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This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our day Break anchors all around the world, and straight ahead on the program, a look at key inflation data in the US and earnings from media and entertainment giant Walt Disney. I'm Tom Busby in New York.
I'm callin hetger Hair in London, where we're thinking about the Chancellor's Mansion House speech as she tries to moove a city.
I'm Doug Krisner looking at bay Chain's reaction to the reelection of Donald Trump. Will also take a look at what to expect in the week ahead from ten Cent as it reports earnings.
That's all e struly head on Bloomberg Daybreak Weekend on Bloomberg eleven Trio, 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 app.
Good day to you.
I'm Tom Busby, and we begin today's program with some key inflation data in the US. The Consumer Price Index the CPI out on Wednesday eight thirty am Wall Street Time, with the Federal Reserve lowering its benchmark lending rate two meetings in a row, what could this mean for Fed policy moving forward? For more, we're joined by Michael McKee, Bloomberg International Economics and Policy correspondent. Michael Well, let's start with where inflation is right now. It's come a long way.
It's come a long way, but it seems to have stalled out a little bit progress. We have not seen major movements in the indexes in recent months. Now, the CPI, which comes up this week is expected to show basically no change on a month over month basis, but that would mean, because of what we call base effects, that the year over year headline CPI actually goes up up.
The forecast is for two point six percent from two point four percent in September, and the core will stay unchanged at three point three percent, which is not going to make for a great headline for people. But and Jay Powell talked about.
That that we have.
Not seen a lot of progress, but he said it wasn't a bad situation because it's still pretty low.
So the latest personal consumption expenditure though look like a two point one percent year over year.
Yeah, And the problem for the FED is people tend to focus on the CPI.
The average American focuses on the CPI.
It's the one that gets the headlines on the front page of the paper when it comes out. The PCE numbers are something that economics nerds and FED and Wall Street people follow it. It's constructed differently, and the FED feels that it is a more accurate measure of what's actually happening happening with inflation, particularly since doesn't put as much weight on home.
Prices as the CPI.
But the CPI is what they have to deal with psychologically.
So what are the big drivers then for this? I mean, we've all felt a low gas prices, that's great. You brought up housing prices which go nowhere, but up it seems. I mean, what are the drivers for the inflation that we're seeing now? The two point one percent in the PCE, maybe a three point three percent in the CPI.
Well, we still have housing as a problem. It's not coming down as fast as the FED thought. Chairman Powell last week pointed out that when you look at new costs for rents, which is what the housing costs numbers are based on. They have gone down or they have stopped rising, and that should be reflected in the numbers, and it's not yet. There are other things that are sort of quirky and change with the timing of the year.
One of them is airfares, another is hotel prices. And you know we've talked about used and new cars quite a bit. Those all go into the question about what is going to happen with inflation, and they're all sort of separate, different reasons why they're going up. For example, we are expecting maybe used car prices to rise in October because a lot of people who were in the hurricane damaged areas, they still had to get to work and their cars were destroyed, the.
New cars, and the first thing they do is they.
Go get the cheapest car they can get, and so we should expect to see some rise in used car prices and the next month maybe the new car prices go up.
And another thing we've seen in some of these job numbers higher wages is that impacting inflation as well. The more people have, the more they can raise the price tags, the more.
It's an interesting question. So far that doesn't seem to have been happening. It may have been in the last couple of years, given that we saw a big wage increases as there was a shortage of workers, and whether that fed into inflation expectations doesn't really look like it did. But we had just last week got a revision to unit labor costs that showed a big rise in compensation for employees, much bigger over the last couple of years
than had been recorded. The fact that it was a revised number doesn't mean all of a sudden we're going to see inflation expectations rise, but it does suggest that people have more money, and so as long as demand is high, then it becomes.
A question of supply keeping up or prices will rise.
Yeah. Yeah, Let's go back to what the Fed did this past week, and you know, this quarter point twenty five basis point cut. And more importantly, I want to talk about Chairman Powell and what he said in his press conference talking about the new administration coming in, talking about all the factors and data points that led to his decision this past week.
