Good morning.
This is Bloomberg Markets. I'm Guy Johnson alongside Kriti Gupta.
And today Tom Mackenzie. Anna is out today.
We got about an hour until we get into cash trading here in Europe.
It's going to be a busy day. What do you need to know?
Okay, First off, let's start with U.S. futures and European futures.
Active futures are higher after Friday. Substantial sell off.
Investors now face a big week of corporate earnings that includes most of
the Magnificent Seven and a raft of European banks.
Tesla has spent the weekend cutting prices.
Elon Musk has postponed a trip to India. Volkswagen employees in Tennessee voting
to unionize. We're going to talk about what's
happening in the car sector. And the U.S.
House passes aid packages for Ukraine, for Israel and for Taiwan.
And it bolts on a bill that will force Bytedance to divest.
Also ticked off critic. In the meantime, a quick check on the
markets. Your top 50 futures higher by 5/10 of
1%. Perhaps a little bit of a rebound from
what we saw in Friday's session. The ten year yield at 464, you were
seeing a yield higher about 3 to 4 basis points intraday Eurodollar 106 cable at
123. As we continue to talk about dollar
strength markets today starts right now. Monday, the 22nd of April.
We got a massive week coming up, folks, in terms of the earnings story.
But first, I think we just need to spend a moment thinking about what happened
Friday and into the weekend. Friday, obviously massive day risk off.
We did see a significant sell off in the tech sector.
The Nasdaq was down really hot futures, as Chris has already been saying,
indicating that we are going to see a bounce back this morning.
But I suspect, guys, that we are going to see a bumpy ride this week.
We certainly are. It feels like it's a make or break,
except I feel like we said this last earnings cycle as well, whereas this big
tech story was going to be the canary in the coal mine, especially when talk
about the US consumer resilience, the kind of read through into the bottom
line supply chain cost and ended up being a giant nothing burger.
And I'm wondering if this week is a lot of the same, The set up feels a little
bit different. The market feels much more jittery going
into this. So it's really interesting to see kind
of which catalyst this week we focus on maybe to drive the market story and
there are a lot of them. Tom, I mean, in video was Raqqa, wasn't
it as a reminder whether or not that's an opening for investors getting a 10%
drop on on Friday and the fact that valuations multiples now for that for
that company will be looking a little bit more attractive.
But yes, that's clearly that's going to be one component, isn't it?
The catalyst and whether that catalyst took effect from a I kind of filters
through, I think Tesla is looking pretty concerning, isn't it, on Tuesday?
But anyone to unpack that story in more detail throughout these next few hours.
Taylor Swift With a new album just to make us feel better over the weekend.
I love that you're bringing T Swift into into the mix what she's about to start
the battle start I took Taylor Swift correspondent don't you know it's a it's
a title that I like to hold I have tickets I'm looking forward to doing
August taking my wife. It's the I know the economics fascinate
you as well And look at the you've been listening back to back songs over the
weekend singing to your neighbor as much grievance but but but at belting out the
tunes and you're going to do that at the end of the show for us.
But the economics interest you as well as they do.
She has a really big effect. And it's interesting at a time when
we've seen, I think, the sort of the the economic effects in the United States,
she's about to start touring here in Europe.
Are we going to see an impact on the European data?
But let's talk a little bit about the critical wants to talk about Enrique.
We'll we'll do that. I was so ready I think, hey, fine, it's
fine. Talk about children's parties now,
doesn't it? It's something like you are so mean
for this week then and I attributed pretty good to but also on Monday
earnings from Verizon, SAP earnings and the software space.
That could be interesting potentially for Germany, of course, listed in
Germany and EU foreign ministers meeting their reaction potentially to that
funding that seems to be coming through from the US for Ukraine Tuesday Euro
area PM ISE We've been hearing from Chancellor Schulz and others, the IMF,
suggesting that maybe the European economy is starting to turn around a
little bit. German economy and those Tesla earnings
can be really, really fascinating on Tuesday along with GM earnings as well.
Wednesday at the ECB, speakers including Schnabel and others, the Boeing matter,
IBM on Thursday, European bank earnings, including the likes of BP Swedbank.
There's a whole list and then US tech story as well.
So maybe you should jump in.
The BMJ is going to do that thing on Friday.
It's a live meeting. Don't expect it to move.
But still very interesting given what's happening there.
What what for you is the most interesting earnings part of the story
then that you're going to be focused on? I think, Tom, these arrest off to catch
his breath and breathe. There's a lot going I think I think it
after the sell off Friday I think tech's got a lot to deliver on.
In some ways, though, I think it's interesting that actually it's the rest
of the market where we're expecting to see earnings actually faltering.
It's big tech that if you look at the numbers that analysts are generating, is
likely to actually be one of the more positive features.
There is a macro rate there here because as we're talking about kind of the sell
off that we're seeing, I've got the S&P 500 kind of pulled up on my screen here,
6% drop from its peaks. We wait for these corrections.
Yep. At least once a year, a pullback of, you
know, 5%, at least 2 to 3 times a year is very normal.
How much of this is simply just a retracement of what we're seeing?
Is this something that at the 10% level you see a big bid back into as opposed
to a reaction of is this the US consumer winding down?
Is this investment in your cloud winding down as opposed to simply plumbing?
And that's why I think perhaps the fundamental also this is just one theory
may not matter as much the likes of Microsoft Alphabet, Tesla from a more
macro standpoint as they may have, say, three or six.
But do you feel that the macro is quite negative right now?
The market is having to deal with a strong dollar, elevated oil prices it's
having to deal with, and it's a really big week for issuance as well.
Yields we're having to factor in as well.
The earnings story feels like it's one of the few planks that are still
supporting maybe the equity market. And if that doesn't deliver and you
remove that kind of is there is there anything really is there anything that's
going to support this market? And could 6% just be the beginning of
it? We've had a very strong run up this
year. If the CTAs, etc., start trending on the
downside of momentum turns. Yeah.
How much could you see as as the drop being you know, I'll I'll, I'll argue
the counter of that which is, which is I actually don't think it's very doomsday
at all to be honest. In fact I think because we've seen so
much optimism because we're talking about the consumer resilient story, it's
actually been. Taken in stride.
Even the fact we had rate cuts pushed out to 2025.
The markets, yes, they sold, but they didn't sell off that much.
You would think that another even talk about a hike was off the market.
More you're seeing more volatility in the bond space in the stock market.
And we talk about this over and over again.
If you see a yield of 5%, does that hit the bottom line of some of these big
tech companies? And yet we're creeping closer and closer
to it and you're not seeing as kind of a volatile or violent response, especially
in big tech as you have seen previously, and how much cash is still sitting on
the sidelines with those. You can clip a coupon of 5% or above,
right given given where the two is right now.
And so is that is that a headwind for equities, the fact that you're keeping
more money in money markets, or is that potential dry powder is going to be put
to play when when you get some clarity? But to your point, guys, we're
interesting when you read some of the analysis like, well, yes, central banks,
high high for longer. Yes that's Duplass But but you know, the
earnings will come through. There seems to be a desperation from
some of the sell side notes. You're reading it.
They may they may well be, yes. So it's a big week.
Yeah, in terms of the earnings story, but the geopolitics is absolutely front
and center as well. And I think that's going to be a feature
of the landscape that we're going to need to pay attention to.
We can't ignore what's happening here in Europe.
The banks are going to be reporting for the first day we get BNP, you get
Barclays. That's going to be really important.
I think there's another bank report. Deutscher Deutsche is going to be
reporting that day as well. So there's some really big and we're
kind of starting the European earnings season in earnest this week.
And again, there's a lot of people saying.
The US got too expensive. Do I buy Europe?
Does that go into reverse? If the Europe the US market gets
cheaper, does that kind of, oh, buy Europe start to fade a little bit?
In theory, right. Especially when so many corporates are
kind of relying on that US consumer resilience story and it hasn't fully
baked through. I think the banks are different though,
and this was why I kind of excited for Thursday for for the very first European
banks. Well, because I just think it's so
difficult. You approach European banks so
differently. And I think at a time when it's quite
clear that kind of peak net interest margins are perhaps in the rearview
mirror. However, Barclays, Deutsche and BNP,
among others, dealing with the fact that you don't have the capital markets kind
of churn that's kind of helping propel some of the Goldman's the Jp morgan's of
the world. You don't have that dynamic here in
Europe to kind of help the earnings up more.
Barclays does have it to a certain extent, but decent sized U.S.
footprint and a lot of freight is Deutsche, though, which is traditionally
been quite strong in FICC. So I'm interested to see because
Deutsche sorry, the GFC did very well in fixed income and want to give that some
sort of translation effect. Deutscher Rely on the volatility of the
bond market, right? These are market makers at the end of
the day. So if you are seeing good numbers come
out of Deutsche Bank on, on, on FICC and say, oh, well this is the market
volatility, if you see bad numbers, is why aren't they capitalizing on the
market volatility? And here in the UK you're going to get
NatWest as well. So a bit of a taste, isn't it?
That's Friday as well. So a bit of a gauge in terms of in terms
of arguably the property sector here. You know, and you tie that to the view
around the Bowie sounding a little dovish, but the net interest margin
story of course salient as well for NatWest as as we weigh up what happens
with the counterparts who are coping. See you coming up on Friday.
The Fed's going into a quiet period, I think, on the second.
So we'll we'll get less fed speak. Phew.
We've got quite a lot of ECB speak this week, but but less fed speak coming up.
So pretty good for this weekend. Do you think she was listening to Taylor
Swift or Enrique? Did she have to turn it off to listen to
what was happening in the House of Representatives?
Oh, I like that Segway. It was a would you call them Enrico?
Because so when I woke up this side of Swifties and some other guy like him, it
was happening in terms of the poll. Look, this is really, really
consequential. Obviously an about turn as well for
speaker. Speaker Johnson is now, you know, job is
arguably on the line. He was picked by the hard right
originally and he's he's had this kind of shift in his view in terms of whether
or not you need support for Ukraine and ultimately come around to that after it
seems in debt briefings from from intelligence agencies.
This is consequential that for Ukraine, is this enormous for Ukraine, for
Israel, for Gaza, Taiwan, for other Indo-Pacific allies, even Iran.
There are so much baked into this bill. On the surface, I'm going to rant here
for a second. On the surface, $95 billion.
You know what's better in the USA than Enrico or Enrique?
But this is this is what's happened when you spend time where the time and guy.
I can't do it. $95 billion of aid going to Ukraine,
going to Israel, going to Taiwan. A lot of this is defense replenishment.
This is a really big deal, especially for Israel or the Israeli part of the
aid, which about getting about $26 billion, 9 billion of which is just for
humanitarian assistance in Gaza. And the wording is really important here
because you're also seeing the same kind of wording again, very specifically in
the Taiwan picture as well, about $8 billion.
