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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. Straight Ahead on the program, corporate earnings and Focus. We'll look ahead to results from the jetmaker Boeing and shipping giant ups. I'm Tom Busby in New York.
Him Carolyn Hetge here in London, where we're charting the potential rise of British banking ahead of some key earnings reports.
I'm dek Prisner, looking ahead to next week's Brick Summit hosted by Russian President Vladimir Putin.
Let's all e struly head on Bloomberg Daybreak Weekend on Bloomberg eleven, TREEO, New York, Bloomberg ninety nine to one, Washington, DC, Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Sirius XM one twenty one, and around the world Bloomberg Radio, dot Com and the Bloomberg Business.
A good day to you. I'm Tom Busby. We begin today's program with the troubled aerospace giant Boeing, the company making headlines for all the wrong reasons of late a crippling month long strike, mounting losses, layoffs, investigation since the safety of its aircraft and more. And amid all that, Boeing officially reporting its third quarter earnings this Wednesday, although some of those numbers were released last week. For more and what we can expect, we're joined by George Ferguson,
Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst. George, thanks for joining us well before we talk about what's wrong at Boeing and maybe how to fix it, what do you expect to see from the Q three earnings this Wednesday?
Yeah, I think we've already seen I think the most important part of Q three earnings, and that was when Boeing disclosed their cash balances and they and cash use for the quarter. Right, So during the quarter we saw a use of it's about a billion three So that was from operations I think a little bit better than
what we had expected for usage. There's going to be some capex that piles on top of that, which will you know, give us our free cash flow for the quarter again, probably something close to two billion ish in use. They were down to about ten billion dollars in balances. I think ten and a half, and so this is a company that needs about ten billion dollars around the business. So the big indicator here was that, you know, they're they're at the point where they need to raise some money.
Speaking of raising money now, they're now working on raising upwards of twenty five billion with new shares convertible bonds. I mean, is this going to go ahead? It's credit rating just above junk status? Is this what's next for Boeing?
Yeah, So I think you know, the company's calculus here is that if they're right up against the edge of what they need to run the company and they've got a strike going on, you know, obviously there's going to be well probably cast usage during the fourth quarter, so they need to go into the markets and shore up that liquidity position just to give them more leverage with the union. And so I do think it's going to occur. Right We've heard rumblings of them coming to the equity
market for up to twenty five billion. They filed the shelf offering for twenty five billion. I don't think they want to use all twenty five billion right now. I don't think they want to be I don't think they want to skimp either on what they get from the marketplace, right.
I think they want a couple quarters worth of liquidity so they can get the union back to the table and say, look, we've got a lot of staying power here, so you better be ready to go, you know, a quarter or more, you know, on this strike, which I think is going to be very hard right for the typical union rank and file. So you know, we kind of see ten to fifteen billion worth of cash raise again equity. The challenge will be that there'll be a
fair amount of dilution for current shareholders. There's about ninety billion dollars in market cap right now in the company. Ten billion dollar raise is something like eleven percent dilution, so it's pretty significant. And that's why I think they don't want to go all the way to the twenty five billion dollar mark. I think equity sort of protects their credit rating or helps them, you know, with their
credit rating, doesn't doesn't deteriorate their credit metrics. I'm sure the agencies are also concerned about the strike, so I'm not sure it gets them totally out of the woods on pressure for their credit rating, but it's definitely a lot better than them raising debt where I think the credit rating agencies we just have to downgrade them as soon as they did that.
Yeah, yeah, but and it could happen right.
Good again, I think there's still under pressure for credit ratings. The agencies have clearly been looking past current problems, right because you couldn't do a net debt to EBITDA analysis on them right now right, ebitdas quite low and their debts quite high. So the metrics are way out of whack. And you know, the credit acies are looking through this period. But the longer it goes on, the more they have
to worry about the financial challenges of Boeing. And I think the less they can look through the period and have to take some action.
Well, let's talk a little bit more about that strike. And I just want to be clear, this is just their Pacific Northwest manufacturing, right. There is manufacturing going on elsewhere.
