Good morning from London. I'm Anna
Edwards alongside Guy Johnson and
Christy Gupta. We're an hour away from
the opening trade. Here's what you need
to know. President Trump says he's ready
for a legal fight over the future of Fed
Governor Lisa Cook. While the Fed itself
says it will abide by any court
decision. French German bond spreads
risk further widening. Businesses look
for predictability. And French assets
retreat after the prime minister called
a no confidence vote. Plus, Asia tech
stocks gain ahead of the results from
the world's most valuable company.
Nvidia's earnings will be a key test of
Wall Street's faith in the AI boom. In
the meantime, a quick check on these
markets here. Green on the screen.
Marginally, we were higher just 30
minutes ago. Futures, Euro stocks 50
futures higher by 210 of 1%. NASDAQ
futures were roaring 30 minutes ago.
They've already paired their gain. If
you're looking for some sort of prep,
some bracing for Nvidia, that's where
you're going to see it ahead of those
earnings. E at 116. The dollar is
driving the trade this morning to the
upside. You're seeing it in gold as
well. Those intraday charts really
showing up. The countdown to the opening
trade starts right now.
[Music]
The Fed will abide by any court
decision. You abide by a court decision.
I abide by the court. Yeah, I abide by
AMH, Amry Hordern, Bloomberg's AMH, uh,
talking to the president yesterday about
what is happening with Lisa Cook and the
Feds and Independence. Now, normally
today, I'd be starting the show off and
talking about it being Nvidia Day, but
it isn't Nvidia Day just yet. It still
feels like it's bond market day, and the
bond market on both sides of the
Atlantic has a lot to think about.
Yeah, absolutely. investors increasingly
or continuing to think about the long
end in particular whether that's tens or
30s thinking about how high those yields
go getting a little nervous about Fed
independence of course but I think what
we learned in the last 24 hours and that
exchange added to that that we just
heard there was that this isn't going to
be over very quickly President Trump is
ready for some kind of legal fight the
Fed itself said it'll abide by any legal
decision so this is going to the courts
this doesn't get fixed in in minutes
this takes this takes some time and the
bond market will be watching
the bond marketer will be watching
There's two things from yesterday's
exchange that really struck out to me.
The first is that he mentioned housing.
He said we're going to get a four-person
majority and housing is going to swing.
I thought it was funny because it's the
same day that the K Schiller data came
out on terms of housing and we are
seeing a deceleration across the state.
So that's one piece of it. The other
piece is I'm still trying to work out
why he went after Lisa Cook
specifically. If the idea is slower,
easier monetary policy, Lisa Cook is one
of the doves on the board. So what's the
logic there?
I don't know. But the housing side, I
think, is fascinating considering what
is happening at the 30-year.
Yeah.
The US housing market works off the
30-year. The danger is the 30-year goes
up. He's trying to force the two-year
down. That works over here. It doesn't
work over there.
Yeah, absolutely. And that's some of our
reporting making that very point that he
that President Trump is endangering the
the goal he's going for. He's going for
lower rates, but with these threats to
Fed independence and the fears around
inflation that that creates, that pushes
up the long end, and then that can
interfere with the housing market, as
you rightly point out. I also thought it
was interesting the housing market
because it seemed it was a very blatant
admission of what he's trying to do as
well in terms of reshaping the Fed
reshaping the peeling people there. We
will have a majority and then we'll get
the interest rates that we're looking
for.
We're talking about the spread winding
on on the different parts of the yield
curve. We talk about the spread winding
in just housing prices. You're seeing
parts of the states where housing is
coming down and coming down sharply and
then you're seeing other places like New
York City for example where they're
skyrocketing. So the data already is
fairly messy. He was also talking about
who a potential replacement could be and
he mentioned Steven Moran as Mirin Moran
whoever he is that man who's already
filling in until January for Audria
Cougler. The thinking was or at least
the the name he floated was that would
happen. He would just move move them
around. Kimco published a really
interesting note about
even if people are nominated, they've
got to get through the Senate and
they've got to get through the Senate
committees and the Senate committees are
really tight and you got to you're going
to have to be qualified and there's a
bunch of people sitting on some of those
Senate committees that aren't up for
reelection and take the Fed's
independence very seriously and you
wonder whether the White House therefore
will struggle to get some of these
people through. So there are multiple
fights brewing in multiple different
areas and the market's got a lot to
think about. At the moment though the
market is largely ignoring this. There's
a steepening. It's not massive. Like
we're not through 5%.
It's sort of been ongoing, hasn't it? As
a sort of a background thinking process.
Let's talk about other political risks.
Yeah. Let's talk about France. Yesterday
was extraordinary. So the UK and France
being talked about in the same breath
and the IMF was being mentioned. Now
this came after the French finance
minister talked about the fact that the
IMF may be called in. Now he walked that
back. I'm not surprised. We have a long
history with this kind of thing and the
UK's experience goes back a long way and
it is not a good experience. So, let's
just walk that one back and park it for
a minute and come back to it maybe at a
later date. French markets fell pretty
sharply yesterday. Equity market was
down 1.7. I'm not seeing much of a
bounce being priced in first thing this
morning. Um, French business clearly has
decided that it's going to wait and see
and see what happens on this one. Uh,
we're going to get a speech by the prime
minister tomorrow. It's an ongoing
story. Here is a here is something that
we hadn't priced in for now, but we're
having to price in now and and who knows
what this is going to mean, but Carmenac
are talking about the bunt oat spread
potentially going to 100. We're at 77
now. So, this story potentially from a
market perspective has a long a lot
further to go.
Yes, because we actually saw quite a lot
of stability in the bond market over in
France in in the early part of
yesterday, didn't we? And we were
asking, you know, how come stocks
selling off quite so aggressively? But
maybe we don't get a continuation of
that stability and that spread has been
widening as you point out. I was really
drawn to some of the you talk about
businesses uh waiting to see if they get
any certainty, any predictability here
and it had a nice uh line in in our
story on that subject talking about
investment by non-financial businesses
over in France has not grown for any
quarter since that election last uh last
summer. And I mean there's been a lot of
other reasons for businesses to sit on
their hands. a whole host of global
uncertainties of course and taxes have
been an issue but there are plent but
but there are plenty of homegrown
reasons for businesses to be nervous and
this just sort of adds to that sense of
uncertainty.
So we're waiting for the bond market to
to wake up. We're waiting for the stock
market to kind of shake out a little
bit. We're also waiting for the euro to
price this thin. The last time that we
saw the oat boom spread at like 85 basis
points in the last iteration of this
political chaos, the euro was reacting
more profoundly and right now we're not
really seeing that. It feels like the
focus more on the dollar and what's
going on with Cook. Let's talk about the
other factor today. Finally,
can it be Nvidia day?
I guess it can. I guess we'll, you know,
squeeze that in.
Tomorrow is Nvidia Day in my mind.
Guy says not yet.
Uh, fair enough. Well, it is Nvidia Day
in some parts of the world and uh these
earnings are coming out after the belt.
Now, this one's interesting because I I
don't even really know what's driving
the earnings report today. On the one
hand, it's is it just growth? Is it the
diversification? Is it the geopolitics
and the H20 exposure to China? Or is it
still the continued hyperscalers and the
orders there? because we know there's
concerns from Apple, Microsoft, etc.
that are they pulling back on their AI
spend or are they diving in and Nvidia
is very much at the whim.
How big does the beat and raise have to
be for the market not to sell is my
question.
Expectations are high. You've seen a
good run. Do you take profits? I how
good do the numbers have to be?
Not even good. Like how far beyond
expectations do they have to be to you
not to sell the stock today?
Yeah. interesting thinking about the
timing and when the beats come, when the
profits come, when the impressive
numbers come from Nvidia. Our colleague
Caroline Hyde was talking to an investor
from IO fund overnight and and and she
was saying if there is a dip, yes, you
do buy it because the performance in
Nvidia is going to be second half
loaded. So she was saying that Blackwell
and Blackwell Ultra, they really ramp up
in the second half of the year. And so
whatever performance we see now, it is
important. It feeds into the return on
investment story of course, but but she
was saying it's very much going to be
back out. There's this amazing
psychology now in markets that I'm not
going to sell because there's going to
be a dip. And then I just I it's kind
feel like this conversation is a day
early.
You're almost kind of front running a
dip by not selling. You're like there's
a dip coming so I'm not going to sell.
And the whole psychology around this is
becoming extraordinary.
But there does seem to be this emphasis
on not letting the China a couple of
guests and a couple of and and our
guests coming up later in the program in
fact making this point. Don't let the
China H20 drama cloud your your vision
as you said of everything else that is
going on at Nvidia. I mean, it's hard to
do because so much of the stock is not
pricing in what's going on with China.
It's pricing in what's coming in, you
know, 10 years down the pipeline. That
being said, 8% of the S&P 500, 3% of the
global stock index. It's not even just
the company itself. It's the precedent
it sets for the hyperscalers, other chip
companies, and then of course all your
China tech.
It's a big m It's a macro moment. Like,
it's not it's not just a kind of this is
not a corporate report.
This is a macro moment. Anyway, we've
got plenty to talk about as we've
already indicated. Let's talk about the
guests that we're going to be talking
about it all with. Hey, Bathgates
Kalanish Capital CEO going to be joining
us. GMA Felices Pim's fixed income
global investment strategist joining us
around the table in London. Luis Dudley
Federated Hermesy's global equity
portfolio manager and Cla Pledel Boure,
Lion Trust Fund Manager joining us a
little later on the show to talk in
video. Chrissy,
plenty of data as well. 10 a.m. UK time,
your area final CPI inflation going to
be hitting the wire, plus an auction
over in the States later in the day.
1:30 p.m. UK time is when that hit. The
Treasury will be selling $70 billion of
those notes. And then of course the key
one, Nvidia earnings 11 p.m. UK time.
Tune in.
It's going to be fascinating to watch.
Are you staying up to watch the earnings
drop?
It's one of those things you wake up.
It's like Christmas morning. It's so
exciting. First thing you check,
who knows?
Will we receive a GPU tomorrow morning?
Is there going to be red and green
regardless?
Oh, the Grinch strike. Who knows?
It's exciting stuff. What else do you
need to know this Wednesday morning?
We're getting ahead of ourselves. We're
talking about Thursday already. The US
has now imposed 50% tariffs on some
Indian goods. The move fulfilling Donald
Trump's threat to punish New Delhi for
purchases of Russian oil. Some key
industries like electronics and
pharmaceutical exports are exempt from
the levies. But other sectors like
textiles and footwear are likely to be
hit hard. President Trump has also
warned of economic war if Russia and
Ukraine don't end their conflict, saying
he had very serious consequences in mind
if the fighting continues. Quote, Trump
told a meeting at the White House that
it will not be a world war, but an
economic war, one he said would be bad
for Russia. And congratulations are in
order for pop superstar Taylor Swift and
NFL player Travis Kelce. The pair
announced their engagement in a
five-part post on Instagram captioned,
"Your English teacher and your gym
teacher are getting married." Which I
thought was a bit peculiar, but maybe
I'm missing something.
