Kevin Warsh to Speak at Sintra, Trump's $1.4B in Crypto Earnings — The Opening Trade 7/1/2026

[0:00] Good morning, it's Wednesday, July the 1st. We're into the second half of 2026 and here's [0:05] what's on today's agenda. Kevin Walsh gets ready to make his international debut as Fed Chair at [0:11] Cintra. Japanese business sentiment is booming and the US lifts export restrictions on Anthropik's [0:17] Fable 5 model. Well, it is those comments from Walsh that we expect at 2pm UK time to be a [0:23] central factor and a central feature for these markets. European futures currently flat, maybe [0:27] waiting for that. Maybe that's the catalyst, maybe it's the non-farm payrolls, maybe that's more [0:31] important in terms of the jobs market. That data coming through, of course, on Thursday. A decent [0:35] session yesterday for European stocks, up 0.8% by the end of the close. Today, futures currently flat. [0:40] The Japanese currency remained in focus for us. We've been hearing from Japanese officials speaking [0:45] to Bloomberg, saying that previous attempts at intervening were successful. Currently, 162 close [0:50] to 163 with further weakness for the Japanese currency. Gold set for its worst quarter in about [0:56] a decade. Down about 14% or so. Currently down 0.8% below 4,000. And dollar strength is part of that [1:04] story as well. The yellow metal, again, facing weakness in the session. The countdown to the [1:08] opening trade starts right now. Welcome to the opening trade, everybody. One minute past seven [1:26] here in London. So, and just under an hour to go until the start of cash equity trading. What will be [1:31] the big event of the day ahead? Well, it probably will be, as you were saying, Tom, Kevin Walsh speaking [1:36] at Cintra. Of course, there'll be other central bankers with him, not least Christine Lagarde and [1:41] Andrew Bailey. And we'll also have the Bank of Canada governor as well. But what's the context [1:47] to this? And the context to this is that Jerome Powell was very popular in this room, in this club. [1:52] Talking about central bank independence is very popular in this room and in this club. And so, [1:56] it will be interesting to see how that wider conversation goes down, what kind of figure he [2:00] cuts and what kind of mood he tries to create. Recent hawkishness is also the context in which [2:07] we see these central bankers gather over at Cintra. Because, yes, we were anticipating something [2:11] hawkish, perhaps, because of the higher oil price when we heard at the first Fed meeting from, or after [2:17] it, from Governor Walsh. But were we expecting it to be quite so hawkish? And are markets still adjusting [2:23] to some of that hawkishness? We've certainly got the dollar continuing to strengthen, the AI story [2:27] continues to boom. And all of that puts the focus very much on the strength in the U.S. economy. [2:31] So that's the sort of backstory as we go into this important moment for Kevin Walsh. [2:35] Does that hawkishness get reinforced by whatever he has to say? Because the markets are still [2:40] ultimately waiting to see which Kevin turns up. We saw the hawkish side of him, of course, [2:44] at his first Fed meeting, where he emphasised the focus on inflation over the jobs part of the [2:49] mandate. Bloomberg Economics, I thought, really interesting with their analysis. We see Walsh, [2:52] above all, as a politician whose rhetoric at the June FOMC meeting played to both sides. [2:57] They think, our team at Bloomberg Economics, think he's going to stress price stability [3:02] and he's going to talk about what happens in terms of the task force. So he may not be [3:07] tempted to make comments, of course, in the direction of rates. He's made the point that [3:12] they want to be data dependent. But he may use these five task force that he's rolled out for [3:17] the Fed as a reason to emphasise possibly that the focus should be there rather than hiking rates [3:24] immediately. That is the take at least from Bloomberg Economics ahead of this. [3:27] Well, if you don't want to do any forward guidance and you don't really want to [3:30] set yourself up, commit, pre-commit yourself to anything, then maybe talking about all these [3:34] task forces is your safe territory, your safe ground. So maybe we do see him talk more about [3:39] that. Thinking about forward guidance, we're not getting a huge amount of guidance, obviously from [3:43] the ECB. They like to talk about data dependence, about taking it meeting by meeting. We continue to [3:47] hear that kind of messaging. Yesterday, that was the clear message, wasn't it? We're taking one meeting at a time. [3:53] But they are, it seems, staying alert to the pricing in the pipeline. So yes, oil prices are considerably [3:59] weaker than they were. But what kind of price hikes are already in the pipeline because of the volatility, [4:04] the big spike upwards we saw in the immediate aftermath of the attacks on Iran. So we'll [4:09] certainly be watching that as we see these central bankers continue their conversations. [4:13] And certainly the energy story is part of the focus when we think about Japan. And the currency, [4:18] clearly, further weakness there for the Japanese currency. Mark Cranfall from my MLive team saying, [4:23] maybe we need to start thinking the unthinkable when it comes to this Japanese currency. 164, [4:27] 165, those are the new levels. As for the moment, at least, Japanese officials stay on the sidelines. [4:33] Really interesting though, the comments from a senior, the lead minister, when it comes to the FX [4:38] story in Japan, telling Bloomberg, I thought really interestingly, that when they intervened in [4:43] April, that was successful. He characterised that as successful. But also this line as well, [4:48] I'm in touch, I'm quoting, I'm in touch with my counterpart in the US, he's talking about far more [4:52] frequently than most people imagine. I think that's really interesting as well, just emphasising that [4:57] they are coordinating, at least unofficially with the US side on this question of whether or not to [5:03] intervene and how to manage that currency. It was also interesting that somebody in his role didn't [5:06] take the opportunity to really give any further signals that more intervention is coming. So yes, [5:11] talking about the successes of the past might be seen in that context, but there wasn't in here [5:15] any deep messaging according to our team in Japan about, you know, standby, get ready, it's coming [5:20] on Friday. Of course, we're alert to that because it is a US holiday. I thought in the Japanese context, [5:24] the other thing that was really interesting and maybe helps us pivot a little bit to thinking more [5:28] about the BOJ and what it can do about the weakness in the yen rather than what the Ministry of Finance [5:33] can do. And that's the tank and survey. So this survey of large businesses in Japan, AI is lifting [5:39] the manufacturing manufacturers mood, it seems maybe the weekend is also lifting the manufacturers [5:44] mood. But it's not just in manufacturing in non manufacturing as well. We're actually at the [5:47] highest readings for the tank and in non manufacturers since 1991. So something is getting [5:52] people very optimistic in Japan, the strength of the of the of the weakness in the currency and the [5:57] strength of the equity market possibly part of that conversation. But you wonder what that means in that BOJ [6:01] context? Does it give more confidence that they are able to hike rates in Japan? And as we think about the AI [6:06] component there, and the uplift that that is having across Japan, at least in part, as a result of that survey [6:11] or indicated in that survey, we think about the news, which is significant, particularly when we think about the IPO [6:17] story, but also around the adoption story and sovereignty, which is that the US government, the Trump administration [6:21] has now removed these curbs on Anthropics, most cutting edge models. So fable five, along with mythos five, [6:28] they will now be from today be able to be accessed beyond US shores. So what that means, again, in terms [6:37] of how Trump administration has gone from being very, very laissez faire in terms of how they control [6:41] these models to hang on a second, this is potentially dangerous, the potential for these models to escape [6:47] their guardrails. They appear to now have the Commerce Department in the US, some assurances from [6:52] Anthropic to the point where they can remove these export controls that came as such a shock when they came into [6:56] force in June. Yes. And as we go into the second half of the year, interesting to think about where the AI story has [7:01] come through the first half of the year, Tom, and the rollout of new AI models obviously has been at the frontier very [7:07] important to that story. But capex and who gets the profits from all that capex has certainly been part of it as well. We came into the year [7:14] thinking a lot about how hyperscalers are going to spend a lot of money. We're still thinking about that. But it's not the [7:18] hyperscalers that are seen as the big beneficiaries necessarily here. They're doing a lot of spending. [7:22] Where does that money end up? It ends up with the chip manufacturers. It ends up with the memory [7:26] manufacturers. And so as a result, we've seen such incredible outperformance for some of those semi [7:31] companies, but not for hyperscalers and not for software. So in terms of unpacking where the tech [7:36] story has been over the first half of the year, I think that's important to reflect on. Also worth reflecting [7:41] on at least today, Michael Burry's short position, taking a short position on on the Sox. Of course, [7:46] the semiconductor index, that quote from him saying the semiconductor ranges of the Sox is itself is a [7:52] pure form of overvaluation in an index, a form that is rarely seen and never so easily recognized. A [7:58] couple of additional names he's adding in terms of his shorts with Tesla and the semis index, as well [8:05] as Caterpill. Yes, somebody whose name writes stories ever since 2008. Let us tell you what is [8:11] coming up on the show today. Then we will be speaking to Julian Lefargue, the Barclays private [8:15] bank chief market strategist. He's talking about power struggles in various parts of the markets. [8:21] We'll also talk to Peter Oppenheimer. We will talk to talk to him about the postmodern markets and what [8:27] that means. He's chief global equity strategist over at Goldman Sachs. Of course, we will also be [8:33] talking to McKinsey's managing partner for Europe. That is Tunde Olen Rewaju. That'll be an interesting [8:38] conversation in the AI context as we go into the second half of this year. And before all of that, [8:43] Jane Foley will be with us. Rabobank FX strategy head. Great persons who look ahead to Walsh to [8:49] think about what's going on with the yen. Yeah. And the dollar dominance, of course, [8:51] which obviously ties into yen weakness right now. So Jane Foley with her views coming up, [8:55] of course, on the FX space. Let's look ahead at what else we are watching throughout the day then. [9:01] Later today, Ireland takes over the EU's presidency. We will also be hearing about new [9:07] measures to protect the EU steel industry from the unfair impact, so-called unfair impacts of global [9:13] overcapacity. They come into effect later today. We'll be speaking to someone close to that story [9:18] as well, as Anna was saying. And at 10 a.m., we are going to be getting euro area CPI inflation data [9:24] for the month of June at 1.15 p.m. Meanwhile, we're going to get US ADP employment change in June, [9:31] after jolts came in, suggesting that the labour market remains pretty resilient in the US. [9:35] And we are also going to be getting the US MCA renewal decision at some point later today. [9:41] Keeping trade on the agenda for us. Coming up on the programme, thinking about trade, [9:44] we will discuss the EU steel quotas. We'll be speaking to Axel Eggert, who is the Director General [9:49] of the European Steel Association. As new rules come into play, what do they achieve? What still [9:55] needs to be done? Plus, Nike shares slip in late trading after executives give a cautious outlook. [10:01] We will break down those earnings from the world's largest sportswear company. Up next, [10:05] we'll be joined by Jane Foley, Head of FX Strategy at Rabobank. We'll certainly talk about the yen and the [10:10] strength of the dollar. If you have any questions, if you want to get involved in these conversations [10:14] with Jane, with any of our guests, IB plus BBTV Go is the function to use. It is Wednesday, [10:19] the 1st of July. How did we get here? This is Bloomberg. The second round effect is probably [10:40] going to take some time. What I'm really focused on is the indirect effects. Even though now, [10:46] like fuel prices are falling, what we need to look at is how the four months of energy cost increases [10:54] percolate into food inflation and into services inflation in particular. So the origin of the shock [11:00] has disappeared, more or less, before we see second round effects. I mean, there will be some. [11:08] So that makes it, I think, relatively easy. We might need another hike, but I mean, in all likelihood, [11:16] and that's of course what the market is pricing, but not as much as we thought in June. That's where [11:21] we're going to have to calibrate our rate pass. But