About this transcript: This is a full AI-generated transcript of Bloomberg Surveillance 7/23/2026 from Bloomberg Television, published July 24, 2026. The transcript contains 26,208 words with timestamps and was generated using Whisper AI.
"The earnings story has driven this market earnings reactions have been all over the place that bar again has become so much more challenging for awards here. This is a market with a lot of variance. We are actually in the middle of that danger zone. This is Bloomberg Surveillance with Jonathan..."
[00:00:00] Speaker 1: The earnings story has driven this market earnings reactions have been all over the place that bar again has become so much more challenging for awards here. This is a market with a lot of variance. We are actually in the middle of that danger zone. This is Bloomberg Surveillance with Jonathan Farrow, Lisa Abramowitz and Anne Marie Horder. Live from New York City this morning. Good morning. Good morning for our audience worldwide Bloomberg Surveillance.
[00:00:29] Speaker 2: The U.S. is now in the middle east. The U.S. is now in the middle east. The U.S. starts right now. Coming into Thursday, we're going on sentiment. Crude approaching triple digits. The U.S. attacking shipping in the Red Sea. Increased tension sending bonds lower pushing yields to new highs as solid quarterly earnings from alphabet is failing to insulate stocks overshadowed by higher spending. All the pillars of this market of this economy are being threatened right now. You have concerns in the middle east that are jacking up oil prices suddenly making next week's Fed meeting look a little more potentially live. The ECB with two rate hikes now priced in for the
[00:00:59] Speaker 3: the remainder of the year. All of a sudden alphabet. Yes, they had a good quarter, but they had their first negative cash flow quarter going back to at least 2016 as they continue to ramp up spending far beyond all of these things creating anxiety that everyone has their hand out and no one is paying the bill.
[00:01:29] Speaker 2: I think this morning, I think slightly more significant than just the CapEx numbers, which is dominating the story, is the fact that they put up good results and this market is not rewarding them.
[00:01:36] Speaker 3: That stock is down 4%. If I could give a call to Max Kettner right now, Max, if you're listening, does this make you rethink the bull case? Because ultimately exactly what you just laid out was everything that he was looking for to understand whether potentially this bull market could be coming to an end. Not only did they talk about incredible bookings, incredible crowd cloud revenue far beyond what people were expecting, but in terms of the backlog, and this is something we heard about, it was far in excess of what people had been expecting in terms of business. So on those fronts, all systems ago, it still wasn't enough to get people excited.
[00:02:10] Speaker 2: That should justify the spend. Should it not? We'll have that conversation later this morning. That's the tech story. Let's get to true. Check it out. Brent and WTI so far this morning. We're higher on the month by about 25 bucks now. Brent crude is threatening to break into triple digits. $98 a barrel of 4%. WTI is in the 90s. Only three weeks ago, WTI was in the 60s.
[00:02:32] Speaker 4: It was a threat and now it's a reality when it comes to the Houthis getting involved in this war. They opened up this new front basically by going after these two Saudi Arabian vessels. And the Red Sea has become so critical to global energy because Saudi Arabia has been using that to get all of their product out because they haven't been able to use the straighter for moves. Now you have two choke points. This is a massive problem. What the Houthis had to say overnight was that they will continue their naval operations against Saudi Arabia will persist in enforcing, quote, a siege for a siege.
[00:03:03] Speaker 2: It's too high to ignore. We've ignored it now for weeks. It's too high to ignore. It's not in the 60s anymore. We're in the 90s. And you see this playing out in the bond market, too. Check it out. Two's, 10s and 30s so far this morning. Two's in the 430s. 10s approaching 470. We are at or near the highs of the year across the curve.
[00:03:23] Speaker 3: Two's at the 30s. This really raises a serious problem for central bankers because this isn't necessarily entirely coming on inflation expectations. It's a two-front issue. On one hand, you've got oil prices that are pressuring places like the ECB and the Bank of Japan, forcing their hands, potentially infecting bond markets here in the United States. And you have all the competition when it comes to CapEx from the likes of Google. So these two forces coming together and propping up yields at a time when central bankers want to look through this oil price shock but can't because of these other factors.
[00:03:56] Speaker 2: Let's mention the ECB, the ECB decision later on this morning. Check out Germany. Two-year yields have had a 30 basis point move so far this month. So crude is up by more than 30% so far this month. Two-year yields in Germany are up by more than 30 basis points so far this month. The two-year at 287, that ECB decision a few hours away. Coming up this hour, we'll catch up with Russ Kostrick of BlackRock on why he's trimming tech. John Lieber of Eurasia Group is the conflict with Iran Wyden's and Gil Luria of DA Davidson with CapEx concerns weighing on alphabet. We begin this hour with stocks lower as investors digest higher spending plans from mega cap tech. Russ Kostrick of BlackRock writing long-term, we think fundamentals still favor the mega cap tech names, including the hyperscalers and the semis. In the near-term, however, we have trimmed our overweight in the space. Russ joins us now for more. Welcome to the program. What signal should we take from the fact that this market is not rewarding those earnings from
[00:04:48] Speaker 5: Alphabet? Good morning, Jonathan. I think the signal is that we had a huge run up, not necessarily in the hyperscalers, but in many of what we call the pick and shovel plays, the semis, the semi-cap equipment that benefited from this huge CapEx spend. And the market got extended. We've seen numerous examples of a lot of leverage in the system, and it's taking some time to digest. And it's not helping that we also have, as you pointed out a moment ago, a background where oil is higher, rates are higher. So look, the earnings have been spectacular. There are legitimate questions about cash flow, but this is not a question about the fundamentals. This is more of a question about positioning. And I was saying the background, some growing concerns about oil and rates. So Russ, how would you describe
[00:05:35] Speaker 2: trim and tech? A tactical school this morning, something to work with through the summer? I think it's something that you probably do start to
[00:05:42] Speaker 5: think about in terms of the next two to three months. It's also worth pointing out, we've seen really since the June peak in tech, it's also become a little bit of a seasonal trend that we had not only this year, but in 25 and 24. And it was this broadening out rotation, everything out of tech into other areas of the market that would benefit and that tended to lag year to date. The challenge is in an environment where oil is up and rates are up, it's not clear that some of those other trades like small caps make as much sense. So I think what we're considering right now is you run with a smaller overweight to stocks. You bring that equity exposure in a bit and you look for opportunities. And again, I think the one thing to point out long term is that given that particularly the hyperscalers were struggling a bit even before this started, there are some good valuations in tech that quite frankly, we've not seen in years.
[00:06:37] Speaker 3: At this point, Russ, what would make you more concerned given where positioning is given and given where rates are and given what's happening in oil? If this persists past a certain time, would you start preparing for somewhat of a more protracted route?
[00:06:54] Speaker 5: I think the main issue is are we starting to see some evidence of softening the economy. And so far we really have not seen that. Manufacturing's been very solid. The labor market, despite some concerns in late 25 or earlier this year, has actually been on solid footing. So right now the underpinnings of the economy are still strong. We've got an environment where nominal growth is probably around five and a half percent. That's one of the reasons that earnings have been so solid. If that starts to slip, if some of the near term indicators in the economy, initial jobless claims, for example, some of the PMI's begin to pull back, then you've got to start to question whether or not that assumption about a solid economy powering earnings is going to persist in the back half of the year. Right now, I think for the time being, we're still OK on the fundamentals. I find it interesting that you said what you
[00:07:43] Speaker 3: probably should do is pair back some of the stock overweight and wait for opportunities. You didn't say pair back some of your stock exposure and go into bonds because bond yields are so high. So it might be a good time to exploit that and get some income. Why not? Why is that not the obvious playbook right now?
[00:07:58] Speaker 5: Yeah, that's a great question. I think the simple answer is because bonds are not working as a hedge. If you look at the relationship between stocks and bonds right now, in other words, the correlation, it's the most positive it's been in years. By some measures, it's the most positive it's been since before the tech bubble burst. So this is one of the challenges in a multi-asset portfolio. It's very hard to find the hedge right now. Bonds are not working. They're selling off at the same time as stocks. Gold has been a tough play this year. The dollar is steady but not really offering much convexity. You know, honestly, the only thing that I have a lot of conviction in right now is a hedge against equity risk is the most obvious, which is to own energy stocks. Because if the proximate risk to the market, the risk to rates is higher oil. The one thing that is working in that environment is to own energy and have a bit of an overweight in that sector. What would make you want to go into bonds
[00:08:47] Speaker 3: again, Russ? I mean, I ask this and we'll get to energy in just one second. But I ask this ahead of a bunch of central bank decisions that could potentially change the backdrop.
[00:08:56] Speaker 5: I think if the question is when you say bonds, because we do have a significant position in bonds and credit that we're very comfortable with. But if you're thinking about what would make you want to go out and buy the 10 year is a hedge against equity risk. I think it goes back to what I was talking about a moment ago. Are you starting to see signs that the economy is really softening in some of the near term data? That's not there yet in the economic data. And we talk to companies when we talk to retailers. We're not seeing evidence of the consumer softening. That is what would have to occur to have more conviction that yields are going to go down and that bonds would actually provide some hedge against equity risk. What we could potentially get
[00:09:34] Speaker 4: there if oil continues to rise breaching $100 a barrel. I don't know
[00:09:39] Speaker 5: if $100 a barrel is going to do it. We were $100 a barrel earlier this year. The economy was just fine. The consumer is just fine. You know, the reality is the economy is much less geared to oil than it was at the time of the first Gulf War 36 years ago. It's a smaller percentage of wallet share. We're now the largest oil producer. It's beneficial to the terms of trade. So in terms of the magnitude of the rise you need to see to create a real oil shock that would bring the economy down, I think it's a lot higher than $100 a barrel. With the Houthis now, though,
[00:10:13] Speaker 4: involved in this conflict, RBC's Halima Croft has a note out this morning saying Gulf infrastructure increasingly coming under threat and data centers now have a growing target on their back. What if instead of desalination plants, we start to see missiles drop on data centers in Saudi Arabia or the UAE? Look, there is a definite geopolitical risk
[00:10:33] Speaker 5: premium here. And I think one of the mysteries that I was a bit confused about a month ago was that oil got as low as it did. We knew that there were questions about whether or not the ceasefires remain stable. We knew that the Houthis were potentially going to be in play at some point. So oil down in 60s and the low 70s with that much of a risk premium seemed a bit odd. But I think this also illustrates another problem. Other things go through the straits of Hormuz and out of the Middle East other than oil. Fertilizer, the knock-on effects to food. So I think one of the concerns you have to have right now is what is the impact going to be not just on oil prices, not just on headline inflation, but are we going to see an impact on corn inflation as well for some of these knock-on effects and other products besides oil that are ultimately coming from the
[00:11:22] Speaker 2: Middle East. So do you think Kevin Walsh handles that next week? You know, I
[00:11:27] Speaker 5: don't have a strong opinion. Obviously, this is changing in real time. You know, our baseline was not a hike next week. But obviously, if you start to see that there's greater pressure again, not just on oil, but on other commodities and that's feeding through to the broader economy that is going to put pressure on the Fed. If not now, then certainly in the fall.
[00:11:46] Speaker 2: Hey, Russ, good to see you. Thank you, buddy. Russ Kostrick there of BlackRock. Check it out. Let's start with crude and then I want to look at the bond. The story, the yield curve, so to speak. Let's start with crude. WTI and Brent so far this morning. Brent at 98, WTI around 90. Now, check out yields, 2s, 10s and 30s. Look at the very long end of the curve. Lisa asked an important question. Why is the money not coming into the bond market? Why is this sell-off not becoming self-limiting? Typically, yields push higher. They create about a risk aversion. The money goes back into bonds. 30s this morning at 516. The team here at Bloomberg breaking down the data in the last 24 hours. The longest period, the longest run above 5% we've seen on a 30-year yield going back to 2007. We're hitting these levels and staying there for longer. That's the story so far this year.
[00:12:28] Speaker 3: It's not enough to draw in investors. And not just that, but back in 2007, when you had a similar streak, the benchmark rate was a lot higher. The Fed funds rate was a lot higher. So what you're talking about is real yields on the 30-year bond. When you strip out the inflation-adjusted aspect of this, are the highest going back to 2008. Again, a real question. Is this bond vigilantes? Is this just a strong economy? Is this competition from hyperscalers? Or is this something else that makes people like Russ Kostrich not want to buy bonds?
[00:13:00] Speaker 2: 516 on 30 so far this morning. Let's get an update on news worldwide with your Bloomberg Brief.
[00:13:05] Speaker 6: Bonnie Quinn has more. Bonnie. Good morning, John. Alphabet shares falling in the pre-market. The company raising its capital spending forecast for this year to as much as $205 billion, reigniting concerns about a lack of fiscal discipline in the race to dominate AI. Tesla shares also trading lower this morning. The EV maker reporting second-quarter results that fell short of estimates. Spending surging to $5.8 billion, resulting in Tesla's first cash burn in two years. The White House accusing China's Moonshot of improperly using USAI models and NVIDIA chips to create the Kimmy K3 system. The U.S. is considering sanctions against Chinese firms, which could affect Moonshot's plans to raise capital and move towards an IPO.
[00:13:46] Speaker 2: And that is your Bloomberg Brief. John. Bonnie, thank you. Appreciate it. What was the first thing we said the morning that news dropped? Is it export compliant? We need to figure out whether it is export compliant or not. And it sounds like on that reporting, it might not be.
[00:13:57] Speaker 4: It doesn't sound like it. And there's definitely concern coming from the Treasury Department, also coming from the White House, that this was not export compliant. And how many more of these potentially are we going to see?
[00:14:06] Speaker 2: Well, next story a little bit later this morning. Up next on the program, expanding strikes on Iran.
[00:14:12] Speaker 7: We don't need the Hormone Street, but we do it because we have to do it, because we cannot let Iran have a nuclear weapon. They're getting hit so hard, and they want to make a deal. But I say they're not ready to make a deal.
[00:14:24] Speaker 2: They'll be ready very soon. No deal this morning. We'll be right back. We'll see you next live from New York City this morning. Good morning.
[00:14:41] Speaker ?: Good morning.
[00:14:51] Speaker 2: Yesterday, struggle to build on Tuesday's gains this morning, negative by 0.4 on the S&P, down by 0.5 on the Nasdaq. In fact, chips haven't been the problem. Semis advancing for three consecutive days, and yet here we are, the down market. The Nasdaq down by 0.5. Alphabet struggling. We'll spend some time on that single name a little bit later. The earnings were good. CapEx a bit higher than expected. We're blaming CapEx, or maybe this market is just too richly priced. We'll talk about that later, too. Let's turn to the bond market, 2s, 10s and 30s. 2s, new levels, new highs for the year. 431.50, and up by two basis points. A little less than a week away from CapEx and up with Kevin Walsh and the team over at the Federal Reserve. Have we reintroduced some hawkish risk to this meeting? With that pricing, so comfortably above the policy rate, the Federal Reserve, and with this move in crude. WTI and Brent, Brent crude at 98, threatening to break into triple digits. Not so long ago, and when I say not so long, I mean two to three weeks ago, we were talking about breaking back into the '60s on Brent. We were there on WTI in the '60s. We're back in the '90s, just like that. Four percentage points so far this morning. Other civilians this morning are spending strikes on Iran.
[00:16:02] Speaker 7: We don't need the Hormone Street, but we do it because we have to do it, because we cannot let Iran have a nuclear weapon. They're getting hit so hard, and they want to make a deal. But I say they're not ready to make a deal, because every time they make a deal, they want to change it and everything. They're not ready. They'll be ready very soon.
[00:16:20] Speaker 2: So here's the latest this morning. Houthi militants opening up a new front in the war. The Iranian-backed group targeting two oil tankers in the Red Sea. U.S. forces expanding targets in Iran in a bid to protect commercial vessels through the strataformers.
[00:16:33] Speaker 4: So we had another night, 12th consecutive evening, where the U.S. went after a lot of Iranian targets. And at the same time, we now have a new front that's opened up. This idea that now we have two choke points that potentially are at risk in the Middle East is why you were seeing oil prices jump this morning. The Houthis, we have heard it for days. They were saying they were going to get involved, and yesterday was the day they decided to do that, targeting two Saudi Arabian vessels. Saudi Arabia is so key right now. They've been using this east-west pipeline to move product out of Yanbu and some of their other terminals along the Red Sea because they've been cut off from using the Strait of Hormuz. So now, potentially, we are going to have a moment where you can't have product getting out either way. And as you've continuously been saying on this program, we are living on inventories now, and they are very low.
[00:17:22] Speaker 2: This was a worry over the last five months, and here we are. It was a release valve for the situation, and now it's a stress point this morning.
[00:17:29] Speaker 3: SUDDENLY, the Saudi Arabia payouts to the Houthis aren't working anymore, and actually, you've seen some real conflict ongoing between Saudi Arabia and the Houthis. A question here about whether we are reaching the breakpoint, and whether there is going to be some response by central banks. We keep talking about that because that really does affect the yield picture, and we do get the ECB rate meeting, and frankly, suddenly, it's a lot more alive.
[00:17:50] Speaker 2: Let's get to the take with John Lieber of Eurasia Group. He writes the following: "The continued threat of Iranian attacks on infrastructure and Houthi disruptions in the Red Sea suggests the risk the supply will endure and evolve rather than disappear." John joins us now for more. John, welcome. I remember the conversation we had with you several months ago, and we asked about this situation. Why has it gone so quiet in Yemen with the Houthi militants? And here we are this morning. What happened? What's led to this breakdown in the situation between the Saudis and the
[00:18:16] Speaker 8: Houthis? Yeah, you know, our view has always been that the Houthis were going to stay out of this fight because they were looking to get paid by the Saudis, and that has worked for a while. But I think the Iranians are now effectively putting pressure on the Houthis to get back in. And, you know, I think the Houthis motivation remains the same here, which is that they're trying to give the Saudis a chance to, you know, effectively pay them off so it stops, but the Iranian appeal to attack is looking better. So the Iranian strategy here is to put as much pressure as they can on President Trump and on the West by increasing oil prices. And the Red Sea is the next best vessel for doing that. And, you know, over time, we think that obviously you're going to see a lot of displacement of energy shipping and other shipping out of the Strait of Hormuz that's going to evolve over the next five years or so. And the Red Sea is going to become an increasingly important choke point in the global oil trade. And this week, what we're seeing is the -- what that means is that that choke point is not a safe choke point. It's one that the Houthis or other geopolitical risks could potentially affect as well.
[00:19:21] Speaker 4: John, when it comes to the Houthis and the U.S. response, the President threatened that he would have a response if they were to get involved. Are you expecting that or that just potentially an empty threat at this moment?
[00:19:32] Speaker 8: I mean, I think the U.S. and the Saudis have to do something here. I don't think that they can tolerate the upward pressure on oil prices for too long. It gives the Iranians yet another leverage point over the Americans in this fight. So it would surprise me if the U.S. didn't get involved in some way in deterring these Houthi threats. Now, that's been hard to do. The Saudis fought a multi-year war against them, and they never quite eliminated those threats. And the U.S. is concentrating a lot of its firepower right now inside Iran. But I do expect this battlefield is going to expand in the coming days if the Houthis keep up their
[00:20:07] Speaker 4: pressure. We also have reporting overnight that the U.S. is surging forces to the region, medics, also weaponry, because of the fact that the conflict is now taking on a new escalatory process. What is going to be the response to this? Because when you look at polls, Americans aren't overwhelmingly in support of this war.
[00:20:27] Speaker 8: Yeah. The U.S. just doesn't have a lot of good options. The Iranians know it. The president could try to escalate further in Iran. Iran has been shockingly resilient so far, and there's no reason to think that resilience wouldn't continue. Their ability to continue to fire missiles at the U.S., the resilience of their missile cities, the fact that they can strike embassies now across the region, and the the fact that they're starting to figure out ways around American air defenses, that's going to put American lives at risk, I think are all extreme headwinds for the U.S.'s ability to keep pushing this war. Trump is showing no signs of backing off right now, and I think that if you read the body language coming out of the White House, it looks like he thinks further escalation will deter the Iranians, but the Iranians look increasingly dug in. So I think that they are playing the stronger hand right now. They don't have to worry about public opinion. Trump does. And as the oil price inventories get drawdown, and as the disruption continues, those prices increase in the middle of the summer for the U.S., putting a lot more pressure on Trump to end this. So I don't see how this is sustainable for more than a few weeks. But again, the White House is showing no indication that that's part of their calculus right now.
[00:21:37] Speaker 3: We're trying to get a sense, John, everyone is, of exactly what the exit strategy could potentially be. At the same time yesterday, the Trump administration released a deal, an agreement with Saudi Arabia, a multi-billion dollar civilian nuclear cooperation agreement. Is this completely separate? Is this related in any capacity? In some ways, there are aspects of this which are exactly what the United States has said that they
[00:22:03] Speaker 8: don't want Iran to have. Right. I mean, I think that the U.S. has got to do a lot to make up with some of its friends in the region. I think that this was this war has been prosecuted in a way that's at least going to hurt the short-term economic outlook in Saudi in the UAE. And I would expect more concessions like this coming from the U.S. Now, of course, we don't know exactly what the terms of this deal were. In the past, the nuclear program for the Saudis was always contingent on some kind of normalization with Israel. It seems as though those conditions have been dropped. And more details are going to come out here. John, do you think the Saudis get drawn into this war? I think the involvement of the Houthis makes it very difficult for them to stay out. And I think the fact that now you're disrupting, you know, two large Saudi tankers getting out of the Red Sea, the fact that Saudis are kind of armed and ready to respond, I think it's very difficult for them to stay out of this.
[00:22:55] Speaker 2: John Lieber of your Asia group, a sobering comment at the end there, the prospect of this war expanding and not shutting down
[00:23:02] Speaker 3: anytime soon. And potentially the groundwork was laid for that when Saudi Arabia was involved or accused by the Houthis of bombing an airport in the capital there. And that possibly was the reason why they were more amenable to the idea of retaliatory tax in the Red Sea. There are so many different aspects here. But you do wonder how the U.S. preserves relationships in the region at the same time that this starts to expand into a regional war, a very difficult situation.
[00:23:29] Speaker 2: I'm not going to say that these Saudis were comfortable, but they certainly had a solution to the problem at hand with the east-west pipeline that you described. And the release valve was clearly the Red Sea. And that's been a release valve now for several months. The fact that we've seen this escalation, to John's point, can we honestly sit here and say this morning with any real confidence that the Saudis stay out of this if this situation continues?
[00:23:49] Speaker 4: I think they're almost already into it. I mean, they're already getting targeted, not just even at sea. There have been issues as well with the Iranians targeting and potentially threats of going after some of their energy
[00:24:01] Speaker 2: days on the land. JONATHAN: Closing in on 99 on Brent, $90 on WTI. Up next, we'll catch up with Gil Luria of DA Davidson as CapEx concerns weigh on alphabet, plus Jihira has your morning movers. Check out Micron. Micron, up by 2.9%. It's pretty impressive. We're still within 2% of all-time highs on the S&P 500. Don't forget that. When we talk about all these issues, the violence beneath the index level, the risks happening elsewhere in bonds and commodities, that we're still within 2% of record highs on the S&P. This morning, we're falling back by a third of 1%. I think that speaks to why we're finding it so difficult still to engineer a rally, even with quite good earnings coming from some of the biggest names on the planet. The Nasdaq down by 0.4. We'll talk about Alphabet and Tesla in just a moment. Turn to the bond market, new levels, 2s, 10s and 30s. We're in the 430s now on the 2s. Close to the 470s on 10s. A single basis point away from a new high for the year on a 10-year maturity, intraday high for the year on a 30-year, 516 and up another basis point or two this morning. Thank you, crude. Here's the crude move. Check it out. We've been talking about this now for the last several weeks. You don't want to look at it. You don't want to see it. You don't want to internalize a number that's closer to triple digits. In your head, oil still training in the high 60s, low 70s, and everything's OK because I don't want to discuss the situation in the Middle East. Guess what? This morning, you have to discuss the situation in the Middle
[00:25:41] Speaker 3: East. We've crossed the Rubicon for markets given the fact that oil prices, Brent crude is up 30% since July 10th when the latest round of reignition of conflict in the Middle East began. You start to think about how much this affects the backdrop for central banks, how much this affects the backdrop for consumers that already have seen prices being rising around the globe. And you start to get a little bit more concerned. Then, of course, on the tech side, there is this question of how long the capital markets will continue to finance all of their hopes and dreams. And the oil market, not necessarily yet impeding that, but clearly causing a little bit more anxiety.
[00:26:16] Speaker 2: ECB rate decision just a few hours away. Look out for that on this program as we count you down to the opening balance, get some single names, some morning movers. Yahira has more.
[00:26:23] Speaker 9: Hi, John. Those bigger capex plans from alphabet, not sitting well with investors. Shares are down 4% in the pre-market after the company said it now expects to spend as much as $205 billion this year. And that's notable because alphabet had been viewed as one of the clearest examples of AI investments translating into growth. And it's been doing well when it comes to AI execution. Instead, the reaction suggests investors are beginning to look at the price of AI spending. It's not a question. These spending plans getting bigger even after the company posted 82% in cloud. It's Google cloud revenue and easily beat expectations. Now, turning over to Tesla, where the debate around AI spending is a little different. Investors have actually been waiting on the company to spend more because so much of its future depends on these futuristic, priceier products like robo-taxies. While it did reaffirm that it plans to spend more than $25 billion this year, you didn't see the payoff. It posted a big earnings miss. So even in this situation, you can see that investors have a high bar when it comes to those spending plans translating into a beat. So shares are falling 6%. And who benefits from all of this capex spending? Well, it's the memory players and the chip stocks. We are seeing micron up 3% in the pre-market as these earnings show us that the hyperscalers are likely to raise their capex plans. Plus, Elon Musk said on the call that Tesla recently secured a significant allocation of micron's memory chips reinforcing just how scarce and valuable memory is these days.
[00:28:05] Speaker 2: JONATHAN: THE WEALTH TRANSFER IS ALIVE AND WELL. YAHIRA, THANK YOU. MORE FROM YAHIRA IN THE NEXT HOUR. ON OUR RADAR THIS MORNING, Houthi militants claiming responsibility for attacks on two tankers in the Red Sea. The Iran-backed group opening up a new front in the war after threatening to blockade Saudi ports earlier this week. elsewhere, Alphabet, Tesla. Shares falling in the pre-market. The tech giant is announcing massive spending plans. Tesla seeing its first cash burn in over two years, expecting to spend over 25 billion this year, while Alphabet forecasts up to $200 billion plus in capex. And finally, the Trump administration accusing Chinese AI start-up Moonshot of using prohibited U.S. tech to create its latest model. A White House official saying the company accused it accessed Nvidia ships in Thailand in a violation of U.S. export controls.
[00:28:50] Speaker 3: The concern here is all the loopholes potentially that are out there that Chinese companies continue to exploit at a time where it seems like they're catching up much more quickly to some of the more frontier models in the United States. Regardless, question, can you put this genie back in the bottle? And I think increasingly, a lot of tech players, the executives, are saying probably not. So the question is, how do you arrange yourself to remain on the front foot to have enough of a forward lead and enough of a market advantage, even if China is quickly catching up?
