1 00:00:00,240 --> 00:00:07,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:10,400 --> 00:00:12,960 Speaker 2: This is Bloomberg day Break Weekend, our global look at 3 00:00:12,960 --> 00:00:15,000 Speaker 2: the top stories in the coming week from our Daybreak 4 00:00:15,040 --> 00:00:18,320 Speaker 2: anchors all around the world. Straight Ahead on the program, 5 00:00:18,440 --> 00:00:21,840 Speaker 2: look ahead to earnings from chip giant Nvidia, along with 6 00:00:21,840 --> 00:00:24,639 Speaker 2: some of the biggest US retailers. I'm John Tucker in 7 00:00:24,680 --> 00:00:25,079 Speaker 2: New York. 8 00:00:25,280 --> 00:00:28,080 Speaker 3: I'm Caroline Hebge here in London, where we're looking at 9 00:00:28,080 --> 00:00:32,000 Speaker 3: the upcoming earnings test for Europe's low cost airlines. 10 00:00:32,360 --> 00:00:35,680 Speaker 4: I'm Dog Krisner looking at whether Japan's economy will show 11 00:00:35,760 --> 00:00:37,560 Speaker 4: improvement in the first quarter. 12 00:00:38,159 --> 00:00:42,200 Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 13 00:00:42,240 --> 00:00:45,920 Speaker 1: eleven three year, New York, Bloomberg ninety nine to one, Washington, DC, 14 00:00:46,440 --> 00:00:51,559 Speaker 1: Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Syrias 15 00:00:51,720 --> 00:00:54,880 Speaker 1: XM one twenty one, and around the world on Bloomberg 16 00:00:54,960 --> 00:00:57,520 Speaker 1: Radio dot Com and the Bloomberg Business app. 17 00:01:02,720 --> 00:01:05,360 Speaker 2: And good day to everybody. I'm John Tucker. Let's start 18 00:01:05,400 --> 00:01:09,440 Speaker 2: today's program with the company founded in a Denny's restaurant 19 00:01:09,520 --> 00:01:13,280 Speaker 2: in East San Jose, California, Wednesday, after the close of 20 00:01:13,360 --> 00:01:16,959 Speaker 2: regular trading. The biggest company, in Vidia opening its books 21 00:01:16,959 --> 00:01:19,839 Speaker 2: to investors. It's going to preview and walk you through 22 00:01:19,880 --> 00:01:23,039 Speaker 2: all the details. We're joined by Bloomberg Technology co anchor 23 00:01:23,600 --> 00:01:27,120 Speaker 2: Ed Ludlow. Ed, I got to start with a China question. 24 00:01:27,720 --> 00:01:31,440 Speaker 2: Which of Nvidia's future results are going to reflect purchases 25 00:01:31,760 --> 00:01:32,480 Speaker 2: from China? 26 00:01:33,080 --> 00:01:33,880 Speaker 5: Nobody knows. 27 00:01:34,240 --> 00:01:38,280 Speaker 2: That is the great That's why we bring you on board, Ed, That. 28 00:01:38,680 --> 00:01:42,000 Speaker 6: Is the great mystery and mystique of Nvidia, because you know, 29 00:01:42,080 --> 00:01:46,280 Speaker 6: for all the headlines and the discussion of what Nvidia 30 00:01:46,400 --> 00:01:49,120 Speaker 6: can or cannot sell to Chinese companies, you know, with 31 00:01:49,240 --> 00:01:53,040 Speaker 6: Jensen Wang alongside President Trump in China, there's a big 32 00:01:53,400 --> 00:01:56,400 Speaker 6: misunderstanding of how it actually works. So like the US 33 00:01:56,520 --> 00:02:00,400 Speaker 6: government will say we have approved Nvidia to sell a 34 00:02:00,400 --> 00:02:05,160 Speaker 6: certain generation of chip to a certain group of Chinese companies. Great, fantastic, 35 00:02:05,760 --> 00:02:08,240 Speaker 6: and Jensen one will go on stage as he's done 36 00:02:08,280 --> 00:02:10,320 Speaker 6: many times in twenty twenty six so far, and say 37 00:02:10,800 --> 00:02:14,160 Speaker 6: good news, guys, like we have orders from Chinese companies 38 00:02:14,240 --> 00:02:16,360 Speaker 6: for the H two hundred, which is the generation of 39 00:02:16,400 --> 00:02:19,160 Speaker 6: chip they're permitted to sell, really good like real orders. 40 00:02:19,200 --> 00:02:21,200 Speaker 6: And so as a result of those orders, we're going 41 00:02:21,240 --> 00:02:23,040 Speaker 6: to ramp up. We're going to go to our suppliers 42 00:02:23,280 --> 00:02:26,040 Speaker 6: make sure that we have those chips. But nobody actually 43 00:02:26,120 --> 00:02:30,239 Speaker 6: knows if China's okay with this. And you know, it's 44 00:02:30,280 --> 00:02:33,920 Speaker 6: really interesting because to his credit, Gensmong has always been 45 00:02:33,960 --> 00:02:36,480 Speaker 6: really consistent with me when I've discussed it with him. 46 00:02:36,760 --> 00:02:40,680 Speaker 6: When they negotiate this stuff, they don't actually themselves negotiate 47 00:02:40,720 --> 00:02:44,600 Speaker 6: with the Chinese government. If Chinese tech companies are allowed 48 00:02:44,639 --> 00:02:48,280 Speaker 6: to buy their chips, they will, they'll place orders, and 49 00:02:48,320 --> 00:02:52,000 Speaker 6: that we should infer from that means that the Chinese 50 00:02:52,040 --> 00:02:54,480 Speaker 6: government said it was okay. And so the only way 51 00:02:54,480 --> 00:02:56,880 Speaker 6: of knowing is if it shows up on the income statement. 52 00:02:56,919 --> 00:03:00,280 Speaker 6: That's the joy of covering earnings and public companies, it's 53 00:03:00,320 --> 00:03:01,800 Speaker 6: either there in black and white or it's not. 54 00:03:02,720 --> 00:03:04,760 Speaker 2: Yeah, you know, it's it's kind of hard for me 55 00:03:05,400 --> 00:03:08,919 Speaker 2: when I go home in the afternoon, said to pass 56 00:03:09,400 --> 00:03:13,120 Speaker 2: someplace that doesn't have a data center under construction. What's 57 00:03:13,240 --> 00:03:16,320 Speaker 2: the where's the growth going to come from? For in video? 58 00:03:16,440 --> 00:03:19,280 Speaker 2: Is it those data centers that are popping up seemingly everywhere. 59 00:03:19,760 --> 00:03:22,760 Speaker 6: Well, look, I really want to have some fun and 60 00:03:23,000 --> 00:03:25,880 Speaker 6: make this like just digestible for the audience. All you 61 00:03:25,919 --> 00:03:28,800 Speaker 6: need to know is that wherever it's coming from, the 62 00:03:29,000 --> 00:03:32,560 Speaker 6: video numbers are really big. You know this story. You 63 00:03:32,880 --> 00:03:36,960 Speaker 6: mentioned Denny's right in April nineteen ninety three. When this 64 00:03:37,000 --> 00:03:38,680 Speaker 6: company was found in Denny's, I was less than a 65 00:03:38,760 --> 00:03:43,560 Speaker 6: year and for most of the company's initial history it 66 00:03:43,680 --> 00:03:47,320 Speaker 6: made chips that powered video games consoles and no one. 67 00:03:47,160 --> 00:03:50,880 Speaker 2: Really can the GPUs work, right, Yeah, gpu. 68 00:03:50,920 --> 00:03:54,520 Speaker 6: The origin of the GPPU, the graphics processing unit, is 69 00:03:54,520 --> 00:03:57,240 Speaker 6: that it's very good at running multiple computations at the 70 00:03:57,280 --> 00:03:59,480 Speaker 6: same time, which for the layman means when you're playing 71 00:03:59,480 --> 00:04:02,440 Speaker 6: a video game, all those pixels appear on the screen. 72 00:04:02,800 --> 00:04:04,800 Speaker 6: You know, that's what its origin was. Now fast forward 73 00:04:04,800 --> 00:04:08,120 Speaker 6: to present day. You know they are still growing revenues 74 00:04:08,280 --> 00:04:11,600 Speaker 6: at near to eighty percent year on year. You know, actually, 75 00:04:11,680 --> 00:04:14,760 Speaker 6: what we'll see is revenue growth accelerate into this quarter. 