Bloomberg Surveillance 11/6/2026

[00:00:00] Speaker 1: there's a painful transition that's occurring here in this market underneath if you look at [00:00:09] Speaker 2: the cycle I've never seen anything quite like it the concern about the AI build-out I think is somewhat overblown I look at it more as a speed bump I wouldn't say that it's the end of [00:00:19] Speaker 3: the AI trade I just say that it's a reassessment of the AI trade a little bit of the slowdown to [00:00:24] Speaker 4: reach the level of adoption we need to actually use all of this AI build-out is a good thing this [00:00:29] Speaker 5: is Bloomberg Surveillance with Jonathan Farrell Lisa Abramowitz and Anne-Marie Hordern good [00:00:37] Speaker 6: morning live from New York welcome to Bloomberg Surveillance picking up the pieces after the worst sell-off in US stocks since March of 2020 erasing trillions of dollars of market valuation pain broadening out well beyond tech leaving traders searching for answers and for havens and even more questions for anthropic at its impending IPO will it be able to really come to market in the next [00:01:00] Speaker 7: couple of weeks just one of those days why would you want to come to market now when you see the Philly semiconductor index down 12 percent yesterday worst day since the pandemic sell-off S&P 500 down more than 4 percent biggest slump since Trump's liberation day and all of that volatility then you have this article in the Wall Street Journal about anthropic and how investors are skeptical of actually how much they're going to be worth in terms of the valuation is it 1.5 trillion potentially is it going to be less and this was key in that article another investor plans participate wonder if anthropic might delay its [00:01:33] Speaker 6: offering to wait for more favorable conditions because of what we saw yesterday how much of this actually is tied to the election and how much of this is systematic trading ultimately there has to be part of it that is tied to the election certainly we got the glimmers of that with some of the beating up of the semis that we've seen over the past number of weeks that said what happened after markets opened yesterday at 9:30 a.m. [00:01:55] Speaker 7: Eastern it's a great question Jim Reed was talking about this morning in his note what was striking about yesterday's move is that there wasn't a particular catalyst driving them of course the midterm results were in focus but they already know the previous day after which U.S. equities had a huge rally so is it an excuse or is the market really actually starting to digest how much compute potentially will not get done there is a company that goes through all of the data centers and all of the sticks and shovels that are already being done some of that are still waiting for legislative approval about 40 percent of pending data center capacity in the U.S. is planned to be built in states where newly elected governors are saying hold up we are at least at minimum we heard that from the governor of Texas yesterday at minimum we need to slow this down and take a pause yeah what does [00:02:35] Speaker 6: this mean for the Federal Reserve we've been talking about this the potential that they could potentially high grades more quickly well markets are moving in the opposite direction they're actually taking back the chances of a Fed rate hike they have fully priced out one of the three rate hikes they previously had now you've got a 68 percent chance of a Fed rate hike coming in December a question about whether this sell-off is doing the work for them exactly this time [00:02:57] Speaker 7: yesterday we were sitting around this table it was north of 80 percent chance the Fed would be hiking in December when they kick off that meeting December 9th this is a great point because remember in the press conference what happened with a little bit of some issues with core weave in the neo clouds the Fed chair [00:03:13] Speaker 6: was almost close to saying the market is doing some of the work for us yeah we'll see I mean today is labor market day in the United States it's sort of an afterthought considering everything else that's going on let's take a look at what's going on right now trying to ratchet back some order or a sense of calm in markets this morning futures inflecting upward led by big tech Nasdaq futures up 1.3 percent at a time when people are struggling to understand whether this is fundamentally driven or whether this is just systemic trading if you take a look at that bid into havens bonds twos tens and thirties that bid at the front end of the yield curve was very strong yesterday today you're seeing a little bit of a give back to your yields up about two basis points same pretty much across the curve as people try to understand is this labor market strong if it is then ultimately what do you do with a market sell-off that could be a blip let's take a look at the specific names underpinning this within the tech sector we had seen hyperscalers really gaining steam after the election and semis falling out of bed we've reversed that Microsoft lower by about one and a half percent today Amazon lower by about nine tenths of a percent meta just eking out gains but when you take a look at the semis they are ripping this morning sort of the buy the dip very much strong here Nvidia shares up about four percent they had been up four and a half percent just moments ago six point nine percent gain on AMD and Qualcomm trying to pick up the pieces after a brutal day yesterday coming up this hour Sebastian page of T. Rowe prices AI fears trigger a market meltdown Clayton Allen of Eurasia Group is Democrats call for restrictions on the data center boom and Adichie Bahave of Bank of America not expecting any jump scares from the October payrolls which today seems a bit like an afterthought we begin this hour stocks looking to recover a bit from the tech lead route the sell-off slamming global markets with the cost be down six percent the Nikkei plunging into a bear market Matt Bloxham of Bloomberg intelligence joins us now for more Matt what happened over the past 24 hours [00:05:09] Speaker 8: yeah I mean I think obviously it's been a really topsy-turvy couple of days and you know perhaps we did to see the semi names just kind of dip too much and people are looking just to kind of balance things out I mean ultimately clearly with with the Democrat win there's a consensus view I think that the pace of data data center capacity build out is going to be slower and that's inevitably going to have some impact yeah for example particular on things like the neo clouds but also the likes of Nvidia but you know from my perspective that overall AI trade isn't broken there's still a huge amount of enterprise demand for AI solutions and that's going to play out over time and you know maybe it's just going to be a slightly kind of kind of narrower slope that that we see but it's still going to play out I think over the next few [00:05:57] Speaker 6: years Matt Bloxham thank you so much for being with us we look forward to catching up again soon Matt Bloxham of Bloomberg intelligence here's a view from Wall Street Sebastian Page of T. Rowe Price writing the AI trade is vulnerable in the short term still I believe it remains a driver of economic growth and positive stock returns over the next 12 to 18 months Sebastian joins us now for more to help us understand what exactly is happening Sebastian you know are you going in and buying aggressively right now if you believe [00:06:24] Speaker 9: that in 12 to 18 months you'll be thankful not aggressively but there are certainly opportunities to buy I think Matt just got it right he talked about the end demand by enterprises it's accelerating it's not slowing and I will say the end demand for users is also accelerating not slowing a lot of this has to do with deploying AI agents. JP Morgan estimates that if you deploy an AI agent, you need 10x to 100x more compute. So the demand for compute is there. It comes down to looking at the data for tokens. Lisa, you know, token prices are crashing down 30% over four weeks. But token demand is up 37%. And then you look at the token spend, which is what really matters. It was kind of stable for two months, which started some of these worries. It's actually up 9% over the last four weeks. By the way, all this data on token demand and supply and compute demand and supply, it's not perfect. We're all trying to estimate there are different sources for it. But my big takeaway is the demand is accelerating for the end product. Now, it's clear, you know, that the data center slowdown means less demand for chips. And that was part of the sell-off yesterday. But I remain [00:07:48] Speaker 6: an optimist over the next 12 to 18 months. You're talking fundamentals. Fundamentals seem to have nothing to do with what happened yesterday. It didn't seem like there were exact rationales behind particular selling in one place or another. It was a puke. It was a dump. It was definitely a liquidation. People are looking at hedge funds that are unwinding some of the positions that they've had. I'm just wondering from your perspective, is this a safe market to get involved with if you don't fully understand the technicals and how much more there's left after that? [00:08:18] Speaker 9: I think, Lisa, puke is a technical market term, of course. It's, you know, it was sentiment and positioning, a lot of it, because we're talking about this at the opening of the show. There wasn't, like, there wasn't, like, any big news between the election outcome the first day and then the big sell-off yesterday. And I was looking for it this morning. Like, what was the actual trigger? And so a lot of it smells of sentiment and crowded positioning. But I will counter this by saying, look, NVIDIA this morning is trading at 12.6 times earnings. It was trading at 30 times earnings 12 months ago. So you actually have valuations from a more fundamental perspective that are "safer." I don't want to diminish the fact that the VIX jumped almost to 30. But if you're a valuation-based investor and you zoom out a little bit and you focus on the actual AI demand and you look at the market, you know, the market is pricing in a deceleration in earnings. You know, I do think there's an opportunity here. We are, in our asset allocation committee, slightly overweight, large-cap growth stocks. In some of our strategies, in our global technology strategies, for example, we have overweights in some of the semiconductors as well as the hyperscalers. So, you know, it's more difficult to buy when volatility is high and prices go down. But it's [00:09:40] Speaker 7: often the right time. Do you think that politics is an excuse or there are parts of the market that actually truly are digesting what exactly some of these very big wins on the Democratic side mean, especially for a place like Texas, which is really one of the biggest hearts in this country for data centers. We're not just talking about a governor or senator. The attorney general is going to be a Democrat. [00:10:01] Speaker 9: It's a good question, Annemarie. Sometimes I tend to, in my mind, in my process, I tend to think a little bit less about the impact of politics on markets. I don't even like to talk about politics anyways. But here there is something real with the data center slowdown. There are, however, 500 projects that are already in motion. So it's harder to stop these. You can slow them down. You can pull the permit for the energy supply. And I imagine you built a data center and you can't electrify it. You can't power it. That's a problem. But so this is one case, Annemarie, where I think that politics actually do matter here for the build out. It will slow it down. Now, you've had a lot of people on surveillance because, again, I'm still a huge fan. I still listen every day. You have a lot of guests on surveillance talk about the counterintuitive fact maybe that, yeah, slowing down data center build out will slow down demand for chips. But, look, we're going so fast. And, you know, it's not easy to spend a trillion and a half dollars that to just throttle it, to slow it down a little bit will actually reduce the huge demand for financing, you know, to Lisa's technical term. You know, there could be a puke on the bond side as well, right? There's just you're giving me too much. So if you slow it all down a little bit and demand remains strong, it might actually be a healthy thing if you just zoom out of what's [00:11:27] Speaker 6: happening right now. Do you think right now, Sebastian, that this is a time to get into semis or hyperscalers? I think both. [00:11:35] Speaker 9: You diversify both. If I look at our global technology strategy that's run by my colleague, Dom Rizzo, he's actually holding both, selectively semiconductors and selectively hyperscalers. So it's a good way to diversify. It was interesting because, you know, if you reduce capacity and then you have a hyperscaler with a lot of capacity already, already built and cloud capacity or just compute capacity, now the price, the value of that existing capacity goes up. So this is one thing about the AI trade. As much as I'm an optimist for the next 12 to 18 months, active management, active selection. I know it's a cliche, but winners and losers is really going to matter more and more as we see what unfolds over the next few months. [00:12:20] Speaker 6: Sebastian Page of T. Rowe Price. Thank you so much for being with us. Have a great weekend. Definitely this morning. I understand the fundamental story, but increasingly I'm looking at the technicals. This coming from a Morgan Stanley note earlier this week that October marked the largest largest active unwinding of positionings at stock picking hedge funds in over a decade. It started talking about how more than 40 percent of stock picking hedge funds are either flat or negative for the year through October. It does raise questions about Greek like, you know, positive and negative dealer gamma and questions around CTA selling. I mean, it did feel like it wasn't exactly being driven by logical well thought out discussion yesterday. No, it just felt like people are being pushed out nowhere to hide and they had no choice but to [00:13:01] Speaker 7: dump. Dan Ives, who maybe is getting closer than ever to coming on with the new suit, he's going to get tailored with Jonathan, said putting all the pieces together, we believe big tech capex growth right now peaks in 2027 versus our previous view that would not happen until 2028, 2029. So it's not just politics. It's a lot of actually what is going on in this trade behind the scenes and maybe part of that is just an excuse. [00:13:25] Speaker 6: Well, we'll be following it throughout the morning. Right now, let's get you an update on stories elsewhere this morning. Here's a Bloomberg brief with the [00:13:31] Speaker 10: Vonnie Quinn. Vonnie. Good morning, Lisa. President Donald Trump holding talks with Qatar over ways to de-escalate with Iran. According to the office of the Qatari Amir, the two held talks over maritime navigation and the security of energy supplies in the region. Qatar is acting as chief mediator between Washington and Tehran as the war enters its ninth month. Federal Reserve Bank of New York president John Williams backing the idea of waiting for the data. On the inflation front, obviously, that's the number one challenge for us in terms of monetary policy. [00:14:02] Speaker 11: Inflation is absolutely too high. It's been too high for too long. And it reflects these various shocks in terms of the supply shocks and also now the AI developments, which are adding to inflation, at least in the short run. [00:14:16] Speaker 10: Fed officials looking to today's jobs to help determine the Fed's policy path from here. Invidia is stepping up monitoring of AI chips sold in Southeast Asia. People familiar with the matter telling us here at Bloomberg, the chip maker is requiring customers to enroll in a system which tracks hardware movements and other metrics. Invidia is facing pressure to crack down on alleged smuggling of advanced chips into China. And that is your Bloomberg brief. Lisa. [00:14:41] Speaker 6: Thank you so much, Bonnie. Up next, the data center boom facing backlash. [00:14:45] Speaker 12: We will pass legislation reasonable guardrails on AI and specifically data centers. [00:14:51] Speaker 13: It is not that I hate data centers. I hate the way they are taking advantage of Texas. [00:14:56] Speaker 14: A moratorium on data centers is exactly what the American people want. [00:15:00] Speaker 6: Is this a reason? Clayton Allen of Eurasia Group will explain off coming up next. This is Bloomberg Surveillance. [00:15:09] Speaker ?: We are trying to act like nothing happened yesterday. Today we see green on the screen, particularly on big tech. [00:15:28] Speaker 6: It seems like we are trying to add to yesterday's absolute carnage. NASDAQ futures up 1.3%, a lot calmer elsewhere after the worst one-day loss and a record one-day loss in market valuation, but the worst in terms of scope going back to March of 2020. A bid into bonds as people look for havens yesterday. Today, taking back just a little bit of that, although up just about two basis points to the front end, the front end really took the rally yesterday as people ratchet it back expectations for any kind of Fed rate hikes. And what was the actual rhetoric AMH that we heard from Democrats after their win about exactly how much they could potentially ratchet back data center approval? [00:16:12] Speaker 7: Well, the Texas governor gave an interview to CNN and she led with we have always been a pro-business state. She said the difference is we need to have laws to protect Texans. We need to stop what we're doing with data centers until we have these protections. So basically saying that I think she wants to see more of these getting rid of nondisclosure agreements and she wants to see more protections as data centers move into the rural community. It wasn't that she was like, I'm ending data centers ASAP. There's a little bit of a slowdown and a pause until we get some of the legislative work that I ran on through. It is not that I hate data centers. [00:16:44] Speaker 6: I hate the way they're taking advantage of Texas. That was her message. Pina Hossa versus Bernie Sanders under surveillance this morning, the data [00:16:49] Speaker 12: center boom backlash. We will pass legislation reasonable guardrails on AI and [00:16:56] Speaker 13: specific to data centers. We need to stop what we're doing with data centers. It is not that I hate data centers. I hate the way they are taking advantage of [00:17:04] Speaker 14: Texas. A moratorium on data centers is exactly what the American people want. [00:17:10] Speaker 6: Here's the latest. Democrats taking aim at AI infrastructure following their midterm sweep as President Trump blames the left for the market route. Bloomberg's Tyler Kendall joins us now back in Washington, D.C. Hey, Tyler. [00:17:22] Speaker 15: Hey, Lisa. Good morning. Well, the election results are adding to the pressure that data center developers and their customers were already facing. But now you have newly elected governors in states like Ohio, Georgia, Michigan, New Mexico and Texas who all campaigned on reigning in development. And these are the states where development has been booming. Emory mentioned the statistic at the top of the program, but it's worth reiterating. 