You can see it on the screen right now, the breakdown of the aid overwhelming
whelming for Ukraine, but a lot of that is simply just replenishment for defense
as we start to see kind of the Russian offensive gain a little bit more ground
in Ukraine perhaps is getting pull back. Remember, it comes at a really big
delay, though. There are questions about the
effectiveness of this. The other pieces of this bill or kind of
Bolton's on you mentioned in the headlines as well, is broader Iranian
sanctions, this divestiture now for tick tock that's being potentially signed
into law by the end of this week, that coincides with Anthony Blinken's trip to
Beijing. This is not going to look great if you
see by the end of the week President Biden signing this bill into law while
also trying to force some sort of element of diplomacy with China.
That, to me feels like quite a bit of a turn.
And I just think this is really important because we see these $95
billion of aid come through. But it's the sanctions story.
It's the kind of defense story underneath the security bills that I
think are more market moves. And another part of the of the process
or the rationale for Blinken being in China is to pressure them in terms of
some of the components that you get into to Russian missile systems and defense
equipment there as well. So that's that's that's part of it.
China in election years, they know that they become the whipping boy of US
election. So they'll be something somewhere that
will be kind of reverting to the reverting to the mean in terms of their
response to that. But continuing to monitor that obviously
really interesting and tick tock 170 million uses is the algorithm and China
has its own laws around the algorithm of Bytedance's that that is going to come
down, is going to come down to whether or not the US gets access to that.
China will not want them to get access to that algorithm.
They got laws in place to stop that. So what happens?
The Chinese point of view. How do they play this where they are?
Ultimately, they would prove they would be willing to sacrifice ticked off on
the altar of their own national security.
There's no doubt about that. So they will implement those law that
comes into force. At that point, they would I would find
it very hard to see how China allows that algorithm developed in China to be
opened up to security services in the US to ensure that their company continues
to operate in the US. So I find that very difficult to see.
It's going to be an interesting one. There's also another element of the
China story too the Iranian sanctions that are getting broadened out as well.
This is again a broadening out with talk about vessels, ports, etcetera, now
being targeted. There's also a piece of the national
security bill that specifically talks about Chinese banks, Chinese financial
institutions and infrastructure that help support Iranian funding in terms of
oil. So this is actively targeting kind of
not only the supply chain for Iranian oil, but also the funding, which a lot
of it comes from China as well. And I thought that was interesting in
terms of the wording of the bill. That's fine.
It's amazing that we're putting all of this together in one sort of set of sort
of larger set of legislation and bipartisan to.
And so I'm sorry, what is that? When is the Senate vote?
Tuesday. A vote is tomorrow.
Assuming it goes through, it is largely expected to go through signed into law
by Biden on Thursday if all goes well. Okay.
That's going to be a story this week. We'll see exactly how the Chinese
respond to that. Futures are currently fairly positive.
It is Paul services. Just keep an eye on what happens with
the volume a little bit later on. So we'll have to factor that into our
thinking. Coming up, Tesla cutting prices again.
Elon Musk postponing his trip to India. We're going to bring you more on the EV
space. We got to talk more about what's
happening with the wider sector as well. Big capital markets day this week for
Volkswagen. We'll talk more about Volkswagen as
well. Plus, King Dollar Kurt May starts to
become this become a big burden on an currencies I think you probably already
is. We're going to dive into ethics markets
later this hour. Plus, up next, the magnificent Seven
begin reporting. We saw that Nasdaq sell off Friday.
What's next for equities? We're going to talk about what happens
with tech, going to talk about what happens with oil.
We got to talk about what happens with the banks.
We've got some great guests lined up. You want to join in our conversation,
Want to talk about Taylor Swift versus Enrique?
I want to talk about the markets. You want to talk about whatever I b plus
to go. That's the function you need to use.
This is Bloomberg. We're hearing it's all big tech right
now. So some of the headlines are this
quarters about big tech. Big tech has great balance sheets with a
lot of cash and very little debt. Megacap tech companies that are
generating extraordinary amounts of cash flow, they're still actually doing very
well. Tech is a big part of the quality story.
And we still would expect for this quarter in particular for many of those
companies to lead on earnings growth going out for 1 to 3 quarters.
I mean, it is going to start broadening out.
You can't have tech be the only thing that does well if you're starting to see
economic weakness in other places. We're just ramping up earnings season
now, and I think that's going to be a good distraction for the market to be
able to sort of have a look what's actually going on, to see whether the
lofty valuations are actually supported by the fundamentals.
Yes, it's a big week for big tech and we saw a big sell off on Friday.
How does that change the story going into this week?
Let's try and figure that one out. Three things you want to know.
Exxon's now worth more than Tesla. The first time.
That's happened for really quite a while.
The Magnificent Seven are absolutely front and center this week.
And in terms of what we're expecting from the earnings portion, it is
expected that actually big tech delivers the rest of the market, maybe not so
much. Cole Sweet, CEO and portfolio manager at
Smead Capital Markets, joins us now from Phoenix, where it is I think it's 11:15
in the evening. So I appreciate you staying up for us.
You and I have spoken many times over the last few years.
I know you like banks. I know you like the oil sector, coal.
How much would big tech have to sell off for me to, like, big tech?
It's a great question and thanks for let me join you this morning, guy.
How I think about that is really I mean, it's kind of a depressing subject to get
to. We've looked at back at this from a
historical perspective to ask that question.
I think the most analogous time in US market history that we're seeing to
effectively the Magnificent Seven is the Nifty 50.
And the issue becomes, at what price would you pay?
And the problem is these businesses, like all those clips you just ran, they
have wonderful balance sheets. They produce very high returns on
capital. The issue is how do you compound your
money on those high returns on equity with these multiples?
And that's our issue. So I just say, broadly speaking, most of
these quality names, I mean, it would take a 30 to 50% decline, you know, kind
of at a minimum, depending on the name. I'm just to give you a sense, not that
long ago, you know, names like DocuSign were held up in this conversation, guy.
And I think we all go look back. Those super high quality growers like
DocuSign, I think there are, you know, 15% of their prior high in their market
cap that Disney was part of the Nifty 50 guy.
It went down 80%. And so we're kind of set up for, you
know, we think there's going to be a 30 to 40% bear market at a bare minimum out
of the S&P. And we think forward returns of the S&P
over the next decade look like zero. And I might be slightly optimistic on
that number when you include dividends reinvested.
How does the rest of the world look in that kind of environment?
Cole. People are holding up Europe as being
the place you want to be, want to put your money right now.
The US has been so elevated, you want to look elsewhere in the world.
What do you think about that narrative? In light of what you just said, in terms
of your expectations for what happens in the US?
Yeah, I think the drunk monkey could take a dart and throw it at the world
map. And as long as he doesn't hit the United
States, so be the S&P 500. From from an index perspective, that's,
you know, like Buffett Munger have said, the secret to life's work competition.
And, you know, just to give you a sense of how eponymous the US setup is, Guy
this reminds us of this reminds us of Japan in 89, the tech bubble in 99,
Chinese stocks in 2010. This is not like, Oh, we could have a
little problem. This could be a whopper of a problem.
And I think the most dangerous thing that we're looking at is what if we wake
up on a ten year treasury over 5% going towards six, where long term inflation
expectations have moved in market prices?
And, you know, the world asks the question, you know, is the Fed in
control of this? Because government spending, if you go
look at interest rate interest service like Neil Fergus Ferguson was writing
over the weekend for Bloomberg Opinion, I mean, he's spot on.
And I would add one more thing. Peace dividend is deflationary.
A war problem is inflationary and people are very slow to react what's going on
globally, as Ferguson wrote. Cole It's pretty in London historically,
and I love that you brought up the Nifty 50 in particular.
Historically, when you look at that kind of growth picture at that time.
I want to bring it back to the war piece in a second.
That move that you saw on the Nifty 50 was baked into kind of this big tech
idea really being treated as a value play.
And of course, we saw Exxon, IBM, Disney, even Wal-Mart, to your point.
There are folks like Warren Buffett, for example, among others, who have looked
at big tech like Apple as a value play, given simply that they are very exposed
to the consumer cyclicality as opposed to kind of a more defensive play.
What do you say to that in terms of the likes of Apple, for example, or even
Alphabet, which is so correlated to advertising spending that cyclicality in
the investment space being a value play? We got him.
It's been quite a long time since Buffett bought that stake.
Now he he's on that for, I want to say, about seven years.
So it's not like he just woke up yesterday and said, oh, it's a great
value play. You know, they have sold some marginal
stock. And Apple Buffett reminds me of a lot of
old, wealthy people. They hate paying taxes when they've made
a lot of money. And that's that's an extra analogy that
he has to think about as an owner of that business.
So, you know, if I if I was Buffett's investment adviser, I'd be telling him
it reminds me of Coke and Gillette in 98 when he called those the inevitable.
And he later came back five years later and said, hey, I should have been
selling those stocks that time. So when Buffett oozes and gushes on a
company just like any of us, when we're willing to brag about a stock, we
probably should be selling it. And so that's what I think Buffett
should be doing. Do I think he's going to do that?
Probably not. The question, the real question in
Berkshire's cases, you know, can his cash stake overcome how much they own an
apple? Again, that's his problem.
You know, when you look back at the Nifty 50, broadly speaking, they all
lost. There was anomalies like Coca-Cola was
one of the Nifty 50 stocks that did well.
Disney did well. And if I remember correctly, Philip
morris was the third that that compounded.
Philip morris was the best. By the way, the old cigarettes.
Right. So you're looking back at the top of
markets. People are always bullish at the top.
You have to have that. They're all long term investors.
Like SIEGEL said, you almost beat the S&P the following 25 years.
The problem is I live in the real world. If I almost beat the S&P in 25 years,
I'd be fired and out of a job. So, again, that works in academia or in
theory, that doesn't work in the real world.
And I think we're going to prove that, you know, front and center.
We need to get a mini made up of the drunken monkey throwing in the dark.
Anyway, but the US. I mean, a lot of people are going to be
scratching their heads over that cool call.
Where did you land? Regionally, there has to be a geography
that stands out to you. And what within that geography, which
sector is looking appealing for you? Yeah.
Good, good, Good question. I mean, we inter international fund, we
own a lot of Canada just because they're the redheaded stepchild of North
America. And you can buy similar returns on
equity in businesses there. And because they're not American, they
don't have as much liquidity and you don't pay as much for them more broadly
invested in Europe in that fund, too. We really like European banks.
Did you guys see any banks disappear in Europe in the last 18 months?
The answer is no, because the mania sits in the United States.
People don't understand how much money has been made in European banking.
Our largest holding is UniCredit. To your discussion earlier, I think the
thing I'm most interested in this week is what does Barclays do with their
buybacks? Because the UniCredit playbook says buy
as much stock as you possibly can at depressed valuations like Barclays Bank.
Barclays could do. We don't own the stock, but that's what
we've been looking for in the European banks.
