1 00:00:00,200 --> 00:00:07,320 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:09,800 --> 00:00:12,319 Speaker 2: This is Bloomberg day Break Weekend, our global look at 3 00:00:12,320 --> 00:00:14,800 Speaker 2: the top stories the coming week from our Daybreak anchors 4 00:00:14,800 --> 00:00:17,480 Speaker 2: all around the world, and straight ahead on the program, 5 00:00:17,760 --> 00:00:21,959 Speaker 2: what's expected to be the latest confirmation of easing inflation, 6 00:00:22,160 --> 00:00:24,960 Speaker 2: what it means for the Fed and for investors, Plus 7 00:00:25,079 --> 00:00:26,840 Speaker 2: earnings from Coca Cola this week. 8 00:00:26,960 --> 00:00:28,520 Speaker 3: I'm Tom Busby in New York. 9 00:00:28,760 --> 00:00:31,000 Speaker 4: I'm Stephen, Carol and Lundon for We're looking ahead to 10 00:00:31,040 --> 00:00:34,960 Speaker 4: the major international gathering of defense officials at the Munich 11 00:00:35,000 --> 00:00:36,080 Speaker 4: Security Conference. 12 00:00:36,320 --> 00:00:38,800 Speaker 5: I'm Brian Curtis in Hong Kong. We look ahead to 13 00:00:38,920 --> 00:00:41,640 Speaker 5: a lot of economic data coming in Japan and what 14 00:00:41,680 --> 00:00:43,360 Speaker 5: it means for the boj. 15 00:00:45,280 --> 00:00:49,360 Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend, The business 16 00:00:49,400 --> 00:00:53,360 Speaker 1: news you need to wrap up your week. Available on Apple, Spotify, 17 00:00:53,520 --> 00:00:56,840 Speaker 1: the Bloomberg Business Appen everywhere you get your podcasts. 18 00:01:01,280 --> 00:01:02,880 Speaker 3: Well, good day to you. I'm Tom Busby. 19 00:01:02,960 --> 00:01:07,760 Speaker 2: We begin today's program with expectations that inflation continues to ease. 20 00:01:07,920 --> 00:01:11,080 Speaker 2: That's ahead of the Consumer Price INDEXPERT January coming out 21 00:01:11,120 --> 00:01:15,360 Speaker 2: this Tuesday, just ahead of Valentine's Day, and to talk. 22 00:01:15,240 --> 00:01:17,520 Speaker 3: About whether Wall Street is gonna love what it hears. 23 00:01:17,560 --> 00:01:21,839 Speaker 2: We welcome Bloomberg's International Economic and policy correspondent Michael McKee. 24 00:01:22,440 --> 00:01:24,440 Speaker 3: Michael, what do we expect. 25 00:01:24,440 --> 00:01:29,480 Speaker 6: Hearts and flowers for Valentine's Day? CBI is expected to 26 00:01:29,520 --> 00:01:33,880 Speaker 6: continue the trend that we have seen of gradually slowing 27 00:01:34,319 --> 00:01:38,120 Speaker 6: inflation rates. The month of a month number expected to 28 00:01:38,120 --> 00:01:42,119 Speaker 6: go down from three tenths in December, which had been 29 00:01:42,160 --> 00:01:45,320 Speaker 6: revised now down to two tenths and then stay at 30 00:01:45,360 --> 00:01:48,840 Speaker 6: two tenths for the month of January, and that'll push 31 00:01:48,920 --> 00:01:51,520 Speaker 6: the year over year number down to two point nine 32 00:01:51,560 --> 00:01:54,040 Speaker 6: percent from three point four percent. Of course, that's the 33 00:01:54,520 --> 00:01:58,560 Speaker 6: headline because that's pushed around by energy and food. Of 34 00:01:58,600 --> 00:02:00,720 Speaker 6: course that we like to look at the core, and 35 00:02:00,800 --> 00:02:04,320 Speaker 6: the core is expected to be up three tenths, which 36 00:02:04,360 --> 00:02:08,000 Speaker 6: is basically where we were last month, but because the 37 00:02:08,080 --> 00:02:11,720 Speaker 6: base effects higher inflation in January last year, the corps 38 00:02:11,720 --> 00:02:14,040 Speaker 6: will fall to three point seven percent from three point 39 00:02:14,120 --> 00:02:18,079 Speaker 6: nine percent. Now, those are forecasts, but economists have generally 40 00:02:18,120 --> 00:02:21,239 Speaker 6: been pretty accurate in forecasting the CPI. 41 00:02:22,200 --> 00:02:25,080 Speaker 2: Now let's go back to core consumer prices, because we 42 00:02:25,120 --> 00:02:28,360 Speaker 2: got a reading last week or confirmation last week three 43 00:02:28,440 --> 00:02:31,040 Speaker 2: point three percent in Q four of last year. That's 44 00:02:31,120 --> 00:02:34,440 Speaker 2: year over year, and that matches an earlier reading. Good 45 00:02:34,480 --> 00:02:36,400 Speaker 2: news though for the Fed, right, I mean, this is 46 00:02:36,400 --> 00:02:37,520 Speaker 2: what they were hoping to see. 47 00:02:37,720 --> 00:02:39,400 Speaker 6: It's what they were hoping to see, because it's not 48 00:02:39,440 --> 00:02:44,200 Speaker 6: what they saw in twenty twenty two. The BLS every 49 00:02:44,280 --> 00:02:50,280 Speaker 6: year readjusts its seasonal adjustment factors and revises them, and 50 00:02:50,440 --> 00:02:53,160 Speaker 6: last year when they did that, it pushed inflation at 51 00:02:53,200 --> 00:02:55,800 Speaker 6: the end of twenty twenty two up and made it 52 00:02:55,880 --> 00:02:58,320 Speaker 6: look like a lot of progress that had been made 53 00:02:59,080 --> 00:03:01,760 Speaker 6: was wiped out. So there was some focus on the 54 00:03:01,840 --> 00:03:05,080 Speaker 6: revisions this year, worried that we might see something similar, 55 00:03:05,120 --> 00:03:07,840 Speaker 6: but we did not. There was virtually no change in 56 00:03:07,880 --> 00:03:10,960 Speaker 6: the seeds of adjustment factors, so we end up with, 57 00:03:11,080 --> 00:03:14,160 Speaker 6: as you say, three point three percent as the three 58 00:03:14,200 --> 00:03:16,880 Speaker 6: month annualized number for the end of the year and 59 00:03:17,120 --> 00:03:20,840 Speaker 6: no change there. So in that case, we saw a 60 00:03:20,880 --> 00:03:24,760 Speaker 6: positive market reaction because no news was good news. 61 00:03:25,120 --> 00:03:28,480 Speaker 2: Yeah, we've seen a number of all time highs for 62 00:03:28,520 --> 00:03:31,480 Speaker 2: the S and P five hundred, the Dow, not so 63 00:03:31,560 --> 00:03:35,320 Speaker 2: much the Nasdaq yet, but things are definitely looking ahead. 64 00:03:36,120 --> 00:03:38,240 Speaker 2: And for the Fed, I mean, all signs point to 65 00:03:38,640 --> 00:03:42,240 Speaker 2: the kiwi they've been doing the raid hike schemes. We've 66 00:03:42,240 --> 00:03:47,880 Speaker 2: avoided a recession, Inflation slowly but surely declining, the labor market, robust, 67 00:03:47,960 --> 00:03:51,160 Speaker 2: consumer confidence is up. There are challenges, though. 68 00:03:51,320 --> 00:03:53,160 Speaker 6: There are challenges. I don't know if you can say 69 00:03:53,200 --> 00:03:56,880 Speaker 6: the words soft landing on a public you could say 70 00:03:56,920 --> 00:04:00,520 Speaker 6: it here, stay here, but FED won't say it. But 71 00:04:01,080 --> 00:04:03,600 Speaker 6: it appears we've basically gotten there. What they need to 72 00:04:03,640 --> 00:04:07,560 Speaker 6: see now is not dramatic improvements in inflation, but just 73 00:04:07,720 --> 00:04:12,360 Speaker 6: regular improvements similar to what we're forecast to see this month, 74 00:04:13,520 --> 00:04:19,159 Speaker 6: with a broad number of categories disinflating, rising at a 75 00:04:19,200 --> 00:04:21,680 Speaker 6: slower pace. If we get that for a couple of months, 76 00:04:21,720 --> 00:04:24,960 Speaker 6: they indicate they'll start thinking about cutting rates now. 77 00:04:25,320 --> 00:04:28,440 Speaker 2: Prices outside of core. We know energy, we know food, 78 00:04:28,560 --> 00:04:33,080 Speaker 2: but one thing in core that has been stubbornly higher 79 00:04:33,200 --> 00:04:36,040 Speaker 2: is housing. Yeah, the recovery we were all hoping for 80 00:04:36,080 --> 00:04:38,480 Speaker 2: has been so uneven. Every month we seem to get 81 00:04:38,480 --> 00:04:41,799 Speaker 2: good news, bad news, you know, troubled news about prices. 82 00:04:42,600 --> 00:04:43,320 Speaker 3: How is that effect? 