Microsoft Races to Fix Outage, Stocks Slip of Inflation Test

[00:00:00] Speaker 1: Good morning. It is Friday November the 13th. Here's what's on the agenda. Jensen Huang's stunning downfall marking a watershed moment for NVIDIA and the AI industry. Anthropics mega IPO draws huge demand as the company powers ahead with a potential $90 billion raise. And where next for Europe's record-breaking stock rally as energy risks resurface. [00:00:25] Speaker 2: Tom, let's focus in on those energy risks. This is the price of Brent right now. $96 a barrel up by another 0.7% this morning. Yesterday it was on the rise. We factored that into the European session largely in yesterday's session. But we continue to watch this as President Trump seems to be downplaying the need to do any kind of deal with Iran. The U.S. 10-year yield in the context of a higher oil price went back over 5%. 5.12% is where we trade. Eurostox 50 futures then a new record around the close yesterday. So strength in Europe. But where does that go in the immediate future? It looks as if we could go downwards down half a percent on European futures. The countdown to the opening trade starts right now. [00:01:15] Speaker 1: So, Anna, we get a reminder this morning just in the last few minutes that we are in the early innings, just the opening innings of this NVIDIA saga. With lines crossing right now with the detail around Alice Huang, of course, the alleged Chinese spy with whom we know that Jensen Huang had this affair. And Bloomberg reporting suggesting that she was able, a company of hers, was able to get smuggled NVIDIA chips into a data center in Shanghai. We'll get more details on this and bring this, of course, to you in more detail throughout the next couple of hours. But this is just a reminder that there's going to be increased scrutiny, not just on NVIDIA, but also on the Commerce Department and Howard Lutnick in terms of what has travailed and to what extent they have overlooked loopholes that have allowed smuggled NVIDIA chips into the Chinese market. Jensen Huang is out. We know that. Now the CFO, Colette Kress, is in charge on an interim basis. Harvey Jones, we know, is going to be the board director. That's the first time we've had that role. So in terms of the management story, there's been some movement there. We know they're looking, of course, for that more permanent role as CEO. [00:02:18] Speaker 2: Yeah. [00:02:18] Speaker 1: But it's just a reminder. This is just we're just at the beginning of this story. [00:02:21] Speaker 2: Yes. I mean, if you're in the mood to reflect on the achievements of Jensen Huang, which not everybody might be, but some people might, then you look at a 700,000 percent share price increase since he listed this business. And he's been the only CEO of this company which has made this incredible achievement and left this incredible footprint across the AI space. But in the here and now, the focus is not on that, of course. The focus is very much on this new trove of documents, then, that offer this much more explicit evidence of what it is exactly that Alice Huang was able to do, the connections she had. And one of the interesting lines to me is that these chips that they've identified in China, then, they came originally from one particular partner of NVIDIA. So who knew what and when? Still some sort of dots to join up, I suppose, in that particular evidence trail. [00:03:04] Speaker 1: We expect Jensen Huang is going to have to give testimony to committees, possibly as soon as next week. We know that he has lawyered up. This is a reminder of the work now on the table for both Colette Kress, who has to run the business, get through earnings, but also deal with the scrutiny that's going to come through from lawmakers. I had a call with someone from NVIDIA last night. They talked about their sense of anger, of betrayal. They told me that they would have quit the company if Jensen hadn't been pushed out. But they also reassured me that Colette understands the partners, understands the customer base, understands the supply chains and is a safe pair of pair of hands. [00:03:38] Speaker 2: Yeah. So that employee in particular coming down on the side on the side of what's happened, on the side of forcing Jensen out, I suppose. Whereas interesting, we've had some testimony from some investors who are angry that Jensen Huang has been pushed out and actually would prefer to follow him around, saving their money, keeping their powder dry to find out what he does next. So we'll watch that one with interest. Shall we talk about other news flow within the tech space? Because I woke up this morning and Jensen Huang wasn't the top story I saw on my on my Bloomberg screen this morning. It was actually Anthropic. And that is in itself an interesting achievement, isn't it? So Anthropics IPO six times oversubscribed is the latest news line from our Bloomberg News colleagues raising looking to raise $64 billion plus $26 billion in a private placement, which back to our top story. Incidentally features $10 billion that's going to be taken up by Nvidia as a strategic partner. So there are links all over the place here, of course, but this will be then the biggest of all time in terms of these in terms of these raising. So that is certainly something we will continue to monitor valuation fully diluted could be $1.4 trillion. But what are the signs and signals that we're getting about the age age, AI trade post the downfall of Jensen Huang? Well, many of them seem to be positive. Cisco's numbers, some questions around a slower rate of orders, but broadly, the sales forecast better than expected. Sarah Brass sales forecast better than expected. The stock up 16% after hours. Modine, now this is a Samsung story. So Samsung, according to our reporting in talks to buy this data center equipment supplier or this cooling equipment supplier, which just goes to underscore that for many parts of the AI trade, I suppose, there is a life as normal getting on with business as it was pre the downfall of Jensen Huang. [00:05:12] Speaker 1: And Sarah Brass is really interesting because it's a competitor to Nvidia. So there's another story to be told there. The backing, you're absolutely right to say the banking of about $10 billion in terms of commitments for Anthropic just in the latest in this private raise that they're aiming for is a reminder, of course, of the financing that's come through from the so-called central bank of AI of Nvidia. And there's some really interesting reporting from Wall Street Journal talking about the clashes that Colette Cress, now the interim CEO, formerly CFO, had with Jensen Huang around some of this financing. So that remains a key answer to the question. That is really interesting. Is that financing going to continue at the pace and extent that it had under Jensen Huang, given the divisions that those two apparently had on this question? That is pretty fascinating to consider. [00:05:53] Speaker 2: Yeah, and whether she continues some of those circular financing relationships then is going to be a really interesting one. She'll certainly, you know, she knows a lot about them, having been the CFO, but whether she was all in, a really interesting question to follow up on. In the midst of all of that that was happening yesterday around the tech space, we saw 10-year yields in the U.S. on Treasuries go above 5% again. 5.12% is where they trade right now. We saw a substantial tick-up in oil prices. All of this on a change of stance once again, it would seem, from the president in the United States. [00:06:22] Speaker 1: Yes, again, we've heard this from the president multiple times. We no longer, he says, we no longer need a deal. We don't need a deal with Iran. So he's gone from saying, we're very close to a deal, which he said multiple times, to saying we don't need Iran, which he's also said multiple times. So, you know, this is posturing again from the president. We'll see how real this is. But oil moved higher on the back of that. We also had a lot of hawkish Fed speak. To your point, we heard from the likes of New York Fed President John Williams saying that inflation is too high, continues to be high. We need to take action. Mary Daly saying, my bias is for further tightening, will be needed. Interestingly, Mary Daly saying, inflation isn't simply in the sectors most directly affected by tariffs on oil. There's consensus now. How far, and whether it's 25 or 50, as some have suggested, remains an open question. But there's consensus now. They're going to have to go again. [00:07:07] Speaker 2: Yes, and we're busy pricing in even more expectations around Fed hikes, aren't we? I think December now stands at 110% in terms of that 25 basis points hike. So we do expect that. We get PPI data later on today. That'll be crucial. In the wake of the strong CPI print. So we're getting these lines that lead the market to price in further tightening from the Fed. Will PPI be any different or will it be of the same flavor as we witness this change of stance then from the White House or at least from President Trump. In the midst of all of that, what do other markets do? What do stock markets do? Well, the stocks in the States, very influenced by the tech story at the moment. But U.S. futures looking flat to negative. Stocks in Europe looking negative as well. But that comes off a record run for European stocks. As we continue to hear from our guests about the role that Europe plays at this point in the tech cycle. [00:07:53] Speaker 1: Yeah, let's reflect on that. Those record highs that the European stocks managed to eke out yesterday. And European gas futures, though, maybe that's the headwind. Because you're back to 95 right now on Dutch futures. Up about 13% in the last three days. It wasn't that long ago, a few days ago, that you were closer to 80. So that move high is something that certainly will be, will be, some investors will be taking on board as we look at higher energy, at least in the session today. [00:08:15] Speaker 2: OK, 7.08 here in London. Let's tell you about some of the things coming up on Friday's program. Manish Cabra will be with us. Societe Generale, Chief U.S. Equity Strategist. Marieke Blom will be with us as well. ING's Global Head of Research, both of whom have interesting perspectives on the broader tech landscape around NVIDIA. Natalia Lipikina will be with us. JP Morgan's Private Bank, Head of EMEA Equity Strategy. Well, talking of EMEA equities, how will they perform then in the context of the latest in the AI trade? [00:08:45] Speaker 1: OK, let's look ahead to what else we are watching throughout this Friday. EU leaders gathering for an informal summit in Dublin. 