[00:29:19] Speaker 4: And Jensen Wang this morning, speaking to Axios, had this to say. The fact that this is going to be the end of humanity, it's complete nonsense. The fact that this is going to destroy half of the American jobs is complete nonsense. Of course, grain of salt. He just got a window to start selling those H-200s finally into China. He wants to continue selling chips to anyone, including China. So I would say he's not the one potentially to look at when it comes to pushback. I would look at what the White House is saying. And even the Treasury Secretary, open source, is not open season on American IP.
[00:29:51] Speaker 2: He's got some skin in the game, so to speak.
[00:29:53] Speaker ?: Absolutely.
[00:29:53] Speaker 2: Alphabet and Tesla are set in the stage for a busy stretch of tech earnings. The mega-cap companies raising spending plans, stoking investor fears, over-returns on AI investments. Mandeep Singh of Bloomberg Intelligence joins us now for more. Mandeep, I want to focus on Alphabet. Let's just sit on that name right there. Were those names reporting good numbers or what? When I look at Alphabet and I look at the individual divisions, they put up some decent results.
[00:30:16] Speaker 10: They did. And, you know, for a company of Alphabet size to grow 24% top line, it's just phenomenal. And, you know, cloud segment had margins almost double compared to last year. So you can't make the case that, you know, there is no ROIC on this capex when that cloud business, which was growing 25% to 30% before, is now growing 80% plus. And your margins have doubled. So from that perspective, I think they have earned the right to spend more. And they talked about how they have to rent compute capacity from the likes of SpaceX and Neo clouds in the near term, which may drag the margins down a little bit. And this is a full vertical stack company. And, you know, the cloud business was non-existent a few years back. And now that's what's driving the growth. And 24% is just phenomenal.
[00:31:10] Speaker 2: Mandeep, that's my struggle this morning. I understand the concerns about capex, where the money is coming from. But the numbers themselves justify the spending. So when I see the stock down in the pre-market, I'm just trying to work out, is that all about positioning? Is that just about price? Or is it actually something fundamental about whatever the company reported
[00:31:28] Speaker 10: overnight? I mean, the fundamental, I guess, take which could, which is driving the stock down is their Gemini 3.5 pro model has been delayed. They were asked about why you haven't caught up in the coding agents compared to where the frontier labs like Entropic and OpenAI are at. And look, Entropic is one of their biggest customers on the cloud. Out of that $514 billion in backlog, 200+ comes from Entropic. But Entropic is also a competitor for them when it comes to the large language model race. So there is that dynamic where Alphabet, if it falls behind in the large language model race, will have an impact on their search business. And so from that perspective, there are things that you can be concerned about. But overall, I think some of the CapEx increases tied to memory price increases. So that's transitory. And so from that perspective, you know, there's not much to make out of, you know, the fact that they have to pay up along with everyone else when it comes to
[00:32:32] Speaker 2: memory prices. We banned the T word years ago, Mandeep. Thank you. Mandeep Singh of Bloomberg Intelligence. Appreciate it. Thank you very much. IN THE STUDIO, GIL, IN THE FLESH, GOOD TO SEE YOU, SIR. GOOD TO SEE YOU. LET'S GET TO YOUR REACTION TO THESE NUMBERS. WHAT STOOD OUT FOR YOU?
[00:32:59] Speaker 11: SOMETIMES IT'S NOT THE NUMBER, IT'S NOT THE CONTENT, IT'S HOW YOU SAY IT. IF SHE SAID IT'S GOING TO BE SIGNIFICANTLY HIGHER. SHE PUT SOME MUSTARD BEHIND THE SIGNIFICANTLY AND I CAN WATCH MY BLOOMBERG TERMINAL AND SEE THE PRICE AFTER MARKET GO DOWN BY 3% AS SHE SAID THAT. IF SHE JUST PUT A LITTLE BIT LESS ZING ON IT, MAYBE THE MARKET WOULDN'T BE REACTING THAT WAY. YOU THINK IT WAS A COMMUNICATION FAILURE AND JUST THAT? I DON'T THINK IT WAS A FAILURE. I THINK SHE WILL INCREASE CAPEX SIGNIFICANTLY NEXT YEAR.
[00:33:37] Speaker 3: WE HAVE A LARGER QUESTION HERE. DOES THAT CREATE A PROBLEM FOR A COMPANY THAT IS GROWING AT A REALLY RAPID PACE? I MEAN, TO JOHN'S POINT EARLIER, DON'T SOME OF THESE NUMBERS JUSTIFY INCREASED SPENDING IF THEY DO HAVE A BACKLOG THAT'S INCREASING TO 514 BILLION FROM A 416 BILLION JUST A QUARTER AGO? THEY DO.
[00:33:56] Speaker 11: THESE NUMBERS JUSTIFY THE INVESTMENT. I CAN BACK INTO ABOUT $20 BILLION OF EXCESS RETURNS GOOGLE IS GETTING FROM INVESTING IN AI. THAT'S DOUBLE-DIGIT RETURNS. WHEN WE TALK ABOUT ROI AND CONCERNS ABOUT ROI, THE NUMBERS ARE ALREADY THERE FOR RETURNS. NOW, FOR A COMPANY LIKE GOOGLE, ONE OF THE BEST BUSINESSES EVER CREATED, THEY WOULD TYPICALLY EXPECT MORE THAN 20% RETURNS. SO IT'S NOT THEIR BEST RETURN, BUT IT'S ALSO STRATEGIC. THEY HAVE TO STAY IN THE GAME. THEY HAVE TO BE COMPETITIVE WITH AMAZON AND MICROSOFT IN DEPLOYING COMPUTE, AND THEY HAVE TO BE COMPETITIVE WITH ANTHROPIC AND OPEN AI ON THE FRONTIER MODELS. THEY ARE GETTING RETURNS. THAT'S WHY THEY'RE CONTINUING TO INVEST.
[00:34:37] Speaker 3: AT THE SAME TIME, I DO UNDERSTAND THE NERVOUSNESS AROUND THE CASH BURN. SUDDENLY, THE CASH COWS OF THE UNIVERSE ARE BECOMING THE CASH BURNERS, AND THAT IS VERY UNCOMFORTABLE FOR PEOPLE. WE SAW THE FIRST QUARTERLY CASH BURN FOR ALPHABET IN ITS HISTORY GOING BACK TO 2016. DOES THAT GIVE YOU PAUSE, SAYING EVEN IF THIS IS A VERY GOOD COMPANY, WE NEED TO RERATE THE VALUATION?
[00:34:59] Speaker 11: IT HAS TO. IT HAS TO. AGAIN, ONE OF THE BEST BUSINESSES EVER CREATED, AND WE'RE NOW IN NEGATIVE CASH FLOW. AND THAT'S PROBABLY GOING TO HAPPEN TO META, AND IT MAY EVEN HAPPEN TO MICROSOFT AND AMAZON. AND SO WE DO HAVE TO STOP AND SAY, ARE WE SURE THIS IS WORKING? AND I TALKED A LITTLE BIT ABOUT GOOGLE'S RETURNS, BUT THERE'S ALSO THE BIGGER PICTURE RETURN. WE'RE NOW AT MORE THAN $100 BILLION RUN RATE OF OVERALL SPEND ON AI. IF YOU LOOK AT ANTHROPIC'S RUN RATE, OPEN AI'S RUN RATE, THEY'RE TALKING ABOUT 70 AND 50 BILLION RESPECTIVELY. THAT DOESN'T EVEN INCLUDE ANY OTHER AI PLAYERS. THAT'S REAL CONSUMERS AND REAL BUSINESSES SPENDING ON AI. AND GUESS WHAT? THE MODELS AREN'T EVEN THAT GOOD YET. OPEN AI AND ANTHROPIC IN THEIR LABS ARE SITTING ON MODELS THAT ARE FAR BETTER THAN THEY'RE GIVING US ACCESS TO. SO BY THE TIME WE ALL FIGURE OUT HOW TO USE AI BETTER, WE'RE GOING TO BE SPENDING A LOT MORE THAN THAT. SO WE ARE GETTING GOOD RETURNS. BUT CLEARLY HAVING NEGATIVE CASH FLOW FOR ALL THESE PHENOMENAL BUSINESSES IS SOMETHING THAT SHOULD GIVE US PAUSE.
[00:35:58] Speaker 4: SO ALPHABET IS THE BIGGEST SPENDER SO FAR THIS YEAR. AMAZON'S LATEST GUIDANCE WAS 200 BILLION. DO YOU THINK THEY'RE GOING TO HAVE TO UP THEIR CAPEX WHEN THEY REPORT NEXT WEEK?
[00:36:07] Speaker 11: IT'S LIKELY. FOR NO OTHER REASON THAT COMPONENT COSTS ARE HIGHER. CPUs ARE MORE EXPENSIVE. MEMORY IS A LOT MORE EXPENSIVE. HIRING TECHNICIANS TO INSTALL HVAC IS A LOT MORE EXPENSIVE. ENERGY IS A LOT MORE EXPENSIVE. ENERGY IS A LOT MORE EXPENSIVE. SO THEY'RE ALL GOING TO HAVE TO INCREASE THEIR GUIDANCE FOR THIS YEAR. WHAT'S GOING TO BE EVEN MORE INTERESTING IS TO SEE WHAT MICROSOFT SAYS ABOUT NEXT YEAR. BECAUSE MICROSOFT IS GOING TO BE AT THE BEGINNING OF THEIR FISCAL YEAR. SO THEY'RE GOING TO GIVE US A HARD NUMBER FOR FISCAL 27. THAT'S THE NEXT 12 MONTHS. AND WE'RE GOING TO KNOW A LOT ABOUT HOW MUCH MORE CAPEX IS GOING TO GET DEPLOYED WHEN THEY LET US KNOW ABOUT THAT. NOW, IF THEY GUIDE SOMETHING LIKE 20, 30% MORE CAPEX, I THINK EVERYBODY WILL TAKE A SIGH OF RELIEF. BUT IF THEY GUIDE FOR MORE THAN 40% GROWTH, WHICH IS HOW FAST AZURE IS GROWING, MAYBE THEY'LL BE A LITTLE BIT MORE CONCERNED.
[00:36:56] Speaker 2: THE CHIP COMPANIES ARE GETTING PAID. WE SAW THAT THIS MORNING. I WAS TALKING ABOUT MICRON. I'VE ASKED THIS QUESTION THIS WEEK. I WANT TO ASK IT OF YOU AS WELL. I WANT YOUR REACTION. CAN YOU THINK OF A WORLD WHERE THESE NAMES, THE HYPERSCALERS, ALPHABET AND OTHERS DO WELL AND CHIPS DO WELL TOO? BECAUSE RIGHT NOW IN THE STOCK MARKET AT LEAST, THAT'S A STRUGGLE.
[00:37:13] Speaker 11: THAT'S RIGHT. IF WE CONTINUE TO USE AI MORE, WE'RE ALL USING AI SO MUCH MORE. AGAIN, COMPANIES ARE SPENDING SO MUCH MORE ON AI. AS LONG AS THAT TREND CONTINUES, AS LONG AS THE DIFFUSION INTO OUR LIVES CONTINUES, THEY WILL ALL DO VERY WELL. THEY WILL ALL DO VERY WELL. IN SPITE -- THE ONES I ACTUALLY WORRY ABOUT MORE, ANTHROPIC AND OPEN AI. BECAUSE THERE WILL BE AMERICAN OPEN SOURCE COMPANIES. WE CAN TALK ABOUT CHINESE OPEN SOURCE FOR NOW. THAT'S NOT A REAL THING. WE'RE NEVER GOING TO BUILD SYSTEMS ON CHINESE IP. WHEN THERE'S AMERICAN OPEN SOURCE, A LOT OF THE VALUE IS GOING TO GO THERE. BUT THEN THERE WILL BE MORE VALUE TO FLOW THROUGH HIGHTS. THERE WILL BE MORE VALUE TO FLOW THROUGH HYPER SCALERS, INTO CHIP COMPANIES, AND INTO THE COMPANIES THAT MAKE THE CHIP-MAKING EQUIPMENT.
[00:37:55] Speaker 2: WHEN YOU THINK ABOUT WHO IS GOING TO MAKE THE MONEY, WHICH LAYER, INFRASTRUCTURE, THE FRONTIER MODELS, YOU'VE ALREADY GOT CONCLUSIONS ON THAT.
[00:38:01] Speaker 11: YES. THE HYPER SCALERS WILL MAKE THE MOST CONSISTENT REVENUE AND CASH FLOW. AND THE SEMI'S COMPANIES WILL CONTINUE TO GROW. IT'S GOING TO BE MORE LUMPY. THERE WILL STILL BE CYCLES. BUT WE'RE GOING TO BE A MUCH BIGGER SIZE THAN WE'VE EVER BEEN. HOW WAS THE WORLD CUP?
[00:38:21] Speaker 2: IT WAS PHENOMENAL. SPAIN IS MASTERFUL. YOU ENJOYED THE GAME? ABSOLUTELY. NICE BEING IN THE STADIUM.
[00:38:27] Speaker 3: I LIKE TO THINK THEY'RE HERE TO SEE US BUT THEY'RE JUST HERE TO WATCH THE WORLD CUP FINAL AND THEN MAKE AN APPEARANCE A FEW DAYS LATER.
[00:38:31] Speaker 2: THANK YOU. THANK YOU FOR DROPPING BY.
[00:38:41] Speaker ?: LET'S GET AN UPDATE ON NEWS THIS MORNING WITH YOUR BLOOMBERG BRIEF. FONNIE QUINN HAS MORE.
[00:38:41] Speaker 6: FONNIE. U.S. HOUSE REPUBLICANS APPROVING A BUDGET FRAMEWORK FOR A $95 BILLION PACKAGE. IT'S PART OF A TWO-STEP PROCESS THAT WOULD LET REPUBLICANS FAST TRACK $73 BILLION FOR THE WAR WITHOUT DEMOCRATIC VOTES AND ALLOW FOR BILLIONS MORE IN AID TO FARMERS HIT BY TARIFF RETALIATION AND WAR-RELATED PRICE INCREASES. WE ARE TALKING ABOUT INCREASING A BUDGET FRAMEWORK. A $1 BILLION DEAL FOR WARNER BROTHERS GETTING CONDITIONAL APPROVAL FROM THE EUROPEAN UNION. THE GREEN LIGHT COMING AFTER BOTH COMPANIES AGREED TO ADDRESS CONCERNS OVER COMPETITION. THE MERGER STILL FACING A U.S. LAWSUIT OVER CONCERNS IT COULD HARM COMPETITION. COMCAST EARNINGS BEATING ANALYST ESTIMATES. THE MEDIA DIVISION BOOSTING REVENUE BY 25% THANKS TO A SERIES OF MUST-SEE EVENTS INCLUDING THE NBA PLAYOFFS AND THE WORLD CUP. WE ARE GOING TO TALK ABOUT THE MARKETS.
[00:39:37] Speaker 2: WE ARE GOING TO TAKE A COUPLE OF COURTLY PROFIT OFF THE BACK OF ALL
[00:39:40] Speaker 12: THAT. THAT IS YOUR BLOOMBERG BREEF. JONATHAN: APPRECIATE IT. UP NEXT ON THE PROGRAM, BRACING FOR HIGHER INFLATION. THE IRAN WAR IS FULLY BACK ON.
[00:39:52] Speaker 2: YOU ARE LOOKING AT THE IMPACT OF HIGHER OIL PRICES FEEDING THROUGH TO ALL OF THE OTHER ECONOMIES IN THE WORLD.
[00:39:57] Speaker ?: CRUDE UP, BONDS DOWN, YIELDS AT LEVELS WE HAVE NOT SEEN SO FAR WE HAVE NOT SEEN SO FAR IN THE MARKETS. WE HAVE NOT SEEN SO FAR IN THE MARKETS.
[00:40:12] Speaker 2: WE HAVE NOT SEEN SO FAR IN THE MARKETS. WE HAVE NOT SEEN SO FAR IN THE MARKETS. THE TOP TWO STOCK STORIES SO FAR IN THE PRE-MARKET, BOTH OF THEM IN THE MARKETS. THE MARKETS ARE DOWN BY CLOSE TO 6. ALPHABET PUTTING UP DECENT NUMBERS FOR THE QUARTER. OVERSHADOWED BY A BIG CAPEX FIGURE. STRONG GUIDANCE FOR MORE. WE ARE DOWN BY CLOSE TO 4% IN THE PRE-MARKET. WE ARE DOWN ON STOCKS MORE BROADLY. EQUITY FUTURES DOWN ACROSS THE BOARD. THOSE STOCKS HAVE BEEN DOING BETTER OVER THE PREVIOUS THREE DAYS. THEY DO BETTER AGAIN THIS MORNING. WE ARE STILL WITHIN 2% OF ALL-TIME HIGHS ON THE S&P 500. THE CHOPPING AND CHANGES BETWEEN THE HYPERSCALERS AND THE CHIPS, THAT STORY IS VOLATILE. IT CONTINUES. WE ARE GOING TO TALK ABOUT THE HIGHER INFLATION. THE BOND MARKET YIELDS UP ACROSS THE CURVE, PARTICULARLY AT THE FRONT END OF THE CURVE, TWO IS IN FOCUS, NEW HIGH FOR THE YEAR, 431 UP A SINGLE BASIS POINT. OFF THE BACK OF THIS, THIS MOVE IN CRUDE, WTI AND BRENT.
[00:41:22] Speaker 12: BRENT THIS MORNING CLOSING IN ON TRIPLE DIGITS, UP 5%. 90 YEN ON BRENT CRUDE. UNDER SURVEYNORS THIS MORNING, BRACING FOR HIGHER INFLATION. THE IRAN WAR IS FULLY BACK ON. IT IS A LITTLE BIT. IT IS A LITTLE BIT OF HIGHER IN THE WORLD. INFLATION EXPECTATIONS IN THE U.S. HAVE BEEN SOMEWHAT CONTAINED. THE MARKET IS FULLY PRICING IN HIGH BY THE END OF THE YEAR.
[00:41:43] Speaker 2: AT SOME POINT, THE MARKET IS GOING TO DICTATE TO THE FED WHAT THE FED SHOULD DO. HERE IS THE LATEST THIS MORNING. OIL RISING FOR A FIFTH CONSECUTIVE DAY, FUELING EXPECTATIONS POSSIBLY FOR TIGHTER MONETARY POLICY. FRONICA CLARK OF CITY WRITING, FRONT END YIELDS HAVE MOVED HIGHER WITH ENERGY, BUT WE THINK MARKETS ARE SOMEWHAT. LAST WEEK, SOFT CPI, SOFT PPI AND I SAID TO YOU IT IS OKAY.
[00:42:11] Speaker 13: THE ARGUMENT IS EASIER FOR YOU NOW. IS THE ARGUMENT HARDER AGAIN? A BIT. MARKETS ARE PRICING SOMETHING LIKE A THIRD OF A CHANCE OF A RATE HIKE NEXT WEEK. I STILL THINK IT WILL COME DOWN TO THE DATA. IT IS A VERY BROAD-BASED WEAKNESS. WE ARE FINALLY SEEING CORE PCE INFLATION THAT IS ANNUALIZING CLOSE TO 2% ON A MONTHLY BASIS. SO I DO THINK FED OFFICIALS WILL AT LEAST WANT TO SEE MORE MONTHS OF DATA. AND I THINK WHAT THEY ARE GOING TO SEE IN THOSE MORE MONTHS OF DATA IS CORE CPI ACTUALLY DROPPING PRETTY QUICKLY. WE WILL HAVE THAT AT 2.3%, 2.2% WITHIN A COUPLE MONTHS. MONTHLY READINGS FOR CORE PCE WILL ALSO LOOK MORE FAVORABLE. AND THEN YOU GET TO LATE SEPTEMBER AND YOU GET THOSE REVISIONS TO CORE PCE AND I THINK THOSE WILL BE LOWER. AND IT SHOULD AT LEAST MAKE YOU QUESTION THE SIGNAL THAT YOU ARE TAKING FROM CORE PCE.
[00:42:55] Speaker 2: YOU SAY FED OFFICIALS WILL BE WAITING FOR MORE DATA. SOME PEOPLE MAKE THE ARGUMENT THEY HAVE ALREADY GOT WHAT THEY NEED. WE HAVE THE PROBLEM IN ENERGY. WE HAVE BEEN ABOVE TARGET FOR A LONG, LONG TIME. THE PROBLEM IN ENERGY PERSIST AND WE HAVE JUST HEARD FROM A BUNCH OF TECH COMPANIES THAT ARE WANTING TO SPEND FOREVER A WHOLE LOT MORE. OF COURSE I'M STRETCHING THE TRUTH. NEIL DUTTER PUBLISHED YESTERDAY. HE RECONS THERE IS A GOOD REASON TO GO AS SOON AS NEXT WEEK.
[00:43:16] Speaker 13: I DON'T THINK THERE IS. I THINK YOU ARE OBVIOUSLY WORRIED ABOUT INFLATION EXPECTATIONS AND WE ARE WATCHING THE IMPACT OF ENERGY PRICES AND HOW THAT FEEDS INTO CORE INFLATION. BUT THAT HAS NOT HAPPENED YET. WE HAVEN'T SEEN IT YET. THERE HAS BEEN EVIDENCE IN SOME OTHER DATA THIS YEAR DETAILS OF THE UNIVERSITY OF MICHIGAN SURVEY. PEOPLE ARE SAYING IT'S A BAD TIME TO BUY BECAUSE TIMES ARE BAD AND AFFORDABILITY IS AN ISSUE. AND I THINK THAT'S GOING TO PREVENT A BIG INCREASE IN CORE INFLATION FROM HIGHER ENERGY PRICES. PEOPLE ARE NOT ACTING LIKE THEY EXPECT HIGHER INFLATION. OKAY.
[00:43:48] Speaker 3: IT'S ONE THING TO SAY THAT THEY'RE NOT GOING TO HIKE RATES NEXT WEEK. IT'S ANOTHER THING TO SAY THAT THEY'RE GOING TO CUT TWO OR THREE TIMES LATER THIS YEAR. HOW CAN THIS BE A FEDERAL RESERVE THAT IS POISED TO CUT WHEN YOU HAVE BETH HAMMICK, LORI LOGAN, NIEL KASHKARI, PICK YOUR FED OFFICIAL OTHER THAN THE ONE WHO ISN'T SPEAKING ALL SEEMING TO WANT TO RAISE RATES IN SOME CAPACITY OR AT LEAST REMAIN ON HOLD.
[00:44:08] Speaker 13: YEAH. SOMETHING'S GOT TO CHANGE IN THE DATA, RIGHT? I THINK THE INFLATION DATA THE NEXT COUPLE MONTHS CAN GET US TO PRICE OUT THOSE HIKES. TO ACTUALLY GET TO CUTS YOU HAVE TO SEE SOMETHING IN THE LABOR MARKET DATA. AND I THINK WE WILL. WE'VE HAD THIS BIG DECLINE IN LABOR FORCE PARTICIPATION THAT'S KIND OF CAPPED THE UNEMPLOYMENT RATE. THE TREND THE LAST COUPLE YEARS IS THAT YOU SEE THAT REVERSE LATE SUMMER, EARLY FALL. YOU START TO SEE SOME SOFTER JOBS DATA THEN AND YOU START TO SEE THE UNEMPLOYMENT RATE RISING. SO OUR FORECAST I THINK WE WILL SEE AN UNEMPLOYMENT RATE THAT'S CLOSER TO 4.6, 4.7. AND THEN OF COURSE CPI IS AT 2.2, 2.3 AND UNEMPLOYMENT RATE IS RISING THEN THOSE BALANCE OF RISKS HAVE SHIFTED A LOT.
[00:44:47] Speaker 3: I REMEMBER WHEN MOHAMMAD EL ARIAN USED TO SAY LISTEN TO WHAT THE COMPANIES HAD TO SAY. YOU CAN GET A REALLY GOOD READ ON WHERE THE CONSUMER IS. WHAT WE'VE HEARD FROM THE LIKES OF CAPITAL ONE OUTPERFORMING BECAUSE CHARGE-OFFS CAME IN SO FAR BELOW WHAT THEY HAD EXPECTED. CHARGE-OFFS BROADLY IN THE FINANCIAL INDUSTRY CAME IN FAR BELOW AND THE PROVISIONS FOR CREDIT LOSSES. YOU'RE SEEING PRETTY MUCH EVERY METRIC OF THE CONSUMER PUTTING PEPSI ASIDE DO PRETTY WELL. DOESN'T THAT GIVE YOU A SENSE THAT THINGS AREN'T SO BAD?
[00:45:12] Speaker 13: YEAH. IT'S NOT THAT THE CONSUMER IS BREAKING. WE DID HAVE SOME PRETTY SOFT REAL CONSUMPTION IN Q1, THOUGH. WE DO HAVE REAL INCOME GROWTH THAT IS PRETTY MUCH FLAT ON AN ANNUAL BASIS. OBVIOUSLY, WE HAVE HIGHER TAX. WE HAVE SOME LARGER TAX REFUNDS. MAYBE THAT'S HELPED TO SUPPORT THE CONSUMER FOR A LITTLE BIT. BUT I DO WORRY THAT NOW THAT GAS PRICES ARE HIGHER AGAIN, THAT DOES KIND OF ACT AS A TAX ON OTHER CONSUMPTION. AND, YEAH, YOU DO SEE PEOPLE SAYING THAT THEY'RE NOT SPENDING.
[00:45:40] Speaker 4: VERONICA, IT'S NOT JUST OIL PRICES. TO JOHN'S POINT, THIS NEIL DUTTA NOTE THAT CAME OUT, HE ALSO SAID TRUMP DOING TRUMP THINGS AGAIN WITH TARIFFS. CAN YOU LOOK THROUGH EVERYTHING, HIGHER OIL PRICES, HIGHER INPUTS WHEN IT COMES TO POTENTIALLY TARIFFS? YEAH.
[00:45:53] Speaker 13: YEAH. I MEAN, THIS IS WHERE IT'S IMPORTANT TO LOOK AT THAT FINAL CONSUMERS, YOU KNOW, INFLATION DATA, RIGHT? THAT'S WHERE WE'RE LOOKING FOR THE SIGNS OF THE PASS THROUGH. YOU KNOW, I MENTIONED HOW CONSUMERS ARE MAYBE NOT SPENDING THIS YEAR. IN THAT SAME UNIVERSITY OF MICHIGAN SURVEY, WE ACTUALLY DID SEE CONSUMERS SAY THAT NOW IS A GOOD TIME TO BUY, BECAUSE WE'RE EXPECTING PRICES TO GO HIGHER. YOU DON'T SEE THAT THIS YEAR. SO I AM, YOU KNOW, CAUTIOUS THAT YOU MIGHT NOT SEE THAT PASS THROUGH.
