1 00:00:00,240 --> 00:00:07,240 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:10,400 --> 00:00:13,320 Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the 3 00:00:13,320 --> 00:00:15,960 Speaker 2: top stories in the coming week from our Daybreak anchors 4 00:00:16,160 --> 00:00:19,040 Speaker 2: all around the world. Straight Ahead on the program, a 5 00:00:19,120 --> 00:00:21,720 Speaker 2: look ahead to next week's FED meeting and earnings from 6 00:00:21,760 --> 00:00:24,079 Speaker 2: some of tech's Magnificent seven companies. 7 00:00:24,400 --> 00:00:27,000 Speaker 3: I'm Caroline Hebge in London, where we're looking ahead to 8 00:00:27,040 --> 00:00:30,320 Speaker 3: European defense earnings, including from Airbos and Leonardo. 9 00:00:30,640 --> 00:00:33,440 Speaker 2: We'll look at top interviews from the APEC finance ministers 10 00:00:33,479 --> 00:00:36,840 Speaker 2: meeting in South Korea. I'm Nathan Hager in Washington. 11 00:00:38,200 --> 00:00:42,240 Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 12 00:00:42,280 --> 00:00:45,960 Speaker 1: eleven three year, New York, Bloomberg ninety nine to one, Washington, DC, 13 00:00:46,479 --> 00:00:51,479 Speaker 1: Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Syria, 14 00:00:51,760 --> 00:00:55,280 Speaker 1: XM one twenty one, and around the world on Bloomberg Radio, 15 00:00:55,320 --> 00:00:57,520 Speaker 1: dot Com and the Bloomberg Business App. 16 00:01:02,160 --> 00:01:04,960 Speaker 2: Good day to you. I'm Nathan Hager. We begin today's 17 00:01:05,000 --> 00:01:08,039 Speaker 2: program with the Federal Reserve. The FED begins its two 18 00:01:08,120 --> 00:01:11,680 Speaker 2: day meeting to decide monetary policy on Tuesday. The October 19 00:01:11,720 --> 00:01:14,920 Speaker 2: decision comes Wednesday, followed of course by the news conference 20 00:01:14,920 --> 00:01:17,920 Speaker 2: from FED Chair Jay Powell. For more on what to expect, 21 00:01:17,920 --> 00:01:20,560 Speaker 2: we are joined now by Stuart paul Us, economists with 22 00:01:20,600 --> 00:01:24,520 Speaker 2: Bloomberg Economics, and Stuart, if the markets are to be believed, 23 00:01:24,880 --> 00:01:28,640 Speaker 2: everybody's expecting a cut, especially after the consumer price data 24 00:01:28,680 --> 00:01:32,000 Speaker 2: from Friday that we finally got, is that what you're expecting. 25 00:01:32,880 --> 00:01:35,679 Speaker 4: That is what we're expecting. And I think that the 26 00:01:35,720 --> 00:01:39,360 Speaker 4: consumer price data that we got on Friday actually opens 27 00:01:39,400 --> 00:01:42,840 Speaker 4: the door even wider for an additional cut in December. 28 00:01:43,680 --> 00:01:47,120 Speaker 4: But I think that the FED is going to certainly 29 00:01:48,040 --> 00:01:51,920 Speaker 4: try to avoid surprising markets at this point and we'll 30 00:01:51,960 --> 00:01:55,560 Speaker 4: deliver that quarter point cut next week that everyone's been 31 00:01:55,560 --> 00:01:56,400 Speaker 4: holding their breath for. 32 00:01:56,840 --> 00:01:59,320 Speaker 2: So if that's the case, would it be a surprise 33 00:01:59,440 --> 00:02:03,400 Speaker 2: if the FED did not signal a December cut, given 34 00:02:03,440 --> 00:02:06,080 Speaker 2: that we still don't know whether we're going to get 35 00:02:06,120 --> 00:02:09,280 Speaker 2: the data if this government shutdown keeps going on. 36 00:02:10,240 --> 00:02:13,880 Speaker 4: I think policymakers will try to keep their options open, 37 00:02:13,960 --> 00:02:18,800 Speaker 4: and their explicit messaging will be something like every meeting 38 00:02:18,960 --> 00:02:22,960 Speaker 4: is live, We're not making any decisions in advance of 39 00:02:23,000 --> 00:02:27,040 Speaker 4: the meetings themselves. So I don't think that they're going 40 00:02:27,080 --> 00:02:31,560 Speaker 4: to be so bold as to offer some sort of 41 00:02:31,560 --> 00:02:35,240 Speaker 4: clarion call for a December cut. But I think that 42 00:02:36,200 --> 00:02:39,280 Speaker 4: the fact that the FED is comfortable with sequential cuts 43 00:02:39,400 --> 00:02:43,680 Speaker 4: right now, and it still views policy as at least 44 00:02:43,840 --> 00:02:48,160 Speaker 4: modestly restrictive, makes a December cut more likely than not. 45 00:02:48,440 --> 00:02:51,640 Speaker 2: Also, so let's talk a little bit more about why 46 00:02:51,800 --> 00:02:55,080 Speaker 2: the consumer price data opens the door even further to 47 00:02:55,240 --> 00:02:58,200 Speaker 2: that December cut. We seem to be getting that indication 48 00:02:58,280 --> 00:03:00,160 Speaker 2: from the markets as well. What do you say in 49 00:03:00,200 --> 00:03:01,600 Speaker 2: the data that's got you open to that. 50 00:03:02,800 --> 00:03:05,400 Speaker 4: There are really three or four items that stood out 51 00:03:05,440 --> 00:03:07,560 Speaker 4: to me in the Friday report. The first is that 52 00:03:07,680 --> 00:03:13,919 Speaker 4: tariff passed through remained modest. When we track the product 53 00:03:14,240 --> 00:03:18,399 Speaker 4: or spending level tariff that has been applied since April, 54 00:03:18,600 --> 00:03:22,680 Speaker 4: and the price growth that we have seen for those 55 00:03:22,720 --> 00:03:26,320 Speaker 4: spending categories since April, tariff passed through to the consumer 56 00:03:26,440 --> 00:03:30,560 Speaker 4: level is still rather modest. Second, core goods prices just 57 00:03:30,720 --> 00:03:37,640 Speaker 4: in the aggregate are still downshifting. There's been a deceleration 58 00:03:37,880 --> 00:03:41,600 Speaker 4: in prices in core goods, which should quell some fears 59 00:03:41,640 --> 00:03:44,200 Speaker 4: further for the FED. The third thing that I'd point 60 00:03:44,240 --> 00:03:48,400 Speaker 4: to is that core services, which typically matters most of 61 00:03:48,440 --> 00:03:53,000 Speaker 4: the FED core services prices are also tame, and there 62 00:03:53,120 --> 00:03:56,960 Speaker 4: was a major step down in rents, and rents and 63 00:03:57,000 --> 00:04:00,680 Speaker 4: owner's equivalents of rents are one of the spending categories 64 00:04:00,680 --> 00:04:05,680 Speaker 4: that are most highly levered two monetary policy decisions, which 65 00:04:05,720 --> 00:04:08,640 Speaker 4: shows that there might be some additional room for the 66 00:04:08,680 --> 00:04:12,040 Speaker 4: Fed to bring down rates given the fact that home 67 00:04:12,080 --> 00:04:15,520 Speaker 4: prices and home price appreciation has been slow, and so 68 00:04:15,760 --> 00:04:19,039 Speaker 4: rent growth has also slowed. I think that all of 69 00:04:19,080 --> 00:04:22,839 Speaker 4: those details from the September CPI report are going to 70 00:04:22,839 --> 00:04:26,119 Speaker 4: be viewed favorably by the FED when it meets next week. 71 00:04:26,320 --> 00:04:29,719 Speaker 2: Are you thinking then that we could continue to see 72 00:04:30,080 --> 00:04:34,360 Speaker 2: pass through on the tariffs from this data, given that 73 00:04:34,680 --> 00:04:38,440 Speaker 2: we might not see further data. Even the White House 74 00:04:38,480 --> 00:04:41,000 Speaker 2: is warning that if the shutdown goes on, we're not 75 00:04:41,040 --> 00:04:43,960 Speaker 2: going to get potentially in October consumer price index. 