83 00:04:43,720 --> 00:04:46,159 Speaker 6: It's just been stubbornly high. And that's not what the 84 00:04:46,200 --> 00:04:49,719 Speaker 6: FED or economists expected. Because we did see a decline 85 00:04:50,200 --> 00:04:53,280 Speaker 6: for a while in home prices and rents, part of 86 00:04:53,320 --> 00:04:57,600 Speaker 6: it is methodological because of the way the BLS attempts 87 00:04:57,640 --> 00:05:01,960 Speaker 6: to measure home price, because a lot goes into the 88 00:05:02,000 --> 00:05:06,159 Speaker 6: price of your home. It's not just the monthly mortgage payment, 89 00:05:06,160 --> 00:05:09,520 Speaker 6: but the monthly mortgage payment adjusted by the interest you 90 00:05:09,600 --> 00:05:12,520 Speaker 6: have to pay and that sort of thing. So they 91 00:05:12,560 --> 00:05:15,400 Speaker 6: look at rents and ask people what would your house 92 00:05:15,440 --> 00:05:20,120 Speaker 6: rent for? And obviously if you don't sell your house 93 00:05:20,200 --> 00:05:22,600 Speaker 6: regularly or rent your house regularly, you don't have a 94 00:05:22,640 --> 00:05:25,120 Speaker 6: good answer for that. So it takes a while for 95 00:05:25,320 --> 00:05:28,279 Speaker 6: a decline in rent prices to sort of make its 96 00:05:28,320 --> 00:05:33,720 Speaker 6: way into the CPI. Now, the BLS has started experimenting 97 00:05:33,760 --> 00:05:38,080 Speaker 6: with a new privately produced sort of data point on 98 00:05:38,560 --> 00:05:44,120 Speaker 6: rent that measures current rent costs as new apartments and 99 00:05:44,160 --> 00:05:47,920 Speaker 6: new homes are rented, and they're folding that data in. 100 00:05:48,040 --> 00:05:50,680 Speaker 6: So there's some hope that we may see a more 101 00:05:50,760 --> 00:05:54,719 Speaker 6: rapid decline in housing prices to match what we had 102 00:05:54,760 --> 00:05:57,760 Speaker 6: been experiencing. Of course, with nobody buying houses, there's been 103 00:05:57,760 --> 00:06:00,640 Speaker 6: a shortage of inventory and prices have started go back up. 104 00:06:00,680 --> 00:06:01,000 Speaker 3: Again. 105 00:06:01,480 --> 00:06:03,120 Speaker 6: In that case, if ed wants it to take a 106 00:06:03,160 --> 00:06:03,840 Speaker 6: long time to. 107 00:06:03,800 --> 00:06:06,600 Speaker 2: Get in and if it's not going to happen it's February. 108 00:06:06,680 --> 00:06:08,479 Speaker 2: I mean, the heart of the season is coming up. 109 00:06:08,560 --> 00:06:12,760 Speaker 6: Yeah, you want to see it now, because pretty soon 110 00:06:12,800 --> 00:06:14,880 Speaker 6: we're going to be having a lot of people rushing 111 00:06:14,960 --> 00:06:18,320 Speaker 6: out there. And I saw some analysis recently that said 112 00:06:18,320 --> 00:06:20,200 Speaker 6: it's going to be a seller's market. They're going to 113 00:06:20,240 --> 00:06:23,440 Speaker 6: be able to set higher prices because a lot of 114 00:06:23,440 --> 00:06:26,040 Speaker 6: people want to move but haven't been able to afford it. 115 00:06:26,120 --> 00:06:29,560 Speaker 6: If interest rates start coming down, then mortgage rates will 116 00:06:29,560 --> 00:06:33,000 Speaker 6: come down and you will see a much busier housing market. 117 00:06:33,560 --> 00:06:36,680 Speaker 2: Now, the FED meets again March nineteenth, twentieth. It's about 118 00:06:36,680 --> 00:06:40,320 Speaker 2: five weeks away. Between that time. We get CPI PPI 119 00:06:40,400 --> 00:06:42,920 Speaker 2: this week we also get another one for February. If 120 00:06:42,960 --> 00:06:45,560 Speaker 2: the Fed were to meet right now, what do you 121 00:06:45,600 --> 00:06:46,440 Speaker 2: think they would say? 122 00:06:46,720 --> 00:06:50,520 Speaker 6: They would say, we haven't seen enough data, which is 123 00:06:50,560 --> 00:06:52,479 Speaker 6: going to be their standard answer for a little while. 124 00:06:52,640 --> 00:06:55,640 Speaker 6: They'll get one more CPI and one more of course, 125 00:06:55,680 --> 00:06:58,240 Speaker 6: they look at the PCE index and they'll get one 126 00:06:58,320 --> 00:07:01,200 Speaker 6: more of those before the March meeting, but they'd like 127 00:07:01,240 --> 00:07:03,000 Speaker 6: to have two or three months worth. If they wait 128 00:07:03,040 --> 00:07:05,400 Speaker 6: till May, they'll have three months worth of those numbers, 129 00:07:05,760 --> 00:07:08,720 Speaker 6: and that in theory, if we continue to see this 130 00:07:08,800 --> 00:07:12,720 Speaker 6: kind of improvement will get them to where they want 131 00:07:12,720 --> 00:07:15,080 Speaker 6: to be and they can start talking about maybe we 132 00:07:15,600 --> 00:07:16,160 Speaker 6: cut rates. 133 00:07:16,440 --> 00:07:19,480 Speaker 2: So a long road to go before that March meeting. Well, 134 00:07:19,480 --> 00:07:23,800 Speaker 2: our thanks to Bloomberg's International Economic and Policy correspondent Michael McKee. 135 00:07:23,920 --> 00:07:24,800 Speaker 3: All Right, Wall. 136 00:07:24,560 --> 00:07:29,200 Speaker 2: Street's earning cavalcade continues in the week ahead, including reports 137 00:07:29,200 --> 00:07:31,800 Speaker 2: from Dow component Coca Cola, one of the best known 138 00:07:31,840 --> 00:07:34,760 Speaker 2: brands anywhere, and with a lot more on what to expect, 139 00:07:35,000 --> 00:07:38,880 Speaker 2: we welcome Bloomberg Intelligence Senior industry analyst Ken Shay, who 140 00:07:38,920 --> 00:07:43,480 Speaker 2: covers consumer products including beverages, tobacco, and cannabis. Now, Ken, 141 00:07:44,120 --> 00:07:46,680 Speaker 2: what do you expect to see in Coke's fourth quarter 142 00:07:46,760 --> 00:07:48,320 Speaker 2: results this coming Tuesday? 143 00:07:49,080 --> 00:07:52,400 Speaker 7: So Coca Cola on Tuesday is expected to put up 144 00:07:52,400 --> 00:07:55,560 Speaker 7: pretty good numbers. You know, one of the key metrics 145 00:07:55,560 --> 00:07:58,800 Speaker 7: that I look for is organic revenue growth because that's 146 00:07:58,800 --> 00:08:03,600 Speaker 7: the underlying you know, top line, excluding acquisitions things like that. 147 00:08:04,760 --> 00:08:07,600 Speaker 7: We're expecting a high single digit eight to nine percent 148 00:08:07,680 --> 00:08:10,800 Speaker 7: kind of growth and that's pretty strong. Now, it's a 149 00:08:10,840 --> 00:08:14,600 Speaker 7: little bit lower than the fifteen percent growth last year, 150 00:08:15,200 --> 00:08:18,440 Speaker 7: so it's a tough comparison, but that's a pretty good 151 00:08:18,520 --> 00:08:20,920 Speaker 7: number and We think they're going to achieve that to 152 00:08:21,040 --> 00:08:25,400 Speaker 7: a combination of higher volume of some positive effects from 153 00:08:25,480 --> 00:08:29,360 Speaker 7: channel mix to the on premise you know, stadiums, restaurants. 154 00:08:29,400 --> 00:08:31,920 Speaker 7: People are on the go again and some carry over 155 00:08:32,040 --> 00:08:37,199 Speaker 7: higher pricing from last year, and so that's the kind 156 00:08:37,240 --> 00:08:41,200 Speaker 7: of growth that's very positive. However, there's we also expect 157 00:08:41,200 --> 00:08:44,800 Speaker 7: some negative currency, most notably Argentine peso, you know, a 158 00:08:44,800 --> 00:08:47,200 Speaker 7: few other things. Dollar has been strong. So a net 159 00:08:47,240 --> 00:08:49,080 Speaker 7: of all that will look like a mid single digit 160 00:08:49,240 --> 00:08:52,240 Speaker 7: kind of growth in net revenue, which is pretty strong. 