[00:46:17] Speaker 2: VERONICA, IT'S GOOD TO SEE YOU. THANK YOU. KEEP FIGHTING THE GOOD FIGHT. VERONICA CLARK OF CITY LOOKING FOR CUTS LATER THIS YEAR. STILL TWO OR THREE?
[00:46:23] Speaker 13: WHERE ARE WE AT? TWO THIS YEAR, ONE NEXT YEAR.
[00:46:25] Speaker 2: OKAY. ALL RIGHT. IT'S PUSHED OUT A LITTLE BIT. ALL RIGHT, VERONICA, THANK YOU. THIS IS THE NEIL DUTTER NOTE FROM REN MAC. IF YOU ARE A HAWK, YOU SIMPLY SAY THAT WE HAVE A LOT OF VISIBILITY ON WHAT THE NEXT FEW MONTHS MIGHT LOOK LIKE. GOOGLE JUST ANNOUNCED A BOATLOAD OF CAPEX. AI DEMAND IS PERKING UP. MID-EAST TENSIONS ARE WORSENING, AND THAT'S PUSHING UP GAS PRICES INTO AUGUST. THE PRESIDENT IS NOW DOING WHAT HE CALLS TRUMP THINGS, AGAIN, WITH TARIFFS. GOES ON TO SAY, YOU DON'T NEED ANY OF THIS. IT'S BEEN FIVE YEARS, NONSENSE. YOU JUST TALK ABOUT THE NEXT FIVE MONTHS.
[00:46:51] Speaker 3: SUDDENLY, THERE'S A 36% CHANCE THAT THE FED IS GOING TO HIGH RATES NEXT WEEK, AND THAT HAD BEEN CLOSE TO ZERO AFTER THE CPI AND PPI CAME OUT. SO INCREASINGLY, PEOPLE THINK THAT THERE IS A GREATER CHANCE THAT NEIL DELDA IS NOT WRONG. THAT THE LIKES OF LORI LOGAN AND BETH HAMMICK AND WHOEVER ELSE COME OUT AND SAY, ALL RIGHT, IF WE WANT TO HIGH RATES, WHY NOT DO IT NOW, ESPECIALLY WHEN WE DON'T HAVE TO GIVE FORWARD GUIDANCE ANYMORE.
[00:47:13] Speaker 2: AT THE VERY LEAST, I WOULD BE SURPRISED IF THERE WASN'T ANY DISSENT NEXT WEEK, NEXT WEDNESDAY. YOU'D HAVE TO THINK ONE OF THEM MAKES THE MOVE, STICKS THE HAND UP AND SAYS, LET'S GO. MAYBE THAT'S WHY THERE'S GOING TO BE A PRESS
[00:47:21] Speaker 3: CONFERENCE. MAYBE BECAUSE HE COULD EXPLAIN WHY THERE WAS A DISSENT. HE ONLY SPEAKS WHEN HE HAS SOMETHING TO SAY. HE HAS SOMETHING TO SAY NEXT WEEK BECAUSE, AS WE LEARNED YESTERDAY, THERE IS GOING TO BE A PRESS CONFERENCE.
[00:47:32] Speaker 2: I'VE HEARD HIM SAY THAT AND THEN I SAW HIM ON THE PANEL AND JUST THOUGHT, OKAY, MAYBE HE DOES SPEAK WHEN HE'S GOT NOTHING TO SAY.
[00:47:38] Speaker 3: AMONG US, DOESN'T.
[00:47:40] Speaker 2: HE FEELS THE SAME WAY SOMETIMES. COMING UP NEXT, JIM CARON OF MORGAN STANLEY, REPUBLICAN CONGRESSMAN FRENCH HILL, BEN CALLOW OF COMPANY.
[00:47:56] Speaker ?: THE SECOND DOWER OF BLOOMBERG SURVEILLANCE JUST AROUND THE CORNER.
[00:48:13] Speaker 12: YOU ARE NOT WHERE YOU NEED TO BE ON INFLATION.
[00:48:16] Speaker 1: INTEREST RATES MAY JUST BE TOO LOW FOR THE LEVEL OF INFLATION THAT WE HAVE.
[00:48:20] Speaker 12: THE ECONOMY IS STILL FUNDAMENTALLY IN A GOOD PLACE.
[00:48:23] Speaker 3: THERE IS NOT AN URGENCY FOR THE FED TO HIGH. INFLATION IS NOT HOT ENOUGH TO REALLY SEE THE FED DOING THAT.
[00:48:29] Speaker 14: THIS IS BLOOMBERG SURVEILLANCE WITH JONATHAN FERRO, LISA ABRAMOWITZ AND ANNE-MARIE HORDERN.
[00:48:36] Speaker 2: GOOD MORNING FROM NEW YORK CITY THIS MORNING. GOOD MORNING FOR OUR AUDIENCE WORLDWIDE. THE SECOND DOWER OF BLOOMBERG SURVEILLANCE STARTS RIGHT NOW. THE PRICE SECTION LOOKS LIKE THIS. EQUITIES DECLINING BY A THIRD OF 1% ON THE S&P AND NASDAQ. IN THE BOND MARKET, SOME TROUBLE. THE TWO-YEAR THIS MORNING THROUGH 430 UP A SINGLE BASIS POINT. THE 10-YEAR APPROACHING 470 AND THE 30-YEAR COMFORTABLY ABOVE 5% FOR QUITE A WHILE NOW. IF YOU TURN TO THE COMMODITY MARKET, THE Y LOOKS LIKE THIS. IF YOU TOOK A FEW WEEKS OFF FOR THE SUMMER, WELCOME BACK. WE ARE NO LONGER IN THE 60s, WE ARE IN THE 90s.
[00:49:25] Speaker 3: WHAT YOU ARE GOING TO HEAR IS THAT PEOPLE HAVE BEEN TRYING TO IGNORE THIS STORY AS THEY LOOK AT ALL OF THE CAPITAL MARKETS, BOOMS THAT HAVE BEEN GOING ON, AND THE QUESTION HERE IS HOW MANY PILLARS OF THE MARKET ARE BEING CHALLENGED? ON ONE HAND, YOU HAVE THIS QUESTION, BIG TECH CONTINUING TO OUTPERFORM, BUT CONTINUING TO RAISE TONS OF CASH. AT THE SAME TIME, THE OIL PRICES REALLY PUSHING EVERYTHING HIGHER, AND ULTIMATELY, THERE IS NO SOLUTION HERE. WHEN YOU TALK TO EXPERTS, WHAT IS THE EXIT STRATEGY IN IRAN THAT CAN CAUSE SOME OF THE OIL FLOWS AND OTHER COMMODITIES THROUGH THE STRAIGHT OF AMERICA, AND FRANKLY, THE RED SEA? THIS ADMINISTRATION CLEARLY THINKS THEY CAN TRY TO GET THE
[00:50:00] Speaker 4: IRANIANS TO THE NEGOTIATING TABLE BY HAVING THEM CAPITULATE, BY CONTINUALLY HAVING THESE ATTACKS, WHICH WE SAW LAST NIGHT, THE 12th STRAIGHT NIGHT OF ATTACKS. THE IRANIANS ARE SAYING, ACTUALLY, WE'RE GOING TO HAVE OUR PROXY NOW GET INVOLVED. IT WAS A THREAT, NOW IT'S A REALITY, AND THE INDIVIDUALS I'M TALKING TO THIS MORNING ARE SAYING NONE OF THIS IS A SURPRISE. IF YOU HAVE BEEN PAYING ATTENTION TO THIS CONFLICT AND HOW THESE PEOPLE OPERATE FOR DECADES, NONE OF THIS IS A SURPRISE. THE QUESTION IS, WHAT IS THE PLAN
[00:50:26] Speaker 2: GOING FORWARD? JONATHAN: LOOK AT WHAT IT MEANS FOR RATES AND THE OUTLOOK FOR INTEREST RATES AS WELL. 2 IS AT 4:30. EVEN WITHIN THE LAST WEEK, SOFTER CPI, SOFTER PPI. CHECK OUT TENS. TENS PUSHING 470. TEN-YEAR YIELDS ARE BASICALLY AT THE HEIGHTS OF THE YEAR. IT'S NOT TRICKING A RESPONSE WHERE WE SEE A RISK AVERSION, STORY, BUILDING EQUITIES AND MONEY GOES BACK INTO BONDS. WHAT'S INTERESTING ABOUT THIS MOMENT, AND YOU TOUCHED ON IT AN HOUR AGO, IS THAT PEOPLE AREN'T WILLING TO STEP IN TO BUY LONGER THAN THE LEVELS THAT THEY MIGHT HAVE DONE IN THE PAST, THAT WE ARE HOLDING ON TO THESE LEVELS FOR LONGER THAN I THINK MANY PEOPLE THOUGHT WE WOULD. LISA:
[00:51:04] Speaker 3: YOU PUT INTO THE STUDY THAT BLOOMBERG DID ABOUT HOW WE ARE SEEING THE LONGEST STREAK ABOVE 5% IN THE 30 YEAR GOING BACK TO 2007. PART OF THIS IS JUST BECAUSE THE ECONOMY ISN'T CRASHING. IF THE ECONOMY IS NOT CRASHING, IT CAN'T ACT AS A COUNTERWAY AS A HEDGE TO EQUITIES. ALSO, THERE IS SO MUCH COMPETITION. THIS BLEEDS INTO THE TECH STORY AS WELL, BECAUSE OF SELLING $20 BILLION BOND SALES AS IF THEY ARE SELLING LEMONADE, SUDDENLY YOU HAVE A PROBLEM IF YOU ARE ALSO TRYING TO SELL $60, $70, $80, $100 BILLION A POP OF TREASURY. SO ALL OF THESE THINGS LEADING TO ALSO A GLOBAL STORY BECAUSE THE DYNAMIC IS HAPPENING FROM JAPAN.
[00:51:39] Speaker 2: IT'S THE CROWDING OUT DYNAMIC WE'VE SPENT A LOT OF TIME ON THIS PROGRAM. COMING UP LATER, 8:15, AN ECB RATE DECISION. LOOK OUT FOR THAT. LOOK OUT FOR THIS TOO. SOME DATA AT 8:30. JOBLESS CLAIMS WILL COME. THEY WILL GO AROUND 2:15. IF IT CHANGES, THAT'S NEWS. WE'LL SEE IF IT DOES. I'M THINKING BACK TO ISABEL SCHNABEL, AN EXECUTIVE BOARD MEMBER OF THE ECB A NUMBER OF WEEKS AGO SAYING YOU CAN NO LONGER LOOK THROUGH THE SHOCK. HOW STRONG IS THE HAWKISH ARGUMENT AT THESE CENTRAL BANK MEETINGS TODAY AT THE ECB AND NEXT WEEK AT THE FEDERAL RESERVE?
[00:52:09] Speaker 3: THEY HAVE TO RESPOND TO MARKETS THAT ARE INCREASINGLY PRICING IN ALMOST TWO RATE HIKES BY THE ECB AFTER PRICING IN JUST ONE BEFORE THIS CONFLICT REIGNITED A COUPLE OF WEEKS AGO. ULTIMATELY, DO YOU HEAR THE HAWKS COME OUT AND OUTHAWK ANY DOVES LEFT? I DON'T THINK THERE ARE ANY DOVES LEFT RIGHT NOW.
[00:52:26] Speaker 2: FUTURES DOWN BY THIRD ON THE S&P. COMING UP, WE'LL CATCH UP WITH JIM CARON OF MORGAN STANLEY AS ALPHABET EARNINGS FELL TO SPARK A RALLY, THE REPUBLICAN CONGRESSMAN FRENCH HILL AS THE HOUSE BACKS TRUMP'S TRILLION-DOLLAR DEFENSE BUDGET AND BEN CALOW HAVE BEARED WITH ELON MUSK SPENDING PLANS WEIGHING DOWN TESLA STOCK. WE BEGIN THIS OUT WITH STOCKS ADDING TO LOSSES FOLLOWING AN UNDERWHELMING START TO TECH EARNINGS. JIM CARON OF MORGAN STANLEY RELATIONSHIPS IN THE COMPANY.
[00:52:55] Speaker 15: THE NUMBERS FROM TESLA, DO WE HAVE A CAPEX PROBLEM, A SPENDING ISSUE OR A POSITIONING AND PRICE PROBLEM IN THIS MARKET? I THINK IT IS A READJUSTMENT IN PRICES. THERE HAVE BEEN A LOT OF EXPECTATIONS. I THINK IT IS A COMPANY THAT MAYBE PEOPLE WANT THEM TO GOING FORWARD. THE EARNINGS RUN SO FAR FOR THE FIRST HALF OF THIS YEAR HAVE BEEN VERY STRONG. OF COURSE, MARKETS ARE FORWARD-LOOKING. THEY ARE LOOKING INTO THE NEXT SIX MONTHS, INTO THE NEXT 12 MONTHS. WHAT THEY ARE SAYING IS THAT THE PACE OF EARNINGS IS JUST NOT GOING TO BE WHAT IT WAS. THAT IS NOT GOING TO BE LOOKING AT THE EARNINGS. I THINK THAT MARKETS ARE BEING VERY EFFICIENT IN TERMS OF TAKING DOWN SOME OF THESE MORE TECHNOLOGY COMPANY PRICES AND THE GROWTH SECTOR PRICES IN ANTICIPATION OF SLOWING EARNINGS GOING FORWARD. SO THIS IS NOT GOING TO BE CONSIDERED EARNINGS IS UNSUSTAINABLE. THAT IS OKAY BECAUSE THESE COMPANIES IN THIS SECTOR HAS ACTUALLY BEEN PERFORMING NOT SO WELL THIS YEAR. THE VALUE SECTORS, THE BROADENING OF THE MARKET, THAT HAS DONE BETTER THIS YEAR SO FAR. I THINK MARKETS ARE BEING VERY EFFICIENT IN TERMS OF RECOVERING THEIR EARNINGS. I THINK IT IS A PROGRESSION OF THE EARNINGS CYCLE.
[00:54:05] Speaker 2: TO ME, AN ALARM BELL, IT IS JUST A NATURAL PROGRESSION OF THE EARNINGS CYCLE. TO BUILD ON THAT, PEAK EARNINGS GROWTH IS A
[00:54:12] Speaker 15: SUFFICIENT ENOUGH REASON TO STAY AWAY FROM THESE NAMES? I WOULDN'T SAY THAT. IT IS A QUESTION OF THE VALUATION. I THINK THAT, YES, SECOND QUARTER EARNINGS WILL PROBABLY MARK THE PEAK. IT IS GOING TO BE HARD TO BEAT THAT GOING FORWARD. AND I THINK THAT THE EARNINGS GROWTH RATE OF CASH GOING FORWARD IS GOING TO ALL OF A SUDDEN DRY UP. LOOK, WHAT WE ARE HEARING FROM THE BROADER ECONOMY IS THAT THEY HAVE A LOT OF DEMAND FOR TECHNOLOGY, FOR COMPUTE, AND FOR ALL OF THESE THINGS THAT MANY OF THESE HYPERSCALERS PROVIDE. THE DEMAND IS GOING TO BE THERE AND IT IS ONLY GOING TO GROW. IT IS JUST THAT THE EARNINGS GROWTH RATE MAY NOT BE AS FAST AS IT WAS, LIKE IN THE FIRST HALF OF THIS YEAR, JUST GOING FORWARD. AND I THINK THAT IS WHY MANY OF THESE COMPANIES ARE ADJUSTING IN PRICE. AND THAT IS ACTUALLY A VERY GOOD, HEALTHY SIGN. WE ARE TALKING ABOUT THE STOCK MARKETS. HOW UNUSUAL IS IT, JIM, TO SEE THE STOCK MARKET HOLDING UP AND THE BROADENING OUT CONTINUE WITH YIELDS CONTINUING TO CLIMB? IF WE WERE HAVING THIS CONVERSATION SIX MONTHS AGO, NINE GOING DOWN AND BOND YIELDS GO UP, THAT WOULD ABSOLUTELY SPELL A DISASTER FOR EQUITY PRICES BROADLY. BUT THAT IS NOT HAPPENING RIGHT NOW. AND I THINK THAT IS A REALLY IMPORTANT SIGNAL FOR US TO TAKE AWAY. SO IS IT UNUSUAL? YES, IT IS UNUSUAL. IS IT A SHOCK RIGHT NOW? NO, BECAUSE WHAT WE ARE SEEING IS THE OTHER SECTORS OF THE MARKETS, THE OTHER BROADENING -- IF YOU LOOK AT THE HEALTH CARE SECTOR, IF YOU LOOK AT THE CONSUMER, IF YOU LOOK AT FINANCIALS, IF YOU LOOK AT MATERIALS, IF YOU LOOK AT MATERIALS, IF YOU LOOK AT MATERIALS, ALL OF THESE OTHER SECTORS ARE HOLDING UP AND THEY ARE MAKING UP FOR SOME OF THE LOSSES THAT WE ARE SEEING IN THE TECHNOLOGY SECTOR THAT PEOPLE ARE QUITE FRANKLY WORRIED ABOUT.
[00:56:13] Speaker 3: LET'S SAY NEXT WEEK, KEVIN WASH COMES OUT AND ANNOUNCES THAT THE FED JUST HIKED RATES BY 25 BASIS POINTS, IS PREPARED TO TAKE FURTHER ACTION TO LIMIT INFLATION, AND FRANKLY, GIVES WHAT THE MARKET ALREADY HAS PRICED IN. WOULD THAT AFFECT THINGS IN A NEGATIVE WAY OR IN A POSITIVE WAY?
[00:56:30] Speaker 15: YEAH, THAT'S A REALLY GOOD QUESTION. I'M GOING TO SAY THAT IT'S ACTUALLY GOING TO IMPACT THINGS IN A NEGATIVE WAY. AND THE REASON I'M GOING TO SAY THAT IS, NUMBER ONE, I DON'T THINK THAT THE FED IS GOING TO HIKE RATES THIS YEAR. BUT THE OTHER ISSUE HERE IS THAT THIS IS A SUPPLY SIDE SHOCK. THE FED'S TOOLS, MONETARY POLICY, IS THERE WHEN THE ECONOMY IS OVERHEATING BECAUSE OF DEMAND SIDE ISSUES THAT ARE TAKING PLACE, YOU KNOW, HIGHER WAGES, YOU KNOW, RAMPANT HIRING, A LOT OF SPENDING, THINGS LIKE THAT. WHEN YOU HAVE A SUPPLY SHOCK, WHEN YOU HAVE AN OIL OR AN ENERGY, YOU KNOW, SHOCK THAT'S COMING THROUGH, A RATE HIKE IS BASICALLY JUST SAYING WE'RE GOING TO HIKE INTO SOMETHING THAT'S GOING TO SLOW THE MARKET IN THE FUTURE. HIGHER OIL PRICES IS A HEADWIND TO THE MARKET. WHY WOULD YOU HIKE INTO A HEADWIND INTO THE MARKET? TO ME, THAT DOESN'T MAKE A LOT OF SENSE. SO THAT'S WHY I THINK THE MARKETS WOULD TAKE IT NEGATIVELY.
[00:57:27] Speaker 4: WHEN IT COMES TO WHAT THEY SHOULD DO, THOUGH, HIGHER OIL PRICES POTENTIALLY CAN BECOME ENTRENCHED IN THIS ECONOMY, ESPECIALLY WHEN YOU'RE DEALING WITH AN ECONOMY THAT IS FARM TO ROAD TO TABLE WHEN IT COMES TO THINGS LIKE GROCERIES. AT SOME POINT, IS THE FED GOING TO HAVE TO MOVE GIVEN THE FACT THAT LAST YEAR THEY SAID THE CUTS WERE INSURANCE CUTS?
[00:57:46] Speaker 15: YEAH, SO IF IT DOES BECOME A PERVASIVE, YOU KNOW, HIGHER LEVEL OF INFLATION THAT'S SEEPING INTO THE CORE, YOU KNOW, AND IT'S BECOMING VERY, VERY PERMANENT, THEN, YOU KNOW, ABSOLUTELY, THE FED WOULD HAVE TO HIKE INTEREST RATES. I DON'T THINK THAT WE'RE THERE YET, THOUGH. I DON'T THINK THAT WE'RE SEEING REALLY, YOU KNOW, THE MATERIAL SIGNS OF THAT THAT WOULD BE RUNNING THROUGH THEIR LARGE-SCALE MACROECONOMIC MODELS, WHAT THEY CALL THE FRB U.S. MODELS. SO I STILL THINK, YOU KNOW, LOOK, THERE MIGHT BE A DECENT. I MEAN, YOU KNOW, AND I THINK THAT WORSH NEEDS TO EXPLAIN THAT. BUT I THINK THAT, YOU KNOW, A LOT OF WHAT WORSH IS REALLY LOOKING AT IS HIS TASK FORCE AND TRYING TO DECIPHER THE DATA AND HAVE NEW DATA POINTS COME IN THAT CAN HELP HIM, YOU KNOW, DISSEMINATE THIS INFORMATION. BUT, YOU KNOW, IT'S A GREAT QUESTION, BUT I JUST DON'T THINK THAT WE'RE AT THE POINT WHERE WE'RE SEEING WIDESPREAD INFLATION TO THE POINT WHERE THE FED WOULD FEEL THE NEED TO HIKE INTEREST RATES, AT LEAST NOT AT THIS MOMENT.
[00:58:39] Speaker 2: JIM, THIS IS NEW TERRITORY. AND GIVEN THE AVERAGE AGENT ON THE TRADING FLOOR RIGHT NOW, IT MIGHT BE TERRITORY THAT THEY'VE NEVER EXPERIENCED BEFORE. WE'RE GOING INTO A MEETING NEXT WEEK AND WE DON'T REALLY KNOW WHAT'S GOING TO HAPPEN. AND THAT MIGHT BE A FEATURE, NOT A BUG OF NEW LEADERSHIP. YOU'VE WRITTEN ABOUT THIS, JIM. DO YOU THINK THEY ARE STRATEGICALLY REINTRODUCING VOLATILITY INTO THE FRONT END OF THE CURVE?
[00:58:57] Speaker 15: CAN WE JUST START THERE? YEAH, I DO, JOHN. SO THE WAY THAT I THINK THAT WASH IS APPROACHING THIS IS THAT HE WANTS TO HAVE MORE CONTEMPORANEOUS, MORE REAL-TIME POLICY REACTION, MEANING, YOU KNOW, FED INTEREST RATES, HIKES AND CUTS, DEPENDING ON THE CYCLE. THINK OF THE FRONT END OF THE MARKET AS A SHOCK ABSORBER TO INFLATION AND INFLATION EXPECTATIONS. IF YOU GET THE SHOCK ABSORBER RIGHT, YOU GET A SMOOTH RIDE FOR THE BACK END OF THE CURVE. AND THE BACK END OF THE CURVE COULD GET MORE NORMAL, STABILIZED INTEREST RATES. AND THAT'S WHERE MOST PEOPLE BORROW. THAT'S WHERE CORPORATES BORROW. THAT'S WHERE PEOPLE BORROW FOR MORTGAGES, FOR CARS, AUTOS AND EVERYTHING ELSE. SO I THINK THE UNCHARTED TERRITORY THAT WE'RE MOVING INTO HERE IS THAT WASH WILL LIKELY BE MORE VOLATILE IN TERMS OF HIS SHORT-TERM VIEWS ON INFLATION AND INTEREST RATE POLICY. BUT THAT'S THERE TO SMOOTH OUT THE LONG END. AND I THINK THIS IS A VERY, VERY DIFFERENT FED RIGHT NOW THAT'S GOING TO INTRODUCE MORE SUPPLY SIDE INDICATORS, NOT JUST RELY SOLELY ON DEMAND SIDE INDICATORS, TO HELP, YOU KNOW, MAKE THEIR POLICY DECISIONS GOING FORWARD.
[01:00:02] Speaker 2: WE'LL SEE IF IT WORKS. WE'LL SEE IF IT CAPS LONG END YIELDS. JIM, THANK YOU, SIR. CERTAINLY NOT THIS MORNING. JIM CARON OF MORGAN STANLEY. WE'LL SEE HAND-HOLDING MIGHT BE ENDING AT THIS FEDERAL RESERVE. THAT'S AN ADJUSTMENT PROCESS THAT EVERYONE NEEDS TO GO THROUGH.
[01:00:16] Speaker 3: IF THE GOAL WAS TO RE-INTRODUCE MORE VOLATILITY TO CONTROL THE LONG END, AS YOU POINT OUT, IT'S NOT WORKING IN TERMS OF CONTROLLING THE LONG END. IF IT'S INTERVENTION WHEN IT COMES TO THE BALANCE SHEET THAT COULD POTENTIALLY OFFSET THIS OR TREASURY ISSUANCE ON THE FRONT END, MAYBE THEN YOU START TO SEE MORE OF AN INFLUENCE. AT A CERTAIN POINT, THOUGH, VERBAL INTERVENTION IS ONLY GOING SO FAR. IT'S A PROCESS.
[01:00:34] Speaker 2: WE'RE WORKING THROUGH IT. I THINK IT'S NOTABLE THAT WE GO INTO NEXT WEEK WITHOUT REALLY KNOWING WHAT'S GOING TO HAPPEN. TOTALLY AGREE.
[01:00:39] Speaker 3: I THINK IT'S FASCINATING.
[01:00:40] Speaker 2: THAT MIGHT BE A FEATURE NOT A BUG FOR A NEW FED SHARE. NO FORWARD GUIDANCE. A WHOLE NEW WORLD, THE OLD WORLD.
[01:00:52] Speaker 4: LET'S GET YOU AN UPDATE ON NEWSHOWER THIS MORNING.
[01:00:54] Speaker 2: MANY USED TO SING THAT DAILY. I THOUGHT I'M HAVING FLASHBACKS TO ANCHORING WITH MANY'S
[01:00:59] Speaker 6: BRANNY. LET'S GET YOU BLOOMBERG BRIEF. THE ECB EXPECTED TO LEAVE INTEREST RATES UNCHANGED AS POLICYMAKERS ASSESS THE IMPACT OF ESCALATING TENSIONS IN THE MIDDLE EAST. THE DECISION COMING AT 8:15 EASTERN AND PRESIDENT LEGARDE'S NEWS CONFERENCE 30 MINUTES LATER. INVESTORS WILL BE LISTENING FOR CLUES ON WHETHER A SEPTEMBER HIKE IS LIKELY. MOBILE EYE REPORTING SECOND QUARTER EARNINGS THAT BEAT ESTIMATES. THE COMPANY ALSO ANNOUNCING ITS FOUNDER AND CEO, AMNON SHASHUA, IS STEPPING DOWN. TUNE INTO BTECH AT 11:15 EASTERN FOR ED LUDLOW'S INTERVIEW WITH SHASHUA. AN EXTERNAL REVIEW OF THE 2023 FAILURE OF SILICON VALLEY BANK COULD LEAD TO A SHAKE-UP AT THE FEDERAL RESERVE. TELLING US HERE AT BLOOMBERG IT COULD PROVIDE A LEGAL BASIS FOR REMOVING FED GOVERNOR MICHAEL MAHER WHO HAD BEEN RESPONSIBLE FOR BANKING OVERSIGHT WHEN SBB COLLAPSED. THAT IS YOUR BLOOMBERG BRIEF.
