1 00:00:00,240 --> 00:00:07,240 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:10,080 --> 00:00:12,480 Speaker 2: This is Bloomberg day Break Weekend, our global look at 3 00:00:12,480 --> 00:00:14,480 Speaker 2: the top stories in the coming week from our day 4 00:00:14,480 --> 00:00:17,439 Speaker 2: Break anchors all around the world. Straight ahead on the program, 5 00:00:17,440 --> 00:00:20,160 Speaker 2: and look ahead to this week's long awaited interest rate 6 00:00:20,239 --> 00:00:23,919 Speaker 2: decision from the Federal Reserve. I'm Tom Busby in New York. 7 00:00:24,239 --> 00:00:26,920 Speaker 3: I'm Caroline Hetker in London, where we're looking ahead to 8 00:00:27,040 --> 00:00:30,200 Speaker 3: President Trump's second state visit to the UK. 9 00:00:30,680 --> 00:00:33,639 Speaker 4: I'm Dot Krisner with a preview of next week's rate 10 00:00:33,680 --> 00:00:35,159 Speaker 4: decision from the Bank of Japan. 11 00:00:36,440 --> 00:00:40,440 Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 12 00:00:40,479 --> 00:00:44,200 Speaker 1: eleven three Yeero, New York, Bloomberg ninety nine to one, Washington, DC, 13 00:00:44,720 --> 00:00:49,720 Speaker 1: Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, Syria, 14 00:00:50,000 --> 00:00:53,520 Speaker 1: XM one twenty one, and around the world on Bloomberg Radio, 15 00:00:53,560 --> 00:00:55,760 Speaker 1: dot Com and the Bloomberg Business App. 16 00:01:00,640 --> 00:01:02,440 Speaker 2: Good day to you. I'm Tom Busby, and we begin 17 00:01:02,480 --> 00:01:05,240 Speaker 2: today's program with a decision on rates from the Federal 18 00:01:05,280 --> 00:01:08,880 Speaker 2: Reserve this Wednesday. All signs point to a twenty five 19 00:01:08,920 --> 00:01:12,080 Speaker 2: basis point rate cut, But could the central bankers go 20 00:01:12,200 --> 00:01:15,640 Speaker 2: even bigger? And how does the FED sea inflation, the 21 00:01:15,760 --> 00:01:18,800 Speaker 2: labor market and other fundamentals of the US economy. For more, 22 00:01:19,160 --> 00:01:24,840 Speaker 2: we're joined by Michael McKee, Bloomberg International Economics and Policy correspondent. Well, Michael, 23 00:01:24,880 --> 00:01:27,200 Speaker 2: thank you so much for being here. Let's just start 24 00:01:27,200 --> 00:01:29,920 Speaker 2: with what you expect the FED to decide this week, 25 00:01:30,600 --> 00:01:32,960 Speaker 2: how you think sentiment will be split among the voting 26 00:01:32,959 --> 00:01:36,120 Speaker 2: members of the FOMC, and what does the FED sea 27 00:01:36,160 --> 00:01:38,959 Speaker 2: as far as inflation they're dual mandates of inflation and 28 00:01:39,000 --> 00:01:39,800 Speaker 2: the labor market. 29 00:01:40,160 --> 00:01:42,800 Speaker 5: Well, a lot of interesting questions there, which is something 30 00:01:42,840 --> 00:01:44,920 Speaker 5: that I hadn't been able to say going into a 31 00:01:44,920 --> 00:01:48,600 Speaker 5: lot of FED meetings in recent months. The Fed is 32 00:01:48,640 --> 00:01:51,520 Speaker 5: probably going to do it's twenty five basis point cut. 33 00:01:51,960 --> 00:01:54,600 Speaker 5: The data that have come in suggests that the economy 34 00:01:54,680 --> 00:01:59,000 Speaker 5: is weakening on the labor mandate side, still an issue 35 00:01:59,120 --> 00:02:02,560 Speaker 5: on the the inflation side, which will keep them from 36 00:02:02,600 --> 00:02:06,000 Speaker 5: doing fifty basis points. But the question is what do 37 00:02:06,040 --> 00:02:09,320 Speaker 5: they do after the September seventeenth meeting, And that's where 38 00:02:09,360 --> 00:02:16,200 Speaker 5: we may see some market moving or things that will 39 00:02:16,200 --> 00:02:19,600 Speaker 5: cause the markets not to move if you get what 40 00:02:19,639 --> 00:02:22,160 Speaker 5: I mean in the sense that if the markets are 41 00:02:22,200 --> 00:02:25,560 Speaker 5: expecting something there's a potential for surprise, and that is 42 00:02:26,760 --> 00:02:29,640 Speaker 5: what do they think the path is going forward? Is 43 00:02:29,720 --> 00:02:34,280 Speaker 5: the inflation that we got this past week enough to 44 00:02:34,440 --> 00:02:38,080 Speaker 5: warn them off of saying anything specific about October and 45 00:02:38,160 --> 00:02:41,360 Speaker 5: December those FED meetings? And what does the dot plot 46 00:02:41,440 --> 00:02:45,880 Speaker 5: say about next year and the path of rates going forward? 47 00:02:46,200 --> 00:02:49,040 Speaker 5: Do they lower the terminal rate? Do they say that 48 00:02:49,520 --> 00:02:52,160 Speaker 5: rates are going to go even lower than the markets 49 00:02:52,200 --> 00:02:55,080 Speaker 5: had anticipated, which they have said is about three percent. 50 00:02:55,720 --> 00:02:57,560 Speaker 5: So there are a lot of open questions out there 51 00:02:57,560 --> 00:03:00,600 Speaker 5: that people are going to be asking, and the idea 52 00:03:00,720 --> 00:03:03,480 Speaker 5: of what they think about inflation is going to be 53 00:03:03,680 --> 00:03:06,000 Speaker 5: a good question for J. 54 00:03:06,160 --> 00:03:06,560 Speaker 1: Powell. 55 00:03:06,639 --> 00:03:09,320 Speaker 2: Well, let's talk about inflation, because this last week we 56 00:03:09,400 --> 00:03:11,760 Speaker 2: got a couple of reads. We got producer price index 57 00:03:11,800 --> 00:03:14,520 Speaker 2: which actually surprised to the upside a little bit, not 58 00:03:14,639 --> 00:03:18,120 Speaker 2: much down one tenth of a percent. Consumer prices though 59 00:03:18,160 --> 00:03:21,040 Speaker 2: a little bit hotter than forecast, higher costs for housing 60 00:03:21,080 --> 00:03:24,360 Speaker 2: and of course food, not good news for this president 61 00:03:24,400 --> 00:03:26,919 Speaker 2: who insists the food prices have been plummeting on his watch. 62 00:03:27,240 --> 00:03:30,519 Speaker 2: What were your big takeaways from that, CPI read in August. 63 00:03:30,320 --> 00:03:32,160 Speaker 5: Well, there is a political component to it, and the 64 00:03:32,200 --> 00:03:37,120 Speaker 5: food and gasoline prices were up significantly, and so that's 65 00:03:37,200 --> 00:03:39,720 Speaker 5: not going to be a good look for the president. 66 00:03:39,800 --> 00:03:43,560 Speaker 5: But what was really interesting is it wasn't so much 67 00:03:43,680 --> 00:03:47,200 Speaker 5: the goods prices that went up as the services prices. 68 00:03:47,320 --> 00:03:51,160 Speaker 5: The goods prices we expected to rise because we thought 69 00:03:51,280 --> 00:03:55,040 Speaker 5: the tariffs would leak into the data, but things like furnishings. 70 00:03:55,040 --> 00:03:58,240 Speaker 5: Household furnishings only up a tenth of a percent, toys 71 00:03:58,240 --> 00:04:01,440 Speaker 5: were down eight tenths of a percent. But we saw 72 00:04:02,000 --> 00:04:07,920 Speaker 5: service prices, particularly for things like airline fares lodging away 73 00:04:07,960 --> 00:04:13,040 Speaker 5: from home, those went up significantly. And if service prices 74 00:04:13,080 --> 00:04:16,720 Speaker 5: are going up unrelated to tariffs, that's an inflation problem 75 00:04:17,200 --> 00:04:20,880 Speaker 5: that the Fed will have to address in a different 76 00:04:20,920 --> 00:04:23,840 Speaker 5: way than the way they would think about it in 77 00:04:23,920 --> 00:04:28,039 Speaker 5: terms of tariff driven inflation. So they're going to have 78 00:04:28,040 --> 00:04:29,560 Speaker 5: to keep a close eye on this, which is why 79 00:04:29,600 --> 00:04:31,679 Speaker 5: I think, to answer my own question that I posed 80 00:04:31,720 --> 00:04:34,800 Speaker 5: about what do they do for October in December, I 81 00:04:34,839 --> 00:04:38,599 Speaker 5: think they kind of punt on giving serious guidance on 82 00:04:38,640 --> 00:04:40,680 Speaker 5: that because they'll want to see more data between now 83 00:04:40,720 --> 00:04:41,039 Speaker 5: and then. 84 00:04:41,560 --> 00:04:44,320 Speaker 2: Did you see any other good news as far as inflation. 