You're not You're not into the uh the
the the social piece of this?
No, I am. I'm just the English teacher
and the that's the bit that Anyway,
I can't I can't explain American pop
culture in in 30 seconds. What I can
explain is that this is going viral.
This is a huge moment. A lot of people
No, I know. But a lot, look, a lot of
people are cheering on this love story.
It does have I'm going to put the
Bloomberg spin on it. We've talked about
Taylor Swift in the context of inflation
and concert tickets and uh you know,
plane tickets to wherever it is you want
to see her concert or can catch it. I
wonder what this does to the wedding
business. I wonder what this does to the
NFL business.
That's already cheap. Obviously, the
wedding business is already
and NFL is also obviously, you know,
discount shopping there. But Swiftomics
has a lot to answer for, doesn't it? I
mean, I remember during the era tour
when you couldn't move for economics
copy, citing Taylor Swift as one of the
contributors to some booming economy or
Oasis. Oasis showed up in the data, the
new one. Oasis is the new one. And and
also for anybody who doubts that this is
an agenda item that Bloomberg readers
and viewers and listeners are interested
in then at one point yesterday if you
looked at the most read stories on the
Bloomberg terminal in a 1-hour period
top was this story course about Taylor
Swift and that was and then then in
third and fourth place we had a story
about 30-year bonds and the Fed. So just
to just to put it in perspective even
even the Bloomberg universe understands
the significance of this story. There is
a connection between the two. Inflation,
Taylor Swift, inflation, 30-year bond.
I think you're missing a completely
logical connection.
You're missing the message. The message
is these two people are adorable and
it's a beautiful love story.
Guy says this isn't about love. This is
about 30-year debt. Obviously.
Obviously.
Right. Coming up on the program, we will
have plenty of conversations about
Taylor Swift and about long-end bonds.
We will talk to Matus Retica, who's JP
Morgan's head of European investment
grade finance. Lots to discuss there
about the way that the market is coping
with tensions over in the French economy
perhaps. Uh plus we'll keep a close eye
on French assets after the prime
minister's announcement earlier this
week of that confidence vote. We've seen
a couple of days, two days of selling of
French stocks in particular. We'll talk
about that. Up next, markets are
relatively calm despite upheaval uh at
the Fed. We will discuss as we wait for
the Nvidia numbers. If you have any
questions, if you want to get involved
in any of these conversations about
Taylor Swift or anything else, Ivy Plus
BBTV go is the function to use. This is
lean back.
Fed Governor Lisa Cook, her lawyer, has
said that they're going to be filing a
lawsuit challenging this legal action.
What is your response? Are you prepared
for a legal fight? She uh seems to have
had an infraction and she can't have an
infraction, especially that infraction
because she's in charge of, if you think
about it, mortgages and we need people
that are 100% above board and it doesn't
seem like she was.
President Trump there speaking to our
very own Amir Hordern in Washington
addressing the comments and the concerns
around Lisa Cook. those remarks. The
latest signal he has no intention of
backing down from a fight that sparked
concerns that it could threaten the
independence of the Federal Reserve.
Bloomberg's Balash Pens joins us from
Hong Kong. He's covering the story from
there. Balage, just walk us through this
possibility that this firing actually
sticks. Where do we go from here?
Well, we're truly in uncharted waters
here, Criti. Uh this has never happened
before. US president never fired a
sitting member of the Fed board. And now
we are heading into what what looks like
is going to be a protracted litigation
process. And it's going to hinge on
whether the president has been able to
establish cause to fire Lisa Cook. And
it's going to be a question of what that
cause actually entails, what the
president needs to show uh to uh to
stand up uh this decision to fire her.
In the meantime, Lisa Cook will likely
uh likely seek an injunction from a
federal judge to reinstate her to let
her continue to do her job uh in
entering while that whole legal process
plays out. And that puts the Fed in a
very difficult situation right now. Very
simple questions like is she allowed to
allowed into the building? Is does she
have access to her office? Can she
participate in the ne next uh FOMC
meeting? So there are a lot of questions
here. We can expect a lot of twists and
turns in this saga which will probably
feed into volatility and give investors
a lot to chew on.
Yes. If the Fed has deferred a decision
in the short term on on what happens
then then these are all very important
questions Val should be asking. Let me
ask you then where this goes from here
about Fed independence about the bigger
picture. President Trump was being
really very candid about what he's
trying to do yesterday talking about
soon we will have a majority.
Yes. There's no doubt the president
wants lower rates. He's been very clear
about that. He's been telling the world
in no uncertain terms that he thinks
rates should be much much lower than
they are now. And our reporting also
shows today that the president's team is
also thinking about whether they can
make changes uh in the regional uh feds
uh the regional presidents if there's
any any leverage they have there. Look,
what we see in the markets is that
there's certainly some concern building.
When we look at the long end of of the
yield curve, there's some concern
building over the direction uh of uh Fed
interest rates. If the Fed cuts too much
or too fast, that might feed into
inflation and that might create uh
fiscal and uh financial conditions in
the US uh that that create more
uncertainty. So that's what investors
are grappling with right now. That's
what we're seeing in the market.
Bel, thanks very much indeed. Balash
Pence joining us on what is happening
surrounding the Fed. Yeah, there's some
market reaction. I wouldn't say there's
a great deal of market reaction. The
market seems largely to be absorbing
this. Maybe concerns surface later.
Maybe the Fed independent story is just
a sort of slow boiling story that will
eventually boil over. Hey, Bathgate, CEO
of Kalanish Capital, joining us now to
discuss. Hey, I'm surprised that the
market isn't reacting more to one of the
kind of the central foundational
elements of global markets that the Fed
is independent sets indep sets interest
rates relating to the economy. It's not
a political decision.
What are your thoughts on this? Is the
market right to be calm?
Yeah, I think the market's probably just
a bit tired of this. It's the usual sort
of Trump punch and Judy show, isn't it?
I mean, it's no coincidence. This is
another selection from the Biden
government. Um, and I think you know
what we what we've seen with Trump so
far is he's sort of like sort of saber
rattling a tiger on some of these things
and then he backs off if the market does
start to take notice. We saw this with
um with uh with with Jay Powell when he
really started to have a go at JP Pal
and say he should be removed and the
market started to take notice. He then
sort of backed off pretty quickly, you
know. So I think we've seen this before
time and time again from Trump. Um this
does seem highly politically motivated.
It does. And that's kind of the problem.
Do I need to build a portfolio for a
higher level of inflation over the
longer period o over the longer term
because if if the Fed is going to be
dictated to by the White House, rates
are going to be lower, there is the
potential therefore for inflation to be
higher.
Yeah, I think so. Look, I think the
market always suses these things out. I
mean, we saw it in the UK, didn't we,
with the Liz Trust government as well. I
mean politicians will play games to the
point that the markets then you know are
incredibly good at at signing these
things out and obviously if the
borrowing costs for the US rise rather
than fall which would be the ultimate
implication of a higher inflation
environment it would be seen to be
letting inflation get out of control so
they would lose control of the yield
curve unless they started to use yield
curve controls and that you know spell
you know pretty pretty bad scenario. I
mean, the way that we're playing it is
we're just we're just not buying
government bonds at the moment,
particularly at the at the medium and
longdated end. You're not giving enough
return for the potential risk. And of
course, if inflation if the inflation
genius is allowed out the bottle, we
know from history that that's very hard
to get back in. So, on all counts, this
just doesn't bode well for for for
government debt both in both in the UK
and and the US, I think.
Are there any kind of yields that might
tempt you back in hey when we're
thinking about what's going on at the
longer end of the US curve?
Yeah, I mean it would have to be
substantially higher at the moment
because obviously you can get very good
yields at the short end of the yield
curve as well. So the thing that you're
you're absorbing if you don't buy the
longdated ones is reinvestment risk but
to me it's you know it's reinvestment
risk without return prospects at the
moment. So I think again the governments
have to be really careful what they're
doing here because if they get this
wrong and people do and the investors
really do take fright and just say look
we're not we're going to avoid this
asset class. I mean that has a pretty
profound and detrimental impact on on
the bond markets at a time where you
know western governments can ill afford
to you know to be paying even more on
their on their debt at the moment.
I
I I note from from your uh well from
your notes ahead of this conversation
hey you talk about liking emerging
market debt though. So what is it that
you're seeing in EM debt right now that
that developed markets are not giving
you?
I think it's just a valuation gap to be
honest. I think there's not there's a
lot more risk in um in western markets
and particularly western western
government bonds. Um and there's not the
same level of risk in in in emerging
markets and particularly sort of China
as as well. Well, I mean, China always
gets a very bad press in the Western
media, but if you look at the
valuations, they are very compelling,
and I think we're just starting to see
more momentum in the Chinese economy at
the moment. You've seen results recently
from the likes of 10 cent, which have
been very encouraging, and of course,
the market will move before the the
economy does. So, we just see the risk
return dynamics of that being much more
attractive at the moment.
Hey, walk us through the currency
impact. I mean, how does that show up at
the end of the day when it comes to
whether or not you're actually
allocating or even increasing your
allocation to the EM universe?
Yeah, I mean, that is the one I mean,
that could be the one, you know, problem
area. Obviously, what we usually see is
when the when the when the when the
dollar is un under pressure, then, you
know, that doesn't tend to bode
particularly well for for emerging
markets. That's something we need to be
mindful of. But, you know, again, these
are dynamics that are playing out in
both sides. It's not a case of
everybody's going to be running for the
safe haven of the dollar at a time that
they're running from emerging markets.
They're going to be running from the
dollar and potentially running from
other asset classes at the same time. So
again, we don't see this as being a, you
know, the ultimate outcome because I
think the one thing about Trump is he is
very aware of what the market does and
he tends to be quite reactive. So I
think if we ever get a hint that bond
investors in the US are starting to take
fright then he will back off from some
of these from from some of these stances
he's taking at the moment.
So hey we had a guest on talking to us
about the corporate credit market in
yesterday's show and he basically made
the argument bit that because fiscal
concerns are plaguing really every
developed market and arguably emerging
markets of the world the way to expose
yourself to credit is not through
gubbies but through corporate credit. Is
that a fair analysis?
Yeah, I think I mean I think that does
play through. The problem is that the
you know particularly in investment
grade debt grade debt, you're not really
getting enough of a yield pickup. So the
the headline yield looks great, but the
the actual spread you're getting is not
is not that exciting. So you're having
to go down into lower quality bonds like
high yield to really get the yield pick
up. So I mean and the other thing as
well is remember that we're sort of 12
13 years since we've had a any kind of
credit crisis at all. And I think if we
were going to see a crack anywhere and
if there was going going to be a left
tail event coming from anywhere, it
would probably be in the credit markets
or the private debt markets um which
we've seen balloon over the years. So
again, we're being quite selective, but
we, you know, we quite like areas of
high yield. We're not so excited about
areas like, you know, investment grade
corporate debt just because you're not
getting enough of a yield pickup. And of
course, all of these bonds price
relative to the to to the relevant US
Treasury or, you know, UK government
bond if they're issued in the UK. So,
they would be affected if we saw a sell
off in in the government bond markets as
well.
