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Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: actors all around the world. Straight Ahead on the program,
Speaker 2: we'll look at upcoming housing data, along with earnings from
Speaker 2: eb Giant Tesla and the latest on its CEO Elon Musk.
Speaker 2: I'm Tom Busby in New York.
Speaker 3: I'm Karen Hecke here in London, where we're asking what
Speaker 3: the European Central Bank we'll do next.
Speaker 4: I'm dek Krisner taking a look at the upcoming national
Speaker 4: election in Japan.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 5: Well, good day to you.
Speaker 2: I'm Tom Busby, and we begin today's program with some
Speaker 2: key US housing data as we wrap up the critical
Speaker 2: spring home buying season. Existing home sales for June out
Speaker 2: on Wednesday. New home sales for that same month on Thursday,
Speaker 2: for more on what to expect the impact of sky
Speaker 2: high home prices, elevated mortgage rates arise in existing home inventories,
Speaker 2: and the Trump tariffs and all that. We're joined by
Speaker 2: Drew Redding, Bloomberg Intelligence US home building Analysts. Well, Drew,
Speaker 2: thanks so much for being here. I want to start
Speaker 2: with what you're expecting to see in these reports, and
Speaker 2: then we'll break down what's behind those numbers.
Speaker 6: Sure, so let's start on the existing home side. Obviously,
Speaker 6: the resale market has been stuck in the mud. You know,
Speaker 6: we're expecting sales will be down modestly on a sequential basis,
Speaker 6: but you know, should be up a little bit from
Speaker 6: last year's three point nine million annualized rate. Keep in
Speaker 6: mind that was the lowest pace in about fifteen years,
Speaker 6: so some modest improvement, but the market's still down over
Speaker 6: twenty sent from more normalized levels. We've kind of been
Speaker 6: hovering around this four million annualized rate of sales for
Speaker 6: a while now. But it does appear to us that,
Speaker 6: at least from a volume perspective, the market as troth.
Speaker 6: You have to realize there's some level of underlying demand
Speaker 6: out there. In the market given people have to move
Speaker 6: for one reason or another, and you do you think
Speaker 6: you'll see a little bit of growth this year and
Speaker 6: perhaps stronger growth next year off that low base. Now
Speaker 6: it's a little bit of a different story in the
Speaker 6: new home market. Sales are expected to be down from
Speaker 6: last year. Some of the higher frequency data we've seen
Speaker 6: on purchase application showed a little bit of improvement, so
Speaker 6: there are some conflicting signals. We've also been hovering in
Speaker 6: a range for a part of two years now. But
Speaker 6: what we do know is that builders are having to
Speaker 6: fight harder for every sale, and they continue to discount
Speaker 6: heavily to maintain their sales space. There's some evidence that
Speaker 6: these incentives that they've been using or having diminishing returns,
Speaker 6: they're just not as effective at a certain point. So
Speaker 6: you know, builders are turning the base price. We've heard
Speaker 6: that from Lennar and KB Home, so I think that's
Speaker 6: probably the path forward.
Speaker 2: Well, I think that's the biggest sticking point is the price.
Speaker 2: The price not only on new homes of course, but
Speaker 2: on existing homes. They are still rising. The growth is
Speaker 2: starting to slow though, correct.
Speaker 6: Yeah, that's a great point, and the resale market, prices
Speaker 6: are definitely still climbing. The latest data we've seen from
Speaker 6: Redfin showed about a two percent increase in mid July,
Speaker 6: but as you mentioned, prices are rising at a slower pace.
Speaker 6: Part of that reflects, you know, the obvious shift to
Speaker 6: more of a buyer's market where sellers are getting a
Speaker 6: little bit more realistic in terms of listing prices. So
Speaker 6: it has started to help the monthly payment on the margins,
Speaker 6: you know, like we've seen with inventories, the stories really
Speaker 6: at the local level where we have a lot of
Speaker 6: markets across the country that are actually already seeing price decline.
Speaker 6: So you know, you talk about markets in Florida, like Tampa,
Speaker 6: also Atlanta, al So it really varies by market, and
Speaker 6: it's going to be dependent on supply. You know. In
Speaker 6: the new home market, we've already seen prices come down
Speaker 6: more significantly and one of the reasons obviously builders have
Speaker 6: been aggressive in the use of incentives, but they're turning
Speaker 6: more to base price cuts as well. And if you
Speaker 6: think about, you know, how builders account for incentives, it's
Speaker 6: reflected as a reduction in the average selling price, so
Speaker 6: to the extent that inventory continues to puddle up, they
Speaker 6: keep their foot on the gas in terms of incentives.
Speaker 6: We think you see further net pricing pressure in the
Speaker 6: new home market as well.
Speaker 2: And those inventories of new homes the highest in almost
Speaker 2: two decades, right.