9 a.m. UK time, we get the IEA oil market reports. There's evidence that flows through the Strait of Hormuz have increased. 1.30 p.m. UK time, we get U.S. producer prices, as Anna was saying, an important gauge in terms of the inflation story out of the U.S. 4 p.m. UK time, the ECB's Joachim Nagel will be speaking at a banking conference in Munich. And later, Anthropic CEO Dario Amadei will be joined by JP Morgan's CEO Jamie Dimon at the company's IPO live streamed event. [00:09:20] Speaker 2: Coming up on the programme, EU leaders gather in Ireland with Ukraine. And ECB succession, top of the agenda, will go live to Dublin. We'll get an update as European leaders get ready for day two of that summit. We'll get an update from Oliver Crook, who is there for us. Plus, we will look at the stocks to watch, including Richemont, the Swiss luxury house, reporting sales that beat estimates, results delayed for a little bit, it seemed, by some of the issues around Microsoft, which we will also talk about later in the programme. But up next, we will return to the big story of the week. Jensen Wang ousted as NVIDIA CEO. What does it mean for investors? We will discuss. If you have any questions, if you want to get involved in any of these conversations, IB plus BBTV Go. It's a beautiful sunrise here in London. This is Bloomberg. This is Bloomberg. [00:10:05] Speaker 3: I think we have to view this as a transitional issue and a bit more tactical in nature. NVIDIA has probably got the most valuable IP on the planet. The vision here of NVIDIA is going to be pulled into question. I think we have to view this as a transitional issue and a bit more tactical in nature. [00:10:33] Speaker 4: Is the AI trade one man or is it a company that is, you know, kind of leading the charge on a relative basis? [00:10:41] Speaker 5: Bank is essentially losing someone. We can bring together all the parties. [00:10:46] Speaker 6: I ultimately think that we will move forward, that the underlying this once-in-a-generation innovation will carry through. Investors were shocked by Jensen leaving, but Kala Kress is the steady hand Wall Street trusts, right? And she was, she's the right pick for an interim CEO and she's going to have a lot of work on her hands. [00:11:12] Speaker 1: Some of Bloomberg's guests reacting to news are Jensen Huang resigning as NVIDIA CEO and what might come next for the company. [00:11:19] Speaker 2: Yes, joining us now to give us his thoughts, Manish Kabra, Chief U.S. Equity Strategist Associate General. Manish, nice to have you on the program. We heard one of the guests there referring to NVIDIA as a transitional issue. Are you clear what we are transitioning to? What does this mean to you this week's events? [00:11:36] Speaker 5: I think it means quite a lot for the rotation trade in the market. You try to see, you know, exactly what we had this week. Five hundred billion dollars out of one company, but six fifty billion dollars added into all the other semiconductors across the space. So so I think the rotation, the broadening, the message that we see across the U.S., where your best performing index year to date has been equal weight S&P 500. I think there's a change of leadership within the index itself. [00:12:07] Speaker 2: OK, I mean, does this necessarily mean that NVIDIA takes a step back and doesn't do as doesn't do as well from here? Or is it too soon to make even that kind of conclusion? [00:12:18] Speaker 5: I think the take from analysts is let the dust settle, you know, and that I think that dust settling phase of the market makes everything else. You know, the macro, the Fed, you know, the outlook for AI CapEx and then all of those things become crucial. What I would flag and I think in this whole last two weeks of volatility that we have seen in U.S. stocks and U.S. tech, what's got missed out is the first order principle. The first order principle of why is it we are having this AI CapEx, AI ecosystem. Ultimately, there's demand for AI. So I think every quarter we look at the cloud revenue growth of every hyperscaler. We look at cloud backlog of every hyperscaler. That's gone from, you know, at the start of the year it was $1.5 trillion. It's gone to $2.5 trillion. I think that conviction from hyperscalers is what's feeding into, you know, the AI CapEx part. [00:13:13] Speaker 1: The dust settles. I guess the issue is the dust is going to take quite a long time for the dust to settle, arguably. There's going to be investigations on the Hill, committee hearings with Jensen, but maybe other executives at NVIDIA. This could take a long time to play out. So in the meantime, do you need to see that dust settle before you want to take a bigger stake in some of these semis names? Or what's the strategy until we get real clarity? [00:13:37] Speaker 5: Yeah. So let's take, you know, for macro investors. And they are looking at, if we are looking beyond AI CapEx, then what are the other parts of the market? Is it consumer? Is it industrials? You know, is it power cycle? Those are a lot of different parts of the market, which equal weight S&P gets you into. Now, if we purely talk about AI CapEx and the whole AI ecosystem, we have literally split this in three parts. We have all the companies using AI, trying to find productivity. We have all the companies trying to sell AI products. You know, those are the monetizers. And at the back of the things is, you know, all the companies linked to the building of AI CapEx cycle. So our take for 27 is we are way more focused on monetizers, productivity, beneficiary, which are sell AI, use AI, rather than build AI. But staying on Semi's point, Semi's historically are always a yo-yo index. You know, it goes up a lot. It comes down a lot. And historically, and this is watching, you know, mid-90s and throughout 2000, the moment Fed says this is the last hike, the last Fed hike delivery marks the bottom of Semi's cycle. So we are saying, you know, Q1 next year is the peak hawkishness from the Fed. And that would be the cleanest way or cleanest timing to position for the semiconductor. [00:14:55] Speaker 1: Okay, interesting. There's a lot to unpack there. But let me just meditate on one point, which is you don't think the cyclicality around the semiconductor story has gone. That's still a factor for this sector. [00:15:05] Speaker 5: I think so. And that goes back on to the thinking, how many companies want to adopt AI, you know, and the conviction to adopt AI is feeding into hyperscalers. It's feeding into frontier AI labs. And that's what backward feeds into AI capex cycle. I think the, you know, the feedback from S&P 500 outside the tech sector is still we want to adopt AI, not, you know, not ignore it. [00:15:30] Speaker 2: And so you talk there about the Fed and when the Fed does its last hike, Manish. But I suppose in the markets, we also look at the rates on treasuries. And you've got a nice little cheat sheet for us to work out where these treasury rates become restrictive. You say if we have a 4% on the U.S. 10-year, I think this is on the U.S. 10-year, is it? Then that's green. AI, you know, carry on. And amber is around 5% and 6% is red. [00:15:57] Speaker 5: Yeah. [00:15:58] Speaker 2: So that's what we need to watch is that land between 5 and 6 that dictates whether this trade continues, is it? [00:16:04] Speaker 5: So bond market is doing the job, which is defining the speed of the bull market. It is defining literally like a traffic light signal, which is how do we create an escape velocity for the AI ecosystem, which is are we ready to buy hyperscalers and semis together, which market has not done that this year. And I think to get into the idea of have we found escape velocity of AI ecosystem, we need much lower yields. We need yields near 4%. But if we have yields near 5%, which is what our take is, you know, it's a grind higher for the index rather than extremely bullish view. [00:16:39] Speaker 1: Okay, a grind higher. We're at 5.11 right now on the benchmark 10-year. As we think about financing, can I put a posit, an idea to you? Colette Kress maybe is more conservative in terms of NVIDIA's financing for the AI ecosystem. Then you get the Democrats putting in place some restrictions around data center buildout. Is that an existential risk for the AI trade or does it make the whole AI ecosystem rationalize and extend out further? [00:17:03] Speaker 5: So we definitely take out the speculative part of the buildout, and which is very important. We don't want to build excess capacity where the bears who we speak with in the market, for them, the biggest fear, are we actually overbuilding data centers? As again, the message from hyperscalers is we are still very