The day of reckoning. Markets cautious
as traders await Jerome Pal's final
Jackson Hole speech. But rate cut bets
are trimmed after hawkish comments from
Fed speakers. The EU and US outline
plans to cut tariffs on cars,
pharmaceuticals, and chips within weeks.
But there's still no deal on wine and
spirits. Plus, Nvidia said to halt
production of its made for China H20
chip. That's after Beijing warned
Chinese companies to avoid them. So
market positioning, there is a steady
mood here leading up to the speech of
course from JPAL at Jackson Hull. Will
he validate the market pricing around
September for the first cut of the year
or will he kneecap that view and focus
in on instead on inflation risks? S&P
futures then currently eking out some
modest gains after five straight days of
losses but it is on a knife edge and it
will be dependent on what we hear from
the Fed chair. It seems the benchmark
10-year we're checking on that largely
unchanged in the session at the front
end the 2-year at 378 more sensitive of
course arguably to what we hear from
JPAL later today. Euro dollar at 115 a
little soft on the single currency down
a tenth of a percent and Brent in focus
again some more eye focused on India
from the Trump administration unchanged
so far in the session at 67 and69 cents
on Brent let's split the board and have
a look at how things are shaping up
across the map when it comes to the
European session you have the grocerers
and personal care under pressure as a
sector chemicals holding on to some
modest gains but again this is very much
a market looking for that direction the
footsy 100 which broke through fresh
records this week. Currently a little
softer, down a tenth of a percent. Over
in France, you're seeing very modest
gains on the catar. Slightly brighter
picture over in Spain and Italy. The DAX
though in Germany little softer by a
tenth of a percent with German GDP data
coming in below expectations for the
second quarter. We'll get the analysis
now on all things Fed and these markets.
Let's get to the show.
[Music]
News makers and market movers.
This is the pulse with Francine Laqua.
Good morning and happy Friday. Welcome
to the pulse. I'm Tom McKenzie standing
in for Francine Laqua. This Friday,
central bankers then of course and
economists gathered at the Federal
Reserve's annual Jackson Hall conference
amid inflation concerns and growing
political pressure on the Fed. Traders
will be listening, of course, to JPL
speech for any hint of what policy
makers may do at that September meeting.
I don't see any um any chance that
there's a nod toward a September cut or
any promise of a September cut. The
caution I would give if they do move in
September, uh I don't think that's the
start of a cycle. I think it's an
individual decision. Then we'll wipe the
slate clean and take the next 6 weeks
try to understand these crossurrens
again.
I think they're modestly restrictive.
I'm still trying to find ways what's
what's being inhibited in the economy
from where our policy rate is today. Uh
and but I I think we're on a good path
for sure. It feels to me like it's a
live meeting. uh as you know before
April 2nd before we got some
uncertainties coming on the policy side
I believed that we had pretty stable
full employment that inflation's coming
down to target
okay let's bring in blueber titel right
now for the market reaction to this and
what we've been hearing from Fed
officials and the messaging out of
Jackson Hole so far at least val seems
to be modestly hawkish
yeah that's right Tom all those fed
officials we heard from in the last 24
hours. None of them seem to have
penciled in a September rate cut as a
done deal. Many of them talking about
how we still need confirmation of the
labor market continuing to weaken and
progress on inflation before they pencil
in a cut in September. That's led to
some front end uh repricing. We saw
yields move higher yesterday across the
Treasury curve. The 2-year yield, the
very policy sensitive 2-year yield, uh
rose around four basis points in the
session, has risen now around 10 basis
points since that hot PPI print that we
got last week. Uh leading to these bets
on the September rate cut to really pair
back. You know, it was only last week
we're pricing in 100 or so percent uh of
of odds for that rate cut on September
17th. It's now all the way down to 75%.
So, some of that hawkish language really
tempting a rethink about what we could
hear today. It's also caused some
problems with the equity market. Yes,
we've had tech have a wobble this week,
but we're now have clinched five
straight losses for the broad US equity
market. The S&P 500 uh down for five
straight sessions. And futures over the
last six have now lost over a percent
and a half in that time frame. But where
to next really depends on the signal
from Powell uh later this afternoon at 3
pm. A dovish scenario would see him in
some way suggesting or cons expressing
concern about the labor market and that
would be the signal that the market
would need to pencil in that September
cut. On the hawkish side though, he
could talk about more technical
technicalities when it comes to their
monetary policy framework. He could drop
something called flexible average
inflation targeting. This is something
our own Anna Wong has written about and
something that Nick Timrose over at the
Wall Street Journal did as well. If he
wants to sound neither, he could just
sound as ambiguous as those Fed speakers
that we heard from over the last 24
hours. Stress data dependence. Stress
the fact that we still need to see more
labor market evidence, more evidence on
CPI before we're penciling in that
September decision.
