Daybreak Weekend: Fed Decision, Sweden Election, BOJ Meeting

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1:43Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Daybreak 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 the next monetary policy decision from the Fed. I'm Nathan Hager in Washington. I'm Caroline Hipke here in London, where we're asking if Sweden will become the latest example of Europe's right-wing rise. I'm Doug Krisner looking at the reasons why the Bank of Japan is expected to raise its policy rate in the coming week. That's all straight ahead on Bloomberg Daybreak Weekend.

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2:43Good day to you. I'm Nathan Hager, and we begin today's program with a highly anticipated decision from the Federal Reserve. Kevin Warsh and company are set to begin their two-day meeting on Tuesday ahead of a September monetary policy decision on Wednesday. Ahead of it, we are joined by Anna Wong, Chief U.S. Economist for Bloomberg Economics. Anna, there has been so much anticipation heading into this decision. Bets in the rates market are steadily building that we will see an interest rate hike coming up this week. What's your expectation over at Bloomberg Economics? Right now, the markets have almost fully priced in a 25 basis point hike already.

3:24So regardless of what anyone think or what any doves on the FOMC, which are on the fence, There's nobody could be on the fence just because, you know, markets have spoken. They want and they expect a hike. Kevin Walsh himself would be in a difficult position because he faces a boss, a president who has explicitly called for him to cut. And instead, he is delivering a hike two months before the midterm election. But he has himself to really blame for this difficult situation because, you know, in Jackson Hole and in various, in the two FOMC briefs before now, he has said he wanted to rely on unfiltered market signals to guide economic reality.

4:19and here the markets has shaped that reality but the problem is that reality and that market signal might not be the most appropriate economic policy in the cpi report we have seen a hotter than expected cpi and that was what led to this huge jump in market pricing of a rate hike however the hotness in the cpi report is really because of a couple strange things one is the wireless cell phone service plan and in other hotels. And it just so happened that Airbnb has been shifting and changing its pricing policy in the last couple of months. So should the Fed policy be because of a couple things like this?

5:07Well, I think that regardless, that is the reality. They are forging ahead. We are expecting that in the SEP, the summary of economic projections which the Fed will be updating, it will likely show one hike just in 2026, which is the hike that they are going to do. And that reflects the fact that there, in fact, is still a lot of people on the fence. I think the fully priced and market futures overstates the certainty in this situation. In fact, it's more of a close call on the FOMC. And then we are expecting to see in the SEP cuts in 2027 and 2028. As in the end, I think there are a lot of disinflation signals, such as the fact that many food items are coming down and medical drugs are also coming down, entering into deflationary trends.

6:08And also Walsh own preferred metric, which is a metric that measures how many categories and PCE are growing at more than 3 % inflation rate that actually has come down. So all of it suggests that I think there is still just one hike in 2026. Okay. Well, given those disinflationary signals that you're mentioning there, does that make a case potentially that we could see a pause later on this week? This is this difficult situation that I said that Kevin Warsh created himself for him. He has given a very hawkish Jackson Hole speech. And while he said he does not want to give Ford guidance, the guidance in his speech is that if these things does not happen, he will have to hike.

6:58And all these things in the CPI report do not provide a sufficient case to check the box on what the doves and the people in the camp of holding rates want to see. And so even though the economics of it is embedded in the details, but the obvious things, the things that's causing the market to price in almost full certainty of a hike are these top line things. So there's just no room for nuances or maneuverability around these details. It is the top line. It is what the markets have spoken. And Kevin Walsh has said we should listen to the market. So the Fed will listen to the market. All right.

7:42Well, we'll see how those dots and the decision shake out later this week in that all-important decision on Wednesday. Thank you for this, Anna. Good having you on with us. That's Anna Wong, Chief U.S. Economist at Bloomberg Economics. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager, joined by Bloomberg News equities reporter Avalon Purnell. We're kind of at the tail end of earnings season, I guess, Avalon, but there's still a few stories to tell, including from Lenar on Wednesday. This has been such a tough time for real estate. Is anybody expecting anything good from Lenar this week?

