July 18, 2025 • 39 mins
Bloomberg Daybreak Weekend with 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 earnings from Tesla.
- In the UK – a look ahead to the next ECB monetary policy decision.
- In Asia – a look at ahead to Japan’s upper house election.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our Daybreak
actors all around the world. Straight Ahead on the program,
we'll look at upcoming housing data, along with earnings from
eb Giant Tesla and the latest on its CEO Elon Musk.
I'm Tom Busby in New York.
Speaker 3 (00:26):
I'm Karen Hecke here in London, where we're asking what
the European Central Bank we'll do next.
Speaker 4 (00:32):
I'm dek Krisner taking a look at the upcoming national
election in Japan.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three zero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Sirius
XM one twenty one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business App.
Speaker 5 (01:02):
Well, good day to you.
Speaker 2 (01:03):
I'm Tom Busby, and we begin today's program with some
key US housing data as we wrap up the critical
spring home buying season. Existing home sales for June out
on Wednesday. New home sales for that same month on Thursday,
for more on what to expect the impact of sky
high home prices, elevated mortgage rates arise in existing home inventories,
(01:24):
and the Trump tariffs and all that. We're joined by
Drew Redding, Bloomberg Intelligence US home building Analysts. Well, Drew,
thanks so much for being here. I want to start
with what you're expecting to see in these reports, and
then we'll break down what's behind those numbers.
Speaker 6 (01:38):
Sure, so let's start on the existing home side. Obviously,
the resale market has been stuck in the mud. You know,
we're expecting sales will be down modestly on a sequential basis,
but you know, should be up a little bit from
last year's three point nine million annualized rate. Keep in
mind that was the lowest pace in about fifteen years,
so some modest improvement, but the market's still down over
(01:59):
twenty sent from more normalized levels. We've kind of been
hovering around this four million annualized rate of sales for
a while now. But it does appear to us that,
at least from a volume perspective, the market as troth.
You have to realize there's some level of underlying demand
out there. In the market given people have to move
for one reason or another, and you do you think
you'll see a little bit of growth this year and
(02:21):
perhaps stronger growth next year off that low base. Now
it's a little bit of a different story in the
new home market. Sales are expected to be down from
last year. Some of the higher frequency data we've seen
on purchase application showed a little bit of improvement, so
there are some conflicting signals. We've also been hovering in
a range for a part of two years now. But
(02:41):
what we do know is that builders are having to
fight harder for every sale, and they continue to discount
heavily to maintain their sales space. There's some evidence that
these incentives that they've been using or having diminishing returns,
they're just not as effective at a certain point. So
you know, builders are turning the base price. We've heard
that from Lennar and KB Home, so I think that's
(03:02):
probably the path forward.
Speaker 2 (03:03):
Well, I think that's the biggest sticking point is the price.
The price not only on new homes of course, but
on existing homes. They are still rising. The growth is
starting to slow though, correct.
Speaker 6 (03:13):
Yeah, that's a great point, and the resale market, prices
are definitely still climbing. The latest data we've seen from
Redfin showed about a two percent increase in mid July,
but as you mentioned, prices are rising at a slower pace.
Part of that reflects, you know, the obvious shift to
more of a buyer's market where sellers are getting a
little bit more realistic in terms of listing prices. So
(03:34):
it has started to help the monthly payment on the margins,
you know, like we've seen with inventories, the stories really
at the local level where we have a lot of
markets across the country that are actually already seeing price decline.
So you know, you talk about markets in Florida, like Tampa,
also Atlanta, al So it really varies by market, and
it's going to be dependent on supply. You know. In
(03:56):
the new home market, we've already seen prices come down
more significantly and one of the reasons obviously builders have
been aggressive in the use of incentives, but they're turning
more to base price cuts as well. And if you
think about, you know, how builders account for incentives, it's
reflected as a reduction in the average selling price, so
to the extent that inventory continues to puddle up, they
(04:17):
keep their foot on the gas in terms of incentives.
We think you see further net pricing pressure in the
new home market as well.
Speaker 2 (04:23):
And those inventories of new homes the highest in almost
two decades, right.
Speaker 6 (04:28):
Yeah, it's certainly an interesting dynamic right now. Remember over
the last couple of years, the lack of for sale
inventory in the existing home market had been a key
part of the investment thesis for home building investors. You know,
you had a lack of options, so it helped the
funnel buyers over to the new home market, who were
also able to help with the monthly payment. But you know,
as you mentioned, that's that tailwind has turned into a
(04:49):
headwind as more listings come onto the market and homes
are sitting for longer. On the resale side of things,
inventories are about thirty percent from last year, and you know,
we're still ten percent below twenty nineteen. But looking at
the national data, I think really blurs the picture. At
this point. We now have ten states where resale supply
(05:09):
is higher than it was in twenty nineteen, and a
lot of that's in some important markets for the builders,
think of Florida, Texas, markets out west like Colorado and
Arizona certainly a big risk out there, And as you mentioned,
it's not just resale market, but it's also in the
new home market where completed inventories have really risen. And
the reason for that is over the last couple of years,
(05:31):
when there wasn't supply in the resale market, builders stepped
in to fill that void, so they got more aggressive
in their use of specs. Now that build an inventory
was met with a rise in rates and a drop
in demand. So now they're left sitting with all that
inventory on their books. I think we ultimately that leads
to is a pullback in production, so fewer housing starts.
(05:52):
We're starting to see it on the building from its side,
so it's something that they're going to have to work
through before they start to put more more units in
the got.
Speaker 5 (06:00):
To clear out that inventory.
Speaker 2 (06:02):
Let's talk about interest rates, So you just mentioned still
stubbornly near seven percent. You know, that's probably why mortgage
applications just last week took a tumble down ten percent.
Now the Fed meets again about ten days from now,
no indication the Central Bank is ready to lower those
benchmark lending rates. So how big a concern are rates
to the housing market.
Speaker 6 (06:23):
Right now, We've talked about one piece, which is home prices,
and the other important piece is obviously where the thirty
year rate is. Right now, we're about six point eight percent.
We had seen a little bit of improvement, but now
maybe some concerns reigniting with inflation pushing things back up.
I think one of the main issues with rates is
(06:44):
not only the absolute level, but just the volatility. You know.
I think if we could get rates into the low
six high five percent range for more of an extended
period of time, it gives you know, home shoppers a
little bit more comfort of what their payment might be
as they're going through the application process. So rates are
certainly a very important piece of the puzzle. And you know,
there's not a whole lot of indication that things are
(07:07):
going to get significantly lower anytime soon.
Speaker 5 (07:10):
Oh boy, it's a lot to take.
Speaker 2 (07:11):
In June, existing home sales out on Wednesday, new home
sales for that same month on Thursday. Our thanks to
Drew Redding, Bloomberg Intelligence US home building analyst. We move
now to earnings at Tesla. It's out with second quarter
results this coming Wednesday. Has the ev maker bounced back
from a troubling first quarter. What has CEO Elon Musk's
(07:32):
renewed focus on the company meant after he left his
Trump Administration cost cutting duties, and what will the pending
rollback of clean energy tax credits mean for the company.
For more on what to expect, we're joined by Steve Mann,
Bloomberg Intelligence Global Autos and Industrials Research Manager. Well, Steve,
thank you so much for joining us. After a disappointing
(07:53):
first quarter results. Will there be good news in Tesla's
upcoming second quarter report?
Speaker 7 (07:58):
Yeah, I think the vestor will be more focused on
what Elon must is going to talk about in the
remainder of the year and beyond. In terms of earnings,
we actually expected to report in line with consensus, but
a few things that are on investor's mind, like you know,
the Robotaxi, like the new models that they're rolling out
(08:20):
they're planning to roll out, and even Elon himself, you
know he's tweeted a few things around politics. You know
what does he thinking around that and how it's going
to impact the company.
Speaker 2 (08:30):
Let's start with those models. Well, the Model three is
still the bread and butter for revenue, right, But how
about the revamped model Why Juniper Suv. What does that mean?
Speaker 7 (08:40):
The ramp up has been going fairly well. It probably
disappointed some investors that they didn't ramp up as fast
as they thought, but it seems like the second quarter
it came in nicely. Is some initial data on China sales,
which is right now is probably like close to forty
to fifty percent of their sales now. They're also planning
(09:02):
to launch an extended version, a longer version of the
Model Y in China, and I think that's going to
resonate with the clients over there fairly well.
