April 4, 2025 • 39 mins
Bloomberg Daybreak Weekend with Tom Busby takes a look at some of the stories we'll be tracking in the coming week.
- In the US – an eco look ahead post Trump-tariffs, and also a discussion on how the retail sector may be impacted.
- In the UK – a look at the BOE’s quarterly report on the stability of the UK's financial system.
- In Asia – a look at President Trump’s additional 34% tariff on Chinese goods and how that may impact U.S, China relations. Also, a look at how tariffs will impact U.S, Australia relations.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:11):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our Daybreak
anchors all around the world. It straight ahead on the program,
What will tariff wars, Wall Street in turmoil, fears of
a recession, and some key inflation data out this week
all mean for the bed, Plus a look at the
potential impact of President Trump's tariffs on the US retail sector.
(00:31):
I'm Tom Busby in New York.
Speaker 3 (00:33):
I'm Carolyn Hetkee here in London, where we're diving into
the Bank of England's assessment of the key risks facing
the UK's financial landscape.
Speaker 4 (00:41):
I'm deg Prisner looking at how the impending reciprocal Trump
tariffs are resonating through the Asia Pacific.
Speaker 1 (00:49):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven to three zero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, DAB Digital Radio London, Serious
XM one twenty one, and around the world on Bloomberg
Radio dot Com and the Bloomberg Business App.
Speaker 2 (01:13):
Good day to you. I'm Tom Busby. We begin today's
program with a look at the early fallout from President
Trump's trade war how it may impact next month's Federal
Reserve decisions on interest rates and economic policy. We're coming
off a better than forecast March jobs report, and we
get us CPI data for March on Thursday, PPI data
on Friday. It is a lot and tariff policies could
(01:35):
change at any time. We're joined by Michael McKee, Bloomberg
International Economics and Policy correspondent. How do you and the
Federal Reserve policymakers try to make sense of everything we've
seen this past week.
Speaker 5 (01:46):
From an economic theory standpoint, you can't make any sense
out of it because it makes no sense. But you
have to deal with the world that you have, and
so the Fed is going to be modeling out what
potential effects this could have on the actually economy. They'll
sit back and say, yeah, this is really stupid economic policy,
but they're not gonna They have to do something at
(02:07):
some point about where we are. So they need to
try to figure that out. And it's still really hard
to do because the imposition of the tariffs isn't clear
exactly what gets tariffed and by how much.
Speaker 6 (02:19):
How soon, So it's going to take.
Speaker 2 (02:21):
A while and some haven't even started.
Speaker 5 (02:23):
So what they'll be looking at is the impact on
inflation and on unemployment and on consumers. Next week we
get the CPI report for the month of March, which
isn't going to tell us much because it's for the
month of March, and that's before almost all the tariffs,
and the tariffs that were put on in March are
basically on the producer side. We may see inflation go
(02:47):
up a little bit on a year over year basis,
or it may go down a little bit on a
your year basis, but it's not going to tell the
fate about anything about where they're going. So it's going
to be another month or so before they start to
have some data.
Speaker 2 (02:58):
The big fear of courses inflation, and we've already heard
from some companies car makers saying it's going to cost
you more, and there are reports JP Morgan, Chase, GOBN,
saks A for high end cars could be fifteen thousand
dollars more. Mercedes Benz says we're not even going to
send our lowest price car there because people can't afford it.
Speaker 5 (03:17):
I couldn't afford it even if it were the lowest
price car. But the interesting thing is that when the
new car situation, if that plays out that way, used
cars are going to get very expensive because people who
can't afford to pay the higher prices for new cars
are going to go buy used cars, and then supply
and demand, we'll see used car prices go up. Probably
(03:39):
inflation is the first danger out of the tariffs that
the FED is going to be looking at, because prices
can go up immediately. It will take a while for
companies to figure out what they need to do with
staffing if there is a recession, and do we want
to cut people.
Speaker 6 (03:54):
Remember how hard it was to hire people before.
Speaker 5 (03:56):
It's always sticky, so that'll take some time to play out.
The good thing for the FED about the jobs report
on Friday was that it was generally solid. Now, again,
it was March before all most of this stuff started happening,
but it fits the narrative as Jay Powell has been saying,
(04:18):
that the labor market is solid, and the Fed's two
responsibilities are the labor market and inflation, so they can
lean on inflation. They can leave rates unchanged because the
inflation rate is either staying where it is or we
hope not, but it could be going up. So I
(04:38):
don't think at this point the Fed is thinking about
cutting rates, even if Wall Street is.
Speaker 2 (04:44):
And more on that March jobs report, because the Challenger
Grand Christmas came out this past week said two hundred
and eighty thousand federal workers were laid off. That was
in two months, but a lot of them still getting severance,
so they're not counted in these numbers. Still good.
Speaker 5 (04:59):
Actually, actually they are counted as still employed according to
the BLS. They put out a note in Friday's jobs
report that said people who are receiving severance or who
are on administrative leave are counted as employed.
Speaker 6 (05:15):
So we haven't seen the impact yet.
Speaker 2 (05:17):
And we may not for several months.
Speaker 5 (05:19):
The Challenger survey is based on job cut announcements, and
they basically said, we took the press releases that Elon
Musk put out about how many people were going to
be fired, and that's what we're counting. And people don't
usually put a lot of weight on Challenger because a
lot of the job cuts that are announced don't happen.
Either companies do it through attrition or through just not
(05:43):
hiring additional people as opposed to actually firing people. It
was a number that got people's attention, and we're certainly
going to probably see some big federal job losses. But
I don't know that we get to two hundred and
eighty thousand very quickly.
Speaker 2 (05:59):
No, be a while. And it could this March report
be the last really upbeat job support for a while
because of these.
Speaker 6 (06:07):
Well it could.
Speaker 5 (06:08):
On Friday, John Ferreroll spoke with the new Labor Secretary,
who said.
Speaker 6 (06:13):
No, this is not going to be the last good report, but.
Speaker 5 (06:16):
I can't see how it would be a good report
going forward. And the reason why is the uncertainty. If
you don't know whether you're going to have to be
letting people go in a month or so, you don't
want to be hiring people. And if, indeed, as we
have seen some evidence already, the economy is slowing down,
(06:38):
then you can probably meet the demand that you have
with the employees that you have. So I don't know
that we're going to see another blowout surprise to the
upside for a while.
Speaker 2 (06:49):
It's going to be a long four weeks before that
next meeting. Our thanks to Michael McKee, Bloomberg International Economics
and Policy Correspondent, well more now on President Trump's sweeping tariffs,
which a're hitting certain countries a lot harder than others,
impacting some of America's biggest electronics, apparel, footwear makers, and retailers,
And for more on the potential impact of those tariffs
(07:10):
on the retail sector. We're joined by Jennifer bartashis Bloomberg
Intelligence Senior analyst Retail, Staples and packaged food.
Speaker 5 (07:18):
Wow.
Speaker 2 (07:19):
Well, Jennifer, let's start with a look at the countries
that supply most of the imported clothing, sneakers, gadgets, furniture,
and other goods aside from autos. I mean, China, Vietnam, Taiwan.
These are huge numbers, aren't they They.
Speaker 7 (07:33):
Are, indeed, and so it was a bit of a
surprise how big some of these numbers were given how
much some of our companies rely on those countries for manufacturing.
So when you're talking about Vietnam, India, Thailand, Cambodia, you know,
I think one of the big takeaways here is that
our retailers in the United States have been making an
(07:56):
effort to diversify away from China for the past several years,
and yet, and with the idea that it would help
insulate them from higher tariffs. And yet with this new
wave that is just not the case anymore. And so
that's that's an area for concern.
Speaker 2 (08:11):
No, but the most impacted country will be China. And
still you to pick up an article of clothing, a toy,
chances are an Apple iPhone that it is made in China.
So much is manufactured there. So still they haven't separated
themselves totally. I know Apple is making iPhones in India
now they've tried, but it's a global world, no matter
(08:33):
what we hear from the White House. How is this
going to impact US companies?
Speaker 7 (08:40):
Yeah, so, as you said very accurately, China is still
the main trading partner for a lot of US companies
and so even those attempts to diversify just don't add
up to really offset the huge impact that these Chinese
tariffs are going to have. When you talk about real
big retailers like Target in particular, you know, China is
(09:03):
still the biggest, the biggest source for their their their
goods that are imported. When you're talking about apparel and
electronics and toys and home furniture, even some beauty products,
it really puts a lot of pressure on retailers like
Target that skew to more discretionary spending in how they're
going to manage all this additional cost You know, Walmart also,
(09:27):
you know, out of the general merchandise that they sell,
you know, the bulk of it comes from China. And
then you can't forget to me one of the areas
of retail that's going to get hit the hardest, and
that's the dollar stores because they're very low price point stores.
