NATO Summit | The Pulse With Francine Lacqua 07/11/2023

[Music] newsmakers and Market Movers this is the pulse with Francine Lockwood well good morning everyone and welcome to the posts I'm Francine like we're here in London with the consularizations that matter and here's what's coming up on today's program a tree of fed officials say more rate increases are needed to quell inflation stocks and commodities rally on speculation that China is preparing to boost to economic stimulus a boost for NATO turkey agrees to back Sweden's membership as leaders of the alliance meet for crucial summit we're live in Lithuania plus the pound jump says UK wages rise more than expected maintaining pressure on the bank of England to keep hiking rates you can see a sterling 128.73 so if you look at the European markets map a lot of the focus will be on the UK yesterday we had this pretty incredible story for the moment it's pretty much flat but we had this incredible story looking at valuations for the UK the fact that they are probably the most attractive overall simply because of the Grim picture does that mean we'll see a bit of bargain hunting for certain investors wanting to come in and actually look at the ftse 100 the picture across the board look it has everything to do with inflation where expecting a lot of fed speakers later today and the stock market yesterday really kicking off on a cautious note you know Traders not only sifting through the marks of fed officials but really it's earnings season that starts in full on Friday when we have a lot of the U.S banks if you look at some of the concern resurfacing about the impact of many you know economic cross currents on corporate profits it's probably the big impetus that could make or break a lot of these markets now we have three great charts for you everything stems from China so we look at Juan longer term but really this is was once the economy that was the Envy of all Emerging Markets now a lot of questions on China and what it means going forward there's also a lot of questions on whether this will be like Japan with no growth and whether we continue exporting deflation across the world so longer term remnimbi 72068 and really encapsulates some of the angst out there on China again signaling today more economic support measures saying that they're imminent because authorities are worried about of course the ailing property Market but longer term questions on exactly how much more president XI can do then the other story we're watching very closely is the NASDAQ this is an important one because if you look at how some of the big concentration of some of the big tech companies are playing out in the NASDAQ even the NASDAQ is worried that they're adjusted too long if you look at the six biggest companies in the NASDAQ that were boosted by AI they now make 50 of the weight and so we will see changes on July 24th scarce on details on exactly what this means but again when we read the story we thought we should spend a bit of time thinking about this over concentration and what it means for your portfolio building and then finally we talk about treasury yields I love looking at treasury yields being inverted I know I get quite a lot of pushback on that for Market participants but it's a closely watched barometer of recession risk and it's now around actually 27 basis points since March remember it was inverted by a 111 basis points so that flattening yield curve uh you know changes everything for how we look at bonds the other story today and we're getting break news out of tenosec this is a Singaporean wealth fund one of the biggest in the world that posted a minus five percent return for the full year of 2023 that's the worst showing since 2016. so we'll delve a little deeper into what this Sovereign wealth fund got wrong now later this hour we'll also hear from the temasek chief investment officer Rohit sipal Milani he's speaking to Bloomberg's as Linda I mean exclusively so China has signaled more economic support measures are imminent after authorities took a step toward supporting the ailing property Market by extending loan relief for developers while joining us now Australia Beamish Chief Economist and head of macro research at TS Lombard Freya as always great to speak to you especially on China all right this was the Envy of most Emerging Markets what went wrong in China well they they followed the same Playbook as as Japan and Korea before them and they got the same the same response you kind of you you funnel all of the the resources in the economy towards kind of corporates and and wasteful investment you dig a big hole in the ground you destroy the environment and you end up with a destroyed environment and a big pile of debt uh and kind of going forwards the likelihood is that they'll face that same kind of balance sheet recession Dynamic that Japan faced before them and and career to an extent um face before as well I think in the in the Korean case we had the um the consumer debt crisis in in 2003 and you could say that would have been the end of of household debt which would be the the offset to um to deleveraging in the corporate sector um but in the Korean case they have managed to keep that going and that's provided some kind of driver for them in