Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world. Straight ahead on the program,
Speaker 2: and look ahead to some key inflation data in the
Speaker 2: US how that may impact FED policy, Plus a look
Speaker 2: at the impact of tariffs on housing. I'm Tom Busby
Speaker 2: in New York.
Speaker 3: I'm Carolyn Hepke here in London, where we're weighing up
Speaker 3: the Chancellor's options ahead of the spring statements.
Speaker 4: I'm Derek Prisner, looking ahead to the earnings from Chinese
Speaker 4: ev Giant byd.
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 Tom Busby, and we begin
Speaker 2: today's program with fresh reads on US economic growth that's
Speaker 2: for the final quarter of last year, and the Fed's
Speaker 2: preferred measure of consumer inflation for last month. For more
Speaker 2: on what it all means, we're joined by Stuart Paul
Speaker 2: Us economists with Bloomberg Economics. Well, Stuart, thank you for
Speaker 2: joining us. Did the economy continue to grow in the
Speaker 2: fourth quarter and what's behind that growth?
Speaker 5: Well, we knew that the economy grew in the fourth quarter.
Speaker 5: Our previous estimates that we got from the Bureau of
Speaker 5: Economic Analysis showed two point three percent annualized pace of
Speaker 5: growth in the fourth quarter, mostly supported by consumer spending,
Speaker 5: which was pretty robust, strong, healthy spending through the holidays.
Speaker 5: We're likely to see the same two point three percent
Speaker 5: estimate in the final reading of that fourth quarter GDP number.
Speaker 5: If anything, risk might be skewed a little bit to
Speaker 5: the upside. We do know that there was some adjustments
Speaker 5: that firms were making into imports. We know that some
Speaker 5: foreign countries were trying to get ahead of any sort
Speaker 5: of escalating trade tensions as the Trump administration was gearing
Speaker 5: up to come into office in the first quarter. So,
Speaker 5: if anything, maybe there's a little bit of risk that
Speaker 5: GDP will be revised up just to touch. But we
Speaker 5: do know that there was a healthy, robust pace of
Speaker 5: growth in the fourth quarter. Probably not going to see
Speaker 5: the same degree of growth this year. We know that
Speaker 5: amid policy uncertainty, but I think that we did end
Speaker 5: twenty twenty four in a relatively strong place.
Speaker 2: Well. To your point, consumer spending the big driver of
Speaker 2: all that, and there are indications though in this current
Speaker 2: first quarter, which is about to end, there has been
Speaker 2: a significant pullback though in consumer spending, unlike what we
Speaker 2: saw leading up to the holidays.
Speaker 5: That's right, the first quarter is going to be especially choppy.
Speaker 5: In January sales, we're just dismal. Spending in January decline
Speaker 5: zero point two percent. A big part of that was
Speaker 5: a pullback in autos, and a big part of that
Speaker 5: was that there was a polar vortex in the lower
Speaker 5: forty eight states. When it's snowing in Houston, folks aren't
Speaker 5: going to be wanting to walk around an auto dealer's lot.
Speaker 5: We do expect to see quite a rebound in February. Again,
Speaker 5: a big part of that is a rebound in auto sales.
Speaker 5: We're estimating that February personal spending growth will register zero
Speaker 5: point six percent. That's pretty strong, and that is the
Speaker 5: type of number that's going to justify the Fed's decision
Speaker 5: to hold rate steady when it met just last week.
Speaker 5: But I think that when we decompose what's driving the spending,
Speaker 5: it's not all sunshine and rainbows. After January's polar vortex,
Speaker 5: the February data we're going to be so we think
Speaker 5: we're supported by spending on autos again, just a rebound
Speaker 5: on healthcare because of the rise in the number of
Speaker 5: flu cases, and a little bit of an increase in
Speaker 5: discretionary goods. But we also do know that people pulled
Speaker 5: back on their spending at foods services, in drinking places.
Speaker 5: They were dining out, which is one of the key
Speaker 5: measures of discretionary spending.
Speaker 2: That was the biggest decrease right in bars and restaurant.
Speaker 5: That's right in the retail sales report. So when we
Speaker 5: think about what we should expect from the personal spending
Speaker 5: report coming out this Friday, I think that the headline
Speaker 5: number for spending is going to look pretty solid zero
Speaker 5: point six percent growth, But some of the details, some
Speaker 5: of the composition under the surface is just going to
Speaker 5: illustrate this choppiness in the first quarter.
Speaker 2: Well, let's talk about an even stickier subject related to that,
Speaker 2: and that's inflation. We have the PCE for February that's
Speaker 2: out this week. What are you expecting to see there.
Speaker 5: We're expecting to see a very hot core number, core
Speaker 5: inflation of thirty five basis points during the month. That's
Speaker 5: going to push the year on year measure of core
Speaker 5: inflation up to nearly two point eight percent from a
Speaker 5: touch under two point seven. And what's a little bit
Speaker 5: troubling is that we did see a nice cool CPI measure.
