About this transcript: This is a full AI-generated transcript of Trump Plans Hormuz Charge, Stocks Steady Before Warsh & CPI — The Opening Trade 7/14/2026 from Bloomberg Television, published July 15, 2026. The transcript contains 18,417 words with timestamps and was generated using Whisper AI.
"Good morning. It is Tuesday, July the 14th. Here's what's on the agenda. Oil hits $85. As Trump says, a U.S. blockade of Iranian ships is back. Rate hike bets ramp up on renewed inflation fears, while the chip stock volatility remains. And Japanese bonds rally as the government touts support. Tom,..."
[00:00:00] Speaker 1: Good morning. It is Tuesday, July the 14th. Here's what's on the agenda. Oil hits $85. As Trump says, a U.S. blockade of Iranian ships is back. Rate hike bets ramp up on renewed inflation fears, while the chip stock volatility remains. And Japanese bonds rally as the
[00:00:19] Speaker 2: government touts support. Tom, you mentioned Brent at $85, and we're just pulling away from that a little bit. We absolutely hit that overnight, and that has weighed on risk sentiment. The run-up in oil prices yesterday certainly weighed on risk sentiment. But as we hit $85, we pulled back a little bit. We're at $84.48, and that seems to have changed the dynamic just a little bit. We've seen European futures look more positive, U.S. futures certainly look more positive, and the Asian session, MSCI Asia-Pacific, ticked up into positive territory and remains there. So to some extent, the European futures picture is telling yesterday's story. Yesterday in the U.S., we closed around session lows, and so as a result, we have to move lower at the start of trade, but down 0.3%. How long will that be sustained? Will we tick up if that oil price continues to move away from the highest levels that we've seen? The Japanese 30-year yield, we put this in here because there's a really interesting conversation developing in Japan as to whether the government is going to change policy around savings accounts and pension funds to try and push people more, incentivize people more into the Japanese bond market. We'll get to that shortly. The countdown to the opening trade starts right now.
[00:01:23] Speaker 1: So has the paradigm shifted on Iran? Has the paradigm shifted back to what we saw at the start of this conflict? We do not have a full-blown war between the two sides right now, but military attacks continue on both sides. The U.S. and Iran exchanges military blows, and this blockade is now going to be back in force, the U.S. says. Today, President Trump also saying he wants to charge 20 percent on ships traveling through the Strait of Hormuz to compensate for the U.S. naval assets in place and aiding some of those movements. For now, it seems there is very little traffic going through the Strait of Hormuz, but the Strait, in terms of the blockade, is back and Brenton oil prices up a little over 10 percent in
[00:02:18] Speaker 2: the last two days. Yeah, absolutely. So I was emphasizing the pullback from 85. That was really because at the moment, in the moment, that's what's dictating risk appetite in the Asia session. But really, yes, the big story over the last 24 hours has been that big move higher in the oil price. And it seems to be that application of a 20 percent or the suggestion that President Trump will impose a 20 percent fee for doing this toll for navigating the Strait of Hormuz for these vessels or to keeping them safe or for something. And that seems to be the thing that really shocked the markets. It blindsided the industry, according to our reporting. And that 20 percent fee would be some 16 times what the Iranians have been charging. The Iranians seem quite happy to see the U.S. talking about a toll, talking about a fee, but suggesting, oh, we would charge a whole lot less than this. So you've got both sides trying to project themselves across the Strait of Hormuz, trying to take control of that shipping channel and impose themselves in that way. So we're watching what happens with oil prices. The U.S. plans then also talking about a blockade of Iranian shipping. And that's another thing that pushed the oil
[00:03:21] Speaker 1: price higher in yesterday's. Natural gas prices in Europe, European natural gas prices have spiked as well. So we'll continue to monitor that. On some calculations then, to your point around the fee and the toll, $2 million is approximately what the Iranians have been charging on and off to some of the ships. On some calculations cited by Bloomberg, you could be talking if that 20 percent is imposed. And there's lots of question marks over how you'd actually implement that. If that 20 percent is imposed, it could be accounting for about $30 million per vessel, depending, of course, on how much oil is being carried. So we're watching European natural gas prices as well. Brent, up. And so that ties us into the inflation story. Interestingly, China, we know that China has played the central role in actually keeping a cap on global oil prices by radically reducing their imports of oil. We had a reminder of that today with data, export and import data out of China. The imports of crude to China in June falling by 41 percent. So China is going to be absolutely critical going forward in terms of what happens with
[00:04:18] Speaker 2: this oil price and the inflation story. Absolutely. We will continue to watch that. Let's talk about what's going on on the inflation story then in the U.S. and Fed expectations as a result of that. We're looking ahead to Kevin Walsh. He'll be on Capitol Hill. We are looking ahead to CPI data out of the U.S. That will be something that the market is watching for. And we are seeing in the run up to those, reflecting the higher oil price, increasing bets on a July rate hike. We see that in interest rate options. We also see that in the short end of the Treasury curve. So markets of all kinds seem to be adjusting to the idea, at least temporarily, at least as we saw oil prices spike up towards $85, and that this was going to be something that would reignite the inflation debate. Does that make then the July meeting more live? Yesterday, I was sitting here about this time suggesting that maybe July wasn't live. We had a 25 percent chance of a hike. Now that looks like a 50 percent chance of a hike. And some people are talking about this now being a live meeting.
[00:05:07] Speaker 1: July is now seen as live, to your point. Interesting to hear from Chris Waller overnight as well of the Fed, of course, previously sounding pretty dovish. But yesterday saying, and I quote, if we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term. More than 40 basis points now of hikes priced in by the markets for the Fed. The ECB as well. Also, traders now fully pricing, fully pricing another hike in September. More than 40 basis points priced for the ECB by the end of this year. We're also, of course, thinking about what's happening in the chip space. I mean, again, the volatility back. SK Hynix, their ADIs, of course, in the US, falling by about 9 percent yesterday. Almost back to those kind of IPO and listing levels on Friday. A bit of stability, it seems, in the cost speed today. Again,
[00:05:50] Speaker 2: but that volatility has been there. That volatility has been there. And where does it leave us now? We have this US ADR listing and we have a Korean listing. Do they, does this create stability or does this drive instability with some sort of feedback loop that we can't quite ever get on top of? So we're continuing to watch that. I'm looking ahead to all of those inflation related events later on today. Let us talk about Japan then, Tom, because we have an incredible picture developing, or at least it looks very different. The Japanese JGB's picture looks very different to what we're seeing in the rest of the world where we're busy factoring in higher oil prices and higher yields. And let's see
[00:06:24] Speaker 1: to what extent there is a read across from this significant rally that we're seeing in JGB's right now with yields down sharply and particularly on the 10s and 20s and towards the back end, the further back end as well, the 30s. So you're seeing yields drop between 7 and 18 basis points. So a significant rally in Japanese bonds. There was going to be an auction of 20-year debt that's been well received. And we've had, and this seems to be the catalyst, comments again from the Finance Minister of Japan suggesting two different measures in which the government could support, could support buying of JGB's. One through including them in savings, tax-free savings accounts that are available for Japanese citizens. And one is again looking, at least being open to considering the pension fund, that massive JPIF pension fund in Japan, potentially changing its framework. And even if it doesn't, on the current metrics and the current framework, at the upper end, it could still buy more JGB. So it seems that the Finance Minister is saying that these two factors are being considered.
[00:07:21] Speaker 2: Yeah, absolutely. And no decision yet. But these initiatives are moving forward, is the way that Katayama is talking about this, the Finance Minister, over in Japan. And we just showed what this looks like, what this is doing to the Japanese bond market. It is suggesting that there could be more buyers out there in the future. And that has shored up the bond market, as you said, and brought yields down. And that really does stand out as very different to what we've been seeing in the past 24 hours in other geographies. And interesting thinking about other geographies. You know, the European investment community, the UK government, plenty of other geographies often trying to think about how you incentivize more money to stay at home rather than see it all disappear off to the US or increasingly to Asia for some of these chip related and AI related investments. And so no doubt lots of people will be watching this with interest. Let us tell you what is coming up on the program in terms of the conversations we'll be having. Michael Brown will be with us, Franklin Templeton, global investment strategist. We will also speak to Maria Veitmana, State Street equity research head. How carefully do we need to think about whether there's more to play for in chip stocks? Or are we comfortable with loading up on tech stocks? She's been someone who's been very pro-tech in recent conversations. We'll also be speaking to Jim Zelta, Apollo global management president. The private credit story, really fascinating right now. We'll continue to get
[00:08:37] Speaker 1: Apollo's perspective on that. Okay. Here's what else we are going to be thinking about throughout the day. Today, US bank earnings get underway. Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Goldman Sachs all repausing. So a really big day for the US bank earnings story kicking things off later. At 3pm UK time, we will get, talking inflation, we'll get that US June CPI'd inflation print. At 3pm Fed Chair Kevin Walsh testifies before the House Financial Services Committee on the semi-annual monetary policy report. There'll be a lot of people tuning into that. And later on in the day, ECB President Christine Lagarde will be meeting with US Treasury Secretary Scott Besant in Washington. UK Chancellor Rachel Reeves and Bank of England Governor Andrew Bailey will deliver speeches at the City of London Corporation's financial and professional services dinner later as well. I believe that is likely to be Rachel Reeves, the Chancellor's last major public public speech in her current role.
[00:09:32] Speaker 2: And that is otherwise known as Mansion House. We should call it that, shouldn't we? That's what it's called, the Mansion House address. Yes. Let us talk about the bank earnings story then, Tom, because that is going to be really interesting. We mentioned this yesterday, five banks reporting all in one day, some of them with overlapping corporate calls, overlapping investor calls. So that's going to be complicated for everybody to navigate. What's going to be the big theme? Is it going to be high trading revenues? Is it going to be M&A that's in focus? Is it going to be net interest margins with expectations rising about higher interest
[00:10:01] Speaker 1: rates? I mean, all of those, I suppose. So deal activity topping two and a half, two and a half trillion dollars in valuation value, in transaction value in the first half. And that's on track to beat the 2021 record. So, on your point, a lot of deal activity. That should be positive for banks. And of course, the volatility that we're talking about again today around oil prices, around geopolitics, around inflation, around semiconductors and chips, all of that arguably potentially a benefit for these banks as well as they come through with these earnings. Absolutely. And that will be really
[00:10:34] Speaker 2: interesting because that will be evidence of the broadening of the AI theme, won't it? If we're seeing IPOs in the AI space and not so much M&A, but certainly IPOs and other lending activity for the AI sector, that would be a really interesting dynamic around the banking sector and one to watch and linking it to the tech story. Coming up on the program then, we will look at your stocks to watch at the opening, including the Rolex reseller, watches of Switzerland. We've spoken to them on this program before. We'll discuss the company's earnings and reports in other media that it held talks over potential takeover offers. Plus, Wall Street banks are set to report near-record trading revenues when earnings start coming in later today. We'll break down those numbers. Up next, we'll be joined by Freya Beamish, Chief Economist at TS Lombard. What kind of investment climate are we in right now? She has some interesting views to add to that conversation. Please get in touch with us. IB Plus BB TV Go is the function to use to do just that. This is Bloomberg.
