November 21, 2025 • 38 mins
Bloomberg Daybreak Weekend with Host Nathan Hager takes a look at some of the stories we'll be tracking in the coming week.
- In the US – a look ahead to earnings from Dell, Kohl’s Abercrombie & Finch, and retail ahead of the holiday season.
- In the UK – a look ahead to the UK's highly anticipated autumn budget.
- In Asia – a look ahead to China PMI data.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:10):
This is Bloomberg Daybreak Weekend, our global look at the
top stories in the coming week from our Daybreak anchors
all around the world. Straight Ahead on the program, we
look ahead to earnings from IT Hardware, Giant Dell, and
retail ahead of the Thanksgiving holiday. I'm Nathan Hager in Washington.
Speaker 3 (00:27):
I'm Carolin hepget here in London, where we're looking ahead
to be a case highly anticipated or too budget.
Speaker 4 (00:32):
I'm det Prisner looking at why China's economy continues to struggle.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine Boston, DAB Digital Radio, London, Syrias
XM one one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business app.
Speaker 2 (01:02):
Good day to you. I'm Nathan Hager. We begin today's
program with more tech earnings. Yep, we're not quite done
with them just yet. Well here from IT Hardware Giant Dell.
It opens it's third quarter books after the market close
on Tuesday. Ahead of it We're joined by Wu jin Ho,
senior technology analyst for Bloomberg Intelligence. Great to speak with you,
(01:23):
and I guess we're sort of coming off the glow
of Nvidia's earnings this past week, Right, does the AI
chip giant inform how you're thinking about what we could
get from Dell this week?
Speaker 5 (01:34):
Yeah, Hey, Nathan, thanks for having me on. You know,
the Nvidia results are actually quite positive for Dell's AI story.
You know, there's a twenty billion dollar sales outlook for
fiscal twenty six. There is maybe a little bit rooper
upside in the third quarter results and as well as
the fourth quarter outlook and the twenty five The fiscal
(01:56):
twenty five twenty seven outlook looks very promising as well,
given the momentum. Now, the issue is its profitability, Right,
the AI story AI service have not been the most
profitable for the industry. Dell has actually done a fairly
good job and we'll see where they are on the
profit margin side.
Speaker 2 (02:15):
Well, does that tell you then that we could see
the AI data center business for Dell overshadow it's more
traditional PC business.
Speaker 5 (02:24):
Well, look, that's going to be one of the data
points that investors are going to be pointing to there's
actually a lot of controversy on Dell heading into the print.
For the traditional businesses, memory pricing has come in focus.
You know, the DRAM chips that goes into your PCs
as well as the servers that's been up three hundred
(02:44):
percent over the last month or so, and that could
potentially not only affect margins in the near term, but
also the pricing dynamics. And given how elastic in elastic
that the PCs can be, that could affect the man.
Speaker 2 (03:00):
Well, how could Dell potentially get past some of the
drag on its margins that you see from the AI servers.
Speaker 5 (03:07):
Yeah, it's really tough to say. It's probably going to
be very, very tough. And they actually did a good
job out of their recent analyst day on keeping their
guidance on AI server margins low. They've guided to admit
the high single digit AI server margin, which is a
very sobering outlook and a realistic outlook. So if they
(03:31):
do a better job on the AI server side, on
the margin profitability side, there is room for upside, but
it's already baked into expectations. So I'm comforted by that now.
Speaker 2 (03:43):
In your note leading up to these earnings. You say
you're looking for signs of improvement from Dell when it
comes to operational changes. Can you walk us through what
you're thinking there.
Speaker 5 (03:52):
Yeah, absolutely so, a couple of things that Dell has
been doing over the past couple of quarters of streamlining
the operations, cutting costs, and they actually were on the
forefront on some of the cost actions in terms of
relative to the growing AI mix, And I do think
(04:15):
there's scope for Dell to maintain a high single digit
operating margin profile despite a growing AI mix.
Speaker 2 (04:26):
Now, of course, a lot of people who follow this
company closely know that the federal government is a pretty
important customer for Dell. Of course we've had a government
shut down. Now that the government's back open, how could
that feed into the outlook for Dell?
Speaker 5 (04:42):
Yeah, so, well, from from a results perspective, you know,
there might be a chance that it might be a
drag on earnings. Now, No, the outlook is going to
be a little iffy in the sense that it may
take a little bit, little bit or some time for
the federal government to really start ramping up their spending engine,
(05:07):
So there might be some headwind on the growth outlook.
But it's going to be just a temporary blip in
my mind, and should the focus will turn to fiscal
twenty twenty seven guidance thereafter.
Speaker 2 (05:20):
And in terms of the AI business overall, does that
point to opportunities for Dell? Or is the competition just
too fierce out there?
Speaker 5 (05:30):
No, you know, I will tell you all the AI
server vendors have been very aggressive in terms of winning
the footprint. Among the AI server vendors to have stood out,
super Micro and Dell being the other one. I do
think that of you know, of the hardware vendors are
(05:53):
that are out there, Dell is probably one of the
better position to win more global global footprint sales. And
you know, good back to you margin question that could
help the margins as other players decide to back out.
Speaker 2 (06:05):
Appreciate this, Thank you so much. That is wou Jin Hoe,
Senior technology analyst for Bloomberg Intelligence. We move next to
the retail space. A couple names in that sector open
their books on Tuesday as well. That would be Cohle's
and Abercrombie and Fitch. We're also expecting overall retail sales
numbers that would have come out sooner if not for
the government shutdown September figures are due out Tuesday as well.
(06:28):
Busy times for Mary Ross Gilbert of Bloomberg Intelligence. She's
a senior equity analyst who covers retail. It is so
great to have you with us as well. Of course,
we've been hearing from so many of the retail giants lately.
We got target results that were kind of different from
Walmart's results. What does that tell us about what we
could be getting this week? Mary, So, Nathan, it's.
Speaker 6 (06:51):
A great question, and I think what we're going to
see come Tuesday, I think Abercrombie actually could have a
miss and it's really going to be on their gamesake,
and we might have you know, and this is based
on Bloomberg Second Measure transaction data. We might have less
of an increase on the Hollerster side of the brand,
so that could also impact their results. But with regard
(07:14):
to Coals, Coals, we think they probably need expectations. They're
looking for a like a round of four or five
percent decline in sales because they're still trying to get
their assortments right. And then of course operating margin is
expected to drop and it's pretty low as it is.
It's already in the low single digits, so you know,
Coals really has a lot of a lot to get right,
(07:37):
and that's going to be a big focus how they're
positioned for holiday and where their comp sales are on
a monthly basis, because we did see in July that
they were flat, so there was encouragement that maybe those
sales could improve with the third quarter. So we'll see
that when they go to report on Tuesday.
Speaker 2 (07:55):
Let's hone in a little bit more on Coals because
this is one of those kind of departments store or
is that sort of feeds to all ends of the
retail spectrum, doesn't it whether you're a value conscious consumer
or someone who's more willing to spend on the high end.
Speaker 6 (08:12):
Yeah, they do. They really skewed to the lower end consumer,
you know, really on the value segment, as you pointed out,
And one of the merchandising mistakes that they made last
year is that they really they cut back on private
label and that was really a good category for them.
The brands that they have, the private brands like so Sonoma,
(08:35):
really resonate with their customers and so bringing those back,
they've already started to see a boost in their sales
because of that. The other thing they did was they
got rid of or honed back on petite sizing, and
that was another very very important category for them having
that exercising, So bringing all that back, they're already seeing
(08:55):
a lift and it's also higher margins, so that's also
helping them on the margin side. So we haven't seen
the erosion that we thought we would with tariffs, so
they've really made no comments on tariffs having an impact.
So that's going to be, you know, a big focus.
But really, you know, Macy's is going to come in
the following week and we think we're going to see
(09:15):
better trends there because we think their strategy going in
and bringing back service of bringing in more relevant brands
is really starting to show some traction there. And we
should see potentially positive comp sales come out of Macy's
for the go forward business, because that's really the focus there.
