In 2024, the Federal Reserve left rates unchanged in five consecutive meetings, achieving a reduction in inflation from the 6% range to around 2%. For 2025, the Fed signaled only two rate cuts, down from earlier projections of four, due to sticky inflation and uncertainties around the new administration's policies.
The Fed raised its inflation forecast for 2025 by about 30 basis points due to persistent inflation concerns and uncertainties about the policies of the incoming administration. This adjustment led to market volatility, with Wall Street initially pricing in only one rate cut.
The neutral rate is the interest rate that neither stimulates nor holds back the economy, avoiding inflationary or deflationary pressures. It is significant because it helps the Fed determine when to pause rate adjustments. Estimates suggest the neutral rate could be around 4%, but it can only be observed in hindsight.
In 2024, the tech sector saw significant growth driven by advancements in artificial intelligence, with companies like OpenAI, Apple, and Google rolling out new AI tools. However, challenges included layoffs, regulatory crackdowns, and a U.S.-China tech battle. For 2025, AI is expected to become more conversational and deeply integrated into specific use cases, though concerns about job displacement remain.
AI began to impact the job market in 2024, with companies like Klarna reducing staff by 22% by leveraging AI for tasks. While some jobs will be replaced, others will be augmented or unaffected, with AI expected to assist in specific sectors and tasks.
The UK Labour government faces challenges such as addressing structural economic problems, managing fiscal constraints, and delivering on promises to fix the NHS, crime, and migration. The government’s early unpopularity and negative messaging could make it difficult to regain public confidence.
Key themes for Asian markets in 2025 include the Hong Kong property market downturn, the resurgence of Luckin Coffee, China’s potential issuance of century bonds, and the impact of U.S.-China trade tensions on Vietnam’s economy. Additionally, European luxury brands may need to adjust strategies to cater to changing consumer preferences in Asia.
China’s economy faces challenges such as overcapacity, slowing demand, and a lack of consumer confidence. The government is signaling stronger stimulus measures to boost consumption, but growth is expected to be more moderate compared to previous decades. Trade tensions with the U.S. may also reconfigure global trade flows.
From the Delta Sky Club...
Welcome back, Ms. Klein.
This is Bloomberg Daybreak 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, 2024 closes out with a rather hawkish Federal Reserve. Plus, can the tech sector keep up its momentum heading into the new year? I'm Tom Busby in New York. I'm Doug Krisner looking at five possible events for Asian markets in the year ahead. I'm Stephen Carroll in London, where we're looking back at a historic year in British politics.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 1130 New York, Bloomberg 99.1 Washington, D.C., Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on BloombergRadio.com and the Bloomberg Business App.
Good day to you. I'm Tom Busby. We begin today's program with the Federal Reserve, which shocked investors by signaling fewer rate cuts in the year ahead. What does this mean for the markets, the economy, for the Fed's dot plot for 2025? Well, for more, we're joined by Michael McKee, Bloomberg's international economic and policy correspondent. So, Michael, let's start by looking at what the Fed accomplished this past year. Five meetings in a row, leaving rates unchanged, and then boom.
Well, you could look at it this way. The last time we were at 4.25% to 4.5% was when the Fed was going up in rates. And at that point, unemployment was high and inflation was in the 6 range. Now, we're in the 2 range and we're headed down with the numbers. So, the Fed will take a victory lap on that.
We do see inflation stalling out a little bit, which raised a lot of questions about whether they should continue cutting at the same pace. And they sort of answered us by raising their inflation forecast and saying that in 2025, they're only going to cut twice.
Now, at that December meeting, the vote to cut the federal funds rate 11 to 1. The Cleveland Fed's new president, Beth Hammack, preferring to hold rates steady. What did she see? She suggested before the Fed meeting that we're about at a time when the Fed wants to pause because...
We're at the upper end of the neutral rate. And that's going to be the big discussion going forward is what is the neutral rate? The rate of interest that neither stimulates or holds back the economy, doesn't create an inflationary situation or a deflationary situation. And nobody knows. It's only something you can observe in hindsight.
