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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, we
Speaker 2: look ahead to earnings from IT Hardware, Giant Dell, and
Speaker 2: retail ahead of the Thanksgiving holiday. I'm Nathan Hager in Washington.
Speaker 3: I'm Carolin hepget here in London, where we're looking ahead
Speaker 3: to be a case highly anticipated or too budget.
Speaker 4: I'm det Prisner looking at why China's economy continues to struggle.
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 more tech earnings. Yep, we're not quite done
Speaker 2: with them just yet. Well here from IT Hardware Giant Dell.
Speaker 2: It opens it's third quarter books after the market close
Speaker 2: on Tuesday. Ahead of it We're joined by Wu jin Ho,
Speaker 2: senior technology analyst for Bloomberg Intelligence. Great to speak with you,
Speaker 2: and I guess we're sort of coming off the glow
Speaker 2: of Nvidia's earnings this past week, Right, does the AI
Speaker 2: chip giant inform how you're thinking about what we could
Speaker 2: get from Dell this week?
Speaker 5: Yeah, Hey, Nathan, thanks for having me on. You know,
Speaker 5: the Nvidia results are actually quite positive for Dell's AI story.
Speaker 5: You know, there's a twenty billion dollar sales outlook for
Speaker 5: fiscal twenty six. There is maybe a little bit rooper
Speaker 5: upside in the third quarter results and as well as
Speaker 5: the fourth quarter outlook and the twenty five The fiscal
Speaker 5: twenty five twenty seven outlook looks very promising as well,
Speaker 5: given the momentum. Now, the issue is its profitability, Right,
Speaker 5: the AI story AI service have not been the most
Speaker 5: profitable for the industry. Dell has actually done a fairly
Speaker 5: good job and we'll see where they are on the
Speaker 5: profit margin side.
Speaker 2: Well, does that tell you then that we could see
Speaker 2: the AI data center business for Dell overshadow it's more
Speaker 2: traditional PC business.
Speaker 5: Well, look, that's going to be one of the data
Speaker 5: points that investors are going to be pointing to there's
Speaker 5: actually a lot of controversy on Dell heading into the print.
Speaker 5: For the traditional businesses, memory pricing has come in focus.
Speaker 5: You know, the DRAM chips that goes into your PCs
Speaker 5: as well as the servers that's been up three hundred
Speaker 5: percent over the last month or so, and that could
Speaker 5: potentially not only affect margins in the near term, but
Speaker 5: also the pricing dynamics. And given how elastic in elastic
Speaker 5: that the PCs can be, that could affect the man.
Speaker 2: Well, how could Dell potentially get past some of the
Speaker 2: drag on its margins that you see from the AI servers.
Speaker 5: Yeah, it's really tough to say. It's probably going to
Speaker 5: be very, very tough. And they actually did a good
Speaker 5: job out of their recent analyst day on keeping their
Speaker 5: guidance on AI server margins low. They've guided to admit
Speaker 5: the high single digit AI server margin, which is a
Speaker 5: very sobering outlook and a realistic outlook. So if they
Speaker 5: do a better job on the AI server side, on
Speaker 5: the margin profitability side, there is room for upside, but
Speaker 5: it's already baked into expectations. So I'm comforted by that now.
Speaker 2: In your note leading up to these earnings. You say
Speaker 2: you're looking for signs of improvement from Dell when it
Speaker 2: comes to operational changes. Can you walk us through what
Speaker 2: you're thinking there.
Speaker 5: Yeah, absolutely so, a couple of things that Dell has
Speaker 5: been doing over the past couple of quarters of streamlining
Speaker 5: the operations, cutting costs, and they actually were on the
Speaker 5: forefront on some of the cost actions in terms of
Speaker 5: relative to the growing AI mix, And I do think
Speaker 5: there's scope for Dell to maintain a high single digit
Speaker 5: operating margin profile despite a growing AI mix.
Speaker 2: Now, of course, a lot of people who follow this
Speaker 2: company closely know that the federal government is a pretty
Speaker 2: important customer for Dell. Of course we've had a government
Speaker 2: shut down. Now that the government's back open, how could
Speaker 2: that feed into the outlook for Dell?
Speaker 5: Yeah, so, well, from from a results perspective, you know,
Speaker 5: there might be a chance that it might be a
Speaker 5: drag on earnings. Now, No, the outlook is going to
Speaker 5: be a little iffy in the sense that it may
Speaker 5: take a little bit, little bit or some time for
Speaker 5: the federal government to really start ramping up their spending engine,
Speaker 5: So there might be some headwind on the growth outlook.
Speaker 5: But it's going to be just a temporary blip in
Speaker 5: my mind, and should the focus will turn to fiscal
Speaker 5: twenty twenty seven guidance thereafter.
Speaker 2: And in terms of the AI business overall, does that
Speaker 2: point to opportunities for Dell? Or is the competition just
Speaker 2: too fierce out there?
