Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories in the coming week from our Daybreak anchors
Speaker 2: all around the world. Straight Ahead on the program, we
Speaker 2: look to how airlines could fare going forward. I'm Nathan
Speaker 2: Hager in Washington.
Speaker 3: I'm Caroline Hepke in London, where we're looking ahead to
Speaker 3: a raft of tax changes in the UK at the
Speaker 3: start of the new financial year.
Speaker 4: I'm Doug Krisner, looking ahead to the latest price reports
Speaker 4: for China and whether deflation is at a turning point.
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 in the air earning season gets underway this week,
Speaker 2: with Delta Airlines reporting its latest results on Wednesday. For
Speaker 2: more on this and what to expect for the airline
Speaker 2: industry as a whole. We're joined by George Ferguson, senior Airspace,
Speaker 2: Defense and Airlines analyst for Bloomberg Intelligence. George, it's great
Speaker 2: to speak with you ahead of the results from Delta.
Speaker 2: How much could we see the outlook for this airline
Speaker 2: affected by what we've seen over the last month of
Speaker 2: war with Iran?
Speaker 5: So thanks for having me on. I think that a
Speaker 5: lot of the outlook and a lot of investor perspectives
Speaker 5: on the airline will be a function of that war
Speaker 5: in Iran and where it's at when earnings are reported.
Speaker 5: How so, So I mean, you know, right now, I
Speaker 5: think we're looking at a scenario where the streets are
Speaker 5: Humus look effectively closed, right. I don't think they're physically closed,
Speaker 5: but they look effectively closed, and the US may walk
Speaker 5: away from the region without reopening it. Some of the
Speaker 5: rhetoric are hearing, you know, out of the Trump administration now,
Speaker 5: and so that is obviously going to play into where
Speaker 5: fuel prices are going. Right, So I think as investors
Speaker 5: go into those earnings, I think, you know, one queue
Speaker 5: is just not going to matter as much. We know
Speaker 5: fuel prices spiked, it's typically a week quarter, so you're
Speaker 5: not going to spend a lot of time parsing those numbers.
Speaker 5: My guess is that Delta will do a lot of
Speaker 5: work to try to keep those earnings kind of in
Speaker 5: a decent place by economizing on maintenance and things like that.
Speaker 5: But again, investor is going to be really focused on
Speaker 5: down the road. We're coming into summer travel season two
Speaker 5: Q and three Q, and so if the price of
Speaker 5: fuel remains high and even potentially goes higher because the
Speaker 5: Straits are removes or closed and the US is pulling
Speaker 5: out of the region, I think that you know, that
Speaker 5: sets up a different demand dynamic for the summer, right.
Speaker 5: I think that Delta's got a fairly well heeled flying
Speaker 5: clientele that can manage an increase in prices twenty thirty
Speaker 5: percent for tickets, But there will be some demand that
Speaker 5: peels away, and so then the dance comes between size
Speaker 5: and capacity correctly for what the new demand is in
Speaker 5: a higher ticket price environment. Or if the US pulls
Speaker 5: away from the Straits and the Iranians say, look, there's nobody,
Speaker 5: there's nobody here to blame anymore. The US is gone,
Speaker 5: We'll let tankers flow the global you know, oil prices
Speaker 5: returned to sort of prewar level or at least you know,
Speaker 5: descend a bit, don't continue to climb. You'll have a
Speaker 5: much better outlook for so or flying season. So I
Speaker 5: think everything everything rides on what the outcome of the
Speaker 5: Iran sort of you know, war or fight, whatever you
Speaker 5: want to call it, is into two Q and three Q,
Speaker 5: and I think that's how investors will We'll look at
Speaker 5: earnings and look at guidance through that lens.
Speaker 2: Given that demand picture you just mentioned, the focus on
Speaker 2: the premium traveler, does that put Delta in a better
Speaker 2: position compared to some of the other major carriers, So.
Speaker 5: We think so, right, We think that United in Delta
Speaker 5: and to a lesser extent American have passengers, have client
Speaker 5: tele that are going to want to travel despite changes
Speaker 5: in prices. Right, So, I mean if fuel prices rise
Speaker 5: by one hundred percent, which is kind of you know
Speaker 5: where we were here as we closed out one Q. Look,
Speaker 5: you know, typically these carriers twenty to thirty percent percent
Speaker 5: of revenues to be consumed by fuel. So maybe the
Speaker 5: way to think about it is that means that ticket
Speaker 5: prices have to rise by what maybe twenty or thirty percent.