[01:01:50] Speaker 7: THANK YOU. THANKS FOR THE UPDATE. WE DON'T NEED THE HORMONE STREET BUT WE DO IT BECAUSE WE HAVE TO DO IT BECAUSE WE CANNOT LET IRAN HAVE A NUCLEAR WEAPON.
[01:02:08] Speaker 2: THANK YOU SO MUCH.
[01:02:16] Speaker ?: UP NEXT, REPUBLICAN CONGRESSMAN FRENCH HILL
[01:02:18] Speaker 2: GOVERNOR. THAT IS GOING TO BE A LITTLE BIT. THEY ARE GOING TO BE A LITTLE BIT. WE ARE GOING TO BE A LITTLE BIT. DOWN BY 4%. PULLING BACK FOLLOWING PRETTY DECENT RESULTS. IN TERMS OF EARNINGS, REVENUE GROWTH, TREMENDOUS. CAPEX SEEMS TO BE GRABBING THE HEADLINES.
[01:02:52] Speaker 3: CAPEX IS BUILDING FREE CASH FLOW, NEGATIVE FREE CASH FLOW. THE IDEA THAT SUDDENLY THEY HAD THEIR FIRST QUARTER OF NEGATIVE FREE CASH FLOW IN THEIR HISTORY SINCE 2016. ALSO NOTABLE THAT THEY ARE INCREASING THEIR PLANNED EXPENDITURES POTENTIALLY AS A RESULT OF JUST HIGHER COMPONENT COSTS AND FRANKLY NOT GIVING ANY GUIDANCE AS TO WHEN IT IS NOT GOING TO INCREASE ANYMORE. YOU CAN IMAGINE THAT THE OTHERS, THE MICROSOFT, THE AMAZONS AS WELL AS THE METAS ARE ALL GOING TO DO THE SAME THING WHICH MEANS THAT $725 BILLION OF CAPEX THIS
[01:03:16] Speaker 2: YEAR IS PROBABLY A WHOLE LOT HIGHER. JONATHAN: ONLY BY A THIRD OF 1%. WE WILL PICK OUT SOME OF THE CHIP NAMES, TESLA SPENDING MORE, ALPHABET SPENDING MORE. CHIP NAMES ARE DOING OK FOR THAT REASON. THEY HAVE BEEN GAINING OVER THE LAST THREE DAYS. WE HAVE GOT SOME STABILITY AFTER THEY ENTERED BEAR MARKET TERRITORY JUST LAST WEEK WHICH FOLLOWED A RUN-UP OF 90% IN Q2. THAT IS THE WILD RIDE FOR CHIPS. WE'VE ADDED $25 TO $30 TO THE PRICE OF CRUDE JUST THIS MONTH ALIVE. THAT IS WHAT WE HAVE BEEN DOING OVER THE LAST SEVERAL WEEKS. WE HAVE ADDED AROUND $25 TO $30 TO THE PRICE OF CRUDE. JUST THIS MONTH ALIVE. WTI AROUND $90 THIS MORNING. WE DON'T NEED THE HORMONE STREET BUT WE DO IT BECAUSE WE HAVE TO DO IT BECAUSE WE CANNOT LET IRAN HAVE A NUCLEAR WEAPON.
[01:04:13] Speaker 7: THEY ARE GETTING HIT SO HARD AND THEY WANT TO MAKE A DEAL. THEY ARE GETTING HIT SO HARD AND THEY WANT TO MAKE A DEAL. THEY ARE NOT READY.
[01:04:31] Speaker 2: THEY WILL BE READY VERY SOON. HOUSE SPEAKER MIKE JOHNSON DELIVERING A WIN FOR PRESIDENT DONALD TRUMP'S EFFORT TO FUND THE PENACON. THE HOUSE PASSING A RECORD $1.15 TRILLION DEFENSE BILL SETTING UP BILLIONS MORE IN SPENDING FOR THE WAR WITH IRAN.
[01:04:44] Speaker 4: WHEN IT COMES TO THIS THE PRESIDENT REALLY WANTED CONGRESS TO ACT. THE HOUSE DID. THE ISSUE IS WE ARE PROBABLY NOT GOING TO SEE THE SENATE TAKE THIS UP VERY QUICKLY. THIS IS PART OF RECONCILIATION. THEY APPROVED $95 BILLION. PART OF THAT, AS YOU MENTIONED, $73 BILLION IN FUNDING FOR THE IRAN WAR, $12 BILLION IN FARM AID, AND $10 BILLION AIMED AT INCENTIVIZING STATES TO ADOPT ELEMENTS OF THE SAVE AMERICA ACT. SO ALL OF THESE ARE THE PRESIDENT'S PRIORITIES. THE ISSUE IS ONLY THE HOUSE WAS ABLE TO PUSH IT FORWARD. THEY WANT TO PUSH IT FORWARD. THEY WANT TO PUSH IT FORWARD. THEY WANT TO PUSH IT FORWARD. IT MIGHT BE A HARD VOTE AHEAD OF THE MIDTERM ELECTIONS FOR
[01:05:21] Speaker 2: SOME INDIVIDUALS TO TAKE THAT VOTE. I DON'T SEE SENATE MAJORITY LEADER THUNE ACTING ON THIS VERY QUICKLY. LET'S TALK ABOUT THE VIEW FROM THE HOUSE. THE REPUBLICAN CONGRESSMAN FRENCH HILL VOTING TO PASS THE BUDGET SAYING THAT BILL, THIS BILL, ENSURES OUR MILITARY HAS WHAT IT NEEDS TO DETERN OUR ADVERSARIES AND DEFEND AMERICAN INTERESTS AROUND THE GLOBE. WE NEED TO TAKE A LOOK AT THE STRAIGHT. YOU UNDERSTAND THE ASYMETRIC NATURE OF THIS CONFLICT WE HAVE AT THE MOMENT. THE AMERICAN WORKFORCE, THE AMERICAN MILITARY IS SPENDING AN ABSOLUTE FORTUNE, AN ABSOLUTE FORTUNE RIGHT NOW, TO FIGHT AND DEFEND AMERICAN INTERESTS AND GLOBAL INTERESTS FOR THAT MATTER IN THAT STRAIGHT. DO YOU REALLY WANT TO GET DRAWN INTO AN ENDURING BILLION DOLLAR SCHOOTING OVER IN IRAN FOR AS LONG AS THE EYE CAN SEE?
[01:06:05] Speaker 16: FIRST, THANKS FOR HAVING ME BACK. IT IS ALWAYS GOOD TO BE WITH TEAM BLUEBERG EARLY IN THE MORNING. THE SPENDING BILL FOR BUDGET RECONCILIATION WAS IMPORTANT TO MAKE SURE WE KEEP OUR STOCKS HIGH. AND I THINK IT IS IMPORTANT FOR THE AMERICAN PEOPLE TO UNDERSTAND THAT AFTER DECADES OF TRYING TO PAY THE IRANIANS, OFFER THE IRANIANS DIPLOMATIC CAPABILITY, THE LONG-STANDING OBAMA NEGOTIATION. THE RISKS TO IRAN HAVING A NUCLEAR WEAPON WERE RISING AND IRAN'S PROVOCATIVE NATURE, THREATENING ITS GULF NEIGHBORS, USING TERROR WITH THE HOUTHIS TO CLOSE THE RED SEA, TO ATTACK GAZA, TO CONTINUE TO DISRUPT IN SYRIA AND LEBANON. I THINK THE PRESIDENT JUST TOOK THE DECISION WE HAVE GOT TO PREVENT THEM FROM HAVING A NUCLEAR WEAPON, WHICH SHE INITIATED THIS SPRING. SO I AGREE THAT IRAN SHOULDN'T HAVE A NUCLEAR WEAPON, AND WE ALSO NEED GLOBAL OPEN SEAS IN THE PERSIAN GULF. I WOULD HOPE THAT WE WOULD HAVE MORE SUPPORT FROM AROUND THE WORLD FOR THOSE INTERNATIONAL WATERS, AND I THINK THAT'S SOMETHING THAT I'VE BEEN A LITTLE DISAPPOINTED IN IN OUR STRATEGY, IS NOT THE MAINTENANCE OF THOSE SEA LANES. WELL, WE DO HAVE THE SENATE MAJORITY LEADER, THOUGH, WHEN
[01:07:15] Speaker 4: IT COMES TO THE FUNDING, SAYING EARLIER THIS WEEK THAT HE'S NOT GOING TO MOVE ON THE HOUSE BUDGET BLUEPRINT UNTIL THE SENATE SOLVES THE SEPTEMBER 30TH FUNDING FIGHT. SO WHEN DO YOU ACTUALLY THINK WE'RE GOING TO BE ABLE TO GET THAT MONEY THAT YOU THINK IS CRITICAL TO OUR TROOPS AND MILITARY ACTUALLY OUT THE DOOR?
[01:07:31] Speaker 16: WELL, I WOULD HOPE WE COULD GET THAT DONE BEFORE SEPTEMBER 30TH IS THE ANSWER TO YOUR QUESTION. I THINK SENATOR THUNE RECOGNIZES THAT THE HOUSE HAS NOW PASSED ALSO, YOU DIDN'T MENTION IT, BUT A CONTINUING RESOLUTION FULLY FUNDING THE GOVERNMENT UNTIL DECEMBER 4TH. THAT'S ALSO A TOOL THAT JOHN THUNE HAS THAT HE CAN BRING TO THE SENATE FLOOR BECAUSE HE'S FEARFUL THAT DEMOCRATS IN THE SENATE, ONCE AGAIN, TO TRY TO GET AN ELECTION ADVANTAGE IF SOMEBODY CONSIDERS IT ONE. WE'LL TRY TO SHUT THE GOVERNMENT DOWN. CHUCK SCHUMER HAS DONE THAT TWICE DURING THIS CONGRESS FOR THE LONGEST SHUTDOWN IN AMERICAN HISTORY. WHAT I THINK JOHN THUNE HAS NOW IN HIS ARSENAL OF SUGGESTIONS IS ONE, WE HAVE A C.R. TO FUND GOVERNMENT WITH NO ADDITIONS THROUGH DECEMBER 4TH SO WE DON'T HAVE A GOVERNMENT SHUTDOWN. SECONDLY, HE COULD USE THE BUDGET RECONCILIATION ACT IN THE SENATE POTENTIALLY TO FUND GOVERNMENT FOR THE REST OF THE FISCAL YEAR. SO HE'S GOT SOME CHOICES AND I'M SURE HE'LL WORK WITH HIS NEW BUDGET COMMITTEE CHAIR, SENATOR JOHNSON REPLACING LINDSEY GRAHAM ON WHAT THOSE OPTIONS ARE. WAS THIS A HARD VOTE TO TAKE?
[01:08:39] Speaker 4: THE MAJORITY OF AMERICANS OPPOSED THIS WAR AND NOW GASOLINE PRICES ARE NORTH OF $4 A GALLON ACROSS THE UNITED STATES.
[01:08:45] Speaker 16: WELL, I DON'T THINK ANYONE WANTS HIGH GAS PRICES. THERE'S NO QUESTION ABOUT THAT. AND IT'S UNFORTUNATE THAT THE IRANIANS DON'T RECOGNIZE THAT THEY HAVE A ONCE IN A LIFETIME OPPORTUNITY TO RETURN THEIR COUNTRY TO AN OPEN SOCIETY THAT LIVES IN PEACE WITH ITS NEIGHBOR AND NOT THE LARGEST EXPORTER OF TERROR OR THREATENING EUROPE AND ASIA WITH BALLISTIC MISSILES AND A NUCLEAR WEAPON. AND SO I THINK THAT BALANCE IS PRETTY CLEAR TO ME. IT'S BEEN 50 YEARS. MY ENTIRE WORKING CAREER, WE'VE FACED ASSAULT FROM IRAN, KILLING AMERICANS, KILLING OUR ALLIES, THREATENING OUR INTERESTS, TRYING TO ASSASSINATE OUR OFFICIALS ON OUR OWN SOIL HERE IN THE UNITED STATES. AND SO I THINK THAT BALANCE IS JUST SOMETHING WE HAVE TO COPE WITH. BUT NO ONE WANTS HIGH GAS PRICES. WHAT WE WANT IS THE IRANIANS TO COME TO THE NEGOTIATING TABLE AND STICK WITH A DEAL. AND THAT'S WHAT WE NEED TO CONTINUE TO HAVE OUR ALLIES, INCLUDING THE PAKISTANIS AND OTHERS, HELP FORCEFULLY MAKE THAT CASE.
[01:09:46] Speaker 3: CONGRESSMAN, CAN WE AFFORD A PROTRACTED FIGHT RIGHT NOW WITH OUR YIELDS CLIMBING, WITH OUR DEFICITS CLIMBING, WITH THE BILL ALREADY SIGNIFICANTLY HIGHER THAN SOME PEOPLE WERE PREPARED TO PAY FOR?
[01:09:57] Speaker 16: LOOK, IT'S NOT RATHER WE CAN AFFORD. THERE ARE A LOT OF CHALLENGES THAT WE HAVE IN THE WORLD THAT WE HAVE TO BE PREPARED FOR. CHINA INFILTRATING OUR TELECOMMUNICATION NETWORKS AND THREATENING OUR INFRASTRUCTURE HERE REQUIRES A MAJOR INVESTMENT. COUNTERING THAT IS A SIGNIFICANT INVESTMENT. COUNTERING TERROR AROUND THE WORLD THAT THREATENS OUR INTEREST AND OUR ALLIES' INTEREST. COUNTERING PUTIN'S ADVANCES IN EUROPE AND HIS UNWILLINGNESS TO QUIT HIS INVASION OF UKRAINE. ALL THESE THINGS COST MONEY AND AMERICA IS IN A LEADING POSITION BOTH IN INTELLIGENCE AND MILITARY AFFAIRS.
[01:10:36] Speaker 3: CONGRESSMAN, I GUESS I'M WATCHING THE BOND YIELDS SPACE, NOT TO SURPRISE YOU, YOU KNOW, HERE IN MY SEAT. BUT I'M WATCHING HOW YIELDS HAVE REACHED THE HIGHEST LEVELS GOING BACK TO EARLIER OF LAST YEAR. LOOKING AT THE FACT THAT A RATE HIKE IS ALMOST EVENLY PRICED IN NEXT WEEK FOR FED CHAIR KEVIN WORSH. DO YOU THINK IT'S APPROPRIATE TO POTENTIALLY HIGH RATES A BIT TO BRING DOWN THE LONG END OF THE YIELD CURVE AS THE U.S. IS FACING ALL THESE BILLS THAT ARE GETTING MORE EXPENSIVE TO PAY?
[01:11:03] Speaker 16: WELL, THAT'S A DECISION THE FEDERAL RESERVE WILL HAVE TO MAKE. I THINK WHAT WE HAVE TO DO IN CONGRESS IS MAKE SURE WE MEET THE NEEDS OF THE NATIONAL DEFENSE TO COUNTER THE THREATS THAT WE HAVE THAT ARE THREATS THAT WE'VE INHERITED FOR DECADES AND COPED WITH FOR DECADES. THESE ARE NOT NEW THREATS, NOT NEW FORCES THAT WE FACE, WHETHER IT'S UKRAINE, THE MIDDLE EAST GENERALLY, THE GULF, OR IRAN'S THREATENING IN THE REGION. SO I JUST THINK WE HAVE TO BE PREPARED, PREPARING FOR A COMMON DEFENSE AND FUNDING THAT IS ONE OF OUR MOST IMPORTANT OBLIGATIONS HERE IN CONGRESS. WE OF COURSE WANT THE IRANIANS TO COME TO THE TABLE. YOU'VE SEEN THE VOLATILITY SINCE FEBRUARY IN GLOBAL OIL PRICES BASED ON WHAT IS HAPPENING THERE. THE MINUTE THEY COME TO THE TABLE, BRING PEACE AND WORK WITH THEIR NEIGHBORS TO REOPEN THE GULF, I THINK YOU SEE OBVIOUSLY GAS PRICES AND CRUDE OIL PRICES DROP PERCIPITOUSLY AS WE HAVE ALREADY WITNESSED AT LEAST TWICE IN THE LAST FEW MONTHS.
[01:12:04] Speaker 2: CONGRESSMAN, I APPRECIATE YOUR TIME, SIR. GOOD TO SEE YOU FINALLY GET SOME TESTIMONY FROM THE FED CHAIR IN FRONT OF YOUR COMMITTEE LAST WEEK. THAT TOOK A WHILE, DIDN'T IT? IT DID. I'M SURE HE WAS VERY HAPPY. CONGRESSMAN FRENCH HILL ON THE LATEST IN THE MIDDLE EAST. WE ARE DOWN BY 0.5 ON THE S&P, DOWN BY 0.6 ON THE NASDAQ 100. BENEATH THE SURFACE SOME SINGLE NAME STORIES. THAT IS THE INDEX LEVEL STUFF, STILL WITHIN 2% OF ALL-TIME HIGHS ON THE S&P, TEN TO THE BOND MARKET, NEW HIGHS FOR THE YEAR. WE ARE TAKING OUT THE HIGHS OF THE YEAR ON A 10-YEAR, 468, GETTING CLOSER TO 470, ON THE 30s GETTING CLOSER TO 520. THIS MOVE IN CRUDE IS NOT HELPING, WE SAID THAT REPEATEDLY. WTI AND BRENT, CRUDE CLOSING ON 99, WTI NOW INTO THE 90s. ONLY A FEW WEEKS AGO, IT WAS IN THE 60s. IF YOU TURN TO THE BOND MARKET AGAIN AND SIT ON YIELDS, THIS COMPETING INTO BOND MARKETS, THE MARKET IS COMPETING FOR CAPITAL RIGHT NOW AND THAT INCLUDES THE TREASURY AS WELL. TYPICALLY THESE SELL-OFFS ARE SELF-LIMITING, MONEY COMES IN, THINGS SETTLED DOWN AND IF IT CAUSES A BAD A RISK AVERSION IN RISK ASSETS, THE MONEY GOES BACK INTO BONDS. YOU HAVEN'T SEEN THAT IN A BIG WAY.
[01:13:39] Speaker 3: IN PART BECAUSE THE ECONOMY IS STILL CHUGGING ALONG AND YOU ARE SEEING INCREDIBLE AMOUNTS OF ISSUANCE. IF YOU ARE A BOND INVESTOR, SUDDENLY YOU HAVE LEVERAGE TO DETERMINE WHERE YOU WANT TO PUT YOUR MONEY AND POTENTIALLY WHAT KIND OF YIELDS YOU CAN DEMAND TO HAVE THE PRIVILEGE OF LENDING IT OUT. THIS IS THE REASON WHY. THE REASON WHY IS IT TALKING ABOUT THE REASON WHY IS IT GOING BACK IN THE STREAK ABOVE 5% FOR THE 30-YEAR TREASURY GOING BACK AS BLOOMBERG CALCULATED TO 2007. DOES THIS RAISE A PROBLEM OR IS THIS A FEATURE OF THE MOMENT
[01:14:13] Speaker 2: GIVEN THE FACT THAT THIS IS A STRONG ECONOMY THAT CAN SUSTAIN ITSELF EVEN WITH YIELDS AT THIS LEVEL? IT'S A SLOW BLEED AND WE JUST HOLD ON TO THOSE LEVELS ACROSS THE CURVE, 2s OUT TO 30s AND 2s COMFORTABLY ABOVE THE POLICY RATE OF THIS FEDERAL RESERVE GOING INTO THAT MEETING A WEEK AWAY.
[01:14:27] Speaker 9: WE'VE SEEN THE LATEST EARNINGS OUT THIS MORNING. WE START WITH OUR LATEST EARNINGS OUT THIS MORNING. WE ARE SEEING AMERICAN AIRLINES DOWN 2.5% IN THE PREMARKET AFTER THE CARRIER WARNED IT COULD SEEM TO A FULL YEAR LOSS AS FUEL COSTS CONTINUE TO EAT INTO PROFITS. THAT STANDS IN CONTRAST TO ITS RIVALS THE LIKES OF DELTA AND UNITED WHICH EARLIER THIS REPORTING SEASON DID REAFFIRM OR RAISE THEIR OUTLOOKS. ALPHABET SHARES FALLING IN THE PREMARKET DOWN NEARLY 5% NOW AS IT RAISED ITS CAPEX PLANS YET AGAIN TO AS MUCH AS $205 BILLION THIS YEAR. THAT'S NOTABLE BECAUSE ALPHABET HAD BEEN VIEWED AS ONE OF THE COMPANIES WHERE YOU SAW AI TRANSLATING INTO GROWTH. INSTEAD THE REACTION SUGGESTS THAT INVESTORS ARE STARTING TO QUESTION WHETHER THE SPENDING IS GETTING TOO BIG. EVEN AFTER GOOGLE CLOUD REVENUE SURGED 82% FROM LAST YEAR. THAT'S ONE OF THE THINGS I WANTED TO INVESTORS. THAT'S WHAT HE MENTIONED EARLIER IN THE PROGRAM. MARGINS CAME IN MUCH BETTER THAN EXPECTED. WE TURN TO TESLA. THOSE SHARES NOW DOWN 6.5%. INVESTORS ARE AROUND THE INVESTORS. WE ARE WANTING THE COMPANY TO RAMP UP SPENDING BECAUSE ITS FUTURE HINGES ON THESE FUTURISTIC PRODUCTS LIKE ROBOTAXIS WHICH ARE PRICING. WHILE IT DID REAFFIRM ITS SPENDING PLANS, WHICH IS MORE THAN $25 BILLION THIS YEAR, THE COMPANY POSTED A BIG EARNINGS AND IT'S SHOWING YOU HOW INVESTORS STILL WANT TO SEE THAT
[01:16:03] Speaker 2: PAY OFF FROM ALL THOSE INVESTMENTS. JONATHAN: THE COMPANY HIGHLIGHTING THEY HAVE ALREADY MADE STRIDES IN THE COMPANY THROUGHOUT THE COMPANY. THE COMPANY HIGHLIGHTING THE COMPANY ATTACKING TWO OIL TANKERS IN THE RED SEA IS THEIR FIRST ATTACK ON COMMERCIAL SHIPS SINCE THE WAR BROKE OUT AND THREATEN THE CLOSURE OF ANOTHER KEY CHOKEPOINT IN THE MIDDLE EAST. ELSEWHERE, A REVIEW OF THE COLLAPSE OF THE SILICON VALLEY BANK IS SPARKING A POLITICAL BATTLE. SOURCES TELLING US HERE AT BLOOMBERG THAT SOME OFFICIALS ARE REMOVING FED GOVERNOR MICHAEL BAR FROM THE CUTTING 10% OF ITS CUSTOMER SERVICE ROLES AS IT PIVOTS MORE TOWARDS A.I. THE COMPANY HIGHLIGHTING THEY HAVE ALREADY MADE STRIDES IN USING THE TECHNOLOGY SAYING THE MOVE WILL HELP FURTHER STREAMLINE OPERATIONS.
[01:16:41] Speaker 3: AND THIS FOLLOWS ANOTHER ROUND OF CUTS AT UBER EARLIER IN JUNE IN ITS SO-CALLED PEOPLE DIVISION. A SIGNIFICANT PART OF THAT, ALTHOUGH THEY DON'T BREAK OUT EXACTLY HOW MUCH THAT IS, OF THE OVERALL STAFF. THERE HAVE BEEN A NUMBER OF COMPANIES THAT HAVE COME OUT AND MADE ANNOUNCEMENTS LIKE THIS, BLOCK, ORACLE, OTHERS THAT HAVE SAID THIS IS AN A.I. RELATED ROUND OF LAYOFFS. THEY'VE BEEN TREATED DIFFERENTLY. SOMETIMES IT'S TREATED AS JUST THEY OVERHIRED. SOMETIMES IT'S TREATED AS ACTUAL EFFICIENCIES. WHAT WE'RE HEARING FROM COMPANIES IS IT'S NOT THIS OBVIOUS. YOU CAN CUT STAFF IN ONE PLACE, BUT YOU'RE GOING TO HAVE TO PUT THE MONEY IN OTHER PLACES AS WELL. IT'S NOT AS CLEAR OF AN EFFICIENCY. IN SOME WAYS, ARE STOCK MARKETS LOOKING FOR THAT TYPE OF EFFICIENCY AND JUST NOT GETTING IT? I'M NOT SURE WHAT THE FULL READ-THROUGH IS, BUT WHEN YOU TALK TO PEOPLE LIKE AT&T, THEY'RE SAYING ANYTHING THAT WE SAVE, WE PASS TO OUR BOTTOM LINE. IT'S NOT GOING TO ULTIMATELY HELP US. THIS IS THE REASON WHY YOU'RE SEEING SORT OF AN
[01:17:33] Speaker 4: AMERICAN JOBS. YOU MAKE A GREAT POINT. THE FACT THAT THEY ALREADY DID LAYOFFS, AND THIS IS THE FIRST TIME THEY'RE TYING IT TO A.I. YOU HAVE TO THINK, IS A.I. JUST THE LATEST FLAVOR? IS THIS THE SCAPEGOAT TO ACTUALLY STRENGTH THEIR WORKFORCE? IT COMES AT THE SAME TIME THAT JENSEN WONG IS SAYING THE FACT THAT THIS IS GOING TO DESTROY HALF OF THE AMERICAN JOBS IS COMPLETE NONSENSE, TALKING ABOUT A.I. BECAUSE THIS IS GOING TO BE A MASSIVE MIDTERM ELECTION ISSUE, AND THIS WILL BE THE ISSUE FOR 2028.
[01:18:03] Speaker 2: I TOTALLY AGREE WITH YOU ON THE POLITICS. FOR NOW, IN THE MARKET, I'M FOCUSED ON THE R.O.I. IT'S AN INTERESTING EXAMPLE BECAUSE EARLIER THIS YEAR, THEY WERE THE EXAMPLE OF A COMPANY THAT WAS RATIONING SPENDING INTERNALLY ON A.I. AND THIS IS A SUGGESTION THIS MORNING THAT THEY'VE OPTIMIZED THAT SPEND AND FOUND A GOOD USE CASE FOR IT, AT LEAST WITH REGARDS TO CUSTOMER SERVICE. IF YOU ARE BULLISH ON THESE THEMES RIGHT NOW, YOU MIGHT POINT TO THAT AND SAY A LOT OF PEOPLE ARE POINTING TO UBER AS PART OF THE BEAR CASE. THIS MORNING, I'M NOT SURE YOU CAN DO THAT.
