Bloomberg Audio Studios, podcasts, radio, news. This is Bloomberg Daybreak Week and our global look at the top stories in the coming week from our daybreak anchors all around the world. Straight ahead on the program, a look ahead to some key inflation data in the US. I'm John Tucker in New York. I'm Caroline Hepker in London, where we're discussing the European Central Bank as it grapples with an uncertain inflation landscape. I'm Doug Krishner looking ahead to Constitution Day in South Korea and what it means for military hardware makers. That's all straight ahead on Bloomberg Daybreak Weekend. On Bloomberg 1130 New York, Bloomberg 99.1 Washington DC, Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on BloombergRadio.com and the Bloomberg Business App. Hi, everybody. I'm John Tucker, and let's start today's program with some key inflation data in the U.S. We're going to get Consumer Price Index information for the month of June on Tuesday, and also producer prices that comes on Wednesday. And for more on how this data may impact Fed Policy. We're joined by Stuart Paul, the U.S. economist with Bloomberg Economics. Thanks for stopping by today. Appreciate it. Should I be more concerned about inflation or the job markets, the two mandates for the Federal Reserve? Well, the Fed is going to be more concerned about inflation. But fortunately for the Fed, we're going to have a decline in the monthly headline CPI reading when we get the June CPI report. Why is that? Well, gasoline prices fell about 9% during the month of June. You haven't been to my gas station. Well, already now that we're moving through the month of July, now that we're seeing the end of the ceasefire and some re-escalation in the Middle East, yes, as we go forward, we will see a little bit of additional headline inflation pressures. But for this June CPI report, the headline is going to tick down just a little bit. The core, I expect to be pretty... Core is, just to explain it for everybody again, core is you strip out the stuff that's volatile. That's right. So the core inflation measure strips out food and energy. Those are things that have prices that are determined in global markets and that are subject to a lot of factors that are far beyond the Fed's control, including things like war, things like the weather even, weather weighing on food prices or affecting food prices. So oftentimes the Fed will look to the core as more of a sign of underlying price pressures. The core is going to be a little bit more tame. It's still going to be positive, unlike the headline. Headline is going to decline. Core is going to be showing about 0.2% month on month, in part because of the World Cup affecting prices for things like leisure and hospitality, food services and accommodations. But we're also going to see some core pressures coming from core goods, in particular those things that are subject to the chip shortage, appliances and electronics, for example. Kevin Warns, the new Fed chair, he's got a different set of metrics that he goes by. He's also formed a bunch of committees to give him some sort of idea of how changes should be made within the Fed. How much is that going to impact Federal Reserve policy going forward? I think, if anything, it's just going to lead to a little bit of can kicking. The Fed is going to be waiting on some of the output from these five task forces that Kevin Warsh has convened. Yes, Kevin Warsh does look at some of the official statistics with a skeptical eye. And in part, that's for good reason. Shelter inflation is really lagging. So the disinflation we're seeing in shelter isn't showing up as materially in the statistics as it is in the real economy. And so I could understand why he wants to convene these task forces to look a little bit more critically about what's going on in the real economy. But for policymakers, it probably just means that they're going to be waiting on some additional ideas from these task forces and keeping any sort of change in the policy rate on a hold, probably through year end. All right. So what's the betting right now from the markets on what the Federal Reserve is going to do? And maybe you can just parenthetically another question. How accurate is that betting historically? Well, right now, financial markets are pricing in a hike well before the end of the year. That pricing swings pretty drastically. So I'm hesitant to put too much weight on market pricing. My job as an economist is always to look for where the market might be wrong. And I think that if anything, the market is over anticipating a hike before year end. Right now, we have relatively a little labor market dynamism. We don't have any sort of inflation pressures coming from the job market, from wages, from income. That's really what the Fed would fear. Instead, we sort of have these price pressures coming from somewhat idiosyncratic factors like airfares, which we'll see in the PPI, from financial services prices. We'll see that in the PPI on Wednesday from the chip shortage. Now, the Fed's a little bit concerned about that one. We saw that in the minutes just last week. And other than that, we're seeing a little bit of inflation pressures in the core for things