Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our day
Speaker 1: Break anchors all around the world, and straight ahead on
Speaker 1: the program. After a dismal August jobs report, is a
Speaker 1: FED rate cut looking like a sure thing? I'm Tom
Speaker 1: Busby in New York.
Speaker 2: I'm Caroline Headkitt in London, where we're shining a spotlight
Speaker 2: on the UK's defense industry ambitions.
Speaker 3: I'm Charlie Pelop with a look at the Chinese economy
Speaker 3: ahead of next week's readings on consumer and producer prices.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 1: Good day to you. I'm Tom Busby, and we begin
Speaker 1: today's program with what a sharp cool down in the
Speaker 1: US labor market last month and some key US inflation
Speaker 1: data out this week will mean for FED policymakers and
Speaker 1: for more. We're joined by Stuart paul Us economists with
Speaker 1: Bloomberg Economics. Well, Stuart, thank you so much for joining us. Now,
Speaker 1: before we talk about the Fed's next move, I really
Speaker 1: want to dissect what we saw on Friday with that
Speaker 1: August jobs report. I mean, what did it mean to you?
Speaker 5: Well, the pace of hiring is just too slow to
Speaker 5: maintain a steady unemployment rate. We heard earlier in the
Speaker 5: week that Minneapolis Fed Branch President Neil Kashkari thinks that
Speaker 5: the break even pace of hiring it's about seventy five
Speaker 5: thousand workers. That's what the consensus was expecting for the month. Alas,
Speaker 5: we only saw about twenty two thousand additional jobs added
Speaker 5: during the month. If you really break it down, most
Speaker 5: of the hiring, most of the net hiring is in
Speaker 5: the lowest skill human facing services industries, things like retail, trade, leisure,
Speaker 5: and hospitality. While there is still higher in things like
Speaker 5: education and healthcare. The pace of hiring in that higher
Speaker 5: skill industry has slowed dramatically, and with that, with slowing
Speaker 5: in demand for workers, we've also seen essentially a slowing
Speaker 5: in income growth. By our estimates, income growth in the
Speaker 5: month of August right now is looking like it's going
Speaker 5: to register just a touch above zero point three percent.
Speaker 5: And when that's the case, the outlook for consumer spending
Speaker 5: starts materially softening. We had a pretty good July, it
Speaker 5: looks like August might be a little bit slower.
Speaker 1: And let's talk about that shocker from June, that revision
Speaker 1: showing a contraction thirteen thousand job losses.
Speaker 5: That's right. It seems like revisions have been one of
Speaker 5: the more interesting factors with each of these payroll releases.
Speaker 5: You'll remember in July it was also the revisions that
Speaker 5: were so shocking. Yeah, what's really what's really most relevant
Speaker 5: where the FED is that their understanding of the labor
Speaker 5: market is now updating, and as they get these revisions,
Speaker 5: the resilience of the labor market that they believe was
Speaker 5: so profound seems to be dissipating. What they thought was
Speaker 5: a strong labor market is actually being revealed upon revision
Speaker 5: to be a relatively weak labor market. We've seen all
Speaker 5: these alternative data sets pointing to cooling hiring, slowing labor demand.
Speaker 5: It seems like finally the official statistics are catching up
Speaker 5: to it.
Speaker 3: Now.
Speaker 1: Do you see any indication that the Trump crackdown on
Speaker 1: immigration and deportations may have played a role, especially in construction,
Speaker 1: which saw a pretty sizable decline in jobs.
Speaker 5: It's possible. It's really difficult to go from the more
Speaker 5: human element, things that we would capture in the household survey,
Speaker 5: things like the composition of the workforce, and then map
Speaker 5: that to pay roll. So, for example, yes, as you
Speaker 5: mentioned weak hiring and construction, but there was relatively strong
Speaker 5: hiring in leisure and hospitality, which one also might think
Speaker 5: has a relatively high representation of immigrant workers. So it's
Speaker 5: difficult to fully map the consequences of the inflation of
Speaker 5: the immigration crackdown. What is clearer, though, is that the
Speaker 5: break even pace of hiring needed to maintain a steady
Speaker 5: unemployment rate is now lower than previously believed. It was
Speaker 5: thought that the break even pace of hiring needed to
Speaker 5: maintain steady unemployment was a bit over one hundred thousand.
Speaker 5: Now it looks like it's you know, seventy five thousand
Speaker 5: workers per month or lower. And again we're now running
Speaker 5: just about one third that pace right now. And that's
Speaker 5: why we saw the uptick and the unemployment rate.
Speaker 1: Wow, and the unemployment rate though four point three percent historically, Yes,
Speaker 1: it went up, but historically not a something to get
Speaker 1: scared about. But I guess the question is what does
Speaker 1: all this mean for the FED? I mean, we're about
Speaker 1: ten days away from another meeting. We've seen the signals
Speaker 1: from Jackson hole from Chairman Powell. Is a twenty five
Speaker 1: basis point rate cut baked in at this point.