Speaker 5: What could it be that's driving core PC the E
Speaker 5: inflation higher. Well, if you track all the components that
Speaker 5: come from CPI and that come from producer prices the
Speaker 5: PPI and combine those to create the PCE measure, which
Speaker 5: is what the FED is really good at estimating before
Speaker 5: it even meets, we see that the composition of all
Speaker 5: the different spending categories are going to boost the Fed's
Speaker 5: preferred measure. You had hot financial services inflation, you had
Speaker 5: hot food services inflation despite the pullback in spending. You
Speaker 5: had rising healthcare costs, possibly just a continuation of the
Speaker 5: annual resets that typically take place in January. And we
Speaker 5: saw a lot of goods inflation, typically core goods, particularly
Speaker 5: durable goods. Way on headline inflation over the past couple months.
Speaker 5: In February in particular, goods were boosting inflation, which is
Speaker 5: something that's troubling, especially as tarot's start to hit. We
Speaker 5: only saw just the first little wave of tariff's in
Speaker 5: February taking effect. As we get reciprocal tariffs in April
Speaker 5: April second, as we've been told to expect.
Speaker 2: We could expect right now anyway, at least for.
Speaker 5: Now, that's right. As we get those reciprocal tariffs, we
Speaker 5: should expect a little bit more goods inflation. So it
Speaker 5: is the sort of thing that should be troubling for
Speaker 5: the Fed. And again we'll justify that decision to hold
Speaker 5: RAID steady just last week Q.
Speaker 2: Four GDP a third and final reading on GDP. That's
Speaker 2: how this Thursday, February's PCE out on Friday our thanks
Speaker 2: to Stuart Paul, us economists with Bloomberg Economics. Well, we
Speaker 2: turn now to housing, and spring has sprung, the busiest
Speaker 2: time of the year for the US housing market. Bud
Speaker 2: boy has it struggled. Skyrocketing home prices, elevated mortgage rates,
Speaker 2: a dearth of homes on the market despite pent up demand,
Speaker 2: and now a new worry President Trump's tariffs against Canada, Mexico,
Speaker 2: and China, and for more on how those policies could
Speaker 2: impact housing and home building. We welcome Drew reading Bloomberg
Speaker 2: Intelligence US home building analysts. Drew, thank you for being here.
Speaker 2: I tell you, the timing could not be worse for builders, contractors, buyers,
Speaker 2: people that want to replace their back deck or renovate
Speaker 2: their kitchen. I mean, could it be even worse for
Speaker 2: them right now?
Speaker 6: Yeah, you're right. There's a lot of factors conspiring against
Speaker 6: the home building industry. You know, whether it's high home
Speaker 6: prices as you mentioned, elevated rates, declining consumer confidence, potential tariffs,
Speaker 6: immigration policy. So there's a lot of things that builders
Speaker 6: and investors in the space are having to digest right now.
Speaker 6: So definitely a difficult period.
Speaker 2: And these tariffs, these numbers are staggering. Twenty five percent
Speaker 2: on certain imports from Mexico and Canada that went into
Speaker 2: effect early March, and that includes softwood lumber and the
Speaker 2: US gets what like forty percent of its lumber from Canada.
Speaker 2: Also the appliances in Mexico and China that come in
Speaker 2: twenty percent tariffs there drywall out of you know, the
Speaker 2: gypsum and drywall out of Mexico, and we're expecting even
Speaker 2: more tariffs on April second. As of today anyway.
Speaker 6: Right, So for just for a little bit of context,
Speaker 6: the US imports about thirteen billion dollars worth of goods
Speaker 6: used in residential construction. So that's about seven percent of
Speaker 6: all goods used in the industry coming from other countries.
Speaker 6: Within that, you have about forty five percent coming from China, Mexico,
Speaker 6: and Canada, which is you know, have kind of been
Speaker 6: at the forefront of all this tariff talk. China is
Speaker 6: about thirty percent of imports, Mexico about ten in Canada
Speaker 6: almost ten percent. And you're right, it's it's there's products
Speaker 6: you mentioned, it's you know, appliance isn't lighting from China,
Speaker 6: it's drywall from Mexico. And I think you know, the
Speaker 6: real biggie, as you mentioned, is lumber from Canada. That
Speaker 6: accounts for about seventy percent of all US lumber imports,
Speaker 6: and it's about thirty percent of the lumber used in
Speaker 6: US construction. So certainly an important thing to watch. Now,
Speaker 6: keep in mind we're already paying a fourteen and a
Speaker 6: half percent tariff on imports of Canadian lumber, so you know,
Speaker 6: when these go into effect in April will be at
Speaker 6: forty percent, So certainly a real threat to the builders.
Speaker 2: Wow, big builders of Last week, the National Association of
Speaker 2: Home Builders said tariffs on lumber, appliances, steel aluminum piping
Speaker 2: could add as much as ten thousand dollars. That's just
Speaker 2: to the cost of building a home. I mean, what
Speaker 2: does that mean to a buyer?
Speaker 6: Yeah, it's a great question. So typically builders are able
Speaker 6: to pass their costs onto the consumers.
Speaker 7: You know.
Speaker 6: The concern I guess from an investor perspective would be,
Speaker 6: you know, home shoppers have become increasingly sensitive to costs,
Speaker 6: whether it's financing costs or you know, the actual cost
Speaker 6: of a home. So you know, I'm not sure in
Speaker 6: this environment how much they're going to be able to absorb.
Speaker 6: So I think you're going to see builders take some
Speaker 6: of that on the margin side. So I think it's
Speaker 6: going to be a little bit on the builder side
Speaker 6: as well as consumers having to pay a higher price
Speaker 6: for a new product.
