Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world. Straight Ahead on the program,
Speaker 2: a look ahead to US retail sales and what the
Speaker 2: numbers might reveal about the health of the consumer. I'm
Speaker 2: Tom Busby in New York.
Speaker 3: I'm Karlin Hepge here in London, where the ECB looks
Speaker 3: likely to cut rates again face with a weak economic
Speaker 3: fact job in the continent's biggest economies.
Speaker 4: I'm Brian Curtisy in Hong Kong. We look ahead to
Speaker 4: whether China is all in on stimulus or wavering, and
Speaker 4: we preview TSMC's earnings.
Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 6: Good day to you.
Speaker 2: I'm Tom Busby, and we begin today's program with some
Speaker 2: key economic data out this week. US retail sales for
Speaker 2: September eight thirty am Wall Street Time on Thursday. So
Speaker 2: what will the numbers reveal about the health of the
Speaker 2: consumer and as we head toward the holiday season? Is
Speaker 2: stubbornly high inflation keeping a lid on spending for a
Speaker 2: lot of Americans. Well for more, we're joined by Michael McKee,
Speaker 2: Bloomberg International Economics and Policy correspondent. Well, Michael, retail sales
Speaker 2: rose just a tenth of a percent in August, but
Speaker 2: that was better than forecast. What are you expecting to
Speaker 2: see in September.
Speaker 7: Well, what e kindom is surveyed by Bloomberger expecting to
Speaker 7: see is more progress in that regard. The forecast is
Speaker 7: for a two tenths advanced month over month X autos
Speaker 7: just a tenth, but the control group, which is basically
Speaker 7: what goes into GDP up three tenths is last month,
Speaker 7: which would be a fairly strong performance. Americans still are shopping.
Speaker 7: We haven't seen a major impact on confidence in the
Speaker 7: fact that they can pay for these things. So at
Speaker 7: this point we're expecting to see some strong growth.
Speaker 2: Well, let's talk about why we have that strong growth.
Speaker 2: We have a very solid labor market, surprisingly strong numbers
Speaker 2: the last month. Higher incomes as well. We've seen gas
Speaker 2: prices low this past summer, still pretty low. Inflation has eased,
Speaker 2: and it won't have much of an impact on the
Speaker 2: sales data that we'll see this week. But lower interest
Speaker 2: rates right, all.
Speaker 7: That right definitely won't have an impact on the data
Speaker 7: we see this week. Credit Card rates have not come down.
Speaker 7: I don't think anybody be surprised by that. They're very sticky.
Speaker 7: They go off a lot faster than they come down,
Speaker 7: so Americans are still paying that. But what we're looking
Speaker 7: at is the higher wages people are getting is helping
Speaker 7: because people tend to spend what they make and make
Speaker 7: their spending decisions on what they make. They've had a
Speaker 7: lot of money in savings for a while, and the
Speaker 7: savings rate was revised higher, But it's the wages and
Speaker 7: salaries that sort of determine the momentum that we see
Speaker 7: in spending, and since they have been relatively strong, people
Speaker 7: are still feeling like they can afford it.
Speaker 2: Now as we move into the holiday season. Do you
Speaker 2: think there's indications this is going to continue on.
Speaker 7: It's beginning to look that way. The forecasts earlier this
Speaker 7: year were that we would see a fall off in
Speaker 7: the fourth quarter, and so far we haven't seen that.
Speaker 7: This is September numbers that were getting next on Thursday,
Speaker 7: and that's the third quarter, but it will set us
Speaker 7: up for the fourth quarter. We'll see what kind of
Speaker 7: momentum we have going into the fourth quarter, and so
Speaker 7: far there doesn't seem to be a reason to think
Speaker 7: people are pulling back. As you noted, gasoline prices are
Speaker 7: down even though oil pres are up. We're in the
Speaker 7: winter driving season the beginning of that and less demand
Speaker 7: out there for fuel, and we've got some surpluses that
Speaker 7: have built up in the USL Company's tanks out in Oklahoma.
Speaker 7: So as long as people feel like they've got the
Speaker 7: money and they don't have to put it to gasoline,
Speaker 7: they should continue to spend.
Speaker 2: Now, another surprise help is that dock workers strike. It
Speaker 2: lasted three days and then put on pause.
Speaker 7: That's a big help to the economy overall, because we
Speaker 7: would have had a lot of people who were out
Speaker 7: of work, and that would have slowed the economy and
Speaker 7: probably raised prices after a couple of weeks because we'd
Speaker 7: have shortages of things coming in we did see in
Speaker 7: the CPI last week that food prices food at home
Speaker 7: went up by four tenths, the most in eight months.
Speaker 7: And that's the kind of thing that would have been
Speaker 7: affected fruits and vegetables coming in other foods if the
Speaker 7: port strike continued, and we might have seen a sort
Speaker 7: of a negative jobs report because this week is coming
Speaker 7: up as the reference week for the October payrolls. And
Speaker 7: if you had all those dock workers on strike, along
Speaker 7: with the Boeing workers on strike and the people who
Speaker 7: are out of work because of the hurricanes, we could
Speaker 7: have had a negative print for October, which would probably
Speaker 7: not go over well with public opinion.
Speaker 2: Well and those hurricanes. At least we're going to see
Speaker 2: a big pickup in home building, construction, roads, schools. I mean,
Speaker 2: we're going to see hopefully, hopefully very soon.
