1 00:00:02,120 --> 00:00:04,520 Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the 2 00:00:04,519 --> 00:00:07,040 Speaker 1: top stories in the coming week from our Daybreak anchors 3 00:00:07,080 --> 00:00:09,400 Speaker 1: all around the world. Straight ahead on the program, the 4 00:00:09,480 --> 00:00:12,560 Speaker 1: FED lowers inter straits, but will the data support more 5 00:00:12,640 --> 00:00:15,000 Speaker 1: rate cuts for the rest of this year. I'm Tom 6 00:00:15,040 --> 00:00:16,040 Speaker 1: Busby in New York. 7 00:00:16,280 --> 00:00:18,800 Speaker 2: I can and Headkait in London, where we're asking where 8 00:00:18,840 --> 00:00:21,680 Speaker 2: the private markets are entering the Golden eg. 9 00:00:21,840 --> 00:00:24,960 Speaker 3: I'm Doug Prisner looking at what's at stake when Australian 10 00:00:25,040 --> 00:00:28,640 Speaker 3: Prime Minister Anthony Albanisi meets with President Trump on the 11 00:00:28,680 --> 00:00:30,800 Speaker 3: sidelines of the UN General Assembly. 12 00:00:32,800 --> 00:00:36,840 Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 13 00:00:36,880 --> 00:00:40,560 Speaker 4: eleven three year in New York, Bloomberg ninety nine to one, Washington, DC, 14 00:00:41,080 --> 00:00:45,320 Speaker 4: Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, 15 00:00:45,720 --> 00:00:48,920 Speaker 4: Sirius XM one twenty one, and around the world on 16 00:00:49,040 --> 00:00:52,160 Speaker 4: Bloomberg Radio, dot Com and the Bloomberg Business App. 17 00:00:55,560 --> 00:00:57,400 Speaker 1: Good day to you. I'm Tom Busby, and we begin 18 00:00:57,440 --> 00:00:59,640 Speaker 1: today's program with a look at the Fed's twenty five 19 00:00:59,680 --> 00:01:02,480 Speaker 1: bases point cut to the federal funds rate this past week, 20 00:01:02,840 --> 00:01:06,280 Speaker 1: what it means, and whether some upcoming data will support 21 00:01:06,440 --> 00:01:09,640 Speaker 1: the two rate cuts the FED has penciled in for 22 00:01:09,680 --> 00:01:12,119 Speaker 1: the rest of this year. For more, we're joined by 23 00:01:12,280 --> 00:01:16,760 Speaker 1: Edward Harrison, senior strategist and author of Bloomberg's Everything Risk newsletter. 24 00:01:17,080 --> 00:01:20,399 Speaker 1: Fed policymakers, in a nearly unanimous vote, lowered the federal 25 00:01:20,440 --> 00:01:22,760 Speaker 1: funds rate by a quarter point this past week and 26 00:01:22,880 --> 00:01:25,959 Speaker 1: signaled we could see two more rate cuts before this 27 00:01:26,120 --> 00:01:28,920 Speaker 1: year is out. In your opinion, did the FED make 28 00:01:28,920 --> 00:01:30,399 Speaker 1: the right decision and why? 29 00:01:31,040 --> 00:01:34,960 Speaker 5: Yeah? I think that the tom the economy is slowing, 30 00:01:35,120 --> 00:01:39,400 Speaker 5: and so that is the right decision just for insurance purposes. 31 00:01:39,680 --> 00:01:43,880 Speaker 5: As an insurance cut, there was one member of the 32 00:01:43,920 --> 00:01:47,480 Speaker 5: FED who thought they were playing catch up so much 33 00:01:47,600 --> 00:01:50,840 Speaker 5: that they should probably go with fifty basis points as 34 00:01:50,840 --> 00:01:54,600 Speaker 5: opposed to twenty five. He was a complete outlier, not 35 00:01:54,840 --> 00:01:57,600 Speaker 5: just in terms of the descent. This is Stephen Moron, 36 00:01:57,800 --> 00:02:02,640 Speaker 5: who is actually in the White House on leave while 37 00:02:02,640 --> 00:02:05,760 Speaker 5: he's at the FED, but he also was very much 38 00:02:05,800 --> 00:02:09,200 Speaker 5: an outline in terms of his projection for the interest 39 00:02:09,280 --> 00:02:11,200 Speaker 5: rate at the end of the year, which he'd put 40 00:02:11,280 --> 00:02:13,800 Speaker 5: at lower than three percent. 41 00:02:14,280 --> 00:02:17,520 Speaker 1: Which would mean several rate cuts of fifty basis points 42 00:02:17,919 --> 00:02:18,320 Speaker 1: or more. 43 00:02:18,760 --> 00:02:21,320 Speaker 5: That's not what the rest of the FED is looking at. 44 00:02:22,160 --> 00:02:24,720 Speaker 5: And so I think, you know, the thing that was 45 00:02:24,800 --> 00:02:28,600 Speaker 5: most demonstrable is the fact that there was only the 46 00:02:28,600 --> 00:02:31,760 Speaker 5: one descent from someone who's very associated with the White House. 47 00:02:32,080 --> 00:02:36,200 Speaker 5: All of the existing FED officials went along with the 48 00:02:36,200 --> 00:02:39,720 Speaker 5: twenty five basis point cut, which would suggest that any 49 00:02:39,760 --> 00:02:44,600 Speaker 5: attempts to erode the fed's independence are likely to be stymied. 50 00:02:45,080 --> 00:02:47,120 Speaker 5: And this is the first indication that that's the case. 51 00:02:47,400 --> 00:02:50,280 Speaker 1: Well, let's talk about what really drove this, and that 52 00:02:50,520 --> 00:02:53,720 Speaker 1: is a weakening US labor market. And boy, have we 53 00:02:53,800 --> 00:02:56,959 Speaker 1: seen some kind of frightening stats in the last couple 54 00:02:56,960 --> 00:03:00,000 Speaker 1: of weeks, like nine hundred and eleven thousand jobs correct 55 00:03:00,480 --> 00:03:02,919 Speaker 1: in the year leading up to March. Well, what does 56 00:03:02,960 --> 00:03:06,000 Speaker 1: this tell us about how the Bureau of Labor Statistics 57 00:03:06,200 --> 00:03:08,720 Speaker 1: surveys are done, or does it tell us more about 58 00:03:08,760 --> 00:03:10,919 Speaker 1: real weakness in the US job market. 59 00:03:12,680 --> 00:03:14,839 Speaker 5: It tells us more about real weakness in the US 60 00:03:14,960 --> 00:03:19,440 Speaker 5: job market, because basically what the BLS does is they 61 00:03:19,440 --> 00:03:21,840 Speaker 5: collect the data that's available to them at the time, 62 00:03:22,360 --> 00:03:28,399 Speaker 5: and then later, based on other data like filings for 63 00:03:28,560 --> 00:03:31,760 Speaker 5: taxes and things of that nature, they can update the data. 64 00:03:31,800 --> 00:03:34,840 Speaker 5: And what they've done is they've updated the data from 65 00:03:35,320 --> 00:03:38,360 Speaker 5: March of twenty twenty four through March of twenty twenty 66 00:03:38,360 --> 00:03:42,000 Speaker 5: five and found that there were nine hundred thousand fewer 67 00:03:42,120 --> 00:03:44,680 Speaker 5: jobs that were created over that year time span than 68 00:03:44,680 --> 00:03:47,920 Speaker 5: we had thought, which says that the FED rate cuts 69 00:03:47,920 --> 00:03:51,360 Speaker 5: from twenty twenty two to twenty twenty three acted with 70 00:03:51,440 --> 00:03:56,520 Speaker 5: a lag that was more severe, you know, the act 71 00:03:56,680 --> 00:03:59,880 Speaker 5: of those rate hikes, rather from twenty twenty two to 72 00:03:59,840 --> 00:04:05,120 Speaker 5: twenty three that was worse than we had anticipated based 73 00:04:05,200 --> 00:04:08,640 Speaker 5: upon the initial numbers. So the FED was basically playing 74 00:04:08,760 --> 00:04:14,440 Speaker 5: with a lot of data that wasn't correct and so 75 00:04:14,920 --> 00:04:19,559 Speaker 5: they're in the process of reevaluating how weak the labor 76 00:04:19,600 --> 00:04:20,200 Speaker 5: market is. 77 00:04:20,720 --> 00:04:23,600 Speaker 1: And that's not it not just those corrections, but black 78 00:04:23,680 --> 00:04:26,839 Speaker 1: unemployment soaring under this president. Seven and a half percent 79 00:04:27,360 --> 00:04:31,320 Speaker 1: underemployment is rising. College grads with engineering degrees can't get 80 00:04:31,360 --> 00:04:34,200 Speaker 1: a job. And it looks like you're right about now 81 00:04:34,320 --> 00:04:36,000 Speaker 1: we're going to start to see the impact of all 82 00:04:36,040 --> 00:04:38,760 Speaker 1: those federal workers that were laid off back in April. 