1 00:00:00,240 --> 00:00:07,240 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:10,000 --> 00:00:13,160 Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the 3 00:00:13,200 --> 00:00:15,960 Speaker 2: top stories in the coming week from our Daybreak anchors 4 00:00:16,040 --> 00:00:18,640 Speaker 2: all around the world. Straight Ahead on the program, a 5 00:00:18,720 --> 00:00:21,479 Speaker 2: look ahead to earnings from Chip Giant, Nvidio in some 6 00:00:21,560 --> 00:00:25,440 Speaker 2: of America's biggest retailers. I'm Nathan Hager in Washington. 7 00:00:25,680 --> 00:00:28,320 Speaker 3: I'm Carolin headka Hey London. While we're looking ahead to 8 00:00:28,400 --> 00:00:30,440 Speaker 3: the European Business Summit, I'm. 9 00:00:30,320 --> 00:00:34,519 Speaker 4: Doug Prisner looking at an expected pivot in Japan's economic growth. 10 00:00:37,479 --> 00:00:41,480 Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 11 00:00:41,520 --> 00:00:45,240 Speaker 1: eleven three year, New York, Bloomberg ninety nine to one, Washington, DC, 12 00:00:45,720 --> 00:00:50,839 Speaker 1: Bloomberg ninety two nine, Boston, Dad Digital Radio, London, Sirius 13 00:00:51,040 --> 00:00:54,160 Speaker 1: XM one twenty one, and around the world on Bloomberg 14 00:00:54,240 --> 00:00:56,760 Speaker 1: Radio dot Com and the Bloomberg Business Own. 15 00:01:02,520 --> 00:01:05,320 Speaker 2: Good day to you. I'm Nathan Hager. We begin today's 16 00:01:05,319 --> 00:01:09,360 Speaker 2: program with earnings. Third quarter reporting seasons coming close to 17 00:01:09,400 --> 00:01:11,840 Speaker 2: an end, but before it does, we are about to 18 00:01:11,880 --> 00:01:16,120 Speaker 2: hear from some heavyweights, including the most valuable company of 19 00:01:16,280 --> 00:01:19,920 Speaker 2: all AI Chip Giant Nvidia wraps up results from the 20 00:01:19,920 --> 00:01:23,679 Speaker 2: Magnificent seven after the close of trade this Wednesday for 21 00:01:23,760 --> 00:01:26,720 Speaker 2: more and what we can expect, were joined by Kunjohn Sabani, 22 00:01:26,840 --> 00:01:30,959 Speaker 2: senior semiconductor analysts for Bloomberg Intelligence. Kunjohn, it's great to 23 00:01:30,959 --> 00:01:33,080 Speaker 2: have you with us on the weekend program. And it 24 00:01:33,080 --> 00:01:37,200 Speaker 2: seems like every quarter the expectation is for Nvidia to 25 00:01:38,080 --> 00:01:42,160 Speaker 2: more than beat expectations. How high is the bar this 26 00:01:42,240 --> 00:01:42,840 Speaker 2: time around? 27 00:01:43,240 --> 00:01:45,640 Speaker 5: Yeah, So, just to add some context, the last two 28 00:01:45,720 --> 00:01:49,080 Speaker 5: quarters were the only quarters in which they did not 29 00:01:49,680 --> 00:01:53,560 Speaker 5: beat and raise significantly, after having beating and raising for 30 00:01:53,640 --> 00:01:57,320 Speaker 5: almost eight to twin quarters before that consistently in a row. 31 00:01:57,440 --> 00:02:00,520 Speaker 5: The key factors last two quarters were the head from 32 00:02:00,520 --> 00:02:03,880 Speaker 5: the China revenues. Also, not all the Street estimates had 33 00:02:04,000 --> 00:02:08,440 Speaker 5: China removed, so the consensus was not really clean. However, 34 00:02:08,600 --> 00:02:12,320 Speaker 5: looking into fiscal three Q, we now believe Street has 35 00:02:12,360 --> 00:02:14,560 Speaker 5: most of the China revenues removed, so that's out of 36 00:02:14,600 --> 00:02:18,840 Speaker 5: the way, and now we believe in Media's latest Blackwell 37 00:02:18,919 --> 00:02:23,000 Speaker 5: three hundred is ramping stronger, so they could return to 38 00:02:23,040 --> 00:02:27,200 Speaker 5: their normal race cadence of mid single digit beats and races, 39 00:02:27,200 --> 00:02:30,359 Speaker 5: and anything above that or a low double digit would 40 00:02:30,400 --> 00:02:33,280 Speaker 5: be a significant upside that could really help the sentiment. 41 00:02:33,880 --> 00:02:36,920 Speaker 5: Another point to add here is most of the hyperscalers 42 00:02:36,919 --> 00:02:39,799 Speaker 5: and cloud providers did raise their second half twenty twenty 43 00:02:39,800 --> 00:02:43,040 Speaker 5: five CAPEX projections by about a total of twenty billion 44 00:02:43,360 --> 00:02:46,800 Speaker 5: and their twenty twenty six projections by about one hundred billion. 45 00:02:47,280 --> 00:02:50,880 Speaker 5: So that combined with the five hundred billion pipeline that 46 00:02:51,080 --> 00:02:55,480 Speaker 5: Gentien shared during GDC last month for their black vel 47 00:02:55,520 --> 00:02:59,000 Speaker 5: and Rubin ramps significantly sets it up for a massive 48 00:02:59,080 --> 00:03:00,760 Speaker 5: upside in twenty six, to. 49 00:03:00,800 --> 00:03:04,040 Speaker 2: The point of getting some of that China revenue off 50 00:03:04,080 --> 00:03:07,239 Speaker 2: the books. We have seen the CEO Jensen Wang making 51 00:03:07,320 --> 00:03:11,560 Speaker 2: moves like improving ties with Taiwan. He was just there 52 00:03:12,919 --> 00:03:16,760 Speaker 2: doing the relationship with Taiwan Semiconductor. How do you see 53 00:03:16,960 --> 00:03:20,919 Speaker 2: Jensen Wang building these relationships and how could that play 54 00:03:20,960 --> 00:03:21,680 Speaker 2: into the results. 55 00:03:21,960 --> 00:03:24,919 Speaker 5: I mean, Taiwan is a key, you know, manufacturing hub, 56 00:03:25,000 --> 00:03:27,000 Speaker 5: not just for nd media but for most of this 57 00:03:27,560 --> 00:03:32,600 Speaker 5: the semiconductor semis and media is also leading TSMC's move 58 00:03:33,280 --> 00:03:36,360 Speaker 5: on shoring and building its products into the US in 59 00:03:36,400 --> 00:03:39,520 Speaker 5: the Arizona Plan, So that's going to be significantly critical. 60 00:03:39,760 --> 00:03:42,840 Speaker 5: On the China point, it doesn't seem like there is 61 00:03:43,000 --> 00:03:45,800 Speaker 5: enough clearance yet of course they're going to try because 62 00:03:45,840 --> 00:03:49,160 Speaker 5: there's the second largest market for them outside of the 63 00:03:49,280 --> 00:03:53,240 Speaker 5: US and they would really like to capture that market. 64 00:03:53,600 --> 00:03:56,520 Speaker 5: So far, we don't believe this quarter we'll see any 65 00:03:56,720 --> 00:03:57,960 Speaker 5: material revenues though. 66 00:03:58,440 --> 00:04:03,000 Speaker 2: Are those barriers in kinda a continued headwind beyond this 67 00:04:03,080 --> 00:04:03,920 Speaker 2: quarter for Nvidia? 68 00:04:04,360 --> 00:04:07,680 Speaker 5: They will, But on the good side, you know, most 69 00:04:07,720 --> 00:04:10,320 Speaker 5: of the investors in the street now have sort of 70 00:04:10,560 --> 00:04:13,880 Speaker 5: baked that in that you know, they're not adding this 71 00:04:14,160 --> 00:04:17,680 Speaker 5: back anytime soon. Also, since the head wind has come up. 72 00:04:17,720 --> 00:04:19,880 Speaker 5: You know, China right now is about fifty billion dollars 73 00:04:19,920 --> 00:04:24,479 Speaker 5: accelerator market right there have been other larger and other 74 00:04:24,640 --> 00:04:27,919 Speaker 5: large markets that have appeared in terms of SO and 75 00:04:28,000 --> 00:04:32,320 Speaker 5: AI spendings. One is the Middle East region, other is Japan, 76 00:04:32,480 --> 00:04:35,560 Speaker 5: and more and more countries like for example, in Europe 77 00:04:35,600 --> 00:04:40,040 Speaker 5: are coming in which could easily offset that tam that China, 78 00:04:41,120 --> 00:04:42,880 Speaker 5: that China had been took out of Invidia. 79 00:04:43,560 --> 00:04:46,440 Speaker 2: I wonder what you're expecting to hear from the CEO 80 00:04:46,640 --> 00:04:50,800 Speaker 2: himself after we heard in recent days from the CEO 81 00:04:51,160 --> 00:04:55,919 Speaker 2: of Innvidia's maybe closest competitor, Advanced micro Devices, talking about 82 00:04:56,360 --> 00:04:59,560 Speaker 2: a big revenue outlook for AMD over the next three 83 00:04:59,600 --> 00:05:02,240 Speaker 2: to five years. What does Jensen Wong need to say 84 00:05:02,240 --> 00:05:04,240 Speaker 2: in terms of in videos outline. 