Speaker 7: That's the paradox of these natural disasters. You can never
Speaker 7: make light of the suffering of the individual people who
Speaker 7: have gone through this, who've lost their homes and all
Speaker 7: the things that matter to them. But on a macro
Speaker 7: national basis, natural disasters like this are good for the
Speaker 7: economy because of all that spending on new stuff, and
Speaker 7: it adds to GDP, so we will see that effect.
Speaker 7: Seems like from Aleen, the stuff in the Carolinas may
Speaker 7: take longer to fix because a lot of roads are
Speaker 7: out and broken and that'll take a while to do.
Speaker 7: But in a year or two you would look at
Speaker 7: the GDP figures and you wouldn't see a real dip.
Speaker 2: Well, well, you know, let's talk more about housing broader,
Speaker 2: not just from Helene and Milton, but housing prices still
Speaker 2: making home ownership a little tough for a lot of people,
Speaker 2: and that has certainly got to impact retail sales and
Speaker 2: impact and you say, you know, inflation.
Speaker 7: Also, it's something to watch. We did see in the
Speaker 7: CPI report that owner's equivalent rent, which is the weird
Speaker 7: statistical way the government accounts for home prices. We're at
Speaker 7: the lowest in about seven or eight months, just up
Speaker 7: three tenths, and that's what the Fed has been waiting for.
Speaker 7: If that continues, that's good news. It will help prices
Speaker 7: level off. But prices have been going up and the
Speaker 7: big reason for that is that there's not enough homes
Speaker 7: for sale because interest rates are high still for mortgages
Speaker 7: and people don't want to move.
Speaker 2: Well, yeah, it's a cruel cycle, though September retail spending
Speaker 2: data out this Thursday are thanks to Michael McKee, Bloomberg
Speaker 2: International Economics and Policy correspondent. We move next to corporate
Speaker 2: earnings from the world's leading streaming TV service, Netflix, posting
Speaker 2: its third quarter results this Thursday. What will they reveal
Speaker 2: about subscriber growth, revenue from advertising, possible plans to hike
Speaker 2: subscription fees for more. We're joined by Geetha Raganathan, Bloomberg
Speaker 2: Intelligence Analysts on US media. Geitha, Well, two hundred and
Speaker 2: seventy eight million subscribers worldwide can't all be wrong. What
Speaker 2: do you expect to see from Netflix's earnings this week?
Speaker 8: Yeah, Tom, thank you so much for having me so.
Speaker 8: As always, you know, Netflix is still very much a
Speaker 8: subscriber story. Consensus current currently expects about four point three
Speaker 8: million new subscribers ADS for the third quarter, and that
Speaker 8: momentum is expected to kind of continue into the fourth
Speaker 8: quarter with them having lots of heavily anticipated content with
Speaker 8: about seven million gains. So if you kind of just
Speaker 8: look at the overall picture for Netflix, Tom, what we
Speaker 8: saw was we saw a tremendous slow down in subscriber
Speaker 8: growth in twenty twenty two, but twenty twenty three and
Speaker 8: twenty twenty four we're seeing them add close to almost
Speaker 8: sixty million subscribers, so thirty million subscribers in each of
Speaker 8: those years. So I think, really, as investors kind of
Speaker 8: start to think about the story, it's really about where
Speaker 8: is subscriber growth? What is a normal level of subscriber
Speaker 8: growth once you have taken into account these two initiatives
Speaker 8: that they introduced, which was the advertising based tier as
Speaker 8: well as the password sharing crackdown, And so I think
Speaker 8: that is going to be one of the biggest questions
Speaker 8: apart from, of course what you said, which was the
Speaker 8: price increases, we are really banking on a big price entrase.
Speaker 2: Now besides the paid sharing members, the new ones you
Speaker 2: know after that crackdown. Now, do you see more international growth?
Speaker 2: Are there new countries for Netflix to conquer?
Speaker 8: Yeah? So majority of the growth tom is in the
Speaker 8: international markets. You know, that makes up two thirds of
Speaker 8: you know, the subscriber base. Most of the growth, of course,
Speaker 8: is coming internationally. Not to say that the US market
Speaker 8: is not growing. It has actually grown really well after
Speaker 8: they introduced both the ads as well as the paid
Speaker 8: sharing initiative. But yes, as they kind of expand to
Speaker 8: more markets, we definitely expect you know, growth long growth
Speaker 8: runway in a lot of these international markets. Remember, penetration
Speaker 8: for Netflix in the US is very, very high, but
Speaker 8: it is pretty low in some other markets. So if
Speaker 8: you kind of look at Latin America again, penetation is high,
Speaker 8: but if you look at you know, Asia Pacific, it's
Speaker 8: only at about twenty one or twenty two percent. If
Speaker 8: you look at Europe again, it's pretty low. So there
Speaker 8: is substantial for growth. You know, it's just going to
Speaker 8: depend on what are all the different subscription tiers that
Speaker 8: they introduce there to kind of really rev up growth
Speaker 8: in some of those markets now.
Speaker 2: And other growth is advertising revenue, and I know you
Speaker 2: could talk about a couple of deals that they have
Speaker 2: with with major sports networks that's coming up won't be
Speaker 2: reflected in the numbers we're going to see just you know,
Speaker 2: this week, but looking ahead it could really explode.
