Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories in the coming week from our Daybreak anchors
Speaker 2: all around the world. Straight Ahead on the program, the
Speaker 2: latest reads on inflation, what it could mean to the
Speaker 2: Federal Reserve. I'm Tom Busby in New York.
Speaker 3: I'm Caroline Netge here in London, where we're looking ahead
Speaker 3: to the UK Chancellor's key speech to the City of London.
Speaker 4: I'm Doug Krisner, looking ahead at what we may learn
Speaker 4: in the coming week about the impact of US tariffs
Speaker 4: on the Japanese economy.
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. We begin today's
Speaker 2: program with two fresh readings on inflation. This week, coming
Speaker 2: off a better than forecast June jobs report. What all
Speaker 2: that plus retail sales for June could mean to the Fed.
Speaker 2: For more, we turned to Michael McKee, Bloomberg's International economic
Speaker 2: and policy correspondent. Well, Michael, I want to look back.
Speaker 2: Let's start with that June jobs report just over a
Speaker 2: week ago. What an upside surprise? What does it tell
Speaker 2: you about the labor market? What does it tell you
Speaker 2: about how important it could be to the Fed, to
Speaker 2: the President?
Speaker 5: Well, the upside surprise was in the headline, but when
Speaker 5: you look under the hood, the news wasn't quite as good.
Speaker 5: The unemployment rate did not rise, it fell a little bit,
Speaker 5: but that was because the labor force declined. So that's
Speaker 5: what we call drop an unemployment for the wrong reasons,
Speaker 5: And it does seem to have something to do with
Speaker 5: the President because the number of foreign born workers dropped significantly,
Speaker 5: and long term that could be a problem for the economy. Also,
Speaker 5: what we saw was half of the gain was in
Speaker 5: government employment, and economists are pretty unanimous in suggesting that's
Speaker 5: a seasonal adjustment problem because in June you don't see
Speaker 5: a huge amount of education hiring since school is out,
Speaker 5: and that was what drove it. So we are looking
Speaker 5: at a labor market that is slowing down.
Speaker 6: Would be the conclusion, but not in trouble yet. So
Speaker 6: for the FED, it's kind of a wash.
Speaker 2: Okay, so even Stephen this week though two reads coming
Speaker 2: up for the month of June on inflation. The Consumer
Speaker 2: Price Index out on Tuesday, the Producer Price Index for
Speaker 2: June out on Wednesday. Also retail Sales for June that
Speaker 2: comes out Thursday, another big number.
Speaker 5: It's a big week, and CPI is going to get
Speaker 5: most of the attention because it'll be our broadest picture
Speaker 5: of what the consumer inflation situation is, even if it's
Speaker 5: not the fed's main index for its inflation target, and
Speaker 5: it is expected to rise, and so that should get
Speaker 5: a lot of attention on Wall Street because everybody's been
Speaker 5: waiting for some kind of tariff impact on the price level,
Speaker 5: and so if we see that, people will be a
Speaker 5: little concerned. For the Fed, it might be the producer
Speaker 5: Price Index that's more important in the sense that producer
Speaker 5: prices will tell you what are probably going to be
Speaker 5: a better indication of where underlying tariff inflation pressure is
Speaker 5: coming from, because all the parts that people buy from
Speaker 5: overseas to make other things will start to show up.
Speaker 5: We've had tariffs on steel and aluminum, and that's the
Speaker 5: kind of thing that in theory will show up in
Speaker 5: the producer price index and suggest that we will see
Speaker 5: further consumer price increases down the road.
Speaker 2: Auto parts, lumber all in there too, all in there too.
Speaker 2: And now you mentioned obviously the tariffs. A lot could change.
Speaker 2: Last week we heard President Trump talking about anti American
Speaker 2: bricks nations, a ten percent levy on nations. I mean,
Speaker 2: how bad could it get? Is it all bluster? I mean,
Speaker 2: what do you think?
Speaker 5: Well, so far, it kind of looks like the way
Speaker 5: people are taking it is. Anything could change at any moment,
Speaker 5: because that's been the story of the President's tariff policies.
Speaker 6: But for the.
Speaker 5: Moment, I think what you're going to see is economists
Speaker 5: starting to put pencil to paper when they have some numbers,
Speaker 5: to try to figure out what the effect will be
Speaker 5: on prices and on consumer demand.
Speaker 6: You mentioned retail sales. Retail sales have been.
Speaker 5: Hanging in there at a lower level than they are,
Speaker 5: but if prices go up, then people may stop buying
Speaker 5: some things. So that'll be what the people with the
Speaker 5: Excel spreadsheets are doing. Companies have to figure out what
Speaker 5: they are going to do about supply chains, whether or
Speaker 5: not this means they should invest or not in expansion,
Speaker 5: what they think it's going to mean for their customers,
Speaker 5: so they know whether they're going to have to absorb
Speaker 5: things in their margins and that might have.
Speaker 6: An effect on the stock market.
Speaker 5: So a lot of questions to be answered yet. But
Speaker 5: if we start to get some clarity that we can
Speaker 5: believe in I believe it's not going to change, then
Speaker 5: that is going to give people a chance to start
Speaker 5: figuring out where this all goes.
