Daybreak Weekend: US Inflation, Renewable Energy, RBA Decision

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1:24Learn more at business.optum.com. Bloomberg Audio Studios, podcasts, radio, news. This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our Daybreak anchors all over the world. Straight ahead on the program, a look at some key inflation and retail sales data in the U.S. I'm Amy Morris in Washington. I'm Caroline Hepkitt here in London, where we're looking at Europe's wind energy sector with the Trump administration's rollback on renewables. I'm Charlie Pellett with a look at what we can expect from the Reserve Bank of Australia when they issue their August rate decision next week.

2:07That'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.

2:32Good day to you. I'm Amy Morris. We begin today's program with some key economic data in the U.S. We get U.S. CPI data on Tuesday, the producer price index is released on Thursday, and retail sales data on Friday. How is this data going to impact Fed policy as we move forward? For more, we are joined by Michael McKee, Bloomberg International Economics and Policy Correspondent. Mike, always a pleasure. want to start with PPI and take a peek back at this past week, which saw some weaknesses revealed in the PMI data for July, plus reciprocal tariffs kicked in. With all of that in mind, what should we be looking for from the PPI coming up?

3:13Well, we're going to be looking certainly in terms of PPI at whether we have nascent inflation coming from tariffs. And we'll be looking at the things within the producer price index that are considered intermediate goods, things that companies buy to make other things. And if we see prices going up there, which we should, then it'll be a question of how much do they go up? Does it suggest that we're going to have an outbreak of inflation? And when you look at the CPI, you're going to have the same sort of questions, but they're for finished goods, for things that consumers are buying. What is it telling us about the tariff impact on the economy?

3:54And that's why it'll have a big effect for the Fed. It will matter a lot to the Fed, more than we've had most CPI and PPI indicators this year, because they put everything on hold, waiting to see what the inflation outcome is from tariffs. So these numbers are going to have more of an impact, you think, maybe than normally, historically they would? Yes, they will have an impact one of two ways. Either they will show inflation is picking up, which will lead the Fed to be more cautious going into their next meeting, or they'll show that things are pretty quiet, as the president insists. And the idea that the jobs report we had last week shows weakness in the economy would give them more license to cut rates.

4:41Should we bring up the issue of stagflation? Is there any risk of stagflation in our future? Well, that's kind of what we're looking at at the moment. Now, the problem is people tend to think of stagflation in the way we had it in the 1970s, where inflation was very high and growth was very low. But it can just basically mean that the economy is not growing particularly fast and inflation is picking up a bit. So you could have maybe 4 % inflation or 3.5 % inflation and growth of a half percentage point or something like that, and it would still qualify as stagflation. And that's kind of what the data are pointing at right now.

5:24And we say that because of the jobs numbers. The fact that they were so weak is a suggestion that maybe consumers won't be spending as much money and the economy will slow down. And obviously, we're watching the CPI, PPI to see if there is the flation part of stagflation. Exactly. Let's turn to the retail sales figures then. Are we shopping? What are you watching for from that? Because everything you just explained tells me it sort of all dovetails. Well, it's going to be a kind of a weird one, as July usually is, because July we have the Amazon Prime Days, and the other retailers like Walmart who match their discounts.

6:05And so you could get more people buying stuff than we normally would expect under the economic conditions that we have. It may not reflect yet that people are concerned about the economy and pulling back on their spending because everybody likes a deal. Forgive me, but Amazon Prime days really have that much of an impact? They can. The way they calculate all of this is through dollar volume. And the Prime Days and the other discounters would be charging less. But what ends up happening is a lot of people buy stuff they weren't intending to buy that isn't necessarily on sale. And so you do get an increase, particularly in the category of online shopping.

6:54And so that's something to keep an eye on. And we also are always looking at gasoline prices, which came down and then started going back up again. So those will have an impact as well. And we had better-than-expected auto sales in July. So that may also suggest that we're going to have a little more strength in retail sales than we might otherwise have expected. Well, Mike, the president did fire the head of the Bureau of Labor Statistics. and the concern there is that any suggestion of political bias can destroy trust, especially in these numbers. How important is it for the American people, economists, those who watch this data, to have trust in these numbers that we're going to see?

