Earnings Season Rolls On, Bank of England Rate Decision, Chinese Economic Data

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 So 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

1:01This is Bloomberg Daybreak Weekend, our global look ahead at the top stories in the coming week from our Daybreak anchors all around the world. Straight ahead on the program as earnings season continues, we take a look at the impact on markets plus big tech earnings in focus. I'm Nathan Hager in Washington. I'm Stephen Carroll in London. We're looking ahead to the challenges facing the Bank of England and its next interest rate decision. I'm Doug Krisner looking at a challenging decision on rates for the Reserve Bank of Australia. 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.

1:54Good day to you. I'm Nathan Hager. We begin today's program with a focus on the market. We're more than halfway through third quarter earnings season, with stocks still finding ways to set records. What's the outlook for the week ahead and for the final two months of this year? For that, we're joined by Amanda Agati, Chief Investment Officer at PNC's Asset Management Group. Amanda, it's great to have you with us on this weekend show, and I know you've been pretty positive on the earnings picture thus far. How do things look to you now that we're at the point that we sit at now? Well, it's always great to be with you.

2:30Thanks so much for having me. We're feeling really positive about this stage of Q3 earnings season. It was actually a pretty positive setup even before earnings season started. Very strong, sort of consistently positive revisions over the course of Q3. So we set a pretty high bar coming into earnings season itself. And believe it or not, at this stage of earnings reporting, we are handily exceeding it. So by my math, we were expecting about 7.2 % earnings growth for the S &P 500 before earnings season started. And we're tracking well in excess of 9%. So I'll give it an A grade so far. There's still some distance to go yet, but that's a pretty strong result.

3:16And I think it's been enough to support the market, certainly at these valuation levels. So now that we're through some of the biggest big cap names to report so far this season, what are you looking at in terms of whether we could see this momentum continue to build? Yeah, the most critical thing is what happens with revisions for Q4 and even for 2026. And so because the results that have come in so far have handily exceeded that high bar, it's actually pushing revisions up for the balance of the year and setting the stage for, you know, well in excess of 13%, maybe 14%, not to get too superstitious with you in terms of earnings growth for next year.

4:00So it's really all about the trend. It's not so much here and in the moment. It's sort of how is this setting the stage for what's to come? And I think the market is very focused on, you know, what happens over the next four quarters and certainly what happens with with the Fed. So we're getting a good result here. But the trend line is really what matters. Well, with the stock levels as high as they are right now, Amanda, could we be due for a pullback? Oh, well, I mean, a pullback is always a possibility. It's sort of normal, natural, functioning market health and behavior. We haven't had much of a pullback more recently since that V-shaped bounce we had in the springtime.

4:44So I always say yes to that question, but that doesn't mean that I feel particularly concerned or bearish about the backdrop right now. Valuations are pushing it. I would describe them as sort of pricing for near perfection. And the backdrop is clearly not quite perfect. There's still a lot of purple haze of policy uncertainty there. So with valuations at these levels, it just doesn't give the market a ton of headroom when some noise comes into the backdrop. So do I think things get a little choppy from here? I think that's possible, but we've been in a period of pretty low volatility. And so seeing a little bit more volatility actually makes me feel better about the sustainability of the rally going forward.

5:28We've talked before about the purple haze of policy uncertainty. We're just coming out of a very important meeting between Presidents Trump and Xi Jinping of China, where they got that one year trade truce. Does that lift some of the fog for you or do you see more potential for uncertainty to come? Yeah, I mean, I think it helps on a relative basis. We definitely, as it relates to trade and tariffs in total, we definitely feel like the purple haze has lifted a bit. It's more of a narrow band in terms of best and worst case kind of scenarios. And so that, I think, has really helped the market kind of wrestle with that, try and assign some level of a PE multiple and kind of move past some of the worst case scenarios that we were worrying about and anticipating in the first half of the year.

6:18But this purple haze is not just about tariffs and trade, right? We have a government shutdown looming pretty large here, right? And so key questions around when, how, if the shutdown is going to come to an end, that is creating more, I think, near-term purple haze for me. And to some degree, I think it will start to weigh on the market. It hasn't yet because the market typically kind of ignores these things. But this one's going on a bit longer than what I think anybody engaged in this would like to see. So that's a little bit of near-term purple haze that we're watching carefully. And then, of course, with the Fed meeting earlier this week, Powell throwing some cold water on what happens in December.

