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Speaker 1: This 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 look to some key inflation data along with bank earnings in the U.S. I'm Nathan Hager in Washington.
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Speaker 5: I'm Caroline Hepke in London, where we're asking if Europe's leaders can steer the region through political and economic turbulence.
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Speaker 3: I'm Doug Krisner, looking at Japan's Sports Day holiday and how it's used to promote health and wellness for the Japanese population.
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Speaker 1: Good day to you. I'm Nathan Hager. We begin today's program with some key inflation data in the U.S. The Consumer Price Index for the month of September is due out this Wednesday, followed by producer prices Thursday. A key piece of the inflation story before the Federal Reserve's next policy meeting at the end of this month. For more, we're joined by Michael McKee, international economics and policy correspondent for Bloomberg Radio and Television. Correct me if I'm wrong, Mike, but I think this is some of the last inflation data we're going to see before the next decision. Is it going to be make or break for an October move from the Fed?
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Speaker 8: It is to a certain extent, not as much as the September numbers were. We had two monthly CPI reports before the last Fed meeting. and only one this time. And basically, everybody knows that prices are going to go up because energy prices rose over the interim period. The question is, when you drill down into it, are other categories, particularly in the services areas, starting to show any kind of relief? And there's mixed feelings in the economic community about that. Now, we heard from the major decision makers so far at the Fed, at least the the guys with titles after their names, the vice chairman, Philip Jefferson, and the vice chairman of the Open Market Committee, the New York Fed president, John Williams, who said, yes, we need to raise rates again, but we don't necessarily have to do it this month. So the market is operating from the point of view that unless we get a really big surprise in CPI, just a normal rise won't do it because they can figure they'll raise rates again in December.
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Speaker 1: Okay. Well, what's a normal rise mean, Mike?
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Speaker 8: Well, if you look for a maybe a two-tenths percent monthly rise or a three-tenths percent monthly rise, you also have to figure in base effects. But basically, you get something in the three percent range. They would love to see core go under three and stay there. But any increase in the CPI that pushes us higher up into the mid threes is going to be a warning signal to the Fed that they're just not making progress yet. And I might mention that for those of you who have trouble sleeping or are maybe on a different shift than Nathan and I, next Thursday is PPI day, but at 11.30 p.m. Eastern time in the U.S., we're going to hear from Kevin Warsh. He's going to be over at the IMF meetings in Bangkok, and he is going to be interviewed by Kristalina Georgieva, the IMF managing director. And we're all hoping she'll say, well, what are you going to do? Because it's the last Fed appearance by any Fed official before the blackout starts. So he gets the last word.
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Speaker 1: Well, I was going to say that puts the blackout period at a whole new meaning when he's getting up that dark and early to make some comments that could potentially move markets here. But let's dive into the debate about what we could see around the CPI number, whether energy-related inflation could be seeping into broader price pressures. What are the sides of the debate that you're looking at?
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Speaker 8: Well, the biggest one is transportation, because the cost of diesel is obviously through the roof. And we're seeing more and more and more stories about how truckers are having to pass on their price increases. They can't make a living at these levels of diesel. unless they raise prices. And then if they're raising prices to their customers, their customers are going to raise prices to you. And it takes a while for all of this to happen, but it should start showing up soon because the prices have been elevated for some time. So a lot of people are watching to see what we get in a lot of different categories of stuff that's trucked a lot. Do vegetables go up? Does clothing go up? Those kinds of things because of transportation costs.
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Speaker 1: And that gets into producer prices as well. I think it's safe to say that we haven't seen a lot of evidence, at least up to now, that producer prices are starting to creep into what consumers are paying. Do we expect that to change anytime soon?
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Speaker 8: Well, they measure two different things, so it takes a while for one to translate to the other. It's not a one-on-one thing. Consumer prices are what you pay, and producer prices are what they charge. And companies have had a hard time raising prices. People are very price sensitive these days. They don't want to lose customers. So they've been slow to raise prices. But I can tell you, I've been out in different parts of the country over the past couple of weeks. And all of the companies that I have talked to basically say, we're at the end of that. We can't absorb the price increases anymore. And so they're looking to start to raise prices. They'll do it tentatively at first because they want to make sure that The price increase can go through, but if prices continue to rise for input costs, then we'll see more inflation on the producer side, which eventually ends up in the consumer price index.
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Speaker 1: Appreciate this, Mike. As always, thanks for being here. That's Bloomberg International Economics and Policy Correspondent Michael McKee. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager, joined by Bloomberg Intelligence Senior U.S. Banks Analyst Herman Chan, because this is the week that the banks are going to be making the news for sure with the kickoff of third quarter reporting season. JPMorgan Chase expected to kick things off Tuesday. So Herman, how are Jamie Dimon and company going to set the bar for the rest of Wall Street this time around?
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Speaker 6: Yeah, we do think JP Morgan's going to set the bar pretty high for the group. That's really reflected what they talked about in terms of expectations for the third quarter, talking about mid-teen to upper-teen growth in both trading and investment banking. That really just speaks to their testament of the bank itself, really strong market leadership and their ability to really navigate some volatile markets that we saw in the third quarter. So kudos to them. They'll set the bar high, and it would be interesting to see if any other banks in the group can match that.
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Speaker 1: Well, let's dig in a little bit more into that, because it certainly was a volatile quarter. How do we expect that J.P. Morgan is going to be navigating that, not just around the equity side, but around this higher interest rate environment we find ourselves in now.
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Speaker 6: Yeah, the higher interest rates is really interesting because bank stocks throughout most of the year were strong, given the fact that we had that great equity trading volume in the first and second quarter of the year. You had the AI trade really lifting stocks like JP Morgan, Goldman, and Morgan Stanley. But now there's a bit more uncertainty given the expected higher for longer rate backdrop. That's slowing down some capital markets activity. That should reverberate in the third quarter and fourth quarter. JP Morgan, though, they've been really deft in navigating the markets. There was some pullback in trading and equity activity in Asia in particular in the third quarter, whereas in the second quarter, that was really robust. So Being able to navigate that, I think, speaks to the testament of the strength of the bank.
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Speaker 1: Well, you mentioned Goldman Sachs there. Of course, I guess we're expecting to hear from Goldman on Tuesday as well. But we've already heard some reporting, at least. that their top leaders, David Solomon among them, are going to get their biggest stock bonuses ever. I mean, that's got to bode well for the results we're expecting. Yeah, that's right.
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Speaker 6: We'd expect some pretty strong results from Goldman as well. Qualitatively, they've talked about equities trading being solid, higher than fixed income trading. So that should really drive results for them because they are more equity tilted. versus some of the larger competitors like a Citi or a B of A. So strong results there. We'd expect some higher expenses. David Solomon had telegraphed that at a recent investor conference. Part of that's probably related to the bonuses that you just mentioned. Some of that's probably related to some charitable contributions as well.
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Speaker 1: So obviously, as you say, Goldman is stocks-focused, also deal-focused as well. I remember how heavily involved they were in the SpaceX IPO. Now that we're seeing a lot of... you know, really high profile initial public offerings getting delayed now. Could that be a headwind for Goldman in these results?
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Speaker 6: Yeah, I think that's why the stocks have been trading down a bit. Goldman and Morgan Stanley were sort of the bellwethers for the AI trade, given the fact that they were book runners on the SpaceX deal earlier in the year. That being said, we're still expecting Anthropic in the fourth quarter, so they're doing some due diligence there. That should be helpful. And then there's been some announcements on further IPO activity. There was an SK Hynix spinoff that Goldman will be a book runner on, so There's going to be some good activity. It'll be some fits and starts given the volatile market backdrop that we're operating in today.
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Speaker 1: Okay. So along with Goldman and JP Morgan on Tuesday, we're also expecting to hear from Bank of America on Wednesday as the financials parade goes on. How's Brian Moynihan's bank likely to fare in this environment?
