Daybreak Weekend: U.S CPI, UK Security, China CPI

This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our day
Break anchors all around the world, and straight ahead on
the program. After a dismal August jobs report, is a
FED rate cut looking like a sure thing? I'm Tom
Busby in New York.
I'm Caroline Headkitt in London, where we're shining a spotlight
on the UK's defense industry ambitions.
I'm Charlie Pelop with a look at the Chinese economy
ahead of next week's readings on consumer and producer prices.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Good day to you. I'm Tom Busby, and we begin
today's program with what a sharp cool down in the
US labor market last month and some key US inflation
data out this week will mean for FED policymakers and
for more. We're joined by Stuart paul Us economists with
Bloomberg Economics. Well, Stuart, thank you so much for joining us. Now,
before we talk about the Fed's next move, I really
want to dissect what we saw on Friday with that
August jobs report. I mean, what did it mean to you?
Well, the pace of hiring is just too slow to
maintain a steady unemployment rate. We heard earlier in the
week that Minneapolis Fed Branch President Neil Kashkari thinks that
the break even pace of hiring it's about seventy five
thousand workers. That's what the consensus was expecting for the month. Alas,
we only saw about twenty two thousand additional jobs added
during the month. If you really break it down, most
of the hiring, most of the net hiring is in
the lowest skill human facing services industries, things like retail, trade, leisure,
and hospitality. While there is still higher in things like
education and healthcare. The pace of hiring in that higher
skill industry has slowed dramatically, and with that, with slowing
in demand for workers, we've also seen essentially a slowing
in income growth. By our estimates, income growth in the
month of August right now is looking like it's going
to register just a touch above zero point three percent.
And when that's the case, the outlook for consumer spending
starts materially softening. We had a pretty good July, it
looks like August might be a little bit slower.
And let's talk about that shocker from June, that revision
showing a contraction thirteen thousand job losses.
That's right. It seems like revisions have been one of
the more interesting factors with each of these payroll releases.
You'll remember in July it was also the revisions that
were so shocking. Yeah, what's really what's really most relevant
where the FED is that their understanding of the labor
market is now updating, and as they get these revisions,
the resilience of the labor market that they believe was
so profound seems to be dissipating. What they thought was
a strong labor market is actually being revealed upon revision
to be a relatively weak labor market. We've seen all
these alternative data sets pointing to cooling hiring, slowing labor demand.
It seems like finally the official statistics are catching up
to it.
Now.
Do you see any indication that the Trump crackdown on
immigration and deportations may have played a role, especially in construction,
which saw a pretty sizable decline in jobs.
It's possible. It's really difficult to go from the more
human element, things that we would capture in the household survey,
things like the composition of the workforce, and then map
that to pay roll. So, for example, yes, as you
mentioned weak hiring and construction, but there was relatively strong
hiring in leisure and hospitality, which one also might think
has a relatively high representation of immigrant workers. So it's
difficult to fully map the consequences of the inflation of
the immigration crackdown. What is clearer, though, is that the
break even pace of hiring needed to maintain a steady
unemployment rate is now lower than previously believed. It was
thought that the break even pace of hiring needed to
maintain steady unemployment was a bit over one hundred thousand.
Now it looks like it's you know, seventy five thousand
workers per month or lower. And again we're now running
just about one third that pace right now. And that's
why we saw the uptick and the unemployment rate.
Wow, and the unemployment rate though four point three percent historically, Yes,
it went up, but historically not a something to get
scared about. But I guess the question is what does
all this mean for the FED? I mean, we're about
ten days away from another meeting. We've seen the signals
from Jackson hole from Chairman Powell. Is a twenty five
basis point rate cut baked in at this point.
I think a twenty five basis point rate cut is
almost a certainty at this point. As you say, a
four point three percent unemployment rate is not exactly high,
and so it's difficult for the FED to rationalize taking
the elevator down on rates and cutting rates by fifty
basis points or more. That's going to be very difficult
to rationalize with a four point three percent unemployment rate.
But still, when the FED is expecting to end the
year around four point three to four point four percent unemployment,
each incremental uptick, including in this August payroll report, is
going to be enough to get their attention, and for
that reason, I think we will get that quarter point
cut in September.
