00:00:02
Speaker 1: This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world, and straight ahead on the program, but look ahead to some key economic data in the US how it may impact pet policy in September. I'm Tom Busby in New York.
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Speaker 2: I'm Stephen Kyle in London, where we're discussing the gloom in Germany and why the Europe's largest economy and shake it off.
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Speaker 3: I'm Brian Curtis in Hong Kong. At least eleven have thrown their hats in the ring. Who would become Japan's next bime minister.
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Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg eleve on three OW New York, Bloomberg ninety nine to one, Washington, d C, Bloomberg one oh six one, Boston, Bloomberg nine sixty, San Francisco, DAB, Digital Radio London, Sirius XM one nineteen and around the world on Bloomberg Radio dot com and via the Bloomberg Business App.
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Speaker 1: Good day to you. I'm Tom Busby, and we begin today's program with some key US economic data out this week. A second read on Q two GDP and core PCE data. The big question, how might this data impact the Fed's policies on interest rates?
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Speaker 5: And for more.
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Speaker 1: We're joined by Edward Harrison Bloomberg, senior editor and author of the Everything Risk newsletter. Well, Edward, let's start with that second quarter GDP. What you're expecting to see in growth and what signs you see that the economy may may be slowing a bit.
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Speaker 6: Good question and great to talk to you. The GDP number is just a rehash of what we saw before, as you mentioned, and the prior read was two point eight percent annualized growth. We're expecting exactly the same number to come up. The interesting bid, however, is that the Atlanta Fed has a tracker for Q three because this is the growth through June. They're looking at the growth in this particular quarter that we're in and that number is two percent, and so that number is lower than the previous number, which gives the Fed some room to cut knowing that the economy is decelerating.
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Speaker 1: But we won't know that a preliminary Q three number for another two months though.
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Speaker 6: Right exactly. Yeah, so we're still in the midst of Q three, but we already know that the data that have come in since Q two have been weaker and just enough if as long as inflation holds, that's the PC number that we're going to talk about in a little bit. The FED has enough room to start cutting it in September. And actually, you know last week when we heard from the Fed, we heard the FED minutes basically at the July meeting, there were some officials who were saying that they would have cut based upon the data already in July if they had known, if they had prepared the market for that. So a clear majority of the FED wants to cut in September. It's priced in by the market. It's not going to be any surprise irrespective of what we might see between now and that meeting.
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Speaker 1: Well, let me ask you about that GDP. We're expecting two point eight percent, same as the last read two point zero for the current quarter, no hint though right now of a recession. So what do you see the big drivers of that modest growth? But what do you see the big drivers are?
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Speaker 6: Yeah, I think that the big driver for the FED in terms of it's that that slowing of growth from two point a to two percent, and really when you think about where the FED funds rate is five point three percent, and the ability to get a mortgage and things like that, we're at a restrictive level, and because that growth is slowing, they want to, you know, sort of ease the pain so that we don't tip into a recession, so that it is just slowing. And the key is is that inflation has come down enough where they think they can start doing that without having to worry about inflation being excessive going forward.
00:04:06
Speaker 1: Well, that of course leads us to that inflation measure, the Fed's preferred measure, the personal consumption Core price Index. What do you expect to see in that? And what did we see just last quarter?
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Speaker 6: You know, what I expect to see on a month on month basis is a slight uptick zero point two percent, which correlates to about where we are roughly. But that number is going to be just enough, according to consensus estimates, to tick up the number for the PCE price index, that's the one that you were talking about. The Fed's preferred numbers, so two point five going up to two point six. The core number year on year is going to be two point six going up to two point seven. According to consensus estimates. Those numbers are in the realm where the FED can can feel comfortable to start to bring down the rate. Question now is how quickly they can do so. Two point six two point seven percent is lower than it had been in the past, but it's not low enough that you can assure that every FED member is behind cutting at every single meeting. Because you know, we have one hundred basis points one full percentage point priced into the market right now to the swaps market. I doubt that highly that that's going to happen. You might get seventy five basis points, that's my baseline, but you might only get two cuts of twenty five basis points before the year is over.
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Speaker 1: And we have meetings in just a few weeks, but also early November mid December, so there's a lot of chance for the FED.
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Speaker 6: To act exactly. And so you know, the baseline is that once the FED acts, it starts to go down quickly as long as that PCE number stays with us. You know, a PCE number that rises back up to three percent will stop them from cutting any more. But I think you can look at two or three cuts baseline, and likely the pricing in the market will come out slightly as a result of the Fed not moving as aggressively as the market is pricing, and that might cause yields to go up slightly, But generally speaking, because they're going to be cutting, it will provide some relief for the economy, especially for mortgage rates.
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Speaker 1: Now, the FED has always maintained that any decision it makes on rates is going to be data driven, and the main factor in that has been inflation. But do you see the Fed also reacting to what looks like a cooling jobs market.
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Speaker 7: Yeah.
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Speaker 6: I think that that really is their crux right now, is the cooling jobs market, which is what's causing growth to come down. I think what they're looking at is that inflation's low enough that they can start to look more at their jobs mandate, and what they see is an unemployment rate which has gone up a lot. In fact, over the last twelve months, the average over the three month average has gone up a zero point five percent, which had been in the past consistent with recession. But when you look at all the other employment data, like the number of job openings, the number of initial jobless claims, all of those suggest that we're very far from recession, but the fact that the unemployment rate has gone up as much as it has really is a cause of concern for the Fed, and that's why they're going to be cutting.
00:07:26
Speaker 1: Second quarter gdp PCE out this Thursday, ahead of Wall Street's opening bellar. Thanks to Edward Harrison, Bloomberg Senior editor, author of the Everything Risk newsletter. Businesses have spent billions of dollars betting on a future of artificial intelligence, an AI chip maker, and Vidia, now the world's second most valuable company valued at over three trillion dollars, has been a big factor in that paradigm shift. And with the current corporate earning season winding down, and Vidia is the last of Big Text Magnificent seven to report, posting second quarter earnings on Wednesday. For more and what to expect, we're joined by kun John Sabani, Bloomberg Intelligence Senior Semiconductor analyst, Kuon John, thanks for being here.
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Speaker 7: Glad to be here.
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Speaker 1: In Vidio had a blowout first quarter thanks to a surge and demand for those data center AI chips. Things were so good at hiked its dividend, did a ten for one stock split, the shares sort to new all time highs. That was three months ago. What are you expecting to see in Nvidia's second quarter earnings report?
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Speaker 7: Well, we again expect solid earnings bought in terms of the current quarter and the expected outlook. Nothing has changed in terms of demand signals. If anything, they've gotten even stronger as we have started this year versus last year. You know, the supply for their H one hundred and the H two hundred ramping now has continued to ease, so that means they can supply more of these chips and the demand continues to stay ahead of supply.
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Speaker 1: Now you talked about those specific chips. Is that the current Hopper line? And what do you expect to hear from Nvidio about its upcoming Blackwell line?
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Speaker 7: That's correct, that was a Hopper light. I mean, look, there has been some concerns around the Blackwell delay, and from our channel checks and our estimates, we now believe there will be very little volume for black Wells starting to ship in the fiscal for Q, which is their January quarter, but the real ramp is not likely until the next year. However, Look, I mean there's like I said, there's enough demand for its Hopper chips, so we believe customers who really wanted the first shipments of Blackwell because of the delay, could could substitute it for some H one hundred and H two hundred and even some B one hundred initial shipments. And and there's there's again there's enough demand continued in the pipeline that they I don't think they'll be significantly impacted from this delay. But that is a commentary an outlook that we are keen to hear about from this earning skull.
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Speaker 1: Now, while it grapples with that delay in the Blackwell chips, there is more competition now for Nvidia in the AI focused chips, especially in house manufacturing, from the likes of Apple and Google. How does that factor in.
