May 10, 2024 • 38 mins
Bloomberg Daybreak Weekend with Tom Busby takes a look at some of the stories we'll be tracking in the coming week.
• In the US – a preview of U.S inflation data and earnings from Home Depot and Walmart.
• In the UK – a preview of the Choose France Summit.
• In Asia – a look at next week’s tech earnings in China.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our day
Break anchors all around the world. Straight Ahead on the program,
a look at key inflation data in the US and
what it means for the FED. I'm Tom Busby in
New York. I'm Stephen Carolyn London.
Speaker 3 (00:26):
Where we're looking at how European efforts to attract foreign
direct investment or hitting some turbulence ahead of a major
summits in France.
Speaker 4 (00:34):
I'm Brian Curtis in Hong Kong. We look ahead to
big tech earnings in China and whether they might provide
some momentum to recent games.
Speaker 5 (00:43):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
E Love the three Own New York, Bloomberg ninety nine
to one, Washington, DC, Bloomberg one O six one, Boston,
Bloomberg nine sixty, San Francisco, DAB, Digital Radio, London, Sirius
XM one nineteen and around the world on Bloomberg Radio
dot com and via the Bloomberg Business App.
Speaker 2 (01:08):
Good day to you. I'm Tom Busby, and we begin
today's program with some key US economic data out this week,
including CPI, PPI, and retail sales for April. What could
all this mean for Fed policy going forward? For more,
we're joined by Edward Harrison Bloomberg, Senior editor and writer
of the Everything Risk newsletter.
Speaker 6 (01:28):
Well, Edward.
Speaker 2 (01:29):
After a dip to three point one percent in January,
overall consumer prices in February and March little higher than forecast,
a troubling sign. What do you expect to see for April?
Speaker 6 (01:40):
Yeah, Tom, great to talk to you.
Speaker 7 (01:42):
I think what we expect on Tuesday, that's when the
CPI comes out.
Speaker 6 (01:48):
The consensus is for three point six.
Speaker 7 (01:51):
Percent for the core and three point four percent overall.
Speaker 6 (01:57):
So core inflation has acted.
Speaker 7 (02:00):
She's been running higher on average over the last year
than CPI when you include food and energy, and because
those prices have come down and that's dragging the total down.
But those numbers are really elevated relative to where the
Fed wants to go. Now, last month we had a
three point eight number for the core number. This month
(02:23):
we expect three point six. So three point eight terrible.
Three point six less terrible, but also not that great.
Speaker 2 (02:32):
Well, moving in the right direction at least it's not
close to the to FED two percent target, but it
appears to be moving the right way.
Speaker 7 (02:41):
That's exactly right. And I think that, you know, for
the FED, the real question is and I think J.
Powell got to this last week or the week before
last actually when the FED met, he was talking about,
we're not going to cut anytime soon. And so what
they're looking for are two preconditions. One is exactly what
you mentioned, Tom, which is that it's moving in the
(03:02):
right direction. So what we want to see is that
three point eight number come down. But we also want
to see that number be a lot lower. And so
that's the second precondition that we haven't met. If we
get to three percent, say, then I think you start thinking, wow,
maybe the FED has room to start cutting interest rates.
So three percent anything with a two handle, you know,
(03:24):
two point nine, two point eight, which we can't expect
next week, but potentially down the line we can expect that.
Speaker 2 (03:32):
Well, let's talk about the factors for this stubbornly high inflation.
And I have to figure you tell me the rising
cost of housing, buying, renting, whatever it takes, is that
the biggest one.
Speaker 6 (03:45):
Yeah, that is the sticky wicket. So to speak.
Speaker 7 (03:48):
The real problem is, you know, this is something worldwide
that people are seeing, is that we're seeing a shortage
of housing. You could call this some that is a
outgrowth of the Great Financial Crisis, which was only which
was fifteen years ago. But the pain from that crisis
(04:09):
was so big for home builders that we had a
birth of building. And so now that the economy is back,
there simply isn't enough housing to absorb.
Speaker 6 (04:20):
The demand for new housing. With this new.
Speaker 7 (04:22):
Cohort, the millennials looking to now establish their own houses,
and so that means that both buying and renting houses
in the United States is going up and that is sticky.
That along with services inflation, are the two things that
(04:43):
are keeping the FED on hold for the foreseeable future.
Speaker 2 (04:47):
But if we do see inflation moderating, and I don't
think that's going to happen anytime with housing, at the
same time, we're seeing signs that the US labor market
may be softening after April's jobs report. What does that
mean for the FED moving forward? If we do see that.
Speaker 7 (05:02):
I think yeah, they're what they're looking for is the
so called soft landing. And when you can define the
soft landing as you know, a growth that is below
trend and their trend they would consider, you know, something
in the order of one point eight percent annualized. So
let's say you have one percent one and a half
percent growth and you also have inflation declining towards their target,
(05:26):
that would be considered a soft landing. And you know,
we saw the jobless claims last week. They were showing
us that we're moving in that direction. They were slightly elevated.
It wasn't a terrible number. It doesn't mean that the
economy isn't still making jobs, but it does give the
FED some thought that we're moving in the soft landing direction.
Speaker 6 (05:47):
Well, let's hope.
Speaker 2 (05:48):
Let's hope. Now, one other data point investors get this
Wednesday is retail sales for April. What do you expect
to see there? And you know, with inflation people pulling
back spending, what do you hope to see?
Speaker 7 (06:00):
I would say that's the big wild card for this
week is the Wednesday number, because the prior numbers were
one percent a month on month increases. Even if you
take out autos, we had one point one percent. We
had one point one for the control group, which is
sort of the thing that people look at the most
(06:20):
and that's a very high number.
Speaker 6 (06:22):
The expectation is it's.
Speaker 7 (06:23):
For a mini increase zero point one percent, And if
we go above those numbers, it's hard to say how
the market will.
Speaker 6 (06:32):
React based upon that.
Speaker 7 (06:33):
It could be that because the number is zero point
two or zero point three, the market's fine, But those
numbers are above expectations, and so anything that shows that
the consumer is actually still hanging in there more than expected,
I think will be met with negativity by the market
(06:54):
because it would show that the Fed needs to.
Speaker 6 (06:57):
Be on a hold for longer in order to bring
inflation down.
Speaker 2 (07:01):
Well, well, we've got a lot to look forward to,
and our thanks to Edward Harrison. He's Bloomberg senior editor
and the writer of the Everything Risk newsletter. Well, we
turn now to corporate earnings, and this coming week we
hear from the home improvement retailer home Depot on Tuesday,
in the world's biggest retailer, Walmart on Thursday. So what
will the results tell us about the health of US consumers?
(07:23):
For more, we're joined by John Edwards, Bloomberg News US
Consumer team leader. John, Thanks for being here, great to
be here. Well, let's start with home Depot, the nation's
biggest do it yourself chain. What are you expecting to
see from Home Depot?
Speaker 8 (07:37):
Well, last quarter they had their fifth straight decline in
comparable sales, and it looks like they're going to have
their sixth straight in this coming quarter. So we're looking
at sales probably being down about two percent as they
continue to just face this challenging environment. You know, consumers
(07:57):
are pretty resilt but also weary from the persistent inflation.
You know, it's obviously moderated, but you know it's it's
not deflation. So you know, people still remember when prices
were lower, you know, not that long ago, and so
they're pulling back, especially on their big ticket purchases, and
(08:19):
so Home Depot is going to continue to suffer from that.
But you know, it does look like there's some you know,
possible green shoots for them that that could you know,
perhaps lead to some outperformance. They had some they had
a decent discounting event, a sort of spring Black Friday
event that ran through April, and that might help them
(08:43):
a little bit on the sort of do it yourself
or end. And then of course there's their professional contractor sales,
which are a big focus for them and those are
probably holding up decently.
Speaker 2 (08:56):
So well, this time of year is when you spruce
up the launch, when you start those projects, and when
you do even just spring cleaning. Now that has got
to help them. But is it higher prices, Is it
worries about the economy, about jobs that maybe holding things back?
Speaker 8 (09:11):
Yeah, I think it's it's all of that. And you know,
of course the you know, sort of the housing situation itself,
you know, with existing home sales being relatively relatively weak. Yeah,
so we'll look to see if that starts to bottom out,
you know, but we're probably not going to see that
for this this quarter that they're going to be reporting.
