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, a look ahead to this week's Federal Reserve
Speaker 2: policy meeting Now it may impact monetary policy moving forward.
Speaker 2: Plus a look at earnings from the media and entertainment
Speaker 2: giant Walt Disney. I'm Tom Busby in New York. I'm
Speaker 2: Stephen Carolin London.
Speaker 3: But we're looking at the many challenges facing Germany's new
Speaker 3: Chancellor as Fredrick Martz prepares to take up the job.
Speaker 4: I'm Doug Krisner, exploring what's at stake in the US
Speaker 4: China trade standoff ahead of some key eco data in
Speaker 4: the week ahead.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby, and we begin
Speaker 2: Today's program just ahead of the Federal Reserve's third policy
Speaker 2: meeting of the year, which kicks off Tuesday, ends with
Speaker 2: a decision on interest rates on Wednesday. Amid a lot
Speaker 2: of economic uncertainty and the impact of President Trump's ever
Speaker 2: changing tariffs, the Fed has a lot to consider. For
Speaker 2: some perspective on what it all means. Stuart paul Us,
Speaker 2: economist with Bloomberg Economics, what do you expect the FOMC
Speaker 2: to do on Wednesday?
Speaker 5: We're expecting a rate hold. We're expecting the Federal Reserve
Speaker 5: to keep the target federal funds rate in the range
Speaker 5: of four and a quarter to four and a half percent.
Speaker 5: We're expecting very little news to come out of the FOMC.
Speaker 5: We're expecting very little news to come in the way
Speaker 5: of the Fed's balance sheet. All in all, it should
Speaker 5: be one of the more boring FOMC decisions and press
Speaker 5: conferences that we've had in a while.
Speaker 2: So a boring press conference. However, a lot of turmoil
Speaker 2: leading up to this, and there's a lot for the
Speaker 2: Fed to consider. Let's start with some of the good news.
Speaker 2: And there is good news about jobs, right, we just
Speaker 2: led this past week.
Speaker 5: That's right, in April, there were one hundred and seventy
Speaker 5: seven thousand jobs added, a four point two percent unemployment rate.
Speaker 5: From the Fed's perspective, it's not just thinking about employment
Speaker 5: chugging along, it's thinking about inflation pressures. We saw relatively
Speaker 5: modest zero point two percent wage growth and earnings growth
Speaker 5: during the month. So as employment is becoming a little
Speaker 5: bit broader as the workforce is expanding, inflation pressures stemming
Speaker 5: from the workforce are rather dull. And as we're heading
Speaker 5: into this FMC decision, the latest inflation data that the
Speaker 5: FED has in hand are basically showing muted inflation pressures
Speaker 5: so far. But the question is going to be on
Speaker 5: the Fed's mind just how much can we expect inflation
Speaker 5: pressures to ripple through from tariffs, And some of the
Speaker 5: internal models that we that we know that the FED
Speaker 5: operates with are likely showing that risk is skewed to
Speaker 5: the upside that we could see let's say three and
Speaker 5: a half four percent core PCEE inflation at year end.
Speaker 5: That would be up from about two point six percent
Speaker 5: right now. The FED is seeing a relatively hot jobs number,
Speaker 5: it sees inflation low right now, but risks skewed to
Speaker 5: the upside, so all the more reason to stay on
Speaker 5: hold when the FMC meets next week.
Speaker 2: Those risks, I mean, we're hearing because it's the first
Speaker 2: quarter earning season. We're hearing from a lot of companies,
Speaker 2: big companies, no more so than GM that said these
Speaker 2: tariffs could be a five billion dollar hit to profits,
Speaker 2: just as past week, Apple finally comes out and says
Speaker 2: nine hundred million dollars hit. So company after company Amazon.
Speaker 2: You know, a lot of uncertainty, a lot of people
Speaker 2: fears of a recession. I mean, this is building and building.
Speaker 6: That's right.
Speaker 5: As much as I like to stay focused on the macro,
Speaker 5: as much as I like to stay zoomed out at
Speaker 5: thirty thousand feet thinking about capital investment in the workforce,
Speaker 5: I think that the bigger thing next week is really
Speaker 5: going to be earnings, because we're going to get to
Speaker 5: hear from all these companies. We get to hear from FORD,
Speaker 5: We're going to get to hear from AMD and some
Speaker 5: of the tech companies that are thinking about exporting chips
Speaker 5: and are thinking about regulation of AI and development and
Speaker 5: other domestic investment. We're going to get to hear from
Speaker 5: some of the more consumer oriented companies like door Dash,
Speaker 5: for example, that are really leveraged to consumers discretionary spending power.
Speaker 5: And so I do think that more than the Fed's decision,
Speaker 5: more than the economic data, let's say on the trade
Speaker 5: balance that we're going to get next week data from March.
Speaker 5: But what's really going to matter is the guidance that
Speaker 5: we are getting from companies. And what we hear when
Speaker 5: we look at high frequency surveys, for example, is that
Speaker 5: companies are experiencing input cost pressures, they are planning to
Speaker 5: pass those along to consumers.
Speaker 2: But what we.
Speaker 5: Ultimately think is that with the saving rates so low,
Speaker 5: with consumers stretched and relying on credit as much as
Speaker 5: they are, when firms try to pass along those higher
Speaker 5: prices are ultimately going to face retrenching demand from consumers.
