UK Chancellor Pledges Fiscal Buffer In City Pitch — The Opening Trade 7/23/2026

[00:00:01] Speaker 1: Good morning, everybody. It is Thursday, July the 23rd. Here's what's on today's agenda. Alphabet drops as higher capex worries hyperscaler investors, but memory makers in Asia seem happy. Brent's above $95 as the Houthis unleash Red Sea attacks. And we're live at the ECB just in case we get clues on September's rate decision. [00:00:20] Speaker 2: OK, let's talk about the earnings picture and how it's folding in. So this is the story this morning, Anna. Eurostox 50 futures are down. We're down by around 4 tenths of 1%. We've got a lot of earnings to fold in this morning, folks. We've got a whole raft of CEOs, CFOs to talk to you this morning. But it's also partly a reaction to what we saw in the States yesterday. So the Nasdaq was down 5 tenths of 1% yesterday's session. It's now down again in terms of the futures picture by another 3 tenths of 1%. We've got to fold in that hyperscaler story that Anna was just talking about. So again, a negative picture emanating from the other side of the Atlantic. And the Houthis, what effect are they having? Brent crude is up by 2.32%. The countdown to the opening trade starts right now. [00:01:11] Speaker 1: Welcome to the opening trade, everybody. Just on 7 o'clock on a really busy Thursday. As, Guy, you were mentioning, we have a lot of tech themes to deal with. We'll start there. Other geopolitical news on the agenda as well. But let's start with the tech themes. So we went into the earnings season, and Alphabet is the start of the big hyperscaler earnings season, with big questions about CapEx. One of them was, is CapEx going to be rising? The answer so far from Alphabet is, yes, it's still on the rise. Is that a good or a bad thing? Well, that's where it starts to get more complicated. It seems that investors and hyperscalers have taken this as maybe a negative, maybe testing the limits of what they're in for. But on the other side of things, those that are benefiting from the spending of all of that CapEx, the memory chip makers over in South Korea, they're benefiting. So the KOSPI is up by over 4%, even as the Alphabet share falls overnight. [00:01:58] Speaker 2: Alphabet, negative free cash flow. Haven't seen that for ages. [00:02:02] Speaker 1: Yeah, we've got a stunning chart that shows that. [00:02:05] Speaker 2: Let's bring that up, because I think it is a significant moment in this journey that we're going through currently. They've got loads of cash, they've got loads on the balance sheet, they've got loads of money available. This isn't a restrictive issue in terms of what they're going to do next. But they're cash flow negative, so that's kind of a moment in time. And then you kind of extrapolate that forward. They're booking a lot of benefit coming through from some of their cross-share holdings at the moment in things like Anthropic. That certainly worked well. SpaceX is another factor there as well. But these are now hardware companies, and they've also got an amortization issue, which is beginning to come as a factor as well. Now, we're not recognizing any of those threats at the moment, but if you think about it, you've got a company that's negative free cash flow, big investments coming through. How big a challenge is that going to be? Maybe not now, but maybe in 6, 12, sort of 24. I don't know when that moment comes, but at some point all of those issues. And I think investors are beginning to recognize that. [00:02:55] Speaker 1: Yes, absolutely. It is a stunning chart. On a trailing 12-month basis, it is still in positive territory, which is what some, to your point, will point to. It's not an issue now, maybe. But this is an interesting dynamic that we will certainly be watching. Texas Instruments also stood out to me as one that was interesting as well. Sales guidance, upgrade, better than estimates, but the stock dropped after hours. And once again, another reminder of where the bar really is when it comes to anything to do with technology. But there were some interesting dynamics in here about broadening, not just the AI story. So, yes, they're benefiting at Texas from the AI theme, but also cars and other things that they, you know, legacy product that they used to supply, that's also bouncing a little bit. [00:03:32] Speaker 2: Let's just throw a few more names in. Tesla was another factor you need to fold into the narrative this morning. You've got Nokia out with numbers. It looks like this morning in Europe we're seeing a benefit from that. STM is out with numbers as well. Its outlook looks a little shaky versus expectations, but the numbers broadly look okay. So there's a number of European tech themes that we're going to have to fold in as well. So we've been worried about the straight and foremost, now we're worried about the Red Sea. Yeah. That's basically the narrative as well. The Saudis have been getting a lot of crude out through the pipeline, down through the Red Sea. The Houthis look like they've attacked two ships overnight. The UK authorities are certainly signaling that one has been hit. We're assuming that there probably is a second as well. Oil prices are climbing on the back of this. So this is one of the kind of key release valves that existed for Gulf crude. Now looks like it's going to be increasingly challenged, and the price of crude continues to rise as a result. [00:04:18] Speaker 1: It does, and we're back, we're over $96 a barrel now, just watching that tick up just now, up by 2% on the Brent price. And we have, yes, on the systems that these vessels use to communicate, one of them, one of the ones that's been hit, the Houthis says they hit it, is signaling that it's lost control of its direction. So it does suggest that there is some damage being done to these vessels. That is going to mean that others don't want to go into the area, of course, and so we watch what impact that will have. We've seen the 12th night of tit-for-tat attacks in the context of the wider MOU and peace talks that don't seem to be happening right now. And we're getting little sign that they'll be returning to the table. The U.S. talking about, once again, threatening bridges and power plants, and this being described as a serious escalation. And that is why we're not far from $100 a barrel now on oil. [00:05:01] Speaker 2: So where do we go next? I'm really, what I'm intrigued now to watch is what happens with reserve drawdowns and how much capacity there still is and how near the bottom of the barrel we are in terms of SPRs around the world. That is going to be, I think, a, that's going to provide, we talked about this yesterday, that's going to provide the volatility that we're going to be watching out for. [00:05:18] Speaker 1: And if you are a consumer in Europe and you are very well aware of Europe's exposure to things coming out of the, well, the Strait of Hormuz and now the Red Sea, and all of that is looking expensive once again, oil prices pushing up towards $100 a barrel, do you adjust your behavior? We're just getting some slight signs that maybe consumers are adjusting their behavior. A tick up, 13% increase in EV, in sales of cars in Europe year on year is not bad. And EVs now more than a third of the new cars that are being sold, or things with a plug, I should say. So not necessarily full EVs, but things with a plug. So we are seeing that consumers are maybe adjusting, what can they do? Maybe it's only at the margin, but they're adjusting to some degree. Shall we go from there into what the ECB does in response to higher energy prices? The European Central Bank meets today, where it's widely expected to keep interest rates on hold, as officials weigh the fallout of re-escalation in the Middle East. For more, we're joined by Bloomberg's Yana Randall, who's in Frankfurt for us at the ECB. What are the key things we need to be looking for then today, Yana? [00:06:22] Speaker 3: Good morning. Well, yes, rates aren't changed, so that is not the most exciting thing. I would say what really is important is what the president says about the risk outlook to growth, and more importantly, even to inflation. We saw inflation coming down faster than expected last month, 2.8%. So that was very encouraging. But that was before the renewed escalation of fighting in the Middle East, of course. Now, we saw oil prices rise sharply after that, and that, in a way, put the ECB back to square one on inflation. So they're not doing anything this time around. They were quite clear on that. But come September, you know, all options are on the table again. We're waiting for forecasts that will be out at that time, and they will be very, very important to watch. And in the meantime, yeah, it'll be interesting to see what she says about inflation risks, about inflation expectations, about maybe second-round effects emerging. So those are the ones that we watch out very carefully here. And then, of course, she may also face questions on her own future because she keeps fanning rumors that she might leave the ECB early. So those are the two things to watch here in Frankfurt later today. [00:07:38] Speaker 1: Okay, Jana, thank you so much. Yes, so even though expectations have no rate change today, there are things to watch. Jana Randall there with a rundown of what those might be and the ECB's moves of interest to our next guest. [00:07:49] Speaker 2: They certainly are, I suspect. So let's talk about our next guest. BNP Paribas has reported better than expected revenue and profit for the second quarter. It's stock traders, it's equity traders, absolutely smashing expectations. Joining us now is Lars Bashanil, the Chief Financial Officer, the CFO at BNP Paribas. Lars, always a pleasure. I feel like I'm going to ask you the same question that I asked you last time around, which is, is BNP just an equity story now? Is the rest of the bank performing as you would like it to? Or are the equity guys just doing what they need to do to keep this bank delivering these kinds of amazing numbers that you're delivering right now? [00:08:30] Speaker 4: Well, guys, if you look at the results, it's basically all engines are firing on all, are basically firing. If you look at it, I mean, all the growth, all of the lines are basically double digit. So top line is up 12 percent. Gross operating income, so revenues minus cost, minus cost of risk, up 16 percent. Bottom line, given a capital gain, up 33 percent. And again, it is CIB, which is doing fine, but it's also the retail activities, which are doing fine. And also the IPS, so the asset management and insurance activities, which are doing very fine. And moreover, our common equity T1 is solid, 13 percent. We are there 18 months ahead of business. So we are really firing on all cylinders and ready to continue to support the economy. So we are not that one trick pony. It is really the three divisions that are working collectively and that are boosting the result. [00:09:27] Speaker 2: OK, let's just let's just kind of absorb all of that, but talk a little bit about what is happening in equities. Again, the equity numbers are strong and are well ahead of expectations. Q2, equity and prime services revenue, 1.41. That's plus 43 percent year on year. Can you just give me a bit of detail, though? I'm curious as to how this breaks down. Equity and prime services. Lars, what are you getting on the prime services side of things? What are hedge funds doing? Where are you seeing the expansion when it comes to the hedge funds? Some of the Wall Street banks like Goldman Sachs were talking about a really strong demand for leverage coming out of Asia. Where are you seeing the prime services business doing well and how does it compare with the rest of the equities business within that portfolio? [00:10:15] Speaker 4: Well, if you look at our equity and prime services, we are one of the few banks in Europe that have the full scale. So we have cash equities, derivatives and prime brokers, as you said, and that basically having a reach all around the world. And if you look at the demand, the demand probably related to the super cycle that we see has been stronger both in the U.S. and in Asia, but it has been strong overall. And as we are present in all of those domains and we have the capital, the liquidity, the leverage to do so, we are there to accompany that demand. And so that's what we've been seeing. And so we're very pleased to have that complete setup and to be able to follow our clients all around the world, actually. [00:10:58] Speaker 1: Lars, good morning. So that's the revenue side of things. I wonder what you're doing on provisions. One line in our report this morning suggests that maybe your provisions have been on the rise, maybe higher than had been estimated and citing geopolitical risk. What is it that you are increasingly provisioning for? [00:11:16] Speaker 4: Yeah, listen, if I express the cost of risk as what fraction of my loans do I impair? So I express this in basis points, a fraction of percentage. We clocked in this quarter at 39 basis points compared to 38 a year ago. But if you look at the cost of risk in our divisions, it is basically stable. So intrinsically, with whatever that has been happening on the divisions, there is no pickup, it is stable. So what is that additional basis point coming from? It's because we took a prudent stand saying there is some geopolitical uncertainty and that allows us to take a generic provision