news makers and market movers.
This is the pulse with Francine Loqua.
>> Good morning again everybody and welcome
to the pulse. I'm Joanna Berseti in
Dubai filling in for Francine Laqua.
Now, the Federal Reserve's Jackson Hole
Symposium was a tense affair with chair
Jerome Powell signaling an interest rate
cut as soon as the next policy meeting
in September. Despite clear divisions
amongst policy makers, the chairman
noted the economy has handed Fed
officials a challenging situation.
>> The baseline outlook and the shifting
balance of risks may warrant adjusting
our policy stance. Our policy rate is
restrictive, modestly so in my view. and
the stability of the unemployment rate
and other labor market measures allows
us to proceed carefully. While the labor
market appears to be in balance, it is a
curious kind of balance. Longerterm
inflation expectations, however, as
reflected in market and surveybased
measures appear to remain well anchored.
We will not allow a one-time increase in
the price level to become an ongoing
inflation problem.
Well, to discuss that challenging
situation and the market response, I'm
joined by Paul Dobson from Bloomberg's
Asia Markets team. Uh Paul, so uh one of
the key lines that investors are
latching on to was this one. Uh the
baseline outlook and shifting balance of
risk may warrant adjusting our policy
stance. People are interpreting that as
September being live, a live meeting for
an interest rate cut. Uh what are the
messaging? What is the messaging really
that's coming through from this meeting?
Yeah. Hi, good morning Shimana. Well, I
think that uh the market was very quick
to jump onto uh that sign. Uh the the
PAL was a just that little bit more
doubbish than the market had been
expecting. I guess people were looking
for possibly a fairly neutral path. Um
but actually he suggested that there's a
there's a shift going on within the Fed
and I think that that's reasonable. You
know, uh several of the Fed policy
makers have been talking about the need
to cut. Sever several more have been
talking about the idea that we'll do two
by year end and we're getting closer to
the year end. Uh some still determined
not to move interest rates at the
moment. And so that is this idea that
it's going to be a difficult path for uh
Fed policy makers to tread. They've got
to balance the the risks of inflation.
They're looking forwards. They don't
really know exactly what the pass
through from the US tariffs is going to
ultimately be uh in terms of inflation,
but they're also looking at that pretty
shocking uh revision to the jobs data
that we had recently. uh that that
pointed to a weaker economy than we'd
otherwise been expecting. And so that's
why Pal uh seized the potential at least
for a shift. He left the door open. You
know, he wasn't definitively declaring
we're going to cut as soon as September.
And the market has that in its pricing.
We're about 80 85% price for September,
not 100%. And we're pricing in two cuts.
We're not pricing anything more
aggressive for the rest of this year.
Nonetheless, relative to where we were
before that Fed meeting, uh the market
took it as a positive sign. And that's
why you saw equities rally uh and you
saw lower bond yields across the curve.
>> Yeah. And all eyes of course on that PCE
print that's coming up later this week
as well. That could be a big
determinance of the trajectory for
future interest rates. Let me take you
in a a different direction. At the top
of the show I was talking about the
strong performance in Chinese equities
this morning. Um some reports coming
through that authorities are easing
house buying rules. uh talk us through
the the reaction in markets today and
how big of a of an event this actually
is.
>> I would say that this is not a huge
event. It's more of an incremental uh
measure and we've seen plenty of those
along the way from Chinese policy makers
recently. Uh little signs of extra
support for the market. The property uh
stocks enjoyed it. They had a good
strong rally but it's in the context of
what's been coming a pretty impressive
rally for Chinese uh stock markets
overall uh to the point where the first
people are starting to warn you know
this is looking a little bit bubbly.
This is looking a little bit out of line
with where we currently see the economic
data. We had a few misses uh right
across the board uh in terms of the what
the economy looks like um from last
week's readings. Uh and so there's
caution now that with the continuing
gains in equities, things are looking a
little bit too frothy. Point is, people
don't have a lot else to buy right now
in China. The the return that you get on
deposits is very low. Bond yields are
very low as well. And so they're looking
for alternatives and the the steady
gains that they're seeing in equities is
starting to draw more money in off the
sidelines from very cashrich uh
investors. There's plentiful liquidity
out there in the market, which is also
supportive. Uh and growth, you know,
while it's moderating, is not looking
absolutely disastrous. just yet. China
probably likely to hit its 5% target for
uh the full year and and so that there
there is that money coming into the
market, the little incremental signs of
support that we're seeing from the
government helping it along its way as
well. Uh and so that's why you see some
more gains in Chinese equities today uh
continuing improvement in in the outlook
for uh that market.
>> Yeah, I was reading CSI the highest
level since 2022 and the Shanghai
composite the highest level since 2015.
to your point about how quickly these
valuations have run up. Bloomberg MI
strategist Mark Crownfield, thank you.
