Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories in the coming week from our Daybreak anchors
Speaker 2: all around the world. Straight Ahead on the program, a
Speaker 2: look ahead to next week's FED meeting and earnings from
Speaker 2: some of tech's Magnificent seven companies.
Speaker 3: I'm Caroline Hebge in London, where we're looking ahead to
Speaker 3: European defense earnings, including from Airbos and Leonardo.
Speaker 2: We'll look at top interviews from the APEC finance ministers
Speaker 2: meeting in South Korea. I'm Nathan Hager in Washington.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Nathan Hager. We begin today's
Speaker 2: program with the Federal Reserve. The FED begins its two
Speaker 2: day meeting to decide monetary policy on Tuesday. The October
Speaker 2: decision comes Wednesday, followed of course by the news conference
Speaker 2: from FED Chair Jay Powell. For more on what to expect,
Speaker 2: we are joined now by Stuart paul Us, economists with
Speaker 2: Bloomberg Economics, and Stuart, if the markets are to be believed,
Speaker 2: everybody's expecting a cut, especially after the consumer price data
Speaker 2: from Friday that we finally got, is that what you're expecting.
Speaker 4: That is what we're expecting. And I think that the
Speaker 4: consumer price data that we got on Friday actually opens
Speaker 4: the door even wider for an additional cut in December.
Speaker 4: But I think that the FED is going to certainly
Speaker 4: try to avoid surprising markets at this point and we'll
Speaker 4: deliver that quarter point cut next week that everyone's been
Speaker 4: holding their breath for.
Speaker 2: So if that's the case, would it be a surprise
Speaker 2: if the FED did not signal a December cut, given
Speaker 2: that we still don't know whether we're going to get
Speaker 2: the data if this government shutdown keeps going on.
Speaker 4: I think policymakers will try to keep their options open,
Speaker 4: and their explicit messaging will be something like every meeting
Speaker 4: is live, We're not making any decisions in advance of
Speaker 4: the meetings themselves. So I don't think that they're going
Speaker 4: to be so bold as to offer some sort of
Speaker 4: clarion call for a December cut. But I think that
Speaker 4: the fact that the FED is comfortable with sequential cuts
Speaker 4: right now, and it still views policy as at least
Speaker 4: modestly restrictive, makes a December cut more likely than not.
Speaker 2: Also, so let's talk a little bit more about why
Speaker 2: the consumer price data opens the door even further to
Speaker 2: that December cut. We seem to be getting that indication
Speaker 2: from the markets as well. What do you say in
Speaker 2: the data that's got you open to that.
Speaker 4: There are really three or four items that stood out
Speaker 4: to me in the Friday report. The first is that
Speaker 4: tariff passed through remained modest. When we track the product
Speaker 4: or spending level tariff that has been applied since April,
Speaker 4: and the price growth that we have seen for those
Speaker 4: spending categories since April, tariff passed through to the consumer
Speaker 4: level is still rather modest. Second, core goods prices just
Speaker 4: in the aggregate are still downshifting. There's been a deceleration
Speaker 4: in prices in core goods, which should quell some fears
Speaker 4: further for the FED. The third thing that I'd point
Speaker 4: to is that core services, which typically matters most of
Speaker 4: the FED core services prices are also tame, and there
Speaker 4: was a major step down in rents, and rents and
Speaker 4: owner's equivalents of rents are one of the spending categories
Speaker 4: that are most highly levered two monetary policy decisions, which
Speaker 4: shows that there might be some additional room for the
Speaker 4: Fed to bring down rates given the fact that home
Speaker 4: prices and home price appreciation has been slow, and so
Speaker 4: rent growth has also slowed. I think that all of
Speaker 4: those details from the September CPI report are going to
Speaker 4: be viewed favorably by the FED when it meets next week.
Speaker 2: Are you thinking then that we could continue to see
Speaker 2: pass through on the tariffs from this data, given that
Speaker 2: we might not see further data. Even the White House
Speaker 2: is warning that if the shutdown goes on, we're not
Speaker 2: going to get potentially in October consumer price index.
Speaker 4: I think that even if we were to get an
Speaker 4: October consumer price index, we would have to look at
Speaker 4: it rather skeptically because the data collection process has been
Speaker 4: interrupted by the shutdown. Instead, we have an alternative measure,
Speaker 4: and we look at a broad swath of data that
Speaker 4: allows us to get a more real time understanding of
Speaker 4: price pressures, and right now it looks like tariff passed
Speaker 4: through is relatively limited, and Nathan, one thing that I'd
Speaker 4: point out is that firm's ability to pass through tariff
Speaker 4: costs that they've incurred throughout the supply chain. Firm's ability
Speaker 4: to pass through those tariff costs to consumers are being
Speaker 4: limited by consumers income growth. Consumers cannot bid up the
Speaker 4: price of goods and services in a cooling labor market.
