Daybreak Weekend: Boeing Earnings, UK Banks, BRICS Summit

Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.119 --> 0:00:13.720 This is Bloomberg day Break Weekend, our global look at 0:00:13.760 --> 0:00:15.840 the top stories in the coming week from our Daybreak 0:00:15.840 --> 0:00:18.480 anchors all around the world. Straight Ahead on the program, 0:00:18.520 --> 0:00:21.360 corporate earnings and Focus. We'll look ahead to results from 0:00:21.400 --> 0:00:25.400 the jetmaker Boeing and shipping giant ups. I'm Tom Busby 0:00:25.440 --> 0:00:26.000 in New York. 0:00:26.120 --> 0:00:28.440 Him Carolyn Hetge here in London, where we're charting the 0:00:28.520 --> 0:00:33.200 potential rise of British banking ahead of some key earnings reports. 0:00:33.440 --> 0:00:36.200 I'm dek Prisner, looking ahead to next week's Brick Summit 0:00:36.320 --> 0:00:38.720 hosted by Russian President Vladimir Putin. 0:00:43.920 --> 0:00:47.440 Let's all e struly head on Bloomberg Daybreak Weekend on 0:00:47.560 --> 0:00:52.040 Bloomberg eleven, TREEO, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:52.479 --> 0:00:57.320 Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Sirius 0:00:57.480 --> 0:01:00.880 XM one twenty one, and around the world Bloomberg Radio, 0:01:00.920 --> 0:01:02.840 dot Com and the Bloomberg Business. 0:01:02.880 --> 0:01:10.160 A good day to you. I'm Tom Busby. We begin 0:01:10.200 --> 0:01:14.000 today's program with the troubled aerospace giant Boeing, the company 0:01:14.000 --> 0:01:16.920 making headlines for all the wrong reasons of late a 0:01:17.000 --> 0:01:21.360 crippling month long strike, mounting losses, layoffs, investigation since the 0:01:21.440 --> 0:01:23.720 safety of its aircraft and more. And amid all that, 0:01:24.560 --> 0:01:28.840 Boeing officially reporting its third quarter earnings this Wednesday, although 0:01:29.120 --> 0:01:32.479 some of those numbers were released last week. For more 0:01:32.560 --> 0:01:34.880 and what we can expect, we're joined by George Ferguson, 0:01:34.920 --> 0:01:39.880 Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst. George, thanks 0:01:39.920 --> 0:01:42.520 for joining us well before we talk about what's wrong 0:01:42.600 --> 0:01:45.040 at Boeing and maybe how to fix it, what do 0:01:45.080 --> 0:01:48.120 you expect to see from the Q three earnings this Wednesday? 0:01:48.960 --> 0:01:51.280 Yeah, I think we've already seen I think the most 0:01:51.280 --> 0:01:54.240 important part of Q three earnings, and that was when 0:01:54.280 --> 0:01:59.120 Boeing disclosed their cash balances and they and cash use 0:01:59.280 --> 0:02:02.800 for the quarter. Right, So during the quarter we saw 0:02:02.840 --> 0:02:08.000 a use of it's about a billion three So that 0:02:08.080 --> 0:02:11.320 was from operations I think a little bit better than 0:02:11.320 --> 0:02:15.880 what we had expected for usage. There's going to be 0:02:15.919 --> 0:02:18.119 some capex that piles on top of that, which will 0:02:18.840 --> 0:02:21.440 you know, give us our free cash flow for the 0:02:21.520 --> 0:02:25.160 quarter again, probably something close to two billion ish in use. 0:02:25.639 --> 0:02:28.120 They were down to about ten billion dollars in balances. 0:02:28.320 --> 0:02:31.480 I think ten and a half, and so this is 0:02:31.520 --> 0:02:34.640 a company that needs about ten billion dollars around the business. 0:02:35.440 --> 0:02:38.240 So the big indicator here was that, you know, they're 0:02:38.280 --> 0:02:40.600 they're at the point where they need to raise some money. 0:02:41.120 --> 0:02:43.720 Speaking of raising money now, they're now working on raising 0:02:43.760 --> 0:02:47.160 upwards of twenty five billion with new shares convertible bonds. 0:02:47.400 --> 0:02:49.520 I mean, is this going to go ahead? It's credit 0:02:49.600 --> 0:02:53.000 rating just above junk status? Is this what's next for Boeing? 0:02:54.080 --> 0:02:57.320 Yeah, So I think you know, the company's calculus here 0:02:57.440 --> 0:02:59.560 is that if they're right up against the edge of 0:02:59.600 --> 0:03:02.000 what they need to run the company and they've got 0:03:02.040 --> 0:03:05.680 a strike going on, you know, obviously there's going to 0:03:05.680 --> 0:03:10.640 be well probably cast usage during the fourth quarter, so 0:03:10.680 --> 0:03:12.520 they need to go into the markets and shore up 0:03:12.560 --> 0:03:16.160 that liquidity position just to give them more leverage with 0:03:16.200 --> 0:03:19.680 the union. And so I do think it's going to occur. 0:03:19.840 --> 0:03:23.040 Right We've heard rumblings of them coming to the equity 0:03:23.080 --> 0:03:26.440 market for up to twenty five billion. They filed the 0:03:26.480 --> 0:03:29.079 shelf offering for twenty five billion. I don't think they 0:03:29.080 --> 0:03:31.519 want to use all twenty five billion right now. I 0:03:31.560 --> 0:03:34.040 don't think they want to be I don't think they 0:03:34.080 --> 0:03:36.960 want to skimp either on what they get from the marketplace, right. 0:03:37.000 --> 0:03:40.160 I think they want a couple quarters worth of liquidity 0:03:40.560 --> 0:03:42.320 so they can get the union back to the table 0:03:42.320 --> 0:03:44.320 and say, look, we've got a lot of staying power here, 0:03:44.720 --> 0:03:47.520 so you better be ready to go, you know, a 0:03:47.600 --> 0:03:51.440 quarter or more, you know, on this strike, which I 0:03:51.440 --> 0:03:53.120 think is going to be very hard right for the 0:03:53.120 --> 0:03:57.280 typical union rank and file. So you know, we kind 0:03:57.280 --> 0:04:00.680 of see ten to fifteen billion worth of cash raise 0:04:01.600 --> 0:04:04.160 again equity. The challenge will be that there'll be a 0:04:04.200 --> 0:04:09.080 fair amount of dilution for current shareholders. There's about ninety 0:04:09.080 --> 0:04:11.280 billion dollars in market cap right now in the company. 0:04:11.680 --> 0:04:15.480 Ten billion dollar raise is something like eleven percent dilution, 0:04:15.560 --> 0:04:17.240 so it's pretty significant. And that's why I think they 0:04:17.240 --> 0:04:19.440 don't want to go all the way to the twenty 0:04:19.480 --> 0:04:23.200 five billion dollar mark. I think equity sort of protects 0:04:23.279 --> 0:04:26.280 their credit rating or helps them, you know, with their 0:04:26.320 --> 0:04:31.240 credit rating, doesn't doesn't deteriorate their credit metrics. I'm sure 0:04:31.240 --> 0:04:33.720 the agencies are also concerned about the strike, so I'm 0:04:33.760 --> 0:04:36.240 not sure it gets them totally out of the woods 0:04:36.279 --> 0:04:39.800 on pressure for their credit rating, but it's definitely a 0:04:39.800 --> 0:04:42.039 lot better than them raising debt where I think the 0:04:42.080 --> 0:04:44.400 credit rating agencies we just have to downgrade them as 0:04:44.440 --> 0:04:45.159 soon as they did that. 0:04:45.600 --> 0:04:47.920 Yeah, yeah, but and it could happen right. 0:04:48.200 --> 0:04:51.920 Good again, I think there's still under pressure for credit ratings. 0:04:52.320 --> 0:04:55.520 The agencies have clearly been looking past current problems, right 0:04:55.560 --> 0:04:59.040 because you couldn't do a net debt to EBITDA analysis 0:04:59.080 --> 0:05:01.480 on them right now right, ebitdas quite low and their 0:05:01.760 --> 0:05:04.679 debts quite high. So the metrics are way out of whack. 0:05:04.760 --> 0:05:07.359 And you know, the credit acies are looking through this period. 