Now, US President Donald Trump has
sealed a deal that has given the US
government a nearly 10% stake in Intel
Corp. The move comes as the US
administration seeks to reinvigorate the
company and boost domestic chip
manufacturing. To discuss further, I'm
joined by Bloomberg Intelligence's
Robert Lee. And you can see that the
shares are trading up 2.3% in
pre-markets. Uh well, Intel has been set
back by by lots of issues. They've been
out of the AI game essentially. Does
this take out of the US government help
them turn their fortunes around?
>> Okay. Well, I think at the very least it
sends a strong signal to the market that
the US administration sees this company
as being too big to fail, which for
those with a long enough revenue is sort
of long enough uh memory I should say is
an expression you've probably not really
heard since the 2008 financial crisis.
But looking forward, Intel has a very
challenge, you know, a extreme number of
challenges to deal with both in terms of
stabilizing its financial performance
and as you said in your prelude really
uh properly addressing the growth
drivers for the business and uh trying
to you know position itself to take
advantage of some of those whether that
is AI or elsewhere. and just quote a
very quick statistic to you. If you look
at the consensus earning estimates for
next year, so 2026, they've been
downgraded by over 80% uh year to date.
So the business is under extreme
pressure at the moment. The uh new CEO
who's been in the seat for a few months
now is certainly going to have his hands
full. So, I think, you know, this is a
step in the right direction, but it by
no means uh signals the end to Intel's
troubles and challenges.
>> Yeah, Robert, it's a big week for the
tech industry. Nvidia earnings on
Wednesday. What should we be watching
out for there?
>> Okay, I think as usual, we're looking
for a pretty solid set of numbers.
Expectations are very high. Uh obviously
with sentiment having the boost from the
uh Jackson Hole events at the end of
last week um you know the stocks been
trading close to a high again. So I
think we should see some solid numbers.
Uh the big question though with Nvidia
as I guess most people are aware is the
outlook for the China business because
there's been uh to quote a British
expression uh you know the hoke koke
it's sort of one step in one step out in
out in out all the time. So where are we
with H20 at the moment? I would say on
balance it looks like it's going to be
very difficult for Nvidia to address
that market uh despite the best hopes uh
and the you know lobbying that Jensen
Huang has done. Um so we need more
clarity on that side. In terms of their
core business, we want to see that their
newer product the GB200 is ramping well.
We want to see that the Blackwell
product as well uh which is their new
super chip is ramping well. So there's a
a question mark on the on the yields and
the margins, but I think net net as
we've seen many times before, these
should be a solid print that should be
taken well by the n by the market. But
the key question is how much of that is
already anticipated by the share price
which is trading close to an all-time
high.
>> Yeah. Well, I've got to congratulate you
on bringing in the hoke kokei into a a
preview on Nvidia. My my toddlers would
be happy to hear that. Bloomberg's
Robert Lee. Thank you so much.
>> All right, joining us now is Danielle
Antonuchi, CIO at Quincside Private
Bank. Good to have you with us,
Danielle. Uh, let me take you back to
what we heard from Jackson Hall over the
weekend, specifically the Fed chair
Jerome Powell's speech. Uh, what do you
make of of the change in tone coming out
of the Fed chair? Does the data actually
warrant this change in tone or do you
think maybe he's succumbing to some
political pressure?
Well, I think first of all, there was
market moving after all. So, an
important um um policy event and I think
uh there's been certainly um a change in
tone. After all, Powell might support a
rate cut maybe as soon as September. I
also think the Fed has boxed itself into
into a corner because the data the next
data inflation jobs will determine the
central bank's next move and
expectations might change quickly and
with it as a crisis.
You know, it's clear that the US data
has started to slow down uh and the Fed
chair Jerome Pal signaled that the labor
market is giving somewhat conflicting
signals, but their weakness is beginning
to prop up there in the coming months.
How much of a moderation are you
expecting?
>> I think there's a tug of war here. The
economy is slowing, growth is
decelerating, and job growth as well,
and there's downside risks there. And
then the Fed has to balance that with
upside risk to inflation. And that is a
very difficult situation. I think the
Fed does probably want to cut and will
likely be able to cut over the next few
months based on current data, but this
this might change. Pricing seems um
fairly balanced over over the near term
for the balance of the year. The central
bank might reduce the policy rate maybe
once or twice the market's price two
cuts after all, but I'm not sure. And I
think that pricing over the longer term
perhaps is overly overly ambitious and
the central bank, the Fed might not be
able to rates that much.
Uh let me ask you in the absence of some
of the anticipated inflationary
pressures that have yet to come through
or beginning to come through from
tariffs. Do you think the Fed would
sound a lot more dovish in this
scenario? Is it is the reason that
they've been holding back so far because
of the unanticipated effects of tariffs?
>> I think so. I think these forces are
pointing um in different directions.
