April 11, 2025 • 38 mins
Bloomberg Daybreak Weekend with Tom Busby takes a look at some of the stories we'll be tracking in the coming week.
- In the US – a look ahead to U.S Retail sales and earnings from Netflix.
- In the UK – a look ahead to next week’s ECB meeting.
- In Asia – a look ahead to earnings from TSMC.
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Episode Transcript
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Speaker 1 (00:00):
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. Straight ahead on the program,
and look at some key economic data in the US
amid and escalating tariff war between the US and China.
I'm Tom Busby in New York.
Speaker 3 (00:25):
I'm Stephen Caroll in London, where we're taking stock of
the ECB's options in the face of trade tarafuncertainty.
Speaker 4 (00:32):
I'm deg Prisner with a preview of next week's earnings
from Taiwan Semiconductors.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven to three, Yeero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB Digital Radio, London,
Sirius XM one twenty one, and around the world on
Bloomberg Radio, dot Com and the Bloomberg Business App.
Speaker 2 (01:01):
To day to you, I'm Tom Busby, and we begin
today's program with a look at March retail sales data
in the US out this week, but it comes against
the backdrop of a chaotic and escalating global tariff war.
What will it tell us about the health of the
US consumer and the economy as we navigate a very
uncertain future. And for more we're joined by Stuart paul
(01:22):
Us Economists with Bloomberg Economics. Now, Stuart, looking backwards the
month of March, things were looking good. Inflation, wholesale and
consumer inflation was better than expected. We have this consensus
outlook for retail sales may surprise to the upside. Is
this all good news?
Speaker 5 (01:39):
It is mostly good news. For the month of March.
As you mentioned, inflation was relatively muted. More importantly, inflation,
particularly in the items that would be affected by tariffs,
were muted. And from a consumer perspective, the behavior that
we saw was a front loading of purchases that consumers
expect to be tariffed. So not only were consumers pulling
(02:01):
forward their purchases of autos. Auto sales surge during the
month and that should boost retail sales. They were also
pulling forward their purchases of big durable goods as purchase
from major retailers that sell things like washing machines, coffee makers,
and so on. So we're going to get major tail
whens supporting retail sales at least temporarily in advance of
(02:27):
these tariffs. So we expect the March data to show
about one point three percent monthly growth in nominal retail sales. Now,
the thing is, retail sales started the year really poorly.
January was terrible. So when we think about what Q
one GDP growth is going to look like, real consumer
spending growth for the first quarter is just going to
(02:49):
run at an annualized pace of about zero point six
to zero point eight percent. That's compared to four percent
in Q four of last year. So as good as
March looked, as the tariff threat became real, uncertainty is
really the name of the game here, and it's going
to show up in the Q one data, but probably
(03:09):
not the March data specifically.
Speaker 2 (03:11):
Okay, and again that was then, because now we have
a very different reality before those tariffs went into effect
and now and we know things could change, and they do.
Boy do they change day to day, hour to hour.
It seems this tariff war really threatening consumer spending, isn't it,
and frankly threatening the economy.
Speaker 5 (03:31):
That's right. It's again the uncertainty element is creating a
huge overca overhang, not just for consumers, but also for
businesses that are trying to invest and want some certainty
around what policy is going to look like, who they're
trading partners are going to be, and what their financing
costs are going to look like. As we saw the
bond market getting roiled in the last week, So you're
(03:52):
totally right. Quick moving policy landscape is really having a
major effect. A few rules of thumb that I typically
like to apply when we think about let's say recession risk.
An increase in the average effective tarif rate of one
percentage point creates about fifteen basis points of drag on
(04:13):
cumulative real GDP growth. So the entire move that we
saw in the average effective tarif rate should shave off
about three percentage points from real GDP growth. And from
the inflation perspective, an increase that in the average effective
tarifrate like we saw moving up to about twenty five
(04:35):
percent should add about two and a half percentage points
to cumulative core inflation. So not good, especially for the
FED that's trying to balance its dual mandate of having
maximum employment and price stability. These tariff threats de anchor
or they unanchor inflation and inflation expectations, and they also
(04:59):
should be creating additional slack in the economy is a
problem for the FED. Where do we think that that's
going to shake out for the Fed?
Speaker 6 (05:05):
Though?
Speaker 5 (05:06):
The Fed, at least outwardly is saying that they are
very much so focused on raining and inflation. While the
numbers were good in March, that's backward looking. They are
worried about inflation pressures mounting, especially in the year year
and a half ahead.
Speaker 2 (05:23):
And those inflation pressures are really going to hit the
auto industry. Let's talk about that, because it is a big,
big industry.
Speaker 7 (05:29):
Here.
Speaker 2 (05:30):
People say US doesn't make anything. We make a lot
of cars. Of course, we import a lot of cars,
but that twenty five percent tariff on imports is still
in effect. What do you see in the auto market
coming up? I mean, like you said, there was front
loading of buying of autos. What happens now.
Speaker 5 (05:45):
There should be a cooling in auto sales and auto
purchases from consumers. It's a little bit peculiar that we've
seen auto prices fading just a touch so far. You
would think that autodeal would be very slow to cut
prices given, as you say, the expectation that there should
be given the expectation that there should be higher input costs,
(06:10):
higher prices as it meets to consumer. So we do
expect to see auto sales fading to a pace of
about fifty an annualized pace of about fifteen and a
half to sixteen million units a year. That's even probably
a touch high. By comparison, in March, we saw over
seventeen point over seventeen point seven million annualized units sold
(06:31):
during the month, So it's pretty significant fading and risk
aeskewed to the downside as prices are likely going to jump.
Speaker 2 (06:37):
I mean, it's hard to say what consumers are thinking.
Do you think the US manufacturers will see a benefit
from this or is that just really wishful thinking.
Speaker 5 (06:47):
It's the sort of thing that if these tariffs are
maintained for a long enough amount of time, it's possible
that they can see some improvement if capacity is built out,
if we don't see major retaliation from our trading partners.
But in the interim, there are definitely going to be
some growing pains, and auto producers are really struggling with
how to source the inputs that they need.
Speaker 2 (07:09):
Wow, Well, there's a lot of uncertainty ahead. We know
that US retail sales for March are out this Wednesday,
ahead of Wall Street's opening bell our thanks to Stuart Paul,
us economists with Bloomberg Economics. We turn now to the
new earning season, which kicked off on Friday with some
of Wall Street's biggest banks. What we will focus on
earnings at Netflix. This earnings report will be far different
(07:31):
from past postings and for more we're joined by Geitha
rangonoffin Bloomberg Intelligence Analysts on US media. Well getha, thanks
for joining us. So what will make this report from
Netflix different from past reports?
Speaker 6 (07:44):
This time around is going to be really really different
because Netflix is going to stop reporting subscriber metrics. Now,
we all know that Netflix really is a subscriber story.
I mean quarter in and quarter out, we all obsess
over the number of new subscribers that they are going
to post. But they did guide last year to the
fact that they are going to stop reporting these subscriber
(08:07):
metrics anything connected with subscriber metrics, So both the number
of actual subscriber gains as well as what they call
average revenue per member. They're going to stop reporting both
of those starting this quarter, so it's going to be very,
i think, a very different tone around time.
Speaker 2 (08:25):
And this comes after they hit a record number of
subscribers last quarter, right, I mean, wouldn't you want to
talk about if you have growth?
Speaker 6 (08:33):
Exactly? This is so ironic, Tom, I mean, they've just
are coming off the best year ever in the history
of the company forty one million new subscribers added in
twenty twenty four. That is even better than it was
during COVID, and so subscriber momentum is absolutely going to continue.
I mean, this is by far the biggest streaming service
(08:55):
in the world that has over three hundred million subscribers,
and we actually that they are well on their way
to gain about twenty five million again this year, especially
with all of their new initiatives and I'm talking here
about the crack down on password sharing, which they call
paid sharing, as well as this new ad supported tier
which is priced very very competitively at about you know,
(09:17):
seven ninety nine in the US.
