Daybreak Weekend: US CPI, Europe Summer, Japan GDP

Published Aug 10, 2024, 9:00 AM

Bloomberg Daybreak Weekend with Tom Busby takes a look at some of the stories we'll be tracking in the coming week.

  • In the US – a preview of U.S CPI and Retail sales data, and a look at earnings from Walmart and Home Depot.
  • In the UK – a look at Europe’s sweltering summer.
  • In Asia – a look at Japan’s economy and a preview of GDP.

Bloomberg Audio Studios, Podcasts, radio News.

This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. Straight Ahead on the program, we look ahead to some key inflation data in the US and how it could impact FED policy. I'm Tom Busby in New York.

I'm Caroline Hepgre in London. While we're examining the consequences of Europe's sweltering summer.

I'm Dog Prisner looking at Japan's role in recent market volatility and where things may go from here.

That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg Eleve Them Free, Ow New York, Bloomberg ninety nine to one, Washington, DC, Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius XM one nineteen and around the world on Bloomberg Radio dot Com and via the Bloomberg Business App.

Good day to you. I'm Tom Busby. We begin today's program with some key economic data here in the US out this week, including the July Consumer price Index on Wednesday, retail sales for that same month on Thursday. Well, after some incredible volatility in the markets last week, how might this affect the next actions by the Federal Reserve, a policy meeting less than five weeks away. Now for more, we're joined by Stuart paul, Us, economist with Bloomberg Economics. Well, Stuart, let's start with inflation. What that July CPI number may bring. What do you expect to see.

We're expecting to see headline inflation slowing to an annual pace of two point nine percent in July from three percent in June. The core is going to slow a little bit as well, to three point two percent from three point three percent in June. Now, consumers are looking for discounts, and they're finding them when they look online, when they go to auto dealerships. But some of the biggest ticket items, some of the items that take up the most space in budgets, like shelter for example, it's just going to be a slow disinflation process. And in fact, we're expecting to see a little bit of an uptick in the pace of rent and owner's equivalent of rent inflation in the July data. And the big swing factor when it comes to inflation has been hotels, surprisingly, which created a lot of drag in June. We think it's going to create a little bit less drag in the July data, and that's going to booy the core just a little bit.

Well, the housing market, I mean, what an uneven You don't know what to expect month to month, but one thing is certain, it's more expensive than it's ever been. Rates are still elevated, although there's hope that they're going to go down. So travel demand, which lays right into what you said about hotels, I mean, we have seen signs that people are pulling back now fewer trip Advisor says fewer bookings, Airbnb says fewer bookings, so they're bracing for a pullback.

That's right. So consumers are becoming quite a bit more discerning in their spending habits. When we look at things like you said Airbnb, or you look at some of the online travel booking agencies, you're definitely seeing some of the swings month to month. If you look at where consumers are really starting to tighten their belt, it's in things like food services also very similar to travel and accommodations. Consumers are looking to rein in on some of those discretionary services categories in addition to some of the more interest sensitive spending categories like autos.

There's groceries, and there's food service, and there are all kinds of restaurants from fast food, quick service, sit down, white tablecloth. Where are you seeing the big changes in food?

It's interesting. So when we listen into earnings calls, when we look at earnings reports, we see a lot of reports of dining services companies that are starting to offer discount meals and that are starting to order discount opportunities and they're actually seeing some more traction with consumers. When we look on the higher end, those sort of re tailers and those chains are facing a little bit more headwinds and consumers are rotating a bit more back to cooking at home, dining at home. We're expecting to see about zero point one percent inflation when it comes to groceries during the month. That might not sound like a lot, but when consumers are really pinching pennies and they're raining and they're spending on food services, that inflation in groceries is going to is going to weigh on consumers.

Well, I want to go back to something you mentioned before, just briefly, and that is autos again very uneven what we've seen with used car prices, new car prices. Now we have all the ads are out there, it's August, now, all the twenty five models are coming in the twenty four. They want to get rid of what's different now on auto pricing.

There are a few factors at play here, and one of them is still the cyber attack on auto dealers that we saw in June, and so far in July, we've seen a bit of a rebound, about a three point five percent rebound in the pace of auto sales in July. So as those computers, those computer systems came back online, we saw auto dealers starting to sell more vehicles. But it also looks like they are offering discounts in part to offset the effect of higher interest expense for folks who are financing their cars. So we are expecting to see about one and a half percent decline in the price of autos, in the price of used autos in particular in the CPI report, But again the increase in sales volumes will probably buoy retail sales. Headline retail sales in the July report.

