Good morning. Happy Friday. This is
Bloomberg Daybreak Europe. I'm Tom
McKenzie in London. These are the
stories that set your agenda. Investors
send US stocks to another record high as
markets countdown to today's key US
inflation data. Fed Governor Chris
Wallop restates his call for lower
interest rates. Lisa Cook sues to block
President Trump's attempts to fire her
from the Fed. Their lawyers say the
alleged mortgage fraud was an
unintentional clerical error. Plus, the
German chancellor says a meeting between
Zalinski and Putin will not happen. This
as Russian attacks on Ukraine's capital
leave more than 20 civilians dead.
[Music]
So any concerns about slowing growth
from Nvidia faded towards the end of the
session state side yesterday with those
gains coming through then a fresh record
high and the S&P 500 breaking above
6,500 up a little over 10% now year to
date despite of course the trade war and
of course the kinetic wars globally as
well. Well, S&P futures currently
pointing a little lower by a tenth of a
percent after breaking through that
6,500 level. European futures little
softer by a tenth of a percent as we
build up for the final trading session
of the week. Of course, for European
stocks, Footsie 100 futures uh just
pointing to a gains of three points so
far in the session. NASDAQ 100 a little
by 45 points, pointing down by 2/10en of
a percent. Let's flip the board and have
a look cross asset. We've been focused
of course on both the front end and the
long end when it comes to US treasuries.
the benchmark 10-year currently yielding
421 relatively stability across the
Treasury curve as we countd down of
course to the PCE that gauge that we
know is so important for the Fed later
today. Does that change the betting
around September for the first cut of
this year for the Federal Reserve? We've
been hearing from Governor Wallace
saying he wants to see one in September
at least and more on the back of that.
The GDP data revised higher in the US as
well, 3.3%. That's worth factoring in
terms of the gains yesterday came
through the strength of the US economy.
Euro dollar at 116. Brent trading at $68
a barrel, down 610 a%. And the CSI 300
over in China currently up 710% and
Goldman Sachs revising higher. Their
call for Chinese stocks. Now, investor
focus is moving towards the Fed's
preferred price gauge. As I mentioned,
PCE, which is due out later today. It is
forecast to reveal that US inflation
quickened in July and it comes as Fed
Governor Chris Waller who is in the
running to replace Chair Jay Pal once
again called for a rate cut next month.
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.
Okay, let's bring in Paul Dobson at this
point, our executive editor for Asia
Markets. Chris Waller as well also part
of an audition of course for that Fed
role at the top of the Fed come what
April May of next year. How how clear is
the glide path to September at this
point? Is is is Wall the consensus call
right now amongst those FOMC officials?
>> Yeah, good morning Tom. I kind of think
so. It feels to me like they've already
made up that mind. Uh Pal gave that
signal at Jackson Hole. Okay, there was
a lot of nuance within the language that
he used and he left the door open for
them to backtrack on that. But more or
less, you get the sense that a lot of
the Fed policy makers have two cuts
priced in for uh the rest of this year.
So, why not get going in September?
You've only got three meetings left. If
you're going to do two, then you might
as well get on with it. And the market
is pretty uh fully priced. You know,
we're at more than 80% uh priced in for
that coming in September and then for
another one by the end of the year. So,
if they want to kind of change the
market's view and change that pricing or
give a little bit of guidance, it's got
to come pretty quickly. Now, um my view
is the Waller uh first cut is quite
consensus. His argument that there needs
to be a continual series of cuts and the
the more dovish side um of the spectrum
that we're hearing from him is perhaps
not quite in line with all of the rest
of the uh the the the the policy makers
and so that might be more contentious.
How many cuts are we going to see
through the course of next year as well?
>> Okay. So it's beyond September where it
becomes arguably a little bit more of a
challenge in terms of consensus amongst
Fed officials. How do you expect the PCE
data Paul later today the inflation
gauge for the Fed to tie in to the Fed's
thinking?
>> Yeah, so because of that I don't think
that immediately that gauge is going to
have a huge impact one way or the other.
Uh the forecast is for it to show a
little bit of a pickup in inflation
again which is kind of interesting all
things being equal. Obviously the Fed
would much prefer uh that inflation were
falling uh and people will be paying a
lot of attention to see how much of it
is tariff passed through where it's
showing up that kind of thing. I think
probably on the services side there's uh
some bias for an increase in inflation
as well. That being said it seems like
the Fed is much more paying attention to
the job side of the of the mandate at
the moment uh and worried about it after
we saw those big revisions in the last
uh set of data. So unless we get some
big crazy shock in the next non-farm
payrolls result, I think that at this
point it's quite hard for the data to
dislodge uh that view that the Fed will
be cutting in September.
