Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our day
Speaker 2: Break anchors all around the world. Straight ahead on the program,
Speaker 2: and look ahead to this week's long awaited interest rate
Speaker 2: decision from the Federal Reserve. I'm Tom Busby in New York.
Speaker 3: I'm Caroline Hetker in London, where we're looking ahead to
Speaker 3: President Trump's second state visit to the UK.
Speaker 4: I'm Dot Krisner with a preview of next week's rate
Speaker 4: decision from the Bank of Japan.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby, and we begin
Speaker 2: today's program with a decision on rates from the Federal
Speaker 2: Reserve this Wednesday. All signs point to a twenty five
Speaker 2: basis point rate cut, But could the central bankers go
Speaker 2: even bigger? And how does the FED sea inflation, the
Speaker 2: labor market and other fundamentals of the US economy. For more,
Speaker 2: we're joined by Michael McKee, Bloomberg International Economics and Policy correspondent. Well, Michael,
Speaker 2: thank you so much for being here. Let's just start
Speaker 2: with what you expect the FED to decide this week,
Speaker 2: how you think sentiment will be split among the voting
Speaker 2: members of the FOMC, and what does the FED sea
Speaker 2: as far as inflation they're dual mandates of inflation and
Speaker 2: the labor market.
Speaker 5: Well, a lot of interesting questions there, which is something
Speaker 5: that I hadn't been able to say going into a
Speaker 5: lot of FED meetings in recent months. The Fed is
Speaker 5: probably going to do it's twenty five basis point cut.
Speaker 5: The data that have come in suggests that the economy
Speaker 5: is weakening on the labor mandate side, still an issue
Speaker 5: on the the inflation side, which will keep them from
Speaker 5: doing fifty basis points. But the question is what do
Speaker 5: they do after the September seventeenth meeting, And that's where
Speaker 5: we may see some market moving or things that will
Speaker 5: cause the markets not to move if you get what
Speaker 5: I mean in the sense that if the markets are
Speaker 5: expecting something there's a potential for surprise, and that is
Speaker 5: what do they think the path is going forward? Is
Speaker 5: the inflation that we got this past week enough to
Speaker 5: warn them off of saying anything specific about October and
Speaker 5: December those FED meetings? And what does the dot plot
Speaker 5: say about next year and the path of rates going forward?
Speaker 5: Do they lower the terminal rate? Do they say that
Speaker 5: rates are going to go even lower than the markets
Speaker 5: had anticipated, which they have said is about three percent.
Speaker 5: So there are a lot of open questions out there
Speaker 5: that people are going to be asking, and the idea
Speaker 5: of what they think about inflation is going to be
Speaker 5: a good question for J.
Speaker 1: Powell.
Speaker 2: Well, let's talk about inflation, because this last week we
Speaker 2: got a couple of reads. We got producer price index
Speaker 2: which actually surprised to the upside a little bit, not
Speaker 2: much down one tenth of a percent. Consumer prices though
Speaker 2: a little bit hotter than forecast, higher costs for housing
Speaker 2: and of course food, not good news for this president
Speaker 2: who insists the food prices have been plummeting on his watch.
Speaker 2: What were your big takeaways from that, CPI read in August.
Speaker 5: Well, there is a political component to it, and the
Speaker 5: food and gasoline prices were up significantly, and so that's
Speaker 5: not going to be a good look for the president.
Speaker 5: But what was really interesting is it wasn't so much
Speaker 5: the goods prices that went up as the services prices.
Speaker 5: The goods prices we expected to rise because we thought
Speaker 5: the tariffs would leak into the data, but things like furnishings.
Speaker 5: Household furnishings only up a tenth of a percent, toys
Speaker 5: were down eight tenths of a percent. But we saw
Speaker 5: service prices, particularly for things like airline fares lodging away
Speaker 5: from home, those went up significantly. And if service prices
Speaker 5: are going up unrelated to tariffs, that's an inflation problem
Speaker 5: that the Fed will have to address in a different
Speaker 5: way than the way they would think about it in
Speaker 5: terms of tariff driven inflation. So they're going to have
Speaker 5: to keep a close eye on this, which is why
Speaker 5: I think, to answer my own question that I posed
Speaker 5: about what do they do for October in December, I
Speaker 5: think they kind of punt on giving serious guidance on
Speaker 5: that because they'll want to see more data between now
Speaker 5: and then.
Speaker 2: Did you see any other good news as far as inflation.
Speaker 5: Yeah, in some areas of service prices. Medical care services
Speaker 5: were down a tenth of a percent, recreation services down
Speaker 5: two tents. And people thought that those would be areas
Speaker 5: that might rise because they had risen in previous months
Speaker 5: service price increases. In this case they did not. So
Speaker 5: it's not an easy thing to say what is causing
Speaker 5: the service price inflation to rise, and that's something the
Speaker 5: FED is going to want to investigate.
Speaker 2: Well, let's talk then about the labor market, which every
Speaker 2: sign we're seeing it continues to weaken. And just this
Speaker 2: past week we got what a near four year high
Speaker 2: on jobless claims. What's your read on that and what
Speaker 2: is the FED see?