161 00:08:52,720 --> 00:08:55,160 Speaker 2: Oh, that's strong, and you wrote in a report that 162 00:08:55,640 --> 00:08:58,360 Speaker 2: if there's an earning speed, this would be the seventeenth 163 00:08:58,440 --> 00:09:01,000 Speaker 2: straight one. What does that tell you about Coca Cola? 164 00:09:01,640 --> 00:09:05,760 Speaker 7: That's right, Well, the resilience of the product, coach ability 165 00:09:05,840 --> 00:09:10,000 Speaker 7: to manage operations across you know, geographics that spans up 166 00:09:10,000 --> 00:09:13,079 Speaker 7: two hundred countries around the world, you know, that kind 167 00:09:13,080 --> 00:09:16,040 Speaker 7: of revenue growth. We think that the company is also 168 00:09:16,840 --> 00:09:21,880 Speaker 7: enjoying some falling input costs, and so we think with 169 00:09:22,000 --> 00:09:25,319 Speaker 7: some margin improvement they can get about ten percent of 170 00:09:25,400 --> 00:09:28,600 Speaker 7: growth in earnings. And you know, without without that currency 171 00:09:28,600 --> 00:09:30,520 Speaker 7: weighing on them, they could probably have mid team kind 172 00:09:30,520 --> 00:09:32,640 Speaker 7: of growth. I think they're going to cite that as well. 173 00:09:32,880 --> 00:09:35,160 Speaker 7: And as you say, you know, coca has an ability 174 00:09:35,240 --> 00:09:37,880 Speaker 7: to exceed expectations, and the Coke comes through, it will 175 00:09:37,880 --> 00:09:41,600 Speaker 7: be the seventeenth straight And not only do they have 176 00:09:41,640 --> 00:09:45,120 Speaker 7: a string of beats, but the average beat over that 177 00:09:45,200 --> 00:09:50,120 Speaker 7: span is about eight percent, so significant beats also. But 178 00:09:50,160 --> 00:09:53,199 Speaker 7: I think things to look for in this particular quarter, 179 00:09:53,640 --> 00:09:57,679 Speaker 7: A lot of investors have cited their concerns about you know, 180 00:09:57,760 --> 00:10:00,240 Speaker 7: what can the impact be on the so called weight 181 00:10:00,280 --> 00:10:03,280 Speaker 7: loss drugs? The GLP one drugs could just have an 182 00:10:03,320 --> 00:10:06,440 Speaker 7: impact on the company's ability to continue to grow if 183 00:10:06,480 --> 00:10:11,520 Speaker 7: consumers want to shy away from sugary drinks. Another area 184 00:10:11,520 --> 00:10:14,760 Speaker 7: of concern is the spike in orange juice prices worldwide. 185 00:10:15,000 --> 00:10:18,079 Speaker 7: We're up about forty percent over last year, and even 186 00:10:18,120 --> 00:10:21,200 Speaker 7: though minute may it's simply account for only about ten 187 00:10:21,240 --> 00:10:25,520 Speaker 7: percent of cokes overall sales. Nevertheless, a cost increase that high, 188 00:10:25,800 --> 00:10:29,120 Speaker 7: one has to wonder what its strategy is to grow 189 00:10:29,160 --> 00:10:30,240 Speaker 7: that orange juice business. 190 00:10:30,640 --> 00:10:33,280 Speaker 2: Would that be the only category that that you see 191 00:10:33,320 --> 00:10:35,200 Speaker 2: as a real challenge for Coke right now? 192 00:10:35,840 --> 00:10:39,160 Speaker 7: A lot of categories, well, coffee is a competitive one, 193 00:10:39,200 --> 00:10:43,520 Speaker 7: particularly because that's not only a finished product, but also 194 00:10:43,679 --> 00:10:46,800 Speaker 7: a retail instead of retail operations a cost of coffee. 195 00:10:46,800 --> 00:10:50,600 Speaker 7: Coca Cola has costs had come down. Now coffee prices 196 00:10:50,640 --> 00:10:53,960 Speaker 7: are starting to move higher again. I would say it's problematic, 197 00:10:54,040 --> 00:10:57,920 Speaker 7: but it's a more volatile business than a typical Coca 198 00:10:57,960 --> 00:11:01,800 Speaker 7: Cola business, which is basically selling constant and traits to its, 199 00:11:01,880 --> 00:11:06,360 Speaker 7: you know, bottling partners where you have consistently high margins 200 00:11:06,520 --> 00:11:09,280 Speaker 7: and a steady demand, So that one's going to be 201 00:11:09,360 --> 00:11:13,400 Speaker 7: worth taking an eye on. Also, I've also got interesting 202 00:11:13,480 --> 00:11:15,679 Speaker 7: about some of the innovation Coca is up to. You know, 203 00:11:15,760 --> 00:11:19,480 Speaker 7: I'm starting to branch out with some alcoholic beverage partners. 204 00:11:20,120 --> 00:11:22,000 Speaker 7: Jack and Coke is now a product you can buy 205 00:11:22,080 --> 00:11:27,320 Speaker 7: off the shelf, Absolute and Sprites another one, and so 206 00:11:27,360 --> 00:11:30,520 Speaker 7: they have a lot of you know, coals in the fire, 207 00:11:30,600 --> 00:11:32,640 Speaker 7: so to speak, in terms of what they're doing with 208 00:11:32,640 --> 00:11:36,200 Speaker 7: alcoholic beverage partners. At this point, it's still a small business, 209 00:11:36,480 --> 00:11:37,840 Speaker 7: but it's worth keeping an eye on. 210 00:11:38,240 --> 00:11:41,240 Speaker 2: And they've got a new coke product coming out just 211 00:11:41,280 --> 00:11:43,640 Speaker 2: the nineteenth of this month. What do you know about that? 212 00:11:44,200 --> 00:11:47,199 Speaker 7: Well, I haven't tried it yet. It sounds interesting mostly 213 00:11:47,280 --> 00:11:50,560 Speaker 7: it's like a Coke raspberry with some spicy flavors. I'll 214 00:11:50,559 --> 00:11:52,240 Speaker 7: have to try that when I get a chance, because 215 00:11:52,280 --> 00:11:53,160 Speaker 7: I do it with sweet tooth. 216 00:11:53,600 --> 00:11:56,000 Speaker 2: Yeah, Coca Cola Spiced is the name of it. I 217 00:11:56,040 --> 00:11:58,720 Speaker 2: think despite the name, it's not spicy, but it is 218 00:11:58,760 --> 00:12:01,400 Speaker 2: different and unused. Well, I think is they're going to 219 00:12:01,480 --> 00:12:04,199 Speaker 2: make this a permanent part of their lineup right away. 220 00:12:04,960 --> 00:12:08,120 Speaker 7: Well, you know, it speaks the Cochs' willingness to innovate 221 00:12:08,360 --> 00:12:13,839 Speaker 7: market and be relevant to younger generations. You know, Coke 222 00:12:13,920 --> 00:12:17,839 Speaker 7: has been around for so long. I think the demographics 223 00:12:17,880 --> 00:12:21,720 Speaker 7: may have skewed towards older I would say old, but 224 00:12:21,800 --> 00:12:27,800 Speaker 7: older adult young the young, middle aged adults. I think 225 00:12:28,120 --> 00:12:32,680 Speaker 7: this is an effort their creations line to tap into 226 00:12:32,880 --> 00:12:37,040 Speaker 7: younger generation consumers and hopefully they can hang on for 227 00:12:37,120 --> 00:12:39,280 Speaker 7: their lifestyle, their lifespan. 228 00:12:39,679 --> 00:12:40,840 Speaker 3: Well, it's a lot to look forward. 229 00:12:40,840 --> 00:12:43,079 Speaker 2: I'm looking forward to trying it and our thanks now 230 00:12:43,120 --> 00:12:47,280 Speaker 2: to Bloomberg Intelligence Senior industry analyst Ken Shay coming up 231 00:12:47,320 --> 00:12:49,880 Speaker 2: on Bloomberg Day Break weekend conflicts in the Middle East 232 00:12:49,880 --> 00:12:53,600 Speaker 2: and in Ukraine raising concerns about security all around the globe, 233 00:12:53,920 --> 00:12:56,800 Speaker 2: and had a special conference taking place this week in Germany. 234 00:12:57,000 --> 00:13:11,040 Speaker 2: I'm Tom Busby and this is Bloomberg. This is Bloomberg 235 00:13:11,080 --> 00:13:13,360 Speaker 2: day Break weekend, our global look ahead at the top 236 00:13:13,400 --> 00:13:16,320 Speaker 2: stories for investors in the coming week. I'm Tom Busby 237 00:13:16,320 --> 00:13:19,280 Speaker 2: in New York. Up later in the program, a big 238 00:13:19,360 --> 00:13:23,240 Speaker 2: change expected from the Bank of Japan. But first, geopolitical 239 00:13:23,280 --> 00:13:26,400 Speaker 2: tensions are a risk that's been featured in companies earnings 240 00:13:26,400 --> 00:13:29,600 Speaker 2: reports this season. With ongoing conflicts in the Middle East, 241 00:13:29,679 --> 00:13:33,079 Speaker 2: Ukraine and elsewhere. Security issues will be at the heart 242 00:13:33,240 --> 00:13:35,960 Speaker 2: of the gathering of world leaders for the Munich Security 243 00:13:35,960 --> 00:13:39,040 Speaker 2: Conference in the coming days. For more, let's go to 244 00:13:39,080 --> 00:13:42,040 Speaker 2: London and bring in Bloomberg day Break anchor Stephen Carroll. 