>> THIS IS "BLOOMBERG
SURVEILLANCE: EARLY EDITION" WITH FRANCINE LACQUA. TOM:
GOOD MORNING. HERE'S WHAT'S COMING UP ON
TODAY'S PROGRAM. ASML FORECASTS
BETTER-THAN-EXPECTED AS ORDER INTENT LAGS. IN THE U.S.
WERE WITH MORGAN STANLEY EARNINGS AFTER THE TRADING BOOM.
U.K. INFLATION STAYS ABOVE 10%,
CEMENTING BETS THE BANK OF ENGLAND WILL HIKE AT ITS
MEETING IN MAY. PLUS THE CHIEF EXECUTIVE OF
UNICREDIT JOINS US IN CONVERSATION AT THE NEW ECONOMY
GATEWAY EUROPE. LET'S CHECK IN ON THESE MARKETS
THEN. ACROSS EUROPEAN EQUITIES. THE COMMENTARY FROM FED
OFFICIALS AND THE DATA COMING THROUGH FROM THE U.K.
ON THE PAIN OF INFLATION. EUROPEAN STOCKS DOWN.
JAMES BULLARD SAYING HE WANTS TO SEE POTENTIALLY 575 IN TERMS
OF THE TERMINAL RATE FROM THE FED.
THEY ARE CURRENTLY THE TOP AT 5%. THAT IS A QUESTION MAY BE BEING
POSED ACROSS THE MARKETS. WE CONTINUE OF COURSE TO FOCUS
ON BANK EARNINGS. MORE DETAIL ON THAT FOR YOU.
YIELDS MOVING HIGHER. THAT'S THE IMPACT ACROSS THE
TECHNOLOGY SECTOR. FIVE BASIS POINT MOVE HIGHER.
EVEN MORE AGGRESSIVE AND WE WILL TOUCH ON THOSE IN THE NEXT
COUPLE OF SECONDS. FALLING 1% OVER CONCERNS ABOUT
RECESSION RISKS AS INFLATION RIDES STICKIER. REALLY CEMENT VIEWS HIKES WILL
HAVE TO COME THROUGH HIGHER FOR LONGER AS WELL.
A BIG MOVE IN TERMS OF THE POUND VERSUS U.S.
DOLLAR AND EURO. ALSO REPRICING AROUND
EXPECTATIONS. LET'S REMIND OURSELVES WE ARE
IN A DIFFERENT CATEGORY IN THE U.K..
WE REMAIN IN A DOUBLE-DIGIT COUNT.
IT'S NOT THE SAME IN THE U.S. WITH CPI AT 5%.
WE ARE THE OUTLIER IN THE U.K.. REPRICING WHAT'S ALREADY BEEN
AN AGGRESSIVE RESPONSE. EXPECTATIONS FROM MAY AND JUNE.
MARKET STARTING TO PRICE IN 5%. THERE FLATTENING HIGHER BY 12
BASIS POINTS. THE 10 YEAR, 382. -- 3.82.
A BIG WEEK FOR EARNINGS. NETFLIX WITH SUBS THE
DISAPPOINTED. THEN PRICING STARTED TO CHANGE
ON THE UPDATED OUTLOOK. THE 12% DROP PREMARKET DOWN
6/10 OF A PERCENT. THE OUTLOOK LOOKING A LITTLE
BIT MORE POSITIVE. A LOT OF IT WILL BE CONTINGENT
ON THE HOPES THE PASSWORD CRACKDOWN WILL PAY DIVIDENDS IN
TERMS OF GETTING MORE PEOPLE ONTO THE STREAMING PLATFORM. NETFLIX PAIRING SIGNIFICANTLY
AFTER THOSE RESULTS. LET'S GET TO BANKING. GOLDMAN SACHS FAILING TO
CAPITALIZE ON WALL STREET FAILED TO GENERATE LAST QUARTER.
FIXED INCOME TRADERS BEAT HEALTHILY ESTIMATES IN THEIR
FIRST-QUARTER QUARTER EARNINGS. CHARLIE, SET THE SCENE IN TERMS
OF GOLDMAN SACHS CHALLENGES. >> IT'S ONE OF THE MOST
DRAMATIC AND PERHAPS SURPRISING EARNINGS SEASONS FOR WALL
STREET BANKS IN A -- IN A LONG TIME NOW. IN THE FIRST QUARTER, THEY WERE
THE ONLY WALL STREET BANK THAT REPORTED A DROP IN THAT
DIVISION. ANOTHER SURPRISE ON THE UPSIDE.
A 30% GROWTH IN THE FIXED INCOME TRADING.
THAT'S A GOOD NEWS -- THAT'S GOOD NEWS FOR THE CEO OF BANK
OF AMERICA. THIS EARNINGS SEASON HAS POSED A LOT OF UNEXPECTED CHANGES
FOLLOWING THAT MARCH WITH U.S. BANKS. FRANCINE: WERT -- TOM:
MORGAN STANLEY COMING THROUGH LATER.
WILL THEY FALL IN THE GOLDMAN CATEGORY OR BANK OF AMERICA
CATEGORY? >> MORGAN STANLEY'S SHARE PRICE
IS UP 6%. WHEN YOU LOOK AT THE FINANCIAL
AND EXITS DOWN 3%. SO IT IS IN GOOD STANDING WITH
INVESTORS. MORGAN STANLEY FOCUSES MORE ON
EQUITIES TRADING AS OPPOSED TO FIXED INCOME SO THAT MAY NOT
BODE QUITE SO WELL. WE KNOW TRADING IN EQUITIES FOR
THE INDUSTRY AT LARGE IS UP -- IS DOWN. I'M FOCUSED ON WEALTH
MANAGEMENT. IT'S MADE MORGAN STANLEY A
DARLING OF INVESTORS. HAVING A PIVOT TO THAT AND
GETTING THAT FEE WHEN MARKETS ARE GOOD OR BAD. TOM:
THEY WERE WELL AHEAD OF THE CURVE. THE LIKES OF MORGAN STANLEY
BUILDING THAT BUSINESS. WE DON'T NORMALLY CARE ABOUT
REGIONAL BANKS IN THE U.S. BUT GIVEN WHAT'S HAPPENED, WE
DO THIS TIME. >> WE SAW AS MUCH AS 20% OF
INCREASE IN SHARE PRICE FOR WESTERN ALLIANCE, A
PHOENIX-BASED BANK. THESE BANKS WERE AT THE CENTER
OF THAT MARGIN MADNESS LAST MONTH WHEN THERE WERE CONCERNS
ABOUT DEPOSITS. DEPOSITS CAME INTO FOCUS
YESTERDAY. THEY HAD SEEN AN INCREASE FROM
MARCH 20 TO APRIL 14. THEY SAW IN INFLOW $3 BILLION.
THAT WAS REASSURING FOR MARKETS. TOM:
OBVIOUSLY DOING SOMETHING RIGHT TO REASSURE THEIR CLIENTS.
THE RESILIENCE WE ARE SEEING FOR NOW ACROSS SOME REGIONAL
LENDERS. TENSIONS IN THE FINANCIAL
SECTOR. SUPPLY BOTTLENECKS AND ENERGY
PRICES WELL, THEY HAVE ALL EASED.
THAT'S THE VIEW OF THE ECB CHIEF ECONOMIST WHO SAYS --
SAYS ANOTHER RATE HIKE IN MAY. SPEAKING AT THE CONFERENCE IN
IRELAND. >> Q1 SUGGESTS WE ARE SEEING A
REVERSAL OF THE NEGATIVE SUPPLY SHOCKS THAT SO DOMINATED THE
EUROPEAN ECONOMY SO EATING OF BOTTLENECKS.
WHAT I WOULD SAY IS AS OF NOW, TWO WEEKS AWAY I THINK THE
BASELINE IS WE SHOULD INDEED INCREASE INTEREST RATES IN MAY.
TOM: THE ECB'S CHIEF ECONOMIST ON
THE EXPECTATION THAT WE GET ANOTHER RATE HIKE FROM THE ECB.
AT A TIME WHEN MARKETS ARE PRICING IN ANOTHER HIKE NOT
JUST IN MAY BUT ALSO JUNE. WE ARE CURRENTLY AT 4.25 ON THE
BANK OF ENGLUND RATE ON THE MOVES AND THE NEED TO ADDRESS
THE DOUBLE-DIGIT INFLATION. LET'S CAR OFF -- CROSS TO
LEIGH-ANN GERRANS. >> FOX NEWS HAS AGREED TO PAY
OVER THREE QUARTERS OF A BILLION DOLLARS TO SETTLE A
DEFAMATION LAWSUIT OVER ITS COVERAGE OF THE 2020
PRESIDENTIAL ELECTION. DOMINION VOTING SYSTEMS ACCUSED
THE U.S. TV NETWORK OF AIRING BOGUS
CLAIMS THAT IT RIGGED THE ELECTION AGAINST DONALD TRUMP.
FOX ARGUED THAT ITS BROADCASTS ARE PROTECTED AS FREE SPEECH
UNDER THE FIRST AMENDMENT. THE SETTLEMENT, ABOUT HALF OF
WHAT DOMINION WAS SEEKING, AVOIDS A POTENTIALLY
EMBARRASSING SIX-WEEK TRIAL FOR FOX. THE STREAMING GIANT ADDED 1.7 5
MILLION NEW CUSTOMERS IN THE FIRST QUARTER, MISSING WALL
STREET ESTIMATES FOR ABOUT 2.4 MILLION.
NETFLIX ANNOUNCED ITS SHUTTING DOWN DVD DELIVERY OPTION
SHUTTING DOWN THE ORIGINAL BUSINESS AFTER 25 YEAR RUN.
GLOBAL NEWS POWERED BY MORE THAN 2700 JOURNALISTS AND
ANALYSTS IN OVER 120 COUNTRIES. I'M LEIGH-ANN GERRANS, THIS IS
BLOOMBERG. TOM: THAT'S THE HEADLINE FOR ME.
I DID NOT KNOW THEY WERE STILL IN THAT.
25 YEARS LATER, THERE THEY GO. LET'S CROSSOVER NOW TO WHAT'S
HAPPENING IN IRELAND. BLOOMBERG HOSTING THE INAUGURAL
EUROPE CONFERENCE. FRANCINE LACQUA JOINS US LIVE
FROM THE FORUM IN IRELAND. FRANCINE:
WE ARE QUITE EXCITED TO BE HERE, IT'S THE FIRST ECONOMY
GATEWAY. WE USUALLY HOSTESS IN SINGAPORE.
WE DECIDED TO FOCUS ON TRADE AND WE HAVE A GREAT
CONVERSATION ON BANKING, NOT ONLY THE SWISS BANKING TURMOIL
FOR EUROPEAN BANKING BUT HOW THEY CAN SERVICE THEIR CLIENTS
ACROSS THE BOARD. ERIK SCHATZKER WILL ALSO SPEAK
TO THE CHIEF EXECUTIVE OFFICER OF UNICREDIT.
ONE OF THE LARGEST BANKS NOT ONLY IN ITALY, BUT EUROPE.
HE WAS ALSO NUMBER TWO AT UBS. INTERESTING ANY THOUGHTS HE HAS
ON THE MERGER BETWEEN UBS AND CREDIT SUISSE. LATER ON WE FOCUS ON THE
AIRLINES, LOOKING -- VERY MUCH LOOKING FORWARD TO LOOKING --
HEARING FROM MICHAEL O'LEARY TO SEE NOT ONLY WHAT HE THINKS
FOREIGN DIRECT INVESTMENT LOOKS LIKE ON THE BACK OF THE BACK OF
U.S. PRESIDENT SHOWING UP LAST WEEK
BUT THEN WE WILL ALSO HEAR FROM THE FORMER BA CHIEF EXECUTIVE.
TOM: THE RYANAIR CEO IS SO QUIET.
LET'S BRACE OURSELVES. HE IS OFTEN FIERY.
THAT'S GOOD TO BE A LOT OF FUN. FRANCINE:
LAST TIME WE SPOKE HE SAID HE WAS SURPRISED -- HE SURPRISED
PASSENGERS BY GOING TO THE GATE AND CHECKING THEM IN. IT IS NEVER DULL AND I KNOW
HE'S DOING A CONVERSATION ON BREXIT.
HE NEVER HOLDS BACK WHEN HE TALKS ABOUT BREXIT.
INTERESTING TO KNOW WHAT HE SAYS ABOUT THAT. >> YOU'VE ALSO BEEN TALKING
HEALTH CARE, SUPPLY CHAINS WHAT'S HAPPENING WITH VACCINE
MAKERS. WHAT HAS STOOD OUT TO YOU AS WE
EDGE IN TO THE BEGINNING OF THIS EVENT? FRANCINE: WHEN YOU LOOK AT GLOBAL SUPPLY
CHAINS, SHE'S WORRIED IN HER FIELD WHICH IS HEALTH CARE AND
BIOFARMA THAT IS GEOPOLITICS, AS WE HAVE MORE TO MASTIC
EMPLOYED TO GET SUPPLY CHAINS BACK HOME BUT ALL OF THIS
GLOBALIZATION RUPTURES. WHAT THIS MEANS FOR THE
PRUSSIANS OF VACCINES BUT ALSO HOW YOU SHIP THEM ACROSS THE
WORLD COULD HAVE YOU JIM PUT FOR THE INDUSTRY.
INTERESTING TO GET HER THOUGHTS ON THE INFLATION REDUCTION ACT.
WE SPENT A BIT OF TIME SPEAKING HERE WITH CHIEF EXECUTIVE THE
FINANCIAL FIRMS ABOUT NOT ONLY THE DEBT CEILING IN THE U.S.
BUT WHAT THAT MEANS FOR MARKETS AND THE LONGER-TERM IMPLICATION.
THIS IS IRELAND. IF YOU LOOKING HOW MUCH
INVESTMENT THEY'VE ATTRACTED, 70% OF THAT IS FROM U.S.
INVESTORS. DOES THAT GO BACK TO THE U.S..
THEY ARE TRYING TO DO EVERYTHING WHEN IT COMES TO
CLIMATE CHANGE, RESEARCH AND DEVELOPMENT. THESE ARE THE GOOD CONVERSATIONS WE ARE HOPING TO
HAVE IN IRELAND. >> LOTS TO WORK THROUGH IN
TERMS OF THE BIG TOPICS OF THE DAY BRING WE WILL BE CROSSING
BACK IN THE NEXT COUPLE MINUTES. LET'S GET A CHECK ON TAZ LOVE.
AS FORECAST THEY HAVE CUT PRICES AGAIN.
SECOND TIME THIS YEAR IN THE U.S..
WE'RE TALKING MODEL THREE AND MODEL WHY BRADEN -- AND MODEL Y.
PREPARING TO SACRIFICE ITS MARGINS ON THE ALTAR OF MARKET
SHARE. ON THE MODELY -- MODEL Y
LOOKING AT A DROP TO JUST BELOW 50,000 U.S. DOLLARS.
THE MARGINS WILL BE SQUEEZED ON THE HAT -- ON THE BACK OF THIS
IT'S ABOUT MAINTAINING AND EXPANDING MARKET SHARE.
