1 00:00:00,240 --> 00:00:07,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:10,960 --> 00:00:13,920 Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the 3 00:00:13,920 --> 00:00:16,800 Speaker 2: top stories in the coming week from our Daybreak anchors 4 00:00:16,920 --> 00:00:19,479 Speaker 2: all around the world. Straight Ahead on the program, we 5 00:00:19,480 --> 00:00:22,720 Speaker 2: look ahead to earnings from IT Hardware, Giant Dell, and 6 00:00:22,880 --> 00:00:27,040 Speaker 2: retail ahead of the Thanksgiving holiday. I'm Nathan Hager in Washington. 7 00:00:27,440 --> 00:00:29,760 Speaker 3: I'm Carolin hepget here in London, where we're looking ahead 8 00:00:29,800 --> 00:00:32,640 Speaker 3: to be a case highly anticipated or too budget. 9 00:00:32,800 --> 00:00:36,960 Speaker 4: I'm det Prisner looking at why China's economy continues to struggle. 10 00:00:38,280 --> 00:00:42,320 Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 11 00:00:42,360 --> 00:00:46,040 Speaker 1: eleven three year, New York, Bloomberg ninety nine to one, Washington, DC, 12 00:00:46,560 --> 00:00:51,680 Speaker 1: Bloomberg ninety two nine Boston, DAB Digital Radio, London, Syrias 13 00:00:51,840 --> 00:00:55,360 Speaker 1: XM one one, and around the world on Bloomberg Radio, 14 00:00:55,440 --> 00:00:57,560 Speaker 1: dot Com and the Bloomberg Business app. 15 00:01:02,640 --> 00:01:05,400 Speaker 2: Good day to you. I'm Nathan Hager. We begin today's 16 00:01:05,400 --> 00:01:08,560 Speaker 2: program with more tech earnings. Yep, we're not quite done 17 00:01:08,600 --> 00:01:12,040 Speaker 2: with them just yet. Well here from IT Hardware Giant Dell. 18 00:01:12,360 --> 00:01:15,240 Speaker 2: It opens it's third quarter books after the market close 19 00:01:15,400 --> 00:01:18,760 Speaker 2: on Tuesday. Ahead of it We're joined by Wu jin Ho, 20 00:01:19,080 --> 00:01:23,160 Speaker 2: senior technology analyst for Bloomberg Intelligence. Great to speak with you, 21 00:01:23,360 --> 00:01:25,520 Speaker 2: and I guess we're sort of coming off the glow 22 00:01:25,680 --> 00:01:29,240 Speaker 2: of Nvidia's earnings this past week, Right, does the AI 23 00:01:29,360 --> 00:01:32,240 Speaker 2: chip giant inform how you're thinking about what we could 24 00:01:32,280 --> 00:01:33,520 Speaker 2: get from Dell this week? 25 00:01:34,200 --> 00:01:36,760 Speaker 5: Yeah, Hey, Nathan, thanks for having me on. You know, 26 00:01:36,920 --> 00:01:40,440 Speaker 5: the Nvidia results are actually quite positive for Dell's AI story. 27 00:01:41,760 --> 00:01:44,680 Speaker 5: You know, there's a twenty billion dollar sales outlook for 28 00:01:44,760 --> 00:01:48,800 Speaker 5: fiscal twenty six. There is maybe a little bit rooper 29 00:01:48,920 --> 00:01:52,000 Speaker 5: upside in the third quarter results and as well as 30 00:01:52,040 --> 00:01:56,720 Speaker 5: the fourth quarter outlook and the twenty five The fiscal 31 00:01:56,720 --> 00:02:00,240 Speaker 5: twenty five twenty seven outlook looks very promising as well, 32 00:02:00,280 --> 00:02:03,840 Speaker 5: given the momentum. Now, the issue is its profitability, Right, 33 00:02:04,240 --> 00:02:08,200 Speaker 5: the AI story AI service have not been the most 34 00:02:08,200 --> 00:02:12,160 Speaker 5: profitable for the industry. Dell has actually done a fairly 35 00:02:12,160 --> 00:02:13,760 Speaker 5: good job and we'll see where they are on the 36 00:02:13,760 --> 00:02:14,960 Speaker 5: profit margin side. 37 00:02:15,160 --> 00:02:18,400 Speaker 2: Well, does that tell you then that we could see 38 00:02:18,560 --> 00:02:22,000 Speaker 2: the AI data center business for Dell overshadow it's more 39 00:02:22,120 --> 00:02:24,000 Speaker 2: traditional PC business. 40 00:02:24,560 --> 00:02:26,679 Speaker 5: Well, look, that's going to be one of the data 41 00:02:26,720 --> 00:02:29,079 Speaker 5: points that investors are going to be pointing to there's 42 00:02:29,120 --> 00:02:32,400 Speaker 5: actually a lot of controversy on Dell heading into the print. 43 00:02:33,120 --> 00:02:37,960 Speaker 5: For the traditional businesses, memory pricing has come in focus. 44 00:02:39,080 --> 00:02:41,600 Speaker 5: You know, the DRAM chips that goes into your PCs 45 00:02:41,639 --> 00:02:44,760 Speaker 5: as well as the servers that's been up three hundred 46 00:02:44,800 --> 00:02:48,160 Speaker 5: percent over the last month or so, and that could 47 00:02:48,200 --> 00:02:52,000 Speaker 5: potentially not only affect margins in the near term, but 48 00:02:52,080 --> 00:02:57,079 Speaker 5: also the pricing dynamics. And given how elastic in elastic 49 00:02:57,160 --> 00:02:59,920 Speaker 5: that the PCs can be, that could affect the man. 50 00:03:00,480 --> 00:03:03,040 Speaker 2: Well, how could Dell potentially get past some of the 51 00:03:03,160 --> 00:03:06,919 Speaker 2: drag on its margins that you see from the AI servers. 52 00:03:07,600 --> 00:03:11,480 Speaker 5: Yeah, it's really tough to say. It's probably going to 53 00:03:11,520 --> 00:03:13,560 Speaker 5: be very, very tough. And they actually did a good 54 00:03:13,639 --> 00:03:18,320 Speaker 5: job out of their recent analyst day on keeping their 55 00:03:18,320 --> 00:03:23,240 Speaker 5: guidance on AI server margins low. They've guided to admit 56 00:03:23,320 --> 00:03:26,880 Speaker 5: the high single digit AI server margin, which is a 57 00:03:27,040 --> 00:03:31,359 Speaker 5: very sobering outlook and a realistic outlook. So if they 58 00:03:31,400 --> 00:03:35,400 Speaker 5: do a better job on the AI server side, on 59 00:03:35,480 --> 00:03:39,000 Speaker 5: the margin profitability side, there is room for upside, but 60 00:03:39,160 --> 00:03:43,600 Speaker 5: it's already baked into expectations. So I'm comforted by that now. 61 00:03:43,640 --> 00:03:45,960 Speaker 2: In your note leading up to these earnings. You say 62 00:03:46,000 --> 00:03:48,080 Speaker 2: you're looking for signs of improvement from Dell when it 63 00:03:48,120 --> 00:03:51,120 Speaker 2: comes to operational changes. Can you walk us through what 64 00:03:51,120 --> 00:03:51,920 Speaker 2: you're thinking there. 65 00:03:52,560 --> 00:03:56,400 Speaker 5: Yeah, absolutely so, a couple of things that Dell has 66 00:03:56,440 --> 00:03:59,640 Speaker 5: been doing over the past couple of quarters of streamlining 67 00:03:59,720 --> 00:04:06,840 Speaker 5: the operations, cutting costs, and they actually were on the 68 00:04:06,880 --> 00:04:10,800 Speaker 5: forefront on some of the cost actions in terms of 69 00:04:11,440 --> 00:04:15,800 Speaker 5: relative to the growing AI mix, And I do think 70 00:04:15,840 --> 00:04:20,000 Speaker 5: there's scope for Dell to maintain a high single digit 71 00:04:21,360 --> 00:04:25,840 Speaker 5: operating margin profile despite a growing AI mix. 72 00:04:26,320 --> 00:04:28,599 Speaker 2: Now, of course, a lot of people who follow this 73 00:04:28,680 --> 00:04:32,200 Speaker 2: company closely know that the federal government is a pretty 74 00:04:32,200 --> 00:04:35,839 Speaker 2: important customer for Dell. Of course we've had a government 75 00:04:35,960 --> 00:04:40,120 Speaker 2: shut down. Now that the government's back open, how could 76 00:04:40,120 --> 00:04:42,080 Speaker 2: that feed into the outlook for Dell? 77 00:04:42,920 --> 00:04:47,520 Speaker 5: Yeah, so, well, from from a results perspective, you know, 78 00:04:48,440 --> 00:04:50,320 Speaker 5: there might be a chance that it might be a 79 00:04:50,400 --> 00:04:53,919 Speaker 5: drag on earnings. Now, No, the outlook is going to 80 00:04:53,960 --> 00:04:58,240 Speaker 5: be a little iffy in the sense that it may 81 00:04:58,279 --> 00:05:01,479 Speaker 5: take a little bit, little bit or some time for 82 00:05:02,240 --> 00:05:06,240 Speaker 5: the federal government to really start ramping up their spending engine, 83 00:05:07,000 --> 00:05:11,839 Speaker 5: So there might be some headwind on the growth outlook. 84 00:05:12,080 --> 00:05:14,440 Speaker 5: But it's going to be just a temporary blip in 85 00:05:14,520 --> 00:05:18,400 Speaker 5: my mind, and should the focus will turn to fiscal 86 00:05:18,440 --> 00:05:20,200 Speaker 5: twenty twenty seven guidance thereafter. 