Daybreak Weekend: US Jobs, Germany Elections, South Korea Inflation

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1:42Bloomberg 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 ahead to August jobs numbers in the U.S. I'm Nathan Hager in Washington. I'm Caroline Hepco in London, where we're looking ahead to the state elections in Eastern Germany, what it could mean for the rest of Europe. I'm Doug Krizner, looking at whether the reading on South Korean inflation will point to another rate hike from to be okay. 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.

2:42Good day to you. I'm Nathan Hager. We begin today's program with some key economic data in the U.S. Non-farm payrolls for the month of August are due out this Friday, 8.30 a.m. Wall Street time, as it is the first Friday of every month. And for more on how this month's numbers could affect Fed policy, we are very pleased to be joined by Edward Harrison, senior strategist for Bloomberg News and author of the Everything Risk newsletter. Ed, what's the risk of the kind of negative surprise that we saw from the July non-farm payrolls print? I think the risk is relatively high, Nathan, because of the temporary protected status workers who have now left the payrolls.

3:25I think that that's the big question. How many of those workers were working under temporary protected status? And what does that mean for non-foreign payrolls? It could actually be such a large number in the hundreds of thousands that you see a negative number for the next month as well as last month. You're talking about the impact of tighter immigration policy on this labor market. Is that part of what we've been seeing in the overall trend when it comes to labor market growth of this low hire, low fire environment? It definitely is. I mean, there are two factors that come together. One, as an economy tightens and gets closer to full employment, you naturally have fewer opportunities.

4:17You know, the massive gains that you have at the beginning of a cycle just aren't there at the end of a business cycle or in the middle of it. Then secondarily, you see in the United States in particular recently that we've tightened immigration policy in a way that will mean nonfarm payrolls are closer to zero on average than they were before. meaning that you can get these negative numbers and it's not necessarily a sign that the economy is weak in the way that it would have been when we had a large growth of immigration. The case of the Haitian workers who have lost temporary protected status in particular, that is an encapsulation of that immigration policy in a very single month.

5:07And that's why this particular number is volatile and could surprise to the downside. Is that the main factor at play here? Is it immigration policy? What other factors could potentially be at play here when it comes to what we could say? I think there are some benchmark revisions that are coming into play. So that's going to muddy the water somewhat. And then you also have the participation rate, which has been going down as baby boomers age. And so that also plays a factor. So there are multiple factors. But I think just because of how quickly the status change happened, that will probably be the main factor.

5:50And I would say that the benchmark revisions are going to be the secondary factor. And then sort of trend factors add on to that. There's been a lot of talk as well about whether artificial intelligence is having an impact on the labor market as well. Are you starting to see that come into play? You know, I haven't really seen that come into play in particular because it's not clear whether or not that's a positive or a negative factor. There's been such a huge boom in artificial intelligence related positions that it could be a positive factor there, but then taking away potentially in displacements that we're starting to see pop up as a negative factor.

6:32and therefore it's not clear if the trend is net positive or net negative at this point. So is it your base case then that when we get those numbers on Friday that we are going to see a negative print? I think my base case is that we're going to see a very close to zero print and it could be negative. I think that that's not going to be reflected per se in the unemployment number, which is 4.1 % presently presently and is projected to be 4.1 % for the coming month. But it will be a demonstrably negative effect on nonfarm payrolls, and that could, it makes the chance very high that the number could be negative again.

7:17Thank you, Ed. As always, good to get you on before a Jobs Friday. That's Ed Harrison, senior strategist for Bloomberg News and the 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, joined by Bloomberg Equities reporter Matthew Griffin. So we're kind of at the tail end of the earnings parade, but we've got some pretty big names reporting this week, including Palo Alto Networks out with its results on Tuesday. Where's the bar for Palo Alto after the strong results we got from CrowdStrike when it comes to cybersecurity, Matthew?

7:53Well, Nathan, the bar is pretty high. I was looking at analysts' expectations for Palo Alto, that's ticker P-A-N-W, and they're looking for about 30 % year-over-year revenue growth. This comes as all of these cyber names are now considered AI beneficiaries. Companies are spending more on cybersecurity because they're worried about things like this trend of models hacking companies like Anthropik's decision not to even release the Claude Mythos 5 model to the general public because of its cyber capabilities. And it's really remarkable what's happened in the stock market as a result. The first couple months of this year, these were considered AI disruption candidates.

