Pound Hits One-Year High to $1.30, Tiktok's Ruling in EU Tech Crackdown | The Opening Trade 07/17
ANNA: GOOD MORNING, I'M ANNA EDWARDS. WE ARE ONE HOUR AWAY FROM THE OPENING TRADE. U.K. INFLATION DISCUSSING THE BANK OF ENGLAND.
ASML SMASHES ESTIMATES. THE DUTCH FIRM SETS SALES GUIDANCE. KRITI: EURO STOXX 50 FUTURES OUTPERFORMING.
CABLE CROSSING 129. 10 YEAR YIELD IS HIGHER BY ONE BASIS POINT IN THE COUNTDOWN STARTS NOW. >> WELCOME TO THE OPENING TRADE. MAYBE THE FED HAS HAD THE BIGGER IMPACT. WHAT WE SAW YESTERDAY WAS THE IDEA THE FED CAN CUT.
DATA STORY CONTINUES AND WE GET HOT CPI NUMBERS, WHAT IMPACT WILL THAT HAVE? ANNA: THE POUND IS POPPING SO WE HAVE STUCK AT 2%. WE WERE SUPPOSED TO DIP. NOT A HUGE PERFORMANCE OR DASHBOARD -- 4 -- 4 -- FOUR HOT INFLATION PRINT. SERVICES NUMBER IS STICKY AND PERHAPS ALL OF THAT MEANS IN AUGUST CUT IS MORE UNLIKELY. GUY: THE MESSAGING HAS BEEN CONSCIOUS FROM HUW PILL.
PRETTY: THE RE-CONVERGENCE IS THE WAY TO PUT IT AND THE NUMBERS LIKE THE SERVICE NUMBER CAME DOWN AND PPI NUMBERS WERE HIGHER WITHIN NUANCES. IT IS COMING DOWN. WE GOT SOME ASML NUMBERS, A BIG BEAT AND IT IS COMING IN THE CONTEXT THAT THE U.S. IS INCREASING CURBS AND SUPPLY CHAIN. ANNA: BOOKINGS CAME IN STRONG BUT IF YOU LOOK AT THE SALES NUMBER IT IS WEAK. GUY: WE WILL GET AN UPDATE TO GET A LONG-TERM STORY.
WHAT I TAKEAWAY IS THIS COMPANY IS DRIVEN BY AI TRADE, DEMAND IS HIGH AND THEY UNIQUELY SO TOO BIG CHIPMAKERS. THAT IS WHERE THE ADMINISTRATION WILL LOOK TO GET A TIGHT GRIP BECAUSE THEY ARE NOT GETTING TRACTION. INTERESTING TO SEE. KRITI: YOU'VE BEEN TALKING ABOUT THIS ROTATION.
I'M CURIOUS HOW MUCH IS IN THE REAR MIRROR? GUY: IN TERMS OF TRADES IT HAS BEEN TECH, IN EUROPE IT HAS BEEN LUXURY TRADE. RUSSELL HAS BEEN SURGING. LET'S SAY 45% IS UNPROFITABLE. THAT WAS 25% AND ALLOWED THEM TO REDUCE. DOES IT REALLY WORK? DOES IT WORK GOING FORWARD? ANNA: AT THE MOMENT WE SEEM TO BE DRIVEN BY FED EXPECTATIONS AND TRUMP TRADE MAYBE THAT IS BETTER IN THE UNITED STATES. KRITI: I LIKE TO COMPARE TO THE NASDAQ AND BIGGEST PROFITABLE COMPANIES.
THEY TEND TO MOVE IN TANDEM BUT THE DROP IS OFF A CLIFF AND IT IS NO LONGER THE MOMENTUM. ANNA: ONE BIG STORY ON ASML, SECOND-QUARTER RESULTS THIS MORNING SEEMS TO BE POINTING IN TWO DIRECTIONS. >> YEAH, THIS WAS SIGNIFICANT. BOOKINGS ROSE. WHAT IS INTERESTING IS THE U.S.
LED MEASURES ON EXPORTS WHICH DID NOT HURT DEMAND FROM THE ASIAN NATION. CHINA ACCOUNTED FOR HALF OF REVENUE AND SALES ROSE BY 390 MILLION EUROS. THAT SHOWS THEY ARE ON TRACK AND IN 2025. GUY: STOCK IS DOWN. DECLINES IN ASML.
IS THIS ABOUT THE OUTLOOK? >> IT MAY BE UNDER PRESSURE BUT ASML FORECAST FLAT SALES BEFORE RETURNING STRONGER. THEY SAID SECOND HALF WILL BE STRONGER AND THEY EXPECT DEMAND TO JUMP. ONE OF ITS BIGGEST CUSTOMERS SAID SALES GREW FASTEST PACE SINCE 2022. KRITI: LET'S GET TO THE SCOOP. POSITIVE NUMBERS AS YOU LAID OUT, NOT SUSTAINABLE, HOW DOES THAT SQUARE WITH GEOPOLITICAL HEADLINES? >> BIDEN ADMINISTRATION IS CONSIDERING USING TRADE RESTRICTIONS IS ASML AND TOKYO ELECTRON GIVE CHINA ACCESS TO ADVANCED TECHNOLOGY AND THE GOAL IS TO PERSUADE NETHERLANDS AND JAPAN TO LIMIT SERVICE AND REPAIR OF RESTRICTIVE GEAR IN CHINA SO THE U.S. FIRMS ARE BARRED, CHINA BOUGHT ADVANCED MACHINES THAT THEY ARE NO LONGER ALLOWED TO HAVE IN THE U.S. WANTS ASML TO STOP SO THEY STOP
FUNCTIONING. PEOPLE HAVE TOLD US THE POLICY COULD SPARK A DIPLOMATIC CRISIS SO STOP MAY RISE OR BE UNDER PRESSURE. ANNA: TSMC SHARE PRICE WAS UNDER PRESSURE AND HAVE FORMER PRESIDENT TRUMP, WE WILL GET TO THAT LATER.
BLOOMBERG'S SEAN WITH THE LATEST. MULTIDIMENSIONAL STORY. WE WILL SPEAK TO BECKY CHIN FROM FIDELITY. LOTS TO DISCUSS AND WE WILL SPEAK TO CHIEF EUROPEAN ECONOMIST AT GOLDMAN SACHS. WE WILL TALK ABOUT THE U.K.
CPI PRINTS. WE WILL GET THE VIEW OF THE HEAD OF EQUITY FOR EUROPE AND HSBC'S GLOBAL ECONOMIST JOINS US. KRITI: INTERTWINING OF THE CORPORATE STORY AND DATA AND GEOPOLITICS. EURO AREA CPI AND FISCAL POLICY. WE WILL HEAR THE KINGS SPEECH AND A PREVIEW THROUGHOUT.
IN THE STATES WE HAVE $13 BILLION OF AUCTION AND THE FED BEIGE BOOK. CHRISTOPHER WALLER AND THOMAS BARKIN SPEAKING THROUGHOUT THE DAY. GUY: IT FEELS LIKE POWELL LAID THE AGENDER OUT. THERE ARE DATA POINTS TO CONFUSE THE MASSES. KRITI: HE KEEPS TALKING ABOUT LAGS AND WHAT IS THE DIFFERENCE OF SIX WEEKS, WHETHER IT IS JULY OR DECEMBER? ANNA: CUT NOW RATHER THAN WAIT. WHEN POWELL WAS SPEAKING HE WAS SAYING I AM SAYING THESE THINGS BUT DO NOT TAKE THEM AS GUIDANCE TO MOVE THE DIAL.
EVEN THOUGH THEY GOT COMFORT. >> SHOULD YOU LISTEN TO POWELL? HE WAS TELLING YOU NOT TO BUT IF YOU THINK ABOUT DECEMBER HE TOLD THE MARKET WE WOULD -- THAT THE CASE FOR RATE CUTS WAS GROWING AND THAT TURNED OUT ERRONEOUS AND WE TOOK THOSE RATE CUTS OFF THE TABLE. IS THERE A DANGER, HOW BIG OF A RISK DOES THAT POSE? KRITI: ISN'T THAT WHERE FISCAL POLICY IS IMPORTANT? GUESTS HAVE SAID WE DON'T KNOW THE ECONOMIC AGENDA, BUT YOU LOOK AT THE BUSINESSWEEK PIECE AND IT IS TALKING ABOUT TARIFFS, FISCAL SPENDING, KEEPING JAY POWELL ON. THESE ARE INFLATIONARY.
SHOULD THAT FACTOR IN? GUY: HOW DO YOU PLAN FOR THAT? IT IS TOUGH. YOU'VE GOT TO PLAY THE BALL IN FRONT OF YOU. PLENTY OF OTHER FACTORS. EUROPEAN COUNCIL PRESIDENT CALLED ON VIKTOR ORBAN TO SET THE RECORD STRAIGHT OVER DIPLOMACY. HE HAS NO MANDATE TO USE THE PRESIDENCY TO DEVIATE FROM FOREIGN POLICY AND HSBC APPOINTED GEORGES AS ITS NEXT EXECUTIVE. THEY WILL TAKE OVER IN SEPTEMBER REPLACING NOEL QUINN AFTER FIVE YEARS.
THEY TAKE THE ROLE TWO YEARS AFTER THEIR PROMOTION. ADDED DASS RAISED THEIR PROFIT AMID DEMAND FOR CLASSIC SNEAKERS. THEY EXPECT OPERATING PROFITS OF ONE BILLION EUROS. THAT IS UP FROM THE PREVIOUS
FORECAST. ONE COMPANY DELIVERING A POSITIVE PICTURE. ASML'S STORY IS NEGATIVE. ADDED DASS WILL POP AGAIN. ANNA: COMING UP ON THE PROGRAM WE TURN TO GEOPOLITICS. I MENTION THIS EARLIER, DONALD TRUMP SPEAKS TO BLOOMBERG ABOUT HIS PLANS FOR JAY POWELL AND ALL OF THOSE FEATURING IN THAT CONVERSATION BETWEEN TRUMP BEFORE THE ASSASSINATION ATTEMPT WITH BLOOMBERG. WE WILL BRING YOU THE HIGHLIGHTS LATER. WHAT TO EXPECT FROM THE KINGS SPEECH LAYING OUT THE AGENDA FOR THE LABOR GOVERNMENT. UP NEXT A LOOK AT THE MARKETS
WITH BECKY CHIN. >> BANKS WILL BENEFIT FROM LOWER RATES AND REAL ESTATE IS A DIFFERENT STORY BECAUSE DEBT IS LARGE. LOANS HAVE BEEN EXTENDED AND AMENDED, IT HAS TO WORK THROUGH THE SYSTEM. AMAZING AMOUNT OF OPPORTUNITY. GUIDE: BRUCE RICHARDS TALKING ABOUT IMPACT FROM LOW RATES. THAT WAS THE TRADE FOCUSED ON POLITICS AND THE TRADE IS HAVING THE BIGGER IMPACT. BECKY CHIN JOINING US NOW. GOOD MORNING.
STARTING TO THINK ABOUT HOW WE WILL SEE LOWER RATE'S. BROADENING OF MARKETS, RUSSELL HAS OUTPERFORMED. HOW SUSTAINABLE IS THIS? BECKY CHIN: RATES CAME JUSTIFIABLY AS WE'VE HAD TWO SOFT PRINTS AND THERE IS SPECULATION WE WILL GET EASIER CONDITIONS AND LOWER RATES. INFLATION PRESSURE AS EAST. BY THE WAY OUR BEST CASE IS SOFT
LANDING INSTEAD OF RECESSION RISK IMMINENTLY, QUITE A NICE COMBINATION AND WE PREFER MID-CAPS INSTEAD OF SMALL-CAP WITH SLIGHTLY HIGHER CREDIT QUALITY AND PROFITABILITY, QUITE CHART. QUITE A NICE ENVIRONMENT FOR CARRY TRADE'S AS WELL. SO WE HAVE QUITE PREFERRED CARRY TRADE'S ON A SELECTIVE BASIS SO IT COULD WORK WELL IN A DEFAULT ENVIRONMENT. WHERE WE HAVE PREFERRED FRONT END OF THE CREDIT CURVE TO GET THAT ATTRACTIVE CARRIE. GUY: OK. I HEAR WHAT YOU ARE SAYING, BUT LET'S FOCUS ON EQUITIES. THEY HAVE BEEN IN BIG CAP STOCKS.
