Good morning. This is Bloomberg Daybreak
Europe. I'm Tom McKenzie in London.
Happy Monday. These are the stories that
set your agenda. Asian stocks rally
after Fed chair JPAL signals an interest
rate cut could come as soon as next
month despite division among policy
makers over inflation and the jobs
market. Intel investment. The US
government takes a near 10% stake worth
$8.9 billion.
This as tech investors brace for Nvidia
earnings on Wednesday. Plus, Ukraine and
Russia exchange prisoners of war as
truce talks appear to stall.
[Music]
Well, let's get to the markets then.
Happy Monday, a bank holiday of course
here in the UK, but it's the pivot of
course from JPAL that remains front and
center for these markets. Now, pricing
in around an 84% chance of a cut in
September despite of course the question
marks that continue over the health of
that labor market in the US and the
trajectory of course of inflation. and
the uncertainty being underscored by the
Fed chair even as he opened the door for
a September cut, the first of course of
this year if indeed that comes through.
European futures then pointed low by 310
of a percent after a strong rally on
Wall Street with a small caps powering
to gains of almost 4% gains of around
1.5% on the S&P 500. The Nasdaq 100
closing up by close to 2% today. S&P
futures pointing a little lower down by
a 10th of NASDAQ 100 futures off by 16
points. Let's flip the board and have a
look cross asset. You had money of
course moving into the front end of the
yield curve on the back of that PAL
speech. Yields falling around 10 basis
points on the 2-year. Today the 10-year
is yielding at 426. Yield just up around
one basis point. A little bit of selling
pressure pairing some of the gains but
certainly not all of them that came
through on Friday. Today in the session
yields up around one basis point across
the curve. Euro dollar at 117. You're
seeing a little bit of strength for the
dollar in the session today. The single
currency then down a tenth of a percent.
Break crude trading at $67 barrel and
gold currently down 210 of a percent. So
Asian equities gaining the most in
nearly two weeks taking the bat on then
from that strength coming through from
Wall Street as traders increase bets
that the Fed will lower rates next
month. We're joined now by Paul Dobson,
Bloomberg's Asia Markets executive
editor. Paul, walk us through the Asian
market reaction then to what we've been
hearing from JPAL.
>> Yeah, good morning Tom. I I think it's
pretty much uh by the book as you would
expect. On on Friday in the US, we saw
stocks up. We saw higher uh sorry, we
saw lower Treasury yields and we saw a
weaker dollar as people priced in the
idea that the Fed would be moving
sooner. Uh and the weaker dollar is very
supportive for global assets and that
followed through with Asian currencies
uh gaining and Asian stocks also pushing
higher pretty much across the board. Uh
the idea being uh not only um will will
Fed easing boost global demand, but it
will also give Asian central banks a
little bit of leeway, a little bit of
breathing room, you know, kind of uh in
order to cut their own interest rates a
little bit further as well, which would
be supportive for the economy and lead
to to more inflows. And if you look at
the outlook for uh emerging markets
globally relative to US markets, the
prognosis is for bigger gains overall in
emerging markets because you have that
sort of outperformance when the US
economy is is humming along nicely and
so and a little bit of uplift as well
from the currency. So people looking at
something like 15% gains I think it is
for emerging markets over the next the
next one year relative to 10% for
developed markets.
Okay, 15% gains for emerging markets
over the next year versus 10% for
developed markets. In focus right now is
the strength of course and the question
marks about the resilience of of the
Chinese equity rally and and the and the
boom is there and now question marks
Paul as to whether or not we're seeing
something of a bubble when it comes to
Chinese equities given the fundamentals
of that economy.
So in the background, one of the things
that the Fed is thinking about quite
carefully are uh Trump's tariff regime.
And of course, China is one of the
places where that's going to uh hit the
most. And so we saw a very positive
first half of the year for China uh and
for its economy because people were
frontloading their exports to try to get
ahead of the tariffs. Um and yet we're
still seeing plentiful uh demand and
exports still humming along relatively
soundly at the moment. Yet all of those
economic signals that had been positive
in the first half of the year are
starting to turn a little bit more
negative for China into the second half
of the year. We had a bunch of misses in
key data over the last week or two as
well. And so people are wondering, you
know, if that's the case, if the economy
is slowing, then why is it that equities
are continuing to rise? Another update
today um and and pretty hefty volumes as
well. Um to add into that and I think
that there's a couple of things going on
there. One, there's plenty of liquidity
in the market. uh the Chinese government
doesn't want to crash the bond market by
accident. It wants to ensure that
there's enough liquidity out there to
take down bonds, but some of that is
seeping and finding its way into the
stock market as well. And two, there
isn't a great deal else out there for
people to invest. They sitting on flush
with cash. You know, property still
looks like a a dismal bet uh if you're a
Chinese investor. Um and you're looking
for alternatives. You're not getting
much from bank deposits. You're not
getting much from fixed income. So
people happy to put a little bit more to
work in the equities market in any case.
