May 2, 2025 • 39 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 look ahead to next week’s Fed decision and earnings from Walt Disney.
- In the UK – a look ahead to the challenges facing Germany’s next Chancellor.
- In Asia – a look ahead to a look ahead to economic data in China.
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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, and straight ahead on
the program, a look ahead to this week's Federal Reserve
policy meeting Now it may impact monetary policy moving forward.
Plus a look at earnings from the media and entertainment
giant Walt Disney. I'm Tom Busby in New York. I'm
Stephen Carolin London.
Speaker 3 (00:30):
But we're looking at the many challenges facing Germany's new
Chancellor as Fredrick Martz prepares to take up the job.
Speaker 4 (00:36):
I'm Doug Krisner, exploring what's at stake in the US
China trade standoff ahead of some key eco data in
the week ahead.
Speaker 1 (00:45):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three zero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB, Digital Radio, London, Syrias,
XM one on and around the world on Bloomberg Radio
dot Com and the Bloomberg Business App.
Speaker 2 (01:08):
Good day to you. I'm Tom Busby, and we begin
Today's program just ahead of the Federal Reserve's third policy
meeting of the year, which kicks off Tuesday, ends with
a decision on interest rates on Wednesday. Amid a lot
of economic uncertainty and the impact of President Trump's ever
changing tariffs, the Fed has a lot to consider. For
some perspective on what it all means. Stuart paul Us,
(01:28):
economist with Bloomberg Economics, what do you expect the FOMC
to do on Wednesday?
Speaker 5 (01:34):
We're expecting a rate hold. We're expecting the Federal Reserve
to keep the target federal funds rate in the range
of four and a quarter to four and a half percent.
We're expecting very little news to come out of the FOMC.
We're expecting very little news to come in the way
of the Fed's balance sheet. All in all, it should
be one of the more boring FOMC decisions and press
(01:55):
conferences that we've had in a while.
Speaker 2 (01:57):
So a boring press conference. However, a lot of turmoil
leading up to this, and there's a lot for the
Fed to consider. Let's start with some of the good news.
And there is good news about jobs, right, we just
led this past week.
Speaker 5 (02:09):
That's right, in April, there were one hundred and seventy
seven thousand jobs added, a four point two percent unemployment rate.
From the Fed's perspective, it's not just thinking about employment
chugging along, it's thinking about inflation pressures. We saw relatively
modest zero point two percent wage growth and earnings growth
during the month. So as employment is becoming a little
(02:30):
bit broader as the workforce is expanding, inflation pressures stemming
from the workforce are rather dull. And as we're heading
into this FMC decision, the latest inflation data that the
FED has in hand are basically showing muted inflation pressures
so far. But the question is going to be on
the Fed's mind just how much can we expect inflation
(02:51):
pressures to ripple through from tariffs, And some of the
internal models that we that we know that the FED
operates with are likely showing that risk is skewed to
the upside that we could see let's say three and
a half four percent core PCEE inflation at year end.
That would be up from about two point six percent
right now. The FED is seeing a relatively hot jobs number,
(03:14):
it sees inflation low right now, but risks skewed to
the upside, so all the more reason to stay on
hold when the FMC meets next week.
Speaker 2 (03:24):
Those risks, I mean, we're hearing because it's the first
quarter earning season. We're hearing from a lot of companies,
big companies, no more so than GM that said these
tariffs could be a five billion dollar hit to profits,
just as past week, Apple finally comes out and says
nine hundred million dollars hit. So company after company Amazon.
You know, a lot of uncertainty, a lot of people
(03:44):
fears of a recession. I mean, this is building and building.
Speaker 6 (03:49):
That's right.
Speaker 5 (03:49):
As much as I like to stay focused on the macro,
as much as I like to stay zoomed out at
thirty thousand feet thinking about capital investment in the workforce,
I think that the bigger thing next week is really
going to be earnings, because we're going to get to
hear from all these companies. We get to hear from FORD,
We're going to get to hear from AMD and some
of the tech companies that are thinking about exporting chips
and are thinking about regulation of AI and development and
(04:13):
other domestic investment. We're going to get to hear from
some of the more consumer oriented companies like door Dash,
for example, that are really leveraged to consumers discretionary spending power.
And so I do think that more than the Fed's decision,
more than the economic data, let's say on the trade
balance that we're going to get next week data from March.
But what's really going to matter is the guidance that
(04:34):
we are getting from companies. And what we hear when
we look at high frequency surveys, for example, is that
companies are experiencing input cost pressures, they are planning to
pass those along to consumers.
Speaker 2 (04:48):
But what we.
Speaker 5 (04:49):
Ultimately think is that with the saving rates so low,
with consumers stretched and relying on credit as much as
they are, when firms try to pass along those higher
prices are ultimately going to face retrenching demand from consumers.
Speaker 2 (05:03):
We know sentiment from the University of Michigan polls at
a five year low. I mean, people are really worried,
that's right.
Speaker 5 (05:09):
Sentiment is poor. Business investment plans are being put on
a hold. A big part of it just gets synthesized
in one measure, economic policy uncertainty. Our policy uncertainty index
is spiking through the roof no reason why it's because
policymakers are coming off as rather mercurial in changing trade
(05:30):
policy week to week. We just heard from Stephen Moran
from the Council of Economic Advisors, one of the President's
chief economic advisors, that we could expect to see a
trade deal with China perhaps in the coming weeks. Now
he's not one of the trade advisors, but everybody is
chirping up on what we can expect from trade policy.
(05:50):
Just when we thought we had an escalation with China,
we're now seeing perhaps there's going to be a de escalation.
There's no wonder. Uncertainty is through the roof, and sentiment
is down well.
Speaker 2 (06:00):
A lot to watch out for. The Federal Open Market
Committee's two day policy meeting, wrapping up this Wednesday, a
decision on rates and a press conference from Chairman Jerome Powell.
Our thanks to Stuart paul, Us economist with Bloomberg Economics,
we turned out of the current earning season a number
of companies so far surprising to the upside. This week,
we hear from the media and entertainment giant, the Walt
(06:21):
Disney Company that's out on Wednesday in the House of Mouse,
facing a lot of challenges right now, including a pullback
in consumer spending, a slowing economy, fewer tours coming into
the US and to its parks, and a lot of
competition for its streaming TV offerings. For more, we turned
to Geetha. Raganathan, Bloomberg Intelligence analysts on US media. Well, Geither,
the last time we heard from Disney was before President
(06:44):
Trump announced his tariffs, the trade wars with China, Europe
and other countries. How has all that impacted the company
and what do you expect to see from Disney in
its second quarter results?
Speaker 7 (06:55):
Yeah? Absolutely, Thank you so much, tom So. Disney is really,
I think one of the most complex stories in the
media world. There are so many parts. There's so many
moving parts really as you think of the parks business,
the theme parks business, streaming, you know, you have a
presence in linear TV sports with ESPN, and then of
course the theatrical business and in box office. There's always
(07:18):
something to be concerned about here. So you're absolutely right.
In terms of parks, there is obviously, it is very
very sensitive to the overall health of the economy. And
why we are concerned about parks when it comes to
Disney is because this makes up about fifty to fifty
five percent of their profit, so this is really, you know,
(07:39):
the largest contributor of operating income. And while they had
initially guided to healthy summer bookings, you know, we've kind
of seen this deteriorating macro sentiment. So I think investors
are definitely going to be focused on that. Apart from
the general health of the economy. You know, as far
as you know theme parks are concerned. The one thing
that Disney investors are going to be super focused on
(08:01):
as any commentary that management can provide in terms of
competition from Epic Universe, which is a whole brand new
theme park that is coming out of Universal and will
be in Florida and is expected to be a very,
very big competitor because some of the initial reviews have
been absolutely amazing.
Speaker 2 (08:21):
And just open this week right or this month?
Speaker 7 (08:23):
Yeah it is, Yeah, it is going to open on
May twenty second. Yes, So you know, near term, I
think there's going to be a lot of wait and
watch with the theme park business. But I think medium
to longer term the business is definitely stabilizing, especially on
the streaming front. So we're definitely seeing a big improvement
in terms of streaming profits, with the company expecting a
(08:46):
billion dollars in operating income this year, compared that to
about four billion dollars in losses just a few years ago.
Speaker 2 (08:54):
Wow. Wow, Well, let's go back to parks, because another
part of that is its cruise division, and as I understand,
it's just unbelievable the demand for these Disney cruises.
