Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 1: top stories in the coming week from our Daybreak anchors
Speaker 1: all around the world. Straight Ahead on the program, we'll
Speaker 1: look to the January jobs report and how that could
Speaker 1: affect fed policy. I'm Nathan Hager in Washington.
Speaker 2: I'm callin Hepga in London, where we're discussing snow, ice
Speaker 2: and geopolitics the twenty twenty six Winter Olympics in Italy.
Speaker 3: I'm Doug Prisner looking ahead to the snap election in
Speaker 3: Japan and what the outcome means for the Japanese economy.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend. I'm Bloomberg
Speaker 4: eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
Speaker 4: Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Syrias
Speaker 4: XM one twenty one, and around the world on Bloomberg Radio,
Speaker 4: dot Com and the Bloomberg Business Appo.
Speaker 1: Good day to you. I'm Nathan Hager. Let's take a
Speaker 1: look now at some stocks making news in the week ahead.
Speaker 1: I'm Nathan Hagar with Mandeep Saying, Global head of Tech
Speaker 1: Research at Bloomberg Intelligence. Great to have you on is
Speaker 1: we're going to be looking ahead to a lot more
Speaker 1: big tech stocks in the week ahead. What are we
Speaker 1: expecting when it comes to earnings from Google parent Alphabet? Mandy?
Speaker 5: Look, I mean what we saw with Meta was you know,
Speaker 5: accelerating top line growth, and in the case of Google,
Speaker 5: both the search business as well as the YouTube business
Speaker 5: have I would say modest expectations going in the quarter,
Speaker 5: you know, low to mid teens growth. So, I mean
Speaker 5: we've felt double digit growth for Alphabet over the last
Speaker 5: few quarters, what was very impressive given you know, the
Speaker 5: threat from Chat GPT, But I think Meta has really
Speaker 5: raised the bar in terms of digital ad growth in
Speaker 5: the fourth quarter. So I would be looking for accelerating
Speaker 5: top line growth at least high teens growth for YouTube
Speaker 5: and you know, low to maintains growth for the core
Speaker 5: search business of Alphabet.
Speaker 1: Since you mentioned meta platforms, we should say that the
Speaker 1: AI spend from Microsoft seemed to spook a lot of
Speaker 1: investors last week. Given that Alphabet has its Google Cloud business,
Speaker 1: could that be a concern for investors there when it
Speaker 1: comes to AI spend in the cloud?
Speaker 5: You're right, I mean what Microsoft Sprint has shown is
Speaker 5: you can't really miss the cloud growth numbers. So in
Speaker 5: the case of alphabet expectations, our Google Cloud will have
Speaker 5: at least thirty five percent growth. And based on the
Speaker 5: work that we have done, I mean, Google really has
Speaker 5: had some very impressive, impressive deal wins this quarter in
Speaker 5: their cloud segments, so chances are they should do better.
Speaker 5: And remember Google has their TPUs, so they shouldn't be
Speaker 5: as supply constrained as Microsoft probably was in the quarter
Speaker 5: with the GPU situation. So my guess is Google Cloud
Speaker 5: segment would see sequential acceleration and they should be the
Speaker 5: consensus number handedly And.
Speaker 1: How do you see Google's TPU processors fairing compared to
Speaker 1: the GPUs that we get from Nvidia.
Speaker 5: I mean, if there's one theme that we have heard
Speaker 5: so far this earning season is AI infrastructure demand remains
Speaker 5: insatiable and all these companies are wanting to get as
Speaker 5: much you know, compute capacity as they can. So Google's TPUs,
Speaker 5: you know, are used both internally for Google overviews and
Speaker 5: across their family off apps as well as they're used
Speaker 5: on Google Cloud. And so from that perspective, I do think,
Speaker 5: you know, Google should be able to show the most
Speaker 5: efficiency when it comes to AI infrastructure and that should
Speaker 5: get reflected in their growth margins, which I expect to
Speaker 5: be better than the rest of the hyperscalers.
Speaker 1: We're also going to hear from Amazon this week they
Speaker 1: report their earnings. What are you expecting from their cloud
Speaker 1: unit aws?
Speaker 5: Yeah, I mean you want to see all these cloud
Speaker 5: companies show sequential acceleration. It didn't happen with Microsoft, hence
Speaker 5: we saw that negative reaction, and in the case of Atablus,
Speaker 5: I would say expectations again are like for low twenty
Speaker 5: percent growth. So given they are the largest cloud provider,
Speaker 5: I mean they should be able to beat those numbers.
Speaker 5: But look what we have heard so far is supply
Speaker 5: constraints are real when it comes to AI compute capacity
Speaker 5: and that may have a bearing on whether ada BLUs
Speaker 5: ends up beating those consensus numbers or not.
Speaker 1: Is low twenty percent enough to wow investors?