Okay, Bloomber's Valerie Titel, thank
you for breaking it down for us with
that preview. Let's get more analysis
right now in terms of the market
reaction, how to think about positioning
around this event and beyond with Ursula
Marion, Amir, head of investment and
portfolio solutions at Black Rockck.
Ursula, good morning. Thank you for
joining us in the studio. Those three
scenarios been outlined then by Valerie
Titel. Where do you think J Pal
ultimately lands in this speech later
today?
It's going to be a very interesting one
to watch. I agree with you because to
Valerie's point, there's three
components here that we need to focus
on. The first one is the inflation
picture. If we look at going into today,
we had a CPI and a PPI reading recently
that are somehow divergent or in
dissolence. CPI in line with consensus,
PPI way hotter. So again, the jury is
still out there in terms of how much of
the tariff effect has been transmitted.
Not much yet. We've seen something in
furniturees, in electronics, but broadly
speaking is a benign picture yet. Is
there more to come and we saw some
commentaries around earnings this very
week around prices going up by the week?
So I think that will be a area within
the speech to focus on labor market
weakness weakness weakening. um you know
I'm obviously referring to the latest
latest payroll uh but also the two prior
year downwards revisions which were
significant and so I think there's a
picture there where weakening is
solidifying as a forward look and then
more recently yesterday uh PMI a flash
PMI that actually was very good and so
painting a picture of econ economic
growth and so how do you square those
three I think the main areas to look at
within the speech will be these three
components and how they get combined and
messaged. We also need to remember
though Tom that there's still over
through three weeks to go between the 16
17th of September with a CPI coming out
another payroll. So it will be unlikely
for J Powell to confirm a clear path
having still missing data on those given
the mixed picture on the data that you
outlined for us there and the fact that
you do have more labor market data and
more inflation data coming through
before the September decision. Does that
not make the case for a JPAL who later
today stresses data dependency and keeps
his optionality?
I think that is a very possible scenario
and I think that it's been somehow what
investors have been doing in August. So
if I read flow numbers and where people
are voting with their money,
uh July was a very different picture to
what we've seen monthtoday. July very
much an equity month. 60 billion going
into exchange traded products. um US
equities seen a resurgence including
from uh international investors. The big
story this year has been repatriation.
88% of US purch equity purchases have
been done by the US retail investor. And
yet in July we saw European investors
buying US equities again to the tune of
4 billion. So that was July. Moving into
August and I think that this connects
with you know big events risk such as
the one today. We've seen this cautious
approach coming in. Yes. Um you know the
the last five days of S&P sliding down
are an element but I would zoom out.
It's been there uh this theme of
cautions and taking some chips off the
table for the entire month. We've seen
flows turning towards more defensive
sectors in the US industrial and
utilities in Europe. We've seen
dividends financials the strongest month
on record for small cap. So I think that
this picture is really connected with
the large decision that needs to be
taken in the weeks to come. Is it is it
caution when it comes to US equities and
taking taking chips off the table or is
it a signal that we've reached the top
now given the stretch valuations in tech
and specifically if a Fed decides that
in fact September is not going to be the
month in which they cut for the first
time would would that be the event that
locks in a deeper downside for this
equity market? How convinced are you
that this is shortterm the selling that
we've seen in the last few days?
I hear the question. Um look I think
there's a lot to be considered but if I
take a step back um year to date we have
seen as the year progressed uh more
attention and cautions around uh tech
month to day we've seen outflows from
the sectors prior two months flat May
was again an outflow month so we have
seen chips being take taken off the
table but Tom it's been in terms of
magnitude, a very contained trend. And
so for me putting that in context with
the fact that from a mega force
perspective AI is still part of a
industrial revolution that we're going
to have to see play out um continues to
make the case going towards year end
into an AI mega force component within
portfolios together with US banks for
example if we remain um in that um
market US healthcare we like if I move
into Europe defense
um if I think about um you know European
banks so there's a theme there around
selectivity and granularity which means
that whatever happens around these big
events and the one you know today and in
three four weeks uh uh being another one
um will somehow be well absorbed by a
diversified and um defensively tilted
portfolio.
Yeah, we we were speaking to to Karen
Ward of JP JP Morgan earlier this
earlier this week. she described in
terms of the rotation from US equities
into into European equities has been
such a key theme in in April and May.
She says we're really actually only in
the opening innings of that in terms of
the flows that she's looking at. Do the
flows that you're seeing on the ETF
level, do they support that view that
we're just in the early innings of that
rotation from US into Europe?
I'm not sure I would. Um, so the first
element that I would consider that I
would flag is that that rotation has
been done by domestic investors. So
purchases of European equities from US
domicide investors are very contained.
European investors indeed have bought
European equities this year four and a
half times with more conviction than
what we had seen in 2024 at this point
in the year. So there's definitely been
a repatriation trend going on. But to
your question, over the last couple of
months, we've seen that somehow
plateauing or slowing down. Um again we
still like elements of the European
market banks as I mentioned being one.
