Good morning.
It's Wednesday, the twenty seventh of December in London. This is the Bloomberg Daybreak Curate podcast. I'm Stephen Carroll. Coming up today. Risks of a wider conflict in the Middle East rise as the US strikes targets in Iraq and Houthi militants attack another ship in the Red Sea. The SMP five hundred years record highs as the Santa Claus rally picks up steam plus Tesla is about to be surpassed by China's byd as the world leader in electric
car sales. Let's start with a round up of our top stories, and there are more warning signs that the war in Gaza could escalate into a wider conflict across the Middle East. Houthi rebels and Yemen renewed their drone strikes on merchant vessels in the Red Sea, with shipping from MSc confirming a container ship was hit while en route to Pakistan. It's the latest in a string of attacks in the region in recent days. On Monday, the United States that its forces launched three air strikes on
Iran backed groups in Iraq. Defense Secretary Lloyd Austin called the strikes a necessary and proportionate response to an earlier attack that injured three US personnel. The SMP five hundred is trading close to a record highs The so called Santa Claus rally left the Wall Street benchmark just half a percent off its previous peak, the traditional end of the year gains of average of one point three percent in the last five trading sessions of the year and
the first two trading sessions of the new year. Bloomberg's executive editor for Asian Markets, Paul Dobson says some traders have their eyes on a prize.
It may be an anticipation of big New year flows into equity funds and people trying to get a little bit ahead of that. As part of the explanation, I think, you know, we're getting very close to that record high in the SMP, and the market loves the target to chase, right, so trying to achieve that before the end of the year is probably something that some people are anticipating.
That's Bloomberg's Paul Dobson. Their US docs have risen by four and a half percent this month so far, with the since the start of the year now surpassing twenty four percent. Tesla could soon lose its title as the world's leader in electric vehicles. The Chinese automaker BYDS sales are forecast to overtake Tesla this quarter. It's a meteoric rise for the brand, which Elon Musk wants scoffed at. Here is the Tesla CEO speaking to Bloomberg twelve years ago.
There's competitors now ramping up, and as you're familiar with BYD, which is also on the West Coast, I think they're ramping up production of their electric vehicles. A warm buffet owed ten percent.
Stake in that.
Why do you last trying to compete?
Why do you last?
Have you seen their car?
I have seen their car. Yeah, in fact that the Berkshire Halfway meeting. I saw their cars. Yeah, well they are on a Tell me why you're laughing. You don't see them at all as a competitors.
Why is that?
I mean they offer a lower price point.
I don't think they have a great product.
So that was Elon Musk speaking to Bloomberg in twenty eleven. After that clip was reshared online, he responded saying BYD's vehicles are highly competitive these days. The Chinese firm's lower prices have been undercutting Tesla has more expensive vehicles, but BYD is struggling to replicate its domestic success internationally, as the EU is considering joining the US and slapping higher
tariffs on imports of Chinese electric cars. Apple will challenge a ban on sales of its watches after the White House refuse to overturn the measure. The tech company is in a patent dispute with medical technology maker Massimocorp over the blood oxygen level sensor in its products. Masamo's CEO Jokiani says Apple should take responsibility for its actions.
There needs to be an honest dialogue. There needs to be an apology. These guys have been caught with their hands and the cookie jar, and instead of being embarrassed and doing the right thing, they're blaming everybody and they're fighting everybody.
Masamo CEO Joke Kiani, speaking before the ban on Apple watches, which was imposed by the US International Trade Commission. Apple has already stopped selling its Series, Series nine and Ultra two watches, but says it strongly disagrees with the legal decision and will take all actions to return its devices to stores and the European Union is preparing a backup plan worth up to twenty billion euros to help fund Ukraine.
