Daybreak Weekend: Fed Decision, Scotland Trip, China PMI

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2:06And straight ahead on the program, a look ahead to this week's monetary policy decision from the Fed. Also earnings from more of Tech's Magnificent Seven. I'm Tom Busby in New York. I'm Caroline Hetker in London, where we're asking if President Trump's Scottish golf trip can yield any political wins. I'm Doug Krizner looking at the Chinese economy ahead of fresh PMI reports in the coming week. 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.

2:51Good day to you. I'm Tom Busby, and we begin today's program with this week's Federal Reserve Policy Meeting. The Fed will issue its latest decision on interest rates on Wednesday with a press conference expected from Fed Chair Jay Powell to follow. What will the Fed decide and what's behind the central bank's thinking? And for more, we're joined by Edward Harrison, senior editor at Bloomberg, author of Bloomberg's Everything Risk newsletter. Well, Edward, a critical decision from the Fed. What are you expecting to see happen this week? Hey, Tom. Yes, it is a critical decision because of the political pressure that we've seen applied to the Federal Reserve.

3:30The market widely expects interest rates to stay the same, in particular because we haven't implemented the final round of tariffs yet. We don't know how the economy is going to react to that. If you look at the pricing from the market, it's expecting not just this meeting to be the same, but there's only a slight chance, maybe a 60 percent chance that we get a cut in September. It's first in October when the next rate cut will come. Wow. Well, that's a change. But Chairman Powell has said time and again, he has said it's all about the data and that the central bank has to see the impact of the Trump tariffs on inflation.

4:11So it really is too soon to make a move because we just don't know. There's so many moving parts with these tariffs, correct? Yeah. And the interesting bit is when the Fed actually moved to lower interest rates in 2024, the market's reaction was that this took all of the risk of a recession off the table, so much so that interest rates actually went up. So they lowered the short-term interest rates, but the yields on longer-term bonds, the ones that actually matter to people when they're getting a mortgage and so forth, those are the ones that went up. And so it was because the recession risk receded that you actually had a situation where the Fed was acting one way and long-term yields went the actual opposite direction.

5:02Well, I think, you know, on Wall Street, we have seen the major averages at or near all-time highs the last few weeks. Inflation still above the Fed's target, but it has eased about 2.7 percent. The labor market, resilient, jobless rate 4 percent, initial job, everything is working. The Fed's plans have been working. So the argument could be, well, why not lower interest rates? But there's a very good reason why they wouldn't, correct? Just for that reason you were talking about with long-term yields. Right, exactly. They don't know if, for instance, they were to lower interest rates, whether or not suddenly we would get inflation coming back in, not just because the tariffs created more inflation, but actually because the economy was running hot enough to create inflation on its own.

5:51And then suddenly they'd be in a situation where they made an error, and that error would be taken on by markets to increase interest rates, increase yields across the curve, expecting the Fed to eventually have to undo that error. And this is the dilemma that they face. So they've decided, look, we're in a good enough position at this point in time that we can actually wait to do this. You know, what's interesting, if you look at the last Fed decision, they released a summary of economic projections and sort of a bimodal distribution. There are actually seven of the Fed governors and presidents who think that they shouldn't lower interest rates at all this year, whereas nine think that they should lower them two times this year.

6:40And there are four others that are in there. But, you know, the total number that the reason that we have an expectation for two interest rates being lowered is because of those. I think it's eight Fed members who believe that interest rates should be lowered by two. But there are a decent number who think, you know, there shouldn't be any interest rate cuts this year. And there's been a lot of pressure, obviously, from President Trump on Jerome Powell, a lot of criticism, a lot of pressure about what the Fed is going to do. And it goes into what you just said. He's not the only one deciding. I mean, there are 12 voting members of the FOMC.

7:17You have all these other governors and vice presidents and presidents of banks. I mean, it is not a unilateral decision, is it? No, it's not. And the interesting thing about that bimodal distribution is that obviously we don't know which of the 19 dots in this summary are voting members. But there are enough members that if the data turn towards the more inflationary side, you could get the FOMC outside of Jerome Powell saying, no, we don't even want two interest rate cuts this year. We want one and perhaps even zero because all it takes is us to get three more dots up into that number, you know, to go from seven to 10.