(09:32):
So they're they're you know, analysts are saying that things
might start to look better for them toward the end
of this year into twenty twenty five.
Speaker 2 (09:41):
Well, you talked about how the housing market impacts home deepot.
We know from Whirlpool that said people are not buying
these big appliances because they're not moving. Yeah, and these
got to be high margin purchases for home depots. So
is it just that, is it barbecue grills, is it
you know, is it everything?
Speaker 8 (10:00):
Yeah, I mean, it's it's it's a bit of everything.
And you mentioned those big ticket purchases again, that is
exactly what people are pulling back on, in part because
they bought so many of those things during the pandemic
as they were stuck at home and spruced up their
homes because they weren't going anywhere else. And you know,
so now they have things that you know, last you know, three,
(10:20):
four or five years, and so they don't need to
buy another one. So that's that's one of the things
that they're running into still difficult comparisons. But you know,
again that focus on professional contractors is you know, sort
of something that they're increasingly you know, sort of aiming at.
And we saw that of course with their big purchase
(10:43):
announcement of SRS Distribution, you know, an eighteen billion dollar
acquisition that they announced last quarter.
Speaker 2 (10:53):
So well, like everyone else, it's services. Services will will
lead you to the future, will Well let's move on
to Walmart. So what do you expect to see in
their results and their outlook for the.
Speaker 6 (11:03):
Rest of the year.
Speaker 8 (11:04):
Yeah, so Walmart is looking like you know, they uh,
you know, they will probably benefit from this environment as
as people uh, you know start to look for value
and and perhaps trade down from from higher priced retailers. Uh,
so we are probably going to see their same story
sales increase. It looks like the Easter season was pretty
(11:28):
uh solid for them. And uh again with that, you know,
sort of value seeking among consumers.
Speaker 9 (11:35):
Uh.
Speaker 8 (11:36):
You know, Walmart tends to do pretty well with that.
You know, they are you know, also looking at areas
beyond retail, uh to to seek further growth, you know.
And and they made an announcement of their own of
an acquisition of Visio, the the TV makers, and uh,
you know, some people were a little surprised, you know,
Walmart getting into making TVs, but this is all an
(11:59):
advertising play. You know, they have their internal advertising business
Walmart Connect and Visio of course serves ads to people
who have their smart TVs.
Speaker 2 (12:11):
And so the idea and streaming TV service, that's exactly
it's all connected.
Speaker 8 (12:16):
Yes, So so that's you know, that's so that's one
area that the Walmart is looking at to sort of
diversify and you know, continue to build even as they
you know, try to maximize their strengths with you know,
sort of general retail.
Speaker 2 (12:30):
Well, a lot of big earnings coming up and our
thanks to John Edwards, Bloomberg News US Consumer team Leader,
and coming up on Bloomberg day Break weekend to look
at how European efforts to attract foreign investments are hitting
some turbulence. I'm Tom Busby, and this is Bloomberg. This
(12:57):
is Bloomberg day Break weekend, our global look ahead, the
top stories for investors in the coming week, and up
later in our program a look at some key tech
earnings in China and whether they might provide some momentum
to recent stock market gains. But first, European economies have
seen a strong start to twenty twenty four, with signs
of growth and economic activity picking up, and as the
(13:18):
European Central Bank prepares to cut rates, leaders are looking
to build on that momentum with foreign investments. French President
Emmanuel Macron will attempt to wu international investors at this
week's annual Choose France summit. For more, let's go to
London and bring in Bloomberg Daybreak eurobanker Stephen Carroll tom born.
Speaker 3 (13:38):
In twenty eighteen to promote France as a business and
investment destination. The pace of Versailles serves as the opulent
backdrop for Emmanuel Macron's Choose France summits now in its
seventh year. It brings global CEOs together with top level
French officials to encourage them, as the name suggests, to
choose France, and it seems to be working. France recently
(13:59):
has come out on top again in Ey's FDI attractiveness survey,
at least by number of projects rather than value. But
that's led the French finance Minister Bruno Lemayer to pat
his government on the back for the economic reforms they've passed.
But as our Bloomberg opinion columnist Leonella Roah has been
writing recently that Pitch could be hitting some turbulence. Political
(14:19):
riffs between Paris and top corporate leaders seem to be
on the rise, a widening gap between the US and
Europe in terms of economic growth and approach to managing
the energy transition, as the French oil major Totel NLG
threatening to unchoose France by moving its stock market listing
across the Atlantic. Now, the economic outlook in France and
across Europe just isn't as bright as in the US,
(14:41):
and that's something that we've been discussing with Rafaela Tenconi,
chief economist at Ada economics.
Speaker 10 (14:47):
France in relative terms definitely is in a better position
than Germany, but a lot of the growth, to be honest,
is in the periphery, you know, I mean, Italy is
surprisingly resilient, Greece is resilient, Eastern Europe is quite resil
I mean, given the weakness of the exports. In reality,
you know, the Union is not doing too bad. Of course,
(15:07):
the critical ingredient here is lower rates. If the ECB
does not cut rates, then we're stuck in stagnation and
then you will begin to see unemployment next year. But
it appears the ECB has finally come around to the
idea that one hundred basis points of using that's our review,
you know, this year is tolerable, if not desirable. So
(15:31):
that is enough to really reinnite lending activity.
Speaker 5 (15:35):
And so to that.
Speaker 11 (15:37):
Some of the fundamental challenges for Europe being low market
valuations in Europe versus the US, really even more deep
low valuations than we've seen in previous decades, and kind
of geopolitical challenges from Ukraine to Chinese Engene things visiting Europe,
and that's one of the kind of big issues that
(15:57):
has held back Germany. Do you see that changing the
low valuations too. We're also in a still an earning
secession in Europe.
Speaker 10 (16:06):
Well, momentum is slightly more constructive because valuation are so low,
and I think in any case there is a delta
that is coming through. But structurally Europe needs to address,
you know, the single market, needs to deepen the Single market.
So I am for the first time in many, many years,
I'm encouraged to see genuine political backing. You know, there
(16:27):
was the letter report presented. Drug is also pushing for that,
and if the European elections in June go has the
opinion poll's signal, then you will begin to see deepening
of the Single market already next year, where retail participation
also will become a better ingredient. And that is very
(16:47):
important because as I said before, European households have too
much cash at hand. They're used to deflation. We are
no longer in deflation historically, so not having a function
in capital market, it is creating negative wealth effects.
Speaker 3 (17:03):
So that was Rafaela Tenconi, chief economist at Ada Economics,
speaking to myself and Carline Hepger on Bloomberg Daybreak Europe.
So is foreign investment then Europe's ticket to economic acceleration.
I've been discussing this with Bloomberg's europe correspondent at large,
Alberta and Ardeli, and I started by asking him why
fire interact investment is so important in Europe right now.
Speaker 9 (17:25):
I think if we look at the current geopolitical climate
and economic climate around the world, it's very significant. So
you have like a contest almost between the US, Europe,
and China trying to attract or lock in investment in
their respective geographical areas. And Europe is a bit struggling
(17:47):
in this sense right now because its strength has really
been this international rules based order. So Europe is strong
when everyone plays by the same rules. But in recent
times we've seen a protectists really shift in the United States,
China doesn't really play by those same rules, and Europe
is kind of stuck in the middle trying to figure out.
(18:09):
On the one hand, trying to defend and push for
the rules. On the other hand, is trying to change
its models to adapt to this new world. But this
takes time, and it's difficult in a continent of twenty
seven different countries with different politics, different views to come
up with a united position on how to deal with
these issues.
Speaker 3 (18:29):
Yeah, and of course we've seen some of that play
out in the recent trip from the Chinese president visiting France,
Hungary and Serbia, notably with each of those individual governments
very keen to try and attract attention from China for investment.
Do events like Choose France help when it comes to
boosting a country's individual profile.
Speaker 9 (18:48):
Absolutely. I think if you look at the specific French initiative,
what sets it apart from other similar initiatives, say in
other European countries, is really the profile of the event.
Because most countries have FDI forums or events to try
and attract business and investment, be it something specific like
(19:08):
a startups or emerging technologies or bilateral relations with a country.
The thing that's kind of different about the French initiative
is its profile, the pomp and so there's also substance,
but other events have substance. It really is the profile
that sets it apart.