Most of what they sell comes from China, and so
figuring out how they're going to be able to manage
(09:50):
their business when it's so reliant on China and have
such low price points is really going to be a challenge.
Speaker 2 (09:56):
And let's face it, importers pay those tariffs, the price
increases are passed along to consumers. There was no doubt
about that. So these are ore are the hardest hit.
People are going to be the folks that shop at
those Dollar Tree, dollar general stores. I mean this could
be devastating.
Speaker 7 (10:12):
Yeah, exactly. So you know, you've got consumers who are
already under pressure, You've got prices going up that's gonna
you know that from tariffs that are going to create
even more pressure on these consumers, and dollar stores are
where people go to seek value, right because they don't
have a lot of money in their pocket and they
can get things. And so these retailers in particular are
(10:33):
going to have a very difficult time navigating this new
tariff landscape. When we heard about earnings from the fourth
quarter from these companies, they all said that they had
mitigation plans in place, so they were talking to their
suppliers to try to share costs. They were thinking about
what products they could, you know, if they had to
not carry anymore. But the tariffs announced are so sweeping
(10:57):
it doesn't leave them a lot of room for negotiation.
So you know, whether it's Dollar General, dollar Tree, think
about five below. Again, these companies are are really up
against the wall with these.
Speaker 2 (11:09):
Tariffs, and not just those companies. I want to break
down a Vietnam. I think it's a good example. Forty
six percent tariffs on imports from Vietnam. Nike Footwear fifty
one half fifty percent of its footwear is sourced from Vietnam.
That's according to company fi links compiled by Bloomberg. Also Lululemon, Adidas,
(11:29):
Abercrat I mean, the list goes on and on. I
don't know if a lot of people know how much
is made there and how it's going to affect consumers.
Speaker 7 (11:36):
Here exactly when you're talking about the footwear industry, Vietnam
is the biggest place for manufacturing for footwear. And so
whether it's All Birds or it's as you said, Nike
or Puma or Adidas, you know, all of these companies
are now faced with how they're going to how they're
going to manage those costs, and you can only pass
(11:59):
through so much to consumers. You know, I think it's
inevitable that consumer costs are going to be coming up,
but there's a breaking point where you can't do that
and you have to absorb some. So one of the
things that everyone's watching is, you know, what's going to
happen with the margins of these companies as costs go
up and their ability to raise prices gets capped. And so,
you know, we think that there may still be room
(12:22):
for negotiation the way President Trump, you know, announce these
tariffs before they fully go into effect, but you have
to plan for the worst, and right now it's looking
a bit dire for apparel companies and for footwear companies.
Speaker 2 (12:35):
Oh what sure is well? Our thanks to Jennifer Bartash
is Bloomberg Intelligence senior analysts retail, staples and packaged food,
and coming up on Bloomberg day Break weekend, we'll dive
into the Bank of England's assessment of the key risks
facing the UK's financial landscape. I'm Tom Busby and this
is Bloomberg. This is Bloomberg day Break weekend, our global
(13:01):
look ahead at the top stories for investors in the
coming week. I'm Tom Busby in New York. Up later
in our program a look at how President Trump's tariffs
on Chinese goods will impact relations with Beijing moving forward.
But first, the UK Central Bank releases its quarterly report
on the stability of the UK's financial system this week,
along with what it's doing to remove or reduce risks.
(13:24):
But as geopolitical and global economic tensions rise, can policymakers
really fortify the Bank of England against market turmoil? For more,
Let's go to London and bring in Bloomberg day Break
Euro banker Caroline Hepgar Tom.
Speaker 3 (13:37):
The Bank of England's stability report is meant to support
the resilience of Britain's financial system and therefore support economic
growth by scanning the risks on the horizon. In the
last report, released in November twenty twenty four, the Bank
of England cited a risky outlook driven by geopolitical tensions
and global fragmentation. Specifically, they called out material pressures on
(14:02):
government debt levels and increasing borrowing costs. Even if they
talked about consumers and businesses remaining resilient. In the six
months or so since that publication, those risks do appear
to loom large, still complicating the job of policy makers
looking to steer the UK's financial markets through the storm.
(14:24):
In the UK, fiscal pressure has increased. Just look at
how the Chancellor Rachel Reeves lost half of her ten
billion pound fiscal buffer in the days after her spring
financial statement. This is something that the Central Bank did
worn about back in November. The Bank argued then that
(14:45):
a deterioration in market perceptions about the sustainability of the
long term path of government's debt globally may lead to
higher rates and sharp movements in market prices. In particular,
Bank of England experts believe that increased debt levels and
servicing costs for governments could also reduce their capacity to
(15:09):
respond to future shocks that may be to come, and
also increase the cost of borrowing and refinancing of debt
for households and for businesses. So how's the Bank of
England's financial outlook become riskier and how do they plan
to keep the country on track? I've been asking Bloomberg's
(15:29):
finance reporter Laura Noonan, and I began by asking her
simply to begin with, what the point is of this
financial stability report?
Speaker 8 (15:40):
So the point of a financial stability report is that
if there is a financial crisis coming, you see the
warning signs really early, and you step in and do
what you can to prevent us. So we, notably in
the UK, didn't have any before the financial crisis, and
they introduced this concept in the aftermath of the financial crisis,
because you would all these people saying why were there
(16:02):
no alarm bells ringing? And part of the reason that
there were no alarm bells ringing about the belt up
of risk was that while every regulator and every center
bank has general oversight of risk, there was no one
specifically in charge of ringing the bell. So I would
think of this financial spell report, this is the.
Speaker 3 (16:20):
Bell Okay, so we're waiting for this bell recap what
happened in November's report, because they come up with a
list of risks and they explain them in some detail.
Think about the time frame between that November report and now.
Speaker 8 (16:35):
Okay, so November was a particularly fun report. It was
a big bell and that's because they do these things quarterly.
But they also, as well as having the general laundry
list of these other risks of the financial system, they
also do special publications during some and we had a
special publication in November which I was very excited about,
which was the outcome of this broad market stress test,
(16:57):
the first one in the world to see how the
market system would respond to a crisis, and that found
that that basically non banks were not particularly ready for
a crisis. The other things that they warned about were
the general things they've been warning about for some time.
And often the language is very important here. It's a
bit like if you watch the interest rate decisions and
the commentary around that, the exact words you so you
(17:19):
can say, you know the outlook, the risk is deteriorating,
the risk is worsening, risks are escalating. So the exact
language matters in terms of whether they see big risks,
whether they see moderate risks in different areas. Last time
they called out the geopolitical risks were increasing very obviously,
yes they are, and we can expect that geopolitical risks
(17:41):
have not subsidies between November and now. So if I
were a betting person, which apparently we're not allowed to
be and anymore, But if I were a betting person,
I will be betting on geopolitical risks to feature heavily
in the report. And with that we can expect to
see them warning about the different and risks that different
parts of the financial landscape face. And geopolitical risk can
(18:04):
manifest in lots of different things, So you can have
difficulty trading with certain parts of the world, you can
have sharp corrections of sharp changes to acid prices because
of geopilical policies. So there's a number of things there
and I would expect a lot of warning about geopilical risk.
They also tend to warn about other things. They'll always
be something about cyber when the geopolitical situation worsens. There's
(18:28):
often a heightened fear about cyber because you have state
sponsored cyber attacks and that's something we saw a lot
last year where there was a lot of concern about
how would the financial system withstand an attack from a
negative state actor, and that's something that they have been
warning heavily about. They has been ongoing concerned about valuation
(18:49):
in various asset classes, and obviously valuations have fallen recently
in recent days anyway, so they are still at fairly
elevated levels. The other repeat one is the links between
the private equity slash private credit slash private market space
and the financial system and the way that those links
could unravel in a problematic way.
Speaker 3 (19:11):
Okay, so quite a list of risks that they that
you're watching out for in terms of what they may cite.
How are these reports then so normally received.
Speaker 8 (19:21):
How we actually get them is actually great fun. So
how we literally receive them is they take a gang
of journalists three floors underground in the Bank of England
and they lock us in with them. It's actually very,
very fun, and then we have an hour and a
half with them before we can then broadcast. In terms
of how they're received by the wider world, they so
the FPC is part of the Bank of England rather
(19:43):
than the pure which is the regulatory arm. So basically
the Bank of England warrants and then the PURE and
the FCA to an extent, decides, okay, what do we
want to take greater action in. So if they warrant
about vulnerabilities in a certain part of the market, the
PRAA may then go and do an exercise to review that.