But there are a lot of guesses, and Beth Hammack works at the Cleveland Fed where they have an inflation center. And so they were probably telling her that at this point it looks like neutral could be around 4%.
So she wanted to have a pause. Now, the other thing that was interesting is that three other members of the committee, presumably non-voters because we didn't get any other dissents, also agreed that they should not move rates at this meeting. So there's definitely some gathering strength in the hold for a while camp. And that is interesting.
Inflation, is that the main driver you think of that sentiment? Inflation's moved back to the primary position. It doesn't look like there's anything particularly wrong with the labor market. Now, we'll see first week of January, the first Friday, we'll get the next jobs report. And while hiring has slowed, it hasn't fallen off a cliff. The unemployment rate is –
below where the Fed thought it would be at the end of 2024. So right now they're focused on inflation, and they are moving up their inflation expectations, in part because it's been sticky, and in part because they don't know what the president-elect is going to do in 2025. A lot of uncertainties there. Well, right now it's at about 2.7%.
2.7% of the headline may go up. We're talking PCE here for the Fed, because that's
what they do. And the PCE headline is going into the end of the year is just below or right around two and a half percent. Ah, okay. Now, Fed officials stunned the markets with expectations or signals of only two rate cuts. There had been projections of four, then three, mostly four. I mean, what's the reason for signaling that right now?
They wanted to, I think, justify the fact that they're going to be able to go on hold and they probably aren't going to raise rates at the January meeting. And if inflation is a problem, then they don't want to cut rates anymore.
They raised their forecasts, and as we mentioned, part of it has to do with what they think may happen under the Trump administration. But with the forecast higher, that scared Wall Street more than anything else, is the magnitude of the increase, about 30 basis points in their inflation forecast, and the number of Fed officials who said that we should go on hold scared Wall Street. They
they maybe overreacted to the idea that we would have only two rate cuts because the markets immediately priced in only one rate cut. And so that led to a sell-off. Now, I think the end of the day huge drop that we saw was probably more related to the fact that it's been a good year. People have made a lot of money. And
Most senior traders are going, you know, they take the last two weeks of the year off. So they figured, well, we'll sell, take some profits, put them in the bank account since the markets are going down. And then the markets came back. So, you know,
We'll see what portends for next year. Now, despite the three rate cuts in a row by the Fed, mortgage rates have barely budged. They are back above 7%. Inflation, while slower, not gone away. What's the outlook, do you think? Well, if only somebody had asked Jay Powell that. Somebody you know had asked Jay Powell that. And basically, he pointed out that those are market rates. The Fed sets rates at the short end.
The two-year is responsive to the Fed, up maybe through the belly. But when you get to mortgage rates, car rates, things that are influenced by where your loan is longer, they're looking at market rates for that. And market rates haven't come down because the market's been concerned about inflation and about what Donald Trump might do.
Yeah, a lot of uncertainties. That next policy meeting from the Fed just a month away, January 28th and 29th. Our thanks to Michael McKee, Bloomberg's international economic and policy correspondent. We move next to the U.S. tech sector, which exploded in value this past year, mostly on the promises of artificial intelligence technology and the burgeoning use of chatbots. But we also saw a U.S. tech battle with China, a large number of tech layoffs, regulator crackdowns over data privacy concerns and more.
So what does 2025 have in store with a new administration entering the White House? Well, for more, we're joined by Mark Gurman, Bloomberg's chief technology correspondent. Well, Mark, let's start with the biggest developments, maybe even setbacks that you saw in the industry this past year, 2024.
This year was obviously very heavy on generative AI. You saw lots of companies get into the space. You've seen OpenAI roll out new tools. You've seen Apple announce Apple Intelligence. You've seen Google really step up their game in terms of Gemini. You've seen deep reintegration at Microsoft through its co-pilot initiatives in partnership with OpenAI. It's really all been AI-based.
We're still waiting on Amazon to roll out their long-promised AI upgrade for Alexa on their Echo devices and other hardware products. And we're still waiting for Apple to roll out a more comprehensive and better Siri that will happen next year. But I would say 2024 would be to be remembered
as anything in the tech sector would make it the year of artificial intelligence. Yeah, I mean, it's everywhere now. Amazon, you see it, like you said, it's rolling out. Apple is now just introduced in the last couple of months. Where does AI go from here, though?