Speaker 5: I think a twenty five basis point rate cut is
Speaker 5: almost a certainty at this point. As you say, a
Speaker 5: four point three percent unemployment rate is not exactly high,
Speaker 5: and so it's difficult for the FED to rationalize taking
Speaker 5: the elevator down on rates and cutting rates by fifty
Speaker 5: basis points or more. That's going to be very difficult
Speaker 5: to rationalize with a four point three percent unemployment rate.
Speaker 5: But still, when the FED is expecting to end the
Speaker 5: year around four point three to four point four percent unemployment,
Speaker 5: each incremental uptick, including in this August payroll report, is
Speaker 5: going to be enough to get their attention, and for
Speaker 5: that reason, I think we will get that quarter point
Speaker 5: cut in September.
Speaker 1: Oh boy, Well, the August producer price index out Wednesday,
Speaker 1: the consumer price index for August on Thursday, and that
Speaker 1: FED decision on rates just about ten days away our
Speaker 1: thanks to Stuart Paul, Us, economist with Bloomberg Economics. We
Speaker 1: move next to tech giant Apple, which will hold its
Speaker 1: fall product launch this Tuesday, September ninth, where it's expected
Speaker 1: to introduce a new iPhone seventeen lineup, and it comes
Speaker 1: as the company explores using outside AI technology in its products.
Speaker 1: For more on this and all things Apple, were joined
Speaker 1: by Mark German, Bloomberg News Managing editor for Global Consumer Tech. Well, Mark,
Speaker 1: thanks so much for joining us. I want to start
Speaker 1: with all the excitement around this week's product launch, which
Speaker 1: will include an ultra thin version of the iPhone. So
Speaker 1: what do you expect to see this week?
Speaker 6: Yeah, thank you for having me. The iPhone redesign Era
Speaker 6: begins on Tuesday at Apple's next launch event. Right over
Speaker 6: the past half decade or so, the iPhone design really
Speaker 6: hasn't changed much. But over the next three years it's
Speaker 6: going to change significantly. And that starts Tuesday, and you're
Speaker 6: going to see that in two ways. One, they're releasing
Speaker 6: the iPhone seventeen Pro in seventeen Pro Max, and for
Speaker 6: the first time in a while, they're going to be
Speaker 6: redesigning the device. The back is going to look entirely new.
Speaker 6: It's going to have a new wireless charging area on
Speaker 6: the bottom half, and it's going to have a brand
Speaker 6: new camera area, a camera bar, so to speak, on
Speaker 6: the top part, which extends that camera region right now,
Speaker 6: right now, it's in the top left quadrant. Now it's
Speaker 6: going to really take up about the top third of
Speaker 6: the whole phone. And that's going to allow some new
Speaker 6: tricks related to the aperture and optical zoom in some
Speaker 6: such so big improvements to the camera on the seventeen
Speaker 6: Pro and seventeen Pro Max, and it's going to visually
Speaker 6: look different. The other phone is going to be what
Speaker 6: I'm calling the iPhone seventeen Air. This phone is going
Speaker 6: to be about two millimeters thinner than any iPhone sold
Speaker 6: to date. Now two millimeters might not sound a lot
Speaker 6: on paper or when I say it, but in your hand,
Speaker 6: you're going to notice a gigantic difference. And this is
Speaker 6: Apple taking the same strategy as the mac BLAGUEIR that
Speaker 6: it introduced almost twenty years ago. Something that's thinner, lighter,
Speaker 6: and more marketable, but has some drawbacks on key features
Speaker 6: like battery life and in some cases processing power, camera
Speaker 6: and overall performance, so you're going to get some trade offs,
Speaker 6: but it's going to be a really cool looking phone
Speaker 6: and it's probably going to sell far better than the
Speaker 6: prior fourth iPhone models before they had the Mini and
Speaker 6: the Plus phones of the regular variation. This is something
Speaker 6: sandwiched in the middle between the Base and the profone,
Speaker 6: so that's very exciting.
Speaker 1: And any other new devices you expect to see.
Speaker 6: I expect to see new versions of all the Apple
Speaker 6: Watch models, So a pretty significant update to the Apple
Speaker 6: Watch Ultra, theough Ultra three in order to better compete
Speaker 6: with Garmin. That high end sports watch market is something
Speaker 6: that Apple wants to make a big vent into. And
Speaker 6: then you're going to see a minor update to the
Speaker 6: Series eleven Watch last year was more of a significant
Speaker 6: engineering upgrade. And then you're also going to see upgrades
Speaker 6: to the Apple Watch se which is Apple's entry level watch.
Speaker 6: This is something they're trying to position for kids, a
Speaker 6: pre smartphone age. And then we're also likely to see
Speaker 6: upgrades to the AirPods.
Speaker 1: All right, a lot to look forward to. There was
Speaker 1: also some good news for Apple last week now a
Speaker 1: federal judge ruled that Apple can maintain its deal with
Speaker 1: Apple Bit making Google the default search engine on all
Speaker 1: its devices, and that means that's good news for shareholders certainly.
Speaker 1: What kind of money were talking about in that deal.
Speaker 6: Well, Apple is generating north of twenty billion dollars a
Speaker 6: year roughly from this deal. And basically what this is
Speaker 6: is when you make a Google search, Google makes money
Speaker 6: from the advertising or the search placement fees that companies
Speaker 6: pay to have their website result go higher in the
Speaker 6: search results. Right, if you do that on an Apple device,
Speaker 6: an iPhone, an iPad, a math, you name it, Apple
Speaker 6: get to Cut, it's a rev you share deals similar
Speaker 6: to the revenue share deals they have on the App Store.