(20:04):
So there are two things the FPC can do. They
can advise or recommend. They can actually make orders for
some things, but they very rarely do that. The one
thing they directly control is something called the counter cyclical
capital buffer, which some of your listeners may be familiar with,
and that basically sets the capital buffer banks have to
maintain to deal with a potential crisis. In the UK,
(20:27):
it's been at neutral level for quite some time, and
that's because banks are well capitalized. I don't think they're
going to change that buffer this week, but they might.
The other things I should have said earlier that they
talk about a lot is the resilience of households, the
resilience of businesses to these things. So they'll talk about,
(20:47):
you know, for a long time during the last interest
rate cycle, we heard about their percentage of households whose
mortgage just would jump by a certain amount, and how
that would play out. I mean, for us from a
journalistic point of view, disappointingly, the last few time that's
been households are resilient, banks are resilient, business are resilient.
That is no crack whatsoever to report on. But I
(21:07):
guess what I would imparty with is that the level
of resilience has been high and as interest rates for
the level of resilience should increase.
Speaker 3 (21:16):
Okay, So then that probably goes to my next thought,
which is what is your assessment, Bloomboad's assessment currently of
the UK's sort of risk landscape and how we're thinking
about it.
Speaker 8 (21:27):
So the UK's risk landscape is not as from a
macroeconomic perspective, it's not as bad as some of the
markets where there are bigger policy changes taking place. So
I don't think it's the risky ast market. The one
thing that I would that I'm like watching out for
is what if anything they say about the deregulation risks.
So the Bank of England's regularly arm the p r
(21:48):
A and the FCA, which regulates conduct and other parts
of the financial industry. They've been pulling back a lot
of rules in the spirit of promoting the UK's competitiveness,
which is great and all, and they say that they
are threading the needle in terms of Okay, we're going
to make the burdens on financial services firm less and
that's not going to increase risk by too much. It
(22:10):
is a fine balancing act and the FPC this report
is independent enough that it could say we see heightened
risk to financial stability arising from the deregulation which is
taking part place both in the UK and elsewhere. I
think that's going to be an interesting trend like we've had.
The FCA Chief Executive Nikhil Rathi has been talking about
(22:32):
the government needing to set an acceptable risk level and
an acceptable failure level. If they want to go down
this route of taking off all the red tape and
everything that Richter Reefs has been talking about, there will
be more failures, there will be more risks, and in
theory the FPC is I think of them as being
the guardian of that. They're the ones who I'm hoping
(22:53):
are going to watch this at a very high level
and say, is what we're doing increasing risk in the
financials and is it increasing risk in a dangerous way
or in a matter way.
Speaker 3 (23:04):
It's interesting, isn't it that this idea of risk that
Britain needs more risk taking, positive risk taking in order
to galvanize economic growth or allow investors to put more
money to work in a better way. That's going to
deliver more growth for Britain. How do we think about
financial stability in the UK versus other markets? Is it
(23:26):
more precarious less precarious? I mean, there's a big world
out there, but how do we benchmarket?
Speaker 8 (23:31):
I would say more precarious and the EU partly because
of all these policy changes. The one thing about the
EU is that you have been talking a lot about simplification,
about competitiveness, but it is a really slow moving train.
And one of the things since breaksit breksit made it
much easier for the UK to directly and quickly enact reforms.
In the EU, they will be discussing it till the
end of time. They are doing a review on the
(23:53):
compassionist of banking, which they report on by the end
of twenty twenty six, so they are not changing reels
as quickly. Despite talking about the UK is obviously the
risks in the US are much much higher because there
is a lot of quality change going on there at
every level, and no one quite knows how this is
going to play out. So if I were to rank
the hierarchy of fanatibility risks in our major markets US
(24:15):
top UK second.
Speaker 3 (24:17):
You third, how important a feature are borrowing costs likely
to be in this report? You did touch on it.
You know, when it comes to perhaps interest rates maybe
coming down, but borrowing costs talk about those.
Speaker 8 (24:30):
So I think borrowing costs are not going to be
a major feature just because they are coming down. So
when we saw so most people will now have had
even people on fixed mortgages, they will have had their
rate increases and they will have adjusted, and the trajectory
is very much downward. Now there's obviously an open question
about how quickly the UK moves down, but borrowing costs
(24:50):
are likely to fall, and that is generally speaking positive
from a household resilience perspective. The other thing we sometimes
will get commentary on is the level of availability of
credit from banks to firms and individuals, and that is
a kind of a leading indicator because if banks themselves
are worried about changes, then they will start restraining credit.
(25:12):
So I tend to think that if there were any
kind of problems coming, what we first see is banks
restraining credit, and then we'd see issues in terms of
borrowing affordability coming later.
Speaker 3 (25:24):
My thanks to Bloomberg's Laura Noonan, and we will have
full coverage of the Bank of England's Financial Stability report
and its implications in the coming days right across Bloomberg
channels and on the terminal. I'm Caroline Hepkee here in London.
You can catch us every weekday morning for Bloomberg Daybreak.
You up beginning at six am in London. That's one
(25:44):
am on Wall Street.
Speaker 2 (25:45):
Tom, Thank you, Caroline. And coming up on Bloomberg Daybreak weekend,
they'll look at how President Trump's increased s tariffs on
Chinese goods could impact relations with China. I'm Tom Busby
and this is Bloomberg. This is Bloomberg day Break Weekend,
(26:10):
our global look ahead at the top stories for investors
in the coming week. I'm Tom Busby in New York.
Resident Trump announcing last week in additional thirty four percent
tariff on Chinese goods, bringing total levies to at least
fifty four percent. Now for more on how the new
tariffs are reverberating through the Asia Pacific region. Let's get
to the host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4 (26:32):
Tom Bloomberg Economics did the math and discovered the average
charge on Chinese goods will rise to sixty six point
eight percent. Earlier estimates from Bloomberg's trade team show a
sixty percent tariff could cut China's direct exports to the
US by up to eighty percent over the medium term,
and under that scenario, some two point three percent of
(26:53):
China's GDP would be at risk. For more, we turned
to Jenny Marsh. She is China ECOGUV team lie leader
for Bloomberg News. Jenny joins us from our studios in
Hong Kong. I thought it was very interesting that the
US has addressed a loophole. It allows packages worth up
to eight hundred dollars from either China or Hong Kong
to enter the US duty free. But now we're told
(27:16):
that's going to end. May TEWI. So it shouldn't come
as a surprise when you look at markets and see
a sell off in shares like Ali Baba ANDJD dot Com.
Was that a surprise at all?
Speaker 9 (27:27):
Not a surprise because he talked about it in the
Executive Order on the first day, and of course they
tried sort of putting this break on the dominimous lepole
earlier that they had to sort of lift it because
logistically it's very hard to sort of logistics of how
you actually impose that. So I think that was pretty expected,
and so now it's just a matter of Okay, how
(27:48):
do you sort of how do small companies deal with that?
But when you add that in as well, actually the
tariffrerate looks even higher than sixty seven percent.
Speaker 4 (27:58):
I noticed that the South China Morning Post was reporting
that President She is set to visit Vietnam, Malaysia, Cambodia
in mid April. Now we know that all of those
nations are being hit by this round of US tariffs.
Is this a part of some type of strategy that
she has maybe to reconfigure trade relationships.
Speaker 7 (28:17):
Yeah.
Speaker 9 (28:17):
I think the itinerary is really interesting. I mean, the
first trip that she takes abroad every year always carries
huge symbolism. Last year he chose to go to France,
just does the European Union a sort of way in
these big ev tariffs. This year he's picked Vietnam, Cambodia
and Malaysia, and you know, Vietnam and Malaysia sort of
(28:37):
these two big countries that have sort of been a
key part of the China plus one strategy of sort
of rerouting trade to the US to sort of skirt
tariffs and also now facing their own huge levees. I
think Vietnam's tariffs were higher than China's. Forty six percent
was the reciprocal figure announced. So this is a big
(28:58):
opportunity for she I think, to go to these countries,
make trade deals, but also just sort of present China
as the grown up in the room. Vietnam have been
very carefully balancing it's tied. You know, it had hosted
Biden in I think it was twenty twenty three, and
then very quickly hosted cheating paying for a visit and
(29:19):
sort of playing this sort of play on both sides equally.
And I think now this gives China an opportunity to say, well,
actually we are the best part to hear and so
this trip, I think the timing of it is very interesting.