for that uncertainty. So that is a provision that we took if at some point in time, the geopolitical situation would deteriorate and there would be higher cost of risk, we would use this reserve that we have created this quarter. [00:12:10] Speaker 1: And Lars, can I ask you about what's happening with the technology build out, the frenzy around AI and data center rollout and how we see that evidenced in the business that BNP Paribas does? We heard from somebody at Barclays yesterday who was talking about a golden age for technology right now. There are so many trends happening at the same time and so many companies wanting to tap markets as a result. Is this something that you think is happening outside of European banking or is European banking intrinsic to these developments? [00:12:42] Speaker 4: You see demands a bit all over the world. If you go into Asia, the U.S., it is rather than the AI super cycle. If you go in Europe, there are also structural demands, infrastructure, energy. So there are a lot of investments that are happening. And so we see that pickup. And again, we, with what we have both in the global markets but also in the financing activities and given our capital position, we are there to support. The one thing is, you know us, we are a bank, we are prudent, so we have to be, we see a lot of demand, but we have to be careful and to avoid that we would underwrite things that would make us think of what we saw back in 2002. So that's a bit it. So yes, we see demand. Yes, we're ready to support it. But we keep our eyes open, as we always do. [00:13:31] Speaker 2: You seem to be saying that you think there's a risk here. Are we, are we, how bubble-like do you think the market is right now, therefore, around this space? [00:13:42] Speaker 4: Listen, I'm not going to qualify it as a bubble, but I'm telling you, we are continuing to look very careful what it is to make sure that there is a difference between really infrastructure kind of things and things which are maybe not as underbuilt. So I'm not saying there is a bubble, but we're particularly careful to avoid it. [00:14:06] Speaker 2: Just to follow up on that, when you spend money, I'm going to ask you the same question I asked the CFO of Santander yesterday, what's your rate of return when you invest in AI at the moment? Say you invest a euro in AI, what's your rate of return that you're seeing at the bank right now? [00:14:26] Speaker 4: Yes, I'll put it the other way around, is to be very fair. Again, these kind of things, if you implement AI, I'm exaggerating, but imagine you give every employee a tool that is going to cost a lot of money, and that's not necessarily going to realize in any bottom line improvement. So the way we do it, we really focus on all the investments that we do, that they do have the ROIC that we go for, so more than what we typically have, so like 15% after tax. We also want to make sure that it is focused on cost capturing and on cyber, so we really look forward, so we're not handing out tools to everyone, we're really taking end-to-end processes, see where it can be plugged in, and how it can deliver the savings. [00:15:10] Speaker 1: Lars, I don't need to tell you that we're heading towards a French election, of course. When you look at the polling, are you preparing the business for any kind of particular outcome? Are you concerned about European cohesion on the other side of the election? Are you concerned about higher French bond market spreads on the other side of the election? How do you prepare the business? [00:15:31] Speaker 4: Well, the point of attention, if I talk to corporates, and at this stage, they picked up business, so they were a bit wait-and-see with what was happening in the Middle East, they picked up. If you look at June, you saw business picking up. So from that point of view, it's fine. If I talk to our individual clients, you saw a result in French retail banking, they are doing fine. So the point of attention, if I may say, is the French republic, yeah? What will happen, what will happen with the financing costs and the likes? So that is a bit the point of attention, but intrinsically, for us, with respect to what we see in the French clients, and let's not forget, we are a bank which is pan-European, yeah? I know we have twice Paris in our name, but we are mainly a pan-European bank, so from that point of view, on the day-to-day business, we see evolutions, which are fine. But yes, there will be some uncertainty around the republic, around the financing around it, so that's what we will have probably until next summer. [00:16:29] Speaker 2: Yep. We're all going to watch with interest, I have to say. Lars, always a pleasure. Thanks for the time this morning. BNP Paribas CFO, Lars Mecheneil. We've got lots of guests to talk to you this morning, some great line-ups have been arranged for you to watch as we work our way through this programme. Christophe Perilla is the Valeo CEO, we're going to talk cars, we're going to talk industrials. Tomas Shinneke is the Roche CEO, some really interesting narratives going on there. We're going to get into the markets with Shanti Kellerman, 7IM co-chief investment officer, and Ian Steeley is going to be here, JPMorgan Asset Management's International Fixed Income CIO. He is a busy man right now, lots to talk about that. [00:17:04] Speaker 1: Lots to talk about, including the ECB, it's Decision Day, so coming up on the programme, Decision Day. The ECB will be live in Frankfurt. Ahead of that rate decision, any clues on September from Christine Lagarde will be closely watched in the press conference. Plus, we will look at the stocks to watch at the Open. We've talked about a number of earnings stories already, but Unicredit is also worthy of a place on that list. The Italian lender reporting a profit beat and lifting its full-year guidance. Up next, Alphabet sets the tone for big tech earnings with higher-than-expected capex. We'll discuss what that means for the AI race. Please get in touch with us. We do like to hear from you. IB plus BBTV Go is the function to use on the Bloomberg Terminal. This is Bloomberg. [00:17:40] Speaker 5: We should be spending on capex as fast as we can, as fast as we can, without it being too wasteful. So, we're not trying to aim for some extremely high-efficiency capital spend because that would slow things down. So, it's a balance between how much capital efficiency versus time. [00:18:25] Speaker 2: Getting that one right is going to be quite tricky, isn't it? Elon Musk, the CEO of Tesla, speaking on the company's earnings call yesterday. Capex, the big focus overnight. Of course, we've seen Alphabet out with its numbers doubling down, raising its spending plans, raising concerns about its fiscal discipline. Let's try and figure out what we should make of the market reaction and the numbers that we got. Matt Bloxham, technology analyst at Bloomberg Intelligence, joining us around the table. The market took a little bit of fright last night from the fact that they're not backing away. In fact, they're doubling down. What did you take away from what we learned from Alphabet yesterday about the signals that they are sending? [00:19:05] Speaker 6: Yeah, I think probably this kind of increasing divergence between the top-line momentum, which is still good, but I don't think it's not really accelerating, and the misalignment, therefore, with the increase in capital spending, and that perhaps that capital spending is getting incrementally speculative. And, you know, we saw some of that in the comments from Elon Musk, too. You know, the fact that you talked about trying to minimize the wastefulness of the capital spending. I mean, no investor wants any of your capital spending to be wasteful. And, you know, I think definitely with Tesla, there's a lot more speculative CapEx in their plan than there is with Google. But still, you know, you look at their revenue growth. Yeah, great. It's in the kind of mid-20% year-on-year. A lot of that's coming from cloud. But they were delivering those kind of numbers before the big CapEx bump. And so the risk is going, where is this extra lift in revenue and profit? It's not coming through. Yeah, yeah. Are we now really in a kind of a more irrational arms race between the big hyperscalers? You have to be in it. But that doesn't mean to say that you're... Yeah. [00:20:08] Speaker 1: And so it's an arms race. And so does negative cash, free cash flow in that context make sense? [00:20:15] Speaker 6: So should we worry about it? That was a big pause. [00:20:18] Speaker 1: I mean, the chart looks scary, doesn't it? But I know that that's not the whole story. [00:20:22] Speaker 6: Yeah. I mean, it's a hard question to answer. But, you know, thinking about my experience, you know, we've seen lots of these cycles before where the answer is something to worry about. You know, if you go back, for example, to the 3G spectrum in mobile, it's just like that was just an arms race. It was irrational. People overspent. They never got return on it. And there is a risk that we're in the same position that you have all these massive hyperscaler data centers. And they sit there a strand of capital for quite a period of time. We've been through at least one, if not two cycles of Chapter 11 filings for data center operators through the last two or three decades. It's not impossible you can see the same thing again. So I think that does need to continue to be financial discipline amongst these players. Otherwise, we'll end up in the same position. [00:21:07] Speaker 2: I can't remember who it was the other day talking about the fact of turning data center into pickleball courts. That's where we're going. At least they have some sort of useful outcome for them. STM, Nokia, et cetera, out of numbers this morning. What do you make of those? [00:21:19] Speaker 6: I think they're definitely benefiting from the data center investment cycle. Both got a lot of exposure on the optics for Nokia, on power management for STM, but nothing incremental. I think they're largely trending as the market would have expected. And there are some cost pressures for them to manage. Are they just passengers now? I don't think they're passengers. They're kind of periphery beneficiaries of what's going on. But you are along for the ride, basically. Exactly, yeah. And for Nokia, you'll see that they've doubled down on their cost-cutting plans. So they're having to manage higher input costs to deliver that profitability. [00:22:01] Speaker 1: Matt, thank you very much. Matt Bloxham, technology analyst at Bloomberg Intelligence. Yeah, the cost base is certainly something that we saw Ericsson mentioning. [00:22:08] Speaker 2: Yes, Tonya Company is talking about that. What else do you need to know this, what is it, Thursday morning? Thursday morning. There we go. European car sales have hit their highest level since October 2023. Anna was just talking to you about this earlier in the show. More drivers shifting to electric vehicles. The European Automobile Manufacturers Association said sales rose more than 13% in June from a year ago to 1.4 million units battery-powered vehicles. Sales rose 51%, with France and Germany making up the bulk of the rise after new incentives helped drive sales. One of those incentives could certainly be higher petrol prices. Prologis is set to acquire the UK's largest landlord, Segro, after securing the recommendation of its board for an improved $14 billion cash and share offer for the company. The new offer from Prologis comes after a war of words between the companies centered on the fair value of Segro's growing pipeline of data center projects and its ability to execute on the developments as a standalone business. EasyJet has reported revenue for the third quarter. The beat average analyst estimates. It comes after the company shares slumped yesterday on a Reuters report that the EU is preparing to review airline ownership rules. Now, such a move could affect takeover bids for the low-cost carrier from US investment firms Castle Lake and Apollo, who are not European. They are American, and that could be a problem. [00:23:24] Speaker 1: Yep, that could be a problem. And we're back to talking about M&A and removing listed businesses here in the UK, aren't we? We'll continue to focus on that story, of course. Coming up, first half results then from the auto technology supplier Valeo. The numbers themselves beat estimates. We've seen a pickup in sales, EVs included, of cars in Europe. We'll talk about all of that. We'll speak to the CEO of Valeo, Christophe Periat. That conversation coming up next from Paris. This is Bloomberg. [00:23:48] Speaker 2: This is the 23rd. Welcome back. 30 minutes to go until we start trading here in Europe. This is what the futures butcher looks like. There's a few kind of trends that I think are worth folding into this. One of which is yesterday, the US finished in negative territory. We've got to factor that into our thinking. US futures, particularly NASDAQ futures, are down this morning. So just bear that in mind as well. NASDAQ down by 2.5% at the moment. So across Europe this morning, you've got a fairly negative picture. We're down by 2, 3 tenths of what I'm saying. There are an awful lot of earnings. Single stock stories. You need to fold into the narrative as well today. Busy morning. [00:24:41] Speaker 1: Absolutely. It is a busy morning. Let's get to the bond markets. Let's not lose