Speaker 2: Well, I'm sure we'll talk again until then the June
Speaker 2: CPI figure out this Tuesday PPI the following day retail
Speaker 2: sales On Thursday, our thanks to Michael McKee, Bloomberg's International
Speaker 2: Economic and policy correspondent, we turned out to earnings, and
Speaker 2: this week we'll hear from the streaming video giant Netflix
Speaker 2: as it goes deeper into live programming to raise revenue
Speaker 2: and for more on what's behind that push. We're joined
Speaker 2: by Get the Rag and often Bloomberg intelligence analyst on
Speaker 2: US media GITA. Thank you for being here. Although they
Speaker 2: no longer report subscriber numbers, a key metric for Netflix
Speaker 2: as it builds its advertising business. What do you expect
Speaker 2: to see in the latest earnings report out on Thursday.
Speaker 7: Yeah, you're absolutely right. They have stopped reporting subscribers as
Speaker 7: of this year, but the metrics that they want us
Speaker 7: to focus on right now are revenue gains as well
Speaker 7: as operating margin, and they've really been delivering some stellar
Speaker 7: numbers when it comes to both of those metrics. So
Speaker 7: what we're looking for and what they've guided to for
Speaker 7: the second quarter in terms of revenue growth is mid
Speaker 7: teens percentage increases, so about fifteen to fifteen and a
Speaker 7: half percent increase in revenues and a very very strong
Speaker 7: operating margin at thirty three percent. Remember last year was
Speaker 7: absolutely a breakout yere for Netflix. They had six hundred
Speaker 7: basis point expansion in their operating margin, and again they've
Speaker 7: guided to pretty impressive increase for this year as well.
Speaker 7: So you're absolutely right. The focus has really shifted now
Speaker 7: to financial metrics, But that doesn't mean that subscriber growth
Speaker 7: is slowing because they have an absolutely fantastic They had
Speaker 7: a very strong content slate for the second quarter, and
Speaker 7: they continue to put out really good titles and they
Speaker 7: have some really big series that are going to debut
Speaker 7: on their platform through the rest of the year as well.
Speaker 2: Well, it's clear. I mean the share price has almost
Speaker 2: doubled in value in the past twelve months, so they
Speaker 2: are doing everything right. Let's talk about what they have
Speaker 2: done as well as the push into more live programming.
Speaker 2: They've raised prices and that doesn't seem to have heard
Speaker 2: at all either, right.
Speaker 8: Not at all.
Speaker 7: So what Netflix has really done well is they've established
Speaker 7: themselves as a must have platform, so they are the
Speaker 7: go to, kind of default entertainment option out there, which
Speaker 7: gives them a lot of pricing power. They also have
Speaker 7: content is obviously their greatest differentiator. They have a steady
Speaker 7: stream of really popular content on their service. But most
Speaker 7: of all, it's really the user experience. Right, The user
Speaker 7: experience is unparalleled, and that's something that Netflix knows. And
Speaker 7: you know, they're able to raise prices and there has
Speaker 7: been absolutely no backlash or pushback from customers.
Speaker 8: We've seen shown at very very manageable levels.
Speaker 7: So it just gives them more confidence, really emboldens them
Speaker 7: to keep increasing prices at a steady pace even into
Speaker 7: the future.
Speaker 2: Well, let's talk about some of that programming, because they
Speaker 2: have really tried to broaden the lineup to attract new subscribers,
Speaker 2: and it looks like it's working. I mean, the sports,
Speaker 2: there's a WWE, the raw wrestling, UFC matches. We know
Speaker 2: they've been aggressive trying to get Formula one. I mean,
Speaker 2: they are really branching out. And we know in the
Speaker 2: past there's no football games now NFL, but you know
Speaker 2: what worked for them on Christmas Day those two games there,
Speaker 2: those big celebrity boxing matches. I mean, is that the
Speaker 2: future that they see right now? Those live programmings, the
Speaker 2: advertising revenue from that, and are we going to see
Speaker 2: more and more and more of that?
Speaker 7: We're going to see more. There is absolutely no doubt
Speaker 7: about that. You're absolutely right. You bring up the WWE.
Speaker 7: That's been a great source of programming. We see that
Speaker 7: show up in the top ten literally every week, so
Speaker 7: we know that that programming is resonating very well. Again NFL,
Speaker 7: that's something that they tried last year with the Christmas
Speaker 7: Day games.
Speaker 8: They're going to do that again this year.
Speaker 7: They have more of this kind of boxing matches coming up,
Speaker 7: so they're really getting into live programming in a big way.
Speaker 8: And if you think about what the.
Speaker 7: Strategy is here, it's not just to kind of expand
Speaker 7: the entire programming lineup. They're really chasing advertising dollars, and
Speaker 7: we know that they are looking to get at least
Speaker 7: about nine billion dollars in advertising by twenty thirty. That's
Speaker 7: that's a pretty big ask because remember they just introduced advertising.
Speaker 7: It was only about one one and a half billion
Speaker 7: dollars again estimated in twenty twenty four.
Speaker 8: They've got to really scale that up.
Speaker 7: So the idea here is to really capture more consumer
Speaker 7: media usage time, and so they want to get all
Speaker 7: of these different genres.
