Daybreak Weekend: US Jobs, European Earnings, Vietnam Eco

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2:27This 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 ahead to the July jobs report in the U.S. and what it may mean for Fed policy moving forward. I'm Nathan Hager in New York. I'm Caroline Hepburn in London, where we're looking at Europe's most important corporate earnings. I'm Doug Krizner looking ahead to the latest readings on Vietnam's economy, including inflation and trade.

3:19Good day to you. I'm Nathan Hager. We begin today's program with the July jobs report in the U.S. Non-farm payrolls come out this Friday at 8.30 a.m. Wall Street time. For more on the data and how they may affect Fed policy, we're joined by Stuart Paul, U.S. economist with Bloomberg Economics. Great to have you with us on the program, Stuart. Of course, the Fed says it's still focused on inflation. So, how much of a difference could jobs make when it comes to the policy outlook? You know, it's actually pretty interesting. The Fed has been laser-focused on inflation, and that's been the case while inflation has been well above the 2 % target.

3:58So, it's now for several years. But each summer, we've been surprised with a series of weak jobs reports that actually ended up leading to a series of rate cuts. And so while the consensus right now is expecting about 80 to 100 ,000 jobs added in the July jobs report, we're actually a little bit more pessimistic for a host of reasons that we can get into. And given the fact that the Fed has been surprised by summer softening in the labor market, and it has made them reconsider their policy stance, I don't think that they're going to completely ignore the labor market. I do think that inflation is still number one, but the Fed has its dual mandate and labor still matters.

4:36All right. Well, let's get into some of those reasons why you are feeling more pessimistic. What are you seeing in the labor market right now? When we look at high frequency data, which admittedly has been pretty noisy in the last couple of months, we only get to about 50 ,000 jobs added. So we're running almost nearly half the pace that the consensus is expecting. And beyond that, we think that World Cup hiring pulled forward labor demand earlier into the spring, setting the stage for a July slowdown as the World Cup started to wind down. Beyond that, again, is this problem of residual seasonality in the data.

5:13Just it seems to be the case that the Bureau of Labor Statistics has really struggled with accounting for seasonality in hiring. For example, teachers get effectively laid off during the summer and then rehired in the fall. Accounting for that is a really important part of the task here. And if the seasonal adjustment process is imperfect, you end up seeing an uptick in the unemployment rate, apparent softening in the labor market. And it's the sort of thing that we want to be on guard for as we enter the summer and as we start seeing, again, this July labor market and particularly the potential for softening that could catch folks off guard.

5:51Well, to the point about the pull forward potentially of seasonality, we've been talking for so long about this low-hire, low-fire environment. I think we can say that we're seeing that show up in some of the high-frequency data as well. What's been keeping this labor market at this kind of low beyond just some of those factors that you talked about? I think there are a couple factors. The first and I think most important is a skill mismatch. We have just a dearth of qualified healthcare workers, for example. So once you can get a nurse on your payrolls, you just keep them on your payrolls as long as you can.

6:31But we do see selective firing in certain industries like information where there had been an abundance of hiring, particularly after the pandemic. And so there's just a reconsideration of what specific skills firms need. But when they find someone with those specific skills, they're really keeping them on the payrolls is really that low fire element that you're talking about. The other factor, though, is a reconsideration of just how much labor any given firm needs as AI gets implemented throughout the labor market and throughout the economy as a whole. So you have these different structural factors in play.

7:12Again, that skill mismatch and the implementation of AI, which is contributing to both that low-fire and low-hire dynamic. Now, we did see the market reaction after the Federal Reserve this past week decided to keep interest rates on hold again. If we do continue to see movement in the Treasury market yields to the upside, does that have an impact on the labor market on a longer term basis? On a longer-term basis, certainly. I think that it will have more of an effect on the Fed's decision-making process in the near term. I think that we heard from Chairman Warsh that he is taking a very serious signal from the bond market right now.

7:54And when hikes start to get priced in, I think that he's going to effectively follow the bond market. The policy path is going to follow the interest rate path that's being set in markets right now. Now, when it comes to the labor market over the long term and the sensitivity of the labor market to firms expansion and hiring plans, what's a little bit peculiar right now is that it seems like a lot of AI investment is rather interest rate insensitive. But that same AI investment and CapEx, that same set of expansion plans are also not going to be as big of a driver of labor as, say, manufacturing expansion plans were in the 50s, 60s, 70s.

