August 15, 2025 • 38 mins
Bloomberg Daybreak Weekend with Host Tom Busby take a look at some of the stories we'll be tracking in the coming week.
- In the US – a look ahead to housing data and retail earnings.
- In the UK – a look at challenges facing European banking consolidation ahead of an upcoming shareholder vote in Italy.
- In Asia – a look at Japan CPI, PMI, and trade.
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:09):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our Daybreak
anchors all around the world. Straight ahead on the program,
earnings from some of the US's biggest retailers and what
impact they may already be seeing from the Trump tariffs.
I'm Tom Busby in New York. I'm Stephen Carolyn London.
Speaker 3 (00:26):
For we're looking at the challenges facing European banking consolidation
out of an upcoming shareholder Folks in Italy.
Speaker 4 (00:32):
I'm Doug Prisner with a look at what we can
expect from a slew of Japanese economic data in the
week ahead.
Speaker 1 (00:39):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, Syria,
SXM one twenty one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business App.
Speaker 2 (01:03):
Well, good day to you. I'm Tom Busby, and we
begin today's program with a slumping US housing market this week,
though some key data including housing starts and existing home
sales for July, also earnings from the nation's biggest home
improvement chains, and what those numbers could tell us about
the housing market. For more, we're joined by Drew Redding,
Bloomberg Intelligence US homebuilding analyst. Drew, thank you so much
(01:24):
for being with us. We know all the usual suspects,
sky high home prices, mortgage rates now just under seven percent.
Amid those challenges, let's start with what do you expect
to see in the July housing starts number?
Speaker 5 (01:37):
Yeah, you hit the nail on the head. You know,
we think that housing starts will come on their further pressure.
Through one half. We're down about one percent over last year,
and the weakness has really come from the single family side.
Single family starts are down about seven percent year to date.
Why multi family units are up seventeen percent. You know,
given what we've heard from the builders, we expect that
(01:58):
we'll continue to see a poolback in single family production
through the remainder of the year. Now, remember, the public
builders account for roughly fifty percent of industry volumes, and
what they've been telling us almost universally, is that they're
limiting their pace of starts as they look to match
production with demand. So that's a big piece of the
pie that we know is going to slow down in
(02:20):
the coming months. If you look at the inventory levels
in the new home market, we're at the highest since
two thousand and seven, and a lot of that is
under construction or completed inventory. So there's really no incentive
for builders to keep adding new supply until they start
to clear out some of that excess spec inventory.
Speaker 2 (02:36):
And how are they going to clear that out? What
incentives do they have for would be buyers.
Speaker 5 (02:41):
I think everybody understands at this point just how aggressive
the builders have been in their use of sales incentives.
You know, what they use is going to depend on
the buyer type. Typically, you'll see first time or entry
level home buyers take the mortgage rate buydown. That's the
predominant incentive out there in the market. But you do see,
you know, some buyers on the higher end will choose
(03:01):
to take some type of you know, options in the
design studio, maybe some structural options, or help with a
down payment or something like that. But primarily what we're
seeing is the use of mortgage rate buydowns. Is that's
really what's eating into builders' margins right now. We've heard
from a number of the builders during an earning saying
that they expect that incentives aren't only going to remain
(03:24):
the same, they think they're actually going to take up
a little bit higher in the second half of the year.
So we'll see how that plays out with rates coming
in a little bit over the last several weeks, but
certainly incentives are the thing to watch out for in
the second half of the builders.
Speaker 2 (03:38):
Well, and are those the high prices and the elevated
rates that are making home sales so difficult. Is it
pushing more people at all income levels to rent instead
of buy right now? Are they waiting it out?
Speaker 5 (03:51):
Yeah, certainly. You know, we've seen more demand on the
rental side of the business. You have rents starting to
moderate a little bit with some of the supply that's
come into the market. We had some data come out
recently on household formation and it was driven exclusively by
renner households. And as you mentioned, it's the rates and
it's the prices that are pushing people out of home ownership.
(04:13):
So you know, rates could come down a little bit.
We think it'll help the marginal buyer, but home prices
are still fifty percent higher than they were at the
end of twenty nineteen. So we think you really need
a combination of lower rates and maybe prices to come
down a little bit along with some income growth in
order to get the housing market moving a little bit better.
Speaker 2 (04:30):
And that goes for the existing home sales as well.
Same thing, the elevated prices, but they are seeing a
little more inventory come on the market though for existing homes, right, yeah,
So we.
Speaker 5 (04:41):
Think with the inventory that's come on the market, we're
up about twenty five percent year every year and now
we're within somewhere around ten percent of twenty nineteen levels.
We think that could help with volumes, but we think
that it's going to come at the expense of prices.
So home prices have already start to moderate on a
year of year pace. If you look at some of
the biggest markets in the country, we're already down your
(05:03):
year in terms of prices. So we think that'll continue
to play out where the existing home market will see
some volume gains, but you're gonna see prices come down
a little bit.
Speaker 2 (05:13):
The Fed's next policy meeting just a few weeks away,
Wall Street pretty much expecting policymakers to lower their benchmark
lending rate for the first time this year. But what
would that mean for housing and what would that mean
for Home Deep Bowl and Low's, which report their latest
earnings this coming week.
Speaker 5 (05:28):
Yeah, good question. I mean, all you have to do
is look at the builder stocks to see kind of
some of the enthusiasm that's out there in terms of
the potential for FED rate cut. What you have to
remember is though, that mortgage rates have probably largely already
priced in any reduction by the FED. So I wouldn't
expect to see a significantly leg lower mortgage rates just
(05:49):
from the FED cut. So, you know, mortgage rates have
come in over fifty basis points. We're at about six
and a half percent now compared to over seven just
back in you know, the beginning of July, so we've
certainly made some significant progress in terms of what that
means for the home improvement space in Home Depot and Lows.
(06:10):
You know, one of the big areas of concern has
been the weakness in big ticket discretionary spending, so think
to things like kitchens and bathroom models, flooring projects. These
are things that typically tend to be financed so with
rates having been as high as they are, we've seen
people put off those purchasing decisions, you know, so we
again we think just like it'll help home sales on
(06:32):
the margin, I think you'll see a little bit more
of refinancing activity with rates in the in the you know,
mid to low six percent range, which could on the
margin spur some of that big ticket spending. And you know,
when that does start to come back, we think that
some of the investments home Depot and Lows have made
over the last couple of years despite this market weakness,
(06:52):
will really put them in a good position for growth.
Speaker 2 (06:55):
Well, hell, let's hope for good news. New home construction
numbers for July out on Tuesday, existing home sales for
that same month on Thursday, Home Depot earnings on Tuesday,
Lows on Wednesday, our thanks to Drew Redding Bloomberg Intelligence
US home building analysts. We move next to more corporate
earnings coming this week from two of the nation's biggest retailers,
Walmart and Target. With inflation still a worry, are Americans
(07:19):
spending and are they spending at those stores? And have
those stores seen any impact so far from the Trump tariffs?
For all that and more. We're joined by Jennifer Bartash's
Bloomberg Intelligence senior analyst Retail, staples and packaged food. Well, Jen,
thank you, and I want to start with actually some
pretty good news that came out this past Friday from
the Commerce department. Retail sales advancing in July, help by
(07:42):
auto sales and all those Black Friday like sales at Amazon, Walmart, Target,
best Buy and others. Now that is good news, isn't it?
But what does it tell us about the consumer? Right now?
Speaker 6 (07:53):
It's overall good news with regards to the consumers are
willing to spend, but they're spending on those sales events.
And so what that really underscores is that that consumer
value proposition is so important for these retailers. People are
willing to spend, but they want deals. They want to
see prices that they think are good prices, and so
(08:15):
that's really the takeaway. And when you offer that compelling proposition,
they are responding. And so there's a little bit of
money out there. It's not necessarily going to help this
current quarter of earnings, but it should help next quarter
earnings for sure.
Speaker 2 (08:30):
Well, let's talk about this quarter earnings. The second earnings
Walmart was a big winner of all that to online spending,
also still blow out grocery sales double digit growth and
online sales. What are you expecting to see in its
second quarter results?