Also out this week. Retail sales for July, what do you expect to see?

Overall?

The headline number is going to look pretty good again because of that rebound in sales volumes of autos. We're expecting to see zero point four percent increase in nominal retail sales in July. That's up from zero growth in June. So the headline's going to look pretty good. When you strip out some of the more voluable categories though, like autos, like gasoline, like building materials and food services, I think we're actually going to see a decline. So that's what we call the control group for retail sales, and it's a pretty good indicator of consumer spending on goods within GDP. So that control group for retail sales, we think is going to decline about a quarter percentage point in the July data. And that's a material decline when you consider a June increase of nearly one percent. And that's because again, people are relying on their credit cards a little bit less, They have less access to credit. When they do look to take out their credit card, they're starting to pinch pennies quite a bit more, and again they're looking for discounts where they can get it, So they're not going to be spending lavishly on some big ticket items like washing machines. Instead, they're going to be looking for discounts. We think that'll show up in the control group sales boy our.

Thanks to Stuart Paul, us economists with Bloomberg Economics. We continue with that discussion about the health of the US consumer with a look at head to some key earnings this Tuesday, second quarter earnings from the nation's biggest home improvement chain, home Depot. On Thursday, Q two earnings from the world's biggest retailer, Walmart. To help us break down what those results could tell us, we're joined by Bloomberg retail reporter Jaywon Kong. Jaywan, thank you for joining us. And Home Depot often seen as a proxy for the US housing market. So what do you expect to see from Home Depot's earnings.

Yeah, with Home Depot, consumers just aren't buying dick ticket home products or projects right now, and we expect to see another challenging quarter. We also anticipate to hear that the business will remain challenging in the coming months, even if there are rate cuts, because there's typically a lag in consumer spending. You know, as you said, the housing market remains tough and people are staying on the sidelines because of you know, high interest rates. They're just spending less on larger descriptionary projects and instead spending on things that cost less, like you know, gardens, lawns.

All right, So inflation, high borrowing costs a lot of economic uncertainty. Well, I guess when you're hiring a contractor, it involves all of that, and so maybe you're not going to redo the bathroom or the kitchen this year.

Yeah, it's you know, spending you know, tens of thousands of dollars on a kitchen. People are either holding off or you know, they're choosing to do smaller at the II projects. And it's something that the company has talked about in recent quarters, and you know, we anticipate to hear that narrative again this quarter. You know, I think investors expect that there could be a pop in the stock whenever the said you know, decides to cut race. But you know, it's not like people start spending immediately after the rate cuts. So I think this quarter and the rest of the year it'll be pretty challenging.

Now, combined with a lack of housing turnover. This you expect to see a bit of a pullback in home depot spending. What does it tell us about the housing market? And I know you're not the housing expert, you're a retail expert, but I mean with home depot with lows, with target with you know, it's really got to impact consumer spending overall.

Yeah, what we've heard in recent quarters is that consumers are being selective. You know, they're choosing to prioritize what they need versus what they want. So that's you know, translated to pullback on discretionary you know, products projects, and you know, generally low to middle income consumers have been more stretched than under more pressure, and you know, upper income consumers are still spending. So you know, that's sort of the pick or that we've we've seen from these retailers, and it'll be pretty similar this this quarter as well. And you know, of course we'll be on the lookout for any youth signals about how people are spending. You know, what they're buying and you know how they're choosing to prioritize.

Well, then let's move on because that's a great segue into Walmart, where it looks like it is all about value for customers and Walmart is providing it. So what do you expect to see from Walmart?

Yeah? With Walmart, you know right now is sort of you know, their time, it's you know, most of their business is in essentials. You know, they are super focused on low prices, and we expect them to deliver another good, good quarter because of this. And with grocery at Walmart, you know, it goes back to what we were talking about a bit ago, which is that people are prioritizing what they needed. So grocery has been a bright spot for for Walmart on and you know in other categories, you know, like general merchandise have been have been softer, and you know, we're seeing consumers search for value, you know, buying things that are on sale or buying things that they think are you know, good deal.

