Daybreak Weekend: US GDP, UK Politics, China Eco

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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, we look ahead to how big tech may fare in 2026. I'm Nathan Hager in Washington. I'm Caroline Hepker here in London. We look to a year in UK politics and what 2026 may hold in store for Prime Minister Keir Starmer. I'm Doug Krishner looking at what's in store for the Chinese economy in the new year. That's all straight ahead on Bloomberg Daybreak Weekend. On Bloomberg 1130 New York, Bloomberg 99.1 Washington DC, 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. We begin today's program with a look at the economy. On Tuesday, we get a second read on third quarter GDP. This comes on the heels of some softer than expected readings on inflation and kind of a mixed report on the labor market as we start to get more of the releases that we should have gotten weeks ago, but we're getting now due to the government shutdown. For more on this and what to expect from the economy in the new year as well, we are very pleased to be joined by Ed Harrison, senior strategist at Bloomberg News and author of Bloomberg's The Everything Risk Newsletter.

2:34Great to have you with us on the program, Ed. And I'd just like to get your expectations for the GDP print this week, given some of the questions around some of the latest data we've seen this past week. Yeah, Nathan, it is a good question because the CPI report was marred by the inability to collect data in the previous month. That's October. But luckily, this GDP report is a revision of data that goes from July to September. So these are numbers that aren't going to have any sort of anomalies because of lack of collection. We've already seen one number. The Atlanta Fed is talking to us about a 3.5 percent number.

3:19That's the GDP now that they put out. But where we actually stand is anyone's guess. Three and a half percent would be a pretty big jump from the preliminary number. What's got you thinking that we could see, you know, even more of an eye popping number this time around? Yeah, I think just based on the data that have come out for Q3, they've done the statistical analysis and they updated the Atlanta Fed and run it through their models to produce a now cast. And that's telling them that it's going to be at 3.5%. The range of the top 10 and the bottom 10 forecasts are somewhere between 2.5 % and 3.5%.

4:06So that's at the high end of the range of economists that are predicting that number. Of course, third quarter GDP is a backward looking indicator. And we're trying to think ahead about where the U.S. economy could be going into 2026 and the current quarter as well. Are we going to be thinking about this third quarter print as something of an anomaly, given some of the data that we've gotten on a more forward looking view of the economy? No, I think that there's a lot of angst about the labor market, but there's less angst about the growth level of the economy. And I think that this bifurcation is due to this so-called K-shaped economy where there's a lot of price pressure still in the pipeline.

4:53Lower income, lower wage workers are feeling that even more. And they're also taking the brunt of a slowdown in the labor market. But at the same time, there's this AI spend that's happening. There's a large government deficits and the well to do are actually doing relatively well. So people are expecting numbers both for Q4 and for 2026 to be relatively good. And we know that especially because of the tax cuts that are due to hit already in the first quarter of next year. Well, you raise the question there about whether the top line numbers on GDP sort of mask what, you know, everyday Americans could be feeling when we think about, as you mentioned, all the spending going into artificial intelligence.

5:44I mean, what could that mean for a labor market that the Federal Reserve has put a lot of attention on saying that they're worried about some of those cracks that we're seeing in the data? that? Yeah, I think if you look back in terms of the numbers that we've seen, we did not get an unemployment number for October. But we have gotten from the establishment, the establishment survey in the last six months, three numbers that were negative, saying that nonfarm payrolls actually declined in three of the last six months. And so the running total average over the last six months has been very low.

6:21Basically, what that means is for the average worker, the job opportunities are lesser, even though we have this boom in AI. You could call it a mismatch between job availability and the abilities of the working population. But the only positive that we've seen is that in the last report, more people came off the sidelines, reentered the labor market and we're looking for work. And that's usually a sign that they're optimistic that they'll be able to find a job. Are you expecting that we're going to see the kinds of levels in AI spending that we've seen, not just this year, but in years prior as well?

7:04And what could that mean for inflationary pressures? You know, Nathan, I think that AI, From an investment perspective, we're sort of at a tipping point now. Recently, in the past two or three weeks, we've seen a rotation out of the large-cap tech companies that have been driving the market forward, which are very AI-related. And the reason for that is concern about, number one, the level of spend and whether that's sustainable, But also the fact that the spend that's being done now is increasingly done with diminished cash on the balance sheet and higher debt levels. And there's a concern particularly around companies like Oracle and their balance sheet, their ability to continue to invest into artificial intelligence given the deterioration in their balance sheets.

