Podcast Summary
U.S. economic growth: The U.S. economy is projected to grow at a modest 1.8% annualized pace in Q2 2023 due to inventory buildup, cooling labor market, and consumers' prudence. External factors like semiconductor shortage and cyber attacks also contribute to the slowdown. The Fed's policies may be influenced by these numbers.
The U.S. economy's growth in the second quarter of 2023 is expected to be modest, with a 1.8% annualized pace, primarily driven by an accidental accumulation of inventories. The cooling labor market and consumers' growing prudence are leading to a slowdown in production and growth in the second half of the year. However, there are also some external factors, such as the lingering effects of the semiconductor shortage and cyber attacks, that are contributing to the chunkiness of the data. The Federal Reserve's monetary and interest rate policies will likely be influenced by these economic numbers. Listen to Bloomberg Daybreak Weekend for more insights on the economy and other global news.
Consumer durable goods inventories & inflation: Despite inventory build-up in consumer durable goods, minimal impact on overall inflation due to rising homeowners and auto insurance costs, and a projected 2.5% annual core PCE inflation rate in June, leading to potential rate cuts in September.
The build-up of inventories in various consumer durable goods may lead to discounting, but the impact on overall inflation will be minimal as inflation in select services categories, particularly homeowners and auto insurance, is expected to continue rising due to increased replacement costs. The Fed's preferred measure of inflation, the core PCE price index, is projected to register an annual rate of 2.5% in June, down slightly from May, and monthly core inflation is expected to be 0.1%. This consistency with the Fed's 2% inflation target may lead to rate cuts starting in September. The upcoming September Fed meeting is anticipated to be the one where cuts may be announced, but the July meeting may provide some communications setting the stage for cuts. Tesla, the world's most valuable automaker, is expected to report strong second-quarter earnings, with much of the recent stock performance driven by anticipation of their global taxi announcement in October.
Tesla earnings: Tesla's earnings may exceed expectations due to lower costs and Cybertruck production, but competition from GM and others, as well as delays in Robo Taxi, pose challenges
Tesla's earnings for the second quarter are expected to surpass consensus estimates despite a year-over-year decrease in sales due to lower raw material costs and increasing Cybertruck production. However, Tesla faces competition from other automakers like GM, who are introducing more affordable EVs to cater to a larger audience, especially in markets like China where Tesla is facing intense price competition from EV makers like BYD. The delay in Tesla's autonomous taxi service, Robo Taxi, has also raised questions about the company's ability to deliver on its promises in the face of intense competition and market pressures. Despite these challenges, Tesla continues to explore opportunities for its vehicles beyond passenger transportation, such as using them for distributed power and offsetting peak power in different regions. Overall, Tesla's earnings report will be closely watched to see how the company navigates these challenges and maintains its competitive edge in the rapidly evolving EV market.
Paris Olympics water quality: Ensuring clean water for Paris Olympics swimming events is a challenge due to recent weather conditions and household waste pumped directly into the Seine River, while economic profitability is another hurdle to overcome.
The upcoming Paris Olympic Games face numerous challenges, including ensuring the cleanliness of the Seine River for swimming events and extracting lasting economic value from the event. Paris authorities have been working on improving the water quality of the river for several years, including creating a large water basin to store overflows during heavy rain. However, recent weather conditions have made it a challenge to maintain the required water quality, and some households were even found to be directly pumping waste into the river. Organizers also face the challenge of making the games profitable, as the Olympics have historically been known for their high costs, particularly for opening ceremonies. Despite these challenges, Paris is pushing forward with its plans to host the games in 2024.