Who is raining and their spending and what do we continue to spend money on?

Yeah, so with consumers, you know, they have been resilient in that they are still spending, you know, even with years of inflation. That being said, you know, they are being what a lot of these companies have called choiceful. You know, they are being selective. You know they're looking for areas to trade down, so to speak. So you know, instead of buying if you buy chicken or you know inspetifying name brands, you buy straw brands. So I think consumers are looking for areas to save money. And you know, we're seeing that comes through in grocery shopping and you know in other areas of merchandise.

Well, we should learn a lot earnings this week from two of the biggies Home Depot and Walmart Our thanks to Jaywan Kong, Bloomberg retail reporter. Coming up on Bloomberg day Break weekend, we'll examine the consequences of Europe's sweltering summer. I'm Tom Busby, and this is Bloomberg. This is Bloomberg day Break Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Up later in our program, we'll look ahead to the latest reading of Japan's GDP. But first, Europe is heating up with high tempts and excess of forty degrees celsius this summer, a huge uptick from the norm, with climate chains a likely culprit of the Mediterranean's tropical makeover. Can the insurance industry keep up for more? Let's go to London and bring in Bloomberg daybreak, europe banker Caroline hepgar Tom.

Climate change is increasing the frequency and intensity of heat waves, bringing extreme weather events from flooding to wildfires across Europe. Just last month, in Greece, wildfires were found by strong winds. In the Balkans, you saw burning forests and homes, which also forced the evacuation of a resort town in Albania. In North Macedonia, a blaze near the Greek border burned five houses and led to evacuations, and the damage spread to Croatia, a popular holiday destination, whilst in Bulgaria firefighters had to stop fighting a wildfire in the mountains near the Greek border because of land mines dating back to the Cold War era. The volatile weather condition in Europe really show no sign of abating in the northwest of Europe, in France, in Germany, in the UK we're expected to see the hottest temperatures of the summer in the next few days. Popular tourist destinations are on high alert for fires. The growing prevalence of extreme weather conditions is weighing heavily also on the insurance sector, often charged with the clear up. Navigating the consequences is something that we've been discussing with the Munich RECFO Christophe Jureka. He says that the unexpected conditions in Europe are affecting his company's bottom line.

Indeed, we have very pleasing results again this quarter, and after six months we are now already at three point eight billion euros of a net result, by the way, the highest net result ever we had after six months, so very well on twek to achieve all for your guidance. Indeed, now the question is why didn't be increase it? Probably well, I would say that's the typical Munich conservativism. We are cautious until the very end, and you know, the third and the fourth quarter are very cut heavy in our planning. So therefore we thought, let's give it another quarter and see how the development goes and keep the guidance unchanged for now. But what is very clear, were likely good of it of overachieving our target has significantly increased?

Okay, Well that's what it sounds like. Okay, so that's important. The likelihood of overachieving on that five billion europrofits target has increased. That's an important line I think for investors and talk to us about some of these extreme weather events. Then there are higher payment claims coming through for insurers and reinsurers. Are there some regions now that are becoming uninsurable?

Well.

Indeed, in the second quarter again we had a relatively high share of cut losses, slightly above our budget or average budget is fourteen percent per quarter this time, whilst it was fourteen point four, so slightly higher. And what actually happened was that there was not this one single headline event, you know, affecting us to that extent, but it was a number of smaller, mid sized events which then added up to that overall amount. The most significant fast disc quarter was a flood in southern Germany which which all together cost us in reinsurance around two hundred million euros. But then there were other events across the globe, all of them rather mid sized, which then finally added up to the to the number. So in a way busy quarter with with not this single so significant event that it would have made headline headlines in the in the neuse.

Is it is it your assessment there is sufficient capacity within the insurance sector to be able to make up for what is expected to be the increased claims around climate change.

So our clear answer is yes, there is enough capacity, So we are very happy to deploy capacity into cut risks, always under the precondition, of course that the prices in the terms and conditions have to have to be reasonable also from a rene insurance perspective. But under that precondition, absolutely there is that there's sufficient capacity in the market and and and we are very happy to deploying more cognacity.

Your business men, Ray has been a leader in terms of cybersecurity solutions within the insurance space. How how big an impact was the crowd strike event within the industry and for.

