Speaker 1: Good morning. I'm Brian Curtiz. Here are the stories we're
Speaker 1: following today. Netflix shares fell after the company reported second
Speaker 1: quarter of sales that missed estimates. The company also issued
Speaker 1: a third quarter forecast that fell short of expectations. It's
Speaker 1: partly due to foreign exchange rates and the price cuts
Speaker 1: in some markets. The shortfall overshadowed solid subscriber growth. Netflix
Speaker 1: added five point eight nine million customers in the prior quarter.
Speaker 1: That was more than double what Wall Street was looking for.
Speaker 1: We heard from Dan Morgan at Sunovistrust.
Speaker 2: It's kind of interesting. They're obviously adding new subscribers. We
Speaker 2: don't know if this is due to some of their
Speaker 2: lower cost initiatives like Basic with advertising, which is six
Speaker 2: ninety nine a month, all the initiatives they've had going
Speaker 2: on to try to get rid of people that are
Speaker 2: sharing passwords and so forth. So it looks like they're
Speaker 2: starting to get these people on board, but unfortunately, the
Speaker 2: average revenue per user of the amount that they're gas
Speaker 2: other for that additional subscriber seems like it's dropping off
Speaker 2: a little bit.
Speaker 1: Netflix raised its twenty twenty three forecast for free cash
Speaker 1: flow from at least three point five to five billion dollars.
Speaker 1: It's the result of a strike by writers and actors
Speaker 1: that has shuttered production and cut spending, so expenses down
Speaker 1: there a little bit. Netflix shares at the moment off
Speaker 1: six point nine percent in late trading. Meantime, Tesla reported
Speaker 1: second quarter earnings in revenue that beat estimates, but gross
Speaker 1: margins trailed Wall Street expectations. The electric vehicle maker's margins
Speaker 1: are being squeezed by months of price cutting. It's a
Speaker 1: response to tighter household budgets and a wave of new
Speaker 1: EV competitors. We've heard from David Traynor, CEO of New Constructs.
Speaker 3: The law of competition means that whatever margins Tesla is
Speaker 3: able to achieve now are probably not sustainable, and we're
Speaker 3: seeing their market share decline precipitously China and in Europe.
Speaker 3: We think the same will happen in the US. And
Speaker 3: this is ultimately an industrial manufacturing business. It's not going
Speaker 3: to have the kind of margins that Tesla has now,
Speaker 3: and certainly not the kind of return on invested capital.
Speaker 3: We're talking about a stock price that's implying returns on
Speaker 3: investor capital upward of seventy eighty percent for Tesla right,
Speaker 3: that's just not going to happen.
Speaker 1: Tesla also blamed it shrinking margins on the cost of
Speaker 1: ramping up output of new battery cells, the cyber truck
Speaker 1: as well and other large projects. The automaker said it
Speaker 1: expects future hardware related profits to be accompanied by an
Speaker 1: acceleration of AI. Goldbn Sachs's second quarter profit tumbling fifty
Speaker 1: eight percent. The bank was hit by a slump in investment,
Speaker 1: banking and deal making. On the earnings call, CEO David
Speaker 1: Solomon said that the bank is now making some tough
Speaker 1: decisions that are driving the evolution of the firm.
Speaker 4: Our results were impacted by several items related to businesses
Speaker 4: we're executing on a strategic transition and positioning the firm
Speaker 4: for the future, in particular shifting our asset and wealth
Speaker 4: management business to a less capital intensive model and the
Speaker 4: pivot our consumer ambition.
Speaker 1: Goldman's equity trading revenue was one bright spot. It came
Speaker 1: in ahead of the firm's major rivals at three billion
Speaker 1: dollars analysts who are looking at two point four seven billion.
Speaker 1: Goldman has now clinched the top rank in the business
Speaker 1: in three of the past four quarters. In business trading well.
Speaker 1: Apple is quietly working on artificial intelligence tools that could
Speaker 1: challenge those of Open Ai, Google, at Alphabet, and others.