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Speaker 7: I mean, like what we have said, you know, at this point, because the demand is so high, because the number of use cases and application continues to increase, an adoption of AI data center continues to increase, I think at this point that combetition is not likely to slow down in media, and media doesn't view them as a combetition because they believe they're used for a very different kind of workload and use cases and are only specific to very few customers. We do believe that in the long term, especially when this strong demand normalizes or optimizes. This is a headwind for them in a way, not directly from a useless perspective, but more of a tamp perspective. So look, in the absence of these chips that its customers are designing, they would have had to use all NBA chips right. So the way it will affect them is taking away that wallet dollar share when the wallet really gets that squeeze.
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Speaker 1: And the spending on these chips is all dependent on business capital expenditure. How I mean, they have spent billions already, and I know some investors getting a little impatient, but do you see the spending continuing to grow. It has been an extraordinary trajectory in business spending on AI.
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Speaker 7: Yeah. I mean, look, when we entered twenty twenty four, we didn't think this year we'll see such a huge increase, which right now seems to be in the in the range of forty to fifty percent at least for its largest hyperscaler and cloud customers. And we are seeing that. So I mean again, given the data we're seeing right now, Yes, there have been concerns in the earnings calls of those large customers. I think investors are more concerned about getting the justification of these spending, so which means we need to see better and higher monetization from these customers. And if we see that soon enough, I don't think the spending will slow, but in the absence of that, we could see some kind of normalization. But again, you know, what we have seen in these scenarios is when they do want to cut back spending. We've seen that in the sort of general purpose compute areas, but not in the AI areas. Now that still bodes well for it.
00:12:34
Speaker 1: Things are looking good and video earnings out this Wednesday are thanks to Koon, John so Bonnie Bloomberg Intelligence senior semiconductor analysts, and coming up on Bloomberg day Break weekend, we'll discuss the gloom in Germany and whether Europe's largest economy can shake it off. I'm Tom Busby, and this is Bloomberg. This is Bloomberg Day Break Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Up later on our program, we'll look ahead to a key political leadership election in Japan and what to expect now that Japan's Prime minister announced he's resigning. But first, Europe has been booming. The Olympic Games in Paris a big economic success. Taylor Swift's blockbuster Aerostore brought a burst of consumer spending. But despite all that, the economic performance in one of the block's largest power players remains uncertain. And for more, let's go to London and bring in Bloomberg Daybreak europe banker Steven Carroll.
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Speaker 2: Tom the risk of recession in the euro Area has receded into the background, but the mood in Europe's largest economy remains gloomy. The most recent Composite Purchasing Managers Index for Germany signaled a contraction for a second month, while the manufacturing index has been shrinking for more than two years. Contrast that with a picture from frank which got a surprise boost from hosting the Olympic Games. We've been discussing the persistent weakness in the German economy with many of our guests on Bloomberg Radio. Let's get the view of Melanie Baker, senior economist at Royal London Asset Management, in.
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Speaker 8: Terms of the sort of growth picture. Again, I mean, look in my focus. I haven't got recessions penciled in for either of those economies. I'm not sure that we are going to see a really big divisions in the second half of the year. I'm expecting a bit of a slower patch in the US economy for sure, and not very exciting growth in the Euro Area. But I'm still not convinced we're actually going to see a huge divergence in terms of economic picture when it comes down to it. In the second half of this year.
00:14:38
Speaker 2: We were hearing from Oli Rn who was speaking at event in New York, talking about particularly pointing to weakness in the manufacturing sector is bolstering, in his view, the case for rake cuts. But I wonder how, because the numbers obviously out of Germany haven't been great on a whole variety of metrics in recent months, how deep is that dip for Germany when we look towards the rest of the year.
00:14:59
Speaker 8: Yeah, and kind of dependent really on global growth dynamics as much as anything else. So plenty of uncertainty I think for the German economy and elsewhere. Actually, I'm not overly pessimistic about the Euro Area economy, partly because I see quite a bit of potential upside from the consumer with really quite robust real pay growth at the moment and scope for with you know what already looks like increased consumer confidence for a bit less saving from European consumers and a bit of a boost from that as well.
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Speaker 1: It's very hard to read the US economy right now.
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Speaker 8: Is that that's.
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Speaker 1: Easier it easier to read the European economy.
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Speaker 8: In some senses? Yes, I mean the US data is just very very mixed at the moment. I think in terms of Europe where I find I have most difficulties probably on the labor market. What we haven't had that increase in the unemployment rate that we've seen in the US that we've seen in the UK, where the labor market looks really tight on that measure, trying to make sense of that against the other two economies. But yeah, in terms of the US data just very mixed.
00:15:58
Speaker 2: With the question of real pay growth though, I mean, is that actually a concern on the flip side, because we know that Christine Leaguard has pointed in some repreaiocasions expact speaking to you and Dallas and January Front, I remember this coming up as well as the importance of wage inflation. Is that a worry or is this only really a positive story for the moment.
00:16:14
Speaker 8: It may become more of a worry. Absolutely, And it's the same as elsewhere. Really, it's that how sticky is inflation going to be? In particular how sticky is services inflation going to be? And again with that, what looks like quite a tight labor markets is a reason for concern looking forward to next year, thinking of the possible rate path for the year area.
00:16:31
Speaker 2: I think that was Melanie Baker, senior economist at Royal London Asset Management. While a sharp slowdown in the Euro Area could necessitate swift ECB action, evidence of such a scenario remains limited. There's currently a thirty percent probability of a recession in the Zone, and the year ahead near the lowest for this year. That figure suggests that expectations for aggressive easing could be premature. But a raft of data on growth, inflation and the business climate in Germany that's due in the coming days will give pub maker's food for thought. I've been discussing this with Bloomberg's Germany correspondent, Oliver Crook, and I started off by asking him what we can discern from the latest data, including those PMI surveys.
00:17:10
Speaker 5: Listen, it doesn't tell you anything good at all. I mean, we won't start with the sort of worst part of it. We'll sort of soften the blow by starting the services, which at least saw some kind of expansion that came in at fifty one, you know, and that was below expectations still, but that is still growing in services though albeit you know, perhaps not even close to enough to outweigh what is happening in manufacturing, where we were expecting that to come in at forty three, which is already a very very weak number, is a strong contraction. It came in at forty two. That is really not good news for the German economy. And it adds to twenty six months of consecutive manufacturing contraction within Germany. That means more than two years the manufacturing sector within Germany has been contracting, which is an even bigger deal in Germany than it is for most of the European economies because of that strong industrial base that has really generated the kind of wealth that has made it the most wealthy and most prosperous economy in all of Europe over the last few decades, and if you look at the sort of surveys ever elsewhere in the economy, it's not looking a whole lot better. Whether it's zdw EFO, there is really very widespread pessimism within this economy.
00:18:15
Speaker 2: Recession of probability, though in Europe is at its lowest this year. Is Germany booking that trend in a bad way and showing more signs of indicators of a downturn.
00:18:25
Speaker 5: I think that it is. I mean, you know what's interesting about the German economy is that it's not this sort of economy that is sort of going to implode suddenly, and that is sort of, you know, partially by design. It is a kind of economy that would go out more with a whimper than with a bang. I mean, this is kind of what we've been seeing in Germany over the last two years, particularly after Russia's invasion of Ukraine and all of the effects that has had on the industrial sector, the terms of prices for energy, the sort of even the feeding stock gas that goes into huge sort of chemical plants like for BASF, and you know, you've had a bit of growth here and there, a bit of contraction, but the reality of the situation is if you get ten basis points of growth or ten basis points of contraction, it doesn't really matter. The point is things are not really moving forward, but they're not bad enough to sort of instigate huge, really difficult changes. Because people's sort of standards of living don't fall precipitously. They just get really really worried. So you know, there are a lot of things that they need to do. They need to deal with digitalization is not a very digitized economy despite being so wealthy. They need to cut out bureaucracy. This is something that we talk a lot about, that a lot of politicians talk about, but it doesn't really happen. These are very sort of unsexy reforms in order to try to get this economy moving again. And when you also think about what's going on in terms of China, the tariff war and that sort of thing, Germany is by far the most exposed economy in Europe in terms of exports over to China and many of its companies that have businesses there. So all of this stuff culminates to a really sort of poor picture for the German economy.