You, that's a very good question. I would very I would love to know myself, but it's very early days, so I cannot give you any any internal insights in any internal numbers. Yet we're still assessing what's was going on. I think the the the the industry estimates as for example just shown in the media, they have come down a bit recently. But any anyways, it's early days. We have to you know, really assess it, wait for the collect claim stotifications and from from our clients. And then we'll see that was.

The munich ree CFO Christopherjureka. So are Europe's soaring temperature is here to stay? What does it mean for insurers on the one hand, but also for local people, for businesses, for holidaymakers, and so much more. I've been talking about that question with Bloomberg's energy reporter Aiman Farhat.

I mean in the last few years, I mean definitely last summer and the summer before, we've been seeing these increasingly record temperatures. I mean, you know you talked about in excess of foy degrees. We actually reached even forty six degrees celsius in Spain. I think that was last week. And I think the important thing is it's not just the high temperatures, it's also the intense heat for longer periods, affecting people's health, as you said, affecting wildfires. So it's definitely getting more extreme, and we're seeing that that's kind of summer period. Start earlier. We were already seeing heat waves in Spain in April and finish even later. We're expecting this heat evening continue into October for some places.

Okay, so the scorching weather is back then for another summer. How prepared are parts of Europe for this? I mean, some places in Europe are fairly accustomed to wildfires, but how ready are Greece and other places?

Yeah, I mean Greece has definitely been the center of kind of our wildfire coverage this summer. You know, every single day we have new blazers, you know, on very popular tourist spots of popular islands as well, but also on the mainland. I mean, on the worst days in Greece you will have you know, maybe sixty new blazers, but they are quite responsive. One thing that's quite interesting is there's much more of a kind of shared approach in Europe, where you know, planes will be sent from France or Italy to Greece to help out with wildfires. But at the same time, you know, it is quite worrying when lots of countries in that area are under extreme risk of wildfire. Says, you know, something very small could tip it all over to the edge.

Okay, So if it's a difficult wildfast season, then what sort of tactics have been developed? You say, sharing equipment is one. How else can countries in Europe try to curb the damage?

Yeah, I mean I think it's definitely though the shard its equipment is a big factor, but also there's a lot more monitoring now. I mean, we have very advanced forecasts, you know. The one thing is that wildfires are kind of driven by dry conditions, by specific kinds of wind, and by quite advanced marching technique. You can really tell almost exactly where they're going to take place, and then using southline imagery, European kind of forecasters can also tell where the wildfires actually are, how they're doing with kind of controlling blazers, and especially for the bigger, bigger issues, that can really help to just a market situation and to make sure that races are being used efficiently.

Do you think that there's a risk that wildfires could spread further north? I mean, let's say to the UK. Would we be equipped to deal with them, and would it get hot enough dry enough here for that to happen?

Yeah, So, I mean I'm kind of checking these wildfire maps almost every single day to see what it's going to look like, and actually into next week there was an increased risk in the UK. We've seen that a few times a season where you kind of have this high or very high wildfire risk.

Now.

Back in twenty twenty two, you know, we had the hotest day ever and on that day we had some wildfires in London. About twenty homes are destroyed. And since then there's definitely been a much bigger concern about wildfires in London and in the UK, and there's been lots of consultations. There was kind of a whole kind of period this year where there was people from you know, from fire agencies and Spain, in France and Greece coming to London and giving their advice. In the end that did lead to some changes, you know, lots of the staff in ord and now being traded specifically for wildfires. They're even giving recommendations to local council to really reduce that kind of risk of you know, of having barbecues and parks and trying to reduce all those things that could create wildfires because it is increasingly becoming a problem in the UK. We are seeing hot of summers. We are seeing it's not just about hot of summer, it's about having those specific days where the heat really spiked. As you said, you know into next week there will be some days where it could reach thirty three degrees and although that doesn't seem too hot, that can be enough to course some wildfires.

So then also the other big market that is involved in this is insurance in you know, the homes you talk about being destroyed, I mean, that's all of that has huge insurance implications. How are they dealing with the optic and the issues around climate change?