Speaker 5: No, but you want to see that sequential acceleration. So
Speaker 5: I mentioned about the size of Atablus, So that's almost
Speaker 5: one hundred and thirty five billion dollar dollar rundrate business
Speaker 5: for Amazon. Contrast that with Microsoft, which is more one
Speaker 5: hundred billion, and Google Cloud is like sixty billion rund
Speaker 5: rates so given their size, I mean, low twenty percent
Speaker 5: would be in line, but anything more than that would
Speaker 5: be impressive, and I think that would help those dock.
Speaker 1: And along with Amazon and Alphabet. Another a in big
Speaker 1: tech reports this week advanced micro devices. How's the computer
Speaker 1: chip business looking right now? Mandy?
Speaker 5: I mean, look, Meta just told us they plan to
Speaker 5: spend up to one hundred and thirty five billion dollars
Speaker 5: in CAPEX, which is a seventy percent increase from what
Speaker 5: they spent in twenty twenty five. So we were modeling
Speaker 5: like fifty percent increase in CAPEX from hyperscalers going into
Speaker 5: twenty twenty six. Chances are that number will be revised upward,
Speaker 5: and so it will trickle down to the likes of AMD,
Speaker 5: which is is the you know, the second biggest GPU
Speaker 5: provider after Nvidia, and so to my mind, AMDs deal
Speaker 5: with open ai and some of the other business that
Speaker 5: they have won over the last few months should help,
Speaker 5: you know, exceed expectations when they print their results.
Speaker 1: Does a m D need to show more market share
Speaker 1: compared to Nvidia.
Speaker 5: I think this is such a big market that everyone
Speaker 5: is realizing that you don't need to, you know, win
Speaker 5: market share from Nvidia as long as you have a
Speaker 5: good product that you know companies are interested in buying,
Speaker 5: and open Ai has that deal with a m D.
Speaker 5: Now that is a big leap of faith in terms
Speaker 5: of MD's capabilities to supply you know, six gigawatts of
Speaker 5: power that has all a m D chips, and I
Speaker 5: think that should help them win more prize business over time.
Speaker 1: Appreciate this man deep as always. That's Mandeep Saying, Global
Speaker 1: head of Tech Research at Bloomberg Intelligence. We move next
Speaker 1: to some key economic data in the US. Our first
Speaker 1: full look at the labor market for twenty twenty six
Speaker 1: so far comes out this Friday at eight thirty Wall
Speaker 1: Street time, and we get non farm payrolls for January.
Speaker 1: Ahead of that. We're joined by Michael McKee, our international
Speaker 1: economics and policy correspondent for Bloomberg Radio and Television.
Speaker 6: Mike.
Speaker 1: The theme we keep hearing from the data leading up
Speaker 1: to this report is this is a low, higher, low
Speaker 1: fire labor market. So are we expecting to see that
Speaker 1: reflected in the Big Daddy report coming out this week?
Speaker 7: That is what we are expecting to see. The interesting
Speaker 7: thing about this report, of course, is it's the first
Speaker 7: one since the government shutdown ended. That isn't going to
Speaker 7: be distorted by the government shutdown. It's a full month
Speaker 7: of data collected and the normal processing time. So to
Speaker 7: the extent that it tells us something about where the
Speaker 7: labor market is, it should be relatively accurate. The Fed
Speaker 7: last week, in their assessment of the economy at their
Speaker 7: meeting said that while we were still seeing low hiring,
Speaker 7: the unemployment rate seems to have stabilized, so they seem
Speaker 7: to think that things are getting a little bit better.
Speaker 1: Okay, so how could we see that reflected in the
Speaker 1: data itself. Where are we seeing signs of studying in
Speaker 1: the labor market.
Speaker 7: Well, the biggest is in the unemployment rate. It fell
Speaker 7: last time last month for the December number to four
Speaker 7: point four percent, and we're not expecting that to change.
Speaker 7: According to the economists survey by Bloomberg stays at four
Speaker 7: point four percent, so a sign of stability there. And
Speaker 7: the interesting thing is the December payrolls report was only
Speaker 7: fifty thousand. Obviously we will get some sort of revision,
Speaker 7: but right now we're looking at seventy thousand is the
Speaker 7: forecast by economists for January, so that would be a
Speaker 7: little bit stronger and we saw in the month before.
Speaker 1: But still pretty subdued compared to where we've been historically.
Speaker 1: So what could this mean for the Federal Reserve going forward?
Speaker 7: Well, the FAT doesn't know, and that's one of the
Speaker 7: things that they're going to be looking at. The whole
Speaker 7: question surrounds all of these low numbers. Is it because
Speaker 7: companies don't want to hire right now? Or is it
Speaker 7: because they don't have people to hire? In other words,
Speaker 7: has the administration's cracked down on immigration and the ejection
Speaker 7: of people from the economy and scaring people into staying
Speaker 7: home from work. Does that mean that there are fewer
Speaker 7: people to hire? And that's one of the big reasons
Speaker 7: that we're not seeing the same kind of payroll growth,
Speaker 7: and it's going to take a while to figure that out.
