Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world, and straight ahead on the program,
Speaker 2: well look ahead to this week's monetary policy decision from
Speaker 2: the Fed. Also earnings for more of text Magnificent seven.
Speaker 2: I'm Tom Busby in New York.
Speaker 3: I'm callin Hepget in London, where we're asking if President
Speaker 3: Charump's Scottish golf trip can yield any political wins.
Speaker 4: I'm got Prisner looking at the Chinese economy ahead of
Speaker 4: fresh PMI reports in the coming week.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 5: Good day to you.
Speaker 2: I'm Tom Busby, and we begin today's program with this
Speaker 2: week's Federal Reserve policy meeting. The Federal issue its latest
Speaker 2: decision on interest rates on Wednesday, with a press conference
Speaker 2: expected from FED chair Jay Powell to follow what will
Speaker 2: the Fed decide and what's behind the central banks thinking?
Speaker 2: And for more. We're joined by Edward Harrison, senior editor
Speaker 2: at Bloomberg, author of Bloomberg's Everything Risk newsletter. Well, Edward,
Speaker 2: a critical decision from the Fed. What are you expecting
Speaker 2: to see happen this week?
Speaker 6: Hey, Tom? Yes, it is a critical decision because of
Speaker 6: the political pressure that we've seen applied to the Federal Reserve.
Speaker 6: The market widely expects interest rates to stay the same,
Speaker 6: in particular because we haven't implemented the final round of
Speaker 6: tariffs yet, we don't know how the economy's going to
Speaker 6: react to that. If you look at the pricing from
Speaker 6: the market, it's expecting not just this meeting to be
Speaker 6: the same. But there's only a slight chance, maybe a
Speaker 6: sixty percent chance that we get a cut in September.
Speaker 6: It's first in October when the next rate cut will come.
Speaker 2: Wow, that's well, that's a change. But Chairman Palth has
Speaker 2: said time and again he has said it's all about
Speaker 2: the data and that the Central Bank has to see
Speaker 2: the impact of the Trump tariffs on inflation. So it
Speaker 2: really is too soon to make a move because we
Speaker 2: just don't know. There's so many moving parts with these tariffs. Correct.
Speaker 6: Yeah, and you know, the interesting bit is is when
Speaker 6: the Fed actually moved to lower interest rates in twenty
Speaker 6: twenty four, the market's reaction was that this took all
Speaker 6: of the risk of a recession off the table, so
Speaker 6: much so that interest rates actually went up. So they
Speaker 6: lowered the short term interest rates, but they yields on
Speaker 6: longer term bonds, the ones that actually matter to people
Speaker 6: when they're getting a mortgage and so forth, those are
Speaker 6: the ones that went up. And so it was because
Speaker 6: the recession risk receded that you actually had a situation
Speaker 6: where the Fed was acting one way and long term
Speaker 6: yields went the actual opposite direction.
Speaker 2: Well, I think you know on Wall Street we have
Speaker 2: seen the major averages add or near all time highs
Speaker 2: the last few weeks. Inflation still above the Fed's target,
Speaker 2: but it has eased about two point seven percent, the
Speaker 2: labor market, resilient, jobless rate, four percent initial jobs. Everything
Speaker 2: is working. The Fed's plans have been working. So the
Speaker 2: argument could be, well, why not lower interest rates, But
Speaker 2: there's a very good reason why they wouldn't correct just
Speaker 2: for that reason you were talking about with long term yields.
Speaker 6: Right exactly. They just they don't know if, for instance,
Speaker 6: they were to lower interest rates whether or not, suddenly
Speaker 6: we would get inflation coming back in, not just because
Speaker 6: the tariffs created more inflation, but actually because the economy
Speaker 6: was running hot enough to create inflation on its own.
Speaker 6: And then suddenly they'd be in a situation where they
Speaker 6: made an error and that error would be taken on
Speaker 6: by markets to increase interest rates, increase yields across the curve,
Speaker 6: expecting the Fed to eventually have to undo that error.
Speaker 6: And this is the dilemma that they faced. So they've decided, look,
Speaker 6: you know, we're in a good enough position at this
Speaker 6: point in time that we can actually wait to do this.
Speaker 6: You know what's interesting if you look at the last
Speaker 6: FED decision, they released a summary of economic projections and
Speaker 6: sort of a by and modal distribution, there are actually
Speaker 6: seven of the Fed governors and presidents who think that
Speaker 6: they shouldn't lower interest rates at all this year, whereas
Speaker 6: nine think that they should lower them two times this year.
Speaker 6: And there are four others that are in there, but
Speaker 6: you know the total number that the reason that we
Speaker 6: have an expectation for two interest rates. It's being lowered
Speaker 6: is because of those I think it's eight FED members
Speaker 6: who believe that interest rate should be lowered by two,
Speaker 6: but they are a decent number who think, you know,
Speaker 6: there shouldn't be any interest rate cuts this year.