Speaker 5: No, you know, I will tell you all the AI
Speaker 5: server vendors have been very aggressive in terms of winning
Speaker 5: the footprint. Among the AI server vendors to have stood out,
Speaker 5: super Micro and Dell being the other one. I do
Speaker 5: think that of you know, of the hardware vendors are
Speaker 5: that are out there, Dell is probably one of the
Speaker 5: better position to win more global global footprint sales. And
Speaker 5: you know, good back to you margin question that could
Speaker 5: help the margins as other players decide to back out.
Speaker 2: Appreciate this, Thank you so much. That is wou Jin Hoe,
Speaker 2: Senior technology analyst for Bloomberg Intelligence. We move next to
Speaker 2: the retail space. A couple names in that sector open
Speaker 2: their books on Tuesday as well. That would be Cohle's
Speaker 2: and Abercrombie and Fitch. We're also expecting overall retail sales
Speaker 2: numbers that would have come out sooner if not for
Speaker 2: the government shutdown September figures are due out Tuesday as well.
Speaker 2: Busy times for Mary Ross Gilbert of Bloomberg Intelligence. She's
Speaker 2: a senior equity analyst who covers retail. It is so
Speaker 2: great to have you with us as well. Of course,
Speaker 2: we've been hearing from so many of the retail giants lately.
Speaker 2: We got target results that were kind of different from
Speaker 2: Walmart's results. What does that tell us about what we
Speaker 2: could be getting this week? Mary, So, Nathan, it's.
Speaker 6: A great question, and I think what we're going to
Speaker 6: see come Tuesday, I think Abercrombie actually could have a
Speaker 6: miss and it's really going to be on their gamesake,
Speaker 6: and we might have you know, and this is based
Speaker 6: on Bloomberg Second Measure transaction data. We might have less
Speaker 6: of an increase on the Hollerster side of the brand,
Speaker 6: so that could also impact their results. But with regard
Speaker 6: to Coals, Coals, we think they probably need expectations. They're
Speaker 6: looking for a like a round of four or five
Speaker 6: percent decline in sales because they're still trying to get
Speaker 6: their assortments right. And then of course operating margin is
Speaker 6: expected to drop and it's pretty low as it is.
Speaker 6: It's already in the low single digits, so you know,
Speaker 6: Coals really has a lot of a lot to get right,
Speaker 6: and that's going to be a big focus how they're
Speaker 6: positioned for holiday and where their comp sales are on
Speaker 6: a monthly basis, because we did see in July that
Speaker 6: they were flat, so there was encouragement that maybe those
Speaker 6: sales could improve with the third quarter. So we'll see
Speaker 6: that when they go to report on Tuesday.
Speaker 2: Let's hone in a little bit more on Coals because
Speaker 2: this is one of those kind of departments store or
Speaker 2: is that sort of feeds to all ends of the
Speaker 2: retail spectrum, doesn't it whether you're a value conscious consumer
Speaker 2: or someone who's more willing to spend on the high end.
Speaker 6: Yeah, they do. They really skewed to the lower end consumer,
Speaker 6: you know, really on the value segment, as you pointed out,
Speaker 6: And one of the merchandising mistakes that they made last
Speaker 6: year is that they really they cut back on private
Speaker 6: label and that was really a good category for them.
Speaker 6: The brands that they have, the private brands like so Sonoma,
Speaker 6: really resonate with their customers and so bringing those back,
Speaker 6: they've already started to see a boost in their sales
Speaker 6: because of that. The other thing they did was they
Speaker 6: got rid of or honed back on petite sizing, and
Speaker 6: that was another very very important category for them having
Speaker 6: that exercising, So bringing all that back, they're already seeing
Speaker 6: a lift and it's also higher margins, so that's also
Speaker 6: helping them on the margin side. So we haven't seen
Speaker 6: the erosion that we thought we would with tariffs, so
Speaker 6: they've really made no comments on tariffs having an impact.
Speaker 6: So that's going to be, you know, a big focus.
Speaker 6: But really, you know, Macy's is going to come in
Speaker 6: the following week and we think we're going to see
Speaker 6: better trends there because we think their strategy going in
Speaker 6: and bringing back service of bringing in more relevant brands
Speaker 6: is really starting to show some traction there. And we
Speaker 6: should see potentially positive comp sales come out of Macy's
Speaker 6: for the go forward business, because that's really the focus there.
Speaker 6: Dillard's already reported and they came in with a very
Speaker 6: nice three percent increase in comp sales, So a good
Speaker 6: sign for department stores.
Speaker 2: And there are probably some investors who have memories of
Speaker 2: the scandal surrounding the previous CEO of Coles. Has the
Speaker 2: department store gotten past that.
Speaker 6: I think they have real The current interim CEO that
Speaker 6: they have seems to be doing a really good job
Speaker 6: very quickly getting things back into the store that matter.
Speaker 6: For example, they're going to have fine jewelry and over
Speaker 6: twenty five percent of the stores. I mean, yeah, they
Speaker 6: need to have it in the vast majority of the
Speaker 6: stores for the holiday season. But it's a big improvement
Speaker 6: from when they brought in so fora and they did
Speaker 6: it as a replacement of jewelry, not something you can
Speaker 6: really do because that's a key gifting category for consumers
Speaker 6: during the holidays and other key gifting seasons. So he's
Speaker 6: making some decisions very quickly that are showing green shoots
Speaker 6: of improvement there, and I think that is encouraging for Cohle's.