Speaker 7 (09:05):
Yes, they have really made a huge push into the
cruise ship business. And this quarter is going to be
our fiscal second quarter when they report, is going to
be particularly interesting because you're going to have a full
quarter contribution from a new cruise ship, which is called
Disney Treasure, and which is expected to have been profitable
in its first full quarter. So it's going to be interesting.
(09:28):
We think that, you know, the cruise ship business is
going to go from you know, about two to three
billion dollars in revenue to as much as four to
five billion dollars in just a few years time. So
this is going to become a major part of their
parks business. And the one thing that we've seen with
cruises as opposed to parks is you know, the demand,
as you just pointed out, is very very strong and
(09:50):
will be a stabilizing force for the entire experiences segment.
For Disney.
Speaker 2 (09:56):
Now, I want to talk about its streaming TV unit.
We have Disney Plus and Hulu and ESPN. Has there
been any let up, any signs of a letup in
advertising revenue where they really make a lot of money
from all these networks and their linear networks.
Speaker 7 (10:10):
I think the general commentary tom on advertising is obviously
a very cautious kind of wait and see approach, because
when you head into an economic environment where you have
so much of volatility, the first sector that kind of
sees that pullback is of course advertising. Now there's both
good and bad with respect to Disney. So if you
(10:31):
just look at it from an overall company perspective, only
about fourteen to fifteen percent of Disney's revenue actually comes
from advertising, so exposure itself is not very very heavy.
You compare that to some of the other companies like
a Fox or a Warner Brothers Discovery, where you know
almost thirty five to forty percent of revenues are coming
from advertising. So I think overall the exposure is fairly limited.
(10:56):
That said, if things go bad, they can go really
really bad. So if you're looking at a linear TV business,
and Disney has considerable exposure here, you know, whether it's ESPN,
whether it's the ABC network, we can see ads drop
almost ten to fifteen percent, and that is really not
good for the business. They do have a little bit
of a hedge because streaming ads or digital ads in
(11:19):
general have held up better than the linear TV side
of the business. But overall, it is definitely going to
be a very very cautious tone on the advertising business.
Speaker 2 (11:29):
And let's turn to its film studio, because we've seen
some wild success as Captain America, Mufasa movie, some not
so great Snow White Mawana too, but still I suspect
they're all going to make money.
Speaker 7 (11:41):
They absolutely are, and we've seen you know, just if
you just think a few quarters ago, Tom, I mean,
this business was really really struggling. The content business as
a whole was in desperate need of a rejigger, and
we really had that with you know, inside out kind
of really you know, start this whole resurgence in the
(12:02):
box office unit last year and ever since then, it's
been great. You pointed out Mufasa that's done really well,
Moana did really well, and then of course you had
Captain America, and then we have the summer season for
Disney kicking off the summer box office season kicking off
with Thunderbolts, which is tracking to a very very strong
(12:22):
opening and should have a fantastic run just like Captain America.
You know, this is the next phase of the Marble
cinematic universe. Should do really really well for Disney, and
they have a fantastic content pipeline coming out over the
next eight to ten months.
Speaker 2 (12:37):
Disney second quarter earning's coming out after Wall Street's closing
belt This Wednesday, our thanks to Getha raganoffin Bloomberg Intelligence
Analysts on US media, coming up on Bloomberg day Break weekend,
looking at the many challenges facing Germany's new chancellor as
he prepares to take up the job. I'm Tom Busby,
and this is Bloomberg. Is Bloomberg Daybreak Weekend, our global
(13:01):
look ahead at the top stories for investors in the
coming week. I'm Tom Busby in New York. Up later
in our program and look at what the Trump tariffs
could mean for China's economy. But first, Germany's next Chancellor,
Friedrich Mertz, will be officially confirmed in his role leading
Europe's largest economy. This week, it's been a rocky road
to the top of the conservative who will preside over
(13:22):
uncertain times? What does this path ahead look like for
the country's new leader. For more, let's go to London
and bring in Bloomberg Daybreak europe Banker Stephen Carroll.
Speaker 3 (13:31):
Tom It's been more than two months since Germany's federal election,
and now finally the country will have a new chancellor.
The Social Democrats who led the outgoing government have voted
in favor of a coalition deal with Friedrich Martz's Conservative alliance,
clearing the way for the Christian Democratic leader to be
confirmed as the country's next chancellor. The agreement, backed by
(13:52):
around eighty five percent of SPT members in an online ballot,
brings to a close a complex set of negotiations. The
deal also keeps the far right AfD out of power
after they won a historic twenty point eight percent of
the vote in February. As Chancellor, Frederick Martz will have
to deal with a delicate economic outlook. Germany saw just
(14:12):
meager growth than the first quarter, and its key industries
face the impact of US tariffs. He's already passed a
plan to ramp up defense and infrastructure spending in Germany,
and that's something the CFO of Deutsche Bank, James von
Moltke says is already having an impact.
Speaker 8 (14:27):
Well, there are two things going on that German economy
is obviously an export driven economy, so there's a significant
impact of tariffs, whatever the outcome will be in and
so there are scenarios around that as to what the impact.
But at the same time, you have this offsetting impact
of the fiscal reform in Germany and now several years
on infrastructure, defense spending. Obviously the sustainable and digital transitions
(14:51):
that are underway, so a significant investment volume, and so
corporates in Germany are sort of gearing themselves up to
manage that.
Speaker 9 (14:59):
And in terms of of payouts and dividends and sort
of and buybacks and these sorts of things, is this
a moment to sort of preserve cash? How are you
thinking about that going into this way.
Speaker 8 (15:09):
We're executing on the on the distribution strategy and policies
that we've laid out. So we've announced so far this
year two point one billion of distributions through dividends and buybacks.
We're executing on that. And to your question, all or
will will will reassess as time goes by, we see
the performance in the first and second quarters in the environment,
you know, let's say ninety days from now, we'll have
(15:32):
an opportunity to reassess distributions later in the year.
Speaker 9 (15:34):
And then I'd like to also just take a step
back and look at the sort of market architecture and
what we've seen over the last couple of weeks. And
I'll begin by sort of quoting some of your own
research back to you that the preconditions are now in
place for the beginning of a major dollar down trend,
expecting one thirty euro versus the dollar by twenty twenty seven.
How much of this damage do you think is permanent?
Speaker 8 (15:53):
Well, look, that's our analysts are calling for relatively significant
structural change.
Speaker 6 (15:59):
I do think that will take time.
Speaker 8 (16:01):
There's been a what i'll call a break if you like.
Speaker 6 (16:04):
In sentiment, but that sentiment I think.
Speaker 8 (16:07):
Will make itself felt gradually over time. It's had a
pretty dramatic impact on the euro dollar exchange rate already,
and a further drift you know, up from here, would
be impactful overall. I think the difference you're seeing is
that the policy changes are making the rest of the
world interesting to investors and changing the relative position a
(16:33):
little bit of the United States and Europe, but other
destinations as well.
Speaker 6 (16:36):
In a sense, that's good.
Speaker 8 (16:37):
I think it's been a wake up call for Europe,
whether that's the policy side of Europe or as we
talked about, the corporate side, and so there's an opportunity
to rebalance a little bit. But it'll have impact on
a number of markets, including currents.
Speaker 9 (16:50):
And when you think about sort of the remaking of
that sort of global market architecture, does that mean that
European markets, that German bonds, that the year of plays
a larger role going forward, if not completely eclipsing the
United States, but certainly changes.
Speaker 6 (17:04):
I don't think.
Speaker 8 (17:04):
Again there's I don't necessarily think this is a zero
sum competition.
Speaker 6 (17:08):
I really don't.
Speaker 8 (17:09):
But the Bund is an anchor sort of investment and
anchor source of stability in the world, and that's really good.
In fairness, and one thing another thing our analyst said,
and this is true for the German government to have
announced as big a fiscal expansion as has taken place,
and for the long bond in Germany, the bond not
(17:29):
to have moved substantially in that time is a real
sign of confidence in Germany.
Speaker 6 (17:35):
We actually think that the.
Speaker 8 (17:36):
Economic health of the country and also its fiscal strength
in many respects, can be improved through this spending and
if you like, a rebalancing of the economy, more consumption,
more investment at home.
Speaker 9 (17:48):
And I want to get into that, but I also
want to talk quickly also just about the foreign exchange market,
not just within the markets, but also your clients as
obviously companies that look at the outside world. You've seen
some wild moves on the exchange rate. How are your
clients dealing with how are you sort of also in
intermedia and helping them sort of hedge some of that risk.