87 00:05:20,800 --> 00:05:25,040 Speaker 2: And in terms of the AI business overall, does that 88 00:05:25,080 --> 00:05:28,400 Speaker 2: point to opportunities for Dell? Or is the competition just 89 00:05:28,400 --> 00:05:29,400 Speaker 2: too fierce out there? 90 00:05:30,440 --> 00:05:33,880 Speaker 5: No, you know, I will tell you all the AI 91 00:05:33,960 --> 00:05:38,160 Speaker 5: server vendors have been very aggressive in terms of winning 92 00:05:38,760 --> 00:05:45,200 Speaker 5: the footprint. Among the AI server vendors to have stood out, 93 00:05:46,240 --> 00:05:49,719 Speaker 5: super Micro and Dell being the other one. I do 94 00:05:49,760 --> 00:05:53,520 Speaker 5: think that of you know, of the hardware vendors are 95 00:05:53,640 --> 00:05:55,320 Speaker 5: that are out there, Dell is probably one of the 96 00:05:55,320 --> 00:05:59,720 Speaker 5: better position to win more global global footprint sales. And 97 00:06:00,279 --> 00:06:02,320 Speaker 5: you know, good back to you margin question that could 98 00:06:02,360 --> 00:06:05,560 Speaker 5: help the margins as other players decide to back out. 99 00:06:05,960 --> 00:06:08,760 Speaker 2: Appreciate this, Thank you so much. That is wou Jin Hoe, 100 00:06:08,880 --> 00:06:13,360 Speaker 2: Senior technology analyst for Bloomberg Intelligence. We move next to 101 00:06:13,520 --> 00:06:16,120 Speaker 2: the retail space. A couple names in that sector open 102 00:06:16,160 --> 00:06:18,760 Speaker 2: their books on Tuesday as well. That would be Cohle's 103 00:06:18,839 --> 00:06:22,640 Speaker 2: and Abercrombie and Fitch. We're also expecting overall retail sales 104 00:06:22,720 --> 00:06:24,479 Speaker 2: numbers that would have come out sooner if not for 105 00:06:24,520 --> 00:06:28,160 Speaker 2: the government shutdown September figures are due out Tuesday as well. 106 00:06:28,600 --> 00:06:32,960 Speaker 2: Busy times for Mary Ross Gilbert of Bloomberg Intelligence. She's 107 00:06:32,960 --> 00:06:35,880 Speaker 2: a senior equity analyst who covers retail. It is so 108 00:06:35,960 --> 00:06:38,200 Speaker 2: great to have you with us as well. Of course, 109 00:06:38,240 --> 00:06:41,679 Speaker 2: we've been hearing from so many of the retail giants lately. 110 00:06:41,760 --> 00:06:44,400 Speaker 2: We got target results that were kind of different from 111 00:06:44,560 --> 00:06:47,719 Speaker 2: Walmart's results. What does that tell us about what we 112 00:06:47,760 --> 00:06:51,799 Speaker 2: could be getting this week? Mary, So, Nathan, it's. 113 00:06:51,600 --> 00:06:53,920 Speaker 6: A great question, and I think what we're going to 114 00:06:53,960 --> 00:06:57,839 Speaker 6: see come Tuesday, I think Abercrombie actually could have a 115 00:06:57,920 --> 00:07:00,640 Speaker 6: miss and it's really going to be on their gamesake, 116 00:07:01,120 --> 00:07:03,200 Speaker 6: and we might have you know, and this is based 117 00:07:03,240 --> 00:07:07,600 Speaker 6: on Bloomberg Second Measure transaction data. We might have less 118 00:07:07,640 --> 00:07:10,120 Speaker 6: of an increase on the Hollerster side of the brand, 119 00:07:10,560 --> 00:07:14,160 Speaker 6: so that could also impact their results. But with regard 120 00:07:14,240 --> 00:07:18,200 Speaker 6: to Coals, Coals, we think they probably need expectations. They're 121 00:07:18,240 --> 00:07:21,040 Speaker 6: looking for a like a round of four or five 122 00:07:21,080 --> 00:07:23,640 Speaker 6: percent decline in sales because they're still trying to get 123 00:07:23,640 --> 00:07:26,760 Speaker 6: their assortments right. And then of course operating margin is 124 00:07:26,840 --> 00:07:29,360 Speaker 6: expected to drop and it's pretty low as it is. 125 00:07:29,400 --> 00:07:32,440 Speaker 6: It's already in the low single digits, so you know, 126 00:07:32,760 --> 00:07:37,200 Speaker 6: Coals really has a lot of a lot to get right, 127 00:07:37,680 --> 00:07:39,960 Speaker 6: and that's going to be a big focus how they're 128 00:07:40,000 --> 00:07:43,600 Speaker 6: positioned for holiday and where their comp sales are on 129 00:07:43,640 --> 00:07:46,560 Speaker 6: a monthly basis, because we did see in July that 130 00:07:46,600 --> 00:07:49,360 Speaker 6: they were flat, so there was encouragement that maybe those 131 00:07:49,400 --> 00:07:52,600 Speaker 6: sales could improve with the third quarter. So we'll see 132 00:07:52,640 --> 00:07:55,160 Speaker 6: that when they go to report on Tuesday. 133 00:07:55,680 --> 00:07:57,720 Speaker 2: Let's hone in a little bit more on Coals because 134 00:07:57,720 --> 00:08:00,120 Speaker 2: this is one of those kind of departments store or 135 00:08:00,240 --> 00:08:03,640 Speaker 2: is that sort of feeds to all ends of the 136 00:08:03,680 --> 00:08:07,880 Speaker 2: retail spectrum, doesn't it whether you're a value conscious consumer 137 00:08:08,000 --> 00:08:10,200 Speaker 2: or someone who's more willing to spend on the high end. 138 00:08:12,000 --> 00:08:16,280 Speaker 6: Yeah, they do. They really skewed to the lower end consumer, 139 00:08:16,400 --> 00:08:19,320 Speaker 6: you know, really on the value segment, as you pointed out, 140 00:08:19,680 --> 00:08:22,360 Speaker 6: And one of the merchandising mistakes that they made last 141 00:08:22,440 --> 00:08:25,080 Speaker 6: year is that they really they cut back on private 142 00:08:25,160 --> 00:08:29,440 Speaker 6: label and that was really a good category for them. 143 00:08:29,720 --> 00:08:33,160 Speaker 6: The brands that they have, the private brands like so Sonoma, 144 00:08:35,240 --> 00:08:38,680 Speaker 6: really resonate with their customers and so bringing those back, 145 00:08:38,720 --> 00:08:41,160 Speaker 6: they've already started to see a boost in their sales 146 00:08:41,200 --> 00:08:43,480 Speaker 6: because of that. The other thing they did was they 147 00:08:43,520 --> 00:08:47,320 Speaker 6: got rid of or honed back on petite sizing, and 148 00:08:47,360 --> 00:08:51,400 Speaker 6: that was another very very important category for them having 149 00:08:51,480 --> 00:08:55,319 Speaker 6: that exercising, So bringing all that back, they're already seeing 150 00:08:55,360 --> 00:08:58,959 Speaker 6: a lift and it's also higher margins, so that's also 151 00:08:59,280 --> 00:09:01,800 Speaker 6: helping them on the margin side. So we haven't seen 152 00:09:02,160 --> 00:09:05,200 Speaker 6: the erosion that we thought we would with tariffs, so 153 00:09:05,240 --> 00:09:08,480 Speaker 6: they've really made no comments on tariffs having an impact. 154 00:09:08,760 --> 00:09:11,240 Speaker 6: So that's going to be, you know, a big focus. 155 00:09:11,280 --> 00:09:13,440 Speaker 6: But really, you know, Macy's is going to come in 156 00:09:13,480 --> 00:09:15,680 Speaker 6: the following week and we think we're going to see 157 00:09:15,679 --> 00:09:20,320 Speaker 6: better trends there because we think their strategy going in 158 00:09:20,400 --> 00:09:24,760 Speaker 6: and bringing back service of bringing in more relevant brands 159 00:09:25,600 --> 00:09:28,319 Speaker 6: is really starting to show some traction there. And we 160 00:09:28,720 --> 00:09:33,679 Speaker 6: should see potentially positive comp sales come out of Macy's 161 00:09:33,679 --> 00:09:36,400 Speaker 6: for the go forward business, because that's really the focus there. 162 00:09:36,800 --> 00:09:41,880 Speaker 6: Dillard's already reported and they came in with a very 163 00:09:41,960 --> 00:09:45,160 Speaker 6: nice three percent increase in comp sales, So a good 164 00:09:45,240 --> 00:09:46,960 Speaker 6: sign for department stores. 165 00:09:47,559 --> 00:09:50,079 Speaker 2: And there are probably some investors who have memories of 166 00:09:50,200 --> 00:09:55,240 Speaker 2: the scandal surrounding the previous CEO of Coles. Has the 167 00:09:55,320 --> 00:09:56,960 Speaker 2: department store gotten past that. 168 00:09:58,920 --> 00:10:02,800 Speaker 6: I think they have real The current interim CEO that 169 00:10:02,840 --> 00:10:06,079 Speaker 6: they have seems to be doing a really good job 170 00:10:06,400 --> 00:10:10,439 Speaker 6: very quickly getting things back into the store that matter. 