Bloomberg Daybreak Weekend: Fed Meeting, Tech Earnings, European Defense, and APEC Discussions

Federal Reserve Meeting Outlook

• 💡 The Federal Reserve is expected to deliver a quarter-point rate cut at its upcoming meeting, with the consumer price data opening the door for a potential December cut.
• ⚠️ Policymakers aim to avoid surprising markets, maintaining flexibility by stating that "every meeting is live."
• 📊 Key data points favorable for a cut include modest tariff pass-through, deceleration in core goods prices, and tame core services prices, particularly a step down in rents.
• 📉 Firms' ability to pass on tariff costs is limited by consumer income growth in a cooling labor market, allowing the Fed to focus more on its maximum employment mandate.

Tech Earnings and AI Impact

• 🚀 Companies like Microsoft and Google may see a larger lift in cloud revenues from Generative AI compared to Amazon and Meta.
• ☁️ Microsoft's Azure business is expected to continue strong growth, benefiting from its partnership with OpenAI.
• 💻 Google's cloud segment is also boosted by AI workloads, with its partnership with Anthropic signaling a potential to sell TPU chips competitively against Nvidia.
• 📉 Amazon's cloud margins are a key metric to watch, as AI may not be as significant a tailwind, potentially leading to margin hits to maintain market share.
• 💰 Meta Platforms faces scrutiny over its return on investment for AI efforts, especially if capital expenditures increase significantly, as their AI benefits are primarily seen in targeted ads.
• 📱 Apple needs to strengthen its AI strategy, beyond hardware, to remain competitive, with the iPhone 17 refresh cycle being a key driver.

European Defense Industry Focus

• 🇪🇺 Europe aims for defense autonomy by 2030, with a goal for 40% of procurement in flagship programs to be conducted jointly by 2027.
• ⚠️ The sector faces challenges including renewed Russian threats, reliance on American-made weapons, and shifting US policy.
• 💰 Despite market noise and potential bubbles, there's a strong commitment from European politicians to increase defense spending and investment.
• 🛡️ Europe excels in short-range and mid-range air defense but struggles with high-end systems capable of intercepting hypersonics, relying on the US for these capabilities.
• 🛰️ European companies like Airbus are pushing for domestic capabilities in space and satellite technology, with a merger of space businesses by Airbus, Leonardo, and Thales aiming to reduce reliance on the US.
• 🚀 Europe currently lacks a high-tempo, fast-cadence heavy launch system, potentially requiring reliance on SpaceX for rapid satellite deployment.
• 👥 A key challenge for Europe is mustering more personnel to operate new military hardware and sustain a prolonged conflict.

APEC Finance Ministers Meeting Insights

• 🇰🇷 South Korea's finance minister discussed ongoing trade talks with the US, focusing on the structure of a $350 billion investment pledge, with flexibility on upfront payments due to the foreign exchange market.
• 💰 A potential currency swap with the US is being considered, but its necessity depends on the deal's structure, not a lack of foreign reserves.
• 🚗 South Korea is providing policy support to automakers facing higher US tariffs compared to Japan and the EU, with hopes for a breakthrough in negotiations.
• 📈 South Korea's stock market is seeing exuberance due to AI expectations, with government support for core technology to enhance its global investment appeal.
• 🇦🇺 Australia and the US signed a deal to boost access to rare earths and critical minerals, aiming to strengthen supply chains and curb reliance on China.
• 💰 Both countries will invest $1 billion each over the next six months in critical minerals projects, positioning Australia as a world leader in their supply.
• 🤝 The agreement aims to strengthen trade ties, ensure robust supply chains, and maximize Australia's opportunity in rare earths and critical minerals, with benefits intended for workers, communities, businesses, and investors.