Speaker 8 (18:03):
But we had we had tremendous volumes in those days
of early early April, so obviously we were managing our risk,
but we were also helping clients to manage theirs and
a there is a theme by the way of more
business coming to us because of clients seeking to work
with a European bank, and that that's also encouraging for
the business model. Again, rebalance is a little bit the
(18:25):
imbalance that has been strategically the case in the industry.
The clients were in those days reacting strongly to this
idea that that the dollar.
Speaker 6 (18:35):
In the US long bond was no longer.
Speaker 8 (18:37):
The risk off trade and where's that resulted in a
lot of movement and uncertainty with clients.
Speaker 6 (18:43):
But all around the world is the honest truth.
Speaker 9 (18:46):
And so trying to figure out the sort of German
fiscal expansion kind of conversation here there's so much bad
news price then, whether it's what's coming out of the
United States, the sort of years of contraction within Germany.
Do you think that there is actually quite a bit
of good news that is not yet then, and that
actually we can really see things take off materially in Germany.
Speaker 6 (19:03):
I think so it'll take time.
Speaker 8 (19:04):
I mean, as in the nature of a fiscal expansion,
the government needs to be put in place and the
spending plans not just enacted but actually hitting. And so
we see this as a real support to the German
economy and the European more broadly economies in the years
really starting in twenty six.
Speaker 6 (19:22):
But it's a sustained improvement. Now.
Speaker 8 (19:26):
One thing that's important is what it does to confidence today,
and so we do expect some help in twenty five
in terms of overall confidence in households and corporates. Obviously
that confidence requires a resolution of the tariff war and
some of the other things that are live at the moment,
potentially piece in Ukraine. So there's a lot set of
hanging in terms of confidence on the outcome of these events.
Speaker 3 (19:49):
That was the Deutsche Banks CFO James von Maltkez speaking
there to Bloomberg's Oliver Krook. So what are the major
challenges awaiting Germany's next chancellor. I've been discussing this with
our Germany Bureau chief christ for our world.
Speaker 10 (20:01):
Pushing through economic reforms will will definitely be on top
of his list, and also will be particularly in focus
in coming days will be his efforts to liaise with
other European leaders like French President Imanuel Macron or the
Polish president tous Joined has been notably passive under outgoing
chance all of shots, and Mattz really has pledged and
(20:21):
maybe it like one of his top priorities to change
that and play also like a more active role on
the European stage.
Speaker 3 (20:27):
Again, how quickly will the new government be able to
draw up a budget? I imagine another key concern.
Speaker 10 (20:33):
That is actually definitely one of the most pressing issues actually,
since when the outgoing government decided on a provisional budget
for this year for twenty twenty five, there was a
gap of roughly twelve billion euros, that's about or close
to fourteen billion dollars. And since since that provisional budget
was announced, like some additional funding needs have actually come up,
(20:54):
So the latest number that has been floating around in
Berlin was about eighteen billion euros and the new government,
undeficult wish Melts will definitely need to address this sooner
rather than later to to basically plug these funding gaps.
Speaker 3 (21:06):
Of course, Germany in the crosshairs, as so many other
countries are too, of Donald Trump's trade tariffs too. Are
we likely to hear anything about trade policy from mer
It's in the coming days?
Speaker 10 (21:17):
That does seem pretty likely. Melt has been quite outspoken
actually that the disruption from the from from the US
tariffs marked really like a significant shift for for for
Germany because the US is one of its key trading partners.
Speaker 6 (21:31):
So we can.
Speaker 10 (21:32):
Definitely expect them not just to meet with with Immanuel
McCrow in France and with other European leaders in the
individual like European Union member states, but also to show
up in Brussels to get involved in the European Union's
trade policy, because that that is actually like this, the
sort of like entity that discusses traits with with the US.
Speaker 3 (21:50):
How solid does this coalition look. The SPD have voted
for it, it has you know, gone through the period
of negotiations. But where should we be looking for potential
data in this new alliance.
Speaker 10 (22:02):
This will definitely be a focus since the last government's
sort of constant bickering over over months and years actually
was really like one of one of its major problems,
and that actually disgruntled many many voters in Germany. Overall,
the SPD, the Social Democrats and the conservative blog that's
led by British mouts that do seem very determined and
(22:23):
so to reassure voters that they will make this cooperation work.
But there are there are definitely some some potentially contentious
issues there that will have to be addressed, particularly when
it comes to immigration for example, or social welfare spending,
where British Melts has sort of floated the idea of
pretty painful cutbacks and that that will be something that
(22:43):
will for the social Democrats will probably be difficult to accept.
So yeah, it's going to be really interesting to see
if they are or if they will be able to
find really like a common common ground. They are a
common line.
Speaker 3 (22:53):
The biggest opposition this new government is going to be
facing comes from the fireright AfD party. They came in
second in the actions in February. They're leading the opposition. Now,
how much are the AfD's policies and politicians going to
put pressure on this new government.
Speaker 10 (23:10):
Well, they are definitely the biggest opposition party in the
new German Parliament after they secured just over twenty percent
of the votes in the last federal election in late February,
but they don't have direct influence on policy making on
a federal level. What we're seeing at the moment is
that like some of the some of the regional governments,
(23:30):
is like some of the German states where the AfD
has like a stronger presence that there, we can definitely
see that they are trying to disrupt and influence decision
making by blocking certain decisions on federal level. We're not
seeing that. I'm a bit reluctant to make a focus there.
Speaker 11 (23:48):
Off while how long that will that will remain in
place or if they actually will have some sort of influence,
but for now their sort of potential to disrupt decision
making on a federal level is close to zero.
Speaker 3 (24:00):
Actually, talk us through some of the international challenges that
that Friedrich Martz will will also need to be addressing.
We know, before this new Bodista came into force, he
did manage to pass that bill which will ramp up
defense and infrastructure spending. That's going to be an interesting
one to watch for the domestic economy. But in terms
of Germany's place in the EU, how will Friedrich Martz
(24:21):
be playing that given the you know, obviously trade trade
tarff's being a big question there too.
Speaker 10 (24:27):
Yeah, defense spending will will definitely bun on one of
the one of the key areas, and that's like linked
to some of the trade deals that have been sort
of discussed over the past weeks and months. Yeah, both
both on national level and on European level, or on
natal level, I should say so. The German army originally
needs to be modernized to fulfill its obligations within NATO
(24:47):
and actually also be able to defend the country and
like modernizing the Bundes for Polish males will be hugely complicated.
Defense purchasing is as we all know that that's that's
a that's a pretty convoluted sort of process, a lot
of capacity restraints in the industry, and that is something
that we'll have to be addressed with both within the
(25:08):
NATO member states with the US administration oversly, because the
US is also like and when it comes to defense,
like a big sort of producer of like weapon systems
and ammunition. So that's definitely probably will be one of
the most sort of like difficult and complex of challenges
that that Melts will have to address.
Speaker 3 (25:27):
Thanks to our Germany Bureau chief Christopher rowold Well, the
full coverage of Friedrich Martz's first days is German Chancellor.
For you here on Bloomberg, I'm Stephen Carolyn London. You
can catch us every weekday morning for Bloomberg Daybreak Europe,
beginning at six am in London and one am on
Wall Street.
Speaker 2 (25:44):
Tom, thank you, Steven. And coming up on Bloomberg day
Break weekend, we'll look at more economic data in Asia
that could offer fresh clues about the health of the
world's second largest economy. I'm Tom Busby and this is Bloomberg.
(26:06):
This is Bloomberg day Break weekend, our global look ahead
at the top stories for investors in the coming week.
I'm Tom Busby in New York. As US China tensions
flair under President Trump's tariff push, fresh data out this
week could offer clues about the health of China's economy.
For some analysis, Let's get to the host of the
Daybreak Asia podcast, Doug Krisner.
Speaker 4 (26:27):
Tom. A trio of key Chinese economic indicators will land
in the coming week. We'll have the Taisheen Manufacturing PMI
will be getting the April inflation reports and new trade
activity data. Together they will provide a crucial read on
China's economic momentum or lack thereof, at a time when
global markets are watching nervously for a closer look. I'm
(26:50):
joined now by John lu he is Bloomberg's executive editor
for Greater China. John joins us from our studios in Beijing. John,
we can talk about the inflation story in a moment,
but I want to begin by trying to understand current conditions.
Some of the recent data, as you well know, is
indicated a fair amount of weakness, and I'm thinking of
the PMI data in particular, which we had at the
(27:12):
end of last week. Give me your sense of the
macro right now.
Speaker 12 (27:17):
I think there's a lot of concern at the moment.
