AI Fears Return With Data Center IPO Flop; SpaceX, Netflix Earnings

[00:00:00] Speaker 1: It's 5 a.m. in New York City, 10 a.m. in London. Good morning. I'm Bonnie Quinn with your Bloomberg Brief. Let's get you set up for the day. An IPO flop for the South Korean data center firm Elise putting a pause on an AI stock recovery. Ukraine's President Zelensky heading to Norway for new peace talks as the friction between Ukraine and the U.S. deepens. And a host of earnings reports on deck including SpaceX, Netflix, General Motors and defense giants RDX and Northrop. Let's get a check on markets around the world now as we head into the second trading session of the week. Let's start with Olivia Le Vieux for the latest from Asia. Olivia. [00:00:54] Speaker 2: Good morning, Bonnie. It was another difficult day for Asian stocks here, particularly those AI and chip players. SoftBank's credit default swaps rose to the highest level in nearly four years, while of course that debut by Elise saw the stock plunge nearly 33 percent. There is one bright spot, if you will, however, and that is Indonesia. The company's stock exchange operator announcing that they may take efforts to expel tightly held companies from its benchmark index. And that's all in an effort, of course, to avoid exclusion from the MSCI Emerging Markets Index. On the news, on that headline, we saw Indonesia's stock market jumping about five percent. So that's one bright spot in an otherwise dismal showing for Asia. [00:01:36] Speaker 1: All right, Olivia, thank you so much. Let's take a look at Europe. A little bit of a poll over Europe once again today. Not so much because of France. France not particularly outperforming to the downside, the other major indices. But there is still a poll of unrest, really, across the whole of the geography and the whole of the region. Now we have the stocks here of 600 down six-tenths of one percent, just a few groups higher leading them health care. But as you can see, the French 10-year yield at 493, very, very close to five percent at this point. And that spread between French OATs and German Buns hit 150 baseless points, even as the protests have been quelled just a little bit. We are seeing the euro hold above 112. That's primarily, though, because of a little bit of dollar weakness again today. Let's take a look at the U.S. outlook, because, of course, we had that little bit of a rebound in chip stocks after eight days of declines. Well, right now, we have S&P futures figuring out what they're going to do in the session. NASDAQ futures is coming off a little bit. And Russell 2000 futures also just barely higher. So we'll just wait and see. What mood takes the market today? Plenty of things to digest, including that failed IPO over in Asia and whether it bleeds across to the U.S. We did have a nice day, though, yesterday for the NASDAQ 100, at least. If you look at the 10-year yield, we're down a couple of basis points. The 30-year yield holding in around the 545 mark and down just about a basis point, but essentially stable across the curve here for yields. All right. Let's take a look at some of the other things that we are watching today. We're going to be speaking about all of it with Jeannie Sun, who is going to join us on these markets. Jeannie Sun, of course, of Citi. So let's get back to the market story out of Asia. Now joining us is executive editor Paul Dobson. So, Paul, this failed IPO, this is the second one out of Asia now, if you count the Australia IPO that didn't happen a couple of weeks ago. Is this a particularly Asia story? Is it a Neo-Cloud story or is it just a broader market story? [00:03:37] Paul Dobson: Yeah, hi there, Bonnie. So I definitely think that this adds more fuel to the sort of flames around the AI and the data center trade at the moment. You know, it's only a relatively small IPO, $150 million, but the market trading as it got going today was just about the worst performance for any significant fundraising in South Korea. So that sort of speaks to the extent of the drop, which was as much as 38 percent at one time came back to 32 percent or so by the close, I think. You know, it's part of this trend that we're seeing of investors pushing back against the valuations of the Neo-Clouds of the data center-related companies. We saw that, as you were saying, with Firmus in Australia, which canceled or rearranged the terms for its own fundraising, and then AirTrunk, which also pushed back its one. And in Europe as well, you've got similar sort of negotiations going on with some of the firms looking to list there. So it sort of, you know, adds to that feeling of unease that there is around the valuations that these companies are looking to raise at the moment in the market and the business models that they're pursuing. All of that in advance, of course, the big IPO that we're waiting for from Anthropic later in the year, which will really be one of the bigger tests for investors on the AI theme. [00:05:06] Speaker 1: Paul, are all these Neo-Clouds necessary? I mean, in the U.S., CoreWeave is the obvious poster child, right? And we see its bonds trading in distress at the moment. But there are lots, lots more. There's iREN. And each one has, you know, maybe slightly niche offerings for their customers. But also each one has just a very small number of customers. I mean, is it a recipe for disaster? [00:05:31] Paul Dobson: Well, it sort of depends whether you believe that the build-out is going to