Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our day
Speaker 2: Break anchors all around the world. Straight Ahead on the program,
Speaker 2: a look at some of the big announcements we can
Speaker 2: expect from Apple's latest product event on May seventh, and
Speaker 2: to look at earnings from the world's biggest entertainment company.
Speaker 2: I'm Tom Busby in New York.
Speaker 3: I'm Stephen Carolyn London, where we're thinking about vote splits
Speaker 3: and inflation dynamics ahead of the Bank of England's upcoming meeting.
Speaker 4: I'm Brian Curtis in Hong Kong. We look ahead to
Speaker 4: Chinese President Shijinping's trip to Europe. What does he hope
Speaker 4: to get from the EU.
Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby and we begin
Speaker 2: today's program with tech giant Apple its latest product event
Speaker 2: this Tuesday, May seventh. For more on what we can expect,
Speaker 2: we're joined by Mark German, Bloomberg, Chief correspondent on Global Technology. So, Mark,
Speaker 2: thanks for being here. What do you expect to see
Speaker 2: on Tuesday? From Apple?
Speaker 6: Thank you for having me. So it's been about a
Speaker 6: year and a half since the last time Apple released
Speaker 6: new iPads, right that was October twenty twenty two, So
Speaker 6: they went the full calendar year of twenty twenty three
Speaker 6: without a new iPad. That was the first time since
Speaker 6: the iPad was unveiled by Steve Jobs in twenty ten,
Speaker 6: where the company went a full calendar year without a
Speaker 6: new model. On Tuesday, that's going to change. The company
Speaker 6: is going to be updating its two highest and iPads,
Speaker 6: the iPad Pro and the iPad Air. These are going
Speaker 6: to be quite significant updates. The iPad Air, for the
Speaker 6: first time, is going to get a larger screen size option.
Speaker 6: That's a twelve point nine inch model, much bigger than
Speaker 6: the current eleven inch model. And for the first time,
Speaker 6: the iPad Pro is going to get an OLED screen.
Speaker 6: That's a crisper, more efficient screen. Technology looks much better
Speaker 6: that they've been using on the iPhone and the Apple
Speaker 6: Watch for years. So that's finally coming to the company's iPads.
Speaker 5: Well, that's big.
Speaker 2: What kind of role will artificial intelligence hardware play in this?
Speaker 6: So the new iPad pro at least, is expected to
Speaker 6: have an updated processor that will set the stage for
Speaker 6: AI enhancements that the company will roll out at the
Speaker 6: end of this year. So the iPad won't come out
Speaker 6: the gate with these new AI features, but it'll have
Speaker 6: hardware insights to be able to support a new slate
Speaker 6: of artificial intelligence enhancements when those already towards the end
Speaker 6: of the year with their operating system update.
Speaker 2: Okay, so with the iPads, we're seeing a big change.
Speaker 2: We know that iPad small compared to the sales of
Speaker 2: the iPhone, but still a significant change for Apple. And
Speaker 2: let's talk about what it means to Apple for the
Speaker 2: iPad and is it a launching point for future iPhones?
Speaker 2: What works in the iPad?
Speaker 6: Well, five six years ago, the iPad was really peaking,
Speaker 6: and then it increased in sales again during the COVID
Speaker 6: pandemic when people were just sitting at home buying a
Speaker 6: bunch of stuff, thinking they need these things. But now
Speaker 6: what you're seeing are bigger sales for the Mac, and
Speaker 6: you're seeing more people buying iPhones instead of iPads because
Speaker 6: the iPhone screen sizes have become so big. And by
Speaker 6: the way, they're going to make the iPhone screen size
Speaker 6: even bigger in September with the iPhone sixteen Pro line.
Speaker 6: But the iPad certainly does have place for some people.
Speaker 6: The problem is is that Apple's veered from the original vision.
Speaker 6: The original vision of the iPad under Steve Jobs was
Speaker 6: all the features and goodness of the iPhone, with a
Speaker 6: larger screen, better for viewing photos, better for watching movies.
Speaker 6: And then you know, about a half decade ago, they
Speaker 6: did this odd thing where they tried to make it
Speaker 6: a quasi laptop replacement. They added support for track pads,
Speaker 6: they added support for more pro applications. They were at
Speaker 6: least their own keyboard, They have that Apple pencil stylusts
Speaker 6: and it's sort of this in between device, right It's
Speaker 6: past the point of being the simplistic future of the computer,
Speaker 6: and it's nowhere near a true laptop replacement. And that's problematic.
Speaker 6: Being somewhere in between. That's probably the place you don't
Speaker 6: want to be. And so what they really need to
Speaker 6: do with these new iPads is pick a direction. We're
Speaker 6: long gone from the idea of these things just being
Speaker 6: a bigger iPhone. We no longer want them to be
Speaker 6: these in between our devices. We want them to be
Speaker 6: true laptop replacements. And with the improved hardware, the better screens,
Speaker 6: the larger displays in the iPad, air, faster processors, a
Speaker 6: new version of the keyboard and trackpad case, I'm expecting
Speaker 6: it makes a lot of sense that these things are
Speaker 6: going to be better for people who want to replace
Speaker 6: their laptops.
Speaker 2: Is there also going to be a new iOS operating
Speaker 2: system that it's included in these new iPads.
Speaker 6: Well, the version of iOS that's coming with these new
Speaker 6: iPads going to be a version of iPad OS seventeen,
Speaker 6: which came out last year. That's the current operating system.
Speaker 6: The next operating system for the iPad that's going to
Speaker 6: be iPad OS eighteen that won't be announced until June
Speaker 6: June tenth actually at their developers conference. That will be
Speaker 6: the update that includes all those new artificial intelligence features,
Speaker 6: but that won't be released until sometime around September this year.