That's according to The Financial Times. Now. Unidentified officials speaking to the newspaper say the plan would sidestep Hungary's objections to the plan, which would see member states issue guarantees to the EU budget allowing the European Commission to borrow up to twenty billion euros on capital markets for Ukraine. A spokesperson for the Commission to climb to comment to
The Financial Times. This as elsewhere in Europe, Turkey's Foreign Affairs Committee endors Sweden's entry to NATO, paving the way for a vote by its full parliament as early as this week. Now, in a moment, we'll bring you more on that story that China's BYD looks set to overtake
Tesla in the electric car making space. But another Bloomberg story that caught my eye this morning, in the spirit of the end of year sales some of you may be indulging in perhaps also reflection of higher interest rates playing out across the commercial property sector, and office building in Los Angeles has sold for fifty two percent less
than it did five years ago. The building near Century City in Beverly Hills went for just under forty five million dollars on Tuesday, versus almost ninety three million in twenty eighteen, the last time it was sold. It's the latest big property deal in the LA area, illustrating the pressure in the market this as more companies look to remote work and of course you're dealing with the impact
of higher borrowing costs. The property firm Harbor Associates, which both the building with F andF Capital, say they're starting to see distress in parts of the market. Just in case you're looking for a bargain this time of year, might be worth looking at commercial property for that. Well, let's turn back to the stories that are moving markets today, shares rallying and Asia. As we've been telling you is the S and P five hundred on Wall Street is
close to another record high. So is this just the SOUNTA rally at work, something we're used to seeing at this time of year, or are there more underlying factors at play. Our executive editor for Asia Markets, Pol dubs And joins us now for more. Paul, great to have you with us. One of the stories moving markets in Asia today, This economic data from China on industrial profits
at thirty percent jump year on year in November. What does that tell us, first of all, about the state of the Chinese economy?
Yeah, hi, good morning, Stephen. I think there's a few different ways to read and interpret that data. First of all, you know, on the headliner or on the surface, on the headline, it looks like a pretty strong figure, quite a lot more than people expected. Now, if you dig into it a little bit, one of the explanations is that there was a large number incorporated in there as the sort of one off kind of windfall for some companies. It's not exactly clear what that relates to. The detail
is rather sketchy. It's only one sentence in a several page long announcement, but it looks like some companies benefited from the overall rally in equity markets and also the stronger currency to realize some gains that they've been sort of waiting to cash in chips on. So that gave the gave the sort of industrial profits figure and extra
kind of rosy sheen. But if you look at the year on year or the year to date figure more precisely, for the eleven months, we're still down compared with the same period a year ago, So that tells you more about the kind of struggle that Chinese industrial companies have been under this year. Despite one or two bright spots you mentioned, you know, kind of electric vehicles as being one of them, but overall, the corporate outlook is still
very gloomy. The confidence is still low, and the equity prices are reflecting that this.
Is coming, Paul. After we had that massive route on Chinese shares last Friday, eighty billion dollars wiped off some of the country's biggest tech names. This over fear is of a crackdown online gaming. Today things are looking a bit more positive for that sector. What's happened?
Yeah, and again it's a bit of a glass half full, glass half empty kind of a story. Yes, they're looking a bit more positive, but no, they haven't retraced all of the losses that we saw on Friday. What we got over the weekend was some retrenchment, some signals that maybe the authorities realized they might have gone a little bit too far. So there was some talk in the local media about the possibility that these guidelines or regulations aren't final and that there could be some recalibration of
that still going forwards. There was some explanation about what the benefits of those could be as well, and there were a lot of new approvals given full games over the past few days as well. And on top of that, a bunch of gaming companies announced buybacks, so several different kind of strands to try to all the market back from that really negative sentiment hit that it took on Friday. But you know, again, it's those clouds hanging over the market.
It's the restrictions the readiness of the authorities to take these kinds of actions in that kind of big common prosperity unbreda. That's one of the reasons the confidence is so shot in the market at the moment, among international investors in particular.
Okay, so that's the situation that some of the stories playing out in Asian markets today. If we look at the US, though, we had the S and B five hundreds on the cosp of record high yesterday. Is this just the traditional Santa rally or is there something more significant here?
It's a good question. I mean, the Santa Rally is kind of a legitimate phenomenon. It's over these sort of last five days of trading in December and then the first two of the next year, typically the market does rally. The average is gain of more than one percent in that period, so there is something to be held within that, and there may be an anticipation of big New year flows into equity funds and people trying to get a
little bit ahead of Father's part of the explanation. I think, you know, we're getting very close to that record high in the SMP, and the market loves to target to chase, right, So trying to achieve that before the end of the year is probably something that some people are anticipating and quite excited about as well. The real question is do we touch that and then immediately nose dive or is this just a barrier we push through and carry on
going into the new year. There's certainly plenty of reasons that the market is excited about the outlook through the economy, particularly if the Fed can engineer this soft landing and start to reduce interest rates without having to panic, and do it in a way to sort of save a worsening outlook for the economy. So that's what people will People will be weighing as they as they think about those record highs and that Santa rally into the new year.
Thank you for legitimizing my use of the term Santa rally. It always sounds much more incredible if you tell us about the too. Look, of course, you mentioned the BET and the Federal Reserve there. That's one of the big factors that we're mentioning or we're on in markets. We did have a treasury auction in the US yesterday, big demand there. What does that tell us about that expectations around radcuts in the US?
