Daybreak Weekend: US Housing, German Elections & President Xi's US Visit

0:00Some 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.

0:42Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. This is Alexis Christophorus for Bloomberg Surveillance. Most companies have tried AI.

1:16Most aren't seeing results. Not because AI doesn't work. It's because AI hasn't reached the workflows yet. That's the gap Asana is built to close. Asana is the operating system for human agent teams. Ready-to-go AI teammates pre-built for marketing, ops, and IT. No prompt engineering, no setup. They show up where the work is happening, already onboarded in your workflows, ready to deliver. Asana, where humans and agents workflow together. Try it at asana.com. That's A-S-A-N-A dot com. Bloomberg Audio Studios. Podcasts. Radio. News.

1:55This 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 housing data in the U.S. I'm Nathan Hager in Washington. I'm Tiwa Adebayo in London, where we're asking if Germany is on the cusp of a political shift. I'm Doug Krizner looking ahead at the meeting between Donald Trump and Xi Jinping set for Thursday in Washington. 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.

2:47Good day to you. I'm Nathan Hager. We begin today's program with some key housing data in the U.S. The government's report on new home sales for August is due out this Thursday. Here to discuss is Drew Redding, U.S. home building analyst for Bloomberg Intelligence. Great to speak with you ahead of the print, Drew. Of course, this comes after we got that surprise jump in existing home sales just a couple days ago. Are we finally starting to see some green shoots in this pretty depressed housing market that we've seen over the last several months? Yeah, so I think depressed is the right way to frame it.

3:23There was a modest beat on the pending home sale side, but we're still bumping along the lowest levels since the index was released. The existing market remains frozen. The activity is about 20 % below what a normalized level is. You know, and it really comes back to affordability, as we all know, it's the 50 % to 80 % rise in home prices, depending on the market. It's mortgage rates now back above 7%, which has certainly stalled demand. We came into the year thinking that lower mortgage rates would boost activity, but the spring selling season ended up being a disappointment, and that weakness has really persisted into summer.

4:05And now, as I said, with rates back above 7%, we would expect to see that renewed pressure on demand. We actually heard from Lenar recently, which is the home building industry's second biggest builder, by volume. And they actually told us that conditions deteriorated through their quarter. their orders were down 9%, even with them expanding community count. And one of the things that they highlighted, not just rates, which obviously had a big impact, but renewed pressure on consumer sentiment, just with all the geopolitical tension, more concerns about the economy and the outlook for employment.

4:40So a lot of factors, which are straining demand at the moment. Yeah. I mean, we've talked about so many of these factors for so long here, but just to get to the print that we're expecting this week, I think the last time I looked at the expectations from economists that we're calling for a modest uptick in new home sales compared to July. What's behind that? Yeah, so the market's looking for, like you said, a modest increase from last month, but still down pretty sharply from year-ago levels. And I think it's important to keep in mind that this data, as soon as it releases, is going to be irrelevant.

5:19I mean, And it's already backward looking since mortgage rates were about 6.8 % in August. And like I said, we're back above 7 % now. So really the best leading indicator we have measuring kind of real-time new home demand is from the Mortgage Bankers Association, which releases the Builder Application Survey, which is basically the applications that the builders are seeing within their captive financing arms. And what that told us is that the applications were down about 6 % sequentially and from last year. And just to put some context around that, typically seasonality would suggest that you get about a 2 % increase for this time of year.

5:56So it highlights some of that elevated pressure on demand. Okay. So given seasonality, what's your outlook heading into the rest of this year at a time where I would imagine there's probably going to be a little bit less incentive to get people to go through the door as the weather starts to cool down? Yeah, so for the new home market, we've got sales down mid single digits for all of 2026. You know, with rates heading back above 7%, we do expect to see some renewed pressure on demand. And really what that means for the builders is that they're going to have to keep their foot on the gas pedal in terms of, you know, base price reductions and incentives.