Speaker 7: We do, however, Nathan, get an update on the population estimates.
Speaker 7: This comes once a year in January, and that should
Speaker 7: change that should that will make December and January numbers
Speaker 7: not quite comparable, and it does figure to change the
Speaker 7: labor force participation rate perhaps a little bit. So we'll
Speaker 7: be starting fresh, but also having some sort of idea
Speaker 7: of what's going on.
Speaker 1: Yeah, there's also the big question about whether artificial intelligence
Speaker 1: is playing a role in labor market dynamics as well.
Speaker 1: We've heard that from a number of Federal Reserve speakers.
Speaker 1: Where's the thinking on that right now?
Speaker 7: Well, the thinking is is that artificial intelligence will take
Speaker 7: a larger and larger share of the labor force, but
Speaker 7: we're not completely clear on where it is. The logical
Speaker 7: answer is that we'll see lower paid, lower skilled people
Speaker 7: lose their jobs to computers. But of course people are
Speaker 7: talking about folks in the finance industry or folks in law,
Speaker 7: especially at the lower ends, the beginning, the interns, they
Speaker 7: would lose their jobs because then the computer can do
Speaker 7: it all. So we are expecting some sort of change,
Speaker 7: but the question is how fast. And that's where some
Speaker 7: people at the Fed are concerned that maybe we're getting
Speaker 7: ahead of ourselves in terms of the in terms of
Speaker 7: the impact on today's jobs reports, because companies are starting
Speaker 7: to adopt this stuff, but they haven't had a lot
Speaker 7: of time to figure out who they don't need anymore.
Speaker 1: And of course there's a lot of question, a lot
Speaker 1: of focus at the White House on job growth, the
Speaker 1: whole idea of trade policy coming out of the Trump
Speaker 1: administration is that it's going to boost manufacturing jobs. Are
Speaker 1: we seeing any signs that that is starting to take hold?
Speaker 5: No.
Speaker 7: Since the president came to office, we've lost manufacturing jobs,
Speaker 7: and that's been one of the flaws in their whole argument.
Speaker 7: We are not seeing manufacturing payrolls go up. Now, we
Speaker 7: don't have an estimate yet for the change in manufacturing payrolls.
Speaker 7: That'll come later in the week as we get close
Speaker 7: to the release. But in December we lost eight thousand
Speaker 7: manufacturing jobs. So there's still a lot of concern about
Speaker 7: where this all goes and whether or not we're going
Speaker 7: to see an increase in manufacturing jobs, because what tends
Speaker 7: to happen is that if a company builds a new factory,
Speaker 7: they put a lot of machines and robots and things
Speaker 7: in there, and so you don't get the additional jobs
Speaker 7: that you thought you might.
Speaker 1: Thanks for this, Mike, As always, that's Michael McKee, Bloomberg
Speaker 1: International Economics and Policy correspondent, head of the non farm
Speaker 1: Payrolls Report for January. This Friday at eight thirty Wall
Speaker 1: Street Time, and coming up on Bloomberg Day Break weekend,
Speaker 1: we'll look ahead to the twenty fifth Winter Olympic Games
Speaker 1: in Italy. I'm Nathan Hagert, and this is Bloomberg. This
Speaker 1: is Bloomberg day Break weekend, our global look ahead at
Speaker 1: the top stories for investors in the coming week. I'm
Speaker 1: Nathan hager in Washington. Up later in our program, we'll
Speaker 1: look ahead to a general election in Japan and we'll
Speaker 1: focus on a policy decision from the Reserve Bank of Australia.
Speaker 1: But first, the twenty fifth Winter Olympic Games kickoff in
Speaker 1: Italy in the next few days. Though the event promises
Speaker 1: fireworks on the sporting stage, could diplomatic tensions between the
Speaker 1: US and Europe threaten to upstage the proceedings for more.
Speaker 1: Let's go to London and bring in Bloomberg Daybreak europe
Speaker 1: Banker Caroline Hepger.
Speaker 2: Nathan, I'm tempted to say that delivering the Milano Cortina
Speaker 2: twenty twenty six Winter Olympics maybe as tricky as pulling
Speaker 2: off one of those wild stunts in the freestyle big
Speaker 2: air competition. The Olympics is meant to be unifying, of course,
Speaker 2: but it can also serve to highlight geopolitical tensions between
Speaker 2: countries with concerns often about sportswashing. Then there's the issue
Speaker 2: of delivering the event, including all the venues in the Alps,
Speaker 2: on time and in some ways sustainably. For this Olympics,
Speaker 2: which begins on the sixth of February, followed by the
Speaker 2: Paralympics a month later in March, there has been considerable
Speaker 2: attention and protests by Italian officials over US plans to
Speaker 2: deployed some ICE staff to this year's event. Bloomberg understands
Speaker 2: that ICE agents will be in Italy as part of
Speaker 2: the security details for the Vice President JD Vance and
Speaker 2: Secuy of State Marco Rubio, according to an official from
Speaker 2: the US Secret Service, but the agency's role in an
Speaker 2: immigration crackdown at home is stirring opposition overseas.
