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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, and straight ahead on the program, a big decision about interest rates from the Federal Reserve, plus a look at corporate earnings from the world's biggest sportswear company, Nike. I'm Tom Busby in New York.
I'm Caroline Hepge here in London, where we're looking at the next Bank of England decision and how fast rates may come down.
I'm Doug Prisner looking at whether China's autumn stimulus will bear fruit.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg eleven three on 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 on Bloomberg Radio, dot Com and the Bloomberg Business Act.
Good day to you. I'm Tom Busby, and we begin today's program with the Federal Reserve. The Federal Open Market Committee will wrap up a two day meeting this Wednesday, expected to issue its next monetary policy decision on interest rates, and for more and what to expect. We're joined by Michael McKee, Bloomberg International Economics and Policy correspondent. Michael, thank you for being here. It looks like all the stars have aligned for the Fed to once again cut interest rates.
Is that what you're expecting to see?
That is what we are expecting to see. A couple of data points late in the week last week raised some questions. One was the rise in the PPI stronger than expected, but a lot of that was due to just food prices. And then jobless claims came in high, but that was the week after Thanksgiving, and of course everybody took two days off during Thanksgiving week, so people
didn't file. So once you look through those things and you look at where CPI came in and the stuff that goes into the PCE report, which is the Fed's inflation measure, it looks like we're still making progress on inflation some and the labor market doesn't seem to be in terrible trouble. So the Fed has made it clear under those circumstances they want to cut rates.
Well, let's talk about inflation, because we've made tremendous progress since a high of over nine percent June of twenty one, but it seems to have stalled at four months in a row of three point three percent increase in inflection. I mean, what's behind that stall?
You're talking about the CPI numbers. And in the CPI things that had been going up went down, things that had been going down went up. It's sort of the usual volatility. There was some good news in the CPI report and that owner's equivalent rent, which is the strange way the government measures housing costs, went down to just a two tense game. That's the smallest since January of
twenty twenty one. Fed's been waiting for housing to slow down, housing prices to slow down, and that may be finally happening, and if that's the case, we should pick up steam in inflation coming down. But the FED also predicted some months ago that we would run into this, that not only would it be a bumpy path, but that we would see the year or a year rate go up because we saw it go down earlier in the year, and the base effects change just mechanically pushes it higher.
So they're not too worried about that at this point.
But you mentioned earlier about food prices, and anyone who was setting a table for Thanksgiving will tell you it's unbelievable.
That's the case. The interesting thing was this year's Thanksgiving basket. According to several economists who do this sort of thing, they go out and they price all the ingredients that you put into your Thanksgiving table, it was the cheapest in years. Actually went down in price this year. But PBI showed a big rise in egg prices this past month, and that was much of the reason that the PPI
headline came in strong. We've had bird flu exploding around the West especially, and we're seeing a lot of price increases for eggs in recent months. August July was also a fifty five percent rise like it was last month. Because of that, they're just are you know, the chickens are dying, So egg prices went up, and that's one of the reasons that the Fed and others used the core rate because there's not a lot monetary policy is going to do about the bird flu.
Yeah, yeah, that's frightening. Another consideration the labor market you mentioned, and we saw a big turnaround from October to November in ads to two hundred and twenty seven thousand. So is this something that FED expected to see. Is it's okay, now we're back to normal, or is it you know? And it looked like that was just an operation in October.
Well, we don't know, because we did have a very small job creation in October in part because of the hurricanes and the Boeing strike, and so payback was expected. And if you take out the number of jobs from both of those things, estimate the hurricane effect, you get about one hundred and fifty five hundred and sixty thousand jobs, which is kind of right in line with what we had been seeing. So yeah, you could argue it's kind
of back to where it was. We also saw a slight tick up in the unemployment rate because in the household survey a lot of jobs were lost. That's always volatile and hard to figure out, but it is the indicator that FED watches for a sign that the economy is slowing. But a rise to four point two percent in November is still below the four point four they
predicted for the end of the year. So thus we get a big rise in December will come in lower than they thought, so they look at it the labor market, and they're saying it's still strong enough.