Speaker 5: If you're you know, a fairly wealthy client, You're not
Speaker 5: going to let twenty to thirty percent increases in in
Speaker 5: your ticket price, right, five hundred to six hundred dollars
Speaker 5: maybe to go to the West Coast, maybe maybe one
Speaker 5: thousand to twelve hundred dollars to go to Europe. You're
Speaker 5: not going to let that get in the way of
Speaker 5: your travel plans. The people whose travel plans will get
Speaker 5: interrupted by that are more of the basic economy traveler,
Speaker 5: the travel that's probably flying you know, Spirit, Frontier, Jet Blue,
Speaker 5: these kind of carriers, And I think that will exacerbate
Speaker 5: this fight for the back of the airplane because because
Speaker 5: United and Delta are filling their airplanes with a bunch
Speaker 5: of premium travelers, but in the back of every United
Speaker 5: Airline flight or Delta Airline flight is a little bit
Speaker 5: of Spirit airline. It's a basic economy traveler, and the
Speaker 5: fight will go on to get them in the airplane
Speaker 5: at least to cover marginal costs.
Speaker 2: Thank you for this, George, again, great having you on
Speaker 2: with us. That's a Bloomberg Intelligence Senior Aerospace, Defense and
Speaker 2: Airlines analyst, George Ferguson. Let's take a look now at
Speaker 2: some stocks making news in the week ahead. I'm Nathan Hager,
Speaker 2: joined by Bloomberg Markets Live strategist Tatiana Daria. I guess
Speaker 2: we could say this is the unofficial start of earning
Speaker 2: season before the banks get things going right. We've got
Speaker 2: a few companies opening things up, including Constellation Brands on Wednesday.
Speaker 2: It's been a tough go for the booze business, hasn't it?
Speaker 6: Yes, exactly. Expectations aren't very high here for the company,
Speaker 6: but some analysts on Wall Street are starting to warm
Speaker 6: up to the stock on valuation concerns, saying that a
Speaker 6: lot of the bad news is already in the stock.
Speaker 6: So Bloomberg Intelligence forecast at net revenue will fall about
Speaker 6: fifteen percent do mainly to their whine and spirits portfolio devestments.
Speaker 6: But they're also anticipating some sluggishness in the beer segment,
Speaker 6: which is obviously their main driver or crown a jewel
Speaker 6: there and especially among Hispanic consumers. BI notes, but some
Speaker 6: analysts are saying that most of that is already in
Speaker 6: the price. Perhaps, you know, the beer segment has room
Speaker 6: to surprise to the upside. We've seen JP Morgan lifting
Speaker 6: their price target. We've seen Evercore adding the stock to
Speaker 6: the Tactical Outperformed list, and it also got an upgrade
Speaker 6: from City earlier this month, citing evaluation that's below historical levels,
Speaker 6: and if you look at the forward price to earnings ratio,
Speaker 6: it has indeed fallen drastically. It's hovering around the lowest
Speaker 6: since twenty twelve now as shares have come down sharply
Speaker 6: over the past year.
Speaker 2: Yeah, valuation concern certainly speaks to that. There before we
Speaker 2: hear from constantly, we're going to get results as well
Speaker 2: from Levi Strauss on Tuesday. Of course, we got that
Speaker 2: big disappointment from Nike this past week. Do you put
Speaker 2: Levi in the same category as Nike in terms of
Speaker 2: what to expect there?
Speaker 6: I think one has to, right because they both speak
Speaker 6: to the consumer. They're both sort of discretionary brands that
Speaker 6: you turn to for sort of luxury and comfort, not
Speaker 6: necessarily because you really need to. And expectations are pretty
Speaker 6: I would say modestly positive. Ubs, for example, expects a
Speaker 6: fourth quarter sales and EPs beat, though they say the
Speaker 6: company may remain cautious on a full year outlook amid
Speaker 6: the macro as certainly, just like we've seen with Nike,
Speaker 6: they know that the US direct to consumer sales likely
Speaker 6: rose about two percent year over year, and that web
Speaker 6: traffic likely increased even more in the US according to
Speaker 6: their industry data that they track. Nonetheless, the company may
Speaker 6: choose to just be cautious and conservative and not raise
Speaker 6: their guidance despite the likely beat. And that's because of
Speaker 6: the reasons that we have seen with the Nike report,
Speaker 6: with potential fresh setbacks in Europe and the Middle East,
Speaker 6: regions that are obviously heavily exposed to the energy costs
Speaker 6: and just the disruptions coming from the year round war.
Speaker 2: Now, were you expecting any further commentary from Levi around
Speaker 2: how they're dealing with trade uncertainty as well after that
Speaker 2: Supreme Court tariff decision and some of the uncertainty around
Speaker 2: how the president might try to rebuild that terrafall and
Speaker 2: how that could affect its business.
Speaker 6: Yes, certainly, you know, tariffs is sort of fallen off
Speaker 6: the radar, but when you look at company earnings, especially
Speaker 6: in the consumer space, it is still a big focus.
Speaker 6: So it will be really interesting to see what the
Speaker 6: company has to say on that matter.
Speaker 2: Yeah, and of course earnings take off with Delta Airlines
Speaker 2: on Wednesday. What kind of a stock move could we
Speaker 2: see following those results? Ta Tiana.
