May 4, 2024 • 38 mins
loomberg 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 Apple’s latest product event and earnings from Walt Disney.
- In the UK – a look at next week’s Bank of England meeting.
- In Asia – a look ahead to Chinese President Xi Jinping’s visit to Europe.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:09):
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 some of the big announcements we can
expect from Apple's latest product event on May seventh, and
to look at earnings from the world's biggest entertainment company.
I'm Tom Busby in New York.
Speaker 3 (00:26):
I'm Stephen Carolyn London, where we're thinking about vote splits
and inflation dynamics ahead of the Bank of England's upcoming meeting.
Speaker 4 (00:33):
I'm Brian Curtis in Hong Kong. We look ahead to
Chinese President Shijinping's trip to Europe. What does he hope
to get from the EU.
Speaker 5 (00:42):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
E Loove 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 bloemberg Radio
dot com and via the Bloomberg Business app.
Speaker 2 (01:06):
Good day to you. I'm Tom Busby and we begin
today's program with tech giant Apple its latest product event
this Tuesday, May seventh. For more on what we can expect,
we're joined by Mark German, Bloomberg, Chief correspondent on Global Technology. So, Mark,
thanks for being here. What do you expect to see
on Tuesday? From Apple?
Speaker 6 (01:26):
Thank you for having me. So it's been about a
year and a half since the last time Apple released
new iPads, right that was October twenty twenty two, So
they went the full calendar year of twenty twenty three
without a new iPad. That was the first time since
the iPad was unveiled by Steve Jobs in twenty ten,
where the company went a full calendar year without a
new model. On Tuesday, that's going to change. The company
(01:49):
is going to be updating its two highest and iPads,
the iPad Pro and the iPad Air. These are going
to be quite significant updates. The iPad Air, for the
first time, is going to get a larger screen size option.
That's a twelve point nine inch model, much bigger than
the current eleven inch model. And for the first time,
the iPad Pro is going to get an OLED screen.
(02:09):
That's a crisper, more efficient screen. Technology looks much better
that they've been using on the iPhone and the Apple
Watch for years. So that's finally coming to the company's iPads.
Speaker 5 (02:18):
Well, that's big.
Speaker 2 (02:19):
What kind of role will artificial intelligence hardware play in this?
Speaker 6 (02:22):
So the new iPad pro at least, is expected to
have an updated processor that will set the stage for
AI enhancements that the company will roll out at the
end of this year. So the iPad won't come out
the gate with these new AI features, but it'll have
hardware insights to be able to support a new slate
of artificial intelligence enhancements when those already towards the end
(02:45):
of the year with their operating system update.
Speaker 2 (02:47):
Okay, so with the iPads, we're seeing a big change.
We know that iPad small compared to the sales of
the iPhone, but still a significant change for Apple. And
let's talk about what it means to Apple for the
iPad and is it a launching point for future iPhones?
What works in the iPad?
Speaker 6 (03:05):
Well, five six years ago, the iPad was really peaking,
and then it increased in sales again during the COVID
pandemic when people were just sitting at home buying a
bunch of stuff, thinking they need these things. But now
what you're seeing are bigger sales for the Mac, and
you're seeing more people buying iPhones instead of iPads because
the iPhone screen sizes have become so big. And by
(03:25):
the way, they're going to make the iPhone screen size
even bigger in September with the iPhone sixteen Pro line.
But the iPad certainly does have place for some people.
The problem is is that Apple's veered from the original vision.
The original vision of the iPad under Steve Jobs was
all the features and goodness of the iPhone, with a
larger screen, better for viewing photos, better for watching movies.
(03:48):
And then you know, about a half decade ago, they
did this odd thing where they tried to make it
a quasi laptop replacement. They added support for track pads,
they added support for more pro applications. They were at
least their own keyboard, They have that Apple pencil stylusts
and it's sort of this in between device, right It's
past the point of being the simplistic future of the computer,
(04:10):
and it's nowhere near a true laptop replacement. And that's problematic.
Being somewhere in between. That's probably the place you don't
want to be. And so what they really need to
do with these new iPads is pick a direction. We're
long gone from the idea of these things just being
a bigger iPhone. We no longer want them to be
these in between our devices. We want them to be
true laptop replacements. And with the improved hardware, the better screens,
(04:35):
the larger displays in the iPad, air, faster processors, a
new version of the keyboard and trackpad case, I'm expecting
it makes a lot of sense that these things are
going to be better for people who want to replace
their laptops.
Speaker 2 (04:48):
Is there also going to be a new iOS operating
system that it's included in these new iPads.
Speaker 6 (04:53):
Well, the version of iOS that's coming with these new
iPads going to be a version of iPad OS seventeen,
which came out last year. That's the current operating system.
The next operating system for the iPad that's going to
be iPad OS eighteen that won't be announced until June
June tenth actually at their developers conference. That will be
(05:14):
the update that includes all those new artificial intelligence features,
but that won't be released until sometime around September this year.
Speaker 2 (05:21):
And September also when we should see the iPhone sixteen.
Speaker 6 (05:24):
You said iPhone sixteen launch should be in September as well,
and those will be the larger displays as well as
a new button on the higher end models that you
can control the camera zoom, moving between video and photos
from the side of the phone itself versus within the software.
Speaker 2 (05:41):
Now, let's talk about the iPhone for a minute, because
that sounds great. But you've reported the need to maybe
have a more affordable, mass market phone to compete against
all these rivals in China and really grow the base
of the iPhone. How close is that to a reality.
Speaker 6 (05:57):
Well, I personally don't think that's going to have in
under Apple's current management. You know, they're so strong in
their principles. There's no belief internally from at least a
management team that they should release a cheaper phone. This
is something they've considered over the years. Personally, I think
this would be a way to gain market share and
push back against the issues they're having in China. It
(06:19):
would help them grow in India, potentially build a business
in Eastern Europe other developing markets such as those in
Africa and Southeast Asia, Vietnam, Thailand, Malaysia. But I don't
think they're going to do it at least anytime soon.
There certainly isn't one in development right now. The idea
would be, you go to gain market share, make probably
(06:40):
no profit on the phone itself, make up for that
on apps and other services subscriptions, and then as the
middle class expands in those developing markets, you're able to
pitch those people who are already in the Apple ecosystem
on more expensive price your iPhones, where Apple could ultimately
make its profit.
Speaker 2 (06:58):
Oh but this Tuesday, May Apple's latest product launch all
about new iPads and our thanks to Mark German, Bloomberg
Chief correspondent on Global Technology. Well, we move now to
the entertainment and media company Walt Disney, with Disney reporting
second quarter earnings this coming Tuesday, and for more on
what to expect, we're joined by Geetha. Raganathin Bloomberg Intelligence
(07:20):
Analysts on US media. So gather, what are you expecting
to see in Tuesday's earnings?
Speaker 7 (07:25):
Thank you so much, Tom So. Disney actually is just
fresh after winning a very very contentious proxy battle. If
you remember that whole showdown that they had with Nelson Bells.
They've gotten through that and now they are really ready
to focus on execution. So there's a whole range of
initiatives that they've been working really hard on, which is
(07:46):
cost cutting, increasing financial visibility, and also really working hard
on kind of reintegrating their content engines. And we look
at this as catalysts. There's already been a change in sentiment,
and we're going to continue to see that change in
sentiment playouts as they report their fiscal second quarter earnings.
There's a lot of things to kind of look to.
I think the two major things are, of course going
(08:08):
to be the parks business, where you know they've kind
of guided to low teen's growth in operating income, as
well as the streaming business, where we are almost tom
on the brink of profitability, and that should really get
investors excited.
Speaker 2 (08:23):
Well, that's a big change. How has the return of
Bob Iger really helped Disney in this direction, whether streamlining
operations more cost effective or just taking charge.
Speaker 7 (08:33):
Yeah, I mean he's been instrumental Tom and kind of
really writing the ship, if you will here. So obviously
when he came back, things were pretty messy, especially with
regards to kind of the whole content pipeline and just
you know, the whole series of missteps with their content,
whether it was on the film side or even on
the TV series side. Obviously, those things take a little
(08:54):
bit of time, but I think what he has really
managed to do quickly is to articulate a strategy strategy
with you know, the streaming business, front and center cost
cutting initiatives. You know, they first started out with about
five and a half billion in cost savings per year.
They've kind of ben up that to seven and a
half billion, and then just overall kind of making sure
that the business is on a really strong footing. So
(09:15):
if you kind of look at Disney, yes, we tend
to focus a lot on on you know, the TV
networks ESPN, and you know, maybe some movies and then
the studio, but if you actually look at the business profiles,
seventy percent sixty five to seventy percent off Disney's profit
comes from its theme park business. And so what you
know Bob has done, obviously is they've kind of articulated
(09:37):
a plan now to really reinvest in that business. It's
it's sixty billion dollars that they're going to spend over
the next ten years, and then with regards to the
rest of the segments, kind of again make sure that
you know content, Content, of course, is kind of the
lifeblood here at Disney, so just kind of make sure
that they have a strong content pipeline which will then
feed into everything else.