(09:36):
Dillard's already reported and they came in with a very
nice three percent increase in comp sales, So a good
sign for department stores.
Speaker 2 (09:47):
And there are probably some investors who have memories of
the scandal surrounding the previous CEO of Coles. Has the
department store gotten past that.
Speaker 6 (09:58):
I think they have real The current interim CEO that
they have seems to be doing a really good job
very quickly getting things back into the store that matter.
For example, they're going to have fine jewelry and over
twenty five percent of the stores. I mean, yeah, they
need to have it in the vast majority of the
stores for the holiday season. But it's a big improvement
(10:21):
from when they brought in so fora and they did
it as a replacement of jewelry, not something you can
really do because that's a key gifting category for consumers
during the holidays and other key gifting seasons. So he's
making some decisions very quickly that are showing green shoots
of improvement there, and I think that is encouraging for Cohle's.
Speaker 2 (10:46):
And let's turn in the time we have left to
Abercrombie and Fitch. You mentioned some of the challenges that
some of its specific brands could be facing. Talk us
a little bit more through that and how name brand
apparel is faring overall in this current economic environment.
Speaker 6 (11:02):
Yeah, so, Nathan, Actually, overall, I would say apparel overall
looks to be very strong, especially for those that are
executing and if you look on let's say the off
price because we had TJX report and they had great numbers,
So that just goes to show you they're carrying all
the name brands and the consumers love it, so they're
(11:22):
flocking to off price. But going back to Abercrombie, Abercrombie,
the namesake brand, has posted four years of double digit
comp sales increases, so we're now cycling those four years
and thus why their sales are coming in lower year
over year on a comp sales basis. So it's really
hard to keep bringing in more newness, more excitement to
(11:46):
keep that going. And their core customer there are really
the millennials. Their Hollister brand has really shows that that's
still performing well. Now is it performing as good as
analysts expect based on the data, We're not so sure,
but that's something we're going to look for next Tuesday
when they go to report their results. And Hollister really
(12:08):
caters to the gen Z customer, and that customer, by
the way, loves to shop in store. Seventy percent of
their sales are generated in store, and Abercrombie sixty percent
are generated online.
Speaker 2 (12:21):
Lots to think about in the retail space. Thank you
for this, Mary really appreciate it. That's Mary Ross Gilbert,
senior equity analyst covering retail for Bloomberg Intelligence, and coming
up on Bloomberg day Break weekend, we'll look ahead to
the UK's highly anticipated autumn budget. I'm Nathan Hager, and
this is Bloomberg. This is Bloomberg day Break weekend, our
(12:53):
global look ahead, the top stories for investors in the
coming week. I'm Nathan Hager in Washington. Up later in
our program, we'll look ahead to key economic data from
the world's second largest economy. But first, in a few
days time, UK Chancellor Rachel Reeves will deliver an autumn
budget which she helps to lessen the debt burden plaguing
the country's finances. The announcements become one of the most
(13:14):
hotly debated fiscal events of the year among investors, economists,
and business leaders. But will Reeves be able to balance
party politics and prudence for more, Let's go to London
and bring in Bloomberg Daybreak. You're a banker, Caroline Hepger.
Speaker 3 (13:28):
Nathan, The Labour government has endured a volatile period of
pre budget u turns and a political crisis in recent weeks,
yet one constant has been the Chancellor's indication that she
plans to give herself more breathing space against her own
fiscal rules. However, with an income tax hike appearing to
be dropped and Reeves favoring multiple smaller tax increases instead,
(13:53):
investors and economists are skeptical about how she can make
the numbers out up now. Trade is embracing for volatility
as the deadline to share her economic plans for the
country looms large. The cost of one week options, which
now spans the upcoming fiscal event, have climbed to multi
month highs for major sterling pairs. This in recent days
(14:15):
as traders pay to protect themselves against potential swings in
the pound. According to Bloomberg strategists, the waters have also
been muddied ahead of the announcement. There are worries that
the government could wrong foot the markets. Reeves's bid to
increase the fiscal headroom comes against the backdrop of a
significant deterioration in the public finances since her last economic
(14:37):
statement back in the spring. She left herself a slim
nine point nine billion pound margin against her spending rules,
a buffer near historic lows now. The latest forecast from
the Office for Budget Responsibility showed that her position has
worsened by about twenty billion pounds since then, driven lower
by a productivity downgrade those policy u turns. I mentioned.
(15:02):
That's as the foots you one hundred had its worst
one since August in the lead up to the budget
amidst worries about AI being a bubble and signs of
corporate pain. With the somewhat erratic data in the UK
showing unemployment rising, it all does raise the bar for
the Chancellor as she tries to navigate Britain's finances without
(15:25):
spooking investors or exacerbating the flight of global capital. Camickshire Trevedi,
chief FX and Emerging Market Statues at Goldman Sachs, tells
me there are a number of factors at play.
Speaker 7 (15:39):
Look, I think it's a really interesting juncture for the UK.
I think the inflation released, the fact that it has start,
you know, come down, alongside some of the weaker labor
market data that you had in the last couple of weeks,
I think those are important. I mean, there's obviously been
a lot of back and forth, a lot of uncertainty
around you know, exactly what he is and isn't going
(16:00):
to be in the budget. I mean, if you take
a step back and think about it from a macro standpoint,
irrespective the exact tax and spending decisions that they make,
it looks like this is going to be a budget
that is going to be fiscally conservative.
Speaker 3 (16:14):
Camik Shire Trevedi, Chief FX and Emerging Market Strategists at
Goldman Sachs speaking there to me and Stephen Coat on
Bloomberg Radio.
Speaker 5 (16:23):
Well.
Speaker 3 (16:24):
Also part of the equation are the political pressures facing
the Chancellor, who is attempting to unite what seems like
a fragmented parliamentary Labor Party. The delicate balance between investors,
voters and MPs is something I've been discussing with Bloomberg's
Chief UK economist Dan Hanson and our UK politics reporter
(16:45):
Joe Mays. Dan, can I start with you just on
the economics. Firstly, there's been some back and forth about
just how big of a fiscal whole Rachel Reeves is facing.
Can you just give us an update on the latest
expectations from the Office of Budget Response Stability and what
that means.
Speaker 8 (17:02):
Sort of reading between the lines of everything we've heard
and particularly from our Bloomberg News colleagues, the number seems
to be around twenty billion pounds. The fiscal slippage, now,
that's made up of quite a few things, and actually
quite a few offsetting things. The biggest reason for the
whole is that the OBR, which is the UK's fiscal watchdog,
(17:23):
is going to reappraise how quickly it thinks the economy
can grow in the medium term, in particular how quickly
productivity in the UK economy is likely to rise over
the next five years. That is the single biggest factor
determining the fiscal forecast, the path of productivity growth. So
if you change that, you play around with the numbers
(17:44):
quite significantly, and we think that could blow a twenty
billion pound hole in of itself. In the public finances,
interest rates are a little bit higher, there have been
some policy u turns that probably adds another ten billions.
That gets you to thirty. The reason why you then
come back to twenty is that the OBER looks like
it will also take a look at its wage growth forecast,
(18:07):
which is quite low compared to other forecasters, and obviously
that gets some money back for the Chancellor. So I
think a reasonable expectation is something in the region of
twenty billion pounds.
Speaker 3 (18:18):
So that's the economics. What about the politics. We've heard
a lot about the political pressure facing the Chancellor as
she's preparing for the budget statement. Where is it coming from?
Speaker 9 (18:29):
Joe Well, I think the political pressure is really around
this question of can Reeves afford to do a budget
that really annoys labor, MPs and the public, And that
really is what she is in line to do because
she has to increase taxes, have spending restraints to fill
the fiscal hole that Dan just described. And really the
(18:49):
question of this budget has been for me, how aggressively
can she fill that hole with things like tax increases,
How large can she build her fiscal buffer to give
her reading space for the rest of the Parliament. Now,
my sense from the Treasury, you know, about a month ago,
was that she was willing to go quite aggressive. She
was really willing to build that fiscal headroom up perhaps
(19:09):
up to twenty pounds twenty five and really impressed markets,
show markets that she was a very strong, stable chancellor
and she hoped she'd be rewarded with lower borrowing costs
and that would help her for the rest of the Parliament.