The PMI data that you mentioned there, Doug, that came
in a week, there was a contraction. It was the
longest or the biggest contraction in manufacturing that I think
we've seen in about two years time, and so that
speaks to the weakness as a result of the liberation
(27:37):
tariffs Liberation Day tariffs that President Trump announced. Because that
PMI data was for the month of April, so it
was the first reading that we've had of what kind
of impact there has been on China's economy. And I
think there's a broad expectation that there will be more
weakness because of trade.
Speaker 4 (27:56):
What about more stimulus and how might the government go
about it. I mean, some of this weakness is showing
up on the export side, which in the past hasn't
really correlated very strongly with trying to get domestic demand
put into a higher gear. Is this a particularly tricky
situation for Beijing right now?
Speaker 12 (28:15):
I think there's a general recognition in Beijing that the
way to offset the pain from the trade war is
to provide stimulus that will create domestic demand, so create
a market for these products that would have gone to
the US without these tariffs. But that potentially gives companies
(28:36):
here in China a chance to sell domestically to a
domestic consumer or a domestic company. And I think what
you will see is more and more stimulus in terms
of offering rebates for people who buy a car, or
buy a refrigerator, or buy some air conditioning, offering rebates
for companies that want to get new equipment, that want
to upgrade their production processes, things of that nature. But
(29:00):
as of now, we had this Pollit Bureau meeting in
April that really showed the government right now is sort
of in a wait and see attitude. The government said,
we are ready with an emergency plan when that is needed,
but they seem to be conveying an idea that so
far in the first quarter the economy is doing okay,
and they're waiting for more data and information before they
(29:23):
launched themselves into some dramatic stimulus.
Speaker 4 (29:26):
In the last two week here in the US, President
Trump held a rally in Warren, Michigan, and it was
there that he said countries from around the world have
contracted his administration about trade deals. India may end up
being the first. We just don't know at this point.
But I'm curious what President chi chin Ping is trying
to do in the Asia Pacific and deals that he
(29:46):
may be looking to create with trading partners that China
already has in the region.
Speaker 12 (29:51):
So I think the starting point of this discussion, I
think is the fact that China's does not seem to
be in a rush to get to the negotiating table
with President Trump. I think the trade war has done
something very pronounced here in China in that it's really
created this sense of patriotism. It's really rallied support around Xijingping.
(30:14):
And so whatever economic troubles there might be, whatever the
employment situation might be, going to the future, by and large,
people here in China are gonna blame the United States.
They're gonna blame President Trump. That is going to take
a lot of pressure off of President Xijingping, and it's
gonna make it easier for him to hold out for
(30:35):
a better deal. In the meantime, there is also a
lot of angst in countries around Asia, in Southeast Asia
and Japan and Korea about the tariffs that the Trump
administration has announced, and Beijing is trying to take advantage
of that by doing a charm offensive. Xiji Ping has
already visited Southeast Asia. Beijing has just allowed the first
(30:59):
K pop concert that's taken place in China in about
a decade, and so there is an effort to take
advantage of that situation by offering various types of inducements
for neighboring countries to increase their trade relationship with China.
Speaker 4 (31:15):
I was reading a piece on the Bloomberg Terminal in
the last week. This is Wang Yi, China's foreign minister,
was saying that if nations choose to remain silent, compromise
and retreat, it will only lead to the bullies making
further advances. This seems to be very much an anti
US message. I get that, but I'm wondering whether or
not there's a big audience for that right now in
(31:38):
the region.
Speaker 12 (31:39):
I think there is. That message that Foreign Minister Wangi
delivered was at the meeting of Bricks Nations they're foreign
ministers that was held at the end of April, and
so I think in that setting there is a built
in audience for that message. Many of those countries Iran
(32:01):
is in that group, South Africa, Russia, Brazil. These are
countries that have always had a suspicion about American intentions,
if not outright hostility towards American intentions, and so in
that setting, I think he was speaking to the right
audience with that message. More broadly, I think it's trickier
(32:24):
to say when it comes to Australia or Japan or
South Korea, traditional American allies, how well that message, what
kind of mood that message will strike, because yes, these
countries depend on China for their economic growth, but they
also depend on the United States a lot for their security.
And at the same time, those countries also are suspicious
(32:47):
of Chinese intentions. Japan, many Southeast Asian countries, the Philippines,
India have all had border disputes with China, territorial disputes,
and so that makes them less than enthusiastics about embracing Beijing.
Speaker 4 (33:01):
So we've established the fact that the overall economy is
weak visa VI the PMI data, and we know that
the government has to do more to stimulate domestic demand
a lot more. Let's talk a little bit about the
inflation story now, is China still very much in a
deflationary trap right now, or there are green shoots emerging
(33:22):
that maybe prices are beginning to move higher.
Speaker 12 (33:26):
I think we are still in a position where deflation
is the major concern. There may be some green shoots
in terms of services and in terms of retail spending
because the government has started to roll out more and
more stimulus. They've tried to roll out subsidies for people
(33:48):
who buy various products. They've started to invest in new projects.
China just approved a number of new nuclear power stations,
and so that investment will start making its way through
the economy. So some green shoots, but still I think
there's a major problem when you have such a big
trade relationship between the United States and China being essentially
(34:11):
cut off by the level of tariffs that have been imposed,
really shutting off in demand for many many Chinese factories.
And where those products are going to end up is
a big question, and I think there's a high likelihood
that you will see companies and manufacturers and suppliers try
to find a place to sell those products into you
(34:32):
by cutting prices.
Speaker 4 (34:34):
So does that necessarily mean I hate to use the
term dumping. But that's what I hear when you kind
of make that point, and whether or not that's going
to leave China open to a lot of criticism.
Speaker 12 (34:45):
So a lot of countries are worried about where these
Chinese products will go if they don't go to the
United States. That is a real concern, And that is
a real concern because of just what we're talking about,
manufacturers being incentivized to cut prices to get their product
moving out of the warehouse. Whether or not that will
(35:05):
result in dumping, I think we have to wait and see,
because what we have seen is the Chinese government telling
various countries in Southeast Asia, for example, that China will
not engage in dumping. And so there is a mechanism
by which the Chinese government could stop that sort of thing,
and so they may choose to do that in order
to take advantage of that opportunity we talked about.
Speaker 4 (35:28):
So we know during the first Trump administration that supply
chains in China were being reconfigured to kind of remove
the thread of tariffs. A lot of that was accelerated
during the pandemic. But I'm wondering now whether or not
that's really gathered even more steam during the trade war.
Are we seeing more and more companies kind of taking
(35:48):
their processes out of China and to countries like India,
for example, just to maybe find a way of getting
into the good graces of the United States.
Speaker 12 (36:00):
What we see is American companies like Apple. Apple has
announced that they are going to move all of the
production of their iPhones that they sell in the US
from China to India. So for an American company doing
that makes sense. For a Chinese company, it makes less sense.
Because the Trump administration has made it a point in
(36:21):
their discussions with other countries, with Mexico, with India, other partners,
that they want to make sure that Chinese companies are
not re routing their products through a third country. And
so I think that has made it more difficult for
Chinese companies to make decisions about investing building big factories
(36:43):
in Brazil or Mexico or some other country. What instead,
I think you are seeing a lot of Chinese companies
think about, is can I sell product in Brazil? Can
I sell product in Vietnam? Can I sell product in
Eastern Europe? And if I can, then I will build
a factory there to do that.
Speaker 4 (37:00):
We were talking a moment ago about how the trade
war has kind of incited a feeling of nationalism in China,
coming together to kind of coalesce around supporting the government's
effort to fight this trade war. And I'm wondering whether
or not there is this feeling that we're in it
for the long haul and that China can really manage
(37:21):
to endure a great deal of economic pain for the
foreseeable future, or whether or not there is a level
of vulnerability right now that's being masked and there's a
breaking point that could happen in the next few months
if there is no resolution to this tariff story.
Speaker 12 (37:38):
Unfortunately, I think we are in the early stages, the
early innings of this trade war, and right now both
sides are filling in a relatively strong position, and I
think that is mostly because the actual pain that will
be caused by this conflict is not being it's not
(38:00):
going through the economy yet. In this current situation in China,
people are feeling more patriotic. They're feeling like they want
to support their government, they want to support their president,
they want to fight this thing. As time goes on
and the economic reality sets in, the pain sets in,
I think that attitude will start to change and evolve.
(38:25):
I think there will be a more openness to negotiation,
and indeed, I think we probably will not get negotiations
until both sides feel enough pain.
Speaker 4 (38:37):
John, it's always a pleasure. Thank you so very much,
John Lou Bloomberg, Executive Editor for Greater China, and I'm
Doug Christner. You can catch us weekdays for the Daybreak
Asia podcast. It's available wherever you get your podcast. Tom.
