Trump Says He’ll Visit China; Xi Presses US Leader on Taiwan

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2:15Carol Massar:Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies and trends shaping today's complex economy. Plus, global business, finance and tech news as it happens. The Bloomberg Businessweek Daily Podcast. With Carol Masser and Tim Stenevek on Bloomberg Radio. Judge dismisses cases against former FBI Director James Comey and New York Attorney General Letitia James after finding that the prosecutor was illegally appointed. You've got that going on. You've got President Trump and President Xi of China talking today, Ukraine and allies warning the United States against rushing to end Russia's war.

3:05Carol Massar:So, Tim, we knew we needed to kind of head back to D.C. and do a little bit of a roundup here. Well, there we find Bloomberg News, Senior Editor for Technology and Strategic Industries, Mike Shepard. He's in our Bloomberg, Washington, D.C. bureau. Mike, first up, the judge dismissing the cases against former FBI Director James Comey and New York Attorney General Letitia James after finding that the prosecutor was illegally appointed certainly feels like a big setback. We spoke to June Grosso a little earlier. Is it the end in your view of legal woes for these two? Maybe not entirely, because the Trump administration may try to find a way to revive these in some fashion.

3:43But the judge was firm in the dismissal of those two proceedings. And it would certainly appear that there is no avenue open through that. That does not mean, though, that they cannot try to restart something. Yet again, we are only in year one of the current administration. And the president has made clear that he would like Pam Bondi to use the authorities of her office at the Justice Department to pursue the people who have crossed Trump in some fashion in the past. But particularly James Comey, who made an enemy of the president many years ago, even before his first administration.

4:25Carol Massar:All right. But nothing from the White House or the president so far on this? So far, no, we haven't seen a truth social post, and the president has not yet appeared in public yet. So we'll be waiting to see. But we do get a sense from the Justice Department that they are disgruntled and unhappy about this finding. And yet the prosecution was riddled with missteps from the start, especially in the case of James Comey, in the question of how, what the grand jury saw and whether they saw the finished indictment. It was really a mess every step of the way procedurally. And, you know, the question is whether the president will push his appointee, Pam Bondi, to try to resurrect a case in some fashion.

5:07Carol Massar:All right. So maybe no social from the president of the White House on that. But we did get some. Not yet. The day is still young. But we did get some social from President Trump talking about China, mentioning we got some reports initially from the Chinese foreign ministry about a conversation, if you will, between President Trump and President Xi. But President Trump on Truth Social coming out and saying our relationship with China is extremely strong. This call was a follow up to our highly successful meeting in South Korea three weeks ago. President Xi invited me to visit Beijing in April, which I accepted and I reciprocated, where he will be my guest for a state visit in the United States later on this year.

5:49Carol Massar:What's going on right now between the two countries? Where are we? I can't even keep track between trade and tariffs and security issues and chips and so on and so forth. Where are we? Well, it's a good question, Carol, because this call was not really on anybody's bingo card really at this moment. The two sides had just held that highly anticipated and highly orchestrated meeting at the end of last month where they forged this trade truce. And it seemed a little early to actually have the two leaders do a check-in call. And the message between the president's readout of his conversation with his Chinese counterpart, Xi Jinping, and the official Chinese news agency's version was pretty stark.

6:33Donald Trump really stressed that the call was very good. He talked about his plans for a visit to Beijing and his invitation for Xi to come visit the U.S. later next year. He also talked about some of the key trade points that had come up and had been agreed to during this trade truce, namely increased purchases of soybeans by China, efforts to curb fentanyl trafficking and so forth. And yet the version that we got from China was a very different tone. It really stressed the conversation on Taiwan. And we have to remember that there is a spat brewing between Japan, a major U.S. ally and trading partner, and China over the island.

7:16And that is because the new Japanese Prime Minister, Sanai Takayashi, had expressed that Japan might leap to Taiwan's defense in the event of a hypothetical invasion by China of the island. China views Taiwan as its territory and has said that if necessary, down the road, it would weigh whether to take it by force. Now, the U.S. has maintained strategic ambiguity over this, and the comments by Japan raise questions about whether the U.S. would side with Japan on this matter. The president was artful in not bringing up Taiwan in his Truth Social post, but the Chinese were very direct. And it does seem that they were trying to enlist the U.S.

8:02or at least warn the U.S. to back off a little bit in this confrontation with Tokyo. OK, well, we said we'd go around the world with you and we're going to do that. Mike, I want to talk Ukraine because Ukraine and its European allies signaled that the key sticking points remain in U.S. brokered peace talks, even as senior officials held progress in winning more favorable terms for Kiev from a proposal backed by by President Trump. Where does this leave the peace process between Russia and Ukraine? It is still ongoing and it is probably not moving nearly as quickly as President Donald Trump and his advisers would like.