All right. Hey, Bathgate, CEO of
Challenge Capital, giving us a tour of
the world and a tour of all the asset
classes. We thank you so much. It's
interesting the argument that he's
making there that investment grade
credit isn't giving you enough of
pickup. So you go higher in the risk
premium which is the same case he's
making basically for EM versus
developed.
Yeah. So if you're going to be so you go
high yield if you're going in public
markets that he was worried about
private markets isn't he? Which is the
same comment we got yesterday from our
colleague at Bloomberg Intelligence who
was also worried about um what we were
seeing in private debt markets and all
that that hides.
A lot of the most riskier stuff is being
pushed into the private markets. So
you're kind of hiding the problem for a
while. But it's interesting that
actually people are a bit nervous about
triple C's. You can see that in the
spreads as you go up the hierarchy
between the various bonds. So yeah, I'm
not entirely sure that people are are
that that focused on that story. Anyway,
we're going to talk France next. That's
another bond market story. This is
Bloomberg.
30 minutes away from the start of the
opening trade. When you look at the
futures picture, everything's fine.
Green on the screen. Everything seems to
have recovered from yesterday. Or maybe
it's just a bounce back. At least it
seems. When you look at the footsy 100,
the Kakaron is where the focus I think
is today given that the political chaos
in France continues higher by two ten of
1% but again likely just a rebound from
yesterday.
Yeah, we certainly saw some pressure on
the banking sector, the insurers and the
construction sector in yesterday's
session. So we'll see how they rebound
as you say criti today. talking about
reaction to the French political story.
Let's have a look at the bond markets.
Monday we saw uh yields go much higher
in France and then yesterday looked
pretty calm and today looks pretty calm
actually on French bond markets. Let's
get some perspective. We're joined up by
GMO Felicis who is global investment
strategist at PGM fixed income and GMO
very nice to see you. We'll uh we'll go
around the world a little bit but we'll
start with France shall we? So in terms
of where we are on the bond markets this
morning, we see those yields coming down
just a little bit across the curve
actually over in France. So if you to
look at the bond markets, you might not
think that the prime minister has just
called a no confidence vote in himself,
which was something that unseated the
last prime minister and could take us
into some more political turmoil. Why
are yields as contained as they are in
France? Is that the right question?
Yeah, we cannot deny that risks have
increased and the market um you know
clearly showing you know some signs of
um of anxiety but it's nothing that we
are not used to when thinking about
France right so we have a playbook we
went through this last summer and
spreads went all the way to 80 and we're
not far from there so um the way we
think about it is you know this may
offer tactical opportunities but of
course we have to be careful um because
there's you know risks ahead as well
right
right yeah there are risks so your
playbook book is referencing last summer
where we went to 80. We're at 76 and a
half on the spread now front oats over
buns of course. So how high do you think
it goes? I think we cited one investor
saying look this could go to 100. That
was in some uh Bloomberg uh news stories
overnight. What are you thinking?
Yeah, you have to be careful. We have to
be tactical. Um but the way we think
about it is is is broader. So you know
where what are we seeing in the Euro
zone more broadly and in EGBs in
particular. And what we're seeing there
is a macro backdrop that is um that is
actually quite decent. So we're seeing
growth surprising a little bit to the
upside. Um an ECV that is um hugely
supportive with all the cuts they've
done. Um and then you know a rates
market that has been um showing less and
less volatility. So that backdrop is
good. And then the contrast with the US
as well, right? So for global investors
who want to invest um and diversify out
of the US um EGBs actually look quite
interesting when you have basically
known unknowns whereas in the US um you
have you know clearly others you know
sources of uncertainty that are harder
to deal with and finally you know
there's there's valuation arguments also
in favor of of France and the periphery
for example you have curves that are
significantly steeper um than in the US.
So European government bonds are a haven
out of treasuries right now. You think
they are an alternative um and not not
not a haven I wouldn't call them that
but they are they are interesting they
are attractive.
Can I just talk about the UK? We'll come
on to the states in just a moment.
The UK 30 year is at what 5.6.
We we got to these levels back in April
but we've been on an upward trend.
Y do we get to six? Can I can I
extrapolate how far do I extrapolate
here in terms of where UK guilts are are
going?
Yeah, I know it's it's it's been a tough
ride, right? And uh this has been a
story for some time. Um I think the DMO
has been quite smart in terms of
reducing issuance at the long end.
That's that's helping a little bit. I
think the problem we have in the UK is
that um we're seeing a very conventional
way of dealing with fiscal excess and um
and we're seeing you know bond
vigilantes coming in and saying okay
show me what you plan to do and then
I'll stabilize and we don't know yet
what the government will do we'll have
to wait until the autumn statement
but if the autumn statement doesn't
deliver is six possible like where does
the crisis point come for the UK
it's I mean it's hard to pin down levels
the the problem is that um as does the
trend continue
yeah of yield keeps going higher and
higher. If if you don't if you don't
bring down the debt uh to a sustainable
path and uh and you don't bring down the
deficit, then the market will continue
to test, you know, higher levels at the
long end. And that's doesn't apply just
to the UK. It applies to most markets.
Shall we make it over to the States now,
which is I feel like the the story
that's driving uh the conversation
globally, at least around Lisa Cook. We
were trying to work out around the table
how successful this idea of of
having a more dovish policy can work
that Donald Trump may be looking to
whether through the Federal Reserve,
whether to his other policies, pull down
this the 2-year while is in fact
steepening the 30-year. Yeah.
Just to argue the flip side of this,
does he have a point? If the Federal
Reserve starts to cut rates more
significantly as early as September,
could the 30-year ultimately come down
and affect housing prices? Yeah. So you
have two effects, right? So of course,
you know, monetary policy is extremely
powerful in terms of, you know, driving
markets and the economy. And if you pin
down the front end um and you lower it,
that will help the economy and that will
help asset prices. You're basically
bringing down your discount rate. But of
course if the long end is is an anchor
and going up or at least you know
staying stable at high levels.
Then you have also a problem because
that that means that financial
conditions for some segments of the
market are tight. The housing market is
the is the best example.
You know the housing market cares about
long long rates and they are still you
know very high. So you have those two
effects if you want your monetary policy
pass and then your term premium or you
know the compensation you need
to hold long-term rates or long-term
debt.
Is the term premium high enough juicy
enough for accommodating for any sort of
risk around the Federal Reserve? Yes, in
housing crisis and recessions and
whatever, but also the X date and the
fiscal concerns. Is the term premium
juicy enough?
Yeah. So again, hard to pin down
numbers, but I think the, you know, the
the risk is to the upside, right?
Because we're seeing very unconventional
policy. It's all about uncertainty, and
you have uncertainty about inflation
because of tariffs. You have uncertainty
about fiscal policy, and you have
uncertainty about interference, you
know, of how the Fed operates.
If we assume that inflation is
structurally higher, demographics,
climate change, lots of lots of factors
kind of coming in, is what is happening
in the states right now, what Donald
Trump is doing, a a kind of first step
towards raising the inflation target. We
go from not targeting 2% but to
targeting 3%. And is that the moment at
which the market goes actually we need
to recalibrate here? Yeah, I I think
it's the first step in terms of testing
um you know long-term inflation
expectations, right?
Which so far actually have been very
well behaved at least in the market. But
in terms of changing targets um so I
mean that's something that the Fed takes
very very seriously. I mean they don't
really
the old not the new Fed.
So the question is really ultimately how
much interference are we going to see
from the administration on the Fed and
that's an open question. So we haven't
really heard anything about inflation
targets yet. Um but of course you know
that's that's a live issue. We need to
follow that very very carefully.
GMO you mentioned how European uh
government debt markets are a good
alternative to treasuries if we're
concerned about some of that Fed
independence uh conversation. Not a
haven but a good alternative. And where
in particular I noticed that you in in
our in our copy we we site you talking
positively about let me get this in the
right order. Portugal, Italy, Ireland,
Greece, and Spain, which used to spell
something, you know, rather a rather
cruel um way of summing up parts of uh
of peripheral Europe back in 2011. Are
we really in a place where those are the
bonds that that are most attractive?
Yeah. So, all all of these um um bond
markets are attractive because of what I
said. So if you look at um the yield
that you get especially for US investors
if you hedge your euro exposure you're
picking up some yield there um because
you're you know dollar based investor
and interest rates in the US are still
higher than in Europe but crucially
those curves are pretty steep um so they
are twice as steep in Italy and France
than in the US that's remarkable and
you're rolling down to the ECB depot
rate which is at 2%. So that's u you
know significant um you know roll down
that you get if you're a long-term
investor and you're willing to stomach
some volatility.
All right GMO Felizes global investment
strategist at PM fixed income giving us
his view the bond markets around the
world. We thank you so much. Coming up
on the program we're going to be talking
a little bit about some of the banking
stocks in focus. Deutsche Bank and
Commerce Bank catching a downgrade over
at Goldman Sachs. We'll talk about that
and your other stocks to watch next.
This is Bloomberg.
Welcome back to the opening trade. Lots
to digest. There are bond market worries
around the world that haven't yet shown
up. There's equity market rallies and
then corrections and everyone's bracing
for the seasonality of September and yet
when you look at the speculators, when
you look at the hedge funds,
everything's kind of fine. I think this
is a chart that caught my eye. Our very
own just mention over in the states
pointing this out that when you look at
the net short positioning when it comes
to VIX positions, uh this is
specifically for hedge funds. You
actually see them be the most short
going all the way back to 2022. You
know, I I think that's really
interesting given that it's light
volume, it's a light liquidity
environment, and it's the hedge funds
that are making the biggest bets when it
comes to things like tech, when it comes
to things like even the long end of the
curve, they are positioning for the
volatility to come down, especially
given the fact that a lot of those trade
concerns seem to have dissipated from
the narrative. And you can see as early
as April, that's where those net longs
around VIX futures really had kind of a
multi-year high. This idea that
volatility would persist. guy. It's a
complete 180 when it comes to the hedge
fund community.
Are we going to see some volatility a
little later on this evening though? And
will that be produced by Nvidia? It is
going to be out with numbers a little
bit later on. 10 p.m. UK time, I think,
after the market close, of course.
Traders are hoping the numbers can shore
up some fears about AI spending, perhaps
confirm the stock market's latest rally
isn't just yet another tech bubble. Tom
McKenzie's here. How important is this?