Speaker 2 (38:51):
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 on
markets overseas and the news UNI 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, and straight ahead on
the program, a look ahead to this week's Federal Reserve
policy meeting Now it may impact monetary policy moving forward.
Plus a look at earnings from the media and entertainment
giant Walt Disney. I'm Tom Busby in New York. I'm
Stephen Carolin London.
Speaker 3 (00:30):
But we're looking at the many challenges facing Germany's new
Chancellor as Fredrick Martz prepares to take up the job.
Speaker 4 (00:36):
I'm Doug Krisner, exploring what's at stake in the US
China trade standoff ahead of some key eco data in
the week ahead.
Speaker 1 (00:45):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three zero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB, Digital Radio, London, Syrias,
XM one on and around the world on Bloomberg Radio
dot Com and the Bloomberg Business App.
Speaker 2 (01:08):
Good day to you. I'm Tom Busby, and we begin
Today's program just ahead of the Federal Reserve's third policy
meeting of the year, which kicks off Tuesday, ends with
a decision on interest rates on Wednesday. Amid a lot
of economic uncertainty and the impact of President Trump's ever
changing tariffs, the Fed has a lot to consider. For
some perspective on what it all means. Stuart paul Us,
(01:28):
economist with Bloomberg Economics, what do you expect the FOMC
to do on Wednesday?
Speaker 5 (01:34):
We're expecting a rate hold. We're expecting the Federal Reserve
to keep the target federal funds rate in the range
of four and a quarter to four and a half percent.
We're expecting very little news to come out of the FOMC.
We're expecting very little news to come in the way
of the Fed's balance sheet. All in all, it should
be one of the more boring FOMC decisions and press
(01:55):
conferences that we've had in a while.
Speaker 2 (01:57):
So a boring press conference. However, a lot of turmoil
leading up to this, and there's a lot for the
Fed to consider. Let's start with some of the good news.
And there is good news about jobs, right, we just
led this past week.
Speaker 5 (02:09):
That's right, in April, there were one hundred and seventy
seven thousand jobs added, a four point two percent unemployment rate.
From the Fed's perspective, it's not just thinking about employment
chugging along, it's thinking about inflation pressures. We saw relatively
modest zero point two percent wage growth and earnings growth
during the month. So as employment is becoming a little
(02:30):
bit broader as the workforce is expanding, inflation pressures stemming
from the workforce are rather dull. And as we're heading
into this FMC decision, the latest inflation data that the
FED has in hand are basically showing muted inflation pressures
so far. But the question is going to be on
the Fed's mind just how much can we expect inflation
(02:51):
pressures to ripple through from tariffs, And some of the
internal models that we that we know that the FED
operates with are likely showing that risk is skewed to
the upside that we could see let's say three and
a half four percent core PCEE inflation at year end.
That would be up from about two point six percent
right now. The FED is seeing a relatively hot jobs number,
(03:14):
it sees inflation low right now, but risks skewed to
the upside, so all the more reason to stay on
hold when the FMC meets next week.
Speaker 2 (03:24):
Those risks, I mean, we're hearing because it's the first
quarter earning season. We're hearing from a lot of companies,
big companies, no more so than GM that said these
tariffs could be a five billion dollar hit to profits,
just as past week, Apple finally comes out and says
nine hundred million dollars hit. So company after company Amazon.
You know, a lot of uncertainty, a lot of people
(03:44):
fears of a recession. I mean, this is building and building.
Speaker 6 (03:49):
That's right.
Speaker 5 (03:49):
As much as I like to stay focused on the macro,
as much as I like to stay zoomed out at
thirty thousand feet thinking about capital investment in the workforce,
I think that the bigger thing next week is really
going to be earnings, because we're going to get to
hear from all these companies. We get to hear from FORD,
We're going to get to hear from AMD and some
of the tech companies that are thinking about exporting chips
and are thinking about regulation of AI and development and
(04:13):
other domestic investment. We're going to get to hear from
some of the more consumer oriented companies like door Dash,
for example, that are really leveraged to consumers discretionary spending power.
And so I do think that more than the Fed's decision,
more than the economic data, let's say on the trade
balance that we're going to get next week data from March.
But what's really going to matter is the guidance that
(04:34):
we are getting from companies. And what we hear when
we look at high frequency surveys, for example, is that
companies are experiencing input cost pressures, they are planning to
pass those along to consumers.
Speaker 2 (04:48):
But what we.
Speaker 5 (04:49):
Ultimately think is that with the saving rates so low,
with consumers stretched and relying on credit as much as
they are, when firms try to pass along those higher
prices are ultimately going to face retrenching demand from consumers.
Speaker 2 (05:03):
We know sentiment from the University of Michigan polls at
a five year low. I mean, people are really worried,
that's right.
Speaker 5 (05:09):
Sentiment is poor. Business investment plans are being put on
a hold. A big part of it just gets synthesized
in one measure, economic policy uncertainty. Our policy uncertainty index
is spiking through the roof no reason why it's because
policymakers are coming off as rather mercurial in changing trade
(05:30):
policy week to week. We just heard from Stephen Moran
from the Council of Economic Advisors, one of the President's
chief economic advisors, that we could expect to see a
trade deal with China perhaps in the coming weeks. Now
he's not one of the trade advisors, but everybody is
chirping up on what we can expect from trade policy.
(05:50):
Just when we thought we had an escalation with China,
we're now seeing perhaps there's going to be a de escalation.
There's no wonder. Uncertainty is through the roof, and sentiment
is down well.
Speaker 2 (06:00):
A lot to watch out for. The Federal Open Market
Committee's two day policy meeting, wrapping up this Wednesday, a
decision on rates and a press conference from Chairman Jerome Powell.
Our thanks to Stuart paul, Us economist with Bloomberg Economics,
we turned out of the current earning season a number
of companies so far surprising to the upside. This week,
we hear from the media and entertainment giant, the Walt
(06:21):
Disney Company that's out on Wednesday in the House of Mouse,
facing a lot of challenges right now, including a pullback
in consumer spending, a slowing economy, fewer tours coming into
the US and to its parks, and a lot of
competition for its streaming TV offerings. For more, we turned
to Geetha. Raganathan, Bloomberg Intelligence analysts on US media. Well, Geither,
the last time we heard from Disney was before President
(06:44):
Trump announced his tariffs, the trade wars with China, Europe
and other countries. How has all that impacted the company
and what do you expect to see from Disney in
its second quarter results?
Speaker 7 (06:55):
Yeah? Absolutely, Thank you so much, tom So. Disney is really,
I think one of the most complex stories in the
media world. There are so many parts. There's so many
moving parts really as you think of the parks business,
the theme parks business, streaming, you know, you have a
presence in linear TV sports with ESPN, and then of
course the theatrical business and in box office. There's always
(07:18):
something to be concerned about here. So you're absolutely right.
In terms of parks, there is obviously, it is very
very sensitive to the overall health of the economy. And
why we are concerned about parks when it comes to
Disney is because this makes up about fifty to fifty
five percent of their profit, so this is really, you know,
(07:39):
the largest contributor of operating income. And while they had
initially guided to healthy summer bookings, you know, we've kind
of seen this deteriorating macro sentiment. So I think investors
are definitely going to be focused on that. Apart from
the general health of the economy. You know, as far
as you know theme parks are concerned. The one thing
that Disney investors are going to be super focused on
(08:01):
as any commentary that management can provide in terms of
competition from Epic Universe, which is a whole brand new
theme park that is coming out of Universal and will
be in Florida and is expected to be a very,
very big competitor because some of the initial reviews have
been absolutely amazing.
Speaker 2 (08:21):
And just open this week right or this month?
Speaker 7 (08:23):
Yeah it is, Yeah, it is going to open on
May twenty second. Yes, So you know, near term, I
think there's going to be a lot of wait and
watch with the theme park business. But I think medium
to longer term the business is definitely stabilizing, especially on
the streaming front. So we're definitely seeing a big improvement
in terms of streaming profits, with the company expecting a
(08:46):
billion dollars in operating income this year, compared that to
about four billion dollars in losses just a few years ago.
Speaker 2 (08:54):
Wow. Wow, Well, let's go back to parks, because another
part of that is its cruise division, and as I understand,
it's just unbelievable the demand for these Disney cruises.
Speaker 7 (09:05):
Yes, they have really made a huge push into the
cruise ship business. And this quarter is going to be
our fiscal second quarter when they report, is going to
be particularly interesting because you're going to have a full
quarter contribution from a new cruise ship, which is called
Disney Treasure, and which is expected to have been profitable
in its first full quarter. So it's going to be interesting.
