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 day
Speaker 2: Break anchors all around the world. And straight ahead on
Speaker 2: the program, we'll look ahead to some key inflation data
Speaker 2: in the US how that may impact FED policy moving forward.
Speaker 2: I'm Tom Busby in New York.
Speaker 3: I'm Caroline Headker in London, where we're looking ahead to
Speaker 3: a G twenty meeting without the United States.
Speaker 4: I'm Doug Chrisner looking at the evolving relationship between Presidents Trump.
Speaker 1: And she That's all straight ahead on Bloomberg Daybreak Weekend
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Speaker 2: Good day to you. I'm Tom Busby, and we begin
Speaker 2: today's program. But we'll look at some key economic data
Speaker 2: here in the US. PCEE read on inflation as well
Speaker 2: as personal spending and personal income data all for the
Speaker 2: month of January that is out on Friday for more
Speaker 2: on what it all means and how this may impact
Speaker 2: Fed policy. We're joined by Stuart Paul, us economists with
Speaker 2: Bloomberg Economics. Stuart, a lot of uncertainty out there, possible
Speaker 2: impact of threatened US tariffs. We've got federal job losses,
Speaker 2: We've got even Walmart this past week seeing sales growth slow.
Speaker 2: One constant is stubbornly high inflation. What's behind it? What
Speaker 2: do you expect to see in the January PCE report
Speaker 2: the Fed's preferred measure of inflation.
Speaker 5: As you mentioned, the core PCE price Index is the
Speaker 5: Fed's preferred measure, and we estimate that monthly core PCEE
Speaker 5: inflation is going to register zero point three percent. That's
Speaker 5: faster than the zero point one percent measured and reported
Speaker 5: in December. So, as you mentioned, stubbornly high inflation, we
Speaker 5: can estimate PCE with a pretty good deal of precision
Speaker 5: because most of its components come from the CPI and
Speaker 5: from the Producer Price Index. So seeing those items earlier
Speaker 5: this month allows us to estimate the PCE index with
Speaker 5: a bit more precision, and from the CPI we're able
Speaker 5: to identify that it's really the price of some discretionary
Speaker 5: services categories, things like accommodations, recreation services that are going
Speaker 5: to be buoying the core PCE measure. From the PPI report,
Speaker 5: we get things like hospital services, and again that's going
Speaker 5: to be boosting the core PCE measure as well. So
Speaker 5: the thing that we now need to consider is whether
Speaker 5: this January increase is really something that's indicative of persistent
Speaker 5: price pressures. We see persistent price pressures, for example, in shelter,
Speaker 5: in auto insurance, some of the some of the category
Speaker 5: is that take a long time to sort of catch
Speaker 5: up to pass price hikes. For example, if it costs
Speaker 5: more to replace your car, it's going to cost more
Speaker 5: to ensure that car as well. So we're still seeing
Speaker 5: some persistent price pressures there. But I do think that
Speaker 5: the January report is going to show some residual seasonality,
Speaker 5: that's to say, annual price increases that aren't fully accounted
Speaker 5: for by the Bureau of Labor Statistics and the Bureau
Speaker 5: of Economic Analysis. I think that we are going to
Speaker 5: see some of that residual seasonality in the January report.
Speaker 2: What about food and energy, you can't ignore those. Everybody
Speaker 2: has to, you know, eat everybody has to heat their home,
Speaker 2: put gas in the car, a real driver for CPI
Speaker 2: and PPI in January, and there's not a whole lot
Speaker 2: of seasonality about it. I mean, except for heating your home,
Speaker 2: that's right. But in the summer you're cooling your homes.
Speaker 5: That's right. So for some energy goods and for some
Speaker 5: energy services, you do have some seasonality. So for example,
Speaker 5: there's summer driving season that boost gasoline prices. Sometimes that's
Speaker 5: more accounted for than at other times in the seasonal
Speaker 5: adjustment factors. What we did see with energy prices, So
Speaker 5: you bring up a really good point about this, is
Speaker 5: that in January it was so incredibly cold that demand
Speaker 5: for power and other utilities was exceptional, and that is
Speaker 5: that is continuing to contribute to headline inflation measures. That's
Speaker 5: why we saw, for example, the major upside surprise in
Speaker 5: headline CPI during the month. It was in large part
Speaker 5: because of energy goods and services. And so that is
Speaker 5: something that consumers are feeling. It is hitting their pocketbooks
Speaker 5: and it is causing them to rain and spending in
Speaker 5: some other categories.
Speaker 2: Well, let's talk about some other data coming out I
Speaker 2: think will tell us a lot personal spending and personal
Speaker 2: incomes for January, the latest monthly jobs report showed that
Speaker 2: wages still increasing. That's not good for inflation. Holiday retail
Speaker 2: spending was strong slowed a little bit just in January.
Speaker 2: But what do you expect to see in those reports?
Speaker 5: It's interesting. I think that the January report is going
Speaker 5: to show a pretty clunky transmission between incomes and spending.
Speaker 5: I think that based on what we saw in the
Speaker 5: jobs report, wages were accelerating during the month, hiring slowed,
Speaker 5: so that tempered personal income growth a little bit, and
Speaker 5: labor intensity, the average number of hours worked per week
Speaker 5: actually declined, so that tempered personal income just a little bit.