AI is going to become more conversational, and I think it's going to become more deeply embedded in different use cases. What we've seen is open AI and some of these other companies go all the way to one side on artificial intelligence, allowing it to do many things online.
on the user's behalf. There are very much concerns about AI replacing jobs. I think what you're going to see is, now that technology is out there, and maybe we can call it a raw form, we'll see it get optimized and more deeply integrated into devices and for different use cases for more specific actions and more specific sectors within the larger technology industry. I think you're going to see better technology
I think you're going to see a bit of a pullback as well in terms of how much this tech is going to be unleashed and how it's going to be implemented precisely. Well, one thing we learned very recently was Klarna. That is a very popular buy now, pay later. They say they haven't made a hire in months and they're using AI. They've been able to reduce their staff by 22%. So just a hint of what it does mean for the job sector, right? In the, in the tech industry. Well,
Well, there's a lot of jobs that are going to be impacted by AI. There's a lot of jobs that are not going to be impacted at all by AI. And there are a lot of jobs, probably the rest of them, I would split it a third, a third, and third, that are going to be augmented and helped by AI, right? You can imagine consumers using AI as well to get projects done. I want to know the impact on students in school, right? There are some people who've liked to compare AI to the
calculator, right? But the calculator is very different than something that can do all your homework for you. Yeah, no doubt. I want to go back to Apple, which I know you cover in a big way. This past year, a lot of changes at Apple. Probably the biggest is after $10 billion of investment, they shut down their Apple Car division.
And have they taken a lot of that money, a lot of the resources, and put it into AI? So they fired about half of the employees working on the car project. There were a lot of personnel that they didn't need anymore. If you're not working on a car, there's a lot of very specific engineering work for a vehicle, obviously. They took about the other half and split them up amongst a few teams. Some are working in robotics.
Some are working on home devices. Some are working on software. Some are working on cloud. But the vast majority of the people they kept are working on AI and generative AI more specifically and future iterations of Siri, future iterations of AI-tied robotics type of software and hardware and cloud initiatives.
And so, they really are taking those resources and applying them elsewhere. Personally, I think in the short term, getting out of the car space was a good idea. But I think in the long term, they're maybe going to have to take another look at whether or not they don't want to be in the car industry, because it's just going to continue to heat up. At some point, someone's going to have a much better mousetrap in the car space. Could and should have been Apple. It won't be them. Wow, it sounds like it's going to be China. Yeah.
China and cars are becoming synonymous as the AI gets better and better. See, cars are a great example of applying AI for use cases that make sense, right? Having a self-driving car that you can rely upon. And so, I think we're just going to see more of that out of China. And we'll see what Google and Amazon are able to do in that space as well. But at some point, I think in the next five years, Apple may have to reevaluate it.
Now, Apple's bread and butter, the iPhone. But we got some disturbing news from Micron Technology, the U.S.'s biggest maker of memory chips, that said they're seeing weakness in demand for smartphones and PCs. Do you see that as a broad-based weakness? Do you see any of that evidence in Apple or in Samsung?
I'm seeing it in the sense that, yes, I'm seeing it, but it's hard to know exactly what the cause is, given that the last couple iPhones that rolled out, quite honestly, weren't that impressive and didn't include major changes. So what we're going to have to do is wait and see for when Apple rolls out a major redesign, a major revamp to the iPhone, see what that does to the market, and see what the sales of those devices look like. If those are strong, we know it's an anomaly because there aren't many
compelling reasons to upgrade. If those results are not so strong, we know that something's going on. Well, a lot to look forward to. Our thanks to Mark Gurman, Bloomberg's chief technology correspondent. Coming up on Bloomberg Daybreak Weekend, what's on the horizon for Europe's stock market? I'm Tom Busby, and this is Bloomberg.
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Take your business further at T-Mobile.com slash now.
