Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
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 at key inflation data in the
US and earnings from media and entertainment giant Walt Disney.
I'm Tom Busby in New York.
Speaker 1 (00:25):
I'm callin hetger Hair in London, where we're thinking about
the Chancellor's Mansion House speech as she tries to moove
a city.
Speaker 3 (00:32):
I'm Doug Krisner looking at bay Chain's reaction to the
reelection of Donald Trump. Will also take a look at
what to expect in the week ahead from ten Cent
as it reports earnings.
Speaker 4 (00:43):
That's all e struly head on Bloomberg Daybreak Weekend on
Bloomberg eleven Trio, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine Boston, DAB Digital Radio, London, Sirius
XM one twenty one, and around the world Bloomberg Radio
dot Com and the Bloomberg Business app.
Speaker 5 (01:08):
Good day to you.
Speaker 2 (01:08):
I'm Tom Busby, and we begin today's program with some
key inflation data in the US. The Consumer Price Index
the CPI out on Wednesday eight thirty am Wall Street Time,
with the Federal Reserve lowering its benchmark lending rate two
meetings in a row, what could this mean for Fed
policy moving forward? For more, we're joined by Michael McKee,
Bloomberg International Economics and Policy correspondent. Michael Well, let's start
(01:32):
with where inflation is right now. It's come a long way.
Speaker 6 (01:35):
It's come a long way, but it seems to have
stalled out a little bit progress. We have not seen
major movements in the indexes in recent months. Now, the CPI,
which comes up this week is expected to show basically
no change on a month over month basis, but that
would mean, because of what we call base effects, that
(01:57):
the year over year headline CPI actually goes up up.
The forecast is for two point six percent from two
point four percent in September, and the core will stay
unchanged at three point three percent, which is not going
to make for a great headline for people. But and
Jay Powell talked about.
Speaker 5 (02:16):
That that we have.
Speaker 6 (02:19):
Not seen a lot of progress, but he said it
wasn't a bad situation because it's still pretty low.
Speaker 2 (02:25):
So the latest personal consumption expenditure though look like a
two point one percent year over year.
Speaker 6 (02:30):
Yeah, And the problem for the FED is people tend
to focus on the CPI.
Speaker 5 (02:36):
The average American focuses on the CPI.
Speaker 6 (02:38):
It's the one that gets the headlines on the front
page of the paper when it comes out. The PCE
numbers are something that economics nerds and FED and Wall
Street people follow it. It's constructed differently, and the FED
feels that it is a more accurate measure of what's
actually happening happening with inflation, particularly since doesn't put as
(03:00):
much weight on home.
Speaker 5 (03:01):
Prices as the CPI.
Speaker 6 (03:03):
But the CPI is what they have to deal with psychologically.
Speaker 2 (03:08):
So what are the big drivers then for this? I mean,
we've all felt a low gas prices, that's great. You
brought up housing prices which go nowhere, but up it seems.
I mean, what are the drivers for the inflation that
we're seeing now? The two point one percent in the PCE,
maybe a three point three percent in the CPI.
Speaker 6 (03:24):
Well, we still have housing as a problem. It's not
coming down as fast as the FED thought. Chairman Powell
last week pointed out that when you look at new
costs for rents, which is what the housing costs numbers
are based on. They have gone down or they have
stopped rising, and that should be reflected in the numbers,
and it's not yet. There are other things that are
(03:47):
sort of quirky and change with the timing of the year.
One of them is airfares, another is hotel prices. And
you know we've talked about used and new cars quite
a bit. Those all go into the question about what
is going to happen with inflation, and they're all sort
(04:10):
of separate, different reasons why they're going up. For example,
we are expecting maybe used car prices to rise in
October because a lot of people who were in the
hurricane damaged areas, they still had to get to work
and their cars were destroyed, the.
Speaker 5 (04:27):
New cars, and the first thing they do is they.
Speaker 6 (04:28):
Go get the cheapest car they can get, and so
we should expect to see some rise in used car
prices and the next month maybe the new car prices
go up.
Speaker 2 (04:39):
And another thing we've seen in some of these job
numbers higher wages is that impacting inflation as well. The
more people have, the more they can raise the price tags,
the more.
Speaker 6 (04:51):
It's an interesting question. So far that doesn't seem to
have been happening. It may have been in the last
couple of years, given that we saw a big wage
increases as there was a shortage of workers, and whether
that fed into inflation expectations doesn't really look like it did.