76 00:04:45,360 --> 00:04:46,880 Speaker 4: I think that even if we were to get an 77 00:04:46,880 --> 00:04:50,160 Speaker 4: October consumer price index, we would have to look at 78 00:04:50,160 --> 00:04:53,600 Speaker 4: it rather skeptically because the data collection process has been 79 00:04:53,600 --> 00:04:59,560 Speaker 4: interrupted by the shutdown. Instead, we have an alternative measure, 80 00:05:00,120 --> 00:05:03,080 Speaker 4: and we look at a broad swath of data that 81 00:05:03,360 --> 00:05:07,920 Speaker 4: allows us to get a more real time understanding of 82 00:05:08,160 --> 00:05:10,919 Speaker 4: price pressures, and right now it looks like tariff passed 83 00:05:10,960 --> 00:05:14,240 Speaker 4: through is relatively limited, and Nathan, one thing that I'd 84 00:05:14,240 --> 00:05:19,160 Speaker 4: point out is that firm's ability to pass through tariff 85 00:05:19,279 --> 00:05:22,960 Speaker 4: costs that they've incurred throughout the supply chain. Firm's ability 86 00:05:23,080 --> 00:05:27,560 Speaker 4: to pass through those tariff costs to consumers are being 87 00:05:27,640 --> 00:05:32,520 Speaker 4: limited by consumers income growth. Consumers cannot bid up the 88 00:05:32,520 --> 00:05:36,120 Speaker 4: price of goods and services in a cooling labor market. 89 00:05:36,640 --> 00:05:39,200 Speaker 4: And when that's the case, again, the FED just has 90 00:05:39,240 --> 00:05:41,359 Speaker 4: a little bit of space to cut. They don't have 91 00:05:41,440 --> 00:05:45,920 Speaker 4: to worry as much about the upside inflation risk created 92 00:05:45,960 --> 00:05:50,320 Speaker 4: by tariffs. Instead, they can rotate their attention even more 93 00:05:50,520 --> 00:05:54,239 Speaker 4: toward the maximum employment side of their dual mandate. 94 00:05:54,520 --> 00:05:57,800 Speaker 2: Really appreciate this Stewart ahead of that FED decision on Wednesday, 95 00:05:57,960 --> 00:06:02,520 Speaker 2: our thanks to Stewart. Paulus Acomist with Bloomberg Economics. Next, 96 00:06:02,560 --> 00:06:05,520 Speaker 2: we move to corporate earnings from some of tech's Magnificent 97 00:06:05,680 --> 00:06:09,120 Speaker 2: seven companies. This week, we hear from five of them, Microsoft, 98 00:06:09,200 --> 00:06:13,000 Speaker 2: Meta Platforms and Alphabet on Wednesday, then on Thursday it's 99 00:06:13,080 --> 00:06:17,719 Speaker 2: Apple and Amazon. Busy times for mandeep saying senior tech 100 00:06:17,760 --> 00:06:21,279 Speaker 2: industry analysts for Bloomberg Intelligence, who joins us now, Mandeep, 101 00:06:21,279 --> 00:06:24,159 Speaker 2: thanks for being with us. We call them the mag seven. 102 00:06:24,240 --> 00:06:27,400 Speaker 2: But do these companies really rise together in tandem? 103 00:06:27,440 --> 00:06:31,800 Speaker 5: Still they do, although I would say that, you know, 104 00:06:31,880 --> 00:06:36,760 Speaker 5: with Jenai really making a difference in terms of the 105 00:06:36,880 --> 00:06:41,240 Speaker 5: top line contributions, this will be a quarter where you 106 00:06:41,440 --> 00:06:46,680 Speaker 5: will see some divergence between the likes of Microsoft and Google, 107 00:06:46,839 --> 00:06:50,640 Speaker 5: which may get a much bigger lift in their cloud 108 00:06:50,720 --> 00:06:58,000 Speaker 5: revenues from AI versus let's say Amazon or Meta, where Amazon, 109 00:06:58,080 --> 00:07:01,680 Speaker 5: even though it has a very sizeable cloud business, may 110 00:07:01,720 --> 00:07:05,400 Speaker 5: not get the same kind of lift from AI that 111 00:07:05,880 --> 00:07:09,760 Speaker 5: the other two hyperscillers are getting. And also Meta, I 112 00:07:09,800 --> 00:07:13,560 Speaker 5: think because they don't have a cloud business, it will 113 00:07:13,600 --> 00:07:17,200 Speaker 5: be interesting to see if Meta ends up increasing their 114 00:07:17,280 --> 00:07:19,280 Speaker 5: CAPEX numbers for twenty twenty six. 115 00:07:19,600 --> 00:07:22,240 Speaker 2: Let's talk a little bit more about that divergence then, 116 00:07:22,320 --> 00:07:25,680 Speaker 2: because it seems like, particularly for Microsoft, it's been off 117 00:07:25,720 --> 00:07:28,480 Speaker 2: to the races with their partnership with open Ai. Is 118 00:07:28,480 --> 00:07:31,520 Speaker 2: that what, Scott, you're thinking that that may be fueling 119 00:07:31,520 --> 00:07:32,520 Speaker 2: the divergence here? 120 00:07:33,200 --> 00:07:38,600 Speaker 5: Yes, And also OpenAI has signed three big deals to 121 00:07:38,760 --> 00:07:43,760 Speaker 5: expand their data center capacity and that's not with Microsoft, 122 00:07:43,960 --> 00:07:47,640 Speaker 5: so it's signed you know, a big deal with Oracle, 123 00:07:48,840 --> 00:07:54,239 Speaker 5: with Broadcom, with Nvidia, and also another deal with AMD. 124 00:07:54,840 --> 00:07:59,320 Speaker 5: And you know, Microsoft still ends up benefiting because they 125 00:07:59,360 --> 00:08:03,200 Speaker 5: have a forty nine percent stake in open Ai, they 126 00:08:03,200 --> 00:08:07,080 Speaker 5: get a revenue share from open Ai. And also you know, 127 00:08:07,320 --> 00:08:10,440 Speaker 5: with open Ai doing so well in terms of you know, 128 00:08:10,520 --> 00:08:17,600 Speaker 5: they're deploying their models, it indirectly benefits Microsoft on the 129 00:08:17,680 --> 00:08:22,200 Speaker 5: Azure side, where we saw Microsoft Azure business growing thirty 130 00:08:22,280 --> 00:08:26,040 Speaker 5: nine percent last quarter and this quarter maybe another solid 131 00:08:26,080 --> 00:08:29,520 Speaker 5: quarter off around forty percent growth. So that's where the 132 00:08:29,600 --> 00:08:32,679 Speaker 5: tailwind is so strong for a company like Microsoft. 133 00:08:32,840 --> 00:08:35,560 Speaker 2: And when it comes to Google parent Alphabet, I guess 134 00:08:35,600 --> 00:08:39,680 Speaker 2: we just got that confirmation that Google's got this partnership 135 00:08:39,760 --> 00:08:42,400 Speaker 2: with Anthropic. I don't know if we're going to see 136 00:08:42,440 --> 00:08:44,319 Speaker 2: that reflected in the earnings, but what does that mean 137 00:08:44,320 --> 00:08:45,160 Speaker 2: for them going forward? 138 00:08:45,520 --> 00:08:50,040 Speaker 5: It's huge. I mean another company that's benefited from AI 139 00:08:50,240 --> 00:08:55,000 Speaker 5: workload spend is Google cloud segment, not their AD revenue, 140 00:08:55,000 --> 00:08:59,679 Speaker 5: but their cloud segment. And I think with this Entropic deal, 141 00:09:00,120 --> 00:09:03,440 Speaker 5: what they're signaling is they are ready to sell their 142 00:09:03,600 --> 00:09:08,400 Speaker 5: TPU chips outside of their own cloud. And this is 143 00:09:08,559 --> 00:09:13,200 Speaker 5: huge because Nvidia really dominated that space and now you 144 00:09:13,320 --> 00:09:17,720 Speaker 5: have got TPU chips that can actually compete with Nvidia 145 00:09:17,760 --> 00:09:21,920 Speaker 5: at the chip level, and to my mind, this expands 146 00:09:22,200 --> 00:09:25,400 Speaker 5: you know, the relevance of TPUs outside Google Cloud, and 147 00:09:25,440 --> 00:09:29,680 Speaker 5: it could have huge ramifications you know, twelve to twenty 148 00:09:29,679 --> 00:09:33,160 Speaker 5: four months out because it could be at a much 149 00:09:33,200 --> 00:09:36,600 Speaker 5: lower price point than in Nvidia chips. And that's where 150 00:09:36,679 --> 00:09:40,200 Speaker 5: you know, it gets very competitive if other companies start 151 00:09:40,240 --> 00:09:42,200 Speaker 5: to adopt TPU chips. 152 00:09:42,679 --> 00:09:44,880 Speaker 2: On the other side of the coin, you mentioned Amazon 153 00:09:45,120 --> 00:09:47,680 Speaker 2: and meta platforms. Of course we're coming into these earnings 154 00:09:47,720 --> 00:09:52,640 Speaker 2: for Amazon after that big AWS outage last week. How 155 00:09:52,760 --> 00:09:55,120 Speaker 2: vulnerable is Amazon right now? 156 00:09:55,880 --> 00:09:59,720 Speaker 5: I mean to me, the key metric here is cloud margins. 157 00:10:00,200 --> 00:10:04,400 Speaker 5: So with both Microsoft and Google you will see cloud 158 00:10:04,440 --> 00:10:08,720 Speaker 5: margins expand. In the case of Amazon, we saw cloud 159 00:10:08,840 --> 00:10:13,640 Speaker 5: margins actually go down last quarter, and partly that has 160 00:10:13,679 --> 00:10:16,800 Speaker 5: to do with the fact that AI isn't that big 161 00:10:16,840 --> 00:10:20,960 Speaker 5: of a tailwind for Amazon still, and you know, they 162 00:10:21,160 --> 00:10:25,800 Speaker 5: may be taking a lower margin for AI workloads just 163 00:10:25,840 --> 00:10:28,360 Speaker 5: to make sure that they maintain their market share. Remember, 164 00:10:28,440 --> 00:10:32,280 Speaker 5: they are the largest incumbent cloud provider, so they have 165 00:10:32,400 --> 00:10:35,520 Speaker 5: to add more revenue to grow at a higher rate 166 00:10:35,640 --> 00:10:38,560 Speaker 5: than there are other two clouds and that's where they 167 00:10:38,760 --> 00:10:42,360 Speaker 5: may be taking a margin hit. So margins for cloud 168 00:10:42,400 --> 00:10:45,920 Speaker 5: segment of aws are really important at this quarter. 