short of compute. And I think that, you know, that test is going to let us go. After every election, of course, all the states have their own view, and all the states will come out with their own bottom-up way of approaching things. But it's not a macro way of saying this is a downturn of the AI capex cycle. [00:17:40] Speaker 2: So, Manish, over the last couple of weeks, then, do you think the markets have digested the message that the data center rollout will be slower? And we've seen it's priced now. Or do you think that pricing is still to come? Because we've seen kind of remarkably little negative fallout, if that is the message that we have really heard. [00:17:57] Speaker 5: That's right. So, S&P is slightly up since Election Day, you know, despite the wall. Even semiconductors are barely down one percentage points, despite, you know, all the movements that have happened. So, as a market that was already discounting a slowdown for the AI capex cycle, where a slowdown has not even started. [00:18:15] Speaker 2: So, slower can be better, do we think? [00:18:17] Speaker 5: I think it's very important to have this second derivative slow down so that other parts of the market feel some love. Okay. [00:18:25] Speaker 1: Manish, as we think about other parts of the market, look, you are a U.S. equity strategist. That's right. So, let's acknowledge that. But we have seen European stocks hit a rally, hit a record this week. And partly, it seems, because they're providing an alternative. Are you hearing from clients and investors? Are they turning to Europe? Do you think that extends? How are you thinking about European equities? [00:18:45] Speaker 5: Yeah, so, as in Europe, our take is 20% of data centers around the world will be based in Europe. As in the kind of companies that have surprised this week, they're still linked to the data center capex cycle. So, I think Europe benefits from the data center capex. Then, I try to look at what we had yesterday, the early staffing companies. They're all surprised on the upside. As in the message was very clear, the developed market labor cycle is still there. Temporary staffing is still there. The moment you have those kind of conviction, we do get these growth inflection points in Europe as well. [00:19:19] Speaker 2: What did you make of that, Manish? We were talking so much about NVIDIA yesterday and that one man's job. We didn't talk about that other story, which was, yes, temporary staffing companies with positive results. I mean, we've all been really worried about what AI does to the job market. We shouldn't be, maybe. Not yet. [00:19:37] Speaker 5: Well, I think the ultimate aim, which is watching S&P 500, watching how much revenues companies are making, how much profit margins companies are making with existing number of employees. I think that's quite stunning. All of those numbers are, you know, all-time highs. Seven out of ten sectors are showing extreme returns. [00:19:55] Speaker 2: Manish, thank you so much for joining us. Manish Cabra, chief U.S. equity strategist at Societe Generale at CIB. [00:20:01] Speaker 1: Okay, here's what else you need to know this morning. Ukrainian President Volodymyr Zelensky says progress has been made during a meeting with U.S. envoys Steve Witkoff and Jared Kushner in Ireland. He has welcomed a prisoner of war exchange deal and a decision to include Europeans in the next round of peace talks with Russia. The meeting took place hours after Witkoff and Kushner met President Vladimir Putin in Moscow. [00:20:25] Speaker 7: Our groups will have new meetings. We decided that we'll work on agenda about any kind of de-escalation, some kind of ceasefires, some kind of these. I hope that we will have such agenda. Yes, this is important. [00:20:43] Speaker 1: SpaceX and Tesla are progressing in negotiations towards a merger that could redefine the limits of global dealmaking. Bloomberg has learned that Elon Musk's two largest companies could announce what would be the biggest ever deal as soon as December. But the companies are also said to have discussed a scenario in which an announcement slips into early 2027. And Microsoft is struggling to restore some of its biggest services more than nine hours after an outage began. Outlook, Teams and Co-Pilot were unavailable for some users for most of the U.S. workday, with the companies saying a core process on affected servers was becoming overwhelmed. This is having huge impacts to the point, Anna, where some companies have had to delay and suspend their earnings releases because they can't get their emails out, they can't get their software systems working, because these are core parts of the Microsoft software offerings that are out for, it seems, tens of thousands, if not hundreds of thousands of customers. [00:21:41] Speaker 2: Yeah, absolutely. So you can look at governments being affected, you can look at companies. I mean, so far we had a bit of a delay on the regional earnings. They came out in the end, but we did get a bit of a delay there. Euronex saying that their email communications were unavailable due to the Microsoft outage. I'm just reading in our coverage that in Japan, the government's shared IT platform also experienced disruptions. We've sort of been here before in the sense that whenever you see these large players within the tech landscape, where their services aren't available, they service so many businesses that it has reach, the story has reach. [00:22:15] Speaker 1: This is being described as one of the most severe disruptions for Microsoft ever. So you're talking Outlook, Teams, Co-Pilot. It's worth noting that there is a line here, Microsoft saying they are not aware of malicious activity, but we continue to monitor that story for you. [00:22:29] Speaker 2: OK, coming up on the programme, as the fallout from the NVIDIA scandal continues to dominate the headlines, we will take a look at what it could mean for Europe. NG's chief economist and global head of research, Marieke Blom, will be with us. We were talking a little bit about ASML as we saw the initial impact of this weighing on the ASML share price. Is that about company specifics? Is it about the global chip trade? We'll talk about that next. This is Bloomback. Welcome back. This is the opening trade. 30 minutes from the start of cash equities trading. It's Friday. This is the picture on the European futures for equities then this morning. And we are expecting to retreat a little bit. Eurostox 50 futures then down by three tenths of a percent. That seems to have improved just slightly from half an hour ago. NASDAQ futures, E-mini is also improving just a little, very much more flat than they were. Bond markets saw some big moves yesterday on the back of that higher oil price, Tom. [00:23:37] Speaker 1: Yeah, hawkish commentary from Fed officials. Once again, higher oil prices at your back above $96 a barrel right now. And Brent is up four tenths, three tenths of a percent so far in the session. We have producer prices out of the U.S. later, which are important. You're seeing relative stability in European sovereign debt right now. Just a little bit high in terms of yields on the German benchmark. And a similar picture over in Italy and France. But nothing too dramatic. Bond yields moving a little bit high by between one to two basis points. Meanwhile, fallout from the NVIDIA scandal is weighing on sentiment around European chip names. This morning, seen falling pre-open after notching losses in Thursday's session. This amid concern over what further export restrictions on the company could mean for semi-names like ASML and the broader European tech sector. Let's bring in Marieke Blom, Global Head of Research and Chief Economist at ING, for some insights on this. Marieke, good morning. Thank you for taking the time. First of all, your reaction to what we've heard from NVIDIA, the downfall of Jensen Huang and what it could mean then for the European chip space with the likes of lithography maker ASML in focus. [00:24:47] Speaker 8: Yes, well, if you look at the European chip space, basically, I think the most important question that is now emerging is about the future relationship between the US and China. Now, of course, there is a lot more uncertainty when it comes to that, which is not just on the back of the NVIDIA scandal. But it's also because we have a democratic Senate now, where typically the Democrats tend to be more hawkish on China in a sort of concerted way where they want to work with their allies against China. What that could mean for a company such as ASML is that its business with China would be restricted as a consequence. And of course, that's a risk that's looming over the company and with the company, that's a risk that's looming over, for example, the Dutch economy, where the company has become more relevant. There is a nuance to it, though, because short term ASML's order books, of course, are more than full, full to the extent that they probably can't fully deliver to them. So, in a sense, you would say short term, there is a bit of a cushion there, but longer term, of course, this is a very crucial matter for the company, whether or not it can keep doing business with China. [00:26:06] Speaker 1: OK, that's really interesting. And the point you make about the order book and the backlog for ASML is obviously salient as we weigh up these risks to that company. One more maybe on the ASML piece. What is the ability for this company to kind of adjust around further restrictions? How dependent is it still, particularly for its DUVs, those machines for the China market? [00:26:30] Speaker 8: Yeah. So what you've seen is that in its sales totals, the share of China has been