Speaker 2 (09:12):
How does it compete against the byds and the Cherries
and the other very very low cost Chinese rivals.
Speaker 7 (09:19):
Yeah, it's tough. Launching FSD full self driving in China
earlier this year will help, But BYD did cut prices
quite a bit early in the year by a magnitude
of thirty percent, and Tesla it doesn't want to play
in that low cost, low price market. I think they're
(09:40):
going to be medium price to high price market, and
I think launching the extended version will actually help drive
sales for the company over there into next year.
Speaker 2 (09:51):
Now, last month you mentioned this elon Musk rolled out
as long delayed robotaxi unit in Austin, Texas. How far
away is that service really for making any kind of
on the company.
Speaker 7 (10:01):
It's a pretty exciting development. He's been talking about it
for a while. It's it's finally here. It's it's still
a slow go. I think he's very focused on safety,
not a surprise, and and that's where he should be
focused on to make sure the long term reputation of
that business stays positive. And we think, you know, no
(10:24):
meaningful revenue or profit in the next couple of years
is probably going to come through in twenty twenty seven,
so we haven't baked in that that business as a
meaningful contributor to to the bottom line. But it's a
it's a big market, so there's a number of players,
Waymo being probably the largest at the moment. But I
(10:45):
think the market's going to grow to a point where
he's gonna be able to absorb a new competition like
Tesla and even even Uber like. Uber announced that they're
partnering with Lucid to develop automous vehicles for their robotaxi business.
Speaker 2 (11:01):
You mentioned something earlier, and that is safety concerns, especially
with the full self driving. I mean they've had quite
a few problems, a lot of litigation.
Speaker 7 (11:11):
I would say that's kind of normal mode of operation.
I think there will be some safety concerns, there will
be accidents. I think the investors should be aware. No
engineering feat like this goes smoothly, so it's going to
have some hiccups. So that's why it's very important for
(11:32):
not just Tesla, but weimol to really hone in on
safety and making sure the consumer, the users of ROBOTAXI,
feels confident with this service.
Speaker 2 (11:44):
Now I want to talk about something I think that
the shareholders are going to be very interested in what
Elon Musk has to say, and that's the expiration of
the seventy five hundred dollars EV tax credits. That deadline
is coming soon September thirtieth. Now we know how Elon
must react to that Trump bill that removes those clean energies,
and it was not pretty. How will Tesla respond, How
(12:05):
will the company respond?
Speaker 7 (12:07):
It's a double edgh sword. I think on the surface
it is negative. It is negative because obviously they have
generated quite a bit of revenue and profit from the
selling these credits. If you look on the bottom line,
it's minimal. It's probably like five percent, maybe less than
five percent of profits. So it's going to have an
(12:30):
impact on earnings definitely in the fourth quarter and well
into the next year.
Speaker 5 (12:36):
Well, a lot to look forward to.
Speaker 2 (12:37):
Tesla Q two earnings out this Wednesday after Wall Street's
closing bell Our thanks to Steve Man, Bloomberg Intelligence Global
Autos and Industrials Research Manager, and coming up on Bloomberg
day Break weekend, we'll look ahead to the next monetary
policy decision from the European Central Bank. I'm Tom Busby
and this is Bloomberg. This is Bloomberg day Break weekend,
(13:08):
our global look ahead at the top stories for investors
in the coming week.
Speaker 5 (13:12):
I'm Tom Buzzby in New York.
Speaker 2 (13:14):
Up later in our program, we look ahead as Japanese
citizens head to the polls for an Upper House election.
But first europe Central bankers will vote on their next
move when it comes to interest rates. The Governing Council
decision comes at a time of heightened trade tensions fueled
by the back and forth with the US. How will
policymakers respond For more Let's go to London and bring
(13:34):
in Bloomberg daybreak. Euro banker Caroline hepger.
Speaker 3 (13:38):
Tom the Bundesbank president and DCB policymaker Joakim Nagel has
urged caution over the European Central Bank's next move on
interest rates, telling a newspaper that it requires a steady hand.
His comments come as policymakers have cut rates eight times
between June twenty twenty four and June twenty twenty five,
(13:59):
down to two percent. Economies and markets are now betting
on a pause in July. The final release of EU
Area inflation for June also confirmed that the headline measure
accelerated to two percent year on year from one point
nine percent in the previous month, but still fairly well
anchored in terms of inflation in Europe. So the focus
is also going to be on the ECB September meeting
(14:22):
when we get new ECB economic projections, and that may
give officials more clarity on the economic backdrop. But with
US President Donald Trump's on again, off again tariff policy
clouding the outlook, Nagel says that the impact on inflation
is extremely uncertain and in Europe, member states are urging
(14:43):
the Council to do more to support the economy. French
Premier frostwy Beiru said his country's facing the same challenges
as the US, but without the strong dollar that he
says gives the Federal Reserve the option to create money
to fuel quote optimism in the economy. It's an issue,
France's finance Minister Eric Lombard outlined, speaking to Primpaks and
(15:06):
Edward's critique Cup and Mark Cardmore.
Speaker 8 (15:08):
France as an issue of a large public debt and
two large public deficit, and we are tackling the issue,
I believe very seriously. The plan is a plan of
forty four billion euro of savings and revenue increases. Forty
four billion euro that will bring our deficit below the
(15:31):
five percent threshold next year to four point six percent,
and we are aiming at a deficit below three percent
in twenty twenty nine. The bulk of the plan is
to cut public spending. There are thirty billion of savings
of cuts in public spending, whether for the state of
(15:54):
a social security, which is absolutely important but manageable. There
will be ten percent of revenue increases and four billion
more because French people will have to work more, two
days more, because we will cut to making holiday next
year and the years after. So it's a very easerious plan.
(16:16):
Forty four billion euro okay.
Speaker 9 (16:18):
And you think that this is enough to reassure investors,
What about getting the support of all of the lawmakers
in France, because that seems to be very difficult. You'll
need the support of a number of parties. Which parties
are you going to talk to to try and get support?
Here are the socialists at the top of your list,
because I think the far right and the far left
(16:39):
have already found serious problems with this budget plan.
Speaker 7 (16:43):
Well.
Speaker 8 (16:43):
For first, let me remind you that with the same
parliament we had an approval for the twenty twenty five
budget which is currently being implemented, which is already a
budget which is a very serious budget bringing down the deficit.
We will talk to all parties because it is an
issue of national interest. We believe it is the best
(17:04):
interest of France to put its public finance right before
the next presidential election of twenty twenty seven, and we
will talk to all parties. Having said that, the first
reaction of opposition parties is quite normal because it's a
huge plan. So the first reaction is negative. We will explain,
we will discuss we will improve the plan and obviously
(17:26):
there are probably more possibilities to reach an approval with
the Socialist Party. They are still a party in the opposition,
but they allowed the budget to pass for twenty twenty
five and if we have a fair discussion with them,
and we will have a fair discussion with the Socialist Party,
(17:47):
hopefully they can support the government for the budget. But
again we will talk to all parties and we hope
to have wider support because again it's an issue of
national interest.
Speaker 10 (18:01):
Eric, good Morning. Part of the plan is to raise
revenues through selling selling down stakes in companies without losing influence. Apparently,
what kind of sectors do you expect to see those
kind of revenue gains? Are there any sectors off limits
for selling down stakes and how much do you expect
to raise through that?
Speaker 8 (18:19):
Well, obviously, you know the French state owns many companies,
some of which are listed, so I won't be very
talkative on that point. So we are working on it. Obviously,
the large public sector companies like La post or like
EEDF are not on the plane, but there are many
(18:41):
options and we will work on it ultimately.
Speaker 10 (18:44):
The investor community, I think the initial reaction is not
a lot of faith that the trajectory of this budget
plan and the governments is much better than it was,
you know, six months or a year ago. And I
think there's a lot of worry about the government again
Will will kind of struggle to get the budget passed
and will kind of suffer on that. But we saw
(19:06):
last year the investors move on. Are you more worried
about how the investor reaction this time or do you
not think that we're yet at a critical period for
investor pressure to cand of really force something to get done.
