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Speaker 1: Good day to you. I'm Tom Busby, and we begin
Speaker 1: today's program with a look at key economic data here
Speaker 1: in the US. On Thursday, we get core PCE for
Speaker 1: March GDP data for the first quarter of this year.
Speaker 1: What will this mean for the Fed's monetary policy going forward?
Speaker 1: Well for more, we're joined by Stuart Paul Us economists
Speaker 1: with Bloomberg Economics. Stuart, the PCE Price Index the preferred
Speaker 1: measure of inflation for the FED. What do you expect
Speaker 1: to see for March.
Speaker 5: We're expecting to see the headline PCE Price Index show
Speaker 5: about zero point three percent growth month on month. The core,
Speaker 5: which is more illustrative of what's going on in the
Speaker 5: actual economy, strips out energy, strips out food. We're expecting
Speaker 5: to see the core rise about the same zero point
Speaker 5: three percent month on month, and that's going to allow
Speaker 5: just a very slight moderation in the annual measure of
Speaker 5: core pc inflation. We're expecting about two point seven percent
Speaker 5: annual PCEE inflation. A big part of that inflation pressure
Speaker 5: is coming from core services in particular, and if we
Speaker 5: drill down and look underneath the hood of what's going on,
Speaker 5: we see insurance products are really helping to drive that
Speaker 5: inflationary pressure.
Speaker 1: Auto insurance, homeowners insurance.
Speaker 5: Everything that's right, So auto insurance, home insurance, and we're
Speaker 5: seeing those prices rise in large part because of rising
Speaker 5: prices that we saw for autos and homes post pandemic.
Speaker 5: So when the replacement cost of autos and when construction
Speaker 5: costs rise for homes, for example, so to do the
Speaker 5: insurance premiums that people have to pay. So this is
Speaker 5: sort of a residual effects from the inflation that we've
Speaker 5: already seen in the past. But that's not the full story.
Speaker 5: The fact that people can afford to pay those higher
Speaker 5: premiums is again just downstreaming the fact that the economy
Speaker 5: continues chugging long and if people are doing relatively well,
Speaker 5: and we're going to see that exact same thing in
Speaker 5: the person income data that we get at the same time,
Speaker 5: we're going to see March personal income growth about zero
Speaker 5: point six percent. Again, it's just too hot for the Fed.
Speaker 5: It's too hot for the FED to have confidence that
Speaker 5: inflation pressures are truly waning.
Speaker 1: Well, we've seen wage growth, and we've seen the labor
Speaker 1: market to an upside surprise almost every month, well certainly
Speaker 1: every month this year. How could it not, that's right, Yeah,
Speaker 1: the labor market has been resilient. We saw it just
Speaker 1: in the month of March, three hundred and three thousand
Speaker 1: jobs added. We saw an increase in the number of
Speaker 1: hours worked on average, We saw wages rising on an
Speaker 1: hourly basis, and to our best estimate, employee compensation, so
Speaker 1: that's both salaries and other additional benefits. Our best estimate
Speaker 1: is that employee compensation rose about zero point eight percent
Speaker 1: during the month. That is a hot labor market that
Speaker 1: is really helping tabooy spending, and that PCE spending that
Speaker 1: we're going to see is probably going to be on
Speaker 1: the order about zero point seven percent. Retail sales was hot, and.
Speaker 5: We're expecting to see the same thing in March PCE spending.
Speaker 1: Let's talk about then, the other reading that we'll get
Speaker 1: on Thursday, and that is economic growth. What do you
Speaker 1: expect to see? This is an initial reading for the
Speaker 1: first quarter of this year.
Speaker 5: We're very likely to see robust growth to start the air.
Speaker 5: I'm estimating two and a half percent real GDP growth
Speaker 5: that's on an annualized basis in the first quarter. That's
Speaker 5: really supported again by consumer spending, which is creating that
Speaker 5: inflationary impulse but about two point nine percent annualized consumer
Speaker 5: spending growth on a real basis in the first quarter
Speaker 5: is very impressive. Fixed investment a bit weak. Investment is
Speaker 5: really coming from residential investment because of a bit of
Speaker 5: a housing shortage because people are staying in their homes
Speaker 5: they locked in low rates. So we have a little
Speaker 5: bit of a housing shortage with very low inventories and
Speaker 5: a lot of investment in intellectual property. Right, this is
Speaker 5: all downstream of the AI boom and people really looking
Speaker 5: to improve the software and intellectual property that they have
Speaker 5: so that they could take advantage of that.
Speaker 1: Let's go back to housing and the challenges not just
Speaker 1: home buying, but also rents surprisingly a little higher. I mean,
Speaker 1: how is that affecting things for the overall GDP.
Speaker 5: So the fact that rent prices are up is not
Speaker 5: directly pushing GDP one way or another, but the fact
Speaker 5: that rents are up is encouraging additional investment in housing. Right,
Speaker 5: there's clearly a shortage of a housing stock. People who
Speaker 5: are homeowners are not listing their homes because the average
Speaker 5: rate being paid on mortgages, not new originations, but existing
Speaker 5: mortgages is still below four percent. Right, So the fact
Speaker 5: that homes are not turning over encourages more construction of
Speaker 5: rental units, which is providing growth in the form of
Speaker 5: residential fixed investment, and so we are getting some of
Speaker 5: those tailwinds again. You know, rent prices are a signal.