And so what we're seeing is this slow
and steady run higher, you know, not uh
the kind of tear away gains that we're
used to in China that would really make
people worried about a bubble. And yet
it's pushing those valuations to quite
stretched looking levels that would need
economic growth to follow through at
some point uh in order to justify where
we're starting to trade now.
>> Okay. Stretch valuations over in China
as that equity rally continues. Paul
Dobson, our Asia Markets executive
editor on some of the Asian market
reaction as well to the Fed and what we
heard from JPAL on Friday. Paul, thank
you. Let's get more details on that
story. Then the Federal Reserve's
Jackson Hole Symposium of course was a
tense affair with chair drone pal
signaling an interest rate cut as soon
as the next policy meeting in September.
Despite clear divisions among policy
makers, the chairman noted the economy
has handed Fetch officials a quote
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. 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, discuss that challenging
situation. I'm joined now by Mark
Crownfield from Bloomberg's Markets Live
team. Mark JPAL then certainly seemingly
validating the market bets on September.
Then the question is what next? And the
challenges and the lack of clarity
seemingly for this Fed on key questions
around inflation and the labor market.
Is this a J pal who was at least laying
the foundations maybe for a more
challenging road ahead for this Fed?
>> He may well be. Um, as far as investors
are concerned, they're very much more
focused on on the very short term. So
then the message that people heard from
Friday was that it's going to be very
difficult now to dial back expectations
of a rate cut not coming in September.
So it's pretty much signed and sealed as
far as investors are concerned,
particularly those in the equity and and
the bond space. Jordan Pal's still got a
couple of weeks he can persuade. There's
there's not unity within the Fed. There
are different voices. People have
different views on when the timing is
right. He's still got a couple of weeks
where he can go ahead and smooth that
and get to a consensus decision by
September. Beyond that, it's a it's a
different story. But for now, the
financial markets are not really too
concerned what happens after that time.
They're really much more interested in
the fact that finally the Federal
Reserve have put themselves in a
position where they're on the same page
as where traders have been for some
time. Traders have been looking for a a
rate cut for several weeks. It looks as
though everybody's aligned now. That
gives a nice backdrop to financial
markets at least in the short term. And
that's what you're seeing playing out
exactly as Paul Dobson was describing
there earlier. No doubt there will be a
few data points along the way. There'll
be some speed bumps, but it would really
need to have something shocking coming
out of the inflation data that we're
going to see before the next Fed meeting
for them to change their mind. It's
really what happens beyond September is
really a discussion for later down the
road. For now, investors are just
relieved that they can look forward
probably to a couple of weeks of some
pretty steady trading. We've still got
Nvidia earnings to get through. That's a
potential speed bump. But if you think
of how many times they've beaten
expectations, people are probably fairly
relaxed about that as well.
>> Yeah, Nvidia may be the risk event of
the week. Now, as we look ahead to to to
Wednesday, of course, we heard Mark from
from a number of Fed officials and and
other central bank heads as well at
Jackson Hole as as we do on an annual
basis. And we also heard from Japan's
the BOJ's await and a cautious tone
coming through from the central bank
head o over in Japan.
Well, there there you have the outlier.
Most of the world is trying to move
towards slightly lower interest rates.
Their inflation rates have been coming
down. The Bank of Japan is in a
completely different position. Inflation
is very sticky in Japan. It hit 3% again
in the latest readings for the Japanese
CPI. And Governor WA has been looking
for a window to move the next 25 basis
points onto the table. Japanese interest
rates, the official one is only 0.5%.
He probably would like to move it closer
to neutral, which is around 1%. It looks
as though he's been given that window.
