Good morning. I'm Brian Curtiz. Here are the stories we're following today. Netflix shares fell after the company reported second quarter of sales that missed estimates. The company also issued a third quarter forecast that fell short of expectations. It's partly due to foreign exchange rates and the price cuts in some markets. The shortfall overshadowed solid subscriber growth. Netflix added five point eight nine million customers in the prior quarter.
That was more than double what Wall Street was looking for. We heard from Dan Morgan at Sunovistrust.
It's kind of interesting. They're obviously adding new subscribers. We don't know if this is due to some of their lower cost initiatives like Basic with advertising, which is six ninety nine a month, all the initiatives they've had going on to try to get rid of people that are
sharing passwords and so forth. So it looks like they're starting to get these people on board, but unfortunately, the average revenue per user of the amount that they're gas other for that additional subscriber seems like it's dropping off a little bit.
Netflix raised its twenty twenty three forecast for free cash flow from at least three point five to five billion dollars. It's the result of a strike by writers and actors that has shuttered production and cut spending, so expenses down there a little bit. Netflix shares at the moment off six point nine percent in late trading. Meantime, Tesla reported second quarter earnings in revenue that beat estimates, but gross margins trailed Wall Street expectations. The electric vehicle maker's margins
are being squeezed by months of price cutting. It's a response to tighter household budgets and a wave of new EV competitors. We've heard from David Traynor, CEO of New Constructs.
The law of competition means that whatever margins Tesla is able to achieve now are probably not sustainable, and we're seeing their market share decline precipitously China and in Europe. We think the same will happen in the US. And this is ultimately an industrial manufacturing business. It's not going to have the kind of margins that Tesla has now, and certainly not the kind of return on invested capital.
We're talking about a stock price that's implying returns on investor capital upward of seventy eighty percent for Tesla right, that's just not going to happen.
Tesla also blamed it shrinking margins on the cost of ramping up output of new battery cells, the cyber truck as well and other large projects. The automaker said it expects future hardware related profits to be accompanied by an acceleration of AI. Goldbn Sachs's second quarter profit tumbling fifty eight percent. The bank was hit by a slump in investment,
banking and deal making. On the earnings call, CEO David Solomon said that the bank is now making some tough decisions that are driving the evolution of the firm.
Our results were impacted by several items related to businesses we're executing on a strategic transition and positioning the firm for the future, in particular shifting our asset and wealth management business to a less capital intensive model and the pivot our consumer ambition.
Goldman's equity trading revenue was one bright spot. It came in ahead of the firm's major rivals at three billion dollars analysts who are looking at two point four seven billion. Goldman has now clinched the top rank in the business in three of the past four quarters. In business trading well. Apple is quietly working on artificial intelligence tools that could challenge those of Open Ai, Google, at Alphabet, and others. We get more here from Bloomberg's Mark German.
Today, we've learned that Apple is going all in on LMS, or large language models. That's the heart of the AI technology that powers Chat, GPT, Microsoft Being Ai, Google Bard and all of these fancy new AI tools we've been hearing about. So they've developed their own underlying framework at Apple called ajax to power its own next generation LMS, and it's also built an internal chat GPT like tool for use among its employees that operates very similar to the tools seeing from others today.
Apple executives haven't yet decided on how to release the AI tools to consumers. Onto China, the country has issued a new pledge to improve conditions for the country's private sector. Bloomberg's Joan Wong has more from Hong Kong.
The pledge appears to be a signal that Beijing wants to help lift corporate confidence as growth wayans. The statement is notable and that it was issued as a joint commitment by both a communist party and the government. The policy vows to treat private companies the same as state owned enterprises. Local governments are encouraged to invite entrepreneurs for consultation before drafting policies. China has shifted its tone recently toward the private sector after wrapping up a crackdown on
tech firms. Some analysts are skeptical that this is a major policy shift, but they say it will be welcomed by the private sector. In Hong Kong, Joan Wang Bloomberg Day, Brigaisia.
I'm Brian Curtis here in Hong Kong. A couple of other stories we'll be looking at. Beijing says it will retaliate if the USA imposes new limits on technology and capital exports to China. China's Ambassador to the Chiefhong said Beijing will not sit on its hand. So that's one story. And also Alibaba injecting eight hundred and forty five million dollars into Lazada, its online retail business in Southeast Age lots of competition there and that is a big cash boost.
Now it's time for global news. The US is saying that more time is needed to break ground on a climate agreement. At Baxter has Global News in the nine to sixty news room in San Francisco.
Ed, Yeah, that's exactly right. Doesn't look like much progress, Brian just Flatley. This after three days of meetings between John Kerry and She Shinwa. Carrie says, not finished finding the pathway with clarity.
We came here to break new ground, which we think is important at this stage, and it is clear that we are going to need a little he says.
Both sides agree it is doable, but not yet and as evidence of the lack of any real progress, President Chi Shinping says China will follow its own carbon reduction path. China's top diplomat says the US needs more Kissinger style diplomatic wisdom and Nixon style political courage. Wang Yi says China's development has a strong internal driving force and is
historically inevitable. Kissinger says it is important the two countries maintain engagement in any attempt to isolate the other is unacceptable. Donald Trump has failed another black eye and a legal cases in court. Hiss attempt to get get the e Gene Carroll award tossed. He'll have to pay the five million dollars a jury awarded her Meanwhile, Republican contender Chris Christi is vowing today on Bloomberg to keep the pressure up and to have Trump tell the truth.