85 00:05:04,480 --> 00:05:06,400 Speaker 5: Yeah, and you know, in his normal way, I think 86 00:05:06,720 --> 00:05:10,520 Speaker 5: definitely is going to give more updates of how strong 87 00:05:10,600 --> 00:05:13,800 Speaker 5: the demand is, how strong the use case and performance 88 00:05:13,839 --> 00:05:16,760 Speaker 5: bench marks of the new Blackwell ramp is what we 89 00:05:16,800 --> 00:05:20,400 Speaker 5: would like to ask if you know, we as key 90 00:05:20,440 --> 00:05:23,560 Speaker 5: our investors should know is going to be more clarity 91 00:05:23,640 --> 00:05:28,159 Speaker 5: on that five hundred billion dollar pipeline that could really 92 00:05:28,520 --> 00:05:30,960 Speaker 5: set up the models and the estimates to go up. 93 00:05:31,720 --> 00:05:35,359 Speaker 5: Another key point is getting clarity on the cross margin 94 00:05:35,400 --> 00:05:38,960 Speaker 5: trajectory as these new products ramp and if they will 95 00:05:39,000 --> 00:05:41,080 Speaker 5: be staying close to in twenty six to the mid 96 00:05:41,120 --> 00:05:43,200 Speaker 5: seventies person gross margin range. 97 00:05:42,960 --> 00:05:47,040 Speaker 2: In terms of those newer products. What are you expecting 98 00:05:47,240 --> 00:05:50,719 Speaker 2: on the pipeline beyond Blackwell. 99 00:05:50,520 --> 00:05:53,640 Speaker 5: Yeah, I mean they have clearly laid out their road maps. 100 00:05:53,680 --> 00:05:56,760 Speaker 5: So the next product, the Rubin. We don't think they'll 101 00:05:56,760 --> 00:05:59,479 Speaker 5: announce much details for this three cube, but we will 102 00:05:59,520 --> 00:06:03,400 Speaker 5: get more clarity in the GDC early part of next year. 103 00:06:03,480 --> 00:06:06,440 Speaker 5: That's when we'll get a lot more specs. But again, 104 00:06:07,160 --> 00:06:09,160 Speaker 5: what we have seen from our channel checks is the 105 00:06:09,360 --> 00:06:12,919 Speaker 5: Blackwell Ultra, the GB three hundred seems to have gotten 106 00:06:13,000 --> 00:06:17,560 Speaker 5: much stronger traction when we had anticipated. And so unless 107 00:06:17,600 --> 00:06:21,400 Speaker 5: we don't run into any transition paines going to Rubhin, 108 00:06:21,480 --> 00:06:23,719 Speaker 5: we expect a similar stronger traction. 109 00:06:24,279 --> 00:06:26,880 Speaker 2: Of course, one of the issues that has long been 110 00:06:26,920 --> 00:06:30,080 Speaker 2: an issue for in video, something that's tried to meet 111 00:06:30,120 --> 00:06:33,560 Speaker 2: the challenge of is just keeping up with this robust 112 00:06:33,680 --> 00:06:37,200 Speaker 2: demand for chips and AI centers. Do you see in 113 00:06:37,320 --> 00:06:38,240 Speaker 2: Vidia keeping up? 114 00:06:39,000 --> 00:06:43,400 Speaker 5: They have been incrementally increasing supply every quarter, but we 115 00:06:43,480 --> 00:06:47,640 Speaker 5: still think, you know, demand continues to stay ahead of supply, 116 00:06:47,920 --> 00:06:51,719 Speaker 5: and we don't think supply will exceed demand anytime soon, 117 00:06:51,760 --> 00:06:53,280 Speaker 5: not at least until twenty twenty six. 118 00:06:53,400 --> 00:06:56,600 Speaker 2: En all right, coun John Sabani, thank you for this. 119 00:06:57,040 --> 00:07:01,800 Speaker 2: That's Bloomberg Intelligence Senior Semiconductor analyst Konjohn Sabani. Again, we 120 00:07:01,839 --> 00:07:05,680 Speaker 2: get those video results after the close of trading on Wednesday. Now, 121 00:07:05,760 --> 00:07:09,279 Speaker 2: let's get to earnings from some of America's biggest retailers. 122 00:07:09,440 --> 00:07:12,640 Speaker 2: Target opens up it's third quarter books before the opening 123 00:07:12,680 --> 00:07:15,960 Speaker 2: bell on Wednesday. Then about twenty four hours after that, 124 00:07:16,080 --> 00:07:20,160 Speaker 2: we hear from Walmart. Let's hear now from Jen Bartashis. 125 00:07:20,320 --> 00:07:23,480 Speaker 2: She's a Senior analyst for retail staples and package Foods 126 00:07:23,720 --> 00:07:26,280 Speaker 2: at Bloomberg Intelligence. It's great to have you with us 127 00:07:26,320 --> 00:07:28,240 Speaker 2: on the program, Jen, And of course we look to 128 00:07:28,280 --> 00:07:31,240 Speaker 2: both these companies for a read on the consumer. Of course, 129 00:07:31,280 --> 00:07:34,680 Speaker 2: I'll look ahead to the holidays. What's the setup as 130 00:07:34,680 --> 00:07:37,320 Speaker 2: we await these results from Target and Walmart. 131 00:07:38,200 --> 00:07:41,920 Speaker 6: It's a very interesting time for these retailers because we 132 00:07:42,000 --> 00:07:46,480 Speaker 6: hear about the disparity in consumer shopping behavior. On one hand, 133 00:07:46,800 --> 00:07:50,560 Speaker 6: Walmart is pulling more hire income households into its ecosphere 134 00:07:50,600 --> 00:07:53,280 Speaker 6: than ever before. And on the other hand, we have 135 00:07:53,360 --> 00:07:58,080 Speaker 6: Target that's going through a huge your reset as it's 136 00:07:58,120 --> 00:08:01,520 Speaker 6: trying to reconnect with its core customer base, and so 137 00:08:01,800 --> 00:08:05,160 Speaker 6: it's a it's a very dynamic time for these companies. 138 00:08:05,200 --> 00:08:07,680 Speaker 6: And it's the back to school season is what's really 139 00:08:07,720 --> 00:08:10,400 Speaker 6: in this quarter. So it's a good read on how 140 00:08:10,480 --> 00:08:13,680 Speaker 6: people are going to be entering into the holiday shopping period. 141 00:08:13,840 --> 00:08:17,360 Speaker 2: Okay, so let's start off with Target. Of course, in 142 00:08:17,400 --> 00:08:20,360 Speaker 2: your latest note, one of your latest notes, you make 143 00:08:20,440 --> 00:08:23,680 Speaker 2: note of their goal to add fifteen billion dollars in 144 00:08:23,800 --> 00:08:26,760 Speaker 2: revenue over the next five years. Could this be a 145 00:08:26,840 --> 00:08:29,680 Speaker 2: quarter where we start to see them on their way there. 146 00:08:31,040 --> 00:08:33,040 Speaker 6: I think it's going to be a little bit of 147 00:08:33,040 --> 00:08:37,040 Speaker 6: a mixed quarter for Target, and that's really because they're 148 00:08:37,160 --> 00:08:41,199 Speaker 6: still trying to find their footing and what's going to 149 00:08:41,280 --> 00:08:45,679 Speaker 6: resonate with customers. Target is its best when people are 150 00:08:45,679 --> 00:08:50,200 Speaker 6: willing to buy apparel and buy discretionary items, and that 151 00:08:50,440 --> 00:08:54,040 Speaker 6: willingness is still a little bit dampened. They've done some 152 00:08:54,440 --> 00:08:57,439 Speaker 6: good things this quarter to kind of help reset their business. 153 00:08:57,480 --> 00:09:00,400 Speaker 6: If you remember they announced job cuts, if almost eighteen 154 00:09:00,480 --> 00:09:04,679 Speaker 6: hundred positions that they were cutting, you know, that's the 155 00:09:04,720 --> 00:09:07,360 Speaker 6: beginning of what should be a turnaround for Target. 156 00:09:07,520 --> 00:09:10,840 Speaker 2: And it's interesting we just heard some reports earlier this 157 00:09:10,960 --> 00:09:15,160 Speaker 2: week that Target is implementing a new greeting policy for 158 00:09:15,240 --> 00:09:18,520 Speaker 2: those workers who are still on the job, basically telling 159 00:09:18,520 --> 00:09:21,400 Speaker 2: them to smile more for the customers who come in. 160 00:09:21,520 --> 00:09:24,079 Speaker 2: What's the balancing act for Target as it tries to 161 00:09:24,559 --> 00:09:25,840 Speaker 2: navigate this turnaround. 162 00:09:26,640 --> 00:09:29,680 Speaker 6: Yeah, I think it's a balance between not losing sight 163 00:09:29,840 --> 00:09:33,880 Speaker 6: of your own core values that is what makes your 164 00:09:33,920 --> 00:09:38,720 Speaker 6: customer base love you, and trying to chase other retailers. 165 00:09:39,080 --> 00:09:41,640 Speaker 6: So you know, they keep doing price cuts. You know 166 00:09:41,679 --> 00:09:44,559 Speaker 6: they want to stay priced competitive, but at the same time, 167 00:09:44,760 --> 00:09:47,480 Speaker 6: Target has never been about being the low price leader. 