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Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories of the coming week from our day Break
Speaker 2: anchors all around the world, and straight to handle the program,
Speaker 2: look at key data in the US how it's going
Speaker 2: to impact FED policy going forward. I'm John Tucker in
Speaker 2: New York.
Speaker 1: I'm Carolyn Hepker here in London, where we're looking ahead
Speaker 1: to the European Central Bank's upcoming rate setting meeting.
Speaker 3: I'm Derek Krisner looking at the rollout of the iPhone
Speaker 3: sixteen and what it means for Asia.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Hi Everyboddy. I'm John Tucker, and let's start today's program
Speaker 2: with the key data in the US. We're going to get,
Speaker 2: among other things, CPI data. Wednesday at eight thirty Wall
Speaker 2: Street time. I was the data going to pack the
Speaker 2: FED at its September meeting, and for more insight, we're
Speaker 2: joined by Stuart Paul, us economists with Bloomberg Economics. Doctor Paul. Anyway,
Speaker 2: I was all prepared to talk about inflation CPI. That's
Speaker 2: the back seat, maybe even the trunk of the car,
Speaker 2: and in the driver's seat, I'm going to gas his
Speaker 2: jobs data right.
Speaker 5: Right, So we have jobs data that just we have
Speaker 5: jobs data in hand that just came out on the
Speaker 5: sixth Then they surprised the consensus to the downside, showing
Speaker 5: just one hundred and forty two thousand jobs added. This
Speaker 5: is other than the inflation report, basically the last important
Speaker 5: data set that the FED is going to have in hand.
Speaker 5: And with the labor market to terror rating as much
Speaker 5: as it has, with the unemployment rate climbing to four
Speaker 5: point two percent, the FED is shifting its focus from
Speaker 5: inflation to the labor market.
Speaker 2: That's what one hundred and forty two thousand jobs created,
Speaker 2: nonfarm jobs. That doesn't sound too bad. We just reverting
Speaker 2: back to where we were pre pandemic.
Speaker 5: Well, so you're right in a in a typical set
Speaker 5: of circumstances. The pace of hiring that would be consistent
Speaker 5: with a steady unemployment rate is about one hundred thousand
Speaker 5: jobs per month, So one hundred and forty two could
Speaker 5: sound pretty good by comparison, But with the surgeon immigration,
Speaker 5: with people considering holding off on retirement, with the unemployment
Speaker 5: rate rising, we need to find a way to reconcile
Speaker 5: what we're seeing from unemployment and with what we're seeing
Speaker 5: in terms of hiring. So one hundred and forty two
Speaker 5: thousand just isn't enough to do the trick anymore. We
Speaker 5: are seeing the labor market cooling. We see just about
Speaker 5: one point one job openings per unemployed worker. That's down
Speaker 5: from about one point two openings per unemployed work pre COVID.
Speaker 5: So the labor market is undoubtedly cooling despite what might
Speaker 5: seem to be a decent pace of hiring.
Speaker 2: The Federal Reserve has this dual mandate full employment and
Speaker 2: what stable prices, or however they phrase it. It's really difficult,
Speaker 2: I would imagine to kind of thread that needle.
Speaker 5: It certainly is. They are two different prongs of the
Speaker 5: dual mandate, as you said, maximum employment of price stability.
Speaker 5: Sometimes those two things can be in conflict, and right
Speaker 5: now the FED is at one of those moments in
Speaker 5: time where it has to balance their two priorities. Sure,
Speaker 5: it wants to really suffocate inflation and ensure that it's
Speaker 5: on a sustainable path to the two percent target, but
Speaker 5: the labor market is showing a bit of fragility. We
Speaker 5: are seeing the unemployment rate on an upward trend, and
Speaker 5: as we saw in the July data, the sum rule
Speaker 5: had been triggered, which typically poortends further rises in the
Speaker 5: unemployment rate.
Speaker 2: Although that's come into question by claudiasamer itself. That's like,
Speaker 2: you know, but still contends that there is now not
Speaker 2: necessarily recession in the offing. But the I think she
Speaker 2: put it a risk now of recession.
Speaker 5: That's right. Even with Claudia saying that there's a risk
Speaker 5: of recession, I would still think that she's a little
Speaker 5: bit more optimistic than we are here in Bloomberg Economics.
Speaker 2: Oh I, I'm.
Speaker 5: Sorry to say, but we think that the outlook is
Speaker 5: a bit more weak than Claudia herself seems to think,
Speaker 5: and we think that risks are far more notable than
Speaker 5: Claudia seems to think. Consumers have just been running down
Speaker 5: their savings they've been saving. They save that a two
Speaker 5: point nine percent pace, So that's two point nine percent
Speaker 5: of their disposable income went to savings. That's exceptionally low.
Speaker 2: Should we should point in Consumer spending is like the
Speaker 2: biggest thing in the economy right now. That's what powers
Speaker 2: the US economy.
Speaker 5: Definitely, that's what powers the US economy. And it's consumers
Speaker 5: willingness to spend that can propagate inflation.
Speaker 2: But there's a credit card.
Speaker 5: That's right, there is a credit card, But I don't know.
Speaker 2: Are they running up debt? And like, does anybody care?
