Daybreak Weekend: New Home Sales, UK Prime Minister, Japan Marine Day

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1:11This 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'll look ahead to some key housing data along with earnings from some of tech's biggest companies. I'm Nathan Hager in New York. I'm Caroline Hepko in London, where we're looking ahead to Andy Burnham's first few weeks as UK Prime Minister. I'm Doug Krisner, looking at how the people of Japan will reflect this week on the ocean's vital role in life and culture. 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 Bloomberg Radio dot com and the Bloomberg Business app.

2:04Good day to you. I'm Nathan Hager. We begin today's program with some key housing data. In the U.S., we get new home sales figures for the month of June this Friday at 10 a.m. Wall Street time. And for more on what to expect with the real estate market moving forward, we are joined by Drew Redding, U.S. Homebuilding Analyst for Bloomberg Intelligence. Great to speak with you, Drew, after we kind of saw a surprise drop in new home sales last month, what's the risk we see in another surprise this time around? The June data will really mark the end of the new home spring selling season. And, you know, it's been lackluster to say the least.

2:39You know, if we if we zoom out a little bit on a year to date basis, we're up just about two percent. And the most recent data we got, which is the highest frequency data we have on mortgage applications, shows that applications to purchase new homes were up about 2%. You know, the census data continues to be extremely volatile. But I think, you know, the bigger picture story here is that the market continues to be pressured by affordability challenges and consumer uncertainty remains elevated. There's more concerns about the outlook for the economy, the outlook for employment. So you have people on the sidelines who are saying maybe now is not the right time to make such a big purchasing decision.

3:21Yeah, it seems like there have been so many headwinds over the last few months. Like what you said, the prices are elevated. The home mortgage rates continue to be elevated as well. I mean, is there anything that you can see down the pipeline that can sort of reach an inflection point potentially for this market? Well, I think a couple of things. As it pertains to mortgage rates, I think one of the important points there is that they've just been so volatile. So it's difficult for consumers out there in the market to kind of get a grasp on what their monthly payment is going to be. And when you think about the low-end consumer in particularly, those swings in mortgage rates can have a meaningful impact on their monthly payment.

3:59So number one, I think we need to see just a little bit stability in borrowing costs would certainly help. And then on the consumer side, I think we need to see a little bit more clarity on what direction the economy is ultimately going to take. I mean, things are pretty good now, but again, there's more concerns about the economy. And now we have these geopolitical tensions that have kind of elevated uncertainty. So I think you need to get those factors under control. You know, when we look out a little further, we have new home sales, single family starts down those single digits in 2026. We think that could ultimately be the trough because what the industry really needs to do is get supply and demand in better balance.

4:40So builders have been pulling back on housing starts in an effort to work down elevated spec home inventory. And we think that'll continue through this year, which should demand pick up modestly. We think we could see a rebound in sales and starts into next year. So if we do start to see that rebound, what could that potentially mean for multifamily starts? When you're talking about a consumer that's still feeling pressured right now, you'd have to think that multifamily would be facing some pretty difficult headwinds as well. The multifamily segment has had its own challenges. But by and large, if you were to look at the for sale market versus the for rent market, just look at the affordability challenges.

5:20And, you know, we've done survey work on this and most of the industry data speaks to this as well, is that the value proposition for renting over owning is firmly in favor of renting. And that's particularly true at the lower end of the market. So, you know, we expect that to be the case in the near term with home prices continuing to rise and mortgage rates really not making, you know, gaining any meaningful ground. Well, now that we're nearing the end of the spring home buying season, do you see anything in the forecast that could point to potential price moderation in the new home market? Or is it just too soon to say?

5:55Yeah, that's a good question. I mean, prices in the new home market have been moderating. And the primary reason for that is because I think as we're all aware by now, builders have been very aggressive in their use of financing incentives. So they've been buying down the mortgage rates for the buyers coming to their markets, and that's accounted for as a reduction in the average selling price. So the fact that rates are still elevated, we think they're going to continue to keep their foot on the gas pedal in terms of their use of incentives, which will continue to put pressure on prices. At the same time, what we've started to see a little more broadly is outright base price reductions.

6:31Now, it's not something that all the builders are doing, but in a number of instances, they're finding that in order to clear that spec inventory that we talked about earlier, they're having to lower prices of the homes in their community. So it's a combination of the two. You know, I think builders are also looking for ways to simplify their products in order to meet affordability. So smaller square footage floor plans, maybe more townhouses, which tend to be lower ASP. So, you know, it's not just outright price pressure, but there's also some mix that'll be impacting prices as well. And of course, you got that new housing bill that just passed Congress in recent days.