Speaker 5: You need to take it with a little bit of
Speaker 5: caution because the last week before this past week when
Speaker 5: the jobless claims were tallied was the week with Labor
Speaker 5: Day and a holiday. Is always difficult to seasonally adjust
Speaker 5: for the Department of Labor because the holidays move around.
Speaker 5: So in this case we can look at it with
Speaker 5: a sort of a jaundic sty say this is something
Speaker 5: to worry about if it continues.
Speaker 2: The Fed's two day policy meeting kicking off this Tuesday,
Speaker 2: a decision Wednesday, followed by a Jerome Powell press conference
Speaker 2: our thanks to Michael McKee, Bloomberg International Economy and Policy correspondent.
Speaker 2: We move next to corporate earnings from the shipping and
Speaker 2: logistics giant FedEx, coming out on Thursday after Wall Street's
Speaker 2: closing bell, just ahead of the industry's peak holiday shipping season.
Speaker 2: How are rising costs, worries about US consumer spending, and
Speaker 2: the end of deminimous exemptions on small package shipments into
Speaker 2: the US all impacting the company? For more, we're joined
Speaker 2: by Lee Clasgow, Bloomberg Intelligence Senior Transport, Logistics and shipping analysts. Lee,
Speaker 2: thank you so much for joining us. You know, FedEx
Speaker 2: coming off a very solid earnings beat for the springs
Speaker 2: fourth quarter, saying it's successfully slashed four billion in costs.
Speaker 2: It plans to cut a billion more this fiscal year.
Speaker 2: But FedEx and the whole industry now facing a lot
Speaker 2: more headwinds. So what are you expecting to see in
Speaker 2: this week's earnings results.
Speaker 6: Yeah, it's gonna be tough. They're facing a lot of headwinds.
Speaker 6: A lot of those headwinds are related to the kind
Speaker 6: of more protectionist stances from the Trump administration. One of
Speaker 6: those which actually had bi partisans support back in the
Speaker 6: Biden days was getting rid of demnimous exemptions, which really
Speaker 6: allows lower value goods to be imported into the United
Speaker 6: States without facing any duties or tarifs. And that that
Speaker 6: floor was at eight hundred dollars and so what that
Speaker 6: did is allowed a lot of e commerce providers outside
Speaker 6: the United States to directly shift to consumers. So you know,
Speaker 6: if you bought that thing, that that skirt or T
Speaker 6: shirt from Sheen or something off of Team U or
Speaker 6: even off of the Amazon marketplace, some of that stuff
Speaker 6: might have been originated in China and you know it's
Speaker 6: going into the United States and kind of avoiding custom
Speaker 6: duties because of that loophole. And you know, they got
Speaker 6: rid of that loophole for imports that are going into
Speaker 6: the United States from China and Hong Kong in May.
Speaker 6: They also got rid of that loophole for everyone else
Speaker 6: at the end of last month. So you know, we're
Speaker 6: really going to start to see the impact. And you know,
Speaker 6: FedEx kind of doesn't report on a calendar basis. They
Speaker 6: have on physical basis. And you know we heard from
Speaker 6: UPS already and they said, you know, for two months
Speaker 6: of their quarter that they reported which this will be
Speaker 6: included in FedEx earnings, is that you know, their China
Speaker 6: to US business was down pretty significantly and we expect
Speaker 6: that read through to apply to FedEx as well. And
Speaker 6: then you know, FedEx is also dealing with, you know,
Speaker 6: a weaker industrial economy. People don't really think of FedEx
Speaker 6: as a trucking company, but they're they're actually the largest
Speaker 6: less than truckload provider. That's a business that they're looking
Speaker 6: to spin off, but they still operate it and it's
Speaker 6: really tied to you know, industrial production is m and
Speaker 6: the ism has been you know, contraction territory for I
Speaker 6: believe thirty one out of the last thirty three months.
Speaker 6: So you know that's going to definitely weigh on tonnage.
Speaker 6: So you know, volumes are really facing headwinds, whether it's
Speaker 6: their parcel international parcel business or their you know, less
Speaker 6: than trucklo business and FedEx freight.
Speaker 2: Now these are big changes, right, I mean, we could
Speaker 2: really see a significant hit to earnings, maybe not in
Speaker 2: this report, but certainly in the next one.
Speaker 6: Yeah, you know, I think all eyes will be on,
Speaker 6: you know, any guidance that the company is able to offer.
Speaker 6: Companies in my world have been less apt to provide
Speaker 6: guidance at least longer, longer term guidance, just because of
Speaker 6: the uncertainty tied around the trade policies out of Washington,
Speaker 6: which has created a significant amount of volatility and uncertainty.
Speaker 6: We'll see kind of where management thinks they're going to be.
Speaker 6: My guess is though they probably will provide, if any insight,
Speaker 6: maybe into their second quarter. Just again, given that, you know,
Speaker 6: everyone's crystal ball is quite foggy and correct right now.