6:41And that's really what's been pressuring their margins over the last couple of years. As I mentioned, coming into the year, even a couple of quarters ago, it looked like the industry was starting to make a little progress in terms of being able to moderate their use of incentives. We heard from Lenar, they're down from 14 % to 12%. But it's really not stoking demand with rates at 7 % and home prices still high. So we expect to see that weakness persist. And now that we've seen the Fed come out with its first interest rate hike in more than three years and some expectation in the market that we could be heading into a hiking cycle here, what could that mean for mortgage rates going forward?

7:24Yeah, so I think the discussion around the Fed and inflation, I think we've already seen mortgage rates kind of price that in. We're up over 100 basis points, as I said, since February. The last check was about 7.19. you know so and what that means if you have a buyer coming into the market today versus you know before the war started going back to February their monthly payment is about$300 higher and that's assuming no change in home prices over the last six months which we know isn't the case you know so I think the expectation is that we're in a higher for longer rate environment I don't necessarily think that you know the market is expecting a significantly move higher But I think we're kind of stuck in this range for the time being.

8:11OK, we'll really appreciate this, Drew, as we look ahead to the new home sales data later this week. That's Drew Redding, U.S. home building analyst for Bloomberg Intelligence. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager, joined by Bloomberg News senior equities reporter Bailey Lipschultz. And Bailey, I feel like we're getting our three squares in with the earnings coming out this week. in the grocery aisle, the food court, and open tables. Where do you want to start? What more do you want? It's that time of the season. We're in consumer earnings season as opposed to big tech.

8:45Can we start with General Mills? Let's do it. The supermarkets? General Mills, yeah, expected to report earnings. That penciled in for September 23rd. Big expectations is whether or not they can return to growth. This is really a turnaround story when you look at some of the expectations from the sell side. When you look at what this company and some of the peers have really been reporting. And even when you look at the stock performance, we're talking about General Mills over the last 12 months down 26 percent, far cry from where it was a year ago. And even when it was back near those peaks, the big question again, how is the consumer going to be able to hold up in a raising interest rate environment?

9:20And what are these companies thinking about when you go potentially more into 2027? Again, we've got crude oil trading, you know, triple digits potentially, depending on the moment the The consumer is feeling pinched, so it's a lot of questions around whether or not inflation is going to impact expectations. Can a company like General Mills pass along those costs to the consumer? Are they going to have to eat that in terms of their margin? We've heard from a number of these companies, a lot of General Mills peers leading into this week's report, warning of the potential for price hikes in months to come.

9:51The last time around, we saw General Mills offer a lot of promotions, a lot of discounts. Can they continue to hold that up? I think that's a topic of debate. How long can you actually kind of bolster or entice people to spend? You mentioned the last time they reported earnings. The stock ended up rising 8.5 % that day. And it's interesting when we look at General Mills, this is a company that typically trades down after earnings. Just looking on the terminal, if you go back to the end of 2024, after earnings only has gained in two of those sessions. So the question does focus on how much can you use promotions, and that ultimately impacts gross margins and other margins.

10:27And when you're looking at, again, a business that is competing with some of the private label, people may be downgrading and spending on store brand, more cost-effective groceries. How does that ultimately impact a company? And again, thinking about when we step back and think about cost of inputs and cost of things like fuel, that ultimately does impact your business. So we're going to hear, I guess we're expecting General Mills on Wednesday. Also expecting Darden restaurants that same day. Are people trading cereal boxes for Olive Garden? It doesn't seem to be the case. I did actually see a few investors be a bit more optimistic on Darden as a whole, maybe necessarily stepping away from Olive Garden, which they're known for.

11:10I'm looking at some of the other chains that can help bolster their expectations. Again, we are still dealing with an environment where people are forced to decide whether they want to go out and buy groceries or if they want to go to Olive Garden for some breadsticks. The big thing that I think investors are really going to be focused on is if there is a miss for Olive Garden, how much can Longhorn Steakhouse carry that? It's kind of an interesting divide when you think about who's going to eat to these restaurants. But it does seem like Longhorn, at least from the Wall Street perspective, looks like that could help carry a potential miss, again, for Olive Garden.