Scott Besson, the Treasury Secretary,
has criticized the Bank of Japan for
being behind the curve. He's just spoken
at Jackson Hull and reminded everybody
that wage inflation in Japan is still
high. It's a tight labor market. Is it
like it's likely to get even hotter in
the months ahead? That appears to be his
way of telling the market, "Yes, we're
getting closer to a rate hike. I've been
given cover by my my foreign
counterparts." And it looks as though
they're trying to push the market
pricing for the October meeting really
to to fully confirm it before we get
there. That's what central banks tend to
prefer. They like the market to fully
price in a a cut or a hike. In this
case, you still got some time. at the
moment is a coin toss, but you can see
JTB yields are edging higher and the
market is getting in tune with the fact
the Bank of Japan have got one more hike
to do and is probably coming not the
next meeting, but probably the one after
that.
>> Okay, the BJ laying the groundwork
potentially for another hike or at least
the last one potentially of of this
year. Mark Cranfield from Bloomberg
Markets live team of course on what
we've been hearing from JPAL and other
central bank governors at Jackson Hole.
how that ties in, of course, to monetary
policy globally. Meanwhile, US President
Donald Trump on the tech front sealing a
deal that has given the US government a
nearly 10% stake in Intel. The move
comes as the US administration seeks to
reinvigorate the company and boost
domestic chip manufacturing to discuss
and get the details. Let's bring in
Bloomberg's Annabelle Dr, who of course
covers technology for us out of Asia.
Annabelle, what do we know? We we've
been the team have been reporting around
this deal. Now it's confirmed. What are
the specifics of this deal?
>> Yeah, I think actually the specifics
sort of match up to a lot of what we had
already been reporting. But just to to
sort of go through some of the big
contours or broad contours, uh firstly
in terms of of the size here, you said
yeah just under 10%. So the US
government is buying up to to 433
million shares of common stock. Uh the
the deal itself in terms of the monetary
value, it's worth around 11.1 billion.
That is the funding that the company was
slated to receive. Some of it had
already received but under the US Chips
and Science Act. So that's sort of what
we'd already been reporting what we
knew. Uh what's different now the
additional details is that we understand
the government is going to be a passive
owner. Uh which means they're going to
have no board seat. They're going to
have no other governance or information
rights. In terms of the reaction of the
companies to this, well, Intel is saying
it's very grateful for the support.
President Trump is has been on social
media, but also talking about how this
is a great step for Intel. It's also a
great step for America. And what's also
important to note is is just the
animality of this because it's very
unusual for for even partial government
ownership of a US firm by the US
government. But it does really
underscore the significance of the
overall project because we know of
course the Trump administration is very
focused on on building up the US's
capabilities in semiconductor
manufacturing.
>> Yeah, indeed. And a reminder that this
is a more interventionist Trump
administration with stakes and steel and
rare earths and of course that 15% stake
or take at least from sales of Nvidia
and AMD into the Chinese market. Talking
of Nvidia Annabelle, I know you're going
to be watching this one very very
closely as well this week. The earnings
drop late Wednesday. How much
expectation is is built in to the Nvidia
story at this point?
>> I think there's a lot. I mean, I'm going
to be watching it, but I'm sure there's
going to be many, many people that are
going to be watching this very, very
closely from a lot of different angles
as well. Nvidia as a company, I mean, it
makes up 3% of global market cap. It is
the heaviest waiting on the S&P 500. You
can see there around 8.8%
uh rather eight rather 7.9, but just
under 8%. But the point is I mean it's
very very significant for for for
exactly how global markets perform from
here because we've already seen tech
stocks that have been under pressure and
the concern has been once again that
there's maybe overspending on on AI or
that the technology the rally maybe
doesn't have legs. So we really need to
understand from Nvidia what's the
outlook here and that's what we're going
to get of course from the numbers really
that big focus on the earnings calls and
what's really signaled from the company
in terms of the actual numbers. I mean
some of the expectations is around a 50%
increase in revenue on the year adjusted
earnings per share of $11 and options
prices as well options traders pricing
in some pretty big fluctuations 6% in
either direction is the prediction right
now uh as the other big question of
course is what does Nvidia say about the
Chinese market you mentioned there of
course these restrictions we've seen on
H20 they will reverse or the Trump
administration reversed the ban but last
week the reporting was that China had
had asked companies to to halt purchase
of H20. Now, Nvidia possibly has halt to
production of H20 as well. So, exactly
what they say about the mainland market
will be of of interest to many, I'd say.
>> Okay, Annabelle Drus, thank you very
much indeed. John, Hong Kong with a
really great setup of what to expect
from those invidia earnings dropping, of
course, late Wednesday. Annabelle, thank
you. Here's what else to think about
then through this week. Nvidia, of
course, is part of that story. But
before we get there, later today,
Germany's EPO business climate data
comes through. We've seen a bit of a
turnaround in terms of some of the data
when it comes to Germany, in terms of
manufacturing uh PMIs. So, we'll see if
the sentiment survey confirms that when
it comes to the business community of
Germany. We'll break that down for you,
of course, later today. On Wednesday, it
is the Nvidia earnings story that
Annabelle has just set up for you. And
on Friday, it's European CPI. Maybe the
concerns in Europe are around deflation.