83 00:04:38,800 --> 00:04:41,600 Speaker 1: There six months severance deals coming to an end. 84 00:04:41,600 --> 00:04:44,520 Speaker 5: Now you hit it right on the head, Tom, I 85 00:04:44,520 --> 00:04:46,560 Speaker 5: think that all of those things are coming together in 86 00:04:46,600 --> 00:04:50,360 Speaker 5: a way that show that the economy, just from the 87 00:04:50,440 --> 00:04:53,960 Speaker 5: labor market perspective, is weaker than we had thought and 88 00:04:54,160 --> 00:04:58,719 Speaker 5: it will continue to weaken. And the average FED official 89 00:04:58,839 --> 00:05:02,240 Speaker 5: is looking at three rate cuts for the year. That 90 00:05:02,400 --> 00:05:04,800 Speaker 5: is not only this cut, but the next two meetings 91 00:05:04,800 --> 00:05:06,760 Speaker 5: for this year, and then they're going to continue to 92 00:05:06,800 --> 00:05:10,040 Speaker 5: cut rates in twenty twenty six. And mind you, this 93 00:05:10,120 --> 00:05:14,320 Speaker 5: is why inflation is above target at three percent. So 94 00:05:14,440 --> 00:05:17,279 Speaker 5: that's how alarmed they are at the state of the 95 00:05:17,279 --> 00:05:23,880 Speaker 5: economy that even though the inflation rate is high, they 96 00:05:23,920 --> 00:05:27,000 Speaker 5: still feel like in order to avoid a recession they 97 00:05:27,040 --> 00:05:28,960 Speaker 5: need to cut and inflation. 98 00:05:29,040 --> 00:05:31,200 Speaker 1: Now we're we're gonna get another read this coming week 99 00:05:31,240 --> 00:05:34,800 Speaker 1: with August PCE forecast to be two point nine percent, 100 00:05:35,040 --> 00:05:38,480 Speaker 1: that is well above the fed's longtime target of two percent. 101 00:05:39,279 --> 00:05:41,520 Speaker 1: But also, will we know and when will we know 102 00:05:41,560 --> 00:05:44,520 Speaker 1: the real impact of the Trump tariffs on inflation. I mean, 103 00:05:44,560 --> 00:05:48,200 Speaker 1: we haven't seen and the Fed admits it hasn't been 104 00:05:48,480 --> 00:05:50,760 Speaker 1: very bad yet. But is it coming? 105 00:05:52,440 --> 00:05:56,200 Speaker 5: Yeah, the question is is when is it coming? From 106 00:05:56,200 --> 00:06:02,240 Speaker 5: all indications really a foreign companies have not paid the tariffs. 107 00:06:02,240 --> 00:06:05,120 Speaker 5: What's really happened for the most part is the lion's 108 00:06:05,160 --> 00:06:08,360 Speaker 5: share of the tariffs have been eaten by the companies. 109 00:06:08,360 --> 00:06:12,520 Speaker 5: They've found ways to get their costs down and to 110 00:06:12,600 --> 00:06:18,000 Speaker 5: keep their margins up even though the costs. They've absorbed 111 00:06:18,000 --> 00:06:21,200 Speaker 5: the costs. But part of the reason that they absorbed 112 00:06:21,240 --> 00:06:25,160 Speaker 5: the cost was because they thought perhaps the tariffs would 113 00:06:25,160 --> 00:06:28,159 Speaker 5: be lesser over time, you know, there would be rollbacks. 114 00:06:28,520 --> 00:06:31,400 Speaker 5: But that's not happening, and so we're seeing increasingly that 115 00:06:31,560 --> 00:06:35,080 Speaker 5: these tariff costs are being passed on to end consumers 116 00:06:35,480 --> 00:06:38,479 Speaker 5: where they can be and so we should expect some 117 00:06:38,800 --> 00:06:43,120 Speaker 5: level of higher inflation between now and the end of 118 00:06:43,120 --> 00:06:46,880 Speaker 5: the year and probably even beyond that. So it's going 119 00:06:46,960 --> 00:06:50,159 Speaker 5: to be an ongoing process how long we get this 120 00:06:50,279 --> 00:06:55,200 Speaker 5: new inflation. But it's clear that if we already have 121 00:06:55,360 --> 00:06:59,680 Speaker 5: inflation near three percent and it goes higher, then it's 122 00:06:59,720 --> 00:07:04,360 Speaker 5: going to be well above the FEDS target, even as 123 00:07:04,400 --> 00:07:08,080 Speaker 5: they're cutting, and so that's the danger, and that limits 124 00:07:08,320 --> 00:07:11,280 Speaker 5: how much they're able to support the labor market. 125 00:07:11,520 --> 00:07:13,360 Speaker 1: Well, we're going to find out about the economy with 126 00:07:13,400 --> 00:07:17,040 Speaker 1: a final read on Q two GDP out this Thursday, 127 00:07:17,040 --> 00:07:20,640 Speaker 1: and personal spending and PCE inflation data out on Friday. 128 00:07:20,640 --> 00:07:23,840 Speaker 1: Our thanks to Edward Harrison, senior strategist and author of 129 00:07:23,840 --> 00:07:27,440 Speaker 1: Bloomberg's Everything Risk newsletter. Well, next, we turned to the 130 00:07:27,520 --> 00:07:31,000 Speaker 1: US airline industry, which saw a tremendous rebound in summer 131 00:07:31,000 --> 00:07:33,800 Speaker 1: travel demand, but some carriers appear to be doing a 132 00:07:33,800 --> 00:07:36,880 Speaker 1: lot better than others. For more, we're joined by George Ferguson, 133 00:07:36,880 --> 00:07:42,280 Speaker 1: Bloomberg Intelligence Senior analysts for Airlines, Aerospace, and Defense. Well, George, 134 00:07:42,360 --> 00:07:44,560 Speaker 1: let's start with that rebound and travel that we saw 135 00:07:44,600 --> 00:07:48,280 Speaker 1: this past summer. How was it and can that momentum 136 00:07:48,280 --> 00:07:49,840 Speaker 1: continue for these carriers? 137 00:07:50,240 --> 00:07:53,800 Speaker 6: Look, I think what we saw this summer is continued 138 00:07:53,920 --> 00:07:59,080 Speaker 6: strong demand for those premium travelers. And so you know, 139 00:07:59,400 --> 00:08:03,680 Speaker 6: we heard another number of airlines give us updates as 140 00:08:03,720 --> 00:08:09,720 Speaker 6: they went into the Morgan Stanley Laguna Beach conference. And 141 00:08:10,000 --> 00:08:12,640 Speaker 6: you know, really, I think what we heard as we 142 00:08:12,720 --> 00:08:16,840 Speaker 6: heard improving demand, and we did hear some of that 143 00:08:16,920 --> 00:08:20,200 Speaker 6: improving demand even at the low cost carriers of the 144 00:08:20,360 --> 00:08:24,880 Speaker 6: I think the challenges they still have so much excess capacity, 145 00:08:24,920 --> 00:08:27,280 Speaker 6: it's going to be hard to capitalize as much as 146 00:08:27,280 --> 00:08:31,280 Speaker 6: they'd like on it. But I think, really, you know, 147 00:08:31,320 --> 00:08:33,320 Speaker 6: the story that we got coming out of Laguna is 148 00:08:35,120 --> 00:08:38,480 Speaker 6: and we're seeing in the broader economy is that the 149 00:08:39,440 --> 00:08:46,720 Speaker 6: well healed consumer is continuing to you know, take their vacations, 150 00:08:46,960 --> 00:08:50,240 Speaker 6: fly to Europe, spend a bunch of money, and that's 151 00:08:50,280 --> 00:08:55,520 Speaker 6: been good for the United Delta's Americans. And we're continuing 152 00:08:55,520 --> 00:08:58,360 Speaker 6: to see there's probably too much capacity in the low 153 00:08:58,440 --> 00:09:03,560 Speaker 6: cost world. And you know, we we've seen bumpy results 154 00:09:03,559 --> 00:09:08,080 Speaker 6: at companies like Spirit, which you know, declared bankruptcy again, Frontier, 155 00:09:09,400 --> 00:09:13,679 Speaker 6: Jet Blue again, all indicative of some of the weakness 156 00:09:13,800 --> 00:09:17,280 Speaker 6: down and what i'd call maybe the basic economy traveler. 157 00:09:17,360 --> 00:09:21,160 Speaker 6: So I think this summer sort of reinforced that trend. 158 00:09:21,760 --> 00:09:24,800 Speaker 6: Three Q is always a great quarter, not quite as 159 00:09:24,800 --> 00:09:27,240 Speaker 6: good as two Q for airlines, but two of the 160 00:09:27,240 --> 00:09:31,680 Speaker 6: best quarters for them. We're hearing noise about more demand 161 00:09:31,760 --> 00:09:33,920 Speaker 6: and you know what they call the shoulder seasons four 162 00:09:34,040 --> 00:09:38,120 Speaker 6: Q one Q. So I think, look what, you know, well, 163 00:09:38,480 --> 00:09:42,240 Speaker 6: we'll really see how well airline demand is holding up 164 00:09:42,360 --> 00:09:45,480 Speaker 6: as we get into that four Q and one Q 165 00:09:45,760 --> 00:09:49,440 Speaker 6: season and people really have to want to get out 166 00:09:49,520 --> 00:09:52,480 Speaker 6: there and travel and have a full budget to keep going. 