Speaker 4: If they are?
Speaker 5: They're running up debt. They're also seeing rising defaults, and
Speaker 5: so we could expect credit availability to become a little
Speaker 5: bit less available. And look, interest costs are also starting
Speaker 5: to weigh on consumers, especially consumers at the lower end
Speaker 5: of the income distribution.
Speaker 2: All right, So that brings up the question that everybody's
Speaker 2: asking the Federal Reserve. It's kind of baked in the
Speaker 2: cake that the next meeting this month they're going to
Speaker 2: cut rates. But the question is how much, by a
Speaker 2: quarter of a percent or half a percent.
Speaker 5: The odds slightly favor, just slightly favor a quarter percentage
Speaker 5: point cut.
Speaker 2: But why, I mean, why not just go all the way?
Speaker 2: We know, as you just said, things are slowing down.
Speaker 5: It seems to be that the fear among policymakers is
Speaker 5: that if they start with a half percentage point cut,
Speaker 5: markets are going to expect that they are going to
Speaker 5: be further half percentage point cuts coming down the line,
Speaker 5: particularly in October, November and then December. And if markets
Speaker 5: start baking in that expectation, financial conditions loosen. And it actually,
Speaker 5: perhaps counterintuitively means that by signaling that things are slowing
Speaker 5: down and cutting rates rapidly at the start of the cycle,
Speaker 5: they'll then have to maintain a more restrictive stance because
Speaker 5: financial conditions have loosened. So the more cautious approach might
Speaker 5: just be to try to not scare the markets by
Speaker 5: doing this quarter point cut first, and if they need
Speaker 5: to catch up later, they'll catch up later.
Speaker 2: Okay, so the CPI report coming on consumer pricing into that.
Speaker 2: Do I care about inflation anymore? For its like a
Speaker 2: couple of years. We're all afraid of inflation, including the FED. Look,
Speaker 2: I'm gonna just forget it.
Speaker 5: I'm an economist and I can't help but care about
Speaker 5: inflation forever and always. We are expecting the pace of
Speaker 5: headline and core inflation to remain about steady on a
Speaker 5: monthly basis zero point two percent for both the headline
Speaker 5: and core on a month on month BABS base effects
Speaker 5: will allow the annual pace of CPI inflation to fall
Speaker 5: to two point six percent from two point nine. But
Speaker 5: if you combine the line items from CPI with the
Speaker 5: line items from the Producer Price Index, also to be
Speaker 5: released next week, and you take into consideration the negative
Speaker 5: base effect in the PCE price Index, which is what
Speaker 5: matters most for the FED, the pace of disinflation is
Speaker 5: going to stall pretty notably. So that's one of the
Speaker 5: reasons why we expect the Fed to be a little
Speaker 5: bit cautious in that pace of cutting. Why odds just
Speaker 5: slightly favor that twenty five basis point cut in September
Speaker 5: rather than the fifty.
Speaker 2: All right, great explanation, I appreciate it. Thanks to Stuart
Speaker 2: paul Us, economist with Bloomberg Economics. Well, it is a
Speaker 2: big week in politics ahead. The first president to debate
Speaker 2: between Vice President Kamala Harris and former President Donald Trump,
Speaker 2: set for Tuesday at Bloomberg Television and Radio is going
Speaker 2: to have special coverage of this ABC News debate along
Speaker 2: with a global simulcast starting at eight pm Wall Street Time.
Speaker 2: And for more on what to expect, we are joined
Speaker 2: now by Laura Davison, Bloomberg Politics Editor. Nice to be
Speaker 2: with us, appreciate it. So this is going to be
Speaker 2: a reasonable exchange of differing ideas or a wild free
Speaker 2: for all.
Speaker 6: The idea is that it's a reasonable exchange, but if
Speaker 6: past is any precedent, it may be a little more raucous.
Speaker 6: There have been some measures put in place to sort
Speaker 6: of turn down the temperature on the debate. The first
Speaker 6: is that there will be no studio audience. It will
Speaker 6: just be the candidates and the moderators in the room,
Speaker 6: so they won't have any sort of input from you know,
Speaker 6: folks on the ground in terms.
Speaker 2: Of food, screaming, booing, and cheering, okay correct.
Speaker 6: The other thing, and this has been a real point
Speaker 6: of contention in recent weeks, is that candidates mics will
Speaker 6: only be live when they are speaking. When they are
Speaker 6: not speaking, when a candidate's being when a question is
Speaker 6: being addressed to another candidate that then will have their
Speaker 6: mic muted. So this is you know, intended to uh,
Speaker 6: you know, not have some of the you know, the
Speaker 6: cross talk and the talking over one another that we've seen,
Speaker 6: you know, particularly in twenty twenty and debate with with
Speaker 6: Biden and Trump, we saw it.
Speaker 2: Did one campaign or the other insist on this or
Speaker 2: they both agreed. I mean, they obviously both agreed to it,
Speaker 2: but was one more persistent about it.
