Good morning from London. I'm Kitty
Gupta alongside Guy Johnson and Lizzie
Burden. We're an hour away from the
opening trade. Here's what you need to
know. Fed Governor Christopher Waller
reiterates his call for lower interest
rates, pointing to a deteriorating labor
market and saying he's team transitory
when it comes to the impact of tariffs.
Meanwhile, Fed Governor Lisa Cook files
a lawsuit against President Trump in a
major escalation of the growing clash
between the White House and the Federal
Reserve.
And President Xi and his closest
international allies gather for the
Shanghai Cooperation Organization as
talks begin between his Russian and
Indian counterparts. Crucial bilaterals,
Lizzie, that we're going to keep an eye
on. Well, happy Friday, Critier. It is
the last business day of the month if
you are state side. And the S&P crossed
that 6,500 level yesterday, just in time
on the back of that eco data. Of course,
we've got the PCE numbers coming out
later and markets in the futures picture
holding their breath all the way until
that print. 42149
is where we are on the US 10ear yield.
The countdown to the opening trade
starts right now.
Based on what I know today, I would
support a 25 basis point cut at the
committee's meeting on September 16th
and 17th. While there are signs of a
weakening labor market, I worry that
conditions could deteriorate further and
quite rapidly. And I think it is
important that the FOMC not wait until
such a deterioration is underway and
risk falling behind the curve in setting
appropriate monetary policy.
Chris Wallace speaking in Miami. Um I I
listened to the speech. I'm trying to
decide whether or not he was or I should
see it as hawkish or doubbish. He took
50 off the table. Basically, he's
reiterating 25, but that 25 basis point
cut he's talking about, as you just
heard, is an insurance cut. It's based
on his concerns that the the
unemployment rate is going to creep up,
that the labor market is going to
worsen. But I look at yesterday's data
and I don't see that. What I see is an
economy that is doing quite well in the
United States. In fact, has the
potential to reacelerate. So, is there a
danger that actually a rate cut at this
point could further move that uh that
pace up and further damage the inflation
outlook which we are going to be talking
about today? USPCE is going to be
dropping a little bit later on, Lizzy.
And we're also going to get EU data as
well. I'm less concerned about the EU
data.
>> Yeah, I mean we've got inflation data on
both sides of the Atlantic. When you
look across the four prints that we're
going to get out of the Euro area
economy this morning, they're all
expected to either stay on hold or tick
up just slightly, but they're really
around or lower than that 2% level of
the ECB's target. The big picture is
disinflation because of course you've
got the stronger euro and now we've got
the tariff deal. There's the tariff
uncertainty though continuing, but the
risks tilted to the downside. If you
look at the minutes from the July
meeting that came out yesterday, the the
broad view is that they should leave
rates on hold on September the 11th. The
bigger question for these numbers is if
you get a surprise, what does it mean
for September? Because economists think
that you will see a cut, the market
isn't fully pricing any further moves.
It's fascinating the data on the
European front as well because I feel
like the narrative of the last six
months has really been outperformance in
the periphery and weakness in the core.
And we have had a couple of rogue data
points that have suggested that uh the
opposite may be true or simply that
France may have a pickup in certain
parts that we didn't foresee coming. So
I wonder how much the core versus
periphery uh dynamic remains. I want to
bring it back to the PCE though because
I think that's really what the market is
going to be trading today, right? No
surprise. Uh you mentioned Chris Waller
as well in terms of this 25 basis point
cut. Torses lock put out a great piece
talking about a footnote in one of his
speeches. Yes. Footnote number four in
Chris Waller's speech, which I don't
think was part of his actual uh comments
at the speech himself, where he's
talking about basically previewing the
August data and saying things are dire.
He's issuing a warning in the footnote
again and calls himself
>> drawing a line between the ADP data and
what is going to be coming out
which is which is always on the same
page.
>> Um so yeah, I do wonder but but this is
an e is the is the US economy
reacelerating?
>> Yeah. If it's reacelerating, why on
earth do we need rate cuts, aggressive
rate cuts at this point? Some people are
pricing in hundreds of basis point cuts
at this point. Yeah. In an economy that
looks like it's reacelerating.
>> But I think that's the hiccup and it
brings back the conversation we had in
2020 2021 is what is the lag? If your
lag is 18 months as has historically
suggested, then Chris Waller is
basically saying start cutting now to to
address it. Which is the same commentary
by the way we had on the hiking cycle.
We had this idea that if you start
hiking now, it'll show up and hit
inflation. One of the key pieces of the
Fred credibility was were they too late
to start? That by the time the lag hit,
it had gone too far. One conversation or
one way to think about it. The other
that we have to think about when it
comes to the Federal Reserve is what's
going on with Lisa Cook. And I think
it's been well established now at this
point that Lisa Cook uh and the concerns
around that she's officially filed a
lawsuit. Fed independence is certainly
on top of investor minds. That being
said, how do you trade this at a time
when the steepener, the 230s, has
already steepened quite a bit. It's kind
of a crowded trade according to Jordan
Rochester. What do you do with it?
>> Well, she's saying that it's a clerical
error. Do you get markets trading on
every single development legally of
this? How long does it last for if her
term expires in 2038? Are there going to
be others that are targets for Donald
Trump if this is, as she says, a
concocted effort to uh control the Fed?
And then, you know, is how yeah, how
long does it go on for? Is she going to
be voting in September?
>> Market pricing would seem to suggest
that the belief is that ultimately Trump
wins here. I don't know how that
happens, but but that seems to be the
pricing at the moment. We're taking
we're putting more and more rate cuts on
the table. That has been the narrative.
You have to assume therefore that there
is an expectation that the FOMC is going
to get more dovish. Now, it's going to
get likely more doubbish when we see a
new Fed chair coming in, but are we
going to see interim changes to that? I
don't know how long this lasts. I don't
know whether you whether you or not you
you change every kind of hiccup in in
this legal case. The trend seems to be
the market is expecting the Fed to cut.
Is the data going to disabuse the market
of that idea? Is today's PCE data going
to disabuse the market of that idea? Is
the payroll data coming up next week
going to disabuse the market of this
idea? Claims yesterday looked okay. This
is not a seriously deteriorating and
rapidly deteriorating situation. Do we
need insurance cuts? Lisa Cook is a
dove. And so I think to your point that
the market is pricing in this being a
done deal and Donald Trump potentially
winning out at the very end of this
suggests that she's not like you don't
need her seat as a dove to make that
consensus. And I think that's a real sea
change from just say a month ago.
>> Yeah, I think that the the argument has
moved on. The development has moved on.
This is this is a cog in the wheel of
this overall trade which is for lower
rates in the United States. Is the data
going to support that? the data to my
mind feel increasingly important.
They're always important. Data are
always important. But but it feels like
at this kind of critical juncture right
now, we're going to watch that very
carefully. What else I'm watching very
carefully is what is happening uh out in
China. So Xi Jinping is hosting the
Shanghai Cooperation Council in Tanzhin.
Uh but where the people there are going
to be really important and you've got
this new block. It's not that new, but
it but it feels like it's increasingly
glued together between China, between
Russia, and between India. And you're
going to see Modi there, and you're
going to see Putin at this meeting as
well. They're not necessarily going to
have a trilateral, but bilaterals are
going to take place. Russia's Russia
provides the energy. India and China
provide the economic strength and and it
this feels like a a sort of serious
force that has been that has been
created you could argue as an unintended
consequence of a trade war that Donald
Trump has pursued.
How tight this becomes remains to be
seen because links between obviously
India and China are very difficult.
Between Russia and China there are
wrinkles there as well. I I don't know
how far this goes and whether or not
actually the strength is paper thin, but
this is a this is this is a serious
geopolitical development which comes out
of a situation in a trade war that I
think hadn't been fully thought through
by the United States.
>> Bloomer Economics put out some great
analysis uh five charts basically
comparing the two blocks, NATO versus
the Shanghai Cooperation Organization.
Um there's some scary numbers on there.
I'm not going to lie. the nuclear
stockpile. I think it was it has been
largely assumed that anyone that has the
US's backing ultimately wins out. But
you stack together Russia, China, India,
they have the advantage in terms of
troops, they have the advantage in terms
of nuclear stockpile, they have the
advantage in terms of weapons
inventories. And I have to say I don't I
feel like that's an underpriced risk.
>> Yeah. I mean if you are making it about
the numbers rather than the the history
of the relationships. If you look at the
US pressure on India to uh stop buying
Russian oil and then you compare the
financial benefits of that discount of
Russian oil over Saudi oil for example
over the trade relationship between
India and the US it pales in comparison
right. So is India just naturally going
to side with the US here? You talk about
the paper thin ties between India and
China is a marriage of convenience
because of Trump's pressure. Well, look
at where was China when uh you know in
the Iran situation how reliable is China
as a security partner? I'm sure that
everybody around that table despite the
fact that China's the convenor is going
to be asking
>> China also arms Pakistan which India has
a small issue with
>> who will be present too.
>> Yeah. So there's there's all kinds of
there's all kinds of internal disputes
within this group, but nevertheless, it
exists now.
>> And and the more it exists, the harder
it is maybe to crack and maybe the ties
do become deeper. And if the if the if
the Russian discount on oil continues
it, there is logic to India's decision
to do what it's doing at the moment.
>> The geopolitical tectonic plates
certainly shifting. But let's tell you
what else we've got coming up on the
show today. Naomi Frink, chief global
strategist at Nikico Asset Management
will be joining us, followed by
Elizabeth Ingles, associate professor at
the London School of Economics. Again,
we will discuss those geopol
geopolitical shifts. Ellena Taylor
Jolidon, the co-head of global and Swiss
equity over at Union Boner P. much to
discuss in terms of these record highs
when it comes to stocks and Isabelle
Mateos Elago group chief economist at
Bay Paraba will be joining us as well
with those inflation prints in mind on
both sides of the pond.
>> What else do you need to know this
Friday morning? Let me run you through
the rest of the news. Indonesian stocks
and the have fallen sharply today as
anti-corruption protests continue in the
capital Jakarta and across the country.
A taxi driver was killed late Thursday
after being hit by an armored vehicle.
It's now expected that students will
continue demonstrations this evening.