76 00:04:15,240 --> 00:04:18,080 Speaker 6: Their margins are at seventy five percent. Like margins at 77 00:04:18,120 --> 00:04:21,080 Speaker 6: seventy five percent for a company that sells chips, it's 78 00:04:21,120 --> 00:04:23,440 Speaker 6: just bonkers. It's just nuts, That's all you need to know. 79 00:04:24,360 --> 00:04:28,320 Speaker 6: And they do it with massive profits and cash generation, 80 00:04:28,560 --> 00:04:31,720 Speaker 6: and so in this quarter that's not changing. But here's 81 00:04:31,760 --> 00:04:33,720 Speaker 6: the to answer your actual question, where does it all 82 00:04:33,720 --> 00:04:36,800 Speaker 6: come from it's still the big cloud computing companies what 83 00:04:36,800 --> 00:04:40,559 Speaker 6: we call hyperscalers, that account for more than fifty percent 84 00:04:40,600 --> 00:04:44,120 Speaker 6: of those revenues. But that's why the timing of earnings 85 00:04:44,200 --> 00:04:46,000 Speaker 6: is really interesting. You know, if you're a real nerd 86 00:04:46,120 --> 00:04:48,080 Speaker 6: like me, you look at the calendar and you're like, 87 00:04:48,160 --> 00:04:52,120 Speaker 6: oh wow, in video reports earnings mad twentieth. But the 88 00:04:52,200 --> 00:04:55,000 Speaker 6: reason that I stress that is that all of nvda's 89 00:04:55,000 --> 00:04:58,080 Speaker 6: biggest customers have already done earnings and they've told us 90 00:04:58,080 --> 00:04:59,800 Speaker 6: how much they're going to spend on chips this year. 91 00:05:00,120 --> 00:05:04,279 Speaker 6: So it always kind of logical, and it all results 92 00:05:04,279 --> 00:05:05,000 Speaker 6: in video winning. 93 00:05:05,080 --> 00:05:08,440 Speaker 2: Frankly, it's still safe to say in video pretty much 94 00:05:08,440 --> 00:05:10,520 Speaker 2: as a near monopoly in this film. 95 00:05:10,880 --> 00:05:14,320 Speaker 6: Yeah, well, just to make sure that we're covered and 96 00:05:14,360 --> 00:05:18,000 Speaker 6: I adhere to my own and Bloomberg's high standards. A 97 00:05:18,040 --> 00:05:21,360 Speaker 6: technical monopoly is where you have more than seventy percent 98 00:05:21,480 --> 00:05:26,240 Speaker 6: market share. And what's happening in AI right now is 99 00:05:26,400 --> 00:05:29,400 Speaker 6: a very big shift from a period of time where 100 00:05:29,440 --> 00:05:34,840 Speaker 6: all of the computers, and we're talking about computers right GPUs, clusters, 101 00:05:35,360 --> 00:05:38,800 Speaker 6: data centers, what you're talking about is absolutely ginormous computers. 102 00:05:39,520 --> 00:05:42,240 Speaker 6: Until this point, what those computers were largely doing was 103 00:05:42,320 --> 00:05:46,120 Speaker 6: training the models, taking really vast volumes of data and 104 00:05:46,200 --> 00:05:50,480 Speaker 6: training models on that data. Now people are using them. 105 00:05:50,720 --> 00:05:54,400 Speaker 6: They're running the models either through prompts that generate a 106 00:05:54,400 --> 00:05:57,120 Speaker 6: text response, it can be an image response. That's what 107 00:05:57,120 --> 00:05:59,880 Speaker 6: we call inference. And when we get to that in 108 00:06:00,040 --> 00:06:02,440 Speaker 6: Prince phase and video looks over its shoulder a little 109 00:06:02,480 --> 00:06:06,200 Speaker 6: bit more because there are more custom silicon. Different car 110 00:06:06,279 --> 00:06:08,280 Speaker 6: companies have their own chips. There are other chips on 111 00:06:08,320 --> 00:06:11,120 Speaker 6: the market that would claim to be better than in 112 00:06:11,200 --> 00:06:14,919 Speaker 6: videos in that sense, but there's not yet any evidence 113 00:06:15,000 --> 00:06:18,160 Speaker 6: that they've sort of had their market dominance chipped away 114 00:06:18,200 --> 00:06:19,640 Speaker 6: at by any of these would bees. 115 00:06:19,960 --> 00:06:21,960 Speaker 2: You're going to pour over those earnings as they come 116 00:06:22,000 --> 00:06:25,600 Speaker 2: across Wednesday after the close of regular trading. All right, 117 00:06:25,600 --> 00:06:29,320 Speaker 2: thanks to Bloomberg Technology co anchor Ed Ludlow, Let's take 118 00:06:29,320 --> 00:06:31,120 Speaker 2: a look now at some of the stocks making news 119 00:06:31,240 --> 00:06:35,039 Speaker 2: in the week ahead. I'm John Tucker along with Isabel Lee, 120 00:06:35,240 --> 00:06:40,000 Speaker 2: the Bloomberg Cross Asset reporter. The parade of earnings continues, 121 00:06:40,080 --> 00:06:42,800 Speaker 2: and we're going to start with the biggest retailer in 122 00:06:42,839 --> 00:06:46,320 Speaker 2: the world, Walmart. What's the expectation there? 123 00:06:46,839 --> 00:06:50,760 Speaker 7: Walmart ticker WMT earnings will be on May twenty. First, 124 00:06:50,800 --> 00:06:53,360 Speaker 7: that's a Thursday, which I checked right before we came 125 00:06:53,400 --> 00:06:55,320 Speaker 7: on because you said we had to know the day. 126 00:06:55,400 --> 00:06:57,080 Speaker 8: It's Thursday, seven am. 127 00:06:57,200 --> 00:07:01,240 Speaker 7: ET earnings call is eight am, so early wake up 128 00:07:01,279 --> 00:07:04,680 Speaker 7: if you really want to know more about Walmart revenue expected. 129 00:07:04,720 --> 00:07:08,239 Speaker 7: The consensus estimates is seven hundred and forty eight billion dollars. 130 00:07:08,520 --> 00:07:12,200 Speaker 7: Adjust the diluted EPs two dollars and niney three cents 131 00:07:12,240 --> 00:07:15,160 Speaker 7: and deluted EPs two dollars and ninety three cents. So 132 00:07:15,200 --> 00:07:17,560 Speaker 7: I could bore you with the numbers, but key themes 133 00:07:17,560 --> 00:07:20,760 Speaker 7: to watch definitely market share gains. We know Walmart is 134 00:07:20,840 --> 00:07:24,760 Speaker 7: positioned to benefit from its value and convenience proposition with 135 00:07:24,960 --> 00:07:26,960 Speaker 7: sustained e commerce momentum. 136 00:07:27,080 --> 00:07:30,360 Speaker 8: Maybe not in New York. I really can't relate whenever, Yeah, you. 137 00:07:30,280 --> 00:07:33,120 Speaker 2: Know, I would love to go to I've never been 138 00:07:33,160 --> 00:07:33,480 Speaker 2: to one. 139 00:07:33,600 --> 00:07:35,600 Speaker 8: Oh my gosh, they're not around here. 140 00:07:35,880 --> 00:07:38,600 Speaker 7: I think I may have been to one, or maybe. 141 00:07:38,320 --> 00:07:40,800 Speaker 2: I'm making it up, but which makes us more than 142 00:07:40,880 --> 00:07:41,960 Speaker 2: qualified to talk about. 143 00:07:42,120 --> 00:07:44,160 Speaker 7: It's a once in a lifetime thing for me. I 144 00:07:44,160 --> 00:07:47,560 Speaker 7: would love to go to. You and I can go 145 00:07:47,600 --> 00:07:48,800 Speaker 7: on a field trip there we. 146 00:07:48,760 --> 00:07:52,160 Speaker 2: Go, We can expense. It Now, when I talk about Walmart, 147 00:07:52,680 --> 00:07:54,840 Speaker 2: I said that the world's largest retailer, but it's also 148 00:07:54,880 --> 00:07:57,000 Speaker 2: the world's largest grocery chain too. 149 00:07:57,480 --> 00:07:58,840 Speaker 8: Is a lot of people shop there. 150 00:07:59,240 --> 00:08:03,800 Speaker 7: So according to Jennifer bartist Huss of Bloomberg Intelligence, she's 151 00:08:03,840 --> 00:08:06,640 Speaker 7: going to be looking at online profitability. They're going to 152 00:08:06,640 --> 00:08:10,040 Speaker 7: see whether e commerce margins have improved. Same Star sales 153 00:08:10,120 --> 00:08:13,160 Speaker 7: Ana wealet revenue gains of four to five percent are anticipated, 154 00:08:13,560 --> 00:08:15,240 Speaker 7: And of course you're going to see consumer health. 155 00:08:15,240 --> 00:08:16,720 Speaker 8: I mean we have all heard this. 156 00:08:16,800 --> 00:08:18,720 Speaker 2: Yeah, this is kind of a bell weather in terms 157 00:08:18,760 --> 00:08:23,120 Speaker 2: of economic performance for do I dare say the lower 158 00:08:23,200 --> 00:08:23,760 Speaker 2: end consumer. 159 00:08:23,960 --> 00:08:26,440 Speaker 7: Yes, so you're going to see that. And we've heard 160 00:08:26,600 --> 00:08:28,720 Speaker 7: time and again and all the radio shows the K 161 00:08:28,880 --> 00:08:31,440 Speaker 7: shaped economy. I just read again a note today that 162 00:08:31,600 --> 00:08:34,319 Speaker 7: travel is going to see heightened K shape economy. And 163 00:08:34,360 --> 00:08:37,600 Speaker 7: I thought, obviously, I mean, the higher income will be 164 00:08:37,600 --> 00:08:40,640 Speaker 7: in private jets and I will be in economy. 