Oh boy, Well, the August producer price index out Wednesday,
the consumer price index for August on Thursday, and that
FED decision on rates just about ten days away our
thanks to Stuart Paul, Us, economist with Bloomberg Economics. We
move next to tech giant Apple, which will hold its
fall product launch this Tuesday, September ninth, where it's expected
to introduce a new iPhone seventeen lineup, and it comes
as the company explores using outside AI technology in its products.
For more on this and all things Apple, were joined
by Mark German, Bloomberg News Managing editor for Global Consumer Tech. Well, Mark,
thanks so much for joining us. I want to start
with all the excitement around this week's product launch, which
will include an ultra thin version of the iPhone. So
what do you expect to see this week?
Yeah, thank you for having me. The iPhone redesign Era
begins on Tuesday at Apple's next launch event. Right over
the past half decade or so, the iPhone design really
hasn't changed much. But over the next three years it's
going to change significantly. And that starts Tuesday, and you're
going to see that in two ways. One, they're releasing
the iPhone seventeen Pro in seventeen Pro Max, and for
the first time in a while, they're going to be
redesigning the device. The back is going to look entirely new.
It's going to have a new wireless charging area on
the bottom half, and it's going to have a brand
new camera area, a camera bar, so to speak, on
the top part, which extends that camera region right now,
right now, it's in the top left quadrant. Now it's
going to really take up about the top third of
the whole phone. And that's going to allow some new
tricks related to the aperture and optical zoom in some
such so big improvements to the camera on the seventeen
Pro and seventeen Pro Max, and it's going to visually
look different. The other phone is going to be what
I'm calling the iPhone seventeen Air. This phone is going
to be about two millimeters thinner than any iPhone sold
to date. Now two millimeters might not sound a lot
on paper or when I say it, but in your hand,
you're going to notice a gigantic difference. And this is
Apple taking the same strategy as the mac BLAGUEIR that
it introduced almost twenty years ago. Something that's thinner, lighter,
and more marketable, but has some drawbacks on key features
like battery life and in some cases processing power, camera
and overall performance, so you're going to get some trade offs,
but it's going to be a really cool looking phone
and it's probably going to sell far better than the
prior fourth iPhone models before they had the Mini and
the Plus phones of the regular variation. This is something
sandwiched in the middle between the Base and the profone,
so that's very exciting.
And any other new devices you expect to see.
I expect to see new versions of all the Apple
Watch models, So a pretty significant update to the Apple
Watch Ultra, theough Ultra three in order to better compete
with Garmin. That high end sports watch market is something
that Apple wants to make a big vent into. And
then you're going to see a minor update to the
Series eleven Watch last year was more of a significant
engineering upgrade. And then you're also going to see upgrades
to the Apple Watch se which is Apple's entry level watch.
This is something they're trying to position for kids, a
pre smartphone age. And then we're also likely to see
upgrades to the AirPods.
All right, a lot to look forward to. There was
also some good news for Apple last week now a
federal judge ruled that Apple can maintain its deal with
Apple Bit making Google the default search engine on all
its devices, and that means that's good news for shareholders certainly.
What kind of money were talking about in that deal.
Well, Apple is generating north of twenty billion dollars a
year roughly from this deal. And basically what this is
is when you make a Google search, Google makes money
from the advertising or the search placement fees that companies
pay to have their website result go higher in the
search results. Right, if you do that on an Apple device,
an iPhone, an iPad, a math, you name it, Apple
get to Cut, it's a rev you share deals similar
to the revenue share deals they have on the App Store.
In this case it's a little bit more lucrative. Like
I said, more than twenty billion a year is the
value here.
And there was a.
Real scenario where Apple was going to lose out on
that deal because the judge was going to prevent Google
from having default search arrangements, not only with Apple, but
any companies they had default search arrangements. So this is
quite significant development not only for Apple and Google, but
the whole tech industry, which now breathes a sigh of
relief because the precedent has been set that the current
government is not breaking up these companies.
Wow, big, big, Well, I want to pivot to something else,
the story that you broke Apple's Elvis in Vegas. AI comeback.
That's what I want to call it. Overhauling. It's Sirie
Voice Assistant and you know it's worked with Google and
it's worked with Open Ai. Apple tell me about this
AI powered web search tool for Siri that they're working
on right now, who they're working with, and what it
means to the consumer.
