The Pulse With Francine Lacqua 04/08/2024

Summary

The transcript discusses various economic and geopolitical updates. It highlights the impact of the US jobs report on European stocks, the anticipation of US inflation data, and oil prices' response to geopolitical tensions. The conversation includes insights on the US Treasury Secretary Janet Yellen's visit to China, where she warns of potential sanctions for Chinese entities supporting Russia. Additionally, the transcript covers the撤l of Israeli troops from Gaza and the potential implications for Middle Eastern geopolitics. Business strategies of HSBC and India's potential to become a global growth engine are also discussed.

Takeaways

• 📈 European stocks experienced a slight increase following the positive US jobs report from the previous week, indicating a potential upward trend in the market.
• 📊 The US inflation data due on Wednesday is a significant market focus, as it could influence the Federal Reserve's decisions on interest rates and monetary policy.
• 🏛️ US Treasury Secretary Janet Yellen concluded her four-day talks in China with a warning for Chinese banks and exporters about the risks of sanctions if they support the Russian military.
• 🤼‍♂️ Israel's announcement of troop withdrawal from southern Gaza has sparked discussions on potential strategic shifts and responses to geopolitical tensions in the region.
• 📉 Oil prices have retreated from a five-month high, with market anticipation of an Iranian attack over the weekend not materializing, thus reducing some pressure on oil markets.
• 💹 The US equity markets are showing signs of a potential slowdown, with bond yields continuing to rise and casting a shadow over the recent rally in equities.
• 🌐 The ECB meeting is upcoming, with market participants speculating about the possibility of rate cuts and their implications for the Eurozone economy.
• 🔄 Trade deals are a key focus for India as it aims to boost its global economic standing, with recent agreements and ongoing negotiations potentially enhancing its integration into the world economy.
• 🏢 HSBC's CEO, Noel Quinn, highlighted the bank's growth in wealth management and personal banking in Hong Kong and its commitment to expanding in key markets like China and India.
• 💬 The conversation on central bank policies continues, with the upcoming US CPI data and ECB decision being closely watched for clues on the direction of monetary policy.
• 🔮 Looking ahead, the market is preparing for a potentially eventful week with key macroeconomic data and central bank decisions that could shape the investment landscape.

Q & A

What event caused European stocks to rise after the US jobs report?

The strong US jobs report led to a rise in European stocks as it positively influenced global market sentiment.

What is the significance of the US inflation data due on Wednesday?

The US inflation data is significant as it provides insights into the health of the economy and can influence the Federal Reserve's decisions on interest rates and monetary policy.

How did the situation in Gaza potentially affect oil prices?

The announcement by Israel to remove some troops from Gaza did not lead to an Iranian attack, reducing geopolitical tension and consequently causing oil prices to retreat from their five-month high.

What did US Treasury Secretary Janet Yellen warn about during her talks in China?

Janet Yellen warned that China's banks and exporters could face US sanctions if they provide support to the Russian military.

What is the current state of Brent oil prices?

Brent oil prices are softer, down by 1.2% in the morning, influenced by reduced geopolitical tensions and the situation in Gaza.

How did the gold market respond to the current economic climate?

Gold prices are up slightly, indicating that investors are seeking safe-haven assets amidst uncertainty in the market.

What is the expectation for the US equity markets?

US equity markets are expected to be fairly flat, with the S&P and NASDAQ not showing significant changes, while the Stoxx 600 is up by 2/10 of 1%.

What does the ECB meeting signify for the European economy?

The ECB meeting is significant as it could signal potential rate cuts for the year, impacting consumer and business confidence, as well as the overall macroeconomic backdrop.

What is the current situation regarding the labor market and inflation?

The labor market is strong with healthy job growth and lower unemployment rates, while inflation has been moderated by the influx of labor supply, helping to balance the market without stoking inflationary pressures.

What is the potential impact of higher borrowing costs on equity markets?

Higher borrowing costs could potentially limit the rally in equity markets as they increase the cost of debt, which might affect future earnings and valuations.

What does the 'catch up trade' in Europe suggest for investors?

The 'catch up trade' suggests that investors may look to European markets for opportunities, as US markets might be perceived as getting toppy, and Europe could offer cyclically oriented exposure with potential for growth.

Outlines

00:00

📈 Market Updates and Analysis

The paragraph discusses the state of European stocks, their response to the US jobs report, and the anticipation of US inflation data. It also touches on oil prices, geopolitical tensions involving Israel, Iran, and the potential for Chinese banks and exporters to face sanctions. The focus is on market trends and the impact of global economic and political events on the financial sector.

05:05

💡 Investor Sentiment and Economic Indicators

This segment delves into investor perspectives on the possibility of rate cuts, the implications for consumer and business confidence, and the potential impact on the macroeconomic environment. It also explores the risks associated with inflation and economic slowdown, highlighting the importance of the labor market and corporate earnings in shaping market behavior.

10:06

🌐 Geopolitical Developments and Market Implications

The discussion centers on the strategic military decisions by Israel and the potential responses from Iran and Hezbollah, as well as the geopolitical risks and their effects on oil prices and global markets. The conversation also includes an analysis of the potential for a catch-up trade in European equities and the influence of central bank policies on investor decisions.

15:07

📊 Economic Forecasts and Central Bank Policies

This part of the script focuses on the anticipation of US CPI data, the potential impact on Federal Reserve decisions, and the expectations from the European Central Bank. It also discusses the importance of corporate buybacks and dividend yields in the current economic climate, as well as the strategic focus on European multinational companies for quality earnings growth.

20:08

🔍 Analysis on Middle East Conflict and Global Economy

The paragraph provides an in-depth analysis of the Middle East conflict, specifically the Israeli troop movements in Gaza and the potential implications for regional stability. It also discusses the potential for an Iranian response and the impact of geopolitical tensions on global oil prices and market sentiment.