Basically because the economy continues to be relatively strong, but slow down in inflation and missed the confusing jobs reports from September and October, where September was really really strong in October was really really weak, which they figure probably as hurricane related, but at this point they don't know, so they just went ahead with kind of the plan.
They had to reduce rates by twenty five basis points because they said, no matter what you think of all these possible explanations for stuff, that inflation was under control and that interest rates are still restrictive.
That's their story.
And they're sticking to it. A lot to look forward to our thanks to Michael McKee, Bloomberg International Economics and Policy correspondent. We moved next to corporate earnings from the world's biggest entertainment company, Walt Disney, reporting fourth order results on Thursday, on the heels of finally turning a profit and its streaming video unit in the previous quarter, and after announcing another timeline to replace its CEO. For more on what to look for, we're joined by Getha raghanoffin
Bloomberg Intelligence analyst on US media. Well that is a Biggie Disney appointing a new chairman last month. James P. Gorman of Wall Street banking giant Morgan Stanley, and announced another time frame to replace Bob Eiger in early twenty twenty six. What does this mean for Disney, Gita.
Thank you so much, Tom So. Obviously, succession has been one of the biggest issues for Disney in recent times, and you know, the lack of a proper strategy has really kind of troubled investors and kind of industry watchers alike. So it's really good that they're coming up with this plan. They're obviously taking succession extremely seriously. They have a person there who's kind of overseen, you know, his own succession at at Morgan Stanley really really smoothly, so he's obviously
very familiar with the process. That said, Tom, the appointment of a new CEO has actually been pushed a little bit. So we were expecting an announcement sometime next year, in twenty twenty five. It looks like that's going to be pushed at least you know, six months, or maybe even more to sometime in twenty twenty six. And it obviously tells us how critical of an issue this is and also how complicated it is. And that's just because of the nature of Disney's business. I mean, they have so many,
very many disparate businesses. Whether it's theme parks or studios, or the television networks or ESPN, they all require kind of different expertise and a different skill set, and so it's going to be hard to kind of it's obviously very big shoes to fill.
Well.
Also, the last one did not work out so well with Bob Chappick.
Yes, and again this is where, you know, we come back to this age old question. I mean, do you have somebody who is really good in terms of relationships with you know, the creatives, with Hollywood executives, or do you have a more hands on person who has tremendous experience with the parks. And so even as they kind of go about trying to determine who their new CEO will be, I think that kind of really will give us a glimpse into what their future strategy is going
to be. Is it going to be more a theme park kind of focused company. We do have to remember that this is the bread and butter of the company, brings in almost sixty five percent of profits, so definitely very very critical to both the top and the bottom line.
But at the same time, you know, Hollywood relationship with you know, Hollywood talent with creatives is also important because it's the movies and it's it's the studio content that ultimately is the flywheel and is so important for kind of feeding all of the other businesses, including the theme park business.
Oh yeah, and they have actually some of those other businesses, not the theme parks, which is almost an autopilot. They've had some of the biggest blockbusters of this year, and the movie theaters, the streaming unit, as I said earlier, finally turning a profit, the Disney plus Hulu, ESPN plus. I mean, it looks like all of the investing they've done in the directing consumer the streaming operations has really paid off.
Yeah, it absolutely has. And you spoke about the studio, which is really important because they had definitely a whole string of missus, you know, at the studio division, but that obviously changed this year with the outperformance both of Inside Out Too as well as you know, Deadpool and Wolverine, which are some of the biggest releases for this year. Definitely, and as we look forward as well, you know, it
looks like they're finally kind of turned the corner. On you know, the content pipeline, and so as we look forward to both twenty twenty five and twenty twenty six, that's late is definitely strengthening. So there's definitely a lot of positive momentum on in the studio side of things. But then as we kind of think about streaming, yes, that's where all of the profitability delta is kind of really going to come over the next few years.
And also just to mention Moanatu and Move Fast of the King both out in the next couple of weeks really, so that could also add to.
Things absolutely absolutely that just goes to speak to you know, their content slate strengthening tremendously. This is the whole studio turnaround that we're seeing in progress. Ultimately, remember Tom, all of those movies are going to come to the Disney Plus streaming platform, so again it's going to have you know, that nice tailwind effects in terms of boosting subscriber numbers.