00:19:51
Speaker 2: I mean, is this a temporary or chronic situation or both. You know, according to the IMF, it sets me the G seven slowest growing economy again this year.
00:20:00
Speaker 5: Yeah, I think what's really interesting with the German economy is that, again, since nothing is sort of collapsing and it sort of keeps on sort of going slowly and slowly, the question is what is going to be the actual catalyst for growth, Like things can improve a little bit, but the reality of the situation is that it's behind on some of the many traditional sectors that it's done very well in, like the auto industry. It's slow on electrification. It is obviously throwing you know, Volkswagen alone is throwing something close to two hundred billion dollars in R and D to try to deal with that. But again, these are the things that they need to get together in order for him to move forward. And there's also this other question of this sort of political dysfunction, right because many of the governing bodies have ideas about how to do this. But we have a coalition right now in Germany that have three very different parties with three very different ideas on how to do this. And by the way, two of those three parties would like to do away with the constitutional debt break, which would allow Germany to raise debt at the levels that many other countries do it that could actually finance some of the things. But again the person running the finance ministry is a hyperhawk and is saying no way that that's going to happen. So you have this sort of stalemate and not that much is moving.
00:21:06
Speaker 2: And that's a really interesting question to consider for the future as well. How are the politicians talking about the economic situation and is there any chance that that actually debt break could be eased.
00:21:20
Speaker 5: Well, listen, the Schultz and the SPD have said that they think that they need some reform. The Greens have been, you know, saying the same thing. In fact, Robert Habeck, who is the Economy minister but also the leader of the Green Party, says that basically Germany is boxing with its arms tied behind its back because this debt break is so damaging in terms of trying to get a competitive advantage that it's trying to do across the world and as sort of countries get poorer. No one likes that. But you know who really doesn't like it is rich countries. And when you feel that slowly happening in Germany, you also feel political consequences there, so a lot of these mainstream politicians are saying, be wary of what the populists are promising. And that's what we've seen in the polls, which is that the AfD, the far right, has been absolutely surging. And we have three sort of local state elections in Germany coming up over the next three weeks where you know, in the last few months, the AfD was supposed to be the number one party, taking more than thirty percent of the vote in each of those regions. Now what's been interesting that has happened is actually there's been a new party that was founded in Germany. This is the far left, the Sarah Vaganakt, who is a sort of very nationalist but left leaning party that has fractured some of the AfD momentum and taken some of the votes away. But overall it doesn't change basically the standing of this coalition in those regions. You know, the Schultz and the SPD, the Greens and FDP are all going to get basically single digit percentages and these sort of more populous groups are going to surge up.
00:22:42
Speaker 2: How is Germany starts are on the global stage being affected.
00:22:45
Speaker 9: By all this.
00:22:46
Speaker 5: I mean, I think it's really interesting when you think about how kind of Germany has positioned itself. Let's think about the example just of Ukraine and what's been happening sort of recently, where basically Germany's domestic budgetary concerns are basically bearing on whether or not they're going to be able to give more money to Ukraine. And this has been sort of very controversial. It seems odd that a country as important as big as Germany would basically let accounting logic govern what is really really important geopolitical signaling, which is exactly what's been happening here.
00:23:17
Speaker 9: Right.
00:23:17
Speaker 5: They're saying we're not going to give any new money to Ukraine. And even if that is the case, because they already have large commitments and they've contributed more than any other European country, doesn't tend to be something that you say out loud in quite that way, right, because it really undermines you when you say, hey, this is where our red line is, because you're sending a signal to Moscow, but you're also sending a signal to the White House and the potential Trump presidency where they could very easily. Say, listen, if Germany's not even adding more money to Ukraine, why should the United States. So it's an economic problem that is also weighing on it. Obviously, the economy is weak. That doesn't put them in a strong position. We've talked about some of the issues within the coalition, the debt break. But it's also frankly a leadership problem because Schultz just does not have the inc nation it seems to want to take that kind of leadership role in Europe, you know, not like say Macon who tried. Maybe he didn't succeed, but at least he tried.
00:24:09
Speaker 9: Oliver.
00:24:09
Speaker 2: In the coming days, we're going to get a whole raft of economic data from Germany, inflation growth, some of the measures as well, what we'll be watching out for to sort of put a data point on the broad weakness that you've been talking about.
00:24:23
Speaker 5: Yeah, so listen, inflation is super important for every country within Europe and really around the world. Right now. You know, the last print in Germany was a two point six percent, which was at the higher end of what analysts had anticipated. We're going to get the last reading of inflation before the next ECB meeting, so that will be absolutely crucial. But the picture really in Germany is this is one of weaker growth and really persistent inflation, which is not really a dynamic any economy wants to be dealing with. And it could also set up a kind of debate at the ECB right with Germany's Bundesbank members being tending to be much more hawkish, much more skeptical about cutting rates and really concerned about price stability, and for Germany at the time when the economy is kind of slowing, it's not you know, a great dynamic, and you can see this from the market pricing, by the way, and in terms of what is being expected at the ECB, you've seen things go from basically a ninety nine percent chance of a cut in September to you know, sixty percent. So it's been all over the place. So these data prints will be very crucial going into the coming months.
00:25:21
Speaker 2: Thanks to Bloomberg's Germany correspondent to Oliver Kruk, I'm Stephen Carol in London. You can catch us every weekday morning here for Bloomberg Daybreak Europe, beginning at six am in London and one am on Wall Streets. Tom.
00:25:33
Speaker 1: Thank you Steven and coming up on Bloomberg day Break weekend, Japan's ruling Liberal Democratic Party has set a date for its leadership election. We'll discuss what we can expect next. I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break Weekend, our global look ahead at the time, stories for investors in the coming week. I'm Tom Busby in New York. Japan's ruling Liberal Democratic Party has set September twenty seventh for its next leadership election. Now that comes after Prime Minister Kashida said he plans to step down. And for more on what's next, let's get to Bloomberg Daybreak Asia host Brian Curtis.
00:26:19
Speaker 3: Tom whoever takes the reins at the LDP is likely to become prime minister given the party's historical dominance in Japan. The vote is held among LDP lawmakers and rank and file party members. The general public does not take part in the process. That process gets underway on September twelfth, but the jockeying is already under way. Earlier, Bloomberg's Paul Allen and I spoke with Brian Fowler, Bloomberg Senior editor for Northeast Asia. He helped us lay the groundwork on what comes next.
00:26:49
Speaker 9: It's going to be a really exciting month or so here in Tokyo. First, the big question is who's going to be the next prime minister. And at this point we know at least half a dozen people who are expected to submit their applications as candidates this week, and the number could get to as many as twelve or so, And so the first thing is who's going to be the front runner, And then the second thing is what do we know about these people in terms of how they view policy and what they've said in the past. And some of them have made comments, and a lot of them really haven't gone there. And I think that kind of has to do with the fact that for such a long time, Japanese interest rates were, you know, zero or on either side of zero, and prices were stagnant. So for a very long time, even up until when Kashita took office three years ago, really monetary policy wasn't something anyone ever had to talk about. But now it is a subject that matters.
00:27:53
Speaker 10: Yeah, and some candidates, and I'm thinking Tarakano particularly is fond of a pining on what he thinks the Bank of Japan should do. And of course the boj is meant to be a political and all the rest of it, but we have had some speculation that it does come unto political pressure. Is that separation of church and state going to continue?
00:28:13
Speaker 9: Yeah, well, well, let me just point out kind of an interesting historical thing going back to nineteen eighty seven. May of nineteen eighty seven, Nakasone was the prime minister and he went to the US and he met with Ronald Reagan and he promised Reagan that Japan would take interest rates lower in a move that was meant to stabilize the dollar. And so, you know, back then there certainly was not a separation of church and state. And then of course that was the peak of the bubble. A couple of years later, the bubble bursts and we enter this you know, two decade period of stagnation, and it kind of was very easy at that point to separate them, and you know, it was very clear. But I think at this point, as you said, Kono is one another one another one we expect is Toshi meets Motegi. He's the Secretary General for the LDP. He also has come out in favor of normalization of BOJ policy. We have one potential candidate, a woman, and I Takaichi, who's in the cabinet. She's actually backed keeping policy settings easy, so we do have we have some candidates on either side.