40% of planned data center capacity is expected to be built in states where the governor-elect has pledged to either stop or pause construction completely, according to market intelligence company, Clean View. And the polling showed us this was a politically popular issue, but actually for both sides of the aisle. A September survey from Quinnipiac found nearly three in four Americans now oppose a data center in their community. A lot of the initiative, of course, is going to be taken at the local and state level. But you heard some lawmakers on Capitol Hill there, as we have seen a flurry of legislation come through in recent months. Some that could impose a new excise tax on data center development, others that could exempt data centers from some business tax breaks. Now, Lisa, nothing's really expected to get done in the lame duck period related to AI. But it is setting up the debate when the new Congress is sworn in in January. [00:18:39] Speaker 6: Thank you so much, Tyler. Clayton Allen of the Eurasia Group writing the Democratic sweep in the midterms will only have a moderate impact on data center policy. Clayton joins us now for more. Clayton, tell that to markets. It seems like people are expecting a pretty big ratcheting back in terms of data center approvals. Where are you getting your confidence that it isn't going to be exactly what the market is pricing in? [00:19:01] Speaker 16: So I think the confidence comes from two places. One, as Tyler mentioned, this is happening at the state and local level. Look at the Texas governor. Look at the Georgia governor. Both of them ran and won on a message of data center skepticism, but not a complete ban on data centers. They're talking about correcting some of the things that they dislike about data center development. But ultimately, these are temporary pauses. Remember, these are governors that won in states that up until very recently were pretty Republican, and they're still very focused on economic expansion. These are more moderate Democrats. As a result, there's no politician who doesn't see the ultimate economic upside in data center development. They just want to make sure that it happens in a way that's politically helpful to them. We think that that leads to a slowdown, a bit of a pause here at the beginning. But ultimately, it's not going to halt data center development. It's not going to halt the aggregate amount that we expect to be built in the country. [00:19:53] Speaker 7: What happens then in terms of on the federal level? Because we heard heard from some Congress individuals like AOC and, of course, Senator Bernie Sanders. You kind of just want to shut it down. [00:20:03] Speaker 16: Look, Bernie Sanders is absolutely someone who's always going to propose the most extreme version of whatever his policy agenda is. It's part of the reason that he's had such a prominent national profile for so long. He's the guy who's willing to say, look, I'm going to do these extreme things that may not be accomplishable. This is another one of them. You know what else he talked about this week was extending Medicare coverage to everyone up to the age of night from the age of 19 on, lowering the retirement age to 55. Can he accomplish any of these things while President Trump's in the White House? No. Can he accomplish any of these things at a Democratic Party that today is much more geographically diverse, has a large enough majority in the House to isolate the DSA, and largely is going to probably shift back towards the center of policymaking? Again, I doubt it. I think Sanders is making a good case for himself on television, but I don't think that's going to materialize in functional federal regulations or restrictions on data centers. [00:20:57] Speaker 7: What is going to be the focus of these new, fresh Democrats coming in? I watched a number of them give interviews yesterday, and a lot of reporters were asking them, are you going to try to impeach the president? A lot of them kept going back to, I'm going to Washington with a mandate of affordability. What are they going to pass? [00:21:12] Speaker 16: Well, that's the thing. They're exactly right to say, look, the political upside in immediately trying to target Trump himself for impeachment is actually pretty small. Trump's been impeached twice, criminally indicted once. He survived all three of them, came out the other side stronger. Democrats need to use their majority to try and build a narrative around 2028. Passing bills on affordability, even if they never become law, is one way to do that. You're laying out a party platform that voters can identify and say, OK, this is what these people are going to do for me. It's not enough to tell people what you aren't or what you're against. To be a successful political party, you have to eventually tell them what you're for. Democrats need to capitalize on the fact that they've made a lot more parts of the country competitive that weren't before. But to do that, you need a message of what you're actually going to do if people give you more power. Where does this leave the executive branch and the president? [00:22:02] Speaker 7: Do you have to start firing people? Are you going to see massive changes in the cabinet? Does he just lean on to legacy building? So this is one of the interesting traits of Trump's second term. [00:22:13] Speaker 16: You know, we saw a lot of volatility in the cabinet in his first term. We haven't really seen that this time around. Traditionally, midterms are when people start to leave. I'm a little skeptical that you get a full revamp of the cabinet level officials. I do think that it's likely you'll see some departures. Certainly we've seen some indications of cabinet members kind of weighing their own future electoral chances, specifically Pete Hegseth, Marco Rubio and others. Potentially, there could be some departures. I think the big thing to watch, though, is what happens to the level just below the cabinet, the deputy assistant secretaries, the people that are Senate confirmed but not on TV every day. I think you're going to see a lot of them leave as they start to prioritize their own career paths late now and of Eurasia Group. Thank you so much, Emery. [00:22:54] Speaker 6: You're among those breaking the news yesterday. The secretary of state. Marco Rubio is considering departing the White House before the end of his term. Just really raising questions. Who's next and how much turmoil there ultimately is at the executive branch. This is a huge question. So he's weighing this. Potentially no decisions have been made. [00:23:12] Speaker 7: There's a lot of pressure right now on either the president to act or when Congress comes back in. They're going to act when it comes to Defense Secretary Pete Hegseth. The president, though, he really only has six weeks. He has a majority right now today in the House and the Senate. He doesn't have that in January. So if he wants to get a new secretary in. [00:23:29] Speaker 6: These are the moves that need to be made within the next day or two. How much control does he have, though, for the Republican Party right now? I mean, how much of a wholesale rebellion is this? We've seen this from a few members in terms of the rhetoric, even J.D. Vance. But how much is it in the rank and file still in Congress? [00:23:44] Speaker 7: I think potentially he can get a secretary through. But it might be someone that is not on the right Mago wing of the party and probably would [00:23:51] Speaker 6: have to go for someone who's a bit more of a centrist right now markets. The implications of the midterm election still kind of percolating through people's consciousness is whether or not that really is going to justify the route that we've seen. That was the worst going back to March of 2020. Still a debate coming up. We're going to be speaking with Matt Bryson of Wedbush as chip stocks find some stability following yesterday's absolute carnage. The stock the stocks index semiconductors in the U.S. down almost 40 percent from their June highs. This is Bloomberg surveillance. Good morning. Right now seeing a bit of a bounce back after yesterday's carnage particularly in the tech stocks particularly in NVIDIA as well as even AMD showing some signs of life. Nasdaq up now about one and a half percent. S&P futures just eking out a gain three tenths of a percent. Russell 2000 essentially flat with a sell off coming in the bond space just taking back a little bit of the gains from yesterday's twos tens and thirties. Actually at the front end taking back some of the confidence that people had yesterday that the Fed might not be able to hike as much as they thought. Today adding to those yields up three basis points to 4.49 percent. It's nonfarm payroll say today. Did you know that it would have if you looked at the market it's like the last thing people are [00:25:16] Speaker 7: thinking of. They're like OK whatever. The labor market hasn't been this huge source of an issue for the Federal Reserve. Great. More data. But it's not the catalyst I think we were all expecting because of just how insane the last 24 hours was. [00:25:30] Speaker 6: Brutal across the financial market. Yeah. And it doesn't seem to be connected to fundamentals which has been one of the frustrations for a lot of investors that are seeing opportunities but not understanding how much more selling there is to come. Ultimately when you take a look at the bond space you have seen a flight to havens at least on the margins maybe not as much as in the past but to 10s and 30s definitely illustrating how much we have taken some heat off the market. When you take a look at where havens are the dollar gaining some steam and this is unusual given the fact that there was the theory that the U.S. market was that much more tied to the A.I. trade and with our A.I. trade so too goes dollar. Yesterday you did see a little bit of a weakening but today a lot of strength. The euro weaker versus the dollar at 111.77. Three hours away from the cash open. Here are your morning movers with Isabel Lee. Isabel. [00:26:14] Speaker 17: Hi Lisa. Happy Friday. We are seeing a bounce back this morning indeed. You're seeing the Nasdaq 100 the NVIDIA higher by four and a half percent leading the game in a magnificent seven. And the irony here is on Wednesday investors were welcoming the prospect of tighter regulation for the seemingly out of control A.I. industry. But on Thursday that very prospect is what spooked them given how much of the market's growth is really tied into the A.I. trade. So Lisa we will see what theory wins out today. But at least we're seeing some relief within video in the green and some A.I. infrastructure names are also in the green. One of them is bloom energy which is higher in pre-market trade boosting actually up by around 11 percent. So it's really a combination of oversold conditions and also earnings in the space were great. And one of those is iron. This is a data center company that counts Microsoft as one of its backers. You see the stock here popping nearly 16 percent. The company reported cloud revenue that nearly tripled year over year. So that beat estimates. They also reported some 22 percent sequential growth in their backlogs. Investors chose to focus on those two despite the wider than expected loss for iron. Lisa. Thank you so much. Isabel on our [00:27:15] Speaker 6: radar this morning. Dutch Bank I.N.G. auctioning off roughly 500 million dollars in data center loans. People familiar with the matter telling us here at Bloomberg the debt includes a slice of the Stargate A.I. project. A representative for I.N.G. declined to comment. There was a hunt to figure out who is selling and what yesterday. Meanwhile drawing the line on the future of Texas data [00:27:36] Speaker 13: centers. It is not that I hate data centers. I hate the way they are taking advantage of Texas. Selling our beach to Elon Musk is just something that is almost unimaginable. We can have a strong working relationship with Elon Musk and his companies. But it has to be [00:27:55] Speaker 6: on our terms. Texas governor elect Gina Hinojosa pushing back on data centers and a possible sale of Boca Chica State Park to SpaceX. But ultimately Emery. This has been really an issue. How much is Elon Musk really in the crosshairs yesterday. An additional more than 400 billion dollars of market value taken away from his companies as people suspect that a tie up between SpaceX and Tesla is going to be called into questions as well as any kind of regulatory oversight. Oh absolutely. He is going to get a subpoena. I think [00:28:22] Speaker 7: that's been pretty obvious in terms of you hear the rhetoric coming in on some of these Democrats. What is interesting though after we heard from the governor someone was putting out a tweet about exactly what her position was explicitly what she has said and not said about data centers. Elon Musk quote tweeted that and said interesting. So maybe he's starting to politics seeing the signs of the wall being like I need to get ahead of this. I'm going to have to go in and meet these people that I just [00:28:43] Speaker 6: spent close to 500 million dollars trying to defeat. Yeah. And guess what. He can make his argument for data centers in space with maybe some additional support. Meanwhile Anthropix one and a half trillion dollar IPO is increasingly in doubt. According to the Wall Street Journal major investors are warning the valuation is too rich following this week's sell off with some saying it could be closer to one trillion dollars at the same time that other people are saying maybe you just want to park this for a little bit and put it on the sidelines. That's what struck out to me. One investor in the story who wants to participate in this said maybe we [00:29:14] Speaker 7: delay this delay this offering wait for more favorable conditions. It is a rough time to try to IPO after we've seen this huge wipeout a huge seismic shift politically. Open a. I sort of beat you to the punch with their community compact note talking about what they're going to do as they go into these data centers and work with communities. Also Lisa Washington Post this morning saying it's laying the groundwork groundwork the House of Representatives to investigate a number of these companies. And in the stories adventure capitalists have advised Silicon Valley startups to close funding rounds before the end of the year in case money dries up in the event that executives are called to hearings or the Pentagon spending plans are curtailed. So maybe that's a reason to hold it off a little bit [00:29:58] Speaker 6: but get it done before the end of the year. Slow down speed up. Slow down speed up. Maybe now. And that's the question. Ultimately how much is that going to be a risk factor. Meanwhile today the U.S. stock route easing after fears of an AI slowdown triggered yesterday's massive wipeout chipmakers bearing the brunt of that sell off. Matt Bryson of Wedbush writing eventually investment will still happen despite any delays or bumps on the road because the size of the opportunity and the potential profits to be made. Matt joins us now for more. Matt. Do you feel like you're [00:30:25] Speaker 18: screaming into the wind because nobody wants to hear about fundamentals right now. I feel like I've been screaming into the wind for the last four weeks. But yeah it's it's difficult times when you're concerned around future legislation when you're concerned around future fundraising. And it's just hard to get a handle on exactly how things play out. Do you have a sense of what's been driving some of the [00:30:50] Speaker 6: skepticism. How much is fundamentally justified and how much this highlights the momentum driven rally that we have seen that left it so [00:30:57] Speaker 18: vulnerable. Yeah. So again there's there's no there's no data from the hardware space that tells you that things have gotten worse. Right. We just heard from AMD that they're talking about their revenues for compute doubling driven by agentec AI. You heard from Supermicro. They're talking about now doing 20 billion a quarter. Remember it's it's like 12 months ago that they were doing half that. So what you're seeing from companies right now is their results are are really really strong and their visibility. It is better than it's been at least in the next year. And they're giving us these really rosy forecasts. But concerns are around there. You know what might happen. And we we just don't know till we know. Matt did you sleep at all last night. [00:31:47] Speaker 7: What's weighing on you. Is it politics. Is it cat back spending. Like what's keeping you up at night. I mean it's it's both those things just in [00:31:57] Speaker 18: part because it's really hard to know what's going to happen. So again I think that companies with data centers are making a ton of money. So when I talk to the neoclouds their payback times keep on coming down. So they're becoming more and more profitable. You know my view is that you're You know my view is that if there's money to be made people find a way to to to invest and that. Yeah. You may have more regulation. You may have to do things differently. But people will find a way to put brick and mortar in the ground. So you think the politics blame game. What happened yesterday on [00:32:34] Speaker 7: Wall Street is a little bit overdone in the sense that these governors these new elected officials they want jobs in their states as well. [00:32:43] Speaker 18: You know exactly. And also when you think about the US. Right. It's it's it's 50 states. And so it is certainly is a problem if you can't build in Texas. I think the number that was getting thrown around earlier this week is there's something like 14 gigawatts at risk. At the same time if you can't build in Texas. Can you build in Nebraska. Can you build in Argentina. I think that could we see delays. Yes. I think these these market opportunities are so large though that people will find a way to invest. There is a question though about whether the hyperscalers are [00:33:19] Speaker 6: going to be willing to pay for it and exactly how much credit markets are going to continue to facilitate that. This has been paired with questions and pushback from credit investors and real issues. If some of these hyperscalers have to offer all these sweeteners to communities. It's only going to cost them more not less. Do you think that that is a realistic fear coming down the pike right now. No. I mean it's certainly it's certainly fair to talk about capital and [00:33:46] Speaker 18: where capital can come from. I think on the other side of things though you have to think about the markets that are being put up for grabs by AI. So what we've seen with search search is completely changing. That's that's a huge market. When you think about what Meta is doing with news. I don't think it's just to be an AI agent for people. I think that effectively they're looking at it as a way to put potentially own the consumers relationship with tech. So you take over something like Android or iOS or displays and those are huge markets and that's not even talking about things like physical AI or autonomous driving where you know again there you're displacing human capital and the returns are amazing. And so yes I think you can see a pause. But I think if these things come to fruition. [00:34:39] Speaker 6: You just need more compute. And so people find a way to build that compute. Matt over the past 24 hours how many people called you to ask you fundamental questions about the investment prospect. [00:34:48] Speaker 18: I'm going to go with zero. It's just not what people are worried about right now. They're worried about their portfolios collapsing. It doesn't matter that I had a conversation with some of the DRAM industry yesterday and they were talking about the fact that they still can't get server DRAM. It's just not available because demand is that strong. But you know no one's focused on what's going on today or what's going what's going on next quarter. It's more we get to the end of 27 28. [00:35:20] Speaker 6: You know is there