Speaker 6: Yeah, it's certainly an interesting dynamic right now. Remember over
Speaker 6: the last couple of years, the lack of for sale
Speaker 6: inventory in the existing home market had been a key
Speaker 6: part of the investment thesis for home building investors. You know,
Speaker 6: you had a lack of options, so it helped the
Speaker 6: funnel buyers over to the new home market, who were
Speaker 6: also able to help with the monthly payment. But you know,
Speaker 6: as you mentioned, that's that tailwind has turned into a
Speaker 6: headwind as more listings come onto the market and homes
Speaker 6: are sitting for longer. On the resale side of things,
Speaker 6: inventories are about thirty percent from last year, and you know,
Speaker 6: we're still ten percent below twenty nineteen. But looking at
Speaker 6: the national data, I think really blurs the picture. At
Speaker 6: this point. We now have ten states where resale supply
Speaker 6: is higher than it was in twenty nineteen, and a
Speaker 6: lot of that's in some important markets for the builders,
Speaker 6: think of Florida, Texas, markets out west like Colorado and
Speaker 6: Arizona certainly a big risk out there, And as you mentioned,
Speaker 6: it's not just resale market, but it's also in the
Speaker 6: new home market where completed inventories have really risen. And
Speaker 6: the reason for that is over the last couple of years,
Speaker 6: when there wasn't supply in the resale market, builders stepped
Speaker 6: in to fill that void, so they got more aggressive
Speaker 6: in their use of specs. Now that build an inventory
Speaker 6: was met with a rise in rates and a drop
Speaker 6: in demand. So now they're left sitting with all that
Speaker 6: inventory on their books. I think we ultimately that leads
Speaker 6: to is a pullback in production, so fewer housing starts.
Speaker 6: We're starting to see it on the building from its side,
Speaker 6: so it's something that they're going to have to work
Speaker 6: through before they start to put more more units in
Speaker 6: the got.
Speaker 5: To clear out that inventory.
Speaker 2: Let's talk about interest rates, So you just mentioned still
Speaker 2: stubbornly near seven percent. You know, that's probably why mortgage
Speaker 2: applications just last week took a tumble down ten percent.
Speaker 2: Now the Fed meets again about ten days from now,
Speaker 2: no indication the Central Bank is ready to lower those
Speaker 2: benchmark lending rates. So how big a concern are rates
Speaker 2: to the housing market.
Speaker 6: Right now, We've talked about one piece, which is home prices,
Speaker 6: and the other important piece is obviously where the thirty
Speaker 6: year rate is. Right now, we're about six point eight percent.
Speaker 6: We had seen a little bit of improvement, but now
Speaker 6: maybe some concerns reigniting with inflation pushing things back up.
Speaker 6: I think one of the main issues with rates is
Speaker 6: not only the absolute level, but just the volatility. You know.
Speaker 6: I think if we could get rates into the low
Speaker 6: six high five percent range for more of an extended
Speaker 6: period of time, it gives you know, home shoppers a
Speaker 6: little bit more comfort of what their payment might be
Speaker 6: as they're going through the application process. So rates are
Speaker 6: certainly a very important piece of the puzzle. And you know,
Speaker 6: there's not a whole lot of indication that things are
Speaker 6: going to get significantly lower anytime soon.
Speaker 5: Oh boy, it's a lot to take.
Speaker 2: In June, existing home sales out on Wednesday, new home
Speaker 2: sales for that same month on Thursday. Our thanks to
Speaker 2: Drew Redding, Bloomberg Intelligence US home building analyst. We move
Speaker 2: now to earnings at Tesla. It's out with second quarter
Speaker 2: results this coming Wednesday. Has the ev maker bounced back
Speaker 2: from a troubling first quarter. What has CEO Elon Musk's
Speaker 2: renewed focus on the company meant after he left his
Speaker 2: Trump Administration cost cutting duties, and what will the pending
Speaker 2: rollback of clean energy tax credits mean for the company.
Speaker 2: For more on what to expect, we're joined by Steve Mann,
Speaker 2: Bloomberg Intelligence Global Autos and Industrials Research Manager. Well, Steve,
Speaker 2: thank you so much for joining us. After a disappointing
Speaker 2: first quarter results. Will there be good news in Tesla's
Speaker 2: upcoming second quarter report?
Speaker 7: Yeah, I think the vestor will be more focused on
Speaker 7: what Elon must is going to talk about in the
Speaker 7: remainder of the year and beyond. In terms of earnings,
Speaker 7: we actually expected to report in line with consensus, but
Speaker 7: a few things that are on investor's mind, like you know,
Speaker 7: the Robotaxi, like the new models that they're rolling out
Speaker 7: they're planning to roll out, and even Elon himself, you
Speaker 7: know he's tweeted a few things around politics. You know
Speaker 7: what does he thinking around that and how it's going
Speaker 7: to impact the company.
Speaker 2: Let's start with those models. Well, the Model three is
Speaker 2: still the bread and butter for revenue, right, But how
Speaker 2: about the revamped model Why Juniper Suv. What does that mean?
Speaker 7: The ramp up has been going fairly well. It probably
Speaker 7: disappointed some investors that they didn't ramp up as fast
Speaker 7: as they thought, but it seems like the second quarter
Speaker 7: it came in nicely. Is some initial data on China sales,
Speaker 7: which is right now is probably like close to forty
Speaker 7: to fifty percent of their sales now. They're also planning
Speaker 7: to launch an extended version, a longer version of the
Speaker 7: Model Y in China, and I think that's going to
Speaker 7: resonate with the clients over there fairly well.