This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Up later in our program, we bring you five themes investors are looking at in Asian markets. But first, in 2024, Europe's political situation has been decidedly rocky. The bloc's two largest economies, France and Germany, have both faced tumultuous governmental shifts, sending shockwaves reverberating around the continent and its economies.
Will 2025 bring better fortunes for European investors? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Stephen Carroll. Tom, it's been a jam-packed historic year in British politics, from the first Labour government in 14 years to a Conservative meltdown and a long-awaited electoral breakthrough for Nigel Farage's Reform UK. There's barely been a dull moment. Bloomberg's UK political editor Alex Wickham has been speaking to James Walcock and me about this.
the extraordinary events of 2024 and making some predictions for the year ahead.
regardless of everything that's happened since and all the grumblings that people might have with the new government and Keir Starmer's performance, this is something that people in the Labour Party have literally been waiting much of their professional lives for. And finally, they get the chance to show whether they're any better in office and their ideas and policies and personalities are any better suited to power than the Conservatives were.
you know, it is too early to make that judgment. We can see some early indications, certainly, that it isn't as easy as they might have thought it was going to be. That actually the problems structurally that the British state has are
hard to resolve and you can't just come in and go well we're the nice cuddly Labour Party and we're much better than those awful Tories everything's going to be okay now it turns out things are more complicated than that and I think
How Labour grapples with those huge trade-offs that they're going to have to make in political decisions of things that are just really difficult is basically the story of the last six months at least and probably the next four years. There's an interesting contradiction here, isn't there? Because I was thinking about what your political theme of the year might be.
And on one hand, there's this big change, as you just said, but on the other hand, so much is the same, the same economic problems, the same inheritance, the same difficulty in getting government to do what it wants. You know, what would you say we can learn from how Labour have kind of taken to power in the past five months? What kind of lessons do we take from that?
Strategically, if you talk to people around Keir Starmer, they sort of say, look, don't panic. We've deliberately done the hard stuff first. We want to get some of this horrible stuff out the way that we were left with by the Tories that we had to resolve. The prisons overcrowding crisis, the fiscal situation,
many other things and things will get better. They seem to be relatively relaxed about the fact that things will turn around and this is all part of a plan that the first year or so might be unpopular, but then they'll get round to it. Now, if you speak to some other people at the top of the Labour Party, they would be perhaps a bit more candid and admit that actually
perhaps Labour should have done a bit more policy work in opposition. Perhaps Labour should have, you know, yes, criticised the Tories for the things they did wrong, but perhaps had a bit more detailed thinking about what they would do instead.
because we haven't seen a huge amount of big ideas from Labour in government about how to fix the NHS, about how to fix crime, justice, migration, etc. And that is going to be a huge challenge for them. And the danger for Keir Starmer is this narrative that's perhaps starting to emerge over the first six months that Labour's disappointed or underwhelmed or hasn't provided change, like you say,
If that sets in over the next 12 months, that will be really hard for him to turn around. So he does need a bit of a better story to tell next year. Yeah, and it's hard not to think about how much of a narrative shift there has been since the election. It went from this is the moment, here comes change, to this. Let's take a listen. Things are worse than we ever imagined. These riots didn't happen in a vacuum.
They exposed the state of our country, revealed a deeply unhealthy society. The cracks in our foundations laid bare. So that was Keir Starmer there speaking, not long after taking up office as Prime Minister, but setting up that narrative that you're talking about, Alex, of things being quite negative. We'll come back to the riots in a moment, which was another, of course, very important moment this year politically as well. But, I mean, can there be...
a tone reset now? Is this a clever political strategy to say that everything's terrible so that by comparison things can look better in a couple of months? They'd like us to think that. That was the plan all along. I think certainly lots of people in Labour would admit that some of the messaging hasn't been quite right, certainly in the run-up to the budget. A lot of the really negative messaging from the Chancellor, Rachel Reeves, was seen as basically hitting economic confidence.