00:29:27
Speaker 3: Well, you probably lay the groundwork for what you were going to talk about, is that no matter who the new premiere is, there is a possibility of an election being called. And I'm curious what would be the thinking behind that given the sort of massive control that you have from the LDP, particularly with its coalition partner.
00:29:45
Speaker 9: Yeah, so the LDP has looked pretty weak for quite a while, but it's great advantages of course that there's nobody on the opposition side who can really thretten the oldp's leadership. So the thinking would be okay, so Kishita steps down, he takes responsibility for the political funding scandal, Maybe he takes he also tries to take some responsibility for inflation that's that's boosting costs of living, and maybe the LDP gets a new mandate to lead with its new leader. I think that that would be the idea, But of course that election would still be taking place at a period when we've had more than two years of persistent, sticky inflation at or above the boj's two percent target, So they will talk about prices. Whoever it is they're going to be talking about it, whether it's monetary policy or subsidies to offset higher utility bills.
00:30:40
Speaker 3: Bloomberg's Brian Fowler and joining us now for some further insight is Isabelle Reynolds Bloomberg Tokyo Bureau a Chief. So Isabelle. We can see though that the race is pretty wide open. What's interesting, I think to some is it's, you know, whoever's most popular with the public is not really always the one that winds up as party leader. It's a democratic process. But then there's a lot of old fashioned backroom dealing.
00:31:07
Speaker 11: Oh yes, there absolutely is. And one of the interesting things this time is that backroom dealing has often in the past involved the factions within the LDP, each of which had their own leader and would sort of jockey to get that leader into the top job, or at least into a very senior position in the cabinet as part of that horse trading process. Now, due to this massive scandal that's been ongoing for what seems like years now, that Kisha had tried and failed to put a lid on One of the things he did was to stop the factions from basically having that power of a money and from seeking positions. They should be just a kind of policy study groups, he said. So those groups maybe don't have much power anymore, so that leaves them fields even more open and the whole situation even more chaotic. Anyone could pop up from anywhere. We don't know who is going to get support from who. Several people have said they won't rely on the sort of form of factions to get those the twenty signatures that they need to run in the race. So yes, it's all to play for at this stage.
00:32:11
Speaker 3: So as you say the scandals really hurt Kishida and have changed politicking, what are the biggest issues at the moment?
00:32:19
Speaker 11: Yes, well, I think the scandals actually do remain one of the biggest issues. So I think one of the things people will be looking at is who can sort of portray a cleaner image for the LDP. And that's pretty difficult because so many of these people have been in factions. Even if they weren't directly involved in what was a slush fund scandal, it was hiding hiding income. They are sort of slightly tainted, So it's the question over whether they can sort of put a lid on that finally after all these months. Other than that, I think it's definitely going to be cost of living. Kishuda did do what he could on that. He provided a tax break over the summer. He also he provided these subsidies for household bills power bills, but that hasn't really made much difference to his support rate. So it's questionable over you know, these new candidates may promise that they're going to tackle this issue that's at the top of the people's minds, but whether they can do anything that satisfies people, that's a big question.
00:33:24
Speaker 3: So Brian mentioned several candidates. Could Yoko Kamikawa win and become the first woman to be prime minister?
00:33:31
Speaker 11: I considered that fairly unlikely, to be honest, and it's sadly. I would love to see the first female prime minister in Japan, of course, and I thought a lot of I think a lot of people would as a sign of a new era. She doesn't have a lot of personal popularity as one thing. Also, she was previously when the factions kind of existed. She was a member of Kishida's factions, so she would be seen as a continuity candidate, and if they're trying to turn over a new leaf and portray a new image, I don't think she's the than they would choose.
00:34:01
Speaker 3: Well, Taro Kono is an interesting one, and that he is pretty popular with the public, but he doesn't seem to be so popular with his peers in Parliament.
00:34:09
Speaker 11: Yes, that's absolutely right. The thing is he's very outspoken. He says what he thinks. He criticizes people publicly, and that goes down well with the public, who are often dissatisfied, obviously with what the government is doing. But when it comes to the people who are actually doing that work and who are being criticized in public, of course they don't like it at all. So he doesn't have that many friends within parliament. I mean. Having said that, could be that if they want to again create a new image from themselves, if they feel kind of desperate enough, they could turn to him. They've done that once in the past with Koizumi, the previous Prime minister, who was Prime Minister about twenty years ago. Things were going very badly for the LDP at that point, so they chose someone who was kind of a maverick and an outsider, and that worked very well at that point.
00:34:57
Speaker 3: So you never know what are so of the ways that the candidates will actually compete with one another.
00:35:04
Speaker 11: Well, they only have a couple of weeks to sort of really lay out their wares. It tends to be a whole load of televised debates, but apart from that, they're going to go out and make speeches on the street. Basically, there are a lot of restrictions that the electoral laws in Japan are quite strict, so you know, you can't be knocking on doors or anything. I mean, not that the general public are involved, but you probably would want to get them behind you. So, yes, it's televised debates and it's I guess street speeches.
00:35:32
Speaker 3: So we talked about some of the issues. So you mentioned the scandals, and of course inflation and the weakness in the end that has troubled many What about the issue of independence between the government and the Bank of Japan. I know that it's not quite the same as it could be in some countries, but has that been tarnished a little bit whatever sort of de facto independence there.
00:35:56
Speaker 11: Was, Yes, I think it's it's always been a little bit in question. Obviously under Abbe with his ebonomics program that was all about really central bank policy. So he brought in a Bank of Japan governor who would do exactly what he wanted. And although he wasn't, I mean from what the then Bank of Japan governor said and his memoirs, Abbe was not directing him or telling him to do things, it was very obvious what was wanted from the Prime Minister's side, and that's exactly what happened. So it's hard to imagine that the Bank of Jakapan governor will go in a very different direction from what the Prime minister of the time wants. So independence, I think yes or no in a way on the sort of monthly basis of the decisions that made. Yes, there's independence, but the overall direction is very much I think set by the Prime minister.
00:36:53
Speaker 3: We probably can't close at least without at least a little mention of the former Defense Minister, Shirou Ishida. He would seem to be one of the favorites, right.
00:37:03
Speaker 11: Yes, yes, he's been pretty popular with the public for a long time. But I think the main reason why he's popular is that he's always distanced himself from the current government. So anyone who's dissatisfied with the government, they don't tend to support the opposition parties. They're not seen as competent at this point, so they would throw their support behind Ishaba, who's someone who's an outsider. So he's good at criticizing, at finding the things that are wrong with the current government. But I don't know how many people would actually want him to be prime minist and people within the party would actually want him to be prime minist. So obviously he's been very critical and he hasn't really laid out a vision of how he does want things to be. You know, he's been kind of negative and critical. But on the other hand, you know, what would be his vision is my big question to.
00:37:50
Speaker 3: Him, Isabelle. Thank you so much for joining us. Isabill Reynolds, Bloomberg's Tokyo bureau chief. I'm Brian Curtis along with Doug Krisner. You can catch us every weekday here for Bloomberg Daybreak Asia. We begin at eight am in Hong Kong and eight pm on Wall Street.
00:38:07
Speaker 1: Tom Thank you, Brian, and that does it for this edition of Bloomberg day break weekend, Join us again Monday morning at five am Wall Street Time for the latest on markets overseas and the news you need to start your day. I'm Tom Buzzby. Stay with us. Top stories and global business headlines are coming up right now
Speaker 1: This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world, and straight ahead on the program, but look ahead to some key economic data in the US how it may impact pet policy in September. I'm Tom Busby in New York.
