Bloomberg Audio Studios, Podcasts, radio News. 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, data on inflation and economic growth this week, and we take a look at the US cruise industry earnings from the world's biggest cruise operator. I'm Tom Busby in New York.
I'm kunin Hepger here in London, where we're looking at the chocolate industry faced with sour in coco prices.
I'm Brian Curnis in Hong Kong. I'll take a look at the upcoming results from YD the business, the expansion plans, and of course the geopolitics.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg E Loove Them three own New York, Bloomberg ninety nine to one, Washington, DC, Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius XM one nineteen and around the world on Bloomberg Radio dot com and via the Bloomberg Business App.
Good day to you. I'm Tom Busby, and we begin today's program with the third and final reads out this week on US economic growth and inflation, the core personal consumption expenditures for the final quarter of twenty twenty three, and we'll talk about what that means for the FED. For more, we welcome Annawong, chief US economist for Bloomberg Economics. Anna, thank you for being here.
Hi, good to be here.
Well, before we talk about what you expect to see from Q four GDP and Q four PCE, let's begin with your reaction to what the Central Bank did this past week, holding rates unchanged, that's the fifth meeting in a row, while maintaining the outlook for three rate cuts this year. What do you make of that?
Well, that met our expectation because we thought that Powell himself is the medium voter, and as long as Powell is of the view that three rate cuts is still appropriate for this year, I think he will carry most of the FED board members with him. I thought more significantly, though, is that they revised up their view of what FED
funds rate should be beyond twenty twenty four. And basically the message there is that they believe that the underlying neutral rates in the economy, for you know, for the layman. What that means is it's the interest rate that should prevail in the long term consistent with two percent inflation. The SEP shows that the Committee believes the neutral rate has risen and a lot of the dots in the dot flot have moved up to about three percent for
the neutral rate. So I think that's significant because it means that in the next year or two we would see less rate cuts on the whole.
So, despite some disappointment about a recent rise in inflation, overall, this looks like a pretty upbeat outlook for economic growth, labor market, and inflation.
Yeah, I mean, I think that the Fed still believes mostly that inflation could return to two percent without generating a lot of losses. On the employment side, they revised down the unemployment forecast for this year from four point one percent last December to four point zero percent, and unemployment rate is already at three point nine percent. I think they basically see just a very minor deterioration in the stabilizing on that level.
Meanwhile, we heard from FED Chair J Powell last week after Federal Reserve policymakers stuck to their path of interest rate cuts at least for now, after hitting a bump on the road to low and steady inflation.
We believe that our policy rate is likely at its peak for this tightening cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. The economic outlook is uncertain, however, and we remain highly ten of two inflation risks.
However, Bloomberg opinion columnst Mohammad l Arian said the Fed should push out their rate cut timeline.
We're living in a world where the supply side isn't flexible enough, and you get almost every week you get indication of changing supply chains, you get indication of the label of the tightness of the labor market, you get indication of an energy transition that's not going as well as people want it. All these things mean the supply side is less flexible, and the underlying inflation rate that is consistent with the economic well being for now is somewhat higher than two percent.
And former New York Fed President Bill Dudley says the Fed is sticking to its two percent target.
We still think minetary policy is tight. We still think we're going to get more confident about getting inflation down to two percent, and so we still think we're going to cut rates this year time. He's uncertain, and he said over and over again, it depends on the data.
Well, the Fed always says it is all data dependent. And right now, let's get back to the data we're going to see this week on fourth quarter GDP final read and also PCE. What are you expecting to see? Is this going to be good news?
Well, first of all, Tom, the GDP revisions does not just end on the third revision. They go on for years and years and years until it could be revised even five years. But for the third revision, which we are going to get next week, we're expecting the fourth quarter GDP to be little a little change at about
three percent. But more interestingly is that they are going to be releasing the information the quarterly change for gd I. And in the past two years, gd I has been running lower than GDP growth, even though theoretically they are measuring the same things. So on a year over year basis, gross domestic income actually was running negative as of the fourth quarter of last year in contrast to the pretty
robust increase in GDP growth. So I think we would be paying a lot of attention to that because from the perspective of the economists too, would be deciding on the NBER Business Cycle Dating Committee on whether there is a recession. It actually is the average of GDP and GDI that matters.