8:03I really appreciate this, Ed. Thanks again for being with us. That is Edward Harrison, senior strategist at Bloomberg News, author of Bloomberg's The Everything Risk newsletter. I want to get more now on big tech because the magnificent seven stocks once again fueled double digit gains on Wall Street, even with those questions about whether the valuations on some of these companies may have run too far too fast. Let's get more on what to expect from tech in 2026. We are joined by Mandeep Singh, global head of tech research at Bloomberg Intelligence. Mandeep, I'll start off with the question that seemed to dominate the market all of 2025.

8:39Is it a bubble? Well, I mean, the best way to frame it is, you know, look at the multiples of these companies, both in terms of earnings and free cash flow. And when it comes to earnings, I think what this year has shown is earnings have been very resilient. And these companies have the levers when it comes to cost rationalization, slower hiring, and they can sustain low to mid-teens growth easily. When it comes to free cash flow, the story may be different in 2026, given all of these hyperscalers are looking to raise their CapEx by 40 to 50 percent. And we are already at very elevated levels.

9:29And what that means is even for a company like Meta, you know, you may see negative free cash flow, which is why they've been talking about, you know, rationalizing their spending on the metaverse, for example. And I think you may see more of that in the first half where companies may have to prioritize, you know, certain types of AI spend and really offset it with either, you know, slower hiring or in some case, even headcount reductions. if the ROI on AI is getting questioned more and more. And we know this is front-loaded in terms of spend. And that's where I think you may see a bifurcation when it comes to some of these Mag-7 names.

10:23When you talk about prioritizing AI spend, the types of AI spend, what are you looking at? What's going to be a winner? What's going to be a loser? So the clear ROI when it comes to AI spend is with the inferencing workloads. And that's what Microsoft has shown us this year is they were very selective in terms of, you know, how they, you know, partnered with OpenAI and what they left it for someone like Oracle to, you know, take up. And I think Microsoft has shown that they have the best visibility in terms of what kind of workloads enterprises are willing to pay for. And they have really positioned the company that way.

11:13Oracle, on the other hand, has this huge, I would say, exposure to open AI when it comes to their backlog. And that's where the quality of Oracle's backlog is getting questioned, because if OpenAI doesn't ramp up their revenue the way they have laid out to investors, you know, in terms of getting to$200 billion in revenue by 2030, then that will limit their ability to spend, you know, the$1.4 trillion in commitments that they've made. And that will have a bearing on someone like Oracle. We have seen, though, OpenAI making announcements of a lot of investments. It's planning to get into the new year.

11:53I'm thinking particularly just this past week about a deal that they made with Amazon. Is there further room for more deals like this for some of these large language models? So you're right that OpenAI clearly has pivoted away from Microsoft, and now it's actually working with someone like Amazon. That would have been unimaginable 12 months back. But you have to remember the Microsoft contract with OpenAI and the binding they have extends to 2032. So it's not as if, you know, OpenAI can natively integrate with Amazon or Oracle, you know, in terms of what they do at the model level. They could use the compute from an Amazon and they could use the compute from Oracle.

12:48But Microsoft still remains in terms of, you know, how they build their API and the LLM functionality. And that, I think, will be a limiting factor for someone like OpenAI that is looking to partner with as many companies. In fact, the Disney partnership was notable as well in terms of what they're looking to do on the content side. But they just can't get off what they have to do in terms of Microsoft partnership. And that will have a bearing in terms of how they roll out the product and their large angle. Thanks for this, Mandeep. Great having you on with us. That's Mandeep Singh, Global Head of Tech Research at Bloomberg Intelligence.

13:33And coming up on Bloomberg Daybreak Weekend, we'll look back at the year in UK politics and what 2026 may hold in store for Prime Minister Keir Starmer. I'm Nathan Hager, and this is Bloomberg.

13:53As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit Bloomberg.com slash podcast offer to learn more. This 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 our program, we'll look at what's in store for the world's second largest economy in 2026. But first, from the U.S. perspective, the U.K. looks like it did pretty well from the second Trump administration.

14:30Britain was first to get a trade deal with the U.S. A second state visit delivered FaceTime for brand Britain with royals and politicians alongside President Trump and his entourage, while American business leaders at one point promised major AI investments. But from the UK perspective, the gains haven't been so easy to see amid weak growth, US demands and a government that's lurched from U-turn to crisis. Let's get more now from Bloomberg Daybreak Europe anchor Caroline Hepker in London. Nathan, not too bad. I'm surviving. typical responses in the UK if you ask a citizen how are you and so it can be said of the Labour government.