85 00:04:44,960 --> 00:04:49,680 Speaker 5: Yeah, in some areas of service prices. Medical care services 86 00:04:49,680 --> 00:04:52,479 Speaker 5: were down a tenth of a percent, recreation services down 87 00:04:52,520 --> 00:04:55,440 Speaker 5: two tents. And people thought that those would be areas 88 00:04:55,480 --> 00:04:59,240 Speaker 5: that might rise because they had risen in previous months 89 00:04:59,600 --> 00:05:04,400 Speaker 5: service price increases. In this case they did not. So 90 00:05:04,760 --> 00:05:07,600 Speaker 5: it's not an easy thing to say what is causing 91 00:05:07,760 --> 00:05:10,880 Speaker 5: the service price inflation to rise, and that's something the 92 00:05:10,920 --> 00:05:13,320 Speaker 5: FED is going to want to investigate. 93 00:05:13,680 --> 00:05:16,960 Speaker 2: Well, let's talk then about the labor market, which every 94 00:05:17,040 --> 00:05:19,640 Speaker 2: sign we're seeing it continues to weaken. And just this 95 00:05:19,680 --> 00:05:22,520 Speaker 2: past week we got what a near four year high 96 00:05:23,120 --> 00:05:26,479 Speaker 2: on jobless claims. What's your read on that and what 97 00:05:26,560 --> 00:05:27,360 Speaker 2: is the FED see? 98 00:05:28,040 --> 00:05:29,800 Speaker 5: You need to take it with a little bit of 99 00:05:29,880 --> 00:05:34,200 Speaker 5: caution because the last week before this past week when 100 00:05:34,240 --> 00:05:37,320 Speaker 5: the jobless claims were tallied was the week with Labor 101 00:05:37,400 --> 00:05:40,000 Speaker 5: Day and a holiday. Is always difficult to seasonally adjust 102 00:05:40,040 --> 00:05:42,400 Speaker 5: for the Department of Labor because the holidays move around. 103 00:05:42,960 --> 00:05:45,880 Speaker 5: So in this case we can look at it with 104 00:05:45,960 --> 00:05:48,720 Speaker 5: a sort of a jaundic sty say this is something 105 00:05:48,800 --> 00:05:50,520 Speaker 5: to worry about if it continues. 106 00:05:50,680 --> 00:05:53,360 Speaker 2: The Fed's two day policy meeting kicking off this Tuesday, 107 00:05:53,720 --> 00:05:57,120 Speaker 2: a decision Wednesday, followed by a Jerome Powell press conference 108 00:05:57,320 --> 00:06:01,680 Speaker 2: our thanks to Michael McKee, Bloomberg International Economy and Policy correspondent. 109 00:06:02,040 --> 00:06:04,280 Speaker 2: We move next to corporate earnings from the shipping and 110 00:06:04,320 --> 00:06:07,760 Speaker 2: logistics giant FedEx, coming out on Thursday after Wall Street's 111 00:06:07,760 --> 00:06:11,400 Speaker 2: closing bell, just ahead of the industry's peak holiday shipping season. 112 00:06:11,839 --> 00:06:15,000 Speaker 2: How are rising costs, worries about US consumer spending, and 113 00:06:15,000 --> 00:06:18,360 Speaker 2: the end of deminimous exemptions on small package shipments into 114 00:06:18,400 --> 00:06:22,359 Speaker 2: the US all impacting the company? For more, we're joined 115 00:06:22,360 --> 00:06:28,120 Speaker 2: by Lee Clasgow, Bloomberg Intelligence Senior Transport, Logistics and shipping analysts. Lee, 116 00:06:28,200 --> 00:06:30,400 Speaker 2: thank you so much for joining us. You know, FedEx 117 00:06:30,440 --> 00:06:33,080 Speaker 2: coming off a very solid earnings beat for the springs 118 00:06:33,080 --> 00:06:36,760 Speaker 2: fourth quarter, saying it's successfully slashed four billion in costs. 119 00:06:36,760 --> 00:06:38,960 Speaker 2: It plans to cut a billion more this fiscal year. 120 00:06:39,360 --> 00:06:42,280 Speaker 2: But FedEx and the whole industry now facing a lot 121 00:06:42,320 --> 00:06:44,479 Speaker 2: more headwinds. So what are you expecting to see in 122 00:06:44,520 --> 00:06:46,480 Speaker 2: this week's earnings results. 123 00:06:47,560 --> 00:06:50,520 Speaker 6: Yeah, it's gonna be tough. They're facing a lot of headwinds. 124 00:06:50,600 --> 00:06:53,039 Speaker 6: A lot of those headwinds are related to the kind 125 00:06:53,040 --> 00:06:57,040 Speaker 6: of more protectionist stances from the Trump administration. One of 126 00:06:57,080 --> 00:07:00,320 Speaker 6: those which actually had bi partisans support back in the 127 00:07:00,360 --> 00:07:04,440 Speaker 6: Biden days was getting rid of demnimous exemptions, which really 128 00:07:04,480 --> 00:07:07,839 Speaker 6: allows lower value goods to be imported into the United 129 00:07:07,880 --> 00:07:12,080 Speaker 6: States without facing any duties or tarifs. And that that 130 00:07:12,160 --> 00:07:15,080 Speaker 6: floor was at eight hundred dollars and so what that 131 00:07:15,120 --> 00:07:18,360 Speaker 6: did is allowed a lot of e commerce providers outside 132 00:07:18,400 --> 00:07:21,680 Speaker 6: the United States to directly shift to consumers. So you know, 133 00:07:21,720 --> 00:07:24,960 Speaker 6: if you bought that thing, that that skirt or T 134 00:07:25,080 --> 00:07:28,160 Speaker 6: shirt from Sheen or something off of Team U or 135 00:07:28,200 --> 00:07:32,080 Speaker 6: even off of the Amazon marketplace, some of that stuff 136 00:07:32,560 --> 00:07:36,240 Speaker 6: might have been originated in China and you know it's 137 00:07:36,280 --> 00:07:39,560 Speaker 6: going into the United States and kind of avoiding custom 138 00:07:39,640 --> 00:07:42,280 Speaker 6: duties because of that loophole. And you know, they got 139 00:07:42,360 --> 00:07:45,440 Speaker 6: rid of that loophole for imports that are going into 140 00:07:45,480 --> 00:07:49,080 Speaker 6: the United States from China and Hong Kong in May. 141 00:07:49,840 --> 00:07:52,640 Speaker 6: They also got rid of that loophole for everyone else 142 00:07:53,160 --> 00:07:55,920 Speaker 6: at the end of last month. So you know, we're 143 00:07:55,960 --> 00:07:58,800 Speaker 6: really going to start to see the impact. And you know, 144 00:07:58,920 --> 00:08:03,160 Speaker 6: FedEx kind of doesn't report on a calendar basis. They 145 00:08:03,240 --> 00:08:06,240 Speaker 6: have on physical basis. And you know we heard from 146 00:08:06,400 --> 00:08:10,760 Speaker 6: UPS already and they said, you know, for two months 147 00:08:10,560 --> 00:08:13,720 Speaker 6: of their quarter that they reported which this will be 148 00:08:13,760 --> 00:08:16,920 Speaker 6: included in FedEx earnings, is that you know, their China 149 00:08:16,960 --> 00:08:21,360 Speaker 6: to US business was down pretty significantly and we expect 150 00:08:21,400 --> 00:08:24,520 Speaker 6: that read through to apply to FedEx as well. And 151 00:08:24,560 --> 00:08:28,200 Speaker 6: then you know, FedEx is also dealing with, you know, 152 00:08:28,240 --> 00:08:31,400 Speaker 6: a weaker industrial economy. People don't really think of FedEx 153 00:08:31,440 --> 00:08:34,320 Speaker 6: as a trucking company, but they're they're actually the largest 154 00:08:34,400 --> 00:08:37,520 Speaker 6: less than truckload provider. That's a business that they're looking 155 00:08:37,559 --> 00:08:41,360 Speaker 6: to spin off, but they still operate it and it's 156 00:08:41,400 --> 00:08:45,240 Speaker 6: really tied to you know, industrial production is m and 157 00:08:45,320 --> 00:08:48,960 Speaker 6: the ism has been you know, contraction territory for I 158 00:08:48,960 --> 00:08:51,240 Speaker 6: believe thirty one out of the last thirty three months. 159 00:08:51,480 --> 00:08:54,000 Speaker 6: So you know that's going to definitely weigh on tonnage. 160 00:08:54,640 --> 00:08:57,920 Speaker 6: So you know, volumes are really facing headwinds, whether it's 161 00:08:57,920 --> 00:09:03,160 Speaker 6: their parcel international parcel business or their you know, less 162 00:09:03,160 --> 00:09:04,720 Speaker 6: than trucklo business and FedEx freight. 163 00:09:04,960 --> 00:09:06,960 Speaker 2: Now these are big changes, right, I mean, we could 164 00:09:06,960 --> 00:09:10,280 Speaker 2: really see a significant hit to earnings, maybe not in 165 00:09:10,800 --> 00:09:13,000 Speaker 2: this report, but certainly in the next one. 166 00:09:13,440 --> 00:09:15,640 Speaker 6: Yeah, you know, I think all eyes will be on, 167 00:09:15,960 --> 00:09:19,280 Speaker 6: you know, any guidance that the company is able to offer. 