Bloomberg Daybreak: Europe 04/12/2024
Summary
TLDRThe script discusses various financial and geopolitical topics, including the rebound in the U.S. stock market, Apple's plans for a new AI-powered chip, the ECB's monetary policy direction, and the earnings focus on Wall Street banks. Additionally, it covers the South China Sea tensions involving China, the Philippines, and the U.S., as well as the Ukraine war's impact on military defenses and aid discussions. The script also touches on the electric vehicle market's growth, the sustainability of EVs, and the upcoming review of the Bank of England's forecasting models by former Fed Chair Ben Bernanke.
Takeaways
- đ The U.S. stock market is seeing a rebound, with Apple revealing plans for a new in-house AI-powered chip.
- đč Monetary policy traders have repriced the ECB, anticipating a rate cut before the Federal Reserve, despite Christine Lagarde's insistence that the ECB is independent.
- đŠ Wall Street bank earnings are in focus, with JPMorgan, Citigroup, and Wells Fargo all set to report.
- đ Asian stocks are trading mixed, with Japan's equities firmer due to real estate and construction sectors, while China's Hang Seng index approaches a critical threshold.
- đŁïž The ECB confirmed it will cut rates at its next meeting in June, with an 84% chance priced into the markets, following a contested decision to hold rates.
- đŒ Apple's shares closed higher after a report on its plans to overhaul its Mac lineup with a focus on in-house chips, potentially enhancing its position in the AI market.
- đ Electric vehicle (EV) sales are expected to slow down this year, but this doesn't mean a halt in growth, with challenges like infrastructure and affordability impacting the pace of adoption.
- đ The UK GDP figures are anticipated to show a flat reading, but any growth is seen as a positive sign after the recent recession.
- đ Former Fed Chair Ben Bernanke is set to release a review of the Bank of England's forecasting models, potentially suggesting a shift towards scenarios over fan charts for better communication.
- đ€ The U.S., Japan, and the Philippines commit to a free and open Indo-Pacific, addressing tensions in the South China Sea and China's growing influence.
Q & A
What is the main theme of the Daybreak Europe discussion?
-The main theme of the Daybreak Europe discussion is the current economic and financial updates, with a focus on the rebound in the U.S. stock market, Apple's new in-house AI powered chip, ECB's monetary policy, and Wall Street bank earnings.
What is Apple planning to unveil according to the transcript?
-Apple is planning to unveil plans for a new in-house, AI powered chip.
How does the ECB intend to approach interest rates according to the transcript?
-The ECB is repricing its interest rates, putting it on track to cut before the Federal Reserve. However, ECB President Christine Lagarde insists that the ECB does not take cues from across the Atlantic and will make decisions based on their own economic data and projections.
What is the current status of the Wall Street banks' earnings?
-The earnings of Wall Street banks such as JPMorgan, Citi, and Wells Fargo are currently in focus, with these banks set to report their earnings.
What is the significance of the UK GDP figures mentioned in the transcript?
-The UK GDP figures are significant as they provide insight into the health of the UK economy. The consensus is expecting a modest growth of 0.1 percent, which would confirm that the UK economy has returned to growth in the first quarter of the year after the recent recession.
What is the expectation for electric vehicle (EV) sales in 2024 according to the Bloomberg NRF forecast?
-Bloomberg NRF expects 16.7 million electric vehicles to be sold worldwide in 2024, which is 22% higher than 2023 but marks a slowdown from the 30% jump seen in the previous year.
What are the key challenges in the global EV market as discussed in the transcript?
-The key challenges in the global EV market include high infrastructure and battery costs, supplies, and affordability issues which are making the adoption pace slower than initially anticipated.
What is the current situation in the bond market as discussed in the transcript?
-The bond market is seeing interesting volatility with the ten-year yield at 4.57%, down about a basis point in the morning but sustainably above the 4.5% level, indicating a potential 5% on the horizon.
What is the current state of Asian stocks as mentioned in the transcript?
-Asian stocks are trading a bit mixed, with Japan equities being on the firmer side, especially the real estate sector, while other markets like Hong Kong and China are still on watch for data and GDP numbers.
What is the update on the South China Sea situation as per the transcript?
-The U.S., Japan, and the Philippines have committed to a free and open Indo-Pacific in response to increasingly assertive Chinese actions in disputed waters. This comes after a summit between the three countries' leaders.
What is the potential impact of the ECB's monetary policy on the European currencies?
-The European currencies are starting to crack but it is still very much a dollar story driving it. The ECB's decision to potentially cut rates before the Federal Reserve could have significant impacts on the currency markets.
Outlines
đ Daybreak Europe: Market and Corporate Updates
The script begins with Kriti Gupta introducing the Daybreak Europe segment, highlighting key market and corporate updates. The discussion includes the rebound in the U.S. stock market, Apple's plans for a new AI-powered chip, monetary policy traders repricing the ECB, and Wall Street bank earnings, with specific focus on JPMorgan, Citi, and Wells Fargo. Additionally, the market's reaction to the ECB's potential rate cut is explored, as well as the Asian market's mixed performance and the yen's steady performance.
đŠ ECB's Rate Strategy and Divergence within the Governing Council
This paragraph delves into the European Central Bank's (ECB) potential front-running of the Federal Reserve's strategy and the implications of the first rate cut. The conversation with Bloomberg's Diana Randall discusses the ECB President's open stance on future rate decisions, the bank's data-dependent approach, and the varying opinions within the Governing Council on the urgency of rate cuts. The discussion also touches on the euro zone economy's weak state and the need for confidence in the inflation path.
đĄ Apple's AI-Powered Chip and its Impact on the Tech Landscape
The segment focuses on Apple's plans to revamp its Mac lineup with a new in-house M4 chip capable of handling advanced AI capabilities. Bloomberg's Peter Ekstrom emphasizes the significance of this move in the context of Apple's competition with Microsoft and Alphabet in the AI space. The discussion also covers the potential impact on Apple's market performance, the sluggish sales of Apple computers, and the challenges faced by Apple in the Chinese market due to local competition and government restrictions.