Well.
Federal Reserve policymakers wrapping up their final meeting of the year this Wednesday, a decision expected around two pm Wall Street time. Our thanks to Michael McKee, Bloomberg International Economics and Policy correspondent. We move now to the athletic footwear and sports apparel giant Nike, the Dow component, reports second quarter earnings on Thursday, the first report under new CEO
Elliott Hill. For more on how those results may have been impacted by macroeconomic headwinds, plus an early read on holiday sales hopefully. We're joined by Kim Bassin, Bloomberg senior reporter covering sportswear. Kim, thank you so much for joining us. Let's start with what you're expecting to see in Nike's earnings this week and why.
Nike's earnings this week are going to be pretty interesting. So they're going through a transitional period right now with a new CEO who just started in October, and so far we haven't heard what the plan is, right, It's unclear where this is going to go. So it seems that investors are just waiting patiently or inpatiently, I suppose depends on the investor. But it looks like they're just
waiting to see what's gonna happen here. Right now, Nike sales have been down the last two quarters, and they are trying to figure out how to get demand back well.
Executive Chairman Mark Parker told employees back in September around the time that Elliot Hill, just before he was named the brand will quote get back to doing what we do best, that's help athletes reach their potentials. So where did they go wrong or what happened? What miscues did they do that led to you know, several quarters in a row of lower sales.
One of the biggest things that happened at Nike is that they over extended on three of the big product lines that Nike has. These are Air Force Ones, Air Jordan Ones, and Dunks. Now, these are lifestyle shoes, right, These are shoes not meant to be worn on like a basketball court or a football field or anything like that.
It's it's for the sidewalk.
And these these lifestyle shoes were real hot, like enduring and then out of the pandemic and they sold like crazy and they became I mean, these were these billion dollar product lines, right, but as trends changed over the last year, those shoes weren't selling like they used to, and Nike, back in its headquarters in Oregon, wasn't developing
new products quickly enough to replace those shoes. So now they're figuring that out the the innovation pipeline at Nike, trying to rush new products out in order to replace those shoes.
Well speaking, which Nike Direct has had some problems, right, this is their direct to consumer conduit not living up the expectations.
Right, Nike spent the last several years basically shunning a lot of its retail partners. So back in twenty twenty one twenty two, it started to release them from we'll do this ourselves now, yeah, well we got this, We'll go through our own d DC channels. That's the Nike app, the Sneakers app where you get the drops all the time,
and the Nike website. So they eliminated more than half of their retail partners, including so and they reduced shoes to some of the really really big ones, right, so like foot Lockers, one of the most important partners for Nike, and they reduced the number of shoes that were going over to foot locker, and that paid off for a while, but now they're reversing some of that and re engaging with those retail partners.
Wow.
Another misque the digital sneaker division Artifact. Right, they bought this company which doesn't sell sneakers, just sneakers in the metaverse, the digital world, and said, what are we doing here?
Even though Elliott Hill, the new CEO, has not presented a plan yet, he has given hints, right, and this is one of those hints. When it comes to priorities and what this new CEO's priority is going to be, digital sneakers are not one of those priorities. So this is a company that they bought a few years ago under the old regime that makes virtual shoes for the metaverse.
That was during the height of the non fungible token kind of thing that we had got the craze that was going on back in twenty twenty one, and so they're winding that down now. Another thing that they're doing is investing more in its outdoor business. So really quickly upon he'll being named CEO, a Nike sent a memo internally and said, we really want to invest in ACG it's called all Conditions gear. It's their outdoor business. So that's something they want to push going forward.
Is that like more than just sneakers in apparel or.
It's sneakers, it's apparel, it's outerwear, it's hiking things, camping, those kinds of outdoor products.
Now, a lot of Americans are still spending, but lower way journers have had to pull back on their especially discretionary spending. We saw lower sales growth. That's some big chains like you mentioned, foot Locker, Target, Coals, Dick Sporting Goods did okay back to school, But do you think we'll see that slow down reflected in Nike's sales for the second quarter.