Speaker 4 (29:32):
I'm noticing weakness in the currency, but I would imagine
that the BBOC does not want the Chinese you want
to weaken greatly in the face of this trade war.
Fair statement to say that the PBOC is going to
try to keep the one as strong as it can
under the circumstances.
Speaker 6 (29:48):
Yeah.
Speaker 9 (29:48):
I think that's the strategy that we have seen so far,
and they don't want to invite any more criticism as
well from the Trump administration.
Speaker 4 (29:56):
In terms of the negative impact that this is going
to have on Chinese economic growth, particularly as it relates
to the exporters. What are you hearing about that.
Speaker 9 (30:04):
I think it's an interesting reaction from economists who are
saying they're sort of seeing a hit on average of
sort of a one percentage point to GDP growth this year,
but they're not downgrading their GDP forecasts because I think
everyone thinks trying to will still hit five percent. What's
going to have to happen now is a massive sort
of spending stimulus to fill the whole that is going
(30:26):
to be left by the hit to exports to the US,
and I think that's sort of what people are going
to be looking to. There's the external strategy of does
she get on the phone with Trump. I think he's
extremely unlikely. He's going to try and call him before
that eight PRINL nine deadline. It's just not how China
does things. They're not going to respond to strength with weakness.
Much more likely, they focus on shoring up their alliances
(30:49):
trade partnerships around the world, and they've been very careful
to save stimulus for exactly this moment, and now they
have the chance to sort of roll out a big
support package.
Speaker 4 (30:58):
Jenny, I want you to help. We look ahead to
the inflation data that we're going to get for China
in the coming week PPI CPI. We know the deflationary
pressures that the economy is facing. Is that going to
be underscored by these data points or is something beginning
to shift right now?
Speaker 9 (31:16):
The CPI at the beginning of the year is pretty bad.
Even when we take out the seasonal factors. It went
right down to negative point seven. The survey is for
it to come buck up to zero, but still hovering
right on that zero point. You know, China is still
facing a lot of deflationary pressures and this is only
going to make it worse. So I think we're not
(31:36):
seeing those go away. I mean that being said, before
Liberation Day, we have seen economies upgrading their expectations for
China this year, because the economy has been looking pretty
strong on other sort of aspects. The consumer is stirring,
These talks of the property market finally bottoming out, animal
spirits are up. So if China can spend enough to
(31:57):
compensate for Trump's actions and then actually gets a bit
of a Trump bump from other countries, now the sort
of turned to China and away from the US, you know,
this might not actually be so bad for Beijing.
Speaker 4 (32:09):
Do you think can you imagine, let me put it
that way, that sometime between now and the ninth of April,
when the retaliatory tariffs are set to kick in, that
there will be some movement here between Washington and Beijing
in a positive direction.
Speaker 9 (32:25):
I don't think there will be, is my hunch, because
I think you had one Yu saying just this week,
you know, in order to have talks, those the sort
of the unfair fentanyl tariffs have got to come off.
And when Senator Danes left Beijing, he said, in order
to have talks, China has to stop the fental smuggling.
Neither of those things are going to happen in the
next sort of seven days. So I don't think there'll
(32:47):
be sort of scrambles for last minute negotiations.
Speaker 4 (32:50):
That is Jenny Marsh China ECOGUV team leader for Bloomberg News.
We go from Hong Kong to Sydney. Now, in contrast
to China, Australia found itself on the lad low end
of Trump's tariff spectrum. The country will be subject to
a minimum ten percent levy imposed on all exports to
the US. Joining me now for a closer look is
Bloomberg Australia correspondent Paul Allen. He joins from our studio
(33:14):
in Sydney. Give me kind of the base level here,
what is Australia facing right now?
Speaker 10 (33:20):
Well, Australia's facing that ten percent tariff and that the
narrative in Australia as well. We got off lightly there,
but at the same time there's just confusion, bafflement. There's
a lot of We're going to election coming up, and
both sides of politics are kind of puzzled. Really because
the US and Australia have a free trade agreement, so
(33:40):
the Australia doesn't put tariffs on any US products. Australia
also runs a trade deficit with the United States, so
we buy more off the US than the US buys
off Australia, so a lot of confusion there, and President
Trump signaled out beef as well as a something he's
(34:00):
got beef with quite frankly, but there is no tariff
on US beef into Australia, but it imports of beef
as banned due to a twenty year old concern about
mad car disease. So there's a biosecurity issue there, and
it sounds crazy, but if you've ever visited Australia, you
know how uptight this country is about biosecurity. It's a great,
(34:21):
big island with lots of weird fauna and flora, and
the neither government of any stripe wants to put that
at risk. So that's why that barrier is there. But
didn't save Australia from President Trump's tariff round.
Speaker 4 (34:35):
Should we dismiss the notion of any type of retaliation?
Is that even a likelihood, It's very unlikely.
Speaker 10 (34:41):
The Prime Minister was pretty quick out of the gate
to say that, Look, while it's unwarranted, there's not going
to be any reaction. We are in an election cycle here,
so we've had the opposition leader talking tough, but saying
that he could reach a deal with the US to
get tariffs removed. But you know that this is the
type of thing you'd expect to hear or in an election.
The election is at the start of May, would be
(35:04):
some time before a new government was installed, regardless of
what government that is. So yeah, retaliation at this point
is pretty much off the table for Australia.
Speaker 4 (35:14):
Can you give me a sense of the likely impact?
What are people talking about as they look to these
new levies that will take effect. We don't know whether
there's going to be any wiggle room here. It's not
until April ninth that the reciprocal tariffs go into effect
at twelve oh one am. So put aside the flexibility
that may exist in some type of new trade and negotiation,
(35:37):
what would be the impact if these tariffs kind of
go into effect.
Speaker 10 (35:41):
Well, there's it's sort of still sinking in here, but
there's a sense that it's not as bad as it
could have been. And look, let's just take the wine
industry for example. So the US imports a lot of
Australian wine that will now be ten percent more expensive,
But the wine industry has just come off the back
of a bruising tariff battle with China where tariffs were
(36:04):
put on Australian wine of two hundred and twenty percent.
So it's like an attitude of okay, we can live
with this, but again the prevailing sensor, it's just one
of enormous confusion because there are a few relationships in
the world that are closer than the US Australia relationship.
Australia has shown up to every war that the United
(36:26):
States has fought. It's been a very close partner. As
I mentioned, it runs a trade deficit. There's just a
tremendous amount of confusion all around. And even with the
tariffs that are in place, like the steel and aluminum tariffs,
we say aluminium. Here a blue Scope Steel. It's Australia's
only listed steel maker. It makes steel in the US.
(36:47):
It's got a big plant in Ohio. It's the fifth
largest steel producer. But it imports well. It exports steel
to the West Coast of the United States. The reason
being is it's cheaper to do that than to truck
it over the Rocky Mountains from Ohio. So the US
steel consumers are getting a better deal from Blue Scope
doing that so now that's been chucked out the window.
(37:11):
The more expensive steel is going to come to the
West coast from Ohio. So again it's just head scratching.
It just seems absolutely bizarre.
Speaker 4 (37:19):
So to take us back to Australia and the impact
of tariffs, is there some type of geographic differentiation that
we can describe how certain areas of the country will
be affected, maybe to a greater or lesser degree than others.
Speaker 10 (37:34):
Yeah, well that's true, and this is when I get
it where it gets even weirder. Australia repaired on that
big list that the President held up with the ten
percent next to its name, So yeah, compared to the
rest of the world, the country to get off lightly.
But then if you continue reading down that list, you
get to some rather strange outliers, first of which is
at Norfolk Island, which is an Australian territory. It's about
(37:59):
sixteen one hundred miles out to sea, as a population
of just over two thousand people, that's been hit with
a tariff of twenty nine percent, And the Prime Minister
raised this as well. He said he cannot understand what
goes on in Norfolk Island, population two thousand in the
middle of the ocean. That is such a threat to
US trade. But it gets weirder still. Further down the
(38:22):
list is the herd and McDonald Islands and other Australian
territory tariff of ten percent signaled out. It's got no
people at all, but a whole lot of penguins. I
don't think you've got penguins in the US. Maybe that's
the problem.
Speaker 4 (38:36):
That's Paul Allen, Australia correspondent for Bloomberg News, joining from
Sydney and I'm Doug Prisner. You can catch us weekdays
for the Bloomberg Daybreak Asia podcast. It's available wherever you
get your podcast.
