Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our Daybreak
Speaker 1: anchors all around the world, and straight ahead on the program.
Speaker 1: Another earning season begins this Friday. Some of Wall Street's
Speaker 1: biggest banks reporting, plus the Archagos jury scheduled to begin
Speaker 1: deliberations this week, and we'll get you up to speed.
Speaker 1: I'm Tom Busby in New York.
Speaker 2: I'm Caroline Hedge in London, where we're delving into the
Speaker 2: key issues facing the UK's newly minted governments.
Speaker 3: I'm got Prisner looking at the level of worry over
Speaker 3: the economy among policymakers in China.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 1: Good day to you. I'm Tom Busby. Earning season kicks
Speaker 1: off this week. Some of Wall Street's biggest banks will
Speaker 1: be reporting and for a preview, we welcome in Bloomberg
Speaker 1: Intelligence senior banking analyst Alison Williams. Well, Allison, let's just say,
Speaker 1: what are you expecting to see from these big banks
Speaker 1: that start this Friday, JP Morgan, Chase City Group, Wells Fargo.
Speaker 5: A couple of things that we'll be focusing on. First,
Speaker 5: net interest income. This has been an area of pressure
Speaker 5: in recent quarters, but we have seen signs that those
Speaker 5: pressures are abating. And what we're going to be specifically
Speaker 5: focusing on for the banks are what are the deposit
Speaker 5: trends in terms of seeing some of that some stabilization
Speaker 5: on that front. Secondly, are there any changes to the
Speaker 5: outlook based on what we have seen in terms of
Speaker 5: expectations for interest rate cuts and so over the past
Speaker 5: few months, things have been a little bit more stable
Speaker 5: than the bigger changes that we sought to start this year.
Speaker 5: But keep in mind that when we heard from the
Speaker 5: banks in April, most banks were a little bit hesitant
Speaker 5: to make changes to their forecasts based on the movement,
Speaker 5: and so specifically we'll be listening for Wells Fargo to
Speaker 5: see if there's any changes to their outlook. JP Morgan
Speaker 5: has already increased its outlook on the net interest income front.
Speaker 5: That was some of the news that we got at
Speaker 5: Investor Day. We also heard from them that their expenses
Speaker 5: are going to be higher, but some of that is
Speaker 5: because they are pulling forward some investments because they have
Speaker 5: a sizeable gain to work with. And then for Bank
Speaker 5: of America, the bank has been expecting that this quarter
Speaker 5: will be the trough and their net interest income, so
Speaker 5: we'll look for confirmation on that. City group expecting to
Speaker 5: see some weakness, but there are some offsets on the feeline.
Speaker 1: Now besides net interest income. Of a particular note to you,
Speaker 1: trading and fees.
Speaker 5: Trading and fees trading really continues to be resilient, and
Speaker 5: we have said that we expect that this revenue item
Speaker 5: keeps within the historically higher range, and that is what
Speaker 5: we've seen for the past few quarters. We've seen some
Speaker 5: differences in the drivers, but we do expect that that
Speaker 5: continues this quarter and the quarters ahead. Within fixed income,
Speaker 5: it's really the credit trading business that we expect to
Speaker 5: be the outperformer. We've seen good activity in mortgage backed
Speaker 5: securities as well as asset BAC securities. We've also seen
Speaker 5: currency trading showing some positive trends, as well as our
Speaker 5: expectations that equities trading should also be helped by some
Speaker 5: of the very strong stock price movement that we've had.
Speaker 5: We think the prime brokerage business will continue to support
Speaker 5: the bank, So when we look at trading, we're expecting
Speaker 5: that revenue relatively resilient compared to the prior year. We
Speaker 5: do think that we'll see some seasonal decline, which we
Speaker 5: typically do see in the second quarter, but the FEAT
Speaker 5: side is really where investors are focusing on. Trading is
Speaker 5: a much bigger piece of the revenue pool, but the
Speaker 5: FEA side is a focus because we have had such
Speaker 5: lower levels following the boom that we had in twenty
Speaker 5: twenty one, we saw a big decline the following year,
Speaker 5: and then last year really the big rebound that many
Speaker 5: had hoped for failed to materialize. What we've seen in
Speaker 5: the first half is really strong debt issue, and so
Speaker 5: that's where I think we're going to continue to see
Speaker 5: some of the biggest strength in the second quarter. On
Speaker 5: the equity underwriting side of things, we are seeing some
Speaker 5: positive activity within the US and European region, so we
Speaker 5: think that's helpful, but there's still a lot of room
Speaker 5: to run in terms of of overall issued and especially IPOs.
Speaker 5: So we're going to be listening to hear what the
Speaker 5: banks have to say with regard to pipelines and if
Speaker 5: some of the very strong equity prices can help to
Speaker 5: give a little bit lift on that front. Finally, m
Speaker 5: and A, again, this isn't a business that was relatively
Speaker 5: depressed last year and really looking to get some improvement.
Speaker 5: We think that really after the election is when we
Speaker 5: can start to see things pick up a little bit.
Speaker 6: There.
Speaker 5: It's really about the uncertainty, and we think that following
Speaker 5: the election, one way or another, there will be at
Speaker 5: least a little bit more certainty to help CEOs in
Speaker 5: their decision making.