168 00:09:19,800 --> 00:09:23,160 Speaker 6: Companies in my world have been less apt to provide 169 00:09:23,200 --> 00:09:25,960 Speaker 6: guidance at least longer, longer term guidance, just because of 170 00:09:26,000 --> 00:09:30,720 Speaker 6: the uncertainty tied around the trade policies out of Washington, 171 00:09:31,240 --> 00:09:34,840 Speaker 6: which has created a significant amount of volatility and uncertainty. 172 00:09:34,960 --> 00:09:39,000 Speaker 6: We'll see kind of where management thinks they're going to be. 173 00:09:40,200 --> 00:09:44,319 Speaker 6: My guess is though they probably will provide, if any insight, 174 00:09:44,480 --> 00:09:48,880 Speaker 6: maybe into their second quarter. Just again, given that, you know, 175 00:09:48,920 --> 00:09:53,560 Speaker 6: everyone's crystal ball is quite foggy and correct right now. 176 00:09:53,880 --> 00:09:56,320 Speaker 2: Yeah, yeah, Well, well let's talk about something you brought 177 00:09:56,360 --> 00:09:59,720 Speaker 2: up is the possibility of spinning off FedEx Freight. But 178 00:10:00,600 --> 00:10:03,559 Speaker 2: FedEx had a couple of initiatives Drive and Network two 179 00:10:03,600 --> 00:10:07,680 Speaker 2: point zero. How have the company cut costs and shed businesses? 180 00:10:07,720 --> 00:10:10,320 Speaker 2: How has that impacted the business? And what is there 181 00:10:10,440 --> 00:10:13,880 Speaker 2: left besides FedEx Freight to cut? 182 00:10:14,520 --> 00:10:17,320 Speaker 6: Yeah, so, you know, looking at FedEx as a whole, 183 00:10:18,080 --> 00:10:22,160 Speaker 6: you know, they're doing a number of initiatives you mentioned 184 00:10:22,240 --> 00:10:24,920 Speaker 6: Driver Network two point zero that are trying to take 185 00:10:24,960 --> 00:10:27,600 Speaker 6: out costs of the network. Is what they really need 186 00:10:27,600 --> 00:10:30,480 Speaker 6: to do, is they really need to restructure their networks 187 00:10:30,480 --> 00:10:33,280 Speaker 6: to the new reality. You know, the old reality would 188 00:10:33,320 --> 00:10:35,800 Speaker 6: be you know, one hundred envelopes go to a lawyer's office, 189 00:10:35,840 --> 00:10:38,840 Speaker 6: and that FedEx driver would pick up another one hundred 190 00:10:38,920 --> 00:10:42,480 Speaker 6: envelopes to be delivered. And that kind of density really 191 00:10:42,679 --> 00:10:45,640 Speaker 6: helps with margins. And you know, fast forward to today, 192 00:10:45,679 --> 00:10:48,040 Speaker 6: we're all buying things from Amazon or wherever, and we 193 00:10:48,120 --> 00:10:52,719 Speaker 6: get one package per day, and those deliveries are extremely expensive, 194 00:10:52,720 --> 00:10:55,480 Speaker 6: and that's been really weighing on margins. So you know, 195 00:10:55,600 --> 00:10:58,120 Speaker 6: we're not going backwards, we're going forwards. Is probably just 196 00:10:58,200 --> 00:11:01,920 Speaker 6: going to be more B two C UH traffic relative 197 00:11:02,320 --> 00:11:05,280 Speaker 6: to B two B traffic UH. And and so they're 198 00:11:05,320 --> 00:11:09,640 Speaker 6: they're making changes in Those changes include increasing automation, UH, 199 00:11:09,679 --> 00:11:14,640 Speaker 6: reducing overlaps, and networks they're combining uh, you know, slowly 200 00:11:14,640 --> 00:11:18,000 Speaker 6: combining their ground and air networks, something they've been really 201 00:11:18,720 --> 00:11:20,760 Speaker 6: you know, they push back for a number of years 202 00:11:20,800 --> 00:11:23,440 Speaker 6: about doing and then they're finally now leading into that. 203 00:11:24,520 --> 00:11:26,240 Speaker 6: And what I would say is that some of the 204 00:11:26,240 --> 00:11:29,960 Speaker 6: benefits that they're generating from these changes were probably not 205 00:11:30,000 --> 00:11:32,160 Speaker 6: going to really see them that much, because to really 206 00:11:32,200 --> 00:11:34,880 Speaker 6: see them, you need you need good volume growth, You 207 00:11:34,960 --> 00:11:38,600 Speaker 6: need that that that that operational leverage that you're going 208 00:11:38,679 --> 00:11:41,240 Speaker 6: to get. So I suspect, you know, when things do 209 00:11:41,360 --> 00:11:44,680 Speaker 6: turn around. You know. Again, the big question is when 210 00:11:45,679 --> 00:11:49,280 Speaker 6: you are going to see that flywheel start operating in 211 00:11:49,280 --> 00:11:54,079 Speaker 6: that that operating leverage, generating better margins than they are today. 212 00:11:54,559 --> 00:11:56,320 Speaker 6: But the but the problem is is that you know 213 00:11:56,400 --> 00:11:59,480 Speaker 6: FedEx and and you know it's competitor ups kind of 214 00:11:59,480 --> 00:12:02,560 Speaker 6: a show me stories because they're both undergoing these kind 215 00:12:02,559 --> 00:12:07,719 Speaker 6: of restructurings. And we really have to see a how 216 00:12:07,760 --> 00:12:11,160 Speaker 6: these companies look coming out of these restructurings and from 217 00:12:11,160 --> 00:12:14,240 Speaker 6: an operational standpoint when I'm talking about restructurings. And then 218 00:12:14,440 --> 00:12:17,880 Speaker 6: also you know, b what does that new network from 219 00:12:17,920 --> 00:12:21,400 Speaker 6: a profitability standpoint look like when volumes are back on 220 00:12:21,480 --> 00:12:22,320 Speaker 6: track for growth. 221 00:12:22,640 --> 00:12:25,320 Speaker 2: Hello, a lot to look forward to. FedEx fiscal first 222 00:12:25,400 --> 00:12:28,560 Speaker 2: quarter earnings out this Thursday after Wall Street's closing bell 223 00:12:28,880 --> 00:12:33,160 Speaker 2: Our thanks to Lee Klascal, Bloomberg Intelligence senior Transport, Logistics 224 00:12:33,200 --> 00:12:36,360 Speaker 2: and Chipping analysts and coming up on Bloomberg Day Break weekend, 225 00:12:36,360 --> 00:12:39,600 Speaker 2: President Trump heads to the UK. I'm Tom Busby, and 226 00:12:39,720 --> 00:12:53,679 Speaker 2: this is Bloomberg. This is Bloomberg Day Break Weekend, our 227 00:12:53,720 --> 00:12:56,120 Speaker 2: global look ahead at the top stories for investors in 228 00:12:56,160 --> 00:12:59,400 Speaker 2: the coming week. I'm Tom Busby in New York. Up 229 00:12:59,480 --> 00:13:01,760 Speaker 2: later in our program and look ahead to a monetary 230 00:13:01,800 --> 00:13:04,960 Speaker 2: policy decision from the Bank of Japan. But first, just 231 00:13:05,000 --> 00:13:07,880 Speaker 2: a few weeks after President Trump's personal visit to Scotland, 232 00:13:07,920 --> 00:13:11,040 Speaker 2: He's headed back to the UK, where he's expected to 233 00:13:11,080 --> 00:13:15,240 Speaker 2: mix royal mingling with important geopolitical discussions on a three 234 00:13:15,320 --> 00:13:18,320 Speaker 2: day trip. But the visit takes place under the shadow 235 00:13:18,360 --> 00:13:21,160 Speaker 2: of the sacking of Peter Mandelssohn as the UK's US 236 00:13:21,160 --> 00:13:26,280 Speaker 2: ambassador for previous links to disgrace financier Jeffrey Epstein for more, 237 00:13:26,640 --> 00:13:28,680 Speaker 2: Let's go to London and bring in Bloomberg day Break 238 00:13:28,679 --> 00:13:30,959 Speaker 2: euro banker Caroline Hepger. 239 00:13:31,120 --> 00:13:35,560 Speaker 3: Tom Britton's ambassador to Washington, Peter Mandelsson, has recently been 240 00:13:35,679 --> 00:13:39,920 Speaker 3: removed from his post after further revelations about the extent 241 00:13:40,000 --> 00:13:44,319 Speaker 3: of his relationship to the late p Dephar financier Jeffrey Epstein. 