Speaker 9: the issues haven't gone away for real estate, and if anything,
Speaker 9: they'd come to the form more. It's such a slow
Speaker 9: moving asset class. Prices take a long time to correct.
Speaker 9: That means issues with over indebtedness take a long time
Speaker 9: to emerge, and then banks maybe take even longer to
Speaker 9: actually do something about it. What are the issues, Well,
Speaker 9: it's how much distress is really out there, how a
Speaker 9: lender's going to respond, how tough are they going to
Speaker 9: get with borrowers? What's that going to mean in terms
Speaker 9: of forced asset sales? You know, are we seeing funds
Speaker 9: that are under pressure with people trying to pull their
Speaker 9: money out. So I'm anticipating, you know, the mood is
Speaker 9: likely to be as dour as real estate ever gets
Speaker 9: because I'm yet to meet anyone who property yeah, who
Speaker 9: isn't an internal optimist. So I'm definitely sure every broker
Speaker 9: I meet will tell me that we're right around the
Speaker 9: corner for good times and that you know, the market's
Speaker 9: going to bounce back, And to be fair to them,
Speaker 9: there is a good argument that maybe people like me
Speaker 9: will be focusing on some of the more painful distressed elements.
Speaker 9: That there's definitely this sense that with interest rates having
Speaker 9: peaked and cuts on the way, that there could be
Speaker 9: quite a big bounce back. So for those with capital
Speaker 9: to deploy, you know, they'll be out there looking to
Speaker 9: do deals they'll be excited to start deploying that capital.
Speaker 2: Because prices have come When you think about commercial estate,
Speaker 2: prices have come down significantly. I mean, where where are
Speaker 2: the bargains to be found for those.
Speaker 9: That do have the money?
Speaker 3: Yeah?
Speaker 9: Absolutely, Well, I guess it's a global event, but I
Speaker 9: guess it's dominated by by European investors. So if we
Speaker 9: if talking about Europe, the UK is probably corrected the
Speaker 9: most and the most quickly, which is what we normally see,
Speaker 9: and it's to do with sort of nuances around valuation
Speaker 9: approaches and whatnot. So you know, London, for example, prices
Speaker 9: have come down sharply and the issue really is about
Speaker 9: availability that that bid ask spread has narrowed. What what
Speaker 9: often happens at the start of a correction as you
Speaker 9: just get this huge bid ask spread. As you know,
Speaker 9: nobody wants to sell at a discount. They've got their
Speaker 9: sort of backward looking book valuations, but buyers want to
Speaker 9: pay a price that reflects where the risk free rate
Speaker 9: is now. Anyway, that process has sort of been unfolding
Speaker 9: in the UK for the last well almost two years now.
Speaker 9: So yeah, so the conditions are there potentially for a
Speaker 9: bit of a bounce back in terms of activity. Debts
Speaker 9: may be a little bit more available than it was,
Speaker 9: it's a little bit less costly than it was, so
Speaker 9: it can be a creative for some buyers. And that's
Speaker 9: you know, that's so important in real estate. If we
Speaker 9: look across other markets, I'd say Germany is probably the
Speaker 9: other end, and that's the other really big market in
Speaker 9: Europe that is at the other end of the spectrum.
Speaker 9: It things are still really great, see their huge gap
Speaker 9: between buyers and sellers. But we are seeing you know,
Speaker 9: more insolvencies, there more administrations and that will inevitably force transactions.
Speaker 2: Does that mean that we will actually see more deals activity?
Speaker 2: Are we picking up off a base there?
Speaker 10: Yeah?
Speaker 9: Off a base is the phrase.
Speaker 2: It's the space if you keep looking down.
Speaker 3: Yeah.
Speaker 9: I mean we're talking about in almost every market at
Speaker 9: least the lowest transaction volumes since the global financial crisis.