Speaker 8 (19:16):
I'm not worried, but thank you to give me not
part need to talk to them. I want first to
reassure them on the twenty twenty five budget execution, because
you know, public finance is something which is very operasional.
We put a budget for this year cutting the deficit
to five point four percent, and we follow the budget
(19:37):
execution on a monthly basis. I gather all minister's General
secretary every month, and I can tell you beginning of July,
a middle of July, while we are today that we
are totally online in the review of spending. We are
on plan on spending after I must say ten billion
cuts that we did in the first quarter in the
(19:58):
second quarter, but after ooskuts we are totally on NINER
and on the revenue where the vty income tax, corporate
tax we are also online. So we are monitoring the
execution of twenty twenty five very closely. We have a
very ambitious target for twenty twenty six. I'm confident it
will be approved, it will be executed, and that France
(20:20):
will put itself back on track, which is absolutely key
in order to play our role in Europe and.
Speaker 5 (20:26):
In the world.
Speaker 3 (20:27):
That was the French Finance Minister Eric Lombard there speaking
to Blombergs and Edward's critique cup To and Mark Cudmore.
The plight of France and other European countries in similar
positions will be on the minds of policymakers as they
make a decision about the ECB's immediate rate path in
the days ahead. It's something I've been discussing with Bloomberg's
ECB reporter Jana Randall. Yana, France's situation is one all
(20:53):
too familiar to EU member states. High debt and stalling growth.
How can the EU mitigate.
Speaker 11 (21:01):
Well, Mostly it's France's responsibility right, passing a budget that
puts the government on a path towards sustainable public finances,
and of course it has presented plans on how to
narrow the deficit next year, which mainly look at austerity
measures including freezing welfare pensions as well and acting to
(21:22):
public holidays. As a matter of fact, whether that will
do the trick, whether that'll fly we of course I'll
remember what happened in France at the start of the year.
We won't know until September because that's when lawmakers come
back and will properly engage and vote on This debate
surely will also be colored by the outcome or the
(21:42):
state of trade negotiations, because that affects growth in France
but also across the region. And that's of course where
the EU then comes in, because it's up to the
EU to engage with the US on trade. Good deal
has the potential to live confidence, thus demand investment and spending,
consumer spending across Frants but also across the region. And yeah,
(22:04):
I don't need to tell you what a bad deal
will do.
Speaker 3 (22:07):
But it's the French Prime minister writer to ask for
interest rate cuts in the near future.
Speaker 11 (22:12):
Then I find it always difficult when politicians tell central
bankers what to do, especially because central bankers are independent
for a reason, because they need to be, you know,
keeping their cool when when maybe tensions and a sentiment
heats up and passions heat up in political decision making.
(22:32):
And of course we can see what is happening in
the US currently with the federal reserves. The Prime Minister's
motivation is easily explained, and if you're naughty, you can
you can say it's very much in the same spirit
as the arguments that the president in the US makes
low barring costs for the government at a time when
(22:53):
dead levels are high and a lot of money is
needed to service that debt. Right, so low boring costs
help the government deal with its fiscal mess. If you
look a little bit back in the past, we've seen
similar voices, similar initiatives in Italy increase when those countries
were in the spotlight of markets. Well as for France,
(23:14):
you know, I wouldn't make too much out of it
in terms of whether the youc be swayed by those
calls or not. I really would would see it more
as a sense of a sign of desperation from from
the French you know, realizing that something is going really
really wrong with their budget.
Speaker 3 (23:30):
Yeah, absolutely, and perhaps can't be compared to the sort
of relentless pressure that President Trump has put onto your
own power that we've seen repeatedly. But look, we might
not get an interest rate cut from the ECB this
time round. Over all, though, how fast our interest rates
expected to continue coming down in the months ahead, given
(23:52):
EU inflation that does look at the moment reasonably tamed.
What is your view now on the path of interest rates.
Speaker 11 (24:00):
We're not expecting anything for the upcoming meeting, and as
as far as September is concerned, that is still very
much in play. Economists expect another rate cut in September. Others,
you know, the majority, I should say, expect another cut.
Others say the ECB is done or you know, might
(24:22):
wait a little bit longer to deliver it. It essentially
all hinges on some signals on how how trade negotiations
are going, uh, the implications they will have, or the
implications any result will have. And September in that sense
is a good month because the ECB will get another
(24:43):
fresh round of economic forecasts, so another look at growth
and inflation prospects for the Eurozone in September, so it
would be a good month to make up their minds. Equally,
if they still can't be sure and things are kind
of cod sting along, they might write it a little longer.
So overall, one more rate cut is more or less
(25:05):
expected September if you need to put your money on it.
But uncertainty is just exceptionally high. And listening to policymakers,
some say, you know, the bar is very high for
another cut. Others are concerned about inflation maybe following a
bit too low below target. It's you know, highly answertain.
Speaker 3 (25:25):
Okay, Diana, thank you so much for being with me
this morning. That is Blomberg CCB with Porta, Yana vandall.
Thank you. I'm Caroline Hepke here in London. You can
catch us every weekday morning for Bloomberg Daybreak. You're at
the beginning at six am in London. That's one am
on Wall Street.
Speaker 5 (25:39):
Tom, thank you, Caroline.
Speaker 2 (25:41):
And coming up on Bloomberg day Break weekend, we look
ahead to an Upper House election in Japan.
Speaker 5 (25:46):
I'm Tom Busby and this is Bloomberg.
Speaker 2 (25:59):
This is Bloomberg day Break weekend, our global look ahead
at the top stories. For investors in the coming week.
I'm Tom Busby in New York. Japanese citizens head to
the polls in the coming days for an Upper House election.
This comes at a time when the country's Prime Minister
finds himself in a precarious political position. For more, let's
get to the host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4 (26:20):
Tom, this election will serve as the latest referendum on
the leadership of Prime Minister Shiguru Ishiba. He's already running
a minority government after last autumn's dismal election results in
the lower House. For a closer look now at what's
at stake in the Upper House, I'm joined by Bloomberg's
Isabelle Reynolds. She is our Tokyo bureau chief, joining us
(26:42):
from our radio studio in Tokyo. Isabelle, thank you. I
know the stakes are high, as I understand where the
ruling coalition could lose its majority. This would be a first,
is that correct?
Speaker 12 (26:54):
Not exactly a first, but we did see a similar
case back in nineteen ninety four where the ruling LDP
lost its majority in both houses. But the party has
been in government for almost all of the time since
nineteen fifty five. Just so to be out of power
in both houses is pretty unusual. They did also lose
power to an opposition party in two thousand and nine,
(27:16):
of course, but yes, this would be a historic occasion.
Speaker 4 (27:20):
So give me a sense of where things are in
terms of political stability. How would you describe that at
a time when Japan is really struggling with so many issues,
not the least of which is a trade deal with
the US.
Speaker 12 (27:32):
Absolutely, yes, I would say the situation is extremely unstable
at the moment. What we're seeing is the support for
the ruling coalition is falling again as we're going into
the election. What we see is several of the big
media outlets here, the newspapers which were still widely read
in Japan and like other places in the world perhaps,
but they do massive polls and analysis of what's going
(27:55):
on in the run up to the election, and it's
looking pretty likely that the ruling courlition and will lose
its majority in the upper house.
Speaker 4 (28:02):
So with that then Prime Minister Ishuba would probably lose
his position as prime minister.
Speaker 5 (28:07):
Is that right?
Speaker 12 (28:08):
Well, we don't know that for sure. It sort of
depends how bad the result is. You know, obviously they
could lose their majority by a very small margin, in
which case they could hope to sort of cobble together
not a formal coalition, but a loose coalition with some
other party to get to legislation through. And that's what
they're already doing in the lower house, so it's not
out of the question that they could do that in
(28:29):
the upper house. But if the results are extremely bad,
I think Ishuba would eventually have to take responsibility for
that situation and step down, and then we could see
a whole different level of chaos in Japan.
Speaker 4 (28:42):
So he's considered a physical hawk. So if the outcome
is such where Ishiba has to withdraw from the prime ministership,
and that wouldn't necessarily I think put Japan on a
path where maybe the country's finances are somewhat in question.
Speaker 5 (28:58):
Is that fair?