Then we saw this change in the last few weeks
where it seemed like, especially with the briefing against where's
streeting from number ten and how that immediately shone a
light on the leadership of kir Starmer and raised questions
(19:32):
about how stable he is, which in turn raises the
question about how stable.
Speaker 7 (19:35):
Rachel Reeves is.
Speaker 9 (19:36):
It's such a partnership there that it seems like what
happened was they've realized they couldn't go so aggressive with
the tax increases, especially touching the manifesto promises around income tax,
notsh insurance VAT. So they've rolled it back to a
certain extent to ward off some of that threat from
labor MPs. And that's why we've got this new position
(19:56):
where it looks like the manifesto won't necessarily broken. She
will still try and you know, restore her fiscal buffer,
perhaps increase it a little bit, but I don't think
as much as she might have done before that whole.
Speaker 3 (20:05):
Episode Dan do her plans add up though without major
tax hikes increases to the headline rate of income tax.
Speaker 8 (20:15):
What was quite strange about what was being briefed is
that they were going to do this too up two
down policy where they'd raise income tax by two p
but cut national insurance by two p And it seemed
to me that if you're going to break the manifesto,
you might as well break it big time and really
raise some money, because six billion pounds is not a
lot of money to raise. So it seemed like, I
(20:37):
understand it was sort of there was an attempt to
sort of go through that muddy path of not upsetting
labor MPs too much, but it seems like the big
revenue raisers are off the table, and that does make
it a lot harder to raise the money. You know,
you can look at it now and say, well, if
I put capital gains tax, I put that up by
one percentage point. You know that currently raises X, Well
(21:00):
I could get a little bit more money. But what
actually happens is that people look at that and move
their money elsewhere. And the tax base is very mobile.
So if you have a lot of small measures with
that risk attached, you end up in a world where
you struggle to raise you potentially, I should say struggle
to raise the money. There's just a lot more uncertainty.
You know, there's a sort of backloaded in sort of
(21:20):
the parlance, the backloaded element to it, which isn't what
market's like to see. They're not like an upfront down
payment when it comes to fiscal when it comes to
a fiscal adjustment.
Speaker 3 (21:30):
Yeah. Absolutely. In terms of the pre announcement that you mentioned,
the big speech which laid out her economic thesis a
couple of weeks ago, did that do more harm than good?
Speaker 9 (21:44):
I think the immediate harm we've seen is that it
has created a sense of chaos and loss of control
around narrative for this budget, because you've had Reeves clearly
preparing the country for one thing and then moving away
from that in the you know, the last couple of weeks,
and that does give an air of lack of control
(22:05):
and wayward government, and that is clearly harmful. But I
think that the kind of counterbalancing point is that she
did nevertheless prepare in the minds of voters the idea
that the Manifesto could be broken, and now it's like
we're heading for a budget where it isn't broken. And
so you can see why the ultimate outcome is a
(22:25):
kind of net positive for Reeves in that she can
say I haven't broken the manifesto and we still have
stable public finances because everything I've announced and we've kept
our promises. So I think ultimately it's landed in a
place that isn't awful for Reeves. And you can see
why she did it in that they know the OBR
productivity downgrade that Dan just described is very hard to explain,
(22:50):
and if Reeves hadn't done that, it would have been
lost pretty much entirely on budget day and in the
post budget coverage, where all of the newspaper headlines would
have been about the taxing increases. So I think Reas
wanted to get out there first and make a case
in a moment where the public were focusing on that
rather than the tax rises.
Speaker 3 (23:10):
Dan, just if we look forward to the next few days,
is there a particular announcement which could spook markets or
which would spook markets the most.
Speaker 8 (23:21):
I mean that's hard to any particular one. It's hard
to put nailed down. I mean, a thing that markets
don't want to hear anything about is something that increases inflation.
So any sense that a policy, the policies are or
the setup policies I should say, aren't particularly disinflationary, that's
(23:42):
going to be a big warning sign for markets and
you're only going to get a negative reaction. I think
the other thing, going to Joe's point, it's very hard
to know exactly what the market expects in terms of
building the headroom against the fiscal rules. But you know,
if she only adds five billion to the headroom, it's
(24:05):
not really I mean it's nothing really. So I still
think that I still think there's possibly a rabbit out
of the hat whereby Originally the plan was to build
twenty five billion pounds of headroom using that income tax rise.
Now maybe it'll be closer to twenty because I think they're,
you know, going to Joe's point about politics of this
(24:26):
and what's the best path for Reeves. If there is
a strong mark negative market reaction, that's going to be
a problem for her as well. So you know, there's
that side of it as well that she's trying to
balance as well as the politics.
Speaker 3 (24:39):
My thanks to both of you for joining me. That
is our chief UK economist, Dan Hanson and our UK
Politics report at Joe May's. I'm Caroline Hepgar here in London.
You can catch us every weekday morning for Bloomberg Daybreak.
You up beginning at six am in London. That's one
am on Wall Street.
Speaker 2 (24:53):
Nathan, Thanks Caroline, and coming up by Bloomberg Daybreak Weekend.
We'll look ahead to offish or pm I figures in China.
I'm Nathan Hager, and this is Bloomberg. This is Bloomberg
(25:16):
Daybreak Weekend, our global look ahead, the top stories for
investors in the coming week. I'm Nathan Hager in Washington.
We turned out to China, where there's a question as
to whether the economy will hit this year's growth target
of five percent. In the week ahead, Beijing releases it's
official PMI figures from more. Here's Doug Krisner, host of
the Daybreak Asia podcast.
Speaker 4 (25:36):
Nathan weak. Economic momentum in China has persisted from the
third quarter into the early part of the fourth quarter,
and the slowdown appears to be broad based. For a
closer look, I'm joined by John Liu, Bloomberg Executive editor
for Greater China. John joins us from our studios in Beijing. John,
thank you for being here. I'd like to start with
this PMI data, and I'm curious as to whether we're
(25:59):
going to learn anything new regarding the Chinese economy.
Speaker 10 (26:02):
I think the PMI data that we get is going
to show a continued weakness in the economy. Manufacturing PMI
has been a contraction for seven consecutive months. I think
we will get an eighth consecutive month. Services PMI has
been very, very close to that fifty point edge between
(26:23):
contraction and growth, and I think we will stay there.
There's even a danger that we will slip into contraction
for services as well.
Speaker 4 (26:30):
You know, it's interesting that you made that point about
services because when I look at some of the more
high frequency type data coming out of China, or even
the monthly activity data for the most recent month, demand
domestically is still struggling. And I know the government has
been trying to figure out a way to address this issue.
Are there any novel ideas that have kind of emerged,
(26:52):
or is it basically turning into a bit of a
treadmill and going back to the old playbook to try
to figure out what approach may be work.
Speaker 10 (27:01):
So I think the situation has actually gotten a little
bit worse in the last month or so. So we
got data for the month of October and that showed
the thing that really surprised people was a drop off
in investment in China, and so investment is almost half
of GDP, and so we get investment data that's on
(27:23):
a year to date basis. So when we got the
October data, it was for the first ten months of
twenty twenty five, So we have to calculate on our
own what happened in October, and most economists believe that
investment fell eleven percent more than eleven percent in October.
That would be the biggest decline since the beginning of
(27:44):
COVID back in twenty twenty.
Speaker 4 (27:46):
Is it a demand issue or is there a problem
with the financial system in China where things are becoming
a little clogged.
Speaker 10 (27:54):
So it's a combination of a lot of different things.
On one hand, there's been some weakness in exports, and
so that means there's less incentive for companies to be
investing in new factories, et cetera. The Chinese government's also
been pushing for sort of trying to reduce the capacity
problem that we have in China. There are too many
(28:15):
factories turning out too many goods that are all trying
to get exported, and that's causing friction with trade partners,
not just the US but Europe, with South America, with Africa,
with countries around Southeast Asia, and so the government's trying
to pull that back. That's been reducing the impulse to
build out factories, to invest at a corporate level. And
(28:36):
at the same time, the government has been pushing local governments,
so cities and provincial governments to pay back their debts
instead of using the money they have to finance new
infrastructure projects. And so all of those things combined has
led to this pullback in investment.
