Daybreak Weekend: US CPI, Europe Summer, Japan GDP

Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.960 --> 0:00:13.360 This is Bloomberg day Break Weekend, our global look at 0:00:13.400 --> 0:00:15.480 the top stories in the coming week from our Daybreak 0:00:15.480 --> 0:00:18.040 anchors all around the world. Straight Ahead on the program, 0:00:18.079 --> 0:00:20.560 we look ahead to some key inflation data in the 0:00:20.640 --> 0:00:24.360 US and how it could impact FED policy. I'm Tom 0:00:24.400 --> 0:00:25.400 Busby in New York. 0:00:25.680 --> 0:00:29.280 I'm Caroline Hepgre in London. While we're examining the consequences 0:00:29.320 --> 0:00:31.360 of Europe's sweltering summer. 0:00:31.720 --> 0:00:34.680 I'm Dog Prisner looking at Japan's role in recent market 0:00:34.760 --> 0:00:37.240 volatility and where things may go from here. 0:00:38.440 --> 0:00:42.440 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.479 --> 0:00:46.280 Eleve Them Free, Ow New York, Bloomberg ninety nine to one, Washington, DC, 0:00:46.600 --> 0:00:50.640 Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, 0:00:50.880 --> 0:00:55.080 DAB Digital Radio, London, Sirius XM one nineteen and around 0:00:55.160 --> 0:00:57.760 the world on Bloomberg Radio dot Com and via the 0:00:57.800 --> 0:00:59.040 Bloomberg Business App. 0:01:03.080 --> 0:01:05.199 Good day to you. I'm Tom Busby. We begin today's 0:01:05.240 --> 0:01:07.679 program with some key economic data here in the US 0:01:08.080 --> 0:01:11.720 out this week, including the July Consumer price Index on Wednesday, 0:01:12.160 --> 0:01:15.959 retail sales for that same month on Thursday. Well, after 0:01:16.000 --> 0:01:19.600 some incredible volatility in the markets last week, how might 0:01:19.720 --> 0:01:23.600 this affect the next actions by the Federal Reserve, a 0:01:23.640 --> 0:01:27.000 policy meeting less than five weeks away. Now for more, 0:01:27.360 --> 0:01:32.319 we're joined by Stuart paul, Us, economist with Bloomberg Economics. Well, Stuart, 0:01:32.360 --> 0:01:35.800 let's start with inflation. What that July CPI number may bring. 0:01:35.840 --> 0:01:36.960 What do you expect to see. 0:01:37.160 --> 0:01:40.800 We're expecting to see headline inflation slowing to an annual 0:01:40.840 --> 0:01:44.000 pace of two point nine percent in July from three 0:01:44.080 --> 0:01:47.200 percent in June. The core is going to slow a 0:01:47.240 --> 0:01:49.640 little bit as well, to three point two percent from 0:01:49.680 --> 0:01:53.560 three point three percent in June. Now, consumers are looking 0:01:53.560 --> 0:01:56.760 for discounts, and they're finding them when they look online, 0:01:56.880 --> 0:01:59.200 when they go to auto dealerships. But some of the 0:01:59.240 --> 0:02:01.920 biggest ticket items, some of the items that take up 0:02:01.920 --> 0:02:05.360 the most space in budgets, like shelter for example, it's 0:02:05.440 --> 0:02:08.120 just going to be a slow disinflation process. And in fact, 0:02:08.360 --> 0:02:10.800 we're expecting to see a little bit of an uptick 0:02:10.840 --> 0:02:13.760 in the pace of rent and owner's equivalent of rent 0:02:13.840 --> 0:02:17.799 inflation in the July data. And the big swing factor 0:02:17.840 --> 0:02:21.400 when it comes to inflation has been hotels, surprisingly, which 0:02:21.480 --> 0:02:24.240 created a lot of drag in June. We think it's 0:02:24.240 --> 0:02:26.600 going to create a little bit less drag in the 0:02:26.680 --> 0:02:29.680 July data, and that's going to booy the core just 0:02:29.720 --> 0:02:30.240 a little bit. 0:02:30.520 --> 0:02:33.280 Well, the housing market, I mean, what an uneven You 0:02:33.280 --> 0:02:35.200 don't know what to expect month to month, but one 0:02:35.200 --> 0:02:38.760 thing is certain, it's more expensive than it's ever been. 0:02:39.280 --> 0:02:41.680 Rates are still elevated, although there's hope that they're going 0:02:41.760 --> 0:02:44.679 to go down. So travel demand, which lays right into 0:02:44.840 --> 0:02:48.239 what you said about hotels, I mean, we have seen 0:02:48.320 --> 0:02:52.359 signs that people are pulling back now fewer trip Advisor 0:02:52.400 --> 0:02:56.200 says fewer bookings, Airbnb says fewer bookings, so they're bracing 0:02:56.320 --> 0:02:57.520 for a pullback. 0:02:57.320 --> 0:03:00.160 That's right. So consumers are becoming quite a bit more 0:03:00.160 --> 0:03:03.239 discerning in their spending habits. When we look at things 0:03:03.280 --> 0:03:05.880 like you said Airbnb, or you look at some of 0:03:05.919 --> 0:03:09.040 the online travel booking agencies, you're definitely seeing some of 0:03:09.040 --> 0:03:11.640 the swings month to month. If you look at where 0:03:11.680 --> 0:03:15.160 consumers are really starting to tighten their belt, it's in 0:03:15.240 --> 0:03:19.000 things like food services also very similar to travel and accommodations. 0:03:19.240 --> 0:03:21.320 Consumers are looking to rein in on some of those 0:03:21.360 --> 0:03:25.119 discretionary services categories in addition to some of the more 0:03:25.200 --> 0:03:28.119 interest sensitive spending categories like autos. 0:03:28.440 --> 0:03:31.600 There's groceries, and there's food service, and there are all 0:03:31.680 --> 0:03:34.320 kinds of restaurants from fast food, quick service, sit down, 0:03:34.320 --> 0:03:38.560 white tablecloth. Where are you seeing the big changes in food? 0:03:38.920 --> 0:03:41.880 It's interesting. So when we listen into earnings calls, when 0:03:41.920 --> 0:03:45.120 we look at earnings reports, we see a lot of 0:03:45.160 --> 0:03:49.400 reports of dining services companies that are starting to offer 0:03:49.480 --> 0:03:52.800 discount meals and that are starting to order discount opportunities 0:03:52.800 --> 0:03:56.520 and they're actually seeing some more traction with consumers. When 0:03:56.560 --> 0:03:59.840 we look on the higher end, those sort of re 0:04:00.080 --> 0:04:02.480 tailers and those chains are facing a little bit more 0:04:02.600 --> 0:04:06.000 headwinds and consumers are rotating a bit more back to 0:04:06.160 --> 0:04:09.000 cooking at home, dining at home. We're expecting to see 0:04:09.000 --> 0:04:11.840 about zero point one percent inflation when it comes to 0:04:12.000 --> 0:04:14.880 groceries during the month. That might not sound like a lot, 0:04:14.920 --> 0:04:17.880 but when consumers are really pinching pennies and they're raining 0:04:17.920 --> 0:04:22.560 and they're spending on food services, that inflation in groceries 0:04:23.000 --> 0:04:26.240 is going to is going to weigh on consumers. 0:04:27.120 --> 0:04:29.080 Well, I want to go back to something you mentioned before, 0:04:29.120 --> 0:04:32.320 just briefly, and that is autos again very uneven what 0:04:32.360 --> 0:04:35.920 we've seen with used car prices, new car prices. Now 0:04:36.000 --> 0:04:38.920 we have all the ads are out there, it's August, now, 0:04:38.960 --> 0:04:41.200 all the twenty five models are coming in the twenty four. 0:04:41.240 --> 0:04:44.360 They want to get rid of what's different now on 0:04:44.520 --> 0:04:45.360 auto pricing. 