work, is going to be successful, whether the demand for AI is going to be there, Vonnie. I think on CoreWeave, it was quite interesting. We saw from J.P. Morgan and from Goldman Sachs, some favorable commentary over the past few days, talking about the business model. Most of the funding is sort of secured lending that they're looking at that they then, you know, have locked in at the other end in terms of the renting of the data center space. And so it's just basically a trade, a spread trade in some ways, you know, taking the money that's guaranteed and earning, earning on the flip side once you've invested it, the rental for the chips. It should be a relatively straightforward, it's an easy business model to work. But the misgivings are there because the data centers themselves are getting delayed, are getting pushed back, you know, either on the energy side or the planning side, on the construction side as well. And there's also just this concern that the build-out is so aggressive and the plans from all of these companies that they're talking about are so far and so ambitious and so sort of strident that the valuations that they're seeking, you know, raise those misgivings with investors and lead to that sort of rocky reception if they go too hard in the IPO market. [00:06:46] Speaker 1: Just to move to a different asset class for a moment, Paul, this very strong Japanese bond auction that we saw, a 20-year auction, is that a good sign or a bad sign? Is this a flight to safety and Japanese assets or is this just a healthy market? [00:07:03] Paul Dobson: I think as far as Japan is concerned, it's a good sign. If there's finally more demand coming in for Japanese government bonds. So the bid-offer spread was a record for the 20-year sector, quite impressive. It shows you that now we've got to these much higher yields in Japan, there is more investor appetite. And what I think is really significant here is that when you look at the breakdown of the bids, a large section was classified as unknown. Unknown means it's more likely either foreign demand or insurance demand that is supporting those securities. So it's Japanese investors who have been eyeing carefully the opportunity to bring more money home, finally starting to snap things up a little bit more. But I think the bad news might be, Vonnie, if you're looking for a flip side of that, is where's the money coming from? Where is it escaping from? Maybe Europe. You know, we know Japanese investors and large holders of French government bonds, for example. We've heard about some that have been cutting back on their fund holdings there. We know that Asia FX is outperforming Europe as well at the moment. So maybe that's where a little bit of that flow is taking place, an opportunity to repatriate money to a more safe asset with a decent yield now and to avoid some of those risks that we're seeing in the European government bond space. [00:08:15] Speaker 1: Yeah, exactly. That OAT bond spread at 152 basis points now. Paul, thank you so much. That is Bloomberg's Paul Dobson. Staying on tech after having a deal fall through with Microsoft, Nscale is back with a blockbuster. Bloomberg first to report the company is in talks to sell its compute power to Anthropic in a deal that could be worth $45 billion. Matt Bloxham of Bloomberg Intelligence joins us now. So if this does indeed go through, Matt, a definite win for Nscale, a huge amount of money, but it is very dependent on that one customer then, isn't it? [00:08:48] Speaker 4: Yeah, it is. It's already incredibly, got an incredibly concentrated kind of revenue mix already. But, you know, obviously over the weekend news was disappointing when they lost Microsoft as an anchor tenant in their planned UK facility. So gaining Anthropic here would go some way to kind of balance that out. And I guess, you know, in terms of pitching their IPO outlook, that would certainly be a strong forward pipeline for them to kind of help investors feel more comfortable about the forward revenue opportunity. But like a huge part of the Nscale story, this is about expanding capacity, building new facilities, and they have been running into some obstacles, both in the UK, where it's a power supply issue, and in Norway, where there seem to be some issues just in terms of execution. So there is still a lot riding on their ability to deliver these facilities on time and to budget, because quite often the contracts give their potential customers the opportunity to walk away if the deadlines slip. [00:09:51] Speaker 1: Also, it obviously hasn't IPO'd yet and has some really banner investors. Dan Loeb's third point. Apollo, obviously, is involved. Abu Dhabi is involved and so on. What happens now? I mean, with all of the core weave difficulties, would it be wise for Nscale to put off an IPO for a little bit longer? [00:10:09] Speaker 4: You know, I imagine, like a lot of these IPOs, that decision won't be taken until the very last minute. I think they'll certainly want to see how potential investors react to this latest news about the Anthropic deal and to see whether they can find some common ground, you know, between what's reported as the company looking for a $30 billion valuation versus the market, you know, giving feedback that maybe $16 to $19 billion is a more attractive entry price for new investors. That's a very big disparity. And, you know, I think there'll be some judgments that need to be made about whether they can really find some