11:44Just calling out, that was kind of the read from Morgan Stanley, and just kind of this general conversation around casual dining and if people want to go out. I don't know if you're going to either of those places. Yeah, it's been a bit, but it is interesting to think about Longhorn Steakhouse potentially holding up this company when there's been so much conversation about just the rising cost, the continued rising cost of beef itself. Yeah, no, I think that's been one of the big questions, right? And when you think about it, even when you look at some of the peers that cater more towards steak, it's like, OK, well, it's expensive at the grocery store, let alone when you're going to a place like Longhorn Steakhouse.

12:19So it does seem like maybe the divide or at least the conversation, again, just kind of reading through some of the analyst expectations is maybe people are, if they're going out to a restaurant, are willing to pay up a little bit more for a steak as opposed to going to an Olive Garden and maybe trying to get a pasta dish that they could better replicate at home. Again, interesting to see some of these companies report where they have a bit of a portfolio, and you're saying, OK, well, Olive Garden, you would expect an environment where we keep talking about the K-shaped economy, would benefit presumably.

12:50But again, trends in at least the metrics that the likes of a Morgan Stanley or Evercore ISI are tracking seem to point towards strong comp sales for Longhorn and maybe a little touch and go for Olive Garden. I guess there's always the option of the$1.50 hot dog soda combo. What are we expecting from Costco on Thursday? That is my favorite. I'm a huge Costco fan. Yeah, same, same. The big question still with Costco, when you look at kind of expectations, is how are they competing with the likes of a Walmart or others who have leaned very much into same-day delivery? and we did see some news and some conversations around Uber expanding their partnership with Costco to deliver products, DoorDash saying that they're also going to deliver some Costco products.

13:36So when you think about kind of how consumers are blending their expectations where maybe people aren't even setting foot in a Costco anymore, maybe you're using a third-party app, and how much can that drive value for a company like Costco? Again, we're discussing three consumer companies, and Costco is arguably best positioned to make money off of people having memberships and continuing to use their products. And so one of the things that also stood out to me when looking through some of the analyst notes is how does Costco's Kirkland brand position itself against some of the other peers? And especially when we're talking about comp sales, how are people thinking through membership growth, signing up new members, and then also just generally how are comparable sales for people actually coming in or using some of these third parties for products.

14:19And then also Costco has been able to compete at the pump. So how will people be thinking about or spending money kind of across all of Costco's products and platforms? Big focus on the consumer this week. Thanks, Bailey. Good having you with us. That's Bailey Lipschulc, senior equities reporter for Bloomberg News. And coming up on Bloomberg Daybreak Weekend is Germany on the cusp of a political shift. I'm Nathan Hager. This is Bloomberg. This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. AI is creating a new path for musical stardom. As Bloomberg's Lucas Shaw and Ashley Carman report, Suno, an AI-generated music company, lets users generate a song in any style based on a text prompt.

15:07People can upload their own lyrics or start from scratch, record their own voices, or rely on ones provided by Suno. While most of the songs generated on the service go unheard of by the masses, a few have taken off, including a recent TikTok trend that involves users uploading text messages to Suno and turning them into musical performances, like taking the text from a crazy night out and making it a gospel song. Suno's pitch to investors is that it'll democratize music creation, leading to a more than$5 billion valuation for the company. The music industry, it's watching, as its biggest concern about AI is whether record labels, rights holders, and artists will be compensated for the work they claim built the training models for companies like Suno.

15:51Another question? Will these AI bangers have any staying power or just be one-hit wonders? That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com today by selecting work mode. Available on Plus and Pro plans. You already know how AI is changing how everyday work gets done, how much ground you can cover, and how fast a team can scale. To stay ahead, you need the tools that give you a competitive advantage built for this new era. Welcome to Agentic Revenue. Adio is the CRM for this world. It meets you where you work, compounds every customer signal into context, then acts on it across your pipeline to let you move it on match speed and scale.