245 00:13:42,240 --> 00:13:42,560 Speaker 3: Tom. 246 00:13:42,720 --> 00:13:44,800 Speaker 4: The disruption to shipping through the Red Sea and the 247 00:13:44,840 --> 00:13:47,960 Speaker 4: implications for inflation have been a topic of discussion for 248 00:13:48,120 --> 00:13:52,120 Speaker 4: many companies during this earning season. The CEO of Danish 249 00:13:52,200 --> 00:13:55,600 Speaker 4: shipping Giant Mask telling Bloomberg they haven't seen a peak 250 00:13:55,679 --> 00:13:57,719 Speaker 4: in the threat level in the Red Sea and they 251 00:13:57,720 --> 00:14:01,120 Speaker 4: see disruption potentially lasting for up to two year. Now, 252 00:14:01,120 --> 00:14:03,160 Speaker 4: that's just one issue that's going to be discussed at 253 00:14:03,160 --> 00:14:06,280 Speaker 4: the Munich Security Conference in the coming days. It's an 254 00:14:06,280 --> 00:14:09,320 Speaker 4: event that's been dubbed by some as the Davos of 255 00:14:09,400 --> 00:14:13,400 Speaker 4: Defense and brings together officials and political leaders in the 256 00:14:13,520 --> 00:14:17,680 Speaker 4: southern German city. The conversations this year more challenging than ever. 257 00:14:17,880 --> 00:14:21,360 Speaker 4: Russia's invasion of Ukraine is close to entering its third year, 258 00:14:21,680 --> 00:14:24,160 Speaker 4: and the Israel Hamas War that began more than four 259 00:14:24,200 --> 00:14:27,080 Speaker 4: months ago has led to violence in several other parts 260 00:14:27,080 --> 00:14:30,640 Speaker 4: of the Middle East. Ukraine's president, Vladimir Zelenski is expected 261 00:14:30,680 --> 00:14:34,360 Speaker 4: to attend the conference, but Russian and Iranian officials haven't 262 00:14:34,400 --> 00:14:38,880 Speaker 4: been invited. Geopolitical tensions from these conflicts are a major 263 00:14:39,120 --> 00:14:41,960 Speaker 4: risk for markets, and we've been discussing that with some 264 00:14:42,040 --> 00:14:44,880 Speaker 4: of our guests on Bloomberg Radio in recent days. Here 265 00:14:44,920 --> 00:14:49,000 Speaker 4: are the thoughts of Wayley Global, Chief investment strategist at Blackrock. 266 00:14:49,360 --> 00:14:53,520 Speaker 8: Yeah, so it's really quite incredible how fled geopolitical risk 267 00:14:53,600 --> 00:14:58,320 Speaker 8: premier currently is as been priced by markets. We do 268 00:14:58,400 --> 00:15:02,440 Speaker 8: think that there is room for that to be priced 269 00:15:02,720 --> 00:15:05,800 Speaker 8: even more just given the fact that we're in a 270 00:15:06,200 --> 00:15:10,880 Speaker 8: different geopolitical regime compared to before. Right, so this instinct 271 00:15:11,040 --> 00:15:15,360 Speaker 8: to just automatically buy the deep across the board indiscriminately 272 00:15:15,520 --> 00:15:18,200 Speaker 8: whenever something goes wrong on the geopolitical round. It works 273 00:15:18,400 --> 00:15:20,880 Speaker 8: until it doesn't work. So we do think that it 274 00:15:21,040 --> 00:15:25,120 Speaker 8: is very important to be selective in terms of positioning 275 00:15:25,120 --> 00:15:28,760 Speaker 8: for geopolitical events, looking at, for example, where oil is 276 00:15:28,800 --> 00:15:32,720 Speaker 8: trading specifically, also energy sector. We talked about earnings maybe 277 00:15:33,520 --> 00:15:35,800 Speaker 8: not doing as well as some of the other sectors, 278 00:15:35,800 --> 00:15:38,280 Speaker 8: but we like energy as a sector also as a 279 00:15:38,360 --> 00:15:44,680 Speaker 8: geopolitical hatch, especially given how little it's responded to geopolitical 280 00:15:44,680 --> 00:15:45,640 Speaker 8: events so far. 281 00:15:47,160 --> 00:15:50,880 Speaker 4: That's black Rocks Wayley talking about how traders are positioning 282 00:15:51,000 --> 00:15:53,840 Speaker 4: around geopolitical risks. Now, we also talked about this with 283 00:15:53,880 --> 00:15:58,160 Speaker 4: Skyla Montgomery Coning. She's director of macro Strategy at TS Lombard, 284 00:15:58,440 --> 00:16:01,520 Speaker 4: and she spoke about the economic risks of ongoing unrest. 285 00:16:02,960 --> 00:16:06,440 Speaker 9: Markets really struggle to price geo political risk because the 286 00:16:06,520 --> 00:16:09,040 Speaker 9: issue is it's an extreme event that's unlikely. And so 287 00:16:09,080 --> 00:16:11,720 Speaker 9: in twenty twenty we had the extreme unlikely event and 288 00:16:11,760 --> 00:16:14,800 Speaker 9: we had energy prices skyrocket and that had a big 289 00:16:14,840 --> 00:16:18,800 Speaker 9: impact on inflation. But it's unlikely to repeat itself, and 290 00:16:18,800 --> 00:16:21,560 Speaker 9: so because it's very hard to price that risk, markets 291 00:16:21,600 --> 00:16:24,640 Speaker 9: just kind of ignore it. For policymakers, I think it's 292 00:16:24,680 --> 00:16:27,920 Speaker 9: background noise. The disruptions we're having right now, we don't 293 00:16:27,960 --> 00:16:30,480 Speaker 9: think will feed in significantly to inflation. I think the 294 00:16:30,600 --> 00:16:34,200 Speaker 9: US in particular understands is a difference between supply side 295 00:16:34,240 --> 00:16:38,120 Speaker 9: inflation and demand driven inflation, so we don't think it 296 00:16:38,160 --> 00:16:40,400 Speaker 9: has a large impact on the inflation or it'll cause 297 00:16:40,400 --> 00:16:43,040 Speaker 9: a reacceleration. I think I'm a bit more worried in 298 00:16:43,160 --> 00:16:46,560 Speaker 9: Eurerope because they've traditionally looked at supply side inflation shocks 299 00:16:47,200 --> 00:16:49,240 Speaker 9: not so much as a growth negative, but as an 300 00:16:49,280 --> 00:16:53,480 Speaker 9: inflation positive. And for them, they're also looking at January HICP, 301 00:16:53,600 --> 00:16:56,920 Speaker 9: which has the potential to upside surprise on seasonality effects, 302 00:16:56,920 --> 00:16:58,440 Speaker 9: and they may use it as a reason to be 303 00:16:58,440 --> 00:17:00,960 Speaker 9: more hawkish than they really should be given the growth 304 00:17:01,000 --> 00:17:01,480 Speaker 9: back DRAP. 305 00:17:02,480 --> 00:17:05,359 Speaker 4: That's Skyla Montgomery coning from TS Lombard there speaking to 306 00:17:05,840 --> 00:17:08,879 Speaker 4: us on Bloomberg Radio. So that's the markets and the 307 00:17:08,920 --> 00:17:12,120 Speaker 4: economic point of view on these security issues. How will 308 00:17:12,160 --> 00:17:17,520 Speaker 4: government officials be addressing these problems at the Munich Security Conference. 309 00:17:17,560 --> 00:17:21,400 Speaker 4: I've been discussing this with our EU politics reporter Ellen Milligan, 310 00:17:21,560 --> 00:17:24,200 Speaker 4: and I started by asking her who's attending the event 311 00:17:24,400 --> 00:17:26,919 Speaker 4: and what we should expect them to be focusing on. 312 00:17:27,520 --> 00:17:30,920 Speaker 10: Well, this conference will be centered on maintaining both financial 313 00:17:31,080 --> 00:17:34,440 Speaker 10: and military support for Ukraine. Often you get, as you said, 314 00:17:34,520 --> 00:17:38,560 Speaker 10: world leaders attending foreign and defense secretaries, but also tons 315 00:17:38,600 --> 00:17:42,240 Speaker 10: of defense officials, the real experts on both Ukraine, the 316 00:17:42,280 --> 00:17:45,359 Speaker 10: Middle East, the Red Sea. They're likely to discuss the 317 00:17:45,400 --> 00:17:48,720 Speaker 10: difficulties for Ukraine as this war drags on, in particular 318 00:17:49,080 --> 00:17:53,440 Speaker 10: the industrial production challenges. Ukraine's grappling right now with depleting 319 00:17:53,480 --> 00:17:57,679 Speaker 10: ammunition stocks. So we may hear more about joint procurement 320 00:17:57,720 --> 00:18:01,959 Speaker 10: of military equipment between countries. There may well be some 321 00:18:02,000 --> 00:18:07,560 Speaker 10: deals announced as well as perhaps more bilateral security commitments 322 00:18:07,560 --> 00:18:10,520 Speaker 10: that each ally is designing for Ukraine. The UK has 323 00:18:10,560 --> 00:18:13,640 Speaker 10: already announced theirs earlier this year. We might get more 324 00:18:13,680 --> 00:18:16,439 Speaker 10: countries announce their security commitments to the Ukraine. 