Speaker 5: There are signal to builders that we need more construction,
Speaker 5: and I think that that's going to show up a
Speaker 5: bit in residential fixed investment in the Q one GDP numbers.
Speaker 1: Well, let's hope. So you have a rather upbeat out
Speaker 1: look for the GDP PCE leveling off a little bit
Speaker 1: two point seven percent on an annualized basis, which is
Speaker 1: it's not two percent, but it's getting there. Add it
Speaker 1: all up. The FEDS coming up a meeting later this month,
Speaker 1: the thirtieth and May. First, what do you think is
Speaker 1: going through their heads? What is the FOMC thinking with
Speaker 1: all of this?
Speaker 5: I think here really the three items that the FED
Speaker 5: is looking at that they need to synthesize into a
Speaker 5: monetary policy view. Growth has remained robust and there is
Speaker 5: a bit of momentum there. The labor market has been
Speaker 5: tight and that's created upward pressure owned wages and inflation, yes,
Speaker 5: ticking down a little bit. Certainly an out of the
Speaker 5: two percent target, and it's that disinflation progress is stalling out.
Speaker 5: So you have robust growth, tight labor market, and stalling
Speaker 5: disinflation progress. That's going to allow the Fed to keep
Speaker 5: their foot on the brakes a little bit longer. I
Speaker 5: think that as we get to June, we might end
Speaker 5: up seeing a revision to the famous FOMC dot plot,
Speaker 5: which shows monetary policy makers forecast for where rates are
Speaker 5: going to go. Right now, they're showing seventy five bases
Speaker 5: points of cuts in this year. In twenty twenty four,
Speaker 5: I think that the risk is really toward a revision
Speaker 5: where even policymakers have to admit they're not going to
Speaker 5: be able to cut rates as much as they once thought.
Speaker 1: Yeah, maybe not seventy five, but we may see something
Speaker 1: by the end of this year.
Speaker 5: Fifty twenty five. It's possible. But then we're getting close
Speaker 5: to the end of the year and we're getting close
Speaker 5: to election season, and it gets really difficult to navigate
Speaker 5: both political and economic conditions.
Speaker 1: Oh boy, a lot to look forward to. Well that
Speaker 1: March pce Q one gdp out this coming Thursday in
Speaker 1: our thanks to Stuart paul Us economist with Bloomberg Economics. Well,
Speaker 1: we turn now to the first quarter earning season with
Speaker 1: a ton of big reports this week. One company though
Speaker 1: getting a lot of attention, the world's most valuable electric automaker, Tesla,
Speaker 1: posting its latest results on Tuesday. And for more on
Speaker 1: what we can expect and all the challenges that Tesla
Speaker 1: is facing, we're joined by Steve Mann, Bloomberg and Intelligence,
Speaker 1: Global Autos and Industrials Research Analyst. Now, Steve, let's start
Speaker 1: with what you expect to see with the results, and
Speaker 1: then we'll get into everything else with Tesla's So what
Speaker 1: do you expect to see on Tuesday?
Speaker 6: Oh, it's not going to be pretty for Tesla. They've
Speaker 6: announced a cut ten percent of their workforce, and you
Speaker 6: know they announced it right beginning of the second quarterer,
Speaker 6: so it may be signaling that things are a lot
Speaker 6: worse than the street anticipated, maybe a lot worse than
Speaker 6: what they anticipated. So, you know, first quarter earning, it's
Speaker 6: not going to be pretty. You know, we're thinking it's,
Speaker 6: you know, based on a scenario analysis, likely a miss
Speaker 6: versus consensus.
Speaker 1: And we've seen a few misses from a Tesla lately.
Speaker 1: We saw the deliveries missed. You know, there's a laundry
Speaker 1: list of things we could talk about, and we'll also
Speaker 1: talk about some of the good things. So well, let's
Speaker 1: get more on those job cuts. Ten percent of its workforce,
Speaker 1: fourteen thousand jobs worldwide. Like you said, not a good sign,
Speaker 1: not a sign of confidence for employees or for investors,
Speaker 1: is it?
Speaker 6: No? No? And and interestingly, they actually raise prices in
Speaker 6: the US and they cut incentives in China. So you know,
Speaker 6: I think journey earnings call, it's going to be a
Speaker 6: huge earnings call for Tesla, and hopefully they're prepared for that.
Speaker 6: They're going to have to set you know, real expectations
Speaker 6: for the investors and how to move forward because you know,
Speaker 6: they cut prices earlier this month. You know, the fear
Speaker 6: is that they're going to reverse it. If they do,
Speaker 6: you know, we're going to probably see more downgrades on
Speaker 6: the stock, earnings downgrade and ratings down grade by the street.
Speaker 1: And that's about forty percent just a year to date
Speaker 1: right on that stock.
Speaker 6: Yeah, forty percent. Now, they're not alone at this This
Speaker 6: is an industry wide issue, particularly in the US, more
Speaker 6: so in the US, but we're seeing it globally as well.
Speaker 6: I think the early adopters for evs have pretty much
Speaker 6: tapped out.
Speaker 4: Right.
Speaker 6: A lot of the evs today that are offered today,
Speaker 6: especially in the West, in Europe and as well in
Speaker 6: the US, they're well above fifty thousand dollars per vehicle.
Speaker 6: Above fifty thousand, you're pretty much at the premium and
Speaker 6: luxury segment, So the market for that segment is relatively small.
