Daybreak Weekend: Fed Meeting, UK Election, BOJ Decision

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2:34I'm Caroline Hepker in London, where we're asking what's next for the UK as it sits on the precipice of two big economic and political decisions. I'm Doug Krisner looking ahead at what's expected to be a rate hike next week from the Bank of Japan. That's all straight ahead on Bloomberg Daybreak Weekend. On Bloomberg 1130 New York, Bloomberg 99.1 Washington, D.C., Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on BloombergRadio.com and the Bloomberg Business App.

3:14Good day to you. I'm Nathan Hager. We begin today's program with the Federal Reserve. All eyes will be on the world's most important central bank when it begins its June policy meeting on Tuesday and issues its decision Wednesday. The first decision and news conference for new Fed chair Kevin Warsh. For more on what to expect, we are joined by the man who will be in the room when the decision comes down, Michael McKee, international economics and policy correspondent for Bloomberg Radio and Television. No pressure, right, Mike? I mean, how much pressure is Warsh facing? Is he under pressure right now?

3:51Yes, he's under pressure, maybe a little bit different than people anticipated when the president was first nominating him. There was a feeling that, of course, Trump would be on his case immediately to start lowering interest rates. The president said at one point, I'm not going to pick anybody who won't cut interest rates. But since then, we've seen inflation flare up quite a bit because of the war that Donald Trump started. So Trump seems to be willing to give him the benefit of the doubt. Still, there's a cloud hanging over Warsh and his nomination and his ascension to the chair. And so people will be watching to see what he does to try to demonstrate his independence.

4:31He doesn't have to make a decision. He doesn't have to cut rates. He doesn't have to raise rates. They can just leave them where they are. But does he say the right things that the market wants to hear about the Fed caring about inflation and making sure that they will do the right thing as opposed to just automatically wanting to cut rates? Well, let's talk about what the market is looking for in terms of how the Fed could react to the data. We are still seeing elevated price pressures, a little bit of shakiness, I think you could say, in the labor market right now. How does the Fed react to that in this meeting?

5:08Well, the interesting question, and probably not going to be too controversial, is whether they drop the guidance that they've had in there by saying that in considering any further rate moves, which everybody reads as a sign of in considering further rate cuts. That was the phrase that led to the three dissents last time. And so they'll probably take that out and leave the statement fairly anodyne, leave it open as neutral as they can be, which will then lead us into the summary of economic projections and the dot plot. Do they still foresee rate cuts in the dot plot either this year or next?

5:53Or do we start seeing people think that they need to move rates up? Are there going to be any higher dots? And then we get Kevin Warsh and we'll see what he says about all of that. And we'll see what he says about the dot plot itself, right? I mean, even before he became chair, he has been critical of a lot of the communication that the Fed puts out there. Do you expect him to say anything more about Fed communication? Well, I'm sure he's going to be asked. I don't know if he's ready yet to say exactly what he wants to do, but he has made it clear he thinks, A, that Federal Reserve officials talk too much, that it becomes a cacophony and it doesn't help the markets.

6:36And he's also been an opponent of the dot plot feeling it locks members into their positions longer than they should be if the circumstances change. It's very early. He's only been in the job for about two weeks, given the length of time it took to get him confirmed. So he may just let the process go forward this month, but he'll be asked about it. And so it'll be interesting to see whether he says, I want to get rid of it, or I'm going to talk to my colleagues about it, or I haven't thought about it yet. I don't know if we could call this an elephant in the room, Mike, but we do know that a former Fed chair is going to be in the room in Jay Powell.

7:16Does Powell fade away in this meeting, or what's it going to mean for the central bank to have two chairs at the same meeting? I suspect that Jay Powell will do his best to fade away, to fade into the background. It would probably be some sort of really strange decision that would lead him to dissent, and that would be the only news he would make out of it. He's not going to be talking to us. We won't know from the transcripts what he said, what positions he took, and I don't think we're going to hear from him a lot outside of all of this. He's remaining on the Fed, obviously, for the reasons that we all know about with his dispute with the administration.