7:38Oh, it's vital because we rely on them for so much. It's not just me sitting here reading the EcoGo page on the Bloomberg. They're used in adjusting contracts, cost of living, Social Security. Companies make plans on investment based on what they think the inflation rate is going to be. So they're very important numbers, and obviously they matter a lot to the Fed. And so being able to believe in them is very important. Now, we know that the numbers have become a little more, not less accurate, but sort of the margin of error has widened because they're having much fewer responses to their surveys.

8:22And they've also cut back, the government, Congress and the presidents have cut back on spending on these numbers. So it's been difficult for the agencies, but they do their best to produce the gold standard of data. And I don't think anybody is looking for that to change. The way they've set it up, the commissioner of the BLS doesn't get into the report. So the fact that the president fired somebody who's not ultimately actually responsible for the report won't make much of a change. So I don't think Wall Street's too worried yet. It would be if somebody came in and started making major changes in the way they compile the data that you'd have to worry.

9:01Okay, and we're going to leave it there. Michael McKee, Bloomberg International Economics and Policy Correspondent, always a pleasure. Thank you so much for your insight. All right. We move next to corporate earnings from the networking bellwether. Cisco, they report earnings after the market close on Wednesday. For more, we're joined by Woojin Ho, Bloomberg Intelligence Senior Technology Analyst. Woojin, what are you looking for from Cisco's earnings report? Yeah, thanks for having me on. Look, I am actually looking for a fantastic quarter coming from Cisco. There's a couple of high-level things that we need to take into consideration.

9:36The enterprise IT spending has been a little bit more resilient than I had anticipated. So they should easily, or I believe they should at least come in the high end of the$14.5 to$14.7 billion guidance for the quarter. But more importantly, they've actually navigated their tariff situation pretty well. So there should be minimal downside risk to earnings expectations heading into the print. But more importantly, I think the focus going into the quarter is going to be more along the lines of their guidance for fiscal 2026. You know, their long term guidance there is four to six percent. And they have a lot of tailwinds to help them go to the top end of that guidance range.

10:25Yeah, I want to ask about that, how they're able to maintain stable demand and steady growth in this current AI environment, because this is the pool everybody's jumping into. So how can Cisco maintain all of that, set itself apart? Is it navigating their own tariff deal or is there more to it? Well, you know, one of the things that Cisco has done over the past several years since the COVID period is essentially distribute their supply chain to be less concentrated outside of China. But a couple of things that do help them, they do have some Mexico manufacturing, so they can get some cover under the USMCA.

11:07So some of their products are going to be exempt from tariffs. And I think some of the new tariff rules that came into the August 1st deadline, that's going to help them actually make their products a little bit more favorable from a tariff perspective. So net-net, they'll be fine from a tariff perspective. The one thing that I will tell you, they're more highly exposed from a revenue perspective on enterprise spending. spending, roughly half their revenue come from commercial businesses. Think about your typical small, medium businesses with over a thousand employees and also your campus networks and stuff that connects the PCs at our desk.

11:55That really hasn't pulled back at all. If I look at other companies, they've actually at least met expectations and also beaten expectations. And as a tech bellwether, I do think that they're going to benefit as well. They also have an ongoing relationship with NVIDIA. How has that helped? Yeah, you know, it's a new relationship that they announced at their users conference. If anything, that actually thrusts them deeper into the AI story. A couple of things here. you're not going to see the multi-billion dollar AI deals coming like a Dell or a Supermicro. But as corporate enterprises get into the AI, Cisco and their broad enterprise channel, the small, medium business, as well as enterprises that I just spoke about, that will actually help NVIDIA get into those accounts that NVIDIA typically cannot get access to.

12:54So there is a channel relationship that helps. That's one. And number two, it is symbiotic because there is a networking component in AI. Cisco is a networking leader and they can actually get NVIDIA networking gear with Cisco equipment into a lot of these data center as well as enterprise accounts that will help. This is going to be fun to watch. Those numbers coming out on Wednesday. Woo Jin-ho, Bloomberg Intelligence Senior Technology Analyst, thank you so much for talking with us about this. Take care. Coming up on Bloomberg Daybreak Weekend, we'll look at Europe's wind energy sector and how it's being impacted by the Trump administration's rollback on renewables.

13:36I'm Amy Morris. This is Bloomberg.

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14:24Visit otcmarkets.com slash moon. Moon ATS is operated by OTC Link LLC, a FINRA-registered broker-dealer. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping 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. Everyone's talking about how AI is transforming work, especially in sales.