Speaker 6: Well, there's a little twist here. So Originally, when Biden
Speaker 6: was still in the race, this is one of the
Speaker 6: things that his campaign put forward and said, look, we
Speaker 6: want these muted mics, and at the time Trump resisted it,
Speaker 6: but ultimately agreed to it. And that was the case
Speaker 6: in the in the June debate. Then when Harris became
Speaker 6: the candidate, her campaign said, no, actually we don't want
Speaker 6: muted mics. We think that this is actually an advantage
Speaker 6: to us to be able to to interject or also,
Speaker 6: you know for Trump, he'll have like sort of less
Speaker 6: guardrails on him, less discipline, and he'll be able to
Speaker 6: sort of interject. So the Harris campaign really pushed to
Speaker 6: have the mics unmuted. Ultimately they acquiesced on that, and
Speaker 6: ABC came out and said, look, there will be muted mics,
Speaker 6: you know, if we need to at some point, if
Speaker 6: you know, things get out of hand and it's just
Speaker 6: completely uncleared the audio, what is happening, We may unmute
Speaker 6: the mics, but uh, for we can expect that, you know,
Speaker 6: we won't be able to hear a candidate if they're
Speaker 6: not you know, it's not their turn to answer.
Speaker 2: A question we already heard from Donald Trump. He he
Speaker 2: contends that Vice President Harris has already gotten the questions.
Speaker 2: I mean, there's absolutely no evidence of that. Right. It
Speaker 2: sounds like he's already uh, giving excuses for why he
Speaker 2: may not do as well as some hope he does.
Speaker 6: Yes, and this is a game that he plays before
Speaker 6: a lot of appearances of kind of you know, beefing
Speaker 6: up his opponent and sort of you know, kind of
Speaker 6: downplaying his own potential performance. You know, he did this
Speaker 6: before the June debate. You know, it was talking all
Speaker 6: about how what a great debater Biden is, and of
Speaker 6: course that didn't you know, end up being the case,
Speaker 6: and that you know, Trump really came out ahead out
Speaker 6: of that debate. But he's been talking for weeks about
Speaker 6: how you know, he sees ABC News as you know,
Speaker 6: quote fake news, unfair. So he's a little bit trying
Speaker 6: to sort of, you know, kind of give himself an
Speaker 6: out if the debate doesn't go super well for him,
Speaker 6: that he can say, look, I told you so, ABC wasn't.
Speaker 2: Going to be fair to Is this going to be
Speaker 2: the only debate?
Speaker 6: It's very likely it may be. You know, there has
Speaker 6: been discussion about another debate. You know, Trump has said
Speaker 6: he wants to do one on Fox News, Harris says,
Speaker 6: he said, you won't do that. We do have a
Speaker 6: debate for the vice presidential candidate scheduled, but this may
Speaker 6: be the only time that we see Harris and Trump
Speaker 6: on the stage together battling it out.
Speaker 2: Do debates matter? I mean, I guess they, I should
Speaker 2: say they. Leading up to this, Joe Biden obviously had
Speaker 2: a poor debate, really bad debate performance, and dropped out.
Speaker 2: Thus we have now Kamala Harris. But what is the
Speaker 2: history of debates the candidate's performance and whether it amounts
Speaker 2: to people voting for them or against them.
Speaker 6: So in recent history, the thinking has been that debates
Speaker 6: don't matter that much. It may help you give you
Speaker 6: a little post debate bump of a point or two,
Speaker 6: but that you know, things may revert back to the
Speaker 6: mean after you know, a week or so. Obviously, you
Speaker 6: don't have to look any further than Joe Biden and
Speaker 6: ask him if debates matter. If you know, a debate
Speaker 6: this cycle, you know clearly up ended the race and
Speaker 6: you know, essentially forced a candidate to drop out and
Speaker 6: a new candidate to take his place. So there's a
Speaker 6: lot of a lot of interest in this debate. For
Speaker 6: obvious reason, this will probably be the largest audience you
Speaker 6: know that the candidates will have, you know, before people
Speaker 6: go to the polls. Another thing that's important too is
Speaker 6: you know, compared to you know, ten or twenty years ago,
Speaker 6: people are voting a lot earlier than they used to.
Speaker 6: You know, a lot of states have early ballots that
Speaker 6: will start to go out. Early voting will start happening
Speaker 6: in a lot of places, So you know, people may
Speaker 6: see this debate and you know, within a week or
Speaker 6: two be able to vote. So things that happen in
Speaker 6: October or early November don't matter as much because you know,
Speaker 6: millions of people will have already had an opportunity to
Speaker 6: cast their ballot.
Speaker 2: We can't wait our thanks to Laura Davidson, Bloomberg Politics
Speaker 2: Senator ed or reminder you could listen to special coverage
Speaker 2: of this presidential debay Tuesday on Bloomberg TV and Radio,
Speaker 2: along with a global simulcast. This all starts at a
Speaker 2: eight pm Wall Street time. Just a head on Bloomberg
Speaker 2: Daybreak weekend, I'll look ahead to the European Central banks
Speaker 2: upcoming rates set ida. I'm John Tucker. This is Bloomberg.
Speaker 2: This is Bloomberg day Break Weekend or global look ahead
Speaker 2: of the top stories for investors in the coming week.
Speaker 2: I'm John Tucker in New York. Up later in the program,
Speaker 2: I'll look ahead to a major product showcase from Apple
Speaker 2: where the iPhone sixteen is going to be center stage.