Speaker 1: Well Our thanks to Bloomberg Intelligence channalyist Alison Williams, and
Speaker 1: we stay on Wall Street now, but shift gears to
Speaker 1: the court room. Jurors expected to begin deliberating in the
Speaker 1: federal fraud and market manipulation trial of Our our Kago's
Speaker 1: Capital management founder Bill Wong. And to bring us up
Speaker 1: to speed, I'm joined by Bloomberg Legal reporter Chris Dulmich
Speaker 1: Chris Somemer, calling this Wall Streets trial of the decade.
Speaker 1: Why what is Bill Wang and one time CFO Patrick Halligan?
Speaker 1: What are they being charged with?
Speaker 6: Yeah, and it's a fascinating case. The trial has been
Speaker 6: going on for nearly two months. It started in mid May.
Speaker 6: The two men are charged with kind of separate things.
Speaker 6: Archie Ghost flew up in March twenty twenty one when
Speaker 6: it's biggest position, Viacom, issued a secondary offering and kind
Speaker 6: of set off a domino effects that led the firm's
Speaker 6: counterparties to start issuing margin calls and eventually led to
Speaker 6: its collapse basically a week later or within the same week,
Speaker 6: I should say. Wang and Halligan, the firm's former CFO,
Speaker 6: are charged with a racketeering conspiracy for allegedly lying to
Speaker 6: the banks, to the firm's banks and counterparties about the
Speaker 6: size of its positions, what investments had held, and how
Speaker 6: much credit it had at other banks, which the government
Speaker 6: alleges led to the kind of collapse of the firm
Speaker 6: in the end. Huang is also charged separately with working
Speaker 6: with the firm's former head trader, William Tamida, to artificially
Speaker 6: increase the price of the stocks and its portfolio in
Speaker 6: order to keep it you know, get its grow its
Speaker 6: assets and continue making money. So it's it's a fascinating case.
Speaker 6: Like I said, it's been going on for nearly two months,
Speaker 6: and the two size will give closing arguments on Monday,
Speaker 6: and the jury could get the cases dudents Tuesday.
Speaker 1: So the question for the jury were the actions of
Speaker 1: our kgos just careless, reckless or something much worse?
Speaker 6: Yeah, the real question is whether they were material to
Speaker 6: the bank's decisions whether to extend credit to them. Really
Speaker 6: is the main question there, and what that means is essentially,
Speaker 6: would a reasonable investor or reasonable counter party have taken
Speaker 6: the alleged misstatements that they made to them into account
Speaker 6: when making the decision whether or not to extend credit.
Speaker 6: And the jury will have to decide that question. That's
Speaker 6: a very important question in most of the counts here.
Speaker 6: So it is it's going to be an interesting deliberation.
Speaker 6: We will obviously have no idea how long it will last,
Speaker 6: but the judge will give its instructions to the jury
Speaker 6: on Tuesday morning and they'll get the case shortly after that.
Speaker 1: Well, there's a lot for the jury to get their
Speaker 1: arms around. A thirty six billion dollar family fortune wiped
Speaker 1: out in three days and banks on the hook for
Speaker 1: about ten billion in losses. I mean, what was the
Speaker 1: bank's due diligence? How was that for?
Speaker 7: What?
Speaker 1: I mean, did he look like a safe bet for
Speaker 1: them or or did they just getled.
Speaker 6: That's been well, it's it's a mixed back because they
Speaker 6: are about there are about a dozen different counterparties reading
Speaker 6: from you know, giant investment banks like Goldman, Sachs and
Speaker 6: Credit Sweets, which eventually collapsed in kind of the wake
Speaker 6: of this this blow up. Some did more due diligence
Speaker 6: than others, but a lot of them have kind of
Speaker 6: looked anxious to do business with them. They had become
Speaker 6: a massive kind of player in the family office world,
Speaker 6: and and a lot of times they were maybe taking
Speaker 6: them at base value, like for a long time. This
Speaker 6: is a pretty profitable firm for a long time. Bill
Speaker 6: Wong's you know, thesis and kind of investment strategy was
Speaker 6: by and hold. He had his defenses that he honestly
Speaker 6: believed in these companies that he invested in, and he
Speaker 6: was making investment decisions based on fundamentals, and that he
Speaker 6: wasn't really trying to manipulate the market. But what's clear
Speaker 6: from the trial and the testimony is that starting around
Speaker 6: the time of the pandemic, he increasingly directed his traders
Speaker 6: to trade an increasing amounts both before market and near
Speaker 6: the close to you know, and there's a lot more
Speaker 6: activity than they had ever done before. So it's it's
Speaker 6: really going to be a big question for the jury
Speaker 6: as to what happened here, as to whether or not
Speaker 6: they're actually responsible for, you know, leading these banks into
Speaker 6: these decisions to extend credits.
Speaker 1: And this all began, as you said, with swaps on
Speaker 1: Viacom CBS. Then he got into some Chinese tech companies.
Speaker 1: Did they look like just mundane investments? Did they look
Speaker 1: like big risks at the time. I know, twenty twenty
Speaker 1: hindsight is perfect, but you know, going back to twenty
Speaker 1: twenty one.
Speaker 6: Certainly some of them could be considered risky bets he had.