>> Okay, Paul Dobson, Bloomberg's Asia
Markets executive editor on the preview
around the PC print and how it could tie
into thinking amongst the Fed. Paul,
thank you. Talking of the Fed and the
concerns and the risks around Fed
independence, Fed Governor Lisa Cook's
lawyers are suggesting a clerical error
may be behind a mortgage dispute, which
led of course to President Trump's
attempts to oust her from her role. She
warns the move could cause irreparable
economic harm. Joining us is Bloomberg's
Balash Pence, who's been covering all of
this for us and monitoring uh the
developments and they continue to of
course update on a daily basis. The the
war of words then banish between Lisa
Cook and President Trump continues a
major step yesterday with this legal
challenge by Cook and her team and the
case moves into into court today. So
another big day in terms of this dispute
>> lawsuit at the district court in DC and
Judge Cop has set a hearing for 10:00
a.m. Eastern time today. So, we will uh
get uh some continuation of this legal
case very quickly. Lisa Cook's team is
seeking an immediate order by the judge
to stop the president's attempt uh to
fire her and to stop the Fed from taking
any action based on that uh order. So,
basically, what she's asking is for the
court to let her continue working on the
Fed as we go into that crucial Fed
meeting uh next month. Obviously, this
will be likely a protracted long legal
case. The president has signaled that
he's willing to fight, that he's willing
to take on the legal challenge. The Fed
for for its part has said that they will
abide by any court ruling that they
receive. But this will be a very long
process and that will likely go all the
way up to the Supreme Court. So today
will be just the beginning of that whole
litigation.
And we have details from Lisa Cook and
her defense team in terms of how she
prepares to put forward her case in this
legal wrangle.
>> Yeah, that's
Yeah, that's right. The the filing lays
out a few things, a few ways in which
Lisa Cook's team is trying to uh fight
this presidential order. One of them
being uh the merits of the case. uh
they're arguing that uh the sort of dual
declaration of primary residences was a
was a clerical error. They also uh uh
they also rolled out this argument that
this caused no harm to anybody. That
will be obviously up to the courts to
decide. The part about the clerical
error is important because that
establishes that uh that tries to
establish that there was no intent uh
which would have to be proven to uh uh
for fraud purposes. But the other part
of the argument is that the president's
action is an attack on central bank
independence and by extension could
cause harm to the American economy. So
that will be also something the court
will have to consider.
Okay, Bloomberg's Balash Pence with the
update there in terms of that legal
case. Balash, thank you. Now, 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
Leaders Summit will be followed next
week by a military parade in Beijing
with guests including Vladimir Putin and
North Korean leader Kim Jong-un. Our
chief North Asia correspondent Steven
Engel joins us from the Chinese capital.
He will be covering this event for us.
Steve, let's start with the SEO then
this huge diplomatic event for Xi
Jinping and his team. What is expected
out of that?
>> Well, we're expecting it to be the
biggest SEO on record. It's been around
since 2001, but has been a bit fractured
because of you basically some
differences within the member nations. I
mean even China and India they had a
border skirmish 5 years ago. They are
slowly starting to repair that u that
relationship due largely because of
what's come out of Washington DC with
the threats of upwards of 50% tariffs on
Indian goods because India keeps on
buying Russian crude. So I think the
geopolitical cohesive narrative that
comes out of SEO as the 10 member
nations as well as another 16 observers
and partners uh gather in Tenzin, the
nearby port city from Beijing uh and
whether they really have a forcefully
written statement saying that there is
an alternative to the global world order
led by the United States and it is the
global south. that is the BRICS nations
and it's those countries that are
combined in the strategic alliance of
the SEO. Secondly to that or maybe even
ahead of that are going to be the
potential uh energy deals that we could
see. Obviously, China is buying about
2.1 uh million barrels on average a day
of of energy from Russia. India is
buying 1.9 million. So they are
obviously getting a lot of criticism
from Washington.
Vladimir Putin will likely continue to
try and sell more crude as well as gas,
possibly resurrect the Siberia power of
Siberia 2 pipeline to China, which
Xiinping has rebuffed so far. But again,
Vladimir Putin is going to be here in
Beijing looking to recoup some of those
lost sales to Europe. uh lost obviously
because of those sanctions. So again the
real interesting story is going to be
the Modi she Putin dynamic and of course
Putin and she continuing their no limits
partnership.