Yeah, well, they're there, and they're they're pretty firmly entrenched now. And that's one of the questions I think, is that supply demand factor for treasuries. Earlier in the year, there was quite a lot of concern about just how much you debt the US was going to need to sell in order to fund the deficits, and that seemed to add to that kind of really bearish move that we saw in treasuries in say the second and third quarters.
But that seems to have swung around, and appetite seems to be there at the moment, particularly for those just shorter maturities, which is where the auction's focused. Yesterday, you know the FED bets are already quite keenly priced. The market is looking for five or six over the course of the year. The Fed says we'll do three. So the market is, you know, kind of already looking for
something much more aggressive. And so whether you know that eventuality can play out, and whether there's still value for treasuries when yields to this low is another thing that investors will meet away and be watching the data very carefully for going into going into twenty twenty four.
Okay, Paul Dobson, our executive editor for Asian Markets, thanks so much for joining us the details of some of those market moving stories as we move towards the final trading days of the year. Now, China's BYD is poised to surpass Tesla as the new worldwide leader in fully electric vehicle sales. It'll be both a symbolic turning point when it happens for the EV market and further confirmation of China's growing clout and the global automotive industry. It's
a subject of today's Bloomberg Big Take. Katrina Necklace joins us now for more on the story. Katrina, great to have you with us, So BYD looks to be ending twenty twenty three on a high. When will we actually know whether the Chinese automakers are pass Tesla?
Yeah, hi there, so we'll actually get those details in early January, probably the second of January, when both BYD and Tesla will release their December sales figures, which will also also be the fourth quarter sales figures. Analysts that track elon Musk Company expect it to shift about four hundred and eighty two thousand cars in the fourth quarter, and that is not going to be enough to surpass BYD at this stage, even though we do expect Tesla to get a bit of a late boost from a
revamped Model three. And you'll also probably remember it launched this stainless steel clad cyber trunk which began deliveries in late late November.
Rather but still probably enough, not.
Enough to retain the title of the world's number one selling electric car maker. And you know, it's really quite an extraordinary rise for BYD. It's annual sales are expected to come in at around three point one million units. That actually is enough to catapult this Chinese car maker into the top ten car sellers globally, not just for electric cars, But for any sort of cars, you know, it's still a.
Long way off.
You know, world leaders like Toyota, which you know, just as an example, is expected to sell about ten point seven million cars in twenty twenty three. But considering now this Chinese car maker who is taking on the Japanese and European legacy giants, and it's the only Chinese car maker to be doing this, it's really something.
Yeah, it certainly is. Now, Tesslain BYD have taken quite different approaches. How have BYD you managed to get to this point? How have they managed to push up their sales to this extent.
Well, one of the quite unique things about BYD is that it makes its own batteries. Many people don't know, but Wang chong Fu he started BYD back in nineteen ninety five, and back then it was actually a battery maker. It was the first Chinese lithium supplier to Motorola and Nokia back in the early two thousands. And you know, he used to actually joke back in the time that BYD stood for bringing your dollars because back then the company was selling batteries mainly to overseas clients and they
were paying in US dollars. It actually stands for build your dreams. So the fact that BYD makes its own batteries and now it also makes its own chips, that has shielded the company from a lot of supply chain qrunches over the years. Remember back in twenty twenty during COVID, we had a worldwide shortage of semiconductors and that snarled a lot of automakers. They couldn't get the chips that
they needed to make their cars. BYD was largely you know, shielded from that because it actually makes its own chips and its own batteries. Another thing that's really put BYD in the you know, prime position where with regard to where it.
Is now is its range.
You know, has always played up the very top premium end of electric cars, whereas BYD has electric cars all along the price points. So right down at the one end you've got the budget Seagull cheap electric compact at retails for about ten k I think, and that goes right through up into what they've called the Yungwe sports utility vehicle, which costs around one hundred and fifty.
Two thousand dollars.
So you know, wherever you are, you know, in the if you walk into a showroom, you've got a full choice of cars when it comes to BYD Electric ones.
And also it's good looks.
I mean, you know, back a few years ago BYD was really selling quite boxy, unattractive looking cars. But in twenty sixteen it hired this guy called wolfling Egger as their chief design chief, and he was previously with Audi and Alfa Romeo. Over the years, it's also lured away some other international executives, including for Rari head of exterior Design. So now they cans look really good as well.
This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business app, and Bloomberg dot Com. Our flagship New York station is also available on your Amazon Alexa device. Just
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