Speaker 2 (09:57):
Well, that's seventy percent of revenue at the and those
theme parks never seem to be without tons of people,
So that's good news. But let's go back to what
you said about the streaming services and being close to
being profitable. I know that Disney just made a deal
with Kroger, the nation's biggest supermarket chain for Disney plus
what can you tell us about that?
Speaker 7 (10:17):
Yeah, so, I mean they are doing all these deals,
and again the main objective here, Tom, is to make
sure that you know, subscriber momentum is maintained. But as
you know, streaming is no longer just about subscribers. It
is also about being profitable. We know Netflix has kind
of really established the narrative here, turning out about you know,
(10:38):
eight nine ten billion dollars in profit. Disney is going
to be next. So they have lost tons of money,
almost close about eight billion dollars or so on their
streaming business since launch. But the good news, and this
is something that investors are excited about, is that this
is really just on the cusp of turning profitable. It
could very well have been in the quarter that they're
(10:59):
about to report, or if not, it'll be in the
next quarter. And the idea here is that it is
going to keep getting more and more profitable. And we
have a lot of catalysts on the horizon. So, yes,
you have subscriber growth, but I think more important than
that is, you know, price increases, which they are definitely
going to implement going forward, and that will be bolstered
by a really good content pipeline. They are also cracking
(11:22):
down on passwords sharing alain Netflix, and then of course
they have the ad tier, and then with the integration
of Hulu, you know, you have multiple positive elements that
are really kind of going to get this virtuous cycle going.
Speaker 2 (11:36):
Do you think there's going to be any update on
the sports streaming partnership with Fox and Warner Brothers that
was talked about a few months ago.
Speaker 7 (11:43):
Yeah, that is actually supposed to come out sometime in
the fall. There have been you know, a couple of
regulatory issues surrounding that, you know, yeah, probably. I mean
I think they are definitely going to be asked how
far along they are in terms of the infrastructure and
the setup, and you know, if they're ready to kind
of show a test version of that, which I'm sure
(12:04):
they are, given that upfronts is coming up pretty soon.
Speaker 4 (12:07):
Now.
Speaker 2 (12:07):
One last thing I want to ask you about is
the studio division still suffering like all of Hollywood from
those twin strikes last year. What can we look forward to?
Speaker 7 (12:16):
I mean, they really had a pretty bad year last year,
but the good news is they're really kind of back
on track in terms of executing on creative. They're improving
their studio output. So as you look forward to twenty
twenty four, you know, we do have kind of this
refreshed content slate. We're looking at Inside Out two and Deadpool,
both of which promised to be really big summer movies.
But where we're really excited about is twenty twenty five.
(12:39):
You have a whole array of you know, what we
think would all be blockbuster movies, whether it's Captain America's Norwide.
So Disney is really getting its mojo back.
Speaker 2 (12:47):
Yeah, a lot of twos a lot of threes after
those movie titles. But give the people what they want.
Speaker 5 (12:52):
Well.
Speaker 2 (12:53):
Disney second quarter earnings out after the close this Tuesday,
May seventh, and our thanks to get the raganaffin Bloomberg
Intelligence Animals on US Media. Coming up on Bloomberg day
Break weekend to look at the Bank of England's upcoming
policy meeting. I'm Tom Busby and this is Bloomberg. This
(13:19):
is Bloomberg day Break weekend, our global look at the
top stories for investors in the coming week. I'm Tom
Busby in New York. Up later in our program, Chinese
President Shijin Ping visits Europe. Will it help repair relations
between China and the continent. But first in the UK,
recent hotter than expected inflation figures coupled with a strong
(13:40):
labor market may have put the breaks on hopes that
the Bank of England is poised to begin cutting interest
rates in the coming days. Threadneedle Streets decision makers will
vote once again. So will they stick with elevated borrowing
costs or take the plunge for more. Let's go to
London and bring in Bloomberg day Break Europe anchor Stephen.
Speaker 3 (13:58):
Carroll, Tom stop me if you've heard this one before,
but since the start of the year, traders have scaled
back their expectation for interest rate cuts. Okay, that's been
the situation facing many central banks around the world. In
the UK, it's a mildly hawkish run of data that's
giving some pause for thought on top of what's been
happening with central bankers elsewhere. CPI inflation came in at
(14:20):
three point two percent in March in the UK, down
from three point four percent in February. That was slightly
ahead of the Bank of England's forecast, though, but BOE
Governor Andrew Bailey didn't seem phased and assured markets that
things were still on track. We've been getting the market
view of the rate path ahead for the UK with
Hugh Ginberg, global market strategist at JP Morgan Chase Bank.
Speaker 8 (14:43):
I think, really what the market is grappling with here
is does the UK look more like the Eurozone or
more like the US? Because I go back twelve months
ago and the answer to that was categorically that the
UK looked a lot more like the US economy, where
you had the tightness of the labor market, you had
much strong inflation pressure, whereas today I think, arguably it's
a lot more Eurozone like where yes, inflation is still higher,
(15:07):
but inflation is coming down. It's going to come down
significantly further over the next couple of months as that
energy household price cap reset kicks in, and so I
do think the bank will be able to follow the
path more like the ECB than the Fed. I personally
think they start the rate cutting process in August. But
again we're talking about relatively modest adjustments to interest rates,
(15:28):
and so for bond investors, the main message here is
that you're playing for really clipping the coupon in government
bond deals today, with the potential for capital appreciation if
the economy slows much more quickly. But I don't see
a kind of straight line lower for bond yields until
we get much weaker economic data than what we have
at the moment.
Speaker 3 (15:48):
Do you think that Andrew Bailey is in a position
to be able to give clear signals given the sort
of uncertainty that exists elsewhere.
Speaker 8 (15:55):
No, But then let me, if I may flip your
question the other way around and say, well, should he
be giving clear signals? No, he shouldn't because all central
bankers are struggling to read the inflation data, just as
markets are trying to predict over the next one to
two months. Are we going to get point threes or
point four's? It is nigh on impossible in this current
economic environment, and so I think the right approach for
(16:16):
central bankers today is to take stock of the incoming
data that they've seen, but try to keep that medium
term view because they're trying to set policy here over
the next twelve, twenty four to thirty six months. They
shouldn't be swung around by just what the last one
or two weeks of data has been telling them. The
blanky reviewer missed opportunity, yes or no.
Speaker 3 (16:37):
Ah, good politician Lizzy.
Speaker 8 (16:40):
Could they have gone further?
Speaker 3 (16:41):
Yes?
Speaker 8 (16:41):
I think that it could. I mean there is some
useful points there in terms of trying to communicate more clearly.
I think everyone would welcome more guidance from the Bank
of England in terms of how they're seeing the economy.
But do you want a dot plot in the UK,
for example, I would argue no.
Speaker 3 (16:58):
So that was Hugh Gimberg Global Markets Strated US at
JP Morgan Chase. It's worthwhile, too thinking about how the
Bank of England behaves versus its peers. Members of the
Monetary Policy Committee have an advantage in that this meeting
is coming just a week after the FEDS, when Jerome
Powell signaled that they were further away from cutting rates
than before. The European Central Bank has signaled strongly that
(17:20):
it's planning to cut rates at its June meeting as
it grows more confident that inflation is continuing to slow.
So how will the BOE fit into what's happening elsewhere.
I've been discussing the outlook for the upcoming meeting with
Bloomberg's chief UK economist Dan Hansen. I started by asking
him what's changed for the BOE since its last meeting
on the twenty first of March.
Speaker 9 (17:41):
I don't think a huge amount has changed, to be
honest with you. We've had a few upside data surprises,
but they were very, very small, and if you look
at see the most important thing, what happened to inflation
over the first quarter. It came in at three point
five percent. The Bank of England's forecast in February, the
last time it put a forecast together, was three point
six percent, so a little bit below, but for me, actually,
what's been most interesting is what policy makers have been saying,
(18:02):
which is what you alluded to there, And we've had
remarks from certainly Bailey, Andrew Bailey and Dave Ramsden that
are very much sort of moving in I would say,
the dubvish direction. There's a little bit of uncertainty. I
think about what Hugh pill did or didn't say in
his speech, but I think the thing for us that
we took away at least is that there he said
that there's been little news in the data, which is
(18:24):
obviously clearly very important. So I think to answer your
question directly, whatever you believe sort of following the March meeting,
the Bank would do at least looking domestically, and we'll
probably get onto the Fed in a second. There is
a much reason to change. You're thinking about the when
the first cut will come?
Speaker 3 (18:41):
Okay, well, let's deal with the fetish and we'll come
back to the split on the committee in a moment.
How much does the signals that we got from Jerome
Powell that Ratcot's look further away than they did before.
How much does that affect the BOE.
