Daybreak Weekend: US Jobs, Burnham Conference, RBA Decision

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1:26Learn more at mastercard.com slash small business. 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 around the world. Straight ahead on the program, we look to a busy week of economic data. I'm Nathan Hager in Washington. I'm Caroline Hepker in London, where we're looking at Prime Minister Andy Burnham's plans ahead of his first Labour Party conference as leader. I'm Doug Krissner looking at whether higher inflation in Australia will push the central bank to raise its policy rate.

2:09That'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 Nathan Hager. We begin today's program with a busy week of economic data to look forward to in the U.S. The Fed's preferred gauge of inflation, the personal consumption expenditures index for August, comes out Wednesday. Then we get a broad read of the labor market in the September non-farm payrolls report due out Friday. Plenty of risks to consider, so let's bring in Edward Harrison for more on this. Ed's the senior strategist for Bloomberg News and author of the Everything Risk newsletter. Great to speak with you as always, Ed, and dare I ask what the bigger risk is this week.

3:07I mean, the Fed's been laser focused on the inflation side of the mandate. Does that change after this week? No, Nathan, I think it doesn't change. The last time you and I spoke, we spoke about the jobs number. We talked about the potential for that number to undershoot as a result of people who have temporary protected status leaving temporary protected status. That didn't happen. The number was actually ahead of expectations. And on top of that, there were backward revisions that were up. I think that in the interim, we've seen the data come in very strong. So this week, we should be looking for strength and that strength potentially having a negative effect on the bond market in particular by sending yields higher.

3:58Now, what about the inflation side of the mandate? We do, as I mentioned, get that PCE index on Wednesday. Where do you see that coming down? Well, you know, the consensus is for it to stay put at 3.7 % in terms of the headline number, but the core is actually supposed to go up from 3.3 % to 3.4%. My understanding is there may be some slight changes in how they calculated. That means that it could go under that number 3.4. So my expectation is definitely it will be above 3. But there is more risk that it goes lower than the consensus has right now. Okay. So what has you thinking that it could potentially go lower, especially when we think about the surge in energy prices that we've seen this month?

4:54It's purely just in terms of a mechanistic recalculating of the input for PCE. They've talked about that. And my understanding is that that should be beneficial despite the fact that we've had inflation being problematic. But let's remember that this is the number that the Fed watches and both the core and the headline number are going to be above 3%. And their mandate is for a 2 % inflation target. So however you slice it, the number is going to be elevated. The only positive is if the number is slightly lower than expected, but that doesn't take the pressure off of the Fed. When we think about the pressure that has been on the Fed right now with so many officials saying that there is more work to do to get inflation back to the 2 % target.

5:49Could this PCE number bring an October decision into play? Definitely. Because if you look at the swaps market, as late as Thursday of last week, we saw something in the order of two-thirds priced in for a rate hike in October. We also saw that it was fully priced for December so that pricing could move up from two-thirds price to a fully price and perhaps even pricing in both a rate hike in October and December. And of course, then the question becomes, what does the GDP number look like after that? And what are the jobs numbers look like after that as well? And thinking about the GDP number as well, How much of this inflation, the fact that we are continuing to see elevated inflation well above the Fed's target, driven by strength in the economy itself?

6:44I mean, we just got those survey numbers from businesses this past week that point to a pretty resilient economy still. Yeah, those S &P PMI numbers were really very strong last week. My sense is that the watchword is overheating. That is, the potential is that the economy is so strong that inflation has become more embedded, and it's also become stronger as a result of diesel prices going higher. If you look at GDP now, which is the Atlanta Fed's tracker for the quarter of GDP, it was running at 5.1%. Now, 5.1%, not including inflation, if you take inflation into account, that gives you nominal GDP in excess of 8%.

7:42That's a number that you almost never see. And that shows you an economy that's hot, almost to the point of overheating. And that's negative, obviously, for inflation, and it's also negative for bonds. Thanks for this, Ed. Always good to talk with you. That is Edward Harrison, senior strategist for Bloomberg News and author of the Everything Risk newsletter. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager with Bloomberg News reporter Judy LeGru at the tail end of earnings season. We've still got some pretty big names getting ready to report the results this week, including Carnival Cruise Line on Tuesday.