Speaker 4: And when that's the case, again, the FED just has
Speaker 4: a little bit of space to cut. They don't have
Speaker 4: to worry as much about the upside inflation risk created
Speaker 4: by tariffs. Instead, they can rotate their attention even more
Speaker 4: toward the maximum employment side of their dual mandate.
Speaker 2: Really appreciate this Stewart ahead of that FED decision on Wednesday,
Speaker 2: our thanks to Stewart. Paulus Acomist with Bloomberg Economics. Next,
Speaker 2: we move to corporate earnings from some of tech's Magnificent
Speaker 2: seven companies. This week, we hear from five of them, Microsoft,
Speaker 2: Meta Platforms and Alphabet on Wednesday, then on Thursday it's
Speaker 2: Apple and Amazon. Busy times for mandeep saying senior tech
Speaker 2: industry analysts for Bloomberg Intelligence, who joins us now, Mandeep,
Speaker 2: thanks for being with us. We call them the mag seven.
Speaker 2: But do these companies really rise together in tandem?
Speaker 5: Still they do, although I would say that, you know,
Speaker 5: with Jenai really making a difference in terms of the
Speaker 5: top line contributions, this will be a quarter where you
Speaker 5: will see some divergence between the likes of Microsoft and Google,
Speaker 5: which may get a much bigger lift in their cloud
Speaker 5: revenues from AI versus let's say Amazon or Meta, where Amazon,
Speaker 5: even though it has a very sizeable cloud business, may
Speaker 5: not get the same kind of lift from AI that
Speaker 5: the other two hyperscillers are getting. And also Meta, I
Speaker 5: think because they don't have a cloud business, it will
Speaker 5: be interesting to see if Meta ends up increasing their
Speaker 5: CAPEX numbers for twenty twenty six.
Speaker 2: Let's talk a little bit more about that divergence then,
Speaker 2: because it seems like, particularly for Microsoft, it's been off
Speaker 2: to the races with their partnership with open Ai. Is
Speaker 2: that what, Scott, you're thinking that that may be fueling
Speaker 2: the divergence here?
Speaker 5: Yes, And also OpenAI has signed three big deals to
Speaker 5: expand their data center capacity and that's not with Microsoft,
Speaker 5: so it's signed you know, a big deal with Oracle,
Speaker 5: with Broadcom, with Nvidia, and also another deal with AMD.
Speaker 5: And you know, Microsoft still ends up benefiting because they
Speaker 5: have a forty nine percent stake in open Ai, they
Speaker 5: get a revenue share from open Ai. And also you know,
Speaker 5: with open Ai doing so well in terms of you know,
Speaker 5: they're deploying their models, it indirectly benefits Microsoft on the
Speaker 5: Azure side, where we saw Microsoft Azure business growing thirty
Speaker 5: nine percent last quarter and this quarter maybe another solid
Speaker 5: quarter off around forty percent growth. So that's where the
Speaker 5: tailwind is so strong for a company like Microsoft.
Speaker 2: And when it comes to Google parent Alphabet, I guess
Speaker 2: we just got that confirmation that Google's got this partnership
Speaker 2: with Anthropic. I don't know if we're going to see
Speaker 2: that reflected in the earnings, but what does that mean
Speaker 2: for them going forward?
Speaker 5: It's huge. I mean another company that's benefited from AI
Speaker 5: workload spend is Google cloud segment, not their AD revenue,
Speaker 5: but their cloud segment. And I think with this Entropic deal,
Speaker 5: what they're signaling is they are ready to sell their
Speaker 5: TPU chips outside of their own cloud. And this is
Speaker 5: huge because Nvidia really dominated that space and now you
Speaker 5: have got TPU chips that can actually compete with Nvidia
Speaker 5: at the chip level, and to my mind, this expands
Speaker 5: you know, the relevance of TPUs outside Google Cloud, and
Speaker 5: it could have huge ramifications you know, twelve to twenty
Speaker 5: four months out because it could be at a much
Speaker 5: lower price point than in Nvidia chips. And that's where
Speaker 5: you know, it gets very competitive if other companies start
Speaker 5: to adopt TPU chips.
Speaker 2: On the other side of the coin, you mentioned Amazon
Speaker 2: and meta platforms. Of course we're coming into these earnings
Speaker 2: for Amazon after that big AWS outage last week. How
Speaker 2: vulnerable is Amazon right now?
Speaker 5: I mean to me, the key metric here is cloud margins.
Speaker 5: So with both Microsoft and Google you will see cloud
Speaker 5: margins expand. In the case of Amazon, we saw cloud
Speaker 5: margins actually go down last quarter, and partly that has
Speaker 5: to do with the fact that AI isn't that big
Speaker 5: of a tailwind for Amazon still, and you know, they
Speaker 5: may be taking a lower margin for AI workloads just
Speaker 5: to make sure that they maintain their market share. Remember,
Speaker 5: they are the largest incumbent cloud provider, so they have
Speaker 5: to add more revenue to grow at a higher rate
Speaker 5: than there are other two clouds and that's where they
Speaker 5: may be taking a margin hit. So margins for cloud
Speaker 5: segment of aws are really important at this quarter.