325 00:18:16,480 --> 00:18:20,399 Speaker 4: Also, it'd be interesting to watch the discussions from an 326 00:18:20,400 --> 00:18:23,320 Speaker 4: EU point of view, Ellen, because after we've had Hungary's 327 00:18:23,359 --> 00:18:27,959 Speaker 4: wavering over the euaid package, how much support is there 328 00:18:28,119 --> 00:18:31,120 Speaker 4: in Europe for Ukraine Now? Of course, we're still waiting 329 00:18:31,119 --> 00:18:34,000 Speaker 4: for Hungary to approve Sweden as a new NATO member 330 00:18:34,000 --> 00:18:34,400 Speaker 4: as well. 331 00:18:35,160 --> 00:18:37,800 Speaker 10: Well. That moment last week when the EU agreed on 332 00:18:37,840 --> 00:18:41,280 Speaker 10: its fifty billion package for Ukraine was a big sigh 333 00:18:41,280 --> 00:18:43,919 Speaker 10: of relief, both in Europe but also in the US 334 00:18:43,920 --> 00:18:47,320 Speaker 10: and around the world. The main focus now actually is 335 00:18:47,359 --> 00:18:50,240 Speaker 10: on US Congress and whether they will pass that sixty 336 00:18:50,280 --> 00:18:54,400 Speaker 10: billion in age there. This week, actually, US National Security 337 00:18:54,440 --> 00:19:00,359 Speaker 10: Advisor Jake Sullivan came to Brussels and discussed at NATOGE. 338 00:19:00,400 --> 00:19:04,480 Speaker 10: He said he was confident the Biden administration would get 339 00:19:04,520 --> 00:19:08,000 Speaker 10: it passed, but at just hour's latest Senate Republicans blocked 340 00:19:08,400 --> 00:19:12,560 Speaker 10: a package tied to that funding, and Polish Premier Donald 341 00:19:12,640 --> 00:19:15,280 Speaker 10: Tusk has tweeted that they should be ashamed of themselves. 342 00:19:15,320 --> 00:19:18,440 Speaker 10: So you're seeing those tensions emerged now that the EU's 343 00:19:18,520 --> 00:19:22,800 Speaker 10: passed their package between the US and saying kind of 344 00:19:22,880 --> 00:19:25,800 Speaker 10: you know, we've got our package pass now it's time 345 00:19:25,840 --> 00:19:29,720 Speaker 10: for you to And as I said, Ukraine is facing 346 00:19:29,760 --> 00:19:34,080 Speaker 10: some serious ammunition shortages which Russia is going to try 347 00:19:34,080 --> 00:19:37,480 Speaker 10: and take advantage on. So it's a really critical point 348 00:19:37,520 --> 00:19:38,640 Speaker 10: for that aid to come through. 349 00:19:39,600 --> 00:19:41,200 Speaker 4: Of course, the Middle East is going to be a 350 00:19:41,280 --> 00:19:44,280 Speaker 4: huge topic of discussion there as well. The latest proposals 351 00:19:44,280 --> 00:19:47,840 Speaker 4: for a cease far deal reportedly being rejected by Benjaminetta 352 00:19:47,840 --> 00:19:51,159 Speaker 4: and yah who how will countries who are going to 353 00:19:51,200 --> 00:19:54,520 Speaker 4: be represented at the conference be talking about their approach 354 00:19:54,560 --> 00:19:57,280 Speaker 4: to achieving peace in the region. And I suppose more broadly, 355 00:19:57,320 --> 00:20:00,600 Speaker 4: how has the Israel hamas wore affected security ties? 356 00:20:01,440 --> 00:20:04,680 Speaker 10: Yeah, I mean the EU continues to struggle to come 357 00:20:04,720 --> 00:20:07,640 Speaker 10: to a unified stance on how to approach the situation 358 00:20:07,720 --> 00:20:10,959 Speaker 10: in the Middle East. Some countries of reticent pressure Israel 359 00:20:11,280 --> 00:20:13,960 Speaker 10: over its bombing of Gaza. They don't want to restrict 360 00:20:13,960 --> 00:20:17,280 Speaker 10: what Israel views as a self defense of the following 361 00:20:17,320 --> 00:20:22,960 Speaker 10: the harmass tax in October. Some are more keen to 362 00:20:23,000 --> 00:20:26,520 Speaker 10: push them and pressure them to impose a ceasefire, for example. 363 00:20:26,600 --> 00:20:30,720 Speaker 10: But I think there are some emerging conversations that will 364 00:20:30,760 --> 00:20:33,840 Speaker 10: be a topic at Munich. So for example, recognizing a 365 00:20:33,880 --> 00:20:36,840 Speaker 10: Palestinian state. I thought it was interesting that Foreign Secretary 366 00:20:37,720 --> 00:20:40,240 Speaker 10: David Cameron in the UK said this week that it's 367 00:20:40,280 --> 00:20:43,600 Speaker 10: something he'd like to explore. Countries like Ireland to Spain 368 00:20:43,760 --> 00:20:47,040 Speaker 10: are also considering that. And there's also discussion of the 369 00:20:47,119 --> 00:20:51,280 Speaker 10: sanctions against violent Israeli settlers, something the US has announced 370 00:20:51,280 --> 00:20:54,119 Speaker 10: this week and many EU member states want to introduce also. 371 00:20:54,240 --> 00:20:57,640 Speaker 10: So those are the points of discussion. I think we'll 372 00:20:57,680 --> 00:20:58,639 Speaker 10: see next week. 373 00:20:59,640 --> 00:21:01,840 Speaker 4: Those are also of course going to be focused more 374 00:21:01,880 --> 00:21:05,040 Speaker 4: broadly from that too on the relationship between the United 375 00:21:05,080 --> 00:21:08,440 Speaker 4: States and Europe on security issues. We know they haven't 376 00:21:08,480 --> 00:21:11,879 Speaker 4: always seen io I, particularly when it's come to spending commitments. 377 00:21:12,240 --> 00:21:16,000 Speaker 4: Where are we now in that balance of relationships, given 378 00:21:16,359 --> 00:21:19,040 Speaker 4: the pressures that we have from both the conflicts in 379 00:21:19,160 --> 00:21:20,400 Speaker 4: Ukraine and in the Middle East. 380 00:21:20,920 --> 00:21:23,919 Speaker 10: We've had some quite strong language coming out of Charles 381 00:21:23,960 --> 00:21:27,879 Speaker 10: Michelle Underline in the EU, as I said, Donald Tusk 382 00:21:27,960 --> 00:21:31,719 Speaker 10: in Poland, kind of ramping up pressure on the US 383 00:21:31,760 --> 00:21:34,080 Speaker 10: to pass this a package. So I think you're going 384 00:21:34,119 --> 00:21:38,359 Speaker 10: to see more of that language, more lobbying from the EU, 385 00:21:38,520 --> 00:21:42,880 Speaker 10: the UK, other allies at the Munich Security Conference. There's 386 00:21:42,920 --> 00:21:46,600 Speaker 10: also been some concern in Europe about recent US strikes 387 00:21:46,640 --> 00:21:50,840 Speaker 10: on Iranian backed groups in the Red Sea. There's worry 388 00:21:50,840 --> 00:21:53,280 Speaker 10: it could provoke an escalation of the conflict. So I 389 00:21:53,280 --> 00:21:56,399 Speaker 10: think we'll hear more about the differences in approach between 390 00:21:56,440 --> 00:21:59,600 Speaker 10: the EU, who wants to take a more defensive mission 391 00:21:59,600 --> 00:22:02,919 Speaker 10: to the Red See than an offensive one, and the 392 00:22:02,960 --> 00:22:06,000 Speaker 10: different approaches to the who season dealing with that conflict 393 00:22:06,000 --> 00:22:08,000 Speaker 10: in the Red Sea. So those are the areas of 394 00:22:08,000 --> 00:22:10,800 Speaker 10: contention between the EU and the US. But I also 395 00:22:10,840 --> 00:22:14,280 Speaker 10: think that they're incredibly keen to stress how united they are, 396 00:22:15,560 --> 00:22:19,720 Speaker 10: and I think they'll be more kind of joint press conferences. 397 00:22:19,760 --> 00:22:22,680 Speaker 10: For example. We saw that with Sullivan and Stoltenberg in 398 00:22:22,760 --> 00:22:26,120 Speaker 10: Brussels this week, and I think they'll want to put 399 00:22:26,160 --> 00:22:28,320 Speaker 10: on a unified position as well. 400 00:22:29,280 --> 00:22:32,400 Speaker 4: It is, of course, Allen two, a year of big elections, 401 00:22:32,800 --> 00:22:35,639 Speaker 4: notably the EU elections coming up in June, then the 402 00:22:35,720 --> 00:22:40,040 Speaker 4: US presidential election in November as well. When attending to 403 00:22:40,040 --> 00:22:42,920 Speaker 4: the conference, be thinking about this in their conversations, about 404 00:22:42,960 --> 00:22:46,840 Speaker 4: what effects that might have on the international security landscape, 405 00:22:46,880 --> 00:22:50,800 Speaker 4: particularly with Donald Trump in the frame in the United States. 