OTHERS HAVING TO RESPOND WITH THEIR OWN PRICE CUTS.
CURRENTLY DOWN 1.6% PREMARKET. LET'S CHECK BACK IN ON NETFLIX
AS WELL. AFTER THE RESULTS CAME OUT WE
SAW A DROP OF ABOUT 12% AND THEN THE EXECUTIVES WHERE THEY
LAID OUT A SCENARIO WHERE THINGS WOULD IMPROVE. THE EXPECTATION FOR NETFLIX AS
THEY CRACKDOWN ON PASSWORD SHARING.
THERE FOR -- THEY THINK IS ABOUT 100 MILLION PEOPLE WHO DO
NOT PAY FOR ACCESS TO THE SERVICES, THEY THINK THEY WILL
GET THOSE SUBS BACK UP AND THEN YOU SAW THAT BIG PAIRING DOWN
ON NETFLIX. THE CONTEXT IS YOU SAW A SHARP
DROP AFTER THE RESULTS. A LITTLE BIT OF COMFORT IN
TERMS OF THE FORWARD GUIDANCE. CHECKING ONTO THE BIG CORPORATE
STORIES. MORGAN STANLEY UP LATER TODAY. PARTICULARLY FOCUSING ON THE
FIXED INCOME PART OF THAT BUSINESS AFTER THE
DISAPPOINTMENT OF GOLDMAN SACHS. REPORTING LOWER-THAN-EXPECTED.
THE STREAMING GIANT SAYS IT'S EXPECTING GROWTH IN THE SECOND
HALF OF THE YEAR. SOME TECH ANALYSTS SAY THEY SHOULD STOP FOCUSING ON -- >>
IF WE START TO SEE THAT CONTINUE ROLLING IN ON A
REVENUE BASIS. ADVERTISING BECOMES AN
IMPORTANT REVENUE. I THINK YOU HAVE TO DROP JUST
SUBSCRIPTIONS BECAUSE IT'S GOING TO CHANGE THE OVERALL
PICTURE FROM A REVENUE PERSPECTIVE FOR THEM.
PEOPLE WILL STILL LOOK AT IT FOR THE NEXT COUPLE OF
QUARTERS, BUT BY THIS TIME NEXT YEAR FOR SURE IT WILL BE
REVENUE. >> THE FACT WE ARE IN A YEAR WE
ARE PREPARING AGAINST SOME COVERT IMPACT IN DIFFERENT
PARTS OF THE WORLD. I WOULD SAY WE NEED TO STOP
FOCUSING ON SUBSCRIPTION GROWTH AND FOCUS ON CASH FLOW GROWTH.
FRANCINE: SOME COMMENT -- TOM:
SOME COMMENTARY THERE ON THOSE NETFLIX EARNINGS. DISCUSSIONS AT THE NEW ECONOMY
GATEWAY. ERIK SCHATZKER SPEAKING TO
ANDREA AT THE FORUM. WE WILL BE CROSSING OVER ON
STAGE, IMPORTANT IN TERMS OF THE CONVERSATIONS ON THE
BANKING SPACE IN EUROPE. WE WILL BE HEARING FROM THE CEO.
IN TERMS OF THE BANKING STRESS. CREDIT CONDITIONS OF COURSE THE
LOAN REQUIREMENTS AND TO WHAT EXTENT THIS IS HOLDING UP IN
THIS ENVIRONMENT. IT'S WORTH CHECKING IN THE
MARKETS AT THIS POINT. TO POINT OUT EUROPEAN STOCKS
ARE DOWN 4/10 OF 1% IS MISSING THE STORY AT THE MOMENT WHICH
IS REPRICING YOU K ASSETS ON THE BACK OF DOUBLE DIGIT
INFLATION. BRIEFLY LET'S CHECK IN ON GILTS
LOOKING AT A MOVE HIGHER IN TERMS OF YIELDS ON THE FRONT
END. THE TWO-YEAR YEAR, 381. LOOK AT THAT BEAR FLATTENING.
THE POUND WE WILL HAVE A LOOK THERE AS WELL. EURO VERSUS U.S.
DOLLAR. DOUBLE-DIGIT INFLATION REMAINS
THE STORY. IT'S NOT THE STORY IN THE EURO
ZONE. IT IS THE STORY HERE. THEIR POLITICAL CONSEQUENCES
AND THE RESPONSE FROM THE BANK OF ENGLAND AS MARKETS PRICE IN
RATE HIKES NOT JUST IN MAY BUT ALSO IN JUNE.
THE RATE HERE IS AT 4.25. MARKETS EXPECTING GETTING TO 5%.
HOW MUCH DAMAGE DOES THAT BRING TO BEAR ON THE U.K.
ECONOMY AND WHAT DOES IT MEAN FOR THE GOVERNMENT OF RISHI
SUNAK. GAINING 2/10 OF A PERCENT.
THEY HAVE A TARGET WE ARE MOVING IN THAT DIRECTION.
LET'S CROSS BACK TO FRANCINE ON THE GROUND JUST OUTSIDE OF
DUBLIN AHEAD OF THIS. FRANCINE:
LOOKING FORWARD TO HEARING ERIK SCHATZKER IN CONVERSATION.
THIS WOULD BE THE FIRST TIME YOU HEAR FROM HIM SINCE THE
BANKING CRISIS. I THINK SOME OF THE THINGS THAT
ERIC WILL TRY AND GET OUT OF HIM IS HOW HE LIVED THROUGH THE
MONTH OF MARCH. GLOBAL CHIEF EXECUTIVE BUT
BASED IN ITALY MEANS YOU'RE CLOSER TO THE BANKING CRISIS IN
SWITZERLAND. WHAT DID IT FEEL LIKE WHEN SVB
WALKED DOWN THAT FRIDAY NIGHT. WAS HE TRYING TO FOLLOW WHAT'S
HAPPENING IN THE U.S. IN TERMS OF DEPOSIT GUARANTEES
BECAUSE THAT HAS A HUGE READ ACROSS FOR THE EUROPEAN BANKS.
INTERESTING TO ALSO SEE WHETHER THE FACT NOW SWITZERLAND HAS
ONLY ONE MAJOR BANK WITH ESSENTIALLY CUTTING OFF SOME
OTHER INVESTMENT BANKS. WHETHER IT MEANS EUROPE.
I KNOW THIS WAS PREVIOUSLY WHEN HE WAS AT UBS.
THAT EUROPE WOULD HAVE INVESTMENT BANK STRONG ENOUGH
TO RIVAL SOME WALL STREET TITANS.
IF YOU LOOK AT THE CONTEXT. JP MORGAN WITH SOME INCREDIBLE
RESULTS. MORGAN STANLEY DOING PRETTY
WELL. THE CONSOLIDATION OF CREDIT
SUISSE AND UBS WHERE DOES IT LEAVE EUROPEAN BANK DO WE NEED
A NATIONAL CHAMPION AND REGIONAL NATIONAL CHAMPION TO
TRY AND SERVICE SOME OF THE CLIENTS SO THAT IT TAKES MARKET
SHARE FROM THAT. JUST IN GENERAL, WHERE HE SEES
INTEREST RATES AND WHAT THAT MEANS FOR HIS BUSINESS MODEL
AND DEPOSITS. WE SAW WE WERE TALKING ABOUT
THIS YESTERDAY, THE FACT APPLE HAS THIS NEW DEAL WHERE THEY
WILL GET FOUR POINT 15% ON DEPOSITS.
HOW DOES THAT CHANGE EUROPEAN BANKS. -- 4.15% ON DEPOSITS.
HOW DOES THAT CHANGE EUROPEAN BANKS. >> LET'S SEE IF HE PUT SOME OF
THOSE TO THE CHIEF EXECUTIVE. WITH LISTENING TO THE FORUM. -- LESS -- LET'S LISTEN IN TO
THE FORUM. >> GOOD TO SEE YOU HERE. I'M GOING TO REMIND YOU THAT
JUST SIX WEEKS AGO IT SEEMED LIKE THE WORLD WAS BARRELING
HEADLONG INTO ANOTHER BANKING CRISIS. THERE WAS A REAL SENSE OF
PANIC, AND HISTORIC FLIGHT TO SAFETY IN THE TREASURY MARKET. I WANT TO KNOW WHAT WAS IT LIKE RUNNING A BANK AND WORRYING IF
THIS WASN'T 2008 ALL OVER AGAIN. >> I THINK WHEN YOU SEE SHOCKS
LIKE THIS ONE AT THE SAME TIME YOU QUESTION WHETHER YOUR
MISSING ANYTHING. AND THEN YOU REVIEW EVERYTHING
AND SAY CAN IT HAPPEN TO ME AND WHAT'S DIFFERENT.
I THINK THE CONCLUSION IS THAT THESE WERE ISOLATED CASES. . THEY HIGHLIGHT THAT REGULATION
NEEDS TO BE APPLIED CONSISTENTLY.
ACROSS NOT ONLY BANKS PUT THERE -- OF VARIOUS SIZES BUT ALSO
FINANCIAL INTERMEDIARIES. AND YOU DO NOT NEED TO STOP BUT
ALSO LOOK AT THE PRINCIPLES OF BACKING THOSE RULES AND SEEING
WHETHER INSTITUTIONS ARE MANAGED IN THE WAY THEY SHOULD
BE MANAGED. THAT'S THE KEY QUESTION OF THE
END OF THE DAY. WE STILL HAVE A KNEE-JERK
REACTION AND MORE RULES WHEN THE BANKS ESPECIALLY FOR
EUROPEANS HAVE BEEN SUBMITTED TO THOSE RULES ACTUALLY DO NOT
HAVE THOSE PROBLEMS. >> SILICON VALLEY BANK FAILED ON A
THURSDAY NIGHT. WITHIN A COUPLE OF DAYS CREDIT
SQUEEZE HAD BEEN FORCED INTO A SHOTGUN MARRIAGE WITH UBS.
HOW LONG AFTER THAT, SIGNATURE BANK ALSO FAILED THAT NIGHT.
HOW LONG DID IT TAKE BEFORE YOU FELL LIKE EVERYTHING IS GOING
TO BE OK. >> THERE IS A GENERAL QUESTION
ANY TIME THAT TRUST AND CONFIDENCE IN HIS SYSTEM THEN
YOU ARE WORRIED. BANKS ARE BUILT ON THE TRUST
AND CONFIDENCE. THAT FOR ME WAS THE KEY ISSUE.
IS THE BROADER MARKET TRIGGERING SITUATION. THE MARKET REACTION WAS
ACCEPTING THAT DIRECTION. BUT WHEN YOU LOOK AT THE ISSUES
THAT TRIGGERED THAT, U.S. LIQUIDITY, INTEREST RATE AND WE
JUST COULD NOT BE DOING THAT EVEN IF WE WANTED TO.
IT DOES NOT APPLY. WHAT APPLIES IS A READ ACROSS
AFFECT CONFIDENCE. LET'S SAY THAT WE WERE
CONVINCED IN THAT SOLID PETITION -- POSITION. WHEN WE WERE WORRIED ABOUT IS
THE CONTAGION BY THE LACK OF TRUST OF CONFIDENCE. I THINK THE ECB JUST KEEPING
ITS DIRECTION WITH RATE INCREASES NOT BLINKING,
AUTHORIZING US OF THAT SHARE BUYBACK FOR SHAREHOLDERS. KIND OF UNDERSCORED WITH FACTS
BY THE SITUATION. >> TODAY WITH A COUPLE OF
NOTABLE EXCEPTIONS IN THE U.S. IT ALMOST FEELS LIKE NOTHING
HAPPENED LAST WEEK. IS THE STORM REALLY OVER?
OR MIGHT THERE BE MORE TO COME? ANDREA:
WE DISCUSSED THIS RECENTLY. THINKING ABOUT GLOBALIZATION, I
THINK WE ARE CONTENT -- CHANGING THE RULES THAT HAVE
HELD FOR ALL OF OUR ECONOMIES AND POLITICS FOR THE LAST 50
YEARS. AND YOU ARE HAVING THE DEFINITION OF VALUE CHAIN, THE
REDEFINITION OF POLITICAL WEIGHTS.
REDEFINITION OF FRIENDS AND FOES.
INTEREST RATES FOR EUROPE NOT BEEN POSITIVE FOR 50 YEARS.
ENERGY PRICES ARE CHANGING. STRUCTURAL INFLATION IN THE
SYSTEM IS JUST NOT CREDIBLE THAT WERE NOT COULD HAVE
UNCERTAINTY AND SHOCK. I THINK WHAT HAS CHANGED IS YOU
MANAGE THE CENTRAL SCENARIO. WILL FEEL WERE BACK IN THE
CENTRAL SCENARIO BUT YOU NEED TO ANTICIPATE YOU'LL GET
DEVIATED BY ONE ISSUE OR ANOTHER.
AS LONG AS YOU'RE PREPARED FOR THAT THING -- AND YOU ACT
QUICKLY HOPEFULLY YOU WILL BE OK. FRANCINE: THANK -- ERIK: BANK REGULATORS IN THE UNITED
STATES AND SWITZERLAND SWOOPED IN WITH BACKSTOP FUNDING.
TO KEEP THE CRISIS CONTAINED. IT HAPPENED WITH THE SWISS
GOVERNMENT, OF THE SWISS NATIONAL BANK.
IT HAPPENED WITH THE FED AND FDIC. WE HAVE LEARNED GOVERNMENT
ACTION HAS UNINTENDED CONSEQUENCES.
SHOULD WE BE WORRIED ABOUT THE UNINTENDED CONSEQUENCES OF THIS
GOVERNMENT ACTION? ANDREA: I THINK WHEN YOU HAVE A BANK OF
SIZE AND CONFIDENCE GOES AWAY, THE FIRST THING TO GO IS
LIQUIDITY. WE FOCUS ON CAPITAL, BUT WHAT
FIRST GETS THE BANK TO GO IS LIQUIDITY.
PEOPLE WANTING CASH BACK NOW. SO FOR GOVERNMENT TO BACKSTOP
THAT AND SAY THAT'S NOT GOOD TO BE AN ISSUE IS NOT THE RIGHT
THING TO DO. AND THERE BE CONSEQUENCES, IT
DEPENDS. THE MOMENT CONFIDENCE AND TRUST
COMES BACK YOU NEED TO PULL BACK. OTHERWISE YOU CREATE ASYMMETRY
IN THE MARKET. IT WAS NECESSARY TO BE DONE.
THE MORE GENERAL QUESTION FOR US IS NOT ONLY A REMINDER THAT
BANKS AS ORGANIZATIONS THAT FULFILL A ROLE HAVE RISKS AND
YOU CANNOT ELIMINATE RISKS ALTOGETHER.
I READ A LOT OF TIMES WE NEED TO LIMITED THE RISK OF THE BANK.
YOU CANNOT DO NOT FULFILL THE ROLE THEY SHOULD BE AND YOU'RE
TRANSFERRING THOSE SOMEWHERE ELSE.
I DO THINK WHAT WE NEED TO ASK OURSELVES IS ESPECIALLY IN
EUROPE WE WANT THE BANKING SYSTEM TO DO.