Speaker 8: Absolutely. So they have kind of downplayed the role of advertising,
Speaker 8: you know, at least for the near term, but we
Speaker 8: know that they are doing so many things that is
Speaker 8: really going to kind of turbo charge that business. So
Speaker 8: one of the big things that the industry is kind
Speaker 8: of looking for, is that Netflix is entering the sports arena.
Speaker 8: They have two NFL games on Christmas Day. Now that
Speaker 8: is going to be big, not just in terms of viewership,
Speaker 8: but obviously they are going to those are That's a
Speaker 8: highly anticipated content when it comes to you know, advertising,
Speaker 8: So you know that is obviously creating a lot of buzz.
Speaker 8: Then you have the much anticipated Mike Tyson versus Jake
Speaker 8: Paul boxing event which is going to happen sometime in November.
Speaker 8: That should drive the subscriber editions, it should enhance Netflix's
Speaker 8: overall reach. So all of those, you know, they're basically
Speaker 8: prepping for advertising to take off in a big way.
Speaker 8: And then remember, starting in January, you have WWE content
Speaker 8: that is going to come to the platform globally for
Speaker 8: the very first time. So they're really investing heavily in
Speaker 8: sports content and sports adjacent content and that should be
Speaker 8: a big draw for the advertising community.
Speaker 2: Now, since Netflix last hiked prices it's a first standard
Speaker 2: tier January of twenty twenty two, a number of competitors
Speaker 2: have done the same. Do you think Netflix is poised
Speaker 2: to increase the cost of both of its tiers? The
Speaker 2: standard and the ad supported one more revenue coming in.
Speaker 8: So I think right now, if you kind of look
Speaker 8: at con census estimates and if you just look at
Speaker 8: sentiment in general, everybody is kind of banking on this
Speaker 8: price increase. They are definitely overdue for a price hike
Speaker 8: on the standard tier, that is the one that costs
Speaker 8: about fifteen and a half dollars in the US. They
Speaker 8: haven't raised prices for almost three years, as you just
Speaker 8: pointed out, Tom, and remember before that they had a
Speaker 8: steady cadence of price increases. It was coming every eighteen
Speaker 8: months or so. It was about a ten to eleven
Speaker 8: percent price increase. So we are definitely looking for a
Speaker 8: pretty big bump this time around. They have the content
Speaker 8: to support it. All of their competitors are raising prices,
Speaker 8: and we know that in general the competitive intensity across
Speaker 8: the board has come down quite a bit.
Speaker 2: Okay, third quarter earnings from Netflicks out this Thursday, are
Speaker 2: thanks to Geet the raganathin Bloomberg Intelligence Analysts on US media.
Speaker 2: Coming up on Bloomberg Day Break weekend, we'll look ahead
Speaker 2: to a meeting of European Central Bank policy makers and
Speaker 2: whether another rate cut may be in the cards, Tom Busby,
Speaker 2: and this is Bloomberg. This is Bloomberg Daybreak weekend, our
Speaker 2: global look ahead at the top stories for investors in
Speaker 2: the coming week. I'm Tom Busby in New York. Up
Speaker 2: later in our program look ahead to a cavalcade of
Speaker 2: economic data out of China and earnings from one of
Speaker 2: Asia's biggest chip makers. But first, the European Central Bank
Speaker 2: has already cut interest rates twice in this cycle, and
Speaker 2: markets are expecting another move lower when policymakers meet this week.
Speaker 2: As inflation slows and near's the ECB's target focus has
Speaker 2: shifted to the weakness in Europe's biggest economies. For more,
Speaker 2: Let's go to London and bring in Bloomberg Daybreak Europe
Speaker 2: Banker Caroline hepgar Tom.
Speaker 3: The European Central Bank has not delivered many surprises on
Speaker 3: its rates cutting journey. The first move in June was
Speaker 3: widely telegraphed, as was the second in September. Now, as
Speaker 3: we can out down to the next meeting, all signs
Speaker 3: point to another twenty five basis point move lower. September's
Speaker 3: Euro Area inflation print came in at one point eight percent.
Speaker 3: That's below the ECB's target, but that good news has
Speaker 3: come with much less positive information when it comes to
Speaker 3: the continued weakness in the major economies in Europe, in
Speaker 3: France and Germany. Now we've been discussing this with Eric
Speaker 3: why Tennis, who is the EMEA head of investment strategy
Speaker 3: at JP Morgan Private Bank, and we began by asking
Speaker 3: him why markets are not currently pricing a recession for
Speaker 3: Europe right now.
Speaker 9: There's definitely been an unfortunate loss of momentum. Economic surprises
Speaker 9: have been surprising to the downside. However, the overall trajectory
Speaker 9: of the economy I would categorize as remaining buoyant enough.
Speaker 9: What happens with the consumer is going to be key
Speaker 9: as we go forward. The ECB likely support with interest
Speaker 9: rates to the downside is also likely to help keep
Speaker 9: things afloat. Linkages to the US are also constructive. The
Speaker 9: US economy has been outperforming most expectations across the board,
Speaker 9: so the degree of linkages across the pond should also
Speaker 9: be at least relatively helpful to keeping Europe, you know,
Speaker 9: sort of carrying forward through, albeit with a lower level
Speaker 9: of growth relative to the US and and other key
Speaker 9: economic areas.