Yeah, So this is the machinist out of the Pacific Northwest they're responsible for. They build most of the commercial programs for Boeing, Right, so they would build the seven sixty seven, they'd build the Triple seven, they'd build the seven thirty seven of those airplanes, the seven thirty seven is the most important airplane to Boeing commercial that's the highest volume. It's where they generate their cash, make their profits out of. So that's why this strike is so
debilitating to the company. They do manufacture seven eight sevens, I think their second most important commercial platform. They make them in the Carrollton in South Carolina near Charleston. That's a non union plant, so it's not affected there is you know what I've heard in the marketplaces, some of those seven eight sevens come back up to Everett, Washington and get worked a bit before they go to customers.
So we're not going to say that they're not impacted at all by the strike, but I think they have the capability to continue to deliver in decent numbers close to their targets. That's seven eighty seven during the strike, and then the defense network really isn't affected except for KC forty six tanker. KC forty six tanker is the US aerial tanker program, another program Boeing has had a
lot of problems on. Taking a lot of charges on the airframe goes down a line in the Northwest in the Seattle area up in Everett, and I think that's largely machinist in union labor, and so that's probably impacted as well by the strike, but a large portion of defense is not affected by the strike.
Affected. Wow, well Boeing's latest earnings this Wednesday ahead of Wall Street's opening bell our Thanks to George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst. We move next to the shipping and logistics company United Parcel Service UPS, reporting its third quarter earnings on Thursday. Now, UPS coming off a pretty rough second quarter after a drop in volume, will the third quarter be any different?
For more?
We're joined by Lee Clasgal, Bloomberg Intelligence Senior Transport, Logistics and Shipping Analysts. So, Lee, thank you for being here. What do you expect to see in UPS's third quarter earnings this week?
Well, I think this print's going to be a much better print that we've seen in the first half.
Of the year.
In the third quarter, revenues are supposed to be up about mid single digits, same with earnings per share. That's good news, you know, because we're seeing earnings growth again and we expect that to really accelerate into twenty twenty five and a lot of that has to do with what the company has been doing through its pricing initiatives. The company has set a number of different search charges.
It's a volume specific surcharge, whether it's you know, charging more for weird shape or heavy freight that's not really conveyable, so it adds costs for UPS. And then they're also you know, they're constantly doing you know, not constantly, but once a year they do a general rate increase or a GRI and there's one on December twenty third, that's
around five point nine percent. And we expect Historically UPS FedEx DHL, you know, they tend to heavily discount their GRIS and we expect those discounts to be a lot less this time around, just given all the labor inflation, equipment inflation that they need to mitigate through pricing initiatives.
Now that labor inflation you spoke about, they had settled avoided to strike, yes, and but it really cost them, didn't it.
It did, and you know it was front loaded, and that's something else that will benefit and in the second half, the comparables will become a lot easier for them. On that longer term contract with the team serves, So that is good news, and you know, now they know kind of what their costs are going to be as it relates to labor and they can work through that. And the company has been doing a lot of different things
in terms of increasing the overall productivity. They've also focusing more on some of what they would i esteem their core business. They recently sold their freight brokerage business, which is called Coyote. They sold that to RXO and that should be a huge win for RXO because they can really take that business maybe a lot further than YOUWPS did because it really wasn't a focus for UPS management
over the years. It was more of a complimentary business that probably works better outside of the UPS.
Well.
They also made some acquisitions correct Mexico.
They do a lot of tucket acquisitions, and a lot of the acquisitions that they're doing they're trying to get kind of longer into the supply chain, if you will, So you know some of the acquisitions they've done a lot in healthcare industry. Healthcare is a is a very interesting industry from a logistics standpoint because it comes with higher margins. There's a lot of specialties that go on and I'm sure everyone remembers during the pandemic, you know,
when we had the vaccines distributed. They had to be super super cold, and you know, those kind of services cost a lot more money than sending an envelope overseas, and therefore it usually comes with higher margins, so it's usually it's a very good business. And UPS and FedEx are also looking at, you know, a step down from the enterprise market, so the small to medium sized shipper,
which tend to have better margins as well. So UPS, while they're divesting some businesses, they're leaning into other businesses through these bolt on acquisitions.
Now, I want to talk go back to something you said about the search charges. Consumers are definitely pulling back on their money. Fed X has said, UPS maybe had said the same thing, that people are choosing a cheaper option ground transportation instead of air freight to save money. I mean, is that being offset by these higher search charges? And what does that mean as we head into the most important season for them, you know, the holiday season?
