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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, and straight ahead on the program,
Speaker 2: we'll look ahead to some key economic data here in
Speaker 2: the US and how that may impact FED policy. I'm
Speaker 2: Tom Busby in New York.
Speaker 3: I'm Krolyn Hepke in London, where we're looking ahead to
Speaker 3: Poland's presidential election and a populist challenger.
Speaker 4: I'm deg Christner with a preview of next week's rate
Speaker 4: decision from the Bank of Korea.
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. We begin today's
Speaker 2: program with some key economic data in the US, A
Speaker 2: second read on US GDP for the first quarter that
Speaker 2: comes out on Thursday, and the next day, a read
Speaker 2: on inflation with a personal consumption Expenditures Price index the
Speaker 2: PCE for April. Now for more on what to expect
Speaker 2: and how it could impact FED policy, we're joined by
Speaker 2: Stuart paul Us, economist with Bloomberg Economics. Stuart, thank you
Speaker 2: for being here. Let's start with what you're expecting to
Speaker 2: see in the second read. The second read on gross
Speaker 2: domestic product for the first three months of this year,
Speaker 2: because the first one was quite a shock, wasn't it.
Speaker 5: That's right. In the first quarter we saw GDP growth
Speaker 5: decline at an annualized pace of zero point three percent.
Speaker 5: That was a modest downside surprise. Now, a lot of
Speaker 5: attention has been given to this decline in economic activity
Speaker 5: in the first quarter, and a lot of spokespeople for
Speaker 5: the administration are coming out and saying that we should
Speaker 5: anticipate an upward revision to the GDP data. Personally, I
Speaker 5: think that it's a bit optimistic, and I think that
Speaker 5: maybe on a good day, an upward revision of let's say,
Speaker 5: inventories within the GDP tabulation could be enough to lift
Speaker 5: the estimate of first quarter growth, but just to about
Speaker 5: zero percent, so still not a very good reading. A
Speaker 5: lot of folks are really focused on this calculation, this
Speaker 5: accounting for GDP, and they're basically saying, look, trade weighed
Speaker 5: on first quarter growth because there was a surge in imports.
Speaker 5: But those imports are either being held as inventories or
Speaker 5: they were consumed, or they were used in fixed investment
Speaker 5: or machinery or computers, et cetera. And so the drag
Speaker 5: or the subtraction that we get from the trade component
Speaker 5: should just be offsetting what's added by the domestic components.
Speaker 5: But I think that when the administration officials and when
Speaker 5: economic commentators focus on that accounting, they're missing the forest
Speaker 5: for the trees. There was more growth in demand for
Speaker 5: and utilization of stuff from abroad than there was in
Speaker 5: stuff produced and used and created domestically, and I think
Speaker 5: that that's really what's most important. And even if we
Speaker 5: do see this upward revision as a consequence of better
Speaker 5: estimates of inventory growth, for example, that just means that
Speaker 5: inventories are likely to subtract from growth in the quarters ahead.
Speaker 5: So undoubtedly the trade tensions and the higher trade barriers,
Speaker 5: higher economic policy uncertainty is weighing on domestic activity.
Speaker 2: And as you said, this revision at best could just
Speaker 2: be flat.
Speaker 5: I think so. I think that it's going to be
Speaker 5: a pretty soft reading for first quarter growth. And looking ahead,
Speaker 5: we see weakening PMIS, we see elevated economic policy uncertainty.
Speaker 5: There is this sort of relief wave, especially showing up
Speaker 5: in financial markets of the temporarily lowered trade barriers, but
Speaker 5: everything is just on a ninety day delay, and that's
Speaker 5: going to weigh on fixed investment plans and hiring plans.
Speaker 2: And there's also inflation we have to talk about, because
Speaker 2: on Friday is April's PCE, the Fed's preferred measure of
Speaker 2: consumer inflation. Earlier this month, the April Consumer Price Index
Speaker 2: rose just slightly, but it still rose point two percent.
Speaker 2: That was from March, a third month in a row.
Speaker 2: So what are you expecting to see in the pc
Speaker 2: will Will it be anything different?