406 00:22:51,680 --> 00:22:54,439 Speaker 10: Yeah, I mean the potential win for Trump, which is 407 00:22:54,480 --> 00:22:57,800 Speaker 10: looking increasingly likely when you look at US polls, is 408 00:22:57,880 --> 00:23:01,320 Speaker 10: what is looming over European leaders. I mean, whether it 409 00:23:01,359 --> 00:23:04,919 Speaker 10: comes to international security, but also in relation to trade 410 00:23:04,960 --> 00:23:09,240 Speaker 10: between the blocks. We've had some great scoops this week 411 00:23:09,280 --> 00:23:14,520 Speaker 10: from Bloomberg about Trump planning, you know, potential a potential 412 00:23:14,560 --> 00:23:17,320 Speaker 10: trade standard with the EU if he enters office, and 413 00:23:17,359 --> 00:23:20,720 Speaker 10: that you mapping out how they want to prepare for that. 414 00:23:21,760 --> 00:23:25,480 Speaker 10: But when it comes to international security, the thing that's 415 00:23:25,520 --> 00:23:28,280 Speaker 10: causing real concern in Europe is whether they're ready to 416 00:23:28,359 --> 00:23:32,639 Speaker 10: defend itself if there's a Trump come back and if 417 00:23:32,800 --> 00:23:37,080 Speaker 10: Putin could target NATO next. Trump has threatened to pull 418 00:23:37,119 --> 00:23:39,280 Speaker 10: the US out of NATO when he was previously in 419 00:23:39,280 --> 00:23:42,120 Speaker 10: the White House. He probably wouldn't be able to do 420 00:23:42,160 --> 00:23:45,919 Speaker 10: that if he's president, but it is raising questions about 421 00:23:46,080 --> 00:23:48,800 Speaker 10: whether Europe is capable of defending itself without the US. 422 00:23:48,800 --> 00:23:50,800 Speaker 10: So You're going to have a lot of conversations next 423 00:23:50,840 --> 00:23:54,800 Speaker 10: week about Europe's own defense industry. 424 00:23:55,520 --> 00:23:58,560 Speaker 4: And I'm wondering too about the relationship between the UK 425 00:23:59,119 --> 00:24:02,520 Speaker 4: and EU countries on the defense front. You, as someone 426 00:24:02,560 --> 00:24:05,840 Speaker 4: who's reported extensively from Westminster and now based in Brussels, 427 00:24:05,880 --> 00:24:09,080 Speaker 4: are very well placed to answer this question for US. 428 00:24:09,640 --> 00:24:10,080 Speaker 3: Is that a. 429 00:24:10,080 --> 00:24:13,159 Speaker 4: Relationship that has remained strong despite the other tensions that 430 00:24:13,200 --> 00:24:14,560 Speaker 4: we've seen post Braxit. 431 00:24:15,800 --> 00:24:18,840 Speaker 10: Yes, I mean something that I've had a lot since 432 00:24:18,880 --> 00:24:22,240 Speaker 10: I've since I've come to Brussels is that the Ukraine 433 00:24:22,520 --> 00:24:24,919 Speaker 10: War has actually united the UK and the EU a 434 00:24:24,920 --> 00:24:29,640 Speaker 10: lot more. National security is one of their strongest areas 435 00:24:29,680 --> 00:24:34,880 Speaker 10: in terms of allegiances and their relationship. We've obviously seen 436 00:24:34,920 --> 00:24:37,600 Speaker 10: the UK take a leadership role when it comes to Ukraine, 437 00:24:38,320 --> 00:24:42,120 Speaker 10: when it comes to the Middle East also, and they 438 00:24:42,119 --> 00:24:45,359 Speaker 10: announced their two billion package earlier this year. That was 439 00:24:45,359 --> 00:24:51,360 Speaker 10: followed by Germany's eight billion package. So you're seeing that 440 00:24:51,359 --> 00:24:56,879 Speaker 10: that relationship kind of blossom in this sense, and I 441 00:24:56,920 --> 00:24:59,280 Speaker 10: think I think you will see that a lot next week. 442 00:24:59,320 --> 00:25:03,840 Speaker 10: I think the UK and the EU will jointly lobby 443 00:25:03,880 --> 00:25:07,359 Speaker 10: the US over It's a package. You saw David Cameron 444 00:25:07,400 --> 00:25:10,159 Speaker 10: go to Washington before Christmas. I think you'll see a 445 00:25:10,200 --> 00:25:12,840 Speaker 10: lot more of that and them teaming up to get 446 00:25:12,880 --> 00:25:13,399 Speaker 10: that passed. 447 00:25:13,680 --> 00:25:16,439 Speaker 4: That's our Eupolitics reporter Ellen Melligan, and we will have 448 00:25:16,520 --> 00:25:20,240 Speaker 4: coverage of the Munich Security Conference. I'm Bloomberg next week. 449 00:25:20,720 --> 00:25:23,120 Speaker 4: I'm Stephen Caroll in London. You can catch us every 450 00:25:23,119 --> 00:25:26,040 Speaker 4: weekday morning here for Bloomberg Daybreak here at beginning at 451 00:25:26,080 --> 00:25:29,040 Speaker 4: six am in London and one am on Wall Street. 452 00:25:29,240 --> 00:25:32,119 Speaker 2: Tom, Thank you, Stephen, And coming up on Bloomberg day 453 00:25:32,119 --> 00:25:35,760 Speaker 2: Break weekend, are the world's only remaining negative interest rates 454 00:25:36,080 --> 00:25:40,040 Speaker 2: about to go away? I'm Tom Busby and this is Bloomberg. 455 00:25:50,520 --> 00:25:53,119 Speaker 2: This is Bloomberg day Break weekend, our global look ahead 456 00:25:53,119 --> 00:25:55,359 Speaker 2: at the top stories for investors in the coming week. 457 00:25:55,560 --> 00:25:59,280 Speaker 2: I'm Tom Busby in New York. Japan getting close to 458 00:25:59,400 --> 00:26:03,159 Speaker 2: terminating it's interest rate policy, so the country's GDP and 459 00:26:03,280 --> 00:26:06,320 Speaker 2: economic data will be the focus for the Bank of Japan. 460 00:26:06,920 --> 00:26:09,879 Speaker 2: Let's get to Bloomberg Daybreak Asia co host Brian Curtis 461 00:26:09,920 --> 00:26:10,359 Speaker 2: for more. 462 00:26:11,040 --> 00:26:13,600 Speaker 5: Tom, we look ahead to a slew of Japanese data 463 00:26:13,640 --> 00:26:16,160 Speaker 5: in the coming week to tease out what to expect 464 00:26:16,200 --> 00:26:19,760 Speaker 5: next from the Bank of Japan. Among the numbers will 465 00:26:19,760 --> 00:26:23,040 Speaker 5: get GDP for the fourth quarter and industrial production and 466 00:26:23,119 --> 00:26:28,359 Speaker 5: capacity utilization for December. Now, Japanese wage growth strengthened less 467 00:26:28,400 --> 00:26:31,560 Speaker 5: than expected in the month of December, but it still 468 00:26:31,640 --> 00:26:34,880 Speaker 5: showed signs of momentum, and it's thought that that will 469 00:26:34,960 --> 00:26:37,679 Speaker 5: keep the Bank of Japan on track to end its 470 00:26:37,760 --> 00:26:41,200 Speaker 5: negative rate regime in the coming months. Joining us for 471 00:26:41,240 --> 00:26:46,200 Speaker 5: some discussion now is Paul Jackson, Bloomberg Economy Editor. Well, first, 472 00:26:46,280 --> 00:26:48,920 Speaker 5: let's talk a little bit about GDP before we get 473 00:26:48,960 --> 00:26:52,040 Speaker 5: to that wholesome discussion about the BOJ and what it 474 00:26:52,080 --> 00:26:54,560 Speaker 5: does next. Paul, thanks very much for joining us. So 475 00:26:54,720 --> 00:26:57,520 Speaker 5: GDB numbers out next week. A return to growth? Is 476 00:26:57,560 --> 00:26:58,160 Speaker 5: that expected? 477 00:26:59,040 --> 00:27:02,240 Speaker 11: Yeah, we're expecting king a return to growth, And you 478 00:27:02,320 --> 00:27:05,840 Speaker 11: mentioned the Bank of Japan. Well, look, which central bank 479 00:27:05,840 --> 00:27:08,520 Speaker 11: in the world wants to be raising interest rates when 480 00:27:08,560 --> 00:27:12,080 Speaker 11: the economy is contracting, And that was the situation over 481 00:27:12,119 --> 00:27:15,639 Speaker 11: the summer. That was the biggest contraction since the summer 482 00:27:15,680 --> 00:27:19,520 Speaker 11: of the pandemic. So you know, this GDP figure next 483 00:27:19,560 --> 00:27:24,159 Speaker 11: week is a big checkbox for the Bank of Japan 484 00:27:24,359 --> 00:27:28,720 Speaker 11: to firmly tick next week and say, right, okay, that's 485 00:27:28,720 --> 00:27:31,639 Speaker 11: another hurdle out of the way on our March towards 486 00:27:31,760 --> 00:27:35,000 Speaker 11: raising interest rates for the first time since two thousand 487 00:27:35,000 --> 00:27:35,480 Speaker 11: and seven. 488 00:27:36,920 --> 00:27:40,240 Speaker 5: And let's just talk a little bit about the wage negotiations, 489 00:27:40,280 --> 00:27:44,280 Speaker 5: because we understand that they're key here for the BOJ 490 00:27:44,680 --> 00:27:48,760 Speaker 5: in perhaps taking a more hawk as shift. What are 491 00:27:48,800 --> 00:27:49,960 Speaker 5: we expecting there. 492 00:27:51,040 --> 00:27:56,199 Speaker 11: Well, the wage negotiations between companies and unions is underway. 