169 00:10:46,679 --> 00:10:49,680 Speaker 2: And in terms of Meta platforms, I know they've been 170 00:10:49,720 --> 00:10:53,120 Speaker 2: spending a lot of time poaching AI workers from Apple. 171 00:10:54,280 --> 00:10:55,440 Speaker 2: Is that going to pay off for them? 172 00:10:56,040 --> 00:10:59,360 Speaker 5: Well? Now we also read some news that they are 173 00:10:59,480 --> 00:11:03,200 Speaker 5: actually playing off up to six hundred people. So a 174 00:11:03,240 --> 00:11:07,319 Speaker 5: lot going on in Meta in terms of their AI efforts. 175 00:11:07,480 --> 00:11:11,959 Speaker 5: And I think the main concern here is if Meta 176 00:11:12,080 --> 00:11:15,080 Speaker 5: ends up raising their CAPEX by let's say another thirty 177 00:11:15,120 --> 00:11:17,920 Speaker 5: to forty percent for twenty twenty six, which means they 178 00:11:18,360 --> 00:11:22,280 Speaker 5: are spending almost one hundred billion dollars in capex next year, 179 00:11:23,000 --> 00:11:26,800 Speaker 5: how does that translate into ROI? So that ROI question 180 00:11:27,040 --> 00:11:30,760 Speaker 5: for Meta is really applicable because the only place where 181 00:11:30,840 --> 00:11:34,760 Speaker 5: Meta has seen a lift from AI is in more 182 00:11:34,840 --> 00:11:38,120 Speaker 5: targeted ads and in ad pricing, and because they don't 183 00:11:38,160 --> 00:11:41,800 Speaker 5: have a separate cloud business, I think the question around 184 00:11:41,920 --> 00:11:45,600 Speaker 5: ROI may get louder if they end up, you know, 185 00:11:45,640 --> 00:11:48,679 Speaker 5: guiding fred in excess one hundred billion dollars in capex 186 00:11:48,720 --> 00:11:49,760 Speaker 5: for twenty twenty six. 187 00:11:50,200 --> 00:11:51,920 Speaker 2: And when it comes to Apple, of course, you've been 188 00:11:51,920 --> 00:11:53,960 Speaker 2: talking for so long about how they've been trying to 189 00:11:53,960 --> 00:11:58,120 Speaker 2: play catch up around artificial intelligence. What's the main driver 190 00:11:58,440 --> 00:12:00,400 Speaker 2: for them as we look at their earnings. 191 00:12:00,960 --> 00:12:04,439 Speaker 5: I mean it has to be iPhone seventeen and what 192 00:12:04,559 --> 00:12:08,400 Speaker 5: kind of a refresh cycle it could trigger. I think 193 00:12:08,480 --> 00:12:11,480 Speaker 5: Apple has to do more than just the hardware side. 194 00:12:11,520 --> 00:12:16,640 Speaker 5: They need a much better LLLM strategy, whether that means 195 00:12:16,760 --> 00:12:21,199 Speaker 5: partnering with someone or you know, doing something on their own. 196 00:12:21,280 --> 00:12:24,680 Speaker 5: But time is really running out in terms of laying 197 00:12:24,720 --> 00:12:27,760 Speaker 5: out what their AI strategy will be, and that is 198 00:12:27,840 --> 00:12:29,920 Speaker 5: where there are still questions around Apple. 199 00:12:30,360 --> 00:12:33,360 Speaker 2: Thanks for this, Mandy, really appreciate it. That's Man Deep Saying, 200 00:12:33,480 --> 00:12:37,000 Speaker 2: senior tech analyst for Bloomberg Intelligence and coming up on 201 00:12:37,040 --> 00:12:40,599 Speaker 2: Bloomberg day Break weekend, we look ahead to defense earnings 202 00:12:40,600 --> 00:12:43,760 Speaker 2: in Europe from the likes of air Bus and Leonardo. 203 00:12:44,120 --> 00:12:59,199 Speaker 2: I'm Nathan Hager, and this is Bloomberg. This is Bloomberg 204 00:12:59,240 --> 00:13:02,160 Speaker 2: day Break Weekend, our global look ahead, the top stories 205 00:13:02,160 --> 00:13:05,480 Speaker 2: for investors in the coming week. I'm Nathan Hager in Washington. 206 00:13:05,720 --> 00:13:07,600 Speaker 2: Up later in our program, we'll take a look at 207 00:13:07,600 --> 00:13:10,240 Speaker 2: some of the top interviews from the APEX Finance ministers 208 00:13:10,280 --> 00:13:13,920 Speaker 2: meeting in South Korea, but first European defense companies are 209 00:13:13,920 --> 00:13:17,280 Speaker 2: grappling with renewed Russian threats, the ongoing war in Ukraine, 210 00:13:17,360 --> 00:13:21,120 Speaker 2: and significant dependencies on American made weapons and systems. There's 211 00:13:21,160 --> 00:13:23,840 Speaker 2: also been a defense selloff in recent weeks following the 212 00:13:23,840 --> 00:13:27,000 Speaker 2: ceasefire in the Middle East and now uncertainty around President 213 00:13:27,040 --> 00:13:30,920 Speaker 2: Trump's stance toward Vladimir Putin, amid intensified diplomatic efforts to 214 00:13:30,960 --> 00:13:34,240 Speaker 2: bring peace between Russia and Ukraine. With some of Europe's 215 00:13:34,240 --> 00:13:37,640 Speaker 2: biggest defense names, including air Bus and Leonardo, reporting earnings 216 00:13:37,679 --> 00:13:40,080 Speaker 2: in the next few days, let's get more from Bloomberg 217 00:13:40,160 --> 00:13:43,480 Speaker 2: Daybreak europe banker Caroline Hepger in London, Nathan. 218 00:13:43,600 --> 00:13:47,720 Speaker 3: The EU's Defense Readiness Plan sets an ambitious goal Europe 219 00:13:47,720 --> 00:13:50,120 Speaker 3: should be ready for a potential war with Russia by 220 00:13:50,160 --> 00:13:54,120 Speaker 3: twenty thirty, but its details are vague. The main underpinning 221 00:13:54,320 --> 00:13:57,680 Speaker 3: is a push for European defense autonomy. The aim is 222 00:13:57,760 --> 00:14:00,960 Speaker 3: for forty percent of procurement in the EA use flagship 223 00:14:01,040 --> 00:14:04,880 Speaker 3: defense programs to be conducted jointly instead of separately by 224 00:14:04,880 --> 00:14:07,040 Speaker 3: all the different member states, and this by the end 225 00:14:07,080 --> 00:14:10,440 Speaker 3: of twenty twenty seven. So in short, the idea is 226 00:14:10,559 --> 00:14:15,199 Speaker 3: buy more, buy together and by European even if US 227 00:14:15,400 --> 00:14:19,480 Speaker 3: weapons for now may actually be the quickest fix. Torsten 228 00:14:19,640 --> 00:14:22,480 Speaker 3: Ral is the co CEO of the Munich based defense 229 00:14:22,520 --> 00:14:27,360 Speaker 3: technology firm Helsingh. He says that the increase in investor 230 00:14:27,520 --> 00:14:30,640 Speaker 3: interest in his sector has led to a bubble in 231 00:14:30,680 --> 00:14:34,200 Speaker 3: the defense market. He's been speaking two Bloomberg's Tom McKenzie 232 00:14:34,400 --> 00:14:36,400 Speaker 3: at the Bloomberg London Tech Summits. 233 00:14:36,600 --> 00:14:38,400 Speaker 6: I think there's definitely a bubble right now, and the 234 00:14:38,440 --> 00:14:40,960 Speaker 6: reason for it is in twenty twenty one, not a 235 00:14:41,040 --> 00:14:45,560 Speaker 6: single EUROPEANBC in particular wanted to touch defense. Now everyone has 236 00:14:45,600 --> 00:14:48,600 Speaker 6: moved into defense, and you know, including the crypto caravan 237 00:14:48,680 --> 00:14:51,480 Speaker 6: that's moved from crypto now into defense and is trying 238 00:14:51,520 --> 00:14:54,120 Speaker 6: to spend its money there. I think in some ways 239 00:14:54,120 --> 00:14:57,480 Speaker 6: it doesn't matter. It creates noise in the market obviously, 240 00:14:57,520 --> 00:14:59,320 Speaker 6: but there is a lot of money I think that's 241 00:14:59,360 --> 00:15:01,600 Speaker 6: not going to see a So that was. 242 00:15:01,560 --> 00:15:05,720 Speaker 3: The co CEO of helsing putting market moves to one side. 243 00:15:05,800 --> 00:15:08,880 Speaker 3: How prepared is Europe? How is it coping with the 244 00:15:08,920 --> 00:15:12,960 Speaker 3: shifting sounds in US policy, growing hybrid threats and on 245 00:15:13,160 --> 00:15:17,600 Speaker 3: certain timelines for funding and defense procurement. What can we 246 00:15:17,680 --> 00:15:21,560 Speaker 3: expect from the earnings of Europe's largest defense company, Airbus 247 00:15:21,600 --> 00:15:24,800 Speaker 3: and the others including Leonardo, which are all to come 248 00:15:25,040 --> 00:15:27,960 Speaker 3: in the next few days. Well, joining me is Bloomberg's 249 00:15:28,000 --> 00:15:32,160 Speaker 3: Global Defense editor Jerry Doyle. Welcome to the radio studio. 