Daybreak Weekend: Bank Earnings, UK Property Market, China Trade

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1:02Bloomberg Audio Studios. Podcasts. Radio. News.

1:10This 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, a look ahead to key inflation data in the U.S. and earnings from some of Wall Street's biggest banks. I'm Nathan Hager in Washington. I'm Caroline Hepker in London, where we're asking if the UK's property market can survive an exodus of the country's wealthiest individuals. I'm Doug Krisner, looking at the changing trade dynamics for China. 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.

2:02Good day to you. I'm Nathan Hager. And we begin today's program with some key economic data in the U.S. The December Consumer Price Index is due out this Tuesday at 8.30 a.m. Wall Street time. For more on how the inflation data could impact Fed policy moving forward, we're joined by Michael McKee, Bloomberg's international economics and policy correspondent. Thanks for being here with us, Mike. Are we expecting many distortions from this inflation data, given that we've just come out or recently come out of a government shutdown? Let me sound like an economist and say yes and no. Thank you. Two-handed.

2:42The problem is we didn't get any October data, and the BLS just assumed all the numbers were zero. And then in November, we didn't get a month-over-month number because there was no October number. And so basically, we're going to have distortions built into the data going into any month for several months. So yes, there will be distortions in the December data. However, what we will get is a full report on prices in December. It's the comparisons and how much has changed over the month that we're going to have a little trouble parsing out. But we will get complete tables for all of what the BLS surveys in terms of prices for the month.

3:24So our first non-Swiss cheese consumer price index since the shutdown. down. So what is the expectation as far as what we're going to see when it comes to price pressures here? Well, the expectations, and because of what I just said, there's not a lot of wide confidence band around this one, but people are thinking we're going to see about a three-tenth increase in both the headline and the core, which is a little hot, but it doesn't really move the year over year on the headline. It stays at 2.7%. Core moves up to 2.7 % in the Economist consensus forecast from 2.6. And even if we do see distortions, the bottom line there is it's not going in the right direction.

4:05And that's what would matter to the Fed. And you combine that with the jobs report we got on Friday, which showed weak job creation and the unemployment rate going down, it all would make the case that the Fed doesn't need to cut rates again. You know, it's interesting because, you know, coming ahead of this consumer price report, We heard just this past week from Fed Governor Stephen Myron on Bloomberg Radio and Television saying he sees underlying inflation pretty low compared to where we've seen it on the consumer price data at 2.3%. What's his rationale for that? Does it make sense? His rationale is there are several aspects to it, one of which is that we're seeing a big productivity gain.

4:52And that should mean that there's less inflation and that if you take out the effect of tariffs, you have less inflation. That's like the old if you don't count food or energy. So there are a number of things that he argues that are maybe plausible but don't make sense at the same time. because it doesn't seem to reflect the real world. It seems to reflect a world that he is hoping would happen. But the numbers haven't proven that out yet. So where are we seeing price pressures at this point? We're seeing prices go down in most areas, but there are sort of the fearsome five, as Stephen Stanley of Santander calls them, that includes things like airfares, rents, medical insurance, car insurance, that sort of thing, that fly under the radar but see prices going up on a regular basis.

5:49We've seen food prices, they're continuing to rise but at a lower rate. It's just that because prices went up a lot, people see every day that they're paying an expensive amount for groceries, and that's one reason that they're unhappy even if the inflation rate isn't going up as much. One of the things that moves around a lot is used car prices. And the feeling is used car prices from those who track the wholesale numbers might come in a little bit lower, and that might hold down some of the inflation, but you just never know. And, of course, this is a holiday month as well. Are we expecting much holiday impact around what we could see on price pressures?

6:31It is certainly possible because we saw this in November because you had the Black Friday sales weekend at the end of the month that we saw prices go down as retailers were discounting. And that shows up in the data for consumer goods, toys, things like that. And so there's a very good chance that we would see something like that again in December. But that happens every year. So the BLS would use seasonal adjustment figures to try to take any distortions out of the numbers. The problem is that the seasonal adjustment numbers were distorted by the fact that we didn't have any government reports for a month and a half.