242 00:13:44,960 --> 00:13:49,280 Speaker 3: That decision comes only days before President Donald Trumps state 243 00:13:49,520 --> 00:13:54,520 Speaker 3: visit to Britain, the UK ambassador to Washington usually playing 244 00:13:54,559 --> 00:13:58,320 Speaker 3: a key role in those events, and it complicates what 245 00:13:58,520 --> 00:14:03,160 Speaker 3: is an already careful, fully choreographed few days. It's an 246 00:14:03,200 --> 00:14:06,720 Speaker 3: event that will be important to UK Prime Minister Kirs Starmer, 247 00:14:06,960 --> 00:14:11,040 Speaker 3: who has prioritized good relations with Donald Trump since taking 248 00:14:11,080 --> 00:14:14,440 Speaker 3: office just over a year ago, stressing the importance of 249 00:14:14,480 --> 00:14:18,760 Speaker 3: Britain's defense and security alliance with America and taking care 250 00:14:18,960 --> 00:14:24,320 Speaker 3: not to openly criticize Trump's tariff policies. When Stalmer visited 251 00:14:24,320 --> 00:14:27,480 Speaker 3: the Oval Office back in February, he brandished the King's 252 00:14:27,560 --> 00:14:31,320 Speaker 3: invitation to Trump, which the U S President called an honor, 253 00:14:31,640 --> 00:14:36,040 Speaker 3: describing King Charles as a beautiful and wonderful man. Those 254 00:14:36,120 --> 00:14:39,240 Speaker 3: overtures appear to be paying off, at least in part. 255 00:14:39,640 --> 00:14:42,440 Speaker 3: The UK became the first country to sign a tariff 256 00:14:42,480 --> 00:14:45,960 Speaker 3: reduction deal with the US in May, with some of 257 00:14:46,000 --> 00:14:50,640 Speaker 3: it already implemented. However, some tensions remain. For example, steel 258 00:14:50,800 --> 00:14:54,520 Speaker 3: is an area of issue. UK officials are still working 259 00:14:54,560 --> 00:14:57,080 Speaker 3: to secure a deal that would remove the twenty five 260 00:14:57,120 --> 00:15:00,600 Speaker 3: percent US tariffs on the sector, as to a drag 261 00:15:00,680 --> 00:15:04,480 Speaker 3: on for months after Prime Minister Starmer and President Trump 262 00:15:04,520 --> 00:15:09,520 Speaker 3: agreed a broader tariff cutting plan. There are also geopolitical 263 00:15:09,600 --> 00:15:13,440 Speaker 3: issues too, with the potential to spark turbulence in the 264 00:15:13,560 --> 00:15:17,520 Speaker 3: so called special relationship. The US Ambassador to Israel said 265 00:15:17,600 --> 00:15:20,600 Speaker 3: last month that the UK and France have handed victory 266 00:15:20,640 --> 00:15:25,720 Speaker 3: to hamas by announcing intentions to recognize a Palestinian state. 267 00:15:26,520 --> 00:15:29,560 Speaker 3: The visit also takes place during a testing time at 268 00:15:29,560 --> 00:15:33,080 Speaker 3: home for Starmer. He's facing scandal within his own party 269 00:15:33,160 --> 00:15:37,360 Speaker 3: and he's battling challenges from the right wing party Reform UK, 270 00:15:37,960 --> 00:15:41,440 Speaker 3: who have proven popular in the polls. The group's leader, 271 00:15:41,520 --> 00:15:45,040 Speaker 3: Nigel Faragh, recently visited the White House at the invitation 272 00:15:45,440 --> 00:15:50,080 Speaker 3: of Donald Trump. Bloomberg's London bureau chief Ruth David explains 273 00:15:50,280 --> 00:15:54,040 Speaker 3: why that trip spoke volumes. 274 00:15:53,560 --> 00:15:57,200 Speaker 7: That photograph of him standing with President Trump. I mean 275 00:15:57,520 --> 00:16:00,200 Speaker 7: a photo speaks more than all of the real of 276 00:16:00,240 --> 00:16:03,960 Speaker 7: coverage right to have that kind of backing and to 277 00:16:04,080 --> 00:16:08,480 Speaker 7: have that kind of support globally. We saw Tony Blair 278 00:16:08,800 --> 00:16:11,040 Speaker 7: going to the US, We're seeing Nigel Farad and the 279 00:16:11,120 --> 00:16:14,080 Speaker 7: question is where is Gastamo? And I know Donald Trump 280 00:16:14,160 --> 00:16:17,360 Speaker 7: is coming to the UK later, but it definitely seems 281 00:16:17,400 --> 00:16:20,160 Speaker 7: to be like for urges riding on a hype. 282 00:16:20,040 --> 00:16:23,000 Speaker 3: That was Bloomberg's, with David speaking there to Bloomberg's Tom 283 00:16:23,040 --> 00:16:26,400 Speaker 3: McKenzie and Guy Johnson. So will the honor of a 284 00:16:26,520 --> 00:16:30,120 Speaker 3: royal banquet be enough to curry the favor of President Trump? 285 00:16:30,360 --> 00:16:36,360 Speaker 3: Is something I've been discussing with Bloomberg's political correspondent Ellen Milligan. Ellen, just, firstly, 286 00:16:36,520 --> 00:16:39,600 Speaker 3: what are we expecting to see President Trump do on 287 00:16:39,680 --> 00:16:43,080 Speaker 3: this second state visit that he's paying to the UK. 288 00:16:43,720 --> 00:16:46,400 Speaker 8: Yes, I mean this has never happened before that. Only 289 00:16:47,360 --> 00:16:49,680 Speaker 8: other US presidents who have had a state visit were 290 00:16:49,680 --> 00:16:53,080 Speaker 8: Barack Obama and George Bush. But no other president has 291 00:16:53,120 --> 00:16:56,960 Speaker 8: had two state visits. This one will be a bit 292 00:16:57,000 --> 00:16:58,840 Speaker 8: different from the last. First of all, what will be 293 00:16:58,840 --> 00:17:02,640 Speaker 8: hosted by King Charles. The last one in twenty nineteen 294 00:17:02,720 --> 00:17:06,120 Speaker 8: was obviously hosted by the Late Queen. The other big 295 00:17:06,200 --> 00:17:08,639 Speaker 8: change is that it will be primarily hosted at Windsor 296 00:17:08,680 --> 00:17:14,320 Speaker 8: Castle because Buckingham Palace is undergoing renovations. So there will 297 00:17:14,320 --> 00:17:18,760 Speaker 8: be the usual traditional state banquet, the exchange of gifts 298 00:17:18,760 --> 00:17:22,119 Speaker 8: between the King and Queen and the President and the 299 00:17:22,119 --> 00:17:25,439 Speaker 8: First Lady. Usually they have some kind of private meeting, 300 00:17:25,480 --> 00:17:31,480 Speaker 8: either over lunch or tea when the President first greets them. 301 00:17:31,840 --> 00:17:34,520 Speaker 8: Then they'll have this banquet where we're expecting a lot 302 00:17:34,520 --> 00:17:38,520 Speaker 8: of famous businessmen and celebrities, as well as the border 303 00:17:38,640 --> 00:17:42,880 Speaker 8: royal family to be there, like Prince William, who Trump 304 00:17:42,960 --> 00:17:46,720 Speaker 8: has also met before. And then after all that pageantry, 305 00:17:47,119 --> 00:17:51,240 Speaker 8: there'll be the political portion where Trump goes to visit 306 00:17:51,800 --> 00:17:55,800 Speaker 8: Prime Minister in his countryside estate at Chequers for a 307 00:17:55,800 --> 00:17:56,760 Speaker 8: bilateral meeting. 308 00:17:57,200 --> 00:17:59,760 Speaker 3: Huge opportunity then for the UK to be front of 309 00:17:59,800 --> 00:18:04,840 Speaker 3: the you know, to show off what they want to offer. 310 00:18:04,880 --> 00:18:07,720 Speaker 3: I'm sure in terms of business ties, Kis Starmer will 311 00:18:07,760 --> 00:18:11,399 Speaker 3: surely be trying to use this as kind of bargaining power. 312 00:18:11,520 --> 00:18:14,520 Speaker 3: What do you think is going to be his main message? 313 00:18:14,760 --> 00:18:18,720 Speaker 8: Yeah, I mean the Prime Minister is effectively using the 314 00:18:18,800 --> 00:18:23,400 Speaker 8: King as his chief diplomat and it's already paid off 315 00:18:23,440 --> 00:18:26,080 Speaker 8: for the UK. I mean, you'll remember the moment where 316 00:18:26,400 --> 00:18:29,760 Speaker 8: Kis Starmer visited the White House in February and brandished 317 00:18:30,119 --> 00:18:34,080 Speaker 8: this letter hand signed by the King himself inviting the 318 00:18:34,119 --> 00:18:37,879 Speaker 8: President over to the UK again. That I think, in 319 00:18:38,240 --> 00:18:41,439 Speaker 8: large part has been why Trump and Starma have managed 320 00:18:41,480 --> 00:18:46,080 Speaker 8: to establish a close relationship despite their political differences. And 321 00:18:46,480 --> 00:18:49,400 Speaker 8: you know, the UK was the first country to sign 322 00:18:49,480 --> 00:18:53,639 Speaker 8: a trade agreement where they avoided the same level severe 323 00:18:53,680 --> 00:18:58,440 Speaker 8: tariffs that other allies did. He Trump was also hosted 324 00:18:58,440 --> 00:19:01,119 Speaker 8: by the UK in Scotland couple of months ago. That 325 00:19:01,240 --> 00:19:04,440 Speaker 8: was a private visit but had very much a political 326 00:19:04,480 --> 00:19:09,199 Speaker 8: element where he was mostly promoting his golf courses but 327 00:19:09,280 --> 00:19:11,760 Speaker 8: also had a meeting with Starma and with the EU's 328 00:19:11,800 --> 00:19:15,320 Speaker 8: Wonder Lion while there as well. So it's already paid 329 00:19:15,320 --> 00:19:20,639 Speaker 8: off for Starma. I think he's hoping that other deals 330 00:19:20,960 --> 00:19:24,520 Speaker 8: could be struck, potentially on tech, potentially