Speaker 2: Yeah, yeah, Well, well let's talk about something you brought
Speaker 2: up is the possibility of spinning off FedEx Freight. But
Speaker 2: FedEx had a couple of initiatives Drive and Network two
Speaker 2: point zero. How have the company cut costs and shed businesses?
Speaker 2: How has that impacted the business? And what is there
Speaker 2: left besides FedEx Freight to cut?
Speaker 6: Yeah, so, you know, looking at FedEx as a whole,
Speaker 6: you know, they're doing a number of initiatives you mentioned
Speaker 6: Driver Network two point zero that are trying to take
Speaker 6: out costs of the network. Is what they really need
Speaker 6: to do, is they really need to restructure their networks
Speaker 6: to the new reality. You know, the old reality would
Speaker 6: be you know, one hundred envelopes go to a lawyer's office,
Speaker 6: and that FedEx driver would pick up another one hundred
Speaker 6: envelopes to be delivered. And that kind of density really
Speaker 6: helps with margins. And you know, fast forward to today,
Speaker 6: we're all buying things from Amazon or wherever, and we
Speaker 6: get one package per day, and those deliveries are extremely expensive,
Speaker 6: and that's been really weighing on margins. So you know,
Speaker 6: we're not going backwards, we're going forwards. Is probably just
Speaker 6: going to be more B two C UH traffic relative
Speaker 6: to B two B traffic UH. And and so they're
Speaker 6: they're making changes in Those changes include increasing automation, UH,
Speaker 6: reducing overlaps, and networks they're combining uh, you know, slowly
Speaker 6: combining their ground and air networks, something they've been really
Speaker 6: you know, they push back for a number of years
Speaker 6: about doing and then they're finally now leading into that.
Speaker 6: And what I would say is that some of the
Speaker 6: benefits that they're generating from these changes were probably not
Speaker 6: going to really see them that much, because to really
Speaker 6: see them, you need you need good volume growth, You
Speaker 6: need that that that that operational leverage that you're going
Speaker 6: to get. So I suspect, you know, when things do
Speaker 6: turn around. You know. Again, the big question is when
Speaker 6: you are going to see that flywheel start operating in
Speaker 6: that that operating leverage, generating better margins than they are today.
Speaker 6: But the but the problem is is that you know
Speaker 6: FedEx and and you know it's competitor ups kind of
Speaker 6: a show me stories because they're both undergoing these kind
Speaker 6: of restructurings. And we really have to see a how
Speaker 6: these companies look coming out of these restructurings and from
Speaker 6: an operational standpoint when I'm talking about restructurings. And then
Speaker 6: also you know, b what does that new network from
Speaker 6: a profitability standpoint look like when volumes are back on
Speaker 6: track for growth.
Speaker 2: Hello, a lot to look forward to. FedEx fiscal first
Speaker 2: quarter earnings out this Thursday after Wall Street's closing bell
Speaker 2: Our thanks to Lee Klascal, Bloomberg Intelligence senior Transport, Logistics
Speaker 2: and Chipping analysts and coming up on Bloomberg Day Break weekend,
Speaker 2: President Trump heads to the UK. I'm Tom Busby, and
Speaker 2: this is Bloomberg. This is Bloomberg Day Break Weekend, our
Speaker 2: global look ahead at the top stories for investors in
Speaker 2: the coming week. I'm Tom Busby in New York. Up
Speaker 2: later in our program and look ahead to a monetary
Speaker 2: policy decision from the Bank of Japan. But first, just
Speaker 2: a few weeks after President Trump's personal visit to Scotland,
Speaker 2: He's headed back to the UK, where he's expected to
Speaker 2: mix royal mingling with important geopolitical discussions on a three
Speaker 2: day trip. But the visit takes place under the shadow
Speaker 2: of the sacking of Peter Mandelssohn as the UK's US
Speaker 2: ambassador for previous links to disgrace financier Jeffrey Epstein for more,
Speaker 2: Let's go to London and bring in Bloomberg day Break
Speaker 2: euro banker Caroline Hepger.
Speaker 3: Tom Britton's ambassador to Washington, Peter Mandelsson, has recently been
Speaker 3: removed from his post after further revelations about the extent
Speaker 3: of his relationship to the late p Dephar financier Jeffrey Epstein.
Speaker 3: That decision comes only days before President Donald Trumps state
Speaker 3: visit to Britain, the UK ambassador to Washington usually playing
Speaker 3: a key role in those events, and it complicates what
Speaker 3: is an already careful, fully choreographed few days. It's an
Speaker 3: event that will be important to UK Prime Minister Kirs Starmer,
Speaker 3: who has prioritized good relations with Donald Trump since taking
Speaker 3: office just over a year ago, stressing the importance of
Speaker 3: Britain's defense and security alliance with America and taking care
Speaker 3: not to openly criticize Trump's tariff policies. When Stalmer visited
Speaker 3: the Oval Office back in February, he brandished the King's
Speaker 3: invitation to Trump, which the U S President called an honor,
Speaker 3: describing King Charles as a beautiful and wonderful man. Those
Speaker 3: overtures appear to be paying off, at least in part.
