[Music]
news makers and market movers.
This is the pulse with Francine Loqua.
Good morning and welcome to the pulse.
I'm Joanna Bersacei in Dubai filling in
for Francine Laqua this week.
Now, President Trump says he is prepared
for a legal fight with the Fed Governor,
Lisa Cook. That's after he moved to oust
her from her post following allegations
that she falsified mortgage documents.
Bloomberg's Amarie Hordern asked the
president about the legal battle ahead.
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.
Joining me now is our chief Asia
correspondent Rosalyn Mat. So super
timely question from Admirie to
President Trump regarding the future of
Lisa Cook. Uh how is this all going to
play out? How is this legal battle
likely to play out between President
Trump, the Trump administration, and
Lisa Cook and her lawyers?
Well, as you were hearing from her
lawyers, they plan to file a lawsuit
against this. And what that's going to
look like initially is probably an
injunction just to call a halt to
efforts to fire her while this
litigation plays out. It's worth noting,
of course, that no charges have actually
been filed against her. Although there
is the hint of a DOJ investigation, she
denies any wrongdoing in these
allegations that have been made against
her about her mortgages. But this could
play out, you know, for quite a while in
in the legal sphere and potentially with
ramifications beyond just her own case,
especially if it gets to the Supreme
Court and the idea of what is the view
of the Supreme Court uh with
institutions in the US and the ability
to fire people for cause and what does
cause look like and what are the
protections for some people who are
appointed to these institutions. So
obviously very important for her own
case, but possibly very important for
many other officials in the US
administration. And so we we could see a
bit of a protracted legal case going on
here. As we heard, Donald Trump says
he'll abide by the court decision, but
he's prepared to to continue either way.
uh the Fed itself saying also they'll
abide by any legal decision. But
interestingly in their statement
yesterday noting that long tenures uh at
the Fed, the appointment process is
designed to ensure in a way Fed
independence that they can make their
decisions based purely on the economic
circumstances for the best of the US
people. So a bit of a nudge there from
the Fed in their statement. Uh the
question is does an injunction come as
soon as today and then how many weeks or
months are we looking at for the legal
process?
Yeah. And then also another Bloomberg
story that we have up this morning about
the president also looking to exercise
potentially further influence over the
selection of the regional presidents as
well. So it's creeping. Um but let's
also go back to another one of the big
stories today as well which is that
those 50% higher tariff rates have now
been applied to India. How much of a
blow is this going to constitute for the
Indian economy? Raz well India is a
largely domestic consumption story for
its economy but the US is its biggest uh
export market and obviously this is
going to be a blow to many labor
intensive sectors particularly of the
economy including jewelry for example
textiles. some sectors are protected
like chips for so on but it will hit
some of those labor intensive parts of
the market um and so we could see an
impact on India's economy from there but
also there are lots of knock on effects
from this even if this is issue is
resolved fairly soon although it doesn't
seem that it's going to happen
immediately even if it does get resolved
tariffs come back down you know if
you're a company who's been looking to
shift your production say from China
elsewhere maybe to India do you now
reconsider if you're a factory already
operating in India looking to ramp up
production. Do you now slow those plans
down? So there could be a lot of
knock-on effects on the Indian economy
that you know about business decisions,
locations, expansion and so on that will
come out of this and there's also the
the really big knock on effect which is
on the US India relationship. I mean
obviously this has been a blow to the uh
to the Indian leader Narendra Modi you
know his status at home. Does he
reccalibrate his relationships away from
the US and that could be a very
long-standing change for India that goes
belong uh beyond any kind of impact on
the economy in the short term?
Yeah. Well, we're going to unpack all of
this later uh with the guest on our
show. Uh for now, our chief Asia
correspondent Rosalyn Mat. Thank you so
much. Well, on to the other big event of
today. Nvidia is set to deliver a highly
anticipated earnings report today,
giving an update on the artificial
intelligence spending boom. Analysts
estimate that the biggest buyers of AI
hardware are still investing heavily in
new gear. However, dimming the
excitement is confusion over how much
business Nvidia will be actually able to
do in China. So, let's bring in Robert
Lee from Bloomberg Intelligence in Hong
Kong. Just looking at Nvidia pre-market,
it's seen to open up marginally higher,
up half a percent. I guess the calm
before the storm because the earnings
report hits later today. What's in
slate? What are you watching out for and
how much of a a driver do you think
Nvidia's commentary around China is
going to be?
