August 29, 2025 • 38 mins
Bloomberg Daybreak Weekend with Host Tom Busby take a look at some of the stories we'll be tracking in the coming week.
- In the US – a look ahead to the August jobs report and earnings from Salesforce
- In the UK – a look at the future of Europe's banking industry
- In Asia – a look at how China is stepping up the technology battle with the US
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Episode Transcript
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Speaker 1 (00:02):
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,
we look ahead to the August Jobs Report, what it
could mean for FED policy moving forward. I'm Tom Busby
in New York.
Speaker 2 (00:16):
I'm Carolin het Gahe in London. Well, we're thinking about
the future of yous banking industry.
Speaker 3 (00:21):
I'm deg Krisner looking at the power of the rally
in Chinese tech shares and how much steam is left.
Speaker 4 (00:28):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleventh Yo, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine, Boston, Dad Digital Radio, London, Syria
six M one one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business App.
Speaker 1 (00:52):
Good day to you. I'm Tom Busby. We begin today's
program with the August Jobs Report, non farm payroll numbers
out this Friday eight thirty am Wall Street Time, and
with another read showing inflation stubbornly Hi, what could a
further possible slow down in the US labor market mean
for the hopes of a FED rate cut at its
next meeting. For more, we're joined by Michael McKee, Bloomberg
(01:14):
International Economics and Policy correspondent. Michael, thanks for being here.
Just this past week we got that July PCE, another
confirmation inflation not going away. Let's talk about that report,
what it means to the FED, and how important this
Friday's August jobs report is going to be.
Speaker 5 (01:31):
Oh, let's start with the PCE and say that it
is important but not definitive for the FED.
Speaker 1 (01:37):
It does show that inflation is not.
Speaker 5 (01:39):
Going down, and on a year over year basis, the
core rate actually rose to two point nine percent from
two point eight percent, which is going in the wrong
direction if your target is two percent. On the other hand,
the month over month figures did not show any deterioration.
So it really is kind of picked your story here,
and we know that those who think that we should
(02:02):
be cutting rates in September have stuck to that story
and this wouldn't deter them in any way. The rest
of the fad is open to the idea of a
rate cut. In fact, Jay Pole basically opened the door
to it at his speech in Jackson Hole, and so
they're waiting on data yet to come, and that'll be
(02:24):
the Jobs report this Friday and the CPI report that
comes on September eleventh. And the question is do we
see a significant weakening in the unemployment rate? Does it
go up? I guess whether you call that strengthening or weakening.
Speaker 1 (02:40):
Does it go up?
Speaker 5 (02:41):
And do we see a continued week hiring the kind
of hiring that we saw in the July report and
the revisions to May and June.
Speaker 1 (02:51):
Well, there may also be seasonal reasons for if we
see a big jump or a big decline in August.
Speaker 5 (02:56):
Right, Well, yes, you get into the school year beginning,
and ever since COVID we've had some trouble with adjustments
for that. Also in many states have changed their school
year beginning times. And a lot of this doesn't have
to do with teachers. It has to do with the
supplementary workers at the schools, of janitors, the cooks, everybody else.
(03:17):
So we may have that issue, but economists and the
FED will look through that and see what's been happening,
especially with private sector jobs, and see if we see
the same kind of decline. The forecast at the moment
is for seventy five thousand jobs to be created, which
is not that different from last month. But we may
(03:40):
see that changed during the week as we get more data,
because this is the first week of the month and
it's the week where we get.
Speaker 1 (03:46):
Tons of data. Yeah, and how about the unemployment rate?
Could we see that go a little higher?
Speaker 5 (03:51):
We could see that go a little bit higher. Right now,
we're waiting to see what happens with the unemployment rate
because the forecast is for to rise just a little
bit to four point three percent from four point two percent.
That is not unacceptable to the Fed. They have expected
it to rise. Their forecast is for to maybe hit
(04:12):
four and a half percent, but it's a speed at
which it moves. So if it's higher than four point
three percent, then you're going to have some concern expressed
down at twentieth and.
Speaker 1 (04:24):
Six Street in Washington. Yeah, from four to two to
four to four if it went Now, so we have
the CPI coming out, we have the jobs number coming out.
But last week we got some very encouraging news. We
got a three point three percent, although it's a preliminary
reading on GDP was growing. Also consumer spending and consumer
incomes good news there as well. Right, better good news
(04:46):
in the incomes and spending number. The GDP number is
for the second quarter and that ended at the end
of June, so now we're two months into the third quarter,
so it doesn't tell you all that much. The one
bit of good news was that we saw more business
investm don't have a lot of explanation for that because
companies have been telling the Fed and telling us that
(05:07):
they're sitting on the sidelines, but they did increase business investment,
which is probably a reflection of what's been going on
in the AI space now. The income and spending numbers
were pretty good. Income maybe a little less than meets
the eye and that it went up, but it is
it's mostly automobile spending on the good side. So the
(05:30):
auto companies have said they're going to raise prices when
they get to the new model year, so that may
be something that has pulled forward some spending. The income
numbers were better in that they rose, but if you
look under the hood, the wages and salaries component went
up six tenths of a percent after just a one
tenth rise the month before. So Americans still have money
(05:53):
coming in question of whether they want to keep spending
it or not, and so far they're spending it.
Speaker 5 (06:00):
Oh, they're spending it. But we also had another number
that came in that was interesting, and that was the
trade deficit. We saw a big rise in imports again
in July, as we did in the first quarter in
or January and February of this year, ahead of the
president's tariff announcement, and now maybe ahead of the tariffs.
That's what we also saw, so companies trying to stock
(06:20):
up on lower price goods to sell them as long
as they can before they have to raise prices. That
may be also something that factors into the Fed's decision
if they think that definitely inflation is going to rise
significantly in the months to come.
Speaker 1 (06:37):
Now, you are just back this past week from Jackson
Hold the symposium. You spoke to a lot of FED officials.
Great sound. Some of them are insisting that the extra
consumer costs from the Trump tariffs are just a one
time bump, and that you know, yes it's inflationary, Yes
it's a lot of pressure, but it's going to go away.
A lot of others don't see it that way at all.
(06:58):
How do you feel about.
Speaker 5 (06:59):
That, Well, historically tariffs have been a one time bump.
But historically they've also been applied in a different way.
Congress passes a tariff increase and sets a date, and
it goes into effect and prices go up on that date.
With Donald Trump, it's been a whole bunch of different
tariffs on different dates. Sometimes they're raised, sometimes they're lowered,
(07:21):
and the application dates vary. So there's two things.
Speaker 1 (07:25):
At work here.
Speaker 5 (07:25):
One is the idea that this is going to go
on for a while because he's talked about imposing more
tariffs on pharmaceuticals and on semiconductors and things like that.
So we could see a rolling increase in tariffs and
that would perhaps feed into inflationary psychology that would raise
people's inflation expectations, and that's what the FED doesn't want
(07:48):
to see happen. So you have Christopher Waller and Mickey
Bowman saying one time increase and we don't have to
worry about it. Other FED officials saying yes, but it
could feed into this other dynamic that we would.
Speaker 1 (07:59):
Have to worry about. Well, well, a lot of inflationary pressures.
We get the CPI in a couple of weeks. The
August Jobs report out this Friday, ahead of wall Street's
opening bell our thanks to Michael McKee, Bloomberg International Economics
and Policy correspondent. We move now to earnings from the
cloud based software company and Dow Jones Industrial average component Salesforce,
coming out after Wall Street's closing bell on Wednesday. How
(08:23):
has the explosive boom and AI at other software companies
impacted Salesforce's growth? For more, we're joined by aniog Rana,
Bloomberg Intelligence technology analyst. Now, honurrog thank you so much
for being here. Salesforce investors have not had a lot
to cheer about. Shares are down about twenty five percent
so far this year as other software companies have invested
(08:44):
a lot more in AI. What are you looking to
see in its second quarter results?
Speaker 6 (08:50):
So, Tom, when you look at a company like Salesforce,
you know it is very different than Nvidia or codeb
for Oracle, frankly, because it's the application side of software,
and in this area we are still not seeing at
the level of implementation of AI. Because even though for example,
Salesforce has some really good products that can help out
(09:13):
with their AI journey, the macro spending on technology is
still weak, which is companies are not spending at that
same level as they were on non AI tech spending,
which is having an impact on the order book of salesforce,
and that has been the story for the last let's say,
twelve to eighteen months, and we think a little bit
(09:35):
of that will come back again when they report next week.
Speaker 1 (09:39):
So what do you think they will say then about
growth and demand trends? If you know, maybe they're a
little behind in the AI spending and the AI products.
They do have Agent Force and Data Cloud, but what
do you think they're going to tell the vests.