that are affected by the World Cup. So I think the markets are getting a little bit too far ahead of themselves and expecting that hike before year-end. I expect the Fed to remain on hold through the end of the year. All right, thanks to Stuart Paul, U.S. economist with Bloomberg Economics. And let's take a look now at some of the stocks making news in the week ahead. I'm John Tucker, and I'm joined by Matthew Griffin, the Bloomberg equities reporter. New earnings season already. Tuesday, we start with Fortress Diamond. JPMorgan Chase is reporting earnings results, opening their books to investors. What are you looking out for? Well, the question for JPMorgan, when they report along with several other banks, is going to be a microcosm of the questions everyone has about the broader market. Analysts expect strong earnings for the bank, but will that be enough for investors? The average estimate is for trading revenue of more than $10 billion. That's a little lower than the record haul in the first quarter. It's about 15% growth year over year. They expect adjusted earnings per share to grow to more than $5.60. A lot of tailwinds there. Geopolitical volatility can be good for trading. The revival in IPOs is good for investment banking. But if you look at what Baird is saying about the banks group right now, they say, we expect solid results, but the group is priced for it. We don't want to chase this stock right now. And there are likely to be a lot of companies in this position. So as you say, the things to look for, trading revenues should remain historically elevated. And also the investment banking looks to stay resilient despite what we'll call market volatility. Let's move on to the next one you're taking a look at. United Airlines. They opened their books to investors on Wednesday. Remember that old joke, how to become a millionaire? Well, first become a billionaire and then buy an airline. Yes, and airlines have had a beginning of the year that might remind investors of that joke. Of course, this stock plunged during the Iran War along with the rest of the group. Then, when an explosive rally as tensions de-escalated up more than 50% from late May to the end of last month, the question now that Wall Street is asking is, okay, crude prices have come down. What's going to happen to ticket prices for these airlines? Are they going to be able to hang on to some of the increases? And so, of course, earnings for the most recent quarter are going to be important. analysts are looking for $1.84 a share, excluding some items. But especially any forecast for the third quarter is going to be important. That's where these questions about pricing might show up. And expectations there are a lot higher. Wall Street looking for $3.59 a share. Now, Citi expects airlines to beat consensus across the board. And they say United is one of the ones that might get rewarded for this. They're talking about that guidance there. They say, you know, these major airlines in the U.S., they weathered the shock well from the war. So that means investors are likely to want to return to the stock if they get any upside. And here's my big insight. Airlines use a lot of fuel, jet fuel, and that's been expensive. The increase in fares that they had, did that more than make up for the rising cost of jet fuel? It is likely that it hasn't entirely made up for it yet. United said that they expected roughly half of the increase in fuel costs to be accounted for by higher fares in the most recent quarter. We'll see what they say about that. However and they were making these comments when the Iran conflict was much closer to the front of mind for investors Even then they were saying that by the third quarter they expected that to climb closer to making up all of that gap So again we haven gotten an update from the company in a couple of months on this, and that's something investors are likely to be watching for. And then Netflix, they're going to report on Thursday, that stock is down, what, something like 16% since the start of the year. I've got to wonder if this company is losing some of its mojo? Well, yes, this is a stock that really hasn't worked and one that is dogged by a lot of questions right now about its own financials and also about disruption from AI. That's something that our colleagues over at Bloomberg Intelligence have focused on. Will people watch AI-generated entertainment instead of Netflix's offers? Well, I can just imagine what that's going to be like, AI-generated entertainment. Yes, I'm sure it'll be real high-quality stuff. But people love short-form video. OpenAI's Sora didn't catch on, but we'll see what happens. So this is maybe an underrated AI loser. We talk a lot about these software names. For Netflix, though, in this quarter, investors are going to be looking for anything that could spark a turnaround. Analysts expect results about in line with their guidance. So that's revenue of $12.57 billion and earnings per share of 78 cents. That was a guide that disappointed investors when the company gave it. So what they'll want to know now is whether Netflix was being conservative there. Is there a potential upside? That being said, when the questions are