Speaker 4 (28:53):
So everything that you said just now, do we have
to place that in the context of a country that
is still struggling with deflationary forces. You mentioned the overcapacity issue. Yes,
that's a part of it. But I'm wondering whether there
is real concern now that China perhaps has entered some
sort of deflationary trap.
Speaker 10 (29:11):
I think that is a real concern. I think the
government is trying to address it. I think that is
why this anti evolution campaign has been launched, because the
government sees at the root of why China has this
deflation problem is there's just too many factories churning out
too much stuff, much more in excess of what actual
demand there is in China. And so you either have
(29:32):
to export it or all of these companies need to
cut prices every month just to compete to get their
product out the door.
Speaker 4 (29:41):
So when I think of deflationary traps, I think of
the Japanese economy for what amounted to three decades. Let's
talk a little bit about what's going on these days
between China and Japan and what appears to be a
real diplomatic test for the new Japanese Prime minister. She
anchored China recently with remarks about Tokyo's position on the
(30:01):
issue of Taiwan. Where do you think this ends up?
Speaker 10 (30:05):
So the comment by the new Japanese Prime minister really
touched on a red line for the Chinese government, which
has for since a civil war in the middle of
last century, claimed Taiwan as a part of China. And
so when she said that, when she sort of suggested
(30:26):
that Japan might intervene in a potential conflict, that really
set off a firestorm here in Beijing. What happens next?
The Chinese are demanding that the Japanese Prime minister retract
her statement, and obviously the Japanese government is going to
be extremely reluctant to do that. And so We're sort
of at an impasse at the moment. We've just had
(30:48):
a delegation from Japan travel to Beijing for talks that
have essentially yielded nothing, and so going forward, I think
you will see more pressure from Beijing. They've been a
advising tourists not to go to Japan, and I think
the Japanese will be trying to stand their ground.
Speaker 4 (31:05):
So if you look at the relationship of these two countries,
just insofar as trade is concerned, what kind of damage
could be done if China were to impose some strict
controls on exports to Japan or even products that are
imported from the Japanese manufacturers into China.
Speaker 10 (31:23):
So China is Japan's largest trading partner, it is a
giant market for As you said, a lot of this
equipment and supplies that come into China get put into
various different electronics and other products and are either exported
to overseas markets or sold within China itself, and so
(31:44):
there is a potential for companies like Honda and Toyota
and Nissan to lose share in a very important market
for them. At the same time, obviously, China supplies a
lot of rare earth to the Japanese as they do
the US and Europe, and so that is another lever
that Beijing could use. It could cut off that supplies,
that could cripple a lot of the Japanese manufacturing that happens,
(32:04):
and so you know, the risks are very high for
both both countries.
Speaker 4 (32:08):
I know on the level of tourism that a lot
of Chinese tourists end up going to Japan for vacation
or holiday. Is that dynamic beginning to shift.
Speaker 10 (32:17):
So we've had a lot of anecdotal evidence that tour
groups are canceling their reservations in Japan, Chinese tour groups.
We've had reporting that shows Chinese state owned companies are
telling their employees not to go to Japan. But at
the same time, we also have anecdotal evidence that suggests that,
you know, planes traveling from Shahai to Tokyo are still
(32:38):
full of tourists. And so it's until we get more
aggregate data, it's really hard to tell cumulatively how much
of an impact it will have. But if this goes on,
the longer it goes on, we have to expect that
the bigger the drag on the Japanese Economy.
Speaker 4 (32:53):
It will be John will leave it there. Thank you
so very much. It's always a pleasure. John lou He
is executive editor for Greater chin and Adjoining from Beijing,
we go to Singapore next, where in the last week
we heard from thought leaders at the Bloomberg New Economy Forum,
we spoke with Singapore's Prime Minister, Lawrence Wong. Here is
a portion of the conversation with Bloomberg News editor in
(33:14):
chief John Micklethwaite.
Speaker 11 (33:16):
Can I ask about Singapore is a financial hub. You've
had this on rush of money coming here. You've had
this big push to lure people here. The family offices,
you see many of them here, a lot of wealthy
people coming here. And you get two issues from that.
And the first one is this issue of inequality, which
I know the Genie coefficient has got better, so.
Speaker 12 (33:36):
That in income terms, in income terms, income.
Speaker 11 (33:38):
Terms getting better, But there is this every time I
come here, people talk about inequality more. Yeah, and I wondered,
you've already introduced taxes on luxury cars and properties, but
do you see Singapore moving towards other things a capital
gains tax for instance.
Speaker 12 (33:55):
Two separate issues really because wealth management Singapore as a
financial center. I think we can grow in terms of
wealth management. Family officers may set up here. They are
not Singaporeans. They you know, have their officers here. They
manage your fans out of Singapore. We welcome that it
(34:17):
creates jobs for Singaporeans. I think that's a good thing,
and we can explain that to Singaporeans. Sometimes it creates frictions,
especially when their ostentatious shows of and we have just
to remind them. You know, Singapore is a different society.
We are egalitarian. Our norms are different, please understand, and
for the most part, they do tackling wealth inequality where
(34:42):
it comes to our people and our population. That's something
we continue to work on, whether it's income or wealth.
We have a range of policies. It's not just about
tax alone, because in Singapore we have the ability to
also provide wealth injections. And a major reason why we
can do that is housing. Everyone owns almost everyone owns
(35:05):
their own home. Majority live in public housing, and when
you buy a flat from the housing development bought in Singapore,
you get housing equity. And that's the reason why even
at the lower end of bottom twenty percent of households
actually they have significant net wealth net asset value because
of home ownership. So that's one way we can continue
(35:29):
to fine tune our policies to provide more support and
uplift for lower income groups. We also have a central
provident fund, which is Social Security, which is the individual's
own retirement nest eight, which we do top ups from
time to time. So our tool sets are not limited.
(35:49):
I know there's a lot of interest again Bloomberg's favorite
question for me capital gtcept against tax wealth text. A
lot of questions about tex but our our talkits are
not limited to tax alt We also have wealth transfers.
Speaker 11 (36:05):
I'll take that as a maybe a lot of just
the other issue about a lot of wealthy people coming
here is that not all of them have been virtuous,
if I can put it that way. You know you had.
Speaker 12 (36:15):
The money laudry, illicit flows.
Speaker 11 (36:18):
Yes, and you had the accusations about within the US.
But one of the heads of the main Asian crime
families being here. You've dealt with these things, but there
is one of your ministers had a very nice Chinese saying,
when we open the windows, some flies may also.
Speaker 12 (36:34):
Enter, and sometimes we get more than flies.
Speaker 11 (36:36):
Yes, but how many flies can Singapore tolerate and do
you need the biggest fly swatter.
Speaker 12 (36:43):
We do have quite a big fly swatter. I mean
it's we take it very seriously. It's not unique to Singapore.
The elicit floors are everywhere. It's all financial centers have
to deal with this. So to us, it's not so
much about what you know that there is an incident
that's bound. They're bound to be incidents, and they are
(37:04):
bound to be suspicious transactions, and then with intelligence, with
cooperation across different countries, eventually we get to the bottom
of it. The key is what do you do? And
we are very stringent and we take swift action and
we will. We are determined to protect our reputation because
that's what keeps Singapore going a trusted business and financial center.
Speaker 4 (37:25):
That with Singapore's Prime Minister Lawrence Wong speaking with John Micklethwaite,
Editor and chief of Bloomberg News during the Bloomberg New
Economy Forum in Singapore. I'm Dereg Krisner. You can catch
us weekdays for the daybreak as your podcast. It's available
wherever you get your podcast.