You know, we don't own anything in Japan, not because Japan's not cheaper
than the United States. Yeah, the difference is their buybacks
aren't big. They're
always colorful. We appreciate your time running short
time classmate, CEO and portfolio manager at Smead Capital Management.
Plenty more coming up with the focus on the greenback.
This is Bloomberg. Everybody's trying to get the genie back
into the bottle. There's still a risk that there's going
to be an escalation here. And that's what the White House
obviously does not want to see. The United States is has given
conflicting signals for the last three plus years, and that's taken a toll on
its ability to affect events in the Middle East.
Frankly, the Middle East is the least important it's been in the in 50 years.
There is a little bit of geopolitical risk premium built into oil prices in
the seventies. The problem was the oil shock and oil
prices quadruple. That's not going to happen today if
there is a serious escalation, which means a much more wider regional
escalation than what we've seen so far. Yes, we could have a severe oil shock,
but we're not there yet. Bloomberg TV guest on the tensions
between Israel and Iran's potential impact on oil prices.
Relate the general risk off tone that you were seeing in markets, guys, is one
of the issues in this market arguably has been complacency when it comes to
geopolitical risk and what the go to kind of bit is there if you're not
seeing it in oil, when you've seen tiny moves in oil, but not big ones to really
justify that geopolitical risk premium. What do you do?
Do you buy gold? Do you buy the dollar?
Do you buy Swiss the yen? What's the move?
So there's really missing piece on the timing of this morning.
J.P. Barnett and Michael Masi have written
it, talking about the fact that actually equity markets thus far have absorbed
geopolitical risks surprisingly well. Yeah, but at some point that will crack
and maybe we aren't yet at the point where you need to make that trade or
maybe you need to make it in advance of it.
So if you're thinking about the geopolitical story, you're looking at
equity markets, the holding up okay, yeah, we saw a big day Friday, but what
happens next? How much more can we take another big
kind of escalation along the curve? How do equity markets just the crack to
inflate equity markets come from the inflation risk then around geopolitics?
Is that is that where we zero in as as the potential impact for equities or is
it something else? I think there's a number of transmission
mechanisms here. One would be the most notable would
obviously be inflation. I think that certainly seems to be the
fear at the moment. The geopolitics closely matter.
Moments go, geopolitics tends to lead to wars tend to be inflationary, and that
would be certainly the narrative. We've already seen what happens with the
snarl ups in the supply side. If those words persist, is that the
transmission mechanism into equity markets or is it consumer confidence, is
it there are a number of different factors
you could look at here or worse said to be inflationary.
But that's from a supply side perspective.
There may also be a great mechanism for growth as well.
And I don't mean that in terms of being pro-war, for example, but in terms of
history, as you see this kind of defense manufacturing buildup, that really helps
a lot of CapEx, spend a lot of investors, then even the bond market
gets kind of excited about it. Even the Federal Reserve and Central
Bank, they don't hike in the face of geopolitical conflict, which in itself
is a tailwind even when there is inflation on the docket.
The one thing people have been doing thus far, though, is buying the dollar.
And that certainly seems to be the sort of safety trade right now.
And everyone is trying to figure out exactly how you position yourself around
this geopolitical story. So there's some some front running
equity market may not absorbed it completely yet, but look at gold, as we
just mentioned, gold dollar and the dollar.
Where are we now? Well, let's take a look at the
positioning that you were just mentioning.
We've got a great chart on the Bloomberg terminal.
You can find it on GTV go, but really illustrates what guys is talking about
this positioning story. And we know that people have been
position in the long dollar for a while now, but more so recently, I've actually
seen those bets on that bullish dollar surge.
A lot of that is coming from this kind of higher for longer narrative.
The fact that cuts are getting pushed out into really 2025 at least that's the
consensus view by the markets in the morning in the moment.
Not everyone shares that view, though. Let's bring in a contrarian, if we will.
Chris Turner, global head of markets over at AI and she joins us this
morning. You don't think that the Fed is going to
wait till 2025 for that cut? Explain.
Yeah, now we've got a9g, We got three cuts from the Fed starting in September.
And we think there are signs that the hard sector data does catch up with the
survey data and that the Fed will be in a position through the disinflation to
to cut three times later this year. So it's not going to happen this
quarter. And I think market sentiment stays
pretty strong for for the US during kind of this quarter.
But I think in Q3 we expect the environment to turn and where the
market's pricing today, the market's any pricing one and a half Fed rate cuts for
the moment. So we think that pricing will probably
start to shift, favoring more rate cuts probably in the third quarter.
So that's the monetary policy piece of the equation.
The US is very resilient. It's not a secret the rest of the world,
not so much. When you look at the fundamentals, what
is driving the US dollar move? Is it the monetary policy or is it
capital flows? I think it's a bit of everything,
basically. So you've got Chris Yeah, okay, sure.
High yields, high liquidity, the geopolitical risk kind of picking up and
the US energy independence. So if you do see this energy coming out,
the states, for example, and he's stressing the Straits of Hormuz and gas
prices and oil prices such high, I think that would just send the dollar even
higher. So yeah, you talk about how is the
market kind of positioning for geopolitics now?
I think, you know, if you sit in the dollar very high yielding 5.25, 5.2, 5%
like deposit rates, it's not a bad place to sit, you know, given the risks that
we face at the moment. Do you typically on the on the central
banks that you're pushing back on and on the narrative that formed by the end of
last week, then actually there's real divergence going on between the likes of
Fed in the CPI. You push back on that with your
expectation that we're actually three cuts coming through from the Fed.
And what does that mean for Euro dollar? Yeah, we think that's probably going to
be more story for Q3 in Q2. I think convergence, as you say, will be
the story. And you know, it's very clear the ECB is
saying we've got a different kind of inflation in the euro.
So we've had a supply shocks. We don't have the same demand driven
inflation that they do in the States. We've got room to cut and we're prepared
to be independent. So I think that story might last for the
next couple of months or so. Eurodollar could which now.
27 today could go to 1 to 5. But I think one of the reasons why those
people are calling for parity, we're not in the parity camp and we don't think
it's going to stay in parity. It's a situation far different from like
22 when we had much higher energy prices.
The euro zone current account deficit back then was -30 billion to 30 billion
deficit per month. Now you're looking at 30 billion
surpluses. So the sort of brief period of like
dollar strength for euro weakness just in the rate differential, I don't think
it's a good quality story to kind of back for the rest of the year anyway.
So we're looking for sort of temporary dollar strength just into into Q3 and
then that turning around. Okay, one, two, five on euro dollar,
what do you do with the pound? The pound.
I think it's interesting moment last week you saw the market pricing 45 basis
points for easing both from the Bank of England and the Fed this year.
I think that divergence will come through where the market price is, the
Bank of England more like the ECB than they do like the Fed.
And we had some really interesting comments from Dave Ramsden on Friday,
one of the insiders saying actually things are heading in the right
direction. Disinflation is coming and there may be
some signals you never know at the May meeting about a team where we're
actually going for August, but we think are risks.
They go in June. So I think greater pricing for Bank of
England can see cable under pressure and sterling underperforming the euro.
I look at the options market, I look at the yen and oh my Lord, is that a big
position? It looks really stretched at the moment.
Does it get more stretched? And when it snaps, what happens?
Yeah, so we're up at a big level in Italy and they're kind of 155 and we're
talking about with our traders last week, you know, if you take for example,
this Friday, you have a core PCE 0.4, another really so strong US piece of
price data, Italian surge of three 1.55. Can the Bank of Japan really say, you
know we've got a problem with this It's it's a macro driven move.
But I think last week and I want to talk about this, we had this a trilateral
meeting of finance ministers in Korea, Japan and the US.
There was a joint press release and the Japanese and Korean said, we've got
serious concerns about the sharp depreciation and currencies.
So I think that does actually raise the risk that if the dollar does surge and
we see some disorderly moves in dollar and until a Korea above 155 and 1400
respectively, that you actually could see some coordinated intervention
between Japan and Korea, I think it's commonly said it's all currency and it's
your friend back in 1970. Well, there's an echo coming, it seems,
certainly right now. How how successful would intervention be
in other conditions? Right, for intervention.
You need to make sure the market is all the way.
You need to deliver. Surprise.
Is that surprise in place? Could a surprise actually come in terms
of the hawkishness of the BOJ, the message that it delivers as well?
How does this play out? Is the risk intervention?
Is the risk is the risk hawkishness? And are the other markets because it
does market positioning kind of lean one way or the other in terms of which one
would be more effective? Yeah, I think for a sustainable turn in
Italy, you've really got to see the the US macro story changing.
I think some modest increases. We actually do think the Bank of Japan
can hike twice, I think July in October. But as we saw after the last year, the
Bank of Japan hike, the fact that the spreads are so wide that some modest 25
basis point narrowing policy spread and actually GBP Treasury spreads have
continued to widen. Any turn until the yen won't be driven
by the Bank of Japan have to be the US. So I think most probably the Japanese
will hope they can inject a bit of uncertainty.
Now, if you were thinking about selling the yen or the Korean one, you know, you
may want to think twice. If those guys were going to come in and
sell a lot of dollars and you don't quite know where.
But really the big turn will only be when the macro story shifts.
And importantly, if you remember last November and December, when the dollar
turned on the Fed easing story, actually it was a yen that outperformed and it's
the yen is the most undervalued currency in the G10.
So I think when the market does decide that the dollar has turned, actually the
yen will be quite a popular currency to trade that story.
So if everything seems to be a function of the dollar, at the end of the day,
where does election risk fall into this? Where does deficit risk fall into all of
this? Yeah, I think deficit risk, if you look
at the markets over the last couple of decades, there have been very rare
occasions where, you know, treasuries, the dollar sold off kind of hand in
hand. So and there have been occasionally sort
of poor auctions, large tails and, you know, maybe sort of a 12 hour, three
hour move in the dollar, it gets quickly kind of reversed.
So maybe that will be a story for, you know, next year once we know kind of who
heads in the White House. But I think at the moment, investors, I
think they're not making up their minds about this.
You see in the options market there, Kingston the options curve, they expect
more volatility after November. But positioning for that now, I think
it's too early. And I think in a proper play, it will
only be after the Labor Day holiday when we start looking at the polls.
And I think the consensus will be Donald Trump.
I would say a stronger dollar and Biden a softer dollar.
Okay. We'll wait to see how that positioning
unfolds. Chris Lawrence early this morning, thank
you for stopping by to see us. Chris Turner, global head of markets at
IAG. Coming up, we're going to take a look at
which stocks you want to be watching into the open, including UK music
investor Hipgnosis. After the private equity firm Blackstone
made a new proposal to buy the company. We're going to keep an eye on what is
happening there. Big week for earnings coming up.
SAP is going to report a little bit later today.