171 00:10:10,520 --> 00:10:13,000 Speaker 6: For example, they're going to have fine jewelry and over 172 00:10:13,120 --> 00:10:15,959 Speaker 6: twenty five percent of the stores. I mean, yeah, they 173 00:10:16,000 --> 00:10:18,440 Speaker 6: need to have it in the vast majority of the 174 00:10:18,440 --> 00:10:21,640 Speaker 6: stores for the holiday season. But it's a big improvement 175 00:10:21,760 --> 00:10:24,840 Speaker 6: from when they brought in so fora and they did 176 00:10:24,840 --> 00:10:27,360 Speaker 6: it as a replacement of jewelry, not something you can 177 00:10:27,440 --> 00:10:31,400 Speaker 6: really do because that's a key gifting category for consumers 178 00:10:31,480 --> 00:10:35,720 Speaker 6: during the holidays and other key gifting seasons. So he's 179 00:10:36,160 --> 00:10:41,560 Speaker 6: making some decisions very quickly that are showing green shoots 180 00:10:41,600 --> 00:10:46,040 Speaker 6: of improvement there, and I think that is encouraging for Cohle's. 181 00:10:46,160 --> 00:10:47,880 Speaker 2: And let's turn in the time we have left to 182 00:10:48,120 --> 00:10:51,400 Speaker 2: Abercrombie and Fitch. You mentioned some of the challenges that 183 00:10:51,640 --> 00:10:54,520 Speaker 2: some of its specific brands could be facing. Talk us 184 00:10:54,559 --> 00:10:56,600 Speaker 2: a little bit more through that and how name brand 185 00:10:56,600 --> 00:11:00,480 Speaker 2: apparel is faring overall in this current economic environment. 186 00:11:02,400 --> 00:11:05,680 Speaker 6: Yeah, so, Nathan, Actually, overall, I would say apparel overall 187 00:11:06,080 --> 00:11:09,640 Speaker 6: looks to be very strong, especially for those that are 188 00:11:09,679 --> 00:11:12,320 Speaker 6: executing and if you look on let's say the off 189 00:11:12,360 --> 00:11:16,480 Speaker 6: price because we had TJX report and they had great numbers, 190 00:11:16,920 --> 00:11:19,400 Speaker 6: So that just goes to show you they're carrying all 191 00:11:19,440 --> 00:11:22,640 Speaker 6: the name brands and the consumers love it, so they're 192 00:11:22,640 --> 00:11:27,439 Speaker 6: flocking to off price. But going back to Abercrombie, Abercrombie, 193 00:11:27,600 --> 00:11:31,920 Speaker 6: the namesake brand, has posted four years of double digit 194 00:11:32,040 --> 00:11:35,840 Speaker 6: comp sales increases, so we're now cycling those four years 195 00:11:36,280 --> 00:11:39,280 Speaker 6: and thus why their sales are coming in lower year 196 00:11:39,320 --> 00:11:42,120 Speaker 6: over year on a comp sales basis. So it's really 197 00:11:42,240 --> 00:11:46,640 Speaker 6: hard to keep bringing in more newness, more excitement to 198 00:11:46,760 --> 00:11:49,760 Speaker 6: keep that going. And their core customer there are really 199 00:11:49,800 --> 00:11:54,520 Speaker 6: the millennials. Their Hollister brand has really shows that that's 200 00:11:54,600 --> 00:11:58,760 Speaker 6: still performing well. Now is it performing as good as 201 00:11:58,760 --> 00:12:02,560 Speaker 6: analysts expect based on the data, We're not so sure, 202 00:12:02,800 --> 00:12:04,920 Speaker 6: but that's something we're going to look for next Tuesday 203 00:12:04,920 --> 00:12:08,040 Speaker 6: when they go to report their results. And Hollister really 204 00:12:08,080 --> 00:12:12,360 Speaker 6: caters to the gen Z customer, and that customer, by 205 00:12:12,360 --> 00:12:15,200 Speaker 6: the way, loves to shop in store. Seventy percent of 206 00:12:15,240 --> 00:12:19,960 Speaker 6: their sales are generated in store, and Abercrombie sixty percent 207 00:12:20,000 --> 00:12:21,360 Speaker 6: are generated online. 208 00:12:21,720 --> 00:12:24,360 Speaker 2: Lots to think about in the retail space. Thank you 209 00:12:24,400 --> 00:12:27,480 Speaker 2: for this, Mary really appreciate it. That's Mary Ross Gilbert, 210 00:12:27,520 --> 00:12:31,720 Speaker 2: senior equity analyst covering retail for Bloomberg Intelligence, and coming 211 00:12:31,800 --> 00:12:34,240 Speaker 2: up on Bloomberg day Break weekend, we'll look ahead to 212 00:12:34,400 --> 00:12:39,079 Speaker 2: the UK's highly anticipated autumn budget. I'm Nathan Hager, and 213 00:12:39,200 --> 00:12:53,000 Speaker 2: this is Bloomberg. This is Bloomberg day Break weekend, our 214 00:12:53,040 --> 00:12:55,680 Speaker 2: global look ahead, the top stories for investors in the 215 00:12:55,679 --> 00:12:58,600 Speaker 2: coming week. I'm Nathan Hager in Washington. Up later in 216 00:12:58,640 --> 00:13:01,320 Speaker 2: our program, we'll look ahead to key economic data from 217 00:13:01,360 --> 00:13:04,640 Speaker 2: the world's second largest economy. But first, in a few 218 00:13:04,720 --> 00:13:08,439 Speaker 2: days time, UK Chancellor Rachel Reeves will deliver an autumn 219 00:13:08,440 --> 00:13:11,240 Speaker 2: budget which she helps to lessen the debt burden plaguing 220 00:13:11,320 --> 00:13:14,480 Speaker 2: the country's finances. The announcements become one of the most 221 00:13:14,480 --> 00:13:18,040 Speaker 2: hotly debated fiscal events of the year among investors, economists, 222 00:13:18,080 --> 00:13:21,319 Speaker 2: and business leaders. But will Reeves be able to balance 223 00:13:21,400 --> 00:13:25,240 Speaker 2: party politics and prudence for more, Let's go to London 224 00:13:25,320 --> 00:13:28,560 Speaker 2: and bring in Bloomberg Daybreak. You're a banker, Caroline Hepger. 225 00:13:28,679 --> 00:13:32,360 Speaker 3: Nathan, The Labour government has endured a volatile period of 226 00:13:32,400 --> 00:13:36,360 Speaker 3: pre budget u turns and a political crisis in recent weeks, 227 00:13:36,520 --> 00:13:40,520 Speaker 3: yet one constant has been the Chancellor's indication that she 228 00:13:40,600 --> 00:13:43,959 Speaker 3: plans to give herself more breathing space against her own 229 00:13:44,040 --> 00:13:48,080 Speaker 3: fiscal rules. However, with an income tax hike appearing to 230 00:13:48,160 --> 00:13:52,960 Speaker 3: be dropped and Reeves favoring multiple smaller tax increases instead, 231 00:13:53,320 --> 00:13:56,840 Speaker 3: investors and economists are skeptical about how she can make 232 00:13:56,880 --> 00:14:00,600 Speaker 3: the numbers out up now. Trade is embracing for volatility 233 00:14:00,679 --> 00:14:03,080 Speaker 3: as the deadline to share her economic plans for the 234 00:14:03,120 --> 00:14:07,160 Speaker 3: country looms large. The cost of one week options, which 235 00:14:07,200 --> 00:14:11,480 Speaker 3: now spans the upcoming fiscal event, have climbed to multi 236 00:14:11,480 --> 00:14:15,440 Speaker 3: month highs for major sterling pairs. This in recent days 237 00:14:15,600 --> 00:14:19,480 Speaker 3: as traders pay to protect themselves against potential swings in 238 00:14:19,640 --> 00:14:23,680 Speaker 3: the pound. According to Bloomberg strategists, the waters have also 239 00:14:23,760 --> 00:14:26,560 Speaker 3: been muddied ahead of the announcement. There are worries that 240 00:14:26,600 --> 00:14:30,000 Speaker 3: the government could wrong foot the markets. Reeves's bid to 241 00:14:30,160 --> 00:14:33,320 Speaker 3: increase the fiscal headroom comes against the backdrop of a 242 00:14:33,440 --> 00:14:37,560 Speaker 3: significant deterioration in the public finances since her last economic 243 00:14:37,600 --> 00:14:40,880 Speaker 3: statement back in the spring. She left herself a slim 244 00:14:41,000 --> 00:14:45,520 Speaker 3: nine point nine billion pound margin against her spending rules, 245 00:14:45,800 --> 00:14:49,840 Speaker 3: a buffer near historic lows now. The latest forecast from 246 00:14:49,880 --> 00:14:53,400 Speaker 3: the Office for Budget Responsibility showed that her position has 247 00:14:53,440 --> 00:14:57,480 Speaker 3: worsened by about twenty billion pounds since then, driven lower 248 00:14:57,520 --> 00:15:01,880 Speaker 3: by a productivity downgrade those policy u turns. I mentioned. 