Daybreak Weekend: Apple Earnings, Jobs Report, Central Banks

This is Bloomberg day Break Weekend, our global look at 0:00:04.960 --> 0:00:06.920 the top stories in the coming week from our day 0:00:06.920 --> 0:00:09.400 Break anchors all around the world. Straight ahead on the 0:00:09.440 --> 0:00:12.920 program of busy week for investors on Wall Street, Apple, 0:00:13.200 --> 0:00:16.759 Microsoft leading the earnings cavalcade, and we'll also get a 0:00:16.800 --> 0:00:20.439 FED decision and the January jobs report. I'm Tom Busby 0:00:20.520 --> 0:00:21.120 in New York. 0:00:21.320 --> 0:00:23.880 I'm callin Hedge in London, where we're looking ahead to 0:00:23.880 --> 0:00:27.120 the Bank of Eglins first rate decision of twenty twenty four. 0:00:27.280 --> 0:00:29.520 I'm Ryan Curtisy in Hong Kong. We look ahead to 0:00:29.640 --> 0:00:33.320 China's BMI so weather recent support measures. He can turn 0:00:33.400 --> 0:00:35.680 the tide in the Chinese too. 0:00:37.159 --> 0:00:41.239 That's all straight ahead on Bloomberg Daybreak Weekend. The business 0:00:41.280 --> 0:00:45.240 news you need to wrap up your week, available on Apple, Spotify, 0:00:45.400 --> 0:00:48.720 the Bloomberg Business Appen everywhere you get your podcasts. 0:00:53.120 --> 0:00:53.680 Good day to you. 0:00:53.760 --> 0:00:56.320 I'm Tom Busby. We begin today's program with a very 0:00:56.360 --> 0:00:59.560 busy week ahead for earnings on Wall Street. We'll hear 0:00:59.600 --> 0:01:01.840 from more than one hundred companies in the S and 0:01:01.920 --> 0:01:05.120 P five hundred with big tech leading the way. Results 0:01:05.120 --> 0:01:09.840 from Apple, Microsoft, Amazon, Alphabet and Meta Platforms, among others. 0:01:10.360 --> 0:01:11.440 For a closer look at. 0:01:11.319 --> 0:01:14.360 What to expect from the two three trillion dollar giants 0:01:14.400 --> 0:01:17.440 Apple and Microsoft. We're pleased to bring in anurag Rana, 0:01:17.560 --> 0:01:22.160 senior tech analyst with Bloomberg Intelligence, now anorog. Let's start 0:01:22.160 --> 0:01:25.000 with Apple, which has been a lot of headlines lately 0:01:25.280 --> 0:01:28.280 for its new Vision Pro mixed reality headset, trouble with 0:01:28.319 --> 0:01:32.000 the smart watch, app store commissions, challenges for the iPhone 0:01:32.040 --> 0:01:35.280 sales in China. So what are you expecting to see 0:01:35.760 --> 0:01:37.800 from Apple's Q one on Wednesday? 0:01:39.000 --> 0:01:42.240 Listen. I hope they give some good news about China because, 0:01:42.280 --> 0:01:44.880 as you said, you know, for I mean, it's an 0:01:44.880 --> 0:01:47.400 amazing company. But all I can say is in lust 0:01:47.800 --> 0:01:50.120 two months, all I've heard is just negative news come 0:01:50.160 --> 0:01:52.600 out for Apple. So it's a you know, for their sake, 0:01:52.640 --> 0:01:54.640 I hope they come out and give some good comments 0:01:54.680 --> 0:01:57.720 about China and they can you know, grow the smartphones 0:01:57.720 --> 0:02:00.760 in that particular market, because that is the single biggest 0:02:00.800 --> 0:02:03.640 factor that can dictate how they're going to grow this year. 0:02:04.600 --> 0:02:07.680 So that's that's that's forefront on our mind right now. 0:02:08.320 --> 0:02:10.720 Well, we did get a surprise to the upside though 0:02:10.760 --> 0:02:13.440 for twenty twenty three in iPhone sales in China though, 0:02:13.480 --> 0:02:15.480 didn't We yes, But. 0:02:15.480 --> 0:02:17.680 At the same time, I think expectations were so low. 0:02:18.000 --> 0:02:20.240 But you know, I still have to see how things 0:02:20.280 --> 0:02:22.840 shape up in twenty twenty four because you know, we 0:02:22.919 --> 0:02:26.320 have seen that Quahwei's phone was doing pretty well around 0:02:26.320 --> 0:02:28.560 the holidays, so we you know, we still need to 0:02:29.680 --> 0:02:31.639 figure out how December shapes up. 0:02:31.880 --> 0:02:35.200 And how about iPhone sales everywhere? Everywhere else but China. 0:02:36.560 --> 0:02:38.880 See the problem with everywhere else is and I'm going 0:02:38.919 --> 0:02:41.120 to talk about developed markets. You know, markets like the 0:02:41.240 --> 0:02:46.040 US and Western Europe, it is relatively mature or I 0:02:46.040 --> 0:02:49.240 would say stagnant. So when you see those markets, the 0:02:49.520 --> 0:02:51.760 install base of the number of people to have phone, 0:02:52.000 --> 0:02:54.600 that's only going to grow gradually, let's say in the 0:02:54.680 --> 0:02:57.280 rate of about two to three percent. That's not much 0:02:57.320 --> 0:03:00.000 to really, you know, boost the top line of the company. 0:03:00.560 --> 0:03:03.320 It was really China as the growth growth engine right 0:03:03.320 --> 0:03:06.440 now because when you look at the number of units there, 0:03:06.520 --> 0:03:10.000 China has about one billion smartphones out there. Apple has 0:03:10.040 --> 0:03:12.720 an you know, about an eighteen percent market share or 0:03:12.720 --> 0:03:14.959 somewhere and that range. So we still have a long 0:03:15.000 --> 0:03:17.800 way to go for Rabert to grow in that market. 0:03:18.680 --> 0:03:21.120 And I think that really was was, you know, my 0:03:21.280 --> 0:03:24.200 hope that if they can continue to grow well in China, 0:03:24.600 --> 0:03:26.640 then the next big market over the next three to 0:03:26.680 --> 0:03:28.640 five years is going to be India and so forth. 0:03:28.800 --> 0:03:30.560 So that kind of gives you like a ten year 0:03:31.200 --> 0:03:34.679 growth driver. But if China's going to slow down, you're 0:03:34.680 --> 0:03:37.080 not going to see massive, massive growth there. Then it 0:03:37.120 --> 0:03:39.120 brings down the growth rate of the entire company. 0:03:39.640 --> 0:03:40.000 Yeah. 0:03:40.040 --> 0:03:45.760 Wow, Well another possible generator of revenue the Vision Pro 0:03:45.920 --> 0:03:51.800 mixed reality headset. What not yet, but there was a 0:03:51.840 --> 0:03:54.840 burst of enthusiasm when when pre orders came out just 0:03:55.160 --> 0:03:55.880 this past week. 0:03:55.920 --> 0:03:57.360 But what do you see there? 0:03:58.040 --> 0:04:01.000 Yeah, it's three thousand and five hundred dollars. I mean, 0:04:01.040 --> 0:04:03.360 it's not a needle mover to me because you know, 0:04:03.560 --> 0:04:06.000 to be very honest, how many how many units can 0:04:06.040 --> 0:04:08.880 you sell any year? Let's say you sell half a 0:04:09.040 --> 0:04:12.160 million units, that's about one billion dollars or one and 0:04:12.160 --> 0:04:14.960 a half billion dollars in sales. So it's really not 0:04:15.480 --> 0:04:17.640 it's not something that I think it's going to add 0:04:17.680 --> 0:04:20.760 to the big top line of the company. Because remember 0:04:20.760 --> 0:04:24.120 Apple's revenue bases four hundred billion dollars. So even if 0:04:24.160 --> 0:04:27.200 you can go out and sell let's say one million units, 0:04:27.200 --> 0:04:30.360 it's not one million is way above anybody is expecting. 0:04:30.640 --> 0:04:32.800 That's like, you know, one percent of the revenue of 0:04:32.839 --> 0:04:34.520 the less than one percent of the revenue of the 0:04:34.560 --> 0:04:37.359 total company. So it's it's a lot of good discussion. 0:04:37.440 --> 0:04:39.240 We'll have a lot of fun when it's out there 0:04:39.240 --> 0:04:41.120 and people are going to play around with it, but 0:04:41.560 --> 0:04:43.680 it's really not a needle mover when you look at 0:04:43.720 --> 0:04:45.040 some financial analysis. 