Speaker 2: We know sentiment from the University of Michigan polls at
Speaker 2: a five year low. I mean, people are really worried,
Speaker 2: that's right.
Speaker 5: Sentiment is poor. Business investment plans are being put on
Speaker 5: a hold. A big part of it just gets synthesized
Speaker 5: in one measure, economic policy uncertainty. Our policy uncertainty index
Speaker 5: is spiking through the roof no reason why it's because
Speaker 5: policymakers are coming off as rather mercurial in changing trade
Speaker 5: policy week to week. We just heard from Stephen Moran
Speaker 5: from the Council of Economic Advisors, one of the President's
Speaker 5: chief economic advisors, that we could expect to see a
Speaker 5: trade deal with China perhaps in the coming weeks. Now
Speaker 5: he's not one of the trade advisors, but everybody is
Speaker 5: chirping up on what we can expect from trade policy.
Speaker 5: Just when we thought we had an escalation with China,
Speaker 5: we're now seeing perhaps there's going to be a de escalation.
Speaker 5: There's no wonder. Uncertainty is through the roof, and sentiment
Speaker 5: is down well.
Speaker 2: A lot to watch out for. The Federal Open Market
Speaker 2: Committee's two day policy meeting, wrapping up this Wednesday, a
Speaker 2: decision on rates and a press conference from Chairman Jerome Powell.
Speaker 2: Our thanks to Stuart paul, Us economist with Bloomberg Economics,
Speaker 2: we turned out of the current earning season a number
Speaker 2: of companies so far surprising to the upside. This week,
Speaker 2: we hear from the media and entertainment giant, the Walt
Speaker 2: Disney Company that's out on Wednesday in the House of Mouse,
Speaker 2: facing a lot of challenges right now, including a pullback
Speaker 2: in consumer spending, a slowing economy, fewer tours coming into
Speaker 2: the US and to its parks, and a lot of
Speaker 2: competition for its streaming TV offerings. For more, we turned
Speaker 2: to Geetha. Raganathan, Bloomberg Intelligence analysts on US media. Well, Geither,
Speaker 2: the last time we heard from Disney was before President
Speaker 2: Trump announced his tariffs, the trade wars with China, Europe
Speaker 2: and other countries. How has all that impacted the company
Speaker 2: and what do you expect to see from Disney in
Speaker 2: its second quarter results?
Speaker 7: Yeah? Absolutely, Thank you so much, tom So. Disney is really,
Speaker 7: I think one of the most complex stories in the
Speaker 7: media world. There are so many parts. There's so many
Speaker 7: moving parts really as you think of the parks business,
Speaker 7: the theme parks business, streaming, you know, you have a
Speaker 7: presence in linear TV sports with ESPN, and then of
Speaker 7: course the theatrical business and in box office. There's always
Speaker 7: something to be concerned about here. So you're absolutely right.
Speaker 7: In terms of parks, there is obviously, it is very
Speaker 7: very sensitive to the overall health of the economy. And
Speaker 7: why we are concerned about parks when it comes to
Speaker 7: Disney is because this makes up about fifty to fifty
Speaker 7: five percent of their profit, so this is really, you know,
Speaker 7: the largest contributor of operating income. And while they had
Speaker 7: initially guided to healthy summer bookings, you know, we've kind
Speaker 7: of seen this deteriorating macro sentiment. So I think investors
Speaker 7: are definitely going to be focused on that. Apart from
Speaker 7: the general health of the economy. You know, as far
Speaker 7: as you know theme parks are concerned. The one thing
Speaker 7: that Disney investors are going to be super focused on
Speaker 7: as any commentary that management can provide in terms of
Speaker 7: competition from Epic Universe, which is a whole brand new
Speaker 7: theme park that is coming out of Universal and will
Speaker 7: be in Florida and is expected to be a very,
Speaker 7: very big competitor because some of the initial reviews have
Speaker 7: been absolutely amazing.
Speaker 2: And just open this week right or this month?
Speaker 7: Yeah it is, Yeah, it is going to open on
Speaker 7: May twenty second. Yes, So you know, near term, I
Speaker 7: think there's going to be a lot of wait and
Speaker 7: watch with the theme park business. But I think medium
Speaker 7: to longer term the business is definitely stabilizing, especially on
Speaker 7: the streaming front. So we're definitely seeing a big improvement
Speaker 7: in terms of streaming profits, with the company expecting a
Speaker 7: billion dollars in operating income this year, compared that to
Speaker 7: about four billion dollars in losses just a few years ago.
Speaker 2: Wow. Wow, Well, let's go back to parks, because another
Speaker 2: part of that is its cruise division, and as I understand,
Speaker 2: it's just unbelievable the demand for these Disney cruises.
Speaker 7: Yes, they have really made a huge push into the
Speaker 7: cruise ship business. And this quarter is going to be
Speaker 7: our fiscal second quarter when they report, is going to
Speaker 7: be particularly interesting because you're going to have a full
Speaker 7: quarter contribution from a new cruise ship, which is called
Speaker 7: Disney Treasure, and which is expected to have been profitable
Speaker 7: in its first full quarter. So it's going to be interesting.
Speaker 7: We think that, you know, the cruise ship business is
Speaker 7: going to go from you know, about two to three
Speaker 7: billion dollars in revenue to as much as four to
Speaker 7: five billion dollars in just a few years time. So
Speaker 7: this is going to become a major part of their
Speaker 7: parks business. And the one thing that we've seen with
Speaker 7: cruises as opposed to parks is you know, the demand,
Speaker 7: as you just pointed out, is very very strong and
Speaker 7: will be a stabilizing force for the entire experiences segment.