Speaker 6: Well, what it's interesting with Delta Air is that they
Speaker 6: kind of have been the exception among the airlines. It
Speaker 6: is the only airlines stock bucking the weakness among major
Speaker 6: peers since the war started. If you look at an
Speaker 6: index of an industry index, that index has fallen into
Speaker 6: a bear market recently, but Delta shares have actually gained
Speaker 6: three percent since the war started. And maybe because the
Speaker 6: company has already set a positive tone for its earnings
Speaker 6: report after issuing a more optimistic sales target at a
Speaker 6: recent conference, saying that bookings for leisure and corporate customers
Speaker 6: accelerated into March. Actually, and they say they are very
Speaker 6: well positioned to navigate the current environment at the time
Speaker 6: when elevated fuel prices are roiling the industry. And it
Speaker 6: looks like investors are giving Delta the benefit of the
Speaker 6: doubt here. But obviously things change very fast these days,
Speaker 6: so it will be interesting to see how their views
Speaker 6: have changed since they issued that update about two weeks
Speaker 6: for two weeks.
Speaker 2: Ago from now, yeah, absolutely, while we wait for updates
Speaker 2: around the war and how that could develop as well.
Speaker 2: I mean, what kind of changes could we see? What
Speaker 2: are you listening for, particularly from the call from Delta.
Speaker 6: Later on, I'll be listening on clues about the consumer
Speaker 6: right because obviously travel is a discretionary category. Most of
Speaker 6: us do it for fun, for vacations, So I'll be
Speaker 6: interested to see if they have seen a pullback from
Speaker 6: consumers specifically, because if you look at alternative data on
Speaker 6: the Bloomberg as it relates to that, yes, it showed
Speaker 6: that airline spending is hanging in there, but hotel spending
Speaker 6: has sort of fallen off here in recent so I'd
Speaker 6: be sort of curious to see how much is that
Speaker 6: impacting airlines.
Speaker 2: Already, here we go for earning season for Q one.
Speaker 2: Thank you for this, Bloomberg Markets Live Strategist Tatiana Daria,
Speaker 2: And coming up on Bloomberg day Break Weekend, we'll look
Speaker 2: ahead to the new tax year in the UK starting
Speaker 2: April sixth. I'm Nathan Hager, and this is Bloomberg. This
Speaker 2: is Bloomberg Day Break Weekend, our global look ahead at
Speaker 2: the top stories for investors in the coming week. I'm
Speaker 2: Nathan Hager in Washington. Up later in our program, we'll
Speaker 2: look to some key economic data in China. But first
Speaker 2: it is now the new tax year in the UK
Speaker 2: running from April, and it's about to bring major changes
Speaker 2: in taxation and employment rights. Many of them were announced
Speaker 2: last November by UK Chancellor Rachel Reeves. But they land
Speaker 2: just as Britain's growth outlook is deteriorating. Let's go to
Speaker 2: London and get more from Bloomberg day Break europe banker
Speaker 2: Caroline hepger Nathan.
Speaker 3: The tax here in Britain begins on the sixth of
Speaker 3: April and twenty twenty six is going to bring in
Speaker 3: a lot of changes for workers, employers, landlords, business owners
Speaker 3: and investors. The Employment Rights Act starts to come into force.
Speaker 3: That's the biggest change in employment law in decades, designed
Speaker 3: to protect those in low paying or insecure jobs. Also,
Speaker 3: there are a number of tax increases due to tax
Speaker 3: thresholds to dividend and capital gains tax changes. All of
Speaker 3: this part of the Chancellor's so called Smallger's Board budget
Speaker 3: from last autumn. Plus there's an increase in the state
Speaker 3: pension age and higher welfare payments for retirees, people on
Speaker 3: low income, those out of work were unable to work.
Speaker 3: But will it help Britain's economy and workers. Do you
Speaker 3: know what I mean?
Speaker 7: Now?
Speaker 3: As John Steppeck, editor of Bloomberg's award winning Money Distilled newsletter,
Speaker 3: there are so many changes John, that are coming in
Speaker 3: this new financial year in Britain that we're going to
Speaker 3: have to break them all down. So let's start first
Speaker 3: with the changes that are coming under the Employment Rights
Speaker 3: Act of twenty twenty five. This is the so called
Speaker 3: day one employment rights legislation from the Labor government. What
Speaker 3: does it involve and why is it being brought in?
Speaker 8: Well, this one, I mean, this has been brought in
Speaker 8: just to enhanced protections for work case. Now, whether you
Speaker 8: think that is necessary or whether you think we've already
Speaker 8: got in off, it's a different question that will depend
Speaker 8: your politics. But from April the sixth, we're getting day
Speaker 8: one rates to paternity leave. So at the moment you
Speaker 8: have to be with a company for twenty six weeks
Speaker 8: six months, that's been reduced to the FoST day. There's
Speaker 8: extended six p rates, so at the moment you're not
Speaker 8: due statutory sick p until the fourth day your illness.