Yeah, I think we will see that slow down in Nike sales. And we're we're I mean, we're seeing it across the board right now. The gap between back to school and holidays seemed problematic for a lot of retailers, even Dix Sporting Goods, which had done quite well last quarter. Early takes on Thanksgiving week have been fairly strong. So it's that it's that shortened selling time between Thanksgiving through Christmas that we're all focused on days shorter than normal.
Shorter, but indications already that this Christmas season might be looking good.
Might good, good enough? Maybe good under the circumstances.
Well, we bashed Nike a little bit, but let's talk about some of the good things that they have going for him. Very recently, they just extent a long term partnership with the NFL exclusive supplier of uniforms, practice, jersey, sidelines, apparel all thirty two teams. Similarly the NBA, the WNBA, the So these must be tremendous showcases for Nike gear and apparel.
Huge deals, and it provides this long term stability at a time where there's not a lot of long term stability at Nike. There's so many moving parts, there's so much going on. The strategy is changing as we speak. But these are huge deals for Nike. Right The NFL is so important, and I don't think they were ever going to lose that contract. Like they had to extend it, had to keep it. It's through twenty thirty eight, so.
Especially with Taylor Swift now attending.
Games, especially with Taylor Swift the Kansas City Chief games, absolutely.
Well, it's big. Nike's Q two earnings out this Thursday are thanks to Kim Bassine, Bloomberg senior reporter covering sportswear. Coming up on Bloomberg day Break weekend, we look at this week's Bank of England decision and just how quickly rates may come down.
There.
I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break Weekend, our global log ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Up later in the program we get the latest readings on the Chinese economy. But first, the Bank of England can cut borrowing costs five more times to a rate of three point five percent before running
the risk of overheating the economy and reigniting inflation. That's the assessment of Bloomberg Economics, just ahead of the Central Bank's final meeting of twenty twenty four. So where does the Central Bank's neutral rate line after policymakers reverse the most aggressive rate hiking cycle in decades. Well, for more, we'll go to London and bring in Bloomberg day Break. Europe banker Caroline Hepgar.
Tom Andrew Bailey has signaled that policymakers still believe four quarter point rate cuts next year is the most likely scenario for the Bank of England. Policymaker Swarti Dingra recently told Bloomberg that high interest rates in the UK are bearing down too heavily on the economy. The most duvish NBC member, she says that that's why the bank should
be easing policy more. But Bloomberg Economics analysis suggests that policymakers may have less room than previously thought to cut interest rates before reigniting the flames of inflation once again. As central banks around the world continue cutting rates next year, debate about the end point for monetary policy and the easing cycle is likely to intensify. That's the verdict of
Bloomberg's chief UK economist Dan Hanson. Central to the dilemma, though, is gauging where monetary policy neither restrains nor stimulates growth. That's known as the neutral rate. It's increasingly key for policymakers as they try to deliver a soft landing from the inflation shock of twenty twenty two and twenty twenty three. It's something Andrew Bailey has refused to be drawn on, other than to say that it will be higher than the near zero level of rap that we saw from
two thousand and nine to twenty twenty one. Despite the governor's silence on the issue, It's a figure that the market is watching closely too. Nicola my portfolio manager and sovereign credit analyst at PIMCO, has told Bloomberg that the implications of the neutral rate are key for the guilt market.
Look, we like guilts, you know, we've liked them for a while. If you look at what's priced in the market, you have a terminal rate of three point fifty or so, which is broadly aligned with the FED. That doesn't really make sense to me for an economy that has been a lot weaker than the US economy, where equilibri of interest rates are most likely lowered, given the fact that trend growth in the UKs is quite a bit lower than in the US.
So I think guilts are going to perform now.
I think that it's been a bit of a frustrating environment because we've been we and a lot of people in the market have been betting on the guilt out performance recently.
It hasn't worked yet.
I think the market still, you know, watching the inflation data carefully to see if this this inflation is actually happening, but I do expect it to happen, and I think this is a.