7:07How could that potentially affect the outlook? big picture. It's important that the administration and Washington as a whole have focused some attention on housing. It's been long overdue. And I think that's a positive that the new legislation is focused on the supply side and trying to remove or reduce some of the friction in new home construction. The emphasis on zoning permitting regulation is definitely a long-term positive, but don't really see it as a needle mover in the near term. One of the things you have to consider is that a lot of the things in the bill really function as a framework for reform rather than, you know, being a direct mandate or a federal override, which means that implementation still depends on local municipalities adopting policies and processes.

7:56You know, these are things that will take a long time to work through the system. And, you know, I think ultimately the impact is going to be hard to quantify. I certainly think, as I said, it's a step in the right direction. But is it a needle mover immediately for affordability and construction? Probably not. It gives us something to think about as we get closer to those new home sales figures for June later on this week. Thank you for this, Drew. Really good to have you with us. That's Drew Redding, U.S. Homebuilding Analyst for Bloomberg Intelligence. Let's take a look now at some stocks making news in the week ahead.

8:25I'm Nathan Hager, joined by Bloomberg News Senior Equities Reporter Bailey Lipschultz on another really big week for earnings. We are right in the thick of it, Bailey. And we're going to be hearing a lot from big tech names as well, starting this Wednesday with Tesla. I guess Elon Musk wants us to think about Tesla as a tech company more than a car company, right? No, exactly. When you talk to Elon or even just look at what he posts on social media, conversations around the company, Tesla is no longer just a car company. It's the future of taxis. It's a robot company. It's increasingly, in terms of capital expenditure, an AI company and a chip-making company.

9:05So that's been kind of the big push to no longer think about Tesla just as the company that makes electric vehicles. But going into these earnings, of course, we did get some delivery numbers on the core business from Tesla, kind of a beat when it comes to their second quarter vehicle deliveries. I mean, how does that set the bar in terms of what we could here on some of those other aspects of the business you were just talking about. Yeah, no, I think that sets kind of a clear expectation for what the core business will deliver. The big question from that is, okay, what are the financial implications from strong deliveries?

9:37How does that ultimately impact the business on the top and bottom line? Again, this is a company that hasn't grown car sales as quickly as many on Wall Street would have anticipated. But the big question now shifts towards, okay, how much is the company spending on things like TerraFab, the partnership to build out chips alongside SpaceX. How is the company thinking about spending for Optimus, this robot that they've long been talking about, but haven't really delivered kind of a key update on the humanoid robot project in recent months and recent quarters? And really the big key topic of discussion on the earnings call expected to be around RoboTaxi.

10:13Also on Wednesday, we're going to hear from another company that we think of more traditionally, I think, as a tech company, one of those big MAG7 players in Google parent alphabet, of course, one of the big spenders in this big wave of AI CapEx that it seems like we've been talking about all year long. Yeah, no, I think when you look at analyst expectations, yes, we will, in the wake of earnings, talk about software. Yes, in the wake of that, we'll be talking about cloud growth, but it does come back to that CapEx number. And we saw analysts coming out from Citi saying they continue to expect all of these hyperscalers to not only deliver greater revenues, but also to spend more.

10:50And this has been a market that has been so heavily driven by these MAG7 names, these big spenders, continuing to spend and spend on AI infrastructure. So the big question will be, are they able to build out their TPUs, their kind of chip in that opportunity? Again, this is a company that plays across the entire suite of technology. And can they deliver on the upside? Because over the last two weeks, they're up about 3%, which stands out in a market that's been up one day and down the next. And certainly when you think about those TPUs, you think as well about the competition with NVIDIA and the GPUs there.

11:24Where is Alphabet in terms of that aspect of the business? They're working to build it out. It's obviously very early days. These are two technologies that are somewhat complementary. They do kind of compete, but I don't think many people would say the core business from the TPUs, the core business from Google and Alphabet is going after Jensen Huang's lunch, if you will. So the big question is, can they find kind of a niche opportunity within the TPUs? And again, can they use that to really bolster and fill out a suite of offerings? Because when you think about the debate we've been having for even just large language models and some of those frontier labs, Anthropics, obviously well ahead of OpenAI.

12:04these days, but Google has its own offering. Microsoft has its own offering. That's another corner of the market that I think people will be interested in what management says on the call. All right. And after those two major companies report Wednesday, we're going to hear from Intel on Thursday. How are we thinking the chip maker is going to fare after what we heard last week from IBM about missing out on the spending shift? Not great. I think vibes are off. Vibes The one thing I want to call out is that Taiwan Semi reported earnings that, if you talk to most investors, look pretty darn good and the stock traded down.