Speaker 6 (09:53):
No, you're right, I mean they will talk about those
two products quite aggressively in how the adoption rate is
very strong, and believe that that both data Cloud and
Agent for Us will do well. But again as a
percentage of the entire company, it's a very small portion
of total sales. On the other side of the equation,
we do anticipate them talking about, you know, tougher business
(10:14):
conditions and elongation of cycles in order to complete orders.
And I think that's where you know, we would be
those comments would be looking for. There is a particular
metric called remaining performance obligations or current remaining performance obligation,
and that's an area where it gives us an idea
about the the growth rate of the orders. They have
(10:36):
guided down that number to be go down from eleven
percent to nine percent in this quarter. Based on the
results we saw from Workstay, we think they should be
able to do better than that. But again, till we
get this hangover of tariffs and you know, economic uncertainty
out of the way, we don't see that number accelerating
(10:59):
and perhaps that can only happen next year. At this point, now, do.
Speaker 1 (11:02):
You see that as more of a broader pullback and
spending on it or is it your companies are just
spending on other products from other companies.
Speaker 6 (11:12):
No, no, no, this is absolutely broader. This is not
just salesforce specific. We say the same thing for Workday.
We are seeing the same aspect for consulting companies, whether
it's IBM consulting or Accenture for that matter. So this
is a broad based phenomenon where companies are being measured
in the way they are spending on technology, and for
(11:32):
right now, they are spending more on AI related products
or AI related infrastructure, which is you know, AI servers
and chips and models and trying to set things up.
Those are that's where a lot of the spending is
going at this point.
Speaker 1 (11:47):
And what we saw just this past week in Nvidia's
latest earnings, I mean, what does that tell you about
AI spending, ANI infrastructure spending. Is there a possibility of
a slowdown in demand in the future or is this
maybe just a blip.
Speaker 6 (12:04):
Well, things are looking good for almost the entire ecosystem,
and with n Video obviously there's there's a case of
you know, elevated expectations and what they did. I mean,
I think the results are pretty good, but when you
look at it, you know, Oracle will report over the
next couple of weeks. We think they're going to you know,
go and talk about a similar you know, increase in
(12:24):
order book for them from companies like open Ai trying
to get more of their cloud infrastructure to train their models.
So we do anticipate a good season for companies that
are more on the software infrastructure side. I think it's
going to be tougher to see what happens on the
application side.
Speaker 1 (12:42):
Well, a lot of growth, a lot of changes. Sell
Force Q two earnings after the closing bill is coming Wednesday,
are thanks to Anna rog Rana Bloomberg Intelligence Technology analyst
and coming up on Bloomberg day Break weekend, we hear
about the future of Europe's banking industry. This is Bloomberg
(13:08):
day Break weekend, our global look ahead at the top
stories for investors in the coming week. I'm Tom Busby
in New York. Coming up on Bloomberg day Break weekend.
China steps up its technology rivalry against the US, but
first in the coming days, the banking industry gathers in
Germany for a couple of major banking conferences. European banks
have seen their share prices on a tear in recent months,
(13:29):
but there are tests ahead from US tariff's, political instability
and the extent of interest rate cuts. How will insiders
navigate the landscape for more, Let's go to London and
bring in Bloomberg Daybreak europe banker Caroline hepgar.
Speaker 2 (13:43):
Tom European banks on the SOCK six hundred Banks index
have surged since twenty twenty two to a seventeen year
high versus the lows of late twenty twenty two, but
there are risks gathering for the second half of this year.
Deutsche Bank and Comments Bank, top performers on the index,
have recently been downgraded by Goldman Sachs analysts. The outlook
for the industry is something Deutsche Bank's CEO Christian Saving
(14:05):
discussed recently on Bloomberg Television. He says there is still
a big opportunity for his firm and for others well.
Speaker 7 (14:12):
I do think what we see in this world is
with all the geopolitical uncertainties, with all the also economic uncertainties,
there is one trend which is the same across the
world that our clients want to have a European alternative
to the US banks. We have very strong US banks,
very capable of US banks, but in this world of
geopolitical uncertainties, they want to have a capable global European player,
(14:37):
and there are not so many European banks left with
a full investment bank, with a full corporate bank, with
a global network in over sixty countries. That's the role
we can play now. This role we not only want
to play because we feel ourselves as a global bank,
but it's obviously much easier to do that if you
are coming from a country which is economically increasing, which
(14:59):
is economically on the right pass and which is also
pulling now Europe, and therefore I think we have a
unique chance, not only as Germany and Europe, but also
as Deutsche Bank to actually be the one who is
facilitating and who is contributing to our clients growth around
the world. The diversification also in banking not only to
(15:20):
rely on one bank, but on many banks, and that
from a regional perspective has never been bigger than around
And you.
Speaker 8 (15:26):
Touch about diversifying, and just another question to you, is
this by Europe trend? Is this a lasting thing? Is
this something that you're seeing from investors that you talk
to that they're wanting to make a meaningful commitment to
Europe And what does that actually look like in terms
of numbers from where you're setting.
Speaker 7 (15:41):
Well, for the first time, we see obviously since the
last three or four months, a quite significant reallocation from
funds in particular into Europe. The interest is huge. Whenever
we talk with investors, they really want to understand what's
going on in Germany, what's going on in Europe. By
the way, already in doubles this year, six months ago,
(16:02):
most of the investors said micro Germany is really good,
and with that they mean the German corporates, the German companies, Macro,
You need to do in improvements and that's exactly what
we want to try now. Of course the government stepped
up with the fiscal program, but also with the reforms.
If we now actually do something sort of say together,
(16:22):
if we march in parallel, we have a huge chance.
And then I do believe with further reforms to come
and that is necessary. I do believe that this trend
of reallocating funds to Europe will not stop if we
are not doing further reforms and just rely on fiscal debt.
That doesn't help. We need the fiscal reforms.
Speaker 2 (16:43):
That was Deutsche Bank CEO Christian Savings speaking.
Speaker 4 (16:46):
Then.
Speaker 2 (16:46):
So in the coming days, academics, professionals and leaders from
the world of banking and fintech will convene in Germany
to discuss topics ranging from preparing for geopolitical uncertainty to
optimizing productivity through AI. But just how uncertain is the
path ahead? Jointly mean now to discuss this Bluebags EU
Finance report A Nicholas Comfort and Stephen Aaron's, our team
(17:08):
leader for EU Finance. Welcome to both of you. Nick,
can I start with you? Feels like back to school,
back to confidence season, doesn't it. What do you think
is going to be on the minds of these bankers
and academics and the industry as we get into confidence season.
Speaker 9 (17:22):
In short, I'd say D and D. Do you regulation
and deals as the two big things that the bankers
will be focusing on. Do you regulation something that affects
all all of the banks? Regulars later call it simplification
rather than deregulation. But what the bankers are really after
is sort of is either a wholesale shredding of certain
rules or a tweaking of them in order to free
(17:43):
up some capital here and there, which they argue they
can put to better use, for example, to a lending
for whether it's renewal, energy or defense or technology, whichever
your pickers. And on the deals front too, yeah, I
mean it's not it affects more individual banks, but everyone's
interested in what's happening around around BNP, PAR and UniCredit especially.
(18:04):
That's what's on people's minds.
Speaker 10 (18:05):
At the moment.
Speaker 2 (18:07):
Stephen. Why has Europe's financial services sector done so well
over the past four years? I mean, you look at
those leading bank stocks are absolutely stellar performance.
Speaker 11 (18:19):
Absolutely, I mean the performance of banking stocks for the
past four years especially since the beginning of this year
has been absolutely stunning, and the reason for that's been
the extremely dismal performance of banking stocks the previous years.
As you may remember, there was an era of negative
interest rates in Europe for a long time set by
the European Central Bank, and that caused a decline of
(18:42):
profitability in many European banks. That was reversed in twenty
twenty two, and since then European banking stocks have been
on a tear, boosted since the beginning of the year
by especially in Germany for Dutch Bank, Commerce Bank, by
the prospect of stepped up spending public spending on defense
and infrastructure. So that's kicking a nail and that is
(19:02):
probably the bad explanation for this extremely good performance.
Speaker 2 (19:08):
Yeah, okay, so Nicholas, what then are the biggest risks
going forwards? Because things don't look quite so bright maybe
for the second half of this year. Is it the
risks of rates not coming down much further? Is it
about fed independence or the hit to economic growth in Europe?
Maybe that's going to come from US tariffs.
Speaker 1 (19:30):
I'd say definitely tariffs.