The tricky thing is that it's really hard to turn that around. And when you've had a budget that raised taxes on businesses and a lot of rhetoric from the Chancellor that didn't quite meet the sort of lofty ambitions on growth that Labour were talking about before the election, she's got to go into the new year and convince businesses and just the public that
Britain's got an economy that has strength and is growing and booming and all the rest of it. And if she can't do that, then it is going to be really difficult for her to deliver on her core pledge to have higher economic growth in this country. And turning that around, she could see that she's starting to try to do that. She goes and meets the CBI and she says, oh, I don't want to do any more tax rises and things like that. But it's going to need a lot more.
Can I ask a very nerdy question about what it's like as a journalist to be sort of doing this job this year? In that we have the regular calendar moments. We've had the budget, like you said. You've had the election. We have the kind of normal warp and weft of Westminster. But this year's also been kind of notable because...
Everything is on social media nowadays. There's been questions about how X works. There's also been new political parties, sort of the rise of reform, the return of the Lib Dems, questions over if Westminster's two-party system is still actually a two-party system. How have you gone about covering that? Yeah, it's really interesting. I mean, there is this sort of incumbency problem that politicians around the world have had, whether it's Joe Biden or Emmanuel Macron or Olaf Scholz or whoever, and
In Britain, we've kind of gone the other way. So around the world, you sort of see these kind of centrist liberal governments losing support and then a sort of populist right coming along as an insurgent. Whereas in Britain, we had a centre-right government, which was unpopular and gave way to a centre-left government. So we've kind of gone the opposite direction. That doesn't mean that we can't just be a few...
years after everybody else um and like you say with the rise of reform nigel farage this sort of fragmenting of british politics there is a real threat to kirsten or in any incumbent and it's not necessarily the fact that it's kia starmer it's just it's just the fact that people are unhappy with how things are going and i agree with you i think social media is just an absolutely massive accelerator accelerator of people's displeasure you know you you used to get
give politicians the benefit of the doubt for a few years. And, you know, even Boris Johnson was sort of...
still popular long into the pandemic, despite, you know, varying sort of views on the performance of his government over that. And, you know, similarly, you could say, looking back, Tony Blair won elections after the Iraq war and so on and so on. People gave politicians the time of day, I think a little bit more than they do these days. People are perhaps a bit more cynical, a bit quicker to lose their patience. And I think it's a problem for Keir Starmer because, you know, social media,
it tends to be negative you know that tends to be the things that do well on social media and journalists play our part in that because we love a story criticising a politician and that's the thing that people read and so on and so on and it all sort of perpetuates itself there is a
danger for Keir Starmer that the benefit of the doubt runs out and while he might have expected five years to benefit the doubt you know maybe getting himself a second term almost by default with his big majority there's no guarantee of that anymore well thinking about some of the figures who who are going to be you know I
perhaps a thorn in Keir Starmer's side. We talked a lot about Nigel Farage around the time of the election. How largely would you expect him to be featuring in the political scene next year, given, of course, his ties to Donald Trump? Well, this is the thing with Nigel Farage. He is a sort of genius at getting himself in the news. I mean, we've seen with the sort of Elon Musk meeting at Mar-a-Lago, this sort of suggestion that Elon Musk could donate to China
reform somehow. Whether it's true or not that that could happen, it
journalists have to talk about it. And Farage, for 15, 20 years, has been a genius at making sure he can't be ignored. And it's a real challenge for journalists because we sort of have to write with scepticism. Nigel Farage is claiming X, Y, Z that may or may not happen. And it could all just be a bit of smoke and mirrors that is all about really about him getting in the news and creating rows and creating things for him to be in the middle of.
You can't ignore it. Other politicians have struggled for years with how to deal with him. And Labour face this new dynamic now with Farage in Parliament for the first time, with Trump in the White House, with the president's right-hand man, Elon Musk, tweeting every day that Keir Starmer's useless and Britain's a basket case.
This is a new world that is basically unprecedented. And, you know, I don't think Keir Starmer has a plan to deal with it. Nobody in Labour has managed to convince me that they've got a plan to deal with it. To be fair to them, I don't know what the answer is. It's such a difficult problem. So, yeah, you know, Farage is definitely a threat to Starmer. And you could see a world where, in the absence of the Tories as a credible opposition, Farage takes over.