25:12

🏦 Banking Strategies and Global Expansion

This segment features an exclusive interview with the CEO of HSBC, discussing the bank's strategy to enhance its wealth management capabilities in China and India. It covers the bank's recent acquisitions, performance in various regions, and plans for future investments, emphasizing the importance of international wholesale banking and the bank's commitment to growth and stability.

30:15

🌍 India's Potential as a Global Growth Driver

The discussion highlights India's potential to become a major global growth engine, surpassing China. It examines the factors contributing to India's rapid growth, including urbanization, infrastructure development, and trade deals. The conversation also touches on the importance of manufacturing and service sectors in sustaining economic growth and the role of foreign investment in India's economic future.

35:18

📈 Central Bank Policies and Market Expectations

The focus of this segment is on the upcoming US CPI data and the ECB's decision, as well as the potential for rate cuts in response to economic indicators. It includes expert opinions on investor expectations, the current state of credit markets, and the anticipated actions of central banks in the context of inflation and economic growth.

Keywords

💡European stocks

European stocks refer to the shares or equities of companies that are listed on stock exchanges located within European countries. In the context of the video, European stocks are mentioned as being slightly higher, indicating a positive performance following a strong US jobs report. This suggests that investor sentiment in Europe is being influenced by economic indicators in the United States, highlighting the interconnectedness of global financial markets.

💡US inflation data

US inflation data refers to statistics released by the United States government that track the rate at which the general price level of goods and services is increasing over time. Inflation data is a critical economic indicator because it affects purchasing power, interest rates, and monetary policy decisions by the Federal Reserve. The video emphasizes the importance of the upcoming US inflation data release, as it will significantly influence financial markets and potentially lead to changes in interest rates.

💡Oil retreating

The term 'oil retreating' refers to a decrease in oil prices. In the context of the video, it suggests that the prices of crude oil are falling from their previous highs. This can be influenced by various factors, including geopolitical events, supply and demand dynamics, and market speculation. The video mentions oil retreating in relation to developments in the Middle East, particularly the absence of an anticipated Iranian attack and Israel's decision to remove some troops from Gaza, which may have reduced geopolitical tensions and consequently oil prices.

💡Geopolitical tension

Geopolitical tension refers to the strain or conflict between different political entities, often nations or regions, due to various factors such as territorial disputes, ideological differences, or competition for resources. In the video, geopolitical tension is discussed in the context of the Middle East, particularly the potential for conflict involving Iran, Israel, and other regional players. The state of geopolitical tensions can significantly impact global markets, including oil prices, as it influences perceptions of risk and stability.

💡Sanctions

Sanctions are economic or political measures imposed by one or more countries on others to achieve specific objectives, such as influencing policy changes or behavior. Sanctions can include trade restrictions, asset freezes, or other measures that limit economic or diplomatic interactions. In the video, US Treasury Secretary Janet Yellen warns that Chinese banks and exporters could face US sanctions if they support the Russian military, highlighting the use of sanctions as a tool in international relations to deter or penalize certain actions.

💡Equity markets

Equity markets refer to the segment of financial markets where the buying and selling of shares or stocks of publicly traded companies take place. These markets are important indicators of economic health and investor confidence. In the context of the video, equity markets are discussed in relation to their reaction to economic data and geopolitical events, such as the US jobs report and tensions in the Middle East. The performance of equity markets can influence investment decisions and reflect broader market sentiment.

💡Brent

Brent is a major trading classification of sweet crude oil that serves as one of the primary benchmarks for pricing a variety of oils around the world. It is derived from the North Sea and is considered a global benchmark for oil prices. In the video, Brent is used to discuss the state of oil prices and their movement in response to geopolitical events and market conditions.

💡Gold

Gold is a precious metal often used as a safe-haven asset in times of economic or political uncertainty. Investors may turn to gold to preserve wealth when other asset classes like equities or currencies are perceived as riskier. In the video, gold is mentioned as being 'up a little bit this morning,' suggesting that it may be benefiting from a flight to safety or other market dynamics.

💡Silver

Silver is a precious metal, similar to gold, that is used in various industries and is also considered an investment asset. Silver prices can be influenced by supply and demand dynamics, as well as broader market trends. In the context of the video, silver is mentioned as part of a 'catch up trade,' suggesting that its price is increasing relative to other commodities or assets.

💡Copper

Copper is a versatile metal widely used in electrical wiring and electronics, plumbing, and construction, among other applications. It is also an important commodity in global markets, and its price can serve as an indicator of economic health, particularly in the industrial and construction sectors. In the video, copper's price increase is mentioned, which may reflect expectations of growth in infrastructure or other related industries.

💡Macro week

A 'macro week' refers to a period in which economic or political events of broad and widespread significance are expected to occur. These events, often including the release of key economic data, central bank meetings, or policy announcements, can have substantial impacts on financial markets, investment strategies, and economic forecasts. In the video, the term is used to describe a week with several important events that market participants will be closely monitoring.

Highlights

European stocks slightly higher following the strong US jobs report from Friday.

US inflation data on Wednesday is a key focus for market participants.

Oil prices retreat from five-month high as there was no Iranian attack over the weekend.

Israel announced it will remove some troops from Gaza, with speculation on the strategic implications.

US Treasury Secretary Janet Yellen warns Chinese banks of sanctions risk if they support the Russian military.

Discussion on the potential impact of higher bond yields on equity markets.

Analysis of the labor market's role in balancing the economy and controlling inflation.

Investment strategist discusses the outlook for equities in the current economic climate.

Debate on the path of future rate cuts and their implications for economic growth.

Potential for a catch-up trade in European equities, with a focus on multinational companies based in Europe.

Expectations for the ECB meeting and the outlook for rate cuts in 2023.

Analysis of the geopolitical situation in the Middle East, including Israel's troop movements and potential responses from Iran.

Impact of global events on oil prices and market expectations for the coming weeks.