There is an element of of economic
slowdown there. You see that in the
forward looking numbers in the surveys,
the job numbers as well, they're more
coincidental. You see that in the um in
the pace of of economic growth also when
it comes to the real indicators. So
there's been a a deceleration. There's
been a pickup in the unemployment rate
from low levels as well. But then on the
other side, you have pipeline
inflationary pressures. uh the PPI
number producer prices for example and
suggest that and so um the Fed has to
has to balance two and at the end of the
day I think even though a rate cut is
warranted in my view based on the data
uh that that we have we wouldn't
extrapolate too much and generally
speaking the way we position that we're
global investors we are overweight
equities but given the uncertainty our
overweight is um is a moderate one we
prefer
global international diversification to
the US. We are underway US treasuries
and the dollar as well.
>> Okay. Interesting. Let me pick you up on
uh the equities thesis. Uh look, it's
it's easy to say or maybe it's obvious
that there are cheaper valuations in
other markets, but at the same time, the
growth prospects are not the same. Is
the reason for your overweight simply
one of valuation or because you expect
the relative growth profiles between the
US and the rest of the world to start
narrowing?
>> So how do we think about US equities? So
first of all it remains a compelling
asset class especially at medium to
long-term horizons. There is the
innovation, there's the ability to
commercialize that innovation. some of
the the names the companies that are
driving the index have shown even lately
in this earning season solid earnings
prospects. So there's a lot to be said
about that and US equities are one of
our core strategic exposures but then we
need to think about the valuation piece
as well. So for example, we diversified
some of our US equity exposure into
equal weight to give um um a greater
weight or more emphasis to sectors that
are more attractively valued and then
can diversify concentration risks. US
equities are driven by just a few
companies at the moment. And then you
have international equities there. I
think it is a story of a valuation and
valuations are more attractively valued
in these markets. And so at least
tactically we overweight those markets.
>> Okay. You also mentioned that you're
overweight the USD. What are you buying
instead? What are you buying against the
dollar?
>> Yeah, we are underweight um the dollar
and uh this is a result of of two
things. First of all, our our tactical
positioning which has been overweighting
other markets. So on the equity side of
things we have been overweighting
tactically Europe, Japan emerging
markets and lately because of this
uncertainty we also bought minimum
volatility equities which is a position
that tends to unperform outperform if
there's a wobble in the market. This is
on the equity side of things and then in
fixed income we generally we are
European investors we generally um have
tended to prefer at this juncture euro
denominated assets. We are overweight
both shorted European government bonds
and also European investment grade bonds
and we are underweight US fixed income
assets generally also because of some
fiscal concerns.
>> Very clear Daniela pleasure to have you
on the show. Thank you so much for
joining Daniela Antonuchcci CIO at
Quintet Private Bank. And coming up
fighting continues in Ukraine but the US
vice president says Russia has offered
concessions in the latest peace talks.
We'll have the details next. This is
Bloomberg.
Russia and Ukraine have exchanged
prisoners of war. According to Russia's
defense ministry on Telegram, the swap
of 146 prisoners from each side was
mediated by the United Arab Emirates. It
is the latest in a series of prisoner
swaps this year and comes after the US
Vice President JD Vance suggested Russia
was willing to offer concessions to end
the war in Ukraine. I'm joined now by
Bloomberg's Greg Sullivan. Uh Greg, so I
was out actually the last couple of
weeks, but was watching from afar the
full spectacle, Alaska, the red carpet,
Zalinsky flying over to the Oval Office,
he wore a suit, European leaders there,
you know, all of this took place. And
yet, has there actually been progress in
terms of getting closer towards either a
a ceasefire or an actual peace deal?
>> Well, you're right. As you said, Vice
President JD Vance did say that Russia
has made concessions. He said in terms
of security guarantees for Ukraine, but
it's not clear exactly what kind of
security guarantees Russia would agree
to. It seems to be at odds with what
they've said before. More broadly,
coming out of the summit, we have not
seen any clarity on movement toward a
settlement. And in fact, President
Zalinsky has called for meetings with
Putin, something Trump has backed. And
there seems to Russia has tamped down
expectations for such a meeting. All the
while, Russia continues its bombardment
with missile and drones on Ukraine. Uh,
and the fighting has continued. So
really, we have not seen progress
towards an end of the settlement.
>> Yeah. I mean, the Canadian Prime
Minister Mark Carney was also in Ke over
the weekend talking about security
guarantees. Any more details there? Do
we understand any further what the the
contours of these security arrangements
would look like?
>> Well, from from the US side, we heard
from Vance that uh there would be some
sort of security guarantee. In the past,
Russia has argued that it needs to be
part of guaranteeing that security,
something that Kiev has rejected. Uh
over the weekend, we also heard from
foreign minister Sergey Lavrov who said
that it could be run by the UN, which
would include China. But again, Kiev has
rejected Beijing in involvement. Uh,
more broadly, Russia has largely stuck
to maximalist demands that it does not
want foreign troops on Ukrainian soil
and it wants to minimize Ukrainian's
armies. So, really, we don't have
clarity on what the security guarantees
would be, but Zilinsky did say the US,
European leaders, and Ukraine are
hashing those details out now.