249 00:15:02,720 --> 00:15:05,000 Speaker 3: That's as the foots you one hundred had its worst 250 00:15:05,000 --> 00:15:07,680 Speaker 3: one since August in the lead up to the budget 251 00:15:07,760 --> 00:15:11,400 Speaker 3: amidst worries about AI being a bubble and signs of 252 00:15:11,520 --> 00:15:15,160 Speaker 3: corporate pain. With the somewhat erratic data in the UK 253 00:15:15,560 --> 00:15:20,560 Speaker 3: showing unemployment rising, it all does raise the bar for 254 00:15:20,600 --> 00:15:25,160 Speaker 3: the Chancellor as she tries to navigate Britain's finances without 255 00:15:25,200 --> 00:15:31,320 Speaker 3: spooking investors or exacerbating the flight of global capital. Camickshire Trevedi, 256 00:15:31,480 --> 00:15:35,680 Speaker 3: chief FX and Emerging Market Statues at Goldman Sachs, tells 257 00:15:35,720 --> 00:15:38,560 Speaker 3: me there are a number of factors at play. 258 00:15:39,200 --> 00:15:42,560 Speaker 7: Look, I think it's a really interesting juncture for the UK. 259 00:15:42,800 --> 00:15:46,320 Speaker 7: I think the inflation released, the fact that it has start, 260 00:15:46,480 --> 00:15:49,360 Speaker 7: you know, come down, alongside some of the weaker labor 261 00:15:49,440 --> 00:15:53,200 Speaker 7: market data that you had in the last couple of weeks, 262 00:15:53,200 --> 00:15:55,960 Speaker 7: I think those are important. I mean, there's obviously been 263 00:15:56,000 --> 00:15:58,440 Speaker 7: a lot of back and forth, a lot of uncertainty 264 00:15:58,520 --> 00:16:00,880 Speaker 7: around you know, exactly what he is and isn't going 265 00:16:00,920 --> 00:16:03,520 Speaker 7: to be in the budget. I mean, if you take 266 00:16:03,560 --> 00:16:06,120 Speaker 7: a step back and think about it from a macro standpoint, 267 00:16:06,320 --> 00:16:09,760 Speaker 7: irrespective the exact tax and spending decisions that they make, 268 00:16:10,200 --> 00:16:11,880 Speaker 7: it looks like this is going to be a budget 269 00:16:11,920 --> 00:16:14,200 Speaker 7: that is going to be fiscally conservative. 270 00:16:14,880 --> 00:16:19,000 Speaker 3: Camik Shire Trevedi, Chief FX and Emerging Market Strategists at 271 00:16:19,040 --> 00:16:22,120 Speaker 3: Goldman Sachs speaking there to me and Stephen Coat on 272 00:16:22,120 --> 00:16:23,040 Speaker 3: Bloomberg Radio. 273 00:16:23,760 --> 00:16:23,960 Speaker 5: Well. 274 00:16:24,000 --> 00:16:27,680 Speaker 3: Also part of the equation are the political pressures facing 275 00:16:27,720 --> 00:16:31,120 Speaker 3: the Chancellor, who is attempting to unite what seems like 276 00:16:31,160 --> 00:16:36,720 Speaker 3: a fragmented parliamentary Labor Party. The delicate balance between investors, 277 00:16:37,080 --> 00:16:41,000 Speaker 3: voters and MPs is something I've been discussing with Bloomberg's 278 00:16:41,080 --> 00:16:45,480 Speaker 3: Chief UK economist Dan Hanson and our UK politics reporter 279 00:16:45,840 --> 00:16:48,880 Speaker 3: Joe Mays. Dan, can I start with you just on 280 00:16:48,920 --> 00:16:51,680 Speaker 3: the economics. Firstly, there's been some back and forth about 281 00:16:51,720 --> 00:16:54,840 Speaker 3: just how big of a fiscal whole Rachel Reeves is facing. 282 00:16:54,880 --> 00:16:56,920 Speaker 3: Can you just give us an update on the latest 283 00:16:57,360 --> 00:17:00,720 Speaker 3: expectations from the Office of Budget Response Stability and what 284 00:17:00,760 --> 00:17:01,360 Speaker 3: that means. 285 00:17:02,320 --> 00:17:04,760 Speaker 8: Sort of reading between the lines of everything we've heard 286 00:17:04,920 --> 00:17:09,919 Speaker 8: and particularly from our Bloomberg News colleagues, the number seems 287 00:17:09,920 --> 00:17:14,240 Speaker 8: to be around twenty billion pounds. The fiscal slippage, now, 288 00:17:14,400 --> 00:17:16,840 Speaker 8: that's made up of quite a few things, and actually 289 00:17:16,920 --> 00:17:19,800 Speaker 8: quite a few offsetting things. The biggest reason for the 290 00:17:19,840 --> 00:17:23,440 Speaker 8: whole is that the OBR, which is the UK's fiscal watchdog, 291 00:17:23,680 --> 00:17:26,560 Speaker 8: is going to reappraise how quickly it thinks the economy 292 00:17:26,920 --> 00:17:29,880 Speaker 8: can grow in the medium term, in particular how quickly 293 00:17:30,600 --> 00:17:34,080 Speaker 8: productivity in the UK economy is likely to rise over 294 00:17:34,119 --> 00:17:37,639 Speaker 8: the next five years. That is the single biggest factor 295 00:17:37,720 --> 00:17:41,720 Speaker 8: determining the fiscal forecast, the path of productivity growth. So 296 00:17:41,760 --> 00:17:44,800 Speaker 8: if you change that, you play around with the numbers 297 00:17:44,880 --> 00:17:48,520 Speaker 8: quite significantly, and we think that could blow a twenty 298 00:17:48,560 --> 00:17:52,520 Speaker 8: billion pound hole in of itself. In the public finances, 299 00:17:52,920 --> 00:17:55,320 Speaker 8: interest rates are a little bit higher, there have been 300 00:17:55,359 --> 00:17:58,120 Speaker 8: some policy u turns that probably adds another ten billions. 301 00:17:58,160 --> 00:18:01,119 Speaker 8: That gets you to thirty. The reason why you then 302 00:18:01,160 --> 00:18:04,480 Speaker 8: come back to twenty is that the OBER looks like 303 00:18:04,520 --> 00:18:07,080 Speaker 8: it will also take a look at its wage growth forecast, 304 00:18:07,160 --> 00:18:11,639 Speaker 8: which is quite low compared to other forecasters, and obviously 305 00:18:11,680 --> 00:18:13,879 Speaker 8: that gets some money back for the Chancellor. So I 306 00:18:13,920 --> 00:18:17,080 Speaker 8: think a reasonable expectation is something in the region of 307 00:18:17,440 --> 00:18:18,640 Speaker 8: twenty billion pounds. 308 00:18:18,800 --> 00:18:22,000 Speaker 3: So that's the economics. What about the politics. We've heard 309 00:18:22,040 --> 00:18:25,440 Speaker 3: a lot about the political pressure facing the Chancellor as 310 00:18:25,480 --> 00:18:29,040 Speaker 3: she's preparing for the budget statement. Where is it coming from? 311 00:18:29,119 --> 00:18:32,600 Speaker 9: Joe Well, I think the political pressure is really around 312 00:18:32,600 --> 00:18:36,120 Speaker 9: this question of can Reeves afford to do a budget 313 00:18:36,160 --> 00:18:39,640 Speaker 9: that really annoys labor, MPs and the public, And that 314 00:18:39,800 --> 00:18:42,680 Speaker 9: really is what she is in line to do because 315 00:18:42,680 --> 00:18:45,960 Speaker 9: she has to increase taxes, have spending restraints to fill 316 00:18:46,040 --> 00:18:49,399 Speaker 9: the fiscal hole that Dan just described. And really the 317 00:18:49,480 --> 00:18:52,520 Speaker 9: question of this budget has been for me, how aggressively 318 00:18:52,680 --> 00:18:55,480 Speaker 9: can she fill that hole with things like tax increases, 319 00:18:55,840 --> 00:18:59,480 Speaker 9: How large can she build her fiscal buffer to give 320 00:18:59,520 --> 00:19:02,120 Speaker 9: her reading space for the rest of the Parliament. Now, 321 00:19:02,200 --> 00:19:05,160 Speaker 9: my sense from the Treasury, you know, about a month ago, 322 00:19:05,280 --> 00:19:06,960 Speaker 9: was that she was willing to go quite aggressive. She 323 00:19:07,040 --> 00:19:09,639 Speaker 9: was really willing to build that fiscal headroom up perhaps 324 00:19:09,680 --> 00:19:13,560 Speaker 9: up to twenty pounds twenty five and really impressed markets, 325 00:19:13,680 --> 00:19:16,240 Speaker 9: show markets that she was a very strong, stable chancellor 326 00:19:16,359 --> 00:19:18,919 Speaker 9: and she hoped she'd be rewarded with lower borrowing costs 327 00:19:19,000 --> 00:19:20,520 Speaker 9: and that would help her for the rest of the Parliament. 328 00:19:20,600 --> 00:19:22,560 Speaker 9: Then we saw this change in the last few weeks 329 00:19:22,560 --> 00:19:26,440 Speaker 9: where it seemed like, especially with the briefing against where's 330 00:19:26,440 --> 00:19:29,000 Speaker 9: streeting from number ten and how that immediately shone a 331 00:19:29,119 --> 00:19:32,159 Speaker 9: light on the leadership of kir Starmer and raised questions 332 00:19:32,200 --> 00:19:34,680 Speaker 9: about how stable he is, which in turn raises the 333 00:19:34,720 --> 00:19:35,680 Speaker 9: question about how stable. 