Speaker 2: But first in June, the European Central Bank cut rates
Speaker 2: for the first time in five years, making the move
Speaker 2: before its counterparts in the US of the UK, and
Speaker 2: now traders are betting on a further reduction as policymakers
Speaker 2: prepared to meet in the coming days and for more.
Speaker 2: Let's go to London and bring in Bloomberg Daybreak Europe
Speaker 2: anchor Caroline Hepger John.
Speaker 1: When the EU became the second major global economy to
Speaker 1: cut lending rates this summer. It cited progress made on
Speaker 1: tackling inflation now in the coming days, a FIT are
Speaker 1: widely expected to once again reduce boring costs when they
Speaker 1: meet in Frankfurt after June's landmark decision. But while the
Speaker 1: next two or three reductions in the deposit rate from
Speaker 1: the current level of three point seventy five percent are
Speaker 1: unlikely to cause major friction, things could get a lot
Speaker 1: more contentious ones interest rates fall to around the three
Speaker 1: percent mark if indeed they do. Sources tell Bloomberg that
Speaker 1: the rate cutting debate could soon run into differing views
Speaker 1: on both the price outlook and the point where monetary
Speaker 1: policy stops restraining economic growth. With European inflation plunging, markets
Speaker 1: and analysts reckon that boring costs might even be between
Speaker 1: two and three percent by the end of the year.
Speaker 1: It's food for thought, isn't it. For Europe's central bankers,
Speaker 1: who widely agree that there is room to cut rates
Speaker 1: further now, they'll also need to consider the impact on businesses,
Speaker 1: particularly those operating within financial services. Recently, the German government
Speaker 1: announced plans to dilute their stake in Commerce Bank after
Speaker 1: high interest rates boosted the bank's profitability. As Bloomberg's European
Speaker 1: Finance reporters Stephen Aaron's explains, fluctuating lending rates are directly
Speaker 1: correlated with the bank's fortunes.
Speaker 7: I mean, yes, the government would have to achieve a
Speaker 7: much higher price for it to break even, but you
Speaker 7: know it's whiter under the rege. Essentially, what they're looking
Speaker 7: at is the share price rally. It's been happening at
Speaker 7: Commerce Bank for the past four years really thanks to
Speaker 7: interest rates rings by the ECB and that share price.
Speaker 7: You know, it's just much higher than it used to be,
Speaker 7: and they're seeing an opportunity to take advantage of it
Speaker 7: and you know, make some money I suppose.
Speaker 8: Okay, so it's opportunistic perhaps given the recent history of
Speaker 8: Commerce Banks share price, even if over the longer term
Speaker 8: they don't make money here, What does it mean then,
Speaker 8: even for Commerce Bank itself. You know, when we speak
Speaker 8: to them about this, and Critty was reminding us we
Speaker 8: talked to the CFO about this very subject recently. They
Speaker 8: usually say, well, that's something you've got to talk to
Speaker 8: the government about obviously, and what does this mean for
Speaker 8: the bank.
Speaker 7: Well, I think if a big investor decides sort of
Speaker 7: to sell down a stake in a company such as
Speaker 7: Commerce Bank, it sends a signal, you know, we don't
Speaker 7: expect the share price to go up much much higher
Speaker 7: and for longer, and so other investors will probably think
Speaker 7: about him. What does it mean for us? We have
Speaker 7: reported previously that commers Bank is looking for fresh investors,
Speaker 7: and now that the biggest one is reducing at stake,
Speaker 7: I think that task is becoming even more urgent for them,
Speaker 7: and those will be the challenges facing commers Bank CEO
Speaker 7: Kenov and CFO Olive for the next months and even years.
Speaker 1: That was Bloomberg's European finance reporter Stephen Aaron speaking there.
Speaker 1: So will it be another rate cut in Frankfurt and
Speaker 1: how will the central bank navigate the uncertain path ahead
Speaker 1: and how they communicate all of that to the markets
Speaker 1: in Europe. I've been discussing that with Blueberg's europe Economy
Speaker 1: reporter Alex Weber.
Speaker 9: As you just said, see another cut next week is
Speaker 9: almost fully priced as investors have little doubt that it's
Speaker 9: going to happen. We've also heard from policymakers that they're
Speaker 9: really ready to consider another cut, so that was already
Speaker 9: a pretty strong signal market. The data on the economic
Speaker 9: front has developed more and less in line as the
Speaker 9: ECB expected, and the latest forecast was based on another
Speaker 9: cut in September. So these two things combined means that
Speaker 9: it's probably gonna.
Speaker 1: Happen, okay, And if policymakers do lower interest rates again,
Speaker 1: does the path then surely become a bit more complicated.
Speaker 9: So from what we heard is that another cut in
Speaker 9: December looks pretty likely, But then interest rates come closer
Speaker 9: to a level that economists call neutral, and that means
Speaker 9: that the discussion becomes a bit more complicated, because on
Speaker 9: the one hand, ECB officials need to decide whether they
Speaker 9: want to stop restraining the economy, whether the economy actually
Speaker 9: needs some help from interest rates, whether they need to
Speaker 9: be lower any further. And the other complication is that
Speaker 9: this so called neutral rate is pretty difficult to estimate
Speaker 9: and observe, so it's it's hard to base policy upon it.
