About this transcript: This is a full AI-generated transcript of Trump Doubles Down on Fed Changes, Burnham Risks Starmer Mistakes — The Opening Trade 7/2/2026 from Bloomberg Television, published July 5, 2026. The transcript contains 19,015 words with timestamps and was generated using Whisper AI.
"Good morning, everybody. It is Friday, Friday the 3rd of July, to be specific, and this is what is on our agenda. Weak U.S. jobs data pushes out hike bets from the Fed, which most stocks seem to like. Trump's allies are doubling down on their efforts to reshape the Federal Reserve. And in the U.K.,"
[00:00:01] Speaker 1: Good morning, everybody. It is Friday, Friday the 3rd of July, to be specific, and this is what is on our agenda. Weak U.S. jobs data pushes out hike bets from the Fed, which most stocks seem to like. Trump's allies are doubling down on their efforts to reshape the Federal Reserve. And in the U.K., Andy Burnham floats the idea of a warehouse tax, but still keeps quiet on key appointments.
[00:00:24] Speaker 2: Is there a positive day for markets then, Anna? And maybe the Fed is part of that story and the weaker jobs number. Bad news on jobs, good news, maybe in terms of your rate hike expectations being pushed out, as you said. The COSP is rallying. It has been, and it's not a volatile session for the Korean stocks story. It started off in negative territory, and now we have some really solid gains coming through for the South Korean index, up 5.5 percent. After a challenging day, again, for a second straight day for the stocks story, the chip story, the semi story, the memory story in the U.S. European futures looking to add 4 tenths of 8 percent after record highs for European stocks yesterday. The European benchmark, the Stocks 600, is now outperforming year-to-date the S&P 500, looking to add to that today, up 4 tenths. NASDAQ 100 futures after losses of more than 1 percent yesterday, looking to rebound, pointing higher by 9 tenths of a percent when U.S. markets reopen, of course, on Monday. The countdown to the opening trade starts right now.
[00:01:33] Speaker 1: Welcome, then, to the programme. This is the opening trade. It's just gone 7 o'clock here in London. It is Friday, the 3rd of July. It is a public holiday in the United States. Happy quarter of a millennium to our viewers over in the U.S. Let's talk about these markets then, and then quite a fascinating day that we saw yesterday. No U.S. trading today, Tom, so things are likely to be a little quieter. Who knows what happens in that context? But stocks seem to like what we got from non-farm payrolls. I say stocks. Most stocks seem to like what we got from non-farm payrolls. The weakness, you know, bad data being good for markets. This is not what the Fed wants to see, but that is what we seem to get. Then there's a conversation about whether this is a meaningful cooling in the labour market or just an economy that is not overheating. And the two could mean different things for stocks, of course. But then digging deeper, as you've just been pointing out, yes, the Dow was at a new high. Does that matter when semiconductor stocks are suffering once again? And it's that rotation within stocks that is interesting.
[00:02:28] Speaker 2: The momentum factor that's been so strong through this year starting to fade. If you look at the Philadelphia stock index, the Philadelphia index of semiconductor stocks, down two straight days, losses of more than 10 percent. But again, the story around and the negativity around semis is certainly turning around in the session today in Korea. There were two key factors, it seems, for the markets yesterday. It was the meta story around leasing out some of their data center capacity and maybe an overbuild. At least that was the concern. Factored in with the non-farm payrolls then coming in, weaker than expected. Does this allow the Fed to stay on hold for longer than maybe some expected? And so you saw the small caps rallying on the back of that. You saw that record high for the Dow Jones Industrial Index. So to what extent, and again, just to underscore the fact that European stocks have now outperformed the S&P 500, record highs for European stocks. Is that the place where investors want to be, in a place where breadth and rotation, if that becomes sustained, does Europe benefit from that?
[00:03:25] Speaker 1: Yes, and Europe is benefiting from that rotation at the moment. Some of that outperformance, of course, comes from the beginning of the year, before the war started. And so interesting to see what's been happening since the beginning of March as well, and whether we've closed that gap with the states since there. But it's interesting, you mentioned the meta story. I wonder about this anthropic story, the information reporting that they're talking to Samsung. And all of this fast-flowing news and fast reshaping of relationships between tech companies just reminds us how fast things are moving, how quickly the technology is changing, and therefore how difficult it is, I suppose, from a macro top-down level to get a sense of what is happening here in these markets.
[00:04:01] Speaker 2: It's more granular, it's more nuanced, and it's requiring a lot of research and a lot of deep diving coming through from Anis, trying to understand the trends as the AI story really starts to evolve and mature, but becomes far more complicated across whether it's the semiconductor space, whether it's the data centers, or whether it's the hyperscalers. Let's talk then about the macro. So we talked about what's happening in terms of non-farm payrolls, and maybe that leads to the Fed staying on hold for longer. The Bloomberg reporting around, and we heard this from the president himself as well in the last 12 hours, 24 hours or so, that this is a Trump administration that remains determined to reshape the Federal Reserve, essentially in Trump's image. That they're not going to let go of their attempts after the Supreme Court ruling put some kind of ring fence around the Federal Reserve and also allowed Lisa Cook to stay in her role, at least for now. This is not a Trump administration that's giving up either on their pursuit of pushing out Lisa Cook and J-PAL, but also changing how and who is appointed as governors. And so this is a Trump administration that continues to want to reshape the Fed.
[00:05:02] Speaker 1: So some people are pointing to, yes, the Supreme Court ruling put that ring fence around the Fed, separated it out from other agencies, suggesting it has more independence. So you can point to that reinforcing the independence view. But some are pointing to the fact that it was quite a narrow decision around Lisa Cook, and therefore does leave some wiggle room for the Trump administration to continue its efforts to reshape the Fed. And as you say, President Trump himself talking about we're going to do this properly then, we're going to do this with process, but they're still pursuing that. And then on Powell, it had been more normal for Fed chairs to leave once their term as chair had ended, but Powell said he was staying because of the legal fight. It looks as if this month we're going to get another report on the exact status of the investigation that's been going on there, even though the DOJ has backed away somewhat. So maybe there's some room and we might get some news flow around that. But interesting, yes, the big picture is that the Trump administration is still trying to reshape things here. And the Atlanta Fed chair, that seat is still empty. And so they see that perhaps as an opportunity to reshape.
[00:06:02] Speaker 2: We started this week thinking about a reinforced Fed independence narrative. Kevin Walsh had come out and said, I'm committed to that 2% inflation target. Tick in the box for independence. And then you had the Supreme Court ruling. And now that agenda, or at least that narrative, has shifted. Is this still, and will this still, be a Fed that is truly independent? And what does that mean for U.S. assets? And that draws that back into question.
[00:06:28] Speaker 1: And Kevin Walsh, in the middle of the week as well, reiterating the importance of Fed independence. But it is something that will no doubt be a conversation for, I predict, for many days of the Trump presidency. Let us talk about what's going on in the U.K. and U.K. politics. Because, again, this is interesting. So Andy Burnham, who, of course, is not prime minister yet, but he is certainly the frontrunner to become the prime minister in the U.K. He has been talking to radio in the U.K. And suggesting that there is some room for manoeuvre around taxation within the mandate that is given to the party by the most recent election. So, specifically, increasing business rates on warehouse companies. So we'll watch some of those, because some of those are listed in the FTSE 100. He name-checked Amazon. But there are U.K.-based businesses that do this as well. And he wants to pivot then, so take some money off there and then give it to smaller businesses and support pubs and the like with lower business rates. So maybe it gives us a sense, even though we don't have key appointments from Andy Burnham, it does give us maybe some sense of where the business agenda is heading.
[00:07:27] Speaker 2: One way to read this is just what the limited room for manoeuvre is when you're talking about warehouse taxes and cuts to tax on the high street. Number two, another way to read it is the high street is a real issue for people and the deterioration of high streets. And so the fact he's focusing on that does tap into something that is real. And number three, potentially, is, OK, if you're name-checking Amazon, this is already a prime minister in waiting, essentially, who the Trump administration, President Trump himself, is very left-wing. If you start slapping taxes, it looks like you're targeting big tech. Then maybe it puts another target on your back as the incoming U.K. prime minister from the Trump administration's perspective.
[00:08:03] Speaker 1: You mentioned those things. There's another dimension. It also tells you just how long it takes to cushion an economy that is dealing with fast-changing technology. Because talking about helping the high street, I mean, we've had internet shopping in this country for a very, very, very long time. And these are businesses, not pubs, that's a different story, but some of these businesses are still having to reinvent themselves in that age of online competition. And this is how long it takes for governments, of course, to try and help them out here. But we still don't have any key appointments, and I think that is important, even though it seemed pretty unlikely that he would give any key appointments. Because that would just leave room for others to stand up to him, which is not what he wants before he's actually confirmed.
[00:08:40] Speaker 2: No, maybe he's going to be in the pub at 1 a.m. on Monday. Maybe. Because the current prime minister, the current prime minister.
[00:08:46] Speaker 1: I feel I need to know this for the purposes of Monday's show.
[00:08:49] Speaker 2: That continues to be a debate. But the current prime minister has said pubs can stay open for the World Cup game then. England against Mexico.
[00:08:58] Speaker 1: Can we take a moment to think about what the... I like that this is a fun story, and I don't want to sap the fun out of it. No doubt it'll be good for pubs, and that is part of the GDP story. But what kind of productivity will the nation have on a Monday when the pubs have been open?
[00:09:12] Speaker 2: We may have to rewire our economic models.
[00:09:14] Speaker 1: We might have to rewire the anchor team. That's what we might have to do.
[00:09:16] Speaker 2: It also depends on the result, doesn't it, as well?
[00:09:18] Speaker 1: That's also true, very much. Let's talk about what's coming up on the programme then. We digress. Let's tell you what's coming up on today's show. We will be in the Exxon Provence Economic, or at the Exxon Provence Economic Conference in France. It's dubbed the French Davos, of course, the event convening central bankers, policy makers, business leaders, economists, the whole gamut of expertise to talk about European growth, inflation, interest rates, all of that in the context of what we've heard from Cintra already and what the business community is looking for and the investment community. So we will be hearing from Stéphane Bouchner, the Euronext CEO. The listing environment is really interesting in Europe right now. Ludovic Sue Brown will also be with us. The Allianz CIO.
[00:09:56] Speaker 2: Let's look ahead to what else we are watching throughout the day. As Anna mentioned, we will be following the Exxon Provence Economic Forum. The BOE's Bailey, as well, and ECB's Lagarde, will be speaking later today. It is, of course, U.S. Independence Day holiday, marking 250 years, of course, of the U.S. independence from the United Kingdom. At 9.30 a.m. UK time, it is the decision-maker panel survey. Some more details coming through from the BOE's, thinking the BOE survey, at least survey of CFOs that policy makers monitor closely to gauge risks around inflation persistence. And later, there will be an extended tender offer period for Unicredit and Commerce Bank ending. And that will end later today, of course, that attempt at a takeover by Unicredit of Commerce Bank. And that period of time, at least, the clock is ticking down to that ending.