Yeah, so I mean we're definitely seeing a trade down effect to your point, So it maybe instead of having expedited freight or freight that or a package that has to go overnight. Maybe people are willing to take three or five days. I know personally anecdotally. You know, when I when I'm doing online shopping, there's a lot more options there, like of not having it overnight, and usually when it's not overnight, then it's usually free, and I'm always going to pick the free.
Option, always only always always.
I mean, I don't need a pair of pants that bad. I can wait a week. And so you know, you are seeing that, you're also seeing an interesting shift. So you know, we talked earlier that volumes are expected to increase mid single ditch for their domestic market and slightly
up for their international market. Some of the volume growth is coming out of China with these relatively new e commerce providers like Sheen and Timu, And that's interesting because they're kind of going under the radar with some duties where there's a deminimus rule. I know this again a little wonky now, where if the value of the products under eight hundred dollars, they don't face an extra duty.
And so a lot of freight is coming in from China because you know, without a duty, and it's a lot cheaper and kind of undercutting maybe things that people could buy here in the United States. So the Biden administration is looking at that and that that could change some volumes on a negative aspect, because it's been a good area of growth for the fedexes and eps's of the world.
Well ups third quarter earnings out this Thursday. That's ahead of Wall Street's opening bell are thanks to Lee Glasgow, Bloomberg Intelligence Senior Transport, Logistics and Shipping analyst. Coming up on Bloomberg day Break, we again we'll chart the potential rise of British banking with some prominent UK banks reporting their latest earnings. I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break weekend, our global look ahead at the top stories for investors in the coming week.
I'm Tom Busby in New York. Up later in our program we'll look ahead to the sixteenth annual Brick Summit in Russia. But first, ahead of upcoming earnings from some of the UK's largest banks like Lloyd's and Barclay's, analysts are turning more positive on the sector. Jeffries, Ubs and Goldman all bullish on British banking shares. Can the results live up to the expectations for more. Let's go to London and bring in Bloomberg Daybreak europe banker Caroline Hepger.
Tom the boost to British banking brought about by high interest rates could linger longer than thought, and Lissa turning positive on the likes of nat West and Lloyd's, citing the rewards of what they call the structural hedge, hundreds of billions of pounds invested in the swaps market to reduce sensitivity to interest rate movements. There's also a new government in town if you haven't noticed, one determined to bolster growth and bring in investment. That's something that UK
banks should be poised to profit from. Blueberg has been speaking to Lloyd's CEO Charlie Nunn at the UK Investments Summit recently. None told Bloomberg's Farsi Laqua that he is optimistic about Britain's future.
I think the really.
Important thing to get more investment in the UK is first the clarity and a clear direction of the country. And so the stability in the clarity this government's trying to give, I think is really important.
Investors want to invest.
In the UK.
They're looking at the UK relative to Europe and the US and Asia, and at the moment the UK looks like a good destination. But the first thing is clarity instability. The second thing is tell me where you're going to invest alongside us, and do it in a way that they us to bring private capital to work. We estimate that there's about forty to fifty billion pounds worth of investment per year for the next twenty years, so the government can't afford that, but the private sector.
Really can make a difference. And then the third thing is really enable the financial.
Services sector to unlock its potential to support that investment.
But Charlie, so you're one of the key components actually try and get this foreign direct investment into the country.
Where would you deploy it?
Where will it be deployed?
Well, I know the government's going to come out with their kind of industrial plan.
They're talking about eight sectors. Two examples that I think there's huge opportunity. One is around the energy transition, and the UK's already a leader around offshore wind, but floating wind, onshore wind, the growth in solar, and then some of the new technologies like carbon capture and hydrogen. There's huge opportunities to invest and that also needs a clear plan for the national grid and the electrical infrastructure. That's one
example of a huge opportunity for investment. Another's housing. So the government's made a commitment to build a one point
five million new homes. We need more social and affordable homes specifically, that's something we have called for as Lloyd's Banking Group, and we really need to get the money invested, start going behind breaking down the planning laws and building more homes and that'll be good for jobs and productivity and create an environment that we can get the skills for the investment in business.
Charlie, So, I guess a lot of people are concerned by the fact that, of course this government needs banks, as you say, to bring in private capital, to deploy some of the money to help them actually also help with the National Wealth Fund. At the same time they're trying about taxing the banks.
So how do you square the two.
Well, see taxations a matter for the government to talk about, but irrespective of whatever kind of political decision they take on that. As Lloyd's Banking Group, as an example, we've got a nine hundred billion pound balance sheet.