Speaker 2: And there's been a lot of pressure, obviously from President
Speaker 2: Trump on Jerome Palell, a lot of criticism, a lot
Speaker 2: of pressure about what the FED is going to do.
Speaker 2: And it goes into what you just said, He's not
Speaker 2: the only one designing. I mean, there are twelve voting
Speaker 2: members of the FOMC. You have all these other governors
Speaker 2: and vice presidents and presidents of banks. I mean, it
Speaker 2: is not a unilateral decision, is it.
Speaker 6: No, it's not. And the interesting thing about that bimodal
Speaker 6: distribution is that obviously we don't know which of the
Speaker 6: nineteen dots in this summary are of voting members, but
Speaker 6: there are enough members that if the data turned towards
Speaker 6: the more inflationary side, you could get the FOMC outside
Speaker 6: of Jerome Pale saying no, we don't even want two
Speaker 6: interest rate cuts this year. We want one and perhaps
Speaker 6: even zero. Because all it takes is us to get
Speaker 6: three more dots up into that number, you know, to
Speaker 6: go from seven to ten, and then suddenly we don't
Speaker 6: have any interest rate cuts at all in twenty twenty five.
Speaker 2: Well, the FETCH two day policy meeting kicks off this
Speaker 2: Tuesday at Decision Wednesday, expected at two pm Wall Street time. Then,
Speaker 2: of course we're going to hear from fedchair Jerome Powell.
Speaker 2: Our thanks to Edward Harrison, senior editor at Bloomberg, author
Speaker 2: of Bloomberg's Everything Risk newsletter. We move next to corporate earning.
Speaker 2: Some of the Magnificent seven's biggest names reporting this week
Speaker 2: meta platforms, Microsoft, Apple, and Amazon, and for more on
Speaker 2: what to expect. We're joined by Mandeep Singh, Bloomberg Intelligence,
Speaker 2: senior tech industry analysts. Man Deep, thank you so much
Speaker 2: for being here. I want to start though, by looking backward,
Speaker 2: because last week we got the latest results from Tesla
Speaker 2: and Alphabet, very different results. Tesla miss earnings, sales fell
Speaker 2: difficult times ahead what Alphabet. There was a real upside surprise,
Speaker 2: wasn't there.
Speaker 7: Yeah, And also going into earnings, I think the narrative
Speaker 7: was that Google Search has been under a lot of
Speaker 7: competitive threat from the likes of Chat GPT and just
Speaker 7: what's going on in the LLM space and the numbers
Speaker 7: proved otherwise, I mean the fact that Google grow search
Speaker 7: double digits at a run rate of two hundred ten
Speaker 7: billion dollars. That just goes to show you know, how
Speaker 7: much momentum they have in terms of just their integrating
Speaker 7: Gemini with their search page. So AI overviews has actually
Speaker 7: helped you know, the number of queries. And then the monetization,
Speaker 7: I mean ad monetization for Google is really, you know,
Speaker 7: something that no one else has been able to even
Speaker 7: come close to. And look, we're talking about Meta coming
Speaker 7: up as well. So to me, what what will be
Speaker 7: interesting is whether Meta shows you know, high teens or
Speaker 7: twenty percent plus growth, because that's the sort of expectation
Speaker 7: Google has set up with its print. You know, YouTube
Speaker 7: did really well. In fact, YouTube plus cloud is almost
Speaker 7: one hundred and fifteen billion dollars rundrate growing at over
Speaker 7: twenty percent, and so a lot of positives in that
Speaker 7: Google print. The one thing I would call out is
Speaker 7: a capex pense. So Google ded raise their capex by
Speaker 7: ten billion for this year, and they said twenty twenty
Speaker 7: six would be another growth year for capex and that
Speaker 7: some investors could say would be a Dragon free cash flow,
Speaker 7: But I would compare that to a Meta which has
Speaker 7: already guided to a higher CAPEX and they are not
Speaker 7: monetizing at the same level as Google is with their
Speaker 7: cloud business. So that is where it'd be interesting to
Speaker 7: see how the market reacts to Meta talking up capex
Speaker 7: for second half twenty twenty six.
Speaker 2: Another horse in this race Microsoft, Yeah, which you know
Speaker 2: with their open AI commitments and still expected to see
Speaker 2: Azure a big, big revenue gainer. How about you know
Speaker 2: the rest of the company. Where's Microsoft stand? Because we're
Speaker 2: out Wednesday as well.
Speaker 7: I think one thing was clear from google'sprint is Microsoft
Speaker 7: Azure business is going to put up another strong quarter.
Speaker 7: We are talking another mid thirty five, like mid thirty
Speaker 7: percent growth for an Azure, which was a real surprise
Speaker 7: last quarter. But now the numbers have gone up for Azure,
Speaker 7: so you will see another strong quarter for Azure. But overall, look,
Speaker 7: Microsoft has been one of the biggest beneficiaries of this
Speaker 7: AI infrastructure spend and the cloud business that it has benefited.