Maybe that's the story in terms of the
trajectory of prices, particularly when
you look at the strength of the euro and
what that could do for a deflationary
impulse. We'll see of course with the
data crossing towards the end of the
week on Friday. Talking of inflation,
you do not of course have at target
inflation in the US despite that JP
power is signaling that September cut
that. But the USPCE data on Friday will
build on the inflation story as there is
a sense that some of those tariffs are
starting to feed in at least parts of
the inflation basket in the US. We'll
get more detail on that on Friday.
Coming up, tensions with North Korea are
likely to be a feature of talks between
Donald Trump and his South Korean
counterpart today. We're going to have
more on that just ahead. This is
Bloomberg.
>> Welcome back to Bloomberg Daybreak
Europe. Now, South Korea's President Lee
Jay Mung is set to meet with Donald
Trump in Washington later today. Ahead
of his trip, Lee met with Japan's prime
minister as the leaders seek stronger
cooperation with the US. Let's get more
from Bloomberg's East Asia government
editor, John Herskovich. And John, South
Korean presidents traditionally have
gone to the US as their first foreign
visit. That isn't the case wi with Lee.
He's going to Tokyo, has been to Tokyo
first. Of course, traditionally and
historically, South Korea in recent
history and Japan have have been at
loggerheads. And there's there's that
historical tension. And none nonetheless
there was this visit. Talk to us about
how the dynamics between Tokyo and Seoul
are tying in to what to expect from this
visit.
>> Uh sure. I mean the trip was
unprecedented for the a new South Korean
president to make his first overseas
trip to to Japan. This really hasn't
happened since the advent of full
democracy there. But for Japan and South
Korea, they're kind of in a similar
predicament when it comes to the United
States. They're they both have struck
deals with the US for trade with the 15%
tariffs. They both agreed to some sort
of fund in South Korea. I think it's 350
billion. Uh Japan 550 billion. Um which
is kind of nebulous. The US sees it as
one thing. Japan and South Korea see it
more as loan guarantees, not actual
money that's going to go in. And
Japanese Prime Minister Ishiba has met
Trump. Um, so this the meeting with uh
EJ Young and Ishiba was a way to
strengthen the ties between the two to
help EJ Young get some idea of what he's
stepping into when he goes to the White
House. Rather unpredictable situation
and things have changed a lot over the
past year. One year ago, there were
three different leaders for each of
these countries. The cooperation among
Japan, the US, and South Korea was at
all-time highs. The three were
cooperating in security matters. Their
militaries were doing drills to hunt for
submarines. They were sharing real-time
data on North Korean missile launches.
And now that the leadership has changed,
the question of this cooperation is in
question uh whether this will continue.
So Tokyo first onto the US and EJong is
soon to meet with President Donald
Trump.
>> Okay. Bloomberg's East Asia government
editor John Herskovich on that meeting
expected of course between the South
Korean leader and his US counterpart
later today at the White House. Coming
up, calling for cuts. Former St. Louis
Fed president and a contender to be the
next Fed chair James Bullard backs 100
basis points of cuts this year. More
from our interview next. This is
Welcome back. Former St. Louis Fed
President James Bullard says he thinks
there is a case for 100 basis points of
rate cuts before next year. Bullard is a
contender to succeed Jay Pal as Fed
chair and spoke to us after Pal's
comments at Jackson Hole.
He used the the uh speech to uh solidify
expectations for 25 basis points in
September. Uh I was expecting that
anyway. Markets were expecting that. Um
he leaned into the most recent labor
market report which was uh very soft. Uh
and so I think that's uh that's a done
deal. um he didn't say too much about
beyond that um uh what you want to do at
the October meeting or the December
meeting. I have said 100 basis points
you know going into 2026. So, I think
you could uh adjust as you go forward uh
and and eventually get a full 100 basis
points, but I would go slowly in order
to watch the data. And then on the
framework review, I'm sure uh much
earlier in the year, they they had
targeted that uh they would have the
framework discussion and that they would
use the Jackson Hole speech to talk
about changes to the framework. I did I
thought those were thoughtful uh and
they're well presented in this in this
speech and they're about what uh many
have speculated on. Uh so I think they
did about as much as I can on the
framework side.