IF THAT CHANGES DOES THE S&P LOSE GROUND? DO I WANT TO SELL? WHEN YOU SELL BIG TECH SUPPORT STARTS TO FLIP. BECKY: QUITE A DIFFICULT TRADE AND STILL IN A LOWER REGIME AND WE MANAGE TO BE DIVERSIFIED IN STYLE SECTOR SO IN ADDITION TO LARGE-CAP WE JUST DIVERSIFIED WITH CYCLICAL TRADES. CYCLICALS COULD BENEFIT FROM REDUCED OUTLOOK BECAUSE RATES ARE COMING DOWN. SO I THINK IT'S REALLY ABOUT COMBINING DIFFERENT STYLES.
ANNA: WHERE ARE THE OPPORTUNITIES IF THIS TAKES IN EUROPE? ARE THEY IN CYCLICAL STOCKS OR HIGH-YIELD? BECKY: SURE. EUROPE COULD BE INTERESTING. WE TOOK A SETBACK ON SENTIMENT WITH UNCERTAINTY AND ALSO IF YOU LOOK AT GROWTH INDICATORS PMI HAS BEEN WEEK. GERMAN PRODUCTION IN MAY WAS DOWN.
THE PAST 20 YEARS IT HAS NEVER BEEN SO WEAK OTHER THAN COVID. WITH THE FED COMING DOWN WE HAVE A RATE SENSITIVE SECTOR THAT COULD SUPPORT EUROPEAN GROWTH IN INDUSTRIAL SECTOR. BEYOND THAT WE HAVE ALSO LIKED JAPANESE STOCKS THIS YEAR. ANNA: OK. OK. OK. KRITI: SO YOU TALK ABOUT THE RATE CUTS, HOW CONCERNED SHOULD WE BE THAT WE HAVE DATA POINTS ETC.
THAT SHOW WEAKNESS? IS THAT CAUSE FOR CONCERN? >> SURE. THE REASON WE DO NOT HAVE IMMINENT RECESSION AND WE HAVE SOFT LANDING IS WEAKER LABOR MARKET DATA. CLAIMS DATA IS UP AND THAT HAS TRIGGERED WORRIES IN THE LABOR MARKET BUT WHEN YOU LOOK AT CONSUMER SECTOR, CONSUMER SURPLUS, REAL INCOME GROWTH IS MODERATING.
KRITI: WE KEEP HEARING SO MUCH , IS THERE A CATALYST IN THE PIPELINE. WE HAD A FALL. IT IS QUITE DIFFICULT TO SAY SHORT RISK. KRITI: BECKY WE HAVE TO LEAVE IT THERE. MULTI-ASSET PORTFOLIO MANAGER GIVING US THE BREAKTHROUGH OF THE DYNAMICS.
WE BRING IT CLOSER TO THE U.K. INFLATION NUMBERS AND WHAT THE ECB'S NEXT MOVE MIGHT BE. GOLDMAN SACHS CHIEF EUROPEAN ECONOMIST WILL JOIN US TO TALK ABOUT WHETHER THE FED AND ECB ARE ON THE SAME PAGE. COMING UP NEXT. THIS IS BLOOMBERG.
♪ ANNA: 30 MINUTES UNTIL OPENING TRADE. QUICK CHECK ON FUTURES, THINGS ARE FLAT FOR EUROPEAN FUTURES. NASDAQ FUTURES ARE DOWN AND THE BROADER STORY IS ROTATION INTO SMALL CAPS. WE WILL SEE HOW THAT PLAYS OUT AND HAVE A QUICK LOOK AT BOND MARKETS. THAT IS WHERE WE ARE WITH U.K. CPI AND TILT MARKETS.
GUY: ANTICIPATED INCREASINGLY WE WILL SEE A CUT DESPITE COMMENTS FROM MPC, MAYBE THIS PUSHES SEPTEMBER SO INTERESTING TO FIGURE OUT DYNAMICS. WHAT'S GET SOME ANSWERS FROM THE CHIEF EUROPEAN ECONOMIST FROM GOLDMAN SACHS, DOES THE DATER CHANGE YOUR THINKING? DOES IT TILT TOWARD SEPTEMBER? GUEST: IT IS DISAPPOINTING, SAW THAT INFLATION WENT SIDEWAYS AT 2%, CORE INFLATION WENT SIDEWAYS AND SO I THINK IT WILL BE ENFORCING CONCERNS THAT THE CHIEF ECONOMIST EMPHASIZED AND WHEN YOU STEP BACK WE'VE SEEN CUMULATIVE PROGRESS ON INFLATION, MOVING AND OTHER PEOPLE EMPHASIZED THAT POINT. IT WAS A CLOSE CALL. >> NOVEMBER COULD BE ON. >> THAT IS PROBABLY RIGHT.
IF THEY GO IN AUGUST IT IS CLOSE . WHETHER THEY GO IN AUGUST OR NOT, WE WANT PROGRESS ON WAGES, SOME WEAKENING BUT IF THEY GO IN AUGUST TO IS NATURAL, YOU CAN GO AT A QUARTERLY PACE. IF YOU DON'T YOU COULD GO NOVEMBER BUT IT IS LESS OBVIOUS AND MIGHT SEEM RUSHED BACK-TO-BACK AND YOU WANT PROJECTIONS. PRESS CONFERENCE AND BETTER
FRAMEWORK. KRITI: HOW REACTIVE DOES THE BOE NEED TO BE. WE'RE TALKING ABOUT FLAGS, WHAT DOES THE TIMEFRAME LOOK LIKE? GUEST: LAD INTO GROWTH IS ONE YEAR AND INFLATION IS A COUPLE OF YEARS AND WHAT IS DIFFERENT IN THE U.K. IS SPOT PRESSURE HIGHER AND GOOD REASONS THESE PRESSURES WILL EASE A BIT OVER THE NEXT ONE OR TWO YEARS IS THE TRICKY CALCULUS. DON'T CUT EARLY BUT WHEN YOU LOOK AT THE FORECAST INFLATION IS AT OR BELOW 2% SO THAT CALCULUS IS EASIER BECAUSE SPOT PRESSURES ARE LOWER AND WE HAVE MADE PROGRESS SO SEPTEMBER CUTS ARE EASIER THAN BANK OF ENGLAND'S FIRST MOVE. KRITI: HOW MUCH ARE THOSE TAKING INTO ACCOUNT FISCAL CHANGES? >> THEY DO BUT THEY TEND TO ONLY TAKE LEGISLATED PHYSICAL CHANGES, NOT ANTICIPATION, SO MOST OF WHAT SHIFTED WAS EXPECTATION.
SLOWER CONSOLIDATION IN, SPENDING AND IF YOU LOOK TO THE U.S. THERE IS UNCERTAINTY AND FOR NOW CENTRAL BANKS ARE FOCUSED ON INFLATION, LABOR MARKET. ANNA: TRADERS PAIR THEIR BETS IN AUGUST SO CHANCES ARE FALLING TO 25% AND ONE THING REFERENCED BY THREE SPEAKERS IS SERVICES INFLATION. STILL YOU HAD A LOT OF REFERENCE TO HIGH INFLATION. THAT IS NOT WHAT THE PERSON IN THE STREET HAS EXPERIENCED. >> I THINK THAT IS RIGHT.
IT IS DOMESTIC PRICE PRESSURES BECAUSE OF GOODS INFLATION WERE ENERGY. SERVICES INFLATION IS STICKY BECAUSE SERVICES PRICES ARE BACKWARD LOOKING AND THEY RESET ONCE A YEAR LOOKING BACK AT INFLATION. YOU STILL HAVE MOMENTUM SO THAT SHOULD COME OUT OVER TIME. WAGE GROWTH IS STRONG. RUNNING AROUND 6%. MORE BACKWARD LOOKING ELEMENT BECAUSE WORKERS PUSH TO HAVE REAL WAGES RESTORED, THAT SHOULD COOL AND THEN THE THIRD IS THE ECONOMY IS DOING BETTER AGAIN, GROWTH HAS PICKED UP AND THAT IS MORE SUSTAINABLE. DOMESTIC DEMAND IS STRENGTHENING SO IT IS COMPLICATED AND YOU DON'T WANT TO LOOK AT SPOT DATA, BUT FOR MAYVIEW. ANNA: OK.
GUY THINKS TAYLOR SWIFT HAS A BIG IMPACT. YOU TALKED ABOUT GROWTH EXPECTATIONS IN A NEW ERA OF POLITICS, GROWTH IN THE U.K.. ECONOMISTS ARE LOOKING AT WHAT WE KNOW AND ASKING HOW QUICKLY GROWTH CAN BE DELIVERED.
WHAT EXPECTATIONS DO YOU HAVE AROUND GROWTH IN THE U.K.? >> BROADLY POSITIVE AFTER YEARS OF WEEK PERFORMANCE BUT YOU SAW STRONG GROWTH, TRACKING AGAIN 0.7% GAIN, GOOD NUMBERS. WE DON'T THINK THAT IS SUSTAINABLE BUT WE LOOK FOR HALF OF THE GROWTH FORWARD-LOOKING BASIS AND IT PUTS US ABOVE CONSENSUS. 1.1% THIS YEAR. QUITE BETTER THAN CONSENSUS SO FROM THE NEW GOVERNMENT THERE ARE THINGS THAT COULD SUPPORT GROWTH I THINK ON THE FISCAL SIDE. HEADROOM IS CONSTRAINED BUT
LATER WILL DELIVER SPENDING AND TAX ON NET, SUPPORTIVE FOR DEMAND SO THAT IS ONE REASON YOU WILL GET MORE SUPPORT. ANNA: MMM. >> AND THERE ARE STRUCTURAL ISSUES THE GOVERNMENT IS TRYING TO CHANGE. PLANNING REFORM IS IMPORTANT.
THIS WILL TAKE TIME BUT HAS THE POTENTIAL TO SUPPORT GROWTH BECAUSE YOU COULD MOVE CLOSER TO BIG CITIES WITH HIGHER PRODUCTIVITY AND I WOULD FLAG ECONOMIC TIES WITH THE EU AND POLITICAL COMMUNITY MEETING TOMORROW, A SIGNAL THE NEW GOVERNMENT IS KEEN ON DEEPENING TIES TO HELP TRADE AND GROWTH. GUY: THE OTHER SIDE OF THAT TRADE IS EUROPE. TALKING ABOUT WHAT IS HAPPENING IN FRANCE, HOW ARE YOU PLUGGING IN POLITICS DEVELOPING AND PENSION REFORM, HOW ARE YOU THINKING ABOUT EUROPEAN GROWTH? THE FRANCE TRADE IS WHERE THE CHAOS IS. GUEST:
GROWTH OUTLOOK IN EUROPE IS BETWEEN ECONOMICS WHICH LOOKS SUPPORTIVE AND GEOPOLITICAL ISSUES WHICH BRING IMPORTANT RISKS SO THE ECONOMICS, WE'VE SEEN IMPROVEMENT, REASONS TO LOOK FOR GROWTH. REAL INCOMES ARE GROWING. THESE ARE REASONS TO LOOK FOR GROWTH. YOU MENTIONED HEADWINDS IN FRANCE. POLITICAL UNCERTAINTY. WE NEED TO SEE WHAT THAT WILL DO AND WE HAVE DOWNGRADED OUR FRINGE GROWTH. IMPORTANT ISSUES AROUND CHINA AND THE TRADE OUTLOOK. GUY: HOW MUCH VISIBILITY DO YOU HAVE? GUEST: 1% AT THE MOMENT, NOT AMAZING BUT BETTER THAN STAGNATION OF LAST YEAR AND A PICKUP INTO THE SECOND HALF DRIVEN BY INFLATION COMING DOWN AND ECB CUTTING RATES TO SUPPORT GROWTH BUT IT IS A RISKIER ENVIRONMENT WHEN YOU LOOK AT HEADWINDS. KRITI:
WE WILL LEAVE IT THERE. JOINING US TO TALK ABOUT MONETARY AND FISCAL. COMING UP, TURNAROUND AT ADIDAS TAKING AFFECT. THIS IS BLOOMBERG. ♪
>> WELCOME BACK. THIS IS THE PICTURE. DOWN HALF A PERCENT.
