# Daybreak Weekend: US Housing, Europe Data, Yen Intervention

An episode of [Bloomberg Daybreak: Asia Edition](https://invisiblenetwork.ai/podcast/1663863437), 14 Aug 2026, 39 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/d15648c4-cee0-4e99-a5ca-af80014d921d/b333bb54-7260-4026-9f3e-b4a6013a5efb/audio.mp3?utm_source=Podcast&in_playlist=27143354-63aa-4ac5-965d-af80014dc0d3

Bloomberg Daybreak Weekend with Host Nathan Hager take a look at some of the stories we'll be tracking in the coming week. • In the US – a look ahead to S housing data, along with a focus on 3 stocks for the week ahead. • In the UK – a look ahead to Europe inflation and PMI data. • In Asia – a look ahead to why the persistent weakness of the yen is a troubling issue for Japan’s policymakers. See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
[0:10] Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
[0:12] Speaker 2: top stories in the coming week from our Daybreak anchors
[0:15] Speaker 2: all around the world. Straight Ahead on the program, we
[0:18] Speaker 2: looked to some key housing data in the US. I'm
[0:20] Speaker 2: Nathan Hager in Washington.
[0:22] Speaker 3: I'm Stephen Caron and London, who are looking ahead the
[0:24] Speaker 3: next economic indicators for Europe and what it signals about
[0:28] Speaker 3: the trajectory for stocks on the economy for the rest
[0:31] Speaker 3: of the year.
[0:31] Speaker 4: I'm Doug Prisner looking at the fate of the Japanese
[0:34] Speaker 4: yen and a reality check for Hong Kong.
[0:38] Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
[0:42] Speaker 1: eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
[0:46] Speaker 1: Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Syrias,
[0:51] Speaker 1: XM one twenty one, and around the world on Bloomberg Radio,
[0:55] Speaker 1: dot Com and the Bloomberg Business App.
[1:02] Speaker 5: Good day to you. I'm Nathan Hager.
[1:04] Speaker 2: We begin today's program with a look at the US
[1:07] Speaker 2: housing market. This week, we get figures on housing starts
[1:09] Speaker 2: and pending home sales for the month of July. For
[1:12] Speaker 2: more on this and the latest in the home building sector,
[1:14] Speaker 2: we are joined by Drew Redding, us homebuilding analyst for
[1:18] Speaker 2: Bloomberg Intelligence. Great as always to speak with you, Drew,
[1:21] Speaker 2: And of course it's been a pretty hot summer, so
[1:23] Speaker 2: are we expecting many projects to have gotten off the
[1:26] Speaker 2: ground in the last month.
[1:28] Speaker 6: So when we think about housing starts, you know, we're
[1:31] Speaker 6: down about five percent year to date on the single
[1:33] Speaker 6: family side, and we expect to see further pressure from
[1:37] Speaker 6: that side of the market. You know, we see builders
[1:39] Speaker 6: that are continuing to scale back production, giving in an
[1:44] Speaker 6: already elevated supply of speck home inventory that they still
[1:47] Speaker 6: need to work through. And you know, we've got sales
[1:49] Speaker 6: in the new home market that are up just about
[1:51] Speaker 6: two percent year to date, so it's a little taken
[1:53] Speaker 6: a little bit longer to clear that inventory. You know. Now,
[1:57] Speaker 6: the large public homebuilders have done a pretty good job
[2:00] Speaker 6: in drawing down their complete at home inventories. Of course,
[2:04] Speaker 6: they've had to remain pretty aggressive in their use of
[2:06] Speaker 6: incentives to do so. But we are starting to see
[2:10] Speaker 6: more of a shift away from that spec production model,
[2:13] Speaker 6: which is building the home before you have a buyer
[2:18] Speaker 6: you know, many of the builders are looking for a
[2:19] Speaker 6: better balance, so they're what they're trying to do is
[2:21] Speaker 6: basically match production with the sales pace rather than you know,
[2:26] Speaker 6: putting more specs into a slow market.
[2:28] Speaker 2: Sounds like that speaks to an overall trend of the
[2:31] Speaker 2: home market in general moving away from a buying toward renting.
[2:36] Speaker 2: Is that kind of what you're pointing to as an
[2:38] Speaker 2: overall trend here?
[2:40] Speaker 6: Yeah, So I think when you look at the for
[2:42] Speaker 6: sale market relative to rentals, when you think about affordability,
[2:46] Speaker 6: the high price of the homes, mortgage rates back towards
[2:49] Speaker 6: seven percent. You know, the math certainly does favor renting
[2:54] Speaker 6: over over owning. We've done some survey work that shows
[2:58] Speaker 6: the same. And it's not that it's that current renters
[3:02] Speaker 6: don't want to own. We find a majority of them do.
[3:05] Speaker 6: It's simply the economics of it don't make sense right now.
[3:09] Speaker 2: So what does that do for the overall sentiment in
[3:11] Speaker 2: the home building market when we're seeing a trend toward
[3:16] Speaker 2: more of those multi family projects as opposed to the
[3:18] Speaker 2: single families that you would think have better profit margins.
[3:23] Speaker 6: Well, it's a good question, and you know I mentioned
[3:26] Speaker 6: that in the new home market, we have sales paces,
[3:29] Speaker 6: you know, they're down significantly from last year. The market
[3:32] Speaker 6: as a whole is up only about two percent year
[3:34] Speaker 6: to date. And really the way builders are having to
[3:37] Speaker 6: grow is to expand their community count, so they're not
[3:40] Speaker 6: seeing it on the pace side, but really by increasing
[3:44] Speaker 6: the number of subdivisions that they're operating from. You know.
[3:48] Speaker 6: So it's really a tough growth environment on the single
[3:51] Speaker 6: family side. And you know, if you think about the market,
[3:55] Speaker 6: certainly there are pockets of relative strength and relative weakness.
[3:58] Speaker 6: When you think about you know, the entry level buyer,
[4:01] Speaker 6: who is typically someone that may be coming out of
[4:04] Speaker 6: a rental situation, we see more stress as you would
[4:07] Speaker 6: expect to cross that part of the market because those
[4:10] Speaker 6: tend to be the most priced sensitive home buyers. On
[4:13] Speaker 6: a relative basis, we have seen more strength at the
[4:17] Speaker 6: move up in luxury segments. These are typically the buyers
[4:20] Speaker 6: that are coming out of an existing home, so they've
[4:23] Speaker 6: built up equity over the last couple of years. In
[4:27] Speaker 6: the luxury side, they're benefiting from the run up in
[4:29] Speaker 6: equity markets. They tend to be less sensitive to mortgage rates.
[4:33] Speaker 6: We're seeing relative strength on that side, but you know,
[4:36] Speaker 6: there's really not a parket part of the market that
[4:38] Speaker 6: is completely immune, you know, to what's happening in the
[4:42] Speaker 6: broader economy, you know, affordability, economic and political uncertainty. So
[4:48] Speaker 6: you know, there's broad challenges, but there are pockets of
[4:51] Speaker 6: relative strength.