Speaker 9 (18:54):
So markets think it affects the BOE quite significantly. If
you look at the way BOE pricing has moved, if
you look at the way FED pricing has moved, they've
essentially moved in locksteps. So what's interesting is I think
the comments that Bailey made about that that the UK's
inflation problem is more like a European inflation problem, so
the problem facing ECB than it is like the US's
(19:17):
demand led inflation problem, and I sort of am inclined
to agree with that. Particularly this year, I think there's
going to be this quite big divergence between the UK
and US inflation story, mainly driven by energy, but that
sort of spills through into the rest of the CPI basket.
So I don't think the FED going later is an
impediment to the BOE. I think it can go before
(19:37):
the FED. And actually, one thing that the BOE has
got to be really quite careful about is that it
doesn't allow what's happened recently. So they're tightening of financial
conditions to spill into the UK economy and we've seen
that affect some metrics in the economy already. If we
think about house prices and the like, and mortgage rates.
You know, the bo needs to be wary of that.
Everyone talks about the exchange rate impact of going earlier
(19:59):
than the f but actually what you also need to
be worried about is allowing tie to financial conditions to
affect your domestic economy when your domestic economy is already
very weak.
Speaker 3 (20:10):
What is your expectation there in terms of the inflation trajectory,
I mean, when when does the two percent target look
likely to be his?
Speaker 9 (20:17):
I think in the next few months. I mean it
might not quite get there in April. I think May
or June are pretty good bets for when we'll get
to two or even below two in fact. So I
mean what one really important consideration I think when you
think about that, is that the bank will have the
May CPI print before the June meeting, and I think
that will It'll be very hard if you have a
(20:39):
too or even particularly if you have a sub two
percent CPI inflation print in your hand not to do something.
So I think that for us is sort of the
next few months of data after this, after we get
past this meeting. The data between the May and the
GEME meeting are basically key, and I think that will
set the tone for the rest of the year. In
terms of what the bank thinks it can or can't deliver.
Speaker 3 (20:57):
We talk a lot about the FAD's influence over those
central banks. What about the European Central Bank? If the
Bank of England has a similar inflation problem in large
Bailey's eyes to the ECB, does that mean actually the
ECB decision, which is widely telegraphed for June, is likely
to influence the BOW decision.
Speaker 9 (21:13):
Well, I think it will help that the ECB just
chronologically goes first, so in June, their meeting is before
the banks, so I think there will be a bit
of cover there. As you say, Bailey has made that
comparison to Europe more than to the US, and you
take that alongside the fact that you will potentially have
a very favorable CPI print in hand. I think the
(21:33):
sort of cards are aligning for you know, we think
it's June. A lot of other economists think it's August,
but sometime in the summer for them to move. So
I think, yeah, the ECB is sort of I think
it's an important thing for the bank to have a
bit of cover there. The ECB's gone, there's no sort
of reason for the banks to sort of sit on
its hands.
Speaker 3 (21:53):
What about the rest of the year. Then after the
kind of first cut that we're looking at in that
summer period, is it going to be kind of start
start depending on the data, do you think, or on
Once we get a first cutter we look like what
we are on a steady trajectory.
Speaker 9 (22:05):
So I mean it goes back to my answer to
the first question is that whatever you believed following even
the February meeting, but certainly the March meeting, it feels
like you should probably still believe something pretty close to
that now. So we still have meeting by meeting at
least for a time, and that's a lot more aggressive
than market pricing. I think for market pricing to be
born out, you would have to have quite some bumps
(22:27):
in the road. But if you're sitting at two sub
two percent headline CPI inflation and services inflation continues to fall,
albeit slowly, and you have to sort of expect it
to fall slowly. It's not going to drop like a
stone like the headline rate has. I don't see any
reason why they can't move, as I say, at least initially,
meeting by meeting. I think they'll come a point and
I think it's around about the four percent mark where
(22:47):
they get a little bit concerned about where what we
call the neutral rate is to the rate that neither
speeds up or slows down the economy. But I think
there is room between sort of where we are now
and around four percent to potentially take out what they're
calling restriction in the policy stance and sort of it
basically eased the squeeze on the economy.
Speaker 3 (23:06):
What are the risks to the inflation outlook that you'll
be watching. I mean, you mentioned energy. We had that
spike and oil prices which are sort of receded now,
so that seems to be a little bit out of
the picture. But is it still energy the thing you'd
worry about.
Speaker 9 (23:17):
Yeah, I mean I think I think it's energy. And
to without wanting to sort of tout the speech too much,
how Dave Ramsden sort of characterized the whole thing is
that I just feel there's not enough weight being placed
on the downside risk here. You know the way inflation
surged in the UK, if you sort of go through
the sort of mechanism headline inflation surged, people saw that
(23:41):
they pushed up, they bid up their wages because the
laid market was tight, and that is eventually fed through
to services inflation, and high energy prices are pushed up
services inflation as well. Now energy price inflation is where
in fact we're in disinflation. The headline rate is falling.
You have to put some weight on the idea that
that mechanism goes into reverse and quite quickly. And I
(24:02):
think Bailey and Ramsen, at least certainly in their comments
are sort of alluding to this, that you have to
look forward a little bit more and not just be
completely data dependent. And I think that actually goes to
the CRUXFID a little bit, where the bank's reaction function
has shifted a bit, not just being completely on every
CPI print and hanging on that, but looking forward to say, look,
this thing can unwind quite quickly, So we probably need
(24:24):
to take a little bit of insurance out to ensure
that we're not caught on the downside on the way down,
because we don't want to make the mistake of being
too slow coming out of this, having arguably been too
slow getting to it in the first place. So that
for me is the risk at the moment, and that's
why it's probably sort of when we see what they
say on their main meeting. They'll probably say the risk
of broady balance to the outlook, which is sort of
(24:45):
a big shift again because they've been constantly emphasizing the upside.
Speaker 3 (24:49):
And just coming back to that vote split's idea. Whilst
what will get you excited in terms of the vote risk.
Speaker 9 (24:57):
Any votes for it?
Speaker 4 (25:00):
No.
Speaker 9 (25:00):
I mean we've put our preview out and in that
we say that we think Ramsdom will join THINGRA inviting
for a cut. I think that or any more going
for a cut would get people excited. I think if
you had an eight to one again, which is what
we had in March, and similar guidance, it wouldn't feel
like we'd moved closer. It might feel at that point
(25:22):
it had been pushed away a bit. So I think
there needs if it's going to happen in the summer,
it needs to feel like it's coming closer. In a
more dubbish vote split or even a tweets the guidance
would be the things to look for on that.
Speaker 3 (25:33):
Thanks to Bloomberg's Chief UK economist, Dan Hansen, I'm Stephen
Carolyn London. You can catch us every weekday morning here
for Bloomberg Daybreak.
Speaker 10 (25:41):
Europe.
Speaker 3 (25:41):
Beginning at six am in London and one am on
Wall Streets.
Speaker 2 (25:45):
Tom beg you Steven and coming up on Bloomberg day
Break weekend, Chinese President shi Jin Pining said for a
trip to Europe, what could this mean for relations between
Europe and China? I'm Tom Busby and this is Bloomberg.
(26:08):
I'm Tom Busby, New York. But your global look ahead
at the top stories for investors in the coming week.
Relations between China and Europe have been Chile as of late,
but with Chinese President shi Jinping set to visit Europe
in the coming days, can we expect to see a
thaw in that relationship. Let's get to Daybreak Asia hosts
Brian Curtis and Doug Prisner.
Speaker 4 (26:28):
To Chinese President Shijinping heads to Europe in the coming week,
is expected to deliver the message that China has more
to offer Europe than the US cares to admit.
Speaker 1 (26:38):
She will be traveling to France, Serbia, and Hungary on
a five day trip. Those nations are seeking investment from
China even as tensions mount. Relations have cooled over a
range of issues, including trade, allegations around spying and Beijing's
support for Russia.
Speaker 4 (26:56):
Even with Ty's slipping of late, it appears that both
sides will probably try to woo the other. Sources tell
us that French President front Sois Macron will take she
to a corner of the Pyrenees where he used to
visit his grandmother as a.
Speaker 1 (27:10):
Child, and she will likely again make this point affordable
clean energy from China will help Europe fight both inflation
and climate change. Here's Dan ten Kate, Bloomberg Asia eco
Gov executive.
Speaker 11 (27:23):
Editor from China's perspective. They're like, look, the world needs
a bunch of evs, so there's no problem with us
investing in these, and we can provide cheap cars for
your people. So you know, the visit to Hungary is
important in that because you have Chinese companies looking to
set up factories there, and you know governments that are
happy to kind of have this investment from China to
(27:45):
gain jobs locally and to have cheaper electric vehicles in
their market.
Speaker 4 (27:49):
Bloomberg's Dan ten Kate joining us now in our studio
is far further discussion on this is Jenny Marsh, a
team leader for Greater China eco Gov, and Rebecca Choan
Wilkins Bloomberg Asia Government and Politics correspondents. So, as we
heard there from Dan, it's going to be a little given.