Speaker 5: This is going to be one of those readings where
Speaker 5: you really need to look under the hood and dissect
Speaker 5: what's going on. As you said, the CPI reading was
Speaker 5: about a touch over zero point two percent. The PCE reading,
Speaker 5: especially the core PCE reading, which matters most for the
Speaker 5: Federal Reserve, is likely to show just one zero point
Speaker 5: one percent growth in prices. So the fed's preferred price
Speaker 5: measure is just going to show zero point one percent
Speaker 5: price growth during the month, and that might allow people
Speaker 5: to breathe a sigh of relief, But what's really going
Speaker 5: on in that core PCE price index is that core
Speaker 5: goods prices are rising because there is some pass through
Speaker 5: from tariffs, but services prices, especially excluding housing, retreated during
Speaker 5: the month. So we estimate that core PCE services excluding
Speaker 5: housing declined about zero point one percent during the month,
Speaker 5: offsetting the effect of higher goods prices. And one of
Speaker 5: the reasons why services prices fell is because the cost
Speaker 5: of financial services in portfolio management services declined in the
Speaker 5: past couple months, and that was due in large part
Speaker 5: to the stock market retreat when trade barriers were going up. Now,
Speaker 5: the rebound that we've seen more recently, especially in late
Speaker 5: April and early May, is just going to mean that
Speaker 5: those services prices are going to start catching up in
Speaker 5: the months ahead, likely two to three months ahead, as
Speaker 5: we get deeper into the spring, at a time when
Speaker 5: firms are also starting to pass through higher costs of
Speaker 5: tariffs and higher input costs. And so even if we
Speaker 5: see a week reading for the headline and for the
Speaker 5: core in the aggregate. When it comes to these inflation measures,
Speaker 5: I think the details under the hood are going to
Speaker 5: be foreshadowing a further deterioration of the economic landscape and
Speaker 5: higher prices, especially in the month's ed well.
Speaker 2: A second read on first quarter GDP out this Thursday.
Speaker 2: PCE for April out on Friday our thanks to Stuart
Speaker 2: paul Us economists with Bloomberg Economics, we turned out to
Speaker 2: earnings and this week we get first quarter results from
Speaker 2: the last of Big Text, Magnificent seven, AI chip maker,
Speaker 2: and Nvidia. The three and a quarter trillion dollars semiconductor
Speaker 2: giant has been facing some of the same challenges a
Speaker 2: lot of other firms are, like the impact of President
Speaker 2: Trump's tariff wars, brief worries about a pullback an enterprise spending,
Speaker 2: and an uncertain economy. It's also had to navigate severe
Speaker 2: restrictions on exports to China and other nations. And for
Speaker 2: more on that and what to expect from in video
Speaker 2: this week, we're joined by Kunjohn Subani, Bloomberg Intelligence Senior
Speaker 2: semiconductor analyst. Boy there is a lot to unpack about
Speaker 2: what Nvidia has been through the last three months, so
Speaker 2: we know that they've talked about a massive charge they're
Speaker 2: taken because of those export restrictions. What are you expecting
Speaker 2: to see in its results this coming Wednesday?
Speaker 6: Yeah, I mean this has been the most noisiest three
Speaker 6: months coming into an earnings call for Nvidia over the
Speaker 6: last two three years. But despite everything both negative and positive,
Speaker 6: we think still again the results will still be similar
Speaker 6: to what we have seen from them, which is a
Speaker 6: strong beat and raise. We don't expect any weakness in
Speaker 6: the reporting numbers or the guidance at all.
Speaker 2: No change then the trajectory, despite what we've seen the
Speaker 2: last three months, the stock losing almost thirty percent of
Speaker 2: its value and then coming back. I mean, what do
Speaker 2: you attribute that to? Is it the new Blackwell chips
Speaker 2: which we know did you know gangbusters in the fourth
Speaker 2: quarter of last year.
Speaker 6: Yeah, it's going to be primarily driven by the strength
Speaker 6: and Blackwell, and we can unpack a little bit the
Speaker 6: negatives and how those are sort of not impacting the
Speaker 6: fundamentals right now. So the couple of concerns right this year,
Speaker 6: we are starting with the Blackwell. There were some hiccups
Speaker 6: in the GB two hundred, which is their first full
Speaker 6: rack level Blackwell.
Speaker 7: Chip or solution that they're shipping right now.
Speaker 6: Those concerns from our channel chicks seems to be mostly abated.
Speaker 6: The shipments are sort of back on track.
Speaker 7: Everything is flowing in, you know.
Speaker 6: And the second big concern was the China restrictions, as
Speaker 6: you pointed out, which for the whole year, the estimate
Speaker 6: of that impact is supposed to be fifteen billion dollars. Now,
Speaker 6: having said that, we think they have other avenues to
Speaker 6: ship Blackwell to other customers as back on time again. Member,
Speaker 6: They're also still shipping the Hopper series, the New Age
Speaker 6: two hundred to other customers. And this product was supply
Speaker 6: continents last year, which is not this year, so they
Speaker 6: can ship a lot more of that if they wanted
Speaker 6: to to meet the numbers. So they have different leavers
Speaker 6: to pull right now to at least get to the
Speaker 6: numbers that the street is guiding to.