Speaker 8: Let's all kick in from the FoST day now, to
Speaker 8: be fair enough, A lot of employers don't actually rely
Speaker 8: on statutory sick pay. It is something you just get
Speaker 8: paid your wage. But that's that's something that if your
Speaker 8: employer does that, and there's some tweaks to collective redundancy rules,
Speaker 8: so if they don't do that properly, they've kind of
Speaker 8: double the amount of time you can claim front fair dismissal.
Speaker 8: They've added sexual harassment to the whistle blowing guidelines. There's
Speaker 8: various bits and pieces. Some of the kind of punchier
Speaker 8: stuff has been delayed, I think partly because obviously employers
Speaker 8: need a bit more time to adjust. So one of
Speaker 8: the major things was, at the moment, you can be
Speaker 8: employed for up to two years and not be able
Speaker 8: to claim unfair dismissal. So in effect, you can you
Speaker 8: can need someone out the door if they're not working
Speaker 8: without having to go through that kind of massive process.
Speaker 8: That's going to get reduced to six months. And that
Speaker 8: was one of the more controversial changes because you know,
Speaker 8: it's it will make life more complicated hiring wise. But
Speaker 8: that yeah, so that's why be had at the moment.
Speaker 8: Yeah no, so yeah, so that's what's kicking in for me.
Speaker 3: April the sixth Yeah, So that's in terms of the
Speaker 3: Employment Rights Act, which trade unions like the TUC and
Speaker 3: others see as benefiting workers in terms of their health
Speaker 3: and they're wellbeing. As for the other major tax changes,
Speaker 3: so we know that income taxes are going to effectively
Speaker 3: go up because of fiscal drag, right, so we have
Speaker 3: to think about that in terms of the tax changes
Speaker 3: as being a big one.
Speaker 6: Yeah.
Speaker 8: I think that's really important, and I'm glad you brought
Speaker 8: that up because nothing's changed technically, but that's the basic problem.
Speaker 8: So if you've had a pay raise that is ce
Speaker 8: has gone up with inflation this year, then that means
Speaker 8: that your wages obviously have gone up. But the problem
Speaker 8: is that fiscal drag means the income tax, So the
Speaker 8: income tax thresholds have been frozen, so it means that
Speaker 8: for every extra pound that you get, you're being put
Speaker 8: anty a different tax bracket effectively. So the moment you
Speaker 8: can add up to twelve five hundred and seventy pounds
Speaker 8: and that's your personal allowance, above that you pay twenty
Speaker 8: percent tax. Above fifty two hundred and seventy you pay
Speaker 8: forty percent tax, and then above one hundred and twenty
Speaker 8: five one forty you pay forty five percent tax. The
Speaker 8: point is that's been frozen for several years now, so
Speaker 8: more and moarriors are getting dragged into higher rate tax bands.
Speaker 8: And then the kind of proportion of people who would
Speaker 8: once have been considered not to be high way journals
Speaker 8: like you know, nurseis people like that are increasingly being
Speaker 8: dragged more and more of them into the forty percent
Speaker 8: band and even a bit higher up. You know, some
Speaker 8: people are getting pulled into the forty five percent band
Speaker 8: they wouldn't once have been considered, you know, super wealthy,
Speaker 8: and that's just that's pure inflation. So it's a tax
Speaker 8: on inflation. Your living standard has not improved because your
Speaker 8: wages are buying you the same amount of stuff, but
Speaker 8: you're getting tax more on it. So actually, yeah, if
Speaker 8: you've only had an inflation pay rise, if you've even
Speaker 8: had an inflation pay rise this year, actually wash off.
Speaker 8: And so fiscal drag is pretty brutal, and there REases
Speaker 8: the government a good amount of money. Yeah, so I
Speaker 8: can see why the foind of it.
Speaker 3: Yeah, absolutely, So that's one big change. Then one that
Speaker 3: we've had more advertising is not a lot of advertising
Speaker 3: about a fiscal drive. But there is about this change
Speaker 3: which is making tax digital, which requires self employed workers
Speaker 3: and landlord to earn over a certain money through their
Speaker 3: business or through rental to keep more records. So there's
Speaker 3: going to be more frequent sort of interactions between you
Speaker 3: and the tax authorities.
Speaker 8: Yeah, so if you're doing over fifty thousand pounds as
Speaker 8: a soul trade or aligned lord, then you're going to
Speaker 8: have to start failing digitally. And I mean the big
Speaker 8: issue here is basically admin and a compliance button, so
Speaker 8: you have to get used to the software. The software costs,
Speaker 8: I mean, I kind of the last thing I saw
Speaker 8: was about four hundred to five hundred pounds. A lot
Speaker 8: of people will probably want to ask an accountant to
Speaker 8: sort this out for them because it's you know, it's
Speaker 8: a fave, And I guess the benefit is probably arguably
Speaker 8: mostly on the tax blank side. I mean, you could
Speaker 8: argue that it gives you proay slightly more visibility on
Speaker 8: what your tax bill is likely to be, but to
Speaker 8: be honest, if we keep half decent accounts should probably
Speaker 8: be on top of that already. I would say it's
Speaker 8: another compliance budden on small business more than it is
Speaker 8: a beneficial change.