coming down over time. So I think a couple of years it was maybe like 40 percent and it came down to about 33 percent and now it's estimated to be about 20 percent. But I think the longer term question is for ASML, maybe a bit less about the direct sales to China. It is much more similar to what NVIDIA actually what Jensen Wang was warning warning for is, will there be a Chinese alternative to what they're doing? To what degree would China be able to come up with something that basically makes their machines less relevant, both within China and for the rest of the world? And I think that that's the most crucial question for them. [00:27:20] Speaker 2: Yeah. And what does Chinese competition to ASML look like at this point, Marieke? [00:27:26] Speaker 8: So far, I mean, ASML is pretty, it's a monopolist. So in that sense, there is very limited competition from China. So this is much more of a longer term question again. Longer term, the question is, will they be able to compete on the very advanced chips? Probably not short term. But of course, these tensions are another reason to look for alternatives. On the other hand, it will also give yet another impulse to the US, for example, to want to ramp up chip production, to become as independent as possible. So maybe ASML will see faster growth at that side of the Atlantic as a consequence of all this. So, again, shorter term, this is probably less of a negative for ASML. Longer term, it may be a question. [00:28:19] Speaker 2: And what does it mean for the Dutch economy, Marieke? I mean, we've seen tensions between the Netherlands and the United States as a result of the US chip curves in the past. Give us some size and scope, I suppose, on if this does hurt in the longer term, as you describe, ASML and the wider chip space, because it's not just one company. What does that do to the Dutch economy? [00:28:44] Speaker 8: Yeah. So actually, the Netherlands is pretty special when it is comparing itself to the rest of Europe. So basically, the whole chips wave is not really happening within Europe, except for in the Netherlands. And we've looked at the impact that ASML has on our economy, the Dutch economy, and we estimate that its broader ecosystem is currently about 2.2% of GDP. So that's significant. And, of course, it's been growing very fast over the last couple of years. So some 0.3%, 0.4% of GDP growth, annual countrywide GDP growth, may have come from ASML and could also be coming from ASML in the years to come. And we've actually been revising growth forecasts upwards when we were seeing that their revenue forecasts were going up. So this is pretty significant. What we've said is, could this become another Nokia? Well, probably not, because the Dutch economy is much broader and it's still smaller than Nokia used to be. In Finland, that was about 4% of the economy. But, of course, it is definitely something that matters. And we know that we basically, we see the economic waves going through the ecosystem and therefore also through the Dutch economy at moments in time. Again, looking forward for the next couple of years, which is the only time horizon that we're relatively comfortable with forecasting, we believe that there are still more demands for their machines than they can supply. [00:30:18] Speaker 1: More broadly across the European tech space, if we think about the likes of Schneider Electric or Siemens, Anna was speaking to the CEO yesterday and part of that conversation was about Siemens' partnership with NVIDIA. Is there a potential material impact on some of those names if NVIDIA under CollectCrest starts to pull back on the spending and funding that NVIDIA has up until this date provided for the broader ecosystem? [00:30:45] Speaker 8: Yeah, yeah, yeah, of course, I mean, it's obvious that if they have a working relationship, that this may be relevant for them at some moment in time. We've been looking at the degree to which this sector and the growth in the chip sector has been relevant for Europe. So, ASML, I've just mentioned, but if you look at broader sort of exports to the US, Europe has benefited mainly via everything that's related to power generation. So, that could be, for example, cooling systems, power generation, those kinds of tools. And in that sense, Europe is also exposed. But again, it's only a relatively limited share of the European economy. So, I don't expect to see much fallout there. I think if we think about the European economy in a more broader sense, it's really all about Europe as a user of AI. And that's where it's expected to have the most significant impact. [00:31:46] Speaker 2: Marieke, thank you very much. Thanks for joining us. Marieke Blom, Global Head of Research and Chief Economist at ING. On to European politics. Ukrainian President Volodymyr Zelensky said progress has been made during a meeting with US envoys that took place in Ireland. Zelensky hailed a prisoner swap deal and a decision to include Europeans in the next round of peace talks with Russia. We're joined now by Bloomberg's Chief Europe Correspondent, Oliver Crook, who is at the EU leaders or European leaders summit in Dublin. So, what's next for peace talks then after this positive meeting, Oli? [00:32:25] Speaker 9: Yeah, so it's a really interesting week, a very intense shuttle diplomacy that began in Abu Dhabi with those trilateral talks between the United States, Ukraine, and Russia. We should say even that meeting in and of itself was significant because it was the first time that the United States really picked up that effort again of those trilateral meetings since the month of February. Obviously, the United States has been massively distracted by the war in Iran, but now those conversations resume. Then, Witkoff and Kushner headed from the UAE over to Moscow. They met with Vladimir Putin. He reiterated some of his red lines, particularly on the issue of foreign troops in Ukraine in the day after, if, indeed, they were able to strike a peace agreement at some point. Then they came over here to Dublin. They had a meeting at the military airport last night with President Zelensky, a couple of other Europeans who were also in those discussions. And, again, the real fruit of those discussions this week is, one, concretely that prisoners swap, more than 1,000 prisoners on either side being swapped by the Ukrainians and the Russians. And the second, it seems that now, finally, after years of these sorts of discussions, the Europeans have earned themselves a seat at the table. This is something that the Ukrainians and, of course, the Europeans have been pushing for a very, very long time. The Americans were a bit reticent on it. The Russians were, of course, very against it. Now it seems that in order for there to be a peace, it seems that everybody in that conversation agrees that the Europeans need a seat at the table. Now, Anna, the big question is, now that there's a seat, who is going to sit in it? That is a question that the Europeans still have not answered. It is something that we've been pushing in our reporting and our conversations for the last several years. But if the next meeting, as it seems it's going to be, is not just a trilateral meeting, but a multilateral meeting with Europeans at the table, that puts pressure on these European leaders who are meeting again today to figure out who sits at that seat. [00:34:05] Speaker 1: Okay, so that's someone that they're looking for when it comes to foreign policy. Europeans also looking for the next head of the central bank of Europe, the ECB, of course. How much is that going to feature at today's summit, Oli? [00:34:17] Speaker 9: Yeah, absolutely, Tom. A lot of seats to fill here for the Europeans. And at the ECB, there's actually three to fill. There's a trifecta of those three seats over at the governing council, I should say, the ECB executive board. So that's just a reminder to everybody. Lagarde is stepping down in February. That is the main position. There's the chief economist, and there's also the head of the markets. And so in this trifecta, this discussion of these three seats, it seems that there is some progress being made. It seems that potentially now the Spanish candidate, DeCoste, may be the one that is being pushed forward by the French side. That is according to some local reports within France, and that potentially the Germans are aligned with that sort of idea. Again, the Germans have pushed back, and they said they're not officially there. But that is some of the reporting we've seen out of France. That would then liberate the question about who is going to be the chief economist. That potentially could go to the Germans. And then the seat over in the markets team potentially could then go to the French. So, of course, in these conversations, there's always a huge amount of horse trading. We have to say that this is according to sort of other media outlets. But it does seem that they're converging on this idea of getting those three seats filled before the end of the year. That will be a discussion that's very active today. But remember, there are three European council leader meetings where all of these European leaders get together before the end of the year. And they really would like to close those three assessments in those three seats before the end of this year. [00:35:29] Speaker 2: Oli, thanks very much. Many conversations about many seats. Bloomberg's chief Europe correspondent, Oliver Crook, in Dublin. [00:35:35] Speaker 1: Coming up, investors' eye big gains ahead of Anthropics' IPO. [00:35:39] Speaker 10: But still, I am happy with $1.4 trillion valuation, so I'm not complaining on that. [00:35:45] Speaker 11: Yeah, the smile