March, Apple is going to finally overhaul Serrie. This was
supposed to come out several months ago, but it was delayed.
At the core of the new series, as I broke,
is going to be an AI web search tool. So
this is going to allow people in Siri and other
parts of iOS and Apple's operating systems to get better
data from the Internet. You know, Series good at doing
things on your devices, but it really can't get information
reliably from the open web, and so this is going
to do that with what is known as World Knowledge Answers.
That's the internal code name for this feature. Others call
it an answer engine internally. So this is a pretty
significant deal. This is Apple competing with perplexity and search
on Chat GPT to a large extent rather than competing
with Google. And in terms of who they're working with
on this, I've been talking for months that Apple is
seeking major AI partnerships. They've talked to Open Ai, They've
went very deep in discussions and negotiations with Anthropic, but
it sounds like they're going to land with Google. Google
has created a custom model for Apple to help power Siri,
to really make serie work more effectively, like a Gemini
or Chat GPT, And right now all signs are pointing
towards Apple seriously considering taking this agreement with Google.
Well. Apple's awe dropping iPhone seventeen launch event is this Tuesday.
Amid all that talk about AI and our thanks to
Mark Erman, Bloomberg News Managing editor for Global Consumer Tech
and coming up on Bloomberg day Break weekend to look
ahead as the global defense industry is about to gather
in London for the UK's flagship sector event. I'm Tom Busby,
and this is Bloomberg. This is Bloomberg Day Break Weekend,
our global look ahead at the top stories for investors
in the coming week. I'm Tom Busby in New York
up later in our program and look at some key
economic data in China amid lingering questions about tariffs and housing.
But first, the US defense companies have won some major
contracts in recent days, including one to build warships for Norway.
Now this comes as the global defense industry is about
to gather in London for the UK's Flagship Sector event.
But as pressure mounts on Britain's fiscal situation, will domestic
government spending on security be a priority for more? Let's
go to London and bring in Bloomberg daybreak. Euro banker
Caroline Hepgar.
Tom Bae Systems won a high profile ten billion pound
deal to supply navy frigates to the Norwegians recently, in
a sign that the UK may be reviving the shipbuilding
industry at once dominated. And there's reason the world is
a more uncertain and perhaps dangerous place despite an entrenched
conflict in Ukraine. Russia's Vladimir Putin has brushed off European
concerns about a Russian threat to the continent as hysteria.
And consider China's massive choreographed military parade in the last
few days that prompted US President Donald to dismiss the
idea that China would ever quote use their military on us.
So with that in mind, it seems grimly apt that
the theme for this year's Defense and Security Equipment International
Exhibition here in London is preparing the future force. European
allies have promised to plow billions of euros into domestic
defense manufacturing. How quickly that happens and what is bought
is vital. Norway picked the UK as the supplier of
frigates to help it deter Russian submarines in the High
North in what is the biggest ever investment in the
Nordic country's defense history. Here is Norway's Defense Minister tore
O Sandvik discussing that decision.
It was a very difficult choice and we had the
four very good contenders, both the Germany, France, UK and
the Americans, close allies to Norway all four, but it
was a decision with a lot of factories. So we
decided to go were with the Brits because in the
end it was a lot of factors who decided it.
So are you worried at all about Norway's navy needing
the capabilities before twenty thirty which is when deliveries are
due to start.
No, we all already have frigates, but we'll want to
exchansion with the new frigates. So this is completely in
line with our plans in the long term defense plan.
That was the Norwegian Defense Minister tore O Sandovic speaking
that to Blomberg's Francine Laqua. So as the Norway deal
a flash in the pan or the start of a revival,
the government here sees defense as a sector ripe to
drive economic growth. As for Britain's own defense, security experts
have judge Britain currently incapable of defending itself against a
ballistic missile attack given a combination of long term under investment,
botch contracts and poor recruitment. So joining me now to
discuss all of this, what's happening here in Britain and
the global contexts Boomberg's Roslyn Matheson and Tony Halpin, who
leads our team covering the Russian government and economy, Welcome
to both of you. Thank you, Roz. How acute is
the security threat in your view facing the UK? Perhaps
we should start there.