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Speaker 6: Yeah, we're expecting some choppier activity for Bank of America, both in the investment banking and trading front and Bank of America has talked about flattish trading results, which should lag the likes of JP Morgan and Goldman that we mentioned earlier. Investment banking also is looking a bit soft, given that their implied guidance expects, we expect investment banking down about 12% to 22%. So they said that client activity is still strong, but there's some mix shift happening. That's really driving the decline in activity. So we'd expect, at least heading into the quarter, that Bank of America lags from their peers.
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Speaker 1: Are we expecting that that strong customer activity is expected to be reflected in loans as well? I mean, Bank of America is pretty exposed to commercial and individual loans, isn't it?
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Speaker 6: That's right. So from a loan standpoint, we think the group's going to be pretty strong. Bank of America will continue to benefit from The economic activity that's happening throughout the country, we're expecting on average about 2% loan growth for the group, 3% commercial loan growth, so maybe a bit softer on the consumer side. The consumer side is going to be a bit lagging given the fact that higher interest rates is really curbing activity in areas like mortgages. But card activity should be strong, and then auto should sort of be in the middle there. But really what's driving the long growth for the industry right now is commercial lending. Some of that's AI and AI related. And then commercial real estate's really picking up again after a multi-year setback following higher interest rates and areas of concern like office where you saw some defaults over the past few years.
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Speaker 1: All right, Herman. Thanks for this as we look forward to the kickoff of Big bank earnings season once again. That's Bloomberg Intelligence Senior U.S. Banks Analyst Herman Chan. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to a meeting of European leaders in Brussels. Can they steer the region through political and economic turbulence? I'm Nathan Hager, and this is Bloomberg. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Later in the program, we'll look to what we can expect from Japan's sports day. But first, in the coming days, EU leaders meet in Brussels at a time of growing economic and political concerns for some of the region's major players. Will the EU nations manage to forge a path ahead? For more, let's go to Bloomberg Daybreak Europe anchor Caroline Hepker in London.
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Speaker 5: Nathan, it's been an eventful couple of weeks for Europe. The French fiscal situation has captured the attention of investors around the world. The country has faced a rout on bond markets as concerns mount over whether the minority government, led by Prime Minister Sébastien Le Corneau, can deliver the spending cuts and tax increases to bring down the deficit or even just get a budget passed. Economic woes in the country also come as more than 250,000 people poured into the streets demanding more money for education in uprisings by students, teachers and others that sometimes turned violent. Meanwhile in Spain, the Prime Minister Pedro Sanchez unexpectedly dissolved Parliament and called an early election after failing to pass new housing measures and widespread anger issues. in Spain over the policy. Following the disruption in France and Spain, whispers of contagion risk are returning to Europe's bond market. Ozan Tarman is vice chair of global macro at Deutsche Bank.
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Speaker 4: Even in my smaller, big macro dinners in U.S., people seem to be more focused on OATs than U.S. Treasuries. But despite that, at the end, everybody may be in an acute way expecting that TPI, that intervention to come if things get worse.
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Speaker 1: They have to clear this some way.
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Speaker 8: And Lionel Laurent yesterday said he's unsure how that process happens. What does Deutsche Bank say?
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Speaker 4: I'm with you. It's not that easy to clear the process. Now Le Pen is acting like the responsible one. The RN budget today seemed more liberal. But I don't think it's going away.
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Speaker 5: That was Deutsche Bank's Ozan Tarman speaking there to Bloomberg's Tom Kean and Alexis Christophorus. So all of this as European leaders prepare to meet in Brussels for a summit in the next few days. No official programme has been shared yet. But the region's political and economic uncertainty is likely to make it onto the agenda. Joining me for more is Bloomberg's chief euro area economist, Simona de la Calle, and our chief Europe correspondent, Oliver Crook. Oli, what are we expecting from this leaders gathering? What normally happens at these events? This comes at a time of quite a lot of pressure for Europe.
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Speaker 1: Yeah, I mean, absolutely.
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Speaker 2: These European Council meetings is basically a forum for all the European EU leaders to get together and try to make sort of big decisions on a number of things that are sort of facing the European Union. So I think right now, the main object is going to be to try to get to some collective view on how to treat the threat from China as it poses to the trade situation. You know, as we've been reporting, we have some EU emissaries, Mara Sefcovic, the trade representative, going to China to try to sort of establish what the Chinese position is there. And for the Europeans, basically now getting this deficit with China, which has got to $ 8 billion a day, that is sort of, I guess, seen now from the European perspective as kind of a breaking point and something that they can no longer tolerate to try to advance some of those conversations. So depending on how those talks go, how much progress can be made on the sort of negotiations diplomatic front, that will sort of set the tone for how the European leaders will sort of assess how hard they need to go on this question of China. We should say that there has been some political evolution on this question at the European level. You know, when I spoke to the Spanish trade minister a couple of weeks ago, Spain is a country that sort of notably would actually like to have a relatively strong economic relationship with China, that a billion dollars a day is too much even from their perspective.
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Speaker 3: And you have.
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Speaker 2: The Germans historically who have been very reticent to take any kind of aggressive trade action on the Chinese because of how dependent these German carmakers are on the domestic market. But that also is evolving. You do have the Germans now, it seems, more ready to take on a sort of more active role and a more potentially confrontational role on the Chinese for a couple of reasons. For one reason, they've lost so much market share in China that actually, you know, that market is actually less important than it used to be. But again, the Chinese are gaining so much market share here in Europe and you have all these sort of difficulties with the U.S. market that the European market is something that these car makers now increasingly feel more and more they need to preserve. So that is going to be, I suspect, going to be the main issue of conversation. But of course, we've been alluding to some of the issues in the bond market, the political risk that's on the horizon. You've got the EU budget you still need to get over the line, in addition to sort of the increasing energy costs, which will all be certainly discussed at the margin.
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Speaker 5: Yeah, absolutely. I mean, Europe's also very much between the America first sort of nationalist US position that was again, reframed and reiterated by Marco Rubio in Greece only a few days ago. And, you know, you talk about the negotiations between the EU and China as well, export overcapacity and the rare earths issue. So trade is a kind of major theme. But look, how do you think that the leaders are going to relate to France and Spain now that their positions become quite clouded? There is now expected to be an election earlier in Spain than we expected. And then there's the presidential and the other elections in France next year. These are leaderships in transition.
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Speaker 4: Absolutely.
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Speaker 2: I mean, and to say nothing of the fact that you also have an Italian election next year, you have a Polish election. I mean, you have a ton of different political risk on the horizon that is going to appear. for all of these critical nations. And when you think about what's on the line, I mean, let's talk about Germany as well. I mean, there's not an election really on the horizon, but you have Friedrich Merz, the Chancellor of Germany, who is under incredible pressure. He's had a lot of difficulty getting sort of his agenda through and really gaining that political purchase. But when you look at, you know, France, right, this is one of the two main pillars of the European Union. When you look at the Council, you know, you can't really do anything big in Europe without Germany and France, A, on the same page, but B, also in a relatively strong position at home. And in both of those cases, that is not the picture that you have going forward. And potentially waiting in the wings are people that are quite skeptical of the European Union, quite skeptical in varying degrees of the European project and the Eurozone. I mean, you have the AFD in Germany. Again, they are not likely to come to power. anytime soon, but they actively talk about a withdrawal of the Eurozone from Germany. I mean, you can't even imagine what kind of impact that sort of thing would have. But for Marine Le Pen, who has tempered her sort of relationship a little bit to the EU, I mean, she very possibly could be the next president of France. that is something that for the markets I think is incredibly difficult to risk, in part because she hasn't made her views of Europe explicitly clear in terms of what it would mean for policy. So all of these things are sort of looming largely. The only thing I think it does give to some of these leaders is some ability to basically get stuff over the line, potentially in a sort of, you know, when you have nothing left to lose, you can actually sort of, you can act a little bit more freely. Potentially you have a little bit of that energy from Emmanuel Macron.