[4:51] Speaker 2: Oh, we are going to hear from one of those
[4:53] Speaker 2: luxury home builders when Toll Brothers reports earnings this week.
[4:57] Speaker 2: Are we expecting some positive signs there in terms of
[5:01] Speaker 2: a lot of the factors you've just been talking about.
[5:04] Speaker 6: Yeah, so we like the relative position of Toll Brothers.
[5:07] Speaker 6: You know, as you know, they cater to the luxury market,
[5:10] Speaker 6: so their buyer is more affluent. You know, they're, as
[5:15] Speaker 6: I said, the customers are less sensitive to interest rates
[5:17] Speaker 6: compared to the entry level. About a quarter of their
[5:19] Speaker 6: buyers pay cash. For those that do take out a mortgage,
[5:23] Speaker 6: they put about thirty percent down, So the buyer is
[5:25] Speaker 6: very strong. So they're certainly more insulated to the macro.
[5:29] Speaker 6: In terms of the upcoming print, I think, you know,
[5:32] Speaker 6: the the KPIs will be looking at our order growth
[5:35] Speaker 6: and gross margin, and we particularly are interested in hearing
[5:39] Speaker 6: how demand has trended intra quarter, you know, with mortgage
[5:42] Speaker 6: rates climbing back up towards seven percent. But that being said,
[5:46] Speaker 6: you know, we still expect Toll to report high single
[5:48] Speaker 6: digit growth in orders, and importantly, you know, that's being driven,
[5:52] Speaker 6: as we mentioned before, by community count growth, which is
[5:55] Speaker 6: helping to offset muted sales absorptions. And that's really what
[5:58] Speaker 6: sets Toll Brothers apart from a growth perspective, both for
[6:02] Speaker 6: twenty twenty six and looking out into twenty twenty seven. Now,
[6:06] Speaker 6: on the margin side, gross margins have been very strong.
[6:09] Speaker 6: The outlook's really going to come down to how aggressive
[6:12] Speaker 6: they've had to be on their use of sales incentives.
[6:14] Speaker 6: Bull primarily prescribes to a price over paced strategy, so
[6:19] Speaker 6: we do think that near term margins should hold pretty well.
[6:22] Speaker 2: Thank you for this, Drew, great having you on with us.
[6:24] Speaker 2: That's Drew Redding, us home building analyst for Bloomberg Intelligence.
[6:29] Speaker 2: Let's take a look now add some stocks making news
[6:31] Speaker 2: in the week ahead. I'm Nathan Hager, joined by Bloomberg
[6:34] Speaker 2: Equities reporter Avalon Purnell. We're sort of winding down earning
[6:37] Speaker 2: season here Avalon, but we're going to hear from some
[6:40] Speaker 2: of the biggest names in big box retail this week,
[6:43] Speaker 2: starting with Target on Wednesday. There has been a lot
[6:47] Speaker 2: of drama around this stock.
[6:49] Speaker 5: What are we expecting this week?
[6:51] Speaker 7: Absolutely, We're definitely gonna get a lot of visibility on
[6:53] Speaker 7: the state of the American shopper, sales trends, and progress
[6:57] Speaker 7: on Target's broader recovery will definitely be tough top of
[7:00] Speaker 7: mind for investors, especially as they head into their second
[7:03] Speaker 7: quarter earnings next Wednesday. The company is still really trying
[7:06] Speaker 7: to regain its sparkle and pinpoint what exactly made the
[7:09] Speaker 7: company tarje as opposed to just Target. One thing of
[7:14] Speaker 7: note though, is that definitely analysts remain remixed on the
[7:16] Speaker 7: company's performance moving forward, especially giving guidance they had in
[7:20] Speaker 7: their earnings call last quarter, noting that they did have
[7:23] Speaker 7: a little bit of concerns about tougher comparisons moving forward.
[7:26] Speaker 7: You have ubs as Michael Lasser remaining quite bullish expecting
[7:30] Speaker 7: the results to provide the next proof point that broader
[7:32] Speaker 7: recovery may actually be sticking around for the company, whereas
[7:36] Speaker 7: Barclays Seth Sigmund saying that you know, meaningful upside to
[7:40] Speaker 7: results will really be needed to push the stock from here.
[7:43] Speaker 7: He notes also that he believes a big box store
[7:46] Speaker 7: likely had a solid quarter. However, he still views improvement
[7:49] Speaker 7: as just recovering from last year's issues as opposed to
[7:53] Speaker 7: moving forward into the next chapter. So Worth noting that
[7:57] Speaker 7: the options data that we're currently seeing at the moment
[7:59] Speaker 7: is implying about a six point two percent move after
[8:02] Speaker 7: those results.
[8:03] Speaker 2: Well, you wonder if we're going to see something of
[8:05] Speaker 2: a similar move from Walmart when they report on Thursday.
[8:09] Speaker 2: If you think about some kind of indicator of the
[8:13] Speaker 2: American consumer, it's hard to think of a company that's
[8:16] Speaker 2: more of one than Walmart.
[8:18] Speaker 7: Absolutely, and a similar story that we were seeing in
[8:21] Speaker 7: Target definitely still playing a role here for Walmart as well.
[8:25] Speaker 7: Analysts still quite mixed on how exactly this big box stores,
[8:29] Speaker 7: e commerce and also delivery businesses will perform as they
[8:32] Speaker 7: report second quarter earnings. Key Bank is expecting pretty healthy
[8:36] Speaker 7: results from the store, noting that the company remains one
[8:38] Speaker 7: of their top picks as growth initiatives and also further
[8:42] Speaker 7: share gains continue to build momentum despite a fairly volatile
[8:46] Speaker 7: macro and geopolitical environment. They also expect Walmart to be
[8:50] Speaker 7: fairly vocal about how exactly they're using those tariff refunds
[8:53] Speaker 7: to fund rollbacks and ultimately drive future business gains by
[8:58] Speaker 7: bringing people back into the store with slightly lower prices.
[9:01] Speaker 7: Others are not necessarily as rosy about the company's outlook,
[9:04] Speaker 7: Barclay's noting that the optics don't look too great given
[9:07] Speaker 7: expectations for sales moderation from the last quarter. Barclays, though
[9:11] Speaker 7: still saying that they believe this could be the trough
[9:14] Speaker 7: as price investments in other initiatives support accelerating share gains
[9:18] Speaker 7: in the second half of the year. Worth noting, like
[9:20] Speaker 7: retaillers are still expecting you know, back to school sales
[9:23] Speaker 7: and Black Friday, which obviously won't be penciled in for
[9:26] Speaker 7: the start of the year.