Take Jenny, let me go to you first. As Doug said,
relations have gotten a little testier of late here than before.
(28:13):
We have these EU probes on Chinese made evs and
also medical devices procurement. So it might be tempting to
say that this will be a tougher trip for she
than usual, But after all, this is the president and
he's not going to face a lot of press, and
the meetings will be at a very high level.
Speaker 10 (28:32):
What are we expecting exactly? And you can add to
that list that he's picked three countries in Europe which
are already considered to be some of the more friendly ones.
So you know, going to Serbia and Hungary, these are
not two countries that should be critics of China's policy.
Quite the opposite. They're sort of big fans of Beijing's
investment into their countries, and he can use those countries
as sort of showcase this is what engagement with China
(28:54):
can offer to you. France is going to be sort
of the most important stop, and in France is also
going to have this trilat with as lovel One Delaion
from the European Commission, and so I think, you know,
that meeting, I think is Macron's way of saying that, yes,
Si Jianping is coming, and we're throwing this big banquet
for him and taking him sort of this very personal
childhood retreat. But at the same time they're not going
(29:16):
to shy away from some of the tougher questions. And
you know, she sort of is the architect of this
de risking narrative language which the US then adopted. So
I think in that trilat in France on the first
day with Macron and Vondalayan, you're going to expect the
toughest probably conversations he'll have during that trip on China's
industrial policy, on She Jianping's continued support for President Vladimir
(29:39):
Putin despite you know, the war in Ukraine grinding on,
and sort of you know, this propping up Russia's war machine,
something which has been really pivotal in changing the shape
of the China europe relationship in a way, I think
that people in officials and Beijing didn't really grasp at
the beginning how consequential that was going to be. So
you know, I think, yes, he's going at a time
(30:01):
when probably relations between Europe and China have never been
or in decades haven't been quite so testy, and distrust
is growing. But he's carefully curated this itinerary, I think,
obviously to serve his interest best and sort of promote
the narrative that he wants to tell on this trip.
Speaker 1 (30:16):
What about what she may be attempting to do in
terms of US EU relations and whether or not there's
an opportunity for him to maybe insert a bit of
a wed chere, Rebecca and try to exploit some division.
I mean, we know there's a tremendous amount of unity,
but there are disagreements, and would she use this trip
(30:36):
to try to capitalize on some of that?
Speaker 12 (30:38):
Yeah, I think that's right. And just to take a
step back briefly, the broader context here is that Europe
and the European Union in particular, has for a long
time viewed itself as this sort of middle path. It
has wanted to resist automatically siding with the US, not
just because of its policy on China, but also because
how the European Union historically has viewed the US itself.
(31:01):
It has not wanted to just automatically throw its weight in,
but the Biden administration has worked hard to get its
allies and partners on side to try and build consensus
when it comes to taking a firmer stance on China,
including for example, picking up that de risking language, moving
a little bit of showing at least a little bit
(31:23):
of give and take with the European Union stance there.
But we have seen this steady drumbeat of probes and
investigations into Chinese industries via the EU, and that has
essentially taken EU policy much closer to the US.
Speaker 4 (31:40):
Well. The inroad on cars too by China seems to
have made a big difference. You know, you've got this
probe that's underway and byd has a plant coming in Hungary.
We understand that it will take about three years to
be completed, and a lot can happen between now and then.
I mean, you'll get the result of the probe in
(32:01):
the EU, and you know that could be quite damaging.
And this kind of three years out for a plan,
it shows how difficult planning can be. Lot can change
in three years.
Speaker 12 (32:11):
Rebecca, a lot can change. But we do, for example,
also have another Chinese automaker Cherry taking over an old
Nisan factory in Spain. We think potentially there could be
announcements of more such car factory plans in Europe during
this trip. So wild China is still waiting to see
the results of that probe, a probe which was actually
(32:33):
backed by France. It's worth mentioning, you know, China is
still working very hard to try and at least prove
that there are benefits, as Jenny points out, if you
do engage and the fact of sort of going and
opening factories in European countries, creating jobs, driving some economic growth,
may try and sort of it may ease some of
(32:55):
those tensions and some of those anxieties, but it certainly
is hanging over I think many Beijing companies' heads at
this moment. It's worth saying too, though, that Beijing has
very actively engaged in the debate over capacity with the Europeans. So,
for example, these long comments from Litiang and President cy
(33:16):
Jimping when German Chancellor Schultz was in the country quite
different from the more sort of standard and sort of
briefer comments that we had when US officials have visited
Beijing and discussed the same topic.
Speaker 1 (33:29):
Well, it's interesting you make that point because recently German
Chancellor Olof Schoalz was in China and addressing the issue
of things like unfair competition, dumping, over capacity. Jenny, are
these perspectives that are uniquely German because of the German
manufacturing economy, or do they expand more broadly across the
European Union.
Speaker 10 (33:50):
They expand more broadly across parts of the European Union
and beyond as well. You know, Schultz's visit to Beijing
came just a few weeks after Yellen had been in Beijing,
also carrying the same message, and the US Treasury Secretary
warned Chinese leaders at the time that the concerns that
the US has on Chinese overcapacity are shared by lots
(34:11):
of countries around the world. And so Schultz coming and
sort of he really echoed her message, you know, almost
to the word. Just a few weeks later, really sort
of hammered that home. And that's sort of part of
a broader sign too, you know that the European Union
and the US they're China policies kind of now sort
of coalescing into one joined up policy. Obviously, the big
(34:31):
thing on the horizon is the US election, you know,
and if we do see President Donald Trump coming back
into the White House later this year, he could take
China policy in a whole different direction. He become much
more hawkish, you know, much more sort of unpredictable. And
then I think the Europeans are going to have to
sort of think if they still want to walk in
lockstep with the US on their China policy. But for now,
(34:53):
you know, the two sides are very much in sync
into how they're presenting their concerns to the Chinese. And
that must be worrying, I think for China. You know,
two of these huge economic blocks both presenting the same concerns.
Speaker 4 (35:05):
Yeah, let's go back to Dan ten Kate. We talked
with him briefly about how she might be appealing to
the EU to pursue a more pragmatic policy toward Beijing.
Speaker 11 (35:15):
She views Macron as someone he can do business with,
someone that is not inherently reflexively anti China, that can
stand up to the US and kind of forge a
middle path. And it's kind of key to China's long
standing strategic aim, you know, to kind of drive a
wedge essentially, and not be in lockstep with the US,
(35:37):
particularly when it comes to export controls on key chips
and other advanced technology that China would need to grow
its economy.
Speaker 4 (35:44):
So, Jenny, what are some of the bargaining points that she.
Speaker 10 (35:47):
Will bring to the four It's going to be all
about what China can offer France, you know particularly. I
think this is where the Chinese like to sort of
the like sort of work to the advantage they have,
which is, you know, they can offer different countries different
carrots within the European Unions. I think for France, you know,
it's going to be sort of what their companies can
bring in terms of job creation and investment. We know
(36:09):
from sources that mccran is specifically going to be asking
she for investment in the EV battery sector. So you know,
if she can say he's going to steer some of
their sort of world leading companies in that sector towards
investing in France, you know, that's very appealing from macran.
And I think if what they can then do is
(36:30):
sort of work out these deals where it's much more
of it of a JV and so rather than you know,
importing Chinese cars into France. If some of these Chinese
cars or goods can be made in France by French workers,
then that helps to ease these tensions. But of course,
you know there's kind of an irony here too, and
that there's been some research showing as well that you know,
these European companies now which are actually behind the Chinese
(36:53):
in terms of this type of new tech, they're now
looking for tech transfer. So when these Chinese companies do
set up in European nations, there's also this idea, a
risk on the Chinese side of sort of technology leak,
where the Europeans are now wanting to learn from the
Chinese companies which are ahead. And that's just something which
is quite fascinating to think about for a second, because
(37:14):
you know, just a few decades ago, the complete opposite
was true, where it was you know, European companies in
China and the Chinese trying to sort of learn from
that tech and you know, seally even perhaps to get ahead.
Now everything sort of swung on. The imbalance is so
great in some ways that you have these European firms
that potentially want to learn from the Chinese, and that's
(37:34):
something I think that you know, she has to sort
of work out how to balance.
Speaker 1 (37:38):
Thanks to the two of you for helping us set
up the meeting this week between the heads of state
in Hungary, Serbia, and France with Chinese President Chi Jinping,
Jenny Marsh Bloomberg Team Leader for Greater China Eco Gov
and Rebecca Chung Wilkins Bloomberg Asia Government and Politics Correspondent.
Speaker 4 (37:57):
I'm Brian Curtis, along with Doug Krisner. You can catch
us every weekday here for Bloomberg day Break Asia, beginning
at eight am in Hong Kong and eight pm on
Wall Street. Tom.
Speaker 2 (38:08):
Thank you, Brian, Thank you Doug. 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 done markets overseas and the news you need
to start your day. I'm Tom Buzzby. Stay with us.