But we had just last week got a revision to
(05:15):
unit labor costs that showed a big rise in compensation
for employees, much bigger over the last couple of years
than had been recorded. The fact that it was a
revised number doesn't mean all of a sudden we're going
to see inflation expectations rise, but it does suggest that
people have more money, and so as long as demand
is high, then it becomes.
Speaker 5 (05:36):
A question of supply keeping up or prices will rise.
Speaker 2 (05:39):
Yeah. Yeah, Let's go back to what the Fed did
this past week, and you know, this quarter point twenty
five basis point cut. And more importantly, I want to
talk about Chairman Powell and what he said in his
press conference talking about the new administration coming in, talking
about all the factors and data points that led to
(06:00):
his decision this past week.
Speaker 6 (06:02):
Basically because the economy continues to be relatively strong, but
slow down in inflation and missed the confusing jobs reports
from September and October, where September was really really strong
in October was really really weak, which they figure probably
(06:22):
as hurricane related, but at this point they don't know,
so they just went ahead with kind of the plan.
They had to reduce rates by twenty five basis points
because they said, no matter what you think of all
these possible explanations for stuff, that inflation was under control
and that interest rates are still restrictive.
Speaker 5 (06:44):
That's their story.
Speaker 2 (06:46):
And they're sticking to it. A lot to look forward
to our thanks to Michael McKee, Bloomberg International Economics and
Policy correspondent. We moved next to corporate earnings from the
world's biggest entertainment company, Walt Disney, reporting fourth order results
on Thursday, on the heels of finally turning a profit
and its streaming video unit in the previous quarter, and
after announcing another timeline to replace its CEO. For more
(07:10):
on what to look for, we're joined by Getha raghanoffin
Bloomberg Intelligence analyst on US media. Well that is a
Biggie Disney appointing a new chairman last month. James P.
Gorman of Wall Street banking giant Morgan Stanley, and announced
another time frame to replace Bob Eiger in early twenty
twenty six. What does this mean for Disney, Gita.
Speaker 7 (07:33):
Thank you so much, Tom So. Obviously, succession has been
one of the biggest issues for Disney in recent times,
and you know, the lack of a proper strategy has
really kind of troubled investors and kind of industry watchers alike.
So it's really good that they're coming up with this plan.
They're obviously taking succession extremely seriously. They have a person
(07:54):
there who's kind of overseen, you know, his own succession
at at Morgan Stanley really really smoothly, so he's obviously
very familiar with the process. That said, Tom, the appointment
of a new CEO has actually been pushed a little bit.
So we were expecting an announcement sometime next year, in
twenty twenty five. It looks like that's going to be
(08:14):
pushed at least you know, six months, or maybe even
more to sometime in twenty twenty six. And it obviously
tells us how critical of an issue this is and
also how complicated it is. And that's just because of
the nature of Disney's business. I mean, they have so many,
very many disparate businesses. Whether it's theme parks or studios,
or the television networks or ESPN, they all require kind
(08:36):
of different expertise and a different skill set, and so
it's going to be hard to kind of it's obviously
very big shoes to fill.
Speaker 5 (08:42):
Well.
Speaker 2 (08:43):
Also, the last one did not work out so well
with Bob Chappick.
Speaker 7 (08:46):
Yes, and again this is where, you know, we come
back to this age old question. I mean, do you
have somebody who is really good in terms of relationships
with you know, the creatives, with Hollywood executives, or do
you have a more hands on person who has tremendous
experience with the parks. And so even as they kind
of go about trying to determine who their new CEO
(09:08):
will be, I think that kind of really will give
us a glimpse into what their future strategy is going
to be. Is it going to be more a theme
park kind of focused company. We do have to remember
that this is the bread and butter of the company,
brings in almost sixty five percent of profits, so definitely
very very critical to both the top and the bottom line.
But at the same time, you know, Hollywood relationship with
(09:30):
you know, Hollywood talent with creatives is also important because
it's the movies and it's it's the studio content that
ultimately is the flywheel and is so important for kind
of feeding all of the other businesses, including the theme
park business.
Speaker 2 (09:43):
Oh yeah, and they have actually some of those other businesses,
not the theme parks, which is almost an autopilot. They've
had some of the biggest blockbusters of this year, and
the movie theaters, the streaming unit, as I said earlier,
finally turning a profit, the Disney plus Hulu, ESPN plus.