Speaker 12 (28:59):
Yes, you're absolutely right there. I mean, the big issue
in the election, as it was in the last election,
is the issue of inflation in Japan. It's the cost
of living. The level of frustration is growing among the public.
They've been putting up with this situation where prices are
growing much faster than their own wages, and the question
is how to deal with that situation. So the LDP,
(29:19):
she get a issue buzzed party, is sticking to these
kind of temporary, one off solutions. It wants to do
a cash handout things like that. But those opposite, smaller
opposition parties that are growing in popularity proposing these much
more drastic ideas, such as cutting consumption tax, which is
a key source of income for the government, And that's
why we're seeing these kind of ructions in the bond market.
(29:42):
Fears that these kind of policies could gain traction after
the election are raising concerns about Japan's finance.
Speaker 4 (29:48):
So you mentioned the fact that households in Japan are
dealing with higher inflation, much higher inflation. Is that why
this election is being referred to as the rice election?
Speaker 12 (29:58):
Yes, I mean that the symbolic issue it comes to
inflation is the price of rice, which at one point
was double what it had been a year earlier. There
are a lot of structural reasons why that's the case,
and the LDP has put in place this young politician, Koizumi,
who has dealt with this by immediately sort of releasing
(30:18):
rice stores at a much cheaper price to the public.
So that did gain them some time, but that is
not a long term solution to what's going on. So
people who want a more drastic solution, for example, ramping
up production of food in Japan might opt to vote
for a different party.
Speaker 4 (30:37):
So how does what is happening in the diet the
Japanese parliament impact what the Bank of Japan is trying
to do in weaning the economy of massive stimulus that,
as you well know, has been going on for decades now, right.
Speaker 12 (30:51):
Yes, I mean we're seeing obviously the government tries officially
at least to keep its handle off the Bank of
Japan is choosing to do. But if we are going
to see a massive ramp up in spending, obviously that
will have to play into the thinking at the Bank
of Japan. So this path that we've been seeing towards
normalization could potentially be affected if we're going to see
(31:15):
a massive cut in, for example, revenue from consumption tax
and so on over the coming years.
Speaker 4 (31:20):
So put this election in the context of Tokyo and
Washington trying to work out a new trade deal. I
think the deadline is now August first, to avoid being
slapped with twenty five percent tariffs. And we know that
for Japan when you're talking about automobiles and steel manufacturing,
this is critical. Put the election in context of trying
(31:40):
to work out a trade deal with the US.
Speaker 12 (31:43):
Yes, well, I think that that's an interesting question because
I think there's a growing doubt in Japan about whether anything,
any action or words on their part can affect what
decision Donald Trump makes on these tariffs. So although it's
been somewhat of an issue in the campaign, I think
there's very little sort of faith that either Ishiba or
(32:05):
any of these smaller opposition parties could do any better
job than they have done so far in trying to
negotiate a deal. So I'm not really sure how it
affects that. Obviously, Ishiba could opt to reshuffle his cabinet
after the election if there is a poor performance. But
if you ask the public who's going to do a
better job in organizing this trade deal, I doubt they
(32:28):
would come up with a very swift answer for you.
Speaker 4 (32:31):
Before I let you go, Isabelle, can you break down
from me how this might look if we segment different
generations of Japanese society, let's say younger voters versus the
older generation.
Speaker 12 (32:44):
Yes, I think we are seeing increased interest in voting
among the younger voters. They traditionally have not had a
very high turnout. It's been the older voters who have
always voted for the LDP or its coalition partner, the
Core metor one particular. Their support is falling away rapidly,
and for the LDP, it's always a bad sign. If
(33:07):
young people are coming out to vote, that means that
somebody is going to be voting for opposition parties. So
for the LDP, I mean they'll be hoping that the
young people stay at home.
Speaker 4 (33:17):
Isabelle, thank you so very much for helping us look
ahead to Japan's upper House election in the week ahead.
She is Isabelle Reynolds, Tokyo bureau chief for Bloomberg News.
Let's stay in Japan because we heard earlier in the
week from Masahiro Kihara, CEO of Misohu Financial Group. He
sees an end to uncertainty and reason to be optimistic
(33:38):
on the future. Here's part of the conversation with mister
Kihara with Bloomberg's friend Sine Laqua.
Speaker 13 (33:44):
How confident are you about reaching the one trillion yen
profit within a few years, given all the global uncertainty,
and given what we heard on tariffs and trade.
Speaker 14 (33:53):
In fact, I think from a current earning profile, I
think we have almost reached one trillion again. Actually we
had eight hundred last year. We had eight hundred and
eighty billion. We took one time losses around somewhere around
one hundred and twenty billion actually, so I think in
reality we reached one trillion. Thanks for all the you know, circumstances.
Speaker 13 (34:16):
But what does the uncertainty do. The uncertainty is surrounding
some of the Trump policies and trade and tear.
Speaker 14 (34:21):
Yes, yes, so before April second, we were aiming somewhere
around one point one trillion for this year. Actually, however,
because of all the uncertainties, we sort of shrink it
down from as a conservative base to nine hundred and
fifty trillion. I'm sorry, nine hundred and fifty billion yen.
(34:43):
But I think you know, when things get certain, the
corporate action will come back, which means that we can
wratchet up a little bit. Yeah, our guideance.
Speaker 13 (34:54):
So where are you seeing that uncertainty play into us now?
Is it loans? Is it cheap executives spending not deploying cash.
Speaker 14 (35:01):
Yes, right now, the CEOs are very very on the
sidelines actually, But for example, if it is a domestic deal,
even in each region, if it is a domestic deal,
things are happening, which means that we don't see a
lot of cross border happening right now. All of them
are we have a big chunk of pipeline, but they're
(35:24):
not executed. But from a domestically perspective, people are moving
a little bit. So I think, you know, there is
a good chance that people will get confident at some point.
Speaker 13 (35:33):
How do you see them You know, Japanese landscape for
businesses changing, how much will they look? I mean, Japan
has been a great experiment right in terms of financials
for a long time. Yes, is it companies that will
then grow also abroad as economy stabilizes.
Speaker 14 (35:49):
I would say that if right now there's many uncertainties,
but things get clearer, the coporate action will come back.
These couple of years, we have seen many corporate actions happening,
investing outside Japan, changing their business portfolio, miss selling parts
(36:12):
of the business that they are not doing well, so
concentrating the areas that has strengths. So I would say
that when things get clear corporate action will come back,
and many you know Japanese corporates will try to invest
in outside of Japan too.
Speaker 13 (36:29):
Are you confident in the Japanese economy overall?
Speaker 14 (36:33):
Over, I think we still have strengths in the economy
sectors that we have, so I think over we are
very I am very confident in that. The thing is
that we have to concentrate our resources in the area
(36:53):
that we have strengths. We have high quality manufacturing, high
quality you know products, So I think we need to
figure out where the strengths are and try to sell
it to the world.
Speaker 13 (37:09):
Do you worry or are there dangers actually to Japan
given the spike in long term interest rates?
Speaker 14 (37:14):
Yes, so twenty years so for the long end it's
been twenty years, thirty years. There has been spike and
there has been volatility. But I think the government said
that they will try to shift the issuance to a
ten years of below. I think that BOJ is a
(37:35):
little bit shrinking, is QT. I think that will help.
Speaker 13 (37:39):
Is there a point where it actually starts treating your
business and starts shooting the real economy?
Speaker 14 (37:44):
Well, I think BOJ is saying that the neutral rate
is somewhere around one point one percent to one point
five percent, and on top of that ten years will
be somewhere around two to two point two five percent.
Then I think that that's the level that is okay.
But if it goes beyond to three percent or so,
(38:05):
they will then hurt the budget.
Speaker 13 (38:07):
I think, are you expecting more turmoil in the end,
but also not in the one market?
Speaker 14 (38:13):
Not at this moment. Actually, I think the current level
of one point four one point five for ten years
is very it's okay. I think I haven't seen any
turmoil in the ten years old, so as long as
the ten year is fine, I think it's fine.
Speaker 4 (38:27):
That is masahiro Kihara, CEO of Misahu Financial Group, speaking
with Bloomberg's friend Sine Laqua, and I'm Doug Prisner. You
can catch us weekdays here for the Daybreak Asia podcast.
It's available wherever you get your podcast.