Now, I want to bring up something at the parks, as you said, sixty five percent of its profits. It seems to always be a winner for them, but they did something a little controversial in the last couple of months. That is the Lightning Lane premiere pass a nearly five hundred dollars extra fee to skip lines. Was this a miscalculation? Was it wrong to do this? And how is it fared for the company.
I don't think it was wrong. I mean, one of the things that we've seen overall is that theme park demand has moderated. And as theme park demand is moderating, we also know that visibility is kind of limited on when trends will improve. So obviously they do, you know, if this is always going to be a volume and a pricing game, So as they kind of see volume going down, they obviously have to come up with more innovative ways of kind of you know, raising prices and
boosting and preserving their top line. That of course said, I mean, they also have to be careful not to overplay their hand, and so it is a very careful balancing act. I do agree, But you know, I think the Lightning Lane price increase obviously came after a lot of deliberation and a lot of careful thought. I mean, they obviously have tremendous demand at a lot of these attractions, and I think that is kind of what prompted it. So I don't think it's a miscalculation. But again we'll
have to wait and watch. We have to wait for their earnings call to see exactly how it's played out so far.
All right, and those Disney Q four earnings out this Thursday are thanks to Geet the Raganathan Bloomberg Intelligence analysts on us ME and coming up on Bloomberg day Break weekend, we'll discuss whether the UK Chancellor can bring growth back to the City of London. 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 the program, Beijing confronts the threat of punishing US tariffs on its exports. But first, fresh from her autumn budget, UK Chancellor Rachel Reeves delivers her biggest City of London speech to date this week. Her plan for growth relies heavily on the business sector, but will she impress them for more. Let's go to London and bring in Bloomberg day Break Europe anchor Caroline Hepgar Tom.
It takes place in the historic surroundings of the Lord Mayor's official residence the Mansion House. Speech is billed as an opportunity for chancellors to make their case to the famously independent city of London, governed by its own laws and even featuring a separate police force. The City of London has always valued independence, but as home to many of the country's financial services giants, it's a region that Rachel Reeves will want to bring on board with her agenda.
She's expected to outline her vision for the Square Mile, detailing how the Treasury will support the country's world leading financial services sector to grow, innovate and finance growth around the country. That's according to a Treasury statement. But will Reeves's fiscal policy hold back those business ambitions. I've been speaking to Richard Wilson, who's the CEO of the UK's
biggest flat fee investment platform, Interactive Investor. He says that some of the measures introduced in Reeves's recent budget present a real challenge for corporates.
Well, the majority of the changes were very well telegraphed. You've got a spend, tax and borrow agenda with numbers that are very high, and the ifs came out and the OBI can confoundly that that leads to lower growth going forward, a higher debt servicing burden, and of course the guilt markets have been a little bit ambiguous about their view of that because the yields have gone up in two and ten years basically makes the UK a less attractive market to invest invested others because you've got
a higher tax burden. And the irritation I think for many of us is that, whilst there's clearly as a fiscal tightrope to walk going after some what would be symbolic or illogical taxes like itt reliefs on agriculture and business property do undermine entrepreneurship in the country. We've got millions of people where the bedrock of our future is on entrepreneurship, which comes from family businesses. That's not a sensible way to build growth of that. It flies in the face of your growth agenda.
So to be clear, you think this budget was anti growth?
Yes, no question.
As a business just as a CEO, what are you doing with that increase in national insurance going to be Does that mean lower wages for your team? Are you going to pass it up through in terms of high cost for your customers? How are you going to manage that.
I mean, we're in a very competitive environment and the option we're we're competing with all the near brokers, the US houses, the UK clearing bags, the European houses, everybody, the inpension companies. Our option to move price is zero. So then you're dealing with efficiency and or wages or reduced profitability. I think Rachel Reeves and one of our interviews said, you know, custom companies will be become more efficient as if we're not trying to do that every
day already. So the reality is it will either be lower profits and therefore kind of lower return and lower ability to reinvesting technology, or you look at your wage bill thinking how the hell do I solve that?