8:23How's travel demand right now, Judy? I mean, when we look at travel demand, we have to really also talk about oil prices and fuel prices and how much the consumer is willing to take. And that, I think, is definitely going to be the theme of Carnival Cruise Line's third quarter earnings that are expected to be released before market open on Tuesday. So, analysts are expecting roughly$8.4 billion in revenue, which would be a record high for the company. But on the flip side, Nathan, it would also represent its weakest growth in over five years. So definitely like a tale of really conflicting messages here that I think analysts and investors will definitely be looking forward to sorting out.

9:06Carnival, the stock itself is down about 30 % this year. And I think also Carnival is a really interesting case because they don't do futures for oil or fuel. So they're really reliant on those spot prices. And that is something that Bloomberg Intelligence has actually pointed out as a big risk for the company. So a lot to see there with respect to oil price volatility and travel demand all in the same package. Yeah. You wonder whether they're going to have to raise the ticket prices that people pay to get into those rooms when we are seeing energy prices surging the way we have. It's also kind of an interesting time as well, isn't it?

9:47When we just heard over the last few days that one of Carnival's competitors, Royal Caribbean, is kind of in deal mode a little bit. What are we thinking in terms of how that affects cruise lines more broadly, what the competition looks like in the space? Nathan, that's a really great question. Yes, Royal Caribbean this week agreed to buy a 50 % stake in sandals for about$3 billion. And so this will give Royal Caribbean access to the all-inclusive resorts all across the Caribbean that are owned by Sandals. And so I think what this will really drive is competition among cruise lines to answer the question, what else, right?

10:27We've got the cruise, but what else can you provide? What's the value add for the consumer in the environment of increasing prices? So I think that is really heating up the conversation, no pun intended, with the Caribbean mention there. But definitely fueling that competition among cruise lines for sure. Yeah, what's in it for me? Always the question, right? And speaking of rising costs, I mean, this has got to be the marquee earnings report of the week. We hear from Micron Technology on Wednesday. So much attention on the chip space. So much attention on the massive run-up in memory prices. That's right.

11:04And ticker MU Micron is definitely a name to watch for its expectations here. So, yes, earnings are scheduled to be released after market close on Wednesday. And this is really interesting from an analyst perspective. Analysts are expecting a$51 billion quarter for the company, a near five-fold increase from last year. And so, as we all know, we've said time and time again, AI demand is really driving the shortage of memory chips. So Micron is on the winning side of that. However, recently, actually this week, Morningstar analysts cut their rating for Micron to sell. And UBS issued a warning that long-term customer contracts could start limiting the upside for Micron, calling Micron, quote, the battleground between momentum and duration.

11:54That's just such an epic description. I had to really drop that in. But here, what to watch, investors and analysts alike will be looking at the forecast for next quarter. Micron really needs to show that demand and pricing can stay strong. And we'll also be listening for commentary from management about that sustainability, what will drive it and what are they looking at in terms of full-year outlook. Yeah, especially when there's been so much debate around whether to pare back the development of artificial intelligence, The whole pacing debate is going to be really interesting to hear if there's any further commentary on that from Micron as well.

12:33On Thursday, we hear from Nike. This company could use some good news, Junie. Nike, ticker NKE, right? The sneaker company is on pace, Nathan, to have its worst year since 1993, which is the same year as Michael Jordan's first retirement. So that's really a historic year for Nike. Doesn't that put it in context? My goodness. Oh my gosh. Certainly half our listeners were twinkles in their mother's eye that year, and the other half were their mother or father's eye, right? There you go. Recovering all bases there. But yes, for Nike, this is a major test of whether that turnaround is showing up. So analysts will be looking for how much North American profit growth will offset international weakness.

13:20And certainly China has been in the news for Nike in particular. Wall Street is expecting first quarter revenue to fall by 3 % to$11.3 billion. So the bar is low. It's low here. But investors are still cautious. If there are any surprises, definitely looking at margin in particular. Last quarter got a one-time boost from a tariff refund. So this quarter will give a cleaner look at whether discounting or inventory is actually helping. And then I would be remiss to not mention that the departure of French soccer star Kylian Mbappe, who was with Nike for 20 years, talk about another blast for the past, and recently signed with ON.