16:36With agents and automations for every job in revenue, Adio orchestrates your work around the clock. Built to handle the scale of your workloads, extensible with API and MCP, and with the infrastructure to keep up with your most ambitious agents. Loved by high-growth startups like Granola, Modal, and Etched, Adio runs the work behind every win. That's Adio, the agentic CRM, the intelligent system that never sleeps. Picks up leads at 2 a.m. Catches renewals before they slip. Hands you the answer before you ask. Try Adio free at adio.com slash iHeart. That's adio.com slash iHeart.

17:14Have you ever wondered why some people seem to age slower? Like they figured out some secret the rest of us missed? Well, it turns out someone actually did. And it starts with a melon. Yep, a melon. There's a rare French melon that stays fresh four times longer than the fruit you and I buy at the store. Scientists discovered it produces an extraordinarily high level of a super antioxidant called SOD, the kind that helps defend skin from the visible signs of aging. And get this, Meaningful Beauty partnered with world-renowned French cosmetic specialist Dr. Jean-Louis Sabat to capture that melon's youth-preserving power in a skincare line you can actually use every day.

17:52So if you're tired of trying products that all promise the same thing, this one is truly different because it starts with something nature designed to stay young. Subscribe today and get the complete introductory system for just$49.95 at MeaningfulBeauty.com. You'll also get two free gifts, free shipping, and a 60-day money-back guarantee. Visit MeaningfulBeauty.com and order today. This is Bloomberg Daybreak Weekend, our global look at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Later in the program, we'll preview Chinese leader Xi Jinping's visit to Washington in the week ahead.

18:30But first, support for Germany's far-right Alternative for Germany party is set to be tested in two key regional elections. Question is, can the group translate its growing backing into political power? For more, let's go to London and bring in Bloomberg Radio reporter Tiwa Adebayo. Nathan, the Alternative for Germany's stunning election victory in Saxony-Anhalt this month put it just short of an outright majority to govern the eastern state on its own. The German establishment has been left reeling after the far-right movement took 44 % of the vote in the state, trouncing Chancellor Friedrich Merz's Christian Democrats, which have dominated the region for over two decades.

19:11But another shock may lie ahead as the AFD has been leading in the Mecklenburg-Vorpommern region and the Berlin region where Mertz's CDU governs. We are due to get the full results from that election late Sunday, but another strong showing for the party would increase pressure on the Chancellor to reverse the party's momentum and sharpen the debate over how to respond while maintaining a firewall against the far right. Concerns have already reached ahead. Friedrich Mertz has cancelled his planned trip to the United Nations General Assembly in New York, a move seen as reflecting worsening political pressure.

19:50Following the AFD's strong performance earlier this month, Mujtaba Rahman, Europe head and managing director at the Eurasia Group, told Bloomberg the party will now be hungry for more success. So they're three seats shorter for majority. I think the big goal for them now is to try and pick off defectors, primarily from Frederick Mertz's Christian Democrats, and over the course of the next several weeks try and form a majoritarian government. I suspect they will probably be successful. And that, of course, creates major implications. Of course, at the local level, that's important in Saxony and Halt, but far more consequential from my perspective is what this does to Mertz at the national level.

20:33As you correctly pointed out, there are a set of regional elections coming down the track later this year where the AFD in Eastern Germany is also expected to perform well. The big litmus test for me is the big state of North Rhine-Westphalia next year, depending on the CDU's performance in that context. If it's bad, they lost more than half their vote share in the result overnight. That could spell absolute trouble both for the coalition but also Merz's own future. the Eurasia Group's Mujtaba Rahman speaking earlier this month. So will Germany's Chancellor find himself in a difficult situation?

21:14And what could an AFD-controlled Berlin look like? Joining me now with more is Bloomberg's Germany bureau chief Christoph Rawald. We're coming off the back of that stunning showing for the AFD in Saxony. But since then, there's been pressure building on the Chancellor Friedrich Merz. Can you talk us through what's happened since and the situation for Mertz right now? Yeah, obviously, after the election in Saxony, the AfD has been on a bit of a victory lap, really. And there have been exploratory talks about potentially forming a new government. We haven't really heard many, many details on that yet.