Top stories and global business headlines are coming up right now.
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:09):
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 some of the big announcements we can
expect from Apple's latest product event on May seventh, and
to look at earnings from the world's biggest entertainment company.
I'm Tom Busby in New York.
Speaker 3 (00:26):
I'm Stephen Carolyn London, where we're thinking about vote splits
and inflation dynamics ahead of the Bank of England's upcoming meeting.
Speaker 4 (00:33):
I'm Brian Curtis in Hong Kong. We look ahead to
Chinese President Shijinping's trip to Europe. What does he hope
to get from the EU.
Speaker 5 (00:42):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
E Loove 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 bloemberg Radio
dot com and via the Bloomberg Business app.
Speaker 2 (01:06):
Good day to you. I'm Tom Busby and we begin
today's program with tech giant Apple its latest product event
this Tuesday, May seventh. For more on what we can expect,
we're joined by Mark German, Bloomberg, Chief correspondent on Global Technology. So, Mark,
thanks for being here. What do you expect to see
on Tuesday? From Apple?
Speaker 6 (01:26):
Thank you for having me. So it's been about a
year and a half since the last time Apple released
new iPads, right that was October twenty twenty two, So
they went the full calendar year of twenty twenty three
without a new iPad. That was the first time since
the iPad was unveiled by Steve Jobs in twenty ten,
where the company went a full calendar year without a
new model. On Tuesday, that's going to change. The company
(01:49):
is going to be updating its two highest and iPads,
the iPad Pro and the iPad Air. These are going
to be quite significant updates. The iPad Air, for the
first time, is going to get a larger screen size option.
That's a twelve point nine inch model, much bigger than
the current eleven inch model. And for the first time,
the iPad Pro is going to get an OLED screen.
(02:09):
That's a crisper, more efficient screen. Technology looks much better
that they've been using on the iPhone and the Apple
Watch for years. So that's finally coming to the company's iPads.
Speaker 5 (02:18):
Well, that's big.
Speaker 2 (02:19):
What kind of role will artificial intelligence hardware play in this?
Speaker 6 (02:22):
So the new iPad pro at least, is expected to
have an updated processor that will set the stage for
AI enhancements that the company will roll out at the
end of this year. So the iPad won't come out
the gate with these new AI features, but it'll have
hardware insights to be able to support a new slate
of artificial intelligence enhancements when those already towards the end
(02:45):
of the year with their operating system update.
Speaker 2 (02:47):
Okay, so with the iPads, we're seeing a big change.
We know that iPad small compared to the sales of
the iPhone, but still a significant change for Apple. And
let's talk about what it means to Apple for the
iPad and is it a launching point for future iPhones?
What works in the iPad?
Speaker 6 (03:05):
Well, five six years ago, the iPad was really peaking,
and then it increased in sales again during the COVID
pandemic when people were just sitting at home buying a
bunch of stuff, thinking they need these things. But now
what you're seeing are bigger sales for the Mac, and
you're seeing more people buying iPhones instead of iPads because
the iPhone screen sizes have become so big. And by
(03:25):
the way, they're going to make the iPhone screen size
even bigger in September with the iPhone sixteen Pro line.
But the iPad certainly does have place for some people.
The problem is is that Apple's veered from the original vision.
The original vision of the iPad under Steve Jobs was
all the features and goodness of the iPhone, with a
larger screen, better for viewing photos, better for watching movies.
(03:48):
And then you know, about a half decade ago, they
did this odd thing where they tried to make it
a quasi laptop replacement. They added support for track pads,
they added support for more pro applications. They were at
least their own keyboard, They have that Apple pencil stylusts
and it's sort of this in between device, right It's
past the point of being the simplistic future of the computer,
(04:10):
and it's nowhere near a true laptop replacement. And that's problematic.
Being somewhere in between. That's probably the place you don't
want to be. And so what they really need to
do with these new iPads is pick a direction. We're
long gone from the idea of these things just being
a bigger iPhone. We no longer want them to be
these in between our devices. We want them to be
true laptop replacements. And with the improved hardware, the better screens,
(04:35):
the larger displays in the iPad, air, faster processors, a
new version of the keyboard and trackpad case, I'm expecting
it makes a lot of sense that these things are
going to be better for people who want to replace
their laptops.
Speaker 2 (04:48):
Is there also going to be a new iOS operating
system that it's included in these new iPads.
Speaker 6 (04:53):
Well, the version of iOS that's coming with these new
iPads going to be a version of iPad OS seventeen,
which came out last year. That's the current operating system.
The next operating system for the iPad that's going to
be iPad OS eighteen that won't be announced until June
June tenth actually at their developers conference. That will be
(05:14):
the update that includes all those new artificial intelligence features,
but that won't be released until sometime around September this year.
Speaker 2 (05:21):
And September also when we should see the iPhone sixteen.
Speaker 6 (05:24):
You said iPhone sixteen launch should be in September as well,
and those will be the larger displays as well as
a new button on the higher end models that you
can control the camera zoom, moving between video and photos
from the side of the phone itself versus within the software.
Speaker 2 (05:41):
Now, let's talk about the iPhone for a minute, because
that sounds great. But you've reported the need to maybe
have a more affordable, mass market phone to compete against
all these rivals in China and really grow the base
of the iPhone. How close is that to a reality.
Speaker 6 (05:57):
Well, I personally don't think that's going to have in
under Apple's current management. You know, they're so strong in
their principles. There's no belief internally from at least a
management team that they should release a cheaper phone. This
is something they've considered over the years. Personally, I think
this would be a way to gain market share and
push back against the issues they're having in China. It
(06:19):
would help them grow in India, potentially build a business
in Eastern Europe other developing markets such as those in
Africa and Southeast Asia, Vietnam, Thailand, Malaysia. But I don't
think they're going to do it at least anytime soon.
There certainly isn't one in development right now. The idea
would be, you go to gain market share, make probably
(06:40):
no profit on the phone itself, make up for that
on apps and other services subscriptions, and then as the
middle class expands in those developing markets, you're able to
pitch those people who are already in the Apple ecosystem
on more expensive price your iPhones, where Apple could ultimately
make its profit.
Speaker 2 (06:58):
Oh but this Tuesday, May Apple's latest product launch all
about new iPads and our thanks to Mark German, Bloomberg
Chief correspondent on Global Technology. Well, we move now to
the entertainment and media company Walt Disney, with Disney reporting
second quarter earnings this coming Tuesday, and for more on
what to expect, we're joined by Geetha. Raganathin Bloomberg Intelligence
(07:20):
Analysts on US media. So gather, what are you expecting
to see in Tuesday's earnings?
Speaker 7 (07:25):
Thank you so much, Tom So. Disney actually is just
fresh after winning a very very contentious proxy battle. If
you remember that whole showdown that they had with Nelson Bells.
They've gotten through that and now they are really ready
to focus on execution. So there's a whole range of
initiatives that they've been working really hard on, which is
(07:46):
cost cutting, increasing financial visibility, and also really working hard
on kind of reintegrating their content engines. And we look
at this as catalysts. There's already been a change in sentiment,
and we're going to continue to see that change in
sentiment playouts as they report their fiscal second quarter earnings.
There's a lot of things to kind of look to.
I think the two major things are, of course going
(08:08):
to be the parks business, where you know they've kind
of guided to low teen's growth in operating income, as
well as the streaming business, where we are almost tom
on the brink of profitability, and that should really get
investors excited.
Speaker 2 (08:23):
Well, that's a big change. How has the return of
Bob Iger really helped Disney in this direction, whether streamlining
operations more cost effective or just taking charge.
Speaker 7 (08:33):
Yeah, I mean he's been instrumental Tom and kind of
really writing the ship, if you will here. So obviously
when he came back, things were pretty messy, especially with
regards to kind of the whole content pipeline and just
you know, the whole series of missteps with their content,
whether it was on the film side or even on
the TV series side. Obviously, those things take a little
(08:54):
bit of time, but I think what he has really
managed to do quickly is to articulate a strategy strategy
with you know, the streaming business, front and center cost
cutting initiatives. You know, they first started out with about
five and a half billion in cost savings per year.
They've kind of ben up that to seven and a
half billion, and then just overall kind of making sure
that the business is on a really strong footing. So
(09:15):
if you kind of look at Disney, yes, we tend
to focus a lot on on you know, the TV
networks ESPN, and you know, maybe some movies and then
the studio, but if you actually look at the business profiles,
seventy percent sixty five to seventy percent off Disney's profit
comes from its theme park business. And so what you
know Bob has done, obviously is they've kind of articulated
(09:37):
a plan now to really reinvest in that business. It's
it's sixty billion dollars that they're going to spend over
the next ten years, and then with regards to the
rest of the segments, kind of again make sure that
you know content, Content, of course, is kind of the
lifeblood here at Disney, so just kind of make sure
that they have a strong content pipeline which will then
feed into everything else.