Speaker 10: So what markets are pricing in is sort of quarter
Speaker 10: steady pace of quarter points rate cuts from the European
Speaker 10: Central Bank. Does that tally with how you think that
Speaker 10: the response should go given the weakness in the European economy.
Speaker 9: Yeah, it basically does. The you know, the Europeans have
Speaker 9: the more singular focus on you know, price stability i e.
Speaker 9: Battling inflation. In the US they categorize it more so
Speaker 9: as both price stability i e. Battling inflation and additionally
Speaker 9: helping to ensure full employment. So by that methodology, it
Speaker 9: suggests that the Europeansentral Bank really should just be focusing
Speaker 9: on inflation and inflation alone. But I guess the reason
Speaker 9: I bring that up is even though it's not officially
Speaker 9: part of their mandate to help facilitate the labor markets
Speaker 9: and try to be cognizant of supporting the regional economy,
Speaker 9: I do think that they have that lens and do
Speaker 9: want to try to be helpful if inflation allows them to.
Speaker 9: And the subsiding of inflation in the region and on
Speaker 9: a global level is really helpful because it allows central
Speaker 9: banks to become more accommodative with softer interest rate policy,
Speaker 9: which should.
Speaker 3: Help how far behind the curve is the ECB? What
Speaker 3: is the neutral rate? Has that shifted to your mind?
Speaker 9: I actually think they're doing okay. We don't believe that
Speaker 9: they're behind the curve, and we think that a steady
Speaker 9: as she goes pace feels reasonable to us. There was
Speaker 9: certainly an argument that the FED was behind the curve
Speaker 9: looking over there in many forecasters' minds, and that's part
Speaker 9: of why they did that kind of quote jumbo sized
Speaker 9: cut of fifty basis points. Most recently, I would more
Speaker 9: so categorize that one as not necessarily being behind the curve,
Speaker 9: but a little bit of a twenty five plus twenty
Speaker 9: five catch up there. So now that they are kind
Speaker 9: of started with that larger initial sized cut, I think
Speaker 9: that you know, both major central banks probably can go
Speaker 9: with a bit of a steady as she goes regular
Speaker 9: type of cadence.
Speaker 10: Thinking about the start of earning season in Europe, I
Speaker 10: wonder where you'll be looking for signals around the European consumer,
Speaker 10: given you know what you've just been selling us about
Speaker 10: their centralgy to the European economic picture.
Speaker 9: Consumer always matters that it really matters in the US.
Speaker 9: It for sure matters here in this region as well.
Speaker 9: There has been some softness across the board in conjunction
Speaker 9: with what you know, the general trajectory of economic growth
Speaker 9: has been. Wages have been solid though, and ideally, you know,
Speaker 9: robust enough wages allow consumers to continue to do their
Speaker 9: thing and consume, which is going to be incredibly important
Speaker 9: for how this earning season goes. It is still a
Speaker 9: very nice story in terms of equity market performance on
Speaker 9: a mostly global level in twenty twenty four, so it's
Speaker 9: going to be very contingent upon earning's delivery or lack thereof,
Speaker 9: to see how we do in the remaining two and
Speaker 9: a half months or so of the year.
Speaker 3: That was Eric why Tennis in me ahead of investment
Speaker 3: strategy at JP Morgan Private Bank, speaking to me Andrew
Speaker 3: Bloomberg Stephen Cowell on Bloomberg Radio. So that's an investor
Speaker 3: perspective on the economics here in Europe. Let's hear now
Speaker 3: from Bloomberg Economics on this as we look ahead to
Speaker 3: the next European Central Bank decision just in the next
Speaker 3: few days. I've been speaking to our senior your area economist,
Speaker 3: David Powell. David, is there any doubt over whether the
Speaker 3: ECP will actually cut by twenty five basis points.
Speaker 6: The markets have completely pricedt and we think that's going
Speaker 6: to happen. And those expectations have been reinf forced by
Speaker 6: words from members of the Governing Council. Even some of
Speaker 6: the most hawkish members of the Governing Council in recent
Speaker 6: days have come out saying they support a cut in October.
Speaker 6: So it's pretty clear that that's going to come.
Speaker 7: Okay.
Speaker 3: So any potential surprises.
Speaker 6: Then well, I think what people are going to be
Speaker 6: focusing on is what's said at the press conference, in
Speaker 6: particular where the ECB sees the risks and their risk
Speaker 6: assessment to GDP growth and inflation. Up until now, they
Speaker 6: have seen the risks to inflation as balanced, listing both
Speaker 6: upside and downside risks. I think the biggest surprise might
Speaker 6: be something like if the ECB were to emphasize to
Speaker 6: a greater extent downside risks to inflation given the economic
Speaker 6: weakness in the Euro Area.
Speaker 3: Yeah, that has been the real concern, isn't it the
Speaker 3: slowdown in the economy in terms of the hints that
Speaker 3: we get about what happens further down the road in
Speaker 3: terms of right cuts in Europe. What might we hear
Speaker 3: as for the the US, people are dialing back the
Speaker 3: idea of big rate cuts from the Fed.
Speaker 6: Well, there is a big difference between the US and
Speaker 6: the EU Area, which is a story that has persisted
Speaker 6: throughout this period of monetary tightening and now monetary loosening,
Speaker 6: and that is the US economy is held up much
Speaker 6: better than the Euro Area economy, and so we haven't
Speaker 6: had those positive economic surprises in Europe that the US
Speaker 6: has had, which kind of has reduced those expectations for easing.