And Republican primary voters to serve the truth. They haven't gotten it from Joe Biden as president, and they haven't gotten it from Donald Trump either, and so part of it is just about telling the truth. So you'll see today, whatever's issues you asked me about, I'm going to just hit it right between the eyes and let you know what I think.
Yeah, and as well issues involving Obamacare, immigration, national debt, all policies in which he says Trump promised Republicans and failed. Whitehouse says it is working on finding out the condition of the American soldier who crossed to North Korea. Spokes when Karina Jean Pierre is asked about whether China was helping.
I don't have any engagement with China to read out to you at this time, but I can tell you for certain that South Korea and Sweden we have engaged with them.
We're learning today that Private King was going to be on his way to Texas, where he faced further discipline for an assault charge before he charged North across the border, the number of researchers of social media and saying that today that Elon Musk's takeover in policy changes since then, Twitter is seeing a surgeon harmful content which is causing a buried or advertisers. Bloomberg So Sarah Friars says, it is a large, big pile of research.
From the Anti Defamation League, the Center of for Countering Digital Hate, media matters, universities across the board looking at issues like anti LGBT content, racist slurs against African Americans, anti submitted content, QAnon support.
Twitter answers new CEO London, your Caarino, saying that it is not true and that they find harmful content and only one percent of posts. But Sarah says, advertising sales are down about half over the concern we've.
Been hearing for the last few months from brands saying, you know, I don't really know if I want to start spending again on Twitter. It's become kind of assess pool, it's become dangerous.
And she says Bloomberg reporters were skeptical, but what we're hearing is that it's true. A super challenge for Twitter revenue. Global news powered by more than twenty seven hundred journalist and less over one hundred and twenty countries in San Francisco. I'm Ed Baxter, and this is Bloomberg.
This is Bloomberg Daybreak Asia. I'm Brian Curtis here in Hong Kong. Let's get to Carl Tannenbaum, executive vice president and chief economists at Northern Trust. Carl, great to have you on the program. Simple question, Has the risk of recession dropped at the same time that inflation, or at least parts of it, has received it.
Brian, Great to be with you. Yes, I do think that the odds of a recession are coming down. We've seen that highlighted and researched pieces from a number of houses. I think that's marking to market what we've seen in economic activity here in the United States, where we've had three quarters in a row that have exceeded expectations, and the now casts for the second quarter we'll get full accounting on that in a few weeks shows growth of
two and a half percent. That plus the persistent strength of the American labor market certainly doesn't make it seem as if we're going to fall off to the other side anytime. Soon. The good news is that we are seeing some categories of inflation show some moderation. But the challenge, Brian, is that some of the core elements, shelter and core services in particular, are receiving only very slowly, and so.
So that will Yeah, that'll keep the FED on the case. And do you think that there is the risk there of maybe going past one or two rate hikes from here.
That's a great segue. They'll get together next week to add up all the data. I do think that they'll hike obviously this month. We have a second twenty five basis point increase in our forecast for September. I think they're going to be frustrated. Even with some preliminary signs of easing, inflation is still well above the target. I'm not sure that they trust their models to give them
confidence that things will settle naturally. They certainly, Brian, do not want to find themselves at the end of this year have to hit play again after having pause, and so better to front load the restraint by completing the process this summer.
Yeah, more conservative people probably are hoping for a little pause to reflect, to see about the lagged defect of these rate hikes, and I suppose one thing that will show is consumer spending. I think a big question here is the consumer getting close to being tapped out?
I don't think so. There puts in takes here, But the most important one, as you know, Brian, is that the most powerful support for consumer spending is wage income.
We have very low levels of unemployment, new highs in prime aged labor force participation, and as well, now that the headline rate of inflation is down to three percent according to the CPI, we are now seeing real wage gains of over one percent for those who are working, and that's going to give additional wherewithal to spending, not to mention in the fact that the stock market has rallied very nicely over the last number of months, creating wealth effects for those who own shares.
Yeah. Yeah, we put it all together. It seems like sort of steady as she goes. Recession doesn't seem all that likely. But I'm curious the relationship between consumer spending and jobs which one breaks first. I mean, do companies keep everybody employed or do they start to think that they can get out in front so do they move first, or do consumers and their spending move first.
Well, spending and employment obviously are very closely correlated and have effects on each other, with economic activity not only ebbing a little bit, but in doubt for most of the last twelve months, I think it's been quite a mystery why more firms have not taken the step of
lightening their labor forces. I think the challenge of achieving talent levels during the post pandemic period has a lot of company hoarding a little bit, or perhaps thinking that if we have only a mild recession that they would prefer not to do a round trip into these tight labor markets. But certainly the fact that labor is in short supply in many cases and has some power is producing the kind of wage gains that are helping with spending.
Yep, How are companies managing their costs away from the labor cost.
For most of the last year, they didn't have to do that quite as much. Brian pricing power on the part of large and small businesses was really quite high
up until about six months ago. We've now seen a change of tone both in the small business survey here in the United States as well as from some large corporates, and so they're really going to have to find productivity avenues in order to compensate for the rising cost of wages, which is among the many reasons why artificial intelligence as an avenue to higher productivity growth is getting so much attention right now, Yeah.
Why is productivity kind of languishing?
There are many suggestions. You know, adoption is slow, but I think the transformational nature and the ease of use of generative AI may change that story in the years ahead.
This is Bloomberg Daybreak Asia, your morning brief on the stories making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day, on Apple, Spotify, and anywhere else you get your podcasts. You can also listen live each day on Bloomberg eleven three to zero in New York, Bloomberg ninety nine to one in Washington, Bloomberg one oh six to one in Boston, and Bloomberg nine sixty in San Francisco. Our flagship New York station
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