Daybreak Weekend: US CPI, Paris Nuclear Talks, Vietnam Elections

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1:52Straight ahead on the program, we look to some key inflation data and the U.S. I'm Nathan Hager in Washington. I'm Caroline Hepkitt in London, where we're looking ahead to talks in Paris about sharing France's nuclear capabilities with other European countries. I'm Doug Krizner, looking ahead to legislative elections in Vietnam. 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.

2:37Good day to you. I'm Nathan Hager. We begin today's program with some key inflation data in the U.S. The Consumer Price Index for the month of February comes out on Wednesday at 8.30 a.m. Wall Street time. For a look ahead to the numbers and what they could mean for Fed policy, we're joined by Bloomberg News senior strategist Edward Harrison, the author of Bloomberg's The Everything Risk newsletter. Ed, it's great to speak with you. And, of course, after we just got that big surprise on February jobs, what's the risk of a market surprise on the inflation front? Hey, Nathan, I think the risk is there, certainly.

3:15The risk is probably less there for CPI than it is for the PCE index, which is the one that the Fed really tracks more closely. Given the fact that we have this war in Iran, I think they might look through some of the gasoline prices and look towards the core, not including food, not including energy. And so the numbers to look for are the core for CPI, which is the Bloomberg Economist estimate is at 2.4 percent on average. And the estimates that we have for the PCE core, however, are 3.1 percent. So that's the number to key in on for this week, because that's the highest number of the numbers that we're looking at.

4:08Why are we seeing that dispersion, Ed, between what the Fed keeps its eye on and what really matters to the American consumer, the CPI number that we're getting this week? Yeah, well, you know, I think a lot of it has to do with the different measures of that go in that play into those particular indices. And what the Fed said in the past is that the PCE number is more reflective of the overall trend of the economy. And one of the reasons that they're using the core as the number that they're watching more closely is to rule out volatile food and energy prices that, irrespective of what's happening in Iran, are going to move around irrespective.

4:50perspective. And so they want to look at what's the trend level. And if the trend level is 3.1%, it was 3 % in December, which is the last reading that we got for PCE, then that's really not a level at which they would feel comfortable cutting interest rates. Suddenly, we're starting to think about an extended hold and potentially the next move being a rate hike, not a cut. Even after that surprise drop in jobs numbers that we saw just this past week in the February number? Yeah. So that number that we saw this past week, it points to what I would call stagflation light. That means that not only do we have inflation, but we also have slowing growth.

5:42And this is something that's very difficult for the Fed to deal with because, you know, they're looking at inflation and their ability to stop inflation. But then when growth is slowing at the same time, their hands are tied because the inflation is already elevated. If we do continue to see a prolonged conflict in the Middle East, could that have knock on effects on overall inflation if we continue to see energy prices elevated like they are right now? Yes, I think it could. Nathan, I think that if you have a protracted conflict, it could add to inflation expectations, not just for the next year, but it could get you a sense that inflation is trending higher.

6:30Since we already have this core PCE number that I've been talking about at 3%, suddenly mindsets change and people start thinking this could be in for the long haul, sort of an inflationary number that we're going to have. Let me just say, by the way, that we've been above the Fed's target for five years now. So we're getting to a point where that inflationary mindset starts to creep in. Which raises the question I think you're alluding to about whether inflation expectations may be coming unanchored now. Is that what you're getting at? Yeah, that's exactly what I'm getting at. What we've seen thus far is that inflation expectations haven't been unanchored.

7:17that even in the beginning stages of this particular conflict in the Middle East, if you look at break-evens, that's the number that gets you between inflation-protected securities and treasuries. And if you look at swaps rates in the market that show you what expectations are in two years or five years, the longer-term ones, five years, 10 years, those expectations have remained solid. It's when those go off that the Fed is most concerned. Thank you, Ed. As always, that's Edward Harrison, senior strategist at Bloomberg News, author of Bloomberg's The Everything Risk newsletter. Let's take a look now at some stocks making news in the week ahead.