Speaker 7: And in Google's case, you know, it's a fifty billion
Speaker 7: dollars run rate business cloud growing almost you know, thirty
Speaker 7: percent plus now, so that could double to hundred billion
Speaker 7: in two years. In Microsoft's case, it's the same kind
Speaker 7: of momentum, and that's why cloud is the real beneficiary
Speaker 7: of this AI infrastructure spent. On one hand, we call
Speaker 7: out how Nvidia is benefited on the chip side. On
Speaker 7: the software side, it's the cloud companies. And that's where
Speaker 7: I would put Microsoft and Google. Amazon, which is another
Speaker 7: one reporting next week and has expoture to cloud, I
Speaker 7: think their growth rates are still way down compared to
Speaker 7: Google and Microsoft Cloud, which is growing you know, thirty
Speaker 7: percent plus. Amazon's growth may still be around that's seventeen
Speaker 7: to twenty percent.
Speaker 2: And still strong, still very strong.
Speaker 7: For a business of over one hundred billion dollar run rate.
Speaker 7: It's very good growth when you compare them share in cloud.
Speaker 7: I do think, you know, Microsoft and Google seem to
Speaker 7: be taking share because of this AI workloud shift, and
Speaker 7: that's where Amazon has to kind step up in terms
Speaker 7: of how they will increase the growth rate for their
Speaker 7: cloud business.
Speaker 2: Now the outlier in this horse race for AI, Apple
Speaker 2: also next week, has been way behind, has no sign
Speaker 2: of even catching up except for partnerships it's making. But
Speaker 2: what do you expect there. I mean, the iPhone sixteen
Speaker 2: is smash hit. We have services have been very strong,
Speaker 2: but are they still behind. They're still going to make
Speaker 2: a ton of money, there's no doubt.
Speaker 7: I think with Apple now announcing they're getting into insurance business.
Speaker 7: The twenty dollars per month for three devices, that's just
Speaker 7: aimed at improving the services run rate. To me, everyone
Speaker 7: looks up to Apple for what they will do on
Speaker 7: the AI side, and that is a big question mark
Speaker 7: whether they have a compelling AI strategy. I think they
Speaker 7: are going to go to the partnership route, but right
Speaker 7: now we have no signs to suggest there will be
Speaker 7: a big upgrade or refresh cycle for their devices because
Speaker 7: AI right now is still being used on the cloud.
Speaker 7: People are not really using AI assistant that's installed on
Speaker 7: the phone. Because these lms are called large anglid models
Speaker 7: for a reason. They require a lot of compute and
Speaker 7: memory that you can't have on device, and so that's
Speaker 7: where Apple has to strike partnerships. They have to enhance
Speaker 7: their hardware to run AI on device, and we are
Speaker 7: talking about at least at twelve to twenty four month timeframes,
Speaker 7: so you're not gonna see anything that investors will find exciting,
Speaker 7: at least in this print.
Speaker 2: Well, a lot to look forward to. Meta and Microsoft
Speaker 2: earnings out this Wednesday. Amazon and Apple on Thursday are
Speaker 2: thanks to Mandeep Sing, Bloomberg Intelligence Senior Tech industry analyst.
Speaker 2: And coming up on Bloomberg day Break weekend, we'll look
Speaker 2: at whether President Trump's Scottish golf trip can yield any
Speaker 2: political wins. I'm Tom Busby and this is Bloomberg. This
Speaker 2: is Bloomberg day Break weekend, our global look ahead at
Speaker 2: the top stories for investors in the coming week. I'm
Speaker 2: Tom Busby in New York. Up later in our program
Speaker 2: and look at some key economic data coming out of
Speaker 2: the world's second largest economy. But first, fresh from a
Speaker 2: flurry of trade deal announcements, President Trump is in the
Speaker 2: UK in Scotland. His trip will be a mixture of
Speaker 2: business and pleasure. But in the coming days the President
Speaker 2: has set to hold meetings with UK Prime Minister Kure
Speaker 2: Starmer and John Swinney, First Minister of Scotland. Can the
Speaker 2: duo sweet talk Trumpet to further trade concessions For more,
Speaker 2: Let's go to London and bring in Bloomberg day Break
Speaker 2: Europe anchor Caroline Hepgar.
Speaker 3: Tom President Donald Trump Count's Scottish ancestry as part of
Speaker 3: his heritage. His mother, Mary Anne MacLeod, was one of
Speaker 3: thousands of Scotts who left for the US and Canada
Speaker 3: at the beginning of the last century in a bid
Speaker 3: to escape economic hardship at home. But despite the family ties,
Speaker 3: the US President's relationship with the country is a complicated one.
Speaker 3: During his last visit to Scotland in twenty eighteen, the
Speaker 3: President was booed during an afternoon golf game by demonstrators
Speaker 3: at his resort in Turnbury, and the entire trip was
Speaker 3: dogged by protests of thousands of people in Glasgow, Edinburgh
Speaker 3: and Aberdeen. This time round, controversial White House policies could
Speaker 3: make for a similar reception as Trump visits his two
Speaker 3: Scottish golf properties. His plan for international trade is also
Speaker 3: something the White House Press Secretary Caroline Leavitt expanded on recently.
