Midterm Results Fuel Stock Rotation; Republicans Trade Blame For Losses

[00:00:00] Guy Johnson: Good morning. How are you doing? 5 a.m. in New York, 10 a.m. in London. I'm Guy Johnson with your Bloomberg Brief. Let's get you set up for the day ahead. A post-midterm rotation, certainly roiling stocks, hitting chipmakers on concerns over tighter AI policy. That's as Republicans trade blame. After the blue sweep, Democrats, of course, gear up for potential probes of President Trump. And the Bank of England expected to hike interest rates today for the first time in three years. Let's talk about the markets. It's been a massive reaction around the world. Let's start in Asia. Justina Lee has the details. [00:00:52] Justina Lee: Good morning, Guy. Now, as you mentioned earlier, it really is a pretty stark rotation trade all across markets, and that's splitting Asia into two. Now, starting with the positive side of the story, we're seeing Hang Seng Index mount a pretty strong rebound with a lot of investors moving into those beaten down Chinese Internet names, you know, such as Alibaba and Tencent. And also into Australian stocks, which also has some of those underloved sectors, you know, such as mining and health care. And also, we're kind of seeing a pretty strong numbers also in kind of CSI, you know, the Chinese index. Now, if we kind of look at the other side of that, you know, as you mentioned earlier, a lot of Democrats have really played into voters' fears of AI data centers. And so there is some concern here that maybe this Democratic speak of Congress will impact the AI trade. And so we're seeing here, you know, the Nikkei, the Cosby, a lot of these indexes with a lot of AI tech names in the red here today. You know, for instance, SK Highness is down almost 10%. And that really shows that investors are moving out of, you know, the AI trade and into a lot of sectors that they're considered a bit more undervalued, you know, such as, you know, automakers in Japan, for instance. [00:02:09] Guy Johnson: Yeah, it's been interesting to see how Toyota is traded today. Justina, thank you very much indeed. Let's take a quick look at what is happening in Europe. Let's set the scene. Gas prices have come down by 16, 17% over the last two or three sessions since the beginning of November. That is a huge shift for Europe, which has really struggled with high prices. Now, how does that translate? Today, we're getting a little bit of stability in European gas in the euro, but the stock 600 hit fresh records a little bit earlier on in the day. And it's been really interesting to look at the mix, the rotation we're getting. We are seeing a very high volume day here in Europe. Massive rotation happening below the surface. AI is under pressure. Chips are under pressure. Tech is under pressure. Energy is under pressure. Defense stocks are also under pressure. The rest of the market looks great. Fresh records for Europe today. Let's talk about what we're seeing stateside. Let's start off with WTI and figure out what is happening there. The energy story and the AI story are the two kind of big narratives you need to know about. Crude is upper again today, but sorry, is up today, but has fallen massively over the last few sessions. That has helped the bond market. We'll talk about that in just a second. Futures are fairly flat, but again, huge rotation and a big upside yesterday in stocks. Today, we pause for breath. The U.S. 10 year yield. Yeah, we're getting towards payrolls at the end of this week. Pay attention to that. But again, energy down. That is good for the bond markets. Let's talk about what we're seeing in terms of the stock story. Alex Morgan's here with the details on that. Olivia, sorry. Olivia, over to you. I was going to say, guys, [00:03:39] Speaker 3: I can do Alex, throw in some puns, but we're kicking off today with the semiconductor index. Looks like it's going to be another tough day after it fell about 3% yesterday. Qualcomm had results that ultimately disappointed investor concerns. They're facing input pressure costs, which has been a trend across the space this earnings season. So they're lower in pre-market trading. We're also seeing some suffering in arm, which is down almost 4% in pre-market trading. Their outlook was considered to be underwhelming. Investors really expecting them to get a bigger boost from the AI trade than it seems that they are. So they're suffering. Looking at Snap, they're down nearly 10% here. They had a disappointing third quarter result, missed on revenue. And even management admitted that advertising is running below their expectations. On the other flip side of that, though, we have app loving up 16.5%. Investor sentiment going into the app loving print was excessively bearish, according to analysts. So the stronger result that they had both third quarter and forward looking, really helping app loving today. Finally, over here in Europe, Ryan Mattel, falling nearly 16%. It's biggest drop since mid-summer this year. It's now trading at its lowest level since February of 2025, before the defence trade in Europe really took off. And that's after it cut its guidance for the second time this year. It's facing delays in its boxer-armed vehicle section. [00:05:00] Guy Johnson: Yeah, Olivia, again, I'm sorry. Didn't mean to mix you up with Alex. Okay, what have we got coming up for the rest of this hour? More on this bond market move. Ian Seeley is going to be here from J.P. Morgan Asset Management. And we are going to take a closer look into what comes next for the Trump administration. What comes next for the Democrats in Congress as well? Romina Bossia is going to join us in the Cato Institute a little bit later on. But let's start with Ian. He's sitting next to me. Ian Seeley of J.P. Morgan weighing in on the market reaction to all of these