>> What about this so-called quote unquote
land swap? Do we have any further
information about the future of Donbass
and maybe what the Ukrainian side are
willing to to concede on? Well, that
would be a huge political um uh risk for
President Zilinsky. Ukrainians by and
large don't backseing more territory.
He's been pretty consistent that he
doesn't want to seed territory or
sovereignty. Yet, this has been a major
Russian demand and one that Putin seems
to be sticking to uh as he raised it in
talks with Trump and the US of course
has said that there may have to be some
sort of land swap there.
>> Yeah. And of course, loads of
speculation about whether that meeting
will take place between Putin and
Zalinski. Unclear that will happen at
this point. Bloomberg's Greg Sullivan,
thank you so much.
Now, France has issued an unusual rebuke
to US Ambassador Charles Kushner after
he accused French authorities of being
lax on anti-semitism. Kushner, who is
the father of President Trump's
son-in-law Jared Kushner, made the
accusations in a letter to President
Emmanuel Mcron. The French foreign
ministry called Charles Kushner's
comments unacceptable and say they
violated a convention forbidding foreign
diplomats from interfering in the host
country's affairs.
European Commission President Ursa
Vanderlan has defended the block's trade
deal with the US arguing that it brings
stability and avoids escalating tensions
with a key ally. Joining us now as
Bloomberg's Brussels bureau chief
Suzanne Lynch well under lying out there
um you know being forced to defend this
agreement perhaps vigorously
overdefending because there have been so
many attacks from many European
constituencies who are not happy with
the contents of the agreement.
Yes, that's right. I mean, it's nearly a
month now, approaching a month since uh
Ursula Vander Lion signed that or agreed
that deal with Donald Trump at his
Scottish golf course. Last week, we
finally saw a written confirmation,
formalized uh deal, and we got some of
those details now confirmed. So, again,
it did confirm that the European Union
has locked in a 15% tariff rate as a
ceiling. Um, but we still have some
unresolved issues. for example, higher
tariffs remain until the European
Commission uh introduces legislation
removing uh tariffs from incoming US
products. So that is not good news for
German car makers in particular who are
still facing those higher 27.5% tariffs
on their exports. But the European Union
does expect um that by the end of this
month it will have introduced uh the
required legislation and this will then
unlock uh the the lower 15% rate on
cars. But as you say there significant
that Ursa Vanderline was out publicly on
this at the weekend. She has been
relatively low-key busy with Ukraine and
other issues um since that trade deal
was announced. But the fact it was in a
German paper as well I think was
significant.
and Mario Draghi speaking uh on Friday
uh in Romania in Italy saying that
Europe has received quote a very brutal
wakeup call from Trump. Another scathing
assessment from the former ECB
president.
>> Yes, this was a speech on Friday evening
in Italy. Mario Draggy obviously a very
wellrespected figure still here in
Brussels, former European Central Bank
president and Italian prime minister. So
he had a a very negative um assessment
of the EU's stature, not just in terms
of the economy, which we're more
familiar with when it comes to Draggy's
comments, but also as a geopolitical
actor. He pointed out that Europe has
been something of a of a bystander when
it comes to big geopolitical issues like
Israel Gaza war for example and even in
Ukraine where it has a kind of a minimal
role there. the United States is leading
the efforts there whether Europe likes
it or not when it comes to Ukraine h and
moving towards some kind of a deal. So
he also said that it's a reminder that
economic power doesn't mean that you
will necessarily be this big
geopolitical power. Obviously the
European Union is a hugely important uh
trade block economic block. Um he also
reiterated some of those calls he made
last year about the need for the
European Union to increase its
competitiveness and also to complete
that capital markets union that has so
eluded European policy makers.
>> Yep. Bloomberg's Brussels bureau chief
Suzan Lynch. Thank you so much. Well,
coming up, the German economy in review.
We'll be speaking to Epho Institute
President Clemens F as the country
narrowly beats confidence estimates.
That story next. This is Bloomberg.
Good morning and welcome to the pulse.
I'm Jamaichi in Dubai and these are your
top stories. Fed chair J. Powell signals
an interest rate cut could come as soon
as next month despite division amongst
policy makers over inflation and the
jobs market. The US government takes an
almost 10% stake in Intel worth $ 8.9
billion as tech investors brace for
Nvidia earnings on Wednesday. Plus,
shares in offshore wind developer Orsed
plunged to the lowest on record after
President Trump's administration orders
construction to halt on an almost
finished offshore wind farm.
