Daybreak Weekend: Jackson Hole, France Conference, Tokyo CPI

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2:06Straight ahead on the program, we look ahead to Fed Chair Kevin Warsh's first address in Jackson Hall. I'm Nathan Hager in Washington. I'm Stephen Carroll in London, where we're looking ahead to a key meeting of French business leaders as they count down to the pivotal presidential election in France. I'm Doug Krisner, looking at how overall inflation in Japan compares with price increases in Tokyo. 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.

2:52Good day to you. I'm Nathan Hager and we begin today's program with an eye on the Grand Tetons. Central bankers from around the world are headed to Jackson Hole once again for the Kansas City Fed's annual economic policy symposium. It is going to be the first appearance for new Fed chairman Kevin Warsh, so there is heavy anticipation for what he has to say at his keynote address later this week. Bloomberg International Economics and Policy Correspondent Michael McKee is going to be in Jackson Hole once again as part of our team covering the event this year. But Mike is here with me now in our Washington studio to preview what the chairman might have to say, given that he's told market participants that he doesn't want the Fed saying as much.

3:34So what are we expecting, Mike? Well, we're expecting something, but we're not exactly sure what. The title of this or the subject of this symposium is payment systems, which would attract a very small subset of the people out there in the markets. So the original thought was because he didn't want to say anything, he might stick to that subject. But now that he's had trouble with the markets and the question of Fed credibility, there is a feeling he's going to want to say something that will make him seem more credible, that will enable the markets to take him more seriously when he says he's going to make sure they get back to the 2 % inflation target.

4:18It's a bit of a threading the needle because he doesn't want to do any kind of forward guidance. But if he emphasizes the Fed maybe would use all its tools in the event that kind of speech, that might get some attention as well. Is that the kind of thing that would be enough for market participants just to say that the Fed is willing to use all its tools when I think the markets have kind of gotten used to the idea that the Fed, at least under past chairman, have been a little bit more specific about saying that they could go ahead and raise rates, lower rates, that sort of thing? That's the tradeoff Warsh is working on.

4:58He doesn't want the markets to take their cues from the Fed. He wants the markets to take their cues from the data and the news out there. And then the Fed would follow along, basically. So how far can he go and build credibility again without going farther than he wants to and setting a precedent that then he'd have to live up to of going on with future guidance on what they're going to do? Now, he does have some other things he could talk about. He could certainly talk about the task forces that he's put in place and what he hopes to get out of them, and maybe in general what he hopes to accomplish as a Fed chairman who's going to bring radical change, as he's put it, to the central bank.

5:45Well, you're not expecting then that the chairman is sort of feverishly reworking his remarks, given the action that we've seen in the markets these last few days and weeks when it comes to rising bond yields. I think at this point he would be just still writing it, because he told us on July 29th that he hadn't started writing it yet, so maybe it's in the first draft or second draft stage. But the problem here is the same problem we have all the time with this administration in place is the news changes so quickly that trying to keep up with it is very difficult. So I suspect that he would be speaking more in general terms rather than in specific terms.

6:33Now, we did have last week the Treasury Department announcing its plan to double the buybacks, increase liquidity, basically to try to keep people able to buy treasuries. The yield's obviously worrying the Treasury Secretary. And that could have an impact on the Fed. It could mean that the Fed wants to raise rates on the short end to build credibility. and that would then send long yields lower. But that's something that's probably too specific for him to get into because that would amount to forward guidance. But it raises an interesting point, given that the chairman has said he doesn't want to give forward guidance to the market necessarily.

7:19Could he give a little bit more clarity when it comes to whether the Fed and the Treasury are going to be working a little more closely together going forward? Well, that's an interesting possibility. because he has said all along, before he was the chair and since he's been chair, that he wants to work on a so-called treasury accord, an updated treasury accord. And the idea generally is that the Fed would try to align its securities buying, because it's still, it's not doing QE right now, but it's still buying securities to keep up with the rise in the money supply and demand for money. And so align that with what Treasury is issuing.

8:02And right now, Treasury is moving to shorten its maturities. They haven't done anything besides the buybacks in terms of an announcement, but markets are expecting one in a reasonable amount of time. And in that case, then he might make it more clear that the Fed is much more interested in having a portfolio structured towards the short end and towards bills. which would work together with Treasury. Well, thanks for being at least a part of this bit of the buildup, Mike. Really appreciate you coming in with us. That's Bloomberg International Economics and Policy Correspondent Michael McKee. We invite you to stay with us for special coverage of Jackson Hole and Chairman Warsh's keynote on a special edition of Bloomberg Surveillance this Friday, 9 a.m.