0:04:45.520 --> 0:04:50.440 And another hit that Apple's taking is the regulatory challenges 0:04:50.480 --> 0:04:53.159 to its commission on it to app developers on the 0:04:53.160 --> 0:04:57.440 app store. What's the latest there, because that could yeah billions, right. 0:04:57.680 --> 0:05:00.280 Yeah, yeah, that is I think the single biggest shoe 0:05:00.400 --> 0:05:04.120 right now. It's just everything that's legal, legal challenges and 0:05:04.160 --> 0:05:08.080 regulatory challenges around their app store and around the services 0:05:08.120 --> 0:05:10.360 business in general. I mean not just the app store. 0:05:10.400 --> 0:05:12.479 You know, the money that they receive from Google. There's 0:05:12.520 --> 0:05:15.080 a lot of discussion around it, and I think that 0:05:15.320 --> 0:05:18.479 is something that we spend most of our time looking into. 0:05:19.240 --> 0:05:22.240 We recently had a webinar topic talking about this topic. 0:05:22.279 --> 0:05:24.440 We have a podcast on it, so we you know, 0:05:24.520 --> 0:05:27.240 we this is a this is a serious, serious stuff 0:05:27.279 --> 0:05:30.000 because not is remember one thing. A dollar that you 0:05:30.120 --> 0:05:33.680 generate on the app store probably has operating margins of 0:05:33.720 --> 0:05:37.320 seventy five percent. This is very high margin business. So 0:05:37.640 --> 0:05:39.760 if there are issues around you know, how much fees 0:05:39.800 --> 0:05:42.080 can they charge, how much it's going to go down, 0:05:42.440 --> 0:05:45.240 all sorts of stuff that really does have you know, 0:05:45.320 --> 0:05:48.400 hamper not just the top line revenue, but also the 0:05:49.320 --> 0:05:50.719 profitability of the company. 0:05:51.400 --> 0:05:55.720 Oh boy, well, now let's move to Microsoft then, which 0:05:55.720 --> 0:05:59.280 has made big bets on artificial intelligence and cloud computing, 0:05:59.320 --> 0:06:01.320 and they see need to be paying off pretty well. 0:06:01.320 --> 0:06:01.880 What do you think? 0:06:02.920 --> 0:06:05.159 I think? You know, they are probably one of the 0:06:05.200 --> 0:06:09.280 better positioned companies in technology right now in you know, 0:06:09.440 --> 0:06:12.000 I would say in a holistic way because it's they 0:06:12.000 --> 0:06:15.560 have so many businesses, but the really big driver, at 0:06:15.640 --> 0:06:17.360 least for the near term, is going to be their 0:06:17.360 --> 0:06:20.240 cloud infrastructure business. Now, if you look at you know, 0:06:20.240 --> 0:06:23.279 open ai as a company, open AI's back end is 0:06:23.480 --> 0:06:27.440 Microsoft's cloud infrastructure, so you use a lot more check GPT. 0:06:27.880 --> 0:06:30.280 Microsoft makes more money off of it. So that's that's 0:06:30.400 --> 0:06:32.680 the way you want to think about it. Last time, 0:06:32.680 --> 0:06:36.200 when their cloud infrastructure numbers came out, they had about 0:06:36.200 --> 0:06:41.320 three hundred three percentage points contribution from AI in general, 0:06:41.520 --> 0:06:44.640 we think that number climbs throughout the year. That's an 0:06:44.640 --> 0:06:47.200 area where we are most optimistic that it is going 0:06:47.240 --> 0:06:50.839 to lead to a good recovery for Microsoft's organic growth 0:06:50.880 --> 0:06:53.720 rate in the second half. We have already seen from 0:06:54.000 --> 0:06:57.040 you know, results from IBM that things are actually looking 0:06:57.120 --> 0:07:01.080 rosy for the tech industry and videos done well. TSMC 0:07:01.200 --> 0:07:04.839 talked about a good year this in twenty twenty four. 0:07:05.080 --> 0:07:08.200 So we feel confident that, you know, Microsoft growth rates 0:07:08.240 --> 0:07:11.240 will improve as the year progressive because when you look 0:07:11.280 --> 0:07:14.920 at overall technology spending, you know, companies have been under 0:07:14.960 --> 0:07:17.160 investing for the last two years. You know, they really 0:07:17.200 --> 0:07:19.680 did well the five years before that, but you know, 0:07:19.720 --> 0:07:22.120 we have seen a pause in the last two years. 0:07:22.120 --> 0:07:24.080 So we think twenty twenty four could be the year 0:07:24.320 --> 0:07:26.200 where we see a revival in tech spending. 0:07:27.440 --> 0:07:30.400 Well, let's talk just for a minute about Microsoft's gaming 0:07:30.440 --> 0:07:33.160 division and reports last week that it's laying off nearly 0:07:33.400 --> 0:07:37.880 two thousand workers at its recently acquired Activision, Blizzard unit, 0:07:37.920 --> 0:07:41.960 and Xbox unit. Is this just a redundancy of jobs 0:07:42.280 --> 0:07:45.960 or is it indicative of more trimming down at Microsoft? 0:07:45.960 --> 0:07:48.440 Now it's just I mean, normally when you make a 0:07:48.520 --> 0:07:51.960 very large acquisition. They bought Activision for sixty nine billion 0:07:52.000 --> 0:07:55.200 dollars and Activision at the end of twenty twenty two 0:07:55.240 --> 0:07:58.560 had thirteen thousand people. So when you look at the article, 0:07:58.560 --> 0:08:02.520 I saw that that said they had about combined about 0:08:02.520 --> 0:08:06.000 twenty two thousand people. So you would expect some redundancies 0:08:06.040 --> 0:08:09.720 from an acquisition. That's the cost energies. Whenever you have duplication, 0:08:10.080 --> 0:08:12.160 you will see a little bit of that. I don't 0:08:12.160 --> 0:08:15.160 see that as an indication that the business conditions are bad. 0:08:15.480 --> 0:08:18.480 This is more so right sizing and changing demondgin structure 0:08:18.520 --> 0:08:19.120 of the company. 0:08:19.200 --> 0:08:20.800 There is a lot to look forward to. 0:08:20.840 --> 0:08:21.040 Well. 0:08:21.040 --> 0:08:25.679 Our thanks to anaag Rana, Bloomberg Intelligence Senior Technology analyst. 0:08:25.720 --> 0:08:28.520 Thank you for joining us. We now turn our attention 0:08:28.720 --> 0:08:31.520 to the US economy. Two big events this week, a 0:08:31.560 --> 0:08:34.360 two day FED meeting and a decision on interest rates. 0:08:34.400 --> 0:08:37.440 Also the January jobs report, and for a preview, let's 0:08:37.440 --> 0:08:42.200 bring in Michael McKee, Bloomberg International Economics and Policy correspondent. Michael, 0:08:42.240 --> 0:08:45.160 thank you, and well let's start with that FOMC meeting. 0:08:45.200 --> 0:08:47.440 And after three meetings in a row of leaving the 0:08:47.440 --> 0:08:50.800 federal funds rate unchanged, what are you expecting to see 0:08:50.880 --> 0:08:52.000 on Wednesday. 0:08:52.559 --> 0:08:55.920 I'm expecting to see the Federal Open Market Committee leave 0:08:56.000 --> 0:09:00.679 infrastrates unchanged four meetings in a row. We went into 0:09:00.679 --> 0:09:05.720 the blackout period saying that they basically were looking at 0:09:05.840 --> 0:09:09.120 not moving interest rates because they're waiting for more data 0:09:09.480 --> 0:09:13.480 and so they're not going to surprise the markets that 0:09:13.600 --> 0:09:15.760 we've gotten a lot more data that are interesting, but 0:09:15.840 --> 0:09:18.160 they're not anything that would move the Fed to any 0:09:18.240 --> 0:09:22.040 kind of emergency change in plans. But the question that 0:09:22.160 --> 0:09:25.199 everybody's going to be asking is what about the March 0:09:25.320 --> 0:09:27.320 meeting or what about the May meeting? 