Speaker 2: And even though they've said there could be a charge
Speaker 2: of up to five and a half billion dollars just
Speaker 2: from the export restrictions, you still think it's going to
Speaker 2: be a clear beat.
Speaker 6: Well that the charge is sort of a known quantity,
Speaker 6: So I'm taking into consideration the account that it's a
Speaker 6: one time charge not impacting you know, non gap numbers,
Speaker 6: which is.
Speaker 7: What most of the investors really focus on.
Speaker 6: So when you look beyond the charge, having already baked
Speaker 6: that into the numbers, the new sort of baked in
Speaker 6: numbers don't seem to at risk. Also, you know, these
Speaker 6: headfins are likely to become tailwinds in the second half.
Speaker 6: The company is working has announced that it's working on
Speaker 6: a new China variant chip. In the past, they have
Speaker 6: been slapped with these sanctions almost three to four times
Speaker 6: now and every time they've come out, designed the new
Speaker 6: chip which is restriction compliant, and started shipping to China
Speaker 6: very soon, really offsetting the loss of revenue. So we
Speaker 6: think they will still gain back some of these fifteen
Speaker 6: billion dollars in the second half when they start shipping
Speaker 6: the new China variant.
Speaker 2: Now, speaking of new chips, we just wrapped up the
Speaker 2: videos GtC twenty twenty five conference. What is the latest
Speaker 2: on the Blackwell Ultra also the Ruben and the Ruben Ultra.
Speaker 6: Yeah, I mean, look, they've laid out a really impressive
Speaker 6: roadmap for almost a three year roadmap for their next
Speaker 6: coming chips, which you just highlighted more recent than the
Speaker 6: Black GtC was the computext conference, which is actually happening
Speaker 6: or have started this week in Asia, where they made
Speaker 6: even newer announcements about new prout line. One of the
Speaker 6: key ones I want to highlight is that they're opening
Speaker 6: up their Envy Link scale up connectivity system to the
Speaker 6: rest of the semi connector world, which is which is
Speaker 6: a big thing. And just to give some context, one
Speaker 6: of the biggest concerns or risk or pushback from Nvidia's
Speaker 6: customers is that it's a proprietary closed system where you
Speaker 6: have to use Nvidia GPUs and connect them with the
Speaker 6: Nvidia's proprietary and we link to connect all of these
Speaker 6: GPUs together into a cluster. What they have done now
Speaker 6: is basically opened that for the world where you know,
Speaker 6: you can use someone else's CPU to work with Nvidia GPUs.
Speaker 6: You can use your own A six and still get
Speaker 6: this technology the switching gear from Nvidia, use their technology
Speaker 6: to customize your rack.
Speaker 7: What this does is a couple of things.
Speaker 6: One removes these risks and concerned about proprietary ship and
Speaker 6: vendor lock in. Two, it opens up a brand new
Speaker 6: HAAM for in media where they are still part of
Speaker 6: the ecosystem. Even if the Voska scenario, which is a
Speaker 6: six taking OVERGPU, comes through, they still get some wallet
Speaker 6: share out of the hyperscalers and the other customers, and
Speaker 6: they're not completely removed from the stack.
Speaker 2: In Nvidia earnings out this Wednesday, just after Wall Street's
Speaker 2: closing bell our thanks to Kunjan Sabani, Bloomberg Intelligence Senior
Speaker 2: Semiconductor analyst, and coming up on Bloomberg day Break weekend,
Speaker 2: we'll look ahead to Poland's presidential runoff election. I'm Tom Busby,
Speaker 2: 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 in our program and look ahead to South
Speaker 2: Korea's Central Bank meeting. But first, a presidential election in
Speaker 2: Poland will determine whether that country can restore political stability
Speaker 2: and remain a reliable partner in the European Union. That's
Speaker 2: after nearly a decade of device right wing populism. For more,
Speaker 2: let's get to London and bring in Bloomberg day Break
Speaker 2: euro banker Caroline Hepger.
Speaker 3: Tom the Nationalist Law and Justice Party governed Poland for
Speaker 3: eight years under Prime Minister Donald Tusk, and his Pro
Speaker 3: EU coalition unexpectedly swept into power towards the end of
Speaker 3: twenty twenty three. Now, Tusk is hoping that centrist ally
Speaker 3: and Warsaw Mayor Rafael Tchaskovsky from his Civic Coalition will
Speaker 3: win the presidential poll and help to secure his policy agenda.