is there a pause. And what does that mean. Matt Bryson. Thank you so much. Happy Friday. It's going to be a good weekend for all of us to catch up some sleep. Matt Bryson. There of when Bush ultimately a really difficult moment for people to explain because you can understand from a fundamental perspective why somebody might see value. You look at multiples. You look at the actual profitability prospect. This isn't a market looking for that. It really kind of goes to the question of something else is driving this. What's behind it. [00:35:47] Speaker 7: And can you get in front of it or is it catching a falling knife. It feels like everyone was just dump and ask questions later. And a lot of people are going to speculate what exactly was the point of all this. But at the end of the day it's probably accumulation of things. Maybe for some it's really digesting what happened in terms of the midterm elections and really seeing that this is just going to be a lot slower. [00:36:07] Speaker 6: So they wanted to unwind maybe just took on that whole narrative might have just taken on a total story of its own. I'm curious to see how Democratic elected officials respond to this whether they welcome it and they say you know what this is what we this is the message that we heard from our constituents or if they push back. And if they say we're not looking to slow the economy kind of Gina Hinojosa. Is it Gina Hinojosa or is it Bernie Sanders. It's sort of the two polls right now of potential Democrats. I think on the legislative level locally you're probably going to get a [00:36:37] Speaker 7: get more individuals starting to talk like the Texas governor. They are going to work with these companies on a local level and figure it out because they do realize this is growth and this is capital coming directly sucking into their economy. On the federal level I imagine you're going to see a lot of posturing but does it actually get done. [00:36:54] Speaker 6: Not sure. Does it matter though today when people are just kind of reeling as we just saw. Right now let's get you an update on stories elsewhere. Here is your Bloomberg brief with Bonnie Quinn. Bonnie. Thank you. Pressure building in the Republican Party. The New York Times reporting. [00:37:07] Speaker 10: Secretary of State Marco Rubio is dismissing reports he was planning to leave the Trump administration. This of course following Bloomberg reporting he might leave his post after the GOP's crushing midterm loss. Democratic Socialist Nidhiya Raman ousting incumbent Democrat Karen Bass in the Los Angeles mayoral race. Bass who has served for four years conceding defeat to the city council member writing in a statement that quote the people of Los Angeles have spoken. NVIDIA CEO Jensen Wong losing just over $15 billion in net worth in Thursday self. The decline pushing the tech boss out of the world's top ten richest list while dropping to 13th on the Bloomberg billionaires index. He had previously been ninth on that list. And that is your Bloomberg brief. Lisa. Thank you so much Bonnie. We're sending condolences cards to him. Yeah right. Smallest violin. Yeah. Well either way. [00:37:57] Speaker 6: Maybe he can't be as much of the bank of AI or will he. That's the question. Yeah. Can he step in. Does he buy the debt. Right now we are looking for that. And we're also focused on. For barrels report coming up. Up next balancing the labor market. I still don't think I would have hiked rates in September. [00:38:14] Speaker 19: Core CPI is in a totally normal place. It's still not a strong a super strong labor market that merits great hikes. I think that this is still a labor market that's in a very precarious ballot balance and needs support. Coming up we're going to be [00:38:26] Speaker 6: speaking with someone who doesn't share that view. Adichie Bahave of Bank of America joins us next. This is Bloomberg Surveillance. Good morning. Yesterday was the pain and maybe today is a bit of gain just seeing some signs of life in the tech trade after yesterday's absolute battering that we saw across the board. This morning Nasdaq futures up about 1.7 percent. You'd never know that yesterday we lost 2.3 trillion dollars of market valuation the most ever for a day in the Nasdaq. S&P futures up three tenths of a percent not seeing much of anything on the Russell 2000 as a result of what we're seeing in the bond market. I want to take a look though at some of these semi names today. Yesterday massive declines and video is down some 9 percent by the end of the trading session. This morning rebounding nicely up about 5 percent in futures and pre-market trading. AMD up 8.3 percent. Broadcom up about 5 percent. It seems like there is a bit of a reassessment of maybe the baby thrown out with the bathwater or maybe people just are reassessing whether fundamentals can come back into play. Especially when it comes to some of these [00:39:52] Speaker 7: semiconductors. Especially when you hear from people talking about how actually they're so low on chips going to 2027 2028. There's going to be a huge issue until 2030. Maybe for them this was just too overblown. And the companies are going to have politically I think a bit more of a problem maybe in video on the national security front. But politically are going to be the Microsoft's and the Metas. You already see that today in the Washington Post how the Congress is preparing for these [00:40:16] Speaker 6: subpoenas. Yeah. And a real question here about what this sell off has meant for the Federal Reserve. When you take a look at the bond market we have priced a lower chance of a Fed rate hike coming into December. At the same time all the labor market data that we've gotten over the past week has been hotter than expected. Today is non-farm payrolls. I can't believe that we have to keep reminding people. I'm reminding myself because I keep forgetting that that's what it is. Under surveillance this morning balancing the labor market. I still don't think I would have hiked rates [00:40:45] Speaker 19: in September. Core CPI is in a totally normal place. For me the character the primary characteristic of this labor market still remains relatively low hiring rate. That's still not a strong super strong labor market that merits rate hikes. I think that this is still a labor market that's in a very precarious balance and needs support. Here's the latest [00:41:02] Speaker 6: investors awaiting October payrolls for more clarity on the Fed's outlook. Aditya Bahave of Bank of America expecting 75,000 jobs added writing October jobs should keep markets and the Fed focused on inflation. We still expect the Fed to strike twice more but they are likely to arrive at a quarterly pace. Aditya joins us now for more. I laugh because it should is one thing. We're not focused on that at all. Would you describe this labor market as precarious. Good morning. [00:41:27] Speaker 20: Thanks for having me on. I would describe this labor market the way Chair Warsh does which is that it's basically in balance. Until wages in fact meaningfully upwards. I wouldn't say that the labor market is necessarily heating up. But the unemployment rate is low. Job growth is proceeding at a pace that's pretty much consistent with where most folks including us think break even is. So I wouldn't [00:41:46] Speaker 6: describe it as weak either. Do you think that it could potentially be a source of inflation given what we saw this week with the jolts data showing that quits picked up with the ADP data that showed an outside surprise as well as ISM services that also had an upside [00:42:01] Speaker 20: surprise to the employment component. So that's an interesting conundrum for the Fed because if wage inflation picks up then it's already too late. You're already behind the curve. But at the moment are you seeing signs of wages picking up. You really aren't average hourly earnings have been trending down for several years now on a year over year basis. And then ECI has been more or less flat. So I think right now again you would view the labor market is not necessarily a source of disinflation but not a source of inflation either. Where are the risks skewed going forward maybe slightly in the direction of inflation. But again you need to see something [00:42:36] Speaker 6: more to push you over the edge. Do you think the feds more focused on non-farm payrolls or the cost be this morning. That's a great [00:42:43] Speaker 20: question. I think probably the unemployment rate is more important than non-farm payrolls anyway. That's where they measure the balance [00:42:51] Speaker 7: between supply and demand in the labor market. The Fed chair talked about information rich time ahead of us. Do you think the midterms are going to [00:42:59] Speaker 20: impact how this Fed governs. I don't think so unless there's some indirect effect to be the stock market which would have to be more than a day. Right. Hopefully the Fed is not so scared of its own shadow that it's responding to a day's worth of market action. Right. But if you had something more meaningful where they convinced that financial conditions have tightened in a sustained manner getting into December then they might respond. Should they in our view. No I think they should keep hiking. But do you think when they see a market like we saw yesterday [00:43:29] Speaker 7: in the sell off with all of these stocks that are so tied to the U.S. economic growth it scares them. So there's a month left before the [00:43:36] Speaker 20: meeting. Let's see what happens in the 20 odd days of market action. And then they can make up their minds as to whether again this is meaningful financial tightening or it's just kind of an idiosyncratic one off thing. That said I did see a number of notes coming out of a number of [00:43:51] Speaker 6: Wall Street firms yesterday talking about how much truly the data center build out has added to the U.S. GDP has added to some of the price pressure etc. And what could happen even if there is a substantial delay to a number of data centers. How much is that a huge part of the fundamental story at this point and potentially putting this U.S. economy a bit more at risk. So our expectation is that by the time any [00:44:19] Speaker 20: regulations go through and they start to affect business investment it's probably going to be late 27 early 28. So I don't think our outlook for the next several months is impacted. And that's really what the Fed's got a base policy on. If they're basing policy on wishful thinking that inflation is going to come down in 2028 or whatever then they're probably going to stay behind the curve. There have been a number of [00:44:41] Speaker 6: market based activities that have led the Fed or people to project that the Fed would cut rates or at least hold rates maybe not cut rates. I think we've been speaking to Stephen Myron quite a bit. I am curious from your perspective how much oil prices really will dictate that. You know given the fact that that seems to be fueling a lot of the market move. So oil prices play a role but they're not the only [00:45:03] Speaker 20: problem the Fed has. Our perspective is that underlying inflation is somewhere in the high twos two and a half to two point seven two point eight percent. And then the rest of core PC is the pass through of tariffs the pass through of the Iran shock. The problem is on the one hand you have this big overshoot in underlying inflation but also on top of that Iran is going to get worse in terms of the pass through. I want to be very clear on that in terms of the diesel pass through. That could get worse before it gets better. Right. There could be a few more months of that playing out. So I don't think we're getting back to target any time soon. And then the other problem is we've been above target for so long. We all know the stats around the year of a year rate. But what about just three months. When was the last time we had three months of two percent annualized core PC inflation. It was December 2020. Right. That was so long ago. I had a full head of hair back then. You still have to. Yeah. Come on. Not really. But the point is that was very very long ago. And can we keep kidding ourselves. That there's some reason or the other that we're going to get back to target. Or is it time for the Fed to take action. I think it's time for the Fed to take action. [00:46:14] Speaker 7: John Williams spoke earlier this morning at the European Central Bank and he was talking about that. Absolutely. Inflation is just way too high. At the same time this is an individual that was forecasting we're only going to need one more hike. So for what you're talking about do you think they're plant planning to go that extra mile and make it potentially a bit painful. [00:46:32] Speaker 20: The risk is that they won't and that they'll just implicitly accept somewhat elevated inflation. Now Williams is interesting because he obviously led the way in getting that October hike priced out. He's been very very dovish from our perspective. And it seems that his framework is very much dictated by the idea that our star is still very low. The rest of the committee is slowly moving away from that. So there's really two reasons to be hiking here. Right. One is the inflation overshoot that we talked about earlier. But the second is the idea that if our star is climbing and you are not hiking to meet that increase in the neutral rate then you're implicitly easing rates which doesn't feel appropriate right now. [00:47:12] Speaker 6: Adichie Bahave. Thank you so much for being with us this morning. Always great to see you. Adichie Bahave of Bank of America. We really are trying to understand what happened yesterday. I think that that is a key question to understand how much it potentially could have legs because this morning seems like people are trying to reverse it just a bit on the margins. [00:47:28] Speaker 7: Yeah especially when you look at some of these semiconductor names people. Maybe this is the buy the dip moment. You had flush out of a number of positions. Maybe this is digestion of politics. I think for a lot of people it's a little bit more than the politics. That might be a very easy excuse especially coming from the Oval Office. But Bank of America's Michael Hartnett said this. He said there's going to be a little bit of a period of disruption and they were holding off on some of that risk until mid-November when they thought that the Fed might indicate that it was peaking in terms of rates. [00:47:56] Speaker 6: A lot of this does depend on nonfarm payrolls and the Federal Reserve. Coming up next Priya Misra of J.P. Morgan Asset Management is fending why we should be paying attention to nonfarm payrolls today on this Friday. Adam Hodge of Bully Pulpit International. Samantha Dart of Goldman Sachs on oil prices and the former Kansas City Fed President Esther George. This is Bloomberg Surveillance. [00:48:24] Speaker 13: Good morning. Welcome back to Bloomberg Surveillance. Stocks eking out gains after their worst day since the depths of the 2020 pandemic. Investors trying to understand the why behind yesterday's carnage that left the U.S. [00:48:34] Speaker 2: semiconductor index almost 40% lower than the last few years. This is the U.S. economy that is going to trigger inflation. [00:48:39] Speaker 5: It's still not a super strong labor market that merits rate hikes. It's going to boil down to how does the Fed ultimately interpret that data. [00:48:46] Speaker 6: This is Bloomberg Surveillance with Jonathan Farrell, Lisa Abramowitz and Anne-Marie Horderne. This is the first day since the depths of the 2020 pandemic. Investors trying to understand the why behind yesterday's carnage that left the U.S. semiconductor index almost 40% lower than its June high and rendering today's jobs report almost an afterthought in a rapidly changing market. We'll change that ultimately nonfarm payrolls definitely on the horizon as people assess what is the fundamental backdrop. [00:49:11] Speaker 7: Absolutely. This is going to be the next catalyst for this market and in this information rich moment we are in for the Federal Reserve. This is important. This is the first out of the two that they're going to get before the December meeting. Which yesterday because of what happened in financial markets we actually saw individuals start to price out. It's still more than halfway priced in that they're going to hike in December. We start to lessen it a little bit that potentially December will be a hike. How much is what's going on in financial markets actually doing the job for the Federal Reserve. [00:49:37] Speaker 6: Yeah. And at a certain point if you get a rally into bonds how much does that take it back to your yields have gone back down from close to 5 percent to four and a half percent or under four and a half percent. And the expectation is now a 60 at 9 percent chance of a Fed rate hike in December. It had been 86 percent just a couple of days ago. So again how much does this really take the heat away from a Federal Reserve that continues to talk about inflationary pressures. Beth Hammock continuing hammering home that point yesterday and even John Williams overnight sounding a bit more hawkish. Yeah talking at the European Central Bank saying absolutely [00:50:11] Speaker 7: too high in terms of inflation. This was someone who was the individual that basically said October is not on the table and it's going to be one more and done before 2027. He did also talk about though that this is he didn't use the words information rich moment but he said it's an important moment to gather more information. That's why the payrolls number today is [00:50:29] Speaker 6: important as well as the future CPI and job support. It's also important to look at some of the technical underpinnings of what happened yesterday. The biggest one day sell off going back to 2020 a real question about systematic trading about dealer balance sheets about hedge funds that were unwinding. We saw for example one of the biggest unwinds of single name stock picking hedge funds going back more than a decade. A real question about how much is left behind that. So even if you have a good conviction can you have at a time when potentially there's more knife to fall you just aren't sure exactly what's behind it. And it's really [00:51:03] Speaker 7: hard to time because 24 hours ago we were sitting around the table after the election results were coming in and markets futures were still pointing higher. This happened after the result of the midterm elections. So a lot of people are saying this is a lot about politics. This is the market pricing and maybe some of that. Maybe individuals are actually digesting looking at all these ballot members in these jurisdictions seeing huge pushback we saw from the electorate seeing what happened in Ohio Georgia and Texas. But at the same time a lot of people don't think the AI cycle is over. So what gives in terms of yesterday's massive sell off. It wasn't a hiccup. It was a massive [00:51:36] Speaker 6: sell off. This morning we're trying to pick up the pieces although it is early because yesterday it seemed pretty calm at this time as well. Right now you're seeing green particularly a bid into those tech names. We're just looking at some some of the semis that really are flying high. S&P futures up to tenths of a percent. Nasdaq futures up one and a half percent in the bond space. The bid yesterday reversed just a touch with people taking it back ahead of nonfarm payrolls to basis point increase on the front end four point four eight percent. A similar move at the back end to almost 5.3 percent. And a question about how much the dollar is continuing to be a haven given the fact that ultimately it is so intimately tied to the AI story this morning. The haven