0:09:27.440 --> 0:09:28.480 Jay Poll not going to. 0:09:28.920 --> 0:09:32.000 Really answer those, but will he push back against the 0:09:32.040 --> 0:09:36.560 market expectations of at least cut in May. 0:09:37.080 --> 0:09:39.200 Well, let's talk about the data. Then that will lead 0:09:39.240 --> 0:09:42.640 to what you expect to see unchanged. About the economy, 0:09:42.679 --> 0:09:46.240 we got some pretty good encouraging news last week about inflation, 0:09:46.320 --> 0:09:47.080 about jobs. 0:09:47.520 --> 0:09:49.800 Yeah, the economic data that came in during the last week, 0:09:49.880 --> 0:09:52.280 during the blackout period when we can't ask them about 0:09:52.320 --> 0:09:56.319 it was extraordinarily strong. Fourth quarter GDP at three point 0:09:56.360 --> 0:10:01.680 three percent, much higher than the anticipated number and not 0:10:01.880 --> 0:10:04.040 down all that much from what we saw in the 0:10:04.080 --> 0:10:08.360 third quarter. Consumer spending with strong business investment picked up, 0:10:08.640 --> 0:10:12.720 and those would make the argument that the Fed wants 0:10:12.800 --> 0:10:17.880 to keep interest rates unchanged for longer, except that the 0:10:18.840 --> 0:10:22.480 inflation numbers have continued to go down, which suggests that 0:10:22.559 --> 0:10:26.480 maybe they can cut So now it gives them even 0:10:26.480 --> 0:10:28.800 more reason to say, we want more data to confirm 0:10:29.160 --> 0:10:31.200 what we're seeing, because if they had to make a 0:10:31.200 --> 0:10:34.960 great decision this time, it would be a close call. 0:10:35.000 --> 0:10:37.319 And that more data that they're going to get we're 0:10:37.320 --> 0:10:39.200 going to see on Friday. 0:10:39.280 --> 0:10:42.280 Yeah, and that's kind of interesting because we're going to 0:10:42.280 --> 0:10:47.760 see a slower job creation number, at least according to 0:10:48.240 --> 0:10:52.000 what the Bloomberg consensus of the survey is one hundred 0:10:52.000 --> 0:10:55.120 and sixty eight thousand. Now we'll see next week when 0:10:55.120 --> 0:10:58.120 we get some additional data from ADP and the ism 0:10:58.200 --> 0:11:03.920 numbers whether that changes people's But the unemployment rate is 0:11:03.920 --> 0:11:06.360 expected to rise a little to three point eight percent 0:11:06.400 --> 0:11:09.320 now the Fed is predicting that. But the wild card 0:11:09.360 --> 0:11:13.439 here is remember all those storms we had earlier in January, 0:11:14.160 --> 0:11:17.320 did they keep anyone from going to work? That's going 0:11:17.400 --> 0:11:19.960 to be an interesting question because you basically only have 0:11:20.040 --> 0:11:24.640 to show up or zoom in. I guess once during 0:11:24.640 --> 0:11:28.080 the week and you're counted as employed. So some people 0:11:28.120 --> 0:11:31.720 think that we may see this lower number because we 0:11:31.840 --> 0:11:35.280 had weather interruptions. But it's pretty hard for weather to 0:11:35.520 --> 0:11:38.319 make a huge difference in the overall number. So it's 0:11:38.360 --> 0:11:40.840 going to be interesting to see what we get and 0:11:40.880 --> 0:11:43.200 then what the Fed thinks of that. They want to 0:11:43.240 --> 0:11:46.000 see a slow down. If we don't get it, then 0:11:46.000 --> 0:11:48.079 that adds weight to the idea of higher for. 0:11:48.080 --> 0:11:49.360 Longer, higher for longer. 0:11:49.440 --> 0:11:52.240 Well, some jobs, certainly, I mean January is always volatile, 0:11:52.400 --> 0:11:54.800 as you've said before, but some jobs like housing, you 0:11:54.840 --> 0:11:57.040 have a big ice storm, I mean that just shuts 0:11:57.080 --> 0:11:57.839 down for two weeks. 0:11:58.040 --> 0:12:00.680 Yeah, well, it's going to be I hate to say 0:12:01.200 --> 0:12:03.920 interesting again because I've been saying that a lot, but 0:12:04.120 --> 0:12:06.160 it's going to be interesting again because we also got 0:12:06.160 --> 0:12:08.839 new home sales last week and they were stronger than 0:12:09.240 --> 0:12:13.080 anticipated in the month of December. But people don't go 0:12:13.120 --> 0:12:16.079 out looking for houses when there's a lot of snow 0:12:16.120 --> 0:12:19.319 on the ground or weather is bad or something like that. 0:12:19.440 --> 0:12:21.080 So they just had the holiday. 0:12:20.720 --> 0:12:23.200 So we may see a weather effect on that, and 0:12:23.400 --> 0:12:29.200 also on construction building starts, because it's hard during a 0:12:29.200 --> 0:12:32.280 blizzard to start digging a hole and putting up two 0:12:32.360 --> 0:12:35.439 by fours. So there may be some weather affected data, 0:12:35.880 --> 0:12:39.880 but it won't it won't be decisive for the fit. 0:12:40.000 --> 0:12:41.200 Oh a lot to look forward to. 0:12:41.240 --> 0:12:44.560 Well, our thanks to Michael McKee, Bloomberg International Economics and 0:12:44.640 --> 0:12:48.320 Policy Correspondent, and coming up on Bloomberg day Break weekend, 0:12:48.559 --> 0:12:51.040 we head to Europe for a preview of a policy 0:12:51.120 --> 0:12:53.319 decision coming from the Bank of England. 0:12:53.520 --> 0:12:55.480 I'm Tom Busby, and this is Blue. 0:13:05.679 --> 0:13:08.400 This is Bloomberg Daybreak Weekend, our global look ahead at 0:13:08.400 --> 0:13:11.000 the top stories for investors in the coming week. I'm 0:13:11.040 --> 0:13:13.679 Tom Busby in New York. Up later in our program 0:13:13.679 --> 0:13:16.400 we get an update on the health of the Chinese economy. 0:13:16.440 --> 0:13:19.720 But first, after the ECB and the Bank of Japan, 0:13:20.200 --> 0:13:22.920 investors will be looking for their first clues about the 0:13:22.960 --> 0:13:25.600 path for interest rates from the Bank of England in 0:13:25.640 --> 0:13:28.120 the coming days. Markets are expecting the first move in 0:13:28.160 --> 0:13:31.720 the summer, but Governor Andrew Bailey is not convinced the 0:13:31.720 --> 0:13:34.880 fight against inflation is over just yet. For more, let's 0:13:34.880 --> 0:13:38.840 go to London and bring in Bloomberg Daybreak eurobanker Caroline Hepger. 0:13:38.720 --> 0:13:41.679 Tom the latest inflation figures for the UK showed an 0:13:41.679 --> 0:13:45.000 optic in December, complicating the path ahead for the Bank 0:13:45.040 --> 0:13:48.240 of England. Whilst the BOE was the first major global 0:13:48.280 --> 0:13:51.520 central bank to start hiking interest rates, some analysts think 0:13:51.559 --> 0:13:54.960 that it'll be the loss to start cutting. The question 0:13:55.080 --> 0:13:58.640 of when is still the main preoccupation for markets, though 0:13:59.000 --> 0:14:01.040 we've been discussing this with many of our guests on 0:14:01.040 --> 0:14:04.320 Bloomberg Radio. Now here's what Charlotte Ryland, the head of 0:14:04.400 --> 0:14:09.080 investment at CCLA Investment Management, told us about her expectations 0:14:09.200 --> 0:14:10.559 for the Bank of England decision. 0:14:10.880 --> 0:14:12.480 Clearly they were a little late to the party in 0:14:12.559 --> 0:14:15.400 terms of sort of pushing the rates up. The UK 0:14:15.480 --> 0:14:18.400 economy seems to be somewhat more inflationary than others, and 0:14:18.440 --> 0:14:20.480 I imagine part of that is, you know, some of 0:14:20.520 --> 0:14:22.520 the dislocations we've had from the back of Brexit, the 0:14:22.560 --> 0:14:24.880 sort titled labor market that we have, which to do 0:14:24.960 --> 0:14:28.040 with migration as well, so you know, it's been a 0:14:27.560 --> 0:14:32.080 more difficult position for them, and it's clearly a much 0:14:32.120 --> 0:14:34.920 more vulnerable economy in terms of you know, the consumer 0:14:35.000 --> 0:14:38.080 as well. So it's a delicate to typrope theicult a 0:14:38.120 --> 0:14:41.960 balance between the inflationary pressure and not completely derailing the economy. 