334 00:19:35,520 --> 00:19:36,119 Speaker 7: Rachel Reeves is. 335 00:19:36,359 --> 00:19:38,919 Speaker 9: It's such a partnership there that it seems like what 336 00:19:38,960 --> 00:19:41,679 Speaker 9: happened was they've realized they couldn't go so aggressive with 337 00:19:41,720 --> 00:19:45,960 Speaker 9: the tax increases, especially touching the manifesto promises around income tax, 338 00:19:46,080 --> 00:19:49,639 Speaker 9: notsh insurance VAT. So they've rolled it back to a 339 00:19:49,640 --> 00:19:53,080 Speaker 9: certain extent to ward off some of that threat from 340 00:19:53,200 --> 00:19:56,600 Speaker 9: labor MPs. And that's why we've got this new position 341 00:19:56,640 --> 00:19:59,040 Speaker 9: where it looks like the manifesto won't necessarily broken. She 342 00:19:59,119 --> 00:20:01,359 Speaker 9: will still try and you know, restore her fiscal buffer, 343 00:20:01,359 --> 00:20:03,000 Speaker 9: perhaps increase it a little bit, but I don't think 344 00:20:03,040 --> 00:20:05,400 Speaker 9: as much as she might have done before that whole. 345 00:20:05,200 --> 00:20:09,520 Speaker 3: Episode Dan do her plans add up though without major 346 00:20:10,119 --> 00:20:14,520 Speaker 3: tax hikes increases to the headline rate of income tax. 347 00:20:15,600 --> 00:20:18,359 Speaker 8: What was quite strange about what was being briefed is 348 00:20:18,400 --> 00:20:20,159 Speaker 8: that they were going to do this too up two 349 00:20:20,240 --> 00:20:23,199 Speaker 8: down policy where they'd raise income tax by two p 350 00:20:23,359 --> 00:20:26,240 Speaker 8: but cut national insurance by two p And it seemed 351 00:20:26,240 --> 00:20:28,720 Speaker 8: to me that if you're going to break the manifesto, 352 00:20:29,040 --> 00:20:31,760 Speaker 8: you might as well break it big time and really 353 00:20:31,840 --> 00:20:34,000 Speaker 8: raise some money, because six billion pounds is not a 354 00:20:34,040 --> 00:20:37,239 Speaker 8: lot of money to raise. So it seemed like, I 355 00:20:37,320 --> 00:20:39,720 Speaker 8: understand it was sort of there was an attempt to 356 00:20:39,760 --> 00:20:42,880 Speaker 8: sort of go through that muddy path of not upsetting 357 00:20:42,920 --> 00:20:45,880 Speaker 8: labor MPs too much, but it seems like the big 358 00:20:45,920 --> 00:20:49,639 Speaker 8: revenue raisers are off the table, and that does make 359 00:20:49,680 --> 00:20:51,719 Speaker 8: it a lot harder to raise the money. You know, 360 00:20:51,760 --> 00:20:53,479 Speaker 8: you can look at it now and say, well, if 361 00:20:53,520 --> 00:20:56,000 Speaker 8: I put capital gains tax, I put that up by 362 00:20:56,080 --> 00:21:00,200 Speaker 8: one percentage point. You know that currently raises X, Well 363 00:21:00,280 --> 00:21:01,960 Speaker 8: I could get a little bit more money. But what 364 00:21:02,040 --> 00:21:04,120 Speaker 8: actually happens is that people look at that and move 365 00:21:04,200 --> 00:21:08,040 Speaker 8: their money elsewhere. And the tax base is very mobile. 366 00:21:08,440 --> 00:21:10,040 Speaker 8: So if you have a lot of small measures with 367 00:21:10,119 --> 00:21:12,280 Speaker 8: that risk attached, you end up in a world where 368 00:21:12,320 --> 00:21:15,560 Speaker 8: you struggle to raise you potentially, I should say struggle 369 00:21:15,600 --> 00:21:18,000 Speaker 8: to raise the money. There's just a lot more uncertainty. 370 00:21:18,200 --> 00:21:20,399 Speaker 8: You know, there's a sort of backloaded in sort of 371 00:21:20,400 --> 00:21:24,040 Speaker 8: the parlance, the backloaded element to it, which isn't what 372 00:21:24,080 --> 00:21:26,520 Speaker 8: market's like to see. They're not like an upfront down 373 00:21:26,520 --> 00:21:29,119 Speaker 8: payment when it comes to fiscal when it comes to 374 00:21:29,119 --> 00:21:30,000 Speaker 8: a fiscal adjustment. 375 00:21:30,560 --> 00:21:36,680 Speaker 3: Yeah. Absolutely. In terms of the pre announcement that you mentioned, 376 00:21:36,720 --> 00:21:40,000 Speaker 3: the big speech which laid out her economic thesis a 377 00:21:40,040 --> 00:21:43,320 Speaker 3: couple of weeks ago, did that do more harm than good? 378 00:21:44,240 --> 00:21:47,879 Speaker 9: I think the immediate harm we've seen is that it 379 00:21:47,960 --> 00:21:52,160 Speaker 9: has created a sense of chaos and loss of control 380 00:21:52,280 --> 00:21:55,879 Speaker 9: around narrative for this budget, because you've had Reeves clearly 381 00:21:56,000 --> 00:21:59,240 Speaker 9: preparing the country for one thing and then moving away 382 00:21:59,280 --> 00:22:01,560 Speaker 9: from that in the you know, the last couple of weeks, 383 00:22:01,600 --> 00:22:04,960 Speaker 9: and that does give an air of lack of control 384 00:22:05,080 --> 00:22:09,840 Speaker 9: and wayward government, and that is clearly harmful. But I 385 00:22:09,840 --> 00:22:12,399 Speaker 9: think that the kind of counterbalancing point is that she 386 00:22:12,520 --> 00:22:15,919 Speaker 9: did nevertheless prepare in the minds of voters the idea 387 00:22:15,920 --> 00:22:18,919 Speaker 9: that the Manifesto could be broken, and now it's like 388 00:22:18,960 --> 00:22:21,679 Speaker 9: we're heading for a budget where it isn't broken. And 389 00:22:21,760 --> 00:22:25,199 Speaker 9: so you can see why the ultimate outcome is a 390 00:22:25,440 --> 00:22:28,200 Speaker 9: kind of net positive for Reeves in that she can 391 00:22:28,280 --> 00:22:31,800 Speaker 9: say I haven't broken the manifesto and we still have 392 00:22:31,840 --> 00:22:35,040 Speaker 9: stable public finances because everything I've announced and we've kept 393 00:22:35,040 --> 00:22:38,200 Speaker 9: our promises. So I think ultimately it's landed in a 394 00:22:38,240 --> 00:22:41,440 Speaker 9: place that isn't awful for Reeves. And you can see 395 00:22:41,440 --> 00:22:44,480 Speaker 9: why she did it in that they know the OBR 396 00:22:44,560 --> 00:22:50,280 Speaker 9: productivity downgrade that Dan just described is very hard to explain, 397 00:22:50,720 --> 00:22:53,960 Speaker 9: and if Reeves hadn't done that, it would have been 398 00:22:54,000 --> 00:22:56,520 Speaker 9: lost pretty much entirely on budget day and in the 399 00:22:56,520 --> 00:22:59,280 Speaker 9: post budget coverage, where all of the newspaper headlines would 400 00:22:59,280 --> 00:23:01,320 Speaker 9: have been about the taxing increases. So I think Reas 401 00:23:01,359 --> 00:23:05,040 Speaker 9: wanted to get out there first and make a case 402 00:23:05,560 --> 00:23:08,159 Speaker 9: in a moment where the public were focusing on that 403 00:23:08,560 --> 00:23:09,639 Speaker 9: rather than the tax rises. 404 00:23:10,480 --> 00:23:13,280 Speaker 3: Dan, just if we look forward to the next few days, 405 00:23:13,400 --> 00:23:16,720 Speaker 3: is there a particular announcement which could spook markets or 406 00:23:16,760 --> 00:23:19,400 Speaker 3: which would spook markets the most. 407 00:23:21,280 --> 00:23:25,120 Speaker 8: I mean that's hard to any particular one. It's hard 408 00:23:25,119 --> 00:23:27,800 Speaker 8: to put nailed down. I mean, a thing that markets 409 00:23:27,840 --> 00:23:32,160 Speaker 8: don't want to hear anything about is something that increases inflation. 