the Chinese case it's hard to see that being a real driver because there's just no answer to uh how to to deal with the problems that are being faced by them it's a free market so and that's exactly my question I mean I guess what's worse is that if you look at the options that President xi's government have they're you know they're not great so how is he going to fix things well I was talking about this with a with a colleague recently and the technical term we came up with was it's a pickle because um you the the flow of funds has to balance right and if you're going to deleverage an economy without defaulting on debt you have to run private sector surpluses you have to reduce the deficit of the of the the non-financial corporates and that's exactly what they're trying to to to do um but to offset that you either have to run a larger government deficit or you have to run a larger current account Surplus now the government deficit if you look on a broad spectrum is is already huge uh and running a larger current account Surplus is not going to go down well in the current in global environment so they can't just run that same kind of policy of of trying to compress wage growth uh and trying to keep a larger current account Surplus trying to depreciate the remnb that Japan and Korea ran ran before them because it just won't float uh given the size of of China and given the geopolitical backdrop and the kind of the political backdrop that developed markets are are facing so when you see this big ratcheting up of electric vehicle exports that means that they're kind of that they are kind of focusing on on these green sectors and they are trying to rebuild the current account Surplus but is Germany going to sit back and say okay well yeah fine we'll just accept all of your electric vehicles to the detriment of our economy I don't think so so there's not really any clear answer to how to shore up Chinese growth so Freya what does this mean for the rest of the world again we're starting to really feel the impact on Commodities and Equity markets across the world is there anything that the rest of the world can do to try and protect themselves or at least you know continue to buffer some of that impact it's almost like you've got this kind of reservoir of disinflation in in China and all those economies that were exposed to beneficially exposed to the Chinese growth model in the 2010s they have a big art question to answer now with regards to what's their new growth model going to be there may be answer to that on a case-by-case basis but all of those economies EA em markets that are exposed to China they have those big questions to answer there are some positives with respect to growth and inflation for uh for the rest of the world if you think about uh the kind of the hollowing out of middle income uh being in in some ways a direct response to the the kind of the hyper globalization period that we've been through in the in the 2010s and the 2000s it's now possible with the the kind of the loss of competitiveness of the Chinese currency and with the inability just to kind of Ratchet up investment from here in China that you start to see capex and capital deepening Reawakening in the in developed markets and that's starting to support productivity growth and you also start to see kind of wage growth starting to to be able to grow to to Rebound in in on a secular basis in developed markets and that being able to to push developed markets onto a more private consumption-led income income-led a form of growth so there are upsides to this but how you can get exposure to that as an investor is very difficult because it really flips the kind of the the investing uh the investing kind of model on its head you can no longer just invest in the index you have to get exposure to the real economy you have to get exposure to capital goods on a secular basis and for I mean first of all congratulations also you have a great paper on looking at yields and some of the changes there um you know the fact that also maybe the Central Bank liquidity impulse has bought a what does this mean for yields longer term yeah so I think in the short term uh the the story is very different from the longer term so longer time we're looking at higher growth higher inflation we're looking at greater uncertainty in the kind of the the globalized or the kind of end of the of of hyper globalization um and all of that means kind of higher uh higher term Premier at the same time as you've got this shift away from the the driving narrative being excess of savings to everyone all of a sudden competing for resources for for Capital whether that's government or whether that's the private sector and that all means higher yields on a on a secular basis in the short term though we do think that that kind of negative credit impulse is much more important for growth than the excess of kind of wealth that's still left over in the US and actually Japan by the pandemic and that negative credit impulse actually negative net Equity impulse if you can think of that as well the kind of the change in the change in the amount of wealth is much more important for for GDP growth uh and that's what's kind of pointing towards recession still yes we do still think that there's going