We do eighty to one hundred billion pounds worth of lending per year. We have two hundred.
Billion pounds worth of pension assets we manage on behalf of Britain pensioners. We need to put that money to work and then we partner with some of the biggest world's pension funds, private credit funds, and our job is to bring our expertise to channel out into the UK.
So there's huge opportunity for us to continue to deploy that capital in smarter ways that derives productivity, growth and jobs to get the UK economy to being the fastest growth economy in the G seven, which is a really bold ambition.
A number of your competitors now Western Guard players have done recent acquisitions showing basically that they really support this economy. Are you looking to do something likely as well?
So you know, we are now three years into the five year strategy I laid out and the great uses it's very much a growth strategy and we're delivering well against that. We're going to do an update in February next year on the first checkpoint in that strategy and
I'm really pleased with the progress we've made. We've done some Bolton acquisitions, but the core of our strategy is an organic growth strategy and the great thing for Lloyd's Banking Group is we are typically the number one or number two player in every segment and product we participate in, including in fact an investment in the UK project finance, infrastructure finance, housing finance, where we lead in the UK. No,
we'll look at acquisitions opportunistically. Our core strategy is organic and we're.
Feeling good about where we're going.
What do you want on pensions?
Pensions?
But also there's a lot of talk on actually risk taking and this takes years not months that the government has.
Yeah, so pensions are such an important part of the puzzle. As I said, we are a leading pensions provider in the UK two hundred billion pounds worth of pension money and I think there's a few things that really matter. The first is we need to get more of our customers money into pensions.
About forty percent.
Of the UK households aren't on track for even a basic living standard, and obviously giving them financial resilience is good for the economy, so we need to increase enrollment around pensions. The second thing is how can we invest it safely and appropriately for them in high risk assets? And actually that's more about conduct risk and fiduciary risk than it is around changing or asking the investment managers
to invest more in those kinds of projects. We need to look at how do you support customers to make.
Those choices in this country.
And that's something we're talking closely with the government and the regulators about.
You know, the new Investment Minister, how many questions do you think she'll feel from international investors about the budget? Is this investment summit a little bit too soon as we don't really know what happens to non darms, what happens aster carried interest and other questions?
Well, no, And if the first thing to say is you can hear the buzz in the room today, it's great to see the excitement about investing in the UK and have the international investors here. It's very very early days for the new Investment ministrating four or five days in. I know her ambition is to increase overseas investment into
the UK. And the kind of investors we're talking about are the big international pension funds, the big international sovereign wealth funds, the private credit funds, and they're going to be looking for good projects with a good return with a government and a country that's getting behind making those
investments successful, that's what will matter. It won't be some of the things you're talking about, and so I hope that she's really focused on engaging those kinds of organizations and then working with our financial services sector which has the expertise to put that money to work, and we're d and financial service sector in the world.
Let me say that.
That was Lloyd's Bank CEO Charlie Nunn, perhaps Keir Starman managing to calm the city's jitters with that investment summit ahead of the autumn budget. So what is driving the positive trajectory of the UK banking sector. It's something that I've been talking to our finance reporter about, Harry Wilson.
I think there's a few things. Obviously, we're now heading into a interest rate cutting cycle and people are looking at what impact that's going to have on credit demand. So obviously, on the one hand, falling interest rates aren't that great for banks as they cut their margins. But on the other hand, you could see a increase in demand among customers for loans and that can be positive in its own sense for the banks. So it's really
kind of a trade off there between those things. And then I think we also obviously we're looking out at what the new government is going to mean for the banking sector. So far it's being broadly positive, but obviously we're waiting for the budget in the coming weeks.
Yeah.
Absolutely, how's the sector performed to date? So we've just come off Wall Street Bank earnings which have been very strong. How is the sector in the UK performing well?
The share price has been very strong this year. So among the number of the banks, we've got double digit increases, you know, just to take one, but something like Bark Pieces up around about fifty five percent at the moment, Lloyd's up nearly thirty percent, that West over sixty percent. One of the laggards relative laggards is HSBC that they're less than about eight percent of the moment. But generally the sector has been having a very good year.
And so then in terms of what we're expecting to come obviously, rate sensitive stocks light banks are in focus when it comes to interest rates. The Bank of England has seen inflation four below the two percent target for the first time since what twenty twenty one. April twenty twenty one, how do you think that will affect banks, the loosening of central bank policy, the Bank of England cutting interest rates.