Speaker 2: And let's turn in the time we have left to
Speaker 2: Abercrombie and Fitch. You mentioned some of the challenges that
Speaker 2: some of its specific brands could be facing. Talk us
Speaker 2: a little bit more through that and how name brand
Speaker 2: apparel is faring overall in this current economic environment.
Speaker 6: Yeah, so, Nathan, Actually, overall, I would say apparel overall
Speaker 6: looks to be very strong, especially for those that are
Speaker 6: executing and if you look on let's say the off
Speaker 6: price because we had TJX report and they had great numbers,
Speaker 6: So that just goes to show you they're carrying all
Speaker 6: the name brands and the consumers love it, so they're
Speaker 6: flocking to off price. But going back to Abercrombie, Abercrombie,
Speaker 6: the namesake brand, has posted four years of double digit
Speaker 6: comp sales increases, so we're now cycling those four years
Speaker 6: and thus why their sales are coming in lower year
Speaker 6: over year on a comp sales basis. So it's really
Speaker 6: hard to keep bringing in more newness, more excitement to
Speaker 6: keep that going. And their core customer there are really
Speaker 6: the millennials. Their Hollister brand has really shows that that's
Speaker 6: still performing well. Now is it performing as good as
Speaker 6: analysts expect based on the data, We're not so sure,
Speaker 6: but that's something we're going to look for next Tuesday
Speaker 6: when they go to report their results. And Hollister really
Speaker 6: caters to the gen Z customer, and that customer, by
Speaker 6: the way, loves to shop in store. Seventy percent of
Speaker 6: their sales are generated in store, and Abercrombie sixty percent
Speaker 6: are generated online.
Speaker 2: Lots to think about in the retail space. Thank you
Speaker 2: for this, Mary really appreciate it. That's Mary Ross Gilbert,
Speaker 2: senior equity analyst covering retail for Bloomberg Intelligence, and coming
Speaker 2: up on Bloomberg day Break weekend, we'll look ahead to
Speaker 2: the UK's highly anticipated autumn budget. I'm Nathan Hager, and
Speaker 2: this is Bloomberg. This is Bloomberg day Break weekend, our
Speaker 2: global look ahead, the top stories for investors in the
Speaker 2: coming week. I'm Nathan Hager in Washington. Up later in
Speaker 2: our program, we'll look ahead to key economic data from
Speaker 2: the world's second largest economy. But first, in a few
Speaker 2: days time, UK Chancellor Rachel Reeves will deliver an autumn
Speaker 2: budget which she helps to lessen the debt burden plaguing
Speaker 2: the country's finances. The announcements become one of the most
Speaker 2: hotly debated fiscal events of the year among investors, economists,
Speaker 2: and business leaders. But will Reeves be able to balance
Speaker 2: party politics and prudence for more, Let's go to London
Speaker 2: and bring in Bloomberg Daybreak. You're a banker, Caroline Hepger.
Speaker 3: Nathan, The Labour government has endured a volatile period of
Speaker 3: pre budget u turns and a political crisis in recent weeks,
Speaker 3: yet one constant has been the Chancellor's indication that she
Speaker 3: plans to give herself more breathing space against her own
Speaker 3: fiscal rules. However, with an income tax hike appearing to
Speaker 3: be dropped and Reeves favoring multiple smaller tax increases instead,
Speaker 3: investors and economists are skeptical about how she can make
Speaker 3: the numbers out up now. Trade is embracing for volatility
Speaker 3: as the deadline to share her economic plans for the
Speaker 3: country looms large. The cost of one week options, which
Speaker 3: now spans the upcoming fiscal event, have climbed to multi
Speaker 3: month highs for major sterling pairs. This in recent days
Speaker 3: as traders pay to protect themselves against potential swings in
Speaker 3: the pound. According to Bloomberg strategists, the waters have also
Speaker 3: been muddied ahead of the announcement. There are worries that
Speaker 3: the government could wrong foot the markets. Reeves's bid to
Speaker 3: increase the fiscal headroom comes against the backdrop of a
Speaker 3: significant deterioration in the public finances since her last economic
Speaker 3: statement back in the spring. She left herself a slim
Speaker 3: nine point nine billion pound margin against her spending rules,
Speaker 3: a buffer near historic lows now. The latest forecast from
Speaker 3: the Office for Budget Responsibility showed that her position has
Speaker 3: worsened by about twenty billion pounds since then, driven lower
Speaker 3: by a productivity downgrade those policy u turns. I mentioned.
