Speaker 1: This is Bloomberg day Break Weekend, our global look at
Speaker 1: the top stories in the coming week from our day
Speaker 1: Break anchors all around the world, and straight ahead on
Speaker 1: the program. After the Fed's big rate cut, we look
Speaker 1: ahead to a fresh reading on the Central banks preferred
Speaker 1: measure of inflation PCE plus. Could the uneven housing market
Speaker 1: see a boost with lower lending rates. I'm Tom Busby
Speaker 1: in New York.
Speaker 2: I'm callin heatgre in London, where we're looking ahead to
Speaker 2: one of the most pivotal periods on the UK's political calendar.
Speaker 3: I'm Brian Curtis in Hong Kong. A wide open race
Speaker 3: in the upcoming LDP election in Japan narrows.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 1: I'm Tom Busby. We begin today's program with the Federal
Speaker 1: reserve and inflation. Now, the FED cutting its benchmark lending
Speaker 1: rate by fifty basis points this past Wednesday and hinting
Speaker 1: it's not done yet, lowering rates two more FOMC meetings
Speaker 1: this year. So what does the FED see in its
Speaker 1: dot plot and is inflation really in check? For more
Speaker 1: we turned out a Bloomberg economist, Stuart Paul, So start,
Speaker 1: after that aggressive rate cut fifty basis points, what is
Speaker 1: the FED thinking now?
Speaker 5: The Fed was thinking that it was a bit behind
Speaker 5: the curve and it was necessary to do a catch
Speaker 5: up rate cut. The FED had been focusing on inflation
Speaker 5: almost exclusively for a couple of years now, but the
Speaker 5: balance of risks is now improved now. That's to say
Speaker 5: that the risk of a surge in inflation in the
Speaker 5: near term is pretty muted, but risk of deterioration in
Speaker 5: the labor market is more at the forefront now, So
Speaker 5: it is more important to do that catch up cut,
Speaker 5: get the fifty basis points out of the way. But
Speaker 5: looking ahead, it's like going to go at a slower cadence.
Speaker 5: We're likely to see just two more modest twenty five
Speaker 5: basis point cuts this year, in November and December, early
Speaker 5: November and December.
Speaker 1: And we're likely to see just four.
Speaker 5: Twenty five basis point cuts next year, probably at a
Speaker 5: quarterly cadence.
Speaker 1: And does all this mean a soft landing.
Speaker 5: Well, it depends exactly what you mean by a soft landing, right, Oh,
Speaker 5: you tell me so. If we're expecting inflation to quickly
Speaker 5: get back to the two percent target target without any
Speaker 5: sort of a deterioration the labor market from here, not likely.
Speaker 5: If we're expecting sort of that long last mile, but
Speaker 5: nothing crazy in either the growth or labor market landscape,
Speaker 5: but a tolerable but slow move back to the two
Speaker 5: percent target. I think that's entirely possible. The things that
Speaker 5: keep in mind, though, is that the labor market has
Speaker 5: been cooling, so there is that upside risk to the
Speaker 5: unemployment rate, and things just haven't been as good in
Speaker 5: the labor market as some of the headline figures have
Speaker 5: been suggesting for well over a year. The pace of
Speaker 5: payrolls has not actually been as strong as the headline
Speaker 5: figures have been saying each month, and they will be
Speaker 5: revised down in due time. So it's more like a
Speaker 5: soft ish landing, but we're not as likely to enter
Speaker 5: a recession, That recession risk isn't nearly as potent as
Speaker 5: it once was.
Speaker 1: I mean, we're still adding jobs every month, just not
Speaker 1: as many as we've seen in past months.
Speaker 5: Correct, we're adding We're still adding jobs, we're adding them
Speaker 5: at a slower pace, and we're probably not adding them
Speaker 5: at a pace that's fast enough to keep the unemployment
Speaker 5: rate totally steady.
Speaker 1: But you've seen this focus now for the FED away
Speaker 1: from inflation more toward the labor market. I mean, does
Speaker 1: that tell you that they feel we are on the
Speaker 1: right path for inflation, that it is in check in
Speaker 1: a way. It's not at the two percent target, but
Speaker 1: it's certainly heading that way. But the real threat rent now,
Speaker 1: the real risk maybe the labor market.
Speaker 5: That's right, So the real risk is the labor market.
Speaker 5: Inflation has been in check. Most of the things that
Speaker 5: have been supporting or undergirding inflation at this point are
Speaker 5: things like shelter, so a critical a critical necessity for
Speaker 5: consumers and something that's pretty sticky. Prices are pretty sticky
Speaker 5: for shelter and some items services in particular that have
Speaker 5: catch up inflation, things like auto insurance and homeowners insurance.
Speaker 5: When the price of your car and the price of
Speaker 5: your home go up, and the replacement cost of those
Speaker 5: things go up, so too will the insurance premiums for
Speaker 5: those items, and so we have that stickier inflation. Now,
Speaker 5: that's why we're likely to see core inflation of zero
Speaker 5: point two percent just to touch under zero point two
Speaker 5: percent for the month of August. When we look at
Speaker 5: the core PCE Price Index that's the FEDS preferred measure.