Speaker 2 (09:19):
Now, since they won't be reporting on that growth though
let's face it, it's all about operating revenue and especially
advertising revenue.
Speaker 6 (09:26):
Then absolutely so the biggest metric now, and this is
a metric that they have been kind of trying to
promote over many many quarters now kind of shifting away
from this focus on subscribers to top line growth. So
revenue growth is the big metric. They are projecting about
eleven percent revenue increase in the first quarter, and you're right,
(09:49):
they are, you know, expecting advertising to become a bigger
and bigger portion of the business. To remember, advertising is
something that they are very very new at. This is
primarily a subscription driven business. So advertising last year, for instance,
was less than three percent of revenue. Now, granted, that
is going to increase pretty substantially as they kind of
(10:10):
open up more and more ad inventory, as they kind
of add more programming that is tailor made for advertising,
but it still will be a very very small portion
off the total revenue by until maybe twenty twenty six,
twenty twenty seven.
Speaker 2 (10:25):
Well, we've seen some of those. It was the boxing
match with Jake Paul and Mike Tyson that was back
in November Christmas Day, to NFL teams, to NFL games playing,
so big advertising opportunities there. Let's talk about though this
past quarter. I believe they started WWE wrestling. We had
the Screen Actors Guild, what were maybe the big revenue
(10:46):
owners there for advertising and what's in the pipeline.
Speaker 6 (10:50):
So they really had a huge content Sladure absolutely right
in pointing out that WWE started this January and it
continues to be one of their most watched pieces of
content week in and week out, So we know that
it is doing really really well for them and obviously
kind of contributing to the subscriber growth. And I think
over time what we're going to see, Tom is we're
(11:12):
going to see them go more aggressively after different sports rights.
I mean, we have many different properties coming on the
market over the next few months. Formula one is a
great example, and this is something that you know, Netflix
has already had a lot of series with Drive to Survive,
So we think that the Formula one rights actually makes
a ton of sense for Netflix. You have UFC again
(11:33):
that kind of complements the whole you know, WWE. So
we think eventually they are going to go into sports
rights much more aggressively, which again builds their live programming
slate and again works really well for that advertising, you
know revenue base. Now in terms of content, I mean
of course, they had a really strong content lineup in
the first quarter of twenty twenty five, but you know it,
(11:56):
the whole year actually is just going to be one
blockbuster after the other. So, you know, just to give
you an example, you know, you have a Squid Game
the season finale, that the final season coming up. You
have Stranger Things the final season coming up this year.
You have Wednesday the next season coming up there. So
you know they have constantly referred to twenty twenty five.
(12:18):
Really the content state is being an embarrassment of riches.
So it is going to be a lot of good
content and a lot of titles to choose from.
Speaker 2 (12:26):
Netflix's first quarter earnings out this Thursday, our thanks to
Githa raganathin Bloomberg Intelligence analyst on US media, and coming
up on Bloomberg day Break weekend, we'll look at the
ECB's options in the face of Trump tariff uncertainty. I'm
Tom Busby, and this is Bloomberger. This is Bloomberg day
(12:59):
Break week again, our global look ahead at the top
stories for investors in the coming week. I'm Tom Busby
and New York. Up later in our program will look
ahead to first quarter earnings from the chip maker TSMC.
But first, European Central bank officials under pressure to respond
as US President Donald Trump's tariffs wreak havoc with global markets.
(13:20):
But just how should policymakers react in the face of
such uncertainty. For more, let's go to London and bring
in Bloomberg Daybreak europe Banker Stephen Carroll.
Speaker 3 (13:29):
Tom European Central Bank policymakers have lowered the deposit rate
six times since last June. At its current level of
two and a half percent. It's approaching territory that some
think no longer constrains demand, but economic realities have shifted.
With Trump's tariffs and the threat of an escalating trade
war between the US and China, hammering financial markets and
(13:50):
raising the specter of a global recession. Analysts and traders
have become increasingly convinced that the only direction for Euro
Area interest rates is down, and some key rate setters
are backing another cut this time around. Francis Fons Pavio
de Gallo says the ECB should lower interest rates soon
as the post tariff market fallout favors such a move.
(14:11):
He went on to argue that the trade war will
have a non negligible direct impact on the economy that
will take about a quarter percentage point of growth this year.
Nevin lad Gallo joins others, including Finland's Uli Ren who
are convinced that the current backdrop makes the case for
cutting rates stronger. Based on an assessment of inflation and growth.
Nichols for an April cut. Aside, other policymakers have restrained
(14:35):
from saying where rates may settle given the elevated uncertainty.
Austrian Center Bank tief Robert Holtzman maintains there's no reason
for an immediate cut. He believes the Center Bank should
allow the current trade related uncertainty to dissipate before considering
lowering rates, further arguing that tariffs and threats of countermeasures
make it next to impossible to predict if inflation in
(14:57):
the twenty nation Eurozone will continue to approach the ECB's
two target as planned. The Housman's hawkish point of view
are likely clash with many of those colleagues when the
Governing Council gathers in the coming days. So how much
breathing room do European policymakers really have? It's something we've
been discussing with Catherine Nice, chief European Economists at PAGIM
(15:17):
Fixed Income.
Speaker 8 (15:18):
If we look at the euro Area, you know, I'm
not saying it's easy for them to make these changes.
I'm just saying relative to the US, they have way
more scope to ease policy to support I mean, if
we look at, for example, the tariff impact, the kinds
of goods that the Euro Area tends to import from
the US are not really final goods. They don't go
(15:41):
straight into the consumption basket, so the inflationary shock will
be less. You also have to factor in the you
know that global growth will be slower. The Euro Area
is a much more open economic region. There's a risk
that China is going to dump a lot of that
excess capacity. So there's all these deflationary pressures and there
(16:01):
isn't that big inflationary push. And the starting point for
the ECB is much cleaner than it is for the
US because inflation already is basically at target. So I
think that does other things equal make it easier. We
can then talk about the fiscal.
Speaker 9 (16:17):
Well, let's talk about then maybe pause on the fiscal
on top of the bond moves here, because the yield
kind of moves that you saw in the German yield
prior to all these terror announcements was pricing in fiscal
spend over the next ten years. How believable is that
fiscal spend? How believable are yield at.
Speaker 5 (16:33):
Where they are right now?
Speaker 8 (16:34):
Well, who knows what they're going to announce and how
quickly you know, I, you know, I do hold out
some degree of optimism that you know with Germany haven't
taken this bold step forward, you know, breaking you know,
smashing through a couple of political red lines to get
through significantly higher defense and infrastructure spending that they're sort
(16:59):
of leading from the front, and we see more initiatives
like this. I think we could see perhaps you know,
we're seeing some leaks in the press around EU bond issuance,
you know, something that looks a bit more grant likes,
but perhaps just a fraction of the size of the
kind of package we saw during the pandemic. We could see,
you know, a coalition of the willing also forging together,
(17:21):
so you know, a European not an EU vehicle financing
vehicle to support defense. You know, we've already seen the
EU water down and ease and change some of its
fiscal spending rules to give member states more discretion. So
all of this, I think is still to play for.
Speaker 3 (17:43):
That was Catherine Nice, chief European economist at PGIM Fixed Income,
speaking to Bloomberg's critic Good to Guy Johnson and Anna Edwards.
So Trump has laid his gauntlet. How should the ECB respond?
It's a question I put to ECB reporter Janna Randou.
Speaker 7 (17:57):
Words is the first line off the I mean EASYB
President Christine le Gard is not known for being titled
when it comes to criticizing tariffs or Trump. But also,
of course, in order for that to be effective, that
needs somebody to listen, and I'm not so sure you
(18:18):
know she has. She has the right counterpart there. But
of course we need to say that uncertainty itself is
bad for the economy, for for for confidence. Uh, it's
not something the ECB will will react to. So inflation
is still the guiding staff for everything the ECB does.