big like this, AI disruption, whether the World Cup is going to affect viewership. So I don't even think about that. FIFA drew away viewers from Netflix? We don't know yet. That's something that, again, Bloomberg Intelligence, though, has raised as a potential issue for investors. And, of course, World Cup underway now, so maybe the company will speak to that. So the stock here has gone in the opposite direction of a lot of the market. But the question's kind of the same. Even if Netflix beats expectations, is that going to be enough here? How much pricing power do they still enjoy at Netflix? Well, they have raised prices recently while also introducing some of these lower priced options such as ad supported tiers. So it seems like their strategy has been to exercise pricing power with consumers who are willing to pay while also trying to keep everyone else on board. However, consumers have a lot of other options now. So investors' minds are constantly on whether each individual price increase is going to be the final straw. Make my own AI content to compete with Netflix. Matt, thanks a lot. Our thanks to Matthew Griffin, Bloomberg Equities reporter with us today. And just to end on Bloomberg Daybreak Weekend, we're going to talk about the European Central Bank as it grapples with an uncertain inflation landscape. I'm John Tucker, and this is Bloomberg. 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 John Tucker in New York. Up later in the program, we look to South Korea, where Constitution Day will be celebrated in the week ahead. But first, in the coming days, we're going to get the latest set of data for the European Central Bank before it gears up for its July meeting. With inflation fears on the rise again, and as conflict returns to the Middle East, how will policymakers navigate the situation? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor, Caroline Hepker. John, ECB policymakers were unanimous in backing last month's 25 basis point hike as they saw surging oil prices spreading throughout the economy. But then the Iran peace deal and surprisingly sharp slowdown in inflation sowed division over what to do next. Fast forward to now and fresh comments from President Trump have renewed concerns that fighting could again raise oil prices and drive inflation up. At the recent NATO summit, the president said that he thought the ceasefire with Iran was over and a waste of time. The US launched fresh strikes on the country and revoked a waiver that allowed the sale of Iranian oil. Any rebound, though, in energy prices will reinforce expectations that the US Federal Reserve may keep interest rates higher for longer. Recent Fed Minutes revealed that a few officials saw a case for a rate hike in June. Speaking to Bloomberg recently at the Aix-en-Provence economic conference, The ECB governing council member Emmanuel Moulin referenced data showing that inflation had eased with the slump in oil prices. But that uncertain backdrop means a complicated picture for ECB officials. Peter Kinsella is head of investment services for the UK at Union Bancaire Privé, and he discussed the outlook that now looks in flux. The big shift, really, I think that we've seen in the, I would say, basically in the FOMC, going voting, you know, nine members vote, you know, not voting, but bringing their red expectation on the dot plot for a 25-bit rate hike this year. It basically suggests that the, I would say, the overall momentum on the FOMC is veering towards a rate hike this year, which was a big shift in January, I think. And clearly, you've seen the market interpretation. I think that also reflects what we've seen overnight and in previous days with the oil price and the latest attack on Iran. And really, I suppose the market is now saying, OK, it's really veering towards really, really meaningfully pricing and rate hike this year. OK. And we were talking with Trevor Greetham in the last part of the programme about whether that is the thing that will be needed to burst any bubble, if you identify bubbles as being present in these markets at the moment, Peter. I mean, is that the way we're thinking about Fed rate hikes right now? Not that that will be the driver, but that that would be the thing that would stop. I would say no, if I'm frank. It depends whether you believe we're in a bubble or not, which is a different discussion. But I think given that the market is only priced in one rate hike, if you look further out the curve, we've not really priced in an awful lot. So the market's kind of saying, right, one and done. I think in order to cause real pain for the equity market, you would have to price in a series of further rate hikes, which at present doesn't seem to be the case. That was Peter Kinsella, Head of Investment Services for the UK at Union Bancaire Privé, speaking there to Bloomberg's Vonnie Quinn. Joining me now for more on the challenge facing the ECB is Bloomberg's economics reporter, William Horobin, and our senior reporter covering the ECB, Jana Randall. Welcome to both of you. Jana, the ECB's next decision on borrowing costs is on the 23rd of July. We have a few more days. What do you think is the mood, though, given this uncertain