Speaker 9 (19:32):
That's the main thing. If you're if you're a chief
risk officer in European bank at the moment, that's the
number one thing you've got on your mind in terms
of what does it mean for my corporate lending portfolio
the companies I lend to. Are they going to be
in trouble? Are they going to are they just going
to to Are they going to see losses on these
loans because they because they see large younger, their revenue dissipated.
Speaker 1 (19:57):
But also, I mean you can see the positive there
as well.
Speaker 9 (19:59):
I mean, if these companies are going to be investing
in the United States, for example, to build new factories,
then that's where the chief risk officer's colleagues over in
commercial banking will be jumping in and trying to give
them more loans. But yes, tariffs is the number one
thing which they probably have on their mind.
Speaker 2 (20:17):
Stephen, we heard from Christian Saving earlier. They're saying that
Europe's banks will fare well because investors could potentially flee
US turbulence. Is that true given recent political developments in
Europe and especially in France.
Speaker 11 (20:33):
It seems to have been true at least so we
did see a strong flow of institutional investment out of
the UF into Europe during the first half of the year,
especially after the US administration unbuilt the tariff's plan in April.
That is now probably something that people will look at.
(20:54):
You're right, there is political instability, especially in France, and
there's also political instability in the Netherlands, a small economy
but still an important one, and so Europe isn't sort
of in the clear. It's too early to say, but yes,
I would imagine that people will look at this. Again,
so far, we don't have any indications that that flow
from USA Europe has reversed. It's still going on.
Speaker 2 (21:16):
Apparently, Nicholas look that the nice glowing hands that people
have required maybe of the summer holidays might be starting
to fade in September, but the French Prime minister reportedly
didn't take a holiday. How prominently do you expect the
issue of political instability in Europe to be on the
agenda as you see it?
Speaker 9 (21:39):
Yeah, I mean I saw an interesting analyst note the
other day saying sort of that this is I mean,
it's kind of the normal. We've we've gotten used to
it at this stage. I mean, the so in terms
of immediate impact on banks from there, let's say, their
holdings of French sovereign bonds. I don't think that's something
which is going to be eroding capital levels too much,
for example, But yeah, I mean maybe more in the
(22:02):
in the longer term, if you're if you're a bank
catering to to companies in France, then these companies are worried,
and these companies aren't necessarily going to be making investment
decisions and that they're not gonna be borrowing, they're not
going to be doing M and A transactions, and so
that's really maybe a threat also to the to the
revenue that the banks exposed to France stand to make.
(22:24):
But I mean in terms of real, big, sort of
hard hitting financial impacts on on on capital, on their
financial strength, I'd be be less concerned.
Speaker 2 (22:34):
So Nick, in terms of M and A, are we
going to see more meaningful consolidation seems to always be
a kind of waiting game in Europe to see big
consolidation cross border.
Speaker 9 (22:45):
Yes, definitely, So, I mean deals in Europe take a
long time, and they have been I mean cross border
deals certainly have been few and far between. I think
the the experiences of the of UNI credit shows that
you have to be persistent and you have to also
have maybe multiple options ahead of you if you want
to be doing deals with UniCredit and comments Bank, for example.
(23:08):
That seems to be a waiting game over for Andre Rhl,
the CEO.
Speaker 4 (23:13):
It could be.
Speaker 9 (23:14):
That we see something happen on that in the months.
Speaker 4 (23:17):
Or year ahead.
Speaker 9 (23:19):
But it's a lot of the stuff which would really
support those cross border transactions that you that you mentioned.
A lot of the architecture is missing. But then maybe
banker has been complained there for a long time, so
they need to jump over their shadows you'd say in German,
and just and crack on with it if they really
want to pursue that growth.
Speaker 2 (23:39):
Oh, I don't know what the translation of that phrase
is into an English idiom. Interesting Steven. In terms of
the impact though, of the political pressure in the US
that we're seeing on the Federal Reserve, on the Central Bank,
I mean, is there going to be any banker that's
not thinking about that or is it more about the
Trump administration's deregulation drive in the US. Is that what
(24:02):
the European banking sector will be thinking about.
Speaker 11 (24:05):
I think it's a mix of both. The FED is
certainly the current development that will dominate talks for as
long as it's going on. Whatever the FED, whatever happens
at the FED, and how that impacts the interest rates
set by the FED in the US has global ramifications,
especially on banks and especially on Europe, and so everyone
will be watching very very carefully without really having any
(24:29):
precedent to judge what could lead to and so it
will dominate conversations. But everyone will just agree in Europe
that there's little they can do and they're just bystanders
on deregulation. It's something that's been going on. We haven't
really seen very tangible results in the US yet, but
there is sort of a move to soften a package
known as Basil, which is really important for banks globally.
(24:50):
The EU banks have been taken a queue from that
and have been putting pressure on regulators here in Europe
to take a similar approach because they save the US
that's for deregulation that's not replicated in the EU that
would put them at a competitive disadvantage. So they're actually
happy about the deregulation drap in the US because it
gives them a reason to say we want the same
(25:13):
in the in Europe.
Speaker 2 (25:15):
So lots for Europe's bankers to be discussing in the
next few days. Well, my thanks to Bloomberg's EU Finance
reporter Nicholas Comfort, and to Stephen Aroons, who leads our
team covering EU finance based in Frankfurt, for joining me.
I'm Caroline hepkeare here in London. You can catch us
every weekday morning for Bloomberg Daybreak here at the beginning
at six am in London. That's one am on Wall Street.
Speaker 1 (25:36):
Tom, Thanks Caroline and coming up on Bloomberg day Break Weekend.
China steps up its technology rivalry against the US. I'm
Tom Busby, and this is Bloomberg. This is Bloomberg day
(25:57):
Break Weekend, our global look ahead at the top store
for investors in the coming week. I'm Tom Busby in
New York. A new China buys China narrative taking shape
as Beijing steps up its tech rivalry with the US.
Chinese tech in disease have seen a boom that runs
contrary to concerns about the world's second largest economy. For more,
Let's get to the host of the Daybreak Asia podcast,
(26:19):
Doug Krisner.
Speaker 3 (26:20):
Tom China's main stock markets have been soaring in the
month of August especially where tech shares are concerned. The
tech heavy China X index outperformed the S and P
five hundred by a mile thanks to a rally in
Chinese artificial intelligence stocks. Key question here how much more
can we expect? Well, that's a good question for my guest,
Bloomberg opinion columnist juley Ren, who joins us from Hong
(26:43):
Kong Shuly. Thank you so much. It's always a pleasure.
I think because of your expertise in markets, we can
agree that attempting to predict the direction of any market
is extraordinarily difficult. One of the things that you point out,
though in your piece is that a parallel might be
useful here help me understand that.
Speaker 12 (27:03):
So people are looking at the twenty five versus twenty fifteen.
If we recall twenty fifteen was a crazy year for
China store market. In the first half there was a
new for it rally like with the benchmarkin that's up
fifty percent, and in the second half or that fifty percent,
King was given away and then the Chinese government had
(27:27):
to scramble to bring in the national team to support
the store market. So people think that the twenty twenty
five has very similar economic dropback as twenty fifteen, because
just like a decade ago, the economy is in the deflation.
We have almost three years of producers deflation, which does
(27:49):
not bode well for corporate profits, right, and the twenty
fifteen we were seeing the similar things. So the question
is how can the store market be doing so well
when the economy is so bad. And a lot of
people have pointed out that this is liquidity driven rally,
just like twenty fifteen, but I have to say it's
(28:09):
a little bit more than that.
Speaker 3 (28:11):
One of the things that I think is very interesting
is that the mainline Chinese markets really have a great
deal of retail participation, and in many cases these investors
have felt the pain of the Chinese housing market, have
they not? And I'm curious to know whether or not
they're particularly susceptible if there's a kind of a pullback here,
(28:32):
and they may be a bit one more time.
Speaker 12 (28:35):
Well, the Chinese government suddenly wants a slow running bull
market kind of like what you see in is in p.
Five hundred, you know, ten twenty percent rise every year,
which is quite nice, right, but that's not what's going
to happen with China. Like what you said China. China
stock market has heavy retail participation, so it can never
(28:57):
be a slow bal What you will always see is
a bit is a create mac bob basically like you
can see big rallies in individual stocks twenty thirty percent
per day.
Speaker 3 (29:07):
So what about the deep Seek moment. We talk a
lot about that. We talk a little bit about the
artificial intelligence wave that is cresting in China. But it's
kind of interesting because some of that has been powered
by advanced semiconductors, some of which have been manufactured by Nvidia.
And I'm thinking of the H twenty AI chip, which
is tailor made for the Chinese market. But recently Beijing
(29:30):
seemed to change its tone when it comes to the
H twenty, and I'm wondering whether that could be maybe
a catalyst for some difficulty in AI stocks in China.