Speaker 2: And it's not just the builders. Of course, you want
Speaker 2: to replace your deck or your kitchen cabinets, I mean
Speaker 2: you are going to pay more aren't you.
Speaker 6: Yeah, we're going to see it across the industry. So
Speaker 6: you're going to see it in the repair and remodeling space,
Speaker 6: which is dealing with its own issues with As consumers
Speaker 6: continue to battle with the cumutive impact of inflation over
Speaker 6: the last couple of years, you know, people not wanting
Speaker 6: to go out and make big purchasing decisions. So we're
Speaker 6: seeing pullback indiscretionary categories, and of course, you know, lumbers
Speaker 6: a big component of that. You know, the appliance market
Speaker 6: has also struggled over the last couple of years, so
Speaker 6: you know, on appliances that are imported from China and
Speaker 6: other countries, you're starting going to see higher prices there.
Speaker 2: Now, we did get some encouraging data last week on housing.
Speaker 2: New home construction sharply higher in February. But is that
Speaker 2: more because of the all that wicked winter weather in January?
Speaker 2: I mean, what's behind that push on construction?
Speaker 6: Yeah, I think you're right there. I think a lot
Speaker 6: of is some payback from some of the weather disruption
Speaker 6: we've seen. Within that same report, our preferred measure of
Speaker 6: activity is really building permits. It's a much less volatile indicator,
Speaker 6: and it's a better leading indicator of production, and they
Speaker 6: were actually down eleven percent compared to last year, and
Speaker 6: that jives with the data we saw in builders sentiment.
Speaker 6: You're definitely seeing a more cautious approach to the market.
Speaker 6: What they're doing is matching starts with demand, and with
Speaker 6: the market slowing, you're seeing a corresponding pullback in new production.
Speaker 6: The other important piece is the fact that the industry
Speaker 6: was so aggressive in ramping up speccom production to fill
Speaker 6: the void left by resales that you know, there's a
Speaker 6: lot of inventory out there that's already under construction, so
Speaker 6: there's a lot less incentive for builders to be aggressive
Speaker 6: until they start to work through that inventory. And to
Speaker 6: do that, we think they're going to have to continue
Speaker 6: to lean on incentives, particularly given the increase as you
Speaker 6: allude to before, with the increased competition that we're seeing
Speaker 6: in the resale market in key markets in Florida and Texas.
Speaker 2: Yeah, does that mean maybe there's too many houses out there,
Speaker 2: too many new houses, or maybe not the right kinds
Speaker 2: of houses. People are looking for more affordable houses instead
Speaker 2: of you know, five bedrooms four bats.
Speaker 6: Yeah. I certainly think when you talk about a lack
Speaker 6: of for sale inventory over the last couple of years,
Speaker 6: it's really for more affordably priced products. Now it's an
Speaker 6: area where the builders have been shifting to over the
Speaker 6: last couple of years. They've done that through smaller square
Speaker 6: footage floor plans, are less amenotized home so they realized
Speaker 6: that's where the gap in the market is. But now,
Speaker 6: you know, when you start to pile on additional calls,
Speaker 6: it gets harder and harder for them, you know, to
Speaker 6: make that product work. But by and large, if you
Speaker 6: look at the inventory picture, I mean, over the last
Speaker 6: couple of years, the lack of resale supply has really
Speaker 6: been what's driven demand into the new home market. It's
Speaker 6: been certainly been a key factor.
Speaker 2: Well, we get more housing data out this week, new
Speaker 2: home sales for February coming out on Tuesday. Our thanks
Speaker 2: to Drew Redding Bloomberg Intelligence US home building analysts. Coming
Speaker 2: up on Bloomberg day Break weekend to look ahead to
Speaker 2: UK Chancellor Rachel reeves hotly anticipated spring statement. I'm Tom
Speaker 2: Busby and this is Bloomberg. This is Bloomberg Day Break weekend,
Speaker 2: our global look ahead at the top stories for investors
Speaker 2: in the coming week. I'm Tom Busby in New York.
Speaker 2: Up later, our program will look ahead to earnings from
Speaker 2: Chinese ev maker byd But first UK Chancellor Rachel Reeves
Speaker 2: presenting her hotly anticipated spring statement this week. She faces
Speaker 2: contentious a contentious environment, including recently slash growth figures and
Speaker 2: expensive promises on defense. Now there's also a question of
Speaker 2: silencing critics, some of whom may be from within her
Speaker 2: own party. For more, let's go to London and bring
Speaker 2: in Bloomberg Daybreak Europe anchor Caroline hepgar.
Speaker 3: Tom On Wednesday, the twenty sixth of March, the Chancellor
Speaker 3: is expected to announce billions of pounds of spending cuts
Speaker 3: to ensure that she meets her key fiscal rule, which
Speaker 3: requires day to day government spending to be covered by
Speaker 3: tax receipts. Her task is not an easy one. Rachel
Speaker 3: Reeves left herself an historically slim nine point nine billion
Speaker 3: pound margin against that time target at her budget in October,
Speaker 3: a buffer that has since been eroded by higher government
Speaker 3: borrowing costs and lower growth forecasts. Net debt for Britain
Speaker 3: stood at ninety five point three percent of GDP in January.