Speaker 1: We get more here from Bloomberg's Mark German.
Speaker 5: Today, we've learned that Apple is going all in on LMS,
Speaker 5: or large language models. That's the heart of the AI
Speaker 5: technology that powers Chat, GPT, Microsoft Being Ai, Google Bard
Speaker 5: and all of these fancy new AI tools we've been
Speaker 5: hearing about. So they've developed their own underlying framework at
Speaker 5: Apple called ajax to power its own next generation LMS,
Speaker 5: and it's also built an internal chat GPT like tool
Speaker 5: for use among its employees that operates very similar to
Speaker 5: the tools seeing from others today.
Speaker 1: Apple executives haven't yet decided on how to release the
Speaker 1: AI tools to consumers. Onto China, the country has issued
Speaker 1: a new pledge to improve conditions for the country's private sector.
Speaker 1: Bloomberg's Joan Wong has more from Hong Kong.
Speaker 6: The pledge appears to be a signal that Beijing wants
Speaker 6: to help lift corporate confidence as growth wayans. The statement
Speaker 6: is notable and that it was issued as a joint
Speaker 6: commitment by both a communist party and the government. The
Speaker 6: policy vows to treat private companies the same as state
Speaker 6: owned enterprises. Local governments are encouraged to invite entrepreneurs for
Speaker 6: consultation before drafting policies. China has shifted its tone recently
Speaker 6: toward the private sector after wrapping up a crackdown on
Speaker 6: tech firms. Some analysts are skeptical that this is a
Speaker 6: major policy shift, but they say it will be welcomed
Speaker 6: by the private sector. In Hong Kong, Joan Wang Bloomberg Day, Brigaisia.
Speaker 1: I'm Brian Curtis here in Hong Kong. A couple of
Speaker 1: other stories we'll be looking at. Beijing says it will
Speaker 1: retaliate if the USA imposes new limits on technology and
Speaker 1: capital exports to China. China's Ambassador to the Chiefhong said
Speaker 1: Beijing will not sit on its hand. So that's one story.
Speaker 1: And also Alibaba injecting eight hundred and forty five million
Speaker 1: dollars into Lazada, its online retail business in Southeast Age
Speaker 1: lots of competition there and that is a big cash boost.
Speaker 1: Now it's time for global news. The US is saying
Speaker 1: that more time is needed to break ground on a
Speaker 1: climate agreement. At Baxter has Global News in the nine
Speaker 1: to sixty news room in San Francisco.
Speaker 7: Ed, Yeah, that's exactly right. Doesn't look like much progress,
Speaker 7: Brian just Flatley. This after three days of meetings between
Speaker 7: John Kerry and She Shinwa. Carrie says, not finished finding
Speaker 7: the pathway with clarity.
Speaker 1: We came here to break new ground, which we think
Speaker 1: is important at this stage, and it is clear that
Speaker 1: we are going to need a little he says.
Speaker 7: Both sides agree it is doable, but not yet and
Speaker 7: as evidence of the lack of any real progress, President
Speaker 7: Chi Shinping says China will follow its own carbon reduction path.
Speaker 7: China's top diplomat says the US needs more Kissinger style
Speaker 7: diplomatic wisdom and Nixon style political courage. Wang Yi says
Speaker 7: China's development has a strong internal driving force and is
Speaker 7: historically inevitable. Kissinger says it is important the two countries
Speaker 7: maintain engagement in any attempt to isolate the other is unacceptable.
Speaker 7: Donald Trump has failed another black eye and a legal
Speaker 7: cases in court. Hiss attempt to get get the e
Speaker 7: Gene Carroll award tossed. He'll have to pay the five
Speaker 7: million dollars a jury awarded her Meanwhile, Republican contender Chris
Speaker 7: Christi is vowing today on Bloomberg to keep the pressure
Speaker 7: up and to have Trump tell the truth.