Well, you were just laying some of it out because
like a lot of countries. The UK arguably took their
foot of the gas for many years when it came
to its own security and spending to keep up with
security threats, and perhaps a sense of complacency because the UK,
like others, falls under the NATO umbrella that somehow, you know,
NATO would magically come to the rescue if needed. And
there's been a realization across the board on that, particularly
over the last year or two. I mean, there are
two wars still going on. There's a war obviously in
Gaza and the war in Ukraine, and other potential threats
on the horizon Nonstate act is, particularly cyber attacks. So
the threat has grown more complex as we go on,
and really the renewed questionals of a nuclear threat, given
all the international guard rails, the architecture around nuclear weapons
seems to be falling apart those understandings about how to
manage arsenals and behavior. I mean, is there an immediate
threat to the UK from say Russia. Unlikely, But we
are an increasingly multipolar, complex world and that's a lot
for the UK, especially as you were noting, with limited
air defenses of its own.
Yeah, Tony, more dangerous world. Perhaps we should think about
Vladimir Putin the war in Ukraine. Is it going to end?
What's your view now?
Well, eventually, of course, you know it will come to
a conclusion. But I think there's a great deal of concern,
particularly in Europe, that they don't see a near term
horizon in which the war does come to an end.
And even if it did, even if we got to
a point where the active fighting stopped, that doesn't resolve
the crisis because you have this enormous front line something
like a thousand kilometers long in eastern Ukraine, which if
there is a peace agreement, will require policing that will
require troops on the ground from other countries to make
sure that Putin doesn't in fact initiate another conflict. That's
going to require commitments from Europe, which are very difficult
at the moment to see the meeting over the long term,
because it's large numbers of troops, it's large numbers of
military commitments, and it's going to go on for years
unless tensions abate somehow, And it's difficult to see how
tensions do abate when Vladimir Putin's in the Kremlin and
they basically have ripped up relations with Europe. So even
if the fighting stops, which is a big question mark
at this point, Once that happens, the crisis continues for
years and potentially decades.
Wow.
In terms of the UK, to what extent is defense
spending then for the British government of priority? I mean,
we know that they've talked about it a great deal
Defense Minister John Healey, the Prime Minister, the new NATA
defense spending commitments. But it's a difficult time fiscally for
Britain too well.
It is min Kirs Starmer, the Prime Minister. Back at
the time of the NATO summer he said the first
duty for prime minister is to keep the country safe
and that sits above all other duties. And so you
know it is a priority for the government. We've got
the recent news that the UK is going to buy
at least a dozen new US made F thirty five
fighter jets, for example. It is part of the NATO
pledge to increase spending on defense as a proportion of GDP.
It's going to have to commit to getting there. The
question is like, at what point does it get there?
Is it closer to twenty thirty five?
But the but the big bart.
As you were saying, is Chancellor Rachel Reeves has some
very delicate fiscal waters to navigate, and she's got her
budget in late November. There's a lot of chatter that
she will need to raise taxes or cut spending. I mean,
some estimates are up to what fifty one billion power
to fill a hole in public finances. And so where
do you find that money? How can you show that
you're still spending money towards defense in those environments? And
do you face potentially a backlash at home if you're
cutting welfare in order to devot money into into defense spending.
And yet the UK has been at the forefront of
trying to support Ukraine, being at the heart of the
so called Coalition of the willing Tony. President Putin doesn't
obviously want NATO troops in Ukraine. I mean, how likely
do you think that might be?
Well, this is one of the big un answered questions
I think the Russia says consistently. Putin says that he
will not tolerate the presence of NATO countries' troops in Ukraine.
They've said all on that they can't allow Ukraine into NATO,
But they don't even want NATO troops present in Ukraine.
Given that the Coalition of the Willing is basically comprised
of countries that are in NATO, it's very difficult to
see how square that circle. Ukraine, of course, is very
concerned to sure that it has security guarantees that mean
something and aren't just on paper, So they will want
to know very concrete answers to very concrete questions. Who
comes if the war starts again, what do they sayd
when do they send it? How can we expect to
defend ourselves in these different scenarios? And at the moment
the Coalition of the Willing isn't really sketching out the
answers to that question that would allow them then to say, okay, well,
we feel fairly secure in the event that the war
stops and Putin continues to present a threat to us.