12:40So how high are expectations for the entire semiconductor ecosystem? You have to keep in mind, last 12 months, Intel's up 340, 350 percent. There's a high bar to clear. Yes, there's the partnerships and kind of the optimism around its relationship with the U.S. government. But we are hitting a point where we've seen so much volatility in these semiconductor names that I don't think a beaten raise is enough to drive the stock higher. And the big question will be, A, what does the buy side really want to see? And B, will they look at it and say, all right, great, maybe I want to take some chips off the table?

13:14Just because if you use Taiwan Semi as an example to look at, you can have a pretty darn good quarter, but you might be priced to perfection. So are you thinking that it's almost a foregone conclusion that we could see some profit taking following these earnings, given what you've just been talking about? Or is there a chance that we could see a little bit of a pop to the upside? You would have to see a pretty darn good quarter. They've been up the last three times after earnings beat expectations. But again, that was before a lot of this latest rally has taken place and before the company, as it is now, is a half a trillion dollar semiconductor maker.

13:47Big week in big tech. That's Bloomberg News. senior equities reporter, Bailey Lipschultz. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to Andy Burnham's likely debut as the next prime minister of the UK. I'm Nathan Hager, and this is Bloomberg.

14:12Hi, I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you conversations with the people who shape markets, investing, and business. I speak with CEOs, Nobel laureates, market innovators, and legendary investors. Whether you own stocks, bonds, real estate, commodities, even crypto, these are discussions you absolutely need to hear. Subscribe to the Masters in Business podcast on Apple, Spotify, or anywhere you listen. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in New York.

14:50Up later in our program, we look to the unofficial start of beach and island hopping season in Japan. But first, the UK is preparing to usher in its seventh prime minister in 10 years. Andy Burnham, the former mayor of Greater Manchester, who's little known in the US, will have his work cut out for him. Britain's been grappling with decades long low investment, record high taxation and government debt heading toward 100 % of GDP. So how does Andy Burnham plan to turn things around? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Nathan, third time lucky.

15:26Andy Burnham is on course to take over from Keir Starmer as the new UK Prime Minister in the coming days. He has made two previous attempts at leading the Labour Party. He has recently built his reputation as Mayor of Greater Manchester, before that an MP and minister. But his policy proposals now for national government are little known and untested. Burnham and his key advisors have talked about devolving power and creating economic growth across the whole of the UK. The 56-year-old has promised to make Britain resilient, confident and principled. with a number 10 in the north, growth in every postcode and room for manoeuvre on tax and spending.

16:10But it looks a daunting task. Bank of England Governor Andrew Bailey issued a veiled warning in a speech to the City of London at Mansion House that Britain's long-term growth rate has more than halved since the 2008 financial crisis. And what's more, Burnham's advisers are reported to be divided over his choice for Chancellor. The likely outgoing finance minister, Rachel Reeves, says that the next government must combine ambitious reform with economic credibility. This government has shown that change, indeed radical change, is possible. Governments can achieve that change only when they combine radicalism with credibility.

16:50That hard-won credibility must be sustained if this work of radical change is to continue. That was Rachel Reeves making what may be her last major speech as Chancellor to business and finance leaders in the City of London. So with more on what we can expect from Burnham's first few weeks in power, we're joined by Bloomberg's UK politics reporter Chloe Chaplin and Bloomberg Economics's UK economist Matt Bonney. Matt can I start with you in terms of the policy platform I mean Burnham talked about a 10-year plan reminiscent in many ways of Keir Starmer's decade of renewal and even actually of previous past conservative leaders like Boris Johnson and Theresa May does Burnham really have that time what do we think are the pillars of his policy outline in as far as we know what they are right now?

17:40So the policy platform is still very much evolving. I think that's reflected in the fact that who will be chancellor is up in the air and that will be an important signal of the direction that policy is heading. We can get a sense of the broad contours of Burnham's policy platform based on his track record in Manchester, based on his recent speech. So some of the key things he's highlighted is greater devolution. So this means moving power out of Westminster to the regions. There's also increasing public control of essential services and finally more home building. So Burnham has committed to embarking on the largest council house building drive since the post-war period.

18:21So whether or not he can deliver on these packages is another kind of question. The other thing to flag is that these are all long-term ambitions. Yes. Burnham will be acutely aware there is a general election due by 2029. And those kinds of long-term growth initiatives do little for short-term political capital. So, we think it's quite likely he'll be looking to institute some kind of cost of living relief in his first budget. This will be to help directly bring down inflation. How that will be funded is another question. I mean, we know that purse strings are tight, so to speak, and bond markets will be watching closely.

