Daybreak Weekend: US Tech, UK PM Visits China, Apple Earnings

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break.

0:37So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts.

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, we'll look ahead to earnings from some of Tech's Magnificent Seven. I'm Nathan Hager in Washington. I'm Caroline Hepker in London, where we're asking whether UK Prime Minister Keir Starmer can thaw frosty relations with China. I'm Doug Krishner looking at what Apple earnings will indicate about Asia. 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. We begin today's program with the Federal Reserve. J-Powell and company begin their first monetary policy meeting of 2026 on Tuesday with the first rate decision of the year to come Wednesday. So what should we expect as we map out policy for the rest of the year? Let's bring in Michael McKee for more on this, our international economics and policy correspondent for Bloomberg Radio and Television. Mike, I guess as far as the January decision goes, it'd probably be a big shock if we got another rate cut this week, right? So what should we be looking for? I think this is going to be another one where the Fed is sort of going to be anxious to make as little news as possible, which I don't think they're going to be able to avoid.

2:45But there is no rate cut in train, so they're unlikely to do that. That would be a shock. There's been no news that would justify that at this point. And all the speakers going into the blackout period were saying, you know, we don't think we need to cut anything. So I think you'll get a unanimous decision, no dissents this time for a hold. And then the question always, as always, moves on to what do they do at the next meeting, which is in March. I think they're going to avoid making any kind of specific forecast because they don't know what the data are going to show. We're still coming out of this as the government shut down data shortage.

3:30So they won't have a lot of information. Well, let's talk about the information that they have gotten thus far. We have seen some more labor market reports. We've gotten nonfarm payrolls. You've gotten the Fed's preferred gauge of inflation as well. What does that tell you about what the economy looks like going into 2026? Well, if you're looking at it in terms of the Fed's dual mandate, you do have inflation. The PCE numbers came out last week looking at 2.8%, which is up from the month prior. Now, these are November numbers. The December numbers won't come out yet for a couple of weeks. And in the December numbers, the expectation is that inflation will rise again to 3%.

4:18And then when you look at the jobs numbers, the unemployment rate went down last month. And jobless claims have stayed extremely low. So at worst, maybe you say for the moment, the labor market has stabilized. And so there's not really an economic argument for cutting rates. There's also a feeling that given the tax cut bill, we're going into tax season now, people will get higher refunds than they have in prior years. and that will feed some spending into the economy and keep it a little bit stronger. So there's no real need to cut rates at the moment. You know, it's interesting because at the end of last year, there was so much focus on the idea of cracks in the labor market.

5:05Now, as you say, we are seeing this sort of sign of stabilization. While it seems like this last mile of getting inflation back down to the Fed's 2 % target just seems to look like an uphill climb. Could we be seeing the Fed's focus shift now from the job market to inflation once again? I think they will move back. They were emphasizing the labor market. I think they'll move back to the middle at this point and waiting for more data. Next week, we won't have the December PCE numbers. So they'll still be looking to guess at what the numbers are going to be. And if it's gone up to 3%, that's going to concern them.

5:48So I think they try to keep their options open with that and not emphasize the labor market just as much. But the problem with both sides of the mandate and the data are that the uncertainty that the Trump administration has caused has not gone away. We just went through a week of we're going to put big tariffs on Europe. Oh, no, we're not. And so companies don't know what to do. They're kind of hunkered down at the moment. They don't want to fire a lot of people if the economy is going to pick up. But if the economy is going to slow down and we're going to have inflation issues, then they're going to try to control costs and you might see some layoffs.

6:27So at this point, we're kind of in this no man's land that we've been in for a year. You talked about the Fed maybe not wanting to make much news at this meeting. Of course, this is coming at a time where the central bank is facing continued pressures outside the committee room. This is going to be Chair Powell's first policy meeting since he announced that he's under a Justice Department investigation. How much could that weigh on this decision? Will it? I don't think it weighs on the decision at all, because the investigation of Powell is sort of vengeance by the president. And the rest of the members of the Open Market Committee aren't going to think it means anything.

7:11And they will ignore it. But what will be interesting is, since the Fed's not expected to do anything exciting or surprise anybody with monetary policy, is the first question going to be about the decision or is it going to be about the president's efforts to tar and feather the Fed chair? There probably will be a lot of focus on that. And my guess is that Powell will try to shut that down. Maybe say, I've already spoken my piece on this. may be something about the importance of Fed independence, but I don't think he wants to spend the entire news conference in a shouting match with the president.