Speaker 3: That is close to levels last scene in the early
Speaker 3: nineteen sixties. The deficit in the first ten months of
Speaker 3: the year was one hundred and eighteen billion pounds, and
Speaker 3: that is nearly thirteen billion more than the Office for
Speaker 3: Budget Responsibility forecasts only in October. But Reeves is standing strong.
Speaker 3: She told Bloomberg that she is committed to bringing down
Speaker 3: government borrowing despite the obstacles.
Speaker 8: We've already made some substantial changes on regulation. Last week
Speaker 8: the Prime Minister announced that we're going to be getting
Speaker 8: rid of NHS England, the biggest quango in the world.
Speaker 8: We announced last week getting rid of the Payment Systems
Speaker 8: Regulator and just today the merger of the Community Interest
Speaker 8: Companies Regulator into Company's House. So you can see that
Speaker 8: this government are determined to make it easier for businesses
Speaker 8: to do business in the UK, to get building and
Speaker 8: to get on with things. Over Burdensome regulation, overlapping regulation
Speaker 8: has held back Britain for too long and we're determined
Speaker 8: to turn that around.
Speaker 9: Well, what's the metric for success here, how soon and
Speaker 9: how much do you expect this to boost GDP?
Speaker 8: Well, we've made a commitment to reduce the regulatory burden,
Speaker 8: the administrative burden by twenty five percent during the course
Speaker 8: of this parliament. That's across all regulators, whether it is
Speaker 8: in the environment or financial services, right across the economy,
Speaker 8: and that is to meet our ambition to grow the economy,
Speaker 8: to make working people better off, and to make our
Speaker 8: country and our economy more competitive. So next week the
Speaker 8: new growth forecast will be published by the Office of
Speaker 8: Budget Responsibility. But this is just one of a range
Speaker 8: of measures, along with the Planning an Infrastructure Bill that
Speaker 8: was published last week, the Pensions Bill which is coming
Speaker 8: soon to turn around the lackluster growth performance that has
Speaker 8: affected the UK for far too long.
Speaker 9: Well, the OCD published its forecast today has cut its
Speaker 9: growth forecast for this year and next. Do you accept
Speaker 9: responsibility for that or is it all the fault of
Speaker 9: Donald Trump and the Conservatives.
Speaker 8: Well, if you look at what the OECD have done today,
Speaker 8: they have downgraded most major economies growth forecasts. The UK
Speaker 8: is not immune from those global headwinds. But if you
Speaker 8: look at the forecast for next year for the UK,
Speaker 8: with forecast to be the second fastest growing economy in
Speaker 8: the G seven, that is up from the third fast
Speaker 8: is the last time they published their forecasts. But if
Speaker 8: you're asking am I happy with those numbers, of course not.
Speaker 8: I want to see the UK economy create more jobs,
Speaker 8: create more prosperity, to lift the living standards of working people,
Speaker 8: and that's what this regulatory drive is all about, unlocking growth,
Speaker 8: making it easier to do business in Britain.
Speaker 9: What I'm asking is, do you accept any responsibility for
Speaker 9: the downgrade? Is it anything to do with your gloomy
Speaker 9: messaging or your tax risers in the October budget.
Speaker 8: Well, of course there are costs from any measures on tax,
Speaker 8: but there are also costs of irresponsibility. And if in
Speaker 8: the budget last year I hadn't have dealt with a
Speaker 8: twenty two billion pound black hole that I'd inherited from
Speaker 8: the Conservatives, if I hadn't put our public finances on
Speaker 8: a firm footing, then we wouldn't have been able to
Speaker 8: increase defense spending in the way that we did just
Speaker 8: a couple of weeks ago, and we wouldn't be able
Speaker 8: to weather the global economic headwinds. So we made the
Speaker 8: right decisions in that budget to return stability to the economy.
Speaker 8: And since the general election, of course, there's been three
Speaker 8: cuts in interest rates, only possible because we've returned stability
Speaker 8: to the economy.
Speaker 9: But do you regret not giving yourself more breathing space
Speaker 9: against your fiscal rules at the time of the October prodject.
Speaker 8: Well, in October we set the fiscal rules for this
Speaker 8: Parliament that we would balance day to day spending with
Speaker 8: tax receipts and we would get decked down as a
Speaker 8: share of GDP. But significantly we changed the way that
Speaker 8: we measured investments. So for the first time ever we
Speaker 8: count the benefits of investment, not just the costs. And
Speaker 8: because of that we were able to invest in an additional
Speaker 8: one hundred billion pounds during the course of this parliament
Speaker 8: in capital projects, transport, digital energy and of course a
Speaker 8: housing that's pro business, that's pro growth and it's pro
Speaker 8: working people.
Speaker 3: That was Chancellor Rachel Reeves speaking two Bluebags Lizzie Burden
Speaker 3: ahead of her big day in the Commons. This is
Speaker 3: an event the government, though, has tried to play down,
Speaker 3: even as Work and Pension Secretary Liz Kendall announced the
Speaker 3: plan to save five billion pounds a year by twenty
Speaker 3: thirty with cuts to welfare benefits. So what will we
Speaker 3: learn from the Chancellor's spring statement? Can Rachel Reeves keep
Speaker 3: markets on side and also fend off her political opponents.