This is Bloomberg. 15 minutes to go until we start trading
here in Europe. I'm rubbing my hands together because
it's going to be quite the session, quite the week.
It is Passover, so you may see some light volume when it comes to the United
States a little bit later on. But futures at the moment following the
big sell off we saw Friday. We are seeing a positive picture
emerging this morning. Does that continue?
For how long does that continue? And what could change the narrative this
week as there are so many things, your earnings, you've got a lot of supply
notes in the states. You've got central bank meetings, you
got a lot of central bank speak. There is a lot going on.
I'm going to follow some geopolitics into all of this as well.
Let's try and figure out exactly what is going to move markets this week.
Bloomberg's executive editor for Asia Markets, Paul Dobson, joins us now to
discuss. Paul, what do you got your eye on?
Well, as you said, a bit of a gentle start to the week, a little bit more
calm out there. We've seen a drop off in oil prices.
We're seeing U.S. futures up a little bit and some easing
back again on treasuries. So kind of a risk on risk off dynamic is
still playing out in markets with risk on today.
I think this week will be really going to be looking forward to is, of course,
the earnings, but not only I think for the impact on U.S.
equities that like, but also for the rates outlook in the U.S.
given the strength of the economy that we've seen, are people wondering, are
the companies going to be reflecting that in their earnings?
And if they are, you know, does that just give us one more kind of like sign
of the of the strength of the economy and the reason and one more reason for
the Fed to either keep interest rates higher for longer or to start talking a
little bit more aggressively going on from here about the possibility of a
hike rather than a cut. That's the market's big concern and
that's really creating that blowback for the rest of the world via the channel of
a stronger dollar. Got inflation data Friday.
That's going to be a factor that we need to to roll into this as well.
We got a lot of PMI data as well this week.
Is the macro story going to have an impact here, too?
Yeah, I think I think definitely that's all playing around in the backdrop.
I think what we also learned last week is that some of the market's frailties
and weak spots are actually a little bit closer to the surface than maybe we'd
anticipated. And that's what we got certainly across
Asia with a number of the currencies hitting a multi-year lows during trading
sessions, the central banks ratcheting up their fightback as well.
And then even that kind of mini flash crash that we saw in the Mexican peso.
Yes, by the end of the day on Friday, everything was back to where it had
started. But in the meantime, a 5% swing one way
and then the other gives you a sense that kind of there's a little bit of
concern out there. There's not at all the note that much
liquidity and safety net as you might have expected.
So I feel like it's going to be interesting to see how that volatility
plays out and how that reflects in the rest of the market and price action this
week. I love that you brought up the Mexican
peso. I myself love talking about it.
We don't often talk about it enough in this region.
Paul, don't go anywhere. We want to come right back to you.
But I want to bring something to our kind of viewership, the tension here,
because at the core of even the flash crash that you were just talking about
or even the BOJ this week is going to be the currency story.
We just had Chris Turner over at IAG Talk to us about that dollar positioning
here. And I want to bring this kind of a full
screen quotes commentary from around the world to everyone's attention, because
dollar strength has been position for for a while.
People have been long, dollar for a little bit while they've been ramping up
those backs after this conversation coming out of the Federal Reserve.
The concern here is exactly what guy referenced the idea that it's our
currency. Your problem seems to be the message out
of the states. And you're hearing that from the BOJ,
the Bank of Korea, the Bank of Vietnam, even Christine Lagarde over at the ECB
talking about what those currency ramifications may actually look like.
Paul, come back in here and walk us through how big of a danger this really
is when we're talking about currency intervention, parity in Europe?
What is your take in terms of the risk these dollar longs are posing?
Yeah. So I think that I think that it is toxic
for a lot of Asian financial markets and that puts it same respect for Europe is
going to be painful if we think that the ECB is going to be moving ahead of the
Fed or maybe even in a different direction to the Fed with cuts in
interest rates coming in the summer, then that, you know, really could put
the euro under a lot of pressure. People are looking to one eye, fine, but
they're also looking to parity. And even beyond that, you know, if the
pressure really comes in while you know that that may be beneficial for
exporters, it's not going to help the central banks as they try to bring down
that inflation if you suddenly have a much weaker currency.
So probably an undesirable side effect. And and I think that was really telling
the way that the IMF and G20 meetings went last week, where we went into it
expecting it to be all about China. But we came away from it all about the
criticism of the US running to expansionary fiscal policy and how
that's causing headaches for everybody else.
Well, let's let's hover on that a little bit.
The China US Linkages, when it comes to monetary policy, there's a constraint,
isn't there, for that, for the PBOC and the Finance Ministry to push through
with further easing when rates are high in the US and the dollar strength is
there? Is that is that a growth headwind for
China? We underestimated the impacts on China
from from strong dollar. He is definitely.
It's definitely painful, right? The BBC can't allow the currency to
weaken too much because it's worried that that will spur massive capital
outflow. But at the same time, by following the
dollar, which he's doing at the moment, is strengthening the yuan against all of
its other trading partners around the region.
Also, you know, China went to the IMF meeting and they said, hey, you know,
like, why are you so worried about our exports?
You know, we're giving you cheap goods around the world, we're fighting your
inflation problem for you. But of course, that's not the way the
rest of the world, particularly the US and Europe, is seeing it when they're
seeing all of these Chinese electric vehicles, renewable energy equipment
coming into the market and undercutting their own producers or manufacturers.
And that's being seen more as a geopolitical threat or something like
that. And so, you know, there's all of these
are politics playing into it alongside the actual market risks and what that's
doing to the various economies. Well, just to wrap it all up in terms of
the key things that you've got, kind of the milestones you've got to watch out
for this week, your Magnificent Seven, a whole bunch of them reporting numbers.
You got some European banks coming out. We've obviously got big focus on what's
happening with the currency in the BOJ to in there in terms of how you're
thinking about how the arc of this week is going to work, what are you kind of
setting us up for? How are you looking at this week in
terms of kind of is momentum going to build towards the end of this week?
Are we going to get another kind of Friday crescendo?
What are you thinking about the arc looks, how the arc looks?
Yeah, that's pretty, pretty worrying. You know, I'm kind of not planning too
far in advance, just in case we get more of that volatility and we could get the
Egypt politics wildcards as well. I think a 10% drop in the video on
Friday in the afternoon, you know, kind of getting ready for these earnings is
pretty worrying. Again, another sign of that sort of
liquidity situation kind of being a little bit questionable right now.
But it does set us up for the possibility of a big rally if the
earnings do deliver across the Magnificent Seven this week.
And then, you know, like I was saying, if that inflates the the dollar is going
to put the yen under all sorts of pressure as we get to the the Bank of
Japan's policy decision on Friday, our time.
Okay. Bloomberg's executive editor for Asia
Markets, Paul Dobson, thank you very much indeed.
Let's switch focus now and bring in Joe Easton from our equity team.
Not switch focus, but dig deeper on individual stocks in focus.
Joe, what are you looking at? Morning, Tom.
We've got an eye on a couple of the utility stocks here in Europe today
after news late on Friday that New York has cancelled a swathe of contracts
related to the offshore wind sector. Now, this is due to a lack of turbines
that were produced by smaller US company, according to the New York State
on Friday. Morgan Stanley today predicting a
negative reaction in RWA over in Germany, given they were one of the big
contractors there and also warning that they could be a read across for Orsted
over in Denmark as well, given it's another firm that does provide offshore
wind to the New York state. Now, his RWA, we can already say it's
having a bad run over the past year as some of their power prices do decline
down around 20% over the past year. But if we look at the analysts make up
screen, it's a very positive one, almost a clean sweep on that one.
23 buys, two holds, not a single sell potentially.
Some of those analysts might be caught off guard by this news today.
They were also looking at the music space.
Once again, we've got a bidding war for Hipgnosis songs from the UK royalty
investor that we covered last week following a takeover bid.
And Blackstone is coming in over the weekend with a rival offer for the firm.
Now they are offering $1.5 billion, which does top the bid made by Concord
last week that we covered on the show. The price is $1.24 per share, almost 7%
higher. And as such, Hipgnosis does intend to
recommend that bid should a firm offer come through there.
Reminder Hypnosis owned songs done by Blondie, Neil Young, all those classics
that we all love. But if we look at a longer term chart on
this one, it has had a bit of a volatile time.
We saw actually Blackstone attempt to buy some of their catalog a few months
ago. Then there was an issue with the
valuation of some of their music royalties.
There was a review into that. It wasn't as much as they expected, but
as such we are seeing a couple of takeover.
It's actually trying to capitalize on that reduced valuation.
Now finally, we're looking at UK retailers Jefferies turning much more
positive on the sector today. They are citing a potential rebound in
disposable income among Britons. They say that as energy prices come
down, wages are going to remain elevated and that should feed into the UK retail
market. There's also a competitive environment
in terms of groceries which should benefit volumes, the like.
That they see though is over in DIY. They say the macro improvement won't be
reflected in there for a while, so they're not positive on everything.
They have a hold of band and a couple of star ratings, but these three
Sainsbury's, Marks and Spencers next all come up to buy this morning and we could
potentially therefore see a boost in those stocks this morning.
The UK retail index still trading at a bit of a low following the slump that
we've seen over the past couple of days. But those three shares could get a boost
this morning. Equities reporter Joe Easton, thank you
very much indeed. A European futures pointing high by a
little over 6/10 of a percent. The market open.
Thank you is next. Stay with us.
This is Bloomberg. Welcome back to Marcus today.
A few months to go until the start of cash equity trading or some features
substantially higher, higher by about 7/10 of 1% of the euro.
Stoxx 50 puts in 101.2% higher in futures.
What happened to the catch of trade from Friday or do you think that Friday was
more of a de-risking and now people are piling in ahead of that earnings story.
How are we interpreting this? It was very tech heavy wasn't it?
Yeah, not a lot of tech on the Footsie 100.
There's a little bit, but there's not a lot.
True, true. So maybe that's the factor that we're
watching here. Puzzles the US futures are quite
positive this morning. Yeah so maybe that's the message about
half a percent. The Footsie 100 is almost double that.
Yeah. I think the liquidity story at no tank I
think could be, could be the story. And interesting there is a lot of
upgrades in terms of what we're seeing in terms of the retailers this morning.
What's it going to flag? I was reading a short note earlier, Jim
Diamond's recovering 169 carats type to white diamond over the loss, recovering.
What does that get out of the ground? They literally dug out 169.
What we found is down the back of the. But
yeah, so apparently that could be a stock to watch but but it just kind of
reinforces the mining story. So I think there's a there's a sort of
big mining element. But yeah, Europe doesn't have the tech
story but SAP does report tonight. Yeah.
And it's going to be interesting to see how European tech fares in this kind of
environment and what numbers they are going to produce.
Yeah, so S&P in focus here now as well. It just it's interesting in terms of the
future's lagging upside for the first one because commodities are softer in
the session. Oil by Guadeloupe down by 1.4% coupons
Corp has been pushing but copper copper's a little high on was a little
softer copper's a little softer right now.