Speaker 2 (38:41):
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 Buzby. Stay with us top stories
and global business headlines are coming up right now.
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:10):
This is Bloomberg day Break Weekend, our global look at
the top stories in the coming week from our Daybreak
actors all around the world. Straight Ahead on the program,
we'll look at upcoming housing data, along with earnings from
eb Giant Tesla and the latest on its CEO Elon Musk.
I'm Tom Busby in New York.
Speaker 3 (00:26):
I'm Karen Hecke here in London, where we're asking what
the European Central Bank we'll do next.
Speaker 4 (00:32):
I'm dek Krisner taking a look at the upcoming national
election in Japan.
Speaker 1 (00:38):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three zero, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Sirius
XM one twenty one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business App.
Speaker 5 (01:02):
Well, good day to you.
Speaker 2 (01:03):
I'm Tom Busby, and we begin today's program with some
key US housing data as we wrap up the critical
spring home buying season. Existing home sales for June out
on Wednesday. New home sales for that same month on Thursday,
for more on what to expect the impact of sky
high home prices, elevated mortgage rates arise in existing home inventories,
(01:24):
and the Trump tariffs and all that. We're joined by
Drew Redding, Bloomberg Intelligence US home building Analysts. Well, Drew,
thanks so much for being here. I want to start
with what you're expecting to see in these reports, and
then we'll break down what's behind those numbers.
Speaker 6 (01:38):
Sure, so let's start on the existing home side. Obviously,
the resale market has been stuck in the mud. You know,
we're expecting sales will be down modestly on a sequential basis,
but you know, should be up a little bit from
last year's three point nine million annualized rate. Keep in
mind that was the lowest pace in about fifteen years,
so some modest improvement, but the market's still down over
(01:59):
twenty sent from more normalized levels. We've kind of been
hovering around this four million annualized rate of sales for
a while now. But it does appear to us that,
at least from a volume perspective, the market as troth.
You have to realize there's some level of underlying demand
out there. In the market given people have to move
for one reason or another, and you do you think
you'll see a little bit of growth this year and
(02:21):
perhaps stronger growth next year off that low base. Now
it's a little bit of a different story in the
new home market. Sales are expected to be down from
last year. Some of the higher frequency data we've seen
on purchase application showed a little bit of improvement, so
there are some conflicting signals. We've also been hovering in
a range for a part of two years now. But
(02:41):
what we do know is that builders are having to
fight harder for every sale, and they continue to discount
heavily to maintain their sales space. There's some evidence that
these incentives that they've been using or having diminishing returns,
they're just not as effective at a certain point. So
you know, builders are turning the base price. We've heard
that from Lennar and KB Home, so I think that's
(03:02):
probably the path forward.
Speaker 2 (03:03):
Well, I think that's the biggest sticking point is the price.
The price not only on new homes of course, but
on existing homes. They are still rising. The growth is
starting to slow though, correct.
Speaker 6 (03:13):
Yeah, that's a great point, and the resale market, prices
are definitely still climbing. The latest data we've seen from
Redfin showed about a two percent increase in mid July,
but as you mentioned, prices are rising at a slower pace.
Part of that reflects, you know, the obvious shift to
more of a buyer's market where sellers are getting a
little bit more realistic in terms of listing prices. So
(03:34):
it has started to help the monthly payment on the margins,
you know, like we've seen with inventories, the stories really
at the local level where we have a lot of
markets across the country that are actually already seeing price decline.
So you know, you talk about markets in Florida, like Tampa,
also Atlanta, al So it really varies by market, and
it's going to be dependent on supply. You know. In
(03:56):
the new home market, we've already seen prices come down
more significantly and one of the reasons obviously builders have
been aggressive in the use of incentives, but they're turning
more to base price cuts as well. And if you
think about, you know, how builders account for incentives, it's
reflected as a reduction in the average selling price, so
to the extent that inventory continues to puddle up, they
(04:17):
keep their foot on the gas in terms of incentives.
We think you see further net pricing pressure in the
new home market as well.
Speaker 2 (04:23):
And those inventories of new homes the highest in almost
two decades, right.
Speaker 6 (04:28):
Yeah, it's certainly an interesting dynamic right now. Remember over
the last couple of years, the lack of for sale
inventory in the existing home market had been a key
part of the investment thesis for home building investors. You know,
you had a lack of options, so it helped the
funnel buyers over to the new home market, who were
also able to help with the monthly payment. But you know,
as you mentioned, that's that tailwind has turned into a
(04:49):
headwind as more listings come onto the market and homes
are sitting for longer. On the resale side of things,
inventories are about thirty percent from last year, and you know,
we're still ten percent below twenty nineteen. But looking at
the national data, I think really blurs the picture. At
this point. We now have ten states where resale supply
(05:09):
is higher than it was in twenty nineteen, and a
lot of that's in some important markets for the builders,
think of Florida, Texas, markets out west like Colorado and
Arizona certainly a big risk out there, And as you mentioned,
it's not just resale market, but it's also in the
new home market where completed inventories have really risen. And
the reason for that is over the last couple of years,
(05:31):
when there wasn't supply in the resale market, builders stepped
in to fill that void, so they got more aggressive
in their use of specs. Now that build an inventory
was met with a rise in rates and a drop
in demand. So now they're left sitting with all that
inventory on their books. I think we ultimately that leads
to is a pullback in production, so fewer housing starts.
(05:52):
We're starting to see it on the building from its side,
so it's something that they're going to have to work
through before they start to put more more units in
the got.
Speaker 5 (06:00):
To clear out that inventory.
Speaker 2 (06:02):
Let's talk about interest rates, So you just mentioned still
stubbornly near seven percent. You know, that's probably why mortgage
applications just last week took a tumble down ten percent.
Now the Fed meets again about ten days from now,
no indication the Central Bank is ready to lower those
benchmark lending rates. So how big a concern are rates
to the housing market.
Speaker 6 (06:23):
Right now, We've talked about one piece, which is home prices,
and the other important piece is obviously where the thirty
year rate is. Right now, we're about six point eight percent.
We had seen a little bit of improvement, but now
maybe some concerns reigniting with inflation pushing things back up.
I think one of the main issues with rates is
(06:44):
not only the absolute level, but just the volatility. You know.
I think if we could get rates into the low
six high five percent range for more of an extended
period of time, it gives you know, home shoppers a
little bit more comfort of what their payment might be
as they're going through the application process. So rates are
certainly a very important piece of the puzzle. And you know,
there's not a whole lot of indication that things are
(07:07):
going to get significantly lower anytime soon.
Speaker 5 (07:10):
Oh boy, it's a lot to take.
Speaker 2 (07:11):
In June, existing home sales out on Wednesday, new home
sales for that same month on Thursday. Our thanks to
Drew Redding, Bloomberg Intelligence US home building analyst. We move
now to earnings at Tesla. It's out with second quarter
results this coming Wednesday. Has the ev maker bounced back
from a troubling first quarter. What has CEO Elon Musk's
(07:32):
renewed focus on the company meant after he left his
Trump Administration cost cutting duties, and what will the pending
rollback of clean energy tax credits mean for the company.
For more on what to expect, we're joined by Steve Mann,
Bloomberg Intelligence Global Autos and Industrials Research Manager. Well, Steve,
thank you so much for joining us. After a disappointing
(07:53):
first quarter results. Will there be good news in Tesla's
upcoming second quarter report?
Speaker 7 (07:58):
Yeah, I think the vestor will be more focused on
what Elon must is going to talk about in the
remainder of the year and beyond. In terms of earnings,
we actually expected to report in line with consensus, but
a few things that are on investor's mind, like you know,
the Robotaxi, like the new models that they're rolling out
(08:20):
they're planning to roll out, and even Elon himself, you
know he's tweeted a few things around politics. You know
what does he thinking around that and how it's going
to impact the company.
Speaker 2 (08:30):
Let's start with those models. Well, the Model three is
still the bread and butter for revenue, right, But how
about the revamped model Why Juniper Suv. What does that mean?
Speaker 7 (08:40):
The ramp up has been going fairly well. It probably
disappointed some investors that they didn't ramp up as fast
as they thought, but it seems like the second quarter
it came in nicely. Is some initial data on China sales,
which is right now is probably like close to forty
to fifty percent of their sales now. They're also planning
(09:02):
to launch an extended version, a longer version of the
Model Y in China, and I think that's going to
resonate with the clients over there fairly well.