HSBC CEO discusses the bank's wealth management growth in Hong Kong, China, and India.

India's potential to become a major global growth driver, surpassing China's current role.

Upcoming US CPI data and ECB rate decision, and their potential influence on central bank policies.

Transcripts

Newsmakers and market movers. This is the pulse with friends in.

Monday, the 8th of April. Good morning.

Welcome to The Pulse. I've got Johnson in London.

Francine is out today. Let's talk about what you need to know,

though. European stocks a little higher after

that red hot US jobs report kicked U.S. stocks higher Friday.

We're going to take a look at what we need to be watching for the rest of the

week. U.S.

inflation data Wednesday, that's a big one.

Oil retreating coming off a five month high after Israel said it would remove

some troops from Gaza. But we didn't get the Iranian attack,

which some people were anticipating over the weekend.

Traders waiting for a series of reports this week that will provide a snapshot

of the supply demand balance that we're looking at at the moment.

And the U.S. Treasury Secretary, Janet Yellen,

wrapping four days of talks in China, warning that China's banks and exporters

should be aware of the risk of sanctions if they support the Russian military.

We'll talk about that as well. Let's take a look at what is happening

with European equity markets. A little take.

Hi this morning, a response maybe to what we saw Friday.

The U.S. equity markets getting a certainly a

kick higher on the back of the payroll report Friday.

The bond yields story, though, is one I would watch out for that continues to

move higher as well. So a fairly

uninspiring story this morning, I would argue, out of European equities.

I think we're looking for the next catalyst, the Footsie 100, for instance,

very flat at the moment. U.S.

futures, they've turned around in the last half hour or so.

I would argue we're a little bit more positive.

European equities maybe getting a little bit of a boost, but the S&P is fairly

flat. The NASDAQ fairly flat.

The Stoxx 600 up by 2/10 of 1%. What else we should be watching?

Keep an eye on what is happening with Brent's Brent is really inching story.

So we're softer this morning down by 1.2%.

We didn't get some of the geopolitical tension that we were anticipating over

the weekend in the form of an Iranian attack.

So that hasn't happened. So you take some of the oil story kind

of away this morning. But the Netanyahu story I think, is also

interesting. He's taking some troops out of Gaza.

Is he taking those troops out in order to prepare for that potential Iranian

attack? Keep an eye potentially on the border up

north into Lebanon. So watch out for that one.

I don't think that story has gone away. Essentially, the oil stocks are not

lower this morning. Gold's up a little bit this morning.

Still some confusion around that. The silver catch up trade carries on,

copper up by 3/10 of 1%. So London miners getting a little bit of

a bit in terms of the trade that we're watching out for this morning this week.

In theory, though, and I know it doesn't feel like it this morning is going to be

a macro week. It's a number of key events.

Obviously, coming up. US CPI data is going to be one of those

key events. Then we get the next day, of course, the

ECB meeting. What happens if we get a strong CPI

report and then the ECB signals that it could be cutting a number of times this

year? That's certainly one interesting

scenario. But let's start kind of Friday and

figure out exactly the market reaction to what we got Friday.

Madison global investment strategist J.P.

Morgan, private Bank joining me now to discuss.

Good morning. Good morning.

So equity markets liked it. We saw bonds selling off.

At some point, those two things are going to start to have an impact on each

other at the moment. Equities like the idea that we are in a

in an economy that is good and that should support earnings.

But does the higher cost of borrowing at some point start to limit this equity

rally for four and a half on a ten year, five on a ten year maybe?

Of course, I think it matters. I mean, we we certainly see the impact

in the follow through effects in some pockets of the economy from higher

interest rates. And we've certainly seen some companies

during prior earnings season also telegraphed some of those impacts.

But I think when we think about it in totality, yes, the you know, the

corporate earnings backdrop remains very important.

But I think what we've learned is that overall the economy has been able to

withstand those higher interest rates from a broad perspective.

And what's quite interesting is that it hasn't necessarily that strength in the

economy come at the expense of stoking inflation.

And so much of that, I think, has to do with this backdrop that we're seeing in

the labor market today. And certainly it was echoed in the jobs

report on Friday where you saw a healthy jobs growth number, you saw the

unemployment rate tick lower, but you saw labor force participation also tick

higher. So really, I think in our mind that

really I think meaningful influx of labor supply has gone a long way to

rebalancing the labor market. I think really enabling wage growth to

cool ensuring that, you know, growth doesn't come at the expense again of

inflationary pressures. Okay, I get all that equity markets have

been on quite a decent run recently and and that has been based on the idea that

maybe we do have a decent US economy and you can kind of understand the logic

between sort of the works behind that. The difference is going to be

potentially higher borrowing costs are going to be perceived as being a higher

and be kind of for longer. And and is that something that that not

necessarily changes the overall direction, which is higher, but the rate

at which equity markets continue to climb?

Yeah, I think I think there's an important dynamic there.

I think what investors are really trying to.

He's out is not so much whether rate cuts really start.

I think that there is a resounding sense that that is true.

I think what the debate is really is, you know, what is the path of those rate

cuts really look like? I think what central bankers really want

to do is be able to cut rates in a more measured way and I think enables

consumer and and business confidence in terms of having a more stable macro

backdrop. I think what central bankers really want

to avoid is, to your point, keeping rates too high for too long to where

that ultimately cracks something. And then central banks need to cut rates

more dramatically. That ultimately wouldn't have a really

big boost to demand because it's it's creating a sense of uncertainty for

businesses and for households. If you're cutting because things are bad

relative to when things are good. Is the biggest uncertainty, though, for

U.S. households right now that things get bad

or that inflation continues to remain high?

You know, I think I think the you know, those are those are two big risks.

I think in my mind, there's there's two tail risks.

There's, of course, the risk that things slow down more dramatically.

You see some cracks within some of some some segments of the consumer which were

called out in retail earnings over the last quarter.

