Yen Currency Intervention 'Futile', Says WisdomTree's Gupta | The Pulse with Francine Lacqua 04/29
Summary
TLDRThe transcript from Bloomberg's 'The Pulse' features a dynamic discussion on various economic and geopolitical matters. Key highlights include the yen's significant fluctuation, raising suspicions of potential intervention by authorities, and U.S. Secretary of State Antony Blinken's efforts to negotiate a truce in Gaza amidst ongoing tensions. The program also touches on Elon Musk's strategic visit to China, which yields positive results for Tesla as they overcome obstacles to introduce their driving system in the Chinese market. Additionally, there is a focus on the Federal Reserve's upcoming meeting and its implications for interest rates and inflation, the potential for BHP to improve its proposal for Anglo American following the rejection of their initial offer, and the impact of geopolitical events on oil prices and the broader market. The conversation provides a comprehensive overview of current economic indicators, market sentiments, and the interplay between global events and financial markets.
Takeaways
- 📉 The Japanese yen hit its lowest level against the dollar in 34 years, prompting speculation of possible intervention by Japanese authorities.
- 🤝 U.S. Secretary of State Antony Blinken is in the Middle East working to secure a truce in Gaza amid ongoing tensions.
- 🚗 Elon Musk's visit to China resulted in Tesla overcoming two significant hurdles, paving the way for the introduction of its driver assistance system in the Chinese market.
- 💸 There is potential market movement surrounding BHP's possible improved proposal for Anglo American after its initial $39 billion offer was rejected.
- 📈 Despite various global challenges, many sectors are reporting better-than-expected earnings, indicating underlying economic resilience.
- 🏦 Banks are a key focus as there's anticipation around net interest margins, which are down year on year but better than feared.
- 🛑 There's ongoing discussion about the potential delisting of Total Energies from France and a possible shift to list in New York, highlighting a broader trend among energy companies.
- 💭 Central banks are watching currency markets closely, with the Japanese central bank's potential intervention in the yen raising questions about the effectiveness of such moves.
- 🌍 Geopolitical risks are influencing markets, with a focus on developments in the Middle East and the potential for conflict escalation.
- 📊 Commodity prices, particularly oil and metals, are being influenced by supply constraints and demand concerns, reflecting broader economic trends.
- 🏢 Earnings season has been solid so far, with many companies in the S&P 500 exceeding expectations, which is notable at this point in the economic cycle.
Q & A
What is the significance of the yen's recent fluctuation to its weakest in 34 years?
-The yen's drop to its weakest level in 34 years has raised speculation that authorities may have intervened, which could impact financial markets and investor sentiment.
Why is the U.S. Secretary of State, Antony Blinken, stepping up efforts to secure a truce in Gaza?
-Antony Blinken is increasing efforts to secure a truce in Gaza due to the ongoing conflict between Israeli forces and Hamas, aiming to prevent further escalation and potential civilian casualties.
How is Elon Musk's visit to China benefiting Tesla?
-Elon Musk's visit to China has resulted in Tesla clearing two key hurdles, which will allow the company to introduce its driving system to the world's largest auto market, potentially boosting its revenue.
What is the potential impact of the Fed's upcoming meeting on the yen?
-The Fed's upcoming meeting could influence the yen's value, as any indication of higher U.S. interest rates could widen the interest rate differential between the U.S. and Japan, potentially putting further pressure on the yen.
Why is the Bank of Japan hesitant to intervene in the currency market?
-The Bank of Japan is hesitant to intervene due to the strength of U.S. yields and the potential short-lived impact of any intervention, given the current economic fundamentals and market conditions.
What are the implications of the U.S. election on geopolitical relations?
-The U.S. election could significantly impact geopolitical relations, as a change in leadership might alter the U.S.'s approach to international conflicts, trade, and alliances, affecting global stability and economic policies.
How might the potential listing of Total Energy in New York affect the company?
-Listing in New York could expose Total Energy to a larger pool of investors who may be more receptive to investing in oil and gas companies, potentially leading to a higher valuation compared to its current status as a European-listed company.
What is the current market sentiment towards the potential BHP offer for Anglo American?
-The market anticipates that BHP may need to pay more for Anglo American following the rejection of its initial $39 billion offer, and there is speculation about the future of Anglo American's diamond business, De Beers.
What factors are contributing to the strong earnings season for S&P 500 companies?
-Factors contributing to the strong earnings season include better-than-expected volume and pricing in various sectors, cost-cutting measures, and resilience in the face of economic challenges such as rising interest rates and geopolitical tensions.
What is the potential impact of geopolitical tensions on the global economy?
-Geopolitical tensions can lead to instability in financial markets, disrupt trade, and affect economic growth. High-stakes political discussions and conflicts can influence investor confidence and lead to fluctuations in currency values and commodity prices.
How might the outcome of the Israeli-Hamas conflict affect the Middle East?
-The outcome of the Israeli-Hamas conflict could have significant implications for regional stability in the Middle East. A resolution could lead to a de-escalation of tensions, while a failure to reach a truce might result in further military actions and humanitarian concerns.
Outlines
📉 Yen's Wild Fluctuations and Speculations of Intervention
The discussion opens with the yen's significant drop to its lowest value against the dollar in 34 years, followed by a strong rebound. This has led to widespread speculation that authorities may have intervened in the market. The U.S. Secretary of State, Antony Blinken, is set to increase efforts to broker a truce in Gaza amidst ongoing tensions. Elon Musk's recent visit to China has yielded positive results for Tesla, as the company overcomes obstacles to introduce its driving system in China's substantial auto market. The focus then shifts to the broader economic implications, including a potential bid from BHP and the upcoming Federal Reserve meeting.