So, obviously, Farage is good at making noise and getting press attention. But as you said, the election's not for quite a way away. In the next year, do you think we're more likely to see Starmer humbled by new Conservative leader, Kemi Badenoch, or by the Labour left? What is likely to be the first kind of crunch point for this administration? You know, there is another spending review coming in the spring. And
Reeves kind of got away with the first one. It was pretty unpopular. Cabinet ministers were very unhappy. They all rebelled and moaned to Keir Starmer and said, oh, we don't like what Rachel Reeves is up to. And basically, because she was a new chancellor, they all had to lump it and go along with the budget and the first spending review.
cabinet ministers are promising to be tougher this time and say if if if the chancellor tries it again and you know cuts my budget i'm not going to put up with it this time it's a huge problem because if the fiscal situation isn't any better you know we'll see what the obr says in in the spring you know it is ultimately going to be spending cuts that are what pay for the government's program because she has said she doesn't want to put taxes up in in the spring
So that is going to create a massive route in the government that could be existential for particularly Reeves as Chancellor.
She's not popular in the cabinet. Chancellors are never popular in the cabinet because chancellor's job is to say no to ministers' spending proposals. So it's not a particularly radical thing that the chancellor isn't popular. But nonetheless, she's got a really difficult challenge to keep cabinet on side, keep the Labour Party unified. So I would say that is the main immediate threat to Labour in the new year.
That's our UK political editor, Alex Wickham. I'm Stephen Carroll in London. You can catch us every weekday morning here for Bloomberg Daybreak Europe, beginning at 6am in London and 1am on Wall Street. Tom? Thank you, Stephen. And coming up on Bloomberg Daybreak Weekend, we look at some of the potential themes for Asian markets in the year ahead. I'm Tom Busby, and this is Bloomberg.
As criminal ransomware and state-sponsored attacks continue to escalate, a bolted-on approach to cybersecurity isn't cutting it. In fact, the more security tools an organization uses, the more security incidents it has.
According to new research from Google, companies that use 10 or more security tools average 14 incidents per year. That's more than double the amount for those that use fewer than 10 tools. To proactively manage cyber attacks, organizations should invest in productivity tools across email, documents, and video conferencing that are secure by design, hopping off the treadmill of software patching and lightening the load on their embattled IT and cybersecurity teams.
To learn more, visit g.co slash workspace slash more secure. From the Delta Sky Club to the Jet Bridge, Delta Airlines relies on 5G solutions from T-Mobile for Business to power operations and serve customers faster. Together, we're putting 5G into the hands of ground staff so they can better assist on-the-go travelers with real-time information throughout the airport. This is elevating customer experience. This is Delta Airlines with T-Mobile for Business.
Take your business further at T-Mobile.com slash now. I'm Tom Busby in New York with your global look ahead at the top stories for investors in the coming week. We move next to the Asia Pacific region with 2024 largely in the rear view. We want to look at some of the potential themes for Asian markets in the year ahead.
Let's get to the host of the Daybreak Asia podcast, Doug Krisner. Tom, 2024 proved to be an eventful year for markets right across Asia. There was China's stock market rout and subsequent rally. There was the unwind of Japanese yen carry trades. And let's not forget that political crisis recently in South Korea.
To get a sense of what 2025 may look like, I'm joined now by Bloomberg Opinion columnist Shuli Ren. Shuli joins us from our studios in Hong Kong. It's always a pleasure. I wish you the best for this holiday season.
really curious to get your take on some of the things that you've been writing about in your latest column. You highlight five unlikely but not improbable events we might want to consider for the new year. Let's talk about the Hong Kong property market. This is kind of interesting because when I think of property in Asia, the first thing that comes to mind is mainland China, not Hong Kong. What's happening here?
Well, Hong Kong's property developers, I mean, we always know that they are very wealthy, right? But that hypothesis is being questioned in recent months. What's happening now is that Hong Kong is experiencing a pretty severe commercial real estate downturn, just like a lot of other places like San Francisco, for instance.
And some of the developers, they are quite leveraged and indebted. And then investors are questioning whether the tycoon families will come out and rescue their subsidiaries. Who is most exposed here? Is it bondholders? Is it banks?
