Daybreak Weekend: Netflix Earnings, Reeves Speech, Japan Eco

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2:14looking ahead to the UK Chancellor's key speech to the City of London. I'm Doug Krishner looking ahead at what we may learn in the coming week about the impact of US tariffs on the Japanese economy. That's all straight ahead on Bloomberg Daybreak Weekend, on Bloomberg 1130 New York, Bloomberg 99.1 Washington DC, Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on BloombergRadio.com and the Bloomberg Business App.

2:51Good day to you. I'm Tom Busby. We begin today's program with two fresh readings on inflation this week, coming off a better-than-forecast June jobs report. What all that plus retail sales for June could mean to the Fed. For more, we turn to Michael McKee, Bloomberg's international economic and policy correspondent. Well, Michael, I want to look back. Let's start with that June jobs report just over a week ago. What an upside surprise. What does it tell you about the labor market? What does it tell you about how important it could be to the Fed, to the president? Well, the upside surprise was in the headline.

3:23But when you look under the hood, the news wasn't quite as good. The unemployment rate did not rise. It fell a little bit, but that was because the labor force declined. So that's what we call dropping unemployment for the wrong reasons. And it does seem to have something to do with the president because the number of foreign-born workers dropped significantly. And long-term, that could be a problem for the economy. Also, what we saw was half of the gain was in government employment, and economists are pretty unanimous in suggesting that's a seasonal adjustment problem because in June you don't see a huge amount of education hiring since school is out.

4:04And that was what drove it. So we are looking at a labor market that is slowing down, would be the conclusion, but not in trouble yet. So for the Fed, it's kind of a wash. Okay, so even Stephen. This week, though, two reads coming up for the month of June on inflation. The Consumer Price Index out on Tuesday. The Producer Price Index for June out on Wednesday. Also, retail sales for June. That comes out Thursday, another big number. It's a big week. And the CPI is going to get most of the attention because it'll be our broadest picture of what the consumer inflation situation is, even if it's not the Fed's main index for its inflation target.

4:47And it is expected to rise. And so that should get a lot of attention on Wall Street because everybody's been waiting for some kind of tariff impact on the price level. And so if we see that, people will be a little concerned. For the Fed, it might be the producer price index that's more important in the sense that producer prices tell you what are probably going to be a better indication of where underlying tariff inflation pressure is coming from. Because all the parts that people buy from overseas to make other things will start to show up. We've had tariffs on steel and aluminum, and that's the kind of thing that, in theory, will show up in the producer price index and suggest that we will see further consumer price increases down the road.

5:41Auto parts, lumber, all in there, too. All in there, too. And now you mentioned, obviously, the tariffs. A lot could change. Last week, we heard President Trump talking about anti-American BRICS nations, a 10 percent levy on nations. I mean, how bad could it get? Is it all bluster? I mean, what do you think? Well, so far, it kind of looks like the way people are taking it is anything could change at any moment because that's been the story of the president's tariff policies. But for the moment, I think what you're going to see is economists starting to put pencil to paper when they have some numbers to try to figure out what the effect will be on prices and on consumer demand.

6:26You mentioned retail sales. Retail sales have been hanging in there at a lower level than they are. But if prices go up, then people may stop buying some things. So that'll be what the people with the Excel spreadsheets are doing. Companies have to figure out what they are going to do about supply chains, whether or not this means they should invest or not in expansion, what they think it's going to mean for their customers so they know whether they're going to have to absorb things in their margins, and that might have an effect on the stock market. So a lot of questions to be answered yet. But if we start to get some clarity that we can believe in, believe it's not going to change, then that is going to give people a chance to start figuring out where this all goes.

7:25Well, I'm sure we'll talk again. Until then, the June CPI figure out this Tuesday. PPI the following day retail sales on Thursday. Our thanks to Michael McKee, Bloomberg's international economic and policy correspondent. We turn now to earnings, and this week we'll hear from the streaming video giant Netflix as it goes deeper into live programming to raise revenue. And for more on what's behind that push, we're joined by Geetha Raghunathan, Bloomberg intelligence analyst on U.S. Media. Geetha, thank you for being here. Although they no longer report subscriber numbers, a key metric for Netflix as it builds its advertising business, What do you expect to see in the latest earnings report out on Thursday?