>> Yeah. And in terms of that dynamic to
what extent then Steve does does
President Trump does the US loom large
over this summit?
>> Yeah. Donald Trump is the man who's not
there on stage but he is there in the
sidelines obviously the policies coming
from Washington DC and we've had this
great Bloomberg scoop in the last 24
hours or so about this letter that we've
learned that Xiinping wrote to his
counterparts in New Delhi back in March
uh kind of testing the waters to see if
there was an opportunity for repro
between uh New Delhi and Beijing and it
looks as Although there has been, the
day tant has worked. Modi is here. It's
his first trip to China in 7 years. It
looks as though they're not going to let
their border disputes and competitive uh
disagreements get in the way of a
flourishing and growing partnership in
the face of those uh those tariffs
coming from the Trump administration. So
clearly the policies from Washington
under Trump are at the backdrop and the
forefront as well. if that can if those
are not competing themes here at the SEO
because again they're trying to gain um
a a a a credibility as a rival block
obviously to the world order led by the
United States.
>> Okay, Blueber Steven in Beijing who will
be covering this event of course for us
in Tenzin. We'll get an update of course
on Monday. Steve, thank you. Meanwhile,
the IMF's first deputy managing director
Gi Gulpinath is warning against
complacency over global debt levels,
citing fragility in bond markets. In an
interview with Bloomberg, she reflected
on her seven years as the IMF's number
two official and how the world has
changed during that time. We'll get some
views and we'll get that interview later
in the show. But just flagging for you
that we'll be hearing from Gita Gopinath
who of course has played a consequential
role at the IMF at a time of course of
global trade turbulence. Let's get you
up to speed on what else is happening
today in terms of data crossing. The
focus of course on European CPI. We'll
be breaking that for you later today as
inflation has been around that 2% target
for the ECB. To what extent will this
give us more information about where
that central bank of course can go in
terms of next steps? You can get a
roundup of course of the stories you
need to know to get your day going in
today's edition of Daybreak. Terminal
subscribers go to DYBO.
Chris Wallace's comments on the rate
path ahead for the Fed front and center.
Coming up, Chinese e-commerce giant
Alibaba will report first quarter
earnings later today. Going to have the
details on that next. Brutal price
competition, a challenge for these
e-commerce giants over in China. This is
Bloomberg.
Welcome back to Bloomberg Daybreak
Europe. Now, Chinese e-commerce giant
Alibaba is set to report first quarter
earnings later today. This comes after
an intense price war in China's food
delivery sector, which is hitting the
country's e-commerce companies, forcing
analysts and investors to slash their
price targets. For more, our Asia tech
correspondent Annabelle Drus joins us
from Hong Kong. Talk us through then,
Annabelle, what we can expect from
today's first quarter earnings from
Alibaba.
>> Well, as you said there, I mean, it's
really that big focus on what's
happening in the food delivery space,
that intense competition that Alibaba
faces. I mean, it's interesting when you
look at the stock performance over the
last, say, 12 months, and it's still up
around 45%. And a lot of that optimism
has been a reflection of the investment
it's making into AI and and to the
strength of the Alibaba cloud business
as well. But of late and over the past
few months, it's really that story
around competition, intense competition
in the food delivery space that's very
much come to the four. So JD.com, Muan,
Alibaba, these three are really trying
to aggressively hold on to their market
share and also to expand it as well. And
they're spending heavily in this effort.
So today for instance the key group to
watch is going to be the local food
services or local services group for
Alibaba that includes AAP and Elimur
both of those are expected or that whole
division is expected to report a loss in
the June quarter for around $460
million. That's a little bit
backward-looking of course, but even
with the guidance, what we're expecting
from the company, we really want to
understand just how much more they're
they're prepared to spend and how many
more losses they're prepared to make.
With the likes of JP Morgan saying, for
instance, Alibaba has the most strength,
they've got the most metal, and they're
most prepared out of the three to also
invest and and to to try and win this
battle as well.
And on the focus when it comes to AI and
of course Alibaba is an AI player but in
terms of the chip producers one of the
key names that's come to the four at
least for those of us outside of China
in recent weeks has been has been
Cambercon and the and the runup in the
stock price has been remarkable and this
is a company domestically based that
produces a these AI chips but there's
been this unusual warning from the
company about that stock rally.