Speaker 8: Look, I can tell you the trade team and the
Speaker 8: President himself continue to be very engaged with countries around
Speaker 8: the world when it comes to our trade agreements. But
Speaker 8: the August first deadline is just really the start date
Speaker 8: for when the United States of America will begin collecting
Speaker 8: this revenue from all of the countries around the world
Speaker 8: who the President has sent these letters to.
Speaker 5: You could see some more years.
Speaker 8: Before August first, John, you could have some more trade
Speaker 8: announcements as well. I can tell you the President, Secretary
Speaker 8: of Treasury, Secretary of Commerce, Ambassador Greer all continue to
Speaker 8: be in constant communication with our trading partners.
Speaker 3: The White House is Caroline Levitt speaking to reporters there. Well,
Speaker 3: do you know what I mean?
Speaker 7: Now?
Speaker 3: It's Bloomberg's Edinburgh based reporter James Laden and our White
Speaker 3: House correspondent Skyla Woodhouse. Welcome to both of you. Thank
Speaker 3: you for speaking to me. James, Maybe can I start
Speaker 3: with you. Trump has long been i'll say, infatuated with Scotland.
Speaker 3: The Scot's perhaps a bit less so with him. Just
Speaker 3: talk us through the perceptions of President Donald Trump on
Speaker 3: the ground.
Speaker 9: Now, Yeah, in your intro you did mention how there
Speaker 9: were some demos against him when you was here last
Speaker 9: I think those demos were more personality based, whereas I
Speaker 9: think the demos that are being planned are both personality
Speaker 9: and politics based. So there's a subtle difference there. One
Speaker 9: thing I think that you need to sort of remind
Speaker 9: yourselves about the Scottish psyche if you like, is that
Speaker 9: someone who shall we say, is kind of fairy, brash
Speaker 9: and a showman. That doesn't necessarily go down very well
Speaker 9: here in Scotland. They tend to admire people who are
Speaker 9: a bit more understated. And also Scotland does have a
Speaker 9: reputation of cheering for the underdog over the years, and
Speaker 9: certainly having a slightly larger big brother, shall we say,
Speaker 9: to the South that's been dominating proceedings for several centuries.
Speaker 9: That also probably explains why Scott's they prefer the underdog
Speaker 9: rather than the top dog.
Speaker 3: H Okay Skyler. And President Trump's also coming to the
Speaker 3: UK for full proper state visit in only a few
Speaker 3: weeks time. Why do you think he's making this trip
Speaker 3: to Scotland now?
Speaker 10: I mean the White House is saying, you know, this
Speaker 10: is a moment for the President and Prime Minister Starmer
Speaker 10: to refine the trade deal from just a few months ago.
Speaker 10: You know, we'll hopefully we'll get an update on what's
Speaker 10: maybe some more of the fine print details of that
Speaker 10: trade agreement are. And there's obviously a lot happening in
Speaker 10: the world right now there's you know, Ukraine and Russia
Speaker 10: that has been you know, front and center for President Trump,
Speaker 10: and you know, so we're you know, looking to see
Speaker 10: if we could see any sort of maybe new agreement
Speaker 10: between the two countries there or just sort of what
Speaker 10: the strategy you know, might look like. So there's a
Speaker 10: lot of talk around national security right now.
Speaker 5: You know.
Speaker 10: So it's kind of a mix of you know, the
Speaker 10: presidents who we all know loves to golf and you
Speaker 10: know frequently he'll be in Florida, you know, golfing and
Speaker 10: things like that. But you know, we're expecting to see
Speaker 10: probably a more refined trade deal than what we saw earlier.
Speaker 3: Yeah, absolutely, entire it's hugely important, I mean, both the
Speaker 3: kised arma of the UK as a whole and Scotland
Speaker 3: in particular as well. Is there going to be any
Speaker 3: expectation actually of any progress in terms of trade discussions?
Speaker 2: Do you think?
Speaker 10: I think one thing that's particularly interesting with the trade
Speaker 10: agreements that we've just been seeing across the board, Obviously,
Speaker 10: this is something that President Trump is very passionate about
Speaker 10: and is definitely dominating his second term and as president.
Speaker 10: You know, so I think it'll be interesting to watch
Speaker 10: what the fine print looks like. We've we're approaching that
Speaker 10: August first deadline with a plethora of countries and we're
Speaker 10: starting to see you know, the rates coming in you know,
Speaker 10: a different level. So I think it'll be interesting to
Speaker 10: see what maybe has changed from the you know, the
Speaker 10: deal that was presented a few months ago to now
Speaker 10: and to compare and contrast what has changed or what
Speaker 10: has not changed.
Speaker 3: James, what do you think the Scottish First Minister John
Speaker 3: Swinney is likely to cover maybe try to press with
Speaker 3: the US President.