Speaker 9: But on the other hand, it's pretty important, So there's
Speaker 9: going to be the discussion is just going to become
Speaker 9: a lot more complex as we.
Speaker 1: Yeah, as we move forwards. Yeah, absolutely does a right
Speaker 1: car suit Germany. I mean that has been one of
Speaker 1: the key issues in Europe, the kind of waning industrial power,
Speaker 1: the weaker economy in Germany.
Speaker 9: Yeah, some economists have observed recently that Germany is actually
Speaker 9: need of lower interest rates much more than the rest
Speaker 9: of the Eurozone. Other countries are growing more strongly. Germany,
Speaker 9: as you know, is very reliant on its industry, and
Speaker 9: if borrowing costs remain higher than investments are becoming less attractive.
Speaker 9: It's only one part of the story, but lower interest
Speaker 9: rates would probably help German industry to some extent.
Speaker 1: Yes, what sort of pace can we expect when it
Speaker 1: comes to the cuts from now? Do you think so?
Speaker 9: Economists have long estimated that there will be quarterly cuts.
Speaker 9: That's for several reasons. One is that the ECB publishes
Speaker 9: economic forecasts once every quarter. That's also going to happen
Speaker 9: next week, coinciding with a likely cut. The other reason
Speaker 9: is that they're very focused on wage data because the
Speaker 9: ECB is afraid that elevated wage growth could stoke inflationary
Speaker 9: pressures and these sort of the sort of information also
Speaker 9: comes at a quarterly pace, so all of that makes
Speaker 9: makes it more likely that or points to the baseline
Speaker 9: as for quarterly cuts in between is not ruled out,
Speaker 9: but it would probably need some surprises in the data
Speaker 9: for that to happen.
Speaker 1: Well, inflation was two point two percent in August. Is
Speaker 1: the battle for you know, dominance over inflation complete? Then,
Speaker 1: I mean that's very close to the ECB's target.
Speaker 9: Is yeah, exactly, it's just barely above the target. But
Speaker 9: one important reason for the slowdown was a dip in
Speaker 9: energy costs, and that's also because energy prices were so
Speaker 9: volatile last year, so it's partly a statistical effect. And
Speaker 9: when you look under the hood, there is still services
Speaker 9: inflation that's running at twice the ECB's target. That's causing
Speaker 9: some uneasiness because it's really determined by domestic factors like
Speaker 9: the wage growth that we already talked about the labor market.
Speaker 9: And as long as services inflation stays elevated, then the
Speaker 9: ECB is not going to sound all clear. So it
Speaker 9: doesn't have to go it doesn't have to be that
Speaker 9: all composedonents of inflation go back to two percent, but
Speaker 9: at the moment there's still too much discrepancy. And we
Speaker 9: also expect inflation to come back toward the end of
Speaker 9: the year because these statistical effects on energy are going
Speaker 9: to become less favorable in.
Speaker 1: Terms of the policymakers who make those decisions. How united
Speaker 1: are they in terms of the strategy.
Speaker 9: So they've been relatively united. In recent weeks, we've heard
Speaker 9: different emphasis from them. So on there's one cohort in
Speaker 9: the twenty six member Government Council who emphasized the economy,
Speaker 9: the sluggish economy with that points to a preference for
Speaker 9: somewhat faster interest rate cuts. On the other hand, we
Speaker 9: have some who keep emphasizing the components of the inflation
Speaker 9: baskets that are not are still too elevated. So you
Speaker 9: have just a different emphasis really at the moment. So
Speaker 9: there is some friction, I would say, and that could
Speaker 9: come depending on how the economy develops. That could even
Speaker 9: become more pronounced in the coming month.
Speaker 1: Okay, that would be yeah, something certainly to watch. What
Speaker 1: will lower interest rates mean for the European banking sector.
Speaker 9: So the banking sector has long enjoyed a windfall from
Speaker 9: higher interest rates. We've already seen that this is no
Speaker 9: slowly coming to an end. Interest rates have already been
Speaker 9: lowered on mortgage credit, so for them, that's it's a
Speaker 9: new chapter. Then if the ECB goes ahead with lowering
Speaker 9: interest rates.
Speaker 1: And just lastly, what do we expect to hear from
Speaker 1: policymakers in terms of guidance? It's very cautious obviously from
Speaker 1: Christine Legarde in a lot of her press conferences. What
Speaker 1: do you think they will hear from policymakers from their guidance?
Speaker 9: Yes, that's a good questions. I suspense Luggard will keep
Speaker 9: stick to that total openness, because otherwise the risk is
Speaker 9: always at the ECB stokes market expectations for more cuts,
Speaker 9: and they're afraid of causing a somewhat an overreaction. So
Speaker 9: like there's probably little upside in giving much guidance at
Speaker 9: this stage, So Logard might well stick to to what
Speaker 9: she said in the past, is that they are going
Speaker 9: to remain data dependent and the path, especially for the
Speaker 9: next meeting, is completely open. Whether she gives any signals
Speaker 9: for further down the line some something very cautious, I
Speaker 9: mean that can be ruled out, but my suspicion is
Speaker 9: she's gonna be very open at this meeting.