Speaker 12 (29:40):
It absolutely is a catalyst. The interesting thing about China's
deep Seak moment is that earlier in the year we
found out deep Seek was quite good at making large
language models right. And interestingly enough, the biggest beneficiary is
not mainland China's stock market, but Hong Kong stock market,
because the Hong Kong star market has the biggest consumer
(30:02):
tech companies, for instance, Ali, Baba, Tens and by do right,
all these consumer tech companies, they were basically piggybacking on
the deepc's reasoning models and coming up with their big
generative AI models of their own. So basically, investors, so
oh okay, China's consumer tech companies are going to become
(30:22):
like US Microsoft all matter.
Speaker 6 (30:25):
Right.
Speaker 12 (30:26):
And then what you saw was that in the first
half of the year, the Hong Kong market had a
big run, whereas the mainland China market was not doing much.
But now the story has flipped a little bit in
that it seems quite clear that the Chinese government not
only wants to have big AI models but also to
power them with their own chips. Right, and then the
(30:46):
chip companies happened to be listed in Shanghai and Chinchin,
not in Hong Kong. That's why we are seeing a
big run in the mainland stocks.
Speaker 3 (30:54):
So you said a moment ago that Chinese once again
entering a liquidity driven bubble. Where is this liquidity coming from?
Is this all due to PBOC policy?
Speaker 12 (31:04):
No, this time is quite different. So since COVID, like
the Chinese people have been saving a lot. A lot
of it is well, it started with the lawdowns, right,
you have nowhere to go, so you basically save a
lot of your income. And then the housing market didn't
do well and people got even more cautious. And now
the term, a popular term in China is that don't
(31:27):
charge me iq text. People are very cautious on what
they want to spend and they want value for money,
and that means that they're saving a lot more, right,
and how much of that money is going to go
in the last couple of years. They basically put that
money into the bank deposit. But the bank deposit rates
are getting lower and lower, and if you have a catalyst,
(31:48):
all that money that's earning like one or two percent
in the bank deposits, they can come into the store market.
Speaker 3 (31:54):
So you mentioned kind of low infrast rates there. That
takes me to the notion of margin and whether or
not retail investors are using margin as a way to
try to create a bit of leverage in the equity market.
Speaker 12 (32:06):
I think a retail investors everywhere in the world likes
to They like to use margins if they can to
get a little bit to choose up the return.
Speaker 3 (32:16):
Is that happening right now on the mainline to a
great degree.
Speaker 12 (32:19):
Yes, yes, but they're not as crazy as before. It's
true that the margin trank sessions is at the highest
level since twenty fifteen, but the store market is also
fifty percent bigger. I just want to close some statistics.
The margin transaction is about ten percent of daily trading volume.
(32:39):
In twenty fifteen. At the craziest time, it was thirty percent.
So it's getting crazy, but not so crazy.
Speaker 3 (32:46):
Do you think the government's concerned about everything that we're
talking about here and the potential damage that let's say,
the bursting of a bubble may bring about.
Speaker 12 (32:55):
Oh absolutely, Because twenty fifteen presidents she had to do
a lot to calm down. That the stock crash, right like,
the government was definitely scrambling, and that they don't want
this kind of crazy met bull market again. So they
are getting concerned, and that there are market the rumors
(33:16):
that the government is cracking down our margin landing.
Speaker 3 (33:19):
So that's a very interesting point. And I'm curious about
the way that the government may work through the various
brokerages in China. Do they carry kind of a heavy
hand here and telling what brokers to do yeah, and.
Speaker 12 (33:32):
There's this thing called the window guidance. They don't officially
post a noticeing, oh, you know, you cannot have more
than say, fifty percent leverage or whatever, but they will
tell their brokers not to give out those margin loans.
So much so the brokers they get it right, like
they get that they will go into trouble. So they
will they will try to ring in margin trading. Having
(33:55):
said that lending is good business for them as well,
so they have to play a pretty delicate balancing act.
Speaker 3 (34:03):
We'll leave it there with that delicate balancing act. Truly,
thank you so very much for joining us. Bloomberg Opinion
columnist Truly ran on the line from Hong Kong, so
let's stay with the tech story.
Speaker 1 (34:13):
In Asia.
Speaker 3 (34:13):
We caught up with Carrie Craig, global market strategist at
JP Morgan Asset Management. He spoke to our TV colleagues,
Paul Allen and April Hong on the Asia trade.
Speaker 10 (34:23):
We're seeing Asia stalks. They seem to be running a
bit higher at the moment. We have the tariff backdrop
as well. India facing double the rate. South Korea came
away with the meeting in the US from a positive
tone deals bonanza. I think we're hearing about some of
these Korean companies and their expansion plans in the US
(34:44):
as well. How are you playing South Korea, particularly related
to Taiwan. Do you see outperformance there potentially?
Speaker 13 (34:53):
Yeah, I think we're still quite favorable on North Asian
markets more broadly, with it's China, Taiwan, and Korea. I mean,
they have done very well this year in terms of
their performance, so I think that's something to bear in mind,
and valuations have moved up a little bit. I think
those the tech cycle still has more to go in
the carve outs we've seen around some of the semiconductors
been put into those deals, the offshore investment that will
(35:14):
go into the US from some of these companies being
something that will support that market. And I think secularly
that AI theme is still very prominent, so we would
argue that those are going to be the beneficiaries of it,
whether it's China or Korea. I think, you know, you're
really coming down to a couple of companies that are
driving that decision, So it's really more of a bottom
up view in terms of which of those companies you
think are better positioned in this environment rather than thinking
(35:37):
about those countries. So I think it's a couple of
stocks at really driving the decision between South Korea and
Taiwan in terms of relative performance, not really necessarily just
thinking about the country there.
Speaker 14 (35:47):
Yeah, in terms of tech and China, we've seen a
pretty strong or run up there and in fact a
pretty strong rally in general when it comes to Chinese equities.
How's that looking to you? Do you feel there's a
risk of a correction here is the fundamental stuf?
Speaker 13 (36:01):
Yeah, the fundamentals do look quite good to us. Obviously,
there was the valuation argument from earlier in the year,
and Chinese equities still look relatively well priced compared to
many developed market peers. There's some appealing characteristics to the
onshore market in China given the lower correlation they have
to the US equity So building in a bit of
a diversification of portfolio. But fundamentously, again thinking about that
(36:21):
tech theme, Chinese tech is a way to play it
that's not led to the US and some of the
risks that come with that, and we do see that
as being more prevalent. It is a little bit disconnected
from what we're seeing in the economy as well, given
the softness and some of the economic data and only
the slow movement in fiscal support coming through from the
Chinese government. So I think there's still room to go
into China. I think it becomes quite an active position
(36:43):
given the outlook for the economy. And again we've seen
that bit of a split between what we're seeing in
the offshore and the onshore market, where it's really the
offshore market we are seeing a lot of these tech
themes being more prominent, whereas the onshore market seems to
be a little bit more about dividend income some of
the performance in the financials. So I think there's very
much different ways to play China depending on what you're
looking for in terms of growth versus income at the moment.
(37:05):
But it is a market that we do continue to
like in terms of where we can find value around
the world and looking for continued performance.
Speaker 14 (37:12):
Where are you seeing risk at the moment and how
are you hedging against that?
Speaker 13 (37:17):
I mean, I think there's a way of framing how
investors a feeling, and that's a little bit of sort
of uncomfortably tolerant of what's out there at the moment. Obviously,
markets have run pretty hard since we send that sell
off in April. There are concerns around some of the
softer economic data that's coming out, obviously the political risk
that's still in there, but you know, fundamentally, we do
(37:38):
see a global economy that's improving and that should support
the outlook for both equities in terms of risk and
nominal growth. But also it's not huge growth. It is
subtree and growth around the world, and so we do
think about duration in terms of a hedge against that
growth shock and a portfolio, but also barbelling that with
a little bit more of the credit space in terms
of high yield given the carry that you're getting on
(37:59):
that are rather than owning outright duration the other hedges
against that inflation, I think that for us really does
to fall to things like alternatives and real assets. We're
gaining that less sensitivity to the economy, the good outcome,
and obviously some in built inflation protection as well. So
we need to think about a broader diversification of assets
within a portfolio to really counteract all the risks that
(38:19):
are out there in the global economy.
Speaker 3 (38:21):
That's Kerry Craig. He is global market strategist at JP
Morgan Asset Management, speaking with Bloomberg TV host Paul Allen
and Avril Hong, and I'm Doug Krisner. You can catch
us weekdays for the Daybreak Asia podcast. It's available wherever
you get your podcast. Tom, thank you, Doug.