168 00:09:47,880 --> 00:09:51,000 Speaker 6: So there's a balance there between having the selection and 169 00:09:51,080 --> 00:09:54,920 Speaker 6: the fun type of you know, offerings that they have 170 00:09:55,480 --> 00:09:57,920 Speaker 6: while still offering values so that people feel like they're 171 00:09:57,920 --> 00:10:01,240 Speaker 6: getting their money's worth. And that's that's what Targets really 172 00:10:01,280 --> 00:10:03,079 Speaker 6: trying to focus on regaining its footing. 173 00:10:03,160 --> 00:10:05,120 Speaker 2: Yeah, on the point of the price cuts, we just 174 00:10:05,200 --> 00:10:08,400 Speaker 2: recently heard the Targets cut the prices on three thousand 175 00:10:08,600 --> 00:10:10,680 Speaker 2: essential items. Is that the kind of thing that could 176 00:10:10,679 --> 00:10:11,760 Speaker 2: eat into its margins? 177 00:10:12,640 --> 00:10:15,800 Speaker 6: It could? It depends on what items they are. You know. 178 00:10:15,880 --> 00:10:18,760 Speaker 6: For the most part, these are going to be more 179 00:10:18,800 --> 00:10:21,920 Speaker 6: of your day to day household items, you know, and 180 00:10:21,960 --> 00:10:24,360 Speaker 6: those items don't carry a whole lot of margin on 181 00:10:24,400 --> 00:10:27,840 Speaker 6: them anyway, So you know, when you cut the prices 182 00:10:27,880 --> 00:10:30,600 Speaker 6: on those, you become a little bit more competitive. The 183 00:10:30,640 --> 00:10:34,480 Speaker 6: goal always is that you prompt people to buy greater 184 00:10:34,640 --> 00:10:38,559 Speaker 6: volume and that makes up for any kind of discrepancy 185 00:10:38,600 --> 00:10:42,120 Speaker 6: you might have from lowering your prices. But we'll see 186 00:10:42,120 --> 00:10:46,559 Speaker 6: if that actually takes hold or not. And so the 187 00:10:46,640 --> 00:10:49,360 Speaker 6: higher margin areas of the store are things like apparel, 188 00:10:49,720 --> 00:10:53,760 Speaker 6: it's things like beauty, it's things like home decor, and 189 00:10:53,800 --> 00:10:55,760 Speaker 6: those are the areas that just aren't selling as well 190 00:10:55,840 --> 00:10:56,240 Speaker 6: right now. 191 00:10:56,400 --> 00:10:59,760 Speaker 2: Of course, Walmart getting ready to report their earnings as well. 192 00:10:59,800 --> 00:11:06,040 Speaker 2: They made their name on low prices. Is Target potentially 193 00:11:06,160 --> 00:11:09,360 Speaker 2: eating in to what we could get from Walmart this quarter? 194 00:11:10,440 --> 00:11:15,760 Speaker 6: I would say that usually on a price basis, Walmart 195 00:11:15,800 --> 00:11:19,000 Speaker 6: is a clear winner and a clear leader. And for 196 00:11:19,120 --> 00:11:22,640 Speaker 6: people who shop based only on price, I don't think 197 00:11:22,679 --> 00:11:25,640 Speaker 6: you'll see a whole lot of shifting between Walmart and 198 00:11:25,679 --> 00:11:29,640 Speaker 6: Target in terms of customer visits. It's really more about 199 00:11:29,720 --> 00:11:34,079 Speaker 6: the overall perception and value perception of what you have. 200 00:11:35,679 --> 00:11:39,199 Speaker 6: So for Walmart, it depends a lot of their success 201 00:11:39,480 --> 00:11:43,320 Speaker 6: is the size of their grocery business because more than 202 00:11:43,360 --> 00:11:45,640 Speaker 6: fifty percent of their revenue in the US comes from 203 00:11:45,720 --> 00:11:50,439 Speaker 6: grocery type items, and so they when they keep prices 204 00:11:50,520 --> 00:11:52,960 Speaker 6: low there, they bring people in, but then they're shopping 205 00:11:52,960 --> 00:11:55,920 Speaker 6: the rest of the store, and so I think that's 206 00:11:55,960 --> 00:11:58,160 Speaker 6: one of the tactics that we'll see, and it's it's 207 00:11:58,200 --> 00:12:02,000 Speaker 6: part of what's bringing higher income households into Walmart as well. 208 00:12:03,080 --> 00:12:05,280 Speaker 6: Because if you're going to buy a box of ceurios, 209 00:12:05,559 --> 00:12:08,160 Speaker 6: you know, why wouldn't you buy that at the lowest 210 00:12:08,200 --> 00:12:11,240 Speaker 6: price because it's the same box of curios no matter 211 00:12:11,240 --> 00:12:12,320 Speaker 6: what retailer you go to. 212 00:12:12,800 --> 00:12:14,440 Speaker 2: Well, there's certainly a lot to keep an eye on 213 00:12:14,480 --> 00:12:17,400 Speaker 2: as we get ready for those big box retail earnings 214 00:12:17,640 --> 00:12:19,520 Speaker 2: later this week. Thank you so much for this, Jen, 215 00:12:19,559 --> 00:12:22,079 Speaker 2: really great having you on with us. That's Jen Bartashi's 216 00:12:22,080 --> 00:12:26,240 Speaker 2: Bloomberg Intelligence senior analysts for retail, staples and packaged food, 217 00:12:26,520 --> 00:12:28,719 Speaker 2: and coming up on Bloomberg day Break weekend, we'll look 218 00:12:28,720 --> 00:12:32,520 Speaker 2: ahead to the European Business Summit. I'm Nathan Hager, and 219 00:12:32,600 --> 00:12:47,120 Speaker 2: this is Bloomberg. This is Bloomberg day Break weekend, our 220 00:12:47,160 --> 00:12:49,719 Speaker 2: global look ahead of the top stories for investors in 221 00:12:49,760 --> 00:12:52,640 Speaker 2: the coming week. I'm Nathan Hager in Washington. Up later 222 00:12:52,679 --> 00:12:55,240 Speaker 2: in our program we look ahead to some key economic 223 00:12:55,320 --> 00:12:58,880 Speaker 2: data in Japan. But first, the challenges facing Europe are 224 00:12:58,960 --> 00:13:03,560 Speaker 2: unprecedented but clear of belligerent Russia, frictions with China, and 225 00:13:03,640 --> 00:13:06,920 Speaker 2: ongoing trade spats with the US. Even if the impact 226 00:13:06,920 --> 00:13:10,360 Speaker 2: from Trump Tariff's faded faster than expected, the task is 227 00:13:10,400 --> 00:13:14,480 Speaker 2: building Europe's resilience and competitiveness. That's the backdrop to the 228 00:13:14,520 --> 00:13:18,960 Speaker 2: European Business Summit, which gathers Brussels top bureaucrats and policymakers 229 00:13:19,000 --> 00:13:22,240 Speaker 2: every year. Let's get more from Bloomberg Daybreak Europe anchor 230 00:13:22,320 --> 00:13:24,720 Speaker 2: Caroline Hepger in London, Nathan. 231 00:13:24,800 --> 00:13:27,559 Speaker 3: The European Business Summit in the next few days in 232 00:13:27,640 --> 00:13:31,640 Speaker 3: Brussels will play host to captains of European industry, Nobel 233 00:13:31,679 --> 00:13:36,880 Speaker 3: Prize winning economists, and top bureaucrats, including the EU Commission 234 00:13:37,000 --> 00:13:41,120 Speaker 3: president of Slavondaline. It comes as European firms grapple with 235 00:13:41,280 --> 00:13:46,240 Speaker 3: high deck costs, energy reliance, strained relations with China and 236 00:13:46,280 --> 00:13:51,400 Speaker 3: the US, and criticism ongoing of its regulatory environment. The 237 00:13:51,480 --> 00:13:55,720 Speaker 3: EASE Justice Commissioner Michael McGrath says that Brussels needs more 238 00:13:55,840 --> 00:14:01,160 Speaker 3: power to enforce consumer protection standards amid investigators into illegal 239 00:14:01,240 --> 00:14:05,960 Speaker 3: products being sold by Chinese e commerce platform Shean. He 240 00:14:06,120 --> 00:14:09,400 Speaker 3: says that relations with China can be challenging. 241 00:14:09,960 --> 00:14:13,000 Speaker 7: We have a trading relationship at the moment that is 242 00:14:14,000 --> 00:14:18,480 Speaker 7: quite unbalanced in favor of China. So that's why issues 243 00:14:18,640 --> 00:14:22,640 Speaker 7: like market access barriers for European companies within the Chinese 244 00:14:22,640 --> 00:14:27,120 Speaker 7: market is a key issue for US. China is a partner, 245 00:14:27,200 --> 00:14:31,520 Speaker 7: but also a systemic rival and indeed a competitor of 246 00:14:31,560 --> 00:14:32,440 Speaker 7: the European Union. 