I'm not concerned. I mean, I think this is more [11:28] than doable. European Central Bank policy makers speaking to Bloomberg about the inflation impacts [11:35] of the Iran conflict and the rate path ahead at the ECB forum in Sintra. Fed Chairman Kevin Walsh, [11:42] of course, will be speaking in Sintra this afternoon, giving markets a fresh opportunity to assess where [11:47] he stands on the key issues facing the Fed. Bloomberg's Francine Lacroix joins us from Sintra. [11:52] And Fran, of course, you have been speaking to those key officials, mostly so far from the ECB. [11:58] What is what is the mood on the ground? Is it shifting a little bit more hawkish? [12:02] What is your sense as to where things stand? Yeah, the mood is shifting a little bit. So [12:08] it was interesting yesterday because a lot of the panels here were really on AI and the longer term [12:13] impact on productivity, on labor growth and on inflation. But there's only one show in town [12:18] today, and that's the panel this afternoon, the policy panel that includes Andrew Bailey, [12:22] of course, Christine Lagarde of the ECB, the Canadian central bank governor, and then Kevin Walsh. [12:27] Now, remember, this is one of the first times that Kevin Walsh has come outside. And if you speak [12:33] to insiders, not only from the Fed, but also economists are really quite unsure whether he's [12:38] a hawk or a dove. Now, there is clearly a faction within the FOMC that are pushing him to try and be a [12:46] lot more hawkish to make sure that there's a clear message to President Trump that they will focus on [12:51] the economy and not what he wants, which is lowering interest rates. But it's interesting to see also [12:56] how he positions himself. So far, he's been a bit of a politician because he's been so careful in his [13:02] words and not really giving that much of an insight of where interest rates will go. The other thing [13:07] you need to watch out for Kevin Walsh is that he may get a little bit of a boost because they're, you [13:12] know, looking at core PC a little bit differently. It's just something statistically that's changing from [13:17] September. And so it means that core PC could go a little bit lower, making his job a little bit [13:22] easier. So watch out for Kevin Walsh. There was also an interview yesterday with Andrew Bailey. [13:28] He wouldn't be drawn into politics because that's, of course, a big story in the UK. But we could also [13:33] get an idea of where he sees the path forward for monetary policy. And then you're right, Tom. [13:39] Yesterday, we spoke to three central bank governors of the Eurozone plus Philip Lane, chief economist [13:45] at the ECB. And they say that it's a little bit too soon to look at the second round effects [13:50] of inflation. So sure, the price of oil has gone down. If you look at gas prices, they've also [13:55] stabilized in Europe. But they don't want to cry victory yet because you may have lingering [14:01] inflationary pressures. Certainly, if you look at the long term projection for inflations, [14:05] they're above two percent for quite some time. And so the market really wants to try and understand [14:11] whether there's a hike done for July or whether it's September. We heard from a lot of them that [14:18] they don't want to be drawn into these conversations because they say, look, we're meeting by meeting and [14:23] we're data dependent. But what's also very clear is that to some extent they're relying on the market [14:28] to tighten financial conditions. And by tightening financial conditions, it makes their job easier. [14:34] If markets take out this, you know, hike off the table, then it'll make their job a lot harder. [14:40] So a lot to look out for this afternoon for that policy panel. [14:44] OK, great stuff. Bloomberg's Francine Lacroix on the ground for us at Cintra. Of course, Francine, [14:48] thank you. And of course, Francine will be speaking with more central bank leaders [14:52] a little later on, including the Bundesbank president and South African Reserve Bank governor as well. [14:58] Let's think about Walsh and Kevin Walsh's appearance at Cintra and do it through the lens of [15:02] currency markets. The dollar edge is higher against all G10 peers as traders await central bank [15:07] speakers at the ECB's forum in Cintra. We're joined now by Jane Foley, head of FX strategy at [15:13] Rabobank. Jane, good morning. Thank you for coming in to speak to us. So what are we thinking about [15:19] when we're waiting to hear from Kevin Walsh? We heard a lot from him, of course, back home, [15:24] more hawkish than had been anticipated, perhaps. And we had to reprice what was going on in the [15:29] expectations of rate hikes in the United States. Now he's making this kind of international debut, [15:34] at least as Fed governor. What kind of what kind of focus will you have? What's going to be material [15:39] for where the dollar, how the dollar responds? Well, of course, as you said, we know that he [15:43] was more hawkish at that last FOMC than the market anticipated. But we also know that he doesn't [15:47] like forward guidance. And from that point of view, I think perhaps we've got to really pull in our [15:52] expectations about what he's going to signal because he doesn't like, he doesn't want us to [15:56] signal. He doesn't want an awful lot of verbal intervention, if you like, from his colleagues at the [16:02] FOMC. So it will be interesting to see his tone. We know, of course, he was a Trump appointee. [16:08] Is he going to try, if possible, over the next six, eight, 12 months in order to bring in perhaps [16:15] more of a dovish model? If so, what's he going to do? How is he going to do it? Is he going to try [16:21] and examine the US labor market and pick up perhaps slightly weaknesses in some of those headline data? [16:26] He said, for instance, we saw this week that people aren't as confident about finding a job. [16:31] So if we look at the vacancies and look at where the jobs are coming, they're not in all sectors. [16:37] Is he going to telegraph that, for instance? So there will be perhaps, [16:42] I think, many people in the market looking for inconsistencies within what presently is deemed a [16:49] fairly hawkish view from Walsh. Yes, absolutely. And that, as you suggest, you know, that hawkish view, [16:55] understandable because of what oil markets have been doing, understandable because of what the [17:00] market had positioned for ahead of that FOMC meeting. But this is somebody who, because of [17:06] the president who appointed him, everyone had considered would come in with some more dovish [17:11] approach. So do you think then, is moving to a trimmed PCE where you take out some of the [17:16] volatility? Is that going to be the secret to it to enable Walsh? Or is it something in the task [17:21] forces that enables Walsh to get to a more dovish place? You know, I don't know if it would be a [17:26] secret moving towards a trimmed PCE because people are talking about it. I think the issue there is [17:31] that if he were to do that, would it impact his credibility? And I think from a credibility point [17:36] of view, I mean, credibility is essential really for all central bankers. And I think from a credibility [17:41] point of view, what he did at the June FOMC, i.e. coming out a little bit more hawkish, [17:45] was probably a clever move because the data certainly at that point was looking a little [17:51] bit more hawkish. The labour market certainly this year has been more resilient than expected. [17:55] You know, we were, you know, in the midst of a very high oil price at that time. So I think it was [18:01] the right thing to do. But going forward, now that we know that oil prices have come off, [18:06] you know, is he going to try and shift the needle a little bit, maybe with a view to trying to [18:13] introduce a more dovish model along the road at some point. Are you convinced that credibility [18:19] has been restored, independence, and that story is done now, given the Supreme Court ruling and [18:24] what we've heard from Walsh? Or is that still an open question? I think it's an open question. [18:27] You know, I think it would perhaps be a little bit foolhardy to assume that it was closed because [18:31] he's only just begun his term. He's had one FOMC meeting, very few public appearances. And I think [18:36] he's going to be judged on that for quite a long time, given we know that Trump wants interest rate [18:41] cut. So I think that is going to be a higher hurdle for him than most new Fed chairs at this point. [18:49] So I don't think that that question has been closed yet. Okay, interesting. And I'm thinking [18:53] how that ties to what's happening with the Japanese currency that's under pressure again today. [18:57] Right now, what are we looking at? 162, close to 163. So down again in session just by a tenth of a percent. [19:04] What's the next level for the Japanese currency? Is this sell-off looking a little over its skis at [19:12] this point? How are you thinking about where this story goes? You know, I think it is. I mean, [19:17] for instance, if we look, if we step back and look at some of the fundamentals within [19:21] the Japanese economy, we look at the tank hand, for instance, that came out really very strong. [19:25] We look at the strength of the Nikkei. That's telling us something about the strength of the [19:29] Japanese economy too. We look at the how the Japanese economy has been structured. [19:34] It kept, when it had trade wars with the US over cars several decades ago, it kept a lot of the [19:40] structure, the supply chains for semiconductors, which is really standing in really good stead [19:45] right now. There's been a lot of reforms. We've now got inflation in Japan, which means that a lot [19:50] of retail investors can put money out of cash into longer dated investments. There's a lot going on [19:57] there in Japan. And yes, I do think that the yen is is undervalued. What I can't figure out is what [20:03] is going to be the trigger to turn it around. And right now, I think the Bank of Japan does have a [20:08] credibility issue because they have been hawkish for a while. And yet they've still been very slow [20:13] in hiking interest rates. And there's a lot of people in the market that believe that is because [20:17] of political pressure from the prime minister, which I'm not quite so sure about that. I think they were [20:23] slow because there was the war, for instance. There was political pressure or political uncertainty [20:27] in Japan at the end of last year. Can they pick up the pace of interest rate hikes? I think that [20:32] is going to be a very interesting question this year, because if they can, that could be something [20:37] that could help turn around the weakness. Yes. I mean, would we go so far as to say, [20:43] without the BOJ hiking more frequently, the Ministry of Finance can't handle this alone. They can't. [20:49] I would agree. Yes. So the next step needs to be, or at least the big step needs to be from the BOJ. [20:56] Can they move to a quarterly hiking schedule? I mean, if wages are rising faster than inflation, [21:00] James, does that give them the cover and the political cover, if that's needed for the politicians [21:05] to make that move? I think there's a lot of cover here. For instance, if we listen to the governor, [21:11] for a long time, him and others have been saying, look, you know, the aging population in Japan [21:16] is an inflationary factor. We're running out of labour. That is going to put a bid in wages. But [21:21] they needed to change psychology. And that psychology was moving it from a deflationary [21:26] psychology to an inflationary psychology where firms wouldn't try and cope with the background [21:31] of deflation by cutting costs. They would instead enter into this scenario where what they've done now [21:37] is putting up wages. And I think we are there, Jane. Thank you very much. Jane Foley, [21:41] FX strategy over at Rabobank. Here's what else you need to know this morning. President Donald [21:45] Trump has reported yearly earnings, yearly earnings of at least $1.4 billion from crypto and meme coin [21:52] related businesses. The figure far exceeds income from his hotels and Dolph resorts. Trump also earned [21:57] at least $26 million from new real estate ventures overseas. Schneider Electric has agreed to buy [22:05] industrial AI firm Cognite in a $3.1 billion all cash deal. Schneider says it will acquire [22:11] 100% of privately held Cognite share capital from Norway's Acre and other investors. Schneider's [22:18] move comes as European manufacturers increasingly implement AI across their factories to improve [22:23] efficiency and streamline processes. And Nike shares slipped in late trading after executives gave [22:29] a cautious outlook and warned about elevated consumer anxiety. Nike is facing pressure to produce [22:36] results with the company stock down 36% this year. Investors patience is being especially tested by [22:41] persistent softness in greater China. The results were in line with expectations, but still down 12% [22:48] from a year earlier. So there's the turnaround story that doesn't seem to be firing all cylinders for [22:53] Nike. And then there's a question about the consumer. I'm pretty cautious in terms of what we heard from [22:57] executive commentary about about the health of the consumer, not just in China, but in the US as well. [23:01] Yes. And in particular on the China story, Bloomberg opinion