410 00:23:33,119 --> 00:23:38,480 Speaker 8: So any sense that a policy, the policies are or 411 00:23:38,480 --> 00:23:42,760 Speaker 8: the setup policies I should say, aren't particularly disinflationary, that's 412 00:23:42,960 --> 00:23:47,600 Speaker 8: going to be a big warning sign for markets and 413 00:23:47,640 --> 00:23:50,600 Speaker 8: you're only going to get a negative reaction. I think 414 00:23:50,640 --> 00:23:54,000 Speaker 8: the other thing, going to Joe's point, it's very hard 415 00:23:54,000 --> 00:23:56,720 Speaker 8: to know exactly what the market expects in terms of 416 00:23:56,760 --> 00:24:00,639 Speaker 8: building the headroom against the fiscal rules. But you know, 417 00:24:00,760 --> 00:24:04,960 Speaker 8: if she only adds five billion to the headroom, it's 418 00:24:05,000 --> 00:24:09,680 Speaker 8: not really I mean it's nothing really. So I still 419 00:24:09,680 --> 00:24:12,600 Speaker 8: think that I still think there's possibly a rabbit out 420 00:24:12,600 --> 00:24:15,560 Speaker 8: of the hat whereby Originally the plan was to build 421 00:24:15,600 --> 00:24:19,080 Speaker 8: twenty five billion pounds of headroom using that income tax rise. 422 00:24:19,640 --> 00:24:23,800 Speaker 8: Now maybe it'll be closer to twenty because I think they're, 423 00:24:24,160 --> 00:24:26,679 Speaker 8: you know, going to Joe's point about politics of this 424 00:24:26,880 --> 00:24:29,879 Speaker 8: and what's the best path for Reeves. If there is 425 00:24:29,920 --> 00:24:33,359 Speaker 8: a strong mark negative market reaction, that's going to be 426 00:24:33,400 --> 00:24:36,200 Speaker 8: a problem for her as well. So you know, there's 427 00:24:36,240 --> 00:24:37,800 Speaker 8: that side of it as well that she's trying to 428 00:24:37,800 --> 00:24:39,280 Speaker 8: balance as well as the politics. 429 00:24:39,600 --> 00:24:41,560 Speaker 3: My thanks to both of you for joining me. That 430 00:24:41,680 --> 00:24:44,480 Speaker 3: is our chief UK economist, Dan Hanson and our UK 431 00:24:44,640 --> 00:24:47,879 Speaker 3: Politics report at Joe May's. I'm Caroline Hepgar here in London. 432 00:24:47,880 --> 00:24:50,399 Speaker 3: You can catch us every weekday morning for Bloomberg Daybreak. 433 00:24:50,440 --> 00:24:52,760 Speaker 3: You up beginning at six am in London. That's one 434 00:24:52,800 --> 00:24:53,640 Speaker 3: am on Wall Street. 435 00:24:53,720 --> 00:24:57,480 Speaker 2: Nathan, Thanks Caroline, and coming up by Bloomberg Daybreak Weekend. 436 00:24:57,520 --> 00:25:00,639 Speaker 2: We'll look ahead to offish or pm I figures in China. 437 00:25:01,080 --> 00:25:16,240 Speaker 2: I'm Nathan Hager, and this is Bloomberg. This is Bloomberg 438 00:25:16,280 --> 00:25:19,159 Speaker 2: Daybreak Weekend, our global look ahead, the top stories for 439 00:25:19,240 --> 00:25:22,160 Speaker 2: investors in the coming week. I'm Nathan Hager in Washington. 440 00:25:22,440 --> 00:25:25,240 Speaker 2: We turned out to China, where there's a question as 441 00:25:25,280 --> 00:25:27,840 Speaker 2: to whether the economy will hit this year's growth target 442 00:25:27,880 --> 00:25:31,160 Speaker 2: of five percent. In the week ahead, Beijing releases it's 443 00:25:31,200 --> 00:25:34,600 Speaker 2: official PMI figures from more. Here's Doug Krisner, host of 444 00:25:34,640 --> 00:25:36,119 Speaker 2: the Daybreak Asia podcast. 445 00:25:36,800 --> 00:25:40,400 Speaker 4: Nathan weak. Economic momentum in China has persisted from the 446 00:25:40,440 --> 00:25:43,399 Speaker 4: third quarter into the early part of the fourth quarter, 447 00:25:43,480 --> 00:25:46,399 Speaker 4: and the slowdown appears to be broad based. For a 448 00:25:46,440 --> 00:25:49,879 Speaker 4: closer look, I'm joined by John Liu, Bloomberg Executive editor 449 00:25:49,880 --> 00:25:53,840 Speaker 4: for Greater China. John joins us from our studios in Beijing. John, 450 00:25:53,880 --> 00:25:55,840 Speaker 4: thank you for being here. I'd like to start with 451 00:25:55,880 --> 00:25:59,040 Speaker 4: this PMI data, and I'm curious as to whether we're 452 00:25:59,080 --> 00:26:01,960 Speaker 4: going to learn anything new regarding the Chinese economy. 453 00:26:02,520 --> 00:26:04,800 Speaker 10: I think the PMI data that we get is going 454 00:26:04,880 --> 00:26:10,200 Speaker 10: to show a continued weakness in the economy. Manufacturing PMI 455 00:26:10,280 --> 00:26:13,640 Speaker 10: has been a contraction for seven consecutive months. I think 456 00:26:13,680 --> 00:26:18,320 Speaker 10: we will get an eighth consecutive month. Services PMI has 457 00:26:18,400 --> 00:26:23,640 Speaker 10: been very, very close to that fifty point edge between 458 00:26:23,680 --> 00:26:26,440 Speaker 10: contraction and growth, and I think we will stay there. 459 00:26:26,600 --> 00:26:29,320 Speaker 10: There's even a danger that we will slip into contraction 460 00:26:29,440 --> 00:26:30,560 Speaker 10: for services as well. 461 00:26:30,760 --> 00:26:33,040 Speaker 4: You know, it's interesting that you made that point about 462 00:26:33,040 --> 00:26:36,080 Speaker 4: services because when I look at some of the more 463 00:26:36,200 --> 00:26:39,600 Speaker 4: high frequency type data coming out of China, or even 464 00:26:39,760 --> 00:26:43,480 Speaker 4: the monthly activity data for the most recent month, demand 465 00:26:43,560 --> 00:26:46,679 Speaker 4: domestically is still struggling. And I know the government has 466 00:26:46,720 --> 00:26:49,080 Speaker 4: been trying to figure out a way to address this issue. 467 00:26:49,160 --> 00:26:51,920 Speaker 4: Are there any novel ideas that have kind of emerged, 468 00:26:52,040 --> 00:26:55,560 Speaker 4: or is it basically turning into a bit of a 469 00:26:55,600 --> 00:26:58,320 Speaker 4: treadmill and going back to the old playbook to try 470 00:26:58,320 --> 00:27:00,399 Speaker 4: to figure out what approach may be work. 471 00:27:01,320 --> 00:27:04,080 Speaker 10: So I think the situation has actually gotten a little 472 00:27:04,080 --> 00:27:07,119 Speaker 10: bit worse in the last month or so. So we 473 00:27:07,200 --> 00:27:10,840 Speaker 10: got data for the month of October and that showed 474 00:27:11,359 --> 00:27:15,680 Speaker 10: the thing that really surprised people was a drop off 475 00:27:15,800 --> 00:27:20,320 Speaker 10: in investment in China, and so investment is almost half 476 00:27:20,359 --> 00:27:23,639 Speaker 10: of GDP, and so we get investment data that's on 477 00:27:23,680 --> 00:27:26,520 Speaker 10: a year to date basis. So when we got the 478 00:27:26,560 --> 00:27:29,080 Speaker 10: October data, it was for the first ten months of 479 00:27:29,119 --> 00:27:32,240 Speaker 10: twenty twenty five, So we have to calculate on our 480 00:27:32,280 --> 00:27:36,560 Speaker 10: own what happened in October, and most economists believe that 481 00:27:36,680 --> 00:27:41,440 Speaker 10: investment fell eleven percent more than eleven percent in October. 482 00:27:41,640 --> 00:27:44,600 Speaker 10: That would be the biggest decline since the beginning of 483 00:27:44,720 --> 00:27:46,240 Speaker 10: COVID back in twenty twenty. 484 00:27:46,800 --> 00:27:49,640 Speaker 4: Is it a demand issue or is there a problem 485 00:27:49,720 --> 00:27:52,679 Speaker 4: with the financial system in China where things are becoming 486 00:27:52,720 --> 00:27:53,480 Speaker 4: a little clogged. 487 00:27:54,400 --> 00:27:56,919 Speaker 10: So it's a combination of a lot of different things. 488 00:27:57,240 --> 00:28:00,679 Speaker 10: On one hand, there's been some weakness in exports, and 489 00:28:00,760 --> 00:28:04,000 Speaker 10: so that means there's less incentive for companies to be 490 00:28:04,160 --> 00:28:08,360 Speaker 10: investing in new factories, et cetera. The Chinese government's also 491 00:28:08,440 --> 00:28:13,200 Speaker 10: been pushing for sort of trying to reduce the capacity 492 00:28:13,240 --> 00:28:15,359 Speaker 10: problem that we have in China. There are too many 493 00:28:15,400 --> 00:28:19,040 Speaker 10: factories turning out too many goods that are all trying 494 00:28:19,080 --> 00:28:22,280 Speaker 10: to get exported, and that's causing friction with trade partners, 495 00:28:22,600 --> 00:28:25,919 Speaker 10: not just the US but Europe, with South America, with Africa, 496 00:28:26,000 --> 00:28:29,120 Speaker 10: with countries around Southeast Asia, and so the government's trying 497 00:28:29,160 --> 00:28:32,240 Speaker 10: to pull that back. That's been reducing the impulse to 498 00:28:32,440 --> 00:28:36,760 Speaker 10: build out factories, to invest at a corporate level. And 499 00:28:36,840 --> 00:28:39,640 Speaker 10: at the same time, the government has been pushing local governments, 500 00:28:39,680 --> 00:28:44,080 Speaker 10: so cities and provincial governments to pay back their debts 501 00:28:44,480 --> 00:28:47,960 Speaker 10: instead of using the money they have to finance new 502 00:28:48,040 --> 00:28:51,080 Speaker 10: infrastructure projects. And so all of those things combined has 503 00:28:51,320 --> 00:28:52,920 Speaker 10: led to this pullback in investment. 