I mean, it looks like all of the investing they've
done in the directing consumer the streaming operations has really
(10:05):
paid off.
Speaker 7 (10:06):
Yeah, it absolutely has. And you spoke about the studio,
which is really important because they had definitely a whole
string of missus, you know, at the studio division, but
that obviously changed this year with the outperformance both of
Inside Out Too as well as you know, Deadpool and Wolverine,
which are some of the biggest releases for this year. Definitely,
(10:29):
and as we look forward as well, you know, it
looks like they're finally kind of turned the corner. On
you know, the content pipeline, and so as we look
forward to both twenty twenty five and twenty twenty six,
that's late is definitely strengthening. So there's definitely a lot
of positive momentum on in the studio side of things.
But then as we kind of think about streaming, yes,
(10:50):
that's where all of the profitability delta is kind of
really going to come over the next few years.
Speaker 2 (10:56):
And also just to mention Moanatu and Move Fast of
the King both out in the next couple of weeks really,
so that could also add to.
Speaker 7 (11:04):
Things absolutely absolutely that just goes to speak to you know,
their content slate strengthening tremendously. This is the whole studio
turnaround that we're seeing in progress. Ultimately, remember Tom, all
of those movies are going to come to the Disney
Plus streaming platform, so again it's going to have you know,
that nice tailwind effects in terms of boosting subscriber numbers.
Speaker 2 (11:26):
Now, I want to bring up something at the parks,
as you said, sixty five percent of its profits. It
seems to always be a winner for them, but they
did something a little controversial in the last couple of months.
That is the Lightning Lane premiere pass a nearly five
hundred dollars extra fee to skip lines. Was this a miscalculation?
Was it wrong to do this? And how is it
(11:48):
fared for the company.
Speaker 7 (11:49):
I don't think it was wrong. I mean, one of
the things that we've seen overall is that theme park
demand has moderated. And as theme park demand is moderating,
we also know that visibility is kind of limited on
when trends will improve. So obviously they do, you know,
if this is always going to be a volume and
a pricing game, So as they kind of see volume
(12:11):
going down, they obviously have to come up with more
innovative ways of kind of you know, raising prices and
boosting and preserving their top line. That of course said,
I mean, they also have to be careful not to
overplay their hand, and so it is a very careful
balancing act. I do agree, But you know, I think
the Lightning Lane price increase obviously came after a lot
(12:36):
of deliberation and a lot of careful thought. I mean,
they obviously have tremendous demand at a lot of these attractions,
and I think that is kind of what prompted it.
So I don't think it's a miscalculation. But again we'll
have to wait and watch. We have to wait for
their earnings call to see exactly how it's played out
so far.
Speaker 2 (12:52):
All right, and those Disney Q four earnings out this
Thursday are thanks to Geet the Raganathan Bloomberg Intelligence analysts
on us ME and coming up on Bloomberg day Break weekend,
we'll discuss whether the UK Chancellor can bring growth back
to the City of London. I'm Tom Busby and this
is Bloomberg. This is Bloomberg day Break weekend, our global
(13:21):
look ahead at the top stories for investors in the
coming week. I'm Tom Busby in New York. Up later
in the program, Beijing confronts the threat of punishing US
tariffs on its exports. But first, fresh from her autumn budget,
UK Chancellor Rachel Reeves delivers her biggest City of London
speech to date this week. Her plan for growth relies
heavily on the business sector, but will she impress them
(13:44):
for more. Let's go to London and bring in Bloomberg
day Break Europe anchor Caroline Hepgar Tom.
Speaker 1 (13:50):
It takes place in the historic surroundings of the Lord
Mayor's official residence the Mansion House. Speech is billed as
an opportunity for chancellors to make their case to the
famously independent city of London, governed by its own laws
and even featuring a separate police force. The City of
London has always valued independence, but as home to many
(14:13):
of the country's financial services giants, it's a region that
Rachel Reeves will want to bring on board with her agenda.
She's expected to outline her vision for the Square Mile,
detailing how the Treasury will support the country's world leading
financial services sector to grow, innovate and finance growth around
the country. That's according to a Treasury statement. But will
(14:36):
Reeves's fiscal policy hold back those business ambitions. I've been
speaking to Richard Wilson, who's the CEO of the UK's
biggest flat fee investment platform, Interactive Investor. He says that
some of the measures introduced in Reeves's recent budget present
a real challenge for corporates.