Are we going to see volatility? What
should I be watching for? I mean to your
point around volatility, traders are
pricing in in terms of options potential
downside or upside of around 6%. At this
stage is that normal that feels like
it's quite a normal um setup for for
Nvidia in terms of the potential, you
know, makes up eight around 8% of the
S&P 500 as well. So there's the broader
market impact that you obviously
obviously know about. Look, I think what
we're going to be looking at is I think
we have a clearer steer in terms of what
the hyperscalers are doing. That came
through in the earnings in terms of the
commitment to continue to invest tens of
billions, hundreds of billions
collectively on data centers and the
GPUs which Nvidia supplies. Of course,
the longer term the longerterm question
is what happens competitively
particularly as those hyperscalers look
in some cases to build out their own
chip capacity in terms of chip design uh
but also come under increasing pressure
to create and and have more efficient AI
processes and then there's the here and
now in terms of the geopolitics of China
and all the murkiness around what
exactly the Chinese market is offering
when you have the likes of Bernstein
suggesting their analysts saying that
there's potentially up to 15 billion US
in terms of cash sitting on the
sidelines in China that could be
invested in the chips of Nvidia and AMD
at a time when we're not quite sure
exactly what access they're going to be
getting with that H20 chip.
Yeah. And there's huge uncertainty then
around China. So you can either say this
is all about hyperscalers and China
shouldn't be a distraction or you can
really focus in on China if we are
focused on China. I mean are the answers
going to come in the Nvidia report or do
they come from a meeting between Trump
and she later on this year?
That's probably more likely where the
answers come. We got to this point of
course where the Trump administration
has imposed 15% revenue take from sales
of these H20s into the Chinese market
from Nvidia and AMD. Then China comes
out and says actually guys to your the
big maker the large language models
analogs the Alibabas of the world as
well as the deepseeks
don't buy Nvidia or at least we have
security concerns look to domestic
players. China is threading a fine line
as well. They want to have that
competitiveness. They want the the
world's best large language models, but
they also want them to be using domestic
chips, which aren't always the best. And
then, of course, you have Nvidia saying,
"We're designing a new chip for the
Chinese market if, of course, which
could be impactful if the Trump
administration signs off on it." In
terms of revenues from the quarter, by
the way, we're looking at potentially a
54% increase year-on-year, 48 uh billion
US. They're looking at a margin of a
little over uh 70% around a little over
72% in fact, from Nvidia uh for the most
recent quarter. And as ever, it's going
to be what Jensen Huang says about the
Chinese market, but also the forecast
for the upcoming quarter as well.
It's an incredible topline growth rate
for a business this size, isn't it? I
mean, just for a moment, I'm sure this
time last year, we got excited enough
about Nvidia and now even bigger, 50%
again. How much of this of the kind of
we keep hearing this narrative and I
feel like we've done this for like two
years now where we keep hearing that the
spending from the Apples the Microsofts
of the world is slowing down or they're
pulling back on data centers or whatever
the narrative is
and then they keep the money keeps
getting pumped into Nvidia.
Does that persist this quarter? Is it
still a game of hyperscalers become key
Nvidia customers? Is that the dynamic?
I think that would be the key surprise.
the the dynamics seem to be that the
spend is still there. You had the
commitments from the executives and
you're right look we have had reports
haven't we from Bloomberg and others
suggesting that some companies like
Microsoft have been scaling back some of
their data center spend but what you got
in the most recent quarter was a
commitment we are going to continue to
spend on this and you just look at the
sentiment coming through from Mark
Zuckerberg at Meta for him this is
existential he has to win in terms of
the race towards super intelligence or
AGI you see how much money he's spending
on talent there's no suggestion that
Mark Zuckerberg at Meta is pulling back
in terms of the spend on the GPUs
alongside that talent and very little
real evidence the likes of Microsoft or
Amazon are not doing the same thing.
There is still that question in terms of
when we start to see real evidence of
return on investment for the companies
that are actually putting products on
top of AI but that would be a major
surprise I think if you got real
material evidence that the hyperscalers
are slow are slowing down the big
question marks seem to be around the
China p the China piece and then longer
term to what extent Nvidia continue to
have 90% of the market share
right so there's hyperscaler growth
there's also the addition of sovereigns
and what countries are doing around AI
and data centers so we'll look to that
for clues on that as well. Tom McKenzie,
thank you very much. Bring back Tom
McKenzie with the latest on what to
watch for around Nvidia. Let's widen
this conversation, talk about where we
are on these markets in three minutes
with our markets live executive editor,
Mark Cardmore. Mark, good morning to
you. So, this is a big event of course
for the tech world. It's also a huge
macro event. I'm talking about the
Nvidia numbers. Still many hours away,
but no doubt uh investors thinking about
how they position for such a big a big
event. Uh how are you thinking about the
Nvidia numbers to come?
I think it's really important to look at
the context of Nvidia earnings 12 months
ago. So we came into these exact same 2Q
earnings in August at the end of last
year. The market had done well. Nvidia
earnings beat. They were just brilliant
earnings and yet the stock sold off. I
think it was more than 20% over the
coming few weeks dragging the index
lower. Now that's the bearish way of
looking at it. Earnings beat. They're
brilliant and still the stock market
tanked. The positive way is obviously
the stock market then after after
slumping over the into September then
rallied again to fresh records and now
Nvidia stock is way higher again than it
was going to those earnings. I think
that that the kind of important takeaway
from all that is that Nvidia is is is
massive for the coming weeks and can
really control the short-term narrative.
It is unlikely to be the story in
isolation which is going to end uh or
turn this market around on a longer term
scale. So I expect today that Nvidia
earnings will be very strong. I think
Tom's outlined the details very well. I
expect it to beat and I do think we'll
probably get disappointing price action
afterwards because the whole world's
expecting that they're positioned for
that. Criti observed the fact that the
markets are short VIX. We know the
market is uh generally very long the
stock market at the moment. But I don't
think that's going to be the thing that
derails this market. I think if you want
to be very bearish and I'm not I'm not
very bearish. The markets traded better
than I expected this month. I expected
we'd have more weakness. But I think the
weak point at some point will come
because bonds sell off too much. Long
end bond yields go too high and that's
where the real damage comes. But so far
they're only selling off slowly.
What is too much? Is it 5% in the states
on the 30-year? Is it 6% in the UK? Kind
of what levels are we talking about? How
much further would we have to go?
I don't know guy. I'm struggling. I I I
I I think that the you know in some
sense bond yields continue to go higher
as expected. I did think they would go
higher at a faster pace. I haven't got
the quite timing of this right yet and
and I I haven't worked out like I feel
like there's some kind of binary tipping
point which is what you're asking. I
don't know what that that binary tipping
point is. I don't know whether it's one
data point is it a level at the moment.
We continue to ratchet up pressure both
in the inflation side and just from
these positions getting more underwater.
Uh when will it spiral? I'm not sure.
But of course this Friday we have
inflation prints from all over the
world. So we've certainly got a lot of
catalysts on the horizon that might be
the cause.
In terms of the catalyst, what matters
more at the end of Friday, the potential
success story of Nvidia or the PCE data
that we're about to get?
Yeah, it's it's a great question. I
think important PC data emphasize we get
inflation all around the world on Friday
and because this is a global bond
problem, not just treasuries. We start
with Japan inflation that's meant to
come down quite a bit. Uh we then get a
load of European inflation prints. So
it's the whole inflation story. In fact,
core PC is one that we can estimate very
accurately. So it's less likely
surprise. I though actually think it
might be tech that will dominate the
short-term stock sentiment for the next
coming weeks.
All right, Bloomer Marketers live
executive editor Mark Hudmore joining
the program this morning. You get more
analysis from him and the team. MLIVgo
is the function on your terminals. Go
from the macro to the micro. Get our
stocks to watch with Luis Moon. Luis,
morning Criti, as you've been saying,
tech is the main thing on people's minds
this morning. So, we're keeping an eye
on chip stocks in Europe this morning.
We've got Nvidia's earnings later today.
Second quarter earnings, as you've been
discussing, expected to come in quite
strong. So, we'll be seeing how this
filters through into the European
market. Asian stocks have been up. There
are obviously other factors at play
there with China policies, but we're
really focusing on some key ones in
Europe. So, Infinian, ASM, SC Micro,
it's been a mixed picture so far this
year. Infinian really outperforming, but
the other two into the red. So, we'll
see how this filters through into the
European market this morning. So, that's
a real key one that we're watching. Next
up, we're also watching two German
banks, Deutsch Bank and Commerce Bank,
both have been cut to uh to to different
different uh cells and underperform by
Goldman. So, both cut by Goldman in a
note overnight. Essentially, this is on
the outperformance so far this year.
They've both been significantly
outperforming, both up over about 100%
so far this year. The analyst did,
however, note on wider European banks,
he's still a bit more constructive, is a
bit more positive, saying that a host of
factors present a backdrop which are
arguably better than at any point in the
past 20 years. But for Commerce Bank and
Deutsch Bank, both a cut on that front.
And then finally, the last one we're
really focusing on is Metland. not
necessarily a widely known company, but
one that's recently listed in London and
it's been performing quite well so far.
And and the key news here is that they
might be joining the Footsie 100. So
indicative this might happen. The the
actual inclusion will happen on
September 3rd if it does. And it would
replace Taylor Wimpy. So the home
builder Taylor Wimpy, which has been
it's it's had a it's had a tough
performance so far this year, down 19 or
so% so far this year. So they might drop
down to the footsies 250. So, we'll have
to see if this has any impact at open
this morning.
Thank you very much, Louise. Louise
Moon, our equities reporter with a look
at where we head on these markets from
an individual stocks p perspective.
Looking at the overall futures picture
then I mean we're up a little a bit of a
bounce anticipated over well no I was
going to say on the caton but actually
the better gains might come through from
the footy 100. So I won't mention that
but we've seen two days of selling on
French stocks and uh things look pretty
flat today. waiting for the next
catalyst perhaps whether it comes from
France whether it comes from Fred Fred
independence whether it comes from the
Nvidia earnings
France isn't bouncing that's critical so
it's interesting that the market still
doesn't know what to do with this story
big selloff yesterday down 1.7 on the
karant we are not up today which I think
is significant any other market around
the world you'd be buying the dip right
now we are not buying the dip yet in
French assets let's see how the day
develops but we're not there yet by any
stretch of the imagination
yeah a bit of deja vu there but I think
if it comes back to tech earnings
there's a few readthroughs you want to
keep an eye on, right? You want to keep
an eye on DAX. You want to keep an eye
on Amsterdam and the ASML read through.
I feel like we struggle every day or
every quarter of whether uh it's Nvidia
or TSMC or ASML that has the kind of
lead in the global chip story. So, lots
to watch there, but I think the
morning's story is simply that there's
screen on the screen, not by much tiny
tiny marginal gains and we'll see if
they stick.
Oil, keep an eye on all stocks this
morning. The president wants lower oil
prices. Keep an eye on the auto sector
as well. It wants to get rid of some of
the industry uh regulation around EVs.
The open is next
Wednesday morning. Good morning. Let's
talk about yesterday. Let's talk about
Tuesday and the session that we saw
Tuesday and what it means coming into
European trade this morning. European
equities actually rallied for most of
the session then faded into the close.
What is interesting that after that we
did see US markets, equity markets
rallying into the close. You got a
little bit to price in on the upside
this morning which is maybe why criti
we're seeing futures positive in Europe
despite the fact that actually it looks
like the kakarant is fairly flat.