(09:28):
We think that, you know, the cruise ship business is
going to go from you know, about two to three
billion dollars in revenue to as much as four to
five billion dollars in just a few years time. So
this is going to become a major part of their
parks business. And the one thing that we've seen with
cruises as opposed to parks is you know, the demand,
as you just pointed out, is very very strong and
(09:50):
will be a stabilizing force for the entire experiences segment.
For Disney.
Speaker 2 (09:56):
Now, I want to talk about its streaming TV unit.
We have Disney Plus and Hulu and ESPN. Has there
been any let up, any signs of a letup in
advertising revenue where they really make a lot of money
from all these networks and their linear networks.
Speaker 7 (10:10):
I think the general commentary tom on advertising is obviously
a very cautious kind of wait and see approach, because
when you head into an economic environment where you have
so much of volatility, the first sector that kind of
sees that pullback is of course advertising. Now there's both
good and bad with respect to Disney. So if you
(10:31):
just look at it from an overall company perspective, only
about fourteen to fifteen percent of Disney's revenue actually comes
from advertising, so exposure itself is not very very heavy.
You compare that to some of the other companies like
a Fox or a Warner Brothers Discovery, where you know
almost thirty five to forty percent of revenues are coming
from advertising. So I think overall the exposure is fairly limited.
(10:56):
That said, if things go bad, they can go really
really bad. So if you're looking at a linear TV business,
and Disney has considerable exposure here, you know, whether it's ESPN,
whether it's the ABC network, we can see ads drop
almost ten to fifteen percent, and that is really not
good for the business. They do have a little bit
of a hedge because streaming ads or digital ads in
(11:19):
general have held up better than the linear TV side
of the business. But overall, it is definitely going to
be a very very cautious tone on the advertising business.
Speaker 2 (11:29):
And let's turn to its film studio, because we've seen
some wild success as Captain America, Mufasa movie, some not
so great Snow White Mawana too, but still I suspect
they're all going to make money.
Speaker 7 (11:41):
They absolutely are, and we've seen you know, just if
you just think a few quarters ago, Tom, I mean,
this business was really really struggling. The content business as
a whole was in desperate need of a rejigger, and
we really had that with you know, inside out kind
of really you know, start this whole resurgence in the
(12:02):
box office unit last year and ever since then, it's
been great. You pointed out Mufasa that's done really well,
Moana did really well, and then of course you had
Captain America, and then we have the summer season for
Disney kicking off the summer box office season kicking off
with Thunderbolts, which is tracking to a very very strong
(12:22):
opening and should have a fantastic run just like Captain America.
You know, this is the next phase of the Marble
cinematic universe. Should do really really well for Disney, and
they have a fantastic content pipeline coming out over the
next eight to ten months.
Speaker 2 (12:37):
Disney second quarter earning's coming out after Wall Street's closing
belt This Wednesday, our thanks to Getha raganoffin Bloomberg Intelligence
Analysts on US media, coming up on Bloomberg day Break weekend,
looking at the many challenges facing Germany's new chancellor as
he prepares to take up the job. I'm Tom Busby,
and this is Bloomberg. Is Bloomberg Daybreak Weekend, our global
(13:01):
look ahead at the top stories for investors in the
coming week. I'm Tom Busby in New York. Up later
in our program and look at what the Trump tariffs
could mean for China's economy. But first, Germany's next Chancellor,
Friedrich Mertz, will be officially confirmed in his role leading
Europe's largest economy. This week, it's been a rocky road
to the top of the conservative who will preside over
(13:22):
uncertain times? What does this path ahead look like for
the country's new leader. For more, let's go to London
and bring in Bloomberg Daybreak europe Banker Stephen Carroll.
Speaker 3 (13:31):
Tom It's been more than two months since Germany's federal election,
and now finally the country will have a new chancellor.
The Social Democrats who led the outgoing government have voted
in favor of a coalition deal with Friedrich Martz's Conservative alliance,
clearing the way for the Christian Democratic leader to be
confirmed as the country's next chancellor. The agreement, backed by
(13:52):
around eighty five percent of SPT members in an online ballot,
brings to a close a complex set of negotiations. The
deal also keeps the far right AfD out of power
after they won a historic twenty point eight percent of
the vote in February. As Chancellor, Frederick Martz will have
to deal with a delicate economic outlook. Germany saw just
(14:12):
meager growth than the first quarter, and its key industries
face the impact of US tariffs. He's already passed a
plan to ramp up defense and infrastructure spending in Germany,
and that's something the CFO of Deutsche Bank, James von
Moltke says is already having an impact.
Speaker 8 (14:27):
Well, there are two things going on that German economy
is obviously an export driven economy, so there's a significant
impact of tariffs, whatever the outcome will be in and
so there are scenarios around that as to what the impact.
But at the same time, you have this offsetting impact
of the fiscal reform in Germany and now several years
on infrastructure, defense spending. Obviously the sustainable and digital transitions
(14:51):
that are underway, so a significant investment volume, and so
corporates in Germany are sort of gearing themselves up to
manage that.
Speaker 9 (14:59):
And in terms of of payouts and dividends and sort
of and buybacks and these sorts of things, is this
a moment to sort of preserve cash? How are you
thinking about that going into this way.
Speaker 8 (15:09):
We're executing on the on the distribution strategy and policies
that we've laid out. So we've announced so far this
year two point one billion of distributions through dividends and buybacks.
We're executing on that. And to your question, all or
will will will reassess as time goes by, we see
the performance in the first and second quarters in the environment,
you know, let's say ninety days from now, we'll have
(15:32):
an opportunity to reassess distributions later in the year.
Speaker 9 (15:34):
And then I'd like to also just take a step
back and look at the sort of market architecture and
what we've seen over the last couple of weeks. And
I'll begin by sort of quoting some of your own
research back to you that the preconditions are now in
place for the beginning of a major dollar down trend,
expecting one thirty euro versus the dollar by twenty twenty seven.
How much of this damage do you think is permanent?
Speaker 8 (15:53):
Well, look, that's our analysts are calling for relatively significant
structural change.
Speaker 6 (15:59):
I do think that will take time.
Speaker 8 (16:01):
There's been a what i'll call a break if you like.
Speaker 6 (16:04):
In sentiment, but that sentiment I think.
Speaker 8 (16:07):
Will make itself felt gradually over time. It's had a
pretty dramatic impact on the euro dollar exchange rate already,
and a further drift you know, up from here, would
be impactful overall. I think the difference you're seeing is
that the policy changes are making the rest of the
world interesting to investors and changing the relative position a
(16:33):
little bit of the United States and Europe, but other
destinations as well.
Speaker 6 (16:36):
In a sense, that's good.
Speaker 8 (16:37):
I think it's been a wake up call for Europe,
whether that's the policy side of Europe or as we
talked about, the corporate side, and so there's an opportunity
to rebalance a little bit. But it'll have impact on
a number of markets, including currents.
Speaker 9 (16:50):
And when you think about sort of the remaking of
that sort of global market architecture, does that mean that
European markets, that German bonds, that the year of plays
a larger role going forward, if not completely eclipsing the
United States, but certainly changes.
Speaker 6 (17:04):
I don't think.
Speaker 8 (17:04):
Again there's I don't necessarily think this is a zero
sum competition.
Speaker 6 (17:08):
I really don't.
Speaker 8 (17:09):
But the Bund is an anchor sort of investment and
anchor source of stability in the world, and that's really good.
In fairness, and one thing another thing our analyst said,
and this is true for the German government to have
announced as big a fiscal expansion as has taken place,
and for the long bond in Germany, the bond not
(17:29):
to have moved substantially in that time is a real
sign of confidence in Germany.
Speaker 6 (17:35):
We actually think that the.
Speaker 8 (17:36):
Economic health of the country and also its fiscal strength
in many respects, can be improved through this spending and
if you like, a rebalancing of the economy, more consumption,
more investment at home.
Speaker 9 (17:48):
And I want to get into that, but I also
want to talk quickly also just about the foreign exchange market,
not just within the markets, but also your clients as
obviously companies that look at the outside world. You've seen
some wild moves on the exchange rate. How are your
clients dealing with how are you sort of also in
intermedia and helping them sort of hedge some of that risk.
Speaker 8 (18:03):
But we had we had tremendous volumes in those days
of early early April, so obviously we were managing our risk,
but we were also helping clients to manage theirs and
a there is a theme by the way of more
business coming to us because of clients seeking to work
with a European bank, and that that's also encouraging for
the business model. Again, rebalance is a little bit the
(18:25):
imbalance that has been strategically the case in the industry.