0:04:45.520 --> 0:04:47.599 There are a few factors at play here, and one 0:04:47.600 --> 0:04:50.520 of them is still the cyber attack on auto dealers 0:04:50.520 --> 0:04:53.719 that we saw in June, and so far in July, 0:04:54.120 --> 0:04:56.039 we've seen a bit of a rebound, about a three 0:04:56.080 --> 0:04:59.320 point five percent rebound in the pace of auto sales 0:04:59.440 --> 0:05:02.880 in July. So as those computers, those computer systems came 0:05:02.920 --> 0:05:07.040 back online, we saw auto dealers starting to sell more vehicles. 0:05:07.640 --> 0:05:11.480 But it also looks like they are offering discounts in 0:05:11.600 --> 0:05:14.719 part to offset the effect of higher interest expense for 0:05:14.800 --> 0:05:18.400 folks who are financing their cars. So we are expecting 0:05:18.400 --> 0:05:21.159 to see about one and a half percent decline in 0:05:21.200 --> 0:05:23.880 the price of autos, in the price of used autos 0:05:23.880 --> 0:05:27.800 in particular in the CPI report, But again the increase 0:05:28.000 --> 0:05:32.960 in sales volumes will probably buoy retail sales. Headline retail 0:05:33.040 --> 0:05:35.440 sales in the July report. 0:05:35.240 --> 0:05:38.240 Also out this week. Retail sales for July, what do 0:05:38.279 --> 0:05:38.960 you expect to see? 0:05:38.960 --> 0:05:39.400 Overall? 0:05:39.560 --> 0:05:41.919 The headline number is going to look pretty good again 0:05:41.960 --> 0:05:46.440 because of that rebound in sales volumes of autos. We're 0:05:46.480 --> 0:05:50.760 expecting to see zero point four percent increase in nominal 0:05:50.800 --> 0:05:55.320 retail sales in July. That's up from zero growth in June. 0:05:55.400 --> 0:05:57.640 So the headline's going to look pretty good. When you 0:05:57.680 --> 0:06:00.919 strip out some of the more voluable categories though, like autos, 0:06:00.960 --> 0:06:04.360 like gasoline, like building materials and food services, I think 0:06:04.360 --> 0:06:06.359 we're actually going to see a decline. So that's what 0:06:06.400 --> 0:06:09.480 we call the control group for retail sales, and it's 0:06:09.480 --> 0:06:12.760 a pretty good indicator of consumer spending on goods within GDP. 0:06:12.920 --> 0:06:15.560 So that control group for retail sales, we think is 0:06:15.800 --> 0:06:18.720 going to decline about a quarter percentage point in the 0:06:18.800 --> 0:06:22.479 July data. And that's a material decline when you consider 0:06:23.360 --> 0:06:27.480 a June increase of nearly one percent. And that's because again, 0:06:27.600 --> 0:06:31.080 people are relying on their credit cards a little bit less, 0:06:31.240 --> 0:06:34.200 They have less access to credit. When they do look 0:06:34.440 --> 0:06:37.640 to take out their credit card, they're starting to pinch 0:06:37.680 --> 0:06:40.560 pennies quite a bit more, and again they're looking for 0:06:40.640 --> 0:06:43.000 discounts where they can get it, So they're not going 0:06:43.040 --> 0:06:45.400 to be spending lavishly on some big ticket items like 0:06:45.560 --> 0:06:48.960 washing machines. Instead, they're going to be looking for discounts. 0:06:49.040 --> 0:06:51.240 We think that'll show up in the control group sales 0:06:51.320 --> 0:06:51.680 boy our. 0:06:51.800 --> 0:06:56.360 Thanks to Stuart Paul, us economists with Bloomberg Economics. We 0:06:56.440 --> 0:06:58.960 continue with that discussion about the health of the US 0:06:59.000 --> 0:07:01.600 consumer with a look at head to some key earnings 0:07:01.640 --> 0:07:04.960 this Tuesday, second quarter earnings from the nation's biggest home 0:07:05.040 --> 0:07:08.920 improvement chain, home Depot. On Thursday, Q two earnings from 0:07:08.920 --> 0:07:12.240 the world's biggest retailer, Walmart. To help us break down 0:07:12.240 --> 0:07:15.360 what those results could tell us, we're joined by Bloomberg 0:07:15.400 --> 0:07:19.120 retail reporter Jaywon Kong. Jaywan, thank you for joining us. 0:07:19.120 --> 0:07:22.280 And Home Depot often seen as a proxy for the 0:07:22.360 --> 0:07:25.320 US housing market. So what do you expect to see 0:07:25.520 --> 0:07:26.960 from Home Depot's earnings. 0:07:27.600 --> 0:07:32.440 Yeah, with Home Depot, consumers just aren't buying dick ticket 0:07:32.440 --> 0:07:35.840 home products or projects right now, and we expect to 0:07:35.880 --> 0:07:41.720 see another challenging quarter. We also anticipate to hear that 0:07:41.880 --> 0:07:45.400 the business will remain challenging in the coming months, even 0:07:45.600 --> 0:07:48.280 if there are rate cuts, because there's typically a lag 0:07:48.480 --> 0:07:52.880 in consumer spending. You know, as you said, the housing 0:07:52.880 --> 0:07:56.600 market remains tough and people are staying on the sidelines 0:07:56.680 --> 0:08:00.640 because of you know, high interest rates. They're just spending 0:08:00.720 --> 0:08:05.520 less on larger descriptionary projects and instead spending on things 0:08:05.560 --> 0:08:08.840 that cost less, like you know, gardens, lawns. 0:08:08.960 --> 0:08:12.080 All right, So inflation, high borrowing costs a lot of 0:08:12.560 --> 0:08:15.920 economic uncertainty. Well, I guess when you're hiring a contractor, 0:08:16.240 --> 0:08:19.200 it involves all of that, and so maybe you're not 0:08:19.200 --> 0:08:21.160 going to redo the bathroom or the kitchen this year. 0:08:21.600 --> 0:08:24.760 Yeah, it's you know, spending you know, tens of thousands 0:08:24.800 --> 0:08:28.680 of dollars on a kitchen. People are either holding off 0:08:28.960 --> 0:08:31.920 or you know, they're choosing to do smaller at the 0:08:31.960 --> 0:08:36.439 II projects. And it's something that the company has talked 0:08:36.440 --> 0:08:40.560 about in recent quarters, and you know, we anticipate to 0:08:40.600 --> 0:08:45.320 hear that narrative again this quarter. You know, I think 0:08:45.400 --> 0:08:48.680 investors expect that there could be a pop in the 0:08:48.760 --> 0:08:52.680 stock whenever the said you know, decides to cut race. 0:08:52.920 --> 0:08:58.040 But you know, it's not like people start spending immediately 0:08:58.240 --> 0:09:01.719 after the rate cuts. So I think this quarter and 0:09:02.200 --> 0:09:04.360 the rest of the year it'll be pretty challenging. 0:09:05.240 --> 0:09:09.160 Now, combined with a lack of housing turnover. This you 0:09:09.200 --> 0:09:11.079 expect to see a bit of a pullback in home 0:09:11.120 --> 0:09:14.400 depot spending. What does it tell us about the housing market? 0:09:14.480 --> 0:09:16.640 And I know you're not the housing expert, you're a 0:09:16.679 --> 0:09:20.440 retail expert, but I mean with home depot with lows, 0:09:20.559 --> 0:09:23.480 with target with you know, it's really got to impact 0:09:23.559 --> 0:09:24.880 consumer spending overall. 0:09:25.520 --> 0:09:30.839 Yeah, what we've heard in recent quarters is that consumers 0:09:30.880 --> 0:09:36.319 are being selective. You know, they're choosing to prioritize what 0:09:36.360 --> 0:09:39.679 they need versus what they want. So that's you know, 0:09:39.800 --> 0:09:46.360 translated to pullback on discretionary you know, products projects, and 0:09:47.520 --> 0:09:51.040 you know, generally low to middle income consumers have been 0:09:52.000 --> 0:09:55.040 more stretched than under more pressure, and you know, upper 0:09:55.160 --> 0:09:59.560 income consumers are still spending. So you know, that's sort 0:09:59.559 --> 0:10:04.600 of the pick or that we've we've seen from these retailers, 0:10:04.640 --> 0:10:09.640 and it'll be pretty similar this this quarter as well. 0:10:09.679 --> 0:10:11.559 And you know, of course we'll be on the lookout 0:10:11.640 --> 0:10:16.120 for any youth signals about how people are spending. You know, 0:10:16.160 --> 0:10:20.000 what they're buying and you know how they're choosing to prioritize. 