backdrop among ECB officials now? Oh, they are definitely more concerned than they were maybe a week ago. That essentially all has to do with Trump and it all has to do with oil prices because they decided to hike rates in June. Everything was in a way on track. Then the ceasefire happened. Peace negotiations seemed to progress. And, you know, with that backdrop, they had maybe eased a little bit of the real, you know, panic levels, if you want, and were a bit more confident that the worst of the Iran shock may have already been over. But now, really, it's all back on. They are worried that inflation will stick above 2% for longer. They are concerned about second round effects. And, you know, additional rate hikes are very much on the agenda. William where do you think that leaves us in the run-up to the all-important July meeting? Just going back to what Yana said about how quickly things are changing for these central bankers it's a you know a few days is a long time in monetary policy these days in Aix-en-Provence in France last week there was this sort of a Davos in the sunshine in France and it's usually a very very hot and stressful place to be, but everyone was actually very relaxed, including Fidgen's central bankers. I remember Nalgal was even making jokes about football rather than speaking about policy. And the French central bankers said that, you know, the ECB was now in a good position because things were so much calmer in Iran. But as Jana says, that's changed dramatically once again this week. And so towards the July meeting, though, you asked, it probably won't change that much because they're very data dependent. I think they prefer to take decisions when they have more forecasts and more information. Yeah, absolutely. I mean, William, what do you think about September then? And I think it's sort of an important moment to take the temperature for central bankers, as you say, and for the ECB in particular, because there has been quite a bit of movement in recent days around the expectations for rate hikes in Europe because of these moves in the Middle East, the moves on oil prices and what that means for inflation So what the thinking now about September What been interesting in the last few days is that the oil prices have bounced back up a bit but not the sort of dramatic lids we had earlier. But pricing for market expectations for a move in September have shifted back up and looking about 80% now chance that the DCP will hike again in September. But, you know, I think we have to be very cautious about that because the situation is so volatile. The markets are moving almost, you know, from hour to hour, depending on what Trump says. And so I expect that, you know, the central bankers will remain cautious and keep saying that they are very much data dependent, even as everyone else starts to think that September is probably more of a live meeting. Iana, what do you think about September then? And also, as you say, William, that Trump can change the trajectory quite quickly. I mean, we saw Brent crude jump more than 6% higher over just two days, just after President Trump's NATO comments and those further strikes. Jana, what do you think about the path for rates? And perhaps it is September that markets will be most focused on? It looks very likely that the ECB will raise rates again after the summer in September. And that essentially has to do with the fact that as long as the conflict keeps going on, that means oil prices will remain elevated. That means trade will be disrupted because we don't know how shipping through the Strait of Hormuz is going to play out. And all that translates into inflation risks for the eurozone. And, you know, higher for longer on the inflation side, it translates into uncertainty and potentially consumers and businesses raising inflation expectations as well. So the longer this conflict lasts, the more likely we will see also second round effects when, you know, for example, workers ask for more pay because prices are higher. And that has the ECB concerned. And that would all speak in favour of another rate hike. William, what do you think the ECB is looking at most closely then? If we say data dependent, what are we thinking about as policymakers are trying to navigate, you know, quite difficult circumstances now? The key risk that they're looking for is second round effects. So whether this starts turning up in whether the increased price pressures start turning up in wage demands. They're also watching very closely for core inflation. So services in particular to see if the indirect effects are spreading more than they might have anticipated. And even within, you know, some economists say even within like services inflation, they should be looking at the kind of services that are just adjacent to energy and might move up very quickly, like, I don't know, airline tickets, but could also come down very quickly. But then other services like business services that would be stickier. So they really have to pick through the data very, very carefully. Here in France, the central bank does a survey of business pricing. So they'll be looking at small bits of data like that. But so far, you know, that