🌐 Global Economic Concerns and Central Bank Dilemmas
The conversation delves into the concerns raised by the Japanese Finance Minister to the U.S. Treasury Secretary, Janet Yellen, regarding the yen's decline. It is anticipated that the Federal Reserve's commentary will not be beneficial for the yen, given the Fed's likely stance on maintaining higher interest rates for an extended period. The Bank of Japan's hesitation to intervene in the currency market is discussed, along with the impact of U.S. interest rates on the yen's value. The potential for a rate hike by the Fed instead of a cut is debated, with arguments focusing on inflation expectations and economic indicators.
🛑 Yen Volatility and Central Banks' Strategic Moves
The dialogue explores the volatility of the yen and the potential for market intervention by the Japanese authorities. The unpredictability of today's actions and the impact of Japan's holiday on market liquidity are considered. The discussion also touches on the significance of geopolitical events on commodities, the role of central banks in economic stability, and the structural trends in the stock market that are less tied to the business cycle. The focus then moves to the commodities market, including metals and their supply constraints, and the demand for gold, particularly from China.
🚗 Tesla's Strategic Advancements and Geopolitical Updates
The narrative shifts to Tesla's efforts to introduce its driver assistance system in China, following Elon Musk's unannounced visit. The need for Tesla to collaborate with Chinese companies like Baidu for mapping services is highlighted. The program also provides updates on geopolitical matters, including U.S. Secretary of State Antony Blinken's meetings in the Middle East to secure a truce in Gaza and the preparations by Israeli forces for a potential attack on Rafah.
🤝 High-Stakes Diplomacy and Corporate Earnings Insights
The focus is on the high-stakes political discussions taking place at the World Economic Forum meeting in Riyadh, with emphasis on the U.S.'s role in pushing for a truce in Gaza. The potential implications of the International Court of Justice's involvement in the Israel-Palestine conflict are considered. The conversation also covers the managed decline of the U.S.-China relationship and the impact of the U.S. election on global politics. The program concludes with a look at the busy week for corporate earnings, highlighting strong performances across various sectors.
📈 Corporate Earnings Season and BHP's Strategic Business Moves
The summary highlights the critical earnings period, with markets near record highs and interest rates rising. It discusses the performance of various sectors, including consumer staples, chemicals, and banking, noting that many companies have reported better-than-expected organic growth. The potential business strategies of BHP and Anglo American are explored, including BHP's possible improved proposal for Anglo American and the future of De Beers under either company. The news of Total Energy's CEO considering delisting from France and potentially listing in New York is also mentioned, emphasizing the appeal of the U.S. market for energy companies.
Mindmap
Keywords
💡Yen
💡Intervention
💡U.S. Secretary of State Antony Blinken
💡Tesla
💡Fed Meeting
💡Geopolitics
💡Inflation
💡Earnings Season
💡BHP
💡Copper
💡EV Market
Highlights
The Japanese yen hit its weakest level in 34 years, prompting speculation of possible intervention by authorities.
U.S. Secretary of State Antony Blinken is working to secure a truce in Gaza during Middle East meetings.
Elon Musk's visit to China resulted in Tesla overcoming two major hurdles to introduce its driving system in the world's largest auto market.
The focus on the yen's value fluctuations, with the currency experiencing significant swings, raising questions about market liquidity and intervention.
Discussions on the potential for a Sweden offer from BHP and the upcoming Federal Reserve meeting's impact on the market.
Analysis of the yen's drop since 1990 and the impact of local public holidays on currency liquidity and market swings.
Expert opinions on whether the Japanese central bank's 'no comment' stance indicates potential intervention in the currency market.
The Fed's expected approach towards interest rates and inflation, with implications for the yen's future performance.
The potential impact of the Fed's decisions on Wednesday on bearish bets and the broader currency market.
Annika Gupta's insights on the April meeting with the governor and market expectations of intervention due to the yen's weakness.
Discussion on the difficulty for the Bank of Japan in managing interest rate differentials and the stability of the yen.
The importance of monitoring financial conditions and the Bank of Japan's warnings against rapid depreciation of the yen.
Speculation on the Bank of Japan's tolerance level for yen depreciation and the speed at which it occurs.
The potential influence of the Fed's comments on the yen and the challenge of intervention in the face of strong U.S. yields.
The unpredictability of the yen's value and the difficulty in determining a bottom level for the currency.
The significance of geopolitical events on commodities, particularly oil, and the potential effects on inflation.
The performance of European banks, car manufacturers, and pharmaceuticals in the current earnings season.
Transcripts
Newsmakers and Market movers. This is the pulse with friends who like.
Well, good morning, everyone, and welcome to the Pulse and Francine Lacqua
here in London with the conversations that matter.
And here's what's coming up on today's program.
Well, Ian punches through 160 per dollar to its weakest in 34 years before
rebounding strongly and raising speculation that authorities may have
intervened. The U.S.
Secretary of State, Antony Blinken, will step up efforts today to secure a truce
in Gaza. During meetings in the Middle East, as
Israel, Israeli forces continue to prepare for a possible attack on Russia
and Elon Musk's quick visit to China is paying immediate dividends, with Tesla
clearing two key hurdles to introduce its driving system to the world's
biggest auto market. Now, good morning, everyone.
A lot going on. Certainly a lot of the focus, of course,
is on the yen. But overall, the bigger picture is that
we have a possible Sweden offered from BHP.
There is the Fed of course on Wednesday. So a lot also.
Of course on data analysis and some of the things that we need to keep an eye
on. But it is really all about the yen.
The gyrating after a drop to the weakest since 1990.
Again, I guess the focus is, of course, as Japan takes the day off.
