Daybreak Weekend: US CPI, ECB Decision, BRICS Summit

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1:54Podcasts. Radio. News. This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. Straight ahead on the program, we look to some key inflation data in the U.S. I'm Nathan Hager in Washington. I'm Stephen Carroll in London, where we're looking ahead to what renewed fears about inflation mean for the ECB's path ahead. I'm Doug Krishner, looking at the balancing act ahead for Prime Minister Modi as India prepares to host the BRICS Summit. 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.

2:51Good day to you. I'm Nathan Hager, and we begin today's program with some key inflation data coming out in the U.S. We get the August producer price index on Thursday, consumer prices the following day, Friday. Of course, all this comes days before the Federal Reserve's September policy decision. And here to get us ready for it in our Washington, D.C. studio is Bloomberg News Fed and economy reporter Enda Curran. So, Enda, we've already heard Fed Governor Chris Waller say this inflation data is going to heavily influence his decision on interest rates. Is that the case across the committee, do you think?

3:26I think it is. It feels like a lot is riding on the inflation data that we're going to get this week. As you mentioned, we will get consumer and producer prices. So officials will calculate from the CPI and the PPI their own preferred gauge of inflation, which is called PCE. And from that, then they will have a good sense as to where inflation is at and what the numbers are telling them. Now, it's not a done deal going into inflation data that a rate hike in September is guaranteed. Indeed, we get different signals from officials. We assume who are warning that inflation remains consistently too high above the central bank's 2 % target.

4:02They look at pockets of inflation in the services sector, for example. That's what a lot of people are worried about. Less worried about tariffs. And believe it or not, less worried about oil prices unless it starts to spill over into the broader economy. It's kind of services sector that people are more worried about. On the other hand, you have some officials making the point, listen, inflation has been coming off the ball. We don't need to raise rates just yet. We have time to wait and see. And that's why those numbers will determine what happens when they meet in mid-September. OK, so let's get into the specifics of what we're thinking we could see in the numbers coming out this week.

4:35The consensus on the Bloomberg Terminal on producer prices for final demand in August is for a pretty significant increase. This has been pretty well above any 2 % target. I don't know if that's a 2 % target that the Fed sees on producer prices, but what do we see driving that on the producer level? Well, there isn't always a perfect correlation between producer prices and consumer prices. I mean, logically, you would think upstream what producers are paying would be eventually paid off downstream to consumers. It doesn't always work like that. Nonetheless, though, lately there is a bit more of a spillover or a correlation than usual, Nathan.

5:07Part of the issue there is that the producers are on the front line of costs related to energy. So oil costs, we're seeing that big spike in diesel costs, for example. Those costs are inevitably going to be passed on downstream to their own consumers. Of course, they're also on the front line of some of the AI-related CapEx build-up boom. Some of that is impacting PPI. So those pressures, those upstream pressures are certainly in the system. And the worry is that they're going to filter downstream too. And to that point, when it comes to the consumer price index as well, at least on the headline level, still well above the 2 % target, north of 3%.

5:42At the same time, we're looking at the core, expected to edge ever so slightly closer to the 2 % target. What are we expecting when it comes to consumer prices this time around? Again, keep an eye out for any hint of broader spillover from higher oil prices and energy costs. So, you know, is it really impacting the costs for other goods through, say, like airline tickets, for example? You might see an uptick in restaurant and food costs because of delivery prices, for example. There will be a lot to compute from all of that. Also, keep an eye on costs of household items that are being impacted by the AI boom, like laptops and technology.

6:21It's only a small part of consumer inflation basket, but keep an eye on that. But then look at the broader services basket, costs of insurance, for example, home insurance and car insurance. That's been a big issue on the inflation front. Keep an eye on what's happening on shelter and rental costs. So these are some of the usual suspects people look at every month in terms of to get a gauge, where is inflation headed? And I think, you know, at the moment, as I say to you, there isn't a great degree of confidence that inflation is slowing the way policymakers would like. And I think, all told, it would probably require a big downside reading on the inflation in which to really give policymakers comfort.