Speaker 9: I mean, I think actually London recorded one quarter that
Speaker 9: was the lowest since about two thousand, So you know,
Speaker 9: it did get really quite extreme in the sort of
Speaker 9: aftermath of Russia Ukraine and as they say that bit
Speaker 9: are spread opening. But yes, it is coming back. We've
Speaker 9: seen volumes increase sort of quarter on quarter over the
Speaker 9: last few quarters. And again, you know, it's you always
Speaker 9: have to take a pinch of salt with the brokers
Speaker 9: who you know, whose bread and butter is transactions. They
Speaker 9: need those deals to make their fees. But if you
Speaker 9: talk to them, they and they are the closest to
Speaker 9: the market, they will tell you that, yes, it's going
Speaker 9: to be a quiet first half, but they can see
Speaker 9: the conditions there and their report boughting on potential sales.
Speaker 9: They try to persuade investors to come to market for
Speaker 9: the second half of the year and they see a
Speaker 9: bounce back there.
Speaker 2: Okay, so you're expecting a strong sales pitch at this
Speaker 2: event as ever. Yeah, and what about the question of
Speaker 2: demand post pandemic. We're shifting into sort of what looks
Speaker 2: like a more stable dynamic in terms of flexible working.
Speaker 2: When we think about demand for officers, how much is
Speaker 2: that playing into the picture given the kind of weak
Speaker 2: financial backdrop.
Speaker 9: It's a huge question for real estate, you know, offices
Speaker 9: being the biggest sort of asset class within commercial real estate.
Speaker 9: If you look at what happened to retail, which you know,
Speaker 9: probably twenty years ago, used to be the sort of
Speaker 9: glamour sector within commercial real estate, these huge shopping centers
Speaker 9: worth you know, potentially multi billions, totally upended by e commerce,
Speaker 9: huge amount of value destruction that's actually now finally found
Speaker 9: a floor, and you know, these those things as trading
Speaker 9: very cheaply, but at least the rents have kind of
Speaker 9: hit a bottom and they're starting to grow again. All
Speaker 9: sorts of concern about you know, we are we on
Speaker 9: the same journey now with office having been sort of
Speaker 9: disrupted by well, initially by we working before the pandemic
Speaker 9: in the way that we work and what people expect
Speaker 9: from an office, and then accelerated by the pandemic. I think,
Speaker 9: as ever, with these things, there's a lot of nuance required,
Speaker 9: the sense that you know, the good quality stuff in
Speaker 9: the best locations, the greenest stuff. There's still going to
Speaker 9: be a lot of demand for that, and actually there's
Speaker 9: more demand than there is availability because there hasn't been
Speaker 9: enough of it built. And I think that'll be another
Speaker 9: big theme at miip HIM, like the lack of construction
Speaker 9: that's been going on. But yeah, the older stuff, you know,
Speaker 9: your regional office buildings, your suburban office buildings, especially those
Speaker 9: that you know, maybe aren't the greenest, they probably don't
Speaker 9: have a viable future as an office, and then you're
Speaker 9: starting to think about, well do the economics actually work
Speaker 9: to turn them into something else? So these things just
Speaker 9: need to get bulldozed.
Speaker 2: Yeah, the couple of interesting points there. I mean that
Speaker 2: idea of making buildings greener essentially more energy Fishing is
Speaker 2: another big challenge facing the sector too, because there are
Speaker 2: building regulations that are affecting how the future life and
Speaker 2: also how the new projects are going to be shaped.
Speaker 3: Yeah.
Speaker 9: Absolutely, and and again that'll be a big theme at
Speaker 9: mip HIM. It's an interesting event because it always attracts
Speaker 9: a lot of politicians, a lot of policymakers, and to
Speaker 9: some degree they are not necessarily the main event. The
Speaker 9: reason everybody goes there isn't the thing works, is because
Speaker 9: it attracts the investors. So you've got all the biggest
Speaker 9: sovereigns will be there, all the biggest private equity firms,
Speaker 9: and if they're there, then their brokers are there, their
Speaker 9: bankers are there, and then the developers are there, and
Speaker 9: you know there's this ecosystem, this chain, and the politicians
Speaker 9: as well. They're there because they want to attract these
Speaker 9: people to come and invest in their cities. This time
Speaker 9: there may be to a greater extent some of the
Speaker 9: investors listening quite carefully to what the policymakers have got
Speaker 9: to say around some of these sustainability issues, because it
Speaker 9: is going to be potentially a huge influence on you know,
Speaker 9: things like that office market. How stringent are these rules
Speaker 9: going to be in you know, in the UK they
Speaker 9: just talk of offices not being allowed to be rented
Speaker 9: out unless they're what's called EPC A or B by
Speaker 9: twenty thirty. You know, you're talking about the majority of
Speaker 9: the office market being illegal to rent in six years
Speaker 9: time if that were to actually come in, So they
Speaker 9: will have a huge impact on the market. So I
Speaker 9: think there'll be maybe a bit more of a two
Speaker 9: way dialogue. It sometimes is.