The currency came roaring back late in the Asian Day to reverse an earlier
collapse that sent it past $160 to breach yet another psychological
milestone. I would just keep in mind that the local
public holidays or liquidity probably also acted to amplify some of the swings
in the currency. So for more on all of this, let's get
straight to Anika Gupta, director of macroeconomic research at WisdomTree.
And with me here in the studio, Justine Allee of Bloomberg.
So thank you both for joining us. It just gives you a headache just
looking at yen and kind of what it's doing.
Yeah. Have we seen intervention?
Yeah, I think that's really is the big question here because I mean, I feel bad
for Japanese traders because it's actually a holiday there today.
And what that usually means for markets is of course, that liquidity is thinner
to begin with. And so there are some voices in the
markets saying that it could just be a result of that exacerbating maybe, you
know, kind of some short covering or things like that.
But at the same time, I mean, it is a big question because we know that the
Japanese central bank is watching the yen.
And when a top currency official there got asked about this question, I mean,
he said, you know, no comment for now, which is sort of the most frustrating
question. And I think, you know, anyhow, it would
be a big dilemma for the central bank, given that you don't want the yen to
weaken too much. But when it's the result of
fundamentals, it's very hard to just solve with like, you know, one move or
two. Yes, I think I mean, you know, the other
feeling is that actually this could be bearish bets that have been put in place
also ahead of the Fed on Wednesday. How do you look at this huge yen move?
Yeah, absolutely. A very good morning to you.
You know, we at the April meeting with governor, we the markets were really
looking forward to any sign of intervention.
And it was surprising that he actually mentioned
that the yen the weakness of the yen isn't really having an impact on
inflation. The markets perceive that is extremely
surprising because we were expecting to see some intervention given the yen
moving into free fall, especially this morning.
I think any attempt of ethics and venting intervention is going to be
quite futile given the fact we have the Fed meeting.
U.S. youths are going higher.
We're seeing interest rate differentials widen even more versus the yen.
And I think it's going to be hard for the Bank of Japan to keep a lid on
yields for JGBs alongside keeping the yen stable.
Thank you. Just, you know, the Bank of Japan last
week indicated, of course, that these financial conditions also will remain
easy. Policy policymakers have also repeatedly
warned that depreciation will not be tolerated if it goes too far, too fast.
Are they targeting a level or is it really how quickly you know it falls?
Yeah, I think one thing that they did point out is they are kind of looking at
whether it's excessive weakening and whether it's kind of happening too
quickly, too fast. And that's potentially something that
they saw happen today. And I think if you look at a lot of
fundamental currency measures, right, you know, all the metrics that
economists look at to compare currency movements with fundamentals, it is
indeed the case that in terms of fundamentals, the yen does seem to have
kind of weakened excessively. But of course, if you look at where
yields are going, I mean, with the Fed meeting coming up this week and then
potentially having to address U.S. inflation, so being stronger than
expected, then it's kind of hard to see why this kind of trend of yen weakening
can be easily reversed. And when you look at, you know, some of
the pictures that are kind of engrained in our memory, it was only earlier this
month that the finance minister of Japan flagged these concerns over the, you
know, the yen's decline to the US Treasury Secretary, Janet Yellen.
What are you expecting from the Fed this week and will that be unhelpful for the
yen further? I very much seen the comments coming in
from the Fed on Wednesday are going to be very unhelpful for the yen.
I think the Fed, you know, given comments over the past week, he has been
reiterating that they haven't, you know, got enough confidence that inflation has
come down comfortably towards the 2% mark.
And I think that's going to give them good enough reason to keep rates higher
for longer. And that's you know, that's why I think
the Bank of Japan has hesitated so much before actually intervening, because
they know that any attempt to actually intervene is going to be very short
lived. And given the strength of US yields that
we are beginning to see, that's going to put further pressure on the yen over as
we as the week plays out. Yeah.
And just you know, this is a concern, right?
Is and actually intervention alone cannot really alter the the wide gulf in
interest rates that's in part driving this.
Right. Exactly.
And it's not just Japan. I think we see some of that, you know,
concern, for instance, like in China, too, where I mean, the green has
stabilized a bit. But I think the worry everywhere is
that, you know, you don't want your currency to weaken too much because
that, I mean, logically is supposed to have some effects on domestic inflation.
But at the same time, I mean, you know, that's kind of where the the different
trends in economic growth is pointing to just, you know, what are you expecting
again, from the Fed? And we heard from Janet Yellen.
I think she was also flanked by the finance minister of Korea in kind of
saying, look, intervention won't really be frowned upon.
Yeah, I mean, I think it's sort of a big question now with kind of the US sort of
having very different trends from every well, where else.
And I think this week people are really looking to kind of how the Fed is going
to address the inflation numbers that we have gotten kind of over the past couple
of months. We're not getting an update on the dot
plot this week, but then it's going to be a really big question here, because
the last time we looked at that, it does seem like the Fed on the margin was so
kind of expecting maybe two rate cuts this year.
Now, even traders are not really expecting to rate cuts this year any
more. And so based on everything we've heard
from Fed officials so far, they're really kind of pushing back on kind of
those cuts as well. And it I mean, I guess the question and
I know there's one, you know, for the moment, one lonely voice saying that the
next move could be up for the Fed. But is there a chance that we see a hike
instead of a cut? I don't think so, Francine.
You know, I don't think a lot has changed fundamentally from that
disinflation narrative. You know, there are a number of reasons
to downplay that acceleration that we've seen in core BCE.
You know, there have been a number of one off factors being the Jan effect.
There's also still very, very strong reasons to expect slowdown in rent
owners, equivalent rent as well. You know, we've been looking at this and
we've been noting it many times if the official numbers continue to lag behind
reality. I also believe the rebalancing in the
labour market is still underway. You know, we've we've already seen a
continued downtrend in job openings in quits.