Speaker 8 (14:56):
Well, the majority of the changes were very well telegraphed.
You've got a spend, tax and borrow agenda with numbers
that are very high, and the ifs came out and
the OBI can confoundly that that leads to lower growth
going forward, a higher debt servicing burden, and of course
(15:19):
the guilt markets have been a little bit ambiguous about
their view of that because the yields have gone up
in two and ten years basically makes the UK a
less attractive market to invest invested others because you've got
a higher tax burden. And the irritation I think for
many of us is that, whilst there's clearly as a
fiscal tightrope to walk going after some what would be
(15:44):
symbolic or illogical taxes like itt reliefs on agriculture and
business property do undermine entrepreneurship in the country. We've got
millions of people where the bedrock of our future is
on entrepreneurship, which comes from family businesses. That's not a
sensible way to build growth of that. It flies in
(16:04):
the face of your growth agenda.
Speaker 9 (16:05):
So to be clear, you think this budget was anti growth?
Speaker 8 (16:08):
Yes, no question.
Speaker 9 (16:10):
As a business just as a CEO, what are you
doing with that increase in national insurance going to be
Does that mean lower wages for your team? Are you
going to pass it up through in terms of high
cost for your customers? How are you going to manage that.
Speaker 8 (16:20):
I mean, we're in a very competitive environment and the
option we're we're competing with all the near brokers, the
US houses, the UK clearing bags, the European houses, everybody,
the inpension companies. Our option to move price is zero.
So then you're dealing with efficiency and or wages or
(16:43):
reduced profitability. I think Rachel Reeves and one of our
interviews said, you know, custom companies will be become more
efficient as if we're not trying to do that every
day already. So the reality is it will either be
lower profits and therefore kind of lower return and lower
ability to reinvesting technology, or you look at your wage
bill thinking how the hell do I solve that?
Speaker 1 (17:03):
Okay, So in terms of what comes next from Labor
mansion House, there has been a push to try to
and in fact a whole group of insurers and pension
companies agreed to try to put more money into UK
listed stocks that wasn't mandatory. Does it become mandatory under labor?
Do they target something, Do they make it more compulsory
(17:26):
for people to invest in UK listed or unlisted assets?
Speaker 5 (17:30):
Yeah?
Speaker 8 (17:30):
I think well that there are two. There's a problem
that the UK has which is compared to some other
countries in Canada and Australia and a reference quite a lot.
We have a fragmented pension stock so the actual size
of the pool that you're allocating is not as large
as it should be. So there's a task there which
is to consolidate pension assets with a big opportunity across
(17:54):
local councils and the public sectors. Has been well documented.
The fear that we should have is forcing an allocation
of risk which is disproportionate. That would conflict with your
kind of risk management and the members of your long
term pension holders. So that's not a sensible thing to do.
Speaker 1 (18:14):
But label will say how do you get a growth
and how and people have been complaining about the fact
that the UK market is undervalued and that we've seen
a massive decline in investment in UK consul.
Speaker 8 (18:24):
So there are two things there for me. One is
you've got to create the scaler pension assets so that
you can make an allocation which is proportionate of a
much bigger base. And secondly, we have been bleeding out
the UK stock market with stamp duty for the last
twenty years. The British government has sorted either I'm not
sure it's too late. It may be too late to
save it. We are taxing the thing out of existence.
Speaker 1 (18:45):
Richard Wilson, there CEO of Interactive Investors, speaking to me
and to Bloomberg's Tom McKenzie, officials say that the imagine
how speech will drive up investment and showcase what the
UK has to offer. They'll have their work cut out
for though, if recent forecast from the Office for Budget
Responsibility or anything to go by now. According to their predictions,
(19:07):
the pace of UK economic growth will peak next year
at two percent before falling back to around one and
a half percent later in this parliament, and that after
the budget announcement, so can Rachel Reeves's plans to supercharge
the city and the UK change that trajectory. Is something
I've been talking about with Bloomberg City editor Catherine Griffiths.