Cost control in Olympics: Paris is attempting to keep 2024 Olympics costs down by minimizing new infrastructure construction and relying on private sector involvement, following the successful model of 1984 Los Angeles Games
The International Olympic Committee is facing increasing resistance from cities due to the escalating costs of hosting the Games. To address this issue, Paris is attempting to keep costs down by minimizing new infrastructure construction and relying on private sector involvement. This approach is a departure from past Games, which have become increasingly expensive and often resulted in cost overruns. Despite the financial challenges, many countries and emerging markets continue to bid for the Games due to the perceived soft power benefits. The 1984 Los Angeles Games remain the only profitable Games in history, achieved by reusing existing facilities and minimizing new construction. Paris is hoping to follow a similar model to deliver a balanced budget for the 2024 Games.
Paris Olympics Legacy: Paris invests $4B in regenerating a poorer area, creating new sports facilities and swimming pools, aiming for a sustainable legacy but history shows a pattern of cost overruns and overspending on Olympic infrastructure
The Paris Olympics aim to leave a meaningful and sustainable legacy for local communities, unlike the abandoned sports infrastructure seen in other cities. Paris is investing $4 billion into regenerating a poorer part of the city, creating new sports facilities and swimming pools. However, history shows a pattern of cost overruns and overspending on Olympic infrastructure. It remains to be seen if Paris will be the exception to this rule. The long-term economic and development gains from the Paris Games are yet to be determined. Despite both US presidential candidates wanting to be tough on China, their approaches will differ: Biden is more ideological, while Trump is more transactional. Regardless, the outcome of the 2024 US election will significantly impact the relationship between the US and China, as well as Asia as a whole.
US stance on Taiwan, China: Experts agree US protection of Taiwan remains firm despite Trump's unpredictability. China sees tough road ahead with both candidates taking hardline approaches, but US access to high technology remains a significant point of leverage.
Despite the unpredictability of President Trump's statements on China and Taiwan, the consensus among experts is that the United States' stance on protecting Taiwan against Chinese aggression remains firm. China, on the other hand, sees a tough road ahead regardless of the election outcome, with both candidates likely to take a hardline approach towards Beijing. While there may be differences in focus between Trump's trade-centric policies and Biden's industrial policies, China recognizes that the U.S. will continue to use its leverage over high technology and semiconductor chips. The U.S.'s access to these technologies is a significant strength and will continue to be used as a point of leverage against China. The ongoing tensions between the two superpowers are expected to persist for the foreseeable future.
Trump vs Biden foreign policy: Trump's transactional and unpredictable approach contrasts with Biden's ideological and long-term commitment to foreign policy, with significant differences in stance towards Taiwan, trade, and diplomacy with other countries.
The approach to foreign policy between President Trump and President Biden differs significantly, with President Trump being more transactional and unpredictable, while President Biden is more ideological and committed to long-term policies. This difference is evident in their stance towards Taiwan and their handling of trade and diplomacy with other countries. President Trump's transactional approach includes the use of tariffs and the pursuit of deals that benefit American consumers, while President Biden's ideological approach is focused on long-term commitments and protecting allies. Allies in Asia, in particular, may find it challenging to change policies under a President Biden due to his strong ideological focus. President Trump's unpredictability and transactional approach have left a lasting impression on foreign leaders, making it difficult to know exactly what to expect from him. The potential for a Trump-Putin-Xi relationship is intriguing, with Trump's previous statements on helping bring peace to the Ukraine conflict and his harsh stance on China adding complexity to the dynamic between these world leaders.
Trump vs Biden's impact on currency markets: Trump's preference for working with authoritarian leaders and weaker dollar contrasts with Biden's approach, which could influence currency markets
Former President Trump had a preference for working with authoritarian leaders and expressed a desire for a weaker dollar during his term. However, economists view his economic policies as potentially inflationary, which could lead to a stronger dollar. The degree to which President Biden will be able to influence leaders like Putin, Xi, and the Saudi Crown Prince is uncertain. Trump attempted to work with Xi initially but had a change in tone due to the COVID outbreak. While Trump advocated for a weaker dollar, Biden has not made it a focus. The difference in economic policies between the two administrations could impact currency markets.