MARKETS LIVE EXECUTIVE MARK CUDMORE JOINS US. WE'VE SEEN ROTATION INTO SMALL CAP. THIS IS THE STAT YOU COULD PICK. DOES THIS SUSTAIN? >> IT WILL NOT BE A STRAIGHT LINE AND IS MAINLY AROUND ECONOMICS AND POLICY. THE LOWER INTEREST RATES FACILITATE SMALL CAPS AND WE ECONOMY NOT ROLLING OVER.
THE FINAL COMPONENT IS POLITICS. BOTH TRUMP AND HIS PICK CLASHED WITH BIG TECH. THERE IS A WORRY AND WE'RE FOCUSED ON AI. DISAPPOINTMENT AND BROADENING OUT OF RISK RALLY. IT'S NOT ABOUT SMALL CAPS, IT IS A VARIETY OUT.
THE WORLD CAN OUTPERFORM IN A RISK ON ENVIRONMENT. KRITI: THE 10 YEAR YIELD, I'M CURIOUS WHAT THE FLOOR IS AS WE TALK ABOUT TIMBRE OR A JULY RATE CUT, WHAT IS THE FLOOR? I AM OF THE CAMP THAT THERE IS DOWNWARD MOMENTUM AHEAD OF THE JULY SAID, THERE IS UPWARD PRESSURE AND PRICING IN ALMOST THREE CUTS IN LESS IT DOES NOT LOOK UNLIKELY. I THINK THAT NOT QUITE YET WE ARE EARLY FOR THE THEME. CLOSER TO JULY YOU WANT TO PLAY FOR UPSIDE AND IT WILL BE LONG AND YIELDS THAT RISE. THE POLITICAL SITUATION WILL RAISE PRESSURE. WHERE IS THE FLOOR? A LITTLE BIT OF A STRETCH AND THAT WILL BE A GOOD TIME. GUY: THANK YOU INDEED.
FOUR OR SIX LETTERS THAT YOU NEED TO PUNCH IN AND A SPACE. HSBC HAS ANOTHER CE WELL. RETIRING AFTER A THREE DECADE CAREER. WHAT DOES THIS MEAN FOR HSBC. IS THIS A CHANGE? >> I THINK YOU HIT IT ON THE.
GEORGE BECAME CFO LAST YEAR AND HE WAS THE FRONT RUNNER MONTHS AGO. HE WILL BE INHERITING ASSETS AND ALSO I THINK THEY WILL BE TASKED WITH CONTINUING A PIPIT INCLUDING GREATER CHINA AND THAT IS THE TASK. EXECUTING, MAKING COST CUTS, THESE ARE THINGS THAT QUINN HAS BEEN DOING. ANNA:
THANK YOU, RUSSELL WARD WITH WHAT TO KNOW. LET'S FIND OUT WHAT OTHER STOCKS ARE ON THE MOVE. WE START WITH A TECH NAME THAT WE STARTED THE SHOW WITH. JOE:
DECLINES AROUND 4% AFTER DOWNGRADING FORECASTS. BE CURRENT QUARTER LOOK STRONG. WEAKNESS INTO THE THIRD QUARTER. WE'VE HAD NEWS OF THE U.S. IMPOSING STRICTER RESTRICTIONS.
WE CAN SEE TECH OUTPERFORMING AND THE STREET LOVES THIS. TWO BITS OF NEWS WEIGHING ON THAT ONE AND ADIDAS LOOKING MORE POSITIVE. ADRS GAINING YESTERDAY AFTER THE COMPANY RAISED ITS TARGET DO TO TRAINERS AND SELLING THE INVENTORY THAT THEY HAD WITH KANYE WEST. DECENT GAME FOR THAT ON THE LONGER-TERM BECAUSE THIS IS THE DECLINE DRIVEN BY THE BREAKDOWN THAT HAS RECOVERED BUT THIS COULD BE POSITIVE. ANOTHER ONE IN GERMANY IS LOOKING MORE NEGATIVE. CITING PERSISTENT WEEK MARKET DEVELOPMENTS. IF U.S.
IS STRONG BUT EUROPE LOOKS WEEK. ANALYSTS SAY THIS COULD IMPACT VOLVO AND THE BUSINESS SPUN OUT OF VOLKSWAGEN FOLLOWING WEEK NUMBERS THIS MORNING. KRITI: JOE EASTON THAT FROM THE SPORTING WORLD. I WILL GET AN UPDATE. THANK YOU FOR THE STOCKS TO WATCH.
HE MENTIONED EASING THERE. GAIA: THEY HAVE BEEN IMPRESSIVE. A MASSIVE WEIGHT ON THE COMPANY AND NOW IT MANAGED TO SELL MORE OF THOSE. ANNA: WAS SHE TRYING TO TRAP YOU INTO A FASHION STATEMENT? GUY: THERE IS A DARKER SIDE OF THE STORY. ANNA: IT WAS HOT FOR-PROFIT AND NOW WE'VE SEEN A READ ACROSS FROM NIKE ON OTHER OCCASIONS AND WEEK GUIDANCE FROM NIKE WEIGHED ON ADIDAS. GUY: IF YOU GET THE TIMING RIGHT -- THEY DELAYED BRINGING SIN BECAUSE OF THE PERFORMANCE, WHY WOULD THEY CANNIBALIZE THE PERFORMANCE? THE TRUCK STORY STANDS OUT.
ANOTHER EUROPEAN COMPANY CITING CHINA AS THE SOURCE OF THE WEAKNESS. WE HAVE HEARD IT OVER THE LAST FEW DAYS. TRUCKS I AM MORE COMFORTABLE WITH. KRITI: SO MUCH MATERIAL. GUY: JDS ASSETS IN CHINA ARE CAUSING THEM TO PUT EMPOWERMENT'S FORWARD AND THE DRAG CHINA IS PRODUCING IS INTERESTING. ANNA: COPPER BUYING, ALL OF THAT
ADDING TO A GLOOMY NEWS FLOW SURROUNDING CHINA. WE WONDER WHAT POLICY SUPPORT MIGHT COME. GUY: WEDNESDAY MORNING, GOOD MORNING, COUPLE OF MINUTES UNTIL THE START OF RETRADING IN EUROPE. THE LEGACY FROM THE UNITED STATES IS NOT SIGNIFICANT. WE CLOSED OUT IN EUROPE AT THE SAME LEVEL AS WE SAW IN NOT ESTATE. LITTLE BIT OF A RALLY AS WE
CAME YOU IN THE BACK HALF YESTERDAY IN THE STATES. NEVERTHELESS, FUTURES ARE FAIRLY THAT. THERE ARE SOME INTERESTING STOCKS TO WATCH OUT MAN THIS MORNING. -- OUT FOR THIS MORNING.
WE WILL SEE WHETHER THERE IS CONTINUATION OF THE ROTATION INTO SMALL CAPS. NOT MUCH OF A READ-ACROSS IN THE STATES. KRITI: NOT MUCH FOR THE FTSE, THEY ARE FLAT WHEN YOU LOOK AT THE FUTURES TRADE, AN HOUR AGO WHEN WE DID THE CHECK, THE FTSE 100 WAS OUTPERFORMING THE EURO STOXX 50, NET YOU ARE SEEING RISK SENTIMENT TURN.
AND USUALLY WE ATTRIBUTE THAT AT LEAST IN RECENT WEEKS TO THE WEAKNESS IN FRANCE, AND YET, OUTPERFORMANCE IN FRENCH FUTURES. THAT IS YOUR FUTURES PICTURE FROM A 30,000 FOOT LEVEL. ANNA: THERE IS THAT READ-ACROSS VIA THE POUND INTO THE FTSE, THE POUND MOVED ON THAT DATA, BUT ONLY BY A 10TH OF A PERCENT. QUICK CHECK ON STOCKS IN FOCUS. ASML BOOKINGS BETTER THAN ESTIMATES. Q3 GUIDANCE SOFT, AND ADD THAT TO SOME NEGATIVE GEOPOLITICS, WHETHER THAT IS THE PROSPECT OF ANOTHER TRUMP ADMINISTRATION OR THE CURRENT BIDEN ADMINISTRATION, LOTS OF NEGATIVE HEADLINES TO LATCH ONTO.
THE SECOND TIME ADIDAS HAVE INCREASED GUIDANCE IN THREE MONTHS GRADE LESS POSITIVE AT DAIMLER TRUCK, TAKING OUT OF THEIR GUIDANCE AS A RESULT OF CHINA. GUY: SOME SINGLE STOCK STORIES MAY BE IN FOCUS AT THE OPENING TRADE THIS MORNING. WE ARE TRADING IN EUROPE. THE CASH AND TRADE IS UPON US. GENERALLY, A NEGATIVE PICTURE ANTICIPATED THIS MORNING. THAT ASML WAIT WE ARE EXPECTING ON THE DOWNSIDE COULD HAVE IMPACT.
WE WILL MAYBE SEE THE EURO STOXX 50 AND STOXX 600 UNDER PRESSURE. EUROPE HAS BEEN REALLY CONCENTRATED IN TERMS OF WHERE THE PERFORMANCE HAS FROM. ASML HAS BEEN AT THE CENTER OF THAT STORY. IF WE GET WEAKNESS IN THE STOCK
WE ARE LIKELY TO GET WEAKNESS THAT AN INDEX LEVEL. THE STOXX 600 DOWN 0.4%, SO IT LOOKS AS IF WE ARE SEEING THAT WEIGHT. WHAT WE HAVE GOT ON THIS BOARD IS THE AX, THE AMSTERDAM MARKET, I AM FASCINATED HOW IT IS TRADING THIS MORNING WITH THE POTENTIAL DOWNSIDE FROM THE ASML STORY.
FTSE FLAT, CAC FAIRLY FLAT, DAX LAID DOWN 0.4%. ITALY IS DOWN, THE IBEX AS WELL. LET'S FIND OUT WHAT IS HAPPENING WITH THE AEX. KRITI, WHAT'S HAPPENING WITH TECH THIS MORNING? KRITI: WHEN YOU LOOK AT ASML, IT IS DOWN ALMOST 4%, WHEN YOU SEE THAT REACTION.
IT FEELS LIKE THE GEOPOLITICS MORE THAN THE SALES NUMBERS. WE LOOK AT THE INDEX IN THE NETHERLANDS, YOU ARE SEEING UNDERPERFORMANCE, YOUR WORST PERFORMER ACROSS THE ENTIRE CONTINENT, DOWN ALMOST 1% EVEN THOUGH YOU SEE A DRAGON DOWN ON BOTH THE FTSE AND EURO STOXX 50. IT IS ALONG WITH OTHER HEAVYWEIGHTS, SAP IS COMING DOWN, ASM AS WELL MOVING LOWER, SO THIS IS A TECH UNDERPERFORMANCE TRADE, WHEREAS YOUR PERFORMERS IN THE FTSE SEEM TO BE CYCLICAL, OIL, BANKS, ETC. ANNA: TECHNOLOGY THE WORST-PERFORMING
THIS MORNING, DOWN 1.8%, TAKING SOME OF THE OTHER TECH NAMES AS WELL, SO NOT JUST ASML BUT THE LIKES OF INFINEON TECHNOLOGIES DOWN JUST SHY OF A PERCENT. FEAR AROUND WHAT THIS ADMINISTRATION IN THE UNITED STATES OR WHAT ANY INCOMING TRUMP ADMINISTRATION, WHAT THAT WOULD MEAN FOR RELATIONSHIPS WITH CHINA, THEREFORE HOW TOUGH THE SANCTIONS ENVIRONMENT GETS AROUND BIG CHIP MANUFACTURERS OR THOSE WHO MAKE THE MACHINERY, THE LIKES OF ASML. TO THE UPSIDE, CONSUMER
PRODUCTS AND SERVICES, BEST-PERFORMING SECTOR, WE SEE A BOUNCEBACK FROM BUSINESSES THAT HAVE BEEN BEATEN UP OF LATE, SWATCH GROUP AND BURBERRY BOTH TRADING UP MORE THAN 1% THIS MORNING. KRITI: YOUR BIGGEST CONTRIBUTOR NOT JUST IN THE FRENCH INDEX BUT ACROSS THE BOARD IS LVMH AND TOTALENERGIES, THOSE TWO HAVE TAKEN THE BIGGER HITS WHEN IT COMES TO THE FALLOUT OF GEOPOLITICS, AND TODAY, THEY ARE SOME OF YOUR BIGGEST MOVES TO THE UPSIDE. GUY: PEOPLE BUYING THE DIP, YOU HAVE SEEN THAT TRADE THE LAST FEW DAYS, MAYBE TAKING ADVANTAGE OF THAT SITUATION. YOU HAVE ANOTHER STORY THIS MORNING, DAIMLER TRUCKS FLAGGING THE RISK OUT OF CHINA, THAT GROWTH RISK OUT OF CHINA FEELS MORE PERVASIVE DAY BY DAY IN TERMS OF THE EARNINGS STORY HERE IN EUROPE. LET'S GET ANOTHER TAKE.