Yeah, I think we're looking forward to the for the next quarter to see whether

that continues. But overall, again, strong labor market.

Real wages are rising. Real consumer spending is also higher.

But at the same time, of course, you are also having households call out

sticky prices. But I think what's important to keep in

mind is that deflation is really rare. Inflation is more of the, you know,

normal economic environment. And I think, you know,

starting to I think think through those price changes that we've experienced

over the past few years and the fact that those price gains are now

moderating ultimately just take some time to behaviorally start to impact and

set in the minds of households a strong U.S.

economy. Does that continue the trends that we're

seeing, the broadening that we're seeing in equity markets?

I think so. So typically speaking, when you have a

more cyclically sound economic backdrop that

tends to be more supportive for a broadening equity market rally.

So while, you know, for instance, the S&P 500 might be starting to look a

little bit toppy at the levels that we're looking at today, we expect to see

stronger gains from more cyclical pockets of the market.

So think US midcaps, for instance, where earnings this year could in our minds

eke out around 10% earnings growth relative to a 9% contraction last year.

And then you could also look abroad in terms of markets in both Europe and

Japan for more more of that cyclically oriented exposure.

The ECB is likely to signal at least one coming up.

The debate now is whether we get three or four cuts this year out of Europe.

The catch up trade is something that I've read a lot about over the last few

weeks, that Europe still has this potential to play catch up.

The US investors are thinking maybe we're starting to get a little toppy in

the States. Therefore I look elsewhere and maybe we

see some opportunities that exist in Europe.

How how sort of predicated is that on the idea that the ECB is actually going

to deliver rate cuts and is that maybe the most significant event here?

Rate cuts are certainly important. I think that, you know, of course,

signals that policymakers are even further towards winning their fight

against inflation. And I think it also signals that that's

not coming at the expense of the recovery that we're starting to see in

economic growth. So I think it's ultimately about what

those rate cuts really signify to the market.

But from there, again, the earnings backdrop is really important.

We've now seen an end to the negative revision cycle for earnings.

We're starting to see that inflect higher.

You're looking at a three and a half percent dividend yields.

Corporate buybacks are gaining more traction.

So I do think all of those fundamental drivers are in play.

But even more important, I think, is where you focus in Europe.

In our minds, you really want to be focused on those European national

champions, which are multinational companies that are based in Europe, that

are very much leaders of their industry. I think continuing to produce really

quality earnings growth, exhibiting pricing power.

And I think tolerance is that is that the narrative here?

If the ECB is cutting it, maybe the Fed is a little bit more cautious.

We continue with the stronger dollar. Do you want to own dollar earnings in

this kind of environment? Yeah, I mean, I think that's certainly a

big component of it. And there is a currency kicker, I think,

element to that Europe story in terms of you referenced it just a moment ago in

terms of the kind of the why in terms of central bank cuts, though, this speaks

maybe in the opposite direction. Europe feels like it's it's cutting

rates because the economy needs it, not the kind of the mid-cycle slowdown story

that maybe the Fed's delivering. We can kind of fine tune.

Inflation is coming down a little bit, but we're not seeing economic growth

rolling over. So we can we can take rates a little bit

lower and make brakes a little bit more restrictive.

Europe feels like it needs rate cuts right now.

How does that how does that overlay sit on top of the kind of the equity catch

up story? Europe, the economy is struggling right

now. Is that a reason to buy European

equities? I hear what you're saying about the kind

of the big multinationals, but more broadly than that.

So I think you certainly have seen, you know, trailing activity and.

Haters remain quite weak. But importantly, those forward looking

indicators do suggest that the worst is over for the European growth backdrop

and that a recovery is underway. So, for instance, when we looked at the

euro area composite PMI revision last week, it turned above 50 for the first

time in well over a year. And so I think from that standpoint,

yes, ECB policymakers are are cutting because you did see the impact of rate

hikes, you know, impact their economy more acutely.

But I think what I what I would stress is they're not necessarily cutting into

a dramatically weakening growth environment.

We are seeing some meaningful stabilization and recovery there.

In terms of what you're watching out for this week, in terms of the surprises,

kind of what is the Madison fellow kind of view, a view of this week?

Is it US CPI that provides the shock? Is it the is it the ECB or is it

something else? I think I think CPI is really important.

I think we need to see that how that confirms some of the labour market

dynamics that we're continuing to watch. I think from there, what's also

important to call out is we do have a base case for a June rate cut starting

for the Federal Reserve. If you do see another hot CPI print,

it's possible that gets a little bit further delayed.

And so I do think that's quite important for the ECB.

Not expecting anything too monumental, but we would be looking for Legarde to

confirm some of the rhetoric that we've already seen about starting in June as

well. What a what a 4.5 on a US tenure be a

shock with 100 bucks a barrel on a Brent price.

Be a shock at the moment. So those are those are absolutely risks

in my mind seeing ten year Treasury yields sustainably go above 5% would

necessitate that markets are starting to price in more probability of a hike

rather than a cut. Yep.

I think that so long as we continue to see a cut as the next move, investors

should be able to, I think, digest this period of transition.

Good to see you. Thanks for stopping on a monday.

As a fellow global investment strategist joining us, J.P.

Morgan, Private Bank. What else have we got coming out for

you? We'll go back to that oil story.

Israel unexpectedly pulling out troops out of southern Gaza.

We're going to take a look at what this means for the war with Hamas.

That next. This is Bloomberg.

So the Israelis over the weekend announcing they're going to pull some

troops out of southern Gaza. This is the war against Hamas passes the

six months mark. The U.S.

senator Chris Coons, saying the move is likely a tactical decision in case

Hezbollah or Iran attack. They need to have these troops rested

and ready. There's also, obviously this ongoing

conflict in Gaza that is going to be continuing and maybe they're simply just

getting ready for the next offensive. Let's get some analysis on what is

happening here with Bloomberg's EMEA news director, Ross Matheson.