Speaker 6: In this case it's a little bit more lucrative. Like
Speaker 6: I said, more than twenty billion a year is the
Speaker 6: value here.
Speaker 1: And there was a.
Speaker 6: Real scenario where Apple was going to lose out on
Speaker 6: that deal because the judge was going to prevent Google
Speaker 6: from having default search arrangements, not only with Apple, but
Speaker 6: any companies they had default search arrangements. So this is
Speaker 6: quite significant development not only for Apple and Google, but
Speaker 6: the whole tech industry, which now breathes a sigh of
Speaker 6: relief because the precedent has been set that the current
Speaker 6: government is not breaking up these companies.
Speaker 1: Wow, big, big, Well, I want to pivot to something else,
Speaker 1: the story that you broke Apple's Elvis in Vegas. AI comeback.
Speaker 1: That's what I want to call it. Overhauling. It's Sirie
Speaker 1: Voice Assistant and you know it's worked with Google and
Speaker 1: it's worked with Open Ai. Apple tell me about this
Speaker 1: AI powered web search tool for Siri that they're working
Speaker 1: on right now, who they're working with, and what it
Speaker 1: means to the consumer.
Speaker 6: March, Apple is going to finally overhaul Serrie. This was
Speaker 6: supposed to come out several months ago, but it was delayed.
Speaker 6: At the core of the new series, as I broke,
Speaker 6: is going to be an AI web search tool. So
Speaker 6: this is going to allow people in Siri and other
Speaker 6: parts of iOS and Apple's operating systems to get better
Speaker 6: data from the Internet. You know, Series good at doing
Speaker 6: things on your devices, but it really can't get information
Speaker 6: reliably from the open web, and so this is going
Speaker 6: to do that with what is known as World Knowledge Answers.
Speaker 6: That's the internal code name for this feature. Others call
Speaker 6: it an answer engine internally. So this is a pretty
Speaker 6: significant deal. This is Apple competing with perplexity and search
Speaker 6: on Chat GPT to a large extent rather than competing
Speaker 6: with Google. And in terms of who they're working with
Speaker 6: on this, I've been talking for months that Apple is
Speaker 6: seeking major AI partnerships. They've talked to Open Ai, They've
Speaker 6: went very deep in discussions and negotiations with Anthropic, but
Speaker 6: it sounds like they're going to land with Google. Google
Speaker 6: has created a custom model for Apple to help power Siri,
Speaker 6: to really make serie work more effectively, like a Gemini
Speaker 6: or Chat GPT, And right now all signs are pointing
Speaker 6: towards Apple seriously considering taking this agreement with Google.
Speaker 1: Well. Apple's awe dropping iPhone seventeen launch event is this Tuesday.
Speaker 1: Amid all that talk about AI and our thanks to
Speaker 1: Mark Erman, Bloomberg News Managing editor for Global Consumer Tech
Speaker 1: and coming up on Bloomberg day Break weekend to look
Speaker 1: ahead as the global defense industry is about to gather
Speaker 1: in London for the UK's flagship sector event. I'm Tom Busby,
Speaker 1: and this is Bloomberg. This is Bloomberg Day Break Weekend,
Speaker 1: our global look ahead at the top stories for investors
Speaker 1: in the coming week. I'm Tom Busby in New York
Speaker 1: up later in our program and look at some key
Speaker 1: economic data in China amid lingering questions about tariffs and housing.
Speaker 1: But first, the US defense companies have won some major
Speaker 1: contracts in recent days, including one to build warships for Norway.
Speaker 1: Now this comes as the global defense industry is about
Speaker 1: to gather in London for the UK's Flagship Sector event.
Speaker 1: But as pressure mounts on Britain's fiscal situation, will domestic
Speaker 1: government spending on security be a priority for more? Let's
Speaker 1: go to London and bring in Bloomberg daybreak. Euro banker
Speaker 1: Caroline Hepgar.
Speaker 2: Tom Bae Systems won a high profile ten billion pound
Speaker 2: deal to supply navy frigates to the Norwegians recently, in
Speaker 2: a sign that the UK may be reviving the shipbuilding
Speaker 2: industry at once dominated. And there's reason the world is
Speaker 2: a more uncertain and perhaps dangerous place despite an entrenched
Speaker 2: conflict in Ukraine. Russia's Vladimir Putin has brushed off European
Speaker 2: concerns about a Russian threat to the continent as hysteria.
Speaker 2: And consider China's massive choreographed military parade in the last
Speaker 2: few days that prompted US President Donald to dismiss the
Speaker 2: idea that China would ever quote use their military on us.
Speaker 2: So with that in mind, it seems grimly apt that
Speaker 2: the theme for this year's Defense and Security Equipment International
Speaker 2: Exhibition here in London is preparing the future force. European
Speaker 2: allies have promised to plow billions of euros into domestic
Speaker 2: defense manufacturing. How quickly that happens and what is bought
Speaker 2: is vital. Norway picked the UK as the supplier of
Speaker 2: frigates to help it deter Russian submarines in the High
Speaker 2: North in what is the biggest ever investment in the
Speaker 2: Nordic country's defense history. Here is Norway's Defense Minister tore
Speaker 2: O Sandvik discussing that decision.