Speaker 2: How does it compete against the byds and the Cherries
Speaker 2: and the other very very low cost Chinese rivals.
Speaker 7: Yeah, it's tough. Launching FSD full self driving in China
Speaker 7: earlier this year will help, But BYD did cut prices
Speaker 7: quite a bit early in the year by a magnitude
Speaker 7: of thirty percent, and Tesla it doesn't want to play
Speaker 7: in that low cost, low price market. I think they're
Speaker 7: going to be medium price to high price market, and
Speaker 7: I think launching the extended version will actually help drive
Speaker 7: sales for the company over there into next year.
Speaker 2: Now, last month you mentioned this elon Musk rolled out
Speaker 2: as long delayed robotaxi unit in Austin, Texas. How far
Speaker 2: away is that service really for making any kind of
Speaker 2: on the company.
Speaker 7: It's a pretty exciting development. He's been talking about it
Speaker 7: for a while. It's it's finally here. It's it's still
Speaker 7: a slow go. I think he's very focused on safety,
Speaker 7: not a surprise, and and that's where he should be
Speaker 7: focused on to make sure the long term reputation of
Speaker 7: that business stays positive. And we think, you know, no
Speaker 7: meaningful revenue or profit in the next couple of years
Speaker 7: is probably going to come through in twenty twenty seven,
Speaker 7: so we haven't baked in that that business as a
Speaker 7: meaningful contributor to to the bottom line. But it's a
Speaker 7: it's a big market, so there's a number of players,
Speaker 7: Waymo being probably the largest at the moment. But I
Speaker 7: think the market's going to grow to a point where
Speaker 7: he's gonna be able to absorb a new competition like
Speaker 7: Tesla and even even Uber like. Uber announced that they're
Speaker 7: partnering with Lucid to develop automous vehicles for their robotaxi business.
Speaker 2: You mentioned something earlier, and that is safety concerns, especially
Speaker 2: with the full self driving. I mean they've had quite
Speaker 2: a few problems, a lot of litigation.
Speaker 7: I would say that's kind of normal mode of operation.
Speaker 7: I think there will be some safety concerns, there will
Speaker 7: be accidents. I think the investors should be aware. No
Speaker 7: engineering feat like this goes smoothly, so it's going to
Speaker 7: have some hiccups. So that's why it's very important for
Speaker 7: not just Tesla, but weimol to really hone in on
Speaker 7: safety and making sure the consumer, the users of ROBOTAXI,
Speaker 7: feels confident with this service.
Speaker 2: Now I want to talk about something I think that
Speaker 2: the shareholders are going to be very interested in what
Speaker 2: Elon Musk has to say, and that's the expiration of
Speaker 2: the seventy five hundred dollars EV tax credits. That deadline
Speaker 2: is coming soon September thirtieth. Now we know how Elon
Speaker 2: must react to that Trump bill that removes those clean energies,
Speaker 2: and it was not pretty. How will Tesla respond, How
Speaker 2: will the company respond?
Speaker 7: It's a double edgh sword. I think on the surface
Speaker 7: it is negative. It is negative because obviously they have
Speaker 7: generated quite a bit of revenue and profit from the
Speaker 7: selling these credits. If you look on the bottom line,
Speaker 7: it's minimal. It's probably like five percent, maybe less than
Speaker 7: five percent of profits. So it's going to have an
Speaker 7: impact on earnings definitely in the fourth quarter and well
Speaker 7: into the next year.
Speaker 5: Well, a lot to look forward to.
Speaker 2: Tesla Q two earnings out this Wednesday after Wall Street's
Speaker 2: closing bell Our thanks to Steve Man, Bloomberg Intelligence Global
Speaker 2: Autos and Industrials Research Manager, and coming up on Bloomberg
Speaker 2: day Break weekend, we'll look ahead to the next monetary
Speaker 2: policy decision from the European Central Bank. I'm Tom Busby
Speaker 2: and this is Bloomberg. This is Bloomberg day Break weekend,
Speaker 2: our global look ahead at the top stories for investors
Speaker 2: in the coming week.
Speaker 5: I'm Tom Buzzby in New York.
Speaker 2: Up later in our program, we look ahead as Japanese
Speaker 2: citizens head to the polls for an Upper House election.
Speaker 2: But first europe Central bankers will vote on their next
Speaker 2: move when it comes to interest rates. The Governing Council
Speaker 2: decision comes at a time of heightened trade tensions fueled
Speaker 2: by the back and forth with the US. How will
Speaker 2: policymakers respond For more Let's go to London and bring
Speaker 2: in Bloomberg daybreak. Euro banker Caroline hepger.
Speaker 3: Tom the Bundesbank president and DCB policymaker Joakim Nagel has
Speaker 3: urged caution over the European Central Bank's next move on
Speaker 3: interest rates, telling a newspaper that it requires a steady hand.