Trade that will do well.
Maybe we need a bit of patience in the near term, but I think guilds are attractive here.
Yeah, absolutely, pretty big economics things. Growth next year is only going to come in about one and a half percent for the UK. Have all the easy gains been made on French oats.
Yeah.
Look, I think if you look at oats, you know they're trading about eighty basis points over boons, a bit wider than Spain. I think it's a reasonable level that will probably hold here in that you know you're going to have some fiscal slippage from from a starting point which is a pretty wide deficit. You know, it was six percent. You know there's probably going to be about six percent this year. It should fall a bit next year, but not much. And I think political uncertainty and volatility
will remain elevated. Even if you have a government, it's going to be a hung parliament still, so I don't see much of a titaning going forward.
So we're pretty neutral here on French spreads.
I don't think this is a source of a sovereign crisis in the year zone, but I think France is probably going to settle it at a higher level versus compared to the past when it comes to spreads.
Looking towards next years. Got the election in Germany as well.
I mean, do you see a significant risk to the German outlook from that election? Not particularly, I mean I think that Germany it looks not great again with I mean, the German economy is struggling, there is no doubt, and I do think, if anything, there are some hopes that this government will engineer as somewhat easier fiscal stance. You know.
The hope is that they're going to revise the fiscal straight jacket that that prevents any physical spending in Germany, the so called constitutional death break rule.
You know, we see some potential for that.
I think that would be positive for the German economy and for the region as a whole.
But I would also.
Temper expectations because I think that the physcal philosophy in Germany remains a pretty harkish one, a pretty conservative one. So while whilst some amusing as possible, i't I wouldn't bet on a huge change here.
That was Nicola my portfolio manager and solteign Credit Alice at PIMCO speaking to Stephen Coroll and I on Bloomberg Radio. So, just how much easing can the Bank of England fit in before reaching that all important terminal rate. It's something I've been discussing with Bloomberg's chief UK economist Dan Hanson.
At the moment, UK is heading for fingers crossed, a softish landing, and that's sort of given what we've been through, that's obviously a really positive story and to sort of deliver it, it's in sort of absent any other shocks. It's in the hands of the Bank of England in the sense that it needs to bring interest rates down by enough such that it doesn't strangle the recovery and strangle the economy, but not by too much such that it reignites inflation. As you said, So that's what economists
call this concept of the neutral raid. It's it's the rate of interest, level of interest rates that neither speeds up nor slows down the economy and is consistent with inflation at two percent and the sort of economy humming along at full employment.
So we've taken a stab.
No one knows what it is and it moves through the passage of time, and it's very uncertain, but we've taken a stab at estimating it, and we think all of these things, as I say, they are uncertain. We've put out a range of between three and four percent, and I think coming into the tightening cycle, people would have said that's very high. The neutral rates probably quite
a lot lower than that. I think over the past two years we've found out it's probably higher than people thought, and that's sort of the basis of why we sort of took a stab.
At this question.
And we we think over the course of the coming year that the banking and world cup rates further down to three point seventy five percent by the end of the year. But the question, I think is how much further they can go from there, and our estimates suggests
not very far. And I think actually in the second half of the year, if the economy continues to hold up, there'll be a question amongst policymakers because there'll be a divergence of views there as well, there'll be a question about how much further interest rates fall as we move into the second half of the year. Conditioned on the idea that the economy continues to sort of hum along as it has been.
That's interesting, I suppose why not. That is all to do with inflation, surely, and we've also put out them You've put up full cast for economic growth in the UK actually reasonably robust for next year by British standards. I'll add that caveat. But it's also all to do with inflation and the stickiness of inflation in the UK.
Yeah, it is, And so the space to sort of bring interest rates down really quickly is limited because of the inflation picture over the course of the next year, which is that we think at least that inflation will remain above two percent, So that limits the scope to bring interest rates down really quickly. At the same time, we think the economy will grow a little bit faster than it did this year, so we think the economy will grow in annual terms point nine percent this year,
next year one and a half percent. A lot of that is to do with the fiscal loosening in the budget, but actually the reason why inflation is going to remain above target is also because of that fiscal loosening in the budget and some of the policies that were in it.