8:39They were SaaSpocalypse names, and they all traded down as a result. Now they have rallied. And so my question would be, what is the buy side looking for here? The valuation has spiked above 90 times forward earnings. Those are levels not seen in more than a decade. So I am wondering what will be enough for investors here. Yeah, I mean, that's a really good point, given that since the start of the year, we've already seen just Palo Alto alone nearly double its stock market value. I mean, you have to wonder whether there is further upside from here. Yes. I mean, with AI, you look at what's happened to a lot of the AI winners.

9:20You can never discount it. But we have seen some of the names, for example, some of the chip names moderating their own share growth in recent months. And so the question, I guess, would be, when will that happen for the cyber names? Absolutely. We're going to hear from another one of those names, at least in the tech space, on Wednesday when we get results from Broadcom after that day's closing bell. Another AI bellwether after the blowout outlook we saw from NVIDIA this past week. Can we expect something similar from Broadcom, do you think? Well, the real question here is, what is Broadcom going to say about whether they see blowout revenue in the future.

10:05So the bar for this company, that's ticker AVGO, for their key revenue stream, the AI chip revenue, is not necessarily that high in terms of analyst expectations for this quarter. It's about in line with their$16 billion outlook for the quarter. But for next year, analysts are expecting revenue from AI chips of about$120 billion. That would imply six-fold growth over two years compared to the last full year we have numbers for. And so Citi says that 2027 outlook or commentary or anything we get from the company is going to be really important. The quarterly outlook for that revenue stream really disappointed investors when they gave it in June.

10:53The stock fell 13 % in a day. So we'll see if this report can reignite optimism. We could also learn more about their sales deals with major AI players or these chip financing deals. Our colleagues have reported the companies in talks with lenders to raise more than$60 billion in debt for a deal that would benefit Anthropic and other companies. And investors are going to be eager to hear if there are any developments on that front. Yeah, absolutely. And given what we heard, like I said, from NVIDIA just this past week about how much revenue they expect to get from the still continuing AI demand here, I guess I wonder whether it's one of those rising tides that lifts all boats kind of situation that could benefit for Broadcom.

11:35Is that kind of what analysts are thinking right now? It's what Wall Street is hoping. Broadcom has positioned itself as a key competitor to NVIDIA, but NVIDIA is still the market leader. And so we do go into these reports wondering how much they will benefit from the rising tide. That positioning, though, as a key competitor, it does mean this report will tell us a lot about the broader AI infrastructure complex. So anything that confirms that bullish outlook from NVIDIA, which was for about 70 % revenue growth in the next fiscal year, that would be a positive. And it would start offsetting some of the concerns about the AI trade that are growing.

12:18We're seeing falling token prices that complicates the return on investment question. And something I've been reporting on a lot is these regulatory concerns, the public pushback to data centers and what that can mean for AI infrastructure spending. Along with the chip names, we're also going to hear from a retail name, the athleisure company, Lululemon, on Thursday. It feels like the turnaround just keeps waiting for Lululemon, Matthew. Yes, Nathan. And this stock, ticker LULU, it really is a case of low expectations this quarter. Analysts are expecting revenue to just barely grow, to be up about 1%.

13:00But even clearing that bar is not guaranteed. I mean, we could list a lot of headwinds facing this company, increased competition from companies like Vori, product launch issues like the see-through leggings, criticism from their founder, Chip Wilson. And then there's the question of how much credit investors are going to give anything that they say about those issues this quarter because they have a new CEO, Heidi O 'Neill, taking over next month. That could change the narrative. It could change the strategy. Maybe it will finally put that turnaround into effect. One thing that I am going to be interested to see from this company is what they say about tariff refunds.

13:39they have spent a lot on tariffs. It's been a key cost bucket. They've said they're applying for refunds, but that they didn't factor that into guidance. So that could be a source of upside to consensus here if those refunds come through. Maybe not high quality, durable upside, but something that would help investors as they wait for a broader rebound in their sales. All right. I really appreciate this, Matthew. Thanks for coming on with us. That's Bloomberg Equities reporter Matthew Griffin. And coming up on Bloomberg Daybreak weekend, we will look ahead to state elections in Eastern Germany.