8:35So the sensitivity of the labor market to interest rate policy and firms expansion plans is a little bit loosened right now. Appreciate this, Stuart. Lots to think about as we get set for that non-farm payrolls report for the month of July. Again, due out this Friday, 8.30 a.m. Wall Street time. Our thanks to Stuart Paul, U.S. economist at Bloomberg Economics. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager, joined by Bloomberg Markets Live Managing Editor Christine Aquino, getting us ready for a really busy Tuesday when it comes to earnings, Christine. Oh, yes, absolutely.

9:09So we're going to start off at least this conversation with McDonald's. It seems like despite the lettuce, it's been okay for fast food, has it? Or am I wrong? Well, I mean, it depends on what you're looking at. Because we do have data on the Bloomberg Terminal just tracking consumer transactions and foot traffic. And that did show a bit of a pullback from consumers for a lot of these fast food restaurants, including McDonald's. And in fact, that data was showing that McDonald's saw the first signs of a consumer pullback during the peak of the cyclospora outbreak. And when customers were really, you know, the awareness and the fear over that outbreak was at its peak.

9:53But the good news is that McDonald's is also the first of the fast food restaurants to start showing tentative signs of stabilization. So that's definitely going to be a focal point in the earnings, I think, whether that's something that would hurt maybe not as soon as this quarter, which is going to be the second quarter earnings that they're going to be reporting, but perhaps something that gives them a little bit of a negative outlook heading into the next quarter. Well, to that point, to an extent, I mean, even before this reporting, I think the CEO of McDonald's had said they were expecting meaningful deceleration in the quarter that's about to be reported.

10:30Where does that leave the bar from McDonald's when it comes to maybe showing some outperformance? Yeah, I mean, it certainly helps that perhaps that lowered expectations heading into the earnings season. But yeah, I think we're going to hear a lot about the challenges that the U.S. consumer and consumers in general are facing at the moment. I mean, don't forget that they are still grappling with higher prices when it comes to goods and services as a result of the oil price spikes that we saw in the first half of this year. And that hasn't necessarily gone away. It's receded a little bit, but definitely by no means disappearing from the radar.

11:08And so something that really has affected just overall the appetite for spending among consumers and something that is very clearly surfacing in discretionary spending, which, you know, demand for McDonald's is one of them. And not to be outdone, we're going to hear as well from Caterpillar. Totally different category, but maybe a similar issue when it comes to the overhang from what's happening in the Middle East, potentially? Yeah, potentially, Nathan. I mean, certainly something that they're grappling with as a company would be higher costs for materials, building construction, things like that.

11:41Right. Very big space for Caterpillar. But actually, very interestingly, one thing that investors are probably putting more focus on is their role in the AI-driven demand, particularly the data center build-out. Because we did recently see the Caterpillar shares seeing their worst performance on a day-to-day basis since April 2025. And that's because there was a little bit of a pullback in the AI sector when it comes to chip makers. But just generally anxiety over demand for data center, how sustainable that is. And also we got a downgrade from Baird for Caterpillar stock. They cut their rating on a stock to neutral from outperform.

12:23And a price target was also lowered by 25%. And analysts were citing specifically the state of data centers and how that's starting to see some regulatory pushback. And so if we do see more and more local governments kind of pushing back against the expansion of data centers, that's something that will hurt Caterpillar's order book. Yeah, obviously there's a lot of attention there on Caterpillar's role in the AI data center buildup. But I mean, I think about when it comes to Caterpillar, you know, the farm equipment, the construction equipment for houses. Are those aspects of the business something that could potentially outweigh any of the downgrades that you mentioned from Baird?

12:59I mean, look, I think that's something that could help offset it. We do see some surprises on that front. But, you know, more and more, a lot of companies, including Caterpillar, have really kind of leaned into this AI-driven demand and all aspects related to that, right? And so it seems these days for any companies reporting that are in any way related or connected to that story, if there's any kind of hint of negativity on that front, that tends to outweigh any positive sentiment that comes from other aspects of the earnings. One thing to do look out for is probably its power and energy unit.