The clients were in those days reacting strongly to this
idea that that the dollar.
Speaker 6 (18:35):
In the US long bond was no longer.
Speaker 8 (18:37):
The risk off trade and where's that resulted in a
lot of movement and uncertainty with clients.
Speaker 6 (18:43):
But all around the world is the honest truth.
Speaker 9 (18:46):
And so trying to figure out the sort of German
fiscal expansion kind of conversation here there's so much bad
news price then, whether it's what's coming out of the
United States, the sort of years of contraction within Germany.
Do you think that there is actually quite a bit
of good news that is not yet then, and that
actually we can really see things take off materially in Germany.
Speaker 6 (19:03):
I think so it'll take time.
Speaker 8 (19:04):
I mean, as in the nature of a fiscal expansion,
the government needs to be put in place and the
spending plans not just enacted but actually hitting. And so
we see this as a real support to the German
economy and the European more broadly economies in the years
really starting in twenty six.
Speaker 6 (19:22):
But it's a sustained improvement. Now.
Speaker 8 (19:26):
One thing that's important is what it does to confidence today,
and so we do expect some help in twenty five
in terms of overall confidence in households and corporates. Obviously
that confidence requires a resolution of the tariff war and
some of the other things that are live at the moment,
potentially piece in Ukraine. So there's a lot set of
hanging in terms of confidence on the outcome of these events.
Speaker 3 (19:49):
That was the Deutsche Banks CFO James von Maltkez speaking
there to Bloomberg's Oliver Krook. So what are the major
challenges awaiting Germany's next chancellor. I've been discussing this with
our Germany Bureau chief christ for our world.
Speaker 10 (20:01):
Pushing through economic reforms will will definitely be on top
of his list, and also will be particularly in focus
in coming days will be his efforts to liaise with
other European leaders like French President Imanuel Macron or the
Polish president tous Joined has been notably passive under outgoing
chance all of shots, and Mattz really has pledged and
(20:21):
maybe it like one of his top priorities to change
that and play also like a more active role on
the European stage.
Speaker 3 (20:27):
Again, how quickly will the new government be able to
draw up a budget? I imagine another key concern.
Speaker 10 (20:33):
That is actually definitely one of the most pressing issues actually,
since when the outgoing government decided on a provisional budget
for this year for twenty twenty five, there was a
gap of roughly twelve billion euros, that's about or close
to fourteen billion dollars. And since since that provisional budget
was announced, like some additional funding needs have actually come up,
(20:54):
So the latest number that has been floating around in
Berlin was about eighteen billion euros and the new government,
undeficult wish Melts will definitely need to address this sooner
rather than later to to basically plug these funding gaps.
Speaker 3 (21:06):
Of course, Germany in the crosshairs, as so many other
countries are too, of Donald Trump's trade tariffs too. Are
we likely to hear anything about trade policy from mer
It's in the coming days?
Speaker 10 (21:17):
That does seem pretty likely. Melt has been quite outspoken
actually that the disruption from the from from the US
tariffs marked really like a significant shift for for for
Germany because the US is one of its key trading partners.
Speaker 6 (21:31):
So we can.
Speaker 10 (21:32):
Definitely expect them not just to meet with with Immanuel
McCrow in France and with other European leaders in the
individual like European Union member states, but also to show
up in Brussels to get involved in the European Union's
trade policy, because that that is actually like this, the
sort of like entity that discusses traits with with the US.
Speaker 3 (21:50):
How solid does this coalition look. The SPD have voted
for it, it has you know, gone through the period
of negotiations. But where should we be looking for potential
data in this new alliance.
Speaker 10 (22:02):
This will definitely be a focus since the last government's
sort of constant bickering over over months and years actually
was really like one of one of its major problems,
and that actually disgruntled many many voters in Germany. Overall,
the SPD, the Social Democrats and the conservative blog that's
led by British mouts that do seem very determined and
(22:23):
so to reassure voters that they will make this cooperation work.
But there are there are definitely some some potentially contentious
issues there that will have to be addressed, particularly when
it comes to immigration for example, or social welfare spending,
where British Melts has sort of floated the idea of
pretty painful cutbacks and that that will be something that
(22:43):
will for the social Democrats will probably be difficult to accept.
So yeah, it's going to be really interesting to see
if they are or if they will be able to
find really like a common common ground. They are a
common line.
Speaker 3 (22:53):
The biggest opposition this new government is going to be
facing comes from the fireright AfD party. They came in
second in the actions in February. They're leading the opposition. Now,
how much are the AfD's policies and politicians going to
put pressure on this new government.
Speaker 10 (23:10):
Well, they are definitely the biggest opposition party in the
new German Parliament after they secured just over twenty percent
of the votes in the last federal election in late February,
but they don't have direct influence on policy making on
a federal level. What we're seeing at the moment is
that like some of the some of the regional governments,
(23:30):
is like some of the German states where the AfD
has like a stronger presence that there, we can definitely
see that they are trying to disrupt and influence decision
making by blocking certain decisions on federal level. We're not
seeing that. I'm a bit reluctant to make a focus there.
Speaker 11 (23:48):
Off while how long that will that will remain in
place or if they actually will have some sort of influence,
but for now their sort of potential to disrupt decision
making on a federal level is close to zero.
Speaker 3 (24:00):
Actually, talk us through some of the international challenges that
that Friedrich Martz will will also need to be addressing.
We know, before this new Bodista came into force, he
did manage to pass that bill which will ramp up
defense and infrastructure spending. That's going to be an interesting
one to watch for the domestic economy. But in terms
of Germany's place in the EU, how will Friedrich Martz
(24:21):
be playing that given the you know, obviously trade trade
tarff's being a big question there too.
Speaker 10 (24:27):
Yeah, defense spending will will definitely bun on one of
the one of the key areas, and that's like linked
to some of the trade deals that have been sort
of discussed over the past weeks and months. Yeah, both
both on national level and on European level, or on
natal level, I should say so. The German army originally
needs to be modernized to fulfill its obligations within NATO
(24:47):
and actually also be able to defend the country and
like modernizing the Bundes for Polish males will be hugely complicated.
Defense purchasing is as we all know that that's that's
a that's a pretty convoluted sort of process, a lot
of capacity restraints in the industry, and that is something
that we'll have to be addressed with both within the
(25:08):
NATO member states with the US administration oversly, because the
US is also like and when it comes to defense,
like a big sort of producer of like weapon systems
and ammunition. So that's definitely probably will be one of
the most sort of like difficult and complex of challenges
that that Melts will have to address.
Speaker 3 (25:27):
Thanks to our Germany Bureau chief Christopher rowold Well, the
full coverage of Friedrich Martz's first days is German Chancellor.
For you here on Bloomberg, I'm Stephen Carolyn London. You
can catch us every weekday morning for Bloomberg Daybreak Europe,
beginning at six am in London and one am on
Wall Street.
Speaker 2 (25:44):
Tom, thank you, Steven. And coming up on Bloomberg day
Break weekend, we'll look at more economic data in Asia
that could offer fresh clues about the health of the
world's second largest economy. I'm Tom Busby and this is Bloomberg.
(26:06):
This is Bloomberg day Break weekend, our global look ahead
at the top stories for investors in the coming week.
I'm Tom Busby in New York. As US China tensions
flair under President Trump's tariff push, fresh data out this
week could offer clues about the health of China's economy.
For some analysis, Let's get to the host of the
Daybreak Asia podcast, Doug Krisner.
Speaker 4 (26:27):
Tom. A trio of key Chinese economic indicators will land
in the coming week. We'll have the Taisheen Manufacturing PMI
will be getting the April inflation reports and new trade
activity data. Together they will provide a crucial read on
China's economic momentum or lack thereof, at a time when
global markets are watching nervously for a closer look. I'm
(26:50):
joined now by John lu he is Bloomberg's executive editor
for Greater China. John joins us from our studios in Beijing. John,
we can talk about the inflation story in a moment,
but I want to begin by trying to understand current conditions.
Some of the recent data, as you well know, is
indicated a fair amount of weakness, and I'm thinking of
the PMI data in particular, which we had at the
(27:12):
end of last week. Give me your sense of the
macro right now.
Speaker 12 (27:17):
I think there's a lot of concern at the moment.
The PMI data that you mentioned there, Doug, that came
in a week, there was a contraction. It was the
longest or the biggest contraction in manufacturing that I think
we've seen in about two years time, and so that
speaks to the weakness as a result of the liberation
(27:37):
tariffs Liberation Day tariffs that President Trump announced. Because that
PMI data was for the month of April, so it
was the first reading that we've had of what kind
of impact there has been on China's economy. And I
think there's a broad expectation that there will be more
weakness because of trade.