All right, let's check uh some of the
key financial markets this morning. And
we've got S&P futures dipping slightly
down 14 basis points. Though we did see
a strong session on Friday after that
dovish speech by the Fed chair Jerome
Powell catalyzing markets and also uh a
big rally in the front end of the US
yield curve. Two-year yields down 10
basis points on Friday. Today also
stabilizing as the markets are quick to
react and pricing in a more aggressive
interest rate easing cycle out of the
Fed with September about 86% priced in
now. Uh but Asian markets you can see
the handover pretty strong this morning.
Hang Sang up 1.9% the CSI index also
strong day today on reports that Chinese
authorities are looking to ease some of
those uh housing curbs. So uh that has
been a big catalyst for those Asian
markets. And then taking a look at
currencies we've got euro slipping a
little bit versus the USD. The pound as
well both of them down about 12 14 basis
points. This as we head into a key week
in terms of data. Remember, end of the
week, some key inflation data coming up,
not just in the US with PCE, but also
some key Euro zone inflation figures
dropping as well. So, keep an eye on
that uh the rest of this week. Now, onto
a top corporate story today. Uh shares
of Denmark's Orstead are slumping this
morning after the Trump administration
ordered a stop to construction on the
company's offshore wind farm off the
coast of Rhode Island. The project is
already 80% complete with all offshore
foundations and 45 out of 65 wind
turbines installed. For more, let's talk
to Bloomberg's Denmark Bureau Chief Sar
Scholan in Copenhagen. Uh first of all,
Sar, maybe just walk us through how much
of a shock this would come to Orstead.
We're just saying in the intro out to
you that pretty much most of the project
had already be completed.
Yeah, this is a hu huge shock to Ursula
and to Denmark and to the whole industry
over here. We went to bed on Friday
night knowing that Ursel was in trouble.
It had just announced a really big
rights issue and then we get this
overnight and from what I understand
it's been a lot of work going on over
the weekend trying to figure out what to
do with the rights issue, try to figure
out how to secure investors and just
really looking into the future. Can we
really trust anything coming out of the
US and can we be able to continue
finding investors for these projects?
But that being said, Orstead has still
confirmed their commitment with a
planned rights issue. We're looking at
the stock down and it's down 17%. Uh
what's that going to do to allay some of
the troubles?
>> Well, one of the big questions we were
looking at coming into this morning was
really this rights issue. They announced
it last week. It was 60 billion croners,
almost 10 mill billion dollars, and it
was a lot bigger than we had expected.
Then this comes out and it throws a huge
spanner into the works. Will they
continue with this rights issue and what
is the number going to be? Will they
need to raise more money? So this
morning they're confirming that they're
going to go ahead with the 60 billion
cronas. Uh and the question is now
what's the price going to be for that?
Like how much will one share cost when
it comes into the right issue. We don't
know that yet. But the people I talked
to they obviously say it will have to be
at a discount because why else would you
investors want to come in when they're
seeing all this risk. So, the executive
committee, they're going out to talk to
investors tomorrow. They're really going
to secure people coming in. What's
really important in the the discussions
about Ursa is 50% owned by the Danish
state. So, the Danish state has already
said that they're backing this rights
issue.
>> And what we're seeing now is there is
some some pressure and questions being
raised. Maybe the Danish state will have
to increase it stake in the company. And
that's obviously a huge political debate
at the moment. Should Denmark even
continue owning this company?
Yeah, big questions, lots of volatility
in the stock today and also lots of
questions about how this is all going to
play out or even possibly be resolved
with the Trump administration.
Bloomberg's Sarah Solan, thank you so
much for breaking it down for us. Now to
some other corporate stories making news
today. Shares in Dutch coffee company JD
Pets are surging. That's after Kurig Dr.
Pepper agreed to buy the firm for about
$18 billion. Kurig Dr. Pepper plans to
separate its coffee and beverage units
into two independent US-listed companies
once the deal is completed.
And HSBC's Swiss private bank is said to
be ending relationships with wealthy
clients from the Middle East, including
many with assets exceeding $100 million.
Sources tell Bloomberg over 1,000
clients from Saudi Arabia, Lebanon,
Qatar, and Egypt will be affected. The
move comes as the bank seeks to lower
its exposure to individuals it considers
high risk
and confidence amongst German firms
unexpectedly improved to the highest
since 2022. That's after the European
Union struck a trade deal with the US.
Clemens F the president of the EU
Institute which surveyed the index joins
us now to discuss the findings. Clemens,
really good to talk to you again. uh
just looking at uh the the summary of
what your team have put together visa v
the data yes there has been a slight
sentiment improvement but your
conclusion is the German economy's
recovery still remains weak
>> yes uh there is a slight improvement but
it's very small and what we see in the
data if we take a closer look is that uh
companies are telling us the current
business business situation is really
flat it's not changing it continues to
be weak
Uh so what's improving is the
expectation component mostly. Uh and
this has been going on for a couple of
months now. Uh so it seems that
companies are telling us yes we do
expect the German government to spend a
lot more. We have these debt financed
funds and we'll benefit from that. But
that's something for the future and
currently things are not really
improving and that's that's what we see
in the data. So this is companies are
mostly hoping for things to get better
but um if we look at order intake and
other current indicators hard facts
we're not there yet.