The UK, France, and Germany have started
to reactivate UN sanctions on Iran. The
move comes after the country failed to
comply with demands to negotiate with
the United States and allow nuclear
inspectors to resume their work. The E3,
as the three countries are known, uh are
likely to see the decision raising
tensions between tan and the West amid
an uneasy standoff over Iran's atomic
activities uh following Israeli and US
air strikes on key nuclear sites in
June. And a US trade provision dating
back to the 1930s, which until yesterday
allowed for almost 1.4 billion small
parcels to enter America each year, came
to an end at midnight New York time. The
dimminimous tariff exemption allowed
packages worth up to $800 to enter the
US tariff free, but the Congressional
Budget Office estimates the move will
now raise more than $23 billion in
additional tariff revenue for the
government over the next decade. Who
will be paying that number? It looks
like it's going to be US consumers and
small businesses. So, let's see how this
works.
>> End of an era of cheap shipping. We'll
see what the consequ consequences are.
Coming up on the program, Francois Beeru
clinging to a slim chance of remaining
France's prime minister as parliamentary
math leaves only a narrow path to
survival. We will bring you the latest
and the market implications. Plus, of
course, a check on European defense
names at the open as Germany and Spain
urge breakthrough on the stalled fighter
jet program. Up next though, right back
to the markets and the Federal Reserve.
Fed Governor Lisa Cook suing to block
President Trump from attempting to
remove her from the central bank. What
does that all mean? We're going to dive
into it. But if you have any questions
of your own for us or for our guests,
get involved in the conversation. IB
plus BBTV go is the function on your
terminal. This is Bloomberg.
Everybody agrees that central bank
independence is critical. Monetary
policy independence is critical. So if
we are not seeing much market reaction,
it must be that people think that well
that independence is still intact.
IMF deputy managing director Githa
Gopinath who completes her tenure today
commenting on the tense political
situation between the White House and
the Federal uh reserve. Let's expand on
that team theme. I'm gonna try to get my
words right this morning. Fed Governor
Lisa Cook's lawyers are suggesting a
quote clerical error may be behind a
mortgage dispute which led to President
Trump's attempt to oust her. She warns
the move could cause irreparable
economic harm. Joining us now to dive
into the story, Bloomberg's Balage Pence
joins us. Balage, the war of words
between Lisa Cook and President Trump
goes on. The case moves into court
today. Is this now just a legal battle
that we care about? I mean, how much
attention should we be paying to it from
an international standpoint?
Well, Criti, certainly the legal battle
will be interesting and it has a chance
to affect markets as well as the twists
and turns of the case wind uh wind
itself through the through the American
court system. Clearly, there's an
interesting uh debate going going on
about what the Fed is going to do next
month as well. But as soon as President
Trump fired off that uh po that post uh
about removing Lisa Cook from the Fed,
we knew this was going to be a legal
battle. It was going to be a potentially
protracted uh litigation proceedings and
that starts today. Uh Judge Cobb of the
of the DC District Court set 10:00 a.m.
Eastern time for the start of the first
hearing. So that's where the whole
process start and the process will
likely end up at the Supreme Court or at
least that's the broadly accepted
assumption about that.
>> Well, Ash, you do wonder whether this
clerical error, whatever it was, is
going to cast a cloud in any case over
the Fed as an institution and Lisa Cook
specifically. We've got details now of
her defense. Just just walk us through
them.
>> That's right. And that is part of her
defense. Part of her defense is that
this case has nothing to do with her
what what what the lawyer suggests is a
clerical error. It has nothing to do
with her mortgage applications and that
that it has everything to do with Fed
independence. And they argue that
ultimately it weakens Fed independence
and will have an adverse effect on the
US economy. So that is part of the case
and that is part of uh what the what the
courts will have to consider uh as they
as they talk about the ins and out of
this filing.
>> Balash, thank you very much indeed. Uh
Balash Pence joining us on what is
happening with Lisa Cook. So the
emergency hearing 10:00 a.m. Eastern
this morning. So that's one story that
the the market is going to be focused on
as we watch how that unfolds and whether
or not it is going to lead to a more
doubbish FOMC. Uh we've also got a
little earlier in the morning uh the
data coming out of the United States.
That's going to be the inflation data
that we're going to be watching so
carefully, the PCE data. Is that going
to signal that actually a more doubbish
position is required or is it going to
signal actually that maybe inflation is
continuing to tick up? We've got
European inflation data we need to
factor into our thinking as well. Naomi
F, chief global strategist at Niko Asset
Management is joining us now.
Naomi, we've got an economy in the
United States that is doing really well.
That's what the data yesterday suggests.
And it's an economy that is
reacelerating. We've got the potential
for upside on inflation. We've got the
potential for downside on employment.
Which way are you leaning in terms of
how you're thinking about how to invest
from here? Is the US economy getting
better or is it getting worse? Is
inflation going up or is it getting
better? What's happening with the labor
market? Plug it plug these all into your
investment decisions for me.
>> Well, we have had quite a lot of
disperse data. So for example, we saw
those downward revisions to payroll data
and um the question came up well what
what's the first estimate missing since
they were serial downward revisions and
uh one one of those things of course
were government jobs which might be late
arriving. On top of that we had a lot of
um non-conumption related
uh elements uh swinging the last two
quarters of growth around. So, um it was
maybe a lot more difficult to get
visibility on uh on the state of the
economy than usual. And of course, the
the more recent um GDP reading is
positive, but I'm not really sure that
we're out of the woods in terms of
uncertainty. Um for instance, the labor
market may well be deteriorating. We
have seen some signals. Similarly, on
inflation, uh inflation has been riding
higher than the Federal Reserve would
like it. uh and we do expect inflation
to uh to to continue gradually easing
but um but but that's that's there's no
guarantee that it will do so quickly. So
um
>> yeah I mean I think there's a lot of
robust
>> precisely a lot of robustness still. So
what am I in what is the case for
investing in US stocks right now? Is it
that I I buy US stocks because I think
the Fed's going to cut rates and then
you question why the Fed is cutting
rates or am I investing in the United
States and we hit fresh record highs
yesterday on the back of stronger
economic growth like which one of these
two am I investing in? Is it Fed rate
cuts or is it or is it economic growth
in the United States?
>> So I think in the stock market it would
be the latter and in fact I think
there's an inherent contradiction in
stock and bond markets right now. The
stock markets are telling us to expect
several quarters of really robust
earnings. Um, meanwhile, the bond market
is telling us that the economy is going
to worsen so much that uh it's going to
merit serial rate cuts. So, it's
unlikely to be both. And the argument
that expectation of rate cuts is fueling
the stock market, well, that's a bit
circular. So, that's unlikely to be. So,
it has to be either one or the other.
>> Naomi, it's created in London. I want to
dive into the bond market version of
events here to the point that we are now
pricing in rate cuts on the front end of
the curve. Fiscal concerns, Fed
independence, um, and even a potential
housing crisis on the on the back end of
the curve that has created such
popularity of of the steepener trade.
How crowded is that trade right now?
>> So, yes, I mean it would be hard to
dismiss some of those concerns that have
come up for the longer end of the bond
market. Um meanwhile though we've had a
massive amount of investment in the US
and at some point that's likely to bear
fruit. The question from an investment
perspective is well is it going to bear
fruit before the next recession arrives
and that is uncertain. So what I would
be doing from an investment standpoint
is remaining invested in markets
including in the US but also hedging
because we want to be able to look
through the volatility when it arrives
and I think it probably will arrive. I'm
not sure whether we're going to see a
recession near-term or not. But the
probability of a recession arriving
before a rise in predict uh in
productivity which is even less
predictable than the recession. Um I
mean that that's positive. So, we want
to be able to weather a recession if it
comes and benefit from that productivity
longer term. Looking through the cycle,
>> when you talk about the longer term
though, does that we we were we'll still
talking about relative outperformance
here. Is that what's driving that
longerterm trade that in maybe not
immediately or in the future, let's say
even on a 30-year time frame, the US is
still going to have the same
productivity gains that it does right
now or the same advantage and
productivity gains that it has right now
relative to the rest of the world. Few
months ago, we were talking about US
exceptionalism coming to an end. Do we
need to revisit that theme?
>> Well, let's break down the that
exceptional the exceptional nature of
productivity gain. So, a lot of times
people talk about labor productivity,
which is nothing more than GDP per
capita. Of course, if you make massive
investments, then you're going to have
higher GDP per capita. Actually, total
factor productivity, which is innovative
productivity, um it's growing, but it's
not that hot. In fact, it's not that
different from Japan's. It's under 1%.
So, will that total factor productivity,
the innovative productivity rise
sometime, most likely after this type of
investment? It's just that it's very
hard to predict when. So I mean that
that's the US has still got that up its
sleeve the the potential productivity
gains but then the timing is so
uncertain that uh that what we want to
do is um is position ourselves for a you
know the the possibility of a near-term
decline. We want to insulate ourselves.
I'm not sure whether you can call that
uh exceptionalism or not. Of course,
other um nations are also uh
investing and uh governments are uh are
increasing stimulus and um there might
be investment cases not only in the US
and across the g uh globe. So I would
say don't dump the US but I would say
let's uh let's diversify. I mean from a
portfolio perspective, we like
diversification. It's uh somebody said
once that it's the only free lunch. I
don't know if it's a free lunch, but at
least it's a defense against ignorance
and it's very unclear what's going to
happen next right now.
>> So Naomi, coming back to stocks, you say
we're not out of the woods yet when it
comes to uncertainty on the data. Is it
that we need a buildup of bad data for
there to be a correction in US equities?
And if that comes, how much pain is the
equity market in for?
So, the problem with trying to time
markets is that there's probably no
consistent set of catalysts that's going
to turn a market around. Once it gets
too far, then we're probably going to
see a decline. Um, but in my mind, if
growth remains positive, the trend
should remain um upward sloping. So, we
may see markets go too far, then we will
see markets correct, and this is all
healthy. So what I would say is position
for the long term. If we're looking like
markets went too far too fast, then
admit the possibility of a decline, um I
I think that when markets don't become
two-way and only become one way, that's
when we really start getting worried
that uh that there is going to be a huge
correction coming.