But yes the upside has come through from copper and to send something else, she's
around $85 about on oil. So we're expecting a positive
performance, much to the annoyance of Chrissie Gupta this morning out of
European markets, it does look like the US is going to bounce back, but today
feels a little quieter. We often say this on a monday.
Rest of the week, though I think could be quite the week.
Yeah, we are going to see an awful lot of earnings coming through.
The European Bank is going to be fascinating.
Big tech, obviously a very big focus. You know, for me it's all about the
consumer, Nestlé, Unilever, those are the questions I have.
There's a headline coming out this morning around Unilever that they may
struggle to find a buyer for their ice cream business.
I'd like to put my hands up. Yeah, I like to put my hand up as as an
ice cream fanatic, but that's going to be an interesting one as well, because
I'm curious about the price hikes. I'm curious about supply chain issues
there. I believe they're reporting, I won't say
Wednesday what they'd be. They'd been real underperformers.
This whole sector has been has been an area where you made the point as well.
Sorry, Go ahead, Nurse. Why don't you make your good points?
I'm willing to hear you talk about it. I will make an exception on on, on the
Guy Johnson kind of blockchain. But you made a really good point about
it being potential inflation has that. If you're concerned about this, then do
you hop back into not only the commodity names, but the consumer names as well
could help the top line? Actually, to Tom's point, the miners are
softer this morning. That's the only area in which we're
seeing significant softness this morning.
Rio is down, Glencore's down. What is up, though, in terms of the
points HSBC, Shell, AstraZeneca, Unilever, GSK, So it's kind of the other
side of the fence in terms of what's happening.
Banks and drug stocks, Unilever up by 1.21%, interestingly.
Yes. So we keep across that one in the ice
cream story around Unilever, as you say, they've had that restructuring
challenge, haven't they, And the softness that's come through more
broadly for that for that stock. The bank we talked about the bank
earnings out of Europe, the investment banking part of the business.
You flagged this guy prior to the Open around Deutsche Bank and others within
that space, the French lenders as well. In terms of whether or not the pickup in
some of those deals is going to is going to really start to, like, come through
in a significant way for some of the European banks.
And how's the trading, what's the trading story going to look like as
well? I think it's going to be interesting
after we saw that Goldman Sachs sort of blowout number, it did so well.
It's also worth flagging this morning and this is something that Bloomberg is
reporting obviously front ran the S&P, the Swiss National Bank is going to
raise the minimum requirement for banks in Switzerland.
It's a fairly chunky increase as well. But to a certain extent, I suspect that
that has largely been priced in as a result of the sorry, the Bloomberg quote
a couple of days ago. Let's talk a little bit about what the
rest of the week is going to look like. Let's talk about what the earnings story
is going to look like as well and how this market is is going to set up.
The growth story, obviously, is the backdrop to all of this.
And there's a lot of macro data out this week and there's a lot of corporate
earnings this week, and it's going to be earnings to see kind of which one of
these two factors ultimately ends up being probably the biggest factor for
markets. On Friday, we spoke to Scott Montgomery
Koenig about all of this. We're getting more optimistic on global
growth. We're definitely seeing a bottoming in
Chinese data, and that's meant that there's been a broadening of the rally
and you've actually seen US equities underperform or perform more in line
with other markets and equities in particular.
What you've seen is that there's been that broadening in Europe and European
tech has done quite well as well. The other thing is the cuts.
It's certainly that we've had stagnation this year.
The ECB is tight and so you need cuts this year to see a rebound in growth in
Europe for 2025. Okay.
Tell us more about Skylar, Montgomery County speaking to this program on
Friday. Joining us now by piece design is Helen
Jewell, CEO, premier for Fundamental Equities at BlackRock.
The sell off on Friday was seeing a little bit of upside coming through in
European stocks. Futures in the US plenty positive as
well. Would you lean into that?
Yeah, absolutely. I mean, the pullback that we've seen and
I think we were all expecting it, that the market was expecting a bit of a
pullback. Markets don't go up in strength.
Is that a healthy, healthy correction we've seen or just a healthy pullback?
How would you characterize it? A little bit bigger than maybe we would
have expected and liked. And there's a few factors for that.
You know, geopolitical risks have been a little bit higher.
And the second, of course, is the big interest rate story.
Interest rates are definitely proving a little bit stickier inflation, a bit
stickier interest rates than we might have expected.
So the pullback has been a little bit sharper than the maybe it might have
been, but a pullback is entirely expected given the levels that we got to
at the end of that first quarter. So absolutely, this does feel like a bit
of a buy the dip kind of rally rather than the the sell the rally kind of
market. Can equity markets rally if central
banks keep rates higher for longer? Can they look through that?
Helen Yeah, I absolutely think that they can.
So interest rates are important, but at this level equities can still perform
well. But there are things we continue to need
to focus on. The first is those two tail risks and
the tail risks. Last time I was here, they felt pretty
small. They definitely feel a bit bigger.
The tail risk of inflation being sticky and the potential of rate hikes.
And secondly, that recession should be concerned, although that one is probably
the one that has shrunk a little bit. The key thing I know you've talked about
already this morning is these earnings numbers.
The earnings numbers do need to come through.
And what we're seeing, interestingly, we saw it a bit last week in some of the
European chip names is when there is anything that is conceived as anything
like not perfect, even if the earnings look strong, the revenue is perfect,
that the guidance is a little bit more cautious.
You are seeing quite a big pullback. And this week, as you've already said,
some big names reporting. So for me, it says earnings numbers have
become almost more important than than anything from a macro perspective, which
is an interesting market. How asymmetric.
Is the position we now find ourselves in, though.
How hard is it going to be to make upside gains from here, given the fact
that the tails are getting bigger and therefore is the bigger risk, the kind
of is the asymmetry lies at the downside, and that's where maybe you
want to be hedging, maybe some of that downside risk as well.
And if you are going to be hedging it, how do you do it?
You know, I do think there is a bit of an asymmetric risk.
Again, if you take the first quarter, I think 7% for the stocks.
It was never about multiplying that by four.
It's more like where we are now. So much more steady market is what I
think most of us would predict for the end of the year versus what we saw in
that incredible first quarter. How do you hedge it a little bit at the
defensives and the quality defensives? Again, if you look at the names that are
doing well already today, these are quality defensive names and that's a
kind of good hedge to play. This one is really exciting for me.
As I say, a responsible, responsible for Europe is the European names.
This really, really could be an interesting time for these names.
The broadening of the market much more relevant in Europe.
The valuation gap, which is now at 40% versus a more traditional 2025, could be
interesting. And if the ECB does cut before the Fed,
which is now basically what's being built into consensus, could also give us
a bit of a pivot for the small caps. The argument recently about buying
Europe has been the US so expensive you want to look elsewhere.
If the US becomes less expensive, why do I look elsewhere?
I'm not sure that is the only argument for Europe.
The other big argument for Europe is the breadth of the market.
It is much more broad in terms of where you find those quality winners, and I
think that that is going to be a much more interesting play.
And of course, the interest rates will also say that interest rates long term
can stay where they are. There is no doubt that if and when
interest rates do cut, that is going to give a boost to that market.
So so that's another thing. The US dollar.
Yeah, we've talked about the strength in the US dollar.
Germany not good for equity markets as a whole, but for multinationals in Europe,
a strong US dollar isn't a bad thing. So there's a lot to play and a lot to be
interested in. In Europe.
I don't think it's just about the valuations will be a guide.
The valuations, of course, are one of the factors.
So if we're talking about a broadening out in Europe, do European investors,
investors in Europe need to be concerned about the mini correction you're seeing
in the states in terms of it being tech led?
Is there a bigger, more magnified read through into Europe or is that minimized
when it comes to the kind of cross Atlantic trade?
I think there is going to be a read through.
I mean, I think this goes back to this week's really important earnings numbers
coming out, particularly some of those bigger, really important parts of the
Mag seven. If they miss, there is going to be a
read across globally that there is no doubt about that.
So there is going to be read across, but the read across is much, much smaller in
terms of the implications for the European market.
You're not going to feel it in some of the industrials names that have done
very well, some of the indie names, aerospace state names that have done
very well. So the read across is much more muted.
But I'm not going to say that there won't be one.
Of course there will. And I think we're all very, very focused
on hoping that those numbers do do well. So that's going to be a key focus.
This can we talk about these bank stocks as well?
We've got three big ones on Thursday itself, Deutsche Bank, BNP and the
Barclays as well. Is the story there still buybacks, which
I think is what we talked about the last time you were here, or is the story
peak? NETRA Net interest income.
So I think it's both of those. But also a third factor, which is the
strategy of these banks going forward. I think what's very interesting,
particularly in some of these larger banks, the acquisitions they're making,
how long those acquisitions are going to be to to play out, that's a really
interesting story for us. There's been some pullbacks in in some
of the larger names that we're leaning into, but that is much more specific for
particular names. There is some dispersion between
different countries. The structure of the different countries
in the banks as structure in those countries.
So I don't think it is any one thing. I think it's a combination of all of
those things and selectivity within those banks which have got the good long
term strategy to play into, which have been markets that are just a little bit
less competitive. And the buyback story that we continue
to talk about and continues to be really, really important for investors
and what you do with energy, with energy companies in Europe, Is that part of the
valuation, the valuation call? Is that is that the appeal and what is
the timeframe that you want to be getting exposure to some of those those
energy majors? So the energy majors are very
interesting. Obviously, the oil price has had a
really good run year to date, a little bit of a pullback, but mainly because,
again, it was probably overdue, a bit of a pullback.
The energy majors in Europe provide a really interesting valuation play in
that value part of the market. And I do think you need to buy an
actually, I think it can be a little bit more of a tactical purchase.
If you look at the valuation levels, it is a really nice way to balance the
portfolio. To your point, go to make it a little
bit more barbells. They were a really interesting place.
They don't look expensive. They have very, very good yields.
So a different way of returning capital to shareholders.
It feels like the risk in those you know, we'll talk about the oil price
being in a range. I think if anything, again, the risks to
the oil price is on the upside rather than on the downside.
And therefore it. Feels like, dare I say it, a relatively
safe play to create a little bit of balance within a portfolio.
So short term tactical, I would say go for it.
If the market feels asymmetric and I'm looking for safety, why am I buying
equities at the moment? Am I buying equities?
What am I buying exercise for that dividend yield?
Am I buying equities for income? Am I looking for the more bond like
stocks? Is that is the way I think about
equities. But getting to evolve, you talked about
at the beginning of the year, that was a that was a capital appreciation story.
The the looking at share prices going up.
Am I still looking at share prices going up or am I buying stocks fall for
something else that that return of money in various different forms?
Yeah. I mean, the first reason you're buying
stocks is that classic line is time in the market versus timing of the market.