[00:11:40] Speaker 3: We're attacking them tonight. We're taking out all of their capability for anything having to do with the straight, with the hormone straight. And I think in the end, we will end up dis-controlling the whole thing.
[00:12:05] Speaker 2: President Trump, they're vowing U.S. control of the Strait of Hormuz. The U.S. president has reinstated the blockade of Iranian ships and demanded a 20% reimbursement for all other cargo shipped through the strait. Oil gained on these developments. Brent rebounding earlier today to its highest level in almost a month. It got over $85 a barrel. Let's bring in Bloomberg's Abir Abu Omar, who's in Dubai with all of the latest for us. What do we know about the strikes overnight? And I suppose, importantly, what we've heard from the U.S. president about his intentions?
[00:12:42] Speaker 4: Good morning, Anna. Well, a sense of deja vu in the region this morning. We're seeing these continuing tit-for-tat attacks by the United States, a third consecutive night of strikes by the United States on Iran, including some of the famous southern provinces in Iran. Iran striking back on the region as it had in the past couple of months or so hidden countries like Jordan, Kuwait. We reported some infrastructure damage there yesterday. Jordan cited some damage to some air bases there. But really, Anna, at the heart of all of this is now the Strait of Hormuz. We have talked about the concessions over the 14-clause MOU that was signed in Switzerland. But the Strait of Hormuz is very much back in focus now with President Trump talking about that 20 percent fee. Our teams have calculated that that would come up for about 30 million dollars or so per ship, per very large crude tanker with the current oil prices. So that's a very hefty fee for ships. That compares to about two million dollars from the Iranian side, according to our reporting as well, citing sources. And so both sides are now not backing down. The U.S. has reinstated this blockade against Iranian ports. Iran says that it will forever be the guardian of the Strait of Hormuz. Earlier in the day, we heard from the parliament in Iran saying that they've developed a mechanism to overlook the Strait of Hormuz. Unclarity there about what exactly that will ensue or how exactly that will legislate the movement of the ships in the Strait of Hormuz. But for the time being, it does look like both sides are adamant on this control over the Strait of Hormuz. It doesn't it doesn't. It's not really clear just exactly how that will take effect in real life, what the U.S. side, how the U.S. side will control it and how the Iranian side will control it. Now, this is all happening as we await for a confirmation on whether the technical call, the technical talks will continue. President Trump, in the sound that we just heard, it's not going to happen. President Trump, in the sound that we just heard towards the end of it, did say that the technical talks could continue. We don't have any time frame on whether that will happen or not. But this is all underpinned with traffic in the Strait of Hormuz. At a near standstill at the time being, Anna, we await more clarity on what ship owners decide to do with this new revelation from the morning and with Brent crude prices at around $85 a barrel. That's the highest level in about a month.
[00:15:02] Speaker 1: Okay. Bloomberg's Abir Abu Omar in Dubai with the latest out of the region. Abir, thank you. Let's bring in now Freya Beamish, Chief Economist at TS Lombard. Freya, good morning. Do you revise your inflation expectations on the back of the change that we've seen in the Middle East?
[00:15:27] Speaker 5: Not for next year, obviously, for sort of the shorter term. For me, the US inflation story has never actually been about this Strait of Hormuz shock. It's more about US domestic inflation that I think is sort of gradually warming up and sort of failing to come back down. I think the energy shock for us, the main sort of financial takeaway is that we're just not getting compensated in the fixed income space for these types of shocks. So we keep on seeing inflation being higher because we get lots of these little shocks now. Little is a sort of a strange word in this context. But I mean little in the sense that it's not big enough to tip the US economy into recession. It's not big enough to really spike inflation into a different regime where you get that kind of volatility that's sticky and stays for a long time. And is obvious from the perspective of sort of the 10 year that we're stuck in that sort of stagflation, stagflationary regime where the bond is not hedging for equities. But because we're in what we think of as a sort of a new macro regime, you keep on seeing the same types of shocks. And so on average, the inflation forecast is higher than people expect, but sort of for the wrong reasons.
[00:16:40] Speaker 1: And in that new macro regime that you've outlined and we'll get into that in more detail, you have suggested that the factors underpinning that will mean that yields have to rise higher from here. And that kind of ties into ties into your point. And what we're seeing today reinforces that point to some extent. Yields have to go higher. Is that where are we? I mean, we have seen the bond sell off and it's been pretty pronounced this week if we put Japan to one side, at least for today.
[00:17:08] Speaker 5: Where are we in that journey? Yeah, I think we're sort of part of the way there, but by no means fully priced. The 2010s was actually the abnormal period if you look at sort of the historical correlations. And we've had actually really over the period of sort of hyper globalization where you've had this global positive demographic dividend that's offered by cheap Chinese labor. This very abnormal period where you've got negative correlation between bonds and equities. And that's the environment that we're all sort of used to. We're now in a regime where because of actually because of the globe, the effects of globalization and reduction of inequality between nations, which created a much more multipolar global order where you get these types of shocks more like more often. So the likelihood of this type of shock has risen systematically. Try pricing that over a short period of time. And then within nations, there's a lot more political instability, again, partly because globalization increased inequality within nations. So we have more sort of intervention list policy, which might take the form of sort of fiscal positive fiscal impulse, which could could sort of help to catalyze and kind of play into into the A.I. story and create a much more balanced global growth story. But at the same time, we also have this greater likelihood of negative negative supply shocks, which, as I said, are very hard to price over any short period of time.
[00:18:32] Speaker 2: And how are companies going to be rewarded through this kind of cycle then? Because you've made the point then, Freya, in your notes that this could go one of two ways. Either companies are rewarded for chasing revenues, chasing growth, or they're rewarded for, you know, the old world where you protected margins and you cut costs. I mean, could both be true? Just depends which sector you're in. Or how are you thinking about that?
[00:18:52] Speaker 5: Yeah, I think so. So because we've got this kind of confluence of greater likelihood of positive demand shocks to try and cater to that electorate that feels sort of left behind by the previous regime and negative supply shocks, both of those things are sort of possible. And I think part of the reason why we see so much volatility in markets is because if you get lots of the positive demand shocks and the supply side, potentially through the adoption of AI, is able to respond to that, you get into this whole new sort of virtuous cycle, which has very different asset market implications than the negative supply shock.
[00:19:28] Speaker 2: Yes. Just the politics that's brought us to this place, though, Freya, is it patient enough to watch those supply side reforms come through?
[00:19:35] Speaker 5: So that's that's the criteria that the countries that outperform over the next 10 years are going to be the ones that don't just opt for the sort of the short term populist positive demand shocks and the negative supply shocks are sort of tariffs and de-immigration. They're going to be the ones that really repair the supply side and help the business sector to respond to this environment. I think the reason, for instance, in the UK, why we have such high guilt yields is because we've had a sequence of sort of bad policy over quite a long period of time now. And so guilt yields are high for sort of all the wrong reasons. It's all about sort of negative supply shocks and the deterioration of the bonds hedging quality for equities as opposed to sort of that kind of what we call demand repressurization and sort of response of the supply side and the new virtuous cycle. So, Freya, is the Fed behind the curve? Yeah, I think I think under any normal circumstances and because there are so many different types of shocks hitting the economy, that's why it's quite hard to tell how far behind the curve they are. But I think under any normal circumstances, looking at the inability of the labor supply side to respond to that sort of demand resilience that we keep on seeing over and over again in the U.S. economy, we probably are in an environment where where where this economy can sustain higher interest rates in a positive sense. And the main risk is actually especially when you've got this new general purpose technology that you almost have this kind of jewel, not so much the K shaped economy, but the sort of the tech economy versus the non tech economy in which interest rates should be even higher to sort of curtail the buildup of leverage in that new tech economy. And the rest of the economy can probably take that. So terminal rates should probably be, you know, three, four, five hikes over the next 12, 12 months.
[00:21:26] Speaker 2: Thank you very much. We'll keep that in mind. Freya Beamish, chief economist at CS Lombard.
[00:21:30] Speaker 1: Okay, here's one else you need to know this morning then. A heat wave and the World Cup prompted Britons to splash out on pints of beer, clothes and electronics in June. That's according to Barclays data. Card spending rose 1.9% from a year earlier. So close to 2% obviously spending in pubs soared during England's matches while families bought fans gold drinks and summer clothing to cope with one of the hottest months of June on record. UK Chancellor Rachel Reeves, meanwhile, is set to use her last speech to the City of London to defend her government's fiscal rules and issue a coded warning to the next Labour government. In her speech at Mansion House tonight, Reeves is expected to say that plans to boost the economy will only succeed with the support of financial markets. The European Union has failed to endorse a new sanctions package against Russia, putting the bloc at risk of undermining one of its key tools to restrict the Kremlin's oil revenue. Separately, ministers did agree to 250 new listings targeting banks, crypto operators and tankers, allegedly enabling workarounds for Russia. So there's a deadline, which is Wednesday, Anna, in terms of this price cap on Russian oil, I believe set at around 44 US dollars. Because if they can't and they so far haven't come to an agreement on that, then then you could get to a point on Wednesday when when that cap ends, which obviously would benefit Russia and Vladimir Putin. But but the Europeans still working to see if they can if they can come to an agreement before that.
[00:23:00] Speaker 2: Yes, they need this cap to work in a world where oil prices have spiked substantially on the back of the on the back of the war in it with Iran. And interesting also in the US context that we've got reporting White House sources telling Bloomberg that President Trump is going to be backing Lindsey Graham's Russia sanctions package. President Trump himself, his language seemed a little more lukewarm on the idea. He was saying he was going to look into it, but a little less convincing, perhaps. But that is certainly something that we will be watching. And also the EU and the UK coming to an agreement around the UK participating in some of the weapons provision to Ukraine via the loans that Europe has been giving to Ukraine. So we'll watch that and that relationship between the UK and the EU.
[00:23:40] Speaker 1: France, the UK, Denmark and other nations as well working on a on a replacement or at least an addition to the Patriot missile system as well for Ukraine, which is interesting.