Speaker 6: You know, the banks consistently asked him whether he had
Speaker 6: hedges in place in you know, pretty liquid companies like
Speaker 6: you know, Google, Facebook and big stocks like that, and
Speaker 6: they wanted to be reassured that he had and he
Speaker 6: did have some edges in place, but ultimately those were
Speaker 6: not really that did not really help him in the
Speaker 6: end because of liquid they they called it, and this
Speaker 6: was a big question in the trial that Archie Ghosts
Speaker 6: claimed that this was a liquidity problem, not a solvency problem.
Speaker 6: The government, of course says they were insolvent. They no
Speaker 6: longer were able to function as a going concern. So
Speaker 6: whether or not it was actually a problem of just
Speaker 6: being able to get the money to pay the margin
Speaker 6: calls and that they weren't able to in the end
Speaker 6: because of this domino effect, or whether or not it
Speaker 6: was because of manipulation and the statements they made to
Speaker 6: the banks. Of course, the defense says in a lot
Speaker 6: of ways, these were not my statements at all, that
Speaker 6: he believed a lot of the things they were saying
Speaker 6: that they were true.
Speaker 4: Wow.
Speaker 1: Well, Closing arguments expected this week in Bill Wong's federal trial,
Speaker 1: Wall Street Trial of the Decade. Our thanks to Chris
Speaker 1: dolmech legal reporter for Bloomberg News, and coming up on
Speaker 1: Bloomberg Day Break weekend, we head across the Pond to
Speaker 1: look at what the results of this past week's UK
Speaker 1: parliamentary election could mean for that country's and Europe's economy.
Speaker 1: I'm Tom Busby and this is Bloomberg. This is Bloomberg
Speaker 1: day Break weekend, our global look ahead at the top
Speaker 1: stories for investors in the coming week. I'm Tom Busby
Speaker 1: in New York. Up later in our program more trade
Speaker 1: and inflation data from the world's second largest economy. But first,
Speaker 1: what will last week's election results in the UK mean
Speaker 1: for that country's economy. For more, we head to London
Speaker 1: and Caroline Hepker, the host of Bloomberg Daybreak Europe.
Speaker 8: Tom.
Speaker 2: After a brief and different dificult election campaign, including many
Speaker 2: hard fought battles over the economy, immigration, and public services,
Speaker 2: to name a few, the British electorate has finally made
Speaker 2: its choice. Whilst the snap summer poll may have come
Speaker 2: as a surprise to many, even those well versed in
Speaker 2: the ways of Westminster, the dismal inheritance awaiting the next
Speaker 2: government will be news to no one. Britain's problems have
Speaker 2: been piling up since the twenty sixteen Brexit referendum, which
Speaker 2: triggered years of Tory political infighting. Add to that a
Speaker 2: global pandemic alongside current geopolitical unrest, and some would argue
Speaker 2: you're left with the perfect recipe for political disaster. Former
Speaker 2: Conservative Government minister Sam Jimar has been speaking to Bloomberg,
Speaker 2: telling us that the next government's navigation of relations with
Speaker 2: the European Bloc will now be critical.
Speaker 8: Foreign investment is a big thing. Is this going to
Speaker 8: be a government that is domestically focused or is going
Speaker 8: to really get out there, almost go on a road
Speaker 8: show and to try and attract for an investment. I
Speaker 8: think here the public is leading opinion rather than the politicians,
Speaker 8: and I think most of the public today, if you
Speaker 8: pull them, we'll say that Brexit has been a mistake,
Speaker 8: to put it bluntly, but I think the direction of
Speaker 8: travel from here is an easy enough relations Where we've
Speaker 8: been is that anything that is from the EU has
Speaker 8: to be treated with deep skepticism and therefore not getting
Speaker 8: involved with So that's one aspect of it. You're quite
Speaker 8: rightly pointed out. I resigned from government in twenty eighteen.
Speaker 8: I read the tea leaves that the Conservative Party was
Speaker 8: embarked on a journey that would not be constructive for
Speaker 8: the country. In fact, it's being destructive for our economy.
Speaker 8: And my personal hope is that we get back on
Speaker 8: an even keel that's not to re litigate the referendum,
Speaker 8: but to actually remove some of the sanctions we've effectively
Speaker 8: imposed on ourselves as a country.
Speaker 2: That was Sam Timo speaking to bloom Radio. Right now,
Speaker 2: the UK is also facing a fiscal strait jacket. This
Speaker 2: is the product of years of crisis spending spurred by
Speaker 2: the COVID pandemic and a need to help families to
Speaker 2: cope with the cost of a living shock after Russia's
Speaker 2: invasion of Ukraine. Today's government is presented with crumbling public
Speaker 2: services that desperately need money, taxes at a postwar high,
Speaker 2: and national debt at levels last scene in the early
Speaker 2: nineteen sixties, which costs sixty billion pounds per year just
Speaker 2: in order to service. As far as the list of
Speaker 2: priorities goes, it's hard to imagine a world in which
Speaker 2: minimizing the country's economic bleeding isn't high on the agenda.
Speaker 2: On the campaign trail, growth was a real buzzword, as
Speaker 2: parties promised that the economy could expand its way out
Speaker 2: of the spending bind. Business leaders will also be key
Speaker 2: in achieving that, but they will likely have their own
Speaker 2: set of demands or the new residents of Number ten.
Speaker 2: Key bosses tell Bloomberg that they're looking for upgraded infrastructure,
Speaker 2: a focus on the skills gap, and a commitment to
Speaker 2: the climate, coupled with a strong preference for lower business rates.