Speaker 3: Overall, and this is only a few of the changes.
Speaker 3: Do we know how all of these changes are actually
Speaker 3: going to affect the economy?
Speaker 8: Well, the problem is, you can look at these changes,
Speaker 8: you can probably make a case on the basis of
Speaker 8: you know, fairness or particular interest group as to why
Speaker 8: or this is a good thing. You know, but this
Speaker 8: we should be doing this. We should be giving people
Speaker 8: poternality to leave from day one, all of that sort
Speaker 8: of stuff. The problem is, though, the you're starting to
Speaker 8: kind of push even more compliance costs onto Yeah, small
Speaker 8: businesses and large businesses, but large businesses are usually set
Speaker 8: up for this kind of thing already. They can swallow
Speaker 8: the costs. And you know, this is coming at a
Speaker 8: time when the labor market in the UK is kind
Speaker 8: of turning down, cooling off. We've already seen a massive
Speaker 8: kind of minimum wage. There's another one coming in at
Speaker 8: the same time. And you know, but we were saying
Speaker 8: kind of like young people struggling to get jobs basically
Speaker 8: because they are too expensive to hire. And I mean
Speaker 8: this is don't get me wrong, It's not just about that.
Speaker 8: We're also we've got a hangover from COVID still, so
Speaker 8: you know, during COVID. The labor market was massively disrupted
Speaker 8: because obviously the leisure industry was shut down and then
Speaker 8: it reopened and everyone had found other jobs elsewhere, so
Speaker 8: they had to hire, you know, and pay more to
Speaker 8: hire people at that point. And I think we're actually
Speaker 8: still going through that sort of like corrective phase now.
Speaker 8: The problem is making it very hard for anyone either
Speaker 8: getting out of UNI or it just wants a kind
Speaker 8: of part time job to find work because again it's
Speaker 8: become too expensive and this sort of extra compliance buton
Speaker 8: and also the awareness that there's more to come is
Speaker 8: going to put employers off taking people on even more.
Speaker 8: So I do think it's it's not the ideal time
Speaker 8: to be doing this, even if you agreed with the
Speaker 8: kind of underlying, you know, kind of principle, and I
Speaker 8: think a lot of it's arguably driven by ideology more
Speaker 8: than practicality. I mean, obviously labor is kind of funded
Speaker 8: by the trade unions to a great extent. Again, nothing
Speaker 8: necessarily wrong with that, but means they're going to operate
Speaker 8: in you know, in line with what they want. And
Speaker 8: the problem is that it's all very well, but it's
Speaker 8: great having worker protections if you've got a job, but
Speaker 8: if it makes it harder for you to get a job,
Speaker 8: it's not so great. Yeah, it's a similar thing with
Speaker 8: the actually the renter's rights. But you know, one of
Speaker 8: the problems that is that is if you're already a
Speaker 8: rent up your phine, it's going to make it hard
Speaker 8: dot actually get a flat because landlords are going to
Speaker 8: be more locked in and they're going to be much
Speaker 8: more care for about people.
Speaker 3: Yeah. I haven't even got into the from the first
Speaker 3: of May, not the sixth of April, but you are
Speaker 3: right to bring it up because the Renters Reform Act
Speaker 3: is all about limiting competition, for example, bidding wars for
Speaker 3: flats or apartments or homes. It also limits the amount
Speaker 3: that you can increase the rent buy if you are
Speaker 3: a landlord. So there are beneficial things for renters, which
Speaker 3: perhaps again would if politically the Labor Party wants to
Speaker 3: discuss that, then surely that might be a positive. But
Speaker 3: as you say, if you can't get an apartment, then
Speaker 3: it's a problem. There are lots of other tax changes.
Speaker 3: Some have had lots of attention, like the change to
Speaker 3: inheritance tax on family businesses and farms, like the changenges
Speaker 3: to dividend and capital gains taxes, which have had quite
Speaker 3: a bit of attention i'd say from investors because again
Speaker 3: they're rashting up the tax. Take the Chancellor you know,
Speaker 3: wants to increase the revenue from that. What is it
Speaker 3: going to mean for people?