0:05:07.560 --> 0:05:09.839 But the longer it goes on, the more they have 0:05:09.880 --> 0:05:12.840 to worry about the financial challenges of Boeing. And I 0:05:12.920 --> 0:05:14.520 think the less they can look through the period and 0:05:14.880 --> 0:05:15.960 have to take some action. 0:05:16.200 --> 0:05:18.200 Well, let's talk a little bit more about that strike. 0:05:18.520 --> 0:05:21.400 And I just want to be clear, this is just 0:05:21.440 --> 0:05:25.640 their Pacific Northwest manufacturing, right. There is manufacturing going on elsewhere. 0:05:25.839 --> 0:05:28.040 Yeah, So this is the machinist out of the Pacific 0:05:28.080 --> 0:05:33.760 Northwest they're responsible for. They build most of the commercial 0:05:33.800 --> 0:05:36.720 programs for Boeing, Right, so they would build the seven 0:05:36.800 --> 0:05:39.640 sixty seven, they'd build the Triple seven, they'd build the 0:05:39.680 --> 0:05:43.000 seven thirty seven of those airplanes, the seven thirty seven 0:05:43.120 --> 0:05:46.320 is the most important airplane to Boeing commercial that's the 0:05:46.400 --> 0:05:49.200 highest volume. It's where they generate their cash, make their 0:05:49.240 --> 0:05:52.200 profits out of. So that's why this strike is so 0:05:52.360 --> 0:05:56.839 debilitating to the company. They do manufacture seven eight sevens, 0:05:57.000 --> 0:06:00.760 I think their second most important commercial platform. They make 0:06:00.839 --> 0:06:04.880 them in the Carrollton in South Carolina near Charleston. That's 0:06:04.880 --> 0:06:08.600 a non union plant, so it's not affected there is 0:06:09.120 --> 0:06:12.279 you know what I've heard in the marketplaces, some of 0:06:12.320 --> 0:06:15.240 those seven eight sevens come back up to Everett, Washington 0:06:15.760 --> 0:06:18.240 and get worked a bit before they go to customers. 0:06:18.800 --> 0:06:21.240 So we're not going to say that they're not impacted 0:06:21.279 --> 0:06:23.400 at all by the strike, but I think they have 0:06:23.480 --> 0:06:26.960 the capability to continue to deliver in decent numbers close 0:06:27.000 --> 0:06:30.040 to their targets. That's seven eighty seven during the strike, 0:06:30.279 --> 0:06:33.479 and then the defense network really isn't affected except for 0:06:34.040 --> 0:06:37.240 KC forty six tanker. KC forty six tanker is the 0:06:37.360 --> 0:06:40.680 US aerial tanker program, another program Boeing has had a 0:06:40.720 --> 0:06:42.520 lot of problems on. Taking a lot of charges on 0:06:43.240 --> 0:06:47.120 the airframe goes down a line in the Northwest in 0:06:47.200 --> 0:06:50.920 the Seattle area up in Everett, and I think that's 0:06:51.040 --> 0:06:55.040 largely machinist in union labor, and so that's probably impacted 0:06:55.080 --> 0:06:57.320 as well by the strike, but a large portion of 0:06:57.360 --> 0:06:59.679 defense is not affected by the strike. 0:07:00.000 --> 0:07:03.440 Affected. Wow, well Boeing's latest earnings this Wednesday ahead of 0:07:03.480 --> 0:07:06.760 Wall Street's opening bell our Thanks to George Ferguson, Bloomberg 0:07:06.800 --> 0:07:11.440 Intelligence Senior Aerospace, Defense and Airlines analyst. We move next 0:07:11.440 --> 0:07:14.920 to the shipping and logistics company United Parcel Service UPS, 0:07:15.040 --> 0:07:18.240 reporting its third quarter earnings on Thursday. Now, UPS coming 0:07:18.280 --> 0:07:21.080 off a pretty rough second quarter after a drop in volume, 0:07:21.160 --> 0:07:23.160 will the third quarter be any different? 0:07:23.360 --> 0:07:23.720 For more? 0:07:23.760 --> 0:07:28.040 We're joined by Lee Clasgal, Bloomberg Intelligence Senior Transport, Logistics 0:07:28.040 --> 0:07:31.000 and Shipping Analysts. So, Lee, thank you for being here. 0:07:31.080 --> 0:07:33.520 What do you expect to see in UPS's third quarter 0:07:33.560 --> 0:07:34.360 earnings this week? 0:07:34.520 --> 0:07:36.560 Well, I think this print's going to be a much 0:07:36.560 --> 0:07:39.120 better print that we've seen in the first half. 0:07:38.880 --> 0:07:39.360 Of the year. 0:07:39.920 --> 0:07:42.120 In the third quarter, revenues are supposed to be up 0:07:42.200 --> 0:07:45.760 about mid single digits, same with earnings per share. That's 0:07:45.800 --> 0:07:49.239 good news, you know, because we're seeing earnings growth again 0:07:49.520 --> 0:07:52.040 and we expect that to really accelerate into twenty twenty 0:07:52.040 --> 0:07:53.600 five and a lot of that has to do with 0:07:53.640 --> 0:07:56.240 what the company has been doing through its pricing initiatives. 0:07:56.800 --> 0:07:59.520 The company has set a number of different search charges. 0:08:00.320 --> 0:08:04.240 It's a volume specific surcharge, whether it's you know, charging 0:08:04.720 --> 0:08:10.000 more for weird shape or heavy freight that's not really conveyable, 0:08:10.040 --> 0:08:13.880 so it adds costs for UPS. And then they're also 0:08:14.040 --> 0:08:16.320 you know, they're constantly doing you know, not constantly, but 0:08:16.400 --> 0:08:18.360 once a year they do a general rate increase or 0:08:18.400 --> 0:08:22.200 a GRI and there's one on December twenty third, that's 0:08:22.240 --> 0:08:26.760 around five point nine percent. And we expect Historically UPS 0:08:26.800 --> 0:08:31.240 FedEx DHL, you know, they tend to heavily discount their 0:08:31.320 --> 0:08:34.480 GRIS and we expect those discounts to be a lot 0:08:34.600 --> 0:08:38.920 less this time around, just given all the labor inflation, 0:08:39.160 --> 0:08:44.199 equipment inflation that they need to mitigate through pricing initiatives. 0:08:44.320 --> 0:08:47.200 Now that labor inflation you spoke about, they had settled 0:08:47.240 --> 0:08:50.560 avoided to strike, yes, and but it really cost them, 0:08:50.559 --> 0:08:51.200 didn't it. 0:08:51.200 --> 0:08:53.679 It did, and you know it was front loaded, and 0:08:53.679 --> 0:08:56.000 that's something else that will benefit and in the second half, 0:08:56.559 --> 0:09:00.760 the comparables will become a lot easier for them. On 0:09:00.800 --> 0:09:04.240 that longer term contract with the team serves, So that 0:09:04.400 --> 0:09:06.400 is good news, and you know, now they know kind 0:09:06.400 --> 0:09:09.240 of what their costs are going to be as it 0:09:09.240 --> 0:09:11.920 relates to labor and they can work through that. And 0:09:11.960 --> 0:09:14.079 the company has been doing a lot of different things 0:09:14.120 --> 0:09:17.800 in terms of increasing the overall productivity. They've also focusing 0:09:17.880 --> 0:09:19.839 more on some of what they would i esteem their 0:09:19.880 --> 0:09:24.040 core business. They recently sold their freight brokerage business, which 0:09:24.120 --> 0:09:28.840 is called Coyote. They sold that to RXO and that 0:09:28.880 --> 0:09:31.880 should be a huge win for RXO because they can 0:09:32.240 --> 0:09:35.800 really take that business maybe a lot further than YOUWPS 0:09:35.840 --> 0:09:39.000 did because it really wasn't a focus for UPS management 0:09:39.040 --> 0:09:41.680 over the years. It was more of a complimentary business 0:09:42.000 --> 0:09:45.679 that probably works better outside of the UPS. 0:09:46.240 --> 0:09:46.320 Well. 0:09:46.360 --> 0:09:48.640 They also made some acquisitions correct Mexico. 