Speaker 3: I ask putting bogs UK government reporter Joe mays, how
Speaker 3: difficult the backdrop is for Reeves given the UK economy
Speaker 3: shrank in January and Britain has many long standing and
Speaker 3: now some new expenses.
Speaker 10: Yes, the backdob is a stagnating economy. It's barely grown
Speaker 10: since Labor took power last year. And indeed the budget
Speaker 10: that rich Reeves had in October is seen to have
Speaker 10: not made things much better. Indeed, the increase in the
Speaker 10: Nation Insurance payroll tax has led to a decrease in
Speaker 10: business confidence. It's been a hit to hiring as well.
Speaker 10: And rich Reeves has tried to get growth going with
Speaker 10: these initiatives announced such as Heather expansion, developing the Oxford
Speaker 10: Cambridge art but these will take time. So in the
Speaker 10: immediate term there's that there have been headwinds to growth
Speaker 10: and so yeah, the backdrop is difficult for her, and
Speaker 10: it's within that very tight space of low growth that
Speaker 10: she's having to manage these public finances. And now, as
Speaker 10: we'll talk about, she has to find spending cuts, make
Speaker 10: sure she keeps hitting her main fiscal rule and that
Speaker 10: will be a big political difficulty for her.
Speaker 3: Yeah, spending cuts rather than tax increases. Where do we
Speaker 3: think the cuts are going to come from?
Speaker 10: Well, what we expect Richarl Reeves to announce on March
Speaker 10: twenty sixth is a reduction in the overall spending envelope,
Speaker 10: so the overall amount the government's going to spend on
Speaker 10: public services through the end of the parliament. It's currently
Speaker 10: it's set to grow at one point three percent on
Speaker 10: average until twenty thirty and economists thinks she could hit
Speaker 10: it down to one one percent, but she won't crucially
Speaker 10: have to spell out where those cuts will fall. That's
Speaker 10: something that will be revealed at the Spending Review in June,
Speaker 10: which is where each government department is allocated its budget.
Speaker 10: So yeah, that can be that'll come later. But we
Speaker 10: do know that welfare is already earmarked for five billion
Speaker 10: pounds in savings. Governments already announced that. Well off, the
Speaker 10: waiting scene has a where the rest of the cuts
Speaker 10: do for?
Speaker 3: Okay, will we get more details on that then? Do
Speaker 3: you think potentially on Wednesday, given the pressure that Rachel
Speaker 3: Reeves will be under, how much does Reeves need to
Speaker 3: gain in terms of savings in order also to keep
Speaker 3: to her pledge of sticking to her fiscal rules.
Speaker 10: So we think that she might announce up to ten
Speaker 10: billion pounds of production in public spending in addition to
Speaker 10: the welfare savings that have been announced, and that would
Speaker 10: help her get back to a fiscal buffer of about
Speaker 10: ten to fifteen billion pounds against her fiscal rule. Because
Speaker 10: that's another question here, you know, what headroom does she
Speaker 10: build back against that rule. I mean, we saw that
Speaker 10: headroom eroded in recent months because of the weaker growth
Speaker 10: forecasts because of higher borrowing costs. I think Rachel reads
Speaker 10: it alive to the problems that can happen when you
Speaker 10: don't have much headroom to absorb these kind of fiscal shocks.
Speaker 10: So you expect to go back to ten fifteen billion
Speaker 10: funded through that ten billion pound production in public spending.
Speaker 10: I think that's where the explanitions are.
Speaker 3: In terms of that cut to welfare. That has been
Speaker 3: a hugely significant that announcement, and a lot of backlash
Speaker 3: around that sort of cut to welfare is especially from
Speaker 3: within the Chances Own party. That's a very difficult issue.
Speaker 10: Yes, we've already seen signs of what could be quite
Speaker 10: a PUNCHI rebellion here on the labor backbenches. I think
Speaker 10: that the concern is that the welfare cuts that were
Speaker 10: anounced might not necessarily achieve what the government says they
Speaker 10: want them to achieve. The government says that too many
Speaker 10: people are claiming benefits and it creates a disincentive to work.
Speaker 10: But the particular benefit they are targeting and reducing the
Speaker 10: accessibility of is really unclear. Why reducing the availability of
Speaker 10: that benefit, which is prominally taken by people who are
Speaker 10: disabled and have to meet various quite strict criteria to
Speaker 10: receive the benefit, Why reducing access to that would necessarily
Speaker 10: lead to a particular increase in access to work. And
Speaker 10: at the same time, the government is increasing above inflation
Speaker 10: the Universal Credit benefit for everyone else, so that's increasing
Speaker 10: an incentive to stay on that benefit, which would perhaps
Speaker 10: reduce the likely that people go into work. So yeah,
Speaker 10: it's a confused package in that sense. I think lots
Speaker 10: of labor and PE's are worried about it.
Speaker 3: I say that the problems with the UK economy and
Speaker 3: for the government's violences are familiar, but actually the defense
Speaker 3: spending is something quite new. This idea that we must
Speaker 3: ramp up a defense spending. How do you think that
Speaker 3: labor is addressing that issue now and thinking about it fiscally,
Speaker 3: I mean it's something of a massively long term need
Speaker 3: and desire.