Speaker 3: The UK became the first country to sign a tariff
Speaker 3: reduction deal with the US in May, with some of
Speaker 3: it already implemented. However, some tensions remain. For example, steel
Speaker 3: is an area of issue. UK officials are still working
Speaker 3: to secure a deal that would remove the twenty five
Speaker 3: percent US tariffs on the sector, as to a drag
Speaker 3: on for months after Prime Minister Starmer and President Trump
Speaker 3: agreed a broader tariff cutting plan. There are also geopolitical
Speaker 3: issues too, with the potential to spark turbulence in the
Speaker 3: so called special relationship. The US Ambassador to Israel said
Speaker 3: last month that the UK and France have handed victory
Speaker 3: to hamas by announcing intentions to recognize a Palestinian state.
Speaker 3: The visit also takes place during a testing time at
Speaker 3: home for Starmer. He's facing scandal within his own party
Speaker 3: and he's battling challenges from the right wing party Reform UK,
Speaker 3: who have proven popular in the polls. The group's leader,
Speaker 3: Nigel Faragh, recently visited the White House at the invitation
Speaker 3: of Donald Trump. Bloomberg's London bureau chief Ruth David explains
Speaker 3: why that trip spoke volumes.
Speaker 7: That photograph of him standing with President Trump. I mean
Speaker 7: a photo speaks more than all of the real of
Speaker 7: coverage right to have that kind of backing and to
Speaker 7: have that kind of support globally. We saw Tony Blair
Speaker 7: going to the US, We're seeing Nigel Farad and the
Speaker 7: question is where is Gastamo? And I know Donald Trump
Speaker 7: is coming to the UK later, but it definitely seems
Speaker 7: to be like for urges riding on a hype.
Speaker 3: That was Bloomberg's, with David speaking there to Bloomberg's Tom
Speaker 3: McKenzie and Guy Johnson. So will the honor of a
Speaker 3: royal banquet be enough to curry the favor of President Trump?
Speaker 3: Is something I've been discussing with Bloomberg's political correspondent Ellen Milligan. Ellen, just, firstly,
Speaker 3: what are we expecting to see President Trump do on
Speaker 3: this second state visit that he's paying to the UK.
Speaker 8: Yes, I mean this has never happened before that. Only
Speaker 8: other US presidents who have had a state visit were
Speaker 8: Barack Obama and George Bush. But no other president has
Speaker 8: had two state visits. This one will be a bit
Speaker 8: different from the last. First of all, what will be
Speaker 8: hosted by King Charles. The last one in twenty nineteen
Speaker 8: was obviously hosted by the Late Queen. The other big
Speaker 8: change is that it will be primarily hosted at Windsor
Speaker 8: Castle because Buckingham Palace is undergoing renovations. So there will
Speaker 8: be the usual traditional state banquet, the exchange of gifts
Speaker 8: between the King and Queen and the President and the
Speaker 8: First Lady. Usually they have some kind of private meeting,
Speaker 8: either over lunch or tea when the President first greets them.
Speaker 8: Then they'll have this banquet where we're expecting a lot
Speaker 8: of famous businessmen and celebrities, as well as the border
Speaker 8: royal family to be there, like Prince William, who Trump
Speaker 8: has also met before. And then after all that pageantry,
Speaker 8: there'll be the political portion where Trump goes to visit
Speaker 8: Prime Minister in his countryside estate at Chequers for a
Speaker 8: bilateral meeting.
Speaker 3: Huge opportunity then for the UK to be front of
Speaker 3: the you know, to show off what they want to offer.
Speaker 3: I'm sure in terms of business ties, Kis Starmer will
Speaker 3: surely be trying to use this as kind of bargaining power.
Speaker 3: What do you think is going to be his main message?
Speaker 8: Yeah, I mean the Prime Minister is effectively using the
Speaker 8: King as his chief diplomat and it's already paid off
Speaker 8: for the UK. I mean, you'll remember the moment where
Speaker 8: Kis Starmer visited the White House in February and brandished
Speaker 8: this letter hand signed by the King himself inviting the
Speaker 8: President over to the UK again. That I think, in
Speaker 8: large part has been why Trump and Starma have managed
Speaker 8: to establish a close relationship despite their political differences. And
Speaker 8: you know, the UK was the first country to sign
Speaker 8: a trade agreement where they avoided the same level severe
Speaker 8: tariffs that other allies did. He Trump was also hosted
Speaker 8: by the UK in Scotland couple of months ago. That
Speaker 8: was a private visit but had very much a political
Speaker 8: element where he was mostly promoting his golf courses but
Speaker 8: also had a meeting with Starma and with the EU's
Speaker 8: Wonder Lion while there as well. So it's already paid
Speaker 8: off for Starma. I think he's hoping that other deals
Speaker 8: could be struck, potentially on tech, potentially on AI, although
Speaker 8: this state visit will will mostly be about the royal
Speaker 8: element rather than the political one.