Yeah, I mean definitely when when you take a step back, all of these kind of extreme weather events sometimes seem isolated, but as you said, there is a general trend about climate change making them more and more frequent, and insurers are definitely very aware of this, definitely warned about the risks of climate change. And although they're not kind of there yet, there are many insurances have said that some regions, some places will become unensurable in the future as these claims are getting bigger and more frequent. I mean this year that you know, the Costes event in Europe was actually a flooding event in southern Germany which kind of came to about five billion, of which two point two billion the US dollars was an insured loss. But you know, whether it's kind of you know, the rain, the fires, or just the extreme temperatures, those losses are becoming more and more and I said more and more frequent every year. So insurers are definitely kind of very aware of this this trend.

And we have had warnings in recent years and numerous warnings of the risks of under insuring for climate change. That's been a real worry of the industry. I mean, why do you think aiming in particular the fars A spreading to such an extent this summer.

The thing that the kind of fires is that it can even be a hangover from last year. You know, it's about drying us and the soil, It's about different winds, and you know, if you have multiple years of pretty extreme temperatures that can kind of compound that effect. You know, we've had about two three years of pretty hot summers, so in Greece that's really a problem. And it's also the fact that this can extend much later into the year than it would have. Otherwise we'd have seen a wildfire season really focused on July August this year, Earlie Junior are already seeing those wildfires expanding in parts of Europe, and it also puts countries on edge. I mean, Spain has been the focus of it For the last few weeks. There haven't been any major places, but you know, everyone's kind of unread alad it kind of causes some disruption as locally, and yeah, we have to be ready because it can expand. As I said, wildfires just in nature of them can mean that very quickly they can just kind of flare up and become a huge problem.

Are the far authorities in various countries are they concerned about what may happen next summer? I mean, we have had kind of an optic and more close monitoring of these peak temperatures across different European countries over successive summers. Is a concern that this going to get worse next year?

Yeah, I mean when it comes to extreme summers, I think it seems that different forecasters always say that you know, you know, they can't really tell the weather will be like next summer. It's obviously a long way away, but you know, more and more likely each summer we'll see records broken extreme heat and more and more kind of heat waves, which then leads to those fires. So that's kind of the general trend. I mean, we are having kind of an El Nino La Nina effect. You know, the Elino is kind of ending and Latini is coming in, which actually kind of reverses like that trend slightly and actually causes more increased risk of hurricanes in the Atlantic, which is a whole other, you know, other issue for insurers. But as far as temperatures go, you know, records are going to continue to be broken. I mean, that's one thing. We're kind of sure. We got the hottest day ever globally in July. That was two days in a row we got that. We've been having, you know, consecutive months of record temperatures every on Earth, so it just seems like things getting hot everywhere.

That was Bloomberg's aim and far hat there as London, Paris and Berlin our brace to see yet more soaring temperatures and another summer of climate change impact. I'm Caroline Hepge here in London. You can catch us every weekday morning for Bloomberg Daybreak you at beginning at six am in London. That's one am on war Street, Tom.

Thank you, Caroline, And coming up on Bloomberg day Break weekend, we'll look ahead to the latest reading on GDP from the world's third largest economy. I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Last week, global expectations for the Japanese economy and its markets were completely upended, making the path for the Bank of Japan's monetary policy less clear. Ahead of the latest reading of Japan's GDP out this week, let's get to Bloomberg Daybreak Asia co host Doug Krisner for a closer look Tom.

Before last week, the consensus view on Japan was that the economy was on the end. Wages were rising, prices were up, inflation had returned and was proving sustainable, and after many months of being above its two percent inflation target, the Bank of Japan tightened at its aligned meeting. BOJ Governor Kazuo Uwaita said the decision was based on data showing developments on the economy and inflation were in line with previous expectations. Earlier, I spoke with Stephanie Leung, chief investment officer at Stashaway based in Hong Kong, and I asked for her view on the boj's recent move.

Given that Japan has gone through a deflation for the last thirty years, it is prudent for the BOJ to kind of be a bit more conservative in that move. I think the problem with the recent move is perhaps more in the timing of things. So they picked the summer. I think when liquidity is actually quite thin and a lot of people are on leave, they kind of wish that they could move the currency with this kind of thinner liquidity, and perhaps they got much more than what they wished for, and it says that it moved the currency in a very very valid way. At the same time, they stopped ETF purchases as well, and that I mean, let's remember the reason why BOJ is hiking is because, I mean, they are actually quite confident of the way the economy is going. So I think in terms of fundamental story, there's still a lot of progress, but I mean a lot of this is technical.