>> Jim Buller, Tom Kenan, good morning to
you. I definitely consider this my
conversation of the day. You served a
lengthy term at the St. Louis Fed. You
have lived the decline of a greater
economy decades and decades ago in the
effort to provide for a resurgent St.
Louis. As a next chairman of the Fed,
whoever that may be, do they have to
manage for two American economies, a
technologydriven
exceptional economy and another, to use
a cliche, America flat on their back?
How would a chairman execute those two
Americas? just everything all the way
around.
>> Yeah, I think income and wealth
distribution have become more uh salient
topics for the Fed. Uh it's not that
clear how much the Fed uh can really do.
Uh providing interest rate policy for
the whole economy. Uh if you change the
rate structure that affects everyone,
not just one particular group that you
might be uh targeting. So I think uh
that's been something we've had to
wrestle with and I I've actually done
research on it myself to try to
understand it better uh from my point of
view. So uh I think this has been a been
a theme for a while and that'll be an
important theme in macroeconomics uh
going forward.
>> Former St. Louis Fed President James
Bard speaking to Bloomberg's Tom Keegan.
In other news, 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 Emanuel M. The
French Foreign Ministry called Charles
Kushner's comments unacceptable and say
they violate a convention forbidding
foreign diplomats from interfering in
the host country's affairs.
Coming up, three and a half years on
from Russia's invasion of Ukraine, are
we any closer to a peace deal? We
discuss the impacts of the war with
Peter Dickinson, editor of the Atlantic
Council's Ukraine Alert. That analysis
is coming up. This is Bloomberg.
These are the stories that set your
agenda. Asian stocks rally after Fed
chair J Pal signals an interest rate cut
could come as soon as next month despite
division among policy makers over
inflation and the jobs market. Intel
investment. The US government takes a
near 10% stake worth 8.9
billion. This as tech investors brace
for Nvidia earnings on Wednesday. Plus,
Ukraine and Russia exchange prisoners of
war as truce talks appear to stall.
Let's get to the markets then after that
rally of course across US equities by
the end of the close on Friday on the
back of JPAL's pivot towards a more
dovish stance and validating market bets
on a September cut. European stocks
futures a little lower down 3/10en of a
percent after notching fresh record
highs by the end of the week last week.
S&P futures down just a tenth of a
percent. a little bit of profit taking
maybe after the rally that we saw on
Friday. NASDAQ 100 futures pointing low
by 16 points. That index of course will
be impacted likely by the earnings from
Nvidia on Wednesday. Let's flip the
board and have a look cross asset. Yeah,
that strong rally at the front end of
the curve on Friday. Today pairing some
of that with yields up around one basis
point across the curve. The 2-year uh is
currently seeing yields up one basis
point. 10-year also uh in similar
territory at 426 closing in on 427 for
the benchmark 10-year. Euro dollar at
117. Brent oil prices just marginally
softer and gold down 210 of a percent at
around $3,363
per troy ounce. So Jerome Pal sending
the US bond market up on Friday, yields
down by telegraphing the Federal Reserve
could resume reducing interest rates as
soon as September.
The stability of the unemployment rate
and other labor market measures allows
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 our markets live team.
Then your reaction then to the response
from J Pal, the adjustments in terms of
risks when we have inflation well above
target for the Federal Reserve and
unemployment at 4.2%.
>> Morning Tom. I think that you know the
unequivocal read from Powus was that he
was doubbish. I mean the last year at
the Jackson Hole, he set up the markets
to expect rate cuts and we got two big
rate cuts uh last year and I think he's
uh he's setting up the markets for the
same kind of uh setup here and I think
that you know we should expect two rate
cuts in the remainder of the year one in
September probably the next one in
December after that. Now I do realize
that inflation is still above target but
I think the the question here is how
restrictive the Fed policy is visa visa
v inflation visa v the unemployment rate
and I think that there is a bit of
wiggle room here for the fed to kind of
go take policy rates lower if you take
realized inflation for this year core
pce for this year it's about 275 and
that means that the fed has room if you
costs the tailor rule rate. It suggests
that the Fed has room to go to 375 in
the short term and I think that's what
they are sitting that's what Powell was
suggesting and that's what I think the
market should prepare for.
How much fenra how much then do you
think is currently priced in to the US
bond market. So are we pricing in
traders are clearly betting on two to
your point by the end of this year. How
much more adjustment do you expect to
see across the curve?