to be a U.S recession um in the not too distant future and therefore in the short term that the tactical response is much different from from how markets are currently seeing it and how much and how things are going to play out on a second Freya thank you so much as always for your Beamish stays with us now turkey has also agreed to support Sweden's bid to join nato in a major breakthrough for the military Alliance President Joe Biden says he's not at all surprised by the agreement and the NATO Secretary General Ian staltenberg welcomed the about turn following months of drawn-out negotiations now he's speaking now the news came of course on the eve of a two-day NATO Summit that starts this morning in Lithuania bringing together 31 leaders from across the organization well we have our Bloomberg Europe correspondent Maria today on the ground for us in vilniusa Maria turkey agreeing to back Sweden what brought about this change and good morning good morning Francine and major major breakthrough yesterday night obviously the Turkish president heard a one dropping that veto and now clearing the way for Sweden to join NATO now there were a number of issues that were agreed yesterday bilaterally between the two countries they talk about more cooperation between the two of them they talk about a format in which they'll be able to monitor the commitments that were made in terms of security and counter-terrorism measures that were agreed in their bilateral memorandum but obviously what matters here is that political signal from president erdogan now instructing a vote in the Turkish Parliament to ratify Sweden's entry to Nato and Francine we already see the trickle-down effect because the hungarians remember is now it's just turkey it was also the hungarians they now see this morning of course we support Sweden this was just a technical matter and we will vote through now at this point uh Francine we have seen the United States and the president United States Joe Biden is here now in Vell news the session about to start and really the focus turns to Ukraine the country will probably not get this formal invitation to join but it is looking for a political one that makes it clear they will join quote when the conditions allow and Francine at this point I have to say everyone here is on the lookout and just waiting for president zielinski to arrive we've been told he will participate and that could happen any minute now thank you so much Maria today over there of course with the very very latest we'll keep an eye out for president zones again then we'll go back to Maria later this hour so we'll have plenty more of course from Vilnius on this NATO Summit [Music] [Music] the interaction of above Target headline inflation with labor market tightness and demand pressure in the economy has made underlying developments in goods and services price inflation more sticky than was previously expected and both price and wage increases at current rates are not consistent with the inflation Target some of that tightening is still to come through the policy pipeline we expect underlying inflationary pressures to recede as headline inflation Falls well that was the bank of England Governor Andrew Bailey who says the full impact of interest rate increases has yet to hit the economy and that inflation is likely to drop markedly this year now so with us Freya Beamish Chief Economist at T.S Lombard and joining us at Marcus Ashworth Bloomberg opinion columnist so thank you both for either sticking around or coming on the program Freya when you look at what we heard from mansion house there's also of course an agreement with the between the government and some of the largest pensions about putting five percent uh into some of the startups to Kickstart growth what's your growth plan for the UK right now I think the focus um in some ways understandably for them has been both from from and from Bailey has been on on kind of trying to bring demand back down to to supply so you've got this kind of focus on inflation and demand and then you've got this sort of uh focus on competition which is their sort of buzzword for for the for the supply side and that's all about kind of trying to redirect Finance to to growth and and startups um I think what's being missed is that there's a whole other part of Supply that needs to be fixed and is is currently focused is currently creating this this really intense bottleneck for the UK economy which is partly why I think we're seeing these upside uh inflation surprises and why the kind of the Outlook has been threatened to be more kind of stagflationary than elsewhere um and in particular there's this kind of there's this uh this uh this misunderstanding of of the kind of the competition between resources for for for uh the funding the government deficit versus funding the um funding funding the growth startups in the private sector which yes everyone as we said in the previous segment that there is a big kind of increase in competition for funds and that's why we think that fund that the interest rate that secular yields are going to be higher but if you're if you if the government spending is also reducing the the number of people on on waiting lists if you're buying MRIs and that's increasing the productivity