đ Geopolitical Tensions in the South China Sea
The paragraph discusses the geopolitical tensions in the South China Sea, with a focus on the U.S., Japan, and the Philippines' commitment to a free and open Indo-Pacific following their summit. Bloomberg's Isabel Reynolds in Tokyo provides insights into the Philippines' needs regarding the South China Sea, the potential changes for the country post-summit, and China's reaction to the two-way summit between the U.S. and Japan. The conversation also highlights the importance of the South China Sea for trade and the potential for future trilateral talks involving Japan, South Korea, and China.
đŁïž Challenges in the Global Electric Vehicle Market
This segment addresses the challenges in the global electric vehicle (EV) market, with a focus on the slower growth rates in EV sales. Alexandra O'Donovan, head of Bloomberg's Electric Vehicles team, discusses the reasons behind the slowdown, the sustainability of EVs, and the lifecycle CO2 emissions comparison between electric and combustion cars. The conversation also touches on the potential for future growth in emerging markets like India and Thailand.
đ Market Analysis and Central Bank Divergence
The final paragraph provides a market analysis with a focus on the UK GDP figures, the release of former Fed Chair Ben Bernanke's review of the Bank of England's forecasting models, and the potential changes in central bank communication strategies. The discussion with Michael Saunders, a former member of the Bank of England's Monetary Policy Committee, explores the use of scenarios versus fan charts, the challenges of forecasting in the face of unforeseen events, and the need for regular reviews to ensure best practices in central banking.
Mindmap
Keywords
đĄDaybreak Europe
đĄAI powered chip
đĄMonetary policy
đĄWall Street banks
đĄGeopolitical developments
đĄCorporate earnings
đĄBond market
đĄStock market rebound
đĄYield
đĄAsian markets
Highlights
The Magnificent Seven driving a rebound in the U.S. stock market
Apple unveiling plans for a new in-house, AI powered chip
Monetary policy traders reprice the ECB, putting it on track to cut before the Federal Reserve
Christine Lagarde insisting that the ECB does not take cues from across the Atlantic
Wall Street bank earnings are in focus with JPMorgan, Citi, Wells Fargo all set to report
Euro Stoxx 50 features higher by about 6/10 of 1%
The S&P futures story with the US not seeing as much green on the screen
The bond market and interest rate differentials becoming more important in trade
Asian stocks trading mixed with Japan equities on the firmer side
The Hang Seng index approaching the 17,000 threshold
ECB confirmed that it's going to be cutting rates at its next meeting in June
Apple shares closed sharply higher after a report on overhauling its entire Mac lineup with a focus on in-house chips
The UK economy expected to return to growth in the first quarter of the year after the recession
Former Fed Chair Ben Bernanke set to unveil his review of the Bank of England's forecasting models
The U.S., Japan, and the Philippines committing to a free and open Indo-Pacific amid growing Chinese influence
Russia destroying Ukraine's largest power plant and attacking gas storage facilities
Electric vehicle sales expected to slow down this year but slow growth doesn't mean no growth
Transcripts
Good morning and welcome to Daybreak Europe.
I'm Kriti Gupta in London, let's get to the stories that set your agenda.
The Magnificent Seven driving a rebound in U.S.
stocks. Apple unveiling plans for a new in-house
AI powered chip. Meanwhile, monetary policy traders
repriced the ECB, putting it on track to cut before the Federal Reserve.
Christine Lagarde insisting that the ECB does not take cues from across the
Atlantic. Plus, in the corporate space, Wall
Street bank earnings are in focus. JPMorgan, Citi, Wells Fargo, all set to
report today. It is Friday.
We're ready for the weekend, but there are still plenty to digest in the next
24 hours. A quick check on those markets.
When you look at the futures picture, you are seeing it broadly positive on
this side of the Atlantic. Euro stoxx 50 features higher by about
6/10 of 1%. Even the flirting 100.
Seeing some green on the screen higher this morning higher by about 4/10 of 1%
is that however pricing in that full story of the ECB actually cutting is
that a positive rate story. At the end of the day though, the S&P
futures story, the US not seeing as much green on the screen despite that massive
rebound that you saw in the US tech space in particular.
You usually would see the Asian or European traders would hop on that
trade. They are not.
This morning when you look at the futures, because that's your equity
story. Let's talk about cross acid, though,
because the bond market matters more and more now, now that we have these
interest rate differentials really coming to the forefront of the trade,
you are looking at 457 on the ten year yield down about a basis point this
morning. But still, the fact that we are
sustainably above that 450 level, to me I think that's crucial is 5% on the
horizon. We're going to dive into that throughout
the rest of the show. Affects though, gets interesting.
You see this volatility in the bond market.
You're not necessarily seeing it in fact 107 13 on Eurodollar 125 on cable,
you're starting to see the European currencies crack, but still really a
dollar story driving it. And I would argue the dollar story
driving the commodity space as well. Brent crude trading at a nine to handle
it kind of stuck there only higher by 6/10 of 1%.
That is your cross. That's a story.
Want to get a quick check on how those Asian markets are faring.
Tonya Chen, who is from Hong Kong, she is all over that story.
Tonya, walk us through it. Hey, good morning and happy Friday.
Yeah. So Asian stocks are trading a bit mixed
today. I'm going to take you into Japan first.
Japan equities are a bit on the firmer side, really helped by this real estate
sector. It's surging.
We've seen some companies out there announcing buybacks, is also seen some
companies talking about cutting strategic strategic holdings.
So that's really boosting investor sentiment there.
Also, the construction names in Japan are also giving this a lift.
The government's been obviously handing out a lot of support to projects around
chipmakers and semiconductor factories. Another kind of company to flag in
Japan, fast retailing, the operator behind Uniqlo.
They did report an operating miss due to mis weakening sales in China.
And so we might see a slump continuing there as they're trying to shift their
key market. So to you over there in Europe.
And also a quick mention on the yen there.
I think we're steady now around 153. It had continued to weaken over the past
week. And there the traders there are really
on this yen intervention watch. Just something really interesting to
note because JGB is also posting their worst session this time this week.