8:01But he has made it clear he doesn't want to be the shadow Fed chair. He doesn't want to interrupt or interfere with what Kevin Warsh is doing. So while he will play a role, he'll get his speaking moments during the meeting. We won't know about it, and that'll be the way he likes it. Thanks for this, Mike. Really looking forward to your coverage this week. That is Michael McKee, international economics and policy correspondent for Bloomberg Radio and Television, ahead of Kevin Warsh's first policy decision this Wednesday. We will, of course, have full coverage for you right here on Bloomberg Radio.

8:35Let's take a look now at some stocks-making news in the week ahead. I'm Nathan Hager, joined by Bloomberg's Judy LeGroux, And we're looking forward to some more earnings this week. We're going to hear from Kroger Thursday. Looking at what Bloomberg Intelligence has to say about the grocery chain, expectations here don't look too great, Judy. That's right. Bloomberg Intelligence analysts are saying that Kroger is set for its weakest sales and profit growth of the year. So I think for them, it's really like the focus on that is the same store sales growth, which is expected to be the lowest since August 2024.

9:11But Nathan, I have a question for you. Talk to me a little bit about how you think about grocery shopping. Do you prefer to go in person? Do you prefer to go through an app to get your groceries delivered? I go to the grocery store almost every day just to fill up on the one recipe that I have to do every day. So, yeah, I'm an in-store person kind of guy. Okay, interesting. You know, I am here in Manhattan, and I miss going to the grocery store in person. I am a transplant, and so I've had to adjust to getting delivery over going to the grocery store. But it is an experience, and I do like and miss that experience greatly.

9:48Yeah, well, I mean, these grocery stores, they still get the business, you know, whether they're getting it delivered or not, right? But I mean, is it just same-store sales alone that are potentially going to be dragging Kroger's results down? I mean, truly for Kroger, it's a story of trying to catch up to where the business is. And so Kroger primarily is trying to spur growth in their grocery business through their e-commerce fulfillment. So that's through partnerships with Instacart, with DoorDash, with Uber Eats. And right now, they're really seeing that basically a lot of their business is coming from people who are ordering delivery on an increasing basis.

10:28And so in tandem with that, there is, for Kroger, a lot of thought into price cuts and what that looks like for them as they compete with other grocery store providers who deliver like Amazon, like Walmart. And so one thing I was looking at was city researchers really noting how vocal the CEO, Greg Foren, was in the press about price cuts on the day that Walmart reported their earnings. And city analysts called that, quote, strange timing and not coincidental, which I liked. You know, I thought that was really interesting and good language to use. But they certainly perceived the talk about price cuts as, quote, poking the bear.

11:13Seriously. When you think about just how expensive everything is right now, it's very top of mind for anybody, whether they're going into the store or getting it by delivery. But before we hear from Kroger on Thursday, we're going to get some more earnings from CarMax on Wednesday. How's the car market looking right now, Judy? I mean, look, I think that there's a lot going on and the car market is a reflection of what we're seeing in the economy. I think really CarMax is an interesting company stock earning result to watch because used car sales are certainly on top of mind for a lot of us in terms of its read on the consumer, its read on affordability for used cars, auto credit, whether the retail turnaround is actually working.

12:04I mean, there are so many roads that lead to used car purchasing. So at least for CarMax, what we're looking at in terms of the street and analysts, they're looking at an adjusted earnings per share of about$0.97, which is down 30 % from this time last year. And revenue is also expected to be slightly lower year over year. And so I think that is really sort of reflective of where we're seeing used car sales just as an economy, as a country. There's just strain there. And so as a result, investors aren't really looking for a blowout growth story here. They're looking for evidence that the worst of this storm, in terms of really wavering and dropping used car interest in sales, is starting to stabilize and sort of steady out, at least as far as CarMax.

12:54And one more stock we're going to watch maybe for the next few weeks here with the World Cup on is DraftKings. Do you think we're going to see investors get a payoff from the tournament, Judy? Oh, goodness. This is the crux of the question here. I think it depends on a number of things. It depends on whether the World Cup will bring in more bettors, more dollars waged, or more repeat customers. And that is something that, in my view, remains to be seen. I think we'll have to sort of understand what the handle or the total amount bet looks like as the World Cup gets underway. And whether or not DraftKings can turn this big event into new users without spending too much on promotions, which I think is really they're set up for that.