Speaker 2 (09:57):
Well, that's seventy percent of revenue at the and those
theme parks never seem to be without tons of people,
So that's good news. But let's go back to what
you said about the streaming services and being close to
being profitable. I know that Disney just made a deal
with Kroger, the nation's biggest supermarket chain for Disney plus
what can you tell us about that?
Speaker 7 (10:17):
Yeah, so, I mean they are doing all these deals,
and again the main objective here, Tom, is to make
sure that you know, subscriber momentum is maintained. But as
you know, streaming is no longer just about subscribers. It
is also about being profitable. We know Netflix has kind
of really established the narrative here, turning out about you know,
(10:38):
eight nine ten billion dollars in profit. Disney is going
to be next. So they have lost tons of money,
almost close about eight billion dollars or so on their
streaming business since launch. But the good news, and this
is something that investors are excited about, is that this
is really just on the cusp of turning profitable. It
could very well have been in the quarter that they're
(10:59):
about to report, or if not, it'll be in the
next quarter. And the idea here is that it is
going to keep getting more and more profitable. And we
have a lot of catalysts on the horizon. So, yes,
you have subscriber growth, but I think more important than
that is, you know, price increases, which they are definitely
going to implement going forward, and that will be bolstered
by a really good content pipeline. They are also cracking
(11:22):
down on passwords sharing alain Netflix, and then of course
they have the ad tier, and then with the integration
of Hulu, you know, you have multiple positive elements that
are really kind of going to get this virtuous cycle going.
Speaker 2 (11:36):
Do you think there's going to be any update on
the sports streaming partnership with Fox and Warner Brothers that
was talked about a few months ago.
Speaker 7 (11:43):
Yeah, that is actually supposed to come out sometime in
the fall. There have been you know, a couple of
regulatory issues surrounding that, you know, yeah, probably. I mean
I think they are definitely going to be asked how
far along they are in terms of the infrastructure and
the setup, and you know, if they're ready to kind
of show a test version of that, which I'm sure
(12:04):
they are, given that upfronts is coming up pretty soon.
Speaker 4 (12:07):
Now.
Speaker 2 (12:07):
One last thing I want to ask you about is
the studio division still suffering like all of Hollywood from
those twin strikes last year. What can we look forward to?
Speaker 7 (12:16):
I mean, they really had a pretty bad year last year,
but the good news is they're really kind of back
on track in terms of executing on creative. They're improving
their studio output. So as you look forward to twenty
twenty four, you know, we do have kind of this
refreshed content slate. We're looking at Inside Out two and Deadpool,
both of which promised to be really big summer movies.
But where we're really excited about is twenty twenty five.
(12:39):
You have a whole array of you know, what we
think would all be blockbuster movies, whether it's Captain America's Norwide.
So Disney is really getting its mojo back.
Speaker 2 (12:47):
Yeah, a lot of twos a lot of threes after
those movie titles. But give the people what they want.
Speaker 5 (12:52):
Well.
Speaker 2 (12:53):
Disney second quarter earnings out after the close this Tuesday,
May seventh, and our thanks to get the raganaffin Bloomberg
Intelligence Animals on US Media. Coming up on Bloomberg day
Break weekend to look at the Bank of England's upcoming
policy meeting. I'm Tom Busby and this is Bloomberg. This
(13:19):
is Bloomberg day Break weekend, our global look at the
top stories for investors in the coming week. I'm Tom
Busby in New York. Up later in our program, Chinese
President Shijin Ping visits Europe. Will it help repair relations
between China and the continent. But first in the UK,
recent hotter than expected inflation figures coupled with a strong
(13:40):
labor market may have put the breaks on hopes that
the Bank of England is poised to begin cutting interest
rates in the coming days. Threadneedle Streets decision makers will
vote once again. So will they stick with elevated borrowing
costs or take the plunge for more. Let's go to
London and bring in Bloomberg day Break Europe anchor Stephen.
Speaker 3 (13:58):
Carroll, Tom stop me if you've heard this one before,
but since the start of the year, traders have scaled
back their expectation for interest rate cuts. Okay, that's been
the situation facing many central banks around the world. In
the UK, it's a mildly hawkish run of data that's
giving some pause for thought on top of what's been
happening with central bankers elsewhere. CPI inflation came in at
(14:20):
three point two percent in March in the UK, down
from three point four percent in February. That was slightly
ahead of the Bank of England's forecast, though, but BOE
Governor Andrew Bailey didn't seem phased and assured markets that
things were still on track. We've been getting the market
view of the rate path ahead for the UK with
Hugh Ginberg, global market strategist at JP Morgan Chase Bank.
Speaker 8 (14:43):
I think, really what the market is grappling with here
is does the UK look more like the Eurozone or
more like the US? Because I go back twelve months
ago and the answer to that was categorically that the
UK looked a lot more like the US economy, where
you had the tightness of the labor market, you had
much strong inflation pressure, whereas today I think, arguably it's
a lot more Eurozone like where yes, inflation is still higher,
(15:07):
but inflation is coming down. It's going to come down
significantly further over the next couple of months as that
energy household price cap reset kicks in, and so I
do think the bank will be able to follow the
path more like the ECB than the Fed. I personally
think they start the rate cutting process in August. But
again we're talking about relatively modest adjustments to interest rates,
(15:28):
and so for bond investors, the main message here is
that you're playing for really clipping the coupon in government
bond deals today, with the potential for capital appreciation if
the economy slows much more quickly. But I don't see
a kind of straight line lower for bond yields until
we get much weaker economic data than what we have
at the moment.
Speaker 3 (15:48):
Do you think that Andrew Bailey is in a position
to be able to give clear signals given the sort
of uncertainty that exists elsewhere.
Speaker 8 (15:55):
No, But then let me, if I may flip your
question the other way around and say, well, should he
be giving clear signals? No, he shouldn't because all central
bankers are struggling to read the inflation data, just as
markets are trying to predict over the next one to
two months. Are we going to get point threes or
point four's? It is nigh on impossible in this current
economic environment, and so I think the right approach for
(16:16):
central bankers today is to take stock of the incoming
data that they've seen, but try to keep that medium
term view because they're trying to set policy here over
the next twelve, twenty four to thirty six months. They
shouldn't be swung around by just what the last one
or two weeks of data has been telling them. The
blanky reviewer missed opportunity, yes or no.
Speaker 3 (16:37):
Ah, good politician Lizzy.
Speaker 8 (16:40):
Could they have gone further?
Speaker 3 (16:41):
Yes?
Speaker 8 (16:41):
I think that it could. I mean there is some
useful points there in terms of trying to communicate more clearly.
I think everyone would welcome more guidance from the Bank
of England in terms of how they're seeing the economy.
But do you want a dot plot in the UK,
for example, I would argue no.
Speaker 3 (16:58):
So that was Hugh Gimberg Global Markets Strated US at
JP Morgan Chase. It's worthwhile, too thinking about how the
Bank of England behaves versus its peers. Members of the
Monetary Policy Committee have an advantage in that this meeting
is coming just a week after the FEDS, when Jerome
Powell signaled that they were further away from cutting rates
than before. The European Central Bank has signaled strongly that
(17:20):
it's planning to cut rates at its June meeting as
it grows more confident that inflation is continuing to slow.
So how will the BOE fit into what's happening elsewhere.
I've been discussing the outlook for the upcoming meeting with
Bloomberg's chief UK economist Dan Hansen. I started by asking
him what's changed for the BOE since its last meeting
on the twenty first of March.
Speaker 9 (17:41):
I don't think a huge amount has changed, to be
honest with you. We've had a few upside data surprises,
but they were very, very small, and if you look
at see the most important thing, what happened to inflation
over the first quarter. It came in at three point
five percent. The Bank of England's forecast in February, the
last time it put a forecast together, was three point
six percent, so a little bit below, but for me, actually,
what's been most interesting is what policy makers have been saying,
(18:02):
which is what you alluded to there, And we've had
remarks from certainly Bailey, Andrew Bailey and Dave Ramsden that
are very much sort of moving in I would say,
the dubvish direction. There's a little bit of uncertainty. I
think about what Hugh pill did or didn't say in
his speech, but I think the thing for us that
we took away at least is that there he said
that there's been little news in the data, which is
(18:24):
obviously clearly very important. So I think to answer your
question directly, whatever you believe sort of following the March meeting,
the Bank would do at least looking domestically, and we'll
probably get onto the Fed in a second. There is
a much reason to change. You're thinking about the when
the first cut will come?
Speaker 3 (18:41):
Okay, well, let's deal with the fetish and we'll come
back to the split on the committee in a moment.
How much does the signals that we got from Jerome
Powell that Ratcot's look further away than they did before.
How much does that affect the BOE.