And last year we had seen officials really coming in and doing a lot of
intervention, especially when we saw the yield nearing that 1%.
And we're really not getting much of a squeak in Japan this time around.
Just flipping to the next board, I'm going to take you into China equities.
We're still on watch for some data out of China trade data loan growth data.
All of this could be due some time today.
And next week we'll have GDP numbers as well.
The Hang Seng index is kind of getting close to the 17,000 threshold, which
would really send a negative signal to local equities here.
I'm also going to mention to some currencies on the board of the Korean
one was weaker earlier today as well. The Bank of Korea deciding to keep
policy settings steady. They're really going to keep an eye on
inflation. But the one there is, as you saying,
weakening kind of on that strong dollar. Singaporean dollar also kind of steady
now. Earlier, they had a central bank
decision as well. Tiny town in Hong Kong walking us
through the major story we need to know coming up.
Asia, we thank you so much for bringing us that report this morning.
We go from Asia to right back here in Europe, where the ECB has basically
confirmed that's going to be cutting rate at its next meeting in June, seeing
an 84% chance of that priced into the markets.
It comes after the central bank held rates yesterday in a contested decision.
The dynamics of underlying inflation and the strength of monetary policy
transmission were to further increase our confidence that inflation is
converging to our target in the same manner, it would be appropriate to
reduce the current level of monetary policy restriction.
Joining us now is Bloomberg's Diana Randall.
She is, of course, covering the ECB very closely.
And a pleasure to have you on the program this morning.
When we talk about the ECB perhaps front running the Federal Reserve, what does
that kind of mean in terms of strategy after that first rate cut, if we get
that happen in June? Is that just setting it up, setting up
the stage for rate cuts every meeting onwards?
How is the ECB thinking about it? It's an excellent question, and I'm
afraid I'm not having an answer for you just yet.
The president really left all her options open.
We heard it in the clip. She said if confidence in the in the
inflation path toward 2% increases, then the ECB can can remove some of that
restriction. But she also said policymakers are not
pre committed. They will continue to look at the data
and see how it comes in. And of course, we get the next
projections in June that will tell us a lot and
that everybody expects to form the basis for that first cut.
What happens after is very unclear. I mean, the projections so far, the
March ones, they are built on assumptions that the ECB would be
cutting interest rates by about 100 basis points this year.
If strictly speaking, if you want those projections to materialize, then that's
the kind of easing you have to deliver. But of course, things change and things
happen. So the ECB said, Angela can't stress
that very, very clearly. They will look at the data, they will
see how it how it pans out and then they will take their decisions.
And of course, what happens in the U.S., what happens at the Fed will play a
role. She she was you know, she found quite
quite nuanced language there yesterday on how the ECB
is affected by those decisions and by economic trends across the Atlantic.
Youknow, you know, 24 hours ago, you were on our show with us talking about
this idea that maybe the markets could be getting ahead of themselves.
Maybe a cut didn't need to happen at yesterday's meeting.
Now we're starting to see that actually the members of the ECB itself, some of
them actually said there might be a need for it.
Walk us through some of the divergences within the ECB itself.
Yeah. I mean, we knew going into the meeting
that there were a few Governing Council members who hadn't excluded moving in
April, knowing that they probably wouldn't have a majority.
So arriving at the ECB, there was a group of people that that thought, let's
talk about it. And, you know, if I if I had to say, I
would favor going early. And they're, of course, referring to an
extremely weak euro zone economy where, yeah,
manufacturing is still is still shrinking, where confidence is really
just inching up, where demand for for corporate or corporate loan demand is is
really disappointing, which of course means
prospects for investments are very low, where inflation, for example, is falling
faster than expected for four months now.
So they saw room to to already start moving.
But the large majority of Governing Council members said, no,
let's wait for the data. We said we would be data dependent, so
let's let's look at it. So there were a few that took a while
longer to to convince. But ultimately the president said as
well, everybody rallied around that consensus setting up June.
Yeah. So, you know, it it would take a lot for
that for that move not to happen. Bloomberg's Diana Randall walking us
through the dynamics over at the ECB, potentially marking the start of a
historic next couple of months on the continent.
I'm very excited about monetary policy all of a sudden on this continent.
We thank you so much for joining the program.
And of course, as we're having that conversation, we have headlines crossing
here from the ECB Governing Council member Kazak speaking on TV3 channel,
kind of reiterating what Joanna was just talking about.
I think they will cut in June if nothing surprising happens.
Still talking about very strong wage growth and at a moment for a rate cut is
near that the data will indeed be clearer in June.
You are seeing some weakness in the euro and not necessarily off the back of that
because that trend was kind of already in place, but certainly one that we're
going to be keeping an eye on as we see more of perhaps a read through into the
bond market. We go from the macro in the monetary
policy to a little bit of the micro run. The major stories we're watching from
around the world. Apple shares closed sharply higher after
a Bloomberg report that the tech giant is preparing to overhaul its entire Mac
lineup with a focused in-house chips. More on that scoop.
Let's bring in Bloomberg's Peter Ekstrom.
Peter, this is a very big deal for a variety of reasons.
One simply being that when we talk about the high momentum story and the trade
there, Microsoft Alphabet, Amazon have all kind of dip their toe into the AI
story. Microsoft perhaps leading the pack
there. Apple has been noticeably left behind.
Does this change the game? Well, I think so.
The news here is really that we're getting a new lineup of Mac computers.
And they're not just Mac computers, they're iMacs from Apple.
And everybody seems pretty excited about that.
It seems like Apple is taking this very seriously at this point.
As you mentioned, they have been a step behind on some of these new technologies
with Openai charging ahead with Jackie Beattie and Microsoft also making a lot
of progress. So what we're seeing now is that Apple
is planning to introduce a new M4 chip, a processor that will be able to handle
a lot of those capabilities more smoothly than the chips that they've
done in the past. Apple, for for a few years more than a
decade, has been designing its own silicon to be able to take full
advantage of the software that they've got and other capabilities.