So there is this, there is this path down. I think it is going to be gradual, and as I say in the second half of I think the coming year, the question is going to be where do we stop absent a shock hitting the economy where the bank has to rethink everything. But I think if we continue on the current path, you know, there is this question to say in the second half about where the stopping point is.
How much does the cycle that is seeing rate cuts of course in the US and Europe effect what is happening here in the UK.
It's definitely important and the traditional thing that the traditional channel that people talk about is the exchange rate channel, but also particularly in the US, the UK is a price taker in financial market, so what happens in the US affects financial conditions here enormously. So it does matter historically though you look at the cycles of the FED and the Bank of England and they do diverge, and
they can diverge quite dramatically. But I think for both at least, if you're thinking about the US and the UK economy, sort of broadly, the base case, the consensus at least is for a softish landing on both sides, Inflation on both sides of the Atlantic is sticky. There's obviously a bit of a difference with Europe and the New Area and the ECB interest rates. Our team think
that we're going to go to neutral there. I think the market thinks that, which is on our estimates two percent, the market has rates going a little bit lower there. I think there are concerns about the economy in the EU Area a little bit more than there are in
the US and the UK at the moment. But I don't think Obviously central banks look at each other and see what they're doing, but I don't think it's going to stop the Bank of England doing what it thinks is necessary for the for the UK economy and for the UK economy, the story has been relatively as you mentioned, they're relatively sluggish growth but also sticky inflation, so that calls for interest being relatively cautious about how far you lower interest rates.
In recent days we've heard from banking and policy makers, including Swatty. Dinger has spoken to Big Television. What do you expect to hear from the Bank of England at their upcoming meeting? What do you think they might talk about?
So I think this one is I mean, the market is pricing zero in terms of moves, there's no probability of any move, so it's and we only get the minutes. So I think the thing that they'll focus on is the national the rise in employer national insurance and what that could potentially mean for the outlook. That's the thing that Atlist Andrew Bailey has said is the biggest uncertainty, at least in the near term about the economic outlook and one of the reasons why they're they're moving gradually.
So I think we've had little bits of evidence, early evidence from their decision maker panel, from the report on Jobs about how firms might be adjusting, and obviously we're getting company earnings reports as well that are telling us about how they're going to be adjusting to these to the rise in labor costs. So I think that's going to be the focus. I don't think they'll go near sort of for example, the question about tariffs and Trump.
There's no need for them to sort of step into that step into that arena yet, so I think it's just going to be very much steady as you go. This is you know, this is what we said out in November, is that We're going to be cutting gradually and I think that's going to be the story here as well for December.
My thanks as ever to Bloomberg's Chief UK economist Dan Hanson. Well, we'll have full coverage of the final Bank of England monetary policy decision, the meeting and the press conference on Thursday, the nineteenth of December right here on Bloomberg. I'm Caroline Hepget 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 latest data on China's economy. 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. This week we get the latest readings on the health of China's economy, three years after a collapse in its housing
market led to a nationwide financial crisis. For more, let's go to Bloomberg's Doug Chrisner, host of the Daybreak Asia podcast.
Tom the key numbers in China's monthly activity data will clearly be retail sales and industrial production. But remember these readings will be for November, and perhaps the more important story on the Chinese economy has been the stimulus recently teased after the Politbureau meeting. We'll take a closer look right now with Bloomberg's Tia Dmitrieva. Katya covers Asia Economics from our bureau in Hong Kong. Thanks for making time to chat with me. We'll get to the stimulus story
in a moment. I promise you can. We begin with a big picture on Chinese economic activity though for the month of November. Can you help me understand what we're likely to see in these numbers?
Yes, and it's going to be a very good snapshot of most of the economy.
You know.