[00:10:45] Speaker 1: Semi-quincentennial. That's what you call 250 years.
[00:10:47] Speaker 2: Can you say that again?
[00:10:48] Speaker 1: Semi-quincentennial. I did have to write it down, though. What a pro. Because the chances of me remembering that are pretty small. Coming up on the program, then, we'll also focus on private credit. Managers contend with a fresh wave of redemption requests from investors. We will discuss the risks ahead for that particular asset class. But plus, we will look at the stocks to watch, including Airbus, the European playmaker, delivering about 350 so far this year, despite supply chain challenges. And we will break down the U.S. jobs data with Jordan Rochester, Head of Fixed Strategy at Mizuho Emiya. What does that mean for the Fed? We will discuss that later. In fact, later on this hour. Please do get in touch with us Friday the 3rd of July. IB plus BBTV Go is the function to use on the Bloomberg Terminal. If you want to get in touch with the team that puts together this program, this is Bloomberg. Welcome back to the program. This is the opening trade, 15 minutes past seven in London. And the European equity futures picture looks broadly positive. We're taking some of our lead out of the Asia playbook, where we see the MSCI Asia-Pacific up by more than 2%. The daily shift in sentiment towards the technology space as it comes to us from the COSPI seems to be positive today then somewhere up by 6%. So we're feeling better about that. And that's in keeping with NASDAQ futures up a percent. No U.S. trading today, but we will try and keep that in mind as we wind our way towards Monday.
[00:12:29] Speaker 2: Let's check in on what's happening, the sentiment on the ground and see if that is reflected in Aix-en-Provence, where the economic conference convenes central bankers, policymakers, business leaders and economists as the outlook for European growth, inflation and interest rates remains unsettled. Caroline Cornard joins us from the event with a guest. Caroline.
[00:12:49] Speaker 3: And I'm here with one of the top executives here in Aix-en-Provence, the Euronex CEO, Stéphane Bougenat, in this very strange time when we were supposed to have this big IPO of KNDS, his defense company. And in the end, they're postponing it. So what does it mean? Is it impossible to IPO right now, Mr. Bougenat?
[00:13:07] Speaker 4: No, I mean, the aerospace and defense sector is booming. It's clear that the momentum towards more spending, more government, spending more money for defense is there. It's not going to change. In this particular case, there was a sort of pause in the momentum of this particular sector with a comparable in Germany affected by the decision of the German government. That was a very moment think. Clearly, KNDS is a great company. It makes a lot of sense for this Franco-German project to get listed. I would not say that, in accordance to what the companies say, that it is postponed. There is just a pause to make sure that the markets adjust to what is happening to some comparable in Germany. But in reality, since the beginning of the year, when you look at the IPO in Euronex of the Czechoslovak group, CSG, for more than 20 billion euros, the spin-off of Kongsberg Maritime, the project of Destinius to get listed in the Netherlands, Colt in the Czech Republic listing. I mean, there is a real momentum. Valuations are still high, and they are driven by the continuous spending, and the continuous spending in Europe. Because what is really the defining factor is that European governments are buying Europeans, and European aerospace and defense players are exporting more than ever. So, I have no doubt that it is going to remain a very dynamic sector.
[00:14:37] Speaker 3: A very dynamic sector, but still, when you are looking at IPOs at the moment, we are seeing in the U.S., this big momentum for the tech sector, this mega-IPOs coming up in the U.S., does Europe have an execution problem when it comes to IPOs?
[00:14:56] Speaker 4: No, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, there is no execution problem in Europe. We have a good momentum of IPO, mid-sized companies are listing, you should not consider that the mega-tech IPOs that we are, you are referring to, the SpaceX type of things, are the market. They are one of the type of events, they are very important to drive events type of investors, but the reality, the underlying fundamental substance of the economy is still extremely dynamic. And in Europe, we do have talents, those talents do create very ambitious companies, those ambitious companies scale up and go listing. So, I mean, you will be surprised by the momentum on tech IPOs in Europe in the coming months and years. I mean, we should not be blurred.
[00:15:45] Speaker 3: In Europe, who are you thinking of? Nepal? Are they going to leave this year?
[00:15:49] Speaker 4: I mean, I'm not the spokesperson of technology companies. You're asking me questions on the sector. I can tell you that there is no shortage of very ambitious companies that are raising, as we speak, private equity, and, as we speak, are planning for exits in the markets to get to a much bigger scale. So, Europe has talents, Europe has technology companies, Europe has a lot of savings, there is an increased participation of retail in tech IPOs in Europe. Things are changing and let's not be blurred or misled by a few one-off events that are spectacular, but do not reflect what the market is doing.
[00:16:29] Speaker 3: So, is that going to be boosted by the Capital Markets Union? Are we at a turning point there for the Capital Markets Union?
[00:16:35] Speaker 4: We are. We are. I think one of the key events that are going to happen in the second part of the year is that for the first time for 10 years, there is a strong alignment between an ambitious European Commission under the leadership of Maria Louis-Sarbuquerque, the Commissioner, the Portuguese Commission in charge of finance, the Parliament, which is super ambitious on delivering that savings and investment union under the leadership of Mr. Ferber from Germany, and the European Parliament Economic Committee, and what is unprecedented, what they call the E-6 in the Council of the Member States, with the Minister of Economy of Spain, Italy, France, Poland, Netherlands, Germany, being totally aligned to deliver an ambitious program on single supervision in particular, but also on stronger retail participation in markets.
[00:17:30] Speaker 3: Let's go back quickly to the tech sector. Is there an AI bubble that is going to burst?
[00:17:35] Speaker 4: I don't know. There is an AI high valuation. Now, it's up to investors to decide how they can close the loop between those high valuations, low cost of AI use for the moment, prospects for increasing prices. Is the market going to remain what it is if you want to get some return with so much investment? For sure, something is going to happen. Either the rest of the sectors of the brick and mortar economy is overvalued, or the AI sector is overvalued, but you can't have such a huge investment without some form of adjustment somewhere. So whether it's a burst or not, I do not know.
[00:18:11] Speaker 3: You've acquired recently the Athens Stock Exchange. Obviously, you've been talking a lot about the necessity for consolidation of exchanges in Europe. What's next for Euronex?
[00:18:20] Speaker 4: The name of the game is liquidity, liquidity, liquidity. We have created a market which has an aggregate market capitalization of 6.8, almost 7 trillion euros, which is more than twice the size of the London equity market, more than three times the size of the Frankfurt market. The average daily volumes on Euronex are, in the last few weeks, approximately 15 billion euros. It's about three times the size of the volumes traded in London on equity markets. So we have created a pan-European integrated market. It is large. The company used to have, when I joined, a 1.5 billion market cap. It's now a 15 billion market cap and a CAC 40 company. So it's significant progress, but it's still relatively small at global scale. So if we want to create a pan-European strong super liquid market, much more liquid than what we have today, we need to consolidate more liquidity. Now, how it will happen, I mean, it very much depends on partners. We are willing consolidators, we are willing buyers, we are willing integrators. We need to find willing participants in this journey. And that's why discussions are happening all the time on those type of projects.
[00:19:33] Speaker 3: Last question. We're less than a year before the presidential elections here in France. This is obviously the main topic in Aix-en-Provence. What's the biggest risk? Do you expect more volatility on the markets over the next few months? And what do you think is the biggest risk for this election?
[00:19:50] Speaker 4: Well, the biggest risk is public finance. France has to adjust its public accounts and has to go anywhere, whatever the outcome of the election, to some form of what in British English you would call fiscal consolidation. And that will happen. The question is whether it will happen in an ordinary manner or in a disorganized manner. But I think France is much more than politics. The substance of the country, like in every country in the European Union, is about fundamental concentration of talents, fundamental concentration of investment. Blue chip companies exporting a lot that are less exposed to the French political dynamic than you think. Most of the large caps in France have a very residual part of their business in the French markets, just like in the rest of Europe. So I would not concentrate too much on the political risk. I would just concentrate on how the public fiscal consolidation, public accounts and fiscal consolidation is going to be addressed.
[00:20:53] Speaker 3: Fiscal consolidation is the top priority for the Euronex CEO, Stéphane Boujna, here in Aix-en-Provence. And of course, as I was mentioning earlier, this is the top priority for many of the executives we'll be speaking to here in Aix today.
[00:21:06] Speaker 2: Caroline Gouna, on the ground for us from the Aix-en-Provence Economic Conference. Great stuff, Caroline. Thank you. We're going to get back to the gathering later in the show with Ludovic Supra, Allianz's CIO.
[00:21:20] Speaker 1: Here are some of the other stories that we are watching this morning. Bloomberg understands that Airbus delivered about 350 jets to customers in the first half of the year. The manufacturer set an annual target of 870 deliveries, meaning it needs to hand over about 520 more planes by the end of the year. It comes as the European planemaker continues to ramp up output in the face of nagging supply chain challenges. ECB President Christy Lagarde says the central bank made the right call hiking rates last month. The ECB last month became the first in the Group of Seven to raise rates following the outbreak of the Iran war. Lagarde told the French newspaper Les Echos supply shocks continue to spread through the economy, though second-round effects have not materialized. And over in private credit, managers are facing a relentless wave of redemption requests, with second-quarter exit requests exceeding those of the prior quarter. According to Bloomberg estimates, more than $14.5 billion of investor capital is trapped at over a dozen funds, compared with $8.6 billion that shareholders were able to get back. So once again in the second quarter, we're seeing the investors in these private credit funds wanting more money out of them than they are able to take because the 5% caps are holding. And if anything, this trend is gaining momentum since the first quarter. So if we thought we'd seen the peak of it in the first quarter, maybe not. Maybe we were just distracted by the Iran war and everything else. It's interesting to think how long this takes to work through, because some people in our story are suggesting this could take eight quarters to work through, if the 5% limit on redemptions holds.
[00:23:00] Speaker 2: So, there is a different dynamic as well in this current quarter, which is that the vast majority are sticking to those gating structures and those gating agreements. Whereas in the first quarter, there was a mixed response. Some did stick to the 5% level, if that was the level, others allowed higher redemptions. Now there is greater uniformity. We were speaking to Aberdeen about this in the previous hour. They said that's actually a healthy dynamic. And they agreed this will continue for quarters ahead, and they think it's not a systemic risk. But clearly, the redemption requests, there's some catch up from the requests that weren't fulfilled in the first quarter. And that's partly what you're seeing. But they are significant in terms of the requests.
[00:23:39] Speaker 1: And it's a feature, not a bug, of the sector, it seems. That's where the conversation seems to be evolving to.
[00:23:44] Speaker 2: Coming up, we're going to break down the US jobs data with Jordan Rochester. We'll get a view on the FX space as well, of course, with a particular focus on the yen. Maybe a touch on the one as well, over in Korea, head of FICC strategy, Amir at Mizuho. That conversation coming up, this is Bloomberg.