Okay. Uh well, I think you said it in
your prelude. A highly anticipated set
of results, but probably we say that
every quarterly results for Nvidia. Uh
yet again, the stock is trading very
close to an all-time high. Uh and as you
said in the pre-market, it's sort of
trading up. So I think that indicates a
very high level of expectation
baked in um you know some significant
expectations out there in the market. So
uh for us to avoid the inevitable profit
taking which is something we typically
see uh post results with Nvidia the
company really needs to either deliver a
major surprise in reported numbers or
guidance simply put. But as you said
again in your prelude, the H20 uh which
is this specific chip that pres
President Trump more recently um allowed
uh the company to continue exporting
into China. I think a lot of the
discussion in the debate is clearly
going to be about that.
Yeah, most definitely. A lot of focus on
that H20 chip margins as well. But look,
let's let's broaden it out a little bit.
Um, last week the CEO of OpenAI, Sam
Alman, started to warn that maybe AI is
entering into bubble territory. It feels
as though there are some out there
turning a bit more cautious on on
valuations at this juncture. Have we
reached peak AI euphoria?
Right. Well, I would say um there have
been a number of external factors that
have driven sentiment in NASDAQ and the
US markets recently and the main one
being you know expectations on Fed rate
cuts. Um so not necessarily driven by uh
any you know additional uh positivity on
the fundamental outlook and contrary to
that as you mentioned Sam Alman has made
statements about the sector being a in
potential bubble territory. I think many
people would potentially agree with
that. And there was also an MIT report
out of the states I think about a week
ago which again based on a survey of US
companies they done only I think 5% were
making any real return in their
investment in AI 95% were making no
return whatsoever. And this is a point
that we have come back to again and
again at Bloomberg Intelligence within a
China context. Whilst you know it's the
companies providing the infrastructure,
the chips, the cloud computing services
which are being used to train these
models to develop new apps, it's the
infrastructure providers that are making
the money at the moment to state the
obvious. But how you know at the end of
the day the software companies cannot
continue to spend billions or tens of
billions on capex if they have no
visibility on making a commercial
return. So I think increasingly the
market is rightfully focused on the
outlook for monetization within the
sector because it makes no economic
sense whatsoever. I'm not picking on
Microsoft, but for Microsoft to be
spending something like 85 billion on
capex this year again if there isn't a
return invest on on investment um in the
foreseeable future. So the monetization
argument, return on investment are the
key issues that investors in the AI
sector need to continue to focus on.
Wow, that 5% number that you mentioned
really stood out to me. Robert Lee from
Bloomberg Intelligence. Thank you so
much for the preview into Nvidia. It's
going to be a important driver of
sentiment later. All right, for more on
the markets, joining me now is Maya
Bandary, the IMIA CIO for multiasset at
Newberger Burman. Uh Maya, there's so
much to discuss and we'll talk about
market valuations, but I just want to
maybe start with the big topic of of the
last couple of days, which is the moves
out of the Trump administration, out of
President Trump to perhaps infringe on
the Fed's central bank independence. uh
targeting Lisa Cook. Our own story
overnight looking saying that he's
looking to exert more influence over the
appointment of some of these regional
presidents as well. How do you think all
of this is going to pre play out in
terms of premium and the extra risk
premium that US investors are going to
look for in some of these financial
assets?
Uh thanks Joanna and and and good
morning. Yeah, you know, the prospective
uh firing of of the Fed's Cook would be
the first time in in over a century we
we've seen something like like that
happen. And I think as you covered off
in your uh your your real a moment ago,
seems likely to be challenged uh legally
uh by by by Cook's legal team. Uh I'd
say uh you know, in the big picture, you
know, uncertainty uh prevails and and
the question of Fed independence is is
very real. uh you know should the
termination stand for example uh Trump
would be uh able to appoint another
governor and would have therefore
appointed four of of the seven uh board
seats. There's also uh the question
around around the regional uh banks
which is which is of course important uh
because uh uh uh five of the 12 regional
bank presidents sit on the FOMC and
every 5 years uh these 12 regional banks
come up for approval and that's
happening uh in in the first quarter of
next year. So uh so you know there are
some fairly significant potential shifts
happening uh under the hood uh at at the
Fed. Uh I think it's important to say um
before we talk about markets that while
this this could reshape you know the
FOMC uh more more broadly I don't think
it shifts necessarily the near-term
balance on on on rate cuts. You know
Cook herself is a dove. Uh so it doesn't
really shift the balance on on on on
rate cuts per se. But what we have seen
I think from uh from markets has been uh
of course you know a weaker dollar a
stronger gold. uh but the real action uh
has has been in bonds and and longdated
yields uh moving higher uh with with
considerably uh steeper curves uh as as
as short rates uh have have fallen. So
you know the US 30 years back around 495
it's a whisker from from 5%. Uh you know
the parts of the curve that that most of
us have been watching um uh you know the
1030s the 530s are all the steepest
since since 2021
and you know things like the US 2-year
inflation is it you know 3.05 that's the
highest since since late 22 when we had
a very different setup of course with
the Fed hiking aggressively inflation
above 6%. So I think bonds have reacted
quite quite strongly and those moves to
us look justified.