Speaker 6 (08:45):
What's interesting about Walmart is they have arguably the best
visibility into your mainstream American consumer than any other retailer.
They touch almost the entire population in the United States
as to some degree, and so what we're expecting to
see is just another strong quarter for Walmart. That value
proposition that I mentioned is something that drives people there.
(09:07):
But Walmart has been really good about execution, and so
they've been good about executing in terms of growing their marketplace,
in terms of off their offerings, improving their the quality
of their grocery, and continuing to grow market share there.
So it's a combination of execution as well as the
value proposition that they offer that really should drive some
(09:28):
strong results with regards to top lying growth and same
store sales.
Speaker 2 (09:32):
Now, aside from its food aisles, a lot of what
is sold at Walmart is imported, a lot of that
coming from China. What impact have the Trump tariffs had
on Walmart so far? And can it manage to limit
passing along those higher costs to shoppers or you know
or is it coming and we know it's coming.
Speaker 6 (09:49):
I think that there are going to be some costs
that go up for consumers. But the advantage that Walmart
has is that it is so big and that scale
is so large that it can help minimize the amount
that it does have to pass through to consumers, and
they can be very selective on which products it hits.
And so you know, when you're talking about especially general
(10:11):
merchandise or things like apparel, that's where the tariffs come
into much more play. But Walmart has that ability to
negotiate with their suppliers. They've had a very active program
for a long time in terms of you know, purchasing
manufactured in the USA goods in their home departments for example,
(10:31):
and things like that. So they've had long term efforts
in place to sort of mitigate where they're sourcing from.
And in the recent year or two they've really diversified
the sourcing of where they're getting goods from. So that
makes them a little it makes it a little bit
easier for them to offset that impact. But inevitably, there
will be some prices that have to go up and
(10:52):
that will ultimately impact consumers.
Speaker 2 (10:55):
Well, let's talk about the other side of the coin,
and that is Target, which has been struggling now for
couple of years, sales growth stagnating, It's facing a boycott
after scrapping DEI initiatives. Just last week, the Bank of
America downgraded the retailer. So what do you expect to
see in its earnings report this week?
Speaker 6 (11:12):
Very much like the first quarter, We're going to see
a little bit more divergence between Target and Walmart. And
Target simply has not yet gotten back to that cachet
that it once had with its consumers and its core
its core followers. Their digital sales are slowing, they have
(11:32):
a different approach to a marketplace which is much more
limited in scale. And importantly, we're seeing that some of
the partnerships that we're supposed to help drive growth coming
to an end. So the partnership that Walmart has with Alta,
for example, where they had Alta stores within within a
Target store, is coming to an end, and both retailers
(11:53):
are sort of going their separate ways. So you know,
those are the kinds of things where you know, I
think people are looking at Target and wondering where is
the future growth going to come from and you know
they can compete to a certain degree on price, but
they are much more exposed in terms of tariffs and
other pressures because of the merchandise mix that they sell.
Speaker 2 (12:16):
Our thanks to Jennifer bartashis Bloomberg Intelligence Senior Analyst, Retail,
staples and packaged food. Coming up on Bloomberg day Break Weekend,
we'll look at the challenges facing European banking consolidation plans.
That's ahead of an upcoming shareholder vote in Italy. I'm
Tom Busby and this is Bloomberg. This is Bloomberg day
(12:44):
Break Weekend, our global look ahead at the top stories
for investors in the coming week. I'm Tom Busby in
New York. Up later in our program we'll look ahead
to several key data points in Japan. But first, the
countdown is on in Italy to a deadline in a
potential takeover in the bank sector. Medio Banca's shareholders will
vote on its bid to take over wealth manager Banca Generali.
(13:06):
It's the latest and a string of potential deals which
could consolidate Europe's banking sector, but some remain opposed to
creating bigger financial institutions on the continent. For more, Let's
go to London and bring in Bloomberg Daybreak. Europe Banker
Stephen Carroll.
Speaker 3 (13:21):
Tom Italy has been at the heart of a wave
of attempted banking consolidation across Europe, and things are set
to heat up in the coming weeks. Despite encouragement from
the European Union, only a few of the potential deals
are sealing real progress towards completion. Italy's UNI Credit and
Spain's BBVA have launched attempts to buy rivals, only to
(13:41):
meet with sometimes bitter opposition from Berlin, Rome and Madrid.
Medio Banka's CEO, Alberto Nagel says national governments are standing
in the way of creating bigger banks in the EU.
His lender is facing an unsolicited takeover offer from rival
Monte Dupasci, which is supported by its largest shareholder, the government.
Nagel has repeatedly rejected the bit, which he calls totally inadequate,
(14:04):
and has in turn mented an acquisition effort for banker,
generally the wealth management units of the country's biggest insurer.
It gives the Medio Banker CEO a unique perspective on
this European wide issue. Here's what he had to say
about the situation when he spoke to Bloomberg earlier this month.
Speaker 7 (14:21):
Well, we are, as I said, delivering or over delivering
on our strategy. Our strategy is a strategy where we
are focusing more and more on wealth management and the
ib capital lighte on top. We have also worked at
banker gerial transactions.
Speaker 2 (14:38):
So for our.
Speaker 7 (14:39):
Shahoulder, according to our view, there is no match between
media banker Stendalon plus banker generally and the possibility to
be part of a group.
Speaker 8 (14:49):
How you know, biggest probability that mounte Paski actually you
know gets Media banker at the end of the day.
Speaker 7 (14:55):
Well, this is up to our shoolder. No, we are,
as I said, recommended to look carefully at the content
of Montepasti bit because financially it is a discount to
our market value, you know, as montepask is half of
our market cup. This transaction is consued where basically our
(15:17):
shareholders should get sixty percent of the combined entity but
not pay the premium. So this is something that honestly
a long term shoholder of Media banker should not accept.
Speaker 3 (15:29):
Medio Banker CEO Alberto Nagel there speaking to Bloomberg's Francy
in Laqua earlier this month. So what does the future
of the Italian lender look like and more broadly, what
does it tell us about the European banking landscape to discuss,
I'm joined by our senior finance reporter in Milan, Sonia Cerletti,
and by Bloomberg TV anchor Katie Coopter has been following
the story across the continent for US. Sonya t you
(15:50):
first ahead of this shareholder meeting in the coming days
from Medio Banker, what can you tell us about the
offer that they're making for Banker generally.
Speaker 8 (15:58):
Yes, as you think before, Italy banking sector is now
at the center of this fresh wave of merger and
acquisition activity that kicked off in early November, and at
the center of the action now there's Medio Banker, who's
seeking investor approval to go ahead with the bid for
Banker generally to basically fend off still takeover from rival
(16:22):
bank Monte de Passylciena nagal Is, the CEO of Media Banker,
is proposing Banker generally bid as a alternative to Montepasti
takeover offer and on August twenty one, there is a
key moment because investors of Medio Banker are called to
(16:43):
decide whether to go ahead with this bid or they
can reject the proposal in what would be a big
blow for Nagala. Another strategy to preserve the bank's independence
and secure is on a future at the helm of
the bank.
Speaker 2 (17:01):
What are the expectations ahead of that vote.
Speaker 8 (17:03):
The expectations are uncertain. The vote will be likely very tight.
We have seen that Nagala has before postponed the meeting
amy design that he wasn't able to get majority. I
want to remember that Medieavancan is the fifty percent plus
(17:23):
one of voting in favor of the bid to go ahead.
And then he has rescheduled the meeting after some shahoulders
changed happened, So maybe his eating so that he can
he cannot get it can get back. For sure, the
situation is delicate and if he will be able to
(17:47):
win or lose the meeting is still uncertain. But what
I want to say is that while the vote will
be a big green or a big blow for Nagel strategy,
Nagal attempts to fend off the attempt to fend off Montepaski.
Montepasci bid the final end game. The final battle will
(18:11):
be will happen in September when Montepaski will close his
offer on Medio Banker and from this results a lot
of things can change, not only for Madio Banka, but
probably for the whole land escape of Italian banking.
Speaker 3 (18:27):
Just to understand this, why is Nagos okay in to
review the monte Paski offer.