[9:27] Speaker 2: Right, but definitely something to keep an eye on as
[9:30] Speaker 2: we wait to see what the outlook is going to
[9:33] Speaker 2: be from both Target and Walmart. Also on Thursday, we're
[9:38] Speaker 2: going to hear from one of the biggest names in
[9:39] Speaker 2: the AG sector. What are we expecting from Deer in company?
[9:43] Speaker 7: Yes, investors will be looking for more data that reinforces
[9:47] Speaker 7: Deer's view that twenty twenty six will be the trough,
[9:50] Speaker 7: the bottom of this quite complicated situation for the company.
[9:55] Speaker 7: The world's biggest farm machinery makers second quarter results are
[9:58] Speaker 7: expected to be slightly mixed again this quarter, Bloomberg Intelligence
[10:02] Speaker 7: expecting the results to still reinforce that expectation that twenty
[10:05] Speaker 7: twenty six will mark a trough in large ag demand
[10:09] Speaker 7: as attention shifts towards how fast will that recovery be
[10:12] Speaker 7: next year. However, that analyst is also noting that they're
[10:15] Speaker 7: still expecting large agriculture retail cells to remain quite soft,
[10:20] Speaker 7: though they do appear to be tracking better than industry
[10:22] Speaker 7: forecasts as inventories continue to normalize. RBC also highlighting that
[10:27] Speaker 7: their big question is continuing to be what exactly does
[10:30] Speaker 7: the pace of deer's recovery look like, especially as there
[10:34] Speaker 7: continues to be a lot of holatility in the macro environment,
[10:37] Speaker 7: and also the tariff situation that is somewhat improved but
[10:41] Speaker 7: still kind of in the balance o previously kind of interesting,
[10:45] Speaker 7: especially with the Iran war in the background, as to
[10:48] Speaker 7: how exactly that's going to be impacting farmers who are
[10:50] Speaker 7: continuing to struggle to manage prices, not necessarily keeping pace
[10:55] Speaker 7: with very elevated cost in the options market, also continuing
[10:59] Speaker 7: to price She'll move of nearly five percent after the
[11:02] Speaker 7: company reports learnings.
[11:03] Speaker 2: Yeah, still a lot of back and forth when it
[11:05] Speaker 2: comes to that situation in the Middle East and of
[11:08] Speaker 2: the post tariff.
[11:09] Speaker 5: Situation as well.
[11:11] Speaker 2: Just time to talk about another stock that's reporting this week,
[11:14] Speaker 2: Esday Lotder. There is a lot more competition in the
[11:17] Speaker 2: beauty space. How are we thinking Esday Lotter is going
[11:19] Speaker 2: to be handling it?
[11:20] Speaker 1: There?
[11:21] Speaker 7: Sure is, And I mean to say the least, this
[11:23] Speaker 7: company has had a rollercoaster ride of a quarter. I mean,
[11:27] Speaker 7: just a couple of months ago they were talking about
[11:30] Speaker 7: merger talks with the Spanish brand Pooch, which was on
[11:33] Speaker 7: the table and then later scrapped after investors were quite
[11:36] Speaker 7: negative on that idea. And like a lot of other
[11:40] Speaker 7: companies that we've already mentioned, they are in the midst
[11:42] Speaker 7: of a broader recovery as consumers are continuing to kind
[11:45] Speaker 7: of pull back from spending on these various like luxury
[11:49] Speaker 7: brands that are under the Stay Ltder umbrella. That being said,
[11:53] Speaker 7: RBC does continue to favor their turnarounds, say noticing that
[11:57] Speaker 7: potentially important brands continue to outperform, and they also noted
[12:01] Speaker 7: that the broader turnaround at MAC continues to kind of
[12:05] Speaker 7: bode well for the company, though they do still question
[12:08] Speaker 7: how Esday Lauder will continue to fare with holding onto
[12:11] Speaker 7: smash Box and two Face, which are fairly popular brands
[12:15] Speaker 7: amongst maybe millennial crowds, and whether it still makes sense
[12:19] Speaker 7: for es Day Lauder to hold on to them or
[12:21] Speaker 7: maybe look for a play to sell them at some point.
[12:23] Speaker 2: We'll see, Yeah, we'll see if a lot of those
[12:26] Speaker 2: sales are happening in Tarjay as well. Thanks for Evlon,
[12:28] Speaker 2: as always good to have you with this. That's Avlon Parnell,
[12:31] Speaker 2: Equities reporter for Bloomberg News, and coming up on Bloomberg
[12:34] Speaker 2: Daybreak weekend, we'll look at whether Europe's future economic data.
[12:37] Speaker 5: Can live up to the promise of a bumper second.
[12:40] Speaker 2: Quarter when it comes to Europe's earnings. I'm Nathan Hager
[12:43] Speaker 2: and this is Bloomberg. This is Bloomberg Day Break Weekend,
[12:57] Speaker 2: our global look ahead at the top stories for our
[13:00] Speaker 2: investors in the coming week are Nathan Higer and Washington.
[13:03] Speaker 5: Later in the program.
[13:04] Speaker 2: Will take a closer look at the feet of the
[13:05] Speaker 2: Japanese yen, plus how Hong Kong's competitiveness as a financial
[13:09] Speaker 2: center is about to be tested. But first Europe's Biggest
[13:13] Speaker 2: Economies report of inflation and Purchasing Managers Index data next
[13:17] Speaker 2: week against a backdrop of geopolitical uncertainty and higher energy
[13:22] Speaker 2: costs driven by the Warriner ran. Let's get more now
[13:25] Speaker 2: from Bloomberg Daybreak europe banker Stephen Carroll Nathan.
[13:28] Speaker 3: European economies and companies have defied the doom laden forecast
[13:32] Speaker 3: that the Iran war would tip the continent into stagflation.
[13:36] Speaker 3: We've seen the best earning season in nearly four years,
[13:38] Speaker 3: pushing keystock indexes to new records, and the signals for
[13:42] Speaker 3: the months ahead look strong too. In the coming days,
[13:44] Speaker 3: PMIS and the Zew survey in Germany will give fresh
[13:47] Speaker 3: insight into how the biggest economies are performing, along with
[13:50] Speaker 3: updated readings on inflation. And investors seem bullish on European
[13:54] Speaker 3: stocks too. Benedict's Low is equity derivative strategist at BMP Pariba.
[13:59] Speaker 3: Here's what she tells Bloomberg's Tom McKenzie earlier this week.
[14:02] Speaker 8: So it's undeniable that the macro story is speaking up
[14:05] Speaker 8: in Europe.
[14:06] Speaker 9: We've got growth that.
[14:07] Speaker 8: Is surprising to the upside, activity on the right, and
[14:10] Speaker 8: earnings that have been good actually, earnings have been exceptionally
[14:14] Speaker 8: strong in the US but also very good in Europe.