8:47Wall Street time from Jackson Hole on Bloomberg Radio and Television and the Bloomberg Business App. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager, joined by Bloomberg Intelligence Global Head of Tech Research, Mandeep Singh, because we have some major tech earnings coming up this week, including the big one from NVIDIA. Is NVIDIA still the big one, Mandeep, when it comes to the AI trade and earnings? Absolutely. I mean, if there is one company that really has carried through the mantle when it comes to this AI build-out, it is NVIDIA. And it shows up in their numbers when you look at growth expectations of close to mid-90%.

9:31And actually, their revenue seems to be accelerating. So it just goes to show that this company with over a$350 billion run rate now is really executing very well. And it is at the front and center of this big AI infrastructure build-out. It's incredible, the run that NVIDIA has had literally for years now. And just now, this latest announcement of a$105 billion data center investment in Ohio for OpenAI, it just speaks to so much of the outperformance that we've seen for NVIDIA for quite some time. And I guess the question still of whether circular investment is still an issue for this company.

10:17Is it for you? Well, so the thing that has changed with NVIDIA now versus a couple of years back is it's got a really strong balance sheet with a ton of cash to invest. And so what it is doing now is with these big data center deals, it is helping the likes of OpenAI and Enthropic and other companies, Neoclouds, finance this build out where if they want to set up a data center, NVIDIA will be that backstop in terms of filling in some of the investment requirements and then helping these labs raise funding from private capital and other sources. But NVIDIA is really flexing its balance sheet in terms of making sure there is a robust ecosystem around it and all of them are able to raise financing because that's the hard thing now as these numbers get bigger and bigger.

11:14Not every company will be able to raise financing for$100 billion data centers. So that's where NVIDIA comes in and kind of helps and be that backstop. And Google is doing the same thing, by the way. So all these major players who are training the models are kind of using their balance sheet in an effective way to prop up the ecosystem around that. Okay, so we're definitely looking forward to those earnings results from NVIDIA on Wednesday. We're also going to hear from CrowdStrike, the cybersecurity firm. A lot of debate about this company's valuation heading into the print. How do you see it?

11:52I would agree that they have been a beneficiary of, you know, the entropic mythos release and all the kind of anxiety around every company being at risk of a cyber attack because mythos exposed all the vulnerabilities. But to my mind, CrowdStrike hasn't really shown that in their numbers. They're still growing top line at mid-20%, which is healthy, but nothing like what we talked about, NVIDIA growing at mid-90%. And some of the other companies in the chip space are growing triple digits. So mid-20 % growth for a company of CrowdStrike's size doesn't seem that impressive. and it's already trading at a very premium valuation multiple.

12:41So from that perspective, the expectations are higher, but maybe they come out and talk about how all the enterprises have started increasing their cybersecurity spend post-methods, and that will be a good narrative. I think that may help the stock sentiment. And before we hear from CrowdStrike and NVIDIA, on Tuesday we're going to get earnings from Marvell Technologies off the back of their announcement of a$12.2 billion share purchase deal with Google. What's that say about where Marvell is in the chip race? I mean, all these chip companies, I think, have really benefited in a big way from, you know, the CapEx increases that we keep hearing about.

13:21And Marvell is exposed to all the custom silicon development. And now they are partnering with Google. Earlier, They were predominantly working with Amazon. So the fact that Google is working with Broadcom and now they are working with Marvell to expand their TPU kind of unit shipments suggests to me that, you know, Marvell will see accelerating top line as well. And they have more customers now than they had previously. And Google is obviously a big customer. I was a little surprised with the stock warrant aspect of this deal, like why they had to give that. But we have seen that kind of deal between AMD and Meta and AMD and OpenAI.

14:08So it's not that unusual these days to give warrants if you have a big customer lined up. All right, Mandeep, thanks as always. That's Mandeep Singh, Global Head of Tech Research at Bloomberg Intelligence. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to a key meeting of French business leaders as they count down to a pivotal presidential election. I'm Nathan Hager, and this is Bloomberg.

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16:45This 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 the latest reading on Tokyo inflation. But first, mines in Europe are starting to turn to the election cycle. In France, Emmanuel Macron leaves office next year after a decade in office. and many are wondering what might come next. Bloomberg Daybreak Europe anchor Stephen Carroll's been looking into one of France's biggest business conferences. Nathan, France's business leaders will be gathering at the home of the Roland Garros tennis tournament in the coming days with a very different kind of contest in mind.