00:00:18
Speaker 2: I'm Stephen Kyle in London, where we're discussing the gloom in Germany and why the Europe's largest economy and shake it off.
00:00:25
Speaker 3: I'm Brian Curtis in Hong Kong. At least eleven have thrown their hats in the ring. Who would become Japan's next bime minister.
00:00:35
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg eleve on three OW New York, Bloomberg ninety nine to one, Washington, d C, Bloomberg one oh six one, Boston, Bloomberg nine sixty, San Francisco, DAB, Digital Radio London, Sirius XM one nineteen and around the world on Bloomberg Radio dot com and via the Bloomberg Business App.
00:01:00
Speaker 1: Good day to you. I'm Tom Busby, and we begin today's program with some key US economic data out this week. A second read on Q two GDP and core PCE data. The big question, how might this data impact the Fed's policies on interest rates?
00:01:15
Speaker 5: And for more.
00:01:16
Speaker 1: We're joined by Edward Harrison Bloomberg, senior editor and author of the Everything Risk newsletter. Well, Edward, let's start with that second quarter GDP. What you're expecting to see in growth and what signs you see that the economy may may be slowing a bit.
00:01:32
Speaker 6: Good question and great to talk to you. The GDP number is just a rehash of what we saw before, as you mentioned, and the prior read was two point eight percent annualized growth. We're expecting exactly the same number to come up. The interesting bid, however, is that the Atlanta Fed has a tracker for Q three because this is the growth through June. They're looking at the growth in this particular quarter that we're in and that number is two percent, and so that number is lower than the previous number, which gives the Fed some room to cut knowing that the economy is decelerating.
00:02:13
Speaker 1: But we won't know that a preliminary Q three number for another two months though.
00:02:18
Speaker 6: Right exactly. Yeah, so we're still in the midst of Q three, but we already know that the data that have come in since Q two have been weaker and just enough if as long as inflation holds, that's the PC number that we're going to talk about in a little bit. The FED has enough room to start cutting it in September. And actually, you know last week when we heard from the Fed, we heard the FED minutes basically at the July meeting, there were some officials who were saying that they would have cut based upon the data already in July if they had known, if they had prepared the market for that. So a clear majority of the FED wants to cut in September. It's priced in by the market. It's not going to be any surprise irrespective of what we might see between now and that meeting.
00:03:10
Speaker 1: Well, let me ask you about that GDP. We're expecting two point eight percent, same as the last read two point zero for the current quarter, no hint though right now of a recession. So what do you see the big drivers of that modest growth? But what do you see the big drivers are?
00:03:27
Speaker 6: Yeah, I think that the big driver for the FED in terms of it's that that slowing of growth from two point a to two percent, and really when you think about where the FED funds rate is five point three percent, and the ability to get a mortgage and things like that, we're at a restrictive level, and because that growth is slowing, they want to, you know, sort of ease the pain so that we don't tip into a recession, so that it is just slowing. And the key is is that inflation has come down enough where they think they can start doing that without having to worry about inflation being excessive going forward.
00:04:06
Speaker 1: Well, that of course leads us to that inflation measure, the Fed's preferred measure, the personal consumption Core price Index. What do you expect to see in that? And what did we see just last quarter?
00:04:18
Speaker 6: You know, what I expect to see on a month on month basis is a slight uptick zero point two percent, which correlates to about where we are roughly. But that number is going to be just enough, according to consensus estimates, to tick up the number for the PCE price index, that's the one that you were talking about. The Fed's preferred numbers, so two point five going up to two point six. The core number year on year is going to be two point six going up to two point seven. According to consensus estimates. Those numbers are in the realm where the FED can can feel comfortable to start to bring down the rate. Question now is how quickly they can do so. Two point six two point seven percent is lower than it had been in the past, but it's not low enough that you can assure that every FED member is behind cutting at every single meeting. Because you know, we have one hundred basis points one full percentage point priced into the market right now to the swaps market. I doubt that highly that that's going to happen. You might get seventy five basis points, that's my baseline, but you might only get two cuts of twenty five basis points before the year is over.
00:05:33
Speaker 1: And we have meetings in just a few weeks, but also early November mid December, so there's a lot of chance for the FED.
00:05:40
Speaker 6: To act exactly. And so you know, the baseline is that once the FED acts, it starts to go down quickly as long as that PCE number stays with us. You know, a PCE number that rises back up to three percent will stop them from cutting any more. But I think you can look at two or three cuts baseline, and likely the pricing in the market will come out slightly as a result of the Fed not moving as aggressively as the market is pricing, and that might cause yields to go up slightly, But generally speaking, because they're going to be cutting, it will provide some relief for the economy, especially for mortgage rates.
00:06:21
Speaker 1: Now, the FED has always maintained that any decision it makes on rates is going to be data driven, and the main factor in that has been inflation. But do you see the Fed also reacting to what looks like a cooling jobs market.
00:06:36
Speaker 7: Yeah.
00:06:36
Speaker 6: I think that that really is their crux right now, is the cooling jobs market, which is what's causing growth to come down. I think what they're looking at is that inflation's low enough that they can start to look more at their jobs mandate, and what they see is an unemployment rate which has gone up a lot. In fact, over the last twelve months, the average over the three month average has gone up a zero point five percent, which had been in the past consistent with recession. But when you look at all the other employment data, like the number of job openings, the number of initial jobless claims, all of those suggest that we're very far from recession, but the fact that the unemployment rate has gone up as much as it has really is a cause of concern for the Fed, and that's why they're going to be cutting.
00:07:26
Speaker 1: Second quarter gdp PCE out this Thursday, ahead of Wall Street's opening bellar. Thanks to Edward Harrison, Bloomberg Senior editor, author of the Everything Risk newsletter. Businesses have spent billions of dollars betting on a future of artificial intelligence, an AI chip maker, and Vidia, now the world's second most valuable company valued at over three trillion dollars, has been a big factor in that paradigm shift. And with the current corporate earning season winding down, and Vidia is the last of Big Text Magnificent seven to report, posting second quarter earnings on Wednesday. For more and what to expect, we're joined by kun John Sabani, Bloomberg Intelligence Senior Semiconductor analyst, Kuon John, thanks for being here.
00:08:08
Speaker 7: Glad to be here.
00:08:09
Speaker 1: In Vidio had a blowout first quarter thanks to a surge and demand for those data center AI chips. Things were so good at hiked its dividend, did a ten for one stock split, the shares sort to new all time highs. That was three months ago. What are you expecting to see in Nvidia's second quarter earnings report?
00:08:26
Speaker 7: Well, we again expect solid earnings bought in terms of the current quarter and the expected outlook. Nothing has changed in terms of demand signals. If anything, they've gotten even stronger as we have started this year versus last year. You know, the supply for their H one hundred and the H two hundred ramping now has continued to ease, so that means they can supply more of these chips and the demand continues to stay ahead of supply.
00:08:55
Speaker 1: Now you talked about those specific chips. Is that the current Hopper line? And what do you expect to hear from Nvidio about its upcoming Blackwell line?
00:09:05
Speaker 7: That's correct, that was a Hopper light. I mean, look, there has been some concerns around the Blackwell delay, and from our channel checks and our estimates, we now believe there will be very little volume for black Wells starting to ship in the fiscal for Q, which is their January quarter, but the real ramp is not likely until the next year. However, Look, I mean there's like I said, there's enough demand for its Hopper chips, so we believe customers who really wanted the first shipments of Blackwell because of the delay, could could substitute it for some H one hundred and H two hundred and even some B one hundred initial shipments. And and there's there's again there's enough demand continued in the pipeline that they I don't think they'll be significantly impacted from this delay. But that is a commentary an outlook that we are keen to hear about from this earning skull.
00:10:04
Speaker 1: Now, while it grapples with that delay in the Blackwell chips, there is more competition now for Nvidia in the AI focused chips, especially in house manufacturing, from the likes of Apple and Google. How does that factor in.