indicates, sure, businesses are raising prices, but not as much as they did in 2022. Yeah, that's the Bank of France data to come, isn't it, in the next few days. Well, William, I think it's also at moments like this that there's quite a lot of chatter about whether central banks will end up making policy errors. And there's a bit of focus on that. I mean, the ECB was the first of the group of seven central banks to raise rates at the start of the Iran war. So I'm sure there'll be lots of focus also on making sure that each step is the right one and the worry about policy error. To avoid sort of accusations of policy error, what the ECB probably wants to do is avoid giving any forward guidance, because the more they give guidance, the more markets adjust. And then if something happens quickly, then they're sort of locked into something that they didn't. You know, when the circumstances change, it's harder to avoid making a policy error if you've already guided in one direction. Yeah, it also comes, of course, when in the next few days, the new, still fairly new Federal Reserve Chair Kevin Walsh is scheduled to give his first semi-annual monetary policy testimony before Congress. In terms of any read-across, Jana, out of the Fed and into maybe this new world of central banking where we get slightly less forward guidance and less information from the Federal Reserve, is there a read-across into the ECB or at least are ECB policymakers thinking about that and watching it? I mean, where they agree is certainly on not offering any forward guidance, because Will was right to point out they burned their fingers in the past. You know, 2022 jumps to mind. And really, you know, what should they be guiding toward when they don't know what's happening themselves? But where things may be slightly different is that Kevin Walsh believes in letting the market do its thing in a way and then cross-checking by the end of the policy meeting whether policymakers and the market agree. So he seems to, at least to me, to build a little bit of movement, volatility into the whole operation. Whereas the ECB is very clear at explaining how it will take decisions, on which basis it will take decisions. The president, Christine Lagarde, she described that at the Sintra conference not too long ago as framework guidance. And that's essentially explaining the reaction function. So, you know, the market, the policymakers, they're looking at the same set of information, the same data, the same input. And the market knows extremely well how policymakers will interpret those data. Yeah, absolutely. Jana, thank you. That was Bloomberg's senior reporter covering the ECB, Jana Randau, and Bloomberg's economics reporter, William Horobin. Thank you to both of you. I'm Caroline Hepker here in London. 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. John. Thanks, Caroline. And coming up on Bloomberg Daybreak Weekend, a look ahead to Constitution Day in South Korea. I'm John Tucker, and this is Bloomberg. This is Bloomberg Daybreak Weekend, our global look ahead of the top stories for investors in the coming week. I'm John Tucker in New York. We go to South Korea next, where Constitution Day will be celebrated in the week ahead. And for a closer look at what this national holiday represents. Let's turn to Doug Krisner, host of the Bloomberg Daybreak Asia podcast. Thanks, John. Constitution Day commemorates the legal framework for the Republic of Korea. It was proclaimed on July 17th, 1948, in a moment that set the stage for South Korea's governance and its national security during the Cold War. After the Second World War, the Republic of Korea was liberated from Japanese colonial rule, and the Korean Peninsula was divided along the 38th parallel into Soviet and American occupation zones. Now, these days, South Korea's national security is rooted in the strong defense alliance with the U.S., primarily as a deterrence against North Korea. And at the same time, South Korea has expanded its security partnership with NATO as a major non-member ally. And these dynamics have contributed to a still growing defense industry in South Korea. For a closer look at what's happening on the ground, let's bring in Bloomberg's Kat Barton. She is our bureau chief in Seoul. Thank you so much for being here. I want to begin by kind of going back to a recent ceremony in Seoul, highlighting the importance of the defense industry and at the same time honoring some of the workers for their contributions. Maybe it's a good way to help us get into the sense of size of the overall defense industry in South Korea and the areas in which it operates. It's an increasingly important part of the economy. I mean, if you've looked at the COSPI over the last couple of years, you've seen some absolutely exponential growth there. And most of that is due to SK Hynix and Samsung. It's all an AI play. But the other bright spot is defense. And that's been kind of supercharged this year, actually, especially since obviously the Iran war. South Korea's government is super keen on growing the industry. They've targeted a number four position globally. And it's an industry that kind of really complements a lot of what is going