Speaker 3: That's as the foots you one hundred had its worst
Speaker 3: one since August in the lead up to the budget
Speaker 3: amidst worries about AI being a bubble and signs of
Speaker 3: corporate pain. With the somewhat erratic data in the UK
Speaker 3: showing unemployment rising, it all does raise the bar for
Speaker 3: the Chancellor as she tries to navigate Britain's finances without
Speaker 3: spooking investors or exacerbating the flight of global capital. Camickshire Trevedi,
Speaker 3: chief FX and Emerging Market Statues at Goldman Sachs, tells
Speaker 3: me there are a number of factors at play.
Speaker 7: Look, I think it's a really interesting juncture for the UK.
Speaker 7: I think the inflation released, the fact that it has start,
Speaker 7: you know, come down, alongside some of the weaker labor
Speaker 7: market data that you had in the last couple of weeks,
Speaker 7: I think those are important. I mean, there's obviously been
Speaker 7: a lot of back and forth, a lot of uncertainty
Speaker 7: around you know, exactly what he is and isn't going
Speaker 7: to be in the budget. I mean, if you take
Speaker 7: a step back and think about it from a macro standpoint,
Speaker 7: irrespective the exact tax and spending decisions that they make,
Speaker 7: it looks like this is going to be a budget
Speaker 7: that is going to be fiscally conservative.
Speaker 3: Camik Shire Trevedi, Chief FX and Emerging Market Strategists at
Speaker 3: Goldman Sachs speaking there to me and Stephen Coat on
Speaker 3: Bloomberg Radio.
Speaker 5: Well.
Speaker 3: Also part of the equation are the political pressures facing
Speaker 3: the Chancellor, who is attempting to unite what seems like
Speaker 3: a fragmented parliamentary Labor Party. The delicate balance between investors,
Speaker 3: voters and MPs is something I've been discussing with Bloomberg's
Speaker 3: Chief UK economist Dan Hanson and our UK politics reporter
Speaker 3: Joe Mays. Dan, can I start with you just on
Speaker 3: the economics. Firstly, there's been some back and forth about
Speaker 3: just how big of a fiscal whole Rachel Reeves is facing.
Speaker 3: Can you just give us an update on the latest
Speaker 3: expectations from the Office of Budget Response Stability and what
Speaker 3: that means.
Speaker 8: Sort of reading between the lines of everything we've heard
Speaker 8: and particularly from our Bloomberg News colleagues, the number seems
Speaker 8: to be around twenty billion pounds. The fiscal slippage, now,
Speaker 8: that's made up of quite a few things, and actually
Speaker 8: quite a few offsetting things. The biggest reason for the
Speaker 8: whole is that the OBR, which is the UK's fiscal watchdog,
Speaker 8: is going to reappraise how quickly it thinks the economy
Speaker 8: can grow in the medium term, in particular how quickly
Speaker 8: productivity in the UK economy is likely to rise over
Speaker 8: the next five years. That is the single biggest factor
Speaker 8: determining the fiscal forecast, the path of productivity growth. So
Speaker 8: if you change that, you play around with the numbers
Speaker 8: quite significantly, and we think that could blow a twenty
Speaker 8: billion pound hole in of itself. In the public finances,
Speaker 8: interest rates are a little bit higher, there have been
Speaker 8: some policy u turns that probably adds another ten billions.
Speaker 8: That gets you to thirty. The reason why you then
Speaker 8: come back to twenty is that the OBER looks like
Speaker 8: it will also take a look at its wage growth forecast,
Speaker 8: which is quite low compared to other forecasters, and obviously
Speaker 8: that gets some money back for the Chancellor. So I
Speaker 8: think a reasonable expectation is something in the region of
Speaker 8: twenty billion pounds.
Speaker 3: So that's the economics. What about the politics. We've heard
Speaker 3: a lot about the political pressure facing the Chancellor as
Speaker 3: she's preparing for the budget statement. Where is it coming from?
Speaker 9: Joe Well, I think the political pressure is really around
Speaker 9: this question of can Reeves afford to do a budget
Speaker 9: that really annoys labor, MPs and the public, And that
Speaker 9: really is what she is in line to do because
Speaker 9: she has to increase taxes, have spending restraints to fill
Speaker 9: the fiscal hole that Dan just described. And really the
Speaker 9: question of this budget has been for me, how aggressively
Speaker 9: can she fill that hole with things like tax increases,
Speaker 9: How large can she build her fiscal buffer to give
Speaker 9: her reading space for the rest of the Parliament. Now,
Speaker 9: my sense from the Treasury, you know, about a month ago,
Speaker 9: was that she was willing to go quite aggressive. She
Speaker 9: was really willing to build that fiscal headroom up perhaps
Speaker 9: up to twenty pounds twenty five and really impressed markets,
Speaker 9: show markets that she was a very strong, stable chancellor
Speaker 9: and she hoped she'd be rewarded with lower borrowing costs
Speaker 9: and that would help her for the rest of the Parliament.
Speaker 9: Then we saw this change in the last few weeks
Speaker 9: where it seemed like, especially with the briefing against where's
Speaker 9: streeting from number ten and how that immediately shone a
Speaker 9: light on the leadership of kir Starmer and raised questions
Speaker 9: about how stable he is, which in turn raises the
Speaker 9: question about how stable.