Speaker 3 (19:29):
Doesn't help to counter a negative image that France has,
and the present Emmanuel Macron has really struggled to try
and combat this of it being a difficult place to
invest in, a difficult place to do business, something that's
often leveled by international investors at many parts of Europe
because of it being a regulatory power house.
Speaker 9 (19:47):
It does in the sense that so on the one hand,
there have been reforms in France corporation tax, they've been
tax incentsives for R and D. It's easier to set
up companies now, there's lots of they're trying to cut uocracy,
lots of the other difficulties remain, so communicating those changes
definitely helps. The other thing, which I believe is kind
(20:09):
of helping France is the fact that it has long
pushed this idea of European sovereignty, and that idea often
fell on deaf ears. But because of a changing geopolitical
context where the United States, for example, is taking a
more robust approach to try and onshore investments and rely
(20:30):
more on its own components and raw materials and so on,
Macron's view of the world has more appeal now than
it did, say a few years ago. On the flip
side of that is, many times other countries perceive what
when Macron says we must do more in Europe, etc.
He really means France, And there's a bit of skepticism
(20:53):
in other countries around this agenda.
Speaker 3 (20:56):
Is there a lot of inter European competition for in investment?
You know, is France sort of slightly eating the lunch
of its neighbors as well and holding an event like this.
Speaker 9 (21:06):
That's a very good question. It's actually one of the
biggest debates right now in Europe because, for example, if
you take state aid, there's a debate in Europe that
rules around state aid should be loosened so that governments
can invest more in critical sectors because that is the
only way to compete with China and the US and others.
(21:28):
The challenge with that approach, however, is that a country
like France or Germany they have resources that a country
like Latvia or Estonia don't have. So the risk is
that it distorts the internal European market. So right now
you have some countries which have focused very much on
(21:49):
the innovative, on the cutting edge, and they've really attracted
investments in those sectors, say drones in Latvia, for example.
When a giant compared to them enters that same space,
they can put up a lot more state aid investments.
So if you look at where chip manufacturers or electric
(22:11):
vehicle manufacturers are setting up shop, they usually tend to
go to France, to Germany rather than other countries. That's
a challenge.
Speaker 3 (22:22):
This is something that Enrica Letter brought up also in
his recent reporter looking at reforms to the internal market
in the EU. Is there appetite at a European level
to try to counterbalance.
Speaker 5 (22:34):
Some of that?
Speaker 9 (22:35):
I think this reform of the single market, let's call it,
in areas such as defense, is going to be one
of the biggest debates once the new European Commission comes
into play and the challenges. The short answer to your
question is their appetite. In Europe. There is appetite, and
(22:55):
there is a realization that there isn't really a choice.
There is a war on Europe's doorstep. Europe has to
reform its defense industry and the way it functions. However,
there are lots of butts in this debate. So countries
will say, yes, we want to do this, however we
(23:15):
don't want to do, for example, joint borrowing. But those
voices don't often say, well, where are we going to
find at least one hundred billion euros to invest in
our defense industries if it's not through joint borrowing. Other
countries such as France. Yes, we must invest in defense,
but we must invest in only in European companies, supply chains,
(23:39):
et cetera, et cetera. So again it goes back to this,
do you really mean France when you say this, rather
than looking at what is the actual defense need that
Europe has as a whole. So it's a very complicated question.
Speaker 3 (23:54):
As with everything in the European Union, it gets very complex,
and you've twenty seven people sitting around a table. How
much has the Inflation Production Act in the US and
that massive amount of spending changed the conversation around that
in Europe and an ad does it add to a
realization that something has to be done at a broader
level rather than an individual country level.
Speaker 9 (24:14):
So it has changed the debate dramatically. So, first of all,
Europe was mostly caught by surprise in terms of the
specifics there was. Secondly, it had an impact on the relationship,
at least in trade between the European Union and the
United States. So had they not been Russia's war against Ukraine,
(24:36):
the EU would have sued the United States at the
w too, would have been a lot more assertive in
its response, And the only reason it didn't is because
it wanted to maintain unity around Ukraine. It has started
to respond, so it has loosened some state aid rules
(24:56):
in key sectors. It has worked very hard to try
ryan get some concessions from the United States, but these
concessions have been really limited, and it has created this debate,
as we were saying before, about can you remain a
pure champion of a rules based system when not even
(25:17):
your closest ally is prepared to play by the same rule.
Speaker 3 (25:22):
Thanks to Bloomberg's europe correspondent at large Alberta and our deli,
I'm Stephen Carolyn London. You can catch us every weekday
morning here for Bloomberg Daybreak Europe, beginning at six am
in London and one am on Wall Street.
Speaker 2 (25:35):
Tom. Thank you, Stephen, and coming up on Bloomberg Daybreak weekend,
I'll look ahead to some key tech earnings in China.
I'm Tom Busby and this is Bloomberg. I'm Tom Busby
(25:56):
in New York with your global look ahead at the
top stories for investors in the coming week. China stock
markets have enjoyed a significant rally in the first part
of this year, and events in the week ahead will
help answer the question of whether that can continue for more,
let's go to Daybreak Asia co hosts Brian Curtis and
Doug Krisner.
Speaker 4 (26:14):
Tom Chinese equities have bounced back from multi year lows,
and recently the major benchmarks entered a bull market.
Speaker 12 (26:21):
To be fair, those benchmarks still are below their twenty
twenty one highs by some forty to sixty percent.
Speaker 4 (26:27):
But there's no denying the recent recovery and it may
still have legs if China's tech giants can deliver on
their earnings in the coming week.
Speaker 12 (26:35):
Heavyweights ten Cent and Ali Baba will both publish results
on Tuesday, followed by JD dot Com and Buy Do
two days later.
Speaker 4 (26:42):
Those four firms alone account for more than a quarter
of the MSCI China Index. Earlier, we asked Julia Wong
from JP Morgan Private Bank if the tech earnings might
be a catalyst for further games.
Speaker 13 (26:54):
I do think that investors' sentiment towards big tech in
China has already warmed quite a bit on their thing
that we know, like gaming, for example, the regulatory process
worked a little better, so all of that gradually has
dripped through to market and probably are in the price
at this point, So we do think that earnings, of
course are important, but you know, we do need to
see a sustained turnaround in their guidance for the next
(27:17):
few years for the market to do even better from
where it is today.
Speaker 4 (27:21):
For a preview of what we might expect, we're joined
here in Hong Kong by Robert Lee, Bloomberg Intelligence Senior
Analyst and Sarah Jung Bloomberg China Tech Reporter. Welcome to
both of you. Thanks very much for joining us. Sarah,
let me go to you first. Is it fair to
say that the big tech companies do need to show
some progress for this rally in equities to move forward
(27:43):
or are there other sectors taking leadership?
Speaker 1 (27:46):
Definitely, I think tech will be the heavyweight that will
determine whether or not we'll see this rally continue to
go forward. Obviously, because this industry spans so many different
areas online sales, advertising, games, it's definitely been you used
as a gauge of where the Chinese consumer sentiment is
and if we're really seeing a recovery that we have
(28:07):
been expecting this year. So it will depend very heavily
on how tents and Alibaba and also JD Dot common
by do report next week.
Speaker 12 (28:15):
Robert, I'm wondering whether we need to consider the fact
that these companies may miss on their results. I mean,
if you look back at what happened, let's say, as
an example, ten Cent, I believe the numbers that the
company reported for the fourth quarter failed to meet expectations.
So what happens if there is a miss.
Speaker 14 (28:33):
Most of these businesses are quite seasonal in nature, so
typically Q one, which.
Speaker 15 (28:38):
Is what they're about to report, is a weaker period.
Speaker 14 (28:40):
So the Q two guidance as things pick up on
a seasonal basis, is absolutely going to be key and crucial.
But I think taking a step back from that, the
China market has been an Hong Kong market of clearly
being decoupled from Nasdak and most other Western markets. For
some period of time, you have seen foreign investors participating.
(29:01):
They've been sat on the sidelines or for whatever reasons,
have not been actively in the market. So we're beginning
to see signs of investors and overseas investors coming back
to the market. So I think obviously fundamentals and guidance
is key, but I think a bigger thing to keep
this rally going is ongoing participation or growing participation.
Speaker 15 (29:21):
By foreign investors.
