Bloomberg Daybreak: Europe 04/16/2024
Summary
TLDRThis Bloomberg Daybreak Europe transcript outlines a busy day in global markets, emphasizing significant movements in currencies, stock indices, and geopolitical tensions. Key topics include a strong U.S. dollar impacting Asian markets, Federal Reserve's stance on interest rates, China's mixed economic data, and ongoing geopolitical concerns involving Israel, Iran, and Ukraine. The script also covers corporate earnings, particularly from Ericsson, and previews upcoming financial disclosures from major banks. The narrative highlights the complex interplay between economic indicators, market responses, and international politics, shaping the day's financial landscape.
Takeaways
- 📈 The surging dollar is affecting global markets, causing stocks in Asia and Europe to drop significantly.
- 🌏 Geopolitical tensions are high with Israel planning to respond to an Iranian missile and drone attack, impacting global market sentiments.
- 💹 Chinese GDP growth exceeded expectations for the first quarter, though retail sales and industrial output in March were disappointing.
- 📉 U.S. futures, including the S&P and NASDAQ, indicate further losses, reflecting global market uncertainty.
- 📊 The U.S. dollar's strength is pressuring other currencies, and Brent oil prices remain around $90 a barrel due to geopolitical risks.
- 🔍 Fintech regains its position as the UK's most funded startup sector, attracting significant investment.
- 🏦 Goldman Sachs reports a surprise profit jump, influencing the banking sector's performance expectations.
- 🌍 Severe drought in southern Africa prompts Zimbabwe to consider importing corn from Brazil, highlighting the impact of climate change on food security.
- 📚 The Bank of Japan is in focus due to potential policy changes amid market pressures from a stronger dollar and weaker yen.
- 🌐 German Chancellor Olaf Scholz discusses trade, Ukraine, and green energy in a meeting with Chinese President Xi Jinping amid growing tensions.
Q & A
What was the impact of a strong dollar on Asian currencies as mentioned in the script?
-The script highlights that a surging dollar significantly affected Asian currencies, leading to a decrease in their value against the dollar.
How did the US stock markets perform as indicated in the transcript?
-According to the transcript, the US stock markets experienced a decline, with the S&P 500 dropping by about 1.2%, indicating a rough session for stocks.
What were the geopolitical tensions mentioned in the transcript related to Israel and Iran?
-The transcript mentions that Israeli military officials declared the necessity to respond to an Iranian missile and drone attack, highlighting ongoing geopolitical tensions between Israel and Iran.
What does the Federal Reserve's stance on interest rates appear to be, based on the comments from Mary Daly?
-Mary Daly from the Fed suggested that there is no rush to start cutting rates, indicating that the Federal Reserve is likely to maintain current interest rate levels for some time.
What economic indicators from China were discussed, and what did they imply about China's economic condition?
-The script discusses China's first quarter GDP growth, which beat expectations, but also mentions disappointing retail sales and industrial output for March. This suggests that while the economy initially showed robust growth, there may be signs of an emerging slowdown.
How did the geopolitical risks affect the price of Brent crude oil as mentioned?
-Geopolitical risks, particularly involving Israel's potential response to Iran, contributed to an increase in Brent crude oil prices, which were noted to be at $90 a barrel and ticking up.
What key financial data from the UK was anticipated, and why was it significant?
-The transcript mentioned the release of wage data and Consumer Price Index (CPI) data from the UK. This information is significant as it helps gauge inflationary pressures and could influence the Bank of England's monetary policy decisions.
What trends in Ericsson's financial performance were revealed in the earnings report?
-Ericsson's financial performance indicated a significant beat in terms of first quarter adjusted earnings before interest and tax, nearly doubling the estimates. This suggests strong operational performance and possibly better-than-expected market conditions for the telecom equipment maker.
What were the market expectations for the interest rates from the major central banks?
-Market expectations included anticipations of two cuts of 25 basis points each by the Bank of England, contrasting with fewer expected rate cuts by the Federal Reserve and three by the European Central Bank.
How is the financial crisis in Southern Africa being addressed, specifically concerning food security?
-The financial crisis in Southern Africa, exacerbated by severe droughts, is being addressed by importing corn from Brazil to combat food shortages, particularly in Zimbabwe, which is considering imports for the first time since 2014.
Outlines
📈 Financial Market Updates and Economic Indicators
Tom Mackenzie introduces 'Bloomberg Daybreak Europe', highlighting key financial and geopolitical developments. A significant dollar surge impacts Asian markets and tech stocks globally, while China's mixed economic data signals a slowdown. Geopolitical tensions rise with Israeli responses to Iran's attacks and impending U.S. decisions on aid to Israel and Ukraine. The report covers market reactions to economic data and anticipates a vote on U.S. aid packages, emphasizing the dollar's strength and potential impacts on global currencies and commodities.
🏢 Ericsson's Surprising Financial Performance
The segment focuses on Ericsson's financial achievements, which surpassed expectations. Ericsson, a major telecom equipment manufacturer, reported a significant increase in adjusted first quarter earnings and gross margin, beating analysts' estimates despite concerns about weak demand from mobile operators. The discussion previews further analysis of Ericsson's stock performance and shifts attention to economic growth in China, highlighting the challenges and potential support needed despite favorable GDP growth figures.
🌏 Global Trade Tensions and Economic Outlook
This segment delves into international relations and trade tensions, particularly between China and Germany during German Chancellor Olaf Scholz's visit to Beijing. Discussions covered trade, the Ukraine conflict, and green energy transitions. The narrative also touches on Europe's competitive stance in global trade, influenced by subsidies and tax advantages in various sectors. The segment concludes with an overview of upcoming economic data releases in the UK and the potential political implications for the Chancellor.
🛢️ Commodity Market Trends Amid Geopolitical Uncertainty
The focus shifts to commodity markets, specifically oil and gold, responding to geopolitical tensions following an attack by Iran. Israeli officials assert the necessity of retaliation, influencing market movements. The U.S. is contemplating new aid packages for Israel and Ukraine, with potential implications for further conflict and market stability. The segment explores possible Israeli military responses and the broader geopolitical landscape's impact on commodity prices.