Um so I think there's still room to go
but it will be more of a selective
precise exposure purchase than an
overall market um entry which is what we
saw earlier in the year. But before we
let you go, your call on on defense
talks in Europe and that is one that is
it's certainly not counter consensus,
but in an event where we get some kind
of peace agreement between Ukraine and
Russia and the reporting in the last few
days seems to suggest we are a long way
from that. But in the event of that
scenario, does that undermine the case
for European defense or is it immune to
that because of the structural changes
happening at the fiscal level?
We believe the latter. So again, if you
take a step back and think about the
great moderation ended with COVID and
look at where we are now in terms of
geopolitical fragmentations and
tensions, I think you can make clearly
the case of a paradigm shift in that
sense. Um, you know, commitment from the
German government being a pointing case.
Um, so obviously a ceasefire will be
welcome and potentially have an impact
in the short term, but in the long term,
I stand by by the call. Okay, thank you
very much indeed with the analysis and
what to think about around the Fed and
where to position and those flows as
well into areas like US banks AI as a
mega trend continues and favoring
defense stocks in Europe. Ursula Marion
Amir head of investment and portfolio
solutions at Black Rockck. More details
on the Fed right now because Fed
officials are reportedly preparing to
Uturn on their signature economic policy
from 2020. The Wall Street Journal says
Jerome Pal will use his Jackson Hole
speech this afternoon to outline plans
to move away from focusing on the risks
of near zero interest rates and low
prices, which prevailed, of course, when
the policy was introduced back in 2020.
Coming up, meanwhile, the EU and US
outline plans that could cut tariffs on
European cars and offer discounts on
other goods. Wine and spirits, though,
not yet part of the mix. It could all
happen in the next few weeks. We'll get
the details next. This is Bloomberg.
Welcome back to trade now. The US and EU
outlining trade plans that could reduce
tariffs on European cars to 15% within
weeks and potentially offer discounts on
steel and aluminium. White House trade
adviser Peter Navaro credits the
breakthrough in Ukraine talks for paving
the way to the deal.
I can think of no deal more important
than with the European Union. This is
like a really important uh mountain to
climb and we climbed that and President
Trump got up to the top of the mountain
today. In many ways, the Ukraine
situation has been a total wakeup call
for Europe.
Right. Let's bring in then Bloomberg's
trade star Brendan Murray here and
sitting on his own mount and deservedly
so as well. Brendan, what do we know? So
some more we we've been looking for
additional details around this agreement
that Europe and the US came to the
headline was 15% tariffs but also there
was all the nuance and you unpacked that
for us in in the weeks after that and
the days after that that announcement of
course now we have some more detail how
significant is it what's been achieved
it's incremental progress I I would
characterize it uh the Europeans got
some clarity on the on the sectoral
tariffs like semiconductors
uh and uh and and autos and they so So
they have uh some understanding that
those aren't going to stack on top of
each other. There's a this the 15% is a
ceiling. U but as the European trade
minister said yesterday, this is really
the beginning the of this process that
these talks are going to go on for
months and months. They still have a lot
of issues to work out. The the wine and
spirits uh tariff at 15% is is is not
pleasing the the French uh or or the US
uh industry. So there's still uh we did
get some some details u but there's
still a lot of uh uh you know caveats in
in in what we got in this joint
statement yesterday. Not a whole lot of
solid commitments.
Okay. So there's a lot of work still
still to go and you'll have to wonder if
this is a template for other trade
agreements are in the works. The
headline deal and then you work through
the mechanics of the detail in the
months that follow. In terms of the the
relationship between Brussels and
Washington that of course has been has
been strained. How important is this in
terms of putting a floor under that
relationship?
Yeah, it's the other the other aspect of
the deal was the the investment pledges.
This these are the uh you know the
hundreds of uh billions of dollars worth
of investment uh and purchases that the
Europeans have pledged to make. Uh you
know those are the kinds of things that
uh you know President Trump uh asked
them to do and they followed through.
Whether or not they actually uh
materialize is a whole another question.
But uh as as Pier Navaro said uh you
know they made some progress but uh you
know but there's still a long way from
resetting and rebalancing the
transatlantic trade relationship. Uh
there's a lot there's a lot more work to
do and a lot of fine print left uh which
is really the hard you know that's the
hard work left to be done
in in other parts of the trading
relationship emanating out of the US
dimminimus. So these small lowpric
packages entering the US that have been
significant if you're a Chinese
e-commerce player shipping into the US
market and that rule was put in effect
and it affected companies like Shien.
But there's a broader story here and
this is being rolled out further and
there's there's implications. Talk us
through what's happening on the
dimminimus rule.
