Daybreak Weekend: US CPI, ECB Outlook, South Korea Constitution Day

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This is Bloomberg day Break Weekend, our global look at
the top stories of the coming week from our Daybreak
anchors all around the world. Straight Ahead on the program,
I'll look ahead to some key inflation data in the US.
I'm John Tucker, I in New York.
I'm Caline Hepca in London, where we discussed in European
Central Bank as it grapples with an uncertain inflation landscape.
I'm Doug Christner looking ahead to Constitution Day in South
Korea and what it means for military hardware makers.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Hi, everybody, I'm John Tucker, and let's start today's program
with some key inflation data in the US. We're to
get to consumer price index information for the month of
June on Tuesday, and also producer prices that comes on
Wednesday and for more I have this data may impact
FED policy. We're joined by Stuart Paul, the US economist
with Bloomberg Economics. Thanks first, I by today appreciate it.
Should I be more concerned about inflation or the job markets?
The two mandates for the Federal Reserve.
Well, the FED is going to be more concerned about inflation.
But fortunately for the Fed, we're going to have a
decline in the monthly headline CPI reading when we get
the June CPI requires that, well, gasoline prices fell about
nine percent during the month of June, as.
You haven't been to my gas station.
Well already, Now that we're moving through the month of July,
now that we're seeing the end of the ceasfire and
some escalation in the Middle East, Yes, as we go forward,
we will see a little bit of additional headline inflation pressures.
But for this June CPI report, the headline is going
to tick down just a little bit. The core I
expect to be pretty core.
Is just to explain it for everybody again, core is
you know, you strip out the stuff that's volatile.
That's right, So the core inflation measure strips out food
and energy. Those are things that have prices that are
determined in global markets and that are subject to a
lot of factors that are far beyond the FEDS control,
including things like war, things like the weather, even weather
weighing on food prices or affecting food prices. So oftentimes
the FED will look to the core as more of
a sign of underlying price pressures. The core is going
to be a little bit more tame. It's still gonna
be positive. Unlike the headline. Headline is going to decline.
Core is going to be showing about zero point two
percent month on month, in part because of the World
Cup affecting prices for things like leisure and hospitality, food services,
and commodations. But we're also going to see some core
pressures coming from core goods, in particular those things that
are subject to the chip shortage, appliances and electronics for example.
Kevin Warsh, the new FED cheer, he's got a different
set of metrics that he goes by. He's also formed
a bunch of committees to give him some sort of
idea of how changes should be made within the FED.
How much is that going to impact Federal Reserve policy
going forward?
I think if anything, it's just going to lead to
a little bit of can kicking. The Fed is going
to be waiting on some of the output from these
five task forces that Kevin Walsh has convened. Yes, Kevin
Walsh does look at some of the official statistics with
a skeptical eye, and in part that's for good reason.
Shelter inflation is really lagging, So the disinflation we're seeing
in shelter isn't showing up as materially in the statistics
as it is in the real economy. And so I
could understand why he wants to convene these task forces
to look a little bit more critically about what's going
on in the real economy. But for policymakers it probably
just means that they're going to be waiting on some
additional ideas from these task forces and keeping any sort
of change in the policy rate on a hold, probably
through year end.
All right, So what's the betting right now from the
markets on what the Federal Reserve is going to do?
And maybe you can just parenthetically another question, how accurate
is that betting?
You know?
Historically?
Well, right now, right now, financial markets are pricing in
a hike well before the end of the year. That
pricing swings pretty drastically, So I'm hesitant to put too
much weight on market pricing. My job as an economist
is always to look for where the market might be wrong,
and I think that, if anything, the market is over
anticipating a hike before year end. Right now, we have
relatively a little labor market dynamism. We don't have any
sort of inflation pressures coming from the job market, from wages,
from income that's really what the FED would fear. Instead,
we sort of have these price pressures coming from somewhat
idiosyncratic factors like air fares, which we'll see in the PPI,
from financial services prices. We'll see that in the PPI
on Wednesday, from the chip shortage. Now, the Fed's a
little bit concerned about that one. We saw that in
the minutes just last week. And other than that, we're
seeing a little bit of inflation pressures in the core
for things that are affected by the World Cup. So
I think that markets are getting a little bit too
far ahead of themselves and expecting that hike before a
year end. I expect the FED to remain on hold
throughout the end of the year.