Speaker 2 (38:48):
Tom, Thanks Doug, and that does it for this edition
of Bloomberg day Break Weekend. Join us again Monday morning
at five am Wall Street Time for the latest on
markets overseas and the news you need to start your day.
I'm Tom Busby. Stay with us. Top stories and global
business headlines are coming up right now.
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:11):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our Daybreak
anchors all around the world. It straight ahead on the program,
What will tariff wars, Wall Street in turmoil, fears of
a recession, and some key inflation data out this week
all mean for the bed, Plus a look at the
potential impact of President Trump's tariffs on the US retail sector.
(00:31):
I'm Tom Busby in New York.
Speaker 3 (00:33):
I'm Carolyn Hetkee here in London, where we're diving into
the Bank of England's assessment of the key risks facing
the UK's financial landscape.
Speaker 4 (00:41):
I'm deg Prisner looking at how the impending reciprocal Trump
tariffs are resonating through the Asia Pacific.
Speaker 1 (00:49):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven to three zero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, DAB Digital Radio London, Serious
XM one twenty one, and around the world on Bloomberg
Radio dot Com and the Bloomberg Business App.
Speaker 2 (01:13):
Good day to you. I'm Tom Busby. We begin today's
program with a look at the early fallout from President
Trump's trade war how it may impact next month's Federal
Reserve decisions on interest rates and economic policy. We're coming
off a better than forecast March jobs report, and we
get us CPI data for March on Thursday, PPI data
on Friday. It is a lot and tariff policies could
(01:35):
change at any time. We're joined by Michael McKee, Bloomberg
International Economics and Policy correspondent. How do you and the
Federal Reserve policymakers try to make sense of everything we've
seen this past week.
Speaker 5 (01:46):
From an economic theory standpoint, you can't make any sense
out of it because it makes no sense. But you
have to deal with the world that you have, and
so the Fed is going to be modeling out what
potential effects this could have on the actually economy. They'll
sit back and say, yeah, this is really stupid economic policy,
but they're not gonna They have to do something at
(02:07):
some point about where we are. So they need to
try to figure that out. And it's still really hard
to do because the imposition of the tariffs isn't clear
exactly what gets tariffed and by how much.
Speaker 6 (02:19):
How soon, So it's going to take.
Speaker 2 (02:21):
A while and some haven't even started.
Speaker 5 (02:23):
So what they'll be looking at is the impact on
inflation and on unemployment and on consumers. Next week we
get the CPI report for the month of March, which
isn't going to tell us much because it's for the
month of March, and that's before almost all the tariffs,
and the tariffs that were put on in March are
basically on the producer side. We may see inflation go
(02:47):
up a little bit on a year over year basis,
or it may go down a little bit on a
your year basis, but it's not going to tell the
fate about anything about where they're going. So it's going
to be another month or so before they start to
have some data.
Speaker 2 (02:58):
The big fear of courses inflation, and we've already heard
from some companies car makers saying it's going to cost
you more, and there are reports JP Morgan, Chase, GOBN,
saks A for high end cars could be fifteen thousand
dollars more. Mercedes Benz says we're not even going to
send our lowest price car there because people can't afford it.
Speaker 5 (03:17):
I couldn't afford it even if it were the lowest
price car. But the interesting thing is that when the
new car situation, if that plays out that way, used
cars are going to get very expensive because people who
can't afford to pay the higher prices for new cars
are going to go buy used cars, and then supply
and demand, we'll see used car prices go up. Probably
(03:39):
inflation is the first danger out of the tariffs that
the FED is going to be looking at, because prices
can go up immediately. It will take a while for
companies to figure out what they need to do with
staffing if there is a recession, and do we want
to cut people.
Speaker 6 (03:54):
Remember how hard it was to hire people before.
Speaker 5 (03:56):
It's always sticky, so that'll take some time to play out.
The good thing for the FED about the jobs report
on Friday was that it was generally solid. Now, again,
it was March before all most of this stuff started happening,
but it fits the narrative as Jay Powell has been saying,
(04:18):
that the labor market is solid, and the Fed's two
responsibilities are the labor market and inflation, so they can
lean on inflation. They can leave rates unchanged because the
inflation rate is either staying where it is or we
hope not, but it could be going up. So I
(04:38):
don't think at this point the Fed is thinking about
cutting rates, even if Wall Street is.
Speaker 2 (04:44):
And more on that March jobs report, because the Challenger
Grand Christmas came out this past week said two hundred
and eighty thousand federal workers were laid off. That was
in two months, but a lot of them still getting severance,
so they're not counted in these numbers. Still good.
Speaker 5 (04:59):
Actually, actually they are counted as still employed according to
the BLS. They put out a note in Friday's jobs
report that said people who are receiving severance or who
are on administrative leave are counted as employed.
Speaker 6 (05:15):
So we haven't seen the impact yet.
Speaker 2 (05:17):
And we may not for several months.
Speaker 5 (05:19):
The Challenger survey is based on job cut announcements, and
they basically said, we took the press releases that Elon
Musk put out about how many people were going to
be fired, and that's what we're counting. And people don't
usually put a lot of weight on Challenger because a
lot of the job cuts that are announced don't happen.
Either companies do it through attrition or through just not
(05:43):
hiring additional people as opposed to actually firing people. It
was a number that got people's attention, and we're certainly
going to probably see some big federal job losses. But
I don't know that we get to two hundred and
eighty thousand very quickly.
Speaker 2 (05:59):
No, be a while. And it could this March report
be the last really upbeat job support for a while
because of these.
Speaker 6 (06:07):
Well it could.
Speaker 5 (06:08):
On Friday, John Ferreroll spoke with the new Labor Secretary,
who said.
Speaker 6 (06:13):
No, this is not going to be the last good report, but.
Speaker 5 (06:16):
I can't see how it would be a good report
going forward. And the reason why is the uncertainty. If
you don't know whether you're going to have to be
letting people go in a month or so, you don't
want to be hiring people. And if, indeed, as we
have seen some evidence already, the economy is slowing down,
(06:38):
then you can probably meet the demand that you have
with the employees that you have. So I don't know
that we're going to see another blowout surprise to the
upside for a while.
Speaker 2 (06:49):
It's going to be a long four weeks before that
next meeting. Our thanks to Michael McKee, Bloomberg International Economics
and Policy Correspondent, well more now on President Trump's sweeping tariffs,
which a're hitting certain countries a lot harder than others,
impacting some of America's biggest electronics, apparel, footwear makers, and retailers,
And for more on the potential impact of those tariffs
(07:10):
on the retail sector. We're joined by Jennifer bartashis Bloomberg
Intelligence Senior analyst Retail, Staples and packaged food.
Speaker 5 (07:18):
Wow.
Speaker 2 (07:19):
Well, Jennifer, let's start with a look at the countries
that supply most of the imported clothing, sneakers, gadgets, furniture,
and other goods aside from autos. I mean, China, Vietnam, Taiwan.
These are huge numbers, aren't they They.
Speaker 7 (07:33):
Are, indeed, and so it was a bit of a
surprise how big some of these numbers were given how
much some of our companies rely on those countries for manufacturing.
So when you're talking about Vietnam, India, Thailand, Cambodia, you know,
I think one of the big takeaways here is that
our retailers in the United States have been making an
(07:56):
effort to diversify away from China for the past several years,
and yet, and with the idea that it would help
insulate them from higher tariffs. And yet with this new
wave that is just not the case anymore. And so
that's that's an area for concern.
Speaker 2 (08:11):
No, but the most impacted country will be China. And
still you to pick up an article of clothing, a toy,
chances are an Apple iPhone that it is made in China.
So much is manufactured there. So still they haven't separated
themselves totally. I know Apple is making iPhones in India
now they've tried, but it's a global world, no matter
(08:33):
what we hear from the White House. How is this
going to impact US companies?
Speaker 7 (08:40):
Yeah, so, as you said very accurately, China is still
the main trading partner for a lot of US companies
and so even those attempts to diversify just don't add
up to really offset the huge impact that these Chinese
tariffs are going to have. When you talk about real
big retailers like Target in particular, you know, China is
(09:03):
still the biggest, the biggest source for their their their
goods that are imported. When you're talking about apparel and
electronics and toys and home furniture, even some beauty products,
it really puts a lot of pressure on retailers like
Target that skew to more discretionary spending in how they're
going to manage all this additional cost You know, Walmart also,
(09:27):
you know, out of the general merchandise that they sell,
you know, the bulk of it comes from China. And
then you can't forget to me one of the areas
of retail that's going to get hit the hardest, and
that's the dollar stores because they're very low price point stores.