[00:23:48] Speaker 2: Coming up in the program, we will talk to Michael Brown, global investment strategist over at Franklin Templeton as bond traders ramp up bets for a July rate hike in the United States. That is next. This is Bloomberg.
[00:24:13] Speaker 1: We are 30 minutes from the start of opening trade, of course, this Tuesday. European futures after ending the session yesterday flat, currently pointing down by six tenths of a percent. It's a slightly brighter picture as Asia closes out its session. U.S. futures, NASDAQ 100 futures after a rough day yesterday pointing to gains of five tenths of a percent. There's a bit of caution, but maybe some stability in these markets. But Europe doesn't seem to be playing that role right now with futures again pointing low by six tenths.
[00:24:39] Speaker 2: Let's go to the bond market, Tom, because here we are seeing a continuation of the theme of yesterday, which is higher oil prices triggering higher inflation expectations and therefore pushing yields higher. So we see bond markets out of favor, yields going higher. That was yesterday's story. But after the close of these European bond markets, we saw oil prices go further still. They're back above $85 a barrel once again this morning. So we have sort of turned around once again and moving higher. And as a result, yields are on the rise. In particular, I can see the Italian yield at the 10-year horizon up by four basis points. So it does seem as if a combination of what's going on with oil and some of the repricing of the Fed curve, maybe that is having an impact. Let's get to that story now. Bond traders are ramping up bets for a July interest rate hike ahead of U.S. inflation data and Fed Chairman Kevin Walsh's congressional testimony. Let's think about where we are on these bond markets now. Michael Brown joins us, Global Investment Strategist at Franklin Templeton. Michael, really good to see you. Thank you for being with us. So European bond markets continue to price in, as we saw yesterday, the higher oil price, nervousness around inflation. And the U.S. narrative seems to be leaning in that direction as well. We're pricing in now a 50% chance of a hike in July when yesterday it was not seen as a live meeting. What are you expecting in the very short term then on the Fed's agenda?
[00:25:54] Speaker 6: We're quite sanguine, to be perfectly honest with you. We don't see a rate hike from the Fed this year, even though we sense that Walsh is probably a little bit more hawkish than the market would like to believe. So the underlying CPI issues, and we're going to see some more data on that today, I think are going to be OK. Remember, if you go back to 2022, the U.S. economy was brilliant at taking in an oil price shock, whipping it through the system and getting it out really in a four or five month period. So I think we're through it. Eighty five dollars today. Yes, Mark, it's going to react to that sort of stuff. But honestly, I think right here we should be fairly sanguine about both inflation prospects in the U.S. And perhaps actually optimistic that inflation is going lower in Europe.
[00:26:35] Speaker 2: OK, well, that's interesting because it's going to say, you know, maybe the U.S. has a different dynamic. There's the A.I. trade driving inflation maybe more than the oil story. But in Europe, it has been about the oil story, hasn't it? Concern around inflation. And I mean, should we be sanguine with oil at eighty five dollars? Should we be starting to think about something more systemic underneath the oil markets these days? A sort of flaw in oil prices that wasn't there before. As we see the U.S. now talking about a 20 percent toll for taking crude through there or taking energy products through the straightforward.
[00:27:07] Speaker 6: Which, by the way, would be about a dollar on the price of every barrel of going through a VLCC. So just to think of it in that particular way. Why am I more optimistic about European inflation? It's because the European economy is just dull. It's just stuck. It's stuck in a rut at this point in time. You can see, I mean, Hayes numbers yesterday showed us how weak the German employment market is at this particular moment in time. So there is no great life to the European economy. And as a result, their ability to pass through prices, we think, is pretty low. And on that basis, therefore, you start to get optimistic about where your pricing situation will be in Europe as opposed to the U.S. But as I say, the U.S., which is a stronger economy, it's going to hit its medium term growth objectives for the first time in several years. But its ability to get in, get it out, I think is the thing that will save it. We'll see a downward trajectory in the second half of the year.
[00:27:58] Speaker 1: Michael, can I bring it back to the European corporate story? Yes. If they can't pass on those costs, margins are squeezed and earnings get challenged?
[00:28:04] Speaker 6: Well, you're going to see a little bit of margins rising in the second quarter, which is why earnings estimates and average earnings estimates have been rising at 2% or 3% into this particular.
[00:28:13] Speaker 1: And you're comfortable with those increases?
[00:28:14] Speaker 6: Yes, because I think that's the inflationary piece coming through. Its utilities, its banks, it's driven in those particular sectors. So overall, because the other point is to say that the European markets are not the European economy, quite the opposite. Otherwise, they really wouldn't be interesting at all. But at this particular point in time, with the bias that we've got in the markets, I am comfortable with those estimates. And I'm comfortable actually that European earnings might be fine this year, as opposed to normally you see a 7% to 8% earnings cut.
[00:28:41] Speaker 1: What would you be buying in Europe right now? What sectors stand out to you?
[00:28:44] Speaker 6: Well, it's large cap value. I mean, it's really, really simple. So yes, I'd still be buying the energy stocks at this moment in time. Because again, we're locking in some cash flows that are decent. I think the banks still look interesting at this particular moment in time. I'd be a little bit worried about the late cyclicals. But the early cyclicals are still there. And yes, we're still going to run the AI trade. It's not going away. If you're thinking medium term, obviously, defence had a great run last year and construction alongside it. But I think construction is something you should think about from a 27 point of view.
[00:29:13] Speaker 2: And Michael, over in the US then, stocks there, we saw a dip yesterday. You're buying dips, are you? Or are you buying dips in 2027?
[00:29:20] Speaker 6: No, no, we will buy dips here because although the markets have run quite well and you've had decent rates of return. And this earnings season, there is a heck of a lot of expectation into this earnings season. So it's often better to travel than to arrive. If we're right about the inflationary outlook at this moment in time, which is benign. We're right about the earnings outlook, which is decent. Then yes, you should start to think about buying those dips and buying them hard for 27.
[00:29:43] Speaker 2: And where exactly? Because we've actually seen really interesting dynamics since the start of the year between the hyperscalers. Firstly, on the rise, then giving way to the semiconductor makers, the memory chip manufacturers. And then a bit of rotation back maybe from semis into hyperscalers. So where in the US tech space do you buy?
[00:29:59] Speaker 6: Go broad. So not even just tech. I've just said like the US earnings numbers, the US growth numbers are going to be up with the normality, which is what we haven't seen for several years. So obviously that's telling you the breadth of the US economy is good. In which case, small cap, mid cap, that's where we see more excitement at this moment in time. than in the large cap or the large cap growth. But I don't think they're going to massively underperform. As you say, MAG 7, negative returns year to date. Just it's rallying back a little bit at this point in time. But actually overall, go for the breadth of the US economy. And I'm afraid that the breadth of that and the strength of the economy really does stand out that's very different from the rest of the world.
[00:30:36] Speaker 1: And yet you do not see the Fed hiking this year. If the Fed does hike, if the Fed hikes, the Fed could hike this month. I mean, the traders are pricing 50/50 chance. Does that, would that challenge your view on small and mid caps in the US? No, it wouldn't necessarily.
[00:30:51] Speaker 6: I think it would challenge the balance between growth and value. And I think you'd have to start to look at that element. Because clearly at that point, the Fed are confirming that the economy is on a faster than medium growth track, which is two and three quarter percent or better. And I don't know that's in people's estimates for next year. In fact, I think the medium estimate for US growth next year is 2%. And if you like what I'm saying here is it's probably going to be exceeded. But on that basis, you'll be moving yourself into that sort of slightly more growth, slightly more creative space than going for the value end again of the small and mid cap area.
[00:31:22] Speaker 2: Michael, maybe you can help me with something that I was wrestling with yesterday. And that is, if we see AI spend broaden out into, you know, it's not just tech companies. It's lots of companies spending on AI. Where do I see that? You know, some of it might be in capex because they might be buying software that they can amortize. But some of it might just be in all kinds of different line items in the P&L, not labelled as AI spend. Is it going to be very obvious to us when companies of all types are spending a lot of money on AI? Do we have a sense of where this shows up? It's going to come through SG&A, right?
[00:31:55] Speaker 6: So you're not going to see it unless somebody wants to break it down to an individual line because it will come through general expenses. Yes. Okay. And the question is, what are the savings that you're getting from that cost at that point in time? And you're seeing the whole debate about tokenization and token restriction going on at this moment in time. And what I would say is most people are using it. Most people are probably not using it awfully well. And the speed of take up is actually better at the large corporate level than at the small corporate level. However, if you're getting that balance between productivity gains and elsewhere, the FCA were talking yesterday about productivity gains that they're getting from AI. If you get that balance right, you should see it as a net net neutral for margins in the first piece. And then obviously acceleration of margins as we go forward.
[00:32:45] Speaker ?: Okay.
[00:32:45] Speaker 2: So we might have to lobby for some of that transparency a little bit. Yes. Yes, I think it's quite possible. If they've got good stories to tell, companies will no doubt want to tell them. But, you know, if the story is a little more nuanced.
[00:32:56] Speaker 1: We'll try and play our part when we interview the CEOs of these companies during the earnings season.
[00:33:00] Speaker 6: And I think you'll hear the word AI and productivity over and over and over again. Just a little bit. Your word chart is going to be huge. Absolutely.
[00:33:06] Speaker 1: Very, very briefly, you think they could be, you're quite, you're relatively confident about the incoming UK government. Yes.
[00:33:13] Speaker 6: Yes, I am actually, because I think people...
[00:33:14] Speaker 1: Although we don't know the make of it or the shake of it.
[00:33:15] Speaker 6: We don't know. But take your lovely poll saying that Ed Miliband is the least attractive person as Chancellor of the Exchequer for the markets. Go back and read the 2015 manifesto. And the first word in it is we will balance the budget. And that was under him. That's his show. He's running that show. Go back and read the 2015 manifesto. Go back and read other things from Ed Miliband. It is far more conservative than people would have.
[00:33:41] Speaker 1: You wouldn't be worried about Ed Miliband?
[00:33:43] Speaker 6: Right here, right now, the evidence says you shouldn't be worried about it. And discussions such as land taxes are going forward at this moment in time. Yes, that is an interesting idea if it's offset by different taxes and it's tax revenue neutral. But it's really, really difficult to do. So in the short term, I wouldn't actually think it's going to have much of an impact, if any impact at all. And goodness me, we could do with a change of atmosphere.
[00:34:07] Speaker 1: Michael Brown, thank you very much.
[00:34:09] Speaker 2: You brought your own change of atmosphere this morning. You woke me up this sleepy Tuesday.
[00:34:13] Speaker 1: Don't need caffeine when Michael's on set, do we? Michael Brown, global investment strategist at Franklin Templeton. Now, Fed policymakers warning rate hikes may be needed to tame these rising prices.