>> Yeah, I think you got to go put it into
perspective. I mean this is an AI chip
designer so it competes against Huawei
locally. Uh Nvidia of course is the
world leader in that space. So Cambercon
has sort of been likened to maybe
China's e next Nvidia but when you look
at the two companies against each other
Cambercon is is a real minnow in
comparison. Even their earnings for
instance I mean we had the latest net
income for instance it came in at $144
million for the quarter. So it's it's a
far cry off what Nvidia just earned in
their latest period of around $50
billion instead. So, Cambercon uh has
actually been rising because there's
been so much optimism around China's
self-sufficiency and self-reliancy drive
when it comes to semiconductor
technology. And so, as a result, uh the
company's actually just put out a filing
to to the regulators essentially talking
about why people need to be a little bit
cautious. Maybe the stock price has gone
too far too fast. Uh there's reports for
instance in local media that there's new
products that are coming in the
pipeline. Cambercon has pushed back on
that. that there's nothing new that's in
in the offing right now or is is is
prospected right now. Uh reminding
investors as well that it labors under
US sanctions. That's something else
that's that's a big pain point for the
business. And also just talked about the
general competition within the
semiconductor space as well in China. So
Cambercon's really trying to push back
on that narrative and you can see that I
mean reflected in the stock price today
down around 8% right now.
Yeah, really really unusual move and a
nod arguably to the regulators uh from
Camryon. Annabelle Dr. Bloomberg's tech
uh Asia uh correspondent of course with
that important update on Camcon and a
preview of what to expect from some of
the e-commerce giants in China reporting
later today including Alibaba of course
on the macro level coming up the IMF
number two warning against complacency
over levels of borrowing in the global
economy. We will bring you more from our
interview with Gita Gopinath that is
next. This is Bloomberg.
The IMF's first deputy managing
director, Gita Gulpath, is warning
against complacency over global debt
levels, citing fragility in the bond
markets. In an interview with Bloomberg,
she reflected on her seven years as the
IMF's number two official as she
prepares to step down this week.
>> Pretty much I think everything has
changed. I started at the IMF in 2019
and that feels like that was the calm
before the storm and you had the
pandemic, you had war in Ukraine and now
geoconomic fragmentation. I think the
global economic order is transforming in
ways we haven't seen in decades and it's
still highly unclear where the global
economy will settle. I think a second
big difference between 2019 and now uh
is on the fiscal front debt levels are
incredibly high. they are ever
increasing and while in the past you
might have said so what markets will
take it that's not the case anymore even
in advanced economies you see that in
France the UK and also in terms of long
yields in the US and I say the third big
change is on technology AI over the last
few years has certainly caught the
imagination of everybody huge promise
but also huge risks how has the IMF's
role changed during this period given
that it was set up under a very
different infrastructure a time and a
lot of people are saying we're now in
the post Breton Bretton Woods era.
>> The IMF has great experience dealing
with turbulence. You know, there was a
period when you had the end of Breton
Woods going off the fixed exchange rate
to the dollar and the dollar to gold.
That change happened and the IMF adapted
and we are obviously now in a world with
big shifts in terms of how countries
work with each other. The IMF has always
functioned as trying to do the art of
the possible which is do the best you
can given the constraints and done it
very successfully. So if ever there was
a time for this institution,
it's super important now. It has the
ability to bring different countries
together around the table, good
discussions to happen on the in the
economy, on the outlook. Again, very
vital institution for the world.
>> Do you see a risk that it doesn't
survive though at a time when funding is
uh really in question with a lot of
major economies? We've seen China go it
alone. There have been questions about
the United States.
Firstly, the IMF funding structure
doesn't rely on any budgetary support
from any country. So, it's in a very
strong place uh because of that and
everything we've seen so far points to
all the members wanting the IMF to
continue functioning as it has. We work
very closely with the US administration
that that engagement is going extremely
well, but also the other 190 member
countries that we have. So as of now
lots of support of course the
environment has changed and the IMF is
going to adapt to it in this new
geopolitical environment that we have
but it has a lot of experience dealing
with these kinds of events.
>> IMF first deputy managing director Gita
Gulpath speaking with our colleague Lisa
Abramovich. Now some other stories
making the news today. A US trade
provision dating back to the 1930s which
eventually cleared the way for almost
1.4 billion small parcels 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 tariffree.
The Congressional Budget Office
estimates the move will raise more than
$23 billion in additional tariff revenue
for the government over the next decade.
The European Union has adopted draft
regulations to remove all tariffs on US
industrial goods and give preferential
treatment to some US agricultural and
seafood products. It follows a demand by
President Trump, of course, and the
commission says this will pave the way
for the US to lower its tariffs on
European cars and auto parts to 15% from
27 12%.