7:00Although we did hear Governor Waller just this past week say that he's starting to see signs of disinflation. Where is the disconnect, potentially? Yeah, no doubt about it. I mean, some officials and indeed some private sector economists will point to you. For example, the tariff effect has waned off now. They think that's not what it once was. they think, as I mentioned a few times earlier, the energy store, even though we've seen high gasoline prices, it hasn't spilled over as broad as you might think. So that's given some people some comfort. And then the numbers have been, shall we say, nudging somewhat in the right direction towards the central bank's target.

7:37That doesn't mean prices are not high. It just means that the pace has slowed a touch. But as I say, all of that could change when we get these numbers. If these numbers come in on the hot side, Governor Waller himself made clear that if they do come in on the so-called hot side, then he will be prepared to raise interest rates. And of course, these numbers are coming as we're just coming off a pretty hot jobs report. Do you see the bias of the Fed changing away from the focus on inflation, given what we saw in the August non-farm payrolls this past week? We had very strong employment data. It is tempting to say, oh, wow, that's a game changer.

8:11The Fed will raise interest rates now as a slam dunk. But in truth, a couple of things there. Officials have broadly priced in that the jobs market is in good shape. They're looking through that. They've been saying for some time now their bigger concern is inflation rather than employment. And importantly on the employment side, even though the numbers were very strong for August, we didn't really get any hint of inflation pressure through wages there in terms of average hourly earnings. We know the Chairman Walsh, Fed Chairman Walsh, has made the point that, you know, wages haven't been a great indicator for underlying inflation for some time.

8:46So, again, it's an interesting story where, oh, look, really strong jobs and we're much stronger than expected. Doesn't that lean into the Fed raising rates? I mean, it will, of course, at the margins, but it all comes back to the inflation data in the week ahead. And that data coming up, yeah, at the end of this week. Thank you, Enda. Great to have you with us. That is a Bloomberg Fed and economy reporter and Decur ahead of that inflation data. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager with Bloomberg Equities reporter Carmen Reinecke. I say week ahead, Carmen, but it seems like everything's stacked on Thursday because we're going to hear from a bunch of names just that day alone.

9:22Maybe the biggest earnings story that day is going to be Oracle. What are we expecting from this company that's kind of become an AI bellwether, right? You know, I was going to say exactly the same thing. Thursday is the day to be watching for next week. And you're right, Oracle is one of the premier names. So this is ticker ORCL. It's going to report results on Thursday. So this stock has been on a little bit of a downslide. So shares are down about 40 % from the start of June and down more than 20 % so far this year, which is on track for its worst annual performance since 2001. So I think this earnings report is going to be really important to maybe potentially reverse some of this downward selling that we're seeing.

10:02So analysts are overwhelmingly bullish here and they expect adjusted earnings per share to grow 18 percent in the quarter and revenue to grow 28 percent to 19 billion. Bloomberg Intelligence is looking for strong results here and saying that strong results from hyperscale cloud providers and the neoclouds point to better end markets for AI infrastructure. And it suggests that Oracle cloud infrastructure could have a solid fiscal 2027 growth guidance that could exceed the consensus. So that's really important and it's what investors will be watching for on Thursday. So is part of the story here just the fact that Oracle's been on such a downslide that any positivity is just going to move the stock higher?

10:44Is that kind of what analysts are thinking right now? You know, I think it's a little bit more complicated than that. Just because we've seen such a high bar sort of environment for earnings lately that, you know, good news isn't always rewarded. So I think that, yes, good news could really help the stock here. It's been really beaten down, but it's going to have to, you know, sort of assuage a lot of concerns that are in the market right now. So obviously we're going to hear from Oracle, but we're also going to hear this week on Thursday from Adobe, a company that there'd been in some saspocalypse fears around, I think, a while back.

11:22Is that still overshadowing Adobe, Carmen? You know, that is such a good question here from Adobe. So this is ticker ADBE. This stock has really been on a tear lately, actually. shares are up 45 % from the end of June. And a lot of it is because of this rebound in software stocks as some of these SaaSpocalypse fears kind of go away. So earnings are going to be really important here to kind of keep this rally potentially going. The stock is still really beaten down if you look back, you know, over the last few years. So earnings could be a great catalyst. Analysts are expecting adjusted EPS of about$6 a share, 14 % jump from the same period a year ago, revenue about the same jump to$6.7 billion.