7:12So it is possible we see something. Appreciate this, Mike. As always, that's Michael McKee, international economics and policy correspondent for Bloomberg News. Let's turn our attention to earnings now because fourth quarter reporting season kicks off in a big way next week when we hear from some of Wall Street's biggest banks. It all starts with JPMorgan Chase Tuesday. Then we'll hear from Bank of America, Wells Fargo and Citigroup on Wednesday. Herman Chan covers all these banks. He's senior banks analyst for Bloomberg Intelligence for banks in the U.S. Herman, jog my memory here, but it feels like the biggest financial firms on Wall Street keep delivering quarter in and quarter out.

7:53Is that the case, and is that what we're expecting in the fourth quarter? Yeah, that's right. The big banks have really driven a lot of the top-line revenue growth for the industry, particularly not only in fee areas like trading, investment banking, but they're growing their balance sheet faster, too. So all of that's really driven the outperformance for the biggest banks relative to regional banks and smaller community banks that are publicly traded. So we're talking about the biggest banks, the KBW index, up about 16 percent over the past three months. So a lot of enthusiasm for bank shares heading into fourth quarter reporting.

8:31I have to think that a lot of that enthusiasm is driven as well by the way Wall Street ended 2025, a pretty strong rally in the fourth quarter. How could that be reflected in the results that we get from these banks next week? Yeah, that's right. So recently at an investor conference, the biggest banks like J.P. Morgan, Bank of America talked up their trading prowess. And for J.P. Morgan, for example, talking about trading up low teens year over year, Bank of America up high single digits year over year. And so that really bodes well for top-line performance and on the investment banking side.

9:12We're seeing more of the same, up low single digits for J.P. Morgan, flat to modest decline for Bank of America. So really strong results on the capital market side. And looking at industry indicators, loan growth continues. We're seeing some healthy activity across commercial lending to businesses and large corporate clients. And really the biggest driver for lending in the fourth quarter will be cards, which is seasonally strong, and also lending to non-banks, which has been a growth for the industry throughout 2025. So really positive results on the lending side and also trading investment banking.

9:51Of course, we're in an environment where the Fed has started cutting interest rates again, coming off three straight interest rate cuts to end 2025. What could that mean for net interest income for these banks? Yeah, that's right. That's something that should be helpful, right? So two areas, two aspects for a lower rate environment that should be helpful for banks. One, banks are lowering their deposit costs, their funding costs that help support the balance sheet. So we're seeing, on average, about 50 % of the Fed rate cuts are passed on to your depositors. So that hurts you and me when we have savings at a bank.

10:29But that's helpful for banks and how they generate net interest income. Secondarily, we're seeing a steeper yield curve after the rate cuts, particularly within the belly of the curve. So with the five-year versus the short-term interest rates, that's actually positive after a long period of negative yield curve on that front. So that's helpful for when banks reprice some of their fixed-rate assets. And just big picture, that's helpful for their net interest margins. And we'll see that trickle higher in the fourth quarter in 2026. And just to hone in on the banks individually, let's talk about JPMorgan Chase.

11:07Because we've heard recently from CEO Jamie Dimon talking about cockroaches in the credit markets. How are we thinking about J.P. Morgan's asset quality right now? Yeah, sure. That's a great question. So the cockroach concern was really within their exposure to Tricolor, which was a subprime lender in autos. And they really stubbed their toe on that one in the third quarter. What's helpful is that overall the economy is really strong, and tricolor is a very small exposure relative to the trillion-dollar asset size that J.P. Morgan wields. So it's really, in our view, an idiosyncratic one-off type issue for J.P.

11:54Morgan. That's really in the rear view. And commentary from the bank in the fourth quarter seems to indicate that credit quality has been fairly strong with the consumer continue to transact and spend. So healthy consumer activity and really bodes well for credit quality for the fourth quarter. When it comes to banks like Bank of America and Citigroup, we think of them often as pretty closely tied to the consumer. What are we thinking when it comes to the health of the consumer right now and what we could learn from those banks? Yeah, I would echo what I just said about J.P. Morgan, where for Bank of America, CEO has been on Bloomberg TV and has said that the consumer is really strong.

12:39I think that that's really reflective of who they bank, where it's not the customer that's more on the subprime level, where they're more affluent, high net worth type clients on the loan side. So there's not a lot of subprime loan exposure for these large banks across the spectrum. And so despite the prognostications of a K-shaped economy, the actual credit exposure is on the higher end of the consumer. So that really bodes well. I really appreciate this, Herman, ahead of a really busy week for you, I know for sure. That's Herman Chan, Senior U.S. Banks Analyst for Bloomberg Intelligence. Coming up on Bloomberg Daybreak Weekend, we'll discuss whether the UK's property market can survive the country's wealthiest individuals leaving.