Speaker 5: But in January we also get cost of living adjustments
Speaker 5: two and a half percent cost of living adjustments for
Speaker 5: Social Security recipients. We're going to see a higher Medicare
Speaker 5: and Medicaid receipts in a personal income report, and we're
Speaker 5: estimating nearly one percent interest income growth for those who
Speaker 5: are holding financial instruments. So if you factor all of
Speaker 5: those together, we're estimating nearly zero point four percent month
Speaker 5: on month personal income growth. We're a bit higher than consensus,
Speaker 5: and that's a pretty strong personal income growth reading for
Speaker 5: the month of January. On the spending side, though, things
Speaker 5: looked pretty terrible. So nominal spending.
Speaker 2: Don't sugarcoat it.
Speaker 5: No, I'm not going to sugarcoat it. You know that.
Speaker 5: I'll always you know, shoot straight with you here. So
Speaker 5: we estimate that personal income growth declined zero point one
Speaker 5: percent during the month. That's a major retreat from the
Speaker 5: zero point seven percent growth that we saw in December.
Speaker 5: And a big part of that is autos, right, vehicles.
Speaker 5: People purchased vehicles at a way slower pace during the
Speaker 5: month of January, an annualized pace of about fifteen point
Speaker 5: six million units, down from I think nearly sixteen point
Speaker 5: eight million units in December. As I mentioned, weather was
Speaker 5: so terrible you don't want to be out walking on
Speaker 5: an auto dealer's lot in the month of January, especially
Speaker 5: when there was a polar vortex. But beyond that, it
Speaker 5: does look like consumers rained in spending on some of
Speaker 5: the key discretionary goods and services categories, things like furniture, clothing,
Speaker 5: all of those items during the month, even online spending.
Speaker 5: It looks like they really reined it in in January.
Speaker 5: Now here's the thing. Consumers aren't exactly both. During their
Speaker 5: balance sheets, we saw that income growth is pretty high
Speaker 5: and steady. People are raining in their spending, but we
Speaker 5: still think that they're going to have a personal saving
Speaker 5: rate of just about four point three percent during the month.
Speaker 5: That's still exceptionally low. Personal savings is about six and
Speaker 5: a half percent pre COVID, So even as consumers reined
Speaker 5: it in in January, it's still just a lot of
Speaker 5: spending going on on a monthly basis.
Speaker 2: January's Personal Consumption Expenditures Price Index out this Friday, our
Speaker 2: thanks to Stuart paul, Us, economist with Bloomberg Economics. We
Speaker 2: move next to fourth quarter earnings from the artificial intelligence
Speaker 2: chip Giant and Video that is out this Wednesday after
Speaker 2: the close. Now for more on what to expect, we're
Speaker 2: joined by Mandeep Singh, Bloomberg Intelligence Senior tech industry analyst,
Speaker 2: man deep an almost insatiable demand for AI cloud computing,
Speaker 2: data center infrastructure. Are there any headwinds for in Video
Speaker 2: or is it go go go?
Speaker 6: I mean, I would say they're still in their hyper
Speaker 6: growth phase, so that you know, triple digit growth will
Speaker 6: decelerate to maybe you know, fifty percent plus growth this
Speaker 6: quarter is still very impressive and it's still all about
Speaker 6: data centers when it comes to this company. So look,
Speaker 6: there were a few things that happened during the quarter,
Speaker 6: notably the Blackwell shipments. I mean, Jensen said last quarter
Speaker 6: that Blackwell will be a multi billion contributor to this
Speaker 6: quarter's revenue. And then obviously the deep Seek development was
Speaker 6: quite interesting because Nvidia clearly believes that the scaling laws
Speaker 6: are intact when it comes to the scaling of these
Speaker 6: foundational models, and that is the biggest driver of why
Speaker 6: companies are building, you know, massive clusters when it comes
Speaker 6: to two hundred kgpus to one billion GPUs in a cluster.
Speaker 6: So that is supposed to be one of the biggest
Speaker 6: drivers of Nvidia's chip demand, and it would be interesting
Speaker 6: to see if those kind of drivers have changed because
Speaker 6: of Deep Seek.
Speaker 2: Now, Deep Seek, when that bombshell hit Wall Street, they
Speaker 2: say it was using in Vidia chips which they got
Speaker 2: kind of backdoor from Singapore. But let's talk about the
Speaker 2: losses to Nvidia when that happened. Almost six hundred billion
Speaker 2: dollars in market share.
Speaker 6: Yeah, I mean, look, they've recovered a lot of that
Speaker 6: market cap, so it's not as if the losses were permanent.
Speaker 6: I mean, the stock is pretty much back to where
Speaker 6: it was rating prior to Deep Seek. And I think
Speaker 6: in the end it comes down to training versus inferencing.
Speaker 6: These are the two things that everyone is sort of
Speaker 6: focused on when it comes to Invidia's opportunity because a
Speaker 6: lot of these hyperscalers are developing their own chips, and
Speaker 6: hyperscalers make up forty five percent of Nvidia's data center revenue.
Speaker 2: And that's Meta and Amazon, Microsoft.
Speaker 6: Alphabet.
Speaker 7: Yes.