This doesn't feel like this is a shift. This feels like it's a tactical

reappraisal of a situation they see in front of them.

They've got a potential Hezbollah conflict brewing to the north.

They need these troops potentially for that.

So this could be a redeployment to rest of redeploy.

It's also we're still watching what's happening in Rafah.

We don't understand exactly kind of when that next phase is going to start.

So maybe they need those troops for that element as well.

Talk me through the kind of the tactical signaling that this decision is

delivering. Well, that's right.

There's probably a bunch of things driving this decision.

It doesn't signal the end of this conflict.

It doesn't signal either that, you know, for Israel that they're winning

necessarily. What it means, as you say, is the need

to rest. These troops are going to rotate.

Some of them. They're pulling out a bigger brigade or

so they need to buffer the north of Israel because they're worried about

potential for further Hezbollah attacks. Of course, that's another group backed

by Iran in the region in the aftermath of that strike on the Iranian diplomatic

compound in Syria. They're worried also about a direct hit

from Iran, although that's much less likely.

We're more likely to see that kind of proxy asymmetric reprisal from Iran.

So they need to get their troops in the north.

They also want to get them out of Khan Yunis because they want to potentially

encourage Palestinian civilians, shall we say, to move north back out of that

bottleneck near Rafah, ahead of a Rafah offensive, and also removing their

troops from Khan Yunis might pave the way, just might pave the way for that

hostage deal with Hamas. That's being discussed still in Cairo

ongoing, trying to get some sort of temporary ceasefire at least, and the

hostage exchange that might just open the door that you talk about, the

asymmetry of the Iranian response. What do we know about the response that

we're likely to get from the Iranians?

They have signaled that it's going to be proportional.

They've signaled that it's going to be punishing.

But what do we actually know? What are the Israelis doing to prepare

for that? Because maybe that gives us the best

signal as to to kind of maybe what that would look like.

We can see from the Iranian rhetoric they are preparing themselves for

something that kind of got to the point where they're going to have to do

something. They keep saying they're going to do

something. And they did this attack on their

compound. They said it's akin to an attack on

Iranian soil because it was a diplomatic site that was hit.

And so they feel obliged to do something.

Do they really want to strike Israel directly with a missile hit perhaps on a

major capital? Unlikely.

I mean, that's going to set off not just a broader confrontation, perhaps draw in

the US and Iran directly. And no one really wants that, including

Iran. So what you might see again is that

asymmetric response to their often known force that they use one of their proxy

groups in the region and they come through there.

So most likely to be Hezbollah, which has already been engaging with the

Israeli military from the north in Lebanon since this conflict broke out

and even before that, obviously. But we might see a step up there, which

again, is why we're seeing Israel feel the need to bolster their military

resources in the region. Ross, thank you very much indeed.

EMEA news director at Ross Matheson. That's the geopolitics.

Let's talk about the market response. Oil a little lower.

We didn't get the attack from the Iranians over the weekend.

Maybe you could argue that the removal of some of these troops from southern

Gaza is seen as de-escalation. I think a lot of people are pouring cold

water on that idea this week as well. We're going to get supply and demand

stories develop from both opaque and the IAEA.

Maybe it's just simply the reason why oil prices are lower this morning is

that the market got a little over its skis Friday.

Let's kind of put it all together. Will Kennedy, senior executive editor of

energy Commodities, standing next to me. Lower.

Why? I think I'm going to say I had such a

good run last week to go past $90 that it was probably inevitable that we were

going to take a breather. People often, as you said, worry about

geopolitical risk going into the weekend.

Tensions with Iran was obviously one of those risks.

As you say, that hasn't happened yet. So it seems like a good day that the

market takes stocks of where where it is.

After all, it's been a very strong run. So I shouldn't see the numbers on the

screen right now as a trend change. I don't think that anyone's feeling like

that. I think that the broader picture remains

fairly bullish and that we've got this combination of constrained supply in and

out of a number of respect, say that OPEC is sticking to its cuts.

We have less supply from other places like

Mexico, for example, and that's meeting a a demand side of the equation, which

remains very pretty strong in most places around the

world because. Economy in the US especially is doing

quite well and we're about to hit peak demand season when Americans take to the

road and gasoline demand peaks. Okay, so let's the silhouette that

elements of this oil gets 200 say. What does that mean for products?

What does that mean for us consumers in terms of what they're going to see at

the gas station? Is this going to become a.

When does this start to become a political problem, that gas prices are

so high in the states that Biden, etc., have to respond?

I mean, I think that may be quite close. One sign of tightness in the global oil

market is the refining margins, the profit that people make from turning

crude oil that we can't use into products like gasoline.

Diesel that we can remains fairly strong.

So that feeds through to relatively high prices at the pump in the US.

People tend to see the full dollar mark as as the point at which people go, I

don't like what I'm paying for gasoline. We're not quite there yet, but that may

happen in the weeks ahead and clearly that will be a political headache

for the Biden administration as the president seeks re-election.

And although gasoline prices don't feed into the measures that central bankers

used to take rates, clearly that also has the risk of feeding through the

wider economy and complicating the inflation picture as well.

Will OPEC, if we were getting towards $100, OPEC, respond when when this is

going to be the key question for the market here in the second half of the

year. Clearly, they said that they're going to

keep their current cuts in place until the midway point of the year.

I think that we don't know. But it's reasonable to assume that Saudi

in particular would perhaps like to put more oil into the market, though only

producing 9 million barrels a day. That's historically very low and

probably not where they want to be. And given the strength of the market, I

think that it may be that they'll want to gently put some of that oil back into

the market, but we don't know yet. We'll have to see in the weeks ahead.

Thanks, Bill Kennedy, senior executive editor for energy and commodities here

at Bloomberg. Plenty more still to come.

It's going to be an interesting week, macro week.

We're kind of starting off quietly, but believe you me, there's a lot still to

come. This is.