Speaker 10: Yes. So the increase in spending from two point three
Speaker 10: percent of GDP to two point five percent of GDP
Speaker 10: by twenty twenty seven is funded by moving money across
Speaker 10: from the foreign aid budget, and that obviously has caused
Speaker 10: some upset in the labor ranks, but it does give
Speaker 10: the government a kind of very credible and definite way
Speaker 10: of funding that uptick. And then they have the line
Speaker 10: that will increase a three percent over the course of
Speaker 10: the next decade. But that line quite conveniently parks the
Speaker 10: question in the next parliament, so the government can say
Speaker 10: I'll get to thirty percent, but won't actually have to
Speaker 10: say how really until after the next election, which is
Speaker 10: kind of in political terms, a very long way away.
Speaker 10: So yes, they have a pretty immediate, plausible uplift. But
Speaker 10: then Rachel Reeves does know that funding pressure is going
Speaker 10: to be significant, sustained and high, so yeah, it does
Speaker 10: add pressure to the public finances.
Speaker 3: In terms of the other sort of part of this story,
Speaker 3: which is the sluggish economic growth that Britain has seen
Speaker 3: and the fact that the economy contracted in January, the
Speaker 3: chance has talked about global uncertainty. We know that there
Speaker 3: has been an increase in global uncertainty in terms of
Speaker 3: the tariff risks and so much more. When we heard
Speaker 3: from the Chancellor, she pointed to worldwide volatility as a
Speaker 3: contributing factor to the country's recent obl growth downgrade. Is
Speaker 3: that a fair assessment? How much is global uncertainty a
Speaker 3: factor for Britain?
Speaker 10: I think that it is true that across the peace.
Speaker 10: You know, governments around the world have seeing boring costs increase.
Speaker 10: We have seen global growth forecasts hit by the trade engiins,
Speaker 10: tariff wars being instigated by the United States and stad
Speaker 10: Trump was lected. So all of that it is true
Speaker 10: and fair. I think they're just a UK element in
Speaker 10: that there's a vulnerability that we have given the significant
Speaker 10: debt stock that we have, and that makes us even
Speaker 10: more kind of susceptible and at risk when it comes
Speaker 10: to boring costs increasing. And then and there is that
Speaker 10: also domestic element of the impact of the budget did
Speaker 10: have in hitting business confidence and making conditions to operate
Speaker 10: in the UK at hard. So you have to combine
Speaker 10: the two things.
Speaker 3: That was Bloomberg's UK government reported Joe Mays My thanks
Speaker 3: to him for joining me. So all the country's first
Speaker 3: female chancellor managed to balance the books amidst stormy Global
Speaker 3: Seas will have full coverage of the spring statement. Here
Speaker 3: for you on Bloomberg. I'm Caroline Hepek. You can catch
Speaker 3: us every weekday morning for bluemberg Daybreak you at beginning
Speaker 3: at six am in London. That's one am or Wall Street. Tom.
Speaker 2: Thank you Caroline, And coming up on Bloomberg day Break weekend,
Speaker 2: we'll look ahead to earnings from Chinese ev giant BYD.
Speaker 2: I'm Tom Buzzbeak and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global look ahead of the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. Earnings this week from BYD. That's the
Speaker 2: Chinese evy giant that's battling Tesla to be that nation's
Speaker 2: top selling automaker. Let's get to Daybreak Asia podcast host
Speaker 2: Doug Prisner for a preview Tom.
Speaker 4: Last year, BYD nearly took over Tesla as the world's
Speaker 4: largest maker of electric vehicles and so far this year,
Speaker 4: shears and BYD are up more than fifty five percent.
Speaker 4: For a closer look at the story on BYD, I'm
Speaker 4: joined by Danny Lee. He is Bloomberg Asia Transport reporter.
Speaker 4: Danny joins us from our studios in Hong Kong. Danny,
Speaker 4: it's always a pleasure. Thanks for taking time to chat
Speaker 4: with us about this story. What is your sense of
Speaker 4: what we may hear from BYD in the coming week?
Speaker 7: Well, he from b YD over the past twelve months
Speaker 7: and twenty twenty four, the record number of sales it
Speaker 7: has delivered in terms of passenger electric vehicles and hybrid
Speaker 7: vehicles four point two five million of them in the
Speaker 7: past year. That will feed into record amount of earnings,
Speaker 7: and in particular it's going to be quite a landmark
Speaker 7: the fact that for the first time it will be
Speaker 7: able to deliver we expect one hundred billion US dollars
Speaker 7: worth of sales and that's for the first time ever.
Speaker 7: And also it's a contrast to one of its near rivals, Tesla,
Speaker 7: which it will overtake if they can deliver on expectations
Speaker 7: that investors and the market is looking for, and by
Speaker 7: quite some margin. So it's yet another metric that we
Speaker 7: see potentially BYD overtaking Tesla on in a growing list
Speaker 7: of numbers that we are closely watching for.
Speaker 4: So I have to ask you about this new charging
Speaker 4: system that BYD recently. Do you think it's going to
Speaker 4: show up in the outlook? Will be WYD say that
Speaker 4: essentially this new technology really will pave the way for
Speaker 4: a jump in earnings growth.
Speaker 6: Well.