17:21The country's biggest business lobby group, Medef, is holding its annual end-of-summer conference, the last before next year's presidential election. This event has been traditionally a moment for potential candidates to rub shoulders with business leaders and prove their credentials when it comes to managing the economy. And the challenges there are major. Passing a budget in France has become a hugely fraught affair politically, leading to the toppling of two prime ministers in the last two years. Campaigning for the French presidential election will begin to pick up in the coming weeks as well.

17:49The outcome is being closely watched across Europe and for the consequences that it may have in the wider European Union. Joining us now to discuss is our Paris correspondent, Caroline Conant, and Rich Bravo, who leads our team covering governments across Western Europe, who joins us from Brussels. Caroline, first of all, this is a moment where French businesses get to lay out their priorities for the next president. What are we expecting to hear from them? Yeah, France, as you know, is just getting back from the summer break. But clearly, this is a bit different because in eight months from now, we have the French presidential elections.

18:19So they're going to be on everyone's mind. The prime minister, Sébastien Lecornu, first needs to pass a budget by the end of this year. That's going to be difficult as well. is going to present it by the end of the month. And remember, as you were mentioning, the past two budgets ended up with prime ministers being ousted in votes of no confidence. So that's a risk for executives over the next few months. The uncertainty, the volatility is going to come back. Some companies we've been speaking with over the past few weeks and months have been saying they're either holding or delaying some of their investments due to this uncertainty.

18:59and of course we'll wait to hear from the various programmes of every candidate and the potential new taxes on companies and businesses. Yeah and indeed that's going to be difficult questions to answer. Now as I mentioned this is the moment where you get often potential candidates coming out and trying to prove themselves to the great and good of the French business community as well. In terms of who's expected to be there, is this going to be a big political event? So, in fact, if you look at this year's edition, there's not so many candidates that are going to be physically there. I saw David Lissner, the mayor of Cannes, but he's basically at 1.5 % in the polls, so very low.

19:41Also, Fabien Roussel, the head of the Communist Party, who's preparing his candidacy. and then of course we've got some members of the government but not currently candidates for example Roland Lescure, the current finance minister who has the big task of presenting this budget by the end of the month and Bruno Le Maire, the former finance minister for Macron for seven years who's actually going to talk about political bravery I thought that was an interesting subject ahead of these elections Yes, perhaps and what a moment it's going to be Rich, I want to turn to you in Brussels next. This is an event that really, as the European political season picks back up, is going to be on everyone's minds.

20:25What is going to happen in France next year and what it means for the European Union? How are politicians and officials in Brussels feeling about the end of Emmanuel Macron's term in office and the election? Well, officially, the European Commission will never weigh in on upcoming elections or take a stance, it appears, to influence a campaign or give any kind of preferential guidance. But obviously, France, being one of the core members of the EU, wields outsized influence on policy matters across the board. And a Le Pen presidency would obviously represent a massive change for the EU and would likely upend the status quo as we know it.

21:05Le Pen is an unrepentant Eurosceptic. neuroskeptic, she likely wouldn't adhere to EU fiscal rules. She has said that she would seek to send less money into the EU's budget and would try to undo things like climate policy and the current migration rules. But more importantly, she would hold a veto in the European Council, meaning that she could hold certain policy matters such as sanctions and trade hostage. This was a tactic utilized for years by Viktor Orban, and he would withhold his support for something like sanctions against Russia in exchange for some domestic policy matter that was important to Hungary.

21:46And these two issues wouldn't be related in any way, but he was able to use this to great, great, great effectiveness. What's the French business view of Marine Le Pen, Caroline, given that we're thinking about the party leading in the polls? And of course, there've been so many questions over her candidacy up until now. Yeah, Marine Le Pen and Jordan Bardella, who she said will be her prime minister if she wins, clearly have been leading in the polls. They are around 30, 35 percent in the first round in most polls. And, you know, given they perhaps have a big shot at winning this election next year, executives have been increasingly courting the party, meeting some of the national rally advisors behind closed doors.