middle ground that everybody's happy with. And, yeah, if they don't go ahead with the IPO, whether they can get funding from alternative sources to kind of sustain the business's expansion plans, perhaps through the next year or so. [00:11:04] Speaker 1: Speaking of expansion plans, Elon Musk is not done yet. He replied to a Twitter post saying that SpaceX's TAM, the total addressable market, is actually vastly higher than the original $28.5 trillion figure outlined in the prospectus. Obviously, SpaceX reports after the market close. Where will we get more customers from, this total addressable market that is vastly higher? Will we hear more about it, you think, Matt? [00:11:32] Speaker 4: I hope so. And I guess one of the incremental areas of opportunity that, you know, it's been in the news a lot in the last couple of weeks is the U.S. mobile market, you know, where they bought Spectrum and seem to be kind of moving forward with plans to become a new entrant in that market. That's pretty big. And, you know, some suggestions also that they would look to kind of replicate that model globally, too. So that's certainly one avenue for incremental revenue. And perhaps, you know, that they'll talk more about their ability to build additional data centers, both terrestrially and obviously part of the IPO plan was to push data centers into space, too. So, you know, I think there's a couple of avenues there. But I think in particular, this kind of mobile opportunity that they're pursuing will be one incremental area that investors will be wanting to hear more details on. [00:12:23] Speaker 1: And that'll be the connectivity revenue, I guess. And then we'll be looking at CapEx, too. Matt, will we hear anything about a potential merger today or is it too soon? [00:12:34] Speaker 4: I think it's too soon. I think inevitably there are going to be questions asked of the company about, you know, what the synergies are between SpaceX and Tesla. And when that might happen, obviously, that there's been additional brokers talking about how such a deal might be struck. You know, personally, I think it's incredibly unlikely that that news would come today. But it's certainly something that's got a high probability attached to it for 2027. [00:13:04] Speaker 1: All right, Matt, thank you so much. That is Matt Bloxham of Bloomberg Intelligence. We'll be back a little bit later on. Now, to all the top stories trending on the terminal this morning. Ryanair CEO Michael O'Leary is predicting a record increase in European airfares next year as the war in the Middle East drives up oil prices. O'Leary says ticket prices could go up by as much as 20%. Despite that, he says it still won't be enough to cover higher fuel costs. China's finance minister opened the APEC meeting in Hong Kong with a warning about global economic uncertainty. He called for a joint effort to prevent spillovers from policy shifts. The meeting has drawn finance officials from 21 economies, representing more than 60% of global GDP. Former Google CEO Eric Schmidt invested tens of millions of dollars in Anthropik's Series A early fundraising round. That gives him around 1% ownership of the company and sets him up for one of the largest individual windfalls from the upcoming IPO. Neither Schmidt nor Anthropik commented. Coming up, President Zelensky heading to Oslo for talks on the war. That's next. This is Bloomberg. This is Bloomberg. [00:14:13] Speaker 5: November 3rd. As Americans head to the polls to vote on issues including affordability, the Iran war and AI. Bloomberg brings you expert analysis of the election's impact on markets and geopolitics. It's election night in America on Bloomberg TV and radio. With up-to-the-minute special coverage until the final results are in. It's the 2026 midterms. November 3rd starting at 7 p.m. Eastern. Only on Bloomberg. [00:14:57] Speaker 6: Zelensky doesn't know what he's talking about. Zelensky is a man that should have had this war settled a long time ago. If he would have listened to me, he would have made a much better deal a long time ago and it'd have a million people living from his side. And to be honest, I think it's time for somebody else to negotiate on behalf of Ukraine. [00:15:21] Speaker 1: U.S.-Ukraine tensions escalating as President Trump doubles down on pressuring his Ukrainian counterpart. President Zelensky now traveling to Norway for fresh peace talks with U.S. envoys Steve Witkoff expected to be in attendance. Jared Kushner as well to make an appearance apparently. Joining us now is Bloomberg's Tony Halpin in Dubai. The presence, whether it's virtual or in-person, of the U.S. envoys, is that a good sign, Tony? [00:15:54] Speaker 7: There's a lot at stake in these talks. As you've noted, the tensions between Presidents Trump and Zelensky have ratcheted up. Ukraine is heavily dependent still on help from the U.S. in defending against Russian attacks. And President Trump is pushing hard for Zelensky to make some sort of concessions. So there's a lot at stake on the table. Steve Witkoff is supposed to be in Oslo. Jared Kushner will join online apparently. And Norway's Prime Minister and Finland's President will also be there in some ways to bolster support for Zelensky as he tries to make the case for why the U.S. should continue to support Ukraine and reject Russian attacks on his country. At the moment he's struggling both with U.S. intelligence and with things like air defences, Patriot missile supplies, for example, to