>> Yeah I was reading uh somewhere that
another economics research institute
that the number of insolvenies out of
German companies has hit the highest
since 2005. Are there any particular
industries that stand out to you in the
survey that are struggling more than
others?
>> Uh I mean what we see is that some of
the key industries continue to struggle.
The chemical industry, the car industry
uh we also see some positive signs. The
investment goods industry which was uh
in difficulties for some time here
things are improving but again it's
mostly the expectations component. What
they seem to hope is that a lot of
companies will start increasing
capacities to be ready when all this
government spending comes. For instance,
construction companies are increasingly
buying machinery to be ready when the
government spends more. Uh but um as I
said, it's mostly expectations. Um we
have seen difficulties in the
construction industry up to now uh
especially when it comes to building
houses and apartments. Um uh here you
know this is a sector that has been very
weak uh and continues to be so uh
despite these spending programs.
>> Yeah. Earlier on in the show we were
speaking to my colleague in Brussels
about Vander Lion coming out to to
defend the trade deal that the EU had
agreed with the US. You yourself, you
put up a a a a post on X when the deal
was agreed, saying the trade deal is a
humiliation for the EU, but it reflects
the imbalance of power. The Europeans
need to wake up, focus more on economic
strength, and reduce their military and
technological dependence on the US. So,
I take it the EPO Institute is not a fan
of this trade deal. What would you have
been looking for?
Well, uh, what I was trying to say is
it's probably the best we could get. It
really does. It's a humiliation, but it
does reflect the realities of the
imbalance, the power imbalance between
the United States and the European
Union. The European countries depend on
the US for their defense. So, there
wasn't much I think Fondeline could do.
Uh, so if you look at this from this
perspective, I think the deal could have
been worse indeed. But that doesn't
change the fact that it's a bad deal. It
just reflects the power imbalance and we
need to work on that. I think it makes
little sense to complain about this deal
or to ask for a better deal if you're
weak. Uh you uh that's reflected in what
you can negotiate.
>> Yeah. Net net though do you still think
that this trade deal and where we where
we are ending up which is around 15%
with some lack of clarity about specific
industries will that still pose a drag
to the German economy
>> well it does pose a drag because it's
worse than what we had before still uh I
think the German economy German
exporters can live with that of course
it will be important what happens to the
car industry that's one of the sectors
where there's still uncertainty will
they also get the 15%
German companies will be able to live
with that. Interestingly, what we see in
the survey today is that uncertainty
perceived by firms hasn't declined. One
would think, okay, with the trade deal,
companies will say at least the
uncertainty is gone, but companies don't
say that. And I think that reflects that
companies don't really trust this deal.
uh Donald Trump has shown repeatedly
that he may change his mind very quickly
and that's reflected in these numbers
and that also reduces the value of this
deal.
>> Yeah. What about the fiscal backdrop
situation in Germany? The chancellor has
unveiled a big fiscal stimulus that
channeled towards defense infrastructure
and then of course you have the big made
in Germany initiative with uh some key
industries and industry players
participating looking to participate and
invest. Is that going to move the needle
for the German economy?
>> I think it will move the needle probably
next year. The question is is this just
a flash in the pan? Will this be a
short-term effect or will this be
sustainable? And it will only be
sustainable if this is complemented with
structural reforms. Uh Frizz has said
that repeatedly. So he wants to uh have
his government enact a couple of
structural reforms, labor market
reforms, deregulation, uh spending cuts
to be able to cut cut taxes further uh
to really get this going. debt financed
fiscal impulse is a short-term thing and
for that to translate in a durable
effect we need these other reforms and
um incurring public debt is relatively
easy politically structural reforms are
much more difficult are much more
demanding and the question is will the
will the government deliver on that side
as well
>> yeah we had the GDP figures come out on
Friday again disappointing to the
downside with that minus a 0.3%
annualized figure for the second
quarter. In the absence of the reforms
that you speak of, is there optimism for
Germany to actually start posting
positive GDP numbers in the coming
months, coming quarters?
>> Uh I think yes, we will see more
positive GDP numbers simply because the
government will spend more. But as I
said, you know, this could be a
short-term effect. uh and uh if if there
are no no further reforms forthcoming a
lot of that will also go into prices. So
the without structural reforms the
effects will be relatively small and
they will be transitory. So it's really
key that the government comes up with
the structural reforms to complement
this fiscal expansion that then we would
have a promising package.
>> Yeah, Clement always good to talk to
you. Thank you so much for making the
time for us. Clemens, president of the
EPO Institute.