Speaker 2: What about the question of housing? Of course, not as
Speaker 2: much of concern around building as there is around commercial
Speaker 2: real estate, but still a sector that there's a lot
Speaker 2: of political and policy kind of perspectives We had.
Speaker 9: On Yeah, absolutely, and you know, someone who's been going
Speaker 9: to mip him for ten fifteen years now, it's interesting
Speaker 9: how much more prominent housing is at the event. It's
Speaker 9: a huge part of it now, and I guess there's
Speaker 9: a couple of dynamics there. One, you've got the fact
Speaker 9: that really across Europe there's almost no city that doesn't
Speaker 9: have a shortage of good quality housing, and they're all
Speaker 9: grappling with it in different ways. Some places it's planning,
Speaker 9: some places it's rent control that are barriers, and so
Speaker 9: that's lots of issues there to be grappled with by
Speaker 9: policymakers and by potential investors. The other thing is that
Speaker 9: you know, we talked about the kind of obsolescence in
Speaker 9: shopping centers and maybe what's happening now to offices. What
Speaker 9: you've seen investors do is that money that maybe they
Speaker 9: used to invest in retail or they used to invest
Speaker 9: in offices, and now increasingly they want to invest it
Speaker 9: in living very broad so that can be rental apartments,
Speaker 9: it can be senior housing, nursing homes, whatever you like,
Speaker 9: but living broadly. The difficulty that they have is actually
Speaker 9: deploying that capital because there isn't the existing stock to
Speaker 9: go and buy it and building it is very difficult
Speaker 9: because the rules wherever you look in Europe are complicated
Speaker 9: and they make it hard. So again that's a huge focus.
Speaker 9: All this money that wants to get into European housing
Speaker 9: of various forms, but so many barriers to it.
Speaker 2: Thanks to Bloomberg's real estate reporter jacket sitters. I'm Stephen
Speaker 2: Caroll in London. You can catch us every weekday morning
Speaker 2: here for Bloomberg Daybreak Europe, but getting at six am
Speaker 2: in London and.
Speaker 1: One am on Wall Streets. Tom, Thank you, Steven. And
Speaker 1: coming up on Bloomberg day Break weekend and look ahead
Speaker 1: to earnings from a couple of key technology manufacturers in
Speaker 1: Asian I'm Tom Busby, and this is Bloomberg. I'm Tom
Speaker 1: Busby in New York with your global look ahead at
Speaker 1: the top stories for investors in the coming week. This week,
Speaker 1: two big companies will be reporting earnings. We'll take a
Speaker 1: look at how the EV market is performing through the
Speaker 1: lens of previewing battery maker Catl's earnings. But first we'll
Speaker 1: talk about one of the major Apple suppliers, Han Hi,
Speaker 1: also known as Fox KHN. For more, let's get to
Speaker 1: Bloomberg day Break Asia co host Doug Krisner.
Speaker 4: Tom.
Speaker 11: In the coming week, we'll get fourth quarter earnings from
Speaker 11: the world's largest contract electronics maker, Han high precision industry.
Speaker 11: This company is known internationally as fox KHN. It's a
Speaker 11: major assembler of iPhones and other Apple devices. In fact,
Speaker 11: Fox Cohn gets more than half its revenue from Apple.