8:03And then suddenly we don't have any interest rate cuts at all in 2025. Well, the Fed's two day policy meeting kicks off this Tuesday, a decision Wednesday expected at 2 p.m. Wall Street time. Then, of course, we're going to hear from Fed Chair Jerome Powell. Our thanks to Edward Harrison, senior editor at Bloomberg, author of Bloomberg's Everything Risk Newsletter. We move next to corporate earnings. Some of the Magnificent Seven's biggest names reporting this week, Meta Platforms, Microsoft, Apple, and Amazon. And for more on what to expect, we're joined by Mandeep Singh, Bloomberg Intelligence Senior Tech Industry Analyst.

8:38Mandeep, thank you so much for being here. I want to start, though, by looking backward, because last week we got the latest results from Tesla and Alphabet. Very different results. Tesla missed earnings, sales fell, difficult times ahead. But Alphabet, there was a real upside surprise, wasn't there? Yeah, and also going into earnings, I think the narrative was that Google search has been under a lot of competitive threat from the likes of ChatGPT and just what's going on in the LLM space. And the numbers proved otherwise. I mean, the fact that Google grew search double digits at a run rate of$210 billion, that just goes to show how much momentum they have in terms of just integrating Gemini with their search page.

9:30So AI overviews has actually helped, you know, the number of queries. And then the monetization, I mean, ad monetization for Google is really, you know, something that no one else has been able to even come close to. And look, we are talking about meta coming up as well. So to me, what will be interesting is whether meta shows high teens or 20 % plus growth, because that's the sort of expectation Google has set up with its print. YouTube did really well. In fact, YouTube plus cloud is almost$115 billion run rate, growing at over 20%. And so a lot of positives in that Google print. The one thing I would call out is the CapEx pen.

10:16So Google did raise their CapEx by 10 billion for this year. And they said 2026 would be another growth year for CapEx. And that, some investors could say, would be a drag on free cash flow. But I would compare that to a meta, which is already guided to a higher CapEx. And they are not monetizing at the same level as Google is with their cloud business. So that is where it would be interesting to see how the market reacts to meta talking up CapEx for second half in 2026. Another horse in this race, Microsoft. Yeah. Which, you know, with their open AI commitments and still expected to see Azure, a big, big revenue gainer.

11:01How about, you know, the rest of the company? Where's Microsoft stand? Because they're out Wednesday as well. I think one thing was clear from Google's print is Microsoft Azure business is going to put up another strong quarter. We are talking another mid-30 % growth for an Azure, which was a real surprise last quarter. But now the numbers have gone up for Azure. So you will see another strong quarter for Azure. But overall, look, Microsoft has been one of the biggest beneficiaries of this AI infrastructure spend and the cloud business that it has benefited. And in Google's case, you know, it's a$50 billion run rate business, cloud growing almost, you know, 30 % plus now.

11:47So that could double to$100 billion in two years. In Microsoft's case, it's the same kind of momentum. And that's why cloud is the real beneficiary of this AI infrastructure spend. On one hand, we call out how NVIDIA has benefited on the chip side. On the software side, it's the cloud companies. And that's where I would put Microsoft and Google. Amazon, which is another one reporting next week and has exposure to cloud. I think their growth rates are still way down compared to Google and Microsoft Cloud, which are growing 30 % plus. Amazon's growth may still be around that 17 % to 20%. Still strong.

12:29Very strong for a business of over$100 billion run rate. It's very good growth. When you compare the share in cloud, I do think, you know, Microsoft and Google seem to be taking share because of this AI workload shift. And that's where Amazon has to kind of step up in terms of how they will increase the growth rate for their cloud business. Now, the outlier in this horse race for AI, Apple, also next week, has been way behind. It has no sign of even catching up except for partnerships it's making. But what do you expect there? I mean, the iPhone 16, a smash hit. We have services have been very strong.

13:12But are they still behind? They're still going to make a ton of money. There's no doubt. I think with Apple now announcing they're getting into insurance business, the$20 per month for three devices, that's just aimed at improving the services run rate. To me, everyone looks up to Apple for what they will do on the AI side. And that is a big question mark whether they have a compelling AI strategy. I think they are going to go the partnership route. But right now, we have no signs to suggest there will be a big upgrade or refresh cycle for their devices. Because AI right now is still being used on the cloud.