And coming up, this week's big take
looks at the rise of ESG equity funds
into the nuclear arms industry. That
story next. This is Bloomberg.
ESG labeled funds are increasingly
investing in the deadliest weapons ever
manufactured. Since Russia's full-scale
invasion of Ukraine, funds exposed to
nuclear weapons companies have soared
more than 50%. Let's talk to Tesnim
Brogger, Bloomberg's IMIA ESG managing
editor. Uh Tessim, I've got to say it's
bit a little bit surprising to hear that
these ESG funds are now shifting their
focus towards investing in nuclear
weapons. What is driving this shift?
Yes, exactly. I mean, you mentioned one
of the factors. It is largely the the
shifting geopolitical context. We had um
Russia's full-scale invasion of Ukraine
back in early 2022. We've had a pooling
of relations between Europe and the US
since Trump's return to the White House.
And now we have NATO members targeting
5% of GDP for defense spending. And all
of this uh spells an historic moment for
Europe in terms of its realment
strategy. same time um for the last
several years Europe has had it as has
an ambition to be the world's leader in
ESG investing framework created around
that um it's obviously not practical to
have these two regulatory or these two
political goals uh in opposition to each
other so what we've seen is European
leaders coming out and and speaking in
favor of having as much private capital
as possible flow into Europe's defense
industry and we've also seen
subsequently uh some of the region's
largest asset managers managers uh drop
exclusions on weapons manufacturers for
their equity portfolios. Um and many of
these weapons manufacturers are also
involved in the nuclear arms industry.
>> Yeah. I mean it sort of leads to some
existential questions about what exactly
ESG investing is. Uh you know at at its
start at its inception ESG was about
investing in industries that are both
environmentally and socially conscious.
It seems like there's been an evolution
of sorts. How is this shift towards
nuclear weapons going down within those
invested in the industry right now?
>> Yes. So, one of the people that we
interview in the story, Sasha Bezlick of
SG Impact, which is based in Japan, um
makes the very good point that ESG
investing as it's conceived in Europe is
supposed to support activities that do
no harm. Now, obviously nuclear weapons,
if they're used as intended, do
considerable harm. He also reminds us
that this is the 80th anniversary of
Hiroshima and Nagasaki, the two first
cities to experience the full force of
nuclear attacks. Um, at the same time,
we spoke with other asset managers who
point to the idea that um, if ESG can't
be deployed to defend European democracy
um, and European values, then the
question needs to be asked, what is uh,
the point of ESG?
Yeah. Yeah. That's a good place to leave
it. Uh Tesnim Broer, Bloomberg's email
managing editor for ESG. And if you're
interested in the full story, it is up
on the terminal, the big take today.
Now, ECB governor Yoim Nagel has stated
that the European Central Bank would
need a significant shift in economic
outlook to lower borrowing costs. Again,
the governor and president of the Bundes
Bank spoke to us on Euro zone policies
at Jackson Hall. And here is what he had
to say.
Germany has the capability to adapt to
different situation. I think the world
is changing. We are not happy with with
the current situation. So the trade
conflict and everything is definitely
not helpful. But at the end we showed in
the past our let me say strength to come
back and have a strong
>> Trump. Can you and France and the other
leaders of Europe reaffirm that growth
that you that spirit of growth that you
had? I guess we do something in the
moment. We're going in the direction
that you alluded to. We have structural
reforms. We will do a lot of spending in
in new investments over the next year.
So I think we do a lot of things in the
moment and I can guarantee you that
there is a strong coalition on the
European side. Germany, France, this
axis is working again and so I'm really
confident that we can achieve a lot.
Given the fact that you could see some
sort of mild recession in Germany, are
you open to cutting interest rates
further after getting to 2% which is
sort of balanced, is it appropriate to
become a little bit more accommodative?
>> Maybe a mild recession for this year.
Yes, this is true. But maybe we have
also to think about that next year
economic growth there's a high
probability that economic growth is
coming back. When it comes to interest
rate policy, I believe that we are in a
kind of equilibrium. We have a 2% we are
on our target. This is good news.
Interest rates are at 2%. So this is an
equilibrium. So I do not see so many
arguments that brings me to the point
that we should do that that that we
should do more here. So it it's
something. So I believe that u inflation
is not the point anymore.
>> Inflation is not the point anymore that
now it's potentially
>> we are on our target.
>> But this is the issue. If inflation is
not the issue, at what point do you see
risk of disinflation given the fact that
the euro has been strengthening, right?
That's importing disinflation. You have
the potential for uh Chinese uh goods to
be coming into the European region.
Cheap Chinese cars. That's sort of the
cliche that could lower prices. At what
point are you going to be fighting
disinflation again?
>> Well, it's definitely not time for
complacency. So, taking for example um
service inflation is still very high.