[14:17] Speaker 8: It's been one of the best earning seasons over the
[14:19] Speaker 8: past few years. And all of this is happening in
[14:22] Speaker 8: the context where positioning is low to neutral, So that
[14:26] Speaker 8: points a positive picture of stocks. Now, the comfort point
[14:29] Speaker 8: to that is that a lot of positive news is
[14:31] Speaker 8: already in the price and with seasonality that is not
[14:34] Speaker 8: supportive for higher stock price up until the end of
[14:37] Speaker 8: September October. We like to position for what we call
[14:41] Speaker 8: a grind higher in stocks, and we like to minimize
[14:44] Speaker 8: the premiums that investor are spending on website positioning.
[14:47] Speaker 10: How do you mitigate risks around inflation, whether it's soft
[14:49] Speaker 10: commodities where there's these or where there's gas oil prices.
[14:52] Speaker 10: If this is the status quo right now around Iran
[14:55] Speaker 10: and that is prolonged, how do you hedge around that.
[14:58] Speaker 8: So one of our top pick at the moment is
[15:00] Speaker 8: the banking sectors. We think the banking sectors is one
[15:04] Speaker 8: of the best sector position for end of your First
[15:07] Speaker 8: of all, pmis are on the rise. As I mentioned
[15:09] Speaker 8: activity speaking up, earnings that have been good, but also
[15:12] Speaker 8: higher inflation mean higher rates. We're expecting the UCB to
[15:15] Speaker 8: rise rates concept number meeting, and that is positive for
[15:18] Speaker 8: the banking sector, a cyclical sector that has yes really
[15:22] Speaker 8: performed well over the past few years. But we think
[15:24] Speaker 8: this is some website poler sector.
[15:26] Speaker 3: So Betexil from Bimpe Parriba optimistic there, but there are
[15:29] Speaker 3: risks to the outlet, not least from oil and gas
[15:32] Speaker 3: prices grinding higher. Let's discuss now with David Powell, Bloomberg's
[15:36] Speaker 3: senior Euro Area economist, and Sagarika Jackson Ghani, who covers
[15:39] Speaker 3: EMEA Equities, macro and investment strategy. David, let's start with you.
[15:44] Speaker 3: We're looking ahead to these economic surveys coming in the
[15:48] Speaker 3: next few days. What are we expecting to learn about
[15:50] Speaker 3: the state of europe'svegas economies.
[15:52] Speaker 9: Well, essentially, we're going to be focusing on the PMI
[15:55] Speaker 9: survey and that's going to give us sy indications to
[15:58] Speaker 9: whether the strong growth we saw the second quarter continued
[16:01] Speaker 9: in the third quarter. Your area GDP spended by zero
[16:05] Speaker 9: point four percent in the second quarter this year. That
[16:08] Speaker 9: was basically double consensus. Part of that is because of
[16:11] Speaker 9: a rebound in Ireland, but even without that distortion caused
[16:17] Speaker 9: by iris GDP, the economy probably would have expanded by
[16:21] Speaker 9: about zero point three, which is above expectations and is
[16:24] Speaker 9: certainly defying the negative forecasts or the gloomy forecasts that
[16:30] Speaker 9: were put out after the sharp rise and commodity prices
[16:34] Speaker 9: earlier this year.
[16:35] Speaker 3: Zagreca, we've just wrapped up, or just wrapping up rather
[16:38] Speaker 3: a very strong earning season in Europe. But can you
[16:41] Speaker 3: give us a sense of perspective on this. How good
[16:44] Speaker 3: has it been when we look back at how European
[16:46] Speaker 3: companies have reported.
[16:47] Speaker 11: It's taken a lot of market participants, both investors and
[16:50] Speaker 11: sell side strategists by surprise. And I want to put
[16:53] Speaker 11: that in context a little bit, because European companies in
[16:56] Speaker 11: the last two years have had essentially zero profit growth,
[17:00] Speaker 11: and that was underpinned by poor economic growth, both a
[17:03] Speaker 11: lot of it domestically. But this year what happened was
[17:06] Speaker 11: European stock started off the year on a really solid footing. Right.
[17:09] Speaker 11: You had the AI trade cracking in the US, but
[17:12] Speaker 11: at that time Europe was turning attractive because it had
[17:16] Speaker 11: these There was a new buzzword on Wall Street at
[17:18] Speaker 11: the time. It was called halo heavy assets low obselescence.
[17:22] Speaker 11: So suddenly the asset heavy old economy stuff was becoming attractive.
[17:27] Speaker 11: But before that could really take off, you had the
[17:30] Speaker 11: US Iran war, and that exposed a lot of European
[17:34] Speaker 11: companies to the potential for higher oil prices. Would it
[17:38] Speaker 11: there were worries that European economies would tip into stagflation,
[17:42] Speaker 11: so expectations had on the macro front been tempered a bit.
[17:47] Speaker 11: But coming into the second quarter earning season, unless expectations
[17:51] Speaker 11: were incredibly strong, and as we're expecting MSCI Europe companies
[17:55] Speaker 11: to post a twelve percent increase in profits versus a
[17:59] Speaker 11: year earlier. As I said previously, after two years of
[18:02] Speaker 11: no growth, that was already a high bar. What's been
[18:05] Speaker 11: astounding is that not only have the companies met that bar,
[18:08] Speaker 11: they've actually beaten it by quite a wide margin. So
[18:12] Speaker 11: they've posted seventeen percent increase in profits, and that's the
[18:16] Speaker 11: best since late twenty twenty two. Of course, the economy
[18:19] Speaker 11: has been surprisingly resilient to the oil price shock. We
[18:23] Speaker 11: haven't quite seen that feed through to inflation to a
[18:26] Speaker 11: degree that had been feared, So that's been underpinning that.
[18:30] Speaker 11: But the really big takeaway for US this season has
[18:32] Speaker 11: been that. You know, the typical pattern in a year
[18:35] Speaker 11: is generally that analysts start the year really bullish and
[18:39] Speaker 11: then through the year they downgrade earnings expectations. This year,
[18:43] Speaker 11: it's been the opposite. Not only have they come in bullish,
[18:45] Speaker 11: but they've actually raised earnings expectations for twenty twenty six
[18:49] Speaker 11: by five percent, which is really atypical. So that bodes
[18:52] Speaker 11: well for further bullishness.
[18:54] Speaker 3: Okay, I mean the inflation concerns, David, really are central
[18:57] Speaker 3: to what things look like for the rest of the
[19:00] Speaker 3: year as well. We've talked about the resilience in the
[19:03] Speaker 3: European economies that we've seen so far, but given that
[19:07] Speaker 3: energy prices still remain elevated, how big is the inflation
[19:10] Speaker 3: risk when we're thinking about the picture for the coming months.