Speaker 3: His comments come as policymakers have cut rates eight times
Speaker 3: between June twenty twenty four and June twenty twenty five,
Speaker 3: down to two percent. Economies and markets are now betting
Speaker 3: on a pause in July. The final release of EU
Speaker 3: Area inflation for June also confirmed that the headline measure
Speaker 3: accelerated to two percent year on year from one point
Speaker 3: nine percent in the previous month, but still fairly well
Speaker 3: anchored in terms of inflation in Europe. So the focus
Speaker 3: is also going to be on the ECB September meeting
Speaker 3: when we get new ECB economic projections, and that may
Speaker 3: give officials more clarity on the economic backdrop. But with
Speaker 3: US President Donald Trump's on again, off again tariff policy
Speaker 3: clouding the outlook, Nagel says that the impact on inflation
Speaker 3: is extremely uncertain and in Europe, member states are urging
Speaker 3: the Council to do more to support the economy. French
Speaker 3: Premier frostwy Beiru said his country's facing the same challenges
Speaker 3: as the US, but without the strong dollar that he
Speaker 3: says gives the Federal Reserve the option to create money
Speaker 3: to fuel quote optimism in the economy. It's an issue,
Speaker 3: France's finance Minister Eric Lombard outlined, speaking to Primpaks and
Speaker 3: Edward's critique Cup and Mark Cardmore.
Speaker 8: France as an issue of a large public debt and
Speaker 8: two large public deficit, and we are tackling the issue,
Speaker 8: I believe very seriously. The plan is a plan of
Speaker 8: forty four billion euro of savings and revenue increases. Forty
Speaker 8: four billion euro that will bring our deficit below the
Speaker 8: five percent threshold next year to four point six percent,
Speaker 8: and we are aiming at a deficit below three percent
Speaker 8: in twenty twenty nine. The bulk of the plan is
Speaker 8: to cut public spending. There are thirty billion of savings
Speaker 8: of cuts in public spending, whether for the state of
Speaker 8: a social security, which is absolutely important but manageable. There
Speaker 8: will be ten percent of revenue increases and four billion
Speaker 8: more because French people will have to work more, two
Speaker 8: days more, because we will cut to making holiday next
Speaker 8: year and the years after. So it's a very easerious plan.
Speaker 8: Forty four billion euro okay.
Speaker 9: And you think that this is enough to reassure investors,
Speaker 9: What about getting the support of all of the lawmakers
Speaker 9: in France, because that seems to be very difficult. You'll
Speaker 9: need the support of a number of parties. Which parties
Speaker 9: are you going to talk to to try and get support?
Speaker 9: Here are the socialists at the top of your list,
Speaker 9: because I think the far right and the far left
Speaker 9: have already found serious problems with this budget plan.
Speaker 7: Well.
Speaker 8: For first, let me remind you that with the same
Speaker 8: parliament we had an approval for the twenty twenty five
Speaker 8: budget which is currently being implemented, which is already a
Speaker 8: budget which is a very serious budget bringing down the deficit.
Speaker 8: We will talk to all parties because it is an
Speaker 8: issue of national interest. We believe it is the best
Speaker 8: interest of France to put its public finance right before
Speaker 8: the next presidential election of twenty twenty seven, and we
Speaker 8: will talk to all parties. Having said that, the first
Speaker 8: reaction of opposition parties is quite normal because it's a
Speaker 8: huge plan. So the first reaction is negative. We will explain,
Speaker 8: we will discuss we will improve the plan and obviously
Speaker 8: there are probably more possibilities to reach an approval with
Speaker 8: the Socialist Party. They are still a party in the opposition,
Speaker 8: but they allowed the budget to pass for twenty twenty
Speaker 8: five and if we have a fair discussion with them,
Speaker 8: and we will have a fair discussion with the Socialist Party,
Speaker 8: hopefully they can support the government for the budget. But
Speaker 8: again we will talk to all parties and we hope
Speaker 8: to have wider support because again it's an issue of
Speaker 8: national interest.
Speaker 10: Eric, good Morning. Part of the plan is to raise
Speaker 10: revenues through selling selling down stakes in companies without losing influence. Apparently,
Speaker 10: what kind of sectors do you expect to see those
Speaker 10: kind of revenue gains? Are there any sectors off limits
Speaker 10: for selling down stakes and how much do you expect
Speaker 10: to raise through that?
Speaker 8: Well, obviously, you know the French state owns many companies,
Speaker 8: some of which are listed, so I won't be very
Speaker 8: talkative on that point. So we are working on it. Obviously,
Speaker 8: the large public sector companies like La post or like
Speaker 8: EEDF are not on the plane, but there are many
Speaker 8: options and we will work on it ultimately.
Speaker 10: The investor community, I think the initial reaction is not
Speaker 10: a lot of faith that the trajectory of this budget
Speaker 10: plan and the governments is much better than it was,
Speaker 10: you know, six months or a year ago. And I
Speaker 10: think there's a lot of worry about the government again
Speaker 10: Will will kind of struggle to get the budget passed
Speaker 10: and will kind of suffer on that. But we saw
Speaker 10: last year the investors move on. Are you more worried
Speaker 10: about how the investor reaction this time or do you
Speaker 10: not think that we're yet at a critical period for
Speaker 10: investor pressure to cand of really force something to get done.
Speaker 8: I'm not worried, but thank you to give me not
Speaker 8: part need to talk to them. I want first to
Speaker 8: reassure them on the twenty twenty five budget execution, because
Speaker 8: you know, public finance is something which is very operasional.