[00:24:11] Speaker 1: Welcome back. This is the opening trade. It's Friday morning, 30 minutes from the start of cash equity trading here in Europe. And the futures picture looks fairly buoyant, up by around half a percent on Euro stocks, 50 futures. The sentiment then, Tom, around tech stocks seems to have changed a little bit. Yesterday, stocks broadly in the States were doing OK on the back of the weaker payrolls number, pushing out expectations for when we get that hike from the Fed out to December. Chip stocks didn't play ball with that. But then into the Asia session, it seems that sentiment has improved in the round. And we have a cost speed that is up pretty strongly. So maybe tech sentiment has changed and European futures are pointing up.
[00:24:47] Speaker 2: Yeah. And NASDAQ futures pointing to gains of one percent when US markets reopen, of course, on Monday. Let's check in on the bonds as well. Sovereign bonds now opening, of course, across Europe, largely unchanged. You did see, of course, a weaker than expected non-farm payrolls print. So you saw some adjustment in terms of rate pricing in the US. The read-across is not pronounced right now, at least, in the sovereign debt markets of the Eurozone. Italian BTPs yielding 3.69 over in Germany. The benchmark 10-year bund is yielding 2.96 yields up just one basis point. And 0.80s in France, 3.10 on the five-year, 3.71 on the 10-year, also largely unchanged. Let's just check on the sovereign bond markets this Friday.
[00:25:26] Speaker 1: Let's talk about what we got from the US yesterday in terms of the data picture then and non-farm payrolls. Weaker than expected was the number that came out of the US. And it's challenged expectations that the Fed will raise interest rates this year, pushing out that expectation now to December. Non-farm payrolls raised just 57,000 last month. That was well below estimates.
[00:25:48] Speaker 5: It tells you the labor market is fine. There's no real concern, certainly no urgency for the Fed to be hiking. And that buys them time.
[00:25:56] Speaker 6: I think this is a great report for Kevin Warsh. I think it's a good report for the bond market. Today's report is going to keep their focus squarely on inflation.
[00:26:03] Speaker 1: The labor market has proved to all of us in the last six months that it is more resilient, even with today's numbers.
[00:26:09] Speaker 6: You've got an economy that's growing at some pretty significant numbers, and the employment picture is just okay.
[00:26:15] Speaker 7: This is a very fragile labor market. And we have very low hiring, but low firing.
[00:26:22] Speaker 1: Some of our guests reacting to that lower than expected number then. A range of opinions there as to what it means. Jordan Rochester is with us, head of fixed strategy in here at Mizuho. Jordan, very nice to speak to you. Thanks for coming in. So in terms of what this does to your perspective around US assets, the fact that we got this much weaker than expected, it's weaker than the estimate, way weaker than the whisper number, and sentiment going into this had been quite bullish really about what this job story was going to tell us. And yet we didn't get that. So does this fundamentally change your view? Or do you look through this number and say, actually, it doesn't really change things for us?
[00:26:54] Speaker 8: I don't think it changes things too much, too dramatically for what I've previously thought, which is I think the first meeting we had of Kevin Walsh is probably going to be one of the most hawkish meetings we get from him during the next few months at least. He's dealing with sort of backward-looking response function. That inflation was at 4.2 CPI headline year on year. It's going to come down. It's going to head towards the sort of threes. And I think it could even get towards the twos in the next year. And that means that for the Fed, they're going to be thinking about raising rates, but it's going to look a little bit more like the ECB cycle. We get maybe one or two hikes from the Fed and then they're done. And we react to the next response will probably be a slowdown. But for assets, I think we're still in a lovely soft landing. So it's really difficult for risk sentiment to take a large hit due to the AI capex story, but also the one big beautiful bill, the fiscal stimulus in Germany, and maybe even extra stimulus in Japan. So I don't see where the recession risk comes from for asset prices to have to price.
[00:27:45] Speaker 2: Can I just, sorry, let me just nail you down on your expectations for Fed hikes. So do you assume they stay on hold in 2026 then? Is that your assumption? What does that do to the dollar?
[00:27:53] Speaker 8: So my assumption for trading is that we're going to bounce around between one and two hikes. And for Mizzou's official call, it's two hikes this year. So September and December is where I think they could be penciled in. Now, the dots are telling you they're probably going to hike at least once. That's kind of where the shift of sentiment was. But right now, the bias is to receive US rates probably from my side.
[00:28:13] Speaker 1: I mean, yeah, you wonder what we do without the dots, Jordan. But anyway, today is obviously a US public holiday and that's celebrating the 4th of July tomorrow. I was looking at a piece of research from Deutsche Bank that was attached to Independence Day, and they were talking about investment in AI and just underscoring the amount of investment that is happening in the United States right now around the AI theme. Obviously, China is doing some, too, through more public sector than private, maybe. But I wonder, is this the seeds of the productivity boom of the future? Does this support the dollar? Is this really positive for the US economy or is it not? Does it feature in your US dollar view and Treasury view?
[00:28:51] Speaker 8: I don't know how you paint it as a negative. It's definitely a positive. But I think the first round effects is inflationary because of all the capex taking up all the other investment from elsewhere. And it's leading to higher prices for ram prices, leading to higher energy prices locally in certain areas. But in the long term, I think the effects of the productivity gains haven't been seen yet, but they will. So probably before the Iran war, the most biggest conversation was AI. Now it's coming back into client conversations. In every client meeting, I'd always ask, do you use AI as an enterprise function? You know, has your company paid for you to have co-pilot, clawed, open AI? You'll be surprised by how many people said no. Right. They used it on a personal basis, but their companies hadn't yet brought it in. And the surveys show you that. We've got, roughly speaking, around 20 to 25 percent overall of US clients. That hadn't got this in place.
[00:29:42] Speaker 2: John, we've seen a little pop in the yen right now. 160, 160.77. We saw a little pop yesterday as well, but a strength coming through for the Japanese currency yesterday before the non-farm payrolls. What is happening here? Are we seeing intervention? Do you expect to see intervention? What are the levels you're targeting for dollar yen?
[00:30:01] Speaker 8: Well, from all of the frameworks, dollar yen should be lower. The classic frameworks. We should be talking 140, 150. If you use interest rate spreads as your guide. That's why a lot of guests would have come on your show and say, the weakness in the end is going to be short term. I think dollar yen heads low into year end. But there's been a change in the flow behaviours of the Japanese space. It doesn't look like a G10 currency. It trades like an EM. In terms of its correlation to rates, it has flipped. It's got a negative correlation to rates right now. And this is something that we don't usually talk about. But we have spoken about for the UK over Brexit and all these other things.
[00:30:31] Speaker 1: And that was when everyone was worrying about the fiscal side in the UK. So is it the same concern over in the States, in Japan?
[00:30:38] Speaker 8: There's definitely concerns. We're waiting to see what the consumption tax cut will be on food and what other ways they're going to fund that. They said they'll fund it from higher revenues. But the market thinks they're sniffing around, thinking there's got to be some extra deficit financing bonds. But the main point is Japan's not an EM. And actually, we've seen massive inflows into Japan. The biggest inflows, in fact, over the past year, by foreign investors into both JGBs and equities. But those foreign investors, after Liberation Day, are massively hedging their exposure. So you've got that inflow into Japan, potentially crowding out Japanese investors who are also investing abroad. But they don't FX hedge the same way as foreign investors, because they have to pay for that FX hedge, where Europeans and US get paid for it. So in answer to your question, we've had a big carry trade, where a lot of hedge funds are short the yen, a lot of CTAs and trend-following accounts. Yesterday looked like something different. And we had that report, I think it was from Reuters or some other outfit, suggesting that the BOJ and the Ministry of Finance, to be more specific, is no longer going to tell us with final warnings, like they did earlier this year. Ambush tactics is the word that they used. And suddenly you get a nearly 1% move lower in Dolly and off the back of that. Is that because of the report? Is that just people taking risk off? Yeah, potentially. But it could be something different.
[00:31:51] Speaker 1: We're always looking for this on US public holidays.
[00:31:53] Speaker 2: Yes, we stay on alert, as many traders I'm sure will be as well. Jordan Dorchester, thank you very much indeed. Head of FICC, FICC at Strategy at Emir at Mizuho. Let's get back to Ais-en-Provence right now. Talking of the fiscal story in Japan, the fiscal story in France as well, in Focus, the economic conference taking place in X. Caroline standing by with another important guest. Caroline.
[00:32:15] Speaker 3: Tom, this was actually a little unexpected, but I'm very glad to tell you that I am with Roland Lescure, the French finance minister from Aix-en-Provence. Mr. Lescure, thank you so much for joining Blumen TV.
[00:32:29] Speaker 9: Thank you, thank you for inviting me.
[00:32:30] Speaker 3: This morning, we had the prime minister, Sébastien Lecornu, during the opening speech of Aix last night, warning again about France possibly not having a budget for next year. How important are we going to have a budget for next year?
[00:32:48] Speaker 9: We must. We must have a budget because the alternative is not really a go. If we don't have a budget, we have what we call a special law, which more or less freezes the budget compared with last year. That means that spontaneously the deficit is going to increase and spontaneously we're not going to be able to put more things in action, more policies that are going to be pro-growth or pro-business. So, yeah, it's not an option. We have a hung parliament, as you know, 11 different political groups. So we have to convince a majority to vote it. I think that reason will prevail. I know that some of those guys see themselves as a president. I don't think they want to inherit a situation that would really lead them to waste their first year. They probably want to be efficient. They probably want to be able to correct the budget if they don't like it. So the most likely, I hope, scenario is we have a budget. It's not perfect, but we've managed to vote it and then debate can happen for the big election.
[00:33:44] Speaker 3: But we see what happened to the former prime minister the past couple of years, Michel Barnier, François Bayrou both ousted because of the budget. Are we going to see a similar situation? Can you actually cut the deficit at the moment, given we still have a fragmented parliament?
[00:34:00] Speaker 9: Well, we did. We did last year. As you know, we were 5.8 in 24, 5.1 in 25. This year is more difficult because we've had a crisis. Hopefully it's over. But the iron crisis had a big impact on growth, on inflation and very likely on public finance. We're having a big meeting next Tuesday. We called it the alert committee with all the stakeholders. So parliamentarians, trade unions, company representatives, also the representatives from local authorities to discuss this. We want to assess the state of the economy, assess the dynamic of public finance, and hopefully commit everyone to making the efforts we need to do to keep public finance under control.
[00:34:43] Speaker 3: So what's your target for deficit cuts next year? Because this year we see targets 5%. Are we going to reach that? And next year, what is the target?
[00:34:52] Speaker 9: So we're going to do everything we can to reach or to be as close as possible to 5%. We're still in the midst of assessing the impact of the crisis. There's lots of uncertainty. I think the third quarter is going to be key. As you know, inflation has receded in France and elsewhere in Europe. You know, this is the time for recovery. And I hope that households, companies, everyone's going to just get together to make sure we have growth. And if we do have growth, hopefully we'll have a better outcome on public finance. But it's still very uncertain. I want 5% and I hope we will reach 5% for next year, for this year. And I want to make sure that next year we have a budget that brings us below 5%. This is still in the air. We have to work on our budget. This is the work of this summer. We're going to present it by September. But this is what I'd like to have. And this is what I hope
[00:35:40] Speaker 3: we're going to have. But obviously, given what happened to the former two prime ministers, it's difficult to imagine that the candidates for next year's presidential elections are going to put that as a priority because otherwise no one is going to be elected on that platform.