Now, artificial intelligence is going to be a priority.
This is a very fast refresh of the Mac lineup.
They introduced the last lineup of Macs just in October.
This was with the M3 chip. And so by the end of this year, we're
going to start to see these new computers come out, the MacBooks come
out with AM4 chip that will be able to handle some of these AI capabilities.
As you mentioned, investors have been quite excited about this.
Apple shares are up 4.3%. The shares have been a little bit
sluggish of late. And also, you saw a bunch of their
suppliers here in Asia also make some gains.
That's partly because sales of these computers have been slow.
There's been a drop off in the last fiscal year.
We saw Apple computer sales drop 27%, which is
pretty sharp. That's led to some of these problems
with the stock over the recent months in particular.
And now it seems like there's some hope that they'll be able to refresh the
lineup with the products they have and then spark more demand.
Well, speaking of the sparking demand, Peter, it's perfect that you're based
out in Asia because one of the clearly weak spots of that demand story has been
in China. It's also arguably been in the emerging
markets that Samsung has really taken a big chunk of market share from there.
Could this help appeal to that customer? Yeah.
I mean, they're apple cells, of course, a big lineup of products.
By far the most important product for them is the iPhone.
And the softness I think you're referring to is their struggles in
making sure that their iPhone sales continue to gain a lot of momentum.
They're, of course, right at the top of the market, the premium price product
out there in China in particular. They've had some struggles over the past
year, partly as Bloomberg has reported, there's a government ban on using
iPhones in a number of different markets.
Also because Weiwei has come back into the market in addition to Samsung, which
has long been a very formidable competitor, Weiwei is coming back into
the smartphone market in China. It's the second biggest market for Apple
after the United States, and that's created quite a few problems.
So this new lineup of Macs with with the M4 chips is likely to help on the
computer side of the equation. But they still have some challenges on
the smartphone or smartphone side of the of the house.
All right. Bloomberg's Peter Al from walking us
through the Bloomberg scoop. We thank you so much.
Does this change the game from Apple? And of course, granny, keep an eye on
how they trade in today's session, whether or not they actually lead the
pack. Again, when it comes to the US stock
story, that's just one of the things we're going to be watching in the day.
Had this plenty of macroeconomic data that we're going to be keeping an eye on
at 7 a.m. UK time.
We do get those GDP numbers. We'll be breaking those live on markets
today. Talking to us about the health of the UK
economy. Is there early signs of stagnation?
That data coming out at about 7 a.m. UK time and then 12 p.m.
UK time. We get that highly anticipated report
from Ben Bernanke, the former Fed chair who has been asked to talk about how the
be a we can really work on their forecasting story.
Do we get some sort of scenarios push as opposed to the current fan charts?
What does that his recommendations or options actually look like?
We'll be diving into that throughout this show in just a couple of minutes, I
think as well, with a really great tax report coming out about 12 p.m.
UK time. And then the focus goes into corporate
America, but specifically those Wall Street banks, Citigroup, Wells Fargo, Jp
morgan, kicking off the earnings story there when we're talking about the rate
cycle potentially ending, does that mean peak margins for a lot of these banks?
We're in a dive into all of it. But coming up on this program, we talk
geopolitics. President Joe Biden vows to back Japan
and the Philippines amid growing Chinese influence in the South China Sea.
We'll have more on the joint summit next and why you should care if you're an
investor. Plus, as I just mentioned, former Fed
chief Ben Bernanke set to unveil his review of the body's forecasting models
today. Michael Saunders weighs in.
The former member of the body's monetary Policy committee coming up at 6:40 a.m.
London Times interview You do not want to miss.
Stick with us. This is Bloomberg.
Welcome back to Bloomberg Daybreak Europe.
I'm critic Gupta in London. The U.S., Japan and the Philippines say
they are committed to a free and open Indo-Pacific.
The statement comes after a summit between the three countries leaders
following increasingly assertive Chinese actions in disputed waters.
Let's bring in Bloomberg's Isabel Reynolds in Tokyo.
Isabel, a pleasure to have you on the program.
This is a story we've been watching, of course, as the two leaders, first, Japan
and the United States meet, now bring in the Philippines as well.
Can you walk us through the kind of the needs that Philippines has right now
when it comes to the South China Sea? How does the summit change the game for
that country? Right?
Well, I think that the overall message from the summit was very much that
President Biden came out with this iron clad so-called commitment to the two
allies in Asia, two of the most important allies that the US has in
Asia. And the reason I think that he's doing
that now is partly because we've seen this huge rise, an escalation in
tensions in the South China Sea recently.
We've seen the Chinese Coast Guard fire water cannons on Philippine ships.
So it's clearly becoming a situation where people can actually be injured or
possibly even killed. And that's something that I think all
three countries want to definitely calm down.
Not only does Japan also have its own separate territorial dispute with China,
but is also concerned about the South China Sea as a waterway, as a massive
trading nation. It wants to be part of this effort to
keep the peace there, keep law and order there so that its economy can keep
ticking over as normal. And it comes, of course, at a time when
the U.S. in particular has a naval presence in
the Philippines as well. But of course, has a very a real lack of
funding when it comes to Pacific Command.
If you see South China Sea, the situation there increase or ratchet up
even further. The U.S.
is kind of out of luck in a lot of ways. How was China reacted to this when we
see this rhetoric coming out of the summit?
Right. We haven't actually seen a reaction yet
to the three way summit, but the reaction certainly to the two way summit
to the bilateral summit yesterday, there was a statement that came out afterwards
condemning China's actions in the South China Sea as dangerous and escalatory.
And the reaction from the Ministry of Foreign Affairs in China was not happy
at all. They made formal complaints both to the
US and to Japan about that and said that this relationship should not be
something that is targeting another nation and should not be harming another
nation. So they're clearly not happy about that.
But on the other hand, we also have reports that next month we'll see a
trilateral summit between Japan, South Korea and China in Seoul.
So there's a possibility that things can be slightly patched up despite all these
military tensions in the region. China does remain a very important
trading partner for everybody in the region.