We've also seen a downturn in wage measures and inflation expectations
remaining. And, you know, that should keep
inflation expectations remaining anchored with a return to a 2% inflation
level. So I do believe, you know, we have
plenty of data coming in between now and the next meeting.
I don't you know, I think July seems a bit unlikely, but we still there is
still a possibility, even though the markets are pricing in next to no rate
cuts until November. I think the September meeting is still
open. Okay.
And again, Justin, I will stay with us. Let's also go to then round from
Bloomberg's I.M.F. team for more on the yen's volatility.
And when we were having a great discussion, actually, you know how the
Fed would view this this yen volatility. But first of all, just on yen levels, is
it impossible to call it bottom? Is it like catching a falling knife?
No, I would think that we are closer to a bottom, Francine, because, you know,
the kind of sharp moves that we have seen in the end, whether it's
intervention or whether it's just market driven jitters, it kind of shows that
the markets are kind of thinking like, look, the dollar yen cross has gotten
too toppy for comfort and there are jitters that the authorities will come
in at these levels. And as long as those jitters prevail, I
don't see the dollar and pushing above one 6017, which was the top that we saw
earlier this morning. You know, we we have seen as
a very wide second range in the dollar yen crossed this morning and that is
extremely unusual. And we have seen it only a handful of
times, in fact, in since since the pandemic.
So these are not normal times. And that shows the heightened jitters
that we see in the markets and that will put a floor on the yen going forward.
How do you see intervention then? Well, I mean, it's, you know, masato
control. The top Japanese official was asked
about intervention. He refused to comment.
But look, I mean, it's hard to tell from just today's action whether they were.
They have been in the markets. I mean, for one, Japan is closed today.
So it could just be algo driven moves and there's already thin volatility.
So there's a lot going on in that market.
So it's just hard to call whether or not they have been in the markets.
But, you know, we will get to know from them on figures later by the end of the
month whether they've been in the markets and if they have been.
And I think it's about time because, you know, the dollar and it's trading like a
frontier market currency with these kind of sharp moves in today.
It's very, very uncharacteristic of a G10 currency and it's about time the the
officials intervened in the markets to restore some order.
Van. Thanks so much.
Van Ram there from Bloomberg's live team now.
We'll get back, of course, to macroeconomics and talk a little bit
more about some central banks move back to corporates.
And Philip shares soaring in Amsterdam after the company set aside $1.1 billion
to help settle U.S. claims linked to a recall of sleep apnea
medical devices much lower than what analysts had actually expected.
We can see Philips shares have an incredible move in today's trading
session, getting some 34 or actually 35%.
Coming up, traders look to Wednesday's Fed decision and Jay Powell comments for
any clues on rate cuts. We take a closer look next.
And this is Bloomberg.
Now let's return to our discussion with Annika Gupta, director of Macroeconomics
research at WisdomTree and Bloomberg's Justin Hartley.
So thank you both for sticking around. Annika, there's a lot going on, of
course, with commodities and geopolitics.
We understand that Anthony Blinken is in the Middle East to try and get a truce.
We haven't really seen it play out that much on oil.
What's your take on on the price of oil and what that means also for inflation
going forward? Well, we're seeing some easing of
geopolitical risks after it, you know, reached an all time peak the week before
last. However, if you look at the physically
in the physical market, we are seeing signs of tightening.
That's quite evident with the prompt time spreads.
And that's just showing that, you know, the strength in the spreads is very
aligned with our oil balance, which continues to show a deep deficit over
the second quarter of the year. And that should, you know, help provide
further the tailwinds for oil prices as we move into the second half of the
year. I mean, there are so many just, you
know, unknowns, not only the price of oil, but there is gold.
I mean, we look at these macro events and and kind of try and make sense of
the market moves afterwards. Yeah.
I mean, gold is kind of interesting because, I mean, so I mean, we are kind
of seeing a bit of a retreat right now because of kind of rate cut,
expectations being pushed back. But of course, all year long we've seen
this rally despite that. And part of that has to do with a lot
of, you know, maybe not macro reasons, maybe about kind of like central banks
accumulating purchases. But, you know, I think you make a great
point, which is that on one hand, we are very concerned about the macro economy,
but on the other hand, in the stock market, for instance, a lot of people
are looking at more structural trends that in a way are sort of like
untethered from the business cycle as more about, you know, are we all going
to be investing in AI and in cloud services regardless of where the economy
goes? And again, you also look at some of you
know, you look at gold in detail. And I know there's speculation that
there could have been a big buyer or maybe a central bank or that nothing of
this is confirmed. But if you look at silver, copper, also
at 10,000, when you look at the commodities complex going forward, is
that really a demand concern or is it just that we don't have enough supply?
Well, on the metals front, Francine, we are seeing signs of, you know, less
supply coming into the market. We have seen a number of mining projects
being mothballed, be it in Australia, being in parts of Chile.
You know, we have seen signs in China of smelters, the amount that that the mine
is actually being paid dropping to a trickle.
So even, you know, prior to the run up of metal prices, we were seeing the
market physically tightening. I think on the precious metals side, you
know, I think what will wear the most of the strength has been coming from has
been gold, silver, palladium, platinum have really been playing catch up to
gold prices. And in the case of demand for gold,
clearly there's been a lot of strength coming in from the, you know, the
speculative market on the futures market.
But we're also seeing strength on the physical market from central banks.
And surprisingly, China in particular, not only is the PBOC see, you know,
ramping up its purchases of gold, but we're also seeing retail investors, you
know, they're moving away from property markets, but looking at gold as a better
sign of, you know, sort of strength and more of a safe haven asset in these
times of uncertainty, whether in China. Thank you.