Speaker 8: Live sports is something that works really well.
Speaker 7: They did a really very different type of deal just
Speaker 7: a few weeks ago in France where they're actually integrating
Speaker 7: content live content, live TV content from TF one. This
Speaker 7: is the first of its kind deal where they're taking
Speaker 7: a live broadcasting live broadcasters programming and actually putting it
Speaker 7: on Netflix. So again here we're you know, we're just
Speaker 7: looking at them experimenting with different strategies, basically just capturing
Speaker 7: more watch time, increasing engagement, reducing seoan.
Speaker 2: Well, they've also done a similar thing with NASA plus
Speaker 2: they're ad free offering from the US Space Agency, and
Speaker 2: they've had talks with Spotify about even more programming, branching
Speaker 2: out beyond sports.
Speaker 5: Right.
Speaker 7: Yeah, again, this goes back to this whole concept of
Speaker 7: retention monetization. How do you keep driving user growth? And
Speaker 7: it looks like they are not afraid of experimenting and
Speaker 7: you know, really trying all kinds of things to scale
Speaker 7: and to become the dominant.
Speaker 8: I mean, they already are the dominant.
Speaker 7: Streaming platform, but it's just basically expanding that dominance and
Speaker 7: really really cementing it.
Speaker 2: And we've seen Squid Games three, a blockbuster for viewership,
Speaker 2: the most watched program in ninety countries, the final season
Speaker 2: of Stranger Things, and coming out in just a couple
Speaker 2: of weeks, the second season of Wednesday. I mean, they've
Speaker 2: got a full lineup of shows too.
Speaker 8: Yeah.
Speaker 7: Absolutely, so, believe it or not, this is the strongest
Speaker 7: six month period ever in the history of Netflix. They
Speaker 7: have never had three of their you know, biggest series ever.
Speaker 7: I mean, remember squid Game is their biggest series ever,
Speaker 7: against Stranger Things, Wednesday. All those three feature in the
Speaker 7: top five of the most watched series in the history
Speaker 7: of Netflix, maybe in the history of any streaming platform.
Speaker 7: And so we ssolutely believe that is going to drive
Speaker 7: extremely strong subscriber growth. Management itself has kind of characterized
Speaker 7: this slate as, you know, a slight embarrassment of riches.
Speaker 7: You know, they've never had so many big series kind
Speaker 7: of come out, and they're absolutely capitalizing on it. So
Speaker 7: remember they are eventizing this whole stranger things. They're breaking
Speaker 7: it out into two parts. One part comes out, you know,
Speaker 7: around Thanksgiving. The second part comes out on Christmas Day,
Speaker 7: So they're really going to capitalize on it and make
Speaker 7: sure that subscriber momentum is maintained.
Speaker 2: Wow Big and getting bigger. Netflix Q two earnings out
Speaker 2: this Thursday after Wall Street's closing. Bell Our thanks to
Speaker 2: Githa raganathin Bloomberg Intelligence analyst on US media and coming
Speaker 2: up on Bloomberg day Break weekend, I'll look ahead to
Speaker 2: a major speech from UK Chancellor Rachel Reeves. I'm Tom Busby,
Speaker 2: and this is Bloomberg. This is Bloomberg day Break weekend,
Speaker 2: our globe look ahead at the top stories for investors
Speaker 2: in the coming week. I'm Tom Busby in New York.
Speaker 2: Up later in our program, we look ahead to several
Speaker 2: key data points for the Japanese economy. But first UK
Speaker 2: Chancellor Rachel Reeves do to deliver her next major speech
Speaker 2: to City of London at Mansion House on July fifteenth.
Speaker 2: She's expected to lay out the government's growth and competitiveness
Speaker 2: strategy for financial services. But with pressure from within her
Speaker 2: own party to impose a new Wealth tax in Britain,
Speaker 2: what will Reeves's message be for more, Let's bring in
Speaker 2: Bloomberg daybreak earbanker Caroline Hepger in London.
Speaker 3: Tom Rachel Reeves will face an audience in the city
Speaker 3: who may well be relieved to see her still as
Speaker 3: UK Chancellor. The Labour Party has been in power for
Speaker 3: a year in the UK, it has not yet been
Speaker 3: able to deliver the kind of meaningful growth that avoids
Speaker 3: very difficult tax and spending decisions in the autumn budget.
Speaker 3: Paul Johnson, the outgoing director of the leading think tank,
Speaker 3: the Institute for Fiscals Studies, wrote recently on the subject.
Speaker 3: The Chancellor has to somehow reconcile tax and spending, but
Speaker 3: both her own Labour MPs and the Tory opposition are
Speaker 3: still living in a dream world, according to Johnson. David
Speaker 3: Miles from the independent watchdog the Office for Budget Responsibility
Speaker 3: put the Chancellor's difficulties into context when he spoke to
Speaker 3: us recently on Bloomberg Radio.
Speaker 9: If one kept all the policy settings as they are,
Speaker 9: the generosity of various state pensions being uplifted in line
Speaker 9: with a so called triple lock, and health spending likely
Speaker 9: rising simply to reflect what's likely to happen to demographics.