Speaker 8: We put a budget for this year cutting the deficit
Speaker 8: to five point four percent, and we follow the budget
Speaker 8: execution on a monthly basis. I gather all minister's General
Speaker 8: secretary every month, and I can tell you beginning of July,
Speaker 8: a middle of July, while we are today that we
Speaker 8: are totally online in the review of spending. We are
Speaker 8: on plan on spending after I must say ten billion
Speaker 8: cuts that we did in the first quarter in the
Speaker 8: second quarter, but after ooskuts we are totally on NINER
Speaker 8: and on the revenue where the vty income tax, corporate
Speaker 8: tax we are also online. So we are monitoring the
Speaker 8: execution of twenty twenty five very closely. We have a
Speaker 8: very ambitious target for twenty twenty six. I'm confident it
Speaker 8: will be approved, it will be executed, and that France
Speaker 8: will put itself back on track, which is absolutely key
Speaker 8: in order to play our role in Europe and.
Speaker 5: In the world.
Speaker 3: That was the French Finance Minister Eric Lombard there speaking
Speaker 3: to Blombergs and Edward's critique cup To and Mark Cudmore.
Speaker 3: The plight of France and other European countries in similar
Speaker 3: positions will be on the minds of policymakers as they
Speaker 3: make a decision about the ECB's immediate rate path in
Speaker 3: the days ahead. It's something I've been discussing with Bloomberg's
Speaker 3: ECB reporter Jana Randall. Yana, France's situation is one all
Speaker 3: too familiar to EU member states. High debt and stalling growth.
Speaker 3: How can the EU mitigate.
Speaker 11: Well, Mostly it's France's responsibility right, passing a budget that
Speaker 11: puts the government on a path towards sustainable public finances,
Speaker 11: and of course it has presented plans on how to
Speaker 11: narrow the deficit next year, which mainly look at austerity
Speaker 11: measures including freezing welfare pensions as well and acting to
Speaker 11: public holidays. As a matter of fact, whether that will
Speaker 11: do the trick, whether that'll fly we of course I'll
Speaker 11: remember what happened in France at the start of the year.
Speaker 11: We won't know until September because that's when lawmakers come
Speaker 11: back and will properly engage and vote on This debate
Speaker 11: surely will also be colored by the outcome or the
Speaker 11: state of trade negotiations, because that affects growth in France
Speaker 11: but also across the region. And that's of course where
Speaker 11: the EU then comes in, because it's up to the
Speaker 11: EU to engage with the US on trade. Good deal
Speaker 11: has the potential to live confidence, thus demand investment and spending,
Speaker 11: consumer spending across Frants but also across the region. And yeah,
Speaker 11: I don't need to tell you what a bad deal
Speaker 11: will do.
Speaker 3: But it's the French Prime minister writer to ask for
Speaker 3: interest rate cuts in the near future.
Speaker 11: Then I find it always difficult when politicians tell central
Speaker 11: bankers what to do, especially because central bankers are independent
Speaker 11: for a reason, because they need to be, you know,
Speaker 11: keeping their cool when when maybe tensions and a sentiment
Speaker 11: heats up and passions heat up in political decision making.
Speaker 11: And of course we can see what is happening in
Speaker 11: the US currently with the federal reserves. The Prime Minister's
Speaker 11: motivation is easily explained, and if you're naughty, you can
Speaker 11: you can say it's very much in the same spirit
Speaker 11: as the arguments that the president in the US makes
Speaker 11: low barring costs for the government at a time when
Speaker 11: dead levels are high and a lot of money is
Speaker 11: needed to service that debt. Right, so low boring costs
Speaker 11: help the government deal with its fiscal mess. If you
Speaker 11: look a little bit back in the past, we've seen
Speaker 11: similar voices, similar initiatives in Italy increase when those countries
Speaker 11: were in the spotlight of markets. Well as for France,
Speaker 11: you know, I wouldn't make too much out of it
Speaker 11: in terms of whether the youc be swayed by those
Speaker 11: calls or not. I really would would see it more
Speaker 11: as a sense of a sign of desperation from from
Speaker 11: the French you know, realizing that something is going really
Speaker 11: really wrong with their budget.
Speaker 3: Yeah, absolutely, and perhaps can't be compared to the sort
Speaker 3: of relentless pressure that President Trump has put onto your
Speaker 3: own power that we've seen repeatedly. But look, we might
Speaker 3: not get an interest rate cut from the ECB this
Speaker 3: time round. Over all, though, how fast our interest rates
Speaker 3: expected to continue coming down in the months ahead, given
Speaker 3: EU inflation that does look at the moment reasonably tamed.
Speaker 3: What is your view now on the path of interest rates.
Speaker 11: We're not expecting anything for the upcoming meeting, and as
Speaker 11: as far as September is concerned, that is still very
Speaker 11: much in play. Economists expect another rate cut in September. Others,
Speaker 11: you know, the majority, I should say, expect another cut.