We could all get it perfectly right. Maybe today would be a day to be a bit
more cautious. But the second thing is this move much
more into an of course, for me, I'm a little bit bias into the more selective,
active part of the market. Where are you seeing those quality
names? Where are you seeing the opportunity in
some of those small cap names that will respond well when those interest rates
do come and get cut? I think the selectivity is is the key by
small caps in Europe? Yeah, absolutely.
Absolutely. It needs the interest rate selectively.
It needs the interest rate cut to be the catalyst.
And we did think that that would come sooner.
So perhaps we went into Smallcaps a little bit earlier than that.
Maybe would have been the right thing to do if you had perfect foresight.
But some of those small caps are so cheap, devalued, and they're valued at
still recessionary rates. So if those interest rate cuts and I
think it's a when rather than an F really interesting valuation
opportunities there. So we've seen a lot more of our
portfolios broadening out both in terms of the sectors and in terms of the cap.
So absolutely. When does the correlation between bonds
and stocks turn positive? The this is slightly outside of my area
of expertise, but I think when those interest rates do start to move, I think
we all kind of feel like we've been in a holding pattern right now.
Equities do perform well, as I say, at these level of rates, but we're all kind
of waiting. Who will move first and when will they
move? Will the Fed go before the US election?
Will the ECB move or are they going to be too concerned about the implications
if they go too early versus the Fed? So I think we're in a bit of a holding
pattern at the moment when that starts to normalize and we kind of break out of
that holding pattern. I would say that that's maybe when we
get to a more normal correlation, but it's not an area that I have expertise
in. So that's one I'm very happy to hold my
hands up and say, I may be calling that wrong.
We'll see what happens. Maybe you'll be right now.
I hope so. Never know.
Nice to see you. Oh, EMEA for fundamental equities at
BlackRock. Thank you very much indeed.
Quick look at what's happening with the SEC this morning just to see what the
kind of the core of the European equity market looks like.
A couple of things that are probably worth noting.
Ferrari's up, I think it's going ex-dividend this morning, which I think
probably means that that's a fairly strong performance that we're seeing.
Nestle has also gone equity this morning, so just be aware of that.
Novo is a little bit soft, ASML fairly flat, but LVMH is where the gains are
really coming through. But there are, I think, 1330 major
equity stocks that you want to watch out for in Europe this morning.
As you look at your screens. Just bear that in mind.
Let's get some of the other individual moves that we're watching Joey, step
over here. So one area clearly in the green this
morning is the airlines not exclusively due to the oil price declines.
Helen was discussing that oil coming off a bit, down around 1% at the moment.
We're seeing that feed through into the airlines.
Given the expected decline in fuel prices, maybe in the near term.
We did have that report from easyJet last week, really strong bookings and
we'll get more reports out of the sector over the next few weeks.
We're seeing Tui, IAG, Air France, Lufthansa all higher this morning.
And we'll check in on a couple of those deals.
Headlines that we had out this morning. There's a few moving today.
Hypnosis up another 9%. The royalty, the music royalty firm
getting a second paid. This one coming from Blackstone, a rival
bid higher, the one a higher than the one agreed last week.
And we're also seeing Alstom doing a bit of a deal offloading a unit.
This is the train companies signalling business over in North American selling
that that was reported over the weekend and it is getting a boost another
massive move in the UK time and this is in the construction space it's UK
mid-caps they make sealants into the building sector getting a takeover bid
today up 25% for that one in London and over in video games to embrace that in
Sweden announcing that it's going to divide itself up into several different
businesses and investors like in that news today that one's gaining 18% in
Stockholm. Lots going on in terms of the deals
today, in terms of the homebuilders, we did get overnight, we got some data out
of the UK rightmove saying that house prices up around 1% in the last month
and that is feeding through into some of the builders today.
Berkley, Taylor, Wimpey, Baron, Persimmon, all of those getting a boost.
There is a story on the terminal, however, though, about how it's still a
difficult time for first time buyers and not all positive on there at the moment,
but that is a basis 1t0w he had a very small move lower following news of New
York cancelling some of those offshore wind projects due to a lack of turbines
that was down 1% at the open. But it's.
Coming back up slightly, down 0.1% at the moment over in Germany.
Then we've got a couple of ratings changes we did next.
And the UK retailers over in stocks to watch early on getting a boost up 2%.
Jefferies says the outlook is improving as wages stay high, energy prices come
down and that benefits disposable income and spending.
But now the big one is UBS. It's downgraded today over Exane BNP
Paribas. They downgraded on capital concerns.
You remember a story a few weeks ago about UBS potentially needing €25
billion worth of capital. And Exane says they agree with that and
say it's not priced into the shares on terms of UBS share price.
And that one is down 0.9%. Exane cuts it from outperform to neutral
this morning. Joe Easton from IBEX is running through
some of the stocks on the move for us. Thank you very much indeed.
Coming up, it is, of course, a big week for European earnings.
We've been talking to Angel about the implications and what to look for.
We're going to get ahead and a bit more of a deep dive and sense the preview
around the European bank results as well.
Expected, of course, later in the week what to scrutinize with those earnings.
That's coming up next. This is Bloomberg. You'll be next.
York is off to a strong start 20 minutes into the session.
Friday feels like a distant memory, doesn't it?
As you can see, some decent numbers being posted on the screen right now.
It could all change. It's a huge week in terms of the
earnings picture. And a big part of that is going to be
the banks. They're going to report out of Europe
some of the biggest names are going to be picking up the baton this week.
We saw a mixed set of numbers and a mixed reaction to what we saw on Wall
Street. Bloomberg Intelligence is warning that
with the sector trading near a six year high, the outlook for lenders may be
ripe for a little bit of a reset. If if earnings disappoints, are earnings
going to disappoint? What are we going to be watching out
for? Thursday's a big day, but what are the
key figures that we're going to be watching out for?
Let's try and answer that question. Bloomberg's Tom Metcalf joins us now.
Where is your attention going to be this week?
It's Thursday, as you say, right, that it's going to be huge.
You've got Barclays reporting, BNP Paribas and also Deutsche Bank.
So probably three of the biggest European lenders, certainly the ones
that you know, with a big investment bank.
So for me on Thursday, I'm going to be looking at how those banks stack up
against, you know, some of those US banks.
You mentioned, you know, you saw Goldman, you saw Morgan Stanley do
pretty well on the capital markets side. So can Barclays Deutsche Bank in
particular replicate that? But, you know, it's pretty much end to
end. We've got retail banks reporting
NatWest, Lloyds coming out of the U.K. this week as well.
So, yeah, it's going to be a busy one on the retail banking side of things.
What are you going to be scrutinizing, Tom?
Tom, you and the team with that with that particular lens on the U.K.
then? Yeah, I think in the U.K., it's all
about, you know, a bit further along on the news story than Continental Rival.
So for Lloyds and NatWest, it will really be for me.
Are there any big provisions coming through?
Is there any sign of distress really not seeing that?
That's very, very critical and also actually kind of looking out for any
kind of comments on, you know, individual industry things?
We've seen a lot of consolidation or announced consolidation in the U.K.
and Lloyds, NatWest not involved. But whether they guide on, are they
interested in doing an M&A or are they sort of happy with their sort of
offering? I think for me, there's the top things.
What's the read through from the states here, especially when you're starting to
see monetary policy, at least expected to diverge between the ECB and the U.S.?
What's the read through? Yeah, well, it was a sort of a mixed
earnings season over there. Right.
So for me, the the big one on the Goldman Sachs Morgan Stanley side is is
that investment banking sort of strength purely a U.S.
story or can, you know, the Barclays and Deutsche Banks do well there and then
it's kind of tough with Jp morgan disappointed slightly.
But then you had Bank of America, Citigroup doing a bit better, perhaps on
the retail side. So, yeah, it's really on the Continental
side on the, you know, net interest income story is how much do some of
these European banks have left on that cycle.
And it is slightly complex picture. It's not like everyone's kind of going
to be coming off it. I think you might see a few maybe the
Nordics doing pretty well still, but then maybe some of the bigger European
banks saying, hey, we've seen the end of this sort of sort of tailwind, as it
were. What are they going to tell us about
access capital, how much they've got of it, and how much they're going to be
giving back of it? Well, buybacks and dividends, that's
what really boost the shares, right? So the last few quarters we've seen
banks like UniCredit really push that story.
For me, the big thing is pretty smiling at me.
I feel like I still in her question here every time I have buybacks, I have to
remind her that I think that's three months ago.
Continue there go as credit has been saying for months.
I know it's just a how much further can it actually go.
So, you know I think if they can come up with even more programs that be
impressive, I think it's unlikely. But, you know, again, it comes back to
sort of bank by bank level, Right. You know, you've seen some people be
much more conservative than others. But obviously the big changes in terms
of the expectations around rates last week, maybe maybe we even start thinking
about a hike at some point. What does that mean for dealmaking?
How should we be thinking about the high rates higher for longer in terms of the
dealmaking part of the part of these businesses?
Yeah, it probably doesn't necessarily help, but I mean, I get the sense that,
you know, these rates been high for so long, almost like people have started to
adjust. So I don't know if, you know, perhaps
when we're talking about a few months and changes, I don't know how much that
will change people's strategy. And the thing for me is really
interesting is, you know, whether it's actually going to happen or not, picking
up a lot of chatter about deals. Right.
It seems to be top of a lot of people's minds.
Yeah, but I think it's going to be megadeals.
But certainly maybe, you know, intra market or something like that, there's
definitely appetite. And we're seeing it in the U.K.
with, you know, really interesting deal last week in Coventry and Cote.
This is kind of going back to the US read through question because over and
over again you have people saying, All right, well, if there's perhaps not as
much kind of the trading momentum isn't boosting those earnings, perhaps capital
markets activity will. Is the exposure to the U.S.
then still where the growth in capital markets activity happens for the
European banks? So, yes, it's very interesting,
obviously, in Santander making a bit of a push in that within the sense of it
being a global bank, you know, Barclays Investment Bank is so large, it does
have that substantial U.S. presence.
I mean, that's really where you want to be if you're looking to get the growth.
But, yeah, you know, it has been a slow market in Europe.
And, you know, I do have the sense that, you know, it's got to pick up on some
extent. So I wouldn't say it's essential,
essential. But for, you know, to compete with the
say, the J.P. Morgan's the Goldman's, you're going to
need that. It's going to come late to the M&A
comment you made just a moment ago between the banks.
Banking deals don't usually get done in Europe unless there's a massive crisis.
Yeah, I would say that UBS is obviously an example of that, but there are plenty
of others. But there's also this increasing chatter
of capital markets union becoming a greater reality.
Banks usually prepare for kind of critical moments, crises, moments when
they think deals could get done. You're hearing chat that the banks are
getting ready for that kind of a moment. And do you put the capital markets union
stuff kind of plug that into it as well? Are we heading for a moment where
actually Europe may start to consolidate in a big way?