Speaker 3: Absolutely, it seems I think to many observers in the
Speaker 3: UK a bit like a Netflix movie Letter to the
Speaker 3: King could have been the title. And it was also
Speaker 3: seen as quite a savvy move by the British Prime
Speaker 3: Minister by some voters because President Trumps still deeply unpopular,
Speaker 3: isn't he amongst a lot of voters? And yet there's
Speaker 3: also an edge to voters in the UK that they
Speaker 3: understand the UK has to try to do well by
Speaker 3: obviously its biggest ally in the world in terms of
Speaker 3: how we should expect then the negotiations to go. Do
Speaker 3: you think that there are going to be specific things
Speaker 3: that Starma can perhaps gain from this, maybe on steel,
Speaker 3: as you say, which is still got levees from the US.
Speaker 3: I mean, Britain managed to get what has been seen
Speaker 3: as a better trade deal than a lot of other countries.
Speaker 8: Yes, that was the big element on steel that was
Speaker 8: missing from the trade deal that they signed back at
Speaker 8: the G seven in Canada in a couple of months ago,
Speaker 8: and that still hasn't been resolved. We've now got a
Speaker 8: new Business and Trade Secretary in the UK and I
Speaker 8: know that the government is pretty desperate to get that sorted.
Speaker 8: Whether that will happen at next week's state visit, I
Speaker 8: think that, you know, I'm not hearing much optimism on that.
Speaker 8: The briefings are more around a kind of agreement on
Speaker 8: quantum or AI or tech, some kind of deal in
Speaker 8: those areas, and there's been reports that various tech billionaires
Speaker 8: are coming over with Trump to join him in the
Speaker 8: state banquet as well. So I think the focus will
Speaker 8: be on that dangers.
Speaker 3: What are the dangers in this state visit? It lasts
Speaker 3: several days. I mean we're expecting some level of protest
Speaker 3: by some groups in the UK and also there it's
Speaker 3: a double edged sword, the relationship, a close relationship with
Speaker 3: President Trump. We've seen some global leaders humiliated. I suppose
Speaker 3: one of the pitfalls people are thinking about.
Speaker 8: There are actually a lot of dangers, and the government
Speaker 8: officials I've been speaking to who have been involved in
Speaker 8: the planning for the state visit are really really worried
Speaker 8: about it. The primary thing is that just days after
Speaker 8: Trump departs, the government is expected to recognize the state
Speaker 8: of Palestine at the United Nations Assembly. Apro the the
Speaker 8: UK US approach to Israel is one of the big
Speaker 8: opposing differences, and the US administration, including Marco Rubio, have
Speaker 8: very much condemned the UK and France's and Canada's plan
Speaker 8: to recognize Palestine. So that will be you know, a
Speaker 8: moment of peril potentially if that's brought up. I mean.
Speaker 8: The other thing is Trump Trump isn't afraid to insult
Speaker 8: various political allies of the Prime Minister. I mean even
Speaker 8: in Scotland he was asked about London Mercedy Khan and
Speaker 8: made very disparaging remarks which Kis Starma had to interrupt
Speaker 8: and remind the President that he was a friend and
Speaker 8: political ally of Kastarmer's. And there are other elements as well,
Speaker 8: on free speech, for example, this is something that jd
Speaker 8: Vance has has lectured and tried to score the UK
Speaker 8: on Trump's vice president also, So there are these political differences.
Speaker 8: And the Prime Minister and the President will be giving
Speaker 8: a joint press conference at the end where they'll be
Speaker 8: probed on some of those issues as well.
Speaker 3: And do you expect Nigel Farage or Reform UK to
Speaker 3: feature at all?
Speaker 8: You know Farage he might get brought up in that
Speaker 8: press conference. For example, Forage to go over to the
Speaker 8: over Office and get and meet President Trump just a
Speaker 8: couple of weeks ago and got his picture standing next
Speaker 8: to the President at his desk. You know they are
Speaker 8: close political allies and Trump isn't you know? It is
Speaker 8: an embarrassed or about the lack of diplomacy that comes
Speaker 8: with saying that in front of the Prime Minister sometimes.
Speaker 8: So I would be surprised if he doesn't know.
Speaker 3: And so what do you think is the best outcome
Speaker 3: for the UK? Just as we think about this opportunity,
Speaker 3: I suppose what do you think will be the images
Speaker 3: that emerge? I mean, could it be from let's say
Speaker 3: the first Lady Milania Trump, who's got her own visit
Speaker 3: with the Queen Camilla. I wonder what you think will
Speaker 3: emerge out of the next few days.
Speaker 8: I think this state visit is going to be one
Speaker 8: of images they want to emerge in one of images
Speaker 8: they very much don't want to emerge. They are intentionally
Speaker 8: avoiding the President giving an address to the UK Parliament
Speaker 8: as typically happens. Mccrong gave his own address to the
Speaker 8: Parliament when he did his state visit earlier this year.