Speaker 11: Others say the ECB is done or you know, might
Speaker 11: wait a little bit longer to deliver it. It essentially
Speaker 11: all hinges on some signals on how how trade negotiations
Speaker 11: are going, uh, the implications they will have, or the
Speaker 11: implications any result will have. And September in that sense
Speaker 11: is a good month because the ECB will get another
Speaker 11: fresh round of economic forecasts, so another look at growth
Speaker 11: and inflation prospects for the Eurozone in September, so it
Speaker 11: would be a good month to make up their minds. Equally,
Speaker 11: if they still can't be sure and things are kind
Speaker 11: of cod sting along, they might write it a little longer.
Speaker 11: So overall, one more rate cut is more or less
Speaker 11: expected September if you need to put your money on it.
Speaker 11: But uncertainty is just exceptionally high. And listening to policymakers,
Speaker 11: some say, you know, the bar is very high for
Speaker 11: another cut. Others are concerned about inflation maybe following a
Speaker 11: bit too low below target. It's you know, highly answertain.
Speaker 3: Okay, Diana, thank you so much for being with me
Speaker 3: this morning. That is Blomberg CCB with Porta, Yana vandall.
Speaker 3: Thank you. I'm Caroline Hepke here in London. You can
Speaker 3: catch us every weekday morning for Bloomberg Daybreak. You're at
Speaker 3: the beginning at six am in London. That's one am
Speaker 3: on Wall Street.
Speaker 5: Tom, thank you, Caroline.
Speaker 2: And coming up on Bloomberg day Break weekend, we look
Speaker 2: ahead to an Upper House election in Japan.
Speaker 5: I'm Tom Busby and this is Bloomberg.
Speaker 2: This is Bloomberg day Break weekend, our global look ahead
Speaker 2: at the top stories. For investors in the coming week.
Speaker 2: I'm Tom Busby in New York. Japanese citizens head to
Speaker 2: the polls in the coming days for an Upper House election.
Speaker 2: This comes at a time when the country's Prime Minister
Speaker 2: finds himself in a precarious political position. For more, let's
Speaker 2: get to the host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4: Tom, this election will serve as the latest referendum on
Speaker 4: the leadership of Prime Minister Shiguru Ishiba. He's already running
Speaker 4: a minority government after last autumn's dismal election results in
Speaker 4: the lower House. For a closer look now at what's
Speaker 4: at stake in the Upper House, I'm joined by Bloomberg's
Speaker 4: Isabelle Reynolds. She is our Tokyo bureau chief, joining us
Speaker 4: from our radio studio in Tokyo. Isabelle, thank you. I
Speaker 4: know the stakes are high, as I understand where the
Speaker 4: ruling coalition could lose its majority. This would be a first,
Speaker 4: is that correct?
Speaker 12: Not exactly a first, but we did see a similar
Speaker 12: case back in nineteen ninety four where the ruling LDP
Speaker 12: lost its majority in both houses. But the party has
Speaker 12: been in government for almost all of the time since
Speaker 12: nineteen fifty five. Just so to be out of power
Speaker 12: in both houses is pretty unusual. They did also lose
Speaker 12: power to an opposition party in two thousand and nine,
Speaker 12: of course, but yes, this would be a historic occasion.
Speaker 4: So give me a sense of where things are in
Speaker 4: terms of political stability. How would you describe that at
Speaker 4: a time when Japan is really struggling with so many issues,
Speaker 4: not the least of which is a trade deal with
Speaker 4: the US.
Speaker 12: Absolutely, yes, I would say the situation is extremely unstable
Speaker 12: at the moment. What we're seeing is the support for
Speaker 12: the ruling coalition is falling again as we're going into
Speaker 12: the election. What we see is several of the big
Speaker 12: media outlets here, the newspapers which were still widely read
Speaker 12: in Japan and like other places in the world perhaps,
Speaker 12: but they do massive polls and analysis of what's going
Speaker 12: on in the run up to the election, and it's
Speaker 12: looking pretty likely that the ruling courlition and will lose
Speaker 12: its majority in the upper house.
Speaker 4: So with that then Prime Minister Ishuba would probably lose
Speaker 4: his position as prime minister.
Speaker 5: Is that right?
Speaker 12: Well, we don't know that for sure. It sort of
Speaker 12: depends how bad the result is. You know, obviously they
Speaker 12: could lose their majority by a very small margin, in
Speaker 12: which case they could hope to sort of cobble together
Speaker 12: not a formal coalition, but a loose coalition with some
Speaker 12: other party to get to legislation through. And that's what
Speaker 12: they're already doing in the lower house, so it's not
Speaker 12: out of the question that they could do that in
Speaker 12: the upper house. But if the results are extremely bad,
Speaker 12: I think Ishuba would eventually have to take responsibility for
Speaker 12: that situation and step down, and then we could see
Speaker 12: a whole different level of chaos in Japan.
Speaker 4: So he's considered a physical hawk. So if the outcome
Speaker 4: is such where Ishiba has to withdraw from the prime ministership,
Speaker 4: and that wouldn't necessarily I think put Japan on a
Speaker 4: path where maybe the country's finances are somewhat in question.
Speaker 5: Is that fair?
Speaker 12: Yes, you're absolutely right there. I mean, the big issue
Speaker 12: in the election, as it was in the last election,
Speaker 12: is the issue of inflation in Japan. It's the cost
Speaker 12: of living. The level of frustration is growing among the public.