Speaker 8 (18:32):
Alberto Nagle, first of all, is the longestanding of Media Banker,
and he has emerged like this central figure in resisting
montepaski Is approach. I would say that's reluctant, it's rude
in a sort of combination of strategic and reputational factors.
For Nagal, Medior Banker's legacy and independence is a core priority.
(18:56):
He affirmed that the core activities of the two banks
are different, being Mountepasti mainly a retail bank, while Mediobank
is foxed on wealth and investment banking. For more, there
are questions around valuation and government. Nagel and is border
see the terms of Montepasky offer as the underwhelming and
(19:17):
potential disruptive So valuation is not it is not reflecting
the real value of the offer. And on the other side,
there is a there is a there are issues about governance.
According to Nagal in Italy, nothing is simple and all
of these m and a sagay is like an intricate
(19:39):
chess game where there are across shareholders competing alliances overlapping interests.
That means that every move verberates through the financial system.
In particular on this bid, what we what we see
Mediobank's largest shareholders are billionaires taken Francisco, Costa, Girone and
they'll bet your families. They also have major stakes in
(20:03):
Montepasti who's doing a bid on a media banker? And
generally which is which is a media bank as main
as man as shohoulders too, So there are a lot
of different interest and nature is a booking a conflict
of interest too, and so this is another matter of opposition.
(20:25):
Let's say that the history shows that any will still
be the see the reluctance of the CEO of the
target company in agreeing on the bit.
Speaker 3 (20:36):
Yeah, I mean, it's an absolutely fascinating web of cross shareholdings.
As he describes on you let's seem oute that I
want to bring in Chrity Coupe, who's been listening into
the conversation as well, I mean crazy, you've been across
the banking story across Europe. Just talk to us about
the motivation behind what's driving this wave of consolidation.
Speaker 9 (20:52):
Well, it's a fascinating story because in some ways it's
been in the work since the inception of the EU. Frankly,
and this idea that you want to have a coordinated bid,
you want to build out a Capital markets UNI, you
want to bring out a banking union as well, and
this kind of consolidation is seen as an intermediary step,
or even just a first step towards that ultimate goal.
There's a couple of other factors here, though, in that Europe,
(21:15):
especially in recent years, has really been trying to get
more competitive and take over market share internationally from some
of the more US kind of focused banks, but also
some of the growing competition in Asia as well. So
that's another piece of it, and the thinking there is
you have to be stronger at home to be able
to do that kind of business abroad. The third piece
of this is kind of a little bit of a
(21:37):
hangover when it comes to the experience a lot of
European banks have had from COVID and also from the
GFC and arguably the sovereign debt crisis as well. This
idea that if you are already operating in different markets,
so a hypothetical for unicreditor for BABVA, where you're operating
your home country of Italy or Spain, but also of
operations in say the UK or has, say in Germany,
(21:59):
or name your country. In times of recession, when the
government needs to take active steps to protect the banking
sector of that individual country, how easy is it for
some of those banks that belong to a different home
country to pull out those funds or to inject that
kind of liquidity. And there have been concerns in those
previous crises of who that loyalty kind of belongs to
(22:22):
and whether being a European bank ultimately means that you
are a Spanish or an Italian or a German bank.
Speaker 3 (22:28):
First talk to us about some of the other We've
reflected on some of the Italian moves there with Sonia,
but talks about some of the other big deals that
we're watching elsewhere in Europe. I know that BBVA and
Sabadada is one that you've been particularly monitoring closely.
Speaker 9 (22:40):
I'm fascinated by this story because I think it's such
a crucial one. Consolidation on the surface seems like such
a normal natural thing to pursue, especially as you get larger,
and especially as some of these banking behemoths really pursue
that kind of scale. I think what gets missed quite
often in the argument that the likes of Bank of
Sabadel or arguably other takeover acquisition targets are making is
(23:02):
simply this idea that the bigger you get, the harder
it is to service you know, the local bakery that
has a loan and that's been working with the local
branch of say Sabadel for centuries or decades or whatever.
And that's the concern that is ultimately showing up, and
a lot of these big banks that are under major
pressure to build out the profitability lean into digital banking.
(23:23):
It also not only influences or kind of drives the
question of how can they serve smaller clients, your local clients,
but also how they can employ the people in certain regions.
And that's really what has been a consistent sticking point
in some of these consolidation conversations.
Speaker 3 (23:40):
Talk to us about how this is playing out between
national capitals in Europe and the European Union because the EUM,
and if you read the Drageo or the letter reports,
you know, banking consolidation, capital markets scene in deeper capital markets,
all things everyone seems really happy about until you get
some of the national governments involved, who say, we like
the idea, but in this particular case, we don't think
that it's appropriate for the market. How much of attention
(24:02):
is there between those two sides, Oh.
Speaker 9 (24:04):
My gosh, attention couldn't be more tense. Frankly, it's fascinating
because it also goes back to this question of who
is actually in charge of a European country. Is it
the local government or is it the folks over in
Brussels for example. And this is something you see a
tenuous conversation you see in any industry. Really, it's not
just coming up in banking consolidation. You've seen it in
(24:25):
things like foreign policy narratives. You've seen it in defense rearmament.
You've seen it in kind of local investment in things
like infrastructure. Whose burden is that to decide those policies?
Not to mention regulation as well. Things like tech regulation
have largely been driven out of Brussels, but there have
been local conversations about that as well. From a banking standpoint, again,
this is something where Brussels is thinking about Europe as
(24:47):
a whole and how it can compete on the international
stage as a whole, what it can and the argument
that a lot of local governments are making, especially as
politics starts to drive the conversation, is are you thinking
about the peace employed in a certain region of a
certain country that could be driving a national narrative or
a national shift or a change in local regulation. And
(25:08):
that's where the tension comes between what you're thinking of
in Brussels versus Madrid or Rome or Paris.
Speaker 2 (25:13):
Okay, Chrity go. Thank you very much for talking us
through that.
Speaker 3 (25:16):
And to our senior finance supporter in Milan, Sonia Serletti,
helping us to look ahead to that key shareholder meeting
happening in the coming days.
Speaker 2 (25:24):
I'm Stephen Carolyn London.
Speaker 3 (25:26):
You can catch us every weekday morning here for Bloomberg
Daybreak here at beginning at six.
Speaker 2 (25:29):
Am in London and one am on Wall Street. Tom.
Thank you, Steven and coming up on Bloomberg day Break weekend,
we'll check in on the health of the Japanese economy
with the release of several key data points. I'm Tom
Busby and this is Bloomberg. This is Bloomberg day Break Weekend,
(25:56):
our global look ahead at the top stories for investors
in the coming week. I'm Tom in New York. We
turn next to Japan and the release this week of
several key data points, including CPI, PMI surveys and trade figures.
Bloomberg's Doug Krisner checks in on the health of the
Japanese economy.
Speaker 4 (26:13):
Tom. As you know, Japan is heavily reliant on exports
to the US, and as such, companies in the country
have been struggling with the effects of US tariff policy,
and judging by the recent record highs for the Japanese
equity market, those dark clouds seem to be lifting. For
a closer look, I'm joined by Taro Komurahi, is japan
economist for Bloomberg Economics, joining from our studios in the
(26:37):
Japanese capital. Taro, thank you so much for making time
to chat with me. Before we get into some of
the details, can you give me a sense of how
well the economy is performing, especially in light of the
US tariffs.
Speaker 10 (26:52):
Of course, thanks for having me on. Actually the US tarifs,
although Japanese government was able to lower it and the
threatened rate, particularly the lowering the sectoral tariff to the
auto was a big relief for markets. They reduced from
twenty five percent to fifteen percent in general, but still
(27:14):
that was a lot higher than previously levied. And obviously
the auto sector is a key sector for Japan. But
that said, so far the damage is likely to be muted.
I think there are several reasons. Of course, the Japanese
carmakers are experienced in dealing with many jolts, including the
(27:36):
trade friction with the United States. They had it back
in nineteen nineties and previous administration. Also, another key factor
is a week y and it's traded around one forty
eight one fifty per dollar, and this is far weaker
than the surveyed exporters break even exchange, which is tallied
(28:01):
around one thirty. So there's a buffer for exporters to
ship their products to the US and still securing the profits.