7:01That's adding a little purple haze of monetary policy uncertainty, too. That's Amanda Agati, Chief Investment Officer at PNC Asset Management. Now let's take a closer look at the big tech earnings we saw this past week and what they could tell us about markets going forward. For that, we're joined by Ivan Feinseth, Senior Partner and Chief Investment Officer at Tigris Capital Partners. It's great to have you with us on the weekend program, Ivan, after we've heard from five of the MAG7 names. I think we could probably say it was a mixed reaction. Was it a mixed result for you? No, I think everything is going well.

7:37I think that the pullback in meta platforms is definitely a buying opportunity. They continue to invest in advancing AI and it will continue to pay off as it has in the past. So I still say we are in the first inning of a huge AI World Series. This bullish investment trend has a lot more to go. And I'm going to say every company is going to invest in AI and every company is going to be an AI company. that's going to drive their business, whether it's supply chain management, whether it's price optimization, whether it's finding new leads and generating marketing initiatives. AI is going to be an engine behind multiple aspects of every company.

8:23Just to play a little bit of a devil's advocate on that, I wonder though, whether after we've seen some of the market reaction to these results this past week, whether we're going to see a sort of a split as to how some of these biggest names see that AI investment pay off. There's always going to be bumps in the road. And remember, these companies are investing for the next, you know, three, five plus years. And the AI engines that we have now are going to pale in comparison to what we have in the future. as they will still in the early stages. So there's going to be new technologies emerging that will overtake maybe some of the previous technologies and companies will continue to learn as the large language models will continue to learn and create these data factories that create the data that they will learn from.

9:14Certainly an arms race. We've seen that in terms of the reported spending tens of billions of dollars by just about every company that's reported in this past week. Where do you see things stacking up in terms of the race? Who's winning? Who's placing? Who's showing? Certainly, Amazon is winning. Google is winning. Microsoft is winning. And Meta is winning. And then the companies that use their platforms will also start to win as well. Companies that use, for example, the travel industry to use AI for optimum pricing for airline tickets, for hotel rooms for cruise line tickets. So there's going to be a lot of different ways to win and a lot of different ways to use the technology.

10:00We certainly saw Amazon Web Services kind of hit things out of the ballpark with their 20 % year-over-year growth number for Amazon Web Services sort of staying in the lead in terms of the cloud. Do you see any market shifts in that cloud business around some of those big players we've been talking about like Amazon, Google, and Microsoft? They're going to continue to gain market share and customers between the three of them. Remember, large companies that use, they use more than one platform because you need backup, you need redundancy. And each platform is going to have the strength and weaknesses that companies are going to need where they want to have the fastest processors for some inferences.

10:43And then, you know, secondary, tertiary processing for other functions. functions. So it's not a zero-sum game amongst the cloud service providers. And then you got, of course, the GPUs that power all of this coming from NVIDIA, and NVIDIA wins on every front. And when they talk about another company catching up to it, by the time a company catches up to NVIDIA's current processor, they already have multiple new processors in the pipeline. When other competitors catch up to the hopper, they got the Blackwell. They catch up to the Blackwell, they got the Rubin. And when they catch up to the Rubin, the next one is the Feynman.

11:23So NVIDIA thinks multiple steps ahead. And NVIDIA's power is that they have the software that's used to get the value and the processing power from their processors. Their CUDA software is a big driver of their GPU processors. Yeah, let's talk a little bit more about NVIDIA because we've seen the CEO Jensen Wong making a lot of deals this past week at the APEC Summit in South Korea, investing into AI startups as well. What's your read on some of the latest moves that Jensen Wong has been making in terms of investment? He just is staying steps ahead of everybody. He's sinking into the future. You want to be on the forefront of every front and be ahead of the curve and he's doing that.