status sticks on the margins I guess giving back a little bit of the losses yesterday. One 1175 versus the year of the euro losing to the dollar coming up this hour. Priya Miser of J.P. Morgan with Wall Street heading for its worst week in over a year. Adam Hodge of bully pulpit international as Democrats calling to rain in the AI build out and former Kansas City Fed President Esther George on what today's jobs report could mean for interest rates begin this hour with stocks rebounding following the worst day at least on a percent level since 2006. The sell off causing a flight to safety setting investors into U.S. bonds this week. Priya Miser of J.P. Morgan Asset Management writing. Treasuries are working as a hedge against risk assets. We continue to like owning some duration. Priya joins us now. Priya great to see you. Morning. Let's make nonfarm payrolls great again. When we start talking about why it's important to pay attention to at a time where it seems like people are just selling and asking questions later. Why is this important. So you know it was quite [00:53:15] Speaker 21: the week. But I think it is important payroll. So is the labor market a source of inflation. I think that's the key question. And how dependent is the entire economy is the stock market is the economy is the labor market on the I. I think that's what we'll be watching in the labor in the in the labor report. You know the headline number is what it is. Look at the breadth of hiring. Is it construction. Is it all data center construction. Well then you have to worry that if the I if some air is coming out of the I trade then that can actually mean that the growth is much weaker. I think that's what the market is going to be watching. What's happening with inflation. If inflation. You know you look at wages wages have been decelerating now for many months. So in our view the labor market is not a source of inflation. And so the Fed hikes are you know this is essentially a mid cycle adjustment couple of hikes. That's it. If wages are picking up then we're talking about a lot more hikes at the same time as maybe the I trade is sort of getting bumpy here. So I think that's why this number is important tells us fundamentally is the labor market strong. Is it overheating. You know I think that's really the question we'll be watching. Has the balance of risk for today's move [00:54:22] Speaker 6: changed because of the rally that we've seen at the front of the yield curve. People have already taken out so much of their expectations for a Fed rate hike. Could anything that comes in hotter than expected lead to a [00:54:34] Speaker 21: disproportionate sell off in bonds. I think if wages pick up and you get a broadening out of of hiring. I do think that it could be a little asymmetric. So the front end could sell off more. Let's price in a hike another hike. I think the long end though we're still at 485. I mean the markets rallied from that 536 type level. I still think the general view is to be short duration. I think people look at the deficit. They look at AI supply. There's still a lot of AI supply. I mean just look over the last week we've had 70 billion of issuance come in. It was all taken on really well. But I think people look at the issuance and say rates should be a lot higher. So I think the asymmetries then the very front end because of Fed hike Fed hikes being priced out. I think the long end is still pretty balanced. So that's kind of where we where we like owning. When it comes to the politics you know basically have gridlock in [00:55:24] Speaker 7: Washington. But it's going to be more spending. What does that mean for yields. Well that's a good point. And is it already in the [00:55:30] Speaker 21: price. I mean we have a bunch of risk events. So you have the shutdown that's potentially one month away. We saw how long the last shutdown happened. I mean I don't know if there's a reconciliation bill. There's not just not a lot of days. There's the debt ceiling. So there is more spending. But at some point is that interim premium you know which is essentially how much more are we getting paid out paid to extend duration. In our view it's the increased spending is in the price. I think gridlock you know the Mr. Vito. I think that's going to make it very hard to get some big spending plan or even like do tariffs get taken down because then that's worse for the deficit. So I think all of these questions are going to come. Myron was talking about that yesterday. What would that mean then. You know I was wondering because it means lower inflation because tariffs absolutely. I know he said that it's not very inflation. You look at goods inflation. Goods inflation is high because of tariffs. So that's actually potentially low inflation reduces the urgency for the Fed to hike. But it means a worse fiscal picture. But there's a lot of moving parts here. So you know do we tax A.I. in some form. And then that can help bring in. I think you know political risk is very difficult to price. It's often binary. We have to watch what's going to come out on the A.I. regulation. A.I. taxation front. If local communities are going to you know see a lot more money coming in. Maybe that makes a.I. data centers more palatable. So I think that on the deficit I think we'll be watching for policy risk. I'm not sure though that just the Democrat [00:56:56] Speaker 6: Congress means a lot more spending and higher rates. The tech trade had already taken a leg lower ahead of yesterday's absolute drubbing. And a part of that was a speculation that credit markets would really push back and ultimately constrained the abilities for certain types of companies to borrow. We have seen 70 billion dollars of debt issuance just this week alone. We have seen people couple to market. You didn't see credit spreads widen all that much even yesterday amid all of the selling. How real are the constraints coming from credit markets and how much has been overblown. Sure. So I think the credit markets being very discerning. [00:57:31] Speaker 21: If you look at that 70 billion of issuance was all high quality hyperscalers. You know they've got financial flexibility. Some of them have issued equity. Their leverage ratios are not high. So the market's wide open for those companies. I will say new issue concessions 15 basis points which in the investment grade market that was unheard of. So the bond market is charging but the market is open for other parts. If you're levered if you're capital constrained and you're trying to access the bond market it's not there for you. And in some cases I would say it's not there at any price. So I think it's real. There are capital constraints. The fact that rates are where they are. I think there's some element of all of that AI supply that's priced into the Treasury market. So it is taking cost of capital for certain parts of the AI ecosystem at non profitable levels. And I think that's what the bond market's doing. It is tightening financial conditions for some parts of the ecosystem. It's wide open for others. I think it's actually a healthy thing that you know you [00:58:28] Speaker 6: call bond people to a party. It's typically the end of the party. Well that's true for a lot of reasons. I am curious about the companies that can't get access to funding for any reason at all. I'm thinking probably you're talking some neoclouds in particular that might be struggling right now. Can the rest of the credit universe withstand a bankruptcy or true insolvency a true washout of some of these names that have already borrowed billions of dollars [00:58:54] Speaker 21: of debt. Yeah. And we struggle with that because there's often I mean how much of yesterday was positioning unwind. Sometimes you sell what you can and not what you may want to. There was a little bit of that I wonder yesterday. So in the credit market if there is a bankruptcy in one part maybe you can't you need liquidity and you're going to sell other stuff. So there's that knee jerk I think unwind that can absolutely have an impact across the rest of the credit spectrum. But when I take a step back there's still a lot of money coming into credit. I mean the credit index yesterday was wider stocks was that were down four or five percent. The credit index was wider by five basis points. I think that shows you risk you know resilience in the corporate sector. Balance sheets look healthy even in the hyperscale names. The widening was not that much. The data centers which exist actually more valuable because they're they already have the permitting. They have the power. So you know I think you can have a flush out. You can have spread widening as people adjust portfolios if you do get bankruptcies in certain parts of the credit market. But the most of the credit market the stuff that you want your bond portfolio manager to own. I think that'll be a buying opportunity for us if all that starts to widen because company fundamentals earnings they all look really strong. We like credit risk. I do think you should hedge some of that credit risk because in a growth slowdown credit's going to widen. Equities are going to be down credit's going to widen. Do you think that a growth slowdown is truly on the table more than say a month ago. I do. And I think that's because so much of the economy is I think levered to the trade. We really haven't seen it broaden out. It's the upper part of the of the consumer that's spending and that's driven by the wealth effect. CapEx is driving GDP. So if you do now I think that's the trillion dollar question. Is this the start of the trade unraveling or is this just healthy consolidation. We don't know. I don't think anybody knows. But if really it is slowing down. I think that's going to have an impact on inflation on growth. Maybe the labor market stays where it is because you know AI is not a big part of job growth. But inflation and all can start to decelerate. Growth can decelerate. And the market the rates markets absolutely not priced for it. And that's why I think owning some duration makes sense here. As a hedge against me working not just yesterday. You look over the last month. You've had days when equities have struggled particularly AI. The AI sector that rotation trade and treasuries have worked all of those days. And it worked again yesterday. So I think treasuries as a safe haven. It's back. We talked a lot about how that's gone. Now it's there. There's one place to hide and that's [01:01:23] Speaker 6: right. Great to see you. Thank you so much for being with us. Priya Misra of JP Morgan Acid Management. Right now let's get you an update [01:01:30] Speaker 10: elsewhere this morning. Vonnie Quinn here with our Bloomberg Brief. Vonnie. Lisa thank you. ING looking to sell roughly 500 million dollars of data center loans as fear is a democratic midterm sweep could stall projects triggered a market route. Sources telling us here at Bloomberg the rare auction includes a loan backing open AI Softbank and Oracle's joint Stargate project. The Democrats are coming for Silicon Valley. According to the Washington Post House lawmakers are targeting Apple Meta and Elon Musk for congressional investigations. The probes will focus on issues such as Apple's hosting of tracking apps used by ice and Meta's demands for NDAs related to data center development. An 11 million dollar shipment of Nvidia hardware disappearing shortly after leaving Oakland. Local authorities reporting a six pallet shipment bound for Fort Worth Texas has been stolen and no have yet been made. The FBI warning cargo theft schemes are growing increasingly sophisticated. And that is your Bloomberg Brief Lisa. Thank you so much Vonnie. I'd watch that movie say. I think that's really [01:02:34] Speaker 6: interesting. I want to know where they are. It's a different kind of heist. I guess it sort of goes to a different expensive bond. They're expensive and frankly there's a lot of national security things at play as well. Up next not that this a speed bump for big tech. We will pass [01:02:49] Speaker 12: legislation reasonable guardrails on AI and specifically data centers. It is not that I hate data centers. I hate the way they are taking advantage of Texas. A moratorium on data [01:02:56] Speaker 14: centers is exactly what the American people want. Adam Hodge of bully pulpit international joins next. This is Bloomberg surveillance. [01:03:07] Speaker 6: It's a bit of a rebound right now in tech stocks that are lifting the Nasdaq 100 after the biggest one day drop in market value in history. $2.3 trillion erased today trying to put a little bit of that back. Nasdaq 100 futures up about 1.4 percent. But fewer gains over in the equal weight in S&P more broadly up about two tenths of percent. The real place where you're seeing the rebound is in the semi names particularly NVIDIA AMD Broadcom all of them flying this morning trying to take back some massive losses yesterday. NVIDIA down yesterday some 9 percent by the end of the trading day. Now you're seeing a rebound up about 4 percent. AMD up about 7.6 percent in pre-market trading. Broadcom inflecting higher 4.5 percent. How much is driven by fundamentals and ultimately how much is this entirely technically. Well potentially Lisa also the president weighing in to [01:04:23] Speaker 7: seeing all this realizing that some of this might be the politics in terms of what is going on with data centers in some of these states like Texas and Georgia. He's coming out and saying he wants to work with many of the states that want to become quote rich with data centers maybe Texas maybe Georgia maybe Ohio maybe this is an olive branch. Yeah and ultimately will [01:04:40] Speaker 12: take it. Under surveillance this morning a speed bump for big tech. We will pass legislation reasonable guardrails on AI [01:04:49] Speaker 13: and specific to data centers. We need to stop what we're doing with data centers. It is not that I hate data centers. I hate [01:04:55] Speaker 14: the way they are taking advantage of Texas. A moratorium on data centers is exactly what the American people want. Here's the [01:05:02] Speaker 6: latest Democrats wasting no time after the midterm sweep to target big tech as Americans overwhelmingly voted against data center development. Bloomberg's Tyler Kendall joins us now from D.C. Hey Tyler. Hey Lisa. Well new this morning [01:05:16] Speaker 15: President Trump defending against what is seen as this added pressure to the AI build out after the election results. You had this post just moments ago on truth social where President Trump said in part quote they are gold and only foolish leadership will say no to the riches they bring in apparent reference to data data centers. The White House has often touted job growth and added tax revenue as reasons why communities should embrace them though that hasn't been enough for voters on both sides of the aisle. You now have newly elected governors in places like Ohio Georgia Michigan New Mexico and Texas who all campaigned on reigning in development. These are some of the places where development has been booming. In fact 40 percent of pending data center capacity is currently in states that have new governor elect that are seeking to either stop or pause construction altogether according to market intelligence firm clean view. And different governors are taking different sorts of approaches. You have the newly elected governors in Iowa and Nevada that are seeking to exempt data centers from some business tax break something that mirrors what we've seen proposed on Capitol Hill. But then you have the Republican governor elect in Florida Byron Donalds who says he's going to hold big tech accountable to generate their own electricity. Lisa I have one more statistic for you. But this one is really important. On election day we saw 47 ballot initiatives related to data centers. One hasn't been decided yet. One would allow construction to go through. But 45 passed that would [01:06:43] Speaker 6: seek to restrict it. Bloomberg's Tyler Kendall. Thank you so much. Which was the town that signed off on it. North Dakota Harwood. Harwood. Harwood which has 100 something people voted for it. Yeah. A population. I did the I did the work. But they voted for it. But they vote for it. But they didn't vote for it. So maybe they were those attached to that one. Some places that will welcome it. Joining us now is Adam Hodge of Bully Pulpit International. Adam do you think that Democrats are happy with the messaging right now at least how it's being taken by [01:07:10] Speaker 22: markets. I think what Democrats are realizing is that like they have an overwhelming mandate to address the affordability concerns that they heard from voters very loudly in the last election. But I think the key thing to remember in politics. Right. If you have a bit of of hubris that is often way to misread your mandate. And I think that some of that is why you saw the president take some actions in Washington that betrayed the promises he made to the voters. And so I think when you look ahead to the January when Democrats take control of the House and the Senate. I think they're going to try to stay laser focused on affordability. I hope that they do because that is their clearest path to maintain the trust that voters have. I think. But voters are clearly they want action in the time where you can get anything delivered in five minutes. Right. Like people want to see their politicians and their leaders respond quickly. And so that's going to be the real test. Can you actually put the policies and get them on the table that people see the results of the election that they just voted for. Well when it comes to affordability growth is a big part of the [01:08:15] Speaker 7: growth is a big part of that. And our growth comes down to this. I trade. And you see in these states like Ohio Georgia Texas. Even Tyler was talking what's going on in Florida with what Byron Donalds the new governor elect is talking about in terms of making sure that these tech companies pay for electricity. Do you see that there's going to be a more pragmatic approach when it comes to data centers. Or do you think some of these states are going to take the Bernie Sanders approach of just shutting it down. I think what you heard from Gina [01:08:44] Speaker 22: Hinojosa yesterday is actually if you listen to all of what she said. Right. She said Texas will still be a pro business state. But Texas will have a say in how these things unfold. And I think that is probably the right political antenna to have. I mean what you the voters could not have been clearer as Tyler was just saying 45 out of 47 referendums. That's not just a Democratic thing. Right. That is a national movement of the American people's voting with and making clear to their members to the representatives. We want you to take action on this issue. And so what we're certainly telling our clients and telling people engaged in this issue. You have to convey the benefits to the public. You have to convey what it actually means. How they're going to benefit. At least this is something we talked about back in September when the backlash to this issue was nowhere near on the scale that it is is today. And so I think the people who can find a way to to bridge that divide will be the ones who actually succeed in the next two you know one to two years. Do you think these states are going to be a [01:09:38] Speaker 7: willing to work with the White House on it. The president just moments ago truthing about how he's a hundred percent in favor of artificial intelligence and work will work with these states that want to become quote rich with it. I mean it's one thing for the president to say that today we could have a totally different you know truth in 15 minutes as you know better than anybody. [01:10:00] Speaker 