🌍 Addressing Severe Drought in Southern Africa
Tom Mackenzie discusses the severe drought affecting Southern Africa, particularly Zimbabwe's consideration to import corn from Brazil for the first time in a decade. The drought has led to significant agricultural setbacks, prompting national disaster declarations in multiple countries. This segment highlights the economic and humanitarian impacts of the drought, including inflation pressures and the broader implications of climate change on regional stability and food security.
📉 Market Analysis and Global Economic Trends
This section provides a comprehensive analysis of current market conditions and global economic trends. It discusses the impact of a strong dollar on various currencies and the broader implications for global markets, including Asian markets' performance and central banks' potential policy shifts. The narrative connects these trends to ongoing geopolitical events, the health of the global economy, and the implications for future economic policy and market behavior.
💼 Corporate Earnings and Economic Strategy
The segment covers Goldman Sachs' surprisingly strong earnings, driven by a focus on core business areas. The discussion includes anticipations for upcoming earnings reports from other major banks like Morgan Stanley and Bank of America. It also explores broader economic themes, such as consumer spending and the Federal Reserve's potential rate cuts, providing insights into corporate strategies and the financial sector's outlook.
🏦 Financial Market Dynamics and Central Bank Policies
This segment discusses the interplay between strong economic indicators, labor market dynamics, and central bank policies. It reflects on the New York Fed President's views on interest rates and economic growth, emphasizing the need for careful monetary policy adjustments to continue progressing towards stability and inflation targets. The segment highlights the challenges and strategies of central banks in navigating current economic conditions.
💸 Investment Trends in the UK Tech Sector
Exploring the resurgence of fintech as the leading sector in UK startup investments, this segment discusses the dynamics of early versus late-stage funding. It also covers the broader investment landscape, noting significant international contributions to the UK tech sector. The narrative examines government strategies to support the tech industry, highlighting the challenges and potential growth paths for UK-based startups.
Mindmap
Keywords
💡Bloomberg Daybreak Europe
💡Surging dollar
💡Fed's rate decisions
💡GDP growth
💡Israeli military response
💡Futures markets
💡Brent crude
💡Iron ore prices
💡Ericsson’s earnings
💡Geopolitical overlay
Highlights
The surging dollar impacts global currencies and stocks, leading to market volatility.
China's first quarter GDP growth exceeds expectations, while other economic indicators suggest a potential slowdown.
Israeli military officials prepare to respond to Iran's missile and drone attack.
US House of Representatives readies for a vote on aid to Israel and Ukraine amid ongoing conflicts.
Significant downturn in European markets following a tech selloff on Wall Street.
US Treasury yields rise, with the two-year note nearing 5% and the ten-year yield increasing.
The British pound is affected by upcoming wage data and inflation updates.
Oil prices climb due to geopolitical tensions, with Brent crude reaching $90 a barrel.
Ericsson reports a strong quarter, nearly doubling the expected earnings.
Zimbabwe considers importing corn from Brazil as severe drought threatens southern Africa.
German Chancellor Olaf Scholz meets with Chinese President Xi Jinping, discussing trade and the Ukraine conflict.
Goldman Sachs and Morgan Stanley prepare for quarterly earnings reports amid challenging market conditions.
The U.S. Central Bank signals potential rate cuts later in the year, contingent on continued inflation decrease.
Significant increases in tech investments in the UK, with a focus on fintech and AI.
Potential shifts in EU trade policy towards Chinese exports amid growing economic competitiveness.
Transcripts
Good morning. They say it's Bloomberg Daybreak Europe.
I'm Tom Mackenzie in London. These are the stories that set your
agenda. A surging dollar bulldozes through Asian
affects. The region's stocks also take a hit
following a big tech selloff on Wall street.
The fed's Mary Daly says there is no rush to start cutting rates.
China's first quarter GDP growth beat expectations, but retail sales and
industrial output disappoint in March, suggesting a slowdown is already
underway. Plus, Israeli military officials say
they have no choice but to respond to Iran's missile and drone attack.
This as the US House prepares to vote on new aid to Israel and Ukraine.
Let's check in on these markets then. After a thumping for US stocks
yesterday, a drop of around 1.2% for the S&P, the lowest level in about two
months. You're crossing back below 5100 for US.
Stocks on stronger data out of the US, retail sales data coming in stronger.
Building out those expectations, of course, that the Fed will mean higher
for longer on interest rates. Then there's the geopolitical overlay as
well. Currently looking at further downside,
flanked by US futures, S&P futures pointing led by 2/10 of a percent.
NASDAQ futures looking to losses of around 33 points here in New York.
Seems for a shellacking across the European markets.
Futures when he led by 1.3%, a drop of 64 points.
Footsie 100 also pointing lower, quite a similar margin, looking to losses of
1.28%, down 102 points is what's been flat across these futures.
Let's flip the board and look across asset.
Then the sell off as well across treasuries yesterday was pronounced.
The two year is getting close to 5%. The ten year you saw a nine basis point
move higher in yields. Currently the ten year benchmark at 460.
The pound in focus today on the back of wage data that comes out at around 7
a.m. UK time.
We have CPI out of the UK on Wednesday 124 on the pound.
Currently it's more of a dollar story though right now down a 10th of a
percent. The surging dollar again pressuring a
number of currencies, Brent at $90 a barrel.
We've seen a tick up again on the back of the geopolitical risks.
The Israelis saying they will retaliate at a time of their choosing, currently
up 6/10 of a percent. An iron ore under pressure as well.
You can tie that to the China story down 1.26%.
So we'll be looking at the miners as well.
Listed in the UK, 810 per ounce, that per tonne, I should say, on iron ore.
Let's cross over to Asia and check in on how the Asian markets are faring.
Cross over to Dubai, in fact, with Vonnie Quinn is standing by for a check
on those asian markets and the middle east as well vonnie.
Will you set a tone? These are markets beset by woes.
It might be good for the US to get stronger data, but it's not so great for
the rest of the world waiting on Fed interest rate cuts.
We're seeing it particularly in the currency space and in fixed income, as
you mentioned. Also, though, as we said in equities,
these are really markets falling out of bed across the board today.
So you mentioned the yen one 5427 is where we're at.