Coming up, has French Prime Minister
France Bay got the political muscle to
survive the 10day fight before a vote of
no confidence in his government? We will
get the latest from Paris next on what
of course has been a volatile week for
French assets. Stay with us. This is
Good morning. This is Bloomberg Daybreak
Europe. I'm Tom McKenzie in London.
Happy Friday. These are the stories that
set your agenda. Investors send US
stocks to another record high as markets
countdown to today's key US inflation
data. Fed Governor Chris Waller restates
his call for lower interest rates. Lisa
Cook sues to block President Trump's
attempts to fire her from the Fed. Her
lawyers say the alleged mortgage fraud
was an unintentional clerical error.
Plus, the German chancellor says a
meeting between Zalinski and Putin will
not happen. this as Russian attacks on
Ukraine's capital leave more than 20
civilians dead. Let's check in on the
markets then in the context of course of
that fresh record high. The S&P 500
breaking through 6,500.
Stronger economic data out of the US
revisions to GDP to 3.3% from 3%. Good
data is good news for the equity
markets. That was the mood yesterday as
we look ahead to inflation and PCE which
we know is so important for the Fed.
later today. European futures after a
bit of softness by the end of the close
yesterday, pointing low by two ten of a
percent. Here in the UK, the Footsy 100
though looking to add just a mere two
points so far in the session. S&P
futures after that record high a little
softer by a tenth of a percent. NASDAQ
100 futures pointing low by 51 points.
Let's flip the board and have a look.
Cross asset then yields up one basis
point on the US benchmark 10ear right
now at 421. Chris Waller making the case
for that September cut and more beyond.
Euro dollar at 116, the single currency
then down 210 of a percent. Brent at $68
a barrel, softer on oil by 510 of a
percent and set for a month of losses.
And the CSI 300 over in China gaining
510 of a percent, Goldman Sachs revising
their targets for Chinese equities that
of course have performed very well year
to date. Now earlier this week from
performing strength in terms of equity
markets over in China to weakness over
in France. Earlier this week, the
so-called French risk gauge hit a
seven-month high with France's benchmark
bond yield premium over Germany topping
80 basis points. Our guests weighed in
on the market implications of France's
battle to survive as prime minister in
next month's confidence vote.
>> 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. For France, we're talking about
contraction. Full year earnings
expectation in Kakarant is minus 10%.
You don't buy cheap sectors, cheap
countries, cheap regions where earnings
are falling.
>> Well, let's bring in at this point Blue
Julia Pontus who joins us out of Paris
covering equities and the French equity
space for us. Julian, what a week it's
been then uh for for French assets. The
week that was where where do we stand
this morning, Julian?
I think as one of your guests said we're
um we're pricing uh that Beu will fail
and that he will lose the vote. Um but
that's not a catastrophic scenario.
That's more or less priced in. Uh as you
say the the gouge of risk is at 80
but people well investors I think are
quite used to that level. Um I think
French investors on you know French
equities on the cake 40 have made their
peace with the fact that they will
underperform
um Frankfurt, Milan and Madrid.
These three countries for their indexes
are up over 20% year to date. France is
at roughly 5%. Um so that's where we're
at. Uh you could say there could be
possibly a good surprise. um next week
if ever uh Beiru managed to pull
something through.
>> But when you look at uh betting markets,
betting websites, you're
>> over 90% like no one is thinking he has
a chance.
>> Even though he still claims he does, he
he did so yesterday, but I mean honestly
there's there's no way there's it's
really hard to see a way for him to to
pull it through.
Okay, that that window if there is one
is is and that gap is is narrowing uh
rapidly it seems or has already narrowed
and and he continues his outreach to to
to to domestic uh voters uh in France
trying to make the case for his for his
domestic agenda and the the tax rises
and spending cuts that he is proposing
gi given given that assessment then
Julian what what are you and the team
kind of bracing for next week when it
comes to the markets?
There's
I I don't really no one really sees not
me but no one really sees him pulling it
through. Uh the far right and the far
left want new elections. Uh basically no
one will seems ready to help him. You do
the math, you look at the difficult
parties, you know the how
every law maker could move. There's I
don't see it going through. Then what
does M do? He he could reappoint him.
Seems unlikely. He could find another
center left center center right uh
politician to do exactly the same thing
as Bar and Beu who both failed or he
could call new elections as well. Um
that's what we're basically bracing for
because if there's a new snap election
>> then you know the game could really
change uh for France.
>> Yeah. Okay Julian Pontus with that
update. Thank you very much and team.