Speaker 7: For Disney.
Speaker 2: Now, I want to talk about its streaming TV unit.
Speaker 2: We have Disney Plus and Hulu and ESPN. Has there
Speaker 2: been any let up, any signs of a letup in
Speaker 2: advertising revenue where they really make a lot of money
Speaker 2: from all these networks and their linear networks.
Speaker 7: I think the general commentary tom on advertising is obviously
Speaker 7: a very cautious kind of wait and see approach, because
Speaker 7: when you head into an economic environment where you have
Speaker 7: so much of volatility, the first sector that kind of
Speaker 7: sees that pullback is of course advertising. Now there's both
Speaker 7: good and bad with respect to Disney. So if you
Speaker 7: just look at it from an overall company perspective, only
Speaker 7: about fourteen to fifteen percent of Disney's revenue actually comes
Speaker 7: from advertising, so exposure itself is not very very heavy.
Speaker 7: You compare that to some of the other companies like
Speaker 7: a Fox or a Warner Brothers Discovery, where you know
Speaker 7: almost thirty five to forty percent of revenues are coming
Speaker 7: from advertising. So I think overall the exposure is fairly limited.
Speaker 7: That said, if things go bad, they can go really
Speaker 7: really bad. So if you're looking at a linear TV business,
Speaker 7: and Disney has considerable exposure here, you know, whether it's ESPN,
Speaker 7: whether it's the ABC network, we can see ads drop
Speaker 7: almost ten to fifteen percent, and that is really not
Speaker 7: good for the business. They do have a little bit
Speaker 7: of a hedge because streaming ads or digital ads in
Speaker 7: general have held up better than the linear TV side
Speaker 7: of the business. But overall, it is definitely going to
Speaker 7: be a very very cautious tone on the advertising business.
Speaker 2: And let's turn to its film studio, because we've seen
Speaker 2: some wild success as Captain America, Mufasa movie, some not
Speaker 2: so great Snow White Mawana too, but still I suspect
Speaker 2: they're all going to make money.
Speaker 7: They absolutely are, and we've seen you know, just if
Speaker 7: you just think a few quarters ago, Tom, I mean,
Speaker 7: this business was really really struggling. The content business as
Speaker 7: a whole was in desperate need of a rejigger, and
Speaker 7: we really had that with you know, inside out kind
Speaker 7: of really you know, start this whole resurgence in the
Speaker 7: box office unit last year and ever since then, it's
Speaker 7: been great. You pointed out Mufasa that's done really well,
Speaker 7: Moana did really well, and then of course you had
Speaker 7: Captain America, and then we have the summer season for
Speaker 7: Disney kicking off the summer box office season kicking off
Speaker 7: with Thunderbolts, which is tracking to a very very strong
Speaker 7: opening and should have a fantastic run just like Captain America.
Speaker 7: You know, this is the next phase of the Marble
Speaker 7: cinematic universe. Should do really really well for Disney, and
Speaker 7: they have a fantastic content pipeline coming out over the
Speaker 7: next eight to ten months.
Speaker 2: Disney second quarter earning's coming out after Wall Street's closing
Speaker 2: belt This Wednesday, our thanks to Getha raganoffin Bloomberg Intelligence
Speaker 2: Analysts on US media, coming up on Bloomberg day Break weekend,
Speaker 2: looking at the many challenges facing Germany's new chancellor as
Speaker 2: he prepares to take up the job. I'm Tom Busby,
Speaker 2: and this is Bloomberg. Is Bloomberg Daybreak Weekend, our global
Speaker 2: look ahead at the top stories for investors in the
Speaker 2: coming week. I'm Tom Busby in New York. Up later
Speaker 2: in our program and look at what the Trump tariffs
Speaker 2: could mean for China's economy. But first, Germany's next Chancellor,
Speaker 2: Friedrich Mertz, will be officially confirmed in his role leading
Speaker 2: Europe's largest economy. This week, it's been a rocky road
Speaker 2: to the top of the conservative who will preside over
Speaker 2: uncertain times? What does this path ahead look like for
Speaker 2: the country's new leader. For more, let's go to London
Speaker 2: and bring in Bloomberg Daybreak europe Banker Stephen Carroll.
Speaker 3: Tom It's been more than two months since Germany's federal election,
Speaker 3: and now finally the country will have a new chancellor.
Speaker 3: The Social Democrats who led the outgoing government have voted
Speaker 3: in favor of a coalition deal with Friedrich Martz's Conservative alliance,
Speaker 3: clearing the way for the Christian Democratic leader to be
Speaker 3: confirmed as the country's next chancellor. The agreement, backed by
Speaker 3: around eighty five percent of SPT members in an online ballot,
Speaker 3: brings to a close a complex set of negotiations. The
Speaker 3: deal also keeps the far right AfD out of power
Speaker 3: after they won a historic twenty point eight percent of
Speaker 3: the vote in February. As Chancellor, Frederick Martz will have
Speaker 3: to deal with a delicate economic outlook. Germany saw just
Speaker 3: meager growth than the first quarter, and its key industries
Speaker 3: face the impact of US tariffs. He's already passed a
Speaker 3: plan to ramp up defense and infrastructure spending in Germany,
Speaker 3: and that's something the CFO of Deutsche Bank, James von
Speaker 3: Moltke says is already having an impact.