Speaker 6: So a December cut is probably you know, it's essentially
Speaker 6: a done deal the markets of price that it's pretty
Speaker 6: much universally expected. And the reason that that is so
Speaker 6: expected is the ECB will have another quarter than of
Speaker 6: data from the National accounts on wage growth, in particular
Speaker 6: compensation per employee, which is the most comprehensive measure of
Speaker 6: wage growth, and in all likelihood that will have decelerated again,
Speaker 6: giving the ECB further confidence that price pressures are ebbing
Speaker 6: and that they can cut without doubts of inflation remaining
Speaker 6: at tark.
Speaker 3: Yeah, and of course inflation is the central mandate for
Speaker 3: the European Central Bag, so how much can they really
Speaker 3: consider growth as a factor given that mandate.
Speaker 6: Well, inflation is essentially determined by supply and demand, and
Speaker 6: growth is aggregate demands. So growth is the primary determinant
Speaker 6: of inflation.
Speaker 9: So while there are.
Speaker 6: Times when the two objectives are not are not calling
Speaker 6: for the same thing, boosting the economy and keeping inflation
Speaker 6: at target. And the ECB, unlike the Foot Reserve, does
Speaker 6: have a mandate of just inflation. They can't ignore growth
Speaker 6: because at the end of the day, if the economy
Speaker 6: remains weak, if aggurate demand remains weak, inflation will be
Speaker 6: below target. And that's something that we really only just
Speaker 6: got over at the time of the pandemic. Don't forget
Speaker 6: before that inflation was below target for nearly a decade
Speaker 6: and Droggy tried a lot of things in order to
Speaker 6: return inflation to target. And one thing we know from
Speaker 6: the UAE is experienced even more clearly from the Japanese experience,
Speaker 6: is that when you have persistently low inflation for a
Speaker 6: long period of time, it becomes kind of embedded and
Speaker 6: that's a difficult situation to get out of.
Speaker 3: Oh yes, Japanification of Europe is a really big worry.
Speaker 3: Isn't it In terms of the economic picture. What is
Speaker 3: your assessment now of how weak Europe is in terms
Speaker 3: of France and Germany. I mean, we know there's been
Speaker 3: political uncertainty, there are enormous global pressures and geopolitical kind
Speaker 3: of tectonic plates that affect what's your concern around economic
Speaker 3: growth in Europe now?
Speaker 6: Well, the main source of weakness in Europe is Germany actually,
Speaker 6: and in particular Germany's industrial sector, which has never really
Speaker 6: kind of recovered in recent years and it's facing a
Speaker 6: number of problems. One is the economic slowdown in China,
Speaker 6: which is a huge destination for German exports. And also
Speaker 6: the Chinese are moving up on the value ladder in
Speaker 6: terms of their own production, so they're less fewer things
Speaker 6: from Germany, like cars, for example, that they're now making
Speaker 6: in China themselves. So there's a structural change going on
Speaker 6: there that's impacting Germany. So that's something that's going to
Speaker 6: persist for a while. But when you take Germany out
Speaker 6: of the picture of Isabelle Schnabel is, a member of
Speaker 6: thecb's executive board, recently did in a presentation that your
Speaker 6: area looks much healthier so other countries are doing better.
Speaker 6: In particular, Spain has had very strong growth, France has
Speaker 6: had growth that's much better than Germany, although that's probably
Speaker 6: been boosted by the Olympics, and that boost will fade.
Speaker 6: So the real worry right now is Germany, and that's
Speaker 6: not going to be easy to solve, given that some
Speaker 6: of these problems are structural.
Speaker 3: And yet, of course, very soon, if not now, focus
Speaker 3: on the US presidential election, and we know that European
Speaker 3: officials are worried about the possibility of a second Trump
Speaker 3: White House. What that might mean to the European economy
Speaker 3: is that also something that people are thinking about. Is
Speaker 3: very split in the very uncertain in terms of the
Speaker 3: US presidential race. But what US policy emerges will surely
Speaker 3: be important for growth in Europe.
Speaker 6: Yeah, the your area is a big exporter, in particular Germany,
Speaker 6: and what we've heard from the Trump campaign is talk
Speaker 6: of tariffs if Donald Trump were to be re elected.
Speaker 6: And when you export a lot of goods, you don't
Speaker 6: like tariffs because that essentially reduces for in demand for
Speaker 6: what you're producing. So undoubtedly that's creating some fears amongst
Speaker 6: policy makers in Europe, and we've heard those aired. Various
Speaker 6: policy makers from around the different areas, not only the
Speaker 6: Central Bank but also the European Commission except for have
Speaker 6: voiced concerns about what that might mean for the Your Area.
Speaker 3: Economy, even as there've also been worries about European protectionism
Speaker 3: versus China, and that is also kind of shaping up
Speaker 3: as quite a big battle line between Europe and China.
Speaker 3: Does that help in the short term hin doing the
Speaker 3: long term ev tarifs on China for example.
Speaker 6: Well, as I mentioned, the German industrial sector is having
Speaker 6: a lot of problems right now, and one of those
Speaker 6: problems is China. One is kind of cyclical, there's a
Speaker 6: cyclical slow down there, but the other is structural, and
Speaker 6: that changes to the Chinese economy and what they're producing.