Speaker 7: Now.
Speaker 2: This year's Olympics is also said against the backdrop of
Speaker 2: increasing division between the United States and Europe. Recently, the
Speaker 2: NATO Secretary General Mark Rutter told the European Parliament that
Speaker 2: the Transatlantic Alliance is vital to the region's survival.
Speaker 6: So when President Trump is doing good stuff IV operation,
Speaker 6: and I don't mind him publishing text messages, and if
Speaker 6: anyone thinks here again that the European Union or europerson
Speaker 6: Hall can dissent itself as out to us, keep on dreaming.
Speaker 6: You count, we count, We need each other.
Speaker 2: That was NATO's Mark Rutter speaking there so well. Italy's
Speaker 2: Winter Olympics feature more ice than they bargained for. Joining
Speaker 2: me now to discuss is Bloomberg's Milan bureau chief Tomaso
Speaker 2: eb Haarts. Tomaso, let's start by thinking about these Winter
Speaker 2: Olympics taking place in the Alps in the next few days.
Speaker 2: I suppose the first big question, and maybe it's always
Speaker 2: the case for the Olympics, are all the venues going
Speaker 2: to be ready?
Speaker 8: So those games will be spread all over the north
Speaker 8: of Italy, not just on the Alpso the main city
Speaker 8: where the opening ceremony will be Friday is Milana. And
Speaker 8: then you're going to have the different sports to be
Speaker 8: held in different locations. Fortina where you're going to have
Speaker 8: the women's ski races, You're going to have in Lombardy, Bormeo,
Speaker 8: You're going to have games also in the Suti Role region.
Speaker 8: So what is interesting is that somehow to reduce the
Speaker 8: cost of the Olympics, they have been spread ref location
Speaker 8: where essentially most of the venues were already built and ready.
Speaker 8: For example, the Vietnam will be held in anter Holz,
Speaker 8: which is already one of the most famous locations in
Speaker 8: the Alps for this kind of sport. There are some
Speaker 8: new venues, especially one Milan for highs hockey, which was
Speaker 8: just completed. There were just some criticism about how is
Speaker 8: it built, about the quality of the eyes, but it
Speaker 8: looks like it's almost ready. If you walk around the
Speaker 8: city in Milan, you see a lot of temporary building
Speaker 8: that will be used for the Olympics. While what I'm hearing,
Speaker 8: for example that in Cortina Adam Pazza on the Alps,
Speaker 8: not all everything that was meant to be built for
Speaker 8: the Olympic is rady, but for sure the infrastructure there
Speaker 8: was a huge investment in infrastructure. This is what probably
Speaker 8: was the most important investment for those Olympics.
Speaker 2: It's also really interesting Olympics because it's one of the
Speaker 2: first times in a long time that a Winter Olympics
Speaker 2: is going to be sort of within easy reach of
Speaker 2: US scheduling. And yet maybe a lot of the build
Speaker 2: up to the Winter Olympics is going to have been
Speaker 2: dominated by this spat, this disagreement around ice agents maybe
Speaker 2: or staff being involved in the Winter Olympics somehow, maybe
Speaker 2: just to protect high ranking US officials who are going
Speaker 2: to be visiting. But there's been quite a lot of
Speaker 2: pushback about it. Can you describe how the Italian government's
Speaker 2: been handling it?
Speaker 8: In the last week was a high hab on the
Speaker 8: debate in Italy the involvement of ICE in the Olympics.
Speaker 8: There were some Italian official or protested but vigorously, including
Speaker 8: Milian Mayor Giusepe Sala who, following the latest involvement of
Speaker 8: ICE in the US I, said they're not welcome in Milan.
Speaker 8: Then for days Italian official somehow tried to keep the
Speaker 8: situation under control until there was a meeting between the
Speaker 8: Italian Interior Minister and the US embassy in Rome. After
Speaker 8: that it was clear that ICE agents will be involved
Speaker 8: just within their domestic offices, so that means they will
Speaker 8: be deployed in the US consulate and this somehow as
Speaker 8: a calme a.
Speaker 5: Little bit attention.
Speaker 8: Some Italians are protesting clearly, and the Italian government had
Speaker 8: larified which will be the involvement of ice in the
Speaker 8: in the Olympics, And I have to say that clearly.
Speaker 8: The news great a lot of attention.