250 00:15:32,200 --> 00:15:34,760 Speaker 3: Thank you for being with us. Jerry. This is a 251 00:15:34,800 --> 00:15:39,280 Speaker 3: really big topic. There is a fragile ceasepar between Israel 252 00:15:39,320 --> 00:15:42,280 Speaker 3: and Hamas right now. There is a push for peace 253 00:15:42,880 --> 00:15:46,560 Speaker 3: in Russia and Ukraine. Meanwhile, of course you've got the 254 00:15:46,560 --> 00:15:50,520 Speaker 3: Trump administration who are really zigzagging very frequently on policy. 255 00:15:50,800 --> 00:15:53,120 Speaker 3: You know, whether it comes to Gaza, or whether it's 256 00:15:53,120 --> 00:15:57,240 Speaker 3: about the Kremlin, or even potentially about Taiwan. Does that 257 00:15:57,400 --> 00:16:01,240 Speaker 3: change the outlook for the defense sector in your or 258 00:16:01,600 --> 00:16:03,680 Speaker 3: do the fundamentals basically stay the same. 259 00:16:04,120 --> 00:16:07,080 Speaker 7: I think the fundamentals are basically the same. I mean, 260 00:16:07,120 --> 00:16:10,880 Speaker 7: you're absolutely right on Ukraine. For instance, there's going to 261 00:16:10,880 --> 00:16:12,400 Speaker 7: be a meeting, and then there's not going to be 262 00:16:12,440 --> 00:16:14,520 Speaker 7: a meeting, and then there is a meeting but nothing 263 00:16:14,560 --> 00:16:16,480 Speaker 7: comes of it. There's going to be a deal, there's 264 00:16:16,480 --> 00:16:21,440 Speaker 7: no deal. Because of that uncertainty, I think a lot 265 00:16:21,440 --> 00:16:24,440 Speaker 7: of people might perceive that there's also uncertainty in terms 266 00:16:24,480 --> 00:16:27,720 Speaker 7: of what Europe is looking for the defense spending and 267 00:16:27,800 --> 00:16:30,440 Speaker 7: investment in the sector. But again, if you talk to 268 00:16:30,800 --> 00:16:35,360 Speaker 7: European politicians and policymakers, there is a very strong commitment 269 00:16:35,400 --> 00:16:39,960 Speaker 7: to increasing defense spending, increasing investment in the defense sector 270 00:16:40,080 --> 00:16:44,520 Speaker 7: in Europe, and making sure that their country's militaries are 271 00:16:44,600 --> 00:16:47,800 Speaker 7: able to sort of stand on their own. Because the 272 00:16:47,840 --> 00:16:51,280 Speaker 7: one thing that seems fairly certain despite everything else that's 273 00:16:51,320 --> 00:16:54,240 Speaker 7: happening in Washington, there does seem to be a pullback 274 00:16:54,320 --> 00:16:57,840 Speaker 7: of the US from Europe in terms of being the 275 00:16:58,160 --> 00:17:00,120 Speaker 7: type of ally and partner that it has been in 276 00:17:00,160 --> 00:17:00,520 Speaker 7: the past. 277 00:17:01,080 --> 00:17:03,360 Speaker 3: Yeah. Absolutely, And we've seen have only such a big 278 00:17:03,440 --> 00:17:07,360 Speaker 3: uptick in terms of drones in terms of jet incursions 279 00:17:07,359 --> 00:17:10,520 Speaker 3: into NATO airspace, particularly in Eastern Europe, and this idea 280 00:17:10,560 --> 00:17:14,399 Speaker 3: of kind of hybrid threats as well, all European nations 281 00:17:14,520 --> 00:17:16,199 Speaker 3: kind of be able to shore up their air defense 282 00:17:16,200 --> 00:17:19,560 Speaker 3: systems because eighty percent of it is basically American made. 283 00:17:19,720 --> 00:17:21,879 Speaker 7: Yeah, I mean, the main problem for Europe on this 284 00:17:21,960 --> 00:17:25,440 Speaker 7: score is at the very high end, European defense companies 285 00:17:25,600 --> 00:17:28,879 Speaker 7: make sort of excellent short range air defense systems, radar 286 00:17:28,960 --> 00:17:31,920 Speaker 7: directed guns and short range missiles that can handle will 287 00:17:32,000 --> 00:17:35,719 Speaker 7: flying threats, cruise missiles, drones and things like that. And 288 00:17:35,760 --> 00:17:37,880 Speaker 7: they also have the mid range sort of very well 289 00:17:37,920 --> 00:17:41,440 Speaker 7: covered with very effective systems such as nasam's and iris T. 290 00:17:42,240 --> 00:17:44,919 Speaker 7: Where Europe struggles in terms of production is the very 291 00:17:45,000 --> 00:17:49,600 Speaker 7: highest end the types of systems they can intercept, hypersonics, 292 00:17:50,080 --> 00:17:54,400 Speaker 7: maneuvering glide vehicles, even you know ICBMs or other type 293 00:17:54,400 --> 00:17:59,159 Speaker 7: of long range ballithic missiles. Really the US US defense 294 00:17:59,200 --> 00:18:03,040 Speaker 7: companies are the the only ones who produced that type 295 00:18:03,119 --> 00:18:06,040 Speaker 7: of system and so for the time being, Europe is 296 00:18:06,160 --> 00:18:09,320 Speaker 7: reliant on those. But for the rest of its needs, 297 00:18:09,359 --> 00:18:12,360 Speaker 7: I think Europe with the right sort of directed spending 298 00:18:12,400 --> 00:18:13,399 Speaker 7: can get it done. 299 00:18:13,520 --> 00:18:16,919 Speaker 3: Okay, that's interesting, and there's also expected to be a 300 00:18:16,960 --> 00:18:19,240 Speaker 3: lot of money that is going to be spent in 301 00:18:19,280 --> 00:18:21,439 Speaker 3: Europe and in NATO. How far do you think that 302 00:18:21,520 --> 00:18:24,520 Speaker 3: the push to reach the five percent defense spending target 303 00:18:24,800 --> 00:18:29,200 Speaker 3: for NATO countries in Europe is going to be able 304 00:18:29,240 --> 00:18:32,520 Speaker 3: to sort of sustain the defense industry or boost the 305 00:18:32,560 --> 00:18:35,080 Speaker 3: defense industry in Europe, which is obviously kind of a 306 00:18:35,200 --> 00:18:35,920 Speaker 3: huge question. 307 00:18:36,280 --> 00:18:39,800 Speaker 7: Yeah. Again, I think the commitment is going to be 308 00:18:39,920 --> 00:18:43,399 Speaker 7: there because the underlying reality the thing that has gotten 309 00:18:43,560 --> 00:18:46,800 Speaker 7: European governments on board with the idea of spending more 310 00:18:46,840 --> 00:18:49,320 Speaker 7: on defense is the war in Ukraine and sort of 311 00:18:49,359 --> 00:18:53,040 Speaker 7: the threat of Russian aggression that does not show any 312 00:18:53,080 --> 00:18:55,920 Speaker 7: signs of abating even if the war in Ukraine ends. 313 00:18:56,160 --> 00:18:59,240 Speaker 7: I think that European governments are now very well aware 314 00:18:59,680 --> 00:19:03,320 Speaker 7: that that Russia does sort of pose a threat to Europe. 315 00:19:03,359 --> 00:19:07,000 Speaker 7: That maybe that perception didn't exist fifteen years ago or 316 00:19:07,040 --> 00:19:10,359 Speaker 7: twenty years ago, now it does. And because that reality 317 00:19:10,560 --> 00:19:13,240 Speaker 7: is not going to change, then the pressure to spend 318 00:19:13,280 --> 00:19:14,120 Speaker 7: is still going to be there. 319 00:19:14,359 --> 00:19:17,000 Speaker 3: Yeah, but a lot of that is reflected in the valuations. 320 00:19:17,119 --> 00:19:19,199 Speaker 3: So there's a question of whether the huge one up 321 00:19:19,240 --> 00:19:21,280 Speaker 3: that we've seen in the stock market valuations of a 322 00:19:21,280 --> 00:19:23,840 Speaker 3: lot of these big firms in Europe, whether you know 323 00:19:24,359 --> 00:19:26,000 Speaker 3: you're going to have to deliver that in terms of 324 00:19:26,040 --> 00:19:26,680 Speaker 3: the spending. 