Speaker 3: Tchaskovsky edged out Law and Justice rival Carol Navroki in
Speaker 3: the first round vote, with the two men now set
Speaker 3: to take part in a runoff vote on the first
Speaker 3: of June. It's a ballot that will be keenly watched
Speaker 3: across the EU as more of the bloc's members see
Speaker 3: growing populist support. In a moment, we'll discuss what is
Speaker 3: at stake for the Polish presidential election, but first listen
Speaker 3: to this snippet of Europe's top diplomat Kaya Kallas puts
Speaker 3: the issue for Europe clearly. Given the conflicts in the
Speaker 3: Middle East.
Speaker 8: The situation in Gaza is catastrophic. The aid that Israel
Speaker 8: has allowed in is of course welcomed, but it's the
Speaker 8: drop in the ocean. Aid must flow immediately without obstruction
Speaker 8: and at scale, because this is what is needed. I've
Speaker 8: made these points also with my talks with Israelis also
Speaker 8: I've had talks with UN and the regional leaders as well.
Speaker 8: Pressure is necessary to change the situation. It is clear
Speaker 8: from today's discussion that there is a strong majority in
Speaker 8: favor of review of Article two of our association agreement
Speaker 8: with Israel. So we will launch this exercise and in
Speaker 8: the meantime it is up to Israel to unblock the
Speaker 8: humanitarian aid. Saving lives must be our top priority.
Speaker 3: So that was the EU's top diplomat, Kayakala, speaking to
Speaker 3: the press after the recent EU Foreign Affairs Council meeting.
Speaker 3: So which direction will Poland head in next and how
Speaker 3: will its choice affect its neighbors and the EU as
Speaker 3: an institution joining me to discuss is Bloomberg's Brussels deputy
Speaker 3: bureau chief Eva Klukowska and our Poland based reporter Voutech Moskva.
Speaker 3: Welcome to both of you, and thank you for being
Speaker 3: with me. Voutech, Can I start with you? Firstly? You
Speaker 3: get the sense that this is a crossroad moment for Poland.
Speaker 3: Can you talk us through what's at stake?
Speaker 9: This is a big test for liberal Europe. And for
Speaker 9: liberal Poland at steak two different versions of what Poland
Speaker 9: can be and should be within Europe. One vision of
Speaker 9: the Prime Minister took and his candidate is for increased cooperation,
Speaker 9: especially on defense. The other vision is or a halt
Speaker 9: to further integration and for Poland's security to lie solely
Speaker 9: in the hands of NATO and the US.
Speaker 3: The first round in the election was actually incredibly close,
Speaker 3: So what do you think we're expecting this time round.
Speaker 9: It's going to be quite difficult for the Warsaw mayor
Speaker 9: Ravol Saskowsky too to pull this out, it seems because
Speaker 9: the way that the vote has split up. In the
Speaker 9: first round, the far right candidates got more than twenty
Speaker 9: percent of the vote, and these are candidates which are
Speaker 9: generally against the EU.
Speaker 7: They are more likely to back.
Speaker 9: The conservative candidate Karol Navrotsky in the second round. On
Speaker 9: the other hand, the Warsiw mayor is looking to gather
Speaker 9: more moderate and left of center voters.
Speaker 3: Ever, so that's the picture within the country and the voting.
Speaker 3: But what is Poland's position actually in the EU currently?
Speaker 3: Because Prime Minister Donald Tusk, He's had obviously an illustrious
Speaker 3: history and career with the in the EU. He's now
Speaker 3: leading Poland, but you know, we don't know who's going
Speaker 3: to be partnered with in terms of the president. Has
Speaker 3: that contributed Do you think Tusk's history within the EU
Speaker 3: to the country's influence within Europe.
Speaker 10: Let's step back for a moment. Posk was at the
Speaker 10: helm of the European Council for five years between twenty
Speaker 10: fourteen and nineteen, and that is one of the most
Speaker 10: important roles in the EU. It involves turing meetings of
Speaker 10: national leaders and basically setting the political tone for the
Speaker 10: block's agenda. So Posk understands very well the inner workings
Speaker 10: of Brussels, the political nuances and the balance of power.
Speaker 10: Worth noting that he belongs to the European People's Party,
Speaker 10: the biggest political group in the EU. That's also the
Speaker 10: political family of the European Commissioned President or soula vonderlyon
Speaker 10: German Chancellor Friedrich Mertz, as well as the leaders of Sweden, Greece,
Speaker 10: Finland and Austria, to name just a few. Poland is
Speaker 10: among the biggest countries in the EU, which matters a
Speaker 10: lot in the EU voting system. In an actual the
Speaker 10: bigger the population, the more weight a nation has in
Speaker 10: votes on EU laws, and the more it matters for
Speaker 10: other countries when it comes to building political alliances. If
Speaker 10: you combine all those factors, Poland with Tusk at the
Speaker 10: helm of the government, is definitely.