[00:35:57] Speaker 9: No. So what's hard is to manage to decorrelate what's happening in parliament to vote a budget from the big debates we need to have to prepare for the following five years. If the candidates think that they can prepare 2732 by spoiling 27, one, I think it's a big mistake, and two, we're not going to make it. I am convinced that if they really think they can be elected, they should, in a way, let us do the dirty job. Let us do the cleaning. Let us make sure that the taking of slot that we are preparing for them is ready. And then they can have the proper debate about taxation, about public expenditure cuts, about pensions, which need to be had. But if we don't have a clean slot, then it's going to be harder for them to deliver what they've promised. So there's a win-win situation by which they allow us to pass a budget. That's going to be a compromise budget, and then they can move on. And there's a lose-lose situation in which, you know, we don't manage to have a budget. And I think they have a very bad starting point. I hope reason will prevail again. We're going to have the win-win. Everything's possible. And that's why the prime minister was quite solemn yesterday about his call for reason, because it's a very important moment for France and for
[00:37:16] Speaker 3: Europe, of course. Do you expect volatility on the French bond market to increase over the next few
[00:37:22] Speaker 9: months as we approach these elections? Let's choose whether we're in a win-win situation. And I think bond market will like it. They liked it last fall. You know, we had some discussions. There was some uncertainty. But at the end of the day, people felt that we were going to manage to land a deal. Lose-lose, yes, volatility and risk on the bond market. So far, my issues are going very well. People want the French paper because they believe we have the right approach. I think we're doing the right job, making sure again that France lands to the right spot in order to prepare for the following five to ten years. But yeah, we need the parliamentarians to be on board, to have proper discussion, to be able to move forward towards a reasonable outcome that nobody's going to love, but that everybody's going to be happy, hopefully, that we will have reached it.
[00:38:12] Speaker 3: Who's the best position to do that? And in terms of candidates, I mean, Edouard Philippe, former prime minister, has a big meeting this Sunday in Paris, his first big rally. He seems to be the best position to beat either Marine Le Pen or Jordan Barnella. We'll probably know the candidate by next week. Do you think he's best placed? And he seems to be also the only one who talks
[00:38:36] Speaker 9: deficits and debt. Well, if you read Le Parisien this morning, you will see that Gabriel Lattel has also got a plan on deficit. I think every candidate should have a plan on deficits and we'll see. I'm a member of Gabriel Lattel's party. I'm behind him so far, and I hope he can make it and win it. But one thing I'm convinced about is that for the spectrum I'm part of, which is basically center-right to center-left, pro-European, pro-market, pro, you know, an open world into which France can actually win the technological revolution conquest. We have an advantage on this for the spectrum. We need one candidate, we need the best one, and we all need to rally behind him or her. As you said, so far, Edouard Philippe seems to be on the lead. We'll see what happens in the next few weeks. By the time fall comes, we'll have to decide one person and everybody's going to have to rally behind
[00:39:32] Speaker 3: them. What's the biggest risk then coming up for the French economy over the next few months? Is it to have a populist president at the helm of France? Is it the public finances, the debt servicing costs, for example, exploding? What is the one single biggest risk? Well, the risk is a convergence of
[00:39:50] Speaker 9: both risks. I think populism is bad for you. And we've seen it. We've seen it in the UK. Brexit is a disaster 10 years on. That was populism at its best, if I can say. So populism is bad for you. Populism is bad for public finance. Populism is bad for market perception and therefore for potential market tension. We're not going to win by debilizing them, if I can say it that way. But they are bad for you. But we need to have an alternative to propose, which is an alternative in which France grows, in which France puts their house together, in which young people of France can feel that they're going to live better than their parents. And at that moment, this perception has receded in the global world and especially in the Western world. You know, this is part of the reasons why the elections in the U.S. ended up the way they were. That's certainly a big reason behind the Brexit. We need to give hope. And to give hope, we both need to be serious about public finance. We also need to have a project on how to grow the economy, on how to make people live better, not just older. We're living older. This is massive weight on the public finance. We need to live
[00:40:59] Speaker 3: better. And we have to provide that. Live older and live better. We'll see if that happens in France. We're here in Aix-en-Provence for this last minute interview with the French finance minister, Roland Lescure.
[00:41:11] Speaker 2: Thank you. Excellent interview. Really, really interesting insights. Caroline Conard on the ground for us, reacting as swiftly as she always does, of course, in Aix-en-Provence. A lot more coming through from that forum and more coming through on the opening trade. Stay with us. We're 13 minutes away from the open this Friday. This is Bloomberg.
[00:41:51] Speaker 1: Welcome back. This is the opening trade. We have 10 minutes to go until the start of cash equity trading in Europe. Let's take a step back, though, and talk about these markets, global markets in three minutes on the opening trade with our Asia Markets executive editor, Paul Dobson. And Paul, I wonder what you take away from this week in terms of the backdrop for risk assets, because Walsh was a little more dovish than expected. The payrolls number was weaker than expected. And we pushed out
[00:42:13] Speaker 10: expectations for a Fed rate hike. Yeah. So if you're Kevin Walsh, I think you're very happy with the way that things are going on this morning. You know, he came into the Fed as chairman setting out a stall that they wanted to bring down inflation. The market got a little bit worried that they were going to raise interest rates. But it did bring down the inflation expectations. It brought down yields at the back ends of the yield curve. Now what we're seeing is this idea that with a softer jobs data and with inflation cooling because of the oil prices dropping again, the market is pricing out the need for the Fed to act with any urgency in terms of raising interest rates. I think for this month, we're now just priced at a 20% chance that the Fed will move. So that's kind of cooling down markets. And it's one of those moments where the reducing the bets on Fed hiking is being taken as a sort of risk on signal for the rest of the markets. We've got a weak dollar, got stronger Asia FX, stronger commodities FX and equities market is having a better time of it as well. Paul, how are those factors tying into the Asian equity session today? Yeah, so I think I think people taking it as a genuine positive. And so particularly if you look at the yen, which have been under quite a lot of pressure, as we know, all of a sudden, we've got the dollar softening a little bit. It's allowing the yen to rally. Likewise, some of the other Asian currencies that have been under pressure, like the one. And then there were tech has been all over the shop this week in Asia. But it's ending the week on a pretty positive note in South Korea in particular. We've got rally going on. We've got a talk of a deal between Anthropic and Samsung that's helping things as well. SK Hynix had its worst day yesterday since November 2008. It's back up more than 10% today. So the market is certainly ending the week on a more positive vibe than it's had at various points during the last five days of trading. And Paul, help us deep dive
[00:44:01] Speaker 1: into what's going on in South Korea, because this is really interesting. The stock market has been something of a global story for a long time, but it's not taking the currency with it. The one has weakened, partly due to people not wanting too much exposure, I think, to South Korea overall. Now we're about to see a period where we get 24 hour trading in the one. And we're also going to see SK Hynix go to the US to try and raise some money. So talk us through the dynamics, how this is all playing
[00:44:26] Speaker 10: out. Yeah, there's a lot to unpack there, isn't there, Anna? So the big picture is that we're going to begin 24 hour trading from Monday. It's a big deal for Korea because over the history of time in the FX market, it got very badly burned and scarred by the Asia FX crisis, which meant that it kept trading under very close wraps for quite a long period of time. Now it's opening up because its markets are maturing. And also it wants to win this developed market status. And in order to do that, having around the clock FX trading is a big part of it. Talking about valuations and levels. Yes, I think that you're right. International money has been coming out of South Korea just because the rally in the equities market has been so gigantic that people have been hitting the limits on how much they're able to hold. So they've had to take some money out. It doesn't reduce the sort of overall size of their holdings, but it does free up some cash for them. Boosting the one today, we've got news that maybe some funds are coming back from the SK Hynix fundraise in the US. So a bit of a rally for the end of the week.
[00:45:21] Speaker 2: Okay, we'll see if that continues the support for the one, which has been, of course, under pretty historic pressure. Paul Dobson, thank you very much indeed with that wrap. European futures pointing to gains. A decent session, another decent session, pointing high by 4 cents a percent after record
[00:45:34] Speaker 1: highs yesterday. There could be a bit of focus on M&A within the defence space. We have an interesting move out of Renko for in Germany, so we'll certainly watch that. The warehouse stocks here in the UK as well on the back of what Andy Burnham has been saying about taxation there. So we'll keep an eye on that. More broadly then, Tom, the European futures picture does look pretty positive. Maybe FTSE 100 futures underperformed. The oil price is at 72.13 this Friday morning. We will bring you the market open next. This is Bloomberg. It's Friday. This is the opening trade. A few minutes to go until we get the opening trade for here in Europe. Now, we don't have the US trading today, of course, in lieu of Independence Day. But we do have the handover from the US yesterday. And we saw US equity markets trending downwards for much of the session. Concern about the AI trade. Are we spending too much on capex? Where are the profits from that trade actually going to accumulate? So we saw some selling of chip stocks. That seemed to continue, but then some rotation may be kicking in for some of the other markets. Towards the end of the session in the US, we saw a bit of positivity. That might not really be what's driving the futures picture though here in Europe, because futures are stronger. But the stock market in Europe had a good day yesterday anyway. And the rotation story seems to be playing out pretty strongly for Europe. If your specialism is things that are not particularly tech focused, then maybe you do pretty well out of that. That said, DAX futures are getting the best of the gains this morning. So maybe there is a tech angle in there as well, up by 7/10 of 1%. Eurostoxx 50 futures then overall, Tom, up by half a percent, as we take the positivity in Asia and translate that into a European session without our friends in the
[00:47:21] Speaker 2: States. Some of the individual names we're looking at today. In the defense space, you've got Rank making a deal for an acquisition here in the UK. David Brown Defense, valued at about 200 to 250 million US dollars. So we're going to watch Rank on the back of that deal making. Ryan Mattel, meanwhile, is detailing the cost hit from the German cancellation of that naval contract, about 300 million euros. Morgan Stanley says it's actually reassuring. We'll see the reaction to that. And UK warehouse stocks in focus as well, with the expected incoming Prime Minister Andy Berman suggested he could raise taxes on some of those warehouse operators here in the UK. Big picture, we've come through a few risk
[00:47:59] Speaker 1: events this week, haven't we, Tom? We opened Kevin Walsh in the middle of the week and that was something the market was focused on because we simply haven't heard very much from him. A little more dovish than expected maybe there. Then we got the non-farm payrolls data, which was much more weaker than expected. Does all of that add up to a more positive backdrop for global stocks, for US stocks? That's only one of the questions that the market was asking itself yesterday as we pushed out those hike expectations. Where does that leave us for European stocks this Friday morning? Well, just a touch stronger at the moment, at least. Up by two tenths of one percent on the stock 600, the FTSE 100 up by three tenths of one percent. So, eking out some gains on this Friday, the 3rd of July. Tom, looking for some of the movers that you mentioned to see whether we get any movement there. The DAX not yet open. We'll be looking to see whether that outperforms. The futures picture has suggested we might see outperformance on the German market. What are you seeing on the sectors?