results, saying, quote, The good news for markets is that some of the uncertainty has now passed. And perhaps importantly for now, there does not seem to be a re-escalation in the Middle East. Okay, Ian Seeley, fixed income CIO at J.P. Morgan Asset Management, is here in person. Don't need to worry about the quote. We can hear what you actually have to say. Lower energy price is good for bonds. Is it that simple? [00:05:56] Speaker 4: I think that was the main driver. I think there were three things that we were looking at yesterday morning. And obviously, the fiscal side, it's probably not going to get a lot better, but it's not going to get significantly worse from here. If you think about the possibility of a slowdown in what's happening on the AI side, maybe impacting growth, maybe impacting some of the issuance. They're both good for the probably good for the fixed income market. But as you said, absolutely. It was the fact that oil had a bit of a collapse yesterday, fell through 100. That's really what the bond market was focusing on. And that's obviously what drove you yields lower. [00:06:25] Guy Johnson: Okay, you guys are sitting around the desk this morning. You're chatting about what's happening with this energy trade. You're trying to figure out what happens next. What conclusions do you get to here? Is the market, is the energy market overreacting? We don't know what is going to happen in the Gulf. We heard the vice president's comments yesterday. They sounded fairly positive in terms of maybe pushing towards a peace deal. But we could end up with a stalemate in which basically energy prices don't remain as high, but they still remain high. [00:06:51] Speaker 4: Yeah, I think that's the big question. I think you're absolutely right. The comments we heard yesterday, it does seem to be there's an acknowledgement that the war was not popular. The war led to some of the voter discontent and then the direction of travel there. But where do we go from here? We know a lot of oil is coming out of the strait. And I think a lot of people were saying actually the energy prices looked a little bit elevated relative to that flow on concerns that there would be a re-escalation post the midterms. That doesn't seem to be the case for now. But we have to be humble about that. We don't know exactly what's going to go on there. But it does feel as if that direction of travel is positive. I think the question is, like, what do we do? There's obviously, you know, there's a huge amount of American troops in the region. There's a cost to that. Iran, as an economy, appears to be suffering on the back of the blockade. There's a cost to that. So it does feel like the back to the negotiating table seems the most obvious direction of travel. But again, we just don't know. And I think we can all be we can all say we haven't really had a good understanding of exactly how this is going to play out from the first the first missiles being dropped back back late February. So a lot of uncertainty. But at the moment, the bond market is definitely reading it positively. [00:07:58] Guy Johnson: Well, certainly lower energy prices on the screen help that narrative. This election was about affordability and that has come through loud and clear. And the Democrats in some way are going to have to respond to that. What does that look like? Could that affect the bond markets? Affordability equals inflation. How does inflation come down? Should we be thinking from a bond market perspective about what comes next? Because either kind of wages go up to pay for it or costs come down. And I can't figure out whether it's a demand side story or a supply side story because it's going to be quite important for the bond market. [00:08:31] Speaker 4: But it's definitely a supply side story over the course of this year. It's energy prices. It's headline inflation. If you look at core, yes, maybe at the margin we're seeing a little bit. But you're hearing from central bankers, they're not really seeing the pass through that's concerning them. So if you do get the headline levels down, that should be good news. That should be good for the for the bond market. And then, of course, we're all expecting this big productivity boom to come through. Again, that should be positive. I feel that we've got to a level. We've seen a big move in bond yields over the course of this year, like 100 base points. Well, not quite 100 base points now, but we were there. We've done well over the last couple of days or so. But it's still been a big move. Yields still look elevated. I think there's a lot of value in duration, owning bonds. But it is really based on what goes on in the Middle East and what goes on energy prices. [00:09:16] Guy Johnson: How does it affect European bond markets? Because there's more confusing factors, more demonstrations in France coming through. All of these kinds of other things you need to think about when it comes to the euro govies. But Europe is even more dependent on the energy story. And gas prices are down 17, 18 percent over the last two or three sessions in Europe. Do you get a bigger bang for your buck in the euro government bond markets than maybe you get in Treasuries? [00:09:41] Speaker 4: I think that's actually fair. And I think actually we saw the moves yesterday. Yes, Treasuries did well. But when you look at parts of the European bond market that had been impacted the most, the French government bonds, the Italian government bonds, those were the really big movers yesterday. And obviously we know that Europe is much more linked or more linked to energy prices than the US. We know the ECB has already hiked more than the Fed and the economic activity isn't as strong. That's saying obviously earnings do look pretty good over the course of Europe at the moment. So I do think there's probably a bit more of a bang