Speaker 7: It was a very difficult choice and we had the
Speaker 7: four very good contenders, both the Germany, France, UK and
Speaker 7: the Americans, close allies to Norway all four, but it
Speaker 7: was a decision with a lot of factories. So we
Speaker 7: decided to go were with the Brits because in the
Speaker 7: end it was a lot of factors who decided it.
Speaker 8: So are you worried at all about Norway's navy needing
Speaker 8: the capabilities before twenty thirty which is when deliveries are
Speaker 8: due to start.
Speaker 7: No, we all already have frigates, but we'll want to
Speaker 7: exchansion with the new frigates. So this is completely in
Speaker 7: line with our plans in the long term defense plan.
Speaker 2: That was the Norwegian Defense Minister tore O Sandovic speaking
Speaker 2: that to Blomberg's Francine Laqua. So as the Norway deal
Speaker 2: a flash in the pan or the start of a revival,
Speaker 2: the government here sees defense as a sector ripe to
Speaker 2: drive economic growth. As for Britain's own defense, security experts
Speaker 2: have judge Britain currently incapable of defending itself against a
Speaker 2: ballistic missile attack given a combination of long term under investment,
Speaker 2: botch contracts and poor recruitment. So joining me now to
Speaker 2: discuss all of this, what's happening here in Britain and
Speaker 2: the global contexts Boomberg's Roslyn Matheson and Tony Halpin, who
Speaker 2: leads our team covering the Russian government and economy, Welcome
Speaker 2: to both of you. Thank you, Roz. How acute is
Speaker 2: the security threat in your view facing the UK? Perhaps
Speaker 2: we should start there.
Speaker 9: Well, you were just laying some of it out because
Speaker 9: like a lot of countries. The UK arguably took their
Speaker 9: foot of the gas for many years when it came
Speaker 9: to its own security and spending to keep up with
Speaker 9: security threats, and perhaps a sense of complacency because the UK,
Speaker 9: like others, falls under the NATO umbrella that somehow, you know,
Speaker 9: NATO would magically come to the rescue if needed. And
Speaker 9: there's been a realization across the board on that, particularly
Speaker 9: over the last year or two. I mean, there are
Speaker 9: two wars still going on. There's a war obviously in
Speaker 9: Gaza and the war in Ukraine, and other potential threats
Speaker 9: on the horizon Nonstate act is, particularly cyber attacks. So
Speaker 9: the threat has grown more complex as we go on,
Speaker 9: and really the renewed questionals of a nuclear threat, given
Speaker 9: all the international guard rails, the architecture around nuclear weapons
Speaker 9: seems to be falling apart those understandings about how to
Speaker 9: manage arsenals and behavior. I mean, is there an immediate
Speaker 9: threat to the UK from say Russia. Unlikely, But we
Speaker 9: are an increasingly multipolar, complex world and that's a lot
Speaker 9: for the UK, especially as you were noting, with limited
Speaker 9: air defenses of its own.
Speaker 2: Yeah, Tony, more dangerous world. Perhaps we should think about
Speaker 2: Vladimir Putin the war in Ukraine. Is it going to end?
Speaker 2: What's your view now?
Speaker 10: Well, eventually, of course, you know it will come to
Speaker 10: a conclusion. But I think there's a great deal of concern,
Speaker 10: particularly in Europe, that they don't see a near term
Speaker 10: horizon in which the war does come to an end.
Speaker 10: And even if it did, even if we got to
Speaker 10: a point where the active fighting stopped, that doesn't resolve
Speaker 10: the crisis because you have this enormous front line something
Speaker 10: like a thousand kilometers long in eastern Ukraine, which if
Speaker 10: there is a peace agreement, will require policing that will
Speaker 10: require troops on the ground from other countries to make
Speaker 10: sure that Putin doesn't in fact initiate another conflict. That's
Speaker 10: going to require commitments from Europe, which are very difficult
Speaker 10: at the moment to see the meeting over the long term,
Speaker 10: because it's large numbers of troops, it's large numbers of
Speaker 10: military commitments, and it's going to go on for years
Speaker 10: unless tensions abate somehow, And it's difficult to see how
Speaker 10: tensions do abate when Vladimir Putin's in the Kremlin and
Speaker 10: they basically have ripped up relations with Europe. So even
Speaker 10: if the fighting stops, which is a big question mark
Speaker 10: at this point, Once that happens, the crisis continues for
Speaker 10: years and potentially decades.
Speaker 5: Wow.
Speaker 2: In terms of the UK, to what extent is defense
Speaker 2: spending then for the British government of priority? I mean,
Speaker 2: we know that they've talked about it a great deal
Speaker 2: Defense Minister John Healey, the Prime Minister, the new NATA
Speaker 2: defense spending commitments. But it's a difficult time fiscally for
Speaker 2: Britain too well.