And of course it's much too soon to tell what
(18:40):
kind of implications uh, the the events of the past days, weeks,
months have on inflation in the Aurozone. Growth for sure
is probably going to be weaker as a result of
what we've seen on inflation. The verdict is very much unclear,
and and that I think will very much complicate the
(19:02):
debate at the upcoming meeting and also the decision.
Speaker 3 (19:07):
Yeah, indeed, because this challenge of balancing the inflationary risks,
because you know, higher tariffs could in theory boost inflation
but also hurt growth, which which makes it a difficult
balance for policymakers to try to work out.
Speaker 7 (19:21):
Absolutely absolutely, I mean, it really seems that growth is
going to be lower because of uncertainty because tariffs essentially
close off export markets. You will find optimists who say, well,
but there are you know, you can explore new export markets,
you can form close trade alliances elsewhere. But that's more
(19:42):
of a medium to long term thing. In the short term,
it will hit growth on inflation. It very much depends
on the kind of tariffs, which kind of goods, It
very much depends on the countermeasures, It depends on the duration.
So yeah, your guess is as good.
Speaker 3 (19:59):
As well a little bit less guess work coming from
markets when it comes to this upcoming decision from the CB.
They're pricing in a rate cut, but how much divergence
is there amongst policymakers. What have we heard in terms
of the views about how the ECB should act now
given all of the uncertainty that you just mentioned.
Speaker 7 (20:19):
Yeah, I mean everyone will probably tell you and has
told us, that agility is needed, vigilance is needed, caution,
no pre commitment, which makes of course, you know, figuring
out what will happen very difficult. I would say that
while it was you know, you could say fifty to
(20:42):
fifty on whether there was going to be a cut
or not at the upcoming meeting right after the last one.
Now I would say the consensus has shifted more toward
of you know, favoring and more favoring a cut, even
though there are are still skeptics, and I spoke to
one of them just before the quiet period kicked in.
(21:04):
That's Austria, as Robert Holtzmann, who says there's absolutely no
reason of why the ECB should cut at this point
in time. Inflation is nearly at the target in interest
rates so low, uncertainty is incredibly high, and we should
really wait until the fog has cleared. And and that
makes sense in my ear, of course. But at the
(21:24):
same time, I believe people who say, well, you know,
if uncertainty is this high, that dams investment that you know,
puts in place processes that aren't easily fixed. And also
with inflation moving toward the target, we have room to yeah,
to move into a more neutral policy setting. So there's
(21:45):
arguments for both sides, and overall it won't be an
easy meeting. There will be disagreements and differences of opinion,
but I think a cut is what needs to be expected.
Speaker 3 (22:00):
Well, just you mentioned the trajectory that inflation had been
going in as well, just remind us of where we
are in that process, because we are down dramatically from
the spike that we saw during the energy crisis a
couple of years ago.
Speaker 7 (22:15):
Yeah, so we moved from a peak of just over
ten percent, so double digit inflation, to just over two
and so we are at this at this point where
inflation just over to to target. With insight, we've seen
quite some progress also on the core rate, and even
(22:37):
services have come down, which which has long been and
in fannas is still you know, a point where people
worry because it is still still running at very elevated levels,
but there has been movement in recent months so that
services inflation is coming down, of course, and what the
ECB is really happy about is that pages are finally
(23:01):
on track. Wage growth has slowed, it's it's behaving exactly
as policymakers expected. So they're taking a lot of confidence
from the fact that essentially the domestic part of inflation,
which which can which can be very dangerous because that's
where you know, yeah, that's the forceful kind of uh
(23:22):
infiction that's very difficult to control, and and that hinges on.
People are being convinced that the ECP can can do
its job of guaranteeing pres stability, that this is now
finally all moving in the right direction. So that's partly
what or mostly what has has driven the interest rate
cuts of of the past months.
Speaker 3 (23:42):
Yeah, indeed, of course, so much could change in the
path ahead, but it's a good to remind ourselves of
where we are now going into this meeting. In terms
of the debate over the terminal rate, there's been this
has been a long running conversation, but has that now
also been thrown up in the air with the uncertainty
over tariffs.
Speaker 7 (23:59):
I mean, there was no consensus before where the terminal
rate was going to be, so there's probably even less consensus. Now,
I would still say that two percent is a pretty
good guess, which would mean two more quarter point cuts,
which which also happens to be what a lot of
economists are expecting. But you know, we have to be honest.
(24:24):
It could be that it could be more, it could
be less. What I would be willing to bet money
on is the ECB is not yet done. But how
much further it has to go, whether it's another two cuts,
three cuts, who knows.
Speaker 3 (24:38):
Yeah, You've seen the CB handle a fair number of
crises in your time covering the European Central Bank, and
I wonder what we should have learned from those past
experiences that perhaps might inform what is going to be
a very challenging time for the European economy given the
trade uncertainty.
Speaker 7 (24:55):
Yeah. Absolutely, and I think we've seen Yeah, as you
said that, we've seen many crisis and we don't even
need to look back very much. And I think the
confidence I have is that the ECB has proven that
if push comes to shove, it is very very quick
in coming up with solutions and devising tools that you
(25:18):
wouldn't necessarily have expected and figuring out and helping where
help is needed.
Speaker 3 (25:25):
My thanks to Bloomberg's Jana Randau. We'll have full coverage
of the upcoming EASV rate decision and its applications here
on Bloomberg. I'm Stephen Caroll in London. You can catch
us every weekday morning here for Bloomberg Daybreak Europe, beginning
at six am in London at one am on Wall Street, Tom, Thank.
Speaker 2 (25:41):
You, Steven, And coming up on Bloomberg day Break weekend,
I'll look ahead to first quarter earnings from the world's
biggest computer chip maker. I'm Tom Busby, and this is Bloomberg.
(26:01):
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. It's the biggest chip
manufacturer in the world. In this week, it'll report first
quarter earnings. For more, let's get to the host of
the Daybreak Asia podcast, Doug Krisner.
Speaker 4 (26:18):
Tom. Taiwan Semiconductor is trying to navigate a shifting landscape
when it comes to US trade policy. Back in March,
TSMC announced plans to invest an additional one hundred billion
dollars in US chip factories. Now by producing chips in
the States. TSMC would avoid US tariffs, and President Trump
(26:38):
has repeatedly made that point.
Speaker 10 (26:40):
They have to come back because the tariffs are forcing
them to come back. And remember there are no tariffs
if you build here, and that's a big factor.
Speaker 4 (26:50):
Recently, there were also reports of a potential joint venture
between TSMC and Intel. This jv would operate Intel chip
foundries in the United States. So there is a lot
to consider as we look ahead to the earnings in
the week ahead from TSMC. So let's bring in Jane
Lanhi Lee North Asia, tech reporter for Bloomberg News. Jane
(27:10):
joins us from our bureau in Taipei. Thank you for
making time to chat with me. Until very recently, I
think it's fair to say the conversation until this market
instability had been focused very much on AI. Of course,
there was the deep Seek moment in China. We know
that was an accelerant. And when you think of AI
and AI chips, you think of Nvidia, you think of Nvidia,
(27:32):
you obviously think of TSMC. Are we expecting blowout earnings
this week from Taiwan semi well.
Speaker 10 (27:39):
Earnings wise, yeah, Analysts are estimating fifty five percent net
income growth for the first quarter. Well, but I think
people are not going to be focused just on these numbers.