Speaker 2: Yeah, and Georgia Maloney of course, that the Prime Minister
Speaker 2: is often seen as a Trump ally. I suppose there's
Speaker 2: also maybe a question that whilst the Olympic officials want
Speaker 2: to present this, want to present sports, as is so
Speaker 2: often the case, as a kind of unifying message, there's
Speaker 2: a danger that it will highlight the divisions between Europe
Speaker 2: and the US that we've seen, you know, geopolitically. That's
Speaker 2: going to be surely quite hard to handle.
Speaker 8: Clearly, Maloney is seen as one of the European leader
Speaker 8: closer to Trump. She is a key figure at the
Speaker 8: moment in europea also because of the hair closer ties
Speaker 8: and other with the Trump. That doesn't mean that they
Speaker 8: are always on the same bench. For example, on Greenland,
Speaker 8: Maloney was aligned with the rest of the European leaders
Speaker 8: while answering to Trump's request. I think that what you
Speaker 8: said is clearly an interesting aspect during Olympics, not only
Speaker 8: the Olympic committee, but you know, the buzz should be
Speaker 8: on sport and not on a geopolitical tension. But you know,
Speaker 8: we're living quite i would say, a very interesting time
Speaker 8: in terms of geopolitical news. If you want to call
Speaker 8: them interesting and so clearly this is part of the
Speaker 8: public debate and will be also during the Olympics. For sure,
Speaker 8: the eyes of the world will be on Milan for
Speaker 8: the opening ceremony and then on the out for the Olympics.
Speaker 2: No doubt, I'm sure people are also getting very excited
Speaker 2: about it to watch. I mean, what are usually just
Speaker 2: spectacular events, aren't they The acrobatics and the kind of
Speaker 2: area display snowboarding and skiing and so on, which sort
Speaker 2: of brings me to snow. The other aspect of this
Speaker 2: is that climate change is affecting the Alps so deeply,
Speaker 2: and there's been a lot of anticipation about how much
Speaker 2: snowfall has been arriving. You know that there's been in
Speaker 2: the days leading up to this, and the creation obviously
Speaker 2: of fake snow you know where you kind of generate
Speaker 2: it for the ski slopes. Climate change is also huge
Speaker 2: good news.
Speaker 8: In the last couple of week there has been heavy
Speaker 8: snow falls on the Alps and on the Dolomites that
Speaker 8: were still start in summer mood until a few days ago,
Speaker 8: So there will be white Olympics. It's quite happy, but
Speaker 8: for sure, as it happens nowadays quite often in the
Speaker 8: Alps that most of the snow which was prepared for
Speaker 8: the Olympics was the snow that is also been prepared
Speaker 8: for tourists, because you know, the ski industry and the
Speaker 8: tourist industry is crucial. The atmosphere is changing, the altitude,
Speaker 8: snow is usually expected and it has some costs because
Speaker 8: if you want to ski and the reason not no,
Speaker 8: then you have to make the investment. And this is
Speaker 8: clearly a consequence of the higher temperatures we are seeing
Speaker 8: lastly Tomas.
Speaker 2: So what do you expect in terms of the economic
Speaker 2: impact of the games. There's also been this idea of sustainability.
Speaker 2: How do you make the Olympics every four years, whether
Speaker 2: it's frankly winter all summer, a bit more sustainable. You've
Speaker 2: sort of talked about that with the reuse or the
Speaker 2: using of current venues, but the economic impacts, what do
Speaker 2: you think?
Speaker 8: So one of the main aspects of these Olympic Games,
Speaker 8: this winter edition is that to avoid building new venues
Speaker 8: just for the Olympics that you won't be used anymore.
Speaker 8: That's why the games will be held in almost ten
Speaker 8: different locations where you already had the infrastructure ready in Italy.
Speaker 8: We headed the Olympics, the Winter Olympics in two thousand
Speaker 8: and six in a Turin and the Piedmont region, and
Speaker 8: there are some venues, especially one for the bob was
Speaker 8: not being used since those Olympics. So the plan has
Speaker 8: been since the beginning to avoid this reason. That's why
Speaker 8: you're going to have the games in very different locations,
Speaker 8: so the cost will go down, and there is also
Speaker 8: a matter of sustainability. The impact of the games. We're
Speaker 8: talking about five billion euros revenue and investment for the Games.
Speaker 8: The impact in this country is that essentially the Games
Speaker 8: were used to create new infrastructure, for example, road infrastructure
Speaker 8: to go to Cortinada and pets. A couple of new
Speaker 8: chunnels were just in agreat a few days before the
Speaker 8: Olympics are starting. So it's a way somehow to boost
Speaker 8: infrastructure in Italy, which is one of the main issues
Speaker 8: of the country.
Speaker 2: Yeah, absolutely great. Britain sending fifty three athletes the United
Speaker 2: States more than two hundred. Italy has actually got close
Speaker 2: to two hundred athletes are going to be going there.