This tends to happen every month or so. China will release this slew of data. So we're getting across the across the country. We're getting new home prices, industrial production, retail sales that you had mentioned, also investment numbers and jobless rate. And because that's not enough, we might also get the policy loan rate. Starting that day, there's usually about a couple day like a week window where we
might get that. It's also all coming around the same time, around ten am Monday here, and it's all for November. And the interesting part about this data is it'll capture what have essentially been two months of stimulus. So we had in September. The stimulus was really focused on monetary easing support for the real estate sector across the board, and then for households too, because we saw that mortgage rate cut for outstanding mortgages to try to alleviate and
maybe open up some spending for consumers. And then in October that was the PBOC, the People's Bank of China, and they had announced measures to boost capital markets, and so we saw markets very excited and happy about that. So this is the first full month where that will be shown. But economists aren't very optimistic if you look at the data. We do surveys with economists regularly, and the word I would use is stabilization. So not seeing
anything going into the red. I mean new home sales, that's a different bucket, but everything is just kind of steady as she goes, with a little bit of a tick up expected.
So these are these are what I would call hard economic data points. But if you look at kind of the softer economic data points, and I'm thinking in particular of the PMI data from the month of November, sentiment among the business community in China that was a little disappointing, as I recall.
Right, yes it was, and so were exports, and so that's sort of already painting this picture of an economy that's still really struggling and why the stimulus was very much necessary. But it's also kind of being used to address the underlying structural issues and those are going to
keep coming through in the data. So across the board, the economy is just kind of holding up, and we might see, you know, there there are some areas where we might see a tick up because of things like the trade war spurring more production or people getting a boost from you know, they're not paying as much on
their more so they might be spending more. But on the labor market side of things, which is the other part of the economy, we're not expecting a change in the unemployment rate, which is expected to still be about five percent. So so far it's just looking like, yeah, it's just looking like a bit of a flat line.
So I promised it earlier, and I'm going to deliver on the stimulus story next. We know the Chinese leaders have been sending very clear signals on providing new measures. We had the Pollit Bureau meeting recently and indications of what I will call an unusually strong commitment. Is that fair. I recently spoke with Stephanie Leung. She as the chief investment officer at Stashaway and Singapore, and I asked her about the messaging as it relates to revitalizing domestic demand.
Here's what she had to say.
I think the key takeaway is that Number one, the government seems to be quite resolute in terms of their will to continue to be supportive of the economy. Indeed, if you look at the language, the first time in the past few years, they actually replace some of the more restrictive language with words I prudentially manage monetary policy and stimulus policies, and I think that gives the marcut
some excitement. I mean, for us, I think the most important word, if we have to choose from sort of the announcement, is the mention of consumption let stimulus, because I think in sort of the I think traditionally or kind of from a Shi policy toolbox perspective. He has been kind of more proactive in terms of supply side stimulus, and he's not a particular fan of the demand size similars.
That is Stephanie Leung, the chief investment officer at Stashuway And we are back with Bloomberg's Katya Dmitrieva. Katya, when I think of the way in which the Chinese economy is managed, we're talking stimulus now. The GDP growth target is one of the first things that come to mind. We'll have to wait and see, obviously, is whether the target for twenty twenty four of around five percent was
in fact achieved. But what are we thinking about twenty twenty five given everything that we're hearing coming out of the polit bureau, not the official readout. I know, it's just more subtle messaging. Can we expect that this more robust policy support will deliver a five percent GDP target next year?
Well, that's certainly what economists see. They're expecting about four point eight percent, which is right in that ballpark of about five percent that Chinese policy makers have set. And what you were discussing there about the messaging from the Chinese government is so important. So far, the government has really released stimulus in sort of dribs and drabs right so concentrated in October November, but really just kind of slowly rolling it out. This was probably their most forceful
statements on future stimulus yet. And we really monitor the Chinese officials like we monitor the Federal Reserve, so every single word, you know, change, removal, tweak, really matters. And they were the most forceful since basically the two thousand and eight financial crisis. So it is likely that going into next year, they're thinking about what the target might be.