7:52We know you're going to be there for that news conference and for the decision as well with the January policy decision of the Federal Reserve coming up later on Wednesday. Thank you for this, Mike, as always. It's Michael McKee, international economics and policy correspondent for Bloomberg Radio and Television. We move next to a slew of corporate earnings. The focus this week turns to some of the biggest names in tech. We're going to hear from Tesla, Microsoft, Meta Platforms, all on Wednesday. We'll also hear from Apple after the close Thursday. Let's bring in Bloomberg Tech co-anchor Ed Ludlow to get us set for the magnificent seven earnings kickoff.

8:29Great to have you here, Ed. Let's start with Tesla because we heard from the CEO, Elon Musk, at the World Economic Forum this past week. He was talking about the Optimist robots. Is that where the focus is going to be for investors when it comes to the earnings? Yeah, when it comes to earnings, you have to kind of unpick all of the noise that comes from Elon Musk in the interim. So what happened at the end of 2025 is Tesla had its second consecutive sales decline on an annual basis. Basically, they're not selling as many EVs. And there's lots of evidence that Musk's political activities last year impacted that.

9:02We had the end of federal credits in the United States and other factors, you know, about the economy and competition. So when it comes to earnings, you kind of look for, well, was that story true? What is Tesla's explanation for it? Because it's the first chance they really talk about it. Then there's all the big picture stuff. And, you know, we say on Bloomberg Tech all the time, Musk's greatest skill is keeping all the investors looking to the horizon on those future projects, which are Robotaxi and humanoid robots. So when it comes to the core business, though, what's the show me story for Elon Musk and for Tesla when it comes to EV demand?

9:39The fact that we don't have those incentives and we're seeing that drawdown in demand across the EV sector. What's that going to mean for Tesla when it comes to the earnings? Yeah, again, it's a cutting through the noise kind of thing, especially when we're reporting the news on it. But what Tesla has done more recently, inconsistently, is in their earnings deck, a growth target. they will either say or they won't say, we expect 50 % compound annual growth rates. And that's the only indication that we get to tell us that they have firm data and firm belief that they will or won't grow. Historically, that's been the story.

10:15For many years, Tesla grew at 50 % a year, and then it stopped. And as I just said, two straight years of declining growth, declining sales growth. So you look into the deck. But again, it depends on the questions the analysts ask. It depends on what Tesla does a bit differently. The retail investors get to ask questions that they submit through an online portal. And lots of those often don't even worry about the day-to-day business of selling EVs. They just care about those shiny things. Yeah. Speaking of shiny things, let's move on to some of the other companies reporting earnings this week, including Meta Platforms.

10:48Of course, they've gone all in on AI spending right now. Is there such a thing as too much AI capex when it comes to Meta? Quite the opposite. it. The expectation is that capital expenditures across Meta and then the hyperscalers. So Meta, as you know, is a social media company that's also very interested in artificial intelligence, but it does not operate in the business of renting computer capacity to others. Those are cloud providers. In other words, Amazon, Microsoft, Google, and to a lesser extent, Oracle. But Meta's spending on its own data centers is so significant that we put it in that bucket.

11:26And the story's not changed from last quarter or last year. We track capital expenditures across all those names and the market wants to see confidence of spending. The basic logic is if capital expenditures are in the range that investors forecast, they're higher than they were last year, then that shows a commitment to spending because the companies believe on the other side of building more data centers comes revenue growth, comes profit from all their work, particularly in AI. And we're going to hear from one of those hyperscalers you just mentioned, Microsoft, of course, their Azure cloud business, it seems like that's been going gangbusters for several quarters now.

12:02So what's the expectation when it comes to Microsoft? Yeah, Microsoft can be a pretty straightforward story. Again, we look at its capital expenditures because as one of the biggest data center operators and owners, you want to see their commitment to doing it. But then in terms of segments, it's just about the top line growth of that as your cloud computing business. And it's in the 30s and plus or minus a few percent against street consensus makes a really big impression on how AI, the investment starts with the chips that go into data centers. You have to spend a lot of money on that. But when you start to show sales growth in cloud, it's evidence that that payoff is happening.

12:41So when we start to look at these earnings, Ed, what are you expecting when it comes to this ongoing debate about AI valuations and circular spending in the space as well. Yeah, but the issue then takes us back to growth. The valuations are being justified by that growth narrative. And if you read on the Bloomberg Terminal, the team on equities in particular point out that actually that growth, if we take the MAG-7 as a bucket or we take the higher growth tech stock, S &P 500, it isn't expected to be where it was in more recent quarters. So that gives you the potential for upside, of course, but it also means that they're going to have to tell a pretty good story to convince investors that where valuations are currently, these are stocks worth putting money into.