Speaker 9 (18:54):
So markets think it affects the BOE quite significantly. If
you look at the way BOE pricing has moved, if
you look at the way FED pricing has moved, they've
essentially moved in locksteps. So what's interesting is I think
the comments that Bailey made about that that the UK's
inflation problem is more like a European inflation problem, so
the problem facing ECB than it is like the US's
(19:17):
demand led inflation problem, and I sort of am inclined
to agree with that. Particularly this year, I think there's
going to be this quite big divergence between the UK
and US inflation story, mainly driven by energy, but that
sort of spills through into the rest of the CPI basket.
So I don't think the FED going later is an
impediment to the BOE. I think it can go before
(19:37):
the FED. And actually, one thing that the BOE has
got to be really quite careful about is that it
doesn't allow what's happened recently. So they're tightening of financial
conditions to spill into the UK economy and we've seen
that affect some metrics in the economy already. If we
think about house prices and the like, and mortgage rates.
You know, the bo needs to be wary of that.
Everyone talks about the exchange rate impact of going earlier
(19:59):
than the f but actually what you also need to
be worried about is allowing tie to financial conditions to
affect your domestic economy when your domestic economy is already
very weak.
Speaker 3 (20:10):
What is your expectation there in terms of the inflation trajectory,
I mean, when when does the two percent target look
likely to be his?
Speaker 9 (20:17):
I think in the next few months. I mean it
might not quite get there in April. I think May
or June are pretty good bets for when we'll get
to two or even below two in fact. So I
mean what one really important consideration I think when you
think about that, is that the bank will have the
May CPI print before the June meeting, and I think
that will It'll be very hard if you have a
(20:39):
too or even particularly if you have a sub two
percent CPI inflation print in your hand not to do something.
So I think that for us is sort of the
next few months of data after this, after we get
past this meeting. The data between the May and the
GEME meeting are basically key, and I think that will
set the tone for the rest of the year. In
terms of what the bank thinks it can or can't deliver.
Speaker 3 (20:57):
We talk a lot about the FAD's influence over those
central banks. What about the European Central Bank? If the
Bank of England has a similar inflation problem in large
Bailey's eyes to the ECB, does that mean actually the
ECB decision, which is widely telegraphed for June, is likely
to influence the BOW decision.
Speaker 9 (21:13):
Well, I think it will help that the ECB just
chronologically goes first, so in June, their meeting is before
the banks, so I think there will be a bit
of cover there. As you say, Bailey has made that
comparison to Europe more than to the US, and you
take that alongside the fact that you will potentially have
a very favorable CPI print in hand. I think the
(21:33):
sort of cards are aligning for you know, we think
it's June. A lot of other economists think it's August,
but sometime in the summer for them to move. So
I think, yeah, the ECB is sort of I think
it's an important thing for the bank to have a
bit of cover there. The ECB's gone, there's no sort
of reason for the banks to sort of sit on
its hands.
Speaker 3 (21:53):
What about the rest of the year. Then after the
kind of first cut that we're looking at in that
summer period, is it going to be kind of start
start depending on the data, do you think, or on
Once we get a first cutter we look like what
we are on a steady trajectory.
Speaker 9 (22:05):
So I mean it goes back to my answer to
the first question is that whatever you believed following even
the February meeting, but certainly the March meeting, it feels
like you should probably still believe something pretty close to
that now. So we still have meeting by meeting at
least for a time, and that's a lot more aggressive
than market pricing. I think for market pricing to be
born out, you would have to have quite some bumps
(22:27):
in the road. But if you're sitting at two sub
two percent headline CPI inflation and services inflation continues to fall,
albeit slowly, and you have to sort of expect it
to fall slowly. It's not going to drop like a
stone like the headline rate has. I don't see any
reason why they can't move, as I say, at least initially,
meeting by meeting. I think they'll come a point and
I think it's around about the four percent mark where
(22:47):
they get a little bit concerned about where what we
call the neutral rate is to the rate that neither
speeds up or slows down the economy. But I think
there is room between sort of where we are now
and around four percent to potentially take out what they're
calling restriction in the policy stance and sort of it
basically eased the squeeze on the economy.
Speaker 3 (23:06):
What are the risks to the inflation outlook that you'll
be watching. I mean, you mentioned energy. We had that
spike and oil prices which are sort of receded now,
so that seems to be a little bit out of
the picture. But is it still energy the thing you'd
worry about.
Speaker 9 (23:17):
Yeah, I mean I think I think it's energy. And
to without wanting to sort of tout the speech too much,
how Dave Ramsden sort of characterized the whole thing is
that I just feel there's not enough weight being placed
on the downside risk here. You know the way inflation
surged in the UK, if you sort of go through
the sort of mechanism headline inflation surged, people saw that
(23:41):
they pushed up, they bid up their wages because the
laid market was tight, and that is eventually fed through
to services inflation, and high energy prices are pushed up
services inflation as well. Now energy price inflation is where
in fact we're in disinflation. The headline rate is falling.
You have to put some weight on the idea that
that mechanism goes into reverse and quite quickly. And I
(24:02):
think Bailey and Ramsen, at least certainly in their comments
are sort of alluding to this, that you have to
look forward a little bit more and not just be
completely data dependent. And I think that actually goes to
the CRUXFID a little bit, where the bank's reaction function
has shifted a bit, not just being completely on every
CPI print and hanging on that, but looking forward to say, look,
this thing can unwind quite quickly, So we probably need
(24:24):
to take a little bit of insurance out to ensure
that we're not caught on the downside on the way down,
because we don't want to make the mistake of being
too slow coming out of this, having arguably been too
slow getting to it in the first place. So that
for me is the risk at the moment, and that's
why it's probably sort of when we see what they
say on their main meeting. They'll probably say the risk
of broady balance to the outlook, which is sort of
(24:45):
a big shift again because they've been constantly emphasizing the upside.
Speaker 3 (24:49):
And just coming back to that vote split's idea. Whilst
what will get you excited in terms of the vote risk.
Speaker 9 (24:57):
Any votes for it?
Speaker 4 (25:00):
No.
Speaker 9 (25:00):
I mean we've put our preview out and in that
we say that we think Ramsdom will join THINGRA inviting
for a cut. I think that or any more going
for a cut would get people excited. I think if
you had an eight to one again, which is what
we had in March, and similar guidance, it wouldn't feel
like we'd moved closer. It might feel at that point
(25:22):
it had been pushed away a bit. So I think
there needs if it's going to happen in the summer,
it needs to feel like it's coming closer. In a
more dubbish vote split or even a tweets the guidance
would be the things to look for on that.
Speaker 3 (25:33):
Thanks to Bloomberg's Chief UK economist, Dan Hansen, I'm Stephen
Carolyn London. You can catch us every weekday morning here
for Bloomberg Daybreak.
Speaker 10 (25:41):
Europe.
Speaker 3 (25:41):
Beginning at six am in London and one am on
Wall Streets.
Speaker 2 (25:45):
Tom beg you Steven and coming up on Bloomberg day
Break weekend, Chinese President shi Jin Pining said for a
trip to Europe, what could this mean for relations between
Europe and China? I'm Tom Busby and this is Bloomberg.
(26:08):
I'm Tom Busby, New York. But your global look ahead
at the top stories for investors in the coming week.
Relations between China and Europe have been Chile as of late,
but with Chinese President shi Jinping set to visit Europe
in the coming days, can we expect to see a
thaw in that relationship. Let's get to Daybreak Asia hosts
Brian Curtis and Doug Prisner.
Speaker 4 (26:28):
To Chinese President Shijinping heads to Europe in the coming week,
is expected to deliver the message that China has more
to offer Europe than the US cares to admit.
Speaker 1 (26:38):
She will be traveling to France, Serbia, and Hungary on
a five day trip. Those nations are seeking investment from
China even as tensions mount. Relations have cooled over a
range of issues, including trade, allegations around spying and Beijing's
support for Russia.
Speaker 4 (26:56):
Even with Ty's slipping of late, it appears that both
sides will probably try to woo the other. Sources tell
us that French President front Sois Macron will take she
to a corner of the Pyrenees where he used to
visit his grandmother as a.
Speaker 1 (27:10):
Child, and she will likely again make this point affordable
clean energy from China will help Europe fight both inflation
and climate change. Here's Dan ten Kate, Bloomberg Asia eco
Gov executive.
Speaker 11 (27:23):
Editor from China's perspective. They're like, look, the world needs
a bunch of evs, so there's no problem with us
investing in these, and we can provide cheap cars for
your people. So you know, the visit to Hungary is
important in that because you have Chinese companies looking to
set up factories there, and you know governments that are
happy to kind of have this investment from China to
(27:45):
gain jobs locally and to have cheaper electric vehicles in
their market.
Speaker 4 (27:49):
Bloomberg's Dan ten Kate joining us now in our studio
is far further discussion on this is Jenny Marsh, a
team leader for Greater China eco Gov, and Rebecca Choan
Wilkins Bloomberg Asia Government and Politics correspondents. So, as we
heard there from Dan, it's going to be a little given.
Take Jenny, let me go to you first. As Doug said,
relations have gotten a little testier of late here than before.