Speaker 9: Well, I guess so the biggest thing here is whiskey.
Speaker 9: Personally not a fan, but I mean it's it's the
Speaker 9: biggest export that we have up here, and any potential
Speaker 9: reducing the tariffs on whiskey I think would go a
Speaker 9: long way up here. But at the end of the day,
Speaker 9: the personal sign the document is going to be starmer,
Speaker 9: So there's a slight set of dichotomy there. Otherwise, I
Speaker 9: mean Swinny he is involved a little bit in the
Speaker 9: long running staga about whether Turnbury, one of Trump's golf sites,
Speaker 9: will ever host the Open again, so there will be
Speaker 9: some chat on that, I dare say, But at the
Speaker 9: end of the day, the decision comes down to the
Speaker 9: rural ancient golf club in Saint Andrew's RNA. But there
Speaker 9: will be pressure from Swinny and also from Starma to
Speaker 9: try to make this happen. But then to make it
Speaker 9: happen you kind of need to have much better communications.
Speaker 9: You must have much better roads and rail systems, and
Speaker 9: to get that you're going to have to get the
Speaker 9: tax player to stump up for it very properly, and
Speaker 9: that will be a big.
Speaker 3: Problem in terms of travel. It's obviously quite a privileged
Speaker 3: position for the UK to be in and Scotland in
Speaker 3: some ways to be hosting, you know, a visit, even
Speaker 3: an informal visit from the US president, given how much
Speaker 3: is riding on this and President Trump's actually got some
Speaker 3: cousins who still live on the kind of ancestral island
Speaker 3: where his mother came from. How important do you think
Speaker 3: the relationship is at the moment, Skyler, between the US
Speaker 3: and the UK as we see these really quite fraught
Speaker 3: negotiations with many countries rushing to try to make the
Speaker 3: August first deadline.
Speaker 10: I think one thing the traupid administration, you know, they
Speaker 10: do a lot of things differently, But ultimately I do
Speaker 10: think there is an understanding that the relationship with the
Speaker 10: UK is a very important one that obviously has a
Speaker 10: very long standing history, you know, so I do think
Speaker 10: the administration is looking to sort of continue to keep
Speaker 10: that relationship intact and whatever way that might be. I mean,
Speaker 10: but it's still very interesting that of the trade deals,
Speaker 10: the UK was one of the first to see a
Speaker 10: deal and an agreement and there was the Oval event
Speaker 10: where Starmar I believed, phoned in, you know, so you know,
Speaker 10: they're definitely trying to show a united front between the
Speaker 10: two countries, which on the global stage could be very
Speaker 10: telling that you know, we have the US and the
Speaker 10: UK sort of you know, aligned, even if there are
Speaker 10: differences you know, on some things. But now do you
Speaker 10: think administration is you know looking to sort of you know,
Speaker 10: make sure that that relationship continues to remain stable.
Speaker 3: Yeah, in terms of what you expect then also from
Speaker 3: the State visit in September and how important that is.
Speaker 3: We've had out the for example, the car and truck
Speaker 3: manufacturing figures for the UK. That's a very important market
Speaker 3: for Britain, the US sending vehicles there. It's actually just
Speaker 3: below the relationship with the EU, but it's still very
Speaker 3: important and actually we've seen a big kind of cratering
Speaker 3: in terms of the numbers of vehicles that are being
Speaker 3: exported and in fact just rolling off the lines here
Speaker 3: in the UK. How important is this kind of other
Speaker 3: sector issues between the US and the UK And do
Speaker 3: you think anything might change, let's say, in the September
Speaker 3: State visit. How is that being seen in the US?
Speaker 10: Yeah, I know, it's a good point to mention the
Speaker 10: sectors because that's something we're watching very closely in the
Speaker 10: mix of all of the trade deals. But when you
Speaker 10: boil it down to the sectors, whether it's autos pharmaceuticals,
Speaker 10: that's a space you know where we're you know, trying
Speaker 10: to see if there's any movement there because we still
Speaker 10: haven't really seen a lot of details in the pharma space,
Speaker 10: but it has been something the President talks about pretty frequently.
Speaker 10: So we're definitely watching that space. But I think in
Speaker 10: the US in terms of perception, you know, one thing,
Speaker 10: you know, what we've been seeing a lot right now
Speaker 10: is there's just a lot of back and forth, and
Speaker 10: you know, with this administration, they definitely keep us on
Speaker 10: our toes. But you know, they move forward with one
Speaker 10: thing and then there can be a shift the policy
Speaker 10: a little bit, whether it's more or less, and that
Speaker 10: is something we're you know, I think folks are really
Speaker 10: paying attention to you because it does shake up what
Speaker 10: exactly is going on if you say one thing and
Speaker 10: then you know it changes. But the President continues to
Speaker 10: say that, you know, if you accept you know, American
Speaker 10: products and we can you know, enter that market. You know, well,
Speaker 10: we want tearif you or tear affe less. So you
Speaker 10: know that's what Trump has been negotiating with around that.