Speaker 5: But again, because of some of those sticky items in
Speaker 5: the core and because of unfavorable base effects over the
Speaker 5: last year, we'll probably see an uptick in the annual
Speaker 5: measure of core inflation when we get the August reading,
Speaker 5: an uptick ti about two point seven percent from two
Speaker 5: point six But again because of those sticky items, because
Speaker 5: of the unfavorable base effects, the FED will probably fade
Speaker 5: that reading.
Speaker 1: So we've seen housing and you talked about insurance, but
Speaker 1: energy prices at the gas pump, we've seen, you know,
Speaker 1: a real dip just even in the past month, the
Speaker 1: steady decline, but a real dip. Also volatile prices for
Speaker 1: food they have stabilized, they haven't gotten any worse. So
Speaker 1: could that mean, you know, could that show up in
Speaker 1: the headline reading a lot better than expected, or you're
Speaker 1: still saying all these other factors housing rents, you know,
Speaker 1: are really going to keep things in check.
Speaker 5: That's a good point. I think that you're right. I
Speaker 5: think that the headline is going to be quite a
Speaker 5: bit better. I think that on our best estimate is
Speaker 5: that monthly headline pce inflation. So adding back in food
Speaker 5: and energy, we expect the monthly headline inflation reading to
Speaker 5: register to zero point one percent, so a bit slower
Speaker 5: inflation for the headline than for the core. And we
Speaker 5: also expect the annual measure to improve to about two
Speaker 5: point two percent from two point five percent previously, So
Speaker 5: headline's going to be a little bit better. Something to
Speaker 5: keep in mind, though, is that the decline in gasoline prices,
Speaker 5: which has been good for folks when they drive around
Speaker 5: and see prices at the pump, it might actually support
Speaker 5: sentiment a little bit. That's downstream of declining global energy prices,
Speaker 5: and that's a consequence of expectations for slower global growth.
Speaker 5: So again it just speaks to the FED being at
Speaker 5: the at the right point in the rate cutting cycle,
Speaker 5: getting started with that jumbo cut to try to support
Speaker 5: global growth going forward.
Speaker 1: Now, also out this week, August personal income and personal
Speaker 1: spending data. Are people still spending? That is the question.
Speaker 1: Are we going to see that in the personal incomes
Speaker 1: and spending?
Speaker 5: People are still spending, but they're quite a bit more
Speaker 5: selective in what they're spending on. So we're still going
Speaker 5: to see that increase in spending on housing, on healthcare.
Speaker 5: But when we look more closely at goods in particular,
Speaker 5: when we look at things like autos, look at things
Speaker 5: like appliances and other home durables, things that are more
Speaker 5: interest sensitive, consumers are getting a bit more selective. They're
Speaker 5: also searching for bargains online as opposed to shopping more
Speaker 5: frivolously just walking down Rodeo Drive. So we are again
Speaker 5: seeing spending rising, but spending more so on necessities than
Speaker 5: on discretionary categories.
Speaker 1: All right, Well, the August PCE the Price Index out
Speaker 1: this Friday are thanks to Stuart Paull of Bloomberg Economics.
Speaker 1: While we turn now from inflation data to housing data.
Speaker 1: With the interest rate cut from the Fed this past week,
Speaker 1: will the uneven housing market get a boost through lower
Speaker 1: lending rates, which have already been trending lower or are
Speaker 1: rising home prices and a dearth of homes on the market,
Speaker 1: squeezing too many would be buyers out of the marketplace.
Speaker 1: For more, we're joined by Bloomberg Intelligence home builder analyst
Speaker 1: Drew Reading. Now Drew Banks lenders they've been lowering the
Speaker 1: rates for weeks. They're now at a two year low
Speaker 1: averaging six point one five percent. But with this move
Speaker 1: from the Fed last week, are they now poised to
Speaker 1: edge even lower? And how long will it take before
Speaker 1: we see those pre pandemic rates of three and a
Speaker 1: half percent or so.
Speaker 6: So, as you mentioned, mortgage rates have already been moving down.
Speaker 6: They've really been coming down since late April when they
Speaker 6: kind of peaked this year at seven and a half percent,
Speaker 6: and then there's another move lower in July. So the
Speaker 6: tenure yield and mortgage rates kind of anticipated what was
Speaker 6: going to happen with the Fed. So I wouldn't expect
Speaker 6: a whole lot more movement on the rate front in
Speaker 6: the near term. In terms of when we think that's
Speaker 6: going to start to impact the market, I think we
Speaker 6: already have. You know, there hasn't been a massive shift
Speaker 6: in demand to this point, but we have seen a
Speaker 6: market that continues the trend in the right direction, and
Speaker 6: we saw a pickup in mortgage purchase applications. We saw
Speaker 6: a little bit better data on housing starts, so I
Speaker 6: think we are starting to see the benefit from those
Speaker 6: lower rates.
Speaker 1: Yeah, those green shoots. What is behind that jump though,
Speaker 1: when housing starts, I mean that was a pretty significant
Speaker 1: leap from August.
Speaker 6: Of it had to do with the bounce back from
Speaker 6: weather in the prior month, so that's certainly part of it.
Speaker 6: The other thing to remember is that builders have really
Speaker 6: been trying to align their production so starts, with what
Speaker 6: they're seeing in the demand environment. So as demand has
Speaker 6: started to pick up after kind of a lull in
Speaker 6: the summer, I think you're starting to see the corresponding
Speaker 6: increase in housing activity.
Speaker 1: Now. Builder confidence had also been moving higher. They must
Speaker 1: be through the roof right now after this rate cut,
Speaker 1: and you know, all these these indications that things are
Speaker 1: picking up.