0:10:20.160 --> 0:10:22.800 Well, then let's move on because that's a great segue 0:10:22.960 --> 0:10:26.360 into Walmart, where it looks like it is all about 0:10:26.520 --> 0:10:30.080 value for customers and Walmart is providing it. So what 0:10:30.120 --> 0:10:32.120 do you expect to see from Walmart? 0:10:32.559 --> 0:10:36.080 Yeah? With Walmart, you know right now is sort of 0:10:36.120 --> 0:10:38.200 you know, their time, it's you know, most of their 0:10:38.200 --> 0:10:43.320 business is in essentials. You know, they are super focused 0:10:43.320 --> 0:10:48.040 on low prices, and we expect them to deliver another good, 0:10:48.400 --> 0:10:53.880 good quarter because of this. And with grocery at Walmart, 0:10:54.000 --> 0:10:55.960 you know, it goes back to what we were talking 0:10:56.000 --> 0:10:59.240 about a bit ago, which is that people are prioritizing 0:10:59.520 --> 0:11:03.440 what they needed. So grocery has been a bright spot 0:11:03.559 --> 0:11:07.559 for for Walmart on and you know in other categories, 0:11:09.080 --> 0:11:12.800 you know, like general merchandise have been have been softer, 0:11:13.840 --> 0:11:18.400 and you know, we're seeing consumers search for value, you know, 0:11:18.480 --> 0:11:21.200 buying things that are on sale or buying things that 0:11:21.240 --> 0:11:24.240 they think are you know, good deal. 0:11:25.360 --> 0:11:28.160 Who is raining and their spending and what do we 0:11:28.200 --> 0:11:29.480 continue to spend money on? 0:11:30.040 --> 0:11:35.040 Yeah, so with consumers, you know, they have been resilient 0:11:35.280 --> 0:11:39.640 in that they are still spending, you know, even with 0:11:39.800 --> 0:11:45.120 years of inflation. That being said, you know, they are 0:11:45.360 --> 0:11:48.360 being what a lot of these companies have called choiceful. 0:11:49.080 --> 0:11:52.640 You know, they are being selective. You know they're looking 0:11:52.679 --> 0:11:56.680 for areas to trade down, so to speak. So you know, 0:11:56.720 --> 0:12:00.200 instead of buying if you buy chicken or you know 0:12:00.320 --> 0:12:04.240 inspetifying name brands, you buy straw brands. So I think 0:12:04.240 --> 0:12:09.520 consumers are looking for areas to save money. And you know, 0:12:09.559 --> 0:12:14.040 we're seeing that comes through in grocery shopping and you 0:12:14.040 --> 0:12:16.600 know in other areas of merchandise. 0:12:17.240 --> 0:12:19.480 Well, we should learn a lot earnings this week from 0:12:19.480 --> 0:12:22.679 two of the biggies Home Depot and Walmart Our thanks 0:12:22.679 --> 0:12:26.679 to Jaywan Kong, Bloomberg retail reporter. Coming up on Bloomberg 0:12:26.720 --> 0:12:30.640 day Break weekend, we'll examine the consequences of Europe's sweltering summer. 0:12:31.200 --> 0:12:44.840 I'm Tom Busby, and this is Bloomberg. This is Bloomberg 0:12:44.880 --> 0:12:46.960 day Break Weekend, our global look ahead at the top 0:12:46.960 --> 0:12:49.840 stories for investors in the coming week. I'm Tom Busby 0:12:49.840 --> 0:12:52.120 in New York. Up later in our program, we'll look 0:12:52.160 --> 0:12:55.840 ahead to the latest reading of Japan's GDP. But first, 0:12:56.200 --> 0:12:58.560 Europe is heating up with high tempts and excess of 0:12:58.640 --> 0:13:02.440 forty degrees celsius this summer, a huge uptick from the norm, 0:13:02.800 --> 0:13:06.439 with climate chains a likely culprit of the Mediterranean's tropical makeover. 0:13:06.600 --> 0:13:09.600 Can the insurance industry keep up for more? Let's go 0:13:09.640 --> 0:13:12.960 to London and bring in Bloomberg daybreak, europe banker Caroline 0:13:12.960 --> 0:13:14.160 hepgar Tom. 0:13:14.400 --> 0:13:19.160 Climate change is increasing the frequency and intensity of heat waves, 0:13:19.200 --> 0:13:24.520 bringing extreme weather events from flooding to wildfires across Europe. 0:13:24.720 --> 0:13:28.800 Just last month, in Greece, wildfires were found by strong winds. 0:13:28.880 --> 0:13:32.800 In the Balkans, you saw burning forests and homes, which 0:13:32.840 --> 0:13:36.720 also forced the evacuation of a resort town in Albania. 0:13:37.000 --> 0:13:40.360 In North Macedonia, a blaze near the Greek border burned 0:13:40.440 --> 0:13:44.280 five houses and led to evacuations, and the damage spread 0:13:44.320 --> 0:13:49.760 to Croatia, a popular holiday destination, whilst in Bulgaria firefighters 0:13:49.800 --> 0:13:52.920 had to stop fighting a wildfire in the mountains near 0:13:52.960 --> 0:13:56.520 the Greek border because of land mines dating back to 0:13:56.559 --> 0:14:00.800 the Cold War era. The volatile weather condition in Europe 0:14:00.880 --> 0:14:04.600 really show no sign of abating in the northwest of Europe, 0:14:04.600 --> 0:14:08.640 in France, in Germany, in the UK we're expected to 0:14:08.679 --> 0:14:12.240 see the hottest temperatures of the summer in the next 0:14:12.280 --> 0:14:17.480 few days. Popular tourist destinations are on high alert for fires. 0:14:17.880 --> 0:14:21.840 The growing prevalence of extreme weather conditions is weighing heavily 0:14:21.880 --> 0:14:26.360 also on the insurance sector, often charged with the clear up. 0:14:26.800 --> 0:14:30.400 Navigating the consequences is something that we've been discussing with 0:14:30.520 --> 0:14:35.880 the Munich RECFO Christophe Jureka. He says that the unexpected 0:14:35.960 --> 0:14:39.440 conditions in Europe are affecting his company's bottom line. 0:14:39.560 --> 0:14:42.640 Indeed, we have very pleasing results again this quarter, and 0:14:42.840 --> 0:14:45.200 after six months we are now already at three point 0:14:45.240 --> 0:14:47.680 eight billion euros of a net result, by the way, 0:14:47.720 --> 0:14:50.440 the highest net result ever we had after six months, 0:14:50.480 --> 0:14:53.920 so very well on twek to achieve all for your guidance. Indeed, 0:14:54.600 --> 0:14:58.240 now the question is why didn't be increase it? Probably well, 0:14:58.400 --> 0:15:01.400 I would say that's the typical Munich conservativism. We are 0:15:01.440 --> 0:15:05.720 cautious until the very end, and you know, the third 0:15:05.760 --> 0:15:09.160 and the fourth quarter are very cut heavy in our planning. 0:15:09.600 --> 0:15:12.120 So therefore we thought, let's give it another quarter and 0:15:12.320 --> 0:15:16.040 see how the development goes and keep the guidance unchanged 0:15:16.040 --> 0:15:19.280 for now. But what is very clear, were likely good 0:15:19.280 --> 0:15:22.600 of it of overachieving our target has significantly increased? 0:15:24.160 --> 0:15:26.520 Okay, Well that's what it sounds like. Okay, so that's important. 0:15:26.560 --> 0:15:30.480 The likelihood of overachieving on that five billion europrofits target 0:15:30.800 --> 0:15:33.400 has increased. That's an important line I think for investors 0:15:33.520 --> 0:15:35.960 and talk to us about some of these extreme weather events. 0:15:36.000 --> 0:15:39.360 Then there are higher payment claims coming through for insurers 0:15:39.600 --> 0:15:43.720 and reinsurers. Are there some regions now that are becoming uninsurable? 