325 00:19:27,119 --> 00:19:29,240 Speaker 7: Yeah, you will, and you know, some of that's going 326 00:19:29,280 --> 00:19:32,000 Speaker 7: to be easier than others. And I think to the 327 00:19:32,000 --> 00:19:34,240 Speaker 7: point earlier that there might be a lot of froth 328 00:19:34,840 --> 00:19:38,720 Speaker 7: in you know, defense investment, I think that's probably true 329 00:19:38,760 --> 00:19:41,320 Speaker 7: to some extent. It's sort of a chicken and egg 330 00:19:41,800 --> 00:19:45,639 Speaker 7: problem where there is all this spending, right so some 331 00:19:45,840 --> 00:19:48,560 Speaker 7: companies are going to you know, they might have made 332 00:19:48,960 --> 00:19:51,560 Speaker 7: just ordinary things before. I might see this money and say, oh, 333 00:19:52,000 --> 00:19:54,720 Speaker 7: instead of making widget, now we're making death widgets. Right, 334 00:19:54,760 --> 00:19:58,520 Speaker 7: So we're going to you know, partake in this huge 335 00:19:58,800 --> 00:20:00,720 Speaker 7: boost of spending. But there's also so a whole other 336 00:20:00,760 --> 00:20:04,000 Speaker 7: set of companies that from the get go have some 337 00:20:04,040 --> 00:20:07,480 Speaker 7: sort of interesting bit of defense related technology and now 338 00:20:07,520 --> 00:20:09,919 Speaker 7: they have a market for it, right, And so I 339 00:20:09,960 --> 00:20:13,320 Speaker 7: think it's weeding out that the first type of company 340 00:20:13,320 --> 00:20:16,399 Speaker 7: that it's just sort of trying to capitalize on the 341 00:20:16,440 --> 00:20:20,600 Speaker 7: increased defense spending without having anything really to offer in 342 00:20:20,680 --> 00:20:24,159 Speaker 7: terms of you know, innovation or new new sort of 343 00:20:24,240 --> 00:20:28,120 Speaker 7: angles or approach it to defense technology, getting those sort 344 00:20:28,119 --> 00:20:31,720 Speaker 7: of off the board, which you know eventually they sort 345 00:20:31,760 --> 00:20:34,800 Speaker 7: of will fall by the wayside and focus more on 346 00:20:34,840 --> 00:20:37,080 Speaker 7: the companies that are bringing something new to the table. 347 00:20:37,280 --> 00:20:39,760 Speaker 3: Yeah, Death, which is I think that cuts through the 348 00:20:39,800 --> 00:20:43,360 Speaker 3: pr kind of industry jargon, doesn't it. 349 00:20:43,359 --> 00:20:44,360 Speaker 7: It's a good band name too. 350 00:20:44,800 --> 00:20:49,960 Speaker 3: Yeah. In terms of the individual companies also who are 351 00:20:50,040 --> 00:20:51,959 Speaker 3: very much involved in this, then we're going to hear 352 00:20:52,000 --> 00:20:53,560 Speaker 3: from in the next few days. I mean Airbus and 353 00:20:53,640 --> 00:20:57,240 Speaker 3: Leonardo and other companies are pushing for preparedness, so Airbus 354 00:20:57,240 --> 00:21:00,800 Speaker 3: obviously wants to fill the gaps in space and satellite capabilities. 355 00:21:00,840 --> 00:21:03,080 Speaker 3: In the last few days, we've also had this tie 356 00:21:03,160 --> 00:21:06,440 Speaker 3: up between air Bars and Leonardo and Tales an agreement 357 00:21:06,480 --> 00:21:09,399 Speaker 3: to merge their space business. So there's a lot that 358 00:21:09,680 --> 00:21:13,280 Speaker 3: is moving. And even when we started really thinking about 359 00:21:13,280 --> 00:21:16,760 Speaker 3: defense quite a few months ago, as this was all building, 360 00:21:16,800 --> 00:21:19,440 Speaker 3: the pressure was mounting, there was a big question about 361 00:21:19,440 --> 00:21:23,399 Speaker 3: whether you'd get a lot more joint cooperation. That seems 362 00:21:23,440 --> 00:21:25,600 Speaker 3: to be coming through in the industry now. 363 00:21:25,800 --> 00:21:29,120 Speaker 7: I think so in Europe, there's this commitment to try 364 00:21:29,119 --> 00:21:30,879 Speaker 7: to do it domestically, to try to do it as 365 00:21:30,920 --> 00:21:33,520 Speaker 7: a continent. Space is also one of these areas that 366 00:21:33,920 --> 00:21:37,439 Speaker 7: Europe is very reliant on the US four at the moment, 367 00:21:37,520 --> 00:21:40,119 Speaker 7: especially on the military side, and you can see the 368 00:21:40,160 --> 00:21:44,200 Speaker 7: importance of having satellite imagery just in the Ukraine War 369 00:21:44,400 --> 00:21:46,760 Speaker 7: during the period earlier this year when the US cut 370 00:21:46,800 --> 00:21:50,399 Speaker 7: off Ukraine from satellite based intelligence for a while, Ukraine 371 00:21:50,520 --> 00:21:55,040 Speaker 7: immediately started yourself around the battlefield. So having those assets 372 00:21:55,080 --> 00:21:58,879 Speaker 7: and having ownership of them is very important to Europe 373 00:21:58,880 --> 00:22:01,920 Speaker 7: and European government. Airbus obviously has a lot of experience 374 00:22:01,920 --> 00:22:04,640 Speaker 7: in this area, and so I think there's a lot 375 00:22:04,680 --> 00:22:07,399 Speaker 7: of potential for joining the forces of some of the 376 00:22:07,480 --> 00:22:09,680 Speaker 7: technological giants to get into satellite. There could be a 377 00:22:09,720 --> 00:22:13,080 Speaker 7: lot to pay off for Europe. The problem then becomes 378 00:22:13,080 --> 00:22:15,040 Speaker 7: how do you get this stuff into orbit? And that 379 00:22:15,200 --> 00:22:19,440 Speaker 7: is something that Europe still lacks, is a high tempo, 380 00:22:20,160 --> 00:22:24,480 Speaker 7: fast cadence heavy launch system for the moment. If you 381 00:22:24,560 --> 00:22:26,800 Speaker 7: want to get a lot of stuff in orbit really fat, 382 00:22:26,840 --> 00:22:28,239 Speaker 7: you probably are going to have to buy it right 383 00:22:28,320 --> 00:22:29,040 Speaker 7: on SpaceX. 384 00:22:29,280 --> 00:22:32,840 Speaker 3: Yes, exactly. So it's the competition. Who anywhere in the 385 00:22:32,840 --> 00:22:36,880 Speaker 3: world can actually keep up with Elon Musk's Space says absolutely. 386 00:22:37,240 --> 00:22:41,240 Speaker 3: We're thinking about the individual defense companies. But I suppose 387 00:22:41,280 --> 00:22:43,960 Speaker 3: the bigger question for Europe, and I want to ask 388 00:22:44,000 --> 00:22:48,320 Speaker 3: you because of your years of studying this industry, is 389 00:22:48,359 --> 00:22:51,920 Speaker 3: whether or not Europe can fight a war with Russia, 390 00:22:52,040 --> 00:22:55,560 Speaker 3: this whole idea around twenty thirty, whether that's too far away, 391 00:22:56,000 --> 00:22:58,200 Speaker 3: whether it's going to be a traditional war, whether we're 392 00:22:58,200 --> 00:23:00,239 Speaker 3: already in a war. I mean, there are a lot 393 00:23:00,280 --> 00:23:04,520 Speaker 3: of questions about Europe versus Vlajimi Putins Russia. 394 00:23:05,359 --> 00:23:11,480 Speaker 7: Yeah, I think that qualitatively European allies collectively have a 395 00:23:11,480 --> 00:23:15,239 Speaker 7: big edge over Russia in almost every area, and you 396 00:23:15,320 --> 00:23:19,119 Speaker 7: can kind of see in the way the war in 397 00:23:19,240 --> 00:23:22,680 Speaker 7: Ukraine has gone for Russia that you know, they've had 398 00:23:22,720 --> 00:23:27,160 Speaker 7: trouble making any headway against a much smaller and more 399 00:23:27,200 --> 00:23:30,320 Speaker 7: poorly equipped adversary. How are they going to fare against 400 00:23:30,480 --> 00:23:34,080 Speaker 7: the combined militaries of Europe, which have trained together for decades, 401 00:23:34,480 --> 00:23:37,560 Speaker 7: which have top shelf equipment, which do have access to 402 00:23:37,560 --> 00:23:40,320 Speaker 7: all these high end systems that Ukraine doesn't have. It's 403 00:23:40,480 --> 00:23:44,399 Speaker 7: very difficult to picture that going well for Russia. I 404 00:23:44,440 --> 00:23:48,320 Speaker 7: think the big issue for Europe then is not the 405 00:23:48,600 --> 00:23:51,200 Speaker 7: amount of hardware or the quality of the hardware they have, 406 00:23:51,320 --> 00:23:57,480 Speaker 7: but it's about mustering more people. You have to expand 407 00:23:57,680 --> 00:24:01,399 Speaker 7: your militaries in order to operate rate all these new planes, 408 00:24:01,400 --> 00:24:03,760 Speaker 7: in order to operate all the new armor and artillery 409 00:24:03,800 --> 00:24:06,440 Speaker 7: systems that are being produced. You have to be able 410 00:24:06,480 --> 00:24:10,119 Speaker 7: to fight a sustain war, which is something Russia has 411 00:24:10,119 --> 00:24:12,240 Speaker 7: shown it's very good at, just by a sort of 412 00:24:12,280 --> 00:24:15,679 Speaker 7: continually conscripting wave after wave of people to fight in 413 00:24:15,680 --> 00:24:18,480 Speaker 7: the war in Ukraine. I think that's the biggest challenge 414 00:24:18,480 --> 00:24:21,600 Speaker 7: for Europe. When you say getting Europe ready to fight 415 00:24:21,640 --> 00:24:24,000 Speaker 7: a war for Russia. That's what it is. It's not 416 00:24:24,359 --> 00:24:26,879 Speaker 7: getting more hardware, it's not building better stuff, it's just 417 00:24:27,400 --> 00:24:29,639 Speaker 7: having the horses to be able to stay in the 418 00:24:29,720 --> 00:24:31,880 Speaker 7: sustained fight with a very large country. 419 00:24:32,160 --> 00:24:34,240 Speaker 3: Jerry Dowla, thank you so much for your time. That 420 00:24:34,359 --> 00:24:38,160 Speaker 3: is Bloomberg's Global Defense editor, Jerry Doyle. We'll have full 421 00:24:38,200 --> 00:24:42,440 Speaker 3: coverage and analysis of European defense earnings, including from Airbos 422 00:24:42,440 --> 00:24:45,199 Speaker 3: and Leonardo with quarterly earnings to you on Wednesday, the 423 00:24:45,240 --> 00:24:48,800 Speaker 3: twenty ninth of October right here on Bloomberg Radio. I'm 424 00:24:48,800 --> 00:24:51,240 Speaker 3: Caroline Hepkeit in London. You can catch us every weekday 425 00:24:51,280 --> 00:24:54,160 Speaker 3: morning for Bloomberg Daybreak here at beginning at six am 426 00:24:54,200 --> 00:24:56,720 Speaker 3: in London. That's one. I am on Wall Street, Nathan. 427 00:24:57,359 --> 00:25:00,560 Speaker 2: Thanks Caroline, and coming up on Bloomberg Daybreakkend, we'll look 428 00:25:00,560 --> 00:25:03,439 Speaker 2: at some key conversations this week with South Korea's Finance 429 00:25:03,480 --> 00:25:07,639 Speaker 2: Minister Ku Yung Chull and Australian Treasurer Jim Chalmers. I'm 430 00:25:07,720 --> 00:25:22,800 Speaker 2: Nathan Hager, and this is Bloomberg. This is Bloomberg Daybreak Weekend, 431 00:25:22,840 --> 00:25:25,480 Speaker 2: our global look ahead of the top stories for investors 432 00:25:25,480 --> 00:25:28,720 Speaker 2: in the coming week. I'm Nathan Hager in Washington this week. 433 00:25:28,760 --> 00:25:32,200 Speaker 2: Finance minister is from the Asia Pacific Economic Cooperation member 434 00:25:32,200 --> 00:25:35,480 Speaker 2: economies gathered in South Korea to discuss a broad range 435 00:25:35,520 --> 00:25:39,040 Speaker 2: of issues that includes the global economic outlook, fiscal policy, 436 00:25:39,119 --> 00:25:42,680 Speaker 2: and structural reform. This is the last ministerial level meeting 437 00:25:42,720 --> 00:25:45,560 Speaker 2: before the APEX summit in the coming week, and Bloomberg 438 00:25:45,600 --> 00:25:48,520 Speaker 2: had the chance to speak with several top officials, including 439 00:25:48,560 --> 00:25:52,000 Speaker 2: South Korea's Finance Minister Ku Jung Choll. He says the 440 00:25:52,080 --> 00:25:55,040 Speaker 2: ongoing trade talks between South Korea and the US are 441 00:25:55,040 --> 00:25:57,280 Speaker 2: focusing on the structure of a three hundred and fifty 442 00:25:57,280 --> 00:26:01,080 Speaker 2: billion dollar investment pledge rather than accurrent c swap. Ku 443 00:26:01,200 --> 00:26:04,560 Speaker 2: spoke exclusively with Bloomberg's Sharry On from the sidelines of 444 00:26:04,600 --> 00:26:08,000 Speaker 2: the APEX Finance Minister's meeting. They started on the progress 445 00:26:08,040 --> 00:26:09,200 Speaker 2: of negotiations. 446 00:26:09,880 --> 00:26:13,240 Speaker 8: We understand that the US Investment Fund has been very 447 00:26:13,280 --> 00:26:16,440 Speaker 8: difficult to agree on the details, and you've told Secretary 448 00:26:16,480 --> 00:26:21,920 Speaker 8: Bestcent about the feasibility of having so much cash upfront. 449 00:26:23,040 --> 00:26:25,560 Speaker 8: Should we be expecting installments in payments? 450 00:26:25,560 --> 00:26:31,080 Speaker 2: Then to hangoan. 451 00:26:30,480 --> 00:26:33,199 Speaker 9: Peasant has understood that due to the current state of 452 00:26:33,280 --> 00:26:38,920 Speaker 9: Korea's foreign exchange market, we cannot pay upfront. He understands that. However, 453 00:26:39,359 --> 00:26:43,200 Speaker 9: regarding how to proceed on this with negotiations currently underway 454 00:26:43,200 --> 00:26:46,199 Speaker 9: with the US, I ask for your understanding that I 455 00:26:46,240 --> 00:26:48,880 Speaker 9: cannot yet provide specific details on the plan. 456 00:26:50,000 --> 00:26:53,600 Speaker 8: Bank of Korea Governor Eitanong said that the maximum amount 457 00:26:53,840 --> 00:26:57,720 Speaker 8: that can be raised in dollars annually without market disruptions 458 00:26:58,080 --> 00:27:01,760 Speaker 8: is twenty billion dollars. Looking at the round those figures 459 00:27:01,840 --> 00:27:02,440 Speaker 8: right now. 460 00:27:02,480 --> 00:27:04,520 Speaker 5: I tell you the miximum. 461 00:27:04,600 --> 00:27:08,200 Speaker 9: Yes, the Bank of Korea currently estimates that the maximum 462 00:27:08,200 --> 00:27:11,680 Speaker 9: amount we can raise without significantly impacting the foreign exchange 463 00:27:11,720 --> 00:27:14,640 Speaker 9: market is twenty billion dollars. 464 00:27:14,920 --> 00:27:17,760 Speaker 8: What does that mean for upfront payments though? Does that 465 00:27:17,840 --> 00:27:20,840 Speaker 8: mean front loading some and then paying annually. 466 00:27:23,280 --> 00:27:27,440 Speaker 9: Regarding that aspect, we are keeping various possibilities open for 467 00:27:27,480 --> 00:27:31,199 Speaker 9: the foreign exchange market and are currently in negotiations with 468 00:27:31,280 --> 00:27:32,119 Speaker 9: the United States. 469 00:27:33,200 --> 00:27:35,080 Speaker 8: Yes, that's one of the options that you've talked to 470 00:27:35,119 --> 00:27:40,200 Speaker 8: Secretary Bessent and to Washington about. 471 00:27:41,119 --> 00:27:46,080 Speaker 9: I cannot confirm that at this time. However, Secretary Bessent 472 00:27:46,280 --> 00:27:50,679 Speaker 9: fully understands the difficulties in Korea's FX market and is 473 00:27:50,720 --> 00:27:54,200 Speaker 9: having internal discussions on how to respond to the situation. 474 00:27:55,520 --> 00:27:59,360 Speaker 8: Because of the potential financial shocks to South Korea, there 475 00:27:59,440 --> 00:28:01,680 Speaker 8: was a lot of time talk about a potential currency 476 00:28:01,720 --> 00:28:04,520 Speaker 8: swap agreement. Is that still on the table? 477 00:28:05,119 --> 00:28:05,600 Speaker 10: Swab on. 478 00:28:09,359 --> 00:28:12,520 Speaker 9: Whether a currency swap is needed and to what extent 479 00:28:13,160 --> 00:28:16,919 Speaker 9: will depend entirely on how the deal is structured. It 480 00:28:16,960 --> 00:28:19,240 Speaker 9: may not be necessary at all, or it could be 481 00:28:19,320 --> 00:28:23,400 Speaker 9: arranged on a smaller scale. Therefore, the currency swap itself 482 00:28:23,480 --> 00:28:27,560 Speaker 9: is a necessary condition, not a sufficient one. So depending 483 00:28:27,560 --> 00:28:30,440 Speaker 9: on how this deal turns out, we plan to consult 484 00:28:30,480 --> 00:28:33,360 Speaker 9: with the US regarding the currency swap aspect as well. 485 00:28:33,480 --> 00:28:34,199 Speaker 8: Tia Sabby. 