8:18To say the least, not necessarily. I mean, taking a step back, Lenar has faced continuing pressure from high interest rates and just broader geopolitical uncertainty, which management did say last quarter was spurring some customers to hold back. And even though we do have a new Fed chief in town, it's not looking like there's going to be any major changes to that broader picture. The Federal Reserve is unlikely to cut rates anytime soon, and consumer confidence remains kind of depressed by inflation and job security worries. And so given that broader outlook, analysts remain split between neutral or negative on the company.

8:54I mean, Citizens Bank highlighting that they expect the home builder to match consensus, noting that order trends still remain a little bit resilient, given they have been providing some elevated sales incentives to get people to buy those homes. But other analysts from RBC are reiterating their bearish view of the stock, highlighting that they expect another gross margin miss on the quarter and guidance. You're talking about bearishness. I mean, just taking a look at the A &R function on this stock, just one buy rating on Lennar. How does that compare to some of the company's peers? I'd have to guess that most of them probably are facing a similar picture.

9:33Absolutely right. I mean, if we look at KB Homes, they are also facing a similar picture. They have three buys, nine holds, and five sell ratings, according to data that we have on the Bloomberg Terminal. So, definitely not necessarily the most bullish place to be in the markets. Yeah, certainly not. Well, we'll see how things go for Lennar when they report those results on Wednesday. And that same day, we've already gotten earnings from Salesforce, but they're holding their first investor meeting since the earnings beat last month. What are we expecting there? Absolutely. So the company has been facing a slightly rockier year as investors continue to question how exactly this software provider will remain relevant amid the threat of disruption from Anthropic and ChatGPT.

10:17Worth noting, though, that despite the narrative, Salesforce has been on a buying spree as of late, deploying several billion dollars in deals related to agents and AI infrastructure. Just this past week, Salesforce closed on its purchase of FIN, and other publications are reporting that the company has held talks to buy an AI customer research platform for about$2 billion. So it will be really interesting to see if we hear how exactly Salesforce plans to integrate all of these different companies into its greater ecosystem. And Citi analysts will also potentially be looking for additional updates on the return on investments from some of these AI-related deals, especially since Citi actually mentioned in a note that AI isn't yet super visible on customers' profit and loss statements.

11:01So kind of interesting to see how exactly Salesforce will get a couple more points on the board. Yeah, it'll be interesting to watch that as well, given that we've heard so much negative sentiment around artificial intelligence with a lot of these researchers from Anthropic and even OpenAI putting out these warnings about the development of artificial intelligence. Can we expect anything from Salesforce when it comes to that? It's going to be a really good question, especially since they do have a partnership with Anthropics Cloud. So definitely something that we're going to be looking out for any additional visibility since they are definitely leaning in towards becoming an AI forward company.

11:41What that looks like is still kind of undetermined, but definitely something that will be of interest. Okay. And also this week, I guess maybe we can talk about this being in the tech space, but Take-Two Interactive, the gaming giant, is holding its annual meeting. Did you see the Grand Theft Auto 6 trailer on Netflix? I sure did. I will say I didn't really grow up playing Grand Theft Auto, but it was definitely something that all of my friends in high school were really, really into. And for those unfamiliar, Take-Two is the parent company of very popular video game franchises like NBA 2K and Grand Theft Auto, which is made by Rockstar Games.

12:22And so investors are definitely going to be looking for even more visibility on how exactly this Grand Theft Auto 6 is going to look like at the meeting on Thursday. I mean, they already have open pre-orders for the game this past summer. And still one of the biggest questions heading into launch remains, when exactly does Rockstar plan to launch GTA 6 online? And to be clear, that is separate from the November 19th release date for the game that will be launching on PlayStation and Xbox. And the stock has faced a little bit of pressure in recent weeks amid speculation that the online version of the game could face some delays.

12:58Though analysts still remain quite resolved that the scenario remains quite unlikely. And just this past week, as you mentioned, we learned that the preview of the game drew more than 30 million Netflix viewers in just a week. So clearly, there's a lot of pent-up demand for the next iteration of the game since the last one came out in 2013. Yeah, I couldn't believe it. Just a few weeks ago, that trailer was the number one most viewed piece of content on Netflix. Just the fact that we had a video game trailer getting that many eyeballs is just amazing to me. So it'll be really interesting to see what comes out of that Take-Two Interactive annual meeting on Thursday.