0:14:42.160 --> 0:14:45.280 So that's Charlotte Ryland's view. Now let's hit from Sam 0:14:45.360 --> 0:14:48.600 Linton Brown from BNP Parryber. He's talked to us about 0:14:48.600 --> 0:14:51.240 how the Bank of England is in a different position 0:14:51.280 --> 0:14:53.240 to other major global central banks. 0:14:53.520 --> 0:14:56.240 The Bank of England potentially could prove to be a 0:14:56.280 --> 0:14:59.120 little bit more of an idiosyncratic narrative this year because 0:14:59.160 --> 0:15:03.640 one could argue that the stickiness of inflation will prove 0:15:03.840 --> 0:15:07.040 to be more persistent than elsewhere. Our central case is 0:15:07.080 --> 0:15:09.080 that the Bank of England will begin cutting rates around 0:15:09.080 --> 0:15:10.960 the middle of this year, cut by one hundred and 0:15:11.000 --> 0:15:13.600 twenty five basis points. That's not too different to what 0:15:13.680 --> 0:15:16.520 market's currently pricing. But I'd say if there's a risk 0:15:16.840 --> 0:15:20.720 on the three ECB fed Bank of England where they 0:15:20.760 --> 0:15:23.560 actually end up doing less tightening because of inflation or 0:15:23.640 --> 0:15:25.960 less easy I should say because of inflation, I'd say 0:15:25.960 --> 0:15:27.200 it's the Bank of England. 0:15:28.240 --> 0:15:31.280 So that was Sam Linton Brown from BMP Parryber and 0:15:31.320 --> 0:15:34.440 those are some of the views from the markets in 0:15:34.560 --> 0:15:37.680 terms of the outlook for the Bank of England. On 0:15:37.720 --> 0:15:41.640 the data front, headline inflation was four percent in December 0:15:41.680 --> 0:15:45.400 for the UK. The PMI surveys for January brought better 0:15:45.440 --> 0:15:49.480 than expected readings, but the manufacturing sector still in contraction. 0:15:50.040 --> 0:15:52.680 So economists do widely expect the Bank of England to 0:15:52.920 --> 0:15:55.560 hold interest rates at their next meeting at five and 0:15:55.560 --> 0:15:57.760 a quarter of percent. So it is going to be 0:15:58.280 --> 0:16:01.360 the post meeting press conference which is going to have 0:16:01.400 --> 0:16:05.800 the potential to produce more answers. Perhaps. I've been discussing 0:16:05.840 --> 0:16:09.680 that with our senior economics reporter, Philip Aldrich. I started 0:16:09.720 --> 0:16:12.280 by asking him what he'll be watching out for in 0:16:12.360 --> 0:16:15.560 the decision from Governor Andrew Bailey and colleagues. 0:16:15.920 --> 0:16:18.600 Yeah, and I mean not just from Bailey, but so 0:16:18.680 --> 0:16:22.920 the whole nine member rate setting committee will they make 0:16:23.000 --> 0:16:27.680 their judgment. And the last meeting, which was about the 0:16:27.720 --> 0:16:30.800 second week of December, three of them voted for rate risers, 0:16:30.840 --> 0:16:33.840 the other six decided to cold rates. Now, since then, 0:16:33.880 --> 0:16:37.080 the inflation numbers have come down more quickly than expected. 0:16:37.120 --> 0:16:39.960 There's been a bit of a question of a few 0:16:40.040 --> 0:16:42.520 questions about whether we're going to have a brief technical recession. 0:16:43.120 --> 0:16:47.440 And these kind of messages or economic signals would suggest 0:16:47.440 --> 0:16:50.080 that the bankingland needs to start thinking about rate cards, 0:16:50.080 --> 0:16:54.200 and obviously that's what is happening in Europe at the 0:16:54.200 --> 0:16:56.440 European Central Bank and at the FED. So there is 0:16:56.480 --> 0:17:01.880 this So although we're not expecting anyone to well maybe 0:17:01.880 --> 0:17:04.480 one member may vote for a rate cut, we're not 0:17:04.520 --> 0:17:06.119 expecting the Committee as a whole to vote for a 0:17:06.200 --> 0:17:08.200 rate cut. This is going to It's something which which 0:17:08.320 --> 0:17:10.080 people are going to be looking out for for to 0:17:10.119 --> 0:17:12.520 see whether the Bank is now sort of following the 0:17:12.560 --> 0:17:14.720 other major central banks in sort of signaling that there 0:17:14.720 --> 0:17:15.760 may be a change of direction. 0:17:15.880 --> 0:17:16.040 Yeah. 0:17:16.040 --> 0:17:19.200 Absolutely, And the Bank of England decision comes fairly swiftly 0:17:19.240 --> 0:17:23.080 after the ECB interest rate decision. And yet is there 0:17:23.200 --> 0:17:25.800 a difference, a kind of gap opening up between the 0:17:25.840 --> 0:17:28.000 position of the UK and the Bank of England and 0:17:28.040 --> 0:17:28.960 as you say, the FED and. 0:17:28.880 --> 0:17:32.240 The ec well, the gap so the gap is it's 0:17:32.280 --> 0:17:34.280 not on the rate where the rate policy is I mean, 0:17:34.320 --> 0:17:36.720 obviously bank the Bank of England's up there with the 0:17:36.720 --> 0:17:39.920 FED and higher than the ECB. The gap is in 0:17:39.320 --> 0:17:44.720 in the future trajectory of policy. And the Fed has 0:17:44.840 --> 0:17:49.280 signaled that they are considering rate cuts. The ECB has, 0:17:49.520 --> 0:17:52.240 I mean the president of the ECB, Christine la Guard, 0:17:52.280 --> 0:17:54.840 said that the June May you know, there may be 0:17:55.000 --> 0:18:00.560 rate cuts starting in the summer, and obviously the market 0:18:00.720 --> 0:18:04.680 is now pricing these rate cuts in for all three 0:18:04.960 --> 0:18:07.240 central banks. What we are not, what we've not heard 0:18:07.280 --> 0:18:09.639 from the Bank of England is any kind of hint 0:18:09.680 --> 0:18:12.320 that they're going to move in this direction. So the 0:18:12.400 --> 0:18:15.720 last communication they had was all about, you know, we 0:18:15.800 --> 0:18:19.160 need to worry about potential for further inflation. We've got 0:18:19.200 --> 0:18:21.679 to be vigilant these kind of you know, further tightening 0:18:21.680 --> 0:18:23.879 maybe on the cards. Three people did vote for a 0:18:23.960 --> 0:18:26.440 rate rise, so it's so there. So their language is 0:18:26.520 --> 0:18:29.200 kind of out of step with the sort of consensus 0:18:29.240 --> 0:18:33.480 thinking at the moment that you know, there have been 0:18:33.680 --> 0:18:36.399 you know, wages are still being proving a little bit 0:18:36.440 --> 0:18:38.920 stronger than we're expected. You know we've had we've had 0:18:39.040 --> 0:18:41.720 in the very later stad we've had the pmis the 0:18:41.760 --> 0:18:44.800 business activity numbers that they have been relatively strong, and 0:18:44.840 --> 0:18:48.000 so that so, you know, markets are beginning to think 0:18:48.040 --> 0:18:50.160 that there's not going to be just masses of rate 0:18:50.160 --> 0:18:51.960 cuts over this year. But the bank has got to 0:18:51.960 --> 0:18:55.399 start signaling that this this is something that is on 0:18:55.480 --> 0:18:56.560 the agenda now. 0:18:57.000 --> 0:18:59.000 In terms of the UK and you know, whether it's 0:18:59.000 --> 0:19:02.080 in a special position or in a different position to others. 0:19:02.400 --> 0:19:04.800 The Red Sea. How do we think about the inflationary 0:19:04.840 --> 0:19:07.200 pressures coming from the Red Sea? Obviously the UK and 0:19:07.280 --> 0:19:10.560 with the US and taking action against you know who, 0:19:10.640 --> 0:19:12.919 the militants, you know, which is the thing that is 0:19:13.119 --> 0:19:17.080 threatening shipping. Does that particularly affect the UK more than 0:19:17.119 --> 0:19:17.920 other places? 0:19:18.600 --> 0:19:22.760 No, the sort of the immediate effect on us is 0:19:23.480 --> 0:19:26.680 the direct effect on us is not is not enormous. 