Yeah. Okay. So let me pick up on on
since you've you know mentioned the the
move in fixed income. Uh there seems to
be a disparity between what fixed income
markets are pricing in right now, which
is somewhat of a stagflationary
scenario, slowdown of the US economy
combined with potentially higher
inflation down the track versus what is
being priced into equity markets, which
is, you know, good old days, Goldilocks,
very strong corporate earnings. Which
one of these narratives is correct?
Yeah, I mean I think that's that's
that's a great question and it's
something we've been we've been writing
about uh and and talking about quite a
lot at Newberger Burman because uh you
know I'd say big picture one of the
striking dis discrepancies in risk
premier that actually has has has has
persisted since just before liberation
day since the 1st of April has been this
disparity between fixed income
particularly long duration government
bonds uh and equity markets as you say
you know fixed income and we just talked
about the moves at the long end of of
the US bake in increasing caution. Um uh
you know equities uh appear to reflect
growing optimism and I think what's been
what's been interesting particularly
through uh through the the last few
weeks of of earnings but but also uh the
macro data that each of these opposing
moves if you will have have garnered
support uh in in recent weeks. um uh you
know bond markets from some of the
policy fears we've just been talking
about and and equities uh from uh
remarkably uh strong earnings. Uh now
what we've been doing uh with this um is
is is really taking a a a barbelled
approach uh if you will uh you know in
corners of fixed income uh that perhaps
overcompensate
uh for the risks around growth and
inflation areas like the US tips curve
the belly of the inflation protected
curve US investment grade credit bonds
emerging market local bonds we've been
we've been leaning in uh and we've also
been uh been uh been taking advantage of
some areas of equity markets uh you know
US tech for example where I think we you
were talking just a moment ago around
around around Nvidia you know
exceptionally strong earnings um that we
wanted exposure to but also areas uh
like like Europe uh Japan and and and
parts of emerging markets you know
Europe and Japan key sectors like banks
uh um uh uh we think look look pretty
good here and uh and so we've had some
exposure there
Maya let me bring it let me bring it
back to what you were saying about
equities versus fixed income. You know,
this phenomenon of uh perhaps the the
two different instruments signaling a
different type of economy. Is that true
also in overseas markets as well? Do you
see this very tight equity risk premium
versus a higher bond risk premium being
played out for example in Europe?
I mean, I think we see the the higher
bond risk premium more more broadly. I
mean we could talk about France if if
you like but there have been things this
side of the pond uh as as well that have
driven have driven fixed income premium
and by fixed income premium I mean
duration premium because of course when
we look at spreads they're they're very
tight so I think the fixed income uh
side of things the government bond side
of things has been quite similar uh of
course the difference has been uh on on
the equity side where equity risk
premium is very tight uh in in in the US
very much led by some of those those X
or tech stocks or the MAG7 stocks. Uh in
in Europe, uh we've seen we've seen less
of that. And so when you compare the the
very big picture equity risk premium
versus uh fixed income risk premium, uh
the disconnect looks a bit less intense
uh in Europe for example than it does in
the US. But there is this disconnect uh
which I think is an important point uh
to make.
Yeah, very valid observation. Maya
Bendari. Always good to talk to you.
Thanks so much for coming on the show.
IA CIO for multiasset strategies at
Newberger Burman. And coming up at
President Trump's crushing 50% tariff on
some Indian goods takes effect. We speak
to Shimita Devasar, the chief India
economist at TS Lombard next. This is
Bloomberg.
The US has slapped a crushing 50% tariff
on some Indian goods. The higher tariffs
doubling the existing 25% duty that was
implemented on August the 7th. Joining
me now is Shmita Deveshawar, chief India
economist at TS Lombard. Good morning to
you Shmita. Well, this 50% tariff rate
sounds like a very high number and
indeed it is the highest tariff rate
applied to any Asian economy and yet a
lot of the growth in India is still
driven by domestic demand about 60% of
the economy from from what I've read. So
how much of an actual economic impact
are these higher tariff rates going to
have on the Indian outlook?
In terms of the uh overall impact, it's
actually quite less. uh we're estimating
around 0.5 to 0.8% 8% of of GDP. But
given that India's economy is still in a
revival phase where private investment
hasn't really picked up, uh urban
consumption has been a bit of a worry
and um over the longer term
manufacturing as part of uh GDP has just
stagnated. Uh this is quite a big worry
because the US is after all India's
largest export market.