of doctors if you're kind of increasing Our Kind Of capex capex in in the in the NHS and Healthcare um from what is the one of the lowest in the oecd to sort of even to the to the to the middle you're actually releasing a lot of those kind of bottlenecks that have caused the supply side deterioration on the labor market side and that's just kind of missing from the whole the whole debate um on top of the fact that I think that you will just kind of naturally over time start to see a a recap a re-deepening of or kind of capital deepening Reawakening uh in developed markets as the kind of the hyper globalization policy starts to recede into the into the 2010 that's not what you're going to see in terms of the cyclical story with with capex right now um because the unit labor costs are just kind of too too hot to invest um for businesses to start investing but I think that Capital deepening starts to come through and that starts to help productivity growth in the UK as well it's not too hard yeah Marcus I was going to ask her are you also above consensus and actually does you know will productivity pick up um I don't think we measure productivity very well on this and and the UK economy and it's very hard to sort of divine um a way through it I mean we as you may know we we tend to measure as for hours plenty of their health and education which is not um a feature of European That was supposed to be Euro stats Way Forward but we've adopted and they haven't so we look at our GDP in a in a different way now so it's quite hard to compare contrast but you know I clearly see what what Hunt's trying to do here it's just I just unfortunately it's too little too late uh summer it's tinkering around the edges I'm not a big fan or or perhaps using uh private sector pensions to sort of do things into uh was not really private Equity it's more Venture Capital um and we've got a trouble here with the British Business Bank which is which is flooding the sector and I think a lot of startups are getting too easy money without enough rigorous um uh controls going through which is going to end up you know a few years down the line being uh a bit of a bit of a mess I suspect but you know the government anchoring at the moment it's rearranging the deck chairs on the Titanic and I and I hope it has some impact but you know really we have a a sector particularly in the labor market which is very strong and it's all that dominates I think for the bank of England all right thank you both thank you foreign staying with us Marcus Ashworth Bloomberg opinion columnist now coming up fed officials signor higher rates may be required to bring the Central Bank back in line with its two percent inflation Target we'll bring you the details next and this is Bloomberg [Music] [Music] thank you my view is that the funds rate will need to move up somewhat further from its current level and then hold there for a while as we accumulate more information on how the economy is evolving as we get closer and closer to what we think is a sufficiently restrictive level that's part of positioning ourselves so that we can try and get to that Target level in a careful way one of the surprising things about the economy is just how much momentum it continues to have we're likely to need a couple more rate hikes over the course of this year to really bring inflation back into a path along a sustainable two percent path fed officials are signaling that more rate hikes may be needed to bring inflation back to the central bank's targets we're joining us now to dissect the latest comments from fed officials and more is Bloomberg opinions Marcus Ashworth Marcus we talk all the time about dot plots about what interest rates do but actually it seems to me that everything has to do with inflation and we're not quite sure how how inflation behaves from now on should we worry more about a credit Crunch and what banks lending looks like I think we should but I mean I I just I'm very impressed by how the FED has managed to change the debate and move markets around almost at will it got itself a little worried that the market was expecting you know rate Cuts this year um and in fact there was a little bit of action yesterday pricing in uh some maybe in front end of next year but you know they've talked out uh rate Cuts completely and now they're they're breathing in again they expect another rate hike the next meeting and at least another one as well I don't think they necessarily feel they have to go ahead with that but they don't want the market pricing in as markets tend to do secondly you stop hiking it must mean at the end of the re-hiking cycle and and it must collapse and they they want this plateau and they want to wait and see the great thing the US economy is it's strong enough to handle it unfortunately for the UK and for the ECB their economies are much weaker but they are forced to watch and do what the FED is we are completely controlled by what the FED wants to do with interest rates and if they're not ready to turn yet we saw a few central banks try try stopping hiking and they've all been forced back to hike again so we are just totally depending on what the FED thinks Marcus as always thank you so much for joining us Bloomberg opinions Marcus Ashworth joining