Economists and analysts now looking at one 60.2.
So that was the 1990 level intervention as a potential point of intervention,
but we may get something before that. On the other hand, as our MLF strategist
have pointed out, it may not matter if the BOJ intervenes or if monetary
officials intervene if the Fed can't cut yet.
So there's a lot of question marks out there and you're seeing it across the
space in Asia today. The Korean one crossed the 1400 mark
earlier. We're well below that again now,
obviously, but still 9/10 of a percent weaker versus the US dollar.
We do, by the way, have a BOJ meeting in ten days.
May not get an interest rate hike there, but it is something to watch for at
least hawkish rhetoric from the governor.
The nikkei 2 to 5 down 2.1%. The coffee in Korea down 2.4%.
It is really just across the board in Asia.
I know you've been speaking to China. Some better news among the data dump,
not even helping in China. But let's flip up the boards and take a
look at the Middle East as well, because geopolitical events and rhetoric
obviously impacting these markets as well as we head through the week.
The market was trading yesterday. Obviously, we've been closed for hours
now. We haven't opened up for the Tuesday
session, but the Dow will reverse the previous day's declines, up about a
third of a percent at the end of the session in Saudi Arabia and Qatar.
We also saw a reversal with stocks of about 8/10 of a percent in Israel, a
reversal as well, lower about midway through the session.
When we got hawkish rhetoric out of Israel, stocks turned lower and the to
35 finished down one and a quarter percent.
One currency that is actually strengthening, though, is the shekel.
And that's thanks to the weakness that we've had for several sessions now,
strengthening yesterday, strengthening once again today, but just by a 10th of
a percent right now, some. Vonnie Quinn, Thank you very much
indeed. With markets across Asia and the Middle
East joining us out of Dubai, a red hot crossing the terminal right now, where
now, of course, it's a big week for earnings.
Ericsson coming through with what looks like a sizable beat, at least in terms
of first quarter adjusted earnings before interest and tax.
You're coming through with Swedish kronor, a 4.31 billion, 4.31 billion
Swedish kronor. The estimates had been for a little over
2 billion, so almost double the estimates when it comes to adjusted
first quarter earnings for Ericsson. The margin also the gross margin, also a
beat for this company. The telecom equipment maker, of course,
coming in at 42.7% for the year. GROSS margin adjusted for the first
quarter. The estimates have been for just shy of
40%. So a beat on the margins.
Well, the expectations coming into these results have been that the weak demand
from mobile operators, of course, the customers for Ericsson would weigh on
profits. It seems like that has not come to pass,
at least in the first quarter. We'll unpack that story more detail for
you and of course, check in on that stock at the open at 8 a.m.
UK time. Now to China, where the economy grew
5.3% in the year to the first quarter, beating expectations.
But a tale of an industrial production and retail sales in March suggests more
support may be needed to sustain that momentum.
Let's bring in them Bloomberg Asia economics correspondent Katia Dmitriev.
Kathy, what is talk to us about the good news in these numbers.
Then top line growth beating in the first quarter.
Well, the good news is factories. So a lot of the growth in GDP in the
first quarter was led by an increase in manufacturing and this sort of secondary
sector, you know, the Chinese industry is kind of divided into three different
sectors, and it was the secondary one that really led growth, and that is all
manufacturing and trade related. So exports growing.
You know, aside from the industrial side, though, there's not much else good
news in the data we saw today, While economists kind of raised their
estimates, we saw DBS was the latest to kind of raise their estimates on the
back of GDP growth. There's still a lot of concern about
domestic consumption and being able to keep the same or similar economic growth
throughout the year to kind of reach what the government wants, which is
around 5%, as they say. In terms of the the negative side of
things, you just have to look at the top line figure is retail sales were lower
than expected. We saw home sales, home prices dipping
down. No real nothing in sight that is
potentially going to change that dynamic.
And without those two things, analysts warn that this is just simply not
sustainable. You touch on the domestic consumption,
the retail story then? Is there any sign that the consumer, the
beleaguered consumer in China, of course, there are links there from the
consumer, the health of the consumer to the real estate market.
Those things that that assumption, that optimism is turning around.
There are some signs that later in the year things could improve, but there
aren't a lot of details yet on it. And what I'm referring to there is the
government's sort of cash for clunkers program.
So what they're hoping is that consumers can bring in their old appliances and
get them replaced with newer ones. Now, that's going to be spurring
industrial production a bit more manufacturers, a bit more to sort of
continue that trend that we've seen in the first quarter.
And there are some economists who say that could add as much as 0.07 basis
points to GDP through throughout the year.
The only issue with that is we don't have a lot of details on how that will
work, how that will kind of be measured over time, how easy that will be to
bring in. There was a press conference this week
that sort of delved into that just a bit more, but we're still unclear on how the
details of that will be worked out. So there is one silver lining there.
The other thing, just in terms of the property market, that's really going to
be the big one. And in that regard, I think the
government is expected to come in with some more fiscal monetary support here
because that's the big question mark this year.
Okay. Bloomberg economics correspondent Kathy
Dmitriev with a great breakdown of the China eco data and what to look for as
well in the weeks and months ahead. Thank you very much, indeed.
Staying with China. German Chancellor Olav Schulz has met
with Chinese President Xi Jinping in Beijing.
The visit comes as tensions, of course, between China and the West mounts over
trade issues and the conflict in Ukraine.
For more, let's bring in Bloomberg's Oliver Crook, who's been following this
for us, joining us from Berlin. Ollie, what can you tell us then about
the conversation between Xi and Schultz? What do we know?
Yeah, Tom, setting this up, we really had three main topics that Schultz
wanted to go there and speak to President Xi about.
The first was the war in Ukraine. The second is all of these issues
surrounding trade, which we know have sort of stolen the headlines kind of
really is the main issue for this visit. But then also sort of the green energy
transition and all of these things are sort of connected in a kind of
interesting way. On the question of Ukraine, there isn't
so much distance. I think that whole Schultz can really
hope to get from President Xi in terms of his stance there.