Speaker 8: Well, the things I mean, so the dividend tax has
Speaker 8: going up by two percentage points and the basical rate
Speaker 8: and the higher rate additional rates staying the same because
Speaker 8: if it went up any further it would basically almost
Speaker 8: be inlane because the end tax straight and I mean
Speaker 8: there's not I mean beyond using your tax shells, there's
Speaker 8: basically that you can do. But that's except for swallow
Speaker 8: it inheritance taxes a head covered change. So the IHD
Speaker 8: changes are if you basically, if you want to have
Speaker 8: farm or business property, then now rather than basically having
Speaker 8: uncapped relief or an inheritance tax, you can pass on
Speaker 8: up to two point five million per individual, so it
Speaker 8: means five million in total. And to be feeled, that
Speaker 8: went up because it was originally one million, but the
Speaker 8: government kind of back down a bit on that and
Speaker 8: raised it and image you pass that over and then
Speaker 8: after that you get HD effectively. The relief is half,
Speaker 8: so it means you're paying HD at twenty percent rather
Speaker 8: than forty percent. And that's on everything above the two
Speaker 8: point five of the five million am stocks. It gets
Speaker 8: them too. This they don't have the two point five
Speaker 8: million allowance. They just have the normal allowance, but now
Speaker 8: they'll have after two years. You used to be able
Speaker 8: to hold certain ame stocks and pass them all free
Speaker 8: of inheritance tax. Now they'll be taxed at twenty percent
Speaker 8: rather than forty percent.
Speaker 3: Yeah. But all of this raft of tax changes and
Speaker 3: employment rights changes coming on the sixth of April, and
Speaker 3: we shall see what happens in terms of its impact
Speaker 3: on the economy, even as we know that the economic backdrop,
Speaker 3: of course for the UK and for many other countries
Speaker 3: because of the war in Iran, does seem to be
Speaker 3: dark a little bit. John, thank you so much for
Speaker 3: being with me talking over all of the details. Bloomberg's
Speaker 3: John Steppek. Thanks for your time, and you can catch
Speaker 3: up of course with John's Money Distilled newsletter in the week.
Speaker 3: I'm Karin Hepka here in London. You can catch us
Speaker 3: every weekday morning for Bloomberg Daybreak. You up that's the
Speaker 3: beginning at six am in London, one am on Wall Street, Nathan.
Speaker 2: Thanks Caroline, and coming up on Bloomberg day Break Weekend,
Speaker 2: we'll look ahead to China's March CPI and PPI data releases.
Speaker 2: I'm Nathan Hager, and this is Bloomberg. This is Bloomberg
Speaker 2: Daybreak Weekend, our global look ahead at the top stories
Speaker 2: for investors in the coming week. I'm Nathan Hager in Washington.
Speaker 2: This week we get March readings on inflation in China.
Speaker 2: Let's get a preview now from Bloomberg's Doug Prisner, host
Speaker 2: of the Daybreak Asia podcast.
Speaker 4: Thanks Nathan. China has been mired in a record streak
Speaker 4: of deflation, especially at the wholesale level. However, there are
Speaker 4: signs of change. For example, in February, producer prices slumped
Speaker 4: nine tens of one percent last year a negative reading, yes,
Speaker 4: but it was much better than economist at forecast. And
Speaker 4: more recently we've seen signs of building price momentum. The
Speaker 4: latest manufacturing PMI show the Chinese companies recorded their fastest
Speaker 4: surge in both raw material cost and output prices in
Speaker 4: about four years now. This represents one of the first
Speaker 4: tangible signs of the spillover from the conflict in the
Speaker 4: Middle East. So a few questions here, what does this
Speaker 4: mean for the Chinese economy and where does the Chinese
Speaker 4: inflation story go from here? For a closer look, let's
Speaker 4: bring in Bloomberg economist Eric Jeu, who joins us from
Speaker 4: Hong Kong. Thank you so much, Eric for being here. So,
Speaker 4: the price component of that PMI report indicated largely that
Speaker 4: inflation was being imported, and I'm wondering, is that a
Speaker 4: wealth come signed for China.
Speaker 9: In terms of the result. Yeah, I think definitely is
Speaker 9: going new that we might finally get out of deflation
Speaker 9: this year or very soon. I think the next next
Speaker 9: week's much price data. I think it's becoming quite consensus
Speaker 9: now the PPI should turn positive, you know, thanks to
Speaker 9: the energy caused shock from the Iran War. So I
Speaker 9: think it's probably the first inflation reading for PPI in
Speaker 9: more than three years. So last time it's the end
Speaker 9: of the war, your career in the Russian War, right,
Speaker 9: So it's been more than three years, and I think
Speaker 9: finally now the PPI is going to get out of deflation.
Speaker 9: And CPI is already in the inflationary doom. So I
Speaker 9: think it's we're expecting the GDP deflator could turn positive maybe,
Speaker 9: if not the first quarter, it must be the second part.
Speaker 9: So in terms of final result, I think it's it's
Speaker 9: it's what part the makers they're really looking forward, you know,
Speaker 9: to see a party of inflation, but it's probably get
Speaker 9: there by the wrong reason because we're always talking. They
Speaker 9: want to you know, push domest demand to drive the
Speaker 9: price up. But now I think it sends to some
Speaker 9: external shock. Actually it's it's it's essentially helping China, but
Speaker 9: probably not the recent supposi makers have been you know,
Speaker 9: making efforts. But anyway, it's the androidult here that we
Speaker 9: are getting there.
Speaker 4: That's an interesting point because you and I have spoken
Speaker 4: in the past about the weak growth story in China.
