Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our day
Speaker 2: Break anchors all around the world, and straight ahead on
Speaker 2: the program, a look at key inflation data in the
Speaker 2: US and earnings from media and entertainment giant Walt Disney.
Speaker 2: I'm Tom Busby in New York.
Speaker 1: I'm callin hetger Hair in London, where we're thinking about
Speaker 1: the Chancellor's Mansion House speech as she tries to moove
Speaker 1: a city.
Speaker 3: I'm Doug Krisner looking at bay Chain's reaction to the
Speaker 3: reelection of Donald Trump. Will also take a look at
Speaker 3: what to expect in the week ahead from ten Cent
Speaker 3: as it reports earnings.
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Speaker 5: Good day to you.
Speaker 2: I'm Tom Busby, and we begin today's program with some
Speaker 2: key inflation data in the US. The Consumer Price Index
Speaker 2: the CPI out on Wednesday eight thirty am Wall Street Time,
Speaker 2: with the Federal Reserve lowering its benchmark lending rate two
Speaker 2: meetings in a row, what could this mean for Fed
Speaker 2: policy moving forward? For more, we're joined by Michael McKee,
Speaker 2: Bloomberg International Economics and Policy correspondent. Michael Well, let's start
Speaker 2: with where inflation is right now. It's come a long way.
Speaker 6: It's come a long way, but it seems to have
Speaker 6: stalled out a little bit progress. We have not seen
Speaker 6: major movements in the indexes in recent months. Now, the CPI,
Speaker 6: which comes up this week is expected to show basically
Speaker 6: no change on a month over month basis, but that
Speaker 6: would mean, because of what we call base effects, that
Speaker 6: the year over year headline CPI actually goes up up.
Speaker 6: The forecast is for two point six percent from two
Speaker 6: point four percent in September, and the core will stay
Speaker 6: unchanged at three point three percent, which is not going
Speaker 6: to make for a great headline for people. But and
Speaker 6: Jay Powell talked about.
Speaker 5: That that we have.
Speaker 6: Not seen a lot of progress, but he said it
Speaker 6: wasn't a bad situation because it's still pretty low.
Speaker 2: So the latest personal consumption expenditure though look like a
Speaker 2: two point one percent year over year.
Speaker 6: Yeah, And the problem for the FED is people tend
Speaker 6: to focus on the CPI.
Speaker 5: The average American focuses on the CPI.
Speaker 6: It's the one that gets the headlines on the front
Speaker 6: page of the paper when it comes out. The PCE
Speaker 6: numbers are something that economics nerds and FED and Wall
Speaker 6: Street people follow it. It's constructed differently, and the FED
Speaker 6: feels that it is a more accurate measure of what's
Speaker 6: actually happening happening with inflation, particularly since doesn't put as
Speaker 6: much weight on home.
Speaker 5: Prices as the CPI.
Speaker 6: But the CPI is what they have to deal with psychologically.
Speaker 2: So what are the big drivers then for this? I mean,
Speaker 2: we've all felt a low gas prices, that's great. You
Speaker 2: brought up housing prices which go nowhere, but up it seems.
Speaker 2: I mean, what are the drivers for the inflation that
Speaker 2: we're seeing now? The two point one percent in the PCE,
Speaker 2: maybe a three point three percent in the CPI.
Speaker 6: Well, we still have housing as a problem. It's not
Speaker 6: coming down as fast as the FED thought. Chairman Powell
Speaker 6: last week pointed out that when you look at new
Speaker 6: costs for rents, which is what the housing costs numbers
Speaker 6: are based on. They have gone down or they have
Speaker 6: stopped rising, and that should be reflected in the numbers,
Speaker 6: and it's not yet. There are other things that are
Speaker 6: sort of quirky and change with the timing of the year.
Speaker 6: One of them is airfares, another is hotel prices. And
Speaker 6: you know we've talked about used and new cars quite
Speaker 6: a bit. Those all go into the question about what
Speaker 6: is going to happen with inflation, and they're all sort
Speaker 6: of separate, different reasons why they're going up. For example,
Speaker 6: we are expecting maybe used car prices to rise in
Speaker 6: October because a lot of people who were in the
Speaker 6: hurricane damaged areas, they still had to get to work
Speaker 6: and their cars were destroyed, the.
Speaker 5: New cars, and the first thing they do is they.
Speaker 6: Go get the cheapest car they can get, and so
Speaker 6: we should expect to see some rise in used car
Speaker 6: prices and the next month maybe the new car prices
Speaker 6: go up.
Speaker 2: And another thing we've seen in some of these job
Speaker 2: numbers higher wages is that impacting inflation as well. The
Speaker 2: more people have, the more they can raise the price tags,
Speaker 2: the more.
Speaker 6: It's an interesting question. So far that doesn't seem to
Speaker 6: have been happening. It may have been in the last
Speaker 6: couple of years, given that we saw a big wage
Speaker 6: increases as there was a shortage of workers, and whether
Speaker 6: that fed into inflation expectations doesn't really look like it did.
Speaker 6: But we had just last week got a revision to
Speaker 6: unit labor costs that showed a big rise in compensation
Speaker 6: for employees, much bigger over the last couple of years
Speaker 6: than had been recorded. The fact that it was a
Speaker 6: revised number doesn't mean all of a sudden we're going
Speaker 6: to see inflation expectations rise, but it does suggest that
Speaker 6: people have more money, and so as long as demand
Speaker 6: is high, then it becomes.