AND THEN BASED ON THAT WOULD RULES AND REGULATIONS AND WHAT
WE NEED TO DO TO RUN THE BANKS. I DON'T THINK WE DO ENOUGH OF
THAT. WE DO A LOT MORE OF WHAT ADDITIONAL RULES TO A LIMITED
THE RISK RATHER THAN IF THERE NEEDS TO DO XYZ TO SUPPORT THE
ECONOMIES, WHAT ARE THE NECESSARY RULES AND REGULATION
TO SUPPORT THAT ROLE AND TO ENSURE ITS TO THE RIGHT WAY.
SINCE YOU'VE MENTIONED MORE THAN ONCE THE IMPORTANCE --
ERIK: SINCE YOU MENTIONED MORE THAN
ONCE THE IMPORTANCE OF TRUST AND THE RISK OF LOSING
LIQUIDITY IN THE SYSTEM. I WANT TO ASK YOU THIS.
IT APPEARS ONE OF THE OBVIOUS LESSONS OF THE FAILURE IN
PARTICULAR OF SILICON VALLEY BANK IS THE TODAY IN OUR
DIGITIZED WORLD DEPOSITS CAN VANISH INSTANTANEOUSLY. NOBODY'S TO STAND IN LINE TO
DEPOSIT CASH. AS A BANK CEO, DO YOU HAVE TO
THINK DIFFERENTLY ABOUT DEPOSITS NOW? ANDREA:
WHAT I THINK HAPPENS ESPECIALLY IN EUROPE IS THE STRUCTURE OF
THE MARKET IS DIFFERENT. WHEN YOU HAVE THIS SITUATION
PEOPLE ARE REMINDED THAT BANKS ARE NOT ALL THE SAME.
WITH A STRONG BANK AND LESS STRONG BANK.
THEREFORE YOU HAVE A FLOW OF DEPOSIT AND LIQUIDITY TOWARDS
STRONGER BANKS AWAY FROM WEAKER BANKS.
UNTIL YOU HAVE THOSE SHOCKS PEOPLE JUST PURSUE CONVENIENCE
HE AND THE PURSUE PRICING. THE MOMENT THEY HAVE A SHOCK.
WHAT THEY WANT IS -- THEREFORE IT'S A FLAT QUALITY YOU'RE
SEEING EVERY DAY. IT DEPENDS WHAT THE DEMAND --
DEVELOPMENT. SO DEPENDING ON WHERE WE ARE
BETWEEN BOLD AREA, ROMANIA, GERMANY.
BEHAVIOR IS VERY DIFFERENT. SOME PEOPLE ARE STILL ATTACHED
TO BRANCH AND LOCAL RELATIONSHIPS.
DEPOSITS ARE SEEN IN A DIFFERENT WAY TO OTHER PEOPLE
WHO PROBABLY ARE A LOT MORE DIGITALIZED.
THE USE OF DIGITAL CHALLENGE AND I COMPARE IT TO OTHER
REGIONS OF ITALY. HAVING 6% OF BRANCHES AND 11%
OF DEPOSITS. I DO THAT SAME THING IN SICILY
AND HAVE A COMPLETELY DIFFERENT RATIO.
I DO THINK IT'S NOT ONE SIZE FITS ALL.
JUST NEED TO FOLLOW THE CONSUMER OF THE CLIENT AND
SERVE THEM THE WAY THEY WANT TO BE SERVED. ERIK: THERE IS A MOVEMENT OF DEPOSITS
FROM INSTITUTIONS PEOPLE PERCEIVED TO BE WEAKER TO
INSTITUTIONS PEOPLE PERCEIVE TO BE STRONGER.
IT'S HAPPENING HERE AND IN THE UNITED STATES.
THAT HAS CONSEQUENCES DOESN'T IT?
IF YOU LOSE YOUR FUNDING BASE AND CANNOT ADJUST YOUR ASSETS
QUICKLY ENOUGH, YOU HAVE A PROBLEM.
AND THEN REGULATORS WILL HAVE A PROBLEM. ANDREA:
YOU DO, BUT IN PRACTICE THERE'S A QUESTION OF WHAT IS YOUR
STRUCTURAL VIEW, YOUR INTEREST-RATE RISK. ERIK:
I'M NOT SAYING YOU HAVE A PROBLEM. ANDREA:
THERE'S A LIMITATION ON WHAT WE CAN DO WITH INTEREST-RATE RISK
AND EVERYTHING IS FLOATING. I DO NOT RUN THIS MISMATCH. THAT IS PENALIZING BECAUSE I
DON'T GET THE BENEFIT ON MY INTEREST MARGIN.
BUT BY BEING CONSERVATIVE WHEN YOU HAVE A SHOCK LIKE THAT I
DON'T HAVE THE SAME ELEMENT OF ISSUES.
RULES BUT ALSO WHAT IS THE SPIRIT OF REGULATION AND IS THE
BANK RUNNING AWAY THAT IF YOU GET SHOCKED YOU CAN OBSERVE THE
RISK YOU'RE TAKING. SOMETIMES THE MERE APPLICATION
OF RULES IS NOT ENOUGH. ERIK: MY EDITOR-IN-CHIEF HAS ARGUED
THE LATEST ROUND OF BANK BAILOUTS SIGNALS A NEW ERA OF
WHAT THE FRENCH WILL CALL THE STATE CONTROLLED FINANCE. AND IF EUROPE WANTS A REAL
BANKING UNION IT HAS TO CONSIDER CROSS-BORDER MERGERS
TO CREATE CONTINENTAL CHAMPIONS. IS HE RIGHT? ANDREA:
WE TALK A LOT ABOUT BANKING UNION AND CAPITAL MARKET UNION
AND CROSS-BORDER M&A. ERIK: NONE OF THOSE THREE HAVE
HAPPENED. ANDREA: YOU WERE SAYING SUMMING ABOUT
THAT IN YOUR OPENING REMARK. WHAT DOES THE EUROPEAN UNION
WANT TO BE? WHAT DOES EUROPE WANT TO BE? EITHER WE WANT TO PURSUE THE
CONVERGENCE THAT WE STARTED WITH THE PROJECT.
WE HAVE A CLEAR MISSION ON SOME OF THE SOVEREIGNTY OF EACH OF
OUR STATE TO THE CENTER AND CREATE AN ECONOMIC BLOCK THAT
CAN BE AS STRONG AS THE U.S. AND CHINA.
I THINK GLOBALLY THERE WILL BE A BENEFIT FOR HAVING A THIRD
ECONOMIC BLOCK THAT CAN STAND AND AT THE SAME TIME IN THE
WESTERN WORLD IT'S A GOOD THING TO HAVE.
OR WE WILL CONTINUE TO SAY WE ARE ALL DIFFERENT AND SAY WE
HAVE A EUROPEAN UNION BUT WITH SO MANY EXCEPTIONS AND SO MANY
LIMITATIONS. IF WE ARE ALL FRAGMENTED, A
UNION OF WHAT? CAPITAL MARKET UNION.
IF WE ARE FRAGMENTED. IF I DON'T HAVE FREE-FLOWING OF
CAPITAL, LIQUIDITY, CLIENTS BECAUSE I DON'T HAVE A REAL
UNITED MARKET, WHAT IS THE BENEFIT OF CROSS-BORDER
ACQUISITION. I THINK THE KEY QUESTION IS DO
WE WANT TO POST-BREXIT BREXIT, POST THIS SHOCK REVIEW WHAT
EUROPE SHOULD BE AND CONVERGE TO THAT.
ALL THE OBJECTION WE HAVE OLD GO AWAY. OR WANTING TO REMAIN AS WE ARE,
A FEDERATION BUT NOT BEING ONE AND THEN SAYING I WANT THE
BANKING UNION AS WELL. ERIK: LET'S GET THIS STRAIGHT.
YOU ARE ASKING TO ME WHAT SOUNDS A GOOD RHETORICAL
QUESTION. IF EUROPE REALLY WANTS TO BE ON
EQUAL FOOTING WITH THE U.S. AND NORTH AMERICAN MARKET IN
CHINA IN ITS SPHERE OF INFLUENCE, IT CAN'T JUST BE A
MONETARY UNION, IT HAS TO BE A FISCAL UNION, A BANKING UNION.
ANDREA: IT DEFINITELY HAS TO GO FURTHER. IF YOU LOOK AT EUROPEAN
POPULATION, EDUCATION, INNOVATION. GDP POTENTIAL, IT HAS ALL THE
INGREDIENTS TO BE ON PAR OR UP IN THE MIDDLE OF THIS ECONOMIC
BLOCK. WE NEVER ARE. IN A VERY SMALL WAY IT'S A
MICROCOSM OF THE 13 BANK, 13 MARKET LARGE FRAGMENTATION
COMPLEXITY. ALL YOU HAVE IS FRAGMENTATION
OF COMPLEXITY. ERIK: SO WHAT ROLE DOES UNICREDIT
PLAY? ARE YOU A CONSOLIDATOR IN THIS
MARKET? ANDREA: MY PREDECESSOR BELIEVED IN A
UNITED EUROPE AND BUILDING CREDIT WITH THE BENEFIT OF
HINDSIGHT. SAYING IT DOES NOT WORK BECAUSE
IT'S COMPLEX AND FRAGMENTED. IN OUR MISSION STATEMENT WE
WANT TO BE A BANK FOR EUROPE BECAUSE WE ARE HIGHLY DEPENDENT
ON EUROPE. THAT WOULD CREATE AN IMMENSE
OPPORTUNITY FOR UNICREDIT. UNICREDIT CANNOT BECOME A
PAN-EUROPEAN BANK. IF THE EUROPEAN UNION IS
FRAGMENTED. ERIK: IN OTHER WORDS ARE YOU TELLING
ME YOU NOT TO GO OUT AND BUY ANYTHING IN ANY OF THE
COUNTRIES IN WHICH YOU CURRENTLY HAVE A FOOTPRINT. IN GERMANY, ITALY, OR ANY OF
THE OTHER COUNTRIES IN EUROPE IN WHICH YOU DON’'T HAVE A
FOOTPRINT UNTIL THERE IS MOVEMENT ON THE BANKING UNION.
ANDREA: AT THE MOMENT THE INCENTIVE TO
DO, DAY. OTHER BANKS ARE LOCAL IN THREE,
OTHERS ARE LOCAL IN ONE. ONCE YOU CROSS THE BORDER IF
YOU DO NOT HAVE A UNIFIED MARKET, THAT FREE-FLOWING
CAPITAL, LIQUIDITY, YOUR SYNERGIES PLUMMET AND IT'S VERY
LIMITED. ERIK: PEOPLE HERE HAVE A FEW
QUESTIONS ABOUT THE ECONOMY AS THEY SHOULD.
BANK BALANCE SHEETS ARE SUPPOSED TO BE ONE OF THE CHIEF
TRANSMISSION MECHANISMS FOR MONETARY POLICY.
HERE IN EUROPE AS YOU'VE ALLUDED , THE ECB IS STILL
TRYING MIGHTILY TO SLOW INFLATION.
ARE YOU TIGHTENING ACCESS? ANDREA:
YOU GO BACK TO WHAT IS THE BROADER PICTURE.
WHAT SHOULD THE BANK BE DOING. IF BANKS ARE TRANSMISSION
MECHANISM, AND THEY ARE. AND IF CAPITAL MARKETS ARE
UNDERDEVELOPED AS THEY ARE. WHAT EVER MONETARY POLICY WE
WANT TO HAVE OR ECONOMIC POLICY YOU NEED TO USE BANKS. IF YOU PROVIDE MORE LIQUIDITY
BUT RESTRICTS THE BANKS FROM MULTIPLYING IT.
THEN YOU ARE WORKING AGAINST YOURSELF.
AT THE MOMENT REGULATION OBJECTIVES ARE NOT ALIGNED. BECAUSE THE REGULATION IS TO
MAKE BANKS STRONG, AND NOT TAKE RISK, ETC..
WHEN YOU HAVE COVID WHAT ARE YOU DOING. YOU ARE FLEXING. IF IT RESTRICTS ON THE OTHER
SIDE, YOU HAVE TWO OPPOSING --. WE SEE THIS DISRUPTION IN THIS
UNCERTAINTY AS AN OPPORTUNITY TO BEAR OUR STRENGTHS.
SO WE ARE NOT RESTRICTING. WE ARE DISCIPLINED.
WE KNOW WHERE WE WANT TO EXPAND AND WHERE WE DON'T WANT TO
EXPAND. AT THE MOMENT, OUR STANCE IS
ONE OF STEADY AS SHE GOES AND PROBABLY TRYING TO GAIN SHARE.
ERIK: WHAT ABOUT THE QUALITY OF --
ANDREA: I THINK EVERYONE IN THE ROOM
WILL LOOK AT WHAT'S HAPPENING WITH INFLATION, ENERGY PRICES, WHAT'S HAPPENING WITH THE P&L
OF CORPORATION, THE BUDGET OF FAMILIES AT A CERTAIN LEVEL.
YOU WOULD SAY THE CREDIT QUALITY IS GOING TO GO REALLY
BAD. BUT WE STARTED SEEING THAT SINCE THE INVASION OF UKRAINE
AND EVERY QUARTER THE BANKING SYSTEM HAS REGISTERED RECORD
LOW COST OF RISK. IT SEEMS THE TRANSMISSIONS ARE
HAPPY. MY VIEW IS THE ECONOMY IS DIFFERENT FROM WHERE IT WAS
BEFORE AS MUCH AS GOVERNMENT INTERVENING CERTAIN SEGMENTS OF
THE POPULATION WITH SUBSIDIES AND INCENTIVE.
IT IS FRAGMENTING THE WAY THE ECONOMY IS REACTING.
WITH THAT SAID, OUR BASE CASE IS THE COST OF RISK WE HAVE
YEAR WILL REMAIN AT THE SAME LEVEL AS WE HAD LAST YEAR.
THAT'S THE SCENARIO WE HAVE. WE HAVE AS OF APRIL NO
INDICATION OF A WORSENING OF RISK, AND NOT IN CORPORATE OR
RETAIL. HOWEVER, BECAUSE WE ARE NOT
DIRECT. WE HAVE OVERLAYS IN CASE THINGS
ARE GOING THAT WAY. WE ARE MANAGING FROM A CENTRAL
SCENARIO AND WE ARE LOOKING AT WHAT WE ARE SEEING, BUT OUR
MIND IS TELLING US MAYBE WE ARE MISSING THE ICEBERG AND IF WE
ARE, WE HAVE SOMETHING TO PROTECT US. ERIK: YOU TOLD US EARLIER THE FIRST
-- FUTURE UC IS ONE OF UNCERTAINTY.
WHAT KINDS OF CRISES SHOULD WE BE PREPARING FOR? ANDREA: ONE OF THE KEY THINGS IS THAT
THE NEXT CRISIS IS NEVER THE SAME AS THE PRIOR ONE.
BECAUSE EVERYBODY IS VERY FOCUSED ALL ON LIQUIDITY. HOW MUCH HAVE WE BEEN FORCED
ABOUT LIQUIDITY THE PAST FEW YEARS.