columnist Julianna Liu writing about that [23:06] 17% drop in sales in China and saying this is a lot to do with Chinese competition. And the answer to [23:11] this is not restricting availability in China, which is part of the, that some have suggested Nike could [23:16] do. But, but the suggestion here is more localization, more China orientated collections. And that they say [23:23] is according to one opinion columnist is the, is the, is the suggestion. Because that's exactly what [23:28] brands, Chinese brands like Anta have done and have obviously done very well. And that is the [23:32] competitive threat for Nike in the Chinese market. Yeah, absolutely. So coming up on the program, [23:35] we will speak to Julianne Lefargue, Barclays private bank. He will be with us to discuss how [23:40] European stocks have just capped their best quarter since 2020. We'll talk stocks, we'll talk other [23:46] assets as well. This is Bloomberg. Welcome back. We are 30 minutes from the start of the opening trade [24:11] this Wednesday. European futures right now pointing down by two tenths of a percent, but that's in the [24:15] context of a strong session yesterday. Record highs for European stocks up eight tenths by the close. [24:20] Today, a little bit more caution as we look ahead to comments from the Fed's wash at around 2pm [24:24] alongside Bailey and Christine Lagarde as well. FTSE 100 futures pointing low by 33 points, [24:29] down three tenths of a percent. Over in France, a slightly brighter picture. The cat current, [24:33] well, very modestly currently flat, actually looking to add just one point. That is the European [24:39] equity markets futures picture. What's happening on the bond space? Yes. Well, actually, [24:43] on the bond space, we're seeing yields ticking up a little bit. We're seeing some selling of bonds, [24:46] certainly at the 10-year horizon across Europe. It's pretty indiscriminate. It's across all of [24:50] Europe, and we're seeing that kind of in keeping with slightly higher yields over in the United [24:55] States. Yesterday, we saw gilt yields up by four basis points at the 10-year, and that was partly to [25:00] do with some questions still or reintroducing questions about how to fund defence. So we will be [25:06] keeping an eye on that when gilt markets open at eight o'clock, of course. Okay. Meanwhile, European stocks, [25:10] as I mentioned, closing at a record high yesterday, as the revival of the AI trade added momentum to [25:15] a rally that's delivered the best quarter since late 2020. The S&P 500 also capped its best quarter [25:22] in six years. Julien Larchage is Chief Market Strategist at Barclays Private Bank and joins us now. [25:29] Julien, good morning. Thank you for joining us. How confident are you in the European equity story at this [25:35] point, given the movements around the strait, energy prices slightly lower? Is this the moment [25:42] for European equities to continue to build on the momentum that we've seen? Yeah, we do think we're [25:48] going to see an opportunity in the second half of this year for Europe to do well. They did very well [25:53] starting the start of the year until the beginning of the war. And as the war started, then we had this massive [25:59] rotation back to AI. We called in November for this rotation to happen in our views being delayed, [26:06] not cancelled. And I think the second half of the year could mark a positive momentum for Europe. Now, [26:14] I think we have to keep in mind if we look a bit further down the line that we're going to move into [26:18] 2027. And at some point, people will start worrying about French election and other political issues, [26:24] potentially in Europe. So I think it's going to be a short trading window for Europe between now and [26:29] the end of the year. OK, interesting. A short window. And what are the catalysts for that window [26:33] to drive the gains further, even if that window is relatively short? Well, I think you have to. You [26:37] have the reopening of the Strait of Formals. Obviously, Europe was most impacted alongside the emerging [26:42] market, but Europe was impacted by that. And the second will be if we do see what we believe we're going [26:49] to see, which is a broadening of the readership in markets, i.e., not so much focused on AI or solely [26:56] AI. Europe screens relatively cheap. It's a bit of the AI, anti-AI trade at this point. And we think [27:03] that could also appeal to investors simply because U.S. equity valuation aren't necessarily that appealing. [27:10] As you said, we've had a fantastic quarter. It looks a bit overbought at this point and maybe [27:16] overown. So that's that's where we think the catalyst could be. Julian, good morning. And you've [27:21] been talking about the AI trade evolving from exposure to execution. And is that where Europe [27:28] can get more out of the AI trade? Yeah, exactly. And I think also, you know, we talked about the next [27:33] six months. But if you look at the next few years, Europe clearly has its opportunity there. Yes, we don't [27:39] own in Europe the most advanced frontier AI model, but we're pretty good at everything that is [27:45] industrial manufacturing, et cetera. And so if you think about the next step of AI, which could be [27:50] physical AI, I think Europe has a clear place and the role to play there. So in our view, you shouldn't [27:58] dismiss Europe. Europe is always more of a trading market because you always have, like we mentioned [28:03] with France election coming up, some concerns emerging. But we do think there is a space for Europe, [28:09] a place for Europe within the AI trade, which we expect to broaden in the next months, maybe years. [28:17] Yes. And I noticed from a sector perspective, you like tech or IT and you also like healthcare. [28:21] Yeah. That's a sort of barbell feel to it. I mean, what is the is healthcare acting as a protection [28:26] against something that happens with tech or what's the strategy there? Well, it's more thinking about, [28:31] okay, we've focused so much on the infrastructure buildup. What's the next stage? And look, markets [28:39] have generated a huge amount of value with this infrastructure buildup. But for us, this is just a [28:44] fraction of what we could see if AI turns out to be what we expect it to be. And then so we're thinking [28:51] about which sectors next sector will be able to benefit. And one that is obvious in terms of being [28:57] able to implement AI relatively quickly, because it's already the case, it's healthcare. Whether [29:02] you think about drug discovery, diagnosis, it's already happening. So for us, healthcare is also [29:09] playing on the defensive side, a sector that has underperformed. But it's also thinking about the [29:14] next leg of the AI trade. Yes. I mean, and actually just on that subject, we had news out of Anthropic, [29:20] didn't we, just in the last, I think it was just the last 24 hours, Claude Science being released, [29:24] which is to automate biology, chemistry, all of those kind of tasks, which, yeah. Yeah, drug discovery, [29:31] drug discovery is clearly part of something that they're aiming at. You saw some of the listed [29:35] companies in the US falling in the back of that announcement from Anthropic. So that's an area [29:39] that you're interested in. I'm just wondering in terms of, you talked about this short window, [29:44] I want to take back to the European stock story, a short window. Why is it a short window? What kind of [29:48] derails Europe in 2027? Well, usually, and that's a feature of not the bug of the region, [29:54] but politics will. And again, the French election for us is going to be, the campaign is going to [30:00] start early next year. And that's probably going to keep away some global investors, because there's [30:05] always this risk as to which party is going to dominate. We know that Macron cannot run again. So [30:10] you're going to have a change in leadership in Europe. So we also know that France has some issue [30:16] when it comes to sovereign debt and the level of debt. So that could be an issue, we think. [30:22] And the other one is, you know, Europe is a very open economy. And so it will be at the mercy of [30:28] anything happening globally. And we are in a very complex world these days. We've seen what happened [30:33] in the Middle East. That's one. But anything else could happen. And Europe will, by definition, [30:37] be impacted because it's such an open economy. So that's why you always have something happening where [30:42] people will question, you know, can Europe actually outperform over the longer term? [30:47] So for us, it's more of a trading opportunity rather than saying we want to hold it on it forever. [30:52] Yes. And with that in mind, the French elections and the other electoral events coming, [30:55] and the focus on the fixed income and the fiscal challenges that Europe has. [30:59] I mean, are you then, are you then, do you like fixed income? I noticed that you, [31:03] where you do like fixed income, you like it for carry because you like the yields. They're [31:07] giving, giving you more than inflation in a lot of places. Does that apply to European government [31:11] bonds? Is that the strategy there? Yeah, it's, it's, it's one area where we do see opportunities. [31:17] Is it Europe that we prefer? Probably, probably not. I think we, you see better opportunities in [31:22] emerging markets in particular, simply because you do see fundamentals that are in many cases [31:27] stronger than in developed markets. But there are opportunities in, in Europe. Well, in the UK in [31:33] particular, we think we could see good entry point if we do have a bit more of a political noise [31:38] for the summer. On gilts? On gilts. Right. Yeah. So that brings the price down and that's [31:44] the good entry point. Exactly. So you're not worried about the fiscal sustainability questions [31:48] that that might raise? No, I think, look, the market may, may have its moment and be a bit scared [31:53] about the next step in UK politics. But for us, that would be an entry point rather than something [31:58] that we would run away from. What, what level of yields would, where, where would you end that trade? [32:04] I mean, where, when does, is it kind of anything above 4% on the 10 year? Looks good to you? [32:10] How are you thinking about? On the UK? On gilts, yeah. Yeah, I think if you, if you get, you know, [32:15] closer to, to five, I think, I think you close your eyes and you just go for it. So we're at 475 right [32:21] now on the 10 year? Yeah. Not far. Yeah, we're not far. You know, anything above five for us would be, [32:26] would be a good entry point. Again, you have to, to understand why exactly we get there, right? So it [32:31] depends on, on what is the catalyst for this spike in yield. But assuming there is no big change for [32:38] us, anything above five is a clear. And politics more important than the BOE right now for gilts? [32:42] Yes. And you assume the BOE stays on hold? Yes, that, that's, that's our view. I mean, look, [32:46] like any other central bank these days, it's a, it's a bit of a question mark. And depending on what [32:51] happens over the last, I don't know how many days we have left, 50 days or so. But for, right now, [32:57] it's more of a fiscal question than anything else in the UK. Julian, thank you very much. Thank you [33:02] for joining us, Julian Lafargue, Chief Market Strategies at Barclays Private Bank. And a special [33:08] congratulations for joining us as we, as I think you stayed up to watch the French game. I did. Yes. [33:13] And it was worth it. It was. Excellent. It was worth, it was worth it coming as well. There's nothing [33:17] worse than staying up to watch your country go out on penalties. We can, we can say that. No, we're near close [33:22] to that last night for France. 3-0. Absolutely impressive. European central bankers then are [33:27] warning about the impact of the Iran war on inflation and on growth. This energy shock has been [33:36] clearly stagflationary, not like in the 1970s. That was a very deep stagflation, but its nature is of [33:45] similar kind in the sense that, at least in the short term, inflation has, has increased while [33:53] growth of Lucas has weakened. That was Oli Wren, the Bank of Finland governor and ECB [33:59] governing council member, of course, speaking to Bloomberg at Cintra. We will have more from the [34:04] forum throughout this morning as we work our way towards that panel featuring Kevin Walsh later on [34:09] today from Portugal. Meanwhile, this is London. This is Bloomberg. Welcome back, everybody. This is the [34:34] opening trade. 