for your buck. If you think about our portfolios, the most recent purchases we've been doing is across some of the German government bonds. [00:10:18] Guy Johnson: Why was that? Is that a safety trade or is that...? [00:10:20] Speaker 4: No, I just don't feel that in a world where you've got energy prices coming down to more like ECBs, more like their baseline scenario. Are you going to see the ECB out hiking what the market is currently pricing? Still got a couple of hikes priced. They've done two already. That'll be 100 basis points. It seems a stretch. I think that they will be doing more than that as long as energy prices remain contained. [00:10:41] Guy Johnson: What's going on just over there? Bank of England expected to hike today. More to come. What message do you think is going to be delivered by the governor today? What's priced into gilts? What's mispriced in gilts? [00:10:50] Speaker 4: I think the Bank of England is not too dissimilar to the ECB in a what's... The market's probably over-anticipating or over-pricing what they're likely to deliver. I think it's a reluctant hike is the best way to describe it. They've obviously sat on their hands for a while now. They've looked at... It's a slightly different situation to the ECB. They have got policy rates, what they believe to still be in the restrictive place, whereas the ECB obviously thought they were more around neutral. But they're going to have to go because, effectively, energy prices have been more elevated for a lot longer than they thought they were going to be. I think what we've heard, though, generally from central banks is steady as she goes. It's not going to be a meeting-by-meeting. It's more of a quarterly pace. They go today, possibly go again in February, depending on what inflation's doing. Then the question is, how do we play it from there? There's 100 basis points priced into the bank. Again, that strikes me as a lot, but I think there's an element of a tail risk in that market pricing. But I expect that this time next year they will not have delivered as much as is currently priced. [00:11:49] Guy Johnson: Nice to see you. Thank you very much. Thank you very much indeed for coming to see us. Ian Steeley of J.P. Morgan Asset Management. Thank you very much indeed. As we just said, under two hours now to go until the Bank of England's rate decision. Let's get a preview of what we can expect. Anna Andrade of Bloomberg Economics joins us from outside the bank. Anna, we are expecting, as we just heard, a hike to come through. What is the case for the next hike after that and potentially the hike that could come after that? [00:12:19] Speaker 5: Yes, I think the thing that we're most focused on or that will be most focused on this meeting is essentially the appetite in the committee for more rate hikes. I think there's two questions. There's a question about whether we're in a situation that warrants back-to-back moves. So whether we will see a December hike, markets are pricing in a bit of that. There's some chatter about it. But to be honest, I don't think the central bank is there yet. On the one hand, you have still very aggressive market pricing. So you have about 100 basis points worth of tightening over the next year. That's obviously doing, it's fitting through the real economy. It's doing part of the BOE's job for it. So there's not really a rush to deliver those back-to-back moves. At the same time, you still haven't seen in the data any signs of second-round effects. It's the type of thing that would send alarms ringing at the BOE. And there's a lot of uncertainty about the Middle East conflict. We now have downward pressure on oil prices or energy prices. So all of that doesn't point into the direction of back-to-back moves. Then there's a different question, which is the scale of the hiking cycle. So how far will we actually go? In our forecast, we have two rate hikes, and that's consistently essentially with our outlook for inflation, which is going to head to about 4% at the start of the next year. Today, we're going to be really focused on what peak inflation looks like for the Bank of England. Is it 4.5%? Is it higher than that? Because that's what will help us determine how far will they go. But I think we're now in a territory. We know that it's not going to be a one-and-done move. We expect two rate hikes, but to be honest, looking at the economy and judging by how the economy has really been overperforming this year and how we're still seeing signs of sticky inflation and now a few signs that the jobs market is turning around, I think the risks to our view, even to our view, is that there's probably a chance that they go beyond the two rate hikes if obviously energy prices roughly stay where they are. [00:14:18] Guy Johnson: Anna, just give us the kind of tactics over the next few hours. What are you looking for in terms of the vote split? What messages are we going to get? What individual stories are we going to hear around the members of the MPC? [00:14:31] Speaker 5: Yeah, so we're expecting a 7 to 2 vote split with essentially the ARK Doves voting to keep rates on hold. And that's essentially Swati Dhingra and Alan Taylor. There's a bit of a possibility that Dhingra joins the rest of the committee in voting for a hike. That would be maybe a hawkish surprise, but we wouldn't read too much into that, into a signal of how fast they're going to go. I think the individual paragraphs matter. I think in particularly how the different members of the committee assess the balance of risks around inflation. Are they very much focused on upside risks to inflation? And also, I would be very, very interested to know what they say about restrictiveness, because that's ultimately what will anchor rates, rate expectations over the medium term. The economy has been performing very well. There's