He says he is. He brought up a just peace with the
president when they went into the meeting, and we haven't had yet the
fruits of the meeting. But that is going to be kind of one of
the main topics. And then the second, of course, is this
question of trade, a trade question that is so important both to Germany and to
China. And really China in a certain sense,
really took Germany's space as the exporter to the world in 2010, became
the world's biggest exporter. That was really Germany's focus.
And as you could see there. Schultz saying that basically both China
and Germany are trading nations that benefit greatly from the World Trade
Organization, and they are committed to strengthening the rule based system.
We also got a comment from President Xi saying that as long as the principles of
mutual respect search for common ground, despite differences and mutual learning
from each other, bilateral relations could continue in a stable and
consistent way between Germany and China.
And really, you know, this is not really a big smiles and a warm, warm welcome
sort of visit, but it is one that is sort of one of mutual respect and
understanding. And that's sort of the the meeting
between the two, the two leaders, I should say.
I should say the time yesterday there was a moment of humor.
And when he was visiting Shanghai at the university and obviously the the news of
legalization of cannabis made it from China to Germany.
And he was asked by a student that if he came to study to Germany, would he have
to consume cannabis? And all officials said, No, no, don't
worry about that. You don't have to.
I'm turning 66 this year and I have never done so.
Okay, Well informed Chinese students on the topic of cannabis legalization in
Germany try to get cannabis trade between between Germany and China and
any time soon. Trade broadly contentious, right.
And the Europeans are basically kind of taking that taking their gloves off.
Many would say finally on this issue, they're stepping up probes on a number
of issues. How is that tying in to the German
chancellor's visit? Yeah.
Tom So obviously we have the easy sort of question, which is the biggest one
here, about whether or not the EU is going to slap tariffs on the Chinese EVs
and really, you know, an economy that has the Chinese economy has really set
itself up to try to win during the energy transition.
You know, and I think that the Chinese would argue, listen, we have looked way
ahead of time. We have a raw material policy that is
decades ahead of European ones. We have, you know, the sort of access to
the lithium and all of the other minerals required.
And that is really why we're winning. The Europeans, on the other hand, are
saying, no, this is down to unfair competition.
There's a lot of subsidies, there's a lot of tax advantages, a lot of access
to things that European companies don't have.
And this is really at the heart of the issue.
So you have it on EVs, you have it on solar and wind increasingly.
And yesterday we had the scoop, Tom, that on medical device procurement.
So this just gives you an idea that the EU is really looking at all parts of
this. But I think what's interesting is that
this will now invite a number of questions into Europe.
You know, the Inflation Reduction Act, one would say, is potentially got some
of the same issues in terms of subsidies and tax cuts.
Will the EU really undertake that or is this really just a political question?
There is also the question of Europe's own competitiveness, right?
How can Europe be competitive? Because the Chinese would say we've just
outcompeted you and that is going to be the focus of the EU leader meeting
later. Happening this week in Brussels, where
all the EU leaders are coalescing and coming together to really to try to talk
about how do you get Europe to be more competitive.
Okay. Ali Crook in Berlin, really fascinating.
Thank you very much indeed, with a deep dive on that visit, of course, by the
German chancellor and what it could mean more broadly for how the Europeans are
thinking about trade with that crucial trading nation.
Across what you need to be looking ahead to the rest of the day.
7 p.m. UK time just flagging for you in terms
of the data coming out of the U.K. It's a big week, of course, in terms of
inflation that drops on Wednesday. But late today, 78 and Sunday UK time
going to get wages out of the UK based on employment data as well.
Wages seem softening a little bit, which of course will be welcomed by the Bank
of England. 7 p.m.
Meanwhile, UK time Bloomberg will be speaking to the UK Chancellor Jeremy
Hunt. Of course a crucial election year as
well. His reaction to the data.
Many big questions on the b A and of course likely political questions as
well for the Chancellor. That's coming at 7 p.m.
UK time. Speaking of course to Bloomberg, we're
also going to be getting on the earnings front.
We had Ericsson dropping at 7 a.m. UK time, 6ami should say.
We are switching focus to the luxury space.
Later today. We're going to get LVMH sales as well.
So a key gauge there on the health of the luxury sector.
And also today, following that strong earnings spring that came through from
Goldman Sachs, Bank of America and Morgan Stanley, that earnings drop as
well. Can they follow suit from Goldman in
terms of the pickup that they seeing in terms of the trading parts of their
businesses? The earnings story being fleshed out
later today on the banking story, 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 can go to D eight.
Why be go to get a deep dive there on what to look at.
Coming up, Israel vows to respond to Iran's attack over the weekend as the
West calls for restraint. We get the latest next.
This is Bloomberg.
Welcome back to Bloomberg Daybreak Europe.
We're going to check oil and gold for you right now.
The pricing action on the back of comments from Israeli officials
reiterating that they will at some point at least respond, of course, to that
unprecedented attack by Iran over the weekend.
Gold moving higher than the risk haven moves into gold.
The yellow metal continue up 2/10 of a percent so far in the session, trading
at 2387 per troy ounce. And the move in oil, it was less
pronounced this time yesterday, but you have seen the moves higher again on the
back of some of this commentary out of Israel currently above $90 a barrel on
Brent up 6/10 of a percent. Then of course, when it comes to WTI,
also moving higher, up about 7/10 percent, close to $86 a barrel.
Let's get more then on how the geopolitics is unfolding.
The US House set to vote separately on new aid to Israel and Ukraine this week
following Iran's missile and drone attack over the weekend.
Meanwhile, top Israeli military officials, as I mentioned, reasserting
that their country has no choice but to respond to Iran's weekend attack.
Let's bring in Bloomberg's a man news director now, Ross Mattison, for the
latest. Ross, is the risk then at this point of
an Israeli strike against Iran on Iranian territory, is that risk rising?
What might that look like? Well, certainly it is rising, as you
said. What we've got is the US and European
countries urging restraint on the part of Israel.
They're saying don't antagonize Iran further.
What you need to do is to isolate Iran here.
But with the commentary from Iran, from Israeli officials to the very top is
very clear, they feel that they have to retaliate in some fashion against Iran
for this weekend attack, which is the first direct attack from Iranian soil on
Israel. And they say that they have to respond
in some fashion. What that looks like is very unclear
when it happens is very unclear. There's a wide range of possibilities
here from a direct attack, as you say, from Israel on Iran.