00:10:20
Speaker 7: I mean, like what we have said, you know, at this point, because the demand is so high, because the number of use cases and application continues to increase, an adoption of AI data center continues to increase, I think at this point that combetition is not likely to slow down in media, and media doesn't view them as a combetition because they believe they're used for a very different kind of workload and use cases and are only specific to very few customers. We do believe that in the long term, especially when this strong demand normalizes or optimizes. This is a headwind for them in a way, not directly from a useless perspective, but more of a tamp perspective. So look, in the absence of these chips that its customers are designing, they would have had to use all NBA chips right. So the way it will affect them is taking away that wallet dollar share when the wallet really gets that squeeze.
00:11:18
Speaker 1: And the spending on these chips is all dependent on business capital expenditure. How I mean, they have spent billions already, and I know some investors getting a little impatient, but do you see the spending continuing to grow. It has been an extraordinary trajectory in business spending on AI.
00:11:38
Speaker 7: Yeah. I mean, look, when we entered twenty twenty four, we didn't think this year we'll see such a huge increase, which right now seems to be in the in the range of forty to fifty percent at least for its largest hyperscaler and cloud customers. And we are seeing that. So I mean again, given the data we're seeing right now, Yes, there have been concerns in the earnings calls of those large customers. I think investors are more concerned about getting the justification of these spending, so which means we need to see better and higher monetization from these customers. And if we see that soon enough, I don't think the spending will slow, but in the absence of that, we could see some kind of normalization. But again, you know, what we have seen in these scenarios is when they do want to cut back spending. We've seen that in the sort of general purpose compute areas, but not in the AI areas. Now that still bodes well for it.
00:12:34
Speaker 1: Things are looking good and video earnings out this Wednesday are thanks to Koon, John so Bonnie Bloomberg Intelligence senior semiconductor analysts, and coming up on Bloomberg day Break weekend, we'll discuss the gloom in Germany and whether Europe's largest economy can shake it off. I'm Tom Busby, and this is Bloomberg. This is Bloomberg Day Break Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Up later on our program, we'll look ahead to a key political leadership election in Japan and what to expect now that Japan's Prime minister announced he's resigning. But first, Europe has been booming. The Olympic Games in Paris a big economic success. Taylor Swift's blockbuster Aerostore brought a burst of consumer spending. But despite all that, the economic performance in one of the block's largest power players remains uncertain. And for more, let's go to London and bring in Bloomberg Daybreak europe banker Steven Carroll.
00:13:41
Speaker 2: Tom the risk of recession in the euro Area has receded into the background, but the mood in Europe's largest economy remains gloomy. The most recent Composite Purchasing Managers Index for Germany signaled a contraction for a second month, while the manufacturing index has been shrinking for more than two years. Contrast that with a picture from frank which got a surprise boost from hosting the Olympic Games. We've been discussing the persistent weakness in the German economy with many of our guests on Bloomberg Radio. Let's get the view of Melanie Baker, senior economist at Royal London Asset Management, in.
00:14:13
Speaker 8: Terms of the sort of growth picture. Again, I mean, look in my focus. I haven't got recessions penciled in for either of those economies. I'm not sure that we are going to see a really big divisions in the second half of the year. I'm expecting a bit of a slower patch in the US economy for sure, and not very exciting growth in the Euro Area. But I'm still not convinced we're actually going to see a huge divergence in terms of economic picture when it comes down to it. In the second half of this year.
00:14:38
Speaker 2: We were hearing from Oli Rn who was speaking at event in New York, talking about particularly pointing to weakness in the manufacturing sector is bolstering, in his view, the case for rake cuts. But I wonder how, because the numbers obviously out of Germany haven't been great on a whole variety of metrics in recent months, how deep is that dip for Germany when we look towards the rest of the year.
00:14:59
Speaker 8: Yeah, and kind of dependent really on global growth dynamics as much as anything else. So plenty of uncertainty I think for the German economy and elsewhere. Actually, I'm not overly pessimistic about the Euro Area economy, partly because I see quite a bit of potential upside from the consumer with really quite robust real pay growth at the moment and scope for with you know what already looks like increased consumer confidence for a bit less saving from European consumers and a bit of a boost from that as well.
00:15:30
Speaker 1: It's very hard to read the US economy right now.
00:15:32
Speaker 8: Is that that's.
00:15:33
Speaker 1: Easier it easier to read the European economy.
00:15:36
Speaker 8: In some senses? Yes, I mean the US data is just very very mixed at the moment. I think in terms of Europe where I find I have most difficulties probably on the labor market. What we haven't had that increase in the unemployment rate that we've seen in the US that we've seen in the UK, where the labor market looks really tight on that measure, trying to make sense of that against the other two economies. But yeah, in terms of the US data just very mixed.
00:15:58
Speaker 2: With the question of real pay growth though, I mean, is that actually a concern on the flip side, because we know that Christine Leaguard has pointed in some repreaiocasions expact speaking to you and Dallas and January Front, I remember this coming up as well as the importance of wage inflation. Is that a worry or is this only really a positive story for the moment.
00:16:14
Speaker 8: It may become more of a worry. Absolutely, And it's the same as elsewhere. Really, it's that how sticky is inflation going to be? In particular how sticky is services inflation going to be? And again with that, what looks like quite a tight labor markets is a reason for concern looking forward to next year, thinking of the possible rate path for the year area.
00:16:31
Speaker 2: I think that was Melanie Baker, senior economist at Royal London Asset Management. While a sharp slowdown in the Euro Area could necessitate swift ECB action, evidence of such a scenario remains limited. There's currently a thirty percent probability of a recession in the Zone, and the year ahead near the lowest for this year. That figure suggests that expectations for aggressive easing could be premature. But a raft of data on growth, inflation and the business climate in Germany that's due in the coming days will give pub maker's food for thought. I've been discussing this with Bloomberg's Germany correspondent, Oliver Crook, and I started off by asking him what we can discern from the latest data, including those PMI surveys.
00:17:10
Speaker 5: Listen, it doesn't tell you anything good at all. I mean, we won't start with the sort of worst part of it. We'll sort of soften the blow by starting the services, which at least saw some kind of expansion that came in at fifty one, you know, and that was below expectations still, but that is still growing in services though albeit you know, perhaps not even close to enough to outweigh what is happening in manufacturing, where we were expecting that to come in at forty three, which is already a very very weak number, is a strong contraction. It came in at forty two. That is really not good news for the German economy. And it adds to twenty six months of consecutive manufacturing contraction within Germany. That means more than two years the manufacturing sector within Germany has been contracting, which is an even bigger deal in Germany than it is for most of the European economies because of that strong industrial base that has really generated the kind of wealth that has made it the most wealthy and most prosperous economy in all of Europe over the last few decades, and if you look at the sort of surveys ever elsewhere in the economy, it's not looking a whole lot better. Whether it's zdw EFO, there is really very widespread pessimism within this economy.
00:18:15
Speaker 2: Recession of probability, though in Europe is at its lowest this year. Is Germany booking that trend in a bad way and showing more signs of indicators of a downturn.
00:18:25
Speaker 5: I think that it is. I mean, you know what's interesting about the German economy is that it's not this sort of economy that is sort of going to implode suddenly, and that is sort of, you know, partially by design. It is a kind of economy that would go out more with a whimper than with a bang. I mean, this is kind of what we've been seeing in Germany over the last two years, particularly after Russia's invasion of Ukraine and all of the effects that has had on the industrial sector, the terms of prices for energy, the sort of even the feeding stock gas that goes into huge sort of chemical plants like for BASF, and you know, you've had a bit of growth here and there, a bit of contraction, but the reality of the situation is if you get ten basis points of growth or ten basis points of contraction, it doesn't really matter. The point is things are not really moving forward, but they're not bad enough to sort of instigate huge, really difficult changes. Because people's sort of standards of living don't fall precipitously. They just get really really worried. So you know, there are a lot of things that they need to do. They need to deal with digitalization is not a very digitized economy despite being so wealthy. They need to cut out bureaucracy. This is something that we talk a lot about, that a lot of politicians talk about, but it doesn't really happen. These are very sort of unsexy reforms in order to try to get this economy moving again. And when you also think about what's going on in terms of China, the tariff war and that sort of thing, Germany is by far the most exposed economy in Europe in terms of exports over to China and many of its companies that have businesses there. So all of this stuff culminates to a really sort of poor picture for the German economy.