[19:13] Speaker 9: There were these fears of stagflation. We haven't had the
[19:16] Speaker 9: stag but we've had the flation. So if we look
[19:19] Speaker 9: back at headline CPI in January, it was one point
[19:22] Speaker 9: seven percent. Commodity prices started to rise in February and
[19:26] Speaker 9: anticipation of a conflict in the Middle East, and then
[19:30] Speaker 9: when it actually began at the very end of February,
[19:34] Speaker 9: commodity price is shot up, and the latest inflation reading
[19:37] Speaker 9: is two point nine percent, so well above the ECB's
[19:41] Speaker 9: two percent target, and that is really what's driving the
[19:45] Speaker 9: ECB's decisions right now. We expect another hike from the
[19:50] Speaker 9: ECB in September, and that's universally expected by most economists
[19:56] Speaker 9: and priced into the market. And really what's going to
[19:59] Speaker 9: drive their decision after that is how commodity prices are
[20:03] Speaker 9: affecting inflation, and that of course is tied up with
[20:07] Speaker 9: the outcome of the conflict in the Middle East, and
[20:10] Speaker 9: no one can say with exact certainty where we're going
[20:12] Speaker 9: to be at the end of the year in terms
[20:14] Speaker 9: of that, but on track for another hike, and if
[20:19] Speaker 9: this persists, we could have more tightening as the ECB
[20:22] Speaker 9: worries about worries about inflation. However, the good news is
[20:26] Speaker 9: is that core inflation is unlikely to rise as much.
[20:31] Speaker 9: We have had some increase things that are particularly vulnerable
[20:37] Speaker 9: to commodity prices like airfares have gone up, but the
[20:40] Speaker 9: weakness in the labor market is unlikely to allow workers
[20:45] Speaker 9: to ask for huge increases in pay that we saw
[20:49] Speaker 9: after the pandemic that really boosted inflation. Keeping underlying inflation
[20:53] Speaker 9: pressures limited this year.
[20:56] Speaker 3: Indeed, so that the risk of a wage price spiral
[20:58] Speaker 3: not looking at looming large at the moment, Sagrico in
[21:01] Speaker 3: the earnings pictures, did we hear much from companies about
[21:04] Speaker 3: their inflation fears?
[21:06] Speaker 11: I think in terms of inflation, the sentiment from management
[21:10] Speaker 11: has been really positive. They have sounded really confident on
[21:15] Speaker 11: profit margins and actually a really key part of that,
[21:17] Speaker 11: and this goes back to the AI story in the US.
[21:20] Speaker 11: One of the other fundamental reasons why this polishness toward
[21:24] Speaker 11: European companies and the European stock market is that changing
[21:27] Speaker 11: attitude from investors on who are the next AI winners?
[21:31] Speaker 11: So that was a key focus for how are companies
[21:34] Speaker 11: in Europe being able to monetize productivity efficiency from AI?
[21:39] Speaker 11: And we're seeing nascent signs of that now. Initially in
[21:42] Speaker 11: the first leg of the AI rally, it was all
[21:44] Speaker 11: focused on the big spenders on AI, on developing AI,
[21:48] Speaker 11: and those companies are based in the US, so Europe
[21:50] Speaker 11: had been at a disadvantage then it had underperformed US
[21:54] Speaker 11: indexes because you don't have those big AI developers here,
[21:57] Speaker 11: but what you do have are both sides of the
[22:01] Speaker 11: other sides of that supply chain, where you've got the
[22:04] Speaker 11: semiconductor paths makers that allow for AI to be deployed.
[22:08] Speaker 11: But you then also have companies in Benedict was mentioning
[22:11] Speaker 11: this earlier in her snippet, you have companies like banks
[22:14] Speaker 11: who have already started to show that they can monetize
[22:17] Speaker 11: AI in a way that is translating into earnings growth
[22:21] Speaker 11: and margin growth, and they're confident that they can defend
[22:25] Speaker 11: that going forward. So that's keeping optimism alive as well.
[22:29] Speaker 3: What about the other asset classes. We're talking specifically about
[22:32] Speaker 3: equities so far, but I mean in terms of other
[22:36] Speaker 3: European assets, are there interesting trends to be watched at.
[22:38] Speaker 11: Watching out for Definitely. We were looking into this theme
[22:42] Speaker 11: earlier with Micross asset colleagues and it's quite notable. Economically speaking,
[22:47] Speaker 11: or economicsly speaking, stocks and bonds generally behave in opposite directions.
[22:54] Speaker 11: That's the fundamental rule of economics. This time around, we
[22:58] Speaker 11: noticed that European stocks are rallying at the same time
[23:00] Speaker 11: as this growing polishness on bonds and the reason for
[23:03] Speaker 11: that is that and David mentioned this earlier as well.
[23:06] Speaker 11: The economy isn't a sweet spot at the moment where
[23:09] Speaker 11: economic momentum is picking up from lows. So there's a
[23:12] Speaker 11: City Group index which measures the degree to which data
[23:15] Speaker 11: are coming in better than expected, and that economic momentum
[23:19] Speaker 11: is the highest since March twenty twenty three. But at
[23:22] Speaker 11: the same time, absolute growth figures are still trailing the US,
[23:26] Speaker 11: and there is more policy certainty at the moment in Europe,
[23:30] Speaker 11: at least it's been viewed that way versus the US,
[23:33] Speaker 11: so investors are certainly bullish on stocks and bonds at
[23:37] Speaker 11: the same time, which is really rare.
[23:38] Speaker 3: David, we're sort of belying the dismal science of economics
[23:41] Speaker 3: by being so positive about the picture going ahead for
[23:44] Speaker 3: the rest of the year. I just wonder what risks
[23:46] Speaker 3: we should have our eyes on when we're thinking about
[23:49] Speaker 3: what could derail this momentum and this resilience for the
[23:52] Speaker 3: European economy.
[23:53] Speaker 9: Probably the biggest risk is the obvious one of commodity
[23:56] Speaker 9: prices shooting higher and much higher again the conflict in
[24:01] Speaker 9: the Middle East were to escalate, And beyond that, it's
[24:04] Speaker 9: probably that the increase in commodity process that's driving up
[24:08] Speaker 9: headline inflation. If that starts to appear more strongly in
[24:12] Speaker 9: underlying inflation, even though the labor market is weaker than
[24:16] Speaker 9: it was several years ago, because that would probably cause
[24:19] Speaker 9: the ECB to tighten much more aggressively than we currently
[24:23] Speaker 9: think it will.
[24:24] Speaker 3: Okay, Zachary, The question of investors diversifying away from the US,
[24:29] Speaker 3: looking for other options away from the US hasn't something
[24:31] Speaker 3: that's benefited Europe in the past. Is there any sign
[24:34] Speaker 3: that that momentum could continue or be a theme as
[24:37] Speaker 3: we're looking towards the rest.
[24:38] Speaker 9: Of the year.