Speaker 4 (27:56):
What about more stimulus and how might the government go
about it. I mean, some of this weakness is showing
up on the export side, which in the past hasn't
really correlated very strongly with trying to get domestic demand
put into a higher gear. Is this a particularly tricky
situation for Beijing right now?
Speaker 12 (28:15):
I think there's a general recognition in Beijing that the
way to offset the pain from the trade war is
to provide stimulus that will create domestic demand, so create
a market for these products that would have gone to
the US without these tariffs. But that potentially gives companies
(28:36):
here in China a chance to sell domestically to a
domestic consumer or a domestic company. And I think what
you will see is more and more stimulus in terms
of offering rebates for people who buy a car, or
buy a refrigerator, or buy some air conditioning, offering rebates
for companies that want to get new equipment, that want
to upgrade their production processes, things of that nature. But
(29:00):
as of now, we had this Pollit Bureau meeting in
April that really showed the government right now is sort
of in a wait and see attitude. The government said,
we are ready with an emergency plan when that is needed,
but they seem to be conveying an idea that so
far in the first quarter the economy is doing okay,
and they're waiting for more data and information before they
(29:23):
launched themselves into some dramatic stimulus.
Speaker 4 (29:26):
In the last two week here in the US, President
Trump held a rally in Warren, Michigan, and it was
there that he said countries from around the world have
contracted his administration about trade deals. India may end up
being the first. We just don't know at this point.
But I'm curious what President chi chin Ping is trying
to do in the Asia Pacific and deals that he
(29:46):
may be looking to create with trading partners that China
already has in the region.
Speaker 12 (29:51):
So I think the starting point of this discussion, I
think is the fact that China's does not seem to
be in a rush to get to the negotiating table
with President Trump. I think the trade war has done
something very pronounced here in China in that it's really
created this sense of patriotism. It's really rallied support around Xijingping.
(30:14):
And so whatever economic troubles there might be, whatever the
employment situation might be, going to the future, by and large,
people here in China are gonna blame the United States.
They're gonna blame President Trump. That is going to take
a lot of pressure off of President Xijingping, and it's
gonna make it easier for him to hold out for
(30:35):
a better deal. In the meantime, there is also a
lot of angst in countries around Asia, in Southeast Asia
and Japan and Korea about the tariffs that the Trump
administration has announced, and Beijing is trying to take advantage
of that by doing a charm offensive. Xiji Ping has
already visited Southeast Asia. Beijing has just allowed the first
(30:59):
K pop concert that's taken place in China in about
a decade, and so there is an effort to take
advantage of that situation by offering various types of inducements
for neighboring countries to increase their trade relationship with China.
Speaker 4 (31:15):
I was reading a piece on the Bloomberg Terminal in
the last week. This is Wang Yi, China's foreign minister,
was saying that if nations choose to remain silent, compromise
and retreat, it will only lead to the bullies making
further advances. This seems to be very much an anti
US message. I get that, but I'm wondering whether or
not there's a big audience for that right now in
(31:38):
the region.
Speaker 12 (31:39):
I think there is. That message that Foreign Minister Wangi
delivered was at the meeting of Bricks Nations they're foreign
ministers that was held at the end of April, and
so I think in that setting there is a built
in audience for that message. Many of those countries Iran
(32:01):
is in that group, South Africa, Russia, Brazil. These are
countries that have always had a suspicion about American intentions,
if not outright hostility towards American intentions, and so in
that setting, I think he was speaking to the right
audience with that message. More broadly, I think it's trickier
(32:24):
to say when it comes to Australia or Japan or
South Korea, traditional American allies, how well that message, what
kind of mood that message will strike, because yes, these
countries depend on China for their economic growth, but they
also depend on the United States a lot for their security.
And at the same time, those countries also are suspicious
(32:47):
of Chinese intentions. Japan, many Southeast Asian countries, the Philippines,
India have all had border disputes with China, territorial disputes,
and so that makes them less than enthusiastics about embracing Beijing.
Speaker 4 (33:01):
So we've established the fact that the overall economy is
weak visa VI the PMI data, and we know that
the government has to do more to stimulate domestic demand
a lot more. Let's talk a little bit about the
inflation story now, is China still very much in a
deflationary trap right now, or there are green shoots emerging
(33:22):
that maybe prices are beginning to move higher.
Speaker 12 (33:26):
I think we are still in a position where deflation
is the major concern. There may be some green shoots
in terms of services and in terms of retail spending
because the government has started to roll out more and
more stimulus. They've tried to roll out subsidies for people
(33:48):
who buy various products. They've started to invest in new projects.
China just approved a number of new nuclear power stations,
and so that investment will start making its way through
the economy. So some green shoots, but still I think
there's a major problem when you have such a big
trade relationship between the United States and China being essentially
(34:11):
cut off by the level of tariffs that have been imposed,
really shutting off in demand for many many Chinese factories.
And where those products are going to end up is
a big question, and I think there's a high likelihood
that you will see companies and manufacturers and suppliers try
to find a place to sell those products into you
(34:32):
by cutting prices.
Speaker 4 (34:34):
So does that necessarily mean I hate to use the
term dumping. But that's what I hear when you kind
of make that point, and whether or not that's going
to leave China open to a lot of criticism.
Speaker 12 (34:45):
So a lot of countries are worried about where these
Chinese products will go if they don't go to the
United States. That is a real concern, And that is
a real concern because of just what we're talking about,
manufacturers being incentivized to cut prices to get their product
moving out of the warehouse. Whether or not that will
(35:05):
result in dumping, I think we have to wait and see,
because what we have seen is the Chinese government telling
various countries in Southeast Asia, for example, that China will
not engage in dumping. And so there is a mechanism
by which the Chinese government could stop that sort of thing,
and so they may choose to do that in order
to take advantage of that opportunity we talked about.
Speaker 4 (35:28):
So we know during the first Trump administration that supply
chains in China were being reconfigured to kind of remove
the thread of tariffs. A lot of that was accelerated
during the pandemic. But I'm wondering now whether or not
that's really gathered even more steam during the trade war.
Are we seeing more and more companies kind of taking
(35:48):
their processes out of China and to countries like India,
for example, just to maybe find a way of getting
into the good graces of the United States.
Speaker 12 (36:00):
What we see is American companies like Apple. Apple has
announced that they are going to move all of the
production of their iPhones that they sell in the US
from China to India. So for an American company doing
that makes sense. For a Chinese company, it makes less sense.
Because the Trump administration has made it a point in
(36:21):
their discussions with other countries, with Mexico, with India, other partners,
that they want to make sure that Chinese companies are
not re routing their products through a third country. And
so I think that has made it more difficult for
Chinese companies to make decisions about investing building big factories
(36:43):
in Brazil or Mexico or some other country. What instead,
I think you are seeing a lot of Chinese companies
think about, is can I sell product in Brazil? Can
I sell product in Vietnam? Can I sell product in
Eastern Europe? And if I can, then I will build
a factory there to do that.
Speaker 4 (37:00):
We were talking a moment ago about how the trade
war has kind of incited a feeling of nationalism in China,
coming together to kind of coalesce around supporting the government's
effort to fight this trade war. And I'm wondering whether
or not there is this feeling that we're in it
for the long haul and that China can really manage
(37:21):
to endure a great deal of economic pain for the
foreseeable future, or whether or not there is a level
of vulnerability right now that's being masked and there's a
breaking point that could happen in the next few months
if there is no resolution to this tariff story.
Speaker 12 (37:38):
Unfortunately, I think we are in the early stages, the
early innings of this trade war, and right now both
sides are filling in a relatively strong position, and I
think that is mostly because the actual pain that will
be caused by this conflict is not being it's not
(38:00):
going through the economy yet. In this current situation in China,
people are feeling more patriotic. They're feeling like they want
to support their government, they want to support their president,
they want to fight this thing. As time goes on
and the economic reality sets in, the pain sets in,
I think that attitude will start to change and evolve.
(38:25):
I think there will be a more openness to negotiation,
and indeed, I think we probably will not get negotiations
until both sides feel enough pain.
Speaker 4 (38:37):
John, it's always a pleasure. Thank you so very much,
John Lou Bloomberg, Executive Editor for Greater China, and I'm
Doug Christner. You can catch us weekdays for the Daybreak
Asia podcast. It's available wherever you get your podcast. Tom.
Speaker 2 (38:51):
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 on
markets overseas and the news UNI 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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