us on the fed and of course on the UK coming up we'll be bringing you the latest from the NATO Summit in Lithuania Maria today is on the ground there that's coming up shortly and this is Bloomberg [Music] thank you [Music] now Trio fed officials say more rate increases are needed to quell inflation stocks and commodities rally on speculation that China is preparing to boost economic stimulus a boost for NATO turkey agrees to back Sweden's membership as leaders of the alliance suite for crucial summit we're live in Lithuania plus the pound jumps as UK wages rise more than expected maintaining pressure on the bank of England to keep hiking rates well good morning everyone welcome to the pulse I'm Francine in London now President Joe Biden says he's not at all surprised that turkey has agreed to support Sweden's bid to join NATO leaders of the alliance are meeting at a summit in Lithuania where Ukraine's membership is also on the agenda well Maria tadeo spoke with the Lithuanian president about Ukraine's bid to join NATO and he told her they expect progress soon we are ready to create institutional framework for closer cooperation with Ukraine it will be done in form of Ukraine's NATO Council and then that the procedure of entering or integration into NATO will be more simple without member section plate and probably we can agree on that too no map for Ukraine and no map we can agree on that too at least this is a position of my country but I know that many countries too and maybe all allies and then we need to send a signal that Ukraine will become the member of NATO as the situation allows meaning that if the war is over and that is exactly what they want it's it's that sentence do you think you can get to that almost Linguistics about the grammar fill in process of discussions and I I know that even now the discussions will start in one hour and probably those discussions will be dedicated to this subject and what is the message to someone to summarize because it's not just the United States we know there's other allies who say this is a country at War and and there's a risk of escalation and of course we know that Russia will say there you go we're not fighting Ukraine we fight NATO what's your message to those allies yes we all agree on that that the country is in the war and what will happen if the let's imagine that we will just invite Ukraine to become the member of NATO right now what will happen if Article 5 should be activated by the way what does what mean means activation of Article Five the first the Third World War so this is the reason why we understand how serious is the situation and what Ukraine needs right now is full supporting military economic humanitarian means and we are providing the military support to them and I know that many countries coming arriving arriving to vilnus will bring additional portfolios of support to Ukraine but we should also understand that Ukraine needs a signal about a potential membership tomorrow and if we will be able to to deal with that and to provide to deliver this kind of support political support to Ukraine of course it would be what would create huge stimulus fighting Spirit of Ukraine I remember the story with candidate status to towards European Union and I had the conversation before we took those decisions conversation with the president of Ukraine while the mirzalesky he said to me look maybe for these guys which are fighting on the battlefield this is not a critical issue because it might be that tomorrow foreign lithuania's president speaking to Bloomberg's Maria today in Vilnius there now Maria joins us from the NATO Summit Maria it was a great interview we've had news on Turkey backing Sweden so what can we actually expect on Ukraine from the talks yes Francine and at this point we are just waiting now for president zelenski to arrive here in Vilnius and in that interview with the Lithuanian president Mr nasida this is a country that fully supports Ukraine and in fact if you take a walk around Vilnius it is full of Ukrainian Flags everywhere you go it says stand with Ukraine and again he repeated in his view Ukraine needs the strongest possible signal because if you keep them quote in the gray Zone that is the most dangerous place to be he also said the country needs a murab boost he also alluded to people that are fighting but may be dead tomorrow the country has to see that they're fighting for something but of course we know that this formal invitation is probably not going to happen the countries obviously at War so that is a major issue to be taken into account but they do want the equivalent of a political invitation that would signal once conditions allow Ukraine will join the nature Secretary General also said even if they don't get the formal invitation they can still get a good package the funding the weapons all of this could happen in Vilnius will president zielinski get it I guess we'll find out in the next 48 hours Francine yep the next 48 hours of course crucial to understand the situation a lot better Maria thank you so much as always on the ground for us in Vilnius Maria today our Europe correspondent now our coverage of the NATO Vilnius Summit continues throughout the day we'll also interview the UK foreign secretary James cleverly