Speaker 6: What we're also looking for Tesla to talk about in
Speaker 6: their earnings it's their next model. It's dubbed the Model two.
Speaker 6: It's a compact subcompact vehicle supposedly under thirty thousand dollars.
Speaker 6: It's a critical product, not just for Tesla but for
Speaker 6: the market because, like I said earlier, the luxury segment
Speaker 6: is pretty much tapped out, so we need to bring
Speaker 6: in new buyers for battery electric vehicles and more affordable
Speaker 6: evs is really what the market needs right now.
Speaker 4: Now.
Speaker 1: There were reports that that Model too production had been delayed.
Speaker 1: Tesla denied those reports. But where is it? They have
Speaker 1: said the robotaxis comme August eighth, right, But I think,
Speaker 1: like you said, most people want to see a more
Speaker 1: affordable car.
Speaker 6: Yeah, that Model two is critical for tests up. It's interesting.
Speaker 6: I'm still optimistic. I think, you know, they's already spent
Speaker 6: a lot of money, made a lot of investment in
Speaker 6: developing that model too, you know, and they were scheduled
Speaker 6: to actually launch that at the end of twenty twenty five.
Speaker 6: You know, it's not that far away, given that it
Speaker 6: takes multi years to develop a new car, So for
Speaker 6: them to scrap it pretty much almost the last minute,
Speaker 6: it's kind of unheard of. So now you no elon
Speaker 6: must it come out on Twitter or on x to
Speaker 6: say that the reporting on cancellational Model two is false.
Speaker 6: I hope that's that's the case. But in the fourth
Speaker 6: quarter announcement earnings announcement, he did mention that this model
Speaker 6: too will be launched at the end of time twenty
Speaker 6: twenty five, and that the production actually will start in
Speaker 6: the US and then expand into Mexico. Hopefully it's really
Speaker 6: not a cancellation of the model to the subcompact compact vehicle.
Speaker 6: Maybe there's some hurdles that they need to get through
Speaker 6: in building that plant in Mexico, and that's probably hopefully,
Speaker 6: that's probably what it is.
Speaker 1: Well, a lot to look forward to Tesla's first quarter
Speaker 1: results coming out after the close this Tuesday, and our
Speaker 1: thanks to Steve Man, Bloomberg Intelligence, Global Autos and Industrials
Speaker 1: research analyst. Coming up on Bloomberg day Break weekend, we'll
Speaker 1: look at what's in store for Europe's biggest banks as
Speaker 1: earning season gets underway. There, I'm Tom Busby, and this
Speaker 1: is Bloomberg. This is Bloomberg day Break weekend, our global
Speaker 1: look ahead at the top stories for investors in the
Speaker 1: coming week. I'm Tom Busby in New York. Up later
Speaker 1: in our program a look at the twenty twenty four
Speaker 1: Beijing International Automotive Exhibition. But first, it's earning season for
Speaker 1: Europe's biggest banks, and hotter than expected inflation in Europe
Speaker 1: could put its central banks in a difficult position as
Speaker 1: far as plans to lower interest rates higher for longer
Speaker 1: may not be the mantra that the markets want to hear,
Speaker 1: but for Europe's biggest lenders it could prove lucrative for more.
Speaker 1: Let's go to London and bring in Bloomberg Daybreak europe
Speaker 1: banker Steven Carroll.
Speaker 2: Tom High interest rates have been the key profit driver
Speaker 2: for European banks over the past year. In twenty twenty three,
Speaker 2: Elevated borrowing costs saw the combined net income of the
Speaker 2: twenty biggest continental European banks exceed one hundred billion euros
Speaker 2: for the first time. According to Bloomberg data, three quarters
Speaker 2: of the lenders and the group achieved their highest profits ever.
Speaker 2: Barkley's Deutche Bank and BMP Paribar are just some of
Speaker 2: the names reporting results in the coming days. As markets
Speaker 2: are staring down the barrel of an even longer period
Speaker 2: of high interest rates, many will be hoping to emulate
Speaker 2: last year's success, but that may be difficult as the
Speaker 2: tailwinds attached to high rates begin to fade. Annaly survey
Speaker 2: by Bloomberg expect the combined net income for eleven of
Speaker 2: Europe's biggest banks to fall by six point three percent
Speaker 2: this year, but that would still make twenty twenty four
Speaker 2: the second most profitable year for more than two decades. Now,
Speaker 2: JP Morgan's research team is reassessing it's initially wary outlook
Speaker 2: on the sector, admitting their cautious approach was not the
Speaker 2: right decision, but uncertainty over the right path is a
Speaker 2: cloud on the horizon. Markets are expecting the European Central
Speaker 2: Bank to cut rates for the first time in June,
Speaker 2: but the trajectory after that looks more uncertain. We've been
Speaker 2: discussing this with Klaus Badder, global chief economist at SUSSIA
Speaker 2: to general he says that borrowing costs will start to
Speaker 2: come down slowly.
Speaker 7: Well the easy B we see three intrastright cuts, which
Speaker 7: is a pretty slow pace. So cut in June, a
Speaker 7: cut in September, cut in December, which would coincide with
Speaker 7: dates to the staff protections that the UCP has, So
Speaker 7: it's certainly not it's a gradual cut. And by the way,
Speaker 7: all of those reductions we expect them to be by
Speaker 7: twenty five basis points, so it's certainly a much slower
Speaker 7: place on the way down than on the way up.