8:04I'm Nathan Hager, joined by Bloomberg Equities reporter Matthew Griffin on another week where we're going to see some pretty big names reporting earnings starting on Tuesday when we'll be in the cloud with Oracle. Could we see a benefit for Oracle from the AI spending boom, Matthew?

8:21Nathan Hager:Well, Nathan, I think that is the question that is going to be front and center of investors' minds because the huge outlays on AI from Oracle have been greeted enthusiastically on Wall Street in the past and have been punished on Wall Street. I mean, you just look at what the stock did in 2024, up 61%, a 20 % boost last year. All of this AI spending, their move to position themselves as an AI cloud provider made Oracle a darling on Wall Street. But after that, you have had questions arise about what the return is going to be on this spending. The stock's now down about 50 % from its September record high.

9:11Nathan Hager:And you actually saw the shares plunge in December after the company raised its spending on data centers. So, they're reporting in a moment where this is really a question. And they're reporting in a moment where we've just heard in the last few days that Oracle has plans to cut thousands of jobs just ahead of this earnings report. What more do investors want to see from Larry Ellison's company, Matthew? Yes, I think they're going to be looking again at this cost-benefit payoff. I mean, you have analysts looking for revenue growth here. They see just under$16 billion of revenue versus$14 billion in the year-ago quarter.

9:55Nathan Hager:And I think that's also at the heart and center of whether these tens of billions of dollars of capital expenditure are going to pay off on the top and ultimately the bottom line. You see that in the reports of some of the Magnificent Seven companies this quarter, where, again, it's the question not just of are you spending, are you an AI player, but are you generating revenue to fund those expenditures? The job cuts are actually aimed at freeing up money to pay for capital expenditures for the AI boom. That's what people familiar with the matter have told us. So, again, I think investors are going to be looking for both sides of the ledger there.

10:37And we're going to hear another side of the AI story, I think, probably on Thursday when Adobe reports. I got to think this is one of those stocks that's been caught up in the question about whether software companies are going to be hit by the AI disruption.

10:52Nathan Hager:Yes, Nathan. Adobe shares have tumbled, actually, during what investors and analysts have started to call the SaaSpocalypse, this giant sell-off in software stocks, Adobe's shares. Again, you think about this happening in the last couple of months, but these concerns have really been swirling for a while. Adobe down about 20 % year to date, but actually got a really lukewarm reception on Wall Street back in December, even though they had a pretty upbeat forecast because you already had people questioning, do the numbers matter now if what you do can be replicated by cheap AI tools? So the commentary on that may be as important, you know, whether the company sees itself as shielded as any actual number they report.

11:44And hasn't there been a question as well about whether the AI tools that Adobe says it has are going to have their own payoff? It's been kind of dealing with that struggle as well, hasn't it?

11:55Nathan Hager:Yes, absolutely. So, I was looking at what analysts were saying, and what Piper Sandler says is investors are going to be honing in on metrics related to how much money the company is making from AI. Now, they do see that the stock may be de-risked here. The company has given guidance, taking a step back. Again, the shares have slid. And so, they actually see that there could be some upside here if AI adoption is better than expected. But yes, I think you're absolutely right. That's a key question for investors. And along with those marquee names in the tech space, we're going to hear from a big name in retail.

12:37When Kohl's opens its books, I guess the question here is, how's the consumer doing?

12:43Nathan Hager:Yes, absolutely. Kohl's is the latest big consumer name. They are estimated to report next week. And the question of the health of the American consumer is really another thing that's front and center for investors' minds, as if they didn't have enough to think about. You think about U.S. unexpectedly shedding jobs. You've had this idea that consumers are trading down. But actually, Kohl's so far has held up against this backdrop. They raised their full-year outlook in November because consumers had shown that they were willing to spend on brands that they really wanted. And so, again, so far, Kohl's has been a relative winner here, but I don't think investors see that as a guarantee.