Speaker 5: A question of supply keeping up or prices will rise.
Speaker 2: Yeah. Yeah, Let's go back to what the Fed did
Speaker 2: this past week, and you know, this quarter point twenty
Speaker 2: five basis point cut. And more importantly, I want to
Speaker 2: talk about Chairman Powell and what he said in his
Speaker 2: press conference talking about the new administration coming in, talking
Speaker 2: about all the factors and data points that led to
Speaker 2: his decision this past week.
Speaker 6: Basically because the economy continues to be relatively strong, but
Speaker 6: slow down in inflation and missed the confusing jobs reports
Speaker 6: from September and October, where September was really really strong
Speaker 6: in October was really really weak, which they figure probably
Speaker 6: as hurricane related, but at this point they don't know,
Speaker 6: so they just went ahead with kind of the plan.
Speaker 6: They had to reduce rates by twenty five basis points
Speaker 6: because they said, no matter what you think of all
Speaker 6: these possible explanations for stuff, that inflation was under control
Speaker 6: and that interest rates are still restrictive.
Speaker 5: That's their story.
Speaker 2: And they're sticking to it. A lot to look forward
Speaker 2: to our thanks to Michael McKee, Bloomberg International Economics and
Speaker 2: Policy correspondent. We moved next to corporate earnings from the
Speaker 2: world's biggest entertainment company, Walt Disney, reporting fourth order results
Speaker 2: on Thursday, on the heels of finally turning a profit
Speaker 2: and its streaming video unit in the previous quarter, and
Speaker 2: after announcing another timeline to replace its CEO. For more
Speaker 2: on what to look for, we're joined by Getha raghanoffin
Speaker 2: Bloomberg Intelligence analyst on US media. Well that is a
Speaker 2: Biggie Disney appointing a new chairman last month. James P.
Speaker 2: Gorman of Wall Street banking giant Morgan Stanley, and announced
Speaker 2: another time frame to replace Bob Eiger in early twenty
Speaker 2: twenty six. What does this mean for Disney, Gita.
Speaker 7: Thank you so much, Tom So. Obviously, succession has been
Speaker 7: one of the biggest issues for Disney in recent times,
Speaker 7: and you know, the lack of a proper strategy has
Speaker 7: really kind of troubled investors and kind of industry watchers alike.
Speaker 7: So it's really good that they're coming up with this plan.
Speaker 7: They're obviously taking succession extremely seriously. They have a person
Speaker 7: there who's kind of overseen, you know, his own succession
Speaker 7: at at Morgan Stanley really really smoothly, so he's obviously
Speaker 7: very familiar with the process. That said, Tom, the appointment
Speaker 7: of a new CEO has actually been pushed a little bit.
Speaker 7: So we were expecting an announcement sometime next year, in
Speaker 7: twenty twenty five. It looks like that's going to be
Speaker 7: pushed at least you know, six months, or maybe even
Speaker 7: more to sometime in twenty twenty six. And it obviously
Speaker 7: tells us how critical of an issue this is and
Speaker 7: also how complicated it is. And that's just because of
Speaker 7: the nature of Disney's business. I mean, they have so many,
Speaker 7: very many disparate businesses. Whether it's theme parks or studios,
Speaker 7: or the television networks or ESPN, they all require kind
Speaker 7: of different expertise and a different skill set, and so
Speaker 7: it's going to be hard to kind of it's obviously
Speaker 7: very big shoes to fill.
Speaker 5: Well.
Speaker 2: Also, the last one did not work out so well
Speaker 2: with Bob Chappick.
Speaker 7: Yes, and again this is where, you know, we come
Speaker 7: back to this age old question. I mean, do you
Speaker 7: have somebody who is really good in terms of relationships
Speaker 7: with you know, the creatives, with Hollywood executives, or do
Speaker 7: you have a more hands on person who has tremendous
Speaker 7: experience with the parks. And so even as they kind
Speaker 7: of go about trying to determine who their new CEO
Speaker 7: will be, I think that kind of really will give
Speaker 7: us a glimpse into what their future strategy is going
Speaker 7: to be. Is it going to be more a theme
Speaker 7: park kind of focused company. We do have to remember
Speaker 7: that this is the bread and butter of the company,
Speaker 7: brings in almost sixty five percent of profits, so definitely
Speaker 7: very very critical to both the top and the bottom line.
Speaker 7: But at the same time, you know, Hollywood relationship with
Speaker 7: you know, Hollywood talent with creatives is also important because
Speaker 7: it's the movies and it's it's the studio content that
Speaker 7: ultimately is the flywheel and is so important for kind
Speaker 7: of feeding all of the other businesses, including the theme
Speaker 7: park business.
Speaker 2: Oh yeah, and they have actually some of those other businesses,
Speaker 2: not the theme parks, which is almost an autopilot. They've
Speaker 2: had some of the biggest blockbusters of this year, and
Speaker 2: the movie theaters, the streaming unit, as I said earlier,
Speaker 2: finally turning a profit, the Disney plus Hulu, ESPN plus.
Speaker 2: I mean, it looks like all of the investing they've
Speaker 2: done in the directing consumer the streaming operations has really
Speaker 2: paid off.