Speaker 7: And for the Bank of England it's it's fairly similar.
Speaker 7: But one big difference between the Bank of England and
Speaker 7: the ECP, of course, is that the Bank of England
Speaker 7: has rates interest rates much more drastically then the ECB.
Speaker 7: And the UK economy is really quite sensitive to interest
Speaker 7: rates because of the structure of its mortgage market, where
Speaker 7: even though now most mortgage rates are fixed, they're fixed
Speaker 7: for a relatively short period of time. In drastic contrast
Speaker 7: France to Germany or the Netherlands and other countries in
Speaker 7: Europe where you have very long fixed rate deals and
Speaker 7: so the sensitivity of interest rates they are small. So
Speaker 7: I would say that the Bank of England is likely
Speaker 7: and it's over considerable let's say six and nine months,
Speaker 7: is likely to reduce interest rates as somewhat faster clip
Speaker 7: than the ECB will.
Speaker 2: How worried do ECB policy bakers need to be about
Speaker 2: a fact that may not be cutting rights as you
Speaker 2: see as this year.
Speaker 7: You know, of course central banks will always tell you
Speaker 7: you're not quite independent, and we have our brief, and
Speaker 7: our brief is to do with our domestic economy. I
Speaker 7: think that the connection between central bank policies first and
Speaker 7: foremost comes to the exchange rate. Now, the US already
Speaker 7: relatively weak. If you've got an inflation problem, that's not
Speaker 7: a good thing. But if inflation in your area is
Speaker 7: going too slow, then I think the UCB is going
Speaker 7: to have a reasonably high degree of tolerance for a
Speaker 7: weaker exchange rate, and therefore will not be particularly fast.
Speaker 7: But now, clearly, if the FED was cutting interest rates quickly,
Speaker 7: there would be more scope for the UCP to reduce
Speaker 7: interest rates as well. I think that's that's clear. But
Speaker 7: what I've been a bit surprised about is that the
Speaker 7: ECB's portrayal of the inflation picture is not completely in
Speaker 7: line the way I see. I have to say.
Speaker 8: So.
Speaker 2: That was Claud's Bader, Global Chief Economist Assaciaity General in London,
Speaker 2: speaking to us on Bloomberg Radio. What does all of
Speaker 2: this mean for those big European banking names reporting in
Speaker 2: this earning season. I've been discussing that with Bloomberg Opinions
Speaker 2: Global Banking Columbist Paul J. Davies.
Speaker 9: The really fascinating thing that we saw at four year
Speaker 9: earnings that we didn't expect was the southern European banks,
Speaker 9: you know, the Santander's UNI credit, especially those of Spain
Speaker 9: and Italy really kind of outperformed. They did so much
Speaker 9: better than people were expecting. Normally, these banks they have
Speaker 9: kind of they have much shorter duration loans on their books,
Speaker 9: They react much more quickly to interest rates, and people
Speaker 9: were expecting them to sort of fall off quicker, but
Speaker 9: in fact it was the other way around. Those with
Speaker 9: the more new othern Europeans, some of the French BNP,
Speaker 9: German Dutch banks didn't do so well at all. They
Speaker 9: kind of missed their earnings and revenue expectations. So it's like,
Speaker 9: and I think there's a sense that that's going to continue,
Speaker 9: even though we're expecting rate cuts to come. Obviously, I
Speaker 9: think the curves have remained relatively steep, and that's really
Speaker 9: good for these these Southern European banks. So we'll see
Speaker 9: we'll see a bit more of that, probably.
Speaker 2: Because I mean this is of course in the context
Speaker 2: of when we're looking ahead to an expected cut from
Speaker 2: the ECB in June. Are you suggesting that that's going
Speaker 2: to kind of have quite diversion effects across the European
Speaker 2: banking sector than when we're kind of listening out to
Speaker 2: what banks are going to be telling us better out look.
Speaker 9: Yeah, I mean, when the cuts do start to come in,
Speaker 9: then obviously it will affect those Southern European banks quickest
Speaker 9: because their loans reset faster. Later on in the year,
Speaker 9: we might see their earnings expectations start to drop away,
Speaker 9: depending on exactly what cuts materialize and what the outlook
Speaker 9: is for how many more cuts are going to come,
Speaker 9: And then that's when the more defensive you know, the
Speaker 9: northern Europeans with with much longer duration mortgage books and
Speaker 9: things like this, who will have more of you know,
Speaker 9: the recent sort of higher rates lasting for longer in
Speaker 9: their lending. That's when they will look better. But it
Speaker 9: obviously depends on why we're cutting rates and how far
Speaker 9: we're cutting rates, And if we're moving into something that
Speaker 9: looks a lot more recessionary, then that's obviously kind of
Speaker 9: bad for banks in general, and we'll be starting to
Speaker 9: worry about you know, bad debts and provisions and that
Speaker 9: sort of thing creeping up.
Speaker 2: Yeah, because I mean, looking at the stocks bank Bank
Speaker 2: index up over ten percent since the start of the
Speaker 2: years that high borrowing costs have been you know, helping
Speaker 2: to lift those as well is Gulb and Sachs rise.
Speaker 2: And describing the future of European banks is better for longer.