14:11I'm Nathan Hager, and this is Bloomberg.

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15:00Visit otcmarkets.com slash moon. Moon ATS is operated by OTC Link LLC, a FINRA-registered broker-dealer. Some 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.

15:41Put 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. As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit Bloomberg.com slash podcast offer to learn more. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Up later in the program, we'll look ahead to some key economic data in South Korea.

16:21But first, in the coming days, voters head to the polls for state elections in eastern Germany. The far-right alternative for Germany party is set to put in a strong performance in the industry-heavy state of Saxony-Anhalt. So what could the vote mean for Germany's future, its politics, its economy, and for the rest of Europe? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Nathan, you might be wondering why regional elections in Germany could change the outlook for European politics, while the far-right AfD party, the alternative for Deutschland, is comfortably ahead in the polls for the Saxony-Anhalt election in the next few days.

17:01And if the AfD wins, it would see the far-right gain control of a German state government for the first time since the Second World War. A strong showing for the anti-immigration party could further complicate policymaking for Chancellor Friedrich Mertz's flagging government coalition. Debates are live in Europe's largest economy around migration, the war in Ukraine and the cost of living. And to make matters worse for Chancellor Mertz, one of the key automakers in the country, the industrial giant Volkswagen, says that Germany will have to shoulder tens of thousands of additional job cuts. That's bad news for regional economic disparity and for Mertz's CDU party ahead of this vote.

17:52Here is Bloomberg's industrials reporter, Will Wilkes. For workers and maybe more for the German state, this is an urgent problem for them. The German state is already part of Volkswagen through Lower Saxony and what the German state wants is the best possible outcome for jobs. Obviously, German politics is very heated up at the moment. There's a regional election coming up where the far right might make a major breakthrough. And what the German government really wants to see is solutions found for workers that does not kind of heat up politics anymore. That was Bloomberg's Industrials reporter Will Wilkes there.

18:28Chancellor Mertz says that he can spearhead a German economic recovery, saying that it has the potential to exceed 1 % GDP growth next year. But what do voters in Saxony and Holt think? Joining us now is Kamil Kowalczyk, who is our German finance and economy ministry reporter, who also covers AFD, the party, and Jenny Tier, who is our deputy bureau chief in Germany. Welcome to both of you and thank you for speaking to us. Jenny, can I start with you? First of all, why do these state elections in Germany actually matter? for German politics and for the future of the country. Yeah, they matter because they'll send a strong signal to the government in Berlin and Chancellor Merz, basically saying, we don't like what you're doing and we feel neglected.

19:21So if the far right really wins, that means getting an absolute majority and actually being in executive power, then this would be historical for Germany and definitely send shockwaves to the government in Berlin And yeah, the pressure will definitely increase then. And that's going to be a problem for an already quite fragile coalition there. Yeah. So maybe a protest vote in some senses, a big signal to the government in Berlin. Kamel, tell us about AFD's controversial, it must be said, candidate Ulrich Sigmund in terms of why he's important as a figurehead and the issues that he's been campaigning on.

20:05So Ulrich Sigmund, the AfD's top candidate, he's also the AfD's, you could say, more approachable faith, right? He's young, he's charismatic, he's highly effective on social media as well. And he doesn't look or sound radical, which makes him also an option for voters who might otherwise hesitate to support a far-right party. But in terms of policies, he's quite in line with the federal AFD. He campaigns for tougher immigration controls, more deportations, polls the support for Ukraine, saying that it's at the expense of German taxpayers, while also calling for rebuilding relations with Russia.

20:46What does the polling look like at the moment currently in the last few days? The AFD is far ahead. They're at around 42%. So it's like 20 percentage points in front of the Mertz conservatives. So it looks like they're going to win. The only question is if it's going to be an outright majority. Jenny, what does the polling look like for Friedrich Mertz's CDU? And why has Mertz shown sort of difficulty? Why do you think that there is this popularity, it would seem, for the AfD? Yeah, I think a lot of people are quite frustrated, which is also showing in the national polling numbers. The AFD is ahead, I think, eight to nine percentage points of the conservatives.

21:34And this is obviously a problem for Metz and his coalition. I think one of the root causes on the one hand is the German economy been stagnating for quite a while, pretty sluggish growth. and also there's a lot of insecurity because especially in the industry sector in the car industry which is a lot of pressure from China and tens of thousands of jobs are in danger so people are not really certain about their future and this is what kind of draws them of course to seemingly easy solutions and populism from either side. So yeah I think this is why the government is really looking to the east and hoping for the best.