Yeah. So the reason that these tariffs
have doubled from 25% to 50% is because
President Trump is unhappy with India
buying or continuing to buy uh uh
Russian oil and the latest numbers
suggest that India continues to import
about one and a half million barrels per
day. The prime minister is pretty
defiant. There are no signs that they're
looking to find alternative sources. But
should they decide to go down that
route, how feasible is it really for
India to find alternative sources of
energy?
Um as such just about 4 years ago uh
Russia was a tiny um percentage I the
Russian oil was a tiny percentage of
India's oil import basket. Um so it
isn't that difficult um to uh gradually
reverse uh the dependence that uh India
has now on Russian oil which now makes
up about 35% of India's import basket.
There's been a rapid escalation in in
Russian oil imports over the last few
years. The point really here is that uh
Prime Minister Modi can't really be seen
to be buckling down under external
pressure and the more public that this
is made that these tariffs are being
imposed as a punishment uh on India you
know to India for the the Russian oil
imports uh the harder it's going to get
uh to to reverse. So I think that right
now both sides are really digging their
heels in. Uh this also comes in the
backdrop of trade negotiations that have
stalled because uh the US wanted greater
access to India's uh farm and dairy
markets and those that's a sector that
um the government will not open up for
the US because it needs to protect its
farmers. That's what so all this comes
in that backdrop. So I think there two
things over here. One is that the trade
negotiations continue um which seem to
have stalled right now. there was a US
delegation that was expected to come to
India at the end of August and they've
postponed that visit and the second is
what happens with uh with Russia and
Ukraine uh you know at that at that
level that if things settle down over
there if there's a truce then this 25%
as far as the Russian oil penalty is
concerned goes but I don't think that
India is going to yeah
um you know publicly say oh because of
US pressure we're going to stop buying
Russian oil
yeah okay So given you describe an
approximate, let's say half a percent uh
hit to GDP, what are the options policy
makers have to help shore up growth and
help the parts of the economy that have
been hit the most and and how does the
recent reform momentum play into that?
Exactly. You know, we've always said
that um India reforms when its back is
up against the wall and it really seems
to be an instance of that. Uh these are
long pending reforms that the prime
minister has uh has announced in terms
of the GST reforms. Um just
rationalizing the tax system, making it
easier to do business. Uh these are
things that have been uh continuing at a
at a very slow pace and and uh the
recent announcements that the prime
minister has made as far as the taxation
policy is concerned is is seen as
rekindling that um reform momentum which
had been waning uh quite significantly
since actually a Modi second term. Uh so
this is a positive um move because we do
need to you know whether the US um
pressure was there or not uh the the
basic truth is that we need to reform
and we need to increase the pace of
implementation of reforms if India has
even the aspirations of growing at 8%
whether the US is part of that you know
the US export market is part of that uh
strategy or not so I think is a very
positive uh move and we'll hopefully to
some extent offset um the the economic
damage
um as well as keep investors enthused
about about India that you know things
are moving um the reforms are happening.
Yeah. Quick final question for me. Does
this constitute irrevocable damage to
the US India relationship?
Um I think at the headline level that is
what is being made. uh but as I
mentioned earlier on also that as long
as the trade negotiations continue um as
long as the uh you know there is some um
uh you know move movement forward I
think that the actually the positive
thing is that India has really adopted a
consoly tone we've been trying to talk
we've been saying that look we can't do
everything on your terms we need to
protect our farmers there's certain
sectors that we need to be protective
about
so as long as that is uh you know the
the talks continue I think that's
positive um there is of course a lot of
turmoil all over the world
um but I think that as long as India
you know maintains a balanced stone I
still hope
we're going to leave it there
yeah thank you so much Shmita Devashar
chief India economist at CS Lombard
thanks for joining us well coming up
we're going to be talking about French
assets which have continued to wobble
those stabilizing today after Prime
Minister Franis Beeru called confidence
votes. We'll have the details next.
I'm Joanna Berseti in Dubai and these
are your top stories. President Trump
says he is ready for a legal fight with
Fed Governor Lisa Cook after she rejects
his moves to remove her. Investors brace
for results from the world's most
valuable company. Nvidia's earnings a
key test of Wall Street's faith in the
AI boom. Plus, a crushing 50% US tariff
on Indian goods takes effect to punish
the country for buying Russian oil.
And over in Europe, French assets have
recovered somewhat after recent
struggles as the latest bout of
political instability endangers the
nation's nent economic recovery. This
after Prime Minister Franis Beeru called
a confidence vote that could topple the
government. Let's get more with
Bloomberg's Kolen Konan in Paris. So
Karolen, this came as a bit of a shock
to markets yesterday judging by the
market reaction. Has there been any
progress, any developments on the
political fronts in the last 24 hours
that could perhaps move things in favor
of Beiru?