Speaker 6: So, and when you think about Nvidia's data center revenue,
Speaker 6: that's a one hundred and twenty five billion dollar rund
Speaker 6: rate every hyperscaler this quarter guided to CAPEX going up
Speaker 6: and CAPEX going up almost forty to fifty percent for
Speaker 6: twenty twenty five. So if you extrapolate that guide to
Speaker 6: Invidia's numbers, you know, forty five percent revenue exposure, that means,
Speaker 6: you know, Nvidia could very well be doing two hundred
Speaker 6: billion dollars in data center revenue for twenty twenty five
Speaker 6: at you know, and then you layer in the project's
Speaker 6: target announcement, the EU announcement to you know, invest in chips.
Speaker 6: That's incremental revenue from sovereigns, which is a load double
Speaker 6: digit revenue contributor to Nvidia right now. So when you
Speaker 6: put all these things together, the drivers are there for
Speaker 6: Nvidia to do maybe two hundred billion dollars in data
Speaker 6: center revenue this year.
Speaker 2: And some of those hyperscalers are doing their own in
Speaker 2: house GPUs and are they is in Vidio five finding
Speaker 2: new clients new revenue sources besides them.
Speaker 6: Yeah, So that's an interesting point because hyperscalers do have
Speaker 6: their ambitions to use their own chips. I think Google
Speaker 6: is the furthest along in terms of using their own
Speaker 6: TPUs for training and inferencing. Other hyperscalers plan to do that.
Speaker 6: But whether it's going to impact in Video's revenue this
Speaker 6: year or is it more for you know, three four
Speaker 6: years out. I'm more in the camp that this is
Speaker 6: not going to have a big impact this year. But
Speaker 6: clearly that's a big threat. When you have, you know,
Speaker 6: a forty five to fifty percent exposure to four or
Speaker 6: five customers, there is always that concentration risk.
Speaker 2: Well, and that leads to what's next for in video
Speaker 2: this year? Because I know that Blackwell line they've got
Speaker 2: some new products coming out. What are you expecting to see.
Speaker 6: I mean, to me, the key KPI is gross margin
Speaker 6: because last quarter, even though they talked about Blackwell, they
Speaker 6: said gross margins would sort of get compressed a little
Speaker 6: bit in the near term because of the Blackwell ramp
Speaker 6: and they will go back to mid seventy percent once
Speaker 6: Blackwell is fully ramped up. That to me determines the
Speaker 6: supply demand imbalance. The demand commentary is there because there
Speaker 6: is still more demand, but supply seems to be catching
Speaker 6: up when it comes to you know, TSMC adding capacity
Speaker 6: for manufacturing more GPUs. So gross margins is how you
Speaker 6: determined what kind of imbalance we still have.
Speaker 2: Well Nvidia QBOUR earnings out after Wall Street's closing bell
Speaker 2: this coming Wednesday, Our thanks to Mandeep Sing, Bloomberg Intelligence
Speaker 2: senior tech industry analyst. Coming up on Bloomberg day Break weekend,
Speaker 2: we look ahead to a G twenty meeting without the
Speaker 2: United States. I'm Tom Busby, and this is Bloomberg. This
Speaker 2: is Bloomberg Day Break Weekend, our global load at the
Speaker 2: top stories for investors in the coming week. I'm Tom
Speaker 2: Busby in New York. Up later in our program, we'll
Speaker 2: look at the evolving relationship between Washington and Beijing. But
Speaker 2: first global finance ministers will descend on South Africa for
Speaker 2: a G twenty summit this week, following a G twenty
Speaker 2: Foreign ministers meeting just a few days ago. This time, though,
Speaker 2: it's without US Treasury Secretary Scott Besson attending. Can the
Speaker 2: talks be productive without such an important global player choosing
Speaker 2: to be absent? For more, Let's go to London and
Speaker 2: bring in Bloomberg day Break europe Banker Caroline hepgar.
Speaker 3: Tom This year's G twenty gatherings are significant for a
Speaker 3: number of reasons. For one, they're the first meetings to
Speaker 3: take place under the helm of South Africa. They're also
Speaker 3: the first multilateral forums of their kind to be held
Speaker 3: during the new Trump administration, a government that has so
Speaker 3: far made clear its intention to do things differently. In
Speaker 3: terms of the Finance Minister's meeting due to take place
Speaker 3: in the coming days, there couldn't be more on the agenda.
Speaker 3: Trump's paradigm shifting taris will surely likely feature, as will
Speaker 3: growing pressures to ramp up defense spending in the EU
Speaker 3: but perhaps elsewhere. But one leader who won't be participating
Speaker 3: in discussions is US Treasury Secretary Scott Bessent. His decision
Speaker 3: to skip the event comes as Secretary of State Marco
Speaker 3: Rubio also foregoes attending the G twenty Foreign Ministers meeting. Now.
Speaker 3: Rubio said that he was not taking part in those
Speaker 3: discussions because he did not want to quote, waste taxpayer
Speaker 3: money or coddle anti Americanism. Rubio's comments echo President Donald
Speaker 3: Trump's criticism of South Africa's land policy and a threat
Speaker 3: to cut off future funding to the country. In response,
Speaker 3: South Africa's Foreign Ministry reiterated that no land has been
Speaker 3: confiscated and that the expropriation legislation announced by South African
Speaker 3: Presidency Rampa Hoser last month is similar to eminent domain
Speaker 3: laws elsewhere in the world. It also stressed the South
Speaker 3: African government's commitment to addressing global inequality. Now it's unusual
Speaker 3: for a Secretary of State to skip a G twenty summit,
Speaker 3: and Rubio's absence carries perhaps some risks that the US
Speaker 3: is left out of deliberations by some of the world's
Speaker 3: wealthiest countries, and the same is true for Scott Bessent.