165 00:08:40,720 --> 00:08:41,240 Speaker 8: You know, So. 166 00:08:41,640 --> 00:08:44,920 Speaker 2: Okay, let's move on. This is one store I have 167 00:08:45,080 --> 00:08:48,559 Speaker 2: been in, actually put an Anderson window there. It's expensive, 168 00:08:48,600 --> 00:08:51,600 Speaker 2: but I'm talking home depot. One of the things I'm 169 00:08:51,880 --> 00:08:54,760 Speaker 2: seeing more and more at home depot, more and more 170 00:08:54,960 --> 00:08:59,160 Speaker 2: like professionals, carpenters, whatever, show up and it's not just 171 00:08:59,320 --> 00:09:01,440 Speaker 2: you know, people bozos like me. 172 00:09:02,360 --> 00:09:05,840 Speaker 8: So okay, Home Depot ticker is HD. You are not 173 00:09:06,000 --> 00:09:06,480 Speaker 8: a bozo. 174 00:09:06,720 --> 00:09:08,720 Speaker 7: But I think home Depot is the kind of place 175 00:09:08,800 --> 00:09:12,640 Speaker 7: that you're welcome on. I think it's the kind of 176 00:09:12,679 --> 00:09:16,760 Speaker 7: place that you just have what you If you need something, 177 00:09:16,800 --> 00:09:19,280 Speaker 7: it's there Because I go to Home Depot guess for 178 00:09:19,400 --> 00:09:21,000 Speaker 7: what plans? 179 00:09:21,320 --> 00:09:21,720 Speaker 2: Really? 180 00:09:21,920 --> 00:09:24,480 Speaker 7: Yeah, they have you see, you never noticed because that's 181 00:09:24,480 --> 00:09:27,240 Speaker 7: not what you need. I never noticed the carpentry because 182 00:09:27,240 --> 00:09:29,840 Speaker 7: I live in the tiny New York apartment. But Home 183 00:09:29,880 --> 00:09:32,720 Speaker 7: Depot is also going to report earnings May nineteen. That's 184 00:09:32,760 --> 00:09:35,600 Speaker 7: a Tuesday. Oh, this is even earlier. The release will 185 00:09:35,600 --> 00:09:38,559 Speaker 7: be at six am ET earning is called will be 186 00:09:38,679 --> 00:09:42,040 Speaker 7: nine am, so you can have breakfast in between. Revenue 187 00:09:42,080 --> 00:09:45,400 Speaker 7: expected is one hundred and seventy eight billion dollars. Adjusted 188 00:09:45,400 --> 00:09:49,360 Speaker 7: diluted EPs is sixteen dollars and thirty one cents, gap 189 00:09:49,440 --> 00:09:53,280 Speaker 7: diluted EPs fifteen dollars and ninety eight cents, and that's 190 00:09:53,320 --> 00:09:57,360 Speaker 7: earning sixteen billions. So again key themes to watch your also, 191 00:09:57,360 --> 00:10:02,240 Speaker 7: consumer confidence, I mean uncertainty, inflation and job security has really. 192 00:10:03,120 --> 00:10:06,880 Speaker 7: I guess the hed people from making large home improvements. 193 00:10:06,960 --> 00:10:09,320 Speaker 7: Why will you remodel your kitchen when you think you're well. 194 00:10:09,360 --> 00:10:12,280 Speaker 2: The other thing is the mortgage rates and what the 195 00:10:12,360 --> 00:10:14,920 Speaker 2: ten year going out, the thirty year the long bond 196 00:10:14,960 --> 00:10:19,320 Speaker 2: that was hovering right around five percent with the latest 197 00:10:19,360 --> 00:10:23,720 Speaker 2: economic figures, that feeds through mortgage rates home expenses one 198 00:10:23,760 --> 00:10:24,319 Speaker 2: hundred percent. 199 00:10:24,360 --> 00:10:25,080 Speaker 8: That's a great point. 200 00:10:25,120 --> 00:10:27,480 Speaker 7: And I think another key theme to watch is we 201 00:10:27,520 --> 00:10:31,720 Speaker 7: have management indicating they've learned to manage tariff, so we'll 202 00:10:31,720 --> 00:10:34,320 Speaker 7: see how that plays out. I feel like tariff we 203 00:10:34,520 --> 00:10:36,440 Speaker 7: kind of forgot about it. When I say forgot, like 204 00:10:37,160 --> 00:10:40,160 Speaker 7: new headlines have kind of dominated the market, but it's 205 00:10:40,160 --> 00:10:42,280 Speaker 7: still very alive and well. 206 00:10:42,280 --> 00:10:46,079 Speaker 2: Okay, let's finish up with the last stock on your list. 207 00:10:46,520 --> 00:10:51,840 Speaker 2: And I'm just hoping there's some intersection between artificial intelligence 208 00:10:52,240 --> 00:10:55,120 Speaker 2: and John Deere. I mean, they're building all these data 209 00:10:55,160 --> 00:10:59,040 Speaker 2: centers everywhere they are, and Deer makes stuff that you 210 00:10:59,120 --> 00:11:02,920 Speaker 2: can build data with, like tractors and stuff like that. 211 00:11:03,040 --> 00:11:09,160 Speaker 7: I guess, yeah, that's actually no tickers. The they have 212 00:11:09,200 --> 00:11:13,360 Speaker 7: earnings also made twenty one Thursday six am. Earnings call 213 00:11:13,440 --> 00:11:15,880 Speaker 7: is ten am, so you get a longer breakfast in between. 214 00:11:15,960 --> 00:11:18,440 Speaker 7: Net sales is estimated to be forty one billion, total 215 00:11:18,480 --> 00:11:21,600 Speaker 7: revenue forty seven billion dollars net come four point eight 216 00:11:21,640 --> 00:11:24,920 Speaker 7: billion dollars, et cetera. So they're expected to post a 217 00:11:24,920 --> 00:11:28,640 Speaker 7: better than expected fullier twenty twenty six results. Again, to 218 00:11:28,720 --> 00:11:32,240 Speaker 7: your point, it's driven by maybe agricultural equipment makers and 219 00:11:32,440 --> 00:11:35,040 Speaker 7: the and the momentum in building construction. 220 00:11:35,440 --> 00:11:38,200 Speaker 2: Well, you know the farmer, you know, we call it 221 00:11:38,280 --> 00:11:41,320 Speaker 2: farm again, and what's happening on next ye right now? Well, yeah, no, 222 00:11:41,440 --> 00:11:45,000 Speaker 2: it's been a very difficult time, especially with the tariffs 223 00:11:45,440 --> 00:11:50,079 Speaker 2: and the planting season. So you know, again dear something 224 00:11:50,080 --> 00:11:51,800 Speaker 2: of a bill weather for the Yuba's economy. 225 00:11:52,000 --> 00:11:52,840 Speaker 8: Yeah, tarriff. 226 00:11:52,920 --> 00:11:55,760 Speaker 7: Also, you're right is a key risk and used inventory 227 00:11:56,000 --> 00:12:00,000 Speaker 7: overhang because there's an elevated use tractor inventories which can 228 00:12:00,000 --> 00:12:02,120 Speaker 7: continue to weigh a new equipment demand in pricing. I 229 00:12:02,120 --> 00:12:06,280 Speaker 7: guess where do you store these things? They're so gigantic and. 230 00:12:06,240 --> 00:12:09,280 Speaker 2: They're trust me, they're expensive too. I can imagine I 231 00:12:09,280 --> 00:12:13,600 Speaker 2: know from firsthand experience. Wow, Isabelle, thank you for showing 232 00:12:13,640 --> 00:12:16,840 Speaker 2: up today. Appreciate it. Isabelle Lee is our Bloomberg Cross 233 00:12:16,880 --> 00:12:20,240 Speaker 2: asset reporter. Coming up on Bloomberg day Break weekend, we're 234 00:12:20,280 --> 00:12:22,680 Speaker 2: going to take a look at the upcoming earnings test 235 00:12:22,800 --> 00:12:27,240 Speaker 2: for Europe's low cost airlines. I'm John Tucker, and this 236 00:12:27,600 --> 00:12:42,199 Speaker 2: is Bloomberg. This is Bloomberg day Break weekend to our 237 00:12:42,240 --> 00:12:44,600 Speaker 2: global look ahead at the top stories for investors in 238 00:12:44,600 --> 00:12:47,160 Speaker 2: the coming week. I'm John Tucker in New York. Up 239 00:12:47,240 --> 00:12:49,120 Speaker 2: later in the program, we're going to look ahead to 240 00:12:49,200 --> 00:12:54,000 Speaker 2: some key economic data in Japan. But first, Europe's largest 241 00:12:54,000 --> 00:12:57,200 Speaker 2: low cost airlines report earnings in the coming days. And 242 00:12:57,240 --> 00:13:00,240 Speaker 2: this comes against a backdrop of rising ut certainly jet 243 00:13:00,280 --> 00:13:02,959 Speaker 2: fuel costs driven by the war in Iran. Let's get 244 00:13:02,960 --> 00:13:06,520 Speaker 2: more now from Bloomberg Daybreak Europe anchor Caroline Hepger. 