So therefore it's a profit hit for many exporters, particularly
for automakers. But still it doesn't necessarily mean that they
have to slam the brakes on their production line.
Speaker 4 (28:23):
So I'm curious about how fiscal policy may enter the
story here. Because we had an election recently that created
a bit of upheaval. One of the things that people
began addressing was this issue of more government spending. Is
that likely to be the case? Do you think will
that happen?
Speaker 10 (28:39):
Exactly? You need to watch carefully on the developments on
Japanese political landscape, and as you mentioned, it's obvious that
the government is likely to be more fiscally expansionary. The
current Prime Minister Ishiba is known as fiscal restraint or
he cares about fiscal soundness. That said, he lost the election,
(29:02):
and even if he stays on, he needs to I
think expand fiscal stimulus in order to withdraw concession from
the opposition parties. And if he steps down, that means
further expansionary pressure to fiscal policy, because any potential candidate
for next prime minister is likely to be more having
(29:24):
affinity for more expansion than a current Ishiba. So therefore,
going forward towards the end of the year or the
next year, I think the fiscal stimulus is likely to
be announced, and that could bolster the domestic demand and
probably support the equity prices.
Speaker 4 (29:44):
As you well know, inflation in Japan has been well
above the boj's target for some time. Now, we have
a CPI print in the week ahead, give me your
sense of what's happening on the price side and what
may follow when it comes to the next move from
the Bank of Japan.
Speaker 10 (30:00):
Exactly. So, inflation is very hot. If you have an
image that the Japan is the deflationary country, it's it's
already in the history book. It's Japan is now in inflation.
And as expect, the July CPI print will still over
over three percent headline three point zero and core core
(30:23):
CPI remain heated around three point four percent, and the
downside risks. That suggests is Japan is probably facing a
staguflationary pressure because typical conditions are met, inflation is surging,
the government is likely to be more phiscally expansionary, and
(30:46):
the boj it's getting actually taking a more concious approach
towards the next rate hike. I expect the next rate
hike is going to happen in October. That said, the
Bay based on their communication, the Bank of Japan emphasizes
they will take a risk management approach. So therefore, before that,
(31:10):
the BOJ was just raising rates if they judge the
inflation is solid. But they're starting to have a telegraphing
a signal that, you know, even the inflation is picking up,
it's going to depend on the situation. And I reckon
behind that stance, there's a political uncertainty going on. You know,
(31:31):
the BOJ doesn't want to make any waves. When political waves,
I mean when the government is trying to expand their
fiscal stimulus, it doesn't mesh with the boj's hiking rates.
So I think the BOJ is reading the circumstances and
trying to judge when the political situation is conducive for
(31:52):
hiking rates. So therefore my baseline is October. But I
think the risk is skewed towards the delayed size, So
that means basically the j is turning a little bit dobvish.
That will add to inflationary pressure. So probably Japan is
edging into the situation where the FED or ECB had
experienced a few years ago.
Speaker 4 (32:12):
Charles, maybe you can give me a sense of the
labor market as well, not just with the employment picture
but also on the wage side. Are things holding up
reasonably well right now?
Speaker 10 (32:22):
I think we just are also picking up sharply, adding
onto inflationary pressure. As you know, Japan is an Asian population,
and the labor shortage is serious. If you come to
Japan and come to restaurants, you know how the shortage
of staffs are going on. You need to wait many
minutes for your plate to come. That means the corporates
(32:43):
are very willing to hike rates in order to retain
workers or obtain workers. And I think that kind of
cycle won't stop as long as Japanese structural labor shortages
will be solved, and I don't think that's going to
happen in coming a few years. So therefore the recent
big movements that the sharp wage raises in Japan will continue,
(33:06):
and that will feed into the inflation, and so the
bus needs to be really cautious.
Speaker 4 (33:11):
So having said that, then how would you characterize the
health of the Japanese consumer right now? Giving everything that
we're talking about in terms of employment and wage growth,
how are consumers in Japan feeling?
Speaker 10 (33:23):
I think you need to think about two types of
consumers which are in opposite directions. One is the younger generation.
They're enjoying the recent surges and wages because they're going
to work longer. The corporates are willing to invest in
(33:44):
those young workers and so therefore, actually their consumption is
picking up, and we see in the data for leisure
or entertainment related goods or services are picking up, and
also their prices are also picking up a push from
a demand side. That said, now, when you think about
(34:04):
the older generation, like older than their fifties or sixties, pensioners,
of course pensioners are not enjoying the wage rises, and
also in Japanese pension system, there the pensions they receive
by design won't pick up as much as inflation does,
so therefore they are struggling to make their end smeets
(34:28):
in their daily lives, particularly the food prices. The rise
prices are rising sharp sharper than the general inflation. And
also the workers in their fifties or forties are not
enjoying wage raises as much as the younger generation does.
So I think there's a dual situation going on. For youth,
the consumption is strong, but for older generation, their sentiment
(34:53):
is damped by inflation.
Speaker 4 (34:55):
Taro, thank you so much for joining us. Taro Komora
is senior Japan economist for Bloomberg Economics. So now we
have a better understanding of the Japanese consumer, let's broaden
things out a bit. Matthew Driver is the executive vice
president for services for the apack at MasterCard. He's on
the line from Sydney. Matthew, thank you so much for
making time to chat with me. I know consumers across
(35:18):
the Asia Pacific are as varied as the economies themselves. Japan,
for example, is dealing with levels of inflation it hasn't
seen in decades. Other countries, as we know, are dealing
with very, very different dynamics. But I'm hoping you can
speak to the overall level of consumer spending that you're
seeing across the apac What is it right now?
Speaker 7 (35:39):
Yeah?
Speaker 11 (35:39):
Sure, Look, I think and thanks for hosting and having
me on the show. Look, despite the macro econ of
a concertainty, consumer spending across APAK remains healthy. I think
that's driven by a couple of factors that are important.
You've really got low unemployment, You've had a decent amount
of real wage growth, and that's really helped right to
(36:01):
essentially and sure that you've got demand across segments. I
think our Economics Institute forecast.
Speaker 5 (36:07):
Steady GDP growth.
Speaker 11 (36:09):
So what we are seeing is broad based. You know,
is the customer is pretty resilient. There's been a little
bit of stress in some places as rates have been
higher for longer, but you have to think about there
are also some longer term drivers that are going to
be quite positive. Right You've seen interest rates are starting
to come down number one. Number twos, You've got some
(36:30):
easing of fuel prices. That's point number two. And point
number three is you know, goods continue to be cheap.
China's leaning into the region and so that's helping, you know,
on the value side as well.
Speaker 4 (36:42):
Do you have a sense of whether US tariff policy
has adversely impacted consumer sentiment in the region.
Speaker 11 (36:50):
Look, I think that you know, we're really trying to
think through you know, the impact of you know, towerists.
I think, look, it's a complicated environment, but AGEA specific
continues to navigate that there are going to be some
shaping or some some some alterations and adjustments. But also
(37:10):
I think while those dynamics post some challenges. They also
underscore that the region is very resilient and adaptable, right.
I think that post COVID, some of the supply chains
have become pretty flexible. That's been very very important. And
while terriffs have raised input, you know, import costs to
a certain degree, more price sensitive markets, there's been you know,
(37:33):
trying to I guess adjust, you know, consumer spending has
been a little bit of value shifting, like we talked about.
But what we're really trying to do is make sure
that you know, we're helping our customers navigate that with
with insights and intelligence. So I think that despite you know,
some of that uncertainty, people are probably putting off some
of the longer term transactions, right, They're really focusing on
(37:58):
how do they ensure that they're driving value today, shifting
the patterns of spend a little bit. And so with
that in mind, and the fact, as I mentioned earlier,
we are seeing pretty steady demand and that's really reflecting
the resilience of the consumer overall.
Speaker 4 (38:14):
Matthew, thank you so much for making time to chat
with me. Matthew Driver is executive vice president of Services
for the APAC at MasterCard, and I'm Doug Christner. You
can catch us weekdays for the Daybreak Asia podcast. It's
available wherever you get your podcast.