Speaker 2: Their requests won't come cheap. Can Britain's next cabinet keep up?
Speaker 2: Also personal it will be the housing crisis. Bloomberg analysis
Speaker 2: shows that the next government will need to build the
Speaker 2: equivalent of another city the size of London to make
Speaker 2: up for five decades of below target construction. The shortfall
Speaker 2: is driving Britain's worst housing crisis since World War II.
Speaker 2: Alleviating its effects will no doubt be of immediate concern,
Speaker 2: But is it possible to make up the difference? For
Speaker 2: almost five decades, developers and local authorities have failed to
Speaker 2: bring new homes onto the market at the pace of
Speaker 2: other wealthy nations in Europe, or even at the rate
Speaker 2: that Britain managed during the nineteen sixties. So plenty for
Speaker 2: this next administration to be getting on with. Where do
Speaker 2: they start? The new government's proverbial inbox is something that
Speaker 2: my colleague Tom McKenzie and I have been discussing with
Speaker 2: Bloomberg's senior economics reporter Philip Aldrick our City editor Katherine
Speaker 2: Griffiths and our housing reporter Jack Sitters.
Speaker 9: It's the combination of the one hundred percent of GDP
Speaker 9: debt level with high interest rates that has caused real
Speaker 9: constraints on public spending and what the government can do.
Speaker 9: The increase in the debt servicing costs has gone up
Speaker 9: by sixty billion pounds a year since before the pandemic.
Speaker 9: That sixty billion pounds is equivalent to the size of
Speaker 9: the defense budget, and you're not getting anything for that.
Speaker 9: So you have to take money out of services to
Speaker 9: pay for this debt servicing, or you've got to raise
Speaker 9: taxes to do this, or you could borrow more and
Speaker 9: send the debt spiraling further. These are the kind of
Speaker 9: horrific decisions that have to be that are having to
Speaker 9: be made, and that's why we've seen the tax burden
Speaker 9: just drift up to sort of the highest level since
Speaker 9: World War II, because you know, there are these ongoing
Speaker 9: public spending costs which have got no effect on the
Speaker 9: quality of public services. Just just paying our creditors doesn't
Speaker 9: help pay for nurses. So that's been this kind of
Speaker 9: core problem.
Speaker 10: Catherine.
Speaker 11: Let's bring you in at this point in terms of
Speaker 11: how the city of London is adjusting to the new government.
Speaker 11: We saw a course a number of politicians fighting for
Speaker 11: the affections of the city and businesses over the last
Speaker 11: six weeks or so. What is going to be at
Speaker 11: the top of their wish list?
Speaker 12: Well, I suppose, on the one hand, if they had
Speaker 12: a kind of ideal wish list, it would be a
Speaker 12: very very sort of tax free scenario or low taxes.
Speaker 12: So when it's banks, they don't want to have the
Speaker 12: surcharge on their profits, they don't want to have the
Speaker 12: levy on their balance sheets. But I think they are realistic.
Speaker 12: So what they're really looking for, given the constraints that
Speaker 12: feels just outlined, is they want sort of clarity. They
Speaker 12: want consistency, they want a closer relationship with Europe, and
Speaker 12: they want the UK overall to be a kind of
Speaker 12: place where they can attract the best talent. So they
Speaker 12: want all those other things to work well, public services too,
Speaker 12: so they can get people to come and work here.
Speaker 2: Attracting the best talent, though it means somewhere to live.
Speaker 2: In the planning system, the housing landscape has been incredibly difficult.
Speaker 2: Jack considers this is your beat, isn't it? How difficult
Speaker 2: it is going to be to solve the housing problem.
Speaker 13: The fact that you've even got me on for this discussion,
Speaker 13: I guess, is telling of just how much housing has
Speaker 13: risen up the agenda. The reality is today that you
Speaker 13: know a huge proportion of the housing output in this
Speaker 13: country is delivered by a very small number of private developers.
Speaker 13: They're not charities, they're focused on margin, and you know,
Speaker 13: you've had a period of suddenly increasing interest rates, so
Speaker 13: a lot of these housebuilders were very nervous about what
Speaker 13: demand would look like, so they've slowed down the amount
Speaker 13: they've been building. Inevitably, that's going to slow down, you know,
Speaker 13: the overall supply, and you just don't have the money
Speaker 13: there for the public sector to be building in significant
Speaker 13: volume as it did. You know back if you go
Speaker 13: back to the fifties and sixties, which is the last
Speaker 13: time Britain was really building, you know what, we might
Speaker 13: enough homes. The incoming government has got a huge challenge
Speaker 13: to try and stimulate that supply, and it just it
Speaker 13: won't happen quickly.
Speaker 11: On the question, Phil, we'll bring you back in at
Speaker 11: this point. Fiscal rules big feature of course of the campaign,
Speaker 11: and how how a new government will stick to them
Speaker 11: as they as they look to fund services like education
Speaker 11: and NHS do they do, they still need to stick
Speaker 11: to those to those fiscal rules is their rigal room.
Speaker 11: Because of course, loosening the fiscal purse to spend on
Speaker 11: things like tax cuts, it's very different to loosening the
Speaker 11: fiscal purse to spend on things like capex.