All right, thanks to Stuart Paul he as economist with
Bloomberg Economics, and let's take a look now at some
of the stocks making news in the week ahead. I'm
John Tucker and I'm joined by Matthew Griffin, the Bloomberg
equity supporter New earning season already Tuesday. We start with
Fortress Diamond. JP Morgan Chase is reporting earnings results, opening
their books to investors. What are you looking out for?
Well, the question for JP Morgan when they report, along
with several other banks, is going to be a microcosm
of the questions everyone has about the broader market. Analysts
expect strong earnings for the bank, but will that be
enough for investors. The average estimate is for trading revenue
of more than ten billion dollars. That's a little lower
than the record haul in the first quarter, but it's
about fifteen percent growth year over year. They expect adjusted
earnings per share to grow to more than five dollars
and sixty cents. A lot of tailwinds there. Geopolitical volatility
can be good for trading, the revival and IPOs is
good for investment banking. But if you look at what
Baird is saying about the banks group right now, they say,
we expect solid results, but the group is priced for it.
We don't want to chase this stock right now, and
there are likely to be a lot of companies in
this position.
So as you say, the things to look for trading
rabbitus should remain historically elevated, and also the investment banking
looks to stay resilient despite what we'll call market volatility.
Let's move on to the next one. You're taking a
look at United Airlines. They open their books to investors
on Wednesday. Remember that old joke how to become a
millionaire will first become a billionaire and then buy an airline.
Yes, said Airlines have had a beginning of the year
that might remind investors of that joke. Of course, this
stock plunged during the Iran War along with the rest
of the group, then when an explosive rally as tensions
de escalated, up more than fifty percent from late May
to the end of last month. The question now that
Wall Street is asking is Okay, crude prices have come down.
What's going to happen to ticket prices for these airlines?
Are they going to be able to hang on to
some of the increases, and so of course earnings for
the most recent quarter are going to be important. Analysts
are looking for a dollar eighty four cents a share
excluding some items, but especially any forecast for the third
quarter is going to be important. That's where these questions
about pricing might show up. And expectations there are a
lot higher. Wall Street looking for three dollars fifty nine
cents a share. Now City expects airlines to beat consensus
across the board, and they say United is one of
the ones that might get rewarded for this. They're talking
about that guidance there. They say, you know, these major
airlines in the US, they weathered the shock well from
the war, So that means investors are likely to want
to return to the stock if they get any upside.
And here's my big insight. Airlines use a lot of
fuel JEFF fuel, and that's been expensive. The increase in
fares that they had did that more than make up
for the rising cost of JEFT fuel.
It is likely that it hasn't entirely made up for
it yet. United said that they expected roughly half of
the increase in fuel costs to be accounted for by
higher fares in the most recent quarter. We'll see what
they say about that, however, and they were making these
comments when the Iran conflict was, you know, much closer
to the front of mind for investors. Even then they
were saying that by the third quarter they expected that
to climb closer to making up all of that gap.
So again, we haven't gotten an update from the company
in a couple of months on this, and that's something
investors are likely to be watching for.
And then a Netflix they're going to report on Thursday.
Stop is down what's something like sixteen percent since the
start of the year. I got to wonder if this
company is losing some of its mojo.
Well, yes, this is a stock that really hasn't worked
and one that is dogged by a lot of questions
right now about its own financials and also about disruption
from AI. That's something that our colleagues over at Bloomberg
Intelligence have focused on. Will people watch AI generated entertainment
instead of you know, Netflix.
I can just imagine what that's going to be like
AI generated and entertainment.
Yes, I'm sure it'll be real high quality stuff, but
you know, people love short form video, you know, open
AI Sora didn't catch on, but we'll see what happens.
So this is maybe an underrated AI loser. We talk
a lot about these software names for Netflix though. In
this quarter, investors are going to be looking for anything
that could spark a turnaround. Analysts expect results about in
line with their guidance. So that's revenue of twelve point
five seven billion dollars and earnings per share of seventy
eight cents. That was a guide that disappointed investors when
the company gave it. So what they'll want to know
now is whether Netflix was being conservative. There is their
potential upside that being said, when the questions are big
like this AI disruption, whether the World Cup is going
to affect viewers.