Speaker 3: Influential, okay, influential. And so, how what do you think
Speaker 3: of the standing of Tusk's chosen candidate, Tzaskovsky versus his
Speaker 3: rival Karl Navrotki? Does he have allies? How they positioned
Speaker 3: those two people?
Speaker 10: First of all, Shaskovsky already has some experience in the government.
Speaker 10: He was a minister in the previous government of Donald Tusk.
Speaker 10: Navrotsky is a relatively new candidate. Nobody really knows him.
Speaker 10: His party belongs to the Group of European Conservatives and
Speaker 10: Reformist which is the fourth biggest political family in the
Speaker 10: European Parliament. It's also the group where Italian Prime Minister
Speaker 10: Jeorgia Meloney belongs to. But make no mistake, even if
Speaker 10: very few people know Navrotsky, now if he wins the elections,
Speaker 10: he will become the president of one of the biggest
Speaker 10: EU nations.
Speaker 3: Wow, so voytek In terms of then the campaigning and
Speaker 3: the battleground, I imagine Poland's relationship with the EU has
Speaker 3: come up a lot. What is the view within Poland?
Speaker 9: Yes, EO has been a big campaign topic. Has security.
Speaker 9: Poland is bordering Ukraine, and the Ukraine conflict has already
Speaker 9: kind of spread into Poland. Poland is home to more
Speaker 9: than a million Ukrainian refugees. The main topic is whether
Speaker 9: the European Union can provide a sort of security that's
Speaker 9: needed at a time that US President Donald Trump said
Speaker 9: he wants Europe to take the greater care for itself
Speaker 9: instead of the US providing such guarantees. The other key
Speaker 9: issue is whether Poland will be able to undo some
Speaker 9: of the justice reforms that the previous populist government did
Speaker 9: that have been blocked for the last two years. If
Speaker 9: the government will not have this president as an ally,
Speaker 9: that's not likely, so there may be Nebrotsky victory is
Speaker 9: likely to lead to more tensions between Poland and the EU.
Speaker 3: In terms of the other campaigning issues, Voytek, can you
Speaker 3: talk us through what the economic propositions on both sides are,
Speaker 3: What the other topics are that have emerged in terms
Speaker 3: of the campaigning.
Speaker 9: Poland has one of the fastest growing economies in Europe.
Speaker 9: It's going around three percent a year. But interestingly, we
Speaker 9: haven't really seen that much of a feel good factor
Speaker 9: coming with the fast economic growth because inflation remains stubbornly
Speaker 9: high around the five percent. And a lot of the
Speaker 9: talk during this campaign has been about lowering costs for
Speaker 9: the self employed, payroll costs, deregulation, increasing tax cuts. So
Speaker 9: these are some of the themes that economically Poland is
Speaker 9: looking and I think both of the candidates are generally
Speaker 9: aligned behind lower taxes. It's a question of how they
Speaker 9: plan to get there.
Speaker 3: So that's the domestic issue then perhaps or some of
Speaker 3: the domestic issues. Ever, what's at stake for Brussels in
Speaker 3: terms of this election? I mean, could the eventual winner
Speaker 3: end up wielding, you know, significant power. How do you
Speaker 3: think Brussels is thinking about this election? I mean I
Speaker 3: mentioned the fact that populism is there within Europe but
Speaker 3: has been rising. This will surely be another test of that.
Speaker 10: Let's try to put it a bit in a sort
Speaker 10: of broader context. Whoever wins the elections in Poland will
Speaker 10: have only a limited say on European politics. That's because
Speaker 10: the role of the president under the Polish law is
Speaker 10: largely symbolic, but as Voytek said, he has essay, he
Speaker 10: has the power of a veto. So when it comes
Speaker 10: to domestic legislation, some of the domestic legislation will be
Speaker 10: based on what the Euty sites I decisions. Brussel's decision
Speaker 10: will have to be translated into national laws, and if
Speaker 10: we have a Eurosceptic candidate, he may of course block it.
Speaker 10: There could be also implications for wider European security, given
Speaker 10: that the president in Poland has essay on defense. Poland
Speaker 10: emerged as a key supply route for Western arms and
Speaker 10: aid to Ukraine after the Russian invasion, and Tusk approach
Speaker 10: has been to six stronger ties with key European allies
Speaker 10: and also try to stay on Trump's site by American
Speaker 10: arms and nuclear power technology. Do that the current president
Speaker 10: enjoyed a war relationship with Trump. So if Navrovsky wins,
Speaker 10: or if just Conscu wins, their challenge will be to
Speaker 10: maintain those times.
Speaker 3: Okay, So thinking about the US and President Trump, are
Speaker 3: there any concerns about free and fair voting in the
Speaker 3: upcoming election? I mean, you mentioned at the start democratic
Speaker 3: standards and the concerns that the EU has had in
Speaker 3: recent years with those standards in Poland. What about the
Speaker 3: election in and of itself, No.