Speaker 6: Yeah, I mean, expectations pretty much across the board or
Speaker 6: that in the next several months we should see demand
Speaker 6: perk up even further. What's interesting for the builders, as
Speaker 6: we've discussed in the past, is they've had a lot
Speaker 6: of success even when the market was slow by buying
Speaker 6: down mortgage rates. So they've been doing pretty well over
Speaker 6: the last several months, and we think that with rates
Speaker 6: starting to come back down, they may have an opportunity
Speaker 6: to kind of dial back their use of sales incentives,
Speaker 6: which if you think bigger pictures for the public come builders,
Speaker 6: that could be a benefit to the margin side.
Speaker 1: Now in the week ahead, there's a lot more housing
Speaker 1: data coming out new home sales, pending home sales for August,
Speaker 1: also home prices for July. Are you expecting to see
Speaker 1: any more positive trends in all that data?
Speaker 6: Yeah. With the new home sales, I expect to see
Speaker 6: a market that continues to trend in the right direction.
Speaker 6: As they said earlier, we got some purchase applications specific
Speaker 6: to the new home market not too long ago, and
Speaker 6: what that showed us is that demand in August was
Speaker 6: actually the strongest for this time of the year since
Speaker 6: twenty twenty, So that's a real positive indication for the market.
Speaker 6: We had some data on existing home sales which was
Speaker 6: a little soft, but what you have to remember is
Speaker 6: that represents closings, so that likely reflects deals that were
Speaker 6: signed in June and July when rates were still in
Speaker 6: that seven percent range.
Speaker 1: Now that existing home sales that was last Thursday are
Speaker 1: is it still a problem that people are not putting
Speaker 1: the houses up for sale, you know, because of the
Speaker 1: rates are down. Six point five percent is great, but
Speaker 1: it's still double if you had your mortgage ten years ago,
Speaker 1: you know. I mean, are people still you know, not
Speaker 1: putting their homes up for sale afraid to buy a
Speaker 1: new one at those high rates.
Speaker 6: Yeah, it's a great question, and there's a lot of
Speaker 6: disincentive for kurrent homeowner who doesn't need to move to
Speaker 6: put their house on the market and taking a higher rate.
Speaker 6: If you look at kind of the composition of outstanding mortgages,
Speaker 6: more than eighty percent have a rate below five percent
Speaker 6: and sixty five percent or below four percent. So I
Speaker 6: think that that lock and rate, you know, is still
Speaker 6: a factor. I think it will start start to loosen
Speaker 6: up as we get through the year and into next
Speaker 6: year because people have been transacting at these higher rates.
Speaker 6: So it's definitely a concern, but I do think that
Speaker 6: it starts to ease a little bit as we get
Speaker 6: into next year.
Speaker 1: Now, speaking of next year, you've reported that home sales
Speaker 1: typically move higher after a presidential election. Why is that
Speaker 1: and are you expecting to see that no matter who
Speaker 1: wins the White House in November?
Speaker 6: Yes, So when we looked at what happens typically in
Speaker 6: an election year, you know, there's not a whole heck
Speaker 6: of a lot of impact on home sales. I know,
Speaker 6: you know, there could be an impact on confidence, maybe
Speaker 6: that impact that kind of the lull we saw in
Speaker 6: the summer, But really the point was to show that
Speaker 6: regardless of what party ends up winning, home sales have
Speaker 6: had success in the following year. And I think, you know,
Speaker 6: there's other factors at play, certainly what's happening with the
Speaker 6: broader economy and what's happening with rates. And I think,
Speaker 6: you know, if we do kind of get this soft
Speaker 6: landing that we're talking about and rates, you know, remain
Speaker 6: in the low six percent range, even fall into the
Speaker 6: five percent range, I think home sales should do pretty
Speaker 6: well next year.
Speaker 1: Well, a lot to look forward to, Bloomberg Intelligence home
Speaker 1: builder analyst Drew Redding, thanks for joining us and coming
Speaker 1: up on Bloomberg Day Break weekend, we look ahead to
Speaker 1: one of the most pivotable periods on the UK's political calendar.
Speaker 1: I'm Tom Busby and This is Bloomberg. This is Bloomberg
Speaker 1: Daybreak weekend, our global look ahead at the top stories
Speaker 1: for investors in the coming week. I'm Tom Busby in
Speaker 1: New York. Up later in our program we head to
Speaker 1: Asia and preview the race to become Japan's next Prime minister.
Speaker 1: But first in the coming days, the UK's most powerful
Speaker 1: politicians will vacate the Palace of Westminster for their party
Speaker 1: conferences all around the country. It's a pivotal time for
Speaker 1: the ruling Labor Party as it prepares for its first budget,
Speaker 1: and as the Conservative Party licks its wounds and crowns
Speaker 1: a new leader.
Speaker 3: For more.
Speaker 1: Let's go to London and bring in Bloomberg Daybreak europe
Speaker 1: Banker Caroline Hepker Tom.
Speaker 2: After the summer's general election and landslide Labor victory, UK
Speaker 2: politics is settling into its back to school rhythm, with
Speaker 2: a new party and a new prime minister at the helm.