No, we are slightly seeing a recovery on
the markets today after two days of
losses on the CAC 40, but we're not
really seeing any progress on the
political front at this stage. We still
have the socialist party saying they
will vote against confidence of Franu
and we've had them really mathematically
it's clearly almost impossible for Franu
to survive this vote of confidence on
September 8. So the likelihood of his
government to fall is still pretty
pretty high. Uh he's going to speak at
the midf university which is France's
biggest business lobby tomorrow and he's
going to try again to do his charm
offensive uh to try and convince
executives that his budget plans uh are
the best way for France. But even the
maidv head who was speaking on French
media this morning was actually saying
that he is against himself the idea of
scrapping two bank holidays that it is
not fair to ask French people to work
two extra days without being paid
anymore. So at this stage I would say
that if Franceu survives on September 8
it is clearly a miracle unless of course
the socialists backtrack. They are
supposed to present an alternative
budget over the weekend.
Okay, so let's say he loses the
confidence vote. Then the question
becomes what's next? And for investors
in French assets, how much is it really
going to change the status quo? Because
France is already on a fiscal
consolidation path.
That's right. And in fact this question
of what's next is what is on everybody's
mind uh in the political spectrum and
among uh the market participants at this
stage uh we heard from Carmen for
example saying that if the political
situation in France doesn't improve then
the spread between the French and the
German ter bonds could actually increase
from around 80 basis points already
pretty high today to about 100 basis
points. So clearly we we should see more
pressure on French bonds. The question
of what's next, of course, uh we've
heard from the national rally saying
they are calling for new snap
legislative elections because that's
something that President Mron could
possibly call. It's been more than a
year since the last snap elections in
July 2024. uh and Gabriel Atal the
former prime minister and the head of
Macron's uh MPs in the National Assembly
actually saying just this morning that
he doesn't believe that new snap
elections are the way to go that if the
problem cannot be solved by the national
assembly uh even even with a new
fragmented parliament it's going to the
problems are going to remain the same
the fiscal path of France is going to
remain challenging uh and the French
deficit is still expected to be above 5%
uh this year and is not expected to go
down
unless there are all these savings
proposed by the current government.
Yeah. Meanwhile, fixed income investors
very focused on 10ear OT versus 10ear
BTP. Let's see if uh 10ear OT yields
overtake Kolinka in Paris. Thank you so
much. Now, former UK Prime Minister Liz
Trust says the country's economy is in a
doom loop cycle of higher taxes, lower
growth, and higher debt. Speaking on
Bloomberg's OddLots podcast, Truss also
weighed in on the Bank of England and
backed Donald Trump's approach to the
Fed.
I I think the Bank of England needs to
be accountable to politicians. I think
the current system doesn't work. This is
why I'm very sympathetic to what Donald
Trump is saying about the Fed. Monetary
policy is incredibly important. It
determines the allocation of assets
within within society. You know what
we've seen in Britain is we've seen
people who have
property who have capital have done very
well out of the low interest rates that
the Bank of England and the easy money
the Bank of England has created over the
past 15 years.
And you can listen to the full interview
with former UK Prime Minister Listras on
Bloomberg's OddLots podcast with Joe
Eisenthal and Tracy Aloway.
Well, some fund managers say returns on
emerging market assets are set to power
ahead of their developed peers. They've
moved in lock step since President Trump
unleashed his tariff blitz in April.
Analysts say the prospect of more Fed
policy easing, a pivot away from US
investments, and more conservative
fiscal policies in emerging nations are
likely to drive that outperformance.
Let's discuss the outlook with Alan
Seao, a co-head of emerging markets
corporate debt at 91. Good to have you
with us. Uh interesting to talk about
more fiscal consolidation taking place
in emerging market economies versus DM
economies these days. Who would have
thought, you know, that that's the new
paradigm. Let me just start off though
with the the here and the now, which is
the more dovish uh tone that the Fed
chair Jerome Pal took at Jackson Hole.
How much of a potential tailwind could
that be for broader EM assets around the
world and the fact that the Fed is
turning more doubbish?
A pleasure to be with you, Jumanna. Uh
just on that point, I think a doubbish
Fed is um unmmitigatedly a positive for
EM uh in two ways. uh one if that
dvichness leads to a more uh moderation
in in in the US dollar uh a weaker
dollar is bullish for EM more broadly um
a lot of EM uh risk assets including the
corporate credit asset class and
emerging market external sovereign bonds
uh they benefit from um Fed easing they
just as all um developed market fixed
income assets do so that environment
which is one where um EM economies have
been navigating uh this um you know
intensive of geopolitical environment uh
with a plum having had their their
crisis already if you like um uh uh I
think this sets us up for um a good
period.