Speaker 10 (19:31):
Over the years the Mansion House speech. Sometimes it kind
of passes without much notice, and other years it can
be really key. This year, certainly, probably from both sides,
the government side and the kind of audience side, it's
going to be really key. This year's Mansion House Speech
was due to happen in the summer and it's been
(19:53):
pushed back until next week because of the election, So
there's that sense of sort of time as well, this
sort of highly anticipated event. And then actually the Treasury
in ratl Reefs have themselves been sort of amping it
up a bit, making it clear to people in the
city that this is going to be a big event
where rail reeves the Chancellor will lay out lots of
(20:15):
sort of detail and conviction about how this government is
going to deliver growth.
Speaker 1 (20:21):
Yes, and that has been her promise, kissed Arma's promise,
but there were doubts after the budget. What do you
think she's going to try to communicate then about the
growth ambitions.
Speaker 10 (20:31):
So it seems like we're going to get quite a
lot on this government's plans for pensions reforms. Of course,
this is not a new topic. The previous government also
was trying to push through with reforms to the pension system.
There's you know, billions and billions and billions of pounds
in pension pots in the UK. This point that yes,
(20:54):
we want overseas investors coming into the UK, but actually
in the UK itself there's a lot of sitting in
savings funds and how we try to deploy that money
in a way that's both good for the owners of
the money, the people who will be pensioners in the future,
to get higher levels of return so they have better retirements,
but also of course how that money can be used
(21:16):
in a more productive way in the British economy. So
that's the point about pension pots owning British shares, owning
British assets that are privately held. So there's all of that,
and then we may also get some reforms about how
the government the government's relationship with the financial regulators. Again
(21:38):
a topic that has been going for a very long time,
but there's a wide consensus that there needs to be
some sort of change to ensure that the regulators have
a clearer mandate to pursue growth and competitiveness.
Speaker 1 (21:52):
Having said that, what do you think is going to
be the feedback from that business audience? Days ago I
was speaking to the CEO of Interactive Investor, Richard Wilson.
They've got something like four hundred thousand customers here in
the UK, and I asked him about that pension reform question.
For example, trying to encourage businesses to funnel their investor
money into either listed or unlisted UK assets. He was
(22:16):
talking about the UK stock market being untradeable. So there
are great difficulties and there's been a lot of kind
of pushback against the budget. What is the audience in
the city going to be thinking.
Speaker 10 (22:27):
About, Yeah, I think it will be a mixed reaction
and it is actually quite a key moment for the
Chancellor to sort of really try to set her agenda
and kind of push forward her credentials with the city,
because yes, I think there are people out there in
the city who do believe that the London stock market,
(22:49):
while it has many advantages in the UK, has many
advantages as a place to invest and do business. That
sort of maybe the long term trend really is towards
as of capital, where essentially the US really is the
biggest pool of capital and we're sort of fighting against
that tide in a way, and that perhaps London and
the UK should think about other ways to remain relevant.
(23:12):
So when you think of it in those terms, trying
to sort of force pension money into some might say
essentially a sort of a dying stock market isn't the
best idea.
Speaker 1 (23:23):
How important a factor is it that the budget also
saw an increase in national insurance employer contributions, which is
an additional tax on business.
Speaker 10 (23:34):
Yeah, I mean business doesn't like it for sure. It
has been well. One thing that the Treasury and retro
Reefs team certainly did was telegraph a lot of the
measures in the budget. So I think people have had
time to get their heads around that and they don't
like it. But ultimately, as ret Reefs I suppose said herself,
some people needed to bear the burden this time, and
she put it on the wealthy and business. I suppose
(23:57):
there will be business people out there who understand and
I think that that's what had to happen in this budget.
But they're looking for conviction and ideas for how the
whole economy can grow.
Speaker 1 (24:10):
Is there a positive case? There are concerns about economic growth?
The OBR talked about how the budget would increase economic
growth a little bit but only in the short term
or more focus on the short term. Is there a
more positive case that we can make Well.
Speaker 10 (24:25):
I guess there's that sense of the clock ticking, isn't
there because she needs to kind of get ahead of
that OBR forecast. So the measures in this budget will
do exactly as you've said, according to the OBR. So
what she's got to try to do is while these
measures bite and she collects her tax revenue that she
certainly needs, she then needs to be able to sort
(24:45):
of quickly show that the economy is growing and hope
that the OBR will change its forecast.