Speaker 11: To help us preview the Fox Cohn earnings, I'm joined
Speaker 11: from Taipei by Jane Lanhi Lee, Bloomberg Tech reporter. Jane,
Speaker 11: thanks for being with us. So we know already that
Speaker 11: fourth quarter revenue was down by nearly five and a
Speaker 11: half percent. And I saw that figure and I'm wondering
Speaker 11: how much of it reflects the challenges that Apple is faced.
Speaker 10: Oh, it absolutely reflects Apple's challenges. Fox Con makes about
Speaker 10: seventy percent of the iPhones for Apple. A lot of
Speaker 10: that is manufactured in China, and if China sales aren't
Speaker 10: doing well for Apple, then that'll reflect immediately for fox
Speaker 10: Con as well. And the problem we're going to see
Speaker 10: going forward is that Apple iPhone sales we reported last
Speaker 10: week dropped twenty four percent in the first six weeks
Speaker 10: of this year, and that's according to Counterpoint Research, and
Speaker 10: that already puts Apple behind Vivo, that's the number one
Speaker 10: selling brand in the first six weeks of this year. Huawei,
Speaker 10: which is considered China's tech champion, and they came out
Speaker 10: with a new phone, the May sixty pro late last year,
Speaker 10: and that has been selling gangbusters because there's a wave
Speaker 10: of patriotic buying. And then Honor, which is Huawei's previous brand,
Speaker 10: which kind of split off, and then Apple now which
Speaker 10: used to be the top selling brand in China is
Speaker 10: in fourth place. That will have an impact on fox
Speaker 10: con sales. And during the earnings call on the fourteenth,
Speaker 10: investors and analysts are going to be focusing on outlook
Speaker 10: figures and outlooks or a color coming from the company
Speaker 10: on how much of an impact that's going to have.
Speaker 11: So we know that Apple is facing a lot of
Speaker 11: challenges as you just said, in terms of the China market,
Speaker 11: and we know at the same time that the company
Speaker 11: is moving to try to set up manufacturing operations in India.
Speaker 11: Is this something that fox Con is involved with the
Speaker 11: Indian facilities?
Speaker 12: Oh?
Speaker 10: Absolutely. Fox Con has been announcing almost every week or
Speaker 10: every other week. I'm sitting here picking up announcements on
Speaker 10: the Taiwan Stock Exchange about hundreds of millions of dollars
Speaker 10: that fox Con is moving to India to get those facilities.
Speaker 3: Going.
Speaker 10: Bloomberg report did late last year that fox Cohn has
Speaker 10: won approval to invest up to two point six billion
Speaker 10: dollars in India. That hasn't yet shown up in a
Speaker 10: reduction of investments in China, but going forward, the percentage
Speaker 10: of Apple products that fox Con manufacturers outside of China
Speaker 10: will grow for sure.
Speaker 11: Do you think fox Con right now is beginning to
Speaker 11: sense the need for greater diversification. I know they're involved
Speaker 11: in the production of other electronic components and the networking
Speaker 11: equipment as well. Are they moving more aggressively to try
Speaker 11: to diversify away from being so reliant on Apple?
Speaker 12: Well?
Speaker 10: I mean that two point six billion dollar India investment
Speaker 10: is already a clear signal that it is diversifying. Fox
Speaker 10: Con is the top electronics company in Taiwan. There are
Speaker 10: other major Taiwanese contract MANUFAC, and all of them are
Speaker 10: in fact diversifying away from China. The Taiwanese government is
Speaker 10: supporting that as well. So there are places like in
Speaker 10: addition to India, Thailand and Vietnam, other Southeast Asian countries
Speaker 10: are seeing an influx of investments, and Bloomberg last year
Speaker 10: also sort of graft out the move of suppliers, and
Speaker 10: there's a clear increase in Apple suppliers in Southeast Asia.
Speaker 11: Well, wasn't Fox Cohn involved in developing electric vehicles? If
Speaker 11: that's the case, are we likely to get an update
Speaker 11: on that movement sometime during the course of this analyst
Speaker 11: call on the fourteenth.