Speaker 2: A staple of the autumnal political calendar is, of course,
Speaker 2: party conference season, where members gather to regroup and reflect
Speaker 2: on the year ahead. Traditionally the health in historic seaside
Speaker 2: resorts like Blackpool and Brighton, the gatherings can often give
Speaker 2: rise to a gender, setting events and turn young talent
Speaker 2: into rising stars. This year conference season falls at a
Speaker 2: critical time for the two biggest parties in Parliament. Dust
Speaker 2: is settling on the Labour Party's emphatic July election victory,
Speaker 2: as jubilation turns to expectation and the economic reality facing
Speaker 2: the government. On economic decisions, Kirs Starmer has already faced
Speaker 2: fervent opposition to what his party has called difficult decisions
Speaker 2: to means test the winter fuel allowance that is granted
Speaker 2: to pensioners, and also to maintain the cap on benefits
Speaker 2: for families to a maximum of two children. The first
Speaker 2: test four Starmer's administration will come in the government's inaugural
Speaker 2: budget on the thirtieth of October, but first he must
Speaker 2: convince his party that he has a plan. Meanwhile, the
Speaker 2: Conservatives will face a different question altogether at their gathering
Speaker 2: in Birmingham, the future direction of the party, as Tory
Speaker 2: members consider who to anoint their next leader. For the
Speaker 2: Liberal Democrats, who have already concluded their conference in Bournemouth,
Speaker 2: the issue has been where now after the party secured
Speaker 2: and historic seventy two seats in the vote in July.
Speaker 2: It's something that I have been discussing on the Bloomberg
Speaker 2: UK Partics podcast with the former lib Dem leader, so
Speaker 2: Vince Cable.
Speaker 7: First priority will be to consolidate the base that's already
Speaker 7: built up. And you know these are relatively high income
Speaker 7: South of England, suburban rural. I mean, it's a very
Speaker 7: clear constituency, it's not undifferentiated, but that this is not,
Speaker 7: as it were, not natural center left territory. But what
Speaker 7: Libdems are very good at is digging in doing extremely
Speaker 7: good local camper in constituency work. And I would think
Speaker 7: that unless there's some terrible misfortune, that they should be
Speaker 7: able to hold on to the overwhelming bulk of these
Speaker 7: by the next election. But the libdems fortunes in large part,
Speaker 7: I think depend on what happens to the other the
Speaker 7: two major parties. I mean, the Conservative Party, if they
Speaker 7: make a bad choice of leaders, if they continue to
Speaker 7: behave the way they have in recent years, is going
Speaker 7: to continue to flounder. They lose support to us in
Speaker 7: their heartlands, and they could make no progress on the
Speaker 7: other front because reform is gobbling up the populist nationalist vote,
Speaker 7: and that the Tory Party could find itself in a
Speaker 7: kind of existential crisis. I mean, we don't know, but
Speaker 7: that could well happen. Then in terms of labor. They
Speaker 7: are clearly already losing support, and they're going to lose
Speaker 7: support in the four hundred plus seats that they won
Speaker 7: at the last election. But the question then is where
Speaker 7: will it go? I mean, will it go to reform
Speaker 7: if they get better organized. Nigel Farage is a good
Speaker 7: TV personality but clearly not an organizational junius. Or could
Speaker 7: it go to the dissident left, the reborn Corby Knights
Speaker 7: or the Green Party.
Speaker 2: Okay, okay, but hang on a second. Let's cut through
Speaker 2: this a little bit and say is there appetite in
Speaker 2: the Liberal Democrats for leadership? Because there was a glimmer
Speaker 2: of it in the election campaign? Is there now?
Speaker 6: Oh?
Speaker 7: I think so. I mean, I think the mantra which
Speaker 7: is a good mantra. It's a constructive opposition. I don't
Speaker 7: think we just want to go around you cashing in
Speaker 7: on every drift in the public mood. I want to
Speaker 7: play a show that we can be a force in
Speaker 7: Parliament and building on the base that we've already got.
Speaker 2: That was the former Liberal Democrat leader and former Business
Speaker 2: Secretary Vince Cable speaking to me ant Ewan on the
Speaker 2: Bloomberg UK Politics podcast. So what is in store for
Speaker 2: the UK's most powerful politicians then when they gather in
Speaker 2: the coming days, I've been asking Bloomberg's associate editor Alva Ray.
Speaker 2: We started by discussing where Keir Starmer is heading into
Speaker 2: his party's event.
Speaker 8: He's having, i'd say, at a rocky time at the moment,
Speaker 8: his party is being slightly rocked by allegations of cronyism,
Speaker 8: a lot of scrutiny of gifts and freebies that the
Speaker 8: Prime Minister has received, and scrutiny of a wonder owner
Speaker 8: in particular Wahidali, who we have profiled on Bloomberg and
Speaker 8: revealed some things about in stories in the past few weeks.
Speaker 8: But there's sort of other challenges for Keir Starmer that
Speaker 8: there's a lot of tension among his top advisors and
Speaker 8: so his chief of staff, Sue Gray, has been named
Speaker 8: in a BBC story. The story itself is less import
Speaker 8: than the fact that she has been targeted by colleagues
Speaker 8: for quite a an aggressive briefing. So he's dealing with
Speaker 8: quite a lot of discontent and sort of difficult stories
Speaker 8: so soon into his premiership.
Speaker 9: I mean he only won the election in July.
Speaker 8: But then also they're quite quite substantial fiscal difficulties, so
Speaker 8: I'm sure we'll come on to talk about.