Speaker 9: And if there's no change in the tax system, in otherwords,
Speaker 9: if nothing changes and you just let the system carry
Speaker 9: on as it is, it looks like it's going to
Speaker 9: generate a stock of debt that that doesn't get under
Speaker 9: control and in the longer run, in anyway, carries on
Speaker 9: going up. The message of our certainly isn't you know
Speaker 9: this specific policy needs to chase angel that specific policy
Speaker 9: is to change. It's just that there are pressures which
Speaker 9: have to be offset over the long run or else
Speaker 9: through on a trajectory which is likely unsustainable.
Speaker 3: So that was the obr's David Miles. But those difficulties
Speaker 3: are still some weeks away. For this Mansion House speech
Speaker 3: will be focus more narrowly on the specifics of the
Speaker 3: financial industry in Britain amid a push in the US
Speaker 3: to power ahead with deregulation, tariffs and tax cuts.
Speaker 10: Well.
Speaker 3: Joining me now is Bloomberg's UK Government reporter Joe Mays
Speaker 3: and Bloomberg opinion columnist Paul J. Davies. Welcome to both
Speaker 3: of you, and thank you for being with me.
Speaker 10: Joe.
Speaker 3: Can we just start by thinking about what we expect
Speaker 3: in terms of tone from Rachel Reeves. Obviously we had
Speaker 3: that moment of tearfulness in the House of Commons quite recently,
Speaker 3: followed by lots of beaming smiles and hugs with the
Speaker 3: Prime Minister. Does Reeves retain her authority?
Speaker 11: I think we can expect the kind of tone which
Speaker 11: you'd normally get from a child, and imagine how speeds,
Speaker 11: which is projecting a positive, grateful attitude towards the city
Speaker 11: for the massive contribution it makes to the tax space,
Speaker 11: to the economy, and then setting out what she's done
Speaker 11: to help them so far and what she plans to
Speaker 11: do to make their lives even better going into the future.
Speaker 11: You're right that it comes against this backdrop of that
Speaker 11: very dramatic moment we had in the House of Commons
Speaker 11: where the pound was moving on these fears that she
Speaker 11: might have resigned or been sacked. Yeah, I think she
Speaker 11: came out of that episode actually strengthened with the city
Speaker 11: and with financial markets because it really showed how markets
Speaker 11: were worried that she was going to be replaced by
Speaker 11: a more left wing alternative and so by staying, and
Speaker 11: you saw the reaction of the pound and guilts rallying
Speaker 11: when she was confirmed she was going to stay. I
Speaker 11: think that shows that investors feel like she is probably
Speaker 11: the safest bets when it comes to labour chance. That's
Speaker 11: her fiscal discipline, commitment to those fiscal rules. So I
Speaker 11: think she'll go into this mansion house feeling somewhat emboldened
Speaker 11: by that episode, and I wanted to show the city
Speaker 11: that she's still informed. She's got plans to make the
Speaker 11: economy grow and.
Speaker 3: Do better, and maybe that that lesson has become evident
Speaker 3: to her own party, within the Parliamentary Labor Party. Maybe
Speaker 3: what do you think she's going to announce then? I mean,
Speaker 3: there are so many rumors already, but let's start by
Speaker 3: thinking about icers, which is a particular investment product in
Speaker 3: the UK. I mean eighteen million people have investments in ers.
Speaker 11: I think this is the most eye catching announcement we're expecting.
Speaker 11: Was this change to the twenty thousand pounds limit that
Speaker 11: you can currently put in a cash icer tax free
Speaker 11: on the interest. We're expecting her to announce a reduction
Speaker 11: in that twenty thousand pounds limit on cash, so that
Speaker 11: you could still have twenty thousand pounds in an ISA,
Speaker 11: but more of it would have to be in equities
Speaker 11: and stocks. I think that's the push she wants to
Speaker 11: make to move more capital into British shares British stocks
Speaker 11: in a bid to get growth going. It's all part
Speaker 11: of that growth message. Now, it wouldn't be without controversy.
Speaker 11: We know that for some people this is something they
Speaker 11: do not like. They like the idea of having kind
Speaker 11: of safe cash as their form of saving, but then
Speaker 11: will be reacted negatively maybe, But I think that's what
Speaker 11: the bigges and Ulsomber are expecting.
Speaker 3: Yeah, and some of the banks and the lenders that
Speaker 3: operate the isers that offer the iceers, you know, have
Speaker 3: also got a stake in this too and have pushed
Speaker 3: back somewhat against maybe some of the changes. Paul, let
Speaker 3: me bring you in at this point. So that's kind
Speaker 3: of setting the tone and maybe the eye catching announcements.
Speaker 3: But obviously the City of London wants the detail, and
Speaker 3: particularly on regulation in terms of maybe the idea of
Speaker 3: scrapping ring fencing rules, which is a rule that dates
Speaker 3: back to the financial crisis. Any thoughts about whether that
Speaker 3: might be part of this mansion house speech.
Speaker 12: Yeah, well, this is one of the key sort of
Speaker 12: I guess, most tangible debates at the moment in regulations.