8:04Yeah, you're absolutely right. They have stopped reporting subscribers as of this year. But the metrics that they want us to focus on right now are revenue gains as well as operating margin. And they've really been delivering some stellar numbers when it comes to both of those metrics. So what we're looking for and what they've guided to for the second quarter in terms of revenue growth is mid-teens percentage increases. So about 15 to 15 and a half percent increase in revenues and a very, very strong operating margin at, you know, 33 percent. Remember, last year was absolutely a breakout year for Netflix.

8:42They had 600 basis point expansion in their operating margin. And again, they have guided to pretty impressive increase for this year as well. So you're absolutely right. The focus has really shifted now to financial metrics, but that doesn't mean that subscriber growth is slowing because they have an absolutely fantastic. They had a very strong content slate for the second quarter, and they continue to put out really good titles, and they have some really big series that are going to debut on their platform through the rest of the year as well. Well, it's clear. I mean, the share price has almost doubled in value in the past 12 months, so they are doing everything right.

9:21Let's talk about what they have done as well as push into more live programming. They've raised prices. And that doesn't seem to have hurt at all either, right? Not at all. So what Netflix has really done well is they've established themselves as a must-have platform. So they are the go-to kind of default entertainment option out there, which gives them a lot of pricing power. They also have, you know, content is obviously their greatest differentiator. They have a steady stream of really popular content on their service. But most of all, it's really the user experience, right? The user experience is unparalleled, and that's something that Netflix knows.

10:03And, you know, they're able to raise prices, and there has been absolutely no backlash or pushback from customers. We've seen churn at very, very manageable levels. So it just gives them more confidence, really emboldens them to keep increasing prices at a steady pace even into the future. Well, let's talk about some of that programming because they have really tried to broaden the lineup to attract new subscribers. And it looks like it's working. I mean, the sports, there's the WWE, the Raw Wrestling, UFC matches. We know they've been aggressive trying to get Formula One. I mean, they are really branching out.

10:37And we know in the past, there's no football games now, NFL, but, you know, what worked for them on Christmas Day, those two games there, those big celebrity boxing matches. I mean, is that the future that they see right now, those live programmings, the advertising revenue from that? And are we going to see more and more and more of that? We're going to see more. There is absolutely no doubt about that. You're absolutely right. You bring up the WWE. That's been a great source of programming. We see that show up in the top 10 literally every week. So we know that that programming is resonating very well.

11:11Again, NFL, that's something that they tried last year with the Christmas Day games. They're going to do that again this year. They have more of this kind of boxing matches coming up. So they're really getting into live programming in a big way. And if you think about what the strategy is here, it's not just to kind of expand the entire programming lineup. They're really chasing advertising dollars. And we know that they are looking to get at least about$9 billion in advertising by 2030. That's a pretty big ask because remember, they just introduced advertising. It was only about$1,$1.5 billion, again, estimated in 2024.

11:48And they've got to really scale that up. So the idea here is to really capture more consumer media usage time. And so they want to get all of these different genres. Live sports is something that works really well. They did a really very different type of deal just a few weeks ago in France, where they're actually integrating content, live content, live TV content from TF1. This is the first of its kind deal where they're taking a live broadcasting, live broadcasters programming and actually putting it on Netflix. So again, here we're just looking at them, experimenting with different strategies, basically just capturing more watch time, increasing engagement, reducing shine.

12:32Well, they've also done a similar thing with NASA Plus, their ad-free offering from the U.S. Space Agency. And they've had talks with Spotify about even more programming, branching out beyond sports, right? Yeah, again, this goes back to this whole concept of retention, monetization. How do you keep driving user growth? And it looks like they are not afraid of experimenting and, you know, really trying all kinds of things to scale and to become the dominant. I mean, they already are the dominant streaming platform, but it's just basically expanding that dominance and really, really cementing it.

13:08And we've seen Squid Games 3, a blockbuster for viewership, the most watched program in 90 countries, the final season of Stranger Things. and coming out in just a couple of weeks, the second season of Wednesday. I mean, they've got a full lineup of shows, too. Yeah, absolutely. So believe it or not, this is the strongest six-month period ever in the history of Netflix. They have never had three of their biggest series ever. I mean, remember, Squid Game is their biggest series ever. Again, Stranger Things, Wednesday, all those three feature in the top five of the most watched series in the history of Netflix, maybe in the history of any streaming platform.