says... [00:35:47] Speaker 10: Because between only three companies, OpenAI and SpaceX and Anthropics, we're making a few billion dollars of profit. So we're very happy this year. [00:36:01] Speaker 1: Very happy. Okay, that was Damak Group founder Hussein Sajwani speaking to our very own Guy Johnson at the Bloomberg Investor Buy event yesterday. We're going to have more on Anthropics' planned IPO. That's coming up next. This is Bloomberg. Welcome back. Happy Friday. We are 15 minutes away, a little under 15 minutes from the opening trade this Friday. European futures pointing down by four-tenths of a percent. So a little bit of negativity, but this in the context of a record rally for European stocks. And we saw that yesterday, European stocks ending the session yesterday at record highs. [00:36:50] Speaker 2: Yes, absolutely we did, record highs. Let's talk about where we go on these markets now in three minutes on the opening trade with Paul Dobson, Bloomberg's executive editor for Asia Markets. And, Paul, everybody focused on NVIDIA, I suppose, and what it means more broadly. A sense, perhaps, from some of our guests overnight that we're in a kind of transitional phase where the markets are trying to work out what comes next. [00:37:10] Speaker 12: Yes, good morning, Anna. I think for the tech stock sector, that's definitely the case. The market started off extremely low in the U.S. session for NVIDIA, down like 14 percent there or thereabouts. Managed to come all the way back to about 4 percent down by the end of the session. A lot of retail traders piling in there. From our reporting, it sounds like a lot of the rest of the world was also interested in getting back into it after such a steep sell-off. So that left U.S. stocks not all that far down, actually, on the day. And Asia tried to start the day positively, but by the end, that has sort of ebbed as well. So I think there's uncertainty out there. What's it going to mean for U.S.-China relations? Could there be a little bit more friction? Could there be more guardrails set up to prevent U.S. exports of highest technology chips over to China? Those are some of the questions that are on people's minds. You know, a lot of the markets seems to be saying, yeah, Jensen Wang, anybody can be replaced eventually. But others are saying, you know, this is a guy that really was a talisman for the entire industry, and he's going to be a big miss. [00:38:14] Speaker 1: And, Paul, to some extent, or to a large extent, the NVIDIA story and the Jensen story has overshadowed, for very good reasons, what's happening in the bond markets. But the bond market moves have been sizable this week. We've had some Fed commentary again that's been hawkish, and we've got producer prices today. [00:38:30] Speaker 12: Yes, Tom, and you know me, I'm always going to be more excited about the moves in bonds than those in individual stock companies. Really huge jump in Treasury yields over the past couple of days, people moving back out of bonds. It's this sort of process, though, you know, we started with payrolls, and then the U.S. inflation numbers on the CPI that were high. And then the comments from the Fed's Waller and a whole load of other FOM speakers afterwards, all talking about the need for more hikes, talking about the idea that U.S. policy isn't currently restrictive. You know, and you can see that through the economic data, the Citigroup economic surprise index, the highest in a couple of years in the U.S. as well. So that all adds up to this idea that we're going to see more pressure on bond markets. We've just about gotten back to zero, so flat for the year in the U.S. Treasury market. Now we're down again and feeling a little bit of pressure. And a lot of people are talking about the idea that yields can remain under pressure for quite a good long time, especially with the Fed still hiking. And on the other hand, there's plenty of people that want to pile back in at 5.3, 5.4, 5.5 on the 10-year. [00:39:31] Speaker 2: So are you seeing knock-on impacts then from those higher yields, Paul? [00:39:37] Speaker 12: Yes. Yes, in Asia's markets, a couple of interesting things to observe. Over in Australia, for the first time in over a year, Australian yields are now below those, the ones in the U.S., which has pushed the Aussie dollar to the weakest level since January. In Japan, similar sort of thing, right? The yen is weakening again. It got through 160. A couple of times, it's sort of ping-ponged back both times so far. So it's hitting up against a bit of a wall and creating extra volatility, making it much harder for traders in Japan to do it. So that sort of impact, you've got the dollar at the strongest in more than a year, is kind of rippling back across the global market complex as well. [00:40:13] Speaker 1: Paul, thank you very much. Have a great weekend. Paul Dobson, Bloomberg's executive editor for Asia Markets. Let's get your stocks to watch this Friday. Olivia is here. [00:40:21] Speaker 13: Good morning, Tom. Happy Friday the 13th. We're looking at Richemont here. For a second there, it looked like Friday the 13th was going to prevent their earnings from coming out with the Microsoft co-pilot issue. But we have the results, and it is a beat on their sales on constant currency exchange rates. They had a particular strong performance actually in Japan, which grew notably, and that sort of offset the weakness that we saw in the Middle East, expected weakness there given the war. Richemont actually said that they felt that their performance in the area held up decently well, given the macroeconomic headwinds there. There were a couple of things beneath the report, though, that were not as rosy, particularly in their jewelry maisons unit, which missed. So it could be a potential mixed opening here for Richemont. If it is lower, it's likely due to that miss in the jewelry maisons unit. Moving over to your insurers, Unipoll's operating profit grew by 13% on the year. However, it's actually in a general rally's results that I want to bring your attention to. They missed on third quarter operating profit, even though their net income did beat. And one of the things that the CFO was flagging just before I came on set was the cost of the catastrophic unit. So they took an 800 million euro hit due to these natural disasters. And, of course, we've had extreme weather in Europe all summer, and we're facing now an Al Nino event. So the cost of natural disasters is definitely something investors are thinking more heavily about when it comes to insurers, especially now that it was flagged by Generali in their report. Finally, Stellantis, there's a lot going on in the stock today. We saw it fall more than 4% yesterday after the CEO warned of multi-billion dollars in costs next year. Due to rising input costs. Today, we have Stellantis facing another potential headwind with Canada's industry minister saying that they are owed hundreds of millions of dollars by Stellantis due to this dispute that they currently have over this Toronto plant, adding that Canada's government is prepared to sue. Also, Stellantis replaced their U.S. sales chief as they try to make inroads in an area that they've actually been suffering in recently due to lackluster demand and a kind of old product line-up. So definitely a lot going on in Stellantis. [00:42:39] Speaker 2: Thanks, Olivia. Olivia Levy with the latest on what's going on on those companies. We'll certainly watch all of those at the market open. Shall we take a moment to reflect on what's still ongoing at Microsoft? Issues with Copilot and other product areas. Some latest news lines saying they're seeing positive results for server stability, but it doesn't seem as if this is resolved and it's gone from the U.S. through the Asia session. Whilst all of Europe was asleep, we're getting some really nice insights from our teams over in Asia about what this is doing to traders and those who are trying to work in the financial services sector. Some nice little insights. Maybe Gen X in their happy place, Tom. We're picking up the phone and using WhatsApp. That's the line coming through from CMC in our reporting. Everyone was back on the phone. Something that normally took a few seconds by email was now requiring a phone call. A bit of back office headaches coming through is the way that some Tokyo-based strategists were putting it as well. [00:43:33] Speaker 1: Yeah, and again, just to put us in the context, this is one of the most severe disruptions that Microsoft has ever seen. So Teams, Outlook and Copilot all affected for many people, not everyone, for many people it seems. And we've had even examples of email access for Japan's Ministry of Finance being affected. And to your point, traders are struggling to close deals at the end of the week in Asia because they can't use their Outlook. And so picking up the phones and using WhatsApp. [00:43:57] Speaker 2: And some of the corporate earnings delayed. I think there was one in the States last night that was a little delayed. And we've had this morning some European corporates also struggling to get their earnings out. But they managed in the end, Richemont. It took a little longer than expected. [00:44:10] Speaker 1: Very pleased to say that everything's working with Bloomberg. So the terminal function, fine. We're having no issues at all. [00:44:15] Speaker 2: I'd have nothing to say if it weren't. European equity market futures then. Shall we bring those up and see where we are? The US futures picture has improved a little bit in the last half hour or so, last hour. Maybe that applies to Europe as well. Just seeing a little bit of less negativity, perhaps, Tom, than we were half an hour