247 00:14:32,840 --> 00:14:37,160 Speaker 3: That was Michael McGraw, EU Commissioner for Democracy, Justice and 248 00:14:37,200 --> 00:14:41,160 Speaker 3: the rule of Law as well as consumer protection. Speaking 249 00:14:41,240 --> 00:14:44,680 Speaker 3: there to Bloomberg Radio. Well joining us now as Bloomberg's 250 00:14:44,760 --> 00:14:48,920 Speaker 3: Brussels bureau chief Susanne Lynch. Susan, great to speak to you. 251 00:14:49,600 --> 00:14:52,480 Speaker 3: Just give us a sense of this gathering and what 252 00:14:52,520 --> 00:14:56,000 Speaker 3: business and policy makers are focused on right now in Brussels. 253 00:14:56,400 --> 00:14:56,600 Speaker 6: Yeah. 254 00:14:56,680 --> 00:14:59,880 Speaker 8: Look, this is a significant moment for business representatives to 255 00:15:00,080 --> 00:15:02,320 Speaker 8: come into close contact, if you like, with some of 256 00:15:02,360 --> 00:15:06,320 Speaker 8: the big hitting EU policy makers and Brussels. The reality 257 00:15:06,440 --> 00:15:09,600 Speaker 8: is the EU, everyone thinks politics in fact, you know, 258 00:15:09,800 --> 00:15:12,640 Speaker 8: is one of the world's biggest regulators, does have impact 259 00:15:12,800 --> 00:15:15,560 Speaker 8: on business. And I think this year in particular, people 260 00:15:15,600 --> 00:15:17,880 Speaker 8: would be very interested to hear what's coming out of 261 00:15:17,920 --> 00:15:21,360 Speaker 8: the European Commission because there is such a focus, particularly 262 00:15:21,360 --> 00:15:23,680 Speaker 8: i'd say over the last year or so on the 263 00:15:23,800 --> 00:15:27,360 Speaker 8: challenges facing the European economy and the whole issue of 264 00:15:27,440 --> 00:15:28,920 Speaker 8: EU competitiveness. 265 00:15:29,120 --> 00:15:32,560 Speaker 3: Yeah, indeed, and this summit talks about what choices Europe 266 00:15:32,640 --> 00:15:37,080 Speaker 3: must make today to remain resilient and globally competitive tomorrow. 267 00:15:37,080 --> 00:15:40,520 Speaker 3: I think that kind of neatly sums up the issues 268 00:15:40,640 --> 00:15:44,240 Speaker 3: for Europe as well. Over a year since Mario Daghy's report, 269 00:15:44,240 --> 00:15:48,600 Speaker 3: which exposed Europe's need for greater competitiveness, the discussion around 270 00:15:48,640 --> 00:15:51,640 Speaker 3: high energy costs and reliance on bank loans, and the 271 00:15:51,720 --> 00:15:56,160 Speaker 3: regulatory burden and so many other of the recommendations. But 272 00:15:56,920 --> 00:15:59,520 Speaker 3: more than a year since since that report, and even 273 00:15:59,560 --> 00:16:03,240 Speaker 3: his own up some that was quite negative about the 274 00:16:03,240 --> 00:16:07,400 Speaker 3: progress that Europe had made. Where are we absolutely. 275 00:16:06,800 --> 00:16:10,320 Speaker 8: And Mario DRAGLEI was speaking himself recently on the anniversary 276 00:16:10,480 --> 00:16:12,800 Speaker 8: of this landmark report and made the point that there 277 00:16:12,880 --> 00:16:14,520 Speaker 8: has been very little progress. 278 00:16:14,600 --> 00:16:14,800 Speaker 6: Now. 279 00:16:15,360 --> 00:16:18,880 Speaker 8: One reason is because the EU is this very unique institution. 280 00:16:19,080 --> 00:16:22,040 Speaker 8: It includes twenty seven countries. It's not a sovereign body 281 00:16:22,080 --> 00:16:24,920 Speaker 8: that can make decisions. It means that decision making is 282 00:16:25,040 --> 00:16:27,360 Speaker 8: very laborious. You have to have people on board. You 283 00:16:27,400 --> 00:16:30,520 Speaker 8: can't just plow through on different issues. And what the 284 00:16:30,520 --> 00:16:34,400 Speaker 8: European Commission, which is the main executive arm of the EU, 285 00:16:34,840 --> 00:16:37,240 Speaker 8: what you're hearing a bit from them is, look, we 286 00:16:37,280 --> 00:16:41,800 Speaker 8: want to, for example, advance more cross border mergers, we 287 00:16:41,880 --> 00:16:44,280 Speaker 8: want to develop the banking union. But when it comes 288 00:16:44,320 --> 00:16:47,400 Speaker 8: to it and the negotiations starts, EU members says, EU 289 00:16:47,520 --> 00:16:50,800 Speaker 8: countries sometimes just don't want to play the game. They 290 00:16:50,840 --> 00:16:54,080 Speaker 8: are worried about their own national industries, their own national companies, 291 00:16:54,120 --> 00:16:56,920 Speaker 8: and they are reluctant to take that step forward for 292 00:16:57,000 --> 00:16:59,600 Speaker 8: more integration. So this has always been a bind for 293 00:16:59,640 --> 00:17:01,880 Speaker 8: the EU. How do you advance, how do you integrate 294 00:17:01,920 --> 00:17:05,080 Speaker 8: more when you've got all these different countries with different priorities. 295 00:17:05,400 --> 00:17:08,080 Speaker 8: But I do think there is a real awareness that 296 00:17:08,600 --> 00:17:11,840 Speaker 8: the Draggy Report is something that did impact, that did 297 00:17:11,840 --> 00:17:14,360 Speaker 8: break through. I think a lot of the listeners may 298 00:17:14,359 --> 00:17:17,440 Speaker 8: have been at Davos this year. I remember myself being 299 00:17:17,440 --> 00:17:20,199 Speaker 8: there and hearing it. This report by a former ECB 300 00:17:20,359 --> 00:17:24,440 Speaker 8: president had everyone talking and realizing that now something needs 301 00:17:24,440 --> 00:17:26,960 Speaker 8: to be done. That the reality is that Europe has 302 00:17:27,000 --> 00:17:31,320 Speaker 8: been diverging from the United States since the Great Financial Crisis. 303 00:17:31,320 --> 00:17:33,280 Speaker 8: You can see that in the banking sector, you can 304 00:17:33,320 --> 00:17:35,439 Speaker 8: see that in terms of innovation, you can see that 305 00:17:35,760 --> 00:17:38,440 Speaker 8: in the number of startups, and in fact the real problem, 306 00:17:38,480 --> 00:17:41,760 Speaker 8: which is scaling up European businesses, that is really an issue, 307 00:17:41,800 --> 00:17:44,520 Speaker 8: and it does look like it continuing to lag behind 308 00:17:44,560 --> 00:17:44,840 Speaker 8: on that. 309 00:17:45,320 --> 00:17:48,680 Speaker 3: Do you get any sense that things are speeding up 310 00:17:49,000 --> 00:17:52,199 Speaker 3: when there are so many pressures, namely, let's look to 311 00:17:52,320 --> 00:17:57,000 Speaker 3: China first, managing that relationship supply chains and rare earths, 312 00:17:57,240 --> 00:18:01,360 Speaker 3: which is from years and years of me movement by Beijing, 313 00:18:01,480 --> 00:18:04,480 Speaker 3: has suddenly become so essential everywhere else. 314 00:18:04,600 --> 00:18:07,680 Speaker 8: Yeah, I mean, I think the issue facing Europe now 315 00:18:07,760 --> 00:18:10,720 Speaker 8: is that on the one hand, you've got this increasingly 316 00:18:10,840 --> 00:18:14,120 Speaker 8: isolationist United States, and on the other hand you've got 317 00:18:14,119 --> 00:18:17,760 Speaker 8: an increasingly belligerent some would say, China, and the EU 318 00:18:17,880 --> 00:18:20,920 Speaker 8: is belatedly waking up to the fact that not only 319 00:18:21,200 --> 00:18:23,840 Speaker 8: has it built up a dependency on the United States, 320 00:18:23,960 --> 00:18:27,040 Speaker 8: particularly in terms of the defense sector, but it also 321 00:18:27,280 --> 00:18:29,760 Speaker 8: has built up a dependency on China, particularly for the 322 00:18:29,840 --> 00:18:32,920 Speaker 8: rare earth's material. Now this isn't just a europe wide problem, 323 00:18:33,400 --> 00:18:36,560 Speaker 8: but you now can see the European Commission realizing this. 324 00:18:36,720 --> 00:18:39,920 Speaker 8: So a couple of weeks ago at the Berlin Global Dialogue, 325 00:18:39,960 --> 00:18:42,760 Speaker 8: we were there for Bloomberg and European Commission President earthl 326 00:18:42,760 --> 00:18:46,639 Speaker 8: Of Underline gave a very strong speech where she directly 327 00:18:46,960 --> 00:18:49,600 Speaker 8: addressed this issue about coming from Beijing, about the rare 328 00:18:49,680 --> 00:18:53,480 Speaker 8: earth and she, you know, said that EU has has 329 00:18:53,520 --> 00:18:56,240 Speaker 8: got options. But the reality is, you know how much 330 00:18:56,320 --> 00:18:59,280 Speaker 8: leverages the EU have here, It really has more than 331 00:18:59,400 --> 00:19:02,400 Speaker 8: ninety percent of these magnets that are going into everything 332 00:19:02,480 --> 00:19:05,639 Speaker 8: from electric vehicles to the defense are coming from China. 