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Speaker 5: Simona, given the situation with French government debt with sovereign bond yields in Europe, how concerned do you think member states are about contagion in terms of bond market risks?
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Speaker 7: We already have seen some signs of contagion with the sell-off in France spilling over into other sovereign markets, including Italy. The real concern, I think, is that this can start to create a negative feedback look loop, higher yields increase expected debt servicing costs that makes investors more concerned about the fiscal outlook. And then the demand, a higher risk premium to all that debt. For a highly indebted country, that dynamic can become particularly uncomfortable. And I think Italy here is a good example because the country has made a considerable progress on fiscal consolidation in recent years. And these have helped also rebuild credibility with investors and bring its breakdown significantly. for Italy or for, in general, high-end debit countries in Europe, stay on the path of fiscal credibility is now particularly important in order to avoid changes in market sentiment.
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Speaker 5: Yeah, and Simona, in terms of the debate around intervention, we're not back at a Greece-level crisis point, but I suppose because of the worries around whispers of contagion in bond markets, There has been discussion, and you hear it from officials also, about either in favour or rejecting ECB intervention or EU intervention. Where are we in that discussion, for France in particular?
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Speaker 7: That's absolutely very important. I think the first thing to say is that Europe was much better equipped to deal with contagion than it was during the sovereign debt crisis. The ECB now has instruments specifically designed to deal with fragmentation in bond markets. But that does not mean that ECB will step in simply because French or Italian spread are widening. The key question is why spread are widening. And as yet, the bear for intervention remained high. This is for the reason that I mentioned before. If investors are demanding higher-than-premium because they are concerned about the country's fiscal position, then some of that repricing is justified. In that case, the first response has to come from governments through credible fiscal policy and a more market approach. discipline. But the situation becomes different if a fiscal shock starts morphing into market dysfunction. For example, if you see rapid leveraging, deteriorating liquidity or contagion spreading across country in a way that is no longer justified by fundamental. And that's precise, the type of situation DCB is. TPI instrument was designed for. It allows the ECB to intervene when each judge's market moves to be on warrant and when they threaten the transmission of monetary policy. But there are also conditions attached, including assessment of fiscal sustainability. And the ECB will be closely looking at whether markets still function properly and whether stresses become systemic. So the challenge for the policymaker now is to distinguish between legitimate market discipline and and when financial consideration is that start to begins.
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Speaker 5: I mean, Oli, there are some big issues for these leaders to talk about.
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Speaker 2: I think it's important to hang on those sort of two points. So one on the China point in terms of the prospect of a trade war, we should say that the Chinese hold within their sort of hand a lot of joker cards that I think will put a ceiling on how much activity the Europeans will take to say, you know, obviously, there's the question of rare earth metals that effectively the EU is got caught up in the trade disputes between the U.S. and China and effectively was cut off briefly from those rare earths from China. And that effectively debilitates many parts of the European economy. So I think that from there, you put a sort of ceiling on how much activity the Europeans can play. But of course, there is a sort of bitter irony in the auto sector, which is many of these European automakers, even for the domestic market in Europe, are dependent on China for the batteries in the cars, are dependent on China for a lot of the energy infrastructure, like fast charging across Europe. So there are a lot of sort of natural checks, I think, on how far the Europeans are willing to go to say nothing of the fact that unlike China, the Europeans need to be quite responsive politically to their electorate. And if you have sort of inflation driven by a trade war with China or growth slowing, these are things that is basically not going to be terribly, you know, going to be terribly sustainable within Europe. And of course, the ECB succession question, I think, is the final point that really over the next couple of months will be very important for the Europeans. They need to figure out who is going to replace Lagarde at the ECB if she departs early. There are two other governing council, or I should say executive board seats that are going up as well. So that is all going to be sort of debated and negotiated. They want to do one big package around that. But let's also imagine just a final point here, a world in which the ECB wants to act on behalf of sort of the French government when you have a French person in Christine Lagarde running the ECB who may leave early in order to take a hand potentially in the election. All of this gets very, very sort of very disorderly and very sort of untidy very quickly.
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Speaker 5: Olly, thank you so much for being with me. That is Bloomberg's Oliver Crook, our chief Europe correspondent, and Simona de la Chiaia, Bloomberg's chief euro area economist. I think setting you up very nicely for this European Council summit in the coming days, we will have full coverage across Bloomberg platforms for what emerges from these leaders at such a vital time for Europe. I'm Caroline Hepka here in London. You can catch us every weekday morning for Bloomberg Daybreak here at beginning at 6 a.m.
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Speaker 1: In London.
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Speaker 5: That's 1 a.m. on Wall Street.
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Speaker 1: Nathan. Thanks, Caroline. And coming up on Bloomberg Daybreak weekend, we'll look ahead to Japan's Sports Day. I'm Nathan Hager, and this is Bloomberg. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. This Monday, Japan celebrates Sports Day, a holiday that's used to promote active lifestyles and physical health. For a closer look, let's get to the very fit Doug Krisner, host of the Bloomberg Daybreak Asia podcast.
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Speaker 3: Thanks, Nathan. Sports Day is held annually on the second Monday in October. It commemorates the opening of the 1964 Summer Olympic Games held in Tokyo. Now, the first sports day was held in October 1966. These days, the holiday is used to promote sports as well as physical and mental health. For a closer look, let's bring in Bloomberg's Alice French. Alice covers investing in Asia, and she joins from our studios in the Japanese capital. Thank you so much for being here. I want to point out right at the top, obviously, it's a market holiday. That's going to impact other markets in the APAC region. Less liquidity is likely, and that will be a factor. And from what I've read, there is not much in the way of any economic impact given this holiday. But I'm curious about the level of engagement on Sports Day. Are people in Japan enthusiastic about this?
00:27:34
Speaker 9: Yeah, so look, I think it's a great excuse for people to put together things like fun runs. Kids might be participating in some sort of sports-related activities on that day. It's always used as kind of an excuse to have fun around that theme. I would say, though, I mean, you mentioned there, of course, it traces back to the Olympics that Japan hosted in the 60s. And I do think Sports Day does kind of speak to a broader public awareness of health and wellness, really. Just something that particularly at the moment with Sanaya Takeuchi's government is being promoted. You know, she has identified these 17 strategic areas that she wants to kind of boost public spending in. And two of those are biotech and medicine. Now, of course, Japan is tackling with this declining population, this aging population. You know, we're looking at below 700,000 births per year, which is quite a drop even compared to about four years ago. And of course, you know, the need to kind of prop up this growing population of essentially pensioners, right, is becoming, I think, a growing burden for some of the younger members of society. And so there's definitely sort of a growing public I don't know whether I would call it pressure, but there's certainly a sense of awareness and the sense that people need to be taking responsibility for their own health, but also so as not to become too much of a sort of monetary burden on society.
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Speaker 3: So, Alice, I find it interesting that Japan is home to the world's oldest population. There has to be a connection. This country is home to more centenarians than any place in the world.
00:29:10
Speaker 9: Absolutely. And look, there are lots of theories behind this. But certainly, traditionally, there's a lot of consumption of things like fermented foods here, fresh fish. And I think, in general, things like fast food did take slightly longer to kind of come into the general diet in Japan, which I think has definitely helped to promote longevity. I will say in the urban areas, particularly Tokyo and Osaka, sort of Western fast food has become a lot more normal in recent years. particularly among young people. And things like obesity and high blood pressure are becoming slightly more common, but again, still far below Western standards. And this is partly because of the general healthcare system, right? I mean, I'm from the UK, and so I'm very well versed in the challenges of of the public health system and what's going on with the NHS. I mean, Japan has a very, very heavily subsidised private healthcare system, you know, 70% subsidised by the state. All people are mandated to undergo an annual full healthcare checkup with things like x-rays and full bloods and ECGs. And that, of course, is intended to be preventative. And it does seem to work pretty well in identifying things early and keeping people healthy. And of course, activity is a huge part of that. I mean, Japan, many people might be familiar with the term Radio Taiso, which is this sort of stretching routine that was popularized many decades ago and that you can still see daily on local television stations and radio stations as well. It's sort of a set stretching routine that kids do at school, pensioners do in the parks. And again, it's just kind of, you know, to encourage activity.