Speaker 2 (37:42):
Nathan, Thanks Doug Man. That does it for this edition
of Bloomberg daybreak weekend, Join us again Monday morning at
five am Wall Street Time for the latest don markets, overseas,
and the news you need to start your day. I'm
Nathan Hager. Stay with us stop stories and global business
headlines are coming up right now
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:10):
This is Bloomberg Daybreak Weekend, our global look at the
top stories in the coming week from our Daybreak anchors
all around the world. Straight Ahead on the program, we
look ahead to earnings from IT Hardware, Giant Dell, and
retail ahead of the Thanksgiving holiday. I'm Nathan Hager in Washington.
Speaker 3 (00:27):
I'm Carolin hepget here in London, where we're looking ahead
to be a case highly anticipated or too budget.
Speaker 4 (00:32):
I'm det Prisner looking at why China's economy continues to struggle.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine Boston, DAB Digital Radio, London, Syrias
XM one one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business app.
Speaker 2 (01:02):
Good day to you. I'm Nathan Hager. We begin today's
program with more tech earnings. Yep, we're not quite done
with them just yet. Well here from IT Hardware Giant Dell.
It opens it's third quarter books after the market close
on Tuesday. Ahead of it We're joined by Wu jin Ho,
senior technology analyst for Bloomberg Intelligence. Great to speak with you,
(01:23):
and I guess we're sort of coming off the glow
of Nvidia's earnings this past week, Right, does the AI
chip giant inform how you're thinking about what we could
get from Dell this week?
Speaker 5 (01:34):
Yeah, Hey, Nathan, thanks for having me on. You know,
the Nvidia results are actually quite positive for Dell's AI story.
You know, there's a twenty billion dollar sales outlook for
fiscal twenty six. There is maybe a little bit rooper
upside in the third quarter results and as well as
the fourth quarter outlook and the twenty five The fiscal
(01:56):
twenty five twenty seven outlook looks very promising as well,
given the momentum. Now, the issue is its profitability, Right,
the AI story AI service have not been the most
profitable for the industry. Dell has actually done a fairly
good job and we'll see where they are on the
profit margin side.
Speaker 2 (02:15):
Well, does that tell you then that we could see
the AI data center business for Dell overshadow it's more
traditional PC business.
Speaker 5 (02:24):
Well, look, that's going to be one of the data
points that investors are going to be pointing to there's
actually a lot of controversy on Dell heading into the print.
For the traditional businesses, memory pricing has come in focus.
You know, the DRAM chips that goes into your PCs
as well as the servers that's been up three hundred
(02:44):
percent over the last month or so, and that could
potentially not only affect margins in the near term, but
also the pricing dynamics. And given how elastic in elastic
that the PCs can be, that could affect the man.
Speaker 2 (03:00):
Well, how could Dell potentially get past some of the
drag on its margins that you see from the AI servers.
Speaker 5 (03:07):
Yeah, it's really tough to say. It's probably going to
be very, very tough. And they actually did a good
job out of their recent analyst day on keeping their
guidance on AI server margins low. They've guided to admit
the high single digit AI server margin, which is a
very sobering outlook and a realistic outlook. So if they
(03:31):
do a better job on the AI server side, on
the margin profitability side, there is room for upside, but
it's already baked into expectations. So I'm comforted by that now.
Speaker 2 (03:43):
In your note leading up to these earnings. You say
you're looking for signs of improvement from Dell when it
comes to operational changes. Can you walk us through what
you're thinking there.
Speaker 5 (03:52):
Yeah, absolutely so, a couple of things that Dell has
been doing over the past couple of quarters of streamlining
the operations, cutting costs, and they actually were on the
forefront on some of the cost actions in terms of
relative to the growing AI mix, And I do think
(04:15):
there's scope for Dell to maintain a high single digit
operating margin profile despite a growing AI mix.
Speaker 2 (04:26):
Now, of course, a lot of people who follow this
company closely know that the federal government is a pretty
important customer for Dell. Of course we've had a government
shut down. Now that the government's back open, how could
that feed into the outlook for Dell?
Speaker 5 (04:42):
Yeah, so, well, from from a results perspective, you know,
there might be a chance that it might be a
drag on earnings. Now, No, the outlook is going to
be a little iffy in the sense that it may
take a little bit, little bit or some time for
the federal government to really start ramping up their spending engine,
(05:07):
So there might be some headwind on the growth outlook.
But it's going to be just a temporary blip in
my mind, and should the focus will turn to fiscal
twenty twenty seven guidance thereafter.
Speaker 2 (05:20):
And in terms of the AI business overall, does that
point to opportunities for Dell? Or is the competition just
too fierce out there?
Speaker 5 (05:30):
No, you know, I will tell you all the AI
server vendors have been very aggressive in terms of winning
the footprint. Among the AI server vendors to have stood out,
super Micro and Dell being the other one. I do
think that of you know, of the hardware vendors are
(05:53):
that are out there, Dell is probably one of the
better position to win more global global footprint sales. And
you know, good back to you margin question that could
help the margins as other players decide to back out.
Speaker 2 (06:05):
Appreciate this, Thank you so much. That is wou Jin Hoe,
Senior technology analyst for Bloomberg Intelligence. We move next to
the retail space. A couple names in that sector open
their books on Tuesday as well. That would be Cohle's
and Abercrombie and Fitch. We're also expecting overall retail sales
numbers that would have come out sooner if not for
the government shutdown September figures are due out Tuesday as well.
(06:28):
Busy times for Mary Ross Gilbert of Bloomberg Intelligence. She's
a senior equity analyst who covers retail. It is so
great to have you with us as well. Of course,
we've been hearing from so many of the retail giants lately.
We got target results that were kind of different from
Walmart's results. What does that tell us about what we
could be getting this week? Mary, So, Nathan, it's.
Speaker 6 (06:51):
A great question, and I think what we're going to
see come Tuesday, I think Abercrombie actually could have a
miss and it's really going to be on their gamesake,
and we might have you know, and this is based
on Bloomberg Second Measure transaction data. We might have less
of an increase on the Hollerster side of the brand,
so that could also impact their results. But with regard
(07:14):
to Coals, Coals, we think they probably need expectations. They're
looking for a like a round of four or five
percent decline in sales because they're still trying to get
their assortments right. And then of course operating margin is
expected to drop and it's pretty low as it is.
It's already in the low single digits, so you know,
Coals really has a lot of a lot to get right,
(07:37):
and that's going to be a big focus how they're
positioned for holiday and where their comp sales are on
a monthly basis, because we did see in July that
they were flat, so there was encouragement that maybe those
sales could improve with the third quarter. So we'll see
that when they go to report on Tuesday.
Speaker 2 (07:55):
Let's hone in a little bit more on Coals because
this is one of those kind of departments store or
is that sort of feeds to all ends of the
retail spectrum, doesn't it whether you're a value conscious consumer
or someone who's more willing to spend on the high end.
Speaker 6 (08:12):
Yeah, they do. They really skewed to the lower end consumer,
you know, really on the value segment, as you pointed out,
And one of the merchandising mistakes that they made last
year is that they really they cut back on private
label and that was really a good category for them.
The brands that they have, the private brands like so Sonoma,
(08:35):
really resonate with their customers and so bringing those back,
they've already started to see a boost in their sales
because of that. The other thing they did was they
got rid of or honed back on petite sizing, and
that was another very very important category for them having
that exercising, So bringing all that back, they're already seeing
(08:55):
a lift and it's also higher margins, so that's also
helping them on the margin side. So we haven't seen
the erosion that we thought we would with tariffs, so
they've really made no comments on tariffs having an impact.
So that's going to be, you know, a big focus.
But really, you know, Macy's is going to come in
the following week and we think we're going to see
(09:15):
better trends there because we think their strategy going in
and bringing back service of bringing in more relevant brands
is really starting to show some traction there. And we
should see potentially positive comp sales come out of Macy's
for the go forward business, because that's really the focus there.
(09:36):
Dillard's already reported and they came in with a very
nice three percent increase in comp sales, So a good
sign for department stores.
Speaker 2 (09:47):
And there are probably some investors who have memories of
the scandal surrounding the previous CEO of Coles. Has the
department store gotten past that.