I think one of the things we'll probably have to be looking out for is particularly what banks they're around cost cuts. So as as I mentioned, the cuts to interest rates are actually you know, not seen that positively for banks, particularly because it cuts into their margins. So what we'll be then looking for is how banks adapt
to that. So you know, take one example, but we've certainly seen at HSBT a lot of talk and speculation around potential cost cuts as the bank looks to you know, they're coming off a period in which they've had outsize earnings. You know, this year or sorry last year was a record year for their annual profits and so now that
we're that's likely to dampen. I think the focus among the banks is probably going to be on how do we cut our expenses given that we're probably going to be expecting some kind of margin compression now in the coming years.
Also, as you say, ahead of the budget on the thirtieth of October, we did hear from some British leading bankers, including the CEO of Barclays. Are the UK Investments summited only a few days ago. Has the new government done something to bolster this sector? I mean, Barclay's was really quite positive on the UK on investing in the UK. What's the interplay between this new government and bankers in Britain.
It's very early days, so it's hard to say exactly what we're going to guess. I mean, I think everything kind of rests on the budget. Obviously, if there's some particularly harsh tax writers for banks, and that could definitely weigh under sector. I think at the moment, both sides are feeling themselves out, basically trying to get a sense of what the other's about. And I don't think as yet that there's any particular sign that they was going
to be that's harsh in banks. But on the other hand, you know, if we were to see some kind of new bank tax in the budget, that could probably quite rapidly change sentiment.
Yeah, indeed, what are you on the lookout for in terms of which of the banks might be of most interest to you?
HSBC is the obvious, I think the probably the most interesting one. At the moment, we've got a new CEO. This is going to be his first set of results. And there's an expectation now of some kind of at least minor restructuring of the business, probably some major divisions being combined, but also what they say about expenses and the future strategy of the bank. For me HSBC is going to be the one to watch this quarter. That said, I think Barkleys could be an interesting one. We've seen
in the last few days. We've seen some very strong results out of Wall Street. We've seen some very strong trading results. Barclays is the UK bank of the highest exposure to Wall Street, so this is clearly going to be good news for Barklays and you get the sense that they could have quite a good set of numbers.
Co Q threes ces ben Kata Krishnan talked about the US election posing risks globally, geopolitics posing risks globally. How do you think banks are thinking about the election outcome in the US? Is that a risk fact?
I think banks are relatively sanguine about it. You know, they tend to take the views that whoever wins these elections, that they'll adapt to whatever comes from it. Certainly, as a sector, banks have proved pretty adaptable way over the years. Whatever it's been thrown at them, whether it's market crashes or whether it's changes in governments. I think they'll probably, as they've always done, go with the flow. So it's hard to say if one outcome is particularly negative for them.
I mean, you know, as a general rule, particularly if you've got strong trading operations, a period of volatility actually turns out to be pretty good for business. If a Trump election led to a lot of market volatility, I think that could be something that the banks would obviously can well profit from.
Many thanks to my Bloomberg colleague Carrie Wilson there for talking us through the outlook for the banking sector in the UK. I'm Karine Hecger here in London, and you can catch us every weekday morning for Bloomberg Daybreak you at beginning at six am in London. That's one am on Wall Street.
Tom, Thanks Caroline, and coming up on Bloomberg day Break weekend, the Bricks Group of Nations hold their sixteenth annual summit in Russia next week. We'll have more on what to expect. I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. The Bricks Group of Nations will hold
their sixteenth annual summit in Russia next week. Let's turn out a Bloomberg Daybreak Asia podcast host Doug Chrisner for a closer look Tom.
In the coming week, Russian President Vladimir Putin will be hosting the Bricks Summit. This year's summit is especially important because new members will be added. The founders that would be Brazil, Russia, India, China and South Africa will formally welcome four new countries. They are Egypt, Ethiopia, Iran, and the United Arab Emirates. Now Saudi Arabia has been invited to join. It will be represented by its foreign minister.
It seems like Russia in particular is intent on expanding this alliance to counter the influence of the West, both economically and politically. So for a closer look, let's bring in Bloomberg Salaia Mosen, senior Washington correspondent on the US ECOGOV team, joining us from the nation's capital. So, Leah,
thank you for making time to chat with us. Can we start by taking a step back and looking broadly at bricks, is it helpful to look at this alliance as basically a countervailing force to the G seven.