00:30:55
Speaker 3: So you mentioned the changing demographics, and I'm curious about any generational difference that may exist between, let's say, the younger cohort and elderly people. Is that something that is expressed in the way that people approach health and wellness?
00:31:09
Speaker 9: I think so. And look, I think that the pandemic, as is the case in societies around the world, the pandemic definitely had a big impact in kind of exacerbating those generational differences. I mean, again, sort of not wanting to stereotype, but my image for sure is that Japanese older people are far more active, at least than people on average are in the UK. There's a lot more awareness of sort of going on walks, teaming up with friends and sort of doing activities outside. I think the younger generations, though, partly because of the pandemic and being stuck inside and, you know, things obviously like smartphones and video games, which are a problem around the world, have definitely made it you know, less attractive, I suppose, to go outside and play with friends. So I do think there is that generational divide. And as I said before, there is definitely a change in diets. There's lots of data out there to show, for example, that the Japanese people's consumption of rice has come down in recent years compared to sort of the post-war era and things like that. And that some people are moving towards more westernized diets that obviously in general tend to have more sugar and potentially more sort of less healthy carbs. And so, yeah, those changes are definitely happening. But I would say sort of the average traditional Japanese diet of things like fresh fish, miso, fermented vegetables are certainly, in my experience, more healthy than what the average, for example, UK citizen is probably eating on the day to day.
00:32:36
Speaker 3: From what I understand, back in 2002, the government took steps to create a law, essentially, where Citizens must deepen their interest in and their understanding of the importance of healthy lifestyles. And I'm wondering about the extent to which the government is involved in, I don't want to say dictating necessarily, but certainly being a presence in trying to offer encouragement for healthy lifestyles.
00:33:02
Speaker 9: Yeah, I mean, I don't think there's necessarily penalties for people living, you know, so-called unhealthy lifestyles. But it definitely kind of speaks to this sort of group mentality or sort of responsibility towards your community and also your company to stay healthy. There is a law called the Metabo Law, for example, that came in, I think, around a similar time to that law that you're mentioning. which basically means that all sort of company employees, when they go through their annual health checkup, you have to have your waist circumference measured. And if it is above a certain level, then you would have to be put through a sort of compulsory training program to sort of get your waist circumference down. But there is certainly, I would say, an overall kind of public awareness of not wanting to sort of be a burden on those around oneself, which is something that, you know, I have to say I've enjoyed. I think, you know, I've been living here about eight years now, and I think it is nice. to sort of have that public awareness of the importance of health and wellness. Of course, you know, it completely varies person to person, generation to generation. And as is the case in any society, there are people who are more into sports and more into activity than others.
00:34:13
Speaker 3: So you kind of touched upon national public health policies, particularly as government sponsored health care gets involved here. And I'm wondering, given the fiscal challenges in Japan right now, whether any of those benefits are at risk of being scaled back as we continue to move toward the future?
00:34:30
Speaker 9: This is the big question, you know, and it's certainly something that's being asked in the bond markets recently because of all of these huge spending plans that Prime Minister Takeuchi has. And as I say, health and pharma is one of her focuses. Now, you know, there's no sense of any need to scale back those spending plans But there are certainly worries about how these things are going to be funded, especially at a time when, of course, globally, there's already so much worry about rising bond yields and fiscal burdens around the world. So I think that's something that will be debated. And probably there are priorities that may come above health. So there are things, of course, like AI and defense and security that perhaps are higher up on the government's list. So we'll have to see how that plays out for the rest of Takayuchi's premiership.
00:35:15
Speaker 3: So help me understand a little bit more about the wellness community. I'm thinking of spas and hot springs, even meditation, activities that I associate with wellness in Japan. Are these venues still very prevalent?
00:35:27
Speaker 9: 100%. And I myself am a big fan of an onsen. And I think also it's been a huge source of appeal for foreign tourists in the past. few years since COVID. So yeah, onsen still very much a thing here. If you live in sort of a more urban area, you might go to something called a sento, which is sort of a local, more urban, shared public bath. Of course, the water is very hot, but supposedly very good for cleansing and also relaxing. And then if you go to a natural onsen, the water will be full of kind of sulfur and other good things that makes your skin very soft. But yeah, I would say that in general, Japanese people do take relaxing very seriously. You know, it's not uncommon for people to go on girls trips, birthday trips to onsen here. Like I said, it's something that I very much enjoy myself. And I think it's something that foreign tourists have been getting used to. Of course, it's not always it doesn't always come naturally, I think, to a lot of tourists to sort of be naked in a bath with strangers. But it's definitely something that has been catching on here. There's been You know, traditionally, for example, if you have tattoos, you're not allowed to go in onsen, but some onsens are becoming more open to that as they welcome more and more foreign tourists. So I think that's something that we're seeing changing. A lot of the kind of older onsen and the older yokan, the traditional Japanese inns, trying to sort of renovate themselves and make themselves more attractive to younger and foreign customers. But at the same time, a lot of them are owned by families, but, you know, their family businesses and the founders may be ageing. and sort of without a successor. And so there are a lot of these businesses that are really kind of financially struggling at the moment. And they have been the targets of some things, you know, like M & A or investments to try and keep them afloat, because it is a key part of Japanese culture and wellness. And I think it's something that would be very sad to see it go.
00:37:17
Speaker 3: So before I let you go, can you briefly give me kind of a bit of coverage on how consumers are faring?
00:37:23
Speaker 9: Yeah, I mean, look, inflation is definitely a thing here, as it has been around the whole world, partly because of obviously rising oil prices from what's been going on in the Middle East. I think also Japan has the added pressure of, of course, the continued weakness in the yen, which is making, of course, a lot of imported products more expensive and putting pressure on Now, you mentioned wages there. And yes, they have been on the up. I think it really depends, though, on where you work. If you work at a big firm, then you may be seeing quite a nice wage bump. If you work at a small or medium sized firm, you might not be feeling that benefit quite as much. So we have been seeing a bit of a divergence in households in terms of their spending power. And I think in general, just worries about yen weakness and sort of the general economic outlook, particularly amid what's happened with, you know, between Iran and the U.S. has sort of been weighing a little bit on consumer sentiment here. And it is a big focus for the government and for the Bank of Japan is how to sort of bring, you know, bring inflation under control whilst also pushing forward with monetary policy normalization and economic growth. And it's going to continue to be, I think, a huge theme. But consumers, I would say, definitely feeling the pinch. Prices at supermarkets don't seem to be going down anytime soon. And it's a big topic, both sort of amongst government and financial circles, but also on social media and just sort of in everyday conversations.
00:38:43
Speaker 3: Okay, Alice, great stuff. We'll leave it there. Thank you so very much for filling us in on the periphery as we mark Sports Day set for Monday in Japan. Bloomberg's Alice French covers investing in Asia, joining from the Japanese capital. I'm Doug Krisner. You can catch us weekdays for the Daybreak Asia podcast. It's available wherever you get your podcast.
00:39:03
Speaker 9: Nathan?
00:39:04
Speaker 1: Thanks, Doug. And that does it for this edition of Bloomberg Daybreak Weekend. Join us again Monday morning at 5 a.m. Wall Street time for the latest on markets overseas and the news you need to start your day. I'm Nathan Hager. Stay with us. Top stories and global business headlines are coming up right now.