12:10And there is a lot of money that will be invested in various startups that help to train the AI process. So it makes sense. NVIDIA is a large investor in a lot of different emerging technologies. And then some may emerge and go on to be industry leaders, some may not, but that's the kind of venture capital investing game. But then they also benefit that they become NVIDIA customers as well. And, you know, going into all of these earnings, there's been the debate about whether these companies are spending and whether investors are spending into an AI bubble. Now that we've gotten through these earnings, where do you sit on that debate?

12:55As far as it's a bubble? Yeah. It's not meaning that a bubble, that this is a fad and the bubble will burst and will... No, it's not a bubble. Things may get ahead of themselves from time to time and stock prices may run up and then pull back, but it's not really a bubble. It's a powerful trend that will continue to move forward. Just like, you know, there were some bubbles in the beginning of the internet in the 90s, but now, you know, there were many other competitors to Amazon. There was eToys and Pets.com, but, you know, look at where Amazon is today. Look at where Microsoft is today. Look at where Google is today.

13:34Look at where Apple is today. So there will be huge winners into the future as well. Appreciate this, Ivan. Thanks again for being with us. Thank you. That's Ivan Feinseth. He is Chief Investment Officer at Tigris Capital Partners. And coming up on Bloomberg Daybreak Weekend, Bank of England policymakers are meeting this week for their latest interest rate decision. We'll get the details from our team in London. I'm Nathan Hager, and this is Bloomberg.

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15:32This 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 turn to Australia, where core inflation accelerated beyond expectations last quarter. But first, Bank of England policymakers are meeting in the coming days for their latest interest rate decision. Investors are not expecting the UK central bank to cut rates, but the recent data have made the path ahead less clear. For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Stephen Carroll. Nathan, the Bank of England is becoming something of an outlier among its global peers.

16:08The ECB appears to have finished its rate-cutting cycle, while the Federal Reserve is continuing on its easing path. But the BOE's base rate is still 4%, and that doesn't look likely to change in the coming days. Although Goldman Sachs economists are calling for policymakers to reduce interest rates at their next meeting, that's booking the market consensus that the central bank will keep rates on hold. On the data front, inflation held steady at 3.8 % in September, which is less than economists had forecast, but still well above the central bank's target. November's budget could add to the uncertainty over price pressures, something the Chancellor Rachel Reeves acknowledged in recent days as she addressed a gathering of business leaders in Saudi Arabia.

16:47Look, for me and my government in the United Kingdom, our number one priority is growing the economy. But we need to do that on a sort of a foundation of stability. And we do live in a more uncertain world. We can see that all around us, whichever newspapers and TV channels we watch. That uncertainty, whether it is higher tariffs, whether it is conflicts around the world. And that's why building relationships with our allies is more important than ever to build that security and resilience into the system. That's why in the United Kingdom we put real focus this last year on securing trade deals.

17:31So that's the Chancellor Rachel Reeves there. Speaking to some of the backdrop for this upcoming interest rate decision from the Bank of England, How will policymakers balance the data and the broader economic concerns? Our chief UK economist, Dan Hanson, is with you now to discuss. Dan, let's start, I suppose, with the concrete parts of this and the data. What are the signals that we have from those numbers the Bank of England will be watching? Yeah, so you mentioned it at the start there. I think you've had slightly weaker than expected inflation. But the key point, and you said it, is inflation is still almost double the Bank of England's target.

18:06but there has been you know there has there was good news in that september print it was a little bit weaker than expected and it's always one of these things of should we look at the level of inflation which we probably should or should we look at what inflation did relative to forecasts and that's tends to be how markets respond and markets have responded quite dovishly to that inflation print you take that alongside we've had data on growth that's been probably a touch weaker than the bank expected but they haven't been placing a huge amount of weight on the growth data, the pay data has been weaker than expected, and that's important.

18:40And that's something that, at least in August, the bank focused on when it cut interest rates. I mean, something that Andrew Bailey has brought up sort of repeatedly over the past couple of years is that it's one of those things that has made the UK situation particularly, I suppose, challenging for the Bank of England is that wages were rising at pace, which was adding to the complication. Yeah, exactly right. And what's happened since the peak of wage growth is that wage growth has slowed, but it has slowed quite slowly. And that has meant that the bank has been cautious about how fast it will cut interest rates.