13:56People are not really using AI assistant that's installed on the phone because these LLMs are called large-angle models for a reason. They require a lot of compute and memory that you can't have on device. And so that's where Apple has to strike partnerships. They have to enhance their hardware to run AI on device. And we are talking about at least a 12 to 24-month time frame. So you're not going to see anything that investors will find exciting, at least in this print. Well, a lot to look forward to. Meta and Microsoft earnings out this Wednesday. Amazon and Apple on Thursday are thanks to Mandeep Singh, Bloomberg Intelligence Senior Tech Industry Analyst.

14:39And coming up on Bloomberg Daybreak Weekend, we'll look at whether President Trump's Scottish golf trip can yield any political wins. I'm Tom Busby, and this is Bloomberg.

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15:35Visit otcmarkets.com slash moon. Moon ATS is operated by OTC Link LLC, a FINRA-registered broker-dealer. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful.

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16:53Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. 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, a look at some key economic data coming out of the world's second largest economy. But first, fresh from a flurry of trade deal announcements, President Trump is in the U.K., in Scotland. His trip will be a mixture of business and pleasure, but in the coming days, the president is set to hold meetings with UK Prime Minister Keir Starmer and John Swinney, First Minister of Scotland.

17:29Can the duo Sweet Talk Trump into further trade concessions? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Tom, President Donald Trump counts Scottish ancestry as part of his heritage. His mother, Mary Ann McLeod, was one of thousands of Scots who left for the US and Canada at the beginning of the last century in a bid to escape economic hardship at home. But despite the family ties, the US President's relationship with the country is a complicated one. During his last visit to Scotland in 2018, the President was booed during an afternoon golf game by demonstrators at his resort in Turnberry.

18:08And the entire trip was dogged by protests of thousands of people in Glasgow, Edinburgh and Aberdeen. This time round, controversial White House policies could make for a similar reception as Trump visits his two Scottish Gulf properties. His plan for international trade is also something the White House Press Secretary Caroline Levitt expanded on recently. Look, I can tell you the trade team and the president himself continue to be very engaged with countries around the world when it comes to our trade agreements. But the August 1st deadline is just really the start date for when the United States of America will begin collecting this revenue from all of the countries around the world who the president has sent these letters to.

18:48You could see some more letters before August 1st, John. You could have some more trade announcements as well. I can tell you the president, Secretary of Treasury, Secretary of Commerce, Ambassador Greer all continue to be in constant communication with our trading partners. The White House's Caroline Levitt speaking to reporters there. Well, joining me now is Bloomberg's Edinburgh-based reporter, James Lardin, and our White House correspondent, Skylar Woodhouse. Welcome to both of you. Thank you for speaking to me. James, maybe can I start with you? Trump has long been, I'll say, infatuated with Scotland.

19:20The Scots perhaps a bit less so with him. Just talk us through the perceptions of President Donald Trump on the ground now. Yeah, in your intro, you did mention how there were some demos against him when he was here last. I think those demos were more personality based, whereas I think the demos that are being planned are both personality and politics based. So there's a subtle difference there. One thing I think that you need to remind yourselves about the Scottish psyche, if you like, is that a someone who, shall we say, is kind of pretty brash and a showman. That doesn't necessarily go down very well here in Scotland.

20:05they tend to admire people who are a bit more understated. And also Scotland does have a reputation of cheering for the underdog over the years and certainly having a slightly larger big brother, shall we say, to the South that's been dominating proceedings for several centuries. That also probably explains why Scots, they prefer the underdog rather than the top dog. Hmm. OK, Skylar, President Trump's also coming to the UK for a full proper state visit in only a few weeks time. Why do you think he's making this trip to Scotland now? I mean, the White House is saying, you know, this is a moment for the president and Prime Minister Starmer to refine the trade deal from just a few months ago.

20:52You know, hopefully we'll get an update on what's maybe some more of the fine print details of that trade agreement are. And there's obviously a lot happening in the world right now. There's, you know, Ukraine and Russia that has been, you know, front and center for President Trump. And, you know, so we're, you know, looking to see if we could see any sort of maybe new agreement between the two countries there or just sort of what the strategy, you know, might look like. So there's a lot of talk around national security right now. You know, so it's kind of a mix of, you know, the president who we all know loves to golf and, you know, frequently he'll be in Florida, you know, golfing and things like that.