Speaker 4: So if things don't improve and energy prices were to
Speaker 4: remain elevated, is stagflation of possibility?
Speaker 9: Not quite, because in the first quarter we actually have
Speaker 9: seen some signs of domestic demand is picking up, but
Speaker 9: it's still at a very low level compared to a
Speaker 9: very weak final quarter of last year. So you know,
Speaker 9: investment is picking up. Also, consumption slightly accelerating, so it's
Speaker 9: I think at least you can see that the bottom
Speaker 9: and the demand might have bottomed out, but still it
Speaker 9: takes a quite time for us to see a robust tomorrow,
Speaker 9: but recovery on those demands sides, so I'm not really
Speaker 9: seeing it's more like stagnation for China. I think the
Speaker 9: demand is still slowly, slowly recovering, but now after the
Speaker 9: supply shock is really helping more on the price side.
Speaker 4: So I'm wondering about how the consumer is performing right
Speaker 4: now in China and whether demand is beginning to pick
Speaker 4: up ever so slightly. You talk about the fact that
Speaker 4: retail inflation in China is out of deflation right now,
Speaker 4: are we're seeing a little bit more exuberance on the
Speaker 4: part of the consumer.
Speaker 9: I think the first two months it's it's quite positive.
Speaker 9: But you know, because China this year, this year's Luna
Speaker 9: new Your holiday is longer than usual, have a nine
Speaker 9: days holiday, so it's still not clear whether the holiday
Speaker 9: is boosting up to the retail sales or it's just after holidays,
Speaker 9: So the machas data will be more interesting after the
Speaker 9: holiday demand is if they did, we're going to see
Speaker 9: how you know that the much retail sales is doing.
Speaker 9: If that's still kind of robust, so that would be
Speaker 9: a more incredible sign of demanding and pulling up. If
Speaker 9: you see retail sales out decelerating slowly again, then it's
Speaker 9: probably just a one off booster from the holidays. So
Speaker 9: that means the comment still needs more work to you know,
Speaker 9: stimulate consumption.
Speaker 4: So Eric, give me a sense of what that might
Speaker 4: look like. I know from the most recent NPC gathering,
Speaker 4: creating inflation was a top priority, So I'm curious about
Speaker 4: what more the government could do to change the narrative here.
Speaker 9: I think if you look at NPC, actually the policy
Speaker 9: it broadly continuing, so they don't add much more additional stimulus.
Speaker 9: So on the consumption side, I think basically they're continuing
Speaker 9: what they're doing last year, you know, subsidy for consumption upgrading,
Speaker 9: and also they'll continue going to give child subsidies as
Speaker 9: kind of you know, small incremental structure reforms in trying
Speaker 9: to address the high living costs for ready on child,
Speaker 9: for child education, that kind of stuff. Our view is
Speaker 9: that those steps will be will help in the end,
Speaker 9: but it will be a long process, so it's not
Speaker 9: going to you know, change consumer behind behavior overnight. So
Speaker 9: it does require long community from the government to continueing
Speaker 9: or even step up with those small steps, and this
Speaker 9: can gradually improve consumer sentiment and help them to spend
Speaker 9: more hopefully.
Speaker 4: Obviously, the property market is a big part of the story,
Speaker 4: and housing prices continue to remain very very weak. Give
Speaker 4: me your sense of where we we go from here
Speaker 4: just in terms of real estate and what the government
Speaker 4: can do to kind of verse what we have been
Speaker 4: seeing month on month on month.
Speaker 9: Yeah, it's a good point. Actually, we just this some
Speaker 9: assessment up to the assessment of the property market. Actually
Speaker 9: after we saw some green shoots in the first two months,
Speaker 9: the jopping the declining home prices and hoome sales were
Speaker 9: actually narrowing in the first two months of this year,
Speaker 9: so we revised our long term outto for property market.
Speaker 9: I think we think it's if you look at the
Speaker 9: whole correction which started like five years ago, that's a
Speaker 9: starting point, and if we believe the whole process is
Speaker 9: to readjust the demand supply property supply to align with
Speaker 9: the declining demand. We think the whole process now is
Speaker 9: like seventy percent done, So that means that could be
Speaker 9: still thirty percent to be adjusted before we see a stabilidation,
Speaker 9: so we think that may take one or two more years.
Speaker 9: So I think most by the end of next year
Speaker 9: we might find out a stabilization. You know how they market.
Speaker 4: To what extent is the overcapacity problem in China being addressed,
Speaker 4: because I know that was blamed for a long time
Speaker 4: for kind of fueling this deflationary trend.
Speaker 9: I think the government that I was actually doing something
Speaker 9: since last year, and but it's basically focusing on the
Speaker 9: supply side. And you know, they're asking some sectors, evs,
Speaker 9: solar panel and also some online platforms. So I think
Speaker 9: they just called it. I think they just had some
Speaker 9: statement the last week, you know, seeing they need to
Speaker 9: on our platform, they need to stop the price wars
Speaker 9: and you know, cut the subsidies for those sales. So
Speaker 9: I think the government definitely, you know, they're trying to
Speaker 9: prevent a more cuss throat price war in those industries
Speaker 9: and trying to h make the price up so in
Speaker 9: order to you know, have inflation returns sooner than they expected.