21:54But the bigger story obviously has been the sort of ramification for the German Chancellor, Friedrich Mertz, and the federal government. And it's definitely safe to say that the pressure on him has only increased since then. His conservative party got really beaten pretty badly in Saxony-Anhalt. Yes, and we have two regional elections coming up this weekend. So, yeah, the pressure is really on and it could potentially become another bigger issue for the German chancellor if his party were to fare just as badly as it did in the last elections. And just to drill down into that pressure that you mentioned, are people suggesting that he steps down?

22:34We know as well that he's cancelled an upcoming trip or supposedly upcoming trip to the UN General Assembly in New York. Can you shed some light as to why that might be the case? Yes, there has been some noise that some people within his own party have been sort of like openly or like behind closed doors, more or less, sort of like discussing a potential sort of scenario in which he would step down. But we did see this week sort of some really strong support from some of the influential state leaders of his party who unanimously backed the German chancellor and that we fully support him going into the next elections.

23:14But he still did cancel his planned trip to the UN General Assembly in New York, where he was supposed to receive the Henry Kissinger Prize next week, essentially to focus on the domestic situation at home where the pressure has been really building. So, yeah, it's going to be a pretty tense time for him in the next coming days, essentially, to sort of make sure that he gets the full support of his party. OK, so that's the situation for Merz at the moment. But thinking a bit more broadly about his tenure so far, he took over from Angela Merkel's long stint in the role. It seems maybe she had a bit more stability during her time.

23:57Are his troubles really a symptom of the current landscape or is there something deeper there within his leadership? I think it's certainly safe to say that he did inherit quite a few sort of unresolved issues and lack of reforms from the Angela Merkel years. She has been in power for about 16 years. And she always tried to sort of keep a steady hand, like not do any sort of too controversial moves. but at the same time she also like didn't address some some really pressing reform reform projects including the the highly complicated pension reform which is like a very sort of contested topic in Germany because of the sort of difficult demographic trend all these things have essentially been kicked kicked down the road and this is something that Merz needs to deal with now and many of these measures are really difficult to implement because yeah he essentially has to take money away from people or sort of reduce the pension entitlements, cut back social welfare spending, which is a very large part of the German budget.

25:03So, yeah, he definitely, I think it's safe to say he definitely inherited a number of like really complicated sort of issues from Angela Merkel. And you mentioned some of his policies there. Something that keeps coming up when we think about Merkel is this reform agenda. He seems to be quite set on that. Can you tell us broadly what this entails? Yes, the two most immediate sort of reform projects are a big reform of the income tax. This has been discussed and prepared, but not finally decided yet. And the second big reform agenda has been on the pension reform. This also has been sort of drafted by an expert commission.

25:43Everybody sort of agreed it's a good plan. However, because of the weak showings of the two rolling parties like Mert's Conservative Party and the more centrist leftist social democrats, both parties have done really badly in recent regional elections, which then led them to question the reform packages that have actually already been envisioned and have been prepared. But that is something that, yeah, where the level of his support from within his own party, but also from this coalition partner, the Social Democrats, will be really essential in order to really push through these reforms that he has pledged to do and pledged to implement when he was elected last year.

26:27And I guess the public sentiment towards that agenda will be tested in these upcoming regional elections that are said to be quite consequential. It does look like the AFD are ahead, at least in one of the two regions. Can you just tell us what the latest polling numbers are saying? Yeah, that's right. The AFD has a small lead in Mecklenburg-Fortpollen, that's on the Baltic coast and Germany's northeast. But it's a pretty close race because they do face a lot stronger competition in this region than they did in Saxony-Anhalt a few weeks ago. So the Social Democrat State Premier, Manuela Schwesig, is actually quite popular among voters.