504 00:28:53,120 --> 00:28:55,239 Speaker 4: So everything that you said just now, do we have 505 00:28:55,280 --> 00:28:57,440 Speaker 4: to place that in the context of a country that 506 00:28:57,600 --> 00:29:02,800 Speaker 4: is still struggling with deflationary forces. You mentioned the overcapacity issue. Yes, 507 00:29:02,840 --> 00:29:05,239 Speaker 4: that's a part of it. But I'm wondering whether there 508 00:29:05,280 --> 00:29:09,080 Speaker 4: is real concern now that China perhaps has entered some 509 00:29:09,120 --> 00:29:10,600 Speaker 4: sort of deflationary trap. 510 00:29:11,120 --> 00:29:12,960 Speaker 10: I think that is a real concern. I think the 511 00:29:12,960 --> 00:29:15,320 Speaker 10: government is trying to address it. I think that is 512 00:29:15,400 --> 00:29:19,080 Speaker 10: why this anti evolution campaign has been launched, because the 513 00:29:19,120 --> 00:29:22,680 Speaker 10: government sees at the root of why China has this 514 00:29:22,760 --> 00:29:26,560 Speaker 10: deflation problem is there's just too many factories churning out 515 00:29:26,560 --> 00:29:30,360 Speaker 10: too much stuff, much more in excess of what actual 516 00:29:30,400 --> 00:29:32,840 Speaker 10: demand there is in China. And so you either have 517 00:29:32,920 --> 00:29:35,880 Speaker 10: to export it or all of these companies need to 518 00:29:35,960 --> 00:29:39,520 Speaker 10: cut prices every month just to compete to get their 519 00:29:39,560 --> 00:29:40,400 Speaker 10: product out the door. 520 00:29:41,040 --> 00:29:44,000 Speaker 4: So when I think of deflationary traps, I think of 521 00:29:44,040 --> 00:29:47,680 Speaker 4: the Japanese economy for what amounted to three decades. Let's 522 00:29:47,720 --> 00:29:49,920 Speaker 4: talk a little bit about what's going on these days 523 00:29:49,960 --> 00:29:53,239 Speaker 4: between China and Japan and what appears to be a 524 00:29:53,240 --> 00:29:57,400 Speaker 4: real diplomatic test for the new Japanese Prime minister. She 525 00:29:57,600 --> 00:30:01,520 Speaker 4: anchored China recently with remarks about Tokyo's position on the 526 00:30:01,520 --> 00:30:04,600 Speaker 4: issue of Taiwan. Where do you think this ends up? 527 00:30:05,720 --> 00:30:11,120 Speaker 10: So the comment by the new Japanese Prime minister really 528 00:30:11,200 --> 00:30:15,640 Speaker 10: touched on a red line for the Chinese government, which 529 00:30:15,680 --> 00:30:18,560 Speaker 10: has for since a civil war in the middle of 530 00:30:18,640 --> 00:30:22,479 Speaker 10: last century, claimed Taiwan as a part of China. And 531 00:30:22,520 --> 00:30:26,840 Speaker 10: so when she said that, when she sort of suggested 532 00:30:26,880 --> 00:30:31,120 Speaker 10: that Japan might intervene in a potential conflict, that really 533 00:30:31,280 --> 00:30:35,600 Speaker 10: set off a firestorm here in Beijing. What happens next? 534 00:30:36,200 --> 00:30:40,080 Speaker 10: The Chinese are demanding that the Japanese Prime minister retract 535 00:30:40,120 --> 00:30:43,800 Speaker 10: her statement, and obviously the Japanese government is going to 536 00:30:43,840 --> 00:30:46,680 Speaker 10: be extremely reluctant to do that. And so We're sort 537 00:30:46,680 --> 00:30:48,920 Speaker 10: of at an impasse at the moment. We've just had 538 00:30:48,960 --> 00:30:52,400 Speaker 10: a delegation from Japan travel to Beijing for talks that 539 00:30:52,480 --> 00:30:55,760 Speaker 10: have essentially yielded nothing, and so going forward, I think 540 00:30:55,800 --> 00:30:59,840 Speaker 10: you will see more pressure from Beijing. They've been a 541 00:31:00,000 --> 00:31:03,240 Speaker 10: advising tourists not to go to Japan, and I think 542 00:31:03,240 --> 00:31:05,280 Speaker 10: the Japanese will be trying to stand their ground. 543 00:31:05,400 --> 00:31:08,680 Speaker 4: So if you look at the relationship of these two countries, 544 00:31:08,840 --> 00:31:12,000 Speaker 4: just insofar as trade is concerned, what kind of damage 545 00:31:12,000 --> 00:31:15,480 Speaker 4: could be done if China were to impose some strict 546 00:31:15,480 --> 00:31:19,600 Speaker 4: controls on exports to Japan or even products that are 547 00:31:19,640 --> 00:31:22,320 Speaker 4: imported from the Japanese manufacturers into China. 548 00:31:23,240 --> 00:31:28,040 Speaker 10: So China is Japan's largest trading partner, it is a 549 00:31:28,120 --> 00:31:31,120 Speaker 10: giant market for As you said, a lot of this 550 00:31:31,240 --> 00:31:35,960 Speaker 10: equipment and supplies that come into China get put into 551 00:31:36,160 --> 00:31:40,040 Speaker 10: various different electronics and other products and are either exported 552 00:31:40,120 --> 00:31:43,360 Speaker 10: to overseas markets or sold within China itself, and so 553 00:31:44,120 --> 00:31:47,920 Speaker 10: there is a potential for companies like Honda and Toyota 554 00:31:47,920 --> 00:31:50,240 Speaker 10: and Nissan to lose share in a very important market 555 00:31:50,280 --> 00:31:53,080 Speaker 10: for them. At the same time, obviously, China supplies a 556 00:31:53,080 --> 00:31:55,480 Speaker 10: lot of rare earth to the Japanese as they do 557 00:31:55,640 --> 00:31:58,400 Speaker 10: the US and Europe, and so that is another lever 558 00:31:58,520 --> 00:32:00,840 Speaker 10: that Beijing could use. It could cut off that supplies, 559 00:32:00,840 --> 00:32:04,440 Speaker 10: that could cripple a lot of the Japanese manufacturing that happens, 560 00:32:04,680 --> 00:32:07,000 Speaker 10: and so you know, the risks are very high for 561 00:32:07,080 --> 00:32:08,160 Speaker 10: both both countries. 562 00:32:08,320 --> 00:32:10,440 Speaker 4: I know on the level of tourism that a lot 563 00:32:10,440 --> 00:32:13,160 Speaker 4: of Chinese tourists end up going to Japan for vacation 564 00:32:13,360 --> 00:32:16,240 Speaker 4: or holiday. Is that dynamic beginning to shift. 565 00:32:17,120 --> 00:32:20,880 Speaker 10: So we've had a lot of anecdotal evidence that tour 566 00:32:20,960 --> 00:32:25,040 Speaker 10: groups are canceling their reservations in Japan, Chinese tour groups. 567 00:32:25,400 --> 00:32:29,840 Speaker 10: We've had reporting that shows Chinese state owned companies are 568 00:32:29,880 --> 00:32:33,000 Speaker 10: telling their employees not to go to Japan. But at 569 00:32:33,040 --> 00:32:35,640 Speaker 10: the same time, we also have anecdotal evidence that suggests that, 570 00:32:35,680 --> 00:32:38,720 Speaker 10: you know, planes traveling from Shahai to Tokyo are still 571 00:32:38,760 --> 00:32:41,560 Speaker 10: full of tourists. And so it's until we get more 572 00:32:41,680 --> 00:32:45,920 Speaker 10: aggregate data, it's really hard to tell cumulatively how much 573 00:32:45,920 --> 00:32:48,440 Speaker 10: of an impact it will have. But if this goes on, 574 00:32:48,560 --> 00:32:50,720 Speaker 10: the longer it goes on, we have to expect that 575 00:32:50,800 --> 00:32:53,160 Speaker 10: the bigger the drag on the Japanese Economy. 576 00:32:53,280 --> 00:32:55,640 Speaker 4: It will be John will leave it there. Thank you 577 00:32:55,720 --> 00:32:58,240 Speaker 4: so very much. It's always a pleasure. John lou He 578 00:32:58,360 --> 00:33:01,280 Speaker 4: is executive editor for Greater chin and Adjoining from Beijing, 579 00:33:01,840 --> 00:33:04,600 Speaker 4: we go to Singapore next, where in the last week 580 00:33:04,760 --> 00:33:08,040 Speaker 4: we heard from thought leaders at the Bloomberg New Economy Forum, 581 00:33:08,440 --> 00:33:11,640 Speaker 4: we spoke with Singapore's Prime Minister, Lawrence Wong. Here is 582 00:33:11,680 --> 00:33:14,720 Speaker 4: a portion of the conversation with Bloomberg News editor in 583 00:33:14,800 --> 00:33:16,240 Speaker 4: chief John Micklethwaite. 