Speaker 12: They've been putting up with this situation where prices are
Speaker 12: growing much faster than their own wages, and the question
Speaker 12: is how to deal with that situation. So the LDP,
Speaker 12: she get a issue buzzed party, is sticking to these
Speaker 12: kind of temporary, one off solutions. It wants to do
Speaker 12: a cash handout things like that. But those opposite, smaller
Speaker 12: opposition parties that are growing in popularity proposing these much
Speaker 12: more drastic ideas, such as cutting consumption tax, which is
Speaker 12: a key source of income for the government, And that's
Speaker 12: why we're seeing these kind of ructions in the bond market.
Speaker 12: Fears that these kind of policies could gain traction after
Speaker 12: the election are raising concerns about Japan's finance.
Speaker 4: So you mentioned the fact that households in Japan are
Speaker 4: dealing with higher inflation, much higher inflation. Is that why
Speaker 4: this election is being referred to as the rice election?
Speaker 12: Yes, I mean that the symbolic issue it comes to
Speaker 12: inflation is the price of rice, which at one point
Speaker 12: was double what it had been a year earlier. There
Speaker 12: are a lot of structural reasons why that's the case,
Speaker 12: and the LDP has put in place this young politician, Koizumi,
Speaker 12: who has dealt with this by immediately sort of releasing
Speaker 12: rice stores at a much cheaper price to the public.
Speaker 12: So that did gain them some time, but that is
Speaker 12: not a long term solution to what's going on. So
Speaker 12: people who want a more drastic solution, for example, ramping
Speaker 12: up production of food in Japan might opt to vote
Speaker 12: for a different party.
Speaker 4: So how does what is happening in the diet the
Speaker 4: Japanese parliament impact what the Bank of Japan is trying
Speaker 4: to do in weaning the economy of massive stimulus that,
Speaker 4: as you well know, has been going on for decades now, right.
Speaker 12: Yes, I mean we're seeing obviously the government tries officially
Speaker 12: at least to keep its handle off the Bank of
Speaker 12: Japan is choosing to do. But if we are going
Speaker 12: to see a massive ramp up in spending, obviously that
Speaker 12: will have to play into the thinking at the Bank
Speaker 12: of Japan. So this path that we've been seeing towards
Speaker 12: normalization could potentially be affected if we're going to see
Speaker 12: a massive cut in, for example, revenue from consumption tax
Speaker 12: and so on over the coming years.
Speaker 4: So put this election in the context of Tokyo and
Speaker 4: Washington trying to work out a new trade deal. I
Speaker 4: think the deadline is now August first, to avoid being
Speaker 4: slapped with twenty five percent tariffs. And we know that
Speaker 4: for Japan when you're talking about automobiles and steel manufacturing,
Speaker 4: this is critical. Put the election in context of trying
Speaker 4: to work out a trade deal with the US.
Speaker 12: Yes, well, I think that that's an interesting question because
Speaker 12: I think there's a growing doubt in Japan about whether anything,
Speaker 12: any action or words on their part can affect what
Speaker 12: decision Donald Trump makes on these tariffs. So although it's
Speaker 12: been somewhat of an issue in the campaign, I think
Speaker 12: there's very little sort of faith that either Ishiba or
Speaker 12: any of these smaller opposition parties could do any better
Speaker 12: job than they have done so far in trying to
Speaker 12: negotiate a deal. So I'm not really sure how it
Speaker 12: affects that. Obviously, Ishiba could opt to reshuffle his cabinet
Speaker 12: after the election if there is a poor performance. But
Speaker 12: if you ask the public who's going to do a
Speaker 12: better job in organizing this trade deal, I doubt they
Speaker 12: would come up with a very swift answer for you.
Speaker 4: Before I let you go, Isabelle, can you break down
Speaker 4: from me how this might look if we segment different
Speaker 4: generations of Japanese society, let's say younger voters versus the
Speaker 4: older generation.
Speaker 12: Yes, I think we are seeing increased interest in voting
Speaker 12: among the younger voters. They traditionally have not had a
Speaker 12: very high turnout. It's been the older voters who have
Speaker 12: always voted for the LDP or its coalition partner, the
Speaker 12: Core metor one particular. Their support is falling away rapidly,
Speaker 12: and for the LDP, it's always a bad sign. If
Speaker 12: young people are coming out to vote, that means that
Speaker 12: somebody is going to be voting for opposition parties. So
Speaker 12: for the LDP, I mean they'll be hoping that the
Speaker 12: young people stay at home.
Speaker 4: Isabelle, thank you so very much for helping us look
Speaker 4: ahead to Japan's upper House election in the week ahead.
Speaker 4: She is Isabelle Reynolds, Tokyo bureau chief for Bloomberg News.
Speaker 4: Let's stay in Japan because we heard earlier in the
Speaker 4: week from Masahiro Kihara, CEO of Misohu Financial Group. He
Speaker 4: sees an end to uncertainty and reason to be optimistic
Speaker 4: on the future. Here's part of the conversation with mister
Speaker 4: Kihara with Bloomberg's friend Sine Laqua.