Question, So I didn't even think about that FIFA drew
away viewers from Netflix.
We don't know yet. That's something that again Bloomberg Intelligence though,
has raised as a potential issue for investors, and of
course World Cup underway now, so maybe the company will
speak to that. So the stock here has gone in
the opposite direction of a lot of the market. But
the question is kind of the same. Even if Netflix
beats expectations, is that going to be enough here?
How much pricing power do they still enjoy at Netflix.
Well, they have raised prices recently while also introducing some
of these lower price options such as ads supported tiers,
So it seems like their strategy has been to exercise
pricing power with consumers who are willing to pay, while
also trying to keep everyone else on board. However, consumers
have a lot of other options now, so investors' minds
are constantly on whether each individual price increase is going
to be the final.
Straw make my own AI content to compete with Netflix.
Matt thanks a lot, our thanks to Matthew Griffin, Bloomberg
Equities reporter with is Today and just hand on Bloomberg
Daybreak Weekend. We're going to talk about the European Central
Bank as it grapples with an uncertain inflation landscape. I'm
John Tucker, and this is Bloomberg. This is Bloomberg Daybreak Weekend,
our global look ahead of the top stories for investors
in the coming week. I'm John Tucker in New York.
Up later in the program, we looked to South Korea,
where Constitution Day will be celebrated in the week ahead.
But first in the coming days, we're going to get
the latest set of data for the European Central Bank
before it gears up for its July meeting. With inflation
fears on the rise again and as conflict returns the
Middle East, how will policy makers navigate the situation formorrow?
Let's go to London and bring in Bloomberg Daybreak, Europe
Anchor Caroline Hepger John.
ECB policy makers were unanimous in backing last month's twenty
five basis point hike as they saw surging oil prices
spreading throughout the economy. But then the event peace deal
and surprisingly sharp slow down in inflation sowed division over
what to do next. Fast forward to now. In fresh
comments when President Trump have renewed concerns that fighting could
again raise oil prices and drive inflation up. At the
recent NATO summit, the President said that he thought the
ceasefar with Iran was over and a waste of time.
The US launched fresh strikes on the country and revoked
a waiver that allowed the sale of Iranian oil. Any
rebound though in energy prices, will reinforce the expectations that
the US Federal Reserve may keep interest rates higher for longer.
The recent FED minutes revealed that to say, few officials
saw a case for a rate hike in June. Speaking
to Blomberg recently at the Excellent Province Economic Conference, the
ECB Governing Council member Emmanuel Mulla reference data showing that
inflation had eased with the slump in oil prices, but
that uncertain backdrop means a complicated picture for ECB officials.
Peter Kinsella is head of Investment Services for the UK
at Union Bank Preve and he discussed the outlook that
now looks in flux.
The big shift redio I think that we've seen in
the I would say, basically in the fom CEE voting,
you know, nine members not voting but bringing their red
expectation on the dot plot for a twenty five bit
rate hike this year. It basically suggests that I would
say the overall momentum on the FMC is veering towards
a rate hike this year, which was a big shift
in January, I think, and clearly you've seen the marketing interpretation.
I think that also reflects what we've seen overnight and
in previous days with the old price and the latest
just ha gon Iran and really I suppose the market
is now saying, okay, that it's really veering towards really,
really meaningfully pricing and a rate.
Hike this year, okay, And we were talking with Trevor
Greatham in the last part of the program about whether
that is the thing that will be needed to burst
any bubble if you identify bubbles as being present in
these markets at the moment, Peter, I mean, is that
the way we're thinking about FED rate hikes right now,
not that not that that will be the driver, but
that that would be the thing that would stop I.
Would say no, I from Frank depends where whether you
believe we're in a bubble or not, which is a
different discussion. But I think given that market is only
priced in one rate hike, if you look further out
the curve, we've not really priced in an awful lot.
So the market's kind of saying right, one and done.
I think in order to cause real pain for the
equity market, you will have to price in a series
of further rate hikes, which at present doesn't seem.
To be the case.
That was Peter Kinsell, a head of investment services for
the UK at ingnon banker privet, speaking there to Bloomberg's
Vonnie Quinn. Join me now for more on the challenge
facing the ECB is Bloomberg's economics reporter William Harribin and
our senior reporter covering the ECB, Yanna Randau. Welcome to
both of you. The ECB's next decision on boring costs
is on the twenty third of July. We have a
few more days. What do you think is the mood though,
given this uncertain backdrop among ECB officials, now, oh, they.