Speaker 3: Yeah, absolutely, James. A thought then from the perspective in Edinburgh.
Speaker 3: I mean, I know that you know quite a bit
Speaker 3: about golf and all the golf courses that are up
Speaker 3: in Scotland. I mean, how important do you think that
Speaker 3: the trip is for the US person to spend time
Speaker 3: in Scotland? As Skylar is sort of pointing out, the
Speaker 3: US person is known for being changeable and maybe that
Speaker 3: offers a kind of opening in terms of influence.
Speaker 9: Yeah, it does a bit. It's easier for him certainly
Speaker 9: to come to Scotland rather than England. He can't hide
Speaker 9: so much if you like in England if he wanted to,
Speaker 9: and he does have these two golf properties up here
Speaker 9: which are very high profile. They're also very good courses.
Speaker 9: But and then he is having that that's an idea
Speaker 9: about Look, I'm here in my homeland of Scotland. I
Speaker 9: mean leaving aside the fact that it would take you
Speaker 9: what eight hours to get from his site in Aberdeen
Speaker 9: to where his mother was born on Lewis. It's kind
Speaker 9: of a long long way away. But he will play
Speaker 9: up this idea about him, you know, coming home sort
Speaker 9: of thing, which you have to say is taken with
Speaker 9: a very large salt from many of the local populace
Speaker 9: on that. But that's an idea about him coming to
Speaker 9: where he thinks his roots are. That probably makes it
Speaker 9: easier for him to feel in a way that he
Speaker 9: is negotiating or talking with Starmer on something of a
Speaker 9: level playing field, you know what I mean. Yes, he's
Speaker 9: a visitor, but he also gets the Scottish thing.
Speaker 3: James, thank you so much for being with me today Brimberg,
Speaker 3: James Lordon and to skylar Woodhouse on your first trip
Speaker 3: to Scotland and here in the UK. Thank you very
Speaker 3: much for your time. I'm Caroline hepget here in London.
Speaker 3: You can catch us every weekday morning for Bloomberg day Break.
Speaker 3: You at the beginning at six am in London.
Speaker 7: That's one.
Speaker 3: I am on Wall Street, Tom.
Speaker 2: Thank you Caroline, and coming up on Bloomberg day Break
Speaker 2: weekend to look ahead to some fresh economic data out
Speaker 2: of China. I'm Tom Busby and this is Bloomberg. This
Speaker 2: is Bloomberg day Break weekend, our global look ahead at
Speaker 2: the top stories for investors in the coming week. I'm
Speaker 2: Tom Busby in New York. Market watchers turn to fresh
Speaker 2: economic data this week for a temperature check on the
Speaker 2: world's second largest economy. For more, let's get to the
Speaker 2: host of the Daybreak Asia podcast, Doug Crisler.
Speaker 4: Tom. The outlook for the Chinese economy is showing promise,
Speaker 4: and recently Bloomberg Economics raised its full year growth forecast
Speaker 4: for China to an annual rate of four point eight percent. Now,
Speaker 4: to be fair, hurdles do remain and there is still
Speaker 4: the need for policy support. In the week ahead, we'll
Speaker 4: get a clearer understanding of where things stand with the
Speaker 4: release of several PMI readings. They'll help capture sentiment among
Speaker 4: Chinese manufacturers and services providers alike to help us look ahead.
Speaker 4: I am joined by David Chu. He is China economist
Speaker 4: for Bloomberg Economics. David joins us from our studios in
Speaker 4: Hong Kong. David, thank you so much for taking time
Speaker 4: to chat with me. Can you begin by giving me
Speaker 4: kind of your view on what we may learn this
Speaker 4: week from the PMI data for China.
Speaker 6: Ah.
Speaker 11: Yes, What we can say is that we expected the
Speaker 11: manufacturing PMI to soften the BIDA from last months because
Speaker 11: we saw some leading indicators and African indicators pointing to
Speaker 11: the slow, marginal slowed down in the manufacturing activities. I
Speaker 11: think one of the reasons is that the ft loading export,
Speaker 11: it's somehow it has slowed a bit after the peak
Speaker 11: in the in June, so I think that is the reason.
Speaker 11: Another reason is that we think the cloud of the
Speaker 11: trade wall is still there so that people are not
Speaker 11: so confident to expand capacity, so that the overall manufacturing
Speaker 11: activity should slow down after acceleration in June.
Speaker 4: So when it comes to the services economies in China,
Speaker 4: how is domestic demand right now?
Speaker 11: Well for July because it is a summer holiday season,
Speaker 11: so that we think the service side will be supportive
Speaker 11: to the to the non manufacturing PMI as well. But
Speaker 11: on the other hand, we think the the construction is
Speaker 11: still steady compared with June. So overall speakning, we think
Speaker 11: the non manufacturing activity should accelerate a bit from June.
Speaker 4: Give me your sense of the extent to which the
Speaker 4: property market, as negative as it has been, is still
Speaker 4: a major drag on the economy. Is that beginning to
Speaker 4: change even slightly?