HOW MUCH OF WE WOULD -- HOW MUCH HAVE WE BEEN FOCUSED ON
INTEREST RATE RISKS. NOW WE ARE VERILY -- VERY WELL
AWARE. THE QUESTION IS WHAT ELSE.
IS IT CLIMATE CHANGE, DISRUPTION OF VALUE CHAIN.
WE UNDERESTIMATE THE EFFORT, YOU TAKE AN AUTOMOTIVE COMPANY,
SOMEONE WAS SAYING IF YOU ARE BUILDING AN INTERNAL COMBUSTION
ENGINE IN GERMANY, YOUR DEPENDENCE FROM RUSSIA USED TO BE -- ON AN ELECTRIC CAR, 50%
OF THAT. IT DOES NOT MEAN -- THAT MEANS
WE NEED TO REALLOCATE THE CHAIN AWAY FROM THE PROVIDER
SOMEWHERE ELSE. AND BY DEFINITION IT'S GOING TO
BE MORE EXPENSIVE AND THE SPEED OF OPPORTUNITY AND WHAT YOU
NEED WILL TAKE LONGER. THAT MEANS ENTIRE SECTORS ARE
REDEFINING LOGISTICS, COST OF PRODUCTION AND ALL OF THAT IS
HAPPENING IN A COMPRESSED TIMETABLE WHERE YOU HAVE
UNCERTAINTY IN THE ECONOMY. IN MY INVESTING TOO MUCH
BECAUSE THE WORLD IS ONLY GROWING AT 1% OR 2%. TOM: SPEAKING TO ERIK SCHATZKER AT
THE BLOOMBERG NEW ECONOMY GATEWAY EUROPE IN IRELAND.
FASCINATING MIND ON THE COST OF RISK AND INTERESTING ON THE
FALLOUT OF THE BANKING CRISIS. THE FUNDAMENTAL CHANGES
HAPPENING IN THIS ECONOMY. NOT CONCERNED IN TERMS OF
CONTAGION. PRETTY WORRIED ABOUT THE
CONTAGION AT THE BEGINNING OF THE CRISIS IN TERMS OF LACK OF
CONFIDENCE. DEPOSITS AND FUNDING AND SAYING
IN TERMS OF M&A THAT'S A BIG QUESTION, THAT THE INCENTIVES
ACROSS M&A IN EUROPE IS LIMITED. WE WILL STICK TO THE NEW
ECONOMY GATEWAY IN IRELAND. WE WILL SPEAK TO WILLIE WALSH.
AN INTERESTING CONVERSATION ABOUT TRAVEL AND THE PICKUP WE
SEE THAT COULD BE SUSTAINED. THAT'S COMING UP, THIS IS
BLOOMBERG. TOM: WELCOME BACK.
A NORMAL EVENT IN EUROPE BRINGING LEADERS TO DISCUSS THE
MOST PRESSING ISSUES FACING ITS ECONOMIES.
LET'S CROSS OVER TO IRELAND WERE FRANCINE IS STANDING BY.
FRANCINE: THANK YOU SO MUCH TOM. WE WERE JUST TALKING BEFORE
ABOUT HEALTH CARE WITH ASTRAZENECA. AND NOW WE ARE DELIGHTED TO TALK ABOUT AVIATION BRING JET
FUEL, INFLATION. >> I THINK THE POSITIVE IS
DEMAND REMAINS STRONG. WE'VE SEEN THAT BEFORE IN THE
INDUSTRY INFLATION. THESE ARE BUSINESS USUAL
CHALLENGES. IT'S CLEARLY A MUCH BETTER
ENVIRONMENT. FRANCINE: BUT THEN A POSSIBLE RECESSION.
THERE'S A MISMATCH BETWEEN WOOD CHIEF EXECUTIVES ARE EXPECTING
AND COMPANIES ARE EXPECTING PARENT FOR THE WORST. HOW ARE
YOU EXPECTING THE RECESSION TO PLAY OUT AND WHAT THAT MEANS
FOR CONSUMER DEMAND. WILLIE: I THINK MOST TALK OF RECESSION
HAS EASED A LITTLE BIT. THE INTEREST -- INTERESTING
THING WE ARE SEEING HIS EMPLOYMENT LEVELS REMAIN QUITE
HIGH. WE STILL HAVE CONFIDENCE AND
SPENDING. IT'S DIFFERENT TO SITUATIONS
WE'VE SEEN IN THE PAST WITH TYPICAL CONCERNS ABOUT
RECESSION AND ASSOCIATING WITH HIGHER INCREASING EFFORTS OF
UNEMPLOYMENT. ALL OF THE CEOS I'M TALKING TO
REMAIN CAUTIOUSLY OPTIMISTIC. >> YOU THINK THE RECESSION WILL
BE SHALLOW. WILLIE: CLEARLY DEMAND REMAINS STRONGER.
THAT CAPACITY IS NOT COMING BACK AS FAR AS PEOPLE HAD
EXPECTED. SOME OF THAT IS BECAUSE OF
DISRUPTION TO SUPPLY CHAINS. A LOT OF PEOPLE HAVING
DIFFICULTY GETTING SPARE PARTS. WE ARE SEEING QUITE A GOOD
MATCH BETWEEN THE INCREASING DEMAND AND INCREASING CAPACITY.
FRANCINE: HOW LONG WILL THIS LAST? WILLIE:
IT IS A CONCERN IN RELATION TO SPARE PARTS.
PRETTY MUCH EVERY AIRLINE CEO HAS SAID IT'S A CONCERN.
IT DOESN'T APPEAR TO BE NEAR TERM FIX.
THIS MAY CONTINUE BEYOND 2024. WE CAN EXPECT THE MANUFACTURERS
TO GET THIS ISSUE SORTED OUT BY THEN. THE EXISTING OLDER PLANES IN
OPERATION THAT WERE GROUNDED IN 2019 BUT NOT COMING BACK INTO
SERVICE AS FAST BECAUSE THE PRICES THE PARTS. WE DID NOT EXPECT CHINA TO
REOPEN IN JANUARY. LOOKING AT INTERNATIONAL TRAVEL
WITHIN ASIA LAST YEAR WAS A 22% OF WORD WAS.
IN FEBRUARY WE WERE AT 57%. I SEE THIS DEMAND COMING BACK
IN ASIA. I THINK PEOPLE REMAIN A LITTLE
BIT CAUTIOUS AND THERE WERE SOME TRAVEL RISKS.
IT'S A POSITIVE DEFINITELY BUT I EXPECT AIRLINES TO BE MORE
CHINESE CARRIERS INTO EUROPE. FRANCINE:
GIVE AND THE SITUATION WITH FUEL BECAUSE OF UKRAINE THAT SEEMS TO HAVE TAKEN A BACK --
WILLIE: THEY'VE CONTINUED TO INVEST IN
SUSTAINABLE FUEL AND MAKE EFFORTS TO FUTURE PURCHASE OF SYSTEM AND DESPITE THE CRISIS ,
WE ARE ABSOLUTELY DETERMINED. WE MADE A COMMITMENT TO NED
ZERO AND WE KNOW WHAT IT IS WE HAVE TO DO.
WHAT WE ARE LOOKING FOR IS SOME GOVERNMENT POLICIES TO SUPPORT
THE PRODUCTION OF SUSTAINABLE FUEL.
THERE'S NO ISSUE WITH DEMAND. I'VE HEARD PEOPLE SAY WE NEED
TO SEE DEMAND SIGNALS. THE DEMAND IS THERE, IT IS REAL.
WE WANT TO SEE IT IN GREATER QUANTITIES. FRANCINE:
THANK YOU FOR JOINING US. WITH THAT I WILL SEND IT BACK
TO YOU TOM AND WE WILL HAVE PLENTY MORE THROUGHOUT THE DAY.
TOM: GREAT STUFF ON THE GROUND IN
IRELAND AT THAT EVENT. U.K. INFLATION HOTTER THAN EXPECTED.
WE DISCUSS WHAT THIS MEANS FOR THE BANK OF ENGLAND TRADE THAT
IS NEXT, THIS IS BLOOMBERG. ♪ TOM: GLOBAL NEWS POWERED BY MORE
THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES.
-- ECONOMICS, FINANCE, POLITICS. THIS IS "BLOOMBERG SURVEILLANCE:
EARLY EDITION." I'M TOM MACKENZIE IN LONDON.
U.K. INFLATION HAS COME IN HOTTER
THAN EXPECTED. 10.1%. THE U.K. IS NOW THE OUTLIER.
6.9% IN THE EURO ZONE. 5% IN THE U.S..
10.1% IN THE U.K.. LET'S BRING IN THE MANAGING
EDITOR FROM BLOOMBERG MARKETS TODAY. >> IT WASN'T ENTIRELY CLEAR.
IF YOU LOOK AT THE POUND CHART THERE WAS A CLEAR SPIKE
INITIALLY AFTER INFLATION PRINT AND THEN TRADERS WERE REALIZING
MORE RATE HIKES, POTENTIALLY BAD FOR CONSUMERS IN THE LONG
RUN. SO WE SIDE DIP IN THE POUND.
IT ENDED BACK UP AGAIN. TRADERS TRYING TO MAKE SENSE OF
THE IMMEDIATE IMPACT. IT IS POSITIVE IN THE SHORT
TERM. IN THE LONG TERM THEY'RE QUESTIONING WHAT THIS MEANS.
IF THE BOE ENDS UP DOING MORE RATE HIKES THAN EXPECTED WHAT
DOES THAT MEAN FOR CONSUMER DEBT , HOUSEHOLD MORTGAGES AND
THINGS LIKE THAT. TOM: GILTS SELLING OFF QUITE
PRONOUNCED ON THE FRONT END. WHAT DOES IT MEAN FOR THE BOE?
WHERE THE MARKETS IN TERMS OF PRICING IN MAY, JUNE AND BEYOND?
>> DEFINITELY FOR MAY AS WELL AS JUNE.
THE BANK OF ENGLAND WILL HAVE TO FOLLOW SUIT.
IN COMBINATION WITH TODAY'S DATA AND THE UNEXPECTED WAGE
INCREASES RELIGIOUS DRIVES HOME THE POINT THAT INFLATION IN THE
U.K. IS PARTICULARLY STICKY ESPECIALLY COMPARED WITH THE
EUROZONE AND U.S.. BOTH OF THOSE ARE SINGLE DIGITS
HEADING IN THE RIGHT DIRECTION. TOM: POLITICAL COSTS ARGUABLY AS
WELL FOR THE PRIME MINISTER AS HE CONTINUES THAT.
BREAKING DOWN THE MARKET REACTION TO THAT CPI PRINT OF
THE U.K.. WE ARE MINUTES AWAY FROM THE
MARCH INFLATION PRINT FOR THE EURO AREA AFTER THE CHIEF TOLD
US HE WAS BACKING A RATE HIKE AT THE NEXT MEETING.
EUROPEAN MARKETS DOWN 3/10 OF 1%. BLOOMBERG SURVEILLANCE:
EARLY EDITION CONTINUES. ♪ >> I THINK THERE IS GOING TO BE
MORE VOLATILITY IN THE COMING YEARS AND I SUSPECT ON AVERAGE
IT WILL BE HIGHER. >> INFLATION IS GOING TO FALL
BACK TO 2%. THE EUROPEAN ECONOMY IS NOT
GOING TO GO THROUGH A RECESSION. >> IF INFLATION REMAINS AS THEY
ARE, WE DO HAVE PUSHING TO TRY TO GET INFLATION BACK DOWN TO
TARGET, IS THIS SOMETHING ELSE? ANNOUNCER: THIS IS "BLOOMBERG
SERVEILLANCE: EARLY EDITION" WITH ANNA EDWARDS AND MATT
MILLER. ANNA:
JOB CUTS ON THE WAY, THOUSANDS OF POSITIONS BEING ELIMINATED
STARTING TODAY. NEW FIGURES STRENGTHEN THE CASE
OF THE BANK OF ENGLAND TO RAISE INTEREST RATES ONCE AGAIN.
BRITAIN'S INFLATION RATE REMAINS IN DOUBLE DIGITS LAST
MONTH. AND HOW DOES MORGAN STANLEY
STACK UP AGAINST ITS WALL STREET PEERS?
THE BANK REPORT TO TURNING IN TWO AND A HALF HOURS TIME.
I'M ANNA EDWARDS IN LONDON WITH MATT MILLER IN NEW YORK.
INFLATION STORY CERTAINLY DOMINANT IN EUROPE YOU TODAY.
OVER UNITED STATES, FUTURES SLIPPED A LITTLE. MATT:
I FEEL LIKE THE U.K. INFLATION STORY IS ACTUALLY
REVERBERATING AROUND THE WORLD BECAUSE A LOT OF PEOPLE ARE NOW
EXPECTING TIGHTER RATES OR HIGHER RATES.
WE HAD COMMENTS YESTERDAY SAYING HE WANTS TO GO BETWEEN
5.5 AND 5.75. HE IS NOT A VOTING MEMBER, BUT
HE MAKES SOME VERY STRONG WINDS. WE ARE NOW DOWN ABOUT 4/10,
ALMOST HALF OF 1% ON S&P FUTURES.
WE MANAGED TO EKE OUT A GAIN IN THE CASH TRADE YESTERDAY, BUT
THE DOW AND THE NASDAQ BOTH CLOSED DOWN.
SO THE S&P WAS KIND OF THE OUTLIER THERE.
WE HAVE PONDS DOWN AS WELL, AND THAT PUSHES THE YIELD UP
ANOTHER ULTRA BASIS OR ITS. 4.20.
WE ARE ALMOST THERE, BY THE WAY. YOU SEE YIELDS COMING UP MUCH
HIGHER ON THE TWO-YEAR, ON THE SHORTER END OF THE CURVE AS
WELL AS INVESTORS MAYBE STARTING TO PRICE IN MORE THAN
ONE RATE HIKE. NYMEX CRUDE IS OFF ABOUT 2%
RIGHT NOW. WE'RE DOWN BELOW $80 PER BARREL
AND WE HAVE FALLEN BELOW KEY LEVELS ON A LOT OF BIG
COMMODITIES. BITCOIN IS DOWN ABOUT $1000
UNDER 30 RIGHT NOW. NYMEX UNDER THE $80 HANDLE.
GOLD DOWN UNDER $2000 RIGHT NOW. OFF 1.3%.
FOLLOWING A LITTLE YESTERDAY AS WELL. GOLD IS NOW UNDER 2000 AND WE
SEE A LOT OF SELLING IN THESE MARKETS. TAKE A LOOK AT ASIA. YOU SAW A DROP THERE AS WELL ON
THE ASIA-PACIFIC INDEX, DOWN 8/10 OF 1%. AND IT HAD BEEN LOWER, SO IT
WAS ABLE TO OFFSET SOME OF THOSE LOSSES INTO THE END OF
THE SECTION. JAPAN OFFPUTTING ONLY ABOUT
2/10 OF 1%. WE DO SEE DOLLAR WEAKNESS.