So this week starts quietly but got a nice relaxed easy Monday.

But believe you me, things are going to be heating up.

It kind of really starts Wednesday, if I'm being brutally honest.

You've got the the US data, the CPI prints.

That's what we're going to be watching out for.

That's really going to set the trend. Or is it actually Thursday, the ECB rate

decision? We kind of know that Christine Lagarde

is going to be pointing us at the idea. We're going to be seeing a June rate

cut. But is the debate around July going to

start to manifest itself in the press conference?

But I think Friday, pay attention to that.

You're going to want to watch out for what he has to say on the Bank of

England, forecasting skills and how they should change in terms of European

markets crisis again today. Now, bond yields say this is the picture

that we're watching right now. Not much movement, but as I say, this

week is about to kick into gear. Up next, we'll talk about Janet Yellen's

trip to China. This is Bloomberg.

On Monday. The European stocks ticking a little

higher, basically playing catch up after we saw that big response to the red hot

U.S. jobs report Friday.

Now going to look ahead to Wednesday's U.S.

CPI data. That's going to be a big story.

Oil off five month highs. Israel says it's going to take some

troops out of Gaza. That could be the reason we didn't see

any Iranian action over the weekend. Plus the market probably a little long

into the weekend as well. We've got OPEC and the IEA producing

supply demand reports this week. And the US Treasury secretary, Janet

Yellen wrapping up four days of talks in China.

She's been warning that the country's banks and exporters could face sanctions

if they support the Russian military. She's basically also just the big

picture warning that China's too big to export its way out of trouble.

Morning. Welcome to the pulse.

I'm Guy Johnson in london. Francine is off today.

Let's talk about that last story in a little bit more detail.

So the US treasury secretary Janet Yellen, with a nice smile on her face,

has basically wrapped up her trip to China with some big warnings.

There's a number of them that are in here.

One of which is the country's banks and exporters should not help Russian

military capacity. So that's one that we're focusing on.

Take a listen to what she had to say. I stress that companies, including those

in the PRC, must not provide material support for Russia's war and that they

will face significant consequences if they do.

And I reinforce that any banks that facilitate significant transactions, the

channel military or dual use goods to Russia's defense industrial base expose

themselves to the risk of U.S. sanctions.

Til the joins us now for some analysis on this Bloomberg Surveillance.

Jill, how seriously do you think Chinese banks are going to take the threat that

Yellen has delivered on Russia? Well, I think that at this point this is

actually pretty in line with what the US has warned on these types of issues

before. China, of course, in the past said that

it's not in contravention or violation of specific sanctions or anything like

that. I think that it's really kind of, you

know, part of this all encompassing mission that Janet Yellen is on in

China, where she's kind of hammering home a lot of key US criticisms of

China, particularly on economic policy or in this case, geopolitical policy.

The other one that she was really, really hitting hard over the past couple

of days, too, was this issue of industrial overcapacity from China.

So China exporting to many low cost goods elsewhere in the world and sort of

creating a lot of economic imbalances. So we did see her really sort of stress

some of these issues. I think that, you know, from the China

side, it does seem like they've actually been pretty diplomatic, you know, pretty

receptive. She's had a lot of closed door meetings

with really, really key officials in China over the past few days.

So we'll see what ultimately comes out of that.

But, you know, despite some of this rhetoric that we're hearing from Janet

Yellen, that feels pretty stern, she's generally seen as Washington's good cop

when it comes to China. But let's kind of extrapolate and think

about what happens next. Is this a signal that effectively the

tariff review that the US administration is undergoing at the moment is going to

deliver a tougher message and extrapolate even further forward into

the November election? Is it a message that basically we have

to fight fire with fire here, with the Republicans are talking about

significant tariffs. We're going to have to do that as well?

Well, look, I think that on the China side, if anything, you probably want to

sort of tone down some of the fiery rhetoric heading into that, you know, US

election in November. You know, Trump has proposed tariffs of

up to 60% on Chinese goods. So I think that's what you're kind of

getting out of the Republican ticket here.

It's not extremely surprising that, you know, China has actually been on the

whole, you know, fairly welcoming to Janet Yellen over the course of the

trip. Very diplomatic.

It sounds like they weren't actually, you know, hitting her extremely hard

back behind closed doors. So I think that at this point, it

actually makes sense for it to be more of a diplomatic mission on the China

side, if you're trying to, you know, win over favor with not just Yellen, but the

rest of the Washington administration here.

Joe, thank you very much indeed for the analysis still to see.

Joining us on this trip. Let's continue the conversation.

Janet Yellen has maybe been listened to. Is that the take away that we should

assume now? Lizzie Galbraith, political economist at

Aberdeen, joins us now to discuss. Lizzie, what do you think?

What do you think of the effects of this trip is going to be and whether China is

listening to the warnings that Janet Yellen was delivering?

Well, we've definitely seen Chinese willingness to continue the

conversation. So what we've got out of this trip is a

promise for more talks. And that's never viewed as a bad thing

in US-China relations. The fact that we now have both sides

talking on multiple issues more frequently than we were saying last year

is undoubtedly a positive for the relationship.

And it's something that Yellen herself pointed out that relations have

stabilized over the last year. That's something that the Biden

administration is probably going to want to point to as we get closer to the

election as well, that they are able to, while still maintaining a willingness to

have these difficult conversations, have a more stable relationship with China

than maybe the Republican policy platform offers.

Nevertheless, China's got a big problem. Its economy is not firing on all

cylinders. It needs to figure out a way of of maybe

improving its economic outlook. Its hands are tied in so many ways.

And one of the most obvious ways of achieving that economic revival is to

use its huge industrial footprint to export to the rest of the world.

What happens if it if it has to do that? What kind of response should we be

expecting? I mean, we haven't seen China make any

promises to cut back its production or to reduce its exports.