0:15:45.640 --> 0:15:45.920 Well. 0:15:45.960 --> 0:15:48.720 Indeed, in the second quarter again we had a relatively 0:15:48.800 --> 0:15:52.560 high share of cut losses, slightly above our budget or 0:15:52.600 --> 0:15:55.680 average budget is fourteen percent per quarter this time, whilst 0:15:55.680 --> 0:15:59.160 it was fourteen point four, so slightly higher. And what 0:15:59.360 --> 0:16:02.440 actually happened was that there was not this one single 0:16:02.440 --> 0:16:06.000 headline event, you know, affecting us to that extent, but 0:16:06.080 --> 0:16:09.280 it was a number of smaller, mid sized events which 0:16:09.320 --> 0:16:12.680 then added up to that overall amount. The most significant 0:16:12.680 --> 0:16:17.040 fast disc quarter was a flood in southern Germany which 0:16:17.080 --> 0:16:20.240 which all together cost us in reinsurance around two hundred 0:16:20.280 --> 0:16:23.760 million euros. But then there were other events across the globe, 0:16:23.760 --> 0:16:27.000 all of them rather mid sized, which then finally added 0:16:27.080 --> 0:16:28.520 up to the to the number. So in a way 0:16:28.640 --> 0:16:32.040 busy quarter with with not this single so significant event 0:16:32.120 --> 0:16:34.760 that it would have made headline headlines in the in 0:16:34.800 --> 0:16:35.440 the neuse. 0:16:36.640 --> 0:16:39.400 Is it is it your assessment there is sufficient capacity 0:16:39.680 --> 0:16:43.040 within the insurance sector to be able to make up 0:16:43.080 --> 0:16:45.600 for what is expected to be the increased claims around 0:16:45.960 --> 0:16:46.760 climate change. 0:16:48.280 --> 0:16:51.400 So our clear answer is yes, there is enough capacity, 0:16:51.480 --> 0:16:55.080 So we are very happy to deploy capacity into cut risks, 0:16:56.120 --> 0:16:58.880 always under the precondition, of course that the prices in 0:16:58.920 --> 0:17:01.680 the terms and conditions have to have to be reasonable 0:17:01.720 --> 0:17:05.119 also from a rene insurance perspective. But under that precondition, 0:17:05.359 --> 0:17:08.359 absolutely there is that there's sufficient capacity in the market 0:17:08.560 --> 0:17:11.879 and and and we are very happy to deploying more cognacity. 0:17:12.560 --> 0:17:14.600 Your business men, Ray has been a leader in terms 0:17:14.640 --> 0:17:17.640 of cybersecurity solutions within the insurance space. How how big 0:17:17.640 --> 0:17:21.280 an impact was the crowd strike event within the industry 0:17:21.280 --> 0:17:21.600 and for. 0:17:21.600 --> 0:17:24.919 You, that's a very good question. I would very I 0:17:24.920 --> 0:17:27.920 would love to know myself, but it's very early days, 0:17:28.560 --> 0:17:31.560 so I cannot give you any any internal insights in 0:17:31.640 --> 0:17:34.840 any internal numbers. Yet we're still assessing what's was going on. 0:17:35.840 --> 0:17:39.280 I think the the the the industry estimates as for 0:17:39.400 --> 0:17:42.760 example just shown in the media, they have come down 0:17:42.880 --> 0:17:46.720 a bit recently. But any anyways, it's early days. We 0:17:46.840 --> 0:17:49.879 have to you know, really assess it, wait for the 0:17:49.920 --> 0:17:53.080 collect claim stotifications and from from our clients. And then 0:17:53.119 --> 0:17:54.560 we'll see that was. 0:17:54.560 --> 0:18:00.000 The munich ree CFO Christopherjureka. So are Europe's soaring temperature 0:18:00.160 --> 0:18:03.760 is here to stay? What does it mean for insurers 0:18:03.800 --> 0:18:07.399 on the one hand, but also for local people, for businesses, 0:18:07.400 --> 0:18:10.879 for holidaymakers, and so much more. I've been talking about 0:18:10.920 --> 0:18:14.840 that question with Bloomberg's energy reporter Aiman Farhat. 0:18:15.280 --> 0:18:17.200 I mean in the last few years, I mean definitely 0:18:17.240 --> 0:18:19.280 last summer and the summer before, we've been seeing these 0:18:19.320 --> 0:18:22.000 increasingly record temperatures. I mean, you know you talked about 0:18:22.000 --> 0:18:24.000 in excess of foy degrees. We actually reached even forty 0:18:24.000 --> 0:18:26.639 six degrees celsius in Spain. I think that was last week. 0:18:26.920 --> 0:18:28.399 And I think the important thing is it's not just 0:18:28.480 --> 0:18:32.280 the high temperatures, it's also the intense heat for longer periods, 0:18:32.480 --> 0:18:36.400 affecting people's health, as you said, affecting wildfires. So it's 0:18:36.400 --> 0:18:39.080 definitely getting more extreme, and we're seeing that that's kind 0:18:39.080 --> 0:18:41.560 of summer period. Start earlier. We were already seeing heat 0:18:41.560 --> 0:18:44.000 waves in Spain in April and finish even later. We're 0:18:44.040 --> 0:18:47.480 expecting this heat evening continue into October for some places. 0:18:48.160 --> 0:18:52.360 Okay, so the scorching weather is back then for another summer. 0:18:52.600 --> 0:18:55.920 How prepared are parts of Europe for this? I mean, 0:18:56.000 --> 0:19:00.960 some places in Europe are fairly accustomed to wildfires, but 0:19:01.280 --> 0:19:03.280 how ready are Greece and other places? 0:19:04.200 --> 0:19:05.960 Yeah, I mean Greece has definitely been the center of 0:19:06.040 --> 0:19:08.160 kind of our wildfire coverage this summer. You know, every 0:19:08.160 --> 0:19:10.680 single day we have new blazers, you know, on very 0:19:10.720 --> 0:19:14.120 popular tourist spots of popular islands as well, but also 0:19:14.280 --> 0:19:17.040 on the mainland. I mean, on the worst days in 0:19:17.040 --> 0:19:19.200 Greece you will have you know, maybe sixty new blazers, 0:19:19.560 --> 0:19:21.679 but they are quite responsive. One thing that's quite interesting 0:19:21.720 --> 0:19:23.399 is there's much more of a kind of shared approach 0:19:23.400 --> 0:19:25.600 in Europe, where you know, planes will be sent from 0:19:26.200 --> 0:19:29.040 France or Italy to Greece to help out with wildfires. 0:19:29.400 --> 0:19:31.080 But at the same time, you know, it is quite 0:19:31.080 --> 0:19:33.600 worrying when lots of countries in that area are under 0:19:33.640 --> 0:19:36.160 extreme risk of wildfire. Says, you know, something very small 0:19:36.160 --> 0:19:37.560 could tip it all over to the edge. 0:19:38.160 --> 0:19:40.919 Okay, So if it's a difficult wildfast season, then what 0:19:40.960 --> 0:19:44.480 sort of tactics have been developed? You say, sharing equipment 0:19:44.560 --> 0:19:48.879 is one. How else can countries in Europe try to 0:19:48.880 --> 0:19:50.760 curb the damage? 0:19:51.080 --> 0:19:52.800 Yeah, I mean I think it's definitely though the shard 0:19:52.840 --> 0:19:54.680 its equipment is a big factor, but also there's a 0:19:54.720 --> 0:19:57.200 lot more monitoring now. I mean, we have very advanced forecasts, 0:19:57.240 --> 0:19:58.879 you know. The one thing is that wildfires are kind 0:19:58.880 --> 0:20:02.359 of driven by dry conditions, by specific kinds of wind, 0:20:02.640 --> 0:20:04.920 and by quite advanced marching technique. You can really tell 0:20:04.960 --> 0:20:07.119 almost exactly where they're going to take place, and then 0:20:07.160 --> 0:20:09.919 using southline imagery, European kind of forecasters can also tell 0:20:09.960 --> 0:20:12.520 where the wildfires actually are, how they're doing with kind 0:20:12.520 --> 0:20:15.320 of controlling blazers, and especially for the bigger, bigger issues, 0:20:15.359 --> 0:20:17.520 that can really help to just a market situation and 0:20:17.560 --> 0:20:20.159 to make sure that races are being used efficiently. 