Speaker 1: That was Bloomberg's Alex Weber speaking to me. My thanks
Speaker 1: to him for looking ahead to the ECB's interest rate
Speaker 1: decision on Thursday, the twelfth of September. I'm Caroline Hepke
Speaker 1: here in London. You can catch us every weekday morning
Speaker 1: for Bloomberg Daybreak. You're at beginning at six am in London.
Speaker 1: That's one am on Wall Street.
Speaker 2: John, Thanks Caroline, and just ahead on Bloomberg day Break weekend,
Speaker 2: I'll look ahead to a major product showcase from Apple.
Speaker 2: I'm John Tucker. This is Bloomberg. This is Bloomberg Daybreak Weekend,
Speaker 2: our bloob look ahead of the top stories for investors
Speaker 2: in the coming week. I'm John Tucker in New York.
Speaker 2: Apple is going to hold a major product showcase on Monday,
Speaker 2: and the iPhone sixteen lineup will be center stage. The
Speaker 2: launch may mean gains in market share for Apple suppliers
Speaker 2: in Asia, and for a closer look, let's get to
Speaker 2: Doug Chrisner, co host of Daybreak Asia. John.
Speaker 3: The event is titled It's Glow Time. I think the
Speaker 3: question is whether it will produce a glow for Apple.
Speaker 3: iPhone demand has been stagnant for nearly three years. Unit
Speaker 3: sales have been nearly flat, and according to Bloomberg Intelligence,
Speaker 3: much of that volume was driven largely by the need
Speaker 3: to upgrade iPhones sold three and four years ago. So
Speaker 3: with the iPhone sixteen, much of the hype as we know,
Speaker 3: revolves around the suite of AI tools branded as Apple Intelligence. Now,
Speaker 3: analysts at Bloomberg are predicting the replacement of aging phones
Speaker 3: will continue to be a big driver of sales for
Speaker 3: the iPhone sixteen, much more so than Apple Intelligence. Our
Speaker 3: analyst are saying Apple Intelligence will likely have a greater
Speaker 3: impact in fiscal twenty twenty six. Well beyond AI, the
Speaker 3: iPhone sixteen is expected to have several upgrades, larger displays,
Speaker 3: additional capabilities for the camera, to name a few, and
Speaker 3: these changes have created opportunities for Apple suppliers, especially since
Speaker 3: Apple has been working to diversify its supply chain right
Speaker 3: across Asia, not just in terms of oponent manufacturers, but
Speaker 3: among assemblers as well. I spoke earlier with Stephen saying
Speaker 3: he is see your tech industry analyst for Bloomberg Intelligence
Speaker 3: in Hong Kong.
Speaker 10: Apple does have the tendency to keep only a handful
Speaker 10: of supplier in certain components, or sometimes even just keep
Speaker 10: the soul supplier. I think it's better for the control
Speaker 10: the quality and the delivery. In the near term, we
Speaker 10: may not see any major increase in terms of assembler
Speaker 10: But then in certain markets, for example like India, they
Speaker 10: start working with Tata for the iPhone assembly, so if
Speaker 10: they are doing a good job, I mean Tata. If
Speaker 10: they're doing a good job, then hard to tell. But
Speaker 10: so far I think we're still looking at three major
Speaker 10: supplier in the side.
Speaker 3: When it comes to the parts manufacturers, are they at
Speaker 3: a state right now in terms of their production capacity
Speaker 3: where they can meet what you think is going to
Speaker 3: be a little bit of a pickup in demand. Do
Speaker 3: you think that that's probable or we maybe going to
Speaker 3: have a little too much demand and supply is going
Speaker 3: to take a while to catch up.
Speaker 10: I think in terms of capacity, I don't really see
Speaker 10: any major issue given that we're not the overall smartpha
Speaker 10: obviously become a much more mature market as a whole.
Speaker 10: So the capacity issue to some extents is probably more
Speaker 10: about relocation as the supply chain is trying to cope
Speaker 10: with the juopidical tension, so some components supply might be
Speaker 10: forced to relocate. But so far, for the like a camera,
Speaker 10: we don't really see a lot of relocation happening. I
Speaker 10: think component supply are still generally cautious.
Speaker 3: He is Steven saying from a Bloomberg Intelligence, Let's continue
Speaker 3: the conversation on the iPhone sixteen and Apple's supply chain
Speaker 3: across the Asia Pacific. The let's have office with us.
Speaker 3: He as Bloomberg Tech Editor in Hong Kong, along with
Speaker 3: newly Parnell Asia Tech reporter, also based in Hong Kong.
Speaker 3: Good of you guys to join us. Vlad, let me
Speaker 3: begin with you. I want to understand how well prepared
Speaker 3: Apple is for this launch.
Speaker 11: Well, an Apple launch is one of the best orchestrated
Speaker 11: events on the tech calendar. It's actually remarkable. I was
Speaker 11: thinking recently that every September we get a new iPhone,
Speaker 11: we get tens of millions of units distributed and prepared
Speaker 11: across the world. You can never diet Apples preparation. The question,
Speaker 11: to my mind is how well Apple does in selling
Speaker 11: this AI pitch. Like we've just been discussing, how well
Speaker 11: does it translate to consumers. Apple has been the one
Speaker 11: company in the tech industry to take these rather elusive things,
Speaker 11: simplify them, make them relatable to consumers, and make them
Speaker 11: a reason to buy advice. They've done with so many things,
Speaker 11: whether it's making the camera more relatable, video recording people
Speaker 11: who have ditched their actual cameras and replace them with iPhones.