13:48And so we absolutely believe that that is going to drive extremely strong subscriber growth. Management itself has kind of characterized the slate as a slight embarrassment of riches. They've never had so many big series kind of come out and they're absolutely capitalizing on it. So remember, they are eventizing this whole stranger things. They're breaking it out into two parts. One part comes out around Thanksgiving. The second part comes out on Christmas Day. So they're really going to capitalize on it and make sure that subscriber momentum is maintained. Wow. Big and getting bigger. Netflix Q2 earnings out this Thursday after Wall Street's closing bell.

14:24Our thanks to Geetha Raghunathan, Bloomberg intelligence analyst on U.S. media. And coming up on Bloomberg Daybreak Weekend, a look ahead to a major speech from U.K. Chancellor Rachel Reeves. I'm Tom Busby, and this is Bloomberg.

14:45Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans.

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17:29I'm Tom Busby in New York. Up later in our program, a look ahead to several key data points for the Japanese economy. But first, U.K. Chancellor Rachel Reeves due to deliver her next major speech to City of London at Mansion House on July 15th. She's expected to lay out the government's growth and competitiveness strategy for financial services. But with pressure from within her own party to impose a new wealth tax in Britain, what will Reeves' message be? For more, let's bring in Bloomberg Daybreak Europe anchor Caroline Hepker in London. Tom, Rachel Reeves will face an audience in the city who may well be relieved to see her still as UK Chancellor.

18:07The Labour Party has been in power for a year in the UK. it has not yet been able to deliver the kind of meaningful growth that avoids very difficult tax and spending decisions in the autumn budget. Paul Johnson, the outgoing director of the leading think tank, the Institute for Fiscal Studies, wrote recently on the subject, the Chancellor has to somehow reconcile tax and spending, but both her own Labour MPs and the Tory opposition are still living in a dream world, according to Johnson. David Miles from the independent watchdog the Office for Budget Responsibility put the Chancellor's difficulties into context when he spoke to us recently on Bloomberg Radio.

18:51If one kept all the policy settings as they are, the generosity of various state pensions being uplifted in line with the so-called triple lock and health spending likely rising simply to reflect what's likely to happen to demographics and if there's no change in the tax system. In other words, if nothing changes and you just let the system carry on as it is, it looks like it's going to generate a stock of debt that doesn't get under control and in the longer run in any way carries on going up. The message of the OBL certainly isn't, you know, this specific policy needs to change or that specific policy needs to change.

19:28It's just that there are pressures which have to be offset over the long run or else we're on a trajectory which is likely unsustainable. So that was the OBR's David Miles. But those difficulties are still some weeks away, for this Mansion House speech will be focused more narrowly on the specifics of the financial industry in Britain, amid a push in the US to power ahead with deregulation, tariffs and tax cuts. Well, joining me now is Bloomberg's UK government reporter, Joe Mays, and Bloomberg opinion columnist, Paul J. Davies. Welcome to both of you and Thank you for being with me. Jo, can we just start by thinking about what we expect in terms of tone from Rachel Reeves?

20:12Obviously, we had that moment of tearfulness in the House of Commons quite recently, followed by lots of beaming smiles and hugs with the Prime Minister. Does Reeves retain her authority? I think we can expect the kind of tone which you'd normally get from a Chancellor at Imagine House B's, which is projecting a positive, grateful attitude towards the city for the massive contribution it makes to the tax base, to the economy, and then setting out what she's done to help them so far and what she plans to do to make their lives even better going into the future. You're right that it comes against this backdrop of the very dramatic moment we had in the House of Commons where the pound was moving on these fears that she might have resigned or been sacked.

20:51Yeah, I think she came out of that episode actually strengthened with the city and with financial markets because it really showed how markets were worried that she was going to be replaced by a more left-wing alternative. And so So by staying, and you saw the reaction of the pounds and gilts, rallying when it was confirmed she was going to stay, I think that shows that investors feel like she is probably the safest bet when it comes to Labour chancellors, her fiscal discipline, her commitment to those fiscal rules. So I think she'll go into this mansion house feeling somewhat emboldened by that episode and wanting to show the city that she's still on form and she's got plans to make the economy grow and do better.