12:07So what's big here is just is AI disrupting these companies as much as sort of investors had initially feared, which is what really brought down a lot of the software stocks. And, you know, after Salesforce earnings last week, I think there's more positivity in the market and people are really looking for sort of proof that these companies can integrate AI and it can help them instead of sort of disrupt their business. Aside from tech, we're also going to hear on Thursday from Macy's. Way apart from big tech, we go to big department stores. What are we expecting along 34th Street this quarter?

12:44A very different part of the market indeed. So this will be really interesting. Analysts are expecting pretty flat revenue growth. So almost like no revenue growth from the same quarter last year,$4.8 billion revenue in the quarter and adjusted earnings of$0.36 per share, which is actually a little bit down from the same quarter last year. I think what's most important is looking for the impacts of things like tariff refunds against sales expectations. So we've seen some weakness in retailer results last week. Kohl's reported and those results were mixed. So looking for the health of retailers and the health of consumers is going to be really important.

13:26And this stock has also been a little bit weak lately. So shares are down about 15 % from an early August peak. So earnings are always an important catalyst. But again, here, solid results could maybe reverse some of this decline, while if there is sort of a negative reaction, we could see more selling ahead. Well, it has to be said. I mean, Macy's over the last several quarters have managed to beat expectations in most of its last few reports. Are analysts feeling kind of positive again this time around when it comes to what we get, you know, heading into the holidays as well and thinking about the Thanksgiving parade?

14:03It's not too soon to think about that, I guess. You know, I think that's a great question. And there are a lot of overhangs, I will say, though, going into the end of the year and sort of this holiday season. So I think the bar has been sort of raised for Macy's having some really solid earnings reports in the last few quarters. And so what they say about that forward guidance is going to be really important. Yeah, another busy earnings day coming up this week. Thank you for this, Carmen. Good to have you with us. That's Carmen Reinecke, Bloomberg Equities reporter with stocks to watch in the week ahead.

14:37And coming up on Bloomberg Daybreak Weekend, we're going to look ahead to what renewed fears about inflation mean for the European central bank's path forward. I'm Nathan Hager, and this is Bloomberg.

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17:13This 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 18th BRICS Summit in India. But first, in the coming days, we'll find out if the European Central Bank raises interest rates again as policymakers gather for their September meeting. But how will the recent sell-off sweeping global bond markets affect the decision-making process? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Stephen Carroll. Nathan, even before the latest ramping up of tensions between the US and Iran sent energy prices higher, markets were expecting the European Central Bank to hike interest rates this month.

17:53That seems even more certain given the global bond sell-off of the past week. In recent days, the ECB's Joachim Nagel told Bloomberg that the market pricing of more than 95 % probability of a hike was a, quote, good understanding of the central bank's thinking. Other policymakers have also widely telegraphed their preference for another hike, which would follow the quarter point move back in June. Questions do remain, though, about whether another hike would be enough to tame inflation and get it back to the 2 % target. For the investor Anika Gupta, Global Head of Private Banking, Wealth Management and Investments at ING, inflation is the key catalyst behind the recent unrest in bond markets.

18:31The main issue which is spooking the markets is clearly risks of inflation. Given the geopolitical events happening, what's happening to energy pricing, etc. And there, I think the markets are looking for confidence. And there, if the Fed is in September to do that rate hike, which is now very probable and with conviction shows and brings back credibility that, look, as central banks, we are bringing inflation under control because, quite frankly, they have been able to do so. There was a lot of cynicism. There was a lot of scepticism by the markets, criticising central banks that they were responding to slowly post-COVID.

19:07They caught up and they did to control inflation. So if we see such a move, I think such a move could already in itself, just that one hike, calm things down. That was Annika Gupta from ING speaking on Bloomberg Radio. Well, to set the scene for this decision, we're joined by our FX and rates reporter, Alice Gledhill, and by our senior ECB reporter, Yana Rando, who's in Frankfurt. Yana, policymakers, as I say, have been pretty clear that they have a preference for a hike at this meeting. So what will you be watching for in this upcoming decision? Yeah, I mean, pretty much if that's, you know, the end of the road or if more is to come.