0:20:20.920 --> 0:20:23.440 Do you think that there's a risk that wildfires could 0:20:23.480 --> 0:20:25.800 spread further north? I mean, let's say to the UK. 0:20:26.200 --> 0:20:28.160 Would we be equipped to deal with them, and would 0:20:28.200 --> 0:20:31.200 it get hot enough dry enough here for that to happen? 0:20:32.320 --> 0:20:34.080 Yeah, So, I mean I'm kind of checking these wildfire 0:20:34.080 --> 0:20:35.720 maps almost every single day to see what it's going 0:20:35.760 --> 0:20:37.560 to look like, and actually into next week there was 0:20:37.560 --> 0:20:39.280 an increased risk in the UK. We've seen that a 0:20:39.280 --> 0:20:40.840 few times a season where you kind of have this 0:20:40.960 --> 0:20:42.600 high or very high wildfire risk. 0:20:42.880 --> 0:20:43.040 Now. 0:20:43.040 --> 0:20:44.480 Back in twenty twenty two, you know, we had the 0:20:44.480 --> 0:20:46.480 hotest day ever and on that day we had some 0:20:46.560 --> 0:20:49.360 wildfires in London. About twenty homes are destroyed. And since 0:20:49.400 --> 0:20:52.199 then there's definitely been a much bigger concern about wildfires 0:20:52.240 --> 0:20:54.560 in London and in the UK, and there's been lots 0:20:54.600 --> 0:20:56.920 of consultations. There was kind of a whole kind of 0:20:56.920 --> 0:20:58.520 period this year where there was people from you know, 0:20:58.640 --> 0:21:01.480 from fire agencies and Spain, in France and Greece coming 0:21:01.520 --> 0:21:03.320 to London and giving their advice. In the end that 0:21:03.359 --> 0:21:06.080 did lead to some changes, you know, lots of the 0:21:06.119 --> 0:21:08.560 staff in ord and now being traded specifically for wildfires. 0:21:09.080 --> 0:21:11.719 They're even giving recommendations to local council to really reduce 0:21:11.760 --> 0:21:14.000 that kind of risk of you know, of having barbecues 0:21:14.000 --> 0:21:15.879 and parks and trying to reduce all those things that 0:21:15.920 --> 0:21:18.800 could create wildfires because it is increasingly becoming a problem 0:21:18.880 --> 0:21:20.639 in the UK. We are seeing hot of summers. We 0:21:20.680 --> 0:21:22.159 are seeing it's not just about hot of summer, it's 0:21:22.160 --> 0:21:24.560 about having those specific days where the heat really spiked. 0:21:24.600 --> 0:21:26.120 As you said, you know into next week there will 0:21:26.119 --> 0:21:28.080 be some days where it could reach thirty three degrees 0:21:28.080 --> 0:21:30.080 and although that doesn't seem too hot, that can be 0:21:30.200 --> 0:21:32.040 enough to course some wildfires. 0:21:32.720 --> 0:21:37.520 So then also the other big market that is involved 0:21:37.520 --> 0:21:39.720 in this is insurance in you know, the homes you 0:21:39.760 --> 0:21:42.080 talk about being destroyed, I mean, that's all of that 0:21:42.119 --> 0:21:46.359 has huge insurance implications. How are they dealing with the 0:21:46.400 --> 0:21:49.000 optic and the issues around climate change? 0:21:49.520 --> 0:21:51.240 Yeah, I mean definitely when when you take a step back, 0:21:51.280 --> 0:21:54.160 all of these kind of extreme weather events sometimes seem isolated, 0:21:54.200 --> 0:21:56.040 but as you said, there is a general trend about 0:21:56.040 --> 0:21:58.639 climate change making them more and more frequent, and insurers 0:21:58.640 --> 0:22:00.840 are definitely very aware of this, definitely warned about the 0:22:00.880 --> 0:22:02.960 risks of climate change. And although they're not kind of 0:22:02.960 --> 0:22:05.199 there yet, there are many insurances have said that some regions, 0:22:05.200 --> 0:22:08.080 some places will become unensurable in the future as these 0:22:08.080 --> 0:22:10.560 claims are getting bigger and more frequent. I mean this 0:22:10.680 --> 0:22:12.200 year that you know, the Costes event in Europe was 0:22:12.240 --> 0:22:14.480 actually a flooding event in southern Germany which kind of 0:22:14.520 --> 0:22:16.639 came to about five billion, of which two point two 0:22:16.640 --> 0:22:19.520 billion the US dollars was an insured loss. But you know, 0:22:19.720 --> 0:22:21.960 whether it's kind of you know, the rain, the fires, 0:22:22.080 --> 0:22:24.520 or just the extreme temperatures, those losses are becoming more 0:22:24.520 --> 0:22:26.640 and more and I said more and more frequent every year. 0:22:26.840 --> 0:22:29.000 So insurers are definitely kind of very aware of this 0:22:29.000 --> 0:22:29.840 this trend. 0:22:30.359 --> 0:22:34.040 And we have had warnings in recent years and numerous 0:22:34.040 --> 0:22:38.480 warnings of the risks of under insuring for climate change. 0:22:38.520 --> 0:22:40.359 That's been a real worry of the industry. I mean, 0:22:40.400 --> 0:22:42.359 why do you think aiming in particular the fars A 0:22:42.440 --> 0:22:45.080 spreading to such an extent this summer. 0:22:45.680 --> 0:22:47.240 The thing that the kind of fires is that it 0:22:47.280 --> 0:22:48.760 can even be a hangover from last year. You know, 0:22:48.800 --> 0:22:51.199 it's about drying us and the soil, It's about different winds, 0:22:51.240 --> 0:22:53.480 and you know, if you have multiple years of pretty 0:22:53.520 --> 0:22:55.800 extreme temperatures that can kind of compound that effect. You know, 0:22:55.840 --> 0:22:58.200 we've had about two three years of pretty hot summers, 0:22:58.560 --> 0:23:01.520 so in Greece that's really a problem. And it's also 0:23:01.560 --> 0:23:03.600 the fact that this can extend much later into the 0:23:03.640 --> 0:23:05.440 year than it would have. Otherwise we'd have seen a 0:23:05.480 --> 0:23:08.360 wildfire season really focused on July August this year, Earlie 0:23:08.440 --> 0:23:11.600 Junior are already seeing those wildfires expanding in parts of Europe, 0:23:11.800 --> 0:23:13.520 and it also puts countries on edge. I mean, Spain 0:23:13.520 --> 0:23:15.080 has been the focus of it For the last few weeks. 0:23:15.080 --> 0:23:17.720 There haven't been any major places, but you know, everyone's 0:23:17.800 --> 0:23:20.119 kind of unread alad it kind of causes some disruption 0:23:20.160 --> 0:23:22.359 as locally, and yeah, we have to be ready because 0:23:22.359 --> 0:23:24.760 it can expand. As I said, wildfires just in nature 0:23:24.760 --> 0:23:26.439 of them can mean that very quickly they can just 0:23:26.560 --> 0:23:28.600 kind of flare up and become a huge problem. 0:23:28.760 --> 0:23:32.880 Are the far authorities in various countries are they concerned 0:23:32.880 --> 0:23:35.359 about what may happen next summer? I mean, we have 0:23:35.520 --> 0:23:39.439 had kind of an optic and more close monitoring of 0:23:39.480 --> 0:23:44.160 these peak temperatures across different European countries over successive summers. 