22: And Marie. So I think that what Democrats are smart they'll look to find ways to work with the president because I think that we can't misread the mandate here. We can't misread the sense that like there's a huge groundswell of enthusiasm for the Democratic Party. I think there is a pent up frustration in the country and you've seen this change back and forth with people want their leaders to address their concerns. And I think AI and data centers is just one manifestation. I think of a larger frustration about affordability rising prices higher energy costs. And I think that sort of backlash that in the country is what they want people to address. I think that's the leaders who get that are the ones who are going to build more durable support. And I think that the companies that are a part of that I think will be the ones that actually thrive in this new era. [01:10:48] Speaker 6: Adam Hodge of Bully Pulpit International. Thank you for being with us this morning. You know ultimately that's a real question because getting to affordability and all of these other issues is not an easy task and there are a lot of ways to slice the cake and ultimately how much does come down to prohibitions on one of the big drivers of economic growth so far this year. [01:11:07] Speaker 7: And I think what Adam was talking about with Gina Hainoussa, the new governor-elect in Texas, she led with we are still a pro-business state. They don't want to drive companies completely away, at least at the moment. Some of these governors are coming out a bit more pragmatic, but they want to do it in a way that they feel that they actually heard from their communities because there was a huge backlash on AI in blue and in red states. And if you want to stay in power, you're going to have to take that on board. [01:11:31] Speaker 6: Yeah. And ultimately there are different wings of the Democratic Party and which wings out is going to be really interesting. Progressives, AOC, Bernie Sanders. Shut it down. Shut it down. Right. And then you have people who are saying we do recognize that it could have some. Welcome, but make them pay for this. Correct. Either way it's going to cost more. Either way there are going to be more roadblocks, which again goes to the question that some people were saying about the hyperscaler rally in the immediate aftermath of the election, which was kind of a head scratcher that ultimately more restrictions would save them from themselves in terms of how much they'd have to pay. [01:12:01] Speaker 7: I think a lot of people also doing verbal gymnastics, mental gymnastics. I'm trying to figure out how can we make sure that this trade continues. So if it was a blue sweep, it was going to be OK because it was going to slow it down. It was going to be healthy. Well, if it wasn't a blue sweep, it was going to be great because we see the president who's in charge of the Republican Party, super bullish on AI. So now there's reckoning with it though, what it actually means. [01:12:21] Speaker 6: Dan Loeb of Third Point put out on X, hug your hedge fund manager. I'll leave that there. Coming up, Samantha Dart of Goldman Sachs now expecting crude to finish the year above triple digits. This is Bloomberg. Yesterday was not a great day. Today we're trying to take a little bit of that back with some gains, particularly when it comes to semiconductors, which is leading the tech heavy Nasdaq a bit higher this morning in premarket trading. Now up about 1.6% in futures there for the Nasdaq. S&P futures up 3/10 of a percent. You're seeing a bit into bonds yesterday that was aggressive at the front end. Today, a bit of a reversal of that, particularly at the front end ahead of nonfarm payrolls. I have to keep reminding myself that yes, today is jobs day. 4.5% rounded up about three basis point increase at the front end. Now about a 70% chance of a December rate hike and 30 year yields at 5.3% rounded up about three basis point of a gain. And what you see in oil is actually important here. We haven't seen the same kind of massive declines that we had been seeing over the past couple of days. We're essentially mixed. This looks boring. Boring should be good. But how much is this a boring before the calm? Halima Croft put out a note yesterday talking about how fundamentally what's changed. Supply and demand wise, nothing has [01:13:44] Speaker 7: changed. And also the fact that every day I wake up and I see headlines about how Saudi Arabia is intercepting missiles coming in from the Houthis, how the IRGC is still going after tankers that are going to the Strait of Hormuz. The only thing that's changed is some of the rhetoric. The vice president put a lot of distance between himself and the United States basically saying this war in Iran is the reason why we got this absolute shellacking at the polls. Also more pressure going on the president maybe to do something when it comes to the defense secretaries. The president is seeing all this. Maybe people think he'll be more restraint when it comes to the conflict. At the same time, I see things people like rapid and Bob McNally saying this is not altering our view. The president is going to escalate when it comes to this conflict. [01:14:24] Speaker 6: Yeah. What is escalate to deescalate look like at a time when you've got two intractable parties. Two hours away from the cash open. Let's head over to Isabelle Lee who has some morning movers. [01:14:33] Speaker 17: Isabelle. Hi, Lisa. Chipmakers are rebounding this morning flying actually to borrow your words. You're seeing the likes of AMD higher by more than 8 percent. So Thursday sell-off really had nothing to do with AMD's fundamentals. It was really more about investors recalibrating what a Democratic-led Congress would mean for the AI trade which is powering much of the market's growth. So on Wednesday, we saw a rally. Thursday, we saw a sell-off. We'll see what Friday holds for us. But we do have some earnings for you. Vista shares are in the green, higher by 6 percent. So the company reported results that beat estimates. But the political overhang is kind of weighing on the stock we have on Wednesday. KeyBank downgrading the stock on political uncertainty. But I guess investors are focusing on the beat that they saw this morning. Moderna also reporting earnings and shares are also higher by nearly 4 percent. So the company boosted its revenue growth guidance for the year. They also reported revenue that beat estimates. We know Moderna as the COVID vaccine maker. But now they're trying to make new inroads in other parts to really have new sources of growth. And one of them is cancer drug development. Lisa. [01:15:33] Speaker 6: Thank you so much, Isabel. Really appreciate that. On our radar this morning, more investors pushing back against Anthropics. Lofty $1.5 trillion valuation target. The Wall Street Journal reporting three top stakeholders say its estimates need to come down, including one adding. It could be closer to $1 trillion. The officials from that company are meeting in the next couple of days to discuss this reportedly. Meanwhile, crowded hedge fund trades facing a swift unwind. Walleye capital trimming down its equity business and returning some cash following its worst monthly performance since March of 2020. Krikoswald snapping a 16 month winning streak streak as popular trades lose steam image. There have been a number of stories about how much funds have been liquidating. And I was really struck by this Morgan Stanley report where they showed that October marked the largest active unwinding of positions at stock picking hedge funds in over a decade. [01:16:26] Speaker 7: So a lot of this potentially happened before the midterm elections and this was just some of the puking that was the catalyst for it to actually completely unwind. But now you're seeing a bid back into a lot of these. So maybe it doesn't spell the end of the A.I. trade. But just as we've heard from a lot of people, it's going to be slowing down. [01:16:42] Speaker 6: Good morning. When you hear puke, it's a wonderful morning. Well, Dan Loeb said hug your. That's the greatest tweet that you tell me about this morning. That's hilarious. Hug your hedge fund manager. Key House Republicans. Maybe hug your semi-CEO. Key House Republicans asking NVIDIA CEO Jensen Huang to attend a closed door briefing over his ties to an alleged Chinese spy. [01:17:00] Speaker 7: The lawmakers questioning his relationship with the Megaspeed International CEO raising national security concerns. You sort of set me up for this. I think these lawmakers want him to come in so they can ask him about people that have hugged him when it comes to the concerns of what's going on in national security and China. But he is just one of many that is going to get a subpoena. Washington Post this morning had about the House is preparing to have these investigations and have hearing have these discussions with the likes of Meta with Tesla with Apple. So if you were anywhere close to this administration doing deals potentially prepare and they already told you lawyer up. Yeah. And ultimately how much is that going to constrain some of the valuations. Right. [01:17:40] Speaker 6: I mean what potential constraints could there be on production that could speak to something that we saw yesterday. I would love to see the lawyer fees on these companies in terms of how much that might actually take a hit. I don't think it's going to be a huge dent in profit but it's going to be expensive. It is going to be expensive. And a lawyer up is the story that we're hearing all around turning to oil crude hovering near triple digits as investors reassess the outlook for the Iran conflict. The team at Goldman Sachs projecting Brent to be at $105 a barrel by the end of the year writing although Middle East output continues to recover as expected. We are raising our crude oil price forecasts because substantial downside supply risks are likely to sustain a large near term risk premium. Samantha Darter Goldman Sachs with one of the hardest jobs on Wall Street joins us now for more. Samantha how much does this feel like just throwing a dart at the wall just simply because sentiment seems to be moving on headlines more than some of what we're looking at on the ground. [01:18:33] Speaker 23: Yeah. I think you're hitting on the key point. If you look both at the rally that we had seen over the course of the past month and the remarkable sell off so far this week it's really all risk premium. When we look at our estimated fair value for Brent now versus two weeks ago it's still the same around $90 a barrel. And this is based on what we can see in inventories. If you look at global visible inventories of crude they've been rather flat over the course of September over the course of October. So things are not changing that much flows from the Strait of Hormuz are actually pretty decent but the number of attacks which was very high in early October over the past week they have picked up again. So I think it's it's really more like you say about how the sentiment has changed and it can change again if if you have the number of attacks and the threat not just to the flow. But I think the risk is when escalation leads to the risk of infrastructure being hit. This is something that can reflect in higher prices. And ultimately it's not just about crude. [01:19:38] Speaker 6: Obviously it's been about distillates and the price of diesel in particular that's been a real issue. And part of that has to do with just the insurance costs to have any of this transported on a ship anywhere. Just simply because freedom of the seas has been fundamentally challenged. How difficult will it be to get that back down to kind of right size that particular market. I think very difficult. [01:19:59] Speaker 23: It's going to take time because you have a lot of things going against the normalization of that balance. You have still outages in refineries both in the Middle East and in Russia. You have the fact that product stocks refined product inventories are much lower than crude inventories right now. And you have the fact that a lot of tankers from products are also being used to move crude. So your shipping is more and more expensive as well. And if we think about that insurance premium, how the freight market is tight. Part of that is because the situation in the Gulf is still a little bit tense. So you have to shuttle crude back and forth, back and forth, back and forth. And that's tying up a lot of ships just doing that instead of moving stuff around. So if you think, well, how long do I need to keep doing that? And as long as you need to keep doing that, your freight is going to be tight. It's going to be expensive. [01:20:50] Speaker 7: At the same time, the market is just trading off of rhetoric from Washington. But does that match of anything you're actually seeing in terms of supply and demand? [01:20:59] Speaker 23: Yeah, I think the market is just trying to extrapolate from those headlines into a probability of flow being impacted and infrastructure being impacted. And whether that's exacerbated or not, it remains to be seen. How difficult is this winter going to be, especially for the likes of Europe and Asia? So then I think the question shifts more to natural gas than crude. When we look at the impact of, let's say, a cold winter on diesel, it's much smaller than for natural gas. So when you think about European heating, European electricity prices, they are still quite vulnerable. The picture on LNG supply out of the Gulf is not quite as nice as the picture from oil. So you're still at about between 30 and 40 percent of normal as opposed to over 90 percent of normal. So that's a big difference. Cutter's force majeures? Well, that force majeure has been extended. But what we're noticing is that supply continues to adapt. The volumes crossing the strait slowly creeping up. So it's a question. Do they continue to creep up during the winter, which, by the way, at this moment, we don't yet know is that going to be close to average? Is it going to be a cold winter or a warmer than average winter? [01:22:15] Speaker 6: Why isn't your target higher? And I ask this because I'm looking at your forecast for the end of next year and it's $88. We're at around $80. Price is the futures curve. You're talking about $103. We're at $98. It's not that big of a stretch. Do you think that the chance of escalation just isn't there in the same kind of way now as it was, say, two weeks ago? [01:22:37] Speaker 23: There is a case to be made that goes along those lines. But I think the main reason why our target is not higher is because supply adaptation has been incredibly successful. Even in LNG, which I was mentioning just now, we're not sending as much LNG across the strait as we are crude oil. Fair. But the increasing flows we saw during the month of October, which was a month when we had the highest number of tanker attacks since the beginning of the war. That's impressive. That shows that suppliers are finding a way of getting supply across. So because the supply adaptation, supply improvement has been present and getting better and better over the recent months, we expect this to continue into next year. So we do have an underlying assumption that your overall Gulf production of oil is going to normalize and, in fact, average next year above pre-war levels. [01:23:30] Speaker 6: Something that AMH asked over the past couple of weeks, which I thought was really interesting, has the level of prices in oil at which you start to see demand destruction changed as this conflict goes on? For example, earlier in the conflict, people said prices should be high enough to cause people to pull back from some of their travel, from some of their other operations. It didn't happen. And people were really surprised by that. Is that going to be the same this time around? Or do you expect some demand destruction at these levels? [01:23:58] Speaker 23: So I think we have to think about where demand responded or not. If you look, I think you're right. If you look at US gasoline demand, it dropped just a little bit. But if you look at China, demand dropped a lot more because there was also helped by fuel substitution. You had a lot of folks saying, you know what, maybe this is the time to buy an EV. And they did. So your share of EV sales from total automotive sales increased from the mid 50s to the mid 60s percent. So I think that substitution helped increase demand response. But it didn't happen here. It happened in China more than anywhere else. [01:24:34] Speaker 6: Samantha Dart, thank you so much for being with us this morning. Samantha Dart of Goldman Sachs. So right now, let's head over to Bonnie Quinn with some other stories that are happening this morning. Hey, Bonnie. [01:24:43] Speaker 10: Hey, Lisa, thank you. Pressure building in the Republican Party. The New York Times reporting Secretary of State Marco Rubio is dismissing reports. He was planning to leave the Trump administration. This all following Bloomberg reporting Rubio might leave his post after the GOP's crushing midterm loss. Goldman Sachs promoting 109 employees to the rank of partner. It's the biggest group of new additions to the Wall Street firms top ranks since 2010. The group has an average tenure of 17 years, and members of the group being promoted work across 21 offices, the most ever represented. Nvidia reportedly approaching Apollo to create a network of small AI data centers. The information reporting the system could potentially span across 20 U.S. states and use existing buildings that belong to struggling telecom firm Brightspeed. And that is your Bloomberg Brief, Lisa. [01:25:35] Speaker 6: Thank you so much, Bonnie. Up next, a commitment to buying time. [01:25:38] Speaker 11: Obviously, it's absolutely essential that we bring inflation back toward 2% target. This is an appropriate time to accumulate more information to help us determine what the appropriate stance of policy is to make sure we achieve a timely return to our 2% target. [01:25:54] Speaker 6: Timely. I keep thinking about that word timely. What does that mean, given the fact that we've been above 2% for more than five years? [01:26:01] Speaker 7: It means that they feel that they can waste a lot of time. I'm not sure. They feel like they have a lot of time. I think the American people [01:26:08] Speaker 6: wouldn't agree. But it's totally true. They've been behind the curve for more than five years. Yeah. To answer that question, what is timely? Former Kansas City Fed President Esther George joins us next. This is Bloomberg Surveillance. We're still wondering what happened yesterday. Some people are tiptoeing in and starting to buy around the margins, particularly in the tech trade. The semi trade getting some love this morning. You are seeing a bit to the tape. The S&P down now, Joe, just about -- I should say, excuse me, just up about a tenth of a percent. You are seeing a bit of dollar strength, 111.69 on the euro falling about a half a percent versus the dollar. 