Speaker 1 (24:51):
Accordingly, we're thinking about the fallout of the Trump election
victory twenty percent Tara potentially on the UK. Rachel Reeves
modeled her economic policy during the election campaign, so some
time ago on the Biden administration's by the nomics, she
called her plan secure a nomics. I noticed that term
(25:12):
has perhaps faded a little bit. How does the UK
deal with now a Trump White House and possibility of
towers and so on.
Speaker 10 (25:21):
I think the UK, and you know, many other big
countries that have extensive dealings with the US, will obviously
be worried about that. But we are a huge services
economy and we have many many links in terms of
financial services between the two countries, and I suppose the
UK also hopes that after Brexit that we may have
a certain amount of freedom to tread our own path
(25:43):
with the US.
Speaker 1 (25:44):
My thanks Sibili and Begg's City editor Cafine Griffith. So
does Labors smoke salmon offensive continue and will the City
of London's leaders be receptive to the message from the
new government. We will have full coverage of the Chancellor's
mansion house beach here on Bloomberg. I'm Caroline Hepge here
in London. You can catch us every weekday morning for
Bloomberg Daybreak Europe, beginning at six am in London one
(26:07):
am on Wall Street.
Speaker 2 (26:09):
Tom, Thank you, Caroline, And coming up on Bloomberg day
Break Weekend, we'll examine the effects of Donald Trump's election
on US China relations. I'm Tom Busby, and this is Bloomberg.
(26:30):
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. The timing of Donald
Trump's reelection comes at an interesting time for China. Beijing
has been working to revitalize its economy and now the
thread of US tariff's looms large. We'll get a better
read this week on how well the Chinese economy is
(26:50):
holding up. Bloomberg's Doug Krisner, host of the Daybreak Asia podcast,
is here with a closer look.
Speaker 11 (26:56):
Tom.
Speaker 3 (26:56):
We're looking at the monthly activity data for China in
the week ahead will be key, particularly when you look
at the numbers on retail sales and industrial production. However,
we want to begin with a Chinese reaction to Donald
Trump's return to the White House. We know that a
major part of Trump's economic policy is tariff's. He is
planning to place tariffs on all US imports that would
(27:18):
include charges of between ten percent to twenty percent on
all imported goods, and where Chinese products are concerned, tariff's
of as much as sixty percent. For a closer look,
I'm joined by John lu Bloomberg News, executive editor for
Greater China. John, it's always a pleasure. Thanks for making
time to chat with us. Can we begin with Donald
Trump's impending return as US president. I'm curious about the
(27:42):
reaction in the Chinese capital.
Speaker 11 (27:43):
I think there's actually a bit of awe at the
moment that Donald Trump was able to pull off the
sort of victory that it seems like he was able
to pull off potentially a trifecta, taking both the Senate
and the House along with the White House. And the
thing that I'm hearing from lots of people here in
Beijing is wow, where you know, it's really amazing he
(28:04):
was able to do that. I don't think people have
gotten yet to the point of thinking very deeply about
what next.
Speaker 3 (28:12):
John, you know better than I the challenges that are
facing the Chinese economy at the moment. The export side
seems to have been holding up reasonably well. It's the
domestic economy that's really been struggling. So too have imports
to China to some extent. In your view, how well
is China prepared to respond to the potential trade war
with the US or a different style of trade war,
(28:35):
let's put it that way.
Speaker 11 (28:36):
I think China is better prepared in the sense that
we've seen this show before, Like we've lived through four
years of a Donald Trump administration and we've gone through
a trade war, and so in that respect, I think
China is much more prepared in terms of how to
negotiate what the main points of contention potentially probably will be.
(28:58):
In terms of how well they could take on a
sixty percent tariffs all around, I think the answer to
that is not very well. There have been some estimates
by ubs, for instance, that calculate if Donald Trump did,
in fact put sixty percent tariffs on all Chinese exports
to the US. That would essentially cut two point five
percentage points from China's GDP.
Speaker 5 (29:20):
That means China would be.
Speaker 11 (29:21):
Growing half as fast as it has been in the
last couple of years as a result.
Speaker 3 (29:25):
Given how the Chinese economy is struggling at the moment,
is there a particular vulnerability where the US could potentially
take advantage of this weaker state and try to capitalize
that If these tariffs are really a form of the
first part of a negotiation, does the US necessarily have
a bit of the upper hand here?