What everyone will be looking to hear is what is
going on with the tariffs, what is going on with
(28:00):
with pressure potentially from the Trump administration on TSMC to
help Intel, which has been struggling. So these are going
to be the things that people are looking out for. Also,
they'll want to see with the latest, you know, troubles
in AI with deep seek. You know, we saw a
(28:22):
big route in Nvidia prices and other AI chip related
companies because concern that maybe we don't need to invest
tens of billions of dollars, even hundreds of billions of
dollars to build out these data centers. Maybe the AI
models can be a lot smaller. In that case, would
(28:43):
we be buying a lot less chips, and so there
has been that concern. Now on top of that, tariffs
are bringing concerns that you know, we've all read about
how our iPhone prices in the US could be going up,
you know, something like twenty percent with the tariffs. And
in that case, would consumers be buying fewer iPhones, will
(29:06):
they be buying fewer laptops? Are they going to be
waiting to buy those smart TVs for a while, in
which case that will again hit companies like TSMC or
others that are making chips that go into all these devices.
And so one of the things that have come up,
in fact just this past week is whether or not
(29:28):
TSMC will be revising down its revenue growth outlook for
twenty twenty five. In January, it had said that it
expected sort of mid twenty percent growth in sales for
this year. So that's going to be some of the
points that investors are are going to be looking out for.
Speaker 4 (29:50):
I would imagine another key data point is going to
be capex spending.
Speaker 6 (29:55):
Now.
Speaker 4 (29:55):
President Trump, in the last week was speaking at a
dinner event organized by the Republican National Congressional Committee. A
couple of things emerged here. One a lot of criticism
of the Chips Act. He made the point that semiconductor
companies are basically loaded. They don't need billions of dollars
in what amounts to some sort of subsidy to ramp
(30:16):
up production. So how is TSMC position to build out
more capacity?
Speaker 10 (30:22):
They absolutely do, but it's about you know, who's going
to say no to free money and depending on how
much subsidies you get, whether it's a straight out grant
from the Chips Act, or whether it's something that's even
more important that it is, the tax credit for these investments.
It's going to really make a difference to your profitability,
(30:44):
which it sounds so obvious. So will they be building more?
Will you know the investors be as interested when gross
margins aren't as high? Those are sort of questions that
will come and who pace for more expensive chips when
those subsidies or tax credits go missing. So it's an
(31:06):
important component. Can they do it without it? Of course
they can't. They've got gobs of money.
Speaker 4 (31:11):
So what about the factory that TSMC was constructing in Phoenix.
I think there were some initial delays. Do we know
the status? Are they producing chips there?
Speaker 7 (31:21):
Oh?
Speaker 10 (31:21):
Yeah, they've been mass product producing those chips since late
last year and the initial outcome of that. What we
talk about in chip manufacturing our yields. If I'm making,
you know, one hundred chips, how many of those are
good chips that I can use versus things that if
I used my gadget wouldn't work. And that yield rate
(31:45):
has been on par with their manufacturing in Taiwan. So
that's been some good news after you know, a lot
of news about delays and labor tensions and things like that.
So for what we have now in Arizona, things seem
to be doing well. And some people who I've spoken
to in Arizona are optimistic that this is just the start.
(32:08):
And you know, they made a lot of mistakes with
the first fab but they've learned and so that learning
curve will help them, will benefit them. And when it
comes to talent recruitment, one person who was out there
doing some recruitment in the colleges in Arizona said, you know,
(32:28):
when I first started doing this, nobody heard of TSMC.
That makes it harder to recruit by the time he's
now left the company. But by the time he left,
you know, which has been a couple months, now, everybody
knows TSMC. And of course, you know these announcements at
the White House of one hundred billion dollar additional investment
nay between Trump and the CEO cc way, that really
(32:52):
helps bring the profile of the company up. That'll help
have college students realize that, you know, this is an
important company.
Speaker 4 (33:00):
Let's talk a little bit about the market in China,
where obviously those export controls from the Biden administration really
curtailed access to some of those more sophisticated AI chips.
We mentioned a moment ago that Deep Seek moment. Clearly
tech in China was not constrained by those controls. Deep
Seek was obviously, or so it would appear able to
(33:21):
develop a pretty sophisticated chatbot in spite of those controls.
So is TSMC going to ask anything of the Trump
administration when it comes to China.
Speaker 10 (33:31):
Yeah, I don't know if there's going to be a
specific ask for that. I think Right now, the big
news with TSMC is that there was a report by
Reuters that possibly the Trump administration could find it for
a billion dollars because TSMC allegedly sold chips to one
(33:53):
company that then passed it on to Huawei, which makes
AI service and somehow that ship ended up in one
of them those AI servers. And so it's been in
a bit of hot water with China and with making
sure chips it makes for one customer don't end up
with another. And so a lot of focus right now
(34:17):
is watching whether or not the Trump administration could use
these finds, and this would be unprecedented in a sense that,
you know, a former BIS official explain that you don't
really have finds this big when companies, you know, come
clean and work together with the US government. But Trump
(34:40):
could use it as a bargaining chip to push for
more concessions from TSMC. So that is what people here
are watching about when it comes to China.
Speaker 4 (34:51):
Yeah, that's very interesting that you made that point. It's
not unlike what we have seen play out in these
tariff negotiations. And apparently Trump told the same Republican congressional
event that I referred to earlier that he was prepared
to slap a one hundred percent tax on TSMC if
the company doesn't make its chips in the US. So
the objective here seems to be a reshoring of chip manufacturing,
(35:15):
and TSMC would be a partner in that process.
Speaker 10 (35:18):
Yeah, and initially when that one hundred billion dollar announcement came,
I think the first few days, there was some skepticism. Yeah,
they're just paying lip service, They're not going to do it.
By the time those investments come around, Trump will be gone.
But what I'm hearing from the ground here from suppliers
of TSMC are no They're serious. This is their biggest market.
(35:42):
About three and four chips that are sold by TSMC
are sold to the US. Seventy five percent of their
sales is in the US. This is their biggest market,
and so it seems it is a genuine move towards
the US, and the suppliers are now saying that they
(36:02):
are getting ready to follow as well.
Speaker 4 (36:04):
Jane, thank you so much for taking the time to
chat with us. That is Jane Lanhi Lee, Bloomberg Tech
reporter in Taipei. For another perspective on tech in Asia,
I spoke with Stephanie Leung, chief investment officer at Stashaway.
I was reading a piece in the Wall Street Journal
on Apple planning to send more iPhones to the US
from India rather than from China as a way of
(36:27):
offsetting the high cost of the tariffs. And I'm wondering
whether or not you expect other companies to follow suit
that Apple clearly will not be alone in this.
Speaker 11 (36:36):
Yeah, I think, of course, in the short term it
is hot for companies to just kind of move the
whole supply chain overnight. But of course I think, I mean,
it makes sense for Apple to come out and sort
of you make these statements and for other companies to
make these statements as well, because I think, what's the
I guess, the kind of implication from the whole kind
(37:02):
of trade ward it's I mean, even if it ends,
let's say in the next few weeks, is that companies
need to rethink again about the whole supply chain right
how dependent they are on China. And also, I think
the I guess the Trump administration is often trying to
get companies to invest back in the US again by
(37:22):
giving tax breaks and trying the regulation. So I think
that also prompts companies to rethink whether or not they
need kind of a more diversified supply chain rather than
just rely on China itself. Now, I also spoke to
I guess some of the businesses in Hong Kong. Hong
Kong businesses have a lot of investment in China, for example,
(37:46):
in terms of governments exports into US, supplying to names
like Nike or Little lemon et cetera. And I mean
they said, I mean, yes, indeed, there has been some
kind of movements out of into Vietnam in the past
few years, but I mean that has been very, very slow.
And you can't just change that supply chain overnight, so
(38:09):
there still will be impact. But I think over time, yes,
I think the supply change will be more kind of
diversified than previously.
Speaker 4 (38:18):
That was Stephanie Leung, chief investment officer at Stashaway. I'm
Doug Chrisner. You can catch us weekdays for the Daybreak
Asia podcast. It's available wherever you get your podcast. Tom.
Speaker 2 (38:30):
Thank you Doug. And that does it for this edition
of Bloomberg day Break Weekend. Join us again Monday morning
at five am Wall Street Time for the latest on
markets overseas and the news you need to start your day.