Speaker 11: The real question is it's one for the entire industry.
Speaker 11: How well can Apple sell AI because it will affect
Speaker 11: not just Apple, put the broader.
Speaker 3: Industry newly When you consider AI, this is something that
Speaker 3: Apple obviously has invested a great deal in. How high
Speaker 3: are the stakes?
Speaker 12: I think the stakes are high, and I think what
Speaker 12: I'm anticipating and I think others are looking at, is
Speaker 12: whether sort of easier access to AI tools will really
Speaker 12: start to translate into real world applications. So, in other words,
Speaker 12: we see the sort of revolutions that's being created with
Speaker 12: access to things like chat GPT, which is a sophisticated technology,
Speaker 12: but it's a chat bock where you enter text and
Speaker 12: you get a response. I think if smartphone makers like
Speaker 12: Apple can start to introduce some of those features into
Speaker 12: the device that people already use, so you don't have
Speaker 12: to sit at a computer to use it, or go
Speaker 12: to a special website or open an app, you can
Speaker 12: bring some of these features closer to how people use
Speaker 12: their phones, which are so attached to us throughout the day.
Speaker 12: I think we could see more consumer adoption. It could
Speaker 12: see more real world applications for this kind of nebulous
Speaker 12: technology that people have been talking so much about how
Speaker 12: it's going to change the world. If Apple can show
Speaker 12: some of some of these applications and some of these
Speaker 12: use cases for this technology right on the device, I
Speaker 12: think that would be exciting to see.
Speaker 11: And the interesting thing to my mind is that will
Speaker 11: not translate into an immediate surge in sales. One of
Speaker 11: the fun things what iPhone is that there's a lot
Speaker 11: of peer pressure that happens. So if these AI features
Speaker 11: do find an audience, what will happen is you'll notice
Speaker 11: it in your friends and neighbors and family members using
Speaker 11: these features. They will write better emails all of a sudden,
Speaker 11: and is because they're using the AI making them more
Speaker 11: concise in their messaging. They will send you fun autogenerated
Speaker 11: images and you ask where did you get that from,
Speaker 11: and they will say it's the only on the latest iPhone.
Speaker 11: So one of the issues that Apple was actually faced
Speaker 11: in recent years is the fact that after the first
Speaker 11: surge of people having to upgrade because the annual upgrade cycle,
Speaker 11: sales just kind of drop off during the first half
Speaker 11: of the year. Yeah, app we started to struggle. It's
Speaker 11: had to do discounts and precedented ones in China just
Speaker 11: to keep sales going for the iPhone. And one of
Speaker 11: the fascinating things is the dynamic of people buying the
Speaker 11: iPhones in the last half of the year, then that
Speaker 11: translating into more people being attracted by the AI stuff
Speaker 11: and that potentially lifting sales in the first half of
Speaker 11: the year where Apple has its difficulties.
Speaker 3: Newly, when you look at the part suppliers in the
Speaker 3: Pacific RIM, does this launch do anything for greater diversification
Speaker 3: When you build out something like this, do you want
Speaker 3: to make sure that your supply chain is much more
Speaker 3: robust than it's been in the past.
Speaker 4: Yeah.
Speaker 12: And for some time, you know, Apple has been really
Speaker 12: interested in diversifying its supply chain, particularly in countries like India,
Speaker 12: where I was based before and where we've done some
Speaker 12: great reporting on the advances that India that Apple has
Speaker 12: been making in accelerating this speed with which they can
Speaker 12: create newest versions of the iPhones in India, so it's
Speaker 12: not simply lagging behind when they're made in China for Ekple.
Speaker 12: Now they're getting closer and closer to being able to
Speaker 12: release the very top end new iPhones in India. So,
Speaker 12: for example, you know that that allows them to diversify
Speaker 12: a bit away from the mainland because of the geopolitical
Speaker 12: issues between the US and China, and over the years,
Speaker 12: they've been really trying to build up their network of
Speaker 12: supply of component makers, suppliers and capacity in India and
Speaker 12: so so I think that's something really interesting to watch.
Speaker 12: And of course India is an important increasingly important market
Speaker 12: for actually selling its phones, so they're going to export
Speaker 12: a lot of these from India, but also they want
Speaker 12: to appeal to this one billion plus person economy as.
Speaker 4: Well, glad.
Speaker 3: As I mentioned earlier, much of the hype is focused
Speaker 3: on this AI tool or tools plural with Apple Intelligence.
Speaker 3: When you look at what companies like Samsung or Huawei
Speaker 3: even what they are doing with respect to AI, is
Speaker 3: Apple a little behind the curve?
Speaker 11: I wouldn't say so. I think it's still extremely early days.