Speaker 2: But as you say, tourism numbers will be something that
Speaker 2: will be watched closely. It's a huge platform, isn't it
Speaker 2: for Italy. Tomaso, thank you so much for being with
Speaker 2: me being interesting few weeks. Thank you, Jow Bloomberg's Milan
Speaker 2: Buia chief Tamaso Ebhart, and we'll be bringing you any
Speaker 2: interesting news stories from the Olympics sixth of February to
Speaker 2: the twenty second of February, of course, in the coming
Speaker 2: few days. I'm Caroline Hepka here in London. You can
Speaker 2: catch us every weekday morning for Bloomberg Daybreak. You at
Speaker 2: beginning at six am in London. That's one am on
Speaker 2: Wall Street.
Speaker 1: Nathan, Thanks Caroline, and coming up on Bloomberg day Break weekend,
Speaker 1: we'll look to Japan, where a general election is set
Speaker 1: for February eighth. I'm Nathan Hager, and this is Bloomberg.
Speaker 1: This is Bloomberg day Break weekend. Our glob will look
Speaker 1: ahead at the top stories for investors in the coming week.
Speaker 1: I'm Nathan Hager in Washington. We go to Japan next,
Speaker 1: where a general election is set for February eighth. Prime
Speaker 1: Minister Takaichi's Liberal Democratic Party is likely to increase seats
Speaker 1: and gain a majority in the lower House. For a
Speaker 1: look at what the outcome could mean for the Japanese economy.
Speaker 1: Let's go to Bloomberg's Doug Krisner, host of the Daybreak
Speaker 1: Asia podcast Nathan.
Speaker 3: In late January, Japanese Prime Minister take Ichi dissolved parliament
Speaker 3: and called for a lower house election. It is now
Speaker 3: set for February eighth. Now, markets have already expressed a
Speaker 3: bit of unease. To help us understand what's at play,
Speaker 3: let's bring in Bloomberg's Paul Jackson. Paul as a member
Speaker 3: of the Eco gov team looking at Japan in South Korea.
Speaker 3: Thank you for being here. Can we begin with a
Speaker 3: backstory on how we got here and why take Ichi
Speaker 3: called for this snap election.
Speaker 9: The ruling party in Japan, the Liberal Democratic Party, has
Speaker 9: been struggling to hold on to power in recent elections.
Speaker 9: Votess are very unhappy about inflation. It's the first time
Speaker 9: they've been experiencing inflation in a generation. It's putting a
Speaker 9: lot of pressure on households and they're wanting the government
Speaker 9: to kind of take control of this. Also, we have
Speaker 9: a country that's surrounded in Asia by various security concerns,
Speaker 9: and since she became prime minister just three months ago,
Speaker 9: she's been riding high in the opinion polls. Now you
Speaker 9: could think it's a bit cheeky to go straight to
Speaker 9: the electorate when less than a quarter through your leadership,
Speaker 9: but she's clearly trying to take advantage of those high
Speaker 9: opinion poll ratings and the idea that look, I am
Speaker 9: a leader with identity. I can be more assertive as
Speaker 9: a leader in Japan, and I can make Japan more assertive,
Speaker 9: give more identity to Japan, and really Takeichi is gambling
Speaker 9: on this personal appeal to the electorate in the style
Speaker 9: of formerly like Shinzo Abbe and Junicio Koizumi, to appeal
Speaker 9: directly to the electric rather than through the party and
Speaker 9: get people to vote for her. And she's put her
Speaker 9: career on the line because imagine if she doesn't extend
Speaker 9: a razor thin majority that she's got at the moment.
Speaker 9: I mean, she's she's literally one seat majority at the
Speaker 9: moment on two three three in the more powerful lower house,
Speaker 9: and she said that the goal is to extend that majority,
Speaker 9: and if she doesn't, then she's likely to step down.
Speaker 3: So among her objectives you mentioned how inflation is affecting
Speaker 3: the average consumer in Japan. She has proposed a tax
Speaker 3: cut on food. Is that right? Is that a part
Speaker 3: of the strategy?
Speaker 9: That is a part of the strategy. And the ruling
Speaker 9: party has been very reluctant to go down this path
Speaker 9: in previous elections, even though pretty much all the opposition
Speaker 9: parties have been calling for this or something similar related
Speaker 9: to the sales tax. Instead, she's embracing it and saying no, no,
Speaker 9: let's do this. We'll do it temporarily, We'll do it
Speaker 9: for two years, and it's to reduce an eight percent
Speaker 9: tax on food down to zero during that time. Now
Speaker 9: that sounds okay so far. There's going to be a
Speaker 9: loss of revenue. This is not on the scale of
Speaker 9: some kind of like the former UK Prime Minister Liz Trust.
Speaker 9: It's not that kind of scale of loss of revenue
Speaker 9: or tax breaks, but it is a significant amount of
Speaker 9: It's five trillion. How are you going to pay for that?
Speaker 6: Now?
Speaker 9: The problem is for two years that doesn't sound too bad.