0:19:28.359 --> 0:19:31.359 We don't we There was I can't remember the specific numbers, 0:19:31.400 --> 0:19:33.720 but there was some economic study which showed that we 0:19:33.760 --> 0:19:37.840 don't actually get that much of our imports directly directly 0:19:37.880 --> 0:19:41.720 goods imports that are directly coming through the Red Sea 0:19:41.800 --> 0:19:44.520 and the Sewers Canal, but there is this sort of second, 0:19:45.160 --> 0:19:47.720 second round hit. So the stuff we are importing is 0:19:47.760 --> 0:19:51.280 coming from countries which are going to be feeling the 0:19:51.280 --> 0:19:54.840 effect of this or to a much larger degree. It 0:19:54.880 --> 0:19:56.920 clearly is a risk. I mean, what we learned through 0:19:56.960 --> 0:20:01.119 the COVID pandemic was that when supply chains get disrupted, 0:20:01.480 --> 0:20:05.000 that can be an enormous cost to business, and that 0:20:05.000 --> 0:20:07.760 that cost does get passed on and we have seen 0:20:07.840 --> 0:20:10.320 indications of that and as so in the stronger PMI 0:20:10.480 --> 0:20:14.200 data that came out this week. There was also evidence 0:20:14.240 --> 0:20:16.320 that costs have started to rise again and the and 0:20:16.400 --> 0:20:19.919 the acceleration in cost was notable. Now you could you 0:20:19.960 --> 0:20:23.560 can draw the draw the correlation the causation from the 0:20:23.640 --> 0:20:25.439 sort of red sea disruption in the HUTI. So it's 0:20:25.480 --> 0:20:28.920 it is, it's definitely on something which people are being 0:20:29.359 --> 0:20:32.320 their alert to the to the risk. And you probably 0:20:32.359 --> 0:20:35.480 we're already potentially going to have a little increase in 0:20:36.200 --> 0:20:39.000 the inflation numbers for January which are not out yet. 0:20:40.240 --> 0:20:43.080 So if you have that and plus these worries about 0:20:43.080 --> 0:20:45.520 the supply chain disruption, that you could start to get 0:20:45.520 --> 0:20:48.840 people getting a bit nervous about the inflation beginning to 0:20:48.840 --> 0:20:49.400 pick up again. 0:20:49.960 --> 0:20:53.240 There's quite a big mismatch between market expectations for right 0:20:53.320 --> 0:20:57.280 cuts from the Fed and the FED signaling bit sort 0:20:57.320 --> 0:20:59.720 of less for the ECB. What's the picture for the 0:20:59.760 --> 0:21:02.520 mask could expectations around the Bank of England versus what 0:21:02.560 --> 0:21:05.639 we think they you know what they are planning and saying. 0:21:05.480 --> 0:21:10.120 Yeah, so it's about a percentage point cut so for 0:21:10.320 --> 0:21:14.040 this year and those cuts to start in May or June, 0:21:14.119 --> 0:21:17.800 depending on I think it's around June now. But the 0:21:18.640 --> 0:21:23.040 that is that is probably stronger than the Bank of 0:21:23.040 --> 0:21:28.000 England would like. Now we are inflation is likely to 0:21:28.080 --> 0:21:33.120 hit around two percent April May June time because we're 0:21:33.119 --> 0:21:35.760 going to have a big drop in the energy price 0:21:35.840 --> 0:21:39.760 cap and that that that fall in April, which it's 0:21:39.800 --> 0:21:42.919 a staggered three monthly reset, that fall in April is 0:21:42.920 --> 0:21:45.679 anticipated and it's expected to deliver this. You know, we 0:21:45.760 --> 0:21:48.639 finally back to inflation target. You know, there are concerns 0:21:48.680 --> 0:21:51.399 that it could then start accelerating later on, but the 0:21:51.440 --> 0:21:53.639 Bank of England is not going to want to just say, oh, 0:21:53.640 --> 0:21:55.560 we've hit two percent, right, job done, We're going to 0:21:55.600 --> 0:21:58.000 get back down to you know, three percent super quick. 0:21:58.000 --> 0:21:58.280 There. 0:21:58.359 --> 0:22:00.560 You know, there are underlying pressures. You've got so and 0:22:00.600 --> 0:22:03.160 core inflation which is still proving quite sticky. 0:22:04.240 --> 0:22:06.359 We also have to think that this Bank of England 0:22:06.680 --> 0:22:10.720 rate decision comes just a little bit ahead of the 0:22:10.760 --> 0:22:13.680 budget the beginning of March. Let's think about what the 0:22:14.080 --> 0:22:18.280 Chancellor is preparing to do. A lot of emphasis, a 0:22:18.359 --> 0:22:21.399 huge amount of pressure on the government to cut taxes 0:22:21.400 --> 0:22:23.919 from within their own party, from the sort of thinking 0:22:23.920 --> 0:22:26.040 that Suna can hunt have. I mean, how are you 0:22:26.080 --> 0:22:29.000 thinking about that? Could that be inflationary. How does that 0:22:29.040 --> 0:22:31.320 play into the economic picture for Britain. 0:22:31.440 --> 0:22:33.399 So for the Bank of England, they're not allowed to 0:22:33.400 --> 0:22:35.959 sort of take government policy until it is government policy, 0:22:36.040 --> 0:22:38.159 so people can assume what it would be. But so 0:22:38.160 --> 0:22:40.920 we've got the March the sixth budget. You would expect 0:22:40.960 --> 0:22:43.600 it's it's sort of it's a tried and tested political 0:22:43.640 --> 0:22:47.200 playbook that you would cut taxes, give consumers and households 0:22:47.200 --> 0:22:49.399 a boost and make everybody have there's a bit of 0:22:49.400 --> 0:22:52.440 feel good factor going into the election and they've obviously 0:22:52.680 --> 0:22:55.720 lagging in the polls terribly, so they need something. So 0:22:56.520 --> 0:22:58.840 I mean, i'd assume if at the moment it looks 0:22:58.880 --> 0:23:01.280 like the change in the sort of the rate forecast 0:23:01.760 --> 0:23:07.000 has probably given the Chancellor something between five and ten billion, 0:23:07.040 --> 0:23:09.840 I think Bloomberg economists Dan Hanson's got those sort of 0:23:09.920 --> 0:23:12.840 numbers of headroom, and so I mean, I would assume 0:23:12.880 --> 0:23:17.240 he's going to spend every penny of his headroom and more. Now, 0:23:17.240 --> 0:23:19.480 partly the motivation for this is not just to give 0:23:19.520 --> 0:23:21.640 people tax risers and make everyone feel better, but it's 0:23:21.640 --> 0:23:24.560 also to draw this dividing line, this battleground with labor 0:23:25.040 --> 0:23:27.679 and the more and the more money they spend. The 0:23:27.680 --> 0:23:31.359 more money that the Conservatives spent within their fiscal rules 0:23:31.640 --> 0:23:34.840 they they can, then they make it much more difficult 0:23:34.840 --> 0:23:36.720 for Labor to press ahead with their sort of twenty 0:23:36.760 --> 0:23:40.120 eight billion green investment plan without either having to ramp 0:23:40.160 --> 0:23:42.840 borrowing up much more, or cut taxes or do something else. 0:23:43.080 --> 0:23:45.880 And so it because of that commitment that the labor 0:23:45.920 --> 0:23:48.399 has made, it becomes more it becomes much more tricky 0:23:48.400 --> 0:23:51.840 for them. The smaller the headroom is that the government 0:23:51.960 --> 0:23:55.640 leaves them, and so then their then their manifesto commitment 0:23:55.680 --> 0:23:58.119 start to look a bit sketchy. So I mean, for 0:23:58.160 --> 0:24:01.080 two reasons, for the feel good factor, for the political battle. 0:24:01.720 --> 0:24:03.919 I'm expecting some big tax cuts, and obviously you know, 0:24:03.960 --> 0:24:06.760 beyond that there will be some inflationary effect there. But 0:24:06.960 --> 0:24:09.639 it's not I don't think that anyone would suggest that 0:24:09.760 --> 0:24:12.400 it's going to be, you know the same as the Ukraine, 0:24:12.400 --> 0:24:15.120 the post Ukraine kind of those kind of fears. It might, 0:24:15.359 --> 0:24:18.320 it might slow the rate of rate cuts down, but 0:24:18.359 --> 0:24:19.760 it wouldn't, you know, halt it. 0:24:19.840 --> 0:24:22.440 There is the nagging voice, I'll put it that way, 0:24:22.440 --> 0:24:25.960 of the ifs the Institute for Fiscal Studies say the 0:24:26.000 --> 0:24:29.800 government must be honest whichever stripe it is, that the 0:24:29.800 --> 0:24:31.960 next government has to be honest with the state of 0:24:31.960 --> 0:24:35.760 the public finances. I mean really a very kind of 0:24:35.880 --> 0:24:40.600 strongly worded criticism that the tax and spending plans look 0:24:40.680 --> 0:24:44.359 immensely difficult for Britain and that you know, the plans 0:24:44.400 --> 0:24:46.400 have to be laid out clearly to the public. 