Speaker 2: And September also when we should see the iPhone sixteen.
Speaker 6: You said iPhone sixteen launch should be in September as well,
Speaker 6: and those will be the larger displays as well as
Speaker 6: a new button on the higher end models that you
Speaker 6: can control the camera zoom, moving between video and photos
Speaker 6: from the side of the phone itself versus within the software.
Speaker 2: Now, let's talk about the iPhone for a minute, because
Speaker 2: that sounds great. But you've reported the need to maybe
Speaker 2: have a more affordable, mass market phone to compete against
Speaker 2: all these rivals in China and really grow the base
Speaker 2: of the iPhone. How close is that to a reality.
Speaker 6: Well, I personally don't think that's going to have in
Speaker 6: under Apple's current management. You know, they're so strong in
Speaker 6: their principles. There's no belief internally from at least a
Speaker 6: management team that they should release a cheaper phone. This
Speaker 6: is something they've considered over the years. Personally, I think
Speaker 6: this would be a way to gain market share and
Speaker 6: push back against the issues they're having in China. It
Speaker 6: would help them grow in India, potentially build a business
Speaker 6: in Eastern Europe other developing markets such as those in
Speaker 6: Africa and Southeast Asia, Vietnam, Thailand, Malaysia. But I don't
Speaker 6: think they're going to do it at least anytime soon.
Speaker 6: There certainly isn't one in development right now. The idea
Speaker 6: would be, you go to gain market share, make probably
Speaker 6: no profit on the phone itself, make up for that
Speaker 6: on apps and other services subscriptions, and then as the
Speaker 6: middle class expands in those developing markets, you're able to
Speaker 6: pitch those people who are already in the Apple ecosystem
Speaker 6: on more expensive price your iPhones, where Apple could ultimately
Speaker 6: make its profit.
Speaker 2: Oh but this Tuesday, May Apple's latest product launch all
Speaker 2: about new iPads and our thanks to Mark German, Bloomberg
Speaker 2: Chief correspondent on Global Technology. Well, we move now to
Speaker 2: the entertainment and media company Walt Disney, with Disney reporting
Speaker 2: second quarter earnings this coming Tuesday, and for more on
Speaker 2: what to expect, we're joined by Geetha. Raganathin Bloomberg Intelligence
Speaker 2: Analysts on US media. So gather, what are you expecting
Speaker 2: to see in Tuesday's earnings?
Speaker 7: Thank you so much, Tom So. Disney actually is just
Speaker 7: fresh after winning a very very contentious proxy battle. If
Speaker 7: you remember that whole showdown that they had with Nelson Bells.
Speaker 7: They've gotten through that and now they are really ready
Speaker 7: to focus on execution. So there's a whole range of
Speaker 7: initiatives that they've been working really hard on, which is
Speaker 7: cost cutting, increasing financial visibility, and also really working hard
Speaker 7: on kind of reintegrating their content engines. And we look
Speaker 7: at this as catalysts. There's already been a change in sentiment,
Speaker 7: and we're going to continue to see that change in
Speaker 7: sentiment playouts as they report their fiscal second quarter earnings.
Speaker 7: There's a lot of things to kind of look to.
Speaker 7: I think the two major things are, of course going
Speaker 7: to be the parks business, where you know they've kind
Speaker 7: of guided to low teen's growth in operating income, as
Speaker 7: well as the streaming business, where we are almost tom
Speaker 7: on the brink of profitability, and that should really get
Speaker 7: investors excited.
Speaker 2: Well, that's a big change. How has the return of
Speaker 2: Bob Iger really helped Disney in this direction, whether streamlining
Speaker 2: operations more cost effective or just taking charge.
Speaker 7: Yeah, I mean he's been instrumental Tom and kind of
Speaker 7: really writing the ship, if you will here. So obviously
Speaker 7: when he came back, things were pretty messy, especially with
Speaker 7: regards to kind of the whole content pipeline and just
Speaker 7: you know, the whole series of missteps with their content,
Speaker 7: whether it was on the film side or even on
Speaker 7: the TV series side. Obviously, those things take a little
Speaker 7: bit of time, but I think what he has really
Speaker 7: managed to do quickly is to articulate a strategy strategy
Speaker 7: with you know, the streaming business, front and center cost
Speaker 7: cutting initiatives. You know, they first started out with about
Speaker 7: five and a half billion in cost savings per year.
Speaker 7: They've kind of ben up that to seven and a
Speaker 7: half billion, and then just overall kind of making sure
Speaker 7: that the business is on a really strong footing. So
Speaker 7: if you kind of look at Disney, yes, we tend
Speaker 7: to focus a lot on on you know, the TV
Speaker 7: networks ESPN, and you know, maybe some movies and then
Speaker 7: the studio, but if you actually look at the business profiles,
Speaker 7: seventy percent sixty five to seventy percent off Disney's profit
Speaker 7: comes from its theme park business. And so what you
Speaker 7: know Bob has done, obviously is they've kind of articulated
Speaker 7: a plan now to really reinvest in that business. It's
Speaker 7: it's sixty billion dollars that they're going to spend over
Speaker 7: the next ten years, and then with regards to the
Speaker 7: rest of the segments, kind of again make sure that
Speaker 7: you know content, Content, of course, is kind of the
Speaker 7: lifeblood here at Disney, so just kind of make sure
Speaker 7: that they have a strong content pipeline which will then
Speaker 7: feed into everything else.
Speaker 2: Well, that's seventy percent of revenue at the and those
Speaker 2: theme parks never seem to be without tons of people,
Speaker 2: So that's good news. But let's go back to what
Speaker 2: you said about the streaming services and being close to
Speaker 2: being profitable. I know that Disney just made a deal
Speaker 2: with Kroger, the nation's biggest supermarket chain for Disney plus
Speaker 2: what can you tell us about that?