Speaker 2 (38:29):
Tom. Thank you Doug. And that does it for this
edition of Bloomberg day Break Weekend. Join us again Monday
morning at five am Wall Street Time for the latest
on markets overseas and the news you need to start
your day. I'm Tom Buzzby. Stay with us. Top stories
and global business headlines are coming up right now
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:09):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our Daybreak
anchors all around the world. Straight ahead on the program,
earnings from some of the US's biggest retailers and what
impact they may already be seeing from the Trump tariffs.
I'm Tom Busby in New York. I'm Stephen Carolyn London.
Speaker 3 (00:26):
For we're looking at the challenges facing European banking consolidation
out of an upcoming shareholder Folks in Italy.
Speaker 4 (00:32):
I'm Doug Prisner with a look at what we can
expect from a slew of Japanese economic data in the
week ahead.
Speaker 1 (00:39):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, Syria,
SXM one twenty one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business App.
Speaker 2 (01:03):
Well, good day to you. I'm Tom Busby, and we
begin today's program with a slumping US housing market this week,
though some key data including housing starts and existing home
sales for July, also earnings from the nation's biggest home
improvement chains, and what those numbers could tell us about
the housing market. For more, we're joined by Drew Redding,
Bloomberg Intelligence US homebuilding analyst. Drew, thank you so much
(01:24):
for being with us. We know all the usual suspects,
sky high home prices, mortgage rates now just under seven percent.
Amid those challenges, let's start with what do you expect
to see in the July housing starts number?
Speaker 5 (01:37):
Yeah, you hit the nail on the head. You know,
we think that housing starts will come on their further pressure.
Through one half. We're down about one percent over last year,
and the weakness has really come from the single family side.
Single family starts are down about seven percent year to date.
Why multi family units are up seventeen percent. You know,
given what we've heard from the builders, we expect that
(01:58):
we'll continue to see a poolback in single family production
through the remainder of the year. Now, remember, the public
builders account for roughly fifty percent of industry volumes, and
what they've been telling us almost universally, is that they're
limiting their pace of starts as they look to match
production with demand. So that's a big piece of the
pie that we know is going to slow down in
(02:20):
the coming months. If you look at the inventory levels
in the new home market, we're at the highest since
two thousand and seven, and a lot of that is
under construction or completed inventory. So there's really no incentive
for builders to keep adding new supply until they start
to clear out some of that excess spec inventory.
Speaker 2 (02:36):
And how are they going to clear that out? What
incentives do they have for would be buyers.
Speaker 5 (02:41):
I think everybody understands at this point just how aggressive
the builders have been in their use of sales incentives.
You know, what they use is going to depend on
the buyer type. Typically, you'll see first time or entry
level home buyers take the mortgage rate buydown. That's the
predominant incentive out there in the market. But you do see,
you know, some buyers on the higher end will choose
(03:01):
to take some type of you know, options in the
design studio, maybe some structural options, or help with a
down payment or something like that. But primarily what we're
seeing is the use of mortgage rate buydowns. Is that's
really what's eating into builders' margins right now. We've heard
from a number of the builders during an earning saying
that they expect that incentives aren't only going to remain
(03:24):
the same, they think they're actually going to take up
a little bit higher in the second half of the year.
So we'll see how that plays out with rates coming
in a little bit over the last several weeks, but
certainly incentives are the thing to watch out for in
the second half of the builders.
Speaker 2 (03:38):
Well, and are those the high prices and the elevated
rates that are making home sales so difficult. Is it
pushing more people at all income levels to rent instead
of buy right now? Are they waiting it out?
Speaker 5 (03:51):
Yeah, certainly. You know, we've seen more demand on the
rental side of the business. You have rents starting to
moderate a little bit with some of the supply that's
come into the market. We had some data come out
recently on household formation and it was driven exclusively by
renner households. And as you mentioned, it's the rates and
it's the prices that are pushing people out of home ownership.
(04:13):
So you know, rates could come down a little bit.
We think it'll help the marginal buyer, but home prices
are still fifty percent higher than they were at the
end of twenty nineteen. So we think you really need
a combination of lower rates and maybe prices to come
down a little bit along with some income growth in
order to get the housing market moving a little bit better.
Speaker 2 (04:30):
And that goes for the existing home sales as well.
Same thing, the elevated prices, but they are seeing a
little more inventory come on the market though for existing homes, right, yeah,
So we.
Speaker 5 (04:41):
Think with the inventory that's come on the market, we're
up about twenty five percent year every year and now
we're within somewhere around ten percent of twenty nineteen levels.
We think that could help with volumes, but we think
that it's going to come at the expense of prices.
So home prices have already start to moderate on a
year of year pace. If you look at some of
the biggest markets in the country, we're already down your
(05:03):
year in terms of prices. So we think that'll continue
to play out where the existing home market will see
some volume gains, but you're gonna see prices come down
a little bit.
Speaker 2 (05:13):
The Fed's next policy meeting just a few weeks away,
Wall Street pretty much expecting policymakers to lower their benchmark
lending rate for the first time this year. But what
would that mean for housing and what would that mean
for Home Deep Bowl and Low's, which report their latest
earnings this coming week.
Speaker 5 (05:28):
Yeah, good question. I mean, all you have to do
is look at the builder stocks to see kind of
some of the enthusiasm that's out there in terms of
the potential for FED rate cut. What you have to
remember is though, that mortgage rates have probably largely already
priced in any reduction by the FED. So I wouldn't
expect to see a significantly leg lower mortgage rates just
(05:49):
from the FED cut. So, you know, mortgage rates have
come in over fifty basis points. We're at about six
and a half percent now compared to over seven just
back in you know, the beginning of July, so we've
certainly made some significant progress in terms of what that
means for the home improvement space in Home Depot and Lows.
(06:10):
You know, one of the big areas of concern has
been the weakness in big ticket discretionary spending, so think
to things like kitchens and bathroom models, flooring projects. These
are things that typically tend to be financed so with
rates having been as high as they are, we've seen
people put off those purchasing decisions, you know, so we
again we think just like it'll help home sales on
(06:32):
the margin, I think you'll see a little bit more
of refinancing activity with rates in the in the you know,
mid to low six percent range, which could on the
margin spur some of that big ticket spending. And you know,
when that does start to come back, we think that
some of the investments home Depot and Lows have made
over the last couple of years despite this market weakness,
(06:52):
will really put them in a good position for growth.
Speaker 2 (06:55):
Well, hell, let's hope for good news. New home construction
numbers for July out on Tuesday, existing home sales for
that same month on Thursday, Home Depot earnings on Tuesday,
Lows on Wednesday, our thanks to Drew Redding Bloomberg Intelligence
US home building analysts. We move next to more corporate
earnings coming this week from two of the nation's biggest retailers,
Walmart and Target. With inflation still a worry, are Americans
(07:19):
spending and are they spending at those stores? And have
those stores seen any impact so far from the Trump tariffs?
For all that and more. We're joined by Jennifer Bartash's
Bloomberg Intelligence senior analyst Retail, staples and packaged food. Well, Jen,
thank you, and I want to start with actually some
pretty good news that came out this past Friday from
the Commerce department. Retail sales advancing in July, help by
(07:42):
auto sales and all those Black Friday like sales at Amazon, Walmart, Target,
best Buy and others. Now that is good news, isn't it?
But what does it tell us about the consumer? Right now?
Speaker 6 (07:53):
It's overall good news with regards to the consumers are
willing to spend, but they're spending on those sales events.
And so what that really underscores is that that consumer
value proposition is so important for these retailers. People are
willing to spend, but they want deals. They want to
see prices that they think are good prices, and so
(08:15):
that's really the takeaway. And when you offer that compelling proposition,
they are responding. And so there's a little bit of
money out there. It's not necessarily going to help this
current quarter of earnings, but it should help next quarter
earnings for sure.
Speaker 2 (08:30):
Well, let's talk about this quarter earnings. The second earnings
Walmart was a big winner of all that to online spending,
also still blow out grocery sales double digit growth and
online sales. What are you expecting to see in its
second quarter results?
Speaker 6 (08:45):
What's interesting about Walmart is they have arguably the best
visibility into your mainstream American consumer than any other retailer.
They touch almost the entire population in the United States
as to some degree, and so what we're expecting to
see is just another strong quarter for Walmart. That value
proposition that I mentioned is something that drives people there.