Yeah. So you are an emerging market
specialist so you understand the
playbook better than anyone else of what
happens when the government tries to
intervene or exert pressure on the
central bank. There are cases of you
know Argentina, Turkey that we can speak
to.
What do you see happening in the US if
this move out of the Trump
administration to interfere more with
Fed policym continues?
We are in uh an unprecedented time. Um I
think we we've for a long time had this
label of emerging and and developed
markets. Um and I think maybe right now
we we need a new phrase for this. Maybe
the the right word is converging
markets. So we're seeing a lot of the if
you like tenets of of free markets and
and capitalism being if you like re
re-examined reconsidered. Uh one of the
key pillars of that is the independence
um of the central bank. I think within
EM speaking from our own experience
we've seen many episodes where where
that independence is challenged it
usually leads to a period where you know
certainly risk premier rise and
uncertainty rises. Um I think you know
the it's in the long arc of history. Uh
you know we think that the principles of
that independence are well understood.
Um and then you know we you know can't
really comment about what that means for
the US but it certainly is uh echoing in
let's say an uncomfortable way for those
of us who have spent a lot of time in EM
looking at that and saying hm I thought
this you know wasn't really something
you'd see uh in in this part of the
market.
Yeah I've seen this story play out
before. all of the EM investors are
saying. Uh speaking of some of these EM
economies, today earlier on the show we
were talking about the the 50% tariff
rate that's now being applied on Indian
exports to the US. Uh how have some of
the largest EM economies, the Asian
economies helped uh or managed to deal
with the impact of the tariffs that the
US have imposed? Have they been more
resilient than you expected?
Yeah, I think the important thing here
is to take a step back and consider that
emerging markets are broadly speaking 84
85 countries. Uh so you have uh a much
more diverse uh universe to to pick and
choose from. Uh while it is true that
some countries have fallen under the
spotlight such as Brazil, such as India
most lately certain other countries for
example China and Mexico have dealt with
those tariffs both now and in the
previous Trump administration with more
a plum. So leaving aside the immediiacy
of the headlines and the way that risk
assets can sometimes overreact in the
end uh I think a lot of the devil is in
the detail and when that um
implementation happens it's often not as
bad as we seem uh it may seem at first
go. The second is that there are many
many EM economies and some of the the
more recent joiners to the EM universe
uh such as countries in the Middle East
uh like the MINA GCC or or even Saudi
which are currently in that 10% basic uh
uh camp of of tariffs which is affecting
more broadly uh the developed world. So
I think in EM it's uh you know you you
definitely have a lot of dispersion a
lot of opportunities to pick and choose
and there will be winners and relative
losers in that as well.
Yeah. So, let's talk about the winners
and the relative losers. Yesterday on
the show, we did a whole segment about
global credit spreads and how
historically tight they are. I mean, in
some cases, you have to go all the way
back to 1995 for US investment grade to
get to this level of credit tightness.
So, where do you find opportunities in
in an environment like this? And are you
nervous about how tight some of these
credit spreads are treating given the
uncertainties that are yet to come in
the next few months?
That's a great question, Jamala. I think
like many other fixed income managers,
it's very difficult for us to make a a
strong case for spreads because
mathematically just looking at their
history, uh we are at all-time tights
for many asset classes. What gives us
comfort in emerging markets is that
relative valuation gap between us and
our developed market peers remains very
much intact. So when you condition uh
that that risk uh by bucket. So for
example, if we look at the same ratings
at the same duration, uh you're getting
more spread, more yield uh in many
emerging market locations, particularly
let's say within the corporate credit
asset class. And secondly, if you look
at wider credit metrics like um spread
per turn of leverage or IBIDA uh debt to
IBIDA metrics, emerging market uh
corporates remain very attractive.
Fundamentally, they're very sound. I
think um what belies this um uh you know
the peak in spreads is that yields are
very attractive uh for the current
setup. So at 5 a.5% for emerging market
corporate investment grade credit
and 8% for emerging market high yield uh
corporate credit and 6 and a half% for
the blend. this is a very attractive
investment um uh destination given the
global context where everything is is is
expensive, everything is tight. Um and
so in that context against that global
growth outlook and fears on global
inflation, I think we're in a good
place.
Yeah. So all in yield is what you're
looking at. Okay. Final question.
Because we've been talking about the
steepening of the US yield curve. Are
you hedging against your longer duration
exposure in the portfolio to account for
that steepening of the US yield curve?
This is a a big discussion we've been
having on invest and also with our
clients because the behavior of uh let's
say US treasuries has changed a number
of times during the current year. So the
regime under uh under which it operates
uh has also been called into question.