245 00:13:06,559 --> 00:13:10,120 Speaker 3: John, we will get into an uncertain airline business as 246 00:13:10,160 --> 00:13:13,920 Speaker 3: we approach peak travel season here in Europe. Willie Walsh, 247 00:13:14,000 --> 00:13:17,400 Speaker 3: the industry veteran of the Director General of the International 248 00:13:17,440 --> 00:13:22,000 Speaker 3: Air Transport Association, has worn recently that airlines can't keep 249 00:13:22,080 --> 00:13:25,960 Speaker 3: absorbing the additional costs that they're seeing. The war in Iran, 250 00:13:26,000 --> 00:13:31,200 Speaker 3: which began in February, has upended the industry. London's Teithow Airport, 251 00:13:31,200 --> 00:13:33,920 Speaker 3: one of the major hubs in Europe reported a drop 252 00:13:33,960 --> 00:13:37,400 Speaker 3: in passenger numbers in April of five point three percent 253 00:13:37,440 --> 00:13:40,559 Speaker 3: from a year earlier, and that's down to six point 254 00:13:40,640 --> 00:13:44,679 Speaker 3: seven million passengers. As the Middle East war has disrupted 255 00:13:44,679 --> 00:13:48,760 Speaker 3: global air travel. The airport's CEO called it though a 256 00:13:48,960 --> 00:13:53,640 Speaker 3: short term disruption now. Bloomberg Intelligence forecasts that the big 257 00:13:53,679 --> 00:13:58,600 Speaker 3: European carriers like IAG and Air France CARELM are going 258 00:13:58,640 --> 00:14:01,600 Speaker 3: to see their fuel costs go up by twenty seven 259 00:14:01,640 --> 00:14:05,000 Speaker 3: percent for LIFTANND so that figure is twenty two percent 260 00:14:05,040 --> 00:14:09,840 Speaker 3: for twenty twenty six, so creating a big challenge for profitability. 261 00:14:10,480 --> 00:14:13,719 Speaker 3: Others cast doubt on the risk of jet fuel shortages, 262 00:14:13,800 --> 00:14:18,120 Speaker 3: seeing them as an excuse to cut unprofitable flights of 263 00:14:18,200 --> 00:14:22,200 Speaker 3: the low cost carriers reporting in the next week or so. 264 00:14:22,360 --> 00:14:27,360 Speaker 3: Ryanair is relatively well protected by fuel hedging, but it 265 00:14:27,400 --> 00:14:32,440 Speaker 3: remains exposed to potential supply disruptions and pressure on consumer spending. 266 00:14:33,040 --> 00:14:35,840 Speaker 3: Easy Jet meanwhile has warned that the war in the 267 00:14:35,840 --> 00:14:39,600 Speaker 3: Middle East will widen its first half loss and weigh 268 00:14:39,720 --> 00:14:44,520 Speaker 3: on summer demand. Overall, investors will be watching very closely 269 00:14:44,800 --> 00:14:48,280 Speaker 3: for further cuts to full year guidance for both of 270 00:14:48,360 --> 00:14:49,360 Speaker 3: these airlines. 271 00:14:49,880 --> 00:14:50,000 Speaker 5: Well. 272 00:14:50,080 --> 00:14:53,800 Speaker 3: Joining us now is Danny Lee, Aviation and transport reporter 273 00:14:53,920 --> 00:14:57,120 Speaker 3: based in Asia. Danny good to speak to you how 274 00:14:57,200 --> 00:15:01,160 Speaker 3: much is air travel currently being affected by the impact 275 00:15:01,480 --> 00:15:04,400 Speaker 3: of wars Well Caroline. 276 00:15:04,440 --> 00:15:08,000 Speaker 5: The airline industry is grappling with a more than doubling 277 00:15:08,000 --> 00:15:11,800 Speaker 5: in fuel costs and the counting of that cost is 278 00:15:11,920 --> 00:15:16,200 Speaker 5: resulting in multiples of billions and higher fuel bills. And 279 00:15:16,640 --> 00:15:20,000 Speaker 5: right now we've only seen a fraction of that be 280 00:15:20,360 --> 00:15:23,840 Speaker 5: reported by the airline industry through at least one month 281 00:15:23,920 --> 00:15:27,000 Speaker 5: of earnings that has filtered through. But it's now into 282 00:15:27,000 --> 00:15:29,680 Speaker 5: the second and the third quarter where we are seeing 283 00:15:29,920 --> 00:15:33,160 Speaker 5: the volatility and the surge and jet fuel costs which 284 00:15:33,200 --> 00:15:37,640 Speaker 5: is absolutely wrecking airline balance sheets across the piece, and 285 00:15:37,880 --> 00:15:41,240 Speaker 5: in particular, when you see airlines grappling with higher fuel costs, 286 00:15:41,480 --> 00:15:45,240 Speaker 5: they are now thinking about how they can mitigate those losses, 287 00:15:45,320 --> 00:15:48,240 Speaker 5: in particular having to cut the number of flights they 288 00:15:48,240 --> 00:15:50,920 Speaker 5: operate because simply there are flights out there which are 289 00:15:51,080 --> 00:15:53,880 Speaker 5: just not profitable. So there is a balance to be 290 00:15:53,960 --> 00:16:00,280 Speaker 5: brought between operating profitably and being being generally conserved. Even 291 00:16:00,440 --> 00:16:04,040 Speaker 5: how they approach this, this ongoing war we have seen 292 00:16:05,080 --> 00:16:07,480 Speaker 5: stretching into almost three months now, and this is a 293 00:16:07,560 --> 00:16:10,680 Speaker 5: challenge for aliens. How do they grapple with a surge 294 00:16:10,680 --> 00:16:13,800 Speaker 5: and fuel costs and when they have to pass on 295 00:16:13,840 --> 00:16:17,520 Speaker 5: the alans have to pass on the costs onto customers. 296 00:16:17,720 --> 00:16:20,560 Speaker 5: How much are passengers willing to bear? And this is 297 00:16:20,600 --> 00:16:23,000 Speaker 5: a challenge for airlines to figure out, and particularly if 298 00:16:23,000 --> 00:16:26,120 Speaker 5: your low cost carrier, where you are trying to stimulate 299 00:16:26,160 --> 00:16:29,200 Speaker 5: demand with lower prices, all of a sudden those prices 300 00:16:29,200 --> 00:16:30,080 Speaker 5: become a lot higher. 301 00:16:30,600 --> 00:16:33,200 Speaker 3: Yeah, So then what do we expect to hear from 302 00:16:33,320 --> 00:16:36,240 Speaker 3: Ryan Air an easy Jet in terms of their results, 303 00:16:36,280 --> 00:16:39,920 Speaker 3: because they are obviously the big low cost carriers in Europe. 304 00:16:40,200 --> 00:16:43,480 Speaker 5: Yeah, easy Jet has already braced investors for bad news. 305 00:16:43,920 --> 00:16:46,800 Speaker 5: So the UK low cost carrier expects a headline loss 306 00:16:46,840 --> 00:16:49,080 Speaker 5: of between five hundred and forty to five hundred and 307 00:16:49,040 --> 00:16:52,560 Speaker 5: sixty million pounds. It tends to be the weaker period, 308 00:16:53,200 --> 00:16:55,520 Speaker 5: those first six months of the year, and it's the 309 00:16:56,240 --> 00:16:58,440 Speaker 5: earnings period which captures only a month of the year 310 00:16:58,520 --> 00:17:01,560 Speaker 5: round war. But so far the airline says it has 311 00:17:01,600 --> 00:17:04,320 Speaker 5: added twenty five million pounds to its fuel bill. So 312 00:17:04,359 --> 00:17:07,600 Speaker 5: as volatility in Jeff does settle down a little bit, 313 00:17:08,320 --> 00:17:10,480 Speaker 5: it's still going to be more than counting the costs. 314 00:17:10,560 --> 00:17:12,760 Speaker 5: That doubling of costs of pressure is only going to 315 00:17:12,760 --> 00:17:15,000 Speaker 5: be felt in the later quarters. And I think it's 316 00:17:15,000 --> 00:17:18,840 Speaker 5: that kind of clarity from CEO Kent and Javis which 317 00:17:19,240 --> 00:17:23,760 Speaker 5: we'll be able to understand just what impact the Iran 318 00:17:23,840 --> 00:17:27,000 Speaker 5: war is having on the likes of the locals Carricer 319 00:17:27,119 --> 00:17:30,840 Speaker 5: and easy Jet in particular, because they just cannot pass 320 00:17:30,880 --> 00:17:34,680 Speaker 5: on the full amount of higher jet field costs on 321 00:17:34,720 --> 00:17:37,680 Speaker 5: to price sensitive passengers. So I think the key question 322 00:17:37,840 --> 00:17:40,800 Speaker 5: is how much is that down arrow story going to 323 00:17:40,840 --> 00:17:46,480 Speaker 5: extend into its kind of forecasts in future and how 324 00:17:46,560 --> 00:17:48,440 Speaker 5: will it be able to recoup as much of the 325 00:17:48,600 --> 00:17:51,520 Speaker 5: fares as it can pay airlines and not able to 326 00:17:51,520 --> 00:17:53,479 Speaker 5: do it so much in the near term, but it's 327 00:17:53,520 --> 00:17:55,119 Speaker 5: towards the later end of view that they will be 328 00:17:55,160 --> 00:17:57,639 Speaker 5: able to. As for Ryan, it will post its for 329 00:17:57,800 --> 00:18:00,880 Speaker 5: year earnings and it has already guided towards very healthy 330 00:18:01,720 --> 00:18:05,440 Speaker 5: profit architects of two point three billion euro But Riina 331 00:18:05,520 --> 00:18:08,880 Speaker 5: has been cautious in the large about its full year 332 00:18:08,880 --> 00:18:14,399 Speaker 5: targets and whether its fiscal year ahead will change materially 333 00:18:14,520 --> 00:18:17,840 Speaker 5: in terms of how it's thinking about demand, the amount 334 00:18:17,880 --> 00:18:21,400 Speaker 5: of flight to operate and even being able to carry 335 00:18:21,440 --> 00:18:25,239 Speaker 5: as mess and many passengers that can. However, just like 336 00:18:25,320 --> 00:18:28,680 Speaker 5: with easy Jet Rhine, they may well be beneficiaries from 337 00:18:28,680 --> 00:18:31,280 Speaker 5: the war in as much as the fact that passengers 338 00:18:31,280 --> 00:18:34,159 Speaker 5: may not choose to fly long haul because of the 339 00:18:34,240 --> 00:18:37,840 Speaker 5: costs and because of various other risk factors and may 340 00:18:37,880 --> 00:18:40,800 Speaker 5: stick to Europe. So this could still be an upside 341 00:18:40,840 --> 00:18:44,359 Speaker 5: momentum when people think about booking their travels this summer 342 00:18:44,400 --> 00:18:44,959 Speaker 5: and beyond. 