>> Okay, Naomi F, chief global strategist
at Nikico Asset Management. We thank you
so much. as we are looking at US futures
pointing a tenth of a percent lower this
morning but still above that 6500 level.
But coming up on the program, we're
going to be talking to Elizabeth
Inglesen from the London School of
Economics as China's President Xiinping
hosts the leaders of Russia and India in
a significant summit coming up next.
This is Bloomberg.
30 minutes of the start of the opening
trade here in Europe. I have nothing to
report that is exciting when it comes to
the futures picture right now. Let me
give you exhibit A. We are not doing
anything at all in a hurry this morning.
It's definitely got that Friday feeling
about it. Uh back end of August going
into a long weekend in the United
States. It's the Labor Day holiday
coming up. The market looks very be
calmed at the start of trading this
morning.
>> Juicy stuff in the equity market. Let's
talk about the bond market as well. Over
in the 10-year in the States, we've got
420. So, hitting the bottom of its
trading range that it's been in really
since liberation day. Not much action I
have to say in the European bond market
either. That being said, let's see how
it all shakes out as we get closer to
the open because of course we do have
one eye on France Lizzy. Well, there may
be more exciting out of the excitement
out of the geopolitics. Chinese
President Xiinping's closest
international allies, including the
leaders of Russia and India, will be
gathering this weekend for China's
biggest diplomatic event of the year.
The Shanghai Cooperation Organization
leaders summit will be followed next
week by a military parade in Beijing
with guests including Vladimir Putin and
the North Korean leader Kim Jong-un. For
more, our chief North Asia correspondent
Steven Engel joins us from the Chinese
capital. Morning to you, Steve. just
talk us through what the agenda is here,
what everyone's hoping to achieve, and
how damaging it could be for the man
who's not in the room, President Trump.
>> Well, let's look at the SEO from a
historical perspective. It's been around
24 years, founded by uh Beijing and also
its co-artners in this of Russia and
India and a lot of the Central Asian
republics or countries, former Soviet
republics. uh they haven't been very
forceful uh over the years, but this one
is likely to shape up to be probably the
most important one, certainly the
largest. It's 10 member nations plus
another 16 nations of observers and
partners that range obviously those main
partners of India, China, Russia, but
also Iran, Pakistan, India. Uh we're
also going to have Erdogan from Turkey
here, Indonesia, Malaysia and many other
countries will be here in Tanzin. Uh so
there's really twofold uh kind of
emphasis here. There's the geopolitical
chess match that is going on right now
obviously and Xiinping and Vladimir
Putin would clearly love to see the SEO
like the bricks has gained uh
importance. the SEO as a strategic
alliance uh have more weight and more
forceful joint statement at the end of
it and all on the same page and that's
why India's participation is incredibly
important right now as that repro
between Beijing and New Delhi gains some
steam uh against of course the anger
coming from Washington towards New Delhi
because of New Delhi buying more Russian
oil. So there's that opening for Beijing
to kind of um lure India into their good
graces and bridge some of their
historical differences. So there's
really a lot uh at at stake here.
>> Stephen, let's also talk about this
military parade that is coming up. Um
commemorations at the end of the Second
World War, the the Second United Fronts,
uh the the impact that China had in
terms of defeating Japan. What signal
are we expected to get from this? And
what h how how will that be read do you
think in Washington?
>> Well, I think this is an opportunity uh
like they did maybe 5 years ago, but
also the last time I participated in the
stands there underneath the Mao painting
there at the gates of the t the
forbidden city in Tenement Square, that
was 10 years ago on the 70th anniversary
of the victory in World War II. Uh it's
a chance for China to show the
modernization of its people's liberation
army, its technological advancements
obviously in drone war warfare, uh
intercontinental ballistic missiles, uh
the so-called carrier killers, the DF21D
and other hypersonic missiles. So it is
an opportunity to flex their muscles
much more than what we see regularly
from North Korea and Pyongyang. Uh this
is a modernized military in China and
obviously an extremely modernized
economy in China. Uh and with up there
on the the podium over that Mao
painting, you're going to have Kim
Jong-un, you're going to have Xiinping,
you're going to have Vladimir Putin, uh
and potentially some other world leaders
who will be participating. So again,
it's symbolism, yes, but it's also an
opportunity to see how advanced the
Chinese military actually is.
All right, chief North Asia
correspondent Stephen Angel walking us
through the dynamics to expect at the
summit later in Shanghai. We thank you
so much. Let's get a little bit more
analysis with Elizabeth Anglesen,
associate professor of the department of
international history at the London
School of Economics and of course a
regular on this show. Elizabeth, walk us
through some of the dynamics that Steven
was just talking about there. I mean at
the end of the day the takeaway from
this for me is that the economics have
created a real sense of unity in that
part of the world when it comes to being
creating a united front against Donald
Trump. Is that what's at play here or is
this just a culmination of of a decade
long effort?
I mean there's certainly as Steven was
mentioning this real shift happening at
the moment of sort of geopolitical chess
as Steven put it uh and there are
definite efforts uh on the part of she
Modi uh Putin and others to try and make
uh sense of a lot of the geopolitical
mess that has been thrown up uh in the
last uh uh multiple years u most
particularly because of Trump. Uh I
think what we need to keep in mind is
that these regional uh efforts at
cooperation, these efforts that sort of
uh are are creating strength in the face
of uh of uh particularly US-led mess has
for decades been something that the
global south and other nations have
sought to do to greater and lesser
degrees of success. Right? The history
of the cold war is a history of uh uh
many nations within the global south
attempting uh to uh reorganize
geopolitics uh not always successfully.
And I think that's really important to
keep in mind that we're absolutely
seeing an attempt uh at geopolitical uh
chess and and sort of realignment. But
the extent to which um a lot of the sort
of political aims that she might sort of
aim for from something like uh the SEO
uh are still up in the air and I think
it's important to sort of uh take that
longer view when we're looking at uh the
short-term aims but also the long-term
uh repercussions which I think are still
very messy.
But Elizabeth, I'm curious, although we
have we're watching out for kind of the
military strength as as uh Stephen was
talking about earlier, would we get any
insight on the economics here? Would we
get any insight on oil purchases,
getting any insight on reciprocal
tariffs? Are we going to get any kind of
read through off the back of the SEO?
>> We might. Uh certainly Modi is
attempting in particular Modi is
attempting to really try and shore up uh
uh agreements and various uh structural
economic uh plans in the face of of
Trump's uh tariffs on India. So we've
seen uh in recent days Modi uh really
emphasizing uh Indian textiles for
example uh and and see seeking uh as you
mentioned uh various sort of agreements
on on oil. There's certainly uh yeah,
there's certainly a possibility with
those conversations, those bilateral
conversations happening on the sidelines
of the SEO that some some of those
short-term uh economic agreements may
occur. Absolutely. Uh but the bigger
picture here of uh geographic or
geopolitical realignment I think is
worth uh uh being a little more
skeptical of. uh India and and China
have a very long history of animosity
and uh tension that is not going to uh
go away even in the face of what Trump
uh sort of the threat that Trump
represents. Uh the capacity for
something like uh uh what we might call
triangular diplomacy or sort of
utilizing those dynamics I think are
still very uh worth questioning.
Well, Elizabeth, if you break off India
and Russia, is it obvious to you that
India would choose
uh exports to the US over savings on oil
by buying it from Russia over for
example Saudi Arabia?
>> Honestly, that's um that's an excellent
question that is I mean what India will
do I think is unclear at this point. Uh
it's very much a uh a game of
readjustment in the face of uh and I
think also chicken and egg and sort of
sort of who's going to blink first uh in
in terms of sort of Mod's response to
this. I think at the moment what we're
seeing uh is a lot of politics and a lot
of attempt uh at showing a strength uh
and a capacity to to sort of realign
economically despite the US. what Modi's
doing, what Xiinping in particular is
doing, what to a different degree uh
Putin is doing is they're all seeking to
flip flip the narrative uh uh to uh
create a sense of their own control, I
suppose, in the face of um a Trump
administration that has thrown so much
of what they've relied upon and so much
of what has been normalized up into the
air. And so what we're seeing I think is
a real attempt to reclaim
>> Elizabeth if we just
>> it just seems we had a little technical
issue with your line there but I think
we've got you back. If we just go back
to the SEO's ambitions that Steve was
highlighting. Yes, China's the convenor
here, but I mean when we think about how
reliable China has been as a security
partner, is it is it not that maybe the
other attendees of this conference will
be questioning the role for China as a
geopolitical leader?
That's absolutely uh spot on and this is
why uh so much of the posturing not just
with the SEO but also uh the military
parade for example the sort of
commemoration of uh China's uh uh
victory at the end of World War II. A
lot of this posturing is seeking to
present China as a global leader uh as a
as a a sort of upholder of international
uh the international order. But the
substance and reality behind that is
very very different. Uh and so the
extent to which uh there is a real uh
trust uh in China's role uh especially
amongst its regional uh uh uh neighbors
is is very very uh it's it's it's in
very much in flux and it depends on the
particular issue. So it suits Xiinping
to be presenting China and himself as a
sort of uh international leader. Uh but
the reality and the substance uh behind
that is is very very uh uh tenuous.
>> Elizabeth, let me just uh shift gears a
little bit. I just want to talk about
the dimminimous changes that we're
seeing coming into force overnight in
the United States. Dominus is gone. The
$800 exemption has disappeared. Who is
going to pay the bill for this?
I mean, in the short term, those paying
the bills are consumers, American
consumers, particularly low-income
consumers, as well as small businesses.
Uh, and I think it's really important to
hold those two groups in mind as they're
both the sort of key constituents
that Trump and his administration have
so deliberately sought to cultivate. Uh
so they're going to be the real losers
from uh sort of uh removing the
dimminimous uh uh exemptions. Uh but at
the same time they're the same sort of
groups that he has so successfully
tapped into at least emotionally. And it
really shines, I think, a spotlight on
the extent to which Trump has been so
successful at creating a narrative of
assisting American workers or assisting
small businesses when the practice in in
practice his policies and his actions
have been those that support uh large uh
US corporations uh capital at the sort
of uh much larger extreme rather than
the small businesses or the smallcale uh
workers uh uh that he purports to
support. So this dimminimous uh ending
is part of a much larger uh tension
between Trump's policies and and uh his
repric.