Speaker 7: Yeah, so, I mean they are doing all these deals,
Speaker 7: and again the main objective here, Tom, is to make
Speaker 7: sure that you know, subscriber momentum is maintained. But as
Speaker 7: you know, streaming is no longer just about subscribers. It
Speaker 7: is also about being profitable. We know Netflix has kind
Speaker 7: of really established the narrative here, turning out about you know,
Speaker 7: eight nine ten billion dollars in profit. Disney is going
Speaker 7: to be next. So they have lost tons of money,
Speaker 7: almost close about eight billion dollars or so on their
Speaker 7: streaming business since launch. But the good news, and this
Speaker 7: is something that investors are excited about, is that this
Speaker 7: is really just on the cusp of turning profitable. It
Speaker 7: could very well have been in the quarter that they're
Speaker 7: about to report, or if not, it'll be in the
Speaker 7: next quarter. And the idea here is that it is
Speaker 7: going to keep getting more and more profitable. And we
Speaker 7: have a lot of catalysts on the horizon. So, yes,
Speaker 7: you have subscriber growth, but I think more important than
Speaker 7: that is, you know, price increases, which they are definitely
Speaker 7: going to implement going forward, and that will be bolstered
Speaker 7: by a really good content pipeline. They are also cracking
Speaker 7: down on passwords sharing alain Netflix, and then of course
Speaker 7: they have the ad tier, and then with the integration
Speaker 7: of Hulu, you know, you have multiple positive elements that
Speaker 7: are really kind of going to get this virtuous cycle going.
Speaker 2: Do you think there's going to be any update on
Speaker 2: the sports streaming partnership with Fox and Warner Brothers that
Speaker 2: was talked about a few months ago.
Speaker 7: Yeah, that is actually supposed to come out sometime in
Speaker 7: the fall. There have been you know, a couple of
Speaker 7: regulatory issues surrounding that, you know, yeah, probably. I mean
Speaker 7: I think they are definitely going to be asked how
Speaker 7: far along they are in terms of the infrastructure and
Speaker 7: the setup, and you know, if they're ready to kind
Speaker 7: of show a test version of that, which I'm sure
Speaker 7: they are, given that upfronts is coming up pretty soon.
Speaker 4: Now.
Speaker 2: One last thing I want to ask you about is
Speaker 2: the studio division still suffering like all of Hollywood from
Speaker 2: those twin strikes last year. What can we look forward to?
Speaker 7: I mean, they really had a pretty bad year last year,
Speaker 7: but the good news is they're really kind of back
Speaker 7: on track in terms of executing on creative. They're improving
Speaker 7: their studio output. So as you look forward to twenty
Speaker 7: twenty four, you know, we do have kind of this
Speaker 7: refreshed content slate. We're looking at Inside Out two and Deadpool,
Speaker 7: both of which promised to be really big summer movies.
Speaker 7: But where we're really excited about is twenty twenty five.
Speaker 7: You have a whole array of you know, what we
Speaker 7: think would all be blockbuster movies, whether it's Captain America's Norwide.
Speaker 7: So Disney is really getting its mojo back.
Speaker 2: Yeah, a lot of twos a lot of threes after
Speaker 2: those movie titles. But give the people what they want.
Speaker 5: Well.
Speaker 2: Disney second quarter earnings out after the close this Tuesday,
Speaker 2: May seventh, and our thanks to get the raganaffin Bloomberg
Speaker 2: Intelligence Animals on US Media. Coming up on Bloomberg day
Speaker 2: Break weekend to look at the Bank of England's upcoming
Speaker 2: policy meeting. I'm Tom Busby and this is Bloomberg. This
Speaker 2: is Bloomberg day Break weekend, our global look at the
Speaker 2: top stories for investors in the coming week. I'm Tom
Speaker 2: Busby in New York. Up later in our program, Chinese
Speaker 2: President Shijin Ping visits Europe. Will it help repair relations
Speaker 2: between China and the continent. But first in the UK,
Speaker 2: recent hotter than expected inflation figures coupled with a strong
Speaker 2: labor market may have put the breaks on hopes that
Speaker 2: the Bank of England is poised to begin cutting interest
Speaker 2: rates in the coming days. Threadneedle Streets decision makers will
Speaker 2: vote once again. So will they stick with elevated borrowing
Speaker 2: costs or take the plunge for more. Let's go to
Speaker 2: London and bring in Bloomberg day Break Europe anchor Stephen.
Speaker 3: Carroll, Tom stop me if you've heard this one before,
Speaker 3: but since the start of the year, traders have scaled
Speaker 3: back their expectation for interest rate cuts. Okay, that's been
Speaker 3: the situation facing many central banks around the world. In
Speaker 3: the UK, it's a mildly hawkish run of data that's
Speaker 3: giving some pause for thought on top of what's been
Speaker 3: happening with central bankers elsewhere. CPI inflation came in at
Speaker 3: three point two percent in March in the UK, down
Speaker 3: from three point four percent in February. That was slightly
Speaker 3: ahead of the Bank of England's forecast, though, but BOE
Speaker 3: Governor Andrew Bailey didn't seem phased and assured markets that
Speaker 3: things were still on track. We've been getting the market
Speaker 3: view of the rate path ahead for the UK with
Speaker 3: Hugh Ginberg, global market strategist at JP Morgan Chase Bank.