a little bit later we'll be speaking with the president of Finland stay with us for those very important conversations coming up we take a look at the Magnificent Seven accounting for most of the NASDAQ 100s recent surge that's next and this is Bloomberg [Music] thank you [Music] the conversations that matter the insights you need this is a pulse I'm Francine Lacroix here in London now this is a picture across the board we look at the markets but we take a little bit of a step back and try to really tell you the stories that matter the picture for Juan is one of for example China really being the one that was the Envy of all Emerging Markets uh just a couple of quarters ago and now huge questions about what this economy will be going forward now a couple of things we need to watch out for is look if you look at the stock market kicking off the week on a conscious note Market momentum has slowed because the China economy is now caught on the grip of this Grim narrative that perhaps few would have imagined possible before the pandemic struck so the world's biggest Factory essentially is what China has been exporting deflation to the rest of the global economy and so it has huge implications for what central banks could do we're looking at it through the remnimby lens we could look at it elsewhere at the moment 72082 and this is a one year art for remnimby the other thing we watch out for is really the closely watched barometer of recession risk and it's ranged if you look at the inverted yield curve so it's you know it has ranged from an inverted by as much as 111 basis points to it little as 26 basis points since March now the flooding Trend had gathered of course Pace's expectation that the feds passed forward towards pricing in a quarter point interest rate hike this month and another increase by your end so we look at the two tens we look also at the NASDAQ again set to adjust the weighting of its 100 components with the Magnificent Seven stocks and that's Microsoft Apple Nvidia Tesla Google parent alphabet meta platforms and amazon.com currently accounted for more than half of the index's weight so we'll talk of course about that America's biggest tech companies have in fact become too large even for the NASDAQ Bloomberg's mlive's Eddie Van Der Walt is here with analysis Bloomberg's Leonard Kent is also joining us so thank you both for coming on Eddie I mean I have so many questions first of all you know we tried to figure out if there's an over-indexation or if you know one company is very big for an index is that really a problem yeah look so this is what surprises me here we don't really know the detail but we do know that this is to address over concentration in the NASDAQ but the surprising thing is that the NASDAQ has really benefited from this in another year if the NASDAQ underperformed in a down Market I could understand this but you know the NASDAQ is up something like today percent this year versus the s p which is up only half of that about 15 so you know it's it's it's significantly outperformed and it is because of overexposure to Nvidia and AI uh to Microsoft with Bing suddenly doing well now with meta and its launch of threads it's because these small selection of companies are doing so well but I guess the problem for an index like the NASDAQ is the overconcentration increases your volatility right and if why don't you just buy those seven stocks why do you buy an ETF that that replicates you underlying if your vast majority of exposure is just to this handful of companies and Eddie I love getting Eddies like live take on this because again we're very thin in in terms of details right we don't exactly know how they'll do it yet but if these are companies that are price Perfection then I don't know whether you know if there's a correction how does a wing change yeah and look and and it's going to have an impact on the companies too because of course a lot of people don't buy the stocks out right most people take Expo ETF these these days so a lot of people you know so if you take if you if you reduce their concentration in the index that means there's money flowing out of them which then you know means that they that the company's share price will fall and that at the next rebalancing they'll naturally be underweighted a little bit more so you know I think the impact on the wider Market is is significant here um we also look at the banks and what was interesting Leo is that so we have Michael Barr basically you know trying to push through or looking at changing the way we measure risk you know we standardize risk and some some of the capital requirements for for some of the big Banks but it's not necessarily going to go through that's true so they'll uh so first of all this is all part of a broader review um of U.S rules to align them better with Basel three roles the international rules that will come into effect uh over the next years um and yeah Michael Barr has said he wants all Street Banks to use a more standardized approach and also that he might tweak or they might tweak the fed's annual stress tests and to better account for risk and of course this is a big topic for for investors as well because uh higher Capital requirements might result in lower payouts by by those Banks so are