Speaker 9: Well, again, it depends on what rate cuts we have
Speaker 9: and what the outlook is for why they're happening. I mean,
Speaker 9: I mean, if you look at European banks alone, if
Speaker 9: you look at the eurostocks fifty the banks in there
Speaker 9: so exclude the UK banks, then actually the performance has
Speaker 9: been even better. And one of the drivers there has
Speaker 9: been you know, some of the bigger banks. BNP has
Speaker 9: sold businesses, UNI Credit has had years and years of
Speaker 9: fixing its balance sheets, and the benefit of that has
Speaker 9: been coming through. And what that meant is there's been
Speaker 9: this wave of you know, much larger than normal, much
Speaker 9: larger than anything in the last decade or so kind
Speaker 9: of share buybacks coming through. So so investors have looked
Speaker 9: at sort of, you know, reasonably good earnings, you know,
Speaker 9: reasonable hopes for those earnings lasting a little bit longer,
Speaker 9: and this wave of buybacks coming through, and that's what
Speaker 9: supported a lot of the European banks, but probably even
Speaker 9: more than some of the UK banks.
Speaker 2: To be honest, what about investment banking and all of
Speaker 2: this as well? What are it sort of hopes that
Speaker 2: these banks have in that sector.
Speaker 9: Yeah, well, this is where it's this is where they
Speaker 9: are being kind of way more optimistic than is warranted,
Speaker 9: I think. I mean, we've just had all of the
Speaker 9: big US banks reporting there was a jump in investment
Speaker 9: banking fees and a lot of this was driven by
Speaker 9: kind of bond issuance and loan issuance by sort of
Speaker 9: you know, the debt capital market side of things. The
Speaker 9: M and a business is still really really struggling now.
Speaker 9: So good debt market business is going to be good
Speaker 9: for Deutsche Bank, is going to be good for Barkleys.
Speaker 9: That's historically where they've where they've done well. But you know, Barklay's,
Speaker 9: especially BNP also to some degree, Deutsche have like they
Speaker 9: have like really quite bullish expectations for what investment banking
Speaker 9: revenues are going to do over the next few years,
Speaker 9: in terms of what they're promising shareholders, the returns they're
Speaker 9: going to make, you know, for Barkley's, the capital returns
Speaker 9: they're going to fund, and this sort of thing. And
Speaker 9: really it's like the investment banking recovery isn't looking that
Speaker 9: strong yet. It's looking like it's still going to be
Speaker 9: quite a tricky, quite a bumpy year in many ways.
Speaker 9: And where it is good is going to be much
Speaker 9: more US focused. So I'm kind of very skeptical that
Speaker 9: a lot of these Europeans are going to hit the
Speaker 9: kind of targets that they're setting.
Speaker 2: So is it the banks that have a greater US
Speaker 2: investment bank business then that are more likely to outperform
Speaker 2: in this sector?
Speaker 4: Yeah?
Speaker 9: So, I mean, so Barkley is obviously with a lot
Speaker 9: more US exposure, perhaps will do better than BNP or
Speaker 9: Deutsch on that front. But again it's like the expectations
Speaker 9: that they have involved taking market share from somebody else,
Speaker 9: and the question is, well, who is that somebody else?
Speaker 9: I mean, they're not going to take it from the Americans,
Speaker 9: not that easily anyway. You know, obviously creditsueeze blew up
Speaker 9: and is gone. You know, any market shared we had
Speaker 9: from then has probably been already distributed. So then the
Speaker 9: question is, you know, where do you get it from?
Speaker 9: I mean, there's an argument that there are some smaller
Speaker 9: European banks who are going to find it increasingly difficult
Speaker 9: to maintain those investment banking services in any sort of
Speaker 9: you know, cost effective or competitive fashion. But again, they
Speaker 9: don't account for a lot of the business, so there's
Speaker 9: not a lot of share to be taken from them,
Speaker 9: even if they do give up and go away. So
Speaker 9: it's really difficult to see, you know, how these big
Speaker 9: Europeans really kind of do anything better than what the
Speaker 9: market does.
Speaker 2: We've been discussing the differing outlooks for interest rates between
Speaker 2: the US and Europe after the recent comments from Jerome
Speaker 2: Powe signaling a later start to rate cuts in the US.
Speaker 2: Does the currency diversions that could provoke, is that going
Speaker 2: to have an impact on banks outlooks?
Speaker 9: I mean again, certainly. I mean I think it's like,
Speaker 9: you know, for the US, we're almost certainly into a
Speaker 9: world of you know, higher rates for longer, more upward
Speaker 9: volatility in both rates and inflation rather and kind of
Speaker 9: downward volatility, i e. You know, we're going to continue
Speaker 9: to see if rates do move or if there is
Speaker 9: questions over the path of rates, it's going to be
Speaker 9: flat to up rather than suddenly down. In Europe, it's
Speaker 9: a very different world. It's you know, it's lower growth generally,
Speaker 9: it's lower productivity. There's like there's more kind of trade
Speaker 9: and supply chain issues for Europe than there are for
Speaker 9: the US. And there are some people and I kind
Speaker 9: of hadn't decided quite whether I agree with them yet
Speaker 9: or not, but there are some people who really think
Speaker 9: that actually the volatility in Europe is going to be downwards.