So in prior periods of crisis uh being
long US duration has been a safe haven.
it's been actually a portfolio hedge for
a risky asset class like ours. Um,
however, in the most recent period of
distress, let's say on liberation day in
early April, we saw a synchronized sell
off both in treasuries as well as the
dollar, at least briefly. Uh, and so
that's what gives us pause. We're trying
to, you know, sort of establish what
they what the reaction function of of
these um so-called hedges are u
depending on the source of that next uh
crisis. So if the if the catalyst is for
example uh you know let's say an attack
on Fed independence uh then that hedge
might not work the way we expect and so
that's what we've been spending a lot of
time trying to understand.
Yeah it's not an easy environment is it?
Uh Alan Tiao thank you so much really
good to chat to you co-head of emerging
markets corporate debt at 91.
A Bloomberg analysis has found that
Chinese President Xiinping has ousted
almost a fifth of the generals whom he
personally appointed since taking power
in 2012. For today's Bloomberg Bigtake,
our senior editor Richard Frost joins me
from Hong Kong. Uh so this is quite a
significant number. 20% uh of of these
military officials have been purged,
disappeared, missing. What is behind the
purge?
Yes. And uh let's not forget these are
these are generals that um Xiinping
himself appointed. Um
in terms of exactly why these uh
generals have disappeared, uh China is
usually fairly opaque about that. Some
uh it's it's typically related to
corruption. But just to give one
example, the second highest ranking uh
military officer uh a man called her way
Dong the world only learned that he had
disappeared because he didn't turn up uh
for an annual tree planting uh ceremony
that all the general that the most
senior generals did. That was back in
April. Um so it but this has been
something that has really characterized
Xiinping's
uh presidency. the the previous two
Chinese presidents didn't investigate
any generals. So, there's obviously
something uh that he's worried about and
whether it's corruption or power, it's
not quite clear.
Yeah. So, she is currently serving his
third term in office and possibly
preparing for a fourth term. uh are
there is there any talk about who his
potential successor could be and and do
these moves actually, you know, lay the
groundwork for further insight into who
he may be looking to choose as his
successor?
Sure, you're asking some pretty big
questions here. Um there there is
absolutely no sign uh of a successor
right now uh for Xiinping.
um and
the there is a very powerful um military
commission which he is head of and in
fact there's normally seven sit on that
typically generals. Um there's only four
because some of them have been taken out
presumably by she and it's the it's
through that path that previous
presidents of China have have come. So
were there to be someone um unexpected
go into there, that might be a way. They
have the Communist Party has its fourth
plan this big meeting coming up uh uh
later next month where they map out the
next 5 years economic plan and also uh
they sort of move personnel around. So
that would be the next possible
opportunity to find out whether there
might be uh a potential successor. Um
but right now there's there's little
sign that he's looking at doing that.
Okay, maybe this is an obvious question,
but given he's purged about 20% of the
military generals, is that going to have
any knock-on effects on China's military
preparedness?
Does it follow through militarily?
Yeah, I don't know if that's an obvious
question because it's it's not entirely
clear why he is doing this and obviously
it doesn't it doesn't look great uh for
a military's preparedness if the most
senior generals keep getting taken out
particularly those that he had recently
appointed. um exactly what he's
concerned about. Maybe it's the scale of
corruption in the military and that he's
worried that the military, which let's
face it, hasn't fought in any conflict
since the 1970s,
isn't tested and isn't ready for any uh
broader uh war, whether it's an invasion
of Taiwan or just defending itself
against something else. Um the
the the sort of I guess the positive
angle would be that by rooting out
corruption he makes the military more
efficient uh and improves it. The
concern is particularly I would think
amongst the more senior military
officials is that the fear of being
taken out means that if they are aware
of any shortcomings or defects in
equipment they're unlikely uh to come
clean about it. In fact, they're more
likely to hide it because they don't
want to be ousted or investigated for
corruption. So, like much of China's
governance when it's at that level is
quite opaque.
Yeah, fascinating insight. Bloomberg's
Richard Frost and would highly recommend
reading the full big take today on the
terminal. Well, coming up, we have a hot
story for you when it comes to cooling
the summer commute. London is lagging
behind other global cities. We'll bring
you the data next. This is Bloomberg.
Welcome back. Well, when summer arrives,
office workers often complain about how
hot it can be on public transport. A
Bloomberg comparison of five global
financial centers shows sweaty commuters
in the UK capital have a right to feel
jealous of some other cities.
Bloomberg's weather and climate reporter
Joe Wartz has more on our hot data
story. Joe, I I've got to say I was in
London around the time of the heat wave
in the summer. Uh the tube, the
underground was absolutely sweltering.
How does London and the London commute
compare to other major cities around the
world at peak summertime?