Speaker 7: Yeah, it absolutely has. And you spoke about the studio,
Speaker 7: which is really important because they had definitely a whole
Speaker 7: string of missus, you know, at the studio division, but
Speaker 7: that obviously changed this year with the outperformance both of
Speaker 7: Inside Out Too as well as you know, Deadpool and Wolverine,
Speaker 7: which are some of the biggest releases for this year. Definitely,
Speaker 7: and as we look forward as well, you know, it
Speaker 7: looks like they're finally kind of turned the corner. On
Speaker 7: you know, the content pipeline, and so as we look
Speaker 7: forward to both twenty twenty five and twenty twenty six,
Speaker 7: that's late is definitely strengthening. So there's definitely a lot
Speaker 7: of positive momentum on in the studio side of things.
Speaker 7: But then as we kind of think about streaming, yes,
Speaker 7: that's where all of the profitability delta is kind of
Speaker 7: really going to come over the next few years.
Speaker 2: And also just to mention Moanatu and Move Fast of
Speaker 2: the King both out in the next couple of weeks really,
Speaker 2: so that could also add to.
Speaker 7: Things absolutely absolutely that just goes to speak to you know,
Speaker 7: their content slate strengthening tremendously. This is the whole studio
Speaker 7: turnaround that we're seeing in progress. Ultimately, remember Tom, all
Speaker 7: of those movies are going to come to the Disney
Speaker 7: Plus streaming platform, so again it's going to have you know,
Speaker 7: that nice tailwind effects in terms of boosting subscriber numbers.
Speaker 2: Now, I want to bring up something at the parks,
Speaker 2: as you said, sixty five percent of its profits. It
Speaker 2: seems to always be a winner for them, but they
Speaker 2: did something a little controversial in the last couple of months.
Speaker 2: That is the Lightning Lane premiere pass a nearly five
Speaker 2: hundred dollars extra fee to skip lines. Was this a miscalculation?
Speaker 2: Was it wrong to do this? And how is it
Speaker 2: fared for the company.
Speaker 7: I don't think it was wrong. I mean, one of
Speaker 7: the things that we've seen overall is that theme park
Speaker 7: demand has moderated. And as theme park demand is moderating,
Speaker 7: we also know that visibility is kind of limited on
Speaker 7: when trends will improve. So obviously they do, you know,
Speaker 7: if this is always going to be a volume and
Speaker 7: a pricing game, So as they kind of see volume
Speaker 7: going down, they obviously have to come up with more
Speaker 7: innovative ways of kind of you know, raising prices and
Speaker 7: boosting and preserving their top line. That of course said,
Speaker 7: I mean, they also have to be careful not to
Speaker 7: overplay their hand, and so it is a very careful
Speaker 7: balancing act. I do agree, But you know, I think
Speaker 7: the Lightning Lane price increase obviously came after a lot
Speaker 7: of deliberation and a lot of careful thought. I mean,
Speaker 7: they obviously have tremendous demand at a lot of these attractions,
Speaker 7: and I think that is kind of what prompted it.
Speaker 7: So I don't think it's a miscalculation. But again we'll
Speaker 7: have to wait and watch. We have to wait for
Speaker 7: their earnings call to see exactly how it's played out
Speaker 7: so far.
Speaker 2: All right, and those Disney Q four earnings out this
Speaker 2: Thursday are thanks to Geet the Raganathan Bloomberg Intelligence analysts
Speaker 2: on us ME and coming up on Bloomberg day Break weekend,
Speaker 2: we'll discuss whether the UK Chancellor can bring growth back
Speaker 2: to the City of London. I'm Tom Busby and this
Speaker 2: is Bloomberg. This is Bloomberg day Break weekend, our global
Speaker 2: look ahead at the top stories for investors in the
Speaker 2: coming week. I'm Tom Busby in New York. Up later
Speaker 2: in the program, Beijing confronts the threat of punishing US
Speaker 2: tariffs on its exports. But first, fresh from her autumn budget,
Speaker 2: UK Chancellor Rachel Reeves delivers her biggest City of London
Speaker 2: speech to date this week. Her plan for growth relies
Speaker 2: heavily on the business sector, but will she impress them
Speaker 2: for more. Let's go to London and bring in Bloomberg
Speaker 2: day Break Europe anchor Caroline Hepgar Tom.
Speaker 1: It takes place in the historic surroundings of the Lord
Speaker 1: Mayor's official residence the Mansion House. Speech is billed as
Speaker 1: an opportunity for chancellors to make their case to the
Speaker 1: famously independent city of London, governed by its own laws
Speaker 1: and even featuring a separate police force. The City of
Speaker 1: London has always valued independence, but as home to many
Speaker 1: of the country's financial services giants, it's a region that
Speaker 1: Rachel Reeves will want to bring on board with her agenda.
Speaker 1: She's expected to outline her vision for the Square Mile,
Speaker 1: detailing how the Treasury will support the country's world leading
Speaker 1: financial services sector to grow, innovate and finance growth around
Speaker 1: the country. That's according to a Treasury statement. But will
Speaker 1: Reeves's fiscal policy hold back those business ambitions. I've been
Speaker 1: speaking to Richard Wilson, who's the CEO of the UK's
Speaker 1: biggest flat fee investment platform, Interactive Investor. He says that
Speaker 1: some of the measures introduced in Reeves's recent budget present
Speaker 1: a real challenge for corporates.
Speaker 8: Well, the majority of the changes were very well telegraphed.