They're messaging around the target and achieving it. From what I've been discussing with analysts, it's likely to be again around five percent or four point five to five percent, and they really can't do that without stimulus, and they certainly can't do it without stimulus in the middle of a trade war.
So the other thing I want to consider in all of this, maybe the elephant in the room is China's trade relation with the US and the potential for maybe another trade war, if we can even describe it that way. We know that President electromp is threatening sweeping tariffs on all Chinese goods with sixty percent duties, and just last month, I think he vowed to impose an additional ten percent duty that was if Beijing doesn't help stem the flow
of fentanyl coming across the US southern border. What's the analysis on this from the folks that you are speaking with. Is this tariff threat being viewed as more of a negotiating ploy or are people really concerned that something may be put in place that will have a real bite.
This is such a good question and the exact question that everyone is asking, and it's a bit of both. It's very clear that Trump is targeting China, wants to target China has been very vocal about tariffs and imposing higher tariffs on Chinese goods, so that part is clear. There is a general assumption that will see some sort of tariffs, however, probably not as high as sixty percent. So I'm hearing estimates of like anywhere between, you know,
twenty and forty percent is the going assumption. And you can tell people are taking it seriously because we've already seen signs that people are reacting. Thatsinesses are reacting with front loading, so US inventories are up, port activity across China's largest ports has also picked up in the past month, basically since Donald Trump was elected. We're likely to continue to see that throughout early next year.
One of the things that I have to ask there are a couple of threads here that we can tease out. One is the response that Beijing has already undertaken restricting some critical materials for technology. There's this perhaps investigation into Nvidia, But can you help me understand how China may respond in using its currency. There was a report that I that I came across that Beijing is considering allowing that you want to weaken in response to a potential trade war.
Is that something that's really being discussed.
Yeah, they almost officials almost don't have a choice. Earlier this year, Chinese officials were really adamant and really vocal about wanting to keep the yuon strong. However, in a situation when you're in a trade war and suddenly your main source of growth, so China has relied very heavily on exports and industrialization this year over the past year
to really drive growth. If that's at risk, then they don't really have a choice other than to lower rates and kind of let the yuon get weaker and then offload those exports elsewhere. Now, that's going to create a lot more a lot more pushback in emerging markets and in Southeast Asia countries where there is already kind of a growing pushback to Chinese imports. But there's kind of
no other way about it. You can't maintain a strong currency without, you know, structural reforms unless they unless we suddenly see an about face in the next year among officials where they start focusing on letting the consumer drive growth. They need they need to keep exports alive, they need to keep manufacturers alive.
We were talking a moment ago about the overall Chinese economy, and I think you and I can agree that one of the bright spots has been the export economy, which these proposed tariffs would target immediately. And I'm wondering whether Beijing is perhaps sensing that it's in a bit of a maybe a more vulnerable situation right now and that perhaps the US has the upper hand. Is that an overstatement?
No, I think that's right, and we have seen, you know, the examples you just mentioned with the ban on some minerals and the investigation into Nvidia. They're sort of and paired with the stimulus. I mean, these all came within
twenty four hours of one another. And the picture that paints for us is the way that you know, it shows the structure shape of how China may react in trade war two point zero versus one point zero, and that is a bit more of a conciliatory approach, and that is one where they're going toe to toe with As one analyst told me, you know, if it's basically China saying, you know, if you're going to play tip for tat, like we're going to play as well, but
it's not taking the most aggressive action, not going back to the sort of like wolf warrior diplomacy days.
This is a very delicate situation and on the economic side, Katya, thank you so much for joining us and helping understand the nuances of not only the Chinese economy and what is happening at the moment, but the trade relations between Beijing and Washington. Thanks for having me on that is Bloomberg' Katya Dmitrieva. Katya covers Asia economics from our bureau in Hong Kong. I'm Doug Krisner. You can catch us weekdays
right here for the Daybreak Asia podcast. It's available on Apple, Spotify, or wherever you get your podcast.
Tom, Thank you 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 Buzzby. Stay with us. Top stories and global business headlines are coming up right now.