I think as you say Tom I think the
markets are right in pricing in two for
this year but it's a question of how
much that they're pricing in for 2026
that is at stake here and I think that
the markets are kind of mispricing how
far the Fed could go. We have heard from
Fed candidates likely Fed candidates
including James Bullard who is one of
he's been pre when he was in the Fed he
was one of the precient Fed voices I
used to always listen to and he's saying
that even 100 basis points by the end of
this year is possible. I I think that
2025 we'll see two rate cuts but I think
in 2026 that the markets are pricing in
80 basis points and I think that the
markets are underpricing the risk as to
how far the Fed could go. Keep in mind
that we are going to get a new Fed chair
who's likely to be very doubbish.
>> Yeah, a reworked Federal Reserve of
course possibly uh more in Trump's image
and what that could mean for policy in
2026. Ven Ram, thank you very much
indeed. Cross asset strategist for
Bloomberg Markets live staying on
central banks but with the focus
switching to the ECB where the governor
Yokim Nagle 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 Bundesbank spoke to us
on Eurozone policies at Jackson Hole.
Here's 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.
Uh 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 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 bar.
>> How 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.
>> ECB governor and Bundesbank President
Yokam Nagle speaking to Bloomberg's Tom
Keane and Lisa Abramovich. Now to
geopolitics, Russia and Ukraine have
exchanged prisoners of war. That's
according to Russia's defense ministry
on Telegram. And the swap of 146
prisoners from each side was mediated by
the UAE, the United Arab Emirates. It's
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 think the Russians have made
significant concessions to President
Trump for the first time in three and a
half years of this conflict. They've
actually been willing to be flexible on
some of their core demands. They've
talked about what would be necessary to
end the war. Of course, they haven't
been completely there yet or the war
would be over, but we're engaging in
this diplomatic process in good faith.
We are trying to negotiate as much as we
can with both the Russians and the
Ukrainians to find a middle ground to
stop the killing.
>> Well, joining me now is Peter Dickinson,
editor of the Ukraine Alert blog at the
Atlantic Council. someone who of course
has monitored this conflict from from
day one. Peter, is is the vice president
of the United States correct in your
assessment? Do you expect Moscow, do you
expect Russia to make significant
concessions when it comes to the
question of solving and ending the
conflict in Ukraine?
>> Good morning, Tom. Um, well, I'm not
privy to what's been said behind closed
doors, but what we see in public would
certainly not suggest that the Russians
are prepared to make any concessions. Uh
if we look at just specifically what was
what what was said and what what came
out of the recent summit meeting in
Alaska, uh President Trump came out of
that saying that he got uh he got
concessions from the Russians in terms
of an agreement to hold a bilateral
meeting between presidents and Zalinski
and also the Russian acceptance of the
need for security guarantees which which
he framed as as NATO style or certainly
American officials framed as NATO style
security guarantees.
Within days we had from Moscow basically
denials of this saying that they were
nowhere near ready to meet with Zilinski
and frankly speaking was setting terms
that suggested they would never want to
meet with Zilinski and also also
insisting that uh no western troops be
involved at all in security guarantees
for Ukraine and on the contrary that
Russia be one of the guarantors of
Ukraine security with a veto over any
international guarantees for Ukraine's
future security which is obviously
fairly absurd. So, you know, this does
not bode well. It doesn't suggest that
they're ready to make concessions. It's
not clear exactly what um Vice President
JD Vance has in mind, but certainly from
from from from the perspective of Kim,
it's it's certainly it does not look
like the Russians are preparing to make
concessions.
>> You you outline very very clearly,
Peter, that that divergent dynamic in
terms of the interpretation and the
messaging that we're getting from both
Moscow and Washington. How do you see
that playing out then? Is this is this a
Trump administration that at some point
will lose its patience?
>> Well, that's the expectation and the
assumption is that at some point that
will have to happen that the pressure
will grow on Trump specifically from his
own base, his own, you know, the
domestic audiences in America, his own
colleagues within the Republican party,
um the foreign policy establishment and
also from European allies. You know
there there there is a sense I think in
in Europe that that Trump has to go
through this process and he has to
understand for himself that essentially
Putin is just stringing him along and
does not have any intention of stopping
the war at this stage until more more
pressure is applied to Putin and to the
Russians. At this point, we're seeing a
a pattern emerging that's been actually
going on fairly clearly for the last six
months of of the Russians engaging in in
in displays of of diplomacy of calling
for new different formats of
negotiation. We had the Americans and
the the Russians meeting in Saudi Arabia
first of all. Then we had Putin
proposing uh for direct talks with
Ukraine and Russia uh in Istanbul. And
now of course most recently we have the
Trump Putin summit. Nothing has come out
of any of them.