14:06And so definitely a lot of changes there for Nike on the horizon. And I think definitely of interest from a consumer lens and also from a company turnaround lens as well. All right. Got to be the shoes. Thank you, Judy. As always. Thank you, Nathan. Judy LeGroux reporting for Bloomberg News on stocks this week. And coming up on Bloomberg Daybreak Weekend, UK Prime Minister Andy Burnham faces Labor Party leaders ahead of the release of his party's new financial plans. We have the details. I'm Nathan Hager and this is Bloomberg.

14:53We'll see you next time.

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17:16This 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 the program, the Reserve Bank of Australia is expected to raise interest rates this week. We'll head down under for details. But first, in the coming days, UK Prime Minister Andy Burnham faces Labour Party members and senior figures at the party's annual gathering. But will he be able to maintain control ahead of releasing widely anticipated government financial plans? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepger.

17:49Nathan, UK Prime Minister Andy Burnham is just over two Two months into his tenure and perhaps facing his most significant challenge yet, the former mayor of Greater Manchester is gearing up for his first Labour Party conference as the leader of the party and prime minister, and even more crucially preparing to release a hotly anticipated budget in October. Recently, Burnham has hinted that he doesn't want his government to repeat the tax increases of the last two Labour budgets. Former Chancellor of the Exchequer Rachel Reeves delivered budgets that raise taxes by a cumulative£68 billion by 2029-2030.

18:30That's according to the Office for Budget Responsibility projections. That will lift the tax take to a record 38 % of economic output at the end of the decade. And avoiding further increases may be quite a tricky balance. Most economists expect that the government will have to raise some taxes to help plug the gap in public finances. Lizzie Galbraith, senior political economist at Aberdeen, has been talking about the pressures on the UK government. So we don't think that the government is going to be in a position to make any changes to the fiscal rules at this stage. Now, some in Andy Burnham's team have previously said that they would like to look at those long term.

19:14We still think that that is something that they will be considering further ahead, potentially as part of manifesto commitments, as an example. But for now, we don't think that they're going to be considering it, partly because of the international context in which the UK sits. It is facing concerns for investors about its fiscal position and we don't think they're going to be wanting to give that any more fuel by changing the fiscal rules themselves. Could more flexibility be found within the capital spending rules? Possibly. We do think they're going to be looking at additional capital spending, particularly to get to things like the defence spending targets without needing to go to taxation.

20:02But you're absolutely right to point out that spending is another area where I think there is a lot of tension at the moment. Now, we know that a lot of the big areas of policy change have been punted to the other side of the budget. So our expectation is actually that this autumn, we're going to see something fairly contained, fairly small, that actually kicks the can into next year on a lot of these issues. That was Lizzie Galbraith, Senior Political Economist at Aberdeen, speaking to me on Bloomberg Radio in the last few days. So, can Burnham balance the books? And what should we be looking ahead to as his party gathers in the next few days in Liverpool?

20:44Joining me now is Bloomberg's UK politics reporter, James Wilcock, because, of course, you and I are getting ready to join all of those activists, the MPs, the councillors, the think tanks and the media up in Liverpool for a few days of party conference. So what can we expect? You're a party conference veteran, James. I mean, it is the most fascinating gathering of the party faithful. Like you said, you have members who are trained to be councillors in the party trying to win an election. You have the donors and the businessmen trying to reach people. You have the ministers trying to put out their key messages.

21:18And that leads to some unlikely events. I mean, I've been in a karaoke bar listening to remixes of Margaret Thatcher pop at the Conservatives. I know. And I've also ended up at a reggae labour night run by a cabinet minister. And so these kind of big explosions where, frankly, political nerds and anoraks gather are unusual in sort of modern politics as a moment where the rank and file meet some of the most senior people in the land and senior ministers try to rejuvenate their bases, set a political direction, but also meet quite a lot of business people along the sidelines. Yeah, which is of interest to ask.

21:57I mean, what do you think is going to be the mood maybe and the significance of this Labour Party conference? It's going to be really strange because it's the mood I'm getting from talking to Labour sources is everyone is remarkably upbeat. They have a new popular leader, Andy Burnham. They are seeing the polls go up and they've had a summer of good vibes campaigning effectively. But take a step back a bit. Two years ago, Labour won a landslide majority to reshape the UK under Keir Starmer. They are halfway through that government and they have dethroned their leader and gotten rid of him. And now they face a difficult fiscal picture ahead.