Speaker 7: Rachel Reeves is.
Speaker 9: It's such a partnership there that it seems like what
Speaker 9: happened was they've realized they couldn't go so aggressive with
Speaker 9: the tax increases, especially touching the manifesto promises around income tax,
Speaker 9: notsh insurance VAT. So they've rolled it back to a
Speaker 9: certain extent to ward off some of that threat from
Speaker 9: labor MPs. And that's why we've got this new position
Speaker 9: where it looks like the manifesto won't necessarily broken. She
Speaker 9: will still try and you know, restore her fiscal buffer,
Speaker 9: perhaps increase it a little bit, but I don't think
Speaker 9: as much as she might have done before that whole.
Speaker 3: Episode Dan do her plans add up though without major
Speaker 3: tax hikes increases to the headline rate of income tax.
Speaker 8: What was quite strange about what was being briefed is
Speaker 8: that they were going to do this too up two
Speaker 8: down policy where they'd raise income tax by two p
Speaker 8: but cut national insurance by two p And it seemed
Speaker 8: to me that if you're going to break the manifesto,
Speaker 8: you might as well break it big time and really
Speaker 8: raise some money, because six billion pounds is not a
Speaker 8: lot of money to raise. So it seemed like, I
Speaker 8: understand it was sort of there was an attempt to
Speaker 8: sort of go through that muddy path of not upsetting
Speaker 8: labor MPs too much, but it seems like the big
Speaker 8: revenue raisers are off the table, and that does make
Speaker 8: it a lot harder to raise the money. You know,
Speaker 8: you can look at it now and say, well, if
Speaker 8: I put capital gains tax, I put that up by
Speaker 8: one percentage point. You know that currently raises X, Well
Speaker 8: I could get a little bit more money. But what
Speaker 8: actually happens is that people look at that and move
Speaker 8: their money elsewhere. And the tax base is very mobile.
Speaker 8: So if you have a lot of small measures with
Speaker 8: that risk attached, you end up in a world where
Speaker 8: you struggle to raise you potentially, I should say struggle
Speaker 8: to raise the money. There's just a lot more uncertainty.
Speaker 8: You know, there's a sort of backloaded in sort of
Speaker 8: the parlance, the backloaded element to it, which isn't what
Speaker 8: market's like to see. They're not like an upfront down
Speaker 8: payment when it comes to fiscal when it comes to
Speaker 8: a fiscal adjustment.
Speaker 3: Yeah. Absolutely. In terms of the pre announcement that you mentioned,
Speaker 3: the big speech which laid out her economic thesis a
Speaker 3: couple of weeks ago, did that do more harm than good?
Speaker 9: I think the immediate harm we've seen is that it
Speaker 9: has created a sense of chaos and loss of control
Speaker 9: around narrative for this budget, because you've had Reeves clearly
Speaker 9: preparing the country for one thing and then moving away
Speaker 9: from that in the you know, the last couple of weeks,
Speaker 9: and that does give an air of lack of control
Speaker 9: and wayward government, and that is clearly harmful. But I
Speaker 9: think that the kind of counterbalancing point is that she
Speaker 9: did nevertheless prepare in the minds of voters the idea
Speaker 9: that the Manifesto could be broken, and now it's like
Speaker 9: we're heading for a budget where it isn't broken. And
Speaker 9: so you can see why the ultimate outcome is a
Speaker 9: kind of net positive for Reeves in that she can
Speaker 9: say I haven't broken the manifesto and we still have
Speaker 9: stable public finances because everything I've announced and we've kept
Speaker 9: our promises. So I think ultimately it's landed in a
Speaker 9: place that isn't awful for Reeves. And you can see
Speaker 9: why she did it in that they know the OBR
Speaker 9: productivity downgrade that Dan just described is very hard to explain,
Speaker 9: and if Reeves hadn't done that, it would have been
Speaker 9: lost pretty much entirely on budget day and in the
Speaker 9: post budget coverage, where all of the newspaper headlines would
Speaker 9: have been about the taxing increases. So I think Reas
Speaker 9: wanted to get out there first and make a case
Speaker 9: in a moment where the public were focusing on that
Speaker 9: rather than the tax rises.
Speaker 3: Dan, just if we look forward to the next few days,
Speaker 3: is there a particular announcement which could spook markets or
Speaker 3: which would spook markets the most.
Speaker 8: I mean that's hard to any particular one. It's hard
Speaker 8: to put nailed down. I mean, a thing that markets
Speaker 8: don't want to hear anything about is something that increases inflation.
Speaker 8: So any sense that a policy, the policies are or
Speaker 8: the setup policies I should say, aren't particularly disinflationary, that's
Speaker 8: going to be a big warning sign for markets and
Speaker 8: you're only going to get a negative reaction. I think
Speaker 8: the other thing, going to Joe's point, it's very hard
Speaker 8: to know exactly what the market expects in terms of
Speaker 8: building the headroom against the fiscal rules. But you know,
Speaker 8: if she only adds five billion to the headroom, it's
Speaker 8: not really I mean it's nothing really. So I still
Speaker 8: think that I still think there's possibly a rabbit out
Speaker 8: of the hat whereby Originally the plan was to build
Speaker 8: twenty five billion pounds of headroom using that income tax rise.