sight of what's happening there, because oil prices, $96 a barrel, and then some. This is the Brent price, of course. Does that increase our fears about inflation? Well, maybe just at the margin. Maybe we've priced a lot of that in already, perhaps. The yield story has been responding in the past to higher inflation expectations. But we don't see too much of that today. Just a basis point or so in terms of the movement higher in yields. Let's move back to the corporate earnings story. The French auto parts supplier Vallejo looks set to meet its full-year targets after reporting better-than-expected sales. The results, showing their turnaround, is on track as the company undergoes a pricing restructuring and a cost reduction plan. Let's speak now to the chief executive of Vallejo, Christophe Periat, who joins us now from Paris. Christophe, really nice to have you on the program. Thanks very much for joining us. So, you've stuck to your guidance today. You're in the midst of a turnaround. We've seen some positive news flow surrounding the automakers in Europe and the amount of cars they're selling. I wonder what business looks like to you right now. [00:25:45] Speaker 7: Well, the business is... First, good morning. Thank you for having me. The business is pretty good. I mean, the market is stable. We're not disappointed by the market. Of course, there's a lot of mixed change between OEMs. Chinese OEMs are going up. Global OEMs are, let's say, in a less favorable position today. But we're working, as you know, with all OEMs in the world, with all car manufacturers. So, we find a way to push our technologies on electrification, on autonomous cars, and software-defined vehicles. So, we found a way to improve our profitability, to improve our free cash flow, to reduce our debt in this first semester. We're proud of this progress. We are making progress on our core business, definitely. [00:26:36] Speaker 1: Okay. And you mentioned there how you work with lots of different OEMs, lots of different manufacturers in the auto space, Christophe, from Europe and, crucially, from China. Yes, we see evidence of them gaining market share. Do you have proof that when China comes to Europe to make cars, they use European suppliers? Is that what is happening or not? [00:26:58] Speaker 7: Well, they're not using enough suppliers. You know, this is why there's these discussions at the European Commission about an Industrial Accelerator Act, to make sure that there's, you know, an increased content per car in Europe for European cars. You know, there are these discussions in Europe, we believe, well, I'm optimistic when it comes to the outcome of these discussions. So, I think there's going to be a good legislation, probably in the first half of next year, to make sure that, you know, for a car that's being sold in Europe, the content of the car remains in Europe. Well, I mean, we should target to have, you know, in Europe, in the future, the same share that we have today. We consider today that 70 to 75 percent of the European car is being, you know, coming from Europe. So, I mean, this is a good basis for the coming legislation. [00:28:12] Speaker 2: And you think the Chinese will do that? [00:28:17] Speaker 7: Well, it has to be, you know, a political decision in Europe. So, we'll see. Then all OEMs in the world will comply with the regulations that will be set up in Europe. [00:28:29] Speaker 1: Can I ask you about expansion to supply the defence sector, Christophe? We've seen Harmattan, which is a start-up business in France, I understand, a French defence start-up. They chose Vallejo to make their electric motors for drones. Is this an area of growth for a business like Vallejo? [00:28:49] Speaker 7: Yeah, for sure. You know, you need to understand that, on the one hand, we are improving on our core business, and our core business is automotive and has been automotive forever. But at the same time, we've developed technologies that are absolutely great. We are a technology company, maybe before we are an automotive company. The technologies like, you know, AI, like software, cyber security, power electronics, sensing are key technologies that we use for the automotive industry, for sure. But we have developed them to a level where we believe that, you know, they can be applied to other industry verticals. And we are exploring, you know, new horizons when it comes to what we call beyond automotive, to see how these technologies can apply and create differentiation on the market for value. So, it's about defence, you mentioned it, it's about battery energy storage systems, it's about infrastructure for data centres as well. And at the beginning of this week, we have announced, you know, a contract with, you know, a company, Armaton, for a family of motors, electric motors for drones, made in Europe, with no heavy or no critical wearers. So, I mean, I think it goes in the right direction. [00:30:18] Speaker 2: Christophe, do you think you need to make acquisitions, particularly in the defence space, to really deliver on the potential you think your company has? [00:30:25] Speaker ?: Christophe, do you think your company has? [00:30:26] Speaker 7: Christophe, do you think your company has? No, we don't think so. We are not prepared to do so. We have developed, as I said, all these technologies for automotive. And these are the technologies that we will use for these adjacent markets. So, we are not anticipating any acquisition. We believe that we have the technologies, that we have the products, and that we can, you know, bring these products to other sectors than automotive in a very positive way. [00:30:54] Speaker 1: Christophe, tell us about the pace at which you think Europe is going to transition to full EVs or hybrids of some form. I noticed in the most recent data, we've seen the biggest increase in sales of cars since October 2023, and cars with a plug are now more than a third of sales. Is this gaining momentum, given what we're seeing in oil prices and all of the disruption in the Middle East? Christophe, do you think? [00:31:22] Speaker 7: Well, this is definitely getting momentum. You know, the European numbers are growing when it comes to EV penetration. They're still far from what we see in other countries. For instance, in China, where one car out of two is, you know, an electrified car. It's about half of that in Europe. But we see month after month that the EV penetration is going on. Christophe, this is good for value. As you know, value has positioned itself on the electrification of cars already 10 years ago. We've built all the technologies. We have invested quite significantly in industrial capacity. So we are prepared for the electrification wave that we see today. The same way we are prepared for the software driven vehicle, you know, transition as well as the autonomous car. [00:32:19] Speaker 2: Christophe, it sounds like you're prepared, but the European auto industry has not been prepared for this challenge. And the crisis, you see it everywhere at the moment. Can the European car industry survive in its current form? Is it adapting fast enough? Is it doing what it needs to do? You must look at it every day and worry about what comes next. What is your take on what is happening with the European auto sector? [00:32:48] Speaker 7: I'm not a pessimistic guy. I think I'm optimistic. We're just at the beginning of the race. So it's not the right time to define who's going to be winners, who's going to be losers. There's definitely a lot of, you know, assets in the European auto industry. You have the brands, you have the quality, you have technology, you have the world coverage. So there's extremely strong companies when it comes to car makers. You know, I would point you to the results of the value that we just posted yesterday. They are strong. They are solid. They're even getting stronger and more solid. So we as a supplier, we're getting, you know, in a much stronger position. That demonstrates that, you know, the companies, the European companies that are in the auto industry have, you know, a lot of bright future. This is what I believe. [00:33:50] Speaker 2: Christophe, that's good to hear. Thank you very much indeed for stopping by to talk to us this morning. We really appreciate it. The Valeo CEO, Christophe Perla joining us. [00:33:59] Speaker 1: Optimism then perhaps in the European auto space there, at least from Christophe. More optimism. Bankers are talking up the pipeline of tech IPOs set to hit later this year. [00:34:10] Speaker 8: We're on the verge of a golden age of innovation. When I look at the pipeline, it's not just AI, LLM companies, but you have the power, you have compute, you have the data center and infrastructure around that. You're going to have actually application software as a part as well. And then you go a layer lower, it's robotics, automation. Those are actually opportunities as an offshoot of that. And then we have areas like defense, tech and space, which are huge opportunities the next couple of years. Blockchain, quantum. I mean, it's in my career. I haven't seen this many innovation cycles actually happening all at the same time like this in the past. [00:34:48] Speaker 1: Jamie Tertorici, head of TNT equity capital markets at Barclays CIB, speaking to Bloomberg, speaking to Danny Berger. In fact, we'll have more on where the tech story goes and ask what's in it for European banks. Can they capitalize on that IPO boom? This is Bloomberg. Welcome back to the opening trade. We are 16 minutes away from the start of the cash equity session and we've got a lot of earnings to deal with this morning. So that's one of the pieces that we're factoring in. We're also factoring in a higher oil price. We're at ninety six sixty two now, Guy, on the Brent price up by two point seven percent. Perhaps that will be material or of interest. OK, I want to go to Switzerland. [00:35:40] Speaker 2: I want to figure out what's happening in the farmer space and talk about what is happening with Roche. So Roche's first half earnings have beaten estimates. The top lines kind of broadly in line with estimates. As you go further down, things look a little bit better in terms of what the company is saying. It's basically sticking to the outlook. But but here's the significant line. The company is saying it's still tracking somewhat above the midpoint of guidance. And this was the similar story that we had last time around in terms of the last quarter that we got from the business. Tomas Shinneker is the Roche CEO. And as ever, he kindly spent some time with us on these days to give us an update on what we're looking at. Tomas, good morning. Thank you very much indeed for your time today. I feel like I've asked again, I feel like I've asked this question to you before. Tomas, you're tracking above the midpoint of your guidance again. When are you, Tomas, going to give me an upgrade, give the market an upgrade in terms of that earnings outlook, that guidance outlook? It feels like it's coming soon. [00:36:41] Speaker 9: Tomas Shinneker: Well, first, I'm extremely happy with the strong momentum that we have in our business. We continue to grow well, 6% in sales, 10% in profit, in constant exchange rates. If you convert that to US dollars, it's actually an 8% growth in sales. And so if you want to compare us to US companies or companies that report in US dollars, I think that's a good number to use. Tomas Shinneker: So yeah, as you mentioned, we are trending towards the high end of our guidance. In the last two years, we have increased our guidance, but let's see how it continues into Q3 in full year. [00:37:16] Speaker ?: Tomas Shinneker: Okay. [00:37:17] Speaker 1: Good morning to you, Tomas. Are you at all concerned about Vapismo, about the eye drug? Is that an area of concern for you at Roche? [00:37:25] Speaker 9: Tomas Shinneker: So overall, we actually beat consensus. We beat consensus on sales and we beat consensus significantly in terms of EPS and operating profit. Tomas Shinneker: So I think overall, we're doing very well. Tomas Shinneker: Of course, within the portfolio, you have sometimes products that are doing slightly better than others. Tomas Shinneker: But overall, we have 16 medicines that have blockbuster status more than any other company. Tomas Shinneker: Now, with regards to Vapismo, we continue to be number one in Vapismo. Tomas Shinneker: We continue to gain market share in Vapismo. Tomas Shinneker: But particularly in the US, the market is not growing as fast as it did in previous years in only the low single digit range. Tomas Shinneker: But again, we continue to gain market share. Tomas Shinneker: So the medicine is doing very well, especially compared to competition. [00:38:14] Speaker 2: Tomas Shinneker: You've got a bunch, as you say, you've got a bunch of blockbuster drugs out there, Tomas. Tomas Shinneker: Quick kind of question on MS, multiple sclerosis. Tomas Shinneker: You're going to face a big challenge there potentially from your crosstown rival Novartis. Tomas Shinneker: When does that come? [00:38:28] Speaker 9: Tomas Shinneker: We are very happy with our portfolio in MS. Tomas Shinneker: With Okvos, we have the leading medicine in monopsclerosis. Tomas Shinneker: And with pheniputinib, we had really great results in terms of relapses only happening every 17 years. Tomas Shinneker: As you mentioned, there is always competition that has readouts, but there is no data out in