The party continues. Maybe the party
begins in Europe today at least here in
London. The Footsie 100 is the
outperformer higher by 4/10en of 1%.
Which is interesting because oil stocks
are in focus. So the idea that you might
see oil stocks come down a little bit
and actually see the Footsie 100 still
weigh this much of a margin is
significant. But Guy mentioned the
Kakarat only high by 1/10enth of 1%. Not
seeing a bounce there. Not seeing a
bounce really in all of continental
Europe. Anna.
Yeah, absolutely not seeing a bounce.
Let's have a look at where we are on
some individual stock names and some
sectors that could be in focus given the
news flow that we have had. Let's start
with Rio Tinto. This is of course in the
mining sector under a new CEO and the
new CEO is simplifying the company. So
three divisions moving some people
around and so we'll keep an eye on that
one. See if that one moves at the start
of trade. Uh we're also focused on tech
stocks. We're working our way towards
the Nvidia uh data release, Nvidia
earnings release, sorry. And so that
would be crucial both for the company
itself, for the tech sector and as a
macro uh macro driver of markets perhaps
it often can be given the size and scale
of this particular business. We've seen
China Tech, Chinese tech names doing
quite well overnight in the run-up to
those Nvidia numbers. So, we'll watch
European tech companies and keep an eye
on Deutsche Bank and Commerce Bank. Both
of them being downgraded at Goldman
Sachs. Interestingly, Goldman says they
remain constructive on the outlook for
European banks, but they are taking this
action given the strong outperformance
of these businesses to date, guy.
Okay, here we go. Time for the European
opening trade. What kind of numbers are
we looking at? Well, not too dramatic.
Chris says the party is on. I think the
FA party could be on when it comes to
the Footsie 100, but even it is
struggling to make initial headway. Uh
we are really waiting to see exactly
what the Karon does this morning after
dropping 1.7% yesterday. Banks certainly
took it on the chin this time yesterday.
Are we going to see any of that trade
reversing in today's session? Stock 600
barely budging. Footsie 100 barely
budging. We're looking maybe for the
Nvidia numbers a little bit later on.
We're still worried about what is
happening at the long end of the bond
market both in the United States and
here in Europe, in the UK and over in
France. The IBEX is out of the gate,
flat as a pancake, as is the Curant, the
one we've been waiting for. No pickup,
no bounce, no buying of the dip in
French equities today, despite the big
drop that we saw yesterday on the
political concerns uh that are coming
out of Paris right now. So that's the
picture at an index level. Not much to
see here below the surface. What is
going on? Critty sectors.
Well, I think I overhyped the party. I
was hoping the stock market would join
me in celebrating the Taylor Swift
engagement news, but that's not really
what's happening this morning. When you
look at it from a sector basis though,
commodity stocks, commodity uh is stocks
across the board are really the focus.
Green on the screen, but again your
major outperformers or index
contributors this morning are Shell, BP,
Totel, Rio, which I think really tells
you that those oil stocks are very much
the focus. The property sector or
property stocks I should say, the home
builder stocks, that's where you're
seeing a little bit of the pain on
continental Europe though. When you look
at the downside movers, Anna, I'm not
seeing a ton of thematics driving the
trade.
Yeah, it's interesting that nearly all
the sectors are in positive territory,
isn't it? because the gains at the
overall uh index level are not huge. Up
by 3/10enth of a percent on the Footsie
100, the CAC up by a tenth of a percent,
the German market not yet open, but we
have nearly every sector in the green,
which is sort of quite a casual drift
higher for everything apart from real
estate as you point out, Gritty. And
given US futures are almost entirely
flat, that's perhaps not a bad
performance for European stocks, but
basic resources the best performing
sector. The Rio story not particularly
cutting through. The sector as itself is
as a whole is up by half a percent. Rio
Tinto up by around half a percent. Um,
autos and parts actually the best the
second best performing sector. So, it's
a real mixed bag of of lots of stuff
going higher this morning. It would
Why is the why is the energy sector
higher this morning? I thought that the
president wanted lower oil prices, not
higher oil prices.
And we've got a flat oil price right now
at 6720. So, that's not the driver.
So, it's interesting to see that that
that actually that's where the market's
rotating to. Shell, BP, Totel, all
those.
You think that's just a catch-up trade
to yesterday though in the States? Do
you think that's what's happening? Yeah,
I mean Total sold off a lot just for
being French even though a lot of the
business will not be very French.
Shell and BP.
Yeah, not entirely sure. Not a lot of
GAC influence there. Um, so yeah, it's
curious to see what we are not though
seeing is a is a kind of buy the dip
mentality in French stocks this morning
which I think is interesting.
I think BMP is a great example of that.
Yesterday the one of the biggest weights
was BNP and one of the biggest volume
movers to the down says BNP. It is still
down today. Um, only down by like two
ten of 1%. So not seeing the same level
of selloff that we saw yesterday, but
certainly uh seeing some pain. So let's
get a little bit more analysis here on
how all of this shows up in the equity
market. Luis Dudley, global equities
portfolio manager over at Federated
Hermes joins us around the table. Luis,
we are trying to marry the chaos we are
expecting in the bond market. Hasn't
really shown up yet, but we're seeing it
to what we're seeing in the stock
market. Why is the stock market pricing
in France, worries in the US, arguably
worries here in the UK, but the bond
market isn't? Why do you think there's
that dislocation?
I think at the moment people are very
much wait and see in terms of overall
kind of appetite within the market. I
think in general lots of people have got
money in the market. People are quite
overbought in terms of equities. So
there isn't necessarily that appetite to
move. There's a lot of uncertainty. The
latest numbers in terms of inflation
haven't really um held up. Um and so
therefore people are worried about the
near-term direction. And I think
obviously Nvidia numbers that visibility
I think is going to give a lot of um
confidence um in terms of where we are.
At the same time a lot of Europe reliant
on China growth as well. You know we've
heard about commodity names doing well
obviously a lot of exposure over there
in terms of them China as a buyer of
those um materials that doesn't seem to
be coming in. We're waiting for a bit of
stimulus from China. So that there is a
bit of wait and see at the moment. So
maybe that's why we're not seeing these
big moves.
You mentioned Nvidia, that's of course a
story of today and tomorrow as well. If
we can get our eyes off the Fed for just
a minute. When we talk about Nvidia and
the read through for European stocks,
can we just do some scenario analysis
here? If it's a good win for Nvidia,
does that mean that all the fund flows
then kind of flock to US stocks or if
it's a bad win for Nvidia? Does that
affect how into Europe in some way?
What's the readthrough of Nvidia into
European equities? So there's obviously
some specific European names which will
move um in line with Nvidia. So the more
kind of chip exposed names. Um other
than that I don't see too much. I think
as you say maybe it's a bit more that
people move into the US that they feel a
bit more um that US exuberance coming
back and maybe you know European
earnings last season haven't been as
good. Maybe people start to think
actually we're going to continue to see
that overhang coming in. Lots of
tailwinds I think for Europe
particularly now with this French news.
You know that's not going to help um the
overall market get higher.
Louise, good morning. Can I ask you
about the link between bond markets and
equities? We're watching bond markets
very carefully given all of the the Fed
independence conversations and what
President Trump is doing uh in reshaping
and overtly reshaping uh the Fed with
your focus on equities. Then what what
are the you know when is it that rates
start to really matter for equity
investors? guy was asking earlier, you
know, is it a rate that matters or or
maybe we're talking about a pace of
change? What is it that you're focused
on?
Um, a lot of the time at the moment,
we're looking at that longer term end of
the curve um number and how that affects
the house builders, those interest rate
exposed equity stocks. Um, if we were in
a more defensive environment, we'd be
thinking about, you know, what are the
alternatives in terms of kind of brawn
proxies and things like that. Um, that's
not where we're at at the moment. It's
very much about those interest rate
exposed names, utilities, uh in uh
insurance names, real estate, those
types of areas. And that's where it's
important and we're looking to see will
that start to go again. Um and obviously
the latest expectations in terms of
interest rates set to come down with a
bit more certainty from the news from
last week.
Right. Yes. So, so after Powell and his
speech at Jackson Hole, you expect 25
basis points of a cut in September and
then you expect a cut every quarter
through 2026. That's quite a lot of
cutting. Do you think the fundamentals
of the US economy justify that? Are
equity investors right to be expecting
that kind of support?
So, I think you know to a certain extent
that's where we think the trajectory is.
Um, you know, there's always room for
things to be delayed. Obviously the
latest kind of inflation numbers maybe
take that down a little bit but in
general we think that's where the the
the Fed should be going and um and in
general from what we're seeing at the
moment that is supportive. Maybe those
Nvidia numbers today help with that
sentiment as well. We'll start to see
that um kind of backing onto that
confidence trade.
So you think the the the US economy is
going to justify that level of cutting?
This isn't you thinking Trump telling
the Fed to cut that to cut rates and
that's the reason for it?
No. No. No. That's absolutely not. Um
obviously what we've seen in terms of um
kind of the latest news is very much
unprecedented and you know we'll wait
and see in terms of how much push back
that gets and the uncertainty.
How do I know the difference
considering I'm I'm worried about the
data and I can see the Fed being pushed
around quite a lot at the moment. How do
I know that the Fed is cutting for the
right reasons?
I think the Fed, you know, obviously the
transparency that they have in terms of
the minutes, in terms of um you know,
the metrics that they're using, they're
always emphasizing obviously being data,
etc., etc.
Isn't that the old Fed? The Fed that
isn't doesn't have political influence
in terms of setting interest rates.
That's that's the old model that we're
working with. Is there a new model we
should be thinking about?
I don't think so. I think you know I
think the Fed has to maintain that
independence and I think the market does
expect that
and if it doesn't
and if it doesn't I think we'll see you
know what we saw in those short moments
when we thought that you know we were
going to see an ousting of um a
governor. So I think I think that um
uncertainty could lead to you know some
big shocks within the market but I don't
expect that that will happen. I expect
that there will be push back.
Okay.
So September's known for selloffs
historically. The seasonality has always
been a factor. There's been a question
of what that catalyst could be. Building
on guy's point and and the point that
you made as well, if the market doesn't
get a cut September 17th from the
Federal Reserve, is that the trigger for
a sell-off? Is that enough?
Um, at the moment, I guess it seems it
seems so likely that we will get some
cuts in September that perhaps that's
hard to kind of forecast at the moment.
If that were to happen, that would
definitely be a negative for equities,
particularly the US equities. Um whether
you know there would need to be other
data points that would need to come in.
I think that would mean that we wouldn't
get that cut. So we've obviously got
some data coming out at the end of this
week. So maybe that would give a bit
more certainty as to what we'll see in
September. But definitely if we weren't
to see that cut, that's obviously not a
kind of a risk on trade at that point.
Louis, Christy was asking you about
Nvidia and how that plays into the
European space, and it's always kind of
tricky to map that, isn't it? The US
tech theme. Um, but in terms of the the
things you're watching for in the Nvidia
earnings, it's one business, but it is a
heck of a big business and it has a
macro impact and it gives us so much
information about where the AI trend
goes. So, what will you be watching for?