That would not be unprecedented, but that's one option for them targeting
military sites, perhaps even nuclear sites in Iran.
Of course, there's a lot of concern about Iran's nuclear program or does it
go for something instead, like going for one of Iran's proxies in the region?
We're talking about the Houthis in Yemen.
We're talking about Hamas in Gaza, Hezbollah in Lebanon.
Do they go through one of those proxies to retaliate do that?
Do they do something potentially even in the cyber space?
There's a lot of options here from fairly small bore responses really to
something that would risk potentially setting off a further tit for tat with
Iran. And that really is the concern you see
from the US, Europe and others, is that do you get into this era where we're
basically back and forth constantly with strikes between Israel and Iran?
And as you say, that's exactly what the US does not does not want to see.
So where does that leave the position of the Biden presidency and those in
Washington, D.C.? That it leaves them in a really awkward
position because of course, the US is a key ally of Israel militarily,
economically, strategically. You name it.
And they've said they're steadfast in their support for Israel, especially in
terms of responding to Hamas in Gaza, in support against them, against Iran.
But, you know, you can only go so far. There's a deep, deep sense of unease
that's going on in the US about the possibility of that wider conflict.
So they're caught between they need to support Israel on the one hand.
And also they're concerned about a wider conflict because if that does happen,
not only do you potentially hit things like oil, you know, you hit supply of
some key commodities, but you risk pulling the US in increasingly
militarily to that conflict. And that's something that no one in the
US wants coming up to an election. So the really awkward position where
they're urging Israel to be restrained, but Israel is saying, well, we're going
to do what we need to do in this minute. How is all of this playing into that to
the debate domestically, at least politically in the US, around support
for both Israel and Ukraine? We're hearing of reports that the House
may move on on something by the end of this week.
How likely is that at this point? Well, it does.
And there's momentum to push towards those separate bills.
Basically, what the speaker is trying to do is separate out the aid for Ukraine
and the aid for Israel because there's possibly more support for supporting
Israel in this moment, sending fresh aid there.
Of course, the US has said they won't stop sending Israeli weapons or
supplying the militarily in this minute. Of course, the aid for Ukraine is is a
lot more fraught. It's been bogged down for months now in
Congress and there's a real sense of fatigue in the part of the US about
continuing to supply Ukraine with that aid.
And so what they're trying to do now is separate those out.
It does seem as though politically there's more support for Israel in this
minute and especially allowing them to be had to defend themselves against
Iran. So that will probably get through
easier, I would say, than the aid for Ukraine.
Bloomberg's Ross Matheson with an excellent update for us in terms of how
events are unfolding in the Middle East and the US response as well.
Ross, thank you very much indeed. Coming up.
Well, we're going to switch focus because over in parts of Africa, a
severe drought gripping at least parts of southern Africa.
Zimbabwe considering importing corn from Brazil for the first time in ten years.
We bring you the details of that story next.
This is grim, but.
Welcome back to Bloomberg Daybreak Europe.
Let's turn our focus now to the severe droughts in parts of southern Africa.
Zimbabwe is considering importing corn from Brazil for the first time since
2014, says the El Nino weather pattern with its crops in the country, Malawi
and Zambia, have also declared a state of national disaster.
Let's bring in Bloomberg's Ontario Ganga then, for the details.
He's joining us out of Kigali for the latest.
Don't there a corn, then a staple food, of course, across many of these nations.
What impact is being felt? Tom, at the center of natural disasters
like this of people, Insurtech is estimating that 20 million people are in
dire need of humanitarian assistance. They also say that the rainfall patterns
between January and March are the worst in 40 years, if we zoom in on Zimbabwe.
February was their driest month and nearly 80% of the country did not get
adequate rainfall. And this means that agricultural
production was hampered. Corn supply or corn production was
reduced by 20% in South Africa and 80% or rather 60% in Zimbabwe.
And the president took to a national televised address to tell them that it
will take at least $2 billion to combat the impact of this drought that they're
facing. You look at Zambia, inflation is also
high, 15.6%, mainly driven by the prices of cereals, bread and meat.
So what this just means is that these three countries that have declared a
state of national emergency, Zambia, Zimbabwe, Malawi, otherwise a
self-sufficient countries and this speaks of their defects of climate
change. So what are the options then?
The Millers are considering to offset this challenge.
There will be heading to Sao Paulo, Brazil, to try and get 300,000 tonnes of
grain. But this is just a drop in the ocean
because the country consumes about 2.2 million tons.
The good news is that because of the drought all the way from quarter four of
2024 to quarter one of 2025 production will be hampered.
So this will go a long way in covering supply.
But then again, it will have an impact on inflation because of the prices of
importing. Okay, So the inflationary impacts in
focus as well as maybe Brazil can offset some of the pressure across Zimbabwe and
other nations. So I can go with the lighter side on an
important story that's developing across southern Africa.
Thank you. Coming up, another big week for us.
Bank earnings with Goldman Sachs closing higher by about 6% after posting a
profit jump. Bank of America, Morgan Stanley.
Still to come, we look ahead at those bank earnings next.
This is Bloomberg.
Good morning. This is Bloomberg Daybreak Europe.
I'm Tom Mackenzie in London. These are the stories that set your
agenda. A surging dollar bulldozes through Asian
affects. The region's stocks also take a big hit
following a big tech selloff on wall street.
The fed's mary daly says there is no rush to start cutting rates.
China's first quarter GDP growth beats expectations, but retail sales and
industrial output disappoints in March, suggesting a slowdown is already
underway. Plus, Israeli military officials say
they have no choice but to respond to Iran's missile and drone attacks.
This as the US House prepares to vote on new aid to Israel and Ukraine.
Let's check these markets then on a downward day, it seems, in terms of the
futures pointing lower across Europe and the US.
The down day, of course, of course, US stocks yesterday pronounced with big
tech, as we said, in the headlines, selling off the S&P closing by 1.2% back
below that 5100 level on stronger US data, reinforcing those higher for
longer rate expectations. Of course, the geopolitical overlay
continues to be that as well. European futures pointing lower by a
full 1%, a little over 1%. In fact, looking at a drop of 55 points
so far, Footsie 100 is looking lower by a 1% as well, looking to drop around 80
points so far in the session. The footsie 100 pointing to 7899 S&P
futures one led by about a 10th of a percent.