21:30But, you know, we're expecting to see probably a more refined trade deal than what we saw earlier. Yeah, absolutely. And tariffs hugely important. I mean, both for Keir Starmer, the UK as a whole and Scotland in particular as well. Is there going to be any expectation, actually, of any progress in terms of trade discussions, do you think? I think one thing that's particularly interesting with the trade agreements that we've just been seeing across the board, obviously this is something that President Trump is very passionate about and is definitely dominating his second term as president. So I think it'll be interesting to watch what the fine print looks like.

22:13we're approaching that August 1st deadline with a plethora of countries and we're starting to see you know the rates coming in you know at different levels so I think it'll be interesting to see what maybe has changed from the you know the deal that was presented a few months ago to now and to compare and contrast what has changed or what has not changed. James what do you think the Scottish First Minister John Swinney is likely to cover maybe try to press with the US president? Well, I guess the biggest thing here is whiskey. Personally, not a fan. But it's the biggest export that we have up here.

22:55And any potential reducing the tariffs on whiskey, I think, would go a long way up here. But at the end of the day, the person who will sign the document is going to be Starmer. So there's a slight sort of dichotomy be there um otherwise i mean swinney he he is involved a little bit in the uh in the long running saga about whether uh turnbury one of trump's golf sites will ever host the open again so there will be some chat on that i dare say but at the end of the day the decision comes down to the role of an ancient golf club inst andrews the rna um but there will be pressure from swinney and also from Starmer to try to make this happen.

23:37But then to make it happen, you kind of need to have much better communications. You must have much better roads and rail systems. And to get that, you're going to have to get the taxpayer to stump up for it very properly. And that will be a big problem. In terms of travel, it's obviously quite a privileged position for the UK to be in and Scotland in some ways to be hosting a visit, even an informal visit from the US president, given how much is riding on this. President Trump's actually got some cousins who still live on the kind of ancestral island where his mother came from. How important do you think the relationship is at the moment, Skylar, between the US and the UK?

24:15As we see these really quite fraught negotiations with many countries rushing to try to make the August 1st deadline. I think one thing the Trump administration, you know, they do a lot of things differently. But ultimately, I do think there is an understanding that the relationship with the UK is a very important one that obviously has a very long standing history. So I do think the administration is looking to sort of continue to keep that relationship intact in whatever way that might be. I mean, but it's still very interesting that of the trade deals, the UK was one of the first to see a deal and an agreement.

24:55And there was the Oval event where Starmer, I believe, phoned in. So, you know, they're definitely trying to show a united front between the two countries, which on the global stage could be very telling that, you know, we have the US and the UK sort of, you know, aligned, even if there are differences, you know, on some things. But I do think the administration is looking to sort of make sure that that relationship continues to remain stable. Yeah. In terms of what you expect then also from the state visit in September and how important that is, we've had out the, for example, the car and truck manufacturing figures for the UK.

25:34That's a very important market for Britain, the US sending vehicles there. It's actually just below the relationship with the EU, but it's still very important. And actually we've seen a big kind of cratering in terms of the numbers of vehicles. that are being exported and in fact just rolling off the lines here in the UK. How important are the sector issues between the US and the UK? Do you think anything might change, let's say, in the September state visit? How is that being seen in the US? Yeah, it's a good point to mention the sectors because that's something we're watching very closely in the mix of all of the trade deals.

26:13But when you boil it down to the sectors, whether it's autos, pharmaceuticals, that's a space where we're trying to see if there's any movement there. Because we still haven't really seen a lot of details in the pharma space. But it has been something the president talks about pretty frequently. So we're definitely watching that space. But I think in the U.S. in terms of perception, one thing what we've been seeing a lot right now is there's just a lot of back and forth. And with this administration, they definitely keep us on our toes. But, you know, they move forward with one thing and then there can be a shift in the policy a little bit, whether it's more or less.

26:53And that is something where, you know, I think folks are really paying attention to because it does shake up what exactly is going on. And if you say one thing and then, you know, it changes. But the president continues to say that, you know, if you accept, you know, American products and we can, you know, enter that market, you know, well, we won't tear a few or tear a few less. So, you know, that's what Trump has been negotiating with around that. Yeah, absolutely. James, a thought then from the perspective in Edinburgh. I mean, I know that you know quite a bit about golf and all the golf courses that are up in Scotland.