[00:34:24] Speaker 7: If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term. As always, we need to avoid making the mistake of fighting the last war and reacting too soon to tighten inflation.
[00:34:42] Speaker 1: That was Fed Governor Chris Waller. We're going to take a closer look at how central banks are viewing the inflation fight. That is next.
[00:34:51] Speaker ?: This is Bloomberg. Welcome back. This is the opening trade.
[00:34:51] Speaker 1: Fifteen minutes then until the start of the trading day here in Europe.
[00:34:53] Speaker ?: We're kind of telling yesterday's story with the European equity market futures pickings. It's negative, Tom, quite significantly. But U.S. stocks close near their lows in the US. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. We're going to take a closer look at what's going on. Welcome back.
[00:35:14] Speaker 2: This is the opening trade. 15 minutes then until the start of the trading day here in Europe. And we're kind of telling yesterday's story with the European equity market futures picture. It's negative, Tom, quite significantly. But U.S. stocks close near their lows in the U.S. session yesterday. Despite oil prices going higher once again and staying above $85 a barrel, the mood in equities has changed a little. NASDAQ futures at least pointing higher by four tenths of one percent. And the Asia session turning around a little bit. And MSCI Asia-Pacific is up by around four tenths of a percent.
[00:35:44] Speaker 1: Yeah, and in the bond story, global bonds, there's big divergence between what's happening in terms of the moves in Treasuries and European bonds, where you're seeing a sell-off and yields up versus what's happening in Japan. Japanese government bonds climbing then after remarks pretty significantly as well, with yields down sharply. Remarks by the finance minister boosting sentiment towards sovereign debt. And as a 20-year auction attracted strong investor demand, the moves came after Sasuke Katayama floated the idea of adding government bonds to the tax-free Nippon individual savings account program. And added that the government pension investment fund will make portfolio adjustments if needed. Let's bring in Bloomberg senior editor Brian Fowler in Tokyo for the details. Brian, what do we know about the inclusion of JGBs potentially in this tax-free savings account program and what that could do materially, if at all, in terms of supporting demand for government debt in Japan?
[00:36:38] Speaker 8: Yeah, Tom, there's actually three ideas that she floated today. So let me just do them quickly. One was to make JGBs exempt from the inheritance tax. The second one was, as you said, was to make JGBs eligible as assets to be included in the NISA stock program, where investors invest after-tax funds and then those assets are no longer subject to capital gains taxes. And then the third would be to encourage pensions to channel more of their funds into domestic assets. And the potential impact is huge. Now, what can actually be done? The first two steps would obviously be the easiest to get done. I think there could be some political backlash about the inheritance tax because, of course, that would be a gift to the wealthy class and Japan's already kind of grappling with a K-shaped economy issue. But those two steps could be done. I think the bigger impact would be on the pensions, but that's a little bit more complicated.
[00:37:39] Speaker 2: Yeah, let me ask you about that, about the conversation around the GPIF, the pensions, and what might happen there. I mean, and we should point out that on both of these initiatives, the finance minister has talked about these initiatives moving forward, even though she's made no decision on whether they actually come to pass or not. But what significance would GPIF changes hold?
[00:38:02] Speaker 8: Yeah, so, I mean, first of all, the GPIF sets its allotment targets every five years. It reviews those. And most recently, it did that in March of last year and decided to retain its previous settings, which were 25% each in domestic stocks and bonds and 25% each in overseas stocks and bonds. So that is intact for the next five years. Having said that, it has some wiggle room in the sense that it's got six percentage points, which it can kind of veer away from those targets. And, in fact, it's already doing so. As of March, it was 26.9% of its assets were in domestic bonds. So it's already a little heavy on domestic bonds. But if it were to push that even further toward the limits of what it can do in terms of the wiggle room, that's another $50 billion that could be going into that market. So the potential is quite big in terms of the impact. I guess the big question would be what gets sold off in order to generate those funds. I think if it's U.S. Treasuries, that's going to be a big problem. U.S. stocks, maybe not so much.
[00:39:10] Speaker 2: Brian, thanks very much. Bloomberg Senior Editor Brian Fowler with the latest on what's moving Japanese bond markets. Let's pivot our attention to the European Open. It's only 12 minutes away. Let's turn our attention to the markets in three minutes on the opening trade with Markets Live Executive Editor Mark Cudmore. Good morning, Mark. You're here in London, which is excellent news for us. So we're once again faced with a higher oil price this morning, 85.50. And for a long time, yes, the language has all been around tit-for-tat skirmishers at the edges of an MOU that left the talks intact broadly, and the ceasefire broadly intact. Is that still the case when you've got President Trump talking about a 20% toll through the straight-up hall moves? I mean, how fundamentally do we have to rethink what's happening in the street?
[00:39:50] Speaker 9: I'm not sure how much has actually fundamentally changed versus how much the kind of interpretation of the situation has changed. So, you know, a week ago, the idea was this is going to be tit-for-tat strikes as we go on forever. This is going to be one of those, like, strange ceasefires where there's never really a ceasefire, but it's not going to really escalate again. It's all noise. It's not tradable. There's enough oil in the world. They'll find a way to get oil out there ahead of the midterms. It was the kind of narrative we go. Now, the slight tweak is the same starting point of it's like tit-for-tat strikes are going to continue forever. It is never going to end. The ceasefire is going to, you know, never really be a proper ceasefire. But we need a higher premium for oil prices as a result. And I think that's really, really important. People have realized that both sides can find it easier to disrupt the other side. So the U.S. can disrupt Iranian flows. Iran can cause enough problem in the strait to keep on disrupting kind of general flows. And, therefore, the strait of Iran in terms of shipping is not going to normalize probably again this year, or maybe ever again to the way it was, because we're going to build alternative pipelines by next year. So, ultimately, I just don't think it's ever going back to the way it was. And, therefore, we need a slightly higher price in oil prices going forward. And that is changing the whole dynamics around the rates conversations for central banks everywhere.
[00:40:58] Speaker 1: Do you think then, do you think that, so structurally higher inflation as a result of that, and whether Kevin Walsh actually addresses that, whether he nods to that in his testimony today, whether he has to accept that maybe we're in a world of structurally higher inflation?
[00:41:11] Speaker 9: He might do that. As we all know, he's going to try to say as little as possible, but he'll be forced. It's so long speaking, he's going to end up saying stuff. We're going to over-interpret what he says. I think it is structurally higher inflation, but it is obviously supply-side inflation. So it makes it a little bit more complicated for central banks. Look, the Fed is definitely live for July. For the data today on Walsh Day, it's really, really important. I'm in the camp that they ultimately won't hike rates. But, you know, you can't have that view super high conviction ahead of the testimony, ahead of the data today. I don't think he wants to sound, like, very open-minded. I don't think he wants to sound conclusive either way. I think we might still be in a situation that tomorrow, where July is still live. But ultimately, I think the Fed will disappoint.
[00:41:50] Speaker 2: That's an interesting point you make about whether we over-interpret. I mean, he deliberately does not want, really, to communicate any guidance. So, yeah, what is the point of talking for so many hours, I suppose? I know he has to make his appearance, but from a market's perspective, is there really anything to listen to?
[00:42:06] Speaker 9: Yeah, look, I think people are still trying to know who he is, know what his biases are. I mean, you know, this is a person who's portrayed very different images on his inflation hawkishness over the past 20 years. And so, therefore, I think people are really trying to find out what is the true Kevin Walsh as Fed chair. So, I think that people do need to kind of study it and interpret it. You know, the problem is that we've now had, what is it, eight, 16 years of kind of having these press conferences and so much kind of forward guidance, the dot plots. And we've gone through a world where people stop looking at data. We talked about this a lot in the program. And I used to get really annoyed at people like who wouldn't look at the data. And then they'd wait to a Fed person told them what the data said a week ago. And then finally relax. Like, we knew the data already. So, I'm delighted we're going back to a world where people actually look at the data themselves. But people will over interpret the short term.
[00:42:53] Speaker 2: Let's hear it for thinking for ourselves then, Tom. Yes.
[00:42:56] Speaker 1: We'll try and do more of that. And Mark Codmore is that inspiration. Joining us on set this morning, Bloomberg Markets. And throughout this week, I believe, Bloomberg Markets Live executive editor, Mark Codmore. Remember, you can get up-to-date analysis and insight from Mark and the rest of the team. Go to MLiveGo on your terminal. Let's get your stocks to watch this Tuesday and bring in Chloe Melley. Chloe.
[00:43:13] Speaker 10: Good morning, Tom. Ericsson is going to be in focus this morning after reporting a drop in earnings. And that was due primarily to those rising costs for key components. It said it would try and mitigate the impact of that cost inflation. But that margins would be under pressure. It is quite interesting to see just how much Nokia, its closest rival, has really outperformed Ericsson. But in large part because of that real focus on AI that Nokia has had. Whereas Ericsson has stayed more of a pure play telecom player. But it is also worth noting that the CEO actually of Ericsson said this morning in the statement that Ericsson would move more towards trying to capitalize on this AI boom as well. Saying that it has expanded into those attractive growth areas and was trying to move towards that as it moves towards the physical world as well. So we'll see if that's really enough to reassure investors after this mixed performance over the second quarter. Moving on to more earnings and we've got the logistics and shipping company Hapag Lloyd boosting its guidance last night. Citing a growing market demand and also this rise in container rates which of course has to do with those continued disruptions in the Middle East. Those market dynamics are the same ones that have been cited by Musk when it boosted its guidance as well earlier this month. And so this logistics shipping sector is going to be very much in focus this earnings season. And this boosted guidance could also lift the shares for Hapag Lloyd this morning. And finally let's go over to Airbus because we have got a report that the that Riyadh Air is in talks with both Boeing and Airbus to buy planes from those two. This comes after a lot of delays to the start of operations for Riyadh Air was supposed to start in early 2025. It's kicked off operations just this month. But we could see those orders for new jets boosting the shares in Airbus this morning after we can see it has just started to catch up with Boeing recently.
[00:45:09] Speaker 2: Chloe, thank you. Chloe Melly with some of those stocks that are on the move. There are plenty of things that we're watching this morning, aren't there, when it comes to these these markets. I'll add in that we'll watch oil companies, energy companies as well, of course, because we've got a higher oil price above $85 a barrel once again. And just in yesterday's session, we saw energy was the best performing sector and that could be.
[00:45:29] Speaker 1: And the worst performing was was trapped on leisure on the higher oil price as well, of course. We'll watch gilts at the open given the sell off that we've seen in European and European European bonds. Interestingly, Bloomberg Intelligence crunching the numbers and suggesting that European companies set to post the biggest increase in profit growth in three years. On aggregate earnings gains of 11.5% according to the data from Bloomberg Intelligence.