00:19:51
Speaker 2: I mean, is this a temporary or chronic situation or both. You know, according to the IMF, it sets me the G seven slowest growing economy again this year.
00:20:00
Speaker 5: Yeah, I think what's really interesting with the German economy is that, again, since nothing is sort of collapsing and it sort of keeps on sort of going slowly and slowly, the question is what is going to be the actual catalyst for growth, Like things can improve a little bit, but the reality of the situation is that it's behind on some of the many traditional sectors that it's done very well in, like the auto industry. It's slow on electrification. It is obviously throwing you know, Volkswagen alone is throwing something close to two hundred billion dollars in R and D to try to deal with that. But again, these are the things that they need to get together in order for him to move forward. And there's also this other question of this sort of political dysfunction, right because many of the governing bodies have ideas about how to do this. But we have a coalition right now in Germany that have three very different parties with three very different ideas on how to do this. And by the way, two of those three parties would like to do away with the constitutional debt break, which would allow Germany to raise debt at the levels that many other countries do it that could actually finance some of the things. But again the person running the finance ministry is a hyperhawk and is saying no way that that's going to happen. So you have this sort of stalemate and not that much is moving.
00:21:06
Speaker 2: And that's a really interesting question to consider for the future as well. How are the politicians talking about the economic situation and is there any chance that that actually debt break could be eased.
00:21:20
Speaker 5: Well, listen, the Schultz and the SPD have said that they think that they need some reform. The Greens have been, you know, saying the same thing. In fact, Robert Habeck, who is the Economy minister but also the leader of the Green Party, says that basically Germany is boxing with its arms tied behind its back because this debt break is so damaging in terms of trying to get a competitive advantage that it's trying to do across the world and as sort of countries get poorer. No one likes that. But you know who really doesn't like it is rich countries. And when you feel that slowly happening in Germany, you also feel political consequences there, so a lot of these mainstream politicians are saying, be wary of what the populists are promising. And that's what we've seen in the polls, which is that the AfD, the far right, has been absolutely surging. And we have three sort of local state elections in Germany coming up over the next three weeks where you know, in the last few months, the AfD was supposed to be the number one party, taking more than thirty percent of the vote in each of those regions. Now what's been interesting that has happened is actually there's been a new party that was founded in Germany. This is the far left, the Sarah Vaganakt, who is a sort of very nationalist but left leaning party that has fractured some of the AfD momentum and taken some of the votes away. But overall it doesn't change basically the standing of this coalition in those regions. You know, the Schultz and the SPD, the Greens and FDP are all going to get basically single digit percentages and these sort of more populous groups are going to surge up.
00:22:42
Speaker 2: How is Germany starts are on the global stage being affected.
00:22:45
Speaker 9: By all this.
00:22:46
Speaker 5: I mean, I think it's really interesting when you think about how kind of Germany has positioned itself. Let's think about the example just of Ukraine and what's been happening sort of recently, where basically Germany's domestic budgetary concerns are basically bearing on whether or not they're going to be able to give more money to Ukraine. And this has been sort of very controversial. It seems odd that a country as important as big as Germany would basically let accounting logic govern what is really really important geopolitical signaling, which is exactly what's been happening here.
00:23:17
Speaker 9: Right.
00:23:17
Speaker 5: They're saying we're not going to give any new money to Ukraine. And even if that is the case, because they already have large commitments and they've contributed more than any other European country, doesn't tend to be something that you say out loud in quite that way, right, because it really undermines you when you say, hey, this is where our red line is, because you're sending a signal to Moscow, but you're also sending a signal to the White House and the potential Trump presidency where they could very easily. Say, listen, if Germany's not even adding more money to Ukraine, why should the United States. So it's an economic problem that is also weighing on it. Obviously, the economy is weak. That doesn't put them in a strong position. We've talked about some of the issues within the coalition, the debt break. But it's also frankly a leadership problem because Schultz just does not have the inc nation it seems to want to take that kind of leadership role in Europe, you know, not like say Macon who tried. Maybe he didn't succeed, but at least he tried.
00:24:09
Speaker 9: Oliver.
00:24:09
Speaker 2: In the coming days, we're going to get a whole raft of economic data from Germany, inflation growth, some of the measures as well, what we'll be watching out for to sort of put a data point on the broad weakness that you've been talking about.
00:24:23
Speaker 5: Yeah, so listen, inflation is super important for every country within Europe and really around the world. Right now. You know, the last print in Germany was a two point six percent, which was at the higher end of what analysts had anticipated. We're going to get the last reading of inflation before the next ECB meeting, so that will be absolutely crucial. But the picture really in Germany is this is one of weaker growth and really persistent inflation, which is not really a dynamic any economy wants to be dealing with. And it could also set up a kind of debate at the ECB right with Germany's Bundesbank members being tending to be much more hawkish, much more skeptical about cutting rates and really concerned about price stability, and for Germany at the time when the economy is kind of slowing, it's not you know, a great dynamic, and you can see this from the market pricing, by the way, and in terms of what is being expected at the ECB, you've seen things go from basically a ninety nine percent chance of a cut in September to you know, sixty percent. So it's been all over the place. So these data prints will be very crucial going into the coming months.
00:25:21
Speaker 2: Thanks to Bloomberg's Germany correspondent to Oliver Kruk, I'm Stephen Carol in London. You can catch us every weekday morning here for Bloomberg Daybreak Europe, beginning at six am in London and one am on Wall Streets. Tom.
00:25:33
Speaker 1: Thank you Steven and coming up on Bloomberg day Break weekend, Japan's ruling Liberal Democratic Party has set a date for its leadership election. We'll discuss what we can expect next. I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break Weekend, our global look ahead at the time, stories for investors in the coming week. I'm Tom Busby in New York. Japan's ruling Liberal Democratic Party has set September twenty seventh for its next leadership election. Now that comes after Prime Minister Kashida said he plans to step down. And for more on what's next, let's get to Bloomberg Daybreak Asia host Brian Curtis.
00:26:19
Speaker 3: Tom whoever takes the reins at the LDP is likely to become prime minister given the party's historical dominance in Japan. The vote is held among LDP lawmakers and rank and file party members. The general public does not take part in the process. That process gets underway on September twelfth, but the jockeying is already under way. Earlier, Bloomberg's Paul Allen and I spoke with Brian Fowler, Bloomberg Senior editor for Northeast Asia. He helped us lay the groundwork on what comes next.
00:26:49
Speaker 9: It's going to be a really exciting month or so here in Tokyo. First, the big question is who's going to be the next prime minister. And at this point we know at least half a dozen people who are expected to submit their applications as candidates this week, and the number could get to as many as twelve or so, And so the first thing is who's going to be the front runner, And then the second thing is what do we know about these people in terms of how they view policy and what they've said in the past. And some of them have made comments, and a lot of them really haven't gone there. And I think that kind of has to do with the fact that for such a long time, Japanese interest rates were, you know, zero or on either side of zero, and prices were stagnant. So for a very long time, even up until when Kashita took office three years ago, really monetary policy wasn't something anyone ever had to talk about. But now it is a subject that matters.
00:27:53
Speaker 10: Yeah, and some candidates, and I'm thinking Tarakano particularly is fond of a pining on what he thinks the Bank of Japan should do. And of course the boj is meant to be a political and all the rest of it, but we have had some speculation that it does come unto political pressure. Is that separation of church and state going to continue?