I'm Tom Buzzby. Stay with us. Top stories and global
business headlines are coming up right now
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
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. Straight ahead on the program,
and look at some key economic data in the US
amid and escalating tariff war between the US and China.
I'm Tom Busby in New York.
Speaker 3 (00:25):
I'm Stephen Caroll in London, where we're taking stock of
the ECB's options in the face of trade tarafuncertainty.
Speaker 4 (00:32):
I'm deg Prisner with a preview of next week's earnings
from Taiwan Semiconductors.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven to three, Yeero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB Digital Radio, London,
Sirius XM one twenty one, and around the world on
Bloomberg Radio, dot Com and the Bloomberg Business App.
Speaker 2 (01:01):
To day to you, I'm Tom Busby, and we begin
today's program with a look at March retail sales data
in the US out this week, but it comes against
the backdrop of a chaotic and escalating global tariff war.
What will it tell us about the health of the
US consumer and the economy as we navigate a very
uncertain future. And for more we're joined by Stuart paul
(01:22):
Us Economists with Bloomberg Economics. Now, Stuart, looking backwards the
month of March, things were looking good. Inflation, wholesale and
consumer inflation was better than expected. We have this consensus
outlook for retail sales may surprise to the upside. Is
this all good news?
Speaker 5 (01:39):
It is mostly good news. For the month of March.
As you mentioned, inflation was relatively muted. More importantly, inflation,
particularly in the items that would be affected by tariffs,
were muted. And from a consumer perspective, the behavior that
we saw was a front loading of purchases that consumers
expect to be tariffed. So not only were consumers pulling
(02:01):
forward their purchases of autos. Auto sales surge during the
month and that should boost retail sales. They were also
pulling forward their purchases of big durable goods as purchase
from major retailers that sell things like washing machines, coffee makers,
and so on. So we're going to get major tail
whens supporting retail sales at least temporarily in advance of
(02:27):
these tariffs. So we expect the March data to show
about one point three percent monthly growth in nominal retail sales. Now,
the thing is, retail sales started the year really poorly.
January was terrible. So when we think about what Q
one GDP growth is going to look like, real consumer
spending growth for the first quarter is just going to
(02:49):
run at an annualized pace of about zero point six
to zero point eight percent. That's compared to four percent
in Q four of last year. So as good as
March looked, as the tariff threat became real, uncertainty is
really the name of the game here, and it's going
to show up in the Q one data, but probably
(03:09):
not the March data specifically.
Speaker 2 (03:11):
Okay, and again that was then, because now we have
a very different reality before those tariffs went into effect
and now and we know things could change, and they do.
Boy do they change day to day, hour to hour.
It seems this tariff war really threatening consumer spending, isn't it,
and frankly threatening the economy.
Speaker 5 (03:31):
That's right. It's again the uncertainty element is creating a
huge overca overhang, not just for consumers, but also for
businesses that are trying to invest and want some certainty
around what policy is going to look like, who they're
trading partners are going to be, and what their financing
costs are going to look like. As we saw the
bond market getting roiled in the last week, So you're
(03:52):
totally right. Quick moving policy landscape is really having a
major effect. A few rules of thumb that I typically
like to apply when we think about let's say recession risk.
An increase in the average effective tarif rate of one
percentage point creates about fifteen basis points of drag on
(04:13):
cumulative real GDP growth. So the entire move that we
saw in the average effective tarif rate should shave off
about three percentage points from real GDP growth. And from
the inflation perspective, an increase that in the average effective
tarifrate like we saw moving up to about twenty five
(04:35):
percent should add about two and a half percentage points
to cumulative core inflation. So not good, especially for the
FED that's trying to balance its dual mandate of having
maximum employment and price stability. These tariff threats de anchor
or they unanchor inflation and inflation expectations, and they also
(04:59):
should be creating additional slack in the economy is a
problem for the FED. Where do we think that that's
going to shake out for the Fed?
Speaker 6 (05:05):
Though?
Speaker 5 (05:06):
The Fed, at least outwardly is saying that they are
very much so focused on raining and inflation. While the
numbers were good in March, that's backward looking. They are
worried about inflation pressures mounting, especially in the year year
and a half ahead.
Speaker 2 (05:23):
And those inflation pressures are really going to hit the
auto industry. Let's talk about that, because it is a big,
big industry.
Speaker 7 (05:29):
Here.
Speaker 2 (05:30):
People say US doesn't make anything. We make a lot
of cars. Of course, we import a lot of cars,
but that twenty five percent tariff on imports is still
in effect. What do you see in the auto market
coming up? I mean, like you said, there was front
loading of buying of autos. What happens now.
Speaker 5 (05:45):
There should be a cooling in auto sales and auto
purchases from consumers. It's a little bit peculiar that we've
seen auto prices fading just a touch so far. You
would think that autodeal would be very slow to cut
prices given, as you say, the expectation that there should
be given the expectation that there should be higher input costs,
(06:10):
higher prices as it meets to consumer. So we do
expect to see auto sales fading to a pace of
about fifty an annualized pace of about fifteen and a
half to sixteen million units a year. That's even probably
a touch high. By comparison, in March, we saw over
seventeen point over seventeen point seven million annualized units sold
(06:31):
during the month, So it's pretty significant fading and risk
aeskewed to the downside as prices are likely going to jump.
Speaker 2 (06:37):
I mean, it's hard to say what consumers are thinking.
Do you think the US manufacturers will see a benefit
from this or is that just really wishful thinking.
Speaker 5 (06:47):
It's the sort of thing that if these tariffs are
maintained for a long enough amount of time, it's possible
that they can see some improvement if capacity is built out,
if we don't see major retaliation from our trading partners.
But in the interim, there are definitely going to be
some growing pains, and auto producers are really struggling with
how to source the inputs that they need.
Speaker 2 (07:09):
Wow, Well, there's a lot of uncertainty ahead. We know
that US retail sales for March are out this Wednesday,
ahead of Wall Street's opening bell our thanks to Stuart Paul,
us economists with Bloomberg Economics. We turn now to the
new earning season, which kicked off on Friday with some
of Wall Street's biggest banks. What we will focus on
earnings at Netflix. This earnings report will be far different
(07:31):
from past postings and for more we're joined by Geitha
rangonoffin Bloomberg Intelligence Analysts on US media. Well getha, thanks
for joining us. So what will make this report from
Netflix different from past reports?
Speaker 6 (07:44):
This time around is going to be really really different
because Netflix is going to stop reporting subscriber metrics. Now,
we all know that Netflix really is a subscriber story.
I mean quarter in and quarter out, we all obsess
over the number of new subscribers that they are going
to post. But they did guide last year to the
fact that they are going to stop reporting these subscriber
(08:07):
metrics anything connected with subscriber metrics, So both the number
of actual subscriber gains as well as what they call
average revenue per member. They're going to stop reporting both
of those starting this quarter, so it's going to be very,
i think, a very different tone around time.
Speaker 2 (08:25):
And this comes after they hit a record number of
subscribers last quarter, right, I mean, wouldn't you want to
talk about if you have growth?
Speaker 6 (08:33):
Exactly? This is so ironic, Tom, I mean, they've just
are coming off the best year ever in the history
of the company forty one million new subscribers added in
twenty twenty four. That is even better than it was
during COVID, and so subscriber momentum is absolutely going to continue.
I mean, this is by far the biggest streaming service
(08:55):
in the world that has over three hundred million subscribers,
and we actually that they are well on their way
to gain about twenty five million again this year, especially
with all of their new initiatives and I'm talking here
about the crack down on password sharing, which they call
paid sharing, as well as this new ad supported tier
which is priced very very competitively at about you know,
(09:17):
seven ninety nine in the US.
Speaker 2 (09:19):
Now, since they won't be reporting on that growth though
let's face it, it's all about operating revenue and especially
advertising revenue.