Speaker 6 (09:58):
I think they have real The current interim CEO that
they have seems to be doing a really good job
very quickly getting things back into the store that matter.
For example, they're going to have fine jewelry and over
twenty five percent of the stores. I mean, yeah, they
need to have it in the vast majority of the
stores for the holiday season. But it's a big improvement
(10:21):
from when they brought in so fora and they did
it as a replacement of jewelry, not something you can
really do because that's a key gifting category for consumers
during the holidays and other key gifting seasons. So he's
making some decisions very quickly that are showing green shoots
of improvement there, and I think that is encouraging for Cohle's.
Speaker 2 (10:46):
And let's turn in the time we have left to
Abercrombie and Fitch. You mentioned some of the challenges that
some of its specific brands could be facing. Talk us
a little bit more through that and how name brand
apparel is faring overall in this current economic environment.
Speaker 6 (11:02):
Yeah, so, Nathan, Actually, overall, I would say apparel overall
looks to be very strong, especially for those that are
executing and if you look on let's say the off
price because we had TJX report and they had great numbers,
So that just goes to show you they're carrying all
the name brands and the consumers love it, so they're
(11:22):
flocking to off price. But going back to Abercrombie, Abercrombie,
the namesake brand, has posted four years of double digit
comp sales increases, so we're now cycling those four years
and thus why their sales are coming in lower year
over year on a comp sales basis. So it's really
hard to keep bringing in more newness, more excitement to
(11:46):
keep that going. And their core customer there are really
the millennials. Their Hollister brand has really shows that that's
still performing well. Now is it performing as good as
analysts expect based on the data, We're not so sure,
but that's something we're going to look for next Tuesday
when they go to report their results. And Hollister really
(12:08):
caters to the gen Z customer, and that customer, by
the way, loves to shop in store. Seventy percent of
their sales are generated in store, and Abercrombie sixty percent
are generated online.
Speaker 2 (12:21):
Lots to think about in the retail space. Thank you
for this, Mary really appreciate it. That's Mary Ross Gilbert,
senior equity analyst covering retail for Bloomberg Intelligence, and coming
up on Bloomberg day Break weekend, we'll look ahead to
the UK's highly anticipated autumn budget. I'm Nathan Hager, and
this is Bloomberg. This is Bloomberg day Break weekend, our
(12:53):
global look ahead, the top stories for investors in the
coming week. I'm Nathan Hager in Washington. Up later in
our program, we'll look ahead to key economic data from
the world's second largest economy. But first, in a few
days time, UK Chancellor Rachel Reeves will deliver an autumn
budget which she helps to lessen the debt burden plaguing
the country's finances. The announcements become one of the most
(13:14):
hotly debated fiscal events of the year among investors, economists,
and business leaders. But will Reeves be able to balance
party politics and prudence for more, Let's go to London
and bring in Bloomberg Daybreak. You're a banker, Caroline Hepger.
Speaker 3 (13:28):
Nathan, The Labour government has endured a volatile period of
pre budget u turns and a political crisis in recent weeks,
yet one constant has been the Chancellor's indication that she
plans to give herself more breathing space against her own
fiscal rules. However, with an income tax hike appearing to
be dropped and Reeves favoring multiple smaller tax increases instead,
(13:53):
investors and economists are skeptical about how she can make
the numbers out up now. Trade is embracing for volatility
as the deadline to share her economic plans for the
country looms large. The cost of one week options, which
now spans the upcoming fiscal event, have climbed to multi
month highs for major sterling pairs. This in recent days
(14:15):
as traders pay to protect themselves against potential swings in
the pound. According to Bloomberg strategists, the waters have also
been muddied ahead of the announcement. There are worries that
the government could wrong foot the markets. Reeves's bid to
increase the fiscal headroom comes against the backdrop of a
significant deterioration in the public finances since her last economic
(14:37):
statement back in the spring. She left herself a slim
nine point nine billion pound margin against her spending rules,
a buffer near historic lows now. The latest forecast from
the Office for Budget Responsibility showed that her position has
worsened by about twenty billion pounds since then, driven lower
by a productivity downgrade those policy u turns. I mentioned.
(15:02):
That's as the foots you one hundred had its worst
one since August in the lead up to the budget
amidst worries about AI being a bubble and signs of
corporate pain. With the somewhat erratic data in the UK
showing unemployment rising, it all does raise the bar for
the Chancellor as she tries to navigate Britain's finances without
(15:25):
spooking investors or exacerbating the flight of global capital. Camickshire Trevedi,
chief FX and Emerging Market Statues at Goldman Sachs, tells
me there are a number of factors at play.
Speaker 7 (15:39):
Look, I think it's a really interesting juncture for the UK.
I think the inflation released, the fact that it has start,
you know, come down, alongside some of the weaker labor
market data that you had in the last couple of weeks,
I think those are important. I mean, there's obviously been
a lot of back and forth, a lot of uncertainty
around you know, exactly what he is and isn't going
(16:00):
to be in the budget. I mean, if you take
a step back and think about it from a macro standpoint,
irrespective the exact tax and spending decisions that they make,
it looks like this is going to be a budget
that is going to be fiscally conservative.
Speaker 3 (16:14):
Camik Shire Trevedi, Chief FX and Emerging Market Strategists at
Goldman Sachs speaking there to me and Stephen Coat on
Bloomberg Radio.
Speaker 5 (16:23):
Well.
Speaker 3 (16:24):
Also part of the equation are the political pressures facing
the Chancellor, who is attempting to unite what seems like
a fragmented parliamentary Labor Party. The delicate balance between investors,
voters and MPs is something I've been discussing with Bloomberg's
Chief UK economist Dan Hanson and our UK politics reporter
(16:45):
Joe Mays. Dan, can I start with you just on
the economics. Firstly, there's been some back and forth about
just how big of a fiscal whole Rachel Reeves is facing.
Can you just give us an update on the latest
expectations from the Office of Budget Response Stability and what
that means.
Speaker 8 (17:02):
Sort of reading between the lines of everything we've heard
and particularly from our Bloomberg News colleagues, the number seems
to be around twenty billion pounds. The fiscal slippage, now,
that's made up of quite a few things, and actually
quite a few offsetting things. The biggest reason for the
whole is that the OBR, which is the UK's fiscal watchdog,
(17:23):
is going to reappraise how quickly it thinks the economy
can grow in the medium term, in particular how quickly
productivity in the UK economy is likely to rise over
the next five years. That is the single biggest factor
determining the fiscal forecast, the path of productivity growth. So
if you change that, you play around with the numbers
(17:44):
quite significantly, and we think that could blow a twenty
billion pound hole in of itself. In the public finances,
interest rates are a little bit higher, there have been
some policy u turns that probably adds another ten billions.
That gets you to thirty. The reason why you then
come back to twenty is that the OBER looks like
it will also take a look at its wage growth forecast,
(18:07):
which is quite low compared to other forecasters, and obviously
that gets some money back for the Chancellor. So I
think a reasonable expectation is something in the region of
twenty billion pounds.
Speaker 3 (18:18):
So that's the economics. What about the politics. We've heard
a lot about the political pressure facing the Chancellor as
she's preparing for the budget statement. Where is it coming from?
Speaker 9 (18:29):
Joe Well, I think the political pressure is really around
this question of can Reeves afford to do a budget
that really annoys labor, MPs and the public, And that
really is what she is in line to do because
she has to increase taxes, have spending restraints to fill
the fiscal hole that Dan just described. And really the
(18:49):
question of this budget has been for me, how aggressively
can she fill that hole with things like tax increases,
How large can she build her fiscal buffer to give
her reading space for the rest of the Parliament. Now,
my sense from the Treasury, you know, about a month ago,
was that she was willing to go quite aggressive. She
was really willing to build that fiscal headroom up perhaps
(19:09):
up to twenty pounds twenty five and really impressed markets,
show markets that she was a very strong, stable chancellor
and she hoped she'd be rewarded with lower borrowing costs
and that would help her for the rest of the Parliament.