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15:43I'm Amy Morris in Washington. Up later in our program, we'll look ahead to a monetary policy decision from the Reserve Bank of Australia. But first, in the coming days, the Danish wind turbine maker Vestas will report earnings. It is expected to solidify its position as Europe's largest wind turbine manufacturer and the world's second largest by shipments. But the renewable energy sector faces big political challenges in the U.S. and in Europe. For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Amy, it's thought that tariff uncertainty will have hit Vestas' orders in the second quarter.

16:19But that may be an issue largely for Europe. Because paradoxically, Vestas has seen a surge in U.S. orders as developers rush to get ahead of President Trump's deadline to end certain tax credits for new clean energy projects. When Bloomberg spoke to Vestas' CEO, Henrik Andersson, back in May, he had a blunt warning for Europe. Either adopt bolder industrial policy or risk watching business drift elsewhere. Andersson noted that the European Union's fragmented approach to the sector was jeopardising the region's chances of achieving energy independence and competing against other global manufacturers.

17:02He emphasized the need to protect and support the wind energy sector that Europe has built through its universities and testing sites. It's quite interesting, and maybe it comes with age, I don't know, but I'm saying stay calm, because there are some of these things that will be probably spontaneous, probably fast measures that then will try to find solutions on over time. And if I look back and also forward is we have been and we have created factories and localization in the U.S. for more than two decades. So for somebody to sit here and got a really nerve wracking Monday morning and now on Friday we're going to relocate some of it.

17:43That's just not the right thing because whatever we do we still see the demand cycle for energy. We still see the building and the ramp up we are doing in the U.S. And therefore for that to suddenly be hit by and I often call it a bit the emotional spirit of of this. And if I could encourage still anything out of this, remain a bit calm. Take some responsibility because direction of setting for your organization needed right now because they get up in the morning. They see news like this and they all see the world is coming a bit apart. It's being more fragmented. So I think actually as CEOs, one of the most important things right now is stick to the direction.

18:25That was Vestas CEO Henrik Andersson there speaking to Bloomberg's Anna Edwards, Kriti Gupta and Guy Johnson back in May. His comments came as the EU is struggling to cut carbon emissions whilst more broadly addressing struggling growth and a crisis of competitiveness. So what are the challenges that Europe's renewable sector face and what to expect from Vestas in particular? It's something that I've been discussing with Bloomberg's climate change and renewable energy reporter Will Mathis and Bloomberg Intelligence Equity Research Senior Associate Alessio Mastrandreia. Will, can I start with you?

19:04What are we expecting from Vestas' earnings? Well, I think we're expecting, crucially, the first update since the changes to the American tax law. That was extremely detrimental to the wind energy sector. It had been primed for huge growth because of President Biden's Inflation Reduction Act. And then a lot of the support that the wind industry was going to get has been pared back. So now we're going to get an update from Vestas about what does that mean for wind in the U.S., for their turbine business there? And also, what impact is this going to have on costs for electricity for the American market?

19:46So this is the winding back that President Trump has announced around those tax credits for clean energy projects. What about then what we're expecting in terms of orders, especially for Germany, now that it is focused on investment spending? Yeah, I think Germany, especially with onshore wind, has been one of the strongest markets. They've really done a lot since the energy crisis to restart the onshore wind market, which had been sort of stagnant for a while. And I think that it's going to be an extremely important market for Vestas and other wind turbine makers in the next for the rest of this decade.

20:27Alessio, that's a little taste of what we're expecting then from Vestas. How important to business is Vestas, though, actually in Denmark? I think it's huge. So we were actually in Copenhagen a couple of weeks ago. And as soon as you land, as you're landing, you see a bunch of offshore wind farms. There's signs everywhere for Vestas. It's one of the key businesses in the region and more importantly, just in Europe overall. OK. And the environment then for clean energy firms in Europe that are doing business with the U.S., given this kind of anti-renewable Trump administration. Yeah, so in the US, like Will was saying, we were kind of waiting to see what was going to happen with the one big beautiful bill.

21:12And now that we have clarity, we have orders announced for Q2, we're only about 1.1 gigawatts, but we saw that coming. In the weeks since then, we've already seen a gigawatt worth of orders just in the first month of 3Q and 500 megawatts that are in the US. So we are seeing that now we have at least a bit of certainty, even though it's not exactly what we wanted, that there's still going to be a build out in the US. So the order flow is coming in, you're starting to get a bit more visibility on that. In terms of how Europe then is thinking about clean energy policy, given, I mean, it's an increasingly sharp, elbowed global economy, isn't it?