Speaker 9: There really hasn't been any There were a lot of
Speaker 9: concerns about the elections when five years ago when Poland
Speaker 9: held them during the COVID pandemic, But this time around
Speaker 9: there is an independent election commission which is running and
Speaker 9: counting the votes, so that is not concern at this time.
Speaker 3: Buytak just lastly thinking about you know what hey come
Speaker 3: in the future and what's at risk perhaps in this election,
Speaker 3: how are you thinking about it?
Speaker 9: If the government does not get its ally into the
Speaker 9: presidential palace, it raises a question of whether the pro
Speaker 9: European alliance that Donald Tusk currently controls will be able
Speaker 9: to hold on to power in the next parliamentary elections
Speaker 9: in twenty twenty seven. So the key thing for European
Speaker 9: watchers is if Poland's pro eu tilt is to continue,
Speaker 9: he needs his own person in the presidential palace, and
Speaker 9: if he doesn't get that, that is there's a big
Speaker 9: question mark over Poland beyond twenty twenty seven.
Speaker 3: My thanks to Bloomberg's Brussels deputy bureau chief Eva Krukowska
Speaker 3: and to our Poland based reporter Voytek Moskva for joining
Speaker 3: me and we will have full coverage of the results
Speaker 3: of that Polish vote. I'm Karlin Hepkea here in London.
Speaker 3: You can catch us every weekday morning for Bloomberg Daybreak
Speaker 3: Europe beginning six am in London. That's one am on
Speaker 3: Wall Street.
Speaker 2: Tom, thank you, Caroline. And coming up on Bloomberg day
Speaker 2: Break weekend, we'll look ahead to South Korea's Central Bank
Speaker 2: meeting and what it means from monetary policy moving forward.
Speaker 2: I'm Tom Busby, and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. South Korea Central Bank meets this week
Speaker 2: amid growing economic strain. New US tariffs are rattling exporters
Speaker 2: and the data is already showing some cracks. Can monetary
Speaker 2: policy offer some support well? For a closer look, let's
Speaker 2: get to the host of the Daybreak Asia podcast, Doug Krisner.
Speaker 7: Tom.
Speaker 4: The latest trade data for South Korea shows a sharp
Speaker 4: drop in shipments to the US via collect sports were
Speaker 4: down for a second straight month now. On the other hand,
Speaker 4: there was the jump in sales of semiconductors. Still, the
Speaker 4: broader outlook does remain a little shaky, and to help
Speaker 4: unpack what it all means for the Bank of Korea,
Speaker 4: I'm joined now by Hyosung Kuan, he covers career for
Speaker 4: Bloomberg Economics from our bureau in Seoul. Thank you so
Speaker 4: much for making time to chat with me, Heosong. Before
Speaker 4: we get to what the BOK may do at its
Speaker 4: next meeting, can you help me understand the current macro
Speaker 4: situation in South Korea, especially given the fact that these
Speaker 4: US tariffs are in place right now.
Speaker 11: First of all, thanks for having me, Douk sous Kristi.
Speaker 11: Economy is under great strain now. Growth momentum has weakened
Speaker 11: significantly due to political instabilities spoked by former President Unisoguil's
Speaker 11: controversial martial attempt, which he wrote it. Consumer and business
Speaker 11: confidence delaying consumption investment, and the vacuum of leadership made
Speaker 11: it difficult for the government to respond to economic challenges.
Speaker 11: On top of this, the batterge of Trump tartiffs hit
Speaker 11: the economy. The South Korea's economy is highly dependent on exports,
Speaker 11: and the US economy is one of the largest destinations
Speaker 11: of South Korean exports. So higher tatiffs on Trump's administration
Speaker 11: on South Korea's key exports such as automobile and automotive
Speaker 11: pots and also steal and potential the imposition of tariffs
Speaker 11: on semiconductors, but way on South Korea's exports and South
Speaker 11: Korea's growth.
Speaker 4: I'm curious, Jo Sung, how has the Korean one, the
Speaker 4: currency been holding up during this period of stress.
Speaker 11: As you put it, Korean one was under severe download
Speaker 11: pressure since actually September last year, when there was a
Speaker 11: in the US the possibility of Trump is growing. Then
Speaker 11: South Korea's one started to get down with the pressure,
Speaker 11: and then after that the depreciation pressure spiked after the
Speaker 11: Units of Yo declared the martial law last December. But
Speaker 11: recently Korean one is gaining slightly as there's a global
Speaker 11: sentiment that US dollar is weakening, possibly due to the
Speaker 11: you know, the ongoing current stokes with the US and
Speaker 11: its trading partners.