NOT AGAINST THE POUND, I THINK THE POUND IS STILL UP, BUT WE
SEE DOLLAR WEAKNESS AGAINST OTHER CURRENCIES, AND A LITTLE
BIT OF DOLLAR STRENGTH AGAINST THE YEN RIGHT NOW. YOU CAN ALMOST FIVE 135 YEN FOR
ONE DOLLAR. WHAT DO YOU SEE IN EUROPE THIS
MORNING? ANNA: THE INFLATION STORY CERTAINLY
DOMINATES. WE'VE JUST GOT EUROZONE
INFLATION. THE FINAL READING TO TELL US
ANYTHING WE DIDN'T KNOW. IT CAME EXACTLY AS EXPECTED. CPI RISING BY 6.9 PERCENT,
EXACTLY WHAT THE PRELIMINARY SAID.
BUT THAT IS STILL A LOT LOWER THAN IT WAS.
IT IS A LOT LOWER THAN THE U.K. INFLATION STORY RIGHT NOW WHICH
IS CERTAINLY DOMINATING NEWS FLOW HERE.
THIS IS WHAT WE SEE AT THE MOMENT.
NEGATIVE, BROAD-BASED BUT FAIRLY MODEST NEGATIVITY. NOT MUCH MOVEMENT AS A RESULT
OF THAT INFLATION DATA THAT CAME IN MUCH AS WAS EXPECTED. THE POUND TOOK SOME TIME TO
UNDERSTAND EXACTLY WHAT IT MEANT TO SEE THAT INFLATION
COMING IN ABOVE 10%. DOUBLE-DIGIT INFLATION STILL A
REALITY IN THE U.K. IT HAS BEEN EXPECTED TO DROP IN
THE LAST TWO MONTHLY READINGS. THE POUND SPIKED UP ON THAT,
BUT THEN DROPPED AND SPIKED UP AGAIN. THE U.K. YIELD TAKING NO TIME TO DECIDE
MORE CERTAINTY, AND THE INTEREST RATE HIKE FROM THE
BANK OF ENGLAND. THAT IS THE BOND MARKETS
QUICKLY DECIDED WHAT THIS AND PUSHING OUT THAT PEAK RATE. DIFFERENT DYNAMICS, HEINEKEN,
INTERESTING VOLUME NUMBERS WERE LIGHT VS. EXPECTATIONS.
BUTTONS EUROPEAN DRINKERS SEEM TO BE HAPPY PAYING UP, THE
STOCKS BY MORE THAN 3% AS EUROPEANS TEND TO DRINK THAT.
WE HAVE THE COMPANY THAT SUPPLIES THE COMPANY THAT MAKES
THE CHIPS A LOT OF NEGATIVE EXPECTATIONS ABOUT WHAT DEMAND
WOULD LOOK LIKE. SOME OF THAT IS STICKY AND
DESPITE THE EARNINGS STORY, THE OUTLOOK FOR THE SECOND HALF OF
THE YEAR A LITTLE HAZY AS A RESULT MATT:
EUROPEANS ARE NOT TURNING TO DRINK. IT IS IN THEIR DNA.
THEY ARE JUST TURNING IT A LITTLE. I THINK THE STORY IS
FASCINATING. YOU'RE GOING TO BE WATCHING
THAT AS WELL THE SHIP NEWS THAT WE HAVE GOTTEN OTHER -- FROM
OTHER BEHEMOTHS. IT DOESN'T LOOK GOOD FOR THE
GLOBAL ECONOMY. NEITHER DO THE JOB CUTS THAT WE
CONCEIVE OVERNIGHT. DISNEY PLANS TO CUT THOUSANDS
OF JOBS NEXT WEEK. BLOOMBERG HAS LEARNED THAT
INCLUDES ABOUT 15% OF THE STAFF IN THE ENTERTAINMENT DIVISION,
A COMPANY OF 220,000 EMPLOYEES. MEANWHILE, FACEBOOK OWNER
META-IS SAID TO BEGIN COMPANY-WIDE LAYOFFS TODAY. A MEMO SEEN BY WHATSAPP AND
INSTAGRAM AS WELL AS VIRTUAL REALITY LAB WILL ALL BE
IMPACTED. ALEX WEBB JOINS US FOR MORE.
WE'VE SEEN ON THE TECH SIDE, ON THE WEST COAST, WE SEEN SOME OF
THESE JOB CUTS, BUT THEY ARE STARTING TO RAMP UP INTO OTHER
AREAS LIKE ENTERTAINMENT, COMMUNICATION SERVICES, 80 A,
STREAMING. ALEX: IT IS VERY MUCH A RECKONING FOR
THESE COMPANIES THAT HAVE BEEN CLASSIFIED AS GROWTH STOCKS FOR
A FEW YEARS. DISNEY PIVOTED FROM VALUE TO
GROWTH UNDER PRESSURE FROM ACTIVIST INVESTORS. IT IS NOW RETRENCHING IN THE
ENTERTAINMENT DIVISION TOWARD DISNEY PLUS.
AS WE SEEN INTEREST RATES COME UP, WE'VE SEEN PEOPLE NOT
SPENDING AS MUCH TIME AS THEY HAVE COME OUT OF THE LOCKDOWNS.
META-, OF COURSE, ONE THING THAT IS FASCINATING ACCORDING TO SOURCES, THEY ARE CUTTING
THE LABS DIVISION. THAT IS SUPPOSED TO BE THE
FUTURE OF THE COMPANY. META-HAS REALLY SEIZED TO TALK
ABOUT IT WITH WHITE SO MUCH VOLUME AS IT WAS EVEN A YEAR
AGO. WE ARE SEEING SOMETHING OF THAT
RETRENCHMENT. ANNA: FOCUS ON COST CUTTING IN TERMS
OF THOSE TECH NAMES. WHAT ABOUT THE NETFLIX STORY
OVERNIGHT? THE CRACKDOWN. ALEX:
THERE WERE THREE NUMBERS THAT WERE REALLY IMPORTANT HERE.
THE FIRST QUARTER, SUBSCRIBER GROWTH WAS NOT AS HIGH AS
EXPECTED. THE SECOND QUARTER REVENUE WAS
ALSO SHORT OF EXPECTATIONS. THAT TOOK THE STOCK DOWN, BUT
AS PEOPLE STARTED TO LOOK MORE DEEPLY, THE EXPECTATIONS FOR
THE SECOND HALF WERE QUITE GOOD. 3.5 BILLION DOLLARS WAS ABOVE
EXPECTATIONS OF THE COMPANY'S FORECAST. PART OF THAT HAD TO
DO WITH CRACKING DOWN ON PASSWORDS.
IT DIDN'T HAPPEN IN THE FIRST QUARTER, BUT THERE ARE 100
MILLION PEOPLE OUT THERE SHARING PASSWORDS.
IF THEY CAN GET SOME OF THOSE TO SUBSCRIBE, THAT WILL BENEFIT
SCRIBER GROWTH ANNA: THEY'VE BEEN TRYING SOME OF THE
STRATEGIES IN AMERICA. THANKS VERY MUCH, ALEX WEBB
JOINING US WITH THE LATEST TECH. U.K.
INFLATION HAS COME IN HOTTER THAN EXPECTED.
THE MARCH CPI READING RISING. ECONOMISTS HAD EXPECTED THAT
NUMBER TO DROP INTO SINGLE DIGITS TO 9.8%.
THIS COMES AFTER A REPORT SHOWING U.K.
WAGE GROWTH ACCELERATED UNEXPECTEDLY LAST MONTH, ADDING
TO INFLATION PRESSURES CONCERNING THE BANK OF ENGLAND.
JOINING US NOW TO DISCUSS, CHRISTINE.
VERY GOOD TO HAVE YOU WITH US. WE'VE GOT THIS COMBINATION OF
FASTER INFLATION, MORE RATE HIKES.
IS THAT WHAT IS AHEAD, MORE RATE HIKES FROM THE BANK OF
ENGLAND? >> THAT IS DEFINITELY THE
CONCLUSION FROM MARKETS. WE'VE SEEN FROM THE POWER
REACTION AS WELL AS THE LOSSES TODAY, MOST SIGNS AND MARKETS
ARE POINTING TO THE EXPECTATION THAT THE BANK OF ENGLAND IS
GOING TO HAVE TO DO MORE AND IT IS PROBABLY NOT SOMETHING THAT
ANDREW BAILEY AND HIS COLLEAGUES WANT TO HEAR BECAUSE
THEY WERE GUIDING MARKETS TOWARD EXPECTING WES EVEN FROM
THE START OF THIS YEAR AND EVEN THE MOST RECENT COMMENTS
DESPITE THE FACT THAT WE HAVE DOUBLE-DIGIT LESION STILL
PERSISTING. AFTER TODAY'S DATA AS WELL AS
YESTERDAY'S WAGE DATA, MOST SIGNS REALLY ARE POINTING TO
THE BANK OF ENGLAND HAVING TO ADAPT TO THIS RATE HIKES. MATT:
SO ARE PEOPLE WORRIED ABOUT A POLICY MISTAKE HERE FROM THE
BANK OF ENGLAND, AS THEY ARE IN THE U.S.?
AND HOW ARE TRADERS EXPECTED TO REACT? >> DEFINITELY THINKING ABOUT
THE POTENTIAL MISTAKES HERE. I THINK INITIALLY, GIVEN THAT
THE GUIDANCE FROM BANK OF ENGLAND WAS FOR MARKETS TO
EXPECT LESS AND THE WAY OF RATE HIKES, WE JUST KEPT GETTING
PERSISTENTLY HIGH INFLATION READINGS.
IT HASN'T DIPPED DOWN TO SINGLE DIGIT'S A FEW MONTHS NOW.
I THINK THAT IS WHERE POTENTIALLY THE INITIAL MISTAKE
WAS. THE INITIAL GUIDANCE FOR LESS
AND THE WAY OF RATE HIKES AND NOW HAVING TO POTENTIALLY
BACKTRACK ON THAT, AND THE RATION. BUT I -- INFLATION. BUT THE POTENTIAL MISTAKE COULD
PROBABLY COME FROM EXPECTATIONS OF THE BANK OF ENGLAND HAVING
TO PULL BACK ON THEIR EFFORTS BECAUSE OF THE IMPACT OF RATE
HIKES. IT IS A VERY SIMILAR DYNAMIC TO
WHAT WE SEE IN TERMS OF HOW MARKETS ARE TRYING TO READ THE
FED. THEY ARE THINKING WELL, THE RATE HIKES ARE GOING TO BE
NEGATIVE FOR THE ECONOMY EVENTUALLY AND THEREFORE EXPECT
RATE CUTS. BUT GIVEN THE PERSISTENCE OF
THE INFLATION IN THE U.K., IT IS GOING TO BE HARD TO SEE A
SITUATION WHERE THAT WOULD BE VIABLE EVEN THAN THE SECOND
HALF OF THIS YEAR. MATT: CHRISTINE, THANKS VERY MUCH,
TALKING TO US ABOUT 10.1% RATION, BEATING THE ESTIMATES
ON THE WRONG SIDE YET AGAIN. LET'S GET BACK HERE TO THE
U.S., LEGENDARY TRADER LEIGH AINSLIE AT MAVERICK CAPITAL
SEASON ASIAN INCREASING WHEN THE WAR IN UKRAINE WINDS DOWN.
HE SPOKE AT THE ECONOMIC CLUB OF NEW YORK YESTERDAY IN A RARE
APPEARANCE. >> MY THINKING IS THAT THE
BASELINE INFLATION UNDERNEATH ALL OF THIS IS CONTINUING TO
LAUNCH UPWARDS. DEGLOBALIZATION, JUST THE AGING
GLOBAL POPULATION, THE ACTIVE WORKFORCE IS SHRINKING.
THAT IS PART OF WAGE INFLATION. WAGE INFLATION MAY BE A LITTLE
STICKIER. MATT: SHELLEY BASSETT -- CHIN ALI
BASSETT JOINS US. WE'VE HEARD CLAIMS THAT THIS
INFLATION IS GOING TO BE PERSISTENT. >> THAT IS SOMETHING WE HEARD
FROM -- HEARD FROM JAMIE DIMON JUST ABOUT A WEEK AGO.
THERE ARE SOME VERY INTERESTING IMPLICATIONS FOR THE HEDGE FUND
INDUSTRY IN PARTICULAR. SOME OF THESE IS WHAT THIS
WOULD MEAN THAT THE FUNDS RUNNING A LOT OF LEVERAGE.
WHAT DOES IT MEAN AS INTEREST RATES GO UP WITH THE
COMPETITION FOR MONEY? THE OTHER THING IS WHAT IT
MEANS FROM THE CROSSOVER. A LOT OF THESE HEDGE FUND
FIRM'S HAVE BOUGHT INTO THE PRIVATE EQUITY BUSINESS WHICH
ALSO REQUIRES SIGNIFICANT LEVERAGE AND IT IS AN
INTERESTING EQUATION WHEN YOU THINK ABOUT THE CAPITAL TO TRY
TO MEET THOSE NEW INVESTMENTS. REMEMBER, DAVID SOLOMON
YESTERDAY OVER AT GOLDMAN SACHS GOT A QUESTION ABOUT THE
WORRIES ABOUT THE HEDGE FUND INDUSTRY.
HIS ANSWER REALLY WAS THAT GOLDMAN IN PARTICULAR IS
FLOCKING TO THE TECH 100. AND SO YOU DO SEE A WASHOUT IN
THE INDUSTRY THAT HAS ALREADY BEEN AT BAY, BUT AS THANKS
REACT, THE BUSINESSES ARE WILLING TO PROVIDE THEM.
IT WILL REALLY SET THE STAGE FOR THE INVESTING WORLD IN THE
NEXT YEAR OR SO. ANNA: WE'VE SEEN HOW QUICKLY THAT CAN
COME UNSTUCK. LET'S GET TO THE BANK EARNINGS
STORY, MORGAN STANLEY TECH TO NUMBERS.
WHAT WE EXPECT TO SEE HERE? >> ONE IS ON THE TRADING SITE
HERE BECAUSE MORGAN STANLEY IS ONE OF THE BIGGEST BROKERAGES
ON WALL STREET AND HAS HISTORICALLY BEEN THE LARGEST
EQUITY TRADING'S ON WALL STREET. WHILE WE WATCHED YESTERDAY,
THEY BEAT EQUITIES TRADING. IT IS A SOFT MARKET FOR
EQUITIES TRADING BUT MORGAN STANLEY STILL HOLD STRONG IN
THAT MARKET. AFTER LAST YEAR, KIND OF FALLEN
BEHIND GOLDMAN FOR A COUPLE OF QUARTERS.