Speaker 8: You've got a spend, tax and borrow agenda with numbers
Speaker 8: that are very high, and the ifs came out and
Speaker 8: the OBI can confoundly that that leads to lower growth
Speaker 8: going forward, a higher debt servicing burden, and of course
Speaker 8: the guilt markets have been a little bit ambiguous about
Speaker 8: their view of that because the yields have gone up
Speaker 8: in two and ten years basically makes the UK a
Speaker 8: less attractive market to invest invested others because you've got
Speaker 8: a higher tax burden. And the irritation I think for
Speaker 8: many of us is that, whilst there's clearly as a
Speaker 8: fiscal tightrope to walk going after some what would be
Speaker 8: symbolic or illogical taxes like itt reliefs on agriculture and
Speaker 8: business property do undermine entrepreneurship in the country. We've got
Speaker 8: millions of people where the bedrock of our future is
Speaker 8: on entrepreneurship, which comes from family businesses. That's not a
Speaker 8: sensible way to build growth of that. It flies in
Speaker 8: the face of your growth agenda.
Speaker 9: So to be clear, you think this budget was anti growth?
Speaker 8: Yes, no question.
Speaker 9: As a business just as a CEO, what are you
Speaker 9: doing with that increase in national insurance going to be
Speaker 9: Does that mean lower wages for your team? Are you
Speaker 9: going to pass it up through in terms of high
Speaker 9: cost for your customers? How are you going to manage that.
Speaker 8: I mean, we're in a very competitive environment and the
Speaker 8: option we're we're competing with all the near brokers, the
Speaker 8: US houses, the UK clearing bags, the European houses, everybody,
Speaker 8: the inpension companies. Our option to move price is zero.
Speaker 8: So then you're dealing with efficiency and or wages or
Speaker 8: reduced profitability. I think Rachel Reeves and one of our
Speaker 8: interviews said, you know, custom companies will be become more
Speaker 8: efficient as if we're not trying to do that every
Speaker 8: day already. So the reality is it will either be
Speaker 8: lower profits and therefore kind of lower return and lower
Speaker 8: ability to reinvesting technology, or you look at your wage
Speaker 8: bill thinking how the hell do I solve that?
Speaker 1: Okay, So in terms of what comes next from Labor
Speaker 1: mansion House, there has been a push to try to
Speaker 1: and in fact a whole group of insurers and pension
Speaker 1: companies agreed to try to put more money into UK
Speaker 1: listed stocks that wasn't mandatory. Does it become mandatory under labor?
Speaker 1: Do they target something, Do they make it more compulsory
Speaker 1: for people to invest in UK listed or unlisted assets?
Speaker 5: Yeah?
Speaker 8: I think well that there are two. There's a problem
Speaker 8: that the UK has which is compared to some other
Speaker 8: countries in Canada and Australia and a reference quite a lot.
Speaker 8: We have a fragmented pension stock so the actual size
Speaker 8: of the pool that you're allocating is not as large
Speaker 8: as it should be. So there's a task there which
Speaker 8: is to consolidate pension assets with a big opportunity across
Speaker 8: local councils and the public sectors. Has been well documented.
Speaker 8: The fear that we should have is forcing an allocation
Speaker 8: of risk which is disproportionate. That would conflict with your
Speaker 8: kind of risk management and the members of your long
Speaker 8: term pension holders. So that's not a sensible thing to do.
Speaker 1: But label will say how do you get a growth
Speaker 1: and how and people have been complaining about the fact
Speaker 1: that the UK market is undervalued and that we've seen
Speaker 1: a massive decline in investment in UK consul.
Speaker 8: So there are two things there for me. One is
Speaker 8: you've got to create the scaler pension assets so that
Speaker 8: you can make an allocation which is proportionate of a
Speaker 8: much bigger base. And secondly, we have been bleeding out
Speaker 8: the UK stock market with stamp duty for the last
Speaker 8: twenty years. The British government has sorted either I'm not
Speaker 8: sure it's too late. It may be too late to
Speaker 8: save it. We are taxing the thing out of existence.
Speaker 1: Richard Wilson, there CEO of Interactive Investors, speaking to me
Speaker 1: and to Bloomberg's Tom McKenzie, officials say that the imagine
Speaker 1: how speech will drive up investment and showcase what the
Speaker 1: UK has to offer. They'll have their work cut out
Speaker 1: for though, if recent forecast from the Office for Budget
Speaker 1: Responsibility or anything to go by now. According to their predictions,
Speaker 1: the pace of UK economic growth will peak next year
Speaker 1: at two percent before falling back to around one and
Speaker 1: a half percent later in this parliament, and that after
Speaker 1: the budget announcement, so can Rachel Reeves's plans to supercharge
Speaker 1: the city and the UK change that trajectory. Is something
Speaker 1: I've been talking about with Bloomberg City editor Catherine Griffiths.
Speaker 10: Over the years the Mansion House speech. Sometimes it kind
Speaker 10: of passes without much notice, and other years it can
Speaker 10: be really key. This year, certainly, probably from both sides,
Speaker 10: the government side and the kind of audience side, it's
Speaker 10: going to be really key. This year's Mansion House Speech
Speaker 10: was due to happen in the summer and it's been
Speaker 10: pushed back until next week because of the election, So
Speaker 10: there's that sense of sort of time as well, this
Speaker 10: sort of highly anticipated event. And then actually the Treasury
Speaker 10: in ratl Reefs have themselves been sort of amping it
Speaker 10: up a bit, making it clear to people in the
Speaker 10: city that this is going to be a big event
Speaker 10: where rail reeves the Chancellor will lay out lots of
Speaker 10: sort of detail and conviction about how this government is
Speaker 10: going to deliver growth.