Speaker 14 (29:22):
You know, perhaps fear of missing out for example, because
as the index continue needs to rally, or assuming that happens,
then this fear of missing out I think will be
potentially a bigger factor that could draw more people into
the rally and you know, make it more self sustaining.
Speaker 4 (29:38):
Perhaps, if we look at the consensus estimates, ten Cent
is for a cast you have a six percent increase
in revenue and Ali Baba just under six percent. That
Robert doesn't sound like the ten Cent and Ali Baba
of yesteryear.
Speaker 14 (29:53):
Absolutely, both companies and the issues impacting Ali Baba are
perhaps somewhat different, and the competition that's suffering from low
cost disruptors like Timu for example, affecting Ali Baba. But
both companies are in a more mature phase of development.
Some of that reflects the slower economic outlook within China,
(30:16):
but they're mature businesses now. They're very large, broad spread businesses.
So you know, like a river entering the more mature phase,
you would expect the growth of them deliver to be
at a more modest level. But there are some structural
issues different for both companies that are also I think impacting.
Speaker 15 (30:31):
Give you a quick example, saturated markets.
Speaker 14 (30:34):
Again, when China's core markets were building out in the
first place, you had a multiplier effect which really drove
their growth. But now because the economy is very well
developed on the technology side and the markets are quite
well saturated, competition is more of an issue, and in
a slowing economy that is impacting, always a headwind for
the growth of both companies.
Speaker 12 (30:55):
Sarah, I'm wondering whether we need to address the regulatory regime.
We heard from Julia Wangam moment ago. She mentioned games.
When I think of games in China, I think of
ten Cent. This is something obviously that the government has
had a hand in. Is that cloud lifted completely from
the market, or do we need to consider the role
that the government may play in the way in which
(31:16):
some of these companies are managed going forward.
Speaker 1 (31:18):
Over the last few quarters, we've seen management from both
of these companies that we're talking about, ten Cent and
Alibaba say that the regulatory environment has stabilized to some extent.
But then again, you know, we also see that investors
are still reacting to regulatory changes. For example, late last year,
when they had draft gaming curbs the market just reacted
(31:39):
very strongly, Tensa and Nettie's and other gaming companies falling
quite substantially, and not only swinging back later or earlier
this year. So I think investors are still quite skittish
about this. But from the broader outlook point of view,
we have seen the regulation stabilized to some extent, even
as those those fear continue to linger and to shadow
(32:03):
over these companies going forward.
Speaker 4 (32:04):
Sarah earlier Doug asked about campex and about expanding, but
there has been some room for cost reduction of late
for some of these companies.
Speaker 15 (32:13):
Does that continue.
Speaker 1 (32:14):
Yeah, We've seen over the past year a lot of
these companies focusing very heavily on cost reduction, including layoffs,
massive restructuring. I think Alibaba is a very good example
of that. After they're sort of chaotic year long restructuring,
we saw that now they're streamlining their focus to just
focus on their core businesses, so domestic e commerce, international
e commerce, and the cloud side business, and then to
(32:36):
just sort of shed some of their non core assets
as they would describe them. So definitely, these companies are
thinking still about how to streamline costs, how to focus
in on the areas where they can actually start to
achieve growth, especially as Robert mentioned, with the domestic environment
being so competitive, really looking overseas or to other new
(32:56):
areas to still retain.
Speaker 10 (32:58):
Some of that growth.
Speaker 12 (33:00):
Sarah mentioned that these reports may give us a little
bit of insight into the health of the Chinese consumer,
and I'm wondering whether we need to take a step
back and look at the macro. We know that the
real estate market, the property market in China has still
been a drag on consumer sentiment. Give me an understanding
of where China is right now and it's recovery and
how that may manifest in the numbers we see in
(33:22):
the week ahead.
Speaker 14 (33:23):
Okay, so I think the e commerce players such as
p d D and Ali Baba probably more exposed to
the pressures that were within the domestic economy. But as
I mentioned earlier, you know, economic growth in China is slowing.
It still is outperforming most other developed economies, but it's
entering a more slow, slower face. And so what we're
(33:45):
seeing is rising competition, particularly again from these low cost disruptors,
the tmus and machines, both within the domestic China market
and overseas, which are undercutting the whole business.
Speaker 15 (33:56):
Proposition of established players like Ali Baba.
Speaker 14 (34:00):
Competitive dynamics I think has been in focus and will
remain so on the e commerce side for some time. Again,
given the backdrop of slowing economic growth and as you said,
the pressures from their property sector.
Speaker 4 (34:12):
Robert, it seems like there's a lot more up and
coming competition for Ali Barba than perhaps there is for
ten Cent. Now, I note that you are expecting a
thirty two percent increase in net income for ten Cent,
and that is presumably I mentioned earlier that ten Cent
the average for it cash was only for a six
percent increase in revenue. That's pretty interesting. So how does
(34:35):
ten Cent get to a thirty two percent increase in
net income with revenues only up maybe six or seven percent?
Speaker 15 (34:41):
Very good question.
Speaker 14 (34:42):
I think some of that's a base effect, because again
Q one, compared to last year, the economy was just
reopening at that point and recovering after the COVID lockdown.
Speaker 15 (34:51):
So base effect is one part of that, and a
Sarah refer to.
Speaker 14 (34:55):
I think the companies across the board have ever been
cutting costs, managing costs, or keeping costs flat, so there
has been revenue growth in all companies and with the
sort of natural operational gearing that's there, then that will
drive some margin increase and hence drop through to the
bottom line. But for a company like ten cents, they're
pushing into short videos. Their AI business is still at
(35:18):
a very early stage, but they are applying their large
language models to help enhance their advertising offering, and there
is evidence of that coming through, and that's much higher
margin business. You've got a mix shift to higher margin
revenue streams. So combination of all three base effect costs,
moderation or cost rationalization and the mix shift towards high
(35:40):
margin is really what's driving that.
Speaker 6 (35:42):
Sarah.
Speaker 12 (35:43):
It wasn't that long ago when we were discussing Ali
Baba and the spin off of the logistics armed Sinow
Smart Logistics. Is there a sense now that that is
dead in the water, that we're not going to get
a breakup of these individual businesses within Ali Baba.
Speaker 6 (35:56):
Yeah.
Speaker 1 (35:57):
So that's the quite interesting thing because actually literally one
year ago, that's when Ali Baba was announcing a very
specific timeline for their massive restructuring and all the spinoffs,
including what you mentioned is the IPO of their religistics
arms Hi now spin off of their cloud arm and
then also of the fresh grocery arm Fresh Hippo. Of course,
(36:19):
all of those things have now been put on hold.
Dead in the water is kind of a good term
to describe it. They've they've just said, oh, the valuation
isn't where they want it to be, So that's not
what they're looking at right now, and that's not their
focus at the moment. And now we've seen Ali Baba
go from trying to spin off all their businesses to
really focusing on their core business As I mentioned.
Speaker 2 (36:39):
It's hi now.
Speaker 1 (36:40):
For example, they're buying the entire stake now in this
logistics arm to be able to better service their domestic
and international commerce side. So it's really focusing in on
these businesses because they're realizing that they've just been bleeding
money on some of these other, as they describe it,
non core businesses for example offline retail. And we've heard
things about them exploring different sales of some of these
(37:03):
businesses for example sun Art and other businesses that they
don't no longer see as profitable and necessary. So what
we're looking to hear this time from their earnings is
just a clear strategy direction for what's what we're gonna
see going forward now that they've sort of unwhound their
whole restructuring spin off sort of plan. What's the plan
(37:23):
now to make sure that they can maximize the value
from their core businesses.
Speaker 12 (37:27):
I think we can agree that these earnings come at
a crucial time for the Chinese equity market. Thanks to
the both of you for helping us to preview the
week ahead and what we are likely to see from
ten Cent, Ali Baba JD dot com and Buy Do.
Robert Lee, Bloomberg Intelligence Senior Analyst and Sarah Jong Bloomberg
China Tech Reporter. I'm Doug Prisner along with Brian Curtis
(37:48):
in Hong Kong. You can catch us weekdays here from
Bloomberg Daybreak Asia beginning at eight am in Hong Kong
eight pm on Wall Street. Tom.
Speaker 2 (37:57):
Thank you, Doug, and thank you Brian. And that does
it for this edition of Bloomberg day Break Weekend. Join
us again Monday morning at five am Wall Street time
for the latest on markets overseas and the news you
need to start your day. I'm Tom Buzzby.