(09:07):
But Walmart has been really good about execution, and so
they've been good about executing in terms of growing their marketplace,
in terms of off their offerings, improving their the quality
of their grocery, and continuing to grow market share there.
So it's a combination of execution as well as the
value proposition that they offer that really should drive some
(09:28):
strong results with regards to top lying growth and same
store sales.
Speaker 2 (09:32):
Now, aside from its food aisles, a lot of what
is sold at Walmart is imported, a lot of that
coming from China. What impact have the Trump tariffs had
on Walmart so far? And can it manage to limit
passing along those higher costs to shoppers or you know
or is it coming and we know it's coming.
Speaker 6 (09:49):
I think that there are going to be some costs
that go up for consumers. But the advantage that Walmart
has is that it is so big and that scale
is so large that it can help minimize the amount
that it does have to pass through to consumers, and
they can be very selective on which products it hits.
And so you know, when you're talking about especially general
(10:11):
merchandise or things like apparel, that's where the tariffs come
into much more play. But Walmart has that ability to
negotiate with their suppliers. They've had a very active program
for a long time in terms of you know, purchasing
manufactured in the USA goods in their home departments for example,
(10:31):
and things like that. So they've had long term efforts
in place to sort of mitigate where they're sourcing from.
And in the recent year or two they've really diversified
the sourcing of where they're getting goods from. So that
makes them a little it makes it a little bit
easier for them to offset that impact. But inevitably, there
will be some prices that have to go up and
(10:52):
that will ultimately impact consumers.
Speaker 2 (10:55):
Well, let's talk about the other side of the coin,
and that is Target, which has been struggling now for
couple of years, sales growth stagnating, It's facing a boycott
after scrapping DEI initiatives. Just last week, the Bank of
America downgraded the retailer. So what do you expect to
see in its earnings report this week?
Speaker 6 (11:12):
Very much like the first quarter, We're going to see
a little bit more divergence between Target and Walmart. And
Target simply has not yet gotten back to that cachet
that it once had with its consumers and its core
its core followers. Their digital sales are slowing, they have
(11:32):
a different approach to a marketplace which is much more
limited in scale. And importantly, we're seeing that some of
the partnerships that we're supposed to help drive growth coming
to an end. So the partnership that Walmart has with Alta,
for example, where they had Alta stores within within a
Target store, is coming to an end, and both retailers
(11:53):
are sort of going their separate ways. So you know,
those are the kinds of things where you know, I
think people are looking at Target and wondering where is
the future growth going to come from and you know
they can compete to a certain degree on price, but
they are much more exposed in terms of tariffs and
other pressures because of the merchandise mix that they sell.
Speaker 2 (12:16):
Our thanks to Jennifer bartashis Bloomberg Intelligence Senior Analyst, Retail,
staples and packaged food. Coming up on Bloomberg day Break Weekend,
we'll look at the challenges facing European banking consolidation plans.
That's ahead of an upcoming shareholder vote in Italy. I'm
Tom Busby and this is Bloomberg. This is Bloomberg day
(12:44):
Break Weekend, our global look ahead at the top stories
for investors in the coming week. I'm Tom Busby in
New York. Up later in our program we'll look ahead
to several key data points in Japan. But first, the
countdown is on in Italy to a deadline in a
potential takeover in the bank sector. Medio Banca's shareholders will
vote on its bid to take over wealth manager Banca Generali.
(13:06):
It's the latest and a string of potential deals which
could consolidate Europe's banking sector, but some remain opposed to
creating bigger financial institutions on the continent. For more, Let's
go to London and bring in Bloomberg Daybreak. Europe Banker
Stephen Carroll.
Speaker 3 (13:21):
Tom Italy has been at the heart of a wave
of attempted banking consolidation across Europe, and things are set
to heat up in the coming weeks. Despite encouragement from
the European Union, only a few of the potential deals
are sealing real progress towards completion. Italy's UNI Credit and
Spain's BBVA have launched attempts to buy rivals, only to
(13:41):
meet with sometimes bitter opposition from Berlin, Rome and Madrid.
Medio Banka's CEO, Alberto Nagel says national governments are standing
in the way of creating bigger banks in the EU.
His lender is facing an unsolicited takeover offer from rival
Monte Dupasci, which is supported by its largest shareholder, the government.
Nagel has repeatedly rejected the bit, which he calls totally inadequate,
(14:04):
and has in turn mented an acquisition effort for banker,
generally the wealth management units of the country's biggest insurer.
It gives the Medio Banker CEO a unique perspective on
this European wide issue. Here's what he had to say
about the situation when he spoke to Bloomberg earlier this month.
Speaker 7 (14:21):
Well, we are, as I said, delivering or over delivering
on our strategy. Our strategy is a strategy where we
are focusing more and more on wealth management and the
ib capital lighte on top. We have also worked at
banker gerial transactions.
Speaker 2 (14:38):
So for our.
Speaker 7 (14:39):
Shahoulder, according to our view, there is no match between
media banker Stendalon plus banker generally and the possibility to
be part of a group.
Speaker 8 (14:49):
How you know, biggest probability that mounte Paski actually you
know gets Media banker at the end of the day.
Speaker 7 (14:55):
Well, this is up to our shoolder. No, we are,
as I said, recommended to look carefully at the content
of Montepasti bit because financially it is a discount to
our market value, you know, as montepask is half of
our market cup. This transaction is consued where basically our
(15:17):
shareholders should get sixty percent of the combined entity but
not pay the premium. So this is something that honestly
a long term shoholder of Media banker should not accept.
Speaker 3 (15:29):
Medio Banker CEO Alberto Nagel there speaking to Bloomberg's Francy
in Laqua earlier this month. So what does the future
of the Italian lender look like and more broadly, what
does it tell us about the European banking landscape to discuss,
I'm joined by our senior finance reporter in Milan, Sonia Cerletti,
and by Bloomberg TV anchor Katie Coopter has been following
the story across the continent for US. Sonya t you
(15:50):
first ahead of this shareholder meeting in the coming days
from Medio Banker, what can you tell us about the
offer that they're making for Banker generally.
Speaker 8 (15:58):
Yes, as you think before, Italy banking sector is now
at the center of this fresh wave of merger and
acquisition activity that kicked off in early November, and at
the center of the action now there's Medio Banker, who's
seeking investor approval to go ahead with the bid for
Banker generally to basically fend off still takeover from rival
(16:22):
bank Monte de Passylciena nagal Is, the CEO of Media Banker,
is proposing Banker generally bid as a alternative to Montepasti
takeover offer and on August twenty one, there is a
key moment because investors of Medio Banker are called to
(16:43):
decide whether to go ahead with this bid or they
can reject the proposal in what would be a big
blow for Nagala. Another strategy to preserve the bank's independence
and secure is on a future at the helm of
the bank.
Speaker 2 (17:01):
What are the expectations ahead of that vote.
Speaker 8 (17:03):
The expectations are uncertain. The vote will be likely very tight.
We have seen that Nagala has before postponed the meeting
amy design that he wasn't able to get majority. I
want to remember that Medieavancan is the fifty percent plus
(17:23):
one of voting in favor of the bid to go ahead.
And then he has rescheduled the meeting after some shahoulders
changed happened, So maybe his eating so that he can
he cannot get it can get back. For sure, the
situation is delicate and if he will be able to
(17:47):
win or lose the meeting is still uncertain. But what
I want to say is that while the vote will
be a big green or a big blow for Nagel strategy,
Nagal attempts to fend off the attempt to fend off Montepaski.
Montepasci bid the final end game. The final battle will
(18:11):
be will happen in September when Montepaski will close his
offer on Medio Banker and from this results a lot
of things can change, not only for Madio Banka, but
probably for the whole land escape of Italian banking.
Speaker 3 (18:27):
Just to understand this, why is Nagos okay in to
review the monte Paski offer.
Speaker 8 (18:32):
Alberto Nagle, first of all, is the longestanding of Media Banker,
and he has emerged like this central figure in resisting
montepaski Is approach. I would say that's reluctant, it's rude
in a sort of combination of strategic and reputational factors.
For Nagal, Medior Banker's legacy and independence is a core priority.