>> Do you think now that it has gone others
will follow
>> others uh within like the
>> countries other countries
other countries will Europe do the same
thing? Will the UK do the same thing?
>> We'll wait and see. I mean, I think
there's um there are sort of political
pros and cons to to either way. I mean,
that if other countries were to follow,
that would be reinforcing a much larger
global shift, right? It would be
reinforcing uh the rupture that Trump
himself is seeking to create. I think
there is a political power in not
following and in saying that we're going
to uh not uh take go down this path of
disruption that Trump is seeking to
achieve because one of the things that
Trump uh that really sort of holds back
Trump uh in in terms of sort of the
long-term in the long-term impacts of
what he's doing is that uh uh he he he
has a at least uh at the moment a
democratic limit on how long he will be
in power. Uh and uh sort of the
long-term repercussions of these changes
do not necessarily have to remain in
place. They can be therefore reversed.
Right? Uh and I think if other nations
were to follow, not just in this issue,
but on others, uh it would be playing
into Trump's hands in many ways, and it
would be reinforcing a structural change
that does not necessarily have to uh uh
last in the way that uh that certainly
Trump would want it to.
All right, Elizabeth Englesen, associate
professor in the department of
School of Economics, joining the program
this morning. We thank you so much.
Coming up, we're going to dive into
defense stocks back in spotlight today
after Germany's chancellor said a
meeting between Zalinsky and Putin is
unlikely to materialize. We're going to
dive into the sector through other
stocks to watch next. This is Bloomberg.
So, I'm looking at the French uh data
that is hitting the screen right now,
CPI data. I'm giving it a very firm GA
shrug at the shoulders to be honest. Uh
nothing to see here. Nothing very
exciting. Pretty much in line with
expectations. Some of the numbers are a
bit firmer. Some of the numbers are a
little bit weaker. Not seeing any
reaction in Euro dollar. I think if
you're getting an outsized number today,
you may get a reaction, but an inline
number, you're going to get no reaction.
Nothing to see here. We'll move on.
We'll get some more data as we progress
throughout this morning. Again, like
shrugger the shoulders, which is good
because elsewhere in France, there's
plenty of things going on.
>> There absolutely is. Um, but it's a
Friday, so I think that's we'll give
France a break for for just a moment.
It's good to know that the data though
over is in line. No shocks and surprises
there. The data we really got our eye on
today though is going to be the PC data
as guy was talking about later in in the
European session over in the States 8:30
a.m. Eastern time. It'll be 1:30 p.m.
here in the UK. Let's get a little bit
more analysis. Bloomberg's Asia markets
editor Paul Dobson joins us for the
markets in 3 minutes. Paul, walk us
through the scenario analysis here. Does
this go well? Did this go poorly? How
does the market interpret this print?
>> Uh good morning. Uh Kitty from the
beautiful city of Singapore. uh
sunshining here um everybody looking
forwards to the weekend but before that
yes we have that core um PCE number that
everybody is focusing on I feel like you
know the way that the market is priced
right now people are expecting a
slightly higher inflation reading um but
they're also not that bothered about it
and I think that the reason for that is
that the Fed has already quite clearly
signal to us that September is now very
much in play and most likely that
they're going to be cutting there and it
feels to me like a lot of the um
decision makers have already made up
their minds about about that. So what we
might see maybe depending on the number
would be people calibrating their bets
for how much or how fast we move beyond
that. Um people will be watching as well
obviously for any any uh indication we
can get that the tariffs are being
passed through to consumers more
aggressively. I think that there's also
the possibility there'll be slightly
stronger uh service inflation. But it's
the labor side I think of the equation
that the Fed is really paying attention
to and more worried about. And so that
uh probably means that the market impact
from today's figures is is is unlikely
to be too huge.
>> So Paul, we didn't get any market drama
when it came to the French inflation
number, but of course the political
rumblings continue next week. Will the
market drama there continue?
>> I think it's going to be really
interesting to watch out there. You
know, we've seen that widening of the
spreads. Uh so far it feels to me I
think that you know, it's more of a
France issue than a Europe issue. the
euro hasn't been under particular
pressure um so far. So um uh the you
know relatively contained to to that
market at the moment but there is you
know little bits of political risk all
over the place at the moment and also in
Asia. We're seeing some of that today uh
some political protest in Indonesia and
that's really given that market a whack
both in terms of the uh currency and
also in the stocks in particular. Uh so
you know keep an eye on those individual
pockets of risk where they're flaring up
and that kind of thing but I think the
overall picture is you know markets are
pretty confident at the moment and
looking robust.
>> Paul it's it's nice when your stock
market has a massive rally just as
global leaders are turning up in your
country. I'm talking here of course uh
about what is happening in China. I'm
not drawing a connection between the two
and suggesting there's any political
interference in the stock market but
this stock market rally looks a little
bit of a headscratcher.
Yeah, it does uh based on the economic
data uh at least which has been so so a
little bit poor actually. We've seen
quite a lot of misses but there is a lot
of cash that's been sitting on the
sidelines. There are some positive
narratives for China particularly in
that tech space that people have really
been leaning into and so it's been
interesting to see the nuances in the
market and where they've been uh the
real gains has been in those sort of new
sectors has been in smaller stocks and
small caps. uh it's been you know little
parts of the market that don't
necessarily catch the attention of
international investors so much whereas
some of the big companies you know and
we saw with maidan this week have been
the ones that have been suffering. So
Alibaba earnings coming up at the end of
play today that's going to be really
instructive as to what uh the bigger
companies look like in terms of the
economy and how we go from here. The
mainland stocks have been outperforming
recently. Keep an eye on those in
particular next week.
>> Yeah Alibaba shares up 43% so far year
to date. Bloomberg's Asian market editor
Paul Dobson. Thank you so much and
remember you can get up-to-date analysis
and insight from Paul and the team by
going to MLIVgo on your terminal. Let's
go now to our stocks to watch and with
that is Louise Moon. Louise,
>> morning Lizzie. So a key one we're
really watching this morning is European
auto stocks. So they have said they
Europe has said they will reduce uh or
cut all tariffs on US industrial goods
and in return Europe will uh America
will reduce tariffs on European car
makers. So that's from 27 1.5% to about
15%. So you can see here the ones with
real exposure. So we've got Volkswagen,
MercedesBenz, and a host of others that
have got real exposure to the US. So
you'd expect that to potentially give be
a bit of a boost to their stock this
morning. That's not certain that this is
going to be implemented, but it is
expected to come in quite soon. And
they've had a bit of a mixed picture so
far this year. Volkswagen up, Stellantis
down. So we'll have to see how this
plays through into the market at open
this morning. Now, as you've been
speaking about also, we're uh defense is
a real key focus as well this morning.
There's been talks of course of a
meeting between Zillinsky and Putin.
Doubts over whether that's going to
happen. The Kremlin hasn't committed to
anything and we've had Germany's
chancellor now saying he doesn't think
that's going to happen. Now, of course,
defense with all the geopolitical
tensions has had a stellar year. We've
got Ryel up over 166%.
We'll have to see if this weighs on
defense at all this morning. So that's
one we're really keeping a close eye on
today. And then finally, ending on a bit
of a Friday note, we've got a Contra,
the French spirit maker. They've had a
rough year, down over 25%, but some
positive news for them this morning.
They're saying they're expecting less of
a hit from US tariffs. So they expect
about a 45 million euro hit and now
about 30 million euros. So potentially
could could boost their stock this
morning. So things looking a little bit
brighter for Contro.
>> All right, Luis Mi, thank you. our
equities reporter there. He'll be back
with us later in the hour the program
with our movers as well. But as we look
broadly across Europe, we've got Euro
stocks 50 futures down 3/10en of a
percent. Bit of outperformance for the
Footsie 100. I wonder what's happening
there. We've had three days of losses
for the Footsie. So perhaps uh they can
turn things around. Uch is where we are
right now for the Footsie futures.
>> Very marginal outperformance.
>> Well, I have to be optimistic. I'm also
the UK correspondent guy. But coming up,
we'll take to the opening trade. This is
Bloomberg.
Friday morning, long weekend coming up
in the United States. Just bear that in
mind when you think about what you're
going to see on the screens as you work
your way through the rest of the
session. We do have obviously inflation
data to factor in. Spanish numbers are
breaking right now. We'll get the US
data a little bit later on. But
yesterday was all about growth rather
than inflation and you can see that in
the way that stock markets performed.
Europe actually kind of rolled over
towards the end of the session midm
morning uh into the afternoon. The US
took off. The reason for that fresh
record highs uh is that we saw some
decent GDP data coming out of the
states. Growth is looking like it might
be reacelerating.
Does this sound like an economy that
needs rate cuts? That's the debate at
the moment. And we'll maybe see some
further evidence on the PC numbers a
little bit later on. Europe going into
that law weekend. Lizzy looks a little
quiet.
>> Yeah. So, we've got futures pointing
lower in Europe. Not for the Footsie.
You've told me not to get too excited
about that. But nonetheless, look at
this little little bit of green on the
screen here. You have had the longest
losing streak in more than two months
for the Footsie. So, maybe Oh, it's even
gone just as I'm speaking. I was going
to say it could turn it around, but
look, it's a red picture across futures
this morning following as well the mood
that's happening in the States. We've
got futures pointing lower there as
well. But what are you watching in terms
of stocks criti? Well, sticking with the
UK, we do of course have one eye, one
keen eye on the UK banking sector. Some
reporting out of uh some think tanks
coming out this morning there is a
potential for a windfall tax by the UK
chancellor of the excheer Rachel Reeves
on commercial lenders to recover some of
the profits that they're making on
deposits from the BOE. We've also heard
about a windfall talks at least being
floated by other reporting in Italian
media. So that's showing up in the
banking space. Defense stocks very much
in focus as well. I believe there's a
meeting in Copenhagen today and Remy
Contro guy talking about a smaller than
expected tariff hit.