8:36They had given authorities in Kiev, including President Volodymyr Zelensky, until Thursday of this week to accept the proposal that they had presented last week. But that version really contained a lot of the demands and desires of the Russian government. It was forged in conversations between Moscow and officials from Moscow and Washington and presented without much consultation at all with officials in Kiev and in European capitals. And they have since met with the U.S. side to express their reservations and concerns. And those specifically center on questions of territorial concessions that Kiev might be expected to make in any peace agreement and also the security guarantees that might be baked into any final accord.

9:26The European allies of Ukraine and Ukraine have expressed concern that those provisions were not nearly strong enough and they needed to be discussed. Now, the proposal presented last week has now been whittled down to 19 points from the 28 that were framed originally last week. And the conversation is ongoing. And we heard Friedrich Merz, the German chancellor, express some optimism, guarded optimism about progress having been made. But he did see that things were a long way off. So we'll have to see where this actually goes and if it does bear fruit ultimately in a further conversation about how to end the war there.

10:07Carol Massar:Yeah. And where are we like in our third year, I believe, at this point? Are we in our third year? We're approaching four, right? Four in February. It will be four four years in February. Amazing. All right, Mike, thank you so much. Around the world of Washington, we went Bloomberg News Senior Editor for Technology and Strategic Industries, Mike Shepard. Thanks to him, we did that. He is there, of course, in the Bloomberg News Washington, D.C. Bureau. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

10:40What if data didn't sit still?

10:42Carol Massar:What if intelligence moved with us? Not buried in reports, but activated in real time. Where lives are being shaped. Where decisions are being made. It all starts with a question. Where is the potential? Coatality turns data into clarity. Intelligence into insight. Insight into action. Because when intelligence moves, we all move forward. Coatality. Intelligence beyond bounds. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions.

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13:09Carol Massar:With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. As we get ready for a U.S. government read on retail sales for the month of September, Remember the data that's coming out tomorrow. That may give the U.S. bond market some direction. Carol, it's on track for a small gain in November after rising in eight of the prior 10 months, even as the market is mired below October's price highs and yields.

13:50They're range bound.

13:51Carol Massar:They are indeed. Let's get to it. Let's continue on the U.S. economy and U.S. treasuries. Back with us is Jennifer Lee. She's senior economist and managing director of economics over at BMO Capital Markets. They've got just over a trillion dollars in assets. That was as of the end of the second quarter. Jennifer joining us once again from Toronto. Jennifer, great to have you here. We did talk last on September 10th. It was just before the longest U.S. government shutdown began. It's now over. The data desert is no more. What's your read on the U.S. economy as we start to get some data points? Well, first of all, good afternoon.

14:26Carol Massar:Thank you very much for having me on. And by the way, my head is spinning thinking about all the politics that's going on and all this AI productivity stuff. And now we've got all the data. So there's gonna be a lot more spinning going around. And I mean, so far, we haven't had a very clear read on the economy from some of the data that we've seen so far. I mean, I guess I could say that it's been pretty still steady, resilient, if you will. But you know, the data are kind of old, right? And I sort of have to wonder, you know, how much we're going to see in terms of revisions in the coming months as well, just given that the shutdown seems like it just ended.

15:00Carol Massar:And everyone was like, hustle back to work and let's start getting those surveys and all the data points out. So I think we had to take everything with a grain of salt. Plus, all of this data is coming before the shutdown, before that 43-day long shutdown. So we're going to see some highs. We're probably going to see some lows. So we're going to have to probably go into towards the new year before we start seeing some cleaner data. Cleaner data because the shutdown will be over unless it starts again on January 30th. And, of course, we're going to see some revisions. So, so far, I will say this is my wrong-witted way of answering your question.

15:30Carol Massar:So far, it seems like it's okay. Not ready to start talking about another government shutdown at this point, Jennifer. Before we get there, we'll get some other data. Even during the shutdown, we did get some alternative data. And it seemed to indicate and also commentary coming from companies that the labor market in the U.S. is weakening. And I wonder which part of the wonder from you, which part of the Fed's dual mandate the Fed should be more focused on right now. Is it stable prices or is it maximum employment? I think right now the focus is on the job market. If you had asked me this like a month ago or so, I would have said inflation.

16:02Carol Massar:And I would have been very lonely, I think, saying that because at that point I was still quite concerned about inflation. And I would say that it's still too early, even though we were like in October and all that. But just the fact that we are seeing some deals being made, we're seeing tariffs being lowered. I think it was this morning or over the weekend, with some tariffs of 40 % being brought down from Brazil, for example. So that will help food prices come down a little bit in the U.S. So that gives me some comfort that we are seeing inflation moderate in the months ahead. So because of that, now I'm thinking that the Fed is probably rightfully focusing on the jobs front.

16:40Carol Massar:And we'll have to see how that happens. I think, you know, we are, it's basically a coin toss at this point with the December meeting between inflation and all that. But I think they're going to err on the side of caution and focus on jobs and probably go for another 25 basis point cut on December 10th. Do you have any clarity when it comes to 2026? We are still seeing, and again, this is all, hopefully like a lot of this, these tariffs and all these deals will be settled by earlier in the year. And we'll hopefully see inflation, you know, moderating further. And because we'll see some clarity on the trade front, we shall hopefully see some of the job market indicators leveling off as well, being a little more steady.