[01:18:28] Speaker 3: ULTIMATELY, THIS IS RETURN ON INVESTMENT THAT THEY WANT TO BE ABLE TO SEE AND THEY WANT TO BE ABLE TO DISCLOSE. WHAT'S INTERESTING IS HOW FEW COMPANIES HAVE ACTUALLY DONE SO. UBER IS TALKING ABOUT IT IN CUSTOMER SERVICE CAPACITIES, AND WE'VE HEARD THAT FROM OTHER PLACES. WE DID HEAR THE SAME THING FROM AT&T. WHAT YOU DO WITH THOSE SAVINGS, THOUGH, IS ANOTHER QUESTION. I'M SURE THERE HAVE BEEN LAYOFFS IN A LOT OF PLACES, BUT THEY HAVEN'T ANNOUNCED THEM. MAYBE UBER IS TRYING TO PROVE THE ROI IN SOME CAPACITY. WHAT YOU ARE HEARING, THOUGH, IS THAT THEY ARE PUTTING THAT MONEY ELSEWHERE, WHICH IS CAUSING JOBS TO BE CREATED, ET CETERA, OR POTENTIALLY JUST GIVE THEM A BETTER COMPETITIVE LANDSCAPE. IT'S UNCLEAR TO ME WHY COMPANIES WOULD KEEP SPENDING THE SAME LEVEL OF WHAT THEY HAVE BEEN ON AI, GIVEN THE FACT THAT THEY CANNOT ARTICULATE AN ROI TO INVESTORS. IT'S JUST GOING TO MAKE THEM BETTER, MORE COMPETITIVE, BROADEN THEIR FOOTPRINT. IT'S AN INTERESTING MOMENT THAT'S NOT SO CLEAR-CUT.
[01:19:15] Speaker 2: I DON'T LIKE THE CHAT BOT SERVICE OPERATORS ANYWAY. DO YOU? NOT A BIG FAN.
[01:19:19] Speaker 4: I DON'T LOVE THEM, BUT I WILL SAY ONE THING ABOUT UBER, IF YOU -- AND LIFT, BY THE WAY. IF YOU SAY THIS IS WHY YOU CANCELED YOUR CAR AND THEY THINK IT'S AN ACCEPTABLE REASON, THEY IMMEDIATELY REFUND YOU. AND YOU DON'T HAVE TO GO TALK TO ANYONE ANYMORE. THAT IS ALL AUTOMATED NOW.
[01:19:32] Speaker 2: OKAY. SOMETIMES, BECAUSE SOMETIMES THEY DON'T. BECAUSE I'VE HAD THAT FIGHT AS WELL MORE RECENTLY. OH, REALLY? WITH THE LIFE OF UBER, YEAH.
[01:19:38] Speaker 4: AND YOU HAVE TO GET ON THE PHONE WITH A HUMAN?
[01:19:40] Speaker 2: NO. I JUST HAVE A DOUBT WITH IT AND I'VE WAITED. I DON'T WANT TO GO INTO TOO MUCH DETAIL BECAUSE -- OKAY, I WILL. BECAUSE WE'RE HERE NOW. SO WE'RE DOING IT. IF YOU SCHEDULE THE CAR --
[01:19:48] Speaker 4: OH, THIS IS BAD. THIS HAPPENS TO ME, TOO.
[01:19:50] Speaker 2: IF YOU SCHEDULE THE CAR AND THEY DON'T GET OUT OF BED, YOU HAVE TO WAIT UNTIL THE TIME THEY WERE MEANT TO PICK YOU UP BEFORE YOU CAN CANCEL IT. 15 MINUTES. EVEN THOUGH YOU CAN SEE THAT CAR IS NOT MOVING, RIGHT? SO YOU HIT CANCEL AND THEY WANT TO CHARGE YOU FOR SCHEDULING THE CAR. BECAUSE WHEN YOU WAKE UP VERY EARLY, YOU HAVE THESE UBER DRIVERS WHO ACCEPT THE JOB AND THEN THEY JUST SLEEP IN. THIS HAS HAPPENED WHENEVER I'M LATE TO WORK. THIS IS USUALLY WHAT'S HAPPENED.
[01:20:15] Speaker 4: THIS HAS HAPPENED TO ME, TOO. AND THEN I USUALLY END UP GOING BACK AND EXPLAINING TO UBER LIFT. BUT IT DOES TAKE A LOT OF WORK. THEY SHOULD AUTOMATE THAT, AI. NOBODY IS INTERESTED IN THIS CONVERSATION.
[01:20:25] Speaker 2: I'M SORRY, BUT WE WENT THERE, SO I HAD TO EXPLAIN. LET'S TALK ABOUT TESLA. SHARES FALLING IN THE PRE-MARKET. THE EVMAKER ANNOUNCING PLANS TO SPEND UP TO $25 BILLION THIS YEAR ON AI INITIATIVES AND EVEN MORE IN THE YEARS AHEAD. TESLA HAS BEEN DEFINITELY INCREDIBLE. THE CASE OF THE EARNINGS CALL SAYING, ON THE EARNINGS CALL, WE SHOULD BE SPENDING ON CAPEX AS FAST AS WE CAN WITHOUT IT BEING TOO WASTEFUL. BEN CALO OF BED REMAINING BULLISH WRITING, WE BELIEVE THIS ELEVATED CAPEX PROGRAM LATES THE FOUNDATION FOR SEVERAL YEARS OF FUTURE EARNINGS GROWTH. BEN, JOIN US NOW FOR MORE. BEN, ARE YOU SEEING EVIDENCE OF THAT? WELCOME TO THE PROGRAM. ARE YOU SEEING EVIDENCE OF THAT ALREADY, THAT THIS SPEND AT
[01:20:59] Speaker 17: TESLA IS WORTH IT? WELCOME TO ME. IT'S INTERESTING TO ME THAT TESLA IS DISRUPTING UBER. YOU WON'T HAVE TO WAIT FOR A DRIVER FOR YOUR ROBO-TAXI IN THE FUTURE. AT&T WILL HAVE ISSUES WITH THAT GOING FORWARD.
[01:21:21] Speaker 2: THAT'S TRUE. BEN, THAT'S TRUE. ARE WE SEEING THAT ALREADY, THAT COMPETITION RIGHT NOW? WHEN YOU LOOK AT THE ROBO-TAXIS, THE ROLLOUT SO FAR, ARE YOU IMPRESSED ENOUGH? ARE YOU SEEING SUFFICIENT PROGRESS?
[01:21:31] Speaker 17: NO, I'VE BEEN COVERING TESLA SINCE IT WENT PUBLIC, BASICALLY. IT'S ALWAYS BEEN NEXT YEAR FOR FULL SELF-DRIVING NEXT YEAR. I DO THINK WE ARE ACCELERATING RIGHT NOW ENTERING NEW TERRITORIES. THE NUMBER OF ROBO-TAXIS THAT ARE UNSUPERVISED ARE STILL SMALL. I DO THINK -- I BELIEVE, ELON, WHEN HE SAYS THERE IS A SAFETY ISSUE, THEY DO GET A LOT OF PRESS. EVEN WHEN THERE IS A CAR WRECK, THEY REACH THE HEADLINES. SO THEY HAVE TO BE VERY CAREFUL RIGHT NOW. AND THEY ARE ROLLING DOWN A NEW PRODUCT WITH THIS CYBERCAB. AND SO THERE IS A LOT GOING ON THERE. BUT I THINK THAT OVER THE NEXT TWO YEARS, THERE IS GOING TO BE A DRAMATIC INCREASE IN THE NUMBER OF THEIR VEHICLES OUT THERE.
[01:22:22] Speaker 3: BEN, I REMEMBER WHEN TESLA USED TO BE A CAR COMPANY AND PEOPLE WOULD GET EXCITED WHEN THEY SOLD A LOT OF CARS. THEY ACTUALLY HAD AN INCREDIBLE CORNER WHEN IT CAME TO SELLING CARS AND NOBODY CARED. ESSENTIALLY IS THAT SORT OF AN AFTER THOUGHT WHEN IT COMES TO THE ROBOTAXI AND SOME OF THE AI-RELATED ASPECTS OF THE COMPANY?
[01:22:40] Speaker 17: IT'S A GREAT QUESTION. I WAS THINKING ABOUT THIS MORNING BECAUSE IT WAS A VERY GOOD QUARTER IN THE AUTO BUSINESS. AND YOU SEE ACROSS MANY DIFFERENT REGIONS, THE DEMAND INCREASING. THERE ARE SO MANY WORRIES ABOUT CHINESE AUTOS. BUT I THINK THAT EVERYONE IS KIND OF LOOKING FORWARD OR MANY PEOPLE ARE LOOKING FORWARD TO OPTIMUS, TO ROBOTAXI, AND TO THE TERRAFAB, THE SOLAR PLANT, THE OTHER THINGS THEY ARE DOING WITH SPACEX AS WELL.
[01:23:10] Speaker 3: WITH RESPECT TO THE SPENDING, DO THEY HAVE THE SAME CAPACITY TO RAMP UP CAPEX, LET'S SAY AN ALPHABET OR EVEN A SPACEX DOES, GIVEN THEIR FOOTPRINT AND GIVEN THEIR QUESTIONS ABOUT HOW QUICKLY THEY ARE ACHIEVING SOME OF THESE GOALS WITH ROBOTAXIS IN PARTICULAR.
[01:23:25] Speaker 17: ON THE CAPEX, IT'S HARD TO KEEP UP WITH THE HYPERSCALERS, THE JONESES. I DO THINK THAT'S ONE REASON SPACEX AND TESLA MAKE SENSE AS A COMBINED ENTITY. WE SAW ALPHABET GO TO THE MARKET, RAISE CAPITAL, RAISE THE CAPEX, AND THE RACE IS ON. SO, SPACEX, TESLA, OR THE COMBINED COMPANY IS GOING TO HAVE TO KEEP UP WITH THAT. SO, I THINK THE BIGGER, THE BETTER IN THIS TYPE OF MARKET RIGHT NOW. AND THAT'S ONE REASON I THINK THEY'LL BE COMBINED. YOU KNOW, PULLING THE GENERAL COUNCIL ON THE CALL. I'VE BEEN ON A LOT OF CONFERENCE CALLS. THERE HASN'T BEEN A GENERAL COUNCIL ANSWERING QUESTIONS LIKE LAST NIGHT.
[01:24:08] Speaker 4: WELL, I THINK HE HAS TO, RIGHT, WHEN IT COMES TO ACTUALLY IN THE PAST, TOO, IN TERMS OF HOW ELON MUSK HAS TALKED ABOUT SOME OF THESE ISSUES. HE DID TALK ABOUT THE GROWING OVERLAP. DO YOU HAVE A TIMELINE?
[01:24:19] Speaker 17: I THINK THE SOONER IS THE BETTER. YOU KNOW, BECAUSE THE RACE IS ON, YOU KNOW, DEPLOYING CAPITAL IN THE RACE FOR AI, WHETHER PHYSICAL OR NOT. THE ONE THING THAT, YOU KNOW, GIVES ME A LITTLE PAUSE IS, AS THE ENTITIES WOULD BE COMBINED, THERE WILL BE A PERIOD WHERE THEY HAVE TO GO THROUGH REGULATORY ISSUES AND IT KIND OF LOCKS THEM UP FOR A BIT. THEY HAVE TO GO THROUGH THAT. THEY HAVE TO GO THROUGH THAT. THEY CAN PROGRESS WITH THEIR BUSINESS, BUT IT DOES CREATE A STANDSTILL UNTIL IT GETS ALL REGULATORY APPROVALS.
[01:24:57] Speaker 2: BUT I WOULD SAY WITHIN THE NEXT 12 MONTHS. WHAT IS THE STOCK STORY THEN FOR TESLA AT THE MOMENT? WHAT DO YOU DO WITH THE NAME? WHAT DO YOU TELL CLIENTS? WHAT DO YOU TELL INVESTORS? WHAT DOES THIS EVEN LOOK LIKE? WE WERE JUST SITTING HERE WAITING FOR THE SAME THING TO
[01:25:08] Speaker 17: HAPPEN AT SOME POINT IN THE FUTURE. WELL, I DO THINK THAT ELON IS GOING TO HAVE TO, OR HE TURNED TWO COMPANIES TOGETHER TO TESLA SHARES. I DON'T THINK THE SHARES ARE REFLECTING THAT RIGHT NOW. IF WE DO LIKE A VWAP OR THE AVERAGE TRADING PRICE, YOU ARE KIND OF NEAR $400. IF YOU PUT A 20% PREMIUM ON THAT AND YOU ARE AT 480, THE STOCK IS NOT REALLY INDICATING THAT AT ALL. SO I THINK IT IS AN OPPORTUNITY FOR INVESTORS. IF IT DOESN'T HAPPEN, THERE ARE A LOT OF GOOD THINGS AHEAD THAT THEY ARE WORKING ON RIGHT NOW. I THINK WE ARE ALL COMING ALONE WITH THE STOCK RIGHT NOW AS THEY GO OUT AND BUILD OUT THE PHYSICAL AI.
[01:25:49] Speaker 2: I THINK IT IS GOING TO GO OUT AND THINK IT IS GOING TO GO OUT. THANKS FOR MAKING TIME FOR US. A BUSY MORNING FOR YOU. BEN CALLADER FOLLOWING NUMBERS FROM TESLA, THAT STOCK IS SLIGHTLY LOWER IN THE PRE-MARKET, DOWN BY 5% TO 6% OVER THE LAST FEW HOURS.
[01:26:04] Speaker 6: THANKS FOR JOINING US. WE'LL BE TALKING ABOUT THIS. OIL CLOSING IN ON $100 A BARREL NOW AS TENSION FLARE IN THE MIDDLE EAST. IRAN BACKED HOUTHIS GAMING RESPONSIBILITY FOR ATTACKING SAUDI ARABIA TANKERS IN THE RED SEA. THE U.S. CONDUCTING A 12th STRAIGHT DAY OF ATTACKS ON IRAN. THE U.S. AND SAUDI ARABIA ARE FINALIZING A NUCLEAR TECHNOLOGY SHARING DEAL THAT COULD ALLOW AMERICAN COMPANIES BUILD REACTORS IN THE KINGDOM. THE DEAL COULD ALSO ALLOW SAUDI TO ENRICH ITS OWN BROADFUL. OPEN A.I. SPENT HOURS HACKING HUBGING FACES LAST WEEK. SOURCES TELLING US THAT THE HACK WOULD HAVE TAKEN A SKILLED HUMAN A COUPLE OF WEEKS. OPEN A.I. HAS BEEN IN CONTACT WITH THE U.S.
[01:26:50] Speaker 2: GOVERNMENT SINCE LEARNING OF THE BREACH. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: EQUITIES NEAR SESSION LOWS DOWN 0.6 ON THE S&P 500. UP NEXT, ANOTHER SHOCK TO THE GLOBAL ECONOMY.
[01:27:05] Speaker 18: THE INFLATION SITUATION IS EXTREMELY COMPLICATED. CENTRAL BANKERS THINK THE MONETARY POLICY HAS GOT MUCH MORE TO DO THAN IT DOES.
[01:27:12] Speaker 19: LET'S NOT MAKE THE MISTAKE OF THINKING THE U.S. IS THE ONLY CENTRAL BANK THAT NEEDS TO SORT OUT WHERE IT STANDS IN THE NEXT PHASE OF THE GLOBAL ECONOMY AND GET IN
[01:27:19] Speaker 2: THE RIGHT PLACE. WE WILL CATCH UP WITH DARA MAH OF HSBC FROM NEW YORK CITY.
[01:27:31] Speaker ?: THANK YOU FOR JOINING US. EQUITIES NEAR SESSION LOWS DOWN 0.6 ON THE S&P, DOWN 0.9 ON THE
[01:27:46] Speaker 2: NASDAQ 100. SOME WEIGHT TO THIS TAPE COMING OFF THE BACK OF THESE MOVES IN THE BOND MARKET. NEW HIGHS FOR THE YEAR ON 2'S, NEW HIGHS FOR THE YEAR ON 10'S. HIGHS FOR THE YEAR ON 10'S. THE RALLY IS NOT GOING AWAY. WE HAVE SEEN A MOVE OF MORE THAN 20 BUCKS ON A MONTH SO FAR. WE HAVE SEEN A MOVE OF MORE THAN 20 BUCKS ON A MONTH SO FAR. THE SURVEYLANDS THIS MORNING, ANOTHER SHOCK TO THE GLOBAL
[01:28:20] Speaker 20: ECONOMY. THE INFLATION SITUATION IS EXTREMELY COMPLICATED. FOLLOW THE DATA.
[01:28:25] Speaker 18: THE DATA WILL TELL US WHERE CENTRAL BANKS ARE GOING TO GO.
[01:28:28] Speaker 19: CENTRAL BANKERS THINK THE MONETARY POLICY HAS BEEN TALKED ABOUT. CENTRAL BANKS IS THE ONLY CENTRAL BANK THAT NEEDS TO SORT OUT WHERE IT STANDS IN THE NEXT PHASE OF THE GLOBAL ECONOMY AND GET IN THE RIGHT PLACE.
[01:28:38] Speaker 2: SO HERE IS THE LATEST THIS MORNING. SOARING ENERGY PRICES PUSHING UP GLOBAL BOND YARDS AHEAD OF A BUSY WEEK OF CENTRAL BANK MEETINGS. THE LATEST INTEREST RATE DECISION FROM THE ECB DUE AT 8:15. A MAP OF HSBC WRITING THE EURO WOULD FALL FURTHER IF HIGHER ENERGY PRICES RETURN AND REVIVE EUROZONE STAGFLATION. DAREK, GOOD MORNING. AN OLD FRIEND OF THIS PROGRAM.
[01:29:00] Speaker 21: GREAT TO HAVE YOU BACK IN NEW YORK. JUST A FRIEND OF THIS SHOW.
[01:29:04] Speaker 2: I'M NOT IMPLYING ANYTHING. 30 MINUTES AWAY FROM THE ECB RATE DECISION. THE ECB AND THE ECB ARE EXPECTED TO SEE HOW MUCH HAWKIS RISK HAS BEEN REINTRODUCED OFF THE BACK OF THIS
[01:29:14] Speaker 21: CRUDE MOVE? SOME, OBVIOUSLY. WE'VE SEEN INTEREST RATE MARKETS FOR THE ECB REPRICED PROBABILITIES AROUND INTEREST RATE HIKES. THE PROBLEM FOR AN FX GRUNT LIKE ME IS IF EVERYONE IS DOING IT, LIKE BANK OF INLAND RED EXPECTATIONS, FED EXPECTATIONS, DOES IT BECOME A BIT OF A WASH? I THINK WE NEED TO START MAKING A DISTINCTION BETWEEN WHAT MIGHT BE CALLED GOOD HIKES AND BAD HIKES. SO, YOU KNOW, AT THE ECB, WHAT THEY'RE FACING IS A CHOICE. DO WE MAKE A BAD HIKE? WE'VE GOT HIGH INFLATION, WEAK ECONOMIC ACTIVITY. DO WE HAVE TO HIKE INTO THAT? THAT'S AMBIGUOUS FOR A CURRENCY. IT'S NOT A STRAIGHTFORWARD, LET'S JUST BUY THE EURO BECAUSE THEY'RE SOUNDING MORE HAWKISH, RIGHT? WHEREAS FOR THE FED, THE NARRATIVE FEELS MUCH MORE LIKE, HEY, LOOK, THE ECONOMY IS PRETTY RESILIENT. INFLATION IS RUNNING A BIT HOT. MAYBE WE CAN TINKER AT THE EDGES HERE AND HIKE. IT'S AN INSURANCE HIKE OR HOWEVER WE CAST IT. BUT MARKETS WON'T GO RUNNING FOR THE HILLS BECAUSE THEY'RE TERRIFIED THAT WE'RE NOW TIPPING INTO RECESSION. SO THIS, I THINK, IS A TRADE-OFF THE EURO FACES AND STERLING TO AN EXTENT THAT THE DOLLAR SIMPLY DOES NOT.
[01:30:14] Speaker 2: FOR THE RECORD, I CALLED YOU AN OLD FRIEND AND YOU CALLED YOURSELF AN FX GRUNT.
[01:30:18] Speaker 21: YEAH, WELL, THERE YOU GO.
[01:30:19] Speaker 2: OKAY. THE ECB HAS HIKED RATES ALREADY. WAS THAT A BAD HIKE?
[01:30:24] Speaker 21: NO, I THINK IT WAS RIGHT FOR THE TIME. THE PROBLEM WE HAVE HERE IS I LOOK AT OUR OWN FORECAST AS A HOUSE AND WE HAVE, LIKE, REPORTS OUT THE GOOD, THE BAD AND THE UGLY WHERE YOU'VE JUST GOT VERY DIFFERENT INTEREST RATE TRAJECTORIES BASED ON YOUR ASSUMPTION, RIGHT? AND SO IF YOU'RE SADDLE AS A POLICYMAKER AND YOU SAY I ASSUME OIL PRICES ARE GOING TO BE HIGH IN 12 MONTHS' TIME, YOU'RE GOING TO HAVE A VERY DIFFERENT RATE PROFILE TO SOMEBODY ON YOUR COMMITTEE WHO'S LIKE, NO, I THINK THEY'RE GOING TO REVERT TO PRE-WAR LEVELS. SO I THINK IT WAS RIGHT FOR THE TIME, BUT HOW DO YOU -- I GUESS WHAT YOU'D HAVE TO DO, IF YOU'RE GOING TO Hike, YOU'RE GOING TO HAVE TO SAY WE'RE HIKING BECAUSE AT THE MOMENT IT LOOKS LIKE INFLATION TRAJECTORY IS GOING TO BE HIGHER THAN WE ANTICIPATED. BUT IF OIL PRICES COME DOWN AND PRODUCT PRICES COME DOWN, THEN WE'LL BE READY TO REVERSE THIS. SO CAST IT AS AN INSURANCE TIGHTENING AND THAT GIVES YOU THE FLEXIBILITY THEN TO REVERSE IT WITHOUT, FRANKLY, LOOKING LIKE AN IDIOT. I'M SURE THAT'S THE NERVOUSNESS. YOU'RE GOING TO BE HIKING ONE MONTH AND THEN THREE MONTHS LATER YOU SAY, OH, GO AWAY. MAYBE WE SHOULD BE CUTTING. JUST DO IT AND SAY WE'RE RESPONDING THE SAME WAY AS EVERYONE ELSE IS.
[01:31:24] Speaker 3: SO JUST TO MAKE SURE THAT I'M UNDERSTANDING THIS, YOU'RE SAYING THAT IF THE ECB HIKES RATES, IT'S A BAD HIKE AND THAT'S PROBABLY NEGATIVE FOR THE EURO. IF THE FED HIKES RATES, IT'S PROBABLY A POSITIVE FOR THE DOLLAR. SO THAT'S POSITIVE THE DOLLAR. IN OTHER WORDS, EITHER WAY, IT'S A POSITIVE FOR THE DOLLAR. IS THE NEGATIVE SCENARIO AND THE ONLY NEGATIVE SCENARIO FOR THE DOLLAR IF THE FED DOESN'T TAKE ANY ACTION WHATSOEVER NEXT WEEK?
[01:31:44] Speaker 21: POTENTIALLY IN THE SHORT TERM. I KNOW THERE'S KIND OF A DOUBLE STANDARD HERE, BUT I DO THINK YOU HAVE TO THINK ABOUT WHAT IS THE ACTIVITY BACKDROP RATHER THAN SIMPLY WHAT IS THE INFLATION BACKDROP. LOOK, THE ROUTE TO INDEPENDENT DOLLAR WEAKNESS, I WOULD SAY, COMES MORE FROM THE U.S. LABOR MARKET. DO YOU GET SOME KIND OF FURTHER SPONTANEOUS WEAKENING THAT KIND OF TRIPS UP THIS ECONOMIC RESILIENCE NARRATIVE THAT I'VE JUST PAINTED? AND THEN YOU HAVE THAT STAGFLATION STORY TO BE DEALT WITH IN THE U.S. AS WELL. LOOK, FX MARKETS ARE GENERALLY PRETTY STRAIGHTFORWARD. THEY LOVE INTEREST RATE DIFFERENTIALS, RIGHT? SO I'M SURE THE REFLEX TODAY, IF WE GET A SURPRISE HIKE, FOR EXAMPLE, FROM THE ECB, THE MARKET WILL GO OUT AND BUY EUROES. IT'S THEN KIND OF THE SECOND ROUND EFFECT OF INTERPRETING WHAT THAT ACTUALLY MEANS. THAT'S WHERE I THINK YOU GET A CHALLENGE TO THAT INITIAL EURO POP, IF THAT'S WHAT WE GET. WHEREAS I DON'T THINK YOU'D GET THAT REASSESSMENT AT THE FED.
[01:32:35] Speaker 3: WHAT WOULD IT TAKE FROM THE BANK OF JAPAN FOR YOU TO GET INTERESTED IN YEN AGAIN?
[01:32:39] Speaker 21: A MIRACLE? I DON'T KNOW. IT'S LIKE IT'S A LONG WAY OFF, RIGHT? THEY'RE JUST NOT USED TO THIS, RIGHT? THEY'VE DONE SO LONG WHERE THEY'VE HAD DISINFLATION AS THEIR CULTURE, RIGHT, AND FIGHTING DISINFLATION. NOW YOU'VE GOT INFLATION. IT'S -- I DON'T KNOW. WHEN I MOVED TO THE U.S., I DROVE ON THE LEFT-HAND SIDE OF THE ROAD. MY WIFE, WHEN SHE MOVED HERE, REFUSED TO DRIVE IN AMERICA. SHE SAYS, I'M JUST NOT USED TO IT. I'M GOING TO GET IT WRONG. I DO WONDER IF THE BOJ IS LIKE THAT. THEY'RE SUDDENLY LIKE ON THE OTHER SIDE OF THE CAR AND THEY'RE LIKE, WE'VE GOT INFLATION HERE.
[01:33:11] Speaker 2: THEY WERE DETERMENT TO GET TO THE OTHER SIDE OF THE ROAD. THEY WERE DETERMENT UNTIL THAT REALITY IS PRESENTED TO YOU, RIGHT?
[01:33:23] Speaker 21: I WANT TO MAKE SURE THAT THE BOJ IS GOING TO BE KIND OF A HAUKISH CENTRAL BANK THAT WILL OUTPACE MARKET EXPECTATIONS. THAT FEELS UNLIKELY. IF YOU'RE GOING TO CHANGE THE YEN, IT'S GOING TO BE FISCAL POLICY. IT'S GOING TO BE TAX AROUND ENCOURAGING JAPANESE INVESTORS TO KEEP THEIR MONEY AT HOME. THAT KIND OF CHANGES THE YEN NARRATIVE. BOJ, GREAT, BUT NO. NO.
[01:33:44] Speaker 4: BUT THEY NEED TO -- BUT IN ORDER FOR THEM TO BE BELIEVABLE, THEY WOULD HAVE TO COME OUT AND ACTUALLY DO IT.