Speaker 2: Yeah, and this idea of factionalism, of divisions within the
Speaker 2: labor parties. You say, very recently elected, do you think
Speaker 2: that that will mean there'll be a big focus on
Speaker 2: party unity? I mean also there has already been in
Speaker 2: the actual parliamentary session. There's been rebellion already over policy.
Speaker 2: So do you think there'll be a sort of focus
Speaker 2: on trying to I mean, a surely celebrate the recent
Speaker 2: victory at the party conference, but then also try to
Speaker 2: unify the party.
Speaker 8: It's not so much factionalism in the way that we
Speaker 8: would have seen under perhaps Ermie Corbyn's leadership. It's more
Speaker 8: sort of just tension, tensions on an individual level between
Speaker 8: individual people.
Speaker 9: But as you say, there has been.
Speaker 8: A bit of tension already, and there's been a rebellion
Speaker 8: over this issue of the Winter Fuel Alliance, which is
Speaker 8: a sort of benefit given to pensioners to pay for
Speaker 8: their heating bills in the winter. Rachel reeves the incoming
Speaker 8: chancellor has decided to means test that she announced that
Speaker 8: before the summer and was clearly not expecting the backlash
Speaker 8: that she received. So even though they have passed that
Speaker 8: now and that will that will go ahead.
Speaker 9: Lots of labor MPs abstained.
Speaker 8: Some cabinet ministers anonymously told news outlets that they were
Speaker 8: nervous about the decision. And essentially this decision has has
Speaker 8: expended a lot of political capital very early on, and
Speaker 8: it makes all the all the decisions that are coming
Speaker 8: quite difficult. Because Rachel Riefs still has to deliver a
Speaker 8: very difficult budget. She's been speaking about twenty two billion
Speaker 8: black hole in the public finances. She's asking cabinet ministers
Speaker 8: to look for cuts in their departments. We'll see a
Speaker 8: lot of conference probably of individual cabinet ministers hinting that
Speaker 8: they want more money for ailing public services, for prisons,
Speaker 8: for the health service, for transport. I think there will
Speaker 8: be a lot of tension and kind of bartering for goodies.
Speaker 9: In the budget.
Speaker 8: But I think because it is so early on, the
Speaker 8: party is still feeling united behind Keir Starmer and Rachel Reeves,
Speaker 8: even though I think they feel like they've been put
Speaker 8: through the ring aer a bit in recent weeks.
Speaker 2: Yeah, absolutely, and I suppose that the money and that,
Speaker 2: as you say, the winter fuel allowance issue, which is
Speaker 2: money given to pension or was You know that contrast
Speaker 2: with the story around Kars Darmer's advisors to great and
Speaker 2: her salary that has been kind of one of the
Speaker 2: threads in recent days, hasn't it, So you know how
Speaker 2: much people are being paid, and that kind of contrast
Speaker 2: has been something that's been focused on a lot. Look,
Speaker 2: I also want to talk a bit about business. What
Speaker 2: business will be looking to hear from the Labor Party
Speaker 2: conference because of of course, we spent a lot of
Speaker 2: time reporting about what Labor was saying to businesses and
Speaker 2: investors here in the UK before they came into power.
Speaker 2: There'll be the budget after the party conference, So what
Speaker 2: do you think we will hear from Labor at conference?
Speaker 2: On business?
Speaker 8: I think this will be really interesting because it actually
Speaker 8: goes to the heart of some of the big questions
Speaker 8: that Rachel Reeves is grappling with right now as she
Speaker 8: finalizes her budget, which is happening in October.
Speaker 9: I think that we've.
Speaker 8: Already seen mattering from the business community that they have
Speaker 8: been finding her rhetoric around this twenty two billion black
Speaker 8: hole to be not terribly inspiring of confidence. And there's
Speaker 8: a bit of a tension between all this emphasis on
Speaker 8: the need for cuts and fiscal prudence and the difficult inheritance,
Speaker 8: and then on the other hand, the fact that this
Speaker 8: is the same Labor Party has spoken about the need
Speaker 8: to go for growth and to invest and Rachel Reeves
Speaker 8: describing the value of capital investment. So I think that
Speaker 8: a lot of people from the business community, particularly on
Speaker 8: the Monday of conference next Monday, which is Business Day,
Speaker 8: I think that business figures will be looking for a
Speaker 8: bit of clarity from Rachel Reeves on whether that capital
Speaker 8: investment is coming. There are all these new vehicles established
Speaker 8: by the Labor Party that they're still getting set up,
Speaker 8: like gb Energy, a state owned energy company, the National
Speaker 8: Wealth Fund, various sort of vehicles to leverage private investment.
Speaker 8: So the state will put in a bit and then
Speaker 8: they're hoping that the private sector will come in. But
Speaker 8: I think that business is feeling that my they're getting
Speaker 8: mixed messages at the moment, as I think probably the
Speaker 8: whole of the Labor Party and the political community feels
Speaker 8: as well. So I think that's kind of the key
Speaker 8: thing that she's grappling with, whether they'll get answers and
Speaker 8: whether she's decided which one she's prioritizing, I think is
Speaker 8: a different matter.