Speaker 8: I think, really what the market is grappling with here
Speaker 8: is does the UK look more like the Eurozone or
Speaker 8: more like the US? Because I go back twelve months
Speaker 8: ago and the answer to that was categorically that the
Speaker 8: UK looked a lot more like the US economy, where
Speaker 8: you had the tightness of the labor market, you had
Speaker 8: much strong inflation pressure, whereas today I think, arguably it's
Speaker 8: a lot more Eurozone like where yes, inflation is still higher,
Speaker 8: but inflation is coming down. It's going to come down
Speaker 8: significantly further over the next couple of months as that
Speaker 8: energy household price cap reset kicks in, and so I
Speaker 8: do think the bank will be able to follow the
Speaker 8: path more like the ECB than the Fed. I personally
Speaker 8: think they start the rate cutting process in August. But
Speaker 8: again we're talking about relatively modest adjustments to interest rates,
Speaker 8: and so for bond investors, the main message here is
Speaker 8: that you're playing for really clipping the coupon in government
Speaker 8: bond deals today, with the potential for capital appreciation if
Speaker 8: the economy slows much more quickly. But I don't see
Speaker 8: a kind of straight line lower for bond yields until
Speaker 8: we get much weaker economic data than what we have
Speaker 8: at the moment.
Speaker 3: Do you think that Andrew Bailey is in a position
Speaker 3: to be able to give clear signals given the sort
Speaker 3: of uncertainty that exists elsewhere.
Speaker 8: No, But then let me, if I may flip your
Speaker 8: question the other way around and say, well, should he
Speaker 8: be giving clear signals? No, he shouldn't because all central
Speaker 8: bankers are struggling to read the inflation data, just as
Speaker 8: markets are trying to predict over the next one to
Speaker 8: two months. Are we going to get point threes or
Speaker 8: point four's? It is nigh on impossible in this current
Speaker 8: economic environment, and so I think the right approach for
Speaker 8: central bankers today is to take stock of the incoming
Speaker 8: data that they've seen, but try to keep that medium
Speaker 8: term view because they're trying to set policy here over
Speaker 8: the next twelve, twenty four to thirty six months. They
Speaker 8: shouldn't be swung around by just what the last one
Speaker 8: or two weeks of data has been telling them. The
Speaker 8: blanky reviewer missed opportunity, yes or no.
Speaker 3: Ah, good politician Lizzy.
Speaker 8: Could they have gone further?
Speaker 3: Yes?
Speaker 8: I think that it could. I mean there is some
Speaker 8: useful points there in terms of trying to communicate more clearly.
Speaker 8: I think everyone would welcome more guidance from the Bank
Speaker 8: of England in terms of how they're seeing the economy.
Speaker 8: But do you want a dot plot in the UK,
Speaker 8: for example, I would argue no.
Speaker 3: So that was Hugh Gimberg Global Markets Strated US at
Speaker 3: JP Morgan Chase. It's worthwhile, too thinking about how the
Speaker 3: Bank of England behaves versus its peers. Members of the
Speaker 3: Monetary Policy Committee have an advantage in that this meeting
Speaker 3: is coming just a week after the FEDS, when Jerome
Speaker 3: Powell signaled that they were further away from cutting rates
Speaker 3: than before. The European Central Bank has signaled strongly that
Speaker 3: it's planning to cut rates at its June meeting as
Speaker 3: it grows more confident that inflation is continuing to slow.
Speaker 3: So how will the BOE fit into what's happening elsewhere.
Speaker 3: I've been discussing the outlook for the upcoming meeting with
Speaker 3: Bloomberg's chief UK economist Dan Hansen. I started by asking
Speaker 3: him what's changed for the BOE since its last meeting
Speaker 3: on the twenty first of March.
Speaker 9: I don't think a huge amount has changed, to be
Speaker 9: honest with you. We've had a few upside data surprises,
Speaker 9: but they were very, very small, and if you look
Speaker 9: at see the most important thing, what happened to inflation
Speaker 9: over the first quarter. It came in at three point
Speaker 9: five percent. The Bank of England's forecast in February, the
Speaker 9: last time it put a forecast together, was three point
Speaker 9: six percent, so a little bit below, but for me, actually,
Speaker 9: what's been most interesting is what policy makers have been saying,
Speaker 9: which is what you alluded to there, And we've had
Speaker 9: remarks from certainly Bailey, Andrew Bailey and Dave Ramsden that
Speaker 9: are very much sort of moving in I would say,
Speaker 9: the dubvish direction. There's a little bit of uncertainty. I
Speaker 9: think about what Hugh pill did or didn't say in
Speaker 9: his speech, but I think the thing for us that
Speaker 9: we took away at least is that there he said
Speaker 9: that there's been little news in the data, which is
Speaker 9: obviously clearly very important. So I think to answer your
Speaker 9: question directly, whatever you believe sort of following the March meeting,
Speaker 9: the Bank would do at least looking domestically, and we'll
Speaker 9: probably get onto the Fed in a second. There is
Speaker 9: a much reason to change. You're thinking about the when
Speaker 9: the first cut will come?
Speaker 3: Okay, well, let's deal with the fetish and we'll come
Speaker 3: back to the split on the committee in a moment.
Speaker 3: How much does the signals that we got from Jerome
Speaker 3: Powell that Ratcot's look further away than they did before.
Speaker 3: How much does that affect the BOE.
Speaker 9: So markets think it affects the BOE quite significantly. If
Speaker 9: you look at the way BOE pricing has moved, if
Speaker 9: you look at the way FED pricing has moved, they've
Speaker 9: essentially moved in locksteps. So what's interesting is I think
Speaker 9: the comments that Bailey made about that that the UK's
Speaker 9: inflation problem is more like a European inflation problem, so
Speaker 9: the problem facing ECB than it is like the US's
Speaker 9: demand led inflation problem, and I sort of am inclined
Speaker 9: to agree with that. Particularly this year, I think there's
Speaker 9: going to be this quite big divergence between the UK
Speaker 9: and US inflation story, mainly driven by energy, but that
Speaker 9: sort of spills through into the rest of the CPI basket.