What would constitute because the
president of Ukraine was talking about
this again over the weekend. What would
constitute credible security guarantees
for Ukraine?
>> Well, that that is probably the actual
crux of the whole matter. It's a very
good question and uh you know some
people here in Kiev say actually you
know we shouldn't even be talking about
security guarantees. We should be
talking about partnerships because the
word guarantee is perhaps misleading.
you know, a guarantee suggests that the
West is ready to fight for Ukraine, to
defend Ukraine against Russia. And
frankly, nobody here believes that. And
I think they're right not to. I think
it's unlikely. Everything we've seen
suggest otherwise. So, I think we're
really talking about uh a long-term
security scenario in which the West
provides maybe maybe the Western
emphasis would be on some sort of an air
air element, an air patrol, an air
shield over Ukraine. uh and at the same
time focusing very much on strengthening
Ukraine's own military capabilities to
make sure that the Ukrainian army has a
very locked in long-term support that it
has the technological capabilities uh
the industrial capabilities the
financial capabilities uh to prevent to
to present a serious deterrent to the
Russians that includes defending Ukraine
itself and also the ability to strike
back uh powerfully against Russia inside
Russia with longterm with long range
excuse long range strike potential. So
missiles in other West Coast, cruise
missiles, ballistic missiles.
>> Uh Peter, you're living and breathing in
this. You're in Ukraine. You're in Kev
joining us this morning. What is the
current state of the Ukrainian economy?
How much resilience or lack thereof is
there in that economy right now?
>> Well, resilience is the word and and the
resilience that we've seen over the last
three and a half years has been
absolutely remarkable. I it is literally
incredible. It's become something of a
cliche to talk about Ukrainian
resilience, but nevertheless, it is the
case. I mean, the economy took a massive
hit. It essentially collapsed in the
first year. Uh GDP dropped by around
28%. Uh but it's grown over the past two
years and it's on track to grow again
this year. Not not huge growth, but it's
growing. I think it was about 5% in
2023, then around three and a half% last
year. It's on track for around 3% growth
this year. So, you know, there's there's
there is a there is a remarkable amount
of activity. businesses have become have
proven very very adaptable. They've
managed to rework around huge like
logistical headaches for example. Uh but
there are massive underlying problems
and we're talking about a country that
suffered um the displacement or loss of
around 25% of its population. 20% of the
country is under occupation. So there
are huge huge challenges and and and the
country you know the economy however
resilient it is is still very much at
the moment dependent on external
financing to make sure it keeps ticking
over. If that were to become vulnerable,
if there were to be a significant
decrease in the financial support that
Ukraine's getting from its western
partners, that would also have a major
major negative impact and perhaps also
spark a new crash. Uh but for now, it
it's it's remarkably strong and they are
sort of pushing along and struggling
along.
>> Okay, Peter Dickinson, Smart Insights,
Ukraine alert editor at the Atlantic
Council joining us from Keefe. Peter, we
appreciate it. Coming up, wind farms to
weapons of mass destruction. This week's
big take looks at the rise of ESG equity
funds into the nuclear arms industry.
That story is next. This is Bloomberg.
Welcome back. 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%.
For the analysis and for the reasons,
the rationale and what is underpinning
in this, let's bring in Taznine Bger,
Bloomberg's Amiia ESG, managing editor,
who's been doing a deep dive with the
team on this. Tasnine, what is what is
then driving this this this pretty kind
of counter counterintuitive or at least
counter consensus shift uh that that
we're starting to see into ESG or ESG
funds into some parts of this of this
nuclear weapons industry.
>> Good morning, Tom. Well, you mentioned
one of them yourself, which is obviously
the um the full-scale invasion by Russia
into Ukraine in February 2022. Um that
was obviously a major jolt. We've had a
cooling in relations between the US and
Europe and then obviously NATO has now
set um or agreed on a 5% of GDP uh
defense spending target. Um now all of
this together has has left Europe in
sort of an historic moment of of
rearmament. At the same time for several
years now Europe has been uh one the
world's most ambitious region when it
comes to ESG investing um regulations
and its framework around that. Um but
obviously to have uh one framework
fundamentally in opposition to the other
namely ESG and and rearmament is just
not practical. So we've had uh ESG we've
had European leaders rather um and some
of the world's uh some of Europe's
biggest asset managers come out and say
that now's the time to drop exclusion
policies on weapons manufacturers. And
many of these weapons manufacturers also
produce for the nuclear arms industry.