Speaker 6 (38:09):
Stay with us.
Speaker 2 (38:10):
Top stories and global business headlines are coming up right
now
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our day
Break anchors all around the world. Straight Ahead on the program,
a look at key inflation data in the US and
what it means for the FED. I'm Tom Busby in
New York. I'm Stephen Carolyn London.
Speaker 3 (00:26):
Where we're looking at how European efforts to attract foreign
direct investment or hitting some turbulence ahead of a major
summits in France.
Speaker 4 (00:34):
I'm Brian Curtis in Hong Kong. We look ahead to
big tech earnings in China and whether they might provide
some momentum to recent games.
Speaker 5 (00:43):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
E Love the three Own New York, Bloomberg ninety nine
to one, Washington, DC, Bloomberg one O six one, Boston,
Bloomberg nine sixty, San Francisco, DAB, Digital Radio, London, Sirius
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dot com and via the Bloomberg Business App.
Speaker 2 (01:08):
Good day to you. I'm Tom Busby, and we begin
today's program with some key US economic data out this week,
including CPI, PPI, and retail sales for April. What could
all this mean for Fed policy going forward? For more,
we're joined by Edward Harrison Bloomberg, Senior editor and writer
of the Everything Risk newsletter.
Speaker 6 (01:28):
Well, Edward.
Speaker 2 (01:29):
After a dip to three point one percent in January,
overall consumer prices in February and March little higher than forecast,
a troubling sign. What do you expect to see for April?
Speaker 6 (01:40):
Yeah, Tom, great to talk to you.
Speaker 7 (01:42):
I think what we expect on Tuesday, that's when the
CPI comes out.
Speaker 6 (01:48):
The consensus is for three point six.
Speaker 7 (01:51):
Percent for the core and three point four percent overall.
Speaker 6 (01:57):
So core inflation has acted.
Speaker 7 (02:00):
She's been running higher on average over the last year
than CPI when you include food and energy, and because
those prices have come down and that's dragging the total down.
But those numbers are really elevated relative to where the
Fed wants to go. Now, last month we had a
three point eight number for the core number. This month
(02:23):
we expect three point six. So three point eight terrible.
Three point six less terrible, but also not that great.
Speaker 2 (02:32):
Well, moving in the right direction at least it's not
close to the to FED two percent target, but it
appears to be moving the right way.
Speaker 7 (02:41):
That's exactly right. And I think that, you know, for
the FED, the real question is and I think J.
Powell got to this last week or the week before
last actually when the FED met, he was talking about,
we're not going to cut anytime soon. And so what
they're looking for are two preconditions. One is exactly what
you mentioned, Tom, which is that it's moving in the
(03:02):
right direction. So what we want to see is that
three point eight number come down. But we also want
to see that number be a lot lower. And so
that's the second precondition that we haven't met. If we
get to three percent, say, then I think you start thinking, wow,
maybe the FED has room to start cutting interest rates.
So three percent anything with a two handle, you know,
(03:24):
two point nine, two point eight, which we can't expect
next week, but potentially down the line we can expect that.
Speaker 2 (03:32):
Well, let's talk about the factors for this stubbornly high inflation.
And I have to figure you tell me the rising
cost of housing, buying, renting, whatever it takes, is that
the biggest one.
Speaker 6 (03:45):
Yeah, that is the sticky wicket. So to speak.
Speaker 7 (03:48):
The real problem is, you know, this is something worldwide
that people are seeing, is that we're seeing a shortage
of housing. You could call this some that is a
outgrowth of the Great Financial Crisis, which was only which
was fifteen years ago. But the pain from that crisis
(04:09):
was so big for home builders that we had a
birth of building. And so now that the economy is back,
there simply isn't enough housing to absorb.
Speaker 6 (04:20):
The demand for new housing. With this new.
Speaker 7 (04:22):
Cohort, the millennials looking to now establish their own houses,
and so that means that both buying and renting houses
in the United States is going up and that is sticky.
That along with services inflation, are the two things that
(04:43):
are keeping the FED on hold for the foreseeable future.
Speaker 2 (04:47):
But if we do see inflation moderating, and I don't
think that's going to happen anytime with housing, at the
same time, we're seeing signs that the US labor market
may be softening after April's jobs report. What does that
mean for the FED moving forward? If we do see that.
Speaker 7 (05:02):
I think yeah, they're what they're looking for is the
so called soft landing. And when you can define the
soft landing as you know, a growth that is below
trend and their trend they would consider, you know, something
in the order of one point eight percent annualized. So
let's say you have one percent one and a half
percent growth and you also have inflation declining towards their target,
(05:26):
that would be considered a soft landing. And you know,
we saw the jobless claims last week. They were showing
us that we're moving in that direction. They were slightly elevated.
It wasn't a terrible number. It doesn't mean that the
economy isn't still making jobs, but it does give the
FED some thought that we're moving in the soft landing direction.
Speaker 6 (05:47):
Well, let's hope.
Speaker 2 (05:48):
Let's hope. Now, one other data point investors get this
Wednesday is retail sales for April. What do you expect
to see there? And you know, with inflation people pulling
back spending, what do you hope to see?
Speaker 7 (06:00):
I would say that's the big wild card for this
week is the Wednesday number, because the prior numbers were
one percent a month on month increases. Even if you
take out autos, we had one point one percent. We
had one point one for the control group, which is
sort of the thing that people look at the most
(06:20):
and that's a very high number.
Speaker 6 (06:22):
The expectation is it's.
Speaker 7 (06:23):
For a mini increase zero point one percent, And if
we go above those numbers, it's hard to say how
the market will.
Speaker 6 (06:32):
React based upon that.
Speaker 7 (06:33):
It could be that because the number is zero point
two or zero point three, the market's fine, But those
numbers are above expectations, and so anything that shows that
the consumer is actually still hanging in there more than expected,
I think will be met with negativity by the market
(06:54):
because it would show that the Fed needs to.
Speaker 6 (06:57):
Be on a hold for longer in order to bring
inflation down.
Speaker 2 (07:01):
Well, well, we've got a lot to look forward to,
and our thanks to Edward Harrison. He's Bloomberg senior editor
and the writer of the Everything Risk newsletter. Well, we
turn now to corporate earnings, and this coming week we
hear from the home improvement retailer home Depot on Tuesday,
in the world's biggest retailer, Walmart on Thursday. So what
will the results tell us about the health of US consumers?
(07:23):
For more, we're joined by John Edwards, Bloomberg News US
Consumer team leader. John, Thanks for being here, great to
be here. Well, let's start with home Depot, the nation's
biggest do it yourself chain. What are you expecting to
see from Home Depot?
Speaker 8 (07:37):
Well, last quarter they had their fifth straight decline in
comparable sales, and it looks like they're going to have
their sixth straight in this coming quarter. So we're looking
at sales probably being down about two percent as they
continue to just face this challenging environment. You know, consumers
(07:57):
are pretty resilt but also weary from the persistent inflation.
You know, it's obviously moderated, but you know it's it's
not deflation. So you know, people still remember when prices
were lower, you know, not that long ago, and so
they're pulling back, especially on their big ticket purchases, and
(08:19):
so Home Depot is going to continue to suffer from that.
But you know, it does look like there's some you know,
possible green shoots for them that that could you know,
perhaps lead to some outperformance. They had some they had
a decent discounting event, a sort of spring Black Friday
event that ran through April, and that might help them
(08:43):
a little bit on the sort of do it yourself
or end. And then of course there's their professional contractor sales,
which are a big focus for them and those are
probably holding up decently.
Speaker 2 (08:56):
So well, this time of year is when you spruce
up the launch, when you start those projects, and when
you do even just spring cleaning. Now that has got
to help them. But is it higher prices, Is it
worries about the economy, about jobs that maybe holding things back?
Speaker 8 (09:11):
Yeah, I think it's it's all of that. And you know,
of course the you know, sort of the housing situation itself,
you know, with existing home sales being relatively relatively weak. Yeah,
so we'll look to see if that starts to bottom out,
you know, but we're probably not going to see that
for this this quarter that they're going to be reporting.
(09:32):
So they're they're you know, analysts are saying that things
might start to look better for them toward the end
of this year into twenty twenty five.
Speaker 2 (09:41):
Well, you talked about how the housing market impacts home deepot.