Speaker 6 (09:26):
Then absolutely so the biggest metric now, and this is
a metric that they have been kind of trying to
promote over many many quarters now kind of shifting away
from this focus on subscribers to top line growth. So
revenue growth is the big metric. They are projecting about
eleven percent revenue increase in the first quarter, and you're right,
(09:49):
they are, you know, expecting advertising to become a bigger
and bigger portion of the business. To remember, advertising is
something that they are very very new at. This is
primarily a subscription driven business. So advertising last year, for instance,
was less than three percent of revenue. Now, granted, that
is going to increase pretty substantially as they kind of
(10:10):
open up more and more ad inventory, as they kind
of add more programming that is tailor made for advertising,
but it still will be a very very small portion
off the total revenue by until maybe twenty twenty six,
twenty twenty seven.
Speaker 2 (10:25):
Well, we've seen some of those. It was the boxing
match with Jake Paul and Mike Tyson that was back
in November Christmas Day, to NFL teams, to NFL games playing,
so big advertising opportunities there. Let's talk about though this
past quarter. I believe they started WWE wrestling. We had
the Screen Actors Guild, what were maybe the big revenue
(10:46):
owners there for advertising and what's in the pipeline.
Speaker 6 (10:50):
So they really had a huge content Sladure absolutely right
in pointing out that WWE started this January and it
continues to be one of their most watched pieces of
content week in and week out, So we know that
it is doing really really well for them and obviously
kind of contributing to the subscriber growth. And I think
over time what we're going to see, Tom is we're
(11:12):
going to see them go more aggressively after different sports rights.
I mean, we have many different properties coming on the
market over the next few months. Formula one is a
great example, and this is something that you know, Netflix
has already had a lot of series with Drive to Survive,
So we think that the Formula one rights actually makes
a ton of sense for Netflix. You have UFC again
(11:33):
that kind of complements the whole you know, WWE. So
we think eventually they are going to go into sports
rights much more aggressively, which again builds their live programming
slate and again works really well for that advertising, you
know revenue base. Now in terms of content, I mean
of course, they had a really strong content lineup in
the first quarter of twenty twenty five, but you know it,
(11:56):
the whole year actually is just going to be one
blockbuster after the other. So, you know, just to give
you an example, you know, you have a Squid Game
the season finale, that the final season coming up. You
have Stranger Things the final season coming up this year.
You have Wednesday the next season coming up there. So
you know they have constantly referred to twenty twenty five.
(12:18):
Really the content state is being an embarrassment of riches.
So it is going to be a lot of good
content and a lot of titles to choose from.
Speaker 2 (12:26):
Netflix's first quarter earnings out this Thursday, our thanks to
Githa raganathin Bloomberg Intelligence analyst on US media, and coming
up on Bloomberg day Break weekend, we'll look at the
ECB's options in the face of Trump tariff uncertainty. I'm
Tom Busby, and this is Bloomberger. This is Bloomberg day
(12:59):
Break week again, our global look ahead at the top
stories for investors in the coming week. I'm Tom Busby
and New York. Up later in our program will look
ahead to first quarter earnings from the chip maker TSMC.
But first, European Central bank officials under pressure to respond
as US President Donald Trump's tariffs wreak havoc with global markets.
(13:20):
But just how should policymakers react in the face of
such uncertainty. For more, let's go to London and bring
in Bloomberg Daybreak europe Banker Stephen Carroll.
Speaker 3 (13:29):
Tom European Central Bank policymakers have lowered the deposit rate
six times since last June. At its current level of
two and a half percent. It's approaching territory that some
think no longer constrains demand, but economic realities have shifted.
With Trump's tariffs and the threat of an escalating trade
war between the US and China, hammering financial markets and
(13:50):
raising the specter of a global recession. Analysts and traders
have become increasingly convinced that the only direction for Euro
Area interest rates is down, and some key rate setters
are backing another cut this time around. Francis Fons Pavio
de Gallo says the ECB should lower interest rates soon
as the post tariff market fallout favors such a move.
(14:11):
He went on to argue that the trade war will
have a non negligible direct impact on the economy that
will take about a quarter percentage point of growth this year.
Nevin lad Gallo joins others, including Finland's Uli Ren who
are convinced that the current backdrop makes the case for
cutting rates stronger. Based on an assessment of inflation and growth.
Nichols for an April cut. Aside, other policymakers have restrained
(14:35):
from saying where rates may settle given the elevated uncertainty.
Austrian Center Bank tief Robert Holtzman maintains there's no reason
for an immediate cut. He believes the Center Bank should
allow the current trade related uncertainty to dissipate before considering
lowering rates, further arguing that tariffs and threats of countermeasures
make it next to impossible to predict if inflation in
(14:57):
the twenty nation Eurozone will continue to approach the ECB's
two target as planned. The Housman's hawkish point of view
are likely clash with many of those colleagues when the
Governing Council gathers in the coming days. So how much
breathing room do European policymakers really have? It's something we've
been discussing with Catherine Nice, chief European Economists at PAGIM
(15:17):
Fixed Income.
Speaker 8 (15:18):
If we look at the euro Area, you know, I'm
not saying it's easy for them to make these changes.
I'm just saying relative to the US, they have way
more scope to ease policy to support I mean, if
we look at, for example, the tariff impact, the kinds
of goods that the Euro Area tends to import from
the US are not really final goods. They don't go
(15:41):
straight into the consumption basket, so the inflationary shock will
be less. You also have to factor in the you
know that global growth will be slower. The Euro Area
is a much more open economic region. There's a risk
that China is going to dump a lot of that
excess capacity. So there's all these deflationary pressures and there
(16:01):
isn't that big inflationary push. And the starting point for
the ECB is much cleaner than it is for the
US because inflation already is basically at target. So I
think that does other things equal make it easier. We
can then talk about the fiscal.
Speaker 9 (16:17):
Well, let's talk about then maybe pause on the fiscal
on top of the bond moves here, because the yield
kind of moves that you saw in the German yield
prior to all these terror announcements was pricing in fiscal
spend over the next ten years. How believable is that
fiscal spend? How believable are yield at.
Speaker 5 (16:33):
Where they are right now?
Speaker 8 (16:34):
Well, who knows what they're going to announce and how
quickly you know, I, you know, I do hold out
some degree of optimism that you know with Germany haven't
taken this bold step forward, you know, breaking you know,
smashing through a couple of political red lines to get
through significantly higher defense and infrastructure spending that they're sort
(16:59):
of leading from the front, and we see more initiatives
like this. I think we could see perhaps you know,
we're seeing some leaks in the press around EU bond issuance,
you know, something that looks a bit more grant likes,
but perhaps just a fraction of the size of the
kind of package we saw during the pandemic. We could see,
you know, a coalition of the willing also forging together,
(17:21):
so you know, a European not an EU vehicle financing
vehicle to support defense. You know, we've already seen the
EU water down and ease and change some of its
fiscal spending rules to give member states more discretion. So
all of this, I think is still to play for.
Speaker 3 (17:43):
That was Catherine Nice, chief European economist at PGIM Fixed Income,
speaking to Bloomberg's critic Good to Guy Johnson and Anna Edwards.
So Trump has laid his gauntlet. How should the ECB respond?
It's a question I put to ECB reporter Janna Randou.
Speaker 7 (17:57):
Words is the first line off the I mean EASYB
President Christine le Gard is not known for being titled
when it comes to criticizing tariffs or Trump. But also,
of course, in order for that to be effective, that
needs somebody to listen, and I'm not so sure you
(18:18):
know she has. She has the right counterpart there. But
of course we need to say that uncertainty itself is
bad for the economy, for for for confidence. Uh, it's
not something the ECB will will react to. So inflation
is still the guiding staff for everything the ECB does.