22:39And it's unclear what Andy Burnham's political direction is. He has made a lot of messaging and good vibes and bringing optimism back and tackling the cost of living. He's very clear on some of those issues. But when push comes to fiscal shove and there is a UK budget ahead, it's going to be interesting to see how he comes to this, his first conference, and makes his name known amongst members. What is the messaging going to be? How will he rally the party faithful? And will he sort of acknowledge that there are some more difficult times ahead? Yeah, look, he's talked about nothing less than the biggest change in the UK in 40 years.

23:19And if you look at the pamphlet, the introduction to the pamphlet for the Labour Party conference written by Burnham, he says, together, let's bring back hope and get Britain believing again. So you get that idea that there's going to be hope and optimism. What are the key moments to watch out for? Because the other thing that I would add to that is that Burnham is also coming back and attending this conference, just as he's been in the US, in New York, and had quite a successful, by most accounts, meeting with President Trump. What are the key moments going to be to watch out for now here in the UK?

23:55Well, the two scheduled ones, and there were a couple of others I should mention as well, The two scheduled ones are the Chancellor speaks, Chancellor John Healy, also a new Chancellor, and also trying to sort of introduce himself to the party faithful and set out a message ahead of the budget, which is only in four weeks time by the time conference starts. And then Andy Burnham's leader speech. And again, those are the two we're all keeping our eyes on. But here are some of the other things. Famously, Labour is marked by protesters. Keir Starmer was covered in glitter in a recent conference a couple of years back and had to respond to that.

24:25But it's worth saying that it was last year's conference where Andy Burnham, then the mayor of Greater Manchester, caused consternation by talking about the UK not being in hock to the bond markets. And it was that. That was a pre-conference interview with the left-wing New States magazine. So there is plenty of room for former allies of Keir Starmer or other embittered Labour politicians to grind some axes on the fringes of conference. Boris Johnson, before he was prime minister, always used to almost make a massive stir as he would walk through Conservative Party conferences, getting more attention than the prime ministers at the time.

25:00So there's plenty of room for chaos, Caroline, as I'm sure you well know, being up there as well. Yeah, I think it's going to be very, very interesting to watch. Yes. And also, as, of course, Andy Burnham has stood by his bond market comments, which have been so thoroughly examined. It does feel like things have changed, though, in regard to those comments, of course, because, as you see, interest rates ratcheting up. A lot of countries around the world are starting to wonder about indebtedness. So, you know, maybe they're being cast in a new light as well. And on that point, the budget, that's surely going to be a big theme, what the party's plans are.

25:42How can you deliver hope and optimism and maybe some giveaways and changes to things like social care if there isn't the money there? Right. I mean, look, to that debate, there are two numbers that everyone needs to bear in mind in this conversation. One is the headroom. And this is the amount of money the government has spare to pay for emergencies, to worry for sort of bond market movements. Now, the story of Labour in power since 2024 is Rachel Reeves, the Chancellor then, came in and set the headroom at about£10 billion. And that was seen by many experts at the time as one of the lowest figures in record.

26:19And people worried there would be bond market ructions that would put her in jeopardy. And so they were. And so a year later, she, by raising taxes, put her headroom up to something closer to£24 billion. The bond market moves now have halved that. And so we are back near, according to most estimates, including Bloomberg Economics, that low figure. The other number is that Labour, despite putting a manifesto up in 2024 that promised to raise taxes by at most£8 billion, have raised them, as you said at the very start of this conversation, by£68 billion over the course of their two years in government.

26:56Now, Prime Minister Andy Burnham, just last week at the UN, said there has to be the right balance, with his words. And so they face the decision going into this budget. Do they go big and look at big tax rises, big spending cuts, potentially issuing more debt, even as bond yields hit record highs? Or do they try and muddle through and find a smorgasbord of small approaches? Do they try and cut down their headroom? but these kind of big bold ambitious or small muddle through is kind of going to be the question here and if you look at the language from the summer you might be thought of saying it's going to be big and bold if you look at what they're saying now i don't know but there's certainly a lot more economists saying the muddle through approach might be the one that's favoured yeah and so there might be a sort of smaller budget effectively okay um we should add that the other political parties in the UK have also been holding their conferences.