So, there's a couple of things obviously
Blackwell, how well that's selling. Um
then we've obviously got the H20 numbers
as well into China and what that
visibility looks like. So I think those
are the two kind of big areas that we'll
see. There's obviously been some big
announcements in terms of kind of
sovereign AI and one of when whether uh
any of that kind of spending has started
to be a bit more solidified um versus
kind of recent news that we have will be
something else. But in general it's a
case of people are expecting a beat and
raise. it's a case of how big um and
will that be big enough and I think you
know there has certainly maybe been a
bit of a buildup coming into the Nvidia
numbers. So um there is maybe a bit of
caution that maybe they're not going to
be as um kind of uh blowout as perhaps
they have been in recent quarters.
There's obviously the margin
expectations going forward as well and
whether they think that's going to
continue to come down um in a more
severe way than what we're expecting.
Should we await a dip? It's been a great
run. Nvidia's had a fantastic run over
the last two or three months. Do I wait
for a dip before putting more money to
work? I I can see the reasons why people
might say, "Oh, I don't want to sell."
But is there a reason to buy at this
point? Or do you think a better entry
point potentially is coming?
I think the reality when it comes to the
AI business cycle is that we're still at
the start and we're still seeing a lot
of adaptation come.
So, I can still buy at these levels. I
think so because I think you know we're
we're still yet to see um some of those
adoption coming coming through across
different business channels and I think
there's still a lot of spending that's
going to happen um a lot of buildout
that needs to happen as uh as you know
companies mature within that profile
maybe we're at that little bit where
maybe people are questioning the return
on investment for AI and what they're
getting from it but I think the reality
is that it becomes the new business
normal um and there's still lots of
businesses who are still getting up the
curve curve on that. So yeah, very much
still at the start of that um overall
business cycle.
Luis, great to see you. Thanks for
stopping by to see us. We really
appreciate it. L Dudley, global equities
portfolio manager joining us from
Federated Hermes. Quick look at the
Corsix. What is happening out there? The
firm focused this morning on French
stocks. There's a couple on the list as
you can see. Schneider coming back a
little bit. LVMH is coming back quite
nicely up by 1.4%. Some of the French
banks though uh struggling a little bit
this morning. Let's deal with the
details of what we are watching out
there in more detail. Here's Louise
Moon.
First one we're watching this morning is
JD Sports, a household name known to
everyone. They had some earnings this
morning. Shares up almost 2.5% on the
back of those. They maintain their
guidance. They their their sales
slightly dropped, but they maintain
their guidance and they're looking
positive ahead. So that's boosting
shares this morning for them up now
almost 3%. Next up, Royal Uni Brew,
which is a beer maker, also has a host
of soft drinks. They're up over 2% into
the green. That's after their earnings
this morning as well. So that's that's
uh playing into a positive into the
market. And then we're looking at
Hoshard Mining listed in the UK also
another earnings this morning. They beat
their first half revenue estimates
although shares down 19% now. Um they
their outlook wasn't as positive despite
beating estimates. And then finally, the
last one we're looking at is the German
real estate company around town down
almost 4% into the red. Their CFO is
stepping down and their earnings also
didn't impress the market this morning.
Thanks Luis. Thanks very much. Luis Moon
with the latest on those companies uh
that are on the move. There weren't that
many of them. Is it just me or is that
kind of short? It's not a very busy day
for corporate individual corporate
earnings news, is it? On the 27th of
August.
No, it feels like a top down rather than
a bottom up kind of a market. We've come
towards the end of earning season.
Nvidia kind of is the the sort of the
book end to that European earning season
largely done.
Big themes we're throwing around but
waiting for Nvidia and the next the next
catalyst.
Well, it's also just the last couple of
days of the month. So, it's just some
rebalancing I imagine that's also
happening in a very light volume, light
liquidity.
Somebody's out there. I'm sure
somebody's watching. We hope so.
We do sometimes sense that there a lot
of people on vacation still. Coming up
on the program, we will focus in on the
French story though because it has been
one that has kept equity markets
certainly on their toes. The cataran is
this morning up by 310en of 1% but that
by no means uh kind of overwrites the
losses of the last couple of days.
French assets have been under pressure
on concerns the government will fall uh
in a showdown over proposed budget cuts.
We'll have more next. This is Blooming
Back.
Welcome back. This is the opening trade
8:17 here in London. So 17 minutes into
a session that shows French assets well
stabilizing. That is a good way to sum
it up because we've seen two days of
selling in French stocks. Today looks a
little bit different but uh but we still
we still remember the the Monday and
Tuesday sessions. We though see this
stabilization bringing some rest bite
ahead of a key vote next month that
could trigger a collapse in the
government. For more, we're joined by
Bloomberg's French equities reporter
Julian Ponas who's been keeping us a
breast of all of the twists and turns in
this story over the last couple of days.
Julian, thank you for joining us once
again. So, so talk us through what's
happening on French markets then. And a
bit of a rebound, but nothing compared
to what was lost.
I I really wouldn't say rebound given
the the scope of the losses that we saw
the the last two days. I think the word
stabilizing is probably better. Uh to
the traders and the the investors have
been speaking to like there's a sense
that uh the the the cat could go down
the 7,500 points easily because in the
next two weeks before the votes, less
than two weeks actually, there's nothing
really that could prop up the market.
Because when you think of it, um there's
basically everyone is expecting um Prime
Minister Beeru to fail to lose his vote
and you could say that that's what the
market has has actually done. It has
given them no confidence vote to to
Beiru anticipating that it will he will
fail and that more uncertainty is to
come and there's like nothing on the
horizon to you know to change uh
investors opinion on the matter. So like
when you speak to people here, they're a
bit um concerned that you know flows
that have been coming into European
equities particularly in France could be
starting to make their way out in the in
the fourth quarter um if the uncertainty
continues. So the the the main stocks
that are hit most are like the banking
stocks and the domestic stocks and uh
um yeah so I don't think the 0.3% is u
changing the the green picture.
Julian when the French tenure in this
last iteration of of political chaos
that we saw overtook Spanish credit
yields there was celebration in the
streets of Madrid. a real proud moment
uh for for the Spanish just given that
there was so much instability in in
France. Now we're looking at that same
moment perhaps for Italy. What kind of
message does that send now that we've
been been in I want to say the fourth
iteration of this political turmoil in
the last two years?
One thing that's really interesting is
that French finance minister Lomba said,
you know, if um uh we we get into a
stalemate or we lose the comfort of the
vote, like it's possible that in two
weeks um France will have the same
yields as Italy. Uh it was 10 and now
it's only five
beeps.
So, it's like something like 77 against
uh
82 or 83 um in the spread versus
Germany. So, we're getting there. It it
look really looks like we're getting
there. Um I mean, it's it's more than
symbolic. I think um I think it's
really, you know, some kind of a game
changer. Uh, of course there's always uh
the risk of reading too much into, you
know, a a key figure, a key uh a
symbolic
uh price, but I mean it's really
telling. It is really telling. So my
fear, my fear, my concern or my
intuition is that some people would take
it as a benchmark uh and to reallocate
some funds.
Julian, we'll leave you there. Great
stuff. We'll continue to watch what
happens with a great deal of interest.
Julian Pon is joining us out of Paris on
what is happening with the French
political scene ripping through into
these markets. Let's talk about what
else we're watching particularly in the
banking sector. Shares of Deutsche and
Comets Bank trading lower after Goldman
Sachs downgraded the banks. Let's talk
about this and all the other stock
stories that we're watching so carefully
in this sector. Steve Arens, Bloomberg's
EU finance team leader joining us. Um
fascinating on a day when I see UBS
hitting a 52- week high that these two
banks which have had great runs are
being downgraded. What's the reason?
Well, as you said, they've had a very
good run. I mean, Commerce Bank is up
more than 100% this year to date.
Deutsche Bank is up up like 90%. Um,
it's amazing really and people are
taking the profits home with them,
right? Uh, so Goldman is saying the uh
this has run its course probably. Um,
take it easy now on these stocks. They
can't uh they don't have a whole lot
more room to run.
So, so that's the German story. We're
also looking at a story out of Italy
then, Stephen, which talks about a
possible bank tax. I feel like these
come up periodically, various parts of
Europe, and then either get implemented
or knock back. What are we expecting to
see in Italy?
Yeah, that's right. So Italy, you know,
it's got a bit of a fractious um
governing coalition and you know,
certain people in that coalition, they
always want to tax the banks as a bit of
a variation of tax rich. Um, Italian
banks have been very profitable over the
past few years. So there is money to be
to be gained from them. Um, it's
currently a discussion. They want to
extend an existing law that would uh ban
banks from using their deferred tax
assets for a while, which means the tax
bill goes up for a certain period of
time and boost the uh the state coffers.
We'll see what happens. I mean, it's
it's a discussion right now. Will it
happen? It's a bit up in the air right
now.
Stephen, let's continue the tour around
Europe and Europe's banking sector if we
can. UBS is one of the stocks that are
seeing a lot of heavy volume this
morning. only higher by 1%. But it's
notable because in the last 24 hours
there's been some reporting from you and
your team that UBS has been asked by the
Swiss Ministry to help with some of the
tariff conversations with the states.
Can you just give us a little bit more
insight about how UBS can potentially
help?
It's a it's a good question and I'm not
entirely sure uh if I can give a very
good answer because um the question is
what can what can a bag do? Uh the
feeling we have is that this is sort of
you know an outreach by the uh Swiss
government to not just UBS but other
Swiss companies big Swiss companies
especially in the pharma sector to see
what's the situation understand what has
actually happened in the real economy um
and the banking sector two of the
biggest sectors in Switzerland of course
and so uh just helping them understand
uh what the what the situation and a
potential reaction is maybe what
Switzerland has to offer to the US to
get a better deal further down the
Thanks, Stephen. Steven Arens, Sepmber's
EU finance team leader. Yeah, it's
interesting. Is this story just part of
an initiative that any government would
do, asking the businesses to, you know,
come forward and give us your thoughts?
Because our story goes on to talk about
away from the financial services sector
that Ro and Novatis, both of those
businesses have already weighed in with
their thoughts.
So, so if I'm Sergio Mart, oh, so we're
important to you, are we? So, so how
does that's how the relationship works?
Okay. After all the grief you've given
us recently in terms of the politics.
Yeah. Do we think the capital uh
requirements for example come down if
you help with the tariff business? Is
that the trade-off you make if you're if
you're Sergio or Mati? Uh but they do
have a massive uh US business and and
and I I wonder how this all to be honest
I don't actually know the mechanics of
it as as Stephen was saying but if you
are ser if you're any bank CEO do you
have a a pipeline to the leaders of that
country?
Well you'll have a lot to say on the
subject I'm sure. Interesting then that
we do have the banking sector as a
whole. So that doesn't include UBS
because that's in financial services.