THE OTHER THING YOU WILL WANT TO WATCH IS WHAT THEY HAVE
GAINED IN TERMS OF IS THIS IN THE WAKE OF SILICON VALLEY BANK
TROUBLES. MORGAN STANLEY ARGUABLY ONE OF
THE BIGGEST BENEFICIARIES BECAUSE THEY HAVE SUCH A BIG
BASE OF HIGH NETWORK CLIENTS. THERE IS NO OTHER WAY TO PUT
IT, THE BIGGEST BANKS REALLY BENEFIT IN THE WAKE OF THE
STORM. THINGS ARE LOOKING LIKE THEY
ARE STARTING TO STABILIZE AS WE SAW FROM WESTERN ALLIANCES
YESTERDAY. BUT HOW MUCH HAS MORGAN STANLEY
WHEN -- WON? MATT: LET'S GET A LOOK AT SOME OF THE
STOCKS WE ARE WATCHING IN PREMARKET TRADING HERE IN THE
U.S. THIS MORNING. KEEPING AN EYE ON REGIONAL
BANKS BECAUSE WESTERN ALLIANCE HAS SURGED AS DEPOSITS RISE BY
$2 BILLION THIS MONTH. YOU CAN SEE THE STOCK UP 15% IN THE PREMARKET PACK, UP FOUR AND
ONE THIRD PERCENT IN SYMPATHIES. INTUITIVE SURGICAL WORLDWIDE
PROCEDURE GROWTH THE FIRST QUARTER THAT BEAT ANALYST
ESTIMATES. PROCEDURE GROWTH WORLDWIDE, SO
SURGERIES THAT IT HAS DONE WAS 26% HIGHER THAN IT WAS AT THE
SAME TIME LAST YEAR. THE ESTIMATE WAS ONLY FOR 15%
MORE PROCEDURES. HP AND DELL ARE AMONG SOME OF
THE TECHNOLOGY COMPANIES FALLING IN THE POST-MARKET
TRADING. HP DOWN 2% IN THE PREMARKET
TRADE. THEY WERE DOWN OBVIOUSLY IN THE
POST-MARKET YESTERDAY AS WELL. PRELIMINARY QUARTERLY RESULTS
THAT MISSED, AND THEN TESLA, CUTTING THE PRICE OF ITS
HIGHEST VOLUME MODELS YET AGAIN IN A FURTHER SIGN THAT THE
CHIEF EXECUTIVE OFFICER WILLING TO SACRIFICE SOME OF THE
INDUSTRY-BEATING PROFIT MARGINS THAT TESLA HAS IN ORDER TO
BUILD EVEN MORE DEMAND. THE AUSTIN-BASED AUTOMAKER
MARKET DOWN SOME MORE MODEL Y'S AND MODEL THREES, BUT I THINK
THEY HAVE CUT PRICES FIVE OR SIX TIMES SO FAR THIS YEAR, SO A LOT OF CONSUMERS ARE MAYBE
WAITING TO MAKE A PURCHASE FOR THE NEXT PRICE CUT. ANNA:
AND WE WILL GET SOME ANALYSIS OF WHAT TO EXPECT IN THE
EARNINGS STORY SHORTLY. WE'VE ALSO GOT EUROPEAN NUMBERS
SHOWING SOME ROBUSTNESS AS WE SAID GOODBYE TO SOME OF THE
SUPPLY CHAIN ISSUES JUST TO TELL YOU WHAT IS COMING UP ON
THE PROGRAM, WE WILL BE SPEAKING TO J.P.
MORGAN ASSET MANAGEMENT. PLAYING THE CURRENT ENVIRONMENT
AND MARKETS, WHAT DOES SHE MAKE OF THE LATEST INFLATIONARY
DRIVERS THAT WE ARE SEEING IN THE U.K., AND PERHAPS ELSEWHERE
AS WELL? AND BLOOMBERG'S SENIOR ♪ >> Q1 SUGGESTS WE ARE SEEING
REVERSAL OF THE SUPPLY SHOCKS THAT SO DOMINATED THE EUROPEAN
ECONOMY LAST YEAR. SO EASING OF BOTTLENECKS, MUCH
LOWER GAS PRICES. SO WHAT I WOULD SAY IS AS OF
NOW, TWO WEEKS AWAY, I THINK THE BASELINE IS THAT WE SHOULD
INDEED INCREASE INTEREST RATES IN MAY. ANNA:
THAT WAS THE ECB CHIEF ECONOMIST PHILIP LANES AT THE
BLOOMBERG NEWS ECONOMY GATEWAY EUROPE CONFERENCE IN HIGHLAND.
BLOOMBERG TV AND RADIO ARE BROADCASTING LIVE FROM THE
CONFERENCE. WE'VE HEARD FROM A NUMBER OF
LEADERS FROM THE PRIVATE AND PUBLIC SECTORS TODAY. JOINING US NOW TO TALK ABOUT
GLOBAL STRATEGY, MULTI-ASSET STRATEGIST AT J.P.
MORGAN ASSET MANAGEMENT. VERY GOOD TO SEE YOU.
PHILIP LANE TALKING ABOUT THE PATIENT STORY BUT I WILL START
WITH THE IMPACT OF THE INFLATION STORY IN THE U.K.
HOW DOES THIS INFLUENCE YOUR THINKING AROUND ASSET
ALLOCATION, ON U.K. ASSETS GIVEN INFLATION IN
DOUBLE DIGITS, FOOD INFLATION RUNNING AT NOT QUITE 20%? >> THANKS FOR HAVING ME.
YOU'RE RIGHT, INFLATION HAS HAD A VERY TIMELY REMINDER THAT THE
INFLATION STUBBORN AND PERSISTENT INFLATION IS HERE TO
STAY FOR LONGER. THE U.K. IS A PARTICULAR EXAMPLE WHERE
YOU HAVE TWIN SHOCKS THAT YOU ARE DEALING WITH.
BOTH THE LABOR FORCE PARTICIPATION BEING WEEK AND
THE ENERGY SHOCK. FOR THAT -- FOR US, THAT
COMPLICATE THE BANK OF ENGLAND PICTURE.
WHAT DOES THAT MEAN ON U.K. ASSETS?
WE ARE WARMING UP TO DURATIONS. BUT TODAY'S DATA DOES ADD SOME
VOLATILITY TO THAT. THE REASON WHY WE ARE LOOKING
AT THE GILT MARKET AS A POSITIVE MARKET TO OWN DURATION
IN IS ESSENTIALLY THE MARKET IS PRICING IN OVER 50 BASIS POINTS
OF HIKES FROM THE BANK OF ENGLAND.
WE WANT TO DIVERSIFY DURATION ACROSS MARKETS.
ON THE EQUITY SIDE, WE ACTUALLY ARE MORE POSITIVE ON U.K.
EQUITIES, BUT THAT IS BECAUSE OF GLOBAL FACTORS RATHER THAN
ANY CIVIC U.K. ONES. ANNA: IT IS A GLOBAL STORY, PERHAPS
AT LEAST AT THE FTSE 100 LEVEL. WHAT ABOUT MORE GENERALLY, YOUR
OUTLOOK AND YOUR POSITION? WE SAW IT IS PRETTY CAUTIOUS.
WHAT THIS CAUTIOUS LOOK LIKE? >> CAUTIOUS MEANS WE ARE
MODESTLY UNDERWEIGHT AND EQUITY MARKETS AND THE RATIONALE FOR
THAT IS UNLIKELY TO SEE SIGNIFICANT UPSIDE RISK MARKETS
IN THE CURRENT ENVIRONMENT. AS YOU MENTIONED, INFLATION
REMAINS A CONCERN THAT KEEPS CENTRAL BANKS IN THE TIGHTENING
PATH. WE'VE ALREADY HAD A REMINDER IN
MARCH THAT POLICIES ARE ALREADY TIGHT AND WE WILL SEE CREDIT
CONDITIONS TIGHTENING FURTHER AND THAT CAP THE GROWTH OUTLOOK
IN THE MEDIUM-TERM. SO ESSENTIALLY, THIS IDEA THAT
EQUITY MARKETS HAVE COME A LONG WAY.
THE UPSIDE KEEPS US CAUTIOUS BUT AT THE SAME TIME, THE
CAUTION WE ARE EXPRESSING TODAY IS ACTUALLY IN THE
LONG-DURATION. SEEING MORE ON THE BOND
OUTLOOK, THAT A RETURN PROFILE THAN WE DO IN EQUITIES. MATT: IT'S INTERESTING, BECAUSE WE
HAVE SEEN ON SPREADS TIGHTEN AND THE VIX DROP TO BELOW 17.
AT THE SAME TIME, AND HEARING THE TERM CREDIT CRUNCH MORE AND
MORE OFTEN. YOU SAID WE COULD SEE CREDIT
CONDITIONS TIGHTENING. HOW MUCH? COULD IT BE TO A CONCERNING
LEVEL? BECAUSE IT LOOKS LIKE RELATIVE
CALM IN MARKETS BOTH IN BONDS AND IN STOCKS. >> THAT IS A VALID POINT, AND I
THINK YOU ARE HONING IN ON THE EXACT QUESTION WE ARE FACING
OURSELVES IS THIS GOING TO BE A SHARP, QUICK DRAW IN GROWTH
EXPECTATIONS, OR IS IT A SLOW BURN, GRIND LOWER IN THE
ECONOMIC OUTLOOK OVER THE NEXT 6-12 MONTHS?
AND I WOULD SAY AVAILABILITY, LOAN GROWTH, AND THE LABOR
MARKET ARE KEY IN ANSWERING THAT RUSSIAN.
FIRSTLY ON THE CREDIT SIDE, WE ARE EXPECTING SLOWING OF CREDIT
AVAILABILITY. THAT KICKS OFF MAYBE TWO TENSOR
3/10 ON GDP OVER THE NEXT 6-12 MONTHS, BUT WE ARE NOT SEEING
IT CRATERING WITH A CRUNCH IN CREDIT CONDITIONS.
THIS IS A SLOWER GRIND LOWER IN THE GROWTH OUTLOOK AND IT WILL
TAKE TIME TO PLAY OUT. AND AS YOU MENTIONED, THERE ARE
RISKS AROUND THIS. WE ARE ALREADY SEEING DEPOSIT
INFLOWS AS YOU MENTIONED EARLIER COMING BACK TO SOME OF
THE REGIONAL BANKS AND THE U.S. SO IT IS MORE OF A SLOWER GRIND.
WE ARE LOOKING FOR OPPORTUNITIES FOR WHERE WE CAN
BE CAUTIOUS, BUT THE WILLING TO WAIT THIS OUT AS GROWTH SLOWS.
MATT: A LOT OF PEOPLE ARE LOOKING AT
THE BANKING CRISIS IN OUR REARVIEW MIRROR NOW. WE ARE SEEING OUR EQUITIES TEAM
AS WELL AS OUR MACRO MAN COLUMNIST SAYING LOOK,
EXPECTATIONS OF A RECESSION WERE MUCH BIGGER AT THE END OF
LAST YEAR AND THE BEGINNING OF THIS YEAR THAN THEY ARE NOW.
JIM BULLARD, OBVIOUSLY YOU'RE NOT GOING TO HAVE THE FED COME
OUT AND PUSH FOR A RECESSION BUT HE IS SAYING I DON'T SEE IT
HERE, ESPECIALLY WITH THE LABOR MARKET THAT WE'VE GOT.
OUR EXPECTATIONS OF A RECESSION NOW LOWER THAN THEY WERE
PREVIOUSLY, MEANING RISK ASSETS HAVE A CHANCE TO CONTINUE THIS
RUN HIGHER? >> WE HAVE INCREASED OUR
SESSION RISK POSED BANKING STRESS IN MARCH, BUT IT IS NOT
OUR BASE CASE. WE ARE NOT IN THE CAMP THAT A
RECESSION IS NAILED DOWN AND THAT WE NEED TO BE EXTREMELY
CAUTIOUS. WHAT IS KEEPING US CAUTIOUS IS
THAT EVEN IN A RELATIVELY POSITIVE VIEW OF THE ECONOMY,
WE THINK RISK MARKETS HAVE ALREADY RUN A LONG WAY, AND IN
A POSITIVE SCENARIO, CENTRAL BANKS ARE STILL HIKING, SO THEY
ARE RAISING THE COST OF FINANCING AS GROWTH IMPROVES,
AND THAT CAPS THE UPSIDE FOR RISK MARKETS.
BUT WHAT YOU HIGHLIGHT IS A VALID POINT.
WHERE CAN WE LOOK FOR THAT ASYM METRY? COMPONENTS OF CREDIT ARE STARTING TO LOOK ATTRACTIVE AND
AIR BASE CASE SCENARIO. THE SESSION RISK FOR US I WOULD
SAY IS BETWEEN 25% AND 30% LIKELIHOOD OVER THE NEXT 12
MONTHS IN THE U.S., BUT LOOK OUTSIDE THE U.S..
GROWTH IN EUROPE, CHINA. WE ARE SEEING A MUCH BETTER
OUTLOOK THERE. IT IS VERY DIFFERENTIATED
ACROSS THE GLOBE. MATT: GREAT TO HAVE YOU ON THE
PROGRAM, REALLY APPRECIATE YOUR INSIGHT. TALKING TO US ABOUT THE
IMPORTANCE OF ACTIVE. YOU HAVE GOT TO PICK YOUR SPOTS
FOR THAT OPPORTUNITY. NOW KEEPING YOU UP-TO-DATE WITH
NEWS AROUND THE WORLD, HERE IS YOUR FIRST WORD SENIOR RUSSIAN
OFFICIALS HAVE RAISED CONCERNS THAT THE WAR IN UKRAINE HAS
LEFT MOSCOW TWO RELIANT ON CHINESE TECHNOLOGY AFTER THE
U.S. AND E.U. SANCTIONS SHUT OFF ACCESS TO
ALTERNATIVES WIRES AND INTERNAL RUSSIAN MEMOS SUGGEST MOSCOW IS
CORNERED AND CONCERNED THAT THE CHINESE TECHNOLOGY RELIANCE MAY
POSE A RISK TO RUSSIA'S INFORMATION SECURITY.
FOX NEWS HAS AVOIDED A POTENTIALLY EMBARRASSING TRIAL.
THE NETWORK AGREED TO SETTLE WITH DOMINION. THEY WILL PAY 700 $87.5 MILLION
TO SETTLE THAT VOTING MACHINE DEFAMATION LAWSUIT OVER THE ♪ ANNA: THIS IS "BLOOMBERG
SERVEILLANCE: EARLY EDITION" JOB CUTS ON THE WAY AT META AND
DISNEY. THOUSANDS OF POSITIONS ARE
BEING ELIMINATED. NEW FIGURES STRENGTHEN THE CASE
FOR THE BANK OF ENGLAND TO RAISE INTEREST RATES AGAIN.
PRINCE INFLATION RATE REMAINS IN DOUBLE DIGITS.
AND HOW DOES MORGAN STANLEY STACK UP AGAINST ITS WALL
STREET PEERS? THANK REPORTS ITS IN TWO HOURS
TIME. I'M ANNA EDWARDS WITH MATT MILLER.
SENTIMENT DETERIORATING THE CLOSER WE GET TO THE START OF
U.S. TRADING. SEEING INFLATION FALLING OUT OF
THE U.K., CERTAINLY CATCHING OUR ATTENTION FROM A MACRO
STANDPOINT, BUT A LOT OF CORPORATE EARNINGS TO FOCUS ON
AS WELL. MATT: I THINK WE HAD GOLDMAN SACHS
AND JOHNSON & JOHNSON YESTERDAY DRAGGING ON THE INDEXES, AND
NOW YOU'VE GOT THIS BIG INFLATION NUMBER OUT OF THE U.K.