Speaker 9: But can you then politically raise or return the tax
Speaker 9: back to eight percent? Now that's something policymakers have had
Speaker 9: difficulty doing in the past, and I think that's why
Speaker 9: markets have been on edge about the outcome of this.
Speaker 3: Election, So you alluded to a little bit of the
Speaker 3: geopolitical tension in the neighborhood. Right now, I'm thinking of
Speaker 3: Takiichi's comments regarding Taiwan and how that offended Beijing. When
Speaker 3: it comes to the issue of military spending, I know
Speaker 3: that Japan has a passivist constitution. Is this something that
Speaker 3: we should look for that there may be a little
Speaker 3: bit more money allocated to defense.
Speaker 9: I think it's certain that Takeichi, she wins, will continue
Speaker 9: to ramp up defense spending in Japan. One of the
Speaker 9: first things she did when she became Prime Minister was
Speaker 9: to bring forward a target of making defense spending a
Speaker 9: two percent of annual GDP. Now that figure is based
Speaker 9: on twenty twenty two GDP, so it's a little bit
Speaker 9: out of date, but she brought forward that target by
Speaker 9: two years, so she's already ramped up defense spending and
Speaker 9: is essentially promising more. We've just had elbertge Colby in town,
Speaker 9: and obviously he's one of the main advocates for US
Speaker 9: allies ramping up their spending, and the kind of message
Speaker 9: that Takaichi has been delivering is kind of music to
Speaker 9: the ears to the current US administration. I'd say, what.
Speaker 3: About the issue of immigration and the growing presence in
Speaker 3: Japan of non Japanese.
Speaker 9: Well, we have a record number of foreigners now working
Speaker 9: in Japan. The numbers have gone up again, and this
Speaker 9: is a concern for those pockets of Japan where you
Speaker 9: have large concentration of foreigners working either in manufacturing as
Speaker 9: also much wider use of foreign workers in retail as well.
Speaker 9: And for some voters this has put them in a
Speaker 9: position of uncomfortableness. The sudden influx of people from other
Speaker 9: countries while they're feeling that their kind of take home
Speaker 9: pay with the inflation, and that the costs of that
Speaker 9: are running the households each month is getting tougher and tougher,
Speaker 9: and yet people are coming in from abroad and getting work.
Speaker 9: So for a certain segment of Japan's population is making
Speaker 9: them feel very uncomfortable and beleaguered and like, hey, wait
Speaker 9: a minute, what's going on. Don't forget We've also got
Speaker 9: forty two million people visiting Japan last year, a record
Speaker 9: number of foreigners entering the country and go to all
Speaker 9: the tourist sites and clogging up some of the main cities.
Speaker 9: For some Japanese, this make them feel really awkward, and
Speaker 9: they've been voting for some other parties, including the far
Speaker 9: right Sanseto on that specific issue. So TAKH has been
Speaker 9: giving some more robust kind of policy views on what
Speaker 9: to do in terms of regulations and rules concerning entry
Speaker 9: and foreigners in Japan and also the key element of
Speaker 9: regulations on buying property by foreigners in Japan.
Speaker 3: Is there a robust debate when it comes to how
Speaker 3: tourism can benefit the economy.
Speaker 9: I think that since both the time of Koizumi and Abbe,
Speaker 9: the idea that an increase in tourism Japan can help
Speaker 9: the economy has been one of the key kind of
Speaker 9: elements as a growth, not the main one, but certainly
Speaker 9: a significant one, and we've seen that really escalate in
Speaker 9: recent years.
Speaker 3: Paul will leave it there. Thank you so very much
Speaker 3: for helping us preview the election in Japan. Bloomberg's Paul Jackson.
Speaker 3: He is a member of the ECOGUV team looking at
Speaker 3: Japan in South Korea. So the other event on our
Speaker 3: radar for the week ahead is the policy decision for
Speaker 3: the Reserve Bank of Australia. To provide some insights, let's
Speaker 3: bring in Bloomberg's James McIntyre James as an economist for
Speaker 3: Australia and New Zealand at Bloomberg Economics. Thanks for being here.
Speaker 3: Can we set the stage by looking at the story
Speaker 3: on inflation down Under in the last week, the market's
Speaker 3: got a very hot reading on CPI. Do you think
Speaker 3: that's going to impact the thinking of the RBA.
Speaker 10: We've got a very very strong CPI outcome that came
Speaker 10: through for the final quarter of twenty twenty five. What's
Speaker 10: been happening in Australia is that the Statistics Bureau was finally,
Speaker 10: after many many years of effort, moved to a monthly CPI.