So I think from a Chinese perspective, this is going to be viewed as broadly as

business as usual. However, we are seeing a number of

countries alongside the EU. So these investigations into some

products supplied by China, particularly electric vehicles, that seems to be the

main focus at the moment. And if we do see more action taken to

tail Chinese imports in these areas, then that may be so substantial in US

policy, elicit some sort of Chinese response.

But I don't think it's actually going to be

in China's interests to really elicit a very strong response to any of these

measures. It's really a matter of neither side's

really wanting to rock the boat too much, but everyone's got interests

domestically as well where they want to be seen to be taking action against

these issues. How seriously should we take the threat

that Chinese banks and businesses could be sanctioned if they continue to

support China, to support Russia?

I think the US has obviously got to make sure that that threat is something that

is credible, but it's not something that we're seeing as an immediate and

immediate problem. So for China, we're not seeing it as

being likely that the US is about to announce a significant sanctions package

against Chinese banks. But it is something that the US is going

to want to keep as a credible option on the table.

As the war in Ukraine moves forward, and particularly as the US gets closer to

the election as well, is going to want to maintain credibility that it can

escalate if it feels the need to that we're at at the moment seeing this

broadly as a rhetorical threat rather than something that the US is preparing

at the moment. Lisa, can I just turn our attention to

what is happening in the Middle East? We're watching the Israelis potentially

pulling troops out of Gaza in response to what we don't know yet.

Maybe it's a need just to rest those troops so that they can take part in the

Rafah offensive. Maybe it's because they're worried

about. Potentially the Iranians using Hezbollah

to attack to the north. We're on tenterhooks this week waiting

for some kind of response from the Iranians.

How are you thinking about what is going on?

And how significant do you think the Iranian response will be?

It's been something that we've been monitoring very closely, and we do have

we do have an expectation that the conflict is going to continue for a

number of months. Yes, we are seeing it evolves and it is

it is completely possible that Israel is changing a tactical focus.

We've also seen increased activity across Israel's northern border as well.

And that does obviously bring with it risks of conflict, spillover that that

would, in our view, amplify the risks to to regional stability.

So it's something we're very closely monitoring as well as things currently

stands. And we we see the conflict continuing

without any significant spillover for the next few months.

But that risk of spillover does remain really quite significant.

And with that, we're keeping a very, very close watch on it.

Should we should we expect to higher oil prices that the most logical response to

the kind of scenario that you're seeing in front of you?

Our base case isn't for a significant increase in oil prices as things stand,

and that that base case still still stands even with the current Israeli

troop activity. Our escalation scenarios do do include

some increase in oil prices, but we have to take

into account the other global factors that may be weighing down the oil price

as well. So, yes, this potentially puts upward

pressure on oil prices in the event of escalation, but we're also seeing

downward pressure elsewhere as well. So we're not expecting a very

significant spike. Okay.

There's a lot going on. Lizzie, thank you for giving us some

analysis on what is happening here. Lizzie Galbraith, political economist,

joining us from Aberdeen. Coming up, we're going to take you

through the big take. Can India take China's global growth

engine crown? We're going to take a look at the

foreign money pouring into the Nifty 50. That's next.

This is Bloomberg.

And.

This is the Post. Good morning.

I'm going to Gelson in London. Francine is off today.

Let's talk about what's happening over at HSBC.

The bank's CEO, Quinn says he's pushing to improve the bank's wealth management

capabilities in China and in India. So they're just as strong as in its home

market. He spoke exclusively to Bloomberg's

David English earlier as the bank hosts its first global investment summit,

which is taking place in Hong Kong. In 2023, the performance of our wealth

and personal banking business here in Hong Kong, we saw significant customer

acquisition growth, right? We also saw around about a 50% growth in

our insurance and wealth business. In terms of the new business, they were

rising last year. So the fact facts saw wealth management

is continuing to develop and grow here in Hong Kong.

The liquidity base here in Hong Kong today is higher than pre-COVID levels.

So I still see Hong Kong as a vibrant financial centre of capital.

Markets are subdued at the moment, but that's a function of still coming out of

COVID economies waiting to recover when inflation and interest rates do right.

But we've seen some early signs of the debt capital market starting to pick up

as well. So the facts, I think, support the fact

that Hong Kong still is a vibrant financial market right now.

The I know you're set to report your first quarter earnings in a couple of

weeks, so you can get the details as well.

But we just wrapped up, of course, the calendar quarter.

If you could also indulge as how do you think the quarter went for you guys this

fall, 2023, when extremely well over $30 billion in profit record recorded a

record profit? And that's a culmination of the hard

work of our colleagues over the past four and a half years and also the

loyalty of our customers. And they've been very supportive of HSBC

as we went through COVID and transition. Our return, our returns were the best

for over ten years, and our dividend of $0.61 was the best dividend for 15

years. So I was really pleased with the

performance. We never complacent.

We're making sure that we're well positioned for the future and we're

continuing to invest in the business. We're investing in wealth management

here in Asia. We've done a number of acquisitions to

do that. All right.

The most recent one that we announced was the acquisition of the Citibank

Wealth Management business in mainland China.

We bought an insurance business of AXA in Singapore and we bought an asset

management business in India. And again, just to put it into context,

every region performed well last year and every business loan in India, we

made over one and a half billion dollars profit.

If you put Bocom and our own shareholding of our own bank in China,

we made over three and a half billion dollar profit, so well distributed

profit across the world and all parts of the bank doing extremely well.

We've done some reporting on your plans around your assets in Germany.

I was wondering if you could comment on what your plans are for this year.

We remain absolutely committed to being an international wholesale bank across

all of Europe, including in Germany. So there's no change to that.

Okay. So those are not for sale.

Those are not for sale. We have some business lines in Germany

that are non-essential to intra international wholesale banking, and

we're considering options for those. And that's what the rumor and the

speculation was. Right.

But but that is not about our international wholesale banking

proposition or corporate banking proposition in Germany.