Annika, when you look at some of the earnings, just know.
I mean, I know we saw, for example, some of the banks, for example, helping Italy
and Spain overall have a better earnings season.
But it's unclear if you're a winner. You've done okay.
But there's also a lot of cost cutting there.
Right. Exactly.
And I think what we're seeing in markets is that there has been some really
strong positive reactions to really great bets.
You know, as we saw in Microsoft and Alphabet's case last week.
But the same time, there also have been some really strong negative reactions.
And I think that speaks to the fact that in the US the market has already run up
a lot. And so to kind of really surprise
markets, I mean, the bar is pretty high out there, but overall it's actually
still been a pretty solid earnings season.
I mean, in the US, about 45% of S&P 500 stocks have reported and 80% have beat
so far. And so it's pretty incredible that at
this point in the cycle, we're still seeing those numbers.
And at the same time, if you kind of look at what corporate executives are
saying, I mean, their comments are not that negative just yet.
Yeah. So interesting.
Thank you so much, Justine, Anika and Gupta there from WisdomTree and
Bloomberg's Justine Elite. Now coming up, Elon Musk's makes a
surprise trip to China to see driver assistance software.
But is that enough to help Tesla's revenue?
We'll have plenty more on that story next.
And this is Bloomberg.
It's good to see electric vehicles making progress.
Live images there from Riyadh where the U.S.
secretary of state, Antony Blinken, is currently meeting with the Saudi foreign
minister on the sidelines of the World Economic Forum summit.
Now, Blinken is in Saudi Arabia, where he's expected to step up efforts to
secure a truce in Gaza in what could be a final chance to persuade Israel to
call off an attack on Rafah. Now, Elon Musk's unannounced trip to
China seems to have paid off, with Tesla clearing two key hurdles to introduce
its driver assistance system in the world's biggest EV market.
Now let's get more on the story with Bloomberg's global global autos editor,
Craig Trudeau. Craig, I mean, this is an amazing story.
I know you haven't had a free weekend because the US just kind of does things
when he wants to and doesn't announce it in advance.
But what was the reason for him going to China all of a sudden?
He he needed this. I mean, he needs a revenue boost.
And I think, you know, Tesla's weak first quarter sales really caught
everybody off guard. I think there was some concern about a
real growth slowdown given Tesla's own forecast.
But this wasn't just a growth slowdown. This was a contraction.
Right. And so so revenue was in decline and
sales dropped despite the fact that this company has been cutting prices left and
right for more than a year now. So this driving assistance system is a
way for them to get incremental revenue out of each car they sell.
And it's something that they've been offering in the U.S.
for some time but have not been able to put to market elsewhere in the world.
So this is a sales pitch. He shows up to China.
So we know that he met with the premier, but who does he show the software to?
And is it has he had the stamp of approval or is he waiting for it?
The stamp of approval is still not a sure thing.
It certainly seems, as we mention off the top, that there's serious progress
toward them getting the okay. But this is something that's been in the
works for a while. Actually going back to when Musk last
visited China, this was something that was on the agenda that he was looking
for. And it's it is sort of the way that the
industry is competing now in the sense that, you know, if you can automate
certain driving functions, make cars safer, you really can sort of, you know,
have a leg up over the competition. But China is kind of viewing that as the
new frontier beyond just, you know, trying to electrify the industry.
They also want to automate more to more of the driving that's that's on the
road. And, you know, in order to do that in
China, you're going to need to work with China.
So in this case, Tesla needed to do a deal with Baidu for mapping and some of
the services that they provide to support these sorts of systems is that
it's not strange. It's something that we need to look into
a little bit deeper. Is it surprising?
What surprises me is not necessarily that they had to do this because this is
very sort of par for the course in China.
When the EV market was in its infancy, if you wanted to sell EVs, you had to
procure batteries from Chinese suppliers.
What surprises me is that Musk in the past has talked about the idea that
mapping systems to support these sorts of driver assistance features is not the
way to do it, that it renders them brittle.
If you have to rely on maps, your cars are not going to be able to handle, you
know, what, what comes. And so it is a little bit surprising
that his his line that, you know, Teslas don't meet need mapping kind of goes out
the window when China says no you have to to do this wonderful analysis.
Craig, thank you so much. Craig Trudeau There are auto czar coming
up, but we're live in Saudi Arabia for the World Economic forum.
This is Bloomberg.
Well, the yen swings after earlier falling to its weakest level in 34
years, raising speculation that authorities may have intervened.
U.S. Secretary of State Antony Blinken will
step up efforts today to secure a truce in Gaza during meetings in the Middle
East. Israeli forces continue to prepare for a
possible attack on Rafah. And Elon Musk's visit to China is paying
immediate dividends, with Tesla clearing two key hurdles to introduce its driving
system to the world's biggest auto market.
Well, good morning, everyone, and welcome to the Pulse on Francine Lacqua
here in London. So the US Secretary of State, Antony
Blinken, is meeting with Saudi Arabia's foreign minister in Riyadh ahead of
Gaza. Truce talks as Israeli forces continue
to prepare for a potential Rafah attack. Well, let's get more from our Middle
East anchor, Jamal Roberts, who's at Saudi's first World Economic Forum
meeting, where geopolitics is, of course, in the Middle East dominating
the agenda. Great to have you on the air and welcome
to Bloomberg. So what's the mood at this West special
meeting in Riyadh given the conflict in the region?
Good to see you, friend. And good morning from Riyadh.
Well, as you said, the US secretary of State, Antony Blinken, landed here just
a couple of hours ago as we speak. He is having a bilateral conversation
with the Saudi foreign minister, Prince Feisal.
He's also expected to have conversations with other leaders here.