17 minutes until we get that opening trade and the European equity market picture looks a [34:39] little bit sluggish this morning. Maybe the DAX outperforms a little bit. That would be in keeping with [34:42] yesterday where technology stocks were the best performers, industrial goods and services. That [34:47] all played to the strengths over on the DAX. US futures are pointing weaker and, Tom, Nasdaq [34:52] futures down by four tenths of one percent. So it does look as if a little bit of uncertainty around [34:56] the technology sector is warranted, perhaps, in today's session. And continued uncertainty, [35:03] frankly, about what's happening in terms of the US and Iran as well, with negotiations, of course, [35:07] taking place yesterday. The US says negotiators Jared Kushner and Steve Witkoff had positive [35:12] discussions with regional leaders in Doha on a deal with Iran. It comes as the Wall Street Journal [35:16] reports President Trump has been briefed on options to return to all-out war against Tehran. Let's get [35:22] more and bring in Bloomberg's Abu Abir. Omar Stoneybine, Dubai. Abir, what is the latest? [35:28] Good morning, Tom. So, look, what we know is what essentially you had just mentioned is that the [35:34] talks that happened in Doha had gone on a positive trajectory. This is according to Bloomberg sources. [35:40] Now, Steve Witkoff and Jared Kushner, President Trump's son-in-law, were in Doha yesterday negotiating [35:46] those unofficial talks with Iran, with Qatar, one of the main mediators, being obviously present at [35:53] the table. The prime minister of Qatar also holding talks with both Trump's top negotiators. What we know [36:00] is that the talks had gone positively. We don't have a lot of clarification on what exactly [36:04] that means. But I guess a step towards a better place than what we've seen over the past few [36:10] months or so. Now, what we have from the Iranian side, and this is according to the top negotiator [36:15] from the Iranian side and the Speaker of the Parliament, Khalibaf, who's been on top of those [36:20] negotiations over the past few months or so, he said that about $12 billion of frozen assets are in [36:27] the process of getting released. Oil sanctions are lifted and Iran is able to sell its oil at a premium. [36:34] Now, we don't have confirmation from the American side on these notions that he had mentioned, [36:39] but what we know for a fact from both sides is the contention around the Strait of Hormuz, [36:46] and that is a topic that's taken shape over the past couple of days, Tom. And it's about Iran saying, [36:52] or being really adamant on tolling the Strait of Hormuz once the negotiation period over the 60 days is [36:58] over. The U.S. threw the Secretary of State Marco Rubio last week in the GCC saying that is [37:05] completely unacceptable. Iran saying acceptable or not, and whether with the help of Oman or not, [37:13] they will charge the Strait of Hormuz once the 60-day negotiation period is over. Now, that's caused a [37:19] little bit of caution with the movement of ships and tankers through the Strait of Hormuz over the past [37:24] couple of days. But we're still seeing movement there. Both Morgan Stanley and Goldman Sachs coming [37:30] out saying an oversupply in the oil market is something that is expected to happen. Morgan Stanley [37:35] actually bringing down its average oil price estimate to $75 a barrel for both the third quarter [37:42] and the fourth quarter. But when it comes to the wider negotiations, we continue to monitor and see [37:47] just the trajectory of them. President Trump, as you had mentioned, a Wall Street report through [37:53] their sources suggests that he is choosing to go down the diplomatic route even if the negotiations [37:59] have to go beyond the deadline in August after the 60 days and not do a full-on back-to-war [38:07] intervention there. And so, again, something we continue to keep an eye on and whether those [38:12] discussions take a different shape in a different country over the next couple of weeks or so. [38:16] Aabir, thank you. Aabir Abu Omar keeping us up to date on the talks that take place. She's in Dubai [38:24] and we thank her for the update there. Oil price is pretty stable actually this morning. Let's turn [38:30] to today's Mark is in three minutes on the opening trade with Mark's Live executive editor Mark Cugmore. [38:35] Mark, what might not be stable in the next 36 hours or so is, well, a whole host of assets watching [38:42] what we get from Kevin Walsh and then preparing for a public holiday in the United States. So, [38:46] give us a sense of what it is you're going to be watching for from Cintra, from Walsh and the [38:51] other assembled central bankers over the next day or so. I think the backdrop for July is very [38:59] positive for stocks if we get to the next 36 hours. So, a lot of it is about analyzing it through [39:04] the lens about when will be your opportunity to maybe to enter in more kind of bullish views. [39:09] I set the perspective that we're getting clearly strong growth. We seem to have moved beyond the Iran [39:14] conflict. Oil prices have retraced a very long way. We're getting still large capital expenditure [39:21] from the private sector as well as fiscal injections from state sectors globally. So, [39:26] I think that the overall backdrop is relatively good for stocks and to an earning season that I expect [39:31] to be generally supportive. Now, in the short term, as you said, we've got Cintra, which is a risk. [39:35] I think we'll get through that risk, but it is a risk. Now, because of the way rates have moved in the U.S. [39:40] over the last week or so, it is much more two-way risk, which makes it interesting. And then there's [39:45] non-farm payrolls tomorrow. Now, if jobs data tomorrow is strong, that'll probably see rates [39:51] jump up again. And, you know, it might disrupt stocks in the short term, especially at the low [39:56] liquidity. But ultimately, people will go into next week kind of going, hey, the only reason we're [40:00] going to get higher rates is because the economy is very strong in the U.S. And that is ultimately a tailwind [40:05] for stocks. So that'll be the outcome, which is maybe short-term negative, but ultimately positive. [40:10] On the flip side, if we get, you know, a negative non-farm payrolls number, we might again see a [40:17] little bit of nervousness that, hey, wait a sec, how are we seeing too slowing growth? But then very [40:22] quickly, or maybe over the next week or two, we'll see rates come down a lot lower because then it'll [40:26] allow Warsh to be subsequently dovish, no matter what he delivers today. And that will support stocks. [40:31] So really, it's about a timing. Do we, you know, do stocks rally from the end of this week? Do they rally [40:34] from the start of next week or do they start rallying a week from now? But overall, [40:38] then the backdrop for July is positive once we get through this tail risk. First up, [40:41] of course, is Cintra. I'm not expecting something to happen, but we should be very prepared because [40:46] people will over-interpret anything Warsh says. Okay. So be on the ready for any over-interpretation [40:54] of the verbiage from Warsh. As you think about that potential rally then going forward, Mark, [41:00] is the concentration risk story behind us? Does this become a market that has more breadth? [41:05] I think it's no to the first and yes to the second in terms. I think we will get more breadth in the [41:12] rally because I think this is going to be a rally in July on the fact that growth is still holding up. [41:18] And I think that's going to, you know, be supportive for a wider kind of part of the economy. [41:23] But ultimately, everything is still dominant by the AI theme. We still have an AI capex bubble there. [41:27] Part of the strength in the economy is the capex bubble from AI. So, you know, ultimately, [41:33] that is still going to be the dominant factor. And we can't have AI sector, you know, struggle [41:38] or collapse and the rest of the economy make up for it. So I think the breadth will widen out during [41:44] the good times. But I think that if AI has a swoon at any point, that will drag the whole market down. [41:50] So we we still have that massive concentration risk, even as breadth will widen out over the next month. [41:56] OK, Bloomberg Markets Live executive editor Mark Cudmore. Thank you. Remember, you can get up to date analysis [42:01] and insight from Mark and the rest of the team. Just go to MLiveGo on your terminal. [42:05] Let's bring you Chloe Mele now, who's standing by with your stocks to watch this Wednesday. Chloe. [42:09] Good morning, Tom. Let's start with sportswear this morning, because Nike over in the US has given [42:14] quite a cautious outlook and has warned that the consumers are under a lot of pressure at the moment. [42:20] So this will add to existing investor anxiety around that company specifically. But we could also see [42:26] some read across over in Europe for some of those sportswear stocks that we have here, especially Puma, [42:31] Adidas and JD Sports will be in focus today, especially given the fact that this is not a [42:37] company specific problem that Nike has mentioned. This is very much about that broader environment. [42:42] Moving on to Schneider Electric, which has bought a company, an industrial A.I. company called [42:47] Cognite for three point one billion dollars. This is part of this drive among industrial companies [42:53] to really integrate A.I. onto the factory floor to boost productivity. We could see this acquisition [42:59] lift the shares this morning for Schneider Electric, has been one of the big beneficiaries [43:03] of this huge spending on A.I. infrastructure. It is worth noting we've got this quote here from JP Morgan [43:09] that M&A at Schneider always makes them wince upon announcement, but that it has proven [43:14] strategically astute often. So we'll be watching out for any impact and reaction there. And finally, [43:19] more M&A over for Shell, which has agreed to sell its stake in some US oil assets for 1.7 billion [43:27] dollars. This is part of a strategy of reshaping the portfolio. It's not uncommon for those super [43:33] majors to sell those aging assets and refocus that capital on newer projects. So this could be [43:39] as that happening there. And we have seen actually Shell underperform BP by quite a large margin over [43:45] the last year. So we'll see if this selling of its stake is enough really to lift the shares this [43:51] morning. Chloe, thank you. Chloe Mellie with the stocks to focus in on. We'll look for any read [43:56] across from the Nike numbers into sports manufacturing companies here in Europe. And [44:00] sometimes it's a it's a read across in a positive sense because what one loses the other gains and [44:06] sometimes it's a negative, you know, if one loses the others are seen to be exposed as well. So that's [44:11] one sector that could be in focus. But it's interesting that Europe, the US futures are pretty negative and [44:16] the Asian handover has been pretty sluggish. So it's as if we don't quite have a new narrative to get our [44:22] teeth into this morning here for European stocks as we wait for Walsh. After those record highs for [44:26] European stocks yesterday in tech played a big role. So we'll watch ASML and and see if that [44:30] company performs well again today. I'm interested in the miners given what we're seeing in copper, [44:34] iron ore, gold and silver, all under pressure. And it's worth noting that the gold is on track [44:40] or has had its worst quarter in fact in more than a decade, more than a decade gold. So that's part of [44:44] the kind of retail frenzy has fizzled out, but also the fact that the dollar strength is there as [44:50] well. Yes, absolutely. And that also reflecting the changing thinking around the Fed. So if you get [44:55] Fed hawkishness, of course, then the opportunity cost of holding gold, you reassess that. And so [45:00] as a result of that, we've seen some weakness in the gold price and gold is at 3.973. Pretty flat on [45:06] the oil price as we watch. Relative stability. So do you want to be on the sidelines essentially [45:10] ahead of Walsh and ahead of the non-farm payrolls data? Well, Mark was telling us the next 36 hours, [45:15] there's a lot of risk in the markets. Then he's more positive on what happens in July proper. This is [45:19] July, of course, first of July. But he was saying that's 36 hours. We have a number of risk [45:23] events. We have to get to the end of this shortened US trading week before we kind of look ahead. But [45:29] yeah, hearing from Walsh on the international stage will be part of that narrative. European futures [45:33] currently pointing down by just a tenth of a percent coming up. It is the opening trade. [45:38] Futures pointing low, as I mentioned, but not by huge amounts. Stay with us. This is Bloomberg. [45:43] Welcome back, everybody. A few minutes to go then until we get that opening cash trade here in [46:16] Europe. And the picture as painted here in the US session of yesterday would look like a positive one. [46:22] European equity markets closed where this yellow line is. And then we saw some modest gains coming [46:25] through or more than modest gains coming through on US markets after that point. So that you would [46:30] have thought might provide us with something of a positive setup. But then the Asia session looking [46:34] a little bit lackluster and Europe did quite a lot with the tech trade yesterday. So maybe we've [46:39] got all we can out of that for just the moment. So futures are looking a little bit sluggish. [46:43] Last time we checked in on them, it seemed that the DAX would outperform. There we go. DAX futures [46:46] perhaps outperforming a little bit. FTSE futures will look for energy and basic resources to be a driver of [46:51] maybe some of that weakness coming through there. So that's the picture across these European futures [46:55] then looking flat and negative really, Tom, as we wait for a number of risk events. We've got yes, [47:00] Kevin Walsh speaking later on today. And then we get the non-farm payrolls number tomorrow, [47:05] not Friday, tomorrow, Thursday. And so all of those risk events still ahead of us for stocks. [47:10] Some interesting