ago. [00:44:32] Speaker 1: Yeah, currently pointing high by three-tenths of a percent. And again, within the context that European stocks are at record highs. But we're going to be watching, of course, the names like ASM International, ASML, of course, in terms of the read-across for the NVIDIA and Jensen Huang downfall and the NVIDIA crisis and chaos. So we continue to monitor the linkages there. Interesting, of course, that some of their competitors have performed very well, including AMD, which is up more than 40% over NVIDIA just this week. The US futures pointing a little lower. The opening trade is coming up. This is Bloomberg. This is Bloomberg. [00:45:19] Speaker 2: Welcome back, everybody, Friday. Friday, it is the 13th, as Olivia reminded us. But a few minutes ago until the start of cash equity trading here on European equity markets. And this is the picture from the US yesterday. This is the S&P. Are we breaking this link a little bit this week when the US has been so focused, of course, on NVIDIA, the wider fallout of that? And Europe has, for some of the investors we've talked to, at least, provided something of an antidote, something of an escape route from some of those trades. But this, for what it's worth, is the US picture of yesterday. And we did see a bit of a downdraft in US stocks after we closed European equity markets, which is this red line. And let's have a look at the European futures picture, because it does reflect a bit of that negativity in the US. Yesterday, we're down around a quarter of 1%. And we struggled to get some of the earnings reports out this morning, Tom, due to those Microsoft issues. But broadly, we're there. Things look a little quieter, really, this morning, given the hectic week we've really seen. Bond markets a little quieter today after yesterday's higher yield story, driven by higher oil prices, which also look a little quieter this morning. [00:46:17] Speaker 1: We have some individual earnings stories to think about as well on our individual stocks focus this Friday. Richemont coming through with a sales beat. Jewelry helping again, cementing its status as a luxury sector standout. So we continue and will monitor the numbers, or at least the reaction after first-hour sales came in with an increase of 17%. That's above the estimates of 16%. Athiona Energia is a company that's in focus as well. This is on the back of a $1 billion deal to sell solar and wind assets to Mexico's infrastructure partners. It may be facing delays, potential risk of collapse. So we watch Athiona as well. And Stanlantis coming through with some updates in terms of the impact of chip shortages at raw material costs and some pressure over in Canada as well. So Stanlantis is also that can't make it in focus, Anna. [00:47:02] Speaker 2: Okay. Just moments then from the start of European cash equities trading for this Friday morning. And European stocks coming off a new all-time high in yesterday's session. So the travails over at NVIDIA, the downfall of Jensen Huang, at least in the very short term, playing out to Europe's favor and European stocks going higher, at least broadly speaking, this week. So we have seen this new European high for stocks in Europe. Where does that leave us? Well, it leaves us a little on the back foot, actually, this morning. So down a tenth of a percent or so on the FTSE 100, around that for the stock 600. But as I was saying earlier, Tom, things just do seem a little bit calmer this morning. Yes, we have this Microsoft story to watch. There are plenty of other news lines coming through from the Anthropic IPO, so lots of tech themes to still talk about, of course. But we don't have huge moves in oil prices. We don't have huge moves in bond markets. Both of those did happen in Thursday's session, but we've kind of digested that. And on the back of all of that, we retreat just a touch on European stocks this morning. What do you see on the sector? [00:47:59] Speaker 1: We continue to see the ripple effects of the NVIDIA story. Tech is down as a sector by nine-tenths of a percent. ASML is weaker again in the session, currently down at 1.2%, just over 1%. In terms of other sectors under pressure, telecoms weaker as well, interestingly, by about 1%. So it's telecoms, basic resources, tech, amongst the leading losses across your sectors. The gains coming through for energy, not surprisingly. Oil prices have increased. President Trump says he doesn't need a deal with Iran. He's said that again. He's flip-flopped on this issue, of course. Energy is, as a sector, up seven-tenths of a percent. That's providing something of a ballast to the FTSE 100. Utilities also gaining three-tenths of a percent. Food and beverage gaining two-tenths. That is a broad picture across your sectors. Energy on the upside, basic resources, tech. Seeing a bit of selling pressure. [00:48:45] Speaker 2: Yes. So most sectors, well, around a third of sectors, I think, in positive territory. Two-thirds negative, down two-tenths of a percent. Not huge moves, given the context, given what we've seen. Let's take a step back and talk about these markets with Natalia Lipakina, head of EMEA equity strategy at JPMorgan Private Bank. Natalia, nice to have you with us. So I was thinking, we've been thinking all week with guests about the role that European stocks play as we watch the NVIDIA drama unfold and we think about what it does to the wider tech landscape. Of course, Europe is attached to that tech landscape and Europe certainly has some plays around AI and certainly in the industrials connected to AI. But where does it leave European stocks in general, do you think? [00:49:25] Speaker 14: Yeah, thank you so much for having me. Good morning. Right now, we are being quite selective in terms of what we're like in Europe. Europe underperformed in the months of October. We've seen a very, very sharp rotation from cyclicals to defensives, as we've seen in the rest of the market as well. And look, in terms of being selective, we do like banks, for example, which is not linked to AI. This is a completely different sector, which also had a very difficult month of October. We had a big de-rating in the market. But when we take a step back and look into the fundamentals, they actually look very strong, especially on the loan side. And then we're also being selective in sectors like industrials and tech. [00:50:06] Speaker 2: Yeah. OK, so tell me about that tech selectivity then. Where does that take you and where do you want to set aside? [00:50:13] Speaker 14: Yeah, look, I think when you look into tech, you're basically seeing a big pullback in semiconductors. The market is really reassessing how much growth the sector will have after a very strong 2026. We think that a lot has been priced in. But if we take a step back and think about where our biggest conviction lies right now, it's actually with hyperscalers. [00:50:32] Speaker 1: It's with hyperscalers. Does the crisis engulfing NVIDIA, is that a headwind? Do we look through that? How significant and consequential could that be? [00:50:41] Speaker 14: So, look, I think for hyperscalers, what is really interesting is that you have the underperformance because you had a big rotation as well this year. Sam is outperforming the hyperscalers. Then you also had the CapEx story. This year, CapEx almost doubled. And the market has been reassessing the free cash flow hyperscalers. I think the story changes. And as hyperscaler growth comes down, so we're going from 90% CapEx to 40% and then 10%, that's what the market is expected roughly right now. We think that free cash flow, which is like the key for market, may actually inflict higher faster than what market is expecting. [00:51:16] Speaker 1: Okay, so we get to free cash flow faster than the market expecting. But the markets, the investor reaction has been mixed on the CapEx story. And sometimes they reward companies and hyperscalers that spend, that contribute more and commit more on CapEx. And sometimes they punish hyperscalers for committing too much. Is that story becoming more nuanced? How do you play that as an investor? [00:51:36] Speaker 14: Yeah, it's interesting you're asking that, because if you look what happened this earnings season, what was really important, just given where the rates have been, is just to commit. Not too much, but just say, yes, the CapEx is growing, but not much more than what we've already seen this year. To me, what is really important is cloud growth and backlog, because ultimately it all comes together with not just CapEx, but also how companies are doing fundamentally. You can't just invest. You need to see if you have the ROI on your business. And actually, we got the confirmation this earnings season that ROI is actually quite strong. [00:52:07] Speaker 2: And Natalia, it was interesting. We had a conversation with a guest earlier on who was pointing us towards the bond markets, the role it's playing in stocks, and suggesting that bond markets, depending on where you've got yields, are giving either a green light, an amber light or a red light to stocks to go higher and how quickly. And I wonder if, and he was characterising it as bond markets are playing the role that they should, and they're slowing this thing down. This train was going too fast, and they're slowing this thing down and actually painting a picture that this could take us to a more positive place, medium term. Is that a view that you would share? [00:52:39] Speaker 14: Yeah, it's interesting, because if you look into the bond market, first of all, the market, the equity market, has derated, because the yields have risen. So we've saw a very big, almost four turns derating in S&P from 22 times