Speaker 1: Yes, and that has been her promise, kissed Arma's promise,
Speaker 1: but there were doubts after the budget. What do you
Speaker 1: think she's going to try to communicate then about the
Speaker 1: growth ambitions.
Speaker 10: So it seems like we're going to get quite a
Speaker 10: lot on this government's plans for pensions reforms. Of course,
Speaker 10: this is not a new topic. The previous government also
Speaker 10: was trying to push through with reforms to the pension system.
Speaker 10: There's you know, billions and billions and billions of pounds
Speaker 10: in pension pots in the UK. This point that yes,
Speaker 10: we want overseas investors coming into the UK, but actually
Speaker 10: in the UK itself there's a lot of sitting in
Speaker 10: savings funds and how we try to deploy that money
Speaker 10: in a way that's both good for the owners of
Speaker 10: the money, the people who will be pensioners in the future,
Speaker 10: to get higher levels of return so they have better retirements,
Speaker 10: but also of course how that money can be used
Speaker 10: in a more productive way in the British economy. So
Speaker 10: that's the point about pension pots owning British shares, owning
Speaker 10: British assets that are privately held. So there's all of that,
Speaker 10: and then we may also get some reforms about how
Speaker 10: the government the government's relationship with the financial regulators. Again
Speaker 10: a topic that has been going for a very long time,
Speaker 10: but there's a wide consensus that there needs to be
Speaker 10: some sort of change to ensure that the regulators have
Speaker 10: a clearer mandate to pursue growth and competitiveness.
Speaker 1: Having said that, what do you think is going to
Speaker 1: be the feedback from that business audience? Days ago I
Speaker 1: was speaking to the CEO of Interactive Investor, Richard Wilson.
Speaker 1: They've got something like four hundred thousand customers here in
Speaker 1: the UK, and I asked him about that pension reform question.
Speaker 1: For example, trying to encourage businesses to funnel their investor
Speaker 1: money into either listed or unlisted UK assets. He was
Speaker 1: talking about the UK stock market being untradeable. So there
Speaker 1: are great difficulties and there's been a lot of kind
Speaker 1: of pushback against the budget. What is the audience in
Speaker 1: the city going to be thinking.
Speaker 10: About, Yeah, I think it will be a mixed reaction
Speaker 10: and it is actually quite a key moment for the
Speaker 10: Chancellor to sort of really try to set her agenda
Speaker 10: and kind of push forward her credentials with the city,
Speaker 10: because yes, I think there are people out there in
Speaker 10: the city who do believe that the London stock market,
Speaker 10: while it has many advantages in the UK, has many
Speaker 10: advantages as a place to invest and do business. That
Speaker 10: sort of maybe the long term trend really is towards
Speaker 10: as of capital, where essentially the US really is the
Speaker 10: biggest pool of capital and we're sort of fighting against
Speaker 10: that tide in a way, and that perhaps London and
Speaker 10: the UK should think about other ways to remain relevant.
Speaker 10: So when you think of it in those terms, trying
Speaker 10: to sort of force pension money into some might say
Speaker 10: essentially a sort of a dying stock market isn't the
Speaker 10: best idea.
Speaker 1: How important a factor is it that the budget also
Speaker 1: saw an increase in national insurance employer contributions, which is
Speaker 1: an additional tax on business.
Speaker 10: Yeah, I mean business doesn't like it for sure. It
Speaker 10: has been well. One thing that the Treasury and retro
Speaker 10: Reefs team certainly did was telegraph a lot of the
Speaker 10: measures in the budget. So I think people have had
Speaker 10: time to get their heads around that and they don't
Speaker 10: like it. But ultimately, as ret Reefs I suppose said herself,
Speaker 10: some people needed to bear the burden this time, and
Speaker 10: she put it on the wealthy and business. I suppose
Speaker 10: there will be business people out there who understand and
Speaker 10: I think that that's what had to happen in this budget.
Speaker 10: But they're looking for conviction and ideas for how the
Speaker 10: whole economy can grow.
Speaker 1: Is there a positive case? There are concerns about economic growth?
Speaker 1: The OBR talked about how the budget would increase economic
Speaker 1: growth a little bit but only in the short term
Speaker 1: or more focus on the short term. Is there a
Speaker 1: more positive case that we can make Well.
Speaker 10: I guess there's that sense of the clock ticking, isn't
Speaker 10: there because she needs to kind of get ahead of
Speaker 10: that OBR forecast. So the measures in this budget will
Speaker 10: do exactly as you've said, according to the OBR. So
Speaker 10: what she's got to try to do is while these
Speaker 10: measures bite and she collects her tax revenue that she
Speaker 10: certainly needs, she then needs to be able to sort
Speaker 10: of quickly show that the economy is growing and hope
Speaker 10: that the OBR will change its forecast.
Speaker 1: Accordingly, we're thinking about the fallout of the Trump election
Speaker 1: victory twenty percent Tara potentially on the UK. Rachel Reeves
Speaker 1: modeled her economic policy during the election campaign, so some
Speaker 1: time ago on the Biden administration's by the nomics, she
Speaker 1: called her plan secure a nomics. I noticed that term
Speaker 1: has perhaps faded a little bit. How does the UK
Speaker 1: deal with now a Trump White House and possibility of
Speaker 1: towers and so on.