GEORGES DEBBAS, HEAD OF EQUITY DERIVATIVES STRATEGY FOR EUROPE AT BNP PARIBAS JOINING US AROUND THE TABLE. GEORGES: GOOD MORNING, SIR. GUY: BUY THIS, WE WILL GO WITH THAT. EUROPE HAS BEEN REALLY CONCENTRATED.
THE AMERICAN MARKET. A BUNCH OF SINGLE STOCKS IN THE U.S. AND AROUND TECHNOLOGY AND OVERHEAR THE SAME STORY AS WELL. ARE WE GOING TO SEE THAT TRADE BROADENING OUT? GEORGES: YES, FAIR ENOUGH. IF WE LOOK BACK A MONTH AGO, THAT TYPE OF TRADE WAS STARTING TO ACCELERATE WITHIN EUROPE. THE BROADER NAME FROM LARGE-CAP WITHIN CYCLICAL RECOVERY WHERE WE EXPECTED AN H2 RECOVERY BECAUSE OF LOOSER MONETARY POLICY, RISING WAGE INCOMES, BETTER FUNDAMENTALS MEANT YOU STARTED HAVING THAT MOVE FROM LARGE-CAP TO SMALL AND MID-CAP WHICH WAS OUR CALL. UNFORTUNATELY, THE PAST MONTH THAT NARRATIVE, ESPECIALLY HERE IN EUROPE IS BEING QUESTIONED.
THE NARRATIVE AROUND H2 RECOVERY AND PICK UP IN FUNDAMENTALS IS BEING QUESTIONED. THE MAIN REASON IS ON ONE ELEMENT, THE PUSHBACK FROM POTENTIALLY CHINESE WEAKNESS IS WEAKER THAN EXPECTED. AND IT'S NOT ACTUALLY ACCELERATING AS WHAT WE WOULD'VE THOUGHT. THE SECOND AND MORE IMPORTANT
PART IS THAT THE TROUGH IN ACTIVITY HAS ARRIVED. WE ARE NOT EXCITING MORE WEAKNESS BUT THE V-SHAPED RECOVERY AND PICKUP IN ACTIVITY IS NOT REALLY HERE, AND THAT IS SURPRISING, BECAUSE IF YOU LOOK AT OUR CONSUMER, WE ARE CASH RICH, WE HAVE QUITE ENOUGH SAVINGS, AND OUR CORPORATES ARE FUNDAMENTALLY HEALTHIER THAN IN THE U.S., AND ANNA: THAT SETS UP NICELY WHERE WE GO ON EUROPE. YOU MENTIONED CHINA WEAKNESS AND BIG COMPANIES IN EUROPE RELY ON CHINA FOR SOME OF THEIR INCOME.
WHAT'S THE NEXT STAGE OF THE CHINA STORY? WE DOCUMENTED THE FAILURE TO RECOVER POST-COVID FULLY. AND EXPECTATION ON THE GOVERNMENT OR SOMEBODY TO DO SOMETHING MORE AND NOTHING SEEMS TO STICK. WHAT ARE YOU WATCHING IN CHINA THAT MAKES A DIFFERENCE FOR EUROPE? GEORGES: WE DON'T TRY TO SPECULATE ON CHINA. WE LOOK AT HOW THE FUNDAMENTALS ARE REALLY WORKING. AS OF NOW, AT LEAST FROM OUR ASIAN COUNTERPARTS, WHICH ARE A LOT MORE FOCUSED ON THAT AREA, FOR THE TIME BEING, IT SEEMS CHINA IS FOCUSING ON PRODUCTIVITY AND LOCAL REFORMS AND NOT BROADENING OUT ACROSS THE BOARD AND HAVING THE BAZOOKA-LIKE TYPE OF REFORMS THAT WE IN EUROPE OR THE U.S. ARE USED TO. IT IS MORE OF A WAIT AND SEE. ANNA: SO NOTHING CHANGES ON THAT
FRONT. GEORGES: WE HAVE THE CHINA PLENUM THIS WEEK AND WE WILL SEE WHAT COMES OUT OF IT. NO REAL BIG EXPECTATION IN THAT RESPECT. KRITI:
OH, MY TURN, I WAS READY TO DIVE IN FURTHER. I WANT TO TALK ABOUT THE ROTATION TRADE GUY WAS TALKING ABOUT AT THE START OF THE SEGMENT. WHEN WE TALK ABOUT THIS MOVE INTO THE RUSSELL, TRADITIONALLY WHEN WE SEE IT, IT FEELS LIKE A MOMENTUM TRADE, IT COMES MORE IN LINE WITH THE LIKES OF NASDAQ. LET A CHART SHOWS THE 40-DAY CORRELATION BETWEEN THE NASDAQ AND RUSSELL FALLING OFF OF A CLIFF, HOW SUSTAINABLE IS THAT? GEORGES: IT A QUESTION WE GET QUITE A LOT. THE FAIR ANSWER IS WE DON'T REALLY KNOW. IF YOU LOOK UNDER THE HOOD, EVEN THOUGH THE 40-DAY CORRELATION HAS COME DOWN, THE NASDAQ IS STILL UP 3.5% ON THE
MONTH, THE MAG SEVEN AND THE FAANG ARE UP 7%, EVEN THOUGH RUSSELL HAS BEEN AT THE FOREFRONT OF THE NEWS FLOW, IN THE BIG SCHEME, IF YOU LOOK AT ONE OR TWO YEAR TYPE OF PERFORMANCE ONE OVER THE OTHER, IT IS STILL RELATIVELY SMALL. ON THAT SIMPLE VECTOR, YOU STILL HAVE MORE LEGS TO GO. IT IS MORE A TECHNICAL MOMENTUM SQUEEZE, MORE THAN JUST A FUNDAMENTAL GOING FOR THE SMALL AND MID-CAP. IF YOU LOOK AT ANOTHER BASKET WHICH IS THE BNP SHORTED BASKET, IT HAS SQUEEZED AS MUCH AS IF NOT MORE THAN RUSSELL 2000, IT SHOWS IT IS NOT JUST ABOUT VALUE, IT IS WHERE THE LAGGARDS HAVE UNDERPERFORMED MASSIVELY. ANNA: I ASKED ABOUT STOCKS AND RATE CUT EXPECTATIONS RIGHT NOW.
HE SET UP NICELY IN YOUR NOTES THAT EQUITIES TYPICALLY PERFORM WELL IF IT COMES DOWN, TO WIDER CUTTING RATES,, AS TO WHAT THAT MEANS FOR STOCKS, SO THAT'S ALL WE NEED TO KNOW. GEORGES: VERY QUICKLY, INTEREST-RATE ARE GOOD FOR EQUITIES. IF YOU CUT THEM, VALUATION IS UP BECAUSE OF YOUR DISCOUNT FACTOR IS HIGHER, SECONDLY, THE COST OF THAT IS LOWER WHICH HELPS BOOST THE ECONOMY. HOWEVER IF YOU LOOK AT 100 YEARS OF THE RATE CYCLE, WHAT WE END UP NOTICING IS TWO THINGS, IF YOU CUT RATES TO GO FROM RESTRICTIVE POLICY TO NORMALIZATION WHILE THE ECONOMY IS STILL RESILIENT, THEN THE ECONOMY AND EQUITY MARKETS WILL CONTINUE TO PERFORM WELL. HOWEVER IT ALSO MEANS THERE IS NOT A LOT OF CUTS COMING IN.
IT'S ON THE HISTORY BOOK. IF YOU ARE CUTTING TO STIMULATE THE ECONOMY BECAUSE OF FUNDAMENTAL SLOWING DOWN, DETERIORATING, IT TENDS TO BE TOO LATE AND THE EQUITY MARKET UNDERPERFORMS QUITE A LOT. IT IS VERY MUCH WHY YOU ARE CUTTING THAT IS AS IMPORTANT T HAN HOW MUCH YOU ARE CUTTING. GUY: HOW DO YOU THINK INVESTORS ARE POSITIONED? GEORGES: PEOPLE CANNOT AFFORD TO BE LONG THE S&P OR THE NASDAQ, PEOPLE DID THAT I AM 22 AND 23 AND IT COST THEM QUITE A LOT. GUY: YOU JUST UNDERPERFORMED. GEORGES: IT IS THE SINGLE MOST IMPORTANT QUESTION, HOW MUCH SHOULD I ALLOCATE, SHOULD I BE UNDERWEIGHT OR OVERWEIGHT MAG SEVEN, THAT IS 80% OF PERFORMANCE. IN EUROPE THINGS ARE GOING WELL, WE HAVE DISSERTATION SMALL TO MID-CAP, WE HAD A LOT OF INTEREST COMING IN, I THINK THE FRENCH POLITICS AND WEAKNESS IN CHINA HAS PUT BACK A BIT MORE MOMENTUM IN OUR AREA.
GUY: DO YOU THINK PEOPLE ARE HIDING OUT IN BIG TECH? DO YOU LIKE THE BIG TECH STORY FOR WHAT IT IS? ANNA: THEN YOU OVERLAY POLITICS, AND THINGS GET COMPLICATED, WE WERE HEARING EARLIER THERE ARE TECH STRANDS TO THE POLITICO CONVERSATION IN THE UNITED STATES. WE BELIEVE THAT FOR ANOTHER DAY. I ASKED ABOUT HEALTH STOCKS? ROCHE IS UP MORE THAN 5% THIS MORNING, THIS ON AN ORAL WEIGHT LOSS DRUG SHOWING PROMISE, THIS IS AN AREA EUROPE HAS BEEN DOING WELL WITH, SPECIFICALLY NOVO NORDISK, BUT OTHERS ARE PLAYING THIS GAME FROM THE UNITED STATES. THAT IS QUITE SPECIFIC IN HEALTH CARE. IS THAT ANOTHER TRADE THAT BROADENS? GEORGES: YES, ONE OF THE REASON WHY YOU HAVE SOME WEAKNESS IN OTHER AREAS, ESPECIALLY IN OUR STAPLE FOODS WHICH HISTORICALLY HAVE BEEN QUITE QUALITY COMPANIES IS BECAUSE OF THE SECOND EFFECT OF WHAT THIS COULD DO.
WE JOKE THAT THE U.S. HAVE THE AI, WE HAVE OUR GLP-1, THIS REVOLUTIONARY DRUG WILL CHANGE THE BEHAVIOR OF A LOT OF CONSUMERS, WHICH MEANS THE PROPENSITY TO EAT OR DRINK MORE IS CHALLENGED, AND THAT CAN CREATE A HEADWIND FOR COMPANIES THAT STRUCTURALLY SPEAKING DON'T GROW QUITE A LOT, MAINLY THE STAPLES. ANNA: I AM CONCERNED AI MAKES US LAZIER AND SIT STILL MORE. [LAUGHTER] WE DO TOO MUCH OF THAT. KRITI: HOW DO YOU HEDGE IT?