>> Something for the weekend to think about
when you go uh into the bar. What's
happening with Remy? Uh let's talk a
little bit about this market open this
Friday morning. Let's talk about what
kind of numbers we are going to be
watching for. Are we going to see a
continuation of weakness in France? Is
the Footsie 100 to Lizzy's point going
to deliver some upside surprise? At the
moment the answer appears to be no. Uh
the Footsie 100 is absolutely flat as a
pancake. Uh we are going into a stock
600 session that is down by 210 uh of
1%. The IBEX is down by 1/10enth of 1%.
We'll see how the CAC opens in just a
moment. The banking sector could be
interesting out of the UK. There's
certainly interesting political
reporting around what is happening
around a windfall tax there. We're
talking about taxing buybacks down in
Italy. The tax story does seem to be
relevant this morning. The DAX clearly
has no news at all. It is already open.
It is down by 4/10en of 1%. We'll see
what's causing that uh in just a moment.
And the CAC is down by 210 of 1%. So
that's the picture this morning. We
await PCE data. We are going into a long
weekend in the United States. Lizzie,
what are we looking at from the sector
point of view?
>> Well, we have banks at the bottom of the
basket, guys. So down 7/10 of a percent.
You've only got four sectors in positive
territory this morning. Energy, real
estate, uh basic resources to name some
of them. 310% up for energy. But if we
just dive into those banks, you
mentioned Criti about the banking story
here in the UK, the threat potentially
from Rachel Reeves to that sector and
the likes of Nat West down 2.8%, HSBC in
London down half of a percent. Lloyds
Banking Group down 2.6%. So indeed that
negativeivivity is translating and uh
despite my optimism, the Fussy 100 down
a tenth of a percent more broadly. I
think it's worth hitting some of these
movers as well because we've had a keen
eye on the commodity space this week and
likely going into this weekend as well
with the Shanghai cooperation uh summit
organization
>> organization
>> organization there it is the summit that
is uh uh hosted by Xi Jinping as well.
But we should keep a keen eye on the oil
story because the idea of one sanctions
coming from Europe onto Iran but then
also the conversation between China and
India likely to affect it. I bring that
up because BP this morning is your
biggest index contributor. Seeing a
little bit of heavy volume this morning,
higher by about 1.3%. Guy,
>> uh, I need to turn my attention to what
is happening in Spain. I don't actually
have the right data up, but we'll flash
it up on the screen for you and you can
figure out what is going on. Uh, CPI
data across Europe, French data, uh,
absolutely uh, not moving the the story
just a few minutes ago. The interesting
thing here is that basically from an
sort of symmetry point of view, if you
get a strong reading, you are going to
likely see a bigger reaction. If you get
a weaker reading or something that's
broadly in line, you're not going to see
actually very much of a reaction. So,
it's the upside surprise that we're
watching for here. Um, remember and
remember the Spanish inflation in an
economy that's actually doing fairly
well at the moment is a little toppy
relative to the rest of Europe. So, CPI
year-on-year comes through unchanged uh
at 2.7%. Core comes through at 2.4,
which is a little tick up, but not by
much in terms of the numbers. The
harmonized number on a year-on-year
basis is pretty much exactly in line
with expectations. So, so a Spanish
shrug at the shoulders on the CPI front.
>> We call those a siesta.
>> Yeah. It's interesting to contrast the
story though between span Spain and
France when it's both about energy. So
in France you have the downward pressure
when it comes to regulated energy prices
and Spain that's the biggest source of
upward pressure energy but as you say
banging line uh well with the last
reason.
>> Does it change anything viz the next ECB
meeting which you'll be attending? No,
but if we get surprises in the numbers
later on in the day, does it change
December? Because as I say, that's where
the markets split from economists on
whether they're going to move again.
>> Okay. So, so the real So, so can we park
European
Can we park European rates at this
point? I think that that appears to be
largely where everybody is at the
moment. And coming back to this kind of
symmetry, I think you would need a
fairly big surprise to change the
narrative around all of this.
>> Yeah, absolutely. But also, how much of
this is baked in? Are you waiting for
weaker data for some sort of action or
is that just a a presumpted or assumed
outcome at the end of the day? Let's get
a little bit more market reaction and
and analysis I should say. Eleanor
Taylor, Jolen, co-head of global and
Swiss equity over at Union Bankare Prey
joins us this morning. I'm definitely
sure I butchered the entire
pronunciation of that intro. But
regardless, Elanor, we thank you so much
for joining us this morning. Walk us
through what we should be paying
attention to. We've got a lot of data
coming in on both sides of the Atlantic
today on the inflation prints that we've
been talking about with France, with
Spain. And we also have the PCE data
over in the states plus digesting the
data we got uh later in this market.
Does the data matter?
>> Data always matters for people who are
looking quite short term and actually
also obviously matters for people who
are looking more longterm in terms of
where the direction of travel is going
to take you. What your colleague was
saying earlier on is that indeed we are
in a situation where markets have been
doing very well. Have been seeing a
fairly optimistic view of news flow and
how markets were not reacting, consumers
not reacting either to higher tariffs.
And as we approach the most difficult
month of the year in terms of stock
market performance, people may be
wondering now what could spoil the party
a little bit uh going forward. And that
will concentrate minds on whether
inflation is going to be a little bit
higher, notably in the US because of
potential tariff effects, whether Europe
can indeed begin to show its promise.
We've seen very good multiple expansion
on equity markets in Europe. But that
really does now need to be underlined by
stronger earnings growth than what we've
seen at the moment. And that might
explain why some of the markets in
Europe as we go into this weak or often
weak market performance of September are
thinking you know are we are we going to
get what uh we have been expecting and
what we have been buying into so far
this year.
Well, Elanor, one of the arguments, or
at least one of the bull cases for
Europe, but also for the states just for
a sustained equity rally, has been that
there's so much liquidity in the system.
One that's been propping up buybacks and
dividends as one example from the
financial sector among many, many others
as well, that any sort of hit to the
bottom line from tariffs really just
shows up in margin compression, not
ultimately an actual shrinking of the
business. And that it is ultimately a
one-time hit. At least that's some of
the claims being made out of Federal
Reserve officials over in the States. Is
that a fair argument that this margin
compression that we may see from the
tariff hit is a one-time thing, Eleanor?
Are you team transitory?
>> I would argue that tariffs are not
necessarily a one-time hit. So, yes,
they will hit margins. Unfortunately,
margins also feed into what your cash
position is going to be and that could
be a dampening effect on growth uh for
some companies simply because they can't
afford it if all of a sudden they're
earning less, you could say. Um what is
encouraging uh as the opposite argument
to that is to see the city surprise
index at least for the US which is
looking as if it would leave room or
encourage people to start investing
again. But bigger than what a tariff is
on a one-off bigger than uh than what uh
direction of travel is in terms of
investment is always uncertainty. uh
companies need to know that it makes
sense for them to invest anywhere and
that there is going to be a certain
environment for them to develop whatever
they are planning to develop. And that
is something which has been perhaps
lacking this year and where people would
like to be sure that institutions as
they know them are going to have the
independence that they need and that
there is going to be uh a direction
which is given by administrations by the
economy in general for them to feel
confident about investment.
>> Enor good morning Sky are you telling
your clients to to sell into September?
Do you think the seasonality is going to
have a big effect this year?
>> I tend to encourage people to stay
invested because um that is where you
are going to be able to generate some
alpha on your portfolio. But certainly
if you did see weakness in September and
I would actually qualify that that as I
say it is traditionally one of the
weakest months in the year. But actually
when you see some of the news flow going
into September and some of the
expectations we may have a less weak
September than is perhaps statistically
historically the case. So if you do see
weakness I would suggest that there
might be opportunities to invest on some
of the stocks which may have run
slightly away. Um but um I would be a
little bit more cautious actually for
longerterm investors as to what the
third quarter result season actually
develops um and how that develops
because we may see some of the optimism
and the guidance of companies who said
okay first half was a bit weak for
obvious reasons. You've seen the news
flow too. Um but um we'll be fine. We'll
be able to make full time full guidance.
If they change that that will create
some um buying opportunities if you're
But if I look in if I look in the United
States, the momentum seems to be
returning to the economy. GDP data
yesterday looks really good. Do you
think stocks are up because of
expectations for a good economy going
forward in the states or do you think
they're up because of expectations for
rate cuts? Which one of those two things
is it? Because they seem to be slightly
contradictory to me.
>> I would argue that they are up because
they've also been able to develop,
contrary to Europe, decent earnings
growth. The performance of the European
equity markets is very much multiple
expansion. In the US, you've got a mix
between earnings growth and some
multiple expansion. I don't think the US
is cheap at the moment, but that growth
is there. It's not as broadly um shared
across the market as I would feel
comfortable for it to be. We've still
got quite a narrow part of the market
which is driving that growth and I would
feel more confident that we could feel
um comfortable about growth going
forward for the US economy as a whole
and notably for the confidence of the
consumer which is key in the US if we
had a broader base of earnings growth in
the US than what we're seeing at the
moment. But having said that, as I was
saying, city surprise index is pointing
upwards. Um, we've got good GDP growth.
I think those matter considerably more
at the moment than the interest rate cut
expected in September because
expectations for that cut are very much
in the market. I would u think that the
Fed could probably act more on doing
just one cut this year um should the
economy prove to be very strong. Should
we see indeed inflation remaining a
little bit sticky as the year continues
rather than seeing them revise what
they've um baked in almost I would say
in terms of a cut in September.
>> Elellanar, if I could go back to the
other macroevent of the week, Nvidia
morning. It's Lizzy here. uh and and I
wouldn't ask you to comment on individ
individually but just given that its
earnings were perhaps underwhelming did
that change your view when it comes to
US big tech and and perhaps the tariff
impact to come on US stocks
>> certainly the tariff impact on US stocks
is perhaps a little bit underestimated
in as much as US companies just as much
as foreign companies have very
international supply chains And uh we
are going to see they too uh needing to
consider how this affects their margins.
Who will be the final payer of those
tariffs? Is it their final consumer? Are
they going to be able to share it more
equitably with um their supply chain
etc. uh but I would argue without
talking specifically indeed about a
stock that the results that we've seen
from large tech this year and and
sectors which are dominated by US
companies does suggest that some of the
themes which are in play in terms of
continuation of AI etc are still alive
but sometimes perhaps um we're seeing
cases where the realization and the
promise of what AI could bring may take
a little bit longer to be distilled into
the numbers than what some investors may
have hoped for.