So I think everyone wants to see the tensions come down as far as possible.
It's a really fascinating story. And it comes with not only the military
tensions, but, of course, the security in terms of cybersecurity and chip
security all come up ahead of a crucial election cycle in the United States.
Bloomberg's Isabel Reynolds, our Tokyo bureau chief, we thank you so much for
that crucial context. This morning, we go to the latest now in
the Ukraine war, where Russia has destroyed the key region's largest power
plant and attacked gas storage facilities.
The assault adds to concerns that Ukraine's military defenses are near a
breaking point. Western officials say that Kiev is at
its most fragile moment in over two years of war due to a dire shortage of
ammunition and manpower. It comes as the United States lawmakers
continue to argue over a $60 billion aid package.
Meanwhile, the European Union moving towards unlocking additional aid of
almost âŹ2 billion to the war torn nation.
Now, off, of course, that news coming out of the power plant.
We saw a massive move in it. European gas up to 8% in yesterday's
session. We haven't seen the European gas story
open this session just yet. We'll be interesting to see if that
continues as we, of course, wait to see what the supply chain impacts are and
whether or not they spread broadly into the market or if this was simply a one
off. And of course, sticking with the
commodity picture, I want to get to quick check on oil as well, because we
are keeping a very close eye on the Middle Eastern tensions as well.
What does an Iranian response to some Israeli hostilities in Damascus actually
look like? We've seen Biden and his allies around
the world really push back against Iranian response altogether.
Nevertheless, that could mean supply dynamics are in play.
Brent crude trading at a 90 handle, not really pricing in that risk, but that,
of course, may change as we get headlines.
85 handle on nine months crude both higher in the green, probably in line
with some of the risk sentiment we're seeing in futures at the moment.
Coming up on the program, electric vehicle sales are expected to slow down
this year, but slow growth doesn't mean no growth.
We'll be looking at what's knocked consumer confidence in the EV market
next. Stick with us.
This is Bloomberg.
In terms of the EVs, the growth is there in the market, perhaps at the consumer.
Moving into the EVs is at a slower pace than what some had dreamed about.
It's important to understand that the automotive space is not like Silicon
Valley in the sense that this is not a space where there's a winner take all
winner take all technology. Consumer gradually would be better
educated, but at the moment, infrastructure and a battery cost and
supplies and affordability, many, many are very high, harder for a customer to
purchase. So it is going to be a slow adoption
pace. Auto executives from around the world
speaking to us recently about the challenges in the global EV market.
We'll stick with that theme for our weekly deep dive into the green energy
transition. Bloomberg NRF expects 16.7 million
electric vehicles to be sold worldwide just this year.
Forecast is 22% higher than 2023, but still marks a slowdown from a 30% jump
that we saw last year. Now the numbers point to a bumpy road
for the industry over 2024. I want to get a little bit more on this
and bring in Alexandra O'Donovan, head of Bloomberg Electrical Vehicles team.
Alexandra, talk to us a little bit about this slowdown here.
Is this a one off or is this something that's actually going to play out with
perhaps more momentum or a bigger deceleration this year?
Well, you know, there has been a lot of those overly dramatic headlines in the
news in the past few months pointing to the slowdown to to the decline in EV
sales. But looking at January, February data so
far, those don't seem to support that thesis yet.
So what everyone is looking at, the big EV markets are China, Europe, the U.S.
and in those markets EV sales were for those first two months in the year still
up. So in China that's 48% up.
Europe 14%, U.S. 16% up.
There's also quite an interesting and exciting story developing around
emerging markets like India or Thailand, where sales are growing really fast.
So right now, if sales are not falling off the cliff yet, they're still up.
Well, talk to us then about the sustainability story actually in terms
of when it comes to things like input, for example, is the cleaner EV story
accurate? And the reason I ask that is because you
hear so much narratives about the actual technology, but it becomes cleaner now.
But in the longer term, lithium battery usage, etc.
may not actually be as sustainable as it seems at the moment.
What are your thoughts there? Well, actually, it's quite quite the
reverse. So it is already much cleaner than
petrol and diesel cars. A lot of that debate around the
lifecycle sustainability of electric cars stems from the fact that in the
manufacturing phase EVs are quite emission intensive and that's down to
the emission intensity of battery manufacturing process.
However, once on the road those electric cars actually are much cleaner and, you
know, gasoline and diesel cars become much more polluting very quickly.
And that's down to the use face emissions that gasoline cars are
associated with. So today, if you buy an electric car
today, drivers for 250,000 kilometres on average lifecycle CO2 emissions of those
cars are already up to 71% lower than comparable combustion cars.
And, you know, the good news is it still is set to get even better than that.
So as grids get greener and renewable electricity generation increases over
time, yeah, electric vehicles are becoming even cleaner.
Well, certainly something will be watching very, very closely.
Alexander O'Donovan, head of Bloomberg. Any electric vehicle team bringing us
that crucial story this morning. We want to hear from more of be an
analyst download the Switched on podcast on Apple, Spotify wherever you get your
podcasts. There is plenty more ahead.
We're going to go back to monetary policy.
It's a conversation you do not want to miss.
Stick with us. This is Bloomberg.
Good morning and welcome to DAYBREAK. Europe.
I'm Credit Gupta in London. Let's get to the top stories that set
your agenda. The Magnificent Seven driving a rebound
in the U.S. stock market with Apple unveiling plans
for a new in-house AI powered chip. Meanwhile, on the monetary policy front,
traders reprice the ECB, putting it on track to cut before the Federal Reserve.
Christine Lagarde insisting that Europe's central bank does not take cues
from across the Atlantic. Plus, in the corporate space, Wall
Street bank earnings are in focus. Jp morgan City, Wells Fargo, all set to
report today. There's a plenty to digest.
The next 24 hours. Do not check out for the weekend just
yet. In the meantime, I want to get a quick
check on these markets. You are seeing green on the screen.
When you look at the futures picture, here's that.