We've got the Jordanian prime minister, Egyptian prime minister.
Other representatives, too. Also notable, the leader of the
Palestinian Authority, Mahmoud Abbas, is also here at the sidelines of West.
And crucially, the backdrop to this is the future of Gaza.
Discussions are taking place to find a truce between Israel and Hamas leaders
and agreements on the exchange of hostages.
Of course, details to be worked out. And then very important from the
Palestinian perspective, for the US to exercise some sort of influence or
control in Israel so that they don't go ahead for this widely anticipated
offense attack on Arafat. So a lot of issues at stake here.
But I would say from seeing a geopolitics have been dominating the
World Economic Forum summits. I know you've been to many of them
yourself. And typically you talk about growth,
energy, transition. Today, it is all about the geopolitics.
And I had the chance to moderate the panel with the managing director of the
IMF, Kristalina Georgieva, yesterday alongside the Saudi finance minister,
Mr. His Excellency Emma Chandra Zidan.
And he said that the biggest risk to the region right now is geopolitics.
It is very, very unfortunate to see loss of lives, whatever that is.
Civilian lives are important, whether it is in Ukraine or in Palestine or
elsewhere. You need to make sure that you actually
de-escalate and do everything we can in Saudi Arabia.
I can tell you for the last several years, we made it a very clear strategic
objective that we de-escalate in the region.
The region needs stability. I think the messaging is quite clear
from the Saudi perspective now, and I would think that those are the types of
discussions that are taking place between the foreign Minister and
Secretary of State Antony Blinken, and that they want a de-escalation,
de-escalate, de-escalate, to escalate. That has been the messaging from the
Saudis. But of course, alongside other Arab
states here, they want to see an end to this war.
They want to work out the details and talk about the future of Gaza.
So lots of high stakes political discussions happening here, Francine,
alongside some of the key economic issues at play as well.
I want to thank so much of Bloomberg's Middle East anchor there, jomana
Versace. Now we'll have lots more from we had
this morning, including an interview with Saudi Arabia's minister for economy
and planning. So stay with us for that.
Now let's get more on Blinken's trip to Saudi Arabia with us and Mathison,
Bloomberg's news director and Lindsay Neumann, practice head of global macro
geopolitics at Eurasia Group. Thank you both for joining us.
Let me start off with you. The U.S.
is pushing for, you know, this truce in Gaza.
They're also pushing for the release, of course, of hostages as Anthony Blinken
is in in the Middle East. Will he do any headway?
Well, this is what his seventh trip to the region in recent months.
And obviously, again, the US and other countries are pushing hard for a
breakthrough in those talks for a ceasefire.
And that's important because without a ceasefire, without an agreement to have
these hostages exchanged, the Palestinian prisoners and a truce in the
fighting, that Israel's made clear it still intends to go into Rafah with a
ceasefire, of course, that the Rafah offensive gets pushed off indefinitely,
if not permanently. So that's the imperative to get this
done once and for all. We do know that there are, again, talks
going on. There are small signs of progress in
that. But the problem that the Qataris who are
helping mediate say again, there's not any goodwill on either side, so they
both need to meet each other somewhere in the middle.
But no one really wants to sort of make the most ground to get there.
And so you've still got fundamental differences that have to be dealt with.
Some of it is just around, again, the status of the hostages, where they are,
who they are, how can they find them, even that kind of basic information and
the requirement for how long would that ceasefire go for?
Where do Israeli troops go during all of that?
So there's still big questions around it, but certainly a sense of time
pressure involved when it comes to the the talks that are going on and the
involvement of the US. Lindsey, are you optimistic about
something meaningful happening this week?
Thanks, Francine. Of course.
Until just this weekend, optimism had really receded.
It was high during February and March. We have got President Biden saying that
he expected a ceasefire imminently. That did not happen.
So we've we've seen this storyline before.
And, you know, before this weekend, we were expecting that the signs out of
Israel were that a Rafa offensive was imminent.
So we have to be cautious. But there are indicators that Israel has
potentially softened its. You changed his view on some of the key
points that Hamas have been asking for, including around the ability of
Palestinians to return to the north, around the number of hostages that would
need to be exchanged for a cease fire. And very importantly, if true, around
the duration of any cease fire. There's been reporting that it could be
perhaps more persistent than all prior proposals had allowed for, which of
course, is a key sticking point for Hamas.
So very cautious. It's too it's very too, too soon to
tell. But Israeli officials have said that
should a ceasefire be reached, they would at least temporarily abstain from
that rough invasion. The signals are mixed, though.
Lindsay what's your baseline view actually on a possible Rafale offensive?
Our view had continued to be of a quite significant 55% likelihood of a regional
security crisis where the conflict continues to be contained in and around
the Gaza Theatre and around the Rafah offensive.
At the moment we've seen over this weekend again further trading of
activity in the northern border. That could be a pressure point.
That's playing at playing at heart right now for Israel in terms of its decision
and position around the ceasefire arrangement.
But until this weekend, we continue to see
the Rafah offensive as imminent. It seems as though it is still likely,
but it could be delayed. And Roz, I mean, we talked or we heard
this weekend about, you know, the possible warrants from the International
Court of Justice. I mean, does that change the viewpoint
or the standing of what the prime minister of Israel is thinking?
Well, it's interesting because, of course, we have the separate ICJ issue,
which is South Africa accusing Israel of genocide.
The ICC is the court that can actually have the ability to get leaders arrested
in the most famous arrest warrant in recent years is Vladimir Putin for his
war in Ukraine. So if this does happen, it's a big if,
because we don't know exactly where those investigations are or how fast
they're proceeding. There's no imminent sign that they're
going to issue arrest warrants or charges for anyone, Hamas or Israel, for
the war in Gaza. But if they do, especially if it's
Benjamin Netanyahu, that's a hugely symbolic moment and a big blow for
Israel, again, shows that hardening of the global view around this conflict.