IGNITING A LITTLE BIT MORE CONCERN AROUND THE WORLD THAT
RATES -- SORRY, THAT INFLATION COULD BE HIGHER FOR LONGER AND
RATES MAY HAVE TO GO HIGHER WITH THEM.
WE HEARD FROM BOSTICK, WE HEARD FROM BULLARD AND WE WILL TALK
ABOUT THAT IN JUST A LITTLE BIT. S&P FUTURES ARE DOWN ABOUT HALF
OF 1%, A LITTLE BIT MORE NOW THAN HALF OF 1%.
YOU ARE SEEING A LOT OF SELLING IN THIS MARKET AND WHERE YOU
LOOK. INVESTORS SELLING OFF THE 10
YEAR UNTIL THE YIELD RISES ANOTHER FOUR BASIS POINTS RIGHT
NOW. SELLING OFF NYMEX CRUDE. WE WERE AT 80 OR ABOVE WHEN WE
WENT UP TO $83 PER BARREL POST OPEC-PLUS SURPRISE CUT.
NOW WE ARE COMING BACK DOWN BELOW $80, AND EVEN BREAD IS
LOOKING PRETTY WEAK. GOLD HAD BEEN UP ABOVE 2000.
THEY WERE ON ALL-TIME RECORD WATCH TO SEE IF WE COULD
ECLIPSE 2075. IT IS NOW BACK DOWN BELOW THAT.
NOT TERRIBLY SIGNIFICANT, BUT A BIG, ROUND NUMBER OF $2000, AND
EVEN BITCOIN IS DOWN ABOUT $1000 BELOW 30,000 RIGHT NOW.
SO INVESTORS ARE REALLY TAKING SOME CHIPS OFF THE TABLE.
TAKE A LOOK AT SOME OF THE MOVERS HERE IN TERMS OF
INDIVIDUAL STOCK STORIES. YOU HAVE SOME GOOD NEWS.
WESTERN ALLIANCE RISING AFTER THE BANK THE EARNINGS ESTIMATES
AND THAT DEPOSITS WERE COVERED. YOU COULD SEE WESTERN ALLIANCE
IS UP AND OTHER REGIONAL BANKS ARE GAINING SYMPATHY, BUT 15%
IS BETTER. SURGICAL ALSO A BIG GAINER,
SAYING THAT WORLDWIDE PROCEDURE GROWTH FOR THE FIRST TIME THE
AVERAGE ANALYST ESTIMATE. THEY DID ABOUT 26% MORE
PROCEDURES THAN THE SAME QUARTER LAST YEAR, AND THE
ESTIMATE WAS ONLY FOR 15%. NETFLIX, ON THE OTHER HAND, IS
DOWN. WE TALKED TO ALEX WEBB ABOUT
THIS JUST ABOUT 15 MINUTES AGO. NETFLIX IS DOWN AS INVESTORS
ARE WAY CUSTOMER ADDITIONS IN THE FIRM'S OUTLOOK.
FIRST QUARTER NEW SUBSCRIBERS CAME IN AT 1.7 5 MILLION, AND
THAT MISSED SOME FORECASTS, NETFLIX WILL START TO CRACKDOWN
MORE ON PASSWORD SHARING IN THE U.S.
THIS QUARTER, PREDICTING THAT WILL BOOST GROWTH IN THE SECOND
HALF BECAUSE PEOPLE WHO HAVE BEEN THUS FAR I GUESS STEALING
NETFLIX ARE GOING TO HAVE TO ACTUALLY PAY FOR IT.
AND THEN TESLA, CUTTING PRICES AGAIN ON SOME MODEL WY'S AND
MODEL THREES. THE MORE AFFORDABLE MODEL THAT
TESLA HAS IN THE LINEUP. AND ANOTHER SIGN THAT ELON MUSK
IS WILLING TO SACRIFICE SOME OF HIS INDUSTRY-BEATING PROFIT
MARGINS. THEY HAVE PROFIT MARGINS THAT
BIG AUTOMAKERS WOULD DO A HECK OF A LOT FOR. 14%, 15% RATHER THAN 7% OR 8%,
SO THEY CAN AFFORD TO SACRIFICE THAT TO GET MORE SALES.
BUT THE QUESTION IS IF THEY CONTINUE TO CUT PRICES, DO YOU
GO OUT TO BUY IT TESLA, OR DO YOU WAIT FOR THE NEXT PRICE CUT
THAT YOU EXPECT? THAT IS THE PROBLEM WITH
DEFLATION. ANNA: ABSOLUTELY, AND THERE IS A LOT
OF THINKING ABOUT HOW CUSTOMERS BEHAVE WITH EXPECTATIONS AROUND
INFLATION VERY MUCH IN THEIR MINDS AT THE MOMENT BECAUSE WE
TALK ABOUT IT ALL THE TIME. LET'S GET TO THE EUROPEAN
EQUITY MARKET PICTURE. DOWN BY 4/10 OF 1% AND WISHING
IS ONE OF THOSE THINGS WE ARE VERY MUCH FOCUSED ON TODAY.
IN THE EUROPEAN CONTEXT, WE HAD EUROZONE INFLATION DATA CONFIRM.
HIGHER THAN THE ECB WANTS TO SEE IT.
WE HEARD FROM PHILIP LANE AND THAT EXCLUSIVE CONVERSATION
SAYING THAT HE THINKS WE NEED TO SEE ANOTHER INTEREST RATE
HIKE IN THE EXPECTATION IN THE MARKET IS WE WILL SEE A LOT
MORE HIKES, CERTAINLY VERSUS THE FED.
THE NOT MOVED PARTICULARLY BY THAT. AT THE TWO YEAR YIELD, CERTAINLY MOVED BY THE U.K., A
TOP BASIS POINT MOVE ON TO YEAR YIELDS, INCREASINGLY EXPECTING
IN THE MARKET THAT WE WILL GET ANOTHER HIKE FROM THE BANK OF
ENGLAND IN THE MONTH OF MAY. THE EXPECTATION SEEMS TO HAVE
FIRMED BECAUSE THAT CAME IN THE U.K. AT 10.1%, ABOVE 10% ESPECIALLY,
AND NOT DROPPING DOWN INTO SINGLE DIGITS AS HAD BEEN THE
EXPECTATION. SO REALLY STICKING TO FOOD
PRICES. WE HAD NOT SEEN FOOD PRICES
LIKE THIS SINCE YOU AND I WERE VERY SMALL.
GROWTH LIKE THIS, I SHOULD SAY. JUST COVERING OFF THAT ONE, IT
IS NOT ABOUT THE BACKWARD-LOOKING SALES, IT IS
ABOUT THE FORWARD ORDERS WHICH SEEM TO BE WEIGHING ON THE
STOCK TODAY. MATT: WHEN I WAS A KID, I COULD BUY A
CANDY BAR FOR A QUARTER. IT WOULD BE GREAT TO SEE PRICES
LIKE THAT AGAIN. BUT I GET WHAT YOU MEAN, THIS
KIND OF INFLATION IS JUST SHOCKING.
AND I THINK THAT THE U.K. NUMBERS ARE CONCERNING EVEN
HERE IN THE U.S. AS WELL. JOINING US NOW IS CALLUM
PICKERING TO TALK ABOUT THIS. THE SECOND TIME IN A ROW THAT
WE HAD EXPECTATIONS FOR U.K. INFLATION FALL BELOW 10%, AND
YET IT HOLDS FAST. WHAT IS GOING ON, AND IS THAT KIND OF
STICKINESS IN PRICES GOING TO BE FELT IN EUROPE AND IN THE
U.S. AS WELL? KALLUM: I THINK WE JUST NEED TO BE A
LITTLE BIT CAREFUL PUTTING TOO MUCH WEIGHT ON UPSIDE SURPRISES
WHEN WE HAVE FUNDAMENTALS POINTING TOWARD DISINFLATION.
OF COURSE, WE HAVE TO BE CAUTIOUS.
THE BANK OF ENGLAND WILL BE RELATIVE TO ITS FEBRUARY
ESTIMATES SURPRISED I WHAT Q1 AND WISHING HIS THUMB.
NO QUESTION. THEREFORE, THAT SUPPORTS THE
HIKE AGAIN IN MAY. BUT THE BALANCE OF THAT SUPPLY
IS POINTING TOWARD DISINFLATION OVER THE COURSE OF THE YEAR. MONETARY POLICY, FISCAL POLICY
IS BY NOW TYPE. PRODUCER PRICES HAVE TURNED
DOWN A LAW AND MONEY SUPPLY DATA WHICH HAVE BEEN THE KEY
INDICATOR FOR INFLATION EVEN BEFORE THE WAR HAS NORMALIZED.
AND SO I THINK WE SHOULD JUST BE A LITTLE BIT CAREFUL.
IT IS VERY HARD ON A MONTHLY BASIS TO CALCULATE THE STUFF
AND THEREFORE IF THE MARKET IS OFF, IT IS OFTEN NOT A BIG DEAL
IN HINDSIGHT. WE HAVE HAD DOWNSIDE SURPRISES
BEFORE THESE UPSIDE SURPRISES, SO I THINK IT ARGUES FOR
CAUTION. BUT IT DOESN'T ARGUE FOR
WORRYING ABOUT PERSISTENT OR STICKY INFLATION JUST YET. ANNA:
TO ASK A QUESTION THAT PROBABLY SEEMS COMPLETELY APPROPRIATE
TODAY, WHEN DO WE GET TO CUTS FROM THE BANK OF ENGLAND?
IF WE CONTINUE TO SEE FOOD PRICE INFLATION AT THE PACE
THAT IT IS, AND WE DO SEE CRACKS IN THE LABOR MARKET,
WHEN DO WE GET TO THE CUTS PART OF THE U.K. CONVERSATION?
KALLUM: THE BEST BET WOULD BE IN Q4, WE
COULD SEE SOME CUTS FROM THE BANK OF ENGLAND.
BUT THE BANK OF ENGLAND WILL BE, EVEN AS IT CUTS INTEREST
RATES, ARGUING THAT WE ARE NOT GOING TO CUT AGGRESSIVELY, WE
ARE JUST GOING TO GO STEADILY. IT IS A NORMALIZATION OF
INTEREST RATES THROUGH NORMAL LEVELS WHICH WE THINK ARE
AROUND 3%. 50 BASIS POINTS IN Q4.
PROBABLY 100 BASIS POINTS OVER THE COURSE OF NEXT YEAR AND THE
BANK AMENDMENT HOLD. THE KEY POINT IN ALL OF THIS IS
THAT WE'VE RAISED INTEREST RATES A LOT, AND EVERY TIME I
GO OVER EUROPE, I CHECK OUT THE WINDOW AND SEE ARE THE
MOUNTAINS STILL STANDING? THE ANSWER IS YES.
2017 THE WHOLE WORLD IS WORRIED ABOUT THE FED RAISING BY 25
BASIS POINTS. NOW WE CAN RAISE INTEREST RATES
TO 4.5%. AND IT IS NOT JUST INFLATION
WAGES THAT SURPRISED THE UPSIDE, IT IS OUTPUT.
THE WHOLE MARKET HAS REVISED OUR FORECAST UP SINCE OCTOBER
BECAUSE DATA IS COMING IN BETTER THAN EXPECTED. ANNA:
IT IS EASY TO SEE ON A FAIRLY QUIET DAY THE STORY GOES A BIT
GLOBAL AND PEOPLE START TO ASK QUESTIONS ABOUT STICKY
INFLATION GLOBALLY. BUT THERE ARE SOME VERY
SPECIFIC U.K. FACTORS AT WORK HERE, I ASSUME.
EUROPEAN INFLATION IS DROP-DOWN. 6.9% TOTAL NUMBER, AND U.S.
INFLATION IS DROPPED A LOT. THERE ARE LIMITS TO HOW MUCH
THIS TELLS US. MATT: DON'T BUILD TOO HIGH. KALLUM:
IT IS STILL TOO HIGH, I AGREE WITH YOU.
I RECALL OVER THE LAST FEW WEEKS HEADING INTO A
SUPERMARKET AND NOT BEING ABLE TO GET BASICS SUCH AS SALAD.
THERE WERE SOME WEIRD IDIOSYNCRATIC ISSUES IN THE U.K.
LINK TO FOOD SHORTAGES, SO THAT COULD BE PLAYING A PART HERE.
BUT AGAIN, ON A MONTHLY BASIS, LOTS OF THINGS CAN MOVE THE CPI
INDEX. IN THE LONGER RUN, IN THE MEDIUM-TERM, IT IS FUNDAMENTALS.
WE KNOW THAT OVER THE NEXT 18 MONTHS, THE FUND MAKES --
FUNDAMENTALS ARE DISINFLATIONARY. AGING POPULATIONS, FISCAL
POLICIES, ESPECIALLY IN THE U.S., HOUSEHOLDS ARE WILLING TO
SPEND SOME OF THESE BUFFERS THAT THEY HAVE BUILT UP DURING
THE PANDEMIC. SO WE START TO BE CAUTIOUS
AROUND THE INFLATION OUTLOOK, BUT WE HAVE TO WORRY MUCH LESS
ABOUT INFLATION A YEAR FROM NOW, BUT MORE ABOUT WHERE IT IS
FOR FIVE YEARS FROM NOW. MATT: IS BREXIT STILL A PROBLEM FOR
THE U.K. ECONOMY THAT EUROPE AND THE U.S.
DON'T HAVE TO DEAL WITH? IS IT STILL SUBSTANTIAL? KALLUM:
IT IS A LONGER INFLECTION. WE'VE RAISED COST OF TRADE WITH
THE E.U. SIGNIFICANTLY, BUT IT IS NOT AN
EXPLANATION FOR THE UPSIDE SURPRISES THAT WE HAVE NOW.
I WOULD NOT BE SURPRISED IF THE U.K.
SUFFERED MORE DISINFLATION NEXT YEAR THAN THE U.S.
IN THE EURO ZONE, BUT ACTUALLY BECAUSE FISCAL POLICIES TIGHTEN
IN THE U.K., NOT IN THE EURO ZONE OR IN THE U.S.
I WOULD JUST MAKE IT BIGGER POINT HERE, WHICH IS TO SAY
INFLATION IS A BIT OF A SIDESHOW.
JUST LOOK HOW THE WORLD HAS CHANGED.
CENTRAL BANKS ARE RAISING INTEREST RATES.
ECONOMIES ARE STILL SURPRISING TO THE UPSIDE IN TERMS OF
ECONOMIC ACTIVITY. BUT MORE THAN THAT, CENTRAL
BANKS ARE WILLING TO GIVE THOSE RECESSIONS NORMALIZING RATION.
THIS IS IN COMPLETE CONTRAST TO THE WAY THE WORLD LOOKED AFTER
THE FINANCIAL CRISIS. THE WORLD LOOKS A LOT LIKE YOU
WOULD SEE IN THE 1990'S. IT IS NORMAL BUSINESS CYCLE OF
ECONOMICS, NORMAL REACTION FUNCTIONS BY CENTRAL BANKS, AND
THESE UPSIDE SURPRISES IN WAGES AND INFLATION ARE PART OF THE
FACT THAT THE WORLD IS JUST IN A BETTER PLACE. MATT:
SPEAKING OF SIDESHOWS, CAN WE GET A TWO BOX? LOOK AT THIS.