Absolutely. This is a really important
story that we should keep an eye on uh
in the week ahead. Next Friday the
dimminimus exemption for for duty-free
treatment for goods under $800.
uh that that has applied to China and
Hong Kong since May. That goes away for
every country. So, if you're sending a a
gift or uh a product uh from the UK,
from Germany, from Japan, all these
other countries, you're going to have to
pay a tariff on it. You're going to have
to calculate what that tariff is. And
all these mail services around uh the
world are suspending their shipments to
the US while they try to get a handle on
what these new rules are. the the
customs duty has to be paid by the
shipper. And so it's a really uh it's a
developing story. We're seeing these
mail services one after the other come
out and say we don't we don't have clear
uh we don't have any clarity from from
the US Customs Agency. And so it's it
could disrupt shipping uh an already
disruptive uh global shipping industry
uh to a significant degree until they
get some clarity on this. And to be if I
if I'm if I'm sending a packet of of
Percy pigs to my relatives in LA, that's
going to be that's going to be hit with
a tariff.
Well, there is there is there is
everything under 100 everything under if
you can if you can verify that it's that
it's that it's it's worth less than
$100, you can send you can send those uh
you know to your relatives. Uh but if
you're if you're if you're an airline
and you have a lot of cargo capacity uh
in the in the cargo hold of of passenger
planes, you know, a lot of a lot of uh
goods destined for the US over the next
week are going to are going to be
impacted. So there's a there's a real
commercial and consumer element to this
that we that we need to stay on top of.
Brendon, fantastic. Thank you very much
for that update. Other suites of course
are available. Bloomberg trade star
Brendan Murray two chips now and Nvidia
just the latest twist in the saga and
the unfolding tale around
semiconductors. Nvidia is low up in
pre-market trading after reportedly
instructing suppliers including Samsung
to halt production of its H20 AI chip.
Tech publication the information says
this comes after Beijing advised
companies to steer clear over security
concerns for the chip which is built
specifically for the Chinese market.
Nvidia, for its part, has repeatedly
denied that it added back doors into
that semiconductor. Bloomberg
intelligence analyst Rob Lee joins us
now for the details and what this all
means. Um, what what is the what is the
latest, Rob? What does it tell us about
about Nvidia's prospects in in the
Chinese market if indeed this this
reporting uh is confirmed?
Well, I guess in in sort of British
colloquial terms, this is the H20 hokeyp
kokei, isn't it? We're one step in, one
step out, in, out, in, out, done, done
about shaking it about. Um, but it it,
you know, their strategy, their
visibility on their H20 China business
remains hugely uncertain. So, prior to
recent developments, it had been
expected following uh President Trump's
decision to allow them to resume
production uh that production would
likely start at the very tail end of
this year at the earliest. So, as I
said, based on these unconfirmed
reports, I should stress in the
information um that is in disarray or
certainly in ter it's certainly
overshadowed by significant uncertainty
at the moment.
And and Rob Jensen Hang is on the ground
in Taiwan. He's been he's been
reflecting on some of this and he's been
stressing that there are no back doors
in these H20 chips.
Well, I guess you have to take what he
says at face value. But from an
engineering perspective, it's incredibly
difficult to prove or disprove otherwise
because first of all, if you did an
examination of the hardware, as you
appreciate, these chips are um you know,
are built at the atomic scale. Um so
sure you could take a very powerful
scanning electron microscope look at
scope I should say look at the structure
in detail but again it's very difficult
from a physical examination uh to make
those sort of conclusions and then
equally you would need access to the
software that's running them the
firmware and other operating software
which you know uh it would be very
difficult to access so I would say uh
whilst the Chinese government has
allegedly uh highlighted some concerns
on that front It's very difficult to
disprove or prove and equally that
echoes if you remember back to uh
several years ago where there were again
unconfirmed allegations coming the other
way that Huawei's technology uh had a
similar backdoor which is why which is
why I should say Huawei's telecom's
equipment was stripped out of a lot of
telephone exchanges uh and telecom's
infrastructure uh from European
countries for example.
Yeah, a reminder that two can play at
this game. Bloomberg intelligence
analyst Rob Lee, thank you very much
indeed on the latest when it comes to
Nvidia, the H20 chip and shipments into
China. Staying with tech, Bloomberg
understands Meta is hiring another key
artificial intelligence executive from
Apple even as the social networking
company prepares to slow its
recruitment. We are told that Frank Chu,
who has led Apple AI teams focus on
cloud infrastructure training and
search, will be joining Meta Super
Intelligence Labs. Chu follows several
of his colleagues to Meta, which has
also hired the head of Apple's AI models
team. And in a court filing, OpenAI says
that Elon Musk identified Meta boss Mark
Zuckerberg as one of the people he
communicated with about financing a deal
to purchase the maker of Chat GPT.
OpenAI says in the end, neither Zach nor
Meta participated in the 97 billion bid.