Speaker 9: It is min Kirs Starmer, the Prime Minister. Back at
Speaker 9: the time of the NATO summer he said the first
Speaker 9: duty for prime minister is to keep the country safe
Speaker 9: and that sits above all other duties. And so you
Speaker 9: know it is a priority for the government. We've got
Speaker 9: the recent news that the UK is going to buy
Speaker 9: at least a dozen new US made F thirty five
Speaker 9: fighter jets, for example. It is part of the NATO
Speaker 9: pledge to increase spending on defense as a proportion of GDP.
Speaker 9: It's going to have to commit to getting there. The
Speaker 9: question is like, at what point does it get there?
Speaker 9: Is it closer to twenty thirty five?
Speaker 11: But the but the big bart.
Speaker 9: As you were saying, is Chancellor Rachel Reeves has some
Speaker 9: very delicate fiscal waters to navigate, and she's got her
Speaker 9: budget in late November. There's a lot of chatter that
Speaker 9: she will need to raise taxes or cut spending. I mean,
Speaker 9: some estimates are up to what fifty one billion power
Speaker 9: to fill a hole in public finances. And so where
Speaker 9: do you find that money? How can you show that
Speaker 9: you're still spending money towards defense in those environments? And
Speaker 9: do you face potentially a backlash at home if you're
Speaker 9: cutting welfare in order to devot money into into defense spending.
Speaker 2: And yet the UK has been at the forefront of
Speaker 2: trying to support Ukraine, being at the heart of the
Speaker 2: so called Coalition of the willing Tony. President Putin doesn't
Speaker 2: obviously want NATO troops in Ukraine. I mean, how likely
Speaker 2: do you think that might be?
Speaker 10: Well, this is one of the big un answered questions
Speaker 10: I think the Russia says consistently. Putin says that he
Speaker 10: will not tolerate the presence of NATO countries' troops in Ukraine.
Speaker 10: They've said all on that they can't allow Ukraine into NATO,
Speaker 10: But they don't even want NATO troops present in Ukraine.
Speaker 10: Given that the Coalition of the Willing is basically comprised
Speaker 10: of countries that are in NATO, it's very difficult to
Speaker 10: see how square that circle. Ukraine, of course, is very
Speaker 10: concerned to sure that it has security guarantees that mean
Speaker 10: something and aren't just on paper, So they will want
Speaker 10: to know very concrete answers to very concrete questions. Who
Speaker 10: comes if the war starts again, what do they sayd
Speaker 10: when do they send it? How can we expect to
Speaker 10: defend ourselves in these different scenarios? And at the moment
Speaker 10: the Coalition of the Willing isn't really sketching out the
Speaker 10: answers to that question that would allow them then to say, okay, well,
Speaker 10: we feel fairly secure in the event that the war
Speaker 10: stops and Putin continues to present a threat to us.
Speaker 2: Meanwhile, the uses of technology within Ukraine are being rapidly
Speaker 2: integrated within the defense space across Europe and here in
Speaker 2: the UK. In the next few days we're highly likely
Speaker 2: to see a lot of that. In terms of the
Speaker 2: frigate deal for the UK and that ten billion pounds
Speaker 2: that I mentioned, the idea of reviving ship building in Britain.
Speaker 2: It does look like the Nordics are looking to the UK.
Speaker 2: And there was also big question mark about that wasn't there.
Speaker 2: It was about actually whether Britain this defense spending sort
Speaker 2: of gosh that we're expecting was going to come to Britain.
Speaker 9: And the UK did beat out other countries, you know,
Speaker 9: it was looking like France, Germany and the US. We're
Speaker 9: also competing for that. For the Norway frigate deal, and
Speaker 9: a big selling point for the UK was that interoperability
Speaker 9: of their vessels, right, which is they work well together,
Speaker 9: that's much more efficient, it reduces costs, and that's increasingly
Speaker 9: something that's going to be on the table with defense
Speaker 9: deals and that's possibly a selling point for the UK.
Speaker 9: KIT that talks to kit and systems and equipment that
Speaker 9: work together, and a lot of that is what can BAE,
Speaker 9: for example, get out of the pie right The frigate
Speaker 9: steel will create some jobs in Glasgow. Interestingly, BAE Systems
Speaker 9: recently raised its earnings outlook for the for the full
Speaker 9: year and it talked about being positioned particularly to contribute
Speaker 9: to the US Golden Dome homeland defense projects. So certainly,
Speaker 9: you know BAE is optimistic about what it can get,
Speaker 9: but it's also a lot of competitors for this increasing
Speaker 9: pie in the US is pushing very hard for its
Speaker 9: companies to be involved in to get deals. It's a
Speaker 9: bit of a crowded field and so the UK is
Speaker 9: going to have to show that it's bringing something special
Speaker 9: to these deals in order to keep winning them.
Speaker 2: Tony, what do you think about the European defense spending budgets, commitments,
Speaker 2: what it means for the industry, the speed of developments.