Speaker 9: In March, the OvR forecast that Jeremy Hunt had about
Speaker 9: eight point nine billion to spend you know, headroom under
Speaker 9: under under the fiscal rules. So there is going to
Speaker 9: be real constraints on what they can do caused by
Speaker 9: you know this this you need to show, you know,
Speaker 9: fiscal sort of prudence.
Speaker 2: Yeah, Catherine. In terms of then how that how that
Speaker 2: flows into what happens with the UK? How does Britain
Speaker 2: target foreign investment? I mean a few days before the election,
Speaker 2: I remember speaking to the country head a BNP Pariba, Menuelburi,
Speaker 2: and she was saying, you need stability, that is for
Speaker 2: more than just six months. How is Britain going to
Speaker 2: bring foreign investment in?
Speaker 12: So I think the government will start from quite a
Speaker 12: good place, which is that the UK seems quite a
Speaker 12: stable place compared to many other parts of the world,
Speaker 12: not LEAs style continental neighbors. So it's a good starting point.
Speaker 12: But I think there are a few things that foreign
Speaker 12: investors want for a start. They do want stability. They
Speaker 12: didn't like the idea of the HS two extension project
Speaker 12: being going so far down that path and then dropped
Speaker 12: by Richie Sunak, So they don't want to feel that
Speaker 12: kind of domestic politics. Trump's sort of long term planning,
Speaker 12: and they want to have kind of clear sight of
Speaker 12: what the government will do, whether it's green investment, whether
Speaker 12: it's housing or other infrastructure, because they definitely want to
Speaker 12: invest in the.
Speaker 11: UK Okay that on that challenge and then domestically, and
Speaker 11: part of the challenge around building those new homes and
Speaker 11: reaching those targets has been what nimbiism who's been has
Speaker 11: been blamed, so so local populations pushing back on developments.
Speaker 11: When I speak to people about this, those who welcome
Speaker 11: the development of buildings also say what they need to
Speaker 11: also incorporate things like additional hospitals and schools that come
Speaker 11: under pressure. How is the incoming government thinking about addressing
Speaker 11: that part of it? Are they going to rip up
Speaker 11: the regulations to just get that house building going even
Speaker 11: come what may, even if some of those issues are sidelined,
Speaker 11: or are they looking to address that as part of
Speaker 11: the mix.
Speaker 13: Yeah, so I think it's really interesting. And you know,
Speaker 13: in the time that I've spent covering this area, I've
Speaker 13: never never before heard a political party, even though slightly
Speaker 13: whispering it in the manifesto, even ignowledged the idea of
Speaker 13: building on the green belt. Now, you know, lab we're
Speaker 13: talking about building on the gray Belt, the bits of
Speaker 13: the green Belt that aren't actually very attractive. But quietly,
Speaker 13: that's actually really radical. You know, that's been a total
Speaker 13: taboo in British politics for ever since the Second World War.
Speaker 13: So that that is, I guess, probably the first indication
Speaker 13: of a potential significant change on the supply side. So
Speaker 13: the previous governments have done a lot on the demand side,
Speaker 13: policies like help to buy, trying to you know, stimulate demand,
Speaker 13: tinkering with mortgages, all that sort of stuff. But yeah,
Speaker 13: as you suggested, clearly it's it's the supply side where
Speaker 13: the issue really is now, that planning constraint and you
Speaker 13: see it, you know, you see it all the time.
Speaker 13: There's a story in the BBC about you know, a
Speaker 13: development that was had a lot of objections. It quoted
Speaker 13: six people who are opposed to development, not a single
Speaker 13: one who's in favor. Just culturally, there needs there needs
Speaker 13: to be a real change in this country about I mean,
Speaker 13: roads get clogs, schools get overfilled, there aren't enough hospitals. Absolutely, yeah,
Speaker 13: And so this is where you need to have the
Speaker 13: problem is you have planning delegated to a local level,
Speaker 13: decided by counselors who you know are very conscious that
Speaker 13: their local electorate might not like new homes built in
Speaker 13: the you know, in the field near where they live.
Speaker 13: But then you have you know, budget budgetary decisions and
Speaker 13: decisions around a lot of those bigger infrastruture things taken
Speaker 13: at a central government level. So there's there's a lack
Speaker 13: of you know, things being joined up.
Speaker 2: Yeah, Catherine A laughed. Were then on the balance I
Speaker 2: think important for our audience between regulation and sort of
Speaker 2: encouraging growth and prosperity.
Speaker 12: Yes, I suppose. Actually, of course, the UK's sort of
Speaker 12: strong regulatory system is one of its key strengths. So
Speaker 12: I think the government will know that and investors, whether
Speaker 12: they're domestic or for and also know that. But there's
Speaker 12: this real tussle actually since Brexit of the UK needing
Speaker 12: to set its own policy, and that requires kind of
Speaker 12: serious thinking which we just haven't had in the last
Speaker 12: few years. So I think a sense that people really
Speaker 12: think that through how you do balance those two things
Speaker 12: will be really important.
Speaker 2: My thanks to Bloomberg's senior economics reporter Philip Alderick, our
Speaker 2: city ed as a Katherine Griffith, and our housing reporter
Speaker 2: Jack Siddters. I'm Caroline hepget here in London. You can
Speaker 2: catch us every weekday morning for Bloomberg Daybreak Europe, beginning
Speaker 2: at six am in London. That's one am on Wall Street.