Most of what they sell comes from China, and so
figuring out how they're going to be able to manage
(09:50):
their business when it's so reliant on China and have
such low price points is really going to be a challenge.
Speaker 2 (09:56):
And let's face it, importers pay those tariffs, the price
increases are passed along to consumers. There was no doubt
about that. So these are ore are the hardest hit.
People are going to be the folks that shop at
those Dollar Tree, dollar general stores. I mean this could
be devastating.
Speaker 7 (10:12):
Yeah, exactly. So you know, you've got consumers who are
already under pressure, You've got prices going up that's gonna
you know that from tariffs that are going to create
even more pressure on these consumers, and dollar stores are
where people go to seek value, right because they don't
have a lot of money in their pocket and they
can get things. And so these retailers in particular are
(10:33):
going to have a very difficult time navigating this new
tariff landscape. When we heard about earnings from the fourth
quarter from these companies, they all said that they had
mitigation plans in place, so they were talking to their
suppliers to try to share costs. They were thinking about
what products they could, you know, if they had to
not carry anymore. But the tariffs announced are so sweeping
(10:57):
it doesn't leave them a lot of room for negotiation.
So you know, whether it's Dollar General, dollar Tree, think
about five below. Again, these companies are are really up
against the wall with these.
Speaker 2 (11:09):
Tariffs, and not just those companies. I want to break
down a Vietnam. I think it's a good example. Forty
six percent tariffs on imports from Vietnam. Nike Footwear fifty
one half fifty percent of its footwear is sourced from Vietnam.
That's according to company fi links compiled by Bloomberg. Also Lululemon, Adidas,
(11:29):
Abercrat I mean, the list goes on and on. I
don't know if a lot of people know how much
is made there and how it's going to affect consumers.
Speaker 7 (11:36):
Here exactly when you're talking about the footwear industry, Vietnam
is the biggest place for manufacturing for footwear. And so
whether it's All Birds or it's as you said, Nike
or Puma or Adidas, you know, all of these companies
are now faced with how they're going to how they're
going to manage those costs, and you can only pass
(11:59):
through so much to consumers. You know, I think it's
inevitable that consumer costs are going to be coming up,
but there's a breaking point where you can't do that
and you have to absorb some. So one of the
things that everyone's watching is, you know, what's going to
happen with the margins of these companies as costs go
up and their ability to raise prices gets capped. And so,
you know, we think that there may still be room
(12:22):
for negotiation the way President Trump, you know, announce these
tariffs before they fully go into effect, but you have
to plan for the worst, and right now it's looking
a bit dire for apparel companies and for footwear companies.
Speaker 2 (12:35):
Oh what sure is well? Our thanks to Jennifer Bartash
is Bloomberg Intelligence senior analysts retail, staples and packaged food,
and coming up on Bloomberg day Break weekend, we'll dive
into the Bank of England's assessment of the key risks
facing the UK's financial landscape. I'm Tom Busby and this
is Bloomberg. This is Bloomberg day Break weekend, our global
(13:01):
look ahead at the top stories for investors in the
coming week. I'm Tom Busby in New York. Up later
in our program a look at how President Trump's tariffs
on Chinese goods will impact relations with Beijing moving forward.
But first, the UK Central Bank releases its quarterly report
on the stability of the UK's financial system this week,
along with what it's doing to remove or reduce risks.
(13:24):
But as geopolitical and global economic tensions rise, can policymakers
really fortify the Bank of England against market turmoil? For more,
Let's go to London and bring in Bloomberg day Break
Euro banker Caroline Hepgar Tom.
Speaker 3 (13:37):
The Bank of England's stability report is meant to support
the resilience of Britain's financial system and therefore support economic
growth by scanning the risks on the horizon. In the
last report, released in November twenty twenty four, the Bank
of England cited a risky outlook driven by geopolitical tensions
and global fragmentation. Specifically, they called out material pressures on
(14:02):
government debt levels and increasing borrowing costs. Even if they
talked about consumers and businesses remaining resilient. In the six
months or so since that publication, those risks do appear
to loom large, still complicating the job of policy makers
looking to steer the UK's financial markets through the storm.
(14:24):
In the UK, fiscal pressure has increased. Just look at
how the Chancellor Rachel Reeves lost half of her ten
billion pound fiscal buffer in the days after her spring
financial statement. This is something that the Central Bank did
worn about back in November. The Bank argued then that
(14:45):
a deterioration in market perceptions about the sustainability of the
long term path of government's debt globally may lead to
higher rates and sharp movements in market prices. In particular,
Bank of England experts believe that increased debt levels and
servicing costs for governments could also reduce their capacity to
(15:09):
respond to future shocks that may be to come, and
also increase the cost of borrowing and refinancing of debt
for households and for businesses. So how's the Bank of
England's financial outlook become riskier and how do they plan
to keep the country on track? I've been asking Bloomberg's
(15:29):
finance reporter Laura Noonan, and I began by asking her
simply to begin with, what the point is of this
financial stability report?
Speaker 8 (15:40):
So the point of a financial stability report is that
if there is a financial crisis coming, you see the
warning signs really early, and you step in and do
what you can to prevent us. So we, notably in
the UK, didn't have any before the financial crisis, and
they introduced this concept in the aftermath of the financial crisis,
because you would all these people saying why were there
(16:02):
no alarm bells ringing? And part of the reason that
there were no alarm bells ringing about the belt up
of risk was that while every regulator and every center
bank has general oversight of risk, there was no one
specifically in charge of ringing the bell. So I would
think of this financial spell report, this is the.
Speaker 3 (16:20):
Bell Okay, so we're waiting for this bell recap what
happened in November's report, because they come up with a
list of risks and they explain them in some detail.
Think about the time frame between that November report and now.
Speaker 8 (16:35):
Okay, so November was a particularly fun report. It was
a big bell and that's because they do these things quarterly.
But they also, as well as having the general laundry
list of these other risks of the financial system, they
also do special publications during some and we had a
special publication in November which I was very excited about,
which was the outcome of this broad market stress test,
(16:57):
the first one in the world to see how the
market system would respond to a crisis, and that found
that that basically non banks were not particularly ready for
a crisis. The other things that they warned about were
the general things they've been warning about for some time.
And often the language is very important here. It's a
bit like if you watch the interest rate decisions and
the commentary around that, the exact words you so you
(17:19):
can say, you know the outlook, the risk is deteriorating,
the risk is worsening, risks are escalating. So the exact
language matters in terms of whether they see big risks,
whether they see moderate risks in different areas. Last time
they called out the geopolitical risks were increasing very obviously,
yes they are, and we can expect that geopolitical risks
(17:41):
have not subsidies between November and now. So if I
were a betting person, which apparently we're not allowed to
be and anymore, But if I were a betting person,
I will be betting on geopolitical risks to feature heavily
in the report. And with that we can expect to
see them warning about the different and risks that different
parts of the financial landscape face. And geopolitical risk can
(18:04):
manifest in lots of different things, So you can have
difficulty trading with certain parts of the world, you can
have sharp corrections of sharp changes to acid prices because
of geopilical policies. So there's a number of things there
and I would expect a lot of warning about geopilical risk.
They also tend to warn about other things. They'll always
be something about cyber when the geopolitical situation worsens. There's
(18:28):
often a heightened fear about cyber because you have state
sponsored cyber attacks and that's something we saw a lot
last year where there was a lot of concern about
how would the financial system withstand an attack from a
negative state actor, and that's something that they have been
warning heavily about. They has been ongoing concerned about valuation
(18:49):
in various asset classes, and obviously valuations have fallen recently
in recent days anyway, so they are still at fairly
elevated levels. The other repeat one is the links between
the private equity slash private credit slash private market space
and the financial system and the way that those links
could unravel in a problematic way.
Speaker 3 (19:11):
Okay, so quite a list of risks that they that
you're watching out for in terms of what they may cite.
How are these reports then so normally received.
Speaker 8 (19:21):
How we actually get them is actually great fun. So
how we literally receive them is they take a gang
of journalists three floors underground in the Bank of England
and they lock us in with them. It's actually very,
very fun, and then we have an hour and a
half with them before we can then broadcast. In terms
of how they're received by the wider world, they so
the FPC is part of the Bank of England rather
(19:43):
than the pure which is the regulatory arm. So basically
the Bank of England warrants and then the PURE and
the FCA to an extent, decides, okay, what do we
want to take greater action in. So if they warrant
about vulnerabilities in a certain part of the market, the
PRAA may then go and do an exercise to review that.