13:40Thank you for this, Avalon. Great having you with us. That's Avalon Purnell, Equities Reporter for Bloomberg News. And coming up on Bloomberg Daybreak Weekend, we'll discuss what to expect as Sweden heads to the polls. I'm Nathan Hager, and this is Bloomberg.

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16:20This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Later in the program, we'll look ahead to a monetary policy decision from the Bank of Japan. But first, Sweden is headed to the polls for that country's general election. Will the 47-year-old far-right populist that's been steering the national conversation for more than a decade be able to make his mark? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Nathan, Yimmi Ockerson has brought the far-right from pariah to kingmaker in liberal Sweden.

16:55But can he go any further? It's unlikely that he'll become prime minister in the country's election. But in a way, he's already won, remaking the political landscape and pulling his party, the Sweden Democrats, into the mainstream. But the path ahead is complicated. Polls suggest Ockerson will again outperform Prime Minister Ulf Christensen's centre-right moderate party, but that the opposition Social Democrats will win by a hair. Long ostracised because of their roots in Swedish neo-Nazi groups that were active in the 1980s, the Sweden Democrats have methodically worked their way in from the fringes at a time when, across Europe, like-minded political parties are on the rise.

17:44Recently, Germany's far-right, offering the AFD, recorded its best-ever result in a German state election. Paula Diehl, professor of politics and director of the International Populist Research Network at Keele University, says it's a movement growing around the world. We have had a long-term normalization of the far right, not only in Germany but in whole Europe, even in the Americas. And people get used to the message of the extremists. And the problem is in this process, the conservative parties start copying the discourse of the far right and in the hope that the far right will be weak. But the contrary is happening.

18:31So that was Paula Diehl there from Kiel University speaking to Bloomberg's Francine Lacroix. Looking at the economics, the Swedish kronor was the worst performer this year in the G10 group of major currencies. but the Swedish economy did return to decent growth in the second quarter in a boost for the current incumbent government but ongoing pressures on the war in the Middle East are increasing the risks of higher inflation in the future and making an interest rate hike for the country's central bank all the more likely. So will the Sweden Democrats ride Europe's right-wing rise and how much could economics influence proceedings?

19:10Joining me now is Bloomberg Stockholm-based reporter Charlie Duxbury and our Turkey and Sweden economist Selva Berziki. Charlie, can I start with you, the politics. The Sweden Democrats are expected to play a major role in this election. Can you just give us a background in terms of their ideology, in terms of their rise to prominence? The Sweden Democrats really emerged on the scene in 2010 when they entered Parliament for the first time. They felt that Sweden had taken in too many immigrants, particularly asylum-related cases, over the sort of preceding decades. And they wanted Sweden to adopt a sort of something close to a zero number of asylum-related immigrants over the years to come.

19:56When they broke through in 2010, they were seen as kind of beyond the pale and sort of unacceptable in the sort of mainstream Swedish political debate. But in the years since then, they've kind of grown in terms of their credibility with both voters and with allies on the centre-right. The immigration theme, as you say, has been big. So how much has that actually featured in this round of campaigning? In the 2022 election, immigration and crime were massive issues. And I'd say that ahead of this election, crime remains a very serious concern for voters. Sweden's been blighted by very serious gang-related, serious criminality over recent years.

20:38That was one big reason why the right won the election last time around. That remains a key issue. Because of the influence of the Sweden Democrats primarily, the centre-right and the centre-left have adopted kind of a harder line on immigration and criminal justice as part of their platforms. What do you think is going to be the effect of the AFD in Germany on Sweden? is is germany reflecting what is happening in sweden or is it the other way around how do you think about it what they've got in common is after the 2015 uh immigration crisis in europe parts like the afd and the sweden democrats got a big boost in the swedish case the sweden democrats obviously been around a bit longer as i said earlier and the the european immigration crisis kind of a validation of their position rather than kind of what got them started um when you compare the sweden democrats to other parties in europe you often see similar parties kind of breaking through and then sort of taking a bit of a knock and then maybe coming back you saw that in austria you've seen it in denmark the pattern in sweden so far is just a steady rise for the sweden democrats um through the last kind of yeah three three elections and the question this time is can they continue that rise and then can they even kind of get to a position ahead of the next election where their leader Ymir Jokosong could be the prime minister.