to 18 times right now. So the market already knows that earnings likely to slow down next year. In terms of the CapEx, the fact that CapEx is slowing down, that is actually good for hyperskillers, right, because it means that they can show that ROI that we talked about before. And for us, we don't want to see very high yields, because, you know, that may put more and more pressure on the equity market. So the fact that we got a bit of stabilisation is actually good for equity markets. [00:53:16] Speaker 1: You're targeting 8,600 for the S&P 500 by the end of 2027. What assumptions are you making about rates for that call? [00:53:25] Speaker 14: Yeah, so we have rates around, you know, 5%. So basically, for us, it's less about the re-rating of the stories, more about the earnings. So if I look into our earnings expectations, we think that earnings can still grow double digits next year and the year after, which is, by the way, the trend that we've seen for the last eight consecutive quarters and is higher than the long-term average of 7% to 8%. So we feel pretty comfortable with this earnings growth story that should be driven by different sectors. But obviously, hyperskillers is a big part of that. [00:53:56] Speaker 2: And if the second derivative of those earnings, if that earnings growth comes down, that's okay, is it? Markets can digest that. We're sort of grown up enough with this AI theme that we recognise you can't keep growing at the pace you were. It's fine if that percentage comes down and the AI trade continues regardless. [00:54:12] Speaker 14: Absolutely. And this is what the market, I think, has been rustling in the last couple of weeks because the market was trying to understand, okay, 2026 has been a fantastic year for earnings. We're going to slow down. But we're not really going back to 7%, 8% of long-term average. We're still going to go double digits for the next two years. So the market feels very comfortable with that. And the valuation already reflects that. At 18 times, the market is not really expensive. [00:54:37] Speaker 1: Can I take us to a very short-term event, which is the Anthropic IPO? Is that a clearing event for the markets? How are you thinking about that in terms of exposure to the hyperscaler story, the AI story? How should investors be factoring that in? [00:54:50] Speaker 14: I think the market has been trying to understand what it means for the data center build out in the last couple of weeks. And for us, it's kind of different from the whole AI story because we feel that AI story remains very intact. So overall, we feel very good with the AI story. And if we get more confirmation that it continues, that the market should take it positively. [00:55:12] Speaker 2: And Natalia, back in Europe, I mean, I talked about how Europe's coming off record highs on European equity markets this week. But you're broadly neutral. You gave us a bit of an insight into what you think about Europe. But which of the sectors that you're particularly positive on? Is it the industrials that are serving that AI build out? Will they be the ones for whom the earnings story is the most positive? [00:55:34] Speaker 14: We do like industrials. Absolutely. And industrials is a very broad sector. And we like, you know, the broad nature of it. We like aerospace. We do like the electrification data center build out. There was a massive rotation back in October. So we think a lot of negativity is pricing. But also banks. As I mentioned, banks is a very differentiated story. The market got concerned about the trades earlier this month. But we feel very comfortable with fundamentals. As I mentioned, long growth. [00:55:59] Speaker 2: Because rates can go up for the right or the wrong reasons when it comes to. So sometimes rates go higher and banks do well. And other times rates go higher and banks sell off. What's the link between the two at this point? [00:56:10] Speaker 14: Yeah, look, we think that's two, we expect two ECB hikes within the next year or so. And so far we think that that is actually good for banks because we're not seeing the overheating in the markets. And that's why the move in yields is so important to us. Because if we do see a stabilization, that's actually good for the sector. [00:56:28] Speaker 1: What do you think about domestically focused UK stocks, FTSE 250, on the back of a slightly stronger growth picture here? [00:56:34] Speaker 14: We need to see better earnings growth, to be honest. It's a deep exhale. I would say the valuation has been very attractive. But we really need to see that confirmation that earnings growth is strong, right? If you compare, for example, to Europe. Europe is growing high single digit likely next year. US is growing double digits. So there are other areas of market that look more compelling. For example, we didn't talk about Japan. But Japan for us is a high conviction idea. We expect double digit next year and then high single digit in 2028. Plus you have corporate reforms that are lifting the margins. So there are interesting stories globally to choose from rather than markets in Europe. [00:57:11] Speaker 1: Other opportunities outside of the UK, sadly, at least for now, is the take from Natalia Lipikina. Thank you very much indeed. Head of EMEA Equity Strategy at JPMorgan Private Bank. Let's check in on the core six this morning. ASML taking another knock. And you can tie that to the NVIDIA story. Currently down 1%. It's not a huge move, but it's notable, obviously, on the points basis. Ryan Mattel in the defense space, also down by 10 points, falling 1.4%. LVMH in the luxury space, not getting some upside from the broader luxury story. Reach more, of course, in the beat there. But LVMH is a little weaker today. One stock that is in positive territory is the consumer staple that is Nestle, up 0.4%. Let's check in. So the other individual names. LVMH is here with some of the stocks on the move. [00:57:55] Speaker 13: Hi, Tom. This is actually a difficult day, as there's not a lot of stocks on the move. It seems to be quite a muted day across the board. Maybe investors just sort of taking stock of all the developments that we've had this week and trying to reposition. We do have some deals news, though, particularly some share placements, as you can tell by the stock reaction. Aramae is raising roughly €500 million in a share placement. So their stock is down off the back of that, while IIII Group is down 3.6% after one of their major shareholders placed more than 3% of the company overnight. But it's mostly just a technical correction, given the discount that those shares were placed at. Moving over to the energy space, you mentioned Acheona's deal. That is hitting the potential risk of that deal in Mexico. They were supposed to sell wind and solar assets to Mexico's private investment fund. And that deal is now considered at risk. So we're seeing Acheona down more than 4%. They also had earnings, which were pretty much just in line. So it seems that investors are taking the potential risk of this Mexico deal over the in-line earnings result. And their subsidiary, which is actually the one making the sale, is down by almost just as much, down by 4% there. And finally, moving over to the European earnings slate, Richemont is actually down more than 6.5%. So that's what's weighing on your luxury industry today. They had a miss in their jewelry Maisons unit. And clearly investors are really not happy about that, despite the fact that their headline was a beat. Wise Group is up more than 5.5%. They've guided that their 27 goals will be ahead of, will be on the upper end of their range. CTS Eventim is also strong. They're expecting, trying to make a push into data centers over the next couple of years. Investors seemingly taking that confidently. Well, Aviva is one of the insurance players that's actually up today after a solid set of results. [00:59:52] Speaker 1: OK, Olivier, thank you very much. Indeed, yes, some really interesting moves on Richemont on the back of, as you say, a headline number that came in strong. But there's detail beneath the hood that is concerning investors with that drop in the stock price for Richemont. Coming up, Outlook outage. We're going to bring you the latest. As Microsoft scrambles to restore access to key services, this is Bloomberg. [01:00:17] Speaker 15: We've had these big drawdowns in AI, and we've always bounced back from those. And I think what we've seen here is it's nervousness about it. I don't think it's a fundamental end. We have to look at how the technology progresses, what the costs are. But I don't see any pullback on the usage side of it. And if you look at that, there's only just demand growing. [01:00:51] Speaker 16: I think the market's fear as well that earnings backdrop is reflecting an AI buildout that might now be out of date. But we don't think so. Maybe it's more elongated, but it'll still be there. [01:01:00] Speaker 17: As an investor, you need to find diversifiers. Now, Europe has always been slightly overlooked because growth, of course, is not quite as buoyant as in the U.S. But still, it is a diversified market universe that you might find rich picking. [01:01:13] Speaker 18: We're firing on all cylinders. We have a strong demand from data centers for our electrification business. But not only that, it's also our building business, automation business going to data centers. [01:01:23] Speaker 19: It's a global trade, and I don't think there's any way you can really hide from AI. I think it's not a matter of whether you are exposed to AI or not. You have to be. It's just where you get that exposure. [01:01:32] Speaker 11: It's been a region that's powered incredible