333 00:19:05,720 --> 00:19:09,560 Speaker 8: It's now scrambling elsewhere to try and find like minded partners. 334 00:19:09,560 --> 00:19:11,840 Speaker 8: But so is the United States and everyone else. So 335 00:19:12,000 --> 00:19:14,520 Speaker 8: will the EU have that urgency Like the EU does 336 00:19:14,560 --> 00:19:16,960 Speaker 8: not move quick as an institution, that that's for sure. 337 00:19:17,240 --> 00:19:19,439 Speaker 8: So you know, will it be able to garner its 338 00:19:19,480 --> 00:19:23,200 Speaker 8: resources and make sure it's there at the table when 339 00:19:23,600 --> 00:19:26,560 Speaker 8: countries across the world are trying to negotiate and trying 340 00:19:26,560 --> 00:19:30,040 Speaker 8: to look at different alliances and different relationships. That's that's 341 00:19:30,080 --> 00:19:31,160 Speaker 8: one of the key challenges. 342 00:19:31,520 --> 00:19:34,000 Speaker 3: Yeah, indeed, and we know that kind of lack of 343 00:19:34,160 --> 00:19:37,040 Speaker 3: minds that there are actually in Europe for those where 344 00:19:37,080 --> 00:19:39,320 Speaker 3: earth in and of itself, and it takes years to 345 00:19:39,400 --> 00:19:42,280 Speaker 3: kind of to deliver those sorts of minds. And then 346 00:19:42,520 --> 00:19:45,040 Speaker 3: they're also quite polluting as well. So it's very very 347 00:19:45,080 --> 00:19:45,879 Speaker 3: difficult challenges. 348 00:19:46,320 --> 00:19:48,560 Speaker 8: And I mean we saw in the last few weeks 349 00:19:48,600 --> 00:19:52,600 Speaker 8: that you know, German particularly German factories you know, were 350 00:19:52,840 --> 00:19:55,679 Speaker 8: slowing down their production because they had these supply chain issues. 351 00:19:56,280 --> 00:19:58,119 Speaker 8: But really what's worrying I think for the EU. We 352 00:19:58,119 --> 00:20:00,880 Speaker 8: were reporting last week that there were some Chinese officials 353 00:20:00,880 --> 00:20:04,520 Speaker 8: in Brussels for negotiations, but really the EU wasn't making 354 00:20:04,520 --> 00:20:07,160 Speaker 8: that much progress, it seems. Now let's see how how 355 00:20:07,200 --> 00:20:08,720 Speaker 8: this works out in the next few weeks. But with 356 00:20:08,760 --> 00:20:11,000 Speaker 8: the big focus being on Trump and g where did 357 00:20:11,000 --> 00:20:13,320 Speaker 8: the EU sit, it's kind of difficult for it to 358 00:20:13,320 --> 00:20:14,360 Speaker 8: make its own voice heard. 359 00:20:14,600 --> 00:20:17,320 Speaker 3: Yeah, indeed, and it's not just China, obviously the European 360 00:20:17,359 --> 00:20:19,960 Speaker 3: businesses have to keep an eye on. It's also the 361 00:20:19,960 --> 00:20:24,520 Speaker 3: White House's stance towards Europe and there too, there are 362 00:20:24,600 --> 00:20:27,239 Speaker 3: lots of challenges. I mean, you mentioned Ivondeline and has 363 00:20:27,280 --> 00:20:30,399 Speaker 3: strong speech a couple of weeks ago. But it was 364 00:20:30,440 --> 00:20:33,719 Speaker 3: that meeting, wasn't it, between Trump and Vondeline, I mean, 365 00:20:33,760 --> 00:20:36,760 Speaker 3: forgive me, I just remember the flowers that were between 366 00:20:36,960 --> 00:20:40,399 Speaker 3: Trump and Vonderline that seemed to speak volumes of the 367 00:20:40,480 --> 00:20:42,880 Speaker 3: kind of gap between the two and maybe the fact 368 00:20:42,920 --> 00:20:45,400 Speaker 3: that they didn't want Vondallion and Trump to be right 369 00:20:45,440 --> 00:20:48,240 Speaker 3: next to each other. And it was also a moment 370 00:20:48,280 --> 00:20:50,480 Speaker 3: where there was some criticism for Vondalatin and how she 371 00:20:50,560 --> 00:20:51,280 Speaker 3: handled it. 372 00:20:51,359 --> 00:20:53,880 Speaker 8: There certainly was I myself actually was at term Breef 373 00:20:53,880 --> 00:20:56,760 Speaker 8: for that event during the summer, Yes, because it happened 374 00:20:56,800 --> 00:21:00,000 Speaker 8: very quickly. You know, we forget this with international diplomacy, 375 00:21:00,119 --> 00:21:02,320 Speaker 8: that no one really expected this meeting to happen, and 376 00:21:02,320 --> 00:21:04,920 Speaker 8: then it did. And even the optics of earthly vonder 377 00:21:04,960 --> 00:21:08,119 Speaker 8: lynd flying to Donald Trump's golf course in Scotland and 378 00:21:08,600 --> 00:21:11,399 Speaker 8: part of not in the EU and making that trip 379 00:21:11,440 --> 00:21:14,600 Speaker 8: over especially to see him. So yes, the EU came 380 00:21:14,800 --> 00:21:18,000 Speaker 8: under a lot of criticism from EU countries, in particular, 381 00:21:18,119 --> 00:21:20,560 Speaker 8: saying it could have got a better deal. It locked 382 00:21:20,560 --> 00:21:23,920 Speaker 8: in a fifteen percent tariff rate. It also not everything, 383 00:21:24,119 --> 00:21:26,359 Speaker 8: but it also got some exemptions. For example, there were 384 00:21:26,400 --> 00:21:28,960 Speaker 8: lots of worries about the pharmaceutical sector, a lot of 385 00:21:29,080 --> 00:21:32,840 Speaker 8: exporters in Germany, Ireland, etc. GenMark, how would they be affected? 386 00:21:32,880 --> 00:21:35,119 Speaker 8: They did get a deal on that, but again this 387 00:21:35,240 --> 00:21:37,280 Speaker 8: is where the different bits of the EU kind of 388 00:21:37,280 --> 00:21:41,840 Speaker 8: blame each other. Vanderline and the Commission we're saying privately, 389 00:21:42,000 --> 00:21:45,040 Speaker 8: really well, hang on, you know, we did these negotiations 390 00:21:45,080 --> 00:21:47,000 Speaker 8: with the backing of the EU countries and if they 391 00:21:47,040 --> 00:21:49,639 Speaker 8: had an issue, they could a shouted stop. But I 392 00:21:49,720 --> 00:21:53,800 Speaker 8: do think there is a kind of a wider statement 393 00:21:54,000 --> 00:21:55,440 Speaker 8: to be made about this, and that is the fact 394 00:21:55,520 --> 00:21:58,439 Speaker 8: that the EU has always prided itself on being, you know, 395 00:21:58,480 --> 00:22:01,800 Speaker 8: this global trading power, that the single market, that market 396 00:22:01,840 --> 00:22:05,480 Speaker 8: of four hundred and fifty million people, that integrated market 397 00:22:05,640 --> 00:22:08,080 Speaker 8: is its big power, that it's a big caughting card. 398 00:22:08,400 --> 00:22:10,760 Speaker 8: And yet when it came to it, it didn't have 399 00:22:10,800 --> 00:22:13,120 Speaker 8: a stronghand with Trump, it felt like it had to 400 00:22:13,480 --> 00:22:16,840 Speaker 8: really compromise there. And I think that's been a real 401 00:22:17,000 --> 00:22:20,360 Speaker 8: worry for the EU already. As we know, there's been 402 00:22:20,440 --> 00:22:25,360 Speaker 8: so much inward looking about the lack of strategic autonomy 403 00:22:25,400 --> 00:22:27,520 Speaker 8: of the phrase goals when it comes to defense, spending. 404 00:22:27,960 --> 00:22:29,440 Speaker 8: Your trade was something that thought this is what the 405 00:22:29,480 --> 00:22:31,600 Speaker 8: EU does well, and yet it still had to kind 406 00:22:31,600 --> 00:22:34,679 Speaker 8: of some people would say capitulate, others would say be pragmatic, 407 00:22:34,960 --> 00:22:37,520 Speaker 8: but negotiate with Trump, where it did end up with 408 00:22:37,600 --> 00:22:38,320 Speaker 8: extra terrists. 