We know from Whirlpool that said people are not buying
these big appliances because they're not moving. Yeah, and these
got to be high margin purchases for home depots. So
is it just that, is it barbecue grills, is it
you know, is it everything?
Speaker 8 (10:00):
Yeah, I mean, it's it's it's a bit of everything.
And you mentioned those big ticket purchases again, that is
exactly what people are pulling back on, in part because
they bought so many of those things during the pandemic
as they were stuck at home and spruced up their
homes because they weren't going anywhere else. And you know,
so now they have things that you know, last you know, three,
(10:20):
four or five years, and so they don't need to
buy another one. So that's that's one of the things
that they're running into still difficult comparisons. But you know,
again that focus on professional contractors is you know, sort
of something that they're increasingly you know, sort of aiming at.
And we saw that of course with their big purchase
(10:43):
announcement of SRS Distribution, you know, an eighteen billion dollar
acquisition that they announced last quarter.
Speaker 2 (10:53):
So well, like everyone else, it's services. Services will will
lead you to the future, will Well let's move on
to Walmart. So what do you expect to see in
their results and their outlook for the.
Speaker 6 (11:03):
Rest of the year.
Speaker 8 (11:04):
Yeah, so Walmart is looking like you know, they uh,
you know, they will probably benefit from this environment as
as people uh, you know start to look for value
and and perhaps trade down from from higher priced retailers. Uh,
so we are probably going to see their same story
sales increase. It looks like the Easter season was pretty
(11:28):
uh solid for them. And uh again with that, you know,
sort of value seeking among consumers.
Speaker 9 (11:35):
Uh.
Speaker 8 (11:36):
You know, Walmart tends to do pretty well with that.
You know, they are you know, also looking at areas
beyond retail, uh to to seek further growth, you know.
And and they made an announcement of their own of
an acquisition of Visio, the the TV makers, and uh,
you know, some people were a little surprised, you know,
Walmart getting into making TVs, but this is all an
(11:59):
advertising play. You know, they have their internal advertising business
Walmart Connect and Visio of course serves ads to people
who have their smart TVs.
Speaker 2 (12:11):
And so the idea and streaming TV service, that's exactly
it's all connected.
Speaker 8 (12:16):
Yes, So so that's you know, that's so that's one
area that the Walmart is looking at to sort of
diversify and you know, continue to build even as they
you know, try to maximize their strengths with you know,
sort of general retail.
Speaker 2 (12:30):
Well, a lot of big earnings coming up and our
thanks to John Edwards, Bloomberg News US Consumer team Leader,
and coming up on Bloomberg day Break weekend to look
at how European efforts to attract foreign investments are hitting
some turbulence. I'm Tom Busby, and this is Bloomberg. This
(12:57):
is Bloomberg day Break weekend, our global look ahead, the
top stories for investors in the coming week, and up
later in our program a look at some key tech
earnings in China and whether they might provide some momentum
to recent stock market gains. But first, European economies have
seen a strong start to twenty twenty four, with signs
of growth and economic activity picking up, and as the
(13:18):
European Central Bank prepares to cut rates, leaders are looking
to build on that momentum with foreign investments. French President
Emmanuel Macron will attempt to wu international investors at this
week's annual Choose France summit. For more, let's go to
London and bring in Bloomberg Daybreak eurobanker Stephen Carroll tom born.
Speaker 3 (13:38):
In twenty eighteen to promote France as a business and
investment destination. The pace of Versailles serves as the opulent
backdrop for Emmanuel Macron's Choose France summits now in its
seventh year. It brings global CEOs together with top level
French officials to encourage them, as the name suggests, to
choose France, and it seems to be working. France recently
(13:59):
has come out on top again in Ey's FDI attractiveness survey,
at least by number of projects rather than value. But
that's led the French finance Minister Bruno Lemayer to pat
his government on the back for the economic reforms they've passed.
But as our Bloomberg opinion columnist Leonella Roah has been
writing recently that Pitch could be hitting some turbulence. Political
(14:19):
riffs between Paris and top corporate leaders seem to be
on the rise, a widening gap between the US and
Europe in terms of economic growth and approach to managing
the energy transition, as the French oil major Totel NLG
threatening to unchoose France by moving its stock market listing
across the Atlantic. Now, the economic outlook in France and
across Europe just isn't as bright as in the US,
(14:41):
and that's something that we've been discussing with Rafaela Tenconi,
chief economist at Ada economics.
Speaker 10 (14:47):
France in relative terms definitely is in a better position
than Germany, but a lot of the growth, to be honest,
is in the periphery, you know, I mean, Italy is
surprisingly resilient, Greece is resilient, Eastern Europe is quite resil
I mean, given the weakness of the exports. In reality,
you know, the Union is not doing too bad. Of course,
(15:07):
the critical ingredient here is lower rates. If the ECB
does not cut rates, then we're stuck in stagnation and
then you will begin to see unemployment next year. But
it appears the ECB has finally come around to the
idea that one hundred basis points of using that's our review,
you know, this year is tolerable, if not desirable. So
(15:31):
that is enough to really reinnite lending activity.
Speaker 5 (15:35):
And so to that.
Speaker 11 (15:37):
Some of the fundamental challenges for Europe being low market
valuations in Europe versus the US, really even more deep
low valuations than we've seen in previous decades, and kind
of geopolitical challenges from Ukraine to Chinese Engene things visiting Europe,
and that's one of the kind of big issues that
(15:57):
has held back Germany. Do you see that changing the
low valuations too. We're also in a still an earning
secession in Europe.
Speaker 10 (16:06):
Well, momentum is slightly more constructive because valuation are so low,
and I think in any case there is a delta
that is coming through. But structurally Europe needs to address,
you know, the single market, needs to deepen the Single market.
So I am for the first time in many, many years,
I'm encouraged to see genuine political backing. You know, there
(16:27):
was the letter report presented. Drug is also pushing for that,
and if the European elections in June go has the
opinion poll's signal, then you will begin to see deepening
of the Single market already next year, where retail participation
also will become a better ingredient. And that is very
(16:47):
important because as I said before, European households have too
much cash at hand. They're used to deflation. We are
no longer in deflation historically, so not having a function
in capital market, it is creating negative wealth effects.
Speaker 3 (17:03):
So that was Rafaela Tenconi, chief economist at Ada Economics,
speaking to myself and Carline Hepger on Bloomberg Daybreak Europe.
So is foreign investment then Europe's ticket to economic acceleration.
I've been discussing this with Bloomberg's europe correspondent at large,
Alberta and Ardeli, and I started by asking him why
fire interact investment is so important in Europe right now.
Speaker 9 (17:25):
I think if we look at the current geopolitical climate
and economic climate around the world, it's very significant. So
you have like a contest almost between the US, Europe,
and China trying to attract or lock in investment in
their respective geographical areas. And Europe is a bit struggling
(17:47):
in this sense right now because its strength has really
been this international rules based order. So Europe is strong
when everyone plays by the same rules. But in recent
times we've seen a protectists really shift in the United States,
China doesn't really play by those same rules, and Europe
is kind of stuck in the middle trying to figure out.
(18:09):
On the one hand, trying to defend and push for
the rules. On the other hand, is trying to change
its models to adapt to this new world. But this
takes time, and it's difficult in a continent of twenty
seven different countries with different politics, different views to come
up with a united position on how to deal with
these issues.
Speaker 3 (18:29):
Yeah, and of course we've seen some of that play
out in the recent trip from the Chinese president visiting France,
Hungary and Serbia, notably with each of those individual governments
very keen to try and attract attention from China for investment.
Do events like Choose France help when it comes to
boosting a country's individual profile.
Speaker 9 (18:48):
Absolutely. I think if you look at the specific French initiative,
what sets it apart from other similar initiatives, say in
other European countries, is really the profile of the event.
Because most countries have FDI forums or events to try
and attract business and investment, be it something specific like
(19:08):
a startups or emerging technologies or bilateral relations with a country.
The thing that's kind of different about the French initiative
is its profile, the pomp and so there's also substance,
but other events have substance. It really is the profile
that sets it apart.
Speaker 3 (19:29):
Doesn't help to counter a negative image that France has,
and the present Emmanuel Macron has really struggled to try
and combat this of it being a difficult place to
invest in, a difficult place to do business, something that's
often leveled by international investors at many parts of Europe
because of it being a regulatory power house.