0:09:49.080 --> 0:09:51.200 They do a lot of tucket acquisitions, and a lot 0:09:51.240 --> 0:09:55.000 of the acquisitions that they're doing they're trying to get 0:09:55.080 --> 0:09:57.839 kind of longer into the supply chain, if you will, 0:09:58.800 --> 0:10:01.199 So you know some of the acquisitions they've done a 0:10:01.240 --> 0:10:04.320 lot in healthcare industry. Healthcare is a is a very 0:10:04.320 --> 0:10:09.280 interesting industry from a logistics standpoint because it comes with 0:10:09.360 --> 0:10:11.600 higher margins. There's a lot of specialties that go on 0:10:11.640 --> 0:10:14.000 and I'm sure everyone remembers during the pandemic, you know, 0:10:14.080 --> 0:10:16.280 when we had the vaccines distributed. They had to be 0:10:16.320 --> 0:10:20.319 super super cold, and you know, those kind of services 0:10:20.360 --> 0:10:25.319 cost a lot more money than sending an envelope overseas, 0:10:25.640 --> 0:10:28.199 and therefore it usually comes with higher margins, so it's 0:10:28.240 --> 0:10:31.199 usually it's a very good business. And UPS and FedEx 0:10:31.240 --> 0:10:34.440 are also looking at, you know, a step down from 0:10:34.440 --> 0:10:37.440 the enterprise market, so the small to medium sized shipper, 0:10:37.640 --> 0:10:41.240 which tend to have better margins as well. So UPS, 0:10:41.280 --> 0:10:46.120 while they're divesting some businesses, they're leaning into other businesses 0:10:46.840 --> 0:10:49.040 through these bolt on acquisitions. 0:10:49.720 --> 0:10:51.200 Now, I want to talk go back to something you 0:10:51.200 --> 0:10:55.720 said about the search charges. Consumers are definitely pulling back 0:10:55.760 --> 0:11:00.000 on their money. Fed X has said, UPS maybe had 0:11:00.080 --> 0:11:02.800 said the same thing, that people are choosing a cheaper 0:11:02.840 --> 0:11:06.560 option ground transportation instead of air freight to save money. 0:11:07.040 --> 0:11:10.240 I mean, is that being offset by these higher search charges? 0:11:10.320 --> 0:11:13.080 And what does that mean as we head into the 0:11:13.120 --> 0:11:16.000 most important season for them, you know, the holiday season? 0:11:16.800 --> 0:11:19.040 Yeah, so I mean we're definitely seeing a trade down 0:11:19.080 --> 0:11:22.440 effect to your point, So it maybe instead of having 0:11:22.559 --> 0:11:25.400 expedited freight or freight that or a package that has 0:11:25.440 --> 0:11:27.560 to go overnight. Maybe people are willing to take three 0:11:27.679 --> 0:11:30.920 or five days. I know personally anecdotally. You know, when 0:11:30.960 --> 0:11:33.319 I when I'm doing online shopping, there's a lot more 0:11:33.360 --> 0:11:36.720 options there, like of not having it overnight, and usually 0:11:36.720 --> 0:11:39.319 when it's not overnight, then it's usually free, and I'm 0:11:39.320 --> 0:11:40.800 always going to pick the free. 0:11:40.600 --> 0:11:43.400 Option, always only always always. 0:11:43.400 --> 0:11:45.439 I mean, I don't need a pair of pants that bad. 0:11:45.760 --> 0:11:47.760 I can wait a week. And so you know, you 0:11:47.880 --> 0:11:51.120 are seeing that, you're also seeing an interesting shift. So 0:11:51.160 --> 0:11:54.080 you know, we talked earlier that volumes are expected to 0:11:54.200 --> 0:11:57.439 increase mid single ditch for their domestic market and slightly 0:11:57.559 --> 0:12:00.800 up for their international market. Some of the volume growth 0:12:00.840 --> 0:12:04.400 is coming out of China with these relatively new e 0:12:04.440 --> 0:12:09.840 commerce providers like Sheen and Timu, And that's interesting because 0:12:10.120 --> 0:12:13.880 they're kind of going under the radar with some duties 0:12:14.240 --> 0:12:16.719 where there's a deminimus rule. I know this again a 0:12:16.760 --> 0:12:20.320 little wonky now, where if the value of the products 0:12:20.440 --> 0:12:24.480 under eight hundred dollars, they don't face an extra duty. 0:12:24.840 --> 0:12:27.679 And so a lot of freight is coming in from 0:12:27.800 --> 0:12:31.679 China because you know, without a duty, and it's a 0:12:31.720 --> 0:12:34.640 lot cheaper and kind of undercutting maybe things that people 0:12:34.679 --> 0:12:37.160 could buy here in the United States. So the Biden 0:12:37.200 --> 0:12:39.760 administration is looking at that and that that could change 0:12:39.840 --> 0:12:43.760 some volumes on a negative aspect, because it's been a 0:12:43.800 --> 0:12:47.280 good area of growth for the fedexes and eps's of 0:12:47.320 --> 0:12:47.720 the world. 0:12:48.080 --> 0:12:51.120 Well ups third quarter earnings out this Thursday. That's ahead 0:12:51.120 --> 0:12:53.679 of Wall Street's opening bell are thanks to Lee Glasgow, 0:12:53.760 --> 0:12:58.920 Bloomberg Intelligence Senior Transport, Logistics and Shipping analyst. Coming up 0:12:58.960 --> 0:13:01.520 on Bloomberg day Break, we again we'll chart the potential 0:13:01.600 --> 0:13:05.400 rise of British banking with some prominent UK banks reporting 0:13:05.400 --> 0:13:09.000 their latest earnings. I'm Tom Busby and this is Bloomberg. 0:13:19.600 --> 0:13:22.040 This is Bloomberg day Break weekend, our global look ahead 0:13:22.080 --> 0:13:24.160 at the top stories for investors in the coming week. 0:13:24.400 --> 0:13:26.880 I'm Tom Busby in New York. Up later in our 0:13:26.960 --> 0:13:29.840 program we'll look ahead to the sixteenth annual Brick Summit 0:13:29.880 --> 0:13:32.880 in Russia. But first, ahead of upcoming earnings from some 0:13:32.920 --> 0:13:36.680 of the UK's largest banks like Lloyd's and Barclay's, analysts 0:13:36.720 --> 0:13:40.040 are turning more positive on the sector. Jeffries, Ubs and 0:13:40.120 --> 0:13:43.720 Goldman all bullish on British banking shares. Can the results 0:13:43.760 --> 0:13:46.320 live up to the expectations for more. Let's go to 0:13:46.400 --> 0:13:50.160 London and bring in Bloomberg Daybreak europe banker Caroline Hepger. 0:13:50.280 --> 0:13:53.720 Tom the boost to British banking brought about by high 0:13:53.840 --> 0:13:57.480 interest rates could linger longer than thought, and Lissa turning 0:13:57.520 --> 0:14:01.280 positive on the likes of nat West and Lloyd's, citing 0:14:01.320 --> 0:14:04.920 the rewards of what they call the structural hedge, hundreds 0:14:04.920 --> 0:14:08.120 of billions of pounds invested in the swaps market to 0:14:08.240 --> 0:14:12.559 reduce sensitivity to interest rate movements. There's also a new 0:14:12.600 --> 0:14:15.560 government in town if you haven't noticed, one determined to 0:14:15.720 --> 0:14:19.640 bolster growth and bring in investment. That's something that UK 0:14:19.800 --> 0:14:23.160 banks should be poised to profit from. Blueberg has been 0:14:23.200 --> 0:14:27.680 speaking to Lloyd's CEO Charlie Nunn at the UK Investments 0:14:27.680 --> 0:14:32.000 Summit recently. None told Bloomberg's Farsi Laqua that he is 0:14:32.120 --> 0:14:34.280 optimistic about Britain's future. 0:14:35.000 --> 0:14:35.640 I think the really. 0:14:35.520 --> 0:14:37.640 Important thing to get more investment in the UK is 0:14:37.680 --> 0:14:40.880 first the clarity and a clear direction of the country. 0:14:40.920 --> 0:14:43.720 And so the stability in the clarity this government's trying 0:14:43.720 --> 0:14:45.000 to give, I think is really important. 0:14:45.240 --> 0:14:46.960 Investors want to invest. 0:14:46.600 --> 0:14:47.040 In the UK. 0:14:47.400 --> 0:14:49.520 They're looking at the UK relative to Europe and the 0:14:49.600 --> 0:14:52.080 US and Asia, and at the moment the UK looks 0:14:52.120 --> 0:14:54.920 like a good destination. But the first thing is clarity instability. 0:14:55.280 --> 0:14:57.600 The second thing is tell me where you're going to 0:14:57.640 --> 0:14:59.720 invest alongside us, and do it in a way that 0:14:59.800 --> 0:15:02.960 they us to bring private capital to work. We estimate 0:15:03.000 --> 0:15:06.040 that there's about forty to fifty billion pounds worth of 0:15:06.080 --> 0:15:08.960 investment per year for the next twenty years, so the 0:15:09.000 --> 0:15:11.280 government can't afford that, but the private sector. 