It's been a busy week of course for you
and the team. Uh we appreciate it.
Meanwhile we're going to get a deluge of
Euro area inflation data today.
Bloomberg analysis suggesting that the
flash readings for August will tick up
due to energy base effects while core
inflation will probably dip slightly.
Bloomberg's Lizzie Burton is here to
look ahead to the numbers. Lizzy, what
are economists expecting then from the
August inflation print? Walk us through
the expectations.
>> Well, of course, it's a big day for
inflation prints on both sides of the
pond. But if we look at Europe, you've
got four big ones. At 7:45 a.m. London
time, it's France. That's expected to
stay at 0.9% because of energy as you
say because of the drop in regulated
energy prices. Then at 8 a.m. London
time we get Spain and it's also about
energy but that's upward pressure from
energy prices. So they're expected to
tick up from 2.7% to 2.8%. Then at 10
a.m. London time we'll get Italy
expected to tick up from 1.7% to 1.8%.
The lower energy costs offset this time
by higher goods prices. And then
finally, Germany at 1 pm London time
expected to jump to 2%. But our
economists actually see 2.1% so above
the ECB's target and that's from 1.8%.
It's driven by higher road fuel costs.
Broadly though, Tom, if we just take a
step back and see the bigger picture,
it's a disinflation process that's
happening across the Euro area economy
because of course we've got the stronger
euro on the flip side of the weaker
dollar and you've got the tariff
uncertainty. Yes, the commission got
that deal with the US at 15% tariffs,
but the uncertainty continues and that
leaves the risks tilted to the downside.
So, for example, just on that
uncertainty, of course, you got the EU
now proposing to remove all tariffs on
US industrial goods so that cars can
qualify for those 15% tariffs. So, as
things like that continue, the point is
there are still moving parts
>> and you are you are an in-house ECB
watcher. Just very briefly, very
briefly, Lizzie, where does this leave
the ECB? Well, if you look at the
minutes yesterday from the ECB's July
meeting, broadly, they said most
officials see risks t tilted uh broadly
balanced. Uh but that another cut may
have been mentioned, but the next
meeting September the 11th, they think
they're going to be on hold.
>> Lizzy Burton, thank you very much.
Indeed, with that preview of data and
what it could mean for the ECB. Now,
some of the stories making the news this
Friday. Denmark is cutting its forecast
for 2025 economic growth by more than
half amid weaker prospects for farmer
giant Novo Nordisk. According to
government documents seen by Bloomberg,
GDP is expected to expand 1.4% this
year. That is down from the government
estimate in May of 3%. The government
cited US tariff increases and a weakened
outlook for the farmer industry,
pharmaceutical industry of course, as
drivers for that revision. And a think
tank says the UK could raise more than
32 billion pounds over 5 years by
imposing a windfall tax on commercial
lenders. The proposal from the
left-leaning Institute for Public Policy
Research says the government should
recover the profits banks are making
from taxpayers on deposits held at the
Bank of England. It says high street
lenders have enjoyed a quote staggering
state subsidy on the BOE's QE program in
recent years. Coming up, they are three
of the world's most important energy
exporter and consuming nations. We
discuss how commodity markets arriving.
A key meeting between Putin, she and
Modi. That is next. This is Broombo.
Welcome back to Bloomberg Daybreak.
Europe to Iran right now, which faces
the prospect of tough international
sanctions being reinstated by the UN.
The so-called E3 nations, UK, Germany,
and France, have triggered a 30-day
snapback process that would lead to a
resumption of sanctions originally
lifted as part of a 2015 deal. Let's get
more from Bloomberg Horizon's anchor
Jamaa Paci, who's been following this
for us.
What exactly then did the theory uh
European nations announce yesterday?
What what is the read across uh to to
the US in terms of those those potential
talks with Iran?
>> Yeah, quite significant developments
there. So, these so-called E3 countries,
Germany, France, and Britain informed
the UN Security Council last night that
they were looking to reinstate the
sanctions that had been suspended since
the advent of the 2015 JCPOA deal. And
of course remember President Trump
famously pulled out of that deal in
2018. But the remaining uh participants
of the deal include the EU, those E3
nations, Russia and China. And it is
very notable that they're now saying for
the first time since 2015 they are ready
to reimpose sanctions again because they
believe that Iran is not abiding by its
commitments. Now in terms of the
sequencing, there is a 30-day snapback
provision. And so during that time
frame, the UN Security Council will then
assess to see whether Iran has met their
commitments. If they deem they have not,
then those provisions go in. The timing
here also potentially quite crucial,
Tom, because on October the 1st, the
chairman of the Security Council flips
from South Korea to Russia. So maybe the
Europeans wanted to get this ahead of
that timing, ahead of October 1st. You
know, obviously that's speculative, but
the point here is that sanctions could
be reinstated. And this is after months
of failed talks going on between the
Europeans and Iran. Um the Iranian
response came very quickly yesterday.