The company's board formally rejected
Musk's bid back in February. And
Bloomberg understands Anthropic is
nearing a deal to raise as much as $10
billion in a new round of funding. The
fundraising is a higher thanex expected
sum and one of the largest mega rounds
to date for an artificial intelligence
startup. Bloomberg has previously
reported Anthropic was in advanced
discussions to raise up to $5 billion in
the round at a valuation of $170
billion.
Coming up, the EU and US paved the way
for lower tariffs on autos, farmer and
chips. We're going to look at the
implications for Europe and in
particular the powerhouse of that Euro
zone economy at least on some measures.
German industry, the impacts of this
agreement, what it means for Germany,
and the relationship between Berlin and
Beijing. That's coming up.
This is Bloomberg.
Good morning and welcome to the polls.
I'm Tom McKenzie in London. Happy
Friday. These are your top stories. The
day of reckoning. Markets cautious as
traders await drone pal's final
Jacksonhole speech. But rate cut bets
pharmaceuticals, and chips within weeks,
but there is still no deal on wine and
spirits. Plus, Nvidia falls in
halting production of its made for China
H20 chip after Beijing warned Chinese
companies to avoid them.
The US and EU have released details of a
deal that lowers tariffs then on autos,
pharmaceuticals, semiconductors, and
lumber to 15%.
The announcement bringing some relief to
Europe's manufacturing sector. Joining
me now to discuss is Dalia Marin,
professor of international economics at
the technical university of Munich, who
has also been doing a deep dive on the
relationship on a trading level between
Germany and China. And we'll get to that
shortly, Daria. But I want to start on
this agreement at least filling out some
of the details when it comes to the EU
US trade deal. How significant do you
think that is? Some of the sectors
getting some relief. Tariffs will be
capped at 15%.
What do you make of what we've been
hearing out of Brussels and Washington
in the last 24 hours?
So the major impact of this deal is that
you the German firms or the European
firms now have um more uh security. What
is going to happen in the near future?
Because before there was a zigzag policy
in with with the tariffs and no firm
knew what kind of trade policy will
prevail. So planning was very difficult
to do. So the major impact of this deal
is that um that the that firms have more
security.
Yeah. D professor, do they have enough
security now? Do they have enough
certainty to be able to start increasing
investments to start putting money to
work again in capex? Is that certainty
now there for European firms?
Yes, it there is more certainty full
certainty is not there because you don't
know whether this is not going to change
in the future. So that's the new world
we live in. But at least for now they
have more security. And I think firms
will start to make decisions because our
research shows that when when firms are
faced with uncertainty that has
devastating effects on their decision
and firms have started to reshore
production back to their home market
because of this uncertainty. So I think
it will help to keep globalization going
and the importance of having that
uncertain that that certainty at least
was was articulated or at least put in
the spotlight by by the weaker than
expected second quarter data GDP data
out out of Germany and on some analysis
that was because of some of that
uncertainty because of the tariff risk
because of what's happening in trade.
When when do you expect to see a a
convincing recovery in the German
economy?
I think we can expect a convincing
recovery in Germany. And the reason is
that the government has decided to to
get rid of the debt break and to start
to spend in particular to defense and
that will stimulate the economy and on
top of it it will also help German
economy to reorganize because the auto
sector and the machinery sector are
under much pressure and so some of this
pressure will will be relieved by in by
going into defense. So the Yes. So this
is going to happen in the future. So I'm
pretty optimistic.
So that that ties in nicely then to the
analysis and the research you've been
doing around the relationship between
Germany and China. what what are the
most startling outcomes that have come
about as a result of that that that
research in this around this central
trading relationship not just for the
two countries but but for the for the
world.
Yes, Europe is facing a
de-industrialization
shock
worse than the US experienced in the
2000 when China entered the WTO.
So Germany is particularly hit because
its industrial structure was similar to
the Chinese. So in particular the the
the two core sectors of the German
economy namely cars and machinery were
particularly hit in both sectors. Um
Germany stopped to be a net exporter to
uh to China. uh in fact in machinery the
Germany got to be
in 2015 and if you imagine that that the
machinery sector was the major part to
industrialize the Chinese economy this
is particularly traumatic but also in
the car industry this is happening uh
car car exports to China dropped by 70%
and imports increased
of more than doubled. So is a very
dangerous
in which these two sectors might migrate
to China. So
policy
end
okay professor we appreciate your time.
Dalia Marin professor of international
economics at the technical university of
Munich. had some problems of course with
the line there but some analysis in
terms of the relationship the trading
relationship and how that's changed with
70% drop in terms of German exports of
autos to China and a reverse scenario
with more Chinese cars being sold into
the German market and some of the
prescription coming through from there
from the professor including the call
for more JVS and more state support
ultimately for some of these key sectors
in Germany and in Europe. Now staying
with Germany there are memories of
course still of hyperinflation which
kept investors on the sidelines for
decades. The mood though is finally
shifting. The stock market is booming up
around 20% year to date today and small
investors are finally piling in. For
more on what is driving the surge, I'm
joined by Sagurica Jessen Ghani who is
Bloomberg's deputy team leader for AMIA
equities and investment strategy. She's
generally not known for Mama Pup
investors and retail investors, but that
is starting to change.