Speaker 8: Well, there are two things going on that German economy
Speaker 8: is obviously an export driven economy, so there's a significant
Speaker 8: impact of tariffs, whatever the outcome will be in and
Speaker 8: so there are scenarios around that as to what the impact.
Speaker 8: But at the same time, you have this offsetting impact
Speaker 8: of the fiscal reform in Germany and now several years
Speaker 8: on infrastructure, defense spending. Obviously the sustainable and digital transitions
Speaker 8: that are underway, so a significant investment volume, and so
Speaker 8: corporates in Germany are sort of gearing themselves up to
Speaker 8: manage that.
Speaker 9: And in terms of of payouts and dividends and sort
Speaker 9: of and buybacks and these sorts of things, is this
Speaker 9: a moment to sort of preserve cash? How are you
Speaker 9: thinking about that going into this way.
Speaker 8: We're executing on the on the distribution strategy and policies
Speaker 8: that we've laid out. So we've announced so far this
Speaker 8: year two point one billion of distributions through dividends and buybacks.
Speaker 8: We're executing on that. And to your question, all or
Speaker 8: will will will reassess as time goes by, we see
Speaker 8: the performance in the first and second quarters in the environment,
Speaker 8: you know, let's say ninety days from now, we'll have
Speaker 8: an opportunity to reassess distributions later in the year.
Speaker 9: And then I'd like to also just take a step
Speaker 9: back and look at the sort of market architecture and
Speaker 9: what we've seen over the last couple of weeks. And
Speaker 9: I'll begin by sort of quoting some of your own
Speaker 9: research back to you that the preconditions are now in
Speaker 9: place for the beginning of a major dollar down trend,
Speaker 9: expecting one thirty euro versus the dollar by twenty twenty seven.
Speaker 9: How much of this damage do you think is permanent?
Speaker 8: Well, look, that's our analysts are calling for relatively significant
Speaker 8: structural change.
Speaker 6: I do think that will take time.
Speaker 8: There's been a what i'll call a break if you like.
Speaker 6: In sentiment, but that sentiment I think.
Speaker 8: Will make itself felt gradually over time. It's had a
Speaker 8: pretty dramatic impact on the euro dollar exchange rate already,
Speaker 8: and a further drift you know, up from here, would
Speaker 8: be impactful overall. I think the difference you're seeing is
Speaker 8: that the policy changes are making the rest of the
Speaker 8: world interesting to investors and changing the relative position a
Speaker 8: little bit of the United States and Europe, but other
Speaker 8: destinations as well.
Speaker 6: In a sense, that's good.
Speaker 8: I think it's been a wake up call for Europe,
Speaker 8: whether that's the policy side of Europe or as we
Speaker 8: talked about, the corporate side, and so there's an opportunity
Speaker 8: to rebalance a little bit. But it'll have impact on
Speaker 8: a number of markets, including currents.
Speaker 9: And when you think about sort of the remaking of
Speaker 9: that sort of global market architecture, does that mean that
Speaker 9: European markets, that German bonds, that the year of plays
Speaker 9: a larger role going forward, if not completely eclipsing the
Speaker 9: United States, but certainly changes.
Speaker 6: I don't think.
Speaker 8: Again there's I don't necessarily think this is a zero
Speaker 8: sum competition.
Speaker 6: I really don't.
Speaker 8: But the Bund is an anchor sort of investment and
Speaker 8: anchor source of stability in the world, and that's really good.
Speaker 8: In fairness, and one thing another thing our analyst said,
Speaker 8: and this is true for the German government to have
Speaker 8: announced as big a fiscal expansion as has taken place,
Speaker 8: and for the long bond in Germany, the bond not
Speaker 8: to have moved substantially in that time is a real
Speaker 8: sign of confidence in Germany.
Speaker 6: We actually think that the.
Speaker 8: Economic health of the country and also its fiscal strength
Speaker 8: in many respects, can be improved through this spending and
Speaker 8: if you like, a rebalancing of the economy, more consumption,
Speaker 8: more investment at home.
Speaker 9: And I want to get into that, but I also
Speaker 9: want to talk quickly also just about the foreign exchange market,
Speaker 9: not just within the markets, but also your clients as
Speaker 9: obviously companies that look at the outside world. You've seen
Speaker 9: some wild moves on the exchange rate. How are your
Speaker 9: clients dealing with how are you sort of also in
Speaker 9: intermedia and helping them sort of hedge some of that risk.
Speaker 8: But we had we had tremendous volumes in those days
Speaker 8: of early early April, so obviously we were managing our risk,
Speaker 8: but we were also helping clients to manage theirs and
Speaker 8: a there is a theme by the way of more
Speaker 8: business coming to us because of clients seeking to work
Speaker 8: with a European bank, and that that's also encouraging for
Speaker 8: the business model. Again, rebalance is a little bit the
Speaker 8: imbalance that has been strategically the case in the industry.
Speaker 8: The clients were in those days reacting strongly to this
Speaker 8: idea that that the dollar.
Speaker 6: In the US long bond was no longer.
Speaker 8: The risk off trade and where's that resulted in a
Speaker 8: lot of movement and uncertainty with clients.