EITHER SIDE OF THE ATLANTIC, YOU LOOK AT HOW MUCH OPTIONS ARE COSTING, THEY ARE CHEAP BECAUSE NOBODY WANTS THEM. BUT FOR HOW LONG AND WHY ARE THEY SO CHEAP? GEORGES: BECAUSE THEY ARE NOT [INDISCERNIBLE] THAT IS A BIG SUBJECT WE CAN TALK ABOUT IT. FOR VOLATILITY TO REACT, YOU NEED THE FUNDAMENTAL TO REALLY REACT, AT THE POINT IN TIME WHERE POSITIONING IS QUITE LONG, WHICH IS THE CASE ALREADY IN THE U.S. BUT FUNDAMENTALS IS NOT PICKING UP AND SECOND YOU NEED VOLATILITY OF LOW-GRADE WE HAVE VOL HARVESTING TECH WHICH IS PUTTING PRESSURE ON THIS VOLATILITY BUT BECAUSE VOLATILITY IS LOW, WHAT WE ARE TRYING TO SAY TO INVESTORS, IF YOU WANT TO BE LONG THE S&P, THE NASDAQ, THE RUSSELL OR SOME OF THESE LIQUID STOCKS, INSTEAD OF JUST BUYING THE STOCK, BUY AN OPTION IN ORDER TO TAKE ADVANTAGE OF THIS LOW VOLATILITY AND PROTECT FROM THE DOWNSIDE. IT MIGHT NOT RELIES ON A PURE VOL TRADE, BUT ON A DIRECTION PLAY, IT IS SAFER THAN JUST BUYING THE UNDERLYING. KRITI: THERE IS A BULL CASE, THERE IS A MUCH DRY P OWDER, IS THAT WHERE THE NEXT LEG OF THE S&P COMES FROM, THE NEXT LEG OF EQUITIES TO THE UPSIDE? GEORGES: I WOULDN'T COMMENT ON THE U.S.,
THERE IS TECHNICAL FACTORS AROUND HOW THE MARKET IS REACTING BETWEEN THE ECONOMY. BUT IN YOUR FUNDAMENTALLY SPEAKING WE HAVE BEEN RANGE-BOUND THE PAST TWO TO THREE MONTHS, FOR US TO GO A LEG UP, WE NEED CRYSTAL CLARITY THIS EARNINGS SEASON FROM CORPORATES THAT H2 RECOVERY IS COMING AND EARNINGS WILL PICK UP. ONCE YOU HAVE THAT, FLOW WILL COME WITH IT RELATIVELY EASIER. GUY: GREAT TO SEE YOU. COME BACK AND SEE US ANYTIME. [LAUGHTER] THIS IS OUR NEW DESK. ANNA:
SO EXCITED TO MEET HIM HERE. GUY: GEORGES DEBBAS, HEAD OF EQUITY DERIVATIVE STRATEGY AT BNP PARIBAS, THANK YOU VERY MUCH INDEED. I LIKE MY NEW DESK. ANNA: NOT TOO SHABBY. GUY: I DON'T KNOW HOW FRENCH IT IS, I FULLY TESTED. THE BIG TAKEAWAY FOR ME IS EVERYBODY IS STILL IN THE MINDSET OF BIG TECH, IF I'M NOT IN BIG TECH, I WILL UNDERPERFORM. HOW HARD WILL THAT BE TO SHIFT EVEN WITH THIS GROWING DIVERSIFICATION TRADE INTO THE RUSSELL? ANNA: WE HAVE SEEN THIS DIVERSIFICATION TRADE INTO THE RUSSELL THAT THE LESSON FROM THE FIRST HALF IS IF YOU ARE ANYWHERE OTHER THAN BIG TECH, YOU ARE AT RISK OF UNDERPERFORMING, SO YOU WONDER HOW QUICKLY THAT MENTALITY COMES BACK. KRITI:
IT IS NOT THE CORE FUNDAMENTAL TRADE ANYMORE, THERE IS A GIANT FOMO, TINA, TAKE YOUR ACRONYM PLAYING IN HERE AND THAT IS SO INTERESTING BECAUSE IS NOT ONLY APPLICABLE BECAUSE THE ECONOMY IS DOING WELL, BECAUSE THERE IS RESILIENCY ON BOTH SIDES OF THE ATLANTIC, ONCE WE SEE MORE WHAT DATA POINTS, DOES EVERYONE PANIC AND IS THAT THE DISLOCATION WE ARE WAITING FOR? GUY: BUT DO YOU HIDE IN BIG TECH, WHY ARE YOU BUYING BIG TECH? KRITI: ISN'T IT A LIQUIDITY STORY? GUY: MAYBE YOU BELIEVE IN THE AI TRADE, MAYBE ONE SUMMER TO HIDE, MAYBE THERE IS LIQUIDITY AND TOO MUCH. MONEY TO SLASHING THOSE AREAS KRITI: DURING COVID, BIG TECH WAS ABLE TO BORROW CASH AT BORROWING RATES SIMILAR TO TREASURIES, I'M CURIOUS IF THAT IS STILL THE CASE, BUT TO ME, THAT'S A FUN FACT. SO FUN. GUY: IS IT WITH THE BIG STOCKS IN EUROPE ARE DOING, ASML IS A PSEUDO-STORY WE ARE WATCHING. IT IS UNDER SIGNIFICANT PRESSURE. THAT IS A HEAVYWEIGHT STOCK DOWN 6%. THE INDEX IMPACTS IS QUITE
SIGNIFICANT. WHAT IS INTERESTING IS NOT MUCH TRANSLATION INTO SCHNEIDER. WE WILL TALK ABOUT SCHNEIDER IN A FEW MINUTES' TIME. NOVO IS SOFTER, THAT IS THE
ROCHE STORY. ANNA: THAT NEWS FROM ROCHE ON THEIR ORAL MEDICATION IN THE SAME FAMILY. GUY: GLP-1'S, I'M NOT SURE IT IS A GLP-1, BUT THE WEIGHT LOSS AREA. WE SEE IT INTO NOVO NORDISK, BIT OF A BOUNCEBACK IN LVMH, NOT THAT BIG THOUGH. WHAT ELSE DO WE WATCH, DEAL WITH HERE WITH THE DETAILS. JOE: LOTS OF RED ON THE SCREEN.
ASML DEFINING 6%. IT IS THE SECOND BIG DROP FOR THE STOCK IN THREE MONTHS. THERE WAS A DROP IN APRIL FOLLOWING A SIMILAR WARNING ON CHINESE NUMBERS. THAT IS HITTING THE STOCK IN TERMS OF THE DOWNGRADE TO GUIDANCE. ALSO BE SEMI COMING LOWER, THE CHIP MACHINERY FIRMS ARE GETTING HIT HARD THIS MORNING. IN TERMS OF THOSE OBESITY DRUGMAKERS, REALLY INTERESTING ONE YOU WERE DISCUSSING, ROCHE ANNOUNCING TODAY THAT A ONCE DAILY PILL FOR OBESITY SAW PATIENTS THROUGH 7% OF THEIR WEIGHT IN FOUR WEEKS.
THAT IS WHY THAT STOCK IS RALLYING, IT WAS UP 7%, IT WAS THE BIGGEST GAIN IN AROUND FOUR YEARS FOR THAT STOCK. WEIGHING ON NOVO, DOWN 4%, ONE OF THE BIGGEST WEIGHTS ON THE INDEX TODAY. IN TERMS OF ADIDAS, MUCH MORE POSITIVE, THIS ONE IS A GUIDANCE UPGRADED, SELLING DOWN THAT YEEZY STOCK AND THE SAMBAS CONTINUE TO SELL. THAT GAINED IN THE U.S.
AND IS GAINING IN EUROPE TODAY, GIVING BACK LOSSES WE HAVE SEEN SINCE RELATIONSHIP WITH KANYE BROKE DOWN. ONE SECTOR WE HAVEN'T LOOKED AT YET IS HEARING AIDS. DEMANT'S WARNING OF DECLINE IN U.S. SALES, THEY PULLED ONE OF THEIR KEY PRODUCTS FROM THE STATE-FUNDED PROGRAM, THEY WANT TO TRY TO SELL IT VIA THEIR OWN CHANNELS BUT THAT IS HITTING THEIR SALES, DOWN 11%.
ALSO WEIGHING ON A COUPLE OF SCANDI EEPEERS INCLUDING GM NORD AND SONOVA. DAIMLER TRUCK WE MENTIONED EARLIER, THEY ARE WARNING OF WE IN CHINA -- WEAKNESS IN CHINA, THAT IS WEIGHING ON THAT SECTOR TODAY, SEEING READ-ACROSS IN VOLVO AND TRATTON, THE COMPANY SPUN OUT FROM VOLKSWAGEN. LEGAL AND GENERAL GETS A DOWNGRADE. THIS STOCK HAS FALLEN 50% OVER THE PAST YEAR. RBC WAS A LONG-TERM BUY, THEY HAVE NOW GONE SELL, LEGAL & GENERAL DOWN ANOTHER 1% IN LONDON THIS MORNING. KRITI: JOE EASTON WALKING US THROUGH
EARLY MARKET MOVES. COMING UP, WITH SECOND-QUARTER EARNINGS SEASON ON THE HORIZON, WE TALK ABOUT THE TOP 10 EUROPEAN COMPANIES TO WATCH. MORE ON THAT NEXT. THIS IS BLOOMBERG. ♪ KRITI: OH COME BACK TO "THE OPENING TRADE." 20 MINUTES INTO THE EUROPEAN OPEN. WE ARE SEEING ON A PERFORMANCE
ON THE STOXX 600, DOWN 0.3%, AS ML BRINGING A LOT OF THAT STORY LOWER EVEN THOUGH IT DID COME UP WITH GOOD SALES NUMBERS, GEOPOLITICS FORECAST IS WEIGHING ON IT. THAT IS ONE PIECE OF THIS SECOND-QUARTER EARNINGS SEASON. EXPECTATIONS HIGH FOR SOME OF THESE RESULTS.
BLOOMBERG INTELLIGENCE IDENTIFIED 10 COMPANIES SET TO SHOWCASE THE MAIN UNDERLYING TRENDS RANGING FROM AI, ELECTION LOCATIONS AND THE ENERGY TRANSITION. DIRECTOR OF RESEARCH TIM CRAIGHEAD JOINS US AROUND THE TABLE. YOU HAVE GOT 10 BELLWETHERS. WHAT'S HOT RIGHT NOW? >> IF YOU TAKE A STEP BACK FIRST, IT IS IMPORTANT TO PUT THIS QUARTER INTO CONTEXT, AND THEN DIG INTO THOSE THEMES. WE ARE LOOKING AT MARKETS THAT NOTWITHSTANDING TODAY HAVE BEEN CLOSE TO RECORD LEVELS. WE HAVE GOT VALUATION THAT IS
BACK TOWARDS A 10-YEAR AVERAGE, EVEN THOUGH INTEREST RATES ARE STILL ELEVATED VERSUS WHERE THEY WERE PRE-PANDEMIC. YOU LOOK AT THIS, THERE IS LITTLE PATIENCE FOR ANY SORT OF MISSES THAT TAKE PLACE, IN THE PREANNOUNCEMENT PERIOD COMING INTO THIS RESULTS SEASON, THE AVERAGE NET LOSS ON A ONE-DAY BASIS WAS 8% RELATIVE TO THE STOXX 600. IT IS A TAKE NO PRISONERS SORT OF MARKET MENTALITY GOING INTO EARNINGS. THAT IS KIND OF THE BACKDROP OF THIS THING. ANNA: TAKE NO PRISONERS IS WHERE WE COME AT THIS FROM. I SUPPOSE THAT WILL APPLY TO TECH THEMES MORE THAN ANYTHING ELSE. AI IS A KEY THEME YOU HAVE
FOCUSED ON. TELL US HOW THAT IS DRIVING THINGS. >> CLEARLY, AI WILL BE IMPORTANT.