Stephanie Leung there from Stashuay, Now, the point she made about Japan being in deflation for thirty years is important and not to be underestimated. You know, there's an entire generation in Japan that's known only deflation. Now, the other thing to consider in all of this, especially in the last several years, is the strength of the US dollar that has added to Japan's inflationary pressures. I also spoke earlier with Carlos Casanova, he is senior Asia economist at UBP.

First half week yen triggering important inflation. As a result of that, you instigate changes in corporate behavior, including increasing wages. That increase was the highest than thirty years, So definitely that part of the cycle has materialized, and then down the line that should translate into stronger domestic consumption and endogenous inflation. The third part of that puzzle is what we haven't quite seni yet. Although data did show real wages increasing by one point one percent for the first time since twenty twenty one, but in none of itself, that is not sufficient to justify the hawkish piper.

So I think.

Inflation has been high, but it's predominantly driven by US dollar strength. And so Bank of Japan really really has taken a gamble here because the preliminary data does point towards this virtual cycle sort of taking hold in the second half of the year, but they moved ahead of having visibility on that front.

Is Carlos Casanova, senior economist at UBP. Joining us now for some discussion on the Japanese economy and the BOJ is our own Paul Dobson. Paul is Bloomberg Executive editor for Asia Markets. He joins us from Singapore. Paul, the reaction in markets to the boj's tightening should really come as no surprise, especially directionally in terms of yen strengthening. I think it's fair to say that it was magnified by that unwinding of the carry trade. To be sure, how are you making sense of the ripple effects that we have seen in markets?

So I think that the starting point has to be to think about that carry trade and how much of the world has been taking on these leveraged bets based on the yen being the last kind of funding currency at particularly low interest rates that's out there, and so that really has snowballed in recent years and become a very important theme. Now, on top of that, you've had further depreciation in the end for much of this year, and that's partly the boj's fault. So listening to some of what you've been saying already, just now, you know the Bank of Japan was very very slow and very very careful about when it's going to choose to raise interest rates. The market had been expecting it to come, you know, earlier in the year, and the BOJ chose not to move on a couple of occasions when the window was already open. It had kind of nurtured the market, but to such an extent that people had gotten very complacent about the idea that the BOJ wasn't going to move aggressively. So for them then to do this hike at a time when maybe the market wasn't quite so well prepared, did really cause something of a shock and start the sort of snowball rolling down the hill in terms of yen appreciation. What they couldn't have foreseen, and what was particularly bad luck was that two days later we'd have that really weak payrolls data out of the US, which led to a weaker dollar and increase beats that the Federal Reserve will need to start cutting interest rates soon. And that really was the second kind of push that really ignited that big unwind in the carry trade and then sent those ripples across the rest of the world's financial markets.

So what have these developments done to the thinking on what the Bank of Japan may do next. Do you think they're going to be much more cautious now that they've become I don't want to say scared, but very concerned about the way in which markets have been trading in this volatile fashion. Or are they going to lean into solving the inflation problem in Japan? Which is it?

So after two days are very volatile moves in financial markets. We heard from the Deputy Governor ochidah and he seemed to seek to calm those expectations somewhat. You might call it activating the BOJ put He said, hey, you know, if markets are very volatile like this, this isn't when the BOJ is going to continue to be hiking interest rates. That would be kind of counter productive. So he stilled some of the worst fears in the market about how fast the BOJ may move and what sort of circumstances it would be looking at for those moves, and that did do something to settle things down. The longer term expectations aren't exactly for the BOJ to be moving aggressively. A lot of the analysts are talking about December or January for the next hike, and the market is not pricing in a very aggressive part. What we'd had from the BOJ when it raised interest rates was a discourse that seemed to suggest that it could be moving much more quickly than that. Now the market is back to pricing a more gradual pace, and maybe there will be enough to help to assuage some of the worst fears in the market. But what we do know is that the BOJ is determined to continue with its hiking path or other things being equal, and so long the term, those people that have those long leverage positions based on the premise of very low interest rates in Japan will need to think twice about whether they want to hold onto them.

As I mentioned earlier in the week ahead, we'll be getting the Japanese second quarter GDP print again. Here is Carlos Casanova, Senior Asia economist at UBP on what we are likely to see.