>> And on tariffs, given your Swiss
expertise, Ellena, are you expecting
Swiss companies to be nimble enough to
be able to navigate the tariff impact
and shift production and and protect
earnings?
If you look at how Swiss companies have
reacted over 40 years to a very strong
currency and a continuation of
strengthening of that currency, I would
argue that they will probably be able to
be as nimble or similarly limble when it
comes to tariffs. They've already got an
extremely international supply chain. We
have a liberal politics um political
setup in Switzerland. the uh voters and
the government are very cognizant of the
fact that companies sometimes do have to
move lower skill activities outside
Switzerland in order to remain
competitive. And remember, as far as the
US is concerned, in fact, you've already
got more than 50% of what is sold in the
US being produced in the US by Swiss
companies which are present.
Switzerland's the seventh largest
foreign direct investor in the United
States. It's employing 500,000 Americans
in companies which are based in the
United States. It's a very big R&D
contributor to the United States. These
are all areas which perhaps haven't been
gone into in enough detail so far in
discussions and which probably provide
some negotiating power not only for the
government to government discussions but
companyto discussions. And remember that
Switzerland because it's always had to
face that very strong currency has
tended to specialize more in very
missionritical products where they often
don't have a very high level of
competition in the US. So I'm afraid
that um they probably will be able to
pass on prices um more easily than some
other industries.
>> Great to catch up. Thank you very much
indeed for joining us. Ellen Otella
Yolen, co-head of global and Swiss
equities joining us from UBP. Let's take
a look at what is happening in the
markets for broadly across Europe.
Here's the core six. Let me just show
you some of the numbers we're watching
here. Uh tech on the front foot, back on
the front foot. A sml is up by two t of
1%. Defense stocks certainly having a
much better day of things. We're up by
two and a half% on Ry Mattal. LVMH is
coming back a little bit. I will
highlight that we are seeing some
weakness in UK banks today off the
reporting around taxation. Let's get the
details of that move and all the other
moves we're watching this morning with
Louise Moon.
>> Morning. Starting with banks but first
starting with Uni Credit and Alpha Bank.
This is on news that Uni Credit has
raised its stake in Alpha Bank, the
Greek bank not really benefiting Uni
Credit at the moment down slightly.
Alpha had risen open uh and is is halted
or uh flat at the moment. So that's on
that uh news with to do with Alpha Bank
and Uni Credit. But then moving on to UK
banks as you were talking about. So, a
think tank has recommended essentially
that Rachel Reeves impose a windfall tax
on UK banks, saying this could raise
about over 32 billion. Really hitting
banks this morning into the red.
Barklay's down over 2%. Nat West down
almost 4%. So, not good news on that
front for UK banks strongly into the
red. Um, on to France, we're looking at
Contro, the the Spirit Maker up only
slightly into the green. That's after
they said that that the US tariffs
wouldn't have as much impact as they
thought. So, kind of would have thought
this could be a bit of a bigger boost,
but just slightly into the green there
this morning. That's potentially because
US tariffs are still hitting it. And
then moving on to all has had a big
week. Started off with a canceled wind
farm off the US trying to regain
investor confidence. They've been uh S
SNP late last night affirmed their
rating. So, it's it's benefiting them
slightly. Slightly into the green 0.2%
for them this morning. On to the next
one. We're looking at defense stocks as
we spoke about earlier. So the German
chancellor said he doesn't expect a
meeting between Zilinski and Putin.
Defense stocks not really reacting as
you would expect to that. Still up into
the green. Uh we've got Ryan Mattel, the
German defense giant up almost 3%
despite that news. So not really
reacting negatively to that news this
morning. And then we're moving on to
autos. Finally, European auto companies,
they are expected to benefit uh from uh
from a cut to tariffs from the US. A
mixed response. Stantis up slightly, but
apart from that, into the red uh so not
not providing too much of a boost this
morning. So, we'll have to see how that
one plays out through the rest of the
day.
>> All right, Luis Moon from our equities
team, we thank you so much. Walking us
through some of those early movers.
Coming up on the program, we're going to
walk through another major mover, but
from a different part of the world.
Alibaba, the Chinese e-commerce giant,
set to report first quarter earnings
later today. Going to dive into some of
those details next. This is Bloomberg
Friday morning. Good morning. 20 minutes
into the equity market session and as
you can see we have a little bit of red
on the screen. Uh London is down uh
despite Lizz's protestations that we
should be seeing a bounce this morning.
I joke. Uh we are seeing banks in London
taking a beating on the back of a think
tank report relating to tax raising by
the chancellor. Um but elsewhere
actually it's a fairly quiet session. I
just want to flag that we are going into
a long weekend in the United States uh
which will have a meaningful impact in
terms of volumes I suspect later on
today. I suspect a lot of people in the
US probably are going to take this
afternoon at a fairly leisurely pace. I
certainly would. Uh we are almost at the
weekend though out in Asia, but there
are a few things that need to still be
done. Uh one of the factors that we need
to bear in mind is that we still need to
have BA numbers uh come out uh which is
coming annoyingly late on a Friday
afternoon. Shares in the Chinese
e-commerce giant are trading slightly
higher in Hong Kong ahead of those Q1
earnings. Analysts have slashed their
share price targets after intense price
war in China's food delivery sector uh
which has hit the country's e-commerce
companies. For more, Robert Lee is still
with us, senior analyst at Bloomberg
Intelligence and joins us from Hong
Kong. What should we be expecting? What
are you looking out for in Bubba's
numbers?
Okay, I think there's one area to focus
on and that's the margin because
obviously during the course of this week
we saw numbers from Mtoan um you know
pretty disastrous set of numbers as
their margins were sign you know the
margins food delivery mtoan as a food
delivery business which dominates the
China market Alibaba and JD.com have
been moving in aggressively uh to what
is already a low margin business and
they've been successfully taking share
so Well, I guess we'll see the evidence
of that in Alibaba numbers in terms of
topline improvement perhaps, but at what
cost in the margin? So, I think the risk
is that Alibaba um possibly comes below
expectations on margins. Also, within
the greater China context on e-commerce,
there's a lot of subsidies. At the
moment, the government is doing
everything in its power to um to support
consumption in the broader economy, but
again, at what cost to the margins? you
know someone has to fund those subsidies
and then finally on the cloud business
obviously this is increasingly seen as a
key AI play in this part of the world uh
but for those who remember it actually
missed margins on cloud last quarter I
think there's a risk again that the
margin could come below expectations
it's not a question of demand on cloud
for all the obvious reasons but it's a
hyper competitive market so there's a
common theme here which we see in other
seets of the China tech sector whether
it's solar or EV vs. It's the the
competition in this part of the world is
rampant. It's cutthroat. So, there's a
real risk on margins going into this
print.
Rob, staying on AI, the Chinese chip
firm Cambrian has been warning investors
over its surging stock price. It's dived
the last time I saw it n by 9%. What's
underpinning that?
>> Okay, again, just a bit of context for
Asia. A lot of uh Asian markets are
retail driven. there's a very high
participation of retail investors that
tends to lead to very whippy markets, a
lot of volatility and again for those of
you with a longer memory going back
preinancial crisis you know the
valuations in in China were were quite
something um so I think obviously there
is a lot of national pride there's
obviously a lot of uh that the AI
companies in this part of the world are
making very strong progress
technologically this ties into the H20
um headlines you've seen over recent
weeks with the Chinese government uh
apparently encouraging the AI firms to
buy locally and the two main
beneficiaries of that are Cambercon and
also Huawei. So no wonder retail
investors have piled into it. But you
know even based on the company's release
I think things have probably gone a bit
too far in terms of market cap. That is
the largest cap market cap stock in the
China market at the moment even
outstripping Maai.
>> All right Rob Lee from Bloomer
Intelligence walking us through those
dynamics. We thank you so much. You go
from the tech sector in China to the car
sector right here in Europe. Despite
Europe's new car market seeing its
biggest jump in 15 months,
Mercedes-Benz's technology officer,
Marcus Schaefer, is pushing the US and
the EU to finalize a trade deal. Now,
the reason for the urgency is the hefty
27.5% tariff that European automakers
still face when exporting vehicles to
the United States. Let's talk to
Bloomberg's Global Automotives editor
Craig Trudeell. Craig, just walk us
through these comments. Yeah, it they're
they're pretty straightforward. Uh and
and it's a a matter of of you know,
headline uh headline positivity just
just in the last uh few weeks with with
bringing this 27 12% uh tariff down
actually getting that has has been uh
complicated and how we get there is is
still very much remains to be seen.
Right. uh the the US bringing its its uh
tariff rate down is contingent upon uh
the EU bringing forward legislation.
They we don't necessarily actually have
to see that legislation pass, but you
have to wonder uh you know whether or
not that is still sort of a sword
hanging over the heads of of uh
companies like Mercedes and industries
like the car sector. And uh there's
really sort of uh strange details here
too in in that the EU and US alluded to
this idea of rec recognizing one
another's uh safety standards. That's
been a an issue for as long as I've been
covering the car industry where uh you
know you you do have already safety
advocates coming out and saying, "Wait a
second, we don't want F-150s on the
streets of of Milan or or London. Uh you
know, this doesn't make any sense. They
won't fit."
>> They definitely won't fit. um certainly
into the parking spaces. Um this week's
been a bit of an odd one for me.
European car makers want to keep
engines, ICE engines rather than motors.
At the same time, we're seeing data
suggesting actually we're starting to
see a pick up in EV. Just balance that
out for me.
>> Yeah, it it is really interesting
because uh we have uh for the most part
seen, you know, pretty consistent uh
challenges with getting that that take
up uh going, right? Uh yesterday's
numbers were actually really positive
and and it's been consistent. We've seen
uh battery electric vehicle sales and
plug-in hybrid uh sales really strong
this year and it's it's been uh no sort
of you know ups and downs. It's been
very steady. Uh I think we we also need
uh more and faster growth
>> still to get to where we need to be in
2035. So that's where where we have uh
the difference here.