Speaker 6: In Europe wants to shield the economy from the short
Speaker 6: term impact of those changes, and tariffs are a good
Speaker 6: way to do that, at least in the short term,
Speaker 6: but in the long term they've rarely been helpful as
Speaker 6: a kind of as a strategy to boost the economy.
Speaker 3: My thanks to our senior Euro Area economist David Power
Speaker 3: for joining me ahead of the ECB rate decision in October.
Speaker 3: I'm Caroline Hepge here in London. You can catch us
Speaker 3: every weekday morning for Bloombag Daybreak. Youre at beginning at
Speaker 3: six am in London. That's one am on Wall Street.
Speaker 9: Tom.
Speaker 2: Thank you, Caroline, and coming up on Bloomberg day Break
Speaker 2: weekend and look ahead to earnings from one of Asia's
Speaker 2: largest chip makers, TSMC. 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. A slew of economic
Speaker 2: data coming out of China this week, including important trade data.
Speaker 2: Let's get to Bloomberg Daybreak Asia co host Brian Curtis
Speaker 2: for more.
Speaker 4: Tom. China appears to be at a key inflection point
Speaker 4: on coaxing the economy out of the doldrums and back
Speaker 4: onto a solid growth path. Coming back from the recent
Speaker 4: week long holiday, doubt was creeping in to whether or
Speaker 4: not this is truly a whatever it takes moment for policymakers.
Speaker 4: Amid those doubts, we've seen a lot of market volatility.
Speaker 4: Now the coming week brings more data on, among other things,
Speaker 4: inflation and trade. China is still suffering from weak consumer
Speaker 4: spending and an ongoing property crisis. Until we start to
Speaker 4: see a pickup in data, it may be hard to
Speaker 4: convince investors that times have truly changed. Let's get to
Speaker 4: James Mager Bloomberg, Senior reporter for the Chinese Economy and Government. So, James,
Speaker 4: nice to have you with us here for this segment.
Speaker 4: It's probably too soon to see any tangible evidence of
Speaker 4: a revitalization in the economy from the official data, but
Speaker 4: we do have some other ways to look at this,
Speaker 4: perhaps confidence from consumers, some of the high frequency and
Speaker 4: anecdotal data that you could be gathering. What are you see?
Speaker 11: I think the first thing that we want to look
Speaker 11: at is we just came out of a week long
Speaker 11: holiday in China, and you know, people traveled more than
Speaker 11: they did last year. I think number of trips was
Speaker 11: out ten percent, but the actual amount of people spent
Speaker 11: on those trips was down two percent compared to prior
Speaker 11: to the pandemic in twenty nineteen, and so I think
Speaker 11: what you're seeing there this year in the Chraine economy,
Speaker 11: people are willing to go out, they are traveling around
Speaker 11: the country. They are you know, some people are going overseas,
Speaker 11: but when they do that, then not willing to spend
Speaker 11: as much. And you're also seeing that in the housing market,
Speaker 11: people aren't willing to buy houses, that walling to make
Speaker 11: those kind of investments. So you know there is activity,
Speaker 11: but people are holding onto the purse stream very tightly
Speaker 11: because they're not confident that things are going to get better,
Speaker 11: and so they're not confident to spend.
Speaker 4: I've heard anecdotally that people have noticed the big gains
Speaker 4: in the stock market and that that could actually convince
Speaker 4: them to spend a little more. But it seems like
Speaker 4: what you're saying is yeah, maybe down the road, but
Speaker 4: still caustious at the moment.
Speaker 11: I think some investors are happy about the stock market
Speaker 11: increases we've seen since the PBOC announced that big stimulus
Speaker 11: package at the end of September, but a lot of
Speaker 11: other stock investors that I've spoken to are still staying, well,
Speaker 11: it's great that stocks are rising, but I'm still underwater.
Speaker 11: You know, my portfolio is worth half what it was
Speaker 11: five years ago, So even if you see a big
Speaker 11: spike in prices now, it's going to take another sort
Speaker 11: of similar size gain for me to even get back
Speaker 11: to being may all again, let alone making any kind
Speaker 11: of profit. So you know, if we see this continue
Speaker 11: over time, that may lead to a wealth effect and
Speaker 11: that may make people more confident, but I think at
Speaker 11: the moment people are still looking at it cautiously.
Speaker 4: Yeah, in order for some momentum, you have to keep
Speaker 4: coming up with innovative ideas. And we saw a couple
Speaker 4: announced by the pbocs, such as the swap facilities where
Speaker 4: institutions can exchange holdings for cash and can potentially buy
Speaker 4: back shares. And I know we don't have a lot
Speaker 4: of details on that, but that is an idea that
Speaker 4: came forward that I think did catch a few people
Speaker 4: by surprise. And then recently we also had Premier Lee
Speaker 4: Chung asking experts for innovative ideas. That seems a little unusual.
Speaker 4: I'm curious, you know, what they're expecting there.
Speaker 11: And I think with the swaps, the swap thing that
Speaker 11: the PBOC announced, it is innovative idea and we'll have
Speaker 11: to see whether companies actually take them up on that
Speaker 11: offer or not. For Premier Le Chang asking for suggestions,
Speaker 11: you know, there has been a lot of crackdowns on
Speaker 11: Chinese economists, you know, criticizing government policy, and there's been
Speaker 11: you know, there was reporting that one economists have arrested
Speaker 11: for making comments criticizing Hiji Pink's policies. And so coming
Speaker 11: out now and saying, hey, we'd like to get your
Speaker 11: ideas about how we can fix the economy. Some people
Speaker 11: may take that opportunity, but other people still I think
Speaker 11: we'll be very cautious about becoming, you know, making too
Speaker 11: many critical suggestions.