10-year Treasury yields up now almost four basis points. Interesting, 4.87 percent. People taking back some of the moves that we saw yesterday, also ahead of nonfarm payrolls. And a real question about really how much that could potentially change the narrative. I know that we're not talking about that as much, and rightly so, because the market moves yesterday are still leaving us with a lot of questions about market positioning. Nonetheless, it really could make a big difference for Fed expectations. True, but the problem is, I think, of course, a lot of people look at what happened in the markets, and they're saying [01:27:23] Speaker 7: that already might mean the Fed has to hold back from hiking interest rates in December. And we saw that immediately priced in yesterday morning when we were sitting around the table, more than 80% chance that the Fed was going to move to the upside and hike in December. It's still there. [01:27:37] Speaker 6: But that's calmed down a little bit. That pressure has eased. Yeah, we now have about a 70% chance of a Fed rate hike priced into markets, even after the incredible level bid into the front end of the yield curve. Under surveillance this morning, a commitment to buying time. [01:27:52] Speaker 11: Obviously, it's absolutely essential that we bring inflation back toward 2% target in a timely manner in a sustained basis. It's been too high for too long. This is an appropriate time to accumulate more information to help us determine what the appropriate stance of policy is to make sure we achieve a timely return to our 2% target. [01:28:11] Speaker 6: Here's the latest, New York Fed President John Williams echoing Fed chair's wait-and-see approach. Investors now turning to the October payrolls print due in less than an hour time. Former Kansas City Fed President Esther George writing today's jobs report will be a component of the accumulation of more information the FOMC is looking for in order to determine the policy stance appropriate for a timely return of inflation to 2%. Esther joins us now for more. Esther, I did get someone who sent me a definition of the word timely. It didn't help because I still don't understand what does timely mean to the Federal Reserve in terms of how long it will take [01:28:47] Speaker 24: inflation to get down to target. Yeah. Well, it's the key question, isn't it, Lisa, that I think even the committee members are wrestling with as they debate and deliberate on the path ahead. It sounds like there's good consensus that the path ahead will call for higher rates. I think their question is how much of that dose of medicine will we have to put out there to achieve the result we want. So timely is critical here in terms of judging that. The other thing I would say is this committee has taken a high level of confidence in inflation expectations as measured by the market. But I think we also increasingly hear that household expectations are really shifting in a way that suggests there's probably more urgency in my view that they address this issue quickly. Do you think the sell off that we've [01:29:40] Speaker 6: seen in the tech sector in particular and some of this belief that there will be a slower pace of data center build out which could slow the economy. Do you think that that's enough to give the Fed more time to accumulate data in a data rich period. Well, it's always possible when [01:29:58] Speaker 24: you see a repricing of risk as we saw yesterday that the it could feed through to growth. It could be a message about growth. That's hard for me to see right now. I mean we see so many of the factors that suggest growth is actually quite strong. We heard that from the FOMC coming out of their most recent meeting. We have a lower unemployment rate and really the issue in front of us with expansionary fiscal policy in the background with monetary policy by the FOMC's own admission not being restrictive suggests that this inflation issue is the real issue to be tackled right now. It is jobs day today though. So do you see any source of [01:30:38] Speaker 7: inflation coming from the labor market right now. So that's been another source. I think of some comfort for the FOMC is that they've not [01:30:50] Speaker 24: seen wages be the impetus for this inflation. So I think today watching how the wage growth looks in these numbers. How broad are the unemployment numbers. What sectors are those coming into. I think as we watch claims come in at very low levels. We saw the jolts report this week which suggested that quits had popped up that again a sign of more confidence in the labor market. I think the wage growth is going to be an important aspect of this particular report as information for the FOMC. Do you think the FOMC is also [01:31:32] Speaker 7: looking at the change of political tides given the fact that maybe it means the president might reverse some policy courses that have been [01:31:35] Speaker 24: inflationary. I'm thinking of what's going on in oil and of course tariffs. Well I think you see signals of that and there are questions of that. We will have divided government yet in that sense. And so how policies move again and Marie they tend to move slowly. And so seeing the impacts of that may reflect some assumptions that people are making about what will happen with the war. What will happen with other policies that have been deployed so far But I wouldn't expect that there will be dramatic shifts in giving data that looks definitive as it relates to what is the impact to growth and what is the impact to our labor markets in the near term. Do you think that this Federal Reserve is struggling with the idea of [01:32:23] Speaker 6: sequential supply side shocks that keep coming down the pike and understanding whether this is the new reality and something they need to address or whether they can [01:32:33] Speaker 24: or not. Well I think you hear a lot about that and I'm quite sympathetic to thinking about the fact that remember inflation was running above their target ahead of the more recent supply shocks around the war in Iran. And so that has just added fuel if you will to this inflation fire. And the challenge for this committee I think is certainly they have to dissect what is coming from a temporary shock. But the layering on I think is the real risk here and one they will have to respond to by using their interest rate policy. There's another kind of reality that's come to the foreign markets. We're [01:33:16] Speaker 6: where traders are pricing and now just two more additional hikes from the Federal Reserve after pricing in more than three earlier this year. Do you think that the market has it right. [01:33:25] Speaker 24: Or do you think that they might be low balling what might be necessary. Well I think the market is trying to look for the same clues that even the FOMC is and understanding the markets and also understanding a changing Fed. New leadership in the Fed. A Fed that is looking at doing things a bit different from communication to looking at the data that it relies on. And so I think the direction of travel here for me is important to say markets agree that the path ahead may call for higher rates. How many of those I think remains up for grabs. I do think if you just look at the real funds rate though right now you will see that this is not tight policy by any means. And so there is room for additional increases. How many of those we'll all be watching how the data unfolds. Former Kansas City Fed President Esther George. Thank you so much for being with us this [01:34:23] Speaker 6: morning. A real question about the Fed right now. And a lot of the different notes. You mentioned Michael Hartnett. He's partly talking about the Federal Reserve. And we heard this as well as well from soccer and that a lot of whether we see a rally regain steam in equities will depend on whether we can see the end of this rate hiking cycle. Yeah. [01:34:42] Speaker 7: Potentially that's why we're seeing some of the bids even this morning because people are looking at well maybe given after this little bit of a flare up market doing some of the work for the Federal Reserve. Maybe they don't have to hike in December. Then you have Williams calling out and saying no inflation is still absolutely too high. But in his still measured approach saying he agreed to the Fed chairman that this is a data rich environment information rich and they want to see what happens between now and the end of the year. But so much has already happened when it comes to what this Federal Reserve needs to be looking out for. Not just the you know of a sell off in the stock market but also the political wins. And what does that mean for policy going forward and fiscal policy going forward. Yeah. [01:35:18] Speaker 6: Priya as we're saying how much has already been baked to some market in terms of the Fed not have to go having to go too much further is definitely changing the balance of risks heading into this payrolls report where the expectation is for 70,000 jobs that are expected to be created in the month up from 29,000 in the prior month. A real question about what that leaves wages as average weekly hours that all employees are working is supposed to stay around 34 hours. But 0.3 percent gain in average hourly earnings. Will that be enough if that meets expectations to give a sense that maybe there is some heat still in this labor market that could give fuel to at least some wage inflation. This is what the Federal [01:35:56] Speaker 7: Reserve is going to be looking at when it comes to is there any sort of inflation coming from the labor market so far that has been tame and has behaved. Potentially though if you're seeing a reacceleration will that change. Coming up we've got that labor market report [01:36:11] Speaker 6: with Nadia Lovell of UBS. Jake Goldberg of Seaport. Stephanie Roth of Wolf Research and Jeffrey Rosenberg of BlackRock. This is Bloomberg [01:36:19] Speaker 1: Surveillance. Good morning. There's a painful transition that's occurring here in this market underneath. If you look at the cycle I've never seen anything quite [01:36:38] Speaker 2: like it. The concern about the AI build out I think is somewhat overblown. I look at it more as a speed bomb. I wouldn't say that it's the end of the AI trade. I just say that it's a reassessment. [01:36:48] Speaker 3: It's a reassessment of the AI trade. A little bit of the slowdown to reach the level of adoption we need to actually use all of this AI [01:36:55] Speaker 5: build out is a good thing. This is Bloomberg Surveillance with Jonathan Farrell Lisa Abramowitz and Anne Marie Horderne. Good morning. [01:37:04] Speaker 6: Welcome back to Bloomberg Surveillance for the third hour on this Friday. You may not know it. It is jobs day in America 30 minutes away from that nonfarm payrolls report. Investors focus very much elsewhere after the worst stock market sell-off since March of 2020 this morning. Stocks eking out gains at least on the basic averages as investors try to pick up the pieces. Traders buying bonds and lowering their expectations for a December Fed rate hike even as we expect some pretty solid employment numbers. [01:37:33] Speaker 7: When it comes to the survey looking for 70,000 although when you do look at the scope of estimates Lisa as low as 35,000 from one shop as high as 131,000 from another. So 100,000 potentially the street has in terms of this gap. That will be the next catalyst potentially if we were going to see some of the unwinding of just this massive sell-off we saw yesterday. [01:37:56] Speaker 6: Yeah. Let's just go over what we saw yesterday in terms of the magnitude of sell-off. $2.3 trillion of market cap erased from the Nasdaq. You saw names like Nvidia down some at 9%. A question about why. Was this because of what we saw with the blue nami, the blue tsunami or whether it was the election, whether it was some of the market cap or not, or was it just a technical kind of volatility underpitting markets right now? [01:38:21] Speaker 7: Probably a little bit of both is basically what everyone has been saying across the board. There is these concerns that with this new democratic sweep, what it means for places like Texas, Georgia, Ohio, where there are a lot of data centers, a lot of data centers that have not gotten built yet that are going to need a lot of regulatory approvals, that they are going to be hitting pause. And then you have to recalibrate maybe to be pricing too much of this AI trade. And then some of that just starts to feed on itself. And then you just see whole host selling. [01:38:49] Speaker 6: Yeah. Well, next week is going to be an important week because we might get actually more rhetoric coming from Washington, D.C., about exactly what the plans are and what President Trump's plans are, too. We've been talking a lot about this. You talked about some of cabinet members that could be potentially leaving. Will that inject another dose of volatility into a market that already is pretty jumpy? A ton of volatility is going to be stemming from Washington. [01:39:11] Speaker 7: The rhetoric and also potentially what happens and personnel bagodes policy. So potentially if you see some personnel changes, maybe you would see some policy changes. I would say for the AI trade, two things I looked at this morning. The president with an olive branch saying I'm going to work with some of these states if you want to be rich when it comes to AI. He needs this trade to work because this is America's growth when it comes to artificial intelligence and the GDP numbers. At the same time, open up The Washington Post this morning. House members are preparing to, you know, bring in Meta, Microsoft, Apple, Elon Musk, and a lot of questions for these companies. [01:39:47] Speaker 6: Yeah, including Nvidia. This morning, if you take a look at where futures are, seems kind of like a calm day heading into the open. A 1.3% gain on NASDAQ futures, S&P futures of about a tenth of a percent, similar with Russell 2000. It seems like just a normal day. What's interesting is yesterday was similar. So the real pain didn't start until 9:30 a.m. Eastern when the U.S. market opened. When you take a look at bonds, you are seeing a bit of the bid into bonds from yesterday reverse. Now you're seeing a three basis point increase pretty much across the curve with this expectation that we could get a hot payrolls report. But let's take a look at some of the individual movers under the equity market today. If you take a look, for example, at the big semi names, Nvidia, AMD, Broadcom, absolutely soaring after yesterday's carnage. Let's take a look at some of the other names like Cloudflare, Corweave, excuse me, not the security company, Corweave, Iron, Nebius, flying this morning. The Corweave is up 9.8% this morning after yesterday's carnage speaks to yesterday's broad-based selling leading to broad-based buying. Is this a healthy market coming up? Nadia Lovell of UBS following tech's worst day since March of 2020. Jay Goldberg of Seaport as Nvidia enters a bear market. Stephanie Roth of Wolf Research breaking down that payrolls report. We begin today with stocks rebounding after wiping out nearly $4 trillion in market value. Nadia Lovell of UBS writing equities may stay under pressure near term, but we expect to grind higher over the coming months. Politics and physical bottlenecks might make AI harder to build, but not less needed. Nadia joins us today. Thank you for being here. Is this healthy what we're seeing right now in markets? Look, I don't think that is [01:41:32] Speaker 25: unhealthy. I think what you're seeing is a repricing of some financing and executioner is now given the policy changes. But I mean, that said, you know, we're not necessarily calling a bottom here. We do think that there are opportunities, but it's not a wholesale buy the dip. You just sort of have to be selective in this. And we do think that you could continue, like we said, to see some continuous selling pressure because some key technical levels have been broken through in this market. And that could fuel some additional systematic selling, some for selling. So we don't think that this is, you know, done yet. And I do think that the fact that there is this concern about financing and execution is warranted a bit of a repricing. But I think also we have to remember that, you know, the uncertainty around what the outlook could look from a from a political standpoint in terms of the build out of data centers does not fly in the face of this great demand that is there. You could see some project delays, but that is very different than cancellation, Lisa. [01:42:30] Speaker 6: What yesterday did we see that was fundamentally justifiable on some level, even if maybe it was overdone, versus just indiscriminate throwing out the baby with the bathwater? I think it's fair to say that, you know, the fact is [01:42:42] Speaker 25: that there's a lot of spending happening in the data center space that is against future cash flows. And now there's a question of the timing of the revenues of recognizing some of the revenues if you have projects are delayed and what that could mean for the semiconductor space specifically. Because if you do have projects, we know that this is not about 2027. We do expect that you already have permit in for about across these, you know, five states that are now democratically led that accounts for 40% of the data center built up plan built out 30 gigawatts is already sort of already permitted. And so over the next 1824 months, this is more about 2028 into 2029. So you could have some slippage right into 2029. And so therefore you could have an air gap within the semiconductors, particularly around the memories, the memory chips and so forth. And that inventory glut can put some pricing pressure and therefore calls margins into into into into questions as well as ultimately profits. That's what the market is trying to price yesterday. But we do think that is quite encouraging. You know, my utilities and just pointed out to me yesterday that you heard Southern Company who reported yesterday say on their earnings call that they're already in talks with you know, governor elect of Georgia. Now, of course, not a deal but engagement. It feels that there is a path to resolve some of these constraints. And we've also heard overnight from you know, the governor in Texas. She's not anti data center. So I think this is more about the terms of construction than a permanent ban on construction. And I think that's what the market is still trying to read through. But this [01:44:22] Speaker 7: I don't understand if these governors are coming out and sounding a little bit more pragmatic than they were on the campaign trail. And you're saying that it's delayed not dumped when it comes to data centers. Why the sell off we saw why so deep and why don't you think it's the bottom. It's the [01:44:38] Speaker 25: it's the triggers, you know, some of this is machines, right. And so it's it's reality. Well, not entirely. But some of this is sort of, you know, the selling just begets selling and begets selling. And so you sort of need more of that to come up. Again, these are the beginnings of discussions, right. And I think you need to see more of that happen in coming weeks more concreteness around now the next six months is you is is going to matter because it's a plan in for 2028 and 2029. And so how we are dealing with this market is that we have been selective and this is even before the election. But what we have done is accelerate that selection. Lisa, you pointed out some of the semis that are up today. We wouldn't just, you know, go out and buy everything. What we're looking for is quality. Right. We're also looking for those companies where margins haven't been inflated quite a bit over the last couple of years where there hasn't been as much margin pickup. So we're more focused on the compute, less so on the memory. You know, I mean, historically, you sort of see memory, you know, stocks sort of bottom out at one times price to book. We're at one 1.2 times. So there could be some more downside for that. That's when we would look to step into memory. But we're not there yet. We're more focused on computing. We also focus on the hyperscalers because reality is the value of those permitted has now gone up. And so that's where we're adding. Very true. The ones that have been permitted. You don't want to text. Yeah. Right. And the ones already have capacity. Right. And power of other political headwinds. Are you worried about. You know, they