Now.
The FED has six more policy meetings this year, the next one and April thirtieth may first. Based on what we know now, and we won't know this latest figures for a few more days. Is it still too soon to expect one of those three rate cuts? I mean, is June meeting a lot more likely for that?
Yeah, June is our baseline, and I think June is the baseline for the market as well. So I think the crucial assumption of that is, as you said, if things evolve as we see now, So if unemployment rate barely rises, you know, stay in the three point nine to four point zero zero range. If core PCE inflation comes in, you know, at zero point two to zero point three percent per month in the next couple of months, I think we will get a June rate cut.
Wow.
Well, a lot to look forward to. Well, our thanks to Anawong, Chief US economist for Bloomberg Economics, We now turn to the state of the cruising industry and the latest earnings out this week from the biggest of them all, Carnival Cruise Lines. And for more we welcome Brian Egger, Bloomberg Intelligence Senior Gaming and Lodging Analyst. Now, Brian, let's start. There has been a stunning turnaround in the cruise market from the depths of the pandemic just a few years ago.
How remarkable has this turnaround been.
It's pretty remarkable. So the industry was basically in a state of suspension from an operating perspective from during twenty twenty and twenty twenty one. Now we are back to essentially pre pandemic levels of both deployment and acmancy. So we've kind of seen a full turnaround. And the revenue yields, which are the key metric for Carnival, last year, they were slightly above what they were in twenty nineteen, so we're kind of gone full circle.
And what are the driving forces for this demand? I mean, is the cruise industry? Is it pricing, is it just marketing? Is it the people just have got to get out on those ships.
Certainly, we left the pandemic with a lot of pent up demand. There were some of that revenge travel phenomenon going on, but beyond that, you ei, there's still we've seen this across the industry's recover which include lodging, a strong sustain appetite among North American consumers and global consumers for a leisure travel combined with a relatively moderate benign pace of supply growth in the industry. And that is a recipe for what has been a very nice pace of yield growth recovery.
And how has the industry changed, How have the ships changed, the procedures, the safety protocols.
Safety protocols were big focus during the pandemic. A lot of the voice civic restrictions, vaccines, masking, et cetera. Those are now kind of in the past. But we're left with an industry that's reattuned to some of these protocols. And at the same time, you know what's happened to companies like Carnival, they also during the pandemic sold less
efficient ships have also since then introduced new capacity. So the industry from a fleet perspective has fairly current stated the art capacity and certainly you know, good operating efficiencies, cost efficiencies that really originated during.
The pandemic, and these ships are bigger than they've ever been. They keep getting better, yes, more amenities, roller coasters and surfing simulations I mean, and yet they're able to pack these cruises in right.
Yeah, so these ships are more efficient from a fuel consumption and operating perspective when they run full. But we've definitely seen the combination of strong bookings and moderate supply growth low single digits for Carnival the next few years translate into good book and you do have on the cost side, of course, some pressures from cost inflation and
advertising dry dout costs, So there are some pressures. There's always the geopolitical risk, for example, the conflict in the Middle East, you know, removing some capacity from the Red Sea area, small part of their capacity, but generally speaking they are now on a very attractive trajectory.
Yeah.
Also Haiti just very recently, Yeah, and they had redirect ships away from a popular port there. Well, then let's talk about Carnival and what you expect to see this Tuesday.
Sure, so our overall forecast for this is actually going to be for their first fiscal quarter which ended February twenty ninth. That they're on a November fiscal year the February quarter. You know, we kind of go by the consensus thinking as a benchmark, which is for revenue up twenty two percent. The components or that are the revenue yield metric is up about sixteen seventeen percent based on their guidance, and capacities at four percent. So you kind
of add that together. You've got you've got pricing, you've got low twenties kind of revenue growth based on consensus guidance.
And how does Carnival compare to some of the other big players. There's Norwegian, Royal Caribbean, Disney of course.