493 00:27:56,680 --> 00:28:00,359 Speaker 11: I think all the expectations are that the de that 494 00:28:00,400 --> 00:28:02,040 Speaker 11: they're going to reach are going to be higher than 495 00:28:02,119 --> 00:28:04,920 Speaker 11: last year, which is about three point six percent last year, 496 00:28:05,640 --> 00:28:07,520 Speaker 11: so a little bit harder than that. And as long 497 00:28:07,560 --> 00:28:10,640 Speaker 11: as we get that kind of result in March, then 498 00:28:10,760 --> 00:28:14,320 Speaker 11: that's seen as kind of the final thing that BLJ 499 00:28:14,520 --> 00:28:19,440 Speaker 11: needs in place to have everything ready to scrap its 500 00:28:19,560 --> 00:28:23,680 Speaker 11: negative interest rates. Now if you look at the GDP 501 00:28:23,840 --> 00:28:27,600 Speaker 11: figures that are coming out next week, one important element 502 00:28:27,680 --> 00:28:31,320 Speaker 11: in them is the consumption. Now, if you look at 503 00:28:31,400 --> 00:28:35,800 Speaker 11: the private consumption in Japan, it fell in the summer 504 00:28:35,880 --> 00:28:40,320 Speaker 11: and it's only expected to be around zero in the 505 00:28:40,400 --> 00:28:43,480 Speaker 11: fourth quarter. So you know, it's kind of trade that's 506 00:28:43,520 --> 00:28:46,840 Speaker 11: helping business investment to get this kind of one point 507 00:28:46,880 --> 00:28:49,640 Speaker 11: three percent growth, which is what we're expecting in the 508 00:28:49,680 --> 00:28:53,880 Speaker 11: fourth quarter. So that points there's something that consumers are 509 00:28:54,000 --> 00:28:57,400 Speaker 11: not really spending that why aren't they spending much in 510 00:28:57,440 --> 00:29:02,320 Speaker 11: real terms, it's because of inflation. And if you don't 511 00:29:02,320 --> 00:29:07,080 Speaker 11: have the wages going up enough to counteract or be 512 00:29:07,600 --> 00:29:11,000 Speaker 11: above inflation, and the consumption is going to be weak 513 00:29:11,040 --> 00:29:15,240 Speaker 11: and you're not going to have this positive growth cycle 514 00:29:15,400 --> 00:29:19,440 Speaker 11: that the BOJ needs. So these wage figures are really key, 515 00:29:20,680 --> 00:29:24,680 Speaker 11: and we need this kind of growth to really give 516 00:29:24,720 --> 00:29:28,680 Speaker 11: the BOJA confidence that it can go ahead with rate increases. 517 00:29:29,240 --> 00:29:31,760 Speaker 5: Yeah, so the BOJ wants those wages to go up. 518 00:29:31,960 --> 00:29:35,280 Speaker 5: The economy is not particularly hot, as you say, and 519 00:29:35,480 --> 00:29:38,160 Speaker 5: we note that one of the deputy governors at the 520 00:29:38,200 --> 00:29:42,040 Speaker 5: BOJ said that it's really kind of hard to imagine 521 00:29:42,040 --> 00:29:47,520 Speaker 5: the bank raising its policy rate continuously and rapidly going forward. 522 00:29:48,360 --> 00:29:52,520 Speaker 5: That deputy Governor's Shinichi Uchida, what is he getting at? 523 00:29:53,800 --> 00:29:57,719 Speaker 11: Well, I think it's a simple idea really that you know, 524 00:29:58,080 --> 00:30:01,000 Speaker 11: inflation at its peak in the US was well over 525 00:30:01,080 --> 00:30:05,120 Speaker 11: eight percent, whereas in Japan, you know, we're to two 526 00:30:05,160 --> 00:30:07,720 Speaker 11: point three something like that, depending on which measure you 527 00:30:07,800 --> 00:30:12,320 Speaker 11: look at. So in terms of the aggressive moves that 528 00:30:12,400 --> 00:30:16,680 Speaker 11: the FARED had to undertake to keep like expectations anchored 529 00:30:16,680 --> 00:30:20,840 Speaker 11: about where prices would go, totally different to the dynamics 530 00:30:20,880 --> 00:30:24,640 Speaker 11: in Japan, where we've had decades of falling prices. People 531 00:30:24,680 --> 00:30:27,880 Speaker 11: are trying to get their head around prices going up, 532 00:30:28,680 --> 00:30:32,920 Speaker 11: so they don't want to squash out these initial signs. 533 00:30:33,000 --> 00:30:37,920 Speaker 11: The Japan's economy and growth cycle is becoming something that 534 00:30:37,960 --> 00:30:40,480 Speaker 11: looks a bit more normal than it has done over 535 00:30:40,840 --> 00:30:43,719 Speaker 11: past decades. So I think what he's hinting at is, Okay, 536 00:30:43,960 --> 00:30:46,880 Speaker 11: we go to zero first, we see what it's like. 537 00:30:46,960 --> 00:30:50,360 Speaker 11: If it's not looking to like it's upset too much 538 00:30:50,360 --> 00:30:53,640 Speaker 11: of the economy or markets or companies, then we'll go 539 00:30:53,680 --> 00:30:57,320 Speaker 11: ahead cautiously from that point on. But we are not 540 00:30:57,560 --> 00:31:00,680 Speaker 11: going to see the kind of aggressive high after hike 541 00:31:00,840 --> 00:31:04,440 Speaker 11: double hikes that we saw from the Fed happening in Japan. 542 00:31:05,160 --> 00:31:07,760 Speaker 5: Yeah, we had some comments in this past week from 543 00:31:07,840 --> 00:31:11,800 Speaker 5: Pimco saying that in their estimation, the BOJ would scrap 544 00:31:11,840 --> 00:31:15,680 Speaker 5: its negative interest rate policy, perhaps as soon as March, 545 00:31:16,240 --> 00:31:18,480 Speaker 5: and it would make multiple hikes, but they were talking 546 00:31:18,520 --> 00:31:21,720 Speaker 5: about something like ten basis points. At one point fifteen 547 00:31:21,760 --> 00:31:25,560 Speaker 5: basis points. It takes a long time then to really 548 00:31:25,600 --> 00:31:27,280 Speaker 5: get measurable gains in that. 549 00:31:28,480 --> 00:31:30,640 Speaker 11: Yeah, I think it's going to be a slow move. 550 00:31:31,320 --> 00:31:34,840 Speaker 11: You mentioned March and April. April is our base case 551 00:31:34,840 --> 00:31:38,760 Speaker 11: scenario for when the BOJ hikes. March is our risk scenario. 552 00:31:38,840 --> 00:31:42,760 Speaker 11: If you look at overnight swaps, the risk is about 553 00:31:42,760 --> 00:31:46,680 Speaker 11: twenty percent of an early move by the BOJ. And 554 00:31:46,840 --> 00:31:50,400 Speaker 11: we've serve overed economists, the over fifty economists, and their 555 00:31:51,400 --> 00:31:55,520 Speaker 11: view is that zero point five percent is probably about 556 00:31:55,520 --> 00:31:58,080 Speaker 11: as high as the BOH is going to get as 557 00:31:58,120 --> 00:32:01,760 Speaker 11: its terminal. Right, it gets that far by the end 558 00:32:01,800 --> 00:32:04,640 Speaker 11: of next year or not is still an open question, 559 00:32:04,720 --> 00:32:08,200 Speaker 11: but there is a chance they will. 560 00:32:08,320 --> 00:32:14,720 Speaker 5: I'm curious, Paul, the outlook from companies versus individuals. Are 561 00:32:14,880 --> 00:32:19,440 Speaker 5: individuals You mentioned that inflation really is an issue for 562 00:32:19,640 --> 00:32:24,320 Speaker 5: mister and missus wattenabe and it is hurting spending companies 563 00:32:24,360 --> 00:32:26,320 Speaker 5: presumably would like a little inflation. 564 00:32:27,960 --> 00:32:30,040 Speaker 11: Well, you know, I think once you get into the 565 00:32:30,120 --> 00:32:34,720 Speaker 11: dynamic that you can raise prices and people will still buy, 566 00:32:35,600 --> 00:32:39,400 Speaker 11: then inflation can often be helpful for companies for raising 567 00:32:39,400 --> 00:32:44,080 Speaker 11: their profits because in other countries, generally companies raise the 568 00:32:44,120 --> 00:32:47,320 Speaker 11: prices a little bit more than they need to, kind 569 00:32:47,360 --> 00:32:51,800 Speaker 11: of creating a margin of leeway if you like, whereas 570 00:32:51,800 --> 00:32:55,600 Speaker 11: in Japan they're so reluctant to raise prices and they'll 571 00:32:55,640 --> 00:32:58,840 Speaker 11: often raise prices by less than they need to, so 572 00:32:58,920 --> 00:33:01,240 Speaker 11: it's not as a positive different profits as it could be. 573 00:33:01,400 --> 00:33:03,760 Speaker 11: But I think once we get into this idea of 574 00:33:03,960 --> 00:33:08,240 Speaker 11: inflation sticking, this is going to be good for companies 575 00:33:09,040 --> 00:33:13,600 Speaker 11: to be able to increase profits through raising prices. And 576 00:33:14,560 --> 00:33:17,320 Speaker 11: also if the Bank of Japan is right and we're 577 00:33:17,320 --> 00:33:20,719 Speaker 11: in a cycle where wages are also part of the 578 00:33:20,760 --> 00:33:25,640 Speaker 11: cycle and driving prices, then consumption should recover. But I think, 579 00:33:26,640 --> 00:33:29,360 Speaker 11: you know, it's we're maybe a year or two years 580 00:33:29,400 --> 00:33:32,840 Speaker 11: out before we can really draw the conclusion as hey, 581 00:33:33,160 --> 00:33:34,120 Speaker 11: did they get it right? 