Speaker 12: And it's pretty interesting because there's a split between Rachel
Speaker 12: Reeves seeming prepared to perhaps ditch it as a way
Speaker 12: of hopefully enhancing growth. Everything that they're trying to do
Speaker 12: is find ways to enhance growth. Bank of England has
Speaker 12: come out against it. Andrew Bailey, governor has said that
Speaker 12: he thinks it should remain, and there's a split in
Speaker 12: the industry as well. So you know, Berkleay's Bank has
Speaker 12: defended it quite strongly and thinks it's very important as
Speaker 12: a way of protecting depositors. I mean, you remember that
Speaker 12: the whole point of this thing is to keep ordinary
Speaker 12: consumers deposits separate from the volatile, exciting, dangerous world of
Speaker 12: investment banking and trading and so on and so forth.
Speaker 12: So Barkley thinks it's important to keep that. Other banks,
Speaker 12: particularly HSBC, thinks it be much better to find a
Speaker 12: way of releasing more of that money for you know,
Speaker 12: growth investment inside the UK and beyond. And they're unhappy
Speaker 12: that big global banks like JP Morgan and Goldman Sachs
Speaker 12: can use their small sort of UK deposit gathering businesses
Speaker 12: Chase UK or Marcus to raise cheap funding, which they're
Speaker 12: then free to use for whatever they want wherever they
Speaker 12: want because they remain below this threshold. I mean, I
Speaker 12: think what we might see ultimately is maybe a compromise
Speaker 12: whereby you know, the banks like HSBC and Barclays get
Speaker 12: to use the first thirty five billion of UK retail deposits,
Speaker 12: which is the threshold for you know, ring fencing your
Speaker 12: UK operations, separating it from investment. Then maybe they'll get
Speaker 12: to use that first thirty five billion in a freer
Speaker 12: way to kind of you know, to put into investment
Speaker 12: banking or some kinds of corporate lending or something more
Speaker 12: growth orientated, and that could satisfy both sides to some degree.
Speaker 3: Yeah, And I think this goes to the argument about
Speaker 3: whether the government's changes all of these tweaks, these small
Speaker 3: incremental tweaks, actually going to add up to something more major.
Speaker 3: And meaningfully change the trajectory when it comes to economic growth,
Speaker 3: or in fact, this focus on financial services. We know
Speaker 3: that financial services is one out of the eight growth
Speaker 3: areas that the government is focused on, but how much
Speaker 3: are they really relying on financial services? It's sort of
Speaker 3: an interesting quat, isn't it, in terms of what other
Speaker 3: maybe smaller banks are concerned about the increase potentially in
Speaker 3: capital requirements for smaller lenders, how big a difference would
Speaker 3: that make.
Speaker 12: Yeah, so, I guess one of the debates around ring
Speaker 12: fencing has been is this is keeping it away of
Speaker 12: restricting competition from smaller banks because it puts a cap
Speaker 12: on their growth to some degree. Those smaller banks like
Speaker 12: you know, Starling or One Savings Bank, they're kind of
Speaker 12: much more worried about these kind of emrel capital requirements
Speaker 12: which kick in sooner and are much more costly, very
Speaker 12: quickly in terms of the amount of capital and and
Speaker 12: sort of you know, loss absorbing debts, which is the
Speaker 12: kind of capital that you have to issue as those banks,
Speaker 12: so they would much rather see a change there, And
Speaker 12: there is a kind of an idea I think that
Speaker 12: maybe the point at which that kicks in might be
Speaker 12: lifted as well currently from sort of fifteen to twenty
Speaker 12: billion pounds of assets up towards that thirty five billion
Speaker 12: where the ring fencing kicks in.
Speaker 3: Okay, So that on regulation, Joe. In terms of other things,
Speaker 3: that could also so feature in the next few days
Speaker 3: a shakeup of the pension system, especially if auto enrollment.
Speaker 3: I mean, pensions are such a major issue for the UK,
Speaker 3: not enough savings, not enough good returns for investors. What
Speaker 3: might a shake up look like?
Speaker 11: Yeah, so I think the government would like to see
Speaker 11: more money going into pensions, firstly so that more could
Speaker 11: be invested in the economy. That'll be a growth story
Speaker 11: for them, but also for us and our retirement savings
Speaker 11: and do we have enough. So I think we could
Speaker 11: see changes, as you mentioned, to the contribution levels for
Speaker 11: what gets paid into pensions. So at the moment you
Speaker 11: have the system where minimum contributions of eight percent by
Speaker 11: employees only three percent by the employer, and there's some
Speaker 11: talk about that three percent number perhaps going up. Now
Speaker 11: Torsten Bell, the Pensions Minister, has said that the rates
Speaker 11: won't change for this parliament, but there could be an announcement
Speaker 11: that says we're looking at in the longer term. Could
Speaker 11: that number change?
Speaker 8: Now?
Speaker 11: Businesses would be reluctant to that because it would mean
Speaker 11: more costs for them if they had to pay more
Speaker 11: into our pension, But it might be something that does
Speaker 11: boost retirement savings, boost the economy. So I think that's
Speaker 11: one to potentially look out for, Paul.
Speaker 3: The city functions as part of a global financial system.
Speaker 3: We're seeing really big changes in the US in lots
Speaker 3: of ways. Is London keeping up? Some banks that I
Speaker 3: speak to actually are very positive about positioning themselves in London,
Speaker 3: the trading hub, the hours and so on. Should we
Speaker 3: be Can we be optimistic and London keep up?