[00:45:51] Speaker 2: It's interesting, short end European government bond yields up quite substantially to your point, Tom. Coming up then, we'll bring you the start of European trading day for equities. This is Bloomberg.
[00:45:59] Speaker ?: Welcome back, everybody. A few minutes then until the European cash equity trading session opens.
[00:46:17] Speaker 2: And this is the handover from the States and it does tell us something useful, but we have other elements we need to add in as well. So this was where the European markets closed. And after that, we saw U.S. markets trading lower, tracking lower and actually closing near session lows. So that is interesting. And we need to factor that into our European session. And on top of that, the fact that we've got we're back to session highs on oil once again this morning. So above $85 a barrel. And that could be something that puts pressure on some areas and also supports some areas of the European equity space, notably energy stocks. So what does all of that add up to then? When we look at the European futures picture, we are expecting to go weaker. I wonder how long that is sustained for though, Tom, as we see U.S. futures actually turning a little more positive. Asian futures turning a little bit more positive, though perhaps maybe more on the tech side of things.
[00:47:08] Speaker 1: On the individual stocks that we're watching with that energy component, of course. So BP here in the U.K., just one example. Given the strength that came through for the energy sector yesterday, we'd expect further gains for the oil majors on the higher rent prices that we're seeing. Ericsson talking about potential pressure on margins. That is called lower Ericsson. So we watched that stock, of course. Watches of Switzerland coming through with earnings that essentially met estimates. It's also a takeover speculation as well for that company. So we are keeping an eye on Watches of Switzerland as well, Anna.
[00:47:44] Speaker 2: Yeah, absolutely. So lots to watch when it comes to the European earnings dynamics. We've seen some quite punchy estimates as to what European corporates will be able to do this European earnings season, the U.S. earnings season as well. So we're watching for that to unfold as we approach the European earnings season, of course. The focus today perhaps more on the U.S. The bank earnings season is fast approaching. We've got five big banks reporting today. So that's going to be certainly an area of focus for us. But right here, right now, we have the European equity market session just getting underway. And actually, just to the downside, in fact, I'll just give that a moment to settle down because that looks a little bit unusual if we have all of those open right now. The DAX doesn't usually open this quickly, which makes me suspicious of what I'm seeing here on my screen. But, Tom, as we are waiting for these European markets to open and actually waiting for them to open to the downside. So I might suggest we disregard what we're seeing on the screen right now. Maybe you have some better data for us.
[00:48:37] Speaker 1: Anna, your instincts are absolutely correct. What we're seeing right now across the benchmark is a drop of five tenths of a percent on the stock 600. The FTSE 100 is down three tenths, two tenths, a little over two tenths of a percent. The Cat Garant over in France, this is a big move lower, down nine tenths of a percent in France on the Cat Garant. You're seeing losses of six tenths on the FTSE MIB in Italy. And eight tenths of a percent is the drop that we're currently seeing on the IBEX. Across your sectors, unsurprisingly, we're seeing very similar dynamics to yesterday across the European equity space, with energy at the top with your sectors, gaining one percent in terms of the upside for that sake. On the downside, once again, it's travel and leisure falling one point four percent. Again, being hit by the high oil prices. Basic resources is also in the positive category. So we've got three sectors that are showing gains. Energy, basic resources and chemicals. Energy up front, of course, with gains of one point one percent right now. And again, the pain traders for travel and leisure currently down one point five percent. Banks also feeling a bit of a squeeze down nine tenths as a sector. Yeah, it's really interesting.
[00:49:38] Speaker 2: It's actually, you know, the story yesterday was higher oil prices. The story today is higher oil prices. And the move is a little more extreme today in that we've got only three sectors in positive territory, including energy, not surprisingly. Whereas yesterday, by the end of yesterday's session, at least, we had a slightly fairer split between those sectors going higher and lower. In terms of individual movers, then BP, Total, Shell, you get the picture. There's an energy theme to the upside. Basic resources represented with Glencore and chemicals with BASF. To the downside, looks like a fairly mixed bag. Saffran in the engine space. We've got some luxury stocks on the back foot. So Richemont, I see, is in there. LVMH and Hermes. So actually not that mixed. And Essilor Luxottica is quite a quite a luxury flavor consumer products and services flavor to the things that are moving lower. Those large cap stocks over in Paris doing badly then. And that is weighing on the Cacarante. So that's the stocks picture.
[00:50:32] Speaker 1: We want to reflect on what's happening in bonds with gilts opening and opening pretty sharply lower, particularly at the front end with yields up at nine basis points, close to 10 basis points. So you're at 4.43 on the two year. The 10 year in the UK is back above 5% with yields up six basis points. You are seeing a sell off in the sovereign debt of Europe, but it's more pronounced here in the UK. You put Japan to one side because there's a strong rally there for some very different reasons as the government looks to support JGBs and a strong auction. Put that to one side and you're seeing a sell off in global bonds. Yields up sharply, particularly at the front end here in the UK. Close to 10 basis points is the move. 4.44 right now on the two year.
[00:51:12] Speaker 2: Yeah. Pretty substantial moves then across Europe and even more so, as you say, here in the UK. Let us talk about where we are on the broader investment landscape. Maria Veitmaner joins us, head of equity research at State Street. Maria, really nice to have you with us. I wonder, as we see oil prices once again above $85 a barrel, how much is that making you rethink equity allocation or equity strategy from here? What impact does this higher oil price have, Maria?
[00:51:38] Speaker ?: Yeah, good morning.
[00:51:39] Speaker 11: Thanks for having me. Always a pleasure. I mean, so it's kind of higher oil prices replaying what we've seen earlier in the year. And the reaction of investors earlier in the year when oil price increased was stay sanguine, focus on earnings, look where the strength is and kind of progress. So that's, I mean, obviously we are getting into earnings season, so that's great. We're going to get more updates, more information there. And secondly, on kind of multiples, we get some ideas in terms of, I mean, we're having Fed meetings. So today is kind of a pivotal day as we're going to get quite a lot of update. But in terms of investor reaction to the kind of first increase in oil price earlier in the year, what did they do? They focused on sectors with better earnings. That was tech. That's where they kind of piled money in. And I would not be surprised to see something similar.
[00:52:34] Speaker 2: Okay, so if we see dips in tech or the broader U.S. equity landscape, Maria, are you buying those dips?
[00:52:45] Speaker 11: Yeah, I think for us, buy the dip in tech has been a strategy because that's where we consistently see very strong earnings, very stable earnings, very predictable earnings. So that was a good strategy for us. So we would like to stay with that.
[00:52:59] Speaker 1: What is the nuance, Maria, within that call on tech that you've been consistent on? And do hyperscalers fall into that basket? Do you have a barbell approach? Are you concerned about what's happening in the semiconductors? Do they look a little rich to you? How are you thinking about the nuances within that tech call?
[00:53:20] Speaker 11: Yeah, I think that's a very good point. I think up to, I don't know, a few months ago, it was the big tech trade. I mean, we still like mega caps. But within the sector, we are increasingly looking at software. So software has been kind of sold very aggressively. If we look at institutional investor holdings, that's where positions are the lowest. And we're beginning to see kind of two things that's encouraging for us. One is kind of stabilization on the fundamental side. We see kind of analysts stabilizing their margin expectation. Revenue growth is kind of coming through. Management talking about kind of ability to retain clients. And at the same time, we see institutional investors starting to buy from this big, big underweight position. So that's really encouraging. So that's we see some positivity there.
[00:54:08] Speaker 1: Okay. Interesting on your views around around software and some positivity there. Where does it where does Europe sit in the AI story at this point for you, Maria? Is there is there an adoption story that we can that we can play out as investors when it comes to European equities or something else that could give European stocks further upside in this trade?
[00:54:28] Speaker 11: I mean, on AI specifically, I think we will like generally like picks and shovels. So like Europe has some companies that kind of feed into the kind of cheap production. So that's very helpful. And we still know that demand for kind of memory and semiconductors is much, much higher than supply. So there is a big support. But the kind of the flip side of it is we don't have too many companies in Europe that are linked to them, to the AI trade. So kind of relatively speaking, Europe is still for us kind of one of least favorite regions. We still don't see enough earning growth in the region overall. So we favor kind of US Asian Asian equities and we kind of remain underweight European stocks.
[00:55:17] Speaker 2: And Maria, do you think that this earnings season and you can talk about the US or Asia in particular, maybe Europe too, but given what you've said, maybe the other regions. Is it going to be this earnings season that shows some evidence of tech spend, AI spend broadening out or is it too early for that?
[00:55:35] Speaker 11: I mean, well, I mean, obviously, really important to look out for it. I mean, we're still a little bit skeptical about it. I think we still see quite like a very substantial concentration in tech spend. And so it's still kind of peaks and showers in that trade that tend to benefit. Little sign of broadening. Little sign of broadening.
[00:56:01] Speaker 2: And the small caps picture, is that in the US? You say that the small caps picture looks a little bit fragile. I guess this all adds up to one part of the US narrative, the tech narrative doing really well and the rest of the economy less so. Is that what's driving your thinking?
[00:56:16] Speaker 11: Yeah, yeah. I mean, we're still kind of big believers in this kind of K-shaped economy and larger companies tend to benefit. And I mean, for small caps in particular in the US, I mean, the picture is still fairly challenging. I mean, we still see about a quarter of small cap companies loss making. If you look at kind of margins pictures, margin pictures of profit margins in S&P or mega caps have been improving very substantially. Small caps are really struggling to maintain profitability. And I think a lot of it for small caps, I mean, small caps is high beta. So we have a kind of economic growth, kind of economic surprises being positive. Market is excited about it. They're buying small caps on this expectation that things are broadening out. But underlying micro fundamentals in smaller companies are still very challenging. They're still very interest rate sensitive companies. So high interest rates or kind of lack of cuts, let alone hikes, are really detrimental for those companies. So, yeah, no, we worry about small caps. There are lots of hopes, lots of expectations there. Reality, I mean, again, we're going to earnings season. We'll see some confirmations of that reality. To our mind, it's still not there.
[00:57:24] Speaker 1: Okay, so it sounds like you're focused on the top end of the K rather than the bottom end because of those concerns. What is the picture? How resilient are European corporates to the energy story? Or do you play European energy on the back of an assumption maybe that we get sustained friction in the straightforward moves? Maybe $85 is the new normal for oil.