Speaker 2: And in terms of Meta platforms, I know they've been
Speaker 2: spending a lot of time poaching AI workers from Apple.
Speaker 2: Is that going to pay off for them?
Speaker 5: Well? Now we also read some news that they are
Speaker 5: actually playing off up to six hundred people. So a
Speaker 5: lot going on in Meta in terms of their AI efforts.
Speaker 5: And I think the main concern here is if Meta
Speaker 5: ends up raising their CAPEX by let's say another thirty
Speaker 5: to forty percent for twenty twenty six, which means they
Speaker 5: are spending almost one hundred billion dollars in capex next year,
Speaker 5: how does that translate into ROI? So that ROI question
Speaker 5: for Meta is really applicable because the only place where
Speaker 5: Meta has seen a lift from AI is in more
Speaker 5: targeted ads and in ad pricing, and because they don't
Speaker 5: have a separate cloud business, I think the question around
Speaker 5: ROI may get louder if they end up, you know,
Speaker 5: guiding fred in excess one hundred billion dollars in capex
Speaker 5: for twenty twenty six.
Speaker 2: And when it comes to Apple, of course, you've been
Speaker 2: talking for so long about how they've been trying to
Speaker 2: play catch up around artificial intelligence. What's the main driver
Speaker 2: for them as we look at their earnings.
Speaker 5: I mean it has to be iPhone seventeen and what
Speaker 5: kind of a refresh cycle it could trigger. I think
Speaker 5: Apple has to do more than just the hardware side.
Speaker 5: They need a much better LLLM strategy, whether that means
Speaker 5: partnering with someone or you know, doing something on their own.
Speaker 5: But time is really running out in terms of laying
Speaker 5: out what their AI strategy will be, and that is
Speaker 5: where there are still questions around Apple.
Speaker 2: Thanks for this, Mandy, really appreciate it. That's Man Deep Saying,
Speaker 2: senior tech analyst for Bloomberg Intelligence and coming up on
Speaker 2: Bloomberg day Break weekend, we look ahead to defense earnings
Speaker 2: in Europe from the likes of air Bus and Leonardo.
Speaker 2: I'm Nathan Hager, and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global look ahead, the top stories
Speaker 2: for investors in the coming week. I'm Nathan Hager in Washington.
Speaker 2: Up later in our program, we'll take a look at
Speaker 2: some of the top interviews from the APEX Finance ministers
Speaker 2: meeting in South Korea, but first European defense companies are
Speaker 2: grappling with renewed Russian threats, the ongoing war in Ukraine,
Speaker 2: and significant dependencies on American made weapons and systems. There's
Speaker 2: also been a defense selloff in recent weeks following the
Speaker 2: ceasefire in the Middle East and now uncertainty around President
Speaker 2: Trump's stance toward Vladimir Putin, amid intensified diplomatic efforts to
Speaker 2: bring peace between Russia and Ukraine. With some of Europe's
Speaker 2: biggest defense names, including air Bus and Leonardo, reporting earnings
Speaker 2: in the next few days, let's get more from Bloomberg
Speaker 2: Daybreak europe banker Caroline Hepger in London, Nathan.
Speaker 3: The EU's Defense Readiness Plan sets an ambitious goal Europe
Speaker 3: should be ready for a potential war with Russia by
Speaker 3: twenty thirty, but its details are vague. The main underpinning
Speaker 3: is a push for European defense autonomy. The aim is
Speaker 3: for forty percent of procurement in the EA use flagship
Speaker 3: defense programs to be conducted jointly instead of separately by
Speaker 3: all the different member states, and this by the end
Speaker 3: of twenty twenty seven. So in short, the idea is
Speaker 3: buy more, buy together and by European even if US
Speaker 3: weapons for now may actually be the quickest fix. Torsten
Speaker 3: Ral is the co CEO of the Munich based defense
Speaker 3: technology firm Helsingh. He says that the increase in investor
Speaker 3: interest in his sector has led to a bubble in
Speaker 3: the defense market. He's been speaking two Bloomberg's Tom McKenzie
Speaker 3: at the Bloomberg London Tech Summits.
Speaker 6: I think there's definitely a bubble right now, and the
Speaker 6: reason for it is in twenty twenty one, not a
Speaker 6: single EUROPEANBC in particular wanted to touch defense. Now everyone has
Speaker 6: moved into defense, and you know, including the crypto caravan
Speaker 6: that's moved from crypto now into defense and is trying
Speaker 6: to spend its money there. I think in some ways
Speaker 6: it doesn't matter. It creates noise in the market obviously,
Speaker 6: but there is a lot of money I think that's
Speaker 6: not going to see a So that was.
Speaker 3: The co CEO of helsing putting market moves to one side.