It's above 3%. So we have to we have to
have this wait and see attitude. So this
meeting to meeting approach is I guess
the best way to do monetary policy in
the euro system. When it comes to our
September meeting we will get new data
new new projections and then we will
see. But at the moment if I take all the
numbers that I know PMI numbers I think
not giving me enough arguments to to
change the to change the price.
>> High is the bar to cut. I think the bar
is high and so it needs a lot to
convince me to change monetary policy.
>> Well, that was ECB governor and bunes
bank president Yokohim Nagel speaking to
Bloomberg's Tankin and Lisa Abramovich.
>> And central bankers at the Fed symposium
in Jackson Hole also expressed support
for J. Powell amid President Trump's
relentless attacks on him over interest
rates. Po Powell got a standing ovation
before his speech with officials
stressing in media interviews the
importance of central bank independence.
>> You know in my IMF days I have seen
close hand what happens when a central
bank stops being independent or when its
independence is under threat. It becomes
dysfunctional. it it starts doing things
that it shouldn't do and and the the the
next step is is um is yeah it is
disruption it is instability if not
worse so I think that this is I think
it's it should not be debated
>> absolutely critical the independence of
the Fed that does not mean the Fed is
not held accountable I think this is
important independence doesn't mean you
get to do whatever you want to do there
is still an accountability there's an
accountability to Congress and there's
an accountability to the markets right?
There's an accountability to the
American people more generally. So I I
think you can't lose sight of that.
>> And staying with Jackson Hole, Powell
sent the US bond market up on Friday by
telegraphing the Federal Reserve could
resume reducing interest rates as soon
as next month.
>> The stability of the unemployment rate
us to proceed carefully as we consider
changes to our policy stance.
Nonetheless, with policy in restrictive
territory, the baseline outlook and the
shifting balance of risks may warrant
adjusting our policy stance.
>> Let's bring in Ven Ram, cross asset
strategist for Bloomberg's markets live
team. Well, we got quite the reaction in
markets on Friday across all assets by
the way. Uh let's just start with
interest rates. Uh big rally in twoear
yields. You rallied about 10 basis
points. The market is 85% priced for a
cut in September, about two-ish until
the end of this year, and about four by
mid June. Earlier on in the show, we had
a guest say that the market is now
priced for perfection. Do you agree?
>> Morning, Jim. Good to have you back. I
don't think that the markets are priced
for perfection. They're priced for
perfection for 2025. What Powell said
unequivocally was that they're going to
cut rates in the coming months. And we
had a very u doubish July NFP print. And
if that continues in August, that will
cement rate cut for September and
possibly one more in December. But I
think where the markets are getting it
wrong is for the 2026 pricing. I think
there is a a chance there is a very good
chance as you know that the next Fed
governor whoever Fed chair whoever
they're going to be is going to be more
doubbish and therefore the markets are
thinking 80 basis points of rate cuts in
2026. I think that's underpricing how
far the Fed can go. We even saw a Fed's
bull out saying that you know 100 basis
points of rate cuts are possible over
the next gradually. So I think that the
markets
>> Okay. So assuming that does happen and
the next Fed chair is super doubbish and
starts cutting interest rates. What
happens to the inflation side of the
mandate and does that mean but that does
that mean necessarily that you are in
for further curve steepening in the US
simply because the market will assume
that the focus will be on the front end
and less on the long end?
>> Absolutely. I think that you've got the
danger the risk that you know the
inflation expectations will be
unanchored and that will mean that will
prevent a bid for the long-end
treasuries and at the same time the Fed
is assuming that the Fed is going to be
cutting cutting rates. I think as you
mentioned that's going to be a steeper
curve. We are about 50 basis points on
the two stances and I think that that
has the potential to go back to 7500
basis points depending on who we get as
the Fed chair and what they actually
deliver. Ven, do you worry uh about all
of the conversations about central bank
independence? And it was notable that
somebody like Christine Lagarde had to
say in her interview that you know look
at what happens if governments start
intervening and meddling with central
bank decision-m on Friday. President
Trump went one step further. He's saying
that Lisa Cook has to resign now. Is is
there a trade? Is there a way that this
is being showed up in in the yield curve
here? Well, I think that you know this
is going to as we mentioned this is
going to prevent a bit for the long end
and that that that is going to continue.
The dollar meanwhile is continuing to
trade at a discount albeit the margin of
discount is narrowed. So there is a fair
bit of uh hedging going around with the
dollar and with long treasuries and I
think that is going to continue but the
markets are seem to seem to be thinking
that look I mean this is an ongoing saga
as opposed to a completely sell dollar
theme at the moment.
>> Yeah. Yeah. Uh well something we're
going to have to keep an eye out on. Ven
Ram cross asset strategist for Bloomberg
Markets live.
And that wraps up this edition of the
pulse. Up next, Bloomberg Brief. This is
Bloomberg. Stay with us.