Speaker 13: How confident are you about reaching the one trillion yen
Speaker 13: profit within a few years, given all the global uncertainty,
Speaker 13: and given what we heard on tariffs and trade.
Speaker 14: In fact, I think from a current earning profile, I
Speaker 14: think we have almost reached one trillion again. Actually we
Speaker 14: had eight hundred last year. We had eight hundred and
Speaker 14: eighty billion. We took one time losses around somewhere around
Speaker 14: one hundred and twenty billion actually, so I think in
Speaker 14: reality we reached one trillion. Thanks for all the you know, circumstances.
Speaker 13: But what does the uncertainty do. The uncertainty is surrounding
Speaker 13: some of the Trump policies and trade and tear.
Speaker 14: Yes, yes, so before April second, we were aiming somewhere
Speaker 14: around one point one trillion for this year. Actually, however,
Speaker 14: because of all the uncertainties, we sort of shrink it
Speaker 14: down from as a conservative base to nine hundred and
Speaker 14: fifty trillion. I'm sorry, nine hundred and fifty billion yen.
Speaker 14: But I think you know, when things get certain, the
Speaker 14: corporate action will come back, which means that we can
Speaker 14: wratchet up a little bit. Yeah, our guideance.
Speaker 13: So where are you seeing that uncertainty play into us now?
Speaker 13: Is it loans? Is it cheap executives spending not deploying cash.
Speaker 14: Yes, right now, the CEOs are very very on the
Speaker 14: sidelines actually, But for example, if it is a domestic deal,
Speaker 14: even in each region, if it is a domestic deal,
Speaker 14: things are happening, which means that we don't see a
Speaker 14: lot of cross border happening right now. All of them
Speaker 14: are we have a big chunk of pipeline, but they're
Speaker 14: not executed. But from a domestically perspective, people are moving
Speaker 14: a little bit. So I think, you know, there is
Speaker 14: a good chance that people will get confident at some point.
Speaker 13: How do you see them You know, Japanese landscape for
Speaker 13: businesses changing, how much will they look? I mean, Japan
Speaker 13: has been a great experiment right in terms of financials
Speaker 13: for a long time. Yes, is it companies that will
Speaker 13: then grow also abroad as economy stabilizes.
Speaker 14: I would say that if right now there's many uncertainties,
Speaker 14: but things get clearer, the coporate action will come back.
Speaker 14: These couple of years, we have seen many corporate actions happening,
Speaker 14: investing outside Japan, changing their business portfolio, miss selling parts
Speaker 14: of the business that they are not doing well, so
Speaker 14: concentrating the areas that has strengths. So I would say
Speaker 14: that when things get clear corporate action will come back,
Speaker 14: and many you know Japanese corporates will try to invest
Speaker 14: in outside of Japan too.
Speaker 13: Are you confident in the Japanese economy overall?
Speaker 14: Over, I think we still have strengths in the economy
Speaker 14: sectors that we have, so I think over we are
Speaker 14: very I am very confident in that. The thing is
Speaker 14: that we have to concentrate our resources in the area
Speaker 14: that we have strengths. We have high quality manufacturing, high
Speaker 14: quality you know products, So I think we need to
Speaker 14: figure out where the strengths are and try to sell
Speaker 14: it to the world.
Speaker 13: Do you worry or are there dangers actually to Japan
Speaker 13: given the spike in long term interest rates?
Speaker 14: Yes, so twenty years so for the long end it's
Speaker 14: been twenty years, thirty years. There has been spike and
Speaker 14: there has been volatility. But I think the government said
Speaker 14: that they will try to shift the issuance to a
Speaker 14: ten years of below. I think that BOJ is a
Speaker 14: little bit shrinking, is QT. I think that will help.
Speaker 13: Is there a point where it actually starts treating your
Speaker 13: business and starts shooting the real economy?
Speaker 14: Well, I think BOJ is saying that the neutral rate
Speaker 14: is somewhere around one point one percent to one point
Speaker 14: five percent, and on top of that ten years will
Speaker 14: be somewhere around two to two point two five percent.
Speaker 14: Then I think that that's the level that is okay.
Speaker 14: But if it goes beyond to three percent or so,
Speaker 14: they will then hurt the budget.
Speaker 13: I think, are you expecting more turmoil in the end,
Speaker 13: but also not in the one market?
Speaker 14: Not at this moment. Actually, I think the current level
Speaker 14: of one point four one point five for ten years
Speaker 14: is very it's okay. I think I haven't seen any
Speaker 14: turmoil in the ten years old, so as long as
Speaker 14: the ten year is fine, I think it's fine.
Speaker 4: That is masahiro Kihara, CEO of Misahu Financial Group, speaking
Speaker 4: with Bloomberg's friend Sine Laqua, and I'm Doug Prisner. You
Speaker 4: can catch us weekdays here for the Daybreak Asia podcast.
Speaker 4: It's available wherever you get your podcast.
Speaker 2: Tom, Thank you, Doug. And that does it for this
Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday
Speaker 2: morning at five am Wall Street Time for the latest
Speaker 2: on markets overseas and the news you need to start
Speaker 2: your day. I'm Tom Buzby. Stay with us top stories
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