Are definitely more concerned than they were maybe a week ago.
That essentially all has to do with Trump, and it
all has to do with oil prices because they decided
to hike grates in June. Everything was in a way
on track. Then the ceasefire happened, Peace negotiations seem to progress,
and you know, with that backdrop, they had maybe eased
a little bit off the real you know, panic levels
if you want, and we're a bit more confident that
the worst of the Iran shock may have already been over.
But now really it's all back on. They are worried
that inflation will stick above two percent for longer. They
are concerned about second round effects and you know, additional
rate hikes are very much on the agenda.
William, where do you think that leaves us in the
run up to the all important July meeting.
Just going back to what Jana said about how quickly
things are changing for these central bankers, it's a you know,
a few days is a long time in montrepolicy these
days in excellent Provence in France last week there was
this sort of sort of a Davos in the sunshine
in France, and it's usually a very hot and stressful
place to be, but everyone was actually very relaxed, including
fid in central bankers. I remember novel was even making
jokes about football rather than speaking about policy, and the
French central banker has said that, you know, we were
the ECB was now in a good position because things
were so much calmer on the in Iran, and as
Janna says, that's changed dramatically once again this week, and
so it sort of towards the July meeting. Though you asked,
it probably won't change that much because they're very data dependent.
I think they prefer to take decisions when they have
more forecasts and more information.
Yeah, absolutely, I mean, William, what do you think about
September then, and I think it's sort of an important
moment to take the temperature for central bankers, as you say,
and for the ECB in particular, because there has been
quite a bit of movement in recent days around the
ex spectations for rate hikes in Europe because of these
moves in the Middle East, the moves on oil prices
and what that means for inflation. So what's the thinking
now about September.
What's been interesting in the last few days is that
the oil price has bounced back up a bit, but
not the sort of dramatically as we had earlier, but
pricing for market expectations for a move in September have
shifted back up, and looking about eighty percent now chants
that none ECB will hike again in September. But you know,
I think we have to be very cautious about that
because the situation is so volatile. The markets are moving
almost you know, from hour to hour, depending what Trump says,
and so I expect that, you know, the central bankers
will remain cautious and keep saying that they are though
very much data dependent, even as everyone else starts to
think that September is probably more of a live meeting, Yana.
What do you think about September then, And also, as
you say William, that Trump can change the trajectory quite quickly.
I mean, we saw Brent crew jump more than six
percent higher over just two days just after President Chump's
NATO comments and those further strikes. Yano, what do you
think about the path for raids? And perhaps it is
September that markets will be most focused on.
It looks very likely that the ECB will raise rates
again after the summer in September, and that essentially has
to deal with the fact that as long as the
conflict keeps going on, that means all prices will remain elevated.
That means trade will be disrupted because we don't know
how shipping through the strait of Hormos is going to
play out, and all that translates into inflation risks for
the Eurozone and you know, higher for longer. On the
inflation side, it translates into uncertainty and potentially consumers and
businesses raising inflation expectations as well. So the longer this
conflict lasts, the more likely we will see also second
round effects. When you know, for example, workers ask for
more pay because prices are higher, and that has the
easy be concerned, and that would all speak in favor
of another red hike.
William, what do you think the ECB is looking at
most closely?
Then?
If we say data dependent, what are we thinking about
as policymakers are trying to navigate, you know, quite difficult circumstances.
Now, the key risk that they're looking for is second
round effects, so whether this starts turning up in whether
the increased price pressures start turning up in wage demands.
They're also very watching very closely for core inflation, so
services in particular, to see if the end direct effects
are spreading more than more than they might have anticipated.
And even within you know, some economists say even within
like services inflation, they should be looking at the kind
of services that are just adjacent to energy and might
move up very quickly like I don't know, airline tickets,
but could also come down very quickly. But then other
services like business services that would be stickier. So they
really have to pick through the data very very carefully.
Here in France, the central Bank does a survey of
business pricing, so they'll be looking at small sort of
like bits of data like that, but so far, you know,
that indicates sure businesses are raising prices, but not as
much as they did in twenty twenty two.