a bit of a rising question of whether the current rates are restrictive enough. [00:15:26] Guy Johnson: Yeah, where are we? Where is that line? Anna, fantastic stuff. Thank you very much indeed. Anna Andrade of Bloomberg Economics outside the Bank of England. Now let's turn to some of the other top stories trending on the terminal this Thursday morning. Micron has suspended plans for a memory chip plant in Taiwan due to a protected labor dispute. Sources say Micron has informed Taiwanese officials and a supplier about the pause. The plant was set to produce high bandwidth memory and DRAM, which are key components, of course, used in AI systems. It was scheduled to come online in 2028. Our sources are also telling us that Goldman Sachs and Apollo Global Management are sounding out investors on portions of SpaceX's roughly $40 billion chip financing debt deal. Potential buyers are being asked to purchase slices of as much as $500 million before the formal syndication process begins. SpaceX is calling it the largest GPU financing of its kind on record. And France is bracing for nationwide strikes and demonstrations over the cost of living, extending more than a month of protests. Train services are expected to be disruptive. Dock workers have called a strike and some 18% of public primary school staff are expected to walk out. The protests come as Parliament remains deadlocked over next year's budget. Okay, 16 minutes past the hour. What have we got coming up for you? Republicans gunning for presidential runs in 2028. Start pointing fingers at each other after the midterm defeat that we've just seen. More on that story to follow. This is Bloomberg. [00:17:11] Speaker 6: The Iran thing we had to do, and we continue to do it. We have tremendous oil flowing out of the Hormos strait now. At the beginning there was none, and probably that's the primary reason. The price, not the war, the price. [00:17:29] Guy Johnson: The president at the White House Boreham construction sites. This is the Republican Party hones its messaging after the midterm elections, trying to figure out exactly how to work forward from here. Let's talk about quickly the markets and what we're seeing there. This is what the picture looks like. S&P futures are positive. NASDAQ futures are not, though. Just pay attention to that. Crude is stabilizing up a little bit this morning. Big moves in the bond market yesterday. Let's talk about all of this. How much do we really know about what comes next? Let's get back to the election fallout. Oli Crook joins us in New York. Oli, massive market reaction over the last 24 hours. An expectation that the Iranian situation is de-escalated. We get a possibility of peace there. Oil markets certainly reacting to that. Big moves in equities as well. But how much do we really know about what the Republicans do next, what the president does next, and what the Democrats do next? [00:18:20] Speaker 7: Yeah, we know very little about that guy at the moment. What we're going to really be watching for in the kind of short term and then the longer term and the short term, it's going to be all about the messaging from the Republican side. And we started to get an idea of what that's going to sound like. We had that lengthy post from the vice president, J.D. Vance, sort of doing a kind of a mea culpa and saying that those of you who said, I told you so, you were right, and really blaming the war in Iran, obviously also blaming the position in the relationship with Israel, but really putting that war in Iran front and center, saying that that is the primary reason that the Republicans lost at such a vast scale. He also, though, in that tweet was also saying, you know, being quite still deferential to the president, saying that the president of the United States knows that. The president was asked about that post on X and said that he thought it was fine. He thought that it was good. But it's been interesting to see what some of the other sort of potential likely candidates for 2028 from the Republican side have been saying. You have Ron DeSantis, who's got a bit more distance from the president of the United States, the governor of Florida, soon to be ex-governor, and they managed to hold the Republicans, both the Senate seat and the governor's race over in Florida. So potentially, you know, looking a little bit better. But I think for many of these Republicans, particularly those in the cabinet of the president, who have gone hook, line, and sinker with everything that President Trump has done, and this is going to be a problem for the Republican Party going forward, ideologically, what is it that this Republican Party stands for? It's one thing to stand for sort of Trump and Trump Incorporated. Of course, there have been many ways in which Trump is not ideologically sort of coherent, but the Republicans need to come up with their own sort of post-Trump game plan, and that is what they're going to be doing now, and, Guy, the same is true for the Democrats. On the one hand, obviously, the Democrats came into a very strong message about the cost of living, about the war in Iran, but there are many fissures within that party itself, and they're going to need to work those out and come up with what exactly they stand for going into 2028. [00:20:11] Guy Johnson: Oliver, thank you very much indeed. Bloomberg's Oliver Crook in New York, where it is currently, 5.21 a.m. This is Bloomberg. 