0:23:44.520 --> 0:23:46.480 Is a concern that this going to get worse next year? 0:23:47.520 --> 0:23:49.440 Yeah, I mean when it comes to extreme summers, I 0:23:49.440 --> 0:23:52.240 think it seems that different forecasters always say that you know, 0:23:52.400 --> 0:23:53.760 you know, they can't really tell the weather will be 0:23:53.760 --> 0:23:55.480 like next summer. It's obviously a long way away, but 0:23:55.760 --> 0:23:58.120 you know, more and more likely each summer we'll see 0:23:58.400 --> 0:24:01.560 records broken extreme heat and more and more kind of 0:24:01.560 --> 0:24:04.280 heat waves, which then leads to those fires. So that's 0:24:04.359 --> 0:24:05.920 kind of the general trend. I mean, we are having 0:24:05.960 --> 0:24:08.119 kind of an El Nino La Nina effect. You know, 0:24:08.160 --> 0:24:10.080 the Elino is kind of ending and Latini is coming in, 0:24:10.080 --> 0:24:12.439 which actually kind of reverses like that trend slightly and 0:24:12.480 --> 0:24:15.560 actually causes more increased risk of hurricanes in the Atlantic, 0:24:15.600 --> 0:24:18.119 which is a whole other, you know, other issue for insurers. 0:24:18.440 --> 0:24:21.359 But as far as temperatures go, you know, records are 0:24:21.480 --> 0:24:22.959 going to continue to be broken. I mean, that's one thing. 0:24:22.960 --> 0:24:24.880 We're kind of sure. We got the hottest day ever 0:24:25.000 --> 0:24:27.199 globally in July. That was two days in a row 0:24:27.240 --> 0:24:30.119 we got that. We've been having, you know, consecutive months 0:24:30.119 --> 0:24:32.879 of record temperatures every on Earth, so it just seems 0:24:32.880 --> 0:24:34.280 like things getting hot everywhere. 0:24:34.400 --> 0:24:37.600 That was Bloomberg's aim and far hat there as London, 0:24:37.760 --> 0:24:42.000 Paris and Berlin our brace to see yet more soaring 0:24:42.080 --> 0:24:47.480 temperatures and another summer of climate change impact. I'm Caroline 0:24:47.480 --> 0:24:49.840 Hepge here in London. You can catch us every weekday 0:24:49.880 --> 0:24:52.520 morning for Bloomberg Daybreak you at beginning at six am 0:24:52.560 --> 0:24:55.680 in London. That's one am on war Street, Tom. 0:24:55.800 --> 0:24:58.679 Thank you, Caroline, And coming up on Bloomberg day Break weekend, 0:24:58.680 --> 0:25:01.600 we'll look ahead to the latest reading on GDP from 0:25:01.600 --> 0:25:05.359 the world's third largest economy. I'm Tom Busby and this 0:25:05.560 --> 0:25:19.679 is Bloomberg. This is Bloomberg day Break weekend, our global 0:25:19.680 --> 0:25:21.720 look ahead at the top stories for investors in the 0:25:21.760 --> 0:25:24.960 coming week. I'm Tom Busby in New York. Last week, 0:25:25.000 --> 0:25:28.600 global expectations for the Japanese economy and its markets were 0:25:28.640 --> 0:25:32.160 completely upended, making the path for the Bank of Japan's 0:25:32.200 --> 0:25:35.760 monetary policy less clear. Ahead of the latest reading of 0:25:35.840 --> 0:25:39.439 Japan's GDP out this week, let's get to Bloomberg Daybreak 0:25:39.440 --> 0:25:42.640 Asia co host Doug Krisner for a closer look Tom. 0:25:42.680 --> 0:25:45.800 Before last week, the consensus view on Japan was that 0:25:45.840 --> 0:25:49.560 the economy was on the end. Wages were rising, prices 0:25:49.560 --> 0:25:53.959 were up, inflation had returned and was proving sustainable, and 0:25:54.040 --> 0:25:57.679 after many months of being above its two percent inflation target, 0:25:58.080 --> 0:26:01.520 the Bank of Japan tightened at its aligned meeting. BOJ 0:26:01.680 --> 0:26:04.920 Governor Kazuo Uwaita said the decision was based on data 0:26:04.960 --> 0:26:08.600 showing developments on the economy and inflation were in line 0:26:08.640 --> 0:26:13.320 with previous expectations. Earlier, I spoke with Stephanie Leung, chief 0:26:13.359 --> 0:26:17.080 investment officer at Stashaway based in Hong Kong, and I 0:26:17.160 --> 0:26:20.000 asked for her view on the boj's recent move. 0:26:20.280 --> 0:26:23.800 Given that Japan has gone through a deflation for the 0:26:23.880 --> 0:26:26.679 last thirty years, it is prudent for the BOJ to 0:26:26.760 --> 0:26:29.720 kind of be a bit more conservative in that move. 0:26:30.080 --> 0:26:33.480 I think the problem with the recent move is perhaps 0:26:33.720 --> 0:26:36.879 more in the timing of things. So they picked the summer. 0:26:37.480 --> 0:26:40.679 I think when liquidity is actually quite thin and a 0:26:40.680 --> 0:26:43.240 lot of people are on leave, they kind of wish 0:26:43.400 --> 0:26:45.639 that they could move the currency with this kind of 0:26:45.680 --> 0:26:48.280 thinner liquidity, and perhaps they got much more than what 0:26:48.320 --> 0:26:50.280 they wished for, and it says that it moved the 0:26:50.359 --> 0:26:53.120 currency in a very very valid way. At the same time, 0:26:53.160 --> 0:26:55.880 they stopped ETF purchases as well, and that I mean, 0:26:56.080 --> 0:26:59.560 let's remember the reason why BOJ is hiking is because, 0:26:59.680 --> 0:27:03.000 I mean, they are actually quite confident of the way 0:27:03.000 --> 0:27:05.040 the economy is going. So I think in terms of 0:27:05.080 --> 0:27:07.879 fundamental story, there's still a lot of progress, but I 0:27:07.920 --> 0:27:09.440 mean a lot of this is technical. 0:27:09.600 --> 0:27:12.760 Stephanie Leung there from Stashuay, Now, the point she made 0:27:12.800 --> 0:27:16.800 about Japan being in deflation for thirty years is important 0:27:17.000 --> 0:27:19.720 and not to be underestimated. You know, there's an entire 0:27:19.840 --> 0:27:24.280 generation in Japan that's known only deflation. Now, the other 0:27:24.280 --> 0:27:26.280 thing to consider in all of this, especially in the 0:27:26.320 --> 0:27:29.440 last several years, is the strength of the US dollar 0:27:29.800 --> 0:27:33.960 that has added to Japan's inflationary pressures. I also spoke 0:27:34.000 --> 0:27:38.120 earlier with Carlos Casanova, he is senior Asia economist at UBP. 0:27:38.520 --> 0:27:42.520 First half week yen triggering important inflation. As a result 0:27:42.600 --> 0:27:46.920 of that, you instigate changes in corporate behavior, including increasing wages. 0:27:47.080 --> 0:27:49.400 That increase was the highest than thirty years, So definitely 0:27:49.400 --> 0:27:52.760 that part of the cycle has materialized, and then down 0:27:52.800 --> 0:27:55.520 the line that should translate into stronger domestic consumption and 0:27:55.680 --> 0:27:59.080 endogenous inflation. The third part of that puzzle is what 0:27:59.119 --> 0:28:02.760 we haven't quite seni yet. Although data did show real 0:28:02.840 --> 0:28:05.400 wages increasing by one point one percent for the first 0:28:05.400 --> 0:28:07.800 time since twenty twenty one, but in none of itself, 0:28:07.840 --> 0:28:11.040 that is not sufficient to justify the hawkish piper. 0:28:11.160 --> 0:28:12.320 So I think. 0:28:12.160 --> 0:28:15.280 Inflation has been high, but it's predominantly driven by US 0:28:15.320 --> 0:28:18.400 dollar strength. And so Bank of Japan really really has 0:28:18.440 --> 0:28:21.680 taken a gamble here because the preliminary data does point 0:28:21.800 --> 0:28:24.520 towards this virtual cycle sort of taking hold in the 0:28:24.520 --> 0:28:26.959 second half of the year, but they moved ahead of 0:28:27.040 --> 0:28:29.160 having visibility on that front. 