584 00:33:16,400 --> 00:33:19,480 Speaker 11: Can I ask about Singapore is a financial hub. You've 585 00:33:19,520 --> 00:33:22,800 Speaker 11: had this on rush of money coming here. You've had 586 00:33:22,800 --> 00:33:25,480 Speaker 11: this big push to lure people here. The family offices, 587 00:33:25,520 --> 00:33:27,520 Speaker 11: you see many of them here, a lot of wealthy 588 00:33:27,560 --> 00:33:30,160 Speaker 11: people coming here. And you get two issues from that. 589 00:33:30,280 --> 00:33:32,720 Speaker 11: And the first one is this issue of inequality, which 590 00:33:32,840 --> 00:33:36,400 Speaker 11: I know the Genie coefficient has got better, so. 591 00:33:36,280 --> 00:33:38,760 Speaker 12: That in income terms, in income terms, income. 592 00:33:38,560 --> 00:33:40,560 Speaker 11: Terms getting better, But there is this every time I 593 00:33:40,640 --> 00:33:44,360 Speaker 11: come here, people talk about inequality more. Yeah, and I wondered, 594 00:33:44,840 --> 00:33:48,800 Speaker 11: you've already introduced taxes on luxury cars and properties, but 595 00:33:48,960 --> 00:33:52,080 Speaker 11: do you see Singapore moving towards other things a capital 596 00:33:52,120 --> 00:33:53,360 Speaker 11: gains tax for instance. 597 00:33:55,720 --> 00:34:00,240 Speaker 12: Two separate issues really because wealth management Singapore as a 598 00:34:00,240 --> 00:34:04,120 Speaker 12: financial center. I think we can grow in terms of 599 00:34:04,160 --> 00:34:08,719 Speaker 12: wealth management. Family officers may set up here. They are 600 00:34:08,719 --> 00:34:15,120 Speaker 12: not Singaporeans. They you know, have their officers here. They 601 00:34:15,160 --> 00:34:17,520 Speaker 12: manage your fans out of Singapore. We welcome that it 602 00:34:17,600 --> 00:34:20,319 Speaker 12: creates jobs for Singaporeans. I think that's a good thing, 603 00:34:20,360 --> 00:34:24,600 Speaker 12: and we can explain that to Singaporeans. Sometimes it creates frictions, 604 00:34:24,719 --> 00:34:30,840 Speaker 12: especially when their ostentatious shows of and we have just 605 00:34:30,880 --> 00:34:33,759 Speaker 12: to remind them. You know, Singapore is a different society. 606 00:34:33,800 --> 00:34:37,200 Speaker 12: We are egalitarian. Our norms are different, please understand, and 607 00:34:37,239 --> 00:34:42,400 Speaker 12: for the most part, they do tackling wealth inequality where 608 00:34:42,480 --> 00:34:45,359 Speaker 12: it comes to our people and our population. That's something 609 00:34:45,400 --> 00:34:47,680 Speaker 12: we continue to work on, whether it's income or wealth. 610 00:34:47,680 --> 00:34:52,240 Speaker 12: We have a range of policies. It's not just about 611 00:34:52,320 --> 00:34:56,279 Speaker 12: tax alone, because in Singapore we have the ability to 612 00:34:56,440 --> 00:35:01,120 Speaker 12: also provide wealth injections. And a major reason why we 613 00:35:01,200 --> 00:35:05,520 Speaker 12: can do that is housing. Everyone owns almost everyone owns 614 00:35:05,520 --> 00:35:09,120 Speaker 12: their own home. Majority live in public housing, and when 615 00:35:09,160 --> 00:35:13,200 Speaker 12: you buy a flat from the housing development bought in Singapore, 616 00:35:13,600 --> 00:35:16,959 Speaker 12: you get housing equity. And that's the reason why even 617 00:35:17,000 --> 00:35:20,239 Speaker 12: at the lower end of bottom twenty percent of households 618 00:35:20,880 --> 00:35:25,360 Speaker 12: actually they have significant net wealth net asset value because 619 00:35:25,360 --> 00:35:29,200 Speaker 12: of home ownership. So that's one way we can continue 620 00:35:29,239 --> 00:35:33,279 Speaker 12: to fine tune our policies to provide more support and 621 00:35:33,440 --> 00:35:37,600 Speaker 12: uplift for lower income groups. We also have a central 622 00:35:37,640 --> 00:35:41,880 Speaker 12: provident fund, which is Social Security, which is the individual's 623 00:35:41,920 --> 00:35:45,200 Speaker 12: own retirement nest eight, which we do top ups from 624 00:35:45,239 --> 00:35:49,120 Speaker 12: time to time. So our tool sets are not limited. 625 00:35:49,360 --> 00:35:52,960 Speaker 12: I know there's a lot of interest again Bloomberg's favorite 626 00:35:53,000 --> 00:35:56,880 Speaker 12: question for me capital gtcept against tax wealth text. A 627 00:35:56,880 --> 00:36:01,080 Speaker 12: lot of questions about tex but our our talkits are 628 00:36:01,080 --> 00:36:04,680 Speaker 12: not limited to tax alt We also have wealth transfers. 629 00:36:05,320 --> 00:36:09,279 Speaker 11: I'll take that as a maybe a lot of just 630 00:36:09,320 --> 00:36:11,160 Speaker 11: the other issue about a lot of wealthy people coming 631 00:36:11,200 --> 00:36:14,200 Speaker 11: here is that not all of them have been virtuous, 632 00:36:14,239 --> 00:36:15,920 Speaker 11: if I can put it that way. You know you had. 633 00:36:15,760 --> 00:36:18,520 Speaker 12: The money laudry, illicit flows. 634 00:36:18,600 --> 00:36:22,399 Speaker 11: Yes, and you had the accusations about within the US. 635 00:36:22,520 --> 00:36:24,200 Speaker 11: But one of the heads of the main Asian crime 636 00:36:24,280 --> 00:36:26,839 Speaker 11: families being here. You've dealt with these things, but there 637 00:36:26,920 --> 00:36:30,400 Speaker 11: is one of your ministers had a very nice Chinese saying, 638 00:36:30,480 --> 00:36:34,279 Speaker 11: when we open the windows, some flies may also. 639 00:36:34,120 --> 00:36:35,960 Speaker 12: Enter, and sometimes we get more than flies. 640 00:36:36,120 --> 00:36:39,640 Speaker 11: Yes, but how many flies can Singapore tolerate and do 641 00:36:39,680 --> 00:36:42,040 Speaker 11: you need the biggest fly swatter. 642 00:36:43,000 --> 00:36:45,279 Speaker 12: We do have quite a big fly swatter. I mean 643 00:36:45,320 --> 00:36:50,360 Speaker 12: it's we take it very seriously. It's not unique to Singapore. 644 00:36:50,400 --> 00:36:54,520 Speaker 12: The elicit floors are everywhere. It's all financial centers have 645 00:36:54,640 --> 00:36:57,400 Speaker 12: to deal with this. So to us, it's not so 646 00:36:57,520 --> 00:37:01,680 Speaker 12: much about what you know that there is an incident 647 00:37:01,680 --> 00:37:04,040 Speaker 12: that's bound. They're bound to be incidents, and they are 648 00:37:04,040 --> 00:37:08,960 Speaker 12: bound to be suspicious transactions, and then with intelligence, with 649 00:37:09,080 --> 00:37:13,200 Speaker 12: cooperation across different countries, eventually we get to the bottom 650 00:37:13,239 --> 00:37:15,839 Speaker 12: of it. The key is what do you do? And 651 00:37:15,880 --> 00:37:18,759 Speaker 12: we are very stringent and we take swift action and 652 00:37:18,800 --> 00:37:22,240 Speaker 12: we will. We are determined to protect our reputation because 653 00:37:22,239 --> 00:37:25,760 Speaker 12: that's what keeps Singapore going a trusted business and financial center. 654 00:37:25,880 --> 00:37:29,839 Speaker 4: That with Singapore's Prime Minister Lawrence Wong speaking with John Micklethwaite, 655 00:37:30,160 --> 00:37:33,640 Speaker 4: Editor and chief of Bloomberg News during the Bloomberg New 656 00:37:33,680 --> 00:37:37,200 Speaker 4: Economy Forum in Singapore. I'm Dereg Krisner. You can catch 657 00:37:37,280 --> 00:37:40,360 Speaker 4: us weekdays for the daybreak as your podcast. It's available 658 00:37:40,440 --> 00:37:41,920 Speaker 4: wherever you get your podcast. 659 00:37:42,280 --> 00:37:45,680 Speaker 2: Nathan, Thanks Doug Man. That does it for this edition 660 00:37:45,760 --> 00:37:49,160 Speaker 2: of Bloomberg daybreak weekend, Join us again Monday morning at 661 00:37:49,160 --> 00:37:52,600 Speaker 2: five am Wall Street Time for the latest don markets, overseas, 662 00:37:52,719 --> 00:37:55,399 Speaker 2: and the news you need to start your day. I'm 663 00:37:55,440 --> 00:37:58,680 Speaker 2: Nathan Hager. Stay with us stop stories and global business 664 00:37:58,760 --> 00:38:00,879 Speaker 2: headlines are coming up right now