Speaker 8: I think that's to avoid the President trying to school
Speaker 8: politicians on their political differences, but also to avoid a
Speaker 8: major protest outside outside Parliament. They're still expecting protests, there's talks,
Speaker 8: there's lots of reports about the heightened security in Windsor,
Speaker 8: so it will be one Kisdama will want to avoid
Speaker 8: any of those kind of era clashes that are at risk,
Speaker 8: and he'll want to get those deals, as I said,
Speaker 8: potentially on steal, on tech and also to just the
Speaker 8: King will want to give Trump a really good time,
Speaker 8: charm him, shower him with the pageantry that comes with
Speaker 8: spending time with the royal family.
Speaker 3: That was Bloomberg's political correspondent Ellen Milligan looking at this
Speaker 3: second state visit from President Trump. In the coming few days,
Speaker 3: we'll have full coverage of this historic event, the visit
Speaker 3: to Windsor and more across Bloomberg platforms. I'm Caroline Hepkee
Speaker 3: here in London. You can catch us every weekday morning
Speaker 3: for Bloomberg Daybreak Europe, beginning at six am in London.
Speaker 3: That's one am on Wall Street. Tom.
Speaker 2: Thank you, Caroline, And coming up on Bloomberg day Break
Speaker 2: weekend and meeting this week at the Bank of Japan.
Speaker 2: We'll discuss what that means from monetary policy there. That's
Speaker 2: up next. I'm Tom Busby, and this is Bloomberg. This
Speaker 2: is Bloomberg day Break Weekend, our global look ahead at
Speaker 2: the top stories for investors in the coming week. I'm
Speaker 2: Tom Busby in New York. Policymakers at the Bank of
Speaker 2: Japan convening this week, and most BOJ watchers expect a
Speaker 2: lift to the benchmark interest rate by January, though some
Speaker 2: surveyed by Bloomberg se October as the most likely time
Speaker 2: given amplified political uncertainty. For more, let's get to the
Speaker 2: host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4: Tom Japan is now confronting a major shift in the
Speaker 4: outlook for politics and government policy. The country will soon
Speaker 4: get a new prime minister following the resignation of Shiguru Ishiba.
Speaker 4: For a closer look at the terrain in Japan four markets.
Speaker 4: I'm joined by Mia Glass. She is Japan FX and
Speaker 4: rates reporter for Bloomberg News. Mia joins us from our
Speaker 4: studios in Tokyo. Mia, thank you so much for joining me.
Speaker 4: I think it's fair to say that the BOJ is
Speaker 4: known for being an especially cautious central bank, and I'm
Speaker 4: wondering whether you think it's likely that we're going to
Speaker 4: get any change in monetary policy in the coming week, right.
Speaker 9: Thank you so much for having me. So for the
Speaker 9: BOJ meeting next week, I don't think there's any chance
Speaker 9: of a great hike. I think it's pretty widely expected
Speaker 9: that there will be no hike at this meeting. But
Speaker 9: just to set the stage, the Bank of Japan hasn't
Speaker 9: hiked since January. There was a lot of tariff uncertainty
Speaker 9: since April, and now there's a lot of political uncertainty
Speaker 9: after Prime Minister Ishiba announced that he's going to step down.
Speaker 9: So we have meetings in September, October, and December still
Speaker 9: of this year, and although there won't be a hike
Speaker 9: next week, there's still a possibility that the BOJ could
Speaker 9: hike this year. And we actually had a Bloomberg story
Speaker 9: this week saying that Bank of Japan officials have the
Speaker 9: view that it might be possible to raise the interest
Speaker 9: rate again this year, regardless of the domestic political instability,
Speaker 9: and that really has to do with the fact that
Speaker 9: economic data has been really in line with xpectations. So
Speaker 9: although there is still that uncertainty from the US trade
Speaker 9: deal and the political uncertainty in Japan, BOJ officials do
Speaker 9: think that there could still be a hike this year.
Speaker 9: And we had a survey as well that came out
Speaker 9: that said that most BOJ watchers expect a hike by January,
Speaker 9: and October is still the most popular timing. It's the
Speaker 9: proportion of people who expect October tick down a little
Speaker 9: bit because of the political uncertainty, but October is definitely
Speaker 9: still a possibility.
Speaker 4: So we know Japan will have a new prime minister
Speaker 4: soon now that Chiguru Ishiba has resigned. It seems as
Speaker 4: though high inflation on a relative basis was a big
Speaker 4: factor in this. Give me a sense of how inflation
Speaker 4: in Japan has been behaving.
Speaker 9: Yeah, so, Japan's inflation has stayed at or above the
Speaker 9: boj's two percent target for more than three years now,
Speaker 9: and we even had US Treasury Secretary Scott Bessen said
Speaker 9: that the BOJ is kind of falling behind the curve
Speaker 9: and tackling inflation, and that has also been a lot
Speaker 9: of the reason why JGB yields, particularly on the longer end,
Speaker 9: are rising so much recently. So that was definitely a
Speaker 9: part of why Ishiba had such a terrible election in
Speaker 9: July and another reason why we had he had to
Speaker 9: step down, And so that will definitely be part of
Speaker 9: the Bank of Japan's mission to tackle inflation and to
Speaker 9: bring those JGB yields down. So it'll definitely be important
Speaker 9: to watch to see how the Bank of Japan is
Speaker 9: going to signal next week about their great hike path.