Speaker 1: Tom, Thank you, Caroline, And coming up on Bloomberg day
Speaker 1: Break weekend of pre review of some highly anticipated trade
Speaker 1: and inflation data coming out of China. I'm Tom Busby
Speaker 1: and this is Bloomberg. This is Bloomberg day Break weekend,
Speaker 1: our global look ahead at the top stories for investors
Speaker 1: in the coming week. I'm Tom Busby in New York.
Speaker 1: Over in Asia. We'll be getting the latest liew of
Speaker 1: Chinese trade and economic data and for details in what
Speaker 1: investors are expecting, let's head to Bloomberg Daybreak Asia co
Speaker 1: hosts Brian Curtis and Doug Krisner.
Speaker 3: Tom Earlier in the week, the official Chinese PMI data
Speaker 3: showed factory activity contracted for a second straight month in June,
Speaker 3: and at the same time, a sub index of new
Speaker 3: factory orders slipped as demand weekend. Now, this weakness in
Speaker 3: manufacturing is certain not to please policymakers. They've been looking
Speaker 3: for improvement.
Speaker 14: In May. Strong exports capt production lines at the factory's humming,
Speaker 14: but domestic demand remained stubbornly subdued, and rising trade tensions
Speaker 14: with the United States and also with the European Union
Speaker 14: have added uncertainty to the prospects for overseas shipments.
Speaker 3: And we got some perspective on the Chinese economy from
Speaker 3: Shazad Kazi. He is the COO and managing director at
Speaker 3: China Beijes Book.
Speaker 10: I think if you want to talk about the gdp H,
Speaker 10: you know, I agree that we may not get to
Speaker 10: five percent this year despite what the you know, what
Speaker 10: the party claimed up front. But I think pulling back,
Speaker 10: let's talk about where the economy is. It kicked off
Speaker 10: on a pretty solid state in the first quarter, and
Speaker 10: where you're getting to now is that the pace of
Speaker 10: improvement has faded, there's no question about it. But we
Speaker 10: are nowhere near, I think, a level where Beijing starts
Speaker 10: to feel the pressure to unleash stimulus and large enough quantities,
Speaker 10: which is exactly which is what the markets are hoping
Speaker 10: for right now.
Speaker 14: If you're a policymaker and you had been hoping that
Speaker 14: exports and manufacturing would would help bring the economy along,
Speaker 14: knowing that the consumer side was a little bit weak,
Speaker 14: and so that's not really happening. So I think what
Speaker 14: is being suggested by some is that they need to
Speaker 14: do something. Maybe it comes out of the Third Plan,
Speaker 14: or maybe the PBOC just sort of increases the oomph
Speaker 14: of the home buying scheme, which you know, could could
Speaker 14: do the trick. It's just not big enough at the moment.
Speaker 10: And look, you know when when they get into the plan,
Speaker 10: and one of the things I think they may also
Speaker 10: talk about is claim some victory finally housing, you know,
Speaker 10: turning in some somewhat better news by comparison. By the way,
Speaker 10: I should point out, commercial property is starting to suffer
Speaker 10: a little bit, and so increasingly when we think about
Speaker 10: the Chinese property market and what needs to be done,
Speaker 10: in terms of a rescue plan, Investors might go from
Speaker 10: worrying solely about housing to worrying still about housing a
Speaker 10: little bit, but increasingly getting caught up with what's happening
Speaker 10: to commercial real estate in China.
Speaker 3: So we know the story on the inflation, to what
Speaker 3: extent will the PBOC, to Brian's point, kind of lean
Speaker 3: in and do something that is maybe a little controversial,
Speaker 3: something very similar to quantitative easy.
Speaker 10: We're increasingly thinking, you know, hearing about the fact that
Speaker 10: you know, the PBOC wants to get involved UH in
Speaker 10: bond buying and that sort of thing. So there's there's
Speaker 10: there's a likelihood that we get some more information and
Speaker 10: announcements to that end, and that can help. But but
Speaker 10: let me point something out. Liquidity in the system has
Speaker 10: not been a challenge in China, UH, and and that
Speaker 10: is not a challenge today. If anything, I would argue,
Speaker 10: looking at the data, there's plenty of liquidity out there
Speaker 10: and there, and and banks are willing to lend, and
Speaker 10: banks are cutting back on raids, banks are cutting back
Speaker 10: on rejections the way they used to reject loans a
Speaker 10: couple of years ago.
Speaker 2: UH.
Speaker 10: Companies are just not going out there and borrowing. So
Speaker 10: what exactly is the problem and what exactly is the solution?
Speaker 10: We have to always think about that thing will carefully.
Speaker 3: He is Shazad Kazi of China Beage Book and for
Speaker 3: a look at what's happening in the mainland economy. We
Speaker 3: are joined by Bloomberg's Jill Diesis. She is Bloomberg News
Speaker 3: Desk editor. She was also China ecogov editor, and we're
Speaker 3: pleased to have her joining us from our studios in
Speaker 3: Hong Kong. We can talk about the monthly activity data
Speaker 3: in a moment, Jill, we're expecting those numbers in the
Speaker 3: week ahead industrial production, retail sales, to name two. Let's
Speaker 3: jump off what Shahzad was talking about there, particularly as
Speaker 3: it relates to the Plenum. That's obviously the big meeting
Speaker 3: top ranks of the Chinese Communist Party. So we'll concern
Speaker 3: about the economy. Do you think be the primary topic
Speaker 3: of the third Plenum?