Yeah, so I mean the way I kind of think about how they compared to the rivals is when you look at twenty twenty four overall, how does their revenue yield growth expectation compared to those And you know, and what we've seen right now is preliminarily Carnival expecting eight and a half percent yuel growth. You know, that's pretty similar to like Royal Caribbean actually just raise their guidance for reals after they report of the quarter. So now
it's seven and a quarter percent roughly a midpoint. So they're all kind of they're similarly looking for that mid to high single digit rate of revenue yield improvement on top of twenty three, which is a year where we basically reverted back to pre pandemic levels of revenue yield. So it's growth on top of that, which is which is very healthy.
And for Carnival now we have we're in Q two right, spring has sprung. Everyone's planning their trips for either spring break or of course is this the time that they're going to see their big bookings.
So the key part of the booking season, it's called the wave season and the cruise industry both as a pun on oceanic pun, but also because that's like the crest wave in bookings we see that typically happens between years and kind of like January February, all indications from other companies as well as that booking season has been robust.
Wow well Carnival Cruise Lines reporting this Tuesday and our thanks to Brian Egger, Senior Gaming and Lodging analysts at Bloomberg Intelligence and coming up on Bloomberg day Break weekend, the challenges for Europe's chocolate industry just ahead of the Easter holiday. 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, earning this week from some of China's biggest banks and that nation's biggest ev maker. But first, it's one of the biggest events of the year in the chocolate industry. Easter means big business in the UK alone, Consumers will spend as much as four hundred and fifteen million pounds on festive chocolate this season, but this year, soaring cocoa prices are threatening to push prices even higher. So what
will this mean for Europe's confectionery sector. Well, for more, let's go to London and bring in Bloomberg Daybreak europe banker Caroline hepgar Tom.
A difficult harvest season for crucial West African farmers has seen cocoa prices shoot up by more than one hundred percent this year, raising costs for the world's chocolate makers that risk being passed on to consumers. The record breaking rally has sent Coco's a fourteen day relative strength index
above seventy percent. This is a signal to some that prices may have jumped too fast, but that has been the case several times since January, and cocoa prices are still climbing higher now ahead of one of the biggest days on the calendar for chocolate consumption. Global supplies are stretched, with farmers skeptical that incoming rain can make up for a season decimated by hot and dry weather in the
most important cocoa producing regions. Bloomberg's opinion columnist Javier blast says that he's been stocking up on sweet treats in anticipation of a shortage.
I'm a stockpilings on chocolate because we eat quite a lot at home, must confess that. And the price of coco is app one hundred and fifty percent. You make chocolate out of coco, a bit of sugar, a bit of milk. Prices of chocolate on the on the supermarket, it's gonna go up and go up quite significantly over the next six months. The market for coco is facing a structural deficit. Supply is well behind the demand. Probably the gap between demand and production is going to be
in twenty twenty four. The largacy has been at least in sixty five years. So we have a problem and the only cure for the market right now is higher prices, or we have going to see a bit of higher prices in the supermarket. So I'm just anticipating from that.
That was Bloomberg opinion columnist Javier Blast sharing his perspective there now. He might just be right to suggest that things will get even worse before they get better. In the Ivory Coast, the world's biggest cocoa producer in the world, cocoa farmers are busy cleaning their plantations, applying chemicals and pruning trees in preparations for the mid crop harvest, clinging onto the hope that better weather can make up for
the losses that they've seen. We've been covering this story closely at Bloomberg, and our analysis has shown that the coco crisis is being felt the most here in Europe, which is also the world's biggest chocolate consuming region, because of new sustainability rules which are threatening to make the
shortage of beans even worse. EU regulations aimed at stopping products which could harm forests iedforestation from being sold in shops here could make it even harder for chocolate makers to secure the supplies that they need, and it looks like the jump in prices is here to stay. The International Cocoa Organization projected that global cocoa supply deficits would increase by four hundred and five percent in the years ahead.