Speaker 11: Not yet. Based on the sales data, we think the
Speaker 11: activity in the housing sector is still drag and it
Speaker 11: may be even worse than the last month based on
Speaker 11: the new home sales data so far. So looking forward,
Speaker 11: we don't see any scene that you know, for the
Speaker 11: housing sector to rebund soon, even though we have seen
Speaker 11: some stimulus by the government over the past several months,
Speaker 11: but still it's soft.
Speaker 4: If you had to point to a bright spot for
Speaker 4: the Chinese economy right now, what would be.
Speaker 11: I think the production side is all is resilient, although
Speaker 11: if you look at the PMI it is still underwater.
Speaker 11: But if you look at the production side of the
Speaker 11: China economy over the past several quarters, it's still resilient.
Speaker 11: But on the other hand, is what drives the economy
Speaker 11: or what is the key for the economy is the
Speaker 11: consumption side, So that now we emphasize the importance of
Speaker 11: consumption one more so that what we are looking at
Speaker 11: now is the consumption, not the strong part, which is
Speaker 11: good production.
Speaker 4: When I think of the production side, though, I think
Speaker 4: of the tendency for there's still to be a little
Speaker 4: bit of over capacity in the system. Is that being
Speaker 4: taken out slowly and steadily.
Speaker 11: Yes, there has been more and more talks about the
Speaker 11: removal of the overcapacity, but we have to say that
Speaker 11: over capacity means it is more than demand, so that
Speaker 11: I think the government needs to do more in the
Speaker 11: consumption side of the boost demand, so that to reduce
Speaker 11: the difference or the overcapacity on the one hand, I
Speaker 11: mean the relative over capacity compared with the demand site,
Speaker 11: but as well we think the government is doing something
Speaker 11: to we call it anti involution, so that to reduce
Speaker 11: some of the capacity in some way and also let
Speaker 11: people have more time to spending so that they can
Speaker 11: spend more money.
Speaker 4: We know that the overall economy has been in deflation,
Speaker 4: particularly at the wholesale level where you're looking at factory
Speaker 4: gate inflation, to what extent do you believe authorities in
Speaker 4: China are very concerned about this right now, the stubbornness
Speaker 4: of the deflationary story, and I realize that maybe on
Speaker 4: the consumer level it's more disinflationary rather than deflationary, but
Speaker 4: still there seems to be this overall pull that has
Speaker 4: to do with declining prices.
Speaker 11: Yes, I think the government is concerned about the definition
Speaker 11: a lot because the PPI is quite correlated with the
Speaker 11: profitability of the manufacturing sector. So that you may know
Speaker 11: that many of the China's biggest manufacturers, they are ISOs,
Speaker 11: they stayed owned enterprises, so that the if they're making
Speaker 11: a lot of financial losses, that the government must be
Speaker 11: worried about that. I think that is one of the
Speaker 11: reasons why the government UH is considering taking some effort
Speaker 11: to remove some of the over capacities, based on our
Speaker 11: experience in the twenty eighteen round the carting over capacity.
Speaker 11: This would raise the PPI effectively, so that to raise
Speaker 11: the profitability. But the still the problem is that that
Speaker 11: this inflation in the consumption side will probably be still there,
Speaker 11: based also based on the experience from twenty eighteen.
Speaker 4: David, thank you so very much. For making time to
Speaker 4: chat with us. That is David Chu, China economist for
Speaker 4: Bloomberg Economics, joining from our studios in Hong Kong, shifting
Speaker 4: gears to tech now and the Chinese consumer. I spoke
Speaker 4: with Stephanie Leung, the chief investment officer at Stashaway. We
Speaker 4: discussed how developments in artificial intelligence are shaping her investment strategy.
Speaker 4: Here's part of that conversation.
Speaker 12: If you look at the latest economic data, it doesn't
Speaker 12: look like that the China consumer is doing a v
Speaker 12: shape recovery.
Speaker 5: And I think that's because of a few reasons.
Speaker 12: Number one is that, of course, if you look at
Speaker 12: kind of where the where a lot of Chinese consumer
Speaker 12: hold the wealth is still in the real estate sector
Speaker 12: and say sex sector is still in a very very
Speaker 12: long row to recovery. And I mean without that, actually
Speaker 12: most Chinese consumers are kind of tightening their belts, right,
Speaker 12: They're not really spending that much. However, if you look
Speaker 12: into kind of I think some of the pockets where
Speaker 12: people are spending, and those tends to be kind of
Speaker 12: lower ticket items.
Speaker 5: By that, I mean, for example.
Speaker 12: Uh just kind of uh tea drinks for example, or
Speaker 12: uh these uh I guess play, I guess.
Speaker 5: Uh, these are like sort of figures.
Speaker 9: Uh.
Speaker 5: For example, one of one.