50 features higher by 7/10 of 1%, putting 100 right on its tail, bit
higher by about 4/10 of 1%. We're seeing a little bit of
complacency. A little bit of caution is going to be
in the U.S. market.
S&P futures 50 to 44 on those contracts unchanged this morning, despite the fact
you did see a rally in yesterday's trade, you were not seeing international
investors hop in or even follow through when it comes to the futures contracts
across. That's the story to me, though.
It's a little bit more interesting because we were talking about
complacency in the US market. What about complacency in the market,
especially when we're seeing a ten year yield at 456, a slight bit there, two
basis points lower on the yield, really not much action in the currency space.
107 on euro dollar, 125 on cable and Brent crude trading at a 90 handle.
Now all of this may actually change within just a few minutes.
We're going to have the latest UK GDP figures coming out at the top of the
hour. We're also looking ahead to today's
release of former Fed Chair Ben Bernanke's review of the Bank of
England's forecasting models. Plenty to discuss about how this
actually approaches or even changes the game for the body and investors that
watch it. And Indrani joins us this morning from
Bloomberg Economics. And a pleasure to have you on the
program as always. We'll start with the data.
First, these GDP figures, does it suggest any sort of early signs of
stagnation if we've kind of thrown recession, perhaps off the table, what
are we expecting? Hi, good morning.
So for this for today's data, we're actually expecting a flat reading of
GDP. Consensus is looking for a modest growth
of 0.1 percent. Readings are on these figures are not
might not sound that positive, but they're actually enough after January
stated they're actually enough to confirm that the UK economy has sort of
turned a page, turned the corner and has returned to growth in the first quarter
of the year after the recession that we had.
I think now the question for the UK economy is whether this sort of
recovery, is it just a rebound, a one off or is it sort of a lasting recovery,
number one? And number two, whether the recovery
will endanger the sort of inflation progress that we've seen so far.
And on the first one, we actually think that we're looking at the growth rate of
0.2 percent for the quarter, for the first quarter.
And we think that's what it will stay for the rest of the year.
There will be a lot of drivers sort of sustaining that growth by that growth
rate. And then then on the second question,
you know, it's it's a really good change.
It's it's a change from two years of stagnation into one year of points to
growth. It's it's going to change the picture
for the UK economy. But growth won't be as strong as to add
to inflationary pressures because it will still be sort of running below the
UK's supply growth at what we estimate as the UK supply growth.
It's a really interesting dynamic then because this is it feels like the early
signs of the fact that the UK is not even on the same path of forget the
United States, but even the ECB. It's kind of doing its own thing.
You now have three major central banks truly diverging in a true way.
Talk to us a little bit about this review coming from the former Fed chair,
Ben Bernanke. Perhaps the dismissal of fan charts that
catch such the ire of investors, but also talking about this idea of
scenarios. What are you looking for in the
strategies that he may recommend? So I think scenarios have been floated
around because it's one area that I think the embassy is open to change.
So the way that the NPC and the View communicates uncertainty around the
outlook is by the use of fan charts. But there's there's some arguments that,
you know, can be said about that. Scenarios are probably in the improve
the narrative and they're easier to understand in the sense that instead of
just presenting sort of a possible range of outcomes for inflation, you actually
tell the public how you could end up in those sort of extreme scenarios for
inflation. So they could improve a bit to the
narrative. But what we're looking for today and I
think what sort of the long standing challenge of the VOA, it's its
communication around the rate path and the fact that we're kind of left a bit
in the dark about where it thinks rates will head in the future.
And so Bernanke's big question is whether Bernanke will propose that the
bill shifts to producing its own interest rate for cuts.
So not something like the DOT plot, but maybe a path for interest rates that
it's backed by a model and added on judgment and that will improve
communications our jobs, I think massively so.
I think this is sort of the area we're looking for and more focused on maybe.
But he may be making an android his day a little bit easier, perhaps.
I will say the dot plots itself come with so much criticism as it is and
drawing from poorer economics with. Thank you so much for setting us up for
that review. Again, coming up at about 12 p.m.
UK time, I want to get a little bit more analysis here and bring in by someone
who's actually been in the room when these decisions are made.
Michael Saunders joins me this morning, former member of the Bank of England's
Monetary Policy Committee. Michael, a pleasure to have you on the
program. Thank you for waking up early for us.
I'd like to pick up where Anna just left off, this idea of scenarios, this idea
of perhaps communicating better from the body.
What is your view on it? Could this idea or this potential
recommendations of scenarios this if this happens, then do we get back this?
Do you think it would make that big of a difference?
I think it will be useful. The question here is how do you deal
with uncertainty around for central forecast At the moment, what the Bank of
England does is to publish a financial if they have a central forecast, which
is sort of a thick line in the middle of the chart, and then the relations of
colour gradually diminishing a density around that and getting wider as the
horizon goes forward to illustrate uncertainty around that central path.
The problem is this financial saw so wide by the end of the forecast that
they don't really serve much purpose. They sort of say, well, 2 to 3 years
out, almost anything could happen. I think scenarios have the advantage of
illustrating what might happen to the economy, inflation and interest rates,
if particular risks, which the Bank of England is focusing on, were to come
into play right now. You could think, for example, a scenario
might be on the upside sticky or pay growth, perhaps more persistent
inflation or higher for longer interest rate outlook.
Another downside, perhaps a weaker growth outlook which might lead to lower
inflation and a faster decline in interest rates.
It's a useful way of converting this rather vague sense of uncertainty, which
the Fed charts give into something much more coherent about how the major risks
might play out. Use that key phrase, how the major risks
may pan out. It's interesting because it's coming.
This review was initiated to begin with off this kind of miscommunication around
really black swan events that nobody saw coming, a pandemic supply chain shocks.
Not to mention the story you had in the gilt market as well.
I'm curious about what happens when you forecast certain scenarios, but you
can't accommodate all of them. Does that suggest or even set up to be a
week for some sort of lack of credibility or extra criticism around
being unprepared for the events that they can't see coming?