And that's why we're seeing this
development now.
>> And and how significant in terms of the
numbers are we talking when it comes to
the fund flows in into some parts of
these equity markets, the the ESG label
into some of the defense space.
>> Yeah. Well, I mean just to take a step
back and sort of explain the um the the
context of this analysis. So we worked
with Bloomberg data and we worked with
Bloomberg intelligence and what we did
was we looked at a fund universe called
article 8 which in Europe is supposed to
be funds that promote ESG and then
another universe called article 9 which
is funds that have ESG as their outright
objective. The article 9 universe was
much much smaller. The article 8
universe was huge. Together these two in
total represent almost $9 trillion worth
of of assets. Then in terms of the
companies that we looked at, we had an
exclusion list that was compiled by the
Norwegian Sovereign Wealth Fund based on
companies that it deems unacceptable to
hold because of their exposure to the
nuclear arms industry. Um we we looked
at exclusion lists posed by PAX and by
ESG book and it was then help calibrated
with the help of BI um and Bloomberg uh
data and in all we found that the
exposure is about $20 billion. Now
that's just a small small fraction of
the total uh weapons industry that we
looked at. However, the point is that uh
as I said, Europe has by far the world's
biggest ESG investment industry and this
is the beginning of a new uh era in
terms of realarmament and a new sort of
uh mood uh in terms of what's acceptable
um for these ESG funds to be exposed to.
So, it seems like a a significant
development that we've seen already
within these few years, this this this
huge shift and certainly a development
to watch.
>> Okay. a significant development and one
that is of course and predictably
sparking certainly of a debate wi within
ESG investing circles. You can get more
of that of course on Bloomberg.com and
on the Bloomberg terminal. Tasine bro,
Bloomberg's managing editor for Amir
ESG. Thank you. Now, the Trump
administration has ordered work to be
stopped on an offshore wind farm being
constructed off the coast of Rhode
Island. Denmark's Allstead started the
project last year and it is 80% complete
with all offshore foundations and 45 out
of 65 wind turbines installed. That
could be a stock to watch at the open 8
a.m. UK time. On the back of that news,
there's plenty more coming up. We're
going to check in on the Chinese markets
and the inflation picture out of the US
as J Pal opens the door to September.
Stay with us. This is Bloomberg.
It's about balancing
uh that commitment to restoring price
stability with an understanding that
preserving healthy labor markets also
really matters for for the public. And
so doing that balance, I would say it's
not a done deal in terms of what we do
at the next meeting. Um, but a range of
of possibilities is on the table and
we're going to get more data between now
and then.
>> Boston Fed President Susan Collins
speaking at Jackson Hole. We want to
show you what's happening in terms of
the inflation story out of the US
because it's been ticking up. So despite
the fact you have JPAL, of course,
opening the door to that September cut.
If you look at the blue line, that is
core producer prices. We know that came
in as a surprise high at 3.7. We get the
number later on Friday, of course, in
terms of PCE, the Fed's preferred gauge.
That is coming through with the yellow
line with estimates pointing to 2.8 in
terms of year on year for the month of
July, ticking up from the previous
month. That is where the estimates are
heading. So inflation is grinding higher
in the US and that is part of the
conundrum of course for Fed officials.
Let's flip the board and have a look at
terms of what to expect from the
September trading session. We're near
record highs of course. And we got that
boost again on Friday to US stocks after
five straight days of loss of the S&P
500. But September is traditionally a
month seasonally where you are
challenged. You can see the downside
coming through here across recent years.
A little bit of gain coming through in
2024. But prior to that, look at the
losses that came through in September.
So maybe brace yourself with that
historical context as well. Let's flip
the board again and have a look at what
is happening in terms of the bubble over
in China. At least as some have
characterized it. Chinese stocks have
been on a tear since April. You've added
about a trillion dollars, $1 trillion of
market cap value across the Shanghai
comp and the CSI 300. This is the
Shanghai comp year to date. The gains
are there 15%. The rally has been really
strong since April. There have been
caution though from those saying, "Look,
this is not built on fundamentals. The
real estate sector is still challenged.
The consumer is still a little soft and
yet investors continue to rotate out of
bonds and into Chinese equities. How far
can this rally go? Are we now in bubble
territory over in China?" The opening
trade is coming up next. Stay with us.
This is Bloomberg.