13:43An analyst Ian Moore at Bernstein really pointed out DraftKings as being the clearest prediction market sports betting winner of the World Cup. And I think those are really, really strong words. And for that, I think it's certainly something to watch from a perspective of stock movement as it pertains to the perception of the amount of bettors who are jumping in or even increasing their wagers as a result of the World Cup. Yeah, we'll be keeping an eye on it as the tournament goes on. Thanks for this, Judy. Great having you on with us. Oh, likewise. That's Judy LeGroux, reporter for Bloomberg News.

14:21And coming up on Bloomberg Daybreak Weekend, we'll look at what's next for the UK as it sits on the precipice of two big economic and political decisions. I'm Nathan Hager, and this is Bloomberg.

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17:23I'm Nathan Hager in Washington. Up later in the program, we'll look to a monetary policy decision from the Bank of Japan. But in the coming days, a high-stakes election takes place in the UK on the same day as the Bank of England's Monetary Policy Committee meets to make its latest interest rate decision. With both economics and politics at a crucial juncture, how will the two interact in the UK? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Nathan, the by-election in Makerfield in the coming days will take place in a constituency of former mining towns, some leafy villages and commuter suburbs between Liverpool and Manchester in the north of England.

18:05It could have very significant consequences for the future of Britain. Just about 77 ,000 voters will potentially decide the next UK leader who will govern over a population of some 70 million. Its Member of Parliament, Josh Simmons, resigned to give former Greater Manchester Mayor Andy Burnham a route back into Parliament, a prerequisite for an expected leadership challenge against Prime Minister Keir Starmer. But the competition is far from a foregone conclusion. Once a safe Labour seat due to the area's historic ties to mining and trade unions, it's yet another place where the governing party has shed support to the populist and anti-immigrant Reform UK party led by Nigel Farage.

18:53The constituency is a deliberate choice though for Burnham, say his backers, to fight a tight contest where there is a direct threat from reform so he can show how he would beat them in the next general election, which must be called before August 2029. Burnham is not the only would-be challenger though to Starmer, former House Secretary West Streeting is also expected to mount a bid for the Labour leadership should a contest take place. Now he recently spoke to Bloomberg's Francine Lacroix. I think Andy will win and make a field when none of us Andy included taking it for granted. It comes back to this fundamental point though which is I can see Andy's strengths.

19:34I think I think he needs to be tested. I think his ideas need to be tested and so do mine. And I'm probably a rare thing in the Labour party. I'm a monarchist. But this is one coronation that I am not enthusiastic about. I think you need a debate. I think you need a battle of ideas. He needs to set out his stall. I need to set out mine. That was Labour politician Wes Treating speaking to Bloomberg's Francine Lacroix at the London South by Southwest Festival. The UK stands at the precipice in no small part due to the state of the economy and voters who don't usually turn out in enormous numbers for by-elections will be going to the polls on the very same day as the Bank of England's Monetary Policy Committee makes its decision on interest rates as it assesses the extent to which higher energy costs are affecting domestic prices.

20:29We're going to dig into both topics now with Bloomberg's politics reporter Jacob Reid and our economist covering the UK and the euro area Anna Andrade. Welcome to both of you. So I'll call it the two Andys, Andy Burnham and Andrew Bailey. There are lots of candidates, of course, running in the by-election and lots of policymakers at the Bank of England too. But that's just my shorthand for really thinking about next Thursday. Jacob, why do you think, though, that the vote in Makerfield is so important? Oh, my goodness. I mean, it's completely bizarre, this by-election in a, you know, there are going to be 70 ,000 voters or something like that.

21:08And it could reshape British politics. We've got a Prime Minister, Keir Starmer, who's historically unpopular. The Labour Party is seeing those polls. They're very worried. And Andy Burnham, the mayor of Manchester, of Greater Manchester, is the most popular politician in the country. The issue is he can't become Labour leader and Prime Minister without being in Parliament. So one of the Labour MPs stood down and said, go on Andy, run in this by-election and if you win you'll be able to challenge for the leadership. And it's a big if, it's a big if, it's not a done deal. No, so what does the polling look like?