Speaker 9: So I don't think the FED going later is an
Speaker 9: impediment to the BOE. I think it can go before
Speaker 9: the FED. And actually, one thing that the BOE has
Speaker 9: got to be really quite careful about is that it
Speaker 9: doesn't allow what's happened recently. So they're tightening of financial
Speaker 9: conditions to spill into the UK economy and we've seen
Speaker 9: that affect some metrics in the economy already. If we
Speaker 9: think about house prices and the like, and mortgage rates.
Speaker 9: You know, the bo needs to be wary of that.
Speaker 9: Everyone talks about the exchange rate impact of going earlier
Speaker 9: than the f but actually what you also need to
Speaker 9: be worried about is allowing tie to financial conditions to
Speaker 9: affect your domestic economy when your domestic economy is already
Speaker 9: very weak.
Speaker 3: What is your expectation there in terms of the inflation trajectory,
Speaker 3: I mean, when when does the two percent target look
Speaker 3: likely to be his?
Speaker 9: I think in the next few months. I mean it
Speaker 9: might not quite get there in April. I think May
Speaker 9: or June are pretty good bets for when we'll get
Speaker 9: to two or even below two in fact. So I
Speaker 9: mean what one really important consideration I think when you
Speaker 9: think about that, is that the bank will have the
Speaker 9: May CPI print before the June meeting, and I think
Speaker 9: that will It'll be very hard if you have a
Speaker 9: too or even particularly if you have a sub two
Speaker 9: percent CPI inflation print in your hand not to do something.
Speaker 9: So I think that for us is sort of the
Speaker 9: next few months of data after this, after we get
Speaker 9: past this meeting. The data between the May and the
Speaker 9: GEME meeting are basically key, and I think that will
Speaker 9: set the tone for the rest of the year. In
Speaker 9: terms of what the bank thinks it can or can't deliver.
Speaker 3: We talk a lot about the FAD's influence over those
Speaker 3: central banks. What about the European Central Bank? If the
Speaker 3: Bank of England has a similar inflation problem in large
Speaker 3: Bailey's eyes to the ECB, does that mean actually the
Speaker 3: ECB decision, which is widely telegraphed for June, is likely
Speaker 3: to influence the BOW decision.
Speaker 9: Well, I think it will help that the ECB just
Speaker 9: chronologically goes first, so in June, their meeting is before
Speaker 9: the banks, so I think there will be a bit
Speaker 9: of cover there. As you say, Bailey has made that
Speaker 9: comparison to Europe more than to the US, and you
Speaker 9: take that alongside the fact that you will potentially have
Speaker 9: a very favorable CPI print in hand. I think the
Speaker 9: sort of cards are aligning for you know, we think
Speaker 9: it's June. A lot of other economists think it's August,
Speaker 9: but sometime in the summer for them to move. So
Speaker 9: I think, yeah, the ECB is sort of I think
Speaker 9: it's an important thing for the bank to have a
Speaker 9: bit of cover there. The ECB's gone, there's no sort
Speaker 9: of reason for the banks to sort of sit on
Speaker 9: its hands.
Speaker 3: What about the rest of the year. Then after the
Speaker 3: kind of first cut that we're looking at in that
Speaker 3: summer period, is it going to be kind of start
Speaker 3: start depending on the data, do you think, or on
Speaker 3: Once we get a first cutter we look like what
Speaker 3: we are on a steady trajectory.
Speaker 9: So I mean it goes back to my answer to
Speaker 9: the first question is that whatever you believed following even
Speaker 9: the February meeting, but certainly the March meeting, it feels
Speaker 9: like you should probably still believe something pretty close to
Speaker 9: that now. So we still have meeting by meeting at
Speaker 9: least for a time, and that's a lot more aggressive
Speaker 9: than market pricing. I think for market pricing to be
Speaker 9: born out, you would have to have quite some bumps
Speaker 9: in the road. But if you're sitting at two sub
Speaker 9: two percent headline CPI inflation and services inflation continues to fall,
Speaker 9: albeit slowly, and you have to sort of expect it
Speaker 9: to fall slowly. It's not going to drop like a
Speaker 9: stone like the headline rate has. I don't see any
Speaker 9: reason why they can't move, as I say, at least initially,
Speaker 9: meeting by meeting. I think they'll come a point and
Speaker 9: I think it's around about the four percent mark where
Speaker 9: they get a little bit concerned about where what we
Speaker 9: call the neutral rate is to the rate that neither
Speaker 9: speeds up or slows down the economy. But I think
Speaker 9: there is room between sort of where we are now
Speaker 9: and around four percent to potentially take out what they're
Speaker 9: calling restriction in the policy stance and sort of it
Speaker 9: basically eased the squeeze on the economy.
Speaker 3: What are the risks to the inflation outlook that you'll
Speaker 3: be watching. I mean, you mentioned energy. We had that
Speaker 3: spike and oil prices which are sort of receded now,
Speaker 3: so that seems to be a little bit out of
Speaker 3: the picture. But is it still energy the thing you'd
Speaker 3: worry about.
Speaker 9: Yeah, I mean I think I think it's energy. And
Speaker 9: to without wanting to sort of tout the speech too much,
Speaker 9: how Dave Ramsden sort of characterized the whole thing is
Speaker 9: that I just feel there's not enough weight being placed
Speaker 9: on the downside risk here. You know the way inflation
Speaker 9: surged in the UK, if you sort of go through
Speaker 9: the sort of mechanism headline inflation surged, people saw that
Speaker 9: they pushed up, they bid up their wages because the
Speaker 9: laid market was tight, and that is eventually fed through
Speaker 9: to services inflation, and high energy prices are pushed up
Speaker 9: services inflation as well. Now energy price inflation is where
Speaker 9: in fact we're in disinflation. The headline rate is falling.