Speaker 10: It's possible. There's a lot of interest in Fox Cohn's
Speaker 10: electric vehicle business. In fact, some analysts say Fox Cohn
Speaker 10: is trying to reposition itself as an EV company going
Speaker 10: forward as it diversifies away from just being the iPhone maker.
Speaker 10: But you know, the iPhone still make up for a
Speaker 10: big chunk of its sales and EV really it's in
Speaker 10: its infancy and there have been several missteps in the
Speaker 10: last year or two as it tried to get its
Speaker 10: EV business going. So that's still a big question mark
Speaker 10: and we'll have to see this year if it gets
Speaker 10: any big business. I'm keeping an eye on the US
Speaker 10: to see if there are any US brands that might
Speaker 10: decide to manufacture evs with fox Conn. Investors will definitely
Speaker 10: be looking out for that.
Speaker 11: Jane, thank you so much for helping us preview their
Speaker 11: earnings from Fox Cohn. Jane Lonhie Lee is Bloomberg Tech
Speaker 11: reporter joining from TYPEI. Now let's get to the other
Speaker 11: co host of Daybreak Asia, Brian Curtis.
Speaker 3: Doug Contemporary Amparex Technology or CATL, is set to deliver
Speaker 3: fourth quarter results in the coming week. Bloomberg Intelligence expects
Speaker 3: to see solid revenues and cost control at the battery maker,
Speaker 3: and it says that will offset lower battery price and
Speaker 3: the slowing Chinese economy. Putting it all together, BI suggests
Speaker 3: that the company will deliver resilient results. Now, of course,
Speaker 3: when we look at catl's business, a lot of other
Speaker 3: issues come to mind. The health of the EV industry
Speaker 3: in China, stiff competition among EV makers, there US China relations,
Speaker 3: EU China relations, carbon reduction targets, as well as industrial
Speaker 3: overcapacity in China, and even mandates for the use of
Speaker 3: electric heavy duty trucks. Well, to unpack all of this,
Speaker 3: we have Bloomberg's transport reporter Danny Lee with us here
Speaker 3: in our studios in Hong Kong. So, Danny, how is
Speaker 3: CATL managing through these many crosswinds that we have at
Speaker 3: the moment in China.
Speaker 12: Well, what we're going to see in its upcoming fourth
Speaker 12: quarter full year results is not just resilient sets of results,
Speaker 12: but one that could also be a record on the
Speaker 12: net income line. Particularly when it comes to the full year,
Speaker 12: it's very robust, as they have before the gain from
Speaker 12: the benefits of the past three quarters, but even on
Speaker 12: the fourth quarter, at the final quarter of the it's
Speaker 12: looking very very strong and they've given a wide margin
Speaker 12: for potentially what could be a record quarter ultimately. And
Speaker 12: so despite the falling prices of lithium and nickel, for example,
Speaker 12: these raw material prices actually are a good thing for
Speaker 12: someone like CATL as they can become even more price
Speaker 12: competitive on its batteries and also just to sell at
Speaker 12: much lower price and.
Speaker 3: Not only a leader in China, but maintaining a top
Speaker 3: position really in the global market. In the month of January.
Speaker 3: Just looking over some research from sn Research out of
Speaker 3: South Korea, CATL with roughly forty percent share of the
Speaker 3: worldwide battery market in January. It supplies automakers like Tesla, BMW, Mercedes,
Speaker 3: Benz and Volkswagen. The number two is BYD. It's a
Speaker 3: big competitor and obviously a big make of evs. But
Speaker 3: let's talk about catl's position vis a v competitors and
Speaker 3: whether or not we might seach some sort of consolidation coming.
Speaker 12: There is a question and that always has been in
Speaker 12: the recent years over consolidation not just amongst battery makers,
Speaker 12: but even across the auto space, across the whole brands
Speaker 12: which have launched running out of money. But when it
Speaker 12: comes to the battery space, you see this concentration even
Speaker 12: amongst the top two c ATO and BYD, and therefore
Speaker 12: it's very hard for other suppliers to really gain ground,
Speaker 12: gain market share. And so when you have someone who's
Speaker 12: financially strong and as robust as c ATO in particular,
Speaker 12: they can use their financial muscle to squeeze margins and
Speaker 12: squeeze suppliers on costs and also just to get that
Speaker 12: edge over other smaller supplies who cannot be as financially
Speaker 12: flex as c ATL.