Speaker 8: Now maybe it'll be closer to twenty because I think they're,
Speaker 8: you know, going to Joe's point about politics of this
Speaker 8: and what's the best path for Reeves. If there is
Speaker 8: a strong mark negative market reaction, that's going to be
Speaker 8: a problem for her as well. So you know, there's
Speaker 8: that side of it as well that she's trying to
Speaker 8: balance as well as the politics.
Speaker 3: My thanks to both of you for joining me. That
Speaker 3: is our chief UK economist, Dan Hanson and our UK
Speaker 3: Politics report at Joe May's. I'm Caroline Hepgar here in London.
Speaker 3: You can catch us every weekday morning for Bloomberg Daybreak.
Speaker 3: You up beginning at six am in London. That's one
Speaker 3: am on Wall Street.
Speaker 2: Nathan, Thanks Caroline, and coming up by Bloomberg Daybreak Weekend.
Speaker 2: We'll look ahead to offish or pm I figures in China.
Speaker 2: I'm Nathan Hager, and this is Bloomberg. This is Bloomberg
Speaker 2: Daybreak Weekend, our global look ahead, the top stories for
Speaker 2: investors in the coming week. I'm Nathan Hager in Washington.
Speaker 2: We turned out to China, where there's a question as
Speaker 2: to whether the economy will hit this year's growth target
Speaker 2: of five percent. In the week ahead, Beijing releases it's
Speaker 2: official PMI figures from more. Here's Doug Krisner, host of
Speaker 2: the Daybreak Asia podcast.
Speaker 4: Nathan weak. Economic momentum in China has persisted from the
Speaker 4: third quarter into the early part of the fourth quarter,
Speaker 4: and the slowdown appears to be broad based. For a
Speaker 4: closer look, I'm joined by John Liu, Bloomberg Executive editor
Speaker 4: for Greater China. John joins us from our studios in Beijing. John,
Speaker 4: thank you for being here. I'd like to start with
Speaker 4: this PMI data, and I'm curious as to whether we're
Speaker 4: going to learn anything new regarding the Chinese economy.
Speaker 10: I think the PMI data that we get is going
Speaker 10: to show a continued weakness in the economy. Manufacturing PMI
Speaker 10: has been a contraction for seven consecutive months. I think
Speaker 10: we will get an eighth consecutive month. Services PMI has
Speaker 10: been very, very close to that fifty point edge between
Speaker 10: contraction and growth, and I think we will stay there.
Speaker 10: There's even a danger that we will slip into contraction
Speaker 10: for services as well.
Speaker 4: You know, it's interesting that you made that point about
Speaker 4: services because when I look at some of the more
Speaker 4: high frequency type data coming out of China, or even
Speaker 4: the monthly activity data for the most recent month, demand
Speaker 4: domestically is still struggling. And I know the government has
Speaker 4: been trying to figure out a way to address this issue.
Speaker 4: Are there any novel ideas that have kind of emerged,
Speaker 4: or is it basically turning into a bit of a
Speaker 4: treadmill and going back to the old playbook to try
Speaker 4: to figure out what approach may be work.
Speaker 10: So I think the situation has actually gotten a little
Speaker 10: bit worse in the last month or so. So we
Speaker 10: got data for the month of October and that showed
Speaker 10: the thing that really surprised people was a drop off
Speaker 10: in investment in China, and so investment is almost half
Speaker 10: of GDP, and so we get investment data that's on
Speaker 10: a year to date basis. So when we got the
Speaker 10: October data, it was for the first ten months of
Speaker 10: twenty twenty five, So we have to calculate on our
Speaker 10: own what happened in October, and most economists believe that
Speaker 10: investment fell eleven percent more than eleven percent in October.
Speaker 10: That would be the biggest decline since the beginning of
Speaker 10: COVID back in twenty twenty.
Speaker 4: Is it a demand issue or is there a problem
Speaker 4: with the financial system in China where things are becoming
Speaker 4: a little clogged.
Speaker 10: So it's a combination of a lot of different things.
Speaker 10: On one hand, there's been some weakness in exports, and
Speaker 10: so that means there's less incentive for companies to be
Speaker 10: investing in new factories, et cetera. The Chinese government's also
Speaker 10: been pushing for sort of trying to reduce the capacity
Speaker 10: problem that we have in China. There are too many
Speaker 10: factories turning out too many goods that are all trying
Speaker 10: to get exported, and that's causing friction with trade partners,
Speaker 10: not just the US but Europe, with South America, with Africa,
Speaker 10: with countries around Southeast Asia, and so the government's trying
Speaker 10: to pull that back. That's been reducing the impulse to
Speaker 10: build out factories, to invest at a corporate level. And
Speaker 10: at the same time, the government has been pushing local governments,
Speaker 10: so cities and provincial governments to pay back their debts
Speaker 10: instead of using the money they have to finance new
Speaker 10: infrastructure projects. And so all of those things combined has
Speaker 10: led to this pullback in investment.