409 00:22:38,760 --> 00:22:42,200 Speaker 3: And so where do you think that leaves the regulatory environment, 410 00:22:42,280 --> 00:22:44,680 Speaker 3: because that, as you say, is what businesses are also 411 00:22:44,760 --> 00:22:50,000 Speaker 3: focused on. Is there a watering down? Is there adjustment 412 00:22:50,040 --> 00:22:52,920 Speaker 3: that is being made in the face of some quite 413 00:22:53,080 --> 00:22:55,200 Speaker 3: pointed demands from the US. 414 00:22:55,480 --> 00:22:57,919 Speaker 8: Yes, so I think there has been a change here. Actually, 415 00:22:57,960 --> 00:23:00,439 Speaker 8: I mean it's one of the ironies of bregxush Britain 416 00:23:00,480 --> 00:23:04,280 Speaker 8: was always one of the strongest voices criticizing over EU 417 00:23:04,320 --> 00:23:06,480 Speaker 8: regulation and in fact that really did feed into the 418 00:23:06,440 --> 00:23:10,160 Speaker 8: breaks of debate in London in the UK. But actually 419 00:23:10,280 --> 00:23:12,560 Speaker 8: since they've left, since Britain has left the EU, actually 420 00:23:12,560 --> 00:23:14,959 Speaker 8: in the last year or two, there has been an 421 00:23:15,000 --> 00:23:17,560 Speaker 8: awareness and acceptance by the EU that it does need 422 00:23:17,600 --> 00:23:20,600 Speaker 8: to do something about regulation. They're cutting it better regulation 423 00:23:20,840 --> 00:23:24,280 Speaker 8: or simplification, but really what it means is changing some 424 00:23:24,400 --> 00:23:27,399 Speaker 8: of the rules, watering down some of these regulations to 425 00:23:27,480 --> 00:23:31,720 Speaker 8: be more business friendly. So the second Underline Commission she 426 00:23:31,920 --> 00:23:34,720 Speaker 8: put this simplification at the top of her agenda. So 427 00:23:34,880 --> 00:23:38,640 Speaker 8: we had again Brussels to is a great place for acronyms. 428 00:23:39,000 --> 00:23:42,320 Speaker 8: But these omnibus builds that were brought in earlier in 429 00:23:42,320 --> 00:23:44,760 Speaker 8: the year, now these things take time, They go through 430 00:23:44,800 --> 00:23:47,760 Speaker 8: the EU system, difficult through the Parliament. There are changes 431 00:23:47,800 --> 00:23:50,560 Speaker 8: in tweaks, but really they are about making sure that 432 00:23:50,600 --> 00:23:54,199 Speaker 8: some of the reporting requirements are less ownerous. So we 433 00:23:54,280 --> 00:23:57,000 Speaker 8: are going to see some kind of watering down of these, 434 00:23:57,040 --> 00:23:59,440 Speaker 8: but it still has to be really negotiated, the fine tuning, 435 00:23:59,480 --> 00:24:01,520 Speaker 8: and we are getting pushback from some of the more 436 00:24:01,600 --> 00:24:05,080 Speaker 8: left cleaning groups in the European Parliament and MEPs who 437 00:24:05,119 --> 00:24:07,720 Speaker 8: for example, feels strong about climate change and they're saying, 438 00:24:07,720 --> 00:24:10,600 Speaker 8: hang on, we can't water down too much. So I 439 00:24:10,600 --> 00:24:14,040 Speaker 8: think we are going to see this simplification agenda coming through. 440 00:24:14,640 --> 00:24:16,879 Speaker 3: Thank you so much, is on Lynch for being with us. 441 00:24:17,119 --> 00:24:19,359 Speaker 3: I'm Caroline Hepkee here in London. You can catch us 442 00:24:19,359 --> 00:24:22,159 Speaker 3: every weekday morning for Bloomberg Daybak here at beginning at 443 00:24:22,200 --> 00:24:25,479 Speaker 3: six am in London. That's one am on Wall Street. Nathan. 444 00:24:26,119 --> 00:24:29,280 Speaker 2: Thanks Caroline, and coming up on Bloomberg day Break weekend, 445 00:24:29,280 --> 00:24:31,720 Speaker 2: we'll take a look at Japan's economy and some key 446 00:24:31,800 --> 00:24:46,520 Speaker 2: data ahead. I'm Nathan Hager, and this is Bloomberg. This 447 00:24:46,560 --> 00:24:49,159 Speaker 2: is Bloomberg day Break Weekend, our global look ahead of 448 00:24:49,200 --> 00:24:51,600 Speaker 2: the top stories for investors in the coming week. I'm 449 00:24:51,680 --> 00:24:55,200 Speaker 2: Nathan Hager in Washington. We go to Japan next, where 450 00:24:55,240 --> 00:24:58,560 Speaker 2: the economy likely shrink in the latest quarter. For more, 451 00:24:58,680 --> 00:25:01,000 Speaker 2: let's get to the host of the Daybreak Gasia podcast, 452 00:25:01,080 --> 00:25:02,800 Speaker 2: Doug Grisner Nathan. 453 00:25:02,840 --> 00:25:05,760 Speaker 4: On Monday, in Japan, the government will report on third 454 00:25:05,800 --> 00:25:09,560 Speaker 4: quarter economic growth. A contraction in GDP is expected for 455 00:25:09,600 --> 00:25:12,840 Speaker 4: the first time in six quarters. Yes, there have been 456 00:25:12,880 --> 00:25:16,480 Speaker 4: signs of positivity recently to suggest that Japan may have 457 00:25:16,520 --> 00:25:19,480 Speaker 4: been able to shake off its lost decades. The stock 458 00:25:19,560 --> 00:25:23,160 Speaker 4: market very near record highs. Inflation is firmly in place, 459 00:25:23,200 --> 00:25:25,000 Speaker 4: and that will allow the Bank of Japan at some 460 00:25:25,119 --> 00:25:30,840 Speaker 4: point to continue normalizing policy. But clearly something has gone missing, 461 00:25:31,080 --> 00:25:35,040 Speaker 4: and now Japan's new Prime Minister is pushing for aggressive 462 00:25:35,040 --> 00:25:38,200 Speaker 4: physical stimulus. To help us understand more about the state 463 00:25:38,240 --> 00:25:41,680 Speaker 4: of the Japanese economy, I'm joined by Bloomberg's Paul Jackson. 464 00:25:42,080 --> 00:25:44,840 Speaker 4: He covers the economies of both Japan and South Korea. 465 00:25:44,920 --> 00:25:47,960 Speaker 4: He joins us from Tokyo. If you had to identify 466 00:25:48,280 --> 00:25:52,560 Speaker 4: a single culprit responsible for this weakness, as difficult as 467 00:25:52,560 --> 00:25:54,520 Speaker 4: it may be, where would you point. 468 00:25:56,000 --> 00:25:58,040 Speaker 9: I think this is going to be a hefty fall 469 00:25:58,160 --> 00:26:01,359 Speaker 9: in this third quarter. Of it is to do with 470 00:26:01,720 --> 00:26:05,080 Speaker 9: Donald Trump and his tariffs. Now why is that. It's 471 00:26:05,160 --> 00:26:09,000 Speaker 9: because in the previous quarter there was a lot of 472 00:26:09,119 --> 00:26:16,040 Speaker 9: front loading of exports to try and beat the rising tariffs. 473 00:26:16,520 --> 00:26:19,160 Speaker 9: Now we get into the following quarter, you know you've 474 00:26:19,160 --> 00:26:22,239 Speaker 9: already used up some of that export power in the 475 00:26:22,240 --> 00:26:26,159 Speaker 9: previous quarter. So that's going to be one of the 476 00:26:26,280 --> 00:26:32,760 Speaker 9: key factors that explains this big drop that we're expecting 477 00:26:33,000 --> 00:26:37,520 Speaker 9: in third quarter GDP. There are some other factors, though, Doug. 478 00:26:37,840 --> 00:26:42,280 Speaker 9: We did have a technical element to do with housing. 479 00:26:42,600 --> 00:26:45,840 Speaker 9: There was some environmental regulations brought in earlier in the 480 00:26:45,960 --> 00:26:50,280 Speaker 9: year that's going to make a new housing more expensive. 481 00:26:50,640 --> 00:26:53,119 Speaker 9: So there was a bit of a rush on house buying, 482 00:26:53,520 --> 00:26:56,840 Speaker 9: and so that's also kind of stolen some of the 483 00:26:57,600 --> 00:27:00,880 Speaker 9: later demand pulled the earlier in the year. 484 00:27:01,440 --> 00:27:04,560 Speaker 4: Certain areas of the economy. I'm thinking of the manufacturers 485 00:27:04,560 --> 00:27:07,240 Speaker 4: that do a lot of exporting to not only the 486 00:27:07,359 --> 00:27:11,439 Speaker 4: United States but other parts of the world. Cars, automobile parts, 487 00:27:11,920 --> 00:27:16,080 Speaker 4: steal other industries that have been severely impacted by these 488 00:27:16,119 --> 00:27:18,439 Speaker 4: tariffs that are providing more of a drag on the 489 00:27:18,480 --> 00:27:19,360 Speaker 4: export side. 490 00:27:19,520 --> 00:27:23,320 Speaker 9: Well, I think you've mentioned the key ones there. Of course, 491 00:27:23,600 --> 00:27:28,359 Speaker 9: with these reciprocal tariffs are affecting exports right across the board. 492 00:27:28,880 --> 00:27:32,879 Speaker 9: The cars, obviously, that was the key part of the negotiations. 