5.25 a.m. markets. Let's talk quickly about what we're seeing. Crude coming up a little bit after yesterday's big move. S&P futures are actually fairly flat, but the Nasdaq is down. The bond market's barely budging. I think we're down a basis point. Let's talk about the front pages. What are we seeing across America today? Most major newspapers, of course, looking at the fallout from the midterms. The New York Times writing about how moderate Democrats have gained influence in Congress after helping their party to control both chambers. The Wall Street Journal looking at how J.D. Vance, the vice president, has made his simmering frustrations much more public, blaming Republican losses on the war with Iran. President Trump says the Vance's assessment was largely true, quote, while continuing to defend the war. And the Washington Post looking at Democrats preparing to move quickly on health care when the new Congress convenes next year. More on that story to follow. This is Bloomberg. Good morning. [00:21:28] Speaker ?: Good morning. [00:21:28] Guy Johnson: Hope you're well. Thursday the 5th, 5.30 in New York, 10.30 in London. I'm Guy Johnson with your Bloomberg Brief. Let's get you set up for the day ahead. A post-midterm rotation, certainly roiling stock markets, hitting chipmakers on concerns over tighter AI policy going forward. Treasury is rallying for a second day. The 10-year yield at its lowest since September, as markets look ahead, of course, to jobs day Friday. And the Republicans certainly trading blame about the blue sweep, trying to figure out what to do about it. The Democrats gearing up for potential probes of President Trump. Let's talk about the markets. Where are we this morning? Massive moves over the last 24 hours. Cruise just beginning to come back up. We've seen a huge, huge sell-off in energy markets around the world over the last few days. The S&P is fairly flat, but the Nasdaq is down. Nasdaq futures certainly pointing us lower right now. We're down by a basis point when it comes to the U.S. 10-year. Obviously, payrolls are coming. I'm going to get this right this time. Let's figure out what the single stock story looks like. Here's Olivia. [00:22:27] Speaker 3: Hi, Guy. We're kicking off with two of the biggest players in the smartphone supply chain. That's Qualcomm and Arm. They both reported what seems to be disappointing earnings to investors on higher-than-expected input costs that are really squeezing margins at the companies. What's interesting, though, is that both of them have really made a play into the data center side of things amid the AI trade and all the enthusiasm there. The gains from that really expected to show up in their forecasts. And investors seemingly underwhelmed by those, particularly at Arm, which has made a bigger play towards the data center side of things. Both stocks suffering this morning. Moving over to Snap. They're down quite significant in pre-market trading. They missed on third-quarter revenue and on user growth figures. But I think the bigger concern here for investors is more that there's no path forward for their advertising business. People are really unsure of how they're actually going to start monetizing this social media. App Loving, on the flip side of that, however, has seen excessively bearish investor sentiment going into their earnings. And they actually delivered a really solid third set of results and a good fourth-quarter guidance. Finally, here in Europe, Ryan Mattel, one of our defense AI darlings, is plunging the most since June. That comes after it cut its guidance for the second time this year on delays in its armament programs. It's seen a number of delays throughout the year. And the stock is now trading at its lowest level since February 2025, which was before all the excitement about defense spending in Europe really kicked off. So it's pretty much erased a lot of the gains that it made from that. [00:23:56] Guy Johnson: Olivia, great stuff. Thanks for the update. Really appreciate it. Okay, let's start to understand the rotation that we've seen in these markets, equity markets, over the last 24 hours. We're starting to get an idea of some of the winners, some of the losers, as a result of the Democratic Party taking hold of Congress. Dan Curtis and I usually have a fairly lively debate most mornings about what's happening in these markets. So let's carry on that conversation. Dan, energy prices have come down a lot over the last two or three days. They came down a lot yesterday. How much of the moves that we're seeing right now can I kind of park at that door? [00:24:28] Speaker 8: How much of that has been the driver? I think a lot of the moves that we have seen over the last two days can really be put down to energy. Something that's absolutely crazy is we've seen these massive drops in crude. The two-year yield is still about flat on the week. So those moves haven't actually fed through to Fed pricing itself yet. So we're not seeing much in terms of easing conditions. But what we are seeing is we're seeing lower crude. What that means, potentially more money in consumers' pockets. So in the wakes of this, we saw an absolutely massive rally in the consumer discretionary trade. So discretionary names, three of the groups were up over 5% yesterday. And that's also followed through into Europe. So the stock 600 is hovering near record highs right now. And energy very, very, very susceptible to the crude trade. The energy prices here are significantly higher. Puts more pressure on through the consumers. Puts more pressure into the stock market. And the outperformance, just the record highs that we're hovering nearby here, really points to this energy trade and a sense of relief off the back of the midterms. [00:25:24] Guy Johnson: You and I were talking about this earlier. Big kind of volume going through Europe this morning. Big rotation really happening, as you say, to some of those consumer names out of defense. But also, out of AI, chip stocks have really been suffering over the last 24 hours. Again, how much do we actually really know about this trade? Presumably, a lot of it's just sort of knee-jerk and sentiments at this point. But do we know how hard some of these stocks could potentially be hit going? And