343 00:18:45,880 --> 00:18:48,800 Speaker 3: Yes, I think that's really interesting. I mean, consumers in 344 00:18:48,880 --> 00:18:51,760 Speaker 3: many parts of the world are under a lot of pressure, 345 00:18:51,800 --> 00:18:54,560 Speaker 3: aren't they. So what do you think the airlines are 346 00:18:54,560 --> 00:18:58,480 Speaker 3: going to say about summer bookings? As you know, consumers 347 00:18:58,880 --> 00:19:04,159 Speaker 3: are facing her petrol prices inflation affecting lots of goods 348 00:19:04,200 --> 00:19:06,560 Speaker 3: that they might be buying, including holidays. 349 00:19:07,160 --> 00:19:10,960 Speaker 5: Well, the airline industry by and large has seen that 350 00:19:11,200 --> 00:19:15,160 Speaker 5: level of demand keep up with pace, and so airlines 351 00:19:15,160 --> 00:19:19,720 Speaker 5: are seeing booking levels largely about the same. However, easy 352 00:19:19,800 --> 00:19:25,280 Speaker 5: Jet has worn that the conflict situation has resulted in 353 00:19:25,720 --> 00:19:30,199 Speaker 5: a kind of denting of booking's momentum, So they are 354 00:19:30,240 --> 00:19:32,200 Speaker 5: seeing a little bit of a hit easy Jet, And 355 00:19:32,280 --> 00:19:35,920 Speaker 5: I think the question is does that continue, so that 356 00:19:35,920 --> 00:19:38,320 Speaker 5: would be very key for the CEO Kenson Javis to 357 00:19:38,359 --> 00:19:41,720 Speaker 5: spell out. But also that kind of elasticity really the 358 00:19:42,320 --> 00:19:45,960 Speaker 5: ability for customers to be willing to pay more off 359 00:19:46,000 --> 00:19:50,240 Speaker 5: for airfas because ultimately the higher oil prices doesn't just 360 00:19:50,280 --> 00:19:54,080 Speaker 5: affect airfares, It affects a whole facet of the economy 361 00:19:54,320 --> 00:19:57,639 Speaker 5: and for households from goods to services, particularly into the 362 00:19:57,680 --> 00:20:01,439 Speaker 5: shopping baskets, So that extra cost is coming everywhere, and 363 00:20:01,520 --> 00:20:04,240 Speaker 5: I think people will be thinking about what do they 364 00:20:04,240 --> 00:20:06,040 Speaker 5: prioritize in spending in the near term. 365 00:20:07,160 --> 00:20:11,480 Speaker 3: What is the state of jet fuel supplies? Are the 366 00:20:11,520 --> 00:20:16,320 Speaker 3: shortages real? Are they particularly affecting Europe? I know where 367 00:20:16,359 --> 00:20:20,520 Speaker 3: you are in Asia, it's been a very pointed issue. 368 00:20:21,280 --> 00:20:24,560 Speaker 5: Yeah, the jet fuel shortage is still a live and 369 00:20:24,680 --> 00:20:28,000 Speaker 5: real issue. We've heard a lot from airlines talking about 370 00:20:28,440 --> 00:20:33,120 Speaker 5: being covered in jet fuel needs for March, April, May 371 00:20:33,240 --> 00:20:37,160 Speaker 5: into June, but there is limited visibility and given the 372 00:20:37,200 --> 00:20:40,600 Speaker 5: Straits of hor Moos is still largely blocked to an 373 00:20:40,640 --> 00:20:44,399 Speaker 5: extent a pre key critical waterway. You know, there's been 374 00:20:44,400 --> 00:20:46,960 Speaker 5: a lot of scrambling to find all terms of sources, 375 00:20:47,040 --> 00:20:50,320 Speaker 5: particularly from the US. We haven't really heard too much 376 00:20:50,400 --> 00:20:54,760 Speaker 5: more in terms of deep concerns that airlines have we 377 00:20:54,920 --> 00:20:58,600 Speaker 5: already have seen out and start to cut schedules just 378 00:20:58,680 --> 00:21:02,040 Speaker 5: to make sure that where they're there are more challenged 379 00:21:02,440 --> 00:21:06,400 Speaker 5: airports where fuel supply maybe a question, they will focus 380 00:21:06,200 --> 00:21:10,720 Speaker 5: on a higher priority bookings and airports where there is 381 00:21:10,840 --> 00:21:13,600 Speaker 5: bigger business. I don't think we've seen too much more 382 00:21:13,640 --> 00:21:17,040 Speaker 5: in terms of shortage concerns out there, but as we 383 00:21:17,080 --> 00:21:20,480 Speaker 5: get into the peak summer season that dynamic may start 384 00:21:20,520 --> 00:21:22,639 Speaker 5: to change a little bit more. But the Europe and 385 00:21:22,720 --> 00:21:25,920 Speaker 5: Asia are the big areas to watch when it comes 386 00:21:25,920 --> 00:21:29,160 Speaker 5: to fuel availability because of the reliance of the imports 387 00:21:29,240 --> 00:21:29,960 Speaker 5: of jet fuel. 388 00:21:31,440 --> 00:21:35,320 Speaker 3: What about the cost of flying? We know that consumers 389 00:21:35,320 --> 00:21:39,879 Speaker 3: are thinking about this. If you look at surveys of consumers, 390 00:21:40,240 --> 00:21:43,200 Speaker 3: what are we actually seeing in terms of ticket prices? 391 00:21:44,440 --> 00:21:47,119 Speaker 5: Well, ticket prices are going up by and large, and 392 00:21:48,000 --> 00:21:53,119 Speaker 5: some industry surveys point to a doubling of airfares and 393 00:21:53,200 --> 00:21:57,040 Speaker 5: even in the recent months so into May and June 394 00:21:57,400 --> 00:22:02,040 Speaker 5: that fair airfare is about fifty sent higher then from 395 00:22:02,040 --> 00:22:04,439 Speaker 5: then last year. Because of what we have seen with 396 00:22:04,600 --> 00:22:09,159 Speaker 5: the around more impact on jet fuel prices, on the 397 00:22:09,200 --> 00:22:13,920 Speaker 5: disruption in demand, because of the impact in the Middle East, 398 00:22:14,000 --> 00:22:18,080 Speaker 5: so there is seeming a tendency that airfares will stay 399 00:22:18,160 --> 00:22:21,160 Speaker 5: higher for longer. Not great, but at the same time, 400 00:22:21,440 --> 00:22:25,639 Speaker 5: airlines still feel fairly optimistic in the near to longer 401 00:22:25,720 --> 00:22:29,520 Speaker 5: term about or midterm about passengers still wanting to travel, 402 00:22:29,600 --> 00:22:32,359 Speaker 5: that level of demand out there, and so therefore we 403 00:22:32,400 --> 00:22:36,160 Speaker 5: are still seeing airlines looking at expansion, and so therefore 404 00:22:36,640 --> 00:22:40,800 Speaker 5: that level of expansion will feed into stimulating more bookings. However, 405 00:22:41,680 --> 00:22:44,760 Speaker 5: there is still that challenge of filling those flights at 406 00:22:44,800 --> 00:22:48,640 Speaker 5: those relatively higher prices, and I think airlines are still 407 00:22:48,640 --> 00:22:51,719 Speaker 5: going to be grappling with that level of price sensitivity overall, 408 00:22:51,760 --> 00:22:54,679 Speaker 5: because at some point and passengers will say we're not 409 00:22:54,680 --> 00:22:57,520 Speaker 5: going to be paying this price, and whether they try 410 00:22:57,560 --> 00:22:59,920 Speaker 5: to look for a cheaper alternative or just not fly 411 00:23:00,080 --> 00:23:03,320 Speaker 5: at all or delay their travel. It remains a big question. 412 00:23:03,800 --> 00:23:05,880 Speaker 5: As we move into the latter part of a year. 413 00:23:07,280 --> 00:23:10,800 Speaker 3: What do you think might come out of this energy 414 00:23:11,240 --> 00:23:14,240 Speaker 3: kind of impact. Do you think there'll be fewer airlines, 415 00:23:14,280 --> 00:23:16,840 Speaker 3: fewer routes or is that too simplistic. 