the market at this stage, Tomas Shinneker: not even from any earlier phases of development. Tomas Shinneker: So it's very hard to say how that is going to read out. Tomas Shinneker: We'll just have to see. [00:39:03] Speaker 1: Tomas Shinneker: Can I ask you about another of your drugs that's caused a lot of excitement, Tomas? Tomas Shinneker: The breast cancer pill, Geredistrant. Tomas Shinneker: It's coming. Tomas Shinneker: It's going to launch at the end of this year, I understand. Tomas Shinneker: I think you're in negotiations in Germany. Tomas Shinneker: How are the negotiations going? Tomas Shinneker: Because we're watching this for what it means for Germany, but also what it means for pricing globally, which could be important. [00:39:23] Speaker 9: Tomas Shinneker: We are very excited with the results of Geredistrant in early breast cancer, improving survival or recurrence of disease by 30% versus the standard of care. Tomas Shinneker: And this is a new treatment, the first new treatment since more than 20 years in hormone receptor positive breast cancer. Tomas Shinneker: And this is really significant because this is 70% of all breast cancer patients. Tomas Shinneker: In the US, we have received FDA priority review and also filing acceptance, which shows that the regulator also sees the excitement. Tomas Shinneker: With regards to submission in other countries around the world, US is always first because the regulators just have this fast approval process. Tomas Shinneker: With regards to other countries, we will, as we collect the data and we file, we'll see how the discussions go with the countries. [00:40:23] Speaker 2: Tomas Shinneker: Tomas, the question that I think underlies all of this is, are Europeans going to get access to these kinds of cutting edge drugs? Tomas Shinneker: Because there is this concept that Europe is not going to pay in the same way that the United States is going to pay. Tomas Shinneker: And the Trump administration is making it clear that if others get it cheaper, there's going to be a problem. Tomas Shinneker: Is Europe not going to get access to cutting edge drugs as a result of this? [00:40:51] Speaker 9: Tomas Shinneker: Our goal is to make this transformational medicine available to as many patients as possible, including in Europe and other parts around the world. Tomas Shinneker: Given the transformational nature of this medicines and this great data, I think geodestrian will be a good test to see how European governments and governments around the world value such great innovation. [00:41:16] Speaker 2: Tomas Shinneker: We'll leave it there. Tomas Shinneker: Always great to catch up, Tomas. Tomas Shinneker: Thank you very much indeed for sharing some time with us this morning. Tomas Shinneker: We really appreciate it. Tomas Shinneker: Tomas Shinneker, the CEO of Roche. [00:41:26] Speaker 1: Tomas Shinneker: Okay, that's the earning story. Tomas Shinneker: Let's widen our focus. Tomas Shinneker: Talk about the markets in three minutes on the opening trade with Adam Linton from our markets live team. Tomas Shinneker: Adam, tell me something exciting about the ECB. Tomas Shinneker: Am I looking for clues? Tomas Shinneker: Am I looking for clues about September? Adam Linton: God, mission impossible already. [00:41:41] Speaker 10: Tomas Shinneker: But in terms of the setup for this meeting, clearly it's changed relative to where we were a few weeks ago, given developments in the energy markets. Tomas Shinneker: But ultimately nothing's really priced for today. Tomas Shinneker: I think a big part of that is we're not really seeing too much of emergence of second round inflation effects. Tomas Shinneker: And also, you know, survey data by Bloomberg says that 91% of those survey don't see any signs of inflation expectations being de-anchored. Tomas Shinneker: We're seeing that play out in market gauges, short term inflation gauges, longer term inflation gauges, so that things are relatively steady. Tomas Shinneker: And we know that ECB prefers to kind of wait for these September forecast meetings. Tomas Shinneker: I think what's interesting for price action bonds at the moment is just how little we moved yesterday. Tomas Shinneker: So energy is skyrocketing and bonds weren't really doing a great deal, which suggests the market is kind of comfortable with where they see terminal at the moment. Tomas Shinneker: If there is a tail risk, not my base case, is that they do move today. Tomas Shinneker: I mean, ultimately, their forecast embeds multiple hikes. Tomas Shinneker: Growth is holding up relatively well, as shown by PMIs. Tomas Shinneker: Corporate earnings doing relatively well. Tomas Shinneker: But even then, that may just be seen in the case of bringing forward expected tightening rather than the deeper tightening cycle. [00:42:49] Speaker 2: Tomas Shinneker: Is Google spending too much money? [00:42:51] Speaker 10: Tomas Shinneker: I mean, that's the verdict of the market. Tomas Shinneker: I mean, we saw the cloud revenue results were relatively good. Tomas Shinneker: But, you know, obviously, you know, the capex is what everyone's talking about today. Tomas Shinneker: The free cash flow guidance. Tomas Shinneker: You know, obviously, you know, cash rate hasn't even opened today. Tomas Shinneker: That will deliver the actual verdicts on it. Tomas Shinneker: But the signals are they've perhaps overcooked it a bit. Tomas Shinneker: We saw some signs of AI monetization. Tomas Shinneker: But ultimately, the capex just brings greater scrutiny under that. Tomas Shinneker: And then, you know, obviously, for hyperscalers, we get a really busy docket next week. Tomas Shinneker: And I think that's really just kind of raised the bar for things and results can get scrutinized even more. Tomas Shinneker: In terms of what the tech trade is looking like today, it looks like it's unambiguously positive for chip names. Tomas Shinneker: We saw that on display overnight in Asia, outperformance. Tomas Shinneker: Let's see what Intel brings today. Tomas Shinneker: But at the moment, it just feels like there's a lot of noise going around the tech trade. Tomas Shinneker: If you want something a bit steadier, you prefer value over growth, then, you know, Europe looks like a better bet. [00:43:41] Speaker 1: Tomas Shinneker: Okay. And what about the Japanese story? Because a little bit later than this time yesterday, Tomas Shinneker: we got news that the Bank of Japan was prepared to move faster than expected, Tomas Shinneker: faster than the sort of six monthly cadence that we've grown to understand from them in terms of rate hikes. Tomas Shinneker: And that seemed like a big deal for markets. Is that a big deal into the long term? Tomas Shinneker: Or is it just a big deal in that very moment? [00:44:04] Speaker 10: Tomas Shinneker: It's a big deal if it happens. If it happens, that's the thing. Tomas Shinneker: It seems like the same old, same old when we talk about the yen. Tomas Shinneker: Negative terms of trade shock from the Iran war. Tomas Shinneker: We saw disappointing trade data early in the week. Tomas Shinneker: Yes, okay, they may go quicker than six months. Tomas Shinneker: But the reporting is relatively vague in terms of timeline. Tomas Shinneker: If they're serious, they'd hike next week. Tomas Shinneker: But it doesn't look like they're going to. Tomas Shinneker: At the same time, for dollar-yen, you've got Fed pricing ratcheting higher. Tomas Shinneker: I think for dollar-yen to turn around, it needs more serious BOJ hikes. Tomas Shinneker: Fed hiking expectations to ease off a little bit. The war to end. Tomas Shinneker: If that doesn't happen, then I think we see a bit of a steady grind higher towards 1.65. [00:44:40] Speaker 2: Tomas Shinneker: Adam, thank you very much. Tomas Shinneker: An update, comprehensive update. Come on, everything. Tomas Shinneker: Adam Linton, Bloomberg Markets Live from the Bloomberg Markets Live team. Tomas Shinneker: MLIB Go, who force the function on your Bloomberg. Tomas Shinneker: Quick comment on European futures, which have been softening a little bit as the show has been progressing and the earnings numbers have come through. Tomas Shinneker: Which is interesting, actually, because quite a lot of the earnings numbers that we've seen this morning do look fairly positive. Tomas Shinneker: BAP Paribas looks pretty good. You've got the Nokia numbers coming out. STMicro is going to be interesting to see how that trades this morning. Tomas Shinneker: But we're softening up just a little bit. I wonder whether that's the sort of more of the macro story with oil prices rising, whether that's the weight that we're seeing being applied. [00:45:16] Speaker 1: Tomas Shinneker: Yeah, it's interesting because companies like STMicro, how will that trade? Tomas Shinneker: On the one hand, there are all kinds of positives through Asia for chips, even with the negatives around too much capex at Alphabet. Tomas Shinneker: But STMicro is giving us kind of two stories. It's difficult to know which one will dominate. There's a weak forecast. Does that eclipse the faster Q4 sales numbers that they've given? Tomas Shinneker: So we're going to be watching all of that. [00:45:38] Speaker 2: Tomas Shinneker: We certainly will be. This is the story that you're watching on STMicro. As you can see, it's been quite the ride on the way up, but we're just beginning to soften a little bit. Tomas Shinneker: Anyway, there's loads of single stocks that we're going to be watching. EasyJet is going to be interesting as well. Tomas Shinneker: We are five minutes away from the opening trade. Details to follow. This is Bloomberg. Tomas Shinneker: Thursday morning. Good morning. What do we need to know? Okay, let's start with yesterday. Then we'll move on to today. This is yesterday. This is the S&P session yesterday. Tomas Shinneker: Europe went out here, rallied a little bit after that, but quite a big fade towards the end of the session, which I think now needs to be priced into European futures. Tomas Shinneker: The other thing that needs to be priced into European futures is US futures, which are also down. It looks like we're going to see a negative start to the day, another negative start to the day for the Nasdaq. Tomas Shinneker: It was down half of one percent yesterday. It looks like it's going to be two, three percent, two, three tenths of one percent down at the get go this morning. Tomas Shinneker: So European futures, but all of that's pricing, plus a load of single stocks that we need to factor in as well. We're down by around four tenths of one percent. Tomas Shinneker: FTSE futures are a little better than that. Maybe some oil trades are going to work on the upside as well this morning. Tomas Shinneker: DAX futures are down by, though, six tenths of one percent. So you're getting quite a bit of difference in terms of the performance you're going to see potentially across Europe, Anna. [00:47:04] Speaker 1: Tomas Shinneker: Right. So that's the picture across these European equity market futures. Let's dive into some of the detail around individual stocks that could be in focus and some sectors, in fact. Tomas Shinneker: the banking sector in focus. We've talked about BNP Paribas, the numbers that stocks trading really coming in strong versus estimates. Tomas Shinneker: Unicredit also worthy of a mention. Better numbers than expected there from that Italian bank. On the technology front, things are a bit complicated because are you disappointed that CapEx is so big at Alphabet or are you pleased it's so big because you are exposed to some of the chip makers? Tomas Shinneker: And the latter part of that narrative was dominant in Asia. Will that spill out into the European session? Tomas Shinneker: We're watching ST Micro. They had numbers. We're watching Nokia. They had numbers as well. So there's a lot of complexity around how Europe plays that technology theme. Tomas Shinneker: We'll also focus in on EasyJet. That's another stock in focus. Profit falling 70 percent. Higher fuel costs certainly a focus there. Tomas Shinneker: Lower demand was also a backward-looking narrative with oil prices up by 2.9 percent this morning, Guy. [00:47:59] Speaker 2: Tomas Shinneker: OK, here we go. Let's try and factor all of that into the opening trade. Tomas Shinneker: And figure out exactly what it's going to look like. Let me show you some numbers, give you an idea of what is going on. Tomas Shinneker: The early picture is expected to be a little bit more positive for the FTSE 100. I say positive. Actually, it is positive. Relative trade, though. Tomas Shinneker: FTSE versus the rest of Europe. The FTSE made you a bit better today as a result of some of the exposure, particularly to the energy story. Tomas Shinneker: We're kind of mid-90s now, upper 90s in terms of the oil price. So the FTSE is fairly flat. Tomas Shinneker: The stock 600 is down by two tenths of one percent. There's a lot going on in the Paris market this morning. Tomas Shinneker: BNP Paribas numbers were, they look strong, certainly on the equity side. The prime side look pretty good as well. Tomas Shinneker: Put those two things together, you've got some really strong numbers coming out of that bank. Tomas Shinneker: So it's going to be interesting to see how the Kaker on trades today on the back of that. Tomas Shinneker: Tech, as Anna was mentioning, is going to be interesting. The IBEX is down by two tenths of one