167 00:09:52,960 --> 00:09:55,840 Speaker 6: But again I think the rap is, Yeah, the the 168 00:09:55,840 --> 00:09:58,719 Speaker 6: well hill travelers you know, came at it again. This 169 00:09:58,880 --> 00:10:02,200 Speaker 6: three Q had the get their vacation in Europe, spent 170 00:10:02,320 --> 00:10:04,480 Speaker 6: up for some premium seats to get across the bond. 171 00:10:05,120 --> 00:10:06,920 Speaker 6: And it's probably going to help out those big full 172 00:10:06,920 --> 00:10:08,079 Speaker 6: service carriers. 173 00:10:07,760 --> 00:10:11,000 Speaker 1: Right, the big legacy carriers. But let's talk more about 174 00:10:11,000 --> 00:10:15,120 Speaker 1: the ones. You know, you said, Frontier, Jed Blue and Spirit, 175 00:10:15,200 --> 00:10:20,240 Speaker 1: which again filed for bankruptcy, still flying, But what happens 176 00:10:20,280 --> 00:10:23,520 Speaker 1: Who is going to benefit when Spirit finally winds down, 177 00:10:23,640 --> 00:10:26,400 Speaker 1: and it looks like it will unless somebody rescues it. 178 00:10:26,600 --> 00:10:28,760 Speaker 1: Who's going to benefit? Is that those other carriers or 179 00:10:28,760 --> 00:10:29,600 Speaker 1: will the big ones? 180 00:10:31,600 --> 00:10:35,800 Speaker 6: So I mean, look, I think everybody benefits, right, the 181 00:10:36,160 --> 00:10:40,480 Speaker 6: big full service carriers again, American, Delta, United, they have 182 00:10:40,600 --> 00:10:44,240 Speaker 6: been subsidizing let's call it, some of that back of 183 00:10:44,240 --> 00:10:47,760 Speaker 6: the airplane demand, some of that basic economy demand with 184 00:10:47,960 --> 00:10:53,040 Speaker 6: their nice premium income, and so if they don't have 185 00:10:53,120 --> 00:10:56,080 Speaker 6: to subsidize as much, that's obviously going to help them. 186 00:10:56,400 --> 00:10:58,800 Speaker 6: But I think the real benefactors are going to be 187 00:10:59,840 --> 00:11:02,199 Speaker 6: the low cost and budget carriers, right, And so I 188 00:11:03,000 --> 00:11:07,880 Speaker 6: think you'll see that ripple through the Jet Blues, the Frontiers, 189 00:11:08,080 --> 00:11:11,680 Speaker 6: the Southwest more, even though Southwest model is going to 190 00:11:12,920 --> 00:11:15,600 Speaker 6: sort of full service world I think that's where you're 191 00:11:15,640 --> 00:11:19,880 Speaker 6: going to see more of the gains. And look, I'll 192 00:11:19,920 --> 00:11:24,120 Speaker 6: just say Spirit Airlines is relatively small. We don't see 193 00:11:24,120 --> 00:11:28,400 Speaker 6: it going away yet. As talking to my colleague Phil Brendel, 194 00:11:28,480 --> 00:11:33,839 Speaker 6: who does distressed analysis right before we got on this discussion, 195 00:11:33,880 --> 00:11:36,600 Speaker 6: and you know, he's saying, look, Spirit could linger in 196 00:11:36,720 --> 00:11:40,360 Speaker 6: bankruptcy for a while, but right now they are starting 197 00:11:40,360 --> 00:11:44,200 Speaker 6: to cut routes and they're starting to cancel gate contracts 198 00:11:44,200 --> 00:11:46,679 Speaker 6: and things like that. Bear in mind that they're going 199 00:11:46,679 --> 00:11:52,839 Speaker 6: to cancel those assets where they're least productive, right and 200 00:11:52,960 --> 00:11:55,400 Speaker 6: so we're going to see a pick up again in 201 00:11:55,440 --> 00:11:58,640 Speaker 6: the low cost world from this, but they're going to 202 00:11:58,679 --> 00:12:01,280 Speaker 6: take those routes that just wonn't working well anyways that 203 00:12:01,440 --> 00:12:04,440 Speaker 6: maybe maybe nobody should be flying to or at least 204 00:12:04,480 --> 00:12:07,720 Speaker 6: fewer people should be flying to fewer airlines and cancel. 205 00:12:07,880 --> 00:12:10,440 Speaker 6: So I guess what I'm trying to tell you is 206 00:12:10,840 --> 00:12:14,600 Speaker 6: I would moderate my expectations and Spirit alone. I still 207 00:12:14,640 --> 00:12:17,920 Speaker 6: think more capacity needs to come out of this market, 208 00:12:18,480 --> 00:12:20,679 Speaker 6: but it should again help the low cost more. 209 00:12:21,040 --> 00:12:25,000 Speaker 1: Our Thanks to George Ferguson, Senior analyst for Airlines, Aerospace 210 00:12:25,040 --> 00:12:29,400 Speaker 1: and Defense with Bloomberg Intelligence aerospace and defense, and coming 211 00:12:29,440 --> 00:12:32,240 Speaker 1: up on Bloomberg day Break weekend, are private markets in 212 00:12:32,280 --> 00:12:36,160 Speaker 1: the UK entering their golden age. I'm Tom Busby and 213 00:12:36,280 --> 00:12:49,080 Speaker 1: this is Bloomberg. This is Bloomberg day Break weekend, our 214 00:12:49,080 --> 00:12:51,439 Speaker 1: global look ahead at the top stories for investors in 215 00:12:51,480 --> 00:12:54,720 Speaker 1: the coming week. I'm Tom Busby in New York. Up 216 00:12:54,800 --> 00:12:57,559 Speaker 1: later in our program a big announcement out of Australia. 217 00:12:57,679 --> 00:13:01,960 Speaker 1: But first, private markets fast at exposure from investors seeking 218 00:13:02,000 --> 00:13:05,880 Speaker 1: shelter from public volatility. It comes as some policymakers for 219 00:13:06,000 --> 00:13:09,600 Speaker 1: tracking the situation with alarm, while others, including President Trump, 220 00:13:09,640 --> 00:13:13,280 Speaker 1: are clearing the way for private domination. It's a discussion 221 00:13:13,320 --> 00:13:16,120 Speaker 1: that will likely be on the agenda as industry heavyweights 222 00:13:16,160 --> 00:13:19,640 Speaker 1: gather in Paris for the International Private Equity Market Conference. 223 00:13:19,720 --> 00:13:22,120 Speaker 1: For more, let's get to London and bring in Bloomberg 224 00:13:22,200 --> 00:13:25,080 Speaker 1: Daybreak era banker Caroline Hepgar Tom. 225 00:13:25,120 --> 00:13:28,760 Speaker 2: From as early as January this year, commentators and market 226 00:13:28,800 --> 00:13:31,880 Speaker 2: watchers have been hailing the beginning of a golden age 227 00:13:31,960 --> 00:13:36,120 Speaker 2: for private markets, thanks to vast pools of capital controlled 228 00:13:36,160 --> 00:13:41,160 Speaker 2: by rich families poise to pour into illiquid assets. Now 229 00:13:41,280 --> 00:13:44,080 Speaker 2: nine months into twenty twenty five, that prediction hangs in 230 00:13:44,120 --> 00:13:49,640 Speaker 2: the balance. Despite industry giants from KKR to Blackstone targeting 231 00:13:49,760 --> 00:13:52,880 Speaker 2: the world's wealthy to fuel the next phase of growth 232 00:13:52,920 --> 00:13:59,800 Speaker 2: for private equity, economic circumstances and geopolitical uncertainty have challenged growth. 233 00:14:00,440 --> 00:14:02,760 Speaker 2: There is a new source of capital, though that may 234 00:14:02,760 --> 00:14:06,280 Speaker 2: be about to arrive. Regulation and compliance have driven an 235 00:14:06,440 --> 00:14:11,319 Speaker 2: unprecedented wall of US retirement money into private assets. According 236 00:14:11,360 --> 00:14:15,720 Speaker 2: to a report from Bloomberg Intelligence, the top twenty US 237 00:14:15,760 --> 00:14:19,360 Speaker 2: pension funds alone hold about half a trillion dollars of 238 00:14:19,480 --> 00:14:24,120 Speaker 2: private market exposure, the analyst found, with some having doubled 239 00:14:24,120 --> 00:14:28,920 Speaker 2: their allocations to unlisted investments over the past decade. It 240 00:14:29,040 --> 00:14:32,760 Speaker 2: is a development that could supercharge a sector with an 241 00:14:32,800 --> 00:14:37,080 Speaker 2: already bright outlook. According to Tristram Leech, partner and head 242 00:14:37,120 --> 00:14:41,520 Speaker 2: of investments for Credit and Hybrid in Europe at Apollo. 