Meanwhile, the uses of technology within Ukraine are being rapidly
integrated within the defense space across Europe and here in
the UK. In the next few days we're highly likely
to see a lot of that. In terms of the
frigate deal for the UK and that ten billion pounds
that I mentioned, the idea of reviving ship building in Britain.
It does look like the Nordics are looking to the UK.
And there was also big question mark about that wasn't there.
It was about actually whether Britain this defense spending sort
of gosh that we're expecting was going to come to Britain.
And the UK did beat out other countries, you know,
it was looking like France, Germany and the US. We're
also competing for that. For the Norway frigate deal, and
a big selling point for the UK was that interoperability
of their vessels, right, which is they work well together,
that's much more efficient, it reduces costs, and that's increasingly
something that's going to be on the table with defense
deals and that's possibly a selling point for the UK.
KIT that talks to kit and systems and equipment that
work together, and a lot of that is what can BAE,
for example, get out of the pie right The frigate
steel will create some jobs in Glasgow. Interestingly, BAE Systems
recently raised its earnings outlook for the for the full
year and it talked about being positioned particularly to contribute
to the US Golden Dome homeland defense projects. So certainly,
you know BAE is optimistic about what it can get,
but it's also a lot of competitors for this increasing
pie in the US is pushing very hard for its
companies to be involved in to get deals. It's a
bit of a crowded field and so the UK is
going to have to show that it's bringing something special
to these deals in order to keep winning them.
Tony, what do you think about the European defense spending budgets, commitments,
what it means for the industry, the speed of developments.
Yeah, so, I mean it's boom times for defense industries
across Europe. Of course, because nervous Europeans worried that Trump
might want to walk away from NATO, committed to enormous
increases in defense spending in line with his demand to
spend something like five percent of GDP on defense. But
one of the lessons from the Ukrainian War is indeed
that there's this great imbalance between spending on systems that
countries might be interested in tanks, missiles, warships, you know,
which costs millions, sometimes hundreds of millions of dollars to build,
and the effectiveness of those systems on the battlefield. Ukraine
has been very successful in repelling Russian attacks using drones
that you can take out a two million dollar tank
with a two hundred dollar drone. So there's a great
imbalance and effectiveness here, and some of the spending I
think in these countries isn't yet reflecting the changes on
the battlefield that we're seeing.
Okay, let's see whether that is addressed at this industry
gathering in London in the coming days. My thanks to
Bloomberg's Chief Asia correspondent rosl In Matheson and to our
Russia Government and Economy team leader Tony Happin for speaking
to me looking ahead to the Defense Industry's DSi exhibition
in London in the next few days. And you can
find details about new defense industry deals on the Bloomberg
terminal and our website. I'm Caroline Hepkea in London. You
can catch us every weekday morning for Bloomberg Daybreak you
at beginning at six am in London. That's one am
on Wall Street.
Tom, Thanks Caroline, and coming up on Bloomberg day Break
weekend to look ahead to some key economic data in
China and what it means for the world's second largest economy.
I'm Tom Busby. And this is Bloomberg. This is Bloomberg
Day Break weekend, our global look ahead at the top
stories for investors in the coming week. I'm Tom Busby
in New York. China's private manufacturing gage just flipped back
to expansion rating dogs PMI hit fifty point five at August,
beating all forecasts, but questions linger with tariffs, weak confidence,
and housing still a drag on the world's second biggest economy.
For a closer look, let's get to Bloomberg's Charlie Pellett.
Tom China's economic momentum is weakening after solid growth in
the first half of the year. Bloomberg Economics says a
government crackdown on price wars is holding back production, with
a worsening downturn in the housing market, putting an additional
drag on activity. So what should we expect when we
get fresh readings on Chinese consumer and producer prices. We
bring in Bloomberg Markets Lives strategist Mary Nicola. She is
in our Singapore radio studio. Mary, thank you so much
for joining us. The place I'd like to begin with is,
first of all, your expectations for both headline and core
CPI next.
Week so China, I think one of the big things
is that it's been struggling with is deflation. So I
think we're going to probably see more of those disinflationary
pressures coming through because of the fact that we're not
seeing a particular uptick in consumption. We've seen retail sales
data from the previous month that was quite weak, so overall,
it doesn't look like there are any significant price pressures
really coming through just yet. Obviously there's some upside in
terms of the initiatives that the government is pulling through
on the consumption initiatives to stimulate it, but it's still
in early stages and it's in early days, so I
think what we're going to see is just more disinflation,
and that trend is likely to continue, so we'll see
just more of the same.