Speaker 4: Yeah?
Speaker 12: I mean there are you know, there's a whole lot
Speaker 12: of issues surrounding this, obviously. I mean, I think the
Speaker 12: risk with the debate that we're having in the UK
Speaker 12: over financial services regulation and what we need to do
Speaker 12: to kind of tweak things slightly to encourage growth, risks
Speaker 12: being completely overtaken by a big deregulatory wave in the US.
Speaker 12: I mean, I think in the City, the kind of
Speaker 12: the long term debate and the issue that they want
Speaker 12: the government to address with the Bank of England with
Speaker 12: the FCA is one of you know, a very risk
Speaker 12: averse kind of culture and approach to not only the
Speaker 12: kind of rules we have, but how they are applied.
Speaker 12: And they would love to see you a bit more
Speaker 12: freedom and a bit more growth focus and competition focus
Speaker 12: in the attitude of regulators. And there's signs that that's
Speaker 12: starting to happen. The Bank of England is looking at
Speaker 12: has already delayed, you know, stricter capital requirements for the
Speaker 12: trading books of investment banks, and is looking at ways
Speaker 12: to make the remaining capital requirements for banks a bit
Speaker 12: more flexible so they could sort of operate at a
Speaker 12: lower level of capital during times of crisis.
Speaker 3: Thank you so much, Bloomberg's UK. I'ment to report to
Speaker 3: j Mays and to our opinion columnists Paul J. Davies.
Speaker 3: Thank you so much for your time. I'm Kroline hepgar
Speaker 3: Here in London. You can catch us every weekday morning
Speaker 3: for Blueberg Daybreak. Youre at beginning at six am in London.
Speaker 3: That's one am on Wall Street.
Speaker 2: Tom, thank you, Caroline, and coming up on Bloomberg Daybreak
Speaker 2: weekend to look into the impact of US tariff policy
Speaker 2: on the Japanese economy. I'm Tom Busby And this is Bloomberg.
Speaker 2: This is Bloomberg Daybreak 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. In the week ahead, we'll
Speaker 2: get several key data points for the Japanese economy likely
Speaker 2: to show the impact of US tariff policy. For more,
Speaker 2: let's get to the host of the Daybreak Asia podcast,
Speaker 2: Doug Krisner.
Speaker 4: Tom, the Japanese economy was beginning to show signs of
Speaker 4: vitality and inflation before President Trump unleashed his tariff policy,
Speaker 4: and now the story in Japan seems to be about
Speaker 4: economic uncertainty, especially since Washington and Tokyo are still trying
Speaker 4: to reach a trade agreement. Now in the coming week,
Speaker 4: we'll get the reading on Japanese core machine orders as
Speaker 4: well as the print on industrial production plus trade figures
Speaker 4: for the month of June. And to help me preview
Speaker 4: these readings and the impact US tariffs are having, I'm
Speaker 4: joined by Katya Dmitrieva, Bloomberg Asia Economy reporter. Katya is
Speaker 4: based in Hong Kong. Thank you for making time to
Speaker 4: chat with me. Can I ask you right out of
Speaker 4: the gate, how dark is the cloud hanging over the
Speaker 4: Japanese economy right now, well.
Speaker 10: It's pretty dark right now. And if we were going
Speaker 10: to take that metaphor further, I mean you're getting not
Speaker 10: just storm clouds with thunder and lightning, because you have
Speaker 10: an economy that for the past few years has been
Speaker 10: trying to engineer inflation and has been fairly successful at
Speaker 10: doing that. Right, they were in a period of deflation
Speaker 10: and then pretty flat growth, prices started to perk up,
Speaker 10: the Central Bank started to hike interest rates with planning
Speaker 10: to continue to do that, and then enter President Donald
Speaker 10: Trump in tariffs, and now the economic outlook is looking
Speaker 10: a lot more uncertain. So they went from trying to
Speaker 10: increase prices to now the risk is a technical recession
Speaker 10: with two back to back quarters of negative growth, and
Speaker 10: the reason for that is largely because of tariffs and
Speaker 10: tariffs on autos in particular. Japan's number one market for
Speaker 10: car exports is the US. It has been for some time,
Speaker 10: and the twenty five percent tariffs that were added on
Speaker 10: cars in April by the US government is hurting them already.
Speaker 10: We actually saw signs of that recently, so Japan's automakers
Speaker 10: cut their export prices to North America by a record amount.
Speaker 10: So what that signals is that essentially producers are not
Speaker 10: willing to face a decline in orders. They're trying to
Speaker 10: keep the demand going and trying to remain competitive in
Speaker 10: the US market by cutting their prices. But of course,
Speaker 10: if they're cutting prices, that means other companies are cutting
Speaker 10: their costs and prices along the chain, which means in
Speaker 10: Japan overall inflation might actually face some dampening here. So
Speaker 10: it's a huge risk.
Speaker 4: So when I'm listening to you, I'm thinking of Japan Inc.
Speaker 4: And the degree to which margins are going to be
Speaker 4: under pressure.