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Speaker 1: This 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 look to some key inflation data along with bank earnings in the U.S. I'm Nathan Hager in Washington.
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Speaker 1: Good day to you. I'm Nathan Hager. We begin today's program with some key inflation data in the U.S. The Consumer Price Index for the month of September is due out this Wednesday, followed by producer prices Thursday. A key piece of the inflation story before the Federal Reserve's next policy meeting at the end of this month. For more, we're joined by Michael McKee, international economics and policy correspondent for Bloomberg Radio and Television. Correct me if I'm wrong, Mike, but I think this is some of the last inflation data we're going to see before the next decision. Is it going to be make or break for an October move from the Fed?
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Speaker 8: It is to a certain extent, not as much as the September numbers were. We had two monthly CPI reports before the last Fed meeting. and only one this time. And basically, everybody knows that prices are going to go up because energy prices rose over the interim period. The question is, when you drill down into it, are other categories, particularly in the services areas, starting to show any kind of relief? And there's mixed feelings in the economic community about that. Now, we heard from the major decision makers so far at the Fed, at least the the guys with titles after their names, the vice chairman, Philip Jefferson, and the vice chairman of the Open Market Committee, the New York Fed president, John Williams, who said, yes, we need to raise rates again, but we don't necessarily have to do it this month. So the market is operating from the point of view that unless we get a really big surprise in CPI, just a normal rise won't do it because they can figure they'll raise rates again in December.
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Speaker 1: Okay. Well, what's a normal rise mean, Mike?
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Speaker 8: Well, if you look for a maybe a two-tenths percent monthly rise or a three-tenths percent monthly rise, you also have to figure in base effects. But basically, you get something in the three percent range. They would love to see core go under three and stay there. But any increase in the CPI that pushes us higher up into the mid threes is going to be a warning signal to the Fed that they're just not making progress yet. And I might mention that for those of you who have trouble sleeping or are maybe on a different shift than Nathan and I, next Thursday is PPI day, but at 11.30 p.m. Eastern time in the U.S., we're going to hear from Kevin Warsh. He's going to be over at the IMF meetings in Bangkok, and he is going to be interviewed by Kristalina Georgieva, the IMF managing director. And we're all hoping she'll say, well, what are you going to do? Because it's the last Fed appearance by any Fed official before the blackout starts. So he gets the last word.
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Speaker 1: Well, I was going to say that puts the blackout period at a whole new meaning when he's getting up that dark and early to make some comments that could potentially move markets here. But let's dive into the debate about what we could see around the CPI number, whether energy-related inflation could be seeping into broader price pressures. What are the sides of the debate that you're looking at?
00:04:17
Speaker 8: Well, the biggest one is transportation, because the cost of diesel is obviously through the roof. And we're seeing more and more and more stories about how truckers are having to pass on their price increases. They can't make a living at these levels of diesel. unless they raise prices. And then if they're raising prices to their customers, their customers are going to raise prices to you. And it takes a while for all of this to happen, but it should start showing up soon because the prices have been elevated for some time. So a lot of people are watching to see what we get in a lot of different categories of stuff that's trucked a lot. Do vegetables go up? Does clothing go up? Those kinds of things because of transportation costs.
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Speaker 1: And that gets into producer prices as well. I think it's safe to say that we haven't seen a lot of evidence, at least up to now, that producer prices are starting to creep into what consumers are paying. Do we expect that to change anytime soon?
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Speaker 8: Well, they measure two different things, so it takes a while for one to translate to the other. It's not a one-on-one thing. Consumer prices are what you pay, and producer prices are what they charge. And companies have had a hard time raising prices. People are very price sensitive these days. They don't want to lose customers. So they've been slow to raise prices. But I can tell you, I've been out in different parts of the country over the past couple of weeks. And all of the companies that I have talked to basically say, we're at the end of that. We can't absorb the price increases anymore. And so they're looking to start to raise prices. They'll do it tentatively at first because they want to make sure that The price increase can go through, but if prices continue to rise for input costs, then we'll see more inflation on the producer side, which eventually ends up in the consumer price index.
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Speaker 1: Appreciate this, Mike. As always, thanks for being here. That's Bloomberg International Economics and Policy Correspondent Michael McKee. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager, joined by Bloomberg Intelligence Senior U.S. Banks Analyst Herman Chan, because this is the week that the banks are going to be making the news for sure with the kickoff of third quarter reporting season. JPMorgan Chase expected to kick things off Tuesday. So Herman, how are Jamie Dimon and company going to set the bar for the rest of Wall Street this time around?
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Speaker 6: Yeah, we do think JP Morgan's going to set the bar pretty high for the group. That's really reflected what they talked about in terms of expectations for the third quarter, talking about mid-teen to upper-teen growth in both trading and investment banking. That really just speaks to their testament of the bank itself, really strong market leadership and their ability to really navigate some volatile markets that we saw in the third quarter. So kudos to them. They'll set the bar high, and it would be interesting to see if any other banks in the group can match that.
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Speaker 1: Well, let's dig in a little bit more into that, because it certainly was a volatile quarter. How do we expect that J.P. Morgan is going to be navigating that, not just around the equity side, but around this higher interest rate environment we find ourselves in now.
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Speaker 6: Yeah, the higher interest rates is really interesting because bank stocks throughout most of the year were strong, given the fact that we had that great equity trading volume in the first and second quarter of the year. You had the AI trade really lifting stocks like JP Morgan, Goldman, and Morgan Stanley. But now there's a bit more uncertainty given the expected higher for longer rate backdrop. That's slowing down some capital markets activity. That should reverberate in the third quarter and fourth quarter. JP Morgan, though, they've been really deft in navigating the markets. There was some pullback in trading and equity activity in Asia in particular in the third quarter, whereas in the second quarter, that was really robust. So Being able to navigate that, I think, speaks to the testament of the strength of the bank.
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Speaker 1: Well, you mentioned Goldman Sachs there. Of course, I guess we're expecting to hear from Goldman on Tuesday as well. But we've already heard some reporting, at least. that their top leaders, David Solomon among them, are going to get their biggest stock bonuses ever. I mean, that's got to bode well for the results we're expecting. Yeah, that's right.
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Speaker 6: We'd expect some pretty strong results from Goldman as well. Qualitatively, they've talked about equities trading being solid, higher than fixed income trading. So that should really drive results for them because they are more equity tilted. versus some of the larger competitors like a Citi or a B of A. So strong results there. We'd expect some higher expenses. David Solomon had telegraphed that at a recent investor conference. Part of that's probably related to the bonuses that you just mentioned. Some of that's probably related to some charitable contributions as well.
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Speaker 1: So obviously, as you say, Goldman is stocks-focused, also deal-focused as well. I remember how heavily involved they were in the SpaceX IPO. Now that we're seeing a lot of... you know, really high profile initial public offerings getting delayed now. Could that be a headwind for Goldman in these results?
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Speaker 6: Yeah, I think that's why the stocks have been trading down a bit. Goldman and Morgan Stanley were sort of the bellwethers for the AI trade, given the fact that they were book runners on the SpaceX deal earlier in the year. That being said, we're still expecting Anthropic in the fourth quarter, so they're doing some due diligence there. That should be helpful. And then there's been some announcements on further IPO activity. There was an SK Hynix spinoff that Goldman will be a book runner on, so There's going to be some good activity. It'll be some fits and starts given the volatile market backdrop that we're operating in today.
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Speaker 1: Okay. So along with Goldman and JP Morgan on Tuesday, we're also expecting to hear from Bank of America on Wednesday as the financials parade goes on. How's Brian Moynihan's bank likely to fare in this environment?