on, unfortunately, conflict wise globally at the moment, because they're very good in areas that have come into play, for example, with Ukraine in Europe. They've sold a lot of tanks to Poland, for example, recently. Their howitzers are increasingly in demand And then also this year we seen huge growth in demand in the Middle East for interceptors So South Korea makes something that very akin to a U Patriot missile but is a lot cheaper and they can produce them a lot quicker So that has been something that they've seen a lot of interest from Middle Eastern governments. So I'm glad you brought up the issue of the memory chip makers, because we have seen recently how the government in Seoul has become involved, increasingly involved in helping names like SK Hynix and Samsung add capacity to their production of memory chips. How is the government disposed when it comes to adding capacity in the defense industries? They are proactive. The industry here is dominated by what we call Chable, which are these family run companies. So they're huge conglomerates that control most of the production line. So the government has really been strongly backing them because you have to remember, South Korea remains technically at war, right? So the conflict with nuclear-armed North Korea, which ended in the 1950s, it ended in an armistice, not a treaty, not a peace treaty. So the government remains technically in a state of war. So these huge defense companies are not only part of a kind of growing export strategy, but they're integral to South Korea's own defense. They have to be making tanks, howitzers, ammunition, developing new fighter jets, because they're constantly locked in this state of conflict with Kim Jong-un in the north, who has, you know, frequently threatened to wipe out Seoul and reduce it to rubble. So there's a lot of government backing. And the government obviously recognizes that strategically, if they can keep the industry going, it's also a huge asset export wise. They see opportunity globally, and they are really trying to help these chaebol firms capitalize on it. So we know that North Korea cat is a nuclear power. Seoul doesn't operate in this space. It's been reliant on the U.S. security umbrella. But I'm wondering whether the mood is changing a bit and whether Seoul might feel the need to develop more within the nuclear space. Is that possible? The U.S. security umbrella is crucial to South Korean defense. And the government here has said repeatedly, the president has said they do not want their own nuclear weapons. Lee Jae-myung said it a couple of weeks ago, they really have emphasized that they feel, you know, they're committed to nuclear non-proliferation. They don't want to become like a rogue state akin to North Korea by developing their own nuclear weapons. However, obviously there are growing voices here that suggest they should at least look at this option. And what they have been doing, and they have talked to US President Donald Trump about, is developing their own nuclear-powered submarine. So that's not a nuclear armed submarine, but they have the technology to build it. They're talking to the U.S. and that project is moving forward. And that would be a huge step up for their naval defenses, because at the moment they have, you know, very sophisticated diesel powered submarines, but not a nuclear powered one. And that's their next goal. I'm so glad you brought up the submarines because recently South Korea missed out on a chance to build 12 subs for the Canadian Navy. That contract went to Germany's ThyssenKrupp Marine Systems. But I'm wondering when you look at areas like ship building, submarine building, whether that represents a big opportunity for the global market, particularly Europe. It definitely is. And it was a big blow to the South Korean side to miss out on that Canadian contract. I think obviously they went for the NATO partner. But even when the president and the companies came out afterwards, they emphasized the whole bidding process had been a huge learning experience. And it shows the fact that they were even being considered neck and neck with Germany shows how far the industry has come, right? it's made huge strides in recent years that they are up there as a top global partner. And there were analysts that we spoke to afterwards saying, yes, obviously, you know, maybe security partnership wise, Germany makes sense. But realistically, South Korea would have been a better choice because they can do it more quickly. They have more capacity. You know, they build a really good product more cheaply and more reliably. And I think that's certainly why, you know, President Trump has talked about, you know, huge cooperation in shipbuilding with South Korea. It's a key part of the $350 billion trade deal that they struck with the US to avoid tariffs was shipbuilding, the idea of the South Korean shipbuilding companies coming to help rebuild and regenerate kind of, you know, the Philadelphia shipyards and that kind of thing. But I think in terms of defense, they missed out on that recent contract. But for the South Korean side, that's just, you know, a blip in the road, and it's not going to put them off. They're going for more