individual corporate stories as well to focus your attention on this morning. So we had [47:15] that caution coming through from Nike on the back of their earnings. Certainly executives [47:19] not painting a particularly bright picture and China as a market is a challenge. So we'll look [47:24] at the sportswear stocks in Europe to see what the read across there is to what we heard from Nike. [47:30] So companies like Adidas, of course. AB Foods, the owner of Primark, reporting falling sales at its [47:36] Primark budget fashion chain. That's as the group prepares to separate actually clothing and food [47:42] divisions. So we look at AB Foods and Schneider Electric with a deal around the AI space to buy [47:47] Cognite. So we'll see how investors react to some M&A as well from Schneider Electric, Anna. [47:52] We get a little bit of M&A, a bit of asset sale, some asset sales taking place from the energy space [47:57] to that Schneider story that you were just mentioning there, Tom. So we'll see if those [48:01] individual corporate stories cut through or if this is a day where we are just sitting on our hands and [48:05] waiting for Kevin Walsh to speak. Of course, we've heard already from him, notably that more hawkish than [48:11] expected FOMC meeting aftermath. But we haven't heard from him very often in the role as Fed Chairman. [48:18] So we will certainly be looking for all of the context and everything that he gives later on [48:23] on the stage at Cintra. So the European equity markets then just getting into their stride this [48:28] morning. And it is it's not a stride that's going very far right now. It's the FTSE 100 that's pretty [48:33] flat. A stock 600 that is just on the back foot down a tenth of a percent. The AEX, the IBEX and [48:38] the Cat Caron down by one, two tenths of a percent. So we're not seeing a huge amount of movement. [48:42] Yesterday, tech stocks did pretty well in Europe. At least they were the best performing sector [48:47] across Europe that played well for the Zetra DAX. We'll see another day of that. The DAX is not yet [48:52] open. Tom, what do you see in the sector picture? Yeah, all of this in the context, [48:55] of course, of record highs for European stocks yesterday. At the top of the list in terms of the gains [48:59] coming through. Chemicals up nine tenths of a percent. Autos also gaining six tenths of a percent, [49:04] despite the challenges, of course, in that sector for Europe. On the downside, as we had expected, [49:09] basic resources then as a result of what we're seeing in terms of iron ore, copper and gold [49:13] and silver down in terms of pricing. So basic resources is the biggest hit right now in terms [49:17] of sectors with drop of one percent. So that is down one percent so far in your sectors. Media also [49:22] taking a bit of a knockdown, nine tenths of a percent and energy lower as well. We talked about the [49:27] relative stability in oil prices so far in the session today. Energy is down four tenths of a [49:32] percent. Again, the gains coming through for chemicals, autos and telecoms, but most sectors [49:36] are now in negative territory, Anna. Yes, most sectors are, aren't they? And that chemical story [49:41] and autos from parts, maybe that still plays well for the German market. So we'll certainly look for [49:45] that one to open up. Still closed over on the Zetra DAX, as you say, basic resources, media, [49:50] some of the worst performing sectors today. In terms of the individual stocks on the move, [49:54] Schneider Electric is one of those that you flagged a moment ago then, Tom, because of that [49:59] deal. And that stock is down by two percent. We're also watching some of the mining names [50:03] a little bit weaker. Glencore, Rio Tinto, for example. And to the upside, SAP. That's interesting, [50:10] isn't it? After the weakness that we've seen in software stocks and hyperscalers and the gains [50:14] we've seen in chip stocks in the first half of the year or certainly the second quarter of the year. [50:19] Let's turn our attention then to where we go into the second half of this year. Peter Oppenheimer [50:24] joins us, Chief Global Equity Strategist over at Goldman Sachs. Peter, great to have you with us. [50:28] Thanks for being with us. Let's think about, look ahead a little bit, I suppose, to what we expect [50:33] to see from here, because we've seen some really fascinating dynamics within the tech space in the [50:39] second quarter of the year. The market's managing largely to look through a lot of the geopolitical [50:44] tensions. How does that set us up on July the first for the second half of 2026? Well, look, [50:50] I think it's been an extraordinary first half of the year and a lot stronger than I think many [50:54] people would have imagined given the macro backdrop and the uncertainties that unfolded. But that's [50:58] really down to earnings being very strong. And I think that's going to continue to be the case and [51:04] what really drives equity markets in the second half. We don't think valuations are really going to [51:09] go up from here. But really, they didn't do much in the way of contributing to returns in the first [51:15] half either or indeed since last year. So as long as the earnings continue to be good and to broaden [51:21] out, I think we'll get continued gains through the second half, probably lower than we saw in the first [51:27] half. But I think it will be quite broadly based. And that should be a good environment for investors to, [51:34] you know, enjoy a diversified balance return. Yes. And what's going to be driving that earnings [51:38] story then in the second half? I mean, different things in different sectors, I'm sure. We focus [51:42] a lot on technology and the incredible profits that some global tech names, particularly in the [51:47] in the memory space, have managed to make in the first half of the year. What drives the earnings [51:52] story then into the second half? Well, I think it's two things. Technology is still a key driver of [51:59] earnings growth. If we think about the S&P, for example, going into the second quarter, [52:03] expectations are over 20 percent growth year over year, stronger than the first quarter, [52:08] and about 60 percent of that is expected to come from actually the hyperscalers. Right. Now, [52:14] they have under-beformed. They've actually de-rated, but they weren't rewarded for that, [52:19] because investors are looking at longer term future, potentially slower returns. You said the same [52:25] in software as well. The performance has shifted to hardware, but broadly across the tech space, [52:32] you're still getting very good earnings growth. I think that will continue. But also important to say that [52:38] this massive ramp up in spending that the hyperscalers have been doing has been and I think [52:44] will continue to trickle out into some better earnings growth into other sectors, which are [52:50] really helping to support that infrastructure build out. And that's why we are seeing a bit of [52:54] a broadening out and why actually Europe, as you mentioned, you know, has been holding up well. [53:00] In fact, the first half of the year doing it as well as the S&P, despite having much lower exposure to [53:05] technology. It's quite an amazing statistic, isn't it? It is. Since the beginning of the war, [53:09] slightly different. But if you go back to the first to the start of the year. Yeah. Yeah. [53:13] Europe holding up as well, despite all of our focus on AI. What is your level of conviction that [53:18] that European story continues? Is there a rate risk if the ECB, the ECB officials are sounding [53:24] pretty cautious right now in terms of second round effects on inflation? Do interest rates derail the [53:29] story? Do politics derail the story? We were speaking to a previous guest at Barclays saying there's a six [53:33] month window for further upside for European stocks. And then 2027 is a very different story. [53:38] Well, I think the first thing is that there's still a valuation advantage that Europe has [53:44] relative to other markets, even when you sector adjust. So when you look at comparable companies [53:49] in Europe, they tend to have a lower valuation. It's true. On average, they tend to have lower [53:55] growth rates. But, you know, profits are holding up really quite, quite well. And I think that will [54:00] continue. So from here, given that we don't expect rates to be trending down, although we do expect [54:07] them to come down again next year, the main driver of equity markets is going to be profit growth [54:15] through the remainder of the cycle. I think Europe stacks up reasonably well. It has been the weakest [54:20] of the major markets since 2025, but only marginally weaker than the US. And when you consider that so much [54:28] of the focus has been on technology and Europe has lower exposure, that is a reflection, actually, [54:33] of many of these other areas that Europe has exposure to in the value space, actually generating [54:39] pretty good cash flows and shareholder returns. I think that will actually continue. So I would [54:43] expect more moderate index gains, but still Europe making some decent progress. And you talked about [54:49] and reflected on that hyperscaler spend and how that is broadening out in terms of other companies [54:53] benefiting from that. And Europe does play a role there. Yes. With those names that connect to, [54:58] like the energy, the infrastructure piece, and the support around data centers. Where are we in [55:03] that story? I mean, for some, that's been clear for a while. Is there still a place, is there still [55:10] further significant upside for European companies that play in that space around the infrastructure [55:15] story on AI? And how should investors be thinking about getting exposure to that? I think there is, [55:20] we're still in the relatively early stages, because there are two combining drivers of what I think [55:26] really is a super cycle in capex and investment spending. One of them relates to the whole buildup [55:33] of infrastructure around AI, the first major infrastructure build out in technology since [55:40] the commercialization of the internet more than a quarter of a century ago. But remember, it's also [55:46] coinciding with governments around the world, including Europe, borrowing more money to spend on [55:52] critical infrastructure, increasing or improving the robustness of supply chains, of energy capacity [55:59] and supplies, and also, of course, on defense. So it's a combination of these two things, I think, [56:04] which are going to continue for some time. And Peter, that is a feature of what you call the postmodern [56:10] cycle. Yes. Because we've been through, in your terms, in your notes, you talk about the traditional [56:14] cycle up to the 1970s, the modern cycle, 70s to the sort of 2010s. And then since the pandemic, this [56:20] postmodern cycle, which on the one hand sounds challenging, because it's away from globalization [56:26] and all the things we understood at the beginning of the century. But you say that actually, that [56:30] throws up alpha opportunities because of this investment in critical infrastructure and all kinds [56:36] of other things that governments and companies are having to do now. That's right. And I mean, we first [56:40] started to talk about this postmodern cycle four years ago, because we were recognizing that apart [56:46] from the shorter term cyclical factors, there were some secular shifts beginning to emerge, less [56:51] globalization, more regionalization, an increase in government borrowing and spending, a rise in [56:59] inflation and interest rates over the last four or five years. Remember, long term interest rates have [57:04] moved dramatically. We had German, Japanese 30 year yields at around zero, just five or six [57:10] years ago now, three and a half to 4% massive change. But alongside that, massive changes and upscaling [57:18] of innovation and technology, also a shift in the priorities of governments. And that's increasing [57:25] the prospects of a super cycle in capex, which is actually broadening out the investable opportunities [57:31] for investors. But again, I think increasing the focus on alpha relative to beta, I think valuations are [57:39] going to be less of a driver of returns compared to the last 10 or 15 years. Investors might have [57:45] been concerned about a pivot to this postmodern era, as you describe it, if it featured higher [57:51] inflation, higher cost bases, higher yields. But you don't paint a picture where those things necessarily [57:58] worry too much. Well, I think there is certainly concerns. I mean, governments are borrowing a lot of [58:04] money that is pushing up the cost of capital. And I think that does increase the differentiation [58:12] between companies that can easily cover their cost of capital and those that increasingly over time [58:17] will not. That's why alpha, I think, is going to become a more important driver of returns. But on the [58:24] other hand, I think that while that creates a challenge and potentially a risk, if bond yields rise much [58:31] further, we are getting these new drivers of growth. And there, you know, in the last sort of 10 or 15 [58:39] years, there was really an excess of global savings and not that much to do with those savings because [58:46] growth rates were very low. Inflation was low. Nominal GDP was very weak. Now there are many opportunities [58:52] to invest. And that's creating the opportunity