Well, certainly a lot of the big, big name executives would love that.
And I think I wouldn't couch it sort of within the crisis.
What we're hearing is sort of European executives go, we've got to move beyond
big mergers only happening during a crisis like UBS and Credit Suisse.
In fact, they're saying, hey, we need to get the regulation in such a way that we
can actually push through cross-border mergers because it's clearly needed, you
know, at least according to the executives.
So I think that's probably what they're pushing for.
But the message as it's always been, is that we need to get those capital market
reforms in place first. So that's why I'm not very optimistic we
will see some kind of huge cross-border deal.
Okay. Tom Metcalf, thank you very much indeed,
with a fantastic set up in terms of what to look for within the bank earnings
story this week. And of course, later in the week.
You don't want to miss our interview with the CFOs of Deutsche Bank and BNP
Paribas. So we'll be having those as well and the
reaction. Stay with us for more.
This is Bloomberg. The people.
They're not showing fame. I think that's the UAW.
I think that's the celebration that we saw this weekend in Chattanooga as the
VW plant there voted to join the UAW, the United Auto Workers.
It's a landmark victory for the union that has been organizing in a long,
hostile US South. What's next?
Obviously, Tesla is on the on the list. President Joe Biden congratulating
employees, calling the vote historic. What does it mean for Volkswagen?
I think is another question that we need to ask.
It has got a busy week. It's had to deal with that this weekend.
Plus, also, it's got a capital markets Day that is going to be taking place in
China. China Day this week as well.
Let's talk about the significance of the UAW vote, first of all, only joining us
from Berlin, Olli. How what does this mean for VW?
Yeah. So there's a lot of onlys here right in
this story. And this is why it's so significant for
VW and for the UAW. This is really the only major assembly
plant that Volkswagen has in the United States.
As you say, it's in Tennessee. It's got about 4300 workers.
So it's significant because it's also their EV hub for the United States in
North America. And this is going to be their profit
center going forward. And guess what?
Their costs just went up potentially with this unit unionization.
It's also the only UAW unionization shop of a foreign auto company.
So it's significant for that reason. And it's only it's also the only one to
unionize in the South. All of this is part of Sinn Fein's
movement to try to bring this union backs in terms of what it means for the
car companies. I mean, Guy, we talked about this, the
sort of gap between the wages, between union non-union workers is about a $5
gap overall. That's just for the wages for benefits.
It's about $11 gap. But we were talking about this when
there was the big strike for the big three at the end of last year, pre
strike, Ford was paying about $64 an hour for labor, where the foreign
automakers were paying just about 55. Tesla, that's about 45 to $50 an hour.
So these are really significant gaps. And after they struck those deals, guy,
they had to be Ford coming out saying that it's going to add $900 per car and
shave about 70 basis points off of margins in an industry where they're
really fighting for every single margin, a basis point on the margin right now.
So the impact is real. What is the broader context for VW
specifically their knowledge? Yeah.
So we talk about the unions for Volkswagen.
Obviously, this is a company that churns out more cars than almost any other
company in the world. But you wouldn't know it by looking at
their market cap because investors have really lost some confidence in partially
their EV strategy, but also what's going on in China.
The good news for Volkswagen is that they're used to dealing with unions.
It's a major part of their their association here in Germany.
They hold a lot of the board seats. But when it comes to the sort of China
story and how they're going to regain market share in China, I mean, you look
at their numbers, last year, they sold just about as many cars in China as they
did in Europe. That is not a good omen for their growth
market. And that puts the focus in terms of
growth on the United States, where, again, you've just had a major
development in their cost base in the United States.
I mean, they only have about 4% of the market share in the United States.
That's less than Tesla. So that is a potential growth area.
And as we've been discussing, again, that just got a little bit tougher for
them. Ali, this has been an issue for a lot of
European companies. Stellantis, for example, notably saying
that it ate into their bottom line. If we see more unionization in the
states, which, by the way, the Biden administration is very much campaigning
for. What is the read through?
Yes. So this is a major push for Sinn Fein,
the union boss, who probably no one had really heard about on the international
stage until a couple of months ago when he got that historic deal from the big
three, about 25% on wages, 30% total for all the union workers in the United
States. When you think about the unions, I mean,
the UAW had about 1.5 million workers in the 1970s.
It's down to less than 400,000. He has said he wants to get that number
up by 150,000 workers. He's targeting about 16 companies.
So really what we need to watch out for all of these foreign automakers, whether
it's Mercedes, BMW, Toyota and of course, also the some of the domestic
ones, Tesla is going to be in focus. But in terms of the next shoe to drop,
Mercedes, they have a production site, a plant in Tuscaloosa, Alabama, and that
is where they're going to have the next vote in the middle of May.
So you could see this slowly coming to the fore.
And again, as you mentioned, creating this is something that Biden has been
supportive. But guess what?
Even candidate Trump has made a huge amount of noise about basically erecting
trade barriers and trying to keep production in the United States, saying
that even if you're producing cars in Mexico, that's not going to be good
enough to get them into the United States for free.
And only to your point, President Trump making a very big bid for the
endorsement of Sean Flynn, which of course, he then lost to President Biden.
We thank you so much. Bloomberg's Olivia Cooke there walking
us through the implications of the union votes in the state and what that means,
of course, for the European carmakers. Let's stick with the story of car
makers, though. Elon Musk has postponed a trip to India
blaming pressure, pressing issues, excuse me, at Tesla, which spent the
weekend cutting price, sports cars and driver assistance software.
This all ahead of earnings due out tomorrow.
Out tomorrow. I'm gonna get my words right here.
They are due out tomorrow. They're expected to confirm a first
revenue decline in get this for years time.
Let's bring in our global autos editor Craig.
How much trouble is Tesla in? I think the fact that we're seeing such
kind of, you know, rash moves by Musk. I think it really speaks to this idea
that, oh, no, that things are not going well here.
And we've seen in the past that when his back is up against the wall, things get
really sort of hectic really fast. I think back to 2018 when he decided on
a whim to tweet that, you know, he had the funding secured to go private.
We're maybe not quite to that level yet, but we are sort of approaching that
level of chaos just with the amount of of change happening, some of it which is
really unsettling folks within Tesla. There's really concern about this idea
that he's going so far as to put aside plans for a $25,000 car and sort of, you
know, put it all on on robo taxis, which he's been talking about for years, but
which, you know, Tesla really hasn't made a whole lot of progress with
standing up the infrastructure it needs to do that.
Is that a bit the company type move? I listen to a podcast recently he was he
was on it playing with the soundboard and he was talking about the company
type business. This is a bet, the company type move.
And how do I see that, if that's the case kind of versus the earnings that
we're about to get? Yeah.
I mean, I honestly I think it is in the sense that, you know, if you think about
what a company like Waymo or Cruise has done, this is not a cheap endeavor.
This is not something that you can sort of, you know, just sort of make little
bets here and there. You have to hire a whole lot of people.
You have to set up infrastructure, too. You know, let's let's say your car, you
know, gets into a position where you need it to move out of the way for some
sort of emergency. You know, I don't know that Tesla's it.
Yeah, I don't know that Tesla has, you know, remote operators or a system to
set up, you know, to handle that. We've seen that bedevil companies like
Waymo and Cruise that have raised billions and billions of dollars.
And even they have had challenges with that.
And they're, you know, several years into testing these self-driving cars out
on the road. So you got that and then you got the
earnings coming up. Can I ignore the earnings?
Therefore, I guess what are the if we're if we're into this kind of stuff, what
are the earnings going to really tell me about what's going on in this company?
I think at this point, you almost sort of you know, it's a given that the
earnings are not going to be good just based on the fact that this company had
really, really crummy first quarter deliveries.
Nobody was expecting them to be this bad.
I think the real concern for investors is, okay, so what's the plan?
Are you really going to put this $25,000 car off?
Are you really making this, you know, all in on Robotaxi bet?
I think, you know, Musk has not been his you know, his he's been his own worst
enemy in terms of not being clear on that and sort of giving people every
indication that indeed he's willing to put this $25,000 car aside and really
put it all on autonomy. You you talk about the challenge around
the deliveries and says which part of the world is it because the cost
cutting, it just kind of screams desperation at this point because it's
not obviously the first time they've had multiple price cuts and they seem to
start in China and then roll them out to the US and parts of Europe, which part
of which part of the world is looking most vulnerable to them.
I think China is the most competitive and you hear Musk say that himself.
I think that's where they brought prices down the most.
I think it's also in fairness where they can afford to do, you know, the steepest
price cuts in the sense that their cost base there is the lowest that it is in
the world. And yet I do think that this is part of
why the Robotaxi pivot is so risky. We've seen these sort of unintended
effects of slashing the heck out of your prices, what it's done to a company like
Hertz. You know, we saw the CEO essentially
lose his job over it. And, you know, that is not just
something that that affects, you know, big fleet companies.
That also affects your customers. What do you feel if you're, you know,
model Y that you purchased a year or two ago suddenly is worth, you know, 30%
less than you thought it was going to be?
You're not a particularly happy camper and perhaps not inclined to buy another
Tesla. How do you disentangle the broader
slowdown in the EV market from the idiosyncrasies of Tesla?
It's a it's a great question. I think, you know, the EV market in the
US, it's almost entirely been a Tesla story for years now.
I. Think that's changing.
I think Tesla is still very much in control of that market.
Europe is is much more competitive. China is even more competitive.
I do think that that's part of what's going on here, too, is that this is has
been a story about one company and that is no longer the case.
You have BYD really emerging in the last couple of years and you have the sort of
legacy carmakers having no choice but to take EVs seriously, to try and come up
with, you know, some semblance of the valuation that Musk has achieved the
last few years. Well, the valuation is so interesting
here, because if I remember 2018, there was it took a while for Tesla, given its
massive game to actually be included in the S&P 500 because of the volatility
clause that was built into the way indexes are made.
I'm not suggesting in any way that they're going to get booted from the
index, but I'm curious about the read through into the actual stock price
here. Is this still a a growing business
that's getting more global? And is that how it's being viewed or are
we starting to view it as kind of more fundamentally big tech and more
established in that regard? I think we've seen the Wall Street
analysts sort of slowly but surely come around to this idea of, oh, no, this
growth company is no longer you know, it's it's run out of growth.
And I think there's a concern now about, you know, our vehicle sales are actually
going to drop this year if they don't have a cheaper car on the way.
Are they going to drop next year? You know, sort of where is the bottom?
And people are really struggling to get a handle on that because the new product
that they do have is a really difficult to make expensive pickup truck that is
also very polarizing. I mean, the irony of it all and we just
showed that chart on the air and guys mentioned as well that Exxon is now a
bigger market cap than Tesla, which by the way, got booted from the Dow Jones
because it was considered kind of won lost that much money, but also because
it was kind of old oil cratered, global autos under walking through a little bit
of everything. We thank you so much.