17:21Carol Massar:Because I think a lot of the workers or employers earlier in the year did not know what was going on on the trade front. So they were holding off on hiring and firing or laying off workers. But they held off for a long time. And now we're starting to see some of those layoffs come into play. We saw like a big increase in the number of permanent layoffs, for example, in that September jobs report. So hopefully with some clarity on that front, some clarity on the fiscal front, and then now we're going to be focusing on the USMCA. We're going to be focusing on the midterms, which is not until November, but, you know, time just goes by just like that, right?

17:56Carol Massar:So with some clarity, again, on the trade front, tariffs coming down, I think that would hopefully be a little bit better for jobs. But in the meantime, we still look for after a December rate cut, we still look for about three more rate cuts to come from the Fed just kind of spaced out on a quarterly basis. All right. Just want to mention 10 year note at four point zero three percent to your note. Shorter end of the yield curve, three point five zero. Jen, Jennifer Lee, she's senior economist, managing director of economics over at BMO Capital Markets. This is the Bloomberg Business Week Daily Podcast.

18:26Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130. We're trying to make sense of the AI trade and how companies are funding their AI investments, because in the last few weeks there have been some observers who argue that the important company to look at is Oracle. Sure, shares of Oracle are up 20 % so far this year, but they're down close to 40 % since that all-time high reached back in September. And then there are the credit default swaps.

19:00The cost of protecting Oracle's debt against default reached a fresh multi-year high on Monday amid investor scrutiny of the debt spree to finance AI investments. We've got Robert Shiffman with us. He's Bloomberg Intelligence Senior Tech Credit Analyst. He joins us here in the Bloomberg Interactive Brokers Studio. Okay, so I'm going to go over some numbers here, but then I'm going to ask you a really basic question about this. So the price of five-year credit default swaps on the company's debt rose to the highest since October of 2022. It amounts to around$119 ,000 for every$10 million of principal protected.

19:32So those are the numbers. For people who don't know, why do we care so much about the price of credit default swaps, and how can they give us some insight into the health of a company? Well, this must actually be the top of the market. There has to be a bubble because you've got the tech credit guy sitting in the room, even though tech credit spreads are near their all time tight.

19:53Carol Massar:We have brought in some people from the GFC also. Obviously some panic. He called it. I'm going to answer an oracle, but let me start off just quickly by saying it's OK. Don't panic. Yeah. The markets are holding up reasonably well. There is a little bit of weakness and there are some yellow flags out there. And there is some company-specific information that's concerning. That being said, this whole AI trade, it's not a one-month, two-month, three-year trade. This is a 10-year trade. And right now, we're in a building phase, spending a lot of money without a lot of revenues coming in. So it takes time.

20:34I can't disprove a negative. I can't disprove that money is not going to come into Oracle or Amazon or Alphabet or Meta. but I think it is. Now, that being said, why is something like Oracle CDS concerning people? Well, it's because single-name CDS, particularly for investment-grade names, generally don't trade. They do trade in the BBB universe. Oracle has been a name that hasn't traded. And then the reason why is that there hasn't been a reason to hedge in the past. All of a sudden, there's a reason to hedge. Oracle issued$18 billion of public bonds. On top of that, they're in the process of syndicating 38 billion of private credit that I what I think is really driving this move.

21:17And what is that? Why was CDS originally created? It was for banks to hedge their loans. It became a trading vehicle for a lot for a long time. And when we hear CDS nowadays, we think about the financial crisis. We think there's a name that's wider. We're blowing up. Triple A's are going to are defaulting. And I just think we couldn't be that far from the truth. There's a combination of fundamental, but I think more technical reasons why this is happening. So you have banks that have tremendous amounts of exposure to data centers, not just Oracle, but a lot of these data centers that are non-investment grade, like CoreWeave, a lot of other data center builds that they don't have the ability to properly hedge because there's not active CDS.

22:03So how do you hedge your positions? Well, what you do is you hedge via the higher rated credits where you can potentially buy CDS that cost next to nothing, 20, 30, 50 basis points, even 120 basis points is not very much because that's how you can hedge your data center risk. And you can do it really cheaply. Then on top of that, what happens is hedge funds join in. You have a momentum trade here that goes on where somebody sees, whoa, wait, whoa, Bloomberg wrote a report on Oracle CDS. We haven't seen CDS in the headlines in 10 years. what's going on. First thing for a hedge fund manager to do is to say, I'm going to buy CDS.

22:41I'll ask, I'll get the answers later. And on the back of that, what ends up happening is, where do you find the natural sellers of CDS? Where do you find somebody that says, oh, you know what? Oracle at 60 over, 70 over, I'll sell you protection. Because what's my upside to doing that? And I think what's happened now is that you've got fundamentals that are not great in the near term. Oracle's free cash flow is going to be massively negative for the next few years. They're going to have to fund that with even more debt, which is going to have to be hedged both in the public and private markets.