0:28:29.400 --> 0:28:34.240 Is Carlos Casanova, senior economist at UBP. Joining us now 0:28:34.320 --> 0:28:37.280 for some discussion on the Japanese economy and the BOJ 0:28:37.880 --> 0:28:41.840 is our own Paul Dobson. Paul is Bloomberg Executive editor 0:28:41.880 --> 0:28:45.840 for Asia Markets. He joins us from Singapore. Paul, the 0:28:45.920 --> 0:28:48.960 reaction in markets to the boj's tightening should really come 0:28:49.200 --> 0:28:54.160 as no surprise, especially directionally in terms of yen strengthening. 0:28:54.480 --> 0:28:56.480 I think it's fair to say that it was magnified 0:28:56.520 --> 0:28:58.840 by that unwinding of the carry trade. To be sure, 0:28:59.080 --> 0:29:02.120 how are you making sense of the ripple effects that 0:29:02.160 --> 0:29:03.320 we have seen in markets? 0:29:03.760 --> 0:29:06.400 So I think that the starting point has to be 0:29:06.560 --> 0:29:09.360 to think about that carry trade and how much of 0:29:09.400 --> 0:29:14.160 the world has been taking on these leveraged bets based 0:29:14.200 --> 0:29:18.160 on the yen being the last kind of funding currency 0:29:18.360 --> 0:29:22.240 at particularly low interest rates that's out there, and so 0:29:22.400 --> 0:29:25.920 that really has snowballed in recent years and become a 0:29:26.120 --> 0:29:29.840 very important theme. Now, on top of that, you've had 0:29:29.880 --> 0:29:33.160 further depreciation in the end for much of this year, 0:29:33.680 --> 0:29:36.760 and that's partly the boj's fault. So listening to some 0:29:36.840 --> 0:29:39.800 of what you've been saying already, just now, you know 0:29:39.880 --> 0:29:43.040 the Bank of Japan was very very slow and very 0:29:43.160 --> 0:29:47.080 very careful about when it's going to choose to raise 0:29:47.080 --> 0:29:49.600 interest rates. The market had been expecting it to come, 0:29:50.080 --> 0:29:52.840 you know, earlier in the year, and the BOJ chose 0:29:52.920 --> 0:29:54.800 not to move on a couple of occasions when the 0:29:54.800 --> 0:30:00.000 window was already open. It had kind of nurtured the market, 0:30:00.240 --> 0:30:03.160 but to such an extent that people had gotten very 0:30:03.160 --> 0:30:06.360 complacent about the idea that the BOJ wasn't going to 0:30:06.800 --> 0:30:11.000 move aggressively. So for them then to do this hike 0:30:11.040 --> 0:30:13.160 at a time when maybe the market wasn't quite so 0:30:13.280 --> 0:30:16.800 well prepared, did really cause something of a shock and 0:30:17.120 --> 0:30:19.680 start the sort of snowball rolling down the hill in 0:30:19.760 --> 0:30:24.760 terms of yen appreciation. What they couldn't have foreseen, and 0:30:24.800 --> 0:30:27.240 what was particularly bad luck was that two days later 0:30:27.280 --> 0:30:31.360 we'd have that really weak payrolls data out of the US, 0:30:31.480 --> 0:30:34.480 which led to a weaker dollar and increase beats that 0:30:34.520 --> 0:30:37.320 the Federal Reserve will need to start cutting interest rates soon. 0:30:37.360 --> 0:30:41.560 And that really was the second kind of push that 0:30:41.720 --> 0:30:45.320 really ignited that big unwind in the carry trade and 0:30:45.360 --> 0:30:47.520 then sent those ripples across the rest of the world's 0:30:47.520 --> 0:30:48.480 financial markets. 0:30:48.600 --> 0:30:51.440 So what have these developments done to the thinking on 0:30:51.600 --> 0:30:54.440 what the Bank of Japan may do next. Do you 0:30:54.520 --> 0:30:57.280 think they're going to be much more cautious now that 0:30:57.360 --> 0:31:00.560 they've become I don't want to say scared, but very 0:31:00.600 --> 0:31:04.440 concerned about the way in which markets have been trading 0:31:04.480 --> 0:31:07.480 in this volatile fashion. Or are they going to lean 0:31:07.520 --> 0:31:10.959 into solving the inflation problem in Japan? Which is it? 0:31:11.080 --> 0:31:14.680 So after two days are very volatile moves in financial markets. 0:31:14.720 --> 0:31:17.560 We heard from the Deputy Governor ochidah and he seemed 0:31:17.760 --> 0:31:21.560 to seek to calm those expectations somewhat. You might call 0:31:21.600 --> 0:31:24.840 it activating the BOJ put He said, hey, you know, 0:31:24.880 --> 0:31:28.120 if markets are very volatile like this, this isn't when 0:31:28.320 --> 0:31:31.360 the BOJ is going to continue to be hiking interest rates. 0:31:31.880 --> 0:31:35.120 That would be kind of counter productive. So he stilled 0:31:35.200 --> 0:31:37.400 some of the worst fears in the market about how 0:31:37.440 --> 0:31:40.400 fast the BOJ may move and what sort of circumstances 0:31:40.400 --> 0:31:43.760 it would be looking at for those moves, and that 0:31:43.840 --> 0:31:47.240 did do something to settle things down. The longer term 0:31:47.360 --> 0:31:52.280 expectations aren't exactly for the BOJ to be moving aggressively. 0:31:52.320 --> 0:31:55.720 A lot of the analysts are talking about December or 0:31:55.840 --> 0:31:58.360 January for the next hike, and the market is not 0:31:58.480 --> 0:32:01.960 pricing in a very aggressive part. What we'd had from 0:32:02.000 --> 0:32:06.360 the BOJ when it raised interest rates was a discourse 0:32:06.400 --> 0:32:08.600 that seemed to suggest that it could be moving much 0:32:08.640 --> 0:32:11.480 more quickly than that. Now the market is back to 0:32:11.520 --> 0:32:14.560 pricing a more gradual pace, and maybe there will be 0:32:14.680 --> 0:32:17.240 enough to help to assuage some of the worst fears 0:32:17.240 --> 0:32:19.000 in the market. But what we do know is that 0:32:19.040 --> 0:32:22.640 the BOJ is determined to continue with its hiking path 0:32:22.840 --> 0:32:25.320 or other things being equal, and so long the term, 0:32:25.800 --> 0:32:29.600 those people that have those long leverage positions based on 0:32:29.640 --> 0:32:31.960 the premise of very low interest rates in Japan will 0:32:32.000 --> 0:32:34.040 need to think twice about whether they want to hold 0:32:34.080 --> 0:32:34.600 onto them. 0:32:34.760 --> 0:32:36.920 As I mentioned earlier in the week ahead, we'll be 0:32:36.960 --> 0:32:41.080 getting the Japanese second quarter GDP print again. Here is 0:32:41.240 --> 0:32:45.520 Carlos Casanova, Senior Asia economist at UBP on what we 0:32:45.600 --> 0:32:46.680 are likely to see. 0:32:47.080 --> 0:32:50.040 It's a backward looking indicator, so I think it's going 0:32:50.040 --> 0:32:53.400 to disappoint. And remember that the economy was in a 0:32:53.440 --> 0:32:58.280 recession in the first quarter. Consumption and capital expenditure was 0:32:58.760 --> 0:33:04.000 contraction ay as a result of high inflation, squeezing purchasing 0:33:04.000 --> 0:33:06.960 power of households in Japan. Because all of their imports 0:33:07.040 --> 0:33:09.240 net importer and all of their imports are more expensive. 0:33:09.880 --> 0:33:12.959 But also companies have been adjusting to higher nominal wages 0:33:13.160 --> 0:33:17.000 by reducing the amount of that they spend on capital expenditures. 0:33:17.480 --> 0:33:20.120 So I think that trend is going to continue into 0:33:20.160 --> 0:33:22.360 the second quarter, and of course, if we see a 0:33:22.400 --> 0:33:25.400 disappointing GDP reading, that is going to be quite negative 0:33:25.680 --> 0:33:26.320 for markets. 0:33:26.480 --> 0:33:30.280 That is Carlos Casanova from UBP back to my colleague 0:33:30.360 --> 0:33:34.160 Paul Dobson in Singapore. What are we expecting here in 0:33:34.400 --> 0:33:37.560 quantitative terms on the GDP print? Do we have a number? 