Well, no, I think that you would always have scenarios which are based on the
risks you see at the time. And then as the situation changes, you
might change the scenarios accordingly. You can imagine, for example, in early
2022 when Russia's invasion of Ukraine was just getting underway, you might at
that point have introduced a scenario which had a much bigger, a more extended
rise in energy prices and work through how that would affect the economy,
inflation and interest rates. I think that would have been a useful
exercise to show that and to make it clearer.
That's when you get a shock like that. The scale of the shock can have quite
significant effects on policy over a period.
And as I said at the moment, there's no there's not really any way of doing that
in the event chart mechanism. I should
come back to one other thing, though, that doing a review is not just a
response to criticism. Expert led external reviews of central
banks. I have to say to me that should be a
regular thing which Xi to the Central Bank of New Zealand does this an expert
led external review roughly every five years, and the expert led reviews
produce very important reports. The central bank then takes on adjusts
its behaviour where necessary. That's a source of continuous learning
process where you try to learn the lessons from your own experience and the
experience of other central banks. I do very much hope that people don't
view this as something which you only do because something's gone wrong.
It should just be a regular way, which the Bank of England and I would suggest
other central banks seek to ensure that what they're doing is always best
practice. And it makes a lot of sense of perhaps
setting a precedent for others to follow as well.
Michael, I'm curious about where this goes wrong, though.
Where does what are the limitations around these scenarios?
Could fiscal policy, for example, be one at a time when a Labor victory is
expected in the polls but may not be included in the body's kind of former
forecasts? Where do scenarios stop short?
Well, look, you have to recognize the limitations of any forecast that is
going to be based on certain assumptions, and those assumptions may
not hold. If the if the situation changes in some
major way, that's just the unavoidable limitations of any forecast.
So, Bew and also I'm sort of all external users should never take
forecasts as being a promise or as implying that the only possible outcomes
are those which are shown in the central forecasts or scenarios.
Forecasts are a useful tool. They're useful tools for policymakers to
think about what the policy choice should be and the useful tool to
communicate the central bank's monetary policy strategy to households,
businesses and financial markets. But of course, there are always
limitations. Michael talked to us then about how the
markets get involved here. I mean, there have been so many
criticisms, ironically, coming at Ben Bernanke for even inventing the dot plot
because of the way the markets use it, not as the way economists intended it to
be used. The repricing you're seeing around the
U.S. just this week alone has been largely
fed driven as opposed to driven by U.K. economics or U.K.
fundamentals at a time when the U.S. uses that market pricing or the market
expectations as a part of their policy. Where should markets play a role here?
Sad to say, but the advantage of having the market partner interest rates is you
can say there's a sort of consistency between the interest rate assumption and
other asset prices. The difficulty is that it leaves the PC
producing a forecast based on a market path to interest rates that they
themselves may not feel is very plausible.
So then the economic forecast is one that's, well, often some at times even
most PC members don't think is a reasonable central case for the economic
outlook. And so I'm not sure what the
message that those kind of forecasts are meant to convey.
I do think they need to shift and will shift to a system under which the PC
themselves are making a judgement on what they think is a reasonable path
through interest rates over the next three years and using that as an
ingredient in the macro forecast. So then you would have a forecast for
the economy, inflation, the interest rates that the PC themselves think is a
reasonable judgment. That I think would be better than the
current system of a forecast based on a market path which PC may not view as
terribly likely. Now, of course, a forecast based on the
MPC whose own preferred path to interest rates.
Would you still have the issue that that forecast path for interest rates would
change over time? Of course it would.
Forecast path interest rates is never a promise.
It's just the best collective judgment at that particular point.
And as the situation changes, that that forecast path of interest rates itself
might change. And you can see markets adapting to
economic news in the US currently producing a market path which is
different to the Fed dot's the Fed dot's with done a few weeks ago.
It's only reasonable that the market path should differ from the central
banks assumption in light of economic data that comes through.
I think you would want that to be the case.
It's interesting that you mention the U.S.
You went right where I wanted to go, which is the story of stickiness in the
United States. We are no longer seeing the three major
kind of central banks that we watched, the Fed, the BOE, the ECB, all on the
same path or even watching the same risks.
The stickiness, inflation, this persistence in American inflation.
Given that the U.S. is the UK's biggest trading partner,
what's the read through into the U.K.? Is there one?
Well, of course, the EU as a whole is a much more important trading partner for
the UK than the US's. But you're right to highlight that there
are divergences between the central banks.
They all had the same broad picture of a big rise in inflation and a marked
slowdown. But there are differences right now in
that inflation is falling quickly to target in the euro area, also falling
quickly to targets in the US and a little bit sticky.
So also falling quickly to target in the UK and a little bit stickier in the US.
The UK is going to back to 2% inflation. Well in the April figures, the figures
for this month which will get published in the middle of May and inflation
probably is below the 2% target in the rest of this quarter and probably also
in the second half of this year. So sticky inflation of the US I think
won't stop the Bank of England starting to cut interest rates in the next few
months. Probably not May.
I would say June is more likely. Interest rates won't be coming down
quickly, but I suspect they will be coming down.
All right, Michael Saunders, we have to leave it there, but we thank you so much
for joining the program this morning. This Michael Saunders there, the former
member of the HBOS Monetary Policy Committee.
We thank you again for your insights this morning.
Ahead, by the way, of that Bernanke review of the book.
Coming up at 12 p.m. UK time.
Coming up on this program. In the meantime, the biggest US bank
stocks have soared over the past six week months, but can they maintain that
momentum? That's one of the big questions this
earnings season. We're going to preview them next.
Stick with us. This is Bloomberg.
Berkshire Hathaway is an apt analogy in the sense that we look at a lot of
business models, why certain firms have been super successful over time, and
there are a lot of powerful messages in what Berkshire has built.
It's the power of long term ownership of assets, great businesses, the power of
compounding, and the real power of smart capital allocation within your business.
The co-CEO KKR there on why he's taking a cue from Berkshire Hathaway's business
model betting big on long term private equity ownership.
When I think Berkshire Hathaway, I immediately think the banks in the way
that Warren Buffett has really approached them.