Speaker 1 (38:38):
And that does it for this edition of Bloomberg day
Break Weekend. Join us again Monday morning at five am
Wall Street Time for the latest on markets overseas and
the news you need to start your day. I'm Tom Busby.
Stay with us. Top stories and global business headlines are
coming up right now.
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,
we look ahead to the August Jobs Report, what it
could mean for FED policy moving forward. I'm Tom Busby
in New York.
Speaker 2 (00:16):
I'm Carolin het Gahe in London. Well, we're thinking about
the future of yous banking industry.
Speaker 3 (00:21):
I'm deg Krisner looking at the power of the rally
in Chinese tech shares and how much steam is left.
Speaker 4 (00:28):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleventh Yo, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine, Boston, Dad Digital Radio, London, Syria
six M one one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business App.
Speaker 1 (00:52):
Good day to you. I'm Tom Busby. We begin today's
program with the August Jobs Report, non farm payroll numbers
out this Friday eight thirty am Wall Street Time, and
with another read showing inflation stubbornly Hi, what could a
further possible slow down in the US labor market mean
for the hopes of a FED rate cut at its
next meeting. For more, we're joined by Michael McKee, Bloomberg
(01:14):
International Economics and Policy correspondent. Michael, thanks for being here.
Just this past week we got that July PCE, another
confirmation inflation not going away. Let's talk about that report,
what it means to the FED, and how important this
Friday's August jobs report is going to be.
Speaker 5 (01:31):
Oh, let's start with the PCE and say that it
is important but not definitive for the FED.
Speaker 1 (01:37):
It does show that inflation is not.
Speaker 5 (01:39):
Going down, and on a year over year basis, the
core rate actually rose to two point nine percent from
two point eight percent, which is going in the wrong
direction if your target is two percent. On the other hand,
the month over month figures did not show any deterioration.
So it really is kind of picked your story here,
and we know that those who think that we should
(02:02):
be cutting rates in September have stuck to that story
and this wouldn't deter them in any way. The rest
of the fad is open to the idea of a
rate cut. In fact, Jay Pole basically opened the door
to it at his speech in Jackson Hole, and so
they're waiting on data yet to come, and that'll be
(02:24):
the Jobs report this Friday and the CPI report that
comes on September eleventh. And the question is do we
see a significant weakening in the unemployment rate? Does it
go up? I guess whether you call that strengthening or weakening.
Speaker 1 (02:40):
Does it go up?
Speaker 5 (02:41):
And do we see a continued week hiring the kind
of hiring that we saw in the July report and
the revisions to May and June.
Speaker 1 (02:51):
Well, there may also be seasonal reasons for if we
see a big jump or a big decline in August.
Speaker 5 (02:56):
Right, Well, yes, you get into the school year beginning,
and ever since COVID we've had some trouble with adjustments
for that. Also in many states have changed their school
year beginning times. And a lot of this doesn't have
to do with teachers. It has to do with the
supplementary workers at the schools, of janitors, the cooks, everybody else.
(03:17):
So we may have that issue, but economists and the
FED will look through that and see what's been happening,
especially with private sector jobs, and see if we see
the same kind of decline. The forecast at the moment
is for seventy five thousand jobs to be created, which
is not that different from last month. But we may
(03:40):
see that changed during the week as we get more data,
because this is the first week of the month and
it's the week where we get.
Speaker 1 (03:46):
Tons of data. Yeah, and how about the unemployment rate?
Could we see that go a little higher?
Speaker 5 (03:51):
We could see that go a little bit higher. Right now,
we're waiting to see what happens with the unemployment rate
because the forecast is for to rise just a little
bit to four point three percent from four point two percent.
That is not unacceptable to the Fed. They have expected
it to rise. Their forecast is for to maybe hit
(04:12):
four and a half percent, but it's a speed at
which it moves. So if it's higher than four point
three percent, then you're going to have some concern expressed
down at twentieth and.
Speaker 1 (04:24):
Six Street in Washington. Yeah, from four to two to
four to four if it went Now, so we have
the CPI coming out, we have the jobs number coming out.
But last week we got some very encouraging news. We
got a three point three percent, although it's a preliminary
reading on GDP was growing. Also consumer spending and consumer
incomes good news there as well. Right, better good news
(04:46):
in the incomes and spending number. The GDP number is
for the second quarter and that ended at the end
of June, so now we're two months into the third quarter,
so it doesn't tell you all that much. The one
bit of good news was that we saw more business
investm don't have a lot of explanation for that because
companies have been telling the Fed and telling us that
(05:07):
they're sitting on the sidelines, but they did increase business investment,
which is probably a reflection of what's been going on
in the AI space now. The income and spending numbers
were pretty good. Income maybe a little less than meets
the eye and that it went up, but it is
it's mostly automobile spending on the good side. So the
(05:30):
auto companies have said they're going to raise prices when
they get to the new model year, so that may
be something that has pulled forward some spending. The income
numbers were better in that they rose, but if you
look under the hood, the wages and salaries component went
up six tenths of a percent after just a one
tenth rise the month before. So Americans still have money
(05:53):
coming in question of whether they want to keep spending
it or not, and so far they're spending it.
Speaker 5 (06:00):
Oh, they're spending it. But we also had another number
that came in that was interesting, and that was the
trade deficit. We saw a big rise in imports again
in July, as we did in the first quarter in
or January and February of this year, ahead of the
president's tariff announcement, and now maybe ahead of the tariffs.
That's what we also saw, so companies trying to stock
(06:20):
up on lower price goods to sell them as long
as they can before they have to raise prices. That
may be also something that factors into the Fed's decision
if they think that definitely inflation is going to rise
significantly in the months to come.
Speaker 1 (06:37):
Now, you are just back this past week from Jackson
Hold the symposium. You spoke to a lot of FED officials.
Great sound. Some of them are insisting that the extra
consumer costs from the Trump tariffs are just a one
time bump, and that you know, yes it's inflationary, Yes
it's a lot of pressure, but it's going to go away.
A lot of others don't see it that way at all.
(06:58):
How do you feel about.
Speaker 5 (06:59):
That, Well, historically tariffs have been a one time bump.
But historically they've also been applied in a different way.
Congress passes a tariff increase and sets a date, and
it goes into effect and prices go up on that date.
With Donald Trump, it's been a whole bunch of different
tariffs on different dates. Sometimes they're raised, sometimes they're lowered,
(07:21):
and the application dates vary. So there's two things.
Speaker 1 (07:25):
At work here.
Speaker 5 (07:25):
One is the idea that this is going to go
on for a while because he's talked about imposing more
tariffs on pharmaceuticals and on semiconductors and things like that.
So we could see a rolling increase in tariffs and
that would perhaps feed into inflationary psychology that would raise
people's inflation expectations, and that's what the FED doesn't want
(07:48):
to see happen. So you have Christopher Waller and Mickey
Bowman saying one time increase and we don't have to
worry about it. Other FED officials saying yes, but it
could feed into this other dynamic that we would.
Speaker 1 (07:59):
Have to worry about. Well, well, a lot of inflationary pressures.
We get the CPI in a couple of weeks. The
August Jobs report out this Friday, ahead of wall Street's
opening bell our thanks to Michael McKee, Bloomberg International Economics
and Policy correspondent. We move now to earnings from the
cloud based software company and Dow Jones Industrial average component Salesforce,
coming out after Wall Street's closing bell on Wednesday. How
(08:23):
has the explosive boom and AI at other software companies
impacted Salesforce's growth? For more, we're joined by aniog Rana,
Bloomberg Intelligence technology analyst. Now, honurrog thank you so much
for being here. Salesforce investors have not had a lot
to cheer about. Shares are down about twenty five percent
so far this year as other software companies have invested
(08:44):
a lot more in AI. What are you looking to
see in its second quarter results?
Speaker 6 (08:50):
So, Tom, when you look at a company like Salesforce,
you know it is very different than Nvidia or codeb
for Oracle, frankly, because it's the application side of software,
and in this area we are still not seeing at
the level of implementation of AI. Because even though for example,
Salesforce has some really good products that can help out
(09:13):
with their AI journey, the macro spending on technology is
still weak, which is companies are not spending at that
same level as they were on non AI tech spending,
which is having an impact on the order book of salesforce,
and that has been the story for the last let's say,
twelve to eighteen months, and we think a little bit
(09:35):
of that will come back again when they report next week.
Speaker 1 (09:39):
So what do you think they will say then about
growth and demand trends? If you know, maybe they're a
little behind in the AI spending and the AI products.
They do have Agent Force and Data Cloud, but what
do you think they're going to tell the vests.