[00:57:49] Speaker 11: Yeah, I mean, I mean, we see Europe as very much kind of geopolitical price takers. So oil prices, I mean, oil prices are high, but it's not just about oil prices. If we look at like natural gas, heating oil. So those prices are very, very elevated. They didn't go down as much as as much as kind of oil price on the kind of lockdown. So European companies, I mean, Europe is kind of energy hungry, lots of kind of industrial manufacturing companies. So they tend to struggle with higher oil prices. So that's that is still there. But for the stock market, more importantly, is that European stocks have performed reasonably well in the first half of the year and like Q2. But a lot of it actually very substantial proportion of it came from multiple expansion, not underlying earnings. So I mean, again, the earnings season, we would be looking very, very carefully for kind of guidance and realization of those better earnings that kind of market already priced in. So for Europe, I would argue that the bar for earnings season is much higher than other regions.
[00:58:55] Speaker 2: And Maria, we're looking ahead to both Kevin Walsh appearing on Capitol Hill today and CPI data out of the U.S. The expectations around CPI actually that year on year we get a bit of a drop down in the in the in the CPI numbers. But obviously with oil prices where they are, the narrative could be a little bit different. How are you thinking about the inflation story in the in the moment in the U.S.?
[00:59:18] Speaker 11: I mean, so we are fortunate enough to on price stats, the companies that track online inflation around the world. And what we saw in U.S. in June, headline inflation, headline online prices have dropped around 20 basis points. That's the biggest drop in 18 years. So the headline inflation is definitely coming down. So that's a positive on core. I think the important point to make is that when oil price was going higher, we've seen reasonably, I mean, we've seen very little transmission, very little pass through into core. So core has not increased as as oil price was coming up. So consequently, we don't see oil price decreases kind of making core to come down quite a lot. So our kind of expectations are around 0.2 months on months, increase on core. So kind of broadly in line with consensus, maybe slightly weaker. But yeah, we're seeing kind of continuous deceleration in inflation, broadly speaking. We see the base effects from kind of last year tariffs dropping off, kind of normalization in oil prices. So all those things are positive and very little kind of sectoral push in inflation. Maybe the only exception is electronics, where we see kind of higher cheap prices weighing on CPI. So that's probably the only sector where we need to be a little bit more careful.
[01:00:55] Speaker 1: OK, well, we'll get that data. 1:30 p.m. U.K. time. Maria Veitmaner with that view on the equity space, of course, globally head of equity research at States. So it remains conviction. Of course, that conviction around the tech story remains for Maria. Let's get to your core six right now. Briefly check in before we get your stocks to watch what's happening across the core six here in Europe. So a big move for the luxury space again to the downside. LVMH down 2.2%. You're seeing some losses as well for some of the consumer focused businesses. Some of the staples like Nestle down seven tenths. Schneider Electric, which plays into the data center story down five tenths. One stock that stands out in the core six is ASML, interestingly, up three tenths of a percent. So there's some optimism there around one of the key providers, a kit into the semiconductor story up four tenths on ASML. Let's get your stocks to watch, individual stocks on the move and bring in Chloe Malik.
[01:01:47] Speaker 10: Chloe. Good morning, Tom. We are seeing a huge drop for Ericsson this morning after the telecom company flagged that margins will come under increasing pressure because of the rising cost of some key components. And so we're seeing the shares down more than eight percent this morning. So very steep drop for Ericsson there. This is further widening the performance gap between Ericsson and its closest rival, Nokia, which has banked a lot more on this AI boom, while Ericsson has remained more of a pure play sort of telecom player, which may not have paid off as well as it wanted to. So we're down quite significantly there. Moving on to another earnings story, but a positive one for Hapag Lloyd, which is up this morning, up almost six percent after boosting its guidance. It said that it was benefiting from growing market demand and also those rising container rates. This is the same thing that Musk also cited when it upgraded its own guidance just a couple of weeks ago. And so the shipping sector is really benefiting from this disruption in the Middle East. And the same is also that's the same case for oil majors, which are also in a focus this morning and also in the green. The likes of BP any all of all of those names up very strongly this morning. BP in particular because of these rising oil prices. Trump has reimposed the blockade on Iranian ships transiting through the Strait of Hormuz. We are seeing that boosting oil prices and therefore boosting all of those oil majors this morning. On the flip side, of course, that means a bit of a tougher day for airlines, for that travel industry taking quite the hit this morning because of this disruption to oil flows and potentially those higher fuel costs coming back on the agenda. And so we're down really across the board there. And finally, Essilor Luxottica is also down this morning after being downgraded by Goldman Sachs with the analysts saying that there was going to be some tougher comparatives for the AI glasses that Essilor is making in a collaboration with Meta and also rising competition from the likes of Google, Samsung and Apple as well. So we're down more than two percent this morning on the back of that downgrade as well.
[01:03:53] Speaker 2: Chloe, thank you. Chloe Mellie with us with those stocks on the move. And there are some coming up, though. We will talk about oil prices, oil trading higher as the U.S. and Iran resume strikes. We'll bring you the latest next. This is Bloomberg.
[01:04:27] Speaker 1: Welcome back to the opening trade. We are 19 minutes into your Tuesday session. It's risked off at least when it comes to European equities on higher oil prices and renewed geopolitical tension. So you're seeing a downside right now across the European benchmark of five tenths of a percent. The DAX in Germany down four tenths, close to five tenths, as you can see. They've got growing over in France, losing at 50, 52 points. Here in the UK, the FTSE 100 holding at 10,479. And you do have a bit of support coming through from the energy sector, which is up 1.3 percent. One of four sectors in positive territory. The rest facing pressure. Travel and leisure, the biggest loser across your sectors, down 2 percent right now. It is all about what's happening in oil. Brent futures then spiking above $85 a barrel for the first time in a month. That has President Trump reinstated the U.S. blockade of Iranian ships transiting the Strait of Hormuz. Let's bring in our energy reporter, Anthony De Paola, for the details. Anthony, what does the blockade mean for the global energy supply? Is it being reimposed? What does it mean in practice for shipments through the Strait?
[01:05:29] Speaker 12: Good morning, Tom. Yeah, I mean, there's a couple different factors that will be influencing the market here. I mean, first of all, specifically to that issue of the blockade, what the U.S. is going to do is block any Iranian vessels going to or from Iranian ports. So that would cut off that kind of resurgent Iranian oil flow. So we have seen a lot of Iranian oil tankers leaving Iranian ports after the MOU was signed. They had a lot of oil stored on vessels. Those have all left. We had a report of about 57 million barrels of Iranian crude leaving ports in and around the Gulf area and heading to market. A lot of those have still been sitting on ships out in Asia because China hasn't really been buying, and they've been the main buyer of Iranian crude. So even when the sanctions, the U.S. sanctions against Iranian crude sales were lifted, those have now been reimposed. Even when those were lifted, there still weren't many takers for that Iranian crude. So that will be, that flow should be blocked off. But also what it does is that announcement of that 20 percent fee is, of course, bringing up prices because that will make everything more expensive coming out of the Gulf. That's the 20 percent fee that President Trump said would be imposed for protecting Hormuz. Of course, we still have Iran interfering with vessels and shipping there. We did see two ships operated by, owned and operated by Adnok L&S, the shipping arm of the UAE oil giant. Those were targeted, transiting through Hormuz in the early hours of this morning here. So that's another big risk. Adnok has been one of the most aggressive in terms of getting its oil out under cover of darkness with their transponders off. So this potentially is a risk to those flows.
[01:07:21] Speaker 2: Yes. I mean, both Iran and the U.S. then claiming this role of guardian in the Strait of Hormuz right now. We talked about the oil price then, Anthony, about that up by 3 percent this morning. Is that wide across other products coming out of the Gulf? Gas prices, for example?
[01:07:36] Speaker 12: Yeah, and gas will be up, of course. We've seen product prices up as well, refined product prices like fuels in Europe, in particular where you are, because you don't have a lot of that product coming in from Russia because of some attacks on refineries there. And Gulf products, which would normally take up some of the slack, they've been slower coming out. They've been being produced and been exported, particularly from the Saudi Red Sea, some from the Persian Gulf, but not anywhere near the volumes that they were prior to the conflict. Of course, there's a lot of Atlantic Basin diesel coming across to Europe as well, too. But we are seeing that gas increasing, which is vitally important for Europe this summer period. They need to increase the stockpiles of gas to prepare for the winter. Of course, last week we saw a Qatari LNG ship hit as well, too. So this is really going to have some impact on that rampant recovery that we were seeing, and that's going to be a problem going forward, Anna.
[01:08:36] Speaker 1: Okay, Bloomberg's Anthony Deke-Powler with that update. Anthony, thank you. Let's get you some updates right now when it comes to the semiconductor story, because Bloomberg is reporting that Samsung is in the early stages of exploring a potential offering of American depository receipts. That, of course, after the successful listing of ADRs for SK Hynix on Friday. So Samsung is exploring this. They have not yet appointed any banks. It's very early stages. They have looked at this option before. It's obviously a complicated business, but they are reviewing whether or not this is an option, according to our reporting.
[01:09:12] Speaker 2: Okay, one to watch. Let's return to other corporate news here in Europe. Watches of Switzerland's annual revenue jumped by 13%, supported by strong U.S. demand that the luxury watch retailer said is laying the foundation for long-term profit growth. It comes after shares of the Rolex reseller went higher yesterday following a report that it held talks over potential takeover offers. Let's speak now with our Swiss luxury and industrials reporter, Allegra Cotelli, who is always close to these watches stories. Allegra, why would why would the company be interested in going private or what do we know about the future of this business? Let's start there.
[01:09:48] Speaker 13: Hi, thanks for having me. Yes, as we know, the luxury space has been going through a bit of a tough time of late. So for a company like Watches of Switzerland that has such an exposure to the watch space and the luxury space in general, it's not inconceivable. Their share price, even though it's gained quite a lot this year, is at about half of what it was in 2022. So it's not so surprising that it might have attracted offers. At the same time, when I did speak to the company yesterday, they said that these discussions were held in the past. I've been also asking sources around this. And so it doesn't seem like anything is happening right now. Others in the space like Swatch had also considered going private. So it wouldn't be inconceivable.
[01:10:35] Speaker 1: OK. And Allegra, they also came out Watches of Switzerland with earnings today. What did we what do we glean from those numbers?
[01:10:44] Speaker 13: What we understand is that the US market is extremely strong at the moment. They also said that they've seen encouraging signs on the UK side of things. The US market is a market that they've entered eight years ago, and already it makes up for half of their sales. So it's it's it's quite a you know, it's quite a driver in terms of these returns. UK US customers really like gold watches, big watches, and they have a lot of a lot of spending power. So and they're using it. So that's that's a driver. That's definitely a driver of growth.