Okay, So in terms of what comes next from Labor mansion House, there has been a push to try to and in fact a whole group of insurers and pension companies agreed to try to put more money into UK listed stocks that wasn't mandatory. Does it become mandatory under labor? Do they target something, Do they make it more compulsory for people to invest in UK listed or unlisted assets?
Yeah?
I think well that there are two. There's a problem that the UK has which is compared to some other countries in Canada and Australia and a reference quite a lot. We have a fragmented pension stock so the actual size of the pool that you're allocating is not as large as it should be. So there's a task there which is to consolidate pension assets with a big opportunity across local councils and the public sectors. Has been well documented. The fear that we should have is forcing an allocation
of risk which is disproportionate. That would conflict with your kind of risk management and the members of your long term pension holders. So that's not a sensible thing to do.
But label will say how do you get a growth and how and people have been complaining about the fact that the UK market is undervalued and that we've seen a massive decline in investment in UK consul.
So there are two things there for me. One is you've got to create the scaler pension assets so that you can make an allocation which is proportionate of a much bigger base. And secondly, we have been bleeding out the UK stock market with stamp duty for the last twenty years. The British government has sorted either I'm not sure it's too late. It may be too late to save it. We are taxing the thing out of existence.
Richard Wilson, there CEO of Interactive Investors, speaking to me and to Bloomberg's Tom McKenzie, officials say that the imagine how speech will drive up investment and showcase what the UK has to offer. They'll have their work cut out for though, if recent forecast from the Office for Budget
Responsibility or anything to go by now. According to their predictions, the pace of UK economic growth will peak next year at two percent before falling back to around one and a half percent later in this parliament, and that after the budget announcement, so can Rachel Reeves's plans to supercharge the city and the UK change that trajectory. Is something I've been talking about with Bloomberg City editor Catherine Griffiths.
Over the years the Mansion House speech. Sometimes it kind of passes without much notice, and other years it can be really key. This year, certainly, probably from both sides, the government side and the kind of audience side, it's going to be really key. This year's Mansion House Speech was due to happen in the summer and it's been pushed back until next week because of the election, So there's that sense of sort of time as well, this
sort of highly anticipated event. And then actually the Treasury in ratl Reefs have themselves been sort of amping it up a bit, making it clear to people in the city that this is going to be a big event where rail reeves the Chancellor will lay out lots of sort of detail and conviction about how this government is going to deliver growth.
Yes, and that has been her promise, kissed Arma's promise, but there were doubts after the budget. What do you think she's going to try to communicate then about the growth ambitions.
So it seems like we're going to get quite a lot on this government's plans for pensions reforms. Of course, this is not a new topic. The previous government also was trying to push through with reforms to the pension system. There's you know, billions and billions and billions of pounds
in pension pots in the UK. This point that yes, we want overseas investors coming into the UK, but actually in the UK itself there's a lot of sitting in savings funds and how we try to deploy that money in a way that's both good for the owners of the money, the people who will be pensioners in the future, to get higher levels of return so they have better retirements, but also of course how that money can be used
in a more productive way in the British economy. So that's the point about pension pots owning British shares, owning British assets that are privately held. So there's all of that, and then we may also get some reforms about how
the government the government's relationship with the financial regulators. Again a topic that has been going for a very long time, but there's a wide consensus that there needs to be some sort of change to ensure that the regulators have a clearer mandate to pursue growth and competitiveness.
Having said that, what do you think is going to be the feedback from that business audience? Days ago I was speaking to the CEO of Interactive Investor, Richard Wilson. They've got something like four hundred thousand customers here in the UK, and I asked him about that pension reform question. For example, trying to encourage businesses to funnel their investor money into either listed or unlisted UK assets. He was
talking about the UK stock market being untradeable. So there are great difficulties and there's been a lot of kind of pushback against the budget. What is the audience in the city going to be thinking.
About, Yeah, I think it will be a mixed reaction and it is actually quite a key moment for the Chancellor to sort of really try to set her agenda and kind of push forward her credentials with the city, because yes, I think there are people out there in the city who do believe that the London stock market, while it has many advantages in the UK, has many
advantages as a place to invest and do business. That sort of maybe the long term trend really is towards as of capital, where essentially the US really is the biggest pool of capital and we're sort of fighting against that tide in a way, and that perhaps London and the UK should think about other ways to remain relevant. So when you think of it in those terms, trying to sort of force pension money into some might say essentially a sort of a dying stock market isn't the best idea.