Speaker 6: But all around the world is the honest truth.
Speaker 9: And so trying to figure out the sort of German
Speaker 9: fiscal expansion kind of conversation here there's so much bad
Speaker 9: news price then, whether it's what's coming out of the
Speaker 9: United States, the sort of years of contraction within Germany.
Speaker 9: Do you think that there is actually quite a bit
Speaker 9: of good news that is not yet then, and that
Speaker 9: actually we can really see things take off materially in Germany.
Speaker 6: I think so it'll take time.
Speaker 8: I mean, as in the nature of a fiscal expansion,
Speaker 8: the government needs to be put in place and the
Speaker 8: spending plans not just enacted but actually hitting. And so
Speaker 8: we see this as a real support to the German
Speaker 8: economy and the European more broadly economies in the years
Speaker 8: really starting in twenty six.
Speaker 6: But it's a sustained improvement. Now.
Speaker 8: One thing that's important is what it does to confidence today,
Speaker 8: and so we do expect some help in twenty five
Speaker 8: in terms of overall confidence in households and corporates. Obviously
Speaker 8: that confidence requires a resolution of the tariff war and
Speaker 8: some of the other things that are live at the moment,
Speaker 8: potentially piece in Ukraine. So there's a lot set of
Speaker 8: hanging in terms of confidence on the outcome of these events.
Speaker 3: That was the Deutsche Banks CFO James von Maltkez speaking
Speaker 3: there to Bloomberg's Oliver Krook. So what are the major
Speaker 3: challenges awaiting Germany's next chancellor. I've been discussing this with
Speaker 3: our Germany Bureau chief christ for our world.
Speaker 10: Pushing through economic reforms will will definitely be on top
Speaker 10: of his list, and also will be particularly in focus
Speaker 10: in coming days will be his efforts to liaise with
Speaker 10: other European leaders like French President Imanuel Macron or the
Speaker 10: Polish president tous Joined has been notably passive under outgoing
Speaker 10: chance all of shots, and Mattz really has pledged and
Speaker 10: maybe it like one of his top priorities to change
Speaker 10: that and play also like a more active role on
Speaker 10: the European stage.
Speaker 3: Again, how quickly will the new government be able to
Speaker 3: draw up a budget? I imagine another key concern.
Speaker 10: That is actually definitely one of the most pressing issues actually,
Speaker 10: since when the outgoing government decided on a provisional budget
Speaker 10: for this year for twenty twenty five, there was a
Speaker 10: gap of roughly twelve billion euros, that's about or close
Speaker 10: to fourteen billion dollars. And since since that provisional budget
Speaker 10: was announced, like some additional funding needs have actually come up,
Speaker 10: So the latest number that has been floating around in
Speaker 10: Berlin was about eighteen billion euros and the new government,
Speaker 10: undeficult wish Melts will definitely need to address this sooner
Speaker 10: rather than later to to basically plug these funding gaps.
Speaker 3: Of course, Germany in the crosshairs, as so many other
Speaker 3: countries are too, of Donald Trump's trade tariffs too. Are
Speaker 3: we likely to hear anything about trade policy from mer
Speaker 3: It's in the coming days?
Speaker 10: That does seem pretty likely. Melt has been quite outspoken
Speaker 10: actually that the disruption from the from from the US
Speaker 10: tariffs marked really like a significant shift for for for
Speaker 10: Germany because the US is one of its key trading partners.
Speaker 6: So we can.
Speaker 10: Definitely expect them not just to meet with with Immanuel
Speaker 10: McCrow in France and with other European leaders in the
Speaker 10: individual like European Union member states, but also to show
Speaker 10: up in Brussels to get involved in the European Union's
Speaker 10: trade policy, because that that is actually like this, the
Speaker 10: sort of like entity that discusses traits with with the US.
Speaker 3: How solid does this coalition look. The SPD have voted
Speaker 3: for it, it has you know, gone through the period
Speaker 3: of negotiations. But where should we be looking for potential
Speaker 3: data in this new alliance.
Speaker 10: This will definitely be a focus since the last government's
Speaker 10: sort of constant bickering over over months and years actually
Speaker 10: was really like one of one of its major problems,
Speaker 10: and that actually disgruntled many many voters in Germany. Overall,
Speaker 10: the SPD, the Social Democrats and the conservative blog that's
Speaker 10: led by British mouts that do seem very determined and
Speaker 10: so to reassure voters that they will make this cooperation work.
Speaker 10: But there are there are definitely some some potentially contentious
Speaker 10: issues there that will have to be addressed, particularly when
Speaker 10: it comes to immigration for example, or social welfare spending,
Speaker 10: where British Melts has sort of floated the idea of
Speaker 10: pretty painful cutbacks and that that will be something that
Speaker 10: will for the social Democrats will probably be difficult to accept.
Speaker 10: So yeah, it's going to be really interesting to see
Speaker 10: if they are or if they will be able to
Speaker 10: find really like a common common ground. They are a
Speaker 10: common line.
Speaker 3: The biggest opposition this new government is going to be
Speaker 3: facing comes from the fireright AfD party. They came in
Speaker 3: second in the actions in February. They're leading the opposition. Now,
Speaker 3: how much are the AfD's policies and politicians going to
Speaker 3: put pressure on this new government.