Speaker 10: Yeah. Absolutely, I mean, this is not good for Japanese companies,
Speaker 10: and they're hoping that President Trump and Prime Minister Ishiba
Speaker 10: can sort of reach an agreement on trade. But the
Speaker 10: signals we've gotten from the Japanese government is very much
Speaker 10: we'd rather be patient. We'd rather wait for the right deal,
Speaker 10: even if it means that we may initially get hit
Speaker 10: with tariffs. But we don't want to rush into this
Speaker 10: because they want to protect their domestic sector as well.
Speaker 10: They want to ensure not just that they can continue
Speaker 10: to sell cars and other goods, into the US. They
Speaker 10: want to make sure that their agriculture sector, for example,
Speaker 10: doesn't get slammed by US agricultural goods if they change
Speaker 10: those non tariff barriers, which of course Trump wants. Trump
Speaker 10: wants to have more US exports and support US farmers.
Speaker 10: So it's they're kind of at an impasse right now.
Speaker 10: And the difficult thing is, and the scary thing is
Speaker 10: for other countries, is that Japan has been far and
Speaker 10: above one of the most active countries when it comes
Speaker 10: to trade negotiations. So they have flown their trade team
Speaker 10: to the US at least seven times, and we ran
Speaker 10: the calculations for how many hours that is in the
Speaker 10: air and how many miles that is. So they're far
Speaker 10: and above every other country in that regard. And if
Speaker 10: even they can't reach an agreement and avoid for them
Speaker 10: it would be twenty five percent tariffs as of August first,
Speaker 10: then who.
Speaker 4: Can On top of that, Japan is the largest investor
Speaker 4: in the US. It has been for the past five years.
Speaker 4: It's also a crucial security Ally, I would think that
Speaker 4: there is a level of good will that's a part
Speaker 4: of this story as well.
Speaker 10: There should be, And it's a similar case to South
Speaker 10: Korea and to Taiwan as well. I mean, these are
Speaker 10: allies in Asia of Americas for some time, and that's
Speaker 10: something that the Prime Minister and trade delegations have flagged
Speaker 10: time and time again, both in meetings with the administration
Speaker 10: and also publicly and in the media, is that there
Speaker 10: is a lot of common ground and they do hope
Speaker 10: that they can reach some sort of resolution. And the data,
Speaker 10: at least for Japan's side, is really going to underscore
Speaker 10: that next week, because you had mentioned we're getting some
Speaker 10: of the industrial production data that's probably going to slow down.
Speaker 10: We're getting producer prices and consumer prices. This is something
Speaker 10: at the Central Bank and the government really wants to
Speaker 10: see perking up, and it's it's probably going to slow
Speaker 10: again for CPI. It's going to probably the fourth month
Speaker 10: in a row. And then we also have export. Both
Speaker 10: of those fell in May, and it sets up this
Speaker 10: interesting dichotomy between Southeast Asia and North Asia because South Korea,
Speaker 10: Japan we've seen a slowing of exports, but Southeast Asia
Speaker 10: has really accelerated because a lot of the stuff essentially
Speaker 10: from China is going through there onto the US. That'll
Speaker 10: be something interesting to watch in the data as well.
Speaker 10: But really next week, I think the message from Japanese
Speaker 10: data is going to be they need to reach an agreement.
Speaker 10: They need to reach an agreement soon, otherwise their economy
Speaker 10: is at risk.
Speaker 4: So any notion of the Bank of Japan positioning itself
Speaker 4: to begin to hike interest rates is off the table
Speaker 4: at this point. I don't see a way for the
Speaker 4: BOJ to be able to execute on that mission.
Speaker 10: It'll be really tough, especially if there is an economic
Speaker 10: even if it's a technical recession, Even if policymakers can
Speaker 10: sort of look through some of this data as short
Speaker 10: term fluctuations related to ongoing trade talks. I mean, it's
Speaker 10: really hard to think of a world where as a
Speaker 10: central bank, you high rates into a recession or during
Speaker 10: a recession. Just doesn't happen, and they only have to
Speaker 10: look around the world, to the Federal Reserve, to the
Speaker 10: US to see the exact same uncertainty over there minutes
Speaker 10: we're really least this week, and it clearly shows there's
Speaker 10: a debate and there's uncertainty about whether what to do
Speaker 10: with interest rates because the economy is looking like they
Speaker 10: can start taking action, but tariffs are showing that there
Speaker 10: might be some economic uncertainty and they might need to
Speaker 10: potentially cut interest rates. So there's that cut versus raise
Speaker 10: debate happening across central banks globally, and what it likely
Speaker 10: means is just holding until you get some clarity and
Speaker 10: then looking back in hindsight and saying okay, you know, either'
Speaker 10: patting yourselves on the back or saying, ooh, we moved
Speaker 10: a bit too slow on that. I mean, it's not
Speaker 10: a great situation.
Speaker 4: Right being behind the curve rather than being prudent and
Speaker 4: trying to wait for the data to drive the decision making.
Speaker 4: One of the debates you mentioned the Fed minutes as
Speaker 4: to whether or not the East tariffs are inflationary. But
Speaker 4: I'm really curious about what it means for the political
Speaker 4: future of Prime minister issue of the situation that Japan
Speaker 4: in right now vis a VI, these tariffs that have
Speaker 4: been put in place, and the fact that maybe we're
Speaker 4: going to see a tariff freight that is permanent, much
Speaker 4: higher than the one that exists now, is this in
Speaker 4: any way a political setback for Ishiba.