[01:33:48] Speaker 21: LOOK, THEY'RE GOING TO HIKE, RIGHT? SO THEY CAN RETAIN THEIR CREDIBILITY BY HIKING. BUT DOES THAT HIKE KIND OF DELIVER YEN STRENGTH? NOT UNLESS IT MATERIALLY OUTPACES MARKET RATE EXPECTATIONS. AND NOT JUST THAT, OUTPACES ECB, FED, BANK OF ENGLAND, RIGHT? BECAUSE THEY'RE OTHER -- I MEAN, THE DOLLAR IS THE WORLD'S RISK-FREE ASSET AND IT'S A JUICY, HIGH-YIELDING ASSET. THE YEN ISN'T, RIGHT? AND SO THAT'S THE BATTLE FOR THE BOJ TO CONVINCE PEOPLE, YOU KNOW, WE'RE GAME-CHANGING IN TERMS OF OUR PERSPECTIVE ON INFLATION. I DON'T SEE IT.
[01:34:18] Speaker 2: BUT THE G10 SO FAR THIS YEAR, YOU'VE GOT THE JAPANESE YEN NEAR THE BOTTOM OF THE PACK AND YOU'VE GOT THE LIKES OF NORWAY NEAR THE TOP OF THE PACK. WHAT'S YOUR FAVORITE IN G10 RIGHT NOW?
[01:34:26] Speaker 21: WELL, HONESTLY, WE QUITE LIKE THE DOLLAR. SO, I MEAN, AT THE CORE, OUR VIEW IS WE THINK THE INGREDIENTS ARE THERE FOR THE DOLLAR TO RALLY. SO THAT WOULD BE THE FIRST MESSAGE I WOULD EMPHASIZE. I THINK EURO IS A GOOD AVENUE TO PLAY THAT AGAINST, RIGHT? SO EURO DOWNSIDE, STERLING I THINK WOULD ADD TO THAT LIST. THE ONES THAT MIGHT BE MORE RESILIENT WOULD BE SOMETHING LIKE AUSSIE. BUT AUSSIE'S STRUGGLE IS 72.50. AND THEN YOU KIND OF THINK, OKAY, WHAT GETS US TO CRACK THROUGH THAT LEVEL? IT'S HARDER TO FIND IT. YOU NEED THAT KIND OF I GUESS IN A WAY YOU WOULD NEED LESS INFLATION, RESILIENT U.S. ECONOMIC ACTIVITY, TRADE FLOWS GROWING. YOU KNOW, THE NORMALIZATION, HORMOOZ STORY. UNTIL WE GET THAT, I THINK IT STAYS CAPTED ABOUT 72.50.
[01:35:09] Speaker 2: DARA, IT'S GOOD TO SEE YOU. I MISS YOU, BUDDY. IT'S GREAT TO TELL YOU BACK. IN WHAT DAVID BLOOM WOULD CALL THE SHARK TANK, AMERICA. IT'S NOT WHAT HE CALLED IT OFF, CAMERA. THE NEW YORK OFFICE OF SHARK TANK. HE CALLED IT SOMETHING OTHER, I'M SURE.
[01:35:30] Speaker 3: DARA, THANK YOU. I REMEMBER WHEN I WAS MOVING, KIRA, AN OLD COLLEAGUE OF DARA SAID, YOU'RE MOVING TO THE SHARK TANK. THAT'S WHAT THE AMERICAN OFFICE IS LIKE. THERE'S FAIRNESS IN THAT ASSESSMENT. I ALSO THINK THAT PEOPLE ARE JUST HONEST. IT'S A WILD TIME. I WILL SAY THE SUMMER HAS FELT LIKE A SHARK TANK WHEN IT COMES TO
[01:35:44] Speaker 21: THE SHARK TANK. I JUST REMEMBER DAVID BLOOM WHO ANNOUNCED YOUR MOVE TO
[01:35:51] Speaker 2: THE U.S. LIVE ON BLOOMBERG TV WHEN HE HADN'T TOLD ANY OF HIS COLLEAGUES. I HADN'T TOLD MY COLLEAGUES. HE WENT LIVE ON TV AND ANNOUNCED THE MOVE.
[01:36:00] Speaker 4: FIVE MINUTES INTO THE SEGMENT, HE LOOKED DOWN TO THE
[01:36:01] Speaker 2: CAMERA AND ANNOUNCED THE MOVE. HE WAS THE SHARK. COMING UP ON THE PROGRAM, OF WILD FARGO, PUT YOUR CAMERA OUT OF TD, SOPHIA KEARNEY-LEDERMAN OF FHN FINANCIAL, THE THIRD HOUR OF BLOOMBERG SURVEILLANCE,
[01:36:13] Speaker 1: ANNOUNCED THE UNITED STATES. THE EARNINGS STORY HAS DRIVEN THIS MARKET. EARNINGS REACTIONS HAVE BEEN ALL OVER THE PLACE. THIS IS A MARKET WITH A LOT OF VARIANT.
[01:36:34] Speaker 14: WE ARE ACTUALLY IN THE MIDDLE OF THAT DANGER ZONE. THIS IS BLOOMBERG SURVEILLANCE WITH JONATHAN FERRO, LISA
[01:36:41] Speaker 2: IBRAMOWITZ AND ANNE-MARIE HORDERN. LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. WE ARE TALKING ABOUT THIS. WE ARE DOWN BY 0.5% ON THE S&P. THE BOND MARKET YIELDS UP, BONDS DOWN, YIELDS ELEVATED. THESE MOVES IN CRUDE UP BY MORE THAN 4%. CLOSING IN ON FIVE, HAVING A LOOK AT 99.
[01:37:20] Speaker 3: WE HAVE A NEW FRONT FOR THIS WAR IN THE MIDDLE EAST. THIS IS THE RELIEF VALVE. THE OVERFLOW ASPECT, THE RELIEF VALVE IS CALLED INTO QUESTION, LEADING TO AN ESCALATION, AT LEAST IN OIL PRICES, AS WELL AS THE CONFLICT IN THE MIDDLE EAST. ALL OF THIS TAKING AWAY ANY OF THE GAINS THAT WE SAW POST-CPI, POST-PPI. THEY THOUGHT THAT MAYBE WE ARE HEADING BACK TO DISINFLATION. SUDDENLY, WITH OIL PRICES UP 30% SINCE JULY 10, WHEN THE REIGNITION OF THE CONFLICT BEGAN, SUDDENLY IT DOESN'T LOOK SO LIKELY AND MAYBE THE INFLATIONARY INPUT IS
[01:37:53] Speaker 4: DISTRICT. WE ALWAYS HAVE THEM ON THE PROGRAM. THEY SAID THE HARMOOS DISRUPTIONS WILL BE DEEPER AND MORE PERSISTENT THAN WE PREVIOUSLY EXPECTED, MATERIALLY TIGHTENING GLOBAL OIL BALANCE THROUGH 2027. AND ALL OF THIS IS HIGHLIGHTING BECAUSE THE HOUTHIS ARE GETTING INVOLVED NOW. THIS CREATES NOT JUST ONE, BUT NOW TWO CHOKE POINTS. SO ANY OF THAT CREW THAT WAS ABLE TO LEAVE SAUDI ARABIA FOR WEEKS AND THAT WAS REALLY HELPING THE OIL MARKET, WELL, THEY'RE GOING TO HAVE TO THINK TWICE BEFORE THEY DECIDE TO GO OVER THE STRAIGHT. NOW THERE'S A DIFFERENT CALCULUS, AND WHILE THERE'S A DIFFERENT CALCULUS, AS YOU GUYS HAVE BOTH BEEN SAYING, WE ARE LOWERING OUR LEVEL IN TERMS OF INVENTORIES. THERE'S NO CUSHION, WE'RE LOSING OUR CUSHION, AND PRICES ARE JUST GOING TO GO UP.
[01:38:40] Speaker 2: NEXT UP, AN ECB DECISION, THEY'VE GOT TO REFLECT ON THIS. 8:15 EASTERN TIME, THE DECISION 30 MINUTES LATER, THE NEWS CONFERENCE, YOU CAN IMAGINE THE MEETING IN FRANKFURT, GERMANY, THIS IS HAPPENING IN REAL TIME, THESE DEVELOPMENTS, THEY'RE SITTING THERE ON BLOOMBERG ANYWHERE IN THE MEETING, NO DOUBT THE GUARD IS SPEAKING. THEY'RE DRIFTING AWAY A LITTLE BIT, LOOKING AT THEIR PHONES, I'M NOT SUGGESTING THEY DO THAT. THEY'RE GOING TO TAKE A LOOK AT THE EASTERN TIME.
[01:39:04] Speaker 3: WHAT IS THE CALL TODAY, OFF THE BACK OF THIS? I THINK THIS IS GOING TO BE A REALLY INTERESTING MEETING, BECAUSE UNTIL A COUPLE WEEKS AGO, IT WAS GOING TO BE JUST A SNOOZER, AND YOU'RE GOING TO END UP WITH THEM ON HOLD AND MAYBE HIKING ONE MORE TIME THIS YEAR, THEN FORGET ABOUT IT. SUDDENLY WE'VE GOT TWO RATE HIKES GETTING PRICED INTO THE YEAR FOR THE ECB, AND WE'VE HAD SOME PRETTY HAWKISH RHETORIC. IF THEY DON'T MOVE, WHAT HAPPENS TO THE EURO? WATCH OUT YEN, MAYBE YOU'LL HAVE SOME COMPETITION. WE'LL HAVE SOME COMPETITIONS, AND WE'LL HAVE SOME COMPETITION THAT WE'RE NOT HEARING ABOUT, GIVEN THE FACT THAT ULTIMATELY IT WILL CONSTRICT GROWTH IN THEIR OVERALL ECONOMY.
[01:39:39] Speaker 2: THEY FACE A VERY DIFFICULT CHOICE. UP TO YOU, FEDERAL RESERVE, NEXT WEEK. A 30 BASIS POINT MOVE ON A GERMAN TWO YEAR SO FAR THIS MONTH, $30 MOVE ALMOST ON CRUDE SO FAR THIS MONTH. THAT'S A BIG CHANGE IN SOME THREE WEEKS, A MAJOR CHANGE. JUST LAST WEEK WE WERE TALKING ABOUT SOFTER CPI, SOFTER PPI, THE FED DOING NOTHING. WE'LL BE HIGHS FOR THE YEAR. COMING UP THIS OUT WE'LL CATCH ON WITH OH SUN QUAN. AS INVESTORS FACE DOWN BIG SPENDING PLANS ON HIGHER OIL PRICES FUELING AUKISH RISK AT THE ECB. SOFIA KEARNEY LETTERMAN OF FHN FINANCIAL WITH BOND YIELDS HITTING NEW HIGHS FOR THE YEAR. WE'LL BEGIN THIS OUT WITH STOCKS PULLING BACK AS ALPHABET'S MASSIVE SPENDING PLANS OVERSHADOW OTHERWISE SOLID EARNINGS. ALTHOUGH THE KEY FOCUS WOULD BE ON CAPEX. MONETIZATION WILL BE JUST AS IMPORTANT. OUSING JOINS US NOW FOR MORE. OUSING GOOD MORNING. GOOD TO SEE YOU. STILL REFLECTING ON ALPHABET. TRYING TO WORK OUT, YOU KNOW, HAVE WE GOT A CAPEX ISSUE, JUST A POSITIONING PROBLEM IN THE MARKET.
[01:40:37] Speaker 22: HOW DO YOU SEE THINGS THIS MORNING? I THINK CAPEX WENT UP. SO THAT'S A POSITIVE FOR SEMIS. I THINK WHAT'S EQUALLY IMPORTANT, OR IF NOT MORE, IS THE ROI OF THE CAPEX. AND THE REASON WHY I SAY THAT IS BECAUSE EVERYONE SORT OF KNOWS NOW THAT CAPEX IS GOING HIGHER. I MEAN, OUR ANILISTS ACTUALLY JUST RAISED THEIR CAPEX OUTLOOK FOR 2027 TO $1.1 TRILLION FROM THE BIG FOUR COMPANIES, AND THAT'S ABOUT 25% ABOVE WHERE CONSENSUS IS. SO I THINK THE PATH FOR CAPEX IS GOING HIGHER. I THINK GOING FORWARD IS GOING TO BE THE SUSTAINABILITY OF THIS CAPEX CYCLE, WHICH REQUIRES THE ROI OF THOSE INVESTMENTS. ESPECIALLY WHEN BECAUSE OF THE SUPPLY CHAIN ISSUES, COSTS ARE GOING HIGHER FOR THOSE INVESTMENTS. SO THEY'RE GOING TO HAVE TO BE ABLE TO PASS IT THROUGH TO THE CUSTOMER.
[01:41:23] Speaker 2: AND I THINK THERE ARE STILL SOME QUESTION MARKS AROUND THAT. LET'S GET INTO THAT. HOW ARE YOU GAUGING WHAT IS AND WHAT ISN'T SUFFICIENT ROY? SO IF YOU LOOK AT THE CLOUD REVENUE GROWTH, THE ALPHABET WAS PRETTY TREMENDOUS. IF YOU LOOK AT THE BACKLOG, IT'S GROWING. WHAT MORE DO YOU NEED?
[01:41:36] Speaker 22: YEAH, I THINK IT'S GOING FORWARD, RIGHT? SO FAR, YOU KNOW, THE CAPEX THAT THEY HAVE PUT IN SO FAR, THE PRICING, THE COST THERE IS A LOT SMALLER THAN WHAT THEY'RE GOING TO HAVE TO SPEND GOING FOR FOR ADDITIONAL CAPEX. SO THEY'RE GOING TO HAVE TO SHOW SIGNS OF PRICING POWER, WHICH I THINK THEY STILL HAVE, BECAUSE DEMAND IS STILL A WELL OUTSTRIPED SUPPLY. SO AS LONG AS FROM THE MACRO PERSPECTIVE, AS LONG AS THAT'S THE CASE, THAT MEANS THEY HAVE PRICING POWER. SO I AM STILL BULISH SEMIS, BUT I THINK HYPERSCALERS WILL HAVE TO SHOW MORE SIGNS OF PRICING POWER AND
[01:42:10] Speaker ?: MONETIZATION.
[01:42:10] Speaker 3: DOES IT CONCERN YOU THAT WE'RE NOT HEARING TRUE ROI PREDICTIONS FROM NON-TECH COMPANIES? THAT, FOR EXAMPLE, YOU'RE HEARING ABOUT HOW THEY ARE USING AI TO GET MORE EFFICIENT, TO BE MORE COMPETITIVE, BUT YOU AREN'T HEARING THEM EXPLAIN HOW EXACTLY IT'S MAKING THEM MORE PROFITABLE. DOES THAT MAKE IT DIFFICULT FOR THEM TO JUSTIFY SOME OF THE BILLS THAT THEY'RE GETTING FROM THE HYPERSCALERS? DOES THAT GIVE YOU PAUSE?
[01:42:33] Speaker 22: YEAH, I MEAN, SO THERE WAS THE CONCERN AROUND TOKEMEXING AND TOKEM COST RISING AND TO JUSTIFY THE ROI FROM THE USERS' PERSPECTIVE. IF YOU LISTEN TO EARNINGS CALLS, ALL THE COMPANIES ARE STILL SAYING THAT THE ADOPTION CURVE IS STILL IN THE EARLY STAGE AND TOKEM COSTS ARE TRIVIOAL TO THEIR OVERALL INCOME STATEMENT. SO I THINK WE'RE STILL IN THE EARLY INNINGS OF THE ADOPTION CYCLE. ALSO OPEN SOURCE, YOU KNOW, JAVAN'S PARADOX, TOKEN COST COMING DOWN MEANS MORE DEMAND. AND THERE WERE SOME CONCERNS BEFORE THE, YOU KNOW, THE CHINESE OPEN SOURCE MODEL CAME OUT LAST WEEK. THERE WERE SOME CONCERNS AROUND WHAT THAT REALLY MEANS FOR THE AI ECOSYSTEM OVERALL. I THINK OVER THE WEEKEND WHAT WE SAW WAS THAT THIS IS ACTUALLY POSITIVE FOR COMPUTE. BECAUSE DEMAND WAS SO HIGH THAT THEY HAD TO TEMPORARILY SHUT DOWN THEIR SERVICE BECAUSE THEY WERE SHORT GPUs. MEANING IT'S ACTUALLY POSITIVE FOR COMPUTEES. SO I'M STILL VERY BULISH ON THE OVERALL AI INFRASTRUCTURE.
[01:43:32] Speaker 3: SO HYPERSCALERS STILL PRESENT AN OPPORTUNITY AT A CERTAIN POINT. DO YOU THINK THAT RIGHT NOW THE VALUATIONS ARE BEING PRESSURED AS MUCH BY CONCERNS ABOUT CAPEX AS IT IS BY JUST THE FACT THAT YIELDS HAVE RISEN SO MUCH. AND SUDDENLY THERE ARE COMPETITIVE ASSETS OUT THERE THAT ARE PROVIDING INCOME.
[01:43:49] Speaker 22: YEAH I THINK THERE IS A LITTLE BIT OF THAT GOING ON FOR HYPERSCALERS MORE SPECIFICALLY BECAUSE THEY ARE INVESTING TODAY FOR FUTURE CASHFALL. I MEAN THEIR FREE CASHFALL JUST WENT TO ZERO IF NOT NEGATIVE. SO THEY ARE ESSENTIALLY THE LONGEST DURATION ASSET RIGHT NOW. SO AS YIELDS GO UP THEY ARE BEING PRESSURED AND THAT'S ONE OF THE REASONS WHY WE ARE ACTUALLY BEARISH HYPERSCALERS. WE VERY MUCH LIKE THE CAPEX TAKERS WHICH ARE SEMIS AND AI INFRASTRUCTURE. AND WE HAVE BEEN PRETTY MUCH BEARISH ALL THROUGHOUT THE YEAR ON HYPERSCALERS. AND I THINK THEY CONTINUE TO LEG THE MARKET.
[01:44:22] Speaker 4: ARE THEY DAMNED IF THEY DO DAMNED IF THEY DON'T KIND OF SITUATION FOR AN ALPHABET. WHAT IF THEY DIDN'T COME OUT AND RAISE CAPITAL EXPENDITURE? WEREN'T THAT ALSO BEEN NEGATIVE IN A SENSE FOR THE TRADE?
[01:44:32] Speaker 22: YEAH I DON'T WANT TO TALK ABOUT SINGLE STOCKS BUT I THINK FOR HYPERSCALERS I THINK THE INFLECTION POINT FOR THE STOCK WOULD BE WHEN THEIR FREE CASHFALL STARTS TO INFLICT HIGHER. AND WE ARE STILL IN A DOWNTURN IN TERMS OF FREE CASHFALL. I THINK SO IF YOU LOOK AT CONSENSUS ESTIMATES FOR THE BIG FOUR HYPERSCALERS THEIR FREE CASHFALL IS INFLICT HIGHER. THEY ARE GOING TO THE NEGATIVE AND THEY ARE GOING TO NEGATIVE NEXT YEAR. SO WHEN THAT STARTS TO INFLICT I THINK THAT'S GOING TO BE THE INFLECTION POINT FOR THOSE STOCKS. AND WE DON'T REALLY SEE THE LINE OF SIGHT FOR THAT TO HAPPEN ANYTIME SOON.
[01:45:11] Speaker 4: SO THAT'S ONE OF THE REASONS WHY WE STILL LIKE SEMIS OR HYPERSCALERS.
[01:45:13] Speaker 22: SO YES AND NO I THINK THE ECONOMY CAN WELL WITHSTAND $100 OIL. I MEAN IF YOU LOOK AT OIL INTENSITY OF THE ECONOMY IT WENT DOWN 75% SINCE THE LATE 70s. SO THE ECONOMY OVERALL ISN'T REALLY THAT MUCH DEPENDENT ON OIL ANYMORE VERSUS BACK IN THE DAYS. WHAT I DO WORRY ABOUT IS POTENTIAL RAID HIKING CYCLE BECAUSE OF IT. I THINK IT'S PROBABLY A POLICY MISTAKE IF THAT HAPPENS. SO I THINK WE COULD POTENTIALLY SEE SOME FREAK-OUTS IN THE EQUITY MARKET IF THAT STARTS TO HAPPEN. WHAT I'LL SAY THOUGH IS THAT IT'S FUNNY BECAUSE I THINK HIGHER OIL PRICES ACTUALLY FUELLED THE RALLY IN APRIL AND MAY. BECAUSE YOU COULDN'T OWN ANYTHING BUT AI IN THAT ENVIRONMENT. AND I THINK WE ARE GOING TO START TO SEE THAT HAPPENING AGAIN. AND WHEN OIL PRICES CAME DOWN TO THE 60s, WE ACTUALLY SAW THE MARKET BROADENING OUT AND THAT ACTUALLY BROUGHT IN VOLATILITY IN THE MARKET. SO WITH OIL AT $90, I THINK THE TRADE IS GOING TO BE BACK TO AI, BACK TO SEMIS. AI IS GOING TO BE SEEN AS SAFE HAVEN AGAIN. I ACTUALLY THINK THAT'S PRETTY BULLISH FOR THE S&P 500.
[01:46:25] Speaker 2: YOU MIGHT HAVE SEEN THAT IN THE LAST FEW DAYS. IT'S GOOD TO SEE YOU. THE LAST FEW DAYS, IT DIDN'T HELP THE INDEX. THE INDEX THIS MORNING DOWN AGAIN BY 0.6 ON THE S&P. LET'S GET YOU AN UPDATE ON NEWS WORLDWIDE WITH YOUR BLOOMBERG BRIEF.
[01:46:38] Speaker 6: THANK YOU. IRAN-BACKED HOUTHIS OPENING A NEW FRONT IN THE IRAN WAR, TARGETING TWO SAUDI ARABIA OIL TANKERS IN THE RED SEA. THE ATTACK COMING AFTER THE U.S. CARRIED OUT A 12th STRAIGHT NIGHT OF ATTACKS ON IRAN'S MILITARY SITES. THE WHITE HOUSE IS ACCUSING CHINA'S MOONSHOT OF IMPROPERLY USING USAI MODELS AND NVIDIA CHIPS TO CREATE THE BIDEN. THE U.S. IS CONSIDERING SANCTIONS AGAINST CHINESE FIRMS WHICH COULD AFFECT MOONSHOT'S PLANS TO RAISE CAPITAL AND MOVE TOWARDS AN I.P.O. GOOGLE SAYS IT HOLDS $94 BILLION IN SPACEX SHARES AT THEIR CURRENT WORTH FOLLOWING THE I.P.O. OF ELON MUSK'S COMPANY. GOOGLE WAS AN EARLY INVESTOR IN SPACEX WHICH HAS HELPED BOOST ITS PROFIT IN RECENT QUARTERS AS ITS VALUE INCREASED. THAT IS YOUR BLOOMBERG BRIEF.
[01:47:25] Speaker 2: THANK YOU. UP NEXT, THE BIG ONE FOR THE ECB. THANK YOU FOR JOINING US. WE HAVE ANOTHER RATE DECISION AND REACTION FROM "TD SECURITIES." THAT CONVERSATION UP NEXT. LIVE FROM NEW YORK CITY THIS MORNING. GOOD MORNING.
[01:47:51] Speaker 11: WE ARE NOW AT MORE THAN $100 BILLION RUN RATE OF OVERALL SPEND ON AI. BY THE TIME WE ALL FIGURE OUT HOW TO USE AI BETTER, WE WILL BE SPENDING A LOT MORE THAN THAT. WE ARE GETTING GOOD RETURNS, BUT CLEARLY HAVING NEGATIVE CASH FLOW FOR ALL THESE PHENOMENAL BUSINESSES IS
[01:48:08] Speaker 2: SOMETHING THAT SHOULD GIVE US PAUSE. THAT IS THE LAST FEW HOURS. THE STOCK IS DOWN, ALPHABET BY 5% TO 6%, AROUND 4% TO 5% ON THAT STOCK SO FAR THIS MORNING. THAT IS THE LAST FEW HOURS. WE ARE DOWN BY 0.9% IN THE BOND MARKET YIELDS ELEVATED NEAR THE HIGHS OF THE YEAR. ACROSS THE CURVE AT THE HIGHS ON THE TWO YEAR, 433. OFF THE BACK OF THIS MOVE IN CRUDE. CRUDE UP BY SOME 4% TO 5%.
[01:48:45] Speaker 3: THAT IS NOT THE LAST FEW HUNDRED. IT IS JUST 30 SECONDS AWAY FROM THE ECB RATE DECISION. JUST REALLY AMPING UP THE PRESSURE ON A EUROPEAN CENTRAL BANK SINGULARLY FOCUSED ON INFLATION.
[01:49:02] Speaker 2: JUST REMEMBER BACK THAT LONG TIME AGO ON JULY 10TH WHEN WE WERE 30% LOWER THAN WHERE WE ARE RIGHT NOW. REMEMBER THE ECB IS A THREE-PART STORY. YOU ARE FAMILIAR WITH THE FIRST TWO PARTS. YOU GET THE STATEMENT, THEN YOU GET A NEWS CONFERENCE. EVEN IF YOU GET NO GUIDANCE, THERE WILL BE SOME OFFICIALS ON THE GOVERNING COUNCIL LOOKING TO GUIDE INTEREST RATES. HERE IS THE DECISION. UNCHANGED AT 225 ON THE DEPOSIT RATE. 225 EXPECTED, 225 PREVIOUSLY. THE MAIN REFINANCING RATE COMING IN AT 240. THE PREVIOUS INTEREST RATE, 240. THE MARGINAL LENDING FACILITY, THE THIRD INTEREST RATE WE LOOK AT OVER AT THE EUROPEAN CENTRAL BANK, 265. THANK YOU FOR JOINING US. THE EURO-DOLLAR DOWN TO 113.92, DOWN BY 2/10 OF 1%.
[01:49:51] Speaker 3: BRAMO, AS EXPECTED, RATES UNCHANGED. THE NEWS CONFERENCE, 30 MINUTES AWAY. WITH THIS NEWS FLASH, UNCERTAINTY REMAINS HIGH. THEY SAY THAT THE FULL ENERGY SHOCK INFLATIONARY IMPACT IS YET TO PLAY OUT. I AM CURIOUS IF WE GET THE TONE FROM CHRISTINE LAGARDE THAT THERE WAS SOME DISSENT OR THERE WAS SOME FEELING THAT MAYBE THEY HAD TO BE MOVING IN THE NEAR TERM. NONETHELESS, WHAT THIS IS IS THAT A, THEY DON'T THINK THEY NEED TO MOVE JUST YET, BUT B, THEY CLEARLY ARE ON WATCH BECAUSE THIS IS SOMETHING THAT IS ONGOING AND STILL IS GOING TO BE QUITE AN INFLATIONARY IMPACT.