Which brings us, of course, the perfect setup for investors gearing up for first
quarter earnings from the major U.S. banks, J.P.
Morgan, Bank of America, Citi, all reporting later today, and I should say
in the next couple of days as well. For more on this, I'm joined now by
Bloomberg's Jenny Serene Jenny. Let's start with the big one, Jp morgan
kicking off earnings season. They've kind of been the king of Wall
Street, obviously. Does that continue?
I mean, I think we probably won't see any diminishing of that, that fact today
at the very least. So I think what we're really looking for
these guys today is net interest income. So at the start of the year, they laid
out kind of what they think is going to happen.
You know, if you take yourself back to January, you remember that a lot of
these banks were kind of expecting rates to come down pretty quickly.
And so they were saying, you know, as a result, our net interest income was
going to come down. Three months on, that's definitely much
more of a debate than it was back in January.
It seems like we're definitely in this higher for a longer stage.
And so I think you'll see that in the way they talk about both the net
interest income they had in the first quarter, but also their outlook for the
rest of the year. It's interesting we talking about net
interest income because if we're pricing in these cuts, is this peak profits at
least for the cycle? And I'm curious if it shows up more in a
JPMorgan or more a Wells Fargo? I think so.
Those two are probably probably pretty equally exposed to the interest rate
risk side of things. So I imagine we'll be hearing a lot of
the same things out of Jamie Dimon that we hear out of Wells Fargo CEO Charlie
Scharf. And I really do think that, you know, if
rates stay higher for longer, then, yes, we'll be continuing to be in this kind
of peak profit mode. But I think that they're going to be
trying to really sell investors on and get investors ready for is when those
rates do start to come down. You know, if they come down super
quickly or even if they just kind of migrate down more slowly, that's when
we'll start to really see some pressure on the revenue side of things.
So definitely, I think the tone of today is not going to be a super upbeat one,
even if the results still look really strong given where rates are at right
now. And we're going to watch, of course,
Citigroup as well. But I really want to get to Morgan
Stanley because there was a probe announced in their wealth business in
just the last 24 hours. Can you walk us through why this is so
important? Yeah, no, I think that's it's
interesting. So The Wall Street Journal reported that
they're under investigation by a myriad of U.S.
regulators for any money laundering issues.
And this is something that you kind of see lurking all the time with these big
banks, as they're always kind of under investigation for different things.
AML is such a key key one, because this is when you get into things like
terrorism financing and things like that.
So that's why these regulators take it so, so seriously.
The penalties can be really big. The radiation is usually long and
arduous, expensive. So that's why I think you're seeing the
stock reaction in the Morgan Stanley stock the way it did.
It's just such a thorny issue. It's not likely to be one that can be
wrapped up super fast or or something that, you know, this new CEO, Ted Peck,
probably wants in his first few months on the job.
It's also interesting because their wealth business is one that they're
trying to really grow and really take kind of a lot of momentum with Bloomberg
merchants trying to leave it there. But she will be back in the next couple
of hours. We can't let her go.
We thank you so much for that crucial context.
Folks, there's plenty more ahead. We go back to the macro in just a few
minutes. Stick with us.
This is Bloomberg.
Well, it's a bit too kind of arrogant to say that the market is wrong, because
what is the market? The market is the total IQ of all the
people in the world. Right.
So. So that's a tough one.
I do I do think that inflation will be tough to get done.
There is more near shoring. We are seeing some well, we have
recently seen some some more pressure on raw materials.
Wage increases are quite high. So I suspect that we won't see the type
of rate cuts that many people expect and that reprises everything, including your
investments. Well, that's what you would have
thought, right? But the markets have been relatively
resilient on the back of changed interest rate expectations.
It's been a bit surprising to me. But is that because they still believe
it's a cut where actually we could see a hike?
Partly that. What do you see?
I mean, there's this US exceptionalism, which is what we're seeing in the US
economy, the inflation data, what the Fed does.
What have we gotten wrong on the US economy?
Well, the U.S. economy is actually pretty good,
certainly relative to Europe. Right.
And we see it as well when I'm when I have when I see US CEOs, they are just
seeing the the backdrop for doing business in America so much better than
than doing business in in Europe. So
a lot of things are going right in America.
The Nicholai Tanja and the CEO, Norges Bank investment manager, speaking to
Bloomberg's very own Francine Lacqua look what he says there.
The U.S. economy's pretty good.
Things are looking resilient and he sees that across the board.
So what does that mean in terms of the markets?
And for me, it's all about the yields, the bond market story, which brings me
to this chart we continue to see the story of is 5% on the horizon?
Why decide to do a little bit of history?
When was the last time we were at 5% on the US ten year yield?
Well, that brings me right back to really the fall where you start to see
this 5% level. If I were picture go with me here,
picture the US stock market overlay here.
Every single time we get closer and closer to that 5% level, we see a drop
in the stock market. That is the scary part.
The repricing you were seeing in the equity story, given that the bond market
momentum is actually increasing, that's what this is all about.
So where do we go from here? Because you're now not seeing that same
level, the momentum, I think steepness in yield here.
And that's where this part of the chart really matters.
You kind of think as gradual move up to that 5% level, but what are the key
technicals? And that's where these yellow lines
really make sense 5%, 4.7, these technical levels that bring us back to
the past in terms of moving where the bond market is actually going to go.
And that's going to be a crucial equation in terms of what is actually
getting priced in, not just for the Federal Reserve but for the body as
well. In the central bank pricing, largely
driven by the Federal Reserve as opposed to the fundamentals that you are seeing
across the board. And that's where this chart is really
handy. Look, it's all one line, despite the
fundamentals being very different by the three major central banks that we watch
around the world. That's going to be a major topic of
conversation coming up on markets today. This morning, we have plenty of big, big
guest that are going to weigh in on what the markets are getting right and what
they're getting wrong. We have an exclusive interview with
Jean-Claude Trichet, the former president of the ECB.
That coming up at about 715 UK time. Up next, markets today and Edward Guy
Johnson join me to take you through the European market open.
Stick with us. This is Bloomberg.
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