All of them. I mean, let's just take New World Development as an example. It's run by the Zheng family, and they have made a lot of money selling properties and jewelry to mainland Chinese. And then they have a lot of bank loans. In fact, HSBC is their biggest banker.
And they have about $8 billion worth of U.S. dollar bonds outstanding. And of course, they are also publicly listed on the Hong Kong Stock Exchange. So they're also shareholders. Let's talk a little bit about Luckin Coffee next. This is a name that I've forgotten entirely about because it's delisting here in the U.S., right?
Yes. So they came to get listed in the U.S. within two years after their founding. And then they were found to have committed accounting fraud in 2020, and they were forced to delist from NASDAQ back then.
But Luckin Coffee has had quite a comeback. They sell pretty cheap coffee, and then their services are more streamlined. And in the last few years, they suddenly became China's biggest coffee chain. And they were outnumbering Starbucks in terms of a number of stores and in terms of sales. And to make matters worse for Starbucks, they are actually planning to enter the U.S. market.
because they think that Americans are just tired of $7 latte from Starbucks.
So what about Luckin's financials? Will the financials really allow the company to relist in New York? Well, to their credit, I mean, their majority shareholders are very keen to have a redemption and comeback story. So they paid all the fines. I think they paid hundreds of millions of dollars fines to the SEC. They just want to have a clean slate. And at one point, they were hoping to relist with the
basically a redemption story. So you're also looking at what may take place in 2025, unlikely as it may be, and you're writing about China's century bonds. Explain this to me. Well, century bonds were very popular in the Eurozone during the
When the European countries were having their deflation, Austria issued a cent rate bound in 2020. It was doing very well. At one point, it was trading at $0.140. That was quite popular because investors just wanted to get any fixed income assets that give you any yield.
And I think that's what China should do. They have been issuing ultra long bonds, but they have been quite shy, you know, 20 year, 30 year or even one small 50 year. But they shouldn't be. I mean, like the Communist Party, you know,
Thinks they will be around for another century, right? So why not? Yeah, they will be around forever. And it looks as though Chinese officials will need a lot of money to dig themselves out of what appears to be a very big hole. Right, absolutely. So what's happening in China is that, you know, because the PBOC, the central bank, keeps on cutting interest rates on the short end, investors keep on buying long-end bonds, like the two...
into 10-year, 20-year. And the 10-year bond has kept on testing record lows. And I think what they should do is just to issue even ultra-long bonds, so that the benchmark 10-year yield is not just so low. You're writing also about the great state of Vietnam. When I read this, I thought immediately of the consequences
of the trade war, right, that is likely to unfold between the U.S. and China. That's a big part of the story, is it not? Yes, absolutely. I mean, like, so what's happening since the Trump trade war is that Northern Vietnam, and a lot of Americans are very familiar with that, right?
In the past, Northern Vietnam was not as economically prosperous as Southern Vietnam, like Saigon, etc. But in the past four or five years, a lot of Chinese companies, they've been moving their supply chain to North Vietnam because it's in a way close to China. Whatever the industrial catalog items that they are missing, they will just go back to Guangxi to fetch it. Right.
So I'm worried that Trump is going to see that. And let's hope not. Julie, before I let you go, tell me a little bit about what you expect in the new year when it comes to European luxury manufacturers and the business they may end up doing in Asia.
So the European luxury houses, they are having a very tough time in Asia this year because, I mean, they've been raising prices like crazy. One Chanel bag, I'm sorry, I have been a shopper for 20 years. One Chanel, classic Chanel bag costs like over $10,000. And just like seven, eight years ago, it was...
not even half as much, you know? And then people are asking, I think Americans are starting to realize that as well. Like, what am I paying for, right? And then the Chinese consumers, the economy is not so great, there is the wealth effect, and they also have shopped for 20 years as well. And they're just saying, okay, we want to see a bit of value for money. So I think for next year, the European luxury houses, they have to come up with something that's new and interesting.
or just stop raising prices and, you know, like, just provide better value for their luxury goods. Shirley, it's always a pleasure. Thank you so much for sharing your views on what may happen in 2025. Bloomberg Opinion columnist Shuli Ren joining us from Hong Kong. We want to stay in China. The country appears to be at a crossroads, and Beijing is acting as though it's acutely aware of that fact.