Speaker 3: Is it generally considered to be a really well managed company.
Speaker 12: It is, indeed, and when you look at what it
Speaker 12: has been doing to lay the groundwork, it has made
Speaker 12: long term bets, even during this period of instability and
Speaker 12: weakness in the EV market where clearly not many people
Speaker 12: are confident about the near term demand. But Ultimately, they've
Speaker 12: made bets, they've invested, and they've put themselves in a
Speaker 12: position where they've conquered China, just like byd has in
Speaker 12: the battery space for cars. They are now pushing very
Speaker 12: much abroad. But clearly there are headwinds when it comes
Speaker 12: to its reputation and how it's perceived and how it
Speaker 12: wants to be a supplier across the world.
Speaker 3: It does actually seem Danny that the glide path for
Speaker 3: c ATL globally, while as you said, fraught with some
Speaker 3: difficulties over geopolitics, so it's pretty good because the pricing
Speaker 3: is not quite so competitive elsewhere as.
Speaker 12: It is in China, right, Yeah, absolutely, I mean with
Speaker 12: China and with someone like c ATL, they really have
Speaker 12: a lot of advantages when it comes to being able
Speaker 12: to sell batteries at much lower prices, and thanks to
Speaker 12: the falling prices of raw materials, they can continue to
Speaker 12: lower its prices. And when you do have other battery
Speaker 12: players around the world who are still just starting up
Speaker 12: or they've still got higher costs that they need to
Speaker 12: factor in, so there's not a lot of room to
Speaker 12: maneuver for competitors, and for someone like c ATL, this
Speaker 12: is their moment to say going for the kill rather,
Speaker 12: but they really are able to show their dominance and
Speaker 12: show not just their dominance, but how good their products are,
Speaker 12: because what we have seen over the past couple of
Speaker 12: years is then putting out even better performing products, which
Speaker 12: whether they be faster charging or have longer range, these
Speaker 12: are things which gives them an edge on all fronts
Speaker 12: frankly compared to its piers.
Speaker 3: So you talked about the input materials being down and
Speaker 3: that leads to the ability to lower battery prices. What
Speaker 3: are some of the key factors behind this fall in
Speaker 3: battery price?
Speaker 12: It is a good question, and I think it's just
Speaker 12: we've seen with the speculation and the rush for these
Speaker 12: raw materials over the years, it has really helped push
Speaker 12: up prices. And again when you see the concern about
Speaker 12: the long term supply that's all being locked into over
Speaker 12: recent years, that has helped push up prices. And we've
Speaker 12: seen the general demand for electric vehicles come down and
Speaker 12: so therefore naturally prices for the raw materials that also
Speaker 12: coming down. But we haven't really seen a flaw yet
Speaker 12: in the price, you know, pulling back from near record levels.
Speaker 12: But ultimately what we are seeing is the supply chain
Speaker 12: for evs being laid out nicely, and we are seeing
Speaker 12: more sales. Still growth, but maybe not as good as
Speaker 12: it once was, but we are least seeing a normalization,
Speaker 12: which is I guess good for everyone from companies to consumers.
Speaker 3: All Right, Danny, thanks so much for joining us. Bloomberg's
Speaker 3: transport reporter Danny Lee with us here in our Hong
Speaker 3: Kong studios. I'm Brian Curtis along with Doug Krisner. You
Speaker 3: can catch us every weekday here for Bloomberg day Break Asia,
Speaker 3: beginning at eight am in Hong Kong and eight pm
Speaker 3: on Wall Street.
Speaker 1: Tom, thank you, Brian. That does it for this edition
Speaker 1: of Bloomberg day Break Weekend. Join us again Monday morning
Speaker 1: at five am Wall Street time for the latest on
Speaker 1: markets overseas and the news you need to start your day.
Speaker 1: I'm Tom Buzzby. Stay with us. Top stories and global
Speaker 1: business headlines are coming up right now.