Speaker 10: Yeah, so, I mean it's boom times for defense industries
Speaker 10: across Europe. Of course, because nervous Europeans worried that Trump
Speaker 10: might want to walk away from NATO, committed to enormous
Speaker 10: increases in defense spending in line with his demand to
Speaker 10: spend something like five percent of GDP on defense. But
Speaker 10: one of the lessons from the Ukrainian War is indeed
Speaker 10: that there's this great imbalance between spending on systems that
Speaker 10: countries might be interested in tanks, missiles, warships, you know,
Speaker 10: which costs millions, sometimes hundreds of millions of dollars to build,
Speaker 10: and the effectiveness of those systems on the battlefield. Ukraine
Speaker 10: has been very successful in repelling Russian attacks using drones
Speaker 10: that you can take out a two million dollar tank
Speaker 10: with a two hundred dollar drone. So there's a great
Speaker 10: imbalance and effectiveness here, and some of the spending I
Speaker 10: think in these countries isn't yet reflecting the changes on
Speaker 10: the battlefield that we're seeing.
Speaker 2: Okay, let's see whether that is addressed at this industry
Speaker 2: gathering in London in the coming days. My thanks to
Speaker 2: Bloomberg's Chief Asia correspondent rosl In Matheson and to our
Speaker 2: Russia Government and Economy team leader Tony Happin for speaking
Speaker 2: to me looking ahead to the Defense Industry's DSi exhibition
Speaker 2: in London in the next few days. And you can
Speaker 2: find details about new defense industry deals on the Bloomberg
Speaker 2: terminal and our website. I'm Caroline Hepkea in London. You
Speaker 2: can catch us every weekday morning for Bloomberg Daybreak you
Speaker 2: at beginning at six am in London. That's one am
Speaker 2: on Wall Street.
Speaker 1: Tom, Thanks Caroline, and coming up on Bloomberg day Break
Speaker 1: weekend to look ahead to some key economic data in
Speaker 1: China and what it means for the world's second largest economy.
Speaker 1: I'm Tom Busby. And this is Bloomberg. This is Bloomberg
Speaker 1: Day Break weekend, our global look ahead at the top
Speaker 1: stories for investors in the coming week. I'm Tom Busby
Speaker 1: in New York. China's private manufacturing gage just flipped back
Speaker 1: to expansion rating dogs PMI hit fifty point five at August,
Speaker 1: beating all forecasts, but questions linger with tariffs, weak confidence,
Speaker 1: and housing still a drag on the world's second biggest economy.
Speaker 1: For a closer look, let's get to Bloomberg's Charlie Pellett.
Speaker 3: Tom China's economic momentum is weakening after solid growth in
Speaker 3: the first half of the year. Bloomberg Economics says a
Speaker 3: government crackdown on price wars is holding back production, with
Speaker 3: a worsening downturn in the housing market, putting an additional
Speaker 3: drag on activity. So what should we expect when we
Speaker 3: get fresh readings on Chinese consumer and producer prices. We
Speaker 3: bring in Bloomberg Markets Lives strategist Mary Nicola. She is
Speaker 3: in our Singapore radio studio. Mary, thank you so much
Speaker 3: for joining us. The place I'd like to begin with is,
Speaker 3: first of all, your expectations for both headline and core
Speaker 3: CPI next.
Speaker 11: Week so China, I think one of the big things
Speaker 11: is that it's been struggling with is deflation. So I
Speaker 11: think we're going to probably see more of those disinflationary
Speaker 11: pressures coming through because of the fact that we're not
Speaker 11: seeing a particular uptick in consumption. We've seen retail sales
Speaker 11: data from the previous month that was quite weak, so overall,
Speaker 11: it doesn't look like there are any significant price pressures
Speaker 11: really coming through just yet. Obviously there's some upside in
Speaker 11: terms of the initiatives that the government is pulling through
Speaker 11: on the consumption initiatives to stimulate it, but it's still
Speaker 11: in early stages and it's in early days, so I
Speaker 11: think what we're going to see is just more disinflation,
Speaker 11: and that trend is likely to continue, so we'll see
Speaker 11: just more of the same.
Speaker 1: Yeah.
Speaker 3: Specifically, then on PPI, are we looking at less deflation
Speaker 3: or an outright turn into positive territory?
Speaker 11: Oh, it's definitely early days on that one too, because
Speaker 11: we've had consistent and several months of deflation on the
Speaker 11: producer price Index. The government has launched this anti involution campaign,
Speaker 11: which is to try and limit this excessive competition, but
Speaker 11: we still haven't seen a true turnaround there in terms
Speaker 11: of what's coming through in terms we've seen in earnings
Speaker 11: that the competition is really fierce among many of the
Speaker 11: commerce platforms. So in terms of PPI, you're likely still
Speaker 11: to see a deflationary pattern.
Speaker 3: Now, PMI surveys have shown input costs are up, prices
Speaker 3: are capped. How much passed through should we expect from
Speaker 3: factories to consumer prices?
Speaker 11: Well, I think this what we're seeing is the fact
Speaker 11: that consumption is still very tepid, and because of that,
Speaker 11: it looks like there is not as much passed through
Speaker 11: coming through. Retail sales is still weak.
Speaker 6: We have to.
Speaker 11: Remember that that Chinese household is still recovering and trying
Speaker 11: to recover from what is happening in the property sector.