This as climate change only heightens the threat to cocoa production. Now, all of these challenges in production are likely to have a knock on effect on consumers hoping to snag a sweet treat this Easter. Manufacturers could be forced to increase prices and shrink production, as well as diversify away from chocolate products. In retail terms, there's set to be little price difference actually between some of the luxury chocolate products
and their traditionally more budget friendly counterparts. Is something I've been talking to our Bloomberg Commodities reporter Mumbig Guitar About and retail reporter Helen Chandler wild Now. I began by asking Mumbie how bad the situation is for coco producers right now?
I think, let's first a later base here. In just less than three months, cocoa futures have doubled. So we started the year at four thousand dollars a ton, and right now we are above eight thousand dollars a ton, and all this is because of the cocoa production issues that we have in every Cost and Ghana. These are the two biggest coco producers.
In the world.
They produced two thousand of global production, so any declines in those two countries will be felt globally. Ghana alone will have a drop of about twenty percent, and so we livery cost and we are seeing that in the export and arrivals data that we are getting. So production has been pretty disappointing. I don't think the industry expected it to be this disappointing, and that's why we are seeing the market rally this much. Because of that, we are going to have a third year of coco deficit.
And we love our chocolate too much.
Yes, absolutely, Why have we seen such a radical move and prices? Is it all around weather?
Yes, it's all around weather and also diseases. But also we know that farmers have not been well paid for a really long time. If you're not well paid, then you don't have the incentive to invest back into your farm, and so they've not pretty much taken care of their farms or invested in fertilizers, Okay, because I needed to keep the diseases at bay. But also the weather change has made it incredibly difficult for those trees to remain resilient.
So that's the baseline that producer prices are going up, farmers prices are going up. How much more expensive do you think a chocolate is going to get for the consumer?
So the chocolate that you're currently seeing on the shelf was probably manufactured sometime towards the end of last year when prices were still very low. So we may see some increments in chocolate prices given just the rally that
we saw last year. But I think more pain will come towards the end of this year when you're buying your hallow in chocolate, when you're buying your Christmas chocolate, and next year's Easter, because we have to take their account the doubling of prices just between January and match. So as much as it will be expensive this time, I think the pain will be felt much more towards the end of the year.
And then also you've written about how perhaps the effects of the shortage are going to be more pronounced in Europe than elsewhere why.
And Europe tends to be very responsible when it comes to be to its imports. So they have this European deforestation law that's going to make it difficult for Importance to bring in coco. They have to make sure that the cocoa that they bring in was not grown on deforested land. Now, to make sure and to prove to the ear that it wasn't grown on first that land, they need to map every single farmer. So every shipment that arrives at the EU ports has to be traceable
back to the farm. If you can't trace it back to the farm, you can't bring it to the EU.
Okay, So there's a price to that to consumers then, isn't there? Yes, in terms of quality standards I suppose and traceability. Do you think the cocoa futures are likely to stay high?
Then?
And if you say the feed through to consume prices hasn't actually yet hit, what about the future's market.
Because the future market actually looks at deliveries in the future. I think we I wouldn't say whether we've picked or not. I don't have the crystal ball. It's had to see. But in such a volatile market will probably continue to see the wild swings that we've been seeing, so we'll see another shoot and then we might see a correction at some point. But if these shortages persist, it's going to take some time before these coco prices come down.
Okay, and then what does it mean. I suppose for others in the manufacturing chain along.
The line right now, they are trying to increase the prices for your chocolate just so that they can absorb that part of the cost, and consumers can absorb part of that cost. But they're also paying so much for coco lasts. Yesterday we ran a story about grinder in Asia who's paying a premium just to get the cocoa beans. So there's a scramble among manufacturers for who can pay more for cocoa, particularly in markets that are more liberalized.
But you may start to see some manufacturers push to you some white chocolates or chocolate, it's more nuts and fruit so that they can try and bring down their coco consumption.
Interesting. Let me bring in Helen Chandler World now to the conversation. So we've heard a little bit about the cocoa issues and prices having sowed in recent months. How expensive do you think chocolate is going to get for the end consumer, Helen See.