(28:13):
We have these EU probes on Chinese made evs and
also medical devices procurement. So it might be tempting to
say that this will be a tougher trip for she
than usual, But after all, this is the president and
he's not going to face a lot of press, and
the meetings will be at a very high level.
Speaker 10 (28:32):
What are we expecting exactly? And you can add to
that list that he's picked three countries in Europe which
are already considered to be some of the more friendly ones.
So you know, going to Serbia and Hungary, these are
not two countries that should be critics of China's policy.
Quite the opposite. They're sort of big fans of Beijing's
investment into their countries, and he can use those countries
as sort of showcase this is what engagement with China
(28:54):
can offer to you. France is going to be sort
of the most important stop, and in France is also
going to have this trilat with as lovel One Delaion
from the European Commission, and so I think, you know,
that meeting, I think is Macron's way of saying that, yes,
Si Jianping is coming, and we're throwing this big banquet
for him and taking him sort of this very personal
childhood retreat. But at the same time they're not going
(29:16):
to shy away from some of the tougher questions. And
you know, she sort of is the architect of this
de risking narrative language which the US then adopted. So
I think in that trilat in France on the first
day with Macron and Vondalayan, you're going to expect the
toughest probably conversations he'll have during that trip on China's
industrial policy, on She Jianping's continued support for President Vladimir
(29:39):
Putin despite you know, the war in Ukraine grinding on,
and sort of you know, this propping up Russia's war machine,
something which has been really pivotal in changing the shape
of the China europe relationship in a way, I think
that people in officials and Beijing didn't really grasp at
the beginning how consequential that was going to be. So
you know, I think, yes, he's going at a time
(30:01):
when probably relations between Europe and China have never been
or in decades haven't been quite so testy, and distrust
is growing. But he's carefully curated this itinerary, I think,
obviously to serve his interest best and sort of promote
the narrative that he wants to tell on this trip.
Speaker 1 (30:16):
What about what she may be attempting to do in
terms of US EU relations and whether or not there's
an opportunity for him to maybe insert a bit of
a wed chere, Rebecca and try to exploit some division.
I mean, we know there's a tremendous amount of unity,
but there are disagreements, and would she use this trip
(30:36):
to try to capitalize on some of that?
Speaker 12 (30:38):
Yeah, I think that's right. And just to take a
step back briefly, the broader context here is that Europe
and the European Union in particular, has for a long
time viewed itself as this sort of middle path. It
has wanted to resist automatically siding with the US, not
just because of its policy on China, but also because
how the European Union historically has viewed the US itself.
(31:01):
It has not wanted to just automatically throw its weight in,
but the Biden administration has worked hard to get its
allies and partners on side to try and build consensus
when it comes to taking a firmer stance on China,
including for example, picking up that de risking language, moving
a little bit of showing at least a little bit
(31:23):
of give and take with the European Union stance there.
But we have seen this steady drumbeat of probes and
investigations into Chinese industries via the EU, and that has
essentially taken EU policy much closer to the US.
Speaker 4 (31:40):
Well. The inroad on cars too by China seems to
have made a big difference. You know, you've got this
probe that's underway and byd has a plant coming in Hungary.
We understand that it will take about three years to
be completed, and a lot can happen between now and then.
I mean, you'll get the result of the probe in
(32:01):
the EU, and you know that could be quite damaging.
And this kind of three years out for a plan,
it shows how difficult planning can be. Lot can change
in three years.
Speaker 12 (32:11):
Rebecca, a lot can change. But we do, for example,
also have another Chinese automaker Cherry taking over an old
Nisan factory in Spain. We think potentially there could be
announcements of more such car factory plans in Europe during
this trip. So wild China is still waiting to see
the results of that probe, a probe which was actually
(32:33):
backed by France. It's worth mentioning, you know, China is
still working very hard to try and at least prove
that there are benefits, as Jenny points out, if you
do engage and the fact of sort of going and
opening factories in European countries, creating jobs, driving some economic growth,
may try and sort of it may ease some of
(32:55):
those tensions and some of those anxieties, but it certainly
is hanging over I think many Beijing companies' heads at
this moment. It's worth saying too, though, that Beijing has
very actively engaged in the debate over capacity with the Europeans. So,
for example, these long comments from Litiang and President cy
(33:16):
Jimping when German Chancellor Schultz was in the country quite
different from the more sort of standard and sort of
briefer comments that we had when US officials have visited
Beijing and discussed the same topic.
Speaker 1 (33:29):
Well, it's interesting you make that point because recently German
Chancellor Olof Schoalz was in China and addressing the issue
of things like unfair competition, dumping, over capacity. Jenny, are
these perspectives that are uniquely German because of the German
manufacturing economy, or do they expand more broadly across the
European Union.
Speaker 10 (33:50):
They expand more broadly across parts of the European Union
and beyond as well. You know, Schultz's visit to Beijing
came just a few weeks after Yellen had been in Beijing,
also carrying the same message, and the US Treasury Secretary
warned Chinese leaders at the time that the concerns that
the US has on Chinese overcapacity are shared by lots
(34:11):
of countries around the world. And so Schultz coming and
sort of he really echoed her message, you know, almost
to the word. Just a few weeks later, really sort
of hammered that home. And that's sort of part of
a broader sign too, you know that the European Union
and the US they're China policies kind of now sort
of coalescing into one joined up policy. Obviously, the big
(34:31):
thing on the horizon is the US election, you know,
and if we do see President Donald Trump coming back
into the White House later this year, he could take
China policy in a whole different direction. He become much
more hawkish, you know, much more sort of unpredictable. And
then I think the Europeans are going to have to
sort of think if they still want to walk in
lockstep with the US on their China policy. But for now,
(34:53):
you know, the two sides are very much in sync
into how they're presenting their concerns to the Chinese. And
that must be worrying, I think for China. You know,
two of these huge economic blocks both presenting the same concerns.
Speaker 4 (35:05):
Yeah, let's go back to Dan ten Kate. We talked
with him briefly about how she might be appealing to
the EU to pursue a more pragmatic policy toward Beijing.
Speaker 11 (35:15):
She views Macron as someone he can do business with,
someone that is not inherently reflexively anti China, that can
stand up to the US and kind of forge a
middle path. And it's kind of key to China's long
standing strategic aim, you know, to kind of drive a
wedge essentially, and not be in lockstep with the US,
(35:37):
particularly when it comes to export controls on key chips
and other advanced technology that China would need to grow
its economy.
Speaker 4 (35:44):
So, Jenny, what are some of the bargaining points that she.
Speaker 10 (35:47):
Will bring to the four It's going to be all
about what China can offer France, you know particularly. I
think this is where the Chinese like to sort of
the like sort of work to the advantage they have,
which is, you know, they can offer different countries different
carrots within the European Unions. I think for France, you know,
it's going to be sort of what their companies can
bring in terms of job creation and investment. We know
(36:09):
from sources that mccran is specifically going to be asking
she for investment in the EV battery sector. So you know,
if she can say he's going to steer some of
their sort of world leading companies in that sector towards
investing in France, you know, that's very appealing from macran.
And I think if what they can then do is
(36:30):
sort of work out these deals where it's much more
of it of a JV and so rather than you know,
importing Chinese cars into France. If some of these Chinese
cars or goods can be made in France by French workers,
then that helps to ease these tensions. But of course,
you know there's kind of an irony here too, and
that there's been some research showing as well that you know,
these European companies now which are actually behind the Chinese
(36:53):
in terms of this type of new tech, they're now
looking for tech transfer. So when these Chinese companies do
set up in European nations, there's also this idea, a
risk on the Chinese side of sort of technology leak,
where the Europeans are now wanting to learn from the
Chinese companies which are ahead. And that's just something which
is quite fascinating to think about for a second, because
(37:14):
you know, just a few decades ago, the complete opposite
was true, where it was you know, European companies in
China and the Chinese trying to sort of learn from
that tech and you know, seally even perhaps to get ahead.
Now everything sort of swung on. The imbalance is so
great in some ways that you have these European firms
that potentially want to learn from the Chinese, and that's
(37:34):
something I think that you know, she has to sort
of work out how to balance.
Speaker 1 (37:38):
Thanks to the two of you for helping us set
up the meeting this week between the heads of state
in Hungary, Serbia, and France with Chinese President Chi Jinping,
Jenny Marsh Bloomberg Team Leader for Greater China Eco Gov
and Rebecca Chung Wilkins Bloomberg Asia Government and Politics Correspondent.
Speaker 4 (37:57):
I'm Brian Curtis, along with Doug Krisner. You can catch
us every weekday here for Bloomberg day Break Asia, beginning
at eight am in Hong Kong and eight pm on
Wall Street. Tom.
Speaker 2 (38:08):
Thank you, Brian, Thank you Doug. 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 done markets overseas and the news you need
to start your day. I'm Tom Buzzby. Stay with us.
Top stories and global business headlines are coming up right now.
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