493 00:27:33,320 --> 00:27:37,720 Speaker 9: They're down to fifteen percent, and what's interesting is that 494 00:27:37,840 --> 00:27:42,680 Speaker 9: the car exporters are absorbing a lot of that tariff. Now, 495 00:27:42,720 --> 00:27:47,760 Speaker 9: normally you would expect about a third from the exporters, 496 00:27:48,200 --> 00:27:50,320 Speaker 9: a third from the importers, and then maybe a third 497 00:27:50,359 --> 00:27:54,000 Speaker 9: from the consumers. But what we're seeing in the figures 498 00:27:54,160 --> 00:27:57,280 Speaker 9: is that the japan car makers are lowering their prices 499 00:27:57,320 --> 00:28:00,760 Speaker 9: by more than a third of what the tariff side 500 00:28:00,760 --> 00:28:04,480 Speaker 9: would be. So that's you know, eating into their profits. 501 00:28:04,880 --> 00:28:07,240 Speaker 9: But I don't think we need to quite sound the 502 00:28:07,280 --> 00:28:11,159 Speaker 9: alarm bells now because of those those technical factors. So 503 00:28:11,320 --> 00:28:15,360 Speaker 9: it's one of those contractions that maybe looks worse than 504 00:28:15,400 --> 00:28:19,440 Speaker 9: it is. That's not to say there aren't ongoing problems 505 00:28:20,119 --> 00:28:22,840 Speaker 9: with the economy. I think obviously we need to see 506 00:28:23,280 --> 00:28:28,240 Speaker 9: how trade, you know, responds to these higher levels of tariffs, 507 00:28:28,440 --> 00:28:32,720 Speaker 9: and also whether the US economy can can keep expanding. 508 00:28:32,760 --> 00:28:36,280 Speaker 9: Obviously it's a huge engine for global growth, you know. 509 00:28:36,359 --> 00:28:40,800 Speaker 9: Looking at Japan's economy more domestically, it's a case of, 510 00:28:40,880 --> 00:28:45,160 Speaker 9: you know, whether consumption can can keep holding up in 511 00:28:45,280 --> 00:28:50,560 Speaker 9: this new environment of inflation, which households haven't been used to. 512 00:28:50,960 --> 00:28:55,520 Speaker 4: Indeed, this has been a remarkable shift after multiple decades 513 00:28:55,560 --> 00:28:58,960 Speaker 4: of deflation. How a generation in Japan has not known 514 00:28:59,320 --> 00:29:02,560 Speaker 4: upward pressure on prices. There's also been, as you know, Paul, 515 00:29:02,560 --> 00:29:05,640 Speaker 4: a bit of skepticism that inflation will prove to be durable. 516 00:29:05,760 --> 00:29:09,600 Speaker 4: Now you mentioned the upcoming meeting of the BOJ in December. 517 00:29:09,680 --> 00:29:13,080 Speaker 4: A number of economists surveyed by Bloomberg have said the 518 00:29:13,120 --> 00:29:15,960 Speaker 4: Bank of Japan should hike rate. So let me ask you, Paul, 519 00:29:16,240 --> 00:29:19,080 Speaker 4: about the likelihood of an interest rate hike at the 520 00:29:19,120 --> 00:29:19,760 Speaker 4: next meeting. 521 00:29:20,000 --> 00:29:22,360 Speaker 9: Well, Doug, I mean, the usual response is, you've got 522 00:29:22,360 --> 00:29:26,320 Speaker 9: inflation above target for more than three and a half years, 523 00:29:26,480 --> 00:29:28,840 Speaker 9: I mean, you'd be raising interest rates. It'd be a 524 00:29:28,840 --> 00:29:30,960 Speaker 9: bit of a no brainer But because of this kind 525 00:29:30,960 --> 00:29:34,480 Speaker 9: of national goal of trying to generate inflation, they've been 526 00:29:34,520 --> 00:29:38,960 Speaker 9: going very, very slowly. Given that the consumers are still 527 00:29:39,040 --> 00:29:42,680 Speaker 9: kind of getting used to the idea of inflation and 528 00:29:42,840 --> 00:29:46,280 Speaker 9: wrestling with rising prices, there's a bit of a fear 529 00:29:46,320 --> 00:29:49,680 Speaker 9: that going too fast on raising the interest rates could 530 00:29:49,920 --> 00:29:53,320 Speaker 9: upend the economy. Now we have a new prime minister 531 00:29:53,440 --> 00:29:57,880 Speaker 9: in Sanai Takeichi. She's very much of the kind of 532 00:29:57,960 --> 00:30:05,520 Speaker 9: abonomics reflationist mold. She wants to ramp up fiscal spending 533 00:30:05,960 --> 00:30:11,000 Speaker 9: and provide support to consumers. So, in a sense, this 534 00:30:11,560 --> 00:30:16,360 Speaker 9: contraction in GDP, although it might be slightly overstating, you know, 535 00:30:16,400 --> 00:30:20,080 Speaker 9: the weakness in Japan's economy, it's very useful for a 536 00:30:20,120 --> 00:30:24,680 Speaker 9: politician to have that figure come out just before you 537 00:30:24,720 --> 00:30:28,800 Speaker 9: want to unleash your economic package as the new prime minister. 538 00:30:28,880 --> 00:30:32,280 Speaker 9: And of course an economic package is a very tried 539 00:30:32,320 --> 00:30:37,000 Speaker 9: and tested approach for new prime ministers to bump up 540 00:30:37,000 --> 00:30:38,200 Speaker 9: their support when they come in. 541 00:30:38,320 --> 00:30:39,720 Speaker 4: So there are a couple of things that I want 542 00:30:39,760 --> 00:30:42,480 Speaker 4: to consider. One is the currency, because we know the yen, 543 00:30:42,600 --> 00:30:45,800 Speaker 4: particularly weighted against the dollar, has been weak. I think 544 00:30:45,920 --> 00:30:49,320 Speaker 4: right now we're trading around one fifty four. Obviously, in 545 00:30:49,360 --> 00:30:52,040 Speaker 4: a scenario where you have a weak currency, you're importing 546 00:30:52,360 --> 00:30:55,480 Speaker 4: inflation and energy I know is a big component of 547 00:30:55,520 --> 00:30:58,040 Speaker 4: that where Japan is concerned. But the other thing that 548 00:30:58,080 --> 00:31:01,160 Speaker 4: I'm curious about wages. Why do we deal with the 549 00:31:01,280 --> 00:31:05,080 Speaker 4: yen portion first? Though? Help me understand if that is 550 00:31:05,480 --> 00:31:07,920 Speaker 4: kind of getting a lot of the blame for this 551 00:31:08,000 --> 00:31:09,400 Speaker 4: stubborn inflation story. 552 00:31:09,800 --> 00:31:12,840 Speaker 9: It is getting a lot of the blame. Again, you 553 00:31:12,920 --> 00:31:15,840 Speaker 9: could argue that if the BOJ raised interest rates, that 554 00:31:15,840 --> 00:31:21,240 Speaker 9: would help lift the yen against the dollar and ease 555 00:31:21,440 --> 00:31:25,200 Speaker 9: some of that pressure. The thing is is Takeichi being 556 00:31:25,240 --> 00:31:28,560 Speaker 9: from the kind of ebinomics mold, she kind of wants 557 00:31:28,640 --> 00:31:31,840 Speaker 9: the BOJ to go slow because she wants to emphasize 558 00:31:32,240 --> 00:31:37,320 Speaker 9: growth in the economy before anything that might constrain growth, 559 00:31:37,360 --> 00:31:41,880 Speaker 9: such as interest rate to hank. So really the difficulty 560 00:31:42,000 --> 00:31:46,960 Speaker 9: here is wanting to expand growth, push on it, using 561 00:31:47,000 --> 00:31:51,840 Speaker 9: a weekend to help those exporters. But you've got to 562 00:31:52,200 --> 00:31:54,560 Speaker 9: rain it in at some point because if you have 563 00:31:55,000 --> 00:31:58,040 Speaker 9: too much currency weakness, then you're going to have to 564 00:31:58,200 --> 00:32:01,920 Speaker 9: intervene to prop up the end. And you mentioned that 565 00:32:02,040 --> 00:32:05,360 Speaker 9: currency rate around you know, one five four, one five five. 566 00:32:05,560 --> 00:32:06,960 Speaker 9: I mean, I think once we get into the one 567 00:32:07,080 --> 00:32:11,280 Speaker 9: five five to one sixty range, then we really are 568 00:32:11,800 --> 00:32:14,960 Speaker 9: stretching the limits of what's acceptable in terms of the 569 00:32:15,040 --> 00:32:16,240 Speaker 9: weakness of the currency. 570 00:32:16,320 --> 00:32:18,920 Speaker 4: Okay, so let's talk about the wage component right now, 571 00:32:19,000 --> 00:32:22,400 Speaker 4: as it feeds into the inflation narrative there. How are 572 00:32:22,480 --> 00:32:26,040 Speaker 4: wages right now relative, let's say, to where they were 573 00:32:26,040 --> 00:32:28,240 Speaker 4: five years ago. I'm much appreciated. 