Speaker 6 (09:53):
No, you're right, I mean they will talk about those
two products quite aggressively in how the adoption rate is
very strong, and believe that that both data Cloud and
Agent for Us will do well. But again as a
percentage of the entire company, it's a very small portion
of total sales. On the other side of the equation,
we do anticipate them talking about, you know, tougher business
(10:14):
conditions and elongation of cycles in order to complete orders.
And I think that's where you know, we would be
those comments would be looking for. There is a particular
metric called remaining performance obligations or current remaining performance obligation,
and that's an area where it gives us an idea
about the the growth rate of the orders. They have
(10:36):
guided down that number to be go down from eleven
percent to nine percent in this quarter. Based on the
results we saw from Workstay, we think they should be
able to do better than that. But again, till we
get this hangover of tariffs and you know, economic uncertainty
out of the way, we don't see that number accelerating
(10:59):
and perhaps that can only happen next year. At this point, now, do.
Speaker 1 (11:02):
You see that as more of a broader pullback and
spending on it or is it your companies are just
spending on other products from other companies.
Speaker 6 (11:12):
No, no, no, this is absolutely broader. This is not
just salesforce specific. We say the same thing for Workday.
We are seeing the same aspect for consulting companies, whether
it's IBM consulting or Accenture for that matter. So this
is a broad based phenomenon where companies are being measured
in the way they are spending on technology, and for
(11:32):
right now, they are spending more on AI related products
or AI related infrastructure, which is you know, AI servers
and chips and models and trying to set things up.
Those are that's where a lot of the spending is
going at this point.
Speaker 1 (11:47):
And what we saw just this past week in Nvidia's
latest earnings, I mean, what does that tell you about
AI spending, ANI infrastructure spending. Is there a possibility of
a slowdown in demand in the future or is this
maybe just a blip.
Speaker 6 (12:04):
Well, things are looking good for almost the entire ecosystem,
and with n Video obviously there's there's a case of
you know, elevated expectations and what they did. I mean,
I think the results are pretty good, but when you
look at it, you know, Oracle will report over the
next couple of weeks. We think they're going to you know,
go and talk about a similar you know, increase in
(12:24):
order book for them from companies like open Ai trying
to get more of their cloud infrastructure to train their models.
So we do anticipate a good season for companies that
are more on the software infrastructure side. I think it's
going to be tougher to see what happens on the
application side.
Speaker 1 (12:42):
Well, a lot of growth, a lot of changes. Sell
Force Q two earnings after the closing bill is coming Wednesday,
are thanks to Anna rog Rana Bloomberg Intelligence Technology analyst
and coming up on Bloomberg day Break weekend, we hear
about the future of Europe's banking industry. This is Bloomberg
(13:08):
day Break weekend, our global look ahead at the top
stories for investors in the coming week. I'm Tom Busby
in New York. Coming up on Bloomberg day Break weekend.
China steps up its technology rivalry against the US, but
first in the coming days, the banking industry gathers in
Germany for a couple of major banking conferences. European banks
have seen their share prices on a tear in recent months,
(13:29):
but there are tests ahead from US tariff's, political instability
and the extent of interest rate cuts. How will insiders
navigate the landscape for more, Let's go to London and
bring in Bloomberg Daybreak europe banker Caroline hepgar.
Speaker 2 (13:43):
Tom European banks on the SOCK six hundred Banks index
have surged since twenty twenty two to a seventeen year
high versus the lows of late twenty twenty two, but
there are risks gathering for the second half of this year.
Deutsche Bank and Comments Bank, top performers on the index,
have recently been downgraded by Goldman Sachs analysts. The outlook
for the industry is something Deutsche Bank's CEO Christian Saving
(14:05):
discussed recently on Bloomberg Television. He says there is still
a big opportunity for his firm and for others well.
Speaker 7 (14:12):
I do think what we see in this world is
with all the geopolitical uncertainties, with all the also economic uncertainties,
there is one trend which is the same across the
world that our clients want to have a European alternative
to the US banks. We have very strong US banks,
very capable of US banks, but in this world of
geopolitical uncertainties, they want to have a capable global European player,
(14:37):
and there are not so many European banks left with
a full investment bank, with a full corporate bank, with
a global network in over sixty countries. That's the role
we can play now. This role we not only want
to play because we feel ourselves as a global bank,
but it's obviously much easier to do that if you
are coming from a country which is economically increasing, which
(14:59):
is economically on the right pass and which is also
pulling now Europe, and therefore I think we have a
unique chance, not only as Germany and Europe, but also
as Deutsche Bank to actually be the one who is
facilitating and who is contributing to our clients growth around
the world. The diversification also in banking not only to
(15:20):
rely on one bank, but on many banks, and that
from a regional perspective has never been bigger than around
And you.
Speaker 8 (15:26):
Touch about diversifying, and just another question to you, is
this by Europe trend? Is this a lasting thing? Is
this something that you're seeing from investors that you talk
to that they're wanting to make a meaningful commitment to
Europe And what does that actually look like in terms
of numbers from where you're setting.
Speaker 7 (15:41):
Well, for the first time, we see obviously since the
last three or four months, a quite significant reallocation from
funds in particular into Europe. The interest is huge. Whenever
we talk with investors, they really want to understand what's
going on in Germany, what's going on in Europe. By
the way, already in doubles this year, six months ago,
(16:02):
most of the investors said micro Germany is really good,
and with that they mean the German corporates, the German companies, Macro,
You need to do in improvements and that's exactly what
we want to try now. Of course the government stepped
up with the fiscal program, but also with the reforms.
If we now actually do something sort of say together,
(16:22):
if we march in parallel, we have a huge chance.
And then I do believe with further reforms to come
and that is necessary. I do believe that this trend
of reallocating funds to Europe will not stop if we
are not doing further reforms and just rely on fiscal debt.
That doesn't help. We need the fiscal reforms.
Speaker 2 (16:43):
That was Deutsche Bank CEO Christian Savings speaking.
Speaker 4 (16:46):
Then.
Speaker 2 (16:46):
So in the coming days, academics, professionals and leaders from
the world of banking and fintech will convene in Germany
to discuss topics ranging from preparing for geopolitical uncertainty to
optimizing productivity through AI. But just how uncertain is the
path ahead? Jointly mean now to discuss this Bluebags EU
Finance report A Nicholas Comfort and Stephen Aaron's, our team
(17:08):
leader for EU Finance. Welcome to both of you. Nick,
can I start with you? Feels like back to school,
back to confidence season, doesn't it. What do you think
is going to be on the minds of these bankers
and academics and the industry as we get into confidence season.
Speaker 9 (17:22):
In short, I'd say D and D. Do you regulation
and deals as the two big things that the bankers
will be focusing on. Do you regulation something that affects
all all of the banks? Regulars later call it simplification
rather than deregulation. But what the bankers are really after
is sort of is either a wholesale shredding of certain
rules or a tweaking of them in order to free
(17:43):
up some capital here and there, which they argue they
can put to better use, for example, to a lending
for whether it's renewal, energy or defense or technology, whichever
your pickers. And on the deals front too, yeah, I
mean it's not it affects more individual banks, but everyone's
interested in what's happening around around BNP, PAR and UniCredit especially.
(18:04):
That's what's on people's minds.
Speaker 10 (18:05):
At the moment.
Speaker 2 (18:07):
Stephen. Why has Europe's financial services sector done so well
over the past four years? I mean, you look at
those leading bank stocks are absolutely stellar performance.
Speaker 11 (18:19):
Absolutely, I mean the performance of banking stocks for the
past four years especially since the beginning of this year
has been absolutely stunning, and the reason for that's been
the extremely dismal performance of banking stocks the previous years.
As you may remember, there was an era of negative
interest rates in Europe for a long time set by
the European Central Bank, and that caused a decline of
(18:42):
profitability in many European banks. That was reversed in twenty
twenty two, and since then European banking stocks have been
on a tear, boosted since the beginning of the year
by especially in Germany for Dutch Bank, Commerce Bank, by
the prospect of stepped up spending public spending on defense
and infrastructure. So that's kicking a nail and that is
(19:02):
probably the bad explanation for this extremely good performance.
Speaker 2 (19:08):
Yeah, okay, so Nicholas, what then are the biggest risks
going forwards? Because things don't look quite so bright maybe
for the second half of this year. Is it the
risks of rates not coming down much further? Is it
about fed independence or the hit to economic growth in Europe?
Maybe that's going to come from US tariffs.
Speaker 1 (19:30):
I'd say definitely tariffs.
Speaker 9 (19:32):
That's the main thing. If you're if you're a chief
risk officer in European bank at the moment, that's the
number one thing you've got on your mind in terms
of what does it mean for my corporate lending portfolio
the companies I lend to. Are they going to be
in trouble? Are they going to are they just going
to to Are they going to see losses on these
loans because they because they see large younger, their revenue dissipated.