19:00So it's likely they'll seek to raise taxes of some description in order to fund that. Chloe is also expected to be warned by senior civil servants from day one of just how difficult the outlook for the UK economy is. This probably won't be news to anybody in the country about how difficult this outlook is. What does growth and inflation look like? What might Burnham and his team be warned of? Yeah, so this feeds into the cost of living issue. we've written a story saying that treasury officials will be warning burnham that actually inflation is is likely to tick up to 3.2 percent there is still a great deal of uncertainty about oil prices obviously the conflict in the middle east is very much a live issue we don't know what's going to happen with that in in the coming weeks but that pressure of inflation only exacerbates the existing cost of living challenges that many families households and businesses are dealing with.

19:58Burnham has been explicit that he wants to reduce the cost of energy for households and small businesses. That is only going to become more expensive if energy prices are going up. At the same time, economic growth has been a key pillar of Rachel Reeves' priorities as Chancellor. And the little we do understand about Burnham's policy platform, he's really relied on private investment and economic growth in his success in Manchester. So there has been talk of things like capital gains tax to raise money. These kind of policies will have a really detrimental impact on economic growth. So he has to be very careful.

20:33He's operating within very slim margins, much like his predecessor, Keir Starmer, has been. Yeah. The last time I was up in Manchester meeting Andy Burnham, he was surrounded by all the business leaders and made a real point of that, of bringing local business leaders to the fore. That was the time of HS2, of course. Thinking about Manchesterism, Matt, you've done quite an excellent deep dive into whether Manchesterism can actually be morphed onto the whole nationwide picture here in the UK, whether it can be used as a tool really to deliver growth across the UK. Yes, so we know that during Andy Burnham's tenure as Mayor of Greater Manchester, the region has gone through a period of extraordinary economic growth and And there's a question as to how much of that is a result of transformative leadership or pre-existing momentum.

21:31So Burnham really benefited from decades of re-generation of the city centre before he came into power. There was an existing arrangement of devolution that was put into place shortly before he came in. So there's a number of factors there that gave him some tailwinds as he stepped into power. and that's going to be a very different situation than what he steps into as prime minister with a kind of economy that is is struggling along grappling with a number of headwinds not the least obviously the u.s iran war and the cost of living challenges that we've been speaking about the other challenge to consider is often we see prime ministers come in with big ambitions about how they will transform policy and they are quite rapidly tempered by the realities of office the realities of the constraints of fiscal policy they are obviously very conscious of bond markets and how much they're willing to test bond markets will probably be an important consideration in how far they can really push policy.

22:31Yeah we're certainly thinking about the 49 days that Prime Minister Liz Truss lasted because of that very issue. Just give me a few pointers though on the thing that has got so much attention and you know is always hotly debated and this is taxes, which taxes might go up, how much they might go up by. Again, Matt, you've been looking at this in detail and some of them are more novel and quite radical. So it's important to say up top that Burnham has committed to Labour's manifesto commitments on tax. So that rules out any of the big levers. So income tax, national insurance, VAT, corporation tax.

23:10So that does leave him with a narrower set of options. We think, as was mentioned earlier, capital gain tax is one quite likely candidate. The challenge with this kind of tax is that it applies to a narrower base and is also more susceptible to behavioural responses. So, if people know capital gains tax is going up, maybe they're going to rush to sell their house before that, or they're going to delay selling their house once it comes into place. So, essentially what this means is that there's greater uncertainty about what revenues you will yield from this kind of metric. So there's a bit of a risk that they raise this tax in order to fund more spending and then fail to receive the revenues they expect and then are left scrambling to try and find the money.

23:51Yeah. Chloe, what's your view on this? I mean, we know obviously some of Burnham's key advisors like the former Goldman Sachs chief economist, Jim O 'Neill, advising on tax policy. And again, it's this idea about how radical it's going to be, how fast. Yeah, Jim O 'Neill was one of the authors of a report recently looking into really quite a radical overhaul of the tax system. These are proposals along the lines of scrapping and replacing income tax and national insurance. We also know that another policy area that Burnham has been advised on by some on the more kind of, I suppose you would call them progressive side, is a replacement of council tax.

24:32People have talked for a long time about simplifying it, but this would be totally replacing it with a form of land tax. Now, these are the kind of radical policies that Burnham supporters in the Labour Party really like him for because he is seen as someone with ambition and vision. The reality is he is talking to as many people as possible about long term ideas. I don't think many of these are going to be translating into the next two to three years of his policy plan. I think we're looking more at tweaks to the existing tax system. He said he wants to offer some relief on business rates for kind of high street businesses.

25:07And another thing that I think, you know, we should be looking closely at is this idea of fiscal devolution, which does fit into his pro devolution agenda to give local leaders more power about generating and spending their own income. This is something that's already been worked on under Rachel Reeves. So the policy is kind of halfway there. And I can't see it being anything Burnham would want to row back on, given he's explicitly said multiple times that local leaders should have more power over how they make money and what that money is spent on. And that's the kind of thing I think we should be looking closely at for the near term changes, if you like.