Speaker 9: You have to put some weight on the idea that
Speaker 9: that mechanism goes into reverse and quite quickly. And I
Speaker 9: think Bailey and Ramsen, at least certainly in their comments
Speaker 9: are sort of alluding to this, that you have to
Speaker 9: look forward a little bit more and not just be
Speaker 9: completely data dependent. And I think that actually goes to
Speaker 9: the CRUXFID a little bit, where the bank's reaction function
Speaker 9: has shifted a bit, not just being completely on every
Speaker 9: CPI print and hanging on that, but looking forward to say, look,
Speaker 9: this thing can unwind quite quickly, So we probably need
Speaker 9: to take a little bit of insurance out to ensure
Speaker 9: that we're not caught on the downside on the way down,
Speaker 9: because we don't want to make the mistake of being
Speaker 9: too slow coming out of this, having arguably been too
Speaker 9: slow getting to it in the first place. So that
Speaker 9: for me is the risk at the moment, and that's
Speaker 9: why it's probably sort of when we see what they
Speaker 9: say on their main meeting. They'll probably say the risk
Speaker 9: of broady balance to the outlook, which is sort of
Speaker 9: a big shift again because they've been constantly emphasizing the upside.
Speaker 3: And just coming back to that vote split's idea. Whilst
Speaker 3: what will get you excited in terms of the vote risk.
Speaker 9: Any votes for it?
Speaker 4: No.
Speaker 9: I mean we've put our preview out and in that
Speaker 9: we say that we think Ramsdom will join THINGRA inviting
Speaker 9: for a cut. I think that or any more going
Speaker 9: for a cut would get people excited. I think if
Speaker 9: you had an eight to one again, which is what
Speaker 9: we had in March, and similar guidance, it wouldn't feel
Speaker 9: like we'd moved closer. It might feel at that point
Speaker 9: it had been pushed away a bit. So I think
Speaker 9: there needs if it's going to happen in the summer,
Speaker 9: it needs to feel like it's coming closer. In a
Speaker 9: more dubbish vote split or even a tweets the guidance
Speaker 9: would be the things to look for on that.
Speaker 3: Thanks to Bloomberg's Chief UK economist, Dan Hansen, I'm Stephen
Speaker 3: Carolyn London. You can catch us every weekday morning here
Speaker 3: for Bloomberg Daybreak.
Speaker 10: Europe.
Speaker 3: Beginning at six am in London and one am on
Speaker 3: Wall Streets.
Speaker 2: Tom beg you Steven and coming up on Bloomberg day
Speaker 2: Break weekend, Chinese President shi Jin Pining said for a
Speaker 2: trip to Europe, what could this mean for relations between
Speaker 2: Europe and China? I'm Tom Busby and this is Bloomberg.
Speaker 2: I'm Tom Busby, New York. But your global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: Relations between China and Europe have been Chile as of late,
Speaker 2: but with Chinese President shi Jinping set to visit Europe
Speaker 2: in the coming days, can we expect to see a
Speaker 2: thaw in that relationship. Let's get to Daybreak Asia hosts
Speaker 2: Brian Curtis and Doug Prisner.
Speaker 4: To Chinese President Shijinping heads to Europe in the coming week,
Speaker 4: is expected to deliver the message that China has more
Speaker 4: to offer Europe than the US cares to admit.
Speaker 1: She will be traveling to France, Serbia, and Hungary on
Speaker 1: a five day trip. Those nations are seeking investment from
Speaker 1: China even as tensions mount. Relations have cooled over a
Speaker 1: range of issues, including trade, allegations around spying and Beijing's
Speaker 1: support for Russia.
Speaker 4: Even with Ty's slipping of late, it appears that both
Speaker 4: sides will probably try to woo the other. Sources tell
Speaker 4: us that French President front Sois Macron will take she
Speaker 4: to a corner of the Pyrenees where he used to
Speaker 4: visit his grandmother as a.
Speaker 1: Child, and she will likely again make this point affordable
Speaker 1: clean energy from China will help Europe fight both inflation
Speaker 1: and climate change. Here's Dan ten Kate, Bloomberg Asia eco
Speaker 1: Gov executive.
Speaker 11: Editor from China's perspective. They're like, look, the world needs
Speaker 11: a bunch of evs, so there's no problem with us
Speaker 11: investing in these, and we can provide cheap cars for
Speaker 11: your people. So you know, the visit to Hungary is
Speaker 11: important in that because you have Chinese companies looking to
Speaker 11: set up factories there, and you know governments that are
Speaker 11: happy to kind of have this investment from China to
Speaker 11: gain jobs locally and to have cheaper electric vehicles in
Speaker 11: their market.
Speaker 4: Bloomberg's Dan ten Kate joining us now in our studio
Speaker 4: is far further discussion on this is Jenny Marsh, a
Speaker 4: team leader for Greater China eco Gov, and Rebecca Choan
Speaker 4: Wilkins Bloomberg Asia Government and Politics correspondents. So, as we
Speaker 4: heard there from Dan, it's going to be a little given.
Speaker 4: Take Jenny, let me go to you first. As Doug said,
Speaker 4: relations have gotten a little testier of late here than before.
Speaker 4: We have these EU probes on Chinese made evs and
Speaker 4: also medical devices procurement. So it might be tempting to
Speaker 4: say that this will be a tougher trip for she
Speaker 4: than usual, But after all, this is the president and
Speaker 4: he's not going to face a lot of press, and
Speaker 4: the meetings will be at a very high level.