Speaker 3: How prepared is Europe? How is it coping with the
Speaker 3: shifting sounds in US policy, growing hybrid threats and on
Speaker 3: certain timelines for funding and defense procurement. What can we
Speaker 3: expect from the earnings of Europe's largest defense company, Airbus
Speaker 3: and the others including Leonardo, which are all to come
Speaker 3: in the next few days. Well, joining me is Bloomberg's
Speaker 3: Global Defense editor Jerry Doyle. Welcome to the radio studio.
Speaker 3: Thank you for being with us. Jerry. This is a
Speaker 3: really big topic. There is a fragile ceasepar between Israel
Speaker 3: and Hamas right now. There is a push for peace
Speaker 3: in Russia and Ukraine. Meanwhile, of course you've got the
Speaker 3: Trump administration who are really zigzagging very frequently on policy.
Speaker 3: You know, whether it comes to Gaza, or whether it's
Speaker 3: about the Kremlin, or even potentially about Taiwan. Does that
Speaker 3: change the outlook for the defense sector in your or
Speaker 3: do the fundamentals basically stay the same.
Speaker 7: I think the fundamentals are basically the same. I mean,
Speaker 7: you're absolutely right on Ukraine. For instance, there's going to
Speaker 7: be a meeting, and then there's not going to be
Speaker 7: a meeting, and then there is a meeting but nothing
Speaker 7: comes of it. There's going to be a deal, there's
Speaker 7: no deal. Because of that uncertainty, I think a lot
Speaker 7: of people might perceive that there's also uncertainty in terms
Speaker 7: of what Europe is looking for the defense spending and
Speaker 7: investment in the sector. But again, if you talk to
Speaker 7: European politicians and policymakers, there is a very strong commitment
Speaker 7: to increasing defense spending, increasing investment in the defense sector
Speaker 7: in Europe, and making sure that their country's militaries are
Speaker 7: able to sort of stand on their own. Because the
Speaker 7: one thing that seems fairly certain despite everything else that's
Speaker 7: happening in Washington, there does seem to be a pullback
Speaker 7: of the US from Europe in terms of being the
Speaker 7: type of ally and partner that it has been in
Speaker 7: the past.
Speaker 3: Yeah. Absolutely, And we've seen have only such a big
Speaker 3: uptick in terms of drones in terms of jet incursions
Speaker 3: into NATO airspace, particularly in Eastern Europe, and this idea
Speaker 3: of kind of hybrid threats as well, all European nations
Speaker 3: kind of be able to shore up their air defense
Speaker 3: systems because eighty percent of it is basically American made.
Speaker 7: Yeah, I mean, the main problem for Europe on this
Speaker 7: score is at the very high end, European defense companies
Speaker 7: make sort of excellent short range air defense systems, radar
Speaker 7: directed guns and short range missiles that can handle will
Speaker 7: flying threats, cruise missiles, drones and things like that. And
Speaker 7: they also have the mid range sort of very well
Speaker 7: covered with very effective systems such as nasam's and iris T.
Speaker 7: Where Europe struggles in terms of production is the very
Speaker 7: highest end the types of systems they can intercept, hypersonics,
Speaker 7: maneuvering glide vehicles, even you know ICBMs or other type
Speaker 7: of long range ballithic missiles. Really the US US defense
Speaker 7: companies are the the only ones who produced that type
Speaker 7: of system and so for the time being, Europe is
Speaker 7: reliant on those. But for the rest of its needs,
Speaker 7: I think Europe with the right sort of directed spending
Speaker 7: can get it done.
Speaker 3: Okay, that's interesting, and there's also expected to be a
Speaker 3: lot of money that is going to be spent in
Speaker 3: Europe and in NATO. How far do you think that
Speaker 3: the push to reach the five percent defense spending target
Speaker 3: for NATO countries in Europe is going to be able
Speaker 3: to sort of sustain the defense industry or boost the
Speaker 3: defense industry in Europe, which is obviously kind of a
Speaker 3: huge question.
Speaker 7: Yeah. Again, I think the commitment is going to be
Speaker 7: there because the underlying reality the thing that has gotten
Speaker 7: European governments on board with the idea of spending more
Speaker 7: on defense is the war in Ukraine and sort of
Speaker 7: the threat of Russian aggression that does not show any
Speaker 7: signs of abating even if the war in Ukraine ends.
Speaker 7: I think that European governments are now very well aware
Speaker 7: that that Russia does sort of pose a threat to Europe.
Speaker 7: That maybe that perception didn't exist fifteen years ago or
Speaker 7: twenty years ago, now it does. And because that reality
Speaker 7: is not going to change, then the pressure to spend
Speaker 7: is still going to be there.
Speaker 3: Yeah, but a lot of that is reflected in the valuations.
Speaker 3: So there's a question of whether the huge one up
Speaker 3: that we've seen in the stock market valuations of a
Speaker 3: lot of these big firms in Europe, whether you know
Speaker 3: you're going to have to deliver that in terms of
Speaker 3: the spending.