Speaker 9: I think that definitely we have seen some effects from
Speaker 9: those efforts in the price data, and I think this
Speaker 9: year they're going to continue to do those things and
Speaker 9: combining with you know, the price the war shock, I
Speaker 9: think that's also why we see the PPI or CPI
Speaker 9: is actually getting out of deflationary, although it's still in
Speaker 9: mind the inflation, but they're getting there.
Speaker 4: Can you give me a sense of the latest readings
Speaker 4: on sentiment that we know on the manufacturing side, the
Speaker 4: pm I data was pretty robust, But I'm curious as
Speaker 4: to how people are generally feeling about what's happening in
Speaker 4: the Chinese economy.
Speaker 9: I think domestically, I think it's they have similar feeling
Speaker 9: in me that probably the warst time over right, we
Speaker 9: see some domestic demanded picking up. This is a very
Speaker 9: slow pick cup, I think. I think many people economists
Speaker 9: they would agree that probably this year we're going to
Speaker 9: see some milder inflation and demand is stolen picking up,
Speaker 9: although it comes the lowers across tuget. But I think
Speaker 9: it's a more pragmatic move means that it's not going
Speaker 9: to be strong stimulus. But they called me is still
Speaker 9: holding up. You know, the experts are also strong despite
Speaker 9: the terrorists, So I think the whole komy is not
Speaker 9: at least it's not as as bad as last year.
Speaker 9: So right, the last the final quote of last year
Speaker 9: is the worst GDP liking how many years. So I
Speaker 9: think I think that's the bottom of the economy right now.
Speaker 4: So things have bottom blout and we're improving in China. Yeah, right, okay, good.
Speaker 4: That is Bloomberg economist Eric Jeu in Hong Kong. In
Speaker 4: the last two week, City Group hosted its Hong Kong
Speaker 4: Macro Conference. There were discussions about geopolitics and monetary policy
Speaker 4: as well as economic outlooks, and that's where we caught
Speaker 4: up with Patrick Harker. He is the former president of
Speaker 4: the Federal Reserve Bank of Philadelphia. Pat spoke with Bloomberg
Speaker 4: TV host Heidi Stroud, Watts and.
Speaker 7: Cherry on what a time to be a central banker?
Speaker 7: And I guess perhaps a better to have to be
Speaker 7: an ex central banker.
Speaker 6: What do you think the conversations would be like happening
Speaker 6: at the FED right now?
Speaker 10: I think what the Fed's dealing with right now is
Speaker 10: the triple whammy of deportations, tariffs, and now the war,
Speaker 10: and so that just adds to the uncertainty the economy
Speaker 10: is already facing. You know, it's amazing the US economy
Speaker 10: has been very resilient, but it's showing real signs of
Speaker 10: fragility right now, and so the Fed's.
Speaker 9: Very worried.
Speaker 1: On the balance of risk.
Speaker 7: If you were still in the hot seat, what would
Speaker 7: you be voting for?
Speaker 10: Oh, I'd vote the whole no question in that this
Speaker 10: uncertainty is there. We're probably mildly restrictive when it comes
Speaker 10: to the FED country, but I would just hold right now,
Speaker 10: let some of this uncertainly resolve itself, because inflation is
Speaker 10: still above two percent and the FED has to commit
Speaker 10: to getting it to two percent.
Speaker 7: The argument against that would also be that inflation has
Speaker 7: been elevator for a while, right so we continue to
Speaker 7: see this play out, especially with no resolution in Iran.
Speaker 7: Wouldn't the economic hit to the US be greater? Why
Speaker 7: are you still leaning towards holding now?
Speaker 10: I think the inflation issue is paramount. The FED actually
Speaker 10: cannot do that much when it comes to the labor market.
Speaker 10: What's happening in the labor market in the US is
Speaker 10: the impact of AI and other changes that are well
Speaker 10: outside the realm of monetary policy. So I think the
Speaker 10: FED should really focus first and foremost on inflation right now.
Speaker 4: That is Patrick Harker. He is the former head of
Speaker 4: the Philadelphia Fed, speaking there with Bloomberg TV host Heidi
Speaker 4: Stroud Watts and Sherry On at the City Hong Kong
Speaker 4: Macro Conference. I'm Doug Krisner. You can catch us weekdays
Speaker 4: for the Daybreak Asia podcast. It's available wherever you get
Speaker 4: your podcast.
Speaker 2: Nathan, Thanks Doug, and 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,
Speaker 2: overseas and the news you need to start your day.
Speaker 2: I'm Nathan Hager. Stay with us. Top stories and global
Speaker 2: business headlines are coming up right now.