0:24:47.160 --> 0:24:50.399 Yeah, you know they've made this. I mean it's not 0:24:50.400 --> 0:24:52.119 the first time that there are just a government to 0:24:52.160 --> 0:24:55.280 be honest about the future trajectory for public finances. But 0:24:55.400 --> 0:24:59.800 the absolutely beyond the election there as I think it 0:24:59.840 --> 0:25:04.760 was obil's chair Richard Hughes said that there is no 0:25:04.880 --> 0:25:07.160 detail on the planned spending cuts and this behind spending 0:25:07.200 --> 0:25:09.280 cuts for the departments other than health and maybe one 0:25:09.320 --> 0:25:12.520 or two other protected departments, we're effectively a return to austerity. 0:25:12.520 --> 0:25:15.280 There's going to be real terms cuts and that in 0:25:15.400 --> 0:25:19.520 an environment where everything is already sort of all the 0:25:19.560 --> 0:25:22.760 public services are already crumbling to a degree, is it 0:25:23.000 --> 0:25:24.240 Is it really conceivable? 0:25:24.400 --> 0:25:27.600 So that was our senior economics reporter Philip Aldrick speaking 0:25:27.640 --> 0:25:29.880 to me, and we will have of course full coverage 0:25:29.880 --> 0:25:33.040 of the Bank of England's great decision on Thursday here 0:25:33.119 --> 0:25:36.040 on Bloomberg. I'm Caroline Hepget here in London. You can 0:25:36.040 --> 0:25:38.879 catch us every weekday morning for Bloomberg Daybreak. You at 0:25:38.920 --> 0:25:41.600 beginning at six am in London. That's one am on 0:25:41.680 --> 0:25:42.280 Wall Street. 0:25:42.560 --> 0:25:44.960 Tom, all right, thanks to Bloomberg day Break. You're a banker, 0:25:45.119 --> 0:25:48.240 Caroline Hepgar And coming up on Bloomberg Daybreak weekend, we 0:25:48.359 --> 0:25:50.800 take you to Asia for a very busy week on 0:25:50.880 --> 0:25:54.600 the economic front. There, I'm Tom Busby and this is Bloomberg. 0:26:05.040 --> 0:26:07.560 I'm Tom Busby in New York with your global look ahead. 0:26:07.560 --> 0:26:09.600 At the top stories for investors in the coming week. 0:26:10.160 --> 0:26:13.119 China struggling to shore up its economy and halt a 0:26:13.200 --> 0:26:18.000 six trillion dollar stock market route despite the best government efforts. 0:26:18.440 --> 0:26:21.160 Now with more eco data coming out in the coming days, 0:26:21.200 --> 0:26:24.240 Bloomberg Daybreak Asia co host Brian Curtis takes a look 0:26:24.240 --> 0:26:26.800 at the overall picture of the Chinese economy. 0:26:27.000 --> 0:26:30.080 Tom, we look forward to China's official PMIS in the 0:26:30.119 --> 0:26:32.880 coming week. It might be a little early to see 0:26:32.920 --> 0:26:36.600 a bounce in economic activity in China, but recent measures 0:26:36.680 --> 0:26:39.320 rolled out by the Chinese government have sparked a little 0:26:39.400 --> 0:26:43.560 more excitement about Chinese assets. The PBOC will for instance, 0:26:43.600 --> 0:26:46.879 cut the bank's reserve requirements by fifty basis points on 0:26:46.920 --> 0:26:51.520 February fifth. Bloomberg Economics called that a forceful response to 0:26:51.600 --> 0:26:54.880 a slowing economy, and that the Central Bank was likely 0:26:54.920 --> 0:26:58.080 to cut interest rates this quarter as well, all of 0:26:58.080 --> 0:27:02.560 which Bloomberg Economics said would give a positive jolt to confidence. 0:27:03.080 --> 0:27:06.200 Joining us for some insights about the challenges that China 0:27:06.320 --> 0:27:09.399 is facing and getting the economy and the markets rolling 0:27:09.440 --> 0:27:15.240 again is Jill deesis China Economy and Government editor at Bloomberg. Jill. 0:27:15.320 --> 0:27:18.760 Earlier I spoke with Bloomberg economist Eric Chu, who covers 0:27:18.920 --> 0:27:21.240 China and Hong Kong, and just to give us a 0:27:21.280 --> 0:27:24.359 little bit more spice in our discussion, I wanted to 0:27:24.640 --> 0:27:27.600 play some comments from him. I asked him if this 0:27:27.720 --> 0:27:30.040 might do the trick to turn the economy around. 0:27:30.359 --> 0:27:32.880 We think the positive move probably it's already too late, 0:27:33.080 --> 0:27:36.479 you know, even in January. I think many of the markets, 0:27:36.560 --> 0:27:40.560 including US, were expecting Central PBOC to cut the MPHO 0:27:40.640 --> 0:27:43.520 raid last week, right, but they didn't deliver. I think 0:27:43.520 --> 0:27:46.920 that's a big disappointment for the market and leading further 0:27:47.000 --> 0:27:49.520 leading to you know, the store market tumbo over the 0:27:49.560 --> 0:27:52.800 past week. So I think that might be one of 0:27:52.840 --> 0:27:55.399 the reasons, you know, triggering the PBOC, you know, to 0:27:55.560 --> 0:27:59.320 hasten the moves and trying to also give more confidence 0:27:59.359 --> 0:27:59.960 to markets. 0:28:00.760 --> 0:28:04.159 Eric j again from Bloomberg Economics, and I'm sitting with 0:28:04.280 --> 0:28:07.840 Jill Diesis, who's China Economy and Government editor at Bloomberg. 0:28:08.200 --> 0:28:10.320 So what do you make of that comment that perhaps 0:28:10.320 --> 0:28:11.880 it's a little bit too little, too late. 0:28:12.680 --> 0:28:15.160 Well, I think that at this point the whole thing 0:28:15.400 --> 0:28:19.040 with this economic slowdown really comes down to confidence, right, 0:28:19.119 --> 0:28:23.240 confidence in the economy, confidence among investors that the government 0:28:23.240 --> 0:28:25.320 can really turn things around. And I think that's a 0:28:25.440 --> 0:28:29.359 very fair point. I mean, look, we've seen over the 0:28:29.440 --> 0:28:33.080 past year several measures that the government has taken to 0:28:33.119 --> 0:28:37.400 try to get activity going again, to try to restore confidence. 0:28:37.520 --> 0:28:41.200 We saw a very unusual sovereign bond issuance from the 0:28:41.240 --> 0:28:44.440 middle of October of last year, trying to you know, 0:28:44.480 --> 0:28:48.200 get that out to fund more infrastructure projects, more construction, 0:28:48.320 --> 0:28:50.920 get things going again. We saw various measures to try 0:28:50.920 --> 0:28:53.960 to help restore confidence in the property sector, whether that 0:28:54.040 --> 0:28:57.040 included you know, lowering some mortgage rates, trying to encourage 0:28:57.080 --> 0:29:00.760 people to start buying homes again, incentify them in that way, 0:29:00.800 --> 0:29:03.560 and we really haven't seen anything that's led to a 0:29:03.560 --> 0:29:06.880 more meaningful turnaround in what's happening in the economy. I 0:29:06.880 --> 0:29:10.000 think that's really just been underscored over the past few 0:29:10.000 --> 0:29:12.120 weeks with how much more of a sell off we've 0:29:12.160 --> 0:29:14.560 seen in the stock market, right, I Mean that's sort 0:29:14.560 --> 0:29:17.480 of really really underscores that issue with sentiment here. So 0:29:17.520 --> 0:29:20.240 it's difficult to see what exactly the government can do 0:29:20.360 --> 0:29:23.280 to restore that level of confidence, but it does seem 0:29:23.320 --> 0:29:26.120 clear at least, or the at least the message that 0:29:26.200 --> 0:29:29.160 investors are sending is that what has been done so 0:29:29.240 --> 0:29:31.680 far isn't enough. And I guess we're all just not 0:29:31.760 --> 0:29:34.040 really sure where to go from here, given. 