0:15:10.960 --> 0:15:13.360 Really can make a difference. And then the third thing 0:15:13.440 --> 0:15:15.160 is really enable the financial. 0:15:14.800 --> 0:15:18.480 Services sector to unlock its potential to support that investment. 0:15:18.680 --> 0:15:20.960 But Charlie, so you're one of the key components actually 0:15:21.000 --> 0:15:23.640 try and get this foreign direct investment into the country. 0:15:23.880 --> 0:15:24.840 Where would you deploy it? 0:15:24.880 --> 0:15:26.040 Where will it be deployed? 0:15:26.480 --> 0:15:27.720 Well, I know the government's going to come out with 0:15:27.720 --> 0:15:28.800 their kind of industrial plan. 0:15:28.920 --> 0:15:31.960 They're talking about eight sectors. Two examples that I think 0:15:32.000 --> 0:15:35.360 there's huge opportunity. One is around the energy transition, and 0:15:35.840 --> 0:15:39.320 the UK's already a leader around offshore wind, but floating wind, 0:15:39.440 --> 0:15:42.280 onshore wind, the growth in solar, and then some of 0:15:42.320 --> 0:15:46.120 the new technologies like carbon capture and hydrogen. There's huge 0:15:46.120 --> 0:15:49.160 opportunities to invest and that also needs a clear plan 0:15:49.320 --> 0:15:52.640 for the national grid and the electrical infrastructure. That's one 0:15:52.640 --> 0:15:56.200 example of a huge opportunity for investment. Another's housing. So 0:15:56.640 --> 0:15:58.480 the government's made a commitment to build a one point 0:15:58.520 --> 0:16:01.760 five million new homes. We need more social and affordable 0:16:01.760 --> 0:16:04.400 homes specifically, that's something we have called for as Lloyd's 0:16:04.400 --> 0:16:07.240 Banking Group, and we really need to get the money invested, 0:16:07.360 --> 0:16:10.560 start going behind breaking down the planning laws and building 0:16:10.560 --> 0:16:13.359 more homes and that'll be good for jobs and productivity 0:16:13.360 --> 0:16:15.640 and create an environment that we can get the skills 0:16:15.720 --> 0:16:16.840 for the investment in business. 0:16:17.680 --> 0:16:20.240 Charlie, So, I guess a lot of people are concerned 0:16:20.400 --> 0:16:22.760 by the fact that, of course this government needs banks, 0:16:23.000 --> 0:16:25.440 as you say, to bring in private capital, to deploy 0:16:25.480 --> 0:16:27.840 some of the money to help them actually also help 0:16:27.840 --> 0:16:29.880 with the National Wealth Fund. At the same time they're 0:16:29.920 --> 0:16:31.440 trying about taxing the banks. 0:16:31.520 --> 0:16:32.560 So how do you square the two. 0:16:33.080 --> 0:16:36.400 Well, see taxations a matter for the government to talk about, 0:16:36.800 --> 0:16:39.600 but irrespective of whatever kind of political decision they take 0:16:39.640 --> 0:16:42.600 on that. As Lloyd's Banking Group, as an example, we've 0:16:42.640 --> 0:16:44.680 got a nine hundred billion pound balance sheet. 0:16:44.840 --> 0:16:47.000 We do eighty to one hundred billion pounds worth of 0:16:47.080 --> 0:16:49.280 lending per year. We have two hundred. 0:16:49.080 --> 0:16:51.600 Billion pounds worth of pension assets we manage on behalf 0:16:51.640 --> 0:16:54.240 of Britain pensioners. We need to put that money to 0:16:54.280 --> 0:16:56.240 work and then we partner with some of the biggest 0:16:56.240 --> 0:16:59.120 world's pension funds, private credit funds, and our job is 0:16:59.120 --> 0:17:01.600 to bring our expertise to channel out into the UK. 0:17:01.840 --> 0:17:05.119 So there's huge opportunity for us to continue to deploy 0:17:05.119 --> 0:17:08.960 that capital in smarter ways that derives productivity, growth and 0:17:09.080 --> 0:17:12.520 jobs to get the UK economy to being the fastest 0:17:12.560 --> 0:17:15.960 growth economy in the G seven, which is a really 0:17:16.040 --> 0:17:16.800 bold ambition. 0:17:17.320 --> 0:17:19.679 A number of your competitors now Western Guard players have 0:17:19.800 --> 0:17:24.760 done recent acquisitions showing basically that they really support this economy. 0:17:25.040 --> 0:17:26.920 Are you looking to do something likely as well? 0:17:27.320 --> 0:17:29.359 So you know, we are now three years into the 0:17:29.359 --> 0:17:32.119 five year strategy I laid out and the great uses 0:17:32.160 --> 0:17:34.719 it's very much a growth strategy and we're delivering well 0:17:34.760 --> 0:17:36.879 against that. We're going to do an update in February 0:17:37.080 --> 0:17:40.040 next year on the first checkpoint in that strategy and 0:17:40.080 --> 0:17:42.399 I'm really pleased with the progress we've made. We've done 0:17:42.440 --> 0:17:45.119 some Bolton acquisitions, but the core of our strategy is 0:17:45.119 --> 0:17:47.440 an organic growth strategy and the great thing for Lloyd's 0:17:47.440 --> 0:17:50.520 Banking Group is we are typically the number one or 0:17:50.600 --> 0:17:53.720 number two player in every segment and product we participate in, 0:17:53.720 --> 0:17:56.199 including in fact an investment in the UK project finance, 0:17:56.240 --> 0:18:00.480 infrastructure finance, housing finance, where we lead in the UK. No, 0:18:00.600 --> 0:18:04.479 we'll look at acquisitions opportunistically. Our core strategy is organic 0:18:04.560 --> 0:18:05.159 and we're. 0:18:05.000 --> 0:18:06.080 Feeling good about where we're going. 0:18:06.400 --> 0:18:07.560 What do you want on pensions? 0:18:07.760 --> 0:18:08.160 Pensions? 0:18:08.160 --> 0:18:09.920 But also there's a lot of talk on actually risk 0:18:10.000 --> 0:18:14.000 taking and this takes years not months that the government has. 0:18:14.040 --> 0:18:16.680 Yeah, so pensions are such an important part of the puzzle. 0:18:16.720 --> 0:18:18.760 As I said, we are a leading pensions provider in 0:18:18.800 --> 0:18:21.040 the UK two hundred billion pounds worth of pension money 0:18:21.880 --> 0:18:23.840 and I think there's a few things that really matter. 0:18:23.920 --> 0:18:26.520 The first is we need to get more of our 0:18:26.560 --> 0:18:27.920 customers money into pensions. 0:18:28.080 --> 0:18:29.480 About forty percent. 0:18:29.200 --> 0:18:31.919 Of the UK households aren't on track for even a 0:18:31.920 --> 0:18:35.119 basic living standard, and obviously giving them financial resilience is 0:18:35.160 --> 0:18:37.880 good for the economy, so we need to increase enrollment 0:18:37.960 --> 0:18:40.159 around pensions. The second thing is how can we invest 0:18:40.200 --> 0:18:43.080 it safely and appropriately for them in high risk assets? 0:18:43.440 --> 0:18:46.680 And actually that's more about conduct risk and fiduciary risk 0:18:46.960 --> 0:18:50.639 than it is around changing or asking the investment managers 0:18:50.640 --> 0:18:53.600 to invest more in those kinds of projects. We need 0:18:53.640 --> 0:18:56.000 to look at how do you support customers to make. 0:18:55.880 --> 0:18:57.080 Those choices in this country. 0:18:57.359 --> 0:18:59.280 And that's something we're talking closely with the government and 0:18:59.359 --> 0:18:59.960 the regulators about. 0:19:00.680 --> 0:19:03.480 You know, the new Investment Minister, how many questions do 0:19:03.480 --> 0:19:06.640 you think she'll feel from international investors about the budget? 0:19:06.960 --> 0:19:09.320 Is this investment summit a little bit too soon as 0:19:09.359 --> 0:19:11.399 we don't really know what happens to non darms, what 0:19:11.440 --> 0:19:14.240 happens aster carried interest and other questions? 