That is a really interesting way to look at it. Absolutely, the G seven is knitted around Western countries. It is US led and it's been a force of power for quite a while. And these are countries that work together. They work together through the global financial crisis, through COVID and most recently through the Russia invasion on Ukraine and falling in line with US led economic sanctions on Russia. And that's the very thing that triggered a stronger bond
across the bricks and now bricks plus nations. And so there is a reactive force there. It's the US led coalition and the China led coalition. The relationship between the bricks countries, though, is interesting because they don't always all get along, but when it comes to finding a way around the dollar, they found some common ground.
We can talk about the dollar in a moment. Let's talk a little bit about the internal dynamics as we know them, or as we understand them. You mentioned kind of maybe not seeing eye to eye. On one hand, we have Brazil and India democracies, I think we can agree on that Russia China autocracies. I'm imagining that that creates a bit of internal rivalry, does it not?
Absolutely? Russia and China are running their countries very differently. There's always question about what would happen when there is an eventual power transfer at hand. Brazil and India, they have very different interests at hand. And then the countries that you name that are now joining include a lot of oil producing nations, and so those stakes are different than what the other countries have.
Yeah, both Saudi Arabia, although it's only been invited to join the UAE, which has been given membership, and then Iran, So you're absolutely right not to leave out Russia in terms of oil producers. We've got two major military conflicts happening. We've got Israel conducting war in Gaza and on the northern border with Lebanon, Israel is fighting has be Lah. How are these conflicts likely to enter the conversation.
The two sets of conflicts. On the one hand, it's kinetic war, you know, bombs and blasts going on in those two major conflicts. And then on the other hand, between the China led coalition in the US coalition. It's a proxy war through economic and diplomatic channels, and both ways are damaging. Both types of wars are just proof that the decades old global order established when World War Two came to a close has started to come apart.
And so you'll hear a lot more about global or geoeconomic fragmentation, which is coming against the backdrop of economic populism and protectionism popping up in a lot of across the globe, including the United States. We have two presidential candidates, two parties, both of them have become protectionist parties, and so we have overlapping and coinciding forces pulling apart of the global order.
The other military conflict that we have to address is the Russian occupation of your I mentioned at the top of the conversation that the summit will be hosted by Russian President Vladimir Putin. To what extent is he going to try to gather more support for what is happening Russia's intentions in Ukraine?
Oh yeah, I mean, I think having allies, particularly with Russia, the Russia's relationship with India and China is important for Vladimir Putin. Right now, China has come out a little bit more strongly in support of Russia. India is still
trying to toe the line a little bit. But those relationships have limits to them, right If you just take one example, that is that Russia was able to sell a lot of its oil to India when the US led coalition put a lot of caps on the amount of oil Russian oil that could reach markets, and Vladimir Putin after that ended up with a lot of Indian rupees and he did not know what to do with them because he cannot take that and buy the things he needs, and so it didn't have the same exchange
ability value. And we're seeing similar data come through on the Russia China relationship. But that being said, that's the technical, sort of weedy stuff. Diplomatically, it's been hugely beneficial for Russia to have a block of nations that is supporting it in various levels of strength across the spectrum.
Sole I'd like to pivot to how the dollar plays into all of this. We've talked in the past, you and I about de dollarization, Whether the dollar is really under threat right now, is the world's reserve currency. We can talk about the challenges that you may see in a minute. First, I want to listen to a segment of a recent Bloomberg News interview with former President Donald Trump where the dollar was discussed. Here is Bloomberg editor in chief John Micklethwaite.
Can I ask you a particular thing about the dollar? You've actually you've talked about wars at the New York Economic Club. You said that if you lost the dollar as a reserve currency, it would be like America losing a wall. Yeah, you look at what you're going to do in terms of protectionism arrive country is to use the other currencies and all that death is also going to lessen the dollars status as of the world's reserve currency.
If you worry about the dollar is so secure, your reserve currency is the strongest it'll ever be. The reserve currency is under threat because you have Iran, you have Russia, you have China. Once China is the one that you have to worry about because.
They want it.