Speaker 7: Yeah, you will, and you know, some of that's going
Speaker 7: to be easier than others. And I think to the
Speaker 7: point earlier that there might be a lot of froth
Speaker 7: in you know, defense investment, I think that's probably true
Speaker 7: to some extent. It's sort of a chicken and egg
Speaker 7: problem where there is all this spending, right so some
Speaker 7: companies are going to you know, they might have made
Speaker 7: just ordinary things before. I might see this money and say, oh,
Speaker 7: instead of making widget, now we're making death widgets. Right,
Speaker 7: So we're going to you know, partake in this huge
Speaker 7: boost of spending. But there's also so a whole other
Speaker 7: set of companies that from the get go have some
Speaker 7: sort of interesting bit of defense related technology and now
Speaker 7: they have a market for it, right, And so I
Speaker 7: think it's weeding out that the first type of company
Speaker 7: that it's just sort of trying to capitalize on the
Speaker 7: increased defense spending without having anything really to offer in
Speaker 7: terms of you know, innovation or new new sort of
Speaker 7: angles or approach it to defense technology, getting those sort
Speaker 7: of off the board, which you know eventually they sort
Speaker 7: of will fall by the wayside and focus more on
Speaker 7: the companies that are bringing something new to the table.
Speaker 3: Yeah, Death, which is I think that cuts through the
Speaker 3: pr kind of industry jargon, doesn't it.
Speaker 7: It's a good band name too.
Speaker 3: Yeah. In terms of the individual companies also who are
Speaker 3: very much involved in this, then we're going to hear
Speaker 3: from in the next few days. I mean Airbus and
Speaker 3: Leonardo and other companies are pushing for preparedness, so Airbus
Speaker 3: obviously wants to fill the gaps in space and satellite capabilities.
Speaker 3: In the last few days, we've also had this tie
Speaker 3: up between air Bars and Leonardo and Tales an agreement
Speaker 3: to merge their space business. So there's a lot that
Speaker 3: is moving. And even when we started really thinking about
Speaker 3: defense quite a few months ago, as this was all building,
Speaker 3: the pressure was mounting, there was a big question about
Speaker 3: whether you'd get a lot more joint cooperation. That seems
Speaker 3: to be coming through in the industry now.
Speaker 7: I think so in Europe, there's this commitment to try
Speaker 7: to do it domestically, to try to do it as
Speaker 7: a continent. Space is also one of these areas that
Speaker 7: Europe is very reliant on the US four at the moment,
Speaker 7: especially on the military side, and you can see the
Speaker 7: importance of having satellite imagery just in the Ukraine War
Speaker 7: during the period earlier this year when the US cut
Speaker 7: off Ukraine from satellite based intelligence for a while, Ukraine
Speaker 7: immediately started yourself around the battlefield. So having those assets
Speaker 7: and having ownership of them is very important to Europe
Speaker 7: and European government. Airbus obviously has a lot of experience
Speaker 7: in this area, and so I think there's a lot
Speaker 7: of potential for joining the forces of some of the
Speaker 7: technological giants to get into satellite. There could be a
Speaker 7: lot to pay off for Europe. The problem then becomes
Speaker 7: how do you get this stuff into orbit? And that
Speaker 7: is something that Europe still lacks, is a high tempo,
Speaker 7: fast cadence heavy launch system for the moment. If you
Speaker 7: want to get a lot of stuff in orbit really fat,
Speaker 7: you probably are going to have to buy it right
Speaker 7: on SpaceX.
Speaker 3: Yes, exactly. So it's the competition. Who anywhere in the
Speaker 3: world can actually keep up with Elon Musk's Space says absolutely.
Speaker 3: We're thinking about the individual defense companies. But I suppose
Speaker 3: the bigger question for Europe, and I want to ask
Speaker 3: you because of your years of studying this industry, is
Speaker 3: whether or not Europe can fight a war with Russia,
Speaker 3: this whole idea around twenty thirty, whether that's too far away,
Speaker 3: whether it's going to be a traditional war, whether we're
Speaker 3: already in a war. I mean, there are a lot
Speaker 3: of questions about Europe versus Vlajimi Putins Russia.
Speaker 7: Yeah, I think that qualitatively European allies collectively have a
Speaker 7: big edge over Russia in almost every area, and you
Speaker 7: can kind of see in the way the war in
Speaker 7: Ukraine has gone for Russia that you know, they've had
Speaker 7: trouble making any headway against a much smaller and more
Speaker 7: poorly equipped adversary. How are they going to fare against
Speaker 7: the combined militaries of Europe, which have trained together for decades,
Speaker 7: which have top shelf equipment, which do have access to
Speaker 7: all these high end systems that Ukraine doesn't have. It's
Speaker 7: very difficult to picture that going well for Russia. I
Speaker 7: think the big issue for Europe then is not the
Speaker 7: amount of hardware or the quality of the hardware they have,
Speaker 7: but it's about mustering more people. You have to expand
Speaker 7: your militaries in order to operate rate all these new planes,
Speaker 7: in order to operate all the new armor and artillery
Speaker 7: systems that are being produced. You have to be able
Speaker 7: to fight a sustain war, which is something Russia has
Speaker 7: shown it's very good at, just by a sort of
Speaker 7: continually conscripting wave after wave of people to fight in
Speaker 7: the war in Ukraine. I think that's the biggest challenge
Speaker 7: for Europe. When you say getting Europe ready to fight
Speaker 7: a war for Russia. That's what it is. It's not
Speaker 7: getting more hardware, it's not building better stuff, it's just
Speaker 7: having the horses to be able to stay in the
Speaker 7: sustained fight with a very large country.