15:10Barely a year and a half into office Keir Starmer's government has little to really cheer about and a long list of troubles to ponder and joining me now to discuss where we're at is Bloomberg's UK political editor Alex Wickham and our Bloomberg opinion columnist Rosa Prince. Great to have you both with me. Alice, can I start with you? What do we know about this government at the end of this year that we didn't know when they got elected in 2024? I think just how unstable they are and that the Labour government would be. I think, you know, Kirsten was elected in 2024. And basically the pitch was we're not going to be like the Tories.

15:55We're not going to go through constant political crises and scandals and dramas and change the leader every five minutes and all of this stuff. I always remember this line that Keir Starmer had in the election that politics should tread more lightly on everybody's lives, which was sort of a wishful thinking, should we say. and instead you know almost straight away Labour went straight into basically copying what the Tories did in terms of you know a lot of a lot of political nonsense and and you know where we are quite astonishingly you know at the end of this year is you know question marks over whether Starmore will still be there in a year's time which you would never have thought even a year 18 months ago.

16:38Rosa, has it gone wrong? What has gone wrong and why? Yeah, lots and lots have gone wrong. I mean, the polls speak for themselves. Labour's ending the year in a terrible position and Keir Starmer is the most unpopular Prime Minister ever, I think, including the dreadful Liz Truss. I think why? I'll kind of give a macro and a micro answer for a financial podcast. Just macro, I think there's generally been a lack of vision and purpose with this Labour government. Keir Starmer often doesn't seem as if he knows what he wants to do with this enormous power he has, this great big majority, and also many, many own goals.

17:19They're a really accident-prone government. They were dealt a tough hand coming in and they've kind of handled it really, really badly. Specifically, the micro things I think they got wrong this year were a failure to deliver growth, which is what they put all of their kind of eggs in that basket on the economy. A failure really to get a grip on people's concerns about immigration, which has allowed the Reform UK and Nigel Farage party to really thrive this year. And also a failure by the government in Keir Starmer to control his own Labour MPs, which meant he hasn't in particular been able to get those public spending cuts through government, which he really needed to do to make the sums add up.

18:02OK, so record on popularity, some quite complex policy problems to solve. As you say, the big one was to try to deliver growth, but really a massive challenge. Where does that leave Keir Starmer and also let's let her in Rachel Reeves as well, the Chancellor, going into 2026? I mean, they face this sort of slightly mind-bending prospect that there could be a leadership challenge in May after the local elections, which Labour is expected to do very badly. All of the questions, all that anybody wants to talk about in Westminster are, is Andy Burnham going to get a seat in the House of Commons so he can run?

18:46Is Wes Streeting going to be the sort of pretender to the throne? Is Angela Rayner going to be a candidate more from the left? And all at the same time, Keir Starmer has got to contend with this sort of immensely difficult international situation, which takes up so much of his time on Ukraine-US relations. Rachel Reeves has got to sort out growth, as Rosa was saying. It's just the shocking absence of any growth strategy is just there for all to see. and they have to find a way to deal with these policy problems. Immigration as well is so important for voters. And, you know, being able to get through the next few months is just looking very difficult.

19:32Now, you know, I would say it is hard to change the Prime Minister. You know, I always remember back in the sort of Theresa May, Boris Johnson days, for a long time, journalists would say, oh, this Prime Minister's finished, and it took them a long time to go. So it's easier said than done. And people have been saying Keir Starmer's finished for a few months now and he's still there. And, you know, there is just a chance that he might just survive because it's really hard to get rid of the prime minister. I think that's perhaps slightly underpriced at the minute. But it doesn't mean all of these problems aren't there still.

20:07And it is quite difficult because each of the political parties has their own system for how they get rid of their leader. And that leader being the prime minister, of course, when they're in government. Rosa, how seriously should we take a leadership challenge and who are the potential successors? I will just remind listeners, of course, that the deputy leader, Angela Rayner, resigned earlier this year and she's seen as a significant potential candidate. Let's listen in to a little bit from Angela Rayner. The trade union movement taught me that it's not about yourself. It's about us. It's about who we're here for.

20:46and everything that I've done has been an endeavour for us, for our people who elected us and who we serve. Rosa, in terms of Raina, is she the lead contender? Who else might be possibilities if there were to be a leadership challenge? Funny enough, I'm writing a column about this because my view is that I agree with Alex 100 % that Starmer is in real trouble. I'm going to the same parties and hearing the same things, which is that everyone's very fed up with him. But each of the candidates to replace him has serious issues and flaws that make it hard for them to achieve it. So, yes, people talk about Angela Rayner, but Angela Rayner has resigned in disgrace.