But the banking sector as a whole is the
weakest performing today down by 7/10en
of 1%. Um and that was the story part of
yesterday, wasn't it? It was a French
theme to it yesterday. Today has more of
a German theme. Although some of those
German banks, Commerce Bank had a tough
day yesterday on another downgrade and
and obviously we were anticipating M&A
in the banking sector and I wonder if
that's not happening.
Is the runover European banks biggest
driver of European equity outperformance
so far this year? If the Goldman's note
on Deutsche and Commerce is is the
issue,
yeah,
and you extrapolate it to the rest of
the sector. I can can can Europe keep
going if the banks don't.
Well, we always thought that the party
would come to an end at some point
because that outperformance was driven
by
was just getting going.
I know. I kind of I'm wavering about
whether I want to be in on the party
this morning. It's it's back and forth
right now. But we did expect the party
to end because so much of the
outperformance is buybacks, dividends,
and in the case of Unicrat and BBVA, a
little bit of M&A. And then and then on
the trading side, there was a lot of
benefit of course in trading divisions
across Europe from just as we saw on
Wall Street as well from the volatility
created by a lot of Trump uh President
Trump headlines around tariffs and that
that hasn't died down entirely, but the
market has become increasingly
accustomed to it perhaps and so we'll
see whether those trading desks can
continue to deliver.
We've done a whole main conversation,
haven't even talked about the credit
space yet. That's conversations we're
going to have next. Our next guest says
Europe is on track for near record bond
issuance. Matias Rushka, JP Morgan's
head of European investment grade
finance, joins the program next. We're
going to dive into those credit market
dynamics in the investment grade space
and the cue they may be taking from
Gubbies and the private space as well.
Stick with us. This is Bloomberg.
Welcome back to the opening trade. About
30 minutes into today's session, I think
we went into today's session expecting
France would be the underperformer. And
don't get me wrong, it's not exactly uh
the outperformer of the day either.
Well, it's definitely not the
underperformer. It's interesting. The
DAX is down about 1/10enth of 1%. Again,
these are tiny moves, but the fact that
you're not seeing a bounce back given
that we did see a rally in the states
yesterday. The most action you're seeing
is in the footsie 100, but even that
starting to pair some of its opening
gains only higher by 210 of 1%. Guy, I
I wish I could add a clear sense of
direction to what you've just given us,
but there isn't one. Let me just kind of
break down some of the internals we're
seeing in the market. Uh stock 600
higher 260 lower 313. That looks like a
fairly balanced market to me. If you're
looking for a volume pickup, you're not
seeing it. Uh the volume is down by
around a quarter. We're back to August
kind of a market. Uh and I suspect that
may be persisting for the rest of the
week. Next week maybe a little bit
different after Labor Day. Uh in terms
of the 52- week highs, we talked about
the downgrades we're seeing in the
banking sector, what is happening in
Italy, but Switzerland feels like a
beacon of action this morning. 52 week
high on UBS. That stock, as you can see,
has rallied really strongly over the
last few weeks. We were talking about
the fact that banks have powered the
gains in Europe this year. We're
starting to see that fade. That's a big
deal. But we're not seeing it fading in
UBS today. As I say, that stock up very,
very nicely. Anna, what else we got?
Yeah, let's get an update on some of the
other stories that we're covering for
you this morning. We'll start with the
Fed. The Trump administration is said to
be reviewing options for exerting more
influence over the Fed's 12 regional
banks. It comes as President Trump says
he's prepared for a legal fight with Fed
Governor Lisa Cook. That's after he
moved to oust her from her post
following allegations that she falsified
mortgage documents. The United States
the levies, but other sectors like
hit hard. And French assets are
stabilizing today even as the latest
bout of political instability endangers
the nation's nent economic recovery.
this after Prime Minister Franto called
a confidence vote that could topple the
government of course and Chrissy we
talked about this a number of times this
morning about how uh the French story is
playing out been a market focus over the
last couple of days certainly from a
stocks perspective maybe bond markets
though managing to stay a little calm
over the last 24 hours what have we
learned we haven't heard a huge amount
of new information about which way the
parties are likely to vote and so I
suppose it's kind of as we were
yesterday in fearing uh for Franis Beeru
and the future of his Absolutely. Well,
we're not seeing much market reaction
yet in the bond market as you were
pointing out. The open spread, the
French Italian spread, the French
Spanish spread if you really want to put
into it. I mean, these dynamics are
fascinating. I wonder how much of a
complacency story there is here. Guy,
especially when you do look at the
spread versus Germany. Carmenac saying
it's going to hit 100 or 77 right now.
Is that going to ripple through into
what we're seeing in the credit market?
I think is a key question. Primary
issuance is still looking pretty good.
In fact, it's looking really strong at
the moment. Yesterday was strong.
Today's strong. Are we going to see any
impact coming through from what we're
seeing in GVY's European government bond
markets into credit? Let's try and
answer that question. Uh Matias Reski is
the head of European investment grade
finance at JP Morgan. Good morning.
Good morning.
Yesterday was pretty good.
Absolutely.
Today looks pretty good. Primary doesn't
seem to be having seeing much of an
impact coming out of the GVY market. Is
that the right reaction? So I think
first of all uh what we're seeing is a a
market that's surprisingly strong with
all the geopolitical noise whether it's
in Europe in the US tariffs and so on
absolute levels are almost at historical
tights you know we see spread levels
both in Europe and the US really uh you
know can't get get much better what but
what what we are seeing is that
investors are becoming ever so slightly
more selective you know all the deals
that we did and there was 10 billion of
supply yesterday went well but we saw a
really significant amount of attrition
as we went through you know revising the
pricing so you know we went from you
know Schneider having a uh 11 billion
order book to you know in some of the
you know tranches that weren't
performing so well more than halfing
right so investors are saying I'm still
comfortable but you know there is a sort
of limit and uh we we really went there
yesterday
you you've seen this before you've
you've been around long enough that you
understand how the market dynamics work
kind of what signal do I take away from
that? Is there is this just we're really
tight and I I'm getting kind of a bit
more selective or is there something
bigger here that we need to be paying
attention to? So the what's clearly
evident is that investors are a little
bit nervous about the levels but at the
same time whether you look into the
investment grade market or the high
yield market there's a lot of cash
around so obviously investors need to
invest that
but what's very clear is if if there
would be negative news that would be
more substantial than you know the
geopolitical noise
give me examples of that kind of news
so you know when we had non-farm
payrolls in late July
y
uh obviously they were disappointing and
then the previous three uh non-farm
payroll data were lowered uh in in terms
of what was reported before the market
got worried that what we're you know
that our biggest fear might happen which
is tariffs are going to be negative for
the global economy that the US might go
into a recession which is right now not
the base uh the base assumption but we
are also relatively early in the whole
tariff gain
companies don't really know how to
behave it seems to change every other
day what's going to happen so the real
impact hasn't been seen yet so if we
would see a material impact on US
consumption on the economy tailing off
further. I think we'd see a real uh real
change. Keep in mind spread levels are
about 50 basis points tighter than they
were in early April when the tariffs
were announced the first time. That's
the kind of you know variance that
you're playing with at the moment and
obviously investors are somewhat
concerned about that. So the argument
for why perhaps there's this element of
resilience or corporate resilience in
the states, but arguably in Europe as
well, is that there's a lot of liquidity
and cash left over from a lot of the
record issuance we saw in 2020 and 2021
specifically here in Europe. When it
comes to financing conditions, how much
of that is kind of the playbook you're
seeing from corporates, i.e., If you're
expecting more volatility and you're
expecting Fred rate cuts and you're
expecting more tariff risk, it's better
to raise money now to build up that
cushion. Is that the thinking?
Absolutely. Uh when you look at what
happened in the first half of a year or
until now, we are now 4% ahead of last
year in terms of issuance volumes. If
you look at the dollar, euro, and and
sterling market, uh we're about flat for
the dollar, but we're about 13% ahead
for the euro market.
As we have gone through the year, we we
hit this big hiatus in April. You know,
spreads went wider. Corporates were
okay, I need to see what all this means.
They came back pretty quickly and people
were really worried and you saw a
massive wave of issuance in April, in
May, June and July. And I think we are
going to continue with that that
narrative. Think about the bank sector.
Banks are pretty much done with their
funding program, you know, for the year.
What we're seeing right now is them
already going into the market saying,
"Well, you know, who knows how the next
6 9 12 months are going to be. I'm just
going to continue with my program. When
the market's good, I'm going to hit it."
You just did a deal with Schneider
Electric that I've heard has gone very
well. There is an argument that we've
had in the last couple of days from
credit guests who are saying that
because of the sticky fiscal situation.
A lot of the fund flows, as Guy was
pointing out, are coming to the
corporate credit space as an alternative
to that. If that's the case, how low can
spreads go and are you seeing that being
reflected in some of the corporate deals
like like Schneider?
Yeah. So, if you look at the Schneider
deal, what was interesting the the the
largest demand was at the at the sort of
at each end of the fortrunch deal that
we did. So at the short end and at the
long end. What was particularly
interesting was French insurance
companies were massive in the 12 year
for Schneider a deal that we priced 10
basis points inside French gubbies right
so it's very clear that a globally
diversified A-rated names like Schneider
Electric you know Semens you know the
like you know that's exactly what people
are saying if I am a little bit worried
especially on in the short term of what
might happen that's probably a safer bet
so I I'm I'm willing to you know pay
very aggressive Schneider a French
company is is a better bet than than the
French government.
Well, in the short term, I guess that's
what people are are doing are saying.
Yes.
And and is that entire is that does that
make a that makes sense? Is that is that
a view of the future, Matias? Or the
near- term at least given that post
pandemic a lot of guests have told us,
you know, companies came out of that
with pretty decent balance sheets.
Governments came out of that without
good balance sheets. So, it would make
sense maybe that companies can borrow at
a cheaper rate than a government.
Yeah. I mean, I guess the, you know, the
long-term theory of uh of of the
risk-free rate being displayed in gi
yields and there being a premium for
corporates, I think will still hold. I
do think that there are certain
corporates that don't come often, you
know, that have an incredible uh you
know track record of performance that
that it might happen. I do think for the
general market that theory would still
hold. M talk to me about the role of the
private market because interesting when
we talk about uh corporate debt markets
being at record he tights and you know
that's obviously comparing it with its
own history but is the market what is
the public market now what it used to be
because haven't a lot of names that
maybe make it more difficult to to
borrow just gone to the private markets
instead and so comparing the public
market with its own history maybe is a
bit more difficult these days. So the
the private market certainly is a is a
huge theme. It was obviously initially
uh something that was really um dominant
in the high yield market but we're
seeing it more and more also you know
somehow applying itself on the on the uh
investment grade side. Private credit
ultimately uh you know uh sells itself
to its own investors for getting a
premium relative to the public market.
So if you are a public market issuer and
you have great access and your story is
good, I think you will still go for the
public side. But somebody that needs a
little bit more of a tailored solution
that maybe has ratings pressure, you
know, certain, you know, huge
investments where you might want to have
them off balance sheet first and bring
them back on. I think they are starting
to realize that the sheer volume that is
available is obviously an option and
it's right to, you know, look at all the
options that you have and then decide
what's best for you. You talk to a lot
of companies and you talk to a lot of
investors. What what is their
expectation currently of what the tariff
narrative is going to look like? Because
it it feels like over the last few days
we've come back to this idea that maybe
the impact isn't going to be so great.