KALLUM: YOU LOOK FANTASTIC. MATT: YOU LOOK AMAZING.
I LOVE YOUR STYLE, THANK YOU FOR JOINING US. ANNA:
I'M GLAD YOU ARE BOTH ENJOYING THAT SO MUCH.
YOU BOTH LOOK FABULOUS, I APPRECIATE THE STYLE THAT YOU
BOTH BRING. TESLA IS CUTTING PRICES AHEAD
OF EARNINGS. WE WILL GET A PREVIEW OF THE
RESULTS. THIS IS BLOOMBERG. ♪ ANNA: THIS IS "BLOOMBERG
SURVEILLANCE: EARLY EDITION." LATER TODAY, AN INTERVIEW WITH
MICHAEL O'LEARY AT 6:30 A.M. NEW YORK TIME.
THIS IS BLOOMBERG. ♪ MATT: THIS IS "BLOOMBERG
SURVEILLANCE: EARLY EDITION. TESLA IS CUTTING PRICES ONCE
AGAIN. THAT IS THE SECOND TIME THIS
MONTH AS ELON MUSK SEEKS TO BOOST SALES AHEAD OF EARNINGS
BEING RELEASED TODAY. JOINING US NOW FOR MORE IS
BLOOMBERG GLOBAL AUTOS EDITOR CRAIG TRUDELL.
CRAIG, I FIND THE STORY SO FASCINATING BECAUSE ON THE ONE
HAND, TESLA HAS SUCH SIGNIFICANT MARGINS IS THE ENVY
OF THE REST OF THE INDUSTRY IN TERMS OF THE PROFIT THAT IT
MAKES ON EACH CAR SOLD. SO IT IS DOING VERY WELL.
ON THE OTHER HAND, IT FACES SUCH INCREDIBLE COMPETITION.
THE BIGGEST CARMAKERS IN THE WORLD ARE AFTER TESLA'S LUNCH.
SO WHAT DO YOU MAKE OF THESE CONTINUED PRICE CUTS? CRAIG:
I THINK IT'S INCREDIBLE BECAUSE WHAT YOU'RE TALKING ABOUT TWO
TO A CERTAIN DEBATE RAGING AMONG THE ANALYST COMMUNITY,
AMONG INVESTORS OF "IS THIS A SIGN THAT THIS COMPANY IS IN
TROUBLE, OR THAT MUSK IS A SORT OF MAD GENIUS WHO IS GOING TO
SORT OF TAKE OUT THE ESTABLISHED CARMAKERS?"
YOU HAVE PEOPLE WHO HAVE STRONG FEELINGS ON EITHER CASE, MAKING
EITHER CASE. I THINK IT IS REALLY INCREDIBLE
TO SEE THE FREQUENCY WITH WHICH THEY ARE CUTTING PRICES THIS
YEAR. THIS IS AT LEAST THE SIXTH MAJOR SET OF PRODUCTIONS THAT
THEY'VE DONE, AND I THINK I AT THIS POINT YOU HAVE TO WONDER
TO WHAT EXTENT THESE CUTS ARE NOT HAVING THE DESIRED EFFECT
OF A BOOST IN DEMAND ON THE BASIS OF IF YOU ARE A CONSUMER,
WHY WOULD YOU BUY RIGHT NOW WHEN MUSK KEEPS CUTTING AND
CUTTING? WHY WOULDN'T YOU JUST WAY FOR A
BETTER DEAL WHICH IS SOMETHING WE ARE ABSOLUTELY WATCHING.
HOPEFULLY AND ANALYST WILL ASK ABOUT THIS. MATT: THAT IS THE BIG PROBLEM WITH
DEFLATION, CONSUMERS WILL JUST WAIT UNTIL THE NEXT PRICE CUT
AND THE NEXT AND THE NEXT. IT IS FUNNY THAT THEY ONLY GREW
38% IN TERMS OF THEIR TOP LINE. SPEAKING OF THE ENVY OF
AUTOMAKERS, EVERYBODY WANTS THAT KIND OF GROWTH.
BUT SINCE WE DIDN'T GET THE 50%, PEOPLE THINK THAT MUSK
NEEDS TO TWEAK DEMAND. WHAT ABOUT GM?
THESE BEHEMOTHS THAT ARE ABOUT TO UNLEASH JUST A BARRAGE OF
COMPETITION. HOW MUCH ARE THEY LOSING ON THE
SAME KIND OF EASYS THAT -- EVS THAT TESLA MAKES SO MUCH MONEY
ON? CRAIG: WE ARE AT LEAST GETTING A
BETTER SENSE OF FORD THAT RECENTLY ADOPTED A SORT OF
CHANGE IN THE WAY THEY ARE GOING TO EARNINGS GOING
FORWARD, WHERE THEY ARE GOING TO BREAK THINGS DOWN BY THE OLD
COMBUSTION BUSINESS AND THE ELECTRIC BUSINESS.
THE OUTLOOK FOR THIS YEAR BEING THAT THEY EXPECT TO LOSE $3
BILLION ON THE TV SIDE. THERE IS PROBABLY A CHANCE THAT
FORD WAS LOWBALLING. THEY ARE PRETTY SAGE ABOUT
SETTING A LOWER BAR FOR THEMSELVES THAN THEY CAN CROSS. IT IS A CASE THAT TESLA HAS A
HUGE ADVANTAGE IN TERMS OF THE SCALE AT WHICH IT IS MAKING
EV'S AND PARTICULARLY, THE SCALE AT WHICH IS MAKING THE
MODEL THREE AND THE Y. THESE TWO VEHICLES ARE DOING SO
MUCH MORE VOLUME THAN ANY OTHER IN THE INDUSTRY, SO THAT IS THE
REAL PLAY THAT MUSK IS MAKING THIS CASE THAT WE CAN BRING
COSTS DOWN, BECAUSE WE ARE THE ONLY ONES WERE MAKING ELECTRIC
VEHICLES AT THIS SORT OF LEVEL OF SCALE. ANNA:
TALKING ABOUT THE OTHER PLAYERS IN THE INDUSTRY, WE'VE GOT CAR
REGISTRATIONS FOR EUROPE THIS MORNING. NEARLY THE MOST RISING IN TWO
YEARS. THEY'VE BEEN HELD BACK BY SUPPLY CHAIN ISSUES OF LATE.
NOW THAT IS GOING AWAY, BUT CONCERNS NOW AROUND SUPPLY
REPLACED BY CONCERNS ABOUT DEMAND. HOW IS THAT SHAPING UP? CRAIG: THERE IS A LOT OF PENT-UP
DEMAND IN EUROPE OF PEOPLE WHO HAVE PUT IN ORDERS AND HALF AND
WAITING MONTHS, IN SOME CASES, MORE THAN A YEAR.
WHAT WE ARE SEEING IS A SORT OF REFLECTION OF WHAT DEMAND HAS
BEEN IN THE BIG QUESTION THAT A LOT OF EXECUTIVES ARE GOING TO
HAVE A HARD TIME SORT OF THING THEIR ARMS AROUND IS WHAT THIS
FORWARD OUTLOOK IS. SPEAKING OF THIS DEBATE FOR
TESLA, AT THE BEGINNING OF THIS WEEK, WE SAW ANALYSTS COVERING
THE EUROPEAN CAR SECTOR. ONE TALKING ABOUT AN UP CYCLE
FOR EUROPE AND ANOTHER DOWNGRADE IN THE OUTLOOK FOR
EUROPEAN CARMAKERS. THERE IS A LOT OF UNCERTAINTY
HERE. I THINK THE AMOUNT OF INFLATION
WE ARE SEEING, THE RISING INTEREST RATES ARE GOING TO
CATCH UP IN ALL LIKELIHOOD AT SOME POINT.
THE QUESTION IS WHEN. ANICOLA THANK YOU VERY MUCH.
TALKING ABOUT THE TESLA NUMBERS DUE OUT LATER TODAY.
ELON MUSK HAS SAID THE CAR IS ONE OF THE LEAST EFFICIENT
PLACES TO PUT SOLAR ENERGY AS WE APPROACH EARTH DAY.
WE ARE TAKING A LOOK AT THE SOLAR CAR OF THE FUTURE. >> PAR SOLAR CARS THE NEXT
EVOLUTION? DECADES OF WORK ON THE SOLAR
CAR MOONSHOT IS SLOWING, TO A MORE PRAGMATIC APPROACH.
SMALLER, LIGHTER, CHEAPER SYSTEMS BUILT TO SUDDENLY
AUGMENT ELECTRIC DRIVING RATHER THAN POWER A ROAD TRIP IN FULL.
THE SUN IS HARD TO IGNORE, AS IT NEVER STOPS SHOWING UP, AND
WITH THE MARKET NOW RIGHT WITH ELECTRIC VEHICLES, THERE IS AN
ECOSYSTEM INCREASINGLY WIRED FOR ELECTRONS.
CHARGING INFRASTRUCTURE. DATA ON CAR SOLAR SYSTEMS WERE
NO LONGER HAVE TO DO ALL THE HEAVY LIVE.
AS FAR AS COST, SOLAR PANELS HAVE STEADILY BECOME BOTH
CHEAPER AND MORE EFFICIENT. OVER THE PAST DECADE, THE PRICE OF SOLAR MODULES PER WATT OF
POWER PRODUCED PLUNGED TO ROUGHLY $.24 PER WATT, AND AT
THAT RATE, A PANEL ARRAY THE SIZE OF A SEDAN HAS DROPPED
FROM $222 TO JUST UNDER $50. CURRENTLY, TOYOTA SELLS A SOLAR
ROOF AS AN OPTION ON ITS PRIUS HYBRID.
AT HYUNDAI, A SOLAR ROOF OPTION IS AVAILABLE FOR ITS SEDAN, AND
THE COMPANY IS DRAWING UP PLANS TO ADD SOLAR PANELS FOR THE
IONIC FIVE, IT'S BREAKOUT EV. AND WHAT ABOUT TESLA?
ELON MUSK HAS STATED HE BELIEVES THE CAR IS ONE OF THE
LEAST EFFICIENT PLACES TO PUT SOLAR.
THAT SAID, TESLA IS PURSUING AN OPTION FOR ITS CYBER TRUCK
OWNERS TO ADD SOLAR. INTEGRATED INTO THE COVER OF THE PICKUP BED AND POSSIBLY AS
--. MATT: I WOULD SAY THE KEYWORD IS
MOONSHOT. IT DOESN'T SEEM LIKELY THAT
SOLAR IS GOING TO BE POWERING OUR CARS WITH DIRECT PANELS ANY
TIME IN THE NEAR FUTURE. ON THE OTHER HAND, 15 MILES IS
NOTHING TO SNEEZE AT. IF THAT IS TRUE, I GET WHY YOU
WOULD PUT THEM ON. >> PLENTY OF PEOPLE PUT SOLAR
PANELS ON HOUSES, AND THEY DON'T POWER THE WHOLE HOUSE.
MAYBE SOMETHING SIMILAR MIGHT HAPPEN IN PARTS OF THE VEHICLE
SPACE. COMING UP ON THE PROGRAM, WE
WILL RUN YOU THROUGH THE LATER EVENTS THAT WE ARE LOOKING
AHEAD TO FOR THE REST OF THE DAY. THIS IS BLOOMBERG. ANNA: THIS IS "BLOOMBERG
SERVEILLANCE: EARLY EDITION." NOW LET'S TAKE A LOOK AT SOME
OF THE THINGS THAT LIE AHEAD FOR US TODAY.
EARNINGS SEASON CONTINUES, OF COURSE.
IT WILL BE MORGAN STANLEY'S TURN TO REPORT NUMBERS,
FOCUSING ON EQUITIES RATHER THAN INCOME IN THAT NARRATIVE.
L'OREAL SAID TO RELEASE FIRST-QUARTER SALES GROWTH
AFTER THE EUROPEAN CLOSE. THE FED RELEASES ITS BEIGE BOOK.
REALLY INTERESTING EVEN TO THOSE WHO MAY NOT PAY ATTENTION
TO THE BEIGE BOOK VERY OFTEN. MADE IT WILL BE LESS DAYS.
TEST WILL REPORT EARNINGS AFTER THE U.S. MARKET CLOSE.
WE JUST DISCUSSED WHAT WAS IN FOCUS THERE WITH CRAIG TRUDELL.
AND THE EFFECT ON MARKETS, COMING OUT OF THE DOJ, WHICH WE
HAVE SEEN SOME WEAKNESS IN THE JAPANESE CURRENCY.
THE DOJ IS SAID TO BE WARY OF TWEAKING ITS CONTROL POLICY IN
APRIL. THIS HEADLINE COMING FROM OUR
REPORTERS OVER IN TOKYO. ACCORDING TO PEOPLE FAMILIAR
WITH THE MATTER, THE BOJ SET TO BE WORRIED ABOUT TWEAKING
CONTROL BECAUSE OF THE BANKING CRISIS, IT SEEMS. MATT: YOU CAN
IMAGINE THAT WOULD CAUSE SOME TO TURN AROUND AND CARRY TRADES.
ON THE OTHER HAND, I CAN IMAGINE YOU WOULD BE WARY OF
SUCH A SERIOUS POLICY MOVE. THAT MAKES PERFECT SENSE.
NONETHELESS, WE'VE SEEN THE DOLLAR REALLY GAIN GROUND NOT
ONLY AGAINST THE YEN, BUT ALSO AGAINST THE POUND.
THE DOLLAR WAS WEAKER JUST ABOUT A HALF HOUR AGO, 50
MINUTES AGO. NOW IT LOOKS LIKE THE BLOOMBERG
DOLLAR INDEX CONTINUES TO RISE. YESTERDAY, WE WERE AT 12.23 ON
THE BLOOMBERG DOLLAR INDEX. NOW WE ARE RIGHT UP AGAINST
12.29, SO SOME PRETTY DECENT GAINS IN 24 HOURS. ANNA:
INTERESTING TO THINK ABOUT WHERE WE ARE ON THE BOJ
CONVERSATION. I KEEP REMINDING MYSELF, THERE
IS ALWAYS THE ELEMENT OF SURPRISE WHICH HE SEEMS FULLY
AWARE OF WHEN IT COMES TO CENTRAL BANK POLICY.
THAT WILL OBVIOUSLY FOLLOW THAT STORY AS IT ARRIVES.
THE POUND, AS MATT SAYS, BACK DOWN TO 1/10 OF 1%.
IT GOT UP A LITTLE EARLIER ON. WE DID SEE SOME FAIRLY SOLID
GAINS FOR THE POUND ON THAT STRONG INFLATION.
STRONGER THAN 10%, DOUBLE-DIGIT STILL A REALITY FOR INFLATION
IN THE U.K. THAT IS IT FOR THE EARLY
EDITION. "SURVEILLANCE" IS AHEAD.
THEY WILL ALSO CONTINUE OUR COVERAGE. THIS IS BLOOMBERG.