Yeah, that's the Bank of France data is acme, isn't
it In the next few days, well, William, I think
it's also at moments like this, there's quite a lot
of chatter about whether central banks will end u making
policy errors, and there's a bit of focus on that.
I mean, the ECB was the first of the group
of seven central banks to raise rates at the start
of the Iran war, so I'm sure there'll be lots
of focus also on making sure that each step is
the right one, and the worry about policy error.
To avoid sort of accusations of policy error. What the
ECB probably wants to do is avoid giving any forward
guidance because the more they give guidance, the more markets ads,
and then if something happens quickly, then they're sort of
locked into something that they didn't that. You know, when
the circumstances change, it's harder to avoid making a policy
error if you've already guided in one direction. Yeah.
It also comes, of course, when in the next few
days the new still fairly new Federal Reserve cheir Kevin
Walsh is scheduled to give his first semi annual Marsh
policy testimony before Congress. In terms of any reader cross
you out of the FED and into maybe this new
world of central banking where we get slightly less forward
guidance and less information from the Federal Reserve, is there
a reader cross into the ECB, or at least ECB
policy makers thinking about that and watching it.
I mean, where they agree is certainly on not offering
any forward guidance because Will Will was right to point
out they burned their fingers in the past, you know,
twenty twenty two jumps to mind, and really, you know,
what should they be guiding toward when they don't know
what's happening themselves. But where things may be slightly different
is that Kevin Warsh believes in, you know, letting the
market do its thing in a way and then cross
checking by the end of the policy meeting whether policy
makers and the market degree. So he seems to at
least to me, to build a little bit of you know,
movement volatility into the whole operation. Whereas the ECB very
clear at explaining how it will take decisions on which
basis it will take decisions. The president, Christine Laguard, she
described that at the SYNTHIDAC conference not too long ago
as framework guidance, and that's essentially explaining the reaction function.
So you know, the market, the policy makers, they're looking
at the same set of information, the same data, the
same input, and the market knows extremely well how policymakers
will interpret those data.
Yeah, absolutely, Joanna, thank you. That was Bloomberg's senior reporter
covering the ECB Jana Randall, and Bloomberg's economics reporter William Horribin.
Thank you to both of you. I'm Caroline Hepga here London.
You can catch us every weekday morning here for Blomberg Daybreak.
You are beginning at six am in London. That's one
am almoll Street.
John.
Thanks Caroline, and coming up on Bloomberg Daybreak weekend, I'll
looking ahe at the Constitution day in South Korea. I'm
John Tucker and this is Bloomberg. This is Bloomberg Daybreak weekend,
our global look ahead of the top stories for investors
in the coming week. I'm John Tucker in New York.
We go to South Korea next where Constitution Day will
be celebrated in the week ahead, and for a closer
look with this national holiday represents, let's turn to Doug Krisner,
host of the Bloomberg Daybreak Asia podcast.
Thanks John. Constitution Day commemorates the legal framework for the
Republic of Korea. It was proclaimed on July seventeenth, nineteen
forty eight, in a moment that set the stage for
South Korea's governance and its national security during the Cold War.
After the Second World War, the Republic of Korea was
liberated from Japanese colonial rule and the Korean Peninsula was
divided along the thirty eighth Parallel into Soviet and American
occupation zones. Now these days, South Korea's national security is
rooted in the strong defense alliance with the US, primarily
as a deterrence against North Korea. And at the same time,
South Korea has expanded its security partnership with NATO as
a major non member ally, and these dynamics have contributed
to a still growing defense industry in South Korea. For
a closer look at what's happening on the ground, let's
bring in Bloomberg's Cat Barton. She is our bureau chief
in Seoul. Thank you so much for being here. I
want to begin by kind of going back to a
recent ceremony in Seoul highlighting the importance of the defense
industry and at the same time honoring some of the
workers for their contributions. Maybe it's a good way to
help us get into the sense of size of the
overall defense industry in South Korea and the US areas
in which it operates.
It's an increasingly important part of the economy. I mean,
if you've looked at the Cosby over the last couple
of years, you've seen some absolutely exponential growth there, and
most of that is due to Skehiniz and Samsung. It's
all an AI play. But the other bright spot is
defense and that's been kind of supercharged this year actually,
especially since obviously the Iran War. South Korea's government is
super keen on growing the industry. They've targeted a number
four position globally, and it's an industry that kind of
really complements a lot of what is going on unfortunately
conflict wise globally at the moment, because they're very good
in areas that have come into play, for example with Ukraine.