Speaker 4: You mentioned jgb's a moment ago, and I know we
Speaker 4: have an auction of twenty year jgb's coming up in
Speaker 4: the week ahead. I'm curious, is there a way to
Speaker 4: gauge right now what the market appetite may be.
Speaker 9: Yeah, So recently we've been having better auctions than we
Speaker 9: have in the past. So a lot of this attention
Speaker 9: on auctions really started back in May when we had
Speaker 9: a really bad twenty year auction, the worst Aman in
Speaker 9: more than a decade, and it really sent global yields higher.
Speaker 9: So basically since then, there's been a lot of attention
Speaker 9: on these auctions, and particularly in the longer end. This
Speaker 9: is going to be the first super long bond auction
Speaker 9: since Prime Minister Ishiba announced his plan to step down,
Speaker 9: and with all a concern in the bond market about
Speaker 9: fiscal policy and political uncertainty, it's going to be really
Speaker 9: important to watch that twenty year auction and see if
Speaker 9: there is demand there to gauge how the bond market
Speaker 9: is feeling about the political situation.
Speaker 4: Talk to me a little bit about this new chapter
Speaker 4: in Japanese politics and what it may mean for the
Speaker 4: way in which the Bank of Japan operates going forward.
Speaker 9: Yeah, So the leadership election for the LDP is set
Speaker 9: for October fourth, which is kind of a tricky timing
Speaker 9: for the BOJ. I mean, they have their next after September.
Speaker 9: Their next meeting is going to be in October, so
Speaker 9: it's really tricky timing for the BOJ and it really
Speaker 9: depends on who becomes the new prime minister. So we're
Speaker 9: looking at a couple leading contenders. So we have Sanai
Speaker 9: a Takaichi, who favors stimulus measures and would also likely
Speaker 9: prefer the BOJ to take a more cautious view on
Speaker 9: rate hikes. And then Shinjio Koizumi, he's another potential candidate,
Speaker 9: but he would most likely just continue with the current
Speaker 9: administration's views and he would support raising interest rates. So
Speaker 9: depending on who comes into office, we could have a
Speaker 9: drastic change. And you know how the BOJ operates. So
Speaker 9: I think the political situation would be really important to watch.
Speaker 9: And as you mentioned, globally, this is a really important
Speaker 9: time to be watching politics for the bomb market. We
Speaker 9: have political turmoil in France, and then in the US
Speaker 9: we also have concerns about the Fed's independence. We also
Speaker 9: have the tax cut and spending your bill, so that's
Speaker 9: sending globally Longa Mountains higher. So it's not really just
Speaker 9: a problem in Japan. It's happening all around the world.
Speaker 4: Okay, Miya, Before I let you go, talk to me
Speaker 4: a little bit about how tariffs that were put in
Speaker 4: place by the Trump administration, how they have been impacting
Speaker 4: the Japanese economy.
Speaker 9: Right, So President Trump signed an executive order implementing the
Speaker 9: trade agreement with Pan and that's a maximum fifteen percent
Speaker 9: tariff on most of its products that includes automobiles parts,
Speaker 9: and so the deal also includes this promise that Japan
Speaker 9: will create a five hundred and fifty billion dollar US
Speaker 9: investment fund. But there's a bit of a disconnect between
Speaker 9: what Trump thinks of that investment fund versus what Japan
Speaker 9: thinks of it. So Trump has previously said that that
Speaker 9: five hundred and fifty billion dollar investment fund will be
Speaker 9: money that his administration could invest as they like, with
Speaker 9: ninety percent of the profits being given to the US
Speaker 9: by Japan versus Japan kind of sees it as more
Speaker 9: of a combination of investments and loans and loan guarantees.
Speaker 9: So there's a bit of a disconnect there, and the
Speaker 9: market is really uncertain uncertain about how that's going to
Speaker 9: play out. And of course, if that really is how
Speaker 9: Trump's saying it's going to be, then that's going to
Speaker 9: impact the economy, that's going to weaken the yen. So
Speaker 9: it'll be really important still to watch how that plays out.
Speaker 9: There's a lot of uncertainty there. The trade deal obviously
Speaker 9: also matters because Japan is really an export driven economy,
Speaker 9: so we've seen export value decline but volume has risen,
Speaker 9: which shows that a lot of carmakers have been cutting
Speaker 9: prices while maintaining the volume of their exports to the US,
Speaker 9: so they're sacrificing those profit margins. And the impact of
Speaker 9: the terraffs has been limited a bit on the GDP
Speaker 9: of Japan. So Japan's economy is still growing. But I
Speaker 9: think a lot of economists are saying that we could
Speaker 9: still see the impact from Terra's play out on Japan.
Speaker 9: So that'll be an important area to watch for the
Speaker 9: BOJ as well.