Speaker 8: And Republican primary voters to serve the truth. They haven't
Speaker 8: gotten it from Joe Biden as president, and they haven't
Speaker 8: gotten it from Donald Trump either, and so part of
Speaker 8: it is just about telling the truth. So you'll see today,
Speaker 8: whatever's issues you asked me about, I'm going to just
Speaker 8: hit it right between the eyes and let you know
Speaker 8: what I think.
Speaker 7: Yeah, and as well issues involving Obamacare, immigration, national debt,
Speaker 7: all policies in which he says Trump promised Republicans and failed.
Speaker 7: Whitehouse says it is working on finding out the condition
Speaker 7: of the American soldier who crossed to North Korea. Spokes
Speaker 7: when Karina Jean Pierre is asked about whether China was helping.
Speaker 9: I don't have any engagement with China to read out
Speaker 9: to you at this time, but I can tell you
Speaker 9: for certain that South Korea and Sweden we have engaged
Speaker 9: with them.
Speaker 7: We're learning today that Private King was going to be
Speaker 7: on his way to Texas, where he faced further discipline
Speaker 7: for an assault charge before he charged North across the border,
Speaker 7: the number of researchers of social media and saying that
Speaker 7: today that Elon Musk's takeover in policy changes since then,
Speaker 7: Twitter is seeing a surgeon harmful content which is causing
Speaker 7: a buried or advertisers. Bloomberg So Sarah Friars says, it
Speaker 7: is a large, big pile of research.
Speaker 9: From the Anti Defamation League, the Center of for Countering
Speaker 9: Digital Hate, media matters, universities across the board looking at
Speaker 9: issues like anti LGBT content, racist slurs against African Americans,
Speaker 9: anti submitted content, QAnon support.
Speaker 7: Twitter answers new CEO London, your Caarino, saying that it
Speaker 7: is not true and that they find harmful content and
Speaker 7: only one percent of posts. But Sarah says, advertising sales
Speaker 7: are down about half over the concern we've.
Speaker 9: Been hearing for the last few months from brands saying,
Speaker 9: you know, I don't really know if I want to
Speaker 9: start spending again on Twitter. It's become kind of assess pool,
Speaker 9: it's become dangerous.
Speaker 7: And she says Bloomberg reporters were skeptical, but what we're
Speaker 7: hearing is that it's true. A super challenge for Twitter revenue.
Speaker 7: Global news powered by more than twenty seven hundred journalist
Speaker 7: and less over one hundred and twenty countries in San Francisco.
Speaker 7: I'm Ed Baxter, and this is Bloomberg.
Speaker 1: This is Bloomberg Daybreak Asia. I'm Brian Curtis here in
Speaker 1: Hong Kong. Let's get to Carl Tannenbaum, executive vice president
Speaker 1: and chief economists at Northern Trust. Carl, great to have
Speaker 1: you on the program. Simple question, Has the risk of
Speaker 1: recession dropped at the same time that inflation, or at
Speaker 1: least parts of it, has received it.
Speaker 10: Brian, Great to be with you. Yes, I do think
Speaker 10: that the odds of a recession are coming down. We've
Speaker 10: seen that highlighted and researched pieces from a number of houses.
Speaker 10: I think that's marking to market what we've seen in
Speaker 10: economic activity here in the United States, where we've had
Speaker 10: three quarters in a row that have exceeded expectations, and
Speaker 10: the now casts for the second quarter we'll get full
Speaker 10: accounting on that in a few weeks shows growth of
Speaker 10: two and a half percent. That plus the persistent strength
Speaker 10: of the American labor market certainly doesn't make it seem
Speaker 10: as if we're going to fall off to the other
Speaker 10: side anytime. Soon. The good news is that we are
Speaker 10: seeing some categories of inflation show some moderation. But the challenge, Brian,
Speaker 10: is that some of the core elements, shelter and core
Speaker 10: services in particular, are receiving only very slowly, and so.
Speaker 1: So that will Yeah, that'll keep the FED on the case.
Speaker 1: And do you think that there is the risk there
Speaker 1: of maybe going past one or two rate hikes from here.