And of course it's much too soon to tell what
(18:40):
kind of implications uh, the the events of the past days, weeks,
months have on inflation in the Aurozone. Growth for sure
is probably going to be weaker as a result of
what we've seen on inflation. The verdict is very much unclear,
and and that I think will very much complicate the
(19:02):
debate at the upcoming meeting and also the decision.
Speaker 3 (19:07):
Yeah, indeed, because this challenge of balancing the inflationary risks,
because you know, higher tariffs could in theory boost inflation
but also hurt growth, which which makes it a difficult
balance for policymakers to try to work out.
Speaker 7 (19:21):
Absolutely absolutely, I mean, it really seems that growth is
going to be lower because of uncertainty because tariffs essentially
close off export markets. You will find optimists who say, well,
but there are you know, you can explore new export markets,
you can form close trade alliances elsewhere. But that's more
(19:42):
of a medium to long term thing. In the short term,
it will hit growth on inflation. It very much depends
on the kind of tariffs, which kind of goods, It
very much depends on the countermeasures, It depends on the duration.
So yeah, your guess is as good.
Speaker 3 (19:59):
As well a little bit less guess work coming from
markets when it comes to this upcoming decision from the CB.
They're pricing in a rate cut, but how much divergence
is there amongst policymakers. What have we heard in terms
of the views about how the ECB should act now
given all of the uncertainty that you just mentioned.
Speaker 7 (20:19):
Yeah, I mean everyone will probably tell you and has
told us, that agility is needed, vigilance is needed, caution,
no pre commitment, which makes of course, you know, figuring
out what will happen very difficult. I would say that
while it was you know, you could say fifty to
(20:42):
fifty on whether there was going to be a cut
or not at the upcoming meeting right after the last one.
Now I would say the consensus has shifted more toward
of you know, favoring and more favoring a cut, even
though there are are still skeptics, and I spoke to
one of them just before the quiet period kicked in.
(21:04):
That's Austria, as Robert Holtzmann, who says there's absolutely no
reason of why the ECB should cut at this point
in time. Inflation is nearly at the target in interest
rates so low, uncertainty is incredibly high, and we should
really wait until the fog has cleared. And and that
makes sense in my ear, of course. But at the
(21:24):
same time, I believe people who say, well, you know,
if uncertainty is this high, that dams investment that you know,
puts in place processes that aren't easily fixed. And also
with inflation moving toward the target, we have room to yeah,
to move into a more neutral policy setting. So there's
(21:45):
arguments for both sides, and overall it won't be an
easy meeting. There will be disagreements and differences of opinion,
but I think a cut is what needs to be expected.
Speaker 3 (22:00):
Well, just you mentioned the trajectory that inflation had been
going in as well, just remind us of where we
are in that process, because we are down dramatically from
the spike that we saw during the energy crisis a
couple of years ago.
Speaker 7 (22:15):
Yeah, so we moved from a peak of just over
ten percent, so double digit inflation, to just over two
and so we are at this at this point where
inflation just over to to target. With insight, we've seen
quite some progress also on the core rate, and even
(22:37):
services have come down, which which has long been and
in fannas is still you know, a point where people
worry because it is still still running at very elevated levels,
but there has been movement in recent months so that
services inflation is coming down, of course, and what the
ECB is really happy about is that pages are finally
(23:01):
on track. Wage growth has slowed, it's it's behaving exactly
as policymakers expected. So they're taking a lot of confidence
from the fact that essentially the domestic part of inflation,
which which can which can be very dangerous because that's
where you know, yeah, that's the forceful kind of uh
(23:22):
infiction that's very difficult to control, and and that hinges on.
People are being convinced that the ECP can can do
its job of guaranteeing pres stability, that this is now
finally all moving in the right direction. So that's partly
what or mostly what has has driven the interest rate
cuts of of the past months.
Speaker 3 (23:42):
Yeah, indeed, of course, so much could change in the
path ahead, but it's a good to remind ourselves of
where we are now going into this meeting. In terms
of the debate over the terminal rate, there's been this
has been a long running conversation, but has that now
also been thrown up in the air with the uncertainty
over tariffs.
Speaker 7 (23:59):
I mean, there was no consensus before where the terminal
rate was going to be, so there's probably even less consensus. Now,
I would still say that two percent is a pretty
good guess, which would mean two more quarter point cuts,
which which also happens to be what a lot of
economists are expecting. But you know, we have to be honest.
(24:24):
It could be that it could be more, it could
be less. What I would be willing to bet money
on is the ECB is not yet done. But how
much further it has to go, whether it's another two cuts,
three cuts, who knows.
Speaker 3 (24:38):
Yeah, You've seen the CB handle a fair number of
crises in your time covering the European Central Bank, and
I wonder what we should have learned from those past
experiences that perhaps might inform what is going to be
a very challenging time for the European economy given the
trade uncertainty.
Speaker 7 (24:55):
Yeah. Absolutely, and I think we've seen Yeah, as you
said that, we've seen many crisis and we don't even
need to look back very much. And I think the
confidence I have is that the ECB has proven that
if push comes to shove, it is very very quick
in coming up with solutions and devising tools that you
(25:18):
wouldn't necessarily have expected and figuring out and helping where
help is needed.
Speaker 3 (25:25):
My thanks to Bloomberg's Jana Randau. We'll have full coverage
of the upcoming EASV rate decision and its applications here
on Bloomberg. I'm Stephen Caroll in London. You can catch
us every weekday morning here for Bloomberg Daybreak Europe, beginning
at six am in London at one am on Wall Street, Tom, Thank.
Speaker 2 (25:41):
You, Steven, And coming up on Bloomberg day Break weekend,
I'll look ahead to first quarter earnings from the world's
biggest computer chip maker. I'm Tom Busby, and this is Bloomberg.
(26:01):
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. It's the biggest chip
manufacturer in the world. In this week, it'll report first
quarter earnings. For more, let's get to the host of
the Daybreak Asia podcast, Doug Krisner.
Speaker 4 (26:18):
Tom. Taiwan Semiconductor is trying to navigate a shifting landscape
when it comes to US trade policy. Back in March,
TSMC announced plans to invest an additional one hundred billion
dollars in US chip factories. Now by producing chips in
the States. TSMC would avoid US tariffs, and President Trump
(26:38):
has repeatedly made that point.
Speaker 10 (26:40):
They have to come back because the tariffs are forcing
them to come back. And remember there are no tariffs
if you build here, and that's a big factor.
Speaker 4 (26:50):
Recently, there were also reports of a potential joint venture
between TSMC and Intel. This jv would operate Intel chip
foundries in the United States. So there is a lot
to consider as we look ahead to the earnings in
the week ahead from TSMC. So let's bring in Jane
Lanhi Lee North Asia, tech reporter for Bloomberg News. Jane
(27:10):
joins us from our bureau in Taipei. Thank you for
making time to chat with me. Until very recently, I
think it's fair to say the conversation until this market
instability had been focused very much on AI. Of course,
there was the deep Seek moment in China. We know
that was an accelerant. And when you think of AI
and AI chips, you think of Nvidia, you think of Nvidia,
(27:32):
you obviously think of TSMC. Are we expecting blowout earnings
this week from Taiwan semi well.
Speaker 10 (27:39):
Earnings wise, yeah, Analysts are estimating fifty five percent net
income growth for the first quarter. Well, but I think
people are not going to be focused just on these numbers.
What everyone will be looking to hear is what is
going on with the tariffs, what is going on with
(28:00):
with pressure potentially from the Trump administration on TSMC to
help Intel, which has been struggling. So these are going
to be the things that people are looking out for. Also,
they'll want to see with the latest, you know, troubles
in AI with deep seek. You know, we saw a
(28:22):
big route in Nvidia prices and other AI chip related
companies because concern that maybe we don't need to invest
tens of billions of dollars, even hundreds of billions of
dollars to build out these data centers. Maybe the AI
models can be a lot smaller. In that case, would
(28:43):
we be buying a lot less chips, and so there
has been that concern. Now on top of that, tariffs
are bringing concerns that you know, we've all read about
how our iPhone prices in the US could be going up,
you know, something like twenty percent with the tariffs. And
in that case, would consumers be buying fewer iPhones, will
(29:06):
they be buying fewer laptops? Are they going to be
waiting to buy those smart TVs for a while, in
which case that will again hit companies like TSMC or
others that are making chips that go into all these devices.