Speaker 4: So everything that you said just now, do we have
Speaker 4: to place that in the context of a country that
Speaker 4: is still struggling with deflationary forces. You mentioned the overcapacity issue. Yes,
Speaker 4: that's a part of it. But I'm wondering whether there
Speaker 4: is real concern now that China perhaps has entered some
Speaker 4: sort of deflationary trap.
Speaker 10: I think that is a real concern. I think the
Speaker 10: government is trying to address it. I think that is
Speaker 10: why this anti evolution campaign has been launched, because the
Speaker 10: government sees at the root of why China has this
Speaker 10: deflation problem is there's just too many factories churning out
Speaker 10: too much stuff, much more in excess of what actual
Speaker 10: demand there is in China. And so you either have
Speaker 10: to export it or all of these companies need to
Speaker 10: cut prices every month just to compete to get their
Speaker 10: product out the door.
Speaker 4: So when I think of deflationary traps, I think of
Speaker 4: the Japanese economy for what amounted to three decades. Let's
Speaker 4: talk a little bit about what's going on these days
Speaker 4: between China and Japan and what appears to be a
Speaker 4: real diplomatic test for the new Japanese Prime minister. She
Speaker 4: anchored China recently with remarks about Tokyo's position on the
Speaker 4: issue of Taiwan. Where do you think this ends up?
Speaker 10: So the comment by the new Japanese Prime minister really
Speaker 10: touched on a red line for the Chinese government, which
Speaker 10: has for since a civil war in the middle of
Speaker 10: last century, claimed Taiwan as a part of China. And
Speaker 10: so when she said that, when she sort of suggested
Speaker 10: that Japan might intervene in a potential conflict, that really
Speaker 10: set off a firestorm here in Beijing. What happens next?
Speaker 10: The Chinese are demanding that the Japanese Prime minister retract
Speaker 10: her statement, and obviously the Japanese government is going to
Speaker 10: be extremely reluctant to do that. And so We're sort
Speaker 10: of at an impasse at the moment. We've just had
Speaker 10: a delegation from Japan travel to Beijing for talks that
Speaker 10: have essentially yielded nothing, and so going forward, I think
Speaker 10: you will see more pressure from Beijing. They've been a
Speaker 10: advising tourists not to go to Japan, and I think
Speaker 10: the Japanese will be trying to stand their ground.
Speaker 4: So if you look at the relationship of these two countries,
Speaker 4: just insofar as trade is concerned, what kind of damage
Speaker 4: could be done if China were to impose some strict
Speaker 4: controls on exports to Japan or even products that are
Speaker 4: imported from the Japanese manufacturers into China.
Speaker 10: So China is Japan's largest trading partner, it is a
Speaker 10: giant market for As you said, a lot of this
Speaker 10: equipment and supplies that come into China get put into
Speaker 10: various different electronics and other products and are either exported
Speaker 10: to overseas markets or sold within China itself, and so
Speaker 10: there is a potential for companies like Honda and Toyota
Speaker 10: and Nissan to lose share in a very important market
Speaker 10: for them. At the same time, obviously, China supplies a
Speaker 10: lot of rare earth to the Japanese as they do
Speaker 10: the US and Europe, and so that is another lever
Speaker 10: that Beijing could use. It could cut off that supplies,
Speaker 10: that could cripple a lot of the Japanese manufacturing that happens,
Speaker 10: and so you know, the risks are very high for
Speaker 10: both both countries.
Speaker 4: I know on the level of tourism that a lot
Speaker 4: of Chinese tourists end up going to Japan for vacation
Speaker 4: or holiday. Is that dynamic beginning to shift.
Speaker 10: So we've had a lot of anecdotal evidence that tour
Speaker 10: groups are canceling their reservations in Japan, Chinese tour groups.
Speaker 10: We've had reporting that shows Chinese state owned companies are
Speaker 10: telling their employees not to go to Japan. But at
Speaker 10: the same time, we also have anecdotal evidence that suggests that,
Speaker 10: you know, planes traveling from Shahai to Tokyo are still
Speaker 10: full of tourists. And so it's until we get more
Speaker 10: aggregate data, it's really hard to tell cumulatively how much
Speaker 10: of an impact it will have. But if this goes on,
Speaker 10: the longer it goes on, we have to expect that
Speaker 10: the bigger the drag on the Japanese Economy.
Speaker 4: It will be John will leave it there. Thank you
Speaker 4: so very much. It's always a pleasure. John lou He
Speaker 4: is executive editor for Greater chin and Adjoining from Beijing,
Speaker 4: we go to Singapore next, where in the last week
Speaker 4: we heard from thought leaders at the Bloomberg New Economy Forum,
Speaker 4: we spoke with Singapore's Prime Minister, Lawrence Wong. Here is
Speaker 4: a portion of the conversation with Bloomberg News editor in
Speaker 4: chief John Micklethwaite.