The foreign minister saying that the
action is unjustified, lacks any legal
basis. Not a lot from President Trump
which is uncharacteristic of him. Though
we did get a statement from the
Secretary of State Marco Rubio uh saying
that United States does still remain
available for the diplomatic track. And
remember, those talks have also been
stalled since the war over the summer
with President Trump claiming that he's
completely obliterated Iran's nuclear
capabilities. It's unclear whether that
is actually the case because IEA
inspectors still do not have access to
the sites that were bombed. Ultimately
though, President Trump still is
pursuing a maximalist approach, zero
enrichment. That seems like it's
unlikely to fly with the Iranians. So
there's still a lot of daylight between
the two sides, but it does seem as
though we are on track once again for
further sanctions to be applied on Iran
in as soon as 30 days time.
>> Okay. And to your point, we'll see what
that does in terms of those potential
negotiations. Jamaima Peti joining us
out of Dubai with the latest when it
comes to the pressure being ramped up
again on Iran. Staying with geopolitics,
German Chancellor Fredik Mur says a
meeting between Ukrainian President
Vladimir Zilinski and Russia's Vladimir
Putin is unlikely to materialize, even
though it's being touted by US President
Trump. Of course, Russia unleashed a new
wave of drone and missile strikes on Kev
yesterday, killing at least 20 people.
The attack comes in defiance of US calls
for an end to the fighting. And Russian
President Vladimir Putin has a rare
opportunity to meet with his two most
important energy partners, China's Xi
Jinping and India's Narendra Modi this
weekend at a time when he needs
something from both. This comes as oil
heads for a monthly loss with trading
dominated by concerns about a looming
glut. To discuss this further, I'm
joined now by Nadia Martin Wigan,
director of Fleeland Capital. Nadia,
always great to get your insights. We
can expect no doubt President Putin to
be seeking assurances from both India
and China that they continue to buy
Russian oil. But the pressure is coming
from the US administration right now.
50% tariffs on India are in place. If we
do get to a point, we haven't seen
evidence of this yet, but if we do get
to a point where India starts to rethink
its Russian oil purchases, what would
you expect the impact to be?
Well, the first impact would be a
reduction in the price on Russian crude
oil because we do not expect that a step
away from um purchases by India of
Russian oil to immediately shut in that
production. So, Russia exports from the
west around 1.5 million barrels per day
of crude and that is what we're talking
about really being at risk here. um
India takes 36% of its crude from Russia
up to so if we say that's around 1.5
million barrels per day up to 500,000
barrels per day of that could go to
China in a replacement and that's why
these talks are so important if there
were to be an actual diversion of crude
>> okay that's really interesting China
could step in and absorb some of that
flow what specifically Nadia are you are
you going to be looking for then when it
comes to this meeting between these
three leaders on on the energy front.
>> So the first point is how how is the
mood? Are they standing together? Is
this alliance that also is part of
bricks is it very much intact and China
for example they have a rule that
they're not supposed to take more crude
from a single um country of 20 to 25%.
If they were to take on these additional
barrels they would be breaking that. But
on the other hand, it's not only about
countries. It's about diversification of
roots. So via pipeline and via seabor
and as I said you know this is westborne
through the black sea largely exports
that we are talking about. The second
point is also on the gas side of things.
Right now, China is taking 10% of its
total gas um from Russia uh via pipeline
and possibly increasingly via LG because
we heard that the Arctic 2 LG sanctioned
facility actually may have suddenly
delivered a cargo to China. Um so this
is where we want to see how is that
growth intact and when Trump is putting
this pressure on India we we have to
gain perspective right right now if we
were to open all the pipelines that are
available between Russia and the west
and and Europe we we would have a total
of 960 terowatt hours um twothirds of
that would be coming through Nordstream
2 that had never come before onethird
would be coming through Ukraine which
right now doesn't seem that they would
have any interest in doing that. If we
compare those 960 terowatt hours, what
Russia wants an expansion in gas exports
to China to be is a potential 1,254
terowatt hours. So it's a much bigger
growth and that would come via three
channels. A further expansion of the
Power Siberia 1 pipeline which is
already running so it could double in
theory on on the amount it could run.
full utilization of Arctic 2 LG and um
also having uh a new pipeline, the power
of Siberia 2. And so when we think about
LG that's in direct competition with the
US as a potential LG provider and then
the pipeline could provide much cheaper
gas um for China relative to the world
market. So this meeting is super
important um for President Putin in
keeping those alliances.