I think, as we're just here, there will probably be a slight delay on prices increasing just because of the amount of time that takes actually make the chocolate, which does take a little bit of time. But we have seen that already. There was a bit of research in the growser that showed that a lot of Easter eggs at the lower end of the market were already fifty percent more expensive than the work last year, which just sort of rise almost about the same amount as Coto prices.
What do you think is going to happen then to the marketing of I mean, we started talking about chocolate for Easter, so in terms of you know, affordable versus luxury, what does the market look like then.
This Easter well, and the price increases I think will actually be predominantly in the lower end of the market where there's like almost no profit margin in the first place. Whereas I spoke to some more luxury producers, no telling me. We've always paid our farmers a lot of money, so there's always been that extra bit of margin there, so the price increase won't be quite as much, but we're seeing, like you know, some Easter eggs and sort of lower
end of the market like Cadbury. I love it, it's delicious, but some of those eggsert now ten pounds, which is quite a lot of money compared to what they used to be, So then it might feel a bit worse it to spash out twenty pounds and get something that's about a thousand times nicer.
So do you think a more expensive chocolate then is now the new norm? As the industry accepted.
That well, I was speaking to some people who are making Easter eggs really at the top lux end of market where they are charging eighty or ninety pounds for an Easter egg, which might sound crazy, but if things are generally more expensive anyway, then ninety pounds on the Easter egg is much cheaper than going on holiday, which might be totally out of your budget. But having that little spurgeon an East egg might be just a nice little treat.
Absolutely. How important then is that kind of marketing factor in terms of the coco producers and b the big push I mean, is it all around certain dates in the calendar? Is obviously a hugely popular item in Europe.
That's usually mainly on the manufacturer side of things, having a calendar of events. So we started with Christmas, then we had Valentine's, then we had Mother's Day, then we had Easter. So the idea is to have chocolate for every single event that we have across the ears. As long as we have an event coming up, you're more likely to buy chocolate as a gift.
Helen, what are you detecting then in the trends this year for the chocolate distributors, Yeah.
There definitely is a move towards kind of differentiating a product a lot more. I see even in my own local supermarket, there's fear of the traditional miniac or moltias as Easter eggs. Now even Cabria has started doing slightly fancier ones with different ones, and then higher up the bracket they get extremely decorative and beautiful and it's always a thing you know, you can take a picture of and shout out social media which sort of does its own marketing as well.
So that was Bloomberg reporters Helen Chandler Wild and Mumbi Guitu speaking to me about the situation for cocoa farmers, producers and the retailers here in your my thanks to them. I'm Caroline Hebge here in London. You can catch us every weekday morning for Bloomberg Daybreak. Youre at beginning at six am in London. That's one am on Wall Street. Tom.
Thank you Caroline, and coming up on Bloomberg day Break weekend. Earnings this week from the biggest EV maker in the world's biggest EV market. Also earnings from China's megabanks. I'm Tom Busby and this is Bloomberg. Good day to you. This is Bloomberg day Break weekend. I'm Tom Busby and New York with your global look ahead at the top stories for investors in the coming week. Chinese megabanks set to release earnings this week amid sluggish borrowing demand, a
stalled property market, and a stagnant overall economy. We also get the latest earnings from Chinese ev giant BYD this week, and for more on what to expect, we turned to Bloomberg Daybreak co host Brian Curtis.
Tom. The results come at a critical juncture in the EV industry, both in China and around the rest of the world. BYD recently overtook Tesla as the number one seller of EV's, but it's having to cut prices and it's facing geopolitical challenges for its business outside of China. We thought it was a good time to crunch through some of these issues as we look forward to Byde's numbers and its commentary. Joining us now in our studios in Hong Kong is Bloomberg reporter Linda lu who covers
China cars. So Linda B. White's stock is up more than fifteen percent or so over the past month, but it had declined for the previous six months. A lot of factors are at play in this, but let's talk first about what we might see in sales and profit numbers.
In the next week.
Yeah. Byde is actually doing really well in sales. They've broken records, and that shows a trend of China's growing EV markets. But the unfortunate thing is part of that sales was probably propelled by discounts that bid has had to do due to such an intense competition in this market. So despite a record sales in the fourth quarter of last year, their net income actually fell compared to the quarter before that.