[01:11:21] Speaker 1: OK, Allegra, thank you for that update. Allegra Catelli, our Swiss luxury and industrials reporter. Coming up, we are going to be talking to Jim Zelta, president of Apollo Global Management, as the firm's dealmaking nears a record for the year. That exclusive conversation is coming up. This is Bloomberg.
[01:11:41] Speaker ?: We'll be right back. We'll be right back. We'll be right back. Thank you.
[01:12:11] Speaker 2: Welcome back. This is the opening trade. 30 minutes into today's session and European equity markets certainly on the back foot. Is this yesterday's story? How much is this going to be a persistent theme, this negativity in European stocks into the trading day ahead? We have a US stock seeming to try and draw a line in the sand ahead of inflation data ahead of Kevin Walsh speaking later on Capitol Hill. But we do have the oil price persistently higher above $85 a barrel once again, and the European equity markets finding it heavy going to overcome that. In particular, the Cacarant then, Tom, where we see some of the luxury names under pressure.
[01:12:48] Speaker 1: Yes, that is the story, isn't it, in terms of the energy hit to European stocks as we look ahead to those risk events, as you say, in terms of CPI, inflation out of the US and, of course, Kevin Walsh. Right now, volumes are down versus the 20 day average close to 20 percent, 17 percent right now. But you are seeing that negativity when you split the board on the stock 600. So you're seeing 470 stocks, roughly 469 in negative territory, just 123 posting gains so far, 31 minutes into the Tuesday session. Let's split the board and have a look at some of the positive stories. And this does come down to earnings. We've got some positive outlooks coming through. So Hapag Loic, of course, in the shipping space, revising up their outlook or at least posting a positive outlook. So the stock gaining on the back of that. Allegro, this is a first-half earning story and some optimism on the numbers that have come through for Allegro and Micro Onyc as well. Also, the outlook being boosted by that company and the stock is rallying 13 percent. It is upgrading its full-year outlook. On the downside, a lot of this does come down to the energy story, to the $85-a-barrel story. Ericsson is more about a margin story. They're warning on costs into the back half of the year and a pressure story around margins for that telecom equipment maker. Intenica Continental Hotels and LVMH, this is about the energy shock, of course. Luxury and travel under pressure, as it was yesterday as well. Evermich then down 2.7 percent in the luxury space and then in the travel and leisure space. You're seeing airlines under pressure as well, of course, currently down 5 points or 3.3 percent for that particular stock. Anna?
[01:14:18] Speaker 2: Tom, let's get an update on the other stories that we are covering then this morning. Bloomberg has learned that Samsung is in the early stages of exploring a potential offering of American depository receipts or ADRs. According to sources, the company has held preliminary discussions with banks but hasn't yet made a decision about whether to proceed and will monitor the volatile memory chip stocks as part of that decision-making process. U.S. President Donald Trump has reinstated the U.S. blockade of Iranian ships transiting the Strait of Hormuz and is demanding a 20 percent reimbursement for all other cargo shipped through the waterway. Iran sees any challenge to its authority in the Strait as a breach of the Interim Peace Agreement, the MOU, and insists that the renewed blockade may prompt further attacks on commercial vessels. And bond traders are ramping up bets for a July interest rate hike ahead of U.S. inflation data and a testimony before the U.S. House by Federal Reserve Chair Kevin Walsh later today. The market is pricing in a rate increase by year-end and a second one in mid or by mid-2027, Tom.
[01:15:23] Speaker 1: Now, Apollo, as we think about the macroeconomics, a factor, of course, for all investors, arguably as well for private capital, private equity. And Apollo Global Management is nearing, despite this higher interest rate regime that we're seeing in the geopolitics, Apollo Management is nearing a record-breaking year, a record-breaking year for acquisitions. It's launched a £5.7 billion takeover bid for EasyJet and is buying a €3 billion stake in buyer's contraceptives unit. The investment firm's massive spending surge puts it at odds with the broader private equity industry. Most rivals are actually struggling to close new deals. Very pleased to say we're joined by Jim Zelta now, President of Apollo Global Management. Jim, thanks for coming into the studio. So, on track for a record year for Apollo when it comes to acquisitions. What has been driving that? Does it continue?
[01:16:11] Speaker 14: Well, I think it's, first of all, always great to be here in London. Great weather. You know, I think this has been a trend the last several years. You know, our business has really continued to evolve beyond our private equity roots of 36 years ago. Today, we're a little bit over a trillion of assets with credit being 80% of that. And most of our deployment the last several years, 80% plus has been in the credit areas and mostly investment grade credit. Certainly, you know, topical in the last couple of days on the last few days in terms of what we've announced over here. Yeah. Is some in the equity side, which I'm sure we'll get to. But certainly, listen, it's a robust economic backdrop, particularly in the U.S., but also in some areas over here as well. We've talked about this global industrial renaissance of many industries needing tremendous capex to growth. And we find ourselves in a very unique position to be able to provide that to many companies.
[01:17:11] Speaker 1: And you and the team have been pretty constructive on Europe. You're obviously here in London, so no doubt having some pretty consequential meetings. Is it a valuation story in Europe? Is it the AIs? Is it that Europe actually does have some role to play in AI? What makes Europe attractive in a moment of flatlining economy?
[01:17:28] Speaker 14: Well, I think the big story globally, it certainly has been an AI technology story. But there really is. We've been very consistent the last two or three years. This global industrial renaissance, whether it's energy, whether it's energy transmission, whether it's industrial revitalization, defense and many other areas. And if you look in Europe in the last 24 months between transactions, we've helped with financing Air France, Venovia, RWE, EDF, Bayer, as you mentioned this past week. You know, these companies need a tremendous amount of capex to compete on the world stage. And, you know, many governments in the past had been the purveyor of lots of capital for capex. Today, government pocketbooks aren't as buoyant to be able to provide that. So we, along with the investment grade market and the non-investment grade market, are really a provider of a lot of that capital.
[01:18:23] Speaker 2: Jim, good morning. Good morning. Nice to see you. Help me keep up to date with what it is you want out of these businesses in Europe that you're investing in then. Because we see names, you know, somebody like Apollo going after something like EasyJet. And then you think, but this is quite a low margin business. This is a low cost business. You know, in the olden days, we'd have thought of many businesses such as yours going in and wanting to strip out costs and make them more efficient. I mean, maybe that is part of the story, but surely there aren't many costs to strip. So what kind of thinking goes into making a play for something like EasyJet where there might not be the cost base to attack? Sure.
[01:19:00] Speaker 14: Well, I'm sure you can appreciate there's very little I can say, particularly about that transaction. I will say to you, in the private equity area, we have a long history of investing in airlines and aerospace. So, you know, we've had successful investments around the globe, whether it's Atlas Aviation, whether it's, you know, Sun in the U.S. We've done quite well in that sector that that's an equity investment. The others that I mentioned to you earlier, Vanovia, Air France, Intel, those are all really debt financings that we've provided. So I think we're extremely active on the debt financing side in Europe because of our role working with the banks as these companies need CapEx. But I think there are, you know, a tremendous amount of great businesses over here. It's a very large economic backdrop for us to be able to deploy capital. And, you know, in the last 24 months, I know I've been to Germany a half dozen times. I know my peers have as well. So there's certainly a lot going on here. When you have a firm with the breadth and scale of our toolbox, we can provide debt, mostly investment grade solutions, as well as some equity solutions. It's a very positive story. Okay.
[01:20:07] Speaker 2: And thinking about all that you just said there, you've been to Germany quite a lot. You previously were earlier mentioning that government pocketbooks are stretched and you guys have a bit of money to spend, to invest. It makes me think of the defense sector because this is an area we talk a lot about needing capital and needing investment in Europe. Is that somewhere that you're looking to increase exposure?
[01:20:29] Speaker 14: Yes. I think, again, when you think about it, I think when we sit back in the next 24 months, we'll look back and say, well, we talked a lot about AI and the hyperscalers. But really, there was a major capital expenditure need around a lot of companies. What's going on right now in the Middle East with the supply shocks of oil, I think it's making many companies look at their supply chain finance and just-in-time finance and inventory finance. So every economic event creates a variety of financing needs in the wake of that. We saw during COVID with supply chain, we're seeing it right now with the incursions of the challenges of the Middle East conflict. And so many, many companies are thinking about how do they finance themselves appropriately? Are there assets on their balance sheets that they can redeploy in a more effective way? In the end of the day, this is all about companies doing things that optimize the equity returns of their business. And if you see, a lot of the companies that we provide these debt financings to, their equities have done quite well in the wake of that. Intel's the best example. The stock's basically tripled since we gave that financing out 24 months ago in Ireland. We saw a nice return from buyer last week. So I think the marketplace likes to see a breadth of financing capabilities from these companies. And again, because of our unique structure, not only having a very large third-party institutional business, but a very large insurance and regulated balance sheet. We used both of those appropriately in the investment-grade world mostly, but a little bit in the non-investment-grade world to put that capital to work.
[01:22:11] Speaker 1: Given that you are financing some of this AI infrastructure, whether it's Intel in Ireland or Anthropic and Broadcom in the U.S., what assumptions are you and the team making about hyperscaler spend? How comfortable are you with the trajectory of spend right now and the return on investment? What are you modeling?
[01:22:30] Speaker 14: We really, as a debt investor, you're really trying to make sure that you've got your downside protected. So many of the transactions that we've provided capital to have either an amortizing structure where we get paid off every year, and we're really trying to avoid that residual risk on the back end. So for our transactions, the Broadcom transaction in particular, that was a five-year amortizing piece of paper. For the Intel facility, we were just really basically the capacity of the chips. So when you are a debt investor, especially top of the capital structure investment grade, you're really trying to box your risk. You're not taking the residual equity returns that you might be if you were a VC investor or an equity investor in a lot of these games.
[01:23:17] Speaker 1: Do you think the infrastructure spend continues at pace at the kind of level we're seeing right now?
[01:23:21] Speaker 14: I think it's going to be a great question. I think when you see companies like Alphabet do their $85 billion financing between equity and mandatory, I think the real refrain is every precinct is needed. There's a lot of conversations about private credit, about investment grade, public credit, about equity. It's going to need all of these asset classes to really contribute because the vast size of capital needed is really something we've not seen in the past. And the impact of the whole, the construct of the IG market, I've talked a lot about to your colleagues in New York, the construct of that. These hyperscalers were very, were negligible players really in the IG space several years ago. They'll be up to seven to 10% by the end of this year. So the whole construct of how these companies finance is very, very different and unique.