19:14I mean, if you think about where we are at the moment, private sector pay growth is running a little under 4.5%. We need pay growth in the UK, or the Bank of England, I should say, needs pay growth in the UK of around 3 % to hit it's 2 % inflation target. So there's still some way to go. One really positive thing on this front, at least if you're an inflation targeting central bank, not if you're a household, is that indicators of pay growth are pointing downwards, forward-looking indicators. So pay settlements and the like are pointing to pay growth closer to that 3 % mark. But it's still early days for 2026.

19:50Not a lot of people know what their pay rise is going to be for 2026 yet. That information will start coming through in the first quarter of next year, and that's something the bank will be focused quite heavily on. Okay, so essentially, is that why you don't think the bank is going to cut rates at this meeting? The market expectations have moved a little bit, but the general consensus is no move this time around. Yeah, so we saw a little bit of movement on the change in the Goldman call that you mentioned. Not a huge amount, but a little bit. It seems to have come back now. So we've got maybe four or five basis points price.

20:22So 20, 25 % chance of a cut. Obviously not very high. Our view is that if you take, there has been dovish news in the data, particularly in the prices data. But the fundamental point is that inflation still nearly doubled the targets. You've mentioned the budget. That is a huge element of uncertainty. We saw what happened last year with the budget. And there is no reason, given where interest rates are, they're at 4%, but there's probably not a huge amount of distance for the bank to travel before they finish cutting interest rates. Skipping a meeting is not really a big deal, just to wait for that, particularly that information about the budget.

21:04But also, for your own credibility as a central bank, cutting rates when inflation is 3.8 % is quite a hard sell. Even if there is a story to be told about perhaps the labour market is loose, pay growth is coming down, pay growth is still above the levels that are consistent with the 2 % target. Inflation is still high. So you've got time on your side. And so that's why I think they will hold at this upcoming meeting. And you mentioned the budget there. Of course, the big change that did impact particularly price pressures was the increase in the payroll tax for employers. And that was something that took us a bit of time to see coming into data.

21:40Do we have the full effect of that now? Is everyone sort of aware of what effect that increase in employers' national insurance had now? I think we're nearly there with it all passing through. I think by the end of this year, it will be in the data. Getting it, teasing it out from all the other noise that's been going on is very, very difficult. But I think you can see that, yes, there was an impact on employment. Yes, there was an impact on prices, possibly an impact on wages. less sure but i think it has it appears to have flown through into the data now looking to the budget what the bank will be watching is not just i mean there are there are a lot of things i'll be watching first of all it'll be the profile of the fiscal consolidation that reeves announces what matters for the bank is where the consolidation lands because the bank only thinks three years ahead okay and the fiscal forecast is five years so if the chancellor puts it all at the back end of the forecast it means nothing for the bank of england point two will be it's most likely going to be tax rises we know that fine then it's whether it's indirect tax increases so that played a part in the inflation story this year as well vehicle exercise yeah because something like vat is is being floated as a possibility of course we're still waiting and we're several weeks away from the budget and the government's promise has been that they wouldn't raise income tax, national insurance or VAT, the question of whether or not that position might be shifting still very much in the debate.

23:10So we won't dwell too much on it. But a VAT increase would presumably be particularly bad news for inflation. Absolutely. So indirect taxes, VAT, vehicle excise duty, fuel duty, all of those things would flow straight into the CPI basket and make the Bank of England's job much harder. I think Rachel Reeves, listening to her rhetoric around this budget, she's very conscious of the inflation story now and I think probably in hindsight wouldn't have gone through with some of the policies she went through in in October last year in the in the budget last year because there has been an inflationary impact thinking about them not just the national insurance increase you're thinking about the minimum wage you're thinking about what happened with they say with vehicle excise duty and other components of the CPI basket as well so you think what I think you'll see is policies announced in the budget at least that will be disinflationary but the bank just wants the point for the bank of england is it just wants to know that they're disinflationary and that's a reason not to go ahead and cut interest rates just now but think about when to cut interest rates people are talking about december for me that still feels a little bit too soon i think it'll probably be in the first half of next year is there anything that the bank of england can do to help the chancellor in her job as well i know that's not their job but but But just, you know, given that obviously the influence on borrowing costs is important and does matter when it comes to the very constrained fiscal situation the British government's in.