243 00:14:41,480 --> 00:14:45,840 Speaker 7: Clearly we feel that the risk return is more compelling 244 00:14:46,480 --> 00:14:49,560 Speaker 7: in private credit than in public markets, especially at the moment, 245 00:14:49,880 --> 00:14:52,320 Speaker 7: and to the idea that you'd want savers to be 246 00:14:52,440 --> 00:14:56,200 Speaker 7: denied the opportunity to benefit from the incremental return that's 247 00:14:56,240 --> 00:15:01,480 Speaker 7: available seems to us are bizarre, So certainly, making those 248 00:15:01,520 --> 00:15:06,320 Speaker 7: products available to a broader swathe of the market is 249 00:15:07,000 --> 00:15:09,280 Speaker 7: something that we feel strongly about, be that the wealth 250 00:15:09,320 --> 00:15:12,960 Speaker 7: market or be that, you know, working with institutions to 251 00:15:12,960 --> 00:15:14,120 Speaker 7: make those products available. 252 00:15:14,200 --> 00:15:14,920 Speaker 8: How does that work? 253 00:15:14,920 --> 00:15:17,160 Speaker 9: I mean, how are those conversations going about trying to 254 00:15:17,160 --> 00:15:18,760 Speaker 9: get that expanded base opened. 255 00:15:19,400 --> 00:15:26,240 Speaker 7: We have been advocating for the availability of private credit 256 00:15:26,880 --> 00:15:28,960 Speaker 7: and for the attractiveness is that as a product from 257 00:15:29,000 --> 00:15:31,840 Speaker 7: you know, from the top of the house, and I 258 00:15:31,880 --> 00:15:35,160 Speaker 7: think there's a pretty you know, widespread discourse around how 259 00:15:35,200 --> 00:15:38,040 Speaker 7: attractive that product is and certainly the relative value versus 260 00:15:38,040 --> 00:15:39,080 Speaker 7: public markets. Yeah. 261 00:15:39,120 --> 00:15:41,640 Speaker 10: Across the flip side to this is the discussion of 262 00:15:41,720 --> 00:15:45,320 Speaker 10: systemic risk, and over the past year you've had increasing 263 00:15:45,320 --> 00:15:47,680 Speaker 10: discussion from the likes of Moody's and the IMF saying 264 00:15:47,720 --> 00:15:50,480 Speaker 10: that private credit does pose this systemic risk. 265 00:15:50,840 --> 00:15:51,600 Speaker 8: Is that fair? 266 00:15:51,800 --> 00:15:53,480 Speaker 10: Are we going to see some funds collapse? 267 00:15:53,840 --> 00:15:56,120 Speaker 7: What's interesting is that what we just discussed was the 268 00:15:56,160 --> 00:15:59,320 Speaker 7: relative value of private credit versus public credit looking attractive, 269 00:15:59,320 --> 00:16:02,920 Speaker 7: and yet you don't see these same points made about 270 00:16:02,960 --> 00:16:07,200 Speaker 7: public credit markets. We've noticed liquidity in public credit markets declining. 271 00:16:08,440 --> 00:16:12,200 Speaker 7: So for us to focus exclusively on private credit markets 272 00:16:12,200 --> 00:16:15,920 Speaker 7: as a place where all the risk is doesn't make sense. 273 00:16:16,760 --> 00:16:19,840 Speaker 7: Are you going to see funds a differentiation in fun performance? 274 00:16:19,880 --> 00:16:22,080 Speaker 7: I think you are. You know, the last twenty years 275 00:16:22,640 --> 00:16:26,160 Speaker 7: have been an environment where there hasn't really been a 276 00:16:26,240 --> 00:16:29,960 Speaker 7: very deep cycle in credit markets, and so you've seen 277 00:16:30,120 --> 00:16:33,520 Speaker 7: very highly correlated performance across the private credit industry. I 278 00:16:33,560 --> 00:16:36,160 Speaker 7: think you're certainly going to see an environment where you 279 00:16:36,200 --> 00:16:38,680 Speaker 7: see dispersion in credit outcomes and you probably also see 280 00:16:38,680 --> 00:16:40,480 Speaker 7: dispersion in manager outcomes. 281 00:16:40,240 --> 00:16:45,080 Speaker 2: Apollos twistram Leach there. But despite that optimism, some are concerned. 282 00:16:45,320 --> 00:16:48,960 Speaker 2: Officials from the US Securities and Exchange Commission have long 283 00:16:49,080 --> 00:16:53,160 Speaker 2: called out the potential risks for markets going dark, as 284 00:16:53,200 --> 00:16:57,440 Speaker 2: companies favor saying private over a public listing, allowing them 285 00:16:57,480 --> 00:17:03,080 Speaker 2: to bypass traditional disclosure and governance requirements. So is this 286 00:17:03,280 --> 00:17:06,520 Speaker 2: the new age of the private market? So what could 287 00:17:06,560 --> 00:17:10,680 Speaker 2: the consequences be. It's something I've been discussing with Bloomberg's 288 00:17:10,720 --> 00:17:15,560 Speaker 2: private equity reporter Suiteter Gopinath ahead of a major gathering 289 00:17:15,760 --> 00:17:19,879 Speaker 2: in Paris this September, so the last EPM event, So 290 00:17:19,960 --> 00:17:23,560 Speaker 2: this is last September. We heard predictions of the end 291 00:17:23,600 --> 00:17:26,879 Speaker 2: of private market's golden era. Has that actually come about? 292 00:17:27,440 --> 00:17:32,760 Speaker 11: Unfortunately? Yes, when interest rates were low, when financing was cheap. 293 00:17:33,200 --> 00:17:36,199 Speaker 11: Private equity was in this golden era right because they 294 00:17:36,240 --> 00:17:39,160 Speaker 11: could pursue all these leverage buyouts, they could return capital 295 00:17:39,160 --> 00:17:41,640 Speaker 11: to investors, they could fundraise at a fast clip. 296 00:17:42,040 --> 00:17:43,400 Speaker 8: All of that has died down. 297 00:17:43,320 --> 00:17:45,600 Speaker 11: Pretty much thanks to interest rates more than anything else, 298 00:17:45,840 --> 00:17:48,520 Speaker 11: and also a difficult deal making environment. It's not as 299 00:17:48,560 --> 00:17:51,480 Speaker 11: easy to exit or monetize assets as it used to be. 300 00:17:51,920 --> 00:17:55,440 Speaker 11: That's partly because the IPO market has been semi functional 301 00:17:55,440 --> 00:17:57,920 Speaker 11: for the last eighteen months. It's slowly beginning to pick 302 00:17:57,960 --> 00:18:01,000 Speaker 11: up now. Deal making exits why M and A have 303 00:18:01,080 --> 00:18:03,480 Speaker 11: been difficult as well, so P firms have not been 304 00:18:03,480 --> 00:18:06,200 Speaker 11: able to return cash to their own investors, which means 305 00:18:06,280 --> 00:18:08,639 Speaker 11: investors don't have cash to invest in new funds. 306 00:18:09,040 --> 00:18:10,280 Speaker 8: It's sort of a vicious cycle. 307 00:18:10,920 --> 00:18:14,040 Speaker 2: But with US interest rates beginning to go down, do 308 00:18:14,080 --> 00:18:18,920 Speaker 2: you think the bust might be temporary? Will we say 309 00:18:18,920 --> 00:18:20,600 Speaker 2: a bit of a momentary search or not? 310 00:18:21,359 --> 00:18:21,600 Speaker 8: Yes? 311 00:18:21,680 --> 00:18:25,800 Speaker 11: I think yeah. There are signs of a pickup. Low 312 00:18:25,880 --> 00:18:28,840 Speaker 11: interest rates certainly help. The IPO market is sort of 313 00:18:29,000 --> 00:18:32,359 Speaker 11: beginning to bubble back up. M and A activities speaking 314 00:18:32,520 --> 00:18:35,320 Speaker 11: gaining steam as well. So all of these are good signs. 315 00:18:35,560 --> 00:18:38,720 Speaker 11: But at the same time we have large LPs saying 316 00:18:38,880 --> 00:18:41,480 Speaker 11: we don't want as many relationships as we used to 317 00:18:41,480 --> 00:18:44,199 Speaker 11: have with GPS. We want to be really selective of 318 00:18:44,240 --> 00:18:47,119 Speaker 11: the funds we invest in. So say, you know, LPs 319 00:18:47,119 --> 00:18:50,520 Speaker 11: who used to invest in two dozen or three dozen 320 00:18:50,560 --> 00:18:52,520 Speaker 11: firms and now saying we're going to focus on the 321 00:18:52,520 --> 00:18:55,359 Speaker 11: top five or ten, which means the largest firms. You know, 322 00:18:55,400 --> 00:18:59,240 Speaker 11: the Blackstones, the polos kkos will still do well, but 323 00:18:59,359 --> 00:19:01,080 Speaker 11: what happens to the in the middle or in the 324 00:19:01,080 --> 00:19:01,960 Speaker 11: bottom rank of the. 325 00:19:01,920 --> 00:19:06,000 Speaker 2: Market h bit harder there. Maybe in a regulatory sense, 326 00:19:06,080 --> 00:19:10,879 Speaker 2: it's thought that Trump's deregulation drive has pushed private markets forwards. 327 00:19:11,440 --> 00:19:12,919 Speaker 2: Is that happening in Europe. 