13:31I'm Nathan Hager, and this is Bloomberg.

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14:51This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Up later in the program, we'll look ahead to the latest trade figures in China. But first, in the coming days, new data will shed light on the state of the UK's housing market. With rising living costs and a proposed new tax to contend with, how will the country's property sector fare in 2026 and the years to come? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepger. Nathan, 2025 was filled with headlines about the ultra-wealthy leaving London and other parts of the UK, fleeing wealth taxes and broader policy changes.

15:32High-profile exits included those of Checkout.com founder Guillaume Pouzaz and Egypt's second richest man Nasef Souriris. The measure that has pushed many to seek new horizons was the Labour government's scrapping of the preferential tax regime for non-domiciled residents that had, for years, allowed them to avoid UK taxes on their overseas earnings for as long as 15 years. In the wake of a range of tax changes in Britain since early 2024, London's property market has slumped. Deals for homes in the capital valued at£5 million, that's$6.7 million or more, fell by more than 35 % between August 2024 and August 2025, according to researcher Lonres.

16:21In October last year, sales of UK homes worth at least£2 million plunged 13 % year-on-year, according to data from the property website Rightmove. Clementine Munro is private office advisor at the real estate broker Allsop & Allsop and told Bloomberg that the country's super-rich are losing patience with the constantly shifting agenda. There is a real sense of fatigue amongst the wealthy in the UK. They're used to tax planning, they're used to planning for their futures. And this constant environment that we've had of uncertainty is certainly having a knock-on effect as people start to look to de-stirling their portfolios and move some of that wealth into landscapes like Dubai, where it's much easier to forecast for the future and the tax landscape is so clear.

17:11That was Clementine Munro from real estate broker Allsop and Allsop speaking to Bloomberg's Jumana Bissechi. So will wealthy Brits continue to depart their native shores? And what could the lasting impact of their decisions be on the UK's property sector? I've been speaking to Bloomberg's real estate reporter Damien Shepard and our ultra wealth reporter Ben Stupples. Damien, can I just start with you on the data, what we're expecting in terms of UK house prices and what the story I guess has been so far. Yes we've got some data coming next week from Ricks. We basically get the sentiment from property professionals in the UK around the temperature of the UK housing market.

17:51Now they were pretty gloomy last year particularly in the lead up to the budget where all of the kite flying and speculation essentially led to people putting their house moves on ice. So it will be really interesting to see how they view the prospects of the UK housing market in 2026. Now we're finally past that long wait for the budget. My expectation this year is that prices across the country won't move dramatically. I think what we'll see is a big divide in the prospects of London and the rest of the UK, a north-south divide where those living in the north might see their values actually grow a little.

18:28What we did see in the budget was a mansion tax on homes valued at£2 million or more. um now what we could see this year in london is a repricing of up to five percent of those homes uh in in terms of value so those sitting on property worth two million pounds or more might see sort of a quick repricing uh across this year in london and then see things settle down again but the prospects for london look far gloomier than the rest of the uk which i'm sure ben uh will tell us a lot more about later on yeah absolutely well i'll bring you in at this point Ben just because we're focused on the property market also as a result of all of the discussion and the concern about the number of people actually leaving the UK especially on the kind of higher end.

19:15How do you think that kind of ties together I suppose property and the number of people actually leaving the UK what do we know? It's a really interesting question because anecdotally I can say that the non-doms and actually the sources I've lost to amid the UK wealth turmoil, they're not often selling their property. I mean, it turns from a great place to live in central London into actually a pretty good asset to own in your global portfolio, right? If you're an ultra high net worth, owning a bit of London property that often you've coveted for a long time, and you've probably still got a lot of your stuff there, actually, you don't want to sell it, especially actually, it's because the market's pretty subdued.

19:55What is interesting is I've seen a couple of billionaires. I mean, these are multi-billionaires. They are exporting a large part of their households. We actually found one example where one of the guys who owns one of the Premier League football clubs, Nassif Suiris, he turned in previous years, he imported artwork, paintings, books. You know, imagine the top billionaire elite, what you would have at your disposal. And it's all being exported in 2025 as he builds a new life in Abu Dhabi and in Italy, having lived here for almost a decade. So I think that's maybe a good case study of what we're seeing is, okay, they're not selling their homes.