>> Great to see you Craig. Great coverage
this week. Thank you very much indeed.
Coming up we're going to talk about
defense. That's next. This is Bloomberg.
This is the opening trade. We're 30
minutes into today's session and as you
can see, it's red across the screen.
Here in Europe, we have the stock 600
down 2/10en of a percent. It's a similar
energy over in the states, although of
course it is the last business day
before the Labor Day holiday on Monday.
So, it's going to be a shorter week next
week, but futures pointing lower there
as well. You've got underperformance now
for the cat kahons. Of course, it's been
a bumpy week around all of the politics.
I was hoping to see some outperformance
for London stocks this morning, but
alas, not so. The Footsie 100 as well,
down two ten of a percent, guy. And
>> we can blame the banks. We can blame
this story surrounding what is happening
with extra tons taxation on that sector
uh in the newspapers this morning for
that. In terms of the internals, there's
not much to see here. Volume's pretty
much uh as you would expect it. Um
though it is the story going into a long
weekend. Maybe a surprise that actually
is holding up as well as it is. Uh
internals basically a few a few more
down than up. That's why the market's
down just a little bit. In terms of the
52- week highs and lows, again, there
aren't many out there just for variety
sake because I think we've done 52 week
highs all week. I'm going to do a 52-
week low uh as we come through towards
the end of the week. Bes uh is down in
the professional services sector at a
one-year low. The stock is down by 30%
so far this year. Uh and the rolloff
we've seen basically throughout most of
the summer, spring summer, uh is
continuing 52- week low, but but again,
there's not much dispersion in the
market this morning. There are a few
areas, defense on one end, banks at the
other. That's maybe what you're looking
at this morning as we go into this long
weekend in the United States. Cy, what
else do we know need to know this
morning?
>> Yeah, let's talk about some of the other
stories uh crossing the Bloomberg
terminal. Federal Governor Christopher
Waller has again called for lower
interest rates, saying he would support
a 25 basis point reduction in September
and anticipates additional cuts over the
next 3 to 6 months. Now, he told the
economic club in Miami that longerterm
inflation expectations are firmly
anchored while the chances of an
undesirable weakening in the labor
market have increased. And sticking with
the Federal Reserve, Governor Lisa
Cook's lawyers have suggested that an
unintentional quote clerical error may
have been behind the mortgage dispute
over which President Trump wants her
fired. Now, Cook is suing to block what
her team calls Trump's quote illegal
attempt, saying his pretext does not
amount to sufficient cause to remove her
from the US central bank. And shifting
our focus elsewhere, Chinese President
Xi Jinping's closest international
allies, including the leaders of Russia
and India, will be gathering this
weekend for China's biggest diplomatic
event of the year. The Shanghai
Cooperation Organization Leader Summit
will be followed next week by a military
parade in Beijing with guests including
none other than Vladimir Putin and North
Korean leader Kim Jong-un. Now Lizzie,
this is such a crucial moment not just
for the sheer optics but for
strengthening an alliance that I would
say puts a lot of fear into the Euro US
and European leaders hearts.
>> Yeah. And is that alliance strengthened
because of Donald Trump being a shared
enemy or opponent or whatever you want
to call him to those names that are
arriving today in China? You need to see
it as well the timing in the context of
this military parade on September the
3rd. No accident that that's happening.
This World War II military parade, China
wanting to present itself as the
founding leader of the postworld war II
liberal international order. It's a
point that Elizabeth Inglesen was making
earlier.
>> Yeah. And it had a major part to play in
that war against Japan. And that
obviously that historical context is
important uh to the Chinese. Obviously,
the internal politics of China at the
time was slightly different, but we'll
plug that one.
>> They ignore that
>> for for the moment. Um let's talk a
little bit about what is happening in
terms of the broader defense story. What
is interesting in the market this
morning is it's bank stocks on one end.
UK banks in particular are sharply to
the downside and adding the points on
the downside. But on the upside actually
you're seeing a fairly significant
bounce back in some of the German
defense names. So you've got Ren Hensel,
Ryatal, all of these names tracking
higher. The German Chancellor Friedick
Mertz saying as well overnight that a
meeting between Ukrainian President
Vladimir Zalinsky and the Russian uh the
Russians Vladimir Putin is unlikely to
happen even though of course that is
something that had been touted by the US
president, President Trump. Uh Russia as
we now know overnight unleashing a new
wave of drone and missile strikes on Kev
killing at least 20 people. attack comes
in defiance of course of US calls for an
end to the fighting. Critically, we've
seen UK infrastructure and EU
infrastructure in Kev being hit. Maybe
this is the reason why we are seeing
some of these defense names being pushed
a little higher this morning. Uh our
global defense editor, Jerry Doyle,
joining us around the table.
It does see it seems logical to me this
morning that you've got a situation that
is deteriorating once again in Ukraine.
We do seem to be seeing a an escalation
in a conflict that is already fairly hot
at the moment and has got it's going to
be interesting to see how it develops
over the next few weeks. We're seeing
European kit being hit. It does seem as
if there's maybe renewed interest from
the Europeans in providing support to
the Ukrainians. Is that why maybe we're
seeing the reaction we're seeing so
strongly in defense names this morning?
>> That could be part of it. Um there's uh
if if there were security guarantees
that that was part of a peace process
that now seems to be deeply in doubt
with all the attacks in recent days uh
then there would be movement and and
purchases from those European defense
companies. If there's not a peace
agreement, if there's not security
guarantees, if the war continues the way
it is, there's still going to be those
orders.
>> Sorry, just before jumps in, which one
of those two things on balance provides
more support for the European defense
companies in terms of the orders they
are likely to receive?
I think it's difficult to say. Um, if
the war escalates and if the European
countries get more deeply involved than
they already are, then it could
certainly lead to a ramp up in
industrial activity.
>> Well, speaking of a ramp up, I believe
Rhyme Matel has just recently uh opened
its new factory in operation. Talk to us
just about that kind of capacity ramp up
if you can. I mean, we've been talking
about this in the market with this
fiscal spend for so long. It feels like
we're finally seeing that actual ramp up
take place. Yeah, I think a lot of it
had been sort of happening quietly over
the last two, three years. An expansion
of industrial capacity of things that
aren't necessarily making big headlines,
you know, small arms, ammunition,
bullets, and things like that. This
Rhymatal factory is the largest
artillery ammunition plant in Europe,
perhaps even the world at the moment. Uh
so that's a big deal for them and it
shows this investment in in industrial
capacity on the defense side. And if you
were in the defense industry, what are
you watching most for when it comes to
the Modi Xi uh Putin summit that's
coming this weekend?
>> Well, I think the uh it's less in terms
of the the military hardware. You know,
China and India aren't going to pro
provide that kind of material support
for Russia. I think where you're going
to see more impact is on the energy
side. Obviously, India has gotten uh in
some recent hot water with the the
president of the United States about
their purchases of Russian oil and that
Russian oil is really the main thing
that's keeping the Russian economy
ticking along right now as it's on a war
footing. Um but even that's causing
problems for them because they budgeted
for a much higher uh price for oil this
year about $70 a barrel and it's much
lower than that at the moment. So that
that's putting strain on on their war
machine. How do how much capacity does
Europe now have to meet the war needs of
Ukraine? I what caught my eye this
morning was Denmark, Norway, and the
Netherlands potentially buying 3,350.
These are these are standoff cruise
missiles, but they're buying them from
the United States in order to feed them
in to Ukraine.
that that signals to me that Europe
still doesn't even with the success of
MBDA and all all the kind of missile
production we have here that we still
don't have the capacity to do what we
need to support Ukraine from a purely
European point of view.
>> Well, some of it is a matter of
capability and some of it is a matter of
capacity. I think these is a good
example of capacity. These were missiles
uh developed last year by the United
States sort of using parts that were
found under the couch cushions. Right.
These aren't these aren't
>> these are low cost lower cost.
>> Exactly. Exactly. So, um the these were
sort of assembled in in an ad hoc or
expedient way as a means of providing
Ukraine with a large number of standoff
weapons in in a short amount of time.
And so what's happening is these
European countries are buying them from
the United States and transferring them
to Ukraine. Um it's basically the same
as if Ukraine had bought them
themselves, although that uh that
particular mechanism has become more
fraught lately.
>> Okay, Jerry, lovely to have you. Thanks
for spending time with us. Just before
the weekend, our global defense editor
Jerry Doyle. And on Monday, speaking of
the European perspective, our Brussels
newsletter is going to get a fresh look
with our bureau chief Suzanne Lynch at
the helm. Do sign up to that at
bloomberg.com/newsletters.
I'm just keeping an eye on these markets
and as I say, we've got the stock 600
down a quarter of a percent, the footsy
down 2/10en of a percent and it's being
dragged down, as you say, guy, by the
banks. And it comes back to this story,
this recommendation from the IPR, this
left-leaning think tank that Labor, the
government could raise billions by
imposing a windfall tax on banks profits
from deposits held at the BOE. And I
feel that this is holding purchase
mainly because, you know, this is a
left-leaning think tank that that has
the ear of the government and the
government is desperate for ways to
raise money basically ahead of that
autumn budget. Again, another tax being
talked about. Like last week or earlier
on in the week, it was talk about
property taxes and wealth taxes.
Kites are being flown all over the place
trying to figure out exactly where we
could get some traction. And it does
seem as if no rock is being left
unturned, no stone is being left
unturned when it comes to the idea for
looking for money. Where can we find
some money here? Uh it could be the
bank, it could be all of it. The whole
potentially is quite substantial. But it
but this also speaks to the idea that
that Labour's relationship with business
is really in trouble here
>> because this may be politically easy
from the eyes of a leftwing think tank
but I think you were talking to Mark
Dowy earlier in the week talking about
the reverse laugher curve effect. Yeah.
>> You know you you could drive business
away by doing this and yeah they had
that prawn cocktail and smoked salmon
offensive with business when it was in
the campaign but if they bring in
attacks like this does Labor really look
like the party of business anymore?