19:46You know, economists have a bit of a different view than markets on this. So economists have September and then largely nothing else. Markets are pricing, you know, quite a few more steps toward the end of the year and also toward the middle of next year. And most importantly, new forecasts will be out, new staff projections for inflation, for growth. And they will ultimately confirm whether the ECB is still on track to reaching its 2 % target in the medium term. As you say, the latest data has painted a contrasting picture, surprising resilience, as you point out, in economic growth. But when it came to the inflation figures, I mean, certainly when you look at the numbers out of countries like Spain, it does look very high compared to a lot of the other bigger member states in the euro area.

20:35And kind of a mixed picture overall. What was your reading of what we learned from the last set of inflation data that we've gotten before this decision? Yeah, absolutely. I mean, Spain is now about 4 % and even 3.3 % for the eurozone. That's the August print, the latest. It's not very reassuring. It's the highest in almost three years. and really, if you look at it face well, you're going in the wrong direction. But if you look a little bit under the hood, there were some encouraging signs as well because it seems to have been driven almost exclusively by energy. The core rate, which excludes energy and also food prices and services, which is what the ECB has been watching very, very closely.

21:16Those gauges, they slowed a bit. Now, still above 2%, still not where they're supposed to be. But the direction there is encouraging. And what's probably even more interesting is if you look at inflation expectations, if you look at wage gauges that would signal second round effects, there's really nothing to see. Inflation expectations in the medium to longer term seem to be quite well anchored. Wages really haven't picked up on the latest inflation surge. So that is reassuring to the ECB. And then, of course, you have tightening in financial markets with the bond sell-off. So that's helping the ECB a little bit as well.

21:58That would reinforce the arguments that maybe after September they have a bit more time to look. And maybe the market is doing enough of the job for the ECB to let it be for a while. But yeah, a lot depends on Iran, on energy, and as I said, on the forecasts. I'm trying to think as well about how we're citing this ECB decision in the context of the global pressure or the global trend towards a rate hiking cycle that we've seen. We've had, of course, Kevin Warsh from the Fed speaking in Jackson Hole recently, reinforcing his message on inflation, which has been part of what's moved on markets as well.

22:35The ECB, though, perceived to have been really ahead of the curve by hiking in June of this year already. So does that make it a little bit easier for them when we're thinking about the path ahead? I don't know, to be honest. I mean, if you say they're ahead of the curve, you know, and one of the most vigilant central banks in the world, they would sure take that badge. And thank me for it, probably. Exactly. But also, I mean, you have to talk a little bit about where each of these central banks came from before Iran was started and where inflation and interest were placed. And what's true for the Eurozone is that they had inflation largely under control, interest rates in so-called neutral territory, so neither restricting nor stimulating demand.

23:19And that is very different from where our policy settings were in the US and also in the UK, where inflation was still much more of a problem and interest rates were still restrictive. And that, of course, meant that the policymakers there had a bit more time to watch the situation play out, monitor what's happening, because policy rates were restrictive. And the ECB didn't have that benefit if you want. So they simply had to move into a higher interest rate regime. Now, interest rates are still within the range of what you would call neutral in the ECB. But we're getting to the upper bound. And certainly at 2.5%, that's the upper limit, the ECB defines as neutral.

24:03Anything else after that would get into restrictive territory. So yes, they were the first ones among the big ones to move, also because their policy rate, in the terms that matter, were probably a bit looser than elsewhere. Yeah, they had the room to be able to move it. Yana, for now, thank you very much. Our senior ECB reporter, Yana Randow. Of course, we're citing this ECB decision in the context of what has been a tumultuous time on bond markets. And Alice Gleithel, our FX and rates reporter, has been tracking the ups and downs for us as they've been happening. And they've been many and varied, I think it's fair to say.

24:35Alice, can you just sort of put in context this bond market context for this ECB decision? We've seen euro area government bonds sell off, but it's been part of a big global sell off, right? So we've seen yields hit multi-decade highs across any number of regions. So UK, Germany, France, the US, and particularly at the long end, kind of in long dated bonds. I was kind of having a conversation with someone just before this interview and kind of talking about what a reversal it's been from what investors were expecting kind of coming into this year. I think certainly in Europe, people saw the ECB staying on hold.