[01:24:13] Speaker 2: Yes. And Jim, can I ask you about something that's sort of quick, fast developing, has been for the last six months or so within the private credit space? And that's, you know, we've seen around BDC. So those companies in the States that do a lot of private credit, they've had a lot of software exposure. They then face a lot of redemptions. Is this something that worries you as part of the private credit landscape at this point?
[01:24:34] Speaker 14: You know, I think we get asked that a lot. I think clearly it's not systemic risk. It really is, you know, the non-investment grade private credit area. It's about a $3 trillion asset class. This BDC area is about $400 billion of that. So it's really a very, very small corner. It's the same type of redemption provisions that institutions would have in terms of a drawdown vehicle. So I think there will be a breadth of dispersion of returns amongst managers because of either software or other areas. But I don't see it as one where it's systemic risk by any means.
[01:25:12] Speaker 1: Do you think there are some BDCs out there, business development companies, that won't make it through this period?
[01:25:17] Speaker 14: You know, like any asset class, like the hedge fund industry, it's really just a structure. And it's really then how you actually invest in it. And certainly there has been very little dispersion of performance between top quartile and bottom quartile the last five years. I think the next two or three years, you will certainly see a wider dispersion of performance amongst those.
[01:25:40] Speaker 2: So you say it's not systemic, which seems to be something that we hear from various people, Jim. Fitch did publish a report yesterday, though, pointing or earlier this week, maybe, pointing to hidden leverage in private credit BDCs through their use of joint ventures. Are there are there other things like that? Are you worried about that or are there other things like that that we should be more concerned?
[01:25:58] Speaker 14: You know, I think as we sit here again in 24 months from now, we talk about the disruption from this in the software industry. I do think other industries will get disrupted as well. For us, I think it's naive to think that the only sector in the world of credit, public and private, that's going to get disrupted is the software space. I think there's a variety of other distribution businesses or other businesses that may be asset light that took advantage of great margins that I think in the world of AI and disruption, there will be more. So I think you have to have a much broader lens when you think about the challenges going forward in portfolio construction.
[01:26:38] Speaker 1: Jim, on the here and now, we're getting to the foothills of the earnings season. U.S. banks reporting later today. What are you and the team going to be watching for when it comes to earnings broadly? What is top of mind for you as you scrutinize those numbers?
[01:26:49] Speaker 14: Well, I suspect they will be quite strong. I mean, a tremendous amount of interstock volatility in the quarter, tremendous amount of financing activity, but yet index is quite higher at the end. So, you know, I am curious some of the regional success of some of these firms, not only the U.S., Europe, but also Asia, certain countries in terms of performance. But I suspect they will be quite strong. The capital markets pipeline has been extraordinary. The investment grade issuance has been extraordinary. Equity issuance, record quarter, I believe, and also M&A has been quite strong. So, you know, the macroeconomic drivers of the CapEx cycle, the risk on mentality, capital investment, pretty strong to be able to get in the way of right now.
[01:27:36] Speaker 2: Jim, thank you very much. Thanks for your time. We appreciate it. Always a pleasure. Jim Seltzer, Apollo Global Management President. Coming up on the program, as we've been discussing, the U.S.'s biggest banks are set to report record revenue for the second quarter with Wall Street's trading bonanza poised to keep on rolling. We will look ahead to the Marathon Earnings Day next. This is Bloomberg. Welcome back to The Opening Trade, 49 minutes into a session that actually looks to be deteriorating a little bit. The oil price keeps on pushing higher and European stocks are not proving to be resilient to that. So the oil prices are $86 now, so $86.18 on the Brent price. And so as a result, we're down by eight tenths of 1%. So we started this program, Tom, talking about how the European stock story maybe was yesterday's news because it was catching up with the U.S. Well, with these higher oil prices, we seem to be adding another layer of risk off as we get, you know, almost an hour into the trading day.
[01:28:49] Speaker 1: Yeah, even U.S. futures, or at least on the S&P E-mini, is pointing lower by a tenth percent. There's still a little upside flag for the Nasdaq 100 after a difficult day yesterday. We'll see how that evolves, of course. Let's look ahead, meanwhile, to what else we are watching throughout the day. Today, really kicking off the earnings season with U.S. bank earnings, Bank of America, JP Morgan, Chase, of course, Wells Fargo, Citigroup and Goldman Sachs all reporting. At 1:30 p.m. on the macro front, we get the June CPI, the inflation print out of the U.S. And at 3:00 p.m. then, so after the inflation story, we get the Fed Chairman Walsh testifying before the House Financial Services Committee on the semi-annual monetary policy report. We'll see if he says anything, reacts to that inflation data, says anything about rates, trajectory ahead, maybe not. Later on, ECB President Christine Lagarde will meet with U.S. Treasury Secretary Scott Besant in Washington. And the U.K. Chancellor Rachel Reeves and BOE Governor Andrew Bailey will deliver their Mansion House speech just across the road later today as well. Let's get more on what to expect then from Fed Chair Walsh. Bloomberg Managing Editor Jill Desis joins us now for a preview. So Jill, we mentioned we're going to get CPI data, inflation data for the month of June. No doubt those on the FMC will be scrutinizing, particularly the core part of that data set. What are we expecting?
[01:30:08] Speaker 15: Yes, Tom, actually, we may be looking at a decline in CPI, perhaps the first monthly decline since the pandemic 2020. That's probably because what we've seen in recent weeks is a pretty significant decline in gas prices. So after a lot of those inflation pressures were obviously driven up in March, April, May, you might be seeing that cool and come off a little bit. You're looking at some of our estimates right there, including that month on month figure that I was just mentioning. So that's really what we have to look forward to. Obviously, you know, we'll see what the numbers ultimately show us. But I do think the timing obviously of Walsh's testimony coming right after is, you know, pretty interesting.
[01:30:48] Speaker 2: Yeah. And Jill, will Walsh want to give any message at all in front of Congress today?
[01:30:54] Speaker 15: Yeah, so Anna, I'm not sure that he's actually going to go ahead and give us any kind of an indication as to what to expect in terms of a rate decision rate hike coming later this month. One thing that Walsh might choose to do. Remember, this is, first of all, testimony that takes place over a couple of days, two days. But one thing that he might choose to do instead is try to figure out a way to present his broader agenda for the Fed, including more details on those task forces that he just set up. You know, there is this big to do over all of these really key names, including a lot of critical former central bankers, you know, major executives and such looking at all areas of the Fed. So the one thing that I would kind of look towards is, you know, be a bit surprised if he goes in, you know, super specific and deep on sort of expectations for, you know, what that decision may be. And instead, I would look to see him, you know, kind of reflect a little bit more on some of those broader policy aims that he has for the Fed. But obviously, you know, we'll have to see what happens when that testimony comes up. And I think, again, you know, that coming just after that CPI print, it's all kind of, you know, just really interesting timing here.
[01:32:00] Speaker 1: OK, Jill, thank you very much indeed. Bloomberg's Jill Deesis with that preview. And we're going to have coverage, of course, of Kevin Walsh's testimony to the House Financial Services Committee from 3:00 p.m. London time.
[01:32:10] Speaker 2: Same with the U.S. And five of the biggest banks are set to kick off a Marathon Earnings Day. For more, Bloomberg's Tom Metcalf is with us. European finance coverage, who leads, sorry, European finance coverage. Good morning to you, Tom. So how on earth do you keep across JP Morgan? I'm reading this list because I can't remember it. But JP Morgan, Bank of America, Citi, Wells Fargo, Goldman Sachs, all reporting in one day. How does anybody have the brain space?
[01:32:35] Speaker 16: There's going to be a lot of coffee. And yes, it's pretty unprecedented. I can't remember such a concentration of like, you know, all the big banks effectively apart from Morgan Stanley, which reports tomorrow. So it'd be really interesting. There was a wonderful article about how, you know, bank analysts are trying to cope. And, you know, effectively for everyone, it's just, oh, my Lord, let's all hands to the pump. And the challenge will really be, you know, obviously the results come out fairly staggered, but pretty close together. But then some of the earnings calls actually overlap as well. So, you know, I think there'll be a rush of data. And, you know, to be honest, it will probably be take, you know, till through the end of the close of the US to kind of really be able to pick out everything.
[01:33:11] Speaker 2: I wonder if there'll be a test of AI in this situation, you know, maybe it helps.
[01:33:16] Speaker 1: This is maybe where you get the efficiencies coming through, or at least you get a lift or some assist. What is helping these big banks in terms of cashing in on trade? Volatility is there. Are they going to execute on trading?
[01:33:28] Speaker 16: Yeah, that would probably be the most closely watched number, those trade and revenue figures, and particularly the stock trading. So first quarter was effectively a record. What we're hearing is that Goldman might break its own record again, maybe top five billion for the second quarter. But yeah, broadly speaking, expecting very strong performance in that line, as you can imagine from the volatility and all the trading that's been going on in these current times.
[01:33:50] Speaker 2: So cashing in on trading is one of the themes. What about also the fact that we've seen lots of IPOs? I mean, SpaceX is just one of them, but there have been others. Is that going to be a big feature of this earnings story?
[01:34:04] Speaker 16: Yeah, it should really be strength across the board. And actually we had a story earlier about Rothschild here in the UK, where you can just see, you know, the compensation for bankers going up as this sort of deal splurge really starts to translate into, you know, deals being completed and stuff. And look, you had SpaceX in the quarter just gone. But obviously those, you know, those margins are pretty thin, but it just speaks to the sense of this is a real glut of deals. And that should again be good for those capital markets business. Tom Metcalf, fantastic.
[01:34:29] Speaker 1: Thank you very much indeed with that update, that preview again, as we get into really into the thick of it with earnings season and the look ahead to US banks. And of course, we'll be covering that, the team in the US throughout the day when those numbers cross. Tom, thank you. We're going to be speaking as well with the CFO of Wells Fargo, Mike Santo Massimo at 8:00 PM London time. So that is one for the calendar. The other one for the calendar before we get to that is a game. Yes. Between France and Spain. This is going to be gripping viewing, isn't it? France versus Spain, two big beasts. They have their history, of course. Interesting, the betting odds are on France, just about getting it versus Spain, but two fantastic teams.
[01:35:12] Speaker 2: Yes. I know Didier Deschamps, the French boss, has been predicting a spectacular semifinal. I mean, those odds tell, well, I don't know, does that tell spectacular? That tells very undecided, which could be spectacular, couldn't it? That's the polymarket odds. And that's only up to 90 minutes, of course. We should point out it can't be a draw in the end because somebody has to go through to the final on Sunday.
[01:35:33] Speaker 1: OK, 8:00 PM, 8:00 PM UK time, 9:00 PM if you are, of course, on the continent. That is it for the opening trade. The Pulse is up next. This is Bloomberg.
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