They want to have the wand be the thing of power. So here's what I'm doing again. I hate to go back to it. If somebody says, and I know countries want to get out because they don't respect our leadership. They look at this guy. They say, you've got to be kidding. And she's worse than him, by the way she's I never thought i'd say this. She is not as smart as Biden. If you can believe, this is not what we had four years of this, this lunacy, and we can't have anymore. We're not going to have
a country left. Okay. Currency very important, yes, and if you want to go to third world if you want to go to third world status, lose your reserve currency. We have to have that. We cannot lose it if you'll go to third world status in this country, because you take a look at the way things are running. If a country tells me, Sarah, we like you very much, but we're going to no longer adhere to being in the reserve currency. We're not going to salute the dollar anymore,
I'll say that's okay. And you're going to pay a one hundred percent tariff on everything you sell into the United States. And we love your product. I help you sell a lot of it into the United States, but you're going to pay one hundred percent tariff. He will then follow it up by saying, sir, it would be an honor to stay with the reserve currency. I will be that will be like just playing that's not even chess, that's checkers.
Former President Trump there in conversation with Bloomberg editor in chief John Micklethwaite. Let's bring in Bloomberg Solea Mosen, who has been talking with me about the upcoming Brick summit in Russia. Sole, you've written a lot about dedollarization. Was there anything in that conversation that you want to push back again?
Well, one thing is that Trump is I mean, yeah, he's right that countries are talking about moving away from the dollar, but he's wrong that any country has actually actively abandoned the dollar. No one has. If you just I'll just give you two data points. Eighty eight percent of the world's foreign exchange transactions take place in the dollar.
The biggest rival that people talk about is China, and that's who Trump by name has said, is gunning to drop the dollar and make its own yuan the reserve asset. Their figure, their equivalent figure is seven percent of global foreign exchange transactions. So it's a very big disparity. So no one has abandoned the dollar, and it's actually hard
to abandon the dollar. There's no clear alternative. The US is so large and so deeply entrenched in the global system with its currency that dropping the dollar would be like the lingua franca not no longer being English. English is no longer the universal language. Dollar is no longer the universal currency.
Right.
That's how difficult it is.
So maybe we can call it aspirational to replace the dollar as the global reserve currency. That said, could the dollars dominance be challenged, even in a small way that could maybe provide a little bit of disruption.
You know.
One thing that's important to state is that the and US officials should not be complacent, and Trump is assuring that he would not be complacent with any discussion about countries wanting to come together and move away from the dollar, because it is such a privileged status for the US and everyone who lives in the US. Every consumer benefits from that status, and then companies and countries around the
world benefit from that too. The biggest threat to the dollar's dominance is not externally that any other country could take over or ditch the dollar. Really, the threats come from internal problems are massive debt and deficits. Some of the playing chicken with our public financing issues, making sure that no one is abusing the privileged position that the dollar gives us in the world, which is basically saying, let's not overuse sanctions, let's not overuse the dollar as
a tool. Those are a couple of the key components to remember there.
Now, Former President Trump, in the conversation with John Micklethwaite, was mentioning the Chinese currency, the ywan. Right now, given everything that's going on in China, the challenges that the economy has been confronted with, that seems like a long shot, doesn't it.
It is a long shot. China is, yes, the second largest economy in the world, but it's number two by a large, large gap. It would take numbers two, three, and four, so China, Japan, and Germany to come together and then you can be bigger than the US in terms of economic size. The other piece to add there is that China does not have the transparency and democratic values that investors have been accustomed to for eighty years
now in the world reserve asset. The reason that investors flee to the dollar and US assets in times of trouble or turmoil is because they know that it is underpinned by a strong democracy. We have independent institutions, green and fair elections, rule of law. Unless and because investors are not conditioned to expect this, it will take a lot for investors to change that. And I don't see that happening overnight.
And on top of that, the Chinese currency is not free floating. It's managed, very managed by the PBOC exactly.
That comes down to the transparency angle. It's not market forces that determine where the currency is at and what is going on in the economy. It's also still largely a managed economy.
So Leia, thank you so much for making time to help us preview the Brick Summit. In the week Ahead, Bloomberg Saliya Mosen, Senior Washington correspondent. She's also the author of Paper Soldiers, How the weaponization of the Dollar change the World Order. I'm Doug. You can join us weekdays for the Bloomberg Daybreak Asia podcast, where we dive into the stories moving markets in the APAC region. It's available wherever you get your podcast.
Tom 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 Buzby. Stay with US. Top stories and global business headlines are coming up right now.