24:33Well, I mean, they could stop quantitative tightening straight away if they wanted to directly help the Treasury. But obviously, it's an independent central bank, so they're going to do what they're going to do. I mean, the key point for the fiscal forecast will be the window. so the OBR, so the UK fiscal watchdog, takes a snapshot of the market curve into its forecast. And the key point will be what window has it taken for its forecast and whether we've had a fall in guilt yields recently. Good news for the Chancellor. Good news for the Chancellor, exactly. Whether that makes it into the OBR forecast, there's a lot of uncertainty about that.

25:18So that's directly how the Bank of England can impact or make Rachel Reeves' job easier is by cutting interest rates, being dovish, pushing down on long-term borrowing costs, pushing down on short-term borrowing costs as well because that affects the debt interest picture. Beyond that, I think we heard there from Rachel Reeves about the government's priority is to grow the economy. of course a big fiscal consolidation so the government raises raises taxes that makes it more likely the bank of england cuts interest rates but that's very much a short-term story and i think what rachel reese is talking about is the supply side the long-term trajectory of the economy can the economy grow faster permanently and they're the policies that the government is focused on a monetary policy can't do much about that that's very much about supply side reform and also about the makeup of tax in the UK as well.

26:14Coming back to this Bank of England decision, I mean, how important is the vote split going to be when it comes, are we expecting a divided monetary policy committee? Well, one thing that's going to be really interesting about this is that a speech a couple of weeks ago by Hugh Pill noted that the minutes are going to have a section for each policymaker to explain their thinking, which is something we haven't had from the Bank of England before. So we're going to hear from all nine of them about exactly how they are thinking about it. So up until now... That'd be fun for you. Oh, yeah. I mean, I can't wait.

26:48Up until now, as you've just said, we look at the vote split and we try and tease out from that how close each member was to voting for a cut or not voting for a cut and exercising an awful lot of judgment in the process. now or at this upcoming meeting you're going to hear a little bit more about what each one of them is thinking and i think from that you will be able to ascertain how close each member was to voting for a cut you know for the hawkish for the likes of hugh pill catherine mann yeah we know that they're probably going to be miles away from it what's going to be much more interesting is how close the likes of andrew bailey and sarah breeden who are the they're basically the marginal voters they're the swing voters I should say on the on the committee if they if they go for it the cut then it's there's going to be a cut I don't our baseline is they won't but I'm just saying they're the two people to watch so if you're going to read the minutes and take the time out of your day to do it they're the two to look at and see how close they were to voting for a for a rate cut okay Dan Hanson our chief UK economist thank you very much and we'll have full coverage of that Bank of England decision across our Bloomberg platforms.

27:57I'm Stephen Carroll in London. You can catch us every weekday morning here for Bloomberg Daybreak Europe, beginning at 6am in London and 1am on Wall Street. Nathan? Thank you, Stephen. And coming up on Bloomberg Daybreak weekend, we'll look to new economic data out of China and what they mean for global markets. I'm Nathan Hager, and this is Bloomberg.

28:25I'm Nathan Hager with your global look ahead at the top stories for investors in the coming week. Now we go to Australia, where core inflation accelerated beyond expectations last quarter, further complicating the path for further policy easing for the Reserve Bank of Australia. The RBA is set to issue a rate decision in the week ahead. For more, we turn to Bloomberg Daybreak Asia podcast host Doug Krizner. Nathan, before last week's reading on Australia's inflation, money markets had been expecting the RBA to cut its policy rate. Well, then came the reading on core consumer prices, a gain quarter on quarter of 1 % in Q3.

29:02And that seems to validate the RBA's assessment that its efforts to rein in core inflation have stalled. For a closer look, I'm joined by Bloomberg's James McIntyre. He is our economist for Asia in Sydney. James, thank you so much for making time to chat with me. To what extent were you surprised by that core consumer price reading? We were quite surprised, as was everyone. So we'd anticipated inflation would be a little stronger than what the RBA had factored into their last set of forecasts that they made back in August. They're going to make a new set of forecasts in November ahead of this meeting.