How important a factor is it that the budget also saw an increase in national insurance employer contributions, which is an additional tax on business.
Yeah, I mean business doesn't like it for sure. It has been well. One thing that the Treasury and retro Reefs team certainly did was telegraph a lot of the measures in the budget. So I think people have had time to get their heads around that and they don't like it. But ultimately, as ret Reefs I suppose said herself, some people needed to bear the burden this time, and
she put it on the wealthy and business. I suppose there will be business people out there who understand and I think that that's what had to happen in this budget. But they're looking for conviction and ideas for how the whole economy can grow.
Is there a positive case? There are concerns about economic growth? The OBR talked about how the budget would increase economic growth a little bit but only in the short term or more focus on the short term. Is there a more positive case that we can make Well.
I guess there's that sense of the clock ticking, isn't there because she needs to kind of get ahead of that OBR forecast. So the measures in this budget will do exactly as you've said, according to the OBR. So what she's got to try to do is while these measures bite and she collects her tax revenue that she certainly needs, she then needs to be able to sort of quickly show that the economy is growing and hope that the OBR will change its forecast.
Accordingly, we're thinking about the fallout of the Trump election victory twenty percent Tara potentially on the UK. Rachel Reeves modeled her economic policy during the election campaign, so some time ago on the Biden administration's by the nomics, she called her plan secure a nomics. I noticed that term has perhaps faded a little bit. How does the UK deal with now a Trump White House and possibility of towers and so on.
I think the UK, and you know, many other big countries that have extensive dealings with the US, will obviously be worried about that. But we are a huge services economy and we have many many links in terms of financial services between the two countries, and I suppose the UK also hopes that after Brexit that we may have a certain amount of freedom to tread our own path with the US.
My thanks Sibili and Begg's City editor Cafine Griffith. So does Labors smoke salmon offensive continue and will the City of London's leaders be receptive to the message from the new government. We will have full coverage of the Chancellor's mansion house beach here on Bloomberg. I'm Caroline Hepge here in London. You can catch us every weekday morning for Bloomberg Daybreak Europe, beginning at six am in London one am on Wall Street.
Tom, Thank you, Caroline, And coming up on Bloomberg day Break Weekend, we'll examine the effects of Donald Trump's election on US China relations. 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 timing of Donald Trump's reelection comes at an interesting time for China. Beijing has been working to revitalize its economy and now the
thread of US tariff's looms large. We'll get a better read this week on how well the Chinese economy is holding up. Bloomberg's Doug Krisner, host of the Daybreak Asia podcast, is here with a closer look.
Tom.
We're looking at the monthly activity data for China in the week ahead will be key, particularly when you look at the numbers on retail sales and industrial production. However, we want to begin with a Chinese reaction to Donald Trump's return to the White House. We know that a
major part of Trump's economic policy is tariff's. He is planning to place tariffs on all US imports that would include charges of between ten percent to twenty percent on all imported goods, and where Chinese products are concerned, tariff's of as much as sixty percent. For a closer look, I'm joined by John lu Bloomberg News, executive editor for Greater China. John, it's always a pleasure. Thanks for making time to chat with us. Can we begin with Donald
Trump's impending return as US president. I'm curious about the reaction in the Chinese capital.
I think there's actually a bit of awe at the moment that Donald Trump was able to pull off the sort of victory that it seems like he was able to pull off potentially a trifecta, taking both the Senate and the House along with the White House. And the thing that I'm hearing from lots of people here in Beijing is wow, where you know, it's really amazing he was able to do that. I don't think people have gotten yet to the point of thinking very deeply about what next.
John, you know better than I the challenges that are facing the Chinese economy at the moment. The export side seems to have been holding up reasonably well. It's the domestic economy that's really been struggling. So too have imports to China to some extent. In your view, how well is China prepared to respond to the potential trade war with the US or a different style of trade war, let's put it that way.