21:51It's less cooperative, it's more self-sufficient. And this big change in the US, how much influence is that having? How's Europe thinking about clean energy now? So in Europe, you can't exactly have something like the Inflation Reduction Act, where you can give tax incentives because it is individual states. However, there are two major policy initiatives that have kind of helped spur along wind and clean energy growth overall. So you have Repower EU and the Europe Wind Action Plan. And those were really made to kind of cut the red tape because a lot of what's stopping wind buildout is the bureaucracy to get the permits to get these projects going.

22:28because overall it only takes one to two years to build an onshore wind farm. The biggest part is the bureaucracy piece. Where's that worst, do you think, right now? It's kind of overall. I can say where it's getting better. So Denmark is trying to cut a lot of that red tape. But it's a bit of a double-edged sword because a lot of countries are also scaling back their offshore segment. We see this in the US. The Biden administration had a target of 30 gigawatts of offshore wind by 2030. The Trump administration basically came in and shut the door on that, and we might only get about 5 gigawatts.

23:02Okay. Will, in terms of how well Europe's renewable energy sector is doing in terms of earnings overall this quarter, have there been big takeaways to you? I think that a lot of the noise has been about what's been happening in the US. It has been a huge growth market for renewable energy, especially offshore wind. in recent years with the Biden administration. And now that's been really pulled back. So, you know, on the same day that Vestas reports, Orsted, another Danish renewable energy giant, is going to post their results. They've had huge problems in the U.S. with cost overruns and now with some of their projects essentially just being put on ice indefinitely.

23:47They have like seabed leases, which are just areas kind of like a couple years ago would have been considered assets. And now they're essentially worthless because there's really no pathway to growth while there's a Republican administration in the White House. And that's going to be another key view into what does this all mean for European companies that have gone big in the U.S. based on policy and now are trying to recalibrate and figure out what their next steps are in this Trump administration. Hmm. Has there been a rush, though, to get wind power projects actually done and completed? Because the tax credits are going to run out, but it's actually in some months.

24:31It's basically in a year to two years time, right? 2027. So is there a rush happening now or has that sort of been abandoned? Yeah, I mean, that's one of the questions that I'm going to be asking Henrik Andersen, the CEO of Vestas, is, you know, what are you doing to get these turbines to your customers as quickly as possible? Because there's a lot of people who've had developments that maybe they were thinking, oh, I could build this in the next five years. And now they're like, oh, I've got like two years to get this substantially started. And that's going to really depend on the supply of turbines, whether they can do it or not.

25:03Yeah. Speaking of turbines, I mean, I was quite interested to read that actually there's also an issue around the energy mix for making this massive bit of equipment, right? The kind of the energy that it takes to make the steel that goes into the wind turbine. So sort of wondering also about the energy efficiency and the sustainable aspects of Vestas' own business or just the business of these wind turbine makers. What do you think of that, Will? I mean, wind turbines are big pieces of steel. Steel is emissions intensive industry, but the emissions that are offset by using the wind turbine very, very quickly compensate for the emissions inherent in the machines and the transport of getting them to the market because they're also put on ships that are powered by oil.

25:55But it's something that those companies want to address. They are looking into green steel and other things that could bring down their carbon footprint. And especially Danish company, sustainability is very important there. But for now, there are emissions. But compared to the benefit of replacing a coal-fired power station or a gas power station with a wind turbine, you know it's it's uh worth it easily worth it to to spend some emissions on making these things to be able to to use them in the power mix so the industry kind of factors it in as it were so that goes to the energy security issue for europe europe's recently had this scare around iran threatening to close the strait of hormuz and that would affect um energy supplies in europe there's also pressure on anyone buying Russian energy.

26:50How big a concern is it around the energy infrastructure that Europe has energy supplies currently? Yeah, I think it's a massive focal point for why the clean energy transition is so important. Yes, it's good for the environment, but energy security is fundamental. We saw Europe stepping up with repower EU after Russia invaded Ukraine. The threat of the closing the Strait of Hormuz is maybe not an immediate threat for Europe because only 4 % of gas comes from Qatar, but 20 % of flows go through that Strait of Hormuz. So it would make any imports from other countries more expensive. And then I think the third piece of that fundamental part of why the transition is so important is the build-out of AI data centres.