Speaker 9: It's going to be inflation undershooting expectations more quickly than
Speaker 9: we might think, rates having to drop to below sort
Speaker 9: of two percent again more quickly than we might think
Speaker 9: as well, and that is bad for trading activity. You know,
Speaker 9: we could be entering a stage where actually Europe and
Speaker 9: the US start to diverge quite a bit, and again
Speaker 9: that will favor the big US banks over the big
Speaker 9: European banks when it comes to investment, banking and trading too.
Speaker 2: Quite about jobs and pay in all of this as well,
Speaker 2: You've written extensively about ubs after the Credits Suite takeover.
Speaker 2: We've reporting on the most recent round of job cuts
Speaker 2: expected at ubs as well. What is the outlook for
Speaker 2: those working in these banks in terms of both the
Speaker 2: security of their jobs but also how much they should
Speaker 2: be expecting in bonuses.
Speaker 9: Well, again, I mean, it depends a lot on what
Speaker 9: happens with the economy. I think in the US it's
Speaker 9: it's obviously looking better apart from I mean, if you're
Speaker 9: an M and a banker, you know, you're still not
Speaker 9: getting the kind of activity that you that will see
Speaker 9: you earning you know, fabulous money. You know, the boutiques
Speaker 9: who also pay their bankers a greater share of the
Speaker 9: revenue they make so they don't have all of the
Speaker 9: rest of the costs are also kind of taking away
Speaker 9: bits of business. So we're talking me like, you know,
Speaker 9: the ever cause, the pgats, the Lazards, you know, those
Speaker 9: sorts of banks, those sorts of investment banks. It's a
Speaker 9: much trickier world. But again it's sort of you know,
Speaker 9: to the extent that there looks like there could be
Speaker 9: a recovery, it's going to be more US based than
Speaker 9: Europe based. So so those people will people focus on
Speaker 9: the US will earn more. But I mean, I guess
Speaker 9: and we've got a big, a big take about this
Speaker 9: on Bloomberg about you know, the private equity industry and
Speaker 9: the lack of activity there. This is a huge, huge
Speaker 9: business for investment banking. They you know, historically supply up
Speaker 9: to thirty percent of all investment banking fees across the
Speaker 9: board in terms of M and A advice, their issuance
Speaker 9: equitations and so on and so forth. And until that
Speaker 9: industry can kind of find its mojo again, can find
Speaker 9: reasons and value in doing deals, then investment banking is
Speaker 9: going to disappoint. And so you know, the job requirements
Speaker 9: and the bonus requirements for a lot of people may
Speaker 9: well disappoint us well.
Speaker 2: Thanks to Bloomberg opinions, Paul J. Davies, we will bring
Speaker 2: you those bank results on Bloomberg Radio as they're released
Speaker 2: in the coming days. I'm Stephen Carroll in London. You
Speaker 2: can catch us every weekday morning here for Bloomberg Daybreak Europe,
Speaker 2: beginning at six am in London and one am on
Speaker 2: Wall Streets.
Speaker 1: Tom, thank you, Steven, And coming up on Bloomberg day
Speaker 1: Break weekend, I'll look at the twenty twenty four Beijing
Speaker 1: International Automotive Exhibition. I'm Tom Busby, and this is Bloomberg.
Speaker 1: I'm Tom Buzzby with your global look ahead at the
Speaker 1: top stories for investors in the coming week. This week
Speaker 1: is the Auto Show China, the twenty twenty four Beijing
Speaker 1: International Automotive Exhibition. Bloomberg Daybreak Asia host Brian Curtis and
Speaker 1: Doug Krisner take a look at China's electric vehicle market
Speaker 1: and how international automakers are reacting to China's dominance in
Speaker 1: that space.
Speaker 3: Tom, we look forward to Auto Show China, the twenty
Speaker 3: twenty four Beijing International Automotive Exhibition. Legacy European automakers will
Speaker 3: be revving up a last ditch offensive to win back
Speaker 3: some of the EV market, and the Chinese brands will
Speaker 3: be showing off their latest models.
Speaker 10: For sure, BMW is showcasing and unprecedented fifteen models. A
Speaker 10: slew of BMW executives will be attending. Mercedes CEO is
Speaker 10: attending as well, and Volkswagen will also bring a number
Speaker 10: of its highest ranking executives. This show comes at a
Speaker 10: time of heightened tensions between bay Jing and the West
Speaker 10: over low cost manufacturing in China, and.
Speaker 3: We thought the Auto Show as a result would be
Speaker 3: a good prism through which to look at some of
Speaker 3: these issues. The still growing domestic auto market in China,
Speaker 3: but also the global auto market EU tensions with China
Speaker 3: over cheap Chinese autos US China issues as well some
Speaker 3: of the travails that Tesla is facing, and what happens
Speaker 3: if and when Chinese manufacturers set up shop in Mexico
Speaker 3: as they eye the big US market joining us. In
Speaker 3: our studios in Hong Kong, our Bloomberg Transport reporters Linda
Speaker 3: lu and Danny Leeb and First German Chancellor Olaf Schultz
Speaker 3: has been in China over the past week and has
Speaker 3: drawn some attention to this issue that Doug mentioned, over
Speaker 3: capacity of evs in China flooding European markets. We asked
Speaker 3: Bloomberg correspondent Rebecca Chong Wilkins to characterize the Chinese response
Speaker 3: to such criticism.