Speaker 10: I think the UK, and you know, many other big
Speaker 10: countries that have extensive dealings with the US, will obviously
Speaker 10: be worried about that. But we are a huge services
Speaker 10: economy and we have many many links in terms of
Speaker 10: financial services between the two countries, and I suppose the
Speaker 10: UK also hopes that after Brexit that we may have
Speaker 10: a certain amount of freedom to tread our own path
Speaker 10: with the US.
Speaker 1: My thanks Sibili and Begg's City editor Cafine Griffith. So
Speaker 1: does Labors smoke salmon offensive continue and will the City
Speaker 1: of London's leaders be receptive to the message from the
Speaker 1: new government. We will have full coverage of the Chancellor's
Speaker 1: mansion house beach here on Bloomberg. I'm Caroline Hepge here
Speaker 1: in London. You can catch us every weekday morning for
Speaker 1: Bloomberg Daybreak Europe, beginning at six am in London one
Speaker 1: am on Wall Street.
Speaker 2: Tom, Thank you, Caroline, And coming up on Bloomberg day
Speaker 2: Break Weekend, we'll examine the effects of Donald Trump's election
Speaker 2: on US China relations. I'm Tom Busby, and this is Bloomberg.
Speaker 2: This is Bloomberg day Break Weekend, our global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: I'm Tom Busby in New York. The timing of Donald
Speaker 2: Trump's reelection comes at an interesting time for China. Beijing
Speaker 2: has been working to revitalize its economy and now the
Speaker 2: thread of US tariff's looms large. We'll get a better
Speaker 2: read this week on how well the Chinese economy is
Speaker 2: holding up. Bloomberg's Doug Krisner, host of the Daybreak Asia podcast,
Speaker 2: is here with a closer look.
Speaker 11: Tom.
Speaker 3: We're looking at the monthly activity data for China in
Speaker 3: the week ahead will be key, particularly when you look
Speaker 3: at the numbers on retail sales and industrial production. However,
Speaker 3: we want to begin with a Chinese reaction to Donald
Speaker 3: Trump's return to the White House. We know that a
Speaker 3: major part of Trump's economic policy is tariff's. He is
Speaker 3: planning to place tariffs on all US imports that would
Speaker 3: include charges of between ten percent to twenty percent on
Speaker 3: all imported goods, and where Chinese products are concerned, tariff's
Speaker 3: of as much as sixty percent. For a closer look,
Speaker 3: I'm joined by John lu Bloomberg News, executive editor for
Speaker 3: Greater China. John, it's always a pleasure. Thanks for making
Speaker 3: time to chat with us. Can we begin with Donald
Speaker 3: Trump's impending return as US president. I'm curious about the
Speaker 3: reaction in the Chinese capital.
Speaker 11: I think there's actually a bit of awe at the
Speaker 11: moment that Donald Trump was able to pull off the
Speaker 11: sort of victory that it seems like he was able
Speaker 11: to pull off potentially a trifecta, taking both the Senate
Speaker 11: and the House along with the White House. And the
Speaker 11: thing that I'm hearing from lots of people here in
Speaker 11: Beijing is wow, where you know, it's really amazing he
Speaker 11: was able to do that. I don't think people have
Speaker 11: gotten yet to the point of thinking very deeply about
Speaker 11: what next.
Speaker 3: John, you know better than I the challenges that are
Speaker 3: facing the Chinese economy at the moment. The export side
Speaker 3: seems to have been holding up reasonably well. It's the
Speaker 3: domestic economy that's really been struggling. So too have imports
Speaker 3: to China to some extent. In your view, how well
Speaker 3: is China prepared to respond to the potential trade war
Speaker 3: with the US or a different style of trade war,
Speaker 3: let's put it that way.
Speaker 11: I think China is better prepared in the sense that
Speaker 11: we've seen this show before, Like we've lived through four
Speaker 11: years of a Donald Trump administration and we've gone through
Speaker 11: a trade war, and so in that respect, I think
Speaker 11: China is much more prepared in terms of how to
Speaker 11: negotiate what the main points of contention potentially probably will be.
Speaker 11: In terms of how well they could take on a
Speaker 11: sixty percent tariffs all around, I think the answer to
Speaker 11: that is not very well. There have been some estimates
Speaker 11: by ubs, for instance, that calculate if Donald Trump did,
Speaker 11: in fact put sixty percent tariffs on all Chinese exports
Speaker 11: to the US. That would essentially cut two point five
Speaker 11: percentage points from China's GDP.
Speaker 5: That means China would be.
Speaker 11: Growing half as fast as it has been in the
Speaker 11: last couple of years as a result.
Speaker 3: Given how the Chinese economy is struggling at the moment,
Speaker 3: is there a particular vulnerability where the US could potentially
Speaker 3: take advantage of this weaker state and try to capitalize
Speaker 3: that If these tariffs are really a form of the
Speaker 3: first part of a negotiation, does the US necessarily have
Speaker 3: a bit of the upper hand here?