Speaker 7: I think at this point it's a bit tough to say.
Speaker 7: I mean, look, the economy has done at least reasonably
Speaker 7: well this year. I realized that some of those numbers
Speaker 7: recently haven't been particularly strong. I think those PMI numbers
Speaker 7: from June thirtieth, in particular a bit weaker than expected,
Speaker 7: seeing that second month straight of traction for factories. But overall,
Speaker 7: I mean, there have been other parts of the economy
Speaker 7: that have held decently well. Exports did actually outperform in May, so,
Speaker 7: you know, leading to you know, there's a lot of
Speaker 7: concerns over obviously how much EU tariffs and the like
Speaker 7: are actually going to impact exports in the future. But
Speaker 7: I think that you know, the economy did at least
Speaker 7: hold up reasonably well from a manufacturing export perspective in
Speaker 7: the first six months of the year. Obviously demand continues
Speaker 7: to struggle, but that is, you know, at least a
Speaker 7: question there. I think what you're likely to see, at
Speaker 7: least with the you know, this third plan of maybe
Speaker 7: there's some talk about the economy, but also I think
Speaker 7: some of those longer term geopolitical goals that Shi Jinping
Speaker 7: ultimately has run developing advanced tech do seem to be
Speaker 7: big factors that he's been focusing on, at least for
Speaker 7: the past couple of months.
Speaker 14: What do you make of that notion that we've heard
Speaker 14: a little bit more about lately, the possibility of the
Speaker 14: PBOC scaling up that home buying scheme.
Speaker 7: That I think is you know, maybe a possibility. So
Speaker 7: this idea is, you know, this home buying scheme introduced
Speaker 7: in May does seem to be maybe you know, there's
Speaker 7: a lot of talk about whether that's really that silver
Speaker 7: bullet to kind of help you know, the property market
Speaker 7: after so many years of you know, issues and problems.
Speaker 7: Right now, a lot of economists are still saying though
Speaker 7: that it does lack the sufficient scale needed to actually
Speaker 7: boost the economy, you know, sort of solve the property
Speaker 7: markets issues. I think that we haven't really seen a
Speaker 7: whole lot of you know, continuous months of obviously you know,
Speaker 7: that in action to to you know, maybe affect something.
Speaker 7: But that does at least seem to point to you know,
Speaker 7: some likely you know, this the strategy that actually might
Speaker 7: be useful in helping the property market. So maybe there
Speaker 7: is some room to scale things out there.
Speaker 3: Brian and I were talking a while ago about the
Speaker 3: very strong reading from Tai seen the manufacturing PMI data
Speaker 3: that measures kind of small and medium sized businesses. So
Speaker 3: let's weigh that against what the official PMI data was indicating.
Speaker 3: And I'm wondering, is there a bit of bycation within
Speaker 3: the Chinese economy right now, which is to say, smaller
Speaker 3: medium sized businesses maybe holding up very well, but the
Speaker 3: larger firms are having some more challenges.
Speaker 7: Possibly. I will point out that there has actually been
Speaker 7: quite a bit of divergence between those gauges over the
Speaker 7: past year or so, the idea that the Kaishin gauge
Speaker 7: actually does outperform the official one quite frequently. I think
Speaker 7: that really comes down to, first of all, as you mentioned,
Speaker 7: it is smaller medium sized businesses. It's also a lot
Speaker 7: more export oriented firms. Is as we mentioned earlier in
Speaker 7: this conversation, exports actually did fairly well in May, so
Speaker 7: maybe that is an indicator that there has been, you know,
Speaker 7: some continue you know that's continuing to hold firm at
Speaker 7: least a bit in June. But ultimately, yeah, I mean
Speaker 7: it's it's difficult to kind of take these things in
Speaker 7: combination with each other, but you know, there is that
Speaker 7: acknowledgement that there's some difference between these things. Does seem
Speaker 7: to cover different firms, maybe more export oriented ones. I
Speaker 7: wouldn't really read too much into the fact that they're diverging,
Speaker 7: just because that's been a pattern that we've been following
Speaker 7: for quite some time.
Speaker 14: Well, let me give you something else that's mildly positive.
Speaker 14: We did see a pickup in auto sales in the
Speaker 14: month of June, and the numbers from BYD at more
Speaker 14: than three hundred and forty thousand cars. That was more
Speaker 14: than one hundred and ten thousand cars more than the
Speaker 14: same month last year. And yes, we know that it
Speaker 14: was because of discounting, but you know, discounting is part
Speaker 14: of what you do in economic conditions to try to
Speaker 14: get the sales moving again. So I wonder if some
Speaker 14: other industries might pick up on that, and whether or not,
Speaker 14: you know, that bodes well for the future.