percent. Tomas Shinneker: We'll wait for the German market. It's expected to be one of the weaker performers today in Europe. Tomas Shinneker: Switzerland's going to be interesting as well. You've got numbers out from Roche this morning. Tomas Shinneker: Nestle is also dropping numbers out of Verve. So you're going to see some interesting stories coming out of Switzerland too. Tomas Shinneker: But that's what I've got so far. Stock 600 down by, kind of as the expected story kind of told us, by about four tenths of one percent. [00:49:10] Speaker 1: Tomas Shinneker: Okay. So that's the overall picture. Let's have a look at the sector breakdown then, Guy. Tomas Shinneker: And energy stocks, you're right to flag that, up by four tenths of a percent. Tomas Shinneker: So we've got a higher oil price. We're now up by three percent. We're heading towards $97. Tomas Shinneker: Just a few hours ago we were toying with $95. So this is moving pretty quickly as now we have two areas to worry about, Tomas Shinneker: the straight of four moves and the Red Sea when it comes to the security of shipping and energy markets. Tomas Shinneker: So we're watching all of that. So energy stocks are higher. Basic resources a touch higher, up by a tenth of a percent. Telecom's pretty flat. Tomas Shinneker: So that's the upside and that's all of the upside. To the downside, travel and leisure is a little bit weaker. Tomas Shinneker: We've got Whitbread, 2E, and it seems as if we're picking up on what we've heard from EasyJet, Tomas Shinneker: even if I don't see the EasyJet share price having opened just yet. But that's the downside. Tomas Shinneker: Consumer products and services also an area of weakness. We've got Burberry, Caring, Hermes. Tomas Shinneker: Some of that luxury space is a little bit weaker this morning. The likes of L'Oreal, Puij Group, LVMH. Tomas Shinneker: So it's interesting actually to think about where the luxury sector goes from here. Guy. [00:50:13] Speaker 2: Tomas Shinneker: Okay. John Healy, the new UK Chancellor of the Exchequer, is making a few comments. He's already out with a flurry of news. He's currently being introduced to a table of UK executives that have joined Healy for breakfast this morning to make some comments. Tomas Shinneker: So it's going to be really interesting to hear what he has to say in terms of how he's going to update us. Tomas Shinneker: Obviously, the market's watching at the moment very carefully to see what his spending plans look like. Tomas Shinneker: Is he just going to be spending or is he going to be cutting? How is he going to deliver for business? [00:50:47] Speaker 1: Tomas Shinneker: We've had quite a lot of news around tax cuts, haven't we, at the margin. Tomas Shinneker: Yeah. Tomas Shinneker: So VAT on energy bills, for example. We have had today some new news around the pub sector. Tomas Shinneker: Business rates. Tomas Shinneker: Business rates for the pub sector and others. So that's going to be an area of focus. Tomas Shinneker: Yesterday, we heard from Whitbread. They were talking about costs, weren't they? Tomas Shinneker: And that was, even though we had the World Cup and they were doing so well, that was an area of focus for them. Tomas Shinneker: And they ended up with a negative story to tell as a result of the cost base. Tomas Shinneker: So perhaps this is a chancellor who's minded of that and wants to do something about it. Tomas Shinneker: We'll put up guilt yields, though, as he speaks. Here's Tom Healy. [00:51:20] Speaker 11: Tom Healy: Thank you all for making the time to join this discussion this morning. Tom Healy: When Constantine says, "I've got a strong background in policy," what he really means is, "I've been around for a while." Tom Healy: But it's great to be back with you again. You're right, we've done a number of events over the years together. Tom Healy: Thank you all for joining me today. As defence secretary, I spoke about the defence industry as a engine for growth. Tom Healy: As chancellor, I speak for the whole economy. And businesses of all sizes in all sectors are so critical to the good growth we seek to secure in this country. Tom Healy: For delivering the investment, the innovation, the re-industrialisation that our economy needs. Tom Healy: Lifting the pessimism that has eroded not just the public's confidence, but has eroded our own prosperity. Tom Healy: And my message to British business is quite simple: to British businesses, to British innovators, to British investors, I will back you as your chancellor. Tom Healy: And I'll back you in financial services, in technology, in retail, in industry, in all parts of the economy. Tom Healy: And I know things haven't been easy. We talk a lot in government about the cost of living. Tom Healy: And that's right. People have been facing increasing pressures. They've been feeling that lack of a breathing space in their life. Tom Healy: But so have all of you. And I'm just as concerned about the cost of business as I am about the cost of living. Tom Healy: Tax, energy, supply chain costs, labour. I know that businesses large and small have felt really squeezed. Tom Healy: And when the Prime Minister and I talk about building a new economy that helps people live well, that must involve stepping up our support for and work with business. Tom Healy: You're the people who invest in individuals, invest in your businesses, you're the ones who can ensure prosperity in every part of the country. Tom Healy: And over the last few days, last few days, this is my only, this is the start of my third full day in the job. Tom Healy: Let's just say over the last two days, I've set out my priorities as chancellor. Tom Healy: And they're fivefold. First, fiscal discipline. Fiscal credibility is the bedrock of economic stability, just as it is of national security. Tom Healy: And the Prime Minister and I have talked together about how we will work in lockstep to ensure that we meet our fiscal rules with a buffer against uncertainty. Tom Healy: Second, growth in every postcode. With every government department being a growth department, making the fullest possible use of public investment within our fiscal framework and bringing private and international investment capital to back Britain. Tom Healy: Third, backing Britain. Buying British as a government at all levels. Tom Healy: Not just if possible, but by design. So that every procurement pound in Britain works to support British jobs, British apprenticeships, British skills, and British innovation. Tom Healy: In transport, in energy, in AI, in tech, in defense. Tom Healy: Fourth, driving wealth creation. I want government decisions to raise the levels of investment, of innovation, of confidence, and of profit in British-based businesses. Tom Healy: And I want Britain, just as I argued in defense, to become the best place in the world for those with ideas who want to start and grow a business. Tom Healy: And fifth, to make life more affordable, bringing down the cost of living, but also the cost of doing business, helping to give people a greater control over their lives again. Tom Healy: And I hope what you've started to see in this first week of this new government is that we're a government about practical action. Tom Healy: So we've cut tax on electricity bills for households. We've capped bus fares to two pounds in 1997, and this morning we've capped business rates for some of those businesses in our town centers that make the places we live in, the places we also love. Tom Healy: We are just four days in for the Prime Minister, three days in for me. This is just the start. We know we've got a lot further to go. Tom Healy: And I know that to achieve my ambitions, the Prime Minister's ambitions for this country, which is to help people now to keep public finances stable, to build an economy that works for every part of Britain. Tom Healy: We cannot do that without you, the wealth creators, without you, the job creators. Tom Healy: Strong British businesses here in the city and right across the UK. You create the jobs. You attract the investment. You are the engine of growth and confidence in this country. Tom Healy: Thank you for the work that you do. Thank you for the leadership that you provide. Thank you for the innovation that you drive. Tom Healy: I want us to deepen our government's relationship, our treasury's relationship with business. Tom Healy: I want to deepen it based on a shared ambition for Britain, not just an ambition for success in this square mile, but for every part of the country, or as the Prime Minister would say, in every postcode. Tom Healy: I hope, as you have seen the Prime Minister and I put together the Treasury team, you will be pleased to see Lucy Rigby back as a Treasury Minister. Tom Healy: Many of you will have dealt with her before, and I hope you see this as a consistency of purpose for the approach that we will continue to take to the growth and competitiveness of the financial services. Tom Healy: And finally, I hope you will see the appointment of David Pitt Watson in the Lords as a way of reinforcing that commitment to the city, to the financial services at the heart of our flourishing future British economy. Tom Healy: For now, this is really a day three discussion, an opportunity really particularly for me to hear directly from you about the things that you believe I, as your Chancellor, now need to do. Tom Healy: And how we together, led by the Treasury, led by me as Chancellor, can make this country more productive, more competitive, more confident as a UK economy. Tom Healy: Thank you all. [00:59:11] Speaker 12: Tom Healy: Well, thank you very much indeed, John, for those opening remarks. [00:59:16] Speaker 2: Tom Healy: Okay. Tom Healy: It is day three of John Healy's tenure as UK Chancellor. Tom Healy: It's 8:11 in the morning, so that's kind of where we are in terms of his timeline on day three, meeting there with business leaders, trying to, I think, make a more positive pitch. Tom Healy: Business and government did not see eye to eye at the beginning of the Starmer administration. [00:59:38] Speaker 1: Tom Healy: Yeah. [00:59:39] Speaker 2: Tom Healy: Is that an attempt? Tom Healy: Will it be effective to repair that relationship? [00:59:43] Speaker 1: Tom Healy: Yeah, certainly suggesting a relationship where people work together, and that would be in keeping with the messages we've heard from Andy Burnham, who talked about that as being the Manchesterism example. Tom Healy: And he went through some of the cuts that we've had, some of the tax cuts that we've had so far from this administration just in the last three days. Tom Healy: Now, is it the tax cut that we heard overnight that's putting a slight upward pressure on yields this morning? Tom Healy: Yes. Tom Healy: And that is something to mention. Tom Healy: It's not massively out of step with what we're seeing in the rest of Europe, and we should say oil prices are up by three and a half percent this morning. Tom Healy: Yeah. Tom Healy: And so we've got French and German yields up by three and two basis points, respectively. Tom Healy: But the UK is up by four, so as often is the case, we move a little bit more. Tom Healy: Let's widen the conversation, bring in Shanti Kellerman, co-chief investment officer over at 7:00 AM, with us on set this morning. Tom Healy: Good morning to you, Shanti. Tom Healy: Let's start with the UK, because the Chancellor has put the UK front and centre for us this hour. Tom Healy: A pitch to business there, but at the same time, we're hearing about these tax cuts, which might or might not be great, depending on people's views. Tom Healy: But the market will the guilt investors will want to know that they're funded. Tom Healy: Are we seeing nervousness around that? Tom Healy: Or is this all just a higher oil price? Tom Healy: What do you what do you think? [01:00:47] Speaker 13: Shanti Kellerman: I think it's more the higher oil prices stage. Shanti Kellerman: I think it's been clear that every time they've come out talking about some of those bigger things, they've walked it back. Shanti Kellerman: You know, we had personal allowance. Shanti Kellerman: We're thinking about it. Shanti Kellerman: Oh, no, we're going to look at it. Shanti Kellerman: You know, social care was sort of trailed. Shanti Kellerman: And I think it's the right thing to leave anything big for it needs to be thoroughly thought through, modeled out. Shanti Kellerman: That's probably something for October, November. Shanti Kellerman: But what they're doing now are small things that can probably make people's lives better, play a little bit, you know, on showing people they care. Shanti Kellerman: And I think that's a good step. Shanti Kellerman: I don't see what they're doing in the government as being a risk to guilt yield shooting up. Shanti Kellerman: We're still invested in guilt. Shanti Kellerman: We don't see that as an issue. Shanti Kellerman: I think the biggest thing the government can do is think more about externalities of the policies. Shanti Kellerman: Because you can have the policy itself, but then it always has behavioral impacts for what it makes businesses do with hiring, with not hiring, people's behavior. Shanti Kellerman: And I think previous governments, there hasn't been enough consideration for the knock on impacts. [01:01:43] Speaker 1: Shanti Kellerman: And that's where the relationship seemed to break down under Keir Starmer, wasn't it? Shanti