WE HAVE SEEN TODAY WITH ASML, NOTWITHSTANDING THE STOCK PRICE MOVE THERE TODAY IN EARLY TRADING, THE SALES NUMBERS WERE GOOD, THE BACKLOG WAS GOOD, THE ORDER WAS GOOD, THE INDICATIONS OF CHIPMAKERS CONTINUING TO PUT ORDERS IN WAS FINE, IT'S THE BIDEN ADMINISTRATION'S WORRY ABOUT POTENTIAL RESTRICTIONS THAT ARE PLAYING ON THAT STOCK. BUT YOU HAVE TO LOOK BEYOND THE CHIPMAKERS THAT HAVE BEEN SUCH A BIG DEAL WITH THIS AND THINK BROADLY ABOUT THE INFRASTRUCTURE. THERE YOU HAVE GOT A COMPANY LIKE SCHNEIDER THAT WAS CLEARLY BIG-TIME INTO COOLING FOR DATA CENTERS.
WE CAN LOOK AT COMPANIES LIKE THAT FROM THE STANDPOINT OF THE BROADENING OUT OF ENABLERS ORBAN AI, AS OPPOSED TO THE PR AI PLAYS. GUY: ON MY CORE SIX I JUST WANT TO POINT OUT. [LAUGHTER] KRITI: WELL DONE. GUY IS HAVING A DAY. GUY: ON A WEDNESDAY AS WELL, AMAZING. LET'S TALK ABOUT WHAT ELSE WE ARE WATCHING. THE THEME SENDING OUT THIS EARNINGS SEASON IS CHINA. >> YES, SO CHINA WILL CONTINUE TO BE CRITICAL.
WE HAVE GOT RICHEMONT ON OUR LIST OF 10, IT IS PART OF A COMBO, PART CHINA BECAUSE OF LUXURY SALES, AND THEIR CHINA WOK SALES WERE PRETTY LOUSY. -- WATCH SALES WERE PRETTY LOUSY. THAT IS INVADED YOU FOCUS ON, GERMAN AUTOS WILL BE ANOTHER BIG DEAL WITH THAT UNDERLYING THESIS. RICHEMONT IS REPRESENTATIVE OF
A NEW TO. THERE ARE SEVERAL INSTANCES OF THAT ACROSS EUROPE THAT WE WILL GET A FIRST PREVIEW OF COMING OUT PARTIES FOR NEW CEOS. I THINK THE PERFORMANCE THERE WAS PRETTY SOLID. ANNA: ASML WAS ONE OF THOSE. >> THAT IS ALWAYS KIND OF FUN TO SEE. YOU CAN LOOK AT ELECTION
IMPLICATIONS AS ANOTHER IMPORTANT THEME. LOOK AT TAYLOR WIMPEY, ONE OF THE U.K. HOMEBUILDERS, AS A CASE IN POINT. THIS STOCK HAS HAD A HUGE RUN. THERE IS NOW BUILT UP
EXPECTATIONS FOR A MORE EFFICIENT PLANNING PROCESS TO GET MORE HOMES BUILT. THAT'S GOING TO BE A BIG DEAL. BNP, SITTING IN FRANCE, THE STOCK IS KIND OF BETWIXT AND BETWEEN, WILL A NEW GOVERNMENT, WHATEVER THAT IS LIKELY TO BE, COME IN AND DO SOMETHING ON TOWARD -- UNTOWARD WHEN IT COMES TO RESTRICTIONS ON FINANCIALS, SO THOSE ARE SOME MORE THINGS WE ARE THINKING ABOUT. GUY: THE WEIGHT LOSS STORY PROBABLY IN THE MIX, TOO. IT'S INTERESTING, ROCHE IS HAVING QUITE A DAY ON THE BACK OF THIS. TIM, GREAT TO SEE YOU.
>> TAKE A LOOK AT THE NOTE ON TERMINAL, IT IS THERE AT BI <GO>. GUY: NOVO IS ON THE BACK OF THIS -- DOWN ON THE BACK OF THIS. NEW DRUG FROM ROCHE SHOWING PROMISE.
THE MERE PROMISE OF POTENTIAL DOWN THE ROAD IS ENOUGH TO LIFT THIS STOCK IN A SIGNIFICANT WAY TODAY, IT IS UP 6% AND NOVO REACTING TO THE DOWNSIDE. NOVO HAS BEEN ONE OF THE BIG DRIVERS OF THE EUROPEAN PERFORMANCE OVER RECENT MONTHS. ANNA: AND THESE ARE HEAVYWEIGHT STOCKS.
DO I SENSE A TURNAROUND IN MARKETS? THE FRENCH MARKET JUST INTO POSITIVE, THE DAX INTO POSITIVE, NOT DRIVEN BY ROCHE BUT THERE SEEMS TO BE SOMETHING A LITTLE LESS NEGATIVE ALTHOUGH U.S. FUTURES STILL POINTING FIRMLY IN THE RED. KRITI: WE SHOULD MENTION THE ROCHE STORY MOVING THE SWISS MARKET INTO OUR PERFORMANCE THIS MORNING. ANNA: WE WILL TALK GLOBAL ECONOMICS NEXT. WE WILL SPEAK TO HSBC'S GLOBAL CHIEF ECONOMIST JANET HENRY, WE WILL GET HER PERSPECTIVE SHORTLY. THIS IS BLOOMBERG. ♪ KRITI: THIS IS "THE OPENING TRADE."
30 MINUTES INTO TODAY'S SESSION. READ ACROSS THE SCREEN BUT WE ARE SEEING LOSSES GETTING PARED, SOME OF THAT HAVING TO DO WITH THE HEAVYWEIGHTS, BUT AS AN OVERHANG IS THE GEOPOLITICS, SPECIFICALLY BETS AROUND WHAT A SECOND TRUMP PRESIDENCY MIGHT LOOK LIKE. BLOOMBERG SPOKE WITH THE FORMER PRESIDENT AT MAR-A-LAGO, WHAT WOULD TRUMP 2.0 LOOK LIKE WHEN IT COMES TO TAXES, TARIFFS AND THE FUTURE OF FED CHAIR POWELL? LET'S BRING IN STEPHANIE BAKER TO WALK US THROUGH WHAT WE LEARNED. THE HIGHLIGHT OF THIS IS WHAT
DOES TRUMPONOMICS ACTUALLY MEAN? >> LOWER TAXES, LESS REGULATION, DRILL, BABY, DRILL WHICH IS THE MAIN TAKEAWAY. THE SCOOP BY MY COLLEAGUES JOSH GREEN AND NANCY COOK IS THE JEROME POWELL COMMENT. HE HAD SAID EARLIER IN THE YEAR THAT HE WOULDN'T RENEW POWELL'S TERM.
IT IS SAYING HE WILL ALLOW HIM TO SERVE HIS TERM AND WILL NOT REPLACE HIM. LET'S SEE IF HE STICKS TO THAT BECAUSE HE DOES SEEM TO BE FLIPPING. ON CORPORATE TAXES, HE WANTS TO TAKE THE CORPORATE TAX RATE IN THE U.S. DOWN TO 15%. HE WANTS TO RENEW THE TRUMP TAX CUTS AT 4.6 TRILLION DOLLARS. THERE IS A LOT OF THINGS IN
THERE THAT SPELL HIGHER DEBT, HIGHER DEFICIT, POTENTIALLY INFLATIONARY. HIS BIG THEME IS TO INCREASE TARIFFS ON NOT ONLY CHINA BUT EUROPE AS WELL. GUY: I REMEMBER THE FIRST TERM VIVIDLY. DOES THE SECOND TERM FEEL LIKE THE FIRST TERM? >> EVERYONE SAYING HIS CAMPAIGN IS BEING RUN MORE PROFESSIONALLY DOESN'T MEAN A TRUMP SECOND PRESIDENCY WILL BE RUN MORE PROFESSIONALLY. IT REMAINS TO BE SEEN. ANNA: TRUMP HAS SAID HE HAS LEARNED A LOT ABOUT WHO HE SURROUNDS HIMSELF WITH, AND HE WANTS TO SURROUND HIMSELF WITH PEOPLE WHO AGREE WITH THEM, SO WE KNOW THAT ABOUT HIS SECOND TERM AND WE KNOW THAT ABOUT THE VP PICK PERHAPS.
>> J.D. VANCE HAS DOUBLED DOWN ON HIS MAGA AGENDA. THAT PIC WAS ABOUT REINFORCING TRUMP'S CHANCES OF WINNING THE RUST BELT BECAUSE OF VANCE'S STATEMENTS ON THE ECONOMY AND THE WORKING-CLASS AND THE REMARKABLE THING OF HAVING THE TEAMSTERS UNION HAD ADDRESSING A REPUBLICAN CONVENTION. THAT SHOWS THAT TRUMP'S REPUBLICAN PARTY IS VERY MUCH A DIFFERENT ANIMAL FROM THE REAGAN REPUBLICAN PARTY. YOU CAN'T IMAGINE A REAGAN REPUBLICAN PARTY LISTENING TO THE TEAMSTERS UNION. ANNA: STEPHANIE BAKER WITH THE DETAILS ON THAT FASCINATING INTERVIEW WITH FORMER PRESIDENT AND POTENTIALLY FUTURE PRESIDENT DONALD TRUMP.
THAT IS IN BLOOMBERG BUSINESSWEEK IF YOU WANT TO FIND MORE. LET'S SEE WHERE WE ARE. WE HAVE SEEN POLITICS HAVE IMPACT ON ASML, BOTH THE BIDEN ADMINISTRATION FLOATING OF IDEAS AROUND CHIPS IN CHINA IS WEIGHING ON THE AEX, AND WE HAVE SEEN THE TRUMP CONVERSATION HAVING IMPACT ON CHIP STOCKS. TODAY'S MARKET THEN LOOKS LIKE THIS, LITTLE GREEN ON THE CAC 40, BUT LITTLE ELSE. GUY:
ASML AND NOVO ARE DOWN FROM THE REASONS WE TALKED ABOUT, ROCHE IS UP, ADIDAS IS UP, THE LUXURY SECTOR HAS COME BACK, SO THEY ARE OFFSETTING EACH OTHER IN TERMS OF THE BALANCE ON THE STOXX 600. ANNA: INTERESTING THAT ADIDAS IS GOING HIGHER AND SOME OF THOSE CHINA SELLOFF STOCKS FROM EARLIER IN THE WEEK ARE RECOVERING THEIR POISE. JANET HENRY JOINS US, GLOBAL CHIEF ECONOMIST AT HSBC, GOOD MORNING TO YOU. THERE IS A LOT WE DON'T KNOW ABOUT WHERE THE U.S. GOES NEXT YEAR.
WHAT ARE YOUR BASE CASE ASSUMPTIONS IF WE START WITH THE U.S. ECONOMY, ABOUT THE U.S. FROM HERE? JANET: WE HAVE SEEN THE U.S. ECONOMY SLOW FROM THE REALLY STELLAR GROWTH RATE LATE LAST YEAR. WE ARE LOOKING FOR FURTHER
MODERATION ON THE CONSUMER SPENDING SIDE. WE STILL HAVE GOT SUPPORT FROM REAL WAGES BUT EMPLOYMENT GROWTH IS SLOWING DOWN. ACTUALLY WE'VE GOT STILL OUTPACING EUROPE BUT SOME MODERATION THROUGH THIS YEAR BECAUSE WE ARE LOOKING FOR MODEST RATE CUTS OVER NEXT YEAR AND WE HAVE A GRADUAL IMPROVEMENT BUT IT IS BY NO MEANS A V-SHAPED RECOVERY AND IT IS NEVER RECESSION. ANNA: A NUMBER OF PEOPLE CAUTIONING US ON NOT EFFECTING TOO MUCH IN THE WAY OF RATE CUTS IN THE UNITED STATES, WHAT POSITIVITY WILL THAT DELIVER AND HOW MANY ARE YOU EXPECTING? GEORGES: WE ARE GOING FOR A RATE CUT IN SEPTEMBER BUT WE ONLY GOT ONE THIS YEAR. AT THE MOMENT, WE'VE GOT THREE
MORE NEXT YEAR, SO 100 BASIS POINTS BY THE END OF 2025, A BIT LESS THAN WHAT WE ARE EXPECTING FROM THE LIKES OF THE ECB BUT WE HAVE THIS UNCERTAINTY REGARDING THE FISCAL BACKDROP THROUGH 2025. EVEN LAST YEAR, THE FISCAL DEFICIT WIDENING ADDED TO INFLATION AND GDP GROWTH, AND SHOULD WE FIND OURSELVES IN A SIMILAR SITUATION IN 2025, THAT WOULD PROBABLY MEAN A LOT LESS IN THE WAY OF RATE CUTS. GUY: POLITICAL UNCERTAINTY IN FRANCE AND THE UNITED STATES, HOW MUCH VISIBILITY DO WE HAVE INTO 2025? JANET: WE DON'T HAVE A LOT OF VISIBILITY INTO 2025, IT IS NOT JUST DOMESTIC POLITICS AND FISCAL, THERE IS THIS GEOPOLITICAL OVERLAY.