0:19:14.800 --> 0:19:16.280 Well, no, And if the first thing to say is 0:19:16.280 --> 0:19:18.320 you can hear the buzz in the room today, it's 0:19:18.359 --> 0:19:20.640 great to see the excitement about investing in the UK 0:19:20.680 --> 0:19:23.680 and have the international investors here. It's very very early 0:19:23.760 --> 0:19:26.199 days for the new Investment ministrating four or five days in. 0:19:27.520 --> 0:19:30.680 I know her ambition is to increase overseas investment into 0:19:30.680 --> 0:19:33.200 the UK. And the kind of investors we're talking about 0:19:33.240 --> 0:19:36.520 are the big international pension funds, the big international sovereign 0:19:36.560 --> 0:19:39.919 wealth funds, the private credit funds, and they're going to 0:19:39.920 --> 0:19:42.639 be looking for good projects with a good return with 0:19:42.800 --> 0:19:45.280 a government and a country that's getting behind making those 0:19:45.400 --> 0:19:48.119 investments successful, that's what will matter. It won't be some 0:19:48.160 --> 0:19:50.480 of the things you're talking about, and so I hope 0:19:50.520 --> 0:19:53.640 that she's really focused on engaging those kinds of organizations 0:19:54.000 --> 0:19:57.080 and then working with our financial services sector which has 0:19:57.119 --> 0:19:59.480 the expertise to put that money to work, and we're 0:20:00.040 --> 0:20:02.000 d and financial service sector in the world. 0:20:02.080 --> 0:20:03.919 Let me say that. 0:20:03.240 --> 0:20:07.080 That was Lloyd's Bank CEO Charlie Nunn, perhaps Keir Starman 0:20:07.240 --> 0:20:11.080 managing to calm the city's jitters with that investment summit 0:20:11.200 --> 0:20:15.919 ahead of the autumn budget. So what is driving the 0:20:16.080 --> 0:20:19.880 positive trajectory of the UK banking sector. It's something that 0:20:19.920 --> 0:20:24.280 I've been talking to our finance reporter about, Harry Wilson. 0:20:24.680 --> 0:20:26.960 I think there's a few things. Obviously, we're now heading 0:20:27.000 --> 0:20:30.320 into a interest rate cutting cycle and people are looking 0:20:30.320 --> 0:20:32.760 at what impact that's going to have on credit demand. 0:20:32.960 --> 0:20:35.680 So obviously, on the one hand, falling interest rates aren't 0:20:35.720 --> 0:20:38.439 that great for banks as they cut their margins. But 0:20:38.440 --> 0:20:40.399 on the other hand, you could see a increase in 0:20:40.840 --> 0:20:44.040 demand among customers for loans and that can be positive 0:20:44.400 --> 0:20:46.600 in its own sense for the banks. So it's really 0:20:46.680 --> 0:20:49.480 kind of a trade off there between those things. And 0:20:49.480 --> 0:20:52.239 then I think we also obviously we're looking out at 0:20:52.240 --> 0:20:53.840 what the new government is going to mean for the 0:20:53.840 --> 0:20:57.119 banking sector. So far it's being broadly positive, but obviously 0:20:57.160 --> 0:20:59.840 we're waiting for the budget in the coming weeks. 0:21:00.359 --> 0:21:00.679 Yeah. 0:21:00.720 --> 0:21:04.760 Absolutely, how's the sector performed to date? So we've just 0:21:04.880 --> 0:21:08.760 come off Wall Street Bank earnings which have been very strong. 0:21:09.080 --> 0:21:11.240 How is the sector in the UK performing well? 0:21:11.240 --> 0:21:13.080 The share price has been very strong this year. So 0:21:13.320 --> 0:21:15.920 among the number of the banks, we've got double digit increases, 0:21:15.960 --> 0:21:18.040 you know, just to take one, but something like Bark 0:21:18.040 --> 0:21:20.520 Pieces up around about fifty five percent at the moment, 0:21:21.080 --> 0:21:24.679 Lloyd's up nearly thirty percent, that West over sixty percent. 0:21:24.960 --> 0:21:29.399 One of the laggards relative laggards is HSBC that they're 0:21:30.200 --> 0:21:33.600 less than about eight percent of the moment. But generally 0:21:33.680 --> 0:21:35.360 the sector has been having a very good year. 0:21:35.880 --> 0:21:39.679 And so then in terms of what we're expecting to 0:21:39.720 --> 0:21:43.199 come obviously, rate sensitive stocks light banks are in focus 0:21:43.200 --> 0:21:45.800 when it comes to interest rates. The Bank of England 0:21:46.400 --> 0:21:49.159 has seen inflation four below the two percent target for 0:21:49.200 --> 0:21:52.119 the first time since what twenty twenty one. April twenty 0:21:52.160 --> 0:21:56.240 twenty one, how do you think that will affect banks, 0:21:56.359 --> 0:21:59.040 the loosening of central bank policy, the Bank of England 0:21:59.080 --> 0:22:00.000 cutting interest rates. 0:22:00.440 --> 0:22:01.760 I think one of the things we'll probably have to 0:22:01.760 --> 0:22:04.160 be looking out for is particularly what banks they're around 0:22:04.240 --> 0:22:08.119 cost cuts. So as as I mentioned, the cuts to 0:22:08.200 --> 0:22:12.000 interest rates are actually you know, not seen that positively 0:22:12.320 --> 0:22:14.960 for banks, particularly because it cuts into their margins. So 0:22:15.000 --> 0:22:17.119 what we'll be then looking for is how banks adapt 0:22:17.160 --> 0:22:19.520 to that. So you know, take one example, but we've 0:22:19.520 --> 0:22:23.359 certainly seen at HSBT a lot of talk and speculation 0:22:23.440 --> 0:22:26.760 around potential cost cuts as the bank looks to you know, 0:22:26.800 --> 0:22:30.200 they're coming off a period in which they've had outsize earnings. 0:22:30.200 --> 0:22:33.119 You know, this year or sorry last year was a 0:22:33.240 --> 0:22:36.960 record year for their annual profits and so now that 0:22:37.000 --> 0:22:40.000 we're that's likely to dampen. I think the focus among 0:22:40.000 --> 0:22:41.920 the banks is probably going to be on how do 0:22:42.000 --> 0:22:44.439 we cut our expenses given that we're probably going to 0:22:44.440 --> 0:22:46.879 be expecting some kind of margin compression now in the 0:22:46.920 --> 0:22:47.560 coming years. 0:22:48.080 --> 0:22:50.520 Also, as you say, ahead of the budget on the 0:22:50.520 --> 0:22:55.200 thirtieth of October, we did hear from some British leading bankers, 0:22:55.240 --> 0:22:58.480 including the CEO of Barclays. Are the UK Investments summited 0:22:59.520 --> 0:23:03.720 only a few days ago. Has the new government done 0:23:04.200 --> 0:23:08.040 something to bolster this sector? I mean, Barclay's was really 0:23:08.080 --> 0:23:11.560 quite positive on the UK on investing in the UK. 0:23:11.680 --> 0:23:15.439 What's the interplay between this new government and bankers in Britain. 0:23:15.760 --> 0:23:19.399 It's very early days, so it's hard to say exactly 0:23:19.800 --> 0:23:21.960 what we're going to guess. I mean, I think everything 0:23:22.200 --> 0:23:26.640 kind of rests on the budget. Obviously, if there's some 0:23:26.720 --> 0:23:30.520 particularly harsh tax writers for banks, and that could definitely 0:23:30.560 --> 0:23:33.119 weigh under sector. I think at the moment, both sides 0:23:33.280 --> 0:23:36.760 are feeling themselves out, basically trying to get a sense 0:23:36.800 --> 0:23:40.640 of what the other's about. And I don't think as 0:23:40.720 --> 0:23:43.159 yet that there's any particular sign that they was going 0:23:43.240 --> 0:23:45.080 to be that's harsh in banks. But on the other hand, 0:23:45.200 --> 0:23:46.680 you know, if we were to see some kind of 0:23:46.800 --> 0:23:50.280 new bank tax in the budget, that could probably quite 0:23:50.359 --> 0:23:51.399 rapidly change sentiment. 