I think China is better prepared in the sense that we've seen this show before, Like we've lived through four years of a Donald Trump administration and we've gone through a trade war, and so in that respect, I think China is much more prepared in terms of how to negotiate what the main points of contention potentially probably will be. In terms of how well they could take on a sixty percent tariffs all around, I think the answer to
that is not very well. There have been some estimates by ubs, for instance, that calculate if Donald Trump did, in fact put sixty percent tariffs on all Chinese exports to the US. That would essentially cut two point five percentage points from China's GDP.
That means China would be.
Growing half as fast as it has been in the last couple of years as a result.
Given how the Chinese economy is struggling at the moment, is there a particular vulnerability where the US could potentially take advantage of this weaker state and try to capitalize that If these tariffs are really a form of the first part of a negotiation, does the US necessarily have a bit of the upper hand here?
I think definitely the United States has in upper hand when it comes to these negotiations. China depends on being able to have access to foreign markets to create jobs, to create demand for its manufactured goods. The Chinese government has been trying to wean itself off of that dependency, but it's going to take time and it's not going to happen very quickly, and so in the short term, I think there are a lot of cards in Donald Trump's and the United States hand in terms of how
those negotiations go. I have heard quite a number of Chinese officials sort of re up the idea or bring up the sense that Donald Trump has actually set himself that this is maybe a negotiating tactic, So they're kind of approaching as in a hopeful way, maybe he will not actually on day one impose those terrors.
The Biden administration, i think it's fair to say, really built on the tough on China strategy that was undertaken by the first Trump administration, and what the Biden administration did in kind of building on that was I'm thinking, in particular the export controls on certain advanced high technology, especially the semiconductors. So if you move away from the issue of tariffs, the question becomes his Beijing prepared for
additional US restrictions on sales to China. Remember during the first Trump administration, Huawei got caught up in that, didn't it.
It did. The big difference I would say between the way that the Biden administration and the first Trump administration prosecuted these curves on technology was the Biden administration has been much more successful, i think in getting the American allies to go along with their policies, and it's I think much more in question how effective a Trump administration would be in doing that. At the same time, I think the Chinese are very concerned about losing even more
access to American technology of Western technology in general. There is a ton of money being spent in China to try and create domestic technologies to replace those things. Again, that takes time. It's not going to happen in the next week or year or a couple of years.
So let's imagine for a moment that Trump's thread of these tariffs at sixty percent is really the first part of the negotiating strategy. If he follows through, let's say the negotiations were to fall off the rails at some point those tariffs are really imposed. Are Chinese authorities willing to do much more to help the economy, do you think?
And the timing is kind of interesting because we just had the meeting of the Standing Committee and indications that we may be getting a little bit more fiscal support for the Chinese economy, So put that in context for me, I think.
The timing of that meeting of the National People's Congress Standing Committee that you just mentioned is very interesting. It usually happens at the end of October. This meeting, they pushed it back until November fourth through eighth, so it ends after the election, and so a lot of people have wondered if that timing wasn't changed so that that Chinese officials could calibrate their response to reflect the new
administration potentially in Washington. And so the idea would be, with Trump coming in, potentially China would do more in terms of stimulus to try and get domestic consumption up to make up for this additional tariffs cutting off demand from the United States.
So before I let you go, I have to ask about the data that we're going to get in the coming week, the monthly activity data. Two key points industrial production, retail sales.
We talk a lot.
About this when we try to get a clear window into what's happening in the Chinese economy. Do you have a sense of what these figures are going to show us?
So I think there's a bit of optimism about retail sales. We had services PMI that showed activity in the services industry was growing more quickly than had been expected, and some economists have said that that suggests potentially the consumer is recovering. We've we've obviously had a bunch of stimulus introduced already even before the National People's National People's Congress and so we could see that pick up more than expected.
We also had some good data at the beginning of the of the month that showed in October, China's largest developers actually saw an increase in sales in October from a year early. That's the first time that's increased in a year, and so it seems like we might be hitting a turning point, and that's why the numbers this month.
Are so important.