Kellerman: Because at the beginning, there was perhaps some enthusiasm from the business lobby that maybe we get some more stability. Shanti Kellerman: That didn't last too long. Shanti Kellerman: I mean, we've got two years out of that first Labour prime minister in a long time. Shanti Kellerman: But it was then when we started to get higher pay and higher taxes on wages or on employment, essentially, that things started to change. Shanti Kellerman: Do you sense things are different this time? [01:02:08] Speaker 13: Shanti Kellerman: I think I'm hopeful that we aren't going to get drastic changes in things like employment law and employment taxes. Shanti Kellerman: I think a lot of that has already come through. Shanti Kellerman: I think the messages are really positive. Shanti Kellerman: But we have to wait and see what the action is. Shanti Kellerman: Yeah. Shanti Kellerman: And there's no way to know until, you know, and until they're in those more crisis moments. Shanti Kellerman: They've got to decide, is this in, is this out? Shanti Kellerman: We're not really going to know where the philosophy is. [01:02:32] Speaker 2: Shanti Kellerman: Is this going to be a government that changes asset values here in the UK? Shanti Kellerman: I don't see it as being that. [01:02:38] Speaker 13: Shanti Kellerman: I think, I think the approach so far has been more about let's do those smaller things that can have an impact on cost of life, cost of living, not doing those gigantic big pieces. Shanti Kellerman: Yeah. Shanti Kellerman: I think Rachel Reeves did a lot of that heavy lifting. [01:02:53] Speaker 2: Shanti Kellerman: But in terms of, for a foreign investor looking at the UK, in some ways it's cheap, but is it cheap for a reason? Shanti Kellerman: We keep seeing takeout. Shanti Kellerman: Every day there's a takeout story. Shanti Kellerman: Yeah. Shanti Kellerman: The rest of the world sees UK assets as being more highly valued than we seem to see them. Shanti Kellerman: Yeah. Shanti Kellerman: Or certainly the equity market seems to see them. Shanti Kellerman: Is there anything that, would a more positive, more business friendly government start to kind of chip away at that valuation discount? Shanti Kellerman: Businesses here are working with government. Shanti Kellerman: Businesses are perceived as being positive. Shanti Kellerman: Would that in any way change that kind of valuation discount that we seem to work with here? [01:03:31] Speaker 13: Shanti Kellerman: Yeah, I think absolutely it can. Shanti Kellerman: Because a lot of it is about perception and getting willing, people willing to look at your country. Shanti Kellerman: And there's a lot of things to the UK is fairly good at. Shanti Kellerman: Like our foreign direct investment numbers are pretty good relative to the rest of Europe. Shanti Kellerman: Things about inward AI investment. Shanti Kellerman: Of course, we're miles behind the US. Shanti Kellerman: But we're pretty good when you look at relative to those other places. Shanti Kellerman: Yeah. Shanti Kellerman: I think there's an element when we're sat in the country, we always view it a bit more negatively than people that are elsewhere. Shanti Kellerman: So I think there is that potential. Shanti Kellerman: And I think, you know, part of the prime minister's job, too, is marketing Great Britain. Shanti Kellerman: And I think we're off to a fairly good start in that respect. [01:04:07] Speaker 1: Shanti Kellerman: Certainly been popping up more on social media to do that over recent days, Shanti. Shanti Kellerman: And what about the broader view from 7IM right now? Shanti Kellerman: We started this program talking about the numbers from Alphabet. Shanti Kellerman: They told us a little bit about where the CapEx story is going to go for some of those big hyperscalers. Shanti Kellerman: But on the other side of that, we've got memory companies doing really well on the back of it, Shanti Kellerman: because if the CapEx story is intact, then they are set to benefit. Shanti Kellerman: Are you still playing the either Asia or US tech theme? [01:04:35] Speaker 13: Shanti Kellerman: Yeah, we still have in some of the sector strategy run. Shanti Kellerman: We still have more in technology shares. Shanti Kellerman: We probably have a little bit less emerging markets than some of our peers, Shanti Kellerman: but fairly close to being in line. Shanti Kellerman: I think we see the economic outlook is fairly positive, which is good for equity markets. Shanti Kellerman: Labor markets are in a fairly good place. Shanti Kellerman: Manufacturing activity is good. Shanti Kellerman: That AI CapEx is, you know, supporting the economy. Shanti Kellerman: And things like smaller and mid caps are starting to do a bit better, which is a good sign of broadening. Shanti Kellerman: I think one positive thing, even though we've had kind of a flat to down month for some of those big names, Shanti Kellerman: is the market has actually been pretty flat. Shanti Kellerman: We've had others be able to take up the slack. [01:05:13] Speaker 2: Shanti Kellerman: Shanti, it's great to see you. Shanti Kellerman: Thank you very much indeed for listening to the Chancellor with us. Shanti Kellerman: Thank you very much indeed for that. Shanti Kellerman: Thank you very much for joining us as well with your investment thoughts. Shanti Kellerman. Shanti Kellerman. Shanti Kellerman. Shanti Kellerman. Shanti Kellerman. Shanti Kellerman: There's some real, really decent sized moves, particularly in the technology sector here in Europe this morning. Europe this morning. Let's take a look at some of the core companies that we watch on a daily basis. Defense is up, but elsewhere you're seeing some quite significant weakness. Look at ASML. Nestle's out with numbers. It is getting battered on the right-hand side of your screen there. It's down by over 7% on the back of what it has said this morning. Novo is under significant pressure. LVMH is under significant pressure. Defense is doing okay, though. So let's start there with Chloe. [01:05:53] Speaker 14: Good morning, Guy. Indeed, a French defense in particular is doing very well this morning. We have Dassault Aviation coming out with revenue way above expectations. And then orders from Thales were also very, very good. Of course, those two companies are really benefiting from this rise in military spending across Europe and specifically in France as well with this updated military spending plan there. Moving on to technology, and we have got STMicro down quite significantly this morning, almost 16%. So it has said that data center revenue was going to really accelerate. But at the same time, the third quarter forecast came in slightly below expectations, perhaps because of some weakness that we have seen in the consumer and market, the automotive and market, and maybe offsetting some of that boost that it is seeing from data centers. And we're seeing that really drag down the shares this morning. Moving on to another story within that tech sector that is a bit more positive. We've got Nokia up this morning, a beneficiary of the AI build out with the AI and cloud orders of the charts according to some analysts. We are also seeing sweat tech in this also a big beneficiary of this AI build out move very, very strongly this morning. We're up almost 30% after a very upbeat outlook from the company and very strong results. Moving on to the software side of things. And we've got DASO systems are coming out with some strong numbers, even though the expectations were were quite low. And then also a deal with Aris Global, it is going to buy this drug trial software firm for as much as $2 billion. And that will help it expand into the life sciences business, which has been actually one of the divisions that's seen a little bit more weakness. And so we're up about 2% there. And finally, Daimler Truck, the truck maker, has raised its guidance and is really benefiting from strong demand for trucks in North America. And so we're up about 3% this morning [01:07:47] Speaker 1: for this truck maker. Chloe, thank you. Chloe Mellie with host of some of those stocks on the move. It's a real mixed bag this morning, some really standout individual stories. Coming up, we will focus back in on some of these European corporate earnings stories. In fact, we'll go to the banking sector. We'll get analysis next on what is weighing on these bank stocks. This is BluePack. [01:08:23] Speaker 4: If you look at the results, it's basically all engines are firing on all... are basically firing. It is CIB, which is doing fine, but it's also the retail activities which are doing fine. And also the IPS, so the asset management and insurance activities, which are doing very fine. So we are really firing on all cylinders and ready to continue to support the economy. So we are not that one trick pony. It is really the three divisions that are working collectively. And that are boosting the result. [01:08:54] Speaker 1: BNP Paribas CFO Lars Mashenil speaking to us earlier on in this program. Let's get to the wider banking story. We should point out, of course, this comes on a day. These banking results from BNP and Unicredit come on a day where European markets are a little bit weaker. In that context, BNP Paribas down by 1%, Unicredit down by 2.4%. Let's dig into the details though. We're joined by Bloomberg's Managing Editor for EMEA Finance, Tom Metcalfe. Talk us through then, Tom. Good morning. At the bank earnings, should we start with Unicredit then? Because we had a bigger move in Unicredit. Is it anything that they've said specifically that's disappointed or is it an M&A theme? What's [01:09:33] Speaker 15: happening here? Yeah, look, I think on the estimates they put out, the kind of sense that, you know, they're expecting to meet targets, et cetera, is all kind of in line. So I think maybe the market, you know, which is in a sort of down position anyway today, is probably reacting more to this, you know, growing clarity that obviously, you know, the Commerce Bank deal in some form, maybe not full takeover, but will be happening. And that just brings sort of the, I guess, the execution risk to the forefront of people's minds. And, you know, as we were just saying, actually, obviously, Orchel, you know, the way he's gone about this hasn't necessarily, you know, carried in much favor with some very big stakeholders, the German government. Obviously, Commerce Bank is sort of doing this fairly grudgingly. So I think it's just going to be, you know, people are starting to digest the facts. You know, it's not going to be the most straightforward takeover in the world, which is never straightforward anyway. [01:10:21] Speaker 2: What would BNP Paribas have had to do this morning in order to get its share price higher? Because these numbers, the equity numbers are strong this morning, they're well ahead of expectations. I appreciate the figures is a challenge, but how much better would the numbers have to have been in a down market to have got the stock up? What else could [01:10:40] Speaker 15: they have done here? Well, it's hard to say. We just heard, you know, one of their executives saying, you know, we're firing on all cylinders and stuff like that. And as you say, equities in particular, really ahead of estimates. I think probably we're just in a world where, you know, just even beating estimates is maybe not enough. You really have to kind of go beyond that and really surprise, impress, shock the market. So, you know, hard to say what it would be. But again, a bit like Unicredit, you look through the kind of finer detail and go, yeah, this is a pretty solid set of results. And the stock's up a lot this year. Yeah. And that's the context as well. It's not like they're coming from a low baseline. It's sort of pretty high bar they're trying to meet. Tom, thank you very much. [01:11:16] Speaker 1: I guess we'll continue to watch how they perform this sector as we get more results. The equity session, the equity trading results after the U.S. were incredible. Yeah. But as were the M&A story, the IPO story, capital markets, all of that was really strong as well. You sort of wonder whether will the Europeans be able to live up to that kind of expectation that we saw in the States? And I think [01:11:35] Speaker 2: that's probably the problem that Paribas got this morning as much as the bar has been set very high by Wall Street. So some of that's already been factored into to what we've seen in terms of the share price story. I'm sure the banks will be watching what is happening in Frankfurt today. The ECB's latest interest rate decision. We will talk about that next. We're going to take you live to Frankfurt and we'll talk to Ian Seeley as well. Looking forward to all of that. This is Bloomberg. [01:12:14] Speaker 1: Welcome back. This is the opening trade. 30 minutes into today's session. We have a negative picture really at the top level, very much so. We are down by seven tenths of one percent across these markets then, Guy. Is this the higher oil price once again exerting its pressure on European stocks? We're certainly higher on that oil price. Tracking it would seem back towards $100 a barrel. We're not there yet. But is that the direction of travel? In that context, we've got energy stocks going higher. Real estate goes higher on some M&A. But most of the other sectors are in negative territory. Some of that's an earnings story, a mixed earnings story out of the technology space. So there's a lot to [01:12:47] Speaker 2: think about when it comes to the European stock picture. There's a lot of single stock volatility this morning, which I think is really interesting in terms of how the market is pricing, what it's learned overnight and first thing this morning. So I think there's a really interesting narrative there. 