how big a shift we could see, kind of chip stocks to hyperscalers? [00:25:50] Speaker 8: So it's really going to come down to what legislation comes into place, how much a data center built out gets slowed down. We have some clues, but there hasn't really been time to put any legislation into place since the elections came out. So what we have seen is we have seen a general expectation of pullback in CapEx. That's actually benefited the hyperscalers. These companies were expected to spend so much money. The fact that the government pushing back on that spend is boosting the stocks is actually something that's a little bit funny. But if you follow where the CapEx was supposed to go, those are the companies, those are the areas that are really getting hit. As you mentioned, semis, the stocks, down heavily yesterday, over 3%. You take a look at the companies that provide the actual power for the data centers, the infrastructure build-out, those were down so much yesterday, and there's so much of a concern that this pullback is really going to hit those parts of the market. Also the hype, also the neoclouds. Neoclouds really need to build out in order to continue their businesses in the fashion that they're expecting. So, again, that area also getting hit on concerns around the AI build-out. [00:26:53] Guy Johnson: I was really trying to understand and think about the hyperscalers yesterday and thinking about the consumer move that you were just talking about there. In some ways, like these, like, if you look at these businesses, they are also consumer businesses. Big advertising, sort of portions of their business. You look at all these kinds of companies. Amazon as well. Big, big consumer parts. So they kind of tick that box. But then also they have big cloud businesses. And in theory, if data center build-out is constrained, if you've already got a cloud business, that is going to benefit. [00:27:19] Speaker 8: Absolutely. And I'm going to even bring up another company, which is Apple. So Apple does not have much in terms of the AI trade. Closed out a record yesterday, and that's because this is actually going to be somewhat beneficial to that consumer picture for the company. You're going to potentially get a pushback on memory prices if there's less demand for compute. That helps bring down the actual costs of the phones. You get the kind of the tech exposure of Apple. So you do get a little bit of an upside. But you get this massive, you know, just free cash flow over around $150 billion, I think, for this fiscal year. So it really shows the power of a positive free cash flow and of a lower capex tech model right now. So I think if that filters into these other businesses, there's a chance for a further boost. [00:28:03] Guy Johnson: Thank you, Dan. Nice stuff. Dan Curtis joining us on what we're seeing in these markets. Payrolls are coming up on Friday. Just remember that, of course. That's a big factor that the bond market needs to be thinking about. Let's talk about the no-hire, no-fire economy that we've got right now. The challenger data is out. October total job cuts, 43,994. Job cuts falling 71.3% year on year. No hire, no fire. That seems to be the mantra that we're seeing in the labour market right now. Let's talk about what we are seeing in the tech sector. Get another look at what is happening there because there's a massive rotation. The Democrats are going to be taking control of Congress. Does that threaten the AI boom? Semiconductors, certainly the chip socks, have been facing a significant sell-off on this story. And they've been kind of the other side of some of the gains that we've seen in the markets over the last 24 hours. Let's talk about this now. Matt Bloxham of Bloomberg Intelligence joins us to discuss. Matt, are we going to see a reordering, basically, of where the value lies in the tech stack? Is that what we're witnessing in markets over the last 24 hours? [00:29:10] Speaker 9: Yeah, I think we are, to some degree. And I think there's probably a few more chapters in the book, if you like, to kind of work through before it kind of really settles out. I think you were just talking there about your constraints on data center capacity and potential that kind of flows through beneficially to the cloud players. They are all capacity-constraining. They are building out data centers, too. So that kind of advantage may be a little bit short-lived. And with scarcity, you drive up costs. And if you drive up the cost of compute, that's ultimately going to flow through to the cost of tokens, the likes of Anthropic Cell, which is going to flow through into the costs that enterprises face when they're deploying AI. So we've got all these kind of parts of the value chain still to kind of work their way through the system. And I think it's going to kind of force a different style of innovation in the AI market. You know, to date, it's just been about raw capacity expansion. And I think it's going to shift now more towards kind of sophisticated energy-efficient compute efficiency evolutions of both the hardware and also the software. So those frontier models may well kind of pivot to kind of more compute-efficient iterations so that they can do what they can do best with the capacity that's available. [00:30:21] Guy Johnson: There's a really interesting story that's just come out on the Bloomberg terminal. I've just put my glasses on so I can read it. It's basically coming out from OpenAI, and it is putting out what it's calling its National Community Compact. Basically, this is an idea coming out of OpenAI that it's going to recognize what communities feel about data centers. It's going to commit in terms of power and water to sort of fair dealing with those local communities. The data center story in so many ways around the election we've just seen is sort of classic