we expecting the banks to push back I mean what's the likelihood this would be the biggest overhaul right since the financial crisis that's if it goes through that's true so there'll be an initial plan that's expected to be published this month and the industry will weigh in there has been criticism but of course the the FED stance is you know this increases lending capabilities in the economy so it's a good thing but there'll be no doubt pushback and then bonuses in London are going down because and this is basically because of the pipeline right the m a pipeline and Goldman Sachs you know firing a lot of people but still paying out some of the best bonuses that's true that's to interestingly though so this is this is a study a survey conducted by Dartmouth Partners a recruitment company and they found that last year uh bonuses for London investment bankers dropped quite quite heavily and of course this is of course because of the slump and deal volumes and Goldman Sachs interestingly was the best paying Investment Bank in 2021 and now uh overall pay fell the hardest so this really shows you I think that Banks need to manage expectations of their employees when it comes to pay in this downturn to to prevent them from leaving a lot of things I mean you're so you're you know Deputy leader of all this big markets team we're going to the earnings season yeah and that could be a real game changer for how equities perform yeah absolutely because look uh stocks have pretty much ignored the hopes or the worries over a recession so far um this year right stocks have done significantly well and and that's on the on the expectation that there will be uh you know that the Fate will be forced into into rate Cuts but a lot of it's also built on the strength of the consumer and the U.S consumer is still very strong even in Europe the consumer has not really buckled yet right but if we continue to see rate hikes if we continue to see the fed and other central banks taking on inflation then yes I think we could see a significant pullback uh you know in consumer spending which will therefore feedback into uh into stock prices Eddie what's your chart of the day I mean so I love the inverted yield curve everybody disagree with me but it is flattening so is it saying something finally yeah but you know what I think it all depends on how we see that flattening happening right is this a flattening that the FED is forced into cutting again and the you see the front end of the curve falling relative to the to the to the back end or is it that we see inflation becoming more entrenched more sticky more longer term and it kind of you know stay that you see the the back end of the curve Rising because it investors want more compensation which actually would be quite bullish because it means that growth has stayed strong throughout this period And I think that is what makes this time different is how that re-inver or reversion how that reversion reversion I just made that uh reversions go into account how that how the curve is going to uninvert is probably a better way of saying it but Eddie I mean if you're the fair do you still need to make a choice between inflation and inflation yeah I think there is a little bit of that I think the FED I think that is the one thing that might I don't think the FED is that worried about the recession actually at this point in time it is far more worried about uh stability in the banking sector if we see instability we seemed renewed instability there because the last the the only time I've really heard Powell nervous in the last six months was when we had the U.S banking crisis back in March yeah and of course this feeds back into what banks are doing and some of the IPOs that may not be there because there's there's been a mismatch for example on how much you know people want to sell their companies for and how much um you know buyers want to spend and so that's going to be a really sticky point for a lot of the banks yes definitely I mean many banks hope so I've spoken to many brokers in the city in the recent weeks and they're hoping for a pickup in in the second half of this year and some of the smaller ones definitely will need that too you know okay bye thank you both for joining us Eddie Van Der Walt and Leonard Ken sharper joining us this morning on a wide range of issues from Banks to a lot of what the markets are doing now some of the other news Bloomberg has learned that Wall Street banks are helping approach International investors including Sovereign wealth funds for syngenta's Mega IPO in Shanghai Citigroup HSBC JPMorgan and UBS are working on what could be the world's biggest listing this year the Chinese owned sea giant one regulatory approval for the listing last month Bloomberg has also learned that Uber CFO Nelson chai is planning to leave the right hailing company now our sources hi has informed senior leaders of his intention to move on to a decision on timing has not been made which I would be the most senior executive to leave Uber since they won public in 2019. Berkshire Hathaway has taken control of a liquefied natural gas expert project in Maryland while Warren Buffett's company agreed to buy Dominion Energy stake for over three billion dollars boosting its ownership to 75 