Speaker 4: Okay, Mia, thank you so much. We'll leave it there
Speaker 4: as we look ahead to the BOJ meeting next week.
Speaker 4: She is Mia Glass, Japan FX and rates reporter for
Speaker 4: Bloomberg News, joining us from our studios in Tokyo. Staying
Speaker 4: in Japan. We turn next to politics and the resignation
Speaker 4: of Shigeru Ishiba. This came after back to back losses
Speaker 4: that cost his Liberal Democratic Party it's parliamentary majority. Now
Speaker 4: in a column published last week Bloomberg Opinions, Garode ready
Speaker 4: characterized Ishiba's assent as a gamble. I had the chance
Speaker 4: to speak with Garod and began by asking him whether
Speaker 4: Ishiba's resignation came as a surprise.
Speaker 10: I think the only thing that was surprising about it
Speaker 10: was how long it took. Its seven or eight weeks
Speaker 10: since the upper House election defeat that, as you say,
Speaker 10: is the second majors we indeed the third major defeat
Speaker 10: that Ishiba had as LDP leader, in addition to the
Speaker 10: lower house defeat last year and the Tokyo a smble
Speaker 10: the election earlier this year. As you know, as you say,
Speaker 10: Ishiba was Ishiba was brought in to fix a problem,
Speaker 10: and the problem was the LDP's declining popularity that was
Speaker 10: under the previous Prime Minister of Fumio Kishida. Ishiba was
Speaker 10: brought in as a new face, new lick of paint
Speaker 10: on the party. He wasn't tainted by any of the scandals,
Speaker 10: nor should I say, actually it was Kishidabakishida was the
Speaker 10: one who was sort of like handling them, so he
Speaker 10: kind of became associated with them. Ishiba was quite scandal free,
Speaker 10: clean politician, believed to be popular. But when he came in,
Speaker 10: he did not see the actual bounce in approval ratings
Speaker 10: that we would associate with a new leader coming in,
Speaker 10: and ultimately, you know, the LDP is a large organization,
Speaker 10: and what they are there to do is to is
Speaker 10: to win elections, and what the leader is there to
Speaker 10: do is to win elections. Ishiba proved that he couldn't
Speaker 10: do that, and as I say, the only surprising thing
Speaker 10: is that he didn't go earlier. He dragged it out
Speaker 10: a little bit longer than frankly I think it needed to.
Speaker 4: Maybe you can help me understand the possible successors to Ishiba?
Speaker 4: Are there any obvious candidates?
Speaker 10: The two leading candidates at the moment, I should say
Speaker 10: it's very early in the day. We had in memory
Speaker 10: serves nine candidates last year in the race that eventually
Speaker 10: was won by Ishiba. The two leading candidates would be
Speaker 10: the people who came second and third in that election
Speaker 10: last year. That's sanai A Takaichi and Shinjiro Koizumi Takeichi first.
Speaker 10: If she became the leader and then was elected prime minister,
Speaker 10: it's you know, no quite likely, but no longer guarantee
Speaker 10: because the oldp is no longer the largest party in
Speaker 10: the lower house. She would become the first female prime
Speaker 10: minister in Japan. She is a self declared heir of
Speaker 10: Shinzo Abbe and his politics and his you know, Abinomics policies.
Speaker 10: She is we should say, yeah, she's definitely very popular
Speaker 10: with the right wing and especially with people who did
Speaker 10: not like Ishiba. They really represent two polls on either
Speaker 10: side of the party, so she's definitely a leading candidate.
Speaker 10: I would say. She finished second in the runoff election
Speaker 10: against Ishiba last year, and what you saw was basically
Speaker 10: concerned that she might have rather similar flaws to what
Speaker 10: Ishiba turned out to have in that she only appeals
Speaker 10: maybe to one section of the party, and that in
Speaker 10: her case is the right wing. The other candidate, as
Speaker 10: I mentioned, is Shinjiro Koizumi. He's the son of the
Speaker 10: former Prime Minister Janichiro Koizumi, who listeners might remember was
Speaker 10: Prime minister in the early to mid two thousands while
Speaker 10: George W. Bush was the president in the US. He's
Speaker 10: very young, he's a little inexperienced, but he has had
Speaker 10: quite an impressive year. He came in as Agriculture minister
Speaker 10: early on this year to deal with the rice prices
Speaker 10: that I mentioned earlier, and very immediately and effectively was
Speaker 10: able to generate a downturn in rice prices by chaining
Speaker 10: how the country was releasing its reserves of rice that
Speaker 10: will have certainly one of some plaudits. He's believed to
Speaker 10: be quite popular with the public. He's young, he's good looking,
Speaker 10: he's charismatic. He has a celebrity wife and a young family,
Speaker 10: so he has a lot of things going for him.
Speaker 10: Those would be the two leading candidates I think at
Speaker 10: the moment.
Speaker 4: That is Bloomberg opinion columnist Gerode Ready and I'm Doug Chrisner.
Speaker 4: Catch us weekdays for the Daybreak Asia podcast. It's available
Speaker 4: 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, in the news you need to start
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