Yeah, the price war seems to be hurting margins for all of the EV makers in China. I'm curious in a sense is that good or bad for BYD, particularly from a standpoint of market share.
So BYD is still very dominant in the market. They probably account for around thirty percent of all of the evs and plug and hybrids sold in this market. But overall the growth is slowing. You've got a weakening economy in China, and there's more than one hundred brands that's all competing in this market, and some of them are
trying to differentiate themselves with better technology advanced assists. The driving feature is that BIDS isn't so strong, and so they're also investing a lot to catch up in technology features.
So this move to a mass market lineup, I'm curious the impact of that. That's lower retail prices. It might suggest to some that the company is kind of shooting for increasing its market share and just going for a lot of volume.
That's exactly right. Some of these new lineups have pricing that's probably half of what these models we're selling a few or a couple of years before. Obviously, that's a really good thing for consumers.
Now.
If you're in the market today looking to buy a car. You're getting a great deal. But we've heard previous owners that bought a BYD car a couple of years ago complaining that, you know, they bought a car at a higher pricing with features that are not as new and flashy as the cars that's on the market now. So I think BYD is having to consider the sustainability of such a strategy over the long.
Bid has some presence in Europe, and the cost structure there is kind of interesting, and it's been more or less locked out of the US market. And we've been reporting at Bloomberg that BYD is now looking into the possibility of building a plant in Mexico and then perhaps making cars there. It'll take some time for that to happen, and then be able to use the MCA to get cars into the United States and avoid the high punishing
tariff levels. What do we know, if anything, about any progress on finding a site and thinking about building a factory in Mexico.
That's a strategy that's taken by quite a few Chinese manufacturers now, not just BYD. We've heard that Tesla is also encouraging its Chinese suppliers to follow along to Mexico.
When the plants is built there. I think BYD will really have to consider quite a few factors over where to set up a Mexico That will obviously have to consider what kind of incentives the local government will give, whether it is a good supply chain that can be also set up in the local area to make it really cost efficient, and ultimately I think a lot will depend on the US policy in the future. Trump has
talked about, you know, closing loopholes. A lot of things to consider before they ultimately make that huge investment into building a plant.
On another front, the company is looking to introduce some new models in Japan and will expand its dealership there, but that's very tough competition there. The market is saturated by hybrids and domestic brands. What's the overall strategy for BYD in Japan?
Japan is a very interesting market, especially challenging for BYD. Like you said, it's got a lot of strong incumbents. You know, some of the world's biggest automakers are there, like Toyota, and the market preference in Japan is for hybrids,
which BYD doesn't have that strong an offering. They're really hoping to educate the customers in Japan, maybe hoping to really tempt them to try out EV's and maybe plug in hybrids to show that, you know, there are these even more environmentally friendly cars that could be cheaper to run if you just power them on electricity rather than hybrids which is still running on gasoline.
Yeah, so maybe some tough sledding there. I mentioned Europe earlier. We're still waiting on that probe looking at electric vehicles coming from China. What do we know about when do you expect that.
There's a lot of questions about when the investigation may wrap up and the result from that. I think the consensus is that there will probably be higher tariffs against auto imports from China, especially on evs. There's a whole range of numbers, anything from another eight to fifteen percent on top of the about ten percent now that Chinese EV's face when going into the European market, which will make it probably prohibitive for the Chinese manufacturers to enter
in the market. So we see in lbid as trying to localize production and the EU, you know, setting up factory and hungry to try to head off Linda.
Thanks so much for joining us. Linda lu who covers China cars for Bloomberg. I'm Brian Curtis, along with Doug Krisner. You can catch us every weekday here for Bloomberg Daybreak Asia, beginning at eight am in Hong Kong and eight pm on Wall Street.
Doug, Thanks Brian. The big banks in China will be reporting earnings in the coming week.
Now.