Then we saw this change in the last few weeks
where it seemed like, especially with the briefing against where's
streeting from number ten and how that immediately shone a
light on the leadership of kir Starmer and raised questions
(19:32):
about how stable he is, which in turn raises the
question about how stable.
Speaker 7 (19:35):
Rachel Reeves is.
Speaker 9 (19:36):
It's such a partnership there that it seems like what
happened was they've realized they couldn't go so aggressive with
the tax increases, especially touching the manifesto promises around income tax,
notsh insurance VAT. So they've rolled it back to a
certain extent to ward off some of that threat from
labor MPs. And that's why we've got this new position
(19:56):
where it looks like the manifesto won't necessarily broken. She
will still try and you know, restore her fiscal buffer,
perhaps increase it a little bit, but I don't think
as much as she might have done before that whole.
Speaker 3 (20:05):
Episode Dan do her plans add up though without major
tax hikes increases to the headline rate of income tax.
Speaker 8 (20:15):
What was quite strange about what was being briefed is
that they were going to do this too up two
down policy where they'd raise income tax by two p
but cut national insurance by two p And it seemed
to me that if you're going to break the manifesto,
you might as well break it big time and really
raise some money, because six billion pounds is not a
lot of money to raise. So it seemed like, I
(20:37):
understand it was sort of there was an attempt to
sort of go through that muddy path of not upsetting
labor MPs too much, but it seems like the big
revenue raisers are off the table, and that does make
it a lot harder to raise the money. You know,
you can look at it now and say, well, if
I put capital gains tax, I put that up by
one percentage point. You know that currently raises X, Well
(21:00):
I could get a little bit more money. But what
actually happens is that people look at that and move
their money elsewhere. And the tax base is very mobile.
So if you have a lot of small measures with
that risk attached, you end up in a world where
you struggle to raise you potentially, I should say struggle
to raise the money. There's just a lot more uncertainty.
You know, there's a sort of backloaded in sort of
(21:20):
the parlance, the backloaded element to it, which isn't what
market's like to see. They're not like an upfront down
payment when it comes to fiscal when it comes to
a fiscal adjustment.
Speaker 3 (21:30):
Yeah. Absolutely. In terms of the pre announcement that you mentioned,
the big speech which laid out her economic thesis a
couple of weeks ago, did that do more harm than good?
Speaker 9 (21:44):
I think the immediate harm we've seen is that it
has created a sense of chaos and loss of control
around narrative for this budget, because you've had Reeves clearly
preparing the country for one thing and then moving away
from that in the you know, the last couple of weeks,
and that does give an air of lack of control
(22:05):
and wayward government, and that is clearly harmful. But I
think that the kind of counterbalancing point is that she
did nevertheless prepare in the minds of voters the idea
that the Manifesto could be broken, and now it's like
we're heading for a budget where it isn't broken. And
so you can see why the ultimate outcome is a
(22:25):
kind of net positive for Reeves in that she can
say I haven't broken the manifesto and we still have
stable public finances because everything I've announced and we've kept
our promises. So I think ultimately it's landed in a
place that isn't awful for Reeves. And you can see
why she did it in that they know the OBR
productivity downgrade that Dan just described is very hard to explain,
(22:50):
and if Reeves hadn't done that, it would have been
lost pretty much entirely on budget day and in the
post budget coverage, where all of the newspaper headlines would
have been about the taxing increases. So I think Reas
wanted to get out there first and make a case
in a moment where the public were focusing on that
rather than the tax rises.
Speaker 3 (23:10):
Dan, just if we look forward to the next few days,
is there a particular announcement which could spook markets or
which would spook markets the most.
Speaker 8 (23:21):
I mean that's hard to any particular one. It's hard
to put nailed down. I mean, a thing that markets
don't want to hear anything about is something that increases inflation.
So any sense that a policy, the policies are or
the setup policies I should say, aren't particularly disinflationary, that's
(23:42):
going to be a big warning sign for markets and
you're only going to get a negative reaction. I think
the other thing, going to Joe's point, it's very hard
to know exactly what the market expects in terms of
building the headroom against the fiscal rules. But you know,
if she only adds five billion to the headroom, it's
(24:05):
not really I mean it's nothing really. So I still
think that I still think there's possibly a rabbit out
of the hat whereby Originally the plan was to build
twenty five billion pounds of headroom using that income tax rise.
Now maybe it'll be closer to twenty because I think they're,
you know, going to Joe's point about politics of this
(24:26):
and what's the best path for Reeves. If there is
a strong mark negative market reaction, that's going to be
a problem for her as well. So you know, there's
that side of it as well that she's trying to
balance as well as the politics.
Speaker 3 (24:39):
My thanks to both of you for joining me. That
is our chief UK economist, Dan Hanson and our UK
Politics report at Joe May's. I'm Caroline Hepgar here in London.
You can catch us every weekday morning for Bloomberg Daybreak.
You up beginning at six am in London. That's one
am on Wall Street.
Speaker 2 (24:53):
Nathan, Thanks Caroline, and coming up by Bloomberg Daybreak Weekend.
We'll look ahead to offish or pm I figures in China.
I'm Nathan Hager, and this is Bloomberg. This is Bloomberg
(25:16):
Daybreak Weekend, our global look ahead, the top stories for
investors in the coming week. I'm Nathan Hager in Washington.
We turned out to China, where there's a question as
to whether the economy will hit this year's growth target
of five percent. In the week ahead, Beijing releases it's
official PMI figures from more. Here's Doug Krisner, host of
the Daybreak Asia podcast.
Speaker 4 (25:36):
Nathan weak. Economic momentum in China has persisted from the
third quarter into the early part of the fourth quarter,
and the slowdown appears to be broad based. For a
closer look, I'm joined by John Liu, Bloomberg Executive editor
for Greater China. John joins us from our studios in Beijing. John,
thank you for being here. I'd like to start with
this PMI data, and I'm curious as to whether we're
(25:59):
going to learn anything new regarding the Chinese economy.
Speaker 10 (26:02):
I think the PMI data that we get is going
to show a continued weakness in the economy. Manufacturing PMI
has been a contraction for seven consecutive months. I think
we will get an eighth consecutive month. Services PMI has
been very, very close to that fifty point edge between
(26:23):
contraction and growth, and I think we will stay there.
There's even a danger that we will slip into contraction
for services as well.
Speaker 4 (26:30):
You know, it's interesting that you made that point about
services because when I look at some of the more
high frequency type data coming out of China, or even
the monthly activity data for the most recent month, demand
domestically is still struggling. And I know the government has
been trying to figure out a way to address this issue.
Are there any novel ideas that have kind of emerged,
(26:52):
or is it basically turning into a bit of a
treadmill and going back to the old playbook to try
to figure out what approach may be work.
Speaker 10 (27:01):
So I think the situation has actually gotten a little
bit worse in the last month or so. So we
got data for the month of October and that showed
the thing that really surprised people was a drop off
in investment in China, and so investment is almost half
of GDP, and so we get investment data that's on
(27:23):
a year to date basis. So when we got the
October data, it was for the first ten months of
twenty twenty five, So we have to calculate on our
own what happened in October, and most economists believe that
investment fell eleven percent more than eleven percent in October.
That would be the biggest decline since the beginning of
(27:44):
COVID back in twenty twenty.
Speaker 4 (27:46):
Is it a demand issue or is there a problem
with the financial system in China where things are becoming
a little clogged.
Speaker 10 (27:54):
So it's a combination of a lot of different things.
On one hand, there's been some weakness in exports, and
so that means there's less incentive for companies to be
investing in new factories, et cetera. The Chinese government's also
been pushing for sort of trying to reduce the capacity
problem that we have in China. There are too many
(28:15):
factories turning out too many goods that are all trying
to get exported, and that's causing friction with trade partners,
not just the US but Europe, with South America, with Africa,
with countries around Southeast Asia, and so the government's trying
to pull that back. That's been reducing the impulse to
build out factories, to invest at a corporate level. And
(28:36):
at the same time, the government has been pushing local governments,
so cities and provincial governments to pay back their debts
instead of using the money they have to finance new
infrastructure projects. And so all of those things combined has
led to this pullback in investment.