416 00:23:17,920 --> 00:23:21,760 Speaker 5: There may well be a consolidation. We are already seeing 417 00:23:22,200 --> 00:23:26,480 Speaker 5: consolidation that has been the case pre war, particularly in Europe, 418 00:23:26,560 --> 00:23:31,119 Speaker 5: Asia and in the US. But as the cost of 419 00:23:31,119 --> 00:23:34,560 Speaker 5: offline becomes more expensive for airlines, we have already seen 420 00:23:34,600 --> 00:23:37,920 Speaker 5: the likes of Spirit airlines go down. Will there be others. 421 00:23:38,040 --> 00:23:41,080 Speaker 5: It's still too early to tell to see which airlines 422 00:23:41,520 --> 00:23:46,320 Speaker 5: may not survive at this stage, but there is a 423 00:23:46,440 --> 00:23:50,800 Speaker 5: very much concerted effort to see airlines which have a 424 00:23:50,920 --> 00:23:55,800 Speaker 5: better war chest, who are better capitalized, are looking at 425 00:23:55,880 --> 00:24:01,000 Speaker 5: taking advantage of weaker airlines, and as result we may 426 00:24:01,000 --> 00:24:04,959 Speaker 5: see consolidation, we may see some trimming as a result. 427 00:24:05,000 --> 00:24:07,800 Speaker 5: But I think airlines overall, where they have the opportunity 428 00:24:07,800 --> 00:24:11,000 Speaker 5: to make money and it still does and they can 429 00:24:11,560 --> 00:24:15,879 Speaker 5: have that overall connectivity within their network of flights, they 430 00:24:15,920 --> 00:24:19,760 Speaker 5: will all stick around and overall that level of competition 431 00:24:19,800 --> 00:24:23,000 Speaker 5: will become even more intense as their stronger airlines look 432 00:24:23,000 --> 00:24:24,160 Speaker 5: to become even stronger. 433 00:24:25,280 --> 00:24:27,920 Speaker 3: Danny, very interesting, Thank you so much for your time. 434 00:24:28,080 --> 00:24:32,240 Speaker 3: Danly Lee is aviation and transport reporter here at Bloomberg 435 00:24:32,320 --> 00:24:35,200 Speaker 3: base in Asia. My thanks to him, and of course 436 00:24:35,280 --> 00:24:38,280 Speaker 3: we'll have more coverage of Ryanair's results to you on 437 00:24:38,359 --> 00:24:41,320 Speaker 3: the eighteenth of May and Easyjets earnings on the twenty 438 00:24:41,359 --> 00:24:44,800 Speaker 3: first of May. On Bloomberg Radio and across our platforms. 439 00:24:45,000 --> 00:24:47,080 Speaker 3: I'm Caroline Hebger here in London. You can catch us 440 00:24:47,080 --> 00:24:49,879 Speaker 3: every weekday morning for Bloomberg Daybreak you at beginning at 441 00:24:49,920 --> 00:24:52,679 Speaker 3: six am in London. That's one am on Wall Street. 442 00:24:52,840 --> 00:24:56,160 Speaker 2: John all right, thanks Caroline, and coming up on Bloomberg 443 00:24:56,200 --> 00:24:59,359 Speaker 2: Daybreak Weekend. I'll look it here into a GDP reading 444 00:24:59,400 --> 00:25:13,280 Speaker 2: for Japan. I'm John Tucker, and this is Bloomberg. This 445 00:25:13,560 --> 00:25:16,560 Speaker 2: is Bloomberg Daybreak Weekend, our global look ahead of the 446 00:25:16,640 --> 00:25:19,200 Speaker 2: top stories for investors in the coming week. I'm John 447 00:25:19,240 --> 00:25:22,080 Speaker 2: Tucker in New York. We go to Japan next, where 448 00:25:22,119 --> 00:25:24,919 Speaker 2: the economy is expected a rebound of the first quarter, 449 00:25:25,240 --> 00:25:28,080 Speaker 2: and for more, let's go to Bloomberg's Doug Krisner, the 450 00:25:28,200 --> 00:25:30,639 Speaker 2: host of the Daybreak Asia podcast. 451 00:25:31,240 --> 00:25:34,760 Speaker 4: Thanks John. The Japanese economy is expected to have grown 452 00:25:34,800 --> 00:25:37,199 Speaker 4: at an annual rate of around one point eight percent 453 00:25:37,359 --> 00:25:40,439 Speaker 4: in the first quarter. Now, this will be a preliminary reading, 454 00:25:40,480 --> 00:25:43,000 Speaker 4: and if it were to hold, that would make for 455 00:25:43,080 --> 00:25:47,679 Speaker 4: a second consecutive quarter of economic expansion in Japan. To 456 00:25:47,760 --> 00:25:50,439 Speaker 4: help us understand the dynamics at play, let's bring in 457 00:25:50,480 --> 00:25:55,680 Speaker 4: Bloomberg's Paul Jackson. Paul is ECO GOV for Japan and Korea. 458 00:25:56,000 --> 00:25:58,879 Speaker 4: He is the team leader joining from the Japanese capital. 459 00:25:58,960 --> 00:26:02,480 Speaker 4: Thank you, sir for joining us. One of the things 460 00:26:02,800 --> 00:26:04,840 Speaker 4: that we have to touch and I think to begin with, 461 00:26:05,000 --> 00:26:06,880 Speaker 4: is the fact that the war in Iran is having 462 00:26:06,880 --> 00:26:10,040 Speaker 4: a great deal of impact on the Japanese economy right now. 463 00:26:10,480 --> 00:26:12,920 Speaker 4: Now we know that it began in late February, so 464 00:26:13,520 --> 00:26:16,600 Speaker 4: the impact on Q one will be limited only felt 465 00:26:16,600 --> 00:26:19,880 Speaker 4: for the month of March. Obviously, this is very much 466 00:26:19,920 --> 00:26:24,480 Speaker 4: as oil story, which leads us to inflation even before 467 00:26:24,520 --> 00:26:27,320 Speaker 4: the war. Can we agree, Paul, that Japan was dealing 468 00:26:27,359 --> 00:26:31,240 Speaker 4: with much higher inflation and a stubbornly weak currency is 469 00:26:31,280 --> 00:26:32,480 Speaker 4: a big reason why. 470 00:26:32,800 --> 00:26:37,440 Speaker 9: I think the inflation story in Japan that's been taking 471 00:26:37,480 --> 00:26:40,840 Speaker 9: place over the last three or four years has been 472 00:26:41,040 --> 00:26:45,480 Speaker 9: a generational change for the nation. And then you have 473 00:26:46,240 --> 00:26:51,000 Speaker 9: another war emerging starting. Obviously we had the Ukraine War 474 00:26:51,080 --> 00:26:54,560 Speaker 9: few years, but the start of that launched a wave 475 00:26:54,640 --> 00:26:58,240 Speaker 9: of inflation, and the latest war is going to do 476 00:26:58,280 --> 00:27:02,400 Speaker 9: the same. And you know, those higher oil prices, we're 477 00:27:02,440 --> 00:27:08,359 Speaker 9: already seeing the impact of that on like producer prices. 478 00:27:08,920 --> 00:27:12,880 Speaker 9: We recently had data showing four point nine percent increase 479 00:27:13,320 --> 00:27:16,320 Speaker 9: there has been the highest in like three or four 480 00:27:16,400 --> 00:27:20,120 Speaker 9: years there, So that means inflation is going to be 481 00:27:20,560 --> 00:27:24,400 Speaker 9: heating up, and the Bank of Japan has already revised 482 00:27:24,480 --> 00:27:26,560 Speaker 9: up its forecasts on that expectation. 483 00:27:26,920 --> 00:27:29,879 Speaker 4: So to go back to the GDP report, private consumption 484 00:27:29,960 --> 00:27:34,720 Speaker 4: accounts for roughly fifty five percent of domestic output in Japan. 485 00:27:34,920 --> 00:27:37,680 Speaker 4: When you talk about higher prices, do you think it's 486 00:27:37,720 --> 00:27:40,320 Speaker 4: going to have held back private consumption? 487 00:27:40,960 --> 00:27:44,280 Speaker 9: I think this is really one of the key points 488 00:27:44,359 --> 00:27:47,720 Speaker 9: of you know, examining Japan's economy at the moment. It's 489 00:27:48,119 --> 00:27:53,080 Speaker 9: it's this new concept of inflation, prices going up, and 490 00:27:53,240 --> 00:27:57,360 Speaker 9: can consumers adjust to that. And we have seen gradual 491 00:27:57,840 --> 00:28:01,800 Speaker 9: strengthening of consumption and as people get used to the 492 00:28:01,880 --> 00:28:04,439 Speaker 9: idea that prices can go up, you don't have to 493 00:28:04,480 --> 00:28:07,680 Speaker 9: put everything on hold because of a bit of inflation. 