Absolutely. Thank you for having me. uh
you know I was on the show earlier and I
was saying that when you talk about what
are the countries where the retail crowd
is popular Germany doesn't feature on
that list or it hasn't and so when we
got into the story that was our you know
the most uh telling thing for us the
number of retail investors that we were
able to reach out to the amount of data
we were able to generate that tells us
this is actually a thing and this is you
know it's a significant trend that has
taken hold among people who have
traditionally been shy. They've been
very risk averse and fair enough, you
have the psychological scars from the
hyperinflation era, what they went
through with the tech bubble popping in
2000 after 2000. Uh so it's taken them a
long time to come back into the market.
But there is serious conversation
happening now around the stock market is
a buzzword given the boom that we've
seen in the DAX not just this year but
the last two years as well and at the
same time there is growing concern about
you know when I what what happens to my
pension the current system is uh is on a
pay as you go basis which is that the co
workers fund the pension for current
retirees so in an aging population
there's questions around how sustainable
is that so people are starting to today.
I've got to take ownership of this now
to secure my future tomorrow and the
stock market is a viable way to do that.
Okay. So, that that's one of the
catalysts clearly is what's happening
with pensions in Germany and the runup
of course in in in German equities. What
have you been hearing from some of the
case studies from some of the people
you've been speaking to and how how
sustainable do you think this this trend
is ultimately? I mean, if we get a
selloff, does that suddenly wash
everyone out of the market and they and
they say, you know what, that that was
that was a mistake. I mean there are
broader economic consequences to this.
Absolutely. What we've heard from them
and we've actually um we spoke to a
range of them starting from 19 20 year
olds who are at uni you know discussing
swapping trading advice around the the
lunch table uh right up to people who
are nearing retirement looking at this
as a I mean everybody's looking at this
as a serious thing. The stories were
were really fascinating. You know, we
spoke to one uh she's a mom to be
expecting her first child early next
year and she said that traditionally
when you have a baby in Germany, you
open a bank account for them. Now I'm
thinking I'm going to buy this baby I
start an ETF for this baby straight
away, you know. So that shows that this
is actually a sustainable fundamental
shift in the way that they are thinking
about it. And to your point about what
happens if there is a sell-off, um the
data that we've seen is now consistent
over three years. This is not a flash in
the pan that you know it's a month or or
quarter out. There has been a steady
increase to about near you know the 20
year highs over the last 3 years. Uh
comparatively if I u a survey from Black
Rockck across Europe showed that 3
million Germans have started buying
stocks in the last 3 years which is the
second biggest increase after the UK. So
this isn't something that is here today
gone tomorrow.
Okay. Fantastic reporting on a shift at
least for now in terms of Germany's
investment intentions and mum and pup
investors, retail investors getting
involved. Sager Jason of course
implications for companies wanting to
raise capital and for the growth
prospects of Germany as well. You can
get that reporting of course on
bloomberg.com and on the terminal. Back
to the Fed now. Kansas City Fed
President Jeffrey Schmidt says American
businesses are showing renewed optimism
that is filtering through to the labor
market and putting the focus back on
inflation. Smith spoke with us from
Jackson Hole about the economy and
growing political pressure on the Fed.
I'm a little philosophical about the
whole conversation of Fed independence
and and where our role is uh in the uh
American economy. Um we're almost 250
years old as a nation. I think there's
uh something to be said. We were built
on words and and and we continue to
debate those words uh legislatively and
judicially. uh whatever those whatever
friction we might have with other
branches of of the government. I think
great steel's tested by fire. So what we
can always eat better, we can always do
this better. But I think I think the
nature of independence uh and and I
think don't believe me, believe other uh
nations that have central banks and
don't. Uh it seems to work, but but uh
but I'm always open for the conversation
of how do we make it better. Well, the
big question for everybody, especially
for Wall Street, is what happens on
September 17th.
So, uh, this is, as you know, kind of an
interesting, uh, uh, month because we've
got Jackson Hole and and then, uh, we've
got quite a few weeks of data to kind of
pull in. So, uh, so I'm I'm really I
think everybody's quite interested in
some of the maybe the prints that
happened in the last couple months and
kind of where where they go from here.
Um, so I'm I'm I'm like everybody. I I'm
I I think there was some fascinating
conversations at the last FOMC. As you
know, there were a couple of descents.
Uh I I think my interpretation of what's
happening, especially in the labor
market, is that the first couple
quarters a lot of business people were
just saying um it it there's uncertainty
enough and I think they kind of cooled a
little bit on the higher side. But the
most recent couple weeks that we've been
talking to businesses in the district,
uh there seems to be a a burgeoning
optimism again that they've kind of
digested and and they've been agile
enough to try to work their way through
some of the new policies uh from the
administration and maybe going forward
maybe we'll see a little bit of uptick.