Speaker 11: EV is a part of this whole channel and plan
Speaker 11: and to replace the old drivers of growth. If we
Speaker 11: do see this kind of friction, this trade friction, that
Speaker 11: does have the potential to significantly impact the ability for
Speaker 11: these industry to continue developing, because exporting is a big
Speaker 11: part of the plan.
Speaker 3: That's Rebecca Cheong Wilkins. So, Danny, this show, which you'll
Speaker 3: be a ten thing and Linda will as well, is
Speaker 3: about cars. Will it be about the cars or the politics?
Speaker 8: It will be about making sure that Germans or Germany's
Speaker 8: auto production is not harmed by the rise of Chinese
Speaker 8: evs ultimately as much as it is about the cars
Speaker 8: automotive show on display. But there is still a sense
Speaker 8: of cheer politics and economy as well, given how much
Speaker 8: the automotive market really contributes to the German economy. And
Speaker 8: you know, you've seen these successful brands over many, many decades.
Speaker 8: You see them in China today. The fact that BM
Speaker 8: Double Mercedes now they count they count China as being
Speaker 8: their biggest markets in some shape or form, whether beyond
Speaker 8: revenue or on sales. So it's very important. And when
Speaker 8: you see the rise of Chinese evs in particular, what
Speaker 8: you're seeing is them having to reposition themselves against the
Speaker 8: rise of Chinese evs. But we've not necessarily necessarily seen
Speaker 8: an impact yet of on revenues or on sales in particular,
Speaker 8: but is bracing themselves for what is an interesting and
Speaker 8: fascinating long term battle for supremacy and relevance in not
Speaker 8: just China, but what will be the global market.
Speaker 10: When I think at the early days of the auto
Speaker 10: industry in China, I think joint venture, both American and
Speaker 10: European partners establishing these jvs, And clearly I think we
Speaker 10: can agree that Chinese firms did benefit from being exposed
Speaker 10: to that technology on the production side. You know, we've
Speaker 10: heard about past disagreements when it comes to things like
Speaker 10: intellectual proper. I'm curious, Linda, where is China now when
Speaker 10: it comes to technology, particularly as it relates to EV's.
Speaker 10: How sophisticated is that technology currently?
Speaker 12: As you mentioned, in the early days of China's automotive manufacturing,
Speaker 12: they've relied on these foreign joint ventures a lot, where
Speaker 12: international brands like Ford and GM went into the China
Speaker 12: market and set up these production facilities together with the
Speaker 12: Chinese partners. And really what's really interesting is that now
Speaker 12: that China has really grown its domestic electric vehicle industry
Speaker 12: and along with that, coming with the battery supply chain,
Speaker 12: it's kind of leapfrog. Now you're seeing the foreign automakers
Speaker 12: having to turn to China to try to get some
Speaker 12: of that technological edge. We've seen Volkswagen tie up with Xpong,
Speaker 12: which is an up and coming EV startup. We've also
Speaker 12: seen Stilantis forming partnership with an EV make her called
Speaker 12: leap Motor. So it's really interesting to see how the
Speaker 12: tide has turned.
Speaker 3: So you've got Neo, you've got le Auto, you've got
Speaker 3: x pun BYD the biggest name I suppose, and now
Speaker 3: a new entrant, shall Me. I'm just curious, will we
Speaker 3: see much at this auto show in the coming week
Speaker 3: from shall Me?
Speaker 12: Yes, Shallmi will be exhibiting at the auto show. What's
Speaker 12: really interesting about shell Me is they've already had a
Speaker 12: major launch a couple of weeks ago, and after that launched,
Speaker 12: the reception has been better than expected. Sales kind of
Speaker 12: went through the roof, so I think at the Auto Show.
Speaker 12: It would be kind of another chance for shell Me
Speaker 12: to display its first EV, the SIU seven.
Speaker 10: Linda just mentioned the auto supply chain Danny. When it
Speaker 10: comes to very critical technology lithium ion batteries, I'm thinking
Speaker 10: of c at L in particular. We just heard from
Speaker 10: the company recently with its earnings report to what extent
Speaker 10: is China dominate the battery space? Is this a slam dunk?
Speaker 10: I mean, nobody can compete against China right now when
Speaker 10: it comes to EV batteries.
Speaker 8: I think China's always had that head start in the
Speaker 8: battery space and doing it in a way in scale
Speaker 8: and identifying what it thought would be the future technologies.
Speaker 8: When you do look at the numbers, you do see
Speaker 8: China in particular having a grip on many aspects of
Speaker 8: the battery supply chain. And that's no coincidence thanks to
Speaker 8: this response to what they thought was the future in
Speaker 8: automotive being evs. When you see some like c ATL
Speaker 8: you performing so strongly, and it seems to whether any
Speaker 8: kind of market conditions, clearly there is a cause can
Speaker 8: concern there, because when you want to have a level
Speaker 8: playing field, when you want to have more players, more diversity,
Speaker 8: and yet there is still more concentration. I think there's
Speaker 8: a big question mark over how governments respond to maybe
Speaker 8: even support their own kind of national champions in the
Speaker 8: battery space.
Speaker 10: Linda, as you know, US Treasury Secretary Janet Yellen was
Speaker 10: recently in China and one of the things that she
Speaker 10: criticized the government for was the subsidy the role that
Speaker 10: subsidies play in supporting the industry. What do we know
Speaker 10: about how the government has supported the EV manufacturers and
Speaker 10: whether or not that has been, to Yellen's point, maybe
Speaker 10: a little excessive.