[00:48:51] Speaker 2: On the sector breakdown, let's start with tech, because that took a hit yesterday in the session. It ended lower by about two percent in the European session as a sector. Right now, tech is amongst the best performers across the sectors, up nine tenths of a percent. Top of the list, though, is basic resources. We've seen higher prices for gold and silver, and that has been aided, of course, the upside coming through in terms of prices on a slightly weaker dollar and expectations of possibly fewer rate hikes from the Federal Reserve. So, basic resources as a sector is rallying today, up close to one percent. Tech getting eight tenths of a percent. Utilities also up seven tenths. On the downside, consumer stocks taking a bit of a knock down four tenths of a percent. Healthcare, which was the best performing sector yesterday, and by some margin with gains of three percent yesterday as the sector is currently down just two tenths of a percent. So, maybe a little bit of a profit making, a profit taking across healthcare. That is the picture right now. Most sectors in positive territory across the benchmark gains of three tenths of a percent. Okay. Yeah. Still
[00:49:50] Speaker 1: waiting for that DAX to open. We will keep our eyes on that. US features, as you've been mentioning, looking increasingly strong. Ready for Monday, perhaps. Let us turn, though, in the meantime to what's going on in the individual companies. Airbus is up by 2.4 percent. We had that story earlier on today around Airbus deliveries. ASML is also stronger, up by just over two percent. So, that's an interesting one on the on the tech front. And to the downside, Nova Nordisk and some of the luxury names we actually saw in the middle of the week, some of those luxury names not doing too badly. And so, maybe there's some rethinking there. LVMH down by seven tenths of one percent. The heavily weighted, of course, over on the French market. And speaking of France, let's return to Exxon Provence, the economic conference taking place in France. Central bankers are gathering. Finance ministers. We just heard from the French finance minister. Business leaders, economists and investors, all thinking about the European growth outlook, thinking about inflation, interest rates. We're joined now by Ludovic Soubran, who is the CIO and chief economist at Allianz. Ludovic, very nice to have you with us. Thank you for braving the heat of Exxon Provence this time of year to talk to us. So, I wonder what you take away from this week as we go into the second half of the year, Ludovic. We've had the Cintra conference. We've had that weakness in the non-farm payrolls story out of the U.S. And a lot of quick rethinking about just how many rate hikes we're going to get here in Europe and in the United States. How does that position us then for the second half of this
[00:51:15] Speaker 11: year? I think it's quite an interesting situation. You mentioned central bank to start. I think the ECB was the only one really to deliver a hike. It was an insurance hike. But as we look into the numbers now, it looks like it's done. They cannot do much more. At the same time, the Fed is really on the opposite direction. The non-farm payroll was actually soft. But I still think inflation peaking above 3.7 percent. And there is still this AI fiscal and energy fuel economy. So, I guess the Fed may have to hike in September. So, that's really the divide, I would say, between Europe and the U.S. And, of course, you know, the good news is that the inflation is being repriced very fast in the market. So, I guess our mood seems to be behind. So, there is still a scarring effect. It takes time. The economy is still paying the price of the war. But it's looking much better today than it was a couple of
[00:52:04] Speaker 1: weeks ago. Hmm. Do you think we're in a bubble in AI-related trades, Ludovic? Is that the thinking over at Allianz? And are you concerned that it bursts? Some people are worried about higher interest rates. You just referenced the Fed there. Some about regulation. I wonder what your thinking
[00:52:20] Speaker 11: is around the AI story. Look, my concern is mostly on the ancillary things happening on AI. I think there is a very strong, you know, it's a renaissance-like moment for the economy. AI is really going to change the service economy. But I see things that are weird. First, of course, the debt expansion loop that is creating these monetized capex type of moments. We see actors that are very, you know, some of them, Apple, Microsoft, not doing much and others doing too much. We see a lot of psychology around this AI. You know, we don't really know what is going to be the adoption and the impact on the real economy. But the market is already being very optimistic, especially on productivity gains, when it's going to be a bit of a hybrid situation. So for me, that's where I see the signs that there is a bit of exuberance. The good news, I would say, is that markets are seeing that. When you look at the corporate spreads in this sector, especially in the hyperscalers, they tend to be a bit more cautious than before. And I think that's a good news. Would it be enough? We will see, because I still see the
[00:53:16] Speaker 2: capex in the US, you know, skyrocketing. So you don't see complacency in the markets when it comes to the AI
[00:53:23] Speaker 11: trade than Ludovic. I don't see complacency on the debt market, on the equity market. I think it's really strong. I would, for example, think that the emerging market equity stocks are looking much better because of the semiconductor, you know, important chain, you know, link in the supply chain. But in the US, I think the markets have been extremely strong. I don't know if it's a bubble territory. It's not enough to call it a bubble. It's really about the many factors. The investigation is more about what comes around that looks a bit strange, especially on data centers, for example, when you look at the risk of obsolescence of some of these data centers, when you look indeed into this monetizing of the capex type of move, if you issue debt to pay your shareholders, that doesn't look very good to me. So that's the type of sense we're looking at. So on the bond side, I think there is still a lot of vigilantes. On the equity side, I still think it's, you know, it seems like the sky is the limit. And of course, that is something that is not the case. Yeah. I think European equities clearly can do slightly better. I think they have stronger fundamentals, especially when it comes to the debt side, when it comes also to now the energy crisis being behind. The problem, as we know, is that everything is about the AI dividend. And so the European companies are left with adoption. I think what happened with AI, you know, our AI, your problem, not to quote Jim Connolly in a bad way, you know, our dollar, your problem. I think it was good news that Fable 5 and Mythos were now available again. Will it be enough? Can Europe really be the strongest adopter and differentiate itself? I doubt it. I think it's going to be a bit of a fragile, I would say, way for the equity markets in Europe and for companies that are listed in Europe to benefit from the AI dividend. But it's certainly going to be a tailwind. You're in Aix-en-Provence, Ludovic.
[00:55:14] Speaker 1: We've just been hearing from the finance minister over there, and we've been hearing about what we've been talking about, the fiscal story. And I wonder whether that's going to take the agenda or lead the agenda for Europe in the second half of this year and into next year. How concerned are you about the recent widening in spreads that we've seen on France? Look, I mean, the main job that this
[00:55:37] Speaker 11: government has to do till the election is really to maintain this 5% upper ceiling for the deficit that would be a way to reassure markets. And I think they've been doing a great job at it, including by doing under-indexation of some of the tax cuts on wages in spite of the inflation and so forth, right? The problem comes with the law of finance for 2027, because that's the one that's going to be the caretaker law before a new government come to place in 2027. So markets will be looking at this. But if you look at it, it's an election wall. Italy, Greece, Spain, France, everybody is into this election mode. So everybody will be looking at what is the fiscal impetus and what is really the room to maneuver that those leaders have when markets have been looking at, you know, the rates market especially has been looking at, do you invest, do you spend for investment or do you spend for maintenance, which is mostly the social protection costs. And we've seen that has been a big differentiator across countries. Germany is running a 4% deficit this year, which is quite huge if you think about Germany's German standards. So, of course, everybody is looking at what the others are doing with their fiscal, especially Italy, especially France, and I would
[00:56:40] Speaker 1: say also the UK. So on the spreads, I mean, we've been looking at French tenure over Germany at 79 basis points. What, as we approach an intense period for French politics, what's the kind of spread level that we should be looking out for? What would be a concern for you or get your attention over at
[00:56:59] Speaker 11: Allianz? I think there is, depending on the candidates that really crystallize towards the end of the year, I think we're going to see a slight widening of the spreads to the Bund by another 10 to 20 bips. That's very possible. I think then, of course, the main question is whether there is, and this is what everybody has as a nightmare scenario, a bit the extreme right and the extreme left going to the second round. I don't think this is the most likely scenario, but in that case, two parties are very profligate, and we have been running, you know, spread scenarios that could be widening by as much as 150 bips, you know, 80 bips, mostly because there is this question from both parties on how they will behave when it comes to Europe. And the ECB will be there maybe to save the day, but not for political reasons. And so that's a bit where the spread scenario could really go hellwire. That is clearly not the central case. The central case is a bit of skirmishes on what is really pricing and what can governments do in 2027. And we're talking maybe about a 20 bips widening, which is something that actually markets, especially bond investors, would like very much because that would then give them
[00:58:02] Speaker 2: an entry point for the OAT. Do you think Andy Burnham has learned the lessons of the UK's own fiscal challenges and the guilt sell-offs that we've seen under previous Prime Minister trust? Do you think that lesson has been learned?
[00:58:20] Speaker 11: I think everybody has learned this lesson, Tom. I can tell you there is not one conversation about the risk of a trust moment from the U.S. to France, to Germany even is talking about the trust moment. I think that was really interesting epidemic reactions on markets. I think now the question is can politicians overcome this fear to do something that is meaningful for their people, especially the centrist parties, because the populist parties on both sides, they're over promising and delivering, right? So the centrist need to find and walk this type of rope. And that's the main issue now with politics, especially in Europe. And I would say it would be this case with the U.S. after President Trump.
[00:58:57] Speaker 1: Yes, I mean, Andy Burnham argues that, well, his advisors argue that if the bond markets become convinced that the growth story for the UK can really change, then maybe bond markets will put up with some, not higher borrowing, but at least taking that on. I mean, Ludwig, does that hold water to you? Do you think that bond markets are ready for a step-changing growth to be the narrative?
