Daybreak Weekend: Global Market Expectations for 2025

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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 Kryzner, looking at five possible events for Asian markets in the year ahead. I'm Stephen Carroll in London who are looking back at a historic year in British politics.

That's all straight ahead on Bloomberg Daybreak Weekend. On Bloomberg 11-3-0 New York, Bloomberg 99-1 Washington DC, Bloomberg 9229 Boston, DAB Digital Radio London, SiriusXM121, and around the world on BloombergRadio.com and the Bloomberg Business Act.

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 four and a quarter to four and a half percent was when the Fed was going up in rates.

And at that point, unemployment was high and inflation was in the sixth range. Now we're in the two 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 rate steady, what did she see? Well, as 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 Hammock 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 it could be 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 inflation. Is that the main driver you think? 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 percent. 2.7 percent 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.

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. So they raise their forecasts, and as we mentioned, Parliament 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 may be 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. And I think at 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, 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 we'll see what importance 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 years 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 are thanks to Michael McKee, Bloomberg's international economic and policy correspondent. We move next to the US 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 US 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.

So this year was obviously very heavy on generative AI. You saw lots of companies get into the space. You've seen OpenAI rollout 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 deeper integration at Microsoft through its co-pilot initiatives in partnership with OpenAI. So it's really all been AI. 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, if it would be to be remembered as anything in the tech sector, would make it the year of artificial intelligence. 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 on the user's behalf. There are very many, very much concerns about AI replacing jobs. So I think what you're going to see is now the technology is out there and maybe we can call it sort of 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. So 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 by 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 tech industry.

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, a 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 like to compare AI to the calculator, right? But the calculator is very different than something that can do all your homework for you.

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. 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 mouse trap in the car space. Couldn't should have been Apple. It won't be them. Well, it sounds like it's going to be China. Yeah. China in cars are becoming synonymous is the AI gets better and better. 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 US'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 it's, yes, I'm seeing it, but it's hard to know exactly what the cause is given that the last couple of iPhones that rolled out quite honestly weren't that impressive and did 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 looks 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 are 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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There are two kinds of people in the world. People who think about climate change and people who are doing something about it. On the Zero Podcast, we talk to both kinds of people. People you've heard of, like Bill Gates. I'm looking at what the world has to do to get to zero, not using climate as a moral crusade.

and Justin Trudeau. There are still people who are hell bent on reversing our approach on fighting climate change. And the creative minds you haven't heard of yet. Really don't need to have a tomato in December. It's gonna taste like nothing anyway. Just don't do it.

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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 block'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 the extraordinary events of 2024 and making some predictions for the year ahead. Regardless of everything that's happened since and all the all the grumblings that people might have with with the new government and Keir Starmer's performance. This is something that people in the Labour Party have literally been waiting, you know, 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. It is too early to make that judgement. We can see some early indications, certainly, that it isn't as easy as they might have thought it was going to be.

The problems structurally that the British state has are hard to resolve and you can't just come in and go well with the nice cuddly Labour party and we're much better than those awful Tories. Everything's going to be OK 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.

Now, what would you say we can learn from how labor have kind of taken to power in the past five months? What kind of lessons do we take from that? You know, strategically, if you talk to people around Kistama, 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 of 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 where 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 around to it. Now, if you speak to some other people in the top of the Labour Party, they would be perhaps a bit more candid and admit that actually perhaps they should have done a bit more policy work in opposition. Perhaps Labour should have, 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, et cetera, et cetera. And that is going to be a huge challenge for them. And the danger for kids' drama 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 offices 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 rights of how much 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 chance that 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 high economic growth in this country.

And, you know, turning that around is 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 has 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?

It's really interesting. There is this sort of incumbency problem. The politicians around the world have had, whether it's Jay Biden or Emmanuel Macron or Olaf Shultz or whoever, 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, where as in Britain we had a centre-right government, which was unpopular and gave way to it, to a centre-left government, so we've gone the opposite direction. That doesn't mean that we can't just be a few years after everybody else, and like you say, with the rise of reform, Nigel Farage, this sort of fragmenting of British politics.

There is a real threat to kere starmore and any incumbent and it's not necessarily the fact that it's kere 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 of people's

displeasure. You used to get people give politicians the benefit of the doubt for a few years and even Boris Johnson was sort of still popular long into the pandemic despite varying views on the performance of his government over that.

And similarly, you could say, looking back at Tony Blair at one elections after the Iraq war and so on. And so when 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 that's a problem for kids, Tom, because 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 criticizing a politician. And that's the thing that people read and so on and so on. And it was sort of perpetuates itself. There is a danger for Kistama 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 are going to be, you know, 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 up 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 reform somehow.

whether it's true or not that that could happen, 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 really real challenge for journalists because we sort of have to write with skepticism, Nigel Farage is claiming XYZ 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 into news and creating rouse and creating things for him to be in the middle of.

But it's, you can't ignore it. Other politicians have struggled for years with how to deal with him, and Labour placed this new dynamic now with Farrage 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 basket case.

This is a new world that is basically unprecedented. And I don't think Kia Starmer has a plan to deal with it. Nobody in labor 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 Varad 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 stammer humbled by new conservative leader Kenny Badenock 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 the chance to try it again and 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, we'll see what the OBR says in the spring. 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 the spring.