Speaker 10: Well, they are definitely the biggest opposition party in the
Speaker 10: new German Parliament after they secured just over twenty percent
Speaker 10: of the votes in the last federal election in late February,
Speaker 10: but they don't have direct influence on policy making on
Speaker 10: a federal level. What we're seeing at the moment is
Speaker 10: that like some of the some of the regional governments,
Speaker 10: is like some of the German states where the AfD
Speaker 10: has like a stronger presence that there, we can definitely
Speaker 10: see that they are trying to disrupt and influence decision
Speaker 10: making by blocking certain decisions on federal level. We're not
Speaker 10: seeing that. I'm a bit reluctant to make a focus there.
Speaker 11: Off while how long that will that will remain in
Speaker 11: place or if they actually will have some sort of influence,
Speaker 11: but for now their sort of potential to disrupt decision
Speaker 11: making on a federal level is close to zero.
Speaker 3: Actually, talk us through some of the international challenges that
Speaker 3: that Friedrich Martz will will also need to be addressing.
Speaker 3: We know, before this new Bodista came into force, he
Speaker 3: did manage to pass that bill which will ramp up
Speaker 3: defense and infrastructure spending. That's going to be an interesting
Speaker 3: one to watch for the domestic economy. But in terms
Speaker 3: of Germany's place in the EU, how will Friedrich Martz
Speaker 3: be playing that given the you know, obviously trade trade
Speaker 3: tarff's being a big question there too.
Speaker 10: Yeah, defense spending will will definitely bun on one of
Speaker 10: the one of the key areas, and that's like linked
Speaker 10: to some of the trade deals that have been sort
Speaker 10: of discussed over the past weeks and months. Yeah, both
Speaker 10: both on national level and on European level, or on
Speaker 10: natal level, I should say so. The German army originally
Speaker 10: needs to be modernized to fulfill its obligations within NATO
Speaker 10: and actually also be able to defend the country and
Speaker 10: like modernizing the Bundes for Polish males will be hugely complicated.
Speaker 10: Defense purchasing is as we all know that that's that's
Speaker 10: a that's a pretty convoluted sort of process, a lot
Speaker 10: of capacity restraints in the industry, and that is something
Speaker 10: that we'll have to be addressed with both within the
Speaker 10: NATO member states with the US administration oversly, because the
Speaker 10: US is also like and when it comes to defense,
Speaker 10: like a big sort of producer of like weapon systems
Speaker 10: and ammunition. So that's definitely probably will be one of
Speaker 10: the most sort of like difficult and complex of challenges
Speaker 10: that that Melts will have to address.
Speaker 3: Thanks to our Germany Bureau chief Christopher rowold Well, the
Speaker 3: full coverage of Friedrich Martz's first days is German Chancellor.
Speaker 3: For you here on Bloomberg, I'm Stephen Carolyn London. You
Speaker 3: can catch us every weekday morning for Bloomberg Daybreak Europe,
Speaker 3: beginning at six am in London and one am on
Speaker 3: Wall Street.
Speaker 2: Tom, thank you, Steven. And coming up on Bloomberg day
Speaker 2: Break weekend, we'll look at more economic data in Asia
Speaker 2: that could offer fresh clues about the health of the
Speaker 2: world's second largest economy. I'm Tom Busby and this is Bloomberg.
Speaker 2: This is Bloomberg day Break weekend, our global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: I'm Tom Busby in New York. As US China tensions
Speaker 2: flair under President Trump's tariff push, fresh data out this
Speaker 2: week could offer clues about the health of China's economy.
Speaker 2: For some analysis, Let's get to the host of the
Speaker 2: Daybreak Asia podcast, Doug Krisner.
Speaker 4: Tom. A trio of key Chinese economic indicators will land
Speaker 4: in the coming week. We'll have the Taisheen Manufacturing PMI
Speaker 4: will be getting the April inflation reports and new trade
Speaker 4: activity data. Together they will provide a crucial read on
Speaker 4: China's economic momentum or lack thereof, at a time when
Speaker 4: global markets are watching nervously for a closer look. I'm
Speaker 4: joined now by John lu he is Bloomberg's executive editor
Speaker 4: for Greater China. John joins us from our studios in Beijing. John,
Speaker 4: we can talk about the inflation story in a moment,
Speaker 4: but I want to begin by trying to understand current conditions.
Speaker 4: Some of the recent data, as you well know, is
Speaker 4: indicated a fair amount of weakness, and I'm thinking of
Speaker 4: the PMI data in particular, which we had at the
Speaker 4: end of last week. Give me your sense of the
Speaker 4: macro right now.
Speaker 12: I think there's a lot of concern at the moment.
Speaker 12: The PMI data that you mentioned there, Doug, that came
Speaker 12: in a week, there was a contraction. It was the
Speaker 12: longest or the biggest contraction in manufacturing that I think
Speaker 12: we've seen in about two years time, and so that
Speaker 12: speaks to the weakness as a result of the liberation
Speaker 12: tariffs Liberation Day tariffs that President Trump announced. Because that
Speaker 12: PMI data was for the month of April, so it
Speaker 12: was the first reading that we've had of what kind
Speaker 12: of impact there has been on China's economy. And I
Speaker 12: think there's a broad expectation that there will be more
Speaker 12: weakness because of trade.
Speaker 4: What about more stimulus and how might the government go
Speaker 4: about it. I mean, some of this weakness is showing
Speaker 4: up on the export side, which in the past hasn't
Speaker 4: really correlated very strongly with trying to get domestic demand
Speaker 4: put into a higher gear. Is this a particularly tricky
Speaker 4: situation for Beijing right now?