Yeah.
Specifically, then on PPI, are we looking at less deflation
or an outright turn into positive territory?
Oh, it's definitely early days on that one too, because
we've had consistent and several months of deflation on the
producer price Index. The government has launched this anti involution campaign,
which is to try and limit this excessive competition, but
we still haven't seen a true turnaround there in terms
of what's coming through in terms we've seen in earnings
that the competition is really fierce among many of the
commerce platforms. So in terms of PPI, you're likely still
to see a deflationary pattern.
Now, PMI surveys have shown input costs are up, prices
are capped. How much passed through should we expect from
factories to consumer prices?
Well, I think this what we're seeing is the fact
that consumption is still very tepid, and because of that,
it looks like there is not as much passed through
coming through. Retail sales is still weak.
We have to.
Remember that that Chinese household is still recovering and trying
to recover from what is happening in the property sector.
There's still that property sector malaise. We've seen lots of
households come back and try to pay back their mortgages
where they're not taking out as many new loans. We've
seen that in last month's data, and again we could
see that in this month's data where that is still
that trend continues where they're trying to pay back their debts.
So if we're seeing consumption not pick up and still
that the policy stimulus hasn't come through. It looks like
the pass through in terms of getting to the consumer
is going to remain limited.
How likely are we to see any indication that energy
is playing a role in PBIB at oil refined products
or electricity tariffs. Oh?
I think more broadly, that's one of the catalysts driving
inflation lower, not only in China but more broadly throughout Asia.
So if we look at CPI in countries like Indonesia
India for example, we're seeing significant declines in inflation. A
lot of it has to do if we look at
just how oil prices have declined since the start of
the year. That has become a clear catalyst for lower
prices everywhere in the region. And of course if we
continue to see that trend in oil prices, that's obviously
going to filter through to headline inflation in Asia and
of course more broadly globally, from.
Energy to property weakness. How are rents and housing related
services feeding.
Into cp Yeah, that's still going to have downward pressure
on CPI because we haven't seen a strong rebound in
house prices and house prices still remain very weak. The
problem with housing in China is there hasn't been a
broad based recovery, and there hasn't been a broad based
package in terms of stimulus to really offset and to
lift the property market. So what we've seen is consistent
decline in housing prices. We've seen that property sector malaise
really stay within the economy, and that's been quite a drag.
But what the government has tried to do with some
of its stimulus initiatives is to try and offset this
property drag by supporting consumption or supporting this AI tech drive,
which has been one of the key things that has
been supporting the equity markets, and that's one of the
drivers that's going to continue where the focus has been
on bringing China up that value chain and bringing AI
as a key support for the economy.
Mary with consumer confidence soft and household savings high as
demands strong enough to lift services inflation.
You know, it's interesting because one of the key things
that the government has been focused on is providing subsidies
and support for specific services, whether it's childcare or other services.
But at the same time, we've seen households build their
reserves and build their ammunition and savings for a rainy
day and that has a lot to do with what
we've seen in the property sector. Keep in mind, a
lot of households in China do put much of their
savings into houses and much of their investment into houses.
But we're seeing a shift and that shift is coming
through in terms of shifting into the equity market. So
we've seen how bond yields have risen as a result
of that transition for households from the bond market into
the equity market. And given that household deposits are near
record highs, could see that shift continue and that actually
be supportive for the equity markets. So one of the
things about the equity markets is if you continue to
see gains, that could improve overall optimism and that could
actually help consumption. So it's almost a feed through channel
from what we see from the equity markets down to consumption,
and so we could see a pickup in services. But
still it's still in its early stages.
I have to ask for Chinese consumers and by implication,
for the Chinese economy. Certainly, tariffs, weak confidence, housing are
all headwinds. Of those three, Is there one that's being
more talked about than any of the others.
I think for a great deal. It's interesting to see
tariffs have been largely shrugged off, and that's because of
the fact that we've seen strong exports. The property sector
has been something that's been trudging along in the background.