help him defend his skies against Russian attacks. [00:16:46] Speaker 1: What can Zelensky do to dial back the temperature? What can he offer the U.S. in order for President Trump to be appeased? Tony, we all know that that's what needs to happen probably. And there are reports that the Trump administration is even holding back some missiles and that there's spotty intelligence now as well. [00:17:06] Speaker 7: Yes, I mean, the difficulty is that Putin is demanding an area of the eastern, the next region in Ukraine that his forces haven't managed to take since 2014 and that Ukraine says is vital for its defence of the rest of the country. It's not willing to give that up. Putin is demanding it in return for a ceasefire. And there's the knob of the problem, really, that until they find some resolution to that issue, it's very difficult to come to any agreement. The U.S. is pushing Zelensky in many ways to make some sort of concession, but the Ukrainians are saying they simply can't, and therefore they're at a bit of an impasse. [00:17:45] Speaker 1: Yeah, well, we'll see what emerges from talks later on today. Hopefully something good. Tony, thank you so much. That is Tony Halpin in Dubai for us. Some breaking news, Reuters reporting that ByteDance, Alibaba and Tencent are collectively ordering $35 billion worth of NVIDIA chips. So this is several Chinese companies, ByteDance, Alibaba and Tencent ordering collectively $35 billion worth of NVIDIA chips. No word on which chips, but we do have at least a figure, so $35 billion worth. We also have Amazon planning to invest more than 16 billion euros in Germany next year. Another headline out, Amazon planning to invest more than 16 billion euros in Germany in 2027. And, of course, Amazon was up 5% yesterday. German Chancellor Friedrich Merz weighing in on the dangers posed by Russia in an interview with Bloomberg's Francine Lacqua in the last 24 hours. Let's have a listen. [00:18:43] Speaker 8: My biggest concern is the underestimated Russian impact on our societies, which has to do with the war in Ukraine. But this is only a part of the picture. The big picture is that Russia is on the way to destabilize the entire political order of our European continent. And this is obviously underestimated by many people in my country as well. [00:19:16] Speaker 1: And in which way? [00:19:17] Speaker 8: That they don't see what the goal of Russia really is. And this is not only territorial gain in Ukraine. This goes far beyond. And they are fearing democracy. They are fearing open societies. They are fearing the success of the European integration. And they want to undermine this success. And they are on the way to do so. And, as I said, many people, including my own country, in my own country, are underestimating the threat, which is really there every day. [00:19:52] Speaker 1: And is that enabled by the U.S.? [00:19:55] Speaker 8: Well, the U.S. is territorial far apart from Russia. This is our continent. Russia is a European country. And this is the European country which is under threat. And that's my concern. [00:20:12] Speaker 1: And that was Bloomberg's Francine Lacroix in conversation with German Chancellor Friedrich Merz. Coming up, a look at what's making headlines in your front page news. This is Bloomberg. This is Bloomberg Brief. I'm Vanni Quinn in New York. And it's time now for your front page news. Starting with the New York Times, reporting residents of Alberta were asked if they wished to remain in Canada or hold another vote on breaking away. The residents of the oil-rich province voted to remain, rejecting a campaign to separate the province. Next up, the Wall Street Journal reporting Vice President J.D. Vance declined to back Benjamin Netanyahu in Israel's upcoming elections. A break from President Trump, who has given the Israeli Prime Minister his support. And finally, the FT reporting investors are racing to buy credit vault swaps to protect their portfolios in the event the AI boom unravels. All right. We're going to be speaking with Jeannie Son of Citi next for more on these AI jitters and just the market sentiment in general. This is Bloomberg. It's 5.30 a.m. in New York City, 10.30 a.m. in London. Good morning. I'm Vanni Quinn with your Bloomberg Brief. Let's get you set up for the day. An IPO flop for the South Korean data center firm Elise, putting a pause on an AI stock recovery. Ukraine's President Zelensky heading to Norway for fresh peace talks as the friction between Ukraine and the U.S. continues. And a slew of earnings on deck, including SpaceX, Netflix, General Motors and defense giants RTX and Northrop. Well, after that nice bounce for the Nasdaq 100 yesterday was up one and a half percent in the session, we see that we are looking at maybe a little bit of a pause, down four tenths of a percent in terms of futures. Really, though, S&P futures and Russell 2000 futures are just oscillating between gains and losses. So we'll see what actually happens in the session. VIX obviously was back below 20 yesterday. And then we had some calls out of banks that really helped sentiment. U.S. semis breaking their losing streak. Goldman upgraded Core Weave. J.P. Morgan upgraded Intel. Morgan Stanley picked Amazon as a top pick. So there were plenty of highlights which helped those stocks higher yesterday. Let's look at yields. They were higher across the curve yesterday. The 10-year got up as far as 5.14 percent, but we're back down a couple of basis points