21:59I mean, that's, you know, what the Sweden Democrats want. It's just whether Sweden can be an example of a far right party going all the way to kind of the top levels of power without a break. Tell us though about who the other contenders are, though, in Sweden. Yeah, so Sweden's biggest party in parliament and oldest party is the Social Democrats. They built the welfare state in Sweden, which Sweden is so well known for these days. They remain an extremely influential party in Parliament. They're leading the opposition, the centre-left opposition, trying to get back into power at this election.

22:35They have a number of allies, the Green Party, the centre party, and the left party. And what the Social Democrat leader, Magdalena Andersson, will try and do if she wins a majority with those allies is trying to kind of cobble together a functioning coalition of all or a number of those artists working together. It's a bit of a complex picture because her allies, Social Democrats' allies, have kind of different views on what Sweden needs, particularly on economic policy. So that will be, if the Social Democrats emerge as the winners, that kind of negotiation about the formation of their government will be complex and it will be important and it might take some time.

23:19If you look on the right, the incumbent prime minister is Ulf Kistesson of the Moderate Party, a sort of centre-right party. His big move when he won the last election was to take the official support of the far-right between Democrats who stayed outside government, but sort of struck this very detailed contract with the minority government in return for support. in North Christosan's sort of governing coalition this time the Christian Democrats are a smaller party and also the Liberals. And the Liberals have been really struggling to gather the 4 % support they need to get over this threshold to enter Parliament at this election.

24:01But just over the last couple of weeks there have been signs that they've managed to gather that support. That's what polling suggests. Maybe taking some of that support and strategic voting from some of their allies in order to get into parliament again. It's key that the liberal, the small liberal party do do that and get over that 4%. Otherwise, Lufth-Kristo Sain isn't really going to get the mandate this time to get a second term. Okay. Well, we'll be watching the result from Sweden's election 2026 very closely. Charlie, thank you so much for your time. Selva Bazzicchi joins us now. Selva, just walk us through Sweden's current economic situation.

24:40Where does the country stand in relation to European peers? The economy went through a very, very difficult period after the inflation and interest rate shock after 2022. But we're seeing a quite clear recovery taking shape at the moment. Growth was particularly strong in the second quarter and households are actually central to that recovery. Inflation has fallen dramatically. Interest rates have come down since 2022 and real incomes are rising again. That means purchasing power is finally recovering after several difficult years. And as a result, relative to the rest of Europe, Sweden currently has more momentum and stands on stronger footing.

25:25Now, the only drawback is the labour market actually is the weak spot. there's slack there and unemployment remains high and has been much much slower to recover. Okay so households may be feeling a little bit better. I mean you talk about inflation obviously the war in Iran has brought inflation into focus. How's that affecting the Swedish economy in particular? Sweden stands apart from the rest of its peers quite heavily. It's an interesting case it's entered the latest energy shock with inflation already very low. Now, part of that was due to the current government's diverse relief package that was aiming at improving household budgets.

26:06It cut down food VAT by half in April, introduced not one, but two tax breaks on fuel, among other steps that have helped support household purses. Now, those measures helped take the CPI measure that's in particular interest to the central bank CPIF in Sweden below 1 % and underlying inflation is even weaker. So Sweden is in a different kind of world in this Iran war respective to other peers. You've also done quite a bit of work on the link or the lack of link when it comes to the rise of nationalists, political parties and the economy and poor economic performance in particular, what have been your findings in relation to Sweden?

26:54There's a common story that nationalist parties rise because voters are economically unhappy. You know, jobs disappear when immigrants come into the country. Living standards are squeezed. You know, housing becomes more expensive, difficult to reach. So people turn away from mainstream parties towards nationalist parties. We tested that hypothesis using voting data from all of the, well, 250 nearly Swedish municipalities. And we looked at what happens within the municipality over the past five elections in Sweden. And now for the Nationalist Party in Sweden, that's Sweden Democrats, we don't really find that story in the data.