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Speaker 6: Yeah, we're expecting some choppier activity for Bank of America, both in the investment banking and trading front and Bank of America has talked about flattish trading results, which should lag the likes of JP Morgan and Goldman that we mentioned earlier. Investment banking also is looking a bit soft, given that their implied guidance expects, we expect investment banking down about 12% to 22%. So they said that client activity is still strong, but there's some mix shift happening. That's really driving the decline in activity. So we'd expect, at least heading into the quarter, that Bank of America lags from their peers.
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Speaker 1: Are we expecting that that strong customer activity is expected to be reflected in loans as well? I mean, Bank of America is pretty exposed to commercial and individual loans, isn't it?
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Speaker 6: That's right. So from a loan standpoint, we think the group's going to be pretty strong. Bank of America will continue to benefit from The economic activity that's happening throughout the country, we're expecting on average about 2% loan growth for the group, 3% commercial loan growth, so maybe a bit softer on the consumer side. The consumer side is going to be a bit lagging given the fact that higher interest rates is really curbing activity in areas like mortgages. But card activity should be strong, and then auto should sort of be in the middle there. But really what's driving the long growth for the industry right now is commercial lending. Some of that's AI and AI related. And then commercial real estate's really picking up again after a multi-year setback following higher interest rates and areas of concern like office where you saw some defaults over the past few years.
00:12:37
Speaker 1: All right, Herman. Thanks for this as we look forward to the kickoff of Big bank earnings season once again. That's Bloomberg Intelligence Senior U.S. Banks Analyst Herman Chan. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to a meeting of European leaders in Brussels. Can they steer the region through political and economic turbulence? I'm Nathan Hager, and this is Bloomberg. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Later in the program, we'll look to what we can expect from Japan's sports day. But first, in the coming days, EU leaders meet in Brussels at a time of growing economic and political concerns for some of the region's major players. Will the EU nations manage to forge a path ahead? For more, let's go to Bloomberg Daybreak Europe anchor Caroline Hepker in London.
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Speaker 5: Nathan, it's been an eventful couple of weeks for Europe. The French fiscal situation has captured the attention of investors around the world. The country has faced a rout on bond markets as concerns mount over whether the minority government, led by Prime Minister Sébastien Le Corneau, can deliver the spending cuts and tax increases to bring down the deficit or even just get a budget passed. Economic woes in the country also come as more than 250,000 people poured into the streets demanding more money for education in uprisings by students, teachers and others that sometimes turned violent. Meanwhile in Spain, the Prime Minister Pedro Sanchez unexpectedly dissolved Parliament and called an early election after failing to pass new housing measures and widespread anger issues. in Spain over the policy. Following the disruption in France and Spain, whispers of contagion risk are returning to Europe's bond market. Ozan Tarman is vice chair of global macro at Deutsche Bank.
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Speaker 4: Even in my smaller, big macro dinners in U.S., people seem to be more focused on OATs than U.S. Treasuries. But despite that, at the end, everybody may be in an acute way expecting that TPI, that intervention to come if things get worse.
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Speaker 1: They have to clear this some way.
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Speaker 8: And Lionel Laurent yesterday said he's unsure how that process happens. What does Deutsche Bank say?
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Speaker 4: I'm with you. It's not that easy to clear the process. Now Le Pen is acting like the responsible one. The RN budget today seemed more liberal. But I don't think it's going away.
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Speaker 5: That was Deutsche Bank's Ozan Tarman speaking there to Bloomberg's Tom Kean and Alexis Christophorus. So all of this as European leaders prepare to meet in Brussels for a summit in the next few days. No official programme has been shared yet. But the region's political and economic uncertainty is likely to make it onto the agenda. Joining me for more is Bloomberg's chief euro area economist, Simona de la Calle, and our chief Europe correspondent, Oliver Crook. Oli, what are we expecting from this leaders gathering? What normally happens at these events? This comes at a time of quite a lot of pressure for Europe.
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Speaker 1: Yeah, I mean, absolutely.
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Speaker 2: These European Council meetings is basically a forum for all the European EU leaders to get together and try to make sort of big decisions on a number of things that are sort of facing the European Union. So I think right now, the main object is going to be to try to get to some collective view on how to treat the threat from China as it poses to the trade situation. You know, as we've been reporting, we have some EU emissaries, Mara Sefcovic, the trade representative, going to China to try to sort of establish what the Chinese position is there. And for the Europeans, basically now getting this deficit with China, which has got to $ 8 billion a day, that is sort of, I guess, seen now from the European perspective as kind of a breaking point and something that they can no longer tolerate to try to advance some of those conversations. So depending on how those talks go, how much progress can be made on the sort of negotiations diplomatic front, that will sort of set the tone for how the European leaders will sort of assess how hard they need to go on this question of China. We should say that there has been some political evolution on this question at the European level. You know, when I spoke to the Spanish trade minister a couple of weeks ago, Spain is a country that sort of notably would actually like to have a relatively strong economic relationship with China, that a billion dollars a day is too much even from their perspective.
00:17:14
Speaker 3: And you have.
00:17:14
Speaker 2: The Germans historically who have been very reticent to take any kind of aggressive trade action on the Chinese because of how dependent these German carmakers are on the domestic market. But that also is evolving. You do have the Germans now, it seems, more ready to take on a sort of more active role and a more potentially confrontational role on the Chinese for a couple of reasons. For one reason, they've lost so much market share in China that actually, you know, that market is actually less important than it used to be. But again, the Chinese are gaining so much market share here in Europe and you have all these sort of difficulties with the U.S. market that the European market is something that these car makers now increasingly feel more and more they need to preserve. So that is going to be, I suspect, going to be the main issue of conversation. But of course, we've been alluding to some of the issues in the bond market, the political risk that's on the horizon. You've got the EU budget you still need to get over the line, in addition to sort of the increasing energy costs, which will all be certainly discussed at the margin.
00:18:10
Speaker 5: Yeah, absolutely. I mean, Europe's also very much between the America first sort of nationalist US position that was again, reframed and reiterated by Marco Rubio in Greece only a few days ago. And, you know, you talk about the negotiations between the EU and China as well, export overcapacity and the rare earths issue. So trade is a kind of major theme. But look, how do you think that the leaders are going to relate to France and Spain now that their positions become quite clouded? There is now expected to be an election earlier in Spain than we expected. And then there's the presidential and the other elections in France next year. These are leaderships in transition.
00:18:54
Speaker 4: Absolutely.
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Speaker 2: I mean, and to say nothing of the fact that you also have an Italian election next year, you have a Polish election. I mean, you have a ton of different political risk on the horizon that is going to appear. for all of these critical nations. And when you think about what's on the line, I mean, let's talk about Germany as well. I mean, there's not an election really on the horizon, but you have Friedrich Merz, the Chancellor of Germany, who is under incredible pressure. He's had a lot of difficulty getting sort of his agenda through and really gaining that political purchase. But when you look at, you know, France, right, this is one of the two main pillars of the European Union. When you look at the Council, you know, you can't really do anything big in Europe without Germany and France, A, on the same page, but B, also in a relatively strong position at home. And in both of those cases, that is not the picture that you have going forward. And potentially waiting in the wings are people that are quite skeptical of the European Union, quite skeptical in varying degrees of the European project and the Eurozone. I mean, you have the AFD in Germany. Again, they are not likely to come to power. anytime soon, but they actively talk about a withdrawal of the Eurozone from Germany. I mean, you can't even imagine what kind of impact that sort of thing would have. But for Marine Le Pen, who has tempered her sort of relationship a little bit to the EU, I mean, she very possibly could be the next president of France. that is something that for the markets I think is incredibly difficult to risk, in part because she hasn't made her views of Europe explicitly clear in terms of what it would mean for policy. So all of these things are sort of looming largely. The only thing I think it does give to some of these leaders is some ability to basically get stuff over the line, potentially in a sort of, you know, when you have nothing left to lose, you can actually sort of, you can act a little bit more freely. Potentially you have a little bit of that energy from Emmanuel Macron.