494 00:28:08,119 --> 00:28:13,040 Speaker 9: But Doug, the overall picture is that that consumption part 495 00:28:13,160 --> 00:28:16,080 Speaker 9: of the economy is still on the weak side. It's 496 00:28:16,119 --> 00:28:20,280 Speaker 9: still on the limp side, and we're expecting probably one 497 00:28:20,320 --> 00:28:25,120 Speaker 9: of the weakest readings in recent quarters on the consumption side. 498 00:28:25,160 --> 00:28:29,639 Speaker 9: Still positive, but this is not the kind of figure 499 00:28:29,640 --> 00:28:36,040 Speaker 9: that's showing that Japanese consumers are totally on board with inflation. 500 00:28:36,080 --> 00:28:38,800 Speaker 9: They've got it and they're spending again. That is not 501 00:28:38,920 --> 00:28:39,760 Speaker 9: the case at the moment. 502 00:28:39,880 --> 00:28:42,400 Speaker 4: So give me a sense of how the export economy 503 00:28:42,600 --> 00:28:45,680 Speaker 4: performed in Q one. Obviously, we have the US tearuffs, 504 00:28:46,360 --> 00:28:50,080 Speaker 4: the auto related industries in Japan have been affected by that, 505 00:28:50,240 --> 00:28:53,160 Speaker 4: and then there has been can we call it a 506 00:28:53,280 --> 00:28:57,320 Speaker 4: deterioration of diplomatic relations between Tokyo and Beijing, and that 507 00:28:57,400 --> 00:29:00,000 Speaker 4: may have weighed on the tourism industry. 508 00:29:00,240 --> 00:29:00,400 Speaker 5: Bit. 509 00:29:00,760 --> 00:29:04,760 Speaker 9: Yeah, that's right. We've got all those issues weighing on trade. 510 00:29:04,800 --> 00:29:08,880 Speaker 9: So you would expect that the figures don't look too good, 511 00:29:08,920 --> 00:29:13,280 Speaker 9: but actually the figures have been looking pretty good, pretty strong, 512 00:29:13,600 --> 00:29:18,000 Speaker 9: and the reason for that is this global surge in 513 00:29:18,480 --> 00:29:22,400 Speaker 9: demand related to AI. And I think if you look 514 00:29:22,440 --> 00:29:26,800 Speaker 9: at like exports out of Japan in March, they're up 515 00:29:27,000 --> 00:29:32,000 Speaker 9: nearly twelve percent and largely fueled by thirty percent growth 516 00:29:32,400 --> 00:29:36,080 Speaker 9: in chip exports. And we're saying in countries all through 517 00:29:36,160 --> 00:29:40,320 Speaker 9: Asia this trend, I mean, especially over in South Korea, 518 00:29:40,680 --> 00:29:44,080 Speaker 9: just you know, large gains in the tech sector and 519 00:29:44,240 --> 00:29:49,960 Speaker 9: chips as economies look to feed this incredible surge of demand, 520 00:29:50,280 --> 00:29:53,880 Speaker 9: which you could say is kind of masking you know, 521 00:29:54,040 --> 00:29:58,240 Speaker 9: larger problems lurking in the global economy and in Japan too. 522 00:29:58,760 --> 00:30:01,120 Speaker 4: So what was the role that the government may have 523 00:30:01,280 --> 00:30:04,800 Speaker 4: played in Q one when we think of public investment. 524 00:30:04,960 --> 00:30:07,520 Speaker 4: Was there a lot of government a lot of fiscal spending. 525 00:30:08,840 --> 00:30:12,960 Speaker 9: Well, I think we've got in terms of reacting to 526 00:30:13,080 --> 00:30:16,600 Speaker 9: the inflation story, which is now we're going to see 527 00:30:16,720 --> 00:30:22,760 Speaker 9: elevated energy prices through this war, that the government is 528 00:30:22,840 --> 00:30:28,400 Speaker 9: taking action to subsidize energy, and this is going to 529 00:30:28,720 --> 00:30:33,000 Speaker 9: lead to more spending. So I think, really, rather than 530 00:30:33,040 --> 00:30:37,000 Speaker 9: looking at Q one, it's kind of looking ahead. This 531 00:30:37,200 --> 00:30:41,880 Speaker 9: is a big question mark hanging over Takchi primary Takhi's 532 00:30:41,920 --> 00:30:46,080 Speaker 9: administration because she's kind of put a marker out there 533 00:30:46,120 --> 00:30:48,240 Speaker 9: saying we're not going to run Japan in the same 534 00:30:48,280 --> 00:30:50,960 Speaker 9: way as before. We're not going to have extra budget 535 00:30:51,000 --> 00:30:54,760 Speaker 9: after extra budget. As she tries to reassure markets that 536 00:30:55,480 --> 00:31:00,560 Speaker 9: her kind of expansionary approach to fiscal policy isn't going 537 00:31:00,600 --> 00:31:05,240 Speaker 9: to buckle yields, buckle the bond markets and scare everyone. 538 00:31:05,560 --> 00:31:08,040 Speaker 9: The problem she's going to have is that if you 539 00:31:08,160 --> 00:31:13,800 Speaker 9: subsidize energy, you are going to run out of reserve funds, 540 00:31:14,120 --> 00:31:17,880 Speaker 9: which mean at some point she may have to have 541 00:31:17,920 --> 00:31:21,280 Speaker 9: an early extra budget and that's going to be a 542 00:31:21,400 --> 00:31:24,800 Speaker 9: very bad look for her and could spoop markets going ahead. 543 00:31:24,920 --> 00:31:28,880 Speaker 9: But so far their standing firm saying no extra budget 544 00:31:28,960 --> 00:31:31,680 Speaker 9: is needed. But that is a point to be watching 545 00:31:31,840 --> 00:31:32,760 Speaker 9: over the coming month. 546 00:31:32,960 --> 00:31:35,200 Speaker 4: So as we're looking ahead just a bit. I know 547 00:31:35,280 --> 00:31:37,920 Speaker 4: that a lot of our conversation has focused on Q 548 00:31:38,000 --> 00:31:41,360 Speaker 4: one GDP, but let's look ahead. Given the fact that 549 00:31:41,400 --> 00:31:44,840 Speaker 4: you mentioned PPI in the latest reading was the highest 550 00:31:44,880 --> 00:31:48,080 Speaker 4: I think since twenty twenty three, so that obviously everything 551 00:31:48,560 --> 00:31:52,680 Speaker 4: fueling this inflation narrative. Does that necessarily mean that the 552 00:31:52,720 --> 00:31:55,800 Speaker 4: Bank of Japan is at risk of being behind the 553 00:31:55,880 --> 00:31:59,840 Speaker 4: curve in terms of tightening and will we necessarily see 554 00:31:59,880 --> 00:32:01,080 Speaker 4: a rate hike in June. 555 00:32:01,480 --> 00:32:05,960 Speaker 9: Well, we've just had Treasury Secretary at Scott Besant in Tokyo, 556 00:32:06,400 --> 00:32:10,000 Speaker 9: and he's one of the leading voices out there saying 557 00:32:10,040 --> 00:32:12,600 Speaker 9: that the Bank of Japan certainly is at risk of 558 00:32:12,640 --> 00:32:17,000 Speaker 9: falling behind the curve. And I think the takeaway from 559 00:32:17,480 --> 00:32:22,560 Speaker 9: his meeting with officials here is he kept re emphasizing 560 00:32:22,600 --> 00:32:26,640 Speaker 9: the message that the fundamentals of Japan's economy are strong. 561 00:32:27,160 --> 00:32:30,080 Speaker 9: So what's the takeaway from that Doug, Well, if you've 562 00:32:30,120 --> 00:32:34,720 Speaker 9: got a pretty positive GDP reading, you've got American officials 563 00:32:35,640 --> 00:32:40,120 Speaker 9: honing in on Japan's strong at the moment. All this 564 00:32:40,360 --> 00:32:44,560 Speaker 9: points to the idea that, hey, you should raise your 565 00:32:44,560 --> 00:32:47,320 Speaker 9: interest rates and you should get on with it. And 566 00:32:47,400 --> 00:32:50,480 Speaker 9: I think if you look at market expectations, you will 567 00:32:50,480 --> 00:32:54,960 Speaker 9: see that there's more than seventy five percent chance of 568 00:32:55,000 --> 00:32:58,480 Speaker 9: a rate hike coming in June. And just recently we 569 00:32:58,560 --> 00:33:02,440 Speaker 9: saw one of the more sent trist board members on 570 00:33:02,480 --> 00:33:07,080 Speaker 9: the Bankagapan board saying that we should raise rates as 571 00:33:07,160 --> 00:33:11,040 Speaker 9: soon as possible as long as there's no clear sign 572 00:33:11,560 --> 00:33:13,560 Speaker 9: of weakness in the economy. 573 00:33:14,120 --> 00:33:16,760 Speaker 4: So has that been discounted? Do you think by the 574 00:33:16,840 --> 00:33:19,800 Speaker 4: currency with a end right around one point fifty eight 575 00:33:19,800 --> 00:33:23,320 Speaker 4: against the green back, does the foreign exchange anticipate a 576 00:33:23,440 --> 00:33:27,040 Speaker 4: move in June? And I'm wondering if the market is 577 00:33:27,080 --> 00:33:30,840 Speaker 4: already adjusting to that notion, maybe more is necessary to 578 00:33:31,160 --> 00:33:32,440 Speaker 4: strengthen the currency a bit. 579 00:33:33,480 --> 00:33:37,080 Speaker 9: I think you're right, Doug, to point out this vulnerability. 