582 00:33:35,360 --> 00:33:38,400 Speaker 5: Sometimes we don't see some of the differences in policy 583 00:33:38,400 --> 00:33:42,040 Speaker 5: play out in public. In places like China and Japan. 584 00:33:42,640 --> 00:33:46,080 Speaker 5: I'm curious now the current relationship between the b J 585 00:33:46,280 --> 00:33:47,520 Speaker 5: and the Kisha administration. 586 00:33:49,560 --> 00:33:53,200 Speaker 11: Well, that's a good question. If you look at the 587 00:33:53,240 --> 00:33:58,160 Speaker 11: whole campaign of generating two percent inflation and establishing that 588 00:33:58,280 --> 00:34:02,720 Speaker 11: target that was out in a joint statement by the 589 00:34:02,720 --> 00:34:08,080 Speaker 11: government and the Bank of Japan back in early twenty thirteen, 590 00:34:08,520 --> 00:34:12,120 Speaker 11: so you know, the actual target itself stems from a 591 00:34:12,280 --> 00:34:17,480 Speaker 11: collaboration working together. Now, if you look at how Kishita's 592 00:34:17,719 --> 00:34:22,359 Speaker 11: administration has been working through this inflation cycle, it's been 593 00:34:23,160 --> 00:34:29,080 Speaker 11: offering generous subsidies to the public on energy. It's been 594 00:34:29,120 --> 00:34:32,000 Speaker 11: paying at one point it was paying twenty percent of 595 00:34:32,160 --> 00:34:37,080 Speaker 11: people's electricity bills. Quite extraordinary help from a central government here. 596 00:34:37,960 --> 00:34:40,279 Speaker 11: And some people were saying, well, hold on, if you 597 00:34:40,320 --> 00:34:44,800 Speaker 11: want inflation, why are you actually lowering inflation by providing 598 00:34:44,840 --> 00:34:48,120 Speaker 11: all these subsidies. But there is a kind of method 599 00:34:48,120 --> 00:34:52,080 Speaker 11: in the apparent madness in that it's trying to generate 600 00:34:52,120 --> 00:34:55,920 Speaker 11: some stability in this cycle by holding the inflation up 601 00:34:56,320 --> 00:34:59,919 Speaker 11: for a little bit longer until it settles in around 602 00:35:00,160 --> 00:35:02,680 Speaker 11: two percent, which is what the target is. 603 00:35:02,960 --> 00:35:03,120 Speaker 3: Now. 604 00:35:03,160 --> 00:35:06,840 Speaker 11: One other thing the administration is doing is very aware 605 00:35:06,880 --> 00:35:10,040 Speaker 11: that inflation is eating into consumption, and that the wage 606 00:35:10,040 --> 00:35:13,160 Speaker 11: growth still isn't high enough. So it's offered some tax 607 00:35:13,320 --> 00:35:16,120 Speaker 11: rebates that are going to kick in in the summer, 608 00:35:16,520 --> 00:35:20,440 Speaker 11: and so we should reach a point where real disposable 609 00:35:20,480 --> 00:35:25,960 Speaker 11: income does actually increase. At that point, something that should 610 00:35:25,960 --> 00:35:30,520 Speaker 11: help drive some spending. And hey, when a politician does that, 611 00:35:30,560 --> 00:35:34,200 Speaker 11: as always the thought of the back of people's minds, Oh, 612 00:35:34,440 --> 00:35:37,000 Speaker 11: is that some kind of gambit for an early election. 613 00:35:38,520 --> 00:35:42,560 Speaker 5: Yeah, and presumably if we see more aggressive action from 614 00:35:42,560 --> 00:35:44,880 Speaker 5: the BOJ not that it's expected, but if we do 615 00:35:45,040 --> 00:35:48,240 Speaker 5: see it, that would be perhaps bad for the government 616 00:35:48,239 --> 00:35:54,000 Speaker 5: bond market. And obviously it creates some interesting conditions for 617 00:35:54,160 --> 00:35:58,000 Speaker 5: companies because if you get a big increase in the end, 618 00:35:59,040 --> 00:36:01,960 Speaker 5: that could make it more difficult in some ways for 619 00:36:02,160 --> 00:36:05,440 Speaker 5: Japanese companies. Right, So what are we expecting from the 620 00:36:05,480 --> 00:36:09,080 Speaker 5: financial markets traversing through this next period. 621 00:36:10,800 --> 00:36:13,760 Speaker 11: Well, you know, in terms of the companies, the big 622 00:36:13,920 --> 00:36:19,040 Speaker 11: exporters with a large global presence, they're loving the cheap yen. 623 00:36:19,800 --> 00:36:24,960 Speaker 11: It's great for them, expands all their profits, so they're happy. 624 00:36:25,520 --> 00:36:30,080 Speaker 11: It's the it's the smaller, more domesticly focused companies that 625 00:36:30,120 --> 00:36:33,280 Speaker 11: feel the squeeze. They have to maybe import some stuff. 626 00:36:33,520 --> 00:36:37,400 Speaker 11: They reliant on energy as well, so you know this 627 00:36:37,400 --> 00:36:42,399 Speaker 11: this kind of stuff is is bad for them. So 628 00:36:43,440 --> 00:36:49,160 Speaker 11: if we if we head towards this new growth cycle 629 00:36:49,400 --> 00:36:55,000 Speaker 11: with relatively stable inflation and the yen coming back to 630 00:36:55,200 --> 00:36:59,600 Speaker 11: kind of stronger levels, there's going to be adjustment taking 631 00:36:59,640 --> 00:37:02,640 Speaker 11: place and the b export is going to be a 632 00:37:02,680 --> 00:37:07,080 Speaker 11: little bit hit, while the domesticly focused companies are going 633 00:37:07,080 --> 00:37:11,480 Speaker 11: to be feeding a little bit of comfort in it. 634 00:37:11,520 --> 00:37:13,879 Speaker 5: Is it a bit too general to say that if 635 00:37:13,880 --> 00:37:17,879 Speaker 5: you get repatriation of the yen, that the consumers will 636 00:37:17,880 --> 00:37:20,880 Speaker 5: benefit and they'll be happy because they'll have more buying 637 00:37:20,960 --> 00:37:24,680 Speaker 5: power with a stronger yen, But the companies, like you said, 638 00:37:24,719 --> 00:37:27,520 Speaker 5: there's a little bit of a bifurcation. But generally speaking, 639 00:37:28,200 --> 00:37:30,800 Speaker 5: corporate sector not so happy, but consumers happy. 640 00:37:31,640 --> 00:37:31,879 Speaker 3: Yeah. 641 00:37:31,960 --> 00:37:35,680 Speaker 11: I mean, you know, there's so many dimensions to look 642 00:37:35,680 --> 00:37:39,799 Speaker 11: at these questions on so many different levels that the 643 00:37:39,840 --> 00:37:43,480 Speaker 11: implications are different. You know, you look at m NA. 644 00:37:43,600 --> 00:37:46,840 Speaker 11: I mean, Japanese companies wanting to buy abroad. If ye 645 00:37:46,880 --> 00:37:48,719 Speaker 11: any is strong, it makes it a lot cheaper to 646 00:37:49,120 --> 00:37:51,040 Speaker 11: do that, and it makes it more difficult if the 647 00:37:51,200 --> 00:37:53,120 Speaker 11: ends if the end's week. 648 00:37:53,040 --> 00:37:55,799 Speaker 5: It is so fascinating. Paul, thanks so much for joining us. 649 00:37:55,920 --> 00:38:00,560 Speaker 5: Paul Jackson, Bloomberg Economy Editor, I'm Brian Curtis along with you. 650 00:38:00,600 --> 00:38:03,640 Speaker 5: Can catch us every weekday here for Bloomberg day Break Asia, 651 00:38:03,960 --> 00:38:07,080 Speaker 5: beginning at nine am in Hong Kong and eight pm 652 00:38:07,120 --> 00:38:07,880 Speaker 5: on Wall Street. 653 00:38:08,120 --> 00:38:10,560 Speaker 2: Tom, Thank you, Brian, and that does it for this 654 00:38:10,719 --> 00:38:13,480 Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday 655 00:38:13,480 --> 00:38:15,840 Speaker 2: morning at five am Wall Street time for the latest 656 00:38:15,880 --> 00:38:18,360 Speaker 2: on the markets overseas and the news you need to 657 00:38:18,400 --> 00:38:19,120 Speaker 2: start your day. 658 00:38:19,440 --> 00:38:21,319 Speaker 3: I'm Tom Buzzby. Stay with us. 659 00:38:21,520 --> 00:38:26,160 Speaker 2: Top stories and global business headlines are coming up right now.