NASDAQ futures currently flat, so reversing some of the earlier downside,
but still pointing to further losses. To build on the picture of yesterday,
let's flip the board cross asset. We also saw a sell off across US
treasuries with the two year getting close to 5%.
The ten year yields up nine basis points in the session yesterday, 4.6 currently
on the US benchmark right now. We talked about dollar strength in the
headlines. Going to unpack that story for you as
well. The pound in focus 124 little bit of
pressure coming through marginally likely down to what's happening with
stronger dollar down a 10th of a percent on the pound.
But we will look for that data as well on wages and jobs.
7 a.m. UK time and then inflation data out of
the UK on Wednesday Brent above $90 barrel, closing in 91, up 7/10 of a
percent on 110 points currently and down 1.2%.
And arguably you can tie that to the mixed data out of China.
Let's talk the story then and bring in Mark Cranfield right now from Bloomberg
and live, the strategist that Mark talked to us about, the dollar strength
that's coming through. Is this a risk haven move into the
dollar or is this on the back of stronger data and expectations that
rates are not going to be cut anytime soon?
Was it a combination of the both? Yeah, all of the above.
It was the dollar was already strong coming into Asia this morning, as you
say. We've had pushback from Federal Reserve
speakers. It looks as though it's going to take
longer for that for them to to lower interest rates.
Retail sales was the latest in a series of strong data prints from the United
States. So we came in this morning with with
dollar yen especially very, very strong, about 154 that just lifted dollar Asian
markets across the board. And then China's fixing came in and they
allowed the yuan to weaken as well. And that was just the icing on the cake.
So off the back of that, we've seen the Indonesian rupiah, the Indian rupee,
Thai baht, Korean one. They've all just been tumbling one after
the other and Australian dollar Kiwi as well all coming down as well.
So it's just really been across the board.
That also fed into the equity markets as well.
They're already pretty nervous anyway after a rough night for Wall Street last
night. So we've got a sea of red across Asian
equities and it's just one thing feeding into another.
Of course, we've got the Bank of Japan meeting next week, which is now becoming
a lot more interesting than maybe it was just a few days ago.
Because, Governor, your data from the Bank of Japan has said that the yen
feeds into inflationary expectations in Japan.
That is not something that was set by previous BOJ governors.
So clearly the yen is on his radar. The Ministry of Finance have been pretty
quiet today. Haven't said too much about it.
Maybe there's some kind of pact coming up between the two of them, Whichever
way it is for now, traders are not being put off.
Some people are even talking about 160 in dollar yen.
But that's one thing's for sure. Foreign exchange markets are alive and
kicking and that's where the action is today.
Hmm. Yeah, they certainly are.
Indeed. And on the story of the yen, then, is it
the experts say you touched on this, the view that maybe you get to 160, some
even saying 170. Is the view then simply the intervention
will not work at this point? Well, they have a bit of a problem here.
I mean, it's not to say that intervention wouldn't work, but it's how
far would it go, because the big difference, October 2022 was the last
time that the Japanese successfully intervened to strengthen the yen.
What they had in their favor at that time, they caught the market a bit by
surprise. But probably more importantly, US yields
were coming down at the same time. So you had a negative impact from the US
side and you had the Japanese side improving as well.
So I put the two together. It helped Dollar End to come down quite
a long way this time around. If the Japanese authorities do decide to
support the yen, they're completely on their own because we've seen in recent
days that the Fed is pushing further and further away in terms of lowering
interest rates. So there's no help from the US side at
all. And certainly the idea of coordinated
intervention is certainly not on the table at all.
So if the Japanese go ahead that after intervening very large, they might get
some strength out of the yen, but probably not as much as they got two
years ago. Okay.
154 on US dollar yen dollar yen right now Mark Crumpton.
With a brilliant deep dive on what is rippling across these markets this
morning. Mark Cranfield, of course, with the
analysis. Thank you.
Now to the bank earnings story and the season, of course, in terms of the
earnings picture continues with Bank of America Morgan Stanley due to report
later this after of course Goldman Sachs shares closed higher after the lender
posted a surprise profit jump in the first quarter.
Very good about our first quarter results, which reflect the strength of
our world class and interconnected franchises and the earnings power of our
firm. This performance was aided by the swift
actions we took last year to narrow our strategic focus and play to our core
strengths. Okay.
Let's bring in Bloomberg's Charlie Wells then for the analysis.
Charlie, how did Goldman Sachs manage to come through with such a solid beat the
drivers for Goldman. Yeah.
So, look, their driver here really was a return to basics.
And so we heard David Solomon there talk about how they made swift action, how
they really need this turnaround from really trying to push into retail
banking. And last year really was an execution
year for the bank. And we saw them just go back into core.
And when you look at these core units, it's hard not to find an area where they
beat. So in fixed income trading, they beat
revenue. There was $4 billion, equities trading
$3 billion, investment banking fees, a beat as well of $2 billion coming in.
We've got M&A fees, $1 billion, and then their wealth management unit, which is
what these banks really want, it brings in those stable fees kind of almost in
any environment they beat as well, bringing in revenue of $4 billion
almost. We got Morgan Stanley, Morgan Stanley,
Bank of America reporting later. Morgan Stanley also obviously a very
close rival for Goldman Sachs. I just wonder if they can replicate the
kind of results. What are you the team going to be
scrutinizing from those two lenders? Yeah, so a little bit more difficult of
a news cycle for Morgan Stanley. And so they've been talking about some
pressure in their wealth management unit.
Ted Peck, who just took over in January, he's called wealth management the engine
of Morgan Stanley, but it's been under a little bit of pressure with inflows,
some profit margin pressure. So that will be really interesting to
watch today. As far as Bank of America, the
expectation is that it looks a little bit similar to, say, Wells Fargo or J.P.
Morgan, who reported slightly disappointing earnings last week, in
particular on net IT net interest income.
So that's coming under pressure as consumers seek to get more in their
deposits, as there's more competition in that deposit space for where they put
their money and potentially Bank of America having to pay more to keep those
deposits than they get from lending out money.