22:30But not only we saw Bardella, for example, appearing publicly at the 200-year party of Le Figaro newspaper. The Medef Business Lobby actually organized a dinner with Marine Le Pen last spring in order to discuss priorities, perhaps a way for executives to also influence some of the programs. And if you look at the French papers, the executives who were there physically at this dinner were the likes of LVMH, Total, Accor, Renault, AXA, Engie. So, clearly, this is not taboo. anymore, you can meet with Marine Le Pen, you can meet with Jordan Bardella. Marine Le Pen has actually recruited a millionaire investment fund manager who's been advising her on debates and speeches, even though, of course, a lot of these meetings for the executives, their aim is to try and influence the program.

23:21We don't know much details yet about their economic program because they haven't published yet their manifesto. And Rich, in terms of how Brussels is preparing for the potential of a Le Pen presidency as well, I mean, can they work with Marine Le Pen, given that she has been very critical of the EU in the past? The short answer is the commission doesn't really have a choice. It just remains to be seen how antagonistic this relationship will be. I mean, if you think back to when Maloney first came to office, the expectation was that she would be a disruptive force in Brussels and push a really far right agenda.

23:57That obviously never came to pass. And now she's seen as a right wing politician who isn't completely out of step with center right politicians. The big question is, if Marine Le Pen wins, does she try to emulate Maloney and work with the Brussels structure? Or does she lean more toward the Orban paradigm and really try to disrupt things? We're talking a lot about Marine Le Pen because of her position in the polls as well but Caroline, what do we know about the other candidates who are in the field? We don't have a full field yet, we should say there's still a long way to go but this moment, and I should remind actually in 2016 it was during this conference that Emmanuel Macron resigned from his position as economy minister and announced that he was setting up his own political movement so things do happen at this time of year but give us a sense of where the field is at the moment And I interviewed him at the time and he was not even a candidate quite yet I would say at the moment The candidate who's got the best shot at winning against either Marine Le Pen or Jean-Luc Mélenchon, the far-left candidate, is Edouard Philippe.

24:59So this former prime minister under Macron during the COVID, during the pandemic, is at 15, 20 percent in the polls. Mélenchon currently is at around 12, 15 percent, depending on the polls. So it's still tight. Mélenchon could possibly also make it to a runoff, which obviously would be the scariest scenario for the markets and for businesses to see a runoff between both extremes, the far left and the far right. But Hédard Philippe may be at the moment the best positions. However, we've seen in past elections, a lot can change between now and then. You've got Gabriel Attal also in ambush, also from the centrist party of Renaissance.

25:36You've got François Hollande, the former president, socialist, who can actually possibly appear as a reassuring figure for the centre left. And then, of course, you have the smaller candidates, Bruno Retailleau from the Republican Party, who is also perhaps waiting to see if Edouard Philippe can really have this momentum over the next few months. And just coming back a little bit more into the immediate challenges, there's another budget coming up. We've mentioned how difficult it is to try and get a budget passed. How difficult is it looking this time around for Sébastien Le Corneau, the current Prime Minister?

26:13It's exactly the same situation. The Parliament is fragmented into three blocks. I spoke with the Finance Minister Roland-Lescu back in Aix-en-Provence at the beginning of July. He was saying we'll bring the deficit back to 5%, which is basically the same thing as last year. So it's really not an ambitious plan. it's very unclear as well exactly how these candidates, potential candidates, are going to cut the deficits over the next few years, are going to cut debt. And there is also, I've got to mention, this little music going on about if and once Sébastien Le Cornu has indeed managed to pass a budget by the end of this year, whether he himself would potentially be a candidate.

26:54Yeah, because I mean, that would be a pretty good momentum going into that as well, if he did manage to do what so many others have failed to do. And we saw how difficult it was last year for Sébastien Le Corneau when we thought he was going to. I mean, he did try to resign several times during that process, as I recall. So a pretty bumpy path ahead. Rich, from a Brussels point of view, if the leaders are looking ahead to that change, whoever it may be that takes over from Emmanuel Macron next year, is there a list of things that they want to try and get done while Emmanuel Macron, who while not everyone may like him, He's certainly someone that they know well in Brussels.

27:27Is there a to-do list they want to try before his term finishes? Yeah, for sure. There are definitely parts of the EU that are trying to take preventative measures now, given, as you mentioned earlier, the strength of the national rally in the early polls, which do show Marine Le Pen with a strong position heading into the first round. In some circles, they refer to this as Le Pen proofing the EU. The biggest example will probably be the EU's trillion euro budget. Now, this budget needs to be re-upped every seven years. The next iteration of the budget will need to be completed by next year. But a lot of people in the EU, a lot of leaders are trying to get this done before the end of this year.