Speaker 3: So can a G twenty meeting be effective without the
Speaker 3: United States and what are the implications of this edition
Speaker 3: of the Global leaders gathering for South Africa and for
Speaker 3: the rest of the world. It's something that I've been
Speaker 3: discussing with Bloomberg's Chief Africa correspondent, Jennifer Sabasaja.
Speaker 8: It's important in the sense that this is the first
Speaker 8: convening of the G twenty members as part of South
Speaker 8: Africa's presidency hosting right, and especially if you consider that
Speaker 8: we've seen a changing administration in the US, we're seeing
Speaker 8: changing ties geopolitically with the number of the nations that
Speaker 8: actually make up the G twenty, it is important and
Speaker 8: no doubt it will also carry over into the Finance
Speaker 8: Minister's meeting next week. Now, as you were just mentioning,
Speaker 8: Marco Rubio has said Secretary of Saint Marco Rubio, of
Speaker 8: course from the US, has said he is not attending
Speaker 8: over what he says, our focuses on climate change and
Speaker 8: also DEI we also got word that Finance Treasury Secretary
Speaker 8: excuse me, in the US, Scott Bessett, will also not
Speaker 8: be attending next week, and so you have to wonder,
Speaker 8: really what does the US, how does the US see
Speaker 8: their role within the G twenty moving forward. There are
Speaker 8: still representatives from the US that are going to be here.
Speaker 8: But still South African leaders and officials are planning to
Speaker 8: continue on with this theme of solidarity, equality and sustainability
Speaker 8: and continue to or at least try to strengthen some
Speaker 8: of the relationships of the member nations that are attending.
Speaker 3: And there is a big question about whether discussions can
Speaker 3: be productive without the United States, whether the G twenty
Speaker 3: is still relevant. I mean, these are slightly perennial questions,
Speaker 3: aren't they about G twenty versus G seven or other
Speaker 3: sorts of gatherings, But it's particularly acute now with the US.
Speaker 8: You know, you do bring up a really interesting point,
Speaker 8: especially when you look at the first few weeks of
Speaker 8: the US administration and President Trump choosing to pull from
Speaker 8: a number of multilateral institutions. What we've heard from at
Speaker 8: least South African President Zerial Ramaposa is that he is
Speaker 8: at least trying to get a lot of these more
Speaker 8: developed countries to the table to try and reform some
Speaker 8: of these institutions. And so if we see at least
Speaker 8: a pulling back of the US on the multilateral front,
Speaker 8: what does that mean for a lot of these reforms
Speaker 8: that we are going to see.
Speaker 9: Still, President Ramaposa does believe that he can get a
Speaker 9: lot done.
Speaker 8: There's a number of other issues on his agenda, including
Speaker 8: many things that he has talked about before, including talking
Speaker 8: about debt relief or a number of the nations, a
Speaker 8: number of the Global South as he calls it, and
Speaker 8: also a lot of that being climate finance. Right, we
Speaker 8: talk a lot about how a number of emerging economies
Speaker 8: are the hardest hit when it comes to climate change,
Speaker 8: but of course it's a lot of the developed economies
Speaker 8: that were the actual contributors to that going forward, and
Speaker 8: so there can be some movement on some of these
Speaker 8: to top line priorities, but getting the US to buy
Speaker 8: into some of them is going to be the challenge
Speaker 8: for President Ramoposa, South Africa and the G twenty moving forward.
Speaker 3: Yeah, and how important is it for South Africa that
Speaker 3: these meetings actually go well? I mean they are surely
Speaker 3: banking on this, as you say, to sort of boost
Speaker 3: soft power, but also you know, real things including aid
Speaker 3: for example. Maybe how important is it that these talks
Speaker 3: go well? And we know that South Africa has got
Speaker 3: very high unemployment, there was a dissipation of the support
Speaker 3: for Rama Posa's party at the last election. He's in
Speaker 3: a kind of coalition government. How important is this forum
Speaker 3: then for a proposer and for the future of South Africa.
Speaker 8: Well, the timing of this is pretty unique, especially you
Speaker 8: just talked about how the ruling party or the previously
Speaker 8: ruling party, the ANC, is now in a coalition government
Speaker 8: and so really for the first time we're seeing South
Speaker 8: Africa take the helm as this multi party government on
Speaker 8: the world stage. One person described it to me as
Speaker 8: potentially this is showcasing that democracy is working, at least
Speaker 8: in South Africa. But you know, President Ramaposa is really
Speaker 8: taking this on to progress on a lot of the
Speaker 8: issues that he believes not just South Africa, but a
Speaker 8: lot of African nations the global self.
Speaker 9: As I was mentioning.
Speaker 8: Before, they can put forward a lot of the challenges
Speaker 8: that they've not necessarily been able to because they haven't
Speaker 8: been at the table before. Now they can do that,
Speaker 8: and as the first African nation to hold this G
Speaker 8: twenty presidency, potentially that's an opportunity.
Speaker 9: And it's not just that.