on AI, although 331 00:19:24,560 --> 00:19:27,359 Speaker 8: this state visit will will mostly be about the royal 332 00:19:27,359 --> 00:19:29,359 Speaker 8: element rather than the political one. 333 00:19:29,400 --> 00:19:32,080 Speaker 3: Absolutely, it seems I think to many observers in the 334 00:19:32,200 --> 00:19:34,840 Speaker 3: UK a bit like a Netflix movie Letter to the 335 00:19:34,920 --> 00:19:38,080 Speaker 3: King could have been the title. And it was also 336 00:19:38,200 --> 00:19:40,840 Speaker 3: seen as quite a savvy move by the British Prime 337 00:19:40,840 --> 00:19:45,159 Speaker 3: Minister by some voters because President Trumps still deeply unpopular, 338 00:19:45,280 --> 00:19:48,240 Speaker 3: isn't he amongst a lot of voters? And yet there's 339 00:19:48,280 --> 00:19:51,000 Speaker 3: also an edge to voters in the UK that they 340 00:19:51,119 --> 00:19:54,880 Speaker 3: understand the UK has to try to do well by 341 00:19:55,000 --> 00:20:00,399 Speaker 3: obviously its biggest ally in the world in terms of 342 00:20:00,480 --> 00:20:04,840 Speaker 3: how we should expect then the negotiations to go. Do 343 00:20:04,920 --> 00:20:07,359 Speaker 3: you think that there are going to be specific things 344 00:20:07,760 --> 00:20:11,560 Speaker 3: that Starma can perhaps gain from this, maybe on steel, 345 00:20:11,680 --> 00:20:15,359 Speaker 3: as you say, which is still got levees from the US. 346 00:20:15,440 --> 00:20:18,360 Speaker 3: I mean, Britain managed to get what has been seen 347 00:20:18,400 --> 00:20:21,680 Speaker 3: as a better trade deal than a lot of other countries. 348 00:20:22,240 --> 00:20:25,480 Speaker 8: Yes, that was the big element on steel that was 349 00:20:25,560 --> 00:20:29,560 Speaker 8: missing from the trade deal that they signed back at 350 00:20:29,600 --> 00:20:33,719 Speaker 8: the G seven in Canada in a couple of months ago, 351 00:20:34,320 --> 00:20:37,399 Speaker 8: and that still hasn't been resolved. We've now got a 352 00:20:37,440 --> 00:20:41,439 Speaker 8: new Business and Trade Secretary in the UK and I 353 00:20:41,520 --> 00:20:44,879 Speaker 8: know that the government is pretty desperate to get that sorted. 354 00:20:45,040 --> 00:20:48,560 Speaker 8: Whether that will happen at next week's state visit, I 355 00:20:48,600 --> 00:20:52,840 Speaker 8: think that, you know, I'm not hearing much optimism on that. 356 00:20:53,680 --> 00:20:57,240 Speaker 8: The briefings are more around a kind of agreement on 357 00:20:57,359 --> 00:21:01,399 Speaker 8: quantum or AI or tech, some kind of deal in 358 00:21:01,440 --> 00:21:05,719 Speaker 8: those areas, and there's been reports that various tech billionaires 359 00:21:05,880 --> 00:21:08,480 Speaker 8: are coming over with Trump to join him in the 360 00:21:08,920 --> 00:21:11,600 Speaker 8: state banquet as well. So I think the focus will 361 00:21:11,600 --> 00:21:13,560 Speaker 8: be on that dangers. 362 00:21:13,720 --> 00:21:17,680 Speaker 3: What are the dangers in this state visit? It lasts 363 00:21:17,680 --> 00:21:21,400 Speaker 3: several days. I mean we're expecting some level of protest 364 00:21:21,560 --> 00:21:26,440 Speaker 3: by some groups in the UK and also there it's 365 00:21:26,480 --> 00:21:30,800 Speaker 3: a double edged sword, the relationship, a close relationship with 366 00:21:30,880 --> 00:21:34,600 Speaker 3: President Trump. We've seen some global leaders humiliated. I suppose 367 00:21:34,640 --> 00:21:36,399 Speaker 3: one of the pitfalls people are thinking about. 368 00:21:36,600 --> 00:21:39,120 Speaker 8: There are actually a lot of dangers, and the government 369 00:21:39,200 --> 00:21:41,760 Speaker 8: officials I've been speaking to who have been involved in 370 00:21:42,040 --> 00:21:44,679 Speaker 8: the planning for the state visit are really really worried 371 00:21:44,720 --> 00:21:49,160 Speaker 8: about it. The primary thing is that just days after 372 00:21:49,200 --> 00:21:54,160 Speaker 8: Trump departs, the government is expected to recognize the state 373 00:21:54,200 --> 00:22:00,520 Speaker 8: of Palestine at the United Nations Assembly. Apro the the 374 00:22:00,640 --> 00:22:03,919 Speaker 8: UK US approach to Israel is one of the big 375 00:22:03,960 --> 00:22:11,600 Speaker 8: opposing differences, and the US administration, including Marco Rubio, have 376 00:22:11,760 --> 00:22:15,280 Speaker 8: very much condemned the UK and France's and Canada's plan 377 00:22:15,400 --> 00:22:20,560 Speaker 8: to recognize Palestine. So that will be you know, a 378 00:22:20,600 --> 00:22:25,120 Speaker 8: moment of peril potentially if that's brought up. I mean. 379 00:22:25,160 --> 00:22:29,120 Speaker 8: The other thing is Trump Trump isn't afraid to insult 380 00:22:29,200 --> 00:22:33,560 Speaker 8: various political allies of the Prime Minister. I mean even 381 00:22:33,600 --> 00:22:37,040 Speaker 8: in Scotland he was asked about London Mercedy Khan and 382 00:22:37,320 --> 00:22:40,800 Speaker 8: made very disparaging remarks which Kis Starma had to interrupt 383 00:22:40,800 --> 00:22:44,080 Speaker 8: and remind the President that he was a friend and 384 00:22:44,119 --> 00:22:50,480 Speaker 8: political ally of Kastarmer's. And there are other elements as well, 385 00:22:50,480 --> 00:22:53,000 Speaker 8: on free speech, for example, this is something that jd 386 00:22:53,160 --> 00:22:56,040 Speaker 8: Vance has has lectured and tried to score the UK 387 00:22:56,160 --> 00:23:01,359 Speaker 8: on Trump's vice president also, So there are these political differences. 388 00:23:01,400 --> 00:23:03,760 Speaker 8: And the Prime Minister and the President will be giving 389 00:23:03,760 --> 00:23:07,080 Speaker 8: a joint press conference at the end where they'll be 390 00:23:07,160 --> 00:23:09,040 Speaker 8: probed on some of those issues as well. 391 00:23:09,560 --> 00:23:13,080 Speaker 3: And do you expect Nigel Farage or Reform UK to 392 00:23:13,160 --> 00:23:14,119 Speaker 3: feature at all? 393 00:23:14,720 --> 00:23:17,199 Speaker 8: You know Farage he might get brought up in that 394 00:23:17,240 --> 00:23:20,760 Speaker 8: press conference. For example, Forage to go over to the 395 00:23:20,920 --> 00:23:25,000 Speaker 8: over Office and get and meet President Trump just a 396 00:23:25,000 --> 00:23:28,920 Speaker 8: couple of weeks ago and got his picture standing next 397 00:23:28,920 --> 00:23:32,879 Speaker 8: to the President at his desk. You know they are 398 00:23:32,920 --> 00:23:37,760 Speaker 8: close political allies and Trump isn't you know? It is 399 00:23:37,800 --> 00:23:42,399 Speaker 8: an embarrassed or about the lack of diplomacy that comes 400 00:23:42,440 --> 00:23:45,520 Speaker 8: with saying that in front of the Prime Minister sometimes. 401 00:23:45,080 --> 00:23:48,439 Speaker 8: So I would be surprised if he doesn't know. 402 00:23:48,880 --> 00:23:51,840 Speaker 3: And so what do you think is the best outcome 403 00:23:51,920 --> 00:23:55,840 Speaker 3: for the UK? Just as we think about this opportunity, 404 00:23:55,920 --> 00:23:58,720 Speaker 3: I suppose what do you think will be the images 405 00:23:58,760 --> 00:24:00,880 Speaker 3: that emerge? I mean, could it be from let's say 406 00:24:00,880 --> 00:24:04,080 Speaker 3: the first Lady Milania Trump, who's got her own visit 407 00:24:04,200 --> 00:24:07,600 Speaker 3: with the Queen Camilla. I wonder what you think will 408 00:24:07,640 --> 00:24:09,760 Speaker 3: emerge out of the next few days. 409 00:24:10,280 --> 00:24:13,320 Speaker 8: I think this state visit is going to be one 410 00:24:13,359 --> 00:24:15,919 Speaker 8: of images they want to emerge in one of images 411 00:24:15,960 --> 00:24:21,520 Speaker 8: they very much don't want to emerge. They are intentionally 412 00:24:21,600 --> 00:24:27,159 Speaker 8: avoiding the President giving an address to the UK Parliament 413 00:24:27,200 --> 00:24:30,560 Speaker 8: as typically happens. Mccrong gave his own address to the 414 00:24:30,600 --> 00:24:33,280 Speaker 8: Parliament when he did his state visit earlier this year. 415 00:24:34,600 --> 00:24:38,160 Speaker 8: I think that's to avoid the President trying to school 416 00:24:38,200 --> 00:24:42,000 Speaker 8: politicians on their political differences, but also to avoid a 417 00:24:42,040 --> 00:24:48,600 Speaker 8: major protest outside outside Parliament. They're still expecting protests, there's talks, 418 00:24:48,680 --> 00:24:52,240 Speaker 8: there's lots of reports about the heightened security in Windsor, 419 00:24:53,280 --> 00:24:57,560 Speaker 8: so it will be one Kisdama will want to avoid 420 00:24:58,359 --> 00:25:02,040 Speaker 8: any of those kind of era clashes that are at risk, 421 00:25:02,600 --> 00:25:04,760 Speaker 8: and he'll want to get those deals, as I said, 422 00:25:04,840 --> 00:25:09,200 Speaker 8: potentially on steal, on tech and also to just the 423 00:25:09,320 --> 00:25:11,680 Speaker 8: King will want to give Trump a really good time, 424 00:25:11,920 --> 00:25:15,520 Speaker 8: charm him, shower him with the pageantry that comes with 425 00:25:15,840 --> 00:25:17,439 Speaker 8: spending time with the royal family. 