We know that government has been struggling to revive borrowing demand. The property market keeps slumping, consumer confidence remains near a record low. Needless to say, it's not a great environment if you're a bank. For a closer look, now, let's bring in Bloomberg's Greater China correspondent. He is John Liu, and he joins us from our studios in Beijing. One of the things that I think is important to begin
on John, is the conversation around loan demand. Even though are at historically low levels in China, there just doesn't seem to be a lot of demand for credit. What's driving this? Do you think property?
There used to be a lot of demand for money for mortgages. People are not buying homes, so that has fallen way off. There used to be a lot of demand from property developers for loans that they would use not only to build their properties and their real estate, but also to buy land that no longer exists because many of those property developers are now struggling to pay off their debt, and so they are not in an expansionary mode. They are retrenching, and that has really hit demand for loans.
Last week, we know that the big major banks in China maintained their lending rates. These are the loan prime rates. I think that represent kind of the real loan for the real economy. Not a surprise that these loans were held steady since the PBOC the central Bank decided to hold steady some of the key policy rates that feed into the loan prime rates. But I'm wondering, do you think regulators feel as though they're pushing on a string
no matter how low they cut interest rates. There's really not a way of addressing the problem with sentiment that would then go to what we were just talking about with demand.
I think that is part of the problem. You put it very well in the sense that what can the central bank do. The central bank can cut rates and raise rates, and cut reserve requirements and raise reserve requirements. They can't really do much in terms of getting people out and spending or borrowing or companies investing, and so they are trying to do what they can. The other issue, of course, is if you keep cutting interest rates, it is going to affect the banks adversely in the sense
of their margins. The amount of money they make on loans is going to shrink and compress, and there is an element of having to consider the health of the financial system as China is trying to do what it can to get people spending companies investing in.
Well, I'm glad you bring up the subject of net interest margin because when I look at analysis and from Bloomberg Intelligence on the big banks in China, it's clear the chief concern is margin, and I'm wondering whether or not the government is equally concerned about how this may be impacting the bank's balance sheets.
There was a report in the Financial News, which is a newspaper that is published by the Central Bank. It talked about how banks are really suffering and facing lots of challenges because as the central government lowers interest rates, they're making less on every loan that they make, and that is making it a more difficult operating system or environment for the banks, And you have to remember these banks are state owned. The biggest banks in China are
all owned by the central government. Even the Central Bank governor that we have today, Pungu Chang, he was the chairman of Agricultural Bank back in the day, and so there is a strong connection between the commercial side of the banking system and the regulatory side.
We also know that they have loan books, right and when you think about the quality of loans, do we have a sense of how well loans are performing right now? Okay, we know property is a problem, but more broadly, are loans beginning to become an issue? Is there a question around people's ability to service debt?
There is, and this is a reason why the non performing loans number is going to be really closely scrutinized when we get that from these earnings. In the third quarter, we actually saw that number of the mpls come down slightly for all the big commercial banks and more broadly for the banking system. That was for the third quarter. Whether or not that continued in the fourth quarter, we have to wait and see, but there is a lot of concern. Anecdotally, there have been an increase in the
number of people not paying their mortgages. The number of foreclosures we've had in China, it's starting from a low base, but it's growing fairly rapidly.
What do we know about the level of deposits. I'm wondering whether or not people are so fearful. Maybe that's too strong a word, but they lack confidence in such a way that they feel that there's no alternative except just to keep the money in the bank, I mean, and for that reason, our deposit levels fairly high.
Deposit levels have been rising after the pandemic, After China lifted its zero COVID policies, we actually saw a big increase in the amount of money individuals and companies were keeping in the bank in terms of deposits. More recently that seems to have slowed. It does, as you say, show a lack of confidence or a lack of animal spirits, as it were.
John, thank you so much for taking the time to chat with us and helping us kind of set the table for the earnings reports that we are expecting in the coming week for the big banks in China. John Louis is Bloomberg's Greater China correspondent, joining us from our Studios in Beijing. I'm Doug Krisner. You can join Brian Curtis and myself weekdays here from Bloomberg Daybreak Asia beginning at eight am in Hong Kong eight pm on Wall Street. Tom.
Thank you Doug, and also thank you Brian. 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