0:29:33.760 --> 0:29:36.480 The property crisis has cut pretty deep. I mean, it's 0:29:36.520 --> 0:29:40.320 the main source of wealth for a lot of Chinese households. 0:29:40.680 --> 0:29:42.280 Is it the type of thing that we think could 0:29:42.280 --> 0:29:45.640 be turned around quickly? And is it just that investors 0:29:45.680 --> 0:29:46.680 should be more patient? 0:29:47.160 --> 0:29:49.800 Well, I think at this point the Chinese economy is 0:29:49.880 --> 0:29:53.720 really kind of undergoing a pretty structural change, right, And 0:29:53.760 --> 0:29:57.240 I think that a lot of top polity makers have 0:29:57.440 --> 0:30:00.920 acknowledged that that the sector real estate, which used to 0:30:00.960 --> 0:30:03.200 be you know, used to comprise a quarter, if not 0:30:03.280 --> 0:30:07.520 a third, of all GDP in the world's second largest 0:30:07.520 --> 0:30:09.720 economy just isn't really ever going to get back there, 0:30:09.760 --> 0:30:12.880 and so there's a lot of focus among top officials 0:30:12.880 --> 0:30:16.200 about what exactly needs to become these new drivers of growth, 0:30:16.200 --> 0:30:21.040 whether that's putting more into new energy. Electric vehicles is 0:30:21.080 --> 0:30:23.840 a really promising area, of renewables is a really promising area, 0:30:23.920 --> 0:30:26.880 But obviously that kind of thing takes a lot of time. 0:30:27.040 --> 0:30:28.959 I think that if you're an investor, you want to 0:30:29.040 --> 0:30:32.760 see more progress on getting activity going again. You want 0:30:32.800 --> 0:30:34.920 to see some indication that you're at least going to 0:30:34.960 --> 0:30:38.160 get households to start spending again. But ultimately, yes, I 0:30:38.160 --> 0:30:41.480 think it's difficult when you're seeing some of these more 0:30:41.480 --> 0:30:44.840 immediate issues with a deep fallout from the property crisis, 0:30:46.240 --> 0:30:49.120 you know, not necessarily translating into an immediate fix, and 0:30:49.200 --> 0:30:52.800 knowing that those longer term transitional phases are still obviously 0:30:53.160 --> 0:30:54.560 quite a bit of a ways off. 0:30:55.440 --> 0:30:58.760 And there is also a little bit of contrast between 0:30:59.240 --> 0:31:01.800 some of these measures that have been put in place 0:31:02.160 --> 0:31:05.239 or called for by the government and then you know 0:31:05.400 --> 0:31:09.720 tightness from the regulators. For instance, when the PBOC made 0:31:09.760 --> 0:31:13.200 the announcement about cutting the triple R. We also had 0:31:13.280 --> 0:31:16.480 another story on the Bloomberg Terminal about how Chinese officials 0:31:17.000 --> 0:31:20.400 are being told in the provinces that this belt tightening 0:31:20.840 --> 0:31:24.440 posture by President Shijen Ping is here to stay and 0:31:24.480 --> 0:31:27.280 that leaders are just going to have to get used 0:31:27.320 --> 0:31:30.680 to it. The norm is going to be frugality. Now 0:31:30.960 --> 0:31:35.120 that's not necessarily something negative, but it contrasts a little 0:31:35.120 --> 0:31:37.640 bit with wanting to get the animal spirits going right. 0:31:37.720 --> 0:31:39.480 I think that those do contrast with each other, but 0:31:39.480 --> 0:31:45.560 they're ultimately still two different strains. So from the regulatory perspective, yes, 0:31:45.640 --> 0:31:48.880 we've seen obviously over the past few years, an incredible 0:31:48.920 --> 0:31:53.840 crackdown on various sectors, reigning in big tech, reigning in, 0:31:54.080 --> 0:31:56.760 you know, the education sector, all of these different areas. 0:31:56.800 --> 0:31:58.720 I think that that's you know, sort of one one 0:31:58.760 --> 0:32:01.840 piece of this. Obviously, property is another part of that, 0:32:01.920 --> 0:32:04.920 going back to, you know, here of the three red lines, 0:32:05.600 --> 0:32:07.840 and we've seen sort of this fallout in terms of 0:32:07.880 --> 0:32:13.320 how much confidence investors, businesses, Foreign investment in particular has 0:32:13.400 --> 0:32:16.040 really sort of eroded over the over the past few years. 0:32:16.120 --> 0:32:18.040 I think that you know, the government has also has 0:32:18.080 --> 0:32:22.080 tried to send multiple messages saying that, you know, they 0:32:22.080 --> 0:32:25.000 want to be a little bit more you know, discerning 0:32:25.040 --> 0:32:27.920 about regulatory policy. They don't want to catch as many 0:32:27.920 --> 0:32:30.280 people by surprise. But they're obviously still kind of struggling 0:32:30.360 --> 0:32:32.000 with that, right. I mean, you just have to go 0:32:32.080 --> 0:32:35.600 back to December, so not too long ago, when there 0:32:35.720 --> 0:32:39.920 was a surprise gaming regulation that was announced and then 0:32:40.400 --> 0:32:42.880 caused a pretty severe stock drop for ten cents and 0:32:42.960 --> 0:32:45.360 some other major tech giants really sort of sent some 0:32:45.440 --> 0:32:47.040 jitters through the markets there. So I think that on 0:32:47.080 --> 0:32:51.240 that side of things, the government still hasn't quite figured 0:32:51.240 --> 0:32:54.240 out how to guide people through this idea that the 0:32:54.320 --> 0:32:56.920 regular Tory crackdown is easing up, or at least that 0:32:56.920 --> 0:32:59.719 they're going to better telegraph how exactly some regulations are 0:32:59.720 --> 0:33:02.320 coming in place. I think that on the monetary policy side, 0:33:02.320 --> 0:33:05.760 at least, which this is what you saw recently from 0:33:05.800 --> 0:33:10.200 the PBOC, is there actually in a really difficult position 0:33:10.240 --> 0:33:12.880 as well. I mean, Eric was just saying a couple 0:33:12.960 --> 0:33:16.920 of minutes ago that they disappointed earlier in January saying 0:33:16.920 --> 0:33:20.720 that they weren't going to cut policy rates even though 0:33:20.720 --> 0:33:25.160 that was very widely expected. And now they're trying to. 0:33:25.240 --> 0:33:27.160 They sort of front ran this triple R cut, this 0:33:27.240 --> 0:33:30.320 reserve requirement ratio cut. We really haven't seen that ever before. 0:33:30.080 --> 0:33:33.080 For well, and this was more dramatic fifty basis points say, 0:33:33.160 --> 0:33:35.920 even when they were thinking about cutting the interest rate, 0:33:35.960 --> 0:33:37.800 it was only like ten basis points, right, and then 0:33:37.800 --> 0:33:40.320 we got nothing. So it's a little surprising. It's at 0:33:41.000 --> 0:33:44.280 a little bit underwhelming, I think two investors. However, in 0:33:44.320 --> 0:33:46.200 this past week we saw a little bit of a 0:33:46.200 --> 0:33:50.240 pickup in appetite four Chinese assets. Is it sustainable? 