[01:50:30] Speaker 2: THANK YOU SO MUCH. I WANT TO SHARE WITH YOU THE JULY 23rd NEWS STATEMENT FROM THE ECB THIS MORNING. THE GOVERNING COUNCIL TODAY DECIDED TO KEEP THE THREE INTEREST RATES UNCHANGED. THE OUTLOOK FOR ENERGY PRICES WHILE HIGHLY VOLATILE CURRENTLY STANDS CLOSE TO THE BASELINE OF THE JUNE ECOSYSTEM STAFF PROJECTIONS AND WELL ABOVE THE LEVELS RECORDED PRIOR TO THE CONFLICT IN THE MIDDLE EAST. IT GOES ON TO READ UNCERTAINTY REMAINS HIGH AND THE FULL INFLATIONARY IMPACT OF THE ENERGY SHOCK HAS YET TO PLAY OUT. THE GOVERNING COUNCIL IS HAPPENING. THE GOVERNING COUNCIL IS COMMITTED TO SETTING MONETARY POLICY TO ENSURE THE INFLATION STABILIZES. IT IS 2% TARGET IN THE MEDIUM TERM. THE SECOND PARAGRAPH READS AS FOLLOWS. WITH TODAY'S DECISION THE GOVERNING COUNCIL REMAINS WELL POSITIONED TO NAVIGATE THE UNCERTAINTY CAUSE BY THE CONFLICT. IT WILL FOLLOW A DATA DEPENDENT AND MEETING-BY-MEETING APPROACH TO DETERMINING THE APPROPRIATE MONETARY POLICY STANCE. IN PARTICULAR THE GOVERNING COUNCIL'S INTEREST RATE COUNCIL IS NOT PRECOMMITTING TO A PARTICULAR RATE PATH. THE GOVERNING COUNCIL IS NOT PRECOMMITTING TO A PARTICULAR RATE PATH. JOINING US NOW FROM THE ECB IN FRANKFURT, GERMANY, IS BLOOMBERG'S IANA RANDAUW. YOU HAVE BEEN COVERING THE EUROPEAN CENTRAL BANK FOR A LONG TIME IN FRANKFURT, GERMANY. SHE WENT TO THIS NEWS CONFERENCE WHEN CHRISTINA GARDT SPEAKS IN JUST UNDER 30 MINUTES TIME. WHAT ARE YOU EXPECTING TO HEAR?
[01:51:57] Speaker 23: WELL, THE MESSAGE THAT THE GOVERNING COUNCIL SEEMS TO BE SENDING BASED ON THE POLICY STATEMENT IS ON THE ONE HAND ONE OF CONTINUITY, ONE OF CALM, OF NOT PANICKING JUST YET AND AT THE SAME TIME SAYING WE ARE HERE, WE ARE TAKING A VERY CLOSE LOOK AND WE STAND READY TO ACT. NOW, THE ECB IS SAYING THE OIL PRICES OR ENERGY PRICES ARE IN LINE WITH THE BASELINE SCENARIO. THAT MEANS RATE HIKES ARE COMING. THOSE FORCASTS THAT THE ECB PRESENTED IN JUNE WERE BUILT ON THE BASIS OF THREE INTEREST RATE HIKES. AND SO, YOU KNOW, JUST FOR THEM TO PLAY OUT, THE ECB WILL HAVE TO RAISE INTEREST RATES TWICE MORE. ALSO, THEM SAYING ENERGY HASN'T YET SHOWN ITS FULL EFFECT. THAT'S A WARNING. WE ARE LOOKING FOR SECOND ROUND EFFECTS. WE ARE VERY ATTENTIVE. THAT ALSO POINTS TO, YOU KNOW, ANOTHER INTEREST RATE INCREASE VERY, VERY SOON. I'M NOT SURE THAT LAGARDE IS READY TO COMMIT ON A PARTICULAR TIMELINE TO SEPTEMBER, WHICH IS, OF COURSE, THE NEXT MEETING. BUT FOR SURE, WE ARE READY TO SIGNAL THAT MORE TIGHTENING IS IN THE PIPELINE WITHOUT SOUNDING TOO MUCH PANICKY, IF YOU WANT, IN LIGHT OF WHAT WE HAVE SEEN IN THE MIDDLE EAST IN THE RECENT DAYS. ONE OF THE QUESTIONS IS TYPICALLY ASKED IN A NEWS CONFERENCE OF THE ECB IS, WAS THE DECISION UNANIMOUS?
[01:53:15] Speaker 2: WE GET SOME KIND OF INSIGHT INTO WHETHER THERE WAS ANY REAL DESCENT ACROSS THE GOVERNING COUNCIL. BEFORE YOU CAME ON, I CALLED THIS A THREE-PART ACT. YOU GET THE STATEMENT, THE NEWS CONFERENCE, AND THE OTHER ACT IS THE ACT THAT YOU AND THE TEAM ARE RESPONSIBLE FOR. THE SOURCES ON THE GOVERNING COUNCIL THAT WANT TO BE HEARD BECAUSE SOME OF THEM WANT RATE HIKES NOW AND THEY DON'T WANT TO
[01:53:39] Speaker ?: WAIT.
[01:53:39] Speaker 2: DO YOU EXPECT TO SEE THAT A LITTLE BIT LATER ON?
[01:53:43] Speaker 23: NOT SO MUCH, BECAUSE IN THE RUN-UP TO THE MEETING, THOSE PEOPLE THAT WERE KIND OF ON THE FENCE SAYING WE SHOULD KEEP OUR OPTION OPEN, BEFORE THE MEETING, BEFORE THE QUIET PERIOD STARTED, CAME AROUND SAYING POLICY IS APPROPRIATE FOR NOW. AND THAT, OF COURSE, IS LANGUAGE A SIGNAL THAT THEY WEREN'T REALLY LOOKING TO A HIKE THIS MONTH. HAD ONE BEEN PUT ON THE TABLE, MAYBE SOME PEOPLE WOULD HAVE SAID, FINE, YES, WE'RE BACKING IT. BUT IT DIDN'T SOUND TO ME, TALKING TO PEOPLE BEFORE GOING INTO THE MEETING, THAT THERE WAS ANYBODY WHO REALLY ACTIVELY WAS PUSHING FOR ONE. NOW, COME SEPTEMBER, THAT'S A DIFFERENT STORY. BUT WITH RISKS TO THE INFLATION OUTLOOK CLEARLY ON THE UPSET NOW BECAUSE OF ENERGY, THAT SHOULD ALSO BE NOT TOO MUCH OF A DISCUSSION. JANA, THANK YOU.
[01:54:30] Speaker 2: APPRECIATE YOU JUMPING ON. BEFORE YOU GET INTO THAT NEWS CONFERENCE, JANA RANDAU OF BLOOMBERG IN FRANKFURT, GERMANY. AS WE'RE HAVING THIS CONVERSATION, THIS CROSSESTS FROM THE PRESIDENT OF THE UNITED STATES, THIS STATEMENT. IN MANY WAYS, THIS MOVE IN CRUDE IS A MAJOR PART OF THE CONVERSATION AT THE ECB THIS MORNING. HERE'S THE STATEMENT FROM THE PRESIDENT OF THE UNITED STATES. A YEAR AGO, THE UNITED STATES OF AMERICA ATTACKED VERY POWERFULLY THE HOUTHIS FOR THEIR INTERFERENCE WITH COMMERCE AND TRADE BY SHOOTING AT SHIPS. SINCE THAT TIME, AND DURING OUR CONFLICT WITH IRAN, THEY'VE ACTED VERY RESPONSIBLY. UNFORTUNATELY, THEY'RE STARTING UP AGAIN. SHOOTING AT TWO SAUDI ARABIAN SHIPS LAST NIGHT. PLEASE LET THIS POST SERVE TO REPRESENT THAT IF THEY DO THIS AGAIN, THE U.S. WILL HOLD IRAN RESPONSIBLE IN THAT THE HOUTHIS ARE A SURROGATE AND/OR A PROXY OF IRAN. A MAJOR MILITARY PUNISHMENT WILL BE INFLICTED UPON IRAN. AND OF COURSE THE HOUTHIS, WHO I'M VERY DISAPPOINTED WITH AND THAT THEY HAVE UNTIL NOW ACTED VERY PROFESSIONALLY AND SMART. THE PRESIDENT OF THE UNITED STATES.
[01:55:22] Speaker 4: SO IT'S A WARNING FROM THE PRESIDENT ABOUT THE ATTACKS THAT TOOK PLACE IN THE RED SEA ON THESE SAUDI VESSELS. BUT HE'S NOT ANNOUNCING THE ATTACK HAPPENING NOW. HE SAYS IF IT HAPPENS AGAIN. SO RIGHT NOW THERE IS NO RESPONSE TO THE FACT THAT THE HOUTHIS WENT AFTER THESE SAUDI SHIPS, WHICH BEGS THE QUESTION, ARE THE SAUDI GOING TO RESPOND UNILATERALLY? OR POTENTIALLY ARE THE HOUTHIS AND THE IRANIANS GOING TO TEST THE PRESIDENT AGAIN IN THE RED SEA? AND THEN POTENTIALLY THEN, COULD WE SEE A RESPONSE?
[01:55:47] Speaker 2: DO I FEEL SORRY FOR CENTRAL BANKERS? NOT TYPICALLY, BUT THIS MORNING MAYBE. THIS IS A DIFFICULT ONE FOR THESE CENTRAL BANKERS SETTING POLICY WITH THIS BACKDROP. PUJA KUMRAV, TD SECURITIES JOINS US NOW FOR MORE. PUJA, WELCOME TO THE PROGRAM. WHAT DO YOU DO IF YOU'RE THE ECB? WHAT DO YOU DO FOR THAT MATTER IF YOU'RE THE FEDERAL RESERVE AND THIS IS THE BACKDROP YOU'VE GOT TO SET POLICY FOR?
[01:56:07] Speaker 24: WHAT DO YOU DO, AS THE STATEMENT SAID, THEY ARE NOT PRECOMMITTING. ESPECIALLY WHEN IT COMES TO ECB, I THINK THOSE MEETINGS HAVE ALWAYS COME WITH LOTS OF TWEETS FROM TRUMP. IF YOU REMEMBER IN JUNE MEETING, WE HAD C-SPY ANNOUNCE WHILE IT COMES TO KIND OF STATEMENT. THEY ARE ALSO WORKING ON A FRAMEWORK GUIDANCE. I THINK ALL CENTRAL BANKS, EVEN ECB, HAS GIVEN UP FORWARD RATE GUIDANCE. WE TALK ABOUT ONLY WASH GIVING UP FORWARD RATE GUIDANCE. THEY ARE ALSO WORKING ON A FRAMEWORK GUIDANCE. I THINK THAT'S VERY MUCH PRICED BY THE MARKET RIGHT NOW. I THINK I DON'T FEEL THAT WE NEED TO REACT OVERLY OR ECB NEEDS TO SOUND OVERLY HAWKISH GIVEN THE FINANCIAL TIGHTENING IS ALREADY HAPPENING BEFORE LAGARDE IS GIVING US HER PERSPECTIVE.
[01:56:56] Speaker 3: WHAT WOULD IT ACTUALLY ACCOMPLISH IF THEY WERE TO HIKE RATES TWO MORE TIMES LATER THIS YEAR BASED ON THE FACT THAT YOU ARE SEEING LONG-TERM YIELDS CONTINUE TO CLIMB AND ULTIMATELY PEOPLE HAVE A PRETTY NEGATIVE VIEW OF THE OVERALL ECONOMY BROADLY?
[01:57:10] Speaker 24: AS FAR AS ECB IS CONCERNED INFLATION IS THE PRIMARY GOAL. I THINK THAT IS SOMETHING THAT IS ALREADY FED INTO THE SYSTEM AND THAT IS ONE REASON WHY OUR LONG-TERM INFLATION IS STILL VERY WELL ANCHORED AS COMPARED TO THE UK. ALSO WHEN IT COMES TO RATES, WE DID -- WHEN IT COMES TO ECB, THEY STILL CONSIDERED 2.5 AS THEIR NEUTRAL. WE ARE NOT IN RESTRICTIVE TERRITORY RIGHT NOW. I THINK THAT IS WHERE ECB FEELS THE ECONOMY CAN STILL FEND THIS HIGH IF THEY HAVE TO. EVEN IF YOU LOOK AT THE GROWTH SO FAR, IT HAS BEEN PRETTY MUCH FIRM. I DON'T THINK THAT THE INFLATION IS HITTING THE GROWTH DYNAMICS THAT MUCH, PRIMARILY BECAUSE REAL WAGES ARE NOT HIT AS THE WAY THEY WERE IN 2022.
[01:58:01] Speaker 3: IS IT PROBLEMATIC FOR YOU THAT WE ARE NOW IN THE ERA OF NO FORWARD GUIDANCE FROM CENTRAL BANKS AROUND THE WORLD WHERE ESSENTIALLY EVERY MEETING COULD BE LIVE AND IT IS REALLY HARD TO KNOW?
[01:58:11] Speaker 24: AS YOU MENTIONED, WE WILL LOOK AT WHAT IS THE SOURCES NEWS WHICH IS NOW GOING TO BE KEY. IF YOU DON'T HAVE FRAMEWORK, IF YOU DON'T HAVE FORWARD GUIDANCE, WE CANNOT PRECOMMIT TO A PATH. IT IS ALL ABOUT THE SOURCES NEWS THAT WE WILL BE LOOKING FORWARD TO. IT IS A TRICKY SITUATION FOR CENTRAL BANKS BECAUSE ALL THE HARD DATA IS BACKWARD-LOOKING. EVEN THE SURVEYS WHICH WE WANT CONSIDERED FORWARD-LOOKING ARE ALSO BACKWARD-LOOKING BECAUSE THEY CANNOT KEEP UP WITH THE TWEETS THAT WE GET ON THE CRISIS. SO THEY ARE IN A TOUGH PLACE AND IT IS A GLOBAL SITUATION RIGHT NOW.
[01:58:43] Speaker 2: DO YOU THINK EURO'S OWN INFLATION IS PEAK, POOJA? WOULD YOU GO AS FAR AS SAYING THAT?
[01:58:48] Speaker 24: I WOULD HAVE TWO WEEKS BACK. BUT NOW THERE IS STILL A BIT OF CONCERN AND I THINK THE CONCERN IS MORE BECAUSE YOU CAN SEE THE IMPACT OF OIL ALSO NATURAL GAS AND I THINK THAT IS WHERE ECB WILL BE MORE CAUTIOUS BECAUSE NATURAL GAS IS THE SECOND SOURCE OF BIG ENERGY IN EUROPE AND 90% OF IT IS STILL IMPORTED. SO I THINK THAT WILL BE SOMETHING THAT ECB WILL NEED TO WATCH MORE CAREFULLY.
[01:59:15] Speaker 2: POOJA, APPRECIATE YOUR TIME. THANKS FOR JUMPING ON. POOJA KAMRA THERE, TD SECURITIES REACTING TO THAT ECB INTEREST RATE DECISION TWO, THREE WEEKS AGO. DIFFERENT STORY. ISABEL SHNABEL ON THE ECB ON THE EXECUTIVE BOARD AT THE TIME, EVEN WHEN CRUDE WAS BACK INTO, LET'S SAY, THE HIGH 60s ON WTI, THE LOW 70s ON BRENT, SHE WAS STILL MAKING THE POINT THAT THIS CRISIS IS NOT OVER. THAT WAS HER ARGUMENT GOING INTO THIS ONE.
[01:59:40] Speaker 3: I'M LOOKING FORWARD TO SEE HOW MANY PEOPLE AND WHAT THE ARGUMENT WAS. MEANWHILE TALKING ABOUT NATURAL GAS, THE HIGHS GOING BACK TO 2022 IN THE STOCKPILES AMONG THE LOWEST SINCE 2002 HEADING INTO THE WINTER.
[01:59:52] Speaker 2: THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES.
[01:59:58] Speaker 3: THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE
[01:59:59] Speaker 2: HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES, THE HIGHEST STOCKPILES. IN THE COMING MEETING, MAYBE WE WOULD BE VOTING FOR INTEREST RATE HIGHTS. UP NEXT WE GET YOU SOME DATA, SOME BREAKING NEWS, JOBLESS CLAIMS THAT TYPICALLY COME IN AROUND 215 TO 220. WE'LL SEE. THAT DROPS NEXT. TECH EARNINGS FAILING TO SPARK A RALLY IN THIS EQUITY CLAIMS WITH A BIG DOWNSIDE SURPRISE. THE BUND MARKET IS NOT HELPING. NEITHER IS THE COMMODITY MARKET. CHECK OUT THE MOVES WE ARE SEEING RIGHT NOW IN YIELDS. HIGHS OF THE YEAR, 434 ON 2'S. TENS BREAKING INTO 470 JUST MOMENTS AGO AT 5 BASIS POINTS. 30'S APPROACHING 520 UP 4 BASIS POINTS.
[02:00:54] Speaker 25: THANK YOU FOR JOINING US. GOOD MORNING. IT'S A BIG DOWNSIDE SURPRISE. 187,000 JOBLESS CLAIMS FILED FOR LAST WEEK. I'LL HAVE TO TAKE A LOOK AT WHAT THE HISTORICAL IS ON THAT. I'LL HAVE TO TAKE A LOOK AT WHAT THE HISTORICAL IS BUILDING. IT'S NOT A BIG CHANGE, BUT IT SUGGESTS THAT THE LABOR MARKET IS STILL IN GOOD SHAPE. REALLY WHAT WE ARE SEEING HERE, JOHN, IS MORE ABOUT WHAT IS NOT HAPPENING. THE ECONOMY IS NOT SLOWING DOWN. THE LABOR MARKET IS NOT GETTING WEAK. THE FED NEXT WEEK IS RAISING THE ODDS FOR THE FED NEXT WEEK. STILL A LONG SHOT, BUT OVER 35% CHANCE NOW THAT THE FED MIGHT RAISE INTEREST RATES NEXT WEEK AS TRADERS BEGIN TO PRICE IN THE IDEA OF $100 OIL, WE ARE ALMOST THERE. TWO-YEAR NOTE YIELD AND 10-YEAR ARE BOTH AT THE HIGHEST SINCE THE BEGINNING OF 2025, NOT JUST THIS YEAR. SO THE MARKET IS GETTING READY FOR SOMETHING. WE'LL SEE IF THEY GET IT.
[02:01:56] Speaker 2: MIKE MCKEY, I'M REMINDED OF BETH HAMMER, CLEVELAND FED PRESIDENT, HER COMMENTS GOING INTO THE QUIET PERIOD. THERE IS NO CONFLICT IN OUR MANDATE. INFLATION IS TOO HIGH. THE LABOR MARKET IS RIGHT AROUND MY LEVEL OF MAXIMUM EMPLOYMENT. I'M NOT HERE TO SUGGEST THAT ANYONE ON THAT COMMITTEE WOULD USE ONE JOBLESS CLAIMS PRINT, MIKE, TO MAKE THE ARGUMENT TO HIKE INTEREST RATES. YOU HAVE TO WONDER, MIKE, WHO IS GOING TO BE VOTING FOR AN INTEREST RATE HIKE A WEEK AWAY? IS IT HAMMACK, JUST HAMMACK OR HAS SHE GOT SOME COMPANY?
[02:02:22] Speaker 25: SHE HAS COMPANY BECAUSE LAURIE LOGAN WOULD BE ON THE SAME VOTE. NEIL KASHKARI SAID IF GASOLINE PRICES AND OIL PRICES KEPT GOING UP, HE MIGHT BE INTERESTED IN A RATE MOVE. HE MIGHT BE ONE OF THE VOTERS WHO GETS ON BOARD AS WELL. WE'VE GOT SOME GOVERNORS, CHRIS WALLER, WHO WAS CONCERNED ABOUT THE FUTURE DIRECTION OF RATES. INTERESTING NOTE FROM NEIL DUNA THIS MORNING SAYING THIS ISN'T ABOUT WHAT'S HAPPENED IN THE PAST. THIS IS ABOUT WHAT WE CAN SEE ON THE HORIZON, THE RISE IN OIL PRICES AND THE FACT THAT INFLATION IS GOING TO START GOING
[02:02:54] Speaker 2: UP AGAIN. MIKE MCKEY, THANK YOU, SIR. I APPRECIATE THE UPDATE. MIKE MCKEY BREAKING DOWN JOBLESS CLAIMS. JOBLESS CLAIMS TYPICALLY ARE SNOOZE. I'VE BEEN JOKING ABOUT IT FOR WEEKS IF NOT MONTHS. TYPICALLY IT COMES IN AROUND 215, 220, SOMETHING LIKE THAT. BIG DOWNSIDE SURPRISE THIS MORNING, 187.
[02:03:10] Speaker 3: THAT IS THE LOWEST GOING BACK TO 1969. SO WE'RE TALKING ABOUT HISTORICALLY LOW LEVELS OF JOBLESS CLAIMS, EVEN WITH A MUCH BIGGER POPULATION. SO YOU HAVE TO WONDER, DOES THIS -- AND I KNOW ONE INITIAL JOBLESS CLAIMS NUMBER DOES NOT CHANGE THE SCENARIO, BUT WHERE IS THE MANDATE ON THE OTHER SIDE THAT WOULD INDICATE THEY SHOULD REMAIN ON HOLD GIVEN WHAT WE'RE SEEING IN THE BOND MARKET, GIVEN WHAT WE'RE SEEING WITH RESPECT TO EARNINGS, GIVEN WHAT WE JUST SAW WITH THE LABOR MARKET. LET'S START WITH THE MARKET.
[02:03:37] Speaker 2: LET'S TALK ABOUT FINANCIAL MARKETS. WE'VE BEEN SAYING ALL WEEK THAT CRUDE IS IN THE DRIVING SEAT. THE BOND MARKET JUST TOOK OVER. WE ARE GOING TO SEE THAT. WE ARE GOING TO SEE THAT. YIELDS BREAKING DOWN TO SESSION LOWS, DOWN BY 0.8% OF 1%. AND YIELDS BREAKING OUT TO SESSION HIGHS, NEW HIGHS FOR THE YEAR. YOU BRING UP THE CURVE, TWEES, 10s AND 30s. I SAID THIS EARLIER ON ABOUT CRUDE, IF YOU HAVE BEEN AWAY FOR A COUPLE OF WEEKS, WE WERE SOMEWHERE ELSE IN CRUDE. WE WERE $20, $30 LOWER ON BRENT AND WTI. IF YOU LOOK AT WHERE WE ARE NOW ON YIELDS, NEW HIGHS FOR THE YEAR BREAKING THROUGH 430. WE WERE LOOKING FOR THE ECONOMY.
[02:04:14] Speaker 3: WE WERE LOOKING FOR THE ECONOMY. WE WERE LOOKING FOR THE ECONOMY. WE JUST BROKE THROUGH THOSE LEVELS AND SOME. WE COMPLETELY HAVE ERASED ANY KIND OF DISINFLATIONARY GAINS THAT WE SAW IN MARKETS, POST-PPI AND CPI. THE QUESTION NOW IS WHAT IS DRIVING IT? WE'VE SEEN THAT BIG OF AN INCREASE, AT LEAST IN LONGER-TERM INFLATION EXPECTATIONS. THE COST OF BORROWING MONEY, HOWEVER, CONTINUES TO RISE. THIS IS WHAT PEOPLE ARE WATCHING. AT WHAT POINT DOES THAT IMPEDE THE ECONOMY? OR CAN YOU SEE AN INCREASE IN YIELDS WITH AN ECONOMY THAT CONTINUES TO CHUG ALONG LIKE WE HAVE SEEN SIMPLY BECAUSE THIS IS A DIFFERENT PARADIGM, LESS INTEREST RATE SENSITIVE AND
[02:04:47] Speaker 2: FRANKLY ONE WITH A LOT OF HEAT UNDER IT. YIELDS STILL CLIMBING. WE THINK THE FED WILL BE ON HOLD FOR THE REMAINDER OF THIS YEAR AND THROUGH THE FIRST HALF OF NEXT YEAR. THAT BEING SAID, THERE IS MORE LIKELIHOOD OF A HIKE THAN A CUT. GOOD MORNING. THANKS FOR BEING HERE.
[02:05:10] Speaker 20: WHAT IS THE ARGUMENT FOR A HOLD GIVEN THIS BACKDROP RIGHT NOW? I THINK THE BIG THING IS, ONE, YOU GUYS JUST HIT ON IT, THINGS ARE CHANGING VERY RAPIDLY, RIGHT? I THINK THE FED IS WORKING OFF THE DATA THEY HAVE. WE DID JUST GET THAT BETTER THAN EXPECTED JUNE INFLATION DATA. SO I THINK THAT THIS MEETING PUTS THEM ON A HOLD. THAT BEING SAID, MORE LIKELIHOOD OF A HIKE THAN A CUT WITHOUT A DOUBT THIS YEAR. I THINK THE REALLY BIG RISK IS WHERE DO WE GO FROM HERE WITH WHAT WE HAVE SEEN IN OIL, WITH WHAT WE SEE IN EXPECTATIONS. AND FROM WHAT WE HAVE, WE KNOW THERE ARE SEVERAL PEOPLE ON THE FED, LORI LOGAN, BETH HAMMICK, NEIL KASHKARI, THAT DISSENTED ONLY A COUPLE OF MONTHS AGO, BECAUSE THEY REALLY WERE WORRIED ABOUT INFLATION, AND NOW THERE IS MORE UPSIDE INFLATION RISK.
[02:05:53] Speaker 2: WHY IS THAT A SOURCE OF COMFORT FOR YOU?
[02:05:59] Speaker 20: WELL, I WOULDN'T SAY IT'S A SOURCE OF COMFORT. I DO THINK WE CHEER ONE GOOD DATA REPORT, RIGHT? WE JUST GOT THE JOBLESS CLAIMS NUMBER SUPER LOW. BUT WE ALSO HAVE TO REMEMBER IT'S ONE MONTH. IT WAS ONE MONTH THAT WAS SO GOOD THAT IN THE CONTEXT OF INFLATION, YOU HAVE TO GO, THAT'S JUST ONE MONTH. I THINK PART OF IT IS A REACTION TO FIRMS ARE A LOT QUICKER TO CHANGE PRICES RIGHT NOW, RIGHT? WE HAD OIL COME DOWN, AND WE SAW THE IMMEDIATE REACTION NOT JUST IN ENERGY PRICES, BUT ALSO IN DIFFERENT CORE INFLATION. CORE WAS THE BIG SURPRISE. WE SAW THAT CORE INFLATION THAT WAS FLAT THAT ACTUALLY CAME DOWN TO 2.6%. AND SO THE OTHER WAY YOU THINK ABOUT IT IS NOW IT'S GOING THE OTHER DIRECTION. OUR FIRM IS GOING TO BE EQUALLY AS FAST TO PASS ALONG PRICE INCREASES FROM FUEL AGAIN. SO I THINK WE HAVE TO PUT THAT IN THE CONTEXT OF IT'S ONE MONTH, BUT I DO THINK IT SENS THE FED INTO THE MEETING NEXT WEEK ON THAT SORT OF WAIT AND SEE MORE THAN READY TO TAKE ACTION.
[02:06:43] Speaker 3: DO YIELDS AT THIS LEVEL START TO IMPEDE ECONOMIC ACTIVITY IN THE U.S.?