0:23:52.000 --> 0:23:54.480 Yeah, indeed, what are you on the lookout for in 0:23:54.560 --> 0:23:56.960 terms of which of the banks might be of most 0:23:57.240 --> 0:23:58.000 interest to you? 0:23:58.840 --> 0:24:01.640 HSBC is the obvious, I think the probably the most 0:24:01.720 --> 0:24:04.000 interesting one. At the moment, we've got a new CEO. 0:24:04.160 --> 0:24:06.560 This is going to be his first set of results. 0:24:07.040 --> 0:24:10.119 And there's an expectation now of some kind of at 0:24:10.200 --> 0:24:14.760 least minor restructuring of the business, probably some major divisions 0:24:14.800 --> 0:24:18.560 being combined, but also what they say about expenses and 0:24:18.600 --> 0:24:21.440 the future strategy of the bank. For me HSBC is 0:24:21.840 --> 0:24:24.760 going to be the one to watch this quarter. That said, 0:24:24.800 --> 0:24:27.040 I think Barkleys could be an interesting one. We've seen 0:24:27.359 --> 0:24:29.359 in the last few days. We've seen some very strong 0:24:29.359 --> 0:24:31.720 results out of Wall Street. We've seen some very strong 0:24:31.760 --> 0:24:35.360 trading results. Barclays is the UK bank of the highest 0:24:35.400 --> 0:24:38.440 exposure to Wall Street, so this is clearly going to 0:24:38.480 --> 0:24:41.560 be good news for Barklays and you get the sense 0:24:41.600 --> 0:24:43.800 that they could have quite a good set of numbers. 0:24:44.280 --> 0:24:47.800 Co Q threes ces ben Kata Krishnan talked about the 0:24:47.880 --> 0:24:54.880 US election posing risks globally, geopolitics posing risks globally. How 0:24:54.920 --> 0:24:58.040 do you think banks are thinking about the election outcome 0:24:58.080 --> 0:24:59.880 in the US? Is that a risk fact? 0:25:00.720 --> 0:25:05.359 I think banks are relatively sanguine about it. You know, 0:25:05.480 --> 0:25:09.840 they tend to take the views that whoever wins these elections, 0:25:09.920 --> 0:25:13.120 that they'll adapt to whatever comes from it. Certainly, as 0:25:13.119 --> 0:25:15.960 a sector, banks have proved pretty adaptable way over the years. 0:25:16.080 --> 0:25:18.800 Whatever it's been thrown at them, whether it's market crashes 0:25:18.920 --> 0:25:23.560 or whether it's changes in governments. I think they'll probably, 0:25:23.800 --> 0:25:26.120 as they've always done, go with the flow. So it's 0:25:26.160 --> 0:25:29.560 hard to say if one outcome is particularly negative for them. 0:25:29.680 --> 0:25:32.879 I mean, you know, as a general rule, particularly if 0:25:32.880 --> 0:25:35.840 you've got strong trading operations, a period of volatility actually 0:25:35.880 --> 0:25:39.199 turns out to be pretty good for business. If a 0:25:39.240 --> 0:25:41.639 Trump election led to a lot of market volatility, I 0:25:41.640 --> 0:25:44.000 think that could be something that the banks would obviously 0:25:44.359 --> 0:25:45.560 can well profit from. 0:25:45.680 --> 0:25:48.720 Many thanks to my Bloomberg colleague Carrie Wilson there for 0:25:48.960 --> 0:25:52.479 talking us through the outlook for the banking sector in 0:25:52.560 --> 0:25:55.399 the UK. I'm Karine Hecger here in London, and you 0:25:55.440 --> 0:25:58.199 can catch us every weekday morning for Bloomberg Daybreak you 0:25:58.200 --> 0:26:00.680 at beginning at six am in London. That's one am 0:26:00.720 --> 0:26:01.359 on Wall Street. 0:26:01.600 --> 0:26:05.080 Tom, Thanks Caroline, and coming up on Bloomberg day Break weekend, 0:26:05.080 --> 0:26:08.200 the Bricks Group of Nations hold their sixteenth annual summit 0:26:08.280 --> 0:26:11.320 in Russia next week. We'll have more on what to expect. 0:26:11.680 --> 0:26:25.240 I'm Tom Busby and this is Bloomberg. This is Bloomberg 0:26:25.320 --> 0:26:27.360 day Break Weekend, our global look ahead at the top 0:26:27.359 --> 0:26:30.080 stories for investors in the coming week. I'm Tom Busby 0:26:30.119 --> 0:26:32.800 in New York. The Bricks Group of Nations will hold 0:26:32.800 --> 0:26:35.720 their sixteenth annual summit in Russia next week. Let's turn 0:26:35.760 --> 0:26:38.840 out a Bloomberg Daybreak Asia podcast host Doug Chrisner for 0:26:38.880 --> 0:26:40.240 a closer look Tom. 0:26:40.280 --> 0:26:42.919 In the coming week, Russian President Vladimir Putin will be 0:26:42.960 --> 0:26:46.600 hosting the Bricks Summit. This year's summit is especially important 0:26:46.640 --> 0:26:50.359 because new members will be added. The founders that would 0:26:50.400 --> 0:26:54.600 be Brazil, Russia, India, China and South Africa will formally 0:26:54.680 --> 0:26:59.760 welcome four new countries. They are Egypt, Ethiopia, Iran, and 0:26:59.800 --> 0:27:03.200 the United Arab Emirates. Now Saudi Arabia has been invited 0:27:03.240 --> 0:27:06.320 to join. It will be represented by its foreign minister. 0:27:06.680 --> 0:27:10.080 It seems like Russia in particular is intent on expanding 0:27:10.080 --> 0:27:13.520 this alliance to counter the influence of the West, both 0:27:13.560 --> 0:27:17.080 economically and politically. So for a closer look, let's bring 0:27:17.119 --> 0:27:21.960 in Bloomberg Salaia Mosen, senior Washington correspondent on the US 0:27:22.000 --> 0:27:25.440 ECOGOV team, joining us from the nation's capital. So, Leah, 0:27:25.480 --> 0:27:27.919 thank you for making time to chat with us. Can 0:27:28.000 --> 0:27:30.520 we start by taking a step back and looking broadly 0:27:30.600 --> 0:27:33.800 at bricks, is it helpful to look at this alliance 0:27:33.800 --> 0:27:36.639 as basically a countervailing force to the G seven. 0:27:37.280 --> 0:27:40.719 That is a really interesting way to look at it. Absolutely, 0:27:41.320 --> 0:27:45.240 the G seven is knitted around Western countries. It is 0:27:45.440 --> 0:27:50.600 US led and it's been a force of power for 0:27:50.840 --> 0:27:53.920 quite a while. And these are countries that work together. 0:27:54.359 --> 0:27:58.520 They work together through the global financial crisis, through COVID 0:27:59.280 --> 0:28:03.600 and most recently through the Russia invasion on Ukraine and 0:28:03.920 --> 0:28:07.960 falling in line with US led economic sanctions on Russia. 0:28:08.480 --> 0:28:12.439 And that's the very thing that triggered a stronger bond 0:28:13.080 --> 0:28:16.960 across the bricks and now bricks plus nations. And so 0:28:17.200 --> 0:28:20.080 there is a reactive force there. It's the US led 0:28:20.119 --> 0:28:24.520 coalition and the China led coalition. The relationship between the 0:28:24.560 --> 0:28:28.800 bricks countries, though, is interesting because they don't always all 0:28:29.000 --> 0:28:32.600 get along, but when it comes to finding a way 0:28:32.640 --> 0:28:35.159 around the dollar, they found some common ground. 0:28:35.320 --> 0:28:37.160 We can talk about the dollar in a moment. Let's 0:28:37.200 --> 0:28:40.640 talk a little bit about the internal dynamics as we 0:28:40.760 --> 0:28:44.360 know them, or as we understand them. You mentioned kind 0:28:44.360 --> 0:28:46.560 of maybe not seeing eye to eye. On one hand, 0:28:46.560 --> 0:28:49.840 we have Brazil and India democracies, I think we can 0:28:49.880 --> 0:28:53.760 agree on that Russia China autocracies. I'm imagining that that 0:28:53.840 --> 0:28:56.840 creates a bit of internal rivalry, does it not? 0:28:57.320 --> 0:29:02.320 Absolutely? Russia and China are running their countries very differently. 