426 00:25:17,720 --> 00:25:21,920 Speaker 3: That was Bloomberg's political correspondent Ellen Milligan looking at this 427 00:25:22,320 --> 00:25:27,120 Speaker 3: second state visit from President Trump. In the coming few days, 428 00:25:27,480 --> 00:25:31,200 Speaker 3: we'll have full coverage of this historic event, the visit 429 00:25:31,280 --> 00:25:35,760 Speaker 3: to Windsor and more across Bloomberg platforms. I'm Caroline Hepkee 430 00:25:35,840 --> 00:25:38,359 Speaker 3: here in London. You can catch us every weekday morning 431 00:25:38,359 --> 00:25:41,439 Speaker 3: for Bloomberg Daybreak Europe, beginning at six am in London. 432 00:25:41,480 --> 00:25:43,920 Speaker 3: That's one am on Wall Street. Tom. 433 00:25:44,359 --> 00:25:46,880 Speaker 2: Thank you, Caroline, And coming up on Bloomberg day Break 434 00:25:46,880 --> 00:25:48,720 Speaker 2: weekend and meeting this week at the Bank of Japan. 435 00:25:48,840 --> 00:25:52,600 Speaker 2: We'll discuss what that means from monetary policy there. That's 436 00:25:52,680 --> 00:26:06,520 Speaker 2: up next. I'm Tom Busby, and this is Bloomberg. This 437 00:26:06,640 --> 00:26:08,879 Speaker 2: is Bloomberg day Break Weekend, our global look ahead at 438 00:26:08,920 --> 00:26:11,520 Speaker 2: the top stories for investors in the coming week. I'm 439 00:26:11,560 --> 00:26:14,280 Speaker 2: Tom Busby in New York. Policymakers at the Bank of 440 00:26:14,359 --> 00:26:18,000 Speaker 2: Japan convening this week, and most BOJ watchers expect a 441 00:26:18,119 --> 00:26:21,679 Speaker 2: lift to the benchmark interest rate by January, though some 442 00:26:21,840 --> 00:26:25,080 Speaker 2: surveyed by Bloomberg se October as the most likely time 443 00:26:25,440 --> 00:26:28,919 Speaker 2: given amplified political uncertainty. For more, let's get to the 444 00:26:28,920 --> 00:26:31,680 Speaker 2: host of the Daybreak Asia podcast, Doug Krisner. 445 00:26:32,200 --> 00:26:35,399 Speaker 4: Tom Japan is now confronting a major shift in the 446 00:26:35,440 --> 00:26:39,360 Speaker 4: outlook for politics and government policy. The country will soon 447 00:26:39,400 --> 00:26:43,280 Speaker 4: get a new prime minister following the resignation of Shiguru Ishiba. 448 00:26:43,640 --> 00:26:46,640 Speaker 4: For a closer look at the terrain in Japan four markets. 449 00:26:46,680 --> 00:26:50,000 Speaker 4: I'm joined by Mia Glass. She is Japan FX and 450 00:26:50,080 --> 00:26:53,080 Speaker 4: rates reporter for Bloomberg News. Mia joins us from our 451 00:26:53,200 --> 00:26:57,040 Speaker 4: studios in Tokyo. Mia, thank you so much for joining me. 452 00:26:57,520 --> 00:26:59,399 Speaker 4: I think it's fair to say that the BOJ is 453 00:26:59,440 --> 00:27:02,680 Speaker 4: known for being an especially cautious central bank, and I'm 454 00:27:02,720 --> 00:27:05,000 Speaker 4: wondering whether you think it's likely that we're going to 455 00:27:05,000 --> 00:27:09,480 Speaker 4: get any change in monetary policy in the coming week, right. 456 00:27:09,480 --> 00:27:11,840 Speaker 9: Thank you so much for having me. So for the 457 00:27:11,840 --> 00:27:14,800 Speaker 9: BOJ meeting next week, I don't think there's any chance 458 00:27:14,840 --> 00:27:17,560 Speaker 9: of a great hike. I think it's pretty widely expected 459 00:27:17,560 --> 00:27:19,639 Speaker 9: that there will be no hike at this meeting. But 460 00:27:20,280 --> 00:27:22,280 Speaker 9: just to set the stage, the Bank of Japan hasn't 461 00:27:22,359 --> 00:27:25,480 Speaker 9: hiked since January. There was a lot of tariff uncertainty 462 00:27:25,560 --> 00:27:28,639 Speaker 9: since April, and now there's a lot of political uncertainty 463 00:27:28,720 --> 00:27:32,040 Speaker 9: after Prime Minister Ishiba announced that he's going to step down. 464 00:27:32,840 --> 00:27:35,760 Speaker 9: So we have meetings in September, October, and December still 465 00:27:35,760 --> 00:27:37,720 Speaker 9: of this year, and although there won't be a hike 466 00:27:38,119 --> 00:27:42,440 Speaker 9: next week, there's still a possibility that the BOJ could 467 00:27:42,520 --> 00:27:45,400 Speaker 9: hike this year. And we actually had a Bloomberg story 468 00:27:45,440 --> 00:27:48,320 Speaker 9: this week saying that Bank of Japan officials have the 469 00:27:48,400 --> 00:27:50,679 Speaker 9: view that it might be possible to raise the interest 470 00:27:50,760 --> 00:27:54,639 Speaker 9: rate again this year, regardless of the domestic political instability, 471 00:27:55,359 --> 00:27:57,159 Speaker 9: and that really has to do with the fact that 472 00:27:57,280 --> 00:28:01,280 Speaker 9: economic data has been really in line with xpectations. So 473 00:28:01,359 --> 00:28:04,240 Speaker 9: although there is still that uncertainty from the US trade 474 00:28:04,240 --> 00:28:09,239 Speaker 9: deal and the political uncertainty in Japan, BOJ officials do 475 00:28:09,280 --> 00:28:11,240 Speaker 9: think that there could still be a hike this year. 476 00:28:11,920 --> 00:28:14,480 Speaker 9: And we had a survey as well that came out 477 00:28:15,119 --> 00:28:18,639 Speaker 9: that said that most BOJ watchers expect a hike by January, 478 00:28:19,080 --> 00:28:23,080 Speaker 9: and October is still the most popular timing. It's the 479 00:28:23,080 --> 00:28:25,840 Speaker 9: proportion of people who expect October tick down a little 480 00:28:25,840 --> 00:28:29,639 Speaker 9: bit because of the political uncertainty, but October is definitely 481 00:28:29,640 --> 00:28:30,720 Speaker 9: still a possibility. 482 00:28:30,880 --> 00:28:33,560 Speaker 4: So we know Japan will have a new prime minister 483 00:28:33,680 --> 00:28:37,160 Speaker 4: soon now that Chiguru Ishiba has resigned. It seems as 484 00:28:37,160 --> 00:28:40,040 Speaker 4: though high inflation on a relative basis was a big 485 00:28:40,080 --> 00:28:43,280 Speaker 4: factor in this. Give me a sense of how inflation 486 00:28:43,520 --> 00:28:45,080 Speaker 4: in Japan has been behaving. 