Speaker 11: I think definitely the United States has in upper hand
Speaker 11: when it comes to these negotiations. China depends on being
Speaker 11: able to have access to foreign markets to create jobs,
Speaker 11: to create demand for its manufactured goods. The Chinese government
Speaker 11: has been trying to wean itself off of that dependency,
Speaker 11: but it's going to take time and it's not going
Speaker 11: to happen very quickly, and so in the short term,
Speaker 11: I think there are a lot of cards in Donald
Speaker 11: Trump's and the United States hand in terms of how
Speaker 11: those negotiations go. I have heard quite a number of
Speaker 11: Chinese officials sort of re up the idea or bring
Speaker 11: up the sense that Donald Trump has actually set himself
Speaker 11: that this is maybe a negotiating tactic, So they're kind
Speaker 11: of approaching as in a hopeful way, maybe he will
Speaker 11: not actually on day one impose those terrors.
Speaker 3: The Biden administration, i think it's fair to say, really
Speaker 3: built on the tough on China strategy that was undertaken
Speaker 3: by the first Trump administration, and what the Biden administration
Speaker 3: did in kind of building on that was I'm thinking,
Speaker 3: in particular the export controls on certain advanced high technology,
Speaker 3: especially the semiconductors. So if you move away from the
Speaker 3: issue of tariffs, the question becomes his Beijing prepared for
Speaker 3: additional US restrictions on sales to China. Remember during the
Speaker 3: first Trump administration, Huawei got caught up in that, didn't it.
Speaker 11: It did. The big difference I would say between the
Speaker 11: way that the Biden administration and the first Trump administration
Speaker 11: prosecuted these curves on technology was the Biden administration has
Speaker 11: been much more successful, i think in getting the American
Speaker 11: allies to go along with their policies, and it's I
Speaker 11: think much more in question how effective a Trump administration
Speaker 11: would be in doing that. At the same time, I
Speaker 11: think the Chinese are very concerned about losing even more
Speaker 11: access to American technology of Western technology in general. There
Speaker 11: is a ton of money being spent in China to
Speaker 11: try and create domestic technologies to replace those things. Again,
Speaker 11: that takes time. It's not going to happen in the
Speaker 11: next week or year or a couple of years.
Speaker 3: So let's imagine for a moment that Trump's thread of
Speaker 3: these tariffs at sixty percent is really the first part
Speaker 3: of the negotiating strategy. If he follows through, let's say
Speaker 3: the negotiations were to fall off the rails at some
Speaker 3: point those tariffs are really imposed. Are Chinese authorities willing
Speaker 3: to do much more to help the economy, do you think?
Speaker 3: And the timing is kind of interesting because we just
Speaker 3: had the meeting of the Standing Committee and indications that
Speaker 3: we may be getting a little bit more fiscal support
Speaker 3: for the Chinese economy, So put that in context for me,
Speaker 3: I think.
Speaker 11: The timing of that meeting of the National People's Congress
Speaker 11: Standing Committee that you just mentioned is very interesting. It
Speaker 11: usually happens at the end of October. This meeting, they
Speaker 11: pushed it back until November fourth through eighth, so it
Speaker 11: ends after the election, and so a lot of people
Speaker 11: have wondered if that timing wasn't changed so that that
Speaker 11: Chinese officials could calibrate their response to reflect the new
Speaker 11: administration potentially in Washington. And so the idea would be,
Speaker 11: with Trump coming in, potentially China would do more in
Speaker 11: terms of stimulus to try and get domestic consumption up
Speaker 11: to make up for this additional tariffs cutting off demand
Speaker 11: from the United States.
Speaker 3: So before I let you go, I have to ask
Speaker 3: about the data that we're going to get in the
Speaker 3: coming week, the monthly activity data. Two key points industrial production,
Speaker 3: retail sales.
Speaker 5: We talk a lot.
Speaker 3: About this when we try to get a clear window
Speaker 3: into what's happening in the Chinese economy. Do you have
Speaker 3: a sense of what these figures are going to show us?
Speaker 11: So I think there's a bit of optimism about retail sales.
Speaker 11: We had services PMI that showed activity in the services
Speaker 11: industry was growing more quickly than had been expected, and
Speaker 11: some economists have said that that suggests potentially the consumer
Speaker 11: is recovering. We've we've obviously had a bunch of stimulus
Speaker 11: introduced already even before the National People's National People's Congress
Speaker 11: and so we could see that pick up more than expected.
Speaker 11: We also had some good data at the beginning of
Speaker 11: the of the month that showed in October, China's largest
Speaker 11: developers actually saw an increase in sales in October from
Speaker 11: a year early. That's the first time that's increased in
Speaker 11: a year, and so it seems like we might be
Speaker 11: hitting a turning point, and that's why the numbers this month.
Speaker 5: Are so important.
Speaker 3: John will leave it there always a pleasure. Thanks so
Speaker 3: much for spending time with us. John lu There, Bloomberg News,
Speaker 3: Executive editor for Greater China, joining us from our studios
Speaker 3: in Beijing. Let's turn to the Chinese internet giant Tencent.
Speaker 3: In the coming week, the company will be reporting earnings.
Speaker 3: I want to take a closer look. Now we'll bring
Speaker 3: in Robert Lee, Bloomberg, Senior tech analyst for Bloomberg Intelligence.
Speaker 3: He joins us from our studios in Hong Kong. Thanks
Speaker 3: for making time to chat with us, Robert. This is
Speaker 3: a very interesting company. It's involved in so many different things,
Speaker 3: whether it's social media, music, it's e commerce, there's mobile gaming,
Speaker 3: payment systems, and some artificial intelligence happening in the background. Where,
Speaker 3: especially where Cloud computing is concerned. So as you look
Speaker 3: out to the earnings that we're expecting in the coming week,
Speaker 3: what are you most focused on?