now, just under 5.12. And the two-year yield unchanged in this particular session. And then in terms of elsewhere in the world, we do need to keep our eyes on France. If you look at that spread, we're obviously not back to where we were basically in the early 2000s. But we're at 152 basis points now. The 08 bond spread, the widest that it's been in basically 20 years. A little bit more calm overnight. Curfews imposed in places like Paris and other hot spots around the countries. And that will continue again tonight. There does seem to be just a little bit of settling down. But nevertheless, a lot of damage done. And companies are coming out on earnings call now, including the Carrefour CEO, saying basically this is going to have caused a lot of damage. And you'll see it in the quarter. Let's get to some individual market movers now this session. We'll get across to Olivia Le Vieux. Olivia. [00:23:35] Speaker 2: Hi, Vani. Good morning. We're kicking off with an NVIDIA, which is significantly outperforming other AI chips peers today. That, of course, on the back of this headline we had moments ago, that ByteDance, Tencent and Alibaba will be buying $35 billion worth of NVIDIA shares. That's an interesting move, given what we've seen rhetoric from the Trump administration not wanting NVIDIA to sell chips to China. And the Chinese administration actually pushing back against that as well, wanting their AI companies to be reared on homegrown chips rather than NVIDIA chips. Nevertheless, we have this headline, and it's helping NVIDIA pre-market. We also earlier had details from Chancellor Frederick Mertz, who said that NVIDIA would be investing billions of dollars in Germany. That's Europe's largest economy. And, of course, we had headlines also moments ago that Amazon will be investing $16 billion in Germany. So a lot going on in that space. Oracle is lower in pre-market trading, obviously being hit in this AI trade. However, we have AstraZeneca higher in Europe after the two companies signed a deal to advance AI involvement in patient trials and the like. So just something to watch and keep your eye on how these health care companies are increasingly cooperating with AI companies. Moving over, earnings continue despite what's going on in the broader macro picture. We had results from Steel Dynamics that are sending the stock down significantly in pre-market trading. They missed on their third quarter earnings, even as net sales rose. We're seeing miners hit quite hard over here in Europe right now as well, following trading updates from Anglo-American and BHP. So there's definitely one to keep your eye on. Also in earnings today, we spoke about SpaceX. They have results after the bell. This is only their second earnings results since their IPO. In the first set of results that we had, investors were particularly spooked by how much money they were spending on AI. So that's certainly going to be a focus in today's report, as well as this new thing that's emerging about Musk potentially giving his SpaceX shares to American children. We had Trump tweeting this morning that that would happen through Trump accounts. So maybe we'll hear about that as well. We have 3M results slated for before the bell. 3M is higher in pre-market trading by almost 4% after inking a deal with a wholly owned Amazon subsidiary that would give them rights through a warrant to purchase more than 3 million 3M shares. So a lot going on there outside from earnings. [00:25:57] Speaker 1: Plenty. Exactly. Olivia, thank you for keeping us abreast of everything happening pre-market. That's Olivia. Love you. NASDAQ 100 futures lower as AI jitters return after a day of recovery on Wall Street. Joining us now is Jeannie Sun, head of portfolio advisory at Citi. Jeannie, it seems like this market really, really wants to believe that, you know, we can take everything at face value, that AI is going to be additive to the economy. There's going to be productivity gains. The inflationary impact will be taken care of by the Fed. And, you know, any sell-off is met with buying. Are your clients telling you the same thing? [00:26:35] Speaker 9: Our clients are experiencing many of the same dynamics that you're just mentioning. I think one of the challenges has been the unease with which the continued rally, the strength of earnings, the strength of the economy, even in the face of a lot of uncertainty, clients do ask the question very often, you know, what is the risk around the corner that we should be looking at? Are things going too far, too long? But as we are entering into earnings season, you know, for us, our North Star is fundamentals. Earnings growth has remained incredibly strong, and that is what we're sticking with. And so for our clients, a lot of it is coming back to that. Although, you know, like many things, very things are a straight line higher. And so the intra-quarter, intra-month market volatility is something we've been noting and watching, but also guiding clients to expect, particularly as many of the stalwarts and the larger, you know, highest performing AI names continue to be well-owned. [00:27:33] Speaker 1: Is there any way to take advantage of that volatility, Jeannie, or is it just a little bit too dangerous to play that game? We were talking earlier about the FT report on how many CDSs are trading per day now on various companies from Broadcom to SpaceX, right? And it's a lot more than it was just a couple of months ago. So people out