Speaker 7: BYD has already flagged it expects to sell five to
Speaker 7: six million units this year of evs and hybrids, and
Speaker 7: I think when you think about the numbers that it
Speaker 7: has already guided towards, it already knows over a very
Speaker 7: long lead time what products and innovations and developments will
Speaker 7: be coming out over twenty twenty five, and we've already
Speaker 7: had some of those developments emerge already. For example, we've
Speaker 7: had big details on its autonomous driving strategy, driver assist vehicles,
Speaker 7: things that putting in much more tech into its vehicle
Speaker 7: at no extra cost, which will really grab the attention
Speaker 7: of drivers who are weighing up how to, particularly in China,
Speaker 7: how to find more value for the cars that they
Speaker 7: are going to buy, particularly in electric vehicles. And so
Speaker 7: with the announcement last week that they will install or
Speaker 7: have and create fast charging ultra fast charging vehicles that
Speaker 7: can charge four hundred kilometers in five minutes. That in
Speaker 7: itself is way better than what other competitors Tesla, for example,
Speaker 7: Mercedes Benz is putting out, and so it has set
Speaker 7: a high benchmark for other competitors to try and chase down,
Speaker 7: not just outside of China, but even in China where
Speaker 7: there is a much more narrow sense of competition given
Speaker 7: the advancements in in the EV space that there has been,
Speaker 7: and so therefore the kinds of developments that bid has
Speaker 7: already got in train, This will already feed into the
Speaker 7: expectations and also the pressure for them to deliver five
Speaker 7: to six million units this year, which is going to
Speaker 7: be around one potentially two million more. So every year
Speaker 7: they're having to pull out for my act trick. So
Speaker 7: this is always going to be a challenge for them,
Speaker 7: and for now this is them delivering on that promise.
Speaker 4: So in terms of this new charging system Danny, is
Speaker 4: this something that BYD developed on its own. Is it
Speaker 4: proprietary or has the company partnered with a battery manufacturer
Speaker 4: to arrive at this level of speed and sophistication.
Speaker 7: Now, this is very much BYD pursuing its own in
Speaker 7: house development with its frankly army of R and D technicians, developers, researchers,
Speaker 7: over one hundred thousand of them, very much in China
Speaker 7: working on these kind of innovations and breakthroughs day and night.
Speaker 7: And so they know they have the resources, they have
Speaker 7: the firepower to do all of this, and so it's
Speaker 7: important to understand for a global audience just how many
Speaker 7: people BYD employees. We are getting close, if not already
Speaker 7: at a million employees, predominantly in China. And they have
Speaker 7: been so aggressive in their push to higher not just
Speaker 7: on the R and D side, but clearly on their
Speaker 7: manufacturing side, and so you know, they have really rapidly
Speaker 7: expanded its workerforce BACE, and so this all feeds into
Speaker 7: them trying to push out very quickly new innovations, new developments,
Speaker 7: and so this latest push with ultra fast charging is
Speaker 7: a big step forward to them. However, one of the
Speaker 7: fascinating things about last week's announcement was, you know, we
Speaker 7: were anticipating and expecting developments in this space like ultra
Speaker 7: fast charging, more durable batteries, but the one kind of
Speaker 7: phrase that was not mentioned in last week's announcement. In
Speaker 7: last week's event was Blade two refers to type of
Speaker 7: battery product that BID initially produced in twenty twenty called Blade,
Speaker 7: which changed the game for them in many ways to
Speaker 7: really get them to where they are today in terms
Speaker 7: of selling millions of vehicles, and that Blade, which is
Speaker 7: lithium ion phosphate battery, really durable, very low cost to make.
Speaker 7: We were expecting an upgrade on that product this year
Speaker 7: and it hasn't been announced yet. And so whilst we
Speaker 7: all thought that this fast charging was related to that,
Speaker 7: technically yes and no, but it does appear that this
Speaker 7: Blade too battery upgrade is still yet to come. So
Speaker 7: in terms of other innovations in twenty twenty five, this
Speaker 7: is another one to watch.
Speaker 4: So away from the kind of the technological advancements, I'm
Speaker 4: wondering about the extent to which BYD has kind of
Speaker 4: benefited from maybe missteps on the part of Tesla. There
Speaker 4: really hasn't been anything in terms of a material redesign
Speaker 4: that any of the Tesla vehicles have had recently. But
Speaker 4: at the same time BYD has been constantly refining and
Speaker 4: redesigning its cars is that one of the other things
Speaker 4: that has kind of contributed to the enthusiasm around BYD.
Speaker 7: There is always a criticism of Tesla that its lineup
Speaker 7: is very thin, it's very stale, the fact that there's
Speaker 7: no wholesale upgrades of its mass market product. And when
Speaker 7: you look at Tesla as it's rolled out more narrowly
Speaker 7: produced products such as a cyber truck, which is not
Speaker 7: being sold around the world either, and now it's pushing
Speaker 7: its focus into robotaxis autonomous style driving, which is yes,
Speaker 7: very similar to what the Chinese EV producers such as
Speaker 7: BID are focusing on, but they're not necessarily pushing into
Speaker 7: a severe where they are really going to be over
Speaker 7: aligned on effectively what we call so called autonomous driving
Speaker 7: to the ultimate extremes that someone like Tesla is pushing to.