market failure. To what extent has the market kind of mispriced the cost of building a data center, reflecting the fact that you've got kind of externalities, lots of things in the community that maybe need to be priced back into the cost? Are we now going to see that happening, and what impact could that have on the cost of compute? [00:31:09] Speaker 9: Yeah, and I think, to be honest, this is very much a kind of U.S. versus Europe issue. For a long time, Europe's been criticized for being slower at building out this technology. It's because a lot of the kind of constraints we're likely to see now in the U.S. are already kind of baked into European policy. It's much harder to develop data centers across the region. And I think perhaps the kind of the weight of the democratic tsunami has kind of perhaps meant that people have maybe a little bit misjudged quite how significant the shift in policy, the additional friction that might come into the U.S. market that might make it a little bit more like Europe in terms of the pace of deployment. [00:31:50] Guy Johnson: Matt, great catch-up. Thank you very much indeed for the insight. Matt Bloxham of Bloomberg Intelligence. Let's talk about some of the other stories that are trending on the terminal this morning. Airlines carrying passengers across Europe have been forced to divert more flights today due to bomb threats. A Wizz Air flight from Milan to Warsaw had to be diverted to Vienna. An Aer Lingus Dublin drone flight has also been diverted to a military base in Normandy, northern France. No pattern has emerged around the series of threats this week, but they are ongoing and people are really paying attention. France is bracing for nationwide strikes and demonstrations over the cost of living, extending more than a month of protests. Train services are expected to be disrupted. Dock workers have called to strike. Some 18% of public primary school staff are expected to walk out. The protests come as Parliament remains deadlocked over next year's budget. And Micron has suspended plans for a memory chip plant in Taiwan due to a protected labor dispute. Sources say Micron has informed Taiwanese officials and a supplier about the pores. The plant was set to produce high bandwidth memory and DRAM, which are of course key components used in AI systems. It was scheduled, this plant, to come online in 2028. OK, up next we're going to get back to the politics. We'll talk about what it all means for policy going forward. Romina Bocha of the Cato Institute joins us now. Sorry, joins us in a moment for the economic outlook after the midterms. It is 5.40, 5.41 a.m. in New York. This is Bloomberg. This is Bloomberg Brief. You're looking live at the principal room. Coming up on surveillance, an interview with Stephen Myron, former Fed governor and senior strategist at Hudson Bay Capital Management, 8.30 a.m., 1.30 p.m. in New York. In London, this is Bloomberg. [00:33:51] Speaker 6: The Iran thing we had to do, and we continue to do it. We have tremendous oil flowing out of the Hormuz right now. At the beginning there was none. And probably that's the primary reason. The price, not the war, the price. [00:34:08] Guy Johnson: President Trump at the White House Borum construction site yesterday. Let's talk about the markets. 44 minutes past the hour. This is what we're looking at. WTI beginning to creep back up. Big move down yesterday. We are well, well off the recent highs. S&P futures are flat. NASDAQ is lower. We're down by around 0.5% on NASDAQ futures. U.S. 10-year, barely budging today, but a big, big move yesterday on the back of lower energy prices. Romina Boccia, Director of Budget and Entitlement Policy at the Cato Institute, joining us now. Good morning. Thank you very much indeed for your time. Let's talk about what happens next, because there's a lot of confusion about that. The Democrats in some ways did very well because they fought this campaign on affordability. Now they've got power coming towards them. What do they do about that? How do they solve that affordability puzzle going forward? [00:35:05] Speaker 10: You absolutely hit the nail on the head, just like Republicans won the previous election on a ticket of addressing high prices and bringing back affordability. Democrats just ran on that very same ticket. The problem is that they're going to confront the exact same issues that the Trump administration and the Republican Congress weren't able to resolve. They're not actually improving affordability. And I worry about that some of the policies the Democrats have in mind will in the end backfire while making it seem like they're lowering prices. What I'm talking about here is that we have a $40 trillion national debt at more than 100% of GDP held in public markets. And that is one of the reasons that prices have not come down significantly. Combine that with the president's tariff wars, the war in Iran, driving up energy prices. Now Democrats will be able to put pressure on President Trump to perhaps end the Iran war earlier than otherwise planned. Maybe in an attempt to get the president to the table for negotiations, they can also convince him to drop some of the tariff components. So I'm not sure that Democrats are inclined to do so. Those will be some of the things to ease prices. But until they fix our fiscal situation, we will continue to see price pressures. [00:36:30] Guy Johnson: Okay. Which particular bits do you think are going to backfire? If you were looking at the policy mix you're expecting from the Dems, which bits do you think currently you're worried about? [00:36:43] Speaker 10: Well, what we've heard them talk about are price controls. It's rent control. It's trying to set artificial prices, which makes it look like you're trying to control pricing, but in the end, you're restricting supply. The other components