[00:59:23] Speaker 11: I think quality growth has always been a bit the mystery of bond markets, right? What is spent that is, you know, something that is yielding to higher growth and hopefully not so much inflation or at least good enough inflation that it's crowds in capex, especially from firms and from families. I think this is the ultimate policy goal. I do believe that this is everybody's attention. So, especially when it comes to investment in the production versus untargeted social assistance versus, you know, this guns versus butter debate between defense and social protection, that's the type of things and trade-offs that most prime ministers, most leaders have to face to make sure that markets buy the story of a multiplier effect with a well-spent additional euro, additional pound. It's something that is hard to sell, but I think this is the way that they have to walk if they want to get something out of their time in office. Yeah, I think for the second half of the
[01:00:16] Speaker 1: year. Thank you, Ludovic. Ludovic, Sue Brown, chief economist and CIO over at Allianz joining us from Aix-en-Provence. More coverage coming from Aix. Don't miss a conversation with the Banque de France governor, Emmanuel Moulin. That's at 10:40 a.m. at London time. Let's get back to the markets now,
[01:00:31] Speaker 2: the core six and see what the performance is like again on a generally decent day, relatively decent day for European stocks and record highs yesterday. ASML performing very well, so adding the points across the index up 1.8%, the Dutch company, and Schneider Electric also gaining 1%. On the downside, you've got some losses coming through from Ryan Metal as it details the costs to that contract cancelled, of course, over in Germany, and Novo Nordis down 1.5%. Let's get more on some of the individual stocks on the move and bring in Louise Moon. Louise. Morning, Tom. So first up,
[01:01:02] Speaker 7: we're turning to Stockholm. Absolutely soaring here, this stock up over 15%. That's after they settled a lawsuit related to BrainGuard. That's really soaring into the green over in Stockholm. Sticking with the sector, we are looking at Reckit back in London. Reckit, let's take a look at their shares, only up slightly into the green. Now, that's after they were cleared in the US. One of their lawsuits surrounding their unit, Me Johnson, over their infant milk formulas. That's one of the lawsuits in a whole host of them. So it's cleared, positive, but a lot to get through both for Reckit and for one of their rival companies as well. So it's only slightly ticking into the green as a result of that. Now, next, we're looking at Reckit Group over in Germany. Shares up over 2%. So into the green, another positive move for them. That's after they've just bought a UK defence firm called David Brown, giving them more access to the naval sector. Of course, this adds to the spending of defence and Reckit Group. Already, their shares have tripled since their IPO in 2024. So a bit of positive news for them. And then finally, ending on Crane Ware. Let's take a look and see how their shares are doing. Down, slumping over 21%, previously halted this morning, and now down over into the red. That's despite seeing, sorry, that is assessing their full year earnings below expectations. So really weighing
[01:02:26] Speaker 1: on that stock here in the UK. Louise, thank you. Louise Moon with those stocks on the move. Coming up, private credit in focus. Managers are locking up investor cash as they face another wave of redemption requests. We'll have more next. This is Bloomberg. Welcome back. This is the opening trade. We've got some data out of Spain. Our first chance to look at the Spanish PMI numbers for the month of June, and they've come in really strong. So if you look at the composite number, 53.3, that's well into expansion territory. The services number, even more so, 54.2. And they're both well above the survey, which were both was around the 50 mark or 51 mark. So strength in Spain. Let's bring in Yana Randall, who reports on economics and the ECB from Frankfurt. She's back from Cintra. She's been all over the European growth story, the European monetary policy story. And so I'm interested in how this Spanish PMI story fits into all of that then, Yana. I mean, Spain has not been the epicenter of concern around the European growth story with the war in the Middle East. So maybe that's also important context, but there's some strength coming through in at least one
[01:03:47] Speaker 12: part of the eurozone great story. Yeah, it's quite impressive, actually. I didn't expect that to happen this morning. Now, Spain, of course, is in a way the poster child of the eurozone economy, has been for a very long time recording solid growth while while Germany and France and the likes are really struggling. And we're seeing that at full force this morning with these with these PMI figures. Partially, of course, because Spain has has strong fundamentals, but also because of the changes we've seen in peace negotiations between Iran and the U.S. We've seen that in other data as well. A lot of hope, a lot of confidence that things are turning, things are improving. We saw some upward revisions to manufacturing figures in France and Germany earlier this week. Suggests that firms are, you know, confident that that the outlook is improving. We've seen EFO climbing. Of course, that's the the main German business confidence indicator. So overall, you know, the president, ECB president Christine Lagarde said that as well. And since since you mentioned it, that risks to growth to inflation have become more balanced since since policymakers last met to to raise interest rates, as a matter of fact. So things are things are looking, you know, in the right direction, even though we, of course, a lot remains in the unknown. And and it's far from, you know, stories far from over. Yes, Jana. And as you talk about the ECB,
[01:05:19] Speaker 2: which, of course, you know, intimately, Christine Lagarde maybe uses this. Maybe she leans on this data to reinforce the case that that that that hike that they made earlier this year was was the right decision. She's been driving home that message again. And maybe the data, arguably the data of
[01:05:33] Speaker 12: today's cup supports that view. Yeah, I mean, it's it's tough when when you as as an ECB raise interest rates and then data falls in, you know, in the right direction and seems to suggest that inflation is coming down, growth is strengthening and the you know, the scare may not have been so so great. And they're cautioning against that, of course, saying, yes, we we are seeing positive signs. But equally, you know, a lot of damage has been done and it'll take time for businesses, for consumers to adjust to what happened, to digest what happened. And of course, we don't know if if the truce holds, what happens if the Strait of Hormuz, you know, key passageway for oil and gas shipments, if that stays open. So a lot of uncertainty still, despite all the all the positive signals. So yes, the rate hike in June was was solid, was robust, as policymakers like to say. And and I don't think they've all, you know, given up on further action. Also, July looks unlikely. That's only three weeks away now. But September is very much in the cards. We spoke to a lot of policy makers in Cintra over the past days. And it seems they they are far from, you know, sounding the all clear. They have their eyes on inflation. It's still above three above the two percent target. So for now, it looks like more will even come from the ECB later this year. Okay, September is still very much live then for the
[01:07:06] Speaker 2: ECB. Yana Randall in Frankfurt with the reaction, the context around the data and how to think about what we've been hearing from Christine Lagardeana. Thank you. Meanwhile, private credit funds are facing a relentless wave of investor withdrawal requests, forcing managers to trap over 14 and a half one for 14 and a half billion dollars of capital to protect their portfolios. For more, let's bring in Bloomberg's senior reporter, Celis Brown, who covers this for us. So managers locking up more funds, redemption requests increasing. What is the state of play right now? And how concerning is it for the private credit space? Yeah, I mean, we're in the second wave
[01:07:38] Speaker 13: of redemption requests first started in the first quarter. And you're seeing, I think basically what you're seeing, my take of it is the funds that benefited most from the retail explosion over the past few years are the ones that are now suffering the most. And so the likes of Aries and Apollo and Blue Owl, who've really kind of pioneered retail, bringing retail investors into the private markets, are the ones that are now having to kind of shut the doors and institute caps. So it's kind of an interesting moment. I mean, I don't think this is going to end soon. I mean, I think we will see, I mean, certainly people think that they will see successive quarters as they just try to kind of calm the
[01:08:18] Speaker 1: nerves of the jittery retail investors. And Silas, how do we judge success here for these credit funds? Is it just capping redemptions and holding the line? Or is it not actually receiving that many redemptions? So you don't have to impose the cap, you don't have to reinforce the cap? What
[01:08:36] Speaker 13: does success look like in these credit funds? Well, I think it's quite impressive when they don't have to do the cap. And there's been a few, I mean, so Goldman and Oaktree have been outliers in terms of actually saying their redemptions fall in this quarter. And I think for the industry, as long as the performance remains relatively robust, which it has so far, I think this is more of a kind of technical issue with retail investing. If the performance starts to drag and you see more credit blow ups and kind of more stress in the industry, that's when I think it becomes much more of an
[01:09:05] Speaker 2: issue. Okay, so it's the quality of those underlying assets and whether or not that becomes an issue. What you talked about the retail investor and how that different funds are affected differently because they've sold a lot of these products to the retail investor and successfully. Do you think, do you think on the back of all of this, after these next few quarters that maybe we saw, see more requests, at the end of all of this, we get a rewired private credit, private credit space that has maybe less, less exposure to retail? Yeah, because I think, I think, I think,
[01:09:34] Speaker 13: what I said at the start about the funds that benefited most from the retail boom are now the ones that are suffering. I think to dig into that, you know, people think of retail investors as just one kind of one sort of single composite thing. Yeah. And actually what we've noticed that there are some that are very flighty and some that have kind of stayed the distance. And I think as we analyze this as the dust settles, we'll notice that like, there's a kind of hot money area of retail that I think people pushed into through, through RAAs and through, you know, I mean, and RAA being a, I don't know the acronym, but they're these like registered investors that go out and kind of sell products to sell products to kind of high net worth and mass affluent people. And I think, I think to the extent that that was a kind of aggressive sales pitch over the last three or four years, that really helped grow the assets in the industry. And I think that's kind of, that's where the, that's where the, that's where the kind of pressure, pressure valve is. Yeah. So that might be where, yeah,
[01:10:32] Speaker 1: as you say, where the pressure builds, what about the pressure? You said it depends on the underlying assets. So what's the latest signal we're getting then Silas as to whether the underlying assets are doing okay? I mean, credit spreads for, uh, for listed credit seem to be pretty tight still. And we had a moment of worrying about higher interest rates, but this week that's slightly being pushed out, slightly fading. What are the underlying assets then look like? Famously, there's a lot of software in these baskets.
[01:10:57] Speaker 13: Yeah. So in, in terms of, in terms of like new deals, frustratingly for the industry, the leveraged loan market and the high yield bond market, the institutional traded debt markets are very strong at the moment. They're very tight. So a lot of, if there's any MNA happening, a lot of it is flowing through to the kind of traditional forms of leveraged debt. So that's frustrating. Number two, yes, there's a, there is a, a kind of relatively high degree of concentration in software. And, uh, you know, what, what, what's tricky, I think for fund managers is the, the software industry remains relatively robust in terms of earnings growth, but there's just this nagging feeling, which I think is backed up by certain, you know, uh, uh, yeah, certain evidence to suggest that there will be some value destruction there, but that takes quite a long time to play out. It does take time. And it's a
[01:11:44] Speaker 1: conversation, no doubt that is still, uh, to be continued then. Silas, thank you very much. Blinbeck, Silas Brown with the latest on private credit markets. Uh, we will talk about this and other themes with Piers Hilliard, Jupiter Asset Management CIO, joins us to discuss his outlook for markets in the second half of the year. We'll get to that next. This is Blinbeck. This is the opening trade 30 minutes into Friday session. We are without our friends in the United States as they celebrate, uh, 250 years. And so this is the European equity market picture. It doesn't look too bad. Actually, the U S session, uh, was kind of two different stories in one overall risk sentiment was buoyed by the weakness of the non-farm payrolls report and pushed out expectations of a Fed hike. But we still saw some concern around tech stocks and semiconductors in particular. Uh, then into the Asia session, that kind of turned around. We saw some positivity around tech stocks. So all of that adding up to some positivity for European equity markets. And interesting to think where we've been this week, Tom, uh, we started this week, possibly more convinced we'd get imminent Fed rate hikes than we end the week. So maybe that is positive for risk assets.