13:33Nathan Hager:And they're going to be looking closely at consumer behavior. And I think, again, at the commentary from executives about whether the consumer's under pressure, what that looks like. Yeah, another very busy week once again on the earnings front. Thank you for this, Matthew. Great having you on with us. That's Bloomberg Equities reporter, Matthew Griffin. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to talks in Paris on spreading France's nuclear umbrella across Europe. I'm Nathan Hager, and this is Bloomberg.

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15:22Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business. IBM. We buy insurance for peace of mind, but every year millions of claims are denied. Not because people did anything wrong, but because their policies quietly excluded what happened. Insurers know every detail. Policyholders rarely do. That's why My Policy Advocate exists. For just 27 cents a day, their platform reads your policies and explains where you are vulnerable.

16:01They don't sell insurance. They deliver transparency. Before you trust your policy to protect you, let My Policy Advocate tell you what it really says. Go to MyPolicyAdvocate.com. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Up later in our program, we look ahead to legislative elections in Vietnam. But first, Europe's defense debate is entering a new phase. For decades, the continent has relied on the U.S. nuclear umbrella. But with war on Europe's borders, escalating tensions in the Middle East, and growing uncertainty about America's long-term commitments, that calculation is shifting.

16:41It's a conversation that exposes deep divisions across the bloc over defense spending, strategic autonomy, and how far Europe should go to secure itself. On one hand, countries like Poland want to ramp up efforts aggressively, whereas Spain sees no need to meet U.S.-set NATO targets. Next week, European diplomats gather in Paris to discuss whether France's nuclear deterrent could play a broader role, including the possibility of stationing nuclear-capable jets in allied countries. Let's get more from Bloomberg Daybreak Europe anchor Caroline Hepker in London. Nathan, in Europe, only France and Britain have access to nuclear weapons, but that may be about to change.

17:19The wars in the Middle East and in Ukraine and Europe's relationship with the United States has made other countries think again about their nuclear options. Next week, talks start in Paris about hosting nuclear-capable jets in allied European countries. It's part of a wider conversation about how Europe defends itself. Those discussions have only been accelerated by events in Iran. Well, joining me now to discuss Bloomberg's Piotr Skolomowski, who runs our coverage of economies and governments in Central and Eastern Europe from Warsaw, and Rodrigo Origuela, our bureau chief in Spain. Welcome to both of you.

17:58Thank you for being with me. I want to get a sense of how your two different countries represent really opposite sides of the debate inside the EU on defence spending. Piotr, Poland has expressed this wish for more autonomous capabilities. Does that mean nuclear weapons? Yes, indeed. So that's probably what Polish leaders have been trying to say. And we've been hearing it for quite some time. So even the previous president, Andrzej Duda, expressed this interest in Poland acquiring or taking part in what's called nuclear sharing program with the US. The idea was rebuffed, but then now it's coming back.

18:35And the new president said just last month that he would be in favor of Poland looking at developing its nuclear weapons. We heard from Prime Minister Tusk as well earlier this month, pretty much saying, we eventually, Poland, will look at developing these autonomous capabilities, meaning nuclear bomb. Whether and when it's going to happen, it's obviously nothing imminent. At this point, what Poland is looking at, that's what the government seems to be focused on, is working with France. They already have a treaty with France that was signed last year that sort of stipulates the possibility of working together in sharing capabilities.

19:16And Tusk was really enthusiastic right from the start when Macron floated this idea and again repeated it now recently that France will be willing to share its nuclear-capable jets and station it in other countries. So they're definitely willing to take part in that endeavour. And of course, this is as Poland spends a great deal, is a significant defence spender in Europe. Yes, indeed. So obviously that comes on top of the fact that Poland is spending almost 5 % of GDP on defense. There is obviously this certain difference of opinion between the president and the prime minister, how the money should be spent.

20:05Polish president is very much in favor and he's been endorsed by Donald Trump. He's very close to MAGA movement in the US and he's all in favor of Poland spending money in the US as it has been spending previously. to buy weapons. On the other hand, the Polish prime minister is definitely gravitating towards some form of European solution when it comes to defense spending. And he thinks in terms of if the US is really diverging and trying to decouple from Europe, then Poland should take part in trying to work on some form of joint solutions when it comes to defense in Europe. So that's where the differences are.