21:30Only a couple of months ago, there is some polling out which shows that the public do not welcome her return to government. Now, she's very popular in the Labour Party, but I'm not so sure she is popular in the country at large. And if the idea is you want to get rid of an unpopular prime minister, why would you replace him with somebody who is also very unpopular, actually more unpopular than he is? The big problem with the most popular candidate, who is Andy Burnham, is that he's not a member of parliament. Now, he's been giving interviews saying, well, I could get a seat, I could get back. It's really difficult to do that if you've not got the backing of the Labour Party.

22:07And at the moment, the Labour Party, the National Executive Committee, which is in charge of this stuff, runs elections and selections and probably wouldn't put him in there. So I think he can be counted out for the short term. And then you've got other candidates like Wes Streeting, the health secretary, Shabana Mahmood, the home secretary. Both, I think, are a little bit more popular than, say, Angela Rayner with the public. but they're from the right of the party and this Labour Party leans left, particularly the membership does, and I think they would find it hard to win an election. So there's no clear successor to Keir Starmer, which at the moment I think is pretty much what's keeping him in the job.

22:49All of which is quite negative for the government. Is there a flip side, Alex, where Keir Starmer manages to turn things around is it possible what might be the criteria for that yes it is possible I mean I think Keir Starmer would say I'm a year and a half in of a five-year term it's too soon to write me off completely and to be fair to him you know that is not an unreasonable argument that you know he's the first Labour Prime Minister in 14 years give him give him a bit more of a chance basically. Yes, there could be some interest rate cuts. Next year, people could start to feel that the economy has turned a corner a bit.

23:31They need to make serious headway on immigration and find a way to reduce the numbers of small vote crossings. That is, I do think, fundamental to their electoral chances, their polling, the ability of them to nip in the bud the rise of reform you know could could they do slightly less badly than feared at the local elections in may and launch that as a bit of a a way of turning around i think the other big unknown is is what does he do on brexit because there could be this just sort of slight hail mary which is an unpopular leader needs to find a big game-changing policy to get his party back on side and if he just junked his red lines on negotiations with the EU on things like the customs, a customs union and certain even if not that, you know, some other way of forging a closer relationship that could just keep his party happier.

24:30Rosa, was this the year of Nigel Farage and the Reform UK party? Oh, yeah, it really was. Everything seems to be coming up, Rosie, for Nigel Farage, well ahead in the polls, lots of defections from the Conservative Party, which is seems to be actually killing off what has been the most successful electoral party, not just in Britain, but in the Western world, getting lots of council seats, wins. He's had some bumps in the road. He's fallen out with members of his own party. He had some stories which were very unwelcome for him recently about his school days when he was accused of being pretty unpleasant and even racist.

25:12So it's not all gone his way, but he even ends the year with a member of the House of Lords for the first time. So yes, at the moment, unless Labour can pull themselves together, or perhaps the Tories emerge from where they've been sleeping, it looks like we are heading towards a reformed government. After such an unpredictable 2025, is it possible to list what the risks might be in 2026? What the key themes, Rosa, might be for this UK government in this new year? Well, all eyes are on May, which is when we have local elections and elections in Wales and Scotland. And that's being seen as a big test of Keir Starmer's premiership, and also of Kemi Badenoch, the leader of the Conservative Party, who's actually ends the year in a slightly stronger position.

25:58Since the summer, she's been seen as doing quite well in the House of Commons. She had a pretty good conference. The trouble for her is that her Her poll ratings are stubbornly the same. She's actually now polling on the same level as the Green Party. So I think the next sort of big landmark moment is May. Aside from that, it's generally these themes. So the rise of reform, does that continue? What's going to happen with Ukraine and the impact here? And just individual policy areas such as the NHS, where we have ongoing strikes, such as energy bills, which the government's promised to get down and aren't, and so on and so forth.

26:37That is Bloomberg opinion columnist Rosa Prince and Bloomberg's UK political editor Alex Wickham. Always a beautiful summary and a big thought for us with your columns, of which we look forward to in 2026. Thank you. I'm Caroline Hepker here in London, and you can catch us every weekday morning for Bloomberg Daybreak, you're beginning at 6am in London, that's 1am on Wall Street. Nathan. Thanks, Caroline. And coming up on Bloomberg Daybreak Weekend, we look at how domestic demand in China will be impacted next year. I'm Nathan Hager, and this is Bloomberg.

27:22This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Let's turn now to China and the challenges facing the world's second largest economy in the new year. Here's Bloomberg's Doug Krizner, host of the Daybreak Asia podcast. Nathan, the Chinese economy is wrapping up 2025 in a stronger place than where it started the year. It's weathered a trade war with the U.S., and the government is focused on confronting several domestic challenges. So what's happening now, And where do we go from here? For a closer look, I'm joined by John Liu.