21:44What have candidates actually been campaigning on in quite an unusual contest obviously? Yeah, so there have been two polls, they both put Andy Burnham ahead by different amounts. The most recent one was 10 percentage points ahead, which you would say is relatively comfortable but it's notoriously difficult to do accurate polling in small constituencies to get an accurate sample. So while people probably do think Andy Burnham will win, there's a strong challenge from Robert Kenyon, who's the Reform UK candidate. And he's basically saying that Andy Burnham is using this constituency as a stepping stone for his personal ambition.

22:27And that, you know, he's still Labour and Labour is very unpopular. is there anyone in the north of england who doesn't know the name andy burnham i doubt it he's certainly playing on home turf in terms of that record and i know you've spent lots of time in the constituency and in the north of england thinking about that so what do you kind of extract from his record the big thing is buses i mean go to go to makerfield ashley makerfield the town Centre and you see these big yellow buses going past you and his big policy has been taking them back under public control, capping the fares to£2, making sure they do routes that are kind of in the middle of nowhere but a bit of a lifeline for those people.

23:13That's his big thing and also Greater Manchester is just an area that's doing really well. The UK economy is quite gloomy and this is a city, a city region that's really been outpacing a lot of the country. It feels like things are happening, buildings are going up. So he's kind of trying to capitalise on that good vibe, really. Yeah, absolutely. Well, Anna, let's bring you in at this point then. We know that the UK is facing, obviously, political turmoil with all of this. Just walk us through then the economic picture right now for the UK. Yeah, definitely. So obviously, we've had a very strong start to the year.

23:51We've seen real GDP gaining by 0.6 % quarter on quarter. That's very unusual. There's all these question marks about whether that reflects strong momentum in underlying activity or actually is just a problem that the ONS is not fully capturing a shift in the pattern of economic activity. Regardless, we expect and our outlook for the next coming quarters is actually quite gloomy. And that's obviously on the Iran war. So as a net importer of energy, the Iran war, the rising energy costs means that there will be a stagflationary shock to the economy. We're going to see headline inflation increasing faster than we were expecting.

24:33We've actually revised our forecast compared to the pre-war. We see it higher by 1.5 percentage points by the start of next year. that's obviously a squeeze a real income squeeze for households and then on top of that you had tightening in funding conditions because markets are no longer pricing in rate cuts from the boe so our outlook even before sort of all of this political turmoil was for extreme weak growth over the next coming quarters yeah absolutely and you know we don't have a resolution to the war in Iran and that is certainly a big big challenge and I suppose going back to the kind of politics that's one of the big questions isn't it how somebody like Andy Burnham would translate his policies nationally what his bigger economic plans might be when the backdrop we know is has been massively challenging for Keir Starmer the current leader and even leaders before that Exactly.

25:34It would be difficult for anyone coming in. Broadly speaking, Burnham has said he wants to take more control of essential industries. So the buses are a key example, but also energy, water. He stopped short of saying he'd want to nationalise, it might be more regulation. He's also talked a bit about a new way of doing politics, devolving more tax and spend powers to local areas and maybe even changing the electoral system. And historically, he's been in favor of rejoining the EU, but he knows he's competing in a constituency that voted to leave. So he's kind of walked back from those comments.

26:14I think basically there are two different school of thoughts. One is that he's more left wing than Keir Starmer. He's a bit more radical. He's talked about the government shouldn't be in hop to the bond markets. That was interpreted by some as, you know, crikey, he's going to borrow more. He said that he meant that we need a long term plan and not to just follow sort of guilt gyrations. The other school of thought is that he's basically a bit more of a charming Keir Starmer. He would have similar policies. He said he's in favour of a lot of the pretty tough restrictions the government has done on immigration.

26:51He'd just sell them a bit better. He's a bit more charismatic. And it's not clear which Andy Burnham we might get. So then what do we think that the Bank of England amidst all of this is going to do? I mean, I think right now the focus is still pretty much on the Iran war and the impact that it can have on the economy. I think the political uncertainty and obviously the question mark of what will happen to fiscal policy will be a crucial thing for the BOE's policy outlook. But it's just not we just know very little of what's going to happen there. BOE policymakers take policy announcements as given.