You you smile at me.
Is is that where your head is? Is that
where the people you talk to's head is?
I don't know why where my head is but
you know I think that you know the
investor's mindset is clearly that while
there will be an impact we are facing
potentially an economic slowdown in the
US but I think people are not worried
about uh you know a real recession
ultimately you know the way I think
about tariffs is you have a 10% base
layer that obviously they apply to
pretty much everybody and then they have
additional ones with certain sectors in
certain countries so right now add all
that up you're sort of 14 15%. So the
question is how is that going to be
swallowed, right? Is there you know at
at what pace can price increases to the
US consumer be pushed through? Clearly
not something that the US government
wants to see but obviously something
companies will try. Or how how can
companies, you know, balance out their
supply chain over time to to swallow all
of that. And it seems to be that the
market is saying somehow what we're
seeing right now is that we can sort of
sail, you know, through it maybe at a
slower pace.
Yeah. Yeah,
but it's all going to be fine. The
question is if that's true.
It's all going to be fine.
Well, I'm a bit worried and I think
people should take advantage of markets
that are pricing in all the good news.
Can we talk about another risk and going
back to Anna's point on private credit?
There's been there's an argument for the
private credit bulls in the room or in
the world that the deals that are
creating this private credit boom are
insulated and not going to create
systemic risk if something goes wrong.
From your vantage point, if something
does go wrong in the private credit
space, if you see a surge of defaults,
is there contagion into investment
grade, high-grade, etc.?
We're not worried about that in the
investment grade space for sure. The
question is at the at the moment the
numbers sound large, you know, in terms
of uh private credit, but there's still,
you know, a relatively small portion of
the total market. Obviously, you know,
that will continue to grow. But as I
said before, the question really is
whether if the narrative for private
credit funds is that they're going to,
you know, they're going to produce a
premium to what, you know, public market
funds are producing, then for companies,
the cheapest cost source of funding is
still the public market, right? So, it's
always going to be for those companies
that need something special. And I think
there's a space for it. The question is,
how much is that? I'm not going to put
percentages on it, but it's going to be
a portion of the market. It has a it has
a space for it. Is it going to be so
large that it causes a systemic problem?
I think we'll have to watch it clearly,
but it's not something we're worried
about at the moment.
Matas, thank you very much. Really good
to see you. Thank you very much for
coming in. Mataska, head of European
investment grade finance at JP Morgan.
Coming up on the program, as investors
brace for results from the world's most
valuable company. Yes, we're back to
Nvidia. We will discuss the earnings,
what to expect. Cla Playel Bouver joins
us, fund manager at Lion Trust. A lot to
say on the subject of Nvidia, so we'll
get into that conversation next. This is
Blingber
and video reporting earnings after the
market close. We're waiting till 8:45 to
get to the story, which tells you just
how much other news there is to process.
Traders are hoping you can shore up
fears about AI spending and effectively
confirm that the stock market's latest
rally isn't just another tech bubble.
Claire Pledel Bovy, fund manager at Line
Trust Investment Partners, of course, a
key watcher of Nvidia and expert.
Claire, this is the story of the A+++
student getting another great report
card. Is how high are the standards
right now?
the bars bar is high. Um but I mean
what's exciting about this quarter is
that it's the first full quarter of
Blackwell um Nvidia's latest
architecture. So we're going to see that
in the results but more importantly
we're going to be seeing this in in the
guide. You know what is the demand for
Blackwell because we've got to remember
every single model on the market today
whether that be from OpenAI Anthropic
Grock that's all trained on the previous
generation Hopper. So this is the first
time we're going to get a complete view
of the demand outlook because up until
now supply has been a bottleneck. What
we know is now the supply chain is
humming. So we're expecting a very
significant beat and uh a sizable raise.
How much of this is a question of
liquidity at the end of the day?
Liquidity versus kind of revenue from
China, revenue from other diversifiers
or are we still hyperfocused on the
hyperscalers?
So our focus is not on the hyperscalers
anymore. We think that you forecasting
future revenues for Nvidia looking at
backwards looking hyperscaler capex is
fundamentally the wrong way to be
looking at this company because we're
now moving into the next demand waves of
AI adoption. The first wave is really
being dominated by those hyperscalers by
the cloud service providers but the next
leg is enterprise AI and that has been
the key change in the ecosystem over the
past two quarters. We're moving from
experimentation of AI to deployment at
scale and inference as a result is
inflexing. Inferences affect the
monetization of AI. So you're pulling
that ROI spend through and as that
adoption broadens throughout the
enterprise, we're going to see less of a
concentration in those hyperscalers. you
know, alongside those enter enterprise
and sort of vectors of demand, we've
also got sovereign AI, which we think is
probably the the most overlooked
component of Nvidia's future revenue
streams because it's impossible to
predict, but this is a $ 1.5 trillion
opportunity.
That's interesting. Why why is it more
impossible to predict than anything else
about AI? Because so we've got so we've
got uh the hyperscalers, now we've got
enterprise AI, and then you add to that
the sovereign AI. So this is
governments, nations, countries deciding
they need data centers and they need to
run their own AI infrastructure. Why is
that more difficult, CLA, to to get our
heads around and predict and forecast?
Because of uh data protection. It's it's
very very hard to get visibility from
these customer demand profiles. Uh what
we do know is that Nvidia has got line
of sight to 10 projects worth around 10
gawatt. uh to put this in perspective
about a gigawatt is a $50 billion
opportunity for Nvidia. Now these are in
the planning stages. Uh we do expect
these to start to become a material
revenue contributor over the next two to
three years. Um and we're hearing this
from every single nation around the
world whether that be Japan, Canada, the
Middle East, even the UK here. Uh the
these are these are companies
recognizing that they need AI to um
increase the productivity of their
nations,
right? And some of the energy
infrastructure they might need might be
a little harder to hide. So I mean is
that something you're concerned about
though from a from a from the sovereign
side? How quickly can it expand or or
for for any AI um you know anybody who's
inferencing using AI are you concerned
about their energy supplies? Is that
going to be the limiting factor not
supply anymore of of GPUs?
There's a lot there are a lot of
bottlenecks still. Um I mean the chip
constraints were the the primary factor
maybe a year two years ago. Uh power is
probably the single choke point in the
supply chain right now that is causing
delays in standing up these data
centers. You've got met even putting
GPUs in tents at the moment in some
locations in the US because they're
having delays in getting their data
centers up and running. Uh so in terms
of sort of the whole investment
opportunity when you look across the
ecosystem, we do think that a lot of
these power generation companies uh
particularly those that can get power
very quickly to their customers.
Thinking about nuclear in particular
here are in a very strong position.
Cooling a tent must be quite hard. A bit
of a challenge there. Um couple of quick
questions. How fast does an Nvidia chip
depreciate?
So we don't actually completely know the
answer to this because Nvidia's first
generation of chips ampere they're still
being used by some customers because the
demand is so strong. Uh Hopper is still
in use 5 years is the standard. Uh now
Blackwell because the AI workloads
running on Nvidia's latest compute
architecture are running at incredible
speed and performance and they generate
a lot of heat. Uh there is speculation
that we could see shorter depreciation
cycles which will obviously be fantastic
news for Nvidia.
Bad news for its customers.
Uh well they would have to buy more
Nvidia chips.
Yes. And and the the kind of the stock
they have will be worth less quite
quickly. So from an accounting point of
view quite bad. There's a not there's a
point at the end of your note which I
thought was really interesting. We see
no reason to hold Microsoft, Amazon,
Google, Apple at present.
That's 20% of the S&P we're talking
about there in terms of the market cap.
How much are these things mispriced?
We think considerably. You know what you
see with every single big technology
platform transition is that demands for
compute architecture change. And we saw
this with the cloud. We're now seeing
this with AI. If you think about the
traditional hyperscalers, the AWS's, the
GCPs, Azure of this world, they are
built on traditional compute, they
charge a lot of money to their customers
for compute, network storage. The
margins on their traditional cloud
businesses are very, very high. And
they're able to do this because they
bundle in software with it. It's very
hard to actually discern what you're
buying from these companies. Now we're
now obviously in a era where everyone is
demanding accelerated compute
infrastructure. So cloud providers that
are purpose-built for accelerated
compute, think Oracle, Coreweed, some of
these neo clouds, they're offering the
ability to run AI workloads 50 to 60%
faster, 30 to 40% cheaper because it's
optimized for accelerated compute. So
what we're seeing from AWS, GCP, Azure
is that they're losing share to these
new hyperscalers for AI workloads
specifically. But we also think that
you're going to see uh margin
compression over the next 5 years
because there is no way that these
companies can continue to charge what
they are charging for traditional
compute in CPU world for GPU workloads.
This will take time for this thesis to
play out because that we're in an acute
demand supply imbalance. So the Azure
numbers still look fantastic at the
moment. Uh they've obviously got a
partnership with OpenAI which is also
helping to prop that up. Uh we'll see
whether that relationship continues to
hold but we think that these companies
are going to be on the wrong side of
this shift over the next five years.
20% of the S&P
margin compression. Wow. Okay. We're
going to watch that one very carefully.
Thanks for bringing that point to us.
Claire Plato Boover, thank you very much
indeed. Co-lead fund manager at Lion
Trust Investment Partners. Um, Cody
wants to talk about uh No, I'm looking
at you, Cla. Cle wants to talk about um
about Taylor Swift.
She's running away. She's literally
running away.
You can stay. You can stay. Don't worry,
we won't ask you about Taylor Swift.
Here's why. Congratulations are in order
for pop superstar Taylor Swift and NFL
player Travis Kelce. Uh the parent
five-part post on Instagram. captioned,
teacher are getting married. It's cute
if you're a Swifty." Well, wishes for
the couple are already pouring in online
and even from the White House. President
Trump, who has been critical of Swift
for endorsing his political rival Kla
Harris, commented on the engagement
during a cabinet meeting.
Great player. I think he's a great guy
and I think that she's a terrific
person. So I wish them a lot of luck.
All right, the words that he did talk
about Taylor Swift first.
Yeah, he did. That might have been lost.
He he congratulated the couple. We're
very excited for the couple. OT opening
trade congratulates couple invites them
on the show. Maybe after their wedding
they'll they'll join us here on set.
He's hoping for an invitation. Clearly
that's what's happening here.
We're going to talk cars later. I don't
know kind of how I can follow that
somewhere. Um the CEO of Volva Cars is
going to be joining us very shortly.
We're going to talk tariffs. We're going
to talk EV production plans. Apparently,
European car makers, though, are looking
for the opportunity to maybe continue
with their original ICE engines. That's
the letter that's gone out today.
Anyway, that conversation uh is coming
up at 10:40. The pulse is up next. I
hope you enjoyed the show. Lovely day
out there. This is Bloomberg.