00:20:30
Speaker 5: Simona, given the situation with French government debt with sovereign bond yields in Europe, how concerned do you think member states are about contagion in terms of bond market risks?
00:20:42
Speaker 7: We already have seen some signs of contagion with the sell-off in France spilling over into other sovereign markets, including Italy. The real concern, I think, is that this can start to create a negative feedback look loop, higher yields increase expected debt servicing costs that makes investors more concerned about the fiscal outlook. And then the demand, a higher risk premium to all that debt. For a highly indebted country, that dynamic can become particularly uncomfortable. And I think Italy here is a good example because the country has made a considerable progress on fiscal consolidation in recent years. And these have helped also rebuild credibility with investors and bring its breakdown significantly. for Italy or for, in general, high-end debit countries in Europe, stay on the path of fiscal credibility is now particularly important in order to avoid changes in market sentiment.
00:21:36
Speaker 5: Yeah, and Simona, in terms of the debate around intervention, we're not back at a Greece-level crisis point, but I suppose because of the worries around whispers of contagion in bond markets, There has been discussion, and you hear it from officials also, about either in favour or rejecting ECB intervention or EU intervention. Where are we in that discussion, for France in particular?
00:22:06
Speaker 7: That's absolutely very important. I think the first thing to say is that Europe was much better equipped to deal with contagion than it was during the sovereign debt crisis. The ECB now has instruments specifically designed to deal with fragmentation in bond markets. But that does not mean that ECB will step in simply because French or Italian spread are widening. The key question is why spread are widening. And as yet, the bear for intervention remained high. This is for the reason that I mentioned before. If investors are demanding higher-than-premium because they are concerned about the country's fiscal position, then some of that repricing is justified. In that case, the first response has to come from governments through credible fiscal policy and a more market approach. discipline. But the situation becomes different if a fiscal shock starts morphing into market dysfunction. For example, if you see rapid leveraging, deteriorating liquidity or contagion spreading across country in a way that is no longer justified by fundamental. And that's precise, the type of situation DCB is. TPI instrument was designed for. It allows the ECB to intervene when each judge's market moves to be on warrant and when they threaten the transmission of monetary policy. But there are also conditions attached, including assessment of fiscal sustainability. And the ECB will be closely looking at whether markets still function properly and whether stresses become systemic. So the challenge for the policymaker now is to distinguish between legitimate market discipline and and when financial consideration is that start to begins.
00:23:42
Speaker 5: I mean, Oli, there are some big issues for these leaders to talk about.
00:23:46
Speaker 2: I think it's important to hang on those sort of two points. So one on the China point in terms of the prospect of a trade war, we should say that the Chinese hold within their sort of hand a lot of joker cards that I think will put a ceiling on how much activity the Europeans will take to say, you know, obviously, there's the question of rare earth metals that effectively the EU is got caught up in the trade disputes between the U.S. and China and effectively was cut off briefly from those rare earths from China. And that effectively debilitates many parts of the European economy. So I think that from there, you put a sort of ceiling on how much activity the Europeans can play. But of course, there is a sort of bitter irony in the auto sector, which is many of these European automakers, even for the domestic market in Europe, are dependent on China for the batteries in the cars, are dependent on China for a lot of the energy infrastructure, like fast charging across Europe. So there are a lot of sort of natural checks, I think, on how far the Europeans are willing to go to say nothing of the fact that unlike China, the Europeans need to be quite responsive politically to their electorate. And if you have sort of inflation driven by a trade war with China or growth slowing, these are things that is basically not going to be terribly, you know, going to be terribly sustainable within Europe. And of course, the ECB succession question, I think, is the final point that really over the next couple of months will be very important for the Europeans. They need to figure out who is going to replace Lagarde at the ECB if she departs early. There are two other governing council, or I should say executive board seats that are going up as well. So that is all going to be sort of debated and negotiated. They want to do one big package around that. But let's also imagine just a final point here, a world in which the ECB wants to act on behalf of sort of the French government when you have a French person in Christine Lagarde running the ECB who may leave early in order to take a hand potentially in the election. All of this gets very, very sort of very disorderly and very sort of untidy very quickly.
00:25:32
Speaker 5: Olly, thank you so much for being with me. That is Bloomberg's Oliver Crook, our chief Europe correspondent, and Simona de la Chiaia, Bloomberg's chief euro area economist. I think setting you up very nicely for this European Council summit in the coming days, we will have full coverage across Bloomberg platforms for what emerges from these leaders at such a vital time for Europe. I'm Caroline Hepka here in London. You can catch us every weekday morning for Bloomberg Daybreak here at beginning at 6 a.m.
00:25:59
Speaker 1: In London.
00:26:00
Speaker 5: That's 1 a.m. on Wall Street.
00:26:01
Speaker 1: Nathan. Thanks, Caroline. And coming up on Bloomberg Daybreak weekend, we'll look ahead to Japan's Sports Day. I'm Nathan Hager, and this is Bloomberg. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. This Monday, Japan celebrates Sports Day, a holiday that's used to promote active lifestyles and physical health. For a closer look, let's get to the very fit Doug Krisner, host of the Bloomberg Daybreak Asia podcast.
00:26:40
Speaker 3: Thanks, Nathan. Sports Day is held annually on the second Monday in October. It commemorates the opening of the 1964 Summer Olympic Games held in Tokyo. Now, the first sports day was held in October 1966. These days, the holiday is used to promote sports as well as physical and mental health. For a closer look, let's bring in Bloomberg's Alice French. Alice covers investing in Asia, and she joins from our studios in the Japanese capital. Thank you so much for being here. I want to point out right at the top, obviously, it's a market holiday. That's going to impact other markets in the APAC region. Less liquidity is likely, and that will be a factor. And from what I've read, there is not much in the way of any economic impact given this holiday. But I'm curious about the level of engagement on Sports Day. Are people in Japan enthusiastic about this?
00:27:34
Speaker 9: Yeah, so look, I think it's a great excuse for people to put together things like fun runs. Kids might be participating in some sort of sports-related activities on that day. It's always used as kind of an excuse to have fun around that theme. I would say, though, I mean, you mentioned there, of course, it traces back to the Olympics that Japan hosted in the 60s. And I do think Sports Day does kind of speak to a broader public awareness of health and wellness, really. Just something that particularly at the moment with Sanaya Takeuchi's government is being promoted. You know, she has identified these 17 strategic areas that she wants to kind of boost public spending in. And two of those are biotech and medicine. Now, of course, Japan is tackling with this declining population, this aging population. You know, we're looking at below 700,000 births per year, which is quite a drop even compared to about four years ago. And of course, you know, the need to kind of prop up this growing population of essentially pensioners, right, is becoming, I think, a growing burden for some of the younger members of society. And so there's definitely sort of a growing public I don't know whether I would call it pressure, but there's certainly a sense of awareness and the sense that people need to be taking responsibility for their own health, but also so as not to become too much of a sort of monetary burden on society.
00:28:58
Speaker 3: So, Alice, I find it interesting that Japan is home to the world's oldest population. There has to be a connection. This country is home to more centenarians than any place in the world.
00:29:10
Speaker 9: Absolutely. And look, there are lots of theories behind this. But certainly, traditionally, there's a lot of consumption of things like fermented foods here, fresh fish. And I think, in general, things like fast food did take slightly longer to kind of come into the general diet in Japan, which I think has definitely helped to promote longevity. I will say in the urban areas, particularly Tokyo and Osaka, sort of Western fast food has become a lot more normal in recent years. particularly among young people. And things like obesity and high blood pressure are becoming slightly more common, but again, still far below Western standards. And this is partly because of the general healthcare system, right? I mean, I'm from the UK, and so I'm very well versed in the challenges of of the public health system and what's going on with the NHS. I mean, Japan has a very, very heavily subsidised private healthcare system, you know, 70% subsidised by the state. All people are mandated to undergo an annual full healthcare checkup with things like x-rays and full bloods and ECGs. And that, of course, is intended to be preventative. And it does seem to work pretty well in identifying things early and keeping people healthy. And of course, activity is a huge part of that. I mean, Japan, many people might be familiar with the term Radio Taiso, which is this sort of stretching routine that was popularized many decades ago and that you can still see daily on local television stations and radio stations as well. It's sort of a set stretching routine that kids do at school, pensioners do in the parks. And again, it's just kind of, you know, to encourage activity.