Speaker 7: But then the same criticism could be leveled at other
Speaker 7: foreign automakers when we look at someone like a Ford
Speaker 7: or a GM who have lagged behind significantly on such
Speaker 7: a strategy as they have this huge gasoline lineup of cars,
Speaker 7: and you know, it's really hard for those legacy automakers
Speaker 7: to try and transition as we have seen, as we've
Speaker 7: seen with targets on for twenty thirty twenty thirty five
Speaker 7: being pushed back in terms of investing in a strategy
Speaker 7: of evs which is very costly, and where the Chinese
Speaker 7: EV brands and automakers have had bigger bets and more
Speaker 7: bold bets and so far at least in the world's
Speaker 7: biggest auto market of China is paying off handsomely, And
Speaker 7: which is why we're seeing this leadership, this makeup of
Speaker 7: the auto domination kind of shift a little bit when
Speaker 7: you look at the numbers and the way in which
Speaker 7: foreign automakers are seeing sales get pinched, and the likes
Speaker 7: of BYD, who are very much high up there. You know,
Speaker 7: the BDY was so close to overtaking Ford Motors in
Speaker 7: terms of annual sales in the past year, just fell short.
Speaker 7: And when you look at the twenty twenty five targets,
Speaker 7: if they can even reach the top end, that will
Speaker 7: take them beyond potentially General motors.
Speaker 4: So what is BYD doing to expand markets outside of
Speaker 4: China right now? And I think I think we have
Speaker 4: to talk a little bit about the tariff story because
Speaker 4: that seems to be a threat to further expansion, does
Speaker 4: it not?
Speaker 6: Well?
Speaker 7: The tariffs is a fascinating component, and let me answer
Speaker 7: it in two ways. So tariffs obviously being put on
Speaker 7: in markets such as Europe where BYD is really being
Speaker 7: aggressive in that's part of a hindrance. And one of
Speaker 7: the fascinating conversations with automakers generally in China is how
Speaker 7: do they approach such an imposition of tariffs. They are
Speaker 7: actually generally swallowing the cost of these extra tariffs on
Speaker 7: behalf of the consumer because they know what it means
Speaker 7: to try and gain entry into a market and build
Speaker 7: a reputation and build sales, you know, And for someone
Speaker 7: like be D, they have found it tough in Europe
Speaker 7: because they're starting on basically zero to a low base,
Speaker 7: but they are making gains in their steadily increasing sales,
Speaker 7: clearly nowhere near enough for the investment they have put
Speaker 7: in across Europe. But then outside of Europe a mature
Speaker 7: auto market in the emerging market space, BYD in particular
Speaker 7: and generally like most Chinese automakers have been aggressive where
Speaker 7: there are no tariffs, where they have been warmly welcomed,
Speaker 7: and they are selling thousands and thousands of cars every month,
Speaker 7: and that is to a testament to see how well
Speaker 7: they have gone up in the rankings. But BYD, who
Speaker 7: are leading in electric vehicle sales and the number of countries,
Speaker 7: whether it be a Thailand or Brazil, they are delivering
Speaker 7: and squeezing on the existing competitors, not just in the
Speaker 7: EV space, but particularly in the traditional gasoline and the
Speaker 7: overall sales space. So there are lots of games to
Speaker 7: be made. And BYD, who has got bigger targets to
Speaker 7: sell overseas, has been able to deliver so far this year,
Speaker 7: doubling the number of sales overseas a month or month,
Speaker 7: and so that is a sign of just how well
Speaker 7: they're doing and they're not going to be slowing down.
Speaker 7: We talk about or we see ships that BYD has
Speaker 7: bought several of them. We had one or two come
Speaker 7: online last year and now we are coming up to
Speaker 7: at least five ships now, so they will have their
Speaker 7: own dedicated fleet of ships to export, particularly more and
Speaker 7: more cars around the world, on top of localizing production,
Speaker 7: which will see the benefits of not just in Thailand
Speaker 7: where they have localized productions, soon in Brazil in the
Speaker 7: coming year or so, and also in Hungary in Europe,
Speaker 7: so there's lots of excitement to come. But when we
Speaker 7: look at the developments, as you said, of targets of
Speaker 7: pushing into markets, clearly when they localize production, the risk
Speaker 7: of tariff's lessons, even if they're not in the one
Speaker 7: of the world's because the auto markets such as such
Speaker 7: as the United States.
Speaker 4: Danny, thank you so much for joining us and helping
Speaker 4: us understand more about what's happening with BYD these days
Speaker 4: as we look ahead to the company's earnings report in
Speaker 4: the week ahead. Danny Lee. There, he is Bloomberg Asia
Speaker 4: Transport reporter, joining from our studios in Hong Kong. I'm
Speaker 4: deug Christner. You can catch us weekdays here for the
Speaker 4: Daybreak Asia podcast. It's available wherever you get your podcast. Tom.
Speaker 2: Thank you, Doug. And that does it for this edition
Speaker 2: of Bloomberg day Break Weekend. Join us again Monday morning
Speaker 2: at five am Wall Street Time for the latest on
Speaker 2: markets overseas and the news you need to start your day.
Speaker 2: I'm Tom Buzzby. Stay with us. Top stories and global
Speaker 2: business headlines are coming up right now.