Speaker 4: During that period of weakness, and the currency did inflation
Speaker 4: pick up in a meaningful way to the extent that
Speaker 4: the Bank of Korea may have become a little concerned.
Speaker 11: Inflation was a relatively stable Actually, as you mentioned that
Speaker 11: the weaker Korean one would have a inflation the pressure
Speaker 11: through higher import costs. Right, But as I mentioned before
Speaker 11: that South Korea's domestic demand is very weak. You know
Speaker 11: that big domestic demand pressure probably mitigated the increase in
Speaker 11: the inflation pressure by import costs. But still I think
Speaker 11: inflation is slightly higher than well compared to its economic conditions,
Speaker 11: I mean big domestic demand.
Speaker 4: So given weak domestic demand, does that necessarily mean that
Speaker 4: household debt hasn't been growing as quickly that consumers have
Speaker 4: become a lot more conservative.
Speaker 11: So even if the domestic amount was weak, the household
Speaker 11: that was increasing recently because that was driven by the
Speaker 11: expectation that housing prices in the sole metropolitan area, especially
Speaker 11: in Kangnam area, could rise. So it was driven by
Speaker 11: the speculation of housing price increases even with the wik
Speaker 11: domestic demand.
Speaker 4: That's very interesting because I recall in the past the
Speaker 4: Bank of Korea has been very concerned about the extent
Speaker 4: to which the property market in South Korea has been
Speaker 4: very robust, almost too hot for comfort. Is that still
Speaker 4: the case outside of.
Speaker 11: Soul, Outside sold the demand for housing is weakening or weak,
Speaker 11: But demand for housing in Seoul is still very strong.
Speaker 11: So it is a kind of two spit economy that's
Speaker 11: all metroportsan area and other areas.
Speaker 4: I think a lot when I think of South Korea
Speaker 4: about the trade relationship with China, not just the US,
Speaker 4: so the China side of the trade story. How has
Speaker 4: that been impacting South Korean exports to China.
Speaker 11: Well, recently we saw from data that expert to China
Speaker 11: is also declining. Possibly. First of all, China's economy is
Speaker 11: also slowing down. And secondly, the export to China was
Speaker 11: mainly due to the export to the US after assembling
Speaker 11: intermediate parts in China, right, So that means that US
Speaker 11: China's trade tention would also affect South Korea's export to
Speaker 11: China indirect way. And thirdly, the competitiveness of China is
Speaker 11: also increased, meaning that China's demand for South Korea as
Speaker 11: the intermediate pot probably declined.
Speaker 4: When I recall that South Korea is very much allied
Speaker 4: with the United States, and they were one of the
Speaker 4: first countries I think, along with Japan, to come to
Speaker 4: the negotiating table shortly after the tariffs were imposed by
Speaker 4: the Trump administration. It was a hopeful sign I think
Speaker 4: for many economists that cover South Korea that there would
Speaker 4: be some type of resolution in the short term. Is
Speaker 4: that still very much the expectations that will see some
Speaker 4: type of trade agreement between Washington and Seoul soon?
Speaker 11: I think that's that's unlikely because even as you mentioned
Speaker 11: that the delegations of South Korea went to Washington to
Speaker 11: have trade talks earlier than other trading partners of the US.
Speaker 11: Actually the delegates at that time, the finest minister Chessamo,
Speaker 11: said that their objective was to pay ways for you know,
Speaker 11: that trade deal or trade negotiations with the US after
Speaker 11: the new administration established after their presidence election on June three,
Speaker 11: which means that they you know, try to have a
Speaker 11: trade talks with the US, but they actually didn't want
Speaker 11: to rush into any trade. So that's still the case.
Speaker 11: So I think it is very unlikely we South Korea
Speaker 11: will have a trade to deal with the US in
Speaker 11: the near time.
Speaker 4: Yosung, we've touched on some of the macroeconomic elements which
Speaker 4: helps us kind of set the stage for this decision
Speaker 4: that the Bank of Korea confronts. What do you believe
Speaker 4: policymakers will do at their next meeting.
Speaker 11: The Bank of Korea will cut interest rate twenty five
Speaker 11: basis point in May, resuming a very contious easing cycle. So,
Speaker 11: as I told you before, the growth momentum has weakened significantly,
Speaker 11: but inflation remained relatively stable around Bank of Korea's two
Speaker 11: percent target, So the Bank of Korea will move to
Speaker 11: boost economy.
