Bloomberg Daybreak Weekend: Fed Meeting, US Tech Earnings, European Defense

Federal Reserve Meeting Outlook

• 💡 The Federal Reserve is expected to deliver a quarter-point rate cut at its upcoming meeting, with consumer price data opening the door for a potential December cut.
• ⚠️ Policymakers aim to avoid surprising markets and will likely maintain a stance of keeping options open, stating that "every meeting is live."
• 📊 Key data points influencing the decision 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 maximum employment.

US Tech Earnings Preview

• 🚀 Five of the "Magnificent Seven" tech companies (Microsoft, Meta, Alphabet, Apple, Amazon) are set to report earnings this week.
• 🤖 Generative AI is expected to be a key differentiator, potentially boosting cloud revenues for Microsoft and Google more than for Amazon or Meta.
• ☁️ Microsoft's Azure business is projected for strong growth, benefiting from its partnership with OpenAI, while Google's cloud segment may see a lift from its deal with Anthropic and potential sales of TPU chips.
• 📉 Amazon's AWS cloud margins are a key metric to watch, with potential pressure from AI workload pricing and a recent outage.
• 💰 Meta faces scrutiny over its capital expenditure for AI efforts and its return on investment, especially without a separate cloud business.
• 🍎 Apple's AI strategy remains a question mark, with a focus on the iPhone 17 refresh cycle and the need for a stronger LLM strategy.

European Defense Sector Analysis

• 🇪🇺 The EU aims for defense autonomy by 2030, with a goal of 40% joint procurement in flagship defense programs by 2027.
• ⚠️ European defense companies like Airbus and Leonardo face challenges including renewed Russian threats, reliance on US systems, and market volatility following Middle East ceasefires.
• 💰 There's a concern about a "bubble" in the defense market due to increased investor interest, with some questioning the long-term returns.
• 🇺🇸 A perceived US pullback from Europe is driving a commitment to increased defense spending and investment on the continent.
• 🚀 Europe excels in short-to-mid-range air defense but struggles with high-end systems capable of intercepting hypersonics, relying on US companies for these capabilities.
• 🛰️ A joint venture between Airbus, Leonardo, and Thales aims to bolster Europe's space and satellite capabilities, though heavy launch systems may still require reliance on SpaceX.
• 👥 The primary challenge for Europe in potentially fighting a war with Russia is not hardware but mustering sufficient personnel to sustain a 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 rather than a currency swap.
• 💲 The Bank of Korea estimates a maximum of $20 billion can be raised annually without disrupting the foreign exchange market, with various options for upfront payments being negotiated.
• 🚗 The South Korean government is providing policy support to automakers facing higher US tariffs compared to those in Japan and Europe.
• 🇦🇺 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 the US and Australian governments will invest $1 billion each over six months in critical minerals projects, with a focus on maximizing Australia's opportunity in this sector.