Speaker 11: There's still that property sector malaise. We've seen lots of
Speaker 11: households come back and try to pay back their mortgages
Speaker 11: where they're not taking out as many new loans. We've
Speaker 11: seen that in last month's data, and again we could
Speaker 11: see that in this month's data where that is still
Speaker 11: that trend continues where they're trying to pay back their debts.
Speaker 11: So if we're seeing consumption not pick up and still
Speaker 11: that the policy stimulus hasn't come through. It looks like
Speaker 11: the pass through in terms of getting to the consumer
Speaker 11: is going to remain limited.
Speaker 3: How likely are we to see any indication that energy
Speaker 3: is playing a role in PBIB at oil refined products
Speaker 3: or electricity tariffs. Oh?
Speaker 11: I think more broadly, that's one of the catalysts driving
Speaker 11: inflation lower, not only in China but more broadly throughout Asia.
Speaker 11: So if we look at CPI in countries like Indonesia
Speaker 11: India for example, we're seeing significant declines in inflation. A
Speaker 11: lot of it has to do if we look at
Speaker 11: just how oil prices have declined since the start of
Speaker 11: the year. That has become a clear catalyst for lower
Speaker 11: prices everywhere in the region. And of course if we
Speaker 11: continue to see that trend in oil prices, that's obviously
Speaker 11: going to filter through to headline inflation in Asia and
Speaker 11: of course more broadly globally, from.
Speaker 3: Energy to property weakness. How are rents and housing related
Speaker 3: services feeding.
Speaker 11: Into cp Yeah, that's still going to have downward pressure
Speaker 11: on CPI because we haven't seen a strong rebound in
Speaker 11: house prices and house prices still remain very weak. The
Speaker 11: problem with housing in China is there hasn't been a
Speaker 11: broad based recovery, and there hasn't been a broad based
Speaker 11: package in terms of stimulus to really offset and to
Speaker 11: lift the property market. So what we've seen is consistent
Speaker 11: decline in housing prices. We've seen that property sector malaise
Speaker 11: really stay within the economy, and that's been quite a drag.
Speaker 11: But what the government has tried to do with some
Speaker 11: of its stimulus initiatives is to try and offset this
Speaker 11: property drag by supporting consumption or supporting this AI tech drive,
Speaker 11: which has been one of the key things that has
Speaker 11: been supporting the equity markets, and that's one of the
Speaker 11: drivers that's going to continue where the focus has been
Speaker 11: on bringing China up that value chain and bringing AI
Speaker 11: as a key support for the economy.
Speaker 3: Mary with consumer confidence soft and household savings high as
Speaker 3: demands strong enough to lift services inflation.
Speaker 11: You know, it's interesting because one of the key things
Speaker 11: that the government has been focused on is providing subsidies
Speaker 11: and support for specific services, whether it's childcare or other services.
Speaker 11: But at the same time, we've seen households build their
Speaker 11: reserves and build their ammunition and savings for a rainy
Speaker 11: day and that has a lot to do with what
Speaker 11: we've seen in the property sector. Keep in mind, a
Speaker 11: lot of households in China do put much of their
Speaker 11: savings into houses and much of their investment into houses.
Speaker 11: But we're seeing a shift and that shift is coming
Speaker 11: through in terms of shifting into the equity market. So
Speaker 11: we've seen how bond yields have risen as a result
Speaker 11: of that transition for households from the bond market into
Speaker 11: the equity market. And given that household deposits are near
Speaker 11: record highs, could see that shift continue and that actually
Speaker 11: be supportive for the equity markets. So one of the
Speaker 11: things about the equity markets is if you continue to
Speaker 11: see gains, that could improve overall optimism and that could
Speaker 11: actually help consumption. So it's almost a feed through channel
Speaker 11: from what we see from the equity markets down to consumption,
Speaker 11: and so we could see a pickup in services. But
Speaker 11: still it's still in its early stages.
Speaker 3: I have to ask for Chinese consumers and by implication,
Speaker 3: for the Chinese economy. Certainly, tariffs, weak confidence, housing are
Speaker 3: all headwinds. Of those three, Is there one that's being
Speaker 3: more talked about than any of the others.
Speaker 11: I think for a great deal. It's interesting to see
Speaker 11: tariffs have been largely shrugged off, and that's because of
Speaker 11: the fact that we've seen strong exports. The property sector
Speaker 11: has been something that's been trudging along in the background.
Speaker 11: I think what the key focus is for the markets
Speaker 11: is just on consumers and ensuring that there's a pickup
Speaker 11: in consumption, because at the end of the day, if
Speaker 11: you have exports feeding through and supporting the overall economy
Speaker 11: and investment, especially on the property sector side, declining, you
Speaker 11: still need that consumption channel to come through to help
Speaker 11: support growth, and that's going to be actually the key
Speaker 11: trigger that helps growth into this year and into next year.
Speaker 11: So it really will come down to consumption, and I
Speaker 11: think that's going to be the key focus, whether it's
Speaker 11: retail sales or some of the policy initiatives that the
Speaker 11: government focuses on.
Speaker 3: That's Mary Nikolab Bloomberg m Live strategist in Singapore. Let's
Speaker 3: get some more perspective now. Earlier in the week, we
Speaker 3: heard from Kevin Sneider Apak, ex Japan president at Goldman Sachs.