Speaker 2 (09:12):
How does it compete against the byds and the Cherries
and the other very very low cost Chinese rivals.
Speaker 7 (09:19):
Yeah, it's tough. Launching FSD full self driving in China
earlier this year will help, But BYD did cut prices
quite a bit early in the year by a magnitude
of thirty percent, and Tesla it doesn't want to play
in that low cost, low price market. I think they're
(09:40):
going to be medium price to high price market, and
I think launching the extended version will actually help drive
sales for the company over there into next year.
Speaker 2 (09:51):
Now, last month you mentioned this elon Musk rolled out
as long delayed robotaxi unit in Austin, Texas. How far
away is that service really for making any kind of
on the company.
Speaker 7 (10:01):
It's a pretty exciting development. He's been talking about it
for a while. It's it's finally here. It's it's still
a slow go. I think he's very focused on safety,
not a surprise, and and that's where he should be
focused on to make sure the long term reputation of
that business stays positive. And we think, you know, no
(10:24):
meaningful revenue or profit in the next couple of years
is probably going to come through in twenty twenty seven,
so we haven't baked in that that business as a
meaningful contributor to to the bottom line. But it's a
it's a big market, so there's a number of players,
Waymo being probably the largest at the moment. But I
(10:45):
think the market's going to grow to a point where
he's gonna be able to absorb a new competition like
Tesla and even even Uber like. Uber announced that they're
partnering with Lucid to develop automous vehicles for their robotaxi business.
Speaker 2 (11:01):
You mentioned something earlier, and that is safety concerns, especially
with the full self driving. I mean they've had quite
a few problems, a lot of litigation.
Speaker 7 (11:11):
I would say that's kind of normal mode of operation.
I think there will be some safety concerns, there will
be accidents. I think the investors should be aware. No
engineering feat like this goes smoothly, so it's going to
have some hiccups. So that's why it's very important for
(11:32):
not just Tesla, but weimol to really hone in on
safety and making sure the consumer, the users of ROBOTAXI,
feels confident with this service.
Speaker 2 (11:44):
Now I want to talk about something I think that
the shareholders are going to be very interested in what
Elon Musk has to say, and that's the expiration of
the seventy five hundred dollars EV tax credits. That deadline
is coming soon September thirtieth. Now we know how Elon
must react to that Trump bill that removes those clean energies,
and it was not pretty. How will Tesla respond, How
(12:05):
will the company respond?
Speaker 7 (12:07):
It's a double edgh sword. I think on the surface
it is negative. It is negative because obviously they have
generated quite a bit of revenue and profit from the
selling these credits. If you look on the bottom line,
it's minimal. It's probably like five percent, maybe less than
five percent of profits. So it's going to have an
(12:30):
impact on earnings definitely in the fourth quarter and well
into the next year.
Speaker 5 (12:36):
Well, a lot to look forward to.
Speaker 2 (12:37):
Tesla Q two earnings out this Wednesday after Wall Street's
closing bell Our thanks to Steve Man, Bloomberg Intelligence Global
Autos and Industrials Research Manager, and coming up on Bloomberg
day Break weekend, we'll look ahead to the next monetary
policy decision from the European Central Bank. I'm Tom Busby
and this is Bloomberg. This is Bloomberg day Break weekend,
(13:08):
our global look ahead at the top stories for investors
in the coming week.
Speaker 5 (13:12):
I'm Tom Buzzby in New York.
Speaker 2 (13:14):
Up later in our program, we look ahead as Japanese
citizens head to the polls for an Upper House election.
But first europe Central bankers will vote on their next
move when it comes to interest rates. The Governing Council
decision comes at a time of heightened trade tensions fueled
by the back and forth with the US. How will
policymakers respond For more Let's go to London and bring
(13:34):
in Bloomberg daybreak. Euro banker Caroline hepger.
Speaker 3 (13:38):
Tom the Bundesbank president and DCB policymaker Joakim Nagel has
urged caution over the European Central Bank's next move on
interest rates, telling a newspaper that it requires a steady hand.
His comments come as policymakers have cut rates eight times
between June twenty twenty four and June twenty twenty five,
(13:59):
down to two percent. Economies and markets are now betting
on a pause in July. The final release of EU
Area inflation for June also confirmed that the headline measure
accelerated to two percent year on year from one point
nine percent in the previous month, but still fairly well
anchored in terms of inflation in Europe. So the focus
is also going to be on the ECB September meeting
(14:22):
when we get new ECB economic projections, and that may
give officials more clarity on the economic backdrop. But with
US President Donald Trump's on again, off again tariff policy
clouding the outlook, Nagel says that the impact on inflation
is extremely uncertain and in Europe, member states are urging
(14:43):
the Council to do more to support the economy. French
Premier frostwy Beiru said his country's facing the same challenges
as the US, but without the strong dollar that he
says gives the Federal Reserve the option to create money
to fuel quote optimism in the economy. It's an issue,
France's finance Minister Eric Lombard outlined, speaking to Primpaks and
(15:06):
Edward's critique Cup and Mark Cardmore.
Speaker 8 (15:08):
France as an issue of a large public debt and
two large public deficit, and we are tackling the issue,
I believe very seriously. The plan is a plan of
forty four billion euro of savings and revenue increases. Forty
four billion euro that will bring our deficit below the
(15:31):
five percent threshold next year to four point six percent,
and we are aiming at a deficit below three percent
in twenty twenty nine. The bulk of the plan is
to cut public spending. There are thirty billion of savings
of cuts in public spending, whether for the state of
(15:54):
a social security, which is absolutely important but manageable. There
will be ten percent of revenue increases and four billion
more because French people will have to work more, two
days more, because we will cut to making holiday next
year and the years after. So it's a very easerious plan.
(16:16):
Forty four billion euro okay.
Speaker 9 (16:18):
And you think that this is enough to reassure investors,
What about getting the support of all of the lawmakers
in France, because that seems to be very difficult. You'll
need the support of a number of parties. Which parties
are you going to talk to to try and get support?
Here are the socialists at the top of your list,
because I think the far right and the far left
(16:39):
have already found serious problems with this budget plan.
Speaker 7 (16:43):
Well.
Speaker 8 (16:43):
For first, let me remind you that with the same
parliament we had an approval for the twenty twenty five
budget which is currently being implemented, which is already a
budget which is a very serious budget bringing down the deficit.
We will talk to all parties because it is an
issue of national interest. We believe it is the best
(17:04):
interest of France to put its public finance right before
the next presidential election of twenty twenty seven, and we
will talk to all parties. Having said that, the first
reaction of opposition parties is quite normal because it's a
huge plan. So the first reaction is negative. We will explain,
we will discuss we will improve the plan and obviously
(17:26):
there are probably more possibilities to reach an approval with
the Socialist Party. They are still a party in the opposition,
but they allowed the budget to pass for twenty twenty
five and if we have a fair discussion with them,
and we will have a fair discussion with the Socialist Party,
(17:47):
hopefully they can support the government for the budget. But
again we will talk to all parties and we hope
to have wider support because again it's an issue of
national interest.
Speaker 10 (18:01):
Eric, good Morning. Part of the plan is to raise
revenues through selling selling down stakes in companies without losing influence. Apparently,
what kind of sectors do you expect to see those
kind of revenue gains? Are there any sectors off limits
for selling down stakes and how much do you expect
to raise through that?
Speaker 8 (18:19):
Well, obviously, you know the French state owns many companies,
some of which are listed, so I won't be very
talkative on that point. So we are working on it. Obviously,
the large public sector companies like La post or like
EEDF are not on the plane, but there are many
(18:41):
options and we will work on it ultimately.
Speaker 10 (18:44):
The investor community, I think the initial reaction is not
a lot of faith that the trajectory of this budget
plan and the governments is much better than it was,
you know, six months or a year ago. And I
think there's a lot of worry about the government again
Will will kind of struggle to get the budget passed
and will kind of suffer on that. But we saw
(19:06):
last year the investors move on. Are you more worried
about how the investor reaction this time or do you
not think that we're yet at a critical period for
investor pressure to cand of really force something to get done.