to to pick stocks and to differentiate much more. [59:00] Peter, where does the UK and UK stocks sit in that story, whether it's the large caps or the or the [59:05] small caps, the mid caps? Where do UK equities sit in? Well, I think they fit very well in the value [59:10] space and a very important part of a global diversified portfolio. It's a small market now, [59:16] but it is very cash generative. It's got the highest free cash flow yield of any major market in the world, [59:23] around five and a half percent. It's made up of lots of sectors which have a very high shareholder [59:29] return because you have a high dividend yield and many companies are buying back stock as well. [59:35] And so even with relatively low growth, there's a very strong value case, I think, to be made. It's [59:40] one of the cheapest markets. But of course, there are significant sector skews. There's no major tech [59:46] stock in the least the FTSE 100 and the FTSE 250 and the broader indices, of course, are much more domestic. [59:55] But I think there's a lot of innovation in the UK and there are a lot of very attractive mid and [1:00:00] smaller sized companies. They lack a bit of liquidity. But again, that's one of the reasons [1:00:05] why we're seeing a big pickup in M&A. And I think you mentioned that earlier on. That's a trend, [1:00:09] I think, that will continue. Acquisition targets, maybe. Peter, thank you very much indeed. [1:00:13] Always enjoy your insights. Always valuable for our audience. Peter Oppenheimer, Chief Global [1:00:17] Equity Stratus at Goldman Sachs. Let's check in on the core six European stocks right now on this [1:00:24] Wednesday trading session, 12 minutes in. You're looking at ASML that performed strongly yesterday, [1:00:28] down 0.6%. The gains are coming through, interestingly, for Ryan Mattel in the defense [1:00:32] space. Gains of almost 2% there. Schneider Electric on that acquisition story, talking about [1:00:38] acquisitions, currently down 2.4%. And largely unchanged on Novo. A little bit of downside [1:00:44] pressure in the luxury space. LVMH down 0.8%. Let's check in on to the other individual stocks [1:00:48] on the move and bring in Chloe Mellie. Chloe. Good morning, Tom. So let's start with this M&A [1:00:52] story then. So we have got Schneider Electric buying the industrial AI company Cognite from [1:00:57] Acre for $3.1 billion. And so we are seeing that driving the shares higher for Acre, but then driving [1:01:03] those shares down actually for Schneider Electric. This is an acquisition that will give it a deepening [1:01:08] expertise into the industrial AI sector. But maybe the price tag is a little bit of what investors [1:01:14] are objecting to this morning. So we're seeing a little bit of weakness there. We are also seeing [1:01:19] some weakness in AB Foods, which has reported falling sales at Primark. And this is the head [1:01:24] of this de-merger of the clothing side of things. So that's Primark. And then the food arms as well [1:01:29] of that business. And so this means that perhaps it might be quite difficult for Primark to command [1:01:34] the kind of premium valuation that Inditex or Next have, for example. And so we're down [1:01:39] about 2.8% on the back of that this morning. Moving on to Aliquide, which is a company that [1:01:45] makes industrial gases. And it is up almost 2% this morning after saying that it will build two [1:01:51] U.S. production units to supply SK Hynix, the South Korean tech giant. So that is the way that Aliquide [1:01:57] is able to kind of get into on that AI boom. And so we're up a little bit there. JD Sports is seeing [1:02:04] some weakness this morning on the back of that Nike read across with Nike mentioning that consumers [1:02:09] were under a lot of pressure and giving that quite cautious outlook. And so we're seeing that read [1:02:14] across there into Europe for JD Sports. And finally, let's end with Simrise. The ingredients company [1:02:21] has been placed on a positive catalyst watch by Citi analysts with the analysts saying that the [1:02:26] recovery in European ingredients in that sector has further to go and that Simrise is particularly [1:02:32] well-placed. And so we're up about 2% this morning for that company. [1:02:36] Chloe, thank you, Chloe Mellie, with some of those stocks that are moving this morning. [1:02:40] Coming up, restrictions lifted. The U.S. government has removed foreign access curves [1:02:44] on Anthropik's Fable 5 AI model. We'll get the latest details next. This is Bloomberg. [1:02:50] Welcome back. This is the opening trade. We are 18 minutes into a European session that's actually [1:03:15] just on the back foot now. So even the DAX now down by a tenth of a percent. When we look at the [1:03:20] sectors that are leading things around today, we see most sectors are in negative territory. Basic [1:03:25] resources, media, consumer products and services. So a mixed bag moving lower. We've seen chemicals [1:03:31] and telecoms actually a couple of the only sectors moving higher. But let's move on to the bond markets [1:03:35] because we've got some interesting moves there where yields are a bit firmer. And so we're seeing some [1:03:39] selling across the curve, it seems, across European government bond markets as well. So the UK, [1:03:44] we saw higher yields yesterday. Now we see that in the rest of Europe as well. So it's not just a UK [1:03:49] phenomenon. It seems to be all over the European bond market space, partly to do with perhaps [1:03:55] higher gas prices. That is something that some people are citing. And we have seen a [1:04:00] 2% jump now, not much, not 2%, but 1.8% higher on TTF, the gas benchmark in Europe. So perhaps that [1:04:06] is something to watch then, Tom. Okay. On the tech front, the US lifting foreign access on [1:04:11] restrictions on Anthropik's most powerful AI model. The move clears Fable 5 for wider global use after the [1:04:17] start-up resolved the Trump administration's safety concerns. Anthropik says it will begin [1:04:22] restoring access very soon, potentially as soon as today. For more, let's bring in Bloomberg senior [1:04:26] strategist Neil Campling, who's been watching this for us. Neil, just unpack the kind of the detail [1:04:31] behind this decision. The export controls were put in place in June. Now they've been removed, [1:04:36] it seems. What is the background to this decision? [1:04:39] Well, Tom. Yeah, the background really is that there were some safeguards around risks and cyber [1:04:49] attacks by bad actors using these frontier AI models. So the government had national security [1:04:55] concerns. So with these easing of restrictions, clearly they are happy that the new safeguards [1:05:02] are in place that blocks behavior that could potentially bypass some of the protections. And [1:05:07] that's what triggered the administration's move in the first place. So it's definitely a positive [1:05:13] step forward. And I think really importantly, the lifting of the restrictions basically means that [1:05:20] the US can basically keep pace with China's AI development that really has come on substantially [1:05:27] in recent months. And again, with OpenAI facing similar treatment last week as well, then again, [1:05:36] it looks likely that we are now in a place where the frontier models are deemed safe to use in [1:05:43] widespread use, which is obviously really important in terms of the AI race for filling the battle against [1:05:51] China to make sure that the US leads in AI development. So that's the front-end model side [1:05:59] of things. Other news out of Anthropic then, Neil, is the launch of a research tool. I think this [1:06:04] specifically aimed at science research. What do we know about that? Yeah, so this is an interesting [1:06:11] development overnight. It's yet another one is agentic agents, which Anthropic have been very [1:06:16] successful in launching in a range of industries in recent months. What this one does in terms of it [1:06:23] really helps scientific research. And as we know, AI industry leaders have talked a lot about curing [1:06:29] diseases, a major potential upside of the technology. And pharma companies with very deep pockets can also [1:06:36] help to facilitate the acceleration of these developments. I think the other thing to bear in [1:06:41] mind that until now, there's only really been one tech company that has had global leadership in [1:06:47] this area, really, and that's been Google's DeepMind. And overnight, effectively, Anthropic has [1:06:53] closed and perhaps even advanced DeepMind in terms of the abilities here. So it's a space to certainly [1:07:00] watch in terms of the developments going forward into science, research and healthcare. Neil, let's zoom [1:07:07] out a little bit and just reflect on the quarter that was, and particularly the gains that came through [1:07:10] for the semiconductor index, maybe at the expense of the hyperscalers. And certainly that was a dynamic [1:07:15] we saw. What lessons do we learn from that as we tiptoe into the next half of the year? [1:07:24] Yeah, so great question. We clearly saw MAG7 and the hyperscalers kind of become the funding trade [1:07:33] for investors to put money to work in the picks and shovels into the semiconductors and the semi-equipment [1:07:37] stocks. It wasn't just the memory, the memory trade. There are more than 10 companies in the [1:07:43] in the benchmark Sox index up triple digit in the quarter. Interesting is to where the next leadership [1:07:49] comes from, because the worst performing stock in that Sox index during the quarter, which was up, [1:07:55] as you mentioned, 89%, was actually in video. It was only up 15%. So again, reflective of the rotation [1:08:03] into other plays in this space. And it'd be interesting to watch in Q3, whether that momentum [1:08:08] continues or whether it'll be other parts of the AI trade in terms of energy infrastructure that sees [1:08:15] rotation of investor dollars. But I think we need to get into the earnings season. And in particular, [1:08:21] what happens in terms of capex guidance from the hyperscalers to get to get a sense of what the next [1:08:26] trade is for AI from here. Neil, thanks very much. Bloomberg's Neil Campeling with an update on some of those [1:08:32] tech names. Let's have a quick look at where we are on the sportswear stocks here in Europe, [1:08:36] because they all seem to be under pressure. And this is very much linked to the Nike story. [1:08:41] After Nike executives gave a cautious outlook and warned about elevated consumer anxiety, [1:08:47] adding to investor concerns about slow turnarounds at the world's largest sportswear company. [1:08:52] Bloomberg opinion columnist Andrea Felstead has more on the story for us. And I was going to ask you [1:08:57] if this is all Nike specific, but it does seem to be having a bit of read across into other [1:09:01] companies. So maybe not all of it. What's your takeaway? [1:09:03] No. I mean, some of the factors that are affecting Nike are broad across the market. One of the things [1:09:09] is we have got this slowdown in sort of sports inspired fashion. We're seeing a return to sort [1:09:17] of smarter dressing, which is affecting Nike. Nike's what they call sportswear. It's sort of anything [1:09:22] that's not performance. And Adidas has, you know, been a really good performer, but Adidas is seeing the [1:09:27] same things. I think you've got that broad trend across the market. Plus, you know, all of them [1:09:32] are facing these sort of nimble rivals. So Nike is having a much harder time than Adidas. But some [1:09:40] of these factors are general across the market. Some of our viewers may have noticed that it's the [1:09:45] World Cup right now. So reflecting on the 3-0 win for France against Sweden overnight. This is [1:09:52] important for the fashion brands. They kind of have to pick their teams before the event. [1:09:58] And they're placing their bets, essentially. Absolutely. And Nike's done very well in that [1:10:01] respect. It's got France, if I remember rightly so. It's got Kylian Mbappe. Football's not my natural [1:10:07] habit. No, you're right. You're doing very well, Andrea. It's got Erling Haaland. We're here with you. [1:10:11] Yeah, he's good. He's silly. Vinicius Junior. I've probably said that completely wrong. [1:10:15] But it's got some top players. It's got some top teams. Yeah. [1:10:19] Um, it's, I think it's World Cup campaign has actually been very good. And it's showing some sort of [1:10:24] flashes of past Nike brilliance. Right. So I think that's, I think how they've executed the World Cup is [1:10:30] very, very encouraging. Everything they're doing, if they can get some good momentum with the teams, [1:10:37] good momentum with the players, I think it's going to be very positive tonight. And investors should [1:10:42] take this as an encouraging sign that the turnaround is working. So that's past the [1:10:47] turnaround. And that seems to be playing out well for them. But you mentioned about the, the nimble [1:10:52] competition. And in China, that's getting a lot of attention. Absolutely. Is that the Chinese rivals [1:10:56] are not making enough specifically for the Chinese market, including more sneak arenas? Exactly. [1:11:01] Which I just wanted to say. Exactly. It's not, um, it's not localizing enough. And it's not [1:11:07] tailoring enough for the Chinese market. It was talking this morning about elevating and being [1:11:12] more premium in China. So that's clearly the way it's going. Um, Andrea, thank you very much. [1:11:19] Thank you very much indeed. We don't have time to get into what a sneak arena actually is. [1:11:22] But we'll get you back on for that. Next time we'll bring pictures. Anna managed to say her [1:11:25] favorite word of the day. Yes, next time we'll bring pictures. The name tells you everything. [1:11:29] It's a combination between a ballerina and a sneaker. Should I? Yeah. Andrea, thank you very much [1:11:33] indeed. Andrea Feldstein, of course, from our Bloomberg opinion team on the fashion space [1:11:37] and the overlink, of course, with Spain. Coming up with Spain, with sport. Coming up, [1:11:41] Axel Eggert of the European Steel Association, that's quite the shift, isn't it, is here to give us his [1:11:45] take on the EU's decision to cut its tariff-free steel quota for close trading partners. That is coming in [1:11:51] today, that decision and that policy. That is next. This is Bloomberg. [1:11:55] Welcome back, everybody. This is the opening trade. 