[24:39] Speaker 11: Absolutely, and that underpins the broadening trade that has been
[24:42] Speaker 11: going on this year. So investors are looking out of
[24:45] Speaker 11: They're looking within the US but outside of tech. But
[24:49] Speaker 11: that is also leading them to other more attractively valued
[24:53] Speaker 11: stocks which are in Asia or Europe. And again it
[24:55] Speaker 11: goes back to the economic momentum, because Europe is chock
[24:58] Speaker 11: full of sector is that are very closely linked with
[25:01] Speaker 11: the economic cycle. Again, banks, industrials, miners, these companies tend
[25:06] Speaker 11: to do well when the economic growth is sustainable and
[25:10] Speaker 11: it's resilient. That's what's drawing investors this time around, and
[25:15] Speaker 11: we've seen that in the earnings picture as well. It
[25:17] Speaker 11: is the miners' energy, industrial's financials which have really contributed
[25:21] Speaker 11: the most to profit growth.
[25:23] Speaker 3: Okay, zagrec Jason Ghanny, who is covering EMEA Equity's macro
[25:27] Speaker 3: and investment strategy at Bloomberg.
[25:28] Speaker 5: Thank you.
[25:29] Speaker 3: And from Bloomberg Economics, David Powell, our senior Euro Era economist. Well,
[25:33] Speaker 3: have more on those data points on the PMI surveys
[25:36] Speaker 3: for France, Germany in the Euro Area on Bloomberg Radio
[25:38] Speaker 3: this week. I'm Stephen Carroll in London. You can catch
[25:41] Speaker 3: us every weekday morning for Bloomberg Daybreak Europe, beginning at
[25:44] Speaker 3: six am in London and one am on Wall Street.
[25:47] Speaker 2: Nathan, Thanks Stephen, and coming up on Bloomberg Daybreak weekend,
[25:50] Speaker 2: we'll take a closer.
[25:51] Speaker 5: Look at the feet of the Yen. I'm Nathan Hager,
[25:54] Speaker 5: and this is Bloomberg.
[26:06] Speaker 2: This is Bloomberg day Break Weekend, our global look ahead
[26:09] Speaker 2: at the top stories for investors in the coming week.
[26:12] Speaker 2: I'm Nathan Hager in Washington. The persistent weakness of the
[26:15] Speaker 2: yen continues to be a troubling issue for Japanese policymakers.
[26:20] Speaker 2: For a closer look, let's get to the host of
[26:22] Speaker 2: the Bloomberg Daybreak Asia Podcast Doug.
[26:24] Speaker 4: Chrisner, Thanks Nathan. The yen's weakness is a problem for
[26:28] Speaker 4: the US as well, so much so. The two weeks ago,
[26:31] Speaker 4: the US and Japan's surprised markets with a coordinated effort
[26:35] Speaker 4: to strengthen the yen for the first time since nineteen
[26:38] Speaker 4: ninety eight. The problem is since that intervention, half of
[26:42] Speaker 4: the EN's gains have been wiped out. Now several factors
[26:45] Speaker 4: are weighing on Japan's currency, including the gap between Japan's
[26:49] Speaker 4: ultra low interest rates and those in the US and
[26:52] Speaker 4: other major economies. Now, the situation could be remedied to
[26:56] Speaker 4: some extent if the Bank of Japan were to raise rates.
[26:59] Speaker 4: We know that in inflation in Japan has been above
[27:02] Speaker 4: target for years now. In the week ahead, we'll get
[27:04] Speaker 4: fresh price data for Japan with the GDP deflator for
[27:08] Speaker 4: a look at the dynamics. I spoke with Bloomberg News
[27:11] Speaker 4: macro strategist Michael ball. I started the conversation by asking
[27:15] Speaker 4: whether the intervention was a watershed moment or whether we're
[27:19] Speaker 4: making too much of this move.
[27:21] Speaker 12: No, I don't think we're making too much of it.
[27:22] Speaker 12: I think again, we've crept up back to this one
[27:24] Speaker 12: sixtieth area, and again that seems to be the line
[27:27] Speaker 12: in the sand that the market has in mind.
[27:29] Speaker 5: For that's where.
[27:31] Speaker 12: Coordinated intervention, both the Treasury and them OFF and the
[27:33] Speaker 12: BOJ together all have to basically signal that this is
[27:36] Speaker 12: where we're going to defend until we get to September
[27:39] Speaker 12: or potentially October, where you could see rate hikes from
[27:41] Speaker 12: the BOJ to again give a more fundamental story why
[27:45] Speaker 12: the yen should appreciate and to change this feedback loop.
[27:47] Speaker 12: It's just a negative feedback loop of weaker yen be
[27:50] Speaker 12: getting weaker yen because of positioning.
[27:52] Speaker 4: So from the US position, is Treasury Secretary Besnt looking
[27:56] Speaker 4: more at what's happening in the US treasury market than
[27:58] Speaker 4: he is the currency market, and he's concerned that we
[28:01] Speaker 4: may see a backup in US fields.
[28:03] Speaker 12: Yes, I think that's the primary goal here, and I
[28:04] Speaker 12: think he signaled that in several ways. One obviously for
[28:07] Speaker 12: his worry that the intervention will not only be the
[28:10] Speaker 12: selling of bills, which has been up to date now
[28:12] Speaker 12: how they've done it, but more on actually the long end.
[28:15] Speaker 12: So again, if they didn't have access, let's say to
[28:18] Speaker 12: the THEEMA kind of facility as a backstop, or they
[28:21] Speaker 12: didn't have access to the international repel market or even
[28:23] Speaker 12: the repo facilities, the other ones that are available at
[28:25] Speaker 12: the FED, then they would have to sell longer end
[28:28] Speaker 12: treasuries what are the tens or thirties, and the curve,
[28:30] Speaker 12: which has already been under pressure since July FMC would
[28:33] Speaker 12: come under further pressure and that would actually force the hands.
[28:36] Speaker 4: So you mentioned FEMA, just to unpack that a little bit,
[28:39] Speaker 4: this is a vehicle that it was essentially allowed Japan
[28:41] Speaker 4: to borrow dollars to post US treasuries essentially as a
[28:45] Speaker 4: form of collateral, so they wouldn't be net sellers of
[28:48] Speaker 4: US treasuries to dump that inventory into the market and
[28:52] Speaker 4: run the risk of pushing US yields even higher, right exactly.
[28:54] Speaker 12: And there is a limit to that amount. I think
[28:56] Speaker 12: it's around sixty billion, which in its sense is a
[28:59] Speaker 12: little bit small for what is needed, because let's keep
[29:01] Speaker 12: in mind the initial intervention that happened last week saw
[29:04] Speaker 12: about eighty billion dollars of bill selling buy the moth
[29:08] Speaker 12: to actually support and buy yen. So this one itself
[29:12] Speaker 12: is more of a backstop. It hasn't been used yet
[29:14] Speaker 12: because it's more expensive. It's about twenty five basis points
[29:17] Speaker 12: over what a normal repo rate would be to do
[29:19] Speaker 12: something like this, but in its signaling effect it's much
[29:22] Speaker 12: larger because again what we may see from best in
[29:25] Speaker 12: with you know, the new FED leader Kevin Warsh is
[29:28] Speaker 12: to lift the limit there, which then would be a
[29:30] Speaker 12: much bigger signaling effect. And overall, with all the other tools,
[29:33] Speaker 12: the Japanese then could just have this as well as
[29:35] Speaker 12: a backstop.