Speaker 4: Yo Song, thank you so much for helping us unpack
Speaker 4: what we may get from the Bank of Korea in
Speaker 4: the coming week. Hyosung Kwang covers Korea for Bloomberg Economics
Speaker 4: in Seoul and for a broader look at the economic
Speaker 4: landscape in Asia. I spoke earlier with Joe Little. He
Speaker 4: is the global chief strategist at HSBC Asset Management. He
Speaker 4: joined me from our studios in Hong Kong. Can you
Speaker 4: take me inside the HSBC Asset Management morning meeting? How
Speaker 4: much consensus is there right now? I know there are
Speaker 4: so many different points of view. It's a very mercurial
Speaker 4: world that we're living in right now. Is there much
Speaker 4: in the way of consensus in your shop?
Speaker 7: Yeah?
Speaker 12: I mean that's a great question, and you're quite right,
Speaker 12: because we're living in unusual times, ultra high policy uncertainty,
Speaker 12: many different dimensions to the investment market equation at this
Speaker 12: point in time. So we tend to run an approach
Speaker 12: to think about investment markets based around scenarios, and normally
Speaker 12: we like to have three scenarios in mind. Juggling most
Speaker 12: scenarios and that becomes quite quite quite difficult mental mental exercise,
Speaker 12: and it means then you've got less time to really
Speaker 12: kind of develop and think about what the data flow
Speaker 12: and investment market action might look like under different scenarios.
Speaker 12: The central theme that we've had is what I call
Speaker 12: spinning around. So lots of policy uncertainty, high volatility in markets,
Speaker 12: a big challenge to US exceptionalism, rotation into other global
Speaker 12: stock markets, policy support in Europe and China, and a
Speaker 12: situation then where the rest of the world equities e
Speaker 12: the equities can outperform the US, but clearly with the tariffs,
Speaker 12: with the Dodge fiscal agenda to a degree, as well
Speaker 12: some of the themes around immigration policy in the US.
Speaker 12: There's a there's a left hand scenario which we've been
Speaker 12: also highly attuned to, particularly colleagues in the in the
Speaker 12: fixed income area, highly attuned to this idea of you know,
Speaker 12: big challenges around the growth inflation mix. Recession worries elevated still,
Speaker 12: and that has a slightly different set of prognoses in
Speaker 12: terms of how investment markets then behave. And on the
Speaker 12: right hand side, you know, investors in our equity area,
Speaker 12: more growth focused investors still want to think about technology
Speaker 12: and the importance of AI, which increasingly is the most positive,
Speaker 12: most bullish scenario in the chessboard. And again that would
Speaker 12: have a slightly different set of consequences for markets as
Speaker 12: we think through the scenarios. So we like to think
Speaker 12: in terms of that framework, and most of our discussions
Speaker 12: are focused on a central scenario of spinning around lots
Speaker 12: of volatility, but a way forward for markets over the
Speaker 12: course of the next twelve to eighty months, or a
Speaker 12: more adverse negative scenario. Worries about recession risk being a
Speaker 12: big feature of a lot of our conversations, and of
Speaker 12: course a track in the data very closely to monitor
Speaker 12: that risk.
Speaker 4: Is there some counter intuitive into tuition that you have
Speaker 4: right now that you would be willing to share something
Speaker 4: that you believe the market may be overlooking, that you
Speaker 4: think will develop in a way that represents opportunity.
Speaker 12: So there are some very interesting positive fixed income stories,
Speaker 12: and there's a lot to focus on in the Asia
Speaker 12: region as well, India, fixed income, China stock markets. I
Speaker 12: think a lot of these themes tend to be a
Speaker 12: little bit overlooked by global investors because the story around
Speaker 12: US markets, US exceptionalism, which has been that dominant meme
Speaker 12: over the last decade, has sucked all of the interest
Speaker 12: and oxygen out of these other themes. As that breaks,
Speaker 12: as the fault lines appear in US exceptionalism, then it
Speaker 12: gives oxygen to some of these other stories. So big
Speaker 12: opportunity for rotation, a big opportunity to look at themes
Speaker 12: in Europe and Asia over the next twelve to eighteen months.
Speaker 12: But extending a time horizon rather than just focusing on
Speaker 12: the very near term is probably the best advice at
Speaker 12: this juncture.
Speaker 4: That is Joe Little, chief Global Strategist at HPC Asset Management,
Speaker 4: and I'm Doug Chrisner. You can catch us weekdays for
Speaker 4: the Daybreak Asia podcast. It's available wherever you get your
Speaker 4: podcast Tom.
Speaker 2: Thanks Doug, and that does it for this edition of
Speaker 2: Bloomberg day Break Weekend. Join us again Monday morning at
Speaker 2: five am Wall Street Time for the latest on markets overseas.
Speaker 2: And the news you need to start your day. I'm
Speaker 2: Tom Busby.
Speaker 7: Stay with US.
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