0:29:02.680 --> 0:29:05.959 There's always question about what would happen when there is 0:29:06.000 --> 0:29:10.920 an eventual power transfer at hand. Brazil and India, they 0:29:10.960 --> 0:29:14.880 have very different interests at hand. And then the countries 0:29:14.880 --> 0:29:17.480 that you name that are now joining include a lot 0:29:17.480 --> 0:29:22.120 of oil producing nations, and so those stakes are different 0:29:22.280 --> 0:29:23.600 than what the other countries have. 0:29:23.960 --> 0:29:26.760 Yeah, both Saudi Arabia, although it's only been invited to 0:29:26.920 --> 0:29:30.800 join the UAE, which has been given membership, and then Iran, 0:29:31.280 --> 0:29:34.280 So you're absolutely right not to leave out Russia in 0:29:34.400 --> 0:29:38.800 terms of oil producers. We've got two major military conflicts happening. 0:29:38.880 --> 0:29:42.840 We've got Israel conducting war in Gaza and on the 0:29:42.880 --> 0:29:46.200 northern border with Lebanon, Israel is fighting has be Lah. 0:29:46.480 --> 0:29:50.000 How are these conflicts likely to enter the conversation. 0:29:49.720 --> 0:29:52.480 The two sets of conflicts. On the one hand, it's 0:29:52.600 --> 0:29:56.960 kinetic war, you know, bombs and blasts going on in 0:29:57.080 --> 0:29:59.560 those two major conflicts. And then on the other hand, 0:29:59.600 --> 0:30:02.960 between the China led coalition in the US coalition. It's 0:30:03.000 --> 0:30:10.080 a proxy war through economic and diplomatic channels, and both 0:30:10.240 --> 0:30:15.680 ways are damaging. Both types of wars are just proof 0:30:15.880 --> 0:30:23.040 that the decades old global order established when World War 0:30:23.160 --> 0:30:26.160 Two came to a close has started to come apart. 0:30:26.240 --> 0:30:29.880 And so you'll hear a lot more about global or 0:30:29.920 --> 0:30:34.960 geoeconomic fragmentation, which is coming against the backdrop of economic 0:30:35.040 --> 0:30:40.160 populism and protectionism popping up in a lot of across 0:30:40.200 --> 0:30:44.040 the globe, including the United States. We have two presidential candidates, 0:30:44.080 --> 0:30:48.960 two parties, both of them have become protectionist parties, and 0:30:49.040 --> 0:30:54.640 so we have overlapping and coinciding forces pulling apart of 0:30:54.680 --> 0:30:55.400 the global order. 0:30:55.800 --> 0:30:58.400 The other military conflict that we have to address is 0:30:58.440 --> 0:31:01.360 the Russian occupation of your I mentioned at the top 0:31:01.360 --> 0:31:04.160 of the conversation that the summit will be hosted by 0:31:04.440 --> 0:31:07.440 Russian President Vladimir Putin. To what extent is he going 0:31:07.480 --> 0:31:10.800 to try to gather more support for what is happening 0:31:11.360 --> 0:31:13.240 Russia's intentions in Ukraine? 0:31:13.480 --> 0:31:17.840 Oh yeah, I mean, I think having allies, particularly with Russia, 0:31:17.840 --> 0:31:21.560 the Russia's relationship with India and China is important for 0:31:22.040 --> 0:31:25.160 Vladimir Putin. Right now, China has come out a little 0:31:25.160 --> 0:31:28.320 bit more strongly in support of Russia. India is still 0:31:28.400 --> 0:31:31.160 trying to toe the line a little bit. But those 0:31:31.200 --> 0:31:35.200 relationships have limits to them, right If you just take 0:31:35.240 --> 0:31:39.320 one example, that is that Russia was able to sell 0:31:39.400 --> 0:31:43.320 a lot of its oil to India when the US 0:31:43.560 --> 0:31:46.280 led coalition put a lot of caps on the amount 0:31:46.360 --> 0:31:49.880 of oil Russian oil that could reach markets, and Vladimir 0:31:49.880 --> 0:31:51.720 Putin after that ended up with a lot of Indian 0:31:51.800 --> 0:31:54.080 rupees and he did not know what to do with 0:31:54.160 --> 0:31:57.440 them because he cannot take that and buy the things 0:31:57.440 --> 0:31:59.680 he needs, and so it didn't have the same exchange 0:31:59.720 --> 0:32:04.040 ability value. And we're seeing similar data come through on 0:32:04.080 --> 0:32:08.280 the Russia China relationship. But that being said, that's the technical, 0:32:08.560 --> 0:32:12.680 sort of weedy stuff. Diplomatically, it's been hugely beneficial for 0:32:12.760 --> 0:32:15.760 Russia to have a block of nations that is supporting 0:32:15.760 --> 0:32:18.680 it in various levels of strength across the spectrum. 0:32:18.720 --> 0:32:21.920 Sole I'd like to pivot to how the dollar plays 0:32:21.960 --> 0:32:23.960 into all of this. We've talked in the past, you 0:32:24.000 --> 0:32:27.520 and I about de dollarization, Whether the dollar is really 0:32:27.800 --> 0:32:30.320 under threat right now, is the world's reserve currency. We 0:32:30.360 --> 0:32:33.040 can talk about the challenges that you may see in 0:32:33.080 --> 0:32:35.800 a minute. First, I want to listen to a segment 0:32:35.960 --> 0:32:39.040 of a recent Bloomberg News interview with former President Donald 0:32:39.080 --> 0:32:43.040 Trump where the dollar was discussed. Here is Bloomberg editor 0:32:43.040 --> 0:32:44.480 in chief John Micklethwaite. 0:32:44.680 --> 0:32:47.160 Can I ask you a particular thing about the dollar? 0:32:47.320 --> 0:32:49.480 You've actually you've talked about wars at the New York 0:32:49.520 --> 0:32:52.520 Economic Club. You said that if you lost the dollar 0:32:52.520 --> 0:32:55.280 as a reserve currency, it would be like America losing 0:32:55.280 --> 0:32:57.400 a wall. Yeah, you look at what you're going to 0:32:57.480 --> 0:33:00.479 do in terms of protectionism arrive country is to use 0:33:00.520 --> 0:33:03.440 the other currencies and all that death is also going 0:33:03.480 --> 0:33:06.880 to lessen the dollars status as of the world's reserve currency. 0:33:06.960 --> 0:33:09.680 If you worry about the dollar is so secure, your 0:33:09.720 --> 0:33:13.360 reserve currency is the strongest it'll ever be. The reserve 0:33:13.400 --> 0:33:18.040 currency is under threat because you have Iran, you have Russia, 0:33:18.120 --> 0:33:20.200 you have China. Once China is the one that you 0:33:20.200 --> 0:33:21.280 have to worry about because. 0:33:21.040 --> 0:33:21.480 They want it. 0:33:21.800 --> 0:33:25.720 They want to have the wand be the thing of power. 0:33:26.280 --> 0:33:29.040 So here's what I'm doing again. I hate to go 0:33:29.160 --> 0:33:32.040 back to it. If somebody says, and I know countries 0:33:32.080 --> 0:33:34.320 want to get out because they don't respect our leadership. 0:33:34.360 --> 0:33:35.840 They look at this guy. They say, you've got to 0:33:35.840 --> 0:33:37.640 be kidding. And she's worse than him, by the way 0:33:37.720 --> 0:33:40.400 she's I never thought i'd say this. She is not 0:33:40.480 --> 0:33:42.560 as smart as Biden. If you can believe, this is 0:33:42.600 --> 0:33:46.120 not what we had four years of this, this lunacy, 0:33:46.240 --> 0:33:47.920 and we can't have anymore. We're not going to have 0:33:47.920 --> 0:33:52.360 a country left. Okay. Currency very important, yes, and if 0:33:52.360 --> 0:33:54.240 you want to go to third world if you want 0:33:54.280 --> 0:33:57.440 to go to third world status, lose your reserve currency. 0:33:57.960 --> 0:34:00.640 We have to have that. We cannot lose it if 0:34:00.760 --> 0:34:03.600 you'll go to third world status in this country, because 0:34:03.600 --> 0:34:05.320 you take a look at the way things are running. 0:34:05.760 --> 0:34:09.560 If a country tells me, Sarah, we like you very much, 0:34:09.560 --> 0:34:11.960 but we're going to no longer adhere to being in 0:34:12.000 --> 0:34:16.840 the reserve currency. We're not going to salute the dollar anymore, 0:34:17.280 --> 0:34:20.759 I'll say that's okay. And you're going to pay a 0:34:20.760 --> 0:34:23.799 one hundred percent tariff on everything you sell into the 0:34:23.880 --> 0:34:26.759 United States. And we love your product. I help you 0:34:26.800 --> 0:34:28.680 sell a lot of it into the United States, but 0:34:28.719 --> 0:34:32.120 you're going to pay one hundred percent tariff. He will 0:34:32.160 --> 0:34:34.279 then follow it up by saying, sir, it would be 0:34:34.360 --> 0:34:37.919 an honor to stay with the reserve currency. I will 0:34:37.960 --> 0:34:40.680 be that will be like just playing that's not even chess, 0:34:40.719 --> 0:34:41.400 that's checkers. 