[29:36] Speaker 4: So take me back to the currency market. What this
[29:39] Speaker 4: means for not only the dollar but the Japanese yanic gas.
[29:42] Speaker 5: Yeah, exactly.
[29:42] Speaker 12: And again there's other things going on in Japan that
[29:44] Speaker 12: is making us worry that they'll be selling treasury holdings,
[29:47] Speaker 12: and as they sell treasury holdings, obviously then they weaken
[29:50] Speaker 12: sort of the dollars they bring money back into the end.
[29:53] Speaker 12: But specific to what this intervention was about, again, it
[29:56] Speaker 12: was to initially stop official account selling of the treasury
[29:59] Speaker 12: mark market. And what it really means for the dollars,
[30:03] Speaker 12: you know, for that cross itself, it would weaken the
[30:05] Speaker 12: dollar against the end and effectively put more pressure even
[30:08] Speaker 12: on long end real rates, which is counterintuitive because the
[30:10] Speaker 12: rate differential story would be off there, but then it's
[30:12] Speaker 12: a capital flow account thing, or basically you're just seeing
[30:14] Speaker 12: selling of dollar assets by Japanese holders.
[30:16] Speaker 4: So we know what the disinflation or deflation story in
[30:20] Speaker 4: Japan has been like for three decades, and we know
[30:22] Speaker 4: that the boj these days has been very very conservative,
[30:26] Speaker 4: moving very gradually. You could make a case, given the
[30:30] Speaker 4: level of inflation now in Japan, that the BOG needs
[30:32] Speaker 4: to be a little bit more aggressive. That's not happening.
[30:36] Speaker 4: Is there the risk though, that if they begin to
[30:38] Speaker 4: lean into more of a tightening, that we could see
[30:42] Speaker 4: a repatriation of Japanese assets leaving global markets like the
[30:46] Speaker 4: US and coming back to Japan.
[30:48] Speaker 12: Well, it might actually be the interesting I think you
[30:49] Speaker 12: actually nailed on the head. I think they took so
[30:52] Speaker 12: long for them to get inflation to kind of get
[30:54] Speaker 12: going again, and it has gotten going again. Obviously they
[30:56] Speaker 12: have more energy sensitivity and we know what's going on there,
[30:59] Speaker 12: But it took them so long to get rates off
[31:01] Speaker 12: the zup and get them off the floor and get
[31:03] Speaker 12: it inflation back in grain and sort of the day
[31:05] Speaker 12: to day consumer that they're very worried that if they
[31:08] Speaker 12: sort of even tighten a little bit, they're going to
[31:10] Speaker 12: lose that progress. But to your point, if they do tighten,
[31:12] Speaker 12: if they come out and say September and they issue
[31:14] Speaker 12: Maymi a statement that's more hawkish and expected in october's
[31:17] Speaker 12: getting priced up again because right now September is about
[31:19] Speaker 12: two third price for a hike, and if they don't go,
[31:21] Speaker 12: then the expectation to be one hundred percent for October.
[31:24] Speaker 12: But let's say they just do back to back, you
[31:25] Speaker 12: would see that curve flattened, so you'd see the long
[31:28] Speaker 12: end of the treasury curve, their treasury curve over there
[31:31] Speaker 12: come off and get a rally, and that actually would
[31:33] Speaker 12: give you less incentive to repatriate back into the Japanese assets,
[31:37] Speaker 12: effectively into their bonds, because one, liquidity is not great there,
[31:42] Speaker 12: two then you're just your rate differential story is not
[31:44] Speaker 12: as compelling anymore because by hiking in the front end,
[31:46] Speaker 12: they're effectively showing that they have more responsibility towards the
[31:49] Speaker 12: back end as far as monetary policies.
[31:51] Speaker 4: So what's your sense in terms of yend weakness is
[31:54] Speaker 4: the worst over at least in the near term.
[31:56] Speaker 12: Yeah, I mean that's a great question. I think a
[31:58] Speaker 12: lot of that has to do maybe with enery as well.
[32:00] Speaker 12: Obviously they have some sort of well not some sort
[32:03] Speaker 12: of they have a higher correlation here with oil prices
[32:05] Speaker 12: of oil where it is now and the rate to
[32:06] Speaker 12: change their state stable, then it's less of a pressure
[32:09] Speaker 12: on them there. I think you're right. I think in
[32:11] Speaker 12: a lot of ways, well, not that you're right, but
[32:12] Speaker 12: what you're hinting at is that the worst could be
[32:14] Speaker 12: over if we see this coordinated intervention lead to basically
[32:18] Speaker 12: hold a period of time before you see actual rate hikes.
[32:21] Speaker 4: To what extent could the market be surprised right now?
[32:25] Speaker 4: Is the trade so crowded that we risk maybe a
[32:29] Speaker 4: kind of a not I don't want to say violent adjustment,
[32:31] Speaker 4: but something that could be dramatic, So.
[32:33] Speaker 12: The trades come off. To your point, I think a
[32:35] Speaker 12: lot of that was last week was that people were
[32:37] Speaker 12: caught off sides by the coordination and now obviously the
[32:41] Speaker 12: size it was a somewhat large imprint they had in
[32:43] Speaker 12: the market, and people were basically still leaning very short end,
[32:46] Speaker 12: and that's cleaned up nicely. We get to see FTC data,
[32:48] Speaker 12: that's one way to look at it. But also we're
[32:50] Speaker 12: hearing sort of from flow traders that a lot of
[32:52] Speaker 12: that has come off, and it's a much flatter position.
[32:54] Speaker 12: People are more nervous now there's two sided risks to
[32:57] Speaker 12: where the end can go. And again this one to
[32:58] Speaker 12: sixty level is sort of the pivot where if we
[33:00] Speaker 12: drift above one sixty, I think people will be mourned
[33:03] Speaker 12: and powered to short it. Traders will think that the
[33:05] Speaker 12: intervention was a one off and they're not really disciplined
[33:08] Speaker 12: or committed to it. And if it goes lower then
[33:10] Speaker 12: the feedback loop actually people will probably try and rush
[33:12] Speaker 12: into it to get ahead of maybe a more structural change,
[33:15] Speaker 12: which it will again be real rate hikes coming down
[33:16] Speaker 12: the road.
[33:17] Speaker 4: Michael will leave it there. Thanks for your perspective on
[33:19] Speaker 4: the yen story that is, Bloomberg macro strategist, Michael Ball.