could have a little political headwinds. But, you know, again, this goes back to the strength of these companies balance sheets and the profitability and the ability to negotiate with these communities and they're not against paying their own share. Right. You know, in terms of the of being mindful of water and the cost to the consumer, you know, and high electricity prices. So I think that you will see more more deals around that. Now, yes, the costs go up. But given the opportunity and the capex, we don't think that is going to be a major hit to earnings. This is about more like going up and staying up in quality is what's important here. Do you care about non-farm payrolls today? Of course we do. All right. So where's that? Where does that fall on all of this? You know, like, look, one data point, as we know in the Fed, particularly around payrolls, is not going to change the narrative. The Fed is very concerned. You're not making a good argument. I know. We care. We care. The market care from the from the standpoint of strength. Right. If we see a really weak number like in this environment, that's not very helpful. Right. But from a fact standpoint, it's more about inflation. I mean, if we see some relief in, you know, oil prices. Right. More sustained relief in oil prices and some sort of negotiation around the conflict in the Middle East that could help the inflation outlook. But we're sticking to our view of one, we're right high in December and another one in March because we do think that the Fed is very focused on bringing down [01:47:36] Speaker 6: inflation. Not a level of UBS. Thank you so much for being with us this morning. Always great to have you on payrolls Friday. I do want to make sure it is important because ultimately it does it. No, it does go to the heart of the question, which is how do people feel. And if they're getting paid more, they probably feel better. But it also indicates there's still an inflation [01:47:52] Speaker 7: problem. Also, Nadia brings up a great point on a day like today after what we saw yesterday, it would not be helpful for anyone if this was a weak payrolls report. Well, or or too hot. It needs to be coldy locks right now. Let's get [01:48:04] Speaker 6: to an update on stories elsewhere this morning. Here is your bloomer brief with Vonnie Quinn. Vonnie. [01:48:07] Speaker 10: Lisa, thank you. President Donald Trump holding talks with Qatar over waves to de-escalate with Iran. According to the office of the Qatari Amir, the two held talks over maritime navigation and the security of energy supplies in the region. Qatar is acting as chief mediator between Washington and Tehran as the war enters its ninth month. And tropics reported one and a half trillion dollar valuation target facing fresh investor pushback. The Wall Street Journal reporting three major investors who plan to participate in the IPO believe its valuation needs to come down. One investor reportedly saying it could become closer to one trillion dollars. It is not that I hate data centers. I hate the way they are taking advantage of Texas. [01:48:58] Speaker 13: Selling our beach to Elon Musk is just something that is almost unimaginable. We can have a strong working relationship with Elon Musk and his companies, but it has to be on our terms. [01:49:11] Speaker 10: Also saying the billionaire cannot be, quote, running over the people of Texas and reiterating the need to balance a strong industry with protections for Texans. [01:49:19] Speaker 6: And that is your Bloomberg Brief. Lisa. Thank you so much. Javani up next. The morning calls plus Jay Goldberg of Seaport as NVIDIA enters a bear market. That is next. This is Bloomberg Surveillance. [01:49:39] Speaker 9: It's more difficult to buy when volatility is high and prices go down, but it's often the right time. As much as I'm an optimist for the next 12 to 18 months, active management, active selection. I know it's a cliche, but winners and losers is really going to matter more and more as we see what unfolds over the next few months. [01:50:16] Speaker 6: That was Sebastian Page of T. Rowe Price after an absolute drubbing yesterday, particularly among tech stocks. $2.3 trillion eliminated from the Nasdaq and market cap just in one day. Today, you're seeing a bit of a reprieve, at least the tech names up about 1.3% for Nasdaq futures. S&P futures up about a tenth of a percent, but some specific names talking about picking winners and losers. Yesterday's losers, today's biggest winners on the margins. If you take a look at NVIDIA, shares were down by 9% yesterday. Today, trying to claw back some of that up now 4.3%. AMD up 7.4% after they reported earnings that weren't so bad, but still, they got dragged into yesterday's carnage. Meanwhile, if you take a look at Core Wave, those shares also flying. All of the neoclouds that were left for dead are getting a bid this morning up 9.5% in pre-market trading. A real question about whether this is healthy or whether this is still systematic trading that needs to kind of work through whatever is really underpinning some of the action that we saw yesterday. [01:51:16] Speaker 7: Potentially, some people coming in and buying this in terms of the dip. You had Nadi Lovolo just say that she doesn't think this is the end of this, and I think it's not helpful when you see all these headlines coming out. Even look at the prediction markets. There is no doubt about it. The global anthropic officially announced an IPO. Absolutely sinking like a falling knife in terms of people thinking potentially this is going to be put off, and if it does come to market, the valuation is not going to be as high as many had thought. [01:51:41] Speaker 6: Yeah, people talking about anthropic, quite considerably, the Wall Street Journal article talking about pushback coming from investors. Bloomberg News just reporting that investors are said to discuss an anthropic IPO value around 1.2 to 1.3 trillion dollars. We saw numbers as low as $1 trillion in other reports. Reportedly, some of the executives from anthropic are meeting in the next couple of days in order to decide what to do next, how to proceed, and whether they are going to IPO at all in 2026. Time now for our morning calls. First up, Citi downgrading BJ's wholesale to neutral, seeing a lot of optimism already priced into the shares. Those shares lower by 0.8% in pre-market trading. Next up, Wells Fargo raising its price target on Airbnb, saying its growth gap is widening compared to its peers. Those shares up almost 14% after reporting better than expected earnings. And finally, Piper Sandler raising its price target on Cloudflare. Nothing noting better than expected acceleration as everyone tries to get cybersecurity to try to prevent the attack bots, up 19% in pre-market trading. Let's stick with tech. NVIDIA wiping out nearly a half trillion dollars in market value. And Thursday's trade pushing the stock into a bear market. Jay Goldberg of Seaport holding the loan sell on NVIDIA with a $180 price target. Jay is probably the one person who doesn't seem depressed in the semi-trade this morning. Jay, are we seeing a washout that actually makes you really kind of like NVIDIA a little bit more? [01:53:11] Speaker 26: I think this sell-off in the last few weeks, especially yesterday, is overdone. I think what really caught my eye recently is how indiscriminate the selling is. Good companies, bad companies, everything was down double digits yesterday on what I think is no real tangible news. So it seems a little silly. I upgraded side time today. It's been a long week. But I'm going to take the weekend and go look at my whole ratings for all my stocks and figure out where things stand. But I think this is as bearish as I am. And the fact, you know, I think this is overdone. I mean, NVIDIA hit my price target yesterday, which I don't think anyone saw coming. So, except me. So I think I think there's a lot. There's a lot here that's starting to look very, very attractive. [01:53:58] Speaker 6: Jay, who do you think has gotten sort of thrown out with the bathwater? Who do you think has gotten beaten up disproportionately? You mentioned NVIDIA. Are there others that you think kind of got taken for a ride that start to look attractive? [01:54:09] Speaker 26: I think AMD is firing on all cylinders. They had a really good quarter. Like I mentioned, I upgraded side time. Really interesting mid cap size company that is doing all kinds of incredible things and growing incredibly fast. The I think the list list goes on. I'm not sure about NVIDIA yet. I got to got to look real hard at that. Remember, we haven't had any news like nothing's really changed for a lot of these companies. And so I want to work through all of these. I think the really big question is going to be anthropic. That's that's the one that's we got to think hard about. [01:54:44] Speaker 7: Do you think anthropic potential is going to be another source of volatility in the sense that we just have reporting following on Wall Street Journal reporting that valuation was once again slashed. How do we go from two trillion dollars to one point two one point three maybe one point five. [01:54:59] Speaker 26: I mean, this is a ton of money that's being wiped off. Yeah. So I've I officially launched coverage of anthropic last week. So I have a pretty good view on valuation there. I think they they merit the higher valuation. The real the real question and what I suspect is sort of leading the charge down for a lot of these names is in two days ago. They released their amended S1, which showed their Q3 numbers, which where growth really slowed and people are worried. Oh, you know, anthropic is seeing slowing growth. Does that mean it's all over? I think if you really dig into the S1, it looks a lot like the reason their growth slowed is because they couldn't get enough compute. And so I think that speaks to like still there's a lot of underlying demand. You look at Cloudflare's numbers yesterday were incredible. That's all driven by AI demand in the enterprise. And so I think I think anthropic, you know, anthropics in this weird spot where IPO valuations are more art than than science. So they're going to have to negotiate between the big holders and their investment banking syndicate. I really hope they do go public. I think that they, you know, maybe they lower their expectations and how much they raise. They raise less now. They do a secondary in nine months when they've proven themselves a little bit. But I can get to their valuation so long as their growth is still strong. But, you know, I always say that an IPO is is like a wedding. Like it's the wedding. It doesn't matter. It's the marriage that matters. You got to think for the long term. And so I think they should I think they should take the plunge, go public, take whatever valuation the market accepts and then just let us see their growth. [01:56:34] Speaker 7: That will that will solve the problem. Well if they're the bride is the groom going to be there waiting for them. Is this if they go public. If they go public. Is it going to be successful in this environment. [01:56:44] Speaker 26: And we're talking about two weeks time. Yeah I know. And I feel for them. I'm sure their management team is going through all kinds of it's going to be a tough decision making weekend for them. I would say that a lot of it is going to come down to what they say on the roadshow. How they guide for Q4 and for the future what their actual growth looks like. There was some some initial reporting this morning. It looked like their October sales had picked up again. If the issue is that they're compute constrained. They can't get enough GPUs. That tells me there's a lot more demand. And again I go back to Cloudflare. Cloudflare is a decent proxy for what people are doing with AI. I think there is a lot of demand out there. And so long as anthropic can communicate clearly what what they can do and how they can return to you know this triple digit sequential growth [01:57:37] Speaker 6: they've been seeing. Then I think I think they should do it. Yeah. Joe Jay you had a line in your notes that that made me laugh where you said that a lot is going to depend on whether or not for the market. Anthropic goes ahead with this IPO. So the whole stock market depends on Dario Amadei's communication skills. What could go wrong. A real question about what the consequence would be if they don't end up going public in the next couple of [01:58:03] Speaker 26: weeks. What do you think the consequences would be. So for them it's pretty challenging. They've already delayed their IPO. I think twice. And playing it a third time is a bad look. It probably means they have to take a more a longer pause in how long before they go. It'll be a much. You know they won't go public until probably next year at this point about the wait six to nine months to go at it again. And that's always risky. This is a company that has now told us they have almost nine hundred billion dollars in commute compute commitments the form of debt. They have to start paying those soon. They have a hundred billion dollars ish on the balance sheet so they can afford afford it to some point. But I think it'd be better for them if they could go public sooner get the cash and just build all the compute they need to meet that demand. If they don't go public I think I think the market will continue to sort of remain caught very cautious. People are going to be worried. [01:59:00] Speaker 6: Is there another shoe going to drop. I think that will be the fear. Jay I look forward to catching up with you maybe even next week when you have sussed through all of the carnage to get a sense of what you've changed. Jay Goldberg of Seaport. Thank you leaving us with a slew of wedding cliches in our heads about if anthropic is the bride. Does the groom which is the market. The buyers of the IPO want a prenup. Do you want this marriage to be OK. Do they go to marriage counseling. But Jay is getting at a very important point. A lot of [01:59:30] Speaker 7: this has to do with the art of basically going public and the communication style. And I think the reason why he's saying what could go wrong and you know tongue in cheek is because this is the company that did tell us that there is a one in ten chance that potentially their technology could wipe out humanity. They have not had the greatest communication when it comes to how they've dealt with politics. They're still a supply chain risk when it comes to the DOD. So you have to actually think about that. What kind of potentially own goals could we see because of their communication errors. We are about four minutes away from [02:00:03] Speaker 6: nonfarm payrolls whether that starts to shake the needle in markets remains to be seen. The payrolls report just around the corner. Stephanie Roth of Wolf Research joins us to react. The Goldilocks report that everybody wants. Not too hot. Not too cold. Let us focus on market valuations once again because ultimately there's been a lot of disruption so far this week. Good morning. This is Bloomberg Surveillance. A bit of his risk on field this morning heading into the open just minutes away from nonfarm payrolls. You do see that lift led up by big tech up 1.6 percent three tenths of a percent on S&P futures in the bond space to 10s and 30s. You do see yesterday's rally fading a bit particularly at the front end of the yield curve. How much does a hot labor market report end up challenging this idea that Fed doesn't have to hike rates 4.49 percent on the two year. Let's head over to Michael McKee with your jobs report for the month of October. Mike. Well here's an interesting surprise. A hot jobs report. [02:01:04] Speaker 27: 165,000 jobs come in during the month of October. That's up from a revised 60,000. Last month in September the initial report was 29,000. The unemployment rate drops to 4.1 percent from 4.2 percent. Manufacturing payrolls 19,000. The forecast was for seven. Last month there was 13. So it looks like across the board here we're seeing stronger September and stronger October numbers. Hourly earnings up strong four tenths of a percent. They were up just a tenth of a percent in September. Average hourly earnings on a year over year basis 3.1 percent. That's still below the rate of inflation. So that's still not going to bother the Fed. But they're going to maybe raise some eyebrows at what we're seeing here in terms of the strength of this employment report. The labor force participation rate rises to 61.9 percent from 61.8 percent. And what it looks like here in terms of job creation is that employment in professional and businesses services was the big winner as kind of usual up by 70,000. The number of people in professional and business services has now added 269,000. They were up by 33,000 since October 25. Health care 42,000. So we're seeing strength in a lot of the areas we normally see strength in. And we did see the September jolts report suggesting that there are more job openings. And now we've got this job number suggesting there's more [02:02:40] Speaker 6: people being hired. Mike stay close as you look through the numbers and let us know when you get more. Right now in markets it's what you would expect. This knee jerk reaction in the front end of the yield curve up about seven basis points at one point. Possibly more as people look at a hot headline number much hotter than expected. A revision up to the prior week as well as hotter than expected average hourly earnings 0.4 percent. And the unemployment rate falling not staying at 4.2 percent as people [02:03:07] Speaker 7: expected but falling to 4.1 percent. Across the board hot hot hot when it comes in 165,000 on farm lease as you said and two month revisions also on the positive front wages ticking higher. As Mike said this is going to mean that the feds going to have to look at this and potentially raise an eyebrow when you see some of the wage growth that we are seeing from this unemployment report. Also this number caught my eye. Change in manufacturing payrolls. The survey was for 7000. They came in at 19000. A lot of these jobs of course going to where we're seeing the biggest growth in this country right now. And that is the build out of data centers and AI. You could see all of this pushing ahead. Potentially this helps the AI trade this morning. Yeah. Potentially you also see the three month [02:03:52] Speaker 6: average change at 137,000 up from 79,000. Michael McKee still with us. Mike as you look through the numbers anything else jump out. Well the [02:04:01] Speaker 27: number of people joining the labor force was certainly a lot larger than it has been. 421,000 people into the labor force and we saw a lot more people getting jobs on the household side of the questionnaire. 