In Europe, they've sold a lot of tanks to Poland
for example, recently they're howitzers are increasingly in demand. And
then also this year we've seen huge growth in demand
in the Middle East for interceptors. So South Korea makes
something that's very akin to a US Patriot missile, but
is a lot cheaper and they can produce them a
lot quicker, So that has been something that they've seen
a lot of interest from Middle Eastern governments.
So I'm glad you brought up the issue of the
memory chip makers because we have seen recently how the
government and Soul has become involved increasingly involved in helping
names like s K, Heinix and Samsung add capacity to
their production of memory chips. How is the government disposed
when it comes to adding capacity in the defense industries,
They are proactive.
The industry here is dominated by what we call chabele,
which are these family run companies, so they're huge conglomerates
that control most of the production line. So the government
has really been strongly backing them. Because you have to remember,
South Korea remains technically at war, right, so the conflict
with nuclear armed North Korea, which ended in the nineteen fifties,
it ended in an armistice, not a treaty, not a
peace treaty, so the government remains technically in a state
of war. So these huge defense companies are not only
part of a kind of growing export strategy, but they're
integral to South Korea's own defense. They have to be
making tanks, howitzer's ammunition, developing new fighter jets because they're
constantly locked in this state of conflict with Kim Jong
un in the North, who has you know, frequently threatened
to wipe out SOUL and reduce it to rubble. So
there's a lot of government backing, and the government obviously
recognizes that strategically, if they can keep the industry going,
it's also a huge asset export wise. They see opportunity
globally and they are really trying to help these Chibbel
firms capitalize on it.
So we know that North Korea CAT is a nuclear power.
SOUL doesn't operate in this space. It's been reliant on
the US security umbrella. But I'm wondering whether the mood
is changing a bit and whether SOUL might feel the
need to develop more within the nuclear space. Is that possible?
The US security umbrella is crucial to South Korean defense
and the government here has said repeatedly. The president has
said they do not want their own nuclear weapons. Lee
Ja Mung said it a couple of weeks ago. They
really have emphasized that they feel, you know, they're committed
to nuclear non proliferation. They don't want to become like
a rogue state, a kin to North Korea by developing
their own nuclear weapons. However, obviously there are growing voices
here that suggest they should at least look at this
option and what they have been doing, and they have
talked to US President Donald Trump about is developing their
own nuclear powered submarine. So that's not a nuclear armed submarine,
but they have the technology to build it. They're talking
to the US and that project is moving forward, and
that would be a huge step up for their naval
defenses because at the moment they have, you know, very
sophisticated diesel powered submarines, but not a nuclear powered one,
and that's their next goal.
I'm so glad you brought up the submarines because recently
South Korea missed out on a chance to build twelve
subs for the Canadian Navy. That contract went to Germany's
TISN Group Marine systems. But I'm wondering when you look
at areas like shipbuilding submarine building, whether that represents a
big opportunity for the global market, particularly Europe.
It definitely is, and it was a big blow to
the South Korean side to miss out on that Canadian contract.
I think obviously they went for the NATO partner, but
even when you know, the president and the companies came
out afterwards, they emphasized the whole bidding process had been
a huge learning experience, and it shows the fact that
they were even being considered. Neck connect with Germany shows
how far the industry has come right, It's made huge
strides in recent years that they are up there as
a top global partner. And there were analysts that we
spoke to afterwards saying, yes, obviously, you know, maybe security
partnership wise Germany makes sense, but realistically South Korea would
have been a better choice because they can do it
more quickly, they have more capacity, you know, they build
a really good product more cheaply and more reliably, and
I think that's certainly why you know, President Trump has
talked about, you know, huge cooperation in shipbuilding with South Korea.
It's a key part of the three hundred and fifty
billion dollar trade deal that they struck with the US
to avoid tarrets with shipbuilding, the idea of the South
Korean shipbuilding companies coming to help rebuild and regenerate kind
of you know, the Philadelphia shipyards and that kind of thing.