Speaker 9 (19:47):
It does in the sense that so on the one hand,
there have been reforms in France corporation tax, they've been
tax incentsives for R and D. It's easier to set
up companies now, there's lots of they're trying to cut uocracy,
lots of the other difficulties remain, so communicating those changes
definitely helps. The other thing, which I believe is kind
(20:09):
of helping France is the fact that it has long
pushed this idea of European sovereignty, and that idea often
fell on deaf ears. But because of a changing geopolitical
context where the United States, for example, is taking a
more robust approach to try and onshore investments and rely
(20:30):
more on its own components and raw materials and so on,
Macron's view of the world has more appeal now than
it did, say a few years ago. On the flip
side of that is, many times other countries perceive what
when Macron says we must do more in Europe, etc.
He really means France, And there's a bit of skepticism
(20:53):
in other countries around this agenda.
Speaker 3 (20:56):
Is there a lot of inter European competition for in investment?
You know, is France sort of slightly eating the lunch
of its neighbors as well and holding an event like this.
Speaker 9 (21:06):
That's a very good question. It's actually one of the
biggest debates right now in Europe because, for example, if
you take state aid, there's a debate in Europe that
rules around state aid should be loosened so that governments
can invest more in critical sectors because that is the
only way to compete with China and the US and others.
(21:28):
The challenge with that approach, however, is that a country
like France or Germany they have resources that a country
like Latvia or Estonia don't have. So the risk is
that it distorts the internal European market. So right now
you have some countries which have focused very much on
(21:49):
the innovative, on the cutting edge, and they've really attracted
investments in those sectors, say drones in Latvia, for example.
When a giant compared to them enters that same space,
they can put up a lot more state aid investments.
So if you look at where chip manufacturers or electric
(22:11):
vehicle manufacturers are setting up shop, they usually tend to
go to France, to Germany rather than other countries. That's
a challenge.
Speaker 3 (22:22):
This is something that Enrica Letter brought up also in
his recent reporter looking at reforms to the internal market
in the EU. Is there appetite at a European level
to try to counterbalance.
Speaker 5 (22:34):
Some of that?
Speaker 9 (22:35):
I think this reform of the single market, let's call it,
in areas such as defense, is going to be one
of the biggest debates once the new European Commission comes
into play and the challenges. The short answer to your
question is their appetite. In Europe. There is appetite, and
(22:55):
there is a realization that there isn't really a choice.
There is a war on Europe's doorstep. Europe has to
reform its defense industry and the way it functions. However,
there are lots of butts in this debate. So countries
will say, yes, we want to do this, however we
(23:15):
don't want to do, for example, joint borrowing. But those
voices don't often say, well, where are we going to
find at least one hundred billion euros to invest in
our defense industries if it's not through joint borrowing. Other
countries such as France. Yes, we must invest in defense,
but we must invest in only in European companies, supply chains,
(23:39):
et cetera, et cetera. So again it goes back to this,
do you really mean France when you say this, rather
than looking at what is the actual defense need that
Europe has as a whole. So it's a very complicated question.
Speaker 3 (23:54):
As with everything in the European Union, it gets very complex,
and you've twenty seven people sitting around a table. How
much has the Inflation Production Act in the US and
that massive amount of spending changed the conversation around that
in Europe and an ad does it add to a
realization that something has to be done at a broader
level rather than an individual country level.
Speaker 9 (24:14):
So it has changed the debate dramatically. So, first of all,
Europe was mostly caught by surprise in terms of the
specifics there was. Secondly, it had an impact on the relationship,
at least in trade between the European Union and the
United States. So had they not been Russia's war against Ukraine,
(24:36):
the EU would have sued the United States at the
w too, would have been a lot more assertive in
its response, And the only reason it didn't is because
it wanted to maintain unity around Ukraine. It has started
to respond, so it has loosened some state aid rules
(24:56):
in key sectors. It has worked very hard to try
ryan get some concessions from the United States, but these
concessions have been really limited, and it has created this debate,
as we were saying before, about can you remain a
pure champion of a rules based system when not even
(25:17):
your closest ally is prepared to play by the same rule.
Speaker 3 (25:22):
Thanks to Bloomberg's europe correspondent at large Alberta and our deli,
I'm Stephen Carolyn London. You can catch us every weekday
morning here for Bloomberg Daybreak Europe, beginning at six am
in London and one am on Wall Street.
Speaker 2 (25:35):
Tom. Thank you, Stephen, and coming up on Bloomberg Daybreak weekend,
I'll look ahead to some key tech earnings in China.
I'm Tom Busby and this is Bloomberg. I'm Tom Busby
(25:56):
in New York with your global look ahead at the
top stories for investors in the coming week. China stock
markets have enjoyed a significant rally in the first part
of this year, and events in the week ahead will
help answer the question of whether that can continue for more,
let's go to Daybreak Asia co hosts Brian Curtis and
Doug Krisner.
Speaker 4 (26:14):
Tom Chinese equities have bounced back from multi year lows,
and recently the major benchmarks entered a bull market.
Speaker 12 (26:21):
To be fair, those benchmarks still are below their twenty
twenty one highs by some forty to sixty percent.
Speaker 4 (26:27):
But there's no denying the recent recovery and it may
still have legs if China's tech giants can deliver on
their earnings in the coming week.
Speaker 12 (26:35):
Heavyweights ten Cent and Ali Baba will both publish results
on Tuesday, followed by JD dot Com and Buy Do
two days later.
Speaker 4 (26:42):
Those four firms alone account for more than a quarter
of the MSCI China Index. Earlier, we asked Julia Wong
from JP Morgan Private Bank if the tech earnings might
be a catalyst for further games.
Speaker 13 (26:54):
I do think that investors' sentiment towards big tech in
China has already warmed quite a bit on their thing
that we know, like gaming, for example, the regulatory process
worked a little better, so all of that gradually has
dripped through to market and probably are in the price
at this point, So we do think that earnings, of
course are important, but you know, we do need to
see a sustained turnaround in their guidance for the next
(27:17):
few years for the market to do even better from
where it is today.
Speaker 4 (27:21):
For a preview of what we might expect, we're joined
here in Hong Kong by Robert Lee, Bloomberg Intelligence Senior
Analyst and Sarah Jung Bloomberg China Tech Reporter. Welcome to
both of you. Thanks very much for joining us. Sarah,
let me go to you first. Is it fair to
say that the big tech companies do need to show
some progress for this rally in equities to move forward
(27:43):
or are there other sectors taking leadership?
Speaker 1 (27:46):
Definitely, I think tech will be the heavyweight that will
determine whether or not we'll see this rally continue to
go forward. Obviously, because this industry spans so many different
areas online sales, advertising, games, it's definitely been you used
as a gauge of where the Chinese consumer sentiment is
and if we're really seeing a recovery that we have
(28:07):
been expecting this year. So it will depend very heavily
on how tents and Alibaba and also JD Dot common
by do report next week.
Speaker 12 (28:15):
Robert, I'm wondering whether we need to consider the fact
that these companies may miss on their results. I mean,
if you look back at what happened, let's say, as
an example, ten Cent, I believe the numbers that the
company reported for the fourth quarter failed to meet expectations.
So what happens if there is a miss.
Speaker 14 (28:33):
Most of these businesses are quite seasonal in nature, so
typically Q one, which.
Speaker 15 (28:38):
Is what they're about to report, is a weaker period.
Speaker 14 (28:40):
So the Q two guidance as things pick up on
a seasonal basis, is absolutely going to be key and crucial.
But I think taking a step back from that, the
China market has been an Hong Kong market of clearly
being decoupled from Nasdak and most other Western markets. For
some period of time, you have seen foreign investors participating.
(29:01):
They've been sat on the sidelines or for whatever reasons,
have not been actively in the market. So we're beginning
to see signs of investors and overseas investors coming back
to the market. So I think obviously fundamentals and guidance
is key, but I think a bigger thing to keep
this rally going is ongoing participation or growing participation.
Speaker 15 (29:21):
By foreign investors.
Speaker 14 (29:22):
You know, perhaps fear of missing out for example, because
as the index continue needs to rally, or assuming that happens,
then this fear of missing out I think will be
potentially a bigger factor that could draw more people into
the rally and you know, make it more self sustaining.