(18:56):
He affirmed that the core activities of the two banks
are different, being Mountepasti mainly a retail bank, while Mediobank
is foxed on wealth and investment banking. For more, there
are questions around valuation and government. Nagel and is border
see the terms of Montepasky offer as the underwhelming and
(19:17):
potential disruptive So valuation is not it is not reflecting
the real value of the offer. And on the other side,
there is a there is a there are issues about governance.
According to Nagal in Italy, nothing is simple and all
of these m and a sagay is like an intricate
(19:39):
chess game where there are across shareholders competing alliances overlapping interests.
That means that every move verberates through the financial system.
In particular on this bid, what we what we see
Mediobank's largest shareholders are billionaires taken Francisco, Costa, Girone and
they'll bet your families. They also have major stakes in
(20:03):
Montepasti who's doing a bid on a media banker? And
generally which is which is a media bank as main
as man as shohoulders too, So there are a lot
of different interest and nature is a booking a conflict
of interest too, and so this is another matter of opposition.
(20:25):
Let's say that the history shows that any will still
be the see the reluctance of the CEO of the
target company in agreeing on the bit.
Speaker 3 (20:36):
Yeah, I mean, it's an absolutely fascinating web of cross shareholdings.
As he describes on you let's seem oute that I
want to bring in Chrity Coupe, who's been listening into
the conversation as well, I mean crazy, you've been across
the banking story across Europe. Just talk to us about
the motivation behind what's driving this wave of consolidation.
Speaker 9 (20:52):
Well, it's a fascinating story because in some ways it's
been in the work since the inception of the EU. Frankly,
and this idea that you want to have a coordinated bid,
you want to build out a Capital markets UNI, you
want to bring out a banking union as well, and
this kind of consolidation is seen as an intermediary step,
or even just a first step towards that ultimate goal.
There's a couple of other factors here, though, in that Europe,
(21:15):
especially in recent years, has really been trying to get
more competitive and take over market share internationally from some
of the more US kind of focused banks, but also
some of the growing competition in Asia as well. So
that's another piece of it, and the thinking there is
you have to be stronger at home to be able
to do that kind of business abroad. The third piece
of this is kind of a little bit of a
(21:37):
hangover when it comes to the experience a lot of
European banks have had from COVID and also from the
GFC and arguably the sovereign debt crisis as well. This
idea that if you are already operating in different markets,
so a hypothetical for unicreditor for BABVA, where you're operating
your home country of Italy or Spain, but also of
operations in say the UK or has, say in Germany,
(21:59):
or name your country. In times of recession, when the
government needs to take active steps to protect the banking
sector of that individual country, how easy is it for
some of those banks that belong to a different home
country to pull out those funds or to inject that
kind of liquidity. And there have been concerns in those
previous crises of who that loyalty kind of belongs to
(22:22):
and whether being a European bank ultimately means that you
are a Spanish or an Italian or a German bank.
Speaker 3 (22:28):
First talk to us about some of the other We've
reflected on some of the Italian moves there with Sonia,
but talks about some of the other big deals that
we're watching elsewhere in Europe. I know that BBVA and
Sabadada is one that you've been particularly monitoring closely.
Speaker 9 (22:40):
I'm fascinated by this story because I think it's such
a crucial one. Consolidation on the surface seems like such
a normal natural thing to pursue, especially as you get larger,
and especially as some of these banking behemoths really pursue
that kind of scale. I think what gets missed quite
often in the argument that the likes of Bank of
Sabadel or arguably other takeover acquisition targets are making is
(23:02):
simply this idea that the bigger you get, the harder
it is to service you know, the local bakery that
has a loan and that's been working with the local
branch of say Sabadel for centuries or decades or whatever.
And that's the concern that is ultimately showing up, and
a lot of these big banks that are under major
pressure to build out the profitability lean into digital banking.
(23:23):
It also not only influences or kind of drives the
question of how can they serve smaller clients, your local clients,
but also how they can employ the people in certain regions.
And that's really what has been a consistent sticking point
in some of these consolidation conversations.
Speaker 3 (23:40):
Talk to us about how this is playing out between
national capitals in Europe and the European Union because the EUM,
and if you read the Drageo or the letter reports,
you know, banking consolidation, capital markets scene in deeper capital markets,
all things everyone seems really happy about until you get
some of the national governments involved, who say, we like
the idea, but in this particular case, we don't think
that it's appropriate for the market. How much of attention
(24:02):
is there between those two sides, Oh.
Speaker 9 (24:04):
My gosh, attention couldn't be more tense. Frankly, it's fascinating
because it also goes back to this question of who
is actually in charge of a European country. Is it
the local government or is it the folks over in
Brussels for example. And this is something you see a
tenuous conversation you see in any industry. Really, it's not
just coming up in banking consolidation. You've seen it in
(24:25):
things like foreign policy narratives. You've seen it in defense rearmament.
You've seen it in kind of local investment in things
like infrastructure. Whose burden is that to decide those policies?
Not to mention regulation as well. Things like tech regulation
have largely been driven out of Brussels, but there have
been local conversations about that as well. From a banking standpoint, again,
this is something where Brussels is thinking about Europe as
(24:47):
a whole and how it can compete on the international
stage as a whole, what it can and the argument
that a lot of local governments are making, especially as
politics starts to drive the conversation, is are you thinking
about the peace employed in a certain region of a
certain country that could be driving a national narrative or
a national shift or a change in local regulation. And
(25:08):
that's where the tension comes between what you're thinking of
in Brussels versus Madrid or Rome or Paris.
Speaker 2 (25:13):
Okay, Chrity go. Thank you very much for talking us
through that.
Speaker 3 (25:16):
And to our senior finance supporter in Milan, Sonia Serletti,
helping us to look ahead to that key shareholder meeting
happening in the coming days.
Speaker 2 (25:24):
I'm Stephen Carolyn London.
Speaker 3 (25:26):
You can catch us every weekday morning here for Bloomberg
Daybreak here at beginning at six.
Speaker 2 (25:29):
Am in London and one am on Wall Street. Tom.
Thank you, Steven and coming up on Bloomberg day Break weekend,
we'll check in on the health of the Japanese economy
with the release of several key data points. I'm Tom
Busby and this is Bloomberg. This is Bloomberg day Break Weekend,
(25:56):
our global look ahead at the top stories for investors
in the coming week. I'm Tom in New York. We
turn next to Japan and the release this week of
several key data points, including CPI, PMI surveys and trade figures.
Bloomberg's Doug Krisner checks in on the health of the
Japanese economy.
Speaker 4 (26:13):
Tom. As you know, Japan is heavily reliant on exports
to the US, and as such, companies in the country
have been struggling with the effects of US tariff policy,
and judging by the recent record highs for the Japanese
equity market, those dark clouds seem to be lifting. For
a closer look, I'm joined by Taro Komurahi, is japan
economist for Bloomberg Economics, joining from our studios in the
(26:37):
Japanese capital. Taro, thank you so much for making time
to chat with me. Before we get into some of
the details, can you give me a sense of how
well the economy is performing, especially in light of the
US tariffs.
Speaker 10 (26:52):
Of course, thanks for having me on. Actually the US tarifs,
although Japanese government was able to lower it and the
threatened rate, particularly the lowering the sectoral tariff to the
auto was a big relief for markets. They reduced from
twenty five percent to fifteen percent in general, but still
(27:14):
that was a lot higher than previously levied. And obviously
the auto sector is a key sector for Japan. But
that said, so far the damage is likely to be muted.
I think there are several reasons. Of course, the Japanese
carmakers are experienced in dealing with many jolts, including the
(27:36):
trade friction with the United States. They had it back
in nineteen nineties and previous administration. Also, another key factor
is a week y and it's traded around one forty
eight one fifty per dollar, and this is far weaker
than the surveyed exporters break even exchange, which is tallied
(28:01):
around one thirty. So there's a buffer for exporters to
ship their products to the US and still securing the profits.
So therefore it's a profit hit for many exporters, particularly
for automakers. But still it doesn't necessarily mean that they
have to slam the brakes on their production line.