But I think in terms of defense, they missed out
on that recent contract. But for the South Korean side,
that's just you know, a blick in the road, and
it's not going to put them off. They're going for
more contracts and they very much see this as a
global opportunity.
So we've touched on let's call it the addressable market
for exports of defense hardware. But let's go back to
the threat from North Korea, whether we're talking nuclear missiles
or cyber as being kind of the primary driver for
a lot of what's happened in the defense industry in
the South. I'm trying to get a sense of the
appetite for more domestic military spending right now and how people,
how the citizens in South Korea would feel about that.
South Korea has military service. They also have a demographic crisis.
They have very few babies globally, so they are looking
at a lot of options in terms of how they
protect themselves moving forward, All men under thirty have to
serve eighteen months in the military, and there is, you know,
widespread support for that. I think obviously everyone who lives
in Soul recognizes that you're sixty kilometers from the border
and that North Korea is not to be trusted. In
terms of defense spending, the government is looking at moving
into kind of newer areas. They've talked recently a lot
about robotics, whether they could could turn to robots to
start helping with this demographic decline, the anticipated fall off
in the number of enlistments in future, and they're also
looking very much at drones because you have to remember,
North Korea became the only third party in the world
to kind of intervene directly in the Ukraine conflict. It
sent troops to help Russia fight Ukraine, and it has
sent tens of thousands of container loads of weapons, mostly cheap,
low end ammunition to help the Russian military. By some estimates,
by Ukrainian estimates, they're providing kind of forty percent of
the ammunition that Russia is using, right, So those are
that's coming from Kim Jong UN's stockpiles. So I think
in terms of you know, South Korea's looking at this,
They're looking at what has North Korea learned from that
involvement in Ukraine. And obviously they now have some battle
hardened kPa troops, Korean People's Armied troops, and they also
have a lot of understanding of drone warfare, which is
not something that South Korea itself has ever experienced in
a combat situation. But the North Korean soldiers have been
there in Ukraine fighting or not in Ukraine, they're fighting
in Russian territory, but have been fighting alongside Russian soldiers
and seen this modern drone warfare. So I think the
South Korean military is looking at heavy investments in drones,
in unmanned uevs, and they're looking at, yeah, also robotics,
what they can do in that space to counter these
kind of huge strides that North Korea has taken as
a result of their military relationship with rus.
I'm wondering about the tension that still exists between South
Korea and Japan after the Second World War. Some of
those issues have yet to be resolved, and I'm wondering
about the level of cooperation when it comes to areas
within the defense industries between South Korea and Japan, and
whether Japan could be in some way a customer for
some of the hardware that South Korea produces.
There is obviously lingering tension. It was a quite lengthy
period of quite brutal colonial occupation for the Korean peninsula
under the Japanese, and there both sides, Tokyo and Soul,
have made huge strides recently to bury that historical hatchet.
Relations are very good. I think if you look at areas,
for example, like the monitoring of North Korean missile launches,
the US, South Korea and Japan have very integrated intelligence sharing.
They monitor missile launches in real time. They really coordinate
in that kind of sphere very well. I think there
are other areas where there's kind of lingering historical sensitivities.
For example, I know that Japanese participation in some of
the joint US South Korean military drills sometimes is a
bit tricky. For example, their military flies the Rising Sun flag,
which I think is very sensitive in South Korea. There
are people here who get a bit sensitive seeing that
flying because it's still associated with colonial period. But in
terms of them being a customer. I mean, I think
Japan is also looking to ramp up their own domestic industry, right,
but they're definitely behind South Korea just because of the
you know, the South Korean have this unique circumstance with
North Korea where they've had to just maintain themselves at
a certain level of readiness ahead of other regional countries.
So I certainly think with you know, with relations between
Soul and Tokyo being better, better than they've been in decades,
I don't see why the Japanese couldn't be turning to
South Korea potentially in future as a source of supply
on things that they can't themselves build as quickly as
they might.
Like God, we'll leave it there, Thank you so very much.
Bloomberg's Kat Barton, our bureau chief in Seoul. I'm Doug Christner.
You can catch us weekdays here for the Daybreak Asia podcast.
It's available wherever you get your podcast. John.
All right, thanks Doug, and that does it for this
edition of Bloomberg Daybreak Weekend. Join us again Monday morning
at five am Wall Street Time for the latest on
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