Speaker 10: What are we expecting exactly? And you can add to
Speaker 10: that list that he's picked three countries in Europe which
Speaker 10: are already considered to be some of the more friendly ones.
Speaker 10: So you know, going to Serbia and Hungary, these are
Speaker 10: not two countries that should be critics of China's policy.
Speaker 10: Quite the opposite. They're sort of big fans of Beijing's
Speaker 10: investment into their countries, and he can use those countries
Speaker 10: as sort of showcase this is what engagement with China
Speaker 10: can offer to you. France is going to be sort
Speaker 10: of the most important stop, and in France is also
Speaker 10: going to have this trilat with as lovel One Delaion
Speaker 10: from the European Commission, and so I think, you know,
Speaker 10: that meeting, I think is Macron's way of saying that, yes,
Speaker 10: Si Jianping is coming, and we're throwing this big banquet
Speaker 10: for him and taking him sort of this very personal
Speaker 10: childhood retreat. But at the same time they're not going
Speaker 10: to shy away from some of the tougher questions. And
Speaker 10: you know, she sort of is the architect of this
Speaker 10: de risking narrative language which the US then adopted. So
Speaker 10: I think in that trilat in France on the first
Speaker 10: day with Macron and Vondalayan, you're going to expect the
Speaker 10: toughest probably conversations he'll have during that trip on China's
Speaker 10: industrial policy, on She Jianping's continued support for President Vladimir
Speaker 10: Putin despite you know, the war in Ukraine grinding on,
Speaker 10: and sort of you know, this propping up Russia's war machine,
Speaker 10: something which has been really pivotal in changing the shape
Speaker 10: of the China europe relationship in a way, I think
Speaker 10: that people in officials and Beijing didn't really grasp at
Speaker 10: the beginning how consequential that was going to be. So
Speaker 10: you know, I think, yes, he's going at a time
Speaker 10: when probably relations between Europe and China have never been
Speaker 10: or in decades haven't been quite so testy, and distrust
Speaker 10: is growing. But he's carefully curated this itinerary, I think,
Speaker 10: obviously to serve his interest best and sort of promote
Speaker 10: the narrative that he wants to tell on this trip.
Speaker 1: What about what she may be attempting to do in
Speaker 1: terms of US EU relations and whether or not there's
Speaker 1: an opportunity for him to maybe insert a bit of
Speaker 1: a wed chere, Rebecca and try to exploit some division.
Speaker 1: I mean, we know there's a tremendous amount of unity,
Speaker 1: but there are disagreements, and would she use this trip
Speaker 1: to try to capitalize on some of that?
Speaker 12: Yeah, I think that's right. And just to take a
Speaker 12: step back briefly, the broader context here is that Europe
Speaker 12: and the European Union in particular, has for a long
Speaker 12: time viewed itself as this sort of middle path. It
Speaker 12: has wanted to resist automatically siding with the US, not
Speaker 12: just because of its policy on China, but also because
Speaker 12: how the European Union historically has viewed the US itself.
Speaker 12: It has not wanted to just automatically throw its weight in,
Speaker 12: but the Biden administration has worked hard to get its
Speaker 12: allies and partners on side to try and build consensus
Speaker 12: when it comes to taking a firmer stance on China,
Speaker 12: including for example, picking up that de risking language, moving
Speaker 12: a little bit of showing at least a little bit
Speaker 12: of give and take with the European Union stance there.
Speaker 12: But we have seen this steady drumbeat of probes and
Speaker 12: investigations into Chinese industries via the EU, and that has
Speaker 12: essentially taken EU policy much closer to the US.
Speaker 4: Well. The inroad on cars too by China seems to
Speaker 4: have made a big difference. You know, you've got this
Speaker 4: probe that's underway and byd has a plant coming in Hungary.
Speaker 4: We understand that it will take about three years to
Speaker 4: be completed, and a lot can happen between now and then.
Speaker 4: I mean, you'll get the result of the probe in
Speaker 4: the EU, and you know that could be quite damaging.
Speaker 4: And this kind of three years out for a plan,
Speaker 4: it shows how difficult planning can be. Lot can change
Speaker 4: in three years.
Speaker 12: Rebecca, a lot can change. But we do, for example,
Speaker 12: also have another Chinese automaker Cherry taking over an old
Speaker 12: Nisan factory in Spain. We think potentially there could be
Speaker 12: announcements of more such car factory plans in Europe during
Speaker 12: this trip. So wild China is still waiting to see
Speaker 12: the results of that probe, a probe which was actually
Speaker 12: backed by France. It's worth mentioning, you know, China is
Speaker 12: still working very hard to try and at least prove
Speaker 12: that there are benefits, as Jenny points out, if you
Speaker 12: do engage and the fact of sort of going and
Speaker 12: opening factories in European countries, creating jobs, driving some economic growth,
Speaker 12: may try and sort of it may ease some of
Speaker 12: those tensions and some of those anxieties, but it certainly
Speaker 12: is hanging over I think many Beijing companies' heads at
Speaker 12: this moment. It's worth saying too, though, that Beijing has
Speaker 12: very actively engaged in the debate over capacity with the Europeans. So,
Speaker 12: for example, these long comments from Litiang and President cy
Speaker 12: Jimping when German Chancellor Schultz was in the country quite
Speaker 12: different from the more sort of standard and sort of
Speaker 12: briefer comments that we had when US officials have visited
Speaker 12: Beijing and discussed the same topic.
Speaker 1: Well, it's interesting you make that point because recently German
Speaker 1: Chancellor Olof Schoalz was in China and addressing the issue
Speaker 1: of things like unfair competition, dumping, over capacity. Jenny, are
Speaker 1: these perspectives that are uniquely German because of the German
Speaker 1: manufacturing economy, or do they expand more broadly across the
Speaker 1: European Union.