Speaker 10: But we've got a transition going on in this data
Speaker 10: and it's resulting in a lot of very volatility and
Speaker 10: sticky moves. So it's going to be a tough one
Speaker 10: for the RBA to analyze and take on board. But
Speaker 10: what they do if we look at the headline figures
Speaker 10: out of it, especially this trimmed mean measure, which is
Speaker 10: taking out some of the volatility out of the data,
Speaker 10: and it's the measure that the RBA has reinforced that
Speaker 10: they will be looking at the quarterly trimmed mean measure
Speaker 10: for the RBA came in at zero point nine quarter
Speaker 10: on quarter in three point four year on year, and
Speaker 10: that's above the top of the RBA's target band. Two
Speaker 10: to three percent is inflation angling for two and a
Speaker 10: half percent midpoint is what the RBA is targeting, and
Speaker 10: inflation has come in at three point four percent. Instead
Speaker 10: of gradually moving back, it's ticked up. It's resulted in
Speaker 10: market pricing and expectations shifting from maybe the RBA entertaining
Speaker 10: a hike. At this meeting, we're a little bit more cautious,
Speaker 10: but that's really set the scene for what the decision
Speaker 10: is going to be at the RBAS for every meeting.
Speaker 3: So, James, what was driving the increase in inflation in
Speaker 3: terms of the factors here involved? Can you kind of
Speaker 3: pinpoint a couple of the key problem areas.
Speaker 10: One bucket of problem areas within the inflation basket is
Speaker 10: the thing that local Australian economists refer to as administered prices.
Speaker 1: So what is that.
Speaker 10: Well, it's prices within the economy that are influenced by
Speaker 10: government decisions and regulatory dictates and the like, So things
Speaker 10: like electricity prices, school fees, these sorts of things are
Speaker 10: sort of set either quarterly or annually. You know, the
Speaker 10: cost of a posted stamp. They're regulated by the government.
Speaker 10: And what we're seeing here is that we're seeing market
Speaker 10: driven inflation, the parts of the inflation basket that are
Speaker 10: a bit more responsive to private decisions and supply and
Speaker 10: demand within the economy that's continuing to edge downward, but
Speaker 10: a lot of these government related or administered prices really
Speaker 10: spiking up. And so what's happened in the third quarter
Speaker 10: and in the fourth quarter is that we've seen a
Speaker 10: bit of a bump. The RBA referred to it as transitory,
Speaker 10: but it's going to test their patients. We've seen a
Speaker 10: bump in electricity prices, We've seen a bump in property rates,
Speaker 10: and a couple of other things that have really pushed
Speaker 10: that administraive prices basket way up.
Speaker 3: So if there is now greater risk of perhaps a move,
Speaker 3: maybe not next week, but at some point in the
Speaker 3: near future, that we could see a rate hike from
Speaker 3: the RBA, what might that do to the overall performance
Speaker 3: of the Australian economy.
Speaker 10: Well, if the RBA does decide that they want to
Speaker 10: react to this and take out what could be described
Speaker 10: as an insurance hike to make sure that the inflation
Speaker 10: genie does sort of go back into the bottle, because
Speaker 10: it looks like it's poking its head out just a
Speaker 10: tiny bit. What it would mean is it would see
Speaker 10: a renewed, I guess, suppression of the recovery on the
Speaker 10: private sector side of the economy. But what an RBA
Speaker 10: hike would do is it would just put a little
Speaker 10: bit of a wet blanket on that another thing that's
Speaker 10: potentially weighing a bit or dampening the economy. It might
Speaker 10: be one of the reasons the RBA might be a
Speaker 10: little bit circumspect and be prepared to look through what
Speaker 10: it sees as this transitory inflation spike is the currency.
Speaker 10: It's the Aussie dollar has shot up quite a bit
Speaker 10: some of it. You know, there is this big divergence
Speaker 10: between market pricing for the RBA and market pricing for
Speaker 10: the FED, and the currency is responding to that along
Speaker 10: with the general US dollar story underway. Commodity price is
Speaker 10: a little bit firm. Gold price Australia is the largest
Speaker 10: third largest i should say, gold exporter. You know, these
Speaker 10: things are all a bit supportive, whether it's interest rate
Speaker 10: toferential commodity prices or the overall tone within global markets
Speaker 10: when it comes to the US dollar and all of
Speaker 10: that's going to put some you know, a bit of
Speaker 10: a dampener on demand in the economy, but also a
Speaker 10: dampener on inflation imported prices. Australia does import a lot
Speaker 10: of goods. A stronger Australian dollar is going to put
Speaker 10: some downward pressure on those and so it really is
Speaker 10: adding to the story here that this could be something
Speaker 10: that the ABA does look through.
Speaker 3: Okay, James, we'll leave it there. Thank you so very much.
Speaker 3: James McIntyre, economist for Australia and New Zealand for Bloomberg Economics,
Speaker 3: and I'm Doug Chrisner. You can catch us weekdays for
Speaker 3: the Daybreak Asia podcast. It's available wherever you get your podcast.
Speaker 1: Nathan, Thanks Doug, and that does it for this edition
Speaker 1: of Bloomberg Daybreak Weekend. Join us again Monday morning at
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