00:30:55
Speaker 3: So you mentioned the changing demographics, and I'm curious about any generational difference that may exist between, let's say, the younger cohort and elderly people. Is that something that is expressed in the way that people approach health and wellness?
00:31:09
Speaker 9: I think so. And look, I think that the pandemic, as is the case in societies around the world, the pandemic definitely had a big impact in kind of exacerbating those generational differences. I mean, again, sort of not wanting to stereotype, but my image for sure is that Japanese older people are far more active, at least than people on average are in the UK. There's a lot more awareness of sort of going on walks, teaming up with friends and sort of doing activities outside. I think the younger generations, though, partly because of the pandemic and being stuck inside and, you know, things obviously like smartphones and video games, which are a problem around the world, have definitely made it you know, less attractive, I suppose, to go outside and play with friends. So I do think there is that generational divide. And as I said before, there is definitely a change in diets. There's lots of data out there to show, for example, that the Japanese people's consumption of rice has come down in recent years compared to sort of the post-war era and things like that. And that some people are moving towards more westernized diets that obviously in general tend to have more sugar and potentially more sort of less healthy carbs. And so, yeah, those changes are definitely happening. But I would say sort of the average traditional Japanese diet of things like fresh fish, miso, fermented vegetables are certainly, in my experience, more healthy than what the average, for example, UK citizen is probably eating on the day to day.
00:32:36
Speaker 3: From what I understand, back in 2002, the government took steps to create a law, essentially, where Citizens must deepen their interest in and their understanding of the importance of healthy lifestyles. And I'm wondering about the extent to which the government is involved in, I don't want to say dictating necessarily, but certainly being a presence in trying to offer encouragement for healthy lifestyles.
00:33:02
Speaker 9: Yeah, I mean, I don't think there's necessarily penalties for people living, you know, so-called unhealthy lifestyles. But it definitely kind of speaks to this sort of group mentality or sort of responsibility towards your community and also your company to stay healthy. There is a law called the Metabo Law, for example, that came in, I think, around a similar time to that law that you're mentioning. which basically means that all sort of company employees, when they go through their annual health checkup, you have to have your waist circumference measured. And if it is above a certain level, then you would have to be put through a sort of compulsory training program to sort of get your waist circumference down. But there is certainly, I would say, an overall kind of public awareness of not wanting to sort of be a burden on those around oneself, which is something that, you know, I have to say I've enjoyed. I think, you know, I've been living here about eight years now, and I think it is nice. to sort of have that public awareness of the importance of health and wellness. Of course, you know, it completely varies person to person, generation to generation. And as is the case in any society, there are people who are more into sports and more into activity than others.
00:34:13
Speaker 3: So you kind of touched upon national public health policies, particularly as government sponsored health care gets involved here. And I'm wondering, given the fiscal challenges in Japan right now, whether any of those benefits are at risk of being scaled back as we continue to move toward the future?
00:34:30
Speaker 9: This is the big question, you know, and it's certainly something that's being asked in the bond markets recently because of all of these huge spending plans that Prime Minister Takeuchi has. And as I say, health and pharma is one of her focuses. Now, you know, there's no sense of any need to scale back those spending plans But there are certainly worries about how these things are going to be funded, especially at a time when, of course, globally, there's already so much worry about rising bond yields and fiscal burdens around the world. So I think that's something that will be debated. And probably there are priorities that may come above health. So there are things, of course, like AI and defense and security that perhaps are higher up on the government's list. So we'll have to see how that plays out for the rest of Takayuchi's premiership.
00:35:15
Speaker 3: So help me understand a little bit more about the wellness community. I'm thinking of spas and hot springs, even meditation, activities that I associate with wellness in Japan. Are these venues still very prevalent?
00:35:27
Speaker 9: 100%. And I myself am a big fan of an onsen. And I think also it's been a huge source of appeal for foreign tourists in the past. few years since COVID. So yeah, onsen still very much a thing here. If you live in sort of a more urban area, you might go to something called a sento, which is sort of a local, more urban, shared public bath. Of course, the water is very hot, but supposedly very good for cleansing and also relaxing. And then if you go to a natural onsen, the water will be full of kind of sulfur and other good things that makes your skin very soft. But yeah, I would say that in general, Japanese people do take relaxing very seriously. You know, it's not uncommon for people to go on girls trips, birthday trips to onsen here. Like I said, it's something that I very much enjoy myself. And I think it's something that foreign tourists have been getting used to. Of course, it's not always it doesn't always come naturally, I think, to a lot of tourists to sort of be naked in a bath with strangers. But it's definitely something that has been catching on here. There's been You know, traditionally, for example, if you have tattoos, you're not allowed to go in onsen, but some onsens are becoming more open to that as they welcome more and more foreign tourists. So I think that's something that we're seeing changing. A lot of the kind of older onsen and the older yokan, the traditional Japanese inns, trying to sort of renovate themselves and make themselves more attractive to younger and foreign customers. But at the same time, a lot of them are owned by families, but, you know, their family businesses and the founders may be ageing. and sort of without a successor. And so there are a lot of these businesses that are really kind of financially struggling at the moment. And they have been the targets of some things, you know, like M & A or investments to try and keep them afloat, because it is a key part of Japanese culture and wellness. And I think it's something that would be very sad to see it go.
00:37:17
Speaker 3: So before I let you go, can you briefly give me kind of a bit of coverage on how consumers are faring?
00:37:23
Speaker 9: Yeah, I mean, look, inflation is definitely a thing here, as it has been around the whole world, partly because of obviously rising oil prices from what's been going on in the Middle East. I think also Japan has the added pressure of, of course, the continued weakness in the yen, which is making, of course, a lot of imported products more expensive and putting pressure on Now, you mentioned wages there. And yes, they have been on the up. I think it really depends, though, on where you work. If you work at a big firm, then you may be seeing quite a nice wage bump. If you work at a small or medium sized firm, you might not be feeling that benefit quite as much. So we have been seeing a bit of a divergence in households in terms of their spending power. And I think in general, just worries about yen weakness and sort of the general economic outlook, particularly amid what's happened with, you know, between Iran and the U.S. has sort of been weighing a little bit on consumer sentiment here. And it is a big focus for the government and for the Bank of Japan is how to sort of bring, you know, bring inflation under control whilst also pushing forward with monetary policy normalization and economic growth. And it's going to continue to be, I think, a huge theme. But consumers, I would say, definitely feeling the pinch. Prices at supermarkets don't seem to be going down anytime soon. And it's a big topic, both sort of amongst government and financial circles, but also on social media and just sort of in everyday conversations.
00:38:43
Speaker 3: Okay, Alice, great stuff. We'll leave it there. Thank you so very much for filling us in on the periphery as we mark Sports Day set for Monday in Japan. Bloomberg's Alice French covers investing in Asia, joining from the Japanese capital. I'm Doug Krisner. You can catch us weekdays for the Daybreak Asia podcast. It's available wherever you get your podcast.
00:39:03
Speaker 9: Nathan?
00:39:04
Speaker 1: Thanks, Doug. And that does it for this edition of Bloomberg Daybreak Weekend. Join us again Monday morning at 5 a.m. Wall Street time for the latest on markets overseas and the news you need to start your day. I'm Nathan Hager. Stay with us. Top stories and global business headlines are coming up right now.