It's a backward looking indicator, so I think it's going to disappoint. And remember that the economy was in a recession in the first quarter. Consumption and capital expenditure was contraction ay as a result of high inflation, squeezing purchasing power of households in Japan. Because all of their imports net importer and all of their imports are more expensive. But also companies have been adjusting to higher nominal wages by reducing the amount of that they spend on capital expenditures. So I think that trend is going to continue into the second quarter, and of course, if we see a disappointing GDP reading, that is going to be quite negative for markets.

That is Carlos Casanova from UBP back to my colleague Paul Dobson in Singapore. What are we expecting here in quantitative terms on the GDP print? Do we have a number?

We do, and it's not an unfavorable number based on analyst estimates. Expectations are the quarter on quarter GDP will increase point six percent. That's after minus point seven percent the previous quarter. So finally, some growth at least is what the street is looking for. I think it's interesting what what Carlos Ksenova was saying that I don't know whether good news or bad news is worse for the market right now. If the growth is too strong, then you know, the market might start to reprice the BHA expectations again for a more aggressive stance, and that might whip up the volatility that we've been seeing in recent days. Again, whereas you know, obviously two weaker number and people will be worried about the growth outlook and whether the BOJ will be able to hike at all from here, So you know, it will certainly be a number that there will be a lot of focus on and could cause quite a lot of volatility as well.

I want to take a brief look at household spending in Japan because data that I looked at in the most recent week indicated a second month of decline during the month of June. And as I understand it, Paul, household spending in Japan accounts for more than half of overall domestic GDP. When you look at the state of the consumer in Japan, what do we see?

So I think you know what we want to do is go right back to the start what you were saying earlier about how a whole generation has lived through this kind of deflationary environment and how we're finally at a point where we've got some wage growth coming through the economy, We've got companies feeling like they do have some ability to raise prices. We're getting back into an inflationary mindset. That's really what the BOJ wants. It's what the government has been pushing for as well for a long time, and that's why they've been so very careful to try to not disrupt things, to try to be able to raise interest rates without causing too much disruption, and probably why they're alarmed by what we've seen in the markets in reaction to that rate hike. So they will want to see continuing wage growth, and they will want to see continuing confidence among consumers to keep on spending, and they will want companies to be able to continue to raise prices as well, to have that pricing power which we hadn't seen for so long, and we have been seeing in Japan in recent years. That said, you know, we are seeing a little bit of a slow down, a little bit less confidence among consumers at this moment in time, and that will be troublesome for the BOJ, you know. So what I think the next really big kind of talking point will be for the policymakers comes around October time, when we'll get more wage negotiations, when we'll be able to see if pay growth continues, and if that does, then hopefully that will give the consumer the confidence to continue spending, and that will continue that inflationary cycle that has just about kind of been established, but it's still very fragile.

I think it's important to point out at the same time that the week Japanese currency has played a very crucial role in supporting many major companies in Japan, especially those exporters. The value of their earnings overseas is boosted by that weakness. And if you look at a company, let's say Toyota recently reporting record profits. So this cuts both ways, does it not?

Yeah? Absolutely, I mean so on the one hand, you do have the benefits for those exporters of a week yen. On the other hand, if the end does strengthen, then it should make things a little bit better for importers and therefore should make it a little bit easier for the consumer as well. So it does cut both ways. I think what we saw is that the yen weakness was just so pronounced that even those companies that have benefited from exporting in the past, even they were complaining the yen was too weak and that they would rather see it stabilize or strengthen a little bit. So from that perspective, at least, you know behind the idea that the boj should be hiking and should be pushing the currency stronger again, just not please very add these humongous the aggressive pace of change that we've seen over the past few days.

Paul, thank you so much for joining us and helping us understand a little bit better what's been happening in Japan and where things may go from here. Paul Dobson is Bloomberg Executive Editor for Asia Markets. I'm Doug Prisner, and you can join Brian Curtis and myself weekdays here for Bloomberg Daybreak Asia, beginning at eight a m. In Hong Kong eight pm on Wall Street.

Tom our thanks to Doug, and that does it for this edition of Bloomberg day Break Weekend. Join us again Monday morning at five am Wall Street Time for the latest on markets overseas and the news you need to start your day. I'm Tom Buzzby. Stay with us. Top stories and global business headlines are coming up right now.