13:38That is still expected to post 23 % organic sales growth. And that's something that could be a silver lining if we do get a little bit more of a subdued outlook when it comes to data center related demand. Well, another one of those companies that I think you could say is really directly related to the AI trade is also reporting on Tuesday. What are we expecting from Advanced Micro Devices, the chip maker? That's right, chip maker. I mean, yeah, that is very much front and center when it comes to the AI trade narrative here. Look, I think the expectation is still very much for a solid quarter.

14:12There's been robust demand for its server CPUs. And that gives the company a lot of pricing power, really, because we have seen prices for related equipment in that space ramping higher just because there's so much demand in the space. And so, you know, is that going to be sustainable? That's something that investors are going to be looking forward to. We did also see AMD unveil new products. They have a new generation of microprocessors, a new server rack. And so that's something that investors will be watching for. They're going to see some evidence that the company is going to be on track for a successful ramp up in the second half of the year.

14:50Such a busy Tuesday coming up. Thank you for this, Christine. That's Bloomberg Markets Live Managing Editor, Christine Aquino. And coming up on Bloomberg Daybreak Weekend, we look ahead to some of the most consequential earnings releases of the year in Europe. I'm Nathan Hager, and this is Bloomberg.

15:16Support for the show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined.

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17:17I'm Nathan Hager in New York. Later in the program, we'll look ahead to some key economic data in Vietnam. But first, in the coming days, we hear from some of the world's biggest companies as earnings season continues. But how have European firms adapted to an uncertain market context? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Nathan, investors are finding out whether second quarter earnings can live up to their sky-high expectations. European companies are expected to deliver robust earnings growth not just for this quarter but for 2026 overall and yet Europe faces high energy costs, sticky inflation, the possibility of one or maybe even two rate hikes from the ECB by the end of the year.

18:01With European stocks also remaining near all-time record highs, one that was set only on the 6th of July at 654 points, The setup leaves little room for error. And after months of conflict in the Middle East, companies have had to contend with a very complicated backdrop. Natalia Lipikina, who is head of EMEA equity strategy at JPMorgan Private Bank, says that investors will be looking out for signs of those effects. This is something the market is definitely watching. I think the reason why we didn't have such a strong negative market reaction so far is because the market probably thinks that oil prices will ultimately come down because we saw this already earlier this year.

18:45And second one, if you look into the latest inflation prints, they were actually OK so far. So clearly something that the market is watching. I think it will be important to see if, for example, oil breaks through 110, 120. If that happens, yes, then the market will react because that will impact potentially the margin, especially for European companies because they are just more cyclical and exposed to oil prices. But we don't think that we're there yet. So the concerns around energy prices in Europe. That was Natalia Lipikina from JP Morgan speaking to Bloomberg Radio. Joining me now for more is Bloomberg Senior Strategist for Equity Markets, Michael Musica and our markets today, Editor Sam Unstead.

19:23Welcome to both of you. It's been a very busy time in the last few days and it will continue that way, won't it? Michael, we're underway with the earnings season in Europe. How have investors reacted to European earnings so far? So it's a very strong earnings season and the reaction has been, I would say, positive for the overall market. It's, you know, European stocks have been holding up really well, despite the ignition of like tensions in the Middle East, despite bond yields going up. So overall, there was the support from earnings because this earnings season is really strong. In terms of reaction to stocks, we've seen that beats were kind of expected.

20:12So the reactions is relatively not muted, but like not very strong when misses have been penalised a lot harder. Yeah, more heavily penalised. So then what are the big names to watch out for in the coming days and why? So the season is well engaged, I would say. So we had quite a lot of earnings. There's still some very important ones next week. I think, for example, in the defense sector, you have Rheinmetall and RENC, which are very important for this sector. And also for defense stocks haven't done very well lately. So that would be something to watch. Siemens, Siemens Energy, very big on everything that's powering the AI data center in Europe.