20:33It's a great asset to have. But actually, the homes themselves are probably going to look pretty different, look very different going forward. And actually, it raises questions, the ancillary services that you have is a big homes, you know, you have staff, you probably have a gardener, you probably have, I don't know, a driver. Now, I think what we will see more examples of this year is the spillover effects into maybe more normal types of London's economy that serves that sort of segment that we often don't think of. But actually, these are normal people. And I'm going to be very interested to see how that can sort of continues to play out this year.

21:08I mean, I suppose it's perhaps, Damien, a little bit hard also to feel sorry, maybe for people who have homes that are out of the reach of most the majority of sort of ordinary Londoners or Brits. But as we're sort of saying, how important is the luxury end of the market actually to the UK economy? I suppose, why should we care about those sorts of properties? It's a great question. And people ask me that question a lot when they see my stories. But I think wealth creation is so important for the UK. And with the Labour government, having been seen to be pushing a lot of wealthy individuals away, the more knock-on effects that taxation has on these people and their status in the UK will eventually build up pressure on the government in the long term in terms of the economic advantages that they bring to Great Britain.

22:01So, I mean, what Ben mentioned there about how these people aren't actually selling, but just moving away for a little while while they see how the picture in the UK pans out, is kind of similar from the perspective of buy-to-let investors as well. They're under all sorts of pressure from taxation, new regulation. But because the market is so weak in terms of buyers, even if these people did want to sell their property, they'd be selling at such a huge discount that it's keeping transactions low. And we're not actually seeing this exodus in terms of sales of these homes that some might think. So, in some ways, the fact that the market has been so weak has prevented us from seeing some of these homes sell that perhaps would have in different circumstances.

22:49Look, historically, it's not unusual for the UK to see boom and bust cycles in the housing market. So I'm kind of curious that with all of the pressures that you both mentioned, that actually you kind of see quite a bit of stagnation. Is there even an upside maybe that as very sort of inflated, a lot of people would see them as inflated property prices in the southeast of England, if they start to come down overall, that there's a positive story there? because actually for younger people or others, they maybe can get on that ladder. Is that another part of the story? Well, it's a difficult one because, you know, as somebody who just about still considers myself young, house prices are just so high that it makes it incredibly difficult to see any light at the end of the tunnel, even when mortgage rates do come down.

23:37But if we're looking at it from a positive perspective, mortgage rates are lower than they were for the past couple of years. the damage that we saw in the years after the mini budget were really quite catastrophic on the mortgage market. We were back to the levels that we were seeing about 15 years ago. So, mortgage rates have come down. Affordability is improving. And if you're looking to buy a property in the north of England where the market's looking a lot stronger, people are happier up there when they're viewing their housing portfolios, the potential for their values to increase. So there is some light at the end of the tunnel in terms of mortgage rates coming down.

24:16But we really need to see the actual prices of these homes come down for first time buyers to really shake off that frustration that they have in getting on the housing ladder. Yeah, absolutely. You're definitely still young, I'm sure. Thank you. Ben, I think it's also fascinating that the last two, three, even four budgets have been simply so important when it comes to sort of dictating the landscape, not just for property, but for lots of things in the UK. When you're thinking about your reporting, how big a factor is the mansion tax, the non-dom changes? How are you thinking about those now?

24:56To take that in order, the mansion tax actually, if you're a billionaire, paying a few more thousand pounds a year for owning a home you like living in or you still want to hold as an asset, that's not such a big deal. I spoke to a UK billionaire John Caldwell on the back of that being announced and he said, look, that's fine. I'm a UK taxpayer, happy to pay that. The non-DOM stuff however, including with that billionaire I just mentioned, that's a big deal. both for the UK billionaires who see actually a lack of maybe an ecosystem shrinking from their perspective. Their peers aren't here as long as they would otherwise be previously.

25:36And the non-dom reforms, I mean, that is the big driver. It's twofold. One, it's scrapping the 15-year regime that we had up until April 2025. Now, that was long enough. And this is the key thing. It's the time. You could be previously in the UK for 15 years, enjoy, put down roots here. That's, I think, the key thing here. Why 15 years is sort of asking the question why they're 18 holes in a golf course. I'm not exactly sure why the UK settled on that time about a decade ago for previous reform. But the general thinking is that it allowed you to come here and put your kids through school. And by the time you get to 15 years, maybe your kids by then are at a UK university, maybe in Oxbridge.