Speaker 11 (29:46):
I think definitely the United States has in upper hand
when it comes to these negotiations. China depends on being
able to have access to foreign markets to create jobs,
to create demand for its manufactured goods. The Chinese government
has been trying to wean itself off of that dependency,
but it's going to take time and it's not going
(30:06):
to happen very quickly, and so in the short term,
I think there are a lot of cards in Donald
Trump's and the United States hand in terms of how
those negotiations go. I have heard quite a number of
Chinese officials sort of re up the idea or bring
up the sense that Donald Trump has actually set himself
that this is maybe a negotiating tactic, So they're kind
of approaching as in a hopeful way, maybe he will
(30:29):
not actually on day one impose those terrors.
Speaker 3 (30:32):
The Biden administration, i think it's fair to say, really
built on the tough on China strategy that was undertaken
by the first Trump administration, and what the Biden administration
did in kind of building on that was I'm thinking,
in particular the export controls on certain advanced high technology,
especially the semiconductors. So if you move away from the
(30:52):
issue of tariffs, the question becomes his Beijing prepared for
additional US restrictions on sales to China. Remember during the
first Trump administration, Huawei got caught up in that, didn't it.
Speaker 11 (31:04):
It did. The big difference I would say between the
way that the Biden administration and the first Trump administration
prosecuted these curves on technology was the Biden administration has
been much more successful, i think in getting the American
allies to go along with their policies, and it's I
think much more in question how effective a Trump administration
(31:25):
would be in doing that. At the same time, I
think the Chinese are very concerned about losing even more
access to American technology of Western technology in general. There
is a ton of money being spent in China to
try and create domestic technologies to replace those things. Again,
that takes time. It's not going to happen in the
next week or year or a couple of years.
Speaker 3 (31:47):
So let's imagine for a moment that Trump's thread of
these tariffs at sixty percent is really the first part
of the negotiating strategy. If he follows through, let's say
the negotiations were to fall off the rails at some
point those tariffs are really imposed. Are Chinese authorities willing
to do much more to help the economy, do you think?
(32:07):
And the timing is kind of interesting because we just
had the meeting of the Standing Committee and indications that
we may be getting a little bit more fiscal support
for the Chinese economy, So put that in context for me,
I think.
Speaker 11 (32:18):
The timing of that meeting of the National People's Congress
Standing Committee that you just mentioned is very interesting. It
usually happens at the end of October. This meeting, they
pushed it back until November fourth through eighth, so it
ends after the election, and so a lot of people
have wondered if that timing wasn't changed so that that
(32:41):
Chinese officials could calibrate their response to reflect the new
administration potentially in Washington. And so the idea would be,
with Trump coming in, potentially China would do more in
terms of stimulus to try and get domestic consumption up
to make up for this additional tariffs cutting off demand
(33:01):
from the United States.
Speaker 3 (33:02):
So before I let you go, I have to ask
about the data that we're going to get in the
coming week, the monthly activity data. Two key points industrial production,
retail sales.
Speaker 5 (33:12):
We talk a lot.
Speaker 3 (33:13):
About this when we try to get a clear window
into what's happening in the Chinese economy. Do you have
a sense of what these figures are going to show us?
Speaker 11 (33:21):
So I think there's a bit of optimism about retail sales.
We had services PMI that showed activity in the services
industry was growing more quickly than had been expected, and
some economists have said that that suggests potentially the consumer
is recovering. We've we've obviously had a bunch of stimulus
introduced already even before the National People's National People's Congress
(33:44):
and so we could see that pick up more than expected.
We also had some good data at the beginning of
the of the month that showed in October, China's largest
developers actually saw an increase in sales in October from
a year early. That's the first time that's increased in
a year, and so it seems like we might be
hitting a turning point, and that's why the numbers this month.
Speaker 5 (34:03):
Are so important.
Speaker 3 (34:04):
John will leave it there always a pleasure. Thanks so
much for spending time with us. John lu There, Bloomberg News,
Executive editor for Greater China, joining us from our studios
in Beijing. Let's turn to the Chinese internet giant Tencent.
In the coming week, the company will be reporting earnings.
I want to take a closer look. Now we'll bring
in Robert Lee, Bloomberg, Senior tech analyst for Bloomberg Intelligence.