are subsidies, trying to give more money to lower income and struggling Americans to try and help them afford the basics and essentials of life. But subsidies end up driving up prices. So what we need is an agenda of abundance. We need a deregulatory agenda, which has actually been one of the strong suits of the Trump administration. But without fixing the growth in the entitlement programs, Medicare and Social Security, which are driving most of the growth and the debt crisis, we'll continue to see debt rising and deficits in crisis territory at $2 trillion annually or 6% of GDP. Democrats will need to cut those deficits in half to get to a more sustainable level of 3% of GDP, and they're not inclined to do that. [00:37:47] Guy Johnson: Do you think that will push the Democratic Party to the left? [00:37:53] Speaker 10: I worry that things are going to get a lot worse before they're going to get better, especially since Democrats had such a big sweeping victory. They may misinterpret this, not as a vote against the Trump administration's policies, but a vote for Democratic priorities. I think that would be a misreading of what happened. [00:38:14] Guy Johnson: Okay, can I get another kind of thought from you, and that is around the AI data center story. Clearly unpopular, clearly obviously a factor in terms of many of the wins, particularly at a governor level as well. How does that change? What do you think actually happens on the ground as a result of a pushback against the data center build-out story? [00:38:39] Speaker 10: I'm not sure how much is going to change there. A lot of the action will likely happen on the state level, the worry, of course, is that too restricting the building of these data centers with AI being the one glorious hope for a much greater productivity in the future and therefore economic growth that can help with increasing wages, potentially so long as AI is being used together with workers instead of as a substitute. The question here too is how do we deal with the electricity demand? And that's particularly an area where Republicans have been stronger allowing for a build-out of more electric capacity and I think that there can be a marriage where data centers build some of that capacity themselves and so that puts less of the pressure on the grid for everybody else. But Democrats are inclined to regulate heavily although there is some counterpressure with the abundance agenda but as you said data centers have been unpopular. I think it's a populist fear that could also backfire on the U.S. because they've been driving the growth and that's been keeping the U.S. economy afloat. [00:39:51] Guy Johnson: What happens in healthcare? [00:39:52] Speaker 10: Democrats will try to reverse Trump administration's spending reductions especially to Medicaid and they have been campaigning on Medicare for all. For both of those Democrats would have to make a deal with President Trump who retains veto power. The president also has a knack for using executive power. He can make a lot of changes through regulation countering some Democratic attempts to change policy there. I don't think we're going to see much happening there until the next elections. [00:40:27] Guy Johnson: Romina, thank you very much indeed. Romina Bocha of the K2 Institute on the policy front. Thank you very much indeed. Coming up, a host of earnings and FedSpeak in your day ahead. That is coming up next, 5.50 a.m. This is Bloomberg. Good morning, how are you doing? This is the Bloomberg Brief. I'm Guy Johnson in London. What is coming up? First up, we've got the Bank of England. Rate decision, 7 a.m. Eastern. Governor Bailey's news conference, 7.30 a.m. Eastern. Then we get another round of jobless claims. Of course, it is Thursday, 8.30. That's going to be coming through as well. On deck today, including on the earnings front, Kimberly Clark is going to be out. Molson Calls is going to be out before the bell. Airbnb, DraftKings, Microchip after the market close. It is going to be a busy session, I suspect. Let's talk about some of the single stock stories you want to be watching out for today. Qualcomm under significant pressure pre-market. Why? Basically, as somebody said in a note to me earlier, horrible handsets. The handset market is under pressure. Component prices are a problem. Arm also failing to impress investors as well with its AI-fueled sales forecast, maybe a little less than anticipated. App-loving. Expectations weren't great, but actually, we beat that bar, and as a result of which, the stock is up quite significantly. Macro movers. Cruise beginning to come back up again, but it got absolutely smashed lower yesterday, and that had a big impact on the bond market. You can see that as well. S&P futures are fairly flat right now, but what you are seeing, our Nasdaq futures are lower, down by 4 or 5 tenths of 1%. The 10-year's barely budget, got a lot of data coming through. Clearly, we are now building up to what is going to be happening with payrolls coming through on Friday. The labour market is going to remain a very, very big focus, and what the Fed is going to do off the back of that is going to be quite significant. But today feels like a calmer day after yesterday's huge gyrations, huge rotation in the market that we have seen. Today, maybe a sense of stability. Stephen Myron is going to be joining the surveillance team. I'm really looking forward to this conversation, his take on what we've just seen in terms of the midterms, and also how the economy is going to react. Affordability has been the big story. What is his view on that? The surveillance team is going to be having that conversation coming up. But at the moment, it looks like a slightly calmer day out there today, but obviously that can change, so you've got to stay tuned. This is Bloomberg. Bloomberg. Bloomberg.