[33:23] Speaker 4: We turn next to Hong Kong and how its competitiveness
[33:26] Speaker 4: as a financial center is about to be tested by
[33:29] Speaker 4: two opposing forces. Bloomberg opinion columnist July Wren is based
[33:34] Speaker 4: in Hong Kong and she has been writing about what
[33:36] Speaker 4: she calls a reality check. Truly joins us now from
[33:40] Speaker 4: Hong Kong. Thank you for being here. You've been writing
[33:43] Speaker 4: in your latest piece that last year Hong Kong overtook
[33:47] Speaker 4: Switzerland as the world's largest cross border wealth hub. I
[33:51] Speaker 4: didn't realize that. Talk to me about the positive forces
[33:55] Speaker 4: that could further cement that position.
[33:58] Speaker 13: What we are seeing is rebounded in Hong Kong's asset
[34:02] Speaker 13: management industry. Last year, a lot of global hetch fans
[34:05] Speaker 13: they were opening shop in Hong Kong and they were
[34:08] Speaker 13: actually expanding their office space. We're talking about Citadel James
[34:13] Speaker 13: Street point seventy two. One reason is that they want
[34:18] Speaker 13: to be close to the deep talent in mainland China.
[34:22] Speaker 13: For educated the small mainland Chinese to move to Hong Kong,
[34:26] Speaker 13: it's very easy, whereas it would be very difficult for
[34:29] Speaker 13: them to move to say London or New York. And
[34:32] Speaker 13: with global hedge fens stuck in a very heated talent
[34:37] Speaker 13: fight and paying more and more money to young analysts,
[34:41] Speaker 13: they find Hong Kong quite attractive.
[34:44] Speaker 4: So when you look at the possibility that things could change,
[34:48] Speaker 4: let's go to the negative side of the equation now,
[34:51] Speaker 4: which would maybe erode Hong Kong's standing in terms of
[34:56] Speaker 4: the asset management industry. What could be a negative in
[34:59] Speaker 4: this story.
[35:00] Speaker 13: At the end of the day, Hong Kong is still
[35:03] Speaker 13: very integrated into China. Sure, Hong Kong is the world's
[35:09] Speaker 13: largest cross border wealth management hub, but according to Boston
[35:13] Speaker 13: Consulting Group estimates, sixty percent of the money still came
[35:17] Speaker 13: from mainland China. And right now the problem is that
[35:20] Speaker 13: the Chinese government is a bit short out catch, so
[35:24] Speaker 13: they want the mainland Chinese to cough up unpaid capital
[35:29] Speaker 13: gains taxes. The Chinese government is a little bit short
[35:32] Speaker 13: on catch, so they want to so they're in a
[35:35] Speaker 13: global tax hunt for capital gangs that mainland Chinese made overseas,
[35:39] Speaker 13: and a lot of that money is in Hong Kong.
[35:42] Speaker 13: So we're talking about billions of the dollars of unpaid
[35:45] Speaker 13: tax bills that mainland Chinese will somehow have to cough
[35:51] Speaker 13: up to liquidate the existing assets in Hong Kong, and
[35:55] Speaker 13: that hurts Hong Kong's asset management industry.
[35:57] Speaker 4: So we've talked about the polarity here the two opposing polls.
[36:02] Speaker 4: One that would prove to be very positive for the
[36:04] Speaker 4: asset management industry in Hong Kong that tax reform. The
[36:09] Speaker 4: other is obviously the influence on the negative side that
[36:12] Speaker 4: Beijing would have in terms of the crackdown on a
[36:15] Speaker 4: lot of cross border activity, including a leveon overseas capital gains,
[36:20] Speaker 4: which I think is twenty percent. Do you have a
[36:23] Speaker 4: sense of how this may shake out and what may
[36:26] Speaker 4: happen at the end of the day.
[36:28] Speaker 13: I think what will happen is that traditional investment banking
[36:32] Speaker 13: services for instance, clime brokerages, sales and trading, they will
[36:37] Speaker 13: do very well. On the other hand, private wealth management,
[36:40] Speaker 13: which has been the fastest growing sector, they're likely to
[36:45] Speaker 13: have peaked.
[36:46] Speaker 4: So it's an issue of whether or not Hong Kong
[36:49] Speaker 4: is going to preserve its competitive edge as a financial center.
[36:54] Speaker 4: Do we need to talk about what's happening with the
[36:57] Speaker 4: IPO market, particularly as mainline Chinese companies are concerned.
[37:02] Speaker 13: Well that the IPO market is doing very well, and
[37:05] Speaker 13: that's the thing the Chinese government is happy with that.
[37:08] Speaker 13: They think, oh it's great. You know, Hong Kong could
[37:11] Speaker 13: be a good capital allocation hub for mainland Chinese companies
[37:16] Speaker 13: to get financing, to develop their AI capabilities, etc. And
[37:22] Speaker 13: that is where Hong Kong politically stands on the good
[37:26] Speaker 13: side of Beijing. On the other side, Hong Kong shouldn't
[37:30] Speaker 13: be shouldn't continue to be seen as a place where
[37:33] Speaker 13: wealthy Chinese hide their assets from the government, from their
[37:37] Speaker 13: government's watchful eye.
[37:39] Speaker 4: So you know very well, when we talk about talent
[37:41] Speaker 4: in the financial services industry, we have to talk about
[37:44] Speaker 4: the technology that some of these firms are using. Talk
[37:47] Speaker 4: to me about the extent to which asset managers in
[37:51] Speaker 4: Hong Kong are using artificial intelligence these days.
[37:55] Speaker 13: Well, this is an interesting development because you know, like
[37:59] Speaker 13: the Western artificial intelligence labs, they don't allow to people
[38:05] Speaker 13: in Hong Kong to use their products. For instance, we
[38:08] Speaker 13: can now use open AI or anthropics products. So what
[38:13] Speaker 13: will happen is that these global assem managers will end
[38:16] Speaker 13: up using cheap Chinese models because they have no choice, right,
[38:20] Speaker 13: And I think that actually might help the proliferation of
[38:24] Speaker 13: Chinese models in the assem management industry.
[38:27] Speaker 4: Truly, we'll leave it there, thank you so very much.
[38:29] Speaker 4: That is Bloomberg opinion columnist Shuly Wren her latest piece,
[38:33] Speaker 4: Hong Kong's low tax lure is getting a reality check.
[38:38] Speaker 4: I'm Doug Prisner. You can catch us weekdays for the
[38:40] Speaker 4: Daybreak Asia podcast. It's available wherever you get your podcast Nathan.
[38:45] Speaker 2: Thanks Doug, And that does it for this edition of
[38:47] Speaker 2: Bloomberg Daybreak Weekend. Join us again Monday morning at five
[38:51] Speaker 2: am Wall Street Time for the latest on markets overseas
[38:54] Speaker 2: and the news you need to start your day. I'm
[38:56] Speaker 2: Nathan Hager. Stay with us stop stories and global business
[39:00] Speaker 2: lines are coming up right now.

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