Thank you for clarifying assets in Russia.

I know the bank has also been looking at that.

If you could give us an update on whether those are actually up for sale

and when you want those. Well, we have a price tag for it.

We have regulatory approval to sell that business.

We go through the final stages of trying to close our transaction, but it is our

intention to sell the business. We have regulatory approval on it.

We're in the close. We're in the process of trying to close

that transaction. That was, of course, the HSBC CEO, David

Quinn, speaking to Bloomberg exclusively at the bank's Global Investment Summit,

which is currently taking place in Hong Kong.

Let's focus more on the kind of the India China story.

So India is very much the subject of today's big take.

The nation vying to take China's crown as the engine for global growth.

This is foreign investment floods into the nation and this government lines up

a number of new trade deals. Let's dig into this story a little bit

more. Bloomberg economy and government

reporter arnab roy joins us now. Let's talk about how far we are away

from that kind of that that story where where India is the most important part

of the global economy, that it supersedes China.

In what way does that happen? How does that happen?

What are the kind of the levers that are being pulled to make that happen?

So India contributes to about 16% of all GDP growth now, and China contributes to

about 34%. But China is decelerating and India is

growing rapidly. It is the fastest growing major economy

in the world. So from 7 to 8% now, if India can grow

at 9 to 10%, which is not impossible for a country like India, because it is it

is growing at close to 9% in the past. The estimate by Bloomberg Economics is

that by 2028, India can be as important as China in its contribution to global

growth. So and in worst case scenario, even

India maintains this kind of growth rate.

Then probably India will catch up with China as the most import as one of the

most important global growth drivers equating with China by 2037.

What is it that you need to do to make that happen?

What does it need to do with its population?

What does it need to do with its infrastructure?

Yep. So India needs to do a couple of things

right To do that, to sustain that kind of growth and then needs to scale up its

population and that areas to focus on urbanization because a lot of people

will have to be shifted from agriculture to manufacturing and service sector.

For that you need to house them in urban areas, you need to give them housing,

and that is essentially building up infrastructure for for this kind of

workforce that you will be needing and then to skill them urbanization and you

need to ramp up the infrastructure. And then finally, you need to bring a

lot of manufacturing companies really to, you know, provide the jobs for this

kind of population. And the continuing jobs right now in

many jobs or gig economy kind of work. But you need more sustainable long term

kind of group. There's a lot of trade deals being

negotiated at the moment. How important will they be?

You talk about access to the rest of the global economy.

How important will the will of Modi trade deals be?

The trade deals are very important. If if one country has to be one of the

global growth drivers or a major player in the you know, in the in the world,

then it has to, you know, agree with with several of its trading partners on

trade deals, trade terms that, you know, are equal to both interest.

You know, India is doing doing good on that part.

It has signed a trade deal with the European

small market, the European market recently, and it is in talks with the UK

for a trade deal that may happen soon. And then it is also in talks with Dubai

and other markets, too, you know, with Australia.

So those trade deals are coming, you know, and falling into place.

And then these are these are very important.

If if India has to be one of the global growth drivers and it is happening

and we're going to watch this space very carefully and abroad.

Thank you very much indeed, joining us from Mumbai on today's big take.

Coming up, it's not a big take. It's a big week for central banks.

We could look ahead to the US CPI data, which is going to inform us a great deal

about what the Fed does next, of course, is the ECB decision on Thursday.

And we get this big report from Ben Bernanke on the Bank of England and it's

forecasting. We'll talk about all of this next.

This is Bloomberg.

So Wednesday US CPI Thursday ECB got a strong jobs number Friday.

Which of these two are going to bring us bring us the biggest surprise let's find

out public opinion. Marcus Ashworth joins us now.

Marcus, which one are you watching? Feels like the ECB is just going to tell

us that June is going to probably deliver a rate cut, but there's a signal

potentially beyond that and a hold CPI print.

What does that do to the market? Yeah, well, I think they actually the

CPI print in the states to be quite mild to give a core number, it could be as

low as 0.2, which may take some of the heat out of the recent chat that there

is not enough progress we've had both in Europe and in the US.

January February was a little higher than people had had hoped for because

there was such great improvement. Most of 23.

The downward target actually from inflation.

But we've seen in Europe and I think we'll see in the UK that that that trend

carrying on. But in the US we cannot say that yet.

So obviously we're waiting for Wednesday if it's a better than expected, which

I'm hoping for that particular core number there, maybe you might get a

little bit of heat out of out of US yields.

You're right to mention the ECB on Thursday I had written that it should be

on the our agenda to cut rates. However, I am a realist.

Yeah and I, I don't think it's very likely at all that they will actually

pre-emptively cut here in April. I hope they do for their own sake.

Okay, I suspect it. This decision by Treasury sort of second

in more detail. There's a lot of supply coming through.

There's a lot of sort of credit supply coming through as well.

People are talking about four and a half or ten people are talking about five on

a ten. Do you think investors are being paid

enough right now in terms of yield? Yes, I do.

I do. I think that's why credit spreads are

doing so well and investors are enjoying this, that they are sitting back for

once and now at some point in 2024. But they are going to have a very nice

time because yields will start to come down because central banks will will

have to cut rates. And Powell has made that very clear.

You know, it doesn't necessarily mean that a strong payroll number means they

won't cut. They will still cap.

You know, monetary conditions are tight and getting tighter.

The longer rates stay where they are. I think that's what people don't fully

appreciate. But if the Fed cuts by two or three

times this year, let me bring them out or keep monetary conditions at the same

level. And I think that particularly in Europe

and U.K., they need to get ahead of it. The luxury that the Fed has is time.

And so I still think they'll they'll cut in June.

But obviously the numbers continue to be less pleasing than there is a chance.

Marcus, great stuff. Thank you very much indeed.

That wraps up this show. The brief is next.

This is Bloomberg.