0:33:51.240 --> 0:33:53.200 Well, I think we have to see where else the 0:33:53.240 --> 0:33:55.800 PBOC really goes at these measures, right. I actually thought 0:33:55.800 --> 0:33:58.880 what was really interesting from this PBOC press conference with 0:33:58.960 --> 0:34:02.680 the governor was not just that you see this reserve 0:34:02.720 --> 0:34:06.200 requirement ratio cut being front ran bigger than expected, but 0:34:06.240 --> 0:34:08.839 also it really seemed like they were focusing a lot 0:34:08.880 --> 0:34:13.640 more on structural policies to kind of guide credit into 0:34:13.920 --> 0:34:16.799 more of their favored sectors. So, in addition to the 0:34:16.800 --> 0:34:21.440 triple R cut, Pengong Sheng, the PBOC governor, also announced 0:34:22.719 --> 0:34:25.239 that they were cutting some re lending rates so that 0:34:25.280 --> 0:34:28.480 they could, you know, better benefit make it easier to 0:34:28.600 --> 0:34:31.399 loan to I think the agricultural sector was one. They 0:34:31.400 --> 0:34:33.920 were setting up a new credit market to promote credit 0:34:34.000 --> 0:34:37.040 for green divisions, elderly care, that kind of thing. So 0:34:37.120 --> 0:34:41.399 you're actually seeing in some ways the Central Bank go 0:34:41.520 --> 0:34:43.360 all the way back. You know, you'd have to go 0:34:43.400 --> 0:34:46.000 back several years, I think to this idea that they're 0:34:46.120 --> 0:34:49.640 more interested in using monetary policy tools to direct credit 0:34:49.680 --> 0:34:52.040 themselves to certain sectors. I don't think that's something that 0:34:52.040 --> 0:34:54.520 we've really seen from the Central Bank in quite a while. 0:34:54.840 --> 0:34:57.759 They brought in the use of commercial property loans for developers. 0:34:57.800 --> 0:34:59.919 Now this would be new money, I guess, being able 0:34:59.920 --> 0:35:02.480 to go to developers to help them pay off some 0:35:02.560 --> 0:35:06.640 of their debts. Is that consistent with the previous theme. 0:35:07.160 --> 0:35:10.040 Yes, well, I think it's consistent with the direction that 0:35:10.120 --> 0:35:12.160 it seems that the Central Bank has kind of been going, 0:35:12.200 --> 0:35:14.759 at least over the past few months. So again, you know, 0:35:14.800 --> 0:35:18.759 we saw much longer term change or shift from the 0:35:18.800 --> 0:35:21.520 PBOC to build more of an interest rate cord or 0:35:22.160 --> 0:35:24.920 you know, addressed policy rates rather than some of these 0:35:24.960 --> 0:35:27.319 other structural policies. I think that's begun to change over 0:35:27.360 --> 0:35:30.520 the past few months. We didn't one thing that we 0:35:30.600 --> 0:35:33.440 didn't see out of this recent press conference with the PBOC, 0:35:33.840 --> 0:35:38.640 was you know, turning to other types of tools. There's 0:35:38.719 --> 0:35:41.600 there's this one called pledged supplemental lending, which is essentially 0:35:41.600 --> 0:35:44.440 funneling money into policy banks so that they can you know, 0:35:44.480 --> 0:35:47.560 help fund you know, property related sectors in particular. We 0:35:47.600 --> 0:35:50.120 didn't see that too much, although they have been making 0:35:50.200 --> 0:35:52.160 use of that tool recently. So I do think that, 0:35:52.719 --> 0:35:54.560 you know, even if you're seeing a shift, something that's 0:35:54.560 --> 0:35:57.000 been happening at least over the past couple of months. 0:35:57.200 --> 0:35:59.760 Let's go back to Bloomberg economist Derek you for a moment. 0:36:00.040 --> 0:36:02.800 I asked him about the mix that we've seen between 0:36:03.000 --> 0:36:05.080 fiscal and monetary stimulus. 0:36:05.160 --> 0:36:08.920 The monetary easing itself, you know, even interestury, CRD triple 0:36:09.000 --> 0:36:12.640 ar cuds. Yeah, that's give you something, but not that huge. 0:36:12.719 --> 0:36:15.759 I think our view is the fiscal side needs to 0:36:15.800 --> 0:36:18.479 do more compared to last year, because I think even 0:36:18.719 --> 0:36:22.200 PBOC steps up easing, it's still to be you know, incremental. 0:36:22.800 --> 0:36:26.239 Somebody is calling for PBOC to cutting trity to zero, right, so, 0:36:26.360 --> 0:36:29.839 but I don't think people are going to move that aggressively. 0:36:30.239 --> 0:36:33.440 So still on the monetary side, we don't expect a 0:36:33.600 --> 0:36:37.120 huge boost to the growth. More it's from the fiscal side, 0:36:37.160 --> 0:36:41.239 and fundamentally, I think even with those more physical stimulus 0:36:41.280 --> 0:36:44.520 that's probably still not enough. I think fundamentally it's the 0:36:44.640 --> 0:36:48.640 policy direction. It's a policy you know, orientation that's most 0:36:48.680 --> 0:36:50.279 important for the market right now. 0:36:50.640 --> 0:36:54.720 So we're talking about some monetary stimulus measures, some fiscal 0:36:54.760 --> 0:36:59.799 stimulus measures, and then communication measures are building confidence. Of 0:36:59.840 --> 0:37:02.120 the those three, what do you see as most important, Jill. 0:37:02.000 --> 0:37:05.719 I will say on the fiscal stimulus side, that's obviously 0:37:05.760 --> 0:37:09.200 I think going to become more important this year. There's 0:37:09.200 --> 0:37:12.400 a growing consensus among a lot of economists, including obviously 0:37:12.400 --> 0:37:16.400 Bloomberg Economics, that there does need to be more fiscal stimulus. 0:37:16.719 --> 0:37:19.320 Maybe we aren't going to see the type of massive 0:37:19.360 --> 0:37:22.560 stimulus that we saw in the aftermath of the financial crisis, 0:37:22.560 --> 0:37:24.879 where you just see tons and tons of money being 0:37:24.880 --> 0:37:27.200 pumped into the economy, but we do know that, you know, 0:37:27.239 --> 0:37:32.000 officials are discussing various measures. Bloomberg News reported very recently 0:37:32.080 --> 0:37:36.000 that there's some debate over the issuance of some additional 0:37:36.280 --> 0:37:38.960 special sovereign debt to sort of fund some infrastructural projects. 0:37:39.000 --> 0:37:42.239 So there are funding avenues there, But ultimately a lot 0:37:42.280 --> 0:37:44.920 of those reports haven't really moved the needle much, right, 0:37:45.000 --> 0:37:47.000 So I think that brings it back to this idea 0:37:47.040 --> 0:37:51.040 of that communication issue. I mean, whatever policymakers are saying 0:37:51.160 --> 0:37:54.560 right now, clearly markets aren't really taking that as you know, 0:37:54.640 --> 0:37:57.200 any kind of you know, reason to be more confident 0:37:57.239 --> 0:37:59.200 in the long term. You might see some little jolts 0:37:59.200 --> 0:38:01.720 here and there in terms of markets, maybe the Pongong 0:38:01.760 --> 0:38:06.200 Shing comments, you know, just just recently did boost you know, 0:38:06.239 --> 0:38:09.400 equity markets for you know, a couple of hours or 0:38:09.440 --> 0:38:11.239 a day or what have you. But yes, I think 0:38:11.239 --> 0:38:14.920 that it's more about that idea of how do you 0:38:15.000 --> 0:38:18.560 project that level of confidence in that policy direction, how 0:38:18.600 --> 0:38:21.359 do you present a clear vision to the public, to 0:38:21.400 --> 0:38:25.080 your investors about where this economy is going. That's really 0:38:25.080 --> 0:38:25.960 what we need to see here. 0:38:26.080 --> 0:38:28.440 Jill, thank you so much for joining us. Jill desis 0:38:28.560 --> 0:38:32.600 China Economy and Government editor at Bloomberg. I'm Brian Curtis 0:38:32.719 --> 0:38:35.440 along with Doug Chrisner. You can catch us every weekday 0:38:35.480 --> 0:38:38.359 here for Bloomberg Day Break Asia, beginning at nine am 0:38:38.360 --> 0:38:41.360 in Hong Kong and eight pm on Wall Street. 0:38:41.880 --> 0:38:45.439 Tom Well, our thanks to Bloomberg's Daybreak Asia co host 0:38:45.520 --> 0:38:47.880 Brian Curtis, and that does it for this edition of 0:38:47.920 --> 0:38:50.799 Bloomberg day Break Weekend. Join us again Monday morning at 0:38:50.800 --> 0:38:53.120 five am Wall Street Time for the latest on markets 0:38:53.120 --> 0:38:55.480 overseas and the news you need to start your day. 0:38:55.960 --> 0:38:59.000 I'm Tom Husby. Stay with us. Top stories and global 0:38:59.000 --> 0:39:00.759 business headlines are coming right