(34:25):
He joins us from our studios in Hong Kong. Thanks
for making time to chat with us, Robert. This is
a very interesting company. It's involved in so many different things,
whether it's social media, music, it's e commerce, there's mobile gaming,
payment systems, and some artificial intelligence happening in the background. Where,
especially where Cloud computing is concerned. So as you look
(34:46):
out to the earnings that we're expecting in the coming week,
what are you most focused on?
Speaker 12 (34:50):
That's absolutely right Tencent and it's we chat, or as
it's referred to locally, wasting platform is a ubiquitous part
of Chinese life. The platform, for those who are unfamiliar
with it, is really a combination of the metas Facebook app.
You know, there's an element of PayPal. It's all singing,
all dancing, really, so it's an essential part of living
(35:13):
in China.
Speaker 5 (35:14):
I think the major.
Speaker 12 (35:15):
Driver of ten cents earnings this year has been the
strength that they've seen on the gaming side, particularly driven
by one particular title called DNF So that was a
licensing title from a company called Nexon, but it's been
a major smash hit for them, and as they say,
within the video game business, you're only as good as
your last hit, So that has been a major drive
(35:36):
driver of their earnings. From sort of Q one Q two.
We'll see ongoing strength into the third quarter, but I
think that is well known and is already factored in
by the market.
Speaker 3 (35:46):
In the States, we've been talking a lot about artificial
intelligence different startups now that are capturing amazing valuations. And
then companies like open ai that already have relationships with
a company like Microsoft. Where is ten Cent in the
world of artificial intelligence right now in China?
Speaker 5 (36:03):
Okay?
Speaker 12 (36:04):
I would say ten Cent early, Barber and then their
peers Byte, Dance and Huawei. The four of them are
best place to win out and emerge as the leaders
in China's AI sector. But we're at an early stage
of development at the moment, their operations in aggregate and
loss making, and the level of monetization or revenue generation
(36:26):
on the software side, because these companies are all software firms,
so we're not talking about the equivalents of the in videos.
The monetization is at a very low level. So ten
Cent has got a very broad based platform, so scope
to generate internal synergies by applying AI to generate cost savings,
et cetera is definitely very high. So that should help
defend their margin and underpin their margin going forward. But
(36:50):
as I said, the issue with the China market in
a you know, with a population of one point four billion,
it's a hyper competitive market. There are a very large
number of players out there. It's very fragmented market.
Speaker 3 (37:02):
When you consider artificial intelligence. I know, there are these
export controls that the Bidy administration has placed on advanced
semiconductor technology, with the idea of keeping some of these
super advanced chips away from China. Now, a lot of
the thinking had been that maybe China would be compelled
to try to find military type applications for those chips,
(37:23):
but they seemed to be so much a part of
the AI story. I'm wondering whether or not these Chinese companies,
like again ten Cent, Ali, Baba Baid, when it comes
to AI, they're really at a disadvantage because of these
export controls.
Speaker 12 (37:36):
That was exactly my view sort of earlier in the year,
the end of last year. I mean, it was an
obvious risk to these firms. However, they seem to have
worked their way around it, so they mitigated the problem
in a couple of ways. First thing is, I mean,
whilst the export controls were put in place by the
US for the reasons you've mentioned, they were well flagged
(37:57):
in advance, so that gave an opportunity for these big
time platforms to actually accumulate inventory before the controls came
in place. And also, you know, whilst you know the
relationship between China, the US and a lot of Western
Europe is strained to some degree. At the moment, you know,
China is still on good terms with a lot of
other countries around the world, particularly in the Gulf region, etc.
(38:19):
So I think that, you know, there is anecdotal evidence
that China has had some help from its friends, shall
we say, in you know, in importing some of these
restricted products. But then the third thing that the Chinese
companies have done is they have again the challenge that
they face to spurred innovation, and China does have very
(38:39):
strong inherent strengths in software development. So what they have
done is developed a newer generation of more focused, smaller
models which are more adept at working on the lower
power accelerator chips coming from the likes of Huawei, so
domestically developed chips.
Speaker 3 (38:58):
Robert, thanks so much for helping us preview this week's
earnings from ten Cent. He's Robert Lee, senior tech analyst
for Bloomberg Intelligence, and I'm Doug Chrisner. You can join
us weekdays here for the Bloomberg Daybreak Asia podcast, available
wherever you get your podcast Tom.
Speaker 2 (39:14):
Thanks 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 you need to start your day.
I'm Tom Busby. Stay with us. Top stories and global
business headlines are coming up right now.