Speaker 3: Jerry Dowla, thank you so much for your time. That
Speaker 3: is Bloomberg's Global Defense editor, Jerry Doyle. We'll have full
Speaker 3: coverage and analysis of European defense earnings, including from Airbos
Speaker 3: and Leonardo with quarterly earnings to you on Wednesday, the
Speaker 3: twenty ninth of October right here on Bloomberg Radio. I'm
Speaker 3: Caroline Hepkeit in London. You can catch us every weekday
Speaker 3: morning for Bloomberg Daybreak here at beginning at six am
Speaker 3: in London. That's one. I am on Wall Street, Nathan.
Speaker 2: Thanks Caroline, and coming up on Bloomberg Daybreakkend, we'll look
Speaker 2: at some key conversations this week with South Korea's Finance
Speaker 2: Minister Ku Yung Chull and Australian Treasurer Jim Chalmers. I'm
Speaker 2: Nathan Hager, and this is Bloomberg. This is Bloomberg Daybreak Weekend,
Speaker 2: our global look ahead of the top stories for investors
Speaker 2: in the coming week. I'm Nathan Hager in Washington this week.
Speaker 2: Finance minister is from the Asia Pacific Economic Cooperation member
Speaker 2: economies gathered in South Korea to discuss a broad range
Speaker 2: of issues that includes the global economic outlook, fiscal policy,
Speaker 2: and structural reform. This is the last ministerial level meeting
Speaker 2: before the APEX summit in the coming week, and Bloomberg
Speaker 2: had the chance to speak with several top officials, including
Speaker 2: South Korea's Finance Minister Ku Jung Choll. He says the
Speaker 2: ongoing trade talks between South Korea and the US are
Speaker 2: focusing on the structure of a three hundred and fifty
Speaker 2: billion dollar investment pledge rather than accurrent c swap. Ku
Speaker 2: spoke exclusively with Bloomberg's Sharry On from the sidelines of
Speaker 2: the APEX Finance Minister's meeting. They started on the progress
Speaker 2: of negotiations.
Speaker 8: We understand that the US Investment Fund has been very
Speaker 8: difficult to agree on the details, and you've told Secretary
Speaker 8: Bestcent about the feasibility of having so much cash upfront.
Speaker 8: Should we be expecting installments in payments?
Speaker 2: Then to hangoan.
Speaker 9: Peasant has understood that due to the current state of
Speaker 9: Korea's foreign exchange market, we cannot pay upfront. He understands that. However,
Speaker 9: regarding how to proceed on this with negotiations currently underway
Speaker 9: with the US, I ask for your understanding that I
Speaker 9: cannot yet provide specific details on the plan.
Speaker 8: Bank of Korea Governor Eitanong said that the maximum amount
Speaker 8: that can be raised in dollars annually without market disruptions
Speaker 8: is twenty billion dollars. Looking at the round those figures
Speaker 8: right now.
Speaker 5: I tell you the miximum.
Speaker 9: Yes, the Bank of Korea currently estimates that the maximum
Speaker 9: amount we can raise without significantly impacting the foreign exchange
Speaker 9: market is twenty billion dollars.
Speaker 8: What does that mean for upfront payments though? Does that
Speaker 8: mean front loading some and then paying annually.
Speaker 9: Regarding that aspect, we are keeping various possibilities open for
Speaker 9: the foreign exchange market and are currently in negotiations with
Speaker 9: the United States.
Speaker 8: Yes, that's one of the options that you've talked to
Speaker 8: Secretary Bessent and to Washington about.
Speaker 9: I cannot confirm that at this time. However, Secretary Bessent
Speaker 9: fully understands the difficulties in Korea's FX market and is
Speaker 9: having internal discussions on how to respond to the situation.
Speaker 8: Because of the potential financial shocks to South Korea, there
Speaker 8: was a lot of time talk about a potential currency
Speaker 8: swap agreement. Is that still on the table?
Speaker 10: Swab on.
Speaker 9: Whether a currency swap is needed and to what extent
Speaker 9: will depend entirely on how the deal is structured. It
Speaker 9: may not be necessary at all, or it could be
Speaker 9: arranged on a smaller scale. Therefore, the currency swap itself
Speaker 9: is a necessary condition, not a sufficient one. So depending
Speaker 9: on how this deal turns out, we plan to consult
Speaker 9: with the US regarding the currency swap aspect as well.