Speaker 11: Some of the demos that I've seen from Chinese filmmakers
Speaker 11: are really fascinating. Their compelling one of them is this
Speaker 11: idea of turning AI into an agent. One of the companies, Honor,
Speaker 11: which is a spin off from Huawei. They showed me
Speaker 11: an AI demo where the AI agent went into all
Speaker 11: their apps such as we Chat, pay, Alipay, and it
Speaker 11: pulled out all of the user's pay subscriptions and then
Speaker 11: you could just tell it by voice cancel all my
Speaker 11: pay subscriptions because I'm tired of those. I find that
Speaker 11: a very interesting and very compelling user of AI, just
Speaker 11: simplifying a lot of these processes and kind of the
Speaker 11: fiddly aspects of using a phone and internet services. But
Speaker 11: that is still so early. It's so premature to say
Speaker 11: that this is the decisive or the winning feature, whether
Speaker 11: that's for Chinese manufacturers, whether it's for Samsung, whether it's
Speaker 11: for Apple or even Google. I mean, one of the
Speaker 11: interesting things is that Google advanced the launch of its
Speaker 11: new Pixel phones earlier this year to go straight up
Speaker 11: against the iPhone. And that's precisely because Google believes that
Speaker 11: it has the better AI. But like I say, it's
Speaker 11: still way too early to tell.
Speaker 3: So newly, when we look at Apple products generally, I
Speaker 3: know that they are considered to be kind of a
Speaker 3: luxury item. The price point with this new rollout is
Speaker 3: probably going to be high relative to some of the
Speaker 3: other smartphones in the market, whether it's China or India.
Speaker 3: Is there going to be appetite do you think for
Speaker 3: the market to kind of support what Apple has aspirationally
Speaker 3: in terms of total units sold.
Speaker 12: Well, we've seen in China actually that they've been losing
Speaker 12: market share with the new Huawei device, which is a
Speaker 12: direct competitor the May sixty, Huawei's high end smartphone we
Speaker 12: see Apple. You know, China is a huge market for
Speaker 12: Apple for selling iPhones. I think there's still appetite there,
Speaker 12: but certainly they've come under fresh challenges from Huawei and
Speaker 12: other makers there. And then in India, also a massive market.
Speaker 12: For a long time, they've had a tiny market share
Speaker 12: in India, primarily because the device is so expensive in
Speaker 12: a market where consumers have less purchasing power. But they
Speaker 12: have made advances in India over the years, in part
Speaker 12: because by manufacturing the devices in India, the taxes are lower,
Speaker 12: so they can bring the price down. And you know,
Speaker 12: there's been some interesting advancements as well on the retail front,
Speaker 12: with Apple last year opening its first Apple stores ever
Speaker 12: in India. And Tim Cook visiting the country last year.
Speaker 12: That helps with branding, and when you have actual shops
Speaker 12: people can go into and see how the devices work,
Speaker 12: that that's been a boost.
Speaker 9: For them too.
Speaker 12: So I think certainly in India, and they have, of
Speaker 12: course a wider variety of devices, the less expensive ones
Speaker 12: in addition to the newest ones coming out, So I
Speaker 12: think that they're quite bullish on India. So yeah, China,
Speaker 12: you know, maybe growing pressure from Huawei and other competitors,
Speaker 12: but India, I think, starting from a slower base, a
Speaker 12: lot of room to expand, and I think they're pretty
Speaker 12: excited about India.
Speaker 11: And Apple really might need India because Huiwei scheduled an
Speaker 11: event the day after the iPhone event. It's literally hours
Speaker 11: after our reporting shows that it's going to be the
Speaker 11: world's first commercial smartphone with two photo folds in it.
Speaker 11: It's going to be groundbreaking device. Huiawe is really making
Speaker 11: a push. And an interesting thing is that Apple fell
Speaker 11: out of the top five in China in the June quarter.
Speaker 11: It has a real chat lynch, as Newla says, in
Speaker 11: one of his biggest markets. So it's going to need India.
Speaker 11: It's going to need to remain strong in the US,
Speaker 11: and again it all goes back to AI. Just like
Speaker 11: with and Vidia and all the other companies that we cover,
Speaker 11: AI is a real critical thing. And I also talk
Speaker 11: to another one of the Chinese muffle manufacturers this past
Speaker 11: week and I asked him, do you have a plan
Speaker 11: B if consumers don't respond well to AI? And the
Speaker 11: also well just know.
Speaker 3: Newly Pernell is Asia Tech reporter. He's based in Hong Kong,
Speaker 3: and Vladsavov is Bloomberg Tech editor, also joining us from
Speaker 3: Hong Kong. Thanks so much to both of you for
Speaker 3: helping us set up the launch of the iPhone sixteen
Speaker 3: and understanding some of the ramifications for the parts suppliers
Speaker 3: in the Asia Pacific. I'm Doug Krisner. You can join
Speaker 3: Brian Curtis and myself weekdays here for Bloomberg Daybreak Asia
Speaker 3: beginning at eight am in Hong Kong eight pm on
Speaker 3: Wall Street.
Speaker 2: John, Thanks Doug, and that does it for this edition
Speaker 2: at Bloomberg day Break Weekend. Join us again Monday morning
Speaker 2: at five am Long Street time for the latest on
Speaker 2: markets overseas. In the news you need to start your day,
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