Speaker 4 (28:23):
So I'm curious about how fiscal policy may enter the
story here. Because we had an election recently that created
a bit of upheaval. One of the things that people
began addressing was this issue of more government spending. Is
that likely to be the case? Do you think will
that happen?
Speaker 10 (28:39):
Exactly? You need to watch carefully on the developments on
Japanese political landscape, and as you mentioned, it's obvious that
the government is likely to be more fiscally expansionary. The
current Prime Minister Ishiba is known as fiscal restraint or
he cares about fiscal soundness. That said, he lost the election,
(29:02):
and even if he stays on, he needs to I
think expand fiscal stimulus in order to withdraw concession from
the opposition parties. And if he steps down, that means
further expansionary pressure to fiscal policy, because any potential candidate
for next prime minister is likely to be more having
(29:24):
affinity for more expansion than a current Ishiba. So therefore,
going forward towards the end of the year or the
next year, I think the fiscal stimulus is likely to
be announced, and that could bolster the domestic demand and
probably support the equity prices.
Speaker 4 (29:44):
As you well know, inflation in Japan has been well
above the boj's target for some time. Now, we have
a CPI print in the week ahead, give me your
sense of what's happening on the price side and what
may follow when it comes to the next move from
the Bank of Japan.
Speaker 10 (30:00):
Exactly. So, inflation is very hot. If you have an
image that the Japan is the deflationary country, it's it's
already in the history book. It's Japan is now in inflation.
And as expect, the July CPI print will still over
over three percent headline three point zero and core core
(30:23):
CPI remain heated around three point four percent, and the
downside risks. That suggests is Japan is probably facing a
staguflationary pressure because typical conditions are met, inflation is surging,
the government is likely to be more phiscally expansionary, and
(30:46):
the boj it's getting actually taking a more concious approach
towards the next rate hike. I expect the next rate
hike is going to happen in October. That said, the
Bay based on their communication, the Bank of Japan emphasizes
they will take a risk management approach. So therefore, before that,
(31:10):
the BOJ was just raising rates if they judge the
inflation is solid. But they're starting to have a telegraphing
a signal that, you know, even the inflation is picking up,
it's going to depend on the situation. And I reckon
behind that stance, there's a political uncertainty going on. You know,
(31:31):
the BOJ doesn't want to make any waves. When political waves,
I mean when the government is trying to expand their
fiscal stimulus, it doesn't mesh with the boj's hiking rates.
So I think the BOJ is reading the circumstances and
trying to judge when the political situation is conducive for
(31:52):
hiking rates. So therefore my baseline is October. But I
think the risk is skewed towards the delayed size, So
that means basically the j is turning a little bit dobvish.
That will add to inflationary pressure. So probably Japan is
edging into the situation where the FED or ECB had
experienced a few years ago.
Speaker 4 (32:12):
Charles, maybe you can give me a sense of the
labor market as well, not just with the employment picture
but also on the wage side. Are things holding up
reasonably well right now?
Speaker 10 (32:22):
I think we just are also picking up sharply, adding
onto inflationary pressure. As you know, Japan is an Asian population,
and the labor shortage is serious. If you come to
Japan and come to restaurants, you know how the shortage
of staffs are going on. You need to wait many
minutes for your plate to come. That means the corporates
(32:43):
are very willing to hike rates in order to retain
workers or obtain workers. And I think that kind of
cycle won't stop as long as Japanese structural labor shortages
will be solved, and I don't think that's going to
happen in coming a few years. So therefore the recent
big movements that the sharp wage raises in Japan will continue,
(33:06):
and that will feed into the inflation, and so the
bus needs to be really cautious.
Speaker 4 (33:11):
So having said that, then how would you characterize the
health of the Japanese consumer right now? Giving everything that
we're talking about in terms of employment and wage growth,
how are consumers in Japan feeling?
Speaker 10 (33:23):
I think you need to think about two types of
consumers which are in opposite directions. One is the younger generation.
They're enjoying the recent surges and wages because they're going
to work longer. The corporates are willing to invest in
(33:44):
those young workers and so therefore, actually their consumption is
picking up, and we see in the data for leisure
or entertainment related goods or services are picking up, and
also their prices are also picking up a push from
a demand side. That said, now, when you think about
(34:04):
the older generation, like older than their fifties or sixties, pensioners,
of course pensioners are not enjoying the wage rises, and
also in Japanese pension system, there the pensions they receive
by design won't pick up as much as inflation does,
so therefore they are struggling to make their end smeets
(34:28):
in their daily lives, particularly the food prices. The rise
prices are rising sharp sharper than the general inflation. And
also the workers in their fifties or forties are not
enjoying wage raises as much as the younger generation does.
So I think there's a dual situation going on. For youth,
the consumption is strong, but for older generation, their sentiment
(34:53):
is damped by inflation.
Speaker 4 (34:55):
Taro, thank you so much for joining us. Taro Komora
is senior Japan economist for Bloomberg Economics. So now we
have a better understanding of the Japanese consumer, let's broaden
things out a bit. Matthew Driver is the executive vice
president for services for the apack at MasterCard. He's on
the line from Sydney. Matthew, thank you so much for
making time to chat with me. I know consumers across
(35:18):
the Asia Pacific are as varied as the economies themselves. Japan,
for example, is dealing with levels of inflation it hasn't
seen in decades. Other countries, as we know, are dealing
with very, very different dynamics. But I'm hoping you can
speak to the overall level of consumer spending that you're
seeing across the apac What is it right now?
Speaker 7 (35:39):
Yeah?
Speaker 11 (35:39):
Sure, Look, I think and thanks for hosting and having
me on the show. Look, despite the macro econ of
a concertainty, consumer spending across APAK remains healthy. I think
that's driven by a couple of factors that are important.
You've really got low unemployment, You've had a decent amount
of real wage growth, and that's really helped right to
(36:01):
essentially and sure that you've got demand across segments. I
think our Economics Institute forecast.
Speaker 5 (36:07):
Steady GDP growth.
Speaker 11 (36:09):
So what we are seeing is broad based. You know,
is the customer is pretty resilient. There's been a little
bit of stress in some places as rates have been
higher for longer, but you have to think about there
are also some longer term drivers that are going to
be quite positive. Right You've seen interest rates are starting
to come down number one. Number twos, You've got some
(36:30):
easing of fuel prices. That's point number two. And point
number three is you know, goods continue to be cheap.
China's leaning into the region and so that's helping, you know,
on the value side as well.
Speaker 4 (36:42):
Do you have a sense of whether US tariff policy
has adversely impacted consumer sentiment in the region.
Speaker 11 (36:50):
Look, I think that you know, we're really trying to
think through you know, the impact of you know, towerists.
I think, look, it's a complicated environment, but AGEA specific
continues to navigate that there are going to be some
shaping or some some some alterations and adjustments. But also
(37:10):
I think while those dynamics post some challenges. They also
underscore that the region is very resilient and adaptable, right.
I think that post COVID, some of the supply chains
have become pretty flexible. That's been very very important. And
while terriffs have raised input, you know, import costs to
a certain degree, more price sensitive markets, there's been you know,
(37:33):
trying to I guess adjust, you know, consumer spending has
been a little bit of value shifting, like we talked about.
But what we're really trying to do is make sure
that you know, we're helping our customers navigate that with
with insights and intelligence. So I think that despite you know,
some of that uncertainty, people are probably putting off some
of the longer term transactions, right, They're really focusing on
(37:58):
how do they ensure that they're driving value today, shifting
the patterns of spend a little bit. And so with
that in mind, and the fact, as I mentioned earlier,
we are seeing pretty steady demand and that's really reflecting
the resilience of the consumer overall.
Speaker 4 (38:14):
Matthew, thank you so much for making time to chat
with me. Matthew Driver is executive vice president of Services
for the APAC at MasterCard, and I'm Doug Christner. You
can catch us weekdays for the Daybreak Asia podcast. It's
available wherever you get your podcast.
Speaker 2 (38:29):
Tom. Thank you Doug. And that does it for this
edition of Bloomberg day Break Weekend. Join us again Monday
morning at five am Wall Street Time for the latest
on markets overseas and the news you need to start
your day. I'm Tom Buzzby. Stay with us. Top stories
and global business headlines are coming up right now
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