contracts and they very much see this as a global opportunity. So we've touched on, let's call it the addressable market for exports of defense hardware, but let's go back to the threat from North Korea, whether we're talking nuclear missiles or cyber as being kind of the primary driver for a lot of what's happening in the defense industry in the South. I'm trying to get a sense of the appetite for more domestic military spending right now and how people, how the citizens in South Korea would feel about that? South Korea has mandatory military service. They also have a demographic crisis. They have very few babies globally. So they are looking at a lot of options in terms of how they protect themselves moving forward. All men under 30 have to serve 18 months in the military. And there is, you know, widespread support for that. I think obviously everyone who lives in Seoul recognizes that you're 60 kilometers from the border and that North Korea is not to be trusted. In terms of defense spending, the government is looking at moving into kind of newer areas. They've talked recently a lot about robotics, whether they could turn to robots to start helping with this demographic decline, the anticipated fall off in the number of enlistments in future. And they're also looking very much at drones because you have to remember North Korea became the only third party in the world to kind of intervene directly in the Ukraine conflict. It sent troops to help Russia fight Ukraine, and it has sent tens of thousands of container loads of weapons, mostly cheap low-end ammunition, to help the Russian military. By some estimates, by Ukrainian estimates, they're providing kind of 30%, 40% of the ammunition that Russia is using, right? So that's coming from Kim Jong-un's stockpiles. So I think in terms of, you know, South Korea's looking at this, they're looking at what has North Korea learned from that involvement in Ukraine. And obviously, they now have some battle-hardened KPA troops, Korean People's Army troops. And they also have a lot of understanding of drone warfare, which is not something that South Korea itself has ever experienced in a combat situation. But the North Korean soldiers have been there in Ukraine, fighting, or not in Ukraine, they're fighting in Russian territory, but have been fighting alongside Russian soldiers and seen this modern drone warfare. So I think the South Korean military is looking at heavy investments in drones, in unmanned UAVs, and they're looking at, yeah, also robotics, what they can do in that space to counter these kind of huge strides that North Korea has taken as a result of their military relationship with Russia. I'm wondering about the tension that still exists between South Korea and Japan after the Second World War. some of those issues have yet to be resolved. And I'm wondering about the level of cooperation when it comes to areas within the defense industries between South Korea and Japan, and whether Japan could be in some way a customer for some of the hardware that South Korea produces. There is obviously lingering tension. It was a quite lengthy period of quite brutal colonial occupation for the Korean Peninsula under the Japanese. And both sides, Tokyo and and Seoul have made huge strides recently to bury that historical hatchet. Relations are very good. I think if you look at areas, for example, like the monitoring of North Korean missile launches, the US, South Korea, and Japan have very integrated intelligence sharing. They monitor missile launches in real time. They really coordinate in that kind of sphere very well. I think there are other areas where there's kind of lingering historical sensitivities. For example, I know that Japanese participation in some of the joint U.S.-South Korean military drills sometimes is a bit tricky. For example, their military flies the rising sun flag, which I think is very sensitive in South Korea. There are people here who get a bit sensitive seeing that flying because it's still associated with the colonial period. But in terms of them being a customer, I mean, I think Japan is also looking to ramp up their own domestic industry. industry, right? But they're definitely behind South Korea just because of the South Korean have this unique circumstance with North Korea where they've had to just maintain themselves at a certain level of readiness ahead of other regional countries. So I certainly think with relations between Seoul and Tokyo being better than they've been in decades, I don't see why the Japanese couldn't be turning to South Korea potentially in future as a source of supply on things that they can't themselves build as quickly as they might like. Kat, we'll leave it there. Thank you so very much. Bloomberg's Kat Barton, our Bureau Chief in Seoul. I'm Doug Krisner. You can catch us weekdays here for the Daybreak Asia podcast. It's available wherever you get your podcast. John. All right. Thanks, Doug. And that does it for this edition of Bloomberg Daybreak Weekend. Join us again Monday morning at 5 a.m. Wall Street time for the latest on markets overseas and the news you need to start your day. I'm John Tucker. 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