Speaker 8: Tia Sabby.
Speaker 9: Even if we have a currency swap, it will be
Speaker 9: difficult to just blindly provide money to the US without
Speaker 9: considering the commercial rationality or viability of the project being selected.
Speaker 8: I'm understanding then that this option is still alive. If
Speaker 8: that's the case, when it comes to perhaps the structure,
Speaker 8: could it be something similar as to the Argentina style,
Speaker 8: going through the treasury instead of directly from the Fed
Speaker 8: to While I saw this on.
Speaker 9: The regarding the currency swap, we're not doing it because
Speaker 9: we lack short term foreign reserves like Argentina. It's a
Speaker 9: situation where Korea needs foreign currency to make long term
Speaker 9: investments as requested by the US, so the US must
Speaker 9: provide the lack of foreign currency. Therefore, it doesn't align
Speaker 9: with the conventional short term currency swap structure. So regarding
Speaker 9: that aspect, if we were to engage in a currency
Speaker 9: swap arrangement with the US, there are further points that
Speaker 9: require discussions.
Speaker 8: The South Korea one of fourteen hundred per dollar, is
Speaker 8: that the new normal? Do you think that reflects fundamentals
Speaker 8: to them?
Speaker 9: We believe much of the recent depreciation reflects market concern
Speaker 9: that the tariff negotiations haven't been finalized. So we are
Speaker 9: currently pursuing negotiations with the US with inter range that
Speaker 9: doesn't significantly impact Korea's foreign exchange market. Fortunately, US Treasury
Speaker 9: Secretary Besant is fully aware of the situation in Korea's
Speaker 9: foreign exchange market. Therefore, once the issue is resolved, that
Speaker 9: uncertainty will likely fade.
Speaker 8: We have seen clearly the impact on South Korean automakers
Speaker 8: because the tariffs continue to be, of course, much higher
Speaker 8: than for Japan for Europe, who already the US has
Speaker 8: lifted those levees. What can the government do at this
Speaker 8: point to support the sector?
Speaker 9: Ronan in the short term, the government is providing all
Speaker 9: possible policy support to automakers and auto parts companies facing
Speaker 9: difficulties due to these higher tariffs compared to the EU
Speaker 9: and Japan. We believe that if these negotiations yield some breakthrough,
Speaker 9: those issues could also be resolved.
Speaker 8: In these ongoing trade negotiations. Is the fact that South
Speaker 8: Korea would lose its advantage over say, Japan, before the
Speaker 8: trade deal, because Korea have a free trade agreement with
Speaker 8: the US, it had an advantage of around two point
Speaker 8: five percent. Is that being discussed at this point?
Speaker 9: I conveyed that point to President Trump and explained to
Speaker 9: Bessant and Lun. I explained that since Korea is an
Speaker 9: FTA partner, tariffs on Korea are already sufficiently low, but
Speaker 9: tariffs on other countries aren't sufficiently low, making it unfair.
Speaker 9: Even so, it seems the US isn't very willing to
Speaker 9: understand that aspect. In any case, we plan to continue
Speaker 9: explaining and persuading them.
Speaker 8: Because of the exuberance around the artificial intelligence, we are
Speaker 8: seeing South korea stock market on a tear. Are you
Speaker 8: concerned that this could be a market bubble?
Speaker 9: The current stock market reflects expectations for the Korean economy,
Speaker 9: such as enhancing shareholder value in the Korean capital market,
Speaker 9: expanding dividends or resolving unfair practices, expectations for the modernization
Speaker 9: of the Korean stockform. On top of these expectations, we
Speaker 9: are actively supporting the core technology economy to ensure a
Speaker 9: robust Korean economy that can be a global investment destination.
Speaker 2: That was South Korea Finance Minister Ku Yun Choll speaking
Speaker 2: with Bloomberg's s Sherry on staying at the APEX Finance
Speaker 2: Minister's meeting. We also got the chance to hear from
Speaker 2: Australian Treasurer Jim Chalmers. He spoke to Bloomberg's Hustlin to
Speaker 2: Ahmed after his country and the US signed a landmark
Speaker 2: deal to boost America's access to rare earth send other
Speaker 2: critical minerals as part of a push to kerb alliance
Speaker 2: on China's supply chains. They started by talking about what
Speaker 2: the agreement means for the Australian economy.
Speaker 10: Will you given any insurances that perhaps this won't just
Speaker 10: be America.
Speaker 11: Fast Prime Minister Albanezi had an outstanding meeting with President Trump.
Speaker 11: Were very very pleased with how the mating went and
Speaker 11: the critical minerals framework is really one of the most
Speaker 11: important bits of progress that we saw in those discussions.
Speaker 11: And what that's all about is about helping to ensure
Speaker 11: Australia becomes a world leader in the export of rare
Speaker 11: earths and critical minerals. It's all about making sure that
Speaker 11: we strengthen our trade ties with the US, that we
Speaker 11: strengthen supply chains, and that we make sure that this
Speaker 11: remarkable opportunity that Australia has with rare earths and critical
Speaker 11: minerals is properly maximized.