Speaker 12: Of the companies La Boobooh has has Labou, which is
Speaker 12: very very popular kind of figure in China, and the
Speaker 12: I mean people are are crazy about these. I mean
Speaker 12: these are kind of lower ticket items that that that
Speaker 12: gets very very popular in China. So I think these
Speaker 12: are themes that you can still play within the Chinese
Speaker 12: Chinese consumer sector.
Speaker 5: However, when you look at kind of.
Speaker 12: The bigger ticket items for example auto for example, uh,
Speaker 12: I mean even luxury, and these are kind of still
Speaker 12: in sort of the role to recovery.
Speaker 4: I would say, I'm going to play to one of
Speaker 4: your strengths technology and particularly artificial intelligence. How do you
Speaker 4: understand the risk of some of these AI back chat
Speaker 4: bots posing some sort of risk to a business, even
Speaker 4: for bay Do in China, which has around seventy percent
Speaker 4: of the search market. Is AI a way for this
Speaker 4: to be reimagined? Do you think and maybe does it
Speaker 4: represent a near term risk?
Speaker 2: Yeah?
Speaker 12: I think, I mean you bring a very very good
Speaker 12: point right in the sense that, of course, if you
Speaker 12: think about the Internet era, search was of a very
Speaker 12: profitable business and Google by do pretty much have like
Speaker 12: a dominance or monopoly in these businesses. However, if we
Speaker 12: enter the AI era, if you think about just what
Speaker 12: people go to search engines to do, they're basically asking questions,
Speaker 12: and you can ask these questions much more directly and
Speaker 12: get much better answers by going to the LM chat
Speaker 12: bots to ask the same questions, and they will give
Speaker 12: you a much more comprehensive answer rather than just the
Speaker 12: templu links that that Google would provide. And I think
Speaker 12: that actually creates a sort of a dilemma for companies
Speaker 12: like Google in a sense that I mean they know
Speaker 12: that that's the direction that things are going. However, of
Speaker 12: course they have existing sort of earnings to try to protect,
Speaker 12: so they need to. I mean, they are trying to
Speaker 12: actually strike a balance between like kind of not cannibalizing
Speaker 12: the existing business, but meanwhile making efforts to make sure
Speaker 12: that they don't get this kind of extinct in the
Speaker 12: new AI era. So, for example, AI, if you go
Speaker 12: to Google Search right now, you see that they will
Speaker 12: provide a AI generated search summary, and that's sort of
Speaker 12: some of the efforts to help the company that migrates.
Speaker 4: So if you're looking at opportunities in AI and China.
Speaker 4: Are you more focused on the software side or are
Speaker 4: you looking at the hardware story and maybe semiconductors. How
Speaker 4: do you play it?
Speaker 1: I think.
Speaker 12: If you look at the semiconductor or hardware side, it's
Speaker 12: very very focused in a few kind of companies that
Speaker 12: have the technology. So by that, I mean, for example,
Speaker 12: n video, Nvidia has the chips that are kind of
Speaker 12: ways ahead. And if you look at all the recent
Speaker 12: kind of announcements from big big tech companies like for example,
Speaker 12: Metas big announcement of the data centers, I mean they
Speaker 12: are still predominantly using uh in video technology.
Speaker 11: UH.
Speaker 5: If you look at kind of in China.
Speaker 12: Of course, recently uh President Trump lifted the restriction to
Speaker 12: export H twenty chips to China, and I mean Nvidia
Speaker 12: is receiving a lot of orders and I mean the
Speaker 12: citing supply shortages.
Speaker 5: So still Nvidia is the kind of the.
Speaker 12: Dominant player in the infrastructure layer. Of course, like companies
Speaker 12: like Huawei are catching up, but I think they are
Speaker 12: still kind of somewhat behind on the application side. I
Speaker 12: think that's where it gets more interesting, right, because it's
Speaker 12: not it's not that kind of dominated by one.
Speaker 5: Or two players.
Speaker 12: I think in the application side you can see a
Speaker 12: lot of very creative uses of the underlying technology in
Speaker 12: terms of driving usage, driving revenue, or cutting costs. And
Speaker 12: here I think you can see that in the US
Speaker 12: there are different companies in different verticals kind of it
Speaker 12: GUS making big strides and also in China right if
Speaker 12: you look at kind of the software companies, I think
Speaker 12: they are one of the first to benefit from these
Speaker 12: AI coding agents, for example, and these actually benefit a
Speaker 12: lot more companies than just the infrastructure.
Speaker 4: Later that was definitely young the CIO at Stashaway, I'm
Speaker 4: Doug Chrisner. Catch us weekdays for the Daybreak as your podcast.
Speaker 4: It's available wherever you get your podcast. Tom.
Speaker 2: Thank you Doug. And that does it for this edition
Speaker 2: of Bloomberg day Break Weekend. Join us again Monday morning,
Speaker 2: five am Wall Street Time for the latest on markets
Speaker 2: overseas and the news you need to start your day.
Speaker 2: I'm Tom Buzzby.
Speaker 5: Stay with us.
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