Speaker 10: They expand more broadly across parts of the European Union
Speaker 10: and beyond as well. You know, Schultz's visit to Beijing
Speaker 10: came just a few weeks after Yellen had been in Beijing,
Speaker 10: also carrying the same message, and the US Treasury Secretary
Speaker 10: warned Chinese leaders at the time that the concerns that
Speaker 10: the US has on Chinese overcapacity are shared by lots
Speaker 10: of countries around the world. And so Schultz coming and
Speaker 10: sort of he really echoed her message, you know, almost
Speaker 10: to the word. Just a few weeks later, really sort
Speaker 10: of hammered that home. And that's sort of part of
Speaker 10: a broader sign too, you know that the European Union
Speaker 10: and the US they're China policies kind of now sort
Speaker 10: of coalescing into one joined up policy. Obviously, the big
Speaker 10: thing on the horizon is the US election, you know,
Speaker 10: and if we do see President Donald Trump coming back
Speaker 10: into the White House later this year, he could take
Speaker 10: China policy in a whole different direction. He become much
Speaker 10: more hawkish, you know, much more sort of unpredictable. And
Speaker 10: then I think the Europeans are going to have to
Speaker 10: sort of think if they still want to walk in
Speaker 10: lockstep with the US on their China policy. But for now,
Speaker 10: you know, the two sides are very much in sync
Speaker 10: into how they're presenting their concerns to the Chinese. And
Speaker 10: that must be worrying, I think for China. You know,
Speaker 10: two of these huge economic blocks both presenting the same concerns.
Speaker 4: Yeah, let's go back to Dan ten Kate. We talked
Speaker 4: with him briefly about how she might be appealing to
Speaker 4: the EU to pursue a more pragmatic policy toward Beijing.
Speaker 11: She views Macron as someone he can do business with,
Speaker 11: someone that is not inherently reflexively anti China, that can
Speaker 11: stand up to the US and kind of forge a
Speaker 11: middle path. And it's kind of key to China's long
Speaker 11: standing strategic aim, you know, to kind of drive a
Speaker 11: wedge essentially, and not be in lockstep with the US,
Speaker 11: particularly when it comes to export controls on key chips
Speaker 11: and other advanced technology that China would need to grow
Speaker 11: its economy.
Speaker 4: So, Jenny, what are some of the bargaining points that she.
Speaker 10: Will bring to the four It's going to be all
Speaker 10: about what China can offer France, you know particularly. I
Speaker 10: think this is where the Chinese like to sort of
Speaker 10: the like sort of work to the advantage they have,
Speaker 10: which is, you know, they can offer different countries different
Speaker 10: carrots within the European Unions. I think for France, you know,
Speaker 10: it's going to be sort of what their companies can
Speaker 10: bring in terms of job creation and investment. We know
Speaker 10: from sources that mccran is specifically going to be asking
Speaker 10: she for investment in the EV battery sector. So you know,
Speaker 10: if she can say he's going to steer some of
Speaker 10: their sort of world leading companies in that sector towards
Speaker 10: investing in France, you know, that's very appealing from macran.
Speaker 10: And I think if what they can then do is
Speaker 10: sort of work out these deals where it's much more
Speaker 10: of it of a JV and so rather than you know,
Speaker 10: importing Chinese cars into France. If some of these Chinese
Speaker 10: cars or goods can be made in France by French workers,
Speaker 10: then that helps to ease these tensions. But of course,
Speaker 10: you know there's kind of an irony here too, and
Speaker 10: that there's been some research showing as well that you know,
Speaker 10: these European companies now which are actually behind the Chinese
Speaker 10: in terms of this type of new tech, they're now
Speaker 10: looking for tech transfer. So when these Chinese companies do
Speaker 10: set up in European nations, there's also this idea, a
Speaker 10: risk on the Chinese side of sort of technology leak,
Speaker 10: where the Europeans are now wanting to learn from the
Speaker 10: Chinese companies which are ahead. And that's just something which
Speaker 10: is quite fascinating to think about for a second, because
Speaker 10: you know, just a few decades ago, the complete opposite
Speaker 10: was true, where it was you know, European companies in
Speaker 10: China and the Chinese trying to sort of learn from
Speaker 10: that tech and you know, seally even perhaps to get ahead.
Speaker 10: Now everything sort of swung on. The imbalance is so
Speaker 10: great in some ways that you have these European firms
Speaker 10: that potentially want to learn from the Chinese, and that's
Speaker 10: something I think that you know, she has to sort
Speaker 10: of work out how to balance.
Speaker 1: Thanks to the two of you for helping us set
Speaker 1: up the meeting this week between the heads of state
Speaker 1: in Hungary, Serbia, and France with Chinese President Chi Jinping,
Speaker 1: Jenny Marsh Bloomberg Team Leader for Greater China Eco Gov
Speaker 1: and Rebecca Chung Wilkins Bloomberg Asia Government and Politics Correspondent.
Speaker 4: I'm Brian Curtis, along with Doug Krisner. You can catch
Speaker 4: us every weekday here for Bloomberg day Break Asia, beginning
Speaker 4: at eight am in Hong Kong and eight pm on
Speaker 4: Wall Street. Tom.
Speaker 2: Thank you, Brian, Thank you Doug. And that does it
Speaker 2: for this edition of Bloomberg day Break Weekend. Join us
Speaker 2: again Monday morning at five am Wall Street time for
Speaker 2: the latest done markets overseas and the news you need
Speaker 2: to start your day. I'm Tom Buzzby. Stay with us.
Speaker 2: Top stories and global business headlines are coming up right now.