Coming up on the program, a $95 billion aid package with a little bit of a bolt
on pieces while forcing Tiktok's Chinese owner to divest its ownership.
A lot of fast track to becoming law in the states.
We're going to bring you the details next.
This is Bloomberg. This is Marcus today.
We're about 45 minutes into the European trading day.
Think green on screen. We look at the equity market.
Is this a little bit of positioning ahead of the earnings story?
That's something to be determined as we get through later this.
We've got big oil earnings in the states.
We've got tech earnings, of course, bank earnings here as well.
And of course, the consumer. I'm really excited about Nestlé and
Unilever. That's just one thing on our docket all
week long, as is the US political story, which, by the way, is having
ramifications for the rest of the world. I've been obsessed with this all
weekend. I spent my birthday, I watched the vote,
$95 billion of aid going to Ukraine, Taiwan, Israel and nestled into this
national security package is sanctions on Iran, a potential divestiture for
tech? Talk from BYTEDANCE as well?
And then what to do with those Russian frozen assets.
Net net, the biggest piece of this, $95 billion has been $61 billion just
towards Ukraine. Replenishments in terms of defense.
Already this morning, you're seeing a little bit of an uptick in the Ukrainian
bond story, their 2027 bond rising the most in the
universe this morning. Yeah, and to be clear to viewers, may be
following it in a granular detail. The House had always been the problem.
The Senate was going to pass it. They had their own plan for Ukraine.
The president was always going to greenlight it.
So we expect it to get to the president's desk by the end of this week
and those fund flows and that military to get to Ukraine, A really, really
interesting. And then there's the tick tock in the
Iran past, the tick tock parts interesting because the timing is as
soon as Blinken goes to China, which really the Ministry of Foreign Affairs
has confirmed this morning, April 24th, the 26th, that'll be a fun discourse,
I'm sure, as President Biden signs that into law.
I'm going to come back to it if you want more, see the beginning, the
conversation. Your view is that maybe the Chinese just
go, we're not opening up the algorithm. There is legislation in China that
permits does not permit the algorithm maybe to open up the Foreign Office.
Well, we'll get Alex Webb's take on this as well.
But my I just have not seen in recent history examples of a the Chinese
current Chinese government concerned about sacrificing one of their companies
if it's in the interests of national security.
And that's how they believe it. They do have the laws in place
domestically to ensure that you have to get permission.
If you open up an algorithm that was created in mainland China, it
domestically, if that's what the US are calling for, to to be have that comfort
level, I don't see China relaxing on that or giving way on that.
Things could change, but that would be my take right now.
Let's bring in Alex Webb then, who's got the details on this story around the
tick tock, potential tick tock divestiture, then a bill forcing
Tiktok's Chinese owned bytedance to divest its ownership is on a fast track,
of course, as Chris was saying. Alex, what do you take from from what
we've been hearing out of Washington and how significant this could be for tick
tock of their efforts to lobby around this failed?
What is it looking like now in terms of the future for tick tock in the US?
Yes, it certainly looks that way. We have we're in a similar situation
maybe five years ago where it looked under like under the Trump
administration, something might be pushed through.
We saw a bunch of big tech companies, names like Oracle, Microsoft sort of
hovering around the prospect of being able to acquire Tick Tock from
Bytedance, the parent company in China. It really doesn't look good for their
ambitions to retain ownership of it. The the bill has been, you know, as you
say, has passed the House. It looks very likely that it's going to
pass the Senate. And, you know, as you said, the
president will sign it into law as soon as he can.
Immediately after that, they then have a year to either divest or divest or it'll
be banned in the U.S. Now, they've said they will take all
legal recourse to try and prevent this. The question is whether that gives them
a stay and actually starts again or whether that year will continue to
progress. I think that would partly be down to the
interpretation of the relevant judge. So they are certainly on that kind of
last legs in terms of trying to prevent this.
So a band is becoming more likely is matter.
Therefore the winner from this Alex. It's Instagram generally has been the
company that has benefited or is competing most keenly with tik-tok
little bit of YouTube as well. If get YouTube also developed a product
that is very similar to Tick Tock, we also have to see who might acquire it.
If it's a sale, if it's an IPO. You know, there are names out there who
would like to have a piece of tick tock now.
Access to capital isn't quite as good as it was a good few years ago, five years
ago, as I said. So maybe there will be less interest on
that basis. But it is, you know, the fastest growing
social media app out there. Anybody who maybe doesn't have a great
social media business, Microsoft is one of those names might that will be
interested in in trying to get their paws on it.
It's talked to us about the secret source of tick tock then, which is this
algorithm and the scrutiny that it's coming under in the in the US.
If it gets divested, if another company comes and buys up tick tock for the US
business and they don't have access to that algorithm, does is it still really
tick tock? I mean, how are we thinking about that
part of the story? Well, it's kind of unclear how the
semantics of that would work. It looks as though, you know, previously
that discuss you just have to license the algorithm, but you may not
necessarily have the ability to look under the hood.
Of course, the way that this thing works is you don't go in as you do with so
many other apps. You know, if you get Spotify, for
instance, it will ask you what music you are interested in, right?
TikTok doesn't do that. It just starts serving you things.
And, you know, actually remarkably quickly manages to determine to
ascertain what the fields are that you're interested in.
And interestingly enough, is a little bit different from some of the other
more established social media apps. It does regularly surface different
types of content into your feed just to see, oh, they're going to nibble on
that. Oh, they are right.
So that's the new field they might be interested in.
And that is a really interesting thing that has actually changed the dynamics
of social media considerably because it doesn't matter to the same extent how
many existing followers you have. Somebody can start from scratch today
and be getting a million views on a video, but then the next video might
only get 3000. So it is a big change in in the sort of
economics of social media apps, how the licensing agreement might work.
That's a detail that I'm yet to see any clarity on.
Mayor Bloomberg's Alex Webb, we thank you so much for walking us through that.
I think it's a really interesting dynamic when you look at kind of whether
or not even one exposure to the Texas story, which brings me to a vital
question. Do you have to know the answer to that
question? I had to say, do you even have a
Facebook account? You know what YouTube is?
I'm aware of YouTube. YouTube's.
YouTube. Yes.
Facebook. Okay.
It's been around for a while. We're working on Guy is smashing through
social media barriers without Tik Tok. He's massive on Tik Tok and going viral
as as we speak. Now, I have avoided I have avoided Tik
Tok just on the amount of detention I have been on.
So maybe I've been pushed by some to get on that.
I feel like you would have a lot of good of a track record, but the reason I
bring it up is because Alex was kind of mentioning who the main competitors are
to your question matter, etc.. If you actually look at Instagram, which
again, Guy does not have the page, by the way, I totally I think
you advantage, but you can actually get Tik Tok videos on YouTube or Tik Tok
videos on Instagram as well. So there's kind of cannibalization
anyway, as opposed to directly competing.
I can see TikTok videos on my Instagram feed and I think that's an interesting
dynamic in terms of is there kind of a instead of a competitive end, is there a
tailwind to it? Didn't Taylor Swift just put her music
back on TikTok? I know you would bring it there just to
bring it back full circle. I'm not sure Enrique is going to be on
there, but we can defend. I'm sure he would be.
I Oh, my gosh. Fair.
So, Meme, what goes around comes around. It was pretty birthday this weekend, but
that has now passed on. Okay.
Let's talk about another element of all of this story.
As part of this package that we've seen coming out of the House over the last
couple of days. There is also an element which includes
new sanctions on Iran's oil sector. Paul Wallace joining us now to discuss
this. Paul, how effective will this be?
Hi, guy. Well, if the US implements these
sanctions as they're put on on paper, then they could be pretty effective in
curbing Iran's more than 1 million barrels a day of of crude exports.
The issue is that the market clearly doesn't think that the White House will
do that because it's intent on keeping oil prices down or at least steady.
And I think that's one of the reasons why oil is is is lower today quite
heavily. We're seeing, Brent,
close to $85 a barrel and WTI below $82 dollars a barrel.
Simply put, traders do not believe that the US is going to do all that much to
stop those Iranian barrels coming on to the market.
The US president looks at gasoline prices, pump prices in America very,
very closely. The last thing he wants.
With the November election looming is is higher prices at the pump.
So that's that's the big issue here. Just how hard will Joe Biden go in terms
of enforcing these sanctions? Why hasn't the US imposed sanctions
property properly? So there's been a lot of reports from
there that basically the US is back on on implementing the sanctions that are
already in place to try and ensure that prices didn't get too high on oil.
Why have they been? Why have they taken that route?
Why have they taken more action more quickly?
What's been the thinking coming through from DC?
Well, I think it's certainly the perception among most oil traders that
the US isn't doing all that much. That's what they've been arguing for a
long time. And in their view, it's simply a case
that the US is nervous, or at least the White House and the Democrats are
nervous about oil prices. Pump prices in the US at least going up
too much, too much. The US has always argued that it is
enforcing its sanctions properly and it completely
pushes back against the notion that there's been any
any sort of deal in secret with the Iranians, that it would go easy on
sanctions in return for Iran easing off what some of its proxies do
in the region and so on and so forth. And I think to be fair to the US
government, it's extremely difficult to stop Iranian oil getting onto world
markets. I mean, short of sending a big naval
flotilla to the Persian Gulf or to the to the Arabian Sea and physically
halting these ships, which would be pretty escalatory and very risky.
And it's very difficult to do that. Some of these new sanctions seem to
allow the US to target buyers more and more effectively.
And those are teapots, as we call them, smaller refineries in China.
And so there are a lot of moving parts here.
Wal-Mart's Paul Wallace walking us through those sanctions implications.
We thank you so much for for that insight.
I think what's crucial is the last piece he said as well is that there's a China
component to the Iranian sanctions as well, which I think is, again, why I'm
so fascinated with this aid package. Yes, $95 billion is a lot, but the
national security implications underneath targeting Iran, China,
Russia, and we haven't really seen that priced into the markets.
It's not something people are really paying attention to.
I wonder if that changes is because the markets realize that these sanctions are
ineffective largely, but history suggests that they've been effective and
China is the buyer when it comes to Iran.
Why the global economy, don't you think? In metals, because of Russia, you're
seeing it with oil because of Russia. And and that story continues.
Blinken's going on Friday. I suspect he'll talk tough, but what
impact that will actually have? Does this set the stage, though, for
more election risk? Is this something that the markets pay
more attention to in six months time, 12 month time, as opposed to right now?
We've got to keep a very careful eye on the oil price.
It's a big meeting taking place in Rotterdam as well.
Bitcoin first taking place in Rotterdam today.
So you may get some headlines out of that a little bit later on as well.
A big week coming up. Let's look at what comes up next.
The chairman of the luxury fashion house Valentino joining from France.
This is.