487 00:28:45,800 --> 00:28:48,880 Speaker 9: Yeah, so, Japan's inflation has stayed at or above the 488 00:28:48,920 --> 00:28:52,360 Speaker 9: boj's two percent target for more than three years now, 489 00:28:52,680 --> 00:28:56,360 Speaker 9: and we even had US Treasury Secretary Scott Bessen said 490 00:28:56,400 --> 00:28:58,920 Speaker 9: that the BOJ is kind of falling behind the curve 491 00:28:58,960 --> 00:29:01,680 Speaker 9: and tackling inflation, and that has also been a lot 492 00:29:01,720 --> 00:29:05,160 Speaker 9: of the reason why JGB yields, particularly on the longer end, 493 00:29:05,200 --> 00:29:08,400 Speaker 9: are rising so much recently. So that was definitely a 494 00:29:08,440 --> 00:29:11,480 Speaker 9: part of why Ishiba had such a terrible election in 495 00:29:11,560 --> 00:29:14,000 Speaker 9: July and another reason why we had he had to 496 00:29:14,040 --> 00:29:18,400 Speaker 9: step down, And so that will definitely be part of 497 00:29:18,440 --> 00:29:21,640 Speaker 9: the Bank of Japan's mission to tackle inflation and to 498 00:29:21,680 --> 00:29:25,640 Speaker 9: bring those JGB yields down. So it'll definitely be important 499 00:29:25,640 --> 00:29:27,760 Speaker 9: to watch to see how the Bank of Japan is 500 00:29:27,800 --> 00:29:31,080 Speaker 9: going to signal next week about their great hike path. 501 00:29:31,280 --> 00:29:33,760 Speaker 4: You mentioned jgb's a moment ago, and I know we 502 00:29:33,840 --> 00:29:36,600 Speaker 4: have an auction of twenty year jgb's coming up in 503 00:29:36,600 --> 00:29:39,440 Speaker 4: the week ahead. I'm curious, is there a way to 504 00:29:39,640 --> 00:29:42,600 Speaker 4: gauge right now what the market appetite may be. 505 00:29:43,440 --> 00:29:46,520 Speaker 9: Yeah, So recently we've been having better auctions than we 506 00:29:46,600 --> 00:29:49,240 Speaker 9: have in the past. So a lot of this attention 507 00:29:49,360 --> 00:29:52,040 Speaker 9: on auctions really started back in May when we had 508 00:29:52,080 --> 00:29:55,160 Speaker 9: a really bad twenty year auction, the worst Aman in 509 00:29:55,160 --> 00:29:58,400 Speaker 9: more than a decade, and it really sent global yields higher. 510 00:29:59,000 --> 00:30:01,360 Speaker 9: So basically since then, there's been a lot of attention 511 00:30:01,480 --> 00:30:05,280 Speaker 9: on these auctions, and particularly in the longer end. This 512 00:30:05,400 --> 00:30:07,800 Speaker 9: is going to be the first super long bond auction 513 00:30:07,920 --> 00:30:11,000 Speaker 9: since Prime Minister Ishiba announced his plan to step down, 514 00:30:11,320 --> 00:30:13,640 Speaker 9: and with all a concern in the bond market about 515 00:30:13,680 --> 00:30:16,960 Speaker 9: fiscal policy and political uncertainty, it's going to be really 516 00:30:16,960 --> 00:30:20,080 Speaker 9: important to watch that twenty year auction and see if 517 00:30:20,120 --> 00:30:23,480 Speaker 9: there is demand there to gauge how the bond market 518 00:30:23,560 --> 00:30:25,400 Speaker 9: is feeling about the political situation. 519 00:30:25,960 --> 00:30:28,040 Speaker 4: Talk to me a little bit about this new chapter 520 00:30:28,360 --> 00:30:31,520 Speaker 4: in Japanese politics and what it may mean for the 521 00:30:31,520 --> 00:30:34,680 Speaker 4: way in which the Bank of Japan operates going forward. 522 00:30:35,280 --> 00:30:39,240 Speaker 9: Yeah, So the leadership election for the LDP is set 523 00:30:39,280 --> 00:30:42,560 Speaker 9: for October fourth, which is kind of a tricky timing 524 00:30:42,600 --> 00:30:45,680 Speaker 9: for the BOJ. I mean, they have their next after September. 525 00:30:45,720 --> 00:30:47,880 Speaker 9: Their next meeting is going to be in October, so 526 00:30:47,920 --> 00:30:51,240 Speaker 9: it's really tricky timing for the BOJ and it really 527 00:30:51,240 --> 00:30:54,280 Speaker 9: depends on who becomes the new prime minister. So we're 528 00:30:54,280 --> 00:30:57,240 Speaker 9: looking at a couple leading contenders. So we have Sanai 529 00:30:57,240 --> 00:31:01,360 Speaker 9: a Takaichi, who favors stimulus measures and would also likely 530 00:31:01,400 --> 00:31:03,880 Speaker 9: prefer the BOJ to take a more cautious view on 531 00:31:03,960 --> 00:31:08,920 Speaker 9: rate hikes. And then Shinjio Koizumi, he's another potential candidate, 532 00:31:08,960 --> 00:31:11,280 Speaker 9: but he would most likely just continue with the current 533 00:31:11,280 --> 00:31:14,560 Speaker 9: administration's views and he would support raising interest rates. So 534 00:31:14,640 --> 00:31:17,080 Speaker 9: depending on who comes into office, we could have a 535 00:31:17,200 --> 00:31:20,719 Speaker 9: drastic change. And you know how the BOJ operates. So 536 00:31:20,760 --> 00:31:23,920 Speaker 9: I think the political situation would be really important to watch. 537 00:31:24,200 --> 00:31:27,000 Speaker 9: And as you mentioned, globally, this is a really important 538 00:31:27,040 --> 00:31:29,880 Speaker 9: time to be watching politics for the bomb market. We 539 00:31:29,960 --> 00:31:33,000 Speaker 9: have political turmoil in France, and then in the US 540 00:31:33,040 --> 00:31:36,520 Speaker 9: we also have concerns about the Fed's independence. We also 541 00:31:36,560 --> 00:31:38,440 Speaker 9: have the tax cut and spending your bill, so that's 542 00:31:38,480 --> 00:31:42,360 Speaker 9: sending globally Longa Mountains higher. So it's not really just 543 00:31:42,400 --> 00:31:45,040 Speaker 9: a problem in Japan. It's happening all around the world. 544 00:31:45,360 --> 00:31:47,680 Speaker 4: Okay, Miya, Before I let you go, talk to me 545 00:31:47,720 --> 00:31:50,320 Speaker 4: a little bit about how tariffs that were put in 546 00:31:50,360 --> 00:31:53,480 Speaker 4: place by the Trump administration, how they have been impacting 547 00:31:53,520 --> 00:31:54,720 Speaker 4: the Japanese economy. 548 00:31:55,520 --> 00:31:59,000 Speaker 9: Right, So President Trump signed an executive order implementing the 549 00:31:59,040 --> 00:32:02,760 Speaker 9: trade agreement with Pan and that's a maximum fifteen percent 550 00:32:02,800 --> 00:32:06,400 Speaker 9: tariff on most of its products that includes automobiles parts, 551 00:32:07,480 --> 00:32:10,560 Speaker 9: and so the deal also includes this promise that Japan 552 00:32:10,600 --> 00:32:13,640 Speaker 9: will create a five hundred and fifty billion dollar US 553 00:32:13,680 --> 00:32:17,680 Speaker 9: investment fund. But there's a bit of a disconnect between 554 00:32:17,720 --> 00:32:20,600 Speaker 9: what Trump thinks of that investment fund versus what Japan 555 00:32:20,680 --> 00:32:23,440 Speaker 9: thinks of it. So Trump has previously said that that 556 00:32:23,440 --> 00:32:26,400 Speaker 9: five hundred and fifty billion dollar investment fund will be 557 00:32:26,560 --> 00:32:30,200 Speaker 9: money that his administration could invest as they like, with 558 00:32:30,360 --> 00:32:32,800 Speaker 9: ninety percent of the profits being given to the US 559 00:32:32,880 --> 00:32:36,200 Speaker 9: by Japan versus Japan kind of sees it as more 560 00:32:36,360 --> 00:32:40,160 Speaker 9: of a combination of investments and loans and loan guarantees. 561 00:32:41,200 --> 00:32:43,040 Speaker 9: So there's a bit of a disconnect there, and the 562 00:32:43,080 --> 00:32:46,400 Speaker 9: market is really uncertain uncertain about how that's going to 563 00:32:46,400 --> 00:32:48,760 Speaker 9: play out. And of course, if that really is how 564 00:32:48,800 --> 00:32:50,920 Speaker 9: Trump's saying it's going to be, then that's going to 565 00:32:50,960 --> 00:32:54,280 Speaker 9: impact the economy, that's going to weaken the yen. So 566 00:32:54,320 --> 00:32:57,040 Speaker 9: it'll be really important still to watch how that plays out. 567 00:32:57,040 --> 00:33:00,960 Speaker 9: There's a lot of uncertainty there. The trade deal obviously 568 00:33:01,000 --> 00:33:04,360 Speaker 9: also matters because Japan is really an export driven economy, 569 00:33:05,160 --> 00:33:08,800 Speaker 9: so we've seen export value decline but volume has risen, 570 00:33:08,840 --> 00:33:11,840 Speaker 9: which shows that a lot of carmakers have been cutting 571 00:33:11,880 --> 00:33:15,240 Speaker 9: prices while maintaining the volume of their exports to the US, 572 00:33:15,320 --> 00:33:20,040 Speaker 9: so they're sacrificing those profit margins. And the impact of 573 00:33:20,080 --> 00:33:22,520 Speaker 9: the terraffs has been limited a bit on the GDP 574 00:33:22,800 --> 00:33:27,400 Speaker 9: of Japan. So Japan's economy is still growing. But I 575 00:33:27,440 --> 00:33:30,480 Speaker 9: think a lot of economists are saying that we could 576 00:33:30,520 --> 00:33:33,280 Speaker 9: still see the impact from Terra's play out on Japan. 