John will leave it there always a pleasure. Thanks so much for spending time with us. John lu There, Bloomberg News, Executive editor for Greater China, joining us from our studios in Beijing. Let's turn to the Chinese internet giant Tencent. In the coming week, the company will be reporting earnings. I want to take a closer look. Now we'll bring in Robert Lee, Bloomberg, Senior tech analyst for Bloomberg Intelligence. He joins us from our studios in Hong Kong. Thanks
for making time to chat with us, Robert. This is a very interesting company. It's involved in so many different things, whether it's social media, music, it's e commerce, there's mobile gaming, payment systems, and some artificial intelligence happening in the background. Where, especially where Cloud computing is concerned. So as you look out to the earnings that we're expecting in the coming week, what are you most focused on?
That's absolutely right Tencent and it's we chat, or as it's referred to locally, wasting platform is a ubiquitous part of Chinese life. The platform, for those who are unfamiliar with it, is really a combination of the metas Facebook app. You know, there's an element of PayPal. It's all singing, all dancing, really, so it's an essential part of living in China.
I think the major.
Driver of ten cents earnings this year has been the strength that they've seen on the gaming side, particularly driven by one particular title called DNF So that was a licensing title from a company called Nexon, but it's been a major smash hit for them, and as they say, within the video game business, you're only as good as your last hit, So that has been a major drive driver of their earnings. From sort of Q one Q two.
We'll see ongoing strength into the third quarter, but I think that is well known and is already factored in by the market.
In the States, we've been talking a lot about artificial intelligence different startups now that are capturing amazing valuations. And then companies like open ai that already have relationships with a company like Microsoft. Where is ten Cent in the world of artificial intelligence right now in China?
Okay?
I would say ten Cent early, Barber and then their peers Byte, Dance and Huawei. The four of them are best place to win out and emerge as the leaders in China's AI sector. But we're at an early stage of development at the moment, their operations in aggregate and loss making, and the level of monetization or revenue generation on the software side, because these companies are all software firms, so we're not talking about the equivalents of the in videos.
The monetization is at a very low level. So ten Cent has got a very broad based platform, so scope to generate internal synergies by applying AI to generate cost savings, et cetera is definitely very high. So that should help defend their margin and underpin their margin going forward. But as I said, the issue with the China market in a you know, with a population of one point four billion, it's a hyper competitive market. There are a very large
number of players out there. It's very fragmented market.
When you consider artificial intelligence. I know, there are these export controls that the Bidy administration has placed on advanced semiconductor technology, with the idea of keeping some of these super advanced chips away from China. Now, a lot of the thinking had been that maybe China would be compelled to try to find military type applications for those chips, but they seemed to be so much a part of
the AI story. I'm wondering whether or not these Chinese companies, like again ten Cent, Ali, Baba Baid, when it comes to AI, they're really at a disadvantage because of these export controls.
That was exactly my view sort of earlier in the year, the end of last year. I mean, it was an obvious risk to these firms. However, they seem to have worked their way around it, so they mitigated the problem in a couple of ways. First thing is, I mean, whilst the export controls were put in place by the US for the reasons you've mentioned, they were well flagged in advance, so that gave an opportunity for these big time platforms to actually accumulate inventory before the controls came
in place. And also, you know, whilst you know the relationship between China, the US and a lot of Western Europe is strained to some degree. At the moment, you know, China is still on good terms with a lot of other countries around the world, particularly in the Gulf region, etc. So I think that, you know, there is anecdotal evidence that China has had some help from its friends, shall we say, in you know, in importing some of these
restricted products. But then the third thing that the Chinese companies have done is they have again the challenge that they face to spurred innovation, and China does have very strong inherent strengths in software development. So what they have done is developed a newer generation of more focused, smaller models which are more adept at working on the lower power accelerator chips coming from the likes of Huawei, so domestically developed chips.
Robert, thanks so much for helping us preview this week's earnings from ten Cent. He's Robert Lee, senior tech analyst for Bloomberg Intelligence, and I'm Doug Chrisner. You can join us weekdays here for the Bloomberg Daybreak Asia podcast, available wherever you get your podcast Tom.
Thanks 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 Busby. Stay with us. Top stories and global business headlines are coming up right now.