Speaker 4 (28:53):
So everything that you said just now, do we have
to place that in the context of a country that
is still struggling with deflationary forces. You mentioned the overcapacity issue. Yes,
that's a part of it. But I'm wondering whether there
is real concern now that China perhaps has entered some
sort of deflationary trap.
Speaker 10 (29:11):
I think that is a real concern. I think the
government is trying to address it. I think that is
why this anti evolution campaign has been launched, because the
government sees at the root of why China has this
deflation problem is there's just too many factories churning out
too much stuff, much more in excess of what actual
demand there is in China. And so you either have
(29:32):
to export it or all of these companies need to
cut prices every month just to compete to get their
product out the door.
Speaker 4 (29:41):
So when I think of deflationary traps, I think of
the Japanese economy for what amounted to three decades. Let's
talk a little bit about what's going on these days
between China and Japan and what appears to be a
real diplomatic test for the new Japanese Prime minister. She
anchored China recently with remarks about Tokyo's position on the
(30:01):
issue of Taiwan. Where do you think this ends up?
Speaker 10 (30:05):
So the comment by the new Japanese Prime minister really
touched on a red line for the Chinese government, which
has for since a civil war in the middle of
last century, claimed Taiwan as a part of China. And
so when she said that, when she sort of suggested
(30:26):
that Japan might intervene in a potential conflict, that really
set off a firestorm here in Beijing. What happens next?
The Chinese are demanding that the Japanese Prime minister retract
her statement, and obviously the Japanese government is going to
be extremely reluctant to do that. And so We're sort
of at an impasse at the moment. We've just had
(30:48):
a delegation from Japan travel to Beijing for talks that
have essentially yielded nothing, and so going forward, I think
you will see more pressure from Beijing. They've been a
advising tourists not to go to Japan, and I think
the Japanese will be trying to stand their ground.
Speaker 4 (31:05):
So if you look at the relationship of these two countries,
just insofar as trade is concerned, what kind of damage
could be done if China were to impose some strict
controls on exports to Japan or even products that are
imported from the Japanese manufacturers into China.
Speaker 10 (31:23):
So China is Japan's largest trading partner, it is a
giant market for As you said, a lot of this
equipment and supplies that come into China get put into
various different electronics and other products and are either exported
to overseas markets or sold within China itself, and so
(31:44):
there is a potential for companies like Honda and Toyota
and Nissan to lose share in a very important market
for them. At the same time, obviously, China supplies a
lot of rare earth to the Japanese as they do
the US and Europe, and so that is another lever
that Beijing could use. It could cut off that supplies,
that could cripple a lot of the Japanese manufacturing that happens,
(32:04):
and so you know, the risks are very high for
both both countries.
Speaker 4 (32:08):
I know on the level of tourism that a lot
of Chinese tourists end up going to Japan for vacation
or holiday. Is that dynamic beginning to shift.
Speaker 10 (32:17):
So we've had a lot of anecdotal evidence that tour
groups are canceling their reservations in Japan, Chinese tour groups.
We've had reporting that shows Chinese state owned companies are
telling their employees not to go to Japan. But at
the same time, we also have anecdotal evidence that suggests that,
you know, planes traveling from Shahai to Tokyo are still
(32:38):
full of tourists. And so it's until we get more
aggregate data, it's really hard to tell cumulatively how much
of an impact it will have. But if this goes on,
the longer it goes on, we have to expect that
the bigger the drag on the Japanese Economy.
Speaker 4 (32:53):
It will be John will leave it there. Thank you
so very much. It's always a pleasure. John lou He
is executive editor for Greater chin and Adjoining from Beijing,
we go to Singapore next, where in the last week
we heard from thought leaders at the Bloomberg New Economy Forum,
we spoke with Singapore's Prime Minister, Lawrence Wong. Here is
a portion of the conversation with Bloomberg News editor in
(33:14):
chief John Micklethwaite.
Speaker 11 (33:16):
Can I ask about Singapore is a financial hub. You've
had this on rush of money coming here. You've had
this big push to lure people here. The family offices,
you see many of them here, a lot of wealthy
people coming here. And you get two issues from that.
And the first one is this issue of inequality, which
I know the Genie coefficient has got better, so.
Speaker 12 (33:36):
That in income terms, in income terms, income.
Speaker 11 (33:38):
Terms getting better, But there is this every time I
come here, people talk about inequality more. Yeah, and I wondered,
you've already introduced taxes on luxury cars and properties, but
do you see Singapore moving towards other things a capital
gains tax for instance.
Speaker 12 (33:55):
Two separate issues really because wealth management Singapore as a
financial center. I think we can grow in terms of
wealth management. Family officers may set up here. They are
not Singaporeans. They you know, have their officers here. They
manage your fans out of Singapore. We welcome that it
(34:17):
creates jobs for Singaporeans. I think that's a good thing,
and we can explain that to Singaporeans. Sometimes it creates frictions,
especially when their ostentatious shows of and we have just
to remind them. You know, Singapore is a different society.
We are egalitarian. Our norms are different, please understand, and
for the most part, they do tackling wealth inequality where
(34:42):
it comes to our people and our population. That's something
we continue to work on, whether it's income or wealth.
We have a range of policies. It's not just about
tax alone, because in Singapore we have the ability to
also provide wealth injections. And a major reason why we
can do that is housing. Everyone owns almost everyone owns
(35:05):
their own home. Majority live in public housing, and when
you buy a flat from the housing development bought in Singapore,
you get housing equity. And that's the reason why even
at the lower end of bottom twenty percent of households
actually they have significant net wealth net asset value because
of home ownership. So that's one way we can continue
(35:29):
to fine tune our policies to provide more support and
uplift for lower income groups. We also have a central
provident fund, which is Social Security, which is the individual's
own retirement nest eight, which we do top ups from
time to time. So our tool sets are not limited.
(35:49):
I know there's a lot of interest again Bloomberg's favorite
question for me capital gtcept against tax wealth text. A
lot of questions about tex but our our talkits are
not limited to tax alt We also have wealth transfers.
Speaker 11 (36:05):
I'll take that as a maybe a lot of just
the other issue about a lot of wealthy people coming
here is that not all of them have been virtuous,
if I can put it that way. You know you had.
Speaker 12 (36:15):
The money laudry, illicit flows.
Speaker 11 (36:18):
Yes, and you had the accusations about within the US.
But one of the heads of the main Asian crime
families being here. You've dealt with these things, but there
is one of your ministers had a very nice Chinese saying,
when we open the windows, some flies may also.
Speaker 12 (36:34):
Enter, and sometimes we get more than flies.
Speaker 11 (36:36):
Yes, but how many flies can Singapore tolerate and do
you need the biggest fly swatter.
Speaker 12 (36:43):
We do have quite a big fly swatter. I mean
it's we take it very seriously. It's not unique to Singapore.
The elicit floors are everywhere. It's all financial centers have
to deal with this. So to us, it's not so
much about what you know that there is an incident
that's bound. They're bound to be incidents, and they are
(37:04):
bound to be suspicious transactions, and then with intelligence, with
cooperation across different countries, eventually we get to the bottom
of it. The key is what do you do? And
we are very stringent and we take swift action and
we will. We are determined to protect our reputation because
that's what keeps Singapore going a trusted business and financial center.
Speaker 4 (37:25):
That with Singapore's Prime Minister Lawrence Wong speaking with John Micklethwaite,
Editor and chief of Bloomberg News during the Bloomberg New
Economy Forum in Singapore. I'm Dereg Krisner. You can catch
us weekdays for the daybreak as your podcast. It's available
wherever you get your podcast.
Speaker 2 (37:42):
Nathan, Thanks Doug Man. That does it for this edition
of Bloomberg daybreak weekend, Join us again Monday morning at
five am Wall Street Time for the latest don markets, overseas,
and the news you need to start your day. I'm
Nathan Hager. Stay with us stop stories and global business
headlines are coming up right now
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