580 00:33:37,360 --> 00:33:42,280 Speaker 9: In the end, as we know, Japan has intervened, and 581 00:33:42,320 --> 00:33:46,640 Speaker 9: this could be multiple times. We're looking at over sixty 582 00:33:46,680 --> 00:33:51,760 Speaker 9: billion dollars worth of intervention so far. By our estimates, 583 00:33:52,680 --> 00:33:55,720 Speaker 9: so they have been trying to prop up the end. 584 00:33:55,960 --> 00:33:59,000 Speaker 9: So the hope would be that if you raise the 585 00:33:59,080 --> 00:34:03,760 Speaker 9: interest rates in June and you give a hawky signal 586 00:34:04,120 --> 00:34:08,240 Speaker 9: about potential further rates to come, that the yen bears 587 00:34:08,320 --> 00:34:11,279 Speaker 9: might start to back off at that point. But I 588 00:34:11,320 --> 00:34:14,359 Speaker 9: think there is a big question mark hanging over how 589 00:34:14,440 --> 00:34:18,600 Speaker 9: convince investors will be that that's the direction we're heading in. 590 00:34:18,840 --> 00:34:21,040 Speaker 4: Paul will leave it there, Thank you so very much, 591 00:34:21,080 --> 00:34:24,840 Speaker 4: Bloomberg's Paul Jackson, team leader for Eco gov coverage for 592 00:34:25,040 --> 00:34:28,880 Speaker 4: Japan and the Koreas we go to earnings news next 593 00:34:28,960 --> 00:34:32,480 Speaker 4: in China, where last week twin tech leaders Ali Baba 594 00:34:32,520 --> 00:34:36,760 Speaker 4: and ten Cent reported revenue well below estimate. Baba recorded 595 00:34:36,800 --> 00:34:39,960 Speaker 4: its first operating law since twenty twenty one, and ten 596 00:34:40,040 --> 00:34:43,600 Speaker 4: Cent reported its slowest pace of revenue growth in over 597 00:34:43,680 --> 00:34:47,600 Speaker 4: a year. Even so, Ali Baba's cloud revenue growth accelerated 598 00:34:47,680 --> 00:34:52,160 Speaker 4: and margins expanded. This helped a fuel optimism for returns 599 00:34:52,520 --> 00:34:55,799 Speaker 4: from Baba's investments in AI. And that's where we begin 600 00:34:55,880 --> 00:34:59,600 Speaker 4: our conversation with Eleanor Leung. Eleanor is head of Asia 601 00:34:59,640 --> 00:35:04,160 Speaker 4: Teleco and Internet Research at CLSAY. She spoke with Bloomberg, 602 00:35:04,239 --> 00:35:05,920 Speaker 4: zivonn Man, and David in Glaze. 603 00:35:06,160 --> 00:35:08,359 Speaker 7: I think my first question is comparing it to market. 604 00:35:08,440 --> 00:35:10,920 Speaker 7: Seems to be happier with Alibab, whether it is with 605 00:35:10,960 --> 00:35:11,600 Speaker 7: ten Cent. 606 00:35:11,680 --> 00:35:16,400 Speaker 10: Relatively quest for much of this year, right, yes, correct, 607 00:35:16,680 --> 00:35:18,840 Speaker 10: We are entering a very exciting moment of the AI 608 00:35:18,880 --> 00:35:22,600 Speaker 10: eras that moving away from model training and to actual 609 00:35:22,680 --> 00:35:26,560 Speaker 10: application and to p monetization is a lot easier compared 610 00:35:26,600 --> 00:35:29,200 Speaker 10: to see. That's why what get people excited is that 611 00:35:29,280 --> 00:35:32,279 Speaker 10: AI cloud, which Barba, is better position for the A 612 00:35:32,520 --> 00:35:35,160 Speaker 10: cloud compared to ten Cent. So I think the last 613 00:35:35,200 --> 00:35:38,400 Speaker 10: port of result on Alibaba, the management given a very 614 00:35:38,400 --> 00:35:42,560 Speaker 10: bullish guidance on their cloud growth. So the external cloud 615 00:35:42,560 --> 00:35:45,560 Speaker 10: revenue already as to forty percent year neargirl in the 616 00:35:45,600 --> 00:35:48,440 Speaker 10: last quarter. They expect that we're further a salt rate 617 00:35:48,760 --> 00:35:53,319 Speaker 10: with noticeable margin expansion. They're so bullish is because they 618 00:35:53,320 --> 00:35:55,400 Speaker 10: think that AI revenue is going to be able to 619 00:35:55,440 --> 00:35:59,200 Speaker 10: grow at a triple digit and contribute more than fifty 620 00:35:59,320 --> 00:36:02,839 Speaker 10: percent of the cloud revenue in one year's time. That 621 00:36:03,120 --> 00:36:07,160 Speaker 10: is driven by MS model as a service, which ramping 622 00:36:07,280 --> 00:36:11,919 Speaker 10: up very quickly in China, which including agentic applications such 623 00:36:11,920 --> 00:36:17,120 Speaker 10: as coding, productivity, generative video tools for the enterprises, and 624 00:36:17,160 --> 00:36:19,920 Speaker 10: they're willing to pay, and they have a chance to 625 00:36:20,080 --> 00:36:23,080 Speaker 10: raise prices now because we are not just model training, 626 00:36:23,120 --> 00:36:26,320 Speaker 10: which is a commoditized service, but now we are able 627 00:36:26,400 --> 00:36:29,600 Speaker 10: to differentiate in capability that we're able to raise prices there. 628 00:36:30,320 --> 00:36:33,080 Speaker 10: So that is driving the cloud growth. And the company 629 00:36:33,160 --> 00:36:37,320 Speaker 10: expect to achieve one hundred billion USD revenue with twenty 630 00:36:37,320 --> 00:36:38,919 Speaker 10: percent monjor in five years time. 631 00:36:39,400 --> 00:36:41,239 Speaker 11: Run us for some of those numbers, right, I was 632 00:36:41,239 --> 00:36:44,440 Speaker 11: looking through that, so they said ten billion REVENBEE in 633 00:36:44,520 --> 00:36:49,600 Speaker 11: terms of AI intelligence services revenue, right, so that's by 634 00:36:49,800 --> 00:36:53,839 Speaker 11: June thirty billion by the end of the year. Are 635 00:36:53,880 --> 00:36:56,919 Speaker 11: those tall orders you think or do you think they'll 636 00:36:56,920 --> 00:36:59,200 Speaker 11: be easy? Easily they can surpass these numbers. 637 00:36:59,320 --> 00:37:02,280 Speaker 10: I think they can surpass the numbers because the demand 638 00:37:02,360 --> 00:37:04,840 Speaker 10: in China is very high. The bottom actual is the 639 00:37:04,920 --> 00:37:08,520 Speaker 10: chip supplies right now, is that the supply is demand 640 00:37:08,600 --> 00:37:11,480 Speaker 10: is far greater compareditor. Surprise, as you know that China 641 00:37:11,520 --> 00:37:14,560 Speaker 10: has a chip constraint because we cannot buy a lot 642 00:37:14,560 --> 00:37:17,600 Speaker 10: of the Nvidia chip. But luckily, starting this year, the 643 00:37:17,680 --> 00:37:20,719 Speaker 10: domestic chip supplies start picking up, so we expect the 644 00:37:20,760 --> 00:37:23,360 Speaker 10: token in China is going to are full times this 645 00:37:23,520 --> 00:37:25,680 Speaker 10: year in China, but all of a seventy percent is 646 00:37:25,840 --> 00:37:29,160 Speaker 10: inference chip demand, and China is going to go one 647 00:37:29,239 --> 00:37:33,799 Speaker 10: hundred percent self sufficient in domestic infance chip, so that 648 00:37:33,920 --> 00:37:37,320 Speaker 10: will help to support the growth. And you're also saying 649 00:37:37,320 --> 00:37:40,080 Speaker 10: that China doesn't really have a SaaS industry in the past, 650 00:37:40,320 --> 00:37:43,680 Speaker 10: meaning that when these agentic applications come through, people jump 651 00:37:43,680 --> 00:37:44,120 Speaker 10: onto it. 652 00:37:44,320 --> 00:37:47,440 Speaker 4: That was Eleanor Leung, head of Asia Telecom and Internet 653 00:37:47,520 --> 00:37:51,600 Speaker 4: Research at CLSA. I'm Doug Krissner. You can catch us 654 00:37:51,600 --> 00:37:55,080 Speaker 4: weekdays for the Daybreak Asia podcast. It's available wherever you 655 00:37:55,120 --> 00:37:56,960 Speaker 4: get your podcast, John. 656 00:37:57,160 --> 00:37:59,920 Speaker 2: And that does it for this additional Bloomberg Daybreak weekend. 657 00:38:00,160 --> 00:38:03,000 Speaker 2: Join us again Monday morning at five am Wall Street 658 00:38:03,040 --> 00:38:06,120 Speaker 2: Time for the latest on markets overseas and the news 659 00:38:06,160 --> 00:38:08,400 Speaker 2: you need to start your day. I'm John Tucker, and 660 00:38:08,520 --> 00:38:11,759 Speaker 2: stay with us top stories, global business headlines coming up 661 00:38:12,120 --> 00:38:13,360 Speaker 2: right now.