13:28You're going to see that story play out later on this week. Thank you for this, Ed. Again, great having you on with us. That's Bloomberg Tech co-anchor Ed Ludlow. And coming up on Bloomberg Daybreak Weekend, we'll look at whether the UK's Prime Minister, Keir Starmer, can thaw frosty relations with China. I'm Nathan Hager, and this is Bloomberg.

13:55As 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.

14:38ties as several geopolitical points of tension remain between the two countries. So how will Starmer's planned visits to Shanghai and Beijing play out? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Nathan, the last British premier to visit China was Theresa May back in 2018. Since then, relations between the two countries have worsened after the crackdown on pro-democracy protests in Hong Kong, a spate of espionage and cyber attack allegations and Beijing's support for Russia's war in Ukraine. Despite the frosty state of affairs, Starmer is seeking something of a thaw.

15:17His optimistic approach is one he defended during a recent speech in which he called for the UK to take a pro-business approach to China, whilst recognising that it poses threats to national security. I am clear that no transformation today carries greater consequence than the rise of China. It is a nation of immense scale, ambition and ingenuity, a defining force in technology, in trade and global governance. So our response will not be driven by fear, nor softened by illusion. It will be grounded in strength, clarity and sober realism, in line with our wider international approach and guided by our conviction.

16:15That was the UK Prime Minister Keir Starmer speaking there. So can the British government draw a line under what has been a turbulent period for UK-China relations? Or could geopolitical tensions and US influence maybe change things? To think about this, I'm joined by Bloomberg's UK political correspondent, Ellen Milligan, and our chief Asia correspondent, Rosalind Matheson. Welcome to both of you. Ellen, can I start with you? There was a time when under the previous government, the Conservatives, conservatives we were talking about the golden age in UK-China relations I remember that but it does seem like a long time ago doesn't it?

16:54Yeah so do you remember when David Cameron and Jiu Jiu Ping went to that kind of village pub and pulled pints and fish and chips I mean we just really haven't seen that in the last 10 years and you were saying that I mean really kind of that short-lived golden age you know billions promised in Chinese investment much closer ties broke down and soured over, initially over that crackdown on activists in Hong Kong, a former British colony, but also over espionage and cyber attack allegations. And then more recently in the last few years, China's support for Russia. So what Keir Starmer's administration has long complained of is that under the Tories, there was this kind of back and forth between the golden era and then a complete, almost freeze of ties and under particularly Boris Johnson and that they wanted to get back to a more cooperative approach but where they would still challenge China where they needed to.

17:57In terms of Keir Starmer's recent foreign policy ideas then the effort to try to set the record straight on Labour's China strategy what is their view because there does seem to be still a push-pull, a strong push-pull in the UK about what attitude to adopt to Beijing. Yeah, I mean, Keir Starmer came in promising clarity over their China policy, and I think we've had anything but that. I mean, when he entered office in 2024, there was quite a quick succession in terms of high-profile visits to China. David Lammy, who was the Foreign Secretary at the time now, and Deputy Prime Minister, the Chancellor Rachel Rees, both went over there and that pretty much stopped when Donald Trump re-entered the White House in January last year.

18:47I think Keir Starmer's foreign policy priorities were very much about establishing good relationships with the US, avoiding kind of the most harsh trade tariffs, Ukraine and also the reset that he has been pursuing with the European Union and Donald Trump is a kind of famous China hawk. And so no visits really happened. And if they did happen, they were very much under the radar and Britain didn't shout about them. And I think what has happened in the last few months, Macron did a high profile visit to Beijing. Mertz, the German Chancellor has one planned. And crucially, Trump had his own bilateral meeting with Xi Jinping and has also planned a state visit.

19:32And I think Starmer felt as though that paved the way for him to be able to kind of soften relations with China now too. Okay. Rosu and Asia, how does China see its relationship with the UK, maybe sort of historically and also now? Well, it depends how far back you want to go because there is a lot of history there. In more recent history, it's probably been more down than up, obviously, from that moment of the beer in the pub after that. But it's never been easy in the past in a way is just to find this relationship from the China side. You know, they now see themselves, no doubt, as the senior partner shifting from 100 years ago, the aftermath of the opium wars, which were very wounding to China.

20:20You know, they managed an arrangement to get the return of Hong Kong. But China probably sees the UK is still having a sense of a proprietary air, you know, weighing in particularly on Hong Kong issues, protests there, the rule of law. We've seen Keir Starmer criticise the conviction of the former Hong Kong media mogul Jimmy Lai. So a sense in China's eyes that the UK is still willing to interfere in its business in a different way perhaps than during the opium wars, but it's still there. And for China, what they want to do is put this relationship to focus really on business and investment and trade because that's where China wants to benefit.