Speaker 12: I think there's a general recognition in Beijing that the
Speaker 12: way to offset the pain from the trade war is
Speaker 12: to provide stimulus that will create domestic demand, so create
Speaker 12: a market for these products that would have gone to
Speaker 12: the US without these tariffs. But that potentially gives companies
Speaker 12: here in China a chance to sell domestically to a
Speaker 12: domestic consumer or a domestic company. And I think what
Speaker 12: you will see is more and more stimulus in terms
Speaker 12: of offering rebates for people who buy a car, or
Speaker 12: buy a refrigerator, or buy some air conditioning, offering rebates
Speaker 12: for companies that want to get new equipment, that want
Speaker 12: to upgrade their production processes, things of that nature. But
Speaker 12: as of now, we had this Pollit Bureau meeting in
Speaker 12: April that really showed the government right now is sort
Speaker 12: of in a wait and see attitude. The government said,
Speaker 12: we are ready with an emergency plan when that is needed,
Speaker 12: but they seem to be conveying an idea that so
Speaker 12: far in the first quarter the economy is doing okay,
Speaker 12: and they're waiting for more data and information before they
Speaker 12: launched themselves into some dramatic stimulus.
Speaker 4: In the last two week here in the US, President
Speaker 4: Trump held a rally in Warren, Michigan, and it was
Speaker 4: there that he said countries from around the world have
Speaker 4: contracted his administration about trade deals. India may end up
Speaker 4: being the first. We just don't know at this point.
Speaker 4: But I'm curious what President chi chin Ping is trying
Speaker 4: to do in the Asia Pacific and deals that he
Speaker 4: may be looking to create with trading partners that China
Speaker 4: already has in the region.
Speaker 12: So I think the starting point of this discussion, I
Speaker 12: think is the fact that China's does not seem to
Speaker 12: be in a rush to get to the negotiating table
Speaker 12: with President Trump. I think the trade war has done
Speaker 12: something very pronounced here in China in that it's really
Speaker 12: created this sense of patriotism. It's really rallied support around Xijingping.
Speaker 12: And so whatever economic troubles there might be, whatever the
Speaker 12: employment situation might be, going to the future, by and large,
Speaker 12: people here in China are gonna blame the United States.
Speaker 12: They're gonna blame President Trump. That is going to take
Speaker 12: a lot of pressure off of President Xijingping, and it's
Speaker 12: gonna make it easier for him to hold out for
Speaker 12: a better deal. In the meantime, there is also a
Speaker 12: lot of angst in countries around Asia, in Southeast Asia
Speaker 12: and Japan and Korea about the tariffs that the Trump
Speaker 12: administration has announced, and Beijing is trying to take advantage
Speaker 12: of that by doing a charm offensive. Xiji Ping has
Speaker 12: already visited Southeast Asia. Beijing has just allowed the first
Speaker 12: K pop concert that's taken place in China in about
Speaker 12: a decade, and so there is an effort to take
Speaker 12: advantage of that situation by offering various types of inducements
Speaker 12: for neighboring countries to increase their trade relationship with China.
Speaker 4: I was reading a piece on the Bloomberg Terminal in
Speaker 4: the last week. This is Wang Yi, China's foreign minister,
Speaker 4: was saying that if nations choose to remain silent, compromise
Speaker 4: and retreat, it will only lead to the bullies making
Speaker 4: further advances. This seems to be very much an anti
Speaker 4: US message. I get that, but I'm wondering whether or
Speaker 4: not there's a big audience for that right now in
Speaker 4: the region.
Speaker 12: I think there is. That message that Foreign Minister Wangi
Speaker 12: delivered was at the meeting of Bricks Nations they're foreign
Speaker 12: ministers that was held at the end of April, and
Speaker 12: so I think in that setting there is a built
Speaker 12: in audience for that message. Many of those countries Iran
Speaker 12: is in that group, South Africa, Russia, Brazil. These are
Speaker 12: countries that have always had a suspicion about American intentions,
Speaker 12: if not outright hostility towards American intentions, and so in
Speaker 12: that setting, I think he was speaking to the right
Speaker 12: audience with that message. More broadly, I think it's trickier
Speaker 12: to say when it comes to Australia or Japan or
Speaker 12: South Korea, traditional American allies, how well that message, what
Speaker 12: kind of mood that message will strike, because yes, these
Speaker 12: countries depend on China for their economic growth, but they
Speaker 12: also depend on the United States a lot for their security.
Speaker 12: And at the same time, those countries also are suspicious
Speaker 12: of Chinese intentions. Japan, many Southeast Asian countries, the Philippines,
Speaker 12: India have all had border disputes with China, territorial disputes,
Speaker 12: and so that makes them less than enthusiastics about embracing Beijing.
Speaker 4: So we've established the fact that the overall economy is
Speaker 4: weak visa VI the PMI data, and we know that
Speaker 4: the government has to do more to stimulate domestic demand
Speaker 4: a lot more. Let's talk a little bit about the
Speaker 4: inflation story now, is China still very much in a
Speaker 4: deflationary trap right now, or there are green shoots emerging
Speaker 4: that maybe prices are beginning to move higher.