Speaker 12: Yes, that's right. When Jennet Yellen and China, the word
Speaker 12: that kept coming up was over capacity. And you know
Speaker 12: how the Chinese government subsidies have led to the situation.
Speaker 12: In the early days of the electric vehicle industry in China,
Speaker 12: the government has poured tens of billions of dollars into
Speaker 12: growing and nurturing these companies. Now you've got success stories
Speaker 12: like byd CTL that have come from this government support.
Speaker 12: But in the past few years that support has been
Speaker 12: phased out as China enters kind of its next stage
Speaker 12: of EV adoption, which is more market driven.
Speaker 2: Now.
Speaker 12: I think critics may point to that as unfair competition
Speaker 12: that these Chinese companies survived, so probably mostly due to
Speaker 12: these subsidies. But on the other hand, you see US
Speaker 12: and the EU also now investing into their domestic industry.
Speaker 12: So it's kind of an interesting argument depending on which
Speaker 12: way you spin it.
Speaker 3: And we haven't talked too much about BYD Lend, but BYD.
Speaker 3: You know, we made a lot of the fact that
Speaker 3: they were getting some mass market cars really out across
Speaker 3: the country, but now we've just seen them double down
Speaker 3: on their expansion into luxury SUVs and I'm wondering what
Speaker 3: the impact that that might be and the competition that
Speaker 3: might provide to Tesla.
Speaker 12: Yeah, last night BYD just launched more models from the
Speaker 12: upscale function by brand, and they're doing a lot more
Speaker 12: in the luxury space. And from the analysts that we've
Speaker 12: spoken to, they think these brands are probably not going
Speaker 12: to move a huge amount of volume, but what they
Speaker 12: do bring to the table for BYD is prestige, and
Speaker 12: having that prestige will just lift BYD's brand up and
Speaker 12: help it to compete more in the kind of arena
Speaker 12: where Tesla is at. You know, Tesla has super passionate
Speaker 12: fans and they just really love the Tesla brand, and
Speaker 12: BYD is trying to head that way.
Speaker 10: We've heard of the potential threat of tariffs, not only
Speaker 10: from the US, but certainly from the European side too.
Speaker 10: Workers very much, I think, for both parties are top
Speaker 10: of mind when government officials try to defend their turf
Speaker 10: and keeping people employed. Danny, take me into the shop floor.
Speaker 10: If you look at the way some of these manufacturing
Speaker 10: facilities are structured in China when you get into EV manufacturing,
Speaker 10: are we talking about a great deal of workers or
Speaker 10: as a lot of this already automated that we're using
Speaker 10: a heavy amount of robotics.
Speaker 1: Is that right?
Speaker 8: There is a greater reliance on automation and robotics. And
Speaker 8: you can see the way in which the likes of
Speaker 8: BYD have some of the most efficient supply chains. And
Speaker 8: it's you know, you're taking from the copybook of the
Speaker 8: likes of Tesla, who's redefined the way in which EV's
Speaker 8: cars are produced fundamentally. And you can see and it's
Speaker 8: astonishing kind of perspective when you look at you go
Speaker 8: on to these kind of production lines and you see
Speaker 8: very few workers. You know, you go for up to
Speaker 8: a mile or more and you'd see handfuls of workers
Speaker 8: and all they're doing is fundamentally managing the machines, making
Speaker 8: sure that production is smooth, it can run automatedly and
Speaker 8: they'll just iron out any kinks. And so you know,
Speaker 8: when you can get to that kind of level of efficiency,
Speaker 8: it is, you know, clearly underscores your ability to be
Speaker 8: a successful kind of company. And of course, when you
Speaker 8: see in someone like Europe or even in the US
Speaker 8: where working in the automotive industry is highly unionized, clearly
Speaker 8: people will be concerned about their jobs, and how you
Speaker 8: pivot away from that into something more automated is very difficult.
Speaker 8: Outside of China.
Speaker 3: I mentioned in the intro about Chinese manufacturers looking to
Speaker 3: set up shop in Mexico. I just ask you, in
Speaker 3: a very short question, perhaps a short answer as well,
Speaker 3: do you see Chinese manufacturers manufacturing in Mexico before the
Speaker 3: end of this decade? Yes, all right, we'll finish on
Speaker 3: that note. And that will definitely queue up a lot
Speaker 3: of tensions with the United States. If you think that
Speaker 3: those tensions are high with China and the EU, wait
Speaker 3: till you see a BYD manufacturing cars in Mexico for
Speaker 3: export to the United States. Danny, thanks so much for
Speaker 3: joining us, and Linda Lewis as well. Transport reporters. Here
Speaker 3: at Bloomberg, I'm Brian Curtis in Hong Kong along with
Speaker 3: Doug Krisner. You can catch us every weekday for Bloomberg
Speaker 3: day Break Asia, beginning at eight am in Hong Kong
Speaker 3: and eight pm on Wall Street.
Speaker 1: Tom right, thanks to Brian, and thank you to Doug.
Speaker 1: And that does it for this edition of Bloomberg day
Speaker 1: Break Weekend. Join us again Monday morning at five am
Speaker 1: Wall Street time for the latest on markets overseas and
Speaker 1: the news you need to start your day. I'm Tom Busby.
Speaker 1: Stay with us. Top stories and global business headlines are
Speaker 1: coming up right now.