20:59And for them, the UK is a useful marker as they also want to diversify in trade. So for them now, they probably see this relationship as very transactional, but probably themselves as a bit more of the senior partner. Yeah, is the UK seen as a strategic ally by China or is it simply as a kind of trading partner, do you think, Ros? My doubt if China sees many, if any Western nations as strategic allies. It might see them as useful, but not as allies, perhaps in sort of dividing and conquering in the West a bit. So splitting Europe and the UK off somewhat from the US, maximising the tensions that the US has right now with Europe and the UK on different matters.

21:45So probably is a useful partner, not a strategic ally, a transactional partner, definitely a trading partner, as long as the totality of that relationship is still to China's advantage. So net-net are its companies better off? Is it selling the sorts of things it wants to? Does it have a foothold in the industry as it wants? But that's probably how China would see it as less a strategic ally because they're not partnering on security matters, on defence. I mean, the UK has actually been quite critical of China for its tacit support of Russia, for example, in Ukraine as economic support for Russia.

22:20But certainly China would see them as a useful partner potentially. We have seen the likes of Rachel Reeves and David Lammy visiting China. Have they managed to make any progress? There was no substantial outcome from either of those visits. I think those initial visits were more about no one's been in years. So let's go and make sure that we get diplomacy back on track. more progress has been made recently Peter Carl the tech secretary went he's now business secretary went out late last year and they've resumed this economic trade dialogue which had not taken place I think since before Boris Johnson but you know it means that Kirsten has almost put more pressure on himself with this state visit coming up I mean the way he describes China is this is like the most consequential global shift to the UK of them all.

23:18And so the stakes are really high for him. Ros, does China want the UK to pick between the US and China? What is their perspective? I mean, America has a view on that, doesn't it? They do. And for China, they probably realise it's not realistic to try and say the UK has to pick a side there, but they can take advantage because that's what they like to do is to spot an opportunity and to maximise ruptures and tensions. And that sense is that the US-led global order is changing into something more fractured into spheres of influence, Trump in the Americas, China in Asia, and so on, and exploiting that when it comes to trade, because it's clear Europe and the UK are acknowledging they need to do business with China.

24:07As Ellen was saying, there's a lot at stake for Stalmer in this visit, you know, to manage the relationship and to walk those lines. And they'll be aware of that too, with him coming in. And they understand the UK will always have a relationship of sorts with the US. There is a lot of cooperation that still goes on between them, including, you know, on the defence side, despite what Donald Trump may say about that. Ellen, just lastly, how important do you think the recent approval of a new Chinese embassy in London is it was an enormously contentious decision. Well, we've spoken about how the US approach to China and Donald Trump coming back has complicated this reset.

24:50There have been two other major obstacles in the past year for Starmer. One is this embassy approval. The government decided to call that embassy decision in from like the local authorities almost a year ago now and have constantly delayed a decision on this. They've sought more information on what exactly China intends to do, how close this embassy would be to sensitive communication cables. And the timing is no coincidence that this decision has been made just the week before this state visit. And it really kind of paves the way for Starmer to say, look, we've been able to make this big decision that you've wanted for a long, long time.

25:39And also, it's important because Britain has its own crumbling embassy in Beijing that it has had planning application to rebuild out for a while. So that's really important. And the second thing I would just say because it would be a miss not to is this criminal case against two Brits accused of spying for China that collapsed towards the end of last year and that has been a big obstacle too and we've spoken about this there's a lot of China hawks across political parties and in UK's parliament and those are really the two big things that they continually point to for as examples for Starmer to be much more cautious with China.

26:20Okay. Ellen, thank you so much for being with me. That is Bloomberg's UK political correspondent, Ellen Milligan. And my thanks also to our chief Asia correspondent, Rosalind Matheson, for discussing this visit by Keir Starmer to China. And we will, of course, have full coverage of the prime minister's trip to China, including reaction on the ground and the key takeaways from the talks. I'm Caroline Hetker here in London. You can catch us every weekday morning for Bloomberg Daybreak Europe beginning at 6am in London. That's 1am on Wall Street. Nathan. Thanks, Caroline. And coming up on Bloomberg Daybreak weekend, we look ahead to earnings from tech giant Apple and how they may have been impacted by business in Asia.

27:02I'm Nathan Hager and this is Bloomberg.