30 minutes into our session here on the opening trade. [1:12:17] And European equity markets, flats are negative, really. And negative if you're looking at the overall picture. [1:12:22] So down by three tenths of one percent. The Cat Caron, one area of weakness that we see. [1:12:27] The 5100 and the DAX actually outperforming the rest, but the Cat Caron's under a little bit of pressure. [1:12:31] We see media stocks, consumer products and services all look a little bit weaker this morning. [1:12:36] In fact, most sectors are in negative territory. The Asia session was a little bit sluggish. [1:12:40] Technology delivered a lot for Europe yesterday. And so maybe pausing for breath on that particular [1:12:45] trade. We're waiting for Kevin Walsh. That's the big set piece of the day. He, and of course, [1:12:50] a number of other central bankers, but he's the one we haven't heard very much from in his current role. [1:12:55] So hence the market's focus on him. But we'll also hear, Tom, from Christine Lagarde and other central [1:13:00] bankers at Cintra. What have you got in terms of the deep dive into markets? [1:13:03] Yeah. So those risk events seemingly keeping at least some investors on the sidelines, [1:13:06] leading to that caution that you've outlined there for us. So you're seeing a bit of negativity, [1:13:10] but modest given the given the rally that we saw yesterday and fresh record highs for European stocks [1:13:14] on Tuesday. Today, 371 stocks in negative territory. So the majority losses today on the upside 214. [1:13:21] But volumes are down about 30 percent right now. Let's flip the board and have a look at some of the leaders. [1:13:26] Here's where the optimism is. Here's where the positivity is. Air Liquide and its connections [1:13:30] to SK Hynix with the news that it's going to be building out some facilities to provide [1:13:34] the gases needed in terms of SK Hynix and its infrastructure and plans for build out in the [1:13:40] U.S. So Air Liquide is up close to two percent on the back of that story. Just a reminder that it [1:13:44] plays that role when it comes to AI and infrastructure, that French company. CMC markets results coming [1:13:49] through positive. And look at that gain there, almost 23 percent for that trading company. [1:13:54] Currently up 104 points, up 104 points on the back of their earnings. So very strong [1:13:58] for that UK listed company. Acker is currently up, look at that, almost 8 percent. This is an MAA deal [1:14:03] with Schneider Electric selling off at Conjunent to Schneider Electric. And we'll see the other side [1:14:09] of that story. But Acker with the sale getting a huge benefit on the back of that, then up 90 points. [1:14:13] Let's flip the board and have a look at some of the laggards. And Schneider Electric is [1:14:16] there, down 2.5 percent. So a little bit of a little bit of negativity on the back of that [1:14:21] acquisition as it hopes to better position itself in the AI story. Galderma, this is a story about [1:14:28] not getting approval for a potential rival to Botox from regulators in the U.S. That stock taking a hit, [1:14:34] then down 6.6 percent right now. JD Sports, we tie this to the Nike caution that we saw overnight with [1:14:39] the yearning story. They're cautious in terms of the consumer in the U.S. and China. And so JD Sports, [1:14:44] then taking a bit of a knock on the back of the Nike picture, currently down 2.6 percent. Anna. [1:14:49] Tom, let's get an update on the other stories that we're covering here this morning. It is day [1:14:53] two of the ECB's Cintra conference in Portugal. Investors are awaiting comments and key speeches [1:14:58] from a swathe of central bankers, including, of course, Fed chair Kevin Walsh, who will be [1:15:04] making his first public appearance outside the United States since taking office in June. [1:15:08] FX intervention by Japan to support the yen two months back was successful, according to the [1:15:14] nation's top currency official, Atsushi Memora. He spoke as the yen slid against the dollar once [1:15:21] again to a fresh 40-year low, adding that he's in touch with his U.S. counterpart far more frequently [1:15:26] than most people probably imagine. And Ireland takes over the presidency of the EU today. The position [1:15:32] is key for setting the direction at leaders' summits where major decisions are made. But Dublin faces a [1:15:39] number of challenges, from how it handles tech policy to defence. So those sectors no doubt will [1:15:44] be a feature of our European EU government policy coverage into the second half of this year. [1:15:51] Sticking with that EU theme, the EU says it will reserve half of its steel quotas for countries with [1:15:57] free trade deals to protect local industry from mostly Chinese imports. The EU's preferred partners [1:16:02] will be able to ship in 9.15 million tonnes of steel under the duty-free regime, while an additional [1:16:09] 9.15 million tonnes will be distributed among other countries. Axel Egert is the Director General of the [1:16:17] European Steel Association and joins us now from Brussels. Axel, really nice to have you with us. [1:16:23] We've seen a change in the rules then coming through from the EU. Can you summarise from the perspective [1:16:28] of the European Steel Association, what does this change in rules, what does it achieve for the European [1:16:34] steel sector? This measure is historic. It will preserve 15 million tonnes of steel capacity coming back to [1:16:49] to what we lost over the last few years. It will preserve 200,000 jobs, direct and indirect jobs, [1:16:57] in the European steel industry. From this point of view, it is really shielding us from global overcapacity [1:17:05] created by a number of trading partners, in particular by China. [1:17:11] Right. Does it go far enough, Axel? Are you still calling for other changes now from here to support the European [1:17:17] steel manufacturers? Yes, indeed. This is one pillar of the so-called steel and metals action plan. [1:17:27] This new measure is tackling overcapacity, spillover effects on the European steel market. [1:17:34] But we are in a transition to decarbonise our industry to carbon neutrality by 2050. [1:17:41] And there we need also a level playing field. We need, of course, also to see energy costs decreasing, [1:17:49] because the transition to decarbonisation requires electricity and hydrogen, which comes at a much [1:17:57] higher price than coke-coking coal, which is used nowadays for primary steel production. [1:18:02] And, of course, also we are in a steel value chain where many partners and our downstream industries [1:18:13] also need to be part of protection that would also protect their production and jobs in Europe. [1:18:22] Axel, good morning. That would be part of the counter, wouldn't it? That would be part of the pushback from [1:18:29] Europe's trading partners is look to your own house first, make sure that you are competitive, [1:18:33] that European steel, frankly, is not competitive. I mean, that may be part of the counter from China [1:18:39] and others. The European steel industry is competitive in general when it comes to the technologies [1:18:49] we have in Europe. We have highly innovative products. However, due to subsidisation [1:18:57] and support schemes in third countries, creating excessive overcapacity, which leads to cheap exports [1:19:08] to the EU, we are, of course, threatened. And secondly, we have, unfortunately, since COVID and the aggression [1:19:17] of Russia in Ukraine increased energy costs in Europe. And that indeed makes us, if you want so, uncompetitive [1:19:27] to date. What should the priority be in Europe to address the energy cost component of this story? [1:19:36] Yeah, there are several ways to tackle energy costs. We have a system in Europe where the least [1:19:47] efficient gas-fired power plants are setting the prices in the electricity market, while renewable [1:19:55] electricity from solar and windmills is already much cheaper in its production. But the prices are the marginal [1:20:04] prices of the least efficient plant in Europe. So we need to come much, much quicker to deployment [1:20:11] of renewable electricity. And that will help us reduce energy prices, energy costs. You can also [1:20:21] see that Europe has the highest levies and tariffs on energy globally. So there is something member states [1:20:29] can do right now, today, to reduce energy costs for energy intensive industries, which are competing [1:20:37] on a global level, such as the European steel industry. Axel, if you've referenced overcapacity in some [1:20:45] third countries, and a lot of people think about China in that context. So if the root cause of what has been [1:20:51] difficult for Europe is too much capacity coming out of China, can anything be done on that more [1:20:57] fundamental level via any other means? Or is this as far as Europe can go in influencing what China does? [1:21:08] Oh, that can be done much more. We had good discussions actually a few years ago with the United States [1:21:15] on a global arrangement addressing global excess capacity in the steel industry. [1:21:22] We should take up this line again with like-minded partners like Canada, UK, the US find common [1:21:30] grounds to tackle global excess capacity jointly so that those countries do not have any market anymore [1:21:39] to which they could export their excess capacity at very low prices. So speaking with our trading partners [1:21:48] is also very important. We have a staggering trade deficit with China. Two and a half times [1:21:56] products in terms of value value are exported from China to the EU, then vice versa. So this is a [1:22:03] huge trade deficit. So let's speak with these partners. At the same time, let's find like-minded [1:22:10] countries that also are suffering from global excess capacity in our sector. [1:22:15] What is the current above and beyond the tariff story, the quota story? What is the current health [1:22:21] of this sector right now, Axel? I mean, particularly thinking about the defense spending coming through [1:22:26] from Germany, but also the challenges of the auto industry. [1:22:28] Yeah, we have beyond the issue of high energy costs in Europe, we have of course a lack in demand. [1:22:39] Demand decreased significantly. The European steel industry lost more than 30 million tons [1:22:44] of steel production in the last seven years. Last year we produced 126 million tons, the lowest level ever. [1:22:54] And that has of course as a reason low demand in Europe, but also the high import rates from those [1:23:03] countries. We hope that the investment schemes which are currently being planned in Europe, investing in [1:23:13] infrastructure, investing in defense, and also investing in new technologies will drive steel production [1:23:23] in Europe again. We are decarbonizing, so this is also an opportunity for us, decarbonizing quicker than [1:23:32] other partners in the world. By that also leading to more innovation in our sector and in the steel value chain. [1:23:40] So I believe that we have a bright future, but of course we need to implement all the measures that [1:23:47] are foreseen currently by the European Commission. So this will take some time and once demand is coming [1:23:55] back, then we can probably also see our sector making reasonable profits again. [1:24:03] Okay, Axel, thank you very much indeed for joining us on a significant day for your industry. Axel Egger, [1:24:08] Director General of the European Steel Association. Coming up, European CEOs, meanwhile, weigh the [1:24:14] business landscape heading into the second half of the year as enterprise AI grows increasingly [1:24:20] important. We're going to speak to McKinsey and companies Tunde Oloranju next about how enterprises [1:24:26] across Europe are adopting and adjusting to the AI story. Stay with us. This is Brunberg. [1:24:31] Welcome back, everyone. This is the opening trade. Somehow we got to the first of July. It's now the [1:24:53] second half of 2026. And this is the picture that greets us. Remember, we are all a little stunned [1:24:59] by that fact. We're not going anywhere very quickly on these European equity markets. You can see [1:25:03] overall, though, the direction of travel is a little bit weaker, but we're waiting for these risk events [1:25:06] then, Tom. Today and tomorrow, we're waiting, of course, for the appearance of Kevin Walsh at [1:25:13] Cintra, the ECB Central Banking Conference, and the non-farm payrolls