[02:06:47] Speaker 20: YOU KNOW, I DON'T THINK JUST YET, BECAUSE, AGAIN, I THINK WE'RE IN THIS VERY VOLATILE PERIOD, BUT I THINK THE LONGER WE'RE HERE, MAYBE. THAT BEING SAID, YOU JUST MENTIONED IT, WE HAVE SEEN A LESS INTEREST RATE SENSITIVE ECONOMY, RIGHT? EVEN IN THE LAST COUPLE OF YEARS, WHEN, YOU KNOW, THE FED TIGHTENED RAPIDLY, WE SAW -- WE KEEP JOKING THIS WORD RESILIENT, THIS REMARKABLY RESILIENT ECONOMY, AND WE'VE CONTINUED TO SEE THAT GROWTH. SO I THINK IT DEPENDS ON HOW LONG WE SEE YIELDS AT THESE HIGH LEVELS, BECAUSE THE BIG THING IS WE'VE BEEN IN A VERY VOLATILE PERIOD, RIGHT? IF YOU LOOK AT THE EVOLUTION OF THE YIELD CURVE OVER JUST THIS LAST SIX MONTHS, WE'VE BEEN HIGH AND LOW, LARGELY HIGH SINCE THE WAR IN IRAN BEGAN. BUT WE'RE SEEING A LOT OF MOVEMENT, AND I THINK IT BECOMES -- WE HAVE TO SEE A SUSTAINED HOLD AT THESE HIGH LEVELS.
[02:07:28] Speaker 3: IF IT'S A MORE VOLATILE MARKET AND IT'S A MORE VOLATILE WORLD, DOES IT MAKE SENSE FOR FED POLICY TO BE MORE VOLATILE AS WELL IN TERMS OF NOT JUST FORWARD GUIDANCE, THE LACK THERE OF, BUT ALSO FOR THEM TO BE ABLE TO KICK UP RATES ONE MONTH AND THEN TAKE THEM DOWN ANOTHER MONTH?
[02:07:43] Speaker 20: YEAH, I THINK THAT MIGHT BE WHERE WE'RE HEADED, RIGHT, WITH THAT LACK OF FORD GUIDANCE, LACK OF COMMITMENT TO A PATH FORWARD. THEY WANT TO BE NIMBLE. AND MAYBE THAT'S A GOOD THING, RIGHT? A LOT OF PEOPLE THINK THIS IS A BIG SHIFT. WE'VE HAD JAY POWELL FOR A LONG TIME, FOR EIGHT YEARS, WHO WAS VERY CLEAR IN HIS FORD GUIDANCE, VERY COMMUNICATIVE. BUT HE REALLY WAS THE ONE THAT SET THAT PRECEDENT, RIGHT? WE HAVEN'T ALWAYS HAD A FED THAT IS THIS COMMUNICATIVE THAN WE'VE GOTTEN USED TO. AND SO WE MIGHT BE GOING BACK TO THIS. EVERY MEETING IS A LIVE MEETING DEPENDING ON WHAT NEEDS TO BE DONE.
[02:08:11] Speaker 4: YOU THINK NEXT WEEK IS LIVE AS WELL?
[02:08:13] Speaker 20: I THINK IT'S LIVE, BUT I DON'T EXPECT THAT THEY WILL MAKE A CHANGE. I DO THINK THERE'S NOT A SMALL CHANCE THERE COULD BE DISSENTS. AGAIN, WE HAVE HEARD SOME VOCAL PEOPLE THAT ARE IN FAVOR OF RAISING RATES, THAT CONCERN OF INFLATION. AGAIN, I MENTIONED BETH HAMMICK, LORIE LOGAN. BUT I DON'T THINK THAT THERE'S NECESSARILY THE GROUP YET THAT'S READY TO MAKE THAT CHANGE. DO YOU THINK THAT DOES WASH A FAVOR, DISSENTING NEXT WEEK?
[02:08:39] Speaker 2: MAYBE. YOU MEAN GIVING HIM SOME CREDIBILITY? ON THE MARGIN MAY BE HAPPENING HIM ANCHOR INFLATION
[02:08:43] Speaker 20: EXPECTATIONS WITHOUT REALLY DOING ANYTHING. I THINK IT COULD. THAT'S A GREAT POINT. IT COULD SET THE TONE THAT WE ARE READY TO REACT. AND WARSH HAS BEEN NOTHING BUT CLEAR THAT INFLATION IS THE FED'S NUMBER ONE MANDATE. THE STATEMENT FROM JUNE WAS QUITE SHORT, BUT IT ENDED VERY CLEARLY. WE WILL GET INFLATION BACK TO 2%. HE REITERATED THAT LAST WEEK WHEN HE WAS DOING HIS CONGRESSIONAL TESTIMONY. THEY ARE COMMITTED TO 2% INFLATION. MAYBE THOSE DISSENTS WOULD TWEAK THE MARKET TO SINK. SEPTEMBER PROBABLY IS LIVE.
[02:09:15] Speaker 2: THAT COULD MAYBE HELP HIM. THANK YOU.
[02:09:29] Speaker 3: THANK YOU. I EXPECTED THIS TO BE A SNOOZE. IT COMES IN PRETTY MUCH AT THE SAME LEVEL. THE DOWNSIDE SURPRISE, THE FACT THAT WE JUST SAW THE LOWEST CLAIMS SINCE 1969 WITH A BIGGER POPULATION AT A TIME OF VERY LOW CHURN, JUST GIVES YOU A SENSE OF HOW MUCH THIS IS NOT ON
[02:09:44] Speaker 2: GOING TO MAKE A BIG DEAL OF CLAIMS. I DON'T THINK ANYONE INTENDS TO MAKE A BIG DEAL OF CLAIMS. BUT IF YOU LISTEN TO THE COMMENTS FROM BETH HAMMICK, THE CLEVELAND FED PRESIDENT GOING INTO THE QUIET PERIOD, SHE HERSELF WAS SAYING THE LABOR MARKET IS NOT A PROBLEM FOR HER. AFTER YOU GET DATA LIKE THAT GOING INTO THIS MEETING, IT'S HARD TO MAKE THE CASE THAT THE LABOR MARKET IS A PROBLEM RIGHT NOW. SO YOU PUT THAT TO ONE SIDE, YOU LOOK AT INFLATION. IT'S EASIER TO MAKE THE CASE THAT INFLATION IS A PROBLEM RIGHT NOW, WHICH IS WHY THE HAWKS ARE MAKING A
[02:10:06] Speaker 3: LOT MORE NOISE. I'M GOING TO SAY THIS INITIAL CLAIM IS A BIG DEAL. NOT JUST BECAUSE IT'S A SUPERLATIVE KIND OF NUMBER, BUT BECAUSE IT COMES WITH ALL OF THE OTHER DATA POINTS THAT POINT IN THE SAME DIRECTION. THIS IS JUST CONFIRMATION THAT IT'S ONLY ACCELERATING WITH
[02:10:24] Speaker 4: THE EARNINGS THAT WE'RE ALSO GETTING FROM A LOT OF CORPORATIONS. WHAT YOU BROUGHT UP ABOUT DOES THIS DO KEVIN WASH A FAVOR IF THERE ARE INDIVIDUALS THAT DISSENT NEXT WEEK, NOT ONLY POTENTIALLY TO ANCHOR INFLATION EXPECTATIONS, BUT IF THE FED IS FORCED TO CUT, MAYBE AS SOFIA SAYS IN SEPTEMBER BEFORE THE MIDTERM ELECTION, HE SORT OF HAS COVERAGE NOW AND COVER WITH THE TREASURY SECRETARY AND THE PRESIDENT AS TO WHY THE FEDERAL RESERVE WAS MAYBE PUSHED INTO HIKING. HE SAID, LOOK, I ALREADY HAD DISSENT MONTHS AGO AND I WAS ABLE TO FEND THEM OFF.
[02:10:50] Speaker 2: SEPTEMBER HIKE FROM THE FEDERAL RESERVE ON THE TABLE, THAT WILL BE PART OF THE CONVERSATION. IT WILL BE FOR THE ECB AS WELL. UNCERTAINTY IS HIGH, BUT MAKE NO MISTAKE, THE ECB PAUSE IN JULY DOES NOT REFLECT DOUBT. THIS IS A PAUSE WHILE THE ECB UPDATES FORECAST AND SCENARIOS AND HIKES AGAIN IN SEPTEMBER. THE ONLY QUESTION IS, WILL ONE MORE HIKE TO 250 BE ENOUGH TO CURB INFLATION RISKS? THAT IS THE STORY FOR THE ECB.
[02:11:17] Speaker 6: A NEWS CONFERENCE JUST MOMENTS AWAY. THE ECB IS COMPLETELY. THE ECB IS HOLDING INTEREST RATES STEADY. THE ECB IS CLOSELY MONITORING THE INFLATIONARY IMPACT OF THE ESCALATING TENSIONS IN THE MIDDLE EAST. AND DO STAY TUNED TO BLOOMBERG FOR CHRISTINE LAGARDE'S NEWS CONFERENCE THAT BEGINS AT 8:45 EASTERN. PRESIDENT DONALD TRUMP WITH A WARNING FOR THE HUTIS AFTER THEY ATTACKED SHIPS IN THE RED SEA LAST NIGHT. TRUMP SAYING THE U.S. WILL INFLICT MAJOR MILITARY PUNISHMENT UPON IRAN AND THE HUTIS IF THEY ATTACK AGAIN. TRUMP ADDING HE IS DISAPPOINTED WITH THE HUTIS WHO HAVE UNTIL NOW ACTED VERY PROFESSIONALLY AND SMART.
[02:12:09] Speaker 2: THAT IS YOUR BLOOMBERG BRIEF, JOHN. THANK YOU. UP NEXT, AN ECB NEWS CONFERENCE WITH CHRISTINE LAGARDE. THAT, JUST MOMENTS AWAY.
[02:12:23] Speaker ?: LIVE FROM NEW YORK CITY, YOU ARE WATCHING BLOOMBERG TV.
[02:12:39] Speaker 15: MARKETS ARE BEING VERY EFFICIENT IN TERMS OF TAKING DOWN SOME OF THESE MORE TECHNOLOGY COMPANY PRICES. THIS ISN'T, TO ME, AN ALARM BELL. IT IS JUST A NATURAL PROGRESSION OF THE EARNINGS CYCLE. ALL OF THESE OTHER SECTORS ARE HOLDING UP AND THEY ARE MAKING UP FOR SOME OF THE LOSSES THAT WE ARE SEEING IN THE TECHNOLOGY SECTOR.
[02:13:00] Speaker 2: JIM CARON AND MORGAN STANLEY INVESTMENT MANAGEMENT ON THE TECH EARNINGS SO FAR THIS MORNING. TECH VERY MUCH IN FOCUS. THIS IS WHERE YOUR MORNING BEGINS AND ENDS SO FAR. CRUDE, THE ENERGY MARKET, WE ARE APPROACHING $100 A BARREL. JUST A FEW TENDS AWAY OF 1% FROM 100 BUCKS AND TRIPLE DIGITS ON BRENT. 99.60. WITH THAT MOVE IN CRUDE, THIS MOVE IN BONDS, YIELDS HIGHER ACROSS THE CURVE, TWO'S, TENS AND THIRTY'S. TWO'S, WE HAVE GONE THROUGH 420, WE HAVE GONE THROUGH 430 AND NOW WE ARE HAVING A LITTLE LOOK AT 440 OF SIX BASIS POINTS ON A SESSION AT THE FRONT END OF THE CURVE. WE JUST BROKE 470 IN THE LAST HOUR ON TENS AND 30'S HAVING A LOOK AT 520. WITH YIELDS BREAKING OUT, EQUITIES ARE BREAKING DOWN. EQUITY FUTURES ON THE S&P ON THE NASDAQ THIS MORNING, WE'RE DOWN BY ALMOST 1% ON THE S&P ON THE NASDAQ, BRAMO DOWN BY 1.3.
[02:13:51] Speaker 3: EQUITY FUTURES ON THE NASDAQ. WE'RE STARTING TO SEE THE POINT AT WHICH YIELDS ARE BITING INTO RISK APPETITE. INTERESTING TO SEE THAT TECHNOLOGY IS TAKING THE HIT MOST SIGNIFICANTLY AFTER EARNINGS THAT CAME IN BETTER THAN EXPECTED AT LEAST ON A LOT OF THE HEADLINE NUMBERS FOR ALPHABET. THESE YIELDS ARE BITING INTO THE BID INTO THE LAST WEEK. THEY ARE HITTING AN ECONOMY THAT CAN WITHSTAND IT. THIS IS THE REASON WHY PEOPLE ARE SAYING THAT ULTIMATELY THESE YIELDS CAN PERSIST.
[02:14:19] Speaker 2: THEY ARE NOT GETTING THE BID INTO THEM THAT THEY MIGHT HAVE PREVIOUSLY GOTTEN AT THESE LEVELS. HEADING INTO THIS NEWS CONFERENCE WITH THE EURO EXCESSION LOWS AT 113.78. THE EURO NEGATIVE BUYER, A THIRD OF 1%. BOND YIELDS IN GERMANY IN FOCUS THE TWO-YEAR AT THE START OF THE MONTH. THE TWO-YEAR IN GERMANY WAS AROUND 250. THESE BASIS POINTS SHOWED UP OF MORE THAN 30 BASIS POINTS AT THE FRONT END OF THE GERMAN CURVE COMING INTO THIS ECB MEETING. THEY HAVEN'T HIKED INTEREST RATES TODAY LIKE THEY DID LAST TIME, BUT THE CONVERSATION IS NOT GOING AWAY.
[02:14:50] Speaker 3: THE HAWKISH RISK HAS BEEN REINTRODUCED OFF THE BACK OF THIS MOVE IN THE ALL MARKET. THE QUESTION IS ARE THEY GOING TO RAISE TWO MORE TIMES THIS YEAR OR ARE THEY JUST GOING TO RAISE RATES ONCE? INITIALLY BEFORE THE RENEWED ATTENTIONS IN THE MIDDLE EAST, YOU SAW ONE RATE HIKE BEING PRICED INTO THE ECB. THIS IS A PART OF THE END OF THE YEAR.
[02:15:07] Speaker 4: IT'S NOT VERY MUCH A LIVE MEETING. I'M REMINDED BY A VIEWER TO REMEMBER WHAT JEFF CURRY TOLD ALL OF US MONTHS AGO, BUCKLE UP AND GET LONG. IT FEELS LIKE WE'RE AT THAT MOMENT NOW, ESPECIALLY SINCE, AND HE SAID RECENTLY WE'RE NO LONGER LIVING WITH OIL GLUTT. WE'RE LIVING ON INVENTORIES RIGHT NOW AND THE RESERVES. AT THE SAME TIME, YOU HAVE TWO CHOKE POINTS NOW HAVING MASSIVE ISSUES IN THE MIDDLE EAST.
[02:15:28] Speaker 2: IT'S DIFFERENT THIS TIME AROUND. A FEW MONTHS AGO, WE HAD A BIG CUSHION AND ONE CHOKE POINT. NOW TO YOUR POINT, WE'VE GOT TWO IN A SMALLER CUSHION. FOR THE ECB AND CENTRAL BANKERS ALIKE, THIS IS THE CONCERN FOR THEM. SECOND ROUND EFFECTS. IS THAT LABOR MARKET STRONG ENOUGH? IS THAT ECONOMY STRONG ENOUGH IN EUROPE TO MAKE THAT CLAIM THIS
[02:15:51] Speaker 3: MORNING? WE'VE HEARD MIXED THINGS. ON ONE HAND, YOU'VE SEEN EARNINGS ACTUALLY SUPPORTING TO THE UPSIDE IN EUROPE AT A SIGNIFICANT PACE. YOU'RE SEEING ENOUGH STRENGTH TO AVOID RECESSION. ON THE FLIP SIDE, COULD THAT BE TORPEDOED BY RATE HIKES IN ADDITION TO NATURAL GAS PRICES AT SUCH ELEVATED LEVELS? IT'S NATURALLY A TAX ON THE CONSUMER WHEN YOU HAVE NATURAL GAS PRICES AT THE HIGHEST IN EUROPE GOING BACK INVESTMENT. WE'LL TALK ABOUT THAT. WE'VE BEEN TALKING ABOUT THAT.
[02:16:18] Speaker 2: THIS IS A SINGLE MANDATE CENTRAL BANK AND THIS MARKET IS EXPECTING THEM TO MOVE. NO FORWARD GUIDANCE FROM THE CCB. I WOULDN'T EXPECT ANY FORWARD GUIDANCE IN THIS MEETING. YOU NEED AN ASSESSMENT OF WHERE WE ARE FOR US ALL TO WORK OUT WHERE WE ARE GOING AND HOW THEY WOULD RESPOND TO INCOMING INFORMATION TO ARTICULATE THE SO-CALLED REACTION FUNCTION. WE ARE A WEEK AWAY FROM A FED MEETING AND HAVE ABSOLUTELY NO IDEA WHAT THIS FED IS GOING TO DO. TELLING US WHAT THEY WOULD DO BEFORE THEY EVEN DO IT. TELLING US WHAT THEY WON'T DO BEFORE THEY EVEN DON'T DO IT. THIS TIME AROUND YOU'VE GOT TO TAKE A GUESS AND THE SAME APPLIES TO THE ECB. THE ECB NEWS CONFERENCE JUST WITH THE ECB PRESIDENT CHRISTINE LAGARDE. LET'S TAKE A LISTEN.
[02:16:55] Speaker 26: TO KEEP THE THREE KEY ECB INTEREST RATES UNCHANGED. THE OUTLOOK FOR ENERGY PRICES, WHILE HIGHLY VOLATILE, CURRENTLY STAND CLOSE TO THE BASELINE OF THE JUNE EURO SYSTEM STAFF PROJECTIONS AND WELL ABOVE THE LEVELS RECORDED PRIOR TO THE CONFLICT IN THE MIDDLE EAST. UNCERTAINTY REMAINS HIGH AND THE FULL INFLATIONARY IMPACT OF THE ENERGY SHOCK HAS YET TO PLAY OUT. WE ARE THEREFORE CLOSELY MONITORING THE INTENSITY AND DURATION OF THE SHOCK AS WELL AS ITS INDIRECT AND SECOND ROUND EFFECTS. WE ARE COMMITTED TO SETTING MONETARY POLICY TO ENSURE THAT INFLATION STABILIZES AT OUR 2% TARGET IN THE MEDIUM TERM. WITH TODAY'S DECISION, WE REMAIN WELL POSITIONED TO NAVIGATE THE UNCERTAINTY CAUSED BY THE CONFLICT. WE WILL FOLLOW A DATA DEPENDENT AND MEETING BY MEETING APPROACH TO DETERMINING THE APPROPRIATE MONETARY POLICY STANCE. IN PARTICULAR, OUR INTEREST TRADE DECISIONS WILL BE BASED ON OUR ASSESSMENT OF THE INFLATION OUTLOOK AND THE RISKS SURROUNDING IT IN LIGHT OF THE INCOMING ECONOMIC AND FINANCIAL DATA AS WELL AS THE DYNAMICS OF UNDERLYING INFLATION AND THE STRENGTH OF MONETARY POLICY TRANSMISSION. WE ARE NOT PRECOMMITTING TO A PARTICULAR RATE PATH. THE DECISIONS TAKEN TODAY ARE SET OUT IN A PRESS RELEASE AVAILABLE ON OUR WEBSITE. I WILL NOW OUTLINE IN MORE DETAIL HOW WE SEE THE ECONOMY AND INFLATION DEVELOPING AND WILL THEN EXPLAIN OUR ASSESSMENT OF FINANCIAL AND MONETARY CONDITIONS. LOOKING AT THE ECONOMIC ACTIVITY. RECENT INFLATION POINTS TO SOME IMPROVEMENT IN ECONOMIC ACTIVITY IN THE SECOND QUARTER, EVEN THOUGH THE CONFLICT IN THE MIDDLE EAST REMAINED A HEADWIND. SURVEYS SUGGEST THAT ACTIVITY IN THE SERVICES SECTOR HAS PARTLY RECOVERED AFTER WEAKENING MARKETLY IN THE IMMEDIATE AFTERMATH OF THE ENERGY SHOCK. DIGITAL SERVICES HAVE BEEN ROBUST, IN PART OING TO THE INCREASING CONTRIBUTION FROM AI-RELATED ACTIVITY. MANUFACTURING HAS CONTINUED TO HOLD UP, SUPPORTED BY FIRMS BUILDING UP STOCKS TO GUARD AGAINST SUPPLY CHAIN RISKS, AS WELL AS BY HIGHER DEFENSE SPENDING. UNEMPLOYMENT STOOD AT 6.2% IN MAY. AT THE SAME TIME, JOB POSTINGS HAVE CONTINUED TO DECLINE, AND BOTH FIRMS AND HOUSEHOLDS EXPECT THE LABOR MARKET TO REMAIN WEAKER THAN BEFORE THE CONFLICT. FORWARD-LOOKING INDICATORS SUGGEST THAT ECONOMIC GROWTH WILL REMAIN MODEST IN THE NEAR TERM, WEIGHED DOWN BY THE ENERGY SHOCK AND RELATED UNCERTAINTIES. YET THE FUNDAMENTAL DRIVERS OF MEDIUM-TERM GROWTH REMAIN INTACT. PRIVATE CONSUMPTION, INVESTMENT IN NEW DIGITAL TECHNOLOGIES, GOVERNMENT SPENDING ON DEFENSE AND INFRASTRUCTURE, AND SOME RECOVERY IN EXPORTS SHOULD ALL CONTRIBUTE TO OVERALL GROWTH MOMENTUM. THE GOVERNING COUNCIL REITERATES ITS CALL FOR URGENT ACTION TO STRENGTHEN THE EURO AREA ECONOMY WHILE MAINTAINING SOUND PUBLIC FINANCES. SIMPLIFYING AND HARMONIZING RULES ACROSS THE EU'S SINGLE MARKET, ACCELERATING THE ENERGY TRANSITION AND COMPLETING THE SAVINGS AND INVESTMENTS UNION ARE KEY BUILDING BLOCKS. FISCAL RESPONSES TO THE ENERGY SHOCK SHOULD BE TEMPORARY, TARGETED AND TAILORED. THE POSITIVE VOTE IN THE EUROPEAN PARLIAMENT EARLIER THIS MONTH WAS A SIGNIFICANT MILESTONE ON THE PATH TO ESTABLISHING THE DIGITAL EURO. WE WELCOME THE SHARED OBJECTIVE OF THE PARLIAMENT, THE EUROPEAN UNION COUNCIL AND THE COMMISSION OF REACHING AGREEMENT BY THE END OF THIS YEAR ON THE SINGLE CURRENCY PACKAGE. THE DIGITAL EURO WILL COMPLEMENT PHYSICAL CASH WITH ITS DIGITAL EQUIVALENT, PROVIDING A MEANS OF PAYMENT FOR ANY DIGITAL TRANSACTION THROUGHOUT THE EURO AREA. LET ME NOW TURN TO INFLATION. INFLATION DECLINED TO 2.8% IN JUNE FROM 3.2% IN MAY. ENERGY PRICE INFLATION DECLINED TO 8.5% AFTER 10.8% IN MAY, WHILE FOOD PRICE INFLATION FELL FROM 1.9% TO 1.5%. INFLATION EXCLUDING ENERGY AND FOOD EASED TO 2.4% FROM 2.6% IN MAY, WITH GOODS INFLATION DECREASING FROM 0.9% TO 0.7% AND SERVICES INFLATION FROM 3.5% TO 3.2%. THE ENERGY SHOCK CONTINUES TO FEED INTO HIGHER PRICES. IT IS BECOMING MORE EXPENSIVE FOR FIRMS TO SOURCE INPUTS AND THEY THEREFORE EXPECT TO PUT UP THEIR SELLING PRICES. WHILE DEVELOPMENTS IN UNDERLYING INFLATION HAVE REMAINED CONTAINED, THE FULL EFFECT OF THE ENERGY SHOCK HAVE YET TO PLAY OUT. THE ECB'S WAGE TRACKER AND SURVEYS ON WAGE EXPECTATIONS CONTINUE TO INDICATE MODERATE WAGE GROWTH OVER THE COMING QUARTERS. RISING LABOR PRODUCTIVITY HAS ALSO HELPED CONTAIN GROWTH IN UNIT LABOR COSTS. INFLATION EXPECTATIONS OVER SHORTER HORIZONS REMAIN AT ELEVATED LEVELS. MOST MEASURES OF LONGER TERM INFLATION EXPECTATIONS STAND AT AROUND 2%, SUPPORTING THE STABILIZATION OF INFLATION AROUND TARGET IN THE MEDIUM TERM. WHILE ENERGY PRICE INFLATION DECLINED IN JUNE, ITS RISE SINCE THE START OF THE CONFLICT AND ITS IMPACT ON FOOD, GOODS AND SERVICES PRICE INFLATION IS LIKELY TO KEEP INFLATION WELL ABOVE TARGET INTO THE FIRST HALF OF 2027. INFLATION SHOULD THEN DECLINE AS ENERGY PRICES ARE EXPECTED TO FALL AND OTHER PRICES SHOULD RISE MORE SLOWLY. HOWEVER, THE CONFLICT REMAINS A MAJOR SOURCE OF UNCERTAINTY. WE ARE THEREFORE CLOSELY MONITORING THE SIZE AND PERSISTENCE OF THE ENERGY PRICE INCREASE AND HOW IT FEEDS THROUGH TO PRICE AND WAGE SETTING, INFLATION EXPECTATIONS AND THE OVERALL ECONOMIC DYNAMICS. THE RISKS TO THE GROWTH OUTLOOK ARE TO THE DOWNSIDE. WHILE THE MEMORANDUM OF UNDERSTANDING AGREED BETWEEN THE UNITED STATES AND IRAN IN JUNE CONSTITUTED A FIRST ATTEMPT TO RESOLVE THE CONFLICT, RECENT WEEKS HAVE BROUGHT RENEWED SETBACKS AND THE GEOPOLITICAL SITUATION REMAINS FRAGILE. RENEWED DISRUPTION OF ENERGY SUPPLIES COULD INCREASE ENERGY PRICES FURTHER AND FOR LONGER THAN CURRENTLY EXPECTED. THIS WOULD WEIGH ON REAL INCOMES, SPENDING AND INVESTMENT. A WORSENING OF GLOBAL FINANCIAL MARKETS SENTIMENT OR A TIGHTER SUPPLY OF CREDIT COULD DAMPEN DEMAND. ADDITIONAL FRICTIONS IN INTERNATIONAL TRADE COULD ALSO FURTHER DISRUPT SUPPLY CHAINS, REDUCE EXPORTS AND WEAKEN CONSUMPTION AND INVESTMENT. OTHER GEOPOLITICAL TENSIONS, IN PARTICULAR RUSSIA'S UNJUSTIFIED WAR AGAINST UKRAINE, REMAIN A MAJOR SOURCE OF UNCERTAINTY. BY CONTRAST, GROWTH COULD TURN OUT TO BE HIGHER IF THE ECONOMY AND ENERGY MARKETS WERE TO ADAPT MORE QUICKLY THAN EXPECTED TO THE DISRUPTION CAUSED BY THE CONFLICT IN THE MIDDLE EAST OR IF THE CONFLICT WAS RESOLVED SUSTAINABLY. Moreover, Planned Defence...