Speaker 3: He struck an optimistic tone on Chinese equities amid resurgon
Speaker 3: flows Sneader spoke exclusively to Bloomberg's April Hong at Goldman's
Speaker 3: Asia Leaders Conference in Hong Kong.
Speaker 12: So, Kevin, let's start with China, because we're seeing in
Speaker 12: terms of the market performance has really been underpinned by
Speaker 12: liquidity even against the backdrop of these macro risks. What
Speaker 12: are you seeing from global investor fields.
Speaker 8: Well, certainly, as you say, this is a very interesting
Speaker 8: time in terms of the rally that's taking place in
Speaker 8: Chinese equities, this is not an overnight rally. It's worth
Speaker 8: noting that it was a year ago that we saw
Speaker 8: the media conferences and the announcement of various measures, and
Speaker 8: really since then there have been a few milestones along
Speaker 8: the way. The first milestone, of course, was in Hong Kong,
Speaker 8: where we saw the Hong Kong market really move, and
Speaker 8: now we're seeing the onshore market ashare rally taking place.
Speaker 8: And what we're hearing from our clients and investors is
Speaker 8: sentiment has improved. Foreign investors are showing more interest, but
Speaker 8: the positioning changes are yet to come. Most of what
Speaker 8: we're seeing is still domestically oriented, and I think it's
Speaker 8: worth remembering that a big driver of this rally remains
Speaker 8: the retail investor in China, and it's that retail investor
Speaker 8: who's got this excess saving that a lot of people
Speaker 8: are talking about the household savings that are built up
Speaker 8: and they're looking for other options, and the equity markets
Speaker 8: are providing some of that focus. But sentiment has improved
Speaker 8: the first half in China, so are relatively strong GDP growth.
Speaker 8: The second half is likely to be more challenging, so
Speaker 8: we should keep a careful attention to the underpinnings here,
Speaker 8: the fundamentals. China still faces many challenges that this rally
Speaker 8: and the equity markets has.
Speaker 1: Got some legs.
Speaker 12: What are your clients saying about what they want to
Speaker 12: see more of before that positioning comes back, Well, it
Speaker 12: really depends.
Speaker 8: Which clients if from your question you're asking about the
Speaker 8: foreign investor, Clarity and consistency are the key words that
Speaker 8: come to mind, because ultimately there's still a focus in
Speaker 8: some of the headwinds, the demographic headwind deflation and the
Speaker 8: challenges that we're seeing from a combination of over capacity
Speaker 8: and demand limitations. And finally, of course, the backdrop for
Speaker 8: all of this, geopolitics remains and lingers. So progress in
Speaker 8: Each of these is what underpins confidence to ensure the
Speaker 8: foreign investor can return and the flows can move. We
Speaker 8: are seeing some return, though I think it's important to
Speaker 8: acknowledge that hedge fund positioning has improved, but the long onlays,
Speaker 8: the longer term investor. That's going to take a lot
Speaker 8: more clarity and a lot more consistency before we see
Speaker 8: the flows move.
Speaker 12: Has it been a national golment to lowerds bar on
Speaker 12: investing in China as well as you know, build on
Speaker 12: the business that's already here.
Speaker 8: Well, we've been in China for forty years. We have
Speaker 8: a long history here. We are very committed to our
Speaker 8: business here. We've been maintaining the footprint through tough times
Speaker 8: and good times. This is a moment when we see
Speaker 8: certainly opportunity and we continue to look at China with
Speaker 8: a lens that says there are plenty of places where
Speaker 8: our clients need services, need the support that we can provide,
Speaker 8: and we're going to be there for them. And it's
Speaker 8: with that lens, our client lens, that we are very
Speaker 8: focused on the opportunities that we have in We.
Speaker 5: Talked about Hong Kong I.
Speaker 12: We seeing this IPO boom is Goldman looking at expansion
Speaker 12: potentially here.
Speaker 8: Well, this has been a busy type fifty seven so
Speaker 8: far this year, two hundred in the pipeline. There's a
Speaker 8: lot of activity building in Hong Kong, and in that context,
Speaker 8: we're hiring. We certainly are hiring. We continue to look
Speaker 8: at the opportunity to meet the needs of our clients,
Speaker 8: but we'll do it in a thoughtful way because one
Speaker 8: of the things which I'm very focused on and my
Speaker 8: colleagues are very focused on, is making sure that we're
Speaker 8: there for our clients, but we don't get ahead of ourselves.
Speaker 8: And so it's a thoughtful approach that we certainly are hiring.
Speaker 3: Kevin Sneader apac X Japan, President at Goldman Sachs speaking
Speaker 3: with Bloomberg's April Hong and I'm Charlie Pellett, cash us
Speaker 3: weekdays for the Daybreak Asia podcast. It's available wherever you
Speaker 3: get your podcasts.
Speaker 1: Tom, Thanks Charlie, and that does it for this edition
Speaker 1: of Bloomberg day Break Weekend. Join us again Monday morning
Speaker 1: at five am Wall Street Time for the latest on
Speaker 1: markets overseas and the new you need to start your day.
Speaker 1: I'm Tom Busby. Stay with us top stories and global
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