Speaker 8: I mean you take a look at a lot of
Speaker 8: the partnerships here. The EU is a major investor in
Speaker 8: South Africa. China is one of the biggest trade partners
Speaker 8: here with South Africa as well, and so there is
Speaker 8: incentive for a lot of the other member countries to
Speaker 8: also get on board with this. And so yeah, you know,
Speaker 8: I think a good outcome is beneficial for most of
Speaker 8: the members. But you just take a look at the
Speaker 8: geopolitical divisions that we're seeing in the world right now,
Speaker 8: and it's surely going to be a bumpy road.
Speaker 3: Yeah, And with the absence of Marca Rubio and Scott
Speaker 3: Best said, do you think I think that that signals
Speaker 3: that the Trump administration is actually serious about this row?
Speaker 3: You know that their accusations against the South African government
Speaker 3: in terms of the legislation in South Africa, do you
Speaker 3: think that they are going to make good then on
Speaker 3: the threats, for example, to hold AID.
Speaker 8: That's that's the concern here, really, Caroline, because.
Speaker 9: We have seen the back and forth really ramping up. Right.
Speaker 8: It started, as you were mentioning just a few weeks ago,
Speaker 8: when when Trump was criticizing that land Exproporation build that
Speaker 8: you were referencing there, that's a remopos that President Ramoposa
Speaker 8: signed earlier.
Speaker 9: This year.
Speaker 8: But then, of course we've seen in the US the
Speaker 8: retreat from from DEI h and many people would describe
Speaker 8: South Africa at least in its state right now, as
Speaker 8: you know, an example of DEI and so you have
Speaker 8: to wonder what else potentially could the.
Speaker 9: US administration target. It's not just that.
Speaker 8: There's also climate financing, which has been very important for
Speaker 8: South Africa to get on board.
Speaker 9: We know that we've seen the US administration rolling that.
Speaker 8: Back, and also South Africa taking Israel to the ICJ
Speaker 8: over what they see as war crimes, right which we
Speaker 8: know President Trump has a cordial relationship let's call it,
Speaker 8: with Benjamin Netan Yahoo, and so the concern is what
Speaker 8: does this relationship look like. But over the past few
Speaker 8: weeks I've been speaking to a number of South African
Speaker 8: officials about this, and some of them say, on the
Speaker 8: one hand, of course it's a setback if you take
Speaker 8: a look at something like USAID, which has provided a
Speaker 8: number of benefits health benefits for South Africa that could
Speaker 8: be detrimental to this country and to the Africa continent
Speaker 8: more broadly, but it also potentially creates an opportunity for
Speaker 8: other partners. We take a look at bricks, which is
Speaker 8: this block of Brazil, Russia, India, China and South Africa.
Speaker 8: Potentially we see them stepping in. We've seen that over
Speaker 8: the past few years, them trying to make inroads. And
Speaker 8: if we continue to see this retreat, that opens the
Speaker 8: door to some of these other countries to them potentially.
Speaker 9: Fill the gap.
Speaker 8: For what it's worth, before I wrap up, we have
Speaker 8: seen a country like China continue to reiterate its support
Speaker 8: for South Africa, and so you have to wonder whether
Speaker 8: or not this is a gamble the US actually wants
Speaker 8: to take, especially because South Africa is the US's biggest
Speaker 8: trading partner on the African continent.
Speaker 3: Yeah, and I suppose. Finally, then, do you think that
Speaker 3: there is any possibility that South African can try to
Speaker 3: mend its relationships with the Trump White House.
Speaker 8: We've heard President Ramoposa say he is up for negotiation,
Speaker 8: and I think that is key.
Speaker 9: We You know, the expectation was that.
Speaker 8: We were going to see Scott Best and Treasury Secretary
Speaker 8: next week attending the Finance Minister summit. But then also
Speaker 8: later this year, the expectation was that President Trump was
Speaker 8: also going to be here. We don't know yet, what
Speaker 8: this relationship looks like, whether he is physically in attendance
Speaker 8: or not. Though South Africa needs to pass off the
Speaker 8: G twenty presidency to the US for next year, and
Speaker 8: so there needs to be discussions of some sort if
Speaker 8: the US is to remain in the G twenty. But yes,
Speaker 8: you know, we've heard from President Ramoposa saying he wants
Speaker 8: to discuss and to talk about some of the critiques
Speaker 8: that we've heard from the US administration. Many people have
Speaker 8: criticized what we have heard from President Trump about his
Speaker 8: disputes over the land expropriation law, saying it is similar
Speaker 8: to what we see in other countries, and so you know,
Speaker 8: it's going to take quite a bit of mending on
Speaker 8: both parts. And of course we have to note that
Speaker 8: President Trump's very close ally Elon Musk, was born in
Speaker 8: Pretoria here in South Africa, so and he has some
Speaker 8: other advisors that are also from South Africa.
Speaker 9: So definitely one to watch for the next few months.
Speaker 3: Well, my thanks to Bloomberg's Jennifer Zabasaje for speaking to me.
Speaker 3: We'll have full coverage of the upcoming G twenty Finance
Speaker 3: Minister's meeting here on Bloomberg. I'm Caroline Hepka. You can
Speaker 3: catch us every weekday morning for Bloomberg Daybreak Europe, beginning
Speaker 3: at six am in London. That's one am on Wall Street.