Well, coming to the last leg then, of the earnings season, when it comes to US
banks, what is it what are the kind of the big takeaways for you?
Yeah, Tom, I would say that, you know, the message we're getting from some of
these banks is kind of a return to the old normal.
So that old normal where, you know, net interest income wasn't getting this huge
boost that it was getting from rates. A return to the old normal that the
likes of Goldman Sachs, where they're really focusing more on core and the
return return to maybe the very old normal for consumers where they thinking
about maybe the 1990s when consumers were very used to, you know, competition
for where they were going to put their deposits for competition over rates, you
know, that sort of a return to an old normal, which we could potentially see
as we hear, you know, inklings that the Federal Reserve may not be cutting rates
as much as markets had priced in earlier this year.
Charlie Wells, thank you very much indeed.
Breaking down the Goldman Sachs beat that came through yesterday.
And looking ahead, of course, to Bank of America and Morgan Stanley, what to
watch for later today. Touched on the Fed, of course, New York
Fed president. Meanwhile, John Williams believing that
the US central bank will likely start cutting rates later this year if
inflation if inflation continues to gradually ease.
He also discussed resilience in consumer spending in an exclusive conversation
with Bloomberg TV. Consumer spending has been strong.
I think it is driven by strong fundamentals.
Job growth has been solid. We've seen real wage gains.
We're in a pretty strong economy with good growth.
So, yes, it is part of that story. But, you know, I think what we're
realizing is we're getting a nice tailwind from the supply side of the
economy with good labor force growth, strong productivity, good real wage
gains. So with that, I think, you know,
consumers are spending. What's the thinking in your office and
among your colleagues about does this last or is this a surprise that you
think could go away at any minute? Well, one thing that makes it really
hard to forecast is we're still feeling the effects of the the after effects of
the pandemic and Russia's war in Ukraine and all the things that have happened in
between. So we're definitely still seeing an
adjustment process by the consumer, by in the economy overall.
But, you know, overall, I think that the economy will continue to grow at a solid
rate this year, probably not as high as the 3.1% we saw last year, but something
like 2% or around that. So I feel like we're still in a good
place, probably not as rapid a growth as we saw last year.
You do have the strong growth, you have very low unemployment.
Why cut rates if the economy is doing fine at this level?
Well, first of all, I think monetary policy is working at the rates we have
now. So I think I think monetary policy is in
a good place over the past 12 to 18 months.
We've seen all pretty much all the measures of imbalances in the labor
market enter our economy, recede, many of them back to levels we saw in 2018 or
2019. So we're seeing that restoring balance
in the economy. We are seeing a slow decline in
inflation. So I do think monetary policy right now
is in a in a good place. I'm not fixated on where do rates need
to go over the next year. What I'm focused on is how do we best
achieve our maximum employment and price stability goals?
The data we're seeing show that the economy is strong and that's really good
news and labor markets strong. At the same time, we are getting a
better balance and we're seeing some decline overall in inflation.
So for me, it's really about getting that right.
And then whatever we need to do to adjust monetary policy, we can do to
best continue the progress towards our goals.
So that's how I'm thinking about it. And we just have to keep watching the
data and make the decisions based on those goals.
Well, is your base case that you will cut rates this year?
My own view is I think that with inflation continuing to gradually come
down and I guess I would say gradually is the operative word here and with the
economy remaining strong, I do think that given where the level of rates are,
real interest rates now are considerably higher than they were before because
inflation has come down quite a bit. So we will need to start a process at
some point to bring interest rates back to more normal levels.
And my own view is that we will you know, that process will likely start
this year, but again, it will be driven, driven by the data and achieving our
goals. New York Fed President John Williams
speaking to Bloomberg exclusively. Coming up, our next guest says fintech
is back on top as the UK's most funded start up sector.
We discuss the future of the industry with Aaron Platz, CEO of HSBC Innovation
Banking UK. That is next.
This is Bloomberg.
Welcome back. Now fintech is back on top as the UK's
most funded start up sector, according to analysis from HSBC Innovation,
Banking and M&A database Deal Room, A $1.4 billion 1.4 billion was raised
across 73 rounds in the first quarter for the details and is bringing in
Implats CEO of HSBC Innovation Banking UK.
We love speaking to you. And because you really have a finger on
the pulse in terms of the flows into into UK tech.
So talk to us about what you've been seeing kind of on a granular basis over
the first quarter. So Q1 actually pretty, I would say
stable, strong starts at 3.9 billion has been invested into UK tech and that
recalibrates us really kind of back to 2020 pre-COVID run rate.
And that still leaves us firmly as number one in terms of the European
ecosystem. 3.9 is actually almost more than France
and Germany combined in Q1 and of course firmly third globally as an innovation
ecosystem and fintech standing out again, what is the what is the appeal of
fintech? What is drawing the funds into that
particular segment of UK tech? Yeah, so 2023 three was very much the
year of sort of gen AI and climate tech. And so it is nice to see fintech back on
top. You know, London and the UK very much is
a hub of financial services, various types of asset managers,
insurance companies, so that talent, but also the procurement and investment into
fintech just creates a lot of amazing companies founders spinning out.
I mean, that's what's attracting both domestic and international capital into
into fintech. So coming back to some of our natural
strengths, arguably, and you talk about Gen AI and some concern, some
hand-wringing by the end of last year that it was looking a little frothy in
terms of the fund flows. What are you seeing?
Is it because you can was there a frothiness to it?
Is it becoming a little bit more rational?
Are those fund flows continuing? How is the picture for the UK when it
comes to. Yeah.
Yeah. So you know, frontier tech are deep tech
let's call it which includes Dannii semiconductors Quantum is still is still
seeing a strong amount of investment. We're still seeing in a pretty let's say
substantial valuations. But this is a paradigm shift for our
industry. So I think that we'll continue to see a
lot of money going into Gen I. I think the UK is really well-placed in
terms of talent. It's great to see Microsoft announcing a
hub in London with respect to some of their development.
So I would continue to expect a gen AI to outperform in terms of attracting
capital, you know, whether it's know how frothy is it, you know, what time will
tell, I suppose. And what is the what is the global
nature then of the fund flows into the UK.