(20:04):
So there are two things the FPC can do. They
can advise or recommend. They can actually make orders for
some things, but they very rarely do that. The one
thing they directly control is something called the counter cyclical
capital buffer, which some of your listeners may be familiar with,
and that basically sets the capital buffer banks have to
maintain to deal with a potential crisis. In the UK,
(20:27):
it's been at neutral level for quite some time, and
that's because banks are well capitalized. I don't think they're
going to change that buffer this week, but they might.
The other things I should have said earlier that they
talk about a lot is the resilience of households, the
resilience of businesses to these things. So they'll talk about,
(20:47):
you know, for a long time during the last interest
rate cycle, we heard about their percentage of households whose
mortgage just would jump by a certain amount, and how
that would play out. I mean, for us from a
journalistic point of view, disappointingly, the last few time that's
been households are resilient, banks are resilient, business are resilient.
That is no crack whatsoever to report on. But I
(21:07):
guess what I would imparty with is that the level
of resilience has been high and as interest rates for
the level of resilience should increase.
Speaker 3 (21:16):
Okay, So then that probably goes to my next thought,
which is what is your assessment, Bloomboad's assessment currently of
the UK's sort of risk landscape and how we're thinking
about it.
Speaker 8 (21:27):
So the UK's risk landscape is not as from a
macroeconomic perspective, it's not as bad as some of the
markets where there are bigger policy changes taking place. So
I don't think it's the risky ast market. The one
thing that I would that I'm like watching out for
is what if anything they say about the deregulation risks.
So the Bank of England's regularly arm the p r
(21:48):
A and the FCA, which regulates conduct and other parts
of the financial industry. They've been pulling back a lot
of rules in the spirit of promoting the UK's competitiveness,
which is great and all, and they say that they
are threading the needle in terms of Okay, we're going
to make the burdens on financial services firm less and
that's not going to increase risk by too much. It
(22:10):
is a fine balancing act and the FPC this report
is independent enough that it could say we see heightened
risk to financial stability arising from the deregulation which is
taking part place both in the UK and elsewhere. I
think that's going to be an interesting trend like we've had.
The FCA Chief Executive Nikhil Rathi has been talking about
(22:32):
the government needing to set an acceptable risk level and
an acceptable failure level. If they want to go down
this route of taking off all the red tape and
everything that Richter Reefs has been talking about, there will
be more failures, there will be more risks, and in
theory the FPC is I think of them as being
the guardian of that. They're the ones who I'm hoping
(22:53):
are going to watch this at a very high level
and say, is what we're doing increasing risk in the
financials and is it increasing risk in a dangerous way
or in a matter way.
Speaker 3 (23:04):
It's interesting, isn't it that this idea of risk that
Britain needs more risk taking, positive risk taking in order
to galvanize economic growth or allow investors to put more
money to work in a better way. That's going to
deliver more growth for Britain. How do we think about
financial stability in the UK versus other markets? Is it
(23:26):
more precarious less precarious? I mean, there's a big world
out there, but how do we benchmarket?
Speaker 8 (23:31):
I would say more precarious and the EU partly because
of all these policy changes. The one thing about the
EU is that you have been talking a lot about simplification,
about competitiveness, but it is a really slow moving train.
And one of the things since breaksit breksit made it
much easier for the UK to directly and quickly enact reforms.
In the EU, they will be discussing it till the
end of time. They are doing a review on the
(23:53):
compassionist of banking, which they report on by the end
of twenty twenty six, so they are not changing reels
as quickly. Despite talking about the UK is obviously the
risks in the US are much much higher because there
is a lot of quality change going on there at
every level, and no one quite knows how this is
going to play out. So if I were to rank
the hierarchy of fanatibility risks in our major markets US
(24:15):
top UK second.
Speaker 3 (24:17):
You third, how important a feature are borrowing costs likely
to be in this report? You did touch on it.
You know, when it comes to perhaps interest rates maybe
coming down, but borrowing costs talk about those.
Speaker 8 (24:30):
So I think borrowing costs are not going to be
a major feature just because they are coming down. So
when we saw so most people will now have had
even people on fixed mortgages, they will have had their
rate increases and they will have adjusted, and the trajectory
is very much downward. Now there's obviously an open question
about how quickly the UK moves down, but borrowing costs
(24:50):
are likely to fall, and that is generally speaking positive
from a household resilience perspective. The other thing we sometimes
will get commentary on is the level of availability of
credit from banks to firms and individuals, and that is
a kind of a leading indicator because if banks themselves
are worried about changes, then they will start restraining credit.
(25:12):
So I tend to think that if there were any
kind of problems coming, what we first see is banks
restraining credit, and then we'd see issues in terms of
borrowing affordability coming later.
Speaker 3 (25:24):
My thanks to Bloomberg's Laura Noonan, and we will have
full coverage of the Bank of England's Financial Stability report
and its implications in the coming days right across Bloomberg
channels and on the terminal. I'm Caroline Hepkee here in London.
You can catch us every weekday morning for Bloomberg Daybreak.
You up beginning at six am in London. That's one
(25:44):
am on Wall Street.
Speaker 2 (25:45):
Tom, Thank you, Caroline. And coming up on Bloomberg Daybreak weekend,
they'll look at how President Trump's increased s tariffs on
Chinese goods could impact relations with China. I'm Tom Busby
and this is Bloomberg. This is Bloomberg day Break Weekend,
(26:10):
our global look ahead at the top stories for investors
in the coming week. I'm Tom Busby in New York.
Resident Trump announcing last week in additional thirty four percent
tariff on Chinese goods, bringing total levies to at least
fifty four percent. Now for more on how the new
tariffs are reverberating through the Asia Pacific region. Let's get
to the host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4 (26:32):
Tom Bloomberg Economics did the math and discovered the average
charge on Chinese goods will rise to sixty six point
eight percent. Earlier estimates from Bloomberg's trade team show a
sixty percent tariff could cut China's direct exports to the
US by up to eighty percent over the medium term,
and under that scenario, some two point three percent of
(26:53):
China's GDP would be at risk. For more, we turned
to Jenny Marsh. She is China ECOGUV team lie leader
for Bloomberg News. Jenny joins us from our studios in
Hong Kong. I thought it was very interesting that the
US has addressed a loophole. It allows packages worth up
to eight hundred dollars from either China or Hong Kong
to enter the US duty free. But now we're told
(27:16):
that's going to end. May TEWI. So it shouldn't come
as a surprise when you look at markets and see
a sell off in shares like Ali Baba ANDJD dot Com.
Was that a surprise at all?
Speaker 9 (27:27):
Not a surprise because he talked about it in the
Executive Order on the first day, and of course they
tried sort of putting this break on the dominimous lepole
earlier that they had to sort of lift it because
logistically it's very hard to sort of logistics of how
you actually impose that. So I think that was pretty expected,
and so now it's just a matter of Okay, how
(27:48):
do you sort of how do small companies deal with that?
But when you add that in as well, actually the
tariffrerate looks even higher than sixty seven percent.
Speaker 4 (27:58):
I noticed that the South China Morning Post was reporting
that President She is set to visit Vietnam, Malaysia, Cambodia
in mid April. Now we know that all of those
nations are being hit by this round of US tariffs.
Is this a part of some type of strategy that
she has maybe to reconfigure trade relationships.
Speaker 7 (28:17):
Yeah.
Speaker 9 (28:17):
I think the itinerary is really interesting. I mean, the
first trip that she takes abroad every year always carries
huge symbolism. Last year he chose to go to France,
just does the European Union a sort of way in
these big ev tariffs. This year he's picked Vietnam, Cambodia
and Malaysia, and you know, Vietnam and Malaysia sort of
(28:37):
these two big countries that have sort of been a
key part of the China plus one strategy of sort
of rerouting trade to the US to sort of skirt
tariffs and also now facing their own huge levees. I
think Vietnam's tariffs were higher than China's. Forty six percent
was the reciprocal figure announced. So this is a big
(28:58):
opportunity for she I think, to go to these countries,
make trade deals, but also just sort of present China
as the grown up in the room. Vietnam have been
very carefully balancing it's tied. You know, it had hosted
Biden in I think it was twenty twenty three, and
then very quickly hosted cheating paying for a visit and
(29:19):
sort of playing this sort of play on both sides equally.
And I think now this gives China an opportunity to say, well,
actually we are the best part to hear and so
this trip, I think the timing of it is very interesting.
Speaker 4 (29:32):
I'm noticing weakness in the currency, but I would imagine
that the BBOC does not want the Chinese you want
to weaken greatly in the face of this trade war.
