Bloomberg Daybreak: Europe 04/12/2024

Summary

The 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

• 🌐 The U.S. stock market is seeing a rebound, with Apple revealing plans for a new in-house AI-powered chip.
• 💹 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.
• 🏦 Wall Street bank earnings are in focus, with JPMorgan, Citigroup, and Wells Fargo all set to report.
• 📈 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.
• 🛣️ 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.
• 💼 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.
• 🚗 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.
• 📉 The UK GDP figures are anticipated to show a flat reading, but any growth is seen as a positive sign after the recent recession.
• 🔍 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.
• 🤝 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

00:00

🌞 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.

05:01

🏦 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.

10:06

💡 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.

15:06

🌏 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.

20:11

🛣️ 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.

25:13

📈 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.

Keywords

💡Daybreak Europe

Daybreak Europe is a Bloomberg Television program that provides comprehensive morning news and analysis on European markets, business, and finance. The program is hosted by Kriti Gupta, who guides viewers through the top stories and financial developments shaping the European business landscape. The video script indicates that the program covers a range of topics including market trends, corporate earnings, monetary policy, and geopolitical developments.

💡AI powered chip

An AI powered chip refers to a semiconductor designed specifically to process and handle artificial intelligence tasks such as machine learning, neural networks, and deep learning algorithms. These chips are optimized for the high computational demands of AI applications, offering faster processing speeds and improved efficiency compared to general-purpose chips.

💡Monetary policy

Monetary policy refers to the strategies employed by a central bank to influence a country's economic activity, particularly with regards to controlling inflation and stabilizing currency value. This involves setting interest rates, managing the money supply, and using other tools to achieve macroeconomic objectives.

💡Wall Street banks

Wall Street banks are major financial institutions based in the Wall Street area of New York City, which is synonymous with the financial markets of the United States. These banks play a significant role in global finance, offering a range of services including investment management, securities trading, and corporate finance.

💡Geopolitical developments

Geopolitical developments refer to changes in the political relationships and structures between countries, which can have significant implications for global security, trade, and economic stability. These developments often involve issues such as territorial disputes, international alliances, and diplomatic relations.

💡Corporate earnings

Corporate earnings refer to the profits that a company generates over a specific period, typically reported on a quarterly basis. These earnings are a critical indicator of a company's financial health and performance, and they influence stock prices, investor confidence, and market trends.

💡Bond market

The bond market is a global financial market where participants buy and sell debt securities, or bonds, issued by governments, corporations, and other entities. Bonds are essentially loans made by investors to the bond issuer in exchange for fixed interest payments and the return of principal at the bond's maturity date.

💡Stock market rebound

A stock market rebound refers to a situation where stock prices recover from a period of decline or bearish trend, moving higher in a relatively short period. This rebound can be driven by various factors, including positive economic data, corporate earnings reports, changes in monetary policy, or shifts in investor sentiment.

💡Yield

In finance, yield refers to the return on an investment, typically measured as a percentage of the investment's cost. For bonds, yield is the interest income received in relation to the bond's current market price. For stocks, it can refer to dividends or the company's earnings growth.

💡Asian markets

Asian markets refer to the financial markets in Asia, which include stock exchanges, currency markets, and investment sectors in countries across the continent. These markets are significant players in the global economy and can influence worldwide financial trends and investor behavior.

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 €2 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.