That said, I still believe there's that
the that the inflation number uh is is
trending closer to three than two. Well,
we saw that in the minutes that in
general the open market committee felt
that inflation was a bigger danger at
this point. Would you say that's your
view now?
It it would be my view now. I I think
with an understanding that what may have
happened in the first couple quarters on
the labor side, which I think concerned
several people uh were on the committee
uh me included. But I I think the the
this PPI was interesting. That print was
interesting. But I I really believe that
that when we talk to uh a lot of our uh
uh a lot of folks in our district is
that if you if you had a kind of lean or
have a bias toward it would be on the
inflation side.
Kansas City Fed President Jeffrey
Schmidt speaking with Bloomberg's
Michael McKe of course at Jackson Hole.
Now some other stories making the news
this Friday. The UK's tax authority
tightening up scrutiny on pensions
relief claimed by higher earners. This
according to the Financial Times and the
Telegraph, the moves include a clampdown
on claims made on the phone and stricter
checks, for example, asking for evidence
when it may previously not have been
required. According to the reports, a
review by the tax office found around a
third of claims under £10,000 were
incorrect. And the UK government says it
will buy six new land sector systems
from multinational European arms maker
MBDA
over three years in a deal worth 118
million pounds. They include so-called
anti-air modular missiles capable of
hitting a tennis ball sized object
traveling at twice the speed of sound as
well as launches and support vehicles.
And shares of W. Smith slumped 42%, the
most on record after the discovery of an
accounting error forced it to slash its
profit outlook in North America. It is a
major setback in a key growth market for
the British retailer. A financial review
found an overstatement of about30
million pounds in expected headline
trading profit for North America this
financial year. The error came after it
booked income from suppliers earlier
than it should have. Coming up, the
pivot from babies to boomers. How
consumer companies are reassessing their
customer base amid falling birth rates
and aging populations. That story is
next. This is Bloomberg.
Welcome back. Now, South African
retailer Spa is reshaping its growth
strategy. Both its UK and Swiss
businesses are up for sale as it looks
to focus on its core African and Irish
operations. Bloom's Jennifer Zabaser sat
down with the company's CEO, Angelo
Schwarz, to talk about the company's
restructuring.
South Africa has more retail space per
capita than most emerging markets.
With more than 1,400 shopping malls
dotted across the country, retail is big
business. And in the hunt for growth,
many companies have looked to overseas
expansion.
The Spar Group is one example. Just over
a decade ago, the company acquired
licenses to operate spar branded shops
in countries including the UK, Ireland,
Switzerland, and Sri Lanka. I met the
CEO, Angelo Schwarz, at Spar's Durban
headquarters. He told me local
investment restrictions were part of
that motivation.
I think that idea was driven primarily
by South African legislation, which
limited investment managers from from
investing too big a part part of their
portfolio out of South Africa and
therefore many investment managers were
really looking for South African
companies to be proxies in other
markets. Spar is largely a wholesale
business. In the UK, for example, over
300 independentlyowned shops all carry
the same brand. They benefit from
centralized marketing and distribution.
In exchange, the Spar Group collects
fees and leverages purchasing power with
suppliers. But in recent years, its
African revenue has far outpaced what it
gets from Europe. Take Switzerland, a
country with strong trade protection
measures. Groceries there are often 50%
more expensive than in its European
neighbors. When Schwarz took over as CEO
just two years ago, he decided to divest
the Swiss and UK businesses, materially
strengthening the balance sheet. when we
looked at at the businesses in the UK
and and the business in Switzerland is
our view that those businesses are
subscale and the amount of um capital
that it would have to go into those
businesses to get it up to scale to meet
our strategic ambitions was was um would
be misplaced.
Retail analyst Alec Abraham argues
SPAR's biggest mistake was taking its
eyes off South Africa. When you go into
a new country, there's a very different
operating environment and you need to be
focused to um to understand that market
and to succeed in that market.
Back home, Spar is expanding its DIY and
pharmacy businesses and is building out
its liquor operations.
And I think with Spar being where it is
and how competitive the South African
market is, we really just want to
refocus on our home markets. That's
because liquor shops in South Africa are
expanding fast. Last year they grew
almost twice as quickly in the country
as conventional supermarkets.
Our liquor brand Topps has been has been
around for also about 25 years. And
through independent retails, we become
the single biggest retail liquor brand
in this country.
Spar CEO has branded this battle for
shoppers as South Africa's wine wars, a
high margin, high growth area in an
otherwise struggling consumer market. We
have shown that our business has the
ability and our independent retailers
have the ability to compete directly
with the chains um empowered by us and
we are now the second biggest
supermarket brand in this country um
which is no mean feat.