Speaker 2: Yeah, absolutely. I mean, for example, you've got the Resolution Foundation,
Speaker 2: you know, wanting to know more about economic growth and
Speaker 2: the plans of the government from the Labor Party. Just briefly,
Speaker 2: a question on the Conservative leadership race though, because they
Speaker 2: will also be holding their party conference, how will the
Speaker 2: different candidates be approaching conference. What do you think confidence
Speaker 2: is going to be like this year for the Tories,
Speaker 2: of course, after an absolutely terrible general election result.
Speaker 8: Well, I think that so you would expect them to
Speaker 8: be licking their wounds and for conferences to be a
Speaker 8: quite brutal crash landing because, as you can imagine, Caroline,
Speaker 8: the sort of business and money goes where power is.
Speaker 8: So the Conservatives have been quite used to having lots
Speaker 8: of business representation sponsored events, like a lot of money
Speaker 8: at their conferences for the past fourteen years, and I
Speaker 8: think they will discover this year that that has dried up.
Speaker 9: I think we've already seen reports that they were.
Speaker 8: Struggling to attract sufficient sponsorship or enough attendees for their
Speaker 8: business events, so I think it will feel very different
Speaker 8: just because it's our first conference in opposition.
Speaker 2: That was Boomberg's associate editor al Va ray My thanks
Speaker 2: to her.
Speaker 3: Well.
Speaker 2: Party conference season is always a good moment to understand
Speaker 2: more about the policies to come. I'm Caroline Hepkee here
Speaker 2: in London and you can catch us every weekday morning
Speaker 2: for Bloomberg Daybreak you at beginning at six am in London.
Speaker 2: That's one am on Wall Street.
Speaker 1: Tom, Thanks Caroline, and coming up on Bloomberg day Break weekend,
Speaker 1: we take a look at the wide open race to
Speaker 1: become the next Prime Minister of Japan. I'm Tom Busby,
Speaker 1: and this is Bloomberg. I'm Tom Busby in New York
Speaker 1: with your global look ahead at the top stories for
Speaker 1: investors in the coming week. We're just a week away
Speaker 1: from the election for leadership of Japan's ruling Liberal Democratic Party.
Speaker 1: Let's turn to Bloomberg Daybreak Asia hosts Brian Curtis and
Speaker 1: Doug Krisner for more.
Speaker 10: A record nine candidates are in the race to lead
Speaker 10: the LDP. The election on September twenty seventh is all
Speaker 10: but as sure to dictate Japan's next Prime minister. Because
Speaker 10: of the party's dominance in parliament.
Speaker 3: Whoever is chosen will take over for Fumio Keishia, the
Speaker 3: current Prime minister. Back in August, Kishita made a surprise
Speaker 3: announcement that he would not run in the election.
Speaker 10: Earlier, Brian and I spoke with Gerode Reedy, Bloomberg opinion columnist.
Speaker 10: The question is about the stakes for the future of
Speaker 10: the party right now.
Speaker 11: It's really important that they choose someone who's going to
Speaker 11: restore public trust in the party. You know, the parties
Speaker 11: standing you know with Japanese people is probably close to
Speaker 11: an all time low right now. There's been a series
Speaker 11: of scandals, most recently a funding scandal involving unreported political
Speaker 11: donations that has really damaged the party standing with the public.
Speaker 11: At the same time as this election is going on
Speaker 11: for the leader of the LDP, there's also another election.
Speaker 11: It's less talked about and less reported, but the opposition
Speaker 11: is also choosing a new leader and that is going
Speaker 11: to maybe give a bit of win to their sales.
Speaker 11: There needs to be an election held within basically within
Speaker 11: the next year, and the LDP is pretty vulnerable right now,
Speaker 11: so it is important that they give themselves a bit
Speaker 11: of a facelift and you know, go to the Japanese
Speaker 11: people and show that they that they have changed.
Speaker 3: And speaking of a facelift, the economy minister Sanai's Takaichi
Speaker 3: has emerged as one of the front runners. It would
Speaker 3: be very interesting to see a woman prime minister in Japan.
Speaker 3: Is she kind of rising in the polls?
Speaker 11: Now, that's right. Yet in the last week there there
Speaker 11: was nine candidates at the start of this and the
Speaker 11: nine candidates they're all still in it. But there's definitely
Speaker 11: three people who have pulled away as a sort of
Speaker 11: leading pack, with Shindio Koizumi, Shigheiro Lishiba and as you say,
Speaker 11: Sanai Takaichi. She is definitely I think surprising people with
Speaker 11: her being in that pack and her performance. She would
Speaker 11: be the first female prime minister in Japan. She is
Speaker 11: also probably the most conservative person within those nine people,
Speaker 11: and indeed one of the most high profile conservative politicians
Speaker 11: in the country. It is a little bit of a
Speaker 11: surprise to see her doing so well. I don't know
Speaker 11: if everyone expected her to be doing so well at
Speaker 11: the start of this race. I think we've seen you know,
Speaker 11: cooison me had his moment in the sun, he's dipping
Speaker 11: a little bit in public opinion polls at the moment.
Speaker 11: Takaichi seems to be has a bit of wind in
Speaker 11: her sales at the moment and is now as a result,
Speaker 11: she is getting attacked a little bit more by the
Speaker 11: other candidates, which you know could damage her as well.
Speaker 11: So still a little bit of a way to go.
Speaker 10: Koison me is forty three years old. I think he's
Speaker 10: the youngest candidate, and he's promised to change what he's
Speaker 10: described as an old fashioned LDP. Do you think there's
Speaker 10: any runway for him here?