Fair statement to say that the PBOC is going to
try to keep the one as strong as it can
under the circumstances.
Speaker 6 (29:48):
Yeah.
Speaker 9 (29:48):
I think that's the strategy that we have seen so far,
and they don't want to invite any more criticism as
well from the Trump administration.
Speaker 4 (29:56):
In terms of the negative impact that this is going
to have on Chinese economic growth, particularly as it relates
to the exporters. What are you hearing about that.
Speaker 9 (30:04):
I think it's an interesting reaction from economists who are
saying they're sort of seeing a hit on average of
sort of a one percentage point to GDP growth this year,
but they're not downgrading their GDP forecasts because I think
everyone thinks trying to will still hit five percent. What's
going to have to happen now is a massive sort
of spending stimulus to fill the whole that is going
(30:26):
to be left by the hit to exports to the US,
and I think that's sort of what people are going
to be looking to. There's the external strategy of does
she get on the phone with Trump. I think he's
extremely unlikely. He's going to try and call him before
that eight PRINL nine deadline. It's just not how China
does things. They're not going to respond to strength with weakness.
Much more likely, they focus on shoring up their alliances
(30:49):
trade partnerships around the world, and they've been very careful
to save stimulus for exactly this moment, and now they
have the chance to sort of roll out a big
support package.
Speaker 4 (30:58):
Jenny, I want you to help. We look ahead to
the inflation data that we're going to get for China
in the coming week PPI CPI. We know the deflationary
pressures that the economy is facing. Is that going to
be underscored by these data points or is something beginning
to shift right now?
Speaker 9 (31:16):
The CPI at the beginning of the year is pretty bad.
Even when we take out the seasonal factors. It went
right down to negative point seven. The survey is for
it to come buck up to zero, but still hovering
right on that zero point. You know, China is still
facing a lot of deflationary pressures and this is only
going to make it worse. So I think we're not
(31:36):
seeing those go away. I mean that being said, before
Liberation Day, we have seen economies upgrading their expectations for
China this year, because the economy has been looking pretty
strong on other sort of aspects. The consumer is stirring,
These talks of the property market finally bottoming out, animal
spirits are up. So if China can spend enough to
(31:57):
compensate for Trump's actions and then actually gets a bit
of a Trump bump from other countries, now the sort
of turned to China and away from the US, you know,
this might not actually be so bad for Beijing.
Speaker 4 (32:09):
Do you think can you imagine, let me put it
that way, that sometime between now and the ninth of April,
when the retaliatory tariffs are set to kick in, that
there will be some movement here between Washington and Beijing
in a positive direction.
Speaker 9 (32:25):
I don't think there will be, is my hunch, because
I think you had one Yu saying just this week,
you know, in order to have talks, those the sort
of the unfair fentanyl tariffs have got to come off.
And when Senator Danes left Beijing, he said, in order
to have talks, China has to stop the fental smuggling.
Neither of those things are going to happen in the
next sort of seven days. So I don't think there'll
(32:47):
be sort of scrambles for last minute negotiations.
Speaker 4 (32:50):
That is Jenny Marsh China ECOGUV team leader for Bloomberg News.
We go from Hong Kong to Sydney. Now, in contrast
to China, Australia found itself on the lad low end
of Trump's tariff spectrum. The country will be subject to
a minimum ten percent levy imposed on all exports to
the US. Joining me now for a closer look is
Bloomberg Australia correspondent Paul Allen. He joins from our studio
(33:14):
in Sydney. Give me kind of the base level here,
what is Australia facing right now?
Speaker 10 (33:20):
Well, Australia's facing that ten percent tariff and that the
narrative in Australia as well. We got off lightly there,
but at the same time there's just confusion, bafflement. There's
a lot of We're going to election coming up, and
both sides of politics are kind of puzzled. Really because
the US and Australia have a free trade agreement, so
(33:40):
the Australia doesn't put tariffs on any US products. Australia
also runs a trade deficit with the United States, so
we buy more off the US than the US buys
off Australia, so a lot of confusion there, and President
Trump signaled out beef as well as a something he's
(34:00):
got beef with quite frankly, but there is no tariff
on US beef into Australia, but it imports of beef
as banned due to a twenty year old concern about
mad car disease. So there's a biosecurity issue there, and
it sounds crazy, but if you've ever visited Australia, you
know how uptight this country is about biosecurity. It's a great,
(34:21):
big island with lots of weird fauna and flora, and
the neither government of any stripe wants to put that
at risk. So that's why that barrier is there. But
didn't save Australia from President Trump's tariff round.
Speaker 4 (34:35):
Should we dismiss the notion of any type of retaliation?
Is that even a likelihood, It's very unlikely.
Speaker 10 (34:41):
The Prime Minister was pretty quick out of the gate
to say that, Look, while it's unwarranted, there's not going
to be any reaction. We are in an election cycle here,
so we've had the opposition leader talking tough, but saying
that he could reach a deal with the US to
get tariffs removed. But you know that this is the
type of thing you'd expect to hear or in an election.
The election is at the start of May, would be
(35:04):
some time before a new government was installed, regardless of
what government that is. So yeah, retaliation at this point
is pretty much off the table for Australia.
Speaker 4 (35:14):
Can you give me a sense of the likely impact?
What are people talking about as they look to these
new levies that will take effect. We don't know whether
there's going to be any wiggle room here. It's not
until April ninth that the reciprocal tariffs go into effect
at twelve oh one am. So put aside the flexibility
that may exist in some type of new trade and negotiation,
(35:37):
what would be the impact if these tariffs kind of
go into effect.
Speaker 10 (35:41):
Well, there's it's sort of still sinking in here, but
there's a sense that it's not as bad as it
could have been. And look, let's just take the wine
industry for example. So the US imports a lot of
Australian wine that will now be ten percent more expensive,
But the wine industry has just come off the back
of a bruising tariff battle with China where tariffs were
(36:04):
put on Australian wine of two hundred and twenty percent.
So it's like an attitude of okay, we can live
with this, but again the prevailing sensor, it's just one
of enormous confusion because there are a few relationships in
the world that are closer than the US Australia relationship.
Australia has shown up to every war that the United
(36:26):
States has fought. It's been a very close partner. As
I mentioned, it runs a trade deficit. There's just a
tremendous amount of confusion all around. And even with the
tariffs that are in place, like the steel and aluminum tariffs,
we say aluminium. Here a blue Scope Steel. It's Australia's
only listed steel maker. It makes steel in the US.
(36:47):
It's got a big plant in Ohio. It's the fifth
largest steel producer. But it imports well. It exports steel
to the West Coast of the United States. The reason
being is it's cheaper to do that than to truck
it over the Rocky Mountains from Ohio. So the US
steel consumers are getting a better deal from Blue Scope
doing that so now that's been chucked out the window.
(37:11):
The more expensive steel is going to come to the
West coast from Ohio. So again it's just head scratching.
It just seems absolutely bizarre.
Speaker 4 (37:19):
So to take us back to Australia and the impact
of tariffs, is there some type of geographic differentiation that
we can describe how certain areas of the country will
be affected, maybe to a greater or lesser degree than others.
Speaker 10 (37:34):
Yeah, well that's true, and this is when I get
it where it gets even weirder. Australia repaired on that
big list that the President held up with the ten
percent next to its name, So yeah, compared to the
rest of the world, the country to get off lightly.
But then if you continue reading down that list, you
get to some rather strange outliers, first of which is
at Norfolk Island, which is an Australian territory. It's about
(37:59):
sixteen one hundred miles out to sea, as a population
of just over two thousand people, that's been hit with
a tariff of twenty nine percent, And the Prime Minister
raised this as well. He said he cannot understand what
goes on in Norfolk Island, population two thousand in the
middle of the ocean. That is such a threat to
US trade. But it gets weirder still. Further down the
(38:22):
list is the herd and McDonald Islands and other Australian
territory tariff of ten percent signaled out. It's got no
people at all, but a whole lot of penguins. I
don't think you've got penguins in the US. Maybe that's
the problem.
Speaker 4 (38:36):
That's Paul Allen, Australia correspondent for Bloomberg News, joining from
Sydney and I'm Doug Prisner. You can catch us weekdays
for the Bloomberg Daybreak Asia podcast. It's available wherever you
get your podcast.
Speaker 2 (38:48):
Tom, Thanks Doug, and that does it for this edition
of Bloomberg day Break Weekend. Join us again Monday morning
at five am Wall Street Time for the latest on
markets overseas and the news you need to start your day.
I'm Tom Busby. Stay with us. Top stories and global
business headlines are coming up right now.
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