Speaker 1: Tom.
Speaker 2: Thank you, Caroline. And coming up on Bloomberg day Break Weekend,
Speaker 2: we'll look at the status of US China relations. I'm
Speaker 2: Tom Busby and this is Bloomberg. This is Bloomberg day
Speaker 2: Break Weekend, our global look ahead of the top stories
Speaker 2: for investors in the coming week. I'm Tom Busby in
Speaker 2: New York. With the threat of even more US tariffs
Speaker 2: looming over China, this may be a good time to
Speaker 2: get a temperature check on relations between Washington and Beijing.
Speaker 2: For more, let's get to the host of the Daybreak
Speaker 2: Asia podcast, Doug Prisner.
Speaker 4: Tom and the week ahead. We'll get China's official PMI figures.
Speaker 2: Now.
Speaker 4: The pmis are a great way to understand sentiment in
Speaker 4: manufacturing and the service's economy. Bloomberg Intelligence says early indicators
Speaker 4: point to weak momentum in both. Now the headwinds for
Speaker 4: the Chinese economy have intensified since President Trump took office.
Speaker 4: For a closer look, let's bring in Jenny Marsh team
Speaker 4: leader for Greater China ECO GOV. She joins us from
Speaker 4: the Bloomberg Studios in Hong Kong. Jenny, thank you for
Speaker 4: making time to chat with us. I think we have
Speaker 4: to begin with the tariff story as a way of
Speaker 4: understanding where US China relations are at the moment. Is
Speaker 4: that fair?
Speaker 7: Absolutely, it's probably you know, the biggest sort of unknown
Speaker 7: factor right that's sort of hanging over the economy this year.
Speaker 4: We know that the US did hike tariffs by ten
Speaker 4: percent on all Chinese imports in early February. Is it
Speaker 4: fair to say that that came a little bit before
Speaker 4: Beijing was prepared for tariffs.
Speaker 7: I would imagine Beijing was prepared for tariffs on day one.
Speaker 7: You know, I remember that first day Trump took office
Speaker 7: and sort of actually the surprise was nothing on China
Speaker 7: on day one. Then of course on day two he
Speaker 7: started talking about tariffs. But you know, I think despite
Speaker 7: all of the sort of claims he's made about sort
Speaker 7: of tariffs on chips and steel and the threats with
Speaker 7: Canada and Mexico, China is the only country right now
Speaker 7: that Trump was actually enacted at tariff on since he
Speaker 7: came into office. And so while it's only ten percent
Speaker 7: right now. They are sort of actually the first in
Speaker 7: the firing line, and there's plenty more reason to think
Speaker 7: that more is to come with that April one deadline
Speaker 7: hanging over them for reviewing the first trade deal that
Speaker 7: Trump has ordered.
Speaker 4: Before we address kind of the US and A relationship,
Speaker 4: how is the impact of these US tariffs impacting sentiment
Speaker 4: right now in China.
Speaker 7: It's actually kind of interesting because you know, the trade
Speaker 7: has been there for a long time, but when you
Speaker 7: speak to economists and sort of people on shore in China,
Speaker 7: what they're actually talking about right now is Deep Seek.
Speaker 7: And so this sort of surprise AI breakthrough from deep Seek,
Speaker 7: which was the consumer platform, was unveiled the day Trump
Speaker 7: came into office. That has sort of given this massive
Speaker 7: sort of boost to animal spirits. So it sparked I
Speaker 7: think it was a one point three trillion rally in
Speaker 7: China stocks. And then she is trying to sort of
Speaker 7: capitalize on that momentum by meeting Jack mar for the
Speaker 7: first time since the crackdown on his company back in
Speaker 7: twenty twenty, and a whole other sort of range of
Speaker 7: sort of tech luminaries earlier this week. So I think people.
Speaker 7: The sort of the negativity from the prospect of tariffs
Speaker 7: is built in, and people have been very prepared for
Speaker 7: that for a while, and really they were facing a
Speaker 7: lot of sort of pressures under Biden too, So in
Speaker 7: terms of sentiment, it isn't this sort of gloomy, worried
Speaker 7: sentiment permeating China necessarily. What actually is capturing the mood
Speaker 7: right now is the AI breakthrough in this sort of
Speaker 7: momentum behind tech and finally some hopes that the private
Speaker 7: sector might be getting back into swing.
Speaker 4: So I'm understanding that as a way to say that
Speaker 4: she is capturing this moment to maybe make the case
Speaker 4: that China can be less reliant on its export economy
Speaker 4: and become a little bit more domestically driven on the
Speaker 4: demand side, which is something that he has been after
Speaker 4: for quite some time exactly.
Speaker 7: And the meeting earlier this week, you know, he had
Speaker 7: the bosses from buid Chow, me Deep Seek, you know,
Speaker 7: Jack Maler was there. It was really a display of
Speaker 7: like these all of our national champions which are rolling
Speaker 7: out well beating innovations. There's plenty of reason to believe
Speaker 7: in this economy. And they have said that boosting domestic
Speaker 7: demand is the number one priority this year, you know,
Speaker 7: and that is the best way they can insulate themselves
Speaker 7: from these tarves that are coming by really sort of
Speaker 7: reving up demand at home.
Speaker 4: So how would you describe the current relationship between Beijing
Speaker 4: and Washington right now?