Speaker 11: Absolutely there is. I mean, I would still say that
Speaker 11: he is probably the front runner, even though I think
Speaker 11: he has been attacked. I guess because he is the
Speaker 11: front runner, and also maybe some of the talking points
Speaker 11: he brought up, including sort of reform of the labor
Speaker 11: market and making it easier for companies to fire people,
Speaker 11: has put a bit of a target on his back.
Speaker 11: There absolutely is room, however, for him to win this race,
Speaker 11: as I think getting one of those three right now,
Speaker 11: it's quite hard to say, you know, even even talking
Speaker 11: to the experts in this at this point in time,
Speaker 11: it's very hard to say who's going to you know,
Speaker 11: who has the best chance of winning, because it all
Speaker 11: depends on who makes it into the likely runoff election
Speaker 11: if no one candidate gets a majority of the votes.
Speaker 10: He is Gerod Reedy speaking of to us earlier, and
Speaker 10: he is a Bloomberg opinion columnist.
Speaker 3: And now joining us is Isabelle Reynolds, Bloomberg's Tokyo bureau chief.
Speaker 3: For more discussion. Isabelle, thank you for joining us. Is
Speaker 3: this an election that will be determined by almost entirely
Speaker 3: by domestic issues or will international issues.
Speaker 1: Be at play?
Speaker 12: Definitely, the economy is high on the agenda. People are
Speaker 12: not necessarily happy with how the economy is going. You know,
Speaker 12: Japan has touted how inflation has returned to the economy.
Speaker 12: With the many people in Japan, who has a very
Speaker 12: elderly population, unfixed incomes, inflation is not welcome, so people
Speaker 12: are not necessarily feeling happy about their pocketbooks. On the
Speaker 12: other hand, we did see an und alarming incident in
Speaker 12: China where a young Japanese boy was stabbed and sadly
Speaker 12: found out to have died from his injuries, and that
Speaker 12: kind of thing it could inflame sort of public opinion
Speaker 12: about ties with China, and potentially I don't know this
Speaker 12: for sure, but it could potentially give a bit more
Speaker 12: sort of a boost to someone like Takeichi, who is
Speaker 12: a pretty conservative hardliner and would not be afraid to
Speaker 12: sort of take a tough stance with China.
Speaker 10: So do you think the economy right now in Japan
Speaker 10: is kind of at a turning point? Inflation returning for
Speaker 10: the first time in what about three decades, We've recently
Speaker 10: seen the first interest rate hike from the BOJ in
Speaker 10: about seventeen years. Is this a pivot point that is crucial?
Speaker 12: Yes? I mean this year has seen a huge turning
Speaker 12: point for Japan. After decades of deflation, here comes inflation,
Speaker 12: prices a rising. People are not used to that. Some
Speaker 12: people welcome it with particularly young people in the job
Speaker 12: market are being paid more. They're feeling fine about it perhaps,
Speaker 12: But then if you look at the older, older generation,
Speaker 12: as I say that, it's not so comfortable for them.
Speaker 12: But yes, it's definitely a turning point. The Bank of
Speaker 12: Japan is doing things it hasn't done for decades, and
Speaker 12: that's affecting everybody's lives across the board and the way
Speaker 12: companies are operating.
Speaker 3: You mentioned Sannai Kintakeichi earlier, the Economic Security minister, and
Speaker 3: that she's leaning towards the right and might be a
Speaker 3: candidate that has kind of winn in the sales. It's
Speaker 3: funny because when we talked about a month or so ago,
Speaker 3: we talked about Yoko Kamikawa, the Foreign Minister, that she
Speaker 3: might be someone who could become the first woman prime
Speaker 3: minister in Japan. Let's talk a little bit about that.
Speaker 3: I think she's probably slipped a little in the polls,
Speaker 3: but is it possible that Sanai can win.
Speaker 12: Possible, It's very possible. In some of the polls when
Speaker 12: you look at the figures for the supporters of the
Speaker 12: ruling LDP, Takeji has come out on top, So it
Speaker 12: is certainly possible. She's as good was saying earlier, she's
Speaker 12: one of those three who've pulled away from the rest
Speaker 12: of the pack. So it's highly likely that two of
Speaker 12: those three will be in a runoff and one of them,
Speaker 12: one of the three, will will be the winner. I mean,
Speaker 12: it would be a bit of a surprise for all
Speaker 12: sorts of reasons, one of which being that she was
Speaker 12: very close to Prime Minister former Prime Minister Sans or Abbe,
Speaker 12: who was assassinated a couple of years ago after Marth
Speaker 12: of his assassination was one of these huge scandals that
Speaker 12: hit the LDP for its connections with a fringe religion,
Speaker 12: and so it would be in that sense a bit
Speaker 12: of a surprise for the LDP, who wants to present
Speaker 12: a new phase to come up with someone who is
Speaker 12: so closely associated with former Prime Minister Abbe.
Speaker 10: What about the similarity between Snati's economic plan and what
Speaker 10: we used to call Abinomics.
Speaker 12: Absolutely, I mean she was very much a fan of
Speaker 12: his policies in all sorts of senses, and that includes
Speaker 12: the central bank policy. So she's been in contrast to
Speaker 12: the other candidates in this race who have mostly been
Speaker 12: sort of in line with the government and the current
Speaker 12: Bank of Japan policy, she's been sort of fighting against
Speaker 12: the tide and saying, you know, interest rates hikes shouldn't
Speaker 12: go too far. We still need really easy policy. The
Speaker 12: inflation we do have is sort of imported from abroad.