growth. And honestly, we're seeing that push for AI transformation actually driving value in ROI with AI going higher and higher. And for us, even as successful as we've been here with our growth, we think that we're just starting to scratch the surface. [01:01:49] Speaker 2: All of that just this week. Some of the voices that we've heard from in this volatile week for tech and AI and how Europe may benefit as investors seek safe harbor. [01:01:58] Speaker 1: Meanwhile, Microsoft's Outlook outage is causing a lot of headaches this morning. The company's scrambling to restore key software services with users unable to access their emails or chats. Let's bring in Peter Elstrom, Bloomberg's executive editor for Global Technology. Peter, thanks for taking the time. What can you tell us about this outage? [01:02:18] Speaker 3: Hi, Tom. Yeah, this is one of the more severe Microsoft outages that we have seen. Usually these don't last more than an hour. They tend to be quite short and quite narrow. In this case, this began on Thursday. It spilled into Friday. As you mentioned, it affects a wide range of services for them. It affects Outlook, Teams, CoPilot, their AI service also. And it's been kind of a widespread problem. The company has been giving updates on their website about how the progress is going. But there's more than 200,000 reports of problems at this point. And the company has said it's not been able to figure out exactly how to solve it. There's some problem with their underlying servers. They're working on that. Again, they've been giving status updates quite regularly, but they haven't been able to fix it so far. [01:03:09] Speaker 2: We've got some incredible reporting from the team then, Peter, around the complexities of how NVIDIA chips ended up in China and the role of Alice Wang and others in this. I'm sure there's plenty more to uncover, but take us through some of the insights we've had there. [01:03:29] Speaker 3: Yeah, one of the big questions in this NVIDIA scandal is exactly how NVIDIA chips have been moving through the global supply chain. And, of course, the most advanced NVIDIA chips are explicitly banned by Washington from being shipped into China. And what we have found is that some have made their way there, including some of the most advanced chips that the company has. Our reporting showed that there's a company tied to Alice Wang, the woman who is suspected of being a Chinese spy and suspected of having an affair with Jensen Wang. And they were able to get some of those chips into China. So there's still a lot to be uncovered here. Obviously, this has gotten the attention of Washington. It resulted in the board of directors deciding to ask for Jensen Wang's resignation, which he has given. So there's a lot more to discover about how these chips have been moving through the global supply chain. But this is upset the China hawks, certainly in Washington at this point, who think we should be much tougher on China when it comes to these chip exports, that it's such a strategic advantage to have AI chips that there are national security implications if the companies there are able to get them. So, anyway, there's more to be uncovered on that front. [01:04:43] Speaker 1: So, Peter, from the hardware piece of the AI story and, of course, the controversy and the drama around NVIDIA to the software piece, and notably Anthropics IPO, and we can draw the dots to some extent because of some of the NVIDIA investment in Anthropic. But it seems like, despite all of the turmoil around NVIDIA, the software piece is playing out quite well. It seems there's a lot of demand from investors to get exposure to Anthropic. [01:05:09] Speaker 3: Yeah, this was a big question as we were heading towards Anthropics IPO. Obviously, it's been planning this for a very long time, and then it ran into a huge amount of market tumble, especially with the neoclouds. There was some shakiness at the foundation of these companies that are trying to build the infrastructure for these companies. But Anthropic and its bankers decided to proceed. They did lower the valuation a bit from some of the more bullish estimates that we had had. But now we hear that they are proceeding with the IPO, and, as you mentioned, it's six times oversubscribed. Lots of investor interest here. That could lead to the company bumping up the price range for the IPO and also perhaps increasing the amount of money that they raise in the valuation that's implicit within that fundraising. [01:05:54] Speaker 2: Peter, thank you very much. Peter Elstrom, Bloomberg's executive editor. Thank you for global technology. Well, in slightly unexpectedly related news, Microsoft's Outlook outage affecting one particular company this morning, Richemont, was delayed by nearly an hour in reporting its first half results, which showed sales growth exceeding expectations. But I have a feeling the story doesn't stop there. Let's get the thoughts of Andrea Felsteed, columnist at Bloomberg Opinion, because I read that that says sales come in better than expected, and that seems to be the red headline on the Bloomberg terminal. And yet the stock is down, Andrea. And I also see there's been some disappointment around jewellery. So give us the story. [01:06:31] Speaker 20: Generally, Richemont is still performing very well compared to people selling handbags. Jewellery has been a really hot part of the market. Now, that's where the problem is, because the second quarter, the jewellery sales slightly missed consensus expectations. So that seems to have worried people that the jewellery boom is over, jewellery is going the way of handbags. We're at jewellery fatigue. That explains the sort of the share price. [01:06:59] Speaker 1: Still going 19%, right? Exactly. 19%, but to your point, it missed the consensus estimates in terms of the jewellery segment. You were saying in the break there's a link between AI and jewellery. [01:07:10] Speaker 20: Absolutely. Absolutely. The whole of luxury has had, particularly in the US, the whole of luxury has had a boost from the AI wealth trade. And I've got a theory about watches and jewellery, based on no evidence, but just a theory, that watches and jewellery have particularly benefited. Because if you get a nice lump sum of money, perhaps from shares, vesting, or your company going public, you want to buy something that celebrates that personal milestone. And you could maybe buy a Birkin bag or a Chanel bag, but best will in the world, that's probably not going to last your lifetime. But if you buy a nice watch or a beautiful piece of jewellery, you've got that, you know, just that sentimental memento of that time. [01:07:54] Speaker 2: Yes. So the AI trade has something to do with it, this sector in particular. So luxury names have taken a bit of a beating. China and the dynamics there have been a sort of negative retail driver for a while. Richemont, though, has outperformed. So what has this company been getting right, even if the stock today is down a bit? [01:08:12] Speaker 20: Well, it has been in jewellery, and jewellery has benefited. As prices for handbags went up so much, actually, a piece of jewellery looked better value than buying a handbag. [01:08:24] Speaker 2: And are people thinking of it as an inflation hedge and putting their money there for that reason, or is that to stretch it too far? [01:08:29] Speaker 20: I think it's more of what you can get for your money in terms of luxury. Now, the flip side of that is jewellery has had some price increases because the gold price went up and that had to be passed on. So that's another question around the fatigue point. Have the price increases in jewellery finally caught up with the demand? [01:08:52] Speaker 1: There's a big liquidity event coming, which is Anthropics IPO. So maybe that will give you a boost in the days and weeks ahead. [01:08:59] Speaker 2: OK, thank you very much, Andrea. Andrea Felstead, columnist at Bloomberg Opinion. Now, Tom will be here for the tech show, but I'm disappearing. So time to talk about the weekend, Tom. I know most people have a whole day ahead of them, it being Friday morning. But lots of sport as usual. I'm pleased to see the London Jazz Festival making an appearance as London undergoes something of a jazz revival. [01:09:21] Speaker 1: Yeah, and as cultured as you are, do you follow that up with the cocktail? I feel like you should. [01:09:25] Speaker 2: I feel the two are intrinsically linked. [01:09:27] Speaker 1: They are, aren't they? Guy's not here, but we'll talk about the rugby anyway. And maybe Ben, who's in my ear and is a true Kiwi, can give me some insights. But is England versus Japan? That would be good. Japan's good. I know that. Go England. And New Zealand versus Wales. after their victory up in Edinburgh. [01:09:45] Speaker 2: And Ben has his own thoughts on who's going to win that particular head-to-head. [01:09:47] Speaker 1: Yeah, completely unbiased for views. It's the Stockholm Open as well in tennis and the Lord Mayor's show. We're seeing that being put together downstairs. [01:09:54] Speaker 2: Now, I can't imagine what it is that you'll be talking about on the tech show. It's been a quiet week. [01:09:58] Speaker 1: It's a bit of a guessing game, isn't it? Jensen Huang, obviously, we're going to do a deep dive on all of this. Jensen Huang, of course, out at NVIDIA. What next then for the world's most important chip company and the central pillar of the AI industry? We're going to discuss that on the special edition of Bloomberg Tech Europe. That is coming up. We'll have fresh insights and analysis. Stay with us. This is Bloomberg. [01:10:22] Speaker ?: We'll see you next time. We'll see you next time.