>> Well not even just look. I mean the
laughter curve literally suggests you
have a higher tax rate the revenue does
not come in. Uh further along the curve
it's not just an issue in the UK. We
know that there's some uh reporting in
Italy by the local paper suggesting that
a windfall tax on their banking sector
may be in the works as well. It's also
something that's plaguing France, one of
the highly taxed countries in Europe.
Well, we're going to dive into that
conversation next. France Beiru is
survival. We'll bring you the latest on
the politics and the market's fallout
next. This is Bloomberg
for the moment. What we have is
deadlock.
>> It's a bit of a a short story in France.
I don't think markets would get overly
stressed about France being at 100 basis
points.
>> Political risk really thrust into kind
of France in in the spotlight.
>> It's nothing that we are not used to
>> compared to Germany which seems to be a
bit below the spread of 2024 but to swap
we are above this level.
>> We have a playbook. We went through this
last summer and spreads went all the way
to 80. DCB I'm sure will be ready to
support France.
>> If the euros and the ECB is still in
place, it will be difficult to uh to
make the system crack.
>> For France, we're talking about
contraction. Fully year earnings
expectation in Kakarant is minus 10%.
You don't buy cheap sectors, cheap
countries, cheap regions where earnings
are falling. The market is already
prepared to you know a new government,
even a new snap election. What we need
is a majority at least.
>> Reaction from some of our Marcus guests
on the show this week. Coming in, of
course, as France grapples with fresh
political turmoil with Prime Minister
Francois Beu facing a makeorb breakak
confidence vote. I'm already having a
little bit of deja vu. With the
parliamentary math stacked against him,
Beiru is left with only the slimmest
chance of survival in his battle to keep
his job. For more, we're now we're
joined by Bloomberg's Julian Pontis out
of France. Julian, just walk us through
some of the math here. walk us through
where we stand today.
>> There's very very very little uh chance
for France be able to survive this vote.
Um if you look at betting websites, it's
over 90% uh that he will fail. Uh so
what you see in the market pricing at
the moment is like Beeru losing his vote
on September the 8th. What happens after
that is another question, but that's
where we stand now. Um across market the
dust is a bit settling. So we're going
we're seeing a few trends. The the
spread with Germany has now stabilized.
Um the market reaction on stocks was uh
quite harsh the first two days. The cake
40 lost over like 3% but it has
stabilized now. uh some investors are
seeing you know that the political risk
as it is today is correctly reflected in
the prices and in the valuation. Um so
at the moment I I would say that
investors do feel confident that at the
moment it reflects the the the situation
that is Beu losing his job on September
the 8th. After that what happens
obviously is not priced because we don't
know what could happen. um Mong could
just name another you know prime
minister uh from the center right center
left or you know or he could decide to
go for snap elections or like the the
extreme scenario people are talking
about it it's unlikely I must stress but
that m would resign uh to end the
political deadlock again that's not
something we are um you know expecting
at the moment but the the two an option
of snap elections can't be ruled
It's fascinating to watch French bonds
underperforming Greek bonds just like
for those of us with long memories. Uh
that is something that is a little
surprising. Julian Ponos, thank you very
much indeed. Another busy week
potentially coming up in France.
Investor focus is moving towards the
Fed's preferred price gauge PCE index uh
data which is due out a little bit later
on today. It's forecast to reveal that
maybe US inflation quickened in July. It
comes, of course, as the Fed Governor
Christopher Waller, who's running to
replace Chair Jay Powell, once again
called for a rate cut next month.
>> What I know today, I would support a 25
basis point cut at the committee's
meeting on September 16th and 17th.
While there are signs of a weakening
labor market, I worry that conditions
could deteriorate further and quite
rapidly. And I think it is important
that the FOMC not wait until such a
deterioration is underway and risk
falling behind the curve in setting
>> So we want to talk about the picture in
France. We want to talk about what is
happening states side. Let's do all of
that with Isabel Matos Ilago group chief
economist at BMP Parabar who joins us
now. Good morning. Thanks for the time.
Um, let's start off in the United States
only because I think people will be
focusing on that data a little bit later
on today. I looked at the GDP numbers
yesterday and saw an economy in the
United States that has the potential to
reacelerate. Yet, at the same time, I'm
listening to Chris Waller talking about
the need for rate cuts.
It seems odd to me that we've got a
strong economy and calls for rate cuts.
The claims data yesterday was okay as
well. Is the labor market really
weakening enough to upend this economy?
and we need rate cuts at some point
soon.
>> So look, in a way this whole discussion
has become a little bit academic because
uh the chairman of the Fed has pretty
much told us what they were going to do
in uh um on September 17. And the
reasons for that is that the balance of
risk uh has shifted and the labor market
has clearly been slowing down. It's been
slowing down for a variety of reasons,
but the Fed is concerned that and and
and Chris Waller uh uh repeated this
this analysis just uh the just
yesterday. They're concerned that we
could see a sudden weakening of the
labor market. Now as you pointed out the
signs in the broader economy are in fact
that it is reacelerating
and in fact we are anticipating that in
the employment report to be published uh
on September 5, we will see a
reaceleration of uh of payrolls.
Nevertheless, I think at this stage it
would take
a phenomenally positive upward surprise
for the for the Fed to not deliver that
fine-tuning rate cut um on September 17.
>> Okay. So, the Fed has precommitted to a
rate cut that the economy may not need.
Is that how I should read what you just
said?
>> No, I I don't think you could you should
say the economy may not need it. the if
if they perceive a shift in the balance
of risk which is which which makes sense
and also let's remember this labor
market is uh structurally changing. We
know that both supply and demand are
falling at the same time. We know that
the break even rate in terms of uh
payroll creations is falling has fallen
already by our estimate. it is now
between 50 and 75,000
uh uh per month to to to to just break
even which is much lower than it was uh
a year ago. So the Fed needs to navigate
through this uncertainty and in that
context making a fine-tuning 25 bips
adjustment
makes sense. I don't think you can say
this economy definitely doesn't need it
but it is clear that inflation is
accelerating and they need to keep a
close eye on that and I think that's why
they will at the same time as cutting
signal uh prudence on the path ahead and
not precommit beyond the September rate
cut
>> Isabelle it's created in in London a
good chunk of this data that we're
watching both the CPI the PPI and the
PCE numbers is dependent on housing on
shelter data. Several times this week,
Donald Trump has talked about bringing
the price or bringing the cost of
housing down. Critics of that argument
are saying that cutting rates on the
front end of the curve as the back end
steepens does not accomplish that goal.
Can you just walk us through the
dynamics of the long end of the curve
and how that reads into housing when
we're still talking about fiscal debt
concerns, Fed independence, and
ultimately duration risk?
Well, I think you've said it all and in
fact, this is exactly what happened
after the 50 basis uh point rate cut
that the Fed did last September. In
fact, we saw long-term rates uh go up uh
by by you know, in such a way that it
more than offset that that rate cut. Um
is this necessarily going to happen this
time around? Well, again, it all so far
the tenure has been very well behaved.
one could say surprisingly so at the
longer super but we're seeing a return
of uh of of term premium at the longer
end of the of the yield curve and that
is definitely something to keep in mind
if the market and economic agents
generally believe the Fed is cutting too
much is cutting more than the economy
needs and is concerned about uh u
inflation getting out of control we will
see the longer end um um steepen rise
and and that will not contribute to
lower mortgages. That's that's 100% uh
to be expected.
>> 100%. Let me put the counterargument to
that on on the case you've just made
here, which is that and I think this is
a case that's being made at the White
House right now, which is that even if
you do see a steepening in the long end
of the curve, if by the end of the year
you put in two, three rate cuts, that
the entire curve moves down. So on
balance then by year end the rates come
down even on the long end of the curve
and even with the steepening that you're
seeing. Is there merit to that argument?
>> Well, you can definitely think of
scenarios where that would happen. If
you see the economy going into a
recession and it needs a lot of uh uh uh
Fed cuts in a hurry, you will see the
long end go down as well. I think that's
another scenario where that is
internally consistent. However, at this
stage, the data that we're getting on
GDP, on various parts of activity, the
reaceleration of investment, the the
PMIs, uh, looking up, there is no sign
that this economy is on the edge of a
recession. And against that, we're
seeing inflationary pressures coming
through. Now if you do too many rate
cuts in that environment uh market is
going to price in higher inflation risk
and the long end is going to go is going
to go higher. Um but you know of course
you can come up with scenarios where uh
you can do more rate cuts uh at the
short end and not get extra inflation
but these would be scenarios of very
weak activity. This may not be a happy
scenario even for the White House.
Isabelle, what about rate cuts here in
Europe? Is the ECB going to cut again?
We've had no surprises really when it
came to the inflation data so far this
morning. What's the bar for the ECB to
cut again?
>> So, this uh the ECB a bit like the the
Fed has pretty much told us what they're
going to do uh at their uh meeting in in
two weeks, which is uh in their case to
do nothing. And so that that makes the
inflation data coming in today a bit
less uh less interesting. Um I think uh
you know so for the September meeting
you've had even some of the the the
traditionally most dovish uh governing
council members say they don't see a
need for a cut. So uh one shouldn't
expect a cut in in September. It's a bit
more of an open question for uh December
and the the end of the year. Uh the
reason for that is the ECB remains
worried about a slowdown in activity.
They've been worrying about a slowdown
in activity uh uh in the second half
really uh since Q1 where we had a very
strong growth but actually Q2 was better
than expected and the all the indicators
we saw through the summer the July PMIs
indicated quite a lot of positive
momentum. So I think right now the ECB
frankly is happy with where inflation is
and they're looking at the growth
picture a lot more. They're expecting a
slowdown. If the slowdown comes then
they might cut in December but we're not
seeing it right now.
>> Isabelle great to catch up. Thank you
very much indeed for joining us as we
head into the weekend. Isabel Matias
Elago joining us from BMP Parabar.
Weekend starts now. I think there's some
there's some decent racing in the
Netherlands in the San Jun. Got the
women's rugby world cup continuing.
There's some great tennis coming up as
well. It's a busy weekend coming up and
you've got the fantastic Bloomberg
weekend newsletter to read if you fancy
that as well. Enjoy the long weekend if
you're an American disposition. Uh we
will see you back here on Monday. The
opening trade uh is done. The pulse is
up next. This is Bluebird.