Having sparred with what today are
smaller supermarket rivals, Schwartz may
soon be ready to take on number one
Shopright in what could be his toughest
fight yet.
And for a deeper dive, catch our TV
show, Next Africa, airing on TV on the
last Friday of every month. You can
watch our previous episodes in full on
your terminal, on our website, and of
course on YouTube. Now, something a
little bit different. Shrinking birth
rates have many consumer companies
worried, but they may be looking the
wrong way. The real growth isn't in
babies, it's in baby boomers, with older
adults now holding more spending power
than younger generations. Andrea
Felstead from Bloomingburg opinion joins
us now on why companies need to rethink
who they are selling to. Why then,
Andrea, should companies start to pay a
bit more attention to the to the silver
economy, the gray the gray-haired
Exactly. Well, birth rates are
shrinking. Um, we have more older
people. We're living longer, albeit
gains are slowing. That gives a big
market and they have lots of money.
There's quite a lot of wealth
concentrated in older generations.
Although their incomes tend to shrink as
as they get older, they have a lot of
assets and they they've typically like
to spend that on travel and services,
but increasingly they're going to want
products and also need products,
for example. I mean, what kind of what
kind of things could we could could
these companies look to to do in terms
of switching from the products? I mean,
now for for kids and babies to to to the
elderly. The most successful one has
been nappies to incontinence care which
is growing very quickly. But nutrition
is another real opportunity with less
infants. But there's a lot of the
technology that we need to feed babies.
You know, it's a you need specialist
nutrition. It's a highly regulated
market. You can put that to older
people. As as we age, our appetites
shrink, but we need more nutrients. That
that means very densely packed food. And
it helps that protein is a big obsession
with GLP-1, but that could pave the way
for these specialist foods for older
people. Toys is another thing that, you
know, the toy market will shrink as as
there are few children, but if you cater
they're already catering to adults, but
if you go up the the age range, you've
got older adults. One of the most
fascinating things was was these are
these sort of animatronic pets that are
really successful with the elderly. They
they respond to touch. And
are these these these kind of pillows
that move and and have little robots?
They're actually like lifelike cats and
dogs. And as a cat owner, they're very
realistic because the cat doesn't always
respond to you whereas the dog nearly.
So just to project into the future, I'm
looking at a world where I'm being fed
some protein slop. I'm sitting in an
incontinent pad and I'm playing with an
electronic cat. Is that is that my
future?
That's your future. That's very good for
consumer companies because it might it
might not be you buying the product. It
might be, you know, it could be even
worse. You could be in a care home. So,
the care home or the facility is buying
it for you. So, that's another big
market. It's another big area to tap
into.
Okay. And Andrew, I'm I'm you haven't
reass you have not reassured me. Um, but
changing changing demographics is real.
What other things could could companies
and our companies looking at doing
around the changing demographics?
They definitely are. One of the most
interesting thing is this idea of living
for longevity. We all know we're going
to live longer. So we start preparing
for that in our younger days. So
obviously skin care is one of the things
um most obvious, but vitamins and
minerals. There's a lot of research
being done into supplements that can
help prepare you for your older days. So
it's not just about catering to people
when they're very old. It's preparing.
is helping people prepare throughout
their lives.
Yeah, longevity is such a massive theme,
isn't it? And that that's the part I
like. I like that part, Andrea. It's
great. It's great reporting. Some of
it's very counterintuitive and it's the
Bloomberg opinion piece of course that
you should read uh this this weekend.
Andrea Fel, the Bloomberg opinion
columnist of course and you can find
that on blundo.com and of course on the
terminal. Let's segue back to the
markets right now, shall we? And check
in on US futures. Of course, traders are
gerting themselves for the speech out of
Jackson Hole from JPAL. US futures
pointing high by 2/10en of a percent
after five straight days of losses. And
of course, markets and traders have
paired those bets on that September cut
and the prospects of September cut now
just at around 70% when just over a week
ago you were pricing an almost 100%
chance of a of a September cut. The Fed
speakers we've heard from the last 24
hours or so have been a little bit more
cautious in terms of the signaling
around this. What will J Pal say
ultimately? Will he validate the
concerns about the labor market or push
back on some of these bets that we're
seeing? NASDAQ 100 futures also pointing
a little higher up a tenth of a percent
despite the concern around Nvidia, the
pre-market pressure on that company on
the back of the H2, the H20 story into
China. We're going to have full coverage
of course of Jackson Hole, the economic
symposium, including interviews with
current and former Fed presidents. It
starts at 2:00 p.m. London time. You
need to tune in for this. And then of
course the big events, drum roll, drug
pal speaking at 300 p.m. UK time for
this last time at Jackson Hall in his
current role. This will be his last
symposium of course as Fed chair. Stay
with us for all of that. Up next,
Bloomberg Brief. This is Bloomberg.