percent the deal gives Berkshire control of one of just seven International operational LNG export facilities in the US we'll have plenty more of that throughout the day coming up aramco and ESG funds we look into how the world's largest Oil Company became an unlikely beneficiary of money earmarked for sustainable Investments more on that next and this is [Music] thank you [Music] the conversations that matter the insights you need this is a pulse San Francisco here in London now Saudi aramco the world's largest oil company has become an unlikely beneficiary a funds earmarked for ESG Investments and that's because of a complex swag of financial structures that the oil giant used to raise money from its pipelines well seemingly unintentional it's also raised questions about some of the methods of fundraising that are being increasingly used in the Gulf now for more on all of this we're joined by tasnine broker our managing editor for ESG and emea tasnim thank you for joining us as always so how did this actually happen yeah good morning um so hold on to your hat because there are quite a few layers of financial engineering here so um Saudi aramco is obviously blacklisted by a lot of ESG investors it has very low um some of the lowest possible ESG scores but what happened was that back during the pandemic it created uh two pipelines one for oil one for gas um it then sold 49 in each of those to uh to uh groups of investors one led by EIG Global Energy Partners in the other live by BlackRock um those investor groups then got bank loans Bridge loans to pay for that investment um but then to pay back the banks they created special purpose vehicles and those special purpose Vehicles were registered in Luxembourg and they then got a very decent ESG score so that when they issued bonds those bonds ended up being bought by ESG investors no one has to remember of course the sole purpose of those bonds was to to finance those two oil and gas pipelines so it doesn't what does this actually say about the guard rails around DSG um well I mean this isn't a sort of an unusually complex set of structures that uh you know clearly retail investors would have very a very hard time uh penetrating but even professional investors often uh wouldn't know that they are in fact uh that they in fact are in bonds that somehow have this connection so it just goes to show that um that the layers of complexity really make a huge difference here the other thing is that part of it what enabled all of this is the rating on the spvs um and so in Europe the European commission last month actually um put forward a sweeping proposal that means that the entire ESG ratings and ESG schools industry is going to have to sort of come under much more um uh uniform uh and transparent uh regulations uh in the not too distant future so it doesn't are there any regulations of pipeline that will actually address any of these issues and could that be on a globe would that need to be on a global level um so until now what has happened in the EU in terms of ESG regulations is intended to have Global ramifications like the sfdr regulation so for ESG investors and so the expectation is that when um the EU starts regulating ESG ratings and ESG scores which will be the first time that that's happened in the history of of this sort of mushroom or this cottage industry of of ratings um that that will have ramifications also on a global scale that will hopefully um give ESG investors more insight into complex structures like this one Jasmine thank you so much testing broker there are managing editor for ESG in emea now our coverage also has a NATO field news Summit continues throughout the day we'll interview the UK foreign secretary James cleverley a little bit later on we'll also be speaking with the president of Finland in the meantime a couple of things that should be on your radar NATO did not drop a significant breakthrough yesterday just hours before the start of the summit and that's when turkey agreed to stop blocking Sweden's bid to join the defense Alliance and then we also understand that President Biden will meet with the Turkish president uh later today when the two will likely discuss turkey's request to purchase some f-16s the markets firmly focused on what we saw in the UK in terms of wage growth this complicates certainly the matters for the bank of England and the UK two-year mortgage rate is hitting um it's actually highest since 2008 I don't know if we have a market board for you if we have it then this would be an ideal time to actually bring it up if you look at the average rate for a fixed to two-year Home Loans it Rose to 6.6 percent uh that was today again UK households facing an avalanche of cost pressures triggered by Rising interest rates and the worst cost of living crisis in a generation up next to Bloomberg surveillance Early Edition with criticupta in New York Danny Berger in London and the zoo doomberg foreign [Music]

Channel: Bloomberg Television

Views: 6,602

Keywords: BOE, Bank of England, Big tech, China, Fed Policy, Francine Lacqua, Freya Beamish, Interest Rates, NATO, Pension funds, Saudi Aramco, Sweden, Turkey, UK, Ukraine, United Kingdom, central banks

Id: DvwJV-SQaJc

Length: 42min 38sec (2558 seconds)

Published: Tue Jul 11 2023