ONE OF THE REMARKABLE THINGS YOU MIGHT SAY THROUGH THE FIRST HALF OF 2024 IS THAT DESPITE ALL THIS UNCERTAINTY IN TERMS OF CONFLICT UNDERWAY IN THE WORLD, TARIFFS STILL COMING THROUGH NOT JUST FROM THE U.S. BUT SOME FROM EUROPE AND PARTS OF LATIN AMERICA. DESPITE ALL OF THIS UNCERTAINTY, THE GLOBAL ECONOMY GENERALLY HAS MUDDLED THROUGH, IT IS STILL THE U.S. AND FROM AN EMERGING MARKET
PERSPECTIVE INDIA THAT HAVE BEEN THE SELLER PERFORMERS, BUT YOU ARE RIGHT, 2025 IS A KEY AREA OF UNCERTAINTY AND CENTRAL BANKS, THE AGE OF MEDIUM-TERM FORWARD GUIDANCE IS WAY BEHIND US NOW. BACK TO THE DATA. GUY: WE ARE VERY MUCH DATA-DEPENDENT AS POWELL KEEPS POINTING OUT, LAGARDE AS WELL, CAN WE HAVE RATE CUTS AND BE HIGHER FOR LONGER? JANET: I BELIEVE WE CAN ACTUALLY. WE HAVE HAD DISCUSSION OVER THE LAST THREE YEARS AND INDEED BEFORE THAT ABOUT WHERE THE LONG-TERM EQUILIBRIUM RATE IS. THE POINT I HAVE BEEN MAKING OVER THE LAST COUPLE OF YEARS IS THAT WE ARE NOW POTENTIALLY IN AN AGE OF CHANGE IN THE GROWTH INFLATION TRADE-OFF. INFLATION A LITTLE HIGHER, GROWTH A LITTLE WEAKER, AND THE INTEREST RATE REQUIRED TO KEEP IT THERE WILL CERTAINLY BE HIGHER THAN IT WAS OVER THE COURSE OF THE LAST DECADE, WHICH WAS A VERY DIFFERENT AGE IN TERMS OF GLOBALIZATION, BUT REMEMBER, COMING OUT OF THE GLOBAL FINANCIAL CRISIS, IT WAS ALL ABOUT FISCAL CONSOLIDATION.
SO A LOT OF DIFFERENT FACTORS MEANS THAT YES, WE ARE GOING TO BE HIGHER THAN WE WERE FOR A LOT OF THE LAST DECADE, EVEN IF WE DON'T SAY IT THESE LEVELS, WE STILL HAVE GOT MONETARY EASING. KRITI: AS WE TALK ABOUT MONETARY EASING, I MENTIONED WE HAVE CURRENCY MOVES, SOME WEAKNESS IN THE DOLLAR RESULTING IN STRENGTH IN THE YEN, 157, AND CABLE CROSSING 1.30 FOR THE FIRST TIME IN A YEAR AND EURO-DOLLAR AT 1.09, I JUST WANT TO GIVE THE LAY OF THE LAND OF THE CURRENCY PICTURE BECAUSE SO MUCH OF THIS REMINDS ME OF THE LAST COUPLE OF YEARS, IN THE OPPOSITE DIRECTION, WHEN IT COMES TO NOT JUST MONETARY POLICY BUT THE FISCAL DEFICIT, THAT'S WHERE I WANT TO GO NEXT. IF WE ARE EXPECTING SOME SORT
OF BOND MARKET FREAK OUT TO INFLUENCE POLICYMAKING AT THE FEDERAL RESERVE, WHAT COMES TO MIND IS WHAT WE SAW THE THIRD QUARTER OF 2023, 1 FISCAL DEFICIT CONCERNS SHAKEUP THE BOND MARKET AND WAS IMMEDIATELY IN THE RHETORIC OF JAY POWELL, GOVERNOR UEDA, ANDREW BAILEY, CHRISTINE LAGARDE, ARE WE DUE FOR THEM SOME THING LIKE THAT THE NEXT SIX MONTHS? JANET: WE HAVE HEARD A LOT FROM MONETARY POLICY MAKERS, THE FISCAL PATHS ARE ON AN UNSUSTAINABLE TRAJECTORY. THAT IS SOMETHING WE HEARD FROM CHAIR POWELL OVER RECENT MONTHS. YOU MENTIONED CABLE AND STERLING.
THIS HAS BEEN INTERESTING RECENTLY. BECAUSE THE U.K. YOU MIGHT SAY HAD ITS MOMENT ALREADY, WHICH IS A REMINDER THAT GOVERNMENTS DO NEED TO BE RESPONSIBLE WITH THEIR LONG-TERM FISCAL DIRECTORY, BECAUSE ACTUALLY THE U.K., THE SURPRISES BEEN THE RESILIENCE OF GROWTH NOT JUST IN THE FIRST QUARTER BUT IT LOOKS SET TO DELIVER A SIMILAR GROWTH RATE IN THE SECOND QUARTER, AND A LOT OF THAT RECENT MOVE ON THE U.K. HAS BEEN THE CHANGE IN RATE EXPECTATIONS. WE RECENTLY POSTPONED THE TIMING OF OUR BANK OF ENGLAND RATE VIEW , IT WASN'T THIS MORNING IN RESPONSE TO THE CPI, BUT IT WAS THE LAST FEW DAYS, IT LOOKS LIKE THEY WILL HAVE TO WAIT A BIT LONGER. BUT THE U.S., DESPITE THAT UNSUSTAINABLE TRAJECTORY, THE FACT IS IT STILL THE WORLD'S RESERVE CURRENCY, AND IT STILL THE MOST LIQUID LOW RISK ASSET. SO IT MAY NOT SEE THE SAME KIND OF MOMENT ANYTIME SOON AS WE SAW IN THE U.K. KRITI: AND THE LIZ TRUSS MOMENT YOU
ARE REFERRING TO. WE SAW WERE RECENTLY IN FRANCE AS WELL. I'M CURIOUS WHAT THAT BAR IS TO GET MORE WORRIED ABOUT THE FISCAL DEFICIT, NOT THAT I AM READING FOR IT, BUT I AM CURIOUS HOW THAT GETS PRICED IN OUTSIDE OF THE STEEPENER TRADE, I KNOW YOU ARE AN ECONOMIST BUT AT WHAT POINT DOES THE FED RESPOND TO THAT, OR ARE THEY HANDCUFFED? JANET: THE FED, WE NEED TO GET BACK TO WHAT THEIR MANDATE IS, AND THE FED HAS A DUAL MANDATE REGARDING INFLATION AND LABOR MARKETS. AND HOW THEY BALANCE THE TWO. FOR A LONG TIME, INFLATION WAS HIGHER AND UNEMPLOYMENT WAS LOW, SO IT IS HOW THEY SEE THE FISCAL IMPACT ON THAT GROWTH INFLATION TRADE-OFF, AND THEIR ABILITY TO MANAGE INFLATION EXPECTATIONS.
IF SOMETHING HAPPENS ON THE FISCAL THAT MAKES THEM LESS CONFIDENT THAT THEY WILL KEEP INFLATION EXPECTATIONS ANCHORED, THEY WILL HAVE TO RESPOND TO THAT, THAT MEANS HIGHER RATES. ANNA: A LOT OF COMPANIES TRYING TO GENERATE GROWTH, CERTAINLY IN THE U.K. THAT SEEMS TO BE THE MANTRA, ARE WE PUTTING TOO MUCH HOPE IF THAT IS THE RIGHT WORD IN AI AND TECHNOLOGIES, THERE WAS A LIMIT OPINION PIECE BY OUR COLLEAGUE IN THE STATES TALKING ABOUT AI AND ITS POTENTIAL TO DELIVER PRODUCTIVITY, WHAT IS AN ECONOMIST'S VIEW ON AI'S ABILITY TO DELIVER PRODUCTIVITY BECAUSE THAT SEEMS TO BE THE SECRET POLITICIANS ARE PUSHING FOR. JANET: POLITICIANS ALWAYS SAY THEY WILL GROW THEIR WAY OUT OF THEIR DEBT PROBLEM, THEY DON'T NEED TO CUT SPENDING OR RAISE TAXES, THEY CAN SIMPLY PROVIDE THE REASSURANCE THAT THEY WILL GET THERE AND GROW THEIR WAY OUT OF THEIR PROBLEMS. ABSOLUTELY RIGHT, IT IS HARD NOT TO BE OPTIMISTIC ON THE TRANSFORMATIONAL BENEFITS FROM AI. AS WE KNOW FROM PREVIOUS TRANSFORMATIONAL SHIFTS, WHETHER IT WAS RAILWAYS OR THE INTERNET, THE EXACT TIME OVER WHICH IT IMPACTS ON THE ECONOMY IS HARD TO PREDICT. YOU'VE SEEN THE STUDIES, MOST
ACADEMIC STUDIES SUGGEST IT COULD ADD ANYTHING BETWEEN 0.1 AND TWO PERCENTAGE POINTS TO ANNUAL PRODUCTIVITY GROWTH, TO ANNUAL GDP GROWTH. TAKE YOUR NUMBER, PICK YOUR TIME PERIOD, IT WILL REQUIRE COMMITMENTS FROM GOVERNMENTS AND A DEMONSTRATION OF IT THAT MEANWHILE, THEY WILL BE RESPONSIBLE WITH THEIR SPENDING AND TAXATION DECISIONS TO ENSURE THEY ARE SETTING THE RIGHT PATH BECAUSE THAT WILL SUPPORT BUSINESS CONFIDENCE AND INVESTMENT AND ENCOURAGE THEM TO INVEST IN AI. GUY: HIS EUROPEAN GROWTH GOING TO HAVE A CHINA PROBLEM? JANET: BY CHINA PROBLEM WHAT ARE YOU REFERRING TO? GUY: SLOWER CHINESE GROWTH. WE HAVE SEEN COMPANY AFTER COMPANY TALKING ABOUT IT, DAIMLER TRUCKS THIS MORNING, HOW BIG OF A GROWTH DRIVE IS IT GOING TO BE? JANET: CHINA IN TERMS OF RECENT GROWTH, IT'S BEEN HEAVILY WEIGHED DOWN BY THE PROPERTY SECTOR, AND CONSUMER CONFIDENCE IS BEING HIT AS WELL AS DETERIORATING EMPLOYMENT CONCERNS HITTING THE CONSUMER SIDE. WHAT'S INTERESTING ABOUT EUROPE, PARTICULARLY GERMANY, IS IT HAS SHOWN NO SIGNS OF BENEFITING TO ANY MATERIAL DEGREE FROM THE EXPORT IMPROVEMENT.
CHINA'S EXPORT VOLUMES HAVE BEEN VERY STRONG, PRICES VERY LOW. GERMANY'S EXPORTS, WELL, THERE HAS BEEN GLIMMERS OF HOPE, IT STILL BEEN A REAL DRAGON CONSUMPTION HAS BEEN FOLLOWING EVEN THOUGH OTHER PARTS OF EUROPE HAVE SEEN IMPROVEMENT IN CONSUMER SPENDING BECAUSE REAL WAGES HAVE BEEN IMPROVING, AND THEY HAVE BEEN BENEFITING FROM TOURISM. EUROPE IS A LOW TREND GROWTH, LOW POPULATION GROWTH CORE DEMOGRAPHICS, WEAK INVESTMENT SPENDING AND WEAK PRODUCTIVITY. [LAUGHTER] GUY: THAT'S QUITE A LIST. THE SUN DOES SHINE OCCASIONALLY AND THE FOOD IS QUITE GOOD. AND LOTS OF AMERICANS ARE HERE
ENJOYING THAT. JACK, GREAT TO SEE YOU. GEORGES DEBBAS --JANET HENRY, CHIEF ECONOMIST AT HSBC. POMP AND PAGEANTRY, THE FIRST KING'S SPEECH UNDER THE NEW LABOR GOVERNMENT. -- LABOUR GOVERNMENT.