20:48But it does not impact the fact that, you know, where we have the consensus, the fact that we need to spend more and more. Yeah, indeed. It's quite a different picture, though, with different ideas in Spain. Rodrigo, Spain's leader, Pedro Sanchez, is increasingly seen as one of the most aggressive voices pushing back against the war in Iran. I suppose I'd like to understand from you, firstly, why that position that Spain has taken?

21:16Nathan Hager:So that position is not totally surprising, given his position on other issues in recent years. He also took a contrarian, if you want, position compared to other Western countries when it came to Israel and Gaza. and his government also took a very strong position against increasing the NATO spending targets. So this is kind of, you could say, the third within that trend, the third time he does something like this. In this specific case, what the government has argued is that the military bases that the U.S. operates from in Spain, there are two of those, they've been used for over 50 years, and they're mainly used as logistic support spaces for refueling and things like that.

22:06Nathan Hager:And the Spanish government has said those bases cannot be used for any attack operations. So they don't want the bases to be used for American military to use as a touching stone to attack Iran. Now, what is the argument to justify that? What they're saying is that the attack against Iran has been unilateral from the attackers, Israel and the US, and that it has not been framed within the UN charter or any international laws. And so they are saying that any operations of this scale, any wars of this scale, have to follow international law and that they cannot allow their bases to be used in operations that are outside the international order.

22:54Nathan Hager:And that is the government's official line on this issue, that they want to follow the rules and that the Americans are not following them and therefore they cannot partner with them. Okay, I mean, there has been in some senses a similar sort of difficulty for the UK. Keir Starmer, the Prime Minister here, talking about allowing US military to use British bases for defensive strikes against Iran, but a debate about what that actually means. Look, in terms of Spain, I mean, again, Pedro Sanchez's view sort of chimes also with the fact that Spain has not really galvanised defence spending. It's been quite resistant to that idea of spending a great deal more, which has been what President Donald Trump has wanted.

23:38Why that thinking, do you think, in Spain, Rodrigo?

23:41Nathan Hager:Yes, I mean, quite resistant, I think, is in fact an understatement, because they are the only NATO member that has said we are not going to do this. And there is no way we're changing our position. And while everybody else has gone to the 5 % target that the Americans came up with, they have said that they're sticking to 2.1%. There are two arguments for this are, one, that with 2.1%, they can meet all the demands and all the needs, all the requirements for defensive spending. What they are saying is that the 5 % number was kind of pulled out of the blue and that there is no actual justification for it.

24:23Nathan Hager:There is no explanation as to why that's the magic number. And that if you look at the military needs, at weapons and all other kind of military needs, you can cover those with 2.1 % in Spain's case. And that's the main one. The other one is that if you go up to 5%, you have to start pulling money out of other expenses, other parts of your budget, and that going up to 5 % without an explanation as to why you're going to that number means that you'll have less money for things such as social welfare, health care, education. That is the government's official line on this. And that is their position.

25:03Nathan Hager:If we have to put money into this, we'll have to take it out of other places. And there is no reason that has been given to us as to why we have to do that. OK, so that's the Spanish view. Meanwhile, back to Poland, Piotr. And what about these nuclear powered jets? Because there's discussion about having nuclear capable fighter jets being stationed elsewhere in Europe, not for Spain, but Germany, the UK, Belgium, other countries and also Poland are looking at this. You know, Manuel Macron has been talking about it and there's going to be a meeting to discuss this. What do you think might emerge from that?

25:40Yes, indeed. So Tusk has been very keen on the idea right from the start when it was first floated, I believe, last year, and then obviously now officially sort of communicated by Macron. So indeed, there is a meeting in Paris about nuclear energy. But what Tusk also said is that we assume on the sidelines of that meeting there's going to be more consultations going on about this idea. He also mentioned that when it comes to this plan, he will be in touch or will be communicating with other allies, especially from the Nordic region, where cooperation between Poland and Nordics and all the countries around the Baltics have been growing tighter.