Speaker 12: It's down to the you know, the wars overseas that
Speaker 12: are bringing it, and it's not that the Japanese economy
Speaker 12: is sort of getting heating up.
Speaker 3: And with her rise, the fact that she's getting support
Speaker 3: from the right wing in the party. Can we extrapolate
Speaker 3: from that and say that in Japanese society that the
Speaker 3: country is turning more nationalists and more to the right.
Speaker 12: No, I don't think that's necessarily the case. I mean,
Speaker 12: she has certain views on women in society which are
Speaker 12: not the mainstream.
Speaker 4: Now.
Speaker 12: For example, there's this whole issue of whether women should
Speaker 12: be allowed to have separate surnames from their husbands, and
Speaker 12: she says no, they should not, whereas most people in
Speaker 12: Japan and most of the other candidates in this race
Speaker 12: say well, yeah, of course men and women should be
Speaker 12: allowed to have separate surnames if they wish. So she
Speaker 12: is more conservative than the general trend. But this is
Speaker 12: all down to dynamics within the ruling LDP, and they
Speaker 12: are not Although they've been in power for so long,
Speaker 12: they are not always exactly in tune with the average
Speaker 12: Japanese voter.
Speaker 10: I was reading that Ishibai is promising to push for
Speaker 10: gender equality and also measures to address not only the
Speaker 10: low birth rate but the declining population as well. What
Speaker 10: is happening right now in Japan demographically?
Speaker 12: Oh well, I mean, Japan, as you know, is the
Speaker 12: oldest country in the world in terms of the number
Speaker 12: of the percentage of people over the age of sixty five.
Speaker 12: Current Prime Minister Kishida has referred to this as a
Speaker 12: national crisis and said we have only a few years
Speaker 12: to really deal with this, or things will get out
Speaker 12: of control and many areas of Japan could be find
Speaker 12: themselves struggling to deal that, you know, provide the basic
Speaker 12: services that people expect. They just simply won't have enough
Speaker 12: young people to look after all the old people. Money's
Speaker 12: being thrown at the problem. There's a lot of support now,
Speaker 12: I think for young families in terms of finance and
Speaker 12: helping them during those early years when it's hard to
Speaker 12: be raising a family and working at the same time.
Speaker 12: But it's very questionable about whether they'll be able to
Speaker 12: turn the tide on this.
Speaker 10: Is there anything in a nationalistic vein? I mean talking
Speaker 10: about Japan's standing or place on the global stage.
Speaker 12: Oh well, that's very much the line that Takeichi, of course,
Speaker 12: would put forward as her basic policy. That's what she wants.
Speaker 12: That's the kind of rhetoric that abbe used to use
Speaker 12: for many years. How far that actually plays with the public,
Speaker 12: I don't really know. I'm not sure that the average
Speaker 12: voter is that key, you know, on this kind of
Speaker 12: issue of whether Japan's playing a huge role on the
Speaker 12: global stage. But on the other hand, this election doesn't
Speaker 12: involve the average voter. It's all members of the LDP,
Speaker 12: and when it comes to the runoff, it's almost exclusively
Speaker 12: LDP lawmakers, so that rhetoric may play better than with
Speaker 12: them that it would with the public at large, who
Speaker 12: are concerned with more kind of bread and butter issues.
Speaker 10: One of the things that Brian and I have noticed
Speaker 10: in covering the Japanese stock market the degree to which
Speaker 10: corporate reform has really made an impact in the performance
Speaker 10: of some of the stocks, let's say, in the Nike
Speaker 10: structural reform. Corporate reform, is that something that will continue
Speaker 10: to be.
Speaker 12: Addressed it very much will I don't think that's something
Speaker 12: really that the various candidates can appeal to the public with,
Speaker 12: But certainly some of the candidates, including Cornell who's famous
Speaker 12: for his love of the idea of reform and Cooison
Speaker 12: me also have been looking into this issue and want
Speaker 12: to make Japan more of a sort of fluid and
Speaker 12: normal in inverted commas economy. Whether they'll be able to
Speaker 12: do that is another question. I mean, they'll come into government,
Speaker 12: but they'll still be dealing with all the same issues
Speaker 12: that obviously everybody has been dealing with for the past
Speaker 12: couple of decades.
Speaker 10: Isabelle, thank you so much for helping us set up
Speaker 10: the election for leadership of the ruling LDP party in Japan.
Speaker 10: Isabelle Reynolds, Bloomberg's Tokyo bureau chief. I'm Doug Prisner along
Speaker 10: with Brian Curtis. You can join us weekdays here for
Speaker 10: Bloomberg Daybreak Asia beginning at eight am in Hong Kong
Speaker 10: eight pm on Wall Street.
Speaker 1: Tom thanks to Bloomberg day Break Asia host Doug Crisner
Speaker 1: and Brian Curtis. And that does it for this edition
Speaker 1: of Bloomberg day Break Weekend. Join us again Monday morning
Speaker 1: at five am Wall Street Time for the latest on
Speaker 1: markets overseas and the news you need to start your day.
Speaker 1: I'm Tom Busby. Stay with us. Top stories and global
Speaker 1: business headlines are coming up right now.