And so if it does happen, it's a big deal.
And Israel, of course, will view it as a as a fundamental attack on Israel.
So, again, you just getting that bifurcation that that would show around
the world and Russia is there this Russian Iran military alliance and how
concerned should that be for Israel? Well, we've we've seen signs of that in
various ways, is obviously seeing Iran supporting Russia militarily with its
war in Ukraine, sending a lot of equipment to Russia to use, including
drones and so on. And we've seen a long standing
relationship between Russia and Iran. And that's been a real concern not just
for Israel but for the US and others. How solid is that relationship?
How tangible is that? And does it also involve China at some
point? Because that's the real concern.
Russia, Iran, China supplying each other in different ways with weapons, doing
economic activity with each other, trading with each other, using energy
potentially in that as as a weapon. And so you've got that concern that
they're working more and more closely together.
Beyond Israel, it's a real concern for the US.
Lindsay China seems very critical and crucial in all of this, where of course
in the US election year. I want to ask, you know, your thoughts
on that. But we're seeing a lot of China bashing
from the US. Antony Blinken also asking questions
What role does China play in the stabilization?
Yeah, of course. We had a Blinken's visit just over the
weekend to China, the first visit in ten months, and it followed on from an
earlier virtual call between President Biden and presidency.
The expectations were not particularly high around that visit, and those
expectations were met. As you say, we have to contextualize
this within the broader recent engagements.
This is a relationship that is in a managed decline.
Both sides are looking to focus domestically in 2020 for the US because
of the election. China, because of various factors
include including its its economic outlook and its growth forecasts.
But this is a relationship that is in a managed decline and we're going to
continue to see both sides sort of testing those boundaries.
We do know that over the weekend that Blinken did raise around Middle East
security with his Chinese counterpart. And of course, the US is very clearly
hoping not to see the conflict in Israel, conflict in the Middle East
escalate further. And also we know that it has been
putting pressure on China vis a vis its relationship with Russia.
Treasury Secretary Yellen said recently that all options remain on the table,
but no action is imminent. How does the U.S.
election actually play in the mind of these world leaders?
So how different would it be if Donald Trump were in the White House come
November or come January? Well, there's no doubt that the November
election is one of the key risks to watch for the year ahead is, as you as
Du Monde said at the start, the Saudi finance minister said geopolitics is
perhaps the biggest risk facing the global economy, and that's on
everybody's mind. And the U.S.
is. The U.S.
election in November is is at the heart of that, really.
We've done quite a bit of thinking about what a Biden one point to one point to
point versus a Trump to point out would look like there's a great deal anxiety
about another change in U.S. leadership in the fall and then
increasingly, especially around a change in leadership that involves a Trump 2.0.
There's variations in policy depending on the topic that you're talking about.
In China, you know, we're going to continue to see those tech restrictions,
export controls under either administration.
But we would. But President Trump excuse me, candidate
Trump is discussing the possibility of a 60% tariff on China.
We think that is just rhetoric, but we expect that a Trump 2.0 would look
pretty much across the board to pursue transactional relationships with China
and elsewhere. We've already seen this in the security
space with rhetoric around what could be the U.S.
European relationship in the narrow alliance.
And Ross at the same time. So we're expecting in 20 minutes
probably a press conference from Spanish prime minister to see whether he'd
resign or that he said, I think last Thursday that he was thinking about
resigning. And then there's also a lot of rumours
about the Scottish first minister quitting today.
Well, that's right. We're watching a bunch of leaders today
for potential news. I mean, Pedro Sanchez, as you say, he
said some days ago he was thinking about resigning.
We're all waiting. He said five days.
I'll let you know. We're going to hear that shortly.
And if he does step down, this is because of news of an investigation into
his wife's business affairs. If he does step down, that, of course,
causes chaos in Spanish politics, although arguably it's been chaotic for
a while. There's no clear path then for what
would happen in terms of a successor. Does that trigger an election?
There's so many parties involved. Getting everyone to coalesce around a
replacement is very difficult. If he does stay on, he does need to do
something then to really assert his hold on power.
So is that a confidence vote? Does he survive that?
Does he need to again call an election? Perhaps he'll call an election from the
end of May onwards. But either way, we're headed for a
pretty chaotic period in Spanish politics.
Yeah. And then we're also, of course, watching
who would replace the Scottish first minister if indeed he steps down.
As always, thank you so much, both of you, for joining us.
Bloomberg's Roslyn Matheson and Lindsay Neumann from the Eurasia Group.
Now, coming up, it's a busy week also for earnings.
We'll discuss some of the key drivers behind these results.
That's next. And this is Bloomberg.
So it's been a busy week or it's a busy week for earnings.
Last week was very, very busy. But this week we have European banks,
car manufacturers and pharmaceuticals all reporting.
So. For more on this, let's bring in Tim
Craighead. He's director of research for Bloomberg
Intelligence. Tim, there is so much going on.
And actually, if you look at a breakdown, if you look at the various
sectors, it feels like the ones that are particularly strong have been doing very
well indeed. Yeah, I mean, there's no doubt and I
have to say this has been a particularly critical earnings period from our
perspective. If you think about it, markets are at
near record highs. Interest rates have been rising.
We've had two earnings results period behind us that were predominantly
disappointments. And what we've seen so far this time
with about 40% of the market having reported, is almost 50% or beating about
35% are missing bets. That's exactly the opposite of what
we've seen the last couple of periods. And about two thirds of companies are
reporting better organic growth than what was expected.