numbers out of the states. [1:25:17] In the tech space, one risk event has been cleared, it seems, because the US government has removed [1:25:22] foreign access restrictions. It's removed those restrictions on Anthropics Fable 5 AI model, [1:25:27] clearing it for wider distribution. The original move to block foreign access sparked a renewed focus [1:25:33] on sovereign AI at a time when companies are wrestling with the cost of the technology. Joining us [1:25:39] now is Tunde Olarewaju, managing partner for Europe at McKinsey and Company. And Tunde, look, [1:25:45] you travel all over Europe. You are facing and at the coalface, really, with a lot of these [1:25:49] enterprises, European companies that are working through how to adopt and how to actually implement [1:25:54] AI and really get the benefits from it at this time, when a lot of executives are raising the [1:25:59] question about costs. Where are we then in the adoption story? What is European enterprise doing? [1:26:04] Are they adopting? Are they cautious? Are they holding back? What are you seeing? [1:26:08] Thank you, Tom. It's such a pleasure to be here. First of all, as you can expect, [1:26:12] because the cost of cognition has just dramatically dropped. That's really what the AI promises. [1:26:17] It's spreading. So every time a technology or capability gets cheaper, we use more of it. [1:26:21] And so what you really have is everyone experimenting. I think our survey, our state of global AI [1:26:27] adoption survey says 88% of organizations are experimenting with it. And about 36% actually [1:26:34] already report some kind of benefit. A smaller proportion, 6%, actually say that there's a [1:26:40] massive benefit. So they're really seeing big, big traction. So the real story is how we shift [1:26:45] that adoption. Is this a year or is it next year when we move from piloting this technology to actually [1:26:51] scaling it across companies? I think the time is now. I think what we're actually seeing is everybody [1:26:55] moving on to a much more enterprise footing. So last year, if you will, was the year of giving [1:27:00] everybody access to the tools, this year is a lot more around how do we pick parts of the organization [1:27:05] and fundamentally shift how we work. And good morning to you today. And is there something in [1:27:10] there about buying smartly so that the costs don't rise too quickly? So when you're looking at token [1:27:15] costs and buying the right AI tool for the job, not using the sort of super frontier stuff for things [1:27:21] that don't need it? It's spot on, Anna. So there are really two big things. The first one is, are you actually [1:27:25] reimagining the work? And the other one is, are you managing the cost of AI because it's not free? [1:27:30] Right. So if you think about the reimagining the work, you want one mode is to give every developer [1:27:35] copilot to something to allow them to code faster. Another mode is to say, I now need two developers [1:27:40] and 10 agents. And I fundamentally change how I created. But to your point around the token economics, [1:27:46] which is sort of the term that's spreading around now, it's about picking the right model for the right [1:27:51] job. Frontier models can be up to 10 or 100 times more expensive than cheaper models. And so picking [1:27:56] the right model has a dramatic effect on whether what you've built is actually efficient. And I guess [1:28:01] then also having the right organizational structure might be really important as well. So how are you [1:28:05] seeing companies reflect on that? Because some companies, we talk to them about AI and they talk to us [1:28:10] about, yes, what the tech team can do and what the programmers can do. And others talk to us in a much more [1:28:14] holistic sense about what the business is doing as a whole. It's spot on, Anna. So most businesses are sort of [1:28:20] design and organize around rationing expertise, right? So this is expensive. And now the expertise [1:28:25] is cheaper. You don't have to organize that way. So as a result, the companies that are really making [1:28:29] the biggest shift are realizing that all the structures around escalation, around scarce access [1:28:35] to expertise, et cetera, that doesn't hold true anymore in a world of AI. So therefore, do I need a [1:28:40] customer service department that has one manager and to 20 people? Or do I need one manager to 300 [1:28:47] agents and two or three people staring the agents? That's a fundamentally different economic structure. [1:28:52] You said in one of your first answers, I think, 88% of companies in Europe are [1:28:57] experimenting. It makes me question what the other 12% are doing. 36% are seeing [1:29:03] a return on investment. Is that right? 36%? So 36% report P&L impact, [1:29:09] okay. Right. But 6%, which is a much smaller number, report at least 5% of their bid that are [1:29:15] driven by AI outcomes. So what needs to happen to move that 6% to 20, 30, 40%, and that 36% up to 80%. [1:29:23] So the first thing is obviously this re-imagination, picking the places to go. And what you already see [1:29:29] is evidence of where this is going to materialize faster. So in software development, I think that game [1:29:34] has already happened. And you see it with native software firms already changing how they operate, [1:29:38] but most large enterprises haven't gotten there yet. And then you look at all the stuff to do with [1:29:42] customer contact, right? So do people really want to browse online when they can just ask a question [1:29:47] to a chatbot? Do they even want to go to the website if they can just buy it through the LLM? So these are [1:29:51] the sorts of things that you're going to see coming down the pipe. And overlay this onto, I know that [1:29:56] you at McKinsey have been doing some research on the cost base of European companies. I mean, how does this, [1:30:02] and we were just talking to the Steel Association about the cost of energy, for example, for European [1:30:06] companies. But R and D and manufacturing costs, according to your research, run 50% to 300% higher [1:30:11] than global competitors. Is AI going to help then, or it just adds to the costs? So AI is absolutely [1:30:19] going to help. And it's worth just mentioning a little bit about what that research is. So [1:30:22] it's the catalyzing competitiveness report from McKinsey Global Institute. And what it said is, [1:30:27] rather than look at each country and say who has high energy costs and who's got [1:30:31] lower labor costs, why don't we look at the end to end costs of actually putting something in, [1:30:35] which starts from, is it easy to get permitting? Is there access to the grid? Are there kind of [1:30:41] expertise clusters available? And when you look at it end to end, you start to see the differences. [1:30:45] So you don't always have to have the lowest labor cost to be competitive if you're faster permitting, [1:30:51] because then my financing cost is lower. And so for Europe, it's saying that there's a more nuanced [1:30:55] answer around simply just chasing the lowest cost you can find everywhere else, or trying to reduce the [1:31:01] wage bill, or just, you know, applying AI everywhere. It really depends on which industry you're talking [1:31:06] about. As we think about reducing the wage bill, what are you hearing? What is the honest response [1:31:12] when you speak to executives about job cutting as part of that efficiency gain? Right. So, so first of [1:31:18] all, the history of technology has not been more leisure, right? We all have dishwashers at home, [1:31:24] but we don't spend less time in the kitchen. So my thesis is that there's an aggregate job opportunity. [1:31:29] Obviously, there's a transition along the way. And that's what we have to navigate. There's a really [1:31:33] interesting report, actually, that came out from Ramp and Ravello. So Ramp does enterprise payments, [1:31:40] expenses. Ravello looks at labor market data. And they actually find companies that spend more on [1:31:45] AI are hiring more. So that the data shows about six to 12 month lag, but 10% more workers in the [1:31:51] companies deploying AI more intensively. So I think there's an interesting story there. [1:31:55] A lot of churn in the labor market, but then maybe not lower employment. Absolutely. I think there will [1:32:00] be shifts, right? And we can't get away from that. But in aggregate, I think there's more opportunity. [1:32:05] I think we're going to be doing more types of work. And there's a lot of latent work that's just not [1:32:09] happening. And you still need to hire the young people. Is that is that also the message? Absolutely. [1:32:13] Tunde has views on this. I mean, Ravello's analysis said they were hiring more young people. So 10% [1:32:19] overall, 12% more young people. So I think it's a new one story. Tunde, really, really interesting [1:32:25] insights. Thank you very much indeed for coming on set with us this Wednesday to walk through that [1:32:28] AI story across European enterprise. Tunde, hola, Raiwaju, managing partner for Europe at McKinsey [1:32:35] and Company. Let's turn to the broader markets right now. Drum roll, of course, to 2pm. Fed chair [1:32:40] Kevin Walsh, alongside other central bankers, speaking, of course, at Cintra in Portugal. Skylar, [1:32:45] is this more important? Or is it the jobs data tomorrow? I mean, 100% the jobs data tomorrow is [1:32:50] more important. But I think we have a little conviction. I know. There you go. That put us [1:32:54] in our place. Well, I mean, I think if you just think about it, right, we didn't get a lot from [1:32:59] in terms of guidance from the last meeting, we got a clear stance on inflation fighting [1:33:03] credibility and the fact that inflation has been too high for too long. And that tells you that the data [1:33:08] is what matters and that we had inflation be very high. It's continuing to be high, if not rising, [1:33:13] right? Core PC, the last print we got out of the US was 3.4% and a rise from the previous month. So [1:33:19] that's very concerning. And the jobs data is holding up very well. So you have more focus on that, [1:33:24] you know, inflation mandate with that case. And you had jolts yesterday that was very strong. And [1:33:29] we didn't get a lot of guidance in terms of what that actually means for policy at the last meeting. [1:33:33] And Cintra is a one hour panel that includes three other central bankers. I don't think it's going to be [1:33:39] very hard for him to avoid giving guidance. Yeah, that's interesting. And will he talk about the [1:33:45] task force and task forces and just sort of push forward into that conversation rather than get [1:33:51] waylaid by or tempted to talk about the inflation outlook? I mean, I suppose that's it. But let's [1:33:57] talk about the jobs report then, Skylar, as you've suggested that it is going to be much more [1:34:01] interesting. These two things are kind of high risk, aren't they, I suppose, for the markets in the next [1:34:07] couple of days? Yeah, absolutely. And I think part of the story is that we've had a number of very [1:34:12] strong jobs print. So if this one comes in strongly, it'll be the fourth in a row. There is some [1:34:16] element of that where because you have the World Cup going on, you'll have higher labor reports [1:34:22] because of hospitality and leisure hiring. So there's certainly an upside risk to this report. [1:34:27] But I think, you know, the risks are very asymmetrically skewed towards higher yields, [1:34:31] given that you've had such a strong trend of economic data, strong trend of inflation being above [1:34:36] target. So it needs to be quite a downside surprise, I think, to deter that momentum. [1:34:40] Can I get your take on what's happening with the equity market? So European stocks [1:34:43] at a record high yesterday, a little bit of caution today, a really strong quarter, [1:34:47] essentially. You have warned us previously that the energy story out of the Straits [1:34:51] or Moos would catch up in terms of margins. I think I think I'm roughly paraphrasing you [1:34:55] accurately. Does that still come to bite in the second half? Does that, is the margin story [1:35:00] a challenge for European stocks in the second half? Or are we kind of past that? [1:35:04] I don't think we're entirely past that. I think you still need to consider the fact that that's [1:35:07] in the pipeline from margins. But I think maybe more overwhelmingly is that we have strong, [1:35:12] resilient growth generally in the globe. And I think I'm still much more optimistic on US [1:35:17] equities versus European equities. Part of that, I think, is you've had a strong retail bid. [1:35:21] So Citadel Securities is the number one market maker for retail. And they've shown that you've got [1:35:27] record-baked buying from retail in June and May, and they're very much buying the dip. And so that's [1:35:33] likely to continue. [1:35:33] Mm. Skylar, thank you very much. Skylar Montgomery-Koning from the Markets Live team. [1:35:38] She will be, of course, watching what's happening in Sintra. We will be watching what's happening in [1:35:42] Sintra. We will be speaking and hearing from Joachim Inagel, the Bundesbank president. That [1:35:46] conversation at 9 a.m., which is moments from now. Some slightly better data coming out of France, [1:35:50] out of Germany, just on the manufacturing side. So we'll keep across that as well. On The Pulse, [1:35:54] that is next. This is Bloomberg.