[01:13:04] Speaker 2: That could be another catalyst as we look at European stocks building on the record gains of yesterday. Volumes are down, likely tied to that U S holiday, of course, currently down at 25% versus the 20 day average. So that's the volumes picture. The breakdown then across the benchmark stock 600 is this. You are seeing the majority of members in positive territory so far in the Friday session. 419 gaining so far, 163 in negative territory. Let's flip the board and have a look at some of the leaders then. Interesting in the shipping space as we think about the trade dynamics that are coming through, but also the straightforward moves. Mursk getting an upgrade from Goldman Sachs. And so that stock is posting a very strong session so far up 3.5% from Mullen Mursk. Abivax, this stock is up about 50%, up about 50% this week. They came out with a new drug at the beginning of this week. And so that momentum, the optimism around that stock continues in the session today. Gains of almost 5%. Infineon linked to the revival, at least for now in the tech trade. And you're seeing that strongly, of course, in the Asian session, or you have seen that strongly in the Asian session, adding to upside, up 1.2% for Infineon, the Germany listed company, of course. Let's flip the board and have a look at what's happening on the downside. You've got some defense names, you've got some software names, and you've got some caution around alternative asset managers. Craneware, software exposure to the US healthcare space, and that is being hammered, currently down 23, more than 23%. That's on an earnings story. Ryan Mattel detailing the hits coming through from the contract cancellation by the German government around that potential build-out of Navy ships. We know that's not happening anymore, and they've quantified the cost. That stock is down 1.7% on the back of that news. And then EQT, with a warning around, and from one of the analysts around these alternative asset managers, and downgrading their view on EQT. So that stock is currently down 1.3%, Anna. Tom, let's get an update on some of the other stories
[01:14:53] Speaker 1: we're covering this morning. Bloomberg understands that US President Donald Trump and his allies are renewing a push to reshape the Federal Reserve. Top officials have been actively exploring ways to remove Fed governors to clear the way for the president's own picks. The Supreme Court recently blocked an attempt to fire Governor Lisa Cook, of course, but she remains, according to our reporting, a target. Some leading European powers now accept that ships transiting the Strait of Hormuz will have to pay fees to Iran and Oman. According to Bloomberg reporting, the prospect of some sort of service fee is now, quote, "a given." The US and Gulf Arab countries, meanwhile, continue to insist that Iran and Oman cannot impose charges of any kind for the use of the Strait of Hormuz. And Anthropic is reportedly in talks with Samsung to be a manufacturing partner for a custom artificial intelligence chip. According to reports in the information, the company's plans are at an early stage. The news comes as AI companies aim to diversify their supplies of chips to meet surging demand for
[01:15:56] Speaker 2: their services. Tom? Well, we closed out the first half of the year this week, and despite the geopolitical pressures, equity markets around the world rocketed higher. We spoke to guests this week about where
[01:16:06] Speaker 14: they see performance going from here. Volatility is still there and uncertainty is still there. And in this environment, for me, it makes sense to be quite nimble and also not to take big bets either way, but when the market throws you opportunities. As long as the earnings continue to be good
[01:16:26] Speaker 15: and to broaden out, I think we'll get continued gains through the second half. It's still good to be exposed
[01:16:32] Speaker 16: to tech about at the market weight of tech and to look maybe to give more emphasis to other sectors. We are looking for a little bit of a broadening here. We can talk about the AI losers, but actually
[01:16:47] Speaker 17: beyond that, there's lots of sectors, whether it be things like healthcare, whether it be things like staples, which are trading at sort of valuations you haven't seen for very long time. So, you know, at this point, if you get a little bit of that momentum coming out of those tech stocks, is there a lot of value elsewhere? And I think there probably is. Even though valuations are stretched,
[01:17:03] Speaker 18: even if you take out of the worst case scenarios, this rally could still have another year to run
[01:17:07] Speaker 19: before you then saw a turnover. The second half of the year could mark a positive momentum for Europe. Now, I think we have to keep in mind if we look a bit further down the line that we're going to move into 2027. And at some point, people will start worrying about French election and other political issues potentially in Europe. So I think it's going to be a short trading window for Europe.
[01:17:33] Speaker 2: Well, here to give us his perspective is Piers Hillier, CIO at Jupiter Asset Management. Piers, good morning. Happy Friday. Further upside for global stocks?
[01:17:41] Speaker 20: I think so. And I think the important thing, quite a few of those guests really commented on is in some ways a rotation into some of the other sectors. So we've kind of been led in the first half of this year, partly sort of hyperscalers to start with. And then as the capex piece starts to get deployed, the beneficiaries of that capex effectively have rallied very sharply in Q2. I think, you know, in coming in to talk to you this morning, there's a degree of caution from our perspective in terms of running ahead of themselves. So the logic there, the earnings revisions and everything else justified that. And even you see a slight nominal de-rating. I think our perspective from here is actually, you know, we see the second order effect feeding through into markets. Valuations beyond that cluster actually still look relatively attractive. And particularly sort of outside of the U.S., global valuations remain attractive. Because we've seen that rotation story kind of rear its
[01:18:26] Speaker 2: head and then it gets pulled back in again. But you're convinced that that rotation theme
[01:18:30] Speaker 20: continues and broadens out and becomes, gains more traction in the second half? Yeah. My observation really is ultimately markets will respond to earnings and earnings revisions. The resolution, whether we have a resolution in the Gulf or not, is an interesting topic. But you clearly see sectors responding to that and what's happening in terms of trade is starting to improve. I think the interesting thing about your point on the levy there in the Gulf, if that actually does happen, to me, actually get a capex pull through. So most people didn't know anything about the East-West pipeline in Saudi Arabia until this happened. And then they suddenly realized it wasn't really being utilized because it made no sense to do that. You could ship it. It was much easier. If levies are going to start to happen, one, I think that's a real political loser for Trump. Because what was the point of going to do this? The second thing is that actually, are we going to see a growth in capex where people are going to try and mitigate that risk? You've got sort of indications of Canadian capex in terms of building an oil pipeline out to Vancouver to support China. You're going to see more use through Panama, Venezuela coming on board. So in some ways, I think the Iranians and the Omanis need to think quite carefully about how much of a levy do you want to apply? We know that tariffs essentially had a big knock on effect when Trump announced them before. And my sense is that actually a degree of caution in terms of where that goes, because, you know, economics 101, if the cost of supply over here is more expensive, I'll find supply over here. You know, demand is the
[01:19:50] Speaker 1: key moderate moderator. Okay. And that will be interesting if there is a sort of stickiness to prices for energy as a result of more tariffs or taxes or whatever they end up thinking about. That would be interesting for Europe, certainly. Yeah. Thinking about the US and how the growth story plays out there then, Piers. It's been interesting because, yes, it was the hyperscalers, then it was some of the semis. And that's a more global story, isn't it? The memory companies, more global than just a US story. Yeah. Although the US set to benefit from the AI rollout, I guess. Where does all of that leave small caps, more pinned to the real US economy, I suppose? Yeah, I think it's a really good question,
[01:20:24] Speaker 20: because we've been so obsessed in some ways by that part. And markets always tend to respond to earnings. That's a pretty good driver. I always want to just make sure that cash flow is actually following earnings. That's sort of the reality check. And that's certainly been true in small caps. And I think most people have missed, actually, small caps have been outperforming the larger parts of the market now for almost a year. And it's kind of gone unnoticed. You very kindly built this chart for me this morning. But I thought it was just interesting to highlight. And what is this telling you? Essentially, small caps is a macro trade. It's really a reflection of your your expectations around interest rates. So it started underperforming in 2021 as interest rates started to go up globally, started to inflect as we felt we reached the peak in rates, had a few wobbles in Q1 with the Iran intervention. But actually, the underlying fundamentals are there. And you know, we have a really interesting global smaller companies ETF, where we're excited about the
[01:21:17] Speaker 1: opportunity set in that part of the market. And does the AI story, when it starts to filter into those smaller companies? Does that is that something to be excited about from a from a, well, you say it's all about earnings. So from an earnings perspective? Yeah, and I think we talked about sort of Europe
[01:21:30] Speaker 20: relative to the rest of the world, you saw a little bit of it in q1, which is the benefit, the second order beneficiaries of that capex story starting to play through companies you wouldn't actually thought of like, you know, prism in a sort of, you know, cable provider, a lot of the infrastructure supporters to the build out of data centers, you saw on a bid for Segro in the UK, with Prologis looking potentially to come in and try and deal with that marketplace. And I think, you know, it's interesting talking to, you know, sort of chemicals analysts in the beneficiary, the pull through in terms of how do we see further innovation into the chip space. There are a lot of chemical leaders in Europe that potentially beneficiaries of that as well.
[01:22:03] Speaker 2: I just want to be clear on the hyperscaler story then, because that underperformance has been there, at least in the last in the last month or so, around that theme that they're spending, and it's the picks and shovels that they gain, and some of those other component makers that see the upside. Does that continue, or do hyperscalers look attractive to you right now? Because the drop has been there, and year to date for some of these names, and double digits for some of the big names in the hyperscaler space. Yeah. There comes a point, maybe,
[01:22:28] Speaker 20: when that starts to look attractive for some. That's the classic thing, isn't it, is really just understand what that order effect is. I suppose if I go back and everyone talks about bubbles, and ultimately you only know when you've had a bubble is when you passed it. So for me, what I really look at, what's changed in some ways, and we've been long-term actually investors into the hyperscalers as actually, you know, capital light businesses, highly cash generative and disciplined. The big delta really in the last 18 months has been that switch essentially from effectively cash generative to cash consumptive. So the first order effect was effectively raising debt. You're now starting to see them coming to raise equity. And if you remind yourself, that's kind of the profile we went in 1999-2000 as the transition from cash generation to cash consumption. And at some point, the cost of capital starts to catch up. And I think for me, that's the one, if I put up sort of what's a warning light out for the second half of the year, is that if inflation remains high, and there's a real push and pull in that space at the moment, you've got PMI stronger in Europe today, but you had actually jobs weaker in the US. But there's a lot of refi risk to come through, starting really in the second half of this year, feeding over the next two to three years, as those who really refied back in 2021, and corporate IG and crossover, tends to be five to seven year in tenor, we're walking into that refi war. So I sent you through a piece around the private credit side of things to some of the companies in the US, why are they underperforming? It's not just a software story, it's going to be a refi story in the second half of the year. So if rates start to come down, then actually some of that pressure comes off, and you can see those bounce. But fundamentally for me, it's that transition from super low rates, which we hadn't seen transmit as much, you didn't see in the US, because essentially mortgage rates are fixed, the 30-year term structure, so there's no pressure there. But if you look at the shorter dated financing, so auto loans, credit cards, etc., student debt, they're all accelerating in terms of default risk now. So if rates come off in the second half of the year, and that's going to be really important to watch wars from here, if that doesn't happen, we do have that pressure that comes through. So you've got the chart up there, which highlights the underperformance of the likes of KKR, the likes of Apollo and Aries, who have been beneficiaries of that carry trade, and that's unwinding. It's not just a gating thing, that's really important too, but ultimately the second half is really watch what happens with that refi risk.
[01:24:49] Speaker 1: So it's not just gating and the private credit, it's also wider, it's about refinancing risk, because you point out as rates might or might not go higher. Let me ask you about UK assets, and are UK assets on alert? I mean, I suppose European assets might be on alert for politics in 2027, but the UK dimension to that, is it gilts that are on alert? Is it things that could be taxed that are on alert? We just heard last night from Andy Byrne talking about the possibility of taxing warehouse companies. What's in focus for you when it comes to UK assets?