Boy, you you got an experience that a
lot of folks here uh have to suffer
through every day. Yeah. Look, uh
summers in the UK uh are getting super
hot. We are on track right now uh
according to the UK Met Office for
probably the hottest summer uh on
record. We're we're we're tracking as as
hot as it's ever been. And uh this is a
uh this is something cities uh around
the world are having to deal with.
Hotter summers uh longer duration heat
waves, more extreme temperatures, the
highs getting higher, the length of
these hot spells lasting longer. Uh but
you know, cities that have transport
have have have dealt with this um in in
in very different ways and and the
experience of of those commutes is is is
quite a bit different in different
places.
Yeah, I mean the one of the issues with
the London Underground is some of the
older infrastructure. It's like quite
literally creaking infrastructure. So
what options do cities like London have
in in trying to adapt if they can't
install air conditioning?
Yeah, and that's a really really great
point. If you look at uh the subway
commute in uh Tokyo in in Beijing, you
know, they've they've got, you know, air
conditioned uh uh uh subway carriages.
They've got air conditioned platforms.
are able to uh blow in this sort of
refrigerated air. It's not quite air
conditioning, but it it manages to bring
down the temperature a little bit. And
you know, in Beijing, they have uh uh uh
uh subway carriages that are even colder
for for for business people that have to
wear jackets and suits or or or or
tights and uh you know, more formal
business attire every day. U but a lot
of those systems um uh as you as you as
you hinted at were built, you know, in
the last uh several decades. not a
century ago like London's underground or
you know a century ago like parts of the
the the Paris metro and we see these uh
these subway systems in these cities
with the really old uh and in many cases
deep narrow tunnels that were built a
century ago really Victorian era uh
architecture in these places really
struggling to add air conditioning and
to keep those uh systems cool and that's
increasing as it gets hot uh and gets
hotter outside but you know also these
uh subway systems themselves uh add heat
uh to to the tunnel. Surprising amount
of that heat comes from just, you know,
putting the brakes on uh these uh subway
cars themselves.
Yeah, I got to say the biggest irony of
it all was I finally felt cooler
temperature- wise when I came back to
Dubai after my London break. Bloomberg's
weather and climate reporter Joe Wartz.
Thank you so much. All right. Well, this
is our top story of the day, and it has
to be the top story of the day because
the internet has lit up after Taylor
Swift and Travis Kelce announced their
engagement. It's a love story,
everybody. The news has already caused a
betting boom on several websites and
sparked certain articles of the couple's
clothing to sell out. Bloomberg's Tiwa
Adobayo has more. Uh, well, it's the
talk of the town, as viewers of
Bridgetton would would would say. Um,
what stood out to you about the
announcement, the staging, the the
dress, the flowers, all of it?
Well, Jamanna, a number of things stood
out to me, but definitely the first
thing that caught my eye was that ring.
I mean, experts are saying it's an 8 to
10 karat diamond. It's a mind old cut.
But the interesting thing I think here
is that reports are saying it was bought
from a company that specializes in
ethical gemstones. So, it's a love story
for Taylor Swift. But is it a love story
for the diamond industry? We've already
seen a lot of talk in the industry of
this growing fear around the lab diamond
market and ethically sourced diamonds.
We saw earlier this summer debeers
actually abandoned their project to
start selling lab diamonds and that came
after Anglo-American their owner said
they're going to have to let them go.
So it's thought that perhaps Taylor
Swift could set a trend perhaps of
ethically sourced stones. Uh there's a
lot to see for um the diamond market and
the jewelry market more broadly. That's
definitely something that caught my eye
from the announcement.
Well, not just not just the diamond
market. I mean, she is a very very savvy
businesswoman. Uh even the dress that
she was wearing was was sold out within
minutes apparently her Ralph Lauren
dress. Uh what are the potential
commercial opportunities for this
couple?
Absolutely. Well, I'd say the
opportunities are endless and in fact,
it's probably just down to the couple
themselves in terms of how much they
want to commercialize this opportunity.
You mentioned the dress. It was from
Ralph Laura and the C is reporting that
it's sold out. Um buzz about other items
of clothing she was wearing, including a
Cartier watch with had Louis Vuitton
sandals. There are people trying to get
their hands on all of those items. But
if there's one thing that we do know
about Taylor Swift, she doesn't really
do anything by accident. Um, I think we
should all be looking at the timing of
this announcement. It comes shortly
after she announced another studio album
within the promotion cycle for that. And
also Travis Kelce this morning
announcing a partnership with American
Eagle.
So perhaps the couple will be looking to
kind of maximize the business
opportunities with regards to this
announcement.
Bloomberg's Tio Adabio. Love it. My top
story of the day. Well, coming up, we'll
be speaking to the CEO of Volvo Cars on
Terrace, EVs, and production plans.
That's live at 10:40 a.m. London time.
Up next, Bloomberg Brief. This