161 up, 424 down. So there's definitely some negative bias in this market this morning and volumes actually quite high, which again tells you you're seeing some decent moves here today. So that's the kind of the top, well, kind of the inside look at what's happening with the market. The kind of the bottom up single stock story is fascinating. Soitech, you are getting some massive moves inside the tech space this morning. You look at what is happening with Soitech, Nokia, what is happening in terms of the read across into some of the other names out this morning as well. But Soitech is up by 20, I'll show you some of those names in a moment. Soitech is up by 23%. Dasso's out with some numbers this morning. So what does Dasso do? It makes business jets, yes, but it also makes fighter jets. And the numbers they're seeing this morning are very strong. Dasso out of Paris is up by 8% this morning. The defense space is getting a lift from that. Anglo's out with the product upgrade, update, not upgrade, but we'll maybe take that as big, given this morning, given the share price reaction, up by 4.6%. So some definite positives in the market, but there's some really whippy action. And some of these tech stocks are getting better. Look at ST Micro, down by 14.4% this morning. BE Semis down by 4%. That looks kind of like that. That's nothing compared with that. So you're seeing some really whippy moves in terms of some of these single stock stories. Nestle out of Verbe, look at this, down by 6.28% on the back of its numbers as well, and some disposals. That stock is down really hard. So some really interesting kind of bottom up single stock stories, Anna, that are working their way through this market. [01:14:25] Speaker 1: Absolutely. Those are the individual names. Let's get back to some of the big narratives and we'll start with what's been happening this morning then around the oil price. Oil has extended its rally after Iran-backed Houthi militants said they attacked two Saudi Arabian tankers in the Red Sea. The Houthis said they fired missiles and drones at the vessels. The attacks marked the first strikes on oil tankers in the Red Sea, opening a new front in a regional conflict that has disrupted traffic through the Strait of Hormuz following a flare-up in violence. UK Chancellor John Healy committed to disciplined control of Britain's public finances to protect against economic shocks as he made a pro business pitch to the City of London on his third full day in the post as Chancellor. Speaking at Bloomberg's European headquarters here in London, John Healy said he has talked to Prime Minister Andy Burnham about working "in lockstep" to ensure we meet our fiscal rules. And back to the earnings story, Unicredit has reported higher than expected profit and raised its full-year guidance as the CEO Andrea Orchell moves closer to a takeover of Commerce Bank. The lender recently completed its takeover offer for Commerce Bank, which put Orchell on track to control close to 50 percent of the German lender. Guy. [01:15:37] Speaker 2: OK, let's talk about what we are going to see out of the central bank, the ECB today, and what it's likely to mean for the rates picture. Everybody's expecting an unchanged decision, but life's getting really interesting in terms of what we are seeing in terms of the input costs into the European economy. Gas prices have moved higher, oil prices are definitely moving higher. We're approaching 100 bucks a barrel once again when it comes to what we're seeing on Brent's. The implications of the fighting in the Middle East are going to be significant. We're also quite interested, I think, to learn what Christine Lagarde's future looks like. French politics is starting to get interesting again. Yana Rando is there for us at the ECB headquarters in Frankfurt. Yana, lots to talk about today. What are you focusing on? [01:16:19] Speaker 3: What should we expecting from this meeting? Well, first things first, of course, we are interested in where interest rates are headed. No change today. So the deposit rate is going to stay at 2.25 percent after a hike last month. But all eyes are on what the president, what Christine Lagarde will say about September, about risks to the economic outlook and most importantly to the inflation outlook. Now, it had looked promising earlier in the month when June inflation came in much less than expected, much weaker than expected. The economy was holding up well. Sentiment indicators were going in the right direction. But all that, of course, changed with escalating tensions in the Middle East with renewed attacks. So in a way, it's back to square one for the ECB, for policymakers here who are meeting right now. And what they say about risks, about the potential for further hikes, that is the most important [01:17:22] Speaker 1: thing that we're watching out. Yeah. So are you looking for clues around September? Is that the time frame that's really going to be in focus? I mean, I know, Yana, they say they like to take it meeting by meeting and they don't they'll want to, you know, reflect the data and not pre-commit. But we've we're sitting here watching oil prices go well towards $98 a barrel now. [01:17:44] Speaker 3: Yeah. So September is definitely in play. Now, oil, it has been rising, but it is still quite a bit below what the ECB assumed in its baseline scenario in June. So there is a bit of room because, of course, that had to do with the fact that it dropped quite a bit after after talks of a ceasefire. So oil has a still still a little bit further to climb to even make the baseline scenario. But of course, the direction of travel is is worrying. And and central bankers are mostly also concerned about second round effects. That's the real enemy of a central bank. That's when wages grow up, when people get used to higher inflation rates. And they and they make that part of the decisions for future expenditures for future wage claims. So that's what they will look at very, very carefully. And we expect some warnings on that also at the press conference later today. And then, of course, September has new projection, new projections, a new economic outlook, new inflation forecasts. And those will be crucial in determining what's going to happen. But from today's perspective, traders expect a hike, economists expect a hike. And most importantly, policymakers have not really pushed back, you know, against such such an outcome. [01:19:01] Speaker 1: OK, so nothing expected today, but that's the setup for the future. Yana, thank you very much. Bloomberg's Yana Randall. With the latest outside the ECB, let's continue. Yeah, continue that thought. Ian Seeley joins us, International Fixed Income CIO at JP Morgan Asset Management. Let's start with the ECB, because this oil price move makes it a little bit more interesting, perhaps, Ian. So we're not expecting a change today, it seems. But the oil price is heading up to $98 a barrel. What's the relationship between what the ECB does and this oil price? What's their reaction [01:19:29] Speaker 16: function right now, do you think? Yeah, I think actually you make a very good point. But I think it's also a combination of the oil price and the gas price. And if you look at gas prices, they're even even more elevated and pretty much back to where we were in sort of the heights of March. I think it's a concern. And Madame Lagarde is going to get a lot of questions around that. Now, oil's not at 120. It's not at the levels that are their kind of severe scenarios when they're really, really getting concerned. But they are inflation hawks and they focus on price stability. And they're going to want to show the market that they are committed to this. And the difference between maybe the ECB and, say, the Bank of England or the Fed is that they still see their policy more in the neutral range. And they've said it's sort of one and a half to two and a half. Maybe even certain members have said, you know, you can maybe push it up to 275. They're still neutral. So they still feel they have the ability to tighten policy, show their inflation fighting, probably in their minds, not disrupt the economy too much. So I think that's what we're going to see. But it will be interesting how she navigates that because they don't really, you know, central bankers now, we're hearing, do not really want to do forward guidance. They want to do this framework. Framework guidance is all the rage at the moment. [01:20:36] Speaker 1: She's now got cover for a lack of forward guidance from the States, hasn't she? We'll come to that in a moment. But just lingering off for one more question, perhaps on Europe. But I mean, bond yields are ticking up a little bit this morning. Is this driving bond yields now, certainly at the shorter end and to maybe out to the 10 year, the expectations around inflation? Is that what's in the driving seat here? [01:20:54] Speaker 16: It is. It's a combination, isn't it? Because you've got all the inflation expectations, you've got the expectations of central banks are going to need to tighten. You've also really got across Europe, fiscal questions being raised again, whether you look at the UK, whether you look at France, whether you look at Italy, they're all out there. Everyone's talking about the fiscal side as well. So I think it's a combination of two. But ultimately, there is a pretty high correlation at the moment between oil prices and bond yields. And oil prices are going up, as you said. And consequently, bond yields are also moving higher. [01:21:24] Speaker 2: Is the market therefore underpricing the ECB right now? [01:21:27] Speaker 16: I don't think they're underpricing the ECB. I still think they're actually overpricing the ECB to work. Because I think it's quite straightforward for the ECB to take rates up to two and a half, up to that sort of the top end of what they believe to be neutral. Then you start to go into more restrictive territory. We're pricing 285, not much further than that. We're going to get to 3%. And suddenly, you start to question, is that going to actually harm the economy? And the question I would have is, if we do start to price north of 3% as a terminal rate, should we be then thinking cuts some point next year, once this all gets resolved? I think it, yeah, I think base case still is that they go in September. And then hopefully, there is some form of resolution oil stabilizes, maybe comes down, like we saw a few weeks ago. And ultimately, that's them, that's them done. But of course, you can't be complacent to the view that if we continue to see oil or move higher, that they might feel they need to continue to show that they are inflation fighting. [01:22:23] Speaker 2: So the Japanese want their money back. And if they do want their money back, what are the implications [01:22:26] Speaker 16: for European rates? I think, you know, again, you know, we're not seeing those flows pull back yet. We've had, you know, conversation or we've had, we've had murmurings from the Japanese that they want to see, you know, foreign assets being moved back on shore. Let's see if that actually happens. [01:22:43] Speaker 2: Will it take rate hikes to do that, do you think, or pushing the pension funds to do that? I kind of, [01:22:47] Speaker 16: what do you think is the key policy? So you've got attractive rates. You could argue you've actually now got attractive rates in Japan. It's the first time we've been able to say that for a couple of decades. Yet we're not seeing the investor base because the uncertainty exactly around, to your point, the Bank of Japan, you know, are they going to be, are they going to be inflation fighting or they continue at this very snail-like pace of hiking every six months or so? Again, there was, you know, commentary yesterday that maybe they will speed that up. Let's, again, let's see if that actually happens. I think until you get some conviction that they're going to fight inflation, then ultimately that's not, you know, we're going to still see people kind of like not that attracted to the market as, even though the valuation looks attractive. Now, to your point though, if the authorities force the local pension funds to invest, then that will, you know, that will obviously help stabilise the [01:23:35] Speaker 1: market to some extent. Let's pivot to the UK story and what Guilts are watching then, Ian, because with the new administration, I'm really interested to know what it is, what's the sort of granular messaging that you're looking at. We just heard from John Healy, who's the, obviously the new chancellor. Let's just play a little clip of what he had to say, [01:23:52] Speaker 11: his message to business. My message to British business is quite simple, to British businesses, to British innovators, to British investors, I will back you as your chancellor. And I'll back you in financial services, in technology, in retail, in industry, in all parts of the economy. [01:24:20] Speaker 1: So Ian, I'm sure that's a message that businesses will like. He was saying that to a room full of business leaders