Speaker 12: I think we are still in a position where deflation
Speaker 12: is the major concern. There may be some green shoots
Speaker 12: in terms of services and in terms of retail spending
Speaker 12: because the government has started to roll out more and
Speaker 12: more stimulus. They've tried to roll out subsidies for people
Speaker 12: who buy various products. They've started to invest in new projects.
Speaker 12: China just approved a number of new nuclear power stations,
Speaker 12: and so that investment will start making its way through
Speaker 12: the economy. So some green shoots, but still I think
Speaker 12: there's a major problem when you have such a big
Speaker 12: trade relationship between the United States and China being essentially
Speaker 12: cut off by the level of tariffs that have been imposed,
Speaker 12: really shutting off in demand for many many Chinese factories.
Speaker 12: And where those products are going to end up is
Speaker 12: a big question, and I think there's a high likelihood
Speaker 12: that you will see companies and manufacturers and suppliers try
Speaker 12: to find a place to sell those products into you
Speaker 12: by cutting prices.
Speaker 4: So does that necessarily mean I hate to use the
Speaker 4: term dumping. But that's what I hear when you kind
Speaker 4: of make that point, and whether or not that's going
Speaker 4: to leave China open to a lot of criticism.
Speaker 12: So a lot of countries are worried about where these
Speaker 12: Chinese products will go if they don't go to the
Speaker 12: United States. That is a real concern, And that is
Speaker 12: a real concern because of just what we're talking about,
Speaker 12: manufacturers being incentivized to cut prices to get their product
Speaker 12: moving out of the warehouse. Whether or not that will
Speaker 12: result in dumping, I think we have to wait and see,
Speaker 12: because what we have seen is the Chinese government telling
Speaker 12: various countries in Southeast Asia, for example, that China will
Speaker 12: not engage in dumping. And so there is a mechanism
Speaker 12: by which the Chinese government could stop that sort of thing,
Speaker 12: and so they may choose to do that in order
Speaker 12: to take advantage of that opportunity we talked about.
Speaker 4: So we know during the first Trump administration that supply
Speaker 4: chains in China were being reconfigured to kind of remove
Speaker 4: the thread of tariffs. A lot of that was accelerated
Speaker 4: during the pandemic. But I'm wondering now whether or not
Speaker 4: that's really gathered even more steam during the trade war.
Speaker 4: Are we seeing more and more companies kind of taking
Speaker 4: their processes out of China and to countries like India,
Speaker 4: for example, just to maybe find a way of getting
Speaker 4: into the good graces of the United States.
Speaker 12: What we see is American companies like Apple. Apple has
Speaker 12: announced that they are going to move all of the
Speaker 12: production of their iPhones that they sell in the US
Speaker 12: from China to India. So for an American company doing
Speaker 12: that makes sense. For a Chinese company, it makes less sense.
Speaker 12: Because the Trump administration has made it a point in
Speaker 12: their discussions with other countries, with Mexico, with India, other partners,
Speaker 12: that they want to make sure that Chinese companies are
Speaker 12: not re routing their products through a third country. And
Speaker 12: so I think that has made it more difficult for
Speaker 12: Chinese companies to make decisions about investing building big factories
Speaker 12: in Brazil or Mexico or some other country. What instead,
Speaker 12: I think you are seeing a lot of Chinese companies
Speaker 12: think about, is can I sell product in Brazil? Can
Speaker 12: I sell product in Vietnam? Can I sell product in
Speaker 12: Eastern Europe? And if I can, then I will build
Speaker 12: a factory there to do that.
Speaker 4: We were talking a moment ago about how the trade
Speaker 4: war has kind of incited a feeling of nationalism in China,
Speaker 4: coming together to kind of coalesce around supporting the government's
Speaker 4: effort to fight this trade war. And I'm wondering whether
Speaker 4: or not there is this feeling that we're in it
Speaker 4: for the long haul and that China can really manage
Speaker 4: to endure a great deal of economic pain for the
Speaker 4: foreseeable future, or whether or not there is a level
Speaker 4: of vulnerability right now that's being masked and there's a
Speaker 4: breaking point that could happen in the next few months
Speaker 4: if there is no resolution to this tariff story.
Speaker 12: Unfortunately, I think we are in the early stages, the
Speaker 12: early innings of this trade war, and right now both
Speaker 12: sides are filling in a relatively strong position, and I
Speaker 12: think that is mostly because the actual pain that will
Speaker 12: be caused by this conflict is not being it's not
Speaker 12: going through the economy yet. In this current situation in China,
Speaker 12: people are feeling more patriotic. They're feeling like they want
Speaker 12: to support their government, they want to support their president,
Speaker 12: they want to fight this thing. As time goes on
Speaker 12: and the economic reality sets in, the pain sets in,
Speaker 12: I think that attitude will start to change and evolve.
Speaker 12: I think there will be a more openness to negotiation,
Speaker 12: and indeed, I think we probably will not get negotiations
Speaker 12: until both sides feel enough pain.
Speaker 4: John, it's always a pleasure. Thank you so very much,
Speaker 4: John Lou Bloomberg, Executive Editor for Greater China, and I'm
Speaker 4: Doug Christner. You can catch us weekdays for the Daybreak
Speaker 4: Asia podcast. 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: at five am Wall Street Time for the latest on
Speaker 2: markets overseas and the news UNI To start your day,
Speaker 2: I'm Tom Buzzby. Stay with us. Top stories and global
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