328 00:19:13,960 --> 00:19:17,119 Speaker 11: It's yet to trickle down to Europe for sure, but 329 00:19:18,040 --> 00:19:20,359 Speaker 11: the opening up of four oh one case, the opening 330 00:19:20,440 --> 00:19:23,560 Speaker 11: up of retail money to private equity, to private capital 331 00:19:23,640 --> 00:19:26,760 Speaker 11: is definitely a good sign. Europe is making strikes and 332 00:19:26,880 --> 00:19:30,719 Speaker 11: similar direction. The UK government is also talking about opening 333 00:19:30,760 --> 00:19:34,800 Speaker 11: up savings to private investments. Regulation is really moving in 334 00:19:34,800 --> 00:19:35,760 Speaker 11: favor of the industry. 335 00:19:36,119 --> 00:19:38,000 Speaker 2: Yeah, there's been lots of talk of that, hasn't now 336 00:19:38,080 --> 00:19:41,600 Speaker 2: under Chancellor Rachel Raves in the UK is there resistance 337 00:19:41,680 --> 00:19:46,159 Speaker 2: to pension funds increasing private exposure, you know, worries about 338 00:19:46,160 --> 00:19:48,640 Speaker 2: what that means, transparency and so on. 339 00:19:49,400 --> 00:19:53,280 Speaker 11: There are worries to be sure, because private companies obviously 340 00:19:53,320 --> 00:19:57,160 Speaker 11: don't disclose results every quarter. There is in the kind 341 00:19:57,160 --> 00:20:00,399 Speaker 11: of transparency as you say. But at the same time, 342 00:20:01,080 --> 00:20:03,639 Speaker 11: in the UK especially, a lot of ballets have been 343 00:20:03,880 --> 00:20:06,520 Speaker 11: drawn to the Canadian pension system. If you look at 344 00:20:06,760 --> 00:20:11,960 Speaker 11: DBP Ontario teachers pension scheme, for example, there's a feeling that, 345 00:20:12,040 --> 00:20:14,320 Speaker 11: you know, you have sort of these teachers out in 346 00:20:14,359 --> 00:20:17,119 Speaker 11: the middle of Canada who have better pensions than an 347 00:20:17,119 --> 00:20:18,640 Speaker 11: even working in the city of London. 348 00:20:19,240 --> 00:20:20,080 Speaker 8: So all of these. 349 00:20:19,920 --> 00:20:22,800 Speaker 11: Efforts are sort of being made to equalize that. 350 00:20:23,040 --> 00:20:23,720 Speaker 8: I suppose. 351 00:20:24,040 --> 00:20:26,080 Speaker 2: Well, it's taken them a long time though, hasn't it 352 00:20:26,119 --> 00:20:28,399 Speaker 2: in terms of when that was set up, in the 353 00:20:28,440 --> 00:20:31,000 Speaker 2: amount of time and the size of the fund. So 354 00:20:31,160 --> 00:20:34,600 Speaker 2: you know, you can understand, you know, all of those caveats. 355 00:20:34,600 --> 00:20:37,760 Speaker 2: But yes, maybe a slightly envious arty being cast adds 356 00:20:38,119 --> 00:20:41,000 Speaker 2: the success stories here and maybe how they can be 357 00:20:41,040 --> 00:20:45,800 Speaker 2: emulated in terms of European firms then, and also at 358 00:20:45,880 --> 00:20:47,560 Speaker 2: this event, what do you think is going to be 359 00:20:47,640 --> 00:20:50,920 Speaker 2: on the agenda? Maybe Europeans looking to try to catch 360 00:20:51,000 --> 00:20:52,800 Speaker 2: up with the US. What's going to be on the 361 00:20:52,840 --> 00:20:55,800 Speaker 2: agenda at the actual event. Do you think there's been 362 00:20:55,800 --> 00:20:57,800 Speaker 2: a lot of European exuberance this year? 363 00:20:57,800 --> 00:21:00,840 Speaker 11: To be sure, that's because people like getting a bit 364 00:21:00,920 --> 00:21:01,480 Speaker 11: fed up with. 365 00:21:01,520 --> 00:21:02,919 Speaker 8: The volatility in the US. 366 00:21:03,320 --> 00:21:05,840 Speaker 11: They're also worries about investing in the US, about having 367 00:21:05,880 --> 00:21:08,440 Speaker 11: money locked up in the US because of changing tariff 368 00:21:08,520 --> 00:21:11,680 Speaker 11: and trade regimes. So there is a lot more positivity 369 00:21:11,800 --> 00:21:14,840 Speaker 11: about Europe. People are talking about capital flows into Europe 370 00:21:14,920 --> 00:21:18,240 Speaker 11: for the first time in decades. Maybe, so European firms 371 00:21:18,280 --> 00:21:20,760 Speaker 11: will really be looking to cash in on that momentum 372 00:21:20,840 --> 00:21:25,960 Speaker 11: and change sort of that exuberance into actual fund commitments in. 373 00:21:26,000 --> 00:21:29,560 Speaker 2: Terms of these specific funding needs for Europe that of 374 00:21:29,560 --> 00:21:33,800 Speaker 2: course is around infrastructure and defense spending. Can private markets 375 00:21:33,800 --> 00:21:37,840 Speaker 2: fill that kind of gap? In recent days, Mario Draghi 376 00:21:38,040 --> 00:21:42,520 Speaker 2: came back to Europe to give a big speech about 377 00:21:42,720 --> 00:21:46,919 Speaker 2: his recommendations for the European markets about, you know, opening 378 00:21:47,000 --> 00:21:50,040 Speaker 2: up and trying to generate growth and investment in Europe. 379 00:21:50,080 --> 00:21:52,159 Speaker 2: Do you think the private markets can fill some of 380 00:21:52,160 --> 00:21:52,639 Speaker 2: the gap. 381 00:21:53,200 --> 00:21:55,680 Speaker 11: Yes, but private markets are certainly hoping they can and 382 00:21:55,920 --> 00:21:58,600 Speaker 11: are pretty much betting they can. Blackstone has committed about 383 00:21:58,600 --> 00:22:00,840 Speaker 11: five hundred billion of capitalty eure up on the whole. 384 00:22:01,080 --> 00:22:04,679 Speaker 11: Apollo spent spending one hundred billion in Germany alone. So 385 00:22:04,720 --> 00:22:07,159 Speaker 11: on the infrastructure side, it's sort of I guess, slightly 386 00:22:07,200 --> 00:22:11,040 Speaker 11: easily done. But in defense because historically a lot of 387 00:22:11,040 --> 00:22:13,439 Speaker 11: their own investors, a lot of their own LPs have 388 00:22:13,520 --> 00:22:16,560 Speaker 11: been prohibited from investing in defense assets. A lot of 389 00:22:16,560 --> 00:22:18,840 Speaker 11: work is being done behind the scenes to change sort 390 00:22:18,840 --> 00:22:20,720 Speaker 11: of wording and prospectuses and so on. 391 00:22:22,080 --> 00:22:25,040 Speaker 2: And in terms of whether the private markets are recession 392 00:22:25,160 --> 00:22:29,200 Speaker 2: proof or more recession proof than other markets. 393 00:22:29,240 --> 00:22:31,199 Speaker 11: I guess they would like us to believe they are 394 00:22:31,280 --> 00:22:33,560 Speaker 11: more recession proof, but I don't know that it's true 395 00:22:33,880 --> 00:22:35,560 Speaker 11: because a lot of these businesses and the end of 396 00:22:35,560 --> 00:22:37,879 Speaker 11: the day, tried to the real economy. 397 00:22:38,560 --> 00:22:41,600 Speaker 2: And what about the concerns of regulators and the idea 398 00:22:41,600 --> 00:22:45,080 Speaker 2: of markets going dark as it were, with little information 399 00:22:45,119 --> 00:22:49,160 Speaker 2: about these businesses. I mean, it's caught up particular investors 400 00:22:49,200 --> 00:22:51,600 Speaker 2: here in the UK in the past, hasn't it. So 401 00:22:52,520 --> 00:22:54,720 Speaker 2: there's also even this idea that President Trump has been 402 00:22:54,760 --> 00:22:59,760 Speaker 2: talking about of for listed companies that they wouldn't have 403 00:22:59,840 --> 00:23:02,960 Speaker 2: to you actually report every quarter it's a Wall Street 404 00:23:02,960 --> 00:23:05,159 Speaker 2: but then maybe a six month cycle is better. So 405 00:23:05,760 --> 00:23:08,440 Speaker 2: there's a lot shifting in that regulatory space, isn't that. 406 00:23:08,760 --> 00:23:12,600 Speaker 11: Yeah, Listed companies certainly do talk about sort of onerous 407 00:23:12,640 --> 00:23:18,760 Speaker 11: regulatory requirements and having to list every quarter obviously increases transparency, 408 00:23:18,840 --> 00:23:21,080 Speaker 11: but it has its. 409 00:23:21,040 --> 00:23:22,880 Speaker 8: Detractors as well, the practice. 