21:29And maybe that that lesson has become evident to her own party within the Parliamentary Labour Party, maybe. What do you think she's going to announce then? I mean, there are so many rumours already, but let's start by thinking about ISIS, which is a particular investment product in the UK. I mean, 18 million people have investments in ISIS. I think this is the most eye-catching announcement we're expecting, which is this change to the£20 ,000 limit that you can currently put in a cash ISA. tax-free on the interest. We're expecting her to announce a reduction in that£20 ,000 limit on cash so that you could still have£20 ,000 in nicer, but more of it would have to be in equities and stocks.

22:11I think that's the push she wants to make to move more capital into British shares, British stocks in a bid to get growth going. It's all part of that growth message. Now, it wouldn't be without controversy. We know that for some people, this is something they do not like. They like the idea of having kind of safe cash as their form of saving. But then will they react negatively? Maybe. But I think that's the big announcement we're expecting. Yeah. And some of the banks and the lenders that operate the ISIS, that offer the ISIS, you know, have also got a stake in this too and have pushed back somewhat against maybe some of the changes.

22:45Paul, let me bring you in at this point. So that's kind of setting the tone and maybe the eye catching announcements. But obviously the City of London wants the detail and particularly on regulation in terms of maybe the idea of scrapping ring fencing rules, which is a rule that dates back to the financial crisis. Any thoughts about whether that might be part of this Mansion House speech? Yeah, well, this is one of the key sort of, I guess, most tangible debates at the moment in regulation. And it's pretty interesting because there's a split between Rachel Reeve seeming prepared to perhaps ditch it as a way of hopefully enhancing growth.

23:20Everything that they're trying to do is find ways to enhance growth. Bank of England has come out against it. Andrew Bailey, the governor, has said that he thinks it should remain. And there's a split in the industry as well. So, you know, Barclays Bank has defended it quite strongly and thinks it's very important as a way of protecting depositors. I mean, you remember that the whole point of this thing is to keep ordinary consumers' deposits separate from the volatile, exciting, dangerous world of investment banking and trading and so on and so forth. So Barclays thinks it's important to keep that.

23:55Other banks, particularly HSBC, thinks it'd be much better to find a way of releasing more of that money for, you know, growth investment inside the UK and beyond. And they're unhappy that big global banks like JP Morgan and Goldman Sachs can use their small sort of UK deposit gathering businesses, Chase UK or Marcus, to raise cheap funding, which they're then free to use for whatever they want, wherever they want, because they remain below this threshold. I mean, I think what we might see ultimately is maybe a compromise whereby, you know, the banks like HSBC and Barclays get to use the first 35 billion of UK retail deposits, which is the threshold for, you know, ring fencing your UK operation, separating it from investment bank.

24:44then maybe they'll get to use that first 35 billion in a freer way to kind of, you know, to put into investment banking or some kinds of corporate lending or something more growth oriented. And that could satisfy both sides to some degree. Yeah. And I think this goes to the argument about whether the government's changes, all of these tweaks, these small incremental tweaks, actually going to add up to something more major and meaningfully change the trajectory when it comes to economic growth. or in fact this focus on financial services. We know that financial services is one out of the eight growth areas that the government is focused on, but how much are they really relying on financial services?

25:25It's sort of an interesting question, isn't it? In terms of what other maybe smaller banks are concerned about, the increase potentially in capital requirements for smaller lenders, how big a difference would that make? Yeah, so I guess one of the debates around ring fencing has been is keeping it away of restricting competition from smaller banks because it puts a cap on their growth to some degree. Those smaller banks like Starling or One Savings Bank, they're kind of much more worried about these kind of MREL capital requirements, which kick in sooner and are much more costly very quickly in terms of the amount of capital and sort of loss-absorbing debt, which is the kind of capital that you have to issue as those banks.

26:06So they would much rather see a change there. And there is a kind of an idea, I think, that maybe the point at which that kicks in might be lifted as well. Currently from sort of 15 to 20 billion pounds of assets up towards that 35 billion where the ring fencing kicks in. OK, so that on regulation. Joe, in terms of other things that could also feature in the next few days, a shake up of the pension system, especially of auto enrolment. I mean, pensions are such a major issue for the UK. not enough savings, not enough good returns for investors. What might a shake-up look like? Yes, I think the government would like to see more money going into pensions, firstly, so that more could be invested in the economy.