486 00:28:36,320 --> 00:28:38,560 Speaker 9: Even if we have a currency swap, it will be 487 00:28:38,600 --> 00:28:42,000 Speaker 9: difficult to just blindly provide money to the US without 488 00:28:42,000 --> 00:28:46,320 Speaker 9: considering the commercial rationality or viability of the project being selected. 489 00:28:46,440 --> 00:28:49,320 Speaker 8: I'm understanding then that this option is still alive. If 490 00:28:49,360 --> 00:28:52,480 Speaker 8: that's the case, when it comes to perhaps the structure, 491 00:28:52,760 --> 00:28:55,680 Speaker 8: could it be something similar as to the Argentina style, 492 00:28:55,800 --> 00:28:58,360 Speaker 8: going through the treasury instead of directly from the Fed 493 00:28:58,760 --> 00:29:01,160 Speaker 8: to While I saw this on. 494 00:29:02,480 --> 00:29:06,120 Speaker 9: The regarding the currency swap, we're not doing it because 495 00:29:06,160 --> 00:29:09,720 Speaker 9: we lack short term foreign reserves like Argentina. It's a 496 00:29:09,760 --> 00:29:12,960 Speaker 9: situation where Korea needs foreign currency to make long term 497 00:29:12,960 --> 00:29:16,680 Speaker 9: investments as requested by the US, so the US must 498 00:29:16,680 --> 00:29:20,200 Speaker 9: provide the lack of foreign currency. Therefore, it doesn't align 499 00:29:20,320 --> 00:29:25,040 Speaker 9: with the conventional short term currency swap structure. So regarding 500 00:29:25,080 --> 00:29:28,160 Speaker 9: that aspect, if we were to engage in a currency 501 00:29:28,160 --> 00:29:31,440 Speaker 9: swap arrangement with the US, there are further points that 502 00:29:31,520 --> 00:29:32,560 Speaker 9: require discussions. 503 00:29:33,000 --> 00:29:37,239 Speaker 8: The South Korea one of fourteen hundred per dollar, is 504 00:29:37,240 --> 00:29:40,960 Speaker 8: that the new normal? Do you think that reflects fundamentals 505 00:29:41,440 --> 00:29:41,800 Speaker 8: to them? 506 00:29:45,200 --> 00:29:48,880 Speaker 9: We believe much of the recent depreciation reflects market concern 507 00:29:48,920 --> 00:29:53,280 Speaker 9: that the tariff negotiations haven't been finalized. So we are 508 00:29:53,320 --> 00:29:56,680 Speaker 9: currently pursuing negotiations with the US with inter range that 509 00:29:56,720 --> 00:30:02,160 Speaker 9: doesn't significantly impact Korea's foreign exchange market. Fortunately, US Treasury 510 00:30:02,240 --> 00:30:05,560 Speaker 9: Secretary Besant is fully aware of the situation in Korea's 511 00:30:05,560 --> 00:30:09,440 Speaker 9: foreign exchange market. Therefore, once the issue is resolved, that 512 00:30:09,520 --> 00:30:10,880 Speaker 9: uncertainty will likely fade. 513 00:30:10,920 --> 00:30:14,720 Speaker 8: We have seen clearly the impact on South Korean automakers 514 00:30:14,760 --> 00:30:18,280 Speaker 8: because the tariffs continue to be, of course, much higher 515 00:30:18,320 --> 00:30:22,280 Speaker 8: than for Japan for Europe, who already the US has 516 00:30:22,320 --> 00:30:25,000 Speaker 8: lifted those levees. What can the government do at this 517 00:30:25,080 --> 00:30:26,520 Speaker 8: point to support the sector? 518 00:30:27,960 --> 00:30:33,240 Speaker 9: Ronan in the short term, the government is providing all 519 00:30:33,320 --> 00:30:37,280 Speaker 9: possible policy support to automakers and auto parts companies facing 520 00:30:37,320 --> 00:30:40,760 Speaker 9: difficulties due to these higher tariffs compared to the EU 521 00:30:40,840 --> 00:30:45,080 Speaker 9: and Japan. We believe that if these negotiations yield some breakthrough, 522 00:30:45,720 --> 00:30:47,720 Speaker 9: those issues could also be resolved. 523 00:30:47,920 --> 00:30:51,760 Speaker 8: In these ongoing trade negotiations. Is the fact that South 524 00:30:51,840 --> 00:30:57,600 Speaker 8: Korea would lose its advantage over say, Japan, before the 525 00:30:57,640 --> 00:31:01,200 Speaker 8: trade deal, because Korea have a free trade agreement with 526 00:31:01,240 --> 00:31:04,800 Speaker 8: the US, it had an advantage of around two point 527 00:31:04,840 --> 00:31:10,480 Speaker 8: five percent. Is that being discussed at this point? 528 00:31:11,960 --> 00:31:15,240 Speaker 9: I conveyed that point to President Trump and explained to 529 00:31:15,320 --> 00:31:19,440 Speaker 9: Bessant and Lun. I explained that since Korea is an 530 00:31:19,520 --> 00:31:24,400 Speaker 9: FTA partner, tariffs on Korea are already sufficiently low, but 531 00:31:24,480 --> 00:31:28,600 Speaker 9: tariffs on other countries aren't sufficiently low, making it unfair. 532 00:31:29,520 --> 00:31:32,800 Speaker 9: Even so, it seems the US isn't very willing to 533 00:31:32,920 --> 00:31:36,840 Speaker 9: understand that aspect. In any case, we plan to continue 534 00:31:36,840 --> 00:31:38,240 Speaker 9: explaining and persuading them. 535 00:31:38,760 --> 00:31:42,320 Speaker 8: Because of the exuberance around the artificial intelligence, we are 536 00:31:42,400 --> 00:31:46,440 Speaker 8: seeing South korea stock market on a tear. Are you 537 00:31:46,480 --> 00:31:48,320 Speaker 8: concerned that this could be a market bubble? 538 00:31:53,200 --> 00:31:57,000 Speaker 9: The current stock market reflects expectations for the Korean economy, 539 00:31:57,600 --> 00:32:00,880 Speaker 9: such as enhancing shareholder value in the Korean capital market, 540 00:32:01,480 --> 00:32:07,000 Speaker 9: expanding dividends or resolving unfair practices, expectations for the modernization 541 00:32:07,120 --> 00:32:11,040 Speaker 9: of the Korean stockform. On top of these expectations, we 542 00:32:11,120 --> 00:32:14,480 Speaker 9: are actively supporting the core technology economy to ensure a 543 00:32:14,560 --> 00:32:18,080 Speaker 9: robust Korean economy that can be a global investment destination. 544 00:32:18,480 --> 00:32:21,440 Speaker 2: That was South Korea Finance Minister Ku Yun Choll speaking 545 00:32:21,440 --> 00:32:24,320 Speaker 2: with Bloomberg's s Sherry on staying at the APEX Finance 546 00:32:24,360 --> 00:32:26,800 Speaker 2: Minister's meeting. We also got the chance to hear from 547 00:32:26,840 --> 00:32:30,600 Speaker 2: Australian Treasurer Jim Chalmers. He spoke to Bloomberg's Hustlin to 548 00:32:30,640 --> 00:32:33,680 Speaker 2: Ahmed after his country and the US signed a landmark 549 00:32:33,760 --> 00:32:36,560 Speaker 2: deal to boost America's access to rare earth send other 550 00:32:36,600 --> 00:32:39,320 Speaker 2: critical minerals as part of a push to kerb alliance 551 00:32:39,400 --> 00:32:43,040 Speaker 2: on China's supply chains. They started by talking about what 552 00:32:43,080 --> 00:32:45,600 Speaker 2: the agreement means for the Australian economy. 553 00:32:45,920 --> 00:32:49,480 Speaker 10: Will you given any insurances that perhaps this won't just 554 00:32:49,720 --> 00:32:51,920 Speaker 10: be America. 555 00:32:51,440 --> 00:32:56,640 Speaker 11: Fast Prime Minister Albanezi had an outstanding meeting with President Trump. 556 00:32:56,720 --> 00:32:59,760 Speaker 11: Were very very pleased with how the mating went and 557 00:32:59,800 --> 00:33:03,240 Speaker 11: the critical minerals framework is really one of the most 558 00:33:03,280 --> 00:33:07,280 Speaker 11: important bits of progress that we saw in those discussions. 559 00:33:07,800 --> 00:33:10,640 Speaker 11: And what that's all about is about helping to ensure 560 00:33:10,680 --> 00:33:14,000 Speaker 11: Australia becomes a world leader in the export of rare 561 00:33:14,040 --> 00:33:17,480 Speaker 11: earths and critical minerals. It's all about making sure that 562 00:33:17,520 --> 00:33:21,440 Speaker 11: we strengthen our trade ties with the US, that we 563 00:33:21,480 --> 00:33:25,200 Speaker 11: strengthen supply chains, and that we make sure that this 564 00:33:25,400 --> 00:33:29,280 Speaker 11: remarkable opportunity that Australia has with rare earths and critical 565 00:33:29,320 --> 00:33:31,080 Speaker 11: minerals is properly maximized. 