The challenges are many, although I think it's fair to say a lack of confidence appears to be the most significant hurdle. We've seen the effects of some recent economic stimulus fade, and officials have been signaling stronger stimulus to boost consumption. This is a major shift in the government's thinking. Let's take a closer look now with where things stand in China with Joe Nye. He is Greater China Chairman at McKinsey & Company. Mr. Nye joins us from our studios in Hong Kong. Thank you for taking the time to chat with us.
I'm curious about your analysis, given the dynamics in the Chinese economy. If you had to pinpoint one thing that really needs to change in order for China to thrive, what would it be? First of all, thank you for having me here. I think that confidence in China definitely is the number one topic. And I think that that has been probably for the last two years.
I do think that we are moving from, I would say, the last two decades of breakneck growth into all of a sudden in the last two, three years, there seems to be the recognition and maybe an acceptance that growth going forward is going to be very different from the context from before.
But what you have is that in the past couple of years, there actually has been quite a lot of supply, whether this is going to be industrial production, whether these are flats being built. I think that the engine that have powered China in the past two decades didn't actually stop until quite recently. So all of a sudden, you have this massive, I would say, supply-demand
that needs to be recalibrated. And there needs to be an expectation management from corporates into citizens, into governments, that we're going into a period of much more moderate growth like the rest of the world has been seeing. When you hear the term overcapacity, is that apt? Does it help describe a little bit of what's happening on the industrial side?
Well, I think that we actually have been seeing in China in the past two decades where they feel like if I actually have the capacity to build and I have the efficiency to do something that is more valuable money in the rest of the world, I can export it.
products. I think that that equation has changed a little bit now that there has been a lot more, I would say, industrial protectionism around the world that will change that equation. Now, when you change it, I think that the factories in China need to get used to that. But unfortunately, in the past two years, they actually have been building to cater for that demand. And I think that the
what you're seeing right now is there's not a lot of new capacity being put on right now, but you're seeing a little bit of digestion of the past two years of capacity that's been built. So I do think that it is an oversupply in the sense of a slowing demand, what you see around the world and in China. But at the same time, the saving grace is that I would say that the investment has been really, really melted in the past 12 to 18 months. So the new capacity is going to be much, much slower. So you alluded to this idea of precipitating
protectionism, and I want to explore this a little bit if I can. The threats here being made by the incoming Trump administration in the U.S. tariffs on imported Chinese goods, and I'm aware of how many of the companies doing business in China have already begun to reconfigure their supply chains. Do you think the tension between Washington and Beijing that we're likely to see after the first of the year is going to begin to shift, transform,
trade flows in a major way? Or is this something that will probably get worked out through negotiation? How would you evaluate that? Well, Doug, this is not news, right? This has been going on for the last few years. If you are a Chinese manufacturer or anyone who's an export business, you have been dealing with actually a shifting trade in the past few years. In fact, I would say that three, four years ago, they were much less
I would say, ready for the tariffs and for all the trade shifts that's going on. China Plus One is a well-documented strategy by both multinationals as well as Chinese companies. What you see when China exports to the U.S. have dropped from
Until now, only 15% of U.S. imports are from China. You see, correspondingly, the Chinese trade is going to Southeast Asia. ASEAN right now is the largest trading partner to China. You see actually a lot more Chinese, we call it the global south trade that's going on. So, I absolutely think that the trade patterns are being reconfigured. And that has been going on. So, I would say with a new administration coming in,
You know, I think it's a continuation of what we're seeing. Would that be a celebration of a continuation? I don't know. But I think that it is certainly not news. And I think at this time, I think that everyone is, in some ways, much more prepared, you know, for the uncertainty of this to happen. Mr. Nye, thank you so much for your time.
Joe Nye is Greater China Chairman at McKinsey & Company. I'm Doug Krisner, and 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 Daybreak Weekend. Join us again Monday morning at 5 a.m. 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.
Welcome back, Ms. Klein.
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