THESE ARE NOT LIVE PICTURES. ANNA: IT WOULD BE EARLY FOR THIS TO BE TAKING PLACE. GUY: BUT WE WILL SEE THIS HAPPENING LATER ON. THIS WILL BE A BIG MOMENT FOR THE LABOUR GOVERNMENT.
WE WILL HEAR ABOUT HOUSING, WEALTH CREATION, THE ON SHACKLING OF THE U.K. ECONOMY APPARENTLY IS ABOUT TO BEGIN, WE WILL TALK ABOUT THAT NEXT. THIS IS BLOOMBERG. >> TUCKED BETWEEN HIGHWAYS AND RAILWAYS, THE PORTE DE LA C HAPELLE NEIGHBORHOOD NORTH OF PARIS HAS BEEN PLAGUED BY DRUGS AND DEPRIVATION BUT THE OLYMPICS COULD BE A GAME CHANGER. THE NEW ARENA STADIUM WILL HOST BADMINTON AND GYMNASTICS AND REMAIN FOR BASKETBALL AFTER THE GAMES. >> WE HAVE DECIDED TO CREATE BOTH THIS ARENA, A NEW UNIVERSITY CAMPUS WHERE IN 2025, WE WILL HAVE 8000 STUDENTS EXPECTED.
IT HELPED US ACCELERATE THE TRANSFORMATION OF THE CITY. >> THE UNDERPRIVILEGED SUBURB HOME TO THE STADE DE FRANCE HAS BEEN CHOSEN TO BE THE OLYMPIC VILLAGE. MOST OF THE 15,000 ATHLETES FROM AROUND THE WORLD WILL SLEEP, EAT AND TRAIN HERE. AFTER THE GAMES, THIS FUTURISTIC PLACE WILL BECOME THE NEW HOME FOR 6000 RESIDENTS, AND AN OFFICE FOR ANOTHER 6000 EMPLOYEES. THE LEGACY OF OLYMPIC INFRASTRUCTURES HAS NOT ALWAYS BEEN A SUCCESS. THE 2012 LONDON GAMES DID REGENERATE SOME DEPRIVED AREAS OF EAST LONDON.
IT'S A DIFFERENT STORY FOR ATHENS, BEIJING OR RIO. THE GAMES LEFT OF THOSE HOSTING CITIES WITH ABANDONED INFRASTRUCTURE AND A BIG PILE OF DEBT. PARIS PROMISES THIS WON'T HAPPEN TO THE CITY OF LIGHT. ANNA: CAROLINE CONNAN FROM THE CITY OF LIGHT REPORTING THERE, OF COURSE. WE HAVE BEEN TALKING MOSTLY ABOUT THE POLITICS. THEY HAVE GOT A CARETAKER GOVERNMENT IN PLACE.
THERE IS NO TIME LIMIT ON THIS, THEY JUST TALK AND TALK UNTIL THEY REACH SOME KIND OF COALITION AGREEMENT. GUY: SO THEY TOLD ME YESTERDAY IT WILL NOT BE QUITE AS MUCH AS THE DUTCH. ANNA: THAT WAS A CONCH, BUT COULD BE ANYWHERE BETWEEN NOW AND THEN WHICH COULD BE A YEAR FOR THE DUTCH. GUY: PARIS IS ALWAYS BEEN BEAUTIFUL AND PRETTY, AND IT STARTED WITH SARKOZY, NOW WE HAVE THIS PROCESS OF CONNECTING THE DOTS IN PARIS, IT WILL BE INTERESTING TO SEE EVEN WITH THE CHAOS HOW BIG OF AN EFFECT THAT CAN HAVE. ANNA: CLEAN ENOUGH TO JUMP IN THE RIVER SEINE? KRITI: NO, BUT I WILL LOOK AND ADMIRE FROM A DISTANCE. GUY: APPARENTLY THE FRENCH MAYOR IS GOING IN THIS MORNING. ANNA: SHE WILL PLUNGE INTO THE RIVER
SEINE BUT I READ THAT THE LATE JACQUES CHIRAC PROMISE THIS IN 1988 AND DIDN'T ACTUALLY DO IT. I WOULD BE MORE CONVINCED BY THE ACTUAL CHEMISTRY THAN MAYORS JUMPING INTO THE WATER AS TO WHETHER IT WAS SAFE OR NOT. WE HAVE EXTREMES OF THIS IN LONDON. GUY: THE LAB RESULTS. LET'S TAKE A TRIP ALONG THE RIVER THAMES AND TURN OUR ATTENTION TO WESTMINSTER LATER ON. AND WHAT IS GOING ON WITH THE DATA AS WELL.
TRADERS CONVINCED THE BANK HAVING LED WILL HOLD RATES STEADY AFTER INFLATION DATA WAS A LITTLE HOTTER THAN ANTICIPATED. IT COMES ON THE SAME DAY AS WE SEE THE POMP AND PAGEANTRY IN WESTMINSTER AND POLICY ANNOUNCEMENTS COMING THICK AND FAST IN THE FIRST KING'S SPEECH UNDER THE U.K.'S NEW LABOUR GOVERNMENT. WHAT WILL WE LEARN,? LIZZY BURDEN IS HERE WITH ALL THE DETAILS. GROWTH SEEMS TO BE THE STORY. >> GROWTH VERY MUCH THE PRIORITY OF THIS NEW LABOUR GOVERNMENT, BECAUSE LAST GOVERNMENT WAS ABOUT BRINGING DOWN INFLATION. YOU CAN SEE THE DATA THIS MORNING THAT WE ARE AT 2%, NOW LABOUR ONES TO FOCUS ON THAT DECADE OF NATIONAL RENEWAL, THAT WOULD BE THE FRAMING OF THESE 35 BILLS ANNOUNCED BY KING CHARLES IN PARLIAMENT IN THE HOUSE OF LORDS IN THIS SPEECH.
THE THREE MAIN MEASURES I WOULD HIGHLIGHT RELEVANT TO OUR AUDIENCE WILL BE STRENGTHENING OF THE OFFICE FOR BUDGET RESPONSIBILITY, WHICH IS A REACTION TO THE LIZ TRUSS MOMENT WHERE SHE SIDELINED THE FISCAL WATCHDOG, JUST MAKE SURE THAT CANNOT HAPPEN AGAIN LEGALLY. AND THEN THEY WILL HAVE THE NATIONAL WEALTH FUNDS TO DRIVE INBOUND INVESTMENT, SOMETHING WE HAVE HEARD A LOT ABOUT FROM THE CHANCELLOR RACHEL REEVES. AND GREAT BRITISH ENERGY, THIS PUBLICLY OWNED CLEAN POWER COMPANY ALSO TO BE ENSHRINED IN LAW. THEY WILL HAVE A BIT OF COPY
PASTE JOBS FROM THE SUNAK GOVERNMENT, SOME OF THE HANGOVER LEGISLATION, THE PROGRESSIVE SMOKING BAN, THE RENTERS ARE FARM BILL, AND HE MIGHT GET A BIT OF REBELLION AROUND THE SIDELINES BECAUSE SOME LABOUR MPS WOULD LIKE THE TWO-CAP LIMIT ON CHILD BENEFIT TO BE LIFTED BUT IT SEEMS THE CHANCELLOR WILL SAY THERE IS NOT THE FISCAL ROOM FOR THAT. ANNA: YOU MENTIONED THE PROGRESS ON INFLATION BACK DOWN TO 2%, NOT AS LOW AS IT WAS EXPECTED TO COME IN THIS MORNING, ON THAT NOT AS LOW AS EXPECTED, DOES THAT MEAN WE ARE LESS LIKELY TO GET THAT RATE CUT IN AUGUST? >> IN THE EYES OF THE MARKET, YES, THEY ARE NOW PRICING 30% COMPARED TO 40% BEFORE THIS DATA, WE ARE TALKING ABOUT WAFER THIN MARGINS, BUT THE REASON THE CONFIDENCE HAS BEEN KNOCKED I THINK IS BECAUSE OF THE SERVICES PRINT ALSO NOT DROPPING AS EXPECTED. HOWEVER, OUR ECONOMISTS AT BLOOMBERG SAY THAT AUGUST IS STILL VERY MUCH IN PLAY BECAUSE YOU CAN SEE RESURGENCE OF INFLATION TOWARDS THE END OF THE YEAR, SO IF THE BANK DOESN'T CUT NOW. KRITI: BLOOMBERG U.K. CORRESPONDENT LIZZY BURTON WALKING US THROUGH WHAT TO EXPECT OUT OF THE KING SPEECH AT 11:00 A.M. U.K. AS WELL. GUY: ARE YOU GOING TO WATCH? KRITI:
OF COURSE, I AM GLUED. I NEVER NOT WATCH BLOOMBERG TV WHEN I AM -- UNLESS I AM ON THE PROGRAM. ANYWAYS, BEFORE THAT WE GET EURO AREA CPI. WE HAVE ONE EYE ON THE INFLATION OF THE PICTURE. THEN IT IS ALL ABOUT THE STATES. WE GET THAT 20-YEAR AUCTION AT 7 P.M. U.K. TIME, PLUS PLENTY OF FEDSPEAK, BARKIN, WALLER, STILL SOME COMMON SET THE RNC. GUY: TRUMP IS TOMORROW, RIGHT? KRITI:
TOMORROW. ANNA: WE WILL BE WORKING TOWARDS THAT AND THAT EUROPEAN POLITICAL COMMUNITY MEETING. THERE DOES SEEM TO BE HIGH EXPECTATION AROUND THE KING'S SPEECH AT LEAST FROM GOLDMAN SACHS AND OUR GUEST EARLIER THIS HOUR TALKING ABOUT PROGRESS THAT CAN BE MADE ON PLANNING. YES, THAT WOULD TAKE A WHILE, BUT THERE WAS AN EXPECTATION THAT COULD DELIVER SOMETHING. AND A LITTLE BIT OF MOVEMENT HE WAS PREDICTING ON THE FISCAL SIDE. GUY: THE PLANNING THING IS REALLY INTERESTING. THEY WILL IMPOSE ON LOCAL
GOVERNMENTS TARGETS THAT THEY HAVE TO DELIVER UPON. BUT IT WILL BE DIFFICULT GIVEN THE CONSTRAINTS OF THEIR ARE NO BUILDERS. THERE ARE NOT ENOUGH BUILDERS TO BUILD THE HOUSES WE ARE TALKING ABOUT. THERE AREN'T ENOUGH PLANNING OFFICES. SO THERE IS REAL STRUCTURAL ISSUES THEY NEED TO SOLVE INDUCER QUITE QUICKLY.
WE HAD THE ROYAL INSTITUTION TALKING ABOUT A LOT OF THESE HOUSING TARGETS WILL BE MET ON AN THE SECOND TERM IF LABOUR CAN MEET IT. ANNA: SHOULD THIS GOVERNMENT PLAN FOR A DECADE OF RENEWAL? THEY ONLY HAVE FIVE YEARS AT THE MOMENT. THAT IS ONE THING WE ARE LOOKING AHEAD TO AROUND THE KINGS SPEECH. CHINA STANDS OUT TODAY AND THAT AFFECTS THE ASML STORY. THERE IS A CHINA LINE, YOU DREW OUR ATTENTION TO THE TRUCK SECTOR.
AND WE SPOKE TO GEORGES FROM BNP SAYING THEY DON'T EXPECT THAT TO CHANGE, THEY DON'T SEE CATALYSTS THAT MOVE THE DIAL FOR CHINA AND THEREFORE FOR EUROPEAN BUSINESSES LINKED TO CHINA. KRITI: WE ARE STILL WAITING FOR IT TO SHOW UP IN THE CURRENCY PICTURE. EVEN THOUGH WE SEE IT IN THE EQUITY PICTURE TO YOUR POINT
2024-07-23 00:38