0:34:41.520 --> 0:34:44.800 Former President Trump there in conversation with Bloomberg editor in 0:34:44.920 --> 0:34:49.080 chief John Micklethwaite. Let's bring in Bloomberg Solea Mosen, who 0:34:49.080 --> 0:34:52.320 has been talking with me about the upcoming Brick summit 0:34:52.600 --> 0:34:56.800 in Russia. Sole, you've written a lot about dedollarization. Was 0:34:56.840 --> 0:34:59.560 there anything in that conversation that you want to push 0:34:59.560 --> 0:35:00.000 back again? 0:35:00.480 --> 0:35:03.839 Well, one thing is that Trump is I mean, yeah, 0:35:03.840 --> 0:35:06.359 he's right that countries are talking about moving away from 0:35:06.400 --> 0:35:09.719 the dollar, but he's wrong that any country has actually 0:35:09.960 --> 0:35:13.520 actively abandoned the dollar. No one has. If you just 0:35:13.719 --> 0:35:15.920 I'll just give you two data points. Eighty eight percent 0:35:16.080 --> 0:35:19.240 of the world's foreign exchange transactions take place in the dollar. 0:35:19.840 --> 0:35:23.920 The biggest rival that people talk about is China, and 0:35:23.960 --> 0:35:27.440 that's who Trump by name has said, is gunning to 0:35:27.960 --> 0:35:31.200 drop the dollar and make its own yuan the reserve asset. 0:35:31.760 --> 0:35:35.120 Their figure, their equivalent figure is seven percent of global 0:35:35.120 --> 0:35:38.520 foreign exchange transactions. So it's a very big disparity. So 0:35:38.640 --> 0:35:41.480 no one has abandoned the dollar, and it's actually hard 0:35:41.520 --> 0:35:44.520 to abandon the dollar. There's no clear alternative. The US 0:35:44.719 --> 0:35:47.920 is so large and so deeply entrenched in the global 0:35:47.960 --> 0:35:52.560 system with its currency that dropping the dollar would be 0:35:53.000 --> 0:35:57.160 like the lingua franca not no longer being English. English 0:35:57.200 --> 0:35:59.839 is no longer the universal language. Dollar is no longer 0:35:59.880 --> 0:36:01.719 the universal currency. 0:36:01.840 --> 0:36:02.000 Right. 0:36:02.040 --> 0:36:03.359 That's how difficult it is. 0:36:03.480 --> 0:36:06.200 So maybe we can call it aspirational to replace the 0:36:06.239 --> 0:36:09.719 dollar as the global reserve currency. That said, could the 0:36:09.800 --> 0:36:13.799 dollars dominance be challenged, even in a small way that 0:36:13.880 --> 0:36:16.759 could maybe provide a little bit of disruption. 0:36:16.640 --> 0:36:16.840 You know. 0:36:17.000 --> 0:36:19.759 One thing that's important to state is that the and 0:36:19.880 --> 0:36:23.440 US officials should not be complacent, and Trump is assuring 0:36:23.480 --> 0:36:26.280 that he would not be complacent with any discussion about 0:36:26.680 --> 0:36:29.160 countries wanting to come together and move away from the dollar, 0:36:29.280 --> 0:36:33.520 because it is such a privileged status for the US 0:36:33.680 --> 0:36:38.239 and everyone who lives in the US. Every consumer benefits 0:36:38.280 --> 0:36:40.520 from that status, and then companies and countries around the 0:36:40.560 --> 0:36:43.920 world benefit from that too. The biggest threat to the 0:36:44.200 --> 0:36:48.440 dollar's dominance is not externally that any other country could 0:36:48.560 --> 0:36:52.040 take over or ditch the dollar. Really, the threats come 0:36:52.080 --> 0:36:57.440 from internal problems are massive debt and deficits. Some of 0:36:57.480 --> 0:37:02.960 the playing chicken with our public financing issues, making sure 0:37:03.000 --> 0:37:06.319 that no one is abusing the privileged position that the 0:37:06.400 --> 0:37:09.960 dollar gives us in the world, which is basically saying, 0:37:10.040 --> 0:37:12.879 let's not overuse sanctions, let's not overuse the dollar as 0:37:12.920 --> 0:37:15.759 a tool. Those are a couple of the key components 0:37:15.760 --> 0:37:16.359 to remember there. 0:37:16.560 --> 0:37:19.719 Now, Former President Trump, in the conversation with John Micklethwaite, 0:37:19.920 --> 0:37:24.000 was mentioning the Chinese currency, the ywan. Right now, given 0:37:24.040 --> 0:37:26.719 everything that's going on in China, the challenges that the 0:37:26.880 --> 0:37:30.920 economy has been confronted with, that seems like a long shot, 0:37:31.040 --> 0:37:31.920 doesn't it. 0:37:31.920 --> 0:37:34.560 It is a long shot. China is, yes, the second 0:37:34.680 --> 0:37:37.759 largest economy in the world, but it's number two by 0:37:37.840 --> 0:37:40.759 a large, large gap. It would take numbers two, three, 0:37:40.800 --> 0:37:44.080 and four, so China, Japan, and Germany to come together 0:37:44.239 --> 0:37:46.600 and then you can be bigger than the US in 0:37:46.680 --> 0:37:50.399 terms of economic size. The other piece to add there 0:37:50.480 --> 0:37:55.200 is that China does not have the transparency and democratic 0:37:55.320 --> 0:37:58.920 values that investors have been accustomed to for eighty years 0:37:58.960 --> 0:38:02.719 now in the world reserve asset. The reason that investors 0:38:02.960 --> 0:38:06.480 flee to the dollar and US assets in times of 0:38:06.520 --> 0:38:10.359 trouble or turmoil is because they know that it is 0:38:11.040 --> 0:38:15.239 underpinned by a strong democracy. We have independent institutions, green 0:38:15.239 --> 0:38:19.480 and fair elections, rule of law. Unless and because investors 0:38:19.520 --> 0:38:22.759 are not conditioned to expect this, it will take a 0:38:22.800 --> 0:38:25.279 lot for investors to change that. And I don't see 0:38:25.280 --> 0:38:26.240 that happening overnight. 0:38:26.440 --> 0:38:28.759 And on top of that, the Chinese currency is not 0:38:28.840 --> 0:38:32.800 free floating. It's managed, very managed by the PBOC exactly. 0:38:32.920 --> 0:38:36.600 That comes down to the transparency angle. It's not market 0:38:36.640 --> 0:38:40.799 forces that determine where the currency is at and what 0:38:40.960 --> 0:38:44.040 is going on in the economy. It's also still largely 0:38:44.080 --> 0:38:45.120 a managed economy. 0:38:45.640 --> 0:38:47.600 So Leia, thank you so much for making time to 0:38:47.920 --> 0:38:50.160 help us preview the Brick Summit. In the week Ahead, 0:38:50.160 --> 0:38:54.320 Bloomberg Saliya Mosen, Senior Washington correspondent. She's also the author 0:38:54.400 --> 0:38:58.480 of Paper Soldiers, How the weaponization of the Dollar change 0:38:58.480 --> 0:39:01.720 the World Order. I'm Doug. You can join us weekdays 0:39:01.719 --> 0:39:04.719 for the Bloomberg Daybreak Asia podcast, where we dive into 0:39:04.760 --> 0:39:08.240 the stories moving markets in the APAC region. It's available 0:39:08.280 --> 0:39:09.680 wherever you get your podcast. 0:39:09.960 --> 0:39:12.360 Tom and that does it for this edition of Bloomberg 0:39:12.400 --> 0:39:14.920 day Break Weekend. Join us again Monday morning at five 0:39:14.920 --> 0:39:17.600 am Wall Street Time for the latest on markets overseas 0:39:17.600 --> 0:39:19.919 and the news you need to start your day. I'm 0:39:19.960 --> 0:39:23.080 Tom Buzby. Stay with US. Top stories and global business 0:39:23.080 --> 0:39:24.719 headlines are coming up right now.