Speaker 10: That's a great segue. They'll get together next week to
Speaker 10: add up all the data. I do think that they'll
Speaker 10: hike obviously this month. We have a second twenty five
Speaker 10: basis point increase in our forecast for September. I think
Speaker 10: they're going to be frustrated. Even with some preliminary signs
Speaker 10: of easing, inflation is still well above the target. I'm
Speaker 10: not sure that they trust their models to give them
Speaker 10: confidence that things will settle naturally. They certainly, Brian, do
Speaker 10: not want to find themselves at the end of this
Speaker 10: year have to hit play again after having pause, and
Speaker 10: so better to front load the restraint by completing the
Speaker 10: process this summer.
Speaker 1: Yeah, more conservative people probably are hoping for a little
Speaker 1: pause to reflect, to see about the lagged defect of
Speaker 1: these rate hikes, and I suppose one thing that will
Speaker 1: show is consumer spending. I think a big question here
Speaker 1: is the consumer getting close to being tapped out?
Speaker 10: I don't think so. There puts in takes here, But
Speaker 10: the most important one, as you know, Brian, is that
Speaker 10: the most powerful support for consumer spending is wage income.
Speaker 10: We have very low levels of unemployment, new highs in
Speaker 10: prime aged labor force participation, and as well, now that
Speaker 10: the headline rate of inflation is down to three percent
Speaker 10: according to the CPI, we are now seeing real wage
Speaker 10: gains of over one percent for those who are working,
Speaker 10: and that's going to give additional wherewithal to spending, not
Speaker 10: to mention in the fact that the stock market has
Speaker 10: rallied very nicely over the last number of months, creating
Speaker 10: wealth effects for those who own shares.
Speaker 1: Yeah. Yeah, we put it all together. It seems like
Speaker 1: sort of steady as she goes. Recession doesn't seem all
Speaker 1: that likely. But I'm curious the relationship between consumer spending
Speaker 1: and jobs which one breaks first. I mean, do companies
Speaker 1: keep everybody employed or do they start to think that
Speaker 1: they can get out in front so do they move first,
Speaker 1: or do consumers and their spending move first.
Speaker 10: Well, spending and employment obviously are very closely correlated and
Speaker 10: have effects on each other, with economic activity not only
Speaker 10: ebbing a little bit, but in doubt for most of
Speaker 10: the last twelve months, I think it's been quite a
Speaker 10: mystery why more firms have not taken the step of
Speaker 10: lightening their labor forces. I think the challenge of achieving
Speaker 10: talent levels during the post pandemic period has a lot
Speaker 10: of company hoarding a little bit, or perhaps thinking that
Speaker 10: if we have only a mild recession that they would
Speaker 10: prefer not to do a round trip into these tight
Speaker 10: labor markets. But certainly the fact that labor is in
Speaker 10: short supply in many cases and has some power is
Speaker 10: producing the kind of wage gains that are helping with spending.
Speaker 1: Yep, How are companies managing their costs away from the
Speaker 1: labor cost.
Speaker 10: For most of the last year, they didn't have to
Speaker 10: do that quite as much. Brian pricing power on the
Speaker 10: part of large and small businesses was really quite high
Speaker 10: up until about six months ago. We've now seen a
Speaker 10: change of tone both in the small business survey here
Speaker 10: in the United States as well as from some large corporates,
Speaker 10: and so they're really going to have to find productivity
Speaker 10: avenues in order to compensate for the rising cost of wages,
Speaker 10: which is among the many reasons why artificial intelligence as
Speaker 10: an avenue to higher productivity growth is getting so much
Speaker 10: attention right now, Yeah.
Speaker 1: Why is productivity kind of languishing?
Speaker 10: There are many suggestions. You know, adoption is slow, but
Speaker 10: I think the transformational nature and the ease of use
Speaker 10: of generative AI may change that story in the years ahead.
Speaker 1: This is Bloomberg Daybreak Asia, your morning brief on the
Speaker 1: stories making news from Hong Kong to Singapore and Wall Street.
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