21:02So those were big winners from AI. Banks as well, especially the ones involved in M &A. We have quite a few of those like BPM, BMPS, Comet Bank. So that's more to follow. And in the semiconductor space, we have Infineon, big one as well. And finally, Defensive Stock, which haven't done well at all because everyone's been piling up on cyclicals lately. we have Novo Nordisk, Bayer in the Pharma and Heineken and Diageo in Staples so all those are to be watched closely. Okay interesting Sam what are the most important FTSE releases in the next few days? Well I think as Michael was saying we're quite deep into the earnings season now so a lot of these companies now are coming up not just against their own expectations but the expectations have been moved around by their peers reporting so BP is coming next week you would expect to see broadly the same kind of thing you saw with Shell you know higher oil prices better refining margins whether BP does a buyback probably a lot less likely than for Shell but that will be watched very closely you know for the UK itself Next is coming out next week often kind of held up as a bellwether for the UK high street although I think that's probably diminished a little bit over the years just because they very continually use quite conservative guidance and then beat it almost every time so it's quite hard to kind of take that and extrapolate it out to other high street names.

22:28I'd keep an eye as well, though, on Home Builders. We're going to get Persimmon next week, which is coming after the Bank of England meeting over the course of the past week. And then Diageo I would keep an eye on as well. You know, we've already had a couple of drinks companies coming out and the reaction to a lot of the consumer stocks has been a little bit mixed. So it'll be interesting to see how they do. In terms of the major names that we've already heard from, what do you take away from that when it comes to the FTSE? Well, as Michael was again saying, so a lot of the pattern on the FTSE has been very similar to the rest of Europe, where companies that are beating expectations for the most part are getting a fairly muted response because it's kind of expected.

23:08So if you look at Rolls-Royce, for example, they upgraded their guidance again, because effectively every bit of Rolls-Royce is just experiencing fantastic trends at the moment. You know, the aerospace industry is doing well for them. They're getting defence orders in. They're getting data centre orders in. But their shares only rose sort of 2 % or 3%. You didn't get that kind of reaction that you would maybe expect. However, where you are seeing a few surprises, particularly on the upside, the one that surprised me the most this week was Unilever. They are coming into it with relatively lower expectations, thanks mostly to Nestle, having taken a bit of a hit the previous week.

23:44But they blew past those expectations quite easily. and a lot of the companies making these branded products are actually doing relatively well which for consumer demand is is not a not a bad sign and their share's got a got a really big bounce so i think it is a very similar pattern um you know anything any kind of areas of weakness you take barclays for example their results were actually generally pretty good but there are a couple of areas that weren't quite as good as expected and their shares got punished for it michael we see so much interest in terms of the capex spending in terms of the ai and data center build out and one massive question is about whether europe can keep up what do you think we've learned from this earnings season about that um so europe doesn't have a lot of tech stock uh we have a few they're small um nothing compares with uh with the us uh but europe has a lot of uh adopters and they have a lot of enablers as well.

24:42ABB, for example, in Switzerland, Schneider in France, Prismian in Italy. Those companies, they are part of the AI ecosystem because they help building data centers, powering it, and they are actually very important. They have a know-how, which is almost unique. Prismian has a lot of contracts in the US, Schneider as well, ABB as well. so it's they're benefiting from this so we have a whole ecosystem of companies in Europe that are really benefiting from the hyperscaler spending, capex spending and we've seen into the earnings and those stocks they haven't done well in the past few days because there was a lot of unwind in the AI trade but we're seeing a rebound today and that's also typical because of results So our cut-breaths are coming in and guidance is coming in and it's very positive.

25:37In terms of the expectations for European companies, though, I mean, we are expecting to see very strong profit growth this year. How can companies deliver for the year overall as we think about the second half of this year and what we take from this earnings season for that year overall? So expectations are high and they're getting higher and higher. On the second quarter, we have like 11.5 % expected earnings growth year on year. And this number is going to keep growing over the next two quarters. And I think the last quarter of the year, there's like nearly 30 % year on year growth that is expected from European stocks.

26:18So there's a few things here. First, typically, expectations are meant to come down before the season. It wasn't the case this season because I think analysts were too pessimistic because of the war and they had downgraded way too much, way too quickly. And that has changed. So that's why they keep upgrading earnings now. And we see it with this earnings season. Companies are beating estimates. It's a broad beat. The earnings growth is coming in like more than 12%, 12.6 % at the moment. So higher than expectations. Beats are coming in. There's a lot of sectors that are surprising positively. Like Sam was saying, we're talking about Unilever.