574 00:32:28,560 --> 00:32:32,440 Speaker 9: I think in terms of your full time worker in 575 00:32:32,480 --> 00:32:36,120 Speaker 9: a regular job, discounting kind of all bonuses and over time, 576 00:32:36,480 --> 00:32:39,520 Speaker 9: wages are going up around two point two two point 577 00:32:39,560 --> 00:32:41,200 Speaker 9: three percent year on year. 578 00:32:41,640 --> 00:32:41,840 Speaker 6: Now. 579 00:32:41,960 --> 00:32:46,560 Speaker 9: That is actually pretty solid growth for Japan compared with 580 00:32:46,640 --> 00:32:49,280 Speaker 9: the past. Don't forget in Japan there's been this kind 581 00:32:49,320 --> 00:32:54,480 Speaker 9: of this social compact between workers and companies to sacrifice 582 00:32:54,720 --> 00:32:59,000 Speaker 9: wage hikes in favor of job security, and unemployment is 583 00:32:59,120 --> 00:33:03,080 Speaker 9: very low in Japan compared with other G seven economies. 584 00:33:03,720 --> 00:33:07,360 Speaker 9: But obviously if you've got inflation, then people start to realize, hey, 585 00:33:07,360 --> 00:33:11,000 Speaker 9: wait a minute, or two point two percent sounds pretty good. 586 00:33:11,280 --> 00:33:14,160 Speaker 9: But if your inflation is higher than that which it is, 587 00:33:14,640 --> 00:33:18,480 Speaker 9: then essentially your purchasing power is getting weaker and weaker 588 00:33:18,520 --> 00:33:22,480 Speaker 9: and weaker. One of the factors that certainly is very 589 00:33:22,480 --> 00:33:26,680 Speaker 9: important for the Bank of Japan and other policymakers is 590 00:33:26,840 --> 00:33:32,040 Speaker 9: can these wage gains go above the inflation rates. If 591 00:33:32,040 --> 00:33:34,160 Speaker 9: they do, then it's a no brainer for the Bank 592 00:33:34,200 --> 00:33:38,000 Speaker 9: of Japan to keep going ahead with normalization and raising 593 00:33:38,000 --> 00:33:38,680 Speaker 9: interest rates. 594 00:33:38,840 --> 00:33:41,240 Speaker 4: Let's talk a little bit about what Prime Minister taka 595 00:33:41,320 --> 00:33:44,320 Speaker 4: Ichu wants to do in terms of stimulating the economy. 596 00:33:44,360 --> 00:33:48,160 Speaker 4: Has there been any discussion around the areas of focus 597 00:33:48,520 --> 00:33:53,160 Speaker 4: positions that she would obviously take to try to stimulate activity. 598 00:33:53,480 --> 00:33:55,760 Speaker 9: This feeds into this point. If she's got a player 599 00:33:55,840 --> 00:34:01,080 Speaker 9: kind of careful line between providing helps so that consumers 600 00:34:01,080 --> 00:34:04,880 Speaker 9: and voters think that she's listening to them about their 601 00:34:04,960 --> 00:34:09,000 Speaker 9: cost of living crunch concerns, So that means probably she's 602 00:34:09,040 --> 00:34:13,760 Speaker 9: going to be helping subsidize electricity bills, subsidizing natural gas bills, 603 00:34:14,280 --> 00:34:20,120 Speaker 9: reducing taxes on gasoline, doing things that consumers can immediately recognize. 604 00:34:20,400 --> 00:34:23,759 Speaker 9: There's also a talk of including in the package kind 605 00:34:23,800 --> 00:34:27,960 Speaker 9: of shopping tokens that you can spend, which will help 606 00:34:28,200 --> 00:34:31,080 Speaker 9: region economies of regional governments will be given quite a 607 00:34:31,120 --> 00:34:34,240 Speaker 9: bit of leeway, by the looks of things to offer 608 00:34:34,320 --> 00:34:40,200 Speaker 9: kind of incentives spending, spending tokens to consumers in their areas. 609 00:34:40,520 --> 00:34:42,440 Speaker 9: So those are the things she can do. But you 610 00:34:42,640 --> 00:34:45,520 Speaker 9: kind of offer too much stimulus to the economy, what 611 00:34:45,560 --> 00:34:47,200 Speaker 9: are you going to get? What are you going to get? 612 00:34:47,239 --> 00:34:50,880 Speaker 9: More inflation, which creates more of the more of the problems. 613 00:34:50,920 --> 00:34:53,880 Speaker 9: So there's a fine balancing act she's got to do. 614 00:34:53,920 --> 00:34:57,520 Speaker 9: There other things that we're expecting out of this package. 615 00:34:58,160 --> 00:35:03,880 Speaker 9: She's wanting to spur long term growth, and she's identified 616 00:35:03,960 --> 00:35:09,480 Speaker 9: seventeen areas that require more investment. So she's trying to 617 00:35:09,480 --> 00:35:12,800 Speaker 9: give tax breaks to companies that invest in these areas. 618 00:35:12,840 --> 00:35:15,480 Speaker 9: And these are kind of areas that you would expect 619 00:35:15,800 --> 00:35:21,040 Speaker 9: are important for economic security. Chips, chip making, anything that 620 00:35:21,080 --> 00:35:24,800 Speaker 9: goes into rare eers, this this kind of stuff Paul. 621 00:35:24,640 --> 00:35:27,160 Speaker 4: I'm curious to get your take on the level of 622 00:35:27,200 --> 00:35:30,879 Speaker 4: public debt in Japan and whether it's a concern. I mean, 623 00:35:30,920 --> 00:35:33,000 Speaker 4: we know it remains more than twice the size of 624 00:35:33,040 --> 00:35:36,080 Speaker 4: the economy. I'm curious as to how it's being viewed 625 00:35:36,520 --> 00:35:40,160 Speaker 4: or perhaps there is a tendency now to ignore it entirely. 626 00:35:40,600 --> 00:35:43,239 Speaker 9: Well, what I think we're seeing here, Doug, is a 627 00:35:43,239 --> 00:35:46,520 Speaker 9: bit of a sea change in the way that Japan's 628 00:35:47,440 --> 00:35:53,400 Speaker 9: fiscal policy needs to be weighed up against fiscal discipline. 629 00:35:53,840 --> 00:35:59,440 Speaker 9: In recent days, the Prime Minister has essentially said that 630 00:36:00,160 --> 00:36:03,759 Speaker 9: balancing the budget on an annual basis, this is after 631 00:36:03,920 --> 00:36:07,600 Speaker 9: debt servicing sorted out, is no longer going to be 632 00:36:07,680 --> 00:36:13,480 Speaker 9: their prime yardstick for a kind of fiscal discipline. And 633 00:36:13,719 --> 00:36:17,480 Speaker 9: what she's saying is, we need to support the economy, 634 00:36:17,719 --> 00:36:20,160 Speaker 9: we need to provide growth, we need an expensive policy, 635 00:36:20,200 --> 00:36:23,280 Speaker 9: but we do need to be responsible on the fiscal side. 636 00:36:23,440 --> 00:36:27,600 Speaker 9: But our yard stick should not be balancing the budget. 637 00:36:28,120 --> 00:36:33,120 Speaker 9: Our yardsticks should be debt measured against GDP. Now, those 638 00:36:33,120 --> 00:36:36,200 Speaker 9: figures do not look good, Dougging. You know, two hundred 639 00:36:36,239 --> 00:36:39,320 Speaker 9: and thirty percent or more the size of the economy 640 00:36:39,320 --> 00:36:42,959 Speaker 9: in terms of Japan's national debts. And so what she's 641 00:36:43,040 --> 00:36:46,759 Speaker 9: doing is she's saying, no, no, no, don't look at 642 00:36:46,800 --> 00:36:51,080 Speaker 9: the gross debt against GDP figure, look at the net 643 00:36:51,360 --> 00:36:54,120 Speaker 9: debt against GDP figure. Because if you look at those, 644 00:36:54,360 --> 00:36:57,759 Speaker 9: Japan's got a lot of assets, then the figures look 645 00:36:57,760 --> 00:37:00,439 Speaker 9: a lot better. I mean, they're still not great. We're 646 00:37:00,440 --> 00:37:03,880 Speaker 9: still talking like one hundred and thirty net debt against GDP, 647 00:37:04,440 --> 00:37:08,640 Speaker 9: but you back much closer to the other G seven nations. 648 00:37:09,040 --> 00:37:10,680 Speaker 9: If you use that yardstick. 649 00:37:10,960 --> 00:37:13,040 Speaker 4: Paul will leave it there. Thank you so very much, 650 00:37:13,280 --> 00:37:16,239 Speaker 4: Paul Jackson. He covers the economies of Japan and South 651 00:37:16,320 --> 00:37:19,880 Speaker 4: Korea from our bureau in Tokyo. I'm Doug Prisner. You 652 00:37:19,920 --> 00:37:22,680 Speaker 4: can catch us weekdays here for the Daybreak Asia podcast. 653 00:37:23,000 --> 00:37:25,840 Speaker 4: It's available wherever you get your podcast. Nathan. 654 00:37:26,280 --> 00:37:28,719 Speaker 2: Thanks Doug, and that does it for this edition of 655 00:37:28,719 --> 00:37:32,279 Speaker 2: Bloomberg Daybreak Weekend. Join us again Monday morning at five 656 00:37:32,360 --> 00:37:35,600 Speaker 2: am Wall Street Time for the latest don markets overseas 657 00:37:35,640 --> 00:37:38,200 Speaker 2: and the news you need to start your day. I'm 658 00:37:38,280 --> 00:37:41,640 Speaker 2: Nathan Hager. Stay with us. Top stories and global business 659 00:37:41,640 --> 00:37:43,479 Speaker 2: headlines are coming up right now.