Speaker 12: That's absolutely right Tencent and it's we chat, or as
Speaker 12: it's referred to locally, wasting platform is a ubiquitous part
Speaker 12: of Chinese life. The platform, for those who are unfamiliar
Speaker 12: with it, is really a combination of the metas Facebook app.
Speaker 12: You know, there's an element of PayPal. It's all singing,
Speaker 12: all dancing, really, so it's an essential part of living
Speaker 12: in China.
Speaker 5: I think the major.
Speaker 12: Driver of ten cents earnings this year has been the
Speaker 12: strength that they've seen on the gaming side, particularly driven
Speaker 12: by one particular title called DNF So that was a
Speaker 12: licensing title from a company called Nexon, but it's been
Speaker 12: a major smash hit for them, and as they say,
Speaker 12: within the video game business, you're only as good as
Speaker 12: your last hit, So that has been a major drive
Speaker 12: driver of their earnings. From sort of Q one Q two.
Speaker 12: We'll see ongoing strength into the third quarter, but I
Speaker 12: think that is well known and is already factored in
Speaker 12: by the market.
Speaker 3: In the States, we've been talking a lot about artificial
Speaker 3: intelligence different startups now that are capturing amazing valuations. And
Speaker 3: then companies like open ai that already have relationships with
Speaker 3: a company like Microsoft. Where is ten Cent in the
Speaker 3: world of artificial intelligence right now in China?
Speaker 5: Okay?
Speaker 12: I would say ten Cent early, Barber and then their
Speaker 12: peers Byte, Dance and Huawei. The four of them are
Speaker 12: best place to win out and emerge as the leaders
Speaker 12: in China's AI sector. But we're at an early stage
Speaker 12: of development at the moment, their operations in aggregate and
Speaker 12: loss making, and the level of monetization or revenue generation
Speaker 12: on the software side, because these companies are all software firms,
Speaker 12: so we're not talking about the equivalents of the in videos.
Speaker 12: The monetization is at a very low level. So ten
Speaker 12: Cent has got a very broad based platform, so scope
Speaker 12: to generate internal synergies by applying AI to generate cost savings,
Speaker 12: et cetera is definitely very high. So that should help
Speaker 12: defend their margin and underpin their margin going forward. But
Speaker 12: as I said, the issue with the China market in
Speaker 12: a you know, with a population of one point four billion,
Speaker 12: it's a hyper competitive market. There are a very large
Speaker 12: number of players out there. It's very fragmented market.
Speaker 3: When you consider artificial intelligence. I know, there are these
Speaker 3: export controls that the Bidy administration has placed on advanced
Speaker 3: semiconductor technology, with the idea of keeping some of these
Speaker 3: super advanced chips away from China. Now, a lot of
Speaker 3: the thinking had been that maybe China would be compelled
Speaker 3: to try to find military type applications for those chips,
Speaker 3: but they seemed to be so much a part of
Speaker 3: the AI story. I'm wondering whether or not these Chinese companies,
Speaker 3: like again ten Cent, Ali, Baba Baid, when it comes
Speaker 3: to AI, they're really at a disadvantage because of these
Speaker 3: export controls.
Speaker 12: That was exactly my view sort of earlier in the year,
Speaker 12: the end of last year. I mean, it was an
Speaker 12: obvious risk to these firms. However, they seem to have
Speaker 12: worked their way around it, so they mitigated the problem
Speaker 12: in a couple of ways. First thing is, I mean,
Speaker 12: whilst the export controls were put in place by the
Speaker 12: US for the reasons you've mentioned, they were well flagged
Speaker 12: in advance, so that gave an opportunity for these big
Speaker 12: time platforms to actually accumulate inventory before the controls came
Speaker 12: in place. And also, you know, whilst you know the
Speaker 12: relationship between China, the US and a lot of Western
Speaker 12: Europe is strained to some degree. At the moment, you know,
Speaker 12: China is still on good terms with a lot of
Speaker 12: other countries around the world, particularly in the Gulf region, etc.
Speaker 12: So I think that, you know, there is anecdotal evidence
Speaker 12: that China has had some help from its friends, shall
Speaker 12: we say, in you know, in importing some of these
Speaker 12: restricted products. But then the third thing that the Chinese
Speaker 12: companies have done is they have again the challenge that
Speaker 12: they face to spurred innovation, and China does have very
Speaker 12: strong inherent strengths in software development. So what they have
Speaker 12: done is developed a newer generation of more focused, smaller
Speaker 12: models which are more adept at working on the lower
Speaker 12: power accelerator chips coming from the likes of Huawei, so
Speaker 12: domestically developed chips.
Speaker 3: Robert, thanks so much for helping us preview this week's
Speaker 3: earnings from ten Cent. He's Robert Lee, senior tech analyst
Speaker 3: for Bloomberg Intelligence, and I'm Doug Chrisner. You can join
Speaker 3: us weekdays here for the Bloomberg Daybreak Asia podcast, available
Speaker 3: wherever you get your 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
Speaker 2: overseas and the news you need to start your day.
Speaker 2: I'm Tom Busby. Stay with us. Top stories and global
Speaker 2: business headlines are coming up right now.