Yeah. So this, this actually was a surprising
part of the report for me. So we've always attracted huge amounts
of international capital and that's really important to have that mix of
international and domestic capital. But I looked at the data over the last
15 years and what we ended up finding is the proportion of domestic capital going
into the UK is quietly decreasing. Q1 actually had almost 40% of the money
going into UK startups and scale ups came from the US, which is the highest
we've seen. Again, in terms of the data that I've
been tracking for 15 years. So for me it's something to keep an eye
on. We really want that US experienced
capital and international capital in the UK, but we also want to see the domestic
funds thrive. Okay.
And in terms of the in terms of the various stages of funding and you break
this down as well, early stage versus late stage, you talk about I was
interviewing Nell Hurley, the CEO of a company called Littoral Labs yesterday,
a spinoff of Newcastle focused on I, I just want to take a take a listen to
what he had to say in terms of late stage funding and the challenges here in
the UK. One of the biggest challenges in the UK
is we have all of this fantastic talent here and yet we don't have we don't have
a microsoft, we don't have a Google. And why is that?
In most cases, it's almost institutionalized now that startups in
the UK end up opening a presence in the US and move in that for that scale in
capital. I think that's one of the challenges and
if the Government's going to address anything, it needs to address that gap.
Is that is that a valid concern, talking about the fact that it's almost default,
that UK startups will go for that late stage funding to the US?
And if it is valid, what are some of the prescriptions that the government and
others might look to? Yeah, I think on this I think Noel's
right, but I think we should break it down to public access to public capital,
access to private capital. We've seen a huge amount of growth in
terms of that growth capital from a private markets perspective be available
in the UK now that the source of that capital is very much international.
But I do think Noel's right and the data does support most companies in the
innovation space will look to the US to list.
There's a few things I think structurally that we need to continue to
work on as an ecosystem. The conversations around the Mansion
House reform that's unlocking pension capital to be deployed into both public
and private markets will very much help. I think this is a point in time.
I mean, I've been in this ecosystem for 17 years and this size and scale back 17
years ago versus where we are here is night and day.
So I'm pretty optimistic that we will have over time, a really robust, robust
public market for innovation companies. I just am not sure that that's going to
really change in 2024. Right.
Yeah, it seems like a long a longer term, a longer term issue.
And clearly the government has got this in its sights.
But whether or not enough is being done and quickly enough is another question.
You talk to us about the fund flows in the first quarter, then as you and the
team look ahead to the second quarter and beyond this year, what is the focus
on? So I, I believe that the UK ecosystem
should be about a $20 billion market in terms of per annum.
There's enough amazing companies. Even though we heard from Noel, there's
great founders, great technology. Early stage has been robust.
Now we'll need to see a bit of an unlock in the second half of the year to hit
that run rate. I'm still optimistic, but things around,
you know, interest rate reductions if that happens, is helpful.
Again, we've talked about money. This venture money is time bound.
And the anecdotal activity that we're hearing from our VC and PE partners is
there is a lot of velocity with respect to term sheet.
So we'll see if that converts into investment.
But there's definitely enough quality to really, really interesting.
Always smart on the tax base. Bring us the analysis.
Thank you very much indeed. The CEO of course of HSBC, Innovation
Banking UK. Now for some of the other stories making
the news and with an eye still on the tech space, the chief of Google's A.I.
business says the company will eventually spend more than 100 billion
more than $100 billion developing A.I. technology, another sign of the
investing arms race that's gripping Silicon Valley.
That was Demis Hassabis, of course. Meanwhile, Donald Trump's first criminal
trial got off to a slow start with the proceedings stalling over disagreements
about evidence and other last minute arguments.
Jury selection didn't kick off until the final hours of the day, as the former
president's lawyers argued with prosecutors over which evidence will be
admissible. More than half of the first panel of 96
potential jurors had to be excused after saying they could not be impartial.
Plenty more coming up. We're going to preview some of the data
out of the U.K. drops at 7 a.m.
what it means, of course, for the boat. That is next.
This is Bloomberg.
Welcome back to Bloomberg Daybreak Europe.
Happy Tuesday. We have some data dropping 7 a.m.
UK time so in a little under a little over 5 minutes time on wages and of
course the jobs picture here in the UK that's ahead of inflation that drops on
Wednesday. So rounding out the picture in terms of
what we can think about when it comes to the board's next steps, we know that the
services component of CPI in the UK has been relatively sticky.
A lot of that is down to the wages story.
There is an expectation that wage day to day is going to come in a little softer,
but you can see the white line is the weekly earnings, three month by three
month. That's the white line.
You can see that just a little below six right now.
Services CPI remaining a little elevated then in terms of being above six.
So it's the wages continuing to keep the services pot higher.
You need to see arguably a breakdown in the wages within services to see that
component come lower and the to take a little bit more comfort.
Let's split the board and have a look at what it means when it comes to the jobs
picture. And frankly, it's a bit confusing given,
of course, that we are working through a new statistical format and the surveys
have been challenged. The labour, of course, labour force
surveys that have been coming through. And there's this gap, as you can see in
terms the blue line and the white line between the labour force survey,
unemployment rate and the experimental data and a gap of between 4.2% in terms
of the unemployment or 3.9%, where are we in reality remains a bit of a
question. So in terms of the unemployment data, it
remains still a little bit confusing here in the UK as they try and work
through some of those changes. What this all means, of course, for the
BBC and as I said, the CPI. So the inflation print that comes
through on Wednesday is going to be really important, of course, to that as
well. Let's flip the board and have a look in
terms of how we've adjusted around the expectations of just two cuts of 25
basis points each. That's the green line compared to just a
little over one for the Fed, but still on three for the ECB.
So that's how the three major central banks here, of course, are lining up the
BOE in the middle. Still, expectations of two.
The data today will help inform whether or not that is reality or realistic.
I should say a remind going to speaking, of course, of the UK's Chancellor of the
Exchequer, Jeremy Hunt, on the outlook for the British economy joining us 7:10
p.m. UK.
Time for that. Up next though, markets today with Kriti
Gupta and Guy Johnson. This is Bloomberg.
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