Speaker 4 (29:38):
Perhaps, if we look at the consensus estimates, ten Cent
is for a cast you have a six percent increase
in revenue and Ali Baba just under six percent. That
Robert doesn't sound like the ten Cent and Ali Baba
of yesteryear.
Speaker 14 (29:53):
Absolutely, both companies and the issues impacting Ali Baba are
perhaps somewhat different, and the competition that's suffering from low
cost disruptors like Timu for example, affecting Ali Baba. But
both companies are in a more mature phase of development.
Some of that reflects the slower economic outlook within China,
(30:16):
but they're mature businesses now. They're very large, broad spread businesses.
So you know, like a river entering the more mature phase,
you would expect the growth of them deliver to be
at a more modest level. But there are some structural
issues different for both companies that are also I think impacting.
Speaker 15 (30:31):
Give you a quick example, saturated markets.
Speaker 14 (30:34):
Again, when China's core markets were building out in the
first place, you had a multiplier effect which really drove
their growth. But now because the economy is very well
developed on the technology side and the markets are quite
well saturated, competition is more of an issue, and in
a slowing economy that is impacting, always a headwind for
the growth of both companies.
Speaker 12 (30:55):
Sarah, I'm wondering whether we need to address the regulatory regime.
We heard from Julia Wangam moment ago. She mentioned games.
When I think of games in China, I think of
ten Cent. This is something obviously that the government has
had a hand in. Is that cloud lifted completely from
the market, or do we need to consider the role
that the government may play in the way in which
(31:16):
some of these companies are managed going forward.
Speaker 1 (31:18):
Over the last few quarters, we've seen management from both
of these companies that we're talking about, ten Cent and
Alibaba say that the regulatory environment has stabilized to some extent.
But then again, you know, we also see that investors
are still reacting to regulatory changes. For example, late last year,
when they had draft gaming curbs the market just reacted
(31:39):
very strongly, Tensa and Nettie's and other gaming companies falling
quite substantially, and not only swinging back later or earlier
this year. So I think investors are still quite skittish
about this. But from the broader outlook point of view,
we have seen the regulation stabilized to some extent, even
as those those fear continue to linger and to shadow
(32:03):
over these companies going forward.
Speaker 4 (32:04):
Sarah earlier Doug asked about campex and about expanding, but
there has been some room for cost reduction of late
for some of these companies.
Speaker 15 (32:13):
Does that continue.
Speaker 1 (32:14):
Yeah, We've seen over the past year a lot of
these companies focusing very heavily on cost reduction, including layoffs,
massive restructuring. I think Alibaba is a very good example
of that. After they're sort of chaotic year long restructuring,
we saw that now they're streamlining their focus to just
focus on their core businesses, so domestic e commerce, international
e commerce, and the cloud side business, and then to
(32:36):
just sort of shed some of their non core assets
as they would describe them. So definitely, these companies are
thinking still about how to streamline costs, how to focus
in on the areas where they can actually start to
achieve growth, especially as Robert mentioned, with the domestic environment
being so competitive, really looking overseas or to other new
(32:56):
areas to still retain.
Speaker 10 (32:58):
Some of that growth.
Speaker 12 (33:00):
Sarah mentioned that these reports may give us a little
bit of insight into the health of the Chinese consumer,
and I'm wondering whether we need to take a step
back and look at the macro. We know that the
real estate market, the property market in China has still
been a drag on consumer sentiment. Give me an understanding
of where China is right now and it's recovery and
how that may manifest in the numbers we see in
(33:22):
the week ahead.
Speaker 14 (33:23):
Okay, so I think the e commerce players such as
p d D and Ali Baba probably more exposed to
the pressures that were within the domestic economy. But as
I mentioned earlier, you know, economic growth in China is slowing.
It still is outperforming most other developed economies, but it's
entering a more slow, slower face. And so what we're
(33:45):
seeing is rising competition, particularly again from these low cost disruptors,
the tmus and machines, both within the domestic China market
and overseas, which are undercutting the whole business.
Speaker 15 (33:56):
Proposition of established players like Ali Baba.
Speaker 14 (34:00):
Competitive dynamics I think has been in focus and will
remain so on the e commerce side for some time. Again,
given the backdrop of slowing economic growth and as you said,
the pressures from their property sector.
Speaker 4 (34:12):
Robert, it seems like there's a lot more up and
coming competition for Ali Barba than perhaps there is for
ten Cent. Now, I note that you are expecting a
thirty two percent increase in net income for ten Cent,
and that is presumably I mentioned earlier that ten Cent
the average for it cash was only for a six
percent increase in revenue. That's pretty interesting. So how does
(34:35):
ten Cent get to a thirty two percent increase in
net income with revenues only up maybe six or seven percent?
Speaker 15 (34:41):
Very good question.
Speaker 14 (34:42):
I think some of that's a base effect, because again
Q one, compared to last year, the economy was just
reopening at that point and recovering after the COVID lockdown.
Speaker 15 (34:51):
So base effect is one part of that, and a
Sarah refer to.
Speaker 14 (34:55):
I think the companies across the board have ever been
cutting costs, managing costs, or keeping costs flat, so there
has been revenue growth in all companies and with the
sort of natural operational gearing that's there, then that will
drive some margin increase and hence drop through to the
bottom line. But for a company like ten cents, they're
pushing into short videos. Their AI business is still at
(35:18):
a very early stage, but they are applying their large
language models to help enhance their advertising offering, and there
is evidence of that coming through, and that's much higher
margin business. You've got a mix shift to higher margin
revenue streams. So combination of all three base effect costs,
moderation or cost rationalization and the mix shift towards high
(35:40):
margin is really what's driving that.
Speaker 6 (35:42):
Sarah.
Speaker 12 (35:43):
It wasn't that long ago when we were discussing Ali
Baba and the spin off of the logistics armed Sinow
Smart Logistics. Is there a sense now that that is
dead in the water, that we're not going to get
a breakup of these individual businesses within Ali Baba.
Speaker 6 (35:56):
Yeah.
Speaker 1 (35:57):
So that's the quite interesting thing because actually literally one
year ago, that's when Ali Baba was announcing a very
specific timeline for their massive restructuring and all the spinoffs,
including what you mentioned is the IPO of their religistics
arms Hi now spin off of their cloud arm and
then also of the fresh grocery arm Fresh Hippo. Of course,
(36:19):
all of those things have now been put on hold.
Dead in the water is kind of a good term
to describe it. They've they've just said, oh, the valuation
isn't where they want it to be, So that's not
what they're looking at right now, and that's not their
focus at the moment. And now we've seen Ali Baba
go from trying to spin off all their businesses to
really focusing on their core business As I mentioned.
Speaker 2 (36:39):
It's hi now.
Speaker 1 (36:40):
For example, they're buying the entire stake now in this
logistics arm to be able to better service their domestic
and international commerce side. So it's really focusing in on
these businesses because they're realizing that they've just been bleeding
money on some of these other, as they describe it,
non core businesses for example offline retail. And we've heard
things about them exploring different sales of some of these
(37:03):
businesses for example sun Art and other businesses that they
don't no longer see as profitable and necessary. So what
we're looking to hear this time from their earnings is
just a clear strategy direction for what's what we're gonna
see going forward now that they've sort of unwhound their
whole restructuring spin off sort of plan. What's the plan
(37:23):
now to make sure that they can maximize the value
from their core businesses.
Speaker 12 (37:27):
I think we can agree that these earnings come at
a crucial time for the Chinese equity market. Thanks to
the both of you for helping us to preview the
week ahead and what we are likely to see from
ten Cent, Ali Baba JD dot com and Buy Do.
Robert Lee, Bloomberg Intelligence Senior Analyst and Sarah Jong Bloomberg
China Tech Reporter. I'm Doug Prisner along with Brian Curtis
(37:48):
in Hong Kong. You can catch us weekdays here from
Bloomberg Daybreak Asia beginning at eight am in Hong Kong
eight pm on Wall Street. Tom.
Speaker 2 (37:57):
Thank you, Doug, and thank you Brian. And that does
it for this edition of Bloomberg day Break Weekend. Join
us again Monday morning at five am Wall Street time
for the latest on markets overseas and the news you
need to start your day. I'm Tom Buzzby.
Speaker 6 (38:09):
Stay with us.
Speaker 2 (38:10):
Top stories and global business headlines are coming up right
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