here in the City of London at Bloomberg. But I wonder what guilt markets are really watching for, because we've had in the last three days, some fairly small, but noticeable messaging around tax cutting, and a lot of conversation in the aftermath of that, of what's funded, what's not funded. And what is it that guilt markets are watching, given our history? [01:24:42] Speaker 16: Okay, so I like that you played that part of the clip, because I was sitting in the green room, listening to it. And as a bond investor, what I focused on was the fact that he talked about fiscal discipline. He talked about ensuring that they stuck to the fiscal framework. And I think that's what the guilt market is really looking at, at the moment. With a buffer. With a buffer. Yeah, of course, you want that emergency buffer in place. Now, what we've heard over the last few days is, you know, sort of very small incremental policies that, you know, are probably user friendly, but ultimately won't make a big, a big dent in that. I think it's going to be more interesting over the next few weeks or so, what do we do on defense? What do we do on tax? You know, what are the policies going to be there? Very comforting that he does feel that they want to keep to the fiscal side of things. I actually think the guilt market is already pricing, you know, a reasonable, I wouldn't call it bad news, but a reasonable amount of sort of risk premium into it. You know, we're well north, well, well north, we're sort of approaching 5.1% or so on the 10-year guilt. So there is some bad news in there. I actually think guilt look attractive, but there is going to be political volatility, I think, until we get a greater sense of exactly what [01:25:47] Speaker 2: the new government wants to do. How short is the leash? What would frighten the bond market? [01:25:54] Speaker 16: I think if you start to talk about breaking some of the fiscal rules, you know, additional spending, that's what the bond market is going to be concerned about. You know, we heard all on Monday, you know, again, but it was talking of sort of, you know, extent that using the fiscal framework to its almost full power. And I think, again, that starts to concern markets. I think that's just a general theme around all, and it's not just the UK. I think we need to be, you know, mention that. It is a global phenomenon at the moment, fiscal spending, and ultimately yields are moving higher [01:26:27] Speaker 2: on the back of it. But if you, to Anna's point, if you, if you did something like an off-balance sheet kind of, kind of idea around, around what happens with the defence spending, would the market say, okay, we'll treat that as separate, or is the market looking at the totality? I think, I think [01:26:42] Speaker 16: the market's always going to look at the totality. I don't think that the market's going to say, oh, that's fine. It's sort of off-balance. So any attempt to kind of circumnavigate the rules will be, will be pushed back on fairly high? Well, I think we, we saw, you know, a very small clip of that on, on Monday, when it was, you know, it was very loose terms. Let's use some more flexibility around that. And we saw the instant reaction, guilt's underperforming the rest of the market. And if they want to do a lot more than that, then I think the guilt market would, would show its face. Right. So quite a short leash then. Yes. Ian, nice to see you. Always a pleasure. [01:27:09] Speaker 2: Thank you very much, Steve, for joining us. Ian Steely, International Fixed Income, CIO at JP Morgan, Asset Management. Coming up, we're seeing some very big fluctuations this morning in the European tech space. We're going to work you through the reaction and also the numbers that have caused that reaction. We will do that next. This is Bloomberg. [01:27:46] Speaker 1: Welcome back. This is the opening trade. Things moving pretty fast this morning. This is the picture across European equity markets. There are so many different dynamics here to the European earnings story. So we'll get to those, some of those in a moment. But we've got European stocks as a whole down by eight tenths of one percent. Yes, energy is doing okay and real estate's doing okay. Some M&A in there. But a lot of other sectors under pressure. We've got an oil price that is now up by more than four percent. 98 is the handle on Brent. And that is having an impact, perhaps on stocks, certainly on bonds. Let's have a look at where we are on the bond market story. I can tell you that the German 10-year is up by three basis points. This is the 10-year yield climbs to 3.2 percent at its highest. That's the highest since 2011. So I think we're breaking through some important levels here. We're seeing this in France where we're up by four basis points. The UK 10-year up by five basis points. Traders are boosting their bets at the Bank of England, fully pricing 75 basis points of hikes by the middle of 2027. So things are fast moving [01:28:40] Speaker 2: on the inflation and energy front, Gary. I think Anna's channeling her inner Ferris Bueller this morning. Things are moving pretty fast out there. Around here. Around here. I think that's the quote. Anyway, they certainly are. European tech is one of the areas where things are moving pretty fast. And you've got some really big divergence emerging as well. Look at this screen. Look at that. STMicro is down by 15 percent. And you've got SoyTech up by 20 percent. This is a pair trade, definitely, this morning. It could be working out if you've managed somehow to put that on. Let's talk to Neil Kaplan about all of this. That would be the pair trade of the morning, wouldn't it? [01:29:18] Speaker 12: If it was, and if I put it on, I wouldn't be here now. I'd be out on my yacht. Why? It's part of the AI trade, for sure. I mean, what we saw last night with the Alphabet CapEx supports the picks and shovel stocks, the chip makers. However, why these two chip makers, or one being the chip equipment provider, being SoyTech up so much and the other not? It's quite simple in that SoyTech managed to beat on every single metric and raise guidance on all metrics. So that's the key thing. They're now guiding to next quarter being up 30 percent year on year revenue growth. Great number. In contrast, STMicro effectively came in line. No upside to the margins, no upside to that guidance. Both stocks are up triple digit year to date. You know, when you've got such high expectations, merely matching those expectations is not good enough. [01:30:10] Speaker 1: That's the pure, simple answer to that question. It's kind of good to know that it is possible to impress in this Turk earnings season, because we're not very far through it, are we? And I was looking at, yes, Alphabet gets complicated and it is so enormous. But, you know, we can talk about what they said. But there's also Texas Instruments. They didn't look so bad, but yet the stock dropped on those. So it's kind of comforting maybe to know that it is possible to impress. What did you make of the Alphabet story? What did you take away from it? [01:30:36] Speaker 12: I took away from it that despite all of the great expectations into that print, what we saw is the most important metric for numbers was the revenue growth from the cloud business. They came in at 82 percent. The street was at 65 percent year on year growth. Buy side was at 75 percent. So they beat all of those numbers. But it was definitely the fact that they said they were going to continue to invest massively on the on the capex side. So we're now looking at over a trillion dollars for the hyperscalers being spent. And at one at some point, there's going to be the question that these big cash machines, which big tech has been for many, many years, are they now becoming industrialized companies, which therefore over the long term would naturally justify a lower multiple and probably lower growth. At the moment, the growth is fantastic. But can it be sustained? [01:31:22] Speaker 2: How much do I need to start thinking about depreciation? And how much of what we just saw also came from the cross ownerships that they also have? There is these definitely the elements [01:31:32] Speaker 12: of the of that structure. They've got a big piece of of Anthropic, which is which is a great trade as an investor. They have some SpaceX as well. They have some SpaceX of reserve judgment on that one. Yeah, for the time being. But certainly in terms of if we look at the if we look at the outlook for now in terms of going forward, I think they're pretty well positioned in terms of their their overall platform. Yeah, but we don't know which frontier models are going to survive. Now, one thing to be to be clear on is in every tech cycle, there's only really two winners. There's only really two platforms. And at the moment, we have many, many platforms out there. Meanwhile, you know, the bond investors are more important than equity investors with the CDS spreads that are blowing out. There are there are concerns building up on a wider basis, I think. Neil, thanks very much. [01:32:16] Speaker 1: Bloomberg's Neil Campling with the latest on the tax sector moving at pace that particular story. We're watching the fiscal narrative around European bond markets as well. And with that in mind, let's listen once again to the Chancellor of the Exchequer here in the UK, John Healy. He's committed to discipline control of Britain's public finances to protect against economic shocks as he made his pro business pitch to the City of London during a meeting at Bloomberg's European headquarters here in London. [01:32:42] Speaker 11: Fiscal credibility is the bedrock of economic stability, just as it is of national security. And the Prime Minister and I have talked together about how we will work in lockstep to ensure that we meet our fiscal rules with a buffer against uncertainty. [01:33:04] Speaker 1: The new Chancellor there. Let's bring in Skylar Montgomery-Koning from our Markets Live team. Those words we talked to Ian Seeley at JP Morgan. He was saying that that's what stood out to him. The commitment once again to the fiscal rules and the Chancellor doing it, not just the Prime Minister, the Chancellor now also doing it. And also talking about a buffer, which seemed a newer [01:33:20] Speaker 17: bit of information there. Yeah, I mean, it's very reassuring. I think for gilts right now, oil is a much bigger risk than what you're seeing from a fiscal standpoint. I'll make a couple of points about why I just think we've largely moved on or should move on in that, you know, we've had a lot of fiscal scares in the last two years. The biggest one was the first one. It was Reeves first budget. And you did get material guilt under performance after that. But since then, you've priced in a risk premium related to politics. And I think because you have that buffer, you need pretty bad moves from a fiscal standpoint to feed negatively into the guilt market. And then the second point I'll make is it just very much seems like policy makers in the UK UK are standing down in that any comments that you've had from Burnham in terms of being in hot to the bond market, etc. They've been walked back and they're very respectful of that. And I think no one really wants another Liz Trace crisis on their hands. So that keeps the fiscal bit in line. And it means that you should really be focusing on oil. [01:34:16] Speaker 2: Okay, let's let's focus on oil. It's up by 7% over the last two days. I'll get you a number in term of the last four days in terms of the session. We've seen this. Oil is rocking higher. Are we have we priced in already the full implications of if this process continues, get to 100, get beyond 100. Where do the cracks start to appear? [01:34:38] Speaker 17: I mean, we certainly can go higher from here, right? We've already seen higher prices. Yes, we have some mitigating factors. But at the start of the week, we knew that her move shipping was essentially shut down. You had threats to oil infrastructure. That's very bad. And then on top of that, you have an additional threat to a choke point this week in that Houthi backed or sorry, Iran backed Houthis have threatened Saudi Arabian supply. Now, this is really important because that's one of your mitigating factors, right? Oil was going through the east west pipeline, which has a capacity around 7 million barrels a day, and then through the Baal al-Mendeb straight. Now, if that is closed, yes, there's another route. You can go around the Cape of Good Hope. And that's a much longer route, though. And it means that if you're thinking about physical supply right now, where oil demand is relatively inelastic at the front, if you have more disruptions, you could see a rapidly higher price there if you're no longer able to go through that straight. And we've seen in 2023 that Houthis can certainly have a big impact there on oil flow. Yeah, we're hearing from Marco Rubio, [01:35:39] Speaker 1: actually, just speaking to media over in the Philippines, I think, he's saying Iran will continue to pay every night. The price gets higher and oil prices are on the rise, as you've been pointing out. 97.53 is where we trade on Brent. Skylar Montgomery-Koning from our Markets Live team, thank you very much for joining us. That is it for the opening trade this Thursday. The Pulse will continue to take you through a really busy morning here in Europe. This is Bloomberg. [01:36:09] Speaker ?: Thank you.