Speaker 4: Yeah, it brings back memories of the one hundred flowers
Speaker 4: campaign back in nineteen fifty six. People might be wary.
Speaker 11: Yeah, exactly, come out and tell us your ideas, and
Speaker 11: then the people who speak out too loudly then get
Speaker 11: their heads locked off. I guess figuratively, I just think people,
Speaker 11: you know, there are economists who're making a lot of
Speaker 11: suggestions about the government should do. The question then, is
Speaker 11: is the government really going to listen to them or not.
Speaker 4: Now, when we look at the data that's coming in
Speaker 4: the next week, I mentioned earlier that it's probably too
Speaker 4: soon to see a lot of tangible evidence here, but
Speaker 4: exports have actually been reasonably solid for this year. Has
Speaker 4: been one of the areas that hasn't been too bad
Speaker 4: in terms of the inflation numbers. Are we still kind
Speaker 4: of teetering on the line, particularly on the producer prices side,
Speaker 4: between inflation and deflation.
Speaker 11: Yeah, I mean on the data for September that we're expecting,
Speaker 11: it still shows that producer prices are inflation will be
Speaker 11: even deeper than it was in August. Consumer prices positive,
Speaker 11: but the only just and again that's probably being pushed
Speaker 11: up by high vegetable prices, so really not a sort
Speaker 11: of a sustainable increase in consumer inflation. And yeah, we will.
Speaker 11: The expectation is we will continue to see strong exports. Obviously,
Speaker 11: this is the pre Christmas season now, so lots of
Speaker 11: companies are trying to get Christmas goods and Christmas presents
Speaker 11: out the door and onto ships to the US or
Speaker 11: to Europe. So we should continue to see strong exports.
Speaker 11: But imports are looking very weak, as you know, continuing
Speaker 11: to look very week. The expectation is that they're actually
Speaker 11: going to fall, and actually fall in September, which I
Speaker 11: just go to underscore how bad Chinese domestic demand is.
Speaker 4: All right, James, thanks so much for joining us. Jims
Speaker 4: Mager Bloomberg Senior reporter for the Chinese Economy and government.
Speaker 4: Now let's turn to the chip sector with Doug Krisner
Speaker 4: and a preview on TSMC earnings.
Speaker 12: Thanks Brian. In the week ahead, TSMC will disclose its
Speaker 12: full results for the latest quarter. This is interesting because
Speaker 12: we already have the company's revenue figures. Quarterly sales were
Speaker 12: above forecast, a thirty nine percent increase from last year.
Speaker 12: I think the fair question now is how will those
Speaker 12: sales figures translate into profit. For a closer look, I'm
Speaker 12: joined by Katherine Thorbeck Bloomberg, a columnist covering tech in Asia.
Speaker 12: She joins us from our studios in Tokyo. Thank you
Speaker 12: so much for making time, Catherine. I think now that
Speaker 12: we can focus on what these sales figures really mean
Speaker 12: in terms of the way in which AI spending, the
Speaker 12: hardware spending, has been driving a lot of the positivity
Speaker 12: in TSMC. Is this assuaging worries maybe that people feared
Speaker 12: that AI spending would begin to wane a bit.
Speaker 1: You know, as you mentioned, TSMC's quarterly sales beat forecasts
Speaker 1: and beat even their own forecasts, and so you know,
Speaker 1: there has been some concern over this year over whether
Speaker 1: this is sustainable, whether the generative AI boom is sustainable,
Speaker 1: but TSMC's figures are showing that it's still going very
Speaker 1: strong and the demand for a hardware is still going
Speaker 1: very strong. You know, In the long run, we'll sort
Speaker 1: of have to see if the companies that are buying
Speaker 1: these AI chips will be able to make money off
Speaker 1: of all of their AI investments. But for now, I mean,
Speaker 1: TSMC seems to be really cashing in and really doing
Speaker 1: well and doesn't show any signs at the moment of
Speaker 1: slowing down.
Speaker 12: What about capacity, particularly with the facility on Taiwan, are
Speaker 12: they able to keep up with demand we own?
Speaker 1: So I think that's going to be a big question
Speaker 1: that we're going to see with the guidance that they
Speaker 1: give us, you know, whether they will be able to
Speaker 1: keep up with demand. And I think another question going
Speaker 1: off of that is when they will bring on the
Speaker 1: two nanometer chip mass production. So we'll get some of
Speaker 1: those answers on Thursday. So far, they've been sort of
Speaker 1: assuasion concerns about not being able to meet demand, but
Speaker 1: you know, as we spoke about earlier, demand has been
Speaker 1: very very high for their products.
Speaker 12: This is the main foundry making chips for in Nvidia
Speaker 12: and Apple. Do we know which company is more important
Speaker 12: to TSMC?