there are hedging. Is there any way for you to do it for your clients? [00:27:57] Speaker 9: You know, for us, we definitely have interest from clients to hedge and to look at hedging strategies. What I would say is actually where we've seen the bigger uptake is actually taking advantage of volatility when it happens to do things like option strategies. You know, for example, call selling to shore up positions that they might have, our clients might have been looking at, but not yet ready to buy and just buying on dips. The dips have been very, very shallow this year. So I think what we've come to learn is that because there's been incredibly strong fundamentals, still a good amount of cash on the sidelines. It is one of those opportunities that when we get these pullbacks, clients are actually willing to step in and look at, do I own enough exposure? Whether it's to semiconductor names or hyperscalers or other parts of the market, or even just broad index, just because, again, the earnings growth has been so resilient. [00:28:55] Speaker 1: You actually say that management teams have been, and I'm quoting now, conservative in what they're able to say in terms of profitability gains. Do you think there are gains there that management teams are not telling us about yet? [00:29:09] Speaker 9: Yes, Kate Moore, our CIO, has talked about this quite a bit, and how, generally speaking, because the analyst community will want to extrapolate a lot of what's been talked about, I think what you're seeing more of is just individual examples of where companies are using AI. You know, seeing some of that productivity gain, you see a lot of commentary, typically around things like software development and faster time to market when it comes to the internal technology being produced. The challenge is, we haven't really seen a huge amount of pure numbers, and I think what we want to do, and I understand this completely, management teams will want to be a little bit more conservative before putting out a number that's kind of representative of the productivity gains wholesale. Now, it doesn't mean that it's not happening, it just means that I think we're getting these examples, and then over time it will start to add up and build up, and you will see that in earnings. [00:30:05] Speaker 1: You know, TD, security's out this morning with a note on the midterms basically saying that the upcoming election is very likely to end up in split government. Have you been thinking about what that means, whether it be in terms of regulation or otherwise, and what it might mean for your portfolio management? [00:30:24] Speaker 9: Absolutely. It is very much on our clients' minds, ours as well. You know, where we've been mostly looking at it is, to your point, a regulatory front and whether or not it's likely we get any major changes when it comes to regulations or things that potentially might provide a bit of a speed limit. We've written in the past about how regulation in the AI space is more of a how, not an if, but I think we have a lot that remains to be seen in terms of details. For us, I do think there's an expectation that a split government, you know, serves, I think, a couple of things that are on our mind. One, I think it just reinforces the importance of fundamentals and going back to what the real economy, what revenues, what their earnings will look like going into next year, but also to expect some amount of headline volatility as whether it's negotiations between the administration and Congress or just announcements that happen. And I think that is probably just a new reality for us to see more headline-driven volatility as we get these pockets where, you know, for example, earnings season, we get, you know, reaffirming indications from companies on how results are coming in. [00:31:34] Speaker 1: Jeannie, I don't want to put you on the spot, but the city of Australia's CEO made some comments regarding treasuries, saying that basically they've been losing their luster, right, because we're looking at persistent inflation and rising neutral rates, and that's weakened the appeal of treasuries. Now, he's in Australia, so that might be true for him, but less true for you. What are your clients telling you? [00:31:56] Speaker 9: Like, I think it's hard for us to think about a world where U.S. treasuries is wholesale sold. We certainly get the question a fair amount, not just, you know, what should I do with my own portfolio and how should I think about my fixed income holdings, but at large, the dollar debasement, commentary and trade, that's been a very popular question to ask. But at the end of the day, there isn't a real alternative to owning U.S. treasuries when you think about reserves, when you think about all of the major international buyers. You know, even for us, while we have also not been super optimistic or constructive on fixed income at large, because we see the same trends, sticky inflation, but also strong growth, a lot of pressures to drive 10-year yields higher rather than lower. For us, we prefer to be in U.S. equities as our kind of like largest overweight position in our portfolios. And so we would agree in some ways, but it isn't really a statement about U.S. potential or growth. And if anything, a lot of the increase in U.S. treasuries this year has come from real rate expansion, not inflationary pressures. And for us, that's actually been just an affirmation that growth remains strong. And so while treasuries has