Speaker 10: So who long decide which projects are viable? Is the
Speaker 10: government choosing the winners here?
Speaker 11: Well, this industry already we think there are about thirteen
Speaker 11: billion dollars Australian of projects in the pipeline, a really
Speaker 11: extraordinary opportunity for Australia, a golden opportunity. And what the
Speaker 11: American administration and the Australian government have agreed is that
Speaker 11: each of us will invest a billion dollars over the
Speaker 11: next six months. You rightly said in your introduction in
Speaker 11: some of these really important projects. We believe Australia can
Speaker 11: be and will be a world leader and the supply
Speaker 11: of rare earths and critical minerals. The agreement and the
Speaker 11: framework that was agreed with President Trump is an important
Speaker 11: part of that effort. It's a golden opportunity for Australia
Speaker 11: and we intend to maximize it.
Speaker 10: The thing is, there is reason to think that could
Speaker 10: be competition between an American and Australian company and just
Speaker 10: wondering how will it be decided when it comes to that.
Speaker 10: For instance, if you have liners and AMPI materials at odds,
Speaker 10: how will you decide?
Speaker 11: Well, it's not beyond us for the commercial arrangements to
Speaker 11: reflect the scale of this opportunity and our obligations to
Speaker 11: each other under this framework. Obviously, rare earths and critical
Speaker 11: minerals have a number of important applications, including in defense
Speaker 11: and technology and in the industries that the US administration
Speaker 11: are very keen to work closely with Australia on to
Speaker 11: be a reliable supplier around the world. But this agreement
Speaker 11: with the US is about strengthening trade ties with the
Speaker 11: Trump administration and the US. More broadly, it's about making
Speaker 11: sure that those supply chains are robust and reliable. We
Speaker 11: will have markets all around the world for these critical
Speaker 11: minerals and that's a good thing. But the American relationship
Speaker 11: is very important to us, and today we strengthened it.
Speaker 10: When you think about these rare deal on the projects
Speaker 10: which are coming up, we know that Gina Reinhardt, for instance,
Speaker 10: has a finger in a lot of these pies, and
Speaker 10: some are raising the concern that perhaps taxpayers money would
Speaker 10: end up at one end of town, which is the
Speaker 10: richer end of town. I mean, how do you respond
Speaker 10: to such concerns?
Speaker 11: Oh, this critical minerals opportunity for Australia is a big
Speaker 11: opportunity for our workers, our local communities, for our businesses
Speaker 11: and our investors. And there's more than one investor or
Speaker 11: owner of critical minerals resources in Australia. But whether it's mining, refining,
Speaker 11: adding value processing, working with our international partners, we shouldn't
Speaker 11: see this as anything other than a massive opportunity for Australia.
Speaker 11: It's why we put so much effort into engaging, whether
Speaker 11: it be with the US administration, whether it be here
Speaker 11: in APEC, with the twenty one economies of our region.
Speaker 11: We recognize that Australia has got a lot to offer
Speaker 11: the world. We've got important relationships right around the region,
Speaker 11: and we intend to supply other economies with our critical
Speaker 11: minerals and rare earths in a way where the benefits
Speaker 11: in Australia are broadly shared, including amongst our world leading
Speaker 11: mining workforce.
Speaker 10: Do you think China overplayed its hand in imposing the
Speaker 10: cards on our supplies.
Speaker 11: I wouldn't engage in that sort of commentary. We engage
Speaker 11: with the Chinese administration in good faith and in Australia's
Speaker 11: national interest. We engage with all of our trading partners
Speaker 11: in that fashion. I'll leave the analysis to others. Our
Speaker 11: interest here is making sure that we play an important
Speaker 11: role in strengthening supply chains in this industry, whether it's
Speaker 11: in the United States or elsewhere. But our relationship with
Speaker 11: China is important to us in economic terms as well.
Speaker 11: We've put a lot of effort into stabilizing that relationship.
Speaker 11: The Chinese economy is not without its fair share of challenges,
Speaker 11: but we are confident that it will continue to be
Speaker 11: an important source of growth in our own economy in Australia,
Speaker 11: and we believe it's possible to engage with the Americans
Speaker 11: in the way that we have been and to continue
Speaker 11: to stabilize and invest in that very important China relationship.
Speaker 1: At the same time, that was.
Speaker 2: Jim Chalmers, Australia's treasure speaking with Bloomberg's Suslinda Amen at
Speaker 2: the APEX Finance ministers meeting in South Korea. And that
Speaker 2: does it for this edition of Bloomberg Daybreak Weekend. Join
Speaker 2: us again Monday morning at five am Wall Street Time
Speaker 2: for the latest don markets, overseas and the news you
Speaker 2: need to start your day. I'm Nathan Hager. Stay with us.
Speaker 2: Top stories and global business headlines are coming up right now.