And so one of the things that have come up,
in fact just this past week is whether or not
(29:28):
TSMC will be revising down its revenue growth outlook for
twenty twenty five. In January, it had said that it
expected sort of mid twenty percent growth in sales for
this year. So that's going to be some of the
points that investors are are going to be looking out for.
Speaker 4 (29:50):
I would imagine another key data point is going to
be capex spending.
Speaker 6 (29:55):
Now.
Speaker 4 (29:55):
President Trump, in the last week was speaking at a
dinner event organized by the Republican National Congressional Committee. A
couple of things emerged here. One a lot of criticism
of the Chips Act. He made the point that semiconductor
companies are basically loaded. They don't need billions of dollars
in what amounts to some sort of subsidy to ramp
(30:16):
up production. So how is TSMC position to build out
more capacity?
Speaker 10 (30:22):
They absolutely do, but it's about you know, who's going
to say no to free money and depending on how
much subsidies you get, whether it's a straight out grant
from the Chips Act, or whether it's something that's even
more important that it is, the tax credit for these investments.
It's going to really make a difference to your profitability,
(30:44):
which it sounds so obvious. So will they be building more?
Will you know the investors be as interested when gross
margins aren't as high? Those are sort of questions that
will come and who pace for more expensive chips when
those subsidies or tax credits go missing. So it's an
(31:06):
important component. Can they do it without it? Of course
they can't. They've got gobs of money.
Speaker 4 (31:11):
So what about the factory that TSMC was constructing in Phoenix.
I think there were some initial delays. Do we know
the status? Are they producing chips there?
Speaker 7 (31:21):
Oh?
Speaker 10 (31:21):
Yeah, they've been mass product producing those chips since late
last year and the initial outcome of that. What we
talk about in chip manufacturing our yields. If I'm making,
you know, one hundred chips, how many of those are
good chips that I can use versus things that if
I used my gadget wouldn't work. And that yield rate
(31:45):
has been on par with their manufacturing in Taiwan. So
that's been some good news after you know, a lot
of news about delays and labor tensions and things like that.
So for what we have now in Arizona, things seem
to be doing well. And some people who I've spoken
to in Arizona are optimistic that this is just the start.
(32:08):
And you know, they made a lot of mistakes with
the first fab but they've learned and so that learning
curve will help them, will benefit them. And when it
comes to talent recruitment, one person who was out there
doing some recruitment in the colleges in Arizona said, you know,
(32:28):
when I first started doing this, nobody heard of TSMC.
That makes it harder to recruit by the time he's
now left the company. But by the time he left,
you know, which has been a couple months, now, everybody
knows TSMC. And of course, you know these announcements at
the White House of one hundred billion dollar additional investment
nay between Trump and the CEO cc way, that really
(32:52):
helps bring the profile of the company up. That'll help
have college students realize that, you know, this is an
important company.
Speaker 4 (33:00):
Let's talk a little bit about the market in China,
where obviously those export controls from the Biden administration really
curtailed access to some of those more sophisticated AI chips.
We mentioned a moment ago that Deep Seek moment. Clearly
tech in China was not constrained by those controls. Deep
Seek was obviously, or so it would appear able to
(33:21):
develop a pretty sophisticated chatbot in spite of those controls.
So is TSMC going to ask anything of the Trump
administration when it comes to China.
Speaker 10 (33:31):
Yeah, I don't know if there's going to be a
specific ask for that. I think Right now, the big
news with TSMC is that there was a report by
Reuters that possibly the Trump administration could find it for
a billion dollars because TSMC allegedly sold chips to one
(33:53):
company that then passed it on to Huawei, which makes
AI service and somehow that ship ended up in one
of them those AI servers. And so it's been in
a bit of hot water with China and with making
sure chips it makes for one customer don't end up
with another. And so a lot of focus right now
(34:17):
is watching whether or not the Trump administration could use
these finds, and this would be unprecedented in a sense that,
you know, a former BIS official explain that you don't
really have finds this big when companies, you know, come
clean and work together with the US government. But Trump
(34:40):
could use it as a bargaining chip to push for
more concessions from TSMC. So that is what people here
are watching about when it comes to China.
Speaker 4 (34:51):
Yeah, that's very interesting that you made that point. It's
not unlike what we have seen play out in these
tariff negotiations. And apparently Trump told the same Republican congressional
event that I referred to earlier that he was prepared
to slap a one hundred percent tax on TSMC if
the company doesn't make its chips in the US. So
the objective here seems to be a reshoring of chip manufacturing,
(35:15):
and TSMC would be a partner in that process.
Speaker 10 (35:18):
Yeah, and initially when that one hundred billion dollar announcement came,
I think the first few days, there was some skepticism. Yeah,
they're just paying lip service, They're not going to do it.
By the time those investments come around, Trump will be gone.
But what I'm hearing from the ground here from suppliers
of TSMC are no They're serious. This is their biggest market.
(35:42):
About three and four chips that are sold by TSMC
are sold to the US. Seventy five percent of their
sales is in the US. This is their biggest market,
and so it seems it is a genuine move towards
the US, and the suppliers are now saying that they
(36:02):
are getting ready to follow as well.
Speaker 4 (36:04):
Jane, thank you so much for taking the time to
chat with us. That is Jane Lanhi Lee, Bloomberg Tech
reporter in Taipei. For another perspective on tech in Asia,
I spoke with Stephanie Leung, chief investment officer at Stashaway.
I was reading a piece in the Wall Street Journal
on Apple planning to send more iPhones to the US
from India rather than from China as a way of
(36:27):
offsetting the high cost of the tariffs. And I'm wondering
whether or not you expect other companies to follow suit
that Apple clearly will not be alone in this.
Speaker 11 (36:36):
Yeah, I think, of course, in the short term it
is hot for companies to just kind of move the
whole supply chain overnight. But of course I think, I mean,
it makes sense for Apple to come out and sort
of you make these statements and for other companies to
make these statements as well, because I think, what's the
I guess, the kind of implication from the whole kind
(37:02):
of trade ward it's I mean, even if it ends,
let's say in the next few weeks, is that companies
need to rethink again about the whole supply chain right
how dependent they are on China. And also, I think
the I guess the Trump administration is often trying to
get companies to invest back in the US again by
(37:22):
giving tax breaks and trying the regulation. So I think
that also prompts companies to rethink whether or not they
need kind of a more diversified supply chain rather than
just rely on China itself. Now, I also spoke to
I guess some of the businesses in Hong Kong. Hong
Kong businesses have a lot of investment in China, for example,
(37:46):
in terms of governments exports into US, supplying to names
like Nike or Little lemon et cetera. And I mean
they said, I mean, yes, indeed, there has been some
kind of movements out of into Vietnam in the past
few years, but I mean that has been very, very slow.
And you can't just change that supply chain overnight, so
(38:09):
there still will be impact. But I think over time, yes,
I think the supply change will be more kind of
diversified than previously.
Speaker 4 (38:18):
That was Stephanie Leung, chief investment officer at Stashaway. I'm
Doug Chrisner. You can catch us weekdays for the Daybreak
Asia podcast. It's available wherever you get your podcast. Tom.
Speaker 2 (38:30):
Thank you Doug. And that does it for this edition
of Bloomberg day Break Weekend. Join us again Monday morning
at five am Wall Street Time for the latest on
markets overseas and the news you need to start your day.
I'm Tom Buzzby. Stay with us. Top stories and global
business headlines are coming up right now
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