Speaker 8 (19:16):
I'm not worried, but thank you to give me not
part need to talk to them. I want first to
reassure them on the twenty twenty five budget execution, because
you know, public finance is something which is very operasional.
We put a budget for this year cutting the deficit
to five point four percent, and we follow the budget
(19:37):
execution on a monthly basis. I gather all minister's General
secretary every month, and I can tell you beginning of July,
a middle of July, while we are today that we
are totally online in the review of spending. We are
on plan on spending after I must say ten billion
cuts that we did in the first quarter in the
(19:58):
second quarter, but after ooskuts we are totally on NINER
and on the revenue where the vty income tax, corporate
tax we are also online. So we are monitoring the
execution of twenty twenty five very closely. We have a
very ambitious target for twenty twenty six. I'm confident it
will be approved, it will be executed, and that France
(20:20):
will put itself back on track, which is absolutely key
in order to play our role in Europe and.
Speaker 5 (20:26):
In the world.
Speaker 3 (20:27):
That was the French Finance Minister Eric Lombard there speaking
to Blombergs and Edward's critique cup To and Mark Cudmore.
The plight of France and other European countries in similar
positions will be on the minds of policymakers as they
make a decision about the ECB's immediate rate path in
the days ahead. It's something I've been discussing with Bloomberg's
ECB reporter Jana Randall. Yana, France's situation is one all
(20:53):
too familiar to EU member states. High debt and stalling growth.
How can the EU mitigate.
Speaker 11 (21:01):
Well, Mostly it's France's responsibility right, passing a budget that
puts the government on a path towards sustainable public finances,
and of course it has presented plans on how to
narrow the deficit next year, which mainly look at austerity
measures including freezing welfare pensions as well and acting to
(21:22):
public holidays. As a matter of fact, whether that will
do the trick, whether that'll fly we of course I'll
remember what happened in France at the start of the year.
We won't know until September because that's when lawmakers come
back and will properly engage and vote on This debate
surely will also be colored by the outcome or the
(21:42):
state of trade negotiations, because that affects growth in France
but also across the region. And that's of course where
the EU then comes in, because it's up to the
EU to engage with the US on trade. Good deal
has the potential to live confidence, thus demand investment and spending,
consumer spending across Frants but also across the region. And yeah,
(22:04):
I don't need to tell you what a bad deal
will do.
Speaker 3 (22:07):
But it's the French Prime minister writer to ask for
interest rate cuts in the near future.
Speaker 11 (22:12):
Then I find it always difficult when politicians tell central
bankers what to do, especially because central bankers are independent
for a reason, because they need to be, you know,
keeping their cool when when maybe tensions and a sentiment
heats up and passions heat up in political decision making.
(22:32):
And of course we can see what is happening in
the US currently with the federal reserves. The Prime Minister's
motivation is easily explained, and if you're naughty, you can
you can say it's very much in the same spirit
as the arguments that the president in the US makes
low barring costs for the government at a time when
(22:53):
dead levels are high and a lot of money is
needed to service that debt. Right, so low boring costs
help the government deal with its fiscal mess. If you
look a little bit back in the past, we've seen
similar voices, similar initiatives in Italy increase when those countries
were in the spotlight of markets. Well as for France,
(23:14):
you know, I wouldn't make too much out of it
in terms of whether the youc be swayed by those
calls or not. I really would would see it more
as a sense of a sign of desperation from from
the French you know, realizing that something is going really
really wrong with their budget.
Speaker 3 (23:30):
Yeah, absolutely, and perhaps can't be compared to the sort
of relentless pressure that President Trump has put onto your
own power that we've seen repeatedly. But look, we might
not get an interest rate cut from the ECB this
time round. Over all, though, how fast our interest rates
expected to continue coming down in the months ahead, given
(23:52):
EU inflation that does look at the moment reasonably tamed.
What is your view now on the path of interest rates.
Speaker 11 (24:00):
We're not expecting anything for the upcoming meeting, and as
as far as September is concerned, that is still very
much in play. Economists expect another rate cut in September. Others,
you know, the majority, I should say, expect another cut.
Others say the ECB is done or you know, might
(24:22):
wait a little bit longer to deliver it. It essentially
all hinges on some signals on how how trade negotiations
are going, uh, the implications they will have, or the
implications any result will have. And September in that sense
is a good month because the ECB will get another
(24:43):
fresh round of economic forecasts, so another look at growth
and inflation prospects for the Eurozone in September, so it
would be a good month to make up their minds. Equally,
if they still can't be sure and things are kind
of cod sting along, they might write it a little longer.
So overall, one more rate cut is more or less
(25:05):
expected September if you need to put your money on it.
But uncertainty is just exceptionally high. And listening to policymakers,
some say, you know, the bar is very high for
another cut. Others are concerned about inflation maybe following a
bit too low below target. It's you know, highly answertain.
Speaker 3 (25:25):
Okay, Diana, thank you so much for being with me
this morning. That is Blomberg CCB with Porta, Yana vandall.
Thank you. I'm Caroline Hepke here in London. You can
catch us every weekday morning for Bloomberg Daybreak. You're at
the beginning at six am in London. That's one am
on Wall Street.
Speaker 5 (25:39):
Tom, thank you, Caroline.
Speaker 2 (25:41):
And coming up on Bloomberg day Break weekend, we look
ahead to an Upper House election in Japan.
Speaker 5 (25:46):
I'm Tom Busby and this is Bloomberg.
Speaker 2 (25:59):
This is Bloomberg day Break weekend, our global look ahead
at the top stories. For investors in the coming week.
I'm Tom Busby in New York. Japanese citizens head to
the polls in the coming days for an Upper House election.
This comes at a time when the country's Prime Minister
finds himself in a precarious political position. For more, let's
get to the host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4 (26:20):
Tom, this election will serve as the latest referendum on
the leadership of Prime Minister Shiguru Ishiba. He's already running
a minority government after last autumn's dismal election results in
the lower House. For a closer look now at what's
at stake in the Upper House, I'm joined by Bloomberg's
Isabelle Reynolds. She is our Tokyo bureau chief, joining us
(26:42):
from our radio studio in Tokyo. Isabelle, thank you. I
know the stakes are high, as I understand where the
ruling coalition could lose its majority. This would be a first,
is that correct?
Speaker 12 (26:54):
Not exactly a first, but we did see a similar
case back in nineteen ninety four where the ruling LDP
lost its majority in both houses. But the party has
been in government for almost all of the time since
nineteen fifty five. Just so to be out of power
in both houses is pretty unusual. They did also lose
power to an opposition party in two thousand and nine,
(27:16):
of course, but yes, this would be a historic occasion.
Speaker 4 (27:20):
So give me a sense of where things are in
terms of political stability. How would you describe that at
a time when Japan is really struggling with so many issues,
not the least of which is a trade deal with
the US.
Speaker 12 (27:32):
Absolutely, yes, I would say the situation is extremely unstable
at the moment. What we're seeing is the support for
the ruling coalition is falling again as we're going into
the election. What we see is several of the big
media outlets here, the newspapers which were still widely read
in Japan and like other places in the world perhaps,
but they do massive polls and analysis of what's going
(27:55):
on in the run up to the election, and it's
looking pretty likely that the ruling courlition and will lose
its majority in the upper house.
Speaker 4 (28:02):
So with that then Prime Minister Ishuba would probably lose
his position as prime minister.
Speaker 5 (28:07):
Is that right?
Speaker 12 (28:08):
Well, we don't know that for sure. It sort of
depends how bad the result is. You know, obviously they
could lose their majority by a very small margin, in
which case they could hope to sort of cobble together
not a formal coalition, but a loose coalition with some
other party to get to legislation through. And that's what
they're already doing in the lower house, so it's not
out of the question that they could do that in
(28:29):
the upper house. But if the results are extremely bad,
I think Ishuba would eventually have to take responsibility for
that situation and step down, and then we could see
a whole different level of chaos in Japan.
Speaker 4 (28:42):
So he's considered a physical hawk. So if the outcome
is such where Ishiba has to withdraw from the prime ministership,
and that wouldn't necessarily I think put Japan on a
path where maybe the country's finances are somewhat in question.
Speaker 5 (28:58):
Is that fair?
Speaker 12 (28:59):
Yes, you're absolutely right there. I mean, the big issue
in the election, as it was in the last election,
is the issue of inflation in Japan. It's the cost
of living. The level of frustration is growing among the public.