Speaker 7: Yeah, I think we'll have to see. I mean, certainly, China,
Speaker 7: at least when it comes to cars in particular, has
Speaker 7: been a bit smart about trying to get up demand there,
Speaker 7: So we'll see whether that continues to hold. I know that,
Speaker 7: you know, they've also introduced a variety of other schemes
Speaker 7: over the past several months to try to really really
Speaker 7: boost domestic spending in particular. I think that's been to
Speaker 7: you know, somewhat mixed effect. Obviously, you know, inflation continues
Speaker 7: to be quite low in China, We're still seeing ongoing
Speaker 7: issues with demand there, but there have been various programs
Speaker 7: introduced to kind of get people to buy more home goods,
Speaker 7: for example. So I wouldn't be surprised if you see
Speaker 7: trying to you know, try to you know, gin up
Speaker 7: some domestic demand by turning to those types of programs.
Speaker 3: That's kind of a nice segue into the monthly activity data.
Speaker 3: We've talked a little bit about the export economy, and
Speaker 3: that takes care of some of the industrial production component.
Speaker 3: Retail sales that's going to be key too, and the
Speaker 3: health of the China consumer. I'm wondering whether or not
Speaker 3: there is a way for authorities to dissuade a little
Speaker 3: bit of personal savings. We know that there's been a
Speaker 3: great deal of savings going on and maybe at the
Speaker 3: expense of the retail economy. Is there any way that
Speaker 3: authorities could address that issue as a way of ginning
Speaker 3: up retail sales a bit.
Speaker 7: I mean, this is one thing that they've really been
Speaker 7: struggling with for really the past year, right, you know,
Speaker 7: introducing you know, some you know kinds of you know,
Speaker 7: you know, this idea of introducing programs that are actually
Speaker 7: going to get people to spend more money. As we
Speaker 7: you know, China is you know, incredibly reluctant to roll
Speaker 7: out policies that you'd see and other economies, particularly in
Speaker 7: Western economies, such as offering people subsidies to try to
Speaker 7: get them to spend more. So I'm not sure that
Speaker 7: we're going to see anything on like an extremely massive
Speaker 7: scale there, but yeah, maybe there's other types of programs,
Speaker 7: or at least on like sort of the local government level,
Speaker 7: maybe you'll see local authorities try to introduce some kinds
Speaker 7: of programs to get people spending again. It's just it's
Speaker 7: been obviously an incredibly difficult thing for the for China
Speaker 7: to really kind of get that going.
Speaker 14: More and more programs so one that would affect people
Speaker 14: like you and me and Doug. Non Chinese residents of
Speaker 14: Hong Kong can now get five year visas going into
Speaker 14: China multiple entry, which is kind of interesting. It's a
Speaker 14: small step, but it shows that they're willing to try
Speaker 14: different things.
Speaker 7: I'd actually say, Brian, I mean that's part of this
Speaker 7: ongoing program that China's really been doing to get you know,
Speaker 7: not just you know, residents of Hong Kong, but also
Speaker 7: in international visitors, you know, going to China more frequently.
Speaker 7: I mean, look at the number of visa waiver programs
Speaker 7: that China has implemented over the past several months, right,
Speaker 7: I mean, you just recently saw Australia and New Zealand
Speaker 7: added to this program for allowing visa free entry. There's
Speaker 7: been some major economies in Europe as part of that
Speaker 7: program as well. I mean, China, I think, has really
Speaker 7: been trying to get on the charm offensive with a
Speaker 7: lot of these you know, these international tourists and stuff
Speaker 7: to try to you know, maybe boost you know, international
Speaker 7: spending that way, getting people into China and actually spending
Speaker 7: money improving international tourism that way.
Speaker 3: So obviously, we are heading into a presidential election here
Speaker 3: in the States in November, there's been a lot to
Speaker 3: talked about where tariffs are concerned on Chinese goods. Do
Speaker 3: you think this is a worry for for Beijing.
Speaker 7: Yeah, certainly they're worried about this. I mean, look, you
Speaker 7: just saw, you know, fairly recently, China has really been
Speaker 7: trying to push back against a lot of these tariffs.
Speaker 7: Even the Foreign Minister earlier this year flagged the idea
Speaker 7: of tariffs from the US or the EU, you know,
Speaker 7: as being incredibly unreasonable, as being you know, sort of
Speaker 7: a threat at least you know, some sort of implicit
Speaker 7: acknowledgement there. Very recently you had a pretty high level
Speaker 7: delegation from Germany which has been trying to push for
Speaker 7: negotiation on these tariffs because of how important Chinese goes
Speaker 7: are to the German economy there. You know, they were
Speaker 7: visiting trying to you know, figure things out here. As
Speaker 7: of right now, I mean, you've got some provisional tariffs,
Speaker 7: you know, kicking in definitive duties really more of a
Speaker 7: likelihood in November of this year. But China, I think,
Speaker 7: has really been trying to figure out ways to sort
Speaker 7: of negotiate some of these things down and really preserve
Speaker 7: that kind of trade. Obviously, this is going to be
Speaker 7: a big question for China.
Speaker 3: Jill, thanks so much for sharing your perspective. Jill desis there,
Speaker 3: Bloomberg News Desk editor joining us from Hong Kong. I'm
Speaker 3: Doug Krisner along with Brian Curtis. He's in Hong Kong
Speaker 3: and you can join us weekdays here for Bloomberg day
Speaker 3: Break Asia, beginning at eight am in Hong Kong. Eight
Speaker 3: pm on Wall Street.
Speaker 1: Tom, thank you Doug, and thank you Brian. And that
Speaker 1: does it for this edition of Bloomberg day Break Weekend.
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