Speaker 7: I think it's sort of in this holding pattern of
Speaker 7: wait and see. But on the surface of things, you know,
Speaker 7: you've got a US president who is very happy to
Speaker 7: be very sort of dubvish on Sijin paying in public,
Speaker 7: he calls him a great guy. He said that he
Speaker 7: thinks he's brilliant. So in that side of things, I think,
Speaker 7: you know, things are actually warmer than during the Biden administration.
Speaker 7: But obviously, you know, they have this trade war that
Speaker 7: is now underway, and I think for China they're really
Speaker 7: just sort of waiting to see exactly what it is
Speaker 7: that Trump wants. There are all kinds of reports out
Speaker 7: there sort of citing people who are advising Trump saying
Speaker 7: that he now is sort of thinking about this as
Speaker 7: a grand deal that he could strike with Beijing that
Speaker 7: would go beyond trade, So looking at all kinds of
Speaker 7: things like nuclear sort of weapons, rolling back those programs.
Speaker 7: So I think the silence from Beijing during this first
Speaker 7: month of the Trump administration has been extremely telling. They're
Speaker 7: kind of just sitting back and really waiting to see
Speaker 7: what Trump does, sort of what his biggest sort of
Speaker 7: demands are going to be from China, I think, and
Speaker 7: being very very careful not to provoke anything, you know.
Speaker 7: I think it was jd Vance who said overnight sort
Speaker 7: of criticizing Trump is one of the worst negotiating tactics
Speaker 7: that you could ever possibly try to do, and I
Speaker 7: think basically understands that, and you can see from state
Speaker 7: media they're being very very careful not to take any
Speaker 7: swipes or do anything which could sort of hurt themselves.
Speaker 4: One of the things that we've heard from the president
Speaker 4: is his intention on ending war in Ukraine. Can you
Speaker 4: imagine a world where China is a part of this conversation?
Speaker 7: Absolutely. I mean, it's really interesting because a lot of
Speaker 7: what Trump is actually in our sort of saying and
Speaker 7: agreeing to is kind of what China had put forward
Speaker 7: in this peace plan years ago that we was sort
Speaker 7: of derided in the West, but they basically sort of
Speaker 7: advocated for a frozen conflict, a ceasefire that obviously wasn't
Speaker 7: acceptable to UK because it would have involved seeding territory.
Speaker 7: But China's priority is always sort of just to try
Speaker 7: and stop the conflict, and so the deal that Trump
Speaker 7: is trying to strike with Putin is exactly that. And
Speaker 7: Trump himself has sort of talked about having a three
Speaker 7: way meeting with she, Putin and himself. So I can
Speaker 7: see China coming to the table. What China would offer
Speaker 7: in terms of a peace deal, I think is much trickier.
Speaker 7: You know, there have been reports that perhaps China could
Speaker 7: be involved in peacekeeping operations. I think you know, it
Speaker 7: does that in other parts of the world as part
Speaker 7: of the UN framework. I don't see any benefit to
Speaker 7: China for directly sending in troops, particularly with the risk
Speaker 7: looming that you know, this isn't Putin's sort of last
Speaker 7: rodeo in Ukraine. He came for Crimea in twenty fourteen,
Speaker 7: then he went back in in twenty twenty two. You know,
Speaker 7: if you've got Chinese peacekeeping troops on the ground and
Speaker 7: Putin makes another strike in sort of four or five
Speaker 7: years time, that would put China in a very different,
Speaker 7: different and difficult position with Moscow. So I think, you know,
Speaker 7: what China can actually offer really remains to be seen.
Speaker 4: I'm wondering if you look at the Trump administration's approach
Speaker 4: to Ukraine and you maybe draw a conclusion on how
Speaker 4: the Trump administration would deal with China visa VI Taiwan,
Speaker 4: is that a fair statement.
Speaker 7: I think that is one of the big questions, you know.
Speaker 7: I mean, China sees the Ukraine and Taiwan sort of differently.
Speaker 7: But essentially, if the message that putin that Trump gives
Speaker 7: to putin is you have a you know, there was
Speaker 7: a free pass to make this invasion. He blamed. He
Speaker 7: blamed the war on Zelenski, right, So if you're if
Speaker 7: you're cheating paying you know, how do you read that
Speaker 7: in the Taiwan context? You probably think, Okay, you're not
Speaker 7: going to get so much pushback. But I would say
Speaker 7: there's a lot more holding back the Chinese government from
Speaker 7: evade in Taiwan than just US pressure. You know, when
Speaker 7: you go to China and you speak to people there
Speaker 7: who sort of inform the foreign ministry and are in
Speaker 7: policy circles, I've never met anybody who thinks that China
Speaker 7: is on the very of invading Taiwan. You know, they
Speaker 7: much prefer this idea of a peaceful reunification and the
Speaker 7: way that the government is composed right now in Taipei,
Speaker 7: you know the KMT, which is more pro China is
Speaker 7: very very powerful. So it isn't to say that this
Speaker 7: is going to give shooting Pinks for a free pass
Speaker 7: to invade Taiwan, but it certainly gives them a lot
Speaker 7: more space to be bolder.
Speaker 4: So next month in China will have the annual Plannary Sessions.