>> What what are the what are the Chinese
demand dynamics right now? Does does
China have the demand to absorb that?
AB:
>> Absolutely. I mean China right now is
taking 10% of its gas is is coming from
Russia. They are doing everything they
can to expand their own production and
and that is expanding um this year. Um
we expect on if you take CIPex numbers
3.7% year-on-year gas demand growth
internally um in China for the next 5
years but we can easily see that being
5.6 six to to 6% higher year on year and
that's why these talks are also
important for the world LNG market
because we have a lot of supply coming
um this fourth quarter with ramp of
plaque minus in in the US and next year
we have growth coming both from Qatar
and the US so it's very important for
the world market also how these talks
expand and and and these expansions on
LNG liqufaction and exports are expected
to continue for the next decade
Nadia, before we let you go, we've been
talking about the fact that oil is
heading for a monthly loss. What are
your expectations? What are your
forecasts for oil pricing through the
end the second the end of the second the
second half of this year given given
concerns about that supply glut?
>> Yeah, so we do have balances um building
around 2 million barrels per day uh in
the fourth quarter and we we have had uh
some softening um and some small builds
uh in the in the third quarter. I think
the big backup has been that we've had
500,000 barrels per day per quarter of
refinery closures in the Atlantic basin
and as a result we've had refiners
running at full throttle and yet we
haven't built product inventories in
particular we're still low on diesel. We
expect those builds to finally f come in
the fourth quarter. So especially into
year end and into the first quarter of
next year that's when we see the builds
really coming and weakness coming in the
Brent curve which has been super
backwardated and that's why we haven't
been building the stoages. Um we also
have refinery capacity expansions coming
of around 500,000 barrels per day uh
globally um led by the Middle East. So
this is very positive for shipping
because we need to actually push that
crude into Asia. Last thing, we have
500,000 barrels per day of refinery
outages in Russia right now and that
means more crude to come out of Russia
and tighter products.
>> Okay, fantastic analysis as always.
Nadia Martin Wigan, director at Failand
Capital. Thank you. Meanwhile, Kaya
Kalis has been speaking as EU defense
and foreign ministers meet in
Copenhagen. The head of course of the EU
foreign affairs department, the foreign
minister for the EU speaking and
responding of course to Russia's attacks
on Kev. And you can see that the uh EU
foreign commissioner is talking there
and saying more pressure needs to be put
on Russia. There's plenty more coming
up. Stay with us. This is Bloomboat.
Europe. So that first quarter
contraction we got for the US economy
looks like a bit of a blip, doesn't it?
When you look at the revised second
quarter that came through yesterday,
3.3%
was the revision. There's been a tick up
in terms of consu business confidence
and business investment and consumer
sentiment as well and that has driven up
GDP and terms of the revisions for the
US. So a stronger US economy the good
data reflecting as good news for US
equities yesterday with the strength
coming through of course and the S&P
notching another record high. Let's flip
the board though and have a look at the
question marks around the inflation
story. We get more details on this with
PCE of course coming through later
today. This is core PPI. That's the blue
line. 3.7%. Core CPI expected to tick up
to 3.1% yearonear of course. And core
PCE. This is the one that's dropping
later today. Estimated to come in at
2.8%
roughly in line with the previous month.
These are July figures we're expecting.
Of course, how that ties in to the
pricing around September. Does it derail
September? Seen as unlikely according to
the analyst we've been speaking to.
Chris Waller saying he wants to see that
cut of course next month, but PCE will
be closely watched later today states
side. Let's flip the board and have a
look at the more immediate picture when
it comes to inflation out of the Euro
zone. We're getting key numbers from the
likes of France, Germany, Italy, and
Spain later today. You're still roughly
around, of course, the ECB's target.
We've heard from some ECB members in
recent days and weeks suggesting they
are pretty comfortable in terms of the
settings around monetary policy right
now, but the inflation data of course
could adjust those views and we'll be
breaking that for you through the
opening trade on Monday. Our Brussels
newsletter by the way gets a fresh look
with bureau chief Suzanne Lynch at the
helm. Sign up at
bloomberg.com/newsletters. Opening trade
is up next. This is Bloomberg.