[01:25:21] Speaker 20: Look, I mean, it's a fantastic question. So the gilt market really is trying to work out, and it depends on who becomes the next chancellor in terms of where we see the evolution from here. So your bid at the front end, in some ways the gilt curve, there's a nice pull through there in terms of where we are, but the long end is totally unloved. DB pension schemes essentially are no longer really buyers of the long end. Do you think rightly unloved? Well, yeah, but the reality is when you're uncertain, you think of some of the capex or at least the investment decisions that are being made on behalf of us, the reality is that most of those are not converting into actual real growth or productivity. I think the market will wake up to that. So a real incentive to grow as part of a new industrial structure and a strategy really would actually, I think, help markets backdrop from here. But actually, you know, I sort of when I joked on the way in a sort of, you know, letter to Mr. Burnham, dear Mr. Burnham, actually, you can help yourself. The UK, if you take this to G7, is the smallest investor in its own domestic market to any other of the G7 members by a huge distance. The US has over 60 percent of its assets in its domestic markets. Australia, almost 40 percent. We are less than three. Well, and this is something that the
[01:26:29] Speaker 1: Labour government has been trying to fix already, isn't it? Yeah, but the rest of the world thinks
[01:26:33] Speaker 20: the UK is cheap because you think about the number of bids we've had for UK companies. I mean, our market shrinks essentially because the rest of the world thinks we're great value. We talked about Segre earlier, Prologis bidding for that. You've had Tate and Lyle, you know, Nuveen bought Schroder's. I won't go on, but it just makes a point that actually the world thinks the UK market's cheap. Private markets think the public market of the UK is cheap. If the government puts some form of health, and it's incentives that markets respond to, and not sticks, telling us to invest in the UK is not the answer. Incentivise us to invest in the UK and we will come. Okay, something tells me they
[01:27:04] Speaker 1: might be listening. Looking for ideas at least. I hope so. Piers, thank you very much. Piers Hillier, CIO of Jupiter Asset Management with his letter to Mr. Burnham coming up on the programme. We'll stick with the UK theme, in fact. I wonder whether Mr. Burnham is going to be watching the football very late on Sunday, early Monday morning. Pubs will be able to stay open well into the early hours for England's World Cup match against Mexico. We will get more next. This is Blinkbeck.
[01:27:48] Speaker 2: Welcome back to the opening trade. Happy Friday. We are 48 minutes into today's session. You're seeing some modest gains coming through for European stocks, up around three-tenths of a percent, but that is in the context of record highs for European stocks yesterday and outperforming the S&P 500 year-to-date right now. That is the picture across European stocks. The cap current is currently flat. The DAX putting in a slightly better performance, up four-tenths of a percent. And here in the UK, the FTSE 100 at 10,663, adding 20 points. Let's start on stocks then. In our next conversation,
[01:28:16] Speaker 1: Bloomberg Markets Live strategist Adam Linton joins us to think about where we are on these global investment themes then, Adam, as we go into this weekend. European stocks enjoying a moment in the sun, you say. This is rotation. Rotation means lots of different things to different people, doesn't it? Yeah. But does it mean everybody buying healthcare? And is that good for Europe?
[01:28:36] Speaker 21: Yeah. So I think kind of what we've seen, we've kind of seen a reversal of the, you know, the Iran conflict pattern, whereby US was leading, had Asia, that's positive, Europe negative. And then since, you know, early June, we've seen a reversal of that. So Europe's now lead the way. We've got, you know, lower for US equities and Asian equities. And, you know, obviously, bounce back from Europe, it was hit most by the conflict. But then also tech is a key differentiator here. So much lower gearing towards Europe in tech. And if you look at the rally under the hood for Europe, in the initial stages of this leg higher since about June 11th ish, you know, it's relatively narrow at the start. It's mainly just financials and industrials driving things. But now what we're kind of seeing is increased breadth. So we're seeing eight of the 11 GIC sectors contributing. We've seen a turnaround for consumer staples and healthcare. And, you know, European stocks continue to punch out record highs. And what's going to be a really key month for tech going forward is a key differentiator for Europe. Okay. And the energy price story is a factor,
[01:29:31] Speaker 2: as you say, and the rate story as well. I mean, Christine Nagard saying that the decision to hike earlier this year was not was not a mistake. We were hearing from our colleagues in Frankfurt saying that the ECB, you know, it's probably still could still be live for September. So again, my question is, does the rate story continue to benefit European stocks? Or if they hike again, is that a headwind? Or do European equities look through that? I think they'll probably look
[01:29:54] Speaker 21: through it. Because I think, you know, my view on rates is we're probably in for a little spell of sideways trade at the moment. You know, we've kind of seen obviously the ECB tighten policy, but we've kind of seen from them as well, is that they're leaving this one hike potentially on the table. I think the dovish remarks from the guards were speaking off scripts a little bit. And the market's still clinging on to disbelief. We could see a hike at some point from the ECB and the BOE, rightly or wrongly. And I think that'll take probably quite a while to unwind. So, you know, I think for European yields, if you look at the German two-year yield, it's about 2.5%. We've probably got a bit of a flaw into that now, unless anything big happens in the US. But at the same time, it doesn't really appear to be much of an upward bias unless anything dramatic happens between US and Iran. But I think the market's really discounting that at this point. Okay. Adam,
[01:30:36] Speaker 2: thank you very much indeed. Adam Linton with a take there on how to think about the record rally for European stocks and the rates environment. Here's what else to think about for this weekend, though, Wimbledon continues, of course. So all the tennis action in southwest London. We keep across that, of course. Or you should be keeping across that. The World Cup, of course, the knockout stages. We're building up here, at least with our bias, to England versus Mexico on Monday. But lots of great action, including from France over the weekend. It's the 4th of July, of course, in the US. Happy 205th. And this is one that no one wants to miss. Taylor Swift's wedding. It's going to cause some congestion in New York. So that's happening this weekend. I think Anna Edwards got a ticket.
[01:31:17] Speaker 1: Well, maybe. I mean, point of order, I should just say happy 250th, not 250. Did I say 205th? It's not 45. Yeah, you knocked a good half century of their age. Thank you. Yes. I thought it was a public holiday for Taylor Swift's wedding. Apparently, that's not the case. It's July 4th. But it isn't July 4th. That's tomorrow. It's actually Friday, the 3rd of July. But there's a lot of football ahead, a lot of sports ahead, but a lot of football. Speaking of football, the UK Prime Minister, Sir Keir Starmer says the pubs will be able to stay open for the England World Cup match, taking place at 1am at UK time on Monday. Yes, 1am. He made this announcement in a post on X.
[01:31:52] Speaker 22: We're making sure that pubs can stay open on Monday morning, early on Monday morning for the England game. So I know lots of people are making their plans. If you're planning to watch it in the pub, that is great, and it's really good for pubs as well. So come on, England.
[01:32:11] Speaker 1: This message for the nation. Sam Unstead is with us, co-editor of our Markets Today blog. He's trying to go out as Mr. Fun, it seems, isn't he? I mean, this is going to be good news for pubs, I suppose, to take the Bloomberg good for business line. Which business is it good for? It's going to be
[01:32:28] Speaker 23: good for pubs, even on a Sunday night. Yeah, it will be good for pubs. No question about that. You know, this is obviously not a time of day. They're not only allowed to sell to you and quite literally extending their opening hours by four or five hours at least. So yes, it is good. We have though, we went back as the World Cup was starting on the Markets Today blog into, you know, how much of a boost do pubs actually get from major tournaments? And obviously, it's a bit dependent on the timing. In this case, you know, as you mentioned, it's going to be 1:00 a.m. because it's being held, you know, in the Americas. When they're in Europe, there is more of a boost because the timings match up much more, much more clearly. But actually, it tends to be very short term. You know, it's a very quick boost. It also depends a little bit on whether England win and continue going on. The further they go, the better it is for pubs. But generally, this is a pretty fleeting boost for the pub sector. But even so, it's a pub sector that's been beaten down quite a bit. So yeah, well, that helped.
[01:33:19] Speaker 2: Win or loss, Anna's concerned about productivity. On Monday. On Monday. Yeah.
[01:33:25] Speaker 23: Is that a real? Yeah. Is that a real concern? No, it is. It is. You do see, again, like either very fleeting, but you do see little patterns, you know, in the economic data where you get a little bit of a loss of productivity either way, you know, whether that doesn't really matter what hours it's in either because very, very often. Are you going to get up at 1:00 a.m. to watch the game, Sam? Well, look, Tom, I mean, I'm off next week, so I am considering the logistics of how I would do that. You've got no excuse, really.
[01:33:54] Speaker 1: That's it. Everyone is considering, aren't they? Let's see which side of this fence everyone falls down. We, I don't know where, Keir Starmer's excited about people going to the pubs. Don't know where Andy Burnham's going to be watching the game. But thinking about Andy Burnham and what he means for the UK economy, we haven't heard much about his key appointments, but we've heard a bit about where there might be some wiggle room on tax. Yeah. So, yeah, I'm here to take the fun out of this conversation, Kayleigh, because I've been talking about productivity on Monday and now talking about this. But, I mean, is this, is this a story that is attaching itself to UK assets just yet?
[01:34:26] Speaker 23: Well, to an extent, so Andy Burnham has floated this idea about around business rates. Now, business rates have been sort of pilloried by the bricks and mortar community here for 15 years.
[01:34:35] Speaker 1: And by every government, they talk about how they'll reform them.
[01:34:37] Speaker 23: Yep. And they did, they did begin doing that in the 2024 budget. Nothing has really come of that as yet. And obviously now we have a change of government. So, you know, we'll see what happens there. But this is, you know, reforming business rates or cutting business rates for pubs and high streets and then taxing more on warehouses, particularly sort of mentioning logistics warehouses. But it kind of illustrates the trade-off that has to happen here because he's also, you know, when you're talking about warehouses, logistics warehouses are not really the ones being built now, it's data sensors. And so if that's going to happen, if there's going to be a change in the way that those are treated, you know, beyond the business rates environment, it sort of raises this question of, you know, the investability is when you've got this huge amount of AI money coming in. That's not, but it's worth mentioning, he's not the prime minister yet. And these things are all very much speculation. So at the moment, we don't quite know, but it does just illustrate how much you're going to have to take from one place. It's an important capital. Sam, Sam Alstead,
[01:35:27] Speaker 2: co-editor of our Markets Today blog. Keeping us honest on Friday. Enjoy your weekend and your week off as well. No doubt Taylor Swift, part of your weekend plans. That's where he's going. We missed that, didn't we? He did get the invite. We're heading into the weekend, of course. If you hadn't noticed, be sure to catch up on the Bloomberg Weekend Newsletter. We bring you a collection of interviews, ideas and stories that explore the fascinating places where finance, life and culture meet.
[01:35:50] Speaker 1: The Taylor Swift wedding, perhaps. That is it for the opening trade. The Pulse is up next. I'll be here with the Pulse from London. Francine is in Aix-en-Provence, so she'll be bringing us some key interviews there as well. This is Blue Bag.