Speaker 11: Can I ask about Singapore is a financial hub. You've
Speaker 11: had this on rush of money coming here. You've had
Speaker 11: this big push to lure people here. The family offices,
Speaker 11: you see many of them here, a lot of wealthy
Speaker 11: people coming here. And you get two issues from that.
Speaker 11: And the first one is this issue of inequality, which
Speaker 11: I know the Genie coefficient has got better, so.
Speaker 12: That in income terms, in income terms, income.
Speaker 11: Terms getting better, But there is this every time I
Speaker 11: come here, people talk about inequality more. Yeah, and I wondered,
Speaker 11: you've already introduced taxes on luxury cars and properties, but
Speaker 11: do you see Singapore moving towards other things a capital
Speaker 11: gains tax for instance.
Speaker 12: Two separate issues really because wealth management Singapore as a
Speaker 12: financial center. I think we can grow in terms of
Speaker 12: wealth management. Family officers may set up here. They are
Speaker 12: not Singaporeans. They you know, have their officers here. They
Speaker 12: manage your fans out of Singapore. We welcome that it
Speaker 12: creates jobs for Singaporeans. I think that's a good thing,
Speaker 12: and we can explain that to Singaporeans. Sometimes it creates frictions,
Speaker 12: especially when their ostentatious shows of and we have just
Speaker 12: to remind them. You know, Singapore is a different society.
Speaker 12: We are egalitarian. Our norms are different, please understand, and
Speaker 12: for the most part, they do tackling wealth inequality where
Speaker 12: it comes to our people and our population. That's something
Speaker 12: we continue to work on, whether it's income or wealth.
Speaker 12: We have a range of policies. It's not just about
Speaker 12: tax alone, because in Singapore we have the ability to
Speaker 12: also provide wealth injections. And a major reason why we
Speaker 12: can do that is housing. Everyone owns almost everyone owns
Speaker 12: their own home. Majority live in public housing, and when
Speaker 12: you buy a flat from the housing development bought in Singapore,
Speaker 12: you get housing equity. And that's the reason why even
Speaker 12: at the lower end of bottom twenty percent of households
Speaker 12: actually they have significant net wealth net asset value because
Speaker 12: of home ownership. So that's one way we can continue
Speaker 12: to fine tune our policies to provide more support and
Speaker 12: uplift for lower income groups. We also have a central
Speaker 12: provident fund, which is Social Security, which is the individual's
Speaker 12: own retirement nest eight, which we do top ups from
Speaker 12: time to time. So our tool sets are not limited.
Speaker 12: I know there's a lot of interest again Bloomberg's favorite
Speaker 12: question for me capital gtcept against tax wealth text. A
Speaker 12: lot of questions about tex but our our talkits are
Speaker 12: not limited to tax alt We also have wealth transfers.
Speaker 11: I'll take that as a maybe a lot of just
Speaker 11: the other issue about a lot of wealthy people coming
Speaker 11: here is that not all of them have been virtuous,
Speaker 11: if I can put it that way. You know you had.
Speaker 12: The money laudry, illicit flows.
Speaker 11: Yes, and you had the accusations about within the US.
Speaker 11: But one of the heads of the main Asian crime
Speaker 11: families being here. You've dealt with these things, but there
Speaker 11: is one of your ministers had a very nice Chinese saying,
Speaker 11: when we open the windows, some flies may also.
Speaker 12: Enter, and sometimes we get more than flies.
Speaker 11: Yes, but how many flies can Singapore tolerate and do
Speaker 11: you need the biggest fly swatter.
Speaker 12: We do have quite a big fly swatter. I mean
Speaker 12: it's we take it very seriously. It's not unique to Singapore.
Speaker 12: The elicit floors are everywhere. It's all financial centers have
Speaker 12: to deal with this. So to us, it's not so
Speaker 12: much about what you know that there is an incident
Speaker 12: that's bound. They're bound to be incidents, and they are
Speaker 12: bound to be suspicious transactions, and then with intelligence, with
Speaker 12: cooperation across different countries, eventually we get to the bottom
Speaker 12: of it. The key is what do you do? And
Speaker 12: we are very stringent and we take swift action and
Speaker 12: we will. We are determined to protect our reputation because
Speaker 12: that's what keeps Singapore going a trusted business and financial center.
Speaker 4: That with Singapore's Prime Minister Lawrence Wong speaking with John Micklethwaite,
Speaker 4: Editor and chief of Bloomberg News during the Bloomberg New
Speaker 4: Economy Forum in Singapore. I'm Dereg Krisner. You can catch
Speaker 4: us weekdays for the daybreak as your podcast. It's available
Speaker 4: wherever you get your podcast.
Speaker 2: Nathan, Thanks Doug Man. That does it for this edition
Speaker 2: of Bloomberg daybreak weekend, Join us again Monday morning at
Speaker 2: five am Wall Street Time for the latest don markets, overseas,
Speaker 2: and the news you need to start your day. I'm
Speaker 2: Nathan Hager. Stay with us stop stories and global business
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