So that is going to create a massive route in the government that could be existential for particularly Reeves' Chancellor. She's not popular in the cabinet. Chancellors are never popular in the cabinet because chancellors' job is to say no to ministers' spending proposals. So, you know, it's not particularly radical that 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.

in London. You can catch us every weekday morning here for Bloomberg Daybreak Europe, beginning at 6 a.m. in London and 1 a.m. 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 lightning the load on their embattled IT and cybersecurity teams. To learn more, visit g.co slash workspace slash more secure.

There are two kinds of people in the world, people who think about climate change and people who are doing something about it. On the Zero podcast, we talk to both kinds of people, people you've heard of like Bill Gates. I'm looking at what the world has to do to get to zero, not using climate as a moral crusade. And Justin Trudeau.

There are still people who are hell-bent on reversing our approach on fighting climate change. And the creative minds you haven't heard of yet really don't need to have a tomato in December. It's gonna taste like nothing anyway. Just don't do it.

What we've made here is inspired by Shock Skin. It is much more simplified than actual Shock Skin. Drilling industry has come up with some of the most creative job titles. Yeah. Tell me more. You can imagine. Tool pusher. No. Driller. Motorman. Mudlogger. It is serious stuff, but never doom and gloom. I am Akshad Ratty. Listen to Zero Every Thursday from Bloomberg Podcasts on Apple, Spotify, or anywhere else you get your podcast.

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 Kriesner.

Tom, 2024, proved to be an eventful year for markets right across Asia. There was China's stock market route 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. And I was 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 some Hong Kong is experiencing 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 a new world development as an example. It's run by the Chen family and they have made a lot of money selling properties and the jewelry to mainland Chinese, right? And then they have a lot of bank loans. In fact, HSBC is their biggest banker.

And they have about a billion worth of US dollar bonds outstanding. And of course, they're also publicly listed on Hong Kong stock exchange. So they're also shareholders. Let's talk a little bit about luck and coffee next. This is a name that I've forgotten entirely about because it's delisting here in the US, right?

Yes, so they came to get listed in the US within two years after their funding, and then they were found to have committed a accounting fraud in 2020, and they were forced to delist from their stack back then. But the Lucky Coffee has had quite a comeback.

They sell a pretty cheap coffee, and then their service is more streamlined. And in the last few years, they suddenly became China's biggest coffee chain. And they were all numbering Starbucks in terms of a number stores and in terms of sales. And to make matters worse for Starbucks, they are actually planning to enter the US market. Because they think that Americans are just tired of $7 a day from Starbucks.

So what about luck and 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 and millions of dollars fines to the SEC. They just want to have a cling slate. And at one point, they were hoping to relist with 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 Euro zone during the, you know, like when the European countries, they were having their deflation, right? Like Austria issued a century bound in 2020. And it was doing very well. I mean, like at one point it was trading at 140

cents on the dollar. So that was quite popular because investors, they 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 years, 30 years, or even once more, 50 years. But they shouldn't be. I mean, like the Communist Party

thinks they will be around for another century, right? 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 because the PBOC, the central bank keeps on cutting interest rates on the short end, investors keep on buying long-end bonds like in 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. And so that the benchmark 10-year yield is not just so low.

You're writing also about the great state of Vietnam. And when I read this, I thought immediately of the consequences of the trade war, right? That is likely to unfold between the US 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? Like in the past, Northern Vietnam was not as economically prosperous as Southern Vietnam, like a Saigon, et cetera.

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, like whatever, the industrial catalog of items that they are missing. They will just go back to Guangxi to fetch it. So I'm worried that Trump is going to see that. And let's hope not.

Surely, 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 shopping for shopping for 20 years. One Chanel classic Chanel bag costs like over 10,000 US dollars. And just like seven, eight years ago, it was

not even half as much. And then people are asking, I think Americans are starting to realize that as well. What am I paying for? And then the Chinese consumers, the economy is not so great that there is the wealth effect. And they also have shopped for 20 years as well. And they're just saying, OK, 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 a, I would say the last two decades of kind of breakneck growth, right, into all of a sudden in the last two, three years. There seems to be the recognition and maybe a, you know, a 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, right? 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 a expectation management from corporates right into citizens in the government 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 in singing 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.

My products I think that that equation have changed a little bit now that there has been a lot more I would say industrial protectionism around the world that will change the equation now when you change it I think that you know You know the factories in China need to you know get used to that but unfortunately the past two years they actually have a building and

to cater for that demand. And I think that 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 the digestion of the past two years of capacity has been built. So I do think that it is a 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 slower.

So you alluded to this idea of 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 US 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

trade flows in a major way or is this something that will probably get worked out through negotiation? How would you evaluate that? Well, 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 US has dropped until now only 15% of US imports are from China.

You see, you know, correspondingly, the Chinese trade is going to, so this Asia, ASEAN right now, is the largest trading partner, right, to China. You see, actually, a lot more Chinese. We call it the global self 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 and strategic coming in,

You know, I think it's a continuation of what we're seeing. Would that be a celebration or a consideration? 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 for the uncertainty of this to happen. Mr. Nye, thank you so much for your time. Joe Nye is Greater China Chairman at McKinseyan Company. I'm Doug Kriesner, 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.

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