566 00:33:31,800 --> 00:33:35,800 Speaker 10: So who long decide which projects are viable? Is the 567 00:33:35,840 --> 00:33:37,600 Speaker 10: government choosing the winners here? 568 00:33:38,200 --> 00:33:41,680 Speaker 11: Well, this industry already we think there are about thirteen 569 00:33:41,680 --> 00:33:47,600 Speaker 11: billion dollars Australian of projects in the pipeline, a really 570 00:33:47,640 --> 00:33:51,400 Speaker 11: extraordinary opportunity for Australia, a golden opportunity. And what the 571 00:33:51,640 --> 00:33:55,760 Speaker 11: American administration and the Australian government have agreed is that 572 00:33:55,840 --> 00:33:59,160 Speaker 11: each of us will invest a billion dollars over the 573 00:33:59,160 --> 00:34:02,520 Speaker 11: next six months. You rightly said in your introduction in 574 00:34:02,600 --> 00:34:06,560 Speaker 11: some of these really important projects. We believe Australia can 575 00:34:06,640 --> 00:34:09,640 Speaker 11: be and will be a world leader and the supply 576 00:34:09,719 --> 00:34:12,120 Speaker 11: of rare earths and critical minerals. The agreement and the 577 00:34:12,120 --> 00:34:15,320 Speaker 11: framework that was agreed with President Trump is an important 578 00:34:15,360 --> 00:34:19,000 Speaker 11: part of that effort. It's a golden opportunity for Australia 579 00:34:19,040 --> 00:34:20,319 Speaker 11: and we intend to maximize it. 580 00:34:20,800 --> 00:34:23,719 Speaker 10: The thing is, there is reason to think that could 581 00:34:23,760 --> 00:34:28,640 Speaker 10: be competition between an American and Australian company and just 582 00:34:28,680 --> 00:34:32,120 Speaker 10: wondering how will it be decided when it comes to that. 583 00:34:32,239 --> 00:34:35,840 Speaker 10: For instance, if you have liners and AMPI materials at odds, 584 00:34:35,880 --> 00:34:37,040 Speaker 10: how will you decide? 585 00:34:37,880 --> 00:34:41,239 Speaker 11: Well, it's not beyond us for the commercial arrangements to 586 00:34:41,280 --> 00:34:45,160 Speaker 11: reflect the scale of this opportunity and our obligations to 587 00:34:45,200 --> 00:34:48,440 Speaker 11: each other under this framework. Obviously, rare earths and critical 588 00:34:48,440 --> 00:34:51,720 Speaker 11: minerals have a number of important applications, including in defense 589 00:34:51,760 --> 00:34:56,600 Speaker 11: and technology and in the industries that the US administration 590 00:34:56,640 --> 00:35:00,279 Speaker 11: are very keen to work closely with Australia on to 591 00:35:00,320 --> 00:35:03,720 Speaker 11: be a reliable supplier around the world. But this agreement 592 00:35:03,800 --> 00:35:06,440 Speaker 11: with the US is about strengthening trade ties with the 593 00:35:06,440 --> 00:35:09,880 Speaker 11: Trump administration and the US. More broadly, it's about making 594 00:35:09,920 --> 00:35:13,719 Speaker 11: sure that those supply chains are robust and reliable. We 595 00:35:13,760 --> 00:35:16,760 Speaker 11: will have markets all around the world for these critical 596 00:35:16,800 --> 00:35:20,480 Speaker 11: minerals and that's a good thing. But the American relationship 597 00:35:20,520 --> 00:35:22,759 Speaker 11: is very important to us, and today we strengthened it. 598 00:35:24,920 --> 00:35:28,960 Speaker 10: When you think about these rare deal on the projects 599 00:35:29,000 --> 00:35:32,040 Speaker 10: which are coming up, we know that Gina Reinhardt, for instance, 600 00:35:32,480 --> 00:35:34,600 Speaker 10: has a finger in a lot of these pies, and 601 00:35:34,640 --> 00:35:38,440 Speaker 10: some are raising the concern that perhaps taxpayers money would 602 00:35:38,560 --> 00:35:42,239 Speaker 10: end up at one end of town, which is the 603 00:35:42,360 --> 00:35:44,240 Speaker 10: richer end of town. I mean, how do you respond 604 00:35:44,320 --> 00:35:45,440 Speaker 10: to such concerns? 605 00:35:46,200 --> 00:35:49,239 Speaker 11: Oh, this critical minerals opportunity for Australia is a big 606 00:35:49,239 --> 00:35:53,040 Speaker 11: opportunity for our workers, our local communities, for our businesses 607 00:35:53,080 --> 00:35:56,719 Speaker 11: and our investors. And there's more than one investor or 608 00:35:56,800 --> 00:36:02,520 Speaker 11: owner of critical minerals resources in Australia. But whether it's mining, refining, 609 00:36:02,680 --> 00:36:08,280 Speaker 11: adding value processing, working with our international partners, we shouldn't 610 00:36:08,280 --> 00:36:11,400 Speaker 11: see this as anything other than a massive opportunity for Australia. 611 00:36:11,440 --> 00:36:14,239 Speaker 11: It's why we put so much effort into engaging, whether 612 00:36:14,280 --> 00:36:16,640 Speaker 11: it be with the US administration, whether it be here 613 00:36:16,760 --> 00:36:19,960 Speaker 11: in APEC, with the twenty one economies of our region. 614 00:36:20,000 --> 00:36:23,160 Speaker 11: We recognize that Australia has got a lot to offer 615 00:36:23,200 --> 00:36:28,240 Speaker 11: the world. We've got important relationships right around the region, 616 00:36:28,680 --> 00:36:32,320 Speaker 11: and we intend to supply other economies with our critical 617 00:36:32,360 --> 00:36:36,040 Speaker 11: minerals and rare earths in a way where the benefits 618 00:36:36,040 --> 00:36:40,800 Speaker 11: in Australia are broadly shared, including amongst our world leading 619 00:36:40,960 --> 00:36:41,840 Speaker 11: mining workforce. 620 00:36:43,560 --> 00:36:47,680 Speaker 10: Do you think China overplayed its hand in imposing the 621 00:36:47,760 --> 00:36:49,799 Speaker 10: cards on our supplies. 622 00:36:50,800 --> 00:36:53,480 Speaker 11: I wouldn't engage in that sort of commentary. We engage 623 00:36:53,520 --> 00:36:57,200 Speaker 11: with the Chinese administration in good faith and in Australia's 624 00:36:57,280 --> 00:37:00,920 Speaker 11: national interest. We engage with all of our trading partners 625 00:37:01,200 --> 00:37:05,759 Speaker 11: in that fashion. I'll leave the analysis to others. Our 626 00:37:05,800 --> 00:37:08,840 Speaker 11: interest here is making sure that we play an important 627 00:37:08,920 --> 00:37:13,279 Speaker 11: role in strengthening supply chains in this industry, whether it's 628 00:37:13,320 --> 00:37:17,160 Speaker 11: in the United States or elsewhere. But our relationship with 629 00:37:17,239 --> 00:37:19,960 Speaker 11: China is important to us in economic terms as well. 630 00:37:20,280 --> 00:37:23,280 Speaker 11: We've put a lot of effort into stabilizing that relationship. 631 00:37:23,920 --> 00:37:27,280 Speaker 11: The Chinese economy is not without its fair share of challenges, 632 00:37:27,320 --> 00:37:29,880 Speaker 11: but we are confident that it will continue to be 633 00:37:29,920 --> 00:37:33,239 Speaker 11: an important source of growth in our own economy in Australia, 634 00:37:33,920 --> 00:37:36,680 Speaker 11: and we believe it's possible to engage with the Americans 635 00:37:36,760 --> 00:37:39,560 Speaker 11: in the way that we have been and to continue 636 00:37:39,560 --> 00:37:43,000 Speaker 11: to stabilize and invest in that very important China relationship. 637 00:37:43,000 --> 00:37:44,600 Speaker 1: At the same time, that was. 638 00:37:44,680 --> 00:37:48,719 Speaker 2: Jim Chalmers, Australia's treasure speaking with Bloomberg's Suslinda Amen at 639 00:37:48,760 --> 00:37:52,040 Speaker 2: the APEX Finance ministers meeting in South Korea. And that 640 00:37:52,120 --> 00:37:55,200 Speaker 2: does it for this edition of Bloomberg Daybreak Weekend. Join 641 00:37:55,280 --> 00:37:58,160 Speaker 2: us again Monday morning at five am Wall Street Time 642 00:37:58,200 --> 00:38:00,759 Speaker 2: for the latest don markets, overseas and the news you 643 00:38:00,880 --> 00:38:04,040 Speaker 2: need to start your day. I'm Nathan Hager. Stay with us. 644 00:38:04,120 --> 00:38:07,759 Speaker 2: Top stories and global business headlines are coming up right now.