0:33:37.680 --> 0:33:40.480 We do, and it's not an unfavorable number based on 0:33:40.520 --> 0:33:46.400 analyst estimates. Expectations are the quarter on quarter GDP will 0:33:46.440 --> 0:33:51.320 increase point six percent. That's after minus point seven percent 0:33:51.400 --> 0:33:55.240 the previous quarter. So finally, some growth at least is 0:33:55.240 --> 0:33:59.680 what the street is looking for. I think it's interesting 0:33:59.760 --> 0:34:02.400 what what Carlos Ksenova was saying that I don't know 0:34:02.400 --> 0:34:05.600 whether good news or bad news is worse for the 0:34:05.640 --> 0:34:08.319 market right now. If the growth is too strong, then 0:34:08.400 --> 0:34:11.400 you know, the market might start to reprice the BHA 0:34:11.600 --> 0:34:15.439 expectations again for a more aggressive stance, and that might 0:34:15.480 --> 0:34:20.160 whip up the volatility that we've been seeing in recent days. Again, 0:34:20.680 --> 0:34:23.680 whereas you know, obviously two weaker number and people will 0:34:23.719 --> 0:34:25.680 be worried about the growth outlook and whether the BOJ 0:34:25.840 --> 0:34:28.560 will be able to hike at all from here, So 0:34:29.760 --> 0:34:31.840 you know, it will certainly be a number that there 0:34:31.840 --> 0:34:33.479 will be a lot of focus on and could cause 0:34:33.520 --> 0:34:35.000 quite a lot of volatility as well. 0:34:35.040 --> 0:34:37.440 I want to take a brief look at household spending 0:34:37.520 --> 0:34:39.640 in Japan because data that I looked at in the 0:34:39.719 --> 0:34:43.800 most recent week indicated a second month of decline during 0:34:43.800 --> 0:34:46.400 the month of June. And as I understand it, Paul, 0:34:47.560 --> 0:34:50.680 household spending in Japan accounts for more than half of 0:34:50.800 --> 0:34:55.000 overall domestic GDP. When you look at the state of 0:34:55.040 --> 0:34:57.320 the consumer in Japan, what do we see? 0:34:57.640 --> 0:34:59.400 So I think you know what we want to do 0:34:59.440 --> 0:35:01.319 is go right back to the start what you were 0:35:01.360 --> 0:35:06.399 saying earlier about how a whole generation has lived through 0:35:06.400 --> 0:35:10.399 this kind of deflationary environment and how we're finally at 0:35:10.400 --> 0:35:13.239 a point where we've got some wage growth coming through 0:35:13.280 --> 0:35:16.600 the economy, We've got companies feeling like they do have 0:35:16.719 --> 0:35:21.200 some ability to raise prices. We're getting back into an 0:35:21.200 --> 0:35:24.680 inflationary mindset. That's really what the BOJ wants. It's what 0:35:24.960 --> 0:35:27.480 the government has been pushing for as well for a 0:35:27.560 --> 0:35:30.040 long time, and that's why they've been so very careful 0:35:30.280 --> 0:35:33.200 to try to not disrupt things, to try to be 0:35:33.320 --> 0:35:36.640 able to raise interest rates without causing too much disruption, 0:35:36.719 --> 0:35:40.160 and probably why they're alarmed by what we've seen in 0:35:40.200 --> 0:35:43.839 the markets in reaction to that rate hike. So they 0:35:43.840 --> 0:35:46.680 will want to see continuing wage growth, and they will 0:35:46.719 --> 0:35:50.920 want to see continuing confidence among consumers to keep on spending, 0:35:50.920 --> 0:35:53.080 and they will want companies to be able to continue 0:35:53.120 --> 0:35:55.840 to raise prices as well, to have that pricing power 0:35:55.880 --> 0:35:57.960 which we hadn't seen for so long, and we have 0:35:58.080 --> 0:36:01.680 been seeing in Japan in recent years. That said, you know, 0:36:01.719 --> 0:36:03.319 we are seeing a little bit of a slow down, 0:36:03.360 --> 0:36:06.200 a little bit less confidence among consumers at this moment 0:36:06.239 --> 0:36:08.800 in time, and that will be troublesome for the BOJ, 0:36:09.120 --> 0:36:11.799 you know. So what I think the next really big 0:36:11.880 --> 0:36:14.800 kind of talking point will be for the policymakers comes 0:36:14.840 --> 0:36:19.160 around October time, when we'll get more wage negotiations, when 0:36:19.200 --> 0:36:22.520 we'll be able to see if pay growth continues, and 0:36:22.560 --> 0:36:24.880 if that does, then hopefully that will give the consumer 0:36:24.960 --> 0:36:28.239 the confidence to continue spending, and that will continue that 0:36:28.320 --> 0:36:31.480 inflationary cycle that has just about kind of been established, 0:36:31.520 --> 0:36:32.760 but it's still very fragile. 0:36:33.040 --> 0:36:34.799 I think it's important to point out at the same 0:36:34.880 --> 0:36:37.879 time that the week Japanese currency has played a very 0:36:37.920 --> 0:36:42.480 crucial role in supporting many major companies in Japan, especially 0:36:42.560 --> 0:36:46.920 those exporters. The value of their earnings overseas is boosted 0:36:46.960 --> 0:36:49.000 by that weakness. And if you look at a company, 0:36:49.080 --> 0:36:53.800 let's say Toyota recently reporting record profits. So this cuts 0:36:53.840 --> 0:36:54.840 both ways, does it not? 0:36:55.480 --> 0:36:58.520 Yeah? Absolutely, I mean so on the one hand, you 0:36:58.560 --> 0:37:01.680 do have the benefits for those exporters of a week yen. 0:37:01.800 --> 0:37:04.319 On the other hand, if the end does strengthen, then 0:37:04.360 --> 0:37:06.919 it should make things a little bit better for importers 0:37:06.920 --> 0:37:09.239 and therefore should make it a little bit easier for 0:37:09.280 --> 0:37:12.160 the consumer as well. So it does cut both ways. 0:37:12.280 --> 0:37:14.640 I think what we saw is that the yen weakness 0:37:14.719 --> 0:37:17.279 was just so pronounced that even those companies that have 0:37:18.239 --> 0:37:22.160 benefited from exporting in the past, even they were complaining 0:37:22.320 --> 0:37:24.200 the yen was too weak and that they would rather 0:37:24.280 --> 0:37:27.399 see it stabilize or strengthen a little bit. So from 0:37:27.400 --> 0:37:30.319 that perspective, at least, you know behind the idea that 0:37:30.320 --> 0:37:32.320 the boj should be hiking and should be pushing the 0:37:32.360 --> 0:37:36.640 currency stronger again, just not please very add these humongous 0:37:36.719 --> 0:37:39.680 the aggressive pace of change that we've seen over the 0:37:39.719 --> 0:37:40.520 past few days. 0:37:40.680 --> 0:37:42.920 Paul, thank you so much for joining us and helping 0:37:43.000 --> 0:37:45.360 us understand a little bit better what's been happening in 0:37:45.440 --> 0:37:48.600 Japan and where things may go from here. Paul Dobson 0:37:49.120 --> 0:37:52.920 is Bloomberg Executive Editor for Asia Markets. I'm Doug Prisner, 0:37:52.960 --> 0:37:55.960 and you can join Brian Curtis and myself weekdays here 0:37:55.960 --> 0:37:59.120 for Bloomberg Daybreak Asia, beginning at eight a m. In 0:37:59.239 --> 0:38:01.600 Hong Kong eight pm on Wall Street. 0:38:01.640 --> 0:38:04.279 Tom our thanks to Doug, and that does it for 0:38:04.320 --> 0:38:07.080 this edition of Bloomberg day Break Weekend. Join us again 0:38:07.120 --> 0:38:09.080 Monday morning at five am Wall Street Time for the 0:38:09.160 --> 0:38:11.799 latest on markets overseas and the news you need to 0:38:11.800 --> 0:38:15.120 start your day. I'm Tom Buzzby. Stay with us. Top 0:38:15.160 --> 0:38:18.160 stories and global business headlines are coming up right now.