00:28:13
Speaker 9: Yeah, well, well, let me just point out kind of an interesting historical thing going back to nineteen eighty seven. May of nineteen eighty seven, Nakasone was the prime minister and he went to the US and he met with Ronald Reagan and he promised Reagan that Japan would take interest rates lower in a move that was meant to stabilize the dollar. And so, you know, back then there certainly was not a separation of church and state. And then of course that was the peak of the bubble. A couple of years later, the bubble bursts and we enter this you know, two decade period of stagnation, and it kind of was very easy at that point to separate them, and you know, it was very clear. But I think at this point, as you said, Kono is one another one another one we expect is Toshi meets Motegi. He's the Secretary General for the LDP. He also has come out in favor of normalization of BOJ policy. We have one potential candidate, a woman, and I Takaichi, who's in the cabinet. She's actually backed keeping policy settings easy, so we do have we have some candidates on either side.
00:29:27
Speaker 3: Well, you probably lay the groundwork for what you were going to talk about, is that no matter who the new premiere is, there is a possibility of an election being called. And I'm curious what would be the thinking behind that given the sort of massive control that you have from the LDP, particularly with its coalition partner.
00:29:45
Speaker 9: Yeah, so the LDP has looked pretty weak for quite a while, but it's great advantages of course that there's nobody on the opposition side who can really thretten the oldp's leadership. So the thinking would be okay, so Kishita steps down, he takes responsibility for the political funding scandal, Maybe he takes he also tries to take some responsibility for inflation that's that's boosting costs of living, and maybe the LDP gets a new mandate to lead with its new leader. I think that that would be the idea, But of course that election would still be taking place at a period when we've had more than two years of persistent, sticky inflation at or above the boj's two percent target, So they will talk about prices. Whoever it is they're going to be talking about it, whether it's monetary policy or subsidies to offset higher utility bills.
00:30:40
Speaker 3: Bloomberg's Brian Fowler and joining us now for some further insight is Isabelle Reynolds Bloomberg Tokyo Bureau a Chief. So Isabelle. We can see though that the race is pretty wide open. What's interesting, I think to some is it's, you know, whoever's most popular with the public is not really always the one that winds up as party leader. It's a democratic process. But then there's a lot of old fashioned backroom dealing.
00:31:07
Speaker 11: Oh yes, there absolutely is. And one of the interesting things this time is that backroom dealing has often in the past involved the factions within the LDP, each of which had their own leader and would sort of jockey to get that leader into the top job, or at least into a very senior position in the cabinet as part of that horse trading process. Now, due to this massive scandal that's been ongoing for what seems like years now, that Kisha had tried and failed to put a lid on One of the things he did was to stop the factions from basically having that power of a money and from seeking positions. They should be just a kind of policy study groups, he said. So those groups maybe don't have much power anymore, so that leaves them fields even more open and the whole situation even more chaotic. Anyone could pop up from anywhere. We don't know who is going to get support from who. Several people have said they won't rely on the sort of form of factions to get those the twenty signatures that they need to run in the race. So yes, it's all to play for at this stage.
00:32:11
Speaker 3: So as you say the scandals really hurt Kishida and have changed politicking, what are the biggest issues at the moment?
00:32:19
Speaker 11: Yes, well, I think the scandals actually do remain one of the biggest issues. So I think one of the things people will be looking at is who can sort of portray a cleaner image for the LDP. And that's pretty difficult because so many of these people have been in factions. Even if they weren't directly involved in what was a slush fund scandal, it was hiding hiding income. They are sort of slightly tainted, So it's the question over whether they can sort of put a lid on that finally after all these months. Other than that, I think it's definitely going to be cost of living. Kishuda did do what he could on that. He provided a tax break over the summer. He also he provided these subsidies for household bills power bills, but that hasn't really made much difference to his support rate. So it's questionable over you know, these new candidates may promise that they're going to tackle this issue that's at the top of the people's minds, but whether they can do anything that satisfies people, that's a big question.
00:33:24
Speaker 3: So Brian mentioned several candidates. Could Yoko Kamikawa win and become the first woman to be prime minister?
00:33:31
Speaker 11: I considered that fairly unlikely, to be honest, and it's sadly. I would love to see the first female prime minister in Japan, of course, and I thought a lot of I think a lot of people would as a sign of a new era. She doesn't have a lot of personal popularity as one thing. Also, she was previously when the factions kind of existed. She was a member of Kishida's factions, so she would be seen as a continuity candidate, and if they're trying to turn over a new leaf and portray a new image, I don't think she's the than they would choose.
00:34:01
Speaker 3: Well, Taro Kono is an interesting one, and that he is pretty popular with the public, but he doesn't seem to be so popular with his peers in Parliament.
00:34:09
Speaker 11: Yes, that's absolutely right. The thing is he's very outspoken. He says what he thinks. He criticizes people publicly, and that goes down well with the public, who are often dissatisfied, obviously with what the government is doing. But when it comes to the people who are actually doing that work and who are being criticized in public, of course they don't like it at all. So he doesn't have that many friends within parliament. I mean. Having said that, could be that if they want to again create a new image from themselves, if they feel kind of desperate enough, they could turn to him. They've done that once in the past with Koizumi, the previous Prime minister, who was Prime Minister about twenty years ago. Things were going very badly for the LDP at that point, so they chose someone who was kind of a maverick and an outsider, and that worked very well at that point.
00:34:57
Speaker 3: So you never know what are so of the ways that the candidates will actually compete with one another.
00:35:04
Speaker 11: Well, they only have a couple of weeks to sort of really lay out their wares. It tends to be a whole load of televised debates, but apart from that, they're going to go out and make speeches on the street. Basically, there are a lot of restrictions that the electoral laws in Japan are quite strict, so you know, you can't be knocking on doors or anything. I mean, not that the general public are involved, but you probably would want to get them behind you. So, yes, it's televised debates and it's I guess street speeches.
00:35:32
Speaker 3: So we talked about some of the issues. So you mentioned the scandals, and of course inflation and the weakness in the end that has troubled many What about the issue of independence between the government and the Bank of Japan. I know that it's not quite the same as it could be in some countries, but has that been tarnished a little bit whatever sort of de facto independence there.
00:35:56
Speaker 11: Was, Yes, I think it's it's always been a little bit in question. Obviously under Abbe with his ebonomics program that was all about really central bank policy. So he brought in a Bank of Japan governor who would do exactly what he wanted. And although he wasn't, I mean from what the then Bank of Japan governor said and his memoirs, Abbe was not directing him or telling him to do things, it was very obvious what was wanted from the Prime Minister's side, and that's exactly what happened. So it's hard to imagine that the Bank of Jakapan governor will go in a very different direction from what the Prime minister of the time wants. So independence, I think yes or no in a way on the sort of monthly basis of the decisions that made. Yes, there's independence, but the overall direction is very much I think set by the Prime minister.
00:36:53
Speaker 3: We probably can't close at least without at least a little mention of the former Defense Minister, Shirou Ishida. He would seem to be one of the favorites, right.
00:37:03
Speaker 11: Yes, yes, he's been pretty popular with the public for a long time. But I think the main reason why he's popular is that he's always distanced himself from the current government. So anyone who's dissatisfied with the government, they don't tend to support the opposition parties. They're not seen as competent at this point, so they would throw their support behind Ishaba, who's someone who's an outsider. So he's good at criticizing, at finding the things that are wrong with the current government. But I don't know how many people would actually want him to be prime minist and people within the party would actually want him to be prime minist. So obviously he's been very critical and he hasn't really laid out a vision of how he does want things to be. You know, he's been kind of negative and critical. But on the other hand, you know, what would be his vision is my big question to.
00:37:50
Speaker 3: Him, Isabelle. Thank you so much for joining us. Isabill Reynolds, Bloomberg's Tokyo bureau chief. I'm Brian Curtis along with Doug Krisner. You can catch us every weekday here for Bloomberg Daybreak Asia. We begin at eight am in Hong Kong and eight pm on Wall Street.
00:38:07
Speaker 1: Tom Thank you, Brian, and that does it for this edition of Bloomberg day break weekend, Join us again Monday morning at five am Wall Street Time for the latest on markets overseas and the news you need to start your day. I'm Tom Buzzby. Stay with us. Top stories and global business headlines are coming up right now