Speaker 1 (19:57):
But also, I mean you can see the positive there
as well.
Speaker 9 (19:59):
I mean, if these companies are going to be investing
in the United States, for example, to build new factories,
then that's where the chief risk officer's colleagues over in
commercial banking will be jumping in and trying to give
them more loans. But yes, tariffs is the number one
thing which they probably have on their mind.
Speaker 2 (20:17):
Stephen, we heard from Christian Saving earlier. They're saying that
Europe's banks will fare well because investors could potentially flee
US turbulence. Is that true given recent political developments in
Europe and especially in France.
Speaker 11 (20:33):
It seems to have been true at least so we
did see a strong flow of institutional investment out of
the UF into Europe during the first half of the year,
especially after the US administration unbuilt the tariff's plan in April.
That is now probably something that people will look at.
(20:54):
You're right, there is political instability, especially in France, and
there's also political instability in the Netherlands, a small economy
but still an important one, and so Europe isn't sort
of in the clear. It's too early to say, but yes,
I would imagine that people will look at this. Again,
so far, we don't have any indications that that flow
from USA Europe has reversed. It's still going on.
Speaker 2 (21:16):
Apparently, Nicholas look that the nice glowing hands that people
have required maybe of the summer holidays might be starting
to fade in September, but the French Prime minister reportedly
didn't take a holiday. How prominently do you expect the
issue of political instability in Europe to be on the
agenda as you see it?
Speaker 9 (21:39):
Yeah, I mean I saw an interesting analyst note the
other day saying sort of that this is I mean,
it's kind of the normal. We've we've gotten used to
it at this stage. I mean, the so in terms
of immediate impact on banks from there, let's say, their
holdings of French sovereign bonds. I don't think that's something
which is going to be eroding capital levels too much,
for example, But yeah, I mean maybe more in the
(22:02):
in the longer term, if you're if you're a bank
catering to to companies in France, then these companies are worried,
and these companies aren't necessarily going to be making investment
decisions and that they're not gonna be borrowing, they're not
going to be doing M and A transactions, and so
that's really maybe a threat also to the to the
revenue that the banks exposed to France stand to make.
(22:24):
But I mean in terms of real, big, sort of
hard hitting financial impacts on on on capital, on their
financial strength, I'd be be less concerned.
Speaker 2 (22:34):
So Nick, in terms of M and A, are we
going to see more meaningful consolidation seems to always be
a kind of waiting game in Europe to see big
consolidation cross border.
Speaker 9 (22:45):
Yes, definitely, So, I mean deals in Europe take a
long time, and they have been I mean cross border
deals certainly have been few and far between. I think
the the experiences of the of UNI credit shows that
you have to be persistent and you have to also
have maybe multiple options ahead of you if you want
to be doing deals with UniCredit and comments Bank, for example.
(23:08):
That seems to be a waiting game over for Andre Rhl,
the CEO.
Speaker 4 (23:13):
It could be.
Speaker 9 (23:14):
That we see something happen on that in the months.
Speaker 4 (23:17):
Or year ahead.
Speaker 9 (23:19):
But it's a lot of the stuff which would really
support those cross border transactions that you that you mentioned.
A lot of the architecture is missing. But then maybe
banker has been complained there for a long time, so
they need to jump over their shadows you'd say in German,
and just and crack on with it if they really
want to pursue that growth.
Speaker 2 (23:39):
Oh, I don't know what the translation of that phrase
is into an English idiom. Interesting Steven. In terms of
the impact though, of the political pressure in the US
that we're seeing on the Federal Reserve, on the Central Bank,
I mean, is there going to be any banker that's
not thinking about that or is it more about the
Trump administration's deregulation drive in the US. Is that what
(24:02):
the European banking sector will be thinking about.
Speaker 11 (24:05):
I think it's a mix of both. The FED is
certainly the current development that will dominate talks for as
long as it's going on. Whatever the FED, whatever happens
at the FED, and how that impacts the interest rates
set by the FED in the US has global ramifications,
especially on banks and especially on Europe, and so everyone
will be watching very very carefully without really having any
(24:29):
precedent to judge what could lead to and so it
will dominate conversations. But everyone will just agree in Europe
that there's little they can do and they're just bystanders
on deregulation. It's something that's been going on. We haven't
really seen very tangible results in the US yet, but
there is sort of a move to soften a package
known as Basil, which is really important for banks globally.
(24:50):
The EU banks have been taken a queue from that
and have been putting pressure on regulators here in Europe
to take a similar approach because they save the US
that's for deregulation that's not replicated in the EU that
would put them at a competitive disadvantage. So they're actually
happy about the deregulation drap in the US because it
gives them a reason to say we want the same
(25:13):
in the in Europe.
Speaker 2 (25:15):
So lots for Europe's bankers to be discussing in the
next few days. Well, my thanks to Bloomberg's EU Finance
reporter Nicholas Comfort, and to Stephen Aroons, who leads our
team covering EU finance based in Frankfurt, for joining me.
I'm Caroline hepkeare here in London. You can catch us
every weekday morning for Bloomberg Daybreak here at the beginning
at six am in London. That's one am on Wall Street.
Speaker 1 (25:36):
Tom, Thanks Caroline and coming up on Bloomberg day Break Weekend.
China steps up its technology rivalry against the US. I'm
Tom Busby, and this is Bloomberg. This is Bloomberg day
(25:57):
Break Weekend, our global look ahead at the top store
for investors in the coming week. I'm Tom Busby in
New York. A new China buys China narrative taking shape
as Beijing steps up its tech rivalry with the US.
Chinese tech in disease have seen a boom that runs
contrary to concerns about the world's second largest economy. For more,
Let's get to the host of the Daybreak Asia podcast,
(26:19):
Doug Krisner.
Speaker 3 (26:20):
Tom China's main stock markets have been soaring in the
month of August especially where tech shares are concerned. The
tech heavy China X index outperformed the S and P
five hundred by a mile thanks to a rally in
Chinese artificial intelligence stocks. Key question here how much more
can we expect? Well, that's a good question for my guest,
Bloomberg opinion columnist juley Ren, who joins us from Hong
(26:43):
Kong Shuly. Thank you so much. It's always a pleasure.
I think because of your expertise in markets, we can
agree that attempting to predict the direction of any market
is extraordinarily difficult. One of the things that you point out,
though in your piece is that a parallel might be
useful here help me understand that.
Speaker 12 (27:03):
So people are looking at the twenty five versus twenty fifteen.
If we recall twenty fifteen was a crazy year for
China store market. In the first half there was a
new for it rally like with the benchmarkin that's up
fifty percent, and in the second half or that fifty percent,
King was given away and then the Chinese government had
(27:27):
to scramble to bring in the national team to support
the store market. So people think that the twenty twenty
five has very similar economic dropback as twenty fifteen, because
just like a decade ago, the economy is in the deflation.
We have almost three years of producers deflation, which does
(27:49):
not bode well for corporate profits, right, and the twenty
fifteen we were seeing the similar things. So the question
is how can the store market be doing so well
when the economy is so bad. And a lot of
people have pointed out that this is liquidity driven rally,
just like twenty fifteen, but I have to say it's
(28:09):
a little bit more than that.
Speaker 3 (28:11):
One of the things that I think is very interesting
is that the mainline Chinese markets really have a great
deal of retail participation, and in many cases these investors
have felt the pain of the Chinese housing market, have
they not? And I'm curious to know whether or not
they're particularly susceptible if there's a kind of a pullback here,
(28:32):
and they may be a bit one more time.
Speaker 12 (28:35):
Well, the Chinese government suddenly wants a slow running bull
market kind of like what you see in is in p.
Five hundred, you know, ten twenty percent rise every year,
which is quite nice, right, but that's not what's going
to happen with China. Like what you said China. China
stock market has heavy retail participation, so it can never
(28:57):
be a slow bal What you will always see is
a bit is a create mac bob basically like you
can see big rallies in individual stocks twenty thirty percent
per day.
Speaker 3 (29:07):
So what about the deep Seek moment. We talk a
lot about that. We talk a little bit about the
artificial intelligence wave that is cresting in China. But it's
kind of interesting because some of that has been powered
by advanced semiconductors, some of which have been manufactured by Nvidia.
And I'm thinking of the H twenty AI chip, which
is tailor made for the Chinese market. But recently Beijing
(29:30):
seemed to change its tone when it comes to the
H twenty, and I'm wondering whether that could be maybe
a catalyst for some difficulty in AI stocks in China.