22:19Yeah. Kamil, AFD supporters oppose also more aid to Ukraine and they maybe think that the money should be spent on domestic issues. How important is that issue to think about in the motivation of voters, the Russia-Ukraine issue? It's quite important. It's quite a polarizing issue, like migration, or it has become a quite polarizing issue. The AFD or Siegmund, they use Ukraine as a symbol of a government that finds money for international commitments while local schools, roads, and hospitals in Germany deteriorate. So he draws on a kind of East German grievance, the belief that the former East has been neglected by Berlin.

23:05And the message also draws on a stronger pro-Russian sentiment in parts of Eastern Germany. Also concerns about energy prices and the deep distrust of the political establishment in Berlin. So a lot of maybe some concerns also in different attitudes maybe towards Russia. Having said that, Germany's counterintelligence have warned of a Russia-linked influence campaign on these elections. So that also remains something of an issue of whether that influence campaign is going to deliver some results. That's true. German intelligence has warned about Russia-linked disinformation campaigns, but currently there's no evidence that the election itself will not be free or fair.

23:49So it's true, it's taking place in a rather manipulated and hostile information environment. And that's all like Russia's broader hybrid war strategy, right? Like weakening trust in democratic institutions and helping parties that are maybe less critical of Moscow. and social media makes of course all those campaigns more effective but yeah as you know Germany is not the lone facings problem it's other European democracies and especially the United States are confronted with a similar problem right yeah absolutely then to a thought about what in Germany is called the firewall do you think that that cracks in Germany this is the idea that other political parties won't work with the AFD even if they are elected you know that that has happened in the past, do you think that that is eroded if the AFD does particularly well at a regional level?

24:43I don't expect the firewall to fall. I expect it to remain at least formally in place after the election. But an AFD win would definitely put it under enormous pressure, especially if the party falls just short of an outright majority and they need the governing partner because then the whole discussion about the firewall and this could trigger a serious debate inside the conservatives over whether this refusal to cooperate with the AFD is still sustainable and if the strategy which MADS put in place has already failed. So the pressure, especially on merits, would be particularly intense because those are parts of the conservatives are ideologically closer to the AFD than the Social Democrats or the Greens are.

25:30There might There will also be some CDU lawmakers who jump ship and join AFD. Yeah, yeah. And of course, there are two tests, aren't there, coming up. There's the election in Saxony-Anhalt, which is on the 6th of September, and then there's another regional vote on the 20th of September. Jenny, let me bring you in then. What do you think an AFD victory would mean, not just for Germany, but also for Europe and for the far right and this sort of whole process? So if the AfD wins, the government will be under increasing amount of pressure and also specifically Merz. And he will be basically fighting for his political survival.

26:11And of course, his focus then will probably shift more to the domestic side. And because Merz is a very strong supporter of Ukraine, this may have an effect on basically the EU's support of Ukraine, because if they lose Germany as a supporter, then of course, I'm going to have a huge problem. And in general, I think people will be, especially, of course, Germany's neighbor will be very suspicious, because they might think, okay, have the Germans forgotten their history? Because the AFD is saying, well, let's move on. Let's not remember or what's happened in the past. You know, we're different people now.

26:53Let's move on. And I think the majority of the Germans still very much remember the history. We have a huge so-called Erinnerungskultur, the remembrance culture here in Germany, where the Nazi past is definitely a huge part of our education and people know about it and are aware about it. But of course, as a German neighbor, I can definitely understand if some of Germany's neighbors I'm not feeling particularly good about these kind of developments. Well, we'll leave it there. Kamil Kowalczyk, our German finance and economy ministry reporter, and Jenny Thier, our deputy bureau chief in Germany.

27:33Thank you for your thoughts. I'm Caroline Hepke. You can catch us every weekday morning here for Bloomberg Daybreak Europe, beginning at 6 a.m. in London. That's 1 a.m. on Wall Street. Nathan. Thanks, Caroline. And coming up on Bloomberg Daybreak weekend, we look ahead to some key inflation data in South Korea. I'm Nathan Hager, and this is Bloomberg.