So it's a good turn. And is this on a strong economy or is it
internally? They've actually done things such as
cost cutting to be more nimble? Yeah, I think there are a number of
important drivers behind this. One is volume and pricing.
Look at consumer staples companies like Danone or Unilever, chemical companies
like BASF. Order backlogs for industrial companies
have been better and B Schneider Electric.
And those are those are notable. Banks are critical where there is a lot
of expectation about net interest margins having peaked.
They are down year on year but about 300 basis points better than what was
feared. So it's across the board.
I mean, is it surprising that a lot of these sectors have performed as they
have given the interest rate environment?
Yeah, there's no doubt. I think if you look back from last year
into this year, huge rise in interest rates.
We had a second war. We have China-U.S.
trade issues, we've got the China property
meltdown. All of that's negative.
But what we've seen across the board is more resiliency across the economy, us,
Europe than what was anticipated. And that's starting to play through.
You know, we have seen six months of negative earnings revisions in Europe,
and that's now starting to turn. If you look at forward estimates, you
know, we think that's pretty important as we look into the second half of the
year. Tim, thank you so much.
Tim Craighead there with the very latest on some of these earnings.
And also, Bloomberg understands that BHP is considering making an improved
proposal for Anglo American out for its $39 billion initial offer was rejected.
Now this comes as Anglo shareholder Elliott increases its stake in the
mining group. So let's get more on this with Will
Kennedy, Bloomberg senior executive editor for energy and Commodities.
There's so much going on, copper at 10,000 and actually they'll just they
may have to pay more if they really want this asset.
I think most people expect that they will have to pay more, that it was an
opening gambit. Obviously, Angela came back and said the
bid seriously undervalued the company. So I think that's the expectation in the
market. It may take time for BHP to decide what
it wants to do next. I don't think we need necessarily
respect and expect anything in the next couple of days, but there is this
deadline of May 22nd where BHP has to make a formal offer or walk away.
So all eyes on that. And then on the Anglo side, they too
will be needing to think about how they explain to shareholders why they should
reject BHP advanced advances and what the future shape of Anglo American
should be. What happens to De Beers?
So this is, you know, I guess a high end luxury.
So does it even fit in Anglo American there.
That's welcome that that's one asset where one part where I think the future
is uncertain in both scenarios. If BHP were to win Anglo American, it
said that it would put the diamond business up for strategic review that I
think they would stress that wouldn't necessarily mean a firesale, but it
doesn't automatically fit into the reasons why they're doing this deal,
which is principally copper. Then the Anglo side, I think there's
been a. An idea among some shareholders and some
people in the company that this isn't the perfect fit for a big mining
company. It has a very different profile, as you
say. But diamond prices have been weak and
it's not clear, you know, how strong the market would be for the business.
But I think, yes, under any scenario, it's something that people will be
asking questions about. Well, there's a Bloomberg scoop that's
really doing the rounds of all the media, especially in France, because
your team had an interview with Patrick Pouyanne, the chief executive of Total
Energy, and he said actually he's looking at possibly delisting from
France and looking at New York. I mean, he's still doing homework, but
that was pretty punchy. It's quite a surprising thing to hear
from a French CEO. I think that he would contemplate going
to New York, obviously, and I should say that it was having a blast.
He first reported the story, to be fair to have here.
So it was his scoop. But it's very interesting right now
because we heard similar noises from Shell a couple of weeks ago.
And I think there's no doubt for those people running energy companies in
Europe, they see some limitations in being listed in Europe, principally
because there is a smaller pool of investors who are willing to invest in
oil and gas. Those ESG qualms are much fewer in the
states. So US oil companies Exxon and Chevron
are getting much higher valuations from Shell and Total.
And I think for Patrick and while so it shell the question is how do you close
that gap. If you're if you're if you stay in
Europe now, will they actually do it? There are many reasons for total to be
in France. It is in its very essence, the French
company, we should point out, there's no suggestion that headquarters is going to
leave Paris. But still, it's fascinating that it is.
I'm sure he'll get a call from the president.
I don't know if you will, but I'm pretty sure I could bet my house on that.
Will Kennedy will also join me on a podcast on this very subject.
Coming up, we go back to talking Yemen effects.
This is Bloomberg and.
Well, sharp swings in the yen have spurred speculation that authorities may
have intervened. Let's bring in Paul Dobson, Bloomberg's
executive editor for Asia Markets. Paul, was it intervention?
Would we even know? Aha.
Yeah. Two good questions.
It's not entirely clear. The Finance ministry in Japan is
certainly staying schtum on the matter. For now at least, there are some people
in the market who say that the moves bear all the hallmarks of an
intervention pointing to the size of the move, the pace of the move as well, and
saying that the timing would be appropriate given that there was limited
liquidity because it's a holiday in Japan today, therefore there would be
the possibility of moving the market much further.
Getting more bang for your buck, so to speak.
But some of the traders that we've spoken to in the market aren't
completely convinced that it was Japanese intervention.
They say more likely Algo is doing their trading things and pushing the market
through some key barriers on the on the upside for dollar yen through 160 and
then all the way down through that 155 level on the flip side.
So the jury is out. What we do know is that we can do some
sort of forensic accounting over the next few days to try to figure out
whether that shows up in the Japanese accounts, whether there's a jump there
that would point to the idea that intervention was done.
And then eventually, in a month or two time, we will get proper numbers that
will give us more of a determination on whether that was or wasn't.
But nonetheless, I think that the feedback or the fallout for markets is
certainly a chance to lick the wounds after some pretty wild swings in the
market today. Thank you so much.
We love a bit of forensic analysis here on Bloomberg.
Paul Dobson, Bloomberg's executive editor for Asia markets up next to
Bloomberg brief with daniel manus. This is Bloomberg.
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