463,000 during the month while the number of people who were were unemployed fell by 41,000. So this is kind of the good news way of looking at the unemployment report. Number of people not in the labor force falling by 293,000. So people are seeing a better labor force coming into the labor force and they're getting jobs. Nothing you can argue with about that. I'll get more on the breakdown of where the jobs were created. But we can note here that traders are already increasing bets on a December rate hike if the economy is going to be stronger than we had anticipated. Yeah. We're going to check that out right now. But more [02:04:53] Speaker 6: than a 70 percent chance of a rate hike in December. Mike stay close. We'll get to talk with you in just a little bit. Stephanie Roth of Wolf Research joins us now for more blowout report following better than expected employment data throughout the week. What stands out to you from what we just [02:05:07] Speaker 28: Yeah. I mean I think just the combination of events here. Right. You had a very strong number. You had strong revisions. You had a drop in the unemployment rate. And this comes at a time where investors are worried about the economy for 2027 and taking down the odds of a December hike. At the same time the economy is running really firm and there's likely to be very little change in the CapEx outlook when we're thinking ahead to 2027 in the years. But realistically the Fed is still fairly likely to go in December unless financial markets really continue to deteriorate. And the job breath continues to be really strong. And the you know we're probably still in a fairly stable labor market but one that's getting [02:05:46] Speaker 6: incrementally a little better. I want to focus a little bit on average hourly earnings. Not only did it come in harder than expected for the month of October at 0.4 percent versus the expected 0.3 percent. But it was upgraded for the prior month for September to 0.3 percent from 0.1 percent. [02:06:02] Speaker 28: How much do you make of those numbers. Yeah. Year-over-year average hourly earnings have been running well below where I think the reality is I mean we're just running slightly above 3 percent on a year-over-year basis. Realistically the Fed looks to three and a half to 4 percent is something that's kind of consistent with the 2 percent inflation target. So I think that the numbers have been largely understated up until this point. And that's where you know I would expect to see that wages will you know continue to follow the fact that the labor market is pretty good and will likely pick up towards you know three and a half to 4 percent pace in the next couple of months. And today was just further indication of that. Certainly jolt earlier in the week suggested just that the labor market is [02:06:41] Speaker 7: incrementally improving. Does this start to make the Federal Reserve a little bit more nervous now. I don't I mean we've had so [02:06:49] Speaker 28: many months where wage growth has been running still below where they even think you know inflationary pressures start to rise. So at this point I think you know probably not. But if we continue to see further signs of tightening whether it's continued rises in wages, jolts continuing to look strong, then yeah I think they're going to start to get a little more concern that that inflation isn't coming not just from tariff related sectors and the war and then it's starting to come from the labor market. And that's the type of inflation that's actually sustainable and self-fulfilling inflation. So yeah it's at risk of making the Fed a little bit more nervous and certainly increases the odds of you know hikes in the next couple of meetings which the market started to discount. When it comes to some of the other numbers we're seeing I'm really [02:07:32] Speaker 7: struck by the manufacturing numbers. They're much better than what was expected expected was 7000. They came in at 19000. Are these all the jobs that are related to the AI build out Stephanie. Yeah I think that's probably right. You see that you know [02:07:46] Speaker 28: transportation and warehousing. So it's been the combination of just the general good sector and then parts of the economy that are that are benefiting from AI which is a fairly substantial part of the CapEx backdrop right now. So you know we estimate that AI related CapEx directly is contributing about half of CapEx growth and it's probably even more so. It makes sense that you would see manufacturing activity pick up and that's showing no signs of slowing even though there are concerns about say 2028 and beyond. You know there's also the story that the overall population of the employable [02:08:21] Speaker 6: workforce hasn't been growing all that much because of a clamp down on immigration and you are seeing the participation rate start to creep higher. How much is that something that you want to take note of. How much is that an important indicator for this labor market. Yeah I mean it's a positive sign. You know [02:08:40] Speaker 28: earlier in the year there was a big drop in the participation rate which proved to be largely noise and perhaps related to some sort of volatility over the summer. You want to see that. I mean it would be great to see the participation rate rise. You're bringing in more people and that could help to at least to some extent offset the tightness that you get because labor supply is quite modest. Now of course like you mentioned earlier there are risks that you end up with just further tightening the labor market because we're in an environment where job growth is is running fairly firm certainly ahead of supply. Our best guess is just because you've seen so much volatility in the data that we're probably not running quite as strong as certainly today's print would suggest. You're probably in this 4.1 4.2 percent unemployment rate and it's a lot more steady than it seems. [02:09:26] Speaker 6: But the risks are certainly to the upside that you end up in an environment where demand for labor is is higher than supply. Michael McKee has been sitting here looking at all of the data as has some more information. Michael McKee. What do you see. Well let's go through some of the areas you were just talking about a second ago. When you look at construction. [02:09:44] Speaker 27: You see the data center impact because the number of non-residential specially trained contractors rose by seven thousand nine hundred while residential specialty contractors fell by fifteen point two thousand. And you look at semiconductor manufacturing and other electronic devices up three point three thousand three thousand three hundred. And the communications equipment. Now the other aspect of this that will get some attention is that this is the season where we're starting to see holiday hiring. And it does seem to show up in these numbers particularly for couriers and messengers which is basically the folks at UPS and FedEx and stuff like that hiring people. And they were up by quite a bit by about fifteen thousand I think. And that suggests that we're getting an early start. Also general merchandise stores up by a significant amount as country companies start to hire for the holiday season. This will be something has to get worked out with the seasonal adjustment process as we go through all of this couriers and messengers it was up seventeen thousand four hundred. So there's some of that in there. There's a little bit of education in there. But for the most part it's the usual suspects fifty five thousand in health and social services. We did see a decline in the leisure and hospitality sector as the number of people employed at bars and restaurants and hotels fell during the month. [02:11:17] Speaker 6: Michael McKee. Thank you so much as always for breaking that all down and image talking to what you spoke to which is people are building data centers. [02:11:25] Speaker 7: But not so much homes. Yeah exactly. People are building data centers. You could see that in just the hyperscalers the CapEx what's happening. And then these numbers these manufacturing jobs where those numbers are going to the markets expecting seven thousand came in more than double of what the market was expecting. And just across the board 165 thousand. We were talking about the estimates before. They range from some thirty five thousand to one hundred thirty one thousand. Not a single economist even thought it was going to be that hot. And then add in the revisions you can see just how strong this report really was. [02:11:55] Speaker 6: Stephanie just to wrap it up with you. How much are you seeing a lot of the strength in the labor market really stemming from the AI trade versus truly homegrown strength tied to a broad and diversified economy. [02:12:08] Speaker 28: I think it's a combination of both right. You have parts of like Mike was mentioning the the construction space that's tied to the build out is driving to some extent the strength. But you're getting strength kind of across the board. So I wouldn't even say that it is entirely driven by AI although that is part of the story. And I think when you zoom out that's the case for the economy broadly as well. The consumer has been doing quite well even though you know it's an environment where gasoline prices have been elevated. Rates have been elevated. So it is sort of a tale of two economies here where certainly AI is driving a decent portion of growth. But you have domestic strength that's happening outside of that that perhaps doesn't get as much attention just given markets are so much so focused on AI. But even an environment where AI flows say from 40 percent. You know the domestic capex growth is currently to say 20 percent. That's a way on growth by about 40 basis points. But that's not the end of of sort of the U.S. economy as we know. The economy still has some very solid engines of growth that are not necessarily linked to this whole AI space. [02:13:08] Speaker 6: Stephanie Roth of Wolf Research. Thank you so much. If you are just joining us a blowout report from the labor market coming for the month of October. 165 thousand jobs created versus the expectation of 70 thousand. You saw the unemployment rate go down. You saw wages go up. And the move in markets incredibly muted. [02:13:27] Speaker 7: Really notable to see that. And important is going to be now Tuesday because we're going to get what happens with CPI. If you're looking at these numbers and say we get a hotter CPI and you're the Federal Reserve do you think potentially maybe we are behind the curve and we should have went in October. Because now you can see what people are pricing in now. December is going right back up once again that the market is now anticipating the Federal Reserve to hike. Yeah. Right now let's get you some stories going on elsewhere this morning. [02:13:50] Speaker 10: Bonnie Quinn with your Bloomberg Brief. Bonnie. Actually let's recap the payrolls print and some of the details around it. Once again Lisa U.S. job growth surging in October much harder than expected the economy adding 165 thousand jobs estimates were for 70 thousand on average. And the unemployment rates coming in below estimates dropping a tick to 4.1 percent. Thursday's tech sell-off has investors second guessing the valuation for Anthropics upcoming IPO. Potential backers now discussing a range of 1.2 to 1.3 trillion dollars down from one and a half trillion dollars. Deliberations are ongoing. No final decisions have been made. Tesla planning to scale down production of its cyber truck at its manufacturing plant in Texas. CEO Elon Musk making the announcement on X today saying the move will come in the middle of next year and will free up capacity for the company's cyber cap. And that is your Bloomberg Brief. Lisa. [02:14:46] Speaker 6: Thank you so much Bonnie. Up next setting you up for the day ahead. Plus Jeff Rosenberg of BlackRock has traders add to rate hike bets on the blowout payrolls report. It's not moving as much as you might expect. Let's get him to respond to exactly why that is. This is Bloomberg Surveillance. [02:15:21] Speaker 28: You had a very strong number. You had strong revisions. You had a drop in the unemployment rate. And this comes at a time where investors are worried about the economy for 2027 and taking down the odds of a December hike at the same time. The economy is running really firm. Realistically the Fed is still fairly likely to go in December unless financial markets really continue to deteriorate. [02:15:42] Speaker 6: That was Stephanie Roth of Wolfe Research following a blowout jobs report. 165,000 jobs created. The expectation had been for 70,000. We got the unemployment rate falling to 4.1 percent from 4.2 percent. We had the hourly wages rise to 0.4 percent from the expected 0.3 percent. When you take a look at markets, is this a Goldilocks report on the surface? It doesn't seem like Goldilocks to me. It seems a lot like a hot report pretty much across the board. Yet markets remain unmoved. 1.4 percent gain on the NASDAQ futures. You're seeing a two-tenths of a percent gain on S&P futures in the bond space. The sell-off has deepened, particularly at the front end of the yield curve, up about seven basis points. Now pricing in a 78 percent chance of a rate hike at the December Fed meeting, up from 70 percent before the non-farm payrolls report. And yes, you see 10-year yields up about four basis points, 4.87 percent. But AMH, not necessarily some sort of big move that you might think if you saw the [02:16:43] Speaker 7: headline number. Yeah. Normally you would think that this would have much bigger impact on terms of markets are trading right now because it was hot, hot, hot across every measure when it comes to this [02:16:52] Speaker 6: and including the revisions. So traders are adding to December rate hike bets following that number. Jeff Rosenberg of BlackRock joins us now for more. Jeff, are you surprised the market isn't responding more to this [02:17:02] Speaker 29: report? Not really, to be honest. You know, I think the market is focused on what happened yesterday and what happened overseas and what's happening in futures markets. You know, we've seen a return to negative stock bond correlation. And the A.I. trade, which has been so beneficial and so impactful to the macro view, as we were just discussing, I was listening to you. And certainly we've seen in the GDP impact. A lot of that impact is impacting the macro expectations on growth and inflation. And so what we saw yesterday was a little bit of an issue, if you could say it that way, to that outlook. And so one of the things that is a place to find diversification and some offset in your portfolio has been fixed income. And why that is, is because if A.I. is really powering the growth engine, if there's a wobble in A.I., then maybe that growth and inflation comes down. Then rates can come down. And certainly when it comes to the front end and the Fed expectations, the Fed will be very focused on financial conditions and financial conditions tightening. We heard Warsh talk about that in the last press conference, the impact of rising rates and tightening financial conditions. So there's a lot of pricing here going on beyond the minutia and unpacking the details of the report, which we certainly could do, that is really related to the broader A.I. [02:18:28] Speaker 6: Implications. Jeff, what actually did happen yesterday? Because it didn't seem like there was any news. And today you're seeing some of the biggest losers as the potential biggest winners, at least in pre-market trading. [02:18:40] Speaker 29: Does this feel like a healthy, kind of well-reasoned sell-off and rebound? Well, one thing I can say about whether it's healthy or not, we have the saying, small forest fires prevent large forest fires. So if yesterday was really about a spark, what was the spark? The spark was the change in the elections, the change in the expectations of the political environment around A.I. and data centers. But it was a spark that followed a couple of other sparks. We had some weakening earnings report from large bellwether techs. We saw some big stock market idiosyncratic responses to that. We've seen a rise in the credit market's concerns around A.I. financing and transparency in viewing that through rising CDS spreads, rising hyperscaler debt spreads. All of this is kind of happening in an environment where the amount of exposures, particularly levered exposures, both in credit and in equity, by some measurements, we get these measurements from prime brokerage desks measuring hedge fund leverage in gross terms, you know, was pointing to a very elevated level. So you have a spark and you have a lot of vulnerability. You can have an unwind in those exposures that might reflect a reaction that is maybe greater than what you would otherwise think is is is is deemed by the the trigger event on its own. Jeff, though, the politics portion of it, I don't quite understand because we knew these [02:20:14] Speaker 7: results Wednesday and the market actually rallied. What happened yesterday in terms of the politics that the market started to look at this and say, oh, some of this is some political issues on the horizon for this massive build out of artificial intelligence. Yeah, it's hard to know. But, you know, [02:20:32] Speaker 29: sometimes it's not where's Jonathan Farrow when we need him. Right. It's not the first response. You know, we talk a lot about on this on this morning. It's not the first response necessarily to the payroll report or the first response to the to the election. And then it's the cascading effect of what can happen in levered positions around changes in direction. So that first direction may be relatively small. But the cascading effect to the multiplier effect of leverage might be, you know, somewhat related to that delay between [02:21:05] Speaker 7: Wednesday and Thursday. When it comes to potentially a massive IPO coming to market but now valuation starting to report that it's going to be lower. I'm talking about anthropic 2 trillion to maybe 1.2 trillion. How is that going to impact potentially or maybe make this sell off worse? Well, I think it's [02:21:22] Speaker 29: important to kind of put the the IPO and the equity raise in the broader context of what we're debating here. Right. What we're really debating is this incredible technology requires and has fueled an incredible investment boom. Right. So the macroeconomic impact of AI is that it's it's it's brought about this incredible investment expansion and that investment expansion. You were just talking about it. We're seeing it in the payroll reports. The impact on construction. The impact on manufacturing. The impact on the impact on downstream growth. The broadening of the AI benefit. But that investment boom requires financing. And that's the shift. And it's a really important sort of observation. You know we've been in this AI theme since ChatGPT launched in November 2022. What's different in 2026 is that the financing requirements to finance the accelerating expectations of capital expenditures no longer can be met through internally generated cash flows. So now it's a capital markets issue. And that's what is the broader context of the equity IPOs is well how much of that financing will be met by the equity markets. If that size is reduced then will capital expenditures go down or will the size of capital expenditures keep pace with the anticipated demand from a gentic and other new uses that that continue to lead to these expectations. Exponential growth in demand that's fueling the required build out. Well then you're going to have to fund it in some other way if the equity raise is going to be lower. And that's what a lot of the angst has been coming into this is that the credit markets are not unlimited in their ability to price that capital. And that also becomes at what price. So if the quantity is not unlimited well then where will markets clear. They'll clear at a higher or in this case a lower price a higher spread. And what that means is just all the costs of the build out go up. Well if the cost of builds go bill out goes up then that intersection point somewhere down in the future that no one knows what is the intersection of the end point of the price of demand price times quantity in the future. How much revenues do we actually deliver from this incredible technology relative to the cost of the supply. Yeah. That essential intersection becomes a little bit harder when the prices for funding that. Yeah. [02:23:55] Speaker 6: Jeff Rosenberg of Blackrock. Thank you so much for being with us. Coming up on Monday Matt Whitheiler of Wellington Management. A huge week. Enjoy your weekend. Well deserved. This was Bloomberg Surveillance.