They've been putting up with this situation where prices are
growing much faster than their own wages, and the question
is how to deal with that situation. So the LDP,
(29:19):
she get a issue buzzed party, is sticking to these
kind of temporary, one off solutions. It wants to do
a cash handout things like that. But those opposite, smaller
opposition parties that are growing in popularity proposing these much
more drastic ideas, such as cutting consumption tax, which is
a key source of income for the government, And that's
why we're seeing these kind of ructions in the bond market.
(29:42):
Fears that these kind of policies could gain traction after
the election are raising concerns about Japan's finance.
Speaker 4 (29:48):
So you mentioned the fact that households in Japan are
dealing with higher inflation, much higher inflation. Is that why
this election is being referred to as the rice election?
Speaker 12 (29:58):
Yes, I mean that the symbolic issue it comes to
inflation is the price of rice, which at one point
was double what it had been a year earlier. There
are a lot of structural reasons why that's the case,
and the LDP has put in place this young politician, Koizumi,
who has dealt with this by immediately sort of releasing
(30:18):
rice stores at a much cheaper price to the public.
So that did gain them some time, but that is
not a long term solution to what's going on. So
people who want a more drastic solution, for example, ramping
up production of food in Japan might opt to vote
for a different party.
Speaker 4 (30:37):
So how does what is happening in the diet the
Japanese parliament impact what the Bank of Japan is trying
to do in weaning the economy of massive stimulus that,
as you well know, has been going on for decades now, right.
Speaker 12 (30:51):
Yes, I mean we're seeing obviously the government tries officially
at least to keep its handle off the Bank of
Japan is choosing to do. But if we are going
to see a massive ramp up in spending, obviously that
will have to play into the thinking at the Bank
of Japan. So this path that we've been seeing towards
normalization could potentially be affected if we're going to see
(31:15):
a massive cut in, for example, revenue from consumption tax
and so on over the coming years.
Speaker 4 (31:20):
So put this election in the context of Tokyo and
Washington trying to work out a new trade deal. I
think the deadline is now August first, to avoid being
slapped with twenty five percent tariffs. And we know that
for Japan when you're talking about automobiles and steel manufacturing,
this is critical. Put the election in context of trying
(31:40):
to work out a trade deal with the US.
Speaker 12 (31:43):
Yes, well, I think that that's an interesting question because
I think there's a growing doubt in Japan about whether anything,
any action or words on their part can affect what
decision Donald Trump makes on these tariffs. So although it's
been somewhat of an issue in the campaign, I think
there's very little sort of faith that either Ishiba or
(32:05):
any of these smaller opposition parties could do any better
job than they have done so far in trying to
negotiate a deal. So I'm not really sure how it
affects that. Obviously, Ishiba could opt to reshuffle his cabinet
after the election if there is a poor performance. But
if you ask the public who's going to do a
better job in organizing this trade deal, I doubt they
(32:28):
would come up with a very swift answer for you.
Speaker 4 (32:31):
Before I let you go, Isabelle, can you break down
from me how this might look if we segment different
generations of Japanese society, let's say younger voters versus the
older generation.
Speaker 12 (32:44):
Yes, I think we are seeing increased interest in voting
among the younger voters. They traditionally have not had a
very high turnout. It's been the older voters who have
always voted for the LDP or its coalition partner, the
Core metor one particular. Their support is falling away rapidly,
and for the LDP, it's always a bad sign. If
(33:07):
young people are coming out to vote, that means that
somebody is going to be voting for opposition parties. So
for the LDP, I mean they'll be hoping that the
young people stay at home.
Speaker 4 (33:17):
Isabelle, thank you so very much for helping us look
ahead to Japan's upper House election in the week ahead.
She is Isabelle Reynolds, Tokyo bureau chief for Bloomberg News.
Let's stay in Japan because we heard earlier in the
week from Masahiro Kihara, CEO of Misohu Financial Group. He
sees an end to uncertainty and reason to be optimistic
(33:38):
on the future. Here's part of the conversation with mister
Kihara with Bloomberg's friend Sine Laqua.
Speaker 13 (33:44):
How confident are you about reaching the one trillion yen
profit within a few years, given all the global uncertainty,
and given what we heard on tariffs and trade.
Speaker 14 (33:53):
In fact, I think from a current earning profile, I
think we have almost reached one trillion again. Actually we
had eight hundred last year. We had eight hundred and
eighty billion. We took one time losses around somewhere around
one hundred and twenty billion actually, so I think in
reality we reached one trillion. Thanks for all the you know, circumstances.
Speaker 13 (34:16):
But what does the uncertainty do. The uncertainty is surrounding
some of the Trump policies and trade and tear.
Speaker 14 (34:21):
Yes, yes, so before April second, we were aiming somewhere
around one point one trillion for this year. Actually, however,
because of all the uncertainties, we sort of shrink it
down from as a conservative base to nine hundred and
fifty trillion. I'm sorry, nine hundred and fifty billion yen.
(34:43):
But I think you know, when things get certain, the
corporate action will come back, which means that we can
wratchet up a little bit. Yeah, our guideance.
Speaker 13 (34:54):
So where are you seeing that uncertainty play into us now?
Is it loans? Is it cheap executives spending not deploying cash.
Speaker 14 (35:01):
Yes, right now, the CEOs are very very on the
sidelines actually, But for example, if it is a domestic deal,
even in each region, if it is a domestic deal,
things are happening, which means that we don't see a
lot of cross border happening right now. All of them
are we have a big chunk of pipeline, but they're
(35:24):
not executed. But from a domestically perspective, people are moving
a little bit. So I think, you know, there is
a good chance that people will get confident at some point.
Speaker 13 (35:33):
How do you see them You know, Japanese landscape for
businesses changing, how much will they look? I mean, Japan
has been a great experiment right in terms of financials
for a long time. Yes, is it companies that will
then grow also abroad as economy stabilizes.
Speaker 14 (35:49):
I would say that if right now there's many uncertainties,
but things get clearer, the coporate action will come back.
These couple of years, we have seen many corporate actions happening,
investing outside Japan, changing their business portfolio, miss selling parts
(36:12):
of the business that they are not doing well, so
concentrating the areas that has strengths. So I would say
that when things get clear corporate action will come back,
and many you know Japanese corporates will try to invest
in outside of Japan too.
Speaker 13 (36:29):
Are you confident in the Japanese economy overall?
Speaker 14 (36:33):
Over, I think we still have strengths in the economy
sectors that we have, so I think over we are
very I am very confident in that. The thing is
that we have to concentrate our resources in the area
(36:53):
that we have strengths. We have high quality manufacturing, high
quality you know products, So I think we need to
figure out where the strengths are and try to sell
it to the world.
Speaker 13 (37:09):
Do you worry or are there dangers actually to Japan
given the spike in long term interest rates?
Speaker 14 (37:14):
Yes, so twenty years so for the long end it's
been twenty years, thirty years. There has been spike and
there has been volatility. But I think the government said
that they will try to shift the issuance to a
ten years of below. I think that BOJ is a
(37:35):
little bit shrinking, is QT. I think that will help.
Speaker 13 (37:39):
Is there a point where it actually starts treating your
business and starts shooting the real economy?
Speaker 14 (37:44):
Well, I think BOJ is saying that the neutral rate
is somewhere around one point one percent to one point
five percent, and on top of that ten years will
be somewhere around two to two point two five percent.
Then I think that that's the level that is okay.
But if it goes beyond to three percent or so,
(38:05):
they will then hurt the budget.
Speaker 13 (38:07):
I think, are you expecting more turmoil in the end,
but also not in the one market?
Speaker 14 (38:13):
Not at this moment. Actually, I think the current level
of one point four one point five for ten years
is very it's okay. I think I haven't seen any
turmoil in the ten years old, so as long as
the ten year is fine, I think it's fine.
Speaker 4 (38:27):
That is masahiro Kihara, CEO of Misahu Financial Group, speaking
with Bloomberg's friend Sine Laqua, and I'm Doug Prisner. You
can catch us weekdays here for the Daybreak Asia podcast.
It's available wherever you get your podcast.
Speaker 2 (38:41):
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 Buzby. Stay with us top stories
and global business headlines are coming up right now.
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