obviously seen a fair amount of pressure, those dynamics are the same across much of the developed world. And so when we think about where an allocator might be, I think it really does point towards stick with the strong earnings growth, stick with equities, and stay underweight duration because that pressure does persist. [00:33:32] Speaker 1: Okay, Jeannie, thank you so much. A pleasure speaking with you this morning. That's Jeannie Sun of Citi. Now to other top stories trending on the terminal this morning. Amazon planning to invest more than 16 billion euros in Germany next year, including expansion of data centers and AI infrastructure. And a major new production slate by Amazon Video. The plans were announced as part of the Invest in Germany summit. The Australian government said to sue Facebook, TikTok, and other major digital platforms for alleged non-compliance with a nationwide social media ban for kids under 16. Under legislation passed almost a year ago, the companies are supposed to take steps to stop underage users from holding social media accounts. Former Google CEO Eric Schmidt invested tens of millions of dollars in Anthropik's Series A fundraising round. And that gives him around 1% ownership of the company. It sets Schmidt up for one of the largest individual wind poles from the upcoming IPO. Schmidt and Anthropik, well, they declined to comment. Coming up, two weeks to the midterms. President Trump ramping up campaign efforts. More on that. This is Bloomberg. This is Bloomberg Brief. You're looking live at the principal room. Coming up, an exclusive interview with Dave Mackay, CEO and president of RBC. That's on surveillance at 7.30 New York time, 12.30 p.m. London time. This is Bloomberg. [00:35:06] Speaker 6: Zelensky doesn't know what he's talking about. Zelensky is a man that should have had this war settled a long time ago. If he would have listened to me, he would have made a much better deal a long time ago and it have a million people living from his side. And to be honest, I don't think I think it's time for somebody else to negotiate on behalf of Ukraine. [00:35:29] Speaker 1: Let's bring in Rachel Schilke now of Bloomberg Government. So, Rachel, sources telling Bloomberg that Kiev suspects Washington is intermittently restricting intelligence sharing. And there are also reports of it holding back missiles. What's Zelensky supposed to do in this scenario or what can he do? [00:35:45] Speaker 10: Well, I think that that's a really difficult decision that a lot of members of Congress are kind of thinking about right now as well. Obviously, in the time that we've seen President Trump say that Zelensky needs to take a step back, that maybe him and Vladimir Putin need to come to the table. That's something that's kind of alarming a lot of different people, especially in Congress, Democrats and Republicans, because there has been a lot of bills passed to support Ukraine and strengthen Ukraine. And a lot of people see the idea of Trump and Putin coming to the table on behalf of Ukraine as a negative. And so there's not a lot that Zelensky can do here that he hasn't already been doing. He's been coming to the Hill. He's been reaching out. He has been getting on calls with members of Congress to try and rally support. Obviously, with members out of town and not in Washington, it's a little bit difficult for them to come to some sort of legislative decision and a way to respond to President Trump. But it's definitely something that is going to come back to haunt them when they are back in town, especially after the election. [00:36:43] Speaker 1: Rachel, we're literally two weeks out from the midterms, hard to believe, but more aid for farmers. It is, of course, the peak of harvest season right now. [00:36:54] Speaker 10: Yes, and that's something that I think a lot of farmers are definitely going to appreciate as they've been kind of calling for aid. They've been calling for a reprieve from the high gas prices and diesel prices. But again, it's kind of something that people have been talking about for the last month or so, is that is it too late? There's been high prices and these diesel issues for quite some time because of the war in Iran. Republicans themselves have been calling out President Trump to do something about it, whether it's to end the war, whether it's to provide this relief. And to do so two weeks before the midterms, there's been a lot of speculation as to whether this is actually going to provide real relief for farmers. That's going to be necessary to maybe sway their votes heading to the ballot boxes. But as of now, Democrats have the advantage they can point to the fact that this is coming late in the game, that it might be the last-ditch effort for President Trump to try and rally support to his side. Because as he said, he wants voters to vote like he's on the ballot, but a lot of voters have not been enjoying the way that he's been going about this war and how that's been affecting prices. [00:37:50] Speaker 1: No, and as you say, aid takes time to filter through to the economy. Rachel, thank you so much for all of that this morning. That is Rachel Schilke of Bloomberg Government. Turning to tech, AI woes creeping back into the market after Seoul-based data center infrastructure company Elise plunged in its trading debut. Let's get more with Matt Boxum of Bloomberg Intelligence. So once again, Seoul is infiltrating U.S. markets with its sentiment. Matt, was this particular