577 00:33:33,360 --> 00:33:35,840 Speaker 9: So that'll be an important area to watch for the 578 00:33:35,840 --> 00:33:36,880 Speaker 9: BOJ as well. 579 00:33:36,960 --> 00:33:39,040 Speaker 4: Okay, Mia, thank you so much. We'll leave it there 580 00:33:39,080 --> 00:33:41,880 Speaker 4: as we look ahead to the BOJ meeting next week. 581 00:33:42,080 --> 00:33:45,040 Speaker 4: She is Mia Glass, Japan FX and rates reporter for 582 00:33:45,080 --> 00:33:48,719 Speaker 4: Bloomberg News, joining us from our studios in Tokyo. Staying 583 00:33:48,800 --> 00:33:51,840 Speaker 4: in Japan. We turn next to politics and the resignation 584 00:33:52,000 --> 00:33:55,720 Speaker 4: of Shigeru Ishiba. This came after back to back losses 585 00:33:55,840 --> 00:34:00,760 Speaker 4: that cost his Liberal Democratic Party it's parliamentary majority. Now 586 00:34:00,840 --> 00:34:04,440 Speaker 4: in a column published last week Bloomberg Opinions, Garode ready 587 00:34:04,680 --> 00:34:08,560 Speaker 4: characterized Ishiba's assent as a gamble. I had the chance 588 00:34:08,640 --> 00:34:11,440 Speaker 4: to speak with Garod and began by asking him whether 589 00:34:11,760 --> 00:34:14,000 Speaker 4: Ishiba's resignation came as a surprise. 590 00:34:14,920 --> 00:34:17,000 Speaker 10: I think the only thing that was surprising about it 591 00:34:17,120 --> 00:34:20,480 Speaker 10: was how long it took. Its seven or eight weeks 592 00:34:20,520 --> 00:34:24,879 Speaker 10: since the upper House election defeat that, as you say, 593 00:34:25,200 --> 00:34:28,040 Speaker 10: is the second majors we indeed the third major defeat 594 00:34:28,280 --> 00:34:33,319 Speaker 10: that Ishiba had as LDP leader, in addition to the 595 00:34:33,320 --> 00:34:35,680 Speaker 10: lower house defeat last year and the Tokyo a smble 596 00:34:35,719 --> 00:34:40,959 Speaker 10: the election earlier this year. As you know, as you say, 597 00:34:41,239 --> 00:34:46,440 Speaker 10: Ishiba was Ishiba was brought in to fix a problem, 598 00:34:46,520 --> 00:34:51,880 Speaker 10: and the problem was the LDP's declining popularity that was 599 00:34:51,960 --> 00:34:56,320 Speaker 10: under the previous Prime Minister of Fumio Kishida. Ishiba was 600 00:34:56,360 --> 00:34:59,560 Speaker 10: brought in as a new face, new lick of paint 601 00:35:00,120 --> 00:35:03,719 Speaker 10: on the party. He wasn't tainted by any of the scandals, 602 00:35:03,800 --> 00:35:07,200 Speaker 10: nor should I say, actually it was Kishidabakishida was the 603 00:35:07,239 --> 00:35:09,919 Speaker 10: one who was sort of like handling them, so he 604 00:35:10,000 --> 00:35:14,120 Speaker 10: kind of became associated with them. Ishiba was quite scandal free, 605 00:35:14,560 --> 00:35:18,600 Speaker 10: clean politician, believed to be popular. But when he came in, 606 00:35:18,719 --> 00:35:23,440 Speaker 10: he did not see the actual bounce in approval ratings 607 00:35:23,480 --> 00:35:26,919 Speaker 10: that we would associate with a new leader coming in, 608 00:35:27,280 --> 00:35:31,040 Speaker 10: and ultimately, you know, the LDP is a large organization, 609 00:35:31,480 --> 00:35:33,560 Speaker 10: and what they are there to do is to is 610 00:35:33,600 --> 00:35:35,440 Speaker 10: to win elections, and what the leader is there to 611 00:35:35,480 --> 00:35:39,240 Speaker 10: do is to win elections. Ishiba proved that he couldn't 612 00:35:39,280 --> 00:35:41,399 Speaker 10: do that, and as I say, the only surprising thing 613 00:35:41,520 --> 00:35:44,279 Speaker 10: is that he didn't go earlier. He dragged it out 614 00:35:44,440 --> 00:35:46,840 Speaker 10: a little bit longer than frankly I think it needed to. 615 00:35:47,239 --> 00:35:51,120 Speaker 4: Maybe you can help me understand the possible successors to Ishiba? 616 00:35:51,239 --> 00:35:53,120 Speaker 4: Are there any obvious candidates? 617 00:35:54,040 --> 00:35:56,600 Speaker 10: The two leading candidates at the moment, I should say 618 00:35:56,600 --> 00:35:59,680 Speaker 10: it's very early in the day. We had in memory 619 00:35:59,680 --> 00:36:03,200 Speaker 10: serves nine candidates last year in the race that eventually 620 00:36:03,320 --> 00:36:06,560 Speaker 10: was won by Ishiba. The two leading candidates would be 621 00:36:06,800 --> 00:36:09,720 Speaker 10: the people who came second and third in that election 622 00:36:09,920 --> 00:36:17,120 Speaker 10: last year. That's sanai A Takaichi and Shinjiro Koizumi Takeichi first. 623 00:36:17,600 --> 00:36:21,960 Speaker 10: If she became the leader and then was elected prime minister, 624 00:36:22,040 --> 00:36:25,480 Speaker 10: it's you know, no quite likely, but no longer guarantee 625 00:36:25,520 --> 00:36:27,920 Speaker 10: because the oldp is no longer the largest party in 626 00:36:27,960 --> 00:36:31,680 Speaker 10: the lower house. She would become the first female prime 627 00:36:31,680 --> 00:36:39,200 Speaker 10: minister in Japan. She is a self declared heir of 628 00:36:39,840 --> 00:36:44,839 Speaker 10: Shinzo Abbe and his politics and his you know, Abinomics policies. 629 00:36:46,280 --> 00:36:50,680 Speaker 10: She is we should say, yeah, she's definitely very popular 630 00:36:50,760 --> 00:36:53,319 Speaker 10: with the right wing and especially with people who did 631 00:36:53,360 --> 00:36:57,680 Speaker 10: not like Ishiba. They really represent two polls on either 632 00:36:57,800 --> 00:37:03,920 Speaker 10: side of the party, so she's definitely a leading candidate. 633 00:37:04,040 --> 00:37:06,960 Speaker 10: I would say. She finished second in the runoff election 634 00:37:07,320 --> 00:37:11,040 Speaker 10: against Ishiba last year, and what you saw was basically 635 00:37:11,560 --> 00:37:15,160 Speaker 10: concerned that she might have rather similar flaws to what 636 00:37:15,200 --> 00:37:18,280 Speaker 10: Ishiba turned out to have in that she only appeals 637 00:37:18,320 --> 00:37:20,920 Speaker 10: maybe to one section of the party, and that in 638 00:37:20,960 --> 00:37:24,080 Speaker 10: her case is the right wing. The other candidate, as 639 00:37:24,080 --> 00:37:27,239 Speaker 10: I mentioned, is Shinjiro Koizumi. He's the son of the 640 00:37:27,320 --> 00:37:31,319 Speaker 10: former Prime Minister Janichiro Koizumi, who listeners might remember was 641 00:37:31,360 --> 00:37:35,600 Speaker 10: Prime minister in the early to mid two thousands while 642 00:37:36,160 --> 00:37:40,439 Speaker 10: George W. Bush was the president in the US. He's 643 00:37:40,560 --> 00:37:43,759 Speaker 10: very young, he's a little inexperienced, but he has had 644 00:37:43,840 --> 00:37:47,840 Speaker 10: quite an impressive year. He came in as Agriculture minister 645 00:37:47,960 --> 00:37:50,840 Speaker 10: early on this year to deal with the rice prices 646 00:37:51,080 --> 00:37:55,480 Speaker 10: that I mentioned earlier, and very immediately and effectively was 647 00:37:55,520 --> 00:38:00,400 Speaker 10: able to generate a downturn in rice prices by chaining 648 00:38:00,520 --> 00:38:05,200 Speaker 10: how the country was releasing its reserves of rice that 649 00:38:05,360 --> 00:38:08,840 Speaker 10: will have certainly one of some plaudits. He's believed to 650 00:38:08,920 --> 00:38:13,440 Speaker 10: be quite popular with the public. He's young, he's good looking, 651 00:38:13,480 --> 00:38:18,120 Speaker 10: he's charismatic. He has a celebrity wife and a young family, 652 00:38:18,360 --> 00:38:20,359 Speaker 10: so he has a lot of things going for him. 653 00:38:20,520 --> 00:38:22,400 Speaker 10: Those would be the two leading candidates I think at 654 00:38:22,400 --> 00:38:22,760 Speaker 10: the moment. 655 00:38:23,080 --> 00:38:26,680 Speaker 4: That is Bloomberg opinion columnist Gerode Ready and I'm Doug Chrisner. 656 00:38:26,760 --> 00:38:30,120 Speaker 4: Catch us weekdays for the Daybreak Asia podcast. It's available 657 00:38:30,200 --> 00:38:31,759 Speaker 4: wherever you get your podcast. 658 00:38:32,200 --> 00:38:35,000 Speaker 2: Tom, Thank you Doug. And that does it for this 659 00:38:35,200 --> 00:38:37,960 Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday 660 00:38:38,000 --> 00:38:40,040 Speaker 2: morning at five am Wall Street Time for the latest 661 00:38:40,040 --> 00:38:42,439 Speaker 2: on markets overseas, in the news you need to start 662 00:38:42,480 --> 00:38:46,080 Speaker 2: your day. I'm Tom Busby. Stay with us. Top stories 663 00:38:46,120 --> 00:38:48,880 Speaker 2: and global business headlines are coming up right now.