Speaker 1: So, I think that's a good question. I mean, Apple
Speaker 1: and Nvidia are the two biggest customers for TSMC, and
Speaker 1: Vidia is obviously sort of the AI darling at the
Speaker 1: heart of this generative AI boom. At the same time,
Speaker 1: TSMC is the sole manufacturer for the chips that go
Speaker 1: into the iPhone processors. There was some concern from some
Speaker 1: analysts about softer demand for the latest iPhones, the iPhone sixteens,
Speaker 1: and how that could impact TSMC. But I think, you know,
Speaker 1: they've gotten so many orders from other customers such as
Speaker 1: Nvidia and such as Intel, and I think that'll sort
Speaker 1: of really booy their earnings this quarter.
Speaker 12: One of the things that we've spoken a lot about
Speaker 12: on the show the fact that people have been worried
Speaker 12: for some time about the over concentration of semiconductor production
Speaker 12: on Taiwan, particularly when you look at the geopolitical tensions
Speaker 12: between the US, China and Taiwan on and we've also
Speaker 12: spoken about the need for the company really to demonstrate
Speaker 12: it's been able to diversify away from Taiwan a bit.
Speaker 3: Now.
Speaker 12: I know TSMC is trying to build facilities in the
Speaker 12: United States. They've also got some facilities underway from what
Speaker 12: I understand, in Japan. You're in Tokyo. Can you tell
Speaker 12: me a little bit about what is happening in Japan
Speaker 12: as it relates to TSMC.
Speaker 1: Sure. So, TSMC is building fabs in Qshu, in Kumamoto
Speaker 1: in the Southern Island in Japan, and from what I've heard,
Speaker 1: that's going very very well. You know, it's actually planning
Speaker 1: on opening on time. They're building out another one, and
Speaker 1: I think they even have plans to build out a
Speaker 1: third one that will really bring the sort of cutting
Speaker 1: edge chips manufacturing to Japan and outside of Taiwan. And
Speaker 1: you know, as you mentioned, I think that this sort
Speaker 1: of US China geopolitical tensions has been casting a shadow
Speaker 1: over TSMC, a sort of longer term shadow. And you know,
Speaker 1: the current presidential elections candidate Trump has sort of express
Speaker 1: some concerns about you know, continuous continual US support for Taiwan.
Speaker 1: You know, I think if you were to take a
Speaker 1: step back though, in my opinion and sort of the
Speaker 1: broader picture, and TSMC's founder Morris Chang has actually said
Speaker 1: this himself, I think if China does invade Taiwan. I
Speaker 1: think we'll have, you know, far bigger concerns than just
Speaker 1: tech stocks and and sort of chip production. But I
Speaker 1: do think that, you know, this has been sort of
Speaker 1: a theme for TSMC since it's been founded, and as
Speaker 1: you mentioned, they're also trying to build capacity in Arizona.
Speaker 1: There were some rumors early on that that was they
Speaker 1: were having a little bit of a struggle there, some
Speaker 1: sort of culture clashes and some labor disputes and getting
Speaker 1: that fab off the ground. They've sort of assuaged some
Speaker 1: of those concerns and said that you know, it does
Speaker 1: seem to be going smoothly. You know, we will see.
Speaker 1: I think bringing on shoring chip manufacturing into the US
Speaker 1: is a very very difficult task for so many reasons.
Speaker 1: I mean, getting the equipment and getting you know, skilled
Speaker 1: labor force, and you know, it's obviously been central to
Speaker 1: the Biden administration's sort of Chips Act and their efforts there.
Speaker 1: But that's it's a very very difficult, if not impossible job.
Speaker 1: So I think we're going to have to see how
Speaker 1: that plays out in the long run.
Speaker 12: We've talked a little bit now just about the expansion geographically,
Speaker 12: but I'm wondering in terms of CAPEX spending, whether or
Speaker 12: not TSMC really has to spend a lot more for
Speaker 12: the current operation in Taiwan in order to keep up
Speaker 12: with a level of sophistication being demanded by a company
Speaker 12: like in Nvidia and having to invest more in the
Speaker 12: sophisticated equipment that comes from the Dutch company ASML. Do
Speaker 12: we know anything about that.
Speaker 1: Yeah, So I think TSMC is really at an advantage
Speaker 1: because it is currently making the most advanced chips and
Speaker 1: then you know, able to get more CAPEX to be
Speaker 1: able to spend more on sort of research and development
Speaker 1: and building out capacity. And so I think compared to competitors,
Speaker 1: TSMC is sort of in the best position. I mean,
Speaker 1: they are already so far ahead of the game and
Speaker 1: you know, have a virtual monopoly on the most advanced
Speaker 1: chips out there, and I think that really sets them
Speaker 1: up in a good place going forward.
Speaker 12: Catherine, thank you so much for making time to chat
Speaker 12: with us about TSMC. As we look ahead to earnings
Speaker 12: in the week ahead, we already know how a revenue
Speaker 12: performed in the last quarter, a thirty nine percent increase
Speaker 12: from last year. Catherine Thorbeck is a Bloomberg columnist covering
Speaker 12: a tech in Asia. Joining us from our studios in Tokyo.
Speaker 12: I'm Doug Krisner. You can join Brian Curtis and myself
Speaker 12: weekdays here for Bloomberg Daybreak Asia, beginning at eight am
Speaker 12: in Hong Kong eight pm on Wall Street.
Speaker 2: Tom, Thank you Doug, and thank you Brian. And that
Speaker 2: does it for this edition of Bloomberg day Break Weekend.
Speaker 2: Join us again Monday morning at five am Wall Street
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