410 00:23:22,520 --> 00:23:26,240 Speaker 11: Because there's this idea that companies sort of tend to 411 00:23:26,520 --> 00:23:29,760 Speaker 11: meet analyst estimates and then bump forecast just based on 412 00:23:29,800 --> 00:23:33,280 Speaker 11: what analyst expectations are, that it's not really indicative of their. 413 00:23:33,160 --> 00:23:34,520 Speaker 8: Underlying growth per se. 414 00:23:35,840 --> 00:23:37,800 Speaker 11: And also when you talk to companies that are private 415 00:23:37,840 --> 00:23:40,440 Speaker 11: and looking to go public, yes, the one thing they 416 00:23:40,480 --> 00:23:44,080 Speaker 11: always cite as a hurdle is this regulatory requirement to 417 00:23:44,200 --> 00:23:47,879 Speaker 11: list to sort of disclosed reports every three months. So 418 00:23:47,960 --> 00:23:51,960 Speaker 11: I don't know if loosening that requirement perhaps might be 419 00:23:52,040 --> 00:23:54,959 Speaker 11: helpful in terms of bringing more private companies public and 420 00:23:55,160 --> 00:23:57,440 Speaker 11: in terms of bringing more private companies to the IPO market. 421 00:23:57,480 --> 00:23:59,560 Speaker 8: Certainly, but at the same. 422 00:23:59,400 --> 00:24:02,639 Speaker 11: Time, yeah, lack of transparencies and good investors need to 423 00:24:02,680 --> 00:24:05,000 Speaker 11: know what they're putting their money in, so there needs 424 00:24:05,000 --> 00:24:06,919 Speaker 11: to be a degree of financial disclosure. 425 00:24:07,720 --> 00:24:09,000 Speaker 2: So what do you think is going to be the 426 00:24:09,080 --> 00:24:12,440 Speaker 2: outlook then for private markets, as you say, is face 427 00:24:12,560 --> 00:24:14,919 Speaker 2: quite a bit of challenge in the last twelve to 428 00:24:14,960 --> 00:24:17,879 Speaker 2: eighteen months. What are you thinking about for the next year. 429 00:24:19,119 --> 00:24:21,639 Speaker 11: I think the opening up of private markets to retail 430 00:24:21,680 --> 00:24:24,240 Speaker 11: money is a big boom sign for the industry. It 431 00:24:24,359 --> 00:24:27,000 Speaker 11: just means more capital flowing into the industry. In that regard, 432 00:24:27,160 --> 00:24:29,879 Speaker 11: that's very much a positive. Improving m ANDA markets are 433 00:24:29,880 --> 00:24:32,600 Speaker 11: also positive because it means they can monetize assets quicker. 434 00:24:32,720 --> 00:24:34,280 Speaker 11: But I think there's going to be a bifurcation in 435 00:24:34,320 --> 00:24:36,920 Speaker 11: the industry where the big get bigger in terms of size, 436 00:24:36,920 --> 00:24:39,680 Speaker 11: in terms of assets under management, struggle to survive. 437 00:24:40,400 --> 00:24:42,800 Speaker 2: Okay, Sweater, thank you so much for being with me today. 438 00:24:42,840 --> 00:24:47,720 Speaker 2: Sweater to Gopinath. That was Bloomberg's private equity reporter, Sweeter Gopinath. 439 00:24:47,880 --> 00:24:50,800 Speaker 2: My thanks to her. Will have full coverage of all 440 00:24:50,840 --> 00:24:55,320 Speaker 2: the deals, the conversations and activities from EPM in Paris. 441 00:24:55,359 --> 00:24:57,919 Speaker 2: Here on Bloomberg, I'm Caroline Hepga. Here in London, you 442 00:24:57,920 --> 00:25:00,679 Speaker 2: can catch us every weekday morning for plaus Big daybak 443 00:25:00,720 --> 00:25:03,200 Speaker 2: you at beginning at six am in London. That's one 444 00:25:03,240 --> 00:25:04,359 Speaker 2: am on Wall Street. 445 00:25:04,400 --> 00:25:04,760 Speaker 8: Tom. 446 00:25:05,000 --> 00:25:07,800 Speaker 1: Thanks Caroline and coming up on Bloomberg day Break weekend, 447 00:25:07,800 --> 00:25:12,840 Speaker 1: a major investment in defense spending in Australia. I'm Tom Busby, 448 00:25:12,880 --> 00:25:26,000 Speaker 1: and this is Bloomberg. This is Bloomberg day Break Weekend, 449 00:25:26,000 --> 00:25:28,320 Speaker 1: our global look ahead at the top stories for investors 450 00:25:28,359 --> 00:25:30,920 Speaker 1: in the coming week. I'm Tom Busby in New York, 451 00:25:31,400 --> 00:25:35,400 Speaker 1: Australia announcing plans to spend eight billion dollars in US 452 00:25:35,560 --> 00:25:38,040 Speaker 1: money on a defense hub to build naval ships and 453 00:25:38,080 --> 00:25:42,359 Speaker 1: doc nuclear submarines. Prime Minister Anthony Albanize made the announcement 454 00:25:42,400 --> 00:25:45,800 Speaker 1: this past week as Canberra seeks to bolster US backing 455 00:25:45,960 --> 00:25:48,760 Speaker 1: for the August Pact. For more, let's get to the 456 00:25:48,760 --> 00:25:52,520 Speaker 1: host of the Daybreak Asia podcast, Doug Krisner. Tom. 457 00:25:52,640 --> 00:25:55,560 Speaker 3: Diplomacy will be front and center in the week ahead 458 00:25:55,640 --> 00:25:59,400 Speaker 3: as the UN convenes its eightieth General Assembly in New York, 459 00:25:59,600 --> 00:26:03,560 Speaker 3: and it's there that Australian Prime Minister Anthony ALBANIZI will 460 00:26:03,560 --> 00:26:05,760 Speaker 3: be meeting with Donald Trump and the two have a 461 00:26:05,800 --> 00:26:10,520 Speaker 3: lot to discuss. Principally, the multi billion dollar Aucus Partnership 462 00:26:11,040 --> 00:26:15,040 Speaker 3: now AUCUS is a trilateral security arrangement between Australia, the 463 00:26:15,119 --> 00:26:18,080 Speaker 3: United Kingdom and the US. The aim here is to 464 00:26:18,200 --> 00:26:22,080 Speaker 3: promote a free and open Indo Pacific that is secure 465 00:26:22,160 --> 00:26:25,000 Speaker 3: and stable. For a closer look at what's at stake, 466 00:26:25,119 --> 00:26:29,200 Speaker 3: I'm joined by Bloomberg Swati Pondi Swati joins us from 467 00:26:29,200 --> 00:26:31,840 Speaker 3: our studios in Sydney. Swati, thank you so much for 468 00:26:31,880 --> 00:26:34,920 Speaker 3: making time to chat with me. Remember that AUCUS was 469 00:26:34,960 --> 00:26:38,040 Speaker 3: signed back in twenty twenty one by then President Biden. 470 00:26:38,080 --> 00:26:42,480 Speaker 3: Obviously we have seen a major shift in foreign policy 471 00:26:42,560 --> 00:26:46,840 Speaker 3: under the Trump administration. What change has occurred that may 472 00:26:47,040 --> 00:26:47,920 Speaker 3: affect AUCUS? 473 00:26:48,200 --> 00:26:53,040 Speaker 9: So since Donald Trump came to office, all of American 474 00:26:53,160 --> 00:26:56,320 Speaker 9: allies have kind of been put on notice to increase 475 00:26:56,400 --> 00:27:00,560 Speaker 9: their difference spending and that was something that was expected 476 00:27:00,600 --> 00:27:06,560 Speaker 9: out of Australia as well. In response, Albaniazi had sounded 477 00:27:06,760 --> 00:27:12,560 Speaker 9: quite defiant and kind of sought independence in saying that 478 00:27:12,720 --> 00:27:15,639 Speaker 9: this will be australia sovereign decision what it does with 479 00:27:15,720 --> 00:27:21,119 Speaker 9: defense spending. And then during that period, the US also 480 00:27:21,600 --> 00:27:25,439 Speaker 9: launched a review of the UCUS and that led to 481 00:27:25,560 --> 00:27:30,560 Speaker 9: question marks around the future of this partnership. And then 482 00:27:30,880 --> 00:27:35,280 Speaker 9: in recent weeks we have seen Australia making massive billion 483 00:27:35,320 --> 00:27:40,879 Speaker 9: dollar announcements with uh TO kind of I think satisfy 484 00:27:41,040 --> 00:27:47,400 Speaker 9: the US, and it has also signed treaties around August 485 00:27:47,440 --> 00:27:51,280 Speaker 9: with the UK. So it seems like Australia is trying 486 00:27:51,320 --> 00:27:55,960 Speaker 9: to make those attempts and get that first meeting with 487 00:27:56,280 --> 00:27:59,840 Speaker 9: Donald Trump since he came to power earlier this year. 488 00:28:00,280 --> 00:28:03,720 Speaker 3: For Australia, there is the point here I think that 489 00:28:03,760 --> 00:28:05,640 Speaker 3: we really have to tease out, is that the US 490 00:28:05,720 --> 00:28:09,240 Speaker 3: will help develop Australia's nuclear powered submarine fleet as a 491 00:28:09,280 --> 00:28:12,600 Speaker 3: part of the Auchice Agreement. Is any of that in 492 00:28:12,680 --> 00:28:13,600 Speaker 3: doubt right now? 493 00:28:14,040 --> 00:28:18,640 Speaker 9: Not right now? So I had some conversations with sources 494 00:28:18,640 --> 00:28:22,280 Speaker 9: in Australia who are familiar with the Australian government's thinking 495 00:28:22,320 --> 00:28:26,520 Speaker 9: but also the American government's thinking, and it looks like 496 00:28:26,840 --> 00:28:29,920 Speaker 9: the partnership will go ahead. The point of the review 497 00:28:30,119 --> 00:28:34,160 Speaker 9: was really to reinforce the pact rather than unravel it. 498 00:28:34,640 --> 00:28:38,080 Speaker 9: We don't really know a lot of the information. Obviously, 499 00:28:39,080 --> 00:28:43,600 Speaker 9: the Secretary of State and Defense Secretary in the US 500 00:28:43,640 --> 00:28:47,719 Speaker 9: have not publicly spoken about the intent of the review, 501 00:28:48,120 --> 00:28:52,360 Speaker 9: but it does look like the pact will go ahead 502 00:28:52,480 --> 00:28:58,440 Speaker 9: and Australia will be able to get the submarines at 503 00:28:58,480 --> 00:29:01,200 Speaker 9: some point in distant future. 