Speaker 10: It's a political setback in the sense that if we
Speaker 10: see the impact of the tariffs roll through into an
Speaker 10: economic crisis in addition to consumers having to pay a
Speaker 10: lot more for a staple. You know, I've seen this
Speaker 10: called the rice election, for example, because rice prices have
Speaker 10: soared this year in Japan and there have been lineups
Speaker 10: and the government had to sort of unleash their strategic
Speaker 10: reserves of rice. And you know, in case listeners don't know,
Speaker 10: rice is a food staple. It's sort of like if
Speaker 10: the same thing happened with bread prices in North America.
Speaker 10: There's been a lot of pushback on that. The government
Speaker 10: has been very keen to come out in front of
Speaker 10: that and do as much as they can to lower prices.
Speaker 10: And also, frankly, this is why they want to protect
Speaker 10: their agriculturals from imports abroad. They want to protect their
Speaker 10: farmers feeble to continue to produce rice and other agricultural goods.
Speaker 4: I'm uncertain as to whether or not the impact of
Speaker 4: these tariffs on the Japanese economy is having any effect
Speaker 4: on the way in which people in Japan are feeling
Speaker 4: about the United States. Katya, you and I have talked
Speaker 4: in the past about how this trade war between China
Speaker 4: and the US is changing the attitude of people in
Speaker 4: China toward the United States.
Speaker 10: Right, There's definitely been a visceral reaction on social media
Speaker 10: both ways.
Speaker 8: In China.
Speaker 10: You know, you have a lot of netizines basically saying,
Speaker 10: you know, Trump is making China great again because you know,
Speaker 10: China just has to sit back and wait for the
Speaker 10: US to isolate itself and China can form all these
Speaker 10: trade agreements and trade deals and come out on top.
Speaker 10: And then you have the other half basically coming out
Speaker 10: against the US and against Trump in this because of
Speaker 10: the economic pain it could have in China. I think
Speaker 10: in Japan, the bigger issue, to be honest, among people
Speaker 10: has been the currency and the impact that that's had
Speaker 10: on tourism and on more Americans and Westerners living in
Speaker 10: Japan and also traveling through Japan. There's been a huge
Speaker 10: pushback domestically against that.
Speaker 4: So do you have a sense of this tension between
Speaker 4: the US and Japan having an impact on Japanese relations
Speaker 4: with China? Is that at all possible that Japan begins
Speaker 4: to perhaps look for other markets or to fortify the
Speaker 4: relationship with China in a way where that trading relationship
Speaker 4: is maybe improved to some extent.
Speaker 10: Yeah, there is that happening for sure. As the US
Speaker 10: continues to isolate itself and issue tariffs. As a country,
Speaker 10: you're just going to look to do business with other
Speaker 10: major economies, and especially if they're in your neighborhood. That
Speaker 10: definitely helps, you know. There was a former South Korean
Speaker 10: official that I was speaking with a few months ago
Speaker 10: who made this exact point, who said, you know, if
Speaker 10: your previous friend becomes your enemy, you're going to look
Speaker 10: for other friends. You're going to look for other people
Speaker 10: that you can form agreements with. And it's true that
Speaker 10: the Asian region has the most integrated trade of any
Speaker 10: other region in the world. So more than fifty percent
Speaker 10: of trade agreements are within the region, and so a
Speaker 10: lot of the growth in trade and exports and imports
Speaker 10: and demand frankly comes from within the region. The issue
Speaker 10: with that, unfortunately right now, is that China's economy isn't
Speaker 10: doing as well as it was a few years ago
Speaker 10: pre pandemic. So that's one consideration that, yes they have
Speaker 10: a huge population, Yes they have consumers with a lot
Speaker 10: of savings, there's still not unleashing those savings. And so
Speaker 10: if you bet on the Chinese consumer and the Chinese economy,
Speaker 10: you might kind of end up in a similar place
Speaker 10: as dealing with tariffs on the US. In other words,
Speaker 10: you're not going to see the same amount of growth.
Speaker 10: So there are a few considerations on both sides. But
Speaker 10: of course we've seen more trade agreements made. You know,
Speaker 10: China has traveled through Latin America, they did the Southeast
Speaker 10: Asia tour, meeting with leaders, so we've definitely seen those
Speaker 10: ties grow closer. The question is how serious is it
Speaker 10: and is China willing to make changes to its own market,
Speaker 10: especially in services and access of other countries' service providers
Speaker 10: within China is one of the main issues. So if
Speaker 10: they can tweak that, great, but it remains to be
Speaker 10: seen how serious they are about it.
Speaker 4: Katya, we've certainly covered a lot of ground. Thanks so
Speaker 4: very much, Bloomberg's Katya Dimitrieva. Katya is our Asia Economy
Speaker 4: reporter based in Hong Kong. I'm Doug Kristner. You can
Speaker 4: catch us weekdays for the Daybreak Asia podcast. It's available
Speaker 4: wherever you get your podcast. Tom.
Speaker 2: Thank you, Doug, and that does it for this edition
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