to this one company, this company that may or may not have... Rivals, let's say, in the United States, or is this a broader market jittery type event? [00:38:25] Speaker 4: Yeah, I mean, I think what's happened here is that, you know, the global situation has changed somewhat through the process of Elise's IPO. And I think there was quite a heavy retail exposure to it. And I think, you know, people have perhaps just got a bit jittery on the back of what they're seeing in other markets. Obviously, we've had another failed IPO in Australia and, you know, doubts creeping in around CoreWeave and NScale too. And I think so this is that what's happened here is largely a kind of reflection of the kind of broader concerns people have got right now short term. But, you know, nothing would change about Elise's business model. And, you know, I guess investors have to be patient that if they kind of brought into this IPO, believing in that story, you know, the fundamentals really haven't changed from one day to the next. [00:39:15] Speaker 1: And as you say, at least they got out of the gate, unlike the Australian company. Can I ask you about NScale, another private company, but it's now in talks with Anthropic for a $45 billion deal, which kind of undoes the negative headlines from the Microsoft deal. Explain to us what this is. [00:39:33] Speaker 4: Yeah, so this is, you know, NScale is really about building capacity for the likes of Anthropic and delivering them kind of GPUs from the likes of NVIDIA. So, you know, obviously, Anthropic's got very ambitious plans to grow its revenue over the midterm. It needs data center capacity to kind of realize that revenue. And so it's striking these deals with a number of different players. For example, it also has a similar deal with with SpaceX. So I think that this is kind of reassuring for NScale because they lost Microsoft as a customer over the weekend for one of their UK facilities. So, you know, this potentially goes some way to kind of plug that kind of forward revenue gap for them and may help. Ease some possible jitters there might have been amongst prospective investors as they kind of prepare for a possible IPO. [00:40:21] Speaker 1: Yeah, exactly. All right, Matt, thank you so much. We'll be looking to you for advice on SpaceX earnings later as well. That's Matt Bloxham of Bloomberg Intelligence. Some of the biggest defense names also set to report, RTX and Northrop Grumman, earnings slated to come before the market open. Bloomberg's global defense editor, Jerry Doyle, joins us now for a preview. So, Jerry, what are we going to learn from these companies about the state of the munitions backlog in the United States? [00:40:51] Speaker 11: Well, as we know, the war in Iran has burned through a lot of extremely expensive, extremely exquisite munitions in the last eight months. SM6 air defense missiles, Patriot pack three air defense missiles, and these types of things cost a lot of money to replace. There's been a lot of push from the Pentagon, from the White House to put more money into producing more of those. And I think this week in earnings, not just with RTX and Northrop Grumman, but also Lockheed Martin, we're going to see how that kind of spending, how those plans are reflected in the bottom line. [00:41:26] Speaker 1: Yeah. Do we expect that we'll see, you know, a bumper quarter for all of these defense companies? Are there some that are benefiting more from this massive amount of defense spending? [00:41:39] Speaker 11: Well, with the two that we're talking about today, with RTX and Northrop Grumman, RTX makes a lot of munitions, including the SM6 air and missile defense interceptor, which is used by the U.S. Navy. They just got a $24.4 billion contract to build more of those for the Navy. I think quadruple production. So that might be reflected more in their earnings than in Northrop, which makes a lot of high-end systems, but fewer munitions. They're looking more at the B-21 Raider next generation bomber program, the Sentinel intercontinental ballistic missile, rather than these interceptors. [00:42:19] Speaker 1: Geri, thank you so much. We'll use that as we head into earnings. It's going to be a busy morning for you. That is Geri Doyle. Coming up, more earnings on deck. We'll get you set up for your trading day. This is Bloomberg. Now a look at what's ahead today. In just a few minutes, we're going to get some defense company earnings, RTX, Northrop Grumman. We also get General Motors and 3M before the bell. And then SpaceX, Netflix and United Airlines after the market close. Plus, U.S. housing starts and building permits out at 8.30 a.m. New York time. Let's take a look at your macro picture going into the second trading day of the week. So we do have NASDAQ 100 futures looking like the index might take a pause, but it was up 1.5% yesterday. And we did get that pretty much failed IPO in Asia overnight. The stock was down 38%, end of the session down 32%. That might be bleeding into this a little bit. Brent crude as well at 111 and change is not helping things. We're up another 1.7%. And the same again for contracts that are further out. And then we thought we'd just show you the French 10-year yield. We've obviously been continuing to keep an eye on it. Looks like there might be a little bit more calm in France today after curfews were set. Nevertheless, the OAT bond spread very close to its highs of recent times at 153 basis points. That's it for Bloomberg Brief.