504 00:29:01,520 --> 00:29:05,200 Speaker 3: So from what I understand the Australian government recently announced 505 00:29:05,760 --> 00:29:09,600 Speaker 3: around nine billion dollars that would be US in related 506 00:29:09,640 --> 00:29:13,960 Speaker 3: defense investments, and I'm wondering from the conversations that you 507 00:29:14,040 --> 00:29:16,760 Speaker 3: have had with people there whether that level would be 508 00:29:16,840 --> 00:29:19,680 Speaker 3: sufficient to satisfy the Trump administration. 509 00:29:19,960 --> 00:29:23,200 Speaker 9: It may not be enough to satisfy them, but it 510 00:29:23,320 --> 00:29:26,760 Speaker 9: is a step in the right direction as far as 511 00:29:26,840 --> 00:29:31,360 Speaker 9: the US is concerned. It's the intention, it's what they'd 512 00:29:31,520 --> 00:29:35,280 Speaker 9: like to hear. And it's also a change of tactic 513 00:29:35,400 --> 00:29:40,880 Speaker 9: from Australia side, where Albinizi and Australia's Foreign Minister Penny 514 00:29:40,920 --> 00:29:44,959 Speaker 9: Wong had earlier sounded a lot more defiant when it 515 00:29:45,040 --> 00:29:49,120 Speaker 9: came to increasing defense spending and that tone has shifted 516 00:29:49,240 --> 00:29:53,640 Speaker 9: in recent weeks and months. So that will definitely be welcomed, 517 00:29:53,960 --> 00:29:57,640 Speaker 9: and probably that is why we are getting that first 518 00:29:57,680 --> 00:30:01,800 Speaker 9: meeting with Trump as well. So it's definitely welcome. 519 00:30:01,960 --> 00:30:04,680 Speaker 3: So we know that Trump administration is currently in trade 520 00:30:04,720 --> 00:30:07,480 Speaker 3: negotiations with China. Can you give me a sense of 521 00:30:07,480 --> 00:30:11,280 Speaker 3: the reaction that Beijing is having right now to this 522 00:30:11,280 --> 00:30:14,440 Speaker 3: this continued refinement of the orchest. 523 00:30:14,120 --> 00:30:18,560 Speaker 9: Treating the response from Beijing has not been quite vocal. 524 00:30:19,040 --> 00:30:26,560 Speaker 9: I'd say, we had the China operate the Shanghai Cooperation recently, 525 00:30:26,800 --> 00:30:31,440 Speaker 9: where a lot of the country's dictators Russia, North Korea, 526 00:30:32,400 --> 00:30:35,719 Speaker 9: even Indian Prime Minister and aar In Ramodi were there. 527 00:30:35,800 --> 00:30:39,320 Speaker 9: It was a show of weapons. It was a show 528 00:30:39,480 --> 00:30:44,040 Speaker 9: of China's might what it is capable of. Uh and 529 00:30:44,840 --> 00:30:48,480 Speaker 9: and I think that is one of the ways that 530 00:30:48,600 --> 00:30:52,080 Speaker 9: China is trying to show to the US and to 531 00:30:52,200 --> 00:30:54,280 Speaker 9: the world to not take it lightly. 532 00:30:54,720 --> 00:30:56,880 Speaker 3: Can you give me a sense of what the Australian 533 00:30:56,960 --> 00:30:59,600 Speaker 3: press is reporting as we look ahead to this meeting 534 00:30:59,680 --> 00:31:02,840 Speaker 3: between mean Prime Minister Albanizi and President Trump. 535 00:31:03,560 --> 00:31:10,520 Speaker 9: The Australian press has actually been quite critical of the 536 00:31:10,720 --> 00:31:16,400 Speaker 9: US and Donald Trump in particular. Remember Australia had had 537 00:31:16,440 --> 00:31:21,560 Speaker 9: an election in May when Albinizi came back to power 538 00:31:22,280 --> 00:31:25,240 Speaker 9: for his second term, and it was a landslide victory. 539 00:31:25,760 --> 00:31:29,440 Speaker 9: It was not expected, so it was a surprise landslide victory. 540 00:31:29,840 --> 00:31:36,560 Speaker 9: Uh and and so Albinizi thinks that it is in 541 00:31:36,600 --> 00:31:40,440 Speaker 9: his favor in terms of domestic politics to take a 542 00:31:40,480 --> 00:31:47,240 Speaker 9: stand against Donald Trump uh to sound more defiant in 543 00:31:47,600 --> 00:31:51,320 Speaker 9: sticking up to what Australia stands for. Uh and and 544 00:31:51,400 --> 00:31:54,880 Speaker 9: the local press has also kind of been reporting along 545 00:31:54,920 --> 00:31:58,960 Speaker 9: those lines as well. However, in recent weeks, and especially 546 00:31:59,000 --> 00:32:04,040 Speaker 9: since the Chinese parade, the conversations have also kind of 547 00:32:04,080 --> 00:32:10,240 Speaker 9: tilted towards the need for a stronger Western alliance and 548 00:32:10,360 --> 00:32:16,120 Speaker 9: for Western democracies to come together and and fight the 549 00:32:16,160 --> 00:32:19,720 Speaker 9: growing fragmentation uh that we are seeing in the world. 550 00:32:19,920 --> 00:32:23,040 Speaker 9: I was at an event last week where Kurt Campbell, 551 00:32:23,040 --> 00:32:27,440 Speaker 9: who's the former Deputy Secretary of State, was speaking, and 552 00:32:27,640 --> 00:32:32,080 Speaker 9: he actually said that this meeting between Albanesi and Trump 553 00:32:32,400 --> 00:32:36,000 Speaker 9: will be the most consequential meeting of an American and 554 00:32:36,040 --> 00:32:40,240 Speaker 9: an Australian in living memory. And he said that Albanesi 555 00:32:40,400 --> 00:32:46,160 Speaker 9: should use this meeting to talk beyond bilateral ties and 556 00:32:46,200 --> 00:32:52,440 Speaker 9: talk talk beyond narrow economic issues two more regional defense 557 00:32:53,240 --> 00:32:59,400 Speaker 9: and other global defragmentation uh issues. So uh so that 558 00:32:59,640 --> 00:33:02,680 Speaker 9: is what will be on Albinizi's agenda as well. 559 00:33:03,120 --> 00:33:05,760 Speaker 3: Should make for a very interesting meeting this week between 560 00:33:05,800 --> 00:33:09,840 Speaker 3: Australian Prime Minister Anthony Albanisian President Trump on the sidelines 561 00:33:09,880 --> 00:33:12,880 Speaker 3: of the eightieth General Assembly of the UN here in 562 00:33:12,920 --> 00:33:15,600 Speaker 3: New York City. Swati, thank you so much for joining 563 00:33:15,640 --> 00:33:19,480 Speaker 3: me Bloomberg. Swati PONDI there, joining from Sydney. Now, the 564 00:33:19,520 --> 00:33:23,160 Speaker 3: global influence of the Trump administration goes well beyond the 565 00:33:23,200 --> 00:33:26,560 Speaker 3: defense budgets of other countries. Look no further than trade 566 00:33:26,560 --> 00:33:29,640 Speaker 3: policy and the use of those tariffs. And then there 567 00:33:29,720 --> 00:33:33,239 Speaker 3: is the US dollar, the world's dominant reserve currency. So 568 00:33:33,360 --> 00:33:36,040 Speaker 3: far this year, the dollar is down by more than 569 00:33:36,080 --> 00:33:39,960 Speaker 3: ten percent against a basket of its peers. Yes, increased 570 00:33:40,000 --> 00:33:43,480 Speaker 3: nervousness from global investors may be a part of that decline, 571 00:33:43,760 --> 00:33:47,320 Speaker 3: but another aspect is the desire from the Trump administration 572 00:33:47,480 --> 00:33:51,200 Speaker 3: to see a weaker currency. Stephen Myron, the newly seated 573 00:33:51,240 --> 00:33:54,360 Speaker 3: Fed Governor, has taken unpaid leave from his role as 574 00:33:54,520 --> 00:33:57,880 Speaker 3: chair of the White House Council of Economic Advisors, and 575 00:33:58,000 --> 00:34:02,720 Speaker 3: in Myron's view, the dollar is overvalued. For a closer look, 576 00:34:02,760 --> 00:34:06,680 Speaker 3: I'm joined by Bloomberg opinion columnist Shuley Wren, who joins 577 00:34:06,760 --> 00:34:09,680 Speaker 3: us from Hong Kong. Surely it's always a pleasure. Thank 578 00:34:09,680 --> 00:34:12,719 Speaker 3: you so very much. I know you're writing about Myron's 579 00:34:12,800 --> 00:34:15,560 Speaker 3: policy where the dollar is concerned. Fill me in a 580 00:34:15,600 --> 00:34:16,040 Speaker 3: little bit. 581 00:34:16,160 --> 00:34:19,680 Speaker 12: He's definitely a dollar beer. He blamed the US society's 582 00:34:20,000 --> 00:34:25,879 Speaker 12: various economic problems from the loss of manufacturing, to wealth inequality, 583 00:34:26,080 --> 00:34:30,480 Speaker 12: to the overvaluation of dollar. In a very well read 584 00:34:30,520 --> 00:34:34,880 Speaker 12: paper published the last November, he basically called the that 585 00:34:35,080 --> 00:34:39,640 Speaker 12: the He basically said that the dollar is overvalued and 586 00:34:40,120 --> 00:34:43,160 Speaker 12: that it should not be acting as a reserve currency. 587 00:34:43,360 --> 00:34:47,600 Speaker 12: And that's that's very much freaking global investors out. Like 588 00:34:47,800 --> 00:34:50,200 Speaker 12: what we're seeing is that the Fed was holding the 589 00:34:50,280 --> 00:34:54,800 Speaker 12: rates right throughout this year until Wednesday, but the dollar, 590 00:34:55,080 --> 00:34:59,600 Speaker 12: the broader Dollar index has come down twelve percent already. 591 00:35:00,040 --> 00:35:02,200 Speaker 3: Do you think he's likely to have much in a 592 00:35:02,239 --> 00:35:05,279 Speaker 3: way of influence while he's sitting on the Fed's Board 593 00:35:05,320 --> 00:35:05,880 Speaker 3: of governors. 594 00:35:06,680 --> 00:35:10,160 Speaker 12: He is only one of the seven members. However, his 595 00:35:10,400 --> 00:35:13,080 Speaker 12: rhetoric and the fact that the Trump will get to 596 00:35:13,200 --> 00:35:19,680 Speaker 12: decide on the next FET chair does do influence market narratives, 597 00:35:20,000 --> 00:35:23,959 Speaker 12: and you are actually seeing it already. For instance, Goal 598 00:35:24,120 --> 00:35:27,880 Speaker 12: is on trying to take over US treasuries as global 599 00:35:27,920 --> 00:35:31,880 Speaker 12: central bank's biggest reserve assets. That's a sign that the 600 00:35:31,920 --> 00:35:36,160 Speaker 12: global investors are trying to hatch against the instability at 601 00:35:36,160 --> 00:35:41,520 Speaker 12: the Federal Reserve. And also what you are seeing is 602 00:35:41,560 --> 00:35:47,160 Speaker 12: that the global asset managers are increasingly keen to diversify 603 00:35:47,280 --> 00:35:51,000 Speaker 12: overseas into international stocks from Europe to Hong Kong. 604 00:35:51,280 --> 00:35:54,000 Speaker 3: So I mentioned that Myron is on lee from his 605 00:35:54,160 --> 00:35:56,960 Speaker 3: role as chair of the White House Council of Economic Advisors. 606 00:35:57,000 --> 00:36:01,160 Speaker 3: And we know a cornerstone of Trump's economic policy have 607 00:36:01,280 --> 00:36:03,879 Speaker 3: to do with tariffs. And I'm wondering whether we need 608 00:36:03,920 --> 00:36:05,960 Speaker 3: to talk a little bit about the tariff story as 609 00:36:05,960 --> 00:36:08,480 Speaker 3: it relates to the dollar as well well. 610 00:36:08,960 --> 00:36:12,239 Speaker 12: And that's another problem, right, Like in the past, a 611 00:36:12,280 --> 00:36:15,480 Speaker 12: lot of foreign governments they ended up holding a lot 612 00:36:15,520 --> 00:36:18,719 Speaker 12: of dollar because they were exporting their goods and services 613 00:36:18,719 --> 00:36:22,360 Speaker 12: into the United States. But if the terror boar is 614 00:36:22,440 --> 00:36:24,959 Speaker 12: set up, there is less need for them to hold 615 00:36:25,000 --> 00:36:27,719 Speaker 12: dollar anymore. In fact that there will be in the 616 00:36:27,760 --> 00:36:31,520 Speaker 12: case of China, there will be few opportunities to earn dollar. 617 00:36:31,640 --> 00:36:31,839 Speaker 10: Right. 618 00:36:32,360 --> 00:36:34,640 Speaker 12: That means that there is a lot of selling pressure 619 00:36:34,719 --> 00:36:35,919 Speaker 12: on the green back. 620 00:36:36,719 --> 00:36:38,520 Speaker 3: So if we step back and we look at the 621 00:36:38,560 --> 00:36:41,080 Speaker 3: shift that is happening right now in global markets, is 622 00:36:41,120 --> 00:36:45,640 Speaker 3: this a time where many, I will say, especially institutional 623 00:36:45,640 --> 00:36:50,160 Speaker 3: investors are diversifying and perhaps some of that diversification is 624 00:36:50,239 --> 00:36:51,800 Speaker 3: moving assets out of the US. 625 00:36:52,000 --> 00:36:55,520 Speaker 12: I think we are already seeing that already Europe and 626 00:36:55,920 --> 00:36:59,480 Speaker 12: China have been doing very well this year. And it's 627 00:36:59,480 --> 00:37:02,440 Speaker 12: also in part because the US dooll market has become 628 00:37:02,520 --> 00:37:05,640 Speaker 12: very expensive, right Like if the AI boom is not 629 00:37:06,480 --> 00:37:09,239 Speaker 12: showing up in the earnings in say twenty twenty six, 630 00:37:09,320 --> 00:37:12,400 Speaker 12: twenty twenty seven, then the US dooll market is just 631 00:37:12,440 --> 00:37:16,280 Speaker 12: way too expensive. So there are incentives to move out anyhow. 632 00:37:16,640 --> 00:37:18,960 Speaker 3: So we know that when you are involved in the 633 00:37:19,000 --> 00:37:21,960 Speaker 3: foreign exchange, it's always a pair that you're talking about 634 00:37:22,000 --> 00:37:25,719 Speaker 3: a dollar related to another currency. And I'm wondering if 635 00:37:25,760 --> 00:37:27,960 Speaker 3: we can talk about the path of the dollar to 636 00:37:28,000 --> 00:37:31,560 Speaker 3: the downside, I'm wondering what currencies will benefit on the 637 00:37:31,600 --> 00:37:33,560 Speaker 3: strong side beyond the Japanese ND. 638 00:37:34,560 --> 00:37:36,839 Speaker 12: So if you look at emergent markets in the last 639 00:37:36,920 --> 00:37:42,000 Speaker 12: couple of months, emergent markets currencies that the author quality 640 00:37:42,120 --> 00:37:46,120 Speaker 12: carry trade, and I'm talking about those from Brazil, Mexico 641 00:37:46,239 --> 00:37:50,399 Speaker 12: and South Africa, they have been rallying the most. It's 642 00:37:50,440 --> 00:37:52,719 Speaker 12: a sign that the carry trade is back and the 643 00:37:52,760 --> 00:37:55,680 Speaker 12: people are using the dollar as the funding currency to 644 00:37:55,840 --> 00:37:58,160 Speaker 12: buy into higher yielding currencies. 645 00:37:58,719 --> 00:38:02,800 Speaker 3: Julie, thank you so very much. Bloomberg Opinion columnist Shuley Wrenn. 646 00:38:03,000 --> 00:38:05,320 Speaker 3: I'm Doug Chrisner. You can catch us weekdays for the 647 00:38:05,400 --> 00:38:09,520 Speaker 3: Daybreak Asia podcast. It's available wherever you get your podcast. 648 00:38:09,880 --> 00:38:12,600 Speaker 1: Tom, Thank you Doug. And that does it for this 649 00:38:12,760 --> 00:38:15,560 Speaker 1: edition of Bloomberg day Break Weekend. Join us again Monday 650 00:38:15,560 --> 00:38:17,720 Speaker 1: morning at five am Wall Street Time for the latest 651 00:38:17,719 --> 00:38:20,240 Speaker 1: on markets overseas and the news you need to start 652 00:38:20,280 --> 00:38:23,920 Speaker 1: your day. I'm Tom Buzzby. Stay with us. Top stories 653 00:38:23,920 --> 00:38:26,720 Speaker 1: and global business headlines are coming up right now.