I think what the key focus is for the markets
is just on consumers and ensuring that there's a pickup
in consumption, because at the end of the day, if
you have exports feeding through and supporting the overall economy
and investment, especially on the property sector side, declining, you
still need that consumption channel to come through to help
support growth, and that's going to be actually the key
trigger that helps growth into this year and into next year.
So it really will come down to consumption, and I
think that's going to be the key focus, whether it's
retail sales or some of the policy initiatives that the
government focuses on.
That's Mary Nikolab Bloomberg m Live strategist in Singapore. Let's
get some more perspective now. Earlier in the week, we
heard from Kevin Sneider Apak, ex Japan president at Goldman Sachs.
He struck an optimistic tone on Chinese equities amid resurgon
flows Sneader spoke exclusively to Bloomberg's April Hong at Goldman's
Asia Leaders Conference in Hong Kong.
So, Kevin, let's start with China, because we're seeing in
terms of the market performance has really been underpinned by
liquidity even against the backdrop of these macro risks. What
are you seeing from global investor fields.
Well, certainly, as you say, this is a very interesting
time in terms of the rally that's taking place in
Chinese equities, this is not an overnight rally. It's worth
noting that it was a year ago that we saw
the media conferences and the announcement of various measures, and
really since then there have been a few milestones along
the way. The first milestone, of course, was in Hong Kong,
where we saw the Hong Kong market really move, and
now we're seeing the onshore market ashare rally taking place.
And what we're hearing from our clients and investors is
sentiment has improved. Foreign investors are showing more interest, but
the positioning changes are yet to come. Most of what
we're seeing is still domestically oriented, and I think it's
worth remembering that a big driver of this rally remains
the retail investor in China, and it's that retail investor
who's got this excess saving that a lot of people
are talking about the household savings that are built up
and they're looking for other options, and the equity markets
are providing some of that focus. But sentiment has improved
the first half in China, so are relatively strong GDP growth.
The second half is likely to be more challenging, so
we should keep a careful attention to the underpinnings here,
the fundamentals. China still faces many challenges that this rally
and the equity markets has.
Got some legs.
What are your clients saying about what they want to
see more of before that positioning comes back, Well, it
really depends.
Which clients if from your question you're asking about the
foreign investor, Clarity and consistency are the key words that
come to mind, because ultimately there's still a focus in
some of the headwinds, the demographic headwind deflation and the
challenges that we're seeing from a combination of over capacity
and demand limitations. And finally, of course, the backdrop for
all of this, geopolitics remains and lingers. So progress in
Each of these is what underpins confidence to ensure the
foreign investor can return and the flows can move. We
are seeing some return, though I think it's important to
acknowledge that hedge fund positioning has improved, but the long onlays,
the longer term investor. That's going to take a lot
more clarity and a lot more consistency before we see
the flows move.
Has it been a national golment to lowerds bar on
investing in China as well as you know, build on
the business that's already here.
Well, we've been in China for forty years. We have
a long history here. We are very committed to our
business here. We've been maintaining the footprint through tough times
and good times. This is a moment when we see
certainly opportunity and we continue to look at China with
a lens that says there are plenty of places where
our clients need services, need the support that we can provide,
and we're going to be there for them. And it's
with that lens, our client lens, that we are very
focused on the opportunities that we have in We.
Talked about Hong Kong I.
We seeing this IPO boom is Goldman looking at expansion
potentially here.
Well, this has been a busy type fifty seven so
far this year, two hundred in the pipeline. There's a
lot of activity building in Hong Kong, and in that context,
we're hiring. We certainly are hiring. We continue to look
at the opportunity to meet the needs of our clients,
but we'll do it in a thoughtful way because one
of the things which I'm very focused on and my
colleagues are very focused on, is making sure that we're
there for our clients, but we don't get ahead of ourselves.
And so it's a thoughtful approach that we certainly are hiring.
Kevin Sneader apac X Japan, President at Goldman Sachs speaking
with Bloomberg's April Hong and I'm Charlie Pellett, cash us
weekdays for the Daybreak Asia podcast. It's available wherever you
get your podcasts.
Tom, Thanks Charlie, and that does it for this edition
of Bloomberg day Break Weekend. Join us again Monday morning
at five am Wall Street Time for the latest on
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