Speaker 4: That's when the National People's Congress and the Chinese People's
Speaker 4: Political Consultative Conference hold their annual meetings. This is known
Speaker 4: as the two Sessions. Is it likely that the relationship
Speaker 4: between the US and China comes up for discussion during
Speaker 4: this period.
Speaker 7: Well, Foreign Minister Wan Yi will have his annual briefing,
Speaker 7: and that's actually one of the only times in China
Speaker 7: that any sort of senior official takes questions from foreign journalists.
Speaker 7: Obviously it's all very scripted and the questions are submitted
Speaker 7: in advance, But for sure the trade war will come
Speaker 7: up during that session. I imagine Wang Yi, who is
Speaker 7: a very very sort of seasoned top diplomat, he'll be
Speaker 7: very very cautious and how he responds, but it's going
Speaker 7: to be one of the top talking points I imagine
Speaker 7: behind closed doors as well.
Speaker 4: I remember when President She met with President Biden and
Speaker 4: San Francisco a while back, and one of the things
Speaker 4: that she aimed to do was try to increase foreign
Speaker 4: direct investment into China, and some of the latest figures
Speaker 4: that we have seen on inbound investment in China, I
Speaker 4: think it's the weakest start that we have seen in
Speaker 4: about four years. Right now, What do you think that
Speaker 4: China can do that will allow capital if this is
Speaker 4: even a possibility to allow capital from the US to
Speaker 4: flow into China.
Speaker 7: I think if they want to win back sort of
Speaker 7: the confidence of American investors, they have to stabilize the
Speaker 7: business environment. And you know, I think foreign companies, for
Speaker 7: a start, have been asking for a long time for
Speaker 7: a level playing field for their companies, so you know,
Speaker 7: the same access to sort of procurement and bidding on
Speaker 7: deals that state owned companies get, the same sort of preferences.
Speaker 7: So just stability, and that was really the big signal
Speaker 7: from she meeting Jack Marer earlier this week. Jack mar
Speaker 7: was sort of the face, if you like, of the
Speaker 7: regulatory crackdowns because he was the biggest target. I mean
Speaker 7: that meeting was sort of taken by economists to sort
Speaker 7: of signal that era of crackdowns is truly over and
Speaker 7: there's a stable business environment here. The government that's going
Speaker 7: to give private enterprises a free hand, take his full
Speaker 7: off the pedal and sort of really let enterprise flourish
Speaker 7: and you don't have to worry about raids on foreign
Speaker 7: consultancies or the rug being pulled under an industry you
Speaker 7: just invested in. With also the specter of a trade
Speaker 7: war hanging over by the actual ties, you know, it
Speaker 7: is a hard job that she has to convince American
Speaker 7: investors in particular and American companies they're welcome. I mean,
Speaker 7: particularly when the retaliation that China took towards Trump's initial
Speaker 7: tariffs included an antitrust probe into Google, and that was
Speaker 7: mostly symbolic because Google doesn't do much business in China
Speaker 7: right now, but it was a signal to other American companies.
Speaker 7: But if this continues, then you know their fair game
Speaker 7: in the tit for tat responses.
Speaker 4: Jenny, Before I let you go, I have to ask
Speaker 4: you about President Trump's advisor, Elon Musk. We know that Tesla,
Speaker 4: his electric vehicle company, has a big presence in Shanghai.
Speaker 4: What is Musk's relationship with Trump and Musk's relationship with Beijing.
Speaker 4: How does that kind of come together in understanding the
Speaker 4: dynamics that may end up playing out as we look
Speaker 4: to the future.
Speaker 7: Now. I think Musk is probably one of the most
Speaker 7: sort of dubvish on China voices in Trump's ear. And
Speaker 7: it's really notable actually that since Trump came to office,
Speaker 7: Musk has said nothing about China. In the interview bis
Speaker 7: Sean Hannity, there was one question that was put to
Speaker 7: Musk that was framed in China context, and he didn't answer.
Speaker 7: He mentioned the Taliban, I think in response. Instead, he
Speaker 7: has huge business interests in China, very very good ties
Speaker 7: of the Chinese government. When he visits Beijing, they roll
Speaker 7: out the red carpet. He gets meetings with Premier Li Chang,
Speaker 7: you know, and I think the Chinese government see him
Speaker 7: is a very very useful person in this administration because
Speaker 7: they have an interlocutor who is directly into Trump's air,
Speaker 7: who is a business person with huge interest in China.
Speaker 7: So someone who has a vested interest in maintaining business
Speaker 7: ties and who actually is aligned with President cheated and
Speaker 7: paying on many many sort of policy points, including their
Speaker 7: position on Taiwan. So I think for Beijing, Mosk is
Speaker 7: a very useful person and it'll be interesting to see
Speaker 7: how that sort of plays out.
Speaker 4: Oh, no doubt about that, Jenny. Thank you so much,
Speaker 4: Jenny Marsh, their team leader for Greater China ECO GOV.
Speaker 4: Joining from our studios in Hong Kong, and I'm Doug Prisner.
Speaker 4: You can catch us weekdays for the Daybreak Asia podcast.
Speaker 4: It's available wherever you get your podcast.
Speaker 2: Tom, Thank you, Doug. And that does it for this
Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday
Speaker 2: morning at five am Wall Street Time for the latest
Speaker 2: on markets overseas and the news you need to start
Speaker 2: your day. I'm Tom Buzby. Stay with us. Top stories
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