Speaker 12 (29:40):
It absolutely is a catalyst. The interesting thing about China's
deep Seak moment is that earlier in the year we
found out deep Seek was quite good at making large
language models right. And interestingly enough, the biggest beneficiary is
not mainland China's stock market, but Hong Kong stock market,
because the Hong Kong star market has the biggest consumer
(30:02):
tech companies, for instance, Ali, Baba, Tens and by do right,
all these consumer tech companies, they were basically piggybacking on
the deepc's reasoning models and coming up with their big
generative AI models of their own. So basically, investors, so
oh okay, China's consumer tech companies are going to become
(30:22):
like US Microsoft all matter.
Speaker 6 (30:25):
Right.
Speaker 12 (30:26):
And then what you saw was that in the first
half of the year, the Hong Kong market had a
big run, whereas the mainland China market was not doing much.
But now the story has flipped a little bit in
that it seems quite clear that the Chinese government not
only wants to have big AI models but also to
power them with their own chips. Right, and then the
(30:46):
chip companies happened to be listed in Shanghai and Chinchin,
not in Hong Kong. That's why we are seeing a
big run in the mainland stocks.
Speaker 3 (30:54):
So you said a moment ago that Chinese once again
entering a liquidity driven bubble. Where is this liquidity coming from?
Is this all due to PBOC policy?
Speaker 12 (31:04):
No, this time is quite different. So since COVID, like
the Chinese people have been saving a lot. A lot
of it is well, it started with the lawdowns, right,
you have nowhere to go, so you basically save a
lot of your income. And then the housing market didn't
do well and people got even more cautious. And now
the term, a popular term in China is that don't
(31:27):
charge me iq text. People are very cautious on what
they want to spend and they want value for money,
and that means that they're saving a lot more, right,
and how much of that money is going to go
in the last couple of years. They basically put that
money into the bank deposit. But the bank deposit rates
are getting lower and lower, and if you have a catalyst,
(31:48):
all that money that's earning like one or two percent
in the bank deposits, they can come into the store market.
Speaker 3 (31:54):
So you mentioned kind of low infrast rates there. That
takes me to the notion of margin and whether or
not retail investors are using margin as a way to
try to create a bit of leverage in the equity market.
Speaker 12 (32:06):
I think a retail investors everywhere in the world likes
to They like to use margins if they can to
get a little bit to choose up the return.
Speaker 3 (32:16):
Is that happening right now on the mainline to a
great degree.
Speaker 12 (32:19):
Yes, yes, but they're not as crazy as before. It's
true that the margin trank sessions is at the highest
level since twenty fifteen, but the store market is also
fifty percent bigger. I just want to close some statistics.
The margin transaction is about ten percent of daily trading volume.
(32:39):
In twenty fifteen. At the craziest time, it was thirty percent.
So it's getting crazy, but not so crazy.
Speaker 3 (32:46):
Do you think the government's concerned about everything that we're
talking about here and the potential damage that let's say,
the bursting of a bubble may bring about.
Speaker 12 (32:55):
Oh absolutely, Because twenty fifteen presidents she had to do
a lot to calm down. That the stock crash, right like,
the government was definitely scrambling, and that they don't want
this kind of crazy met bull market again. So they
are getting concerned, and that there are market the rumors
(33:16):
that the government is cracking down our margin landing.
Speaker 3 (33:19):
So that's a very interesting point. And I'm curious about
the way that the government may work through the various
brokerages in China. Do they carry kind of a heavy
hand here and telling what brokers to do yeah, and.
Speaker 12 (33:32):
There's this thing called the window guidance. They don't officially
post a noticeing, oh, you know, you cannot have more
than say, fifty percent leverage or whatever, but they will
tell their brokers not to give out those margin loans.
So much so the brokers they get it right, like
they get that they will go into trouble. So they
will they will try to ring in margin trading. Having
(33:55):
said that lending is good business for them as well,
so they have to play a pretty delicate balancing act.
Speaker 3 (34:03):
We'll leave it there with that delicate balancing act. Truly,
thank you so very much for joining us. Bloomberg Opinion
columnist Truly ran on the line from Hong Kong, so
let's stay with the tech story.
Speaker 1 (34:13):
In Asia.
Speaker 3 (34:13):
We caught up with Carrie Craig, global market strategist at
JP Morgan Asset Management. He spoke to our TV colleagues,
Paul Allen and April Hong on the Asia trade.
Speaker 10 (34:23):
We're seeing Asia stalks. They seem to be running a
bit higher at the moment. We have the tariff backdrop
as well. India facing double the rate. South Korea came
away with the meeting in the US from a positive
tone deals bonanza. I think we're hearing about some of
these Korean companies and their expansion plans in the US
(34:44):
as well. How are you playing South Korea, particularly related
to Taiwan. Do you see outperformance there potentially?
Speaker 13 (34:53):
Yeah, I think we're still quite favorable on North Asian
markets more broadly, with it's China, Taiwan, and Korea. I mean,
they have done very well this year in terms of
their performance, so I think that's something to bear in mind,
and valuations have moved up a little bit. I think
those the tech cycle still has more to go in
the carve outs we've seen around some of the semiconductors
been put into those deals, the offshore investment that will
(35:14):
go into the US from some of these companies being
something that will support that market. And I think secularly
that AI theme is still very prominent, so we would
argue that those are going to be the beneficiaries of it,
whether it's China or Korea. I think, you know, you're
really coming down to a couple of companies that are
driving that decision, So it's really more of a bottom
up view in terms of which of those companies you
think are better positioned in this environment rather than thinking
(35:37):
about those countries. So I think it's a couple of
stocks at really driving the decision between South Korea and
Taiwan in terms of relative performance, not really necessarily just
thinking about the country there.
Speaker 14 (35:47):
Yeah, in terms of tech and China, we've seen a
pretty strong or run up there and in fact a
pretty strong rally in general when it comes to Chinese equities.
How's that looking to you? Do you feel there's a
risk of a correction here is the fundamental stuf?
Speaker 13 (36:01):
Yeah, the fundamentals do look quite good to us. Obviously,
there was the valuation argument from earlier in the year,
and Chinese equities still look relatively well priced compared to
many developed market peers. There's some appealing characteristics to the
onshore market in China given the lower correlation they have
to the US equity So building in a bit of
a diversification of portfolio. But fundamentously, again thinking about that
(36:21):
tech theme, Chinese tech is a way to play it
that's not led to the US and some of the
risks that come with that, and we do see that
as being more prevalent. It is a little bit disconnected
from what we're seeing in the economy as well, given
the softness and some of the economic data and only
the slow movement in fiscal support coming through from the
Chinese government. So I think there's still room to go
into China. I think it becomes quite an active position
(36:43):
given the outlook for the economy. And again we've seen
that bit of a split between what we're seeing in
the offshore and the onshore market, where it's really the
offshore market we are seeing a lot of these tech
themes being more prominent, whereas the onshore market seems to
be a little bit more about dividend income some of
the performance in the financials. So I think there's very
much different ways to play China depending on what you're
looking for in terms of growth versus income at the moment.
(37:05):
But it is a market that we do continue to
like in terms of where we can find value around
the world and looking for continued performance.
Speaker 14 (37:12):
Where are you seeing risk at the moment and how
are you hedging against that?
Speaker 13 (37:17):
I mean, I think there's a way of framing how
investors a feeling, and that's a little bit of sort
of uncomfortably tolerant of what's out there at the moment. Obviously,
markets have run pretty hard since we send that sell
off in April. There are concerns around some of the
softer economic data that's coming out, obviously the political risk
that's still in there, but you know, fundamentally, we do
(37:38):
see a global economy that's improving and that should support
the outlook for both equities in terms of risk and
nominal growth. But also it's not huge growth. It is
subtree and growth around the world, and so we do
think about duration in terms of a hedge against that
growth shock and a portfolio, but also barbelling that with
a little bit more of the credit space in terms
of high yield given the carry that you're getting on
(37:59):
that are rather than owning outright duration the other hedges
against that inflation, I think that for us really does
to fall to things like alternatives and real assets. We're
gaining that less sensitivity to the economy, the good outcome,
and obviously some in built inflation protection as well. So
we need to think about a broader diversification of assets
within a portfolio to really counteract all the risks that
(38:19):
are out there in the global economy.
Speaker 3 (38:21):
That's Kerry Craig. He is global market strategist at JP
Morgan Asset Management, speaking with